Nassim Taleb, writing in Foreign Affairs, describes why a Black Swan came to Cairo without anybody noticing and in general why opinion leaders keep getting caught on the wrong foot by the arrival of “large-scale events that lie far from the statistical norm and were largely unpredictable to a given set of observers.” The fall of the Berlin Wall was a surprise. The 2008 meltdown was a surprise. The Arab Spring was a surprise. “Why is surprise the permanent condition of the U.S. political and economic elite?”
The answer, he argues, is that the elites won’t see them coming rather than that they can’t. Part of the problem is the consequence of their own damping. By attempting to centrally manage systems according to some predetermined scheme they actually store up volatility rather than dispersing it. By kicking the can down the road they eventually condemn themselves to bumping into a giant pile of cans when they run out of road.
Complex systems that have artificially suppressed volatility tend to become extremely fragile, while at the same time exhibiting no visible risks. In fact, they tend to be too calm and exhibit minimal variability as silent risks accumulate beneath the surface. Although the stated intention of political leaders and economic policymakers is to stabilize the system by inhibiting fluctuations, the result tends to be the opposite.
Thus every bailout and rescue made in the name of preventing the demise of something deemed “too big to fail” builds up a head of steam until the point is reached when the system can no longer contain the pressure. Then the volatility goes from a seeming zero to an extremely high number. The Black Swan will have arrived. And it always will for as long as fiction is substituted for fact, failure is relentlessly reinforced and false assurances are given all around. In Auden’s words “The lights must never go out, the music must always play … lest we should see where we are, lost in a haunted wood, children afraid of the night who have never been happy or good.” The antidote, Taleb argues, is information. To price risk into the present rather than hide it to fester unseen beneath the surface.
But the elites cannot admit to surprise; nor can they admit to bad things starting on their watch. Therefore they keep sweeping things under the carpet until, as in some horror movie, it spawns a zombie. To make systems robust, says Taleb, you’ve got to admit that you can make mistakes and pay the price. You will have to in the end anyway.
The policy implications are identical: to make systems robust, all risks must be visible and out in the open — fluctuat nec mergitur (it fluctuates but does not sink) goes the Latin saying. …
In the United States, promoting these bad policies has been a bipartisan effort throughout. Republicans have been good at fragilizing large corporations through bailouts, and Democrats have been good at fragilizing the government. At the same time, the financial system as a whole exhibited little volatility; it kept getting weaker while providing policymakers with the illusion of stability, illustrated most notably when Ben Bernanke, who was then a member of the Board of Governors of the U.S. Federal Reserve, declared the era of “the great moderation” in 2004.
This is a daunting task. Given the fact that politicians and economic managers are elected or promoted for their skill at “controlling events,” they can hardly admit that they cannot. It will take an intellectual revolution to make everyone realize that human control over the real world is really limited. And yet accepting that volatility must be faced rather than hidden is the key to preventing the arrival of even more Black Swans.
What is needed is a system that can prevent the harm done to citizens by the dishonesty of business elites; the limited competence of forecasters, economists, and statisticians; and the imperfections of regulation, not one that aims to eliminate these flaws. Humans must try to resist the illusion of control: just as foreign policy should be intelligence-proof (it should minimize its reliance on the competence of information-gathering organizations and the predictions of “experts” in what are inherently unpredictable domains), the economy should be regulator-proof, given that some regulations simply make the system itself more fragile.
How can this be done as a practical matter? Here Taleb says very little (probably due to space limitations) and Leo Linbeck III’s idea of shifting the decision points downward probably says more. The key difference between a central manager and more localized management is that the local managers do not feel compelled to a create a grand unified theory of events. They do not have an incentive to keep stories consistent with the overall narrative. They have no talking points from which to stray. They only have problems, which they more or less try to solve.
The Battleship Yamato was too big to fail. Sunk by swarms of itty bitty carrier aircraft.
Other famous instances of too big to fail:
Dinosaurs
Enron
Soviet Union
Windows Vista
Pax Romana
AOL/Time Warner
British Empire
Short forms.
Guiding philosophy of Successful Over-promoted Bureaucrats (SOBs), “If you can’t dazzle them with brilliance baffle them with bullsh*t.”
Guiding philosophy of successful line managers, “KISS.”
Not new:
“Minsky’s Financial Instability Hypothesis (FIH) is best summarised as the idea that “stability is destabilizing”.
http://www.macroresilience.com/2009/12/06/minskys-financial-instability-hypothesis-and-hollings-conception-of-resilience-and-stability/
Is this relevant? Or too much from a prior century?
Here is Newt Gingrich doing a fine fine speech in iowa this week.
http://www.youtube.com/watch?v=SQxturElvxI&feature=player_embedded
THE WHIMS OF THE GODS
It will not take an intellectual revolution to make people realize that human control over the real world is limited, it will take the realization that the real world is ruled by whim, and the whims are the whims of the gods. It matters not whose gods or which gods, it matters only that the whims be understood and met.
In the darkness of the northern woods
In the glare of the savannah’s noon
In the huts of the Basarwa tribe
In the magic of the Celtic rune
The gods of man and universe
Are twice beseeched and thrice believed
By those who seek what they might know
And knowing it are thus bereaved
For whimsy is the stock in trade
Of gods and goddesses alike
Who smile at stumbling man’s attempts
To understand the lightning strike
The woods redound with laughter as
We simple creatures cringe in fear
Basarwa cry as huts grow dark
And flick’ring shadows draw anear
How shall we know the universe
When we know not the smallest thing
But know we well on sharp cold nights
The gods of wood and tempest sing
Hmmm. The little toy with a lead base when pushed will wobble about it’s axis and then return to an upright position. I guess that is robustness.
Then there was the whalebone corset that rigidly confined all that jiggling feminine flesh. Perhaps that was stable containment.
Then there is a reduced motility of the intestines with retention of feces. Eventually someone is caught on the wrong foot as a large scale event far from the statistical norm occurs. That must be your Black Swan, although I have heard other names applied. When that explosion of crude happens in the Middle East, the international press will with one voice declare it to be sweet. If a similar event happens in the EU the same international press will name it solidarity.
There we have it. Socialist welfare states produce stasis which must be periodically disrupted by massive evacuation.
Any good control system engineer will tell you about lag induced oscillation. If the feedback signal is significantly delayed, negative feedback will turn into positive feedback for certain input frequencies. The result will often be runaway oscillation, or total runaway, or high amplitude chaotic response.
Any centrally planned organization (e.g. nation) intrinsically has a significant time delay in its feedback loops. Random input signals will often have enough “energy” at the right frequencies to induce runaway oscillation and/or chaos. The solution for such organizations is to low pass filter the signal inputs and clamp down on any high frequency internal activity. The word for such compensating mechanisms is “tyranny.” Obviously, in such organizations any uncontrolled outside signal of the right characteristic can induce the undesired runaway chaos. Thus, the “Black Swan.”
Free markets have relatively tight feedback loops because decisions are made locally and quickly. Free markets still oscillate, but the oscillation is within the self damping capability of the system. Free market societies do not need, and do not want, low pass filtering or oppressive damping mechanisms to ensure stability. That is why individual freedom requires free markets.
The foregoing model can be applied to economics, or to politics, or to any kind of centrally planned (e.g. bureaucratic) endeavor. Black Swans are an inherent characteristic of such delayed response endeavors.
One word (not plastics): Subsidiarity
#8/ Chet:
PIO: Pilot Induced Oscillation:
http://en.wikipedia.org/wiki/Pilot-induced_oscillation
Après moi le déluge
Schumpeter’s “creative destruction”
the devil you know
not on my watch
pay me now or pay me later
penny wise and pound foolish
waist deep in the big muddy
into the valley of death rode the 600
where there is no vision, the people perish
double-down
design margin
y’got to know when to hold um, know when to fold um, know when to walk away, and know when to run, …
…
I am shocked, shocked, to find there is gambling going on in this establishment!
Other examples of “black swans” include pedophilia at Penn State and hazing at Florida A&M. In each case, fear of bad publicity and moral cowardice combined to let the problem fester until it got so bad that it could no longer be ignored.
Is Pakistan really “too nuclear to fail”? [dark laughter]
There is no such thing as “too nuclear to fail”. Merely because a possibility is unthinkable doesn’t mean it won’t happen. Wishful thinking is not a strategy.
The bargain inherent in the system is that the people will surrender most authority to the elites, who will assure that things run smoothly and nothing bad happens. The critical importance of the credbility of a technocratic/meritocratic elite can’t be overemphasized. Since the elite have all the information they need, and know what to do with it, they can’t accept any outside information, or even acknowledge it. The elite spend a great deal of effort ridiculing and vilifying anyone who suggests things might need to be done differently. It is a full-time job for people like Andrew Sullivan and John Stewart.
Central bankers deal with information 6 months old to decide what to do that will begin to have effects in 18 months or two years. It is impossible. The only thing they can do effectively is a simple process of following events with actions that create no response.
Have you noticed how the world is changing to work like a central banker? Europe has shown evidence of this for the last months; weekly crisis meetings where some statement or money printing is done or announced, the market responds monday and tuesday, then things start to go sour on wednesday. Then another meeting, same cycle of events.
There gets to be a desperate attempt to control events, where everyone is adamant that all hell would break loose if they didn’t.
I see this all the time. Someone driving on slippery roads in the ditch on the inside of the corner. There was lots of traction, but everything the driver did was wrong.
Nope. Not coming up with any candidates.
As someone put it to me once in private correspondence, the problem is not “what should policy be?” but “who decides?” It’s a governance problem, not one of adjusting the output of failed model.
Wretchard…
One man’s Black Swan is often blert’s White Swan: entirely predicted.
The MENA troubles were spelled out here, at the Club, long before they happened…
Everything has unfolded as I have foreseen.
But then:
The Soviet coup against Gorby…
Guessed to the DAY — August 15th, 1991 — as a direct consequence of the Gulf War and associated Soviet humiliations.
AND the Gulf War 1990-91:
That we’d be at hot war predicted 72 hours after Saddam went south…
That American casualties would be staggeringly low…
etc. etc.
—–
The 1982 Super Bull Market — predicted the Thursday before Magic Tuesday when Kaufman ‘went long.’
Predicted in size and strength: a Generational Bull Market…
That WHPPS bonds, September 1981, represented the peak in long term interest rates for the Super Cycle — predicted at that time…
The absolute low for Ford and GM, circa 1982, spotted the SAME DAY, with follow on prediction that they’d rise until they blew up over union pensions — a full generation + out — made that same day…
___
It’s one White Swan after another, from where I sit.
—
I’ve been over the R-12 story…
THAT was another White Swan for me.
—–
The fact is that those who rise to the top are like pond scum. They’re floaters.
—–
Oh, yeah, I almost forgot: I predicted that my young visiting neighbor would make it HUGE in politics or hollywood — well I hit a difecta. He did both.
—-
My old employer — a very practical hard-headed Marine — challenged my wasteful attempts to predict the future.
But as the years rolled by — and he witnessed first hand the staggering string of endlessly correct predictions INRE the Gulf War I — entirely changed his attitude.
Like Scrooge — he flipped entirely the other way. It came to pass that he’d sit still for lectures — right through the business day — as to what MUST transpire.
He later told me that in all his decades in the Corps he never heard an intel briefing remotely as accurate as my one-man-band.
