Ignorance

I had intended to create a post titled "uncertainty - the Rodney Dangerfield of concepts" - it don't get no respect. The plan was to take poetic license and lump together uncertainty about future outcomes along with uncertainty as to the correctness of facts, knowledge and beliefs that each of us think are true in any and all realms: social, scientific or other. When I saw a note on this stock service which I subscribe to by someone calling themselves Sir Bigfoot, well bingo! Here are some excerpts edited to be more general in application.

We live in ignorance all day, every day. Ignorance is our common state, not rationality. Although rationality is something that may pop up now and then in our lives, it does not do so consistently and may fail us altogether at critical junctures.

If your reptilian brain can be convinced of its almighty ignorance, it may turn out to be the most rational thing it has ever acceded to. We live in ignorance. We can't know ever so many things, let alone what is going to happen to a stock's price in the next week. Ignorance is far different from stupidity. It's stupid to think you can know something that is not knowable, but it is far from stupid to recognize your own ignorance when faced with the unknowable. Indeed, knowing your own ignorance is intelligence.

...if your energy is not corrupted and depleted by a continuous attempt "to be right, to be smart, to know more, and most deadly, to want to be better," then your energy for seeing reality becomes vastly increased.

...if we get caught up in thinking that we can know the future if only we are just "good enough" and can gather more facts, or the right ones, and can then take the risk out of everything we do, then we are lost because we are living a lie. On the other hand, if we labor in ignorance as a matter of course, we are not then invested in this lie at all, but only in what is going on. This is freedom. You are no longer tyrannized by a mind that is overwhelmingly concerned with appearing smart to itself. The mind will act rationally when it is does not burden itself with trying to be something it is not. We live with "I don't know." So if we don't know, what do we do? Mitigate risk is the rational thing to do.(This is more trading specific) Ah, at times, when we are relaxed, we can be rational! Hooray for evolution! And so ignorance leads to brilliance, but had we started out wanting to be brilliant, all would have been lost and the Holy Grail would still be hidden from our sight.

Experimenting with rules on a contingent basis to allow for the better functioning of the evolving spontaneous formations of the extended order of human cooperation simply works better than any grand plan. By embracing our ignorance we can be brilliant!

Self-inflicted wounds?

This summer while at a social gathering in Massachusetts I heard someone commenting on the bad economy. This person had ties to Connