Monday, July 25, 2011

Black Box Economics

Apologies to whatever's left of my readers for this one. I'm contractually obligated by the anti-establishment (which is getting exactly what it paid for) to churn out an update of my general understanding of economics every few months. Call it part of an ongoing series if you want. More like, some stuff I read got the brain swirling around in its usual sorry circles, and now it needs to drain.

As someone who doesn't understand all of the fine details of economics so well, and is suspicious of them anyway, I often like to try to and look at them from a coarser level, from farther away, and see if it makes sense on that necessary approximation. I find this a rewarding exercise usually, and like any human being, I grow to believe that my comfortable way of looking at things is in fact the important one. Engineers have a habit of this sort of thing anyway, as I've blathered about in times past. Those subatomic details are distracting, and obviously this is why macroeconomics is different from microeconomics, and so far as I can glean (this is my sporadic recreational reading, god help me), addressing macroeconomics based on "microfoundations" is, a lot like resource economics, only a young field struggling against an increasingly inadequate paradigm. Better late than never, I guess.

[And it's fun to ask whether microfoundations are more like statistical thermodynamics, from which macro properties can be statistically derived, or more like quantum mechanics, in which they are consistent with macro properties, but produce negligible predictive value for problems of that scale. I never developed a good answer for that analogy, and I didn't like the handful of discussions I read, because it kept coming back to me that economics isn't fundamental enough to describe primate behavior, and is insufficient with respect to the physical laws it apes.]

I agree that the macroeconomy is necessarily a statistical average of all the busy-bee activity that can be called economic, and that there is feedback with macroeconomic policy and all, but this doesn't really cover enough ground. If we can look at the economy as a big black box, then "the economy" really is how we distribute what we collectively make the effort to produce or do. (This is definitionally true, which will only make the next fuckhead who talks about "redistribution" that much more irritating.) On some level, the redistribution is arbitrary, as is the level of effort (once we get past the point of keeping a critical fraction of us fed) we put in. In American capitalism, it's a great conceit that the divvying of effort and rewards is conducted according to some rules-based algorithms. These rules are a compromise between some pet philosophical justifications of ownership, baseline standards of living (that'd be the Socialism that crept in), and variously weighted assessments of the value of different types of contributions. People can get paid to do work or make stuff and people who own can manage the value of improving their property, or so the story goes.

I'm finding that black box viewpoint useful to help weed out the parts of the economy that are fake. The GDP, for instance, is somewhat real (even if it measures things in imaginary numbers), demarking the total amount of goods-n-services that are produced, more or less. In real life though, all this stuff is limited by resources – by population, energy, land and food (elementary stuff, I know, at least with respect to land, for which more patient students than me can describe how it turned into "capital"). Call it the first law: you can't get out more than you put in, and even if you quip about optimized non-zero-sum exchanges, you're still using many implicit assumptions about where the producion must come from. You're still only optimizing efficiency. Game theory does not obviate physics.

There are times when resources directly affect the volume of worldwide production. Oil shocks are, at a minimum, a common ad hoc reason thrown around to discuss disruptions. It's the conventional understanding of the stagnant 1970s economy, and I also remember it standing in as a cause of the 2008 recession, at least for a short time, until people finally started questioning the screwy financials. It's a running curiosity that a more fundamental connection isn't observed more routinely. Given its pretense as the only social science, economics has ironically done a very bad job of integrating that first law, as outlined in this entertaining excerpt. You can't assume stuff that doesn't exist (although I lose him when he dismisses the rebuttal that things are fine to a certain level of approximation—of course it's fine when the assumptions hold). If you like to think in terms of the second law (or if you pedantically want to call process dynamics, my preferred choice of technical metaphor, an analysis of the second law, as is done in this interesting article), then "production" is even better described as a dissipative process (which can have more or less stable dynamic states, mind you), that is, kinetics rather than equilibrium. Civilization is then a transient species, something that has happened in between turning carbon and sunlight into food into shit.

Although it is essential, count money among the things that are useful fabrications. Credit, even more so. In the macro world, I try to remember that money and credit is more of an indicator of the asset distribution than a driver. Money is really a mutual agreement to accept money as a medium of exchange, which definitely helps the process along. (This is true even of gold, which upon a time was useful for this role because it was durable and people liked it. But it's no more fundamentally valuable than other representative things, and since it's value represents a narrow slice of things people really value--notably you can't eat or burn it--it's probably less good.) I see debt as basically a bet on the short-term persistence of the status quo, the human reaction to gamble that things will soon regress back to the mean. When that's a reasonable bet, it facilitates activity, and when it's not, it does the opposite. Money and credit are super useful, but they are more like written laws than physical ones, and economists are more like lawyers than scientists. Which is fine, but consider that legal rules are also only followed in principle by the robotic force of algorithm, and given that we are really creating an economy on the basis of mutual agreements, and even through we specify the goal and the rules, it's also true that we try to constantly get around them.

