Category: Economics
Trump the anti Intellectual yet idiot

Amazon opens in Australia, moves to tax foreign packages go into hyper-drive. Quelle surprise, big business always wants to impede competition. It’s the easiest way to lock in fat profits. They legally bribe politicians and regulators with donations and post public service sinecures.

You need to extend patent or copyright induced monopolies? No problem. You want to do it in other countries? Well, have we got a treaty for you.

Milton Friedman stood up for the consumer and against big business and government:

“There’s a common misconception that people who are in favor of a free market are also in favor of everything that big business does. Nothing could be further from the truth.”

In this he followed in the footsteps of Adam Smith:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Few modern economists, policy makers and politicians do. All too often they impose the same harmful policies. Our establishment class, be it of the “left” or “right” are cognitively captured. Their blinkered mindset and arrogance make them Taleb’s Intellectual Yet Idiot.

“These self-described members of the “intelligentsia” can’t find a coconut in Coconut Island, meaning they aren’t intelligent enough to define intelligence hence fall into circularities — but their main skill is capacity to pass exams written by people like them. With psychology papers replicating less than 40%, dietary advice reversing after 30 years of fatphobia, macroeconomic analysis working worse than astrology, the appointment of Bernanke who was less than clueless of the risks, and pharmaceutical trials replicating at best only 1/3 of the time, people are perfectly entitled to rely on their own ancestral instinct and listen to their grandmothers (or Montaigne and such filtered classical knowledge) with a better track record than these policymaking goons.

Indeed one can see that these academico-bureaucrats who feel entitled to run our lives aren’t even rigorous, whether in medical statistics or policymaking. They can’t tell science from scientism — in fact in their image-oriented minds scientism looks more scientific than real science. (For instance it is trivial to show the following: much of what the Cass-Sunstein-Richard Thaler types — those who want to “nudge” us into some behavior — much of what they would classify as “rational” or “irrational” (or some such categories indicating deviation from a desired or prescribed protocol) comes from their misunderstanding of probability theory and cosmetic use of first-order models.) They are also prone to mistake the ensemble for the linear aggregation of its components” Taleb, The Intellectual Yet Idiot, “https://medium.com/…/the-intellectual-yet-idiot-13211e2d0577

Is it really any wonder that Trump was able to run rings around them? He bested what Republicans claimed was the most talented field ever. He then defeated the Democrat candidate in the face of fierce media, academic and public servant opposition. “Intellectual yet idiot” Trump is not. The world needs more like him, so we can reform peacefully rather than through revolutionary rivers of blood.

 
Free trade fallacies

Grosse Arbeitslosigkeit auch in England ! Im Monat Juli wurden in England über 2 Millionen Arbeitslose gezählt. Es ist eine Ziffer, wie sie England noch nicht aufzuweisen hatte. Arbeitslose vor dem Gewerkschaftshaus in London auf Arbeit wartend.

Steve Kates explains why Trump’s attitude to trade may conform to Ricardo’s theory of comparative advantage:

The free trade argument concludes that nations jointly maximize their levels of consumption to their mutual benefit when firms within the nations are allowed to engage in trade unhindered by arbitrary interventions by government especially those intended to shield some industries from foreign competition. Hindering such trade through the imposition of tariffs or quotas is called protectionism. His principle and approach have been the basis for subsequent expansion and development of the free trade idea, and are still taught in principles textbooks.

This is true enough but it is built on a foundation which no longer holds:

The major prerequisite for the benefits of free trade to hold: it is assumed that capital and labor stay within each country. They are reallocated within a country, but not between them. That means that outsourcing of, say labor, is not an example illustrating free trade nor are those who object to outsourcing promoting protectionism. In short, maintaining the Ricardian prerequisite is not anti-free trade.

