Crawl Across the Ocean

100. The Republic: Part 1a

2011-12-20T22:18:00.000-08:00

Note: This post is the one hundredth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Note also: this is a continuation from post 98.

"I'm gonna getcha, getcha, getcha, getcha.
One way or another"

One Way or Another, Blondie

In the first chapter of 'The Republic', Plato sets out to demonstrate the flaws in the some of the conventional views of what justice is. He does this by, in the words of Jane Jacobs, 'syndrome hopping'.

The way it works is that when given a notion of justice that corresponds to the commercial syndrome, Socrates will then trip the person who suggested it up by putting the commercial notion of justice in a guardian setting, and then vice-versa when a guardian notion of justice is presented.

First off, he asks the businessman, Cephalus, to define justice, and Cepahlus suggests that justice is the repayment of debts, a commercial sort of answer. So Socrates then asks if one should return a weapon to a friend who is not of sound mind, which is a guardian type situation where clearly loyalty and concern for another takes precedence over the commercial virtues of honesty and keeping a promise.

Led in this Guardian direction, Polemarchus who has taken over the argument for his father Cephalus, goes with it, and is led by Socrates into a guardian view of justice which is that giving people what they are owed really means giving good to one's friends and harm to one's enemies.

Socrates then switches back to a commercial argument, suggesting that, as in the the commercial syndrome, it is not right to harm anyone since that will have a negative effect on their well-being, so the idea that part of justice is doing harm to one's enemies (true in a guardian context) must not be right (as seen in the commercial context).

Next, the sophist Thrasymachus enters the fray, with a new twist, offering a definition of justice, quite popular to the present day, which borrows the self-interested parts of both syndromes to build a selfish 'monstrous hybrid' as Jane Jacobs would have called it. Thrasymachus maintains that justice is simply the interest of the stronger or as we might say nowadays, that 'might makes right'.

In his response, Socrates focuses on the inappropriateness of bringing the Commercial syndrome notion of self-interest into the Guardian role of being the ruler (as opposed to the alternative approach which would have been to show the inappropriateness of bring Guardian virtues of deceit and force into a commercial venture).

First, Socrates responds via allegory to various professions such as medicine where fulfilling the duties of that profession successfully entails serving the interest of the subject (e.g. the patient, for a doctor) rather than serving one's own interests. He notes that if people ruled for their own interest, then it wouldn't be necessary to pay people to take on the job in most cases.

Next, Socrates asks about the relationship between the just and the unjust. He shows that in professions, the just, for example, doctor, only professes to exceed in skill non-doctors, not other doctors. His point is that it is the just who only claim to better than the unjust, while it is the unjust who claim to be better than everyone, just or unjust alike.

At this point, I couldn't help but be reminded of the experiments on cooperation conducted by Robert Axelrod, in which a simple tit-for-tat strategy (that only punished the unjust and cooperated with the just) proved to be the most successful in the tournament.

Finally, Socrates points out that even thieves need a willingness to forego their own interests, lest they fall to fighting amongst themselves and all ending up getting long sentences in a prisoner's dilemma (i.e. their lack of unity will preclude them from being effective in any meaningful way).

At the end of book 1, Socrates admits that while he has repeatedly pointed out what justice is not, he has yet to make any progress on saying what justice is.

He leaves that challenge for a later book, and I'll have to leave it for a later post.

99. Self-Interest, Hypocrisy and the Commercial Takeover

2011-11-08T18:53:00.000-08:00

Note: This post is the ninety-ninth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I don't have enough time this week to do justice to the rest of 'The Republic' so instead I just wanted to mention this post by Paul Krugman.

Krugman starts by referencing a Mel Gibson movie from a few years back that was entitled, 'The Patriot' but featured a protagonist who was unwilling to fight for his country until his own family was attacked, and then embarked on a campaign for personal vengeance. Krugman links to an essay by Michael Lind that explains how this is hardly an example of what is normally referred to as patriotism.

Krugman sees a similar confusion when wealthy people who support measures that will benefit the poor or middle class are attacked as hypocrites (for example) for not being selfish.

Says Krugman,

"Which brings me to the subject of this post, the apparently equally misunderstood concept of hypocrisy. I’ve been getting some personal attacks on this front, but it’s a bigger issue than that. Here’s the personal version: suppose that you’re a professor/columnist who advocates higher taxes on high incomes and a stronger social safety net — but you yourself earn enough from various sources that you will pay some of those higher taxes and are unlikely to rely on that stronger safety net. A remarkable number of people look at that combination of personal and political positions and cry 'Hypocrisy!'

...

If you remember the 2004 election, which unfortunately I do, there were quite a few journalists who basically accused John Kerry of being 'inauthentic' because he was a rich man advocating policies that would help the poor and the middle class. Apparently you can only be authentic if your politics reflect pure personal self-interest

...

So to say what should be obvious but apparently isn't: supporting policies that are to your personal financial disadvantage isn't hypocrisy — it’s civic virtue!

...

Lind's essay about Mel Gibson ended with concerns that we may have lost the sense of what citizenship and its duties mean. Indeed. If people can't comprehend what it means to work for larger goals than their own interest, if they actually consider any deviation from self-service somehow a sign of phoniness, we, as a nation, are lost."

Another example, that Krugman doesn’t mention is the field of 'Public Choice Theory' which is premised on the notion that neither civic virtue nor patriotism exist.

Anyway, I just wanted to highlight this post from Krugman because what he is observing is what I have observed myself, and what provides some of my motivation for pursuing this series of posts. It seems as though commercial syndrome virtues are gradually driving out guardian virtues in our discourse, to such an extent that classic guardian precepts such as patriotism and civic virtue are now seen through a commercial lens as either hypocritical or incomprehensible for a growing percentage of the population. And on that note, it's time for a vacation, see you in a few weeks...

98. The Republic, Part 2

2011-10-25T20:02:00.000-07:00

Note: This post is the ninety-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

In this post, I'm going to talk about 'The Republic' by Plato. In 'The Republic' Plato sets out his vision of the ideal state, but in this week's post, I just want to cover chapter 8, near the end of The Republic, in which Plato sets out the other types of states and how, starting in his ideal republic, states decay from one mode of government to another over time. Plato wasn't trying to say that this progression is always exactly followed and the introduction that I read was quite dismissive of the realism of Plato's proposed progression, but personally, I found his description to be quite true to the history of our own culture - which is a little worrying since he claims that democracy is followed by tyranny.

Anyway, the first alternative form of state that is first to emerge from the ideal republic is one that Plato says corresponds roughly to the Spartan model and he refers to it as Timarchy, or "the government of honour". The government of honour differs from Plato's ideal Republic in that the ruling class has begun to be corrupted by a love of money so that they maintain private stores of wealth and build castles to protect them. In addition, the state is governed by a warrior-king rather than a philosopher king and there is a near constant state of warfare.

(note: The Republic is written as a dialogue. In this book, Socrates is doing the talking and his friends Glaucon and Adeimantus are playing the role of agreeable yes-men.)

"In the honour given to rulers, in the abstinence of the warrior class from agriculture, handicrafts, and trade in general, in the institution of common meals, and in the attention paid to gymnastics and military training—in all these respects this State will resemble the former [Plato's ideal Republic].

True.

But in the fear of admitting philosophers to power, because they are no longer to be had simple and earnest, but are made up of mixed elements; and in turning from them to passionate and less complex characters, who are by nature fitted for war rather than peace; and in the value set by them upon military stratagems and contrivances, and in the waging of everlasting wars—this State will be for the most part peculiar.

Yes.

Yes, I said; and men of this stamp will be covetous of money, like those who live in oligarchies; they will have, a fierce secret longing after gold and silver, which they will hoard in dark places, having magazines and treasuries of their own for the deposit and concealment of them; also castles which are just nests for their eggs, and in which they will spend large sums on their wives, or on any others whom they please."

As he describes each state, Plato also describes the sort of person who inhabits that state, and shows how each personality type derives from the last.

"He [The man in the Timocratic state] should have more of self-assertion and be less cultivated, and yet a friend of culture; and he should be a good listener, but no speaker. Such a person is apt to be rough with slaves, unlike the educated man, who is too proud for that; and he will also be courteous to freemen, and remarkably obedient to authority; he is a lover of power and a lover of honour; claiming to be a ruler, not because he is eloquent, or on any ground of that sort, but because he is a soldier and has performed feats of arms; he is also a lover of gymnastic exercises and of the chase.

Yes, that is the type of character which answers to timocracy.

Such an one will despise riches only when he is young; but as he gets older he will be more and more attracted to them, because he has a piece of the avaricious nature in him, and is not single-minded towards virtue, having lost his best guardian.

Who was that? said Adeimantus.

Philosophy, I said, tempered with music, who comes and takes up her abode in a man, and is the only saviour of his virtue throughout life.

Good, he said.

Such, I said, is the timocratical youth, and he is like the timocratical State."

Plato's description of a society that is warlike and contentious, filled with brave men who build castles and live under a 'government of honour' certainly bears more than a passing resemblance to the medieval period and its code of chivalry.

In Plato's telling, the 'Government of Honour' eventually gives way to an Oligarchy, "A government resting on a valuation of property, in which the rich have power and the poor man is deprived of it."

"The accumulation of gold in the treasury of private individuals is the ruin of timocracy; they invent illegal modes of expenditure; for what do they or their wives care about the law?

Yes, indeed.

And then one, seeing another grow rich, seeks to rival him, and thus the great mass of the citizens become lovers of money.

Likely enough.

And so they grow richer and richer, and the more they think of making a fortune the less they think of virtue; for when riches and virtue are placed together in the scales of the balance, the one always rises as the other falls.

True.

And in proportion as riches and rich men are honoured in the State, virtue and the virtuous are dishonoured.

Clearly.

And what is honoured is cultivated, and that which has no honour is neglected.

That is obvious.

And so at last, instead of loving contention and glory, men become lovers of trade and money; they honour and look up to the rich man, and make a ruler of him, and dishonour the poor man.

They do so.

They next proceed to make a law which fixes a sum of money as the qualification of citizenship; the sum is higher in one place and lower in another, as the oligarchy is more or less exclusive; and they allow no one whose property falls below the amount fixed to have any share in the government. These changes in the constitution they effect by force of arms, if intimidation has not already done their work."

Plato notes many defects of Oligarchy, including the inability of the Oligarchs to carry out a war successfully, the corruption of having the same group of people doing too many tasks - running both business and government, and the creation of class warfare between the wealthy class and the poor class.

The match isn't quite as good, but again, there is a resemblance between the oligarchy that Plato describes and the period of the Industrial revolution, the inequality described by Dickens, powerful 'robber-barons' who controlled the government, a long period with (relatively) little warfare, societies where government was reserved for those with a minimum level of wealth, and a great growth in global trade and wealth which was not particularly widely shared leading to the rise of marxism and communism.

Next Plato describes the descent from Oligarchy to Democracy. Basically, where the Oligarchy retained a level of self-discipline, as needed to allow for the accumulation of wealth, in a Democracy restraints are thrown to the winds and people can do as they please.

"And then democracy comes into being after the poor have conquered their opponents, slaughtering some and banishing some, while to the remainder they give an equal share of freedom and power; and this is the form of government in which the magistrates are commonly elected by lot.

Yes, he said, that is the nature of democracy, whether the revolution has been effected by arms, or whether fear has caused the opposite party to withdraw.

And now what is their manner of life, and what sort of a government have they? for as the government is, such will be the man.

Clearly, he said.

In the first place, are they not free; and is not the city full of freedom and frankness—a man may say and do what he likes?

'Tis said so, he replied.

And where freedom is, the individual is clearly able to order for himself his own life as he pleases?

Clearly.

Then in this kind of State there will be the greatest variety of human natures?

There will.

This, then, seems likely to be the fairest of States, being like an embroidered robe which is spangled with every sort of flower. And just as women and children think a variety of colours to be of all things most charming, so there are many men to whom this State, which is spangled with the manners and characters of mankind, will appear to be the fairest of States."

Again, Plato's description of democracy bears a strong resemblance to our current society that emerged from the World Wars of the early 20th century. Plato notes that the primary characteristics of Democracy are freedom and liberty. So much so that even slaves, women and eventually animals are given the same liberty that is normally reserved for men. But Plato believes that the primacy of liberty and the accompanying unwillingness to allow for any restraint is what sets the stage for tyranny to emerge from democracy.

"By degrees the anarchy finds a way into private houses, and ends by getting among the animals and infecting them.

How do you mean?

I mean that the father grows accustomed to descend to the level of his sons and to fear them, and the son is on a level with his father, he having no respect or reverence for either of his parents; and this is his freedom, and the metic is equal with the citizen and the citizen with the metic, and the stranger is quite as good as either.

Yes, he said, that is the way.

And these are not the only evils, I said—there are several lesser ones: In such a state of society the master fears and flatters his scholars, and the scholars despise their masters and tutors; young and old are all alike; and the young man is on a level with the old, and is ready to compete with him in word or deed; and old men condescend to the young and are full of pleasantry and gaiety; they are loth to be thought morose and authoritative, and therefore they adopt the manners of the young.

Quite true, he said.

The last extreme of popular liberty is when the slave bought with money, whether male or female, is just as free as his or her purchaser; nor must I forget to tell of the liberty and equality of the two sexes in relation to each other.

Why not, as Aeschylus says, utter the word which rises to our lips?

That is what I am doing, I replied; and I must add that no one who does not know would believe, how much greater is the liberty which the animals who are under the dominion of man have in a democracy than in any other State: for truly, the she-dogs, as the proverb says, are as good as their she-mistresses, and the horses and asses have a way of marching along with all the rights and dignities of freemen; and they will run at any body who comes in their way if he does not leave the road clear for them: and all things are just ready to burst with liberty.

When I take a country walk, he said, I often experience what you describe. You and I have dreamed the same thing.

And above all, I said, and as the result of all, see how sensitive the citizens become; they chafe impatiently at the least touch of authority, and at length, as you know, they cease to care even for the laws, written or unwritten; they will have no one over them.

Yes, he said, I know it too well.

Such, my friend, I said, is the fair and glorious beginning out of which springs tyranny."

Plato describes how idle spendthrifts, who are unwelcome in most states, but "in a democracy they are almost the entire ruling power" come to try and squeeze the wealthy class for their money, leading the wealthy to fight back and become more like oligarchs, leading to an escalating battle until finally the people back a champion who takes their cause against the wealthy and the spendthrifts and this champion is able to seize power under the mantle of serving the people, who don't realize until it is too late how their champion will turn upon them and become a tyrant.

One of the most compelling parts of the chapter is where Plato describes how the tyrant is driven by necessity into a more and more depraved existence, forced to drive out all the best and brightest from society since they will be seen as rivals to his power.

"At first, in the early days of his power, he is full of smiles, and he salutes every one whom he meets;—he to be called a tyrant, who is making promises in public and also in private! liberating debtors, and distributing land to the people and his followers, and wanting to be so kind and good to every one!

Of course, he said.

But when he has disposed of foreign enemies by conquest or treaty, and there is nothing to fear from them, then he is always stirring up some war or other, in order that the people may require a leader.

To be sure.

Has he not also another object, which is that they may be impoverished by payment of taxes, and thus compelled to devote themselves to their daily wants and therefore less likely to conspire against him?

Clearly.

And if any of them are suspected by him of having notions of freedom, and of resistance to his authority, he will have a good pretext for destroying them by placing them at the mercy of the enemy; and for all these reasons the tyrant must be always getting up a war.

He must.

Now he begins to grow unpopular.

A necessary result.

Then some of those who joined in setting him up, and who are in power, speak their minds to him and to one another, and the more courageous of them cast in his teeth what is being done.

Yes, that may be expected.

And the tyrant, if he means to rule, must get rid of them; he cannot stop while he has a friend or an enemy who is good for anything.

He cannot.

And therefore he must look about him and see who is valiant, who is high-minded, who is wise, who is wealthy; happy man, he is the enemy of them all, and must seek occasion against them whether he will or no, until he has made a purgation of the State.

Yes, he said, and a rare purgation.

Yes, I said, not the sort of purgation which the physicians make of the body; for they take away the worse and leave the better part, but he does the reverse.

If he is to rule, I suppose that he cannot help himself.

What a blessed alternative, I said:—to be compelled to dwell only with the many bad, and to be by them hated, or not to live at all!

Yes, that is the alternative.

And the more detestable his actions are to the citizens the more satellites and the greater devotion in them will he require?

Certainly.

And who are the devoted band, and where will he procure them?

They will flock to him, he said, of their own accord, if he pays them.

By the dog! I said, here are more drones, of every sort and from every land.

Yes, he said, there are.

But will he not desire to get them on the spot?

How do you mean?

He will rob the citizens of their slaves; he will then set them free and enrol them in his body-guard.

To be sure, he said; and he will be able to trust them best of all.

What a blessed creature, I said, must this tyrant be; he has put to death the others and has these for his trusted friends."

In book 9, Plato goes on to describe the miserable existence of the tyrannical man, a mirror of the miserable state that he governs. The miserable life of the tyrant is Plato's final answer to the question of whether it is better to live a life of virtue or vice, since it is vice that leads to tyranny, and tyranny leads to the misery of the one who practices it (obviously I'm oversimplifying here), but that is not the main point in this post. In this post, I just wanted to highlight the prescience of Plato's description of the succession of states and how well it seems to correspond to our own pro(re)gression. We can only hope that he was wrong about tyranny following democracy, or at least that it will follow on sometime in the future after we have passed on ourselves.

97. Guardian Syndrome Derangement Syndrome

2011-09-27T20:30:00.000-07:00

Note: This post is the ninety-seventh in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Today's post is about a group of people who excel at creating prosperity via trade, but find themselves politically oppressed, the fruits of their labours taken from them with little recompense. In response, the oppressed group undertakes to escape their chains, using trade where necessary and force where necessary to make their way to an unoccupied piece of land that they can call home, one where they will be free from political oppressors who would use force to take their wealth.

The bible contains a story like this, the story of the Jews escaping from the Egyptians and eventually finding their promised land - a story that Jane Jacobs cites in 'Systems of Survival' as a good example of how the same group of people can find success by alternating between using commercial syndrome morality and guardian syndrome morality, depending on which is appropriate in the circumstance.

But today's topic is not the Bible, but rather something less concise, the book 'Atlas Shrugged' by Ayn Rand. In Atlas Shrugged, the setting is the United States, in the era when railways were still the main form of transportation and planes were a relatively new invention. The U.S. government seems to be run by a collection of corrupt businessmen and politicians and is descending into a mix of fascism and communism. In response, a group of leading industrialists decide to 'Go Galt,' destroying or abandoning their companies, leaving society behind to join a secret community in a remote part of Colorado.

The story, which tells the tale of how the government gradually escalates its level of unprincipled interference with business, is quite lengthy, but luckily the leader of the industrialists, John Galt, sums up Rand's philosophy in a pithy 100 page speech.

Unsurprisingly, as a businessman, John Galt's primary sympathy lies with the Commercial Syndrome. This is made clear enough early on in his speech when he assets that,

"There is a morality of reason ... man's life [is] the life of a thinking being - not life by means of force or fraud, but life by means of achievement."

Galt recognizes that, unlike the Guardian syndrome in which most of the precepts relate to interactions between people, the commercial syndrome contains a number of precepts that apply to man on his own, in his battle against his own laziness,

"You who prattle that morality is social and that man would need no morality on a desert island - it is on a desert island that he would need it most. Let him try to claim ... that he will collect a harvest tomorrow by devouring his stock seed today - and reality will wipe him out, as he deserves."

Just a little bit later, Galt lists some of the virtues needed for his moral system, a list which generally matches up pretty well with the commercial syndrome:

"rationality, independence, integrity, honesty, justice, productiveness, pride."

Finally, a bit later, Galt expresses the commercial basis of his morality explicitly,

"The symbol of all relationships among such men, the moral symbol of respect for human beings, is the trader. We, who live by values, not by loot, are traders, both in matter and in spirit. A trader does not squander his body as fodder or his soul as alms. Just as he does not give his work except in trade for material values, so he does not give the values of his spirit-his love friendship, his esteem- except in payment and in trade for human virtues."

The message is clear, the trader only acts in his own self-interest and cares not for the interests of others. I emphasize this not to criticize, but to contrast with a later point that Galt makes (which we'll get to in a bit).

As for comfort and convenience, Galt makes clear over and over again that this is the primary purpose of existence, perhaps most memorably when he asks,

"who is enslaved by physical needs: the Hindu who labors from sunrise to sunset at the shafts of a hand-plow for a bowl of rice, or the American who is driving a tractor? Who is the conqueror of physical reality: the man who sleeps on a bed of nails or the man who sleeps on an inner-spring mattress."

Only a commercially minded philosopher would take the time in his manifesto to extol the comfort of the inner-spring mattress!

Naturally, in a moral system based on trade, using force is a big no-no for Galt,

"Whatever may be open to disagreement, there is one act of evil that may not, the act that no man may commit against others and no man may sanction or forgive. So long as men desire to live together, no man may initiate-do you hear me? no man may start the use of physical force against others."

Galt spends so much time repetitively criticizing those who would use force for corrupt purposes that it is easy to lose track of the fact that he does condone the use of force when necessary. Perhaps the most remarkable passage of Atlas Shrugged is this one, where Galt describes when he will use force.

"It is only as retaliation that force may be used and only against the man who starts its use. No, I do not share his evil or sink to his concept of morality: I merely grant him his choice, destruction, the only destruction he had the right to choose: his own. He uses force to seize a value; I use it only to destroy destruction. A holdup man seeks to gain wealth by killing me; I do not grow richer by killing a holdup man. I seek no values by means of evil, nor do I surrender my values to evil."

The story backs this statement up, containing a number of instances where Galt and his fellow tribe members throw comfort and convenience to the winds and sacrifice themselves by showing fortitude, employing force and fraud, discipline and obedience in order to successfully fight physical battles against their enemies. On one instance there is a pitched battle vs. troublemakers at a steel factory, in another case, there is a hostage to be rescued.

So notice what has happened here. Galt spends 98 pages of his 100 page speech talking about how the only set of moral values that exists is the commercial syndrome, where self-interest rules, comfort and convenience are paramount and force and fraud are verboten. But then in the other 2 pages he sneaks in this alternate world where, when violence is initiated, suddenly action must be taken, and now force and fraud are not just allowed, but required, and the person undertaking them is expected to be proficient in their use. Not only that, but these actions of force and fraud must only be undertaken in a spirit of sacrifice, in which comfort and convenience are discarded or put at risk, and it is acting in self-interest that is now forbidden!

Later on, Galt allows that government is needed to enforce rules, to retaliate against those who would commit violence, and to defend the state against enemies from outside. Sadly he never seems to explain how it is the people doing this will be paid, or how they will be restrained from using their power to enrich themselves.

I think that if Rand hadn't been inflicted with such a strong a case of Guardian derangement syndrome (or Guardian syndrome derangement?), much like the one that got Thorstein Veblen, she probably could have set out a pretty reasonable pair of moral syndromes that matched up fairly well with Plato and Jane Jacobs. It's just too bad her work is filled with so much distracting pointlessness (such as the endless insistence that reality is real or that only gold can be 'real money') that it takes away from this message.

---
As an aside, one of the more ludicrous story elements in 'Atlas Shrugged' is the notion that society collapses because a couple of hundred industrialists head off to Colorado for a while. Which is fine, the story is meant to make a point, not to be plausible, but I thought it was interesting to point out why Rand needed such an unbelievable plot point in her book.

The great weakness of a collection of traders is that they are all out for their own interest and that they are (by definition) incapable of acting in a collective manner. Their nature is competition, not monopoly. In the real world, if Steve Jobs left for Colorado and destroyed the Apple company, there are plenty of others willing and able to manufacture phones and provide a service to download songs from the internet. If General Motors shut down, the other car companies could easily pick up the slack. But in Atlas Shrugged, Rand is constantly creating little mini-monopolies by insisting that there is only one company that can make steel properly, only one railway that can run a decent operation, only one person who can find and produce oil, etc.

Rand needs these monopolies in order to allow her collection of industrialists who go on 'strike' and leave for Colorado to have an actual impact on society, instead of just looking foolish. But Rand, who was so attentive to the nature of the commercial syndrome - the competition, the lack of solidarity that would prevent any strike action from being successful, really should have known better. After all, even the Bible, which certainly doesn't shy away from implausible pronouncements, didn't try to insist that Egyptian society collapsed because it couldn't function without the Jews, so that Moses could come back to give the Pharaoh a long, tedious, 'I told you so.'

Site Note

2011-09-20T22:01:00.001-07:00

Just a quick word today to note that I am still blogging, just taking a break during Vancouver's one month of nice weather this year. Most likely I'll return to posting next week.

96. Guardian free zone?

2011-08-16T22:06:00.000-07:00

Note: This post is the ninety-sixth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week I'm going to cover a thought experiment I've been turning over in my mind for the last few days. In Systems of Survival, Jane Jacobs explains that Communism is what results when the guardian syndrome takes over the commercial syndrome. With the breach in the 'shun trading' precept from the Guardian syndrome, the Guardians took control of commerce leading to a failure of the commercial precepts (innovation, efficiency, honesty, dissent, etc.) as they were superseded by Guardian precepts such as (make rich use of leisure, be fatalistic, be exclusive, etc.) But what I wonder is, what would happen in the reverse scenario? What if a group of people decided that they would be governed by commercial principles only rather than guardian ones?

My first thought was that, since one of the commercial precepts is to shun force, the only way this community could survive would be to completely avoid all guardian types who would be willing to use force to seize any wealth generated by the commercial activity. Thinking of this I was reminded of the origins of the great trading nation of Venice, in an out of the way lagoon that was safe from the marauding guardian types running rampant in those days. Of course, any member of our hypothetical non-violent commercial society could take over the whole enterprise if they resorted to force, given that the commercial folks would be unwilling to use force to resist. So the commercial society would have to be extremely careful about who was allowed in, since only 100% acceptance of their morals would be a stable situation.

Given the constraints on the use of violence, it seems completely infeasible to me that a pure commercial society could exist for any length of time, or even form in the first place.

In order to make the commercial society at all viable, there needs to be some mechanism for dealing with those who would use force against it. A location with natural defenses (such as an island in the case of England, another great trading nation) would help, but could never be a complete solution. The logical commercial solution would be to hire mercenaries to enforce the rule of non-violence, much in the way that medieval aristocrats had stewards to trade on their behalf.

Of course, the difficulties of this approach are obvious and were well explained by Machiavelli. The mercenary, must be at least two things: willing to use force, and motivated by wealth. It seems clear that the mercenary will eventually decide that they can make more wealth by turning on their paymaster than by simply accepting their pay.

Another option would be for the commercial folks to make an exemption in their rules of non-violence to allow for vengeance to be taken against acts of force or fraud. In other words, when dealing with a person who does not follow their commercial code, they in turn would choose to use a different moral code, one that condones violence as an act of vengeance against those who initiated violence. But this still causes some issues. A google search for the term 'costly punishment' will uncover lots of academic work which has focussed on the question of whether it makes sense, from the rational commercial syndrome point of view, to take vengeance against someone who has used force against you. The trouble is that the act of taking vengeance benefits the whole commercial society by protecting it against the incursions of someone willing to use force, but the cost of taking vengeance (punishing the perpetrator) falls solely on the person who does the punishing.

