The Quest for Security and Predictability.

In international relations there's this theory about what causes wars.

A lot of theories, actually.  But I wanted to talk about one in particular.  There's a theory that the nations at the top want to keep their status.  So they do things to try to make themselves feel more secure.  Like England before WWI, insisting that they should have the largest navy in the world.  Meanwhile, up and coming nations are asserting themselves andwanting to have a say that is commensurate with their power.  So there's a desire to disrupt the status quo, especially if that status quo fails to recognize their gains.  (Germany, deciding to build a larger navy...which England felt threatened by, so you had a bit of a naval arms race.  Obviously a lot more went into WWI than that, but once Germany became a united country and started asserting themselves as the powerhouse they were on continental Europe it caused tension with England.)

This theory fits with a psychological study...namely that we tend to exaggerate how much something hurts us and minimize how much our actions hurt others.  Someone takes out your eye, you round up a couple of buddies to go kill the other.  Escalating the response, even though it felt natural and right to you.  Hence the reason why "an eye for an eye" was a way of limiting responses and preventing an escalation into a blood feud.

I brought it up because, bloodiness aside, I think the same feelings affect the quest for economic security.  Someone who is near the top (but not totally at the top) will do what they can to try to feel more secure.  Find some measure of safety in the world.  This gets even more confusing and messy when you consider the quite natural desire to take care of your family.  To pass the benefits on to your children.  The janissaries were a big deal partly because they were forbidden to have families.  It gave the Ottoman Turks a force that was dedicated to the state and less likely to abuse their power for selfish interests.  But it's not normal or natural for people to do that, so eventually they wound up having families anyway...and the normal incentives came into effect.  Janissaries would try to let their sons join, too.  Natural...and turned it into something that was hereditary.  Corrupt.  And an obstrution to reform.

The quest for security is sometimes at odds with what we claim are economic efficiency.  Or rather, it can create situations that make it harder and harder for those not already born to privilege to gain access to it.

This isn't meant to say it's good or bad.  For example, the book on economics I've been reading talked about sticky prices...sticky wages, more specifically.  From a human perspective it makes perfect sense to want this.  I have a mortgage.  Bills.  It would be hard to pay those if I couldn't count on at least a certain minimum income, so if my wages adjusted regularly I couldn't plan for anything. 

From an employer side, 'perfect' economics aren't always so good either.  The author brought up the economic situation in Detriot before Ford decided to raise wages for his employees.  It was a 'perfect' economy in which labor could move around as needed to where the work was...except that the business paid a lot when there was high turnover.  Constant loss of resources as you had to train new people, for example.

Heck, Rockefeller became a big deal because he tried bringing some stability to the oil industry.  The constant boom and bust made life very uncertain, you never knew if you were going to make it or implode.

So some stability is necessary...and too much can make a system ossify.  Harden the control those on the top have, prevent up and comers from having a chance.  (It really is Hope for the Flowers all over again.)

This is pretty important for some of the things I want to explore.  Do all the hedges and securities people put in place to maintain their wealth and status have a side effect of locking into place the status quo?  Does doing so open us up to greater disruption on a larger scale?


The Black Swan theory, in a nutshell. All the efforts at creating security actually reduce our resilience and the robustness of the system, making people feel more safe while actually creating a system at greater risk than ever.

Again, it's not that some group is 'good' and another is 'bad'...it's that the decisions each individual makes, the ones that seem good and appear likely to promote security in the long run...all of them can actually create risks that catch us off guard, and make things instable in the long run.

Gaming the System

I am kind of headed in a specific direction, but there are a few other issues I want to explore before I get there.

First - the quest for status.  Yes, we as a society out to prize rare traits (like stratgic thinking).  But when we prize something like that, and offer benefits...there's an incentive to try and pretend you have the skills even if you really don't.  Or, in my less pessimistic moods, to believe you have the skills and that nobody else can truly do better...even if you it's not true.

Self-interest at work. 

This is what concerns me about various reports over the years, the ones that discuss cheating in college.  I never paid someone to write a paper for me.  The idea that some students do, and get away with it?  Pretty awful.  It means we're getting people who aren't really the smartest, who don't really have the skills they claim to have...but are simply better at cheating than anyone else.

And cheating is corrosive.  The more people see others get ahead by cheating, the more likely they are to do it themselves.  After all, how else can they compete?  It's like a sports competition where the winners aren't really the best at working together as a team, aren't really the fastest, and don't really provide the best defense.  They're just the ones who were better at bribing the refs, or cheating behind the refs backs.

If this goes on too long, and too successfully, the only people who 'win' are the ones who know how to game the system (like the former KGB in the Soviet Union, perhaps?)

Let's Carry This Further...

I'll bring it up to the modern world eventually.  Promise.

I talked about the development of a warrior class.  At the beginning, it was fairly easy to join.  Everyone was at risk, and if you demonstrated you were better at fighting than someone else you were in.  But then the barriers start to appear.  You have to train for a very long time to be good with a sword.  You need armor.  You need a horse strong enough to carry the weight of an armored person, and specially trained so it doesn't shy at battle. 

Now, suddenly, the only people who can join are people who have access to those things.  Unless you're born to it or very lucky, you're SOL. 

And it could be that someone who's great-great-great grandaddy was fantastic as a fighter isn't.  Or that the child of a farmer has the potential to be the best swordsman in the world.  But if you don't have the right access and the right training, it doesn't matter. (On a side note - this is why guns have been a bit of an equalizer.  When the only way to fight was to train your entire life with a sword, you're probably going to get slaughtered if you revolt.  But a gun?  A gun is something anyone can shoot.  Even women and children.  And a woman has the same range as anyone else shooting that particular gun.  There's differences in terms of how much ammo you can carry and other things, but those differences are not near as large as the differences that came from fighting with swords.)

Still, fighting skill is fairly obvious to see.  But what about those other skills I mentioned?  Field sense?  Administrative ability?  Strategic thinking?

It's kind of true and kind of not.  If someone's never been taught how to play chess, they aren't going to be a good chess player even if they're capable of strategy.  And even if they know the basic rules, unless they have enough experience they still won't be winning tournaments.  Which is why most good organizations have a pipeline to get the talent they need...train the basics, build experience, see if someone is displaying the abilities needed at the next level.  Tactical ability.  Strategic ability.