American capitalism (at least as it is marketed) has a lot invested in the idea that the macroeconomy emerges from its microfoundations, but I keep coming back to the idea that it's a fundamentally flawed assumption. American capitalism has done a very shitty job, to my mind, of integrating the role of power, coercion, and security, which I think is safe to also classify as fundamental parts of our overall system of agreed-upon rules, but somehow economics gets away with dismissing to the arena of politics and sociology instead, unwisely imagining that some mutual agreements can be neatly separated from others. I would say that the rules instead evolve as a consequence of the status hierarchy, which exists at a more fundamental human level than "economics" does. And the powerful are (by definition) able to influence the rules (albeit without much collective intellect or finesse) until it reaches a distribution favorable to themselves. The iron rule of oligarchy gets it so much better, and is immensely more succinct.

Where the fake meets the real, then at least we can say it gets interesting. If the "real" economy is, although maybe fuzzily defined at the edges, the redistribution of all the stuff we produce, then it's worth noting where the idea of that distribution gets most deeply obfuscated. Dr. Leo Strauss (obvioulsy not the actual one) recently summed it up as well as anyone: we don't "make" nuthin but finance these days, a service that has managed to massively overvalue itself at the expense of every other service or product. (Doc Strauss also provided some awesome interviews with David Simon about The Wire, the guiding ethos of which, he says, is that human life is declining in value in the post-industrial age.) A bubble economy is a matter of pretending that we make more than we do, and that we can distribute more than we actually have. It works because the black box of American economy has some inputs and outputs into it. In comes goods and energy, and out goes what little extra we still produce. In and out also go complex systems of agreements and arguments on how we value it in paper, full of double negatives and hot air and backed by force. The world economy doesn't have inputs and outputs other than the heat balance, however, and if we consider stored resources, then it is in fact zero sum, according to the goddamn first law of thermodynamics.

We are propping up the value of the dollar (which contracts and verbage direct oil into this country more easily and help to let other people actually do the producing of things so long as we get to keep gambling), keeping up the value of real estate (which contracts keep people with more license to make that gamble), keeping our armies massive (enforcing all the wheeling and dealing), and keeps the level of inequality high as hell. I don't know, letting oil prices rise, un-developing arable land, bringing industry back to these shores, and letting the super-rich finally absorb a kick in the neck seems to be exactly what is necessary to bring the whole system into something resembling local reality, although it's likely to be painful for all of us, and I don't want that either. We can only impoverish everyone else for so long before we start going down with them (or until maybe we get weak enough and they get pissed enough).

If the current trend we are seeing in the world today is actual GDP shrinkage driven by first-law sorts of pressures, such as limits to oil and water, or even just bad bets on expansion, then expect that huge network of agreements to stretch and become rigid (that seems consistent with a serial bubble economy, increased indenture, and IMF-style forced austerity everywhere you look) in an effort to keep the head on top, and then falter in glorious financial collapse. It's a global behavior consistent with what you'd expect from shrinking fundamental resources, and that's worth pointing out (and it's also my suspicion), but it's inconclusive on its own. It also has happened sometimes in history when power concentrates too much in social and financial spheres and the loss is painful in the living memory of everyone else. Some collapses can be tied to extension beyond resource sustainability (Rome's slow decline probably fits this model), but others are just human behavior taken too far (more like the Great Depression maybe).

I don't really know where we are at now, but I'm not super optimistic about the future.

Tuesday, July 19, 2011

Peas In Our Time

A true confession: I blew this one tonight. We did it last weekend, and it was of those dishes that transcended at least two of my senses, but tonight...not so much. Part of the problem was just the peas. Peas are one of those things that are heavenly for about a week out of the year, after which they become fodder, and this week's peas are just not the same as last week's peas, and moreover, we did them no favors by making the dish two fucking days after they were bought and shelled. (Yes, that is in fact shame I feel—I was brought up better than this—but it may not be too late for my dear mom, who didn't even manage to plant the things until May, which is the main reason I am writing this down.) But even worse was knowing that I just munged up the balance of things.

