Morality can pertain to states-of-affairs (states of affairs can be moral or immoral, or one can be more moral than another), but insofar as we can do anything about it, morality pertains to thoughts and actions.
Consequentialism ranks actions based on how they affect states of affairs. Deontology ranks the actions in themselves, without regard for how they affect states of affairs. That is, it deontology tries to create rules for judging actions. It tries to put actions into classes. It tries, in short, to abstract actions.
This is why deontology fails. Abstractions do not exist, they are mental tools (concepts). It is not possible to come up with perfect abstractions -- the map is not the territory. Exceptions to deontological claims can always be found, or examples of where deontological moral rules conflict.
Consequentialism does not have these problems.
Monday 25 February 2019
Rawls
Rawls' "original position"/"veil of ignorance" doesn't work.
The idea is that, since you don't know before you are born what your position in a society will be, you should want an equal society, to make the worse-case scenario as palatable as possible.
There are various problems with this. One is that "maximin" is not necessarily the correct strategy. You might be willing to risk poverty if you improve your expected outcome. Another is that you are not in fact behind a veil of ignorance, you do know what your position in society is. It's not clear why the idea of a veil of ignorance is supposed to motivate you. Rawls called his idea "a theory of justice" but he does not try to show that equality is just and therefore self-motivating. (Moldbug remarked that Rawls just took the word "justice" and slapped it on his idea, ignoring that "justice" already had a perfectly good meaning: pacta sunt servanda.
The chief problem with Rawls is that his theory is not a dynamic theory; he does not consider time. There is no acknowledgement that changing the level of inequality in a society will have other effects. It is true that in the short run, you can improve the position of the poorest in society by magically redistributing wealth. But this would likely make them and everyone else worse off in the long run, because incentives matter. The historical record is clear that the poorest people under capitalist, somewhat redistributive states, are better off than those in fully-redistributive communist states. Ask somebody behind the veil of ignorance whether they would like to live in a society that had just endured a century of communism, or in a society after a hundred years of technological innovation driven by entrepreneurs motivated by wealth. The answer is obvious. Rawls might as well ask whether you would rather live in 1800 or 2000. Rawls' veil of ignorance does not add anything to traditional arguments about the effects of enforced equality.
But there is another, less well known idea in "A theory of justice". In addition to trying to justify full equality, not just of money but also of other "primary" goods like social status and beauty (good luck redistributing that), Rawls also attempts to justify liberalism.
He argues that people have different "life plans", and if one type of society is selected, most people's life plans will go unfulfilled. However, liberalism supposedly gives everyone the maximum chance to satisfy their life plan.
Firstly, again, just because someone would agree to liberalism before a veil of ignorance, there is no reason for them to continue to go along with it after the veil is lifted. It is difficult to see Stalin being persuaded by this argument.
More crucially, it is not true that liberalism allows all life plans to be satisfied. Life plans conflict all the time. Kaczynski's desire to live in quiet countryside conflicts with someone else's desire to build a motorway. Many life plans rely on living in a society where everyone else shares that life plan -- and not in a liberal democracy!
Only egalitarian individualists could agree to Rawls' arguments. Muslims, the Amish, hunter-gatherers such as Amazon tribesmen or American indians, Mongol horsemen, Aztec priests: all want something different. Ancient Greeks and Romans thought the purpose of the state was to promote glory, not equality or individual life plans. Anyone who values anything above the condition of the poor wants something better.
The idea is that, since you don't know before you are born what your position in a society will be, you should want an equal society, to make the worse-case scenario as palatable as possible.
There are various problems with this. One is that "maximin" is not necessarily the correct strategy. You might be willing to risk poverty if you improve your expected outcome. Another is that you are not in fact behind a veil of ignorance, you do know what your position in society is. It's not clear why the idea of a veil of ignorance is supposed to motivate you. Rawls called his idea "a theory of justice" but he does not try to show that equality is just and therefore self-motivating. (Moldbug remarked that Rawls just took the word "justice" and slapped it on his idea, ignoring that "justice" already had a perfectly good meaning: pacta sunt servanda.
The chief problem with Rawls is that his theory is not a dynamic theory; he does not consider time. There is no acknowledgement that changing the level of inequality in a society will have other effects. It is true that in the short run, you can improve the position of the poorest in society by magically redistributing wealth. But this would likely make them and everyone else worse off in the long run, because incentives matter. The historical record is clear that the poorest people under capitalist, somewhat redistributive states, are better off than those in fully-redistributive communist states. Ask somebody behind the veil of ignorance whether they would like to live in a society that had just endured a century of communism, or in a society after a hundred years of technological innovation driven by entrepreneurs motivated by wealth. The answer is obvious. Rawls might as well ask whether you would rather live in 1800 or 2000. Rawls' veil of ignorance does not add anything to traditional arguments about the effects of enforced equality.