Only thing is, being good in one of those doesn't mean you're good in both.  Someone can get promoted because they're good at fighting and good at tactical thinking, but they aren't actually all that good at strategy. 

And some of our strategic think tanks show that you can be good at strategy (one would hope) without being capable of directing a platoon in a firefight. 

I'm harping on these hard to quantify skills because it's the kind of thing everyone says they need.  It appears to be rare, hard to find.  Strategic thinking doesn't just apply to the military.  One would hope that CEO's are well versed in business, and business strategy.  That we're paying them the big bucks not just to organize and manage their business, but also so they can come up with a winning strategy to grow their market share or address the business challenges of the day.

Then there's holistic thinking.  No, not alternative medicine.  It's people who think about a system as a whole, who study and understand complex interconnectivities.  The ones who can analyze and identify key points quickly.

This is not something we test for, not really.  Maybe, sort of, in that we generally feel that chess players know strategy (though just because they know chess doesn't mean they can craft strategies for the military.  Not without training and experience.  And since the rules of chess are more simplistic than maneuvering battlefield units I'm not convinced it's the best test overall.  Still, I would say a good chess player demonstrates a potential capability for it.) 

We generally recognize a successful business strategist...after their strategies pan out, of course.  Predicting it ahead of time is the tricky bit. ;)

I'm not sure we have anything to identify holistic thinking.

And I am not convinced we have a system in place to identify people with the potential to learn those skills, a system that would give them the training and experience they need in order to capitalize on it.

Complex Organizations, Game Theory, Causes and Correlations (Oh My!)

While game theory and various other studies should be taken with a grain of salt (it's hard to do these studies in the real world, at least to do so with any scientific rigor) they do bring up some interesting points.  I threw the bit up there about 'complex organizations' because those bring their own problems.  Complex organizations make it hard to pin down the cause and effect, especially since the effect can be significantly delayed. 

I can't remember if it was from the studies on complex organizations or from game theory (probably the latter, or a study that drew on game theory), but there's also issues with transmission.  People have a strategy they think works, someone tries to copy that strategy but makes errors in copying. Others copy the strategy, but they don't understand the reasons behind it and get stuck imitating the strategy even when it's no longer the best strategy for the situation.

In trying to apply this understanding to history and people...well, it's more opinion than science.  Speculation.  But let's roll with it.

My little story about the Surgeon General was to try to capture some dynamics I think we've seen throughout our own history...particular with rulers.  A community is at risk - either it needs better access to food and water, or it needs to defend its access to existing resources.  So they have someone who is good at fighting, and they say "we'll provide you all the food you need, so you can keep training and practicing and protect us from the bad guys".  Give it some time and you start to see a warrior class and a peasant class.  It's not that everyone in the warrior class is naturally a warrior, or that nobody in the peasant class couldn't be a warrior...but it's what you know, it's what your parents did, it's what you got taught growing up.  (When there's disruption, sometimes people can jump to other areas.  A peasant might successfully defend during a surprise raid, and get selected to join the warrior class.)

Some of the first rulers were the best warriors.  Strongest fighters.  But honestly?  Being good with a sword isn't the only thing needed.  The other skill...the best I can do to explain it is 'field sense', like you get with sports.  An athlete with good field sense can see where the openings are, and can throw the ball to the right person.  A good quarterback isn't just someone who can throw a ball well, it's someone who can see where to throw the ball.  So the first rulers might not have been the best with a sword, but they were the best at sensing the battlefield.  At knowing where to send the troops, how to send the troops, and where the openings were in the enemy's position.

But ruling isn't just about fighting, either.  There are some very strong fighters who were abysmal at administration.  When there's a time of civil war, where violence seems everywhere, then people will often turn to and support a 'strong man' because they hope and believe that person is strong enough to stop all the violence.  This is part of why Thomas Hobbes called for his Leviathan (a strong central government).  He was living through the English Civil War at the time.  This is also, btw, why Iraqis are kind of nostalgic for Saddam.  Yes, he was a horrible ruler...but they didn't have to worry about being murdered while buying groceries.

On a slight tangent - I think you can see 'imperfect copying of a strategy' and 'delayed cause and effect' here.  Sun Tzu has a famous (or infamous) scene where he killed a couple of concubines.  A king wanted to see Sun Tzu's theories in action and asked him to train some of the concubines.  The concubines laughed and failed to follow.  Sun Tzu beheaded the two leading concubines, and the concubines performed flawlessly after that. 

Why do I bring that up?  First 'imperfect copying of a strategy'.  Some people would look at this and say 'you have to be brutal.'  'People must fear you'.  And sure, in some cases (moral issues aside) it works.  For a time.  In that particular circumstance, Sun Tzu wanted the concubines obedient...and killing a couple definitely made them more obedient.  While pulling up info on this story, I came across an article that had a different lesson learned.  In this case, the lesson the author took is that the concubines were acting as pretty poor officers.  Beheading them, harsh though it was, took the bad officers out of the mix and made room for better ones. 

And the second point - delayed cause and effect.  Sure, the concubines performed well at that time...but what were some of the delayed effects?  Or, since this was one little anecdote, let's imagine the brutal ruler who is imperfectly copying the strategy by instituting a rein of terror.  Doesn't ruling through fear come with some pretty serious consequences?  People are afraid to speak up, afraid to initiate action unless they know they won't be killed for it.  People will take any chance to get away with things, if they know you're not watching.  Then you have to spend all sorts of time and resources making them think you're watching all the time.  And then deal with the effects of having an entire population feel justifiably paranoid.

But enough of the tangent.  Let's go back to my little story.

The root reason for the surgeon general was to provide medical care to the village.  Just as a general is supposed to win wars for a country.  And a king is supposed to govern that country.  When our Constitution was created, the creators divided the tasks of kingship into three areas - judicial, legislative, and executive.  Executive may sort of cover other things - like trade policy and foreign policy - that were also the prerogatives of kings.

But history showed a couple of problems with deciding who will rule.  The Romans were torn apart by civil war after civil war, so hereditary rule seemed much safer.  Except with hereditary rule, after a few generations you may wind up with a king who doesn't really care about doing what a king does.  He'll go live it up in a castle somewhere, go hunting and screwing mistresses, and leave all the nasty and dirty work of ruling to his ministers and counselors.  (Yep - like the Surgeon General and his Physician's Assistant).

