Sunday, January 22, 2012
Suppressing volatility makes the world more dangerous
Taleb, a former Wall Street trader, achieved fame with his book, The Black Swan: The Impact of the Highly Improbable. In it he was concerned with so-called "Black Swan events," rare, unforeseen, high-impact events that shape human history. His focus has been on markets though he has always tried to make the case that Black Swan events occur in nearly all fields of human endeavor. Now Taleb and his fellow author, Blyth, are extending this analysis to the so-called Arab Spring.
They point out that government policy is often explicitly designed to smooth out fluctuations. We prefer central bank intervention, fiscal stimulus and bailouts to sharp recessions. And likewise, in foreign policy America and Europe have preferred the seeming stability of dictators in the Arab world to the vagaries of democratic governance. But both the world economy and Arab society have now been shaken by events that were not supposed to happen, an economic crash and grassroots uprisings which deposed regime after regime.
Taleb has said again and again that suppressing volatility in markets and in society in general may work for a time. But instead of moderating volatility, it creates rigid systems that prove catastrophically unstable like dams which seem sound until they break.
We humans wrongly believe that by preventing frequent small setbacks, we will avoid any major setbacks. But, just the opposite has turned out to be true. By trying to avoid minor, but frequent recessions and by trying to avoid political unrest and gradual reform in the Arab world, we have unleashed major events that may yet prove far more damaging to our tranquility than if we had allowed more frequent, but smaller upsets.
I have summarized the reasoning in the previously cited Foreign Affairs article because I want to apply it much more broadly. Let's take agriculture. It has enabled humans to store food in large quantities and thus manage difficult times due to such events as a poor harvest or a war. But by smoothing out volatility in the food supply in this way, we have invited famines that result from heavy reliance on a few or even just one crop. That is, we've avoided small frequent failures by designing a system that will break down catastrophically once in a great while.
Modern farming has doubled down on this strategy by increasing yields tremendously at the cost of degrading soil, increasing monoculture farming based on fewer and fewer crops (meaning less genetic diversity to avoid disease), and heavy reliance on a far-flung complex supply chain for the necessary inputs of fertilizer and herbicides.
All the while, the very fossil-based fuels that make modern farming possible--to run the machinery, fertilize the crops, kill the pests and weeds and transport the harvest--these fuels are changing the climate in ways that already threaten harvests and will threaten them even more as our climate careens further and further into volatility--turning suddenly too wet in some places and suddenly too dry in others.
In the area of public health, we have traded natural immunity to diseases for that provided by vaccines. From a moral point of view we can do no less than offer effective vaccines for deadly or debilitating diseases to as many people as possible. Consequently, deaths from infectious diseases have declined dramatically. The volatility in population has essentially been suppressed.
But modern transportation now makes it more and more difficult to isolate deadly pathogens which can travel across the world in a matter of hours in an airliner. Dense urban populations linked by road and air transport make the next deadly worldwide epidemic all but inevitable. And, we must acknowledge that the current population is no longer being selected by natural factors for robustness in the face of disease; that means we can expect that such an epidemic will hit hard, perhaps harder than the one in 1918.
Told that we must eliminate possible disease-causing germs from our immediate environments, we use antibacterial cleaners in our kitchens and our bathrooms and even on our bodies and in our mouths in the form of antibacterial soap and toothpaste respectively.
But it turns out that such agents don't kill all the bacteria and, in fact, eventually select out those that are most robust against our antibacterial agents. We are making matters worse.
In addition, children who grow up in sanitized environments may not be developing proper immune systems and therefore may be more vulnerable to infectious diseases and allergies as they age.
I am not arguing that humans should never attempt to reduce volatility in their lives. I am making the case that not all such attempts will prove advisable or effective. We can take our desire to reduce volatility to such extremes that we achieve the opposite result: even greater volatility.
If we keep this in mind, we can at least ask whether our next attempt to reduce volatility will actually work in the long run or whether we would be better off adjusting to a certain amount of volatility in our lives in exchange for avoiding catastrophic failures when the dam of low volatility breaks. In more concrete terms, can we judge ourselves prudent if we save ourselves from a hangnail every day only to experience the loss of an arm later on because of our actions?
Sunday, January 15, 2012
Is deception no longer an adaptive human strategy?
The way to understand these contradictory statements is in the context of evolutionary success. Animals bear deceptive markings and patterns to camouflage themselves from predators. And, animals have been known to act out lies to deceive their fellow animals. William Catton Jr. relates such a story in his book Bottleneck: Humanity's Impending Impasse:
One of the chimpanzees at the Gombe Field station provided a modern demonstration of this. He had acquired an ability to open locked banana boxes. But he seemed to know it was unwise for him to do so in the presence of other more socially dominant apes who might attack him and take the bananas. To solve the problem this ape perfected the acted lie. By striding purposefully away from camp as if on his way to a good food source, he tricked other apes who would amble after him for a few hundred yards. By doubling back alone to the then deserted camp, he could open a banana box and peacefully enjoy its contents in the absence of the other chimps who, having seen there was no food in the camp other than what was confined to boxes they could not open, did not return with him.
