Monday, December 10, 2012
Thursday, October 25, 2012
Last year I did a post on a mathematical error that has dictated the direction of important work in economics, and more especially finance. The discovery of this error, by U.K. mathematician Ole Peters, has slowly gained some recognition, though for some reason the journal where the original paper was published has not been willing to publish this correction.
At its root the error is obscure -- as would inevitably be the case for it to have persisted for so long and for its incorrect conclusion to be relied on by such luminaries as Paul Samuelson and Kenneth Arrow. But more has been published about it after my post which do a better job at explaining the problem and its implications. So for those who are interested -- and you will be interested if you think about how a portfolio grows over time, how the policy for a group relates to the results for individuals, or the implications (correct and mistaken) of the St. Petersburg paradox -- I am providing links to them here:
The first is an interview with Ole by Michael Mauboussin, and the second is a paper by a group at Tower Watson. It is significant that the bulk of the notice for this is coming from industry rather than academics, and that the core group that is providing notice is the affiliated with the interdisciplinary Santa Fe Institute.
Tuesday, September 18, 2012
memory, complete knowledge, the creation of a personal, imaginary
world, the nurturing of a virtual life, and living the double life of
the real and the virtual; these, the trajectory of the virtual age,
are the central themes in the short stories of the Argentinian
writer, Jorge Luis Borges. Borges wrote in the first half of the
twentieth century. He was a literary prodigy, works of his published
while he was still a child. And, perhaps because he knew that he
faced the specter of blindness in mid-life due to a genetic
condition, Borges read voraciously and developed a command of
literature, mathematics and history in his early years.
- We are creating and inhabiting our own virtual world. It most immediately appears in computer games and avatars, but it also appears with a bit more subtlety through our on-line image. Our Facebook selves are not our real selves, and our Facebook friends are not really our friends. Like the sultry-voiced grandmother as a phone sex worker, as we extend further out past a small circle of real friends we are to a greater and greater extent who we wish to be or who we think others want us to be in a virtual world. (My eight year-old daughter is a twelve year-old French girl in Poptropica).
- We are moving toward a world where there is perfect memory and unlimited knowledge. Knowledge of the world and our history through Wikipedia, of where we are and what we are doing through social networks. If something is put into the cloud, it might well be there forever. And when we inhabit our virtual selves we capture all of our history, because all that is virtual begins in the noosphere.
I will start with two short stories where Borges creates virtual worlds, where man inhabits a world of dreams and disquieting fantasy.
The Circular Ruin
Borges and I
The Library of Babel
Funes the Memorious
He knew the forms of the clouds in the southern sky on the morning of April 30,1882, and he could compare them in his memory with the veins in the marbled binding of a book he had seen only once, or with the feathers of spray lifted by an oar on the Rio Negro on the eve of the Battle of Quebracho. Nor were those memories simple—every visual image was linked to muscular sensations, thermal sensations, and so on.
No one has ever felt the heat and pressure of a reality as inexhaustible as that which battered Ireneo, day and night, in his poor South American hinterland. It was hard for him to sleep. To sleep is to take one's mind from the world; Funes, lying on his back on his cot, in the dimness of his room, could picture every crack in the wall, every molding of the precise houses that surrounded him.
Those on Tlon do not reason about reality because they do not live in the real world. In contrast, Ireneo Funes cannot reason because he is too bound up in reality; he is in incapable of breaking away from the onslaught of facts in order to think abstractly. Funes says to his interviewer, "My memory, sir, is like a garbage heap." His story is about the need to be able to forget, the paralyzing effect of perfect memory.
Labels: Virtual Age
Monday, September 10, 2012
Sunday, August 26, 2012
- Lay out for the patient the possible modes of treatment along with the estimated cost until death if each of those courses of treatment is taken. The cost includes not only the specifics of the treatment, but the associated costs of care. Obviously a treatment that has the patient hanging on for a year in and out of intensive care will cost more in total than one where the patient has nothing more than palliative care and dies in a month or two.
- The patient receives a lump sum payment equal to some fraction of what is saved if he or she pursues a course of treatment with a cost lower than the highest cost allowable treatment. The payment can be assigned to their spouse, children or any other designee; this makes sense for the terminally ill, given that they are not going to have much opportunity to enjoy this windfall.
- The recipient pays taxes on the payment, so in an indirect way a portion of it is returned to the system. (In this proposal I am primarily thinking of Medicare).
Thursday, August 23, 2012
In some cases, replacing human labor with robots may be a good thing all around. Take the development of robotic warehouses. Warehouse packing is the sweatshop job of our time. The article “I Was a Warehouse Slave” gives a day-in-the-life view of these workers, effectively paid for piece-work, without benefits, with one-day notice job security, in physically grueling conditions. (The warehouse workers are usually employed by temp agencies that act as what I would call “labor launderers”, a buffer between the sub-par conditions of the workers and the image of the company that uses them).