(He was the ranking NCO for I Corps and the non-com ass-kicker for the Lt General commanding. He heard everything. Nothing made him happier than putting the screws to O-6′s: “Where’s your report?”)
——
And then there’s combined super-intelligence of the Belmont Club. I haven’t seen it missing much.
We live in a world of White Swans — and the management is wearing BLINDERS. No wonder EVERY SWAN LOOKS BLACK.
—–
For newer Clubbers: DO visit the historical legacy of the BC posters — it’s better than going to college.
Well the only thing the good professor from U of Houston got right is, it is indeed, a g-d bill, which despite said infernal designation, remains no big deal whatsoever. Nothing to see here folks, move on.
http://streetwiseprofessor.com/?p=5807#comment-85296
Throughout the 20th century, common US policy on forest management was to vigorously fight fires as they appeared and prevent their spread as much as possible.
This resulted in unprecedented accumulation of deadwood – fallen dead limbs and entire trees collapsed amid thick drifts of leaves, needles and duff, all wonderfully flammable.
Some vast forest fires of the late 20th century, most notably the Yellowstone fires of 1988, were set up by these policies. The normal incidence of fires does a good job of using up the available deadwood long before enough collects to destroy the forests. Evidently, in their natural equilibrium state forests can tolerate the occasional low-intensity fire. Some tree species have even evolved seeds (or pinecones) that can open and germinate ONLY AFTER they’ve passed through the heat of a low-grade fire. Such fires may scorch mature trees, but leave them alive, as they leave the topsoil intact, with plenty of living bugs and worms and microbes.
The well-intentioned but mis-guided policies enabled firestorms so hot they sterilized the soil down to a depth of several feet, and consumed living trees entirely over vast tracts.
At least starting in the 1960′s foresters were beginning to appreciate better how to manage forests, but the stage had already been set for conflagration.
Lots of folks now are crying out, “The Emperor is Naked!”
But the dunces running things in the EU and our own nation have their ears plugged.
I would seem that the Magna Carta and Parliament developed as a way to limit the power of Kings over some of their subjects.
One problem with modern centralized governments is that they can be hijacked, and we have not yet figured out how to limit their power over us.
It’s all just cycles.
Much has already been said about the dampening of the ‘creative destruction” in our economy that suppresses the market’s natural feedback loop. But relative to our democratic republic there are at least two other dampening effects that have significantly impaired and suppressed our necessary informational feedback loops:
• The still far too controlling Elite Media has successfully controlled information flow. Examples abound all around us from Global Warming, to Fast and Furious, to Obama’s many scandals, to rampant election fraud, to rampant mortgage securities fraud and many, many more instances where the truth has been squelched and those who speak the truth have been ridiculed and silenced. The elite has engaged in wholesale truth suppression and has largely succeeded despite the efforts of alternative medias forms like the internet.
• Our political systems have failed to keep our representative democracy “close to the people” as recommended by our founding fathers. Congressional districts of well over a half a million people each are not by any means ” close to the people” and that is why the Congress Critters find it so easy to defy the will of the people and assume the role of an detached aristocracy. These massive districts require massive fundraising and reward the large special interests that can supply the big cash. Representing one’s district interests often no longer applies. The interests of the Special Interests came first and foremost. My entrenched Democrat Congressman doesn’t even bother to keep my district informed and I never hear of his Republican opponent until I see his or her largely unknown name on the ballot.
Many here criticize we Californians for the insane decisions by our Legislature without realizing the legislative elections here have long been rigged and gerrymandered to benefit the Special Interests particularly the Public Employee Unions and Trial Lawyers. The vast majority of Californians can’t name their State Senators or Assemblyman. I surely can’t. Back when I was our Homeowners President, we wanted to contact our State Senator but no one on our board knew who he was or how to figure out who he was. The County Registrar of Voters was of no help nor was the State.
I had a thought the other day, which happens occasionally, that the actual ideology of Washington is imbecile-ism. This is not to say the imbecilists are imbeciles, merely that their mode of thought — an internalized and constant (usually leftist) political spin — forces them to act like imbeciles. They have imbecilic notions: such as turning the EPA into the American equivalent of Gosplan, the central planning bureaucracy of the Old Soviet Union. The reason given? To control the weather three hundred years from now (maybe we are all imbeciles if we believe that line).
To “finance” an extension of the reduction in Social Security taxes, the Republicans suggested the future elimination of 200,000 government jobs. Nancy Pelosi said Republicans want to fire 200,000 people. Now, typically these job cuts are done through attrition. So no one is “fired,” they simply retire and some of them are not replaced (or the person promoted into their job is not replaced). The imbicilists have been claiming for a while that a 44 trillion dollar increase in spending is a trillion dollar cut in spending since they hope to spend 45. Now we hear that the failure to hire 200,000 more bureaucrats is “firing 200,000 people.” The first assertion results from zero based budgeting. The second from zero based thought. Both are imbecilic. It is imbecile-ism in action.
Another example of Too Big to Fail:
The Death Star
You even had there as an extra bonus an elite proclaiming that they simply couldn’t evacuate in their moment of triumph. Hubris on a massive scale.
Does anyone know if the Fed has an exposed ventilation shaft?
http://www.chrismartenson.com/crashcourse
Dack Thrombosis asks “Does anyone know if the Fed has an exposed shaft?”
The answer –
Yes: our president.
Blert, I wish I had your prophetic gift. I can only predict with certainty two things:
1) That those — including far too many conservatives — smugly claiming the current bad precedents being set and legislation being passed by the likes of Senators McCain and Graham by lamely pointing only to the text and not to the Administration’s sweeping interpretation of it will live to see that legislation used against the American people, with indefinite detentions of people for speech or agitating for alternate currencies to the dollar. That’s taken straight from ex-USAF spec ops pilot John Robb – who’s clearly gone commie pinko, to hear the usual suspects tell it. Alt currency activists and folks suggesting peaceful, non-violent monetary secession would be at the top of the list. BCers might be a distant second, though I wouldn’t bet against L3 being on someone’s enemies list.
2) Putin will continue to see his popularity eroded as Russia gets buffeted by less demand for its raw materials in EUrope and China despite its never failing to achieve at least 8% growth like clock work failing to pick up the slack, if not experiencing some serious upheaval of its own. (So stick that in your pipe and smoke it, all ye who say Senor Equis has been a Putin apologist here dating back to the Establishment exploiting the hysteria over the 08/08/08 little war it wanted). There will be leaks after the Sochi Olympics from his entourage, if never an admission from the Czar himself, that he stayed too long. The only shot in the arm the Russian economy should receive is higher inflation-fueled prices for gold and oil, plus plenty of talent from Ireland, Greece, Italy and other bankrupt nations on tap from engineering to medicine to finance. We’ll see if the Russians are smart enough to try to absorb that talent the way Catherine the Great once did with Volga Germans and Italian craftsmen invited to her nation.
It scares me that I’ve always been better at predicting what will happen in Russia even as an American than in the U.S. Hence Senor Equis longing to return to Moscow. Russia has its own quirks — the rate of death in car accidents for example, is terrifying compared to the U.S. Moscow also probably has a greater risk of death from terror attack (but not street crime!) than any major U.S. city.
But as Rumsfeld said, these are known unknowns. It is the unknown unknowns of the U.S., because of our role in either the world out of the abyss or dragging it down, that weight the heaviest.
In all my time at BC I have only emphasized the Russian experience both to warn the U.S. against oligarchy plus military overstretch (ten years in Afghanistan anyone? Bueller?), and to suggest if a country with half our population and only a tiny whiff of the freedoms Americans have enjoyed for two centuries can bounce back, then there’s still plenty of hope for America too.
Gospodi pomiliu.
There is still metadata and guessing.
Another explanation is that they orchestrated both of them, installed their own leaders, then lied about not knowing what was happening. Of course, I am guessing.
Gosh, here’s a real gobsmacker:
http://www.commentarymagazine.com/2011/12/01/palestinian-denial-israel/#more-776218
File under: Now they tell us(?)
Abusive elites with near total control of governments have, throughout history, seldom been defeated through established legal political processes. They have normally been defeated by revolutions. Our own Declaration of Independence spells out a duty for those of us who are patriots governed by abusive elites. I hope the 2012 election turns out well for us.
My father studied economics in the midst of the great depression. One of the take aways was that we had very poor economic statistics going into ’29. His favorite example was that it was only discovered in retrospect that Freight Car Loadings had fallen off in February ’29 and the market didn’t get it until October. Now we have all sorts of leading and trailing indicators and the market gyrates in response to each statistical tick. So it seems we have come full circle and discovered than when we try to manage the known, the unknowns build up – actually gain tremendous energy in response to the control – and surprises us. The amazing thing is that we notice and try to incorporate what we learn and do better in the future. It certainly looks like we are in for a rough ride as our centralized systems run into serious difficulty. I’d say it is a good time to keep an open mind and recognize that it might be necessary to muddle through. I’m a pensioner living on a ‘guaranteed’ income wondering how much effort and fertilizer it would take to make my back yard a viable vegetable garden. :-0
What interest me most right now is why? What drives these elite players to ignore history and repeat the same mistakes?
Lesser Hubris: We could probably make it work this time.
Greater Hubris: Only our genius holds chaos at bay.
Complacency: Hey, it kind of works, and the pay and perks are good.
Cynicism: It’s going to blow up eventually anyway, might as well get something out of it.
Simple Greed: There’s always a way to pluck the pigeons.
Machiavellian Design: There are paths to great power through chaos.
I suspect that it is mostly lesser and greater hubris followed by complacency, then cynicism, simple greed, and least of all by Machiavellian design. Why? Because; that is what I want to believe.
“To make systems robust, says Taleb, you’ve got to admit that you can make mistakes and pay the price.”
Based on my decades of experience as an engineer in the private sector, I devised the Emperor’s New Clothes Rule:
When an organization is in so much trouble that it cannot even admit to itself how much trouble it’s in, it’s doomed. An organization that cannot tolerate the truth about itself is doomed.
The U.S.S.R. was doomed. Because as Gorbachev found out the hard way, it could only be sustained on lies. His “glasnost” policy, instead of reforming it by admitting mistakes, ended up destroying it. It could not be sustained by truth.
Here in the United States, the system that gave us so much prosperity in the last 50 years was built on exactly TWO geopolitical rather than economic things: Our victory in World War II, which led to Bretton-Woods and relatively low interest rates; and our victory in the Cold War, which opened up emerging markets and led to a huge boom in global prosperity. We’ve been coasting on this victories ever since.
But the Cold War ended 20 years ago.
We’re getting close to the point of my rule: No politician dares to admit to the American people that the party’s over. And we may be back to the position we were in the 19th century, when we really had to work hard to be a world leader.
Done Gone Galt: “What drives these elite players to ignore history and repeat the same mistakes?”
Two things:
The Baseline of Luck: “Hey, we’ve gotten away with it so far, we ought to be able to keep getting away with it.” (A major cause of the Space Shuttle Challenger disaster.)
The Arrogance of Youth: “Sure, our parents and grandparents screwed it up, but we’re smarter than they were.”
The mechanics of this inevitable failure come from over-determined equations.
There are more constraints than there are variables, so there is no “analytic” solution. A market that can make enough small continuous adjustments will keep approximating the “experimental” solution and be close enough.