I should point out that we basically copied a recipe we had in New York way back in May, at Eataly, and merely put the peas and mint on the outside instead of in the filling. I suppose in the city that never sleeps, you can get some quality legumes overnighted from a few states down if you have the culinary pull. We were stuck waiting until they came ready in north central Massachusetts, but fresher is always better anyway. Here in ____, we also have a tremendous Italian population, but evidently not an impressive Eatalian one, and after at least three remarkably craptastic ethnic restaurant adventures, we gave up on 'em almost a decade ago. And so we were completely and pleasantly surprised to have discovered a little old lady with a good pasta shop in town. We made the dish with a combination of her gnocchi and cheese-filled ravioli, which all I had to do was not screw up. Making me one for two, I guess. If you make this, go with the nicest fresh pasta you can make or get your hands on.

My wife tells me that we have had the combination of peas and mint before, and it's both natural and obvious, she says. To me, it seemed revelatory in May, and then even better eight days ago. The nuttiness (a food adjective I find annoying) of the brown butter pushes the sweet and aromatic, the vegetable and salt and toast together like a seventh predicts the tonic. When it's good, it's very very good. My advice, just don't fuck it up.

The ingredients:

  • about 1-2 c. fresh peas, shelled. (Look, I am not a farmer, but I am a glutton, and grew up with people who cared about this sort of thing. If they're touching in the pods, it's no doubt too late, and if the skins of the pods are thinned and dry, it's really too late. But you know, just taste them. They will be that good.)
  • about 1 lb. fresh cheese pasta. (Best you can get your hands on. Maybe you make pasta. If so, now would be the time. I'm horrified to think of Marie Callender clodhopping the toes of this fine little dance. Find a real old lady.)
  • about 3/4 c. finely grated fresh parmesan cheese. (Here I am not a zealot. Yet.)
  • 1 stick of butter
  • about 2-3 T. mint chiffonade. (I wish I knew the variety in the herb garden that's Mom's mint. Probably not spearmint, certainly not peppermint, and definitely not the ridiculous furry "apple" crap that is taking over everything. It's just "mint." It also makes outstanding mojitos. Maybe I'll write that one up this weekend, if it's a good one.)
  • couple twists of pepper.

    So salt your water, and boil your pasta, like you are supposed to. Don't overcook it. I have heard that gnocchi, if you go that way, can be a little sensitive, or something like that. Don't know where I got that idea. I did not find it critical to time the pasta (it finished a little before), and while I sure didn't rinse it, I removed it, and did not any of the water to make up the sauce. Just butter and cheese.

    Melt the butter in a large saucepan, then raise the heat to medium-high and cook the butter until it foams and just starts to brown. Pull it off and reduce the heat. Add the peas and mint, and cover for a minute or two, not past "warm" on your cooling burner. Stir in the cheese and pepper. Then gently toss or fold the pasta. Garnish with a sprig of mint, if you're so motivated.

  • Friday, July 08, 2011

    Public Service Advisory

    Nope, it's not a hiatus (so sorry about your position in the pool, bright), just going to try an experiment with all the book reviews. That's right, I'm going to try and monetize the motherfuckers. Ooo-ooh.

    Although the number of regular readers here (and I love you all) is, um, not large, I have been following the Statcounter recently, and the poorly-named Keifus Writes! somehow gets about 75 search hits a day, most of them from people who are looking for book reviews. (People also look for mandolin fingerings and a chance to buy my virginity.) Some of these regularly come up in the top ten google hits, which is pretty surprising to me. So I'm going to start putting links to Amazon, in case I manage to convince anyone that they want to purchase those items.

    If anyone reading this post wants to use one of those links as a portal to purchase your next big-screen TV, then I won't complain, but I'm not trying to make money off of my friends, and I encourage you, if you are so motivated, to go and patronize someone who needs the money more than I do. (And if the whole idea really bothers y'all, I'll just take out the ads.) I'm just thinking I might round up enough scratch from casual interlopers to purchase a new book once in a while. Worth a shot anyway.