Sunday, August 12, 2012
First, the roots of modern Pankration lead back to Brazil, as do the roots of one of the two key disciplines behind MMA, Brazilian jiu jitsu. (The other is Thai kick boxing). So the Brazil Olympics is a natural time to return the sport to the games.
Monday, May 7, 2012
I spoke recently at a conference where I was followed to the podium by Fox's Tucker Carlson, who, among other things, railed against the instigation by the left of “class warfare”, pointing out that doing so is little more than singling out an unpopular minority group, (i.e., the rich), for higher taxation. (Though the minority group that happens to have the largest share of the item that is the war's objective). Tucker said we are seeing an ever shrinking number of people paying an ever greater portion of the taxes. (Though they also are the ever shrinking number of people acquiring an ever greater portion of the wealth).
There is little that matches the artfulness in waving off criticism of the widening income gap as “class warfare”. And there is little that matches the gullibility of those who follow along. There seems to be agreement all around that action to change the situation, for the poor to improve their lot at the expense of the rich, is an affront to civil society. I am not picking sides in this, but I believe such a "war" can be justified, and indeed ultimately is inevitable.
It is hard to discuss class warfare without referring back to the industrial revolution. Then class warfare centered on the length of the working day. A tightly defined working day only appeared with the advent of the industrial revolution. Before then laborers worked when they needed money, and then quit for a time once they fulfilled their needs. But regimentation and a dependable workforce became necessary once there was machinery to run and capital invested, and so with industrialization came an enforced workday. So it is not surprising that Marx stated the central battle of class warfare at the time in terms of the working day:
The capitalist maintains his rights as a purchaser when he tries to make the working-day as long as possible, and to make, whenever possible, two working-days out of one. On the other hand...the laborer maintains his right as seller when he wishes to reduce the working-day to one of definite normal duration. There is here, therefore, an antinomy, right against right, both equally bearing the seal of the law of exchanges. Between equal rights force decides. Hence is it that in the history of capitalist production, the determination of what is a working-day, presents itself as the result of a struggle, a struggle between collective capital, i.e., the class of capitalists, and collective labour, i.e., the working-class. – Marx, Das Kapital
Marx begins with an acknowledgement of the perception of rights on the part of both the capitalist and the laborer, but then argues that the question of the length of the working day cannot be solved by an appeal to rights, but only through class struggle, wherein “force”decides between “equal rights”. (Force can mean physical force, but can also mean the force of the political process).
The central point is that there is no way that this question of the working day or any number of other social questions, though posed as rights by the groups in conflict, can be resolved without being reformulated in terms of class struggle or class warfare. Unlike civil rights – the rights which our society regards as inalienable – it is difficult to do much more than simply take sides when it comes to economic rights, because what we call economic rights are really nothing more than the bargaining in an exchange between those providing labor and those providing capital, those creating jobs and those taking the jobs, or whatever. There is class warfare because the social and economic pie has to be split, and there is no objective way to do so. The war can be active or passive, the sides can have a truce, one side can temporarily be resigned to its lot or be held in check through force, but the conflict never ends. A change in generations or in social consciousness, and things will flare up again. There are some areas of fairness in the civil sphere – freedom from slavery, torture and piracy – but what are the rights inherent for a particular term of exchange between the parties in a trade?
Given this, we are left in a quandary because we don't know what to make of class warfare. And we don't know because we are not trained to make anything of it. It is not part of any self-respecting course of economic study. The introduction of class warfare marks a radical departure from the tenets of contemporary economics because as far as economics goes, the terms “class”, “warfare”, and “struggle” are, well, radicalized. Yet there has been an epic, historical struggle over the length of the working day writ large, extending to issues like retirement, the definition of the time worked, and the share of economic rents, and this is the struggle that is still with us. Clearly fundamental to our economic history and our capitalist system, this is ignored in our economic studies.
The time spent working and the share of that labor that accrued to the capitalists during the emergence of the industrial revolution is akin to the taxes and redistributions from the entitlement programs and government subsidies that are in the cross hairs today. Indeed, the timeline extends back even further. The benefits that we call entitlements are similar in our more advanced society to the rights of subsistence for the serfs during Feudal times – rights which were implicit in the social contract between lord and serf, and which were broken at the peril of revolt. The social contract between the lord and serf, as with any contract, had obligations on both sides. The serfs paid a portion of their production and provided service to the lords. The lords organized the serfs to defend against invasion, enforced a rule of law, and assured the serfs, as much as possible in that age, of subsistence. Is this so different from social contracts of today?
