lol

In today’s Wall Street Journal, Matt Ridley writes about the climate change nonscience. One passage, in particular, made me laugh out loud (emphasis added):

The big question is this: Will the lead authors of the relevant chapter of the forthcoming IPCC scientific report acknowledge that the best observational evidence no longer supports the IPCC’s existing 2°-4.5°C “likely” range for climate sensitivity? Unfortunately, this seems unlikely—given the organization’s record of replacing evidence-based policy-making with policy-based evidence-making, as well as the reluctance of academic scientists to accept that what they have been maintaining for many years is wrong.

 

This has all happened before, it will all happen again

From the book Why Nations Fail (p. 143):

The Maya experience illustrates not only the possibility of growth under extractive institutions but also another fundamental limit to this type of growth: the political instability that emerges and ultimately leads to collapse of both society and state as different groups and people fight to become the extractors.

In their book, Acemoglu and Robinson paint the picture of societies that rise, partially due to the benefits provided government — protection and enforcement of rule of law — then fall, after government is taken over by people who convert political power of law and order into institutions that extract value from society for the bureaucrat’s own benefit.

In this post, I wrote:

I like to think of government as a partner in the prosperity of its citizens. The more prosperous the citizens, the better this partner does. If you had a similar partnership with someone and you kept demanding more from him as if you were entitled to the produce of his talents, at what point do you think he would say enough is enough?

When the partnership turns into a lord-serf relationship, that’s when.

This story is consistent in other human organizations, not just overall societies. Matt Ridley wrote about it at the firm level in the Rational Optimist. I excerpted him in this post.

Far from being able to spend their way into novelty and growth, companies are perpetually discovering that their R&D budgets get captured by increasingly defensive and complacent corporate bureaucrats, who spend them on low-risk, dull projects and fail to notice gigantic new opportunities, which thereby turn into threats.

Bureaucrats gain control over a successful business and extract value from it for their own benefit, and their own extractive actions reduce innovation — which eventually kills the business.

“Energetic Government”

In the American Enterprise Institute’s Debate, How Much Government is Good Government?, David Brooks makes a case for an “energetic government” that “builds character.”

I believe the following passage from Brooks provides the key assumption for his energetic government stance:

…the reason that America got rich in the nineteenth century was because we were the most educated country on earth, and we could count on a certain level of social capital we no longer can.

I don’t believe that’s why America “got rich”.

To me, that’s like saying, I got rich by saving for retirement.  That’s not accurate.  You were able to save for retirement, and become rich, by creating enough value for others to generate an income for yourself.

Similarly, I believe the cause and effect flows the other way from how Brooks describes it.  America became the most educated country on earth, with a certain level of social capital [i.e. things like public education, social security, unemployment, etc.], because America “got rich”.

America got rich through bottoms-up innovations enabled by the most democratic, fair and socially mobile system the world has ever witnessed, capitalism.

If Brooks were to consider that he is wrong about how America got rich and wanted to learn other possible explanations, I’d recommend that he start with Matt Ridley’s book The Rational OptimistThis post and this one discuss some of Ridley’s, and my own, insights on the matter.

Of course, Matt and I could be wrong, but I have not found convincing evidence of that yet.  But, would love to hear some.

Star Wars Geek Friday

Palpatine

Tyrants aren't often this ugly

Those familiar with the Star Wars universe know that episodes 4 through 6 were produced and released in the 70s and 80s and episodes 1 through 3 were released in the late 90s and 00s, making for an interesting way to tell a story.

As I’ve watched the whole series over again and again with my Star Wars-crazed kid, I’ve noticed some elements worth mentioning because they bear some resemblance to real life.

First, the story of Palpatine’s ascent to tyrant and his consolidation of political power is really well done and vastly under appreciated.  He led both sides in a war meant to soften political opposition to his consolidation of power.

He used the war he created to get the other Senators to vote him emergency power, promising to return it when the conflict was over.  He never relinquished that power.

I was reminded of this storyline this week when I heard talks of granting the President emergency power to raise the debt limit.  The parallel is stark.  Palpatine created the emergency to get the Senate to grant him emergency power.  Obama created the spending emergency, both by spending a bunch and by waiting until the debt limit was about to be reached before trying to do something about it, to get politicians talking about giving the President emergency powers to raise the debt limit.  Though few people draw this connection.