Researchers starting from a premise of rational self-interested behaviour have struggled to explain why people are willing to go beyond what is 'rational' in their willingness to punish those who have wronged them. But of course, if people have a moral value of taking vengeance this puzzle disappears, much as the Mancur Olson explained that a moral value of loyalty or cooperation could mitigate the puzzle of how collective action can be sustained by large groups.

You can see where this is leading, I'm sure. The commercial society has two options if it wants to survive: the corrupt, unstable, syndrome-mixing solution of hiring mercenaries, or the establishment of a second set of morals, one based on a willingness to take vengeance, even when it is not in your own self-interest to do so, one based on a willingness and an ability to use force effectively.

There seems to be an asymmetry between the two syndromes, reflecting the lack of proportion between the armed and the unarmed that Machiavelli described. The guardians can take over the commercial syndrome and society can still run, albeit not as successfully as it would with the two syndromes kept separate. But the commercial syndrome simply can't exist without guardians. Seen in this view, much of the structure of our government, from the Magna Carta on down, can be seen as an elaborate scheme devised by the commercial folks to maintain the existence of guardians while constraining their ability to interfere with the commercial syndrome as much as possible. Balance of powers between legislatures, senates and executives, term limits, constitutions backed by legal systems, democratic elections, media watchdogs, etc. all serve (or at least can serve, if circumstances are right) to constrain the ability of guardians to take over the economy.

Beyond these institutional mechanisms, I see two other bulwarks against the guardian takeover of the commercial syndrome. The first is simply strong guardian morals. The shunning of trade by guardians, the fortitude that disregards material wants, the willingness to sacrifice for the community, all of these traits serve to prevent the guardians from using their privileged position to enrich themselves at the expense of the economy. The second is the existence of competition between nations. This seems a bit counter-intuitive, since competition between nations can take the form of war, which is the most guardian of all activities, but war requires resources to be prosecuted successfully, and a country which maintains a strong commercial culture will have more economic resources to devote to the war effort. And aside from war, the citizens of the country with the weaker economy will naturally want to see their country imitate the country with the stronger economy. We could see both of these forces at work in the Soviet abandonment of communism in favour of capitalism.

Similarly, it seems to me that two of the great flourishings of commercial life occurred in Greece and in Europe, and that both of these emerged from geographical areas where the terrain, combined with the technology of the time, favoured the creation of a number of small competing states.

Anyway, this was just another random train of thought post, the next post will examine the source of this bout of meandering.

95. Beyond Guardian and Commercial Ethics

2011-08-02T19:55:00.000-07:00

Note: This post is the ninety-fifth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is German philosopher Friedrich Nietzsche and his efforts to discover a 'genealogy' or origin for our moral sentiments.

The first time Nietzsche takes on this question is in 'Human, All too Human,' in the chapter, "On the History of the Moral Sensations." There's two main passages in this chapter that seem relevant to our series on ethics.

The first, is paragraph 94, 'The three phases of morality hitherto':

"It is the first sign that animal has become man when his actions are no longer directed to the procurement of momentary wellbeing but to enduring wellbeing, that man has thus become attuned to utility and purpose: it is then that the free domination of reason first breaks forth. An even higher stage is attained when he acts according to the principle of honour; in accordance with this he orders himself with regard to others, submits to common sensibilities, and that raises him high above the phase in which he is diverted only by utility understood in a purely personal sense; he conceives utility as being dependent on what he thinks of others and what they think of him. Finally, at the highest stage of morality hitherto, he acts in accordance with his own standard with regard to men and things: he himself determines for himself and others what is honourable and useful.; he has become the lawgiver of opinion, in accordance with an ever more highly evolving conception of usefulness and honourableness. Knowledge qualifies him to prefer the most useful, that is to say general and enduring utility, to personal utility, general and enduring honour and recognition to momentary honour and recognition: he lives and acts as a collective-individual."

There are a couple of points to highlight here. The first is the notion of patience or prudence, favouring the long run over the short run as central to morality, in particular to personal morality that maximizes one's utility. The second is the division of morality into a personal stage based on utility and an inter-personal phase based on honour. How similarly this resembles our split between a guardian syndrome filled with precepts governing our relations with others and a commercial syndrome which is primarily concerned with maximizing our own utility (although the commercial syndrome also covers inter-personal relationships manifested via trade).

The second passage is paragraph 45, 'Twofold prehistory of good and evil':

"The concept good and evil has a twofold prehistory: firstly in the soul of the ruling tribes and castes. He who was the power to requite, good with good, evil with evil, and also actually practices requital - is, that is to say, grateful and revengeful - is called good; he who is powerless and cannot requite counts as bad. As a good man belongs to the 'good', a community which has a sense of belonging together because all individuals in it are combined with one another through the capacity for requital. As a bad man belongs to the 'bad', to a swarm of subject, powerless people who have no sense of belonging together. The good are a caste, the bad a mass like grains of sand. Good and bad is for a long time the same thing as noble and base, master and slave. On the other hand, one does not regard the enemy as evil: he can requite. ... Our present morality has grown up in the soil of the ruling tribes and castes."

Unlike the previous quote, which is never really revisited much in Nietzsche's writings, this notion of the twofold origin of good and evil will be discussed in much greater length, first in the chapter 'The Natural History of Morals' in 'Beyond Good and Evil' and finally at book length in 'The Genealogy of Morals.'

As he moves along, Nietzsche seems to become less certain about the morality level of Europe, and gradually begins to attribute the growing prevalence of 'slave' morality in Europe as being due to religious influence, from Christianity and Judaism. But the notion of two different systems of morality, one based on the ability and willingness to take vengeance and one based on non-violence persists in his thinking.

In 'The Genealogy of Morals' Nietzsche identifies certain cultures as 'noble races' that hew to 'master race' morality such as the "Roman, Arabian, German, Japanese nobility", as well as the "Homeric heroes and the Scandinavian vikings." This is contrasted with primarily the Jews, but also on occasion the Chinese as cultures with primarily 'slave' morality. It seems unlikely to be coincidence that the two cultures that Nietzsche identifies as being emblematic of a 'slave' morality that doesn't use violence or take vengeance are two cultures that are renowned the world over for the commercial success of their citizens.

Having said that, Nietzsche never really identifies salve morality with commercial culture. At first I thought that maybe that was just because Nietzsche was so guardian minded that he didn't even acknowledge the existence of commerce (even a guardian-type like Aristotle deigned to denigrate commercial ethics as base and shameful). But as 'The Genealogy of Morals' goes along, Nietzsche shows his awareness of commercial culture as he traces our notions of guilt and personal obligation and even justice back to the "...oldest and most primitive relationship between human beings, that of buyer and seller, creditor and debtor." So it wasn't that he was unaware of commercial ethics, he just didn't link it up with 'slave' morality explicitly.

So, it's not a perfect match, by any means, but still the notion of two ethical systems, one based on 'noble' races that are barbaric and love conquest and take vengeance and have good manners and one based on 'slave' races that shun violence, don't (can't) take vengeance and is associated with successful commercial cultures certainly lends some support to the notion that Nietzsche was working his way towards the notion of Guardian and Commercial ethics, although his remarkably strong guardian mindset may have skewed his observations somewhat.

94. Elements of a Simulation

2011-07-12T21:05:00.000-07:00

Note: This post is the ninety-fourth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week, I just wanted to think out loud about what elements would need to be included in a simulation designed to test Jane Jacobs' theory about the 'Systems of Survival'.

The three basic elements I think we need are land, stuff and people.

Based on the territorial nature of the guardian syndrome, it seems as if we need a model that allows for people to interact in a 2 dimensional territory in order to replicate whatever it is about managing land that lends itself to guardian activity.

The interesting variations in the nature of the land that I see are that it could either be finite in size, infinite or it could be finite and also contain various natural boundaries (rivers, mountains, etc.) that would tend to foster distinct political groups forming.

In addition, the land needs to support some sort of resource production, since we will need something for our people to take and trade.

As for the people, they are more complex.

First of all, people will need to have various ethical approaches open to them. Looking at Jacobs' list of precepts, I see the following minimum requirements:

Use force and fraud (take) / Shun force and fraud (trade)
Work hard(er) / Take more leisure
Be obedient / Make your own decision about what is best
Be loyal / Be selfish
Be exclusive / Be open to dealing with strangers
Consume now / Invest to consume more later
Share wealth or dispense largesse / Hoard wealth
Compete / Cooperate

Naturally, putting these options into concrete terms that can be coded into a simulation will be the tricky part.

In addition, for obedience and dispensing of largesse to make sense, we'll need a concept of hierarchy or rank.

For definitions of loyalty and exclusivity to make sense, we'll need a concept of groups or identity.

If taking is an option, we'll need some sort of conflict resolution method, involving individual strength for our people as well as some logic for measuring the increase in combined strength that comes from cooperation. Note that relative strength could also function as a resource which is finite in quantity (although absolute strength would not be).

If trading is an option, we'll need at least two different goods or resources in circulation, that are valued differently by different people. It may be interesting to add another element that is finite in quantity (besides land) to see if it is treated differently.

If investing is an option, we'll need a function that translates investment of time and resources into more/different resources.

People will also need an objective so that we can rank how 'well' they are doing in the simulation. Some possibilities:
Maximize wealth
Maximize consumption of comfort and convenience (resources)
Maximize rank
Maximize status
Maximize honour
Maximize population
Maximize some combination of these.
And of course any of these objectives could be for the person themselves, for the group they belong to or for all people in existence.

Lots of possible combinations - you can see why economists like to simplify and pretend that people only care about their own personal wealth, but clearly this approach will be too limited to either represent reality or to help us develop a simulation that will incorporate the ethical choices listed above.

Finally, we'll need to define how our people's behaviour works over time. Do people just have a fixed set of ethical behaviours and we see who does best. Or do we allow people to modify their behaviour based on the context (trading vs. taking), or to modify their behaviour based on the success of those they encounter, can a leader cause them to change their ethical approach, or do we just introduce random mutation into people's behaviour patterns and see how things evolve.

Obviously, the number of permutations is large, even leaving out all the elements I've no do doubt overlooked here. It seems like it would be best to start with a simple scenario and then gradually elaborate it to take more elements and more complexity into account. But that's a task for another day...

93. Left and Right

2011-07-05T21:38:00.000-07:00

Note: This post is the ninety-third in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Systems of Survival by Jane Jacobs defines two distinct syndromes, one covering commercial ethics and one covering guardian, primarily government, ethics.

The last few centuries of politics in western countries has been dominated by a battle between two rival ideologies, the left and the right. It's always seemed a bit mysterious to me that certain groups of policies would end up neatly packaged along an ideological spectrum like that. Given the similar structure of the syndromes and the left-right political spectrum, I naturally wondered if there was any connection between the two syndromes identified by Jane Jacobs and the left-right political divide.

Thinking about it a little, I don't think that an analogy to right vs. left really works, but maybe there is some connection to the distinction between conservatism and liberalism.

The defining element of Conservatism is respect for tradition (a guardian trait) while Wikipedia defines a concern for equal rights which lines up with the commercial ease of collaboration with strangers and aliens, and contrasts with the conservative respect for hierarchy. Similarly, classical liberalism emphasized the role of free markets and that government needed the consent of the governed (respect contracts, come to voluntary agreements). Wikipedia says that, Edmund Burke, a famous conservative, "insisted on standards of honor derived from the medieval aristocratic tradition, and saw the aristocracy as the nation's natural leaders."

When I think of our modern political parties of the left and right, however, even though the names Conservative and Liberal remain, there seems to be some drifting from the traditional Conservative and Liberal roles. The current 'Conservative' party is actually descended from the 'Reform' party, a movement which wanted to fight and overturn the existing hierarchy, and which wants to dispense with tradition in many ways, from the role of the Governor General to the Senate.

Similarly, old-style conservatism involved the concept of noblesse-oblige, in which there was an obligation of the wealthy to help the lower classes, but in modern politics it is the left-wing which supports the lower classes, while right-wing policies generally favour the wealthy. Meanwhile, the Liberal party favours far more government intervention in the economy than would have been considered under classical liberalism.

Looking back at the twentieth century, it seems that the World Wars and great depression led to a new political model, known generally as 'the welfare state' in which government directed a significant percentage of spending in the economy. Since then politics has divided between those who want to continue or expand that trend and those who want to go back to the 19th century of a much more limited government role in the economy.

On the one hand, Jane Jacobs identified mixing of the morals from the two syndromes as the primary form of moral corruption. But on the other hand Jacobs identified a number of examples where government and the commercial sphere could use their respective strengths to accomplish things that otherwise couldn't be done.

At any rate, words like Liberalism and Conservatism have so many meanings these days that maybe this post is just a waste of time, but it seems as though with the emergence of capitalism and the growing importance of the commercial syndrome, there was a period where the new commercial ethics and old guardian ethics battled it out in the political forum but in more recent years the lines have been re-drawn partly along class lines instead with the battle between the classes replacing the earlier battle between Liberalism and Conservatism.

Of course, there is no reason why a party couldn't support implementing Jane Jacobs ideal vision of both syndromes in force, complementing each other as necessary, and kept separate where appropriate. But I guess figuring out just what that last part means exactly isn't so easy.

92. Information Sharing

2011-06-21T21:03:00.000-07:00

Note: This post is the ninety-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

A number of posts ago, I discussed an essay by Joseph Heath in which he posited that there are 5 distinct types of cooperation: Economies of scale, trade, risk-sharing, information transmission, and self-binding.

This week I wanted to go into a bit more detail on the differences between information transmission and what we normally think of as trade, using the essay, "The Next Economy" by Brad Delong and Michael Froomkin as a starting point.

Delong and Froomkin set out 3 primary differences between information and more typical physical goods:

1) Information is non-excludable - Once a piece of information exists it is hard to control who has access to it (recall the friends episode where Chandler and Joey try to figure out the path that the information that Ross slept with someone else will take to get to Rachel). The primary implication of non-excludability is that goods might be under-produced (as compared to the socially optimal level of production) because people won't be forced to pay a price for the information that is commensurate with the value that information has to them (i.e. somebody might be willing to pay a high price for the latest Sufjan Stevens album, but instead just download a free copy off the internet).

Society has generally responded to this lack of excludability by trying to restore it via copyright and patent laws that go after free riders.

As Delong and Froomkin note, this is a balance between the costs of enforcement and the reduction in information sharing on the one hand, vs. the added incentives to generate valuable information on the other.

2) Information is non-rival - You can't really transfer possession of information from one person to another, you can only share it. Unlike, say, a chair which only one person can sit on at a time, an effectively infinite number of people can have access to the same piece of information.

As the authors say, "the existence of large numbers of important and valuable goods that are non-rival casts the value of competition itself into doubt."

In a goods market, when sellers compete on price they allow more people to benefit from the product being sold by reducing the price to their marginal cost. But with non-rival goods like information, the marginal cost is zero and if competition was to drive the price down to 0, the producers would go out of business. In this environment, competition might end up taking less beneficial forms than lower prices (e.g. methods to lock customers into your product and prevent them from having access to other providers).

3) Transparency: When you're buying a chair, you can usually get a pretty good idea of the quality and comfort of the chair before you buy it. But with information, this is much more difficult. If you don't have the information, how can you judge its value. If you do have the information, why would you pay someone else for it. Information is the side product that allows you to value other products before you buy them, but it is hard to make it work on itself.

---
We can see that the unique nature of information undermines some of the traditional commercial virtues that make up the commercial syndrome.

The benefit of competition is reduced with information. Both from economies of scale (people are better off browsing a single large library than they are searching through a million little ones.) and from the hazards of price competition in an environment where marginal costs are zero.

The (financial) incentive to innovation and industriousness is lowered by the lack of rewards that may come for your efforts.

The benefit of being honest is less when it is difficult for people to tell ahead of time if you are lying or providing a poor quality product.

Respect for contracts is undermined by a legal system that places artificial restrictions on sharing of information that reduce overall social welfare and technology that makes evading those restrictions easy for anyone to do with little consequence.

---
On the other hand, some commercial syndrome elements seem even stronger when it comes to information - shunning force makes even more sense when there is so little to be gained through the use of it (see the widespread disdain for industry groups that sue their customers).

Collaboration with strangers has flourished in an era of information transmission.

The quick transmission of information has led to a high regard (some might say too high) for inventiveness and novelty.

---
With respect to the guardian syndrome, information does have some of the characteristics of public goods, meaning that there are social benefits to government ensuring there is adequate production of them. And indeed government funds most basic research and takes a major role in transmitting information (via education) to each generation of citizens.

But information sharing is no place for the use of force, or respect for tradition, and individuals and companies that spend their time in the world of information generation and transmission often seem just the opposite of stuffy government rules and procedures - so clearly information sharing is not a typical guardian activity.

---
To be honest, I'm not sure quite what to make of information as an area of cooperation that seems to be distinct from both the traditional commercial syndrome ethics and from traditional guardian ethics. Maybe the unique nature of information demands its own set of ethics but the relatively new importance of information in the economy means that this has yet to be fully developed.

91. Another View on the Evolution of Cooperation

2011-06-14T20:28:00.000-07:00

Note: This post is the ninety-first in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I happened upon an interesting article the other day by Daron Acemolgu.

Acemolgu points out that researchers often use coordination models to study the level of cooperation in society because these models allow for multiple equilibria - i.e. one with cooperation, one without¹

"Why do similar societies end up with different social norms, and why and how social norms sometimes change? A common approach to answering these questions is to use coordination games, which have multiple equilibria corresponding to different self-fulfilling patterns of behaviour and rationalise the divergent social norms as corresponding to these equilibria. For example, it can be an equilibrium for all agents to be generally trusting of each other over time, while it is also an equilibrium for no agent to trust anybody else in society. We can then associate the trust and no-trust equilibria with different social norms."

As he goes on to point out, this isn't a very dynamic analysis, in the sense that it doesn't answer the questions of why or how we get from one equilibrium to another.

"Simply ascribing different norms to different equilibria has several shortcomings, however. First, it provides little insight about why particular social norms and outcomes emerge in some societies and not in others. Second, it is similarly silent about why and how some societies are able to break away from a less favourable (e.g., no trust) equilibrium. Third, it also does not provide a conceptual framework for studying how leadership by some individuals can help change social norms."

I didn't spring for the $5 required to download the full paper, but from the article it seems like one mechanism posited by Acemolgu for society to move from one equilibrium to another is if a 'prominent' person influences other people with their own behaviour.

"A particularly important form of history in our analysis is the past actions of "prominent" agents who have greater visibility (for example because of their social station or status). Their actions matter for two distinct but related reasons. First, the actions of prominent agents, impact the payoffs of the other agents who directly interact with them. Second, and more importantly, because prominent agents are commonly observed, they help coordinate expectations in society. For example, following a dishonest or corrupt behaviour by a prominent agent, even future generations who are not directly affected by this behaviour become more likely to act similarly for two reasons; first, because they will be interacting with others who were directly affected by the prominent agent's behaviour and who were thus more likely to have followed suit; and second, because they will realise that others in the future will interpret their own imperfect information in light of this type of behaviour. The actions of prominent agents may thus have a contagious effect on the rest of society."

What strikes me, coming back to the discussion about coordination, is all the words we have that, in the right context, mean the same thing: coordination, cooperation, correlation, collaboration, etc. Naturally, the trick with a coordination problem is to somehow coordinate everyone's behaviour. A hierarchical structure can create a monopoly in which one entity/person controls all, thus greatly simplifying the problem of getting everyone to sing from the same songbook. When putting leviathan in charge isn't feasible or isn't desired, then it becomes trickier to get a bunch of independent actors to coordinate on a particular outcome.

The 'prominent' person is like a soft version of the leviathan - not forcing everyone to go along, merely setting a good or bad example and hoping the ripples of that behaviour are enough to 'tip' society from one equilibrium to another. I didn't read the paper so I shouldn't really comment, but the notion that something like JFK asking people what they can do for their country is going to lead to a widespread change in behaviour seems hard to swallow for me. To me it seems more likely that levels of cooperation will be driven by a combination of history (as Acemolgu acknowledges) and changes in fundamental factors like technology (e.g. the medium is the message) and the natural environment (along the lines that I discussed in my last post).

***
¹Note: The Stag Hunt, that we discussed back here is an example of a game theory model with more than one equilibrium.

90. Peak Oil and the Commercial Syndrome

2011-06-07T21:11:00.000-07:00

Note: This post is the ninetieth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I guess it took a little longer to get back to the blog than I was expecting, due to post-vacation fatigue and busy-ness. It will be a short post this week as well, as I work my way back into the blogging flow.

While I was away, I was thinking about the relationship between energy supplies and the commercial syndrome. There is certainly causality in one direction as the innovation inherent in the 'Protestant Work Ethic and the Spirit of Capitalism' unlocked the energy in first coal, and then oil (not to mention natural gas, nuclear, hydroelectric, solar, etc.), as western civilization leaped ahead of the rest of the world in technological progress and material standards of living (i.e. comfort and convenience).

But what about the other direction? What if innovation fails in the face of our current energy requirements and the amount of energy available per person starts to decline for the first time in a number of decades/centuries?

The commercial syndrome is based around win-win transactions, but to keep the engine of trade and innovation going, new inputs are always needed. It seems logical to me that the commercial syndrome will flourish most when energy inputs are rising and economic growth is strong. In these circumstances, people are less concerned about distribution and more concerned with just improving their own lot.

But if I consider my limited knowledge of the history of civilization, the current strength of the commercial syndrome seems like a bit of an anomaly, with the guardian syndrome dominant in most times past (although part of that may just be that the guardians wrote more stuff down about themselves and built bigger monuments and so on).

I'd always figured that, even if we struggle to find enough oil or replacements for oil to avoid a downturn in our energy consumption, there's so much inefficiency in our economy that we should be able to manage reasonably well just by not wasting so much energy. But I worry that in an energy downturn, there will be less of a sense that all boats can ride a rising tide, and there may be a tendency to revert to guardian-style battles over distribution of the no longer rising tide of pies.

Looking at the rise in inequality and drop-off in wage increases that occurred in most Western countries around the time of the first oil crises in the 70's, it's possible that we've already been in this situation to some extent for decades now.

Anyway, this is just a train of thought and I certainly wouldn't come to any conclusions based on it, but I do worry that if we can't continually increase our energy consumption, we'll run into serious political problems that will aggravate what would otherwise be manageable energy issues. Certainly our non-response to the threat of climate change doesn't offer much reason for optimism in terms of how well we will deal with any sort of limitations on our insatiable quest for comfort and convenience.

89. Moneyball

2011-04-26T19:36:00.000-07:00

Note: This post is the eighty-ninth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Just a short, light-hearted post this week, as vacation calls (next post will be on May 17).

I've been reading the book 'Moneyball' by Michael Lewis. When I started reading it, I didn't do it with the intention of relating it to this series of posts, but I couldn't help myself (yes, it's possible that I should seek help of some sort).

Moneyball tells the story of how the Oakland A's were able to succeed at Major League Baseball, despite having less money to spend on players than their competition, by innovating in their approach to winning games.

Baseball, like most sports, is in essence a guardian activity, fulfilling the guardian precept to 'make rich use of the leisure', by the same token as the 'shun trading' precept led to the establishment of the Olympics only for amateurs, not for professional athletes. Of course the Olympics is a long way from only allowing amateurs to compete, and professional baseball is even further away from shunning trading in any form.

But still, there is certainly respect for tradition in baseball, and deceit for the sake of the task (hiding signals, stealing bases, etc.), loyal fans, fortitude, fatalism, hierarchy and so on.

But out of the pro sports, baseball least resembles a traditional battle for territory where strength and perseverance in the face of the opposition is required. To a large extent, baseball consists of specific tasks that don't involve direct contact with the opposition players and which are amenable to detailed statistical analysis.

In Moneyball, we see how the management of the Oakland A's takes advantage of the statistical nature of baseball to introduce rational commercial syndrome analysis in order to be efficient at the business of translating dollars into wins.

An early chapter, "How to Find a Ballplayer" outlines the clash between the traditional way of scouting and the new, disruptive, innovative approaches taken by the A's.

"Reason, even science, was what Billy Beane was intent on bringing to baseball."

"Billy had taken to saying, "We take fifty guys [in the draft] and we celebrate if two of them make it. In what other business is two for fifty a success? If you did that in the stock market you'd go broke."

"It was only baseball tradition that allowed scouting directors and scouts to go off and find the ballplayers on their own without worrying too much about the GM looking over their shoulders. And if there was one thing [scouting director] Grady knew about Billy, it was that he could give a fuck about baseball tradition."

It's not just tradition vs. innovation, there was also the related battle between guardian virtues of loyalty and presenting a united front vs.the commercial precept of dissent for the sake of the task

"The old scouts aren't built to argue; they are built to agree. They are part of a tightly woven class of former baseball players."

One of the key points the A's focussed on was to look at the actual factual record of each player's accomplishments rather than focussing on how much they 'looked' like an athlete, like someone you'd wanting fighting with you in a war, as opposed to someone who can stand in the batter's box and tell balls from strikes.

"Over and over the old scouts will say, "The guy has a great body," or "This guy may be the best body in the draft," And every time they do, Billy will say, "We're not selling jeans here"

A final element of the commercial syndrome was 'Collaborate Easily With Strangers and Aliens.' The first person to send the A's down the road of change was Sandy Alderson. In describing t

he difficulty in changing the way things were done, Alderson explained that, "I had credibility problems. I didn't have a baseball background."

So I found it interesting to see the same inroads made by innovation into the traditional way of doing things that Weber described in 'The Spirit of Capitalism' echoed so closely in a book about baseball.

But for all that, the most compelling part of Moneyball as entertainment is a chapter entitled, "The Human Element" which follows A's general manager Billy Beane as the A's, looking to set a record for consecutive wins, first take the lead in a game 11-0, then end up tied at 11 and finally win 12-11. Even in a story about the rational, commercially minded approach of investing in players who are productive, and being innovative and throwing tradition away and being efficient and thrifty, it's still the dramatic elements, the moments when rationality fails that draws us in and moves us. Moneyball works, but it's just business.

88. All's Fair in Love and War

2011-04-19T20:21:00.000-07:00

Note: This post is the eighty-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

"She cried, "Hold me back!
Hold me back, take away my gun
Hold me back, hold me back
Somebody won't you please hold me back
Don't let me do what must be done"

- Michelle Shocked - Hold Me Back

First question: What would cause a person to enter into a transaction that makes them worse off?

The most obvious possibility is that they didn't have a choice. Is someone pulls a gun on you on the street and takes your wallet, you have entered into a transaction that made you worse off, but you did it involuntarily. So transactions involving threats of violence are one possibility.

Another possibility is that a person gets tricked into making a bad transaction. For example, they bought something that turned out to be fake, or were promised something that never arrived. So fraud is another possibility.

And of course, people often do things that they themselves regret later. Even things that they know they will regret later as they are deciding to do them.

Now here's the follow-up question - in what cases are win-lose transactions beneficial to society?