Even admitting to the term “class warfare” concedes a lot. To warn against class warfare only makes sense if there are classes, and more than that, if there might be a reason to be answered for one of the classes to do battle. (For otherwise there is the simpler course of pointing out that no differences exist). There is only so much to go around, and the efforts of one group or the other to assert a claim to a larger share can be called class warfare. It can be a war waged through changes in the taxes, in a restructuring of incentives and pay scales, an increase in the benefits given to the poor, or revolt. The first three are legitimate battlegrounds in a democratic society such as ours, and it is really taking a good joke to far to suggest it is damaging to the body politic for members of society to look at the differences in income and take action to redistribute in their direction.
The views expressed in this post are strictly my personal views.
Friday, February 24, 2012
The promises of reform at Foxconn
are the latest of many as China painfully adjusts to the inevitable
social realignment that comes with a capitalist economy. What is
occurring in China now happened in Europe during the transition from
feudal to industrial society. That transition is more germane than
it might appear at first blush because over the past two generations China has been emerging not from a
Marxist, but from a feudal state. Indeed, if one were to take Marx's
view, China could only arrive at communism through capitalism, and
only arrive at capitalism through feudalism. For in Marx's view, as
Schumpeter writes, “it is essential for the logic of capitalism,
and not only a matter of fact, that it grew out of a feudal state of
society”. Marx's vision flows from feudalism through capitalism to
a post-capitalist society that can only arise once capitalism has run
its course, after it has not only provided the necessary social and
economic foundation but also has become unsustainable.
I have already discussed my view of the implications of this world for income distribution and for economic mobility. In a nutshell, the more we move into caring about the virtual, the more the hill will turn into a plain, at least for the large subset of the population that is secure in the essential needs of life.
Wednesday, February 15, 2012
On the issue of the bifurcation of society and the widening income gap in the U.S., and the strains appearing from the factory system in China that have recently been highlighted, there is useful commentary that comes from a surprising quarter, or perhaps not surprising in itself, but in the view taken on the subject: Both Adam Smith and Joseph Schumpeter, defenders of capitalism as the source of “universal opulence”, see a road leading from capitalism to the disenfranchisement of the worker and the vaulting of the elite.
Adam Smith is a social philosopher grounded in the search for what is moral and what provides man with the greatest good, with universal opulence. It is to this end that he promotes self-interest as the core of economic exchange, and division of labor as the core of efficient production. But he also admits to unintended consequences of human action and recognizes that government action is required to dampen these negative consequence.
Smith: Political influence
We have no acts of parliament against combining to lower the price of work, but many against combining to raise it. – Adam Smith, The Wealth of Nations
Smith recognizes that workers and employers would jostle for an advantage by using political influence, and he also recognizes that this would be an unfair fight, with the employers having stronger influence and, because they were a far smaller group, being better able to do their lobbying behind closed doors. This was already evident; as he points out, the law prohibited workers from unionizing but allowed employers to organize to keep wages low:
Particular acts of parliament, however, still attempt sometimes to regulate wages in particular trades, and in particular places. Thus the 8th of George III. prohibits, under heavy penalties, all master tailors in London, and five miles round it, from giving, and their workmen from accepting, more than two shillings and sevenpence halfpenny a-day, except in the case of a general mourning. Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters.
Competition was stifled through legal restrictions on the freedom to sell commodities and to supply labor. The government legalized monopolies that gave exclusive rights to sell products, and to limit the supply of labor for some occupations through guilds. Smith repeatedly observes that self-interests would be promoted legislatively at the expense of the public whenever and wherever possible, and this would be more successfully accomplished by the wealthy and well-connected “masters” who could peddle their influence largely unseen: Masters...enter into particular combinations to sink the wages of labour....These are always conducted with the utmost silence and secrecy till the moment of execution; and when the workmen yield, as they sometimes do without resistance, though severely felt by them, they are never heard of by other people.
...the clamour and sophistry of merchants and manufacturers easily persuade them, that the private interests of a part, and a subordinate part, of the society, is the general interest of the whole...everywhere finally paid by the landlords, farmers, and labourers.– Adam Smith, The Wealth of Nations
Adam Smith recounts many failings of the market: price fixing (“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”); trade restrictions and duties extending from towns to international trade; and influence peddling to Parliament.