You wind up with either a figurehead of a ruler, someone who does the ceremonial things, or you get a ruler who's ripe for being supplanted.

Except supplanting a king is not easy.  They will have loyalists, simply because they are the king and a subject feels it's their obligation to suppor the king.  Or because reasonable people are afraid of a civil war.  And there will be loyalists simply because they think they'll gain by backing the existing ruller. 

To Be Continued

A Multi-Generational Story

This one is more self-directed musings than anything else.  I'm going to make up a story...it's not meant to be real so if you want to read this please roll with it. :)  I'll explain a bit more in the follow-up post.  Again, may be a bit dry and technical so feel free to skip it as well. (please assume the genders can be male or female, I'm just sticking with male because it's easier than right s/he or mother/father all the time).

Once, there was a doctor...and he worked in a small village.  He set broken bones, helped deal with fevers and other illnesses, helped prevent wounds from getting infected, offered vaccinations to all the children on the first day of school, and overall saved many of their lives.  The villagers were grateful, so they provided food and shelter.  They started to call him the Surgeon General.

The Surgeon General had a child, who grew up in his father's footsteps.  Learned how to treat patients at a young age.  Benefited by the time he was able to spend studying, instead of working in the fields like other children in the village.  When his father passed away, he took over and became a new Surgeon General.

What started out as just a way to get things done soon became bound with tradition.  History.  Now the entire village celebrated Immunization Day, the day all children received their immunizations before starting school.  And the Surgeon General was also responsible for The Washing...a ceremony conducted before treating anyone, where any tools to be used were cleaned, any open wounds were swabbed down with alcohol, etc.

The Surgeon General remained hereditory, though some were better doctors than others.  Once, another doctor came to the village...better than the Surgeon General at that time.  This doctor tried persuading the villagers to get rid of the old Surgeon General and make him the new one.  This caused a lot of tension in the village, a few tavern brawls.  They called this time the Big Brawl.  When all was said and done, most of the villagers swore they never wanted to see such fighting again. 

I already said some Surgeon Generals were better than others.  Some didn't even like being doctors.  But they had good status within the village, didn't have to work  in the fields...and being a doctor was all they knew.  They grew up learning the trade, and didn't learn much of anything else.  Eventually, one of the Surgeon Generals disliked being a doctor so much that he hired an assistant to do the real work.  The Surgeon General would get squeamish at the sight of blood, didn't like being close to people who were sick, etc.  He still ran Immunization Day and did The Washing, but the Physician's Assistant did most of the stitching, bone setting, surgeries, etc.

And this caused some problems.  Oh, some PA's were happy to do the work.  But others realized that they were doing all the work, while the Surgeon General got all the benefits.  But what to do?  Most didn't want another Big Brawl.

At this point in my analogy, things can go any number of ways.  The PA might successfully stage a coup, and become the new Surgeon General.  The PA might continue to serve, and serve well, but the Surgeon General may eventually pass away without a clear heir...and the villagers may select the PA as the new Surgeon General.  Or the PA could fed up and just leave...and someone else, someone who knows how to doctor and is happy with the status and benefits of being the PA, will take on that role.

My Audience

Sometimes I'm writing to clarify my own thoughts, and sometimes it's easier to clarify things when I create a target audience.  A mental figment of my imagination.  So some of my posts are directed inward, and some are directed more to my mental figment of a target audience.

Is that figment based on reality?  I don't know.  I imagine it's the mindset of our movers and shakers.  The ones we'd have to persuade if we wanted change.  (yes, yes, grassroots can be pretty effective as well.  My 'mental figment' could be a stand in for the general public, and sometimes it is. For some topics, however, the general public is not who needs to be persuaded.)

So anyways.  I know this figment is a stand in for a group of people like anyone else.  They have different opinions.  They are good people and bad, and most are probably a mix of both.  And in my head - they're not bad people, not really.  Just...

Human.  And study after study shows humans are likely to justify things in their self-interest.  Claim they are in everybody's interest.  Not out of any ill will, they've probably convinced themselves more than anyone else.  (Biases are inevitable. Some people use that argument to justify acting on their biases, since it's impossible not to.  I think that's yet another self-serving argument for doing what you want.  I make this point so we can do a better job of identifying those biases and trying to make good decisions despite them.)

On top of which, humans have a natural desire to believe we deserve the good things that happen to us.  So if we're a success, it's obviously because we deserve it.  We worked harder.  We're smarter.  We did the right things.  Anyone could do it, and anyone who thinks differently is just a bunch of sour grapes.  Unwilling to admit that they did it to themselves, and chose poorly in life.

So I try to capture the events in my own life.  The ones that have broadened my perspective, made it easier to see our interconnectivity.  I could be affected by my own background - some studies show that the type of crop a farming community grows can make them more or less cooperative.  If you need to help each other out to get the harvest in, your more cooperative...and my grandparents were farmers. 

Actually, at the local level I think many Americans are more cooperative.  Tocqueville's work demonstrated that, though modern society is a bit different.  There's concern we've lost some of that social capital, but there are still a number of organizations you can join. If you want.  It's just that local communities are more representative of us (with some heavy caveats).

There's a distrust of larger governments - federal in particular - that goes back to a feeling that we don't really own it.  Sometimes this is more obvious than others...it's the feeling of some alien outside force coming in and making us do things we don't want to.  (That's the heart of complaints about 'big government'.)

Anyways.  This figment of my imagination is succeeding, but probably doesn't feel like they're that well off.  These are the ones who write long op-eds or blogs about all the nasty comments people make about the 1%.  After all, they're struggling to pay for their nanny, and housekeeper, and student loans, and school, etc. (I say this with an exasperated laugh, btw.  I know it feels that way.  Whether you're trying hard to 'keep up with the Joneses' or live in a big expensive city where you're spending all your money just on house/car/school like so many others.)

Which is another key point for this mental figment.  Since they probably live in a community of people who make the same amount of money, work with people with similar lifestyles, are friends with people who have similar lifestyles...they have absolutely no perspective on what it's like for the vast majority.  They think their experience is the norm.