The key concept which drives this conclusion is the distinction between comparative and absolute cost advantages. A country may be able in absolute cost terms to produce something more cheaply than its trading partner (using fewer workers, for example). However, it still may find it advantageous to let its trading partner produce this good, if its own alternative uses of (labor) resources allows it to be still more productive. Subsequent trade between the two countries will be to their mutual benefit. The essence of the free trade principle then is comparative not absolute advantage. Yet when corporations scan the globe for the cheapest labor to move their factories to or hire their services from, they are looking for absolute not comparative advantage–a situation that goes beyond the bounds of the free trade principle. It is not a tenet of free market economics that losing one’s productive assets is beneficial for the nation, however much it may benefit a particular corporation. Current US experience makes the point very clear: the middle class continues to shrink while paupers and billionaires continue to grow. This is not the hallmark of a healthy economy.

Armed with this distinction we are liberated to adjust policy (within limits) without losing our economic integrity to free markets. We can, for instance, admit that there are situations where a complete free trade or laissez-faire approach is unwise. These are situations not considered in the Ricardian analysis but which subsequent work has shown complicate the picture of benefits and costs arising from international trade and which do call for prudent policy interventions.

Ideologues have thrown the free trade baby benefits out with the bathwater.

The coalition signed up to the Trans Pacific Partnership. If anything marks them as unfit to govern, that does.

Too many economists, public servants and politicians have substituted mouthing slogans and repeating received notions, for thinking. Sometimes a little bit of knowledge is a dangerous thing. It creates fertile ground for the growth of the Dunning-Kruger Effect:

Incompetent people are significantly less able to recognise their own lack of skill, the extent of their inadequacy, and even to gauge the skill of others. Furthermore, they are only able to acknowledge their own incompetence after they have been exposed to training in that skill.

Dunning-Kruger Effect is running out of control. It appears to be particularly widespread among those who should know better. This may be an  unforeseen consequences of the rampant expansion of the university sector. It has not just wasted time and money, but has actually undermined the competence of those exposed to it.

Our governing class may not be too dumb for their own good. But they certainly are for ours. Over educated group thinking mouthpieces. Lacking in the breadth of experience necessary to spot BS when we are up to our necks in it. They are fine, floating along on their perks and privilege. Complaining of the stink from those they deem beneath them. Blissfully unaware of the sewer they are turning society into.

 
The Culture Principle

choose-to-grow

Ray Dalio and Bridgewater have built a competitive advantage through their systematizing the use of radical truth and radical transparency. They have mitigated some of our cognitive biases. They have also developed a way to use and combine the outputs of multiple different mental models:

Bridgewater have a created a system which will generate better outcomes than their competitors. It will also increase the growth rate of people working in that environment. They identify everyone’s strengths and weaknesses. There is constant feedback, the effectiveness of strategies to address them will be continually rated and able to be subject to improvement. Someone working in that environment will soon leave their peers elsewhere behind. This in turn will improve the performance of the organization as whole.

In effect they have built a process for using multiple mental models/conceptual frameworks and of combining different perspectives:

We all have slightly different conceptual frameworks or mental models and they are all a mix of what is useful and what is not.  This means that we can improve our understanding by incorporating other peoples. This is one of the reasons why having a diverse team working on problems can be better than having one rigid perspective.

Try and have multiple different mental models, made up of components which can be mixed and matched. Use them as different spectacles or filters to view reality or the problems you are working on. While even this will not let you see reality as it is, it may give you a better understanding than those you are competing with. It may help you see what they do not”

Ray’s principals are well worth reading. Its caliber can be judged by its start:

Principles are concepts that can be applied over and over again in similar circumstances as distinct from narrow answers to specific questions. Every game has principles that successful players master to achieve winning results. So does life. Principles are ways of successfully dealing with the laws of nature or the laws of life. Those who understand more of them and understand them well know how to interact with the world more effectively than those who know fewer of them or know them less well. Different principles apply to different aspects of life—e.g., there are “skiing principles” for skiing, “parenting principles” for parenting, “management principles” for managing, “investment principles” for investing, etc and there are over-arching “life principles” that influence our approaches to all things. And, of course, different people subscribe to different principles that they believe work best.

 

Read the Principles, read up on Mental models. Then incorporate your conclusions into your life. Action it.