It's no surprise that humans have also found deception to be a useful survival skill. Certainly, it is useful in hunting animals. Even today we use the duck blind to conceal the position of the hunter. But deception as an adaptive behavior finds its true test in relations between humans in warfare, in sports, and even in commercial activities. We are more likely to deceive those whom we consider part of the out-group since they represent a possible source of resources for the in-group to which we belong and whose survivability we want to enhance. My in-group, however, is constantly shifting. Is it my family? Does it include my friends? How about my community? My nation? Those whom we consider appropriate targets for our cons depend on what group we place ourselves in at any moment.
All of this was brought to mind by the recent failure of the Harper administration in Canada to overturn a law which prohibits lying on news broadcasts. The change was sought to enable a Canadian upstart cable news channel dubbed Sun TV News to adopt the same style as the Fox News Channel in the United States. Apparently, lying is part of the format and not being able to lie would prevent Sun TV News from fulfilling its proper role in the world of Canadian media.
Does that mean Canadians are getting the truth elsewhere? Well, not lying is not always the equivalent of telling the truth. If you lie, it means by definition that you are saying something you know to be false or at least should have known to be false. But if you are simply mistaken, then people don't call you a liar. They usually try to correct you.
So, there are two kinds of misinformation which we are subjected to every day in human affairs. The first is merely incorrect information. It may very well be the best estimate of the truth by the teller. If we detect the error, we call it an honest mistake. If we don't detect the error, it may have the same effect as a deliberate lie would have on our actions.
For example, it is passed off as more or less incontrovertible that the human economy can grow indefinitely without either running out of resources or destroying the climate. The argument is that high prices for any scarce resource will lead to the discovery of more of that resource or to substitutes for it. All of this will happen in time to avert any catastrophic collapse of human industrial society.
Even among some who accept the reality of climate change, there is a belief that the offending emissions can be brought under control through technology alone, that alternative carbon-free energy sources can be deployed rapidly and in sufficient capacity to replace our current level of energy production from fossil fuels, and that geoengineering projects can be constructed if need be to alter the incoming amount of sunlight or absorb carbon dioxide from the atmosphere. We will thereby save ourselves from civilization-destroying climate change while continuing to live pretty much as we do and with economic growth intact.
People who make these claims are, in my view, simply mistaken about the extent of the challenges. We cannot know for certain whether such people are wrong. But we can judge their chances of being right to be slight based on the evidence. The results of believing such information if it is false can be just as serious as believing intentional falsehoods.
This brings us to another kind of communication that is constructed of outright lies. Claims by industry-funded think tanks include that the Earth is not warming; that if it is, human activity is not responsible; and that such warming will somehow be beneficial to humans on balance. All these claims can and have been shown to be false by the actual scientific evidence. Another demonstrably false assertion is that there is no consensus among climate scientists that humans are changing the climate through their actions.
Catton explains in Bottleneck that the purpose of deception is to create a "false or misleading definition of the situation." The ability to deceive depends on two things, the skills of the deceiver and a situation in which the deceiver's words or actions will be interpreted as truthful. The generally rising prosperity of the last 150 years leads most people to conclude that the future will be more or less like the recent past, namely, continued economic growth with few constraints. So, claims of continuous growth fall on fertile ground.
Those who attempt to deceive the population about climate change also have experience as their ally. Catastrophic consequences tied definitively to climate change are difficult to demonstrate. And, most people have not been touched by frequently cited examples: Hurricane Katrina, the record 2010 floods in Pakistan, the shrinking Arctic icecap. Their experience tells them that at most climate change is benign.
The trends revealed by scientific research are far more troubling than the average person's experience. While the scientific community has endeavored mightily to communicate these trends, the task has proven difficult because of the abstract nature of much of the scientific knowledge which must be communicated. This has made it fairly easy for the fossil fuel industry to muddy the waters with misleading and outright false information skillfully planted in major media outlets.
In the past deception may have been an adaptive behavior for the human species. But, as with any trait, changed circumstances can render previously adaptive behaviors maladaptive. The changed circumstance is that humans are now so numerous and so powerful through their technology that they are are able to undermine the very biosphere which supports their survival.
And, since humans coordinate their activities primarily through language, it stands to reason that if that language is now used most effectively to create a false or misleading definition of the actual situation, then the human community will not be able to act appropriately to ensure its continued survival in the face of multiple threats such as climate change, fossil fuel depletion, soil erosion, water pollution and so on. The ability to deceive then has become so counterproductive that it threatens humans with extinction.