I'll illustrate with another Brigade position.  Someone suggested we should eliminate taxes on anyone making less than $100,000 a year.  Sounds like a nice progressive, liberal position to take right?  Help out the less fortunate, make it up by squeezing those who can afford it, etc.  Consider, though, that the median household income is about $52,000 a year.  Eliminating taxes like this would eliminate taxes on everyone except about 6 or 7% of our population.

Key points here - First, this is household income.  That means either single individuals or the combined income of two parents.  That also means each individual in a dual-income family is probably making less than $50K...probably more like 20K and 30K each. 

Second, this is the median.  It's important to note the difference between median and average, and I picked median for a reason.  The median means that half of our entire population makes less than $52,000 a year.  And half make more.  Yes, cost of living matters.  $52,000 gets you a lot more when you live in a small town, and a lot less if you live in New York or Chicago.  Yet the median income in New York isn't much different than the national income,  which means if you think you're struggling in New York with a six figure salary...half the population is trying to do the same on $50,000 or less!

The '1%' you've heard so much about starts with an annual income of around $345,000. And anyone who makes six figures or more is about 6 or 7% of our population.

So yes, dear figment of my imagination, you have it good.  Damn good.  If need be, you have the resources and could find a way to live with a lot less than you have.  Most people do.

This isn't to say  you have to live with less.  It's just pointing out that the vast majority of Americans are perfectly capable of doing so.

Immediately I feel a wall go up.  That's why I made the point above.  You start talking about how good the 7% have it, and they start thinking you intend to take it all away.  They earned this money, they can't sustain their lifestyle without it, and they don't feel like any sort of redistribution of income would be fair.  I could get into a whole slew of economic arguments here. (Penalizing the ones who are working hard, enabling those who don't, unsustainable spending...you've pretty much heard them all and are already familiar with them.)

At this point, I kind of feel like nothing I can say would break down that wall.  These beliefs are built on a strong foundation, there's arguments and counterarguments and the figment of my imagination is not willing to be easily persuaded.

Which is a shame, since the figment I just described is yet another step in the rise and fall of nations.  We've seen this before, though the story plays out over hundreds of years.  An elite solidifies it's hold on the levers of power.  It has all sorts of arguments for why it should be where it is, and is resistant to alternative voices.  So resistant, in fact, that other parts of society are stifled and resentful.  Without hope.  Ripe for revolution. 

Although economic arguments may not see the need to share the wealth, as a society we need people to have a stake in the system.  Sure, 9 out of 10 will put their heads down and try to get by.  But that 10th?  If they feel they can't succeed under the established rules, they start looking outside the rules.  (An example I like to give is tied to water and land use in Afghanistan.  There were Afghans who built farms around our base in Helmand.  The Afghan government calls them 'squatters' and claims that they have no rights to the land.  Given the history of the region I'm not sure I believe the Afghan government - it's not like they've been able to produce titles going back hundreds of years - but in some ways it's more about control of resources.  This tribe wants control of the irrigatable land, after all they want to eat.  Make a living.  And the more they have the better, right?  Except what do you think the people who 'lose' are going to do?  At the point I was aware of, this is mostly theoretical since the Afghan government had not yet pushed the squatters out.  But if they did, what would the ones who now have no lands, no way to make a living, and no way to grow food do?  Just roll over and die?  Or maybe join the Taliban?)

Same point we tried making to the Shi'a in Iraq.  Iraq didn't have much of a private sector.  Most of the jobs came from the government.  And the ban on Ba'athists and those who were employed by the Saddam basically meant the Sunni no longer had any way to make a living.  Almost everyone could see what would happen.  If the Shiites didn't find a way of giving the Sunnis a place within the system, the Sunnis wouldn't support the system in the first place.  (This is easy to see as an outsider, hard to see when you're within the system...and even harder to do.  After all, with all the bad blood and history of repression why on earth would the Shiites play nice with the Sunni?) 


To try to bring that outsider perspective to our messy internal one - our system works in part because of the American Dream.  The belief that if you work hard you can pull yourself up by your own bootstraps.  Why should you resent the people who've made it if you're capable of getting there as well?

The complaints about the 1%, the tensions today, the worries about growing inequality...all are tied with the sense that the American Dream is dead.  That the door has closed.  That you can not succeed by these rules any more.

I am not saying it's right or wrong, but the mental figment of my imagination doesn't understand that you can work your butt off and still drown.  I've had employees who were working two full time jobs, plus the obligatory overtime.  I do Big Brothers Big Sisters, and my Little's mother is a CNA who also works her butt off...and can't afford a mortgage. 

Many are working hard.  Very hard.  But it's getting harder and harder to get by, and while you are working your butt off the little things that helped you stay afloat are going away.  Schools may not be able to provide free lunches to the less well off. (And do you think that kid is going to be able to achieve the American Dream if s/he is too hungry to pay attention in class?)  WIC gets cut.  And any disaster can wipe you out completely.

Meanwhile, the people who benefited from all your hard work are living it up.  Why work 50+ hours a week, struggling from paycheck to paycheck, just so some CEO can by himself a yacht?  Or a shareholder, for that matter.

The pressure for change, the things that cause mutterings of 'redistribution of wealth' and 'unfair'...it's not just because of ignorance and envy.  It's also because people are questioning the system as a whole.  Questioning why should they support it, be a part of it, keep on working when so much of the benefit is going to so few.

Taxes and government regulations are a crude way to address this.

Crazy Idea of the Week

(Edited to add: This probably would work only if we were dealing with a large likelihood of default.  Otherwise, why would any business take less than they could get from letting a loan continue until paid in full?  Does make me wonder what happens when loans get sold from one bank to another...)


Sorry, thought I was done with it...but the ol' brain went on ticking.

Seems crazy that any business would forgive a debt.  And how would they make a profit?

Except. 

Except as studies of lottery winners show, it's not just about having money and being debt free.  It's about changing your lifestyle.  Let's say you had credit card debt and that debt was forgiven.  How many people are actually going to avoid wracking up more debt on a credit card?  (Probably  not as many as we should hope).  And mortgages?  Someone would probably use the opportunity to trade up to a nicer house, and get a new mortgage.  Oh...and then their old house would be on the market for someone else to trade up to.  So in less than a year, creditors would probably still have plenty of loans and whatnot to profit off of. 