Some might respond that taking something by force or fraud is never beneficial to society, but when faced with a situation where police are trying to capture a dangerous criminal or their military is fighting in a war, I think most people come around to the notion that there are situations where force and fraud are for the best and are morally justified.

The two examples above provide different cases for where we see the win-lose transaction as an overall benefit.

In the case of the police, we acknowledge that we are doing harm to the criminal, but we do so for the greater good. If a person has shown that they are willing to commit win-lose transactions that benefit themselves but hurt society (i.e. stealing) then we reason that the harm done by locking them up is outweighed by the harm prevented by keeping them from making more win-lose transactions.

Note that in order for this logic to work, the person doing the enforcing has to be strong enough to impose their sanctions on the criminal without effective retaliation. If criminals are able to retaliate effectively then our attempts to control crime will just lead to more and more violence. Only when someone can establish a monopoly on violence so that retaliation is futile can this cycle be broken. This was basically the main point made by Hobbes in Leviathan.

In a war, the reasoning is a bit different. Typically we rationalize the win-lose transaction in this case by simply not counting the impacts on our enemies in our calculations (or by calculating them with the reverse sign so that any harm caused to them counts as a good thing.)

True, any war effort usually has rationalizations that will justify it as being for the greater good (i.e. preventing the use of weapons of mass destruction), but the reality of war is that the calculus is generally in terms of our country not in terms of the total welfare of the two countries.

So in terms of modelling the win-lose transaction as a net benefit, I see two possibilities. One, based on an us vs. them distinction where we either don't count the harm caused to the other party or treat it as a good thing, and one where we count it, but we use an analysis of the total result over time to show that this particular harm is justified because it is outweighed in the long run by the benefits to society from causing the harm to the particular individual.

Of course, it is also possible that humans are programmed (genetically disposed) to take the former approach (treating harm to the enemy as a good thing) because it works out best for us overall.

A final case that I touched on earlier, is the case of a paternalistic decision where even though one person to the transaction wants to go through with it, another party prevents them from doing so because it is not believed to be in their best interest. For example, someone might want to ride their bike without a helmet but there is a law against that. Not because the person riding without a helmet is causing harm to others, but because we believe they may cause harm to themselves. As we saw previously, hyperbolic discounting (where people do things now that they will regret later) is a major cause of these sorts of situations. Of course trying to establish that society knows what's best for a person better than they do can be a tricky proposition. I'm not going into more detail on paternalistic transactions at this point (maybe in a later post), I just wanted to highlight them as another form of decision that might be regarded as 'win-lose' by some.

Posting Will Resume Next Week

2011-04-12T22:05:00.001-07:00

Until then...

87. Us and Them

2011-04-05T20:31:00.000-07:00

Note: This post is the eighty-seventh in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week, I want to to look more closely at one of the most controversial precepts in the Guardian syndrome, 'be exclusive.'

How to model exclusivity in terms of game theory dynamics seems relatively straight-forward and we have encountered models that apply exclusivity already in discussing the strategy 'tit-for-tat' in 'The Evolution of Cooperation' or in the work of Brian Skyrms in 'The Stag Hunt'

In these models, exclusivity generally takes the form of 'cooperators' (people who choose the cooperative option in a prisoner's dilemma or stag hunt situation) who exclusively cooperate with other cooperators and will defect when they come up against a defector. Naturally this raises questions about how to identify who will cooperate and who will not. It's a thorny enough issue that the famous Lensman sci-fi series by 'Doc' Smith was even named after the device (the 'Lens') that the good guys employed to tell who could be trusted in their fight against the bad guys.

The benefit from appropriate exclusivity is obvious - putting your trust in people you can trust is beneficial while putting your trust in people you can't trust is not.

But despite the obvious benefits, exclusivity is a controversial precept, primarily because, unlike in the hypothetical world of David Gauthier, people don't wear sweatshirts that identify their trustworthiness, so people fall back on measures that are hard to fake such as religion or skin colour.

To see how controversial this is, I'm going to take the example of the closing essay from 'Moral Sentiments and Material Interests' (previously discussed in this series here), "Social Capital, Moral Sentiments and Community Governance by Samuel Bowles and Herbert Gintis.

The gist of this essay is that neither an all powerful government nor a completely unfettered marketplace will lead to optimal economic outcomes and that community governance based on appropriate moral values can often fill in where government and markets fail.

They state that,

"in contrast with states and markets, communities more effectively foster and utilize the incentives that people have traditionally deployed to regulate their common activity: trust, solidarity, reciprocity, reputation, personal pride, respect, vengeance, and retribution, among others."

Of course, that's a nice list of guardian syndrome precepts, which Jane Jacobs observed were generally respected within the ranks of government and contrasted with an opposite commercial moral syndrome, so the positioning of community by the authors as some mid-point on a line that runs from socialism to laissez-faire seems a bit off. They do admit, later on, that the state and community groups need to work together since the state has enforcement powers that community governance groups typically lack.

Gintis and Bowles go on to talk about how it's not just states and markets that can fail, communities can fail too.

"A second 'community failure' is less obvious. Where group membership is the result of individual choices rather than group decisions, the composition of groups is likely to be more culturally and demographically homogenous than any of the members would like, therefore depriving people of valued forms of diversity. To envision this scenario, imagine that the populations of a large number of residential communities are made up of just two types of people easily identified by appearance or speech, and that everyone strongly prefers to be in an integrated group but not to be in a minority. If individuals sort themselves among the communities, there will be a strong tendency for all of the communities to end up perfectly segregated for reasons that Thomas Schelling pointed out in his analysis of neighbourhood tipping. Integrated communities would make everyone better off but they will prove unsustainable if individuals are free to move."

To me, it's not clear how integrated communities will make people better off if nobody wants to be in a minority, but my point is that the authors see exclusiveness as similar in nature to 'white flight¹' and believe that diversity brings self-evident benefits that people are expected to want and get value from.

The authors go on to describe four key elements of a good governance package for communities, the fourth of which is described as follows:

"active advocacy of the conventional liberal ethics of equal treatment and enforcement of conventional anti-discrimination policies. That is is not unrealistic to hope that communities can govern effectively without repugnant behaviours favoring 'us' against 'them' is suggested by the many examples of well-working communities that do not exhibit the ugly parochial and divisive potential of this form of governance."

...

"Other ways of empowering communities can be imagined, but some should be resisted on grounds that they heighten the difficult tradeoffs between good governance and parochialism² mentioned in this chapter. For example, Alesina and Le Ferrara found that among United States localities, participation in church, local service and political groups, as well as other community organizations is substantially higher where income is more equally distributed, even when a host of other possible influences are controlled. Their findings suggest that policies to increase income equality would enhance community governance. But they also found that racially and ethnically diverse localities ... had significantly lower levels of participation. One may hope that pro-community public policy would not seek to increase racial and ethnic homogeneity of groups for this reason."

It's not clear to me how this empirical result squares with the theoretical argument earlier that people are better off in a diverse community, but more importantly note how it is automatically assumed by the authors that the value of diversity outweighs any gains to be made from participation in church, local service and political groups.

Later on the essay has a nice series of quotes from Edmund Burke, Alexis de Toqueville and Mark and Engels all lamenting how commercial morality was replacing guardian morality.

Burke:

"The ago of chivalry is gone. That of Sophisters, economists, and calculators has succeeded."

de Toqueville:

"as for the rest of his fellow citizens, he is close to them but he sees them not .. he touches them but feels them not; he exists but in himself and for himself alone."

Mark and Engels:

"The bourgeoisie ... has put an end to all feudal, patriarchal, idyllic relations ... and has left remaining no nexus between man and man than naked self-interest ... In place of the numberless indefeasible chartered freedoms, it has set up that single unconscionable freedom - free trade."

The authors argue that instead of looking to past systems of values, community governance will thrive if it can solve practical problems today (they don't mention the possibility that this may be one and the same thing) or reference their earlier list of moral values that the community uses to help it achieve solutions to modern problems), but it seems ironic that, having said that, they fail to acknowledge that the biggest stumbling block towards community governance, by their own acknowledgement, is their moral value which puts the value of diversity ahead of the gains from a homogenous community.

Anyway, as with the entire book, the essay is well worth reading, although, I did find the closing paragraph oddly hesitant:

"If we are right that communities work well relative to markets and states where the tasks are qualitative and hard to capture in explicit contracts , and where the conflicts of interest among members of society are limited, it seems likely that extremely unequal societies will be competitively disadvantaged in the future because their structures of privilege and material reward limit the capacity of community governance to facilitate the qualitative interactions that underpin the modern economy."

In the future? Latin America exists now, and has been around for quite a while in its highly unequal and 'competitively disadvantaged' state. I don't think we need to wait for the future to test this theory.

----
¹As an aside, a quick glance at the NY Times interactive census map shows that white flight is an ongoing phenomenon in most of the U.S.

²Notice the religious origin of the word 'parochialism' which evokes a
combination of exclusivity and respect for tradition.

Daniel and Henrik Dangerfield

2011-03-30T17:23:00.000-07:00

I saw this headline linked from another site, "Anson Carter: Where would the Sedins be without me?" and I assumed it was an Onion-style satire, but apparently not.

The article says, "The 2005-06 campaign represents the Sedins’ coming-out party; their pronouncement to the hockey world that there was something special about their skills and their chemistry."

and that, "Carter also saw something that season and even if he couldn’t project what the twins would become — largely because no one could..."

In response, let me just link back to one of the few times I've posted on hockey on this blog, back at the start of 05-06 season when I pointed out that the Sedins were doing fine, they just needed more ice time and time on the power play. And they got more ice time and more time on the power play in 05-06 and their point totals went up right in line with that increase.

I also love how the article notes that a) Carter wanted $3 million/year, b) he was out of the league at the end of the season after he didn't get it, and c) the Sedins went on to bigger and netter things with him gone, but still manages to make it seem like it was possibly the wrong decision not to give Carter the $3 million he wanted.

None of this matters, I guess, it would just be nice if people (in the media in particular) paid more attention to reality. And yes, I've been blogging for many years, so I suppose I must be a slow learner since I haven't learned to just live with this sort of nonsense by now.

86. Casts of Mind, War and Peace Edition

2011-03-29T21:44:00.000-07:00

Note: This post is the eighty-sixth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Paul Krugman had a post up recently about the U.S. Civil War and some of what he said struck me as relevant to his cast of mind, in the sense that some people have a 'guardian mindset' and some people have a 'commercial mindset.' Economists are typically the purest examples of the commercial mindset.

Here's a few quotes from his post,

"It’s the 150th anniversary of the start of the Civil War ...I’ve long had a special fascination, not with how the war began, but with its end. ...mainly, I think, it’s because of the symbolism of that final surrender: Lee the patrician, in his dress uniform, surrendering to the not at all patrician U.S. Grant, still muddy and disheveled from hard riding. It was, in a very real sense, the victory of modern America — of a democratic nation, in manners as well as politics — over an aristocratic ideal.

And the way modern America won was characteristic. Southerners were better warriors — man for man, they almost always outperformed Union armies, although the gap narrowed over time. But the North excelled at the arts of peace — that is, in industry and ability to get things done.

America’s other great moral war, World War II, was similar. ... the truth is that Americans were never as good at the art of war as the Germans. What we were good at was the art of production, of supply.

...

So anyway, I’m devoting a bit of time today to thinking about the muddy roads south of Richmond where, 146 years ago, the seal was put on creating the kind of nation I believe in."

It's a bit of an odd sentiment - the nation Paul Krugman believes in is one that is good enough at the Commercial life that it can 'buy its way to victory' in the Guardian world of warfare.

It's clear that Krugman understands the distinction between the Guardian approach of the patrician South vs. the Commercially minded North and that he prefers the Northern approach, but he doesn't spell out why - maybe because it was successful in the Civil War and World War II?, but you get the sense that his loyalty would remain the same even if the North had lost the Civil War and the U.S. had lost World War II.

Of course, it's also not really clear that it was the economic strength (per person) of the U.S. that was decisive in World War II. The Soviet Union was communist at the time, not exactly conducive to the kind of nation that Paul Krugman would believe in, and yet they seemed to do quite well in World War II as well.

Anyway, people can and do quibble endlessly about who accomplished what in past wars, but what is interesting to me is that Paul Krugman views democracy and strong commercial activity as going hand in hand in opposition to an aristocratic (hierarchical) society which is better equipped with warrior virtues, and that in his mind one (commercial society) is preferable and modern while the other (aristocratic society) is inferior and pre-modern.

In 'The Republic' Plato outlined how one type of government leads to another, with the aristocratic type giving way to a capitalist type which gave way to Democracy which finally gave way to tyranny, so that is consistent with Krugman's view that democracy and capitalism should be successors to the aristocratic type of society - although I doubt he'd agree that tyranny will be the new modern, leaving behind the old outdated democracy (or maybe he would, he's been paying as much attention to U.S. politics as anyone over the past decade).

Anyway, this is a bit of rambling post, the main thing I wanted to do was highlight how a commercial vs. guardian mindset lurks behind much of what is written on the topics of politics and what course society should take. Once your mind is tuned to look for the undercurrents of commercial syndrome or guardian syndrome casts of mind, you will see them everywhere (at least you will of you are like me, anyway).

Markers

2011-03-26T12:32:00.000-07:00

As I write this post, one of the most read/most emailed/etc. posts at the world's most influential newspaper, The New York Times, is 'Losing Our Way' by Bob Herbert (his last column for the Times).

Says Herbert,

"The U.S. has not just misplaced its priorities. When the most powerful country ever to inhabit the earth finds it so easy to plunge into the horror of warfare but almost impossible to find adequate work for its people or to properly educate its young, it has lost its way entirely."

...

"This inequality, in which an enormous segment of the population struggles while the fortunate few ride the gravy train, is a world-class recipe for social unrest. Downward mobility is an ever-shortening fuse leading to profound consequences.

A stark example of the fundamental unfairness that is now so widespread was in The New York Times on Friday under the headline: “G.E.’s Strategies Let It Avoid Taxes Altogether.” Despite profits of $14.2 billion — $5.1 billion from its operations in the United States — General Electric did not have to pay any U.S. taxes last year.

As The Times’s David Kocieniewski reported, “Its extraordinary success is based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore.”

G.E. is the nation’s largest corporation. Its chief executive, Jeffrey Immelt, is the leader of President Obama’s Council on Jobs and Competitiveness. You can understand how ordinary workers might look at this cozy corporate-government arrangement and conclude that it is not fully committed to the best interests of working people.

Overwhelming imbalances in wealth and income inevitably result in enormous imbalances of political power. So the corporations and the very wealthy continue to do well. The employment crisis never gets addressed. The wars never end. And nation-building never gets a foothold here at home.

New ideas and new leadership have seldom been more urgently needed."

And reading the comments on the article, the most popular ones all share the same sentiments, if anything expressed with more despair and resignation. The highest rated comment, recommended by almost 2,000 readers, says,

"I am afraid that America's decline is permanent, hopeless, and goes beyond the current political climate which is, after all, only a reflection of the people."

I don't know, maybe people are always inclined to pessimism, or this is just a normal mood as a recession comes to an end, but it doesn't seem normal, or promising to me.

It would be nice if I could write this as a smug Canadian, happy that we weren't headed in the same direction, but I think anyone paying attention knows that with a right wing party likely to stay in power or even gain more power running on a platform of military spending, prison building, and corporate tax cuts, we seem eager to follow the Americans down the exact same road.

85. Treasuring Honour

2011-03-22T21:37:00.000-07:00

Note: This post is the eighty-fifth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I've spent the last week thinking about what is meant by 'honour' - it's not as easy to describe as some of the other guardian precepts such as 'be obedient' or 'dispense largesse' and this might be a bit of a muddled post due to the lack of clear understanding on my part.

At any rate, looking at the Wikipedia entry for 'honour' it covers a wide range of topics, with a relationship to the guardian syndrome seeming to be the only common thread. After thinking about it for a while, the common thread that I came back to was similar to Wikipedia starts with, "Honour is the evaluation of a person's social status as judged by that individual's community."

After thinking about it for a while, I came back to 'Systems of Survival' and was reminded that Jane Jacobs had gone through a similar thought process,

"I put [honour] last .. because it's such a catchall. What does 'honour' mean? It's not honesty, with which it's often vulgarly confused. 'On my word of honour' can solemnize almost anything, including a promise to cover up the truth, or to lie if pressed. Even children know that. 'Honour among thieves' is not an oxymoron.

...consider what, if anything, the following have in common: the members of a monarch's annual honours list, students in a high school honours course; recipients of honourable discharges, honoraria, honorary degrees, and honourable mentions in competitions; bearers of honorifics such as the Honourable Member, the Honourable Penelope So-and-so, the daughter of a titled aristocrat, an honourary chairman, and His Honour, the mayor?

It comes clear once we recognize what dictionaries themselves tell us. Honour is recognition of status and the respect owed to status. It's much the same as 'face' in China.

Here is the crux, for either honour of face. The respect is owed, and the self-respect earned, because honour implies moral obligations, and it's possession certifies that the obligations attached to a position - whatever they may be - are honourably fulfilled."

We know that the Guardian syndrome is hierarchical, and that the hierarchy gives those on top power over those below and we saw how this can be mitigated by the precept of 'dispense largesse'. Honour serves as another bulwark against abuse of power by those at the top of the hierarchy. Those below don't have the power to affect the comfort or convenience of those above, but they do have some power to bestow or to withhold honours from their leaders.

The wording of the precept by Jane Jacobs, not 'Be honourable', but 'Treasure Honour' is interesting. It almost makes 'honour' sound like a quantity to be accumulated or hoarded, in the same manner that an avaricious person would treasure treasure.

The conclusion I'm led to is that, in somewhat the same manner that 'comfort and convenience' serves as the end goal for the Commercial Syndrome, the accumulation of honour serves as the goal for guardians. I say 'somewhat' because 'comfort and convenience' is the end goal for the commercial syndrome, while for the guardian syndrome honour is a personal goal for the guardians themselves - something that will keep them working towards the end goal of the guardian syndrome (the common good?).

It makes me think back to Howard Margolis' 'Fair Share model' in which people try to maximize two functions, one which represents their personal welfare and one which measures the welfare of the social group they are part of.

Still, trying to come up with an analytically workable definition of honour is difficult. It seems that honour increases with the level of power/status obtained and decreases to the extent that any abuse of that power or failure to use the power successfully (i.e. losing a war) takes place. Now all we need to do is measure all of those things accurately!

No Post This Week

2011-03-15T18:28:00.001-07:00

Sadly, work is absorbing all my mental energy for the time being. Back next week...

The Difference Between Lending and Democracy

2011-03-09T21:35:00.000-08:00

I read an article many years ago that questioned why banks were getting out of the student loan business when almost 3/4 of students paid back their loans. What the reporter failed to understand was that, unlike 'democracy', where if you have 40% of the people onside you're good to go with a 'majority' government, in the lending business you need a far, far higher percentage of loans to repay you in order to stay solvent.

The logic is simple (especially when lending to 'prime' customers (people with a relatively clean credit history, i.e. most people), where margins are fairly tight) - it takes a lot of 'good' loans that repay in full to offset one bad loan that a bank has to write-off.

I was reminded of this simple truth when reading an article in the Vancouver Sun today, which offered as good news that, "Almost three-quarters of respondents in the RBC poll said they are well positioned to withstand a decline in the housing market."

That is not good news! If there was a decline in the housing market, and one quarter of Canadians were not able to 'withstand it,' that would be a massive financial crisis for this country.

84. Hierarchy, Obedience and Largesse

2011-03-08T21:01:00.000-08:00

Note: This post is the eighty-fourth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Last post, I talked about how we model the precept of 'Be loyal'. This week, let's look at a cluster of other Guardian syndrome precepts, 'Dispense Largesse, 'Respect Hierarchy' and 'Be Obedient'

In a lot of ways, the Commercial and Guardian syndromes are opposites. The commercial syndrome shuns force and upholds honesty while the Guardian syndrome lauds force and deception when used to advance our shared interests. The Commercial syndrome calls for efficiency while the Guardian syndrome calls for rich use of leisure and so on.

The topic of hierarchy is another instance of this opposition. While the Guardian syndrome includes military-type hierarchical precepts such as 'Respect Hierarchy' and 'Be Obedient and Disciplined,' the commercial syndrome calls for 'Dissent for the sake of the task' and 'Come to Voluntary Agreements.'

In what sort of situation is a hierarchy useful? As Joseph Heath points out in 'The Efficient Society' it seems like there are a lot of such situations, as most of our life, our working life in particular, revolves around hierarchical structures. Heath figures that the hierarchy is more efficient and that, "The most effective hierarchies are ones in which subordinates have enough loyalty to the organization and to its leadership that they obey without needing to be forced" (emphasis added).

Heath adds that hierarchy's core virtue is that, "it helps us to avoid collective action problems"

By 'collective action problems' Heath is referring to prisoner's dilemma situations with multiple participants.

But what is meant by more efficient. In his book 'The Efficient Society' Heath generally means Pareto efficient (meaning some people are better off, nobody is worse off) but he's not specific in his discussion of hierarchy.

The classic prisoner's dilemma looks like the following:

Let's assume for now that without a hierarchical structure, Bob and Doug would end up in the uncooperative outcome with a total result of 2 (1 each) but that by forming a hierarchical structure with Bob in charge, now they end up at the 'cooperative' outcome with a total result of 10.

But whereas in the standard cooperative resolution the fruits are divided based on some predetermined formula, in this case the person at the top of the hierarchy could, by virtue of their superior rank, simply take the whole 'cooperative' result for themselves. If this were to happen, then the final outcome would still be efficient in this sense of achieving the best total result possible, but it would no longer be Pareto-efficient in the sense of providing a gain to all involved. The sucker at the bottom of the hierarchy ends up worse off than before.

Within the altered world of hierarchy, it makes sense for Doug to cooperate, even getting nothing out of the deal (because now Bob is his superior/boss and can punish him if he doesn't cooperate), but he'd be better off scrapping the whole notion of the hierarchy (i.e. starting a revolution) and going back to how things were before.

Commercially minded folks (e.g. economists) will be thinking to themselves that this can't happen because then the underling will just go somewhere else where they can get a better deal. But that's commercial thinking - in the guardian world, there is no 'competition' and there is nowhere else to go

In the Guardian world, the recourse is not to competition, but to force. In order to secure continued obedience Bob could resort to force as well, but it would probably be better for everyone if he instead decided to share some of the cooperative gain with Doug.

Thus brings us to the final precept I wanted to discuss in this post, 'Dispense Largesse.' The current round of uprisings in the Middle East is showing the difference between places (Oman, Jordan, UAE) where leaders practiced the guardian precept of dispensing largesse and places like Tunisia and Libya where leaders instead accumulated billions of dollars in their own private bank accounts (obviously there's a lot more going on, but I feel confident that the role of largesse is certainly a factor).

In game theory terms, the largesse plays a critical role in securing buy in (obedience and respect for) a hierarchical arrangement which is more efficient in dealing with Prisoner's Dilemma type situations. We end up with something like the following:

Maybe it doesn't seem completely fair (who put Bob in charge, anyway?) but everyone is better off (in absolute, if not in relative terms) under the new hierarchical system than they were in the old uncooperative outcome.

On Vacation

2011-03-01T17:40:00.000-08:00

Posting will resume next week. That is all.

83. Loyalty

2011-02-22T21:34:00.000-08:00

Note: This post is the eighty-third in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Back at the start of the year, I mentioned that as part of this ongoing series,

"I suspect that it will become necessary to try and formalize some of the precepts that make up the syndromes. For example, how can we define what it it means to 'Be Exclusive'? Based on what I've encountered in the series so far, it seems like game theory may well be the best medium in which to try and more precisely pin down the meaning of some of these precepts, although I'm certainly far from optimistic about how successful my attempt will be."

This week I want to look at a guardian precept, 'loyalty'.

What does it mean to be loyal?

Dictionary.com unhelpfully describes it as, 'the state or quality of being loyal' and goes on to suggest, 'faithful adherence to a sovereign, government, leader, cause, etc.'

Wikipedia is a little more helpful. On the topic of loyalty, it refers us back to 'The Philosophy of Loyalty' written by Josiah Royce in 1908. Per Royce, per Wikipedia,

"loyalty is "the willing and practical and thoroughgoing devotion of a person to a cause". The cause has to be an objective one. It cannot be one's personal self. It is something external to oneself that one looks outward to the world to find, and that cannot be found within. It concerns not one's own person, but other people.¹"

Another interesting Wikipedia reference comes from Stephen Nathanson, professor of Philosophy at Northeastern University. Says Wikpedia,

"Nathanson observes that loyalty is often directly equated to patriotism. He states, that this is, however, not actually the case, arguing that whilst patriots exhibit loyalty, it is not conversely the case that all loyal persons are patriots. He provides the example of a mercenary soldier, who exhibits loyalty to the people/country that pays him. Nathanson points to the difference in motivations between a loyal mercenary and a patriot. A mercenary may well be motivated by a sense of professionalism, or a belief in the sanctity of contracts. A patriot, in contrast, may be motivated by affection, concern, identification, and a willingness to sacrifice"

Note that in both cases, the mercenary and the soldier, Nathanson associates loyalty with the pursuit of something other than self-interest.

Say somebody lived a life in which their own self-interest always lined up with the interest of their Prime Minister. Over their life all of their decisions showed loyalty to the Prime Minister's interest. Can we say that this person was loyal? I think most people would say that it is uncertain because that person's loyalty was never tested.

What it does mean to test someone's loyalty? I'd argue that it means to create a situation where a person's self-interest (or loyalty to something/someone else) conflicts with the person/cause that they are loyal to. Failing this test of loyalty means that the person has put their own interest (or someone else's) ahead of the loyalty to the person doing the test.

The Wikipedia entry mentions perhaps the most famous loyalty test on record, God's command to Abraham to sacrifice his son Isaac to show his loyalty to God. In order to show that Abraham is loyal to God above all else, only a test involving the thing he values most in the world (his son) will suffice.

It seems that loyalty has two components:

1) The willingness not to put self-interest ahead of the interest to which one is loyal
2) The willingness not to put loyalty to something/someone else ahead of the interest to which one is loyal.

So loyalty has to involve both exclusiveness and altruism.

In game theory terms², we can imagine loyalty as being defined as the difference between two scenarios:

In the first, person A, has a choice between two outcomes. Despite recognizing that outcome 2 is better for Person B, Person A prefers outcome 1.

e.g. Bob is the sister of Queen Alice. Bob chooses to sell military secrets to a hostile government even though he knows this will cause trouble for Alice.

In the second scenario, the loyalty Bob feels to Alice changes his decision such that he prefers not selling the military secrets, even though he knows he could personally come out ahead through the sale.

This isn't quite precise, because there are other ethics (such as sympathy) that might achieve the same effect. The difference between sympathy and loyalty is the exclusive nature of loyalty. While being sympathetic to everyone is regarded as one of the highest ideals in many ethical systems, being loyal to everyone is an oxymoron. This distinction is impossible to reflect in a two person scenario, but we could imagine a multi-person scenario in which Bob can choose just one person to be loyal to but might well be sympathetic towards everyone.