But there is another, less well known idea in "A theory of justice". In addition to trying to justify full equality, not just of money but also of other "primary" goods like social status and beauty (good luck redistributing that), Rawls also attempts to justify liberalism.
He argues that people have different "life plans", and if one type of society is selected, most people's life plans will go unfulfilled. However, liberalism supposedly gives everyone the maximum chance to satisfy their life plan.
Firstly, again, just because someone would agree to liberalism before a veil of ignorance, there is no reason for them to continue to go along with it after the veil is lifted. It is difficult to see Stalin being persuaded by this argument.
More crucially, it is not true that liberalism allows all life plans to be satisfied. Life plans conflict all the time. Kaczynski's desire to live in quiet countryside conflicts with someone else's desire to build a motorway. Many life plans rely on living in a society where everyone else shares that life plan -- and not in a liberal democracy!
Only egalitarian individualists could agree to Rawls' arguments. Muslims, the Amish, hunter-gatherers such as Amazon tribesmen or American indians, Mongol horsemen, Aztec priests: all want something different. Ancient Greeks and Romans thought the purpose of the state was to promote glory, not equality or individual life plans. Anyone who values anything above the condition of the poor wants something better.
Very low probabilities
Humans are bad at dealing with very high and very low probabilities.
- Some are not computable. Bank runs can be set off by sunspots.
- The probability can only be estimated (underestimated!) from historical data.
- Pascal's mugging
- You need exponentially more evidence to get probabilities closer to 1 or 0.
- Probabilities cannot be zero or one, because then you cannot change your mind, as per Bayes' Theorem
Taleb on investment strategies and time horizons
Taleb points out that investment strategies can appear to work for a long time, but eventually fail. He also says that whatever works cannot be stupid.
There is no time horizon after which we can say that a strategy has worked. However, we can say for certain if a strategy has failed, and you lose all your money. A species can survive for a million years -- it appears to be successful -- then it goes extinct.
There is no time horizon after which we can say that a strategy has worked. However, we can say for certain if a strategy has failed, and you lose all your money. A species can survive for a million years -- it appears to be successful -- then it goes extinct.
Unambiguous forecasting
FiveThirtyEight.com is a website which aggregates political polls. It has a reputation as being more successful in its political predictions than other pollsters. How deserved is this reputation?
In the 2016 United States presidential election, the markets thought Trump had about a 20% chance of winning. FTE thought he had a 29% chance of winning, which is better than the market (Trump did win). Other pollsters were giving him a 15% chance. So if we trusted FTE, we would have bet on Trump and would make money over the long run, making similar bets.
But FTE does not make bets! Your performance at prediction depends not only on whether your odds are better calibrated than your opponents, but also on how much of your wealth you allocate to each bet. Bets function as a second-order expression of the error bars you assign to your odds. For example, if the market probability is 20%, and your odds are 29% plus or minus 10 percentage points, you might not make the bet.
We cannot judge the performance of FTE because they are not allocating bets, so we don't know how their confidence varies across their predictions.
If you make a bet, it forces you to make the question sufficiently unambiguous, enough so that it can be judged by a third party. Most predictions are not sufficiently unambiguous, and people claim undeserved victory afterwards.
That is not to say that predictions are worthless if criteria for success are too ambiguous to bet on. But one shouldn't crow about them.
In the 2016 United States presidential election, the markets thought Trump had about a 20% chance of winning. FTE thought he had a 29% chance of winning, which is better than the market (Trump did win). Other pollsters were giving him a 15% chance. So if we trusted FTE, we would have bet on Trump and would make money over the long run, making similar bets.
But FTE does not make bets! Your performance at prediction depends not only on whether your odds are better calibrated than your opponents, but also on how much of your wealth you allocate to each bet. Bets function as a second-order expression of the error bars you assign to your odds. For example, if the market probability is 20%, and your odds are 29% plus or minus 10 percentage points, you might not make the bet.
We cannot judge the performance of FTE because they are not allocating bets, so we don't know how their confidence varies across their predictions.
If you make a bet, it forces you to make the question sufficiently unambiguous, enough so that it can be judged by a third party. Most predictions are not sufficiently unambiguous, and people claim undeserved victory afterwards.