Plus, I was thinking "who in their right mind would give up all the money owed?"  Except that most people don't pay that all at once.  They pay portions of it on a monthly basis...so a creditor wouldn't be losing billions of dollars all at once, they'd lose the monthly principal+interest they were expecting...income that would probably be made up quite quickly.

I'm not so sure about what debt forgiveness would do for some of the more complicated financial transactions (i.e. mortgage backed securities).

Still, I find myself wondering what would happen if we agreed to use our tax money to pay creditors a portion of some debts with the understanding that the entire debt would be forgiven.  The portion of the debt would essentially cover what would have been lost in the time it would take to have new loans made and new interest to count on.

Sort of a 'the bird in the hand is worth two in the bush' kind of a deal.  Take a certain amount of money now, don't worry about trying to recover the entire debt over thirty or more years, and then be back in business with new loans.

Passing Knowledge, Bible, Economics, etc

I remember hearing a fascinating bit on agriculture.  In Leviticus 19, the Bible says  - 23 " 'When you enter the land and plant any kind of fruit tree, regard its fruit as forbidden. For three years you are to consider it forbidden; it must not be eaten.

24 In the fourth year all its fruit will be holy, an offering of praise to the LORD.

25 But in the fifth year you may eat its fruit. In this way your harvest will be increased. 

The fascinating bit of agriculture is that apparently in the first few years you want the roots to establish themselves and the tree to grow, so you're not supposed to let it fruit.  Fruiting and flowering takes energy from growth, and if you prevent that then the tree will establish itself more strongly.

I may be reading into this too much.  The Bible just says that the fruit is forbidden, it doesn't say you should prevent it from growing in the frist place.  Yet I can't help thinking that they stumbled on a bit of agricultural knowledge (noticed that fruit trees were stronger if you didn't let them grow fruit in the first couple of years) and passed it on by making it a biblical commandment.  I've heard similar arguments about pork.  Someone noticed that people eating pork got sick more often (it can carry some pathogens), and passed the knowledge on in a form of biblical prohibition.  When you don't have science, don't understand cells and viruses and diseased, yet you notice something important that's one way of making sure the observation sticks.

I'll come back to that in a bit.  I've been thinking more about economics.  This is, of course, a complicated area.  It's fairly new, and hard to understand in it's entirety.  Reminds me a bit of something my father said about meteorology (he has a Master's in it).  He said that if you want to predict the weather you have all these tools to assess it.  Barometric pressure, humidity, radar...you can sit at a computer and have it spit out an analysis.  And then you still ought to go step outside, look at the clouds, and try to see if what's out there is matching what the computer is predicting.  

Economics strikes me as somewhat similar, and in many ways even more difficult.  We're still caught flat-footed by unexpected events.  Like meteorologists who every ten years somehow fail to notice a hurricane is brewing.  Worse, economics is strongly affected by human activity.  And human psychology.  The things we choose to do will change what the analysis should be.  Plus people can get into panics, or manias, and affect economics in ways that are hard to predict in advance.

I'll probably go into that in more detail later.  Right now I wanted to go into something I'm seeing a lot on Brigade.  Namely - debt.  Student debt, which I've been hearing for years is in some sort of bubble similar to the mortgage crisis.  For the most part, this doesn't affect me.  Thanks to the military I've been able to pay off every single penny on my student loans.  (This, btw, is a huge advantage for me.  Given the debt so many others my age are tied down with, I feel very grateful for that my monthly budget doesn't have to take into account paying back a student loan on top of everything else.)

I've seen a number of posts comment that debt - student loan debt in particular - is choking growth.  The millenials who would be taking out a mortgage are instead paying back student loans, which makes it hard to do all the other things we used to expect came with adulthood. 

Which brings me back to my first point.  The Bible also has that fascinating bit about the jubilee year, and I have to wonder if there was an observable advantage to it...one that they couldn't quantify and didn't understand in the same way they didn't know why giving up fruit for the first few years would help a tree produce more later.

I have a hard time seeing how that would work in our modern world.  So much of our society is built on property rights, legally binding contracts, etc.  For good reason.  The idea that any modern business would forgive debts and expect to be profitable seems...ludicrous.  Even back in biblical times they didn't do this often - maybe every fifty years.  Yet I can see how this would help, economically.  The people freed from debt would have more resources, would be able to buy more things, and would probably stimulate the economy. 

I have to wonder if there's any sort of practical, modern alternative.  I know there's a charity group doing that whole Rolling Jubilee thing, but I suspect it doesn't have enough support and resources to make that much of a difference.  The website says they've abolished almost $32 million of debt.  Out of how much? 

Public Goods and Economics

I wanted to jot down a couple of thoughts. 

I was thinking about my earlier example (i.e. toll roads instead of public roads) and realized that the problem is even worse than I originally described.  After all, some places are just too far away to justify the expense of a road.  In normal conditions.

Yet we all benefit by having those roads.  Consider El Paso, Texas.  El Paso is hundreds of miles away from any other city, and the roads to and from El Paso pass through mile after mile of desert.  If the government didn't keep the roads  up to date, how much would it cost for a private company to maintain that much roadwork?  Just to get to one city - albeit a fairly large one, with direct access across the border to Ciudad Juarez.

Good roads make it easier for businesses to make money, because they don't have to worry as much about whether or not they could get their product to that location.  Would Wal-mart be able to service El Paso, if the roads weren't maintained?  Probably not.  How much lost revenue would they see, if they lost their business from all the places that were too out of the way to justify building a road?  (If we didn't take on that expense as a public good, that is.)  Africa has seen an extreme version of this, where farmer's produce rots in fields because there are no roads to take it to market.

These, as I tend to repeat myself on, are examples of public goods.  We all benefit, albeit indirectly sometimes, by having reliable and efficient means of transportation.  And you don't get to pick and choose who benefits by them. 

So when we elect officials and say "we want infrastructure", we should acknowledge that we are also saying "we give you the authority to raise funds from us in order to build better roads".  They can't pick and choose who they charge for it.  You can't have someone say "well, I never use the roads so I shouldn't have to pay for them".  Maybe you don't personally use the roads...but do you buy groceries?  I bet the groceries traveled on a road.  Do you order things online?  I bet they get delivered on a road.  At least, until drones are more commonplace. 

Everything that you own or use that did not get made by you, or by someone close by that you know doesn't use roads...all required a good method of movement to get to you.