Example — look at dollar-yen exchange data for the last 40 years. In THEORY, the one-year forward exchange rate must necessarily be just the difference between US and Japanese interest rates. Say the exchange rate is 100:1. In THEORY, you could convert now, and invest 100 yen at say 1%, or else invest $1 at say 5%. So it MUST be that next year the exchange rate would slip to 101:1.05. Except not. Not ever did the one year forward projection hit the realized rate, except randomly. Too many other variables always arose — trade legislation, investment flows, political fears.
The forward rate model is far too simple to accommodate.
In nature, the Navier-Stokes equations describe turbulence in water, and are analytically incomplete, yet every babbling brook “solves” them as it flows.
…idea of shifting the decision points downward
One of the attributes that makes the American military the envy of so many others around the world is the willingness to empower its Non-commissioned officers in operating the ‘system’. Now the military isn’t immune to institutional behaviors that sap that key attribute. One of the first acts of Petreaus in taking over the Iraq campaign was to strip subordinate commanders of their locally modified Rules of Engagement which had devolved into a ‘mother may I’ directives undermining that very advantage. The fear of the people up the chain of command is being ‘embarrassed’ by individual incidents of a rogue act by subordinates. The biggest being Abu Ghraib. In the context of the overall execution of mission, the ability and willingness of NCOs to step up and fill the leadership and management function, that other armies simply await for some accredited individual to show up, allows the system to modify itself to keep the mission or task running without pause. Improvise, adapt, overcome.
http://tinyurl.com/7r3443w
“India and Pakistan agreed Tuesday to normalize two-way trade, signifying a gradual thaw in relations between the two bitter rivals.
At the end of two days of bilateral trade talks, Pakistan agreed to give its neighbor by early next year a small list of items that India cannot trade in with Pakistan. Both sides hope to do away with the list altogether by the end of 2012, freeing up all trade between the two countries, Indian Commerce Secretary Rahul Khullar told reporters.”
http://tinyurl.com/82fljon
“Battered by Pakistani military operations and U.S. drone strikes, the once-formidable Pakistani Taliban has splintered into more than 100 smaller factions, weakened and running short of cash, according to security officials, analysts and tribesmen from the insurgent heartland.
The group, allied with Al Qaeda and based in the northwest close to the Afghan border, has been behind much of the violence tearing apart Pakistan over the last 4 1/2 years. Known as the Tehrik-e-Taliban, or TTP, the Taliban want to oust the U.S.-backed government and install a hard-line Islamist regime. They also have international ambitions and trained the Pakistani-American who tried to detonate a car bomb in New York City’s Times Square in 2010.
“Today, the command structure of the TTP is splintered, weak and divided and they are running out of money,” said Mansur Mahsud, a senior researcher at the FATA (Federally Administered Tribal Area) Research Center. “In the bigger picture, this helps the army and the government because the Taliban are now divided.”
And today, Dec 4, 2011, could be the day Putin loses the Russian elections!
“What is needed is a system that can prevent the harm done to citizens by the dishonesty of business elites; the limited competence of forecasters, economists, and statisticians; and the imperfections of regulation, not one that aims to eliminate these flaws.
Let me see. Who in a position of power would readily champion such an idea?”
Done. And Done.
James Madison and the Boys got it right the first time.
The U.S. Constitution, designed from the outset to KISS.
It’s just that we either forget, at our peril. Or give in because it’s easier to just let some one else deal with it. Also to our peril.
“The fall of the Berlin Wall was a surprise. The 2008 meltdown was a surprise. The Arab Spring was a surprise. “Why is surprise the permanent condition of the U.S. political and economic elite?”
You also never see the government warn people about “bubbles.” In the late 1980s, it was the stock market bubble. In the late 1990s, it was the dot com bubble. In 2008 it was the housing/real estate bubble. Now the next bubble seems to be European debt, and everyone from Europe to Washington act as if this day would ever come, let alone that the crisis could bring down the entire western world. I wonder what the next bubble will be that all of the “experts” will not see? Will it be the rising Islamic bubble? The dominance of the Chinese economy bubble? Or maybe the collapse of American influence in South and Central America bubble? Lots of bubbles out there and the people in Washington who are paid to see these things coming are seeing nothing at all.
Barry Meislin @28 “Gee, now they tell us”
The Palestinian situation is very interesting. There is NO entity on the international scene that has been MORE direct and truthful about their objectives and how they were to be achieved than the Palestinians. NONE. Just as with Mein Kampf, there is a complete road map, and better than the Hitler example, there is no deception, no misleading. The Palestinians will destroy Israel and kill or expel the Jews who live there, if they acquire the means to do so (or, more likely, are given the means by others).
The “peaceful coexistence and the end of a peace process” is an invention of Western elites. It is a complete fantasy, no less fantastical by repetition and wish to believe. As is the “conflict” between Fatah and HAMAS.
It’s not “now they tell us”. They have been telling you over and over and over.
“The key difference between a central manager and more localized management is that the local managers do not feel compelled to a create a grand unified theory of events. They do not have an incentive to keep stories consistent with the overall narrative. They have no talking points from which to stray. They only have problems, which they more or less try to solve.”
The Founders understood that. Which is why the wrote a Federal System into being for the United States of America. ALL of Americas problems stem from Central Government. ALL of america’s problems can be cured by restricting the Federal government’s role to providing a common defense.
Hmmmm, I don’t know about that, g-m.
Surely, the Israeli left, the Europeans, the UN, Shimon Peres, Jimmy Carter, Tom Friedman (along with the NYT Tabernacle choir) and, above all, Obama ‘n ‘illary (and the usual jokers in academe, along with their fellow travelers in the media and punditocracy) know what the Palestinians really want better than the Palestinians do themselves.
File under: Jolly good fellows
Richard,
We need an intellectual revolution, I agree. We also need a spiritual revolution. As you pointed out in your last post, “God is dead, and we have killed Him.” And so the state replaced God, because nature abhors a vacuum. And so the state is our Saviour, and we expect it to save us from all danger. In a less “sophisticated” age this notion would be called idolatry. By now most of us should be able to see and understand why the state makes for a poor deity. But it’s not just the ruling elites who maintain their faith in the face of all evidence to the contrary; this willingness to live with contradiction has been embraced by Joe Six Pack also. Both of the major parties in the US campaign on the basis that their way of having the government fix all the problems is the right one. And people are willing to buy it so long as the bread and circus continue. On a semi-related note, there was debate yesterday in the Globe and Mail comboxes on whether there is need for public broadcasting. I argued that there was; due to technology and information flow the only likely alternative would be the gradual replacement of national identities with a corporately-created world pop culture. It appears well on it way already when you see shopping malls in “Communist” China or a Taco Bell in Mexico City.
One more thing. I see another potential alternative route for Europe besides breakup and return to national polity. They might maintain their faith in the impossible and unity long enough to become a unified basket case ripe for takeover. By who or what will I’m sure come as a surprise.
If something is “too big to fail,” then it likely should. Far too many eggs held in a limited number of baskets.
barry @ 41: “the Israeli left, the Europeans, the UN, Shimon Peres, Jimmy Carter, Tom Friedman (along with the NYT Tabernacle choir) and, above all, Obama ‘n ‘illary (and the usual jokers in academe, along with their fellow travelers in the media and punditocracy) know what the Palestinians really want”
Sure they do. They are just afraid of what it means.
You don’t SERIOUSLY believe they are fooled, do you?
I’ve always thought that something that claims it’s “too big to fail” is in need to being broken up, like Ma Bell was decades ago, into smaller pieces, so that the the overall system could degrade more gracefully. The truly rotten pieces could be allowed to die without taking the entire enterprise with it.
We’re seeing an example in the struggle of the EU for greater central control over its disintegrating finances. The Soviet Union was another example.
Leo Linbeck’s notion of decentralization is a solution for our current political and financial crisis, but I don’t see the DC elites giving up without a fight — and perhaps it will take a civil war to break their stranglehold.
Wretchard,
Your thoughts are spot on and apropos to lessons learned by anyone running massive web sites at scale. Centralization is the enemy of resiliency. Loose coupling makes for more reliable systems in the face of unexpected events. Tight coupling dooms entire infrastructures to failure in entirely unexpected ways. Loose-coupling minimizes the size of the “blast zone” when fatal events occur.
I have always found web scale computing to be an interesting model for understanding the flaws in elite thinking regarding how to run anything – economies, governments, whatever. Their archaic ideas focus on the perceived competence of the administrator and never on the needed resiliency of the system. They never seem to consider that centralization is just way of storing up and concentrating systemic risk whereas decentralization is a way of diluting risk and isolating its effects. Competent web scale implementations ASSUME failure and are designed to isolate and compensate for high levels of fundamental unreliability.
There are life lessons that come from trying to keep massive web sites up and running. Our elites should try it sometime.
Mr X 26 Those are some of the most uplifting comments that I have heard in a while. And if you return home, that doesn’t mean that you have to leave BC.
““Battered by Pakistani military operations and U.S. drone strikes, the once-formidable Pakistani Taliban has splintered into more than 100 smaller factions, weakened and running short of cash, according to security officials, analysts and tribesmen from the insurgent heartland.”
Just in time for us to cut and run.
What swell timing.
The problem is scale – and the change from differences of degree to differences of kind.
Control is not an illusion at a small scale, within reasonable bounds. From a young age and as I grow up, I learn that I can control many events in my life. I go to school, and get instruction, textbooks to study, problems to work, and exams that assess my progress. If I work hard, I can do well.
It’s that way in a number of areas beyond schooling. Eat well and exercise, and I can be healthy. Practice regularly, and I can master a musical instrument or a sport. Show up on-time and work diligently, I can earn a living. And so on.
So the notion that we can control events in our life sort of fits with our experience. It’s not a illusion – again within reasonable bounds and at the scale of an individual. And when there is a failure, it’s a Black Swan, something unforeseeable. “He exercised regularly and ate well, but still died of cancer.” Tragic, but not a reason to not eat well and exercise.
A few months back here at the BC, I wrote that I know for a fact that single-payer health care works at the scale of a family, because I run a single payer system in my household. My wife and I see to the health of our children every day, and they have yet to pay a bill for any of it. It works because of the strong bonds of love and commitment that are possible between parents and children.
But human relationships – particularly those as intense as family relationships – don’t scale (see the Dunbar Number). This simple reality is the reason I’m certain that a single-payer system won’t be sustainable at the scale of 300 million people. The complexity grows, and the power of interconnection weakens. The very reasons that health care works in my family don’t obtain at the scale of a nation.
The proponents of centralizing power point to benefits that come from having the “best and the brightest” working on the problem. But if the “best and the brightest” are an order of magnitude smarter, but the problem is 6 orders of magnitude more complex, the likelihood decreases that any solution will be found.
The tricky situation here is that because our personal life experience says that we can have control (of a sort), so when policy wonks (who got their job, by the way, by being exceptional at working the artificially defined environment of academia) tell us that we can set up a system that can effectively regulate (i.e. control) a sector like health care or financial services, it doesn’t sound implausible. After all, I can keep my weight down by eating right, and balance my checkbook by spending within my means; the country should be able to do the same, right?
Wrong. The human body is not the body politic. They operate at different scales and complexity.