That is not to say that predictions are worthless if criteria for success are too ambiguous to bet on. But one shouldn't crow about them.
Competing monies
What is the probability of the price of gold falling to less than $100/oz before the year 2100? (Currently over $1000.) Approximately 0%?
It could be replaced by bitcoin, though it hasn't been replaced by any other currency yet.
What is the probability of the price of bitcoin falling to less than $100 before the year 2100? (Currently over $3000.) More than 1%?
It could be replaced by another cryptocurrency.
Demand for stores of value is distributed over various commodities. If demand remains constant, one currency's gain is another's loss.
It could be replaced by bitcoin, though it hasn't been replaced by any other currency yet.
What is the probability of the price of bitcoin falling to less than $100 before the year 2100? (Currently over $3000.) More than 1%?
It could be replaced by another cryptocurrency.
Demand for stores of value is distributed over various commodities. If demand remains constant, one currency's gain is another's loss.
Bubble dynamics
In a bubble, prices rise gradually, but they can crash suddenly. The stock market can fall 30% in one day, but it will never rise 30% in one day, though it might in one week. The reason people were so terrified about the 2010 Flash Crash was because it could have turned into a real crash, kicking off a depression.
Land and bubbleicity
Land exhibits bubbleicity. If the interest rate is 5%, the (risk-adjusted) return on a piece of land is unlikely to rise much above that, because entrepreneurs will bid up the price of the land, lowering the return. However, it is possible for the return on land to fall below the interest rate, far below it, as people bid up the price of land even further. Some property in London has a return of 5%, other property only 1%. People are over-paying for land. Why? Because they expect to be able to sell it to someone else for at least the same price. It exhibits bubbleicity, a permanent bubble. It is being used as a store of value.
The price of money
There is no fundamental way to value money. Money is in a permanent state of bubble, and there is no fundamental way to value something in a bubble.
Therefore, there is no fundamental way to value an exchange rate. All you have are historical prices. The only reason the health of a country's economy affects the price of its national currency is because people expect it to, but it doesn't have to.
Imagine a government issues a new currency: one million blank pieces of green paper. These will find a market value. If the same government issues another currency, one million blank pieces of blue paper, these will also find a market price. They are effectively different currencies. Just because they are issued by the same government, and the same quantity, there is no reason why they should reach the same price. People might start using one for small change, and one for higher-value transactions.
Imagine instead that the government issues green and blue paper as above, but prints the number "10" on the greens and "1" on the blues. Now we might expect them to trade at a ratio of precisely 10 to 1, and they are effectively one currency.
Therefore, there is no fundamental way to value an exchange rate. All you have are historical prices. The only reason the health of a country's economy affects the price of its national currency is because people expect it to, but it doesn't have to.
Imagine a government issues a new currency: one million blank pieces of green paper. These will find a market value. If the same government issues another currency, one million blank pieces of blue paper, these will also find a market price. They are effectively different currencies. Just because they are issued by the same government, and the same quantity, there is no reason why they should reach the same price. People might start using one for small change, and one for higher-value transactions.
Imagine instead that the government issues green and blue paper as above, but prints the number "10" on the greens and "1" on the blues. Now we might expect them to trade at a ratio of precisely 10 to 1, and they are effectively one currency.
Fundamental versus technical analysis
Fundamental analysis works. Technical analysis doesn't.
People make money by examining corporate accounts and having a view on future demand, then buying companies and commodities they think are undervalued. No one can consistently make money if all they know are historical market prices, and no one has gotten really rich doing so. You can get somewhat rich by luck, but the richest traders are nowhere near as rich as Warren Buffett.
(The momentum strategy does appear to work, but its risk-weighted returns is not as good as fundamental analysis, and I believe it conceals hidden risks. It cannot work in the long run, which is to say, it does not work. The occasional losses must wipe out all the gains.)
But how do we value something if we believe it is in a bubble? There is no way to do so, and fundamental investors will stay out. Bubble traders (relying on more than just technical analysis) can try to ride the bubble, though they also are the bubble and can get burned.
The problem for fundamental analysts is when the stock market as a whole is in a bubble. And this is almost always the case! The stock market exhibits bubbleicity. Commodities like oil exhibit bubbleicity. In addition to big bubbles, there are small, constant bubbles. Passive investors reinvest their dividends and to a certain extent just bid up prices. These small bubbles don't have to pop! Passive investors sell their investments when they retire, but these are bought by new investors, potentially sustaining the bubble indefinitely. It's just the same as with gold: old people sell gold to young people, and the bubble stays inflated. The gold price can stay high permanently.