----
¹ Interestingly, Wikipedia also quotes Royce making a very Jane Jacobs-esque statement on Commercial ethics, "[I]n the commercial world, honesty in business is a service, not merely and not mainly to the others who are parties to the single transaction in which at any one time this faithfulness is shown. The single act of business fidelity is an act of confidence of man in man upon which the whole fabric of business rests."

²This isn't a game theory situation per se, since Bob is just choosing without consideration for anyone else's choices, but what I mean is using the same sort of payout matrix that is common in game theory to show the decision making process for Bob.

The Corporate Media

2011-02-21T17:41:00.000-08:00

In chart form, your corporate media at work in the 2008 Canadian Federal election:

Here's how the people voted (click to enlarge):

And here's how the media voted:

Over 60% of Canadians voted for the Liberals, NDP, Bloc or Greens and yet, in the entire country, there were only 2 daily newspapers (with any sort of circulation), The Toronto Star, and Le Devoir, that were in alignment with this overwhelming majority of Canadians voters.

I know this is obvious to anyone who pays attention, but I think putting it in chart form makes it extra clear that the media might just be a little out of touch with, and further right than, the population at large. Who could have guessed that wealthy corporate types might be more right wing than average Canadians?

82. Types of Evolution

2011-02-15T20:05:00.000-08:00

Note: This post is the eighty-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I'm in the middle of reading 'On the Origin of Species' by Charles Darwin. I wouldn't say it has a whole lot of relevance to this series (so far, anyway) but it does have me thinking about evolution and natural selection.

When I hear the word 'evolution,' the first sense of the word, or mechanism by which evolution can occur that comes to my mind is the one described by Darwin. There is a competitive environment in which 'success' means having more offspring that survive to have offspring of their own, and there is some sort of process of mutation that allows new variations to get tried out and to become more plentiful over time as they are 'successful' and have many offspring.

This process is most famous in the natural world, but the same phenomenon is at work in computer algorithms that generate successful automated othello playing programs, to pick just one example. The programmers create a bunch of programs to play against each other and allow the strategy of the players to mutate in various ways. Programs that win are 'reproduced' more times into the next generation of programs in an iterative process and over millions of generations of mutations and 'natural' selection, very powerful othello playing programs are generated (there's a nice summary of the process here).

As opposed to dominating by having lots of children, another way that a successful strategy can come to dominate is by growing larger. This has limits in the diminishing returns natural world, but in the world of business, where offspring are rare, it is more common for the successful company to achieve dominance by growing very large and swallowing up other companies.

Another possibility for spreading success is imitation. Even if Wal-Mart never (yet) takes over 100% of all retailing, it's innovative inventory management approach (and harsh labour methods as well, sadly) could still come to achieve 100% domination in the market if all of Wal-Mart's competitors copy their strategies.

----
One area of intense controversy in the academic world is the question of whether:

A) 'the selfish gene' means that people wouldn't evolve to be altruistic because their altruistic behaviour would make them less likely to pass on their genes than someone who was more selfish,

OR

B) because groups which are cooperative will succeed against those which operate on an everyman-for-himself principle, cooperative genes might be able to succeed over time, even if cooperators faced a potential disadvantage against those who were willing to be selfish within an otherwise cooperative group.

Given that nature offers plenty of example of species both cooperative and selfish and that mankind seems well capable of both selfishness and altruism, it seems likely that the tension between these two forces has resulted in a human ability to pursue both the selfish interest and the group interest, depending on the circumstances, perhaps along the lines of the model we studied a while back from Howard Margolis.

Maybe I'll return to this debate later on in the series, but for this week, the main takeaway is that evolution can take different forms and could be consistent with both cooperative and selfish behaviour, depending on the context.

81. What's So Special About Land?

2011-02-08T21:33:00.000-08:00

Note: This post is the eighty-first in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

In 'Systems of Survival' Jane Jacobs describes what all the occupations that subscribe to the Guardian syndrome have in common:

"It finally struck me. They're all concerned with some aspects of territorial responsibilities. The condition is the work of protecting, acquiring, exploiting , administering or controlling territories.

...

Not territory in the abstract. ... Real concrete territory. I suppose we might call this the territorial syndrome. Taken as a whole, it also describes the classic heroic virtues and values."

But this raises the question, what is so special about land, that organizations dedicated to managing it have an entirely different ethical system from commercial organizations?

One thing that differentiates land from the other things we buy and sell is that, as any real estate agent will tell you, they aren't making any more land.

I touched on this earlier, back in this post about how humans were 'cowboys on a spaceship'

Given a finite commodity, all the values in the commercial syndrome which relate to maximization of production aren't particularly useful - in fact they can be counter-productive depending on what purpose they are directed to.

So if you can't make any more land, the only question becomes how to divide the land that does exist. Note that this is a zero-sum game, unlike the positive sum commercial world.

In this zero sum world, gains will come at the expense of someone else's loss and, leaving aside the possibility of mutual enemies for the moment, there is no benefit from working together with someone else, just like how, in the zero sum game of chess, there is nothing to be gained by trying to work with your opponent and little to be gained via trade.

But it's not just that land is finite, there's also the fact that, even without much industry from man being applied, land is quite valuable. At the very least, it keeps one from drowning. Most land can also be used to provide other plants and animals, and sometimes valuable minerals as well.

So with the land being so valuable, and with it being near impossible to make more, whoever holds land will likely be able to make a profit on that ownership simply by renting it out to whoever needs to use it. Economists have a term for when you can make an excess profit because others are unable to compete with you (you can only ever have one piece of land in the same place) and that term is 'rent' or 'economic rent' . Of course the fact the word used is 'rent' reflects the fact that land ownership is typically the most common way in which such an excess is earned.

But why not simply have a market for land, and have people pay whatever price they think the land is worth? The obvious problem, of course, is that someone might decide that it is cheaper to simply take the land, rather than buy it. You can't really hide land or move it somewhere, so once someone decides to take it, it's fight or flight. And as Machiavelli said, 'there is no proportion between one who is armed and one who is unarmed.' But an arms race in which everyone strives to be better armed than everyone else is unproductive because being the 'most powerful' is a relative term. This takes us back to Hobbes, who explained why we needed a single organization in charge of the land that was so powerful, nobody could contest it.

So land is finite, valuable, and can be taken by force, all of which combine to necessitate having someone to defend it.

But maybe that defence service itself could operate according to commercial principles. People could simply hire someone to protect their property. There's no need to abandon the market just because we need to buy some defensive help, right?

There are a few problems with this approach. One is that in conflict there are economies of scale, such that there is a benefit to having a larger force for hire, which means that those groups which are able to form a single united bloc will have an advantage vs. their neighbours. Another problem is that conflict is quite dangerous and history shows that forces working for money have historically performed poorly when matched up against forces that were working for some other 'higher' purpose and thus had a higher morale or willingness to die for the cause. Another problem is how can you prevent the people you hired to protect you from simply turning on you and putting themselves in as dictator over you. Finally, what do you do if someone makes the people defending you a better offer?

Another factor to consider is that network externalities mean that when constructing something that spans territory via a network design, it is efficient to only build one. For example, to build two road networks that don't connect would be highly inefficient. Similarly, most areas only have one water system, one electricity grid and so on. So organizations that span land with a network type structure tend to be monopolies. Some historians speculate that the reason Egypt was one of the first places to develop a centralized government was because constructing an irrigation system is the sort of network based monopoly that works best when organized by one central entity. Whereas competition leads to gains for society in most markets, when it comes to building territorial networks, competition just leads to inefficiency, so an organization that can control an area of a certain scale has an advantage over smaller entities.

Finally, the dynamics of conflict generally work out so that a single contiguous piece of land is more defensible than scattered territories. This is partly due to the network effects described above, and partly due to economies of scale in combat and an increased need to divide one's forces if one is defending multiple pieces of land that are not connected. Of course, this is subject to changes from technology and with the rise of the British Navy, for example, England was able to build a far flung empire of places whose only connection was that they bordered the sea. This dynamic lends itself to territories being made up of a contiguous piece of land governed by a single entity.

So, to summarize, because land is both finite and valuable, it serves as a source of (economic) rent, or profit that can be achieved without work. This unworked for profit is sought after by many, leading to violent conflict. Any particular group can maximize the rent it earns from land when it can minimize destructive conflict within the group and maximize the effectiveness of conflict with enemies in order to expand the amount of land it controls. The economies of scale in combat and the natural monopoly nature of networks lead to groups coalescing into contiguous land blocs for defensive and efficiency purposes.

Inequality, Leverage and Crises

2011-02-04T19:24:00.001-08:00

That's the title of an interesting paper by Michael Kumhof and Romain Ranciere for the IMF. (Full text of the paper available here)

Although the details of their actual model will require some knowledge of economics to follow, the paper contains some lengthy non-technical sections, including one showing how the 1920's run-up to the Great Depression was similar to the 2000's runup to the Great Recession and one explaining the mechanism by which their model works.

Basically, they posit a shift in bargaining power (think decline in unionization rates, offshoring of jobs, etc.) from a working class (95% of the population that earns its money from wages) to an investor class (5% of the population that owns most of the capital) and then assume that the extra revenue coming to the investor class as a result of their improved bargaining power is lent back to the workers. This allows the workers to maintain their relative share of consumption, and provides an additional source of income for the investor class.

Over time, the debt level of the working class increases and the vulnerability of the system to a debt crisis increases along with it.

The authors find that widespread defaults during a crisis will help by reducing debt levels of the workers, but because the underlying cause is left unaddressed (the lack of bargaining power for the workers), this is a weak and short-lived solution, with crises repeating regularly. The quicker, more sustainable solution is measures to restore the bargaining power of the workers so that the incentive for workers to borrow and investors to lend is removed or at least reduced.

Anyway, it's just a model, but it's one of the few that actually seems to present a plausible theory of how (certain types of) debt crises happen that seems to mostly fit the facts of what we've observed in the Great Depression and our current Great Recession.

80. The Mystery of Capital

2011-02-01T22:36:00.000-08:00

Note: This post is the eightieth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post discusses the book, 'The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else' by Hernando de Soto.

Where Max Weber saw religion as a critical element in the success of a society, and Plato and Jane Jacobs saw a proper delineation of roles between the guardian and commercial sectors of society as the key, de Soto is focussed on a particular institution - property rights - as being the key to prosperity.

de Soto's argument has a few points:

1) Most of the wealth of the world's poor is in the land that they occupy
2) Red tape and a lack of proper property rights prevents them from translating the value of this land into economic opportunity in a number of ways:
-> by preventing it's use as collateral for loans
-> by not providing a fixed address to tie people into a system where people can hold them accountable for their actions (e.g. via credit bureaus, police investigations, etc.
-> by preventing land from being split or consolidated or transferred until it ends up in the hands of the best users of the land.
-> etc.

Wikipedia sums up his main argument as follows:

"The main message of de Soto's work and writings is that no nation can have a strong market economy as long as most of its people remain on the outside just looking in. "The existence of such massive exclusion generates two parallel economies, legal and extra legal. An elite minority enjoys the economic benefits of the law and globalization, while the majority of entrepreneurs are stuck in poverty, where their assets –adding up to more than US$ 10 trillion worldwide– languish as Dead capital in the shadows of the law. To survive, to protect their assets, and to do as much business as possible, the extra legals create their own rules. But because these local arrangements are full of shortcomings and are not easily enforceable, the extralegals also create their own social, political and economic problems that affect the society at large."

One of the things we've seen in the series so far is that one of the contrasts between guardian world and commercial world is that guardian world is the world of monopoly. It hadn't really occurred to me before, but after reading de Soto's book, it makes sense that it is best if each individual piece of property is a monopoly in the sense that it has a clearly recognized, undisputed owner. In some sense, that is almost part of the definition of property. For something to be property, it must have a defined owner.

One hazard of strong inequality, as documented by de Soto, is the creation of a government in which even the most basic elements such as securing land title or security are unaffordable for the poor, so that even though there is a government in place, most of the citizens no longer benefit from its existence in a meaningful way.

One interesting element of the book was the part where de Soto described the history of the process in the U.S. of creating a formal land registry system. From the struggles over squatter rights as settlers moved West to elaborate sets of rules for claims developed independently by gold rush miners and eventually recognized by the governments of the day it was a long and conflict filled process.

Another of the interesting things about the book is that even though de Soto has spent his life working with sometimes recalcitrant, often corrupt, generally ineffective governments, he still believes that the only way forward is for government to eventually succeed at creating a land registry that meets the needs of the poor people. Clearly de Soto believes that, aside from government, there is no entity that can really settle the question of ownership in an efficient manner.

While I found myself agreeing with de Soto that the poor could benefit from being brought 'in from the cold' of being outside the legal system with respect to their property, I wasn't really convinced that it was much an ultimate cause of poverty and poor development, as opposed to being one of many proximate causes.

In other words, if some countries were failing to develop an effective property rights system and others aren't, what is making the difference? Although, as documented by de Soto, the countries of the West had to develop property systems and it took them a long time to do so, it seems as though this was just one challenge out of a long list that was overcome on the road from the dark ages to the moon.

Maybe the countries of the current third world are just going through the same process and de Soto is just trying to nudge it a long a little faster, in which case, there's certainly nothing wrong with that but it doesn't tell us too much that is relevant to our investigation into ethics. Which is OK, I guess some things are just technical issues, not really related to ethical concerns directly.

Taking a Week Off

2011-01-25T18:09:00.000-08:00

Like the title says...the series will resume next Tuesday.

79. Capitalism and Freedom, Part 2

2011-01-18T21:20:00.000-08:00

Note: This post is the seventy-ninth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is a follow-up on last week's post on the book 'Capitalism and Freedom' by Milton Friedman.

Last week I promised to explore in more detail an example of where Milton Friedman got carried away with his 'market good, government bad' mindset. The specific topic I want to cover is Friedman's comment that,

"The view has been gaining widespread acceptance that corporate officials and labor leaders have a 'social responsibility' that goes beyond serving the interests of their stockholders or their members. This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.¹"

As we'll see, the trouble with this statement is that while it is true that businesses have an obligation to pursue profits, Friedman unnecessarily constrains their other moral obligations, ruling out things like taking action to fight pollution as being a violation of a company's duty to pursue profits first.

This will be a lazy post for me, since I'm going to let Joseph Heath do most of the talking, via his essay, "A Market Failures Approach to Business Ethics" Really, you'd be better off just reading Heath's whole essay - it's easy to follow and not particularly long, but I'll summarize the main points here that are relevant to our Systems of Survival theme.

Heath first argues that the obligation of the business to earn profits is not a simple reflection of self-interest on the part of company shareholders but rather is a moral duty. The profits earned are a reflection of the ability of the shareholders ability to deploy resources where they are wanted/needed by the population - so the greater the profit, the greater the gain to society, and hence the duty to earn profits.

Naturally, many people will find this a little hard to swallow. Heath reasons that one reason people find this difficult to accept is that, unlike say a doctor's obligation to their patients, the obligation of a a manager to make profits is more like the indirect role played by trial lawyers in which an action which in and of itself has little moral justification (making money for shareholders / defending accused criminals) has value because of the role it plays within a system with various parts.

Heath:

"We understand implicitly that the professional conduct of doctors is to be entirely governed by their obligations to their patients, and thus that they are not permitted to let considerations of self-interest intrude. Profit-maximization has precisely the same status for managers.

...

Health is widely regarded as a good thing, and thus the doctor’s actions serve to promote a state of affairs that is morally desirable. This makes the doctor’s actions directly justifiable, even intrinsically altruistic. Things are more complicated in the case of business. It is not clear that profits are intrinsically good. Furthermore, when a manager makes a decision that disadvantages workers in order to benefit owners, the profit maximization imperative generates a distributive transfer that is by no means morally sanctioned. In fact, under the typical set of circumstances, the transfer will be regressive, and thus problematic from the moral point of view.

The asymmetry arises from the fact that profit maximization is only indirectly justified. It is useful to note that this problem is one that business ethics shares with legal ethics. The adversarial trial system imposes upon lawyers an obligation to do whatever is in their power to defend or advance the interests of their client, even when these interests are highly refractory to the concerns of justice. Thus the professional obligations of lawyers often conflict with the imperatives of everyday morality. What justifies their behaviour is the fact that they operate in the context of an institution with differentiated roles. The desirable outcome is a product of the interaction between individuals acting in these roles, none of whom are actually seeking that outcome. Justice is best served when there is both vigorous prosecution and vigorous defence.

Thus the effective trial lawyer 'promotes an end which is no part of his intention.'"

Next, Heath explains that the moral duty to seek profit flows from the first theorem of welfare economics which states that economic (pareto) efficiency is maximized when a bunch of conditions known collectively as 'perfect competition' are met, with one of the conditions being a number of firms competing to make the most profits.

Heath:

"Thus the primary reason for introducing the profit motive into the economy is to secure the operation of the price mechanism. The price mechanism is in turn valued for its efficiency effects. It allows us to minimize waste. The formal proof of this is often referred to as 'the first fundamental theory of welfare economics” (hereafter FFT), or else, in a nod to Adam Smith, the 'invisible hand theorem.' The central conclusion is that the outcome of a perfectly competitive market economy with be Pareto optimal – which means that it will not be possible to improve any one person’s condition without worsening someone else's."

Where things get tricky is that there are a number of other conditions for perfect competition (recall our earlier posts on Walter Schultz's 'Moral Conditions of Economic Efficiency')

The trouble is that competition only leads to efficiency if a number of conditions are met, the most commonly recognizes ones being the avoidance of force and fraud. As Heath notes, Friedman implicitly recognizes these moral obligations when he insists that the responsibility of the business is to, "to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud."

Where Friedman gets into trouble is in ignoring other possible violations of economic efficiency, most notably, the loss of efficiency caused by externalities that aren't priced into a business' products. For example, if company A drives company B out of business by offering lower prices, not because company A was better managed than company B but because company A lowered costs by dumping toxic chemicals into the water supply instead of paying to treat them like company B did, then this is not a gain in efficiency for society.

Heath:

"Despite some confusion, it is clear that Friedman's managers have genuine ethical responsibility to shareholders, and that this responsibility is derived from the FFT. The problem is that Friedman arbitrarily limits the set of obligations to those that support only some of the many Pareto conditions.

For example, Friedman argues that pollution reduction is one of the illegitimate responsibilities pressed upon managers in the name of 'social responsibility.' But pollution is a negative externality – a cost associated with some economic activity that is transferred to a third party without compensation. These externalities exist because the set of markets is incomplete. We cannot exercise property rights over the air that we breathe, for example. As a result, while we can charge people for dumping noxious substances on land that we own, we cannot do the same when they dump it in the air. For this reason, one of the Pareto conditions specifies that there must be no externalities. Any corporation that pollutes is essentially profiting from a market imperfection. This means that there is no difference, from the moral point of view, between deception and pollution – both represent impermissible profit-maximization strategies.

Friedman's decision to prohibit deception, while giving the wink to environmental degradation, is arbitrary and unmotivated."

----
¹ This quote is from Capitalism and Freedom, page 133, but you can also refer to Friedman's article, "The Social Responsibility of Business is to Increase its Profits," which covers the topic of this post specifically.

The Trouble With Credit - Brief Follow-Up

2011-01-16T23:54:00.000-08:00

This is just a follow-up to a (somewhat lengthy) post I wrote a while back on why credit is not like other products in that the typical commercial syndrome goals of maximizing competition and hence output does not have the same beneficial effect in this particular market as it odes in other commercial markets.

The topic is micro-credit, and blogger David Roodman, who seems quite familiar with this topic, makes a comment somewhat along the lines on my post in justifying why there should be special regulations in place (for example a cap on profits or return on assets) on micro-lenders,

"Credit is not an ordinary product. It is weighed down by millennia of baggage, for the good reason that it can do real harm. It is like a drug in that it is potentially healthy in small doses, but also potentially addictive. So it stands to reason that sellers of this product must take unusual steps to counteract its special problems of reputation and risk."

In the comments, objections from commenter Bhagwan Chowdhry - who comes across as a classic level 2 thinker - clarify Roodman's opinions further.

Here's the back and forth:

Chowdry:

"I don’t understand the bandwagon that everyone has jumped on about MFIs and lenders in general about not making too much profit. Isn’t profit precisely the incentive mechanism to encourage competition which would lead to lower interest rates? This is a robust mechanism that has worked for centuries in many different economies."

Roodman:

"Bhagwan, I probably should have been more precise about this in my post: I think it is reasonable to consider capping (not eliminating) profit in microlending because credit markets are not ordinary. If we were speaking of businesses that sell soap (or savings) to the poor, I would not see the case. If businesses try to sell to much soap to the poor, the market will quickly correct their excess in the standard way. Laissez faire will work pretty well. Not so with credit, as we have seen: the correction is often long delayed, to almost everyone’s detriment. Conceding this market imperfection opens the way for intervention. At the least, I don’t think laissez faire is obviously optimal. Far from being impractical, capping ROA is being done now by the groups I mentioned, and both are seen as leaders in the field in India."

Bhagwan:

"Simply asserting that “credit markets are not ordinary” is not a compelling argument. One needs to understand more clearly what frictions prevent competitive entry in credit markets."

Roodman:

"Bhagwan, I have blogged extensively on what is going on in Indian microfinance now, so I am not just making that simple assertion of abnormality. In point of fact, the problem is not barriers to entry but, if anything, the opposite.

I don’t doubt that capping ROA is suboptimal. When are real-world solutions ever optimal? Do you have a practical, politically pragmatic alternative that is superior? Please share it. Laissez faire has failed spectacularly."

Bhagwan has the final word (last I checked):

"David, you say, “the problem is not barriers to entry but, if anything, the opposite.” Yes, I understand that you, and others, have written a lot about problems caused by “excessive” borrowing. The question one has to answer is why a profit-maximizing lender would not guard against excessive borrowings? Perhaps, the lenders do not face full consequences of their imprudent lending practices because they might be lending “other people’s money.” We know the solution to that problem – make sure they are not too big to fail."

I only posted this since it's nice to see smart folks like Roodman lending support to my speculative post. Otherwise, there's not much of a moral here, other than that some people never learn, but some do, I suppose.

78. Capitalism and Freedom (part 1)

2011-01-11T21:35:00.000-08:00

Note: This post is the seventy-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is on the book 'Capitalism and Freedom' by Milton Friedman.

The Wikipedia article provides a good summary of the book and it's main arguments so I won't go into much more detail here. In general, the theme is on why we should limit the role of government in society and let the free market reign wherever possible.

Friedman is a descendant of Veblen in many ways, strongly of a commercial syndrome mindset and naturally hostile to the guardian syndrome. But where Veblen had the better of Friedman though, was in his willingness to see how people who were nominally part of the free enterprise system could end up mired in corruption by taking on guardian roles and mindsets and activities. Veblen recognized the guardian syndrome and saw it as a threat when it mixed with the commercial one. Friedman, on the other hand, seems not to even recognize the existence of the guardian syndrome and, perhaps as a a result, exhibits an almost childlike belief in the virtues of the free market.

In this time when the U.S. is turning into a plutocracy before our eyes, it's amusing to read Friedman's explanation of how wealth inequality is a safeguard of political freedom. And while Friedman goes on at length about the hazards of monopoly, the hazards of a perfectly competitive market go unmentioned (although surely Friedman must have read many critiques of perfect competition such as the one made by Joseph Schumpeter in 'Capitalism, Socialism and Democracy'.)

I guess, much in the same way that it is hard for us to judge the ancient Greek's views on slavery, it may be hard for me to judge the writings of Milton Friedman in the 1960's, a very different era with respect to views of government and markets. To the extent that Friedman wanted to explain that the mixed economies of the West were a better approach than full-on Communism, then certainly he is on solid ground. And to the extent that he takes on special interest groups (such as the American Medical Association) that are out to serve their own interests ahead of society, then he is still on solid ground.

But Friedman goes beyond this to advocating a wide range of free market policies without really thinking through his analysis completely. The next post will be a case study of one example from this book, the case of 'Corporate Social Responsibility'.

Not to say the book isn't worth reading. Friedman is a great writer and a clear thinker and there's certainly lots of valuable points to be made. It's just that given current circumstances, it all seems a little dated, overstated and reminiscent of tiresome level 2 thinking¹ at times.

Near the end of Capitalism and Freedom, Friedman comments that,

"The conversion of the intellectuals [to collectivist views] was achieved by a comparison between the existing state of affairs, with all its injustices and defects, and a hypothetical state of affairs as it might be. The actual was compared with the ideal.
At the time, not much else was possible ...

We now have several decades of experience with government intervention. It is no longer necessary to compare the market as it actually operates and government intervention as it ideally might operate. We can compare the actual with the actual.
If we do, it is clear that the difference between the actual operation of the market and its ideal operation - great though it is - is as nothing compared to the difference between the actual effects of government intervention and their intended effects."

The irony is that, at the time, Friedman himself was proposing a set of theoretical, ideal changes to the way society operated, comparing his ideal markets against how things actually worked the time. And here we are, decades later and so much of what Friedman recommended has been tried and failed. Central banks tried increasing the money supply in the manner Friedman suggested but found it unworkable and ineffective in practice. The financial meltdown of recent years disproved his theories about how the U.S. Federal Reserve (Central Bank) caused the great depression. School vouchers have been implemented in many places for many years to little noticeable effect. The Chilean pension system, modelled after Friedman's recommendations, had to be reformed (again) in 2008 because of the exact problems with coverage and cost that Friedman dismisses. The dismantling of social programs and anti-poverty measures and reductions in the level of union power has coincided with increases in inequality and poverty (since Friedman was writing in the early 60's), and recent years have made a mockery of Friedman's claims that the unhindered operation of the free market would result in the narrowing of class divisions or the advancement of popular culture by leaps and bounds or that greater reign for the free market would result in a less materialistic society.

At any rate, Friedman's book provides a good example of the commercial syndrome mindset applied to the question of the proper role of government. Friedman believed that collective action was almost always a bad thing because it forced people to go against their self-interest and thus would never work because people almost always follow their own self-interest. From this assumption of self-interest as the primary, at times sole motivator of humanity, flowed his belief in the supremacy of the market over collective action.

---
¹ I remembered I had written a post about 'level 2 thinking' a while back, but only when I dug up the link did I realize that the quote that prompted that old post was also from Milton Friedman - I guess it's good to know I can be consistent even without the benefit of a properly functioning memory!

77. Resolution

2011-01-04T20:30:00.000-08:00

Note: This post is the seventy-seventh in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

I suppose that the start of a year is always a good time to stop and assess your current status. Up until now in this series, I've mostly just been fishing around, following links, trying to get my head around various concepts and so on.

In 'Systems of Survival' there's a point where one of the characters in the book has finished explaining about how she discovered the two systems when another character goes to his bookshelf, pulls down Plato's 'Republic' and explains how Plato was covering much the same ground 2,000 years ago. Reading between the lines, it seems that Jacobs was well into her work when she came across the Plato reference and felt silly that she hadn't looked there in the first place for inspiration. So what I've been trying to do here is to make sure I'm at least faintly familiar with what various people have had to say on this topic over the years, before revealing my ignorance in too much detail.