    Tuesday, July 05, 2011

    Review: The Jungle, by Upton Sinclair

    It's always fun to review famous books that everyone has heard of. Upton Sinclair's The Jungle made the world familiar with muckraking journalism, and shocked the country into adopting somewhat improved food safety standards. President Roosevelt, we're told, was swayed by discovering, from passages of the book, what goes into embalmed meat and sausage. It seems safe to say that he didn't read the rest of it. The Jungle may deserve a review for the plot that no one talks about, of which only a small fraction is spent in the Chicago meat empire. It follows the first few years in the life of Jurgis Rudkus upon immigration to America from Lithuania. Sinclair takes us through a handy travelogue of institutionalized hardship, starting with extortion on the passage, through the subtle or overt systematic coercion and humiliation and pestilence that bedeviled the teeming ranks of unskilled labor in the meat industry in 1904. He'd originally centered it on the failed meat-packer's strike of that year, but the book takes Jurgis and his family through several other modes of contemporary employment (factory work, begging, prostitution, crime, vagrancy, politics), all born of, and failing, their good intentions to live as decently and independently as they can conceive.

    It ends with an improvement on their conceptions, a veritable epiphany. The Jungle is a Socialist marketing pitch, a surprising survivor in the American canon. Poor Jurgis is slated to experience every version of the underside of the machine that Sinclair can think of to add, a sort of pilgrim's progress that is maybe not strict allegory, but runs at least as a series of representative anecdotes. (I am sure there's an appropriate literary term.)

    I think that there is some real conflict with Sinclair the novelist and Sinclair the propagandist, to the detriment of both missions. The book opens with Jurgis' wedding, the only scene of joy and vitality before the ending, and once it ends, there is only a dismantling of the happiness that developed in that moment, with each new subtraction coming through like a shot in the gut. But there is only so much there to take apart, and when it's gone, we find that Sinclair still has half a book to go. Cool lefty types remark with regret that people remember the horrible abuses of the meat industry but neglect to take home what it did to reveal the anguish of working people, but it's not entirely the fault of the reader. Once Jurgis leaves Packingtown, once the last connection to his family goes under the mire in yet another tragedy, his story gets a whole lot less immediate, and any mystery we have invested in the happiness of these characters vanishes under the weight of obvious authorial intent. The student correctly sniffs out a lesson coming at this point, and grows bored. A novel is an excellent medium to convey an individual story, but this everyman thing loses its punch for needing to include, well, every man.

    As writing goes, an occasional moments of satisfaction, however impoverished, could have gone far to accentuating the far larger negatives that Sinclair was after. The only positive outlet for Jurgis, the author lectures, was chasing the hazy phantoms of joy at the bottom of a bottle. Sinclair lectures a good deal, and while his appeals to human dignity are strong, his reversion to Christian-style morality (temperance, abstinance, moderation) are tedious. The introduction (written by Maura Spiegel, in the B&N cheapo edition) notes that the author did not describe his characters with a rich inner life, but instead went for a more observational style that was the fashion of some of his contemporaries. But this is no vivid little Chekhov-style tableau we're talking. There is no shortage of moralizing and psychological mechanics, they just happen to all come from the author instead of the characters. The editorializing doesn't go down much easier for the obvious distance that exists between the supercilious Sinclair and his earthy protagonist. The author has got every article of mild slang doubt-quoted, sniffs at every hint of debauchery, is affronted by black people, adds exclamations to every larger observation, and dear-readers us nearly to death. The climax is a speech, and the denouement is a goddamn lecture, in which we're reminded, sadly without irony, that like many another ethos, national Socialism offers a brilliant critique, but a provides a very sketchy prescription. The faith by which the world should fall into place under its influence seems rather quaint with a century's hindsight.

    I like novels, and I don't mind polemics if the writing is good, but this combination felt a bit distasteful to me, even though Upton Sinclair is good enough to put satisfying thoughts and words and plots together. And I am sympathetic to his criticism (even if I lack his faith in a Socialist panacea), so it's not really the content that's the problem. If this thing were a satire—or showed any trace of humor whatever—then it could have carried a lot more weight with me. It may be just my own weird predilections.

    [Edited slightly, with apologies to the English language.]

    Review: Judgment in Managerial Decision Making, by Max H. Bazerman

    The text of this review crossed over a little with the opinions I shared with the person who recommended it.  I feel sort of weird about that, but hopefully it's changed up enough...

    Well, I liked the book, and I didn't expect to, although my skepticism was probably a function of the title and the intended audience of MBA types. I have enjoyed reading about cognitive biases and how they govern our interactions in the past, and Bazerman took me some distance beyond what I already knew or figured out, and he was kind of enough to elaborate. In addition, filling the concepts out with the accepted vocabulary has since proven handy. Some of these biases, like the fallacy of small numbers ("fastest-growing" is a fine indicator of something unimportant), have been long-standing pet peeves of mine, while others, like the Dunning-Kruger effect, where incompetent people are the ones most likely to judge themselves as skillful and correct, were more like inchoate little complaints needing the help of some wise academician to identify and label. Things like "competitive escalation" I readily identified as true (he said half-seriously) because I've seen them in innumerable cartoon plots, while others, like these associative heuristics he warns against, are a little closer to my own areas of psychological susceptibility (in Mr. Downer's case here, intense negative feelings that get weighted too heavily in matters of self-judgment), and were not at all as fun to read, even if I did my best to keep an open mind about them. At least I was comforted that I don't share the thinking patterns of MBA students.