In fact, when the Senate does vote to give Palpatine those emergency powers and applauds his acceptance speech, the unwitting pawn that granted Palpatine’s first step of his ascent, Padme Amidala says:

So this is how liberty dies…with thunderous applause.

Second, if you watch the series from Episodes 1 through 6 in order, you will notice that Episode 4, Star Wars, picks up about 25 or 30 years after Episode 3.   In Episode 3, Palpatine and Vader take control of the galaxy and begin their reign.  Episode 4 begins after 25 or 30 years of that reign.

You will also notice that the technology in Episode 4 is rudimentary compared to the technology in Episode 3.  This is a common criticism of the series.  Star Wars was 30 years after Revenge of the Sith and the technology looks so bad.  After all, the fastest ship in the galaxy, the Millienium Falcon, was a bucket of bolts.  I personally think that criticism is unfounded.

While the appearance of the technology is a natural artifact of producing Episode 4 twenty years before Episode 3, it also bears a striking parallel to reality.

Once the galaxy comes under top-down control, there’s a really good chance that the state of technology would go backwards.  In his book, The Rational Optimist, Matt Ridley wrote this about China:

China went from a state of economic and technological exuberance in around A.D. 1000 to one of dense population, agrarian backwardness and desperate poverty in 1950.  According to Angus Maddison’s estimates, it was the only region in the world with a lower GDP per capita in 1950 than in 1000.  The blame for this lies squarely with China’s governments.

To be clear, China’s governments became top-down empires, much like George Lucas’ Empire (except they didn’t have space ships).  So, even though the lapse of technological innovation derived from the production schedule of the movies, it fits.

Health care and obesity

Recently, Matt Ridley posted a piece on his blog entitled Thinning Vouchers. The idea is to give vouchers to overweight folks and allow them to use them to find ways to lose weight.

Personally, I think this is a bad idea.   First, I don’t see where government is authorized to do this.  Second, I doubt it would be effective.  And third, perhaps we should more carefully consider incentives that contribute to obesity.

Much is made about the obesity rate in the U.S.  I’m assuming it’s higher than rates in countries with socialized medicine.  Some might point to the socialized health care of those countries and I think they would be onto something.

There’s a chance that the folks in those countries take better care of themselves because they want to avoid using their beloved health system.  In their heart of hearts they want to avoid the long wait times, the chances of getting an infection with extended stays and the overall poor quality for more serious ailments.

In the U.S., we essentially have a socialized system without much of the third-party rationing yet (which is one reason we spend such a high percent of GDP).  Folks have less incentive to take care of themselves.  When they need treatment, it’s usually convenient and often it’s covered with little out-of-pocket expense.

If this is correct, this would suggest that there could be two health care options for reducing obesity:

  1. Let third-parties ration down to the same level of GDP as other countries to lower the quality enough to cause people to want to avoid it.
  2. Letting folks pay more of their medical costs.

Bottom Up

Chapter 8 is my favorite from Ridley’s The Rational Optimist.  In it, he builds the case that even though many people imagine progress comes from a top-down world, it really emerges from the bottoms up.

This is not a new epiphany.   I discovered it myself early in my career as I witnesses a variety of top-down and bottom-up organizations, and experienced some bottom-up organizations become top-down and vice versa.

Before I go further, I think some definition is in order.

In a top-down organization, decision-making is centralized and driven from the leaders (top) down to the lower level associates.  In a bottoms-up organization, decision-making is decentralized.  Front line associates are given latitude to make decisions that make sense for them and leaders hold them accountable for achieving results.

The easiest way I’ve come to recognize the top-down from a bottom-up organization is by determining what the lower level associates are held accountable to.

In centralized organizations, they’re held accountable to inputs, or doing what the leaders tell them to do Did you follow my instructions? Did you follow this process? Did you make X number of sales calls?

In decentralized organizations,  lower level associates are held accountable for results, or outputsDid you achieve sales growth? Did you make a new product that customers wanted to buy?  Did you do better than your competitors? Was it good?

Several times in my career I’ve asked some managers who were prone to top-down leadership about their thoughts on centralization.  Some couldn’t trust people to make the right decisions or they thought decentralization had its place, but they believed they were a good judge for what couldn’t be decentralized.

In truth, these were micro managers and bureaucrats.  They envision their role as making procedural decisions and issuing orders. Perhaps that’s the conventional image of a leader society has imprinted on us.