This next year will see more posts along this same theme, covering off different books and concepts, but I do find that I'm starting to see fewer new ideas and more repeats in what I encounter. As the series moves along, the time will come for more posts that attempt to try and pull some of the various threads together.

In order to make progress analyzing the syndromes identified by Jane Jacobs, I suspect that it will become necessary to try and formalize some of the precepts that make up the syndromes. For example, how can we define what it it means to 'Be Exclusive'? Based on what I've encountered in the series so far, it seems like game theory may well be the best medium in which to try and more precisely pin down the meaning of some of these precepts, although I'm certainly far from optimistic about how successful my attempt will be.

Maybe 'being exclusive' means simply placing no value on someone else's preferences, if they don't happen to be part of your 'in' group – or maybe it means reversing the sign on the preferences so that what is bad for someone outside the group is good in your mind. We shall see.

A final step, which I may or may not get to, would be to follow in the footsteps of people such as Brian Skyrms and Robert Axelrod and actually try and build a simulated environment in which agents possessing various ethical values interact and evolve over time. This environment might then provide clues as to how and why certain precepts or ethical values function and evolve over time.

But that's just a faint gleam in a far-off corner of the sky at this point; To be honest, I'm not really sure how the series will continue to play out this year. Most of the main concepts have (I think) been introduced by now, but there remain many interesting economic/political/philosophical books and viewpoints to consider and I'm not sure I've really made much actual progress in understanding how and why the syndromes work. But it's been an interesting (for me, anyways!) path so far, so I plan to continue onwards.

Holiday Break

2010-12-28T19:23:00.001-08:00

Taking a break from posting this week for the Holidays - see you next year!

76. Oil and Exclusiveness

2010-12-21T22:28:00.000-08:00

Note: This post is the seventy-sixth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post was going to be part 2 about the book, "The Strategy of Conflict" by Thomas Schelling but I read the second half of the book and, while it was interesting, I didn't see anything too relevant to our purpose here.

So instead, I'm going to talk about a post from Daniel Little that I came across today over at Mark Thoma's 'Economist's View'.

From Daniel's post:

"Hate as a social demographic : Every democracy I can think of has a meaningful (though usually small) proportion of citizens who fall on the extreme right by any standard: racist, White supremacist, hateful, anti-immigrant, anti-Semitic, anti-Muslim, nativist, nationalist, or violently anti-government individuals and groups. In the United States we have many, many organizations that are basically racist and potentially violent hate groups. They provide a basis for cultivating, recruiting and mobilizing like-minded followers, and they are sometimes co-opted by opportunistic politicians for their own narrow purposes. The Southern Poverty Law Center and the Anti-Defamation League do a great job and a needed service in tracking many of these organizations. (For example, SPL monitors 26 hate groups in the state of Michigan.) The umbrella term for these organizations and individuals is "hate groups" -- individuals and organizations who organize their views of the social world around intolerance of other groups and a motivation to harm or subordinate those other people.

A recent report by the Institute for Research and Education on Human Rights provides a detailed snapshot of how some of these racist groups have shown up in the Tea Party movement. The NAACP made a very careful statement about racist statements and provocations that had occurred at Tea Party protests in 2009 and 2010, including the egregious incident that occurred in Washington in which Representatives Emanuel Cleaver, John Lewis, and Barney Frank were showered with vitriol. And this temperate and careful statement was derided by Tea Party leaders. The IREHR study goes a long way to document the concerns raised in the NAACP statement.

Here is a summary finding from the IREHR report:

Tea Party organizations have given platforms to anti-Semites, racists, and bigots. Further, hard-core white nationalists have been attracted to these protests, looking for potential recruits and hoping to push these (white) protestors towards a more self-conscious and ideological white supremacy. One temperature gauge of these events is the fact that longtime national socialist David Duke is hoping to find money and support enough in the Tea Party ranks to launch yet another electoral campaign in the 2012 Republican primaries. (7)

What I find really worth considering is the question of the fact of the very existence of these pockets of virulent racists and anti-semites in our society. I'm not thinking here of garden-variety racial stereotyping and prejudice, which is surely much more widespread, but of a kind of racism that extends to overt hostility and sometimes violence against the other group. It is hard to estimate the percentage of our society that falls in this category, though there are some public opinion surveys that help us make a crude estimate (Howard Schuman, Charlotte Steeh, Lawrence Bobo, Racial Attitudes in America: Trends and Interpretations, Revised Edition and Schuman and Bobo, "Survey-Based Experiments on White Racial Attitudes towards Residential Integration" (link); Pew Research Center, "Race, Ethnicity & Campaign '08" (link)).

But here is the important question: why do a certain number of people in modern societies have these attitudes in the first place? Is it just a sort of basic fact about our population that a certain percentage of us fall in this mindset? Are there specific features of our informal system of acculturation that creates this minority of hate-disposed people? Are these the result of a sort of sub-culture of militia encampments, prison gangs, and biker groups who are somehow able to promulgate their hatred to new recruits? Is it ignorance, disaffection, and economic uncertainty that brings out these qualities in otherwise decent people? In short -- is it the organizations that produce the hate in some people, or is it the hateful individuals who create the organizations?

Michael Mann's The Dark Side of Democracy: Explaining Ethnic Cleansing is one kind of empirical study of a related question, the occurrence of murderous ethnic cleansing. Here are a few of his hypotheses.

Murderous cleansing is modern, because it is the dark side of democracy. Let me make clear at the outset that I do not claim that democracies routinely commit murderous cleansing. Very few have done so. Nor do I reject democracy as an ideal – I endorse that ideal.Yet democracy has always carried with it the possibility that the majority might tyrannize minorities, and this possibility carries more ominous consequences in certain types of multiethnic environments. (2)

Ethnic hostility rises where ethnicity trumps class as the main form of social stratification, in the process capturing and channeling class-like sentiments toward ethnonationalism.

The danger zone of murderous cleansing is reached when (a) movements claiming to represent two fairly old ethnic groups both lay claim to their own state over all or part of the same territory and (b) this claim seems to them to have substantial legitimacy and some plausible chance of being implemented. (2-9)

These are political-structural theories of the conditions that stimulate outbreaks of hate-based mobilization and murderous ethnic cleansing. But actually, Mann never addresses my question head-on: what accounts for the existence of a certain small percentage of haters in a given society. Mann is interested rather in the behavior and the occurrence of mass mobilization for ethnic violence in certain times and places -- the involvement of thousands of citizens in acts of violence and murder against their fellow citizens. And he doesn't believe that the actors are exceptional; rather, the circumstances elicit the terrible violence from people much like all of us. Here is how he categorizes the perpetrators:

There are three main levels of perpetrator: (a) radical elites running party-states; (b) bands of militants forming violent paramilitaries; and (c) core constituencies providing mass though not majority popular support. (9)

And he doesn't think there is anything distinctive about the third group:

Finally, ordinary people are brought by normal social structures into committing murderous ethnic cleansing, and their motives are much more mundane. To understand ethnic cleansing, we need a sociology of power more than a special psychology of perpetrators as disturbed or psychotic people – though some may be. (9)

This "ordinary people as killers" theory (c) doesn't really seem to do justice to the problem at issue here. And the political opportunists who play the hate card aren't too hard to understand (a). It's really the people Mann includes under (b) that are of concern to me -- the true believers, the extremist White supremacists or virulent anti-Semites who become the local activists and paramilitaries that I'd like to understand better. And this population seems to be defined by the attitudes, motives, and ideologies that they bring with them, rather than the inter-group dynamics and political opportunism that Mann focuses on. So, once again, where does this mentality or psychology of activist hatred come from in our society (or in other contemporary societies)?

The easy answers are ready to hand. We might postulate a strand of political culture and thought in American society that reproduces hate and racism in some of the young people who are exposed to it. (Hate on the Internet falls in this category.) Or we might postulate a recessive "racist personality" type that is a portion of the human psyche (along the lines of the theory of the authoritarian personality). Or we might postulate that lack of opportunity and an enduring situation of defeated expectations pushes some young people into hate (skinheads in Britain or Germany).

But I don't find any of the theories very convincing by itself. So we seem to have an important theoretical issue here that is unresolved: where does "hate" come from?"

My own reaction to this was quite similar to that of 'grumpy curmudgeon' who commented at Economist's View,

"I'd turn the question on its head. How is it that modern societies have managed to create a sense of tolerance in the majority of the population. It seems wonderful (in both senses of the term) compared to the majority of human history when people have feared and hated anyone who looked, worshipped, spoke, etc. differently - that seems more the natural state of humanity. Think of children and their readiness to tease or bully anyone who is different.

When we can understand whence the West's success in building a sense of acceptance and tolerance of others in the majority of the population, maybe we can understand why people remain in the natural state."

To me, the xenophobic behaviour that Daniel described in his post is reminiscent of the Guardian precept 'Be Exclusive' which Jane Jacobs contrasted with the Commercial precept of 'Collaborate Easily with Strangers and Aliens' in 'Systems of Survival'

So I think the response to the curmudgeon's comment is that what makes the West different in the last few hundred years is the spread of the commercial syndrome which is based on win-win transactions, where the more transactions you make, the better you are, so artificially restricting yourself to a certain skin colour or religion or orientation just hurts you.

People tend to try and fit this progression of the commercial syndrome into a left-right or progressive-conservative frame, but I'm not sure that makes a lot of sense. I read lots of books where people try to balance the good of recent decades against the bad, but what they end up listing is a list where every element represents the expansion of the commercial syndrome. So the good of equal rights and women voting, is cast against the bad of expanding corporate power, inequality, advertising overload and loss of community spirit.

How often have you head people say things like 'Who could have imagined that [X] years ago [formerly discriminated against group] [y] would now be treated in an equal manner.' And then they treat this is a sign that if this victory could be achieved, then surely other victories such as ending poverty or restraining plutocracy can also be achieved, not seeming to realize that the same force that brought victory in one instance is what brings defeat in another - that the growing recognition of equal rights for various groups is a sign that we are less likely to solve problems caused by over-reliance on the commercial syndrome, not more.

Take recent events in the U.S., for instance. On the one hand, the country faces a massive deficit, is fighting multiple wars, faces record high inequality, has record low tax rates on the wealthy, is in the middle of a financial crisis largely caused by the actions of wealthy people and large corporations, is led by a Democratic president, and had a situation where tax cuts for the wealthy were set to expire. It's hard to imagine circumstances more favourable to a tax increase (restoration to previous levels) on the wealthy and yet, wouldn't you know it, the tax cuts for the wealthy were extended.

Meanwhile, the U.S. Senate strikes down the ban on gays and lesbians serving in the military. Many will see this as one step forward one step back in the U.S., but it's really two steps in the same direction.

What I wonder, and this is pure speculation here, is how much of this spread of commercial morality and it's ascendancy over guardian exclusiveness, is dependent on an economy that is continually in rapid expansion mode (by pre-industrial revolution standards) due to the ever increasing population and ever increasing use of energy, first from trees and whales and later from coal, gas and oil.

If we reach a point where we are unable to continue simultaneously increasing both world population and per capita energy consumption¹ then will the commercial syndrome be forced into retreat? And what would such a retreat mean in places like North America where many identifiably different groups of people currently live in relative harmony?

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¹ Reaching such a point seems more and more plausible with each passing year - where once we replaced an old fuel source with a better one (coalwood, oil>whales, etc.) now we replace an old fuel source with a worse one (crude oil > oil sands) - not a good sign.

75. The Strategy of Conflict Part 1, Deception and Tradition

2010-12-14T20:18:00.000-08:00

Note: This post is the seventy-fifth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is about the book, "The Strategy of Conflict" by Thomas Schelling.

Writing in the 1960's, Schelling was concerned that the field of game theory was too focussed on zero-sum games (games where one person's gain is another's loss - think chess). He proposed a continuum of games, with a pure zero-sum game at one end, and a pure coordination game (where both people gain if they make the right choices and both lose if they don't - think charades) at the other, with 'mixed-motive' games in the middle. At the zero sum game end of the spectrum, participants in the game have negatively correlated outcomes (what's good for me is bad for you) while at the coordination end, they have positively correlated outcomes (what's good for me is good for you as well).

Schelling recognized that in the zero-sum game, deception and secrecy was the order of the day, while in the coordination game, open, forthright communication (honesty) was the key to success.

In the coordination game, Schelling offers a list of examples of how people will find a way to coordinate even when they can't communicate directly with one another:

"Name 'heads' or 'tails.' If you and your partner name the same, you both win a prize.

Circle one of the numbers listed in the line below. You win if you all succeed in circling the same number.

7 100 13 261 99 555

..."

These are the first two in a list of examples that show that when people need to agree on something without communicating, they focus on whatever they think will be the most obvious element to everyone ('heads' because it is written first, '7' because it is the first number in the list, in a later example, dividing a territory along a river since it is the most notable feature of the landscape.)

Later on, Schelling introduces games where the two participants must divide something between themselves. Attacking the other participant can lead to a gain for yourself, but reduces the total amount to be divided. The participants overall do best when they can identify some agreeable way to divide the pie without fighting, but individual participants do best if the agreement is made to suit them.

Schelling theorizes that in situations of this nature, tradition can play a powerful role in providing a focal point that people can agree on. Any attempt to break with tradition re-opens all the contention for position of the various parties involved and can lead to conflict and poorer results for all unless a new tradition can be quickly established¹.

Says Schilling, "We have now rigged the game so that the players must bargain
their way to an outcome, either vocally or by the successive moves that they make, or both. They must find ways of regulating their behaviour, communicating their intentions, letting themselves be led to some meeting of minds, tacit or explicit, to avoid mutual destruction of potential gains. The 'incidental details' may facilitate the players' discovery of expressive behaviour patterns; and the extent to which the symbolic contents of the game - the suggestions and connotations - suggest compromises, limits and regulations should be expected to make a difference.

It should, because it can be a help to both players not to limit themselves to the abstract structure of the game in their search for stable, mutually nondestructive, recognizable patterns of movement. The fundamental psychic and intellectual process is that of participating in the creation of traditions"

In 'Systems of Survival' Jane Jacobs, while not using the language of game theory, expressed a similar speculation about the role of tradition,"I suspect one reason revolutionary governments have become cruel so easily and swiftly after ascendancy is that they've lost the brakes of tradition."

If there wasn't the same potential in the situation for destructive conflict, then agreement, and tradition, wouldn't need to carry the same premium, but in situations where there is potential for a costly back and forth battle, it's better to reach some agreement than none at all - and the bargaining can come down to who can identify a 'traditional' settlement that favours their interests.

That's as far as I've got so far in 'The Strategy of Conflict' but even if there is nothing else interesting in the rest of the book, it's been worthwhile.

----
¹ For an example of how angry people can get with even a trivial break in tradition, consider the reallocation of a small amount of downtown Vancouver traffic right of way from cars to bicycles and just how angry this break with the 'all cars all the time' tradition has made people, leading to what one of the few sane articles written about the change accurately described as 'an outpouring of spectacular gibberish' - the gibberish makes more sense if you understand the enraged car drivers as being worried that once tradition has been broken in this fashion, who knows where it will lead or when it will stop.

China's Bubble

2010-12-10T22:16:00.000-08:00

Just for the record, I thought I'd mention that this article by Ambrose Evans-Pritchard on the bubble in China is pretty convincing.

It's hard for me to believe that China is in the midst of anything other than a massive property bubble on a similar scale to Japan in the 80's or much of the developed world over the last decade or so.

That is all - if you want more details, read the article.

74. The Entropy Law and the Economic Process

2010-12-07T21:38:00.000-08:00

Note: This post is the seventy-fourth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post covers the work of economist Nicholas Georgecsu-Roegen. Geoergescu is best known for his book, 'The Entropy Law and the Economic Process' but I don't really recommend reading that book as I found it long, dense and filled with large sections where I wondered what point the author was trying to make. A better bet is this online essay on energy and economic myths provides an online source that covers many of his core points.

The primary point that Georgescu-Roegen emphasizes is that the second law of thermodynamics means that the energy in the universe is constantly moving from a more 'ordered' or concentrated state (in which we can make it do useful work for us) to a less ordered, more dispersed state (which is useless to us). Imagine a glass of hot water poured into a glass of cold water – eventually all the water converges to a standard temperature.

It is the more concentrated or 'low entropy' components of the world that have allowed us to build our current highly complex civilization. But the low entropy source we are relying on primarily is the mineral / terrestrial sources such as coal, gas and oil. Georgescu emphasizes that we must begin transitioning from these sources to a more sustainable future in which we rely on energy from the sun in order to power our civilization.

The message of switching from non-renewable to renewable fuels is familiar to us now (as a child in school, I recall watching a film with the bad red-hatted non-renewable fossil fuels pitted against the happy, good, blue-hatted renewable fuels such as hydro and nuclear (I grew up in Ontario)) but was controversial when Georgescu-Roegen started writing about it in the 60's and 70's.

Considering he was writing in the 70's, Georgescu-Roegen does make some telling points regarding our current trajectory,

"From the viewpoint of the extreme long run, the terrestrial free energy is far scarcer than that received from the sun. The point exposes the foolishness of the victory cry that we can finally obtain protein from fossil fuels! Sane reason tells us to move in the opposite direction, to convert vegetable stuff into hydrocarbon fuel"

(as indeed we currently are trying to do, replacing oil with biofuels. Of course whether there is enough low entropy available from crops to make running automobiles feasible on a large scale remains to be seen)

"a great stride in technological progress cannot materialize unless the corresponding innovation is followed by a great mineralogical expansion. Even a substantial increase in the efficiency of the use of gasoline as fuel would pale in comparison with a manifold increase of the known, rich oil fields."

(witness the U.S. spending billions or trillions of dollars to free up the oil in Iraq for global consumption.)

".... If progress were indeed exponential, then the input i per unit of output would follow in time the law i = i0(1 + r)-t and would constantly approach zero. Production would ultimately become incorporeal and the earth a new Garden of Eden."

(Compare the incorporeal nature of the economic explosion of the internet to previous, very corporeal, revolutions driven by coal and railroads or oil and cars.)

Georgescu-Roegen's work comes back to a central theme we have encountered many times in this series, the conflict between a worldview with no limits and one which does have binding limits. It's no surprise that most of Georgescu-Roegen's arguments are directed at economists since economists are the keepers of the commercial syndrome's, 'more is better, no limits' ideology.

In this case, despite making some good points as noted above, I didn't find Georgescu-Roegen's arguments particularly relevant to current decision making. I agree that human civilization is not immune from the force of the second law of thermodynamics, but what would interest me more is a more pragmatic assessment of what risks we face due to our rising consumption of low entropy sources of energy, as opposed to simply making the abstract argument that we will run out of low entropy sources of energy at some (potentially very distant) point in the future.

Georgescu-Roegen felt that we could make the necessary changes to subsist solely using the energy from the sun if we had the desire and organizational capacity to do so, but we was skeptical that we would take this path,

"Will mankind listen to any program that implies a constriction of its addiction to ... comfort? Perhaps the destiny of man is to have a short but fiery, exciting, and extravagant life rather than a long, uneventful, and vegetative existence. Let other species -- the amoebas, for example -- which have no spiritual ambitions inherit an earth still bathed in plenty of sunshine."

73. Brave New World

2010-11-30T21:34:00.000-08:00

Note: This post is the seventy-third in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

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"The world is turning Disney and there's nothing you can do
You're trying to walk like giants, but you're wearing Pluto's shoes
And the answers fall easier from the barrel of a gun
Than it does from the lips of the beautiful and the dumb
The world won't end in darkness, it will end in family fun
With Coca-Cola clouds behind a Big Mac Sun"¹

This week's post is about the book, Brave New World, by Aldous Huxley. Brave New World is a dystopian novel about a future world where scientific advances have led to a society where people are programmed to seek out happiness and are thus controlled, in order to maintain a stable society.

I was reminded of this book when I came across this cartoon illustration of some of the differences between George Orwell's 1984 and Brave New World.

1984, to some extent, imagines a world with the Guardian syndrome run amok, taking a far larger role and intruding in areas it was never meant to.

My first thought was that Brave New World, on the other hand, was an attempt to portray a world in which the Commercial syndrome had run amok in similar fashion.

But as I read through it again, I realized that a more accurate description would be that it describes a world in which neither syndrome exists, the Guardian syndrome because it is unnecessary and the commercial syndrome because it is destabilizing.

A while back we saw that David Gauthier argued, in his book Morals by Agreement, that morality consisted of a constraint on behaviour and that the perfectly competitive market would remove the need for morality by perfectly aligning people's natural instincts with what was socially optimal.

Huxley takes this logic further, imagining a society in which everything runs on this principle. The best expression of this thought comes in a section of the end of the book when the protagonist(s) meet up with the Resident World Controller for Western Europe, Mustapha Mond².

Mond explains that,

"Civilization has no need of nobility or heroism. These things are symptoms of political inefficiency. ... Where there are wars, where there are divided allegiances, where there are temptations to be resisted, objects of love to be fought for and defended - there, obviously, nobility and heroism have some sense."

The wording, that morality is a symptom of inefficiency, is almost a word for word match with Gauthier, but Mond's topic is politics whereas Gauthier was only talking about markets.

There are other elements of this scene that show the lack of a need for morality (in particular guardian morality). The meeting shows a complete lack of ostentation on the part of the Controller, who simply walks ('briskly') into the room and shakes their hands and has a face to face conversation with them in his study. There is no need for Mustapha to intimidate or overawe the people he is visiting, because they are firmly enough under control that they wouldn't do anything rash like use force on him.

The conversation starts with the Savage asking the Controller why something is banned and the controller replies, "Because it's old; that's the chief reason. We haven't any use for old things here." This cuts out the Guardian belief in respecting tradition.³

Mond claims that the ultimate guiding objective in the Brave New World is happiness - the same as the commercial syndrome. But in fact, the Brave New World subordinates happiness to stability. Ongoing scientific research could lead to much more comfort for man (heated leather seats in SUV's!) but the Brave New World has cut-off further scientific inquiry in many areas due to its potentially destabilizing nature.

"Our Ford himself did a great deal to shift the emphasis from truth and beauty to comfort and happiness. Mass production demanded the shift. Universal happiness keeps the wheels steadily turning; truth and beauty can't. ...

[but] People still went on talking about truth and beauty as though they were the sovereign goods. Right up to the time of the Nine Years' War. That made them change their tune all right. What's the point of truth or beauty or knowledge when anthrax bombs are popping all around you? ... People were ready to have their appetites controlled then, Anything for a quiet life. We've gone on controlling ever since. It hasn't been very good for truth, of course. But it's been very good for happiness."

I think that, in some ways, Huxley was overly optimistic about human nature. He seemed to believe that only through genetic breeding to make people dumber and forced drug consumption could people be induced to work at mindless drudgery without rebelling. He didn't seem to appreciate that people could be made cooperative in the all-consuming pursuit of happiness using far less coercive methods.

He believed that the pursuit of status would inevitably lead to civil war if left unchecked, but didn't consider that people would be happy to chase status in the form of simply greater comfort than others, achieved via promotion of comfort and convenience for others (think Steve Jobs).

He also fell into the trap of thinking that automation would remove the need for work. Ironically, even Huxley, who imagined an entire world build around the principle of the pursuit of happiness and comfort, didn't comprehend the truly insatiable nature of the human desire for greater comfort and convenience. He thought that if the government didn't maintain a large percentage of the population in agriculture, people would have no work to do, when instead the gains from no longer needing everyone to work the fields were easily absorbed by building ourselves 4,000 square foot houses and flying on planes all over the world and building cars with air conditioning, and airbags, and anti-lock brakes, and seatbelts, and warning lights, and so on.

What stands out most for me from Brave New World was the ambitious attempt to imagine a world where people's commercial syndrome desire for happiness has supplanted the need for any guardian style virtues. In the end the Savage (who has grown up outside of the Brave New World) cries out some inefficiency in the Brave New World that will allow him to demonstrate his prowess, to show his honour.

"But I don't want comfort. I want God. I want poetry, I want real danger, I want freedom, I want goodness. I want sin."

The weakness, for me, was that Huxley did not go far enough in imagining how far a commercial mindset could go on its own in reducing the need for guardian ethics, without needing to be supported by coercive methods, selective breeding or restraints on scientific inquiry and artistic endeavour.

At some point in the next few weeks, I'll explore the notion that the threat for the commercial syndrome is not just that it might succeed so well that it needs to be restrained, but rather that its continued prominence in our society depends on an ever-increasing, rather than stable level of comfort, and I'll look at the challenges we face generating an always-rising level of comfort and convenience for all.

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¹From the Beautiful South song 'One God'

²Even the choice of the name Mustapha for the leader of Europe demonstrates a rejection of the exclusivity that is part of the Guardian syndrome, showing that this society has no need for such tribalism.

³I put this in a footnote because it's not relevant to my post, but the next passage in the book is a complaint from the Savage about the 'modern' films that strikes so close to home, I wanted to mention it, "But the new ones are so stupid and horrible. Those plays, where there's nothing but helicopters flying and you feel the people kissing."

Practical Matters

2010-11-27T19:41:00.000-08:00

Gordon Price linked to this youtube video the other day, offering various reasons why he liked it. For me, the reason I liked it is that it provided a link I could go to and sign down (opposite of signing up) for having my own body weight in yellow pages delivered to my door year after year without ever making any request for such service.

The link to the form to opt-out is here: Yellow Pages Opt-Out, and it seemed easy enough to fill in. I guess we'll see if opting out actually worked next time delivery season comes around (sadly it just passed for me).

I suspect this will turn out to be one of those things, like signing the B.C. online organ donor registry, that I keep trying to do again, only to remember that I already did it once.

On the topic of the yellow pages, I never understood why local chambers of commerce never coordinated local businesses to put out their own yellow pages (digital version these days), and cut out the middleman that was extorting them via a natural monopoly.

72. The Theory of Moral Sentiments, Part 2

2010-11-23T21:34:00.000-08:00

Note: This post is the seventy-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is the second of two on the book, 'The Theory of Moral Sentiments' by Adam Smith.

This week, I want to talk about the part of the book I found most interesting, which was not Adam Smith talking about his own theories on ethics, but his thoughts on the theories of those who came before him.

Smith starts off by stating that all previous 'systems of moral philosophy' can be classified into one of three types:

"The different accounts which have been given of the nature of virtue, or of the temper of mind which constitutes the excellent and praise-worthy character, may be reduced to three different classes. According to some, the virtuous temper of mind does not consist in any one species of affections, but in the proper government and direction of all our affections, which may be either virtuous or vicious according to the objects which they pursue, and the degree of vehemence with which they pursue them. According to these authors, therefore, virtue consists in propriety.

According to others, virtue consists in the judicious pursuit of our own private interest and happiness, or in the proper government and direction of those selfish affections which aim solely at this end. In the opinion of these authors, therefore, virtue consists in prudence.

Another set of authors make virtue consist in those affections only which aim at the happiness of others, not in those which aim at our own. According to them, therefore, disinterested benevolence is the only motive which can stamp upon any action the character of virtue.