Experiments are done very day in an attempt to find drugs that can cure a disease like cancer. Typically, the effort to find a drug starts with cells, then moves to mice, then larger mammals, and eventually humans, then entire populations. As we move up the line, treatments that work at one level fail at the next.
Rules are made every day in an attempt to deal with a social problem like illiteracy. Typically, the effort to find an effective program begins with a single person, then moves to a family, then a neighborhood, and eventually a larger community like a city, state, or nation. As we reach greater scale, solutions that work at one level fail at the next.
As we scale up, the differences are ones of degree. A neighborhood is more complex than a family, but the same solution may work with more resources (one reading tutor for a family, 10 for a neighborhood). The differences between what works are differences of degree; the same approach, just more of it.
But at certain points, the solution has to shift. If one tutor can teach a family to read, and 10 can teach a neighborhood, it might take 100,000 tutors to teach a nation. But you can’t coordinate 100,000 people like you can coordinate 10. It’s no longer a human scale problem. The problem is different, so the solution must be different, and the differences are differences of kind. It’s a different kind of solution. A group of 10 can self-organize in dozens of different ways; a group of 100,000 must organize in a market or a hierarchy.
An attempt to circumvent this process by imposing top-down solutions will inevitably fail. Taleb highlights a big reason why that will be true – top-down approaches inevitably suppress information needed by the system. But there are others, including perverse incentives of the rule makers, the adverse selection of people who enter the system, and so on.
This is why restoring self-governance is the only way to save our republic. By concentrating power into top-down entities like the federal government, we assure that the system will eventually fail. It doesn’t matter how smart the people are that we elect to serve in Washington DC; we’re facing problems that do not have a solution at the scale of 300 million people, no matter who is in charge.
Our Constitution was written when there were about 3.5 million Americans. Today, there are more people in my hometown of Houston. The framers didn’t trust federal power at that scale, and yet our current system puts more power in the hands of Washington DC bureaucrats than in the hands of our mayor. Go figure.
So, we do need an “intellectual revolution” that stops thinking about “national problems” that need “national solutions.” This thinking infects almost all of the think tanks in Washington DC, from Brookings to Heritage. They want to solve the problem. Good for them. But bad for us.
Nothing short of a massive dispersal of power will work at this point. By returning the locus of decision-making to a smaller scale, solutions will be available – different kinds of solutions, not smaller versions of federal programs.
What will those solutions look like? Which ones will work?
I have no idea.
Which is the point.
L3
A corollary of, perhaps even part of the cause of, the problem of scale that L3 discusses is that folks judge the failures at different scales by very different criteria. If an individual dies while drinking and riding his motorcycle at 60 mph on an unpaved surface, we don’t hesitate to label him a fool. If a government creates a program that promises to solve a national concern but instead worsens the problem, too many folks categorize it as “bislagiatt” (“But it seemed like a good idea at the time.”). Conservatives need to point out this difference in judgmental behavior at the different scales. L3′s complexity argument can be used to suggest that citizens should be especially unforgiving of failed government programs; they never had much likelihood of helping, so those who propose them are doing so for self-serving reasons.
Nothing short of a massive dispersal of power will work at this point.
But I don’t know what that means.
Break up AT&T (again), the NBA, and Gondwanaland!
Replace the F-35 fighter with fifty F-0.70 state fighters?
Reinstate the Confederacy, let Texas sucede, tow California 200 miles into the Pacific, sell Alaska back to Russia and book the profit?
And of course, ban the reading of King Lear.
secede
where is that edit widget?
Kevin – “By now most of us should be able to see and understand why the state makes for a poor deity.”
It is essential that our deities not be of the terrestrial kind. If we can pray to a divine being it does not lead to standing in line to bribe the same with promises of cash and votes. An ethereal god is incorruptible, a tangible one is corrupt by that act of its inception. An idol, an agent of the state and the source of power. It can withhold love and remonstrate with terrible power. It is anathema to the individual and the ultimate click where obeisance or ostracization is possible.
I have to disagree with your view that a public broadcasting entity is a proper role of government. When points of view are not market driven they tend to be ideology driven and when enough private interests are tied to the public dole the dissemination of information becomes a mouth piece for disinformation. I rather be amused by an advocacy for bad food over an advocacy over bad government. It is easier to escape diarrhea than it is to escape bad government.
“It prevents the emergence of a single authoritative dogma, which left to itself would ruthlessly exterminate all other points of view…”
Left to its own devices, Wash DC will inevitably produce huge complex systems based on the “One Size Fits All” approach and utilizing teaming of multiple contractors and agencies. As in the Space Shuttle, C-5, F-111, F-22, F-35, and Obamacare. The objective is to satisfy as many “Constituant Interests” as possible, and in doing so make the program Too Big To Fail.
Of course this also produces both a Span of Control that is far too large and a program that has numerous contradictory imperitives. In some cases, such as the F-111 and C-5, the program can be salvaged partially by downscaling it and tossing out major requirements that are incompatible with success or just plain unreasonable. For example, in the case of the C-5A, making the aircraft both capable of hauling such large and heavy cargo and of operating from a dirt field yielded an aircraft that was so expensive that no one would ever risk losing it by landing on a dirt field.
The Gods of the Copybook Headings
—Rudyard Kipling, 1919
As I pass through my incarnations in every age and race,
I Make my proper prostrations to the Gods of the Market-Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.
We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.
We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market-Place.
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.
With the Hopes that our World is built on they were utterly out of touch
They denied that the Moon was Stilton; they denied she was even Dutch
They denied that Wishes were Horses; they denied that a Pig had Wings.
So we worshipped the Gods of the Market Who promised these beautiful things.
When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Heading said: “Stick to the Devil you know.”
On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: “The Wages of Sin is Death.”
In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: “If you don’t work you die.”
Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew,
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four—
And the Gods of the Copybook Headings limped up to explain it once more.
* * * * *
As it will be in the future, it was at the birth of Man—
There are only four things certain since Social Progress began—
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool’s bandaged finger goes wabbling back to the Fire—
And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins
As surely as Water will wet us, as surely as Fire will burn
The Gods of the Copybook Headings with terror and slaughter return!
L3′s comment resonates with me. I think of the problem in terms of “agency”. Just as too much economic credit was issued in the boom, too much “credit” has been issued to agents who are too far away. It feels more like a “distance” metric, related to but different than size. Too far rather than too big.
So, for example, yes, there is great benefit to diversifying via mutual funds (one level of agent) that choose a variety of public companies for me managed by other professionals (more agents). But there are a lot of fees associated with those services. And when sell-side brokers help me choose those buy-side agents, the problem becomes worse. Maybe it turns out that I should invest a greater percentage of my cash back into the family business, rather than taking the call from Goldman in NY.
Similarly, the distance from my desire to Washington is hopelessly far no matter how you go about calculating it. (L3′s Houston math, for example). Obamacare is bad because it has increased the distance to my physician. The Euro-metastasis is increasing the distance from voters. The center in Washington is attempting to associate localism with states-rights and racism. When, really, all that localism implies is a shorter distance to, and greater influence over, my political agent.
It is a curious result in the age of social networking….
The implication, to carry the credit analogy forward, is that we need to have creative destruction of institutions that have stretched agency too far. Too much credit has been extended economically; the bad debts need to be wiped clean. Too much credit has been extended to bad agents. The extension must be shortened.
My liberal friends point out still that a weak federal government could not have resisted Nazi germany, nor contained communism. But this points out another distance. The distance among elites in different geographies seems to have shortened even as my distance to Washington has lengthened. Those two oceans don’t seem so big anymore.
But I don’t know what that means
There are two approaches which suggest themselves. The first is ‘stop digging’. The deficit is an indicator of which things are unsustainable and therefore those things are prime candidates for scaling back. The other is to look more closely at even greater grants of power to the center. For example, does the Commerce Clause really mean that Congress can force people to buy stuff?
The second approach is to return somewhat to the Federal architecture and stop or slow the ever increasing concentration of tax share and power to Washington. Moreover, the existence of the States creates a ready made laboratory to figure out “what this means”.
There is probably no formula and one ought not, I think, replace a one-dogma system with yet another. Taken together these suggest that the general direction of improvement is to smaller, cheaper, simpler. And by that we should mean truly smaller, cheaper and simpler. For this is a distressing tendency to simplify by complexifying. “First we have to scale it up so that we can scale it down”, etc.
We’ve all dealt with knots. The worst kind of knot is one with no ends. So the first thing, intuitively, is to create these “ends”. It is not quite like cutting the Gordian Knot (an approach which worked because it created lots of ends) by you need something to work with, and feasible from a legal and constitutional point of view, otherwise nothing will be accomplished.
Mad Fiddler #19:
Note that some of the worst forest fires over the past decade were deliberately set by government employees or government contractors, apparantly because the end of the Fight All Fires approach caused them to lose income and/or promotion opportunities and/or power and prestige.
Controlling smaller fires or even utilizing controlled burns means you need far fewer resources, and those selling the resources don’t like that.
“Variation is information. When there is no variation, there is no information. This explains the CIA’s failure to predict the Egyptian revolution”
I have to disagree. The Egyptian revolution was planned in advance here in the states by Obama’s revolutionary network; Bill Ayers, Code Pink, etc were involved and some even bragged about it. Glenn Beck – that much maligned commentator — did the research and gave warning.
So was it CIA failure or deliberate cutting off of the flow of information; or is the CIA part of the collusion of revolutionaries?
I am beginning to think that “Black Swan” really means “nobody is listening to the sentinel on the wall.” The information is out there for those who are willing to look; unfortunately, the willingness to look may indicate that the one looking is already outside the camp of the acceptable persons.
Great great post, Leo.
If each local community could solve the national problems on its own scale, then individuals could vote for the solution of their preference by where they chose to live. Failing communities could learn from and imitate successful ones. There could be an effective market in solutions.
This was John Stuart Mill’s concept of liberalism, and takes the word back to its original sense of liberty. We need more liberty in this country, not less. And as you make clear, only more liberty will help us now.
Please keep up your good work. You too, Richard. I really think that the solutions to our civilization’s current problems are being worked out in these conversations.
Washington DC has the only real estate prices in the nation that are on the accent right now. When all decision making is concentrated at the federal government, then too there is a concentration of cash flows and the ever growing hordes at the spigot of the nation’s wealth. (chicken or egg thing?) The larger the volume of wealth to flow through the spigot the easier it is to nick it a little to satisfy some egalitarian purpose. In other words, corruption will follow. The system too becomes vulnerable to single point failure. (This is the Eurozone writ large[larger or just as large?])
The federal government would work best as an operating system and not as an application. Within this framework their ought to be a larger success seeking goal advocating long term objectives, the most important of these being defense and arguably graded needs and wants and finally wishes. These should be left to the people and not to self promoting agencies. I argue that self sufficiency is the greatest defense but greater entanglement seems to be Washington’s. The important thing is that these objectives be controlled by constraint. This constraint was built into the constitution and is now being undermined by a looser interpretation and supposed self evident morality.(i.e.: you back our every whim or you will be labeled a NAZI-bigot[an ironic form of fascism itself]) We have our work cut out for us but it is clear to me that the way forward is to reduce government to its fundamental purposes one step at a time. Prove value not agitate for it. Occams Razor is needed not OWS.
@sinz54
“The Arrogance of Youth: ‘Sure, our parents and grandparents screwed it up, but we’re smarter than they were.’”