There's a similar challenge with national defense.  I remember a few years back someone said Berkeley wanted to waive off the protection the US gave them...said they didn't need it.  For obvious reasons, you can't really do that.  (If you don't find them obvious, let me know and I'll go into more detail.)

So anyways.  I think there are other public goods that we all benefit, and that help build a strong economy.  Take education.  In Afghanistan the literacy rate is horrible...which is a disadvantage when you need workers who can read, or type.  Most of our white collar, cubicle desk jobs?  Good luck finding that.

When I talked about comparative advantage before, I think we should distinguish between the geographical ones - i.e. what's located near a particular resource - vs. what's more flexible.  So many places are trying to figure out how to be the next Silicon Valley, for example, because there isn't a particular reason why the high-tech industry has to be there.  That is, the reasons are more socio-cultural than having to do with good soil for growing wine, or good mineral deposits, or other reasons that are rather fixed. (Though once it's established, it can draw better quality people and maintain that distinction).

The US, btw, has a great advantage simply because so many people want to work here.  And think about what it says, that certain countries have to restrict their own citizens from leaving.  (That gives us a distinct comparative advantage.)

So anyways, to compete with human capital you need a good education system.  It's a public good that has benefits in ways that are hard to capture.

But these are not exactly a challenging claim to make.  Most Americans support education, just as most support better roads.  (There is some debate over whether it has to be 'public', and whether privatization can get the job done.  In certain cases I think privatization could be the way to go.  But I think I've made myself clear that infrastructure is not one of those).

What is challenging is to argue that those exact same arguments can be applied to some other areas.  Consider internet access.  Some of my relatives had dial-up internet for years because it wasn't worth it for cable to run internet out to such a rural area.  How many other places are unable to shop online, unable to participate in the digital economy...simply because it's not really profitable to build a connection?

Or think of it another way - in a digital world, how many businesses could move to a place with a lower cost of living if they could only guarantee they'd have a good internet connection? 

Or consider public health.  We just went through a big whole debate about this, and in some ways I'm disappointed with how the debate has gone.  I know, again, that it's hard to quantify the benefits of having a healthy population.  But they are there.  Not just in terms of less sick days, better preventive medicine.  And not just as a way to draw more human capital (who wants to live in a society where people are abandoned to die for lack of funds?  Since we have laws saying hospitals have to treat people even if they can't pay, I think it's safe to say we really don't.  So how can we pretend that we're not already paying for the uninsured?  Hospitals make a profit basically by charging insurance companies more for their services, to make up for the ones who can't pay at all.  Which then translates into higher insurance rates for the rest of us.)

The thing is, these don't come free.  Some of them will make themselves up in other ways (Tim Harford had a nice bit that discussed the spending multiplier here).  Yet at the end of the day we will need some way of funding these.  Maybe we'll run the numbers through, figure out how much it would cost, where the money would come from, and get a big ol' dose of sticker shock and decide it's not for us.  Or decide that it's worth it, who knows?  It's not the sort of thing any of can truly predict unless or until we tried it, and even then it'd be pretty hard to quantify.

Some days I kind of wish it were that simple.

Thinking Outside the Box

I like to think of myself as an original thinker.  Creative.  Outside the box.  As I dig a bit into economics, I found myself thinking a bit more about that as well.  See, economics is a complicated field.  There's a lot of research going on, and math.  PhD's trying to study issues.  So why add my own thoughts to the mix?

I will say, first off, that creativity sometimes comes from unusual areas.  And, perhaps, the interactions between people as well.  Ideas sparking ideas.  In college my ROTC class suggested we read Gates of Fire, a book about the 300 Spartans at Thermopylae.  One of the things that struck me was a decision they made about which Spartans would go.

Yes, they picked experienced men.  They also picked some newbies.  At first that seemed odd - wouldn't you want the best of the best?  But if you think about human dynamics, it makes sense.  If you're confident everyone around you knows what to do, you can get complacent.  Keeping an eye out for someone inexperienced can also help keep you more alert and aware.  Plus, as they say, you really learn something when you have to teach it to someone else.  The very act of going over the basics, explaining to someone what you've learned over the years...distilling the lessons of your hard won experience into something they can use...all of that helps you as well.

And there's a third element to it.  New people means new ideas.  Different perspectives.  New people don't accept something 'because that's the way it is'.  They may ask 'why' on things everyone else has been taking for granted.

I talk a lot about groupthink, and about why you need diversity of backgrounds as much as anything else.  A meeting of economists who all have a PhD is a meeting of people who were all trained to think the same way, and probably won't even think about asking certain questions.  How often in the last century have our 'best and brightest' wound up making bad decisions?  Maybe we need to mix up our 'best and brightest' with a few people who have different experiences to draw on. This holds true for more than just economics.  When I was in training for the human terrain system, most of our trainees were also militry.  Some were not.  It made me realize how much my military experience shaped my perspective, in the exact same way as so many of my fellow veterans.  There are things we would all see through the lens of our experience.  The same way, regardless of who was white or black, male or female.  And we didn't even think about them, didn't have to think about them, until we had to explain some of those underlying assumptions to the pure civilians that were with us.

Thinking outside the box isn't magic.  Or, well, it sort of is...but you can create the circumstances that make it more likely.  And you can create circumstances that make it LESS likely.

I think part of what is required is sharing ideas, perspectives.  (That's the benefit of a liberal arts education.  You've got a broader spectrum of ideas to draw on.  That's also the real concern about intellectual property rights.  Yes...people should benefit from their ideas.  But if we limit it too much we risk short-circuiting the flow of creativity.)

I also think you need a blend of experiences and backgrounds.  Knowledgable people, yes.  Experts in their fields.  But you also need people who aren't expert at all.

I thought about qualifying that a bit.  I do think critical thinking is important, particularly for those non-experts.  But truthfully you can get the question that sparks an idea from anyone.  Any time.

Footnote: In figuring out what to read on economics, I used my own critical thinking to rule out certain types of books.  The funny thing about the one I'm currently reading - silly as I think the title is, and hokey as the writing style gets - is that the author captured almost perfectly what I was looking for.  The book is called The Undercover Economist Strikes Back.  The author says the book "is not a strident call for action, nor a searing list of people to blame for the crisis. (You can find plent of those elsewhere.) Nor is it the kind of popular economics book that offers practical ideas you can apply in your personal or business life. (You can find plenty of those elsewhere, too - including my previous books.) If it's insights into the workings of life at human scale that you're after, then quantitative easing will prove to be of about as much use to you as quantum physics.
...What I have to offer in the coming pages instead is a determined and practical minded poke-around under the hood of our economic system."