The character of virtue, it is evident, must either be ascribed indifferently to all our affections, when under proper government and direction; or it must be confined to some one class or division of them. The great division of our affections is into the selfish and the benevolent. If the character of virtue, therefore, cannot be ascribed indifferently to all our affections, when under proper government and direction, it must be confined either to those which aim directly at our own private happiness, or to those which aim directly at that of others. If virtue, therefore, does not consist in propriety, it must consist either in prudence or in benevolence. Besides these three, it is scarce possible to imagine that any other account can be given of the nature of virtue. I shall endeavour to show hereafter how all the other accounts, which are seemingly different from any of these, coincide at bottom with some one or other of them."

So three different approaches, benevolence, prudence (enlightened self-interest) or whatever is appropriate to the situation.

The first philosopher that Smith discusses is Plato, and the moral system outlined by Plato in 'The Republic.' I'm going to quote Smith at length because his discussion of Plato cuts right to the heart of everything we've been discussing this whole series. In a way, it's funny, because I read The Republic myself while working on this series, but I didn't manage to extract nearly the same concise summary of it that Adam Smith did (which is not surprising, I suppose, since Smith is a renowned philosopher, and I'm just some guy with a keyboard!). Anyways, take it away Adam,

"In the system of Plato the soul is considered as something like a little state or republic, composed of three different faculties or orders.

The first is the judging faculty, the faculty which determines not only what are the proper means for attaining any end, but also what ends are fit to be pursued, and what degree of relative value we ought to put upon each. This faculty Plato called, as it is very properly called, reason, and considered it as what had a right to be the governing principle of the whole. Under this appellation, it is evident, he comprehended not only that faculty by which we judge of truth and falsehood, but that by which we judge of the propriety or impropriety of desires and affections.

The different passions and appetites, the natural subjects of this ruling principle, but which are so apt to rebel against their master, he reduced to two different classes or orders. The first consisted of those passions, which are founded in pride and resentment, or in what the schoolmen called the irascible part of the soul; ambition, animosity, the love of honour, and the dread of shame, the desire of victory, superiority, and revenge; all those passions, in short, which are supposed either to rise from, or to denote what, by a metaphor in our language, we commonly call spirit or natural fire. The second consisted of those passions which are founded in the love of pleasure, or in what the schoolmen called the concupiscible part of the soul. It comprehended all the appetites of the body, the love of ease and security, and of all sensual gratifications.

It rarely happens that we break in upon that plan of conduct, which the governing principle prescribes, and which in all our cool hours we had laid down to ourselves as what was most proper for us to pursue, but when prompted by one or other of those two different sets of passions; either by ungovernable ambition and resentment, or by the importunate solicitations of present ease and pleasure. But though these two orders of passions are so apt to mislead us, they are still considered as necessary parts of human nature: the first having been given to defend us against injuries, to assert our rank and dignity in the world, to make us aim at what is noble and honourable, and to make us distinguish those who act in the same manner; the second, to provide for the support and necessities of the body.

In the strength, acuteness, and perfection of the governing principle was placed the essential virtue of prudence, which, according to Plato, consisted in a just and clear discernment, founded upon general and scientific ideas, of the ends which were proper to be pursued, and of the means which were proper for attaining them.

When the first set of passions, those of the irascible part of the soul, had that degree of strength and firmness, which enabled them, under the direction of reason, to despise all dangers in the pursuit of what was honourable and noble; it constituted the virtue of fortitude and magnanimity. This order of passions, according to this system, was of a more generous and noble nature than the other. They were considered upon many occasions as the auxiliaries of reason, to check and restrain the inferior and brutal appetites. We are often angry at ourselves, it was observed, we often become the objects of our own resentment and indignation, when the love of pleasure prompts to do what we disapprove of; and the irascible part of our nature is in this manner called in to assist the rational against the concupiscible.

When all those three different parts of our nature were in perfect concord with one another, when neither the irascible nor concupiscible passions ever aimed at any gratification which reason did not approve of, and when reason never commanded any thing, but what these of their own accord were willing to perform: this happy composure, this perfect and complete harmony of soul, constituted that virtue which in their language is expressed by a word which we commonly translate temperance, but which might more properly be translated good temper, or sobriety and moderation of mind.

Justice, the last and greatest of the four cardinal virtues, took place, according to this system, when each of those three faculties of the mind confined itself to its proper office, without attempting to encroach upon that of any other; when reason directed and passion obeyed, and when each passion performed its proper duty, and exerted itself towards its proper object easily and without reluctance, and with that degree of force and energy, which was suitable to the value of what it pursued. In this consisted that complete virtue, that perfect propriety of conduct, which Plato ... denominated Justice."

Described in this manner, Plato's system of morals bears a resemblance both to the utility function hypothesized by Howard Margolis (where a central decision making process arbitrates being a public spirited Smith and a self-interested Smith) and also to the systems of survival envisioned by Jane Jacobs which had an honour driver Guardian syndrome contrasted with a comfort driven Commercial syndrome.

One thing to puzzle out is whether prudence belongs on top as an organizing principle (as Smith indicates that Plato intended) or as part of the self-interested, comfort-seeking set of behaviours as Smith himself, or Jane Jacobs would have it. Or perhaps there are just two different things being meant by the word prudence.

Good News for a Change

2010-11-22T18:11:00.000-08:00

I'm a little late getting to this, but I wanted to offer a favourable opinion on the deal struck between Newfoundland and Nova Scotia which will hopefully finally get development started on the Lower Churchill Hydro project. The current deal is only for a portion of the potential power that could be generated at Lower Churchill, but once the undersea cables have been installed to route the power through Newfoundland and into the Maritimes, it seems all that more likely that the remaining potential will be tapped.

In my opinion, if Canada wants to reduce it's greenhouse gas emissions without having to sacrifice anything economically, by far the most obvious choice is to use hydro-electric power (and some wind) to displace our remaining coal plants. It seems as though our neanderthal government has scrubbed the handy list of the worst ghg emitting plants in the county off of the Environment Canada website, but this press release from Pollution Watch has a list of Canada's biggest sources of CO2 in the atmosphere, and it's pretty much a list of the country's biggest coal plants.

So, credit to Danny Williams who's been the driving force behind the development of the Lower Churchill Falls.

Finally, here's a good article in the Globe from Jan Carr that explains how the main thing holding Canada back from fully exploiting it's hydro resources is lines on a map, in particular the lines between provinces.

71. The Theory of Moral Sentiments, Part 1

2010-11-16T21:38:00.000-08:00

Note: This post is the seventy-first in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is on the book, 'The Theory of Moral Sentiments' by Adam Smith.

The Theory of Moral Sentiments is a long rambling book, and I only plan to cover a small part of it here. Much of the book is taken up with Smith's argument that sympathy is one of the prime motivators of our moral senses, whether positive sympathy with other people's happiness and well being and benevolence, negative sympathy with their anger and fear and hatred or a more muted sympathy with their more personal emotions such as grief and joy.

What I want to spend more time on this week is Smith's comment that, "The great division of our affections is into the selfish and the benevolent." Accordingly, he has a chapter on each.

First up is selfish affections. Here are a few quotes from Smith, who treats 'prudence' as the name for all the properties that lead a man to his own benefit.

"The preservation and healthful state of the body seem to be the objects which Nature first recommends to the care of every individual."

...

"As he grows up, he soon learns that some care and foresight are necessary for providing the means of gratifying those natural appetites"

...

"Though it is in order to supply the necessities and conveniencies of the body, that the advantages of external fortune are originally recommended to us, yet we cannot live long in the world without perceiving that the respect of our equals, our credit and rank in the society we live in, depend very much upon the degree in which we possess, or are supposed to possess, those advantages. The desire of becoming the proper objects of this respect, of deserving and obtaining this credit and rank among our equals, is, perhaps, the strongest of all our desires, and our anxiety to obtain the advantages of fortune is accordingly much more excited and irritated by this desire, than by that of supplying all the necessities and conveniencies of the body, which are always very easily supplied."

...

"We suffer more, it has already been observed, when we fall from a better to a worse situation, than we ever enjoy when we rise from a worse to a better. Security, therefore, is the first and the principal object of prudence. It is averse to expose our health, our fortune, our rank, or reputation, to any sort of hazard. It is rather cautious than enterprising, and more anxious to preserve the advantages which we already possess, than forward to prompt us to the acquisition of still greater advantages."

...

"His conversation is simple and modest, and he is averse to all the quackish arts by which other people so frequently thrust themselves into public notice and reputation. For reputation in his profession he is naturally disposed to rely a good deal upon the solidity of his knowledge and abilities; and he does not always think of cultivating the favour of those little clubs and cabals"

...

"The prudent man is always sincere, and feels horror at the very thought of exposing himself to the disgrace which attends upon the detection of falsehood."

...

"is friendship is not that ardent and passionate, but too often transitory affection, which appears so delicious to the generosity of youth and inexperience."

...

"In the steadiness of his industry and frugality, in his steadily sacrificing the ease and enjoyment of the present moment for the probable expectation of the still greater ease and enjoyment of a more distant but more lasting period of time, the prudent man is always both supported and rewarded by the entire approbation of the impartial spectator, and of the representative of the impartial spectator, the man within the breast."

...

"If he enters into any new projects or enterprises, they are likely to be well concerted and well prepared. He can never be hurried or drove into them by any necessity, but has always time and leisure to deliberate soberly and coolly concerning what are likely to be their consequences."

...

"When distinctly called upon, he will not decline the service of his country, but he will not cabal in order to force himself into it"

...

"Wise and judicious conduct, when directed to greater and nobler purposes than the care of the health, the fortune, the rank and reputation of the individual, is frequently and very properly called prudence. We talk of the prudence of the great general, of the great statesman, of the great legislator. Prudence is, in all these cases, combined with many greater and more splendid virtues, with valour, with extensive and strong benevolence, with a sacred regard to the rules of justice, and all these supported by a proper degree of self-command."

Some of this aligns with what we have seen with the commercial syndrome in Jane Jacobs' Systems of Survival, but some doesn't.

In particular, Smith's concern of the prudent man for status, and the cautiousness of his prudent man, do not line up with the commercial ethics that Jane Jacobs described. In some ways, this description resembles Weber's description of the traditional economy that existed prior to the rise of 'The Spirit of Capitalism'.

* * *

After talking about man's selfish affections, Smith moves on to man's benevolent affections:

"The character of every individual, so far as it can affect the happiness of other people, must do so by its disposition either to hurt or to benefit them.

Proper resentment for injustice attempted, or actually committed, is the only motive which, in the eyes of the impartial spectator, can justify our hurting or disturbing in any respect the happiness of our neighbour. To do so from any other motive is itself a violation of the laws of justice, which force ought to be employed either to restrain or to punish."

...

"The love of our own nation often disposes us to view, with the most malignant jealousy and envy, the prosperity and aggrandisement of any other neighbouring nation. Independent and neighbouring nations, having no common superior to decide their disputes, all live in continual dread and suspicion of one another. Each sovereign, expecting little justice from his neighbours, is disposed to treat them with as little as he expects from them. The regard for the laws of nations, or for those rules which independent states profess or pretend to think themselves bound to observe in their dealings with one another, is often very little more than mere pretence and profession. From the smallest interest, upon the slightest provocation, we see those rules every day, either evaded or directly violated without shame or remorse."

...

"The love of our country seems, in ordinary cases, to involve in it two different principles; first, a certain respect and reverence for that constitution or form of government which is actually established; and secondly, an earnest desire to render the condition of our fellow-citizens as safe, respectable, and happy as we can. He is not a citizen who is not disposed to respect the laws and to obey the civil magistrate; and he is certainly not a good citizen who does not wish to promote, by every means in his power, the welfare of the whole society of his fellow-citizens."

...

"Foreign war and civil faction are the two situations which afford the most splendid opportunities for the display of public spirit. The hero who serves his country successfully in foreign war gratifies the wishes of the whole nation, and is, upon that account, the object of universal gratitude and admiration."

To be honest, I didn't find a lot of interest in Smith's description. There is brief mention of the importance of prowess, the role of deception, the desire to dispense largesse and the use of force when necessary, but not much more than that.

Of all the 'major' works of philosophy I've read as part of this series, Smith's 'Theory of Moral Sentiments' seems the most disconnected from Jane Jacobs and her 'Systems of Survival.' Nonetheless, next week I'll follow up by discussing what, to me, was the most interesting part of the book: Smith's description of the moral systems of the philosophers who came before him, in particular Plato.

70. War and Peace

2010-11-09T21:11:00.000-08:00

Note: This post is the seventieth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Many years ago, I read 'Century Of War' by Gabriel Kolko. It's not actually about war itself, but rather about the impact of the war on the society that wages it. I don't remember any of the details of the book (it was many years ago), but I do remember coming away completely convinced of his argument that the wars led to a shift to more progressive policies. And I also remember not being nearly as clear about why war had that effect.

This post will look into that question, in a roundabout fashion, first returning to a story I related way back near the start of this series, "One of my childhood friends happened to have his birthday on the same day as Halloween. Naturally, a group trick or treat outing was incorporated as part of his birthday celebration. Afterwards, the group of us would pile into his bedroom and dump out our accumulated loot into a pile on the floor (one pile for each person - not one big pile). Note that at this point, the distribution of loot has been determined by the random allocations at each front door, and does not take into consideration each trick or treaters particular tastes. This raises the possibility of making trades that benefit all parties involved. For example, I always liked the Rockets and Mint Laura Secord bars the best, whereas others preferred items such as the Coffee Crisp that I had little interest in.

So the initial distribution was Pareto-inefficient in that changes could be made that would benefit people without making anyone else worse off.

So, naturally, we set about trying to achieve a Pareto optimal distribution of candy in a free wheeling round of candy exchange that would last until everyone was satisfied enough with their adjusted haul such that no further exchanges could be made that were agreeable to both parties."

Now, imagine if you were one of the trick or treaters, and you were about to embark on the candy exchange when your friend suggested that the two of you team up in order to trade more effectively. The immediate question that comes to my mind is, how would teaming up help? In fact, teaming up might well be harmful since if the two of us had to agree to trades together, that might mean that I have to compromise and trade for things we both like. If I love malted milk but my friend hates malted milk, then teaming up makes me less likely rather than more likely to get what I want. The more correlated our tastes are to one another, the less compromise and less sacrifice comes from teaming up, but why make any sacrifices at all, why not just have everyone remain as sole traders. And of course, that is what we did as kids.

Now, let's imagine that a couple of your friends haven't learned proper manners and they begin to violate commercial (trading) ethics by stealing candy and a fight breaks out, with everybody trying to grab candy from everybody else's pile. And further suppose that your best friend turns to you and offers to team up. In this situation, the benefits of teaming up are obvious. A two person force would be much more effective in a physical battle than two people fighting alone, especially if you and your friend are able to place your piles beside one another in order to form a more geographically contiguous territory to defend.

OK, another scenario. This time, you and your friends (let's say there are 5 of you in total) are getting along, but a couple of kids who are up to no good, start making trouble in your neighbourhood and come over and demand that you give them all your candy or they will beat you up. You figure that if all 5 of you stand together and fight, you can fight these older kids off, but if anyone gets scared and bails, you might well lose all your candy. In this situation, you need everyone to team together in an all or nothing battle.

So, let's say that you and your friends stick together and the older bullies are scared to attack you. So one of the bullies has an idea and makes the following offer, "The first one of you little punks to come over to our side gets an equal share of the candy after we beat up the rest of your friends." Now there is an extra incentive for one of your friends (or you) to betray the rest and side with the bullies. Strong bonds of loyalty will be required to keep the group together. A moral viewpoint that says this kind of trading, or selling out, is shameful behaviour wouldn't hurt either.

OK, final scenario, same as the last one, but this time, instead of the candy being divided relatively equally between you and your friends (as you might expect after a night of trick or treating together), let's say the candy is divided the same way that wealth is in the United States. So if you collected 100 candies in total, then one friend has 84 candies, another friend has 11, one friend has 4, the second last friend has 0.2 (one fifth of a pack of rockets, perhaps), and you have 0.1 candies (one measly rocket). Do you think the chances of someone selling out their friends to the bullies goes up in this scenario? I do. How much loyalty can the person with 0.1 candies really feel towards the 'friend' sitting across from them with 84?

In a situation where you need cooperation from everyone to succeed, then everyone has equal worth, since the withdrawal of any one person dooms the enterprise. And in a situation where people are tempted to defect, the more unequal the distribution of benefits, the greater the temptation to defect. The World Wars were just this sort of situation, and it's no surprise, looking at it this way, that they led to policies which tried to take care of everyone in society (more so than what came before, at any rate).

And now, 65 years since World War 2 ended and since any collective effort or sacrifice was needed in our society, we have settled into the mindset of candy traders, preferring private schools and health care to paying taxes for public services, driving our car exactly where we want to go, rather than compromising by riding transit, staying at home watching exactly what we want to watch rather than compromising by watching what others are watching as well, and bowling alone, rather than compromising by organizing our schedule around a time everyone can come.

Antidote

2010-11-08T20:07:00.001-08:00

After the unpleasantness of the last post, here is a little sanity, courtesy of commenter, 'A Canadian Reader' on the Globe and Mail the other day,

"I'm very tired of this obsession with lower taxes. My neighbourhood is full of people with the latest great cars, wonderful homes, children in private schools.

It isn't clear at all why we need our taxes to be even lower than they are. I don't need a new car. Mine is nice enough.

What I do need is schools that prepare our young people for a future they will have to shape themselves, health care that really takes care of the elderly and the sick, a civilized environment that values people and shows it every day.

I'm proud to support these goals with my taxes, and ashamed that my government is so focused on saving rich people and big business's money, at the expense of the weak and vulnerable.

It's a stupid priority and leads to what the US has now--California in tatters, Utah trying to cancel grade 12.

Time for the strong in society to grow up and quit trying to get all the cake all the time."

Now we just need a few (thousand) people to cut and paste that comment on to every news story in any medium that mentions how all we need for happiness is lower taxes (with never a word about what will be cut or who will benefit most) and we might start getting somewhere.

Blessed Are the Meek

2010-11-03T17:35:00.000-07:00

Some local news, for a change.

The Now, website for a local newspaper in northeastern Vancouver, offers an unusual warning for a newspaper, 'Editor's note: This story contains language that some readers may find offensive.'

If you bravely click through here is what you get,

Shelter debate turns nasty

Police attend Coquitlam City Hall as angry residents shout at council members

"The crackheads will be in the park with their needles and sh*t like that. I'll leave a bucket of needles right by your door, too. Don't you worry."

"Are you going to pay for my house as well, when the property value goes down? I want top dollar for that, too."

"Remember, I've got your address. I'll find you."

Those threats exemplified the chaotic mood in Coquitlam council chambers Monday, as about 200 residents packed in to voice their opposition to a proposed homeless shelter in the city's Westwood neighbourhood. At issue was the first reading of a rezoning process for land at 3030 Gordon Ave., where a 30-person transitional house and commercial facility is being proposed.

In what was a roughly 20-minute long exchange, council members rarely got more than a minute worth of speaking in before heated comments began raining down from the viewing gallery. The situation reached such a fevered pitch that Mayor Richard Stewart requested a "discreet" RCMP presence outside the council chambers in response to threats being uttered towards him and other councillors.

As soon as councillors entered the chambers at 7 p.m., Hoy Street resident Garry Badour began voicing his displeasure.

"We don't want a transition house," he said. "We want a safe neighbourhood."

Stewart took the unusual step of addressing the standing-room-only audience before the meeting began, stressing that audience outbursts and applause go against council meeting procedures.

It didn't matter.

"Put it next to your house," Badour countered.

It was much the same as clerk Jay Gilbert read the rezoning item from the council agenda. Badour said, "We're opposed to that. We want to end it now."

Coun. Mae Reid, chair of the city's land use committee, tried to explain that passing the first reading of a rezoning application allows members of the public a forum to voice their views on the topic. Council eventually unanimously passed first reading, allowing a public hearing to go ahead.

"When we get something that's this contentious, the fairest thing we can do is move it to all the neighbourhoods that are affected," she said.

As Reid tried to continue, Badour cut her off again. From there, the meeting quickly descended into chaos, with multiple residents yelling at, and threatening, members of council and the local press.

...

I just thought I'd pass that along.

69. Selfishness, Altruism and Rationality, Part 2

2010-11-02T21:37:00.000-07:00

Note: This post is the sixty-ninth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is a continuation of last week's post on the book, Selfishness, Altruism and Rationality, by Howard Margolis

In the last post, we talked about how Margolis explained the failings of the traditional rational choice theory to explain human behaviour in situations where self-interest conflicted with group interest. This is a pretty common observation, generally taken for granted outside of economic circles, but Margolis goes a step further and proposes an alternative model of human motivation.

Margolis calls his model the Fair Share model and it is based on the notion that people feel a desire to 'contribute their fair share' to the public welfare. He describes the underlying motivation of people in this model as follows:

"The larger the share of my resources that I have spent unselfishly, the more weight I give to my selfish interests in allocating marginal resources. On the other hand, the larger the benefit I can confer on the group compared with the benefit from spending marginal resources on myself, the more I will tend to act unselfishly."

Margolis imagines that a person (who he calls 'Smith') contains two separate components, 'G-Smith' who values (Smith's perception of) the general welfare, and 'S-Smith' who values only Smith's personal welfare. Smith stays in equilibrium by adjusting the level of his spending on the public interest so that the marginal value of more public spending by Smith (to G-smith) equals the marginal value of more selfish spending (to S-Smith).

Margolis argues that, from an evolutionary point of view, it would be easier for this sort of limited, 'fair share' altruism to be maintained over time, because it would be less vulnerable to being exploited by selfish people than an unlimited altruism that didn't keep track of how much a person had already sacrificed their personal interests for the public good.

Margolis further notes that,

"The notion that human beings might have the kind of dual preference structure posited by this study is very old, going back at least to Plato's distinction between man as a private individual and man as citizen."

In chapter 6, Margolis goes into more detail on how his model differs from the classical rational choice model, and helpfully unpacks some of the assumptions which are embedded within the rational choice model (but often go unstated or unnoticed):

1. Smith can be treated as narrowly self-interested
2. Smith's utility function is a goods function (i.e. he only cares about what goods people possess, not how they got them or what role he played in determining the allocation)
3. Smith chooses in conformity with the principle of consumer sovereignty (i.e. Smith thinks what's best for society is that everybody get what they wants, as opposed to Smith having a vision of what's best for society which might conflict with what other people want).
4. Smith has only one utility function (as opposed to having one for his own interests and one for the social interest).

As Margolis explains, economists, if confronted with these assumptions might deny that they are a necessary part of the model, but after their denial, they will then go right back to building models and making predictions that only make sense if those assumptions are there.

He also explains how, in the marketplace, where the public interest and private interest are in alignment (subject to all the caveats he have discussed in this series), the difference between the predictions of his 'fair share' model and a traditional rational choice model that posits self-interested behaviour by all participants is not that big. It is primarily in political situations where the differences will be clearer, because here the contrast between private and social objectives is sharper.

If you've had the same struggles as I have over the years trying to pin down how economists come to the (often wrong-headed) conclusions they do, this chapter is a must read. Margolis is that rare bird who knows enough economics to be able to explain things clearly using the language of economics but has still retained enough common sense to be interested in models of people as they actually are as opposed to making unrealistic assumptions so as to have a model that is easier to work with mathematically.

---
Later on, Margolis talks about how his fair share model explains why people might act differently in different circumstances, pursuing their own interest in one and the public interest in another,

"If I am a producer facing reasonably competitive markets (even the experience of Ford in trying to promote safety features in automobiles in the mid 1950-s is instructive here), then I will scarcely be in a position to do anything very different than produce what the market seems to want. Even if my choices affect only me and my customers, I will not have any customers to benefit unless I offer them things they want at a price they are willing to pay. If there are external effects (environmental side-effects), the dilemma is even worse.

However, if I am in a senior position in my government, my decisions on public matters often affect society in a large way. This being so, there will be no necessary inconsistency between my behaving as a narrow profit maximizer (to a good approximation) as a private businessman; as a rather casual decision maker, as a voter, and as a very serious decision maker, working very hard and feeling great personal responsibility for the social effects of my decisions as a high public official.

...I wish to say enough here to indicate why [James] Buchanan's and [Gord] Tullock's 'paradox of bifurcated man' seems, from the [Fair Share model] view, to reflect a mistaken assumption that an internally consistent model could not account for a disposition for the same individual to behave in a very public spirited way in some circumstances and as a profit-maximizing economic man in other contexts."

Now this just seems like common sense to me, but then consider the surprise in the reactions of experimenters when they found, exactly as Margolis and his model would have predicted, that when they ran the exact same Prisoner's Dilemma experiment on the same people and only changed the name (in one case 'Wall Street Game' in the other 'Community Game') that people behaved very differently. As the abstract states,

"The results of these studies showed that the relevant labeling manipulations exerted far greater impact on the players’ choice to cooperate versus defect—both in the first round and overall—than anticipated by the individuals who had predicted their behavior." (emphasis added).

My one disagreement with Margolis in the passage above is that after stressing the role played by competition in preventing public interested behaviour in the marketplace, he then fails to note how the lack of competition in the public sector is an essential component of allowing the pursuit of the public interest there (although to be fair, it is somewhat implied in the text).

Finally, Margolis offers some interesting speculation on how caste might be partially explained by the fair share model. In the early stages of society, people who are more disposed towards public action would be more willing to undertake key tasks such as organizing irrigation schemes or a defensive army. In successful societies, these actions lead to large gains for the whole society, and those who were among the early organizers of the action would claim some of that gain for themselves, leading to greater wealth and influence. But under the fair share model, the more wealth you have, the more resources you will donate to the public interest. Richer people have more resources to donate in the first place, plus they donate a higher proportion of their resources, so there is a positive feedback whereby people with more power put more effort into the public realm which gets them more power in return and so on.

As Margolis says,

"As generations pass, the resulting division between those who manage and defend the state (often enough at real personal cost and risk) and those who labor comes to seem to accord with the natural order. What gives that presumption special potency is that there is some substance - something more than a self-serving myth - in the presumption that the noble and commoner are motivated in different ways. In terms of [the Fair Share model], that presumption is false at its root [because all people have an interest in their own welfare and the public welfare] but nevertheless consistent with observed behaviour. Our modern colloquial usage of words like 'noble' and 'peasant' is an anachronism but not necessarily a libel."

If you like economics but generally find economists irritating, and you are interested in the public welfare and the interaction between the two topics, this is a great book.

Modern Astrology

2010-11-01T17:55:00.000-07:00

Here are some quotes from a recent Globe and Mail article in the business section. It's talking about Plutonic Power Corporation, but it could be talking about any company and it would make no difference.

"The charts for Plutonic Power Corp. (PCC-T2.320.125.45%) will give us a better idea of trend, support, and resistance in searching for opportunity. ... The three-year chart is not what I would call particularly attractive. PCC was range bound with support at $3.00 and resistance at $4.00 over the period May 2009 to May of 2010. After May of this year the stock broke below support at $3.00 and then held on to $2.40 but quickly found new lows at $1.50. PCC has caught a bounce from the rock bottom at $1.50 and is coming out of an oversold situation. ... The six-month chart illustrates the weakness in the stock and the inability to break the downtrend. There was an eight-day rise that took the stock higher in August of 2010, but it was short-lived.