I read that a lot over at the Libertarian blogs.
“It is not that either party has the truth, but simply that a debate between any two genuinely opposed sides facilitates the emergence of the truth, even as a byproduct. This is a clue to why freedom works. It prevents the emergence of a single authoritative dogma, which left to itself would ruthlessly exterminate all other points of view…”
This is an extremely good point.
It reminds me of something wonderful I learned from Fred Howard’s biography of the Wright Brothers. Here’s how I put it in a review of the book (at my site):
Wilbur and Orville Wright were extraordinary people. They seem to have had a peculiar combination of curiosity, persistence, good sense, and intellectual honesty. Ideas were important to them, and they spent a lot of time debating every aspect of their work. Often they would debate a topic so hard for so long that in the end they would come around to each other’s positions, and still be arguing, for each now saw new merit in the previously unappreciated view. They once admonished a friend (to his surprise) for too quickly backing down from an argument. A position that has been held by someone they respected must have some merits, they felt, and it was a sort of intellectual waste not to wring all the useful ideas out of an argument before discarding it.
Mr. X at your #26,
Hа нас Бог имеет пощаду.
Here’s a link to a Youtube recording of the orthodox 100 blessings, with some rich still images.
Κύριε ελέησον.
rwe @ 54: For example, in the case of the C-5A, making the aircraft both capable of hauling such large and heavy cargo and of operating from a dirt field yielded an aircraft that was so expensive that no one would ever risk losing it by landing on a dirt field.
So it sounds like things took care of themselves. The big problem with the C-5 IIRC is that the wings tended to fall off ahead of schedule, a consequence of the days before we had enough computer power to do better finite element analysis on all components. So we had Newt’s C-130s to use on dirt strips instead. Is a C-17 any better at delivering an M-1 tank to a forward strip? Maybe we have learned that that is not really a strong requirement after all. I think, overall, we have learned some things about systems engineering over the last generation. We are better now at specialization, we now do narrowcasting instead of broadcasting, we are better at complex solutions for complex problems. Are there really any problems with the F-22 or F-35, other than we don’t have a clear USE for either in the near term? The lack of urgency tends to let goals and costs balloon. But operating at the bleeding edge is always going to be expensive and risky and error-prone, many of those errors being bureaucratic. Such is life.
Much of the problem with Washington these days is also that we are too fat and lazy, the world’s only economic, military, cultural, creative superpower. And we should all realize the risks in putting ALL eggs in one basket, hence federalism, hence people’s representatives and not a single dictator. It’s not a radical idea to want to keep these things. Is the USA too big too fail, and thus should be broken up?
We have some new toys that allow more centralization than ever before, even as they allow more fragmentation and diversity than ever before. I can’t say in advance where optimal solutions will be found, and for safety we should all agree that even a single optimal-appearing solution, should have free alternatives. That’s what the big fault is in Obamacare – no freedom, the claims of freedom were all huge, blatant lies.
With the banks, the problem is not size as such, but size backed by a taxpayer guarantee. That is a structural problem, a moral problem, not a scale problem. Let’s not be misled by TBTF and get all wee-weed up and solve the wrong problem.
Josh @51,
But I don’t know what that means.
Your examples are cute, but not the basis for serious discussion. So how about this:
There are four departments that are – both in economic and legal terms – clearly within the scope of the federal government:
To these, you can add another, grab-bag department:
There are two other critical functions that need to be handled at the federal level:
Anything that does not fall into these departments needs to be returned to the states. That’s what I mean by a “massive dispersal of power.” YMMV
A similar process needs to take place in states (at least the big states), dispersing power further to counties and cities.
If there is a desire to expand the writ of Congress beyond these functions, there’s a process in place to do so: it’s called a Constitutional Amendment. You want the federal government to take over health care? Get a constitutional amendment passed. Otherwise, leave it to the states.
The interstate compacts that I’ve been helping with are attempts to do this for health care, education, and energy. So those are concrete legislative examples if you want some additional detail. I’m sure there are others that you could find if you’re so inclined.
It’s a massive undertaking, to be sure. But a financial crisis caused by the bursting of the debt bubble is going to happen in the next few years. When it does, we will have a choice: we can disperse the power or concentrate it even more.
The next couple of years are about preparing for making that choice (i.e. the coming fight).
In that respect, places like the Belmont Club are like the Committees of Correspondence in the run up to the American Revolution. Framing the issue, and the alternatives.
Hope that helps, and appreciate your comments here at the BC.
Cheers,
L3
Governments like size because a few big are easier to control. Regulation encourages size by increasing agency costs, which makes the companies beholden to the government which makes the rules. Not the IRS posture on contractors and the like. Such rules makes it easier to assert control. The favored are few, but very favored so very malleable, and easy to control.
Hernando de Soto writing in the NYT comes to a similar conclusion:
In short, the current crisis is an “information crisis”. Our information stores are corrupted. Commenters on this site will probably recognize these themes, as they’ve been beaten to death in my previous posts.
In one sense, De Soto’s formulation is almost equivalent to Taleb’s. Both talk about an information loss; De Soto because it is obfuscated and in Taleb’s thesis, because it is dampened and smoothed into apparent non-existence. Whatever model one prefers — even the lagged control scenario — the essence is the same: things are out of sync.
That is the conclusion which many thoughtful people, except of course those who are confident of their omniscience, are coming to. It is a good working hypothesis. De Soto has this interesting line, which many will have seen here too, in my discussions of the mismatch between the “real world” which is still out there and the “virtual world” which is its representation in finance.
Interestingly enough, De Soto comes to a similar conclusion with respect to the cure for the problem. He argues that it’s a governance, not a policy problem. The system does not convey and properly process information because too goddamn complicated and big. Until this essential fact is grasped, nothing can be done.
It would be premature to say that ‘consensus’ is emerging. I have come to hate the word anyway, which reminds me of Phil Jones and his inability to plot a line in Excel. But seems to strongly suggest that the proposals to tie down all the circuit breakers, link everything up and centralize things even further, as President Obama and the EU are now doing, is not self-evidently the right thing to do. In fact, it is downright dangerous.
Why not let things shake out? Don’t suppress the volatility. Don’t hide the trend. Let information emerge; allow the rocks to flip over and see what crawls out; clear out transactions in the inner loops before boosting these results to the top of the function; and get rid of the friggin spaghetti code. These seem to me only common sense.
I might add that “repairing knowledge” systems is not always a matter of laying on another layer of code but often of selecting the right architecture. Back in the day the Founders designed direct paths between the problem and the problem solvers. Perhaps we have become too clever by half; I forget which pundit recently said that the Constitution shouldn’t count for anything since it’s “more than a hundred years old” and “nobody understands it anyway”. They may have imagined the clever, sophisticated thing to do was dispense with the old time direct pathways and substitute these Rube Goldberg elite-run knowledge contraptions to replace it. That might make for a hell of a screen saver and not much else.
#9. Chris: Exactly. Subsidiarity is the key.
Josh @66,
Is the USA too big too fail, and thus should be broken up?
As currently constituted, the federal government is TBTF and should be broken up. But don’t conflate the federal government with the United States of America. They’re not the same thing.
I don’t think the US is TBTF. As designed, the US is already “broken up” in that most governmental authority is supposed to reside at the state and local level. But if we let things continue along the path we’re on, and allow the federal government take more control and authority, it will enfeeble the populace and we will fail. As Steyn is fond of pointing out, it is the debasement of human capital which is the real threat to the republic. And centralized power debases human capital.
With the banks, the problem is not size as such, but size backed by a taxpayer guarantee.
You’re fundamentally right (scale is an effect, not a cause), but the analysis is incomplete. Banks grew big because of a host of federal regulations (not just taxpayer guarantees, which have been in place since 1933) and Nixon’s move to fiat currency in 1971, which removed a constraint on the expansion of credit (and therefore the financial services industry).
But scale, once it reaches a certain point, is a problem in and of itself. Like gravity – just ask a black hole.
One final point. We shouldn’t lose sight of the fact that the Constitution is a conflict resolution mechanism. It can’t eliminate the conflict, only describe a process for resolving it.
Another way of stating the point that Taleb and De Soto are making is that information is critical, and conflict is that way that information is generated. The conflict between buyer and seller; borrower and lender; incumbent and challenger; states and Washington DC; Israel and Palestine; conservatives and progressives; and so on. Processes to avoid conflict are processes that suppress information.
This might be ok; where we need no additional information, conflict is expensive and pointless. Of course, how do we know that we need no additional information? That’s the attitude that creates Black Swans and Climategates. So we should err on the side of allowing conflict.
Suppressing conflict for the sake of peace also suppresses information which may cause a war. Thus the danger of political correctness, the United Nations, and quantitative easing.
By attempting to turn the Constitution from what it is (conflict resolution mechanism) into something it’s not (conflict avoidance mechanism), centralizers distort our system and turn it into something unsustainable. Scale is the mark of that distortion, so we should be very sensitive to its appearance.
Scale may only be a symptom, but symptoms are always where a diagnosis begins.
Cheers,
L3
w @ 69: de Soto
But what is he really saying? That our wall street banks are NOT able to see their own enlightened self-interest, that they kill their own customers, their investors, themselves, and the taxpayer when left to their own devices. This is a HORRIBLE endictment of the banks and even capitalism. I have to read de Soto as calling for more regulation. At least, Glass-Steagall, separating taxpayer backing from risk. I will pound the table with my shoe and suggest that CDS as it is currently practiced should be illegal even in the un-backed segment, it constitutes prima facie fraud and structural nonsense from the moment it is written. But this is too technical and mathematical, I doubt our political system can deal with it at all, nor 99% of the voters. But then, who?
L3 @ 67: 1,2,3,4,5,6,7
Well OK, but what does that omit? health care, education, and energy. What does that miss? Overreaching by SCOTUS on everything from abortion to eminent domain. Gingrich wants to devolve the handling of immigration to neighborhood councils, or something. I find it hard to find bright lines in any of this.
L3 @ 73: But scale, once it reaches a certain point, is a problem in and of itself. Like gravity – just ask a black hole
Well I asked, but got no answer.
By attempting to turn what it is (conflict resolution mechanism) into something it’s not (conflict avoidance mechanism), centralizers distort our system and turn it into something unsustainable.
They hijacked the system, and because it was a central system, we now want to break it up for safety. I don’t know that that follows. If a bridge is hijacked by trolls, breaking up the bridge (into several narrower but equally long bridges?) is not much of a solution, unless you think there is a shortage of trolls. But that also approaches being N times more expensive. I guess that’s a factor, we always hear about economies of scale, it’s a boutique discussion to talk about the dis-economies of scale.
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Love the site here, the discussion, and a chance to vent on this stuff more or less on topic. Now all we need is to package it for weekly broadcast on NBC.
Almost everyone here, and very many people elsewhere, has recognized the need for a reduction in the scale, scope and power of central governments. The problem is that this has never been done, at least not in my lifetime in the United States. The Reagan Revolution stated at the onset that “Government is the problem”, but in the end failed to reduce it. In Washington they speak only of reducing the rates of growth. This, in Potomacspeak, constitutes “cuts”, but always further growth is an unchallenged underlying assumption. Never in my life has anyone come to Washington vowing to reign in the federal government and actually succeeded in any capacity. The Gingrich Revolution, for example, stalled and failed on such feeble measures as getting rid of the National Endowment for the Arts.