But it was not the gaming of the economic system, but rather the imposition of the factory system with the resulting long hours of monotonous labor that rose to the issue of greatest concern. Smith holds the view, later expounded by Marx, that men find their individuality and strongest link to society through their labor, and sees in the conditions of the worker a debilitating effect on intellectual and social vitality:
The man whose whole life is spent in performing a few simple operations . . . has no occasion to exert his understanding. . . . He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him, not only incapable of relishing or bearing a part in any conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgement concerning many even of the ordinary duties of private life. . . . It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance, in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.
Here Smith points to the need for government intervention: the alienation of the masses may be remedied if the “government takes some pains to prevent it”. In particular, Smith proposes universal public schooling, a proposal at variance with the view at the time that education would foment rebellion.
Like Adam Smith, Schumpeter views capitalism in positive terms, as a force for improving society and making men better off. And like Smith he sees the emergence of a capitalist elite that will by their economic force ride over the mass of workers. (The growing pains of the Industrial Revolution with farmers and artisans displaced and then engulfed by the factory system was an object lesson that was still only a few generations old when Schumpeter began his academic career). Indeed, his view is that this ultimately will be the demise of capitalism and the rise of socialism. Thus he sees the same end for capitalism as does Marx, but through a path that is largely opposed to Marx's: Not the failure but the success of capitalism, success that is concentrated on the innovative elite, will lead to social revolt.
Schumpeter: The elite
That lambs dislike birds of prey does not seem strange: but that is no reason for blaming the birds of prey for taking the little lambs. And if the lambs say among themselves, "These birds of prey are evil, and whoever is the least like a bird of prey, indeed whoever is its opposite, whoever is like a lamb ―would he not be good?" then there is no reason to find fault with this as an ideal, though the birds of prey may view it with some irony and say to themselves, "We bear no grudge against these good little lambs, we even love them: nothing is more tasty than a tender lamb." – Nietzsche, On the Genealogy of Morality
Schumpeter's view is rooted in the prevailing social philosophy of his day, a philosophy founded on that of Nietzsche, that supports the role of the elite: Society and capitalism depend on the elite, and the social and political environment should protect the status of the elite, nurture their activities, and even extend their influence in government policy. Schumpeter extolls the elite, the force for capitalist growth, while anticipating the effect of their success on the masses – the implications of the resentment of the many against the wealthy few.
Nietzsche's theme of the elite he thus naturally pairs with another, that of “Ressentiment”: the resentfulness of the inferior for the superior, and the tendency of the many to devalue and even revolt against the successful. (A revolt that in its least disruptive and passive form Nietzsche sees taking the route of Christian faith – Nietzsche argues that Christian meekness and humility is a means for the weak and inferior to feel comfortable in their lot, even to feel morally superior to the elite). Schumpeter portrays Ressentiment as having an inescapable result; the success of the elite, especially levered by the capitalist system, leading to an increasing disparity with the masses still stuck in the status quo with their condition perhaps improving in absolute terms, but not, as is most important for the survivability of capitalism, in relative terms.
Thus, like Marx, Schumpeter argues that capitalism creates its own opposition. But according to Schumpeter, that opposition comes not from the existential impoverishment and alienation of the worker but from the resentment created by the successes of the very wealthy. It is in this way that Schumpeter, though through an argument in opposition to that made by Marx, comes to same conclusion, that capitalism sows the seeds of its own destruction:
Every social system is sensitive to revolt and in every social system stirring up revolt is a business that pays in case of success and hence always attracts both brain and brawn. It did in feudal times—very much so. But warrior nobles who revolted against their superiors attacked individual persons or positions. They did not attack the feudal system as such. And feudal society as a whole displayed no tendencies to encourage—intentionally or unintentionally—attacks upon its own social system as a whole.
Broadly speaking, conditions favorable to general hostility to a social system or specific attack upon it will in any case tend to call forth groups that will exploit them. But in the case of capitalist society there is a further fact to be noted: unlike any other type of society, capitalism inevitably and by virtue of the very logic of its civilization creates, educates and subsidizes a vested interest in social unrest. – Schumpeter, Capitalism, Socialism and Democracy
In contrast to Adam Smith, who advocated for universal education at the expense of the state as a means of lifting up those alienated by the enclosures movement in agriculture and the factory system in industry, Schumpeter sees non-vocational education as a spur to resentment and a threat to capitalism. “The man who has gone through a college or university easily becomes psychically unemployable in manual occupations without necessarily acquiring employability in, say, professional work.” University education “may create unemployability of a particularly disconcerting type” with graduates that are not well trained for any vocation, and end up with jobs and at salaries that they find beneath them. They become discontented, and “discontent breeds resentment” that in turn can lead to revolt. Schumpeter's observations echo those of Voltaire and others in Adam Smith's time who were concerned that education would lay bear their lot and thus magnify the discontent of the lower classes.
Note: This post heavily draws from The Mind of the Market.