More subtly, these  folks are more comfortable issuing orders and determining whether their charges did as they were told than they are at evaluating results and confronting folks about those.   Most bureaucrats obtained their roles by pleasing other bureaucrats.  They don’t have much experience with output success, so they aren’t good judges in that respect.  They cannot articulate what success looks like, beyond executing whatever personal to-do list they have imagined.

Back to Ridley.  Many economists (mainly of the Austrian flavor) have written about the knowledge problems that restrain the top-down formation from being as effective as bottom-up.  Ridley does a good job of shedding light on this in practice (p. 255):

They [politicians] believe that the recipe for making new ideas is easy: pour public money into science, which is a public good, because nobody will pay for the generation of ideas if the taxpayer does not, and watch new technologies emerge from the downstream end of the pipe.  Trouble is, there are two false premises here: first, science is much more like the daughter than the mother of technology; and second, it does not follow that only the taxpayer will pay for ideas in science.

…England had a scientific revolution in the late 1600s…but their influence on what happened in the manufacturing industry in the following century was negligible.  The industry that was transformed first and most, cotton spinning and weaving, was of little interest to scientists and vice versa.  The jennies, gins, frames, mules and looms that revolutionized the working of cotton were invented by tinkering businessmen, not thinking boffins…

Likewise, of the four men who made the biggest advances in the steam engine…three were utterly ignorant of scientific theories and historians disagree about whether the fourth…derived any influence from theory at all.

Throughout the industrial revolution, scientists were the beneficiaries of new technology, much more than they were the benefactors.   Even at the famous Lunar Society, where the industrial entrepreneur Josiah Wedgwood like to rub shoulders with natural philosophers like Erasmus Darwin and Joseph Priestly, he got his best idea — the ‘rose-turning’ lathe — from a fellow factory owner, Matthew Boulton.

Ditto for advances in the the twentieth century.

The inescapable fact is that most technological change comes from attempts to improve existing technology.  It happens on the shop floor among apprentices and mechanicals, or in the workplace among users of computer programs, and only rarely as a result of the application and transfer of knowledge from the ivory towers of the intelligentsia.

After making the case for bottom-ups, Ridley describes how the world has gone top-down with the conventional wisdom that government can do all or, as quoted in this post, how bureaucrats come to control organizations and R&D, stifling innovation.  But, on page 274, Ridley observes with the advent of open source software, social networking, Wikipedia, etc that…

The world is turning bottom-up again; the top-down years are coming to an end.

I hope he’s right.

Bureaucrats vs. Innovation

I’m enjoying Chapter 8 of Matt Ridley’s The Rational Optimist.  The following two passages remind me of this post of mine on business experimentation and also this previous post about Ridley’s book, on how countries generate and accumulate wealth and then successive generations spend it.  It’s essentially the same concept, applied to businesses.  This is from page 260:

Far from being able to spend their way into novelty and growth, companies are perpetually discovering that their R&D budgets get captured by increasingly defensive and complacent corporate bureaucrats, who spend them on low-risk, dull projects and fail to notice gigantic new opportunities, which thereby turn into threats.

The bureaucrats or politicians that take over a successful company, use the wealth created by that previous success to pad their power fiefdoms.  In this sense, they act much like trust fund kids.

The only quibble with this passage is that companies rarely discover this.  More typically, they die a slow death as outside innovators make them obsolete.  But, I think Ridley was perhaps writing colorfully.

Ridley continues:

Though they may start with entrepreneurial zeal, once firms or bureaucracies grow large, they become risk-averse to the point of Luddism.  The pioneer venture capitalist Georges Doriot said that the most dangerous moment in the life of a company was when it had succeeded, for then it stopped innovating.

This has all happened before, and it will all happen again

Fellow sci-fi geeks might recognize this as a phrase that was repeated throughout the re-imagined Battlestar Galactica TV series.   It’s popped up elsewhere also.

Those words have crossed my mind repeatedly as I read Matt Ridley’s book The Rational Optimist.  In it, Ridley tells a history of the world made possible by trade.

A common theme is the stages of society.  A society emerges from decentralized trade.  I make fish hooks and give you some in return for a few fish.  We both come out ahead.  That allows enough gain in free time that some folks have time to do things other than hunt and gather food.  Some of those folks form government.  They offer up something of value at first, like protection.  But then tend toward more centralized control, more expansive power and more meddling.  That chokes off the gains from trade and the society dies.