I don’t advocate giving up efforts to rein in the government, in fact I’m for redoubling them. But if such efforts are successful I’ll be greatly surprised nevertheless. Since the observations of Robert E. Lee, there has been one trajectory for federal power, and the calculus supporting it is powerful and stubborn. I’d advise keeping oneself aware that efforts to change this direction are quite probably doomed. The most probable outcome is that federal government will continue on its current path until it runs out of steam, like a wind-up toy. Does that analogy sound familiar? If so, you’re probably thinking of this word: containment.
There’s another aspect to this. The leaders of institutions that are “too big to fail” are aware of their status. It becomes similar to taking someone to a blackjack table in Vegas, and telling him that he should start small in his bets, and increase them slowly, but never decrease them. Eventually they’ll be enormous. If, further, you tell him that you’ll let him keep any profits, and you’ll replace his losses any time he bets wrong, eventually he’ll be hitting on 17 or even 18, hoping to pull that ace and improve his hand when the dealer’s showing a facecard. After all, losing doesn’t mean anything to him, and winning means he gets to make a large fortune. Therefore you’re more or less guaranteeing that the economic problems you’ll have will be enormous, when he finally bets wrong and loses a fortune–but not of his own money, instead it’s ours. Because he’s “too big to fail”.
As politics is the home of the incompetent & maladjusted we ought not to be surprised. Think of Nancy Pelosi, cancel that, think of Boy Obama, so in over his head, as well as corrupt,that it beggars description. Yes, and the Repubs have their fair shatre as well. Most of these people are delusional, with Napoleonic fantasies, thiunking the world needs their numb minds and bizarre egos. A hard fact of life.
Josh — I do not think anything such as regulation or even expansion where merited, is forbidden. Nothing is off the table in this enterprise. But the application of the tool has to match the design intent. The problem is not with any particular tool or method of governance, but with the design. We don’t face a policy or tool problem, but a governance problem.
Cowboy — What is different this time is that the reformers have bankruptcy on their side. Reality has weighted in, and it is a powerful ally. Without the intervention of real world consequences there is little doubt that the statists would have gone on blarneying their way to every larger slices of the pie.
But now there ain’t no pie and no prospect of any neither. This harsh reality will take a while to sink in. There are still some out there who think there’s a “stash” (tax them harder) or that it can be fixed by printing money. But since neither of those will work, the day will eventually come when, whether they like it or not, the long retreat back through the institutions must begin. Gramsci’s march on Moscow, as it were, back over the Berzina Bridge.
This retreat will happen in any case. Our job is to give it meaning; to explain its significance to the baffled onlooker who only recently heard the EU promising to fix the world and the President say he would make the oceans fall. They will want an explanation for this reversal and we ought to provide one since the media outlets may be too embarassed to give it a try.
And there will be a tragic aspect to it, because the retrenchment of the giant state will baffled, hurt and confused. Pensions will lose value. Savings will lose value. House prices may drop. Lots of ordinary people, government employees too, shout out “we played the game by the rules, who knew the rules were crooked?” That is true enough, but beside the point. We couldn’t stop it if we tried, alas. The system is being destroyed by itself.
So the best we can do its learn from it, as we boil our shoes and imagine the shoelaces to be linguini al dente, while we work for better times because there ain’t nothing else for us to do.
Josh @72,
Well I asked, but got no answer.
LOL.
I find it hard to find bright lines in any of this.
Probably because there aren’t. The system is supposed to adapt on the fly. You can’t specify the right answer in advance because it’s unknowable.
What I’m very confident is that decentralizing power today is directionally correct. We should head in that direction in the areas we’ve discussed here (health care, energy, education) plus financial services, and with pace. Where the right point is to stop, well, we can worry about that later.
It’s kinda like Jefferson and Hamilton. They didn’t need to agree on the right governance structure for the US. First, they had to get the king and parliament out of the decision process. Then the real fun will begin.
They hijacked the system, and because it was a central system, we now want to break it up for safety. I don’t know that that follows.
First, the system was not centralized before. Approximate numbers (source: http://www.usgovernmentspending.com/):
That’s not really centralized; 83% of non-defense government spending was state and local, the vast majority local.
The centralizers didn’t hijack a centralized system; they turned a decentralized system into a centralized one.
If a bridge is hijacked by trolls, breaking up the bridge (into several narrower but equally long bridges?) is not much of a solution, unless you think there is a shortage of trolls.
Bad analogy. Better one:
You have 50 bridges over a river. Trolls build a bigger bridge. Traffic is low, so they start limiting the traffic over the other bridges. Still hungry for traffic, they start shutting down bridges by stationing trolls under those bridges. Eventually, all traffic flows through the trolls’ bridge. Once they have all the traffic, they start making the other bridge owners pay for the maintenance of the trolls’ bridge. Then they starting charging tolls (troll tolls?). Traffic starts to fall again, so they start taxing the citizens. Traffic falls further. Everyone starts figuring out how to work on their side of the river, or sneak across at night. Finally, the citizens get tired of feeding the trolls. They demand re-opening of the other bridges. The trolls resist. The citizens then say, “We tried to be reasonable. You would not respond. Time is up. Mr. Troll, tear down this bridge!” The citizens then proceed to tear down the bridge.
To the shock of the trolls’ and the troll bureaucracy, the other bridges re-open, commerce across the river restarts, and things are better than they ever were under the management of the “best and brightest” trolls.
The trolls then retire on a fat pension, and everyone lives happily ever after.
The End.
Cheers,
L3
There is a French PhD student of administrative/bureaucratic government whose name I unfortunately can’t presently recall who has posited the theory that at some point dysfunctional organizations/governments become so immune to substantive change that any changes at the margins which serve to make them more “efficient” in their daily functioning without changing the very perverted priorities currently being attended to serve only to make it even more dangerously and dysfunctional, because it is now even more “efficiently ineffective,” i.e., after the tweeks are made for purposes of “efficiency” in the engine-room of the Ship of State (in this question) it will simply speed toward the rocky shoals even faster, when what is actually needed is a total change in course & heading bearings.
Bottom line? At some point, nearest the shoals, gradual “evolutionary” changes in the heading/bearing of the Ship of State will not be accomplished in time to avoid foundering on the rocks. At some point only drastic, nearly instant course corrections (i.e., “revolutionary” changes) will suffice. As this nation journey’s thru the passage of time & history might it be asked; “Are we there yet?”
As the late Nobel winning physicist and Challenger-disaster investigator Richard Feynman famously said, “Nature cannot be fooled.” If you try to legislate, adjudicate, hypothesize or simply ignore problems away instead of confronting and making preparations for them, they will manifest themselves, often at the most inopportune times and with the most devastating consequences. Like nature, reality cannot be fooled. If your map doesn’t match the territory, it’s your map that’s wrong. But despite centuries of failures both large and small, the lesson is never quite learned.
Holy smokes, this blog is just too smart for me today. Seriously. You guys make me feel like the dumbest kid in the class. I say that as a compliment. And with genuine respect.
I’m gonna walk my dog and take a nap. Some days you just have to switch off.
#63. njartist49
Was that the kid’s version, the parent’s version or the grandparent’s version?
I think Newt is on to something. I live in a huge sanctuary city that has a huge illegal population and the feds have no clue how to handle this. The problem is growing and is being ignored. Put this in the hands of locals. Let a “board – a kind of reverse draft board” of locals decide who they want as neighbors. This takes care of the sanctuary question and is an aid to the local law enforcement and gets the feds out of their current marginal performance at a local level. The illegal’s petition the board made up of legal neighbors for legal status – no amnesty – not a path to citizenship – just an identified status that can be tracked. Those that are rejected are deported. I doubt any of these potential folks will approach the board. After a period of time any one asked for their “board card” and does not have one is deported.
We end up with a group of people that we want here and probably have been here for a while and have some preliminary roots. All of this after we seal the border as best we can – which we are not doing now.
I had a draft card and had to produce it for many years and was proud of doing so. No stigma here!
As stated over at ZeroHedge:
“We no longer have problems we have predicaments.”
The strategy is not to solve the problems but to how to ride out the predicaments while the bankruptcies occur because the wanker elites waited to long.
Ferds #56:
“My liberal friends point out still that a weak federal government could not have resisted Nazi germany,…”
A Federal Govt of whatever strength and power that was crappy at Defense could not have resisted Nazi Germany. Power in one area does not indicate power in another. In fact, it may indicate the reverse.
For example, several years ago the ATF found out that there were some private companies that had some rockets and explosives at Cape Canaveral and announced they would have to start inspecting the stuff. In response, the Air Force divided explosives storage into “commercial” and “Government” areas. There was nothing wrong with the USAF caring for storage of all such items located on Air Force property – it had been done that way for years and was more efficient – but the ATF has no jurisdiction over the military or NASA, and the Air Force did not want them pawing through its stuff or the stuff it took care of for NASA. So now you need two separate storage areas where one was adequate before, just so the ATF can do its thing. And aside from that the amount of expertise the ATF has relative to Minuteman and Castor rocket motors is more than a little questionable. But we have had an ATF bestowed upon us by DC so we have to deal with the fact. And it is easy to say that it would have been logical for the ATF to leave well enough alone and let the USAF take care of what it had the expertise for and had been doing for years – but that is not how Big Government works.
One reason that WWII proved to be so useful to getting out of both the Hoover and the much worse Roosevelt Depressions was that the various regulatory agencies realized they needed to back off on their requirements if the war was to be won.
We won WWII without LBJ’s Great Society, the EPA, or the Energy or Education Departments, nor any of the great many expansions of Federal Govt power that have occurred since 1945.
Josh #66:
The wing problem was a very early one that was solved very early. The big problem was that the requirements got out of hand and the C-5A’s Total Package Procurement acquisition approach was designed to limit government insight into what was going on at the contractor. So after the initial buy the 2nd buy proved (Surprise!) to be so expensive that they could only buy a few aircraft. There were so few C-5A’s purchased that each one was a vital national asset that literally had to be guarded night and day and could not be risked carrying MRE’s or M-1 Abrams into forward strips. Some of the special equipment to faciltate soft field operations was purchased but never even installed.
L3 #67:
As you no doubt known far better than I, currently most State Taxes are based on being subsidiary to Federal Taxes. Most States tell you to take the amount on line such and such on your 1040 and multiply by X% to get your State taxes.
But I see no reason why it could not be the reverse and the Federal taxes be based on State taxes. Of course, a concept like your Dad’s Fair Tax idea would facilitate this.
I’m really enjoying the discussion today. Living next door in a country with a much looser Federal system than the U.S. – courtesy of the 1867 British North Ameriac act – a couple of things come to mind.
The first is how much erosion there has been of States Rights. I guess L3 is looking for ways to restore these without having to mess with SCOTUS. Wretchard @76 writes “What is different this time is that the reformers have bankruptcy on their side.” So the second thing I’m wondering is can the States can get back some rights by taking charge of significant parts of the resurrection. Instead of waiting for the
FeudalsFeds to recruit them, can the States pre-empt some Federal turf by volunteering to take action in fixing things?We’re having a wreck. Can the States become Captain Cleanup and regain their lost rights by fixing and rebuilding the wreck? Or is L3 going to say “duh” that’s what I’m trying to say dumbass?