Here's my personal rule of thumb - proposed solutions are good tools to keep in your kitbag.  They were developed for a reason, and in the right circumstances they will work.  The trick is identifying those 'right circumstances', and determining whether the current situation fits that criteria.  In certain circumstances, deregulation works.  Lowering taxes works.  In other circumstances?  Not so much.

I want to know more about what tools are available, and how to know when to apply them.  

Globalization, Greek Crisis, Finance, Currency, Etc.

I've been following the Greek crisis, thinking about the global economy, and got a lot of thoughts percolating through my head.  Only problem is, I think I need a better understanding of the global economy, finance etc. 

I wanted to lay out some of the influences on my thinking before going deeper into this.  Some of it is coming from that new app - Brigade.  It's nice to read some of the comments, and can be thought provoking.

Some of it comes from this article, which said a couple of things I want to know more about.  It discussed the importance of letting a currency float, which was somewhat interesting...and reminded me that I'd like to know more about currency exchanges and global finance.  It seems odd that a business can be doing the exact same thing it was the month prior, making a product that is just as good as it was the month before...but because it's debt is in one form of currency and it's business is in another it may suddenly be in danger simply because the rate of exchange changes. (Suddenly, it's debt is considered greater than before because the currency it operates in is devalued, so the debt is now worth more of the equivalent local currency.  Nothing changed in the way it did business, but now it's in trouble.)

I also found the whole section on "The eurozone doesn't treat Greece the way America treats Kentucky" worth learning more about.  Except I'm not really sure where to go for that.  I'd like to read more about our national economy.  About this claim that Massachussetts transfers money to Kentucky, but because it's all part of our one nation/state we aren't upset about it the way the eurozone is with Greece.

I wish there was something on public finance...I pick up drips and dribbles here and there, might be nice if I knew a PhD in economics. :)

So I've got some thoughts going on, but I know I don't actually know enough to make them solid.  Picked up a few books I'll try to read at some point, not sure when I'll get these down in a blog post.

Globalization - Difficulties

There are a lot of challenges involved with reaching a globalized endstate, and the biggest of them is fear.   Given our history, some of it is quite valid.  Some, less so.


Fear that some outside force would dictate terms.  Fear of job loss.  Fear of change.  Fear that we would lose our identity. 


Fear that the UN could come in and force us to change our gun laws.  Fear that the United States would overwhelm a smaller nation.  Fear that the United States would lose it's identity in a flood of immigrants.  Fear that Europe would lose it's identity in a flood of immigration.  Fear of financial disaster.  Of being stuck paying for some 'other' like Greece and the EU right now.  Fear of having our lives affected by strangers we don't know, understand, or care to give such power to.


Funny, though - I sometimes wonder how those proud Virginians, New Yorkers, etc would feel if they saw where we were today.  Our states are about the size of many nations, and those early colonies felt more loyal to their own state than to some new and fuzzy notion of our nation.  Just think of the word change between 'these united states' and 'The United States'.


I think most of those fears are tied up to world history.  That is - in the past, nations were bound together either through conquest or marriage.  Sometimes both.  Since we don't really do dynastic marriages any more, that pretty much leaves conquest.  And nobody wants to be the conquered.


This is, again, part of why I find the Articles of Confederation, the US Constitution, and the European Union so fascinating.  The United Nations to a certain degree, too.  (Though since I'd put it on par with the Articles of Confederation in the inability to enforce decisions, it's not as interesting as the EU at this moment).


I think the only type of system that would gain support would be a system that created another layer of government, so nations would operate sort of like states do in the US today.  (Sure, for simplicity's sake I wonder what it would be like if anyone invoked our laws to apply for statehood.  Given the fears of US dominance as it is, I doubt anyone not already in our sphere would try it.  Though the fuss it would create, the upset it would do to various interest groups, that'd be fun to watch!)


There would be all sorts of questions raised.  One currency?  Taxation?  Executive powers?  National sovereignty? 


Most of those are questions that could be answered, addressed.  Compromised on.  The one thing that can't, the true obstacle, is the first one -


Fear.

Break

I've been thinking about my follow up posts.  Unfortunately, the problem with doing this as a hobby is that I have to fit it in, in my spare time.  (Like lunchtime, right now). 


It doesn't help that I get so focused on writing a post that I lose track of time.  I get like that when I read a really good book, too.  Which is part of why I can't do that during the work week...otherwise I'd stay up until 3 or 4 am to finish it.


Well, let's see what I can do in 20-30 minutes.

Globalization - Opportunities.

I was trying to decide if I should start with the potential positives, or address the pretty hefty fears of globalization. I think the subject of this post makes it clear which one I decided to start with.

I've done a short little search online, trying to track down a reference that is unfortunately lost.  It was to the National Screw Thread Commission.  A commission created in the United States to help standardize screws.  The reference I recall mentioned it as one of the most successful commissions in our history.  It seems a little silly, to talk about the importance of a standardizing a screw.  Yet all it takes is a few moments of thought to realize just how critical it could be.  How much do we take for granted, that if we lose a screw - or ruin one by stripping it - that you can just go to a hardware store and find one that's the right size?  That the threading is the same, and will do exactly what you need?

Something similar happened with train tracks.  Imagine what a disruptive mess it would be if every train track was a different width.  Each train would have to figure out which tracks could support it's design, or you would have to create a one-size-fits-most design that could adjust to the different sized tracks.  Aren't we all better off by having a standardized system for building train tracks?

This does come at a loss, of course.  Nobody could build a monopoly by insisting on their own unique system (the way cell phone companies create phones with their own unique chargers).  There is less room for individuality, less of a chance to distinguish yourself with a unique screw design.

This is the strength and weakness of centralization, standardization, control.  In some situations (like screws and train track widths) it's fairly obvious which one has been better.  In others?  Not so much.