The RSI signalled that the stock was oversold in October which attracted some buying. The MACD appears to be turning higher but notice the resistance at $2.20.

PCC has given bottom fishers lots of head fakes, baiting them into the market only to shred their capital. At this point, the stock is still fighting the downtrend and if you are thinking of stepping into this name, don’t be surprised if you get a shock."

This is what is referred to amongst stock market astrologists as 'Technical Analysis'.

As Wikipedia notes,

"Whether technical analysis actually works is a matter of controversy. Methods vary greatly, and different technical analysts can sometimes make contradictory predictions from the same data. Many investors claim that they experience positive returns, but academic appraisals often find that it has little predictive power."

The 'idea' of technical analysis is that there are patterns in stock market charts that will help you predict what will happen next. In my opinion, it's all about as plausible as the notion that an Octopus could predict the outcomes of World Cup games. But whereas Paul the Octopus was treated as a novelty, technical analysis is taken seriously by enough people that we get columns in our most serious national newspaper, talking earnestly about MACD's and RSI's.

I love the last line in the article, "Make it a massive weekend and Happy Capitalism!" If only Max Weber was still around today to hear people talking about technical analysis, the modern version of the mysticism and witchcraft of the middle ages that was supplanted by the rational capitalistic age, and referring to it, with no sense of irony, as capitalism!

68. Selfishness, Altruism and Rationality, Part 1

2010-10-26T21:52:00.000-07:00

Note: This post is the sixty-eighth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's topic is the book, Selfishness, Altruism and Rationality, by Howard Margolis

Margolis' goal in this book is to extend the Economic Theory of Rational Choice so that it covers political situations as well as Economic ones.

He opens the book with a quote from James Coleman which eloquently outlines the problem, while also covering our now familiar choice between two versions of self-interest,

"Classical economic theory always assumes that the individual will 'act in his interest'; but it never examined carefully the entity to which 'his' refers. Often, as when households are taken as the unit for income and consumption, it is implicitly assumed that 'the family' or 'the household' is the entity whose interest is being maximized. Yet this is without theoretical foundation, merely a convenient but slipshod device. In this case, as in many others (e.g. when a man is willing to contribute much, even his life, to national defense, rather than use a strategy that will push the cost onto others), men act as if the 'his' referred to some entity larger than themselves. That is, they appear to act in terms, not of their own interest, but of the interest of a collectivity or even of another person. Indeed, if they did not do so, the basis for society could hardly exist.

Yet how can this be reconciled with the narrow premise of individual interest ... we could simply solve the problem by fiat, letting 'his' refer to whatever entity the individual appeared to act in the interest of. This would obviously make the theory trivially true, and never disconfirmable. A more adequate solution is one which states the conditions under which the entity in whose interests he acts will be something other than himself."

We saw in the last post that James Buchanan was willing to settle for a theory that based human motivation solely on the desire for material gain, arguing that the desire for material gain is always present to some degree in people.

But Margolis isn't willing to settle so easily,

"A satisfactory theory of social choice requires a model of individual choice that is consistent with the way human beings are observed to behave. Yet, even after a generation of work on the problem of applying the economic 'rational choice' perspective to social choice, often leading to striking results, this fundamental problem remains unresolved. We still lack a model that accommodates (without fudging) such obvious observations as that citizens bother to vote and do not always cheat when no one is looking. A resolution of this difficulty can be expected to require some departure from conventional assumptions."

Margolis goes on to indicate that, in his opinion, the main difference between situations which can modelled fruitfully using the traditional model and situations requiring a new model is that situations where the old model works are economic in nature whereas situations where a new model is required are political in nature (echoes of Mancur Olson specifically indicating that this theories on collective action only applied to economic groups, not groups formed for no-economic reasons.

Says Margolis,

"This classical model is profoundly shaped by its root concern with the problems of the marketplace. But in politics we are dealing with goods allocated largely through some coercive process, not through voluntary market transactions; and political 'goods' (such as justice) are often inherently unmarketable. Nonmarket effects (externalities) which are aberrations - market failures, which one seeks to correct - for most economists are the central feature of political life for political scientists.

We can expect that Samuelson's notion of public goods (which can best be understood as a generalization of the notion of externalities) would play a central role in any viable formal theory of politics, and indeed that is the case. It is not too strong a statement to say that societies, and hence politics exist because public goods exist."

Margolis spends a chapter illustrating his argument that the classical rational choice models fails to handle political situations via a series of 3 examples:

* Voting
* Repeated Prisoner's Dilemmas
* Public Goods

In the case of voting, the rational choice model fails to explain why people might go the trouble of voting even when they know their vote won't affect the outcome.

In the case of the repeated Prisoner's Dilemma, the model fails to explain why people will generally cooperate even though on any given iteration they could gain by defecting against the other player in the dilemma.

In the case of public goods, the model fails to explain why people will make contributions to things that are publicly available to everyone. Margolis asks us to imagine a hypothetical man named Smith who is planning a $10 donation to his favourite charity. The classical economic model says that Smith would do this because he wants the charity to have $10 more available to it than it does currently.

But now imagine Smith finds out that someone else has just donated $10 to the charity. Under the classical model, Smith, realizing that his favourite charity is now $10 richer just as he wanted it to be, no longer feels a need to make a donation.

Of course in reality there may be some relationship between how much money a charity has raised and how much people contribute, but it is nowhere near this strong a relationship. Clearly there must be something more to Smith's motivation than simply wanting the charity to be $10 richer, but the classical model has no answer to what that might be.

Margolis argues that there are two altruistic motivations that need to be taken into consideration. We have an altruistic motivation based on wanting other people to have more, and an altruistic motivation based on wanting to contribute our fair share (what Margolis calls 'participation').

Margolis also notes that all of his examples are prisoner's dilemma type situations, which is not surprising since the Prisoner's Dilemma is the formalization of situations where what is in the self-interest of participants is opposed to the group interest.

In the next post we will look at the solution that Margolis proposes in order to create a model of rational choice that can model human behaviour accurately in the case of prisoner's dilemma / public goods type situations.

More Krugman on Debt

2010-10-25T17:32:00.000-07:00

Paul Krugman has posted one of his more in-depth explanations of his thoughts on debt and getting out of economic depressions.

For the most part, it is reminiscent of my final thoughts on the topic, expressed back here.

The main difference is that Krugman seems to think government borrowing can somehow trigger an eventual reduction in overall debt levels, paving the way for a more balanced economy and future growth. In my view, government borrowing only prolongs the debt party a little, but it will take either money printing or default on a significant scale to bring debt levels back down and right the economy.

More discussion of this topic over at Worthwhile Canadian Initiative

67. Public Choice Theory

2010-10-19T21:20:00.000-07:00

Note: This post is the sixty-seventh in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Here's Wikipedia on Public Choice Theory,

'In economics, public choice theory is the use of modern economic tools to study problems that are traditionally in the province of political science. From the perspective of political science, it may be seen as the subset of positive political theory which deals with subjects in which material interests are assumed to predominate.

In particular, it studies the behavior of politicians and government officials as mostly self-interested agents and their interactions in the social system either as such or under alternative constitutional rules. These can be represented a number of ways, including standard constrained utility maximization, game theory, or decision theory. Public choice analysis has roots in positive analysis ("what is") but is often used for normative purposes ("what ought to be"), to identify a problem or suggest how a system could be improved by changes in constitutional rules.'

In discussing Public Choice Theory, we need to be careful to remember the two different self-interests that we discussed a while back:

1) Self-interest in the sense that people just want to accumulate more money and more stuff for themselves and,
2) Self-interest in the sense that when people decide to do something, they choose to do whatever it is they prefer to do.

Now, the first definition of self-interest clearly is not accurate as a description of human behaviour, especially in political contexts, and the second definition is a fairly useless tautology, so the question is then how this concept of self-interest can be made useful.

James Buchanan, one of the founders and most famous advocates of social choice theory takes on the tricky question of self-interest in this summary of public choice theory, stating,

"The source of this charge lies in the transfer of the two hard-core elements, methodological individualism and rational choice, directly from economic theory to the analysis of politics. At one level of abstraction, these two elements are themselves relatively empty of empirical content. To model the behavior of persons, whether in markets or in politics, as maximizing utilities, and as behaving rationally in so doing, does not require specification of the arguments in utility functions. Economists go further than this initial step, however, when they identify and place arguments into the categories of 'goods' and 'bads.' Persons are then modeled as acting so as to maximize some index of 'goods' and to minimize some index of 'bads.'

More specifically, economic models of behavior include net wealth, an externally measurable variable, as an important 'good' that persons seek to maximize.
The moral condemnation-criticism of public choice is centered on the presumed transference of this element of economic theory over to political analysis. Those who find themselves in roles as public choosers, whether as voters, as legislators, as political agents of any sort, do not, it is suggested, behave in accordance with norms that are appropriate to behavior in markets. Persons are differently
motivated when they are choosing 'for the public' rather than for themselves in private choice capacities. And it is both descriptively inaccurate and morally questionable to assign self-interest motives to political actors. Or so the criticism runs.

At base, this criticism stems from a misunderstanding of what the whole explanatory exercise is all about — a misunderstanding that may have been fostered by the failure of economists to acknowledge the limits of their efforts. The economic model of behavior, even if restricted to market activity, should never be taken to provide
the be-all and end-all of scientific explanation. Persons act from many motives, and the economic model concentrates attention only on one of the many possible forces behind actions. To employ the model for prediction does, of course, require the initial presumption that the identified 'goods' that are maximized are relatively important in the mix. Hypotheses that imply that promised shifts in net wealth modify behavior in predictable ways have not been readily falsifiable empirically.

At issue here is the degree to which net wealth, and promised shifts in net wealth, may be used as explanatory incentives for the behavior of persons in public choice roles. Public choice, as an inclusive research program, incorporates the presumption that persons do not readily become economic eunuchs as they shift from market to political participation. The person who responds predictably to ordinary incentives in the marketplace does not fail to respond at all when his role is shifted to collective choice. The public choice theorist should, of course, acknowledge that the strength, and predictive power, of the strict economic model of behavior is somewhat mitigated as the shift is made from private market to collective choice. Persons in political roles may, indeed, act to a degree in terms of what they consider to be the general interest. Such acknowledgment does not, however, in any way imply that the basic explanatory model loses all of its predictive potential or that ordinary incentives no longer matter."

You can see the dilemma Buchanan faces. On the one hand, he acknowledges that people are less inclined to be self-interested in a public setting than they are in a private marketplace, but he can't concede too much on this front or the theory won't really be able to predict anything because it is too unsophisticated to be able to account for the non-monetary motivations people might have (whether for the public interest, or even for self-interest in non-monetary form (e.g. glory or praise).

One element that sometimes gets mentioned and sometimes seems to get lost in public choice work is the very different role played by self-interest in the political realm vs. the private realm.

Within the economic realm, assuming it is contained within the sort of bounds we discussed earlier in our recounting of the work of David Gauthier and Walter Schultz (be honest, shun force, come to voluntary agreement, invest for productive purposes, excluding interactions within a corporation etc.) the pursuit of self-interest can be seen to lead to a socially optimal outcome.

But within the political realm, the pursuit of self-interest is almost always a bad thing. Any attempt to personally make a material gain via politics is almost by definition trading and thus a violation of the 'shun trading' precept which is one of the most critical in the guardian syndrome.

One of the weaknesses of public choice theorists (visible in the quote above from Buchanan) in my opinion, is that they bring over an idea about how commonplace the pursuit of self-interest is from their work in economics without recognizing just how different the political world is.

You can see this in the quote above, where Buchanan says,

"The public choice theorist should, of course, acknowledge that the strength, and predictive power, of the strict economic model of behavior is somewhat mitigated as the shift is made from private market to collective choice."

Buchanan is sophisticated enough to pay lip service to the difference between politics and the marketplace, but he is unable to admit more than that the pursuit of self-interest might be 'somewhat mitigated' by the move to a political world. He himself realizes the moral difference between self-interest in the marketplace and self-interest in politics, and I suspect that he believes that he would not take advantage of political office to enrich himself, yet he theorizes on the basis that most people make little distinction between serving the public and serving themselves. He comments that critics of 'public choice theory' think "We should, therefore, proceed with analysis of politics under the illusion that persons do indeed become 'saints' as they shift to collective choice roles."

At it's best, work in public choice theory resembles the sort taken on by Elinor Ostrom - empirical work that attempts to model how people accomplish collective action and what works and what doesn't, neither neglecting the role played by the pursuit of monetary gain by individuals, nor treating it as the only factor at work.

At it's worst, work in public choice theory resembles wingnut internet diatribes about how all government is evil and every government employee cares for nothing about scamming the system for their own gain, and if we only lived in an anarchist society, all would be well.

Near the end of 'Systems of Survival', Jane Jacobs recounts a poem by Lao Tzu,

"When people lost sight of the way to live
Came codes of love and honesty
Learning came, charity came
Hypocrisy took charge;
When difference weakened family ties
Came benevolent fathers and dutiful sons
And when lands were disrupted and misgoverned
Came ministers commended as loyal"

Jacobs was worried that her own analysis was just a symptom of moral decay, with what was once too obvious to be worth analyzing, now becoming clearer in its absence. Sometimes I think Public Choice Theory is another step down the same road, a study of corruption in politics that treats the corruption as 'reality' with moral behaviour just a fantasy world inhabited by 'saints'.

Times Change

2010-10-16T18:44:00.000-07:00

I have one of those desktop calendars where you peel off a page every day. This year's version is on the topic of survival, and here's the survival story it told for October 14 - try to imagine this scenario unfolding today...

"On this day in 1912, Theodore Roosevelt was shot at close range by saloonkeeper William Schrank. Schrank's .32 caliber bullet, aimed directly at Roosevelt's heart, failed to mortally wound the former president because its force was slowed by a glasses case and a manuscript for a speech Roosevelt was about to deliver. Roosevelt, who suffered only a flesh wound from the attack, went on to deliver his scheduled speech with the bullet still in his body. After a few words, Roosevelt pulled the frayed and bloodstained manuscript from his breast pocket and declared, 'You see, it takes more than one bullet to kill a Bull Moose.' He spoke for nearly an hour, and then was rushed to hospital."

Playing Chess

2010-10-14T20:37:00.000-07:00

One of the more overused metaphors out there is for someone to describe something as a 'chess game', or to describe someone in politics or business as 'playing chess'.

You often get this in sports, where the commentator will refer to a showdown involving 2 or 3 options (will the player go left or right?, will the coach put in the checking line or the scoring line?) as a 'chess match.' I suppose it is understandable that they avoid a more accurate assessment, since referring to these showdowns as a 'simplified tic tac toe match' might seem demeaning to the million dollar athletes involved. At least I've yet to hear a commentator suggest that the eternal fastball-curveball dilemma represents a game of Go played between pitcher and batter...

In politics, Canada's right-leaning media spent so much time trying to polish up the years of ineffectiveness from the Stephen Harper government by describing Harper as playing 'chess' rather than 'checkers' that it became a comedy line for blog commentators - with each screw-up, mis-step, boneheaded decision, defeat and failure being greeted by queries as to whether this was really another humiliating setback for the government or just another clever move by Harper the 'chessmaster'.

I bring this up, since we had a recent situation where I think a little insight from the world of chess might actually be helpful. As you may have heard, the United Arab Emirates recently evicted Canada from a military base that Canada had operated on their soil for many years. The UAE had been using the threat of kicking Canada out to try and gain more airspace rights for its domestic airline.

Most of the commentary I've read on the issue has focussed on the question of whether it was better to give up our military base or better to give in to the UAE's airspace demands. In chess terms, this is like debating which of your pawns you should let your opponent take without taking anything in return. Seen from this perspective, the question of which pawn to sacrifice is not the real strategic question. The real question is why did we allow ourselves to get into a situation where we had to sacrifice any pawns? Why were our pawns not supported with other pieces on the board? Why were we not in a position to take one of our opponents pawns, or better, a knight or a bishop, if one of our pawns was taken? But looking at it from this angle makes it obvious that the Conservative government has failed Canada yet again, so I can see why some people might not want to think about it this way.

You know, maybe Harper is playing chess, but he's just not very good at it. It would be nice if Canadian voters sent him packing while we still have some pieces left on the board.

Crowded Marketplace

2010-10-13T18:40:00.000-07:00

From a Globe and Mail editorial today, "Under the Conservatives, Canada has maintained its position of global leadership. ... It may hedge on an issue like climate change, but..."

The Conservatives never seem to get more than 40% of the vote in this country, and the marketplace already has lots of newspapers such as the Sun Chain and the National Joke that serve that portion of the population that believes Canada has shown global leadership under the Conservatives, while 'hedging' on climate change.

I guess it's no shocker that the Toronto Star continues to have the highest weekly circulation in the country. A believer in free-markets might wonder why the obvious opportunity to profit handsomely from running a newspaper that isn't so ideologically right-wing that it prints nonsense like the Globe editorial above continues to remain untaken.

66. Dimensions of Morality

2010-10-12T21:10:00.000-07:00

Note: This post is the sixty-sixth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

In his book, Morals by Agreement' David Gauthier defined a 'moral' as an 'impartial constraint' but it wasn't always clear what it was a restraint on

Asked this question, some might say that morals are a constraint on self-interest, a requirement to, say (for example) 'do unto others as you would have done onto you.'

There's no doubt that behaviour towards other people is a part of morality, but it can't be the only part.

Recall, from many posts back, Francis Fukuyama describing Max Weber's Protestant Ethic,

"The capacity for hard work, frugality, rationality, innovativeness, and openness to risk are all entrepreneurial virtues that apply to individuals and could be exercised by Robinson Crusoe on his proverbial desert island. But there is also a set of social virtues, like honesty, reliability, cooperativeness and a sense of duty to others, that are essentially social in nature."

This distinction of the morals making up the 'protestant work ethic' coincides fairly well with the division of the commercial syndrome ethics described by Jane Jacobs into two blocks, as described in an earlier post: A block containing virtues such as honesty and non-violence which is social in nature and which ensures that transactions are win-win, and a block containing virtues such as innovativeness, efficiency and industriousness that can mostly be practiced on one's own.

The first block is indeed constraints on the pursuit of self-interest while the second block is clearly a constraint on something else - in my view the primary constraint there is the constraint imposed on our tendency to place too much weight on the present and not enough on the future.

What about the guardian syndrome?

Many of the guardian syndrome ethics relate to other people, but they diverge depending on whether those 'other people' are part of a person's group or not.

Virtues such as 'exert prowess' and 'deceit for the sake of the task' and 'take vengeance' are generally directed at those who are not considered part of the group, while virtues such as ' be loyal' 'be obedient' and 'dispense largesse' are clearly directed at those who are considered part of the group.

There are a few guardian virtues that don't directly involve other people, and these 'make rich use of leisure' 'adhere to tradition' and 'be fatalistic' These seem generally designed, as far as I can tell, to counteract a desire of one person to get ahead of others via working extra hard, or innovating or imagining a better way of doing things, so perhaps there is an indirect relationship with other people there as well.

So what's my point?

My point is that what I feel we need in our quest to get to the bottom of the systems of survival is a middle ground between, on the one hand, the sort of attitude expressed by Dierdre McCloskey in 'The Bourgeois Virtues' (as covered earlier) - an attitude that says that all the different virtues are a dimension onto themselves that can't be compared to other virtues or made commensurate with them in any way, and on the other hand, an attitude that everything can be reduced to a single axis, for example, that ethics is solely about the denial (or proper role) of self-interest.

The two primary dimensions that are represented in the ethics listed by Jane Jacobs in Systems of Survival, are self vs. others and current self. vs. later self.

Within the guardian system, the dimension of self vs. others in turn seems to be further divided depending on whether the others are part of our group or part of an enemy group.

Within the commercial system, groups don't seem to play a role, and others are just others, with neither a need to treat them as hostile (with deceit and force) but neither a need to treat them with sympathy (via loyalty, obedience and generosity).

No, I didn't really cover any new ground here, just trying to organize my thoughts a little before continuing onwards.

A License to Print Money 3

2010-10-10T14:18:00.000-07:00

A little while back I expressed disappointment that Paul Krugman seemed to hold back from an obvious conclusion that printing money was the sensible course of action given the current economic predicament (weak overall demand, high private debt levels).

So it is good to see that he stuck his nose out a little further on this topic while I was away.

Says Krugman,

"In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt."

It's also reassuring to see that, since I wrote this post summarizing my thoughts on the economic situation in mid-2009, the views of notable economists I respect (such as Paul Krugman) seem to be coming around much more to the view I articulated at that time - in particular that we either need to inflate or default in order to reset our debt to a much lower level. Or maybe they knew this all along and are just now becoming willing to spell it out clearly - either way, it seems like progress to me.

Hornby Bike Lane / Reaction to NDP Governments

2010-10-09T08:23:00.001-07:00

Some good news upon my return to Vancouver - I see that city council is going ahead with the separated bike lane on Hornby Street. Given the waffling of the provincial government on the HST, it's nice to see a government forging ahead with a plan despite a swell of ungrounded, yet hysterical opposition.

Speaking of hysterical and largely ungrounded opposition, the Globe and Mail has an excellent post from Gerald Caplan documenting the hysterical opposition that Bob Rae's government faced from business groups and the media when they governed Ontario in the early 1990's. It's too bad that Bob Rae and the NDP conceded so much ground to their opposition, even to the point of not implementing public auto insurance in Ontario. The concessions got them exactly nothing in the way of fairer treatment from the media or less hostility from the business community, so they might as well have stuck to their guns.

Empty Blog Music #3

2010-10-04T16:23:00.000-07:00

Empty Blog Music #2

2010-10-01T16:14:00.000-07:00

Empty Blog Music

2010-09-24T16:08:00.000-07:00

The Sights of Silence

2010-09-19T13:07:00.000-07:00

Aside from maybe the odd one-liner or youtube link, the blog will be dark until Thanksgiving. Hopefully there isn't anybody wrong about anything on the internet in the meantime....

Football Season

2010-09-15T07:22:00.000-07:00

In the spirit of the blog abstract (top right) which states that I'll cover anything that's better than not posting at all, here's an excellent article about the (Donovan) McNabb deniers - the description of the bullying and ignorant radio talk show driven attitude taken by those who, for whatever reason, hate former Philadelphia Eagles quarterback Donovan McNabb is reminiscent of a number of political movements currently doing fairly well in elections.

Even if you couldn't care less about football, it's worth a read for the quality of the writing by Mike Tanier, and the generality of the phenomenon he describes.

Light(er) Blogging Warning

2010-08-31T21:58:00.000-07:00

Sorry, no post this week, and posting will generally be light for the next month and a bit.

65: Small Is Beautiful

2010-08-24T20:58:00.000-07:00

Note: This post is the sixty-fifth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This week's post is on the book, 'Small is Beautiful', by E.F. Schumacher.

I'm not going to do a chapter by chapter summary of the book, since much of it has to do with questions of the scale of workplaces that only touch indirectly on the questions I'm looking into in this series. Instead I plan to highlight some of the comments throughout the book that show the sort of Guardian mindset that Schumacher has.

Although guardian-minded, Schumacher was also an economist so he was far from ignorant of the ways of the commercial mindset and there are many passages in the book that reflect his awareness of the differences between a commercial approach and a guardian approach. In some ways, he is like an anti-Veblen, keenly aware of both syndromes like Veblen was, but deeply hostile to the commercial mindset, whereas Veblen was deeply hostile to the Guardian mindset.

The most relevant passage to our inquiry is likely one on page 47 (of the Harper 1989 edition),

"The religion of economics has its own code of ethics, and the First Commandment is to behave 'economically'- in any case when you are producing, selling or buying. It is only when the bargain hunter has gone home and become a consumer that the First Commandment no longer applies: he is then encouraged to 'enjoy himself' in any way he pleases.

...

In the market place, for practical reasons, innumerable qualitative distinctions which are of vital importance for man and society are suppressed; they are not allowed to surface. Thus the reign of quantity celebrates its greatest triumphs in "The Market." Everything is equated with everything else. To equate things means to give them a price and thus to make them exchangeable. To the extent that economic thinking is based on the market, it takes the sacredness out of life, because there can be nothing sacred in something that has a price. Not surprisingly therefore, if economic thinking pervades the whole of society, even simple non-economic values like beauty, health or cleanliness can survive only if they prove to be 'economic.'"

Schumacher echoes Jane Jacobs a little bit further down in the same chapter when he say that,

"Economics operates legitimately and usefully within a 'given' framework which lies altogether outside the economic calculus. ... Every science is beneficial within its proper limits, but becomes evil and destructive as soon as it transgresses them."

How similar that is to Jacobs talking of the 'intractable corruption' that follows when commercial values are mixed with guardian values.

Later on, on page 272, Schumacher again tries to describe the commercial mindset,

"In this respect, the idea of private enterprise fits exactly into the idea of The Market, which, in an earlier chapter, I called 'the institutionalisation of individualism and non-responsibility.' Equally, it fits perfectly into the modern trend towards total quantification at the expense of the appreciation of qualitative differences."

Earlier on in the book (page 24), Schumacher provides an interesting discussion of a quote from Keynes during the depression,

"In 1930, during the world-wide economic depression, [Keynes] felt moved to speculate on the 'economic possibilities for our grandchildren' and concluded that the day might not be all that far off when everybody would be rich. We shall then, he said, 'once more value ends above means and prefer the good to the useful.'

'But beware!" he continued. 'The Time for all this is not yet. For at least another hundred years we must pretend to ourselves that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.'

...

There can be no doubt that the idea of personal enrichment has a very strong appeal to human nature. Keynes advised us that the time was not yet for a 'return to some of the most sure and certain principles of religion and traditional virtue - that avarice is a vice, that the exaction of usury is a misdemeanour, and the love of money is detestable.'

Economic progress, he counselled, is obtainable only if we employ those powerful human drives of selfishness, which religion and traditional wisdom universally call upon us to resist. The modern economy is propelled by a frenzy of greed and indulges in an orgy of envy and these are not accidental features but the very causes of its expansionist success."

Schumacher worries that there may be long term damage caused by this approach:

"If human vices such as greed and envy are systematically cultivated, the inevitable result is nothing less than a collapse of intelligence. A man driven by greed or envy loses the power of seeing things as they really are, of seeing things in their roundness and wholeness, and his very successes become failures. If whole societies become infected by these vices, they may indeed achieve astonishing things but they become increasingly incapable of solving the most elementary problems of everyday existence. The Gross National Product may rise rapidly: as measured by statisticians but not as experienced by actual people, who find themselves oppressed by increasing frustration, alienation, insecurity and so forth. After a while, even the Gross National Product refuses to rise any further, not because of scientific or technological failure, as expressed in various types of escapism on the part, not only of the oppressed and exploited, but even of highly privileged groups."

---

At first glance, the fact that Schumacher spends a lot of time talking about energy supplies and why they (oil in particular) are likely to run short seems a bit odd. What does the energy supply situation have to do with whether small is beautiful or whether big is better?