I have been thinking a little lately about the political process and how the can gets kicked down the road and it usually involves both fiscal and monetary slight of hand as well as the usual dose of class warfare, sloppy thinking, deliberate and accidental malfeasance. I have also been thinking about mal-investment and how you might successfully get from taxing production to taxing consumption which I believe would be both fairer and result in greater growth of the economy and have come up with an off the wall idea. I present it to have it shot down b people more clever than me.
One of the problems as I see it is the interplay of fiat currencies, central banks, and fiscal tax and spend policies where monetary policies are used to mask fiscal irresponsibility and tax policy is used as political propaganda. Democrats today will not vote for anything that will not raise taxes on the “rich” not matter how sensible and Republicans will vote for nothing that will raise rates but will accede to demands for spending increases either through the front door or the back and the whole budget process has become a farce that is rapidly leading to a collapse of the world monetary system. The whole pile of nonsense is repeated in Europe as well in spades.
So my idea is to simplify the fiscal side by essentially getting rid of taxing altogether. How would we support the government without taxes? Simply vote on spending and have the Fed create the necessary dollars. While they are at it they would eliminate the national debt by buying up all the outstanding bonds and shredding them. Sure this would cause pretty hefty inflation and maybe wipe out savings but at the end of the day you would have a new equilibrium and the tax system could not be used to foster malinvestment and the real taxes would be in the form of inflation which is after all a tax on consumption.
Now with no way of expropriating wealth for redistributive purposes the only way our socialist friends could do it is buy trying give it away through appropriations and that simply would not work since inflation wipes out all the ill-gotten gains in a sstem where consumption rather than production is taxed.
For a variety of reasons fiat currencies are here to stay Ron Paul notwithstanding. Lets at least not let the central bankers be a shadow government or mask the goings on of our irresponsible lawmakers. Imagine a world where income, capital gains, and dividends were not taxed except when you spent them and imagine a world where the politicians were essentially incapable of redistributing the wealth. That is probabl a world not too unlike the one our founding fathers hoped for.
L3 @ 77: the system was not centralized before.
The aura of federal constitutionality is the central item in question here being hijacked and perhaps most strained in recent years by the infinite extension under “the commerce clause”, to be tried again soon now in re Obamacare.
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[overposted]
There was plenty of evidence around that Japanese were going to attack Pearl Harbor and that Al Qaeda was going to attack the World Trade Center, the Pentagon. However, there was too much federal inertia to respond appropriately before the event happened. In both cases, once the attacks occurred– the federal action was pretty significant.
67. Leo Linbeck III
Anything that does not fall into these departments needs to be returned to the states. That’s what I mean by a “massive dispersal of power.” YMMV
…………
I’m a big believer in federal R&D. Pound for pound the most productive agency in the US government is DARPA. Much of the US technology base has at one time in its early history received DARPA funding. What the feds do is fund stuff that’s over the profit horizon for corporations.
Right now the Energy dept –according to Bill Gates–should be spending about 15 billion on energy R&D. Instead the number is closer to 3 billion.
………..
49. Leo Linbeck III
Nothing short of a massive dispersal of power will work at this point. By returning the locus of decision-making to a smaller scale, solutions will be available – different kinds of solutions, not smaller versions of federal programs.
What will those solutions look like? Which ones will work?
I have no idea.
……………..
Energy and water are the basics of civilization.Making them ever cheaper and more available everywhere is foundational. In many ways the US federal government gave up on this endeavor during the 1970′s. This was the period of the first OPEC strikes. But it was also the decade when dam building ending. It was also the period when membrane desalination came to an end. The US had been investing 1 billion annually–in today’s dollars — in membrane research to desalinize water for 20 years since the 1950′s. That investment came to an end and the technology went overseas in the late 1970′s. The 1970′s also saw the end of thorium reactor research. The US thorium program ran for twenty years from the 1950′s to the mid 1970′s. The program produced two test thorium reactors that ran for a decade. This technology is capable of producing electricity for 1/10 the cost of coal power and doing so with portable reactors that are cheap to produce and maintain and darn near risk free.
The great crime of the Obama administration has been to smear federal research without advancing critical research projects.
I think the root of the centralization problem comes in the abandonment of the Constitutional limitation on money. Once the central authority can “print money” instead of coining gold and silver money (the plain design of the Constitution), and force people to take it as legal tender, there can be no countervailing force until a fiat money collapse. Maybe that is why Thomas Paine wrote that any politician who even proposed to introduce tender laws should be put to death.
Why do I mention water and energy?
Because imho American success comes not just from limited government–but also from unlimited resources. Fold in either side and we come to an unknown country.
Or rather, we come to China which is all about just the reverse: unlimited government and limited resources.
Charles @88,
I’m a big believer in federal R&D…What the feds do is fund stuff that’s over the profit horizon for corporations.
For the sake of argument (because I’m not sure I disagree with you, but because I’d like to get your thoughts), why direct money from consumption or private investment into activities that are “over the profit horizon,” which is another way of saying an inferior use of capital? And if the federal government wanted to create an incentive for longer-term investments in R&D, they could accomplish the same objective more efficiently by simply extending the life of a patent from 20 years to 25 years or more.
You mention a few reasons:
Pound for pound the most productive agency in the US government is DARPA. Is that like being the best banker in Greece?
Seriously, that’s not necessarily a good reason, right?
Much of the US technology base has at one time in its early history received DARPA funding. This argument has always seemed tenuous to me. Would those technologies have developed without DARPA? Maybe not on the same time horizon, but how much did they accelerate the process? And at what cost? To make a fair assessment is difficult, to be sure, but it’s far from a slam dunk that the federal government was the sine qua non of US technology.
Right now the Energy dept –according to Bill Gates–should be spending about 15 billion on energy R&D. If that’s true, Mr. Gates could do it. Why doesn’t he? Because there are other, better uses for his capital (based on his own actions). There is also the argument that if the federal government might invest in an area, it freezes private investors, who don’t want to have to compete against the public purse and regulatory agencies. That might be why Mr. Gates is spending elsewhere. It might also be why there’s underinvestment by private entities in thorium reactors. If the economics are as you say, why isn’t there a flood of private capital, which would render moot any question of the need for federal support?
It seems to me that DARPA should invest in technologies that help advance US defense. R&D investing always involves judgment and a fair amount of luck to be successful, but the goal should be defense enhancement. If they do that, I have no problem with federal R&D (subject to general fiscal prudence) – it falls under its defense powers. But to go further, and use federal dollars, diverted from other private uses, to fund R&D that is just generally interesting, or some group believes is important, seems a bridge too far.
Besides, there is nothing to keep states from funding R&D, as Texas is doing through the Cancer Prevention Research Institute of Texas, and other states are doing in the same and similar areas.
One more thought: in biotechnology (where I have a little bit of relevant experience), the vast majority of R&D spending is to satisfy labyrinthine FDA regulations. You could dramatically increase the productivity of all R&D if you simply got rid of the efficacy requirement and focused 100% of regulations on safety. Or moved all drug regulation back to the states. You could create safer drugs at a more rapid pace for less money, IMHO.
At the end of the day, if the American people want the federal government to fund non-defense R&D, we need a Constitutional Amendment to that effect. If there’s not sufficient support to do that, the feds shouldn’t.
Cheers,
L3
Joe Hill @86,
For a variety of reasons fiat currencies are here to stay Ron Paul notwithstanding.
I am not a Ronpaulian. Still, I’d like to ask this question:
I used to take fiat as a given, probably since it’s the only system I’ve worked under. But given the massive dislocations, misinvestments, and general distortions created by the 40 years of fiat currencies, I’m not sure any more.
Every fiat currency in history has ended up collapsing or reverting to commodity money. Why should we believe “this time is different”?
Cheers,
L3
I just realized I went way over the posting limit. Apologies. I’ll sign off here for the night and thread.
Godspeed,
L3
AlMoh’s Surprise! Surprise! Surprise!
Mohammedanism: Too Big To Fail.
…-
“Upstart Egypt fundamentalist party surprises itself with strong turnout”
“patrick martin”
http://www.theglobeandmail.com/news/world/upstart-egypt-fundamentalist-party-surprises-itself-with-strong-turnout/article2259749/
http://smallwarsjournal.com/jrnl/art/toward-a-gentler-kinder-german-reich
Wretchard, I think the Return of the Reich is worth a post. Not because it’s remotely possible for Germany on its own to bail out Italy, much less Greece, Italy, Spain and Portugal all combined. The author seems to think either Teutonic stubborness or cleverness accounts for this, rather than arithmetic. But rather this Small Wars Journal author’s piece seems to be getting traction (it was picked up by Walter Russell Mead) and perhaps a few mil and State Dept. types in D.C. wising up to the fact that it’s Germany, not Russia, that is STILL the power most likely to dominate the Continent of EUrope.
Of course the SWJ author omits that the German banks, including Commerzbank according to Zerohedge this Sunday evening, are insolvent and won’t survive without more Fed/ECB bailout money printing. Nonetheless, I believe the element in D.C. around ole’ Z. Bzrezinski that has always viewed Russia as the main adversary and promoted Germany and German proxies like the Croats in the 1990s against Russian proxies like the Serbs have been too clever by half. Those dummies like Vlad Socor over at the Jamestown Foundation sounding the alarm about a Germany tilting toward Moscow have actually been PLAYED by (who else?) George Soros and his minions:
Shows you the difference between the lower level people and the big picture, people.
Makes me think Putin needs to call his childhood hero Obergruppenfuhrer Stirlitz out of retirement: http://en.wikipedia.org/wiki/Stirlitz
http://www.youtube.com/watch?v=O_ZP8impw3Q
Piano theme of Мгновения
If too big to fail is bound to fail then how about China.
With all the entries of TBTFs that weren’t, I’m surprised no one came up with possibly the most obvious — the “unsinkable” Titanic.
PASSENGER (reportedly): “God himself could not sink this ship!”
GOD: “Oh, yeah? Watch this!”
At least one contemporary author is explicitly addressing the need for a less fragile political economy:
“Book review: Mark Pennington’s Robust Political Economy” by Lynne Kiesling August 4, 2011
http://knowledgeproblem.com/2011/08/04/book-review-mark-penningtons-robust-political-economy/
Kiesling’s link to the lecture at CATO (2 thumbs up) is NG. Use this one:
http://www.cato.org/event.php?eventid=7872
“BCers might be a distant second, though I wouldn’t bet against L3 being on someone’s enemies list.”
Back in 2010, IIRC, there was an article about Obama creating an Enemies list.
I sent the White House an E-mail requesting my inclusion. I pointed out I have been on Every enemies list any President has created and would be sorely disappointed to not be on Obama’s. Never heard back from them. Nixon sent me an autographed picture but that was pre-internet and you had to be serious to write a letter ‘n buy a stamp.
While this discussion has been on target for what is needed, there has lacked a good philosophical (theological) reason given to support these actions. I think
Lord Acton’s insight gives that support: Power corrupts; absolute power corrupts absolutely. Centralization will always result in corruption because it is a centralizing of power; but corruption destroys wherever it take hold.
Power is limited by any form of competition (whence the appeal for monopoly – whatever the reason given, the desire for unlimited power). Thus in the USA context, decentralization means competition which means limited potential for corruption (because the competitors will take advantage of it).