Could this trait be somehow moderated to allow a more realistic assessment of our situation? Partly this would require a new definition of who is included in our community. If the definition remains narrow--for example, my climate-change denying friends in the fossil fuel industry--then there is little hope for change. If the definition can expand to all of humanity, then the need for deception is diminished. I no longer consider people halfway across the globe as part of an out-group who can be regarded as enemies and may be deceived without moral concern.
But overcoming deception will also require the inclusion of scientific information and observations not normally incorporated into what most humans call their experience. Of the two tasks I've outlined, this second one seems the more difficult.
It is discouraging to conclude that a human behavior which has been selected for by nature to enhance our survival has now turned against us. But in this way, language--which is perhaps the highest achievement of humankind--could become our undoing.
Sunday, January 08, 2012
Restoring Fortuna to the lexicon of the rich
The Roman historian and statesman Sallust suggested that virtue invited good fortune. But the Biblical tradition offers the Book of Job as a corrective to Sallust's view, and the Gospel according to Matthew puts a New Testament spin on the vicissitudes of life saying: "for [God] makes his sun rise on the evil and on the good, and sends rain on the just and the unjust."
The Protestant and, in particular, the Calvinist tradition believed wealth was a sign of election, that is, salvation which could only come from God and not through the will of the believer. Nowadays, this religious element has been largely stripped from the explanation for why wealth is distributed as it is. Rather, in place of "election" we have "talent and hard work." No doubt in many cases talent and hard work actually figure into the outsized success of certain individuals. I am confident that my dentist did not succeed in learning how to fill cavities and prepare crowns by mere chance. And, I am more than satisfied that violinists who appear at Carnegie Hall have trained at length to warrant such an appearance.
By contrast, those who amass great fortunes through speculation may merely be lucky. Unlucky speculators are usually sent packing to Peoria and so disappear from the finance pages, something statisticians call "survivorship bias." We don't see the unsuccessful speculators and so wrongly assess the skills of speculators in general by putting too much weight on those who've survived to be counted and therefore read about.
Fortunes are also made by being in the right place at the right time. That can be true of corporate CEOs and individual entrepreneurs. It would be wrong to attribute no skill to them. But it would be equally wrong to rule out luck as a key driver of their success, that is, for the ones who are judged successful. (Survivorship bias applies here, too.)
My sister has spent considerable time in the Far East and reports to me that Asians with which she has been in contact are much more aware of the role of chance in their lives. In part, it may be because of the way they view causality. In Carl Jung's forward to the classic Chinese text, the I Ching or Book of Changes, the renown Swiss psychologist provides a compact explanation of the Chinese predilection for chance over causality, or what Jung himself dubbed "synchronicity." From the lowliest worker all the way to the most celebrated tycoon, Asians regularly perform rituals that are supposed somehow to invite good luck. By contrast, tycoons in the West and particularly in the United States tend to attribute their success to their skills and perseverance. Any reversals, however, are often attributed to bad luck.
We who are mere onlookers to the lives of the one percent or even more particularly the one-tenth of one percent, need no special instruction on the luck of those who, so to speak, "have chosen their parents well." Yet, the scions of inherited wealth often feel the same sense of entitlement as those who actually acquire their wealth through effort and ingenuity.
One's place in the world as a person of wealth looks different, however, if the disproportionate accumulation of money is seen as largely the result of chance. Of course, I agree that hard work ought to be rewarded. But good luck in timing, chance connections, and accidents of birth and thus of access to education often multiply the wages of hard work manyfold. The difference in the talent of the world's finest violinist and it's 50th ranked violinist can't be as great as the difference in their compensation would suggest. The income differential between the top 100 money managers and manager number 1,000 may be entirely due to chance: lucky guesses, connections to wealthy investors, unexpected government interventions in markets and so on.
If the idea of Fortuna could be restored to the lexicon of the rich, we might cease to hear from such charlatans as hedge fund manager John Paulson what an obvious benefit their exertions are to society, let alone their investment clients. (Paulson, a longtime darling of the hedge fund community, saw his lead fund decline 52 percent last year.) At the very least, a better understanding of the role of chance in life would cause people to ignore or even heap scorn upon such pomposity whenever it is reported by the media.
If the accumulation of great wealth is not merely the result of talent and hard work, then it must also be the result of circumstances made possible by society at large. That implies a substantial obligation to others who make such success possible and keep its fruits secure. No billionaire could exist alone on a desert island. No fortune could remain secure without the assent of the population through a nation's property laws and court system. To acknowledge this is to support the necessary public services and infrastructure that allow successful businesses and individuals to prosper by allowing the broader population to share in that prosperity.
Acknowledging Fortuna means acknowledging that luck is partly responsible for my station in life. It means I'm obliged to help my fellow citizens who've been hurt by nothing other than misfortune. And, it means that I'll be entitled to help if misfortune lays me so low that I cannot get back up without some assistance. The latter situation is hard for many to envision until they actually arrive there. That's why it pays to think about such possibilities ahead of time and act accordingly in one's role as a citizen.