Here’s a passage from page 182:

Empires, indeed governments generally, tend to be good things at first and bad things the longer they last. First they improve society’s ability to flourish by providing central services and removing impediments to trade and specialisation; thus, even Genghis Khan’s Pax Monglica lubricated Asia’s overland trade by exterminating brigands along the Silk Road, thus lowering the cost of oriental goods in European parlours.  But then, as Peter Turchin argues following the lead of the medieval geographer Ibn Khaldun, governments gradually employ more and more ambitious elites who capture a greater and greater share of society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs.  There is a lesson for today.  Economists are quick to speak of ‘market failure’, and rightly so, but a greater threat comes from ‘government failure’.  Because it is a monopoly, government brings inefficiency and stagnation to most things it runs; government agencies pursue inflation of their budgets rather than the service of their customers; pressure groups form unholy alliance with agencies to extract more money from taxpayers for their members.  Yet despite all this, most clever people still call for government to run more things and assume that if it did so, it would somehow be more perfect, more selfless, next time.

These changes happen over generations.  It’s interesting to look at the societies on Earth now and consider which stage each might be in.

Since the changes happen over generations, it’s hard to tell sometimes.  Sometimes we look at a society and think it’s doing okay and we mistake it for a successful experiment.  In reality, though, it might be just on that cusp between the benefits realized from trades of the past and the decay that will come from a centralized control.

We mistake the cause and effect.  Trade enabled the wealth of the nation and the government, not the other way around.

Some societies that we think of as primitive, may have been more advanced in the past.  China is catching up now, as its government favors decentralization, but it was once well ahead of the rest of the world.  Page 180:

China went from a state of economic and technological exuberance in around A.D. 1000 to one of dense population, agrarian backwardness and desperate poverty in 1950.  According to Angus Maddison’s estimates, it was the only region in the world with a lower GDP per capita in 1950 than in 1000.  The blame for this lies squarely with China’s governments.

What follows in the next few paragraphs in the book is a picture of what China had mastered in the 1000s “silk, tea, porcelain, paper and printing”, “multi-spindle cotton wheels, hydraulic trip hammers, umbrellas, matches, toothbrushes, playing cards and pig iron.”

Then Ridley describes impact the Black Death and natural disasters and centralized government control of the Ming Dynasty that caused China’s GDP per capita to be less than in was nearly 1000 years earlier.

These are the same stories told in Hayek’s The Road to Serfdom (though maybe he stopped short), Rand’s Atlas Shrugged and Orwell’s Nineteen Eighty-Four, except it’s for real.  It’s happened here on Earth many times before.  It’s happening right now many times and will happen many more times.

Being Human

What differentiates humans from other animals?

While driving in our minivan once we stopped and waited for a deer family to cross the road.  A five-year-old in the van asked where the deer were going.  We joked how they were on their way to the deer bank to pick up money before going to the deer grocery story to get dinner.  The five-year-old was skeptical.  Where’s the deer grocery store?

We eventually got to a better answer.  They are probably on their way to forage for food or find a safe place to bunk for the night.

While reading Matt Ridley’s book, The Rational Optimist: How Prosperity Evolves (I highly recommend it based on what I have read so far), I was pleasantly surprised to come across an answer to what differentiates us from animals that perhaps explained the 5-year-old’s skepticism (p. 58):

…after millions of years of indulging in reciprocal back-scratching of gradually increasing intensity, one species, and one species alone, stumbled upon an entirely different trick.  Adam gave Oz an object in exchange for a different object.  This is not the same as Adam scratching Oz’s back now and Oz scratching Adam’s back later, or Adam giving Oz some spare food now and Oz giving Adam some spare food tomorrow.  The extraordinary promise of this event was Adam potentially now had access to objects he did not know how to make or find; and so did Oz.  And the more they did it, the more valuable it became.  For whatever reason, no other animal species ever stumbled upon this trick–at least between unrelated individuals.

At the time of the minivan conversation, I knew that humans had these things and deer did not.  I hadn’t yet made the connection that the reason for this is that we can trade one object for a different object, as Adam and Oz does in Ridley’s example.

It’s that difference that has led to our better living standard so that we don’t just spend our days foraging and looking for a safe place to bunk for the night.