For there to be a sea-change in the USA attitude, the mentality behind it needs to change. A potential for this change is to constantly repeat Lord Acton’s meme. As people internalize it, their attitudes and voting will change to match. Thus Lincoln lost the Senate election in Illinois, but his debates set the scene for his presidential victory.
Leo@92 – If you are still following the first reason fiat currencies are here to stay is simply because no government can long resist the temptation to fund themselves with the printing press. We are currently doing it for a third of the federal budget so why not go all the way and stop taxing actual labor and production? Do not get me wrong I know there is no such thing as a free lunch and that there will be consequences in the form of inflation but we have that anyway. Why compound t with malinvestment caused by the tax code?
Another reason why fiat currencies are not going awa is because there simply is no commodity to replace it with and only limited ways to increase commodities that might be used to account for population growth and productivity increases. You would wind up with constant deflationary spirals. The money supply really does need to grow.
Joe Hill@100: If we had a Supreme Court that could read the plain language of the Constitution, that would be the end of fiat money. And gold and silver work fine. They always have. The slight deflation, if any, if gold supplies do not keep up is far preferable to spasms of fiat money inflation in terms of fostering economic growth.
> As someone put it to me once in private correspondence, the problem is not “what should policy be?” but “who decides?” It’s a governance problem, not one of adjusting the output of failed model.
Classic Thomas Sowell.
“But he was such a Quiet young man. So polite, and took such good care of his mother. . . .”
/Serial killer epitaph
Leo Linbeck III @ 91 said:
“… if the federal government wanted to create an incentive for longer-term investments in R&D, they could accomplish the same objective more efficiently by simply extending the life of a patent from 20 years to 25 years or more.”
It’s my understanding that SpaceX is not patenting anything and simply keeps their technology to themselves. Supposedly, SpaceX’s argument against patents is the Chinese will steal any intellectual property they can and there is no viable legal enforcement mechanism against Chinese patent infringement. I’ve heard it said more than once that patents are legally obsolete.
Fiat currencies eventually die because their supporters go bankrupt. Powerful people get upset when their wealth is destroyed.
Quite a few countries are building up gold reserves in their central banks. Recently South Korea made a purchase. China has been buying through their banks and has encouraged private purchase of gold.
There are those who want fiat currencies to go on for ever, there are those who would like it to go on but realize it wont. There are those who want to see fiat currencies made illegal forever. These groups, right now have interests in keeping the price of gold down for different reasons. The pressure is building as the days or real cheap fossil fuels end.
History shows that neither fiat money or metal backed currencies are forever due to the nature of humans. However mathematics is cold and cruel and eventually bites fiat currencies because they always get overprinted.
One more data point on loss of information.
John P. Hussman writes about We represent the Lollipop Guild:
… scary … especially “the world’s policy makers are increasingly wrecking the prospects for long-term economic growth.”
Wretchard,
Both Taleb and de Soto are correct, but not just about the markets. The single biggest protected system of all is the American electoral process itself. The Democratic-Republican oligopoly, in an effort to protect their own jobs and cash flows to supporters, have destroyed the feedback loop of political information processing. Look at the crazy amount of work Leo Linbeck has to do to challenge the status quo. Look at how hard it has been for the Tea Party to influence even a few elections.
Part of the problem is in the Constitution itself. Our electoral system of “one-man-one-vote, plurality wins” guarantees a two-party system because of the spoiler effect. Range voting systems or approval voting systems would allow real challenges at the general election in each and every cycle, without the risk of “wasting your vote”. See “Gaming the Vote” by William Poundstone for more on that.
The other part of the problem is statutory, in the many laws that effectively make it damn near impossible to get challengers on the ballot or fund their campaigns. This is more easily solved.
But to expound on your thesis, the “Biggest Fail” currently unfolding is liberal government itself, or “the blue model” as Walter Russel Mead calls it. It is failing in Europe before our eyes, and it is failing in California, Illinois and Rhode Island too. But we are still “waiting for it”. Why? Why is the Federal debt 100% of GDP and we STILL don’t have a budget that cuts spending? Well, see above. The American people have known for a long while now that we are heading for a cliff, but the signal can’t seem to penetrate to Washington.
The electoral process itself is the chief barrier to information. Everything else, from ObamaCare to bailouts flows from that initial problem.
Coincidentally, this week marks the 70th anniversary of when the tide began to turn against Nazi fascism, four days before the U.S. entered the war (though the Greeks and Serbs revolting with help from the British also probably delayed Barbarossa long enough to save Moscow):
http://www.youtube.com/watch?v=ZA4Zhc0bpks&feature=related
http://en.wikipedia.org/wiki/Battle_of_Moscow
Слава Защитникам Москвы! вечная память!
http://en.wikipedia.org/wiki/Memory_Eternal_%28chant%29
toadold @ 24
Thanks for the link. Yowsa. Things are getting real interesting. I am thinking that in the US, there will be islands of sanity and islands of insanity, literally. I feel compelled to map out in my mind where those are and to avoid the latter. There are going to be ghettos that make Warsaw look like Beverly Hills. Timing is an issue but impending disorder will happen and the idea that every thing is just humming along fine, and then, it isn’t seems clear. I am thinking that government entities like the LAPD will evacuate and set up their own stronghold. It is clear that they would not stick around to be lords of the dung hill. The military might eventually morph into its own civil government like in Egypt. Foraging will lead to subsistence industry. Anyhow, good hunting.
In Arthur C. Clarke’s 2061: Odyssey Three, the African economy was saved by creating a diamond-based currency… only to be wiped out by the discovery of diamonds elsewhere in our solar system.
Whether it’s gems, gold, or energy, the supply can be inflated with a single unearthly discovery. Trust seems to be what God intended.
Not to worry though – our president is too cool to fail… ha ha ha
baobo – “Whether it’s gems, gold, or energy, the supply can be inflated with a single unearthly discovery.”
The opposite of fiat money may be appropriation. It could become illegal to own gold.
Mouse- In fact, that was part of Clarke’s novel – the Chinese spacecraft was stripped bare of its rare metals. Rather unsettling if Clarke meant to disclose something more that he knew.
Attston @ 48 – Not “cut and run”, rotate home for Christmas. What we are seeing is Pakistan (and Germany, France, Great Britain etc) being forced to grow up and out of the nest provided by the American taxpayers. If Pakistan really finally accepts responsibility to police the “Territories”, America will not need troops in Afghanistan. The decisive repudiation of Putin in yesterday’s election http://tinyurl.com/7rj8cep is another very positive step in the right direction. Putin couldn’t get even a simple majority despite using all his dirty tricks; intimnidation, limiting choices and stuffing the ballot boxes.
So lessen the logistical demands by reducing the force. Bring them home for Christmas and give Pakistan a few weeks to prove they have grown up. Maybe you’ll never have to rotate them back! That certainly would please the kids back home and make Santa Claus smile!
Where is that guy who asked me about NJ Nets tickets? I have an idea for him too. The NBA season is set to open on Christmas Day. So at game time darken the house, and then put this chant on the Jumbotron “San-ta-Claus, San-ta-Claus”. Notice the echo of the “Miracle on Ice”, U-S-A. U-S-A?
Then have the man himself appear and sing the fourth stanza of the National anthem.
Oh! thus be it ever, when freemen shall stand
Between their loved home and the war’s desolation!
Blest with victory and peace, may the heav’n rescued land
Praise the Power that hath made and preserved us a nation.
Then conquer we must, when our cause it is just,
And this be our motto: “In God is our trust.”
And the Star-Spangled Banner in triumph shall wave
O’er the land of the free and the home of the brave!
(I temporarily suspend my “lurking” status…)
“By attempting to centrally manage systems according to some predetermined scheme they actually store up volatility rather than dispersing it.” Instead of the many small “springs” at work in a free market, our leaders use one massive regulatory spring. A spring that cannot react quickly, that stores so much energy that when it is suddenly “sprung”, rebounds in a most damaging manner.
Or, to put it another way: instead of many small “tugs of war”, we have one GIANT tug of war with a single massive rope. God help those at the front when it inevitably snaps.
(Resuming “lurking” status…)
Cardozo Bozo @ 108 said:
“The electoral process itself is the chief barrier to information. Everything else, from ObamaCare to bailouts flows from that initial problem.”
Both Europe and the United States appear to be failing simultaneously. Both Europe and the United States are drowning in debt, unable to manage their entitlement programs and ineffective in dealing with emerging nuclear-armed Islamic fascism. My reading is that democracy itself is failing. These sets of problems require long term thinking, i.e. visionary leadership that accepts short term pain for long term gain. Instead, both Europe and the United States have leadership that seems incapable of telling or accepting the truth and tends towards demagoguing difficult issues (continuing to embrace socialism) by pandering to a corrupt MSM.
I’m uncomfortable with one of the conclusions of the “Black Swan of Cairo”, i.e.
“U.S. policy toward the Middle East has historically, and especially since 9/11, been
unduly focused on the repression of any and all political fluctuations in the name
of preventing “Islamic fundamentalism”— a trope that Mubarak repeated until his
last moments in power and that Libyan leader Muammar al-Qaddafi continues
to emphasize today, blaming Osama bin Laden for what has befallen him. This is wrong.”
I would argue that Islamic fascism to a Moslem is like heroin to a drug addict. Giving a drug addict a little bit of heroin only worsens his drug addiction. Carrying this analogy further, we need to offer methadone to MENA, e.g. recruit charismatic young people from MENA, train them as political leaders and then send them back as Martin Luthers with a predefined agenda to reform Islam and MENA’s backward social system. We should train and equip Moslems to reform Islam from within. I suspect this was part of G. W. Bush’s agenda in Iraq but he could not connect the dots.
Dang, someone needs to send these ‘international monitors’ to Chicago, East St. Louis and New Orleans the next election. I mean Putin’s party barely hung on to a majority in parliament and it was still rigged?
http://news.yahoo.com/clinton-cites-serious-concerns-russia-voting-145450213.html
Notes from the Titanic: Too big to sink is also too big to turn. That may not be a good thing.
Too big to stop combined with too big to turn is a recipe for running into reality.
This post could have been written specifically about public education.
Congratulations. You’ve discovered something military theorists and scholars have rediscovered repeatedly for millenia – the decision cycle, and why it favours decentralization over centralization.
This is genius. Thanks.
Excellent discussion.
I’d just like to comment on the idea of financining government entirely by printing money. A unit of money is worth the total amount of goods and services that you can buy with it divided by the number of units in circulation. A government that financed itself entirely by printing money would have a strong incentive to see more goods and services created that would increase the value of the money they print. That would serve as an incentive to reign in the excesses of some of the most enthusiastic government regulators. I don’t know if that would be enough to counter the political forces that now encourage wealth destroying regulators, but at least there would be some force within government pushing back.
While I agree with your overall premise and the thrust of the article, you are making an assertion with absolutely no proof to support it. There is no way of knowing one way or the other.
I would actually submit (again, without direct proof, but as a member of the IT community for a couple of decades) that we have been able to eliminate some Black Swans. Sometimes having enough information is sufficient. Even if it is not complete information, in the sense you are discussing.
I do, however, completely agree that the larger the “project”, the less likely we are to prevent Black Swans, and the more likely we are to actually exacerbate them. It gives a whole new meaning to the term “GIGO”.