So to get back to globalization - right now each nation has their own way of doing things.  Almost as though they all have a unique train track width, and multi-national companies have to adjust their trains to each different system.  How much do we waste on this?  I see this where I work.  Somewhat.  Now that I'm at our returns center, I occasionally deal with returns from India and China...and sometimes find myself wishing I had a Chinese or Indian customs expert on speed dial.  And labels!  How do we put labels on our parts in all the local languages?  Covering the legal requirements of every nation?  We could wind up with labels larger than the parts themselves!

In addition to consistency, there's an opportunity to simplify, simplify, simplify.  I again did a quick search on a vague reference, and didn't quite find what I was looking for.  I remember hearing about the Code of Hammurabi, which apparently helped consolidate and simplify the laws of that region.  So much of our current system has grown haphazardly, over time, as the world has continued to change.  Sometimes the thought of cleaning it all up, codifying it, and simplifying it appeals.  (Almost too much...I try to remember the downsides, try to appreciate the little quirks, foibles and complexities that have developed over time.)

There are also some opportunities that have more to do with what I've been calling the endstate of globalization.  While going over this in my head, I realized that most of the perceived downsides have more to do with the start/stop process of globalization, than any real problem with the end result.  Fears of job loss, for instance...are more because of the tremendous imbalance in cost of living, currency, etc. between one region and another.  As I started to say in my response, once we're fully globalized a company is about as likely to move their business from the US to Vietnam as they would to move their headquarters from New York to North Judson, Indiana.  Not saying it couldn't be done, but it would depend on the market, the business, property taxes, etc.  The lower cost of living just isn't enough to justify moving when it takes you away from a key location.

Plus, a globalized endstate has the potential to determine what a truly appropriate cost of labor would be.  In a way, the disparities between industrialized world and developing world are suppressing wages in the industrialized one.  Hard to unionize when the company decides to close your factory and move to Mexico, hard to argue for a pay raise when workers in another country could live comfortably off a third of your income.

This isn't meant  as a 'rah, rah international labor movement'.  I believe the current situation skews what a rational business analysis of wages would be.  The companies that want to pay their workers more have to compete with companies that may not care, which means there's pressure on all of them to do more, cheaper.  Just to stay in business.  If the world economy were more balanced, that pressure would be gone and you could see the companies that invest in their people performing better.

Right now, we see a haphazard and inconsistent movement towards evening out the standard of living.  A company moves part of their business to China, for example.  Labor starts off cheap, but then costs go up.  The business then has to decide whether they're going to keep the investment of resources in China, or look to move to Vietnam. (Or some other country.  Countries are interchangable here, I'm not trying to pick on any particular ones.)  If you do that often enough, businesses on their own will even things out.  But not in any well thought out, planned process.  And it would all be affected by current events, political leadership, etc.

Some of that, btw, is not necessarily about cheaper labor.  I think most businesses want to get their toe in the door of the Chinese market.  In a fully globalized world, they probably would want some of their business over there.  Just as Toyota has factories over here in the US.  But those decisions have more to do with where your market is, etc.

Globalization, Endstate, Ways and Means

I posted a position on Brigade, and then felt like I didn't have a clear enough idea of what I wanted to back it up.  Or that it was too complicated, and not something easily explained.  (Even though there's no limit on text in the explanation for your position.  It's still not right to write pages of material explaining.  And it seems too much like a monologue).

The position was this:

Globalization causes upheaval, but we can have policies to ease the transition and the endstate could be good

Someone asked what those policies should be.  I was thinking about what we'd discussed in my class on globalization (back when getting my MPA).  It's a complicated topic, and a complicated process.  It doesn't seem to be happening steadily, either.  We grow more interconnected, trade grows more entwined, and then we get a recession or financial catastrophe.  Off-shoring becomes re-shoring, or on-shoring, or whatever the term used was.

I was fascinated by the notion of a Ricardian system.  One where the comparative advantage dictated where businesses were built.  Build a factory near the best location to ship raw materials, or best location to ship to your market, or both.  Build distribution centers near the roads and airports that will take your product to your customers...where depends on how many you want to build.  (Only one in the continental US?  You probably want to build somewhere close to where ours is. :)  Two?  Three?  You'd split up the locations to better cover a specific region.)

Getting there from here is daunting, though.  Would it mean giving up national sovereignty?  I think that's the big question, and fear.  Does it mean giving up our identity?

What about currency?  Would we be faced with a crisis, like the Greeks with the euro?

And borders.  We've already got a ton of Americans offended at our current immigration policies.  You'd have to be crazy to consider opening the border.  (Though, funny enough, that's the natural counterpoint to go with free trade agreements.  Funny how willing they are to discuss one and not the other.)

If I were thinking long term, strategically...I'd work at breaking down those barriers between the US and Mexico.  There's a certain amount of distrust and dislike, on both sides.  Yet I think integrating all of North America would be a pretty powerful and amazing thing.

Which also heads straight into everyone's fears.  How would you do it?  Nobody wants an invasion, which generally means treaties and diplomatic arrangements.  Yet those can be slow, tedious, and sometimes more about appearances than reality.  (Is the EU really powerful enough?  NATO seems to be run by committee, which raises the question of how well they'd fight.)

Some of those issues remind me of our early American history.  It's hard to remember, before the Civil War, how much individual states really mattered.  How much saying you were from Virginia made a difference.  Now, sure it says something.  Kind of.  But not to the extent it did when we started.  And so much of our Constitution (and the Articles of Confederation) were tied up with allaying fears that individual states would lose out to a powerful central government.

Wait - where are we today?

Brigade (Political Social App), Update

Yet again, it's been a while since I posted here.  I started thinking about it...

Well, a couple of weeks ago I thought it would be interesting to try posting parables, but never got around to it.

More recently, I joined Brigade and had some thoughts I wanted to explore.  Brigade is a pretty new social media app, where you can post a position, choose to agree or disagree, and explain why.  It's in it's infancy, and definitely has some kinks to work out, but so far I'm enjoying it.

It means meeting people who are as interested in politics as I am, some of whom I can learn from and some of whom I can maybe contribute a bit of my experience to.

But...it's not so good at promoting discussions, you're kind of limited to agree/disagree and don't necessarily see the following remarks.  Not the best for an in-depth back and forth.

I read that the creators wanted to keep it simple, and I can see why.  I'm not sure they really should incorporate a forum or discussion board into the application.  But it would be a nice companion, a way of hashing out the nuances before selecting 'agree' or 'disagree'.