But one of the dividing lines between a guardian mindset and the commercial mindset concerns the question of limits. Guardians typically believe that limits exist whereas commercial folks believe that innovation will provide a way around any perceived limits. I believe that Schumacher intuitively grasped that the existence of a limit presents a fatal weakness in the commercial approach to things and therefore chose to highlight one of the most pressing limits that mankind was approaching in his time (the 60s and early 70s).

---

Even more than usual, I am only covering a small part of the ground Schumacher covers in his book. But reading 'Small is Beautiful' with Jane Jacobs 'Systems of Survival' in mind, the picture I get is of someone who sees the commercial mindset escaping its logical bounds and overrunning every aspect of society and who is looking for any way possible to put the commercial syndrome back to a more limited role. Of course, since Schumacher wrote 'Small is Beautiful' in 1973, it seems like the commercial syndrome mindset is stronger than ever.

Hoocoodanode?

2010-08-21T09:00:00.000-07:00

Felix Salmon responds to a paper put out by some of the economists at the Federal Reserve banks in the U.S. that tries to whitewash their failure to see the housing bubble coming and do anything to prevent it from getting so large before it popped:

"Kristopher Gerardi, Christopher Foote, and Paul Willen, of various regional Federal Reserve banks, have a paper which looks at economic research on whether or not there was a housing bubble, and which concludes that “we do not currently have the ability to prevent a bubble from forming or the ability to identify a bubble in real time”. Yes, they admit, some smart and prescient economists did say, with complete accuracy, that there was a bubble. But! Other economists weren’t convinced! So, never mind, there’s nothing we can do."

Felix was one of many commenters that mocked this self-serving paper, but I only highlight his response for a throwaway comment he made at the bottom of his post,

"Housing bubbles are normally pretty obvious at the time: there’s one right now in Vancouver, for instance. You can see them in the rise of dozens of huge new glass-clad condo buildings; you can see them in massive price increases; you can see them when mortgage payments are significantly larger than the amount of money you could get renting out the place; and you can see them whenever people start making more money from selling their homes than they do from actually working. The only people who can’t see them, it seems, are economists, realtors, and bankers on Wall Street."

64. Stag Hunting & Correlation

2010-08-17T22:10:00.000-07:00

Note: This post is the sixty-fourth in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Note: This post is a continuation from last week's post on the Stag Hunt.

This week, I'm going to talk about the book, "The Stag Hunt and The Evolution of Social Structure," by Brian Skyrms.

Skyrms argues that the Stag Hunt is a better model of the challenge of human cooperation than the Stag Hunt. Whereas the Prisoner's Dilemma only has one equilibrium solution (everyone defects), the Stag Hunt has two possible equilibriums, everyone cooperates (hunts stag) or everyone defects (hunts hare). He argues that this better reflects the notion of a social contract which can either not exist (state of nature) or exist (society).

The primary theme of the book is Skyrms' argument that they key to achieving cooperation in the stag hunt is correlation. By correlation he means that those who are disposed to stag hunting (cooperation) must find a way to work together and avoid the hare hunters (defectors). This is a similar point to the one Axelrod made, but Skyrms goes into more detail. Note that, implicit in this argument is an assumption that there are two sort of people out there, stag hunters (cooperators) and hare hunters (defectors).

The first method of improving correlation that Skyrms looks at is location.

One of the interesting aspects of this book is the rich use that Skyrms makes of biological examples for how cooperation is far from a distinctly human characteristic. For example, his opening to the chapter on location,

"One strain of E Coli bacteria produces a poison , to which it is immune, that kills competing strains. It takes resources to produce the poison, and the strain that produces it pays a cost in reproduction for the privilege of killing competitors. If the poisoner strain evolved from a more peaceful strain of E Coli, how did it get started? A few mutant poisoners would cause little change to the average fitness of a large peaceful group ... If a few mutant poisoners are added to a well stirred culture of peaceful E Coli, the mutants are gradually eliminated.

But when the same experiment is performed on agar plates rather than in a well-stirred solution, the poisoners can invade and eventually take over the population. ... I won't tell the full story here, but I hope that I have told enough to illustrate the importance of spatial structure, location, and local interaction for evolutionary dynamics."

It requires energy to move matter from one place to another, so all else equal, people (and animals) don't move more than they have to. If people who are willing to cooperate rather than defect (stag hunters) are clustered rather than dispersed at random, then they will tend to have more interactions with each other - interactions where their cooperative behaviour will pay off. This is pretty much common sense - You can imagine that a group of, say, rebel soldiers is more dangerous if they are all located in one area than if they are thinly scattered across a country - but it's still interesting to see some of the underlying theory that explains why a cluster of like-minded people (or bacteria) can be so effective.

Skyrms' approach throughout the book is to run simulations where he takes a set of agents and lets them interact over time, playing either Stag Hunt or some other game against each other. There are different dynamics allowing the situation to change over time. Sometimes Skyrms has people choose a strategy which will be the best response to the sort of person they expect to encounter (if they expect a hare hunter, they will hunt hare too, and the same for stag hunting). Other times Skyrms has people choose to imitate the strategy of those around them that are performing the best.

In running simulations to test the influence of location on the spread (or demise) of cooperative behaviour in a population, Skyrms tried one-dimensional setups (everybody is in a line) and two dimensional setups (people interact on a grid) and also tried both a 'best response' type of strategy evolution and a 'imitate the best' type of strategy evolution. What he found was that the two dimensional model and the 'imitate the best' approach had the most favourable outcomes for cooperation (Stag Hunting).

But in general, the effect of taking into consideration location (having people interact with their neighbours), rather than just assuming that people interact randomly with each other was that simulations with location as a factor were more favourable to the evolution of cooperation. Note that is consistent with Axelrod's findings as well.

The second method of improving correlation between cooperators that Skyrms looks at is signalling (which we discussed a few posts back).

He describes how a myxobacteria known as Myxococcis xanthus engage in coordinated attacks on larger microbial prey, by making use of quorum signalling - a signal that tells the bacteria when there are enough of them gathered in one place to launch a successful attack. As Skyrms notes, "Myxococcis xanthus has solved the problem of the Stag Hunt."

On the topic of signalling, Skyrms explains how situations where the provision of a signal can lead to mutual benefit result in quick convergence to a mutually recognized set of signals - even when there is no communication between parties (other than the signals) and there aren't any initial cues to suggest what each signal might mean to either side.

Even in cases where there are parties that might benefit from sending out a false signal, and it does not cost anything to send out a false signal (what game theorists call 'cheap talk') the possibility of sending signals can still lead to more cooperative outcomes than might be achieved if signals weren't available to be used.

The third method of correlating cooperative behaviour that Skyrms looks at is through allowing the structure of interaction itself to change. If we let people choose for themselves who to interact with, then stag hunters will typically quickly learn to interact with other stag hunters. Allowing this sort of self-selection is a powerful tool that allows the cooperators to self-select into a club whose members benefit much more than any of the hare hunters that are excluded.

Skyrms concludes by summarizing the results of the various simulations that make up most of the book, and what they tell us about how stag hunting (cooperation) can arise in a population of hare hunters (defectors) over time (given that interactions between people follow a stag hunt type model),

"Over time there is some low level of experimentation with Stag Hunting. Eventually a small group of Stag Hunters comes to interact largely or exclusively with each other. This can come to pass through pure chance and the passage of time in a situation of interaction with neighbors. Or it can happen more rapidly when stag hunters find each other by means of fast interaction dynamics. The small group of stag hunters prospers and can spread by reproduction or by imitation. This process is facilitated if reproduction or imitation neighborhoods are larger than interaction neighborhoods. As a local culture of stag hunting spreads, it can even maintain itself in the unfavorable environment of a large random-mixing population by the device of signalling."

63. The Stag Hunt

2010-08-10T21:55:00.000-07:00

Note: This post is the sixty-third in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

Just a short post this week, more of an intro to next week's post than anything else. I covered most of this ground back here, but I wanted to formally include it in the series on ethics.

We've talked a lot here about the Prisoner's Dilemma, but another type of interaction / game that comes up when talking about ethics is the 'Stag Hunt.'

Wikipedia summarizes the Stag Hunt as follows:

"In game theory, the stag hunt is a game which describes a conflict between safety and social cooperation. Other names for it or its variants include "assurance game", "coordination game", and "trust dilemma". Jean-Jacques Rousseau described a situation in which two individuals go out on a hunt. Each can individually choose to hunt a stag or hunt a hare. Each player must choose an action without knowing the choice of the other. If an individual hunts a stag, he must have the cooperation of his partner in order to succeed. An individual can get a hare by himself, but a hare is worth less than a stag. This is taken to be an important analogy for social cooperation.

The stag hunt differs from the Prisoner's Dilemma in that there are two Nash equilibria: when both players cooperate and both players defect. In the Prisoners Dilemma, however, despite the fact that both players cooperating is Pareto efficient, the only Nash equilibrium is when both players choose to defect."

Here's an example:

                                        Adam
                              Stag                    Hare
Eve          Stag:      [2,2]                 [0,1]
                 Hare :     [1,0]                [1,1]

Unlike in the Prisoner's Dilemma where Adam's best choice would be to defect (hunt Hare) no matter what Eve does, in this case, Adam's response depends on what Eve is doing. If Eve is cooperating (hunting Stag) then it makes sense for Adam to hunt stag (cooperate as well). If Eve isn't going to cooperate, then Adam shouldn't cooperate either.

You can see how this dynamic sets up the two equilibiria that Wikipedia mentioned:

1) A 'good' equilibrium where hunters catch deer, the most valuable game animal in the forest. Because the deer is elusive, catching it requires cooperation between the hunters.

2) A 'bad' equilibrium where the hunters don't cooperate, and are not able to catch the deer so they catch rabbits instead, which can be caught without cooperation, but are not as tasty and meaty as deer. Mmm, venison.

In the 'bad' equilibrium, the hunters know they could do better by working together to catch a deer, but because nobody can act on his own (you can't catch the deer without help) and because they can't be sure that if they go to hunt deer that others will help, it is safer to just catch rabbits, rather than going off by yourself to catch the deer, having nobody help you and ending up with nothing.

The description of the Stag Hunt - where you should cooperate if the other person does and defect if they do - may also sound reminiscent of the Tit for Tat strategy that performed so well in the repeated Prisoner's Dilemma tournaments that Robert Axelrod described in 'The Evolution of Cooperation'. This isn't a coincidence - having a Prisoner's Dilemma repeat over time and having the participants switch to defection if the other player defects, transforms the payouts from A Prisoner's Dilemma into the payouts from a Stag Hunt.

Basically, what happens is that the gain a person gets from betraying the other player in the first Prisoner's Dilemma is more than offset by the losses that follow because the other player is never again willing to cooperate with you. Taking this potential future loss into consideration, it becomes in your best interest to cooperate now - if you expect the other player to cooperate.

This last part is the rub with the Stag Hunt, and you can see why it is also sometimes known as the 'Assurance Game' - if you could only assure the other player that you were going to cooperate (maybe by signing a contract, shaking hands, or by maintaining a high seller rating on ebay, etc.) then it would be in their interest to also cooperate.

In a way, the Stag Hunt is like a stepping stone on the road from the hopeless one-time Prisoner's Dilemma style interaction, to an outcome of mutually beneficial cooperation.

It's not just the possibility of the Prisoner's Dilemma repeating that can transform the interaction into a Stag Hunt, a moral principle that places merit on being 'nice' in the sense that Axelrod used it - starting off by cooperating with people, and only stopping cooperation if the other player betrays you first - could also change the payoffs in the Prisoner's Dilemma so that they resemble the Stag Hunt instead.

More on the Stag Hunt next week.

In Transit

2010-08-07T15:58:00.000-07:00

The merge from the turnpike was murder, but it's never a cinch
It was Friday at five, and no one was giving an inch
They squeezed and the edged and they glared
Half them clearly impaired by rage or exhaustion
The rest were just touchy as hell

Somewhere near Paterson everything slowed to a crawl
The all-news station was thanking someone for the call
It's a van from St. Agnes's choir
There's a nun out there changing a tire
By the time they got by her, tempers were out of control

So they all hit the gas in a dash for position
Bobbing and weaving and flashing their highbeams
Flipping the bird and screaming obscenities
A well-insured horde hell-bent on Saturday

And so they continued, west-bound into the sun
Law and decorum constraining nary a one
By then it was devil-may-care
Not one even vaguely aware
That they had come all the way to the Delaware Water Gap

How had it happened? They had all missed their exits
How had it happened? Was it some kind of vortex?
In they all went, bumper to bumper
Faster and faster, no sign of a trooper
In they all went, like sheep to the slaughter
Bankers and carpenters, doctors and lawyers
And in they all went, families in minivans
Ashcroft republicans, weekend militiamen
They followed the river, and rounded the bend
Between Minsi and Tammany and into their destiny
Lying in ambush right there before them
The angry old sun right on the horizon

Sister Maria tightened the bolts of the spare
She said a quick prayer and put the old van into gear
Thank God that the traffic was light
If she hurried she might not be late
For that evening’s performance at the state penitentiary

She entered the common room and there was her choir
Altos and baritones, basses and tenors
Car thieves and crack dealers, mobsters and murderers
Husbands and sons, fathers and brothers
And so it began in glorious harmony
Softly and Tenderly – calling for you and me
With the interstate whining way off in the distance
And the sun going down through the bars of the prison
They poured out their souls, they poured out their memories
They poured out their hopes for what’s left of eternity
To sister Maria – her soul like a prism
For the light of forgiveness on all of their faces

Lyrics from the song 'Transit' by Richard Shindell

I added 'Human Transit', the 'Professional blog of public transit planning consultant Jarrett Walker' to the blogroll. His most recent post, on why transit maps/signs/info should provide clear indications of which routes are more important than others - in the same way that a road map does - is a good example of why I added it in. Such an obvious point once it's made, but so unusual of someone to notice and make the point.

62. The Evolution of Cooperation (part 2 of 2)

2010-08-03T21:55:00.000-07:00

Note: This post is the sixty-second in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

This post is a continuation of last week's post which began discussing The Evolution of Cooperation by Robert Axelrod and covered the first 6 chapters.

In chapter 7 Axelrod provides advice for how people should act if they are in a position where, rather than accepting that they are in a Prisoner's Dilemma and trying to choose the best action based on their situation, they can try to change the situation.

Axelrod notes that while in most cases people will want to influence the situation to encourage cooperation, there are some cases (such as when businesses collude, or in the original Prisoner's Dilemma when the interrogator was trying to get the Prisoners to rat on each other) where the goal will be to discourage cooperation.

So the following advice is for encouraging cooperation in the Prisoner's Dilemma - if you want to discourage cooperation, do the opposite.

1. Enlarge the shadow of the future.

What this means is that interactions between people should be structured so that the same people meet repeatedly rather than meeting a different person every time. It might also mean setting things up so that interactions are more frequent and spaced closer together in time. Basically any change that increases the potential risk of suffering retaliation if you choose to defect rather than cooperate with someone.

2. Change the payoffs

The bigger the payoff for defecting, the greater the temptation to do so. So reducing the payoff from defection or increasing the payoff from cooperation makes cooperation more likely. For example, the potential of an audit, helps encourage people to do their taxes accurately

3. Teach people to care about each other

This is really just another way to change the payoffs. If you care for the other person's wellbeing as much as your own, than their can never really be a Prisoner's Dilemma. And every increase in empathy reduces the element of dilemma in the situation.

4. Teach reciprocity

If people turn the other cheek and forgive each other 490 times or more, then this just allows people who exploit the suckers to prosper. If people repay kindness with kindness but also defection with defection, then this will help keep down the population of defectors and exploiters.

5. Improve recognition abilities

If you don't recognize the person who defected on you last time around, you won't be able to exact your revenge this time around. If you can tell ahead of time whether someone looks like a cooperator or a defector then you can be much better off rather than going in blind.

In Chapter 8, Axelrod looks at some ways in which a basic scenario of
randomly occurring interactions can be modified.
4 different types of 'structure' are considered.

1) Stereotyping - stereotyping means that you judge people based on some easily obesrvable characteristic such as the colour of their skin. Axelrod points out that these sorts of stereotypes can be self-reinforcing. If a blue person expects to be poorly treated by a green person (and vice-versa) then they have no reason to cooperate and will defect against each other. This defective behaviour then reinforces the notion that those blue/green people never cooperate. While this has negative consequences for everyone in that opportunities for cooperation are missed, it also has particularly negative consequences for whichever stereotyped group is in the minority since they will face a lack of cooperation from a majority of the population.

2) Reputations - Axelrod points out that it is good to have a reputation as a bully (someone who will respond to any defection with a very heavy retaliation) since that will scare people into cooperating with you. The hazards of establishing this sort of reputation is that you must pass up opportunities to engage in cooperative behaviour with people by forgiving them for their past transgression. And if more than one person is trying to establish a reputation as a bully, this can lead to a long series of defections until one gets the upper hand.

3) Government - The government needs to design the payoff structure such that most of the citizens will comply on their own. Punishment is generally reserved for setting an example of the few people who do defect and reassuring people that other people are getting away with breaking the laws. Once enough people began to ignore a particular law, because they don't respect the legitimacy of the law and the punishment/reward payoffs aren't set correctly, then enforcing compliance becomes extremely difficult because the cost is simply too high to physically coerce a large percentage of the population and the law tends to break down (see Prohibition, War on Drugs, Marijuana).

4) Territory - Axelrom segues from talking about government to talking about territory by noting that, 'an interesting characteristic of governments that has not yet been taken into account is that they are based upon specific territories.'

Axelrod develops a formal territorial model in which each participant in the situation has four neighbours, one to the North, South, East and West. Each round, a participant plays a repeated Prisoner's Dilemma against the four neighbours and is assigned a score based on their combined result against their four neighbours. Then for the next round, if a participant finds that one of their neighbours did better than they did, they switch to using their neighbours strategy. In this way, successful strategies can spread throughout the population.

Axelrod finds that in the territorial model, it is at least as hard (or harder) for a new strategy to invade a population using a given strategy (as compared to a mode where people meet randomly). If a strategy is stable (resistant to invasion by other strategies) in a population that mixes randomly, it will be stable as well in a population that is organized territorially.

Another finding was that in a territorial model, where people imitate their best neighbour, strategies that do really well in some situations and poorly in others tend to do better than they would in a model where people mix randomly. The territorial nature of the model means that you end up with a greater diversity of strategies in certain areas, and this allows the inconsistent strategy to thrive and convert its neighbours in the areas where conditions are suitable, while dying away rapidly where conditions are unsuitable.

Chapter 9 is a conclusion which basically just recaps everything that has
come before.

The quick summary of Axelrod's results is that, cooperation based on reciprocation (e.g. tit for tat style behaviour) can get started and can thrive in a wide variety of environments and that it withstand attempted 'invasions' by uncooperative strategies. Furthermore, the people doing the cooperating don't have to be friends, they don't have to possess foresight and they don't have to be rational. These characteristics might help, but they are not necessary as shown by the evolution of cooperation between enemy soldiers on the front in WWI, cooperation between bacteria and so on. Furthermore, neither altruistic behaviour nor a central authority is required to maintain cooperation (at least in Axelrod's model where people still retain the capacity to retaliate after someone has defected against them).
Axelrod notes that Prisoner's Dilemma situations ...

As always, there is far more to the book, then I covered here. The Evolution of Cooperation is noteworthy for the clear prose of the author and the thorough take on one particular type of interaction, the repeated Prisoner's Dilemma with two participants. I recommend anyone interested enough in the topic to have made it to the end of this post, should read it for themselves (if they haven't already).

Progress

2010-07-31T13:24:00.000-07:00

The last time the global economic scorekeeping system ran into trouble because a few players were hoarding all the poker chips (the 1930's) so nobody else could bet, the only thing the folks in charge could come up with as a high enough priority to merit redistributing the chips more equitably was a World War.

This time around, our weapons are advanced enough that a war fought with the same intensity as World War II would probably bring about the collapse of our civilization - so the folks in charge will have to come up with some other solution. Or we could just have a feeble global economy indefinitely, I suppose.

Dunsmuir Bike Lane

2010-07-29T22:08:00.000-07:00

I don't see much of the Burrard Bridge, but I do see Dunsmuir Street on a pretty regular basis and, in my opinion, the early verdict on the Dunsmuir Bike Lane would have to be that it is a success.

Aesthetically, the street is much improved by the presence of the lane, giving it an urban feel that it lacked before.

Functionally, I've had to adopt the habit of looking both ways as I cross the street, since it's common to see bikes travelling in either direction in the two-way bike lane on one-way (for cars) Dunsmuir. Traffic doesn't seem any different (from my viewpoint) than it did before. Fewer turns due to the right turn restrictions, and less weaving since there's only two lanes to weave in rather than three seems to be keeping traffic moving as well as it ever did.

I tried a google news search for the Dunsmuir Bike Lane and came up pretty much empty for anything more than a week or two after it opened, so it doesn't seem to be causing much in the way of ongoing angst for people.

Now the city just needs an equivalent North-South lane to connect Dunsumuir with the Burrard Bridge. Hornby seems like an obvious choice.

61. The Evolution of Cooperation (part 1 of 2)

2010-07-27T18:07:00.000-07:00

Note: This post is the sixty-first in a series about government and commercial ethics. Click here for the full listing of the series. The first post in the series has more detail on the book 'Systems of Survival' by Jane Jacobs which inspired this series.

The Evolution of Cooperation is the title of perhaps the most famous book on the Prisoner's Dilemma, and possibly Game Theory in general, ever written - by Robert Axelrod.

Reading it again, for the first time in a long time, I could see why it is so popular - it manages to cover a lot of ground with very clear, accessible prose.

The Evolution of Cooperation starts off by recounting a famous game theory tournament. Participants were invited to submit a strategy or 'rule' that would play a Prisoner's Dilemma against strategies submitted by other people. The strategies would be paired up against each other in turn and would play a repeated Prisoner's Dilemma against each other for a certain number of times. The goal was to achieve the highest possible point total, adding up across the matches against all the other strategies.

Recall that the nature of the Prisoner's Dilemma is such that, no matter what action your opponent takes, you will maximize your own total by defecting rather than cooperating. But by changing the situation from a single game to a repeated game, and by allowing participants to retain a memory of what happened before and by allowing them to clearly identify who they were playing against, the tournament introduced a strong signalling element into the Dilemma.

The tournament was won by the simplest strategy submitted, a strategy known as 'Tit For Tat.' Tit for Tat started off by cooperating (Axelrod refers to strategies that start by cooperating as 'nice' strategies), and then each round it just reacts to what the strategy it is matched up with did the previous round. If the strategy it is playing with defected on the last round, Tit for Tat defects this round, and if the strategy it is playing against cooperated on the last round, Tit for Tat cooperates this round.

After the results of the first tournament were published, a second one with more entries was held, but Tit for Tat again turned out to be the winner.

Strategies aren't fixed over time, and people might change their approach if they see another approach that is working better. Or those using a poor strategy might die out (or get fired) and be replaced by someone with a better strategy. Or some people may simply decide to try a new approach that they thought up. Through these sorts of mechanisms, the distribution of strategies, or rules, being used in the population can evolve over time.

An evolutionarily stable strategy is one that, even if everybody in a population is using it, can't be invaded by some other strategy designed to take advantage of it. Axelrod notes that a population where everybody defects is evolutionary stable because it is not possible for anyone playing any sort of cooperative strategy to invade (because they never meet anyone who will reciprocate their cooperation). But even a small cluster of cooperators can invade a much larger population of defectors if the conditions are right (because they will do well enough cooperating with each other to offset their poor results against the defectors).

But the converse is not true. A population where everybody plays a nice strategy like Tit for Tat can't be invaded by an 'Always Defect' strategy, because the Tit for Tats will do better playing each other than the 'Always Defect's will do playing with each other. This is a hopeful result (for those who like to see cooperation) since it suggests that a cooperative equilibrium is more stable than a defective one and that even a small group of cooperators can sometimes thrive in a sea of defectors.

Based on the results of the tournaments, and the success of Tit for Tat, Axelrod offers the following suggested courses of action for doing well in a repeated Prisoner's Dilemma type situation:

1) Don't be envious

As we saw before, envy can transform an absolute gain into a relative loss and a positive sum situation into a zero-sum situation. A common theme throughout the book is the distinction between absolute gains, made possible by the non zero-sum nature of the Prisoner's Dilemma, and zero-sum situations where only relative gains are possible.

2) Don't be the first to defect

'Nice' rules which don't defect first, will do well when playing with each other. This means that 'Mean' rules which defect first, will end up with lower scores against 'nice' opponents than 'Nice' rules do.

3) Reciprocate both cooperation and defection

A failure to reciprocate cooperation leads to unnecessary defection on both sides. A failure to reciprocate defection (by defecting in return the next round) leads to being taken advantage of.

4)Don't Be Too Clever

Unlike in a zero-sum game where you don't want your opponent to have any advantage, in a Prisoner's Dilemma it is important that those who are willing to cooperate recognize that you are willing to cooperate as well. Tit for Tat is a simple rule that helps other rules understand what they are dealing with and act accordingly. And since the best plan when facing Tit for Tat is to cooperate, rules will generally cooperate when they figure out that is the rule their opponent is using.

* * *

Moving along, Chapter 4 shows that friendship is not necessary for cooperation to develop by recounting the story of the 'live and let live' system that developed in the trenches during World War I where enemy units would cooperate by not killing each other, while facing off with each other across the same piece of ground for months at a time.

Chapter 5 shows that even creatures with very limited intelligence (e.g. bacteria) can engage in cooperation in Prisoner's Dilemma type situations. It also theorizes that the cooperation born from Kin Selection (the notion that it makes sense for us to evolve so that we are willing to make sacrifices for those we share genes with) might have provided a foothold of cooperation that could have spread into the sort of reciprocal tit for tat cooperation that would extend across larger groups of people, regardless of whether they are related or not.

I'll cover the rest of 'The Evolution of Cooperation' and talk about some of the implications of the ideas covered in it in next week's post.

Dog Bites Man

2010-07-27T05:12:00.000-07:00

Actually, I've lived my whole life as a boy/man, and haven't been bitten by a dog yet. But a Neil Reynolds column that is a deliberate lie meant to deceive readers of the Globe and Mail into believing something that isn't true, I have seen. Many times.

Greg documents the latest, Reynolds suggesting that Canada shouldn't have a mandatory census because the Scandinavians don't, when anyone who's paying attention at all knows that if Canada wanted to adopt the Scandinavian system (where the government collects so much information on everyone that they don't *need* a census), Reynolds would be the first person fighting against it.

To be honest, given that the Globe and Mail continues to employ Neil Reynolds after years and years of every column of his being either an attempt at deception or hilariously bad advice, it's hard to take anything in the paper seriously, or believe that the editors really have any concern whatsoever for producing a publicly useful product as opposed to just selling papers.

Even if the Globe wanted to make the argument that Reynolds is useful in a George Castanza, do-the-opposite, sort of way, like a compass that always points South, surely they could just provide his advice on what (not to) do directly to policymakers, without taking up valuable newsprint and possibly temporarily fooling people who are reading the Globe for the first time, or those poor folks with an IQ under 50 who haven't yet figured out that they should ignore (or do the opposite of) everything Reynolds says.