    I do want to point out that some biases can be more rational than Bazerman lets on. People judge probabilities poorly, and we know it. While it's fine to assume accurate odds or trusted outcomes for the purposes of a word problem, I think the whole "X will earn 4% interest", or "Y has a 60% chance of failing" thing has, in real life, little chance of being true. The assumption of randomness is often false. The stock or housing market doesn't always grow over meaningful time periods (imagine, for one well-chosen example, that you were foolish enough to start saving in it ten or fifteen years ago) and inflationary discounting omits a lot of factors that actually matter in the cost of living. In real life, people often lie to their own advantage about statistics and odds, or assess them badly, or, of course, weigh them down with the offeror's own assortment of mental fuckups. To his credit, Bazerman gets into that a little in the decision-making chapters, but these remain tragically neat little story problems too, clearly and unrealistically mapped on an x-y axis.

    The idea that people suffer from many cognitive biases that reinforce their positive illusions is a powerful one I think, and in my opinion, it goes farther than, say, the entire field of economics in explaining the shape of human society. [I keep entertaining a longer post about this, but every draft I write has come out with too much crackpot in it, and I am furthermore not completely sure where I stand on the larger details.] Maximizing your self-interest, or maximizing mutual interest, are things that go only so far, and there are all sorts of cognitive hiccups that must be served in the meantime. That is, any rational analysis of cognitive bias shouldn't exclude the observation that we tend to believe that we are more rational than we actually are. In the edition I have, Max Bazerman addresses some of these erroneous conceptions of fairness in the appropriate chapters, and does draw some broad pictures of, say, resource conservation on those terms (the usual tragedy of the commons, now with a new twist) and how it suffers. Even the rational strategies he outlines for negotiations (where sometimes there is mutual benefit to ceding power) appear that they could gradually produce inequality, and this does also get a brief and late mention in the short book, some time after I angrily scribbled my note.

    I have a few other blurbs that I had noted as more useful or interesting to watch out for. Anyone want some insight to what makes me tick?

  • I thought it relevant that we tend to count gains and losses more in terms of the number of occurrances than as a net value. I often like to laugh at my particular brand of (self-created) bad luck and frustrations, but I do try and realize I'm basically a privileged little dude. He recommends setting up a mental ledger for this sort of thing, and I was happy that it affirmed something I thought was useful, but hadn't ever outlined explicitly.
  • He had a sentence that actions tend to produce more short-term regrets, but failure to act tends to haunt us longer. I am not really sure I agree with that, and I don't think it's a good decision-making heuristic, but I know a little of both sorts of regret, and of course it is indeed wise to weigh the cost of inaction too. (Someone get Neil Peart on the phone, I've got an idea for some song lyrics.)
  • I'd mentioned this in a conversation, but there's a note that depressed people might be less susceptible to positive fallacies. (I suspect we might overvalue negative ones though.) Implicit in the discussion is an observation that a facility for thinking about consequences and counterfactuals is also pretty depressing. Can't disagree with that one.
  • The idea of anchoring to arbitrary reference points is a useful thing to think about, but an annoying one to pretend to quantify. (If I read about the fucking "Overton Window" one more time...) Bazerman writes that in negotions, an offeror's anchoring value is less powerful if you know your alternatives and objectives. I think we can file that one under "cheap advice." On the other hand, remembering that many people have a tendency to reference the status quo is useful, keeping in mind the half dozen caveats I mentioned above.
  • I have been looking for a new job. Bazerman makes a point that people tend to over-emphasize things like prestige, and undervalue the work environment, how happy we will be, when considering these things. Couldn't agree more, and it's a lesson hard-won. (You know, provided you're in a position to be choosey. I wouldn't mention this point to the character in the next book review.)
  • As a final note, I find "regression to the mean" a highly annoying term, mostly for some vocabulary issues with "regression" and "mean" as used in the phrase. Turns out, it's a meaning about as close to the original ideas of regression analysis as you can get. Well, they got better.