A fundamental analyst cannot just short the stock market if he thinks the whole thing is overvalued, because it can stay overvalued indefinitely and he will lose. And what else can he do with his money?
People make money by examining corporate accounts and having a view on future demand, then buying companies and commodities they think are undervalued. No one can consistently make money if all they know are historical market prices, and no one has gotten really rich doing so. You can get somewhat rich by luck, but the richest traders are nowhere near as rich as Warren Buffett.
(The momentum strategy does appear to work, but its risk-weighted returns is not as good as fundamental analysis, and I believe it conceals hidden risks. It cannot work in the long run, which is to say, it does not work. The occasional losses must wipe out all the gains.)
But how do we value something if we believe it is in a bubble? There is no way to do so, and fundamental investors will stay out. Bubble traders (relying on more than just technical analysis) can try to ride the bubble, though they also are the bubble and can get burned.
The problem for fundamental analysts is when the stock market as a whole is in a bubble. And this is almost always the case! The stock market exhibits bubbleicity. Commodities like oil exhibit bubbleicity. In addition to big bubbles, there are small, constant bubbles. Passive investors reinvest their dividends and to a certain extent just bid up prices. These small bubbles don't have to pop! Passive investors sell their investments when they retire, but these are bought by new investors, potentially sustaining the bubble indefinitely. It's just the same as with gold: old people sell gold to young people, and the bubble stays inflated. The gold price can stay high permanently.
A fundamental analyst cannot just short the stock market if he thinks the whole thing is overvalued, because it can stay overvalued indefinitely and he will lose. And what else can he do with his money?
Saturday 23 February 2019
Bubbleicity
Moldbug calls money the bubble which doesn't pop. It is a bubble because nobody values it for its own sake, people only purchase it because they intend to sell it to someone else. (Unlike a retailer, who purchases things he doesn't intend to use, but sells them to people who do intend to use them.) Or some people do value it for its own sake, but the market price is far above what it would be if only those people were purchasing it. (For example, gold, which does have uses in electronics and medicine. It is useful as jewellery, but historically it is desired as jewellery because it is money.)
Money bubbles can pop. Sometimes a particular currency will "de-monetise". But they don't have to. There is no reason why a bubble can't keep going indefinitely, with the price levelling off well above the use-value.
The art bubble has been going for hundreds of years with no expectation of popping. The Mona Lisa is a scarce collectible. Its market value is well above that of identical copies, even though identical copies have identical use-value.
I call this "bubbleicity". Money has bubbleicity. Famous artworks have bubbleicity.
The cost of producing the artwork sets the floor price (which could be zero). The scarcity of its provenance can push the price above that. Or to look at it the other way around, the scarcity of gold sets the floor price of jewellery, and then there is a small premium for the design and workmanship (which could be zero).
People sometimes argue whether money is valued because it is a medium of exchange, or because it is a store of value. But you can't have one without the other. You can't have a medium of exchange unless it can store value across time. And you can't have a store of value unless you can exchange it at a future date.
In practice, people may use several commodities as money. They might keep gold in their vaults, for big transactions, and copper in their purse, for small transactions. But that doesn't mean one is the store of value and one is the medium of exchange. They are both stores of value and both media of exchange.
Money bubbles can pop. Sometimes a particular currency will "de-monetise". But they don't have to. There is no reason why a bubble can't keep going indefinitely, with the price levelling off well above the use-value.
The art bubble has been going for hundreds of years with no expectation of popping. The Mona Lisa is a scarce collectible. Its market value is well above that of identical copies, even though identical copies have identical use-value.
I call this "bubbleicity". Money has bubbleicity. Famous artworks have bubbleicity.
The cost of producing the artwork sets the floor price (which could be zero). The scarcity of its provenance can push the price above that. Or to look at it the other way around, the scarcity of gold sets the floor price of jewellery, and then there is a small premium for the design and workmanship (which could be zero).
People sometimes argue whether money is valued because it is a medium of exchange, or because it is a store of value. But you can't have one without the other. You can't have a medium of exchange unless it can store value across time. And you can't have a store of value unless you can exchange it at a future date.
In practice, people may use several commodities as money. They might keep gold in their vaults, for big transactions, and copper in their purse, for small transactions. But that doesn't mean one is the store of value and one is the medium of exchange. They are both stores of value and both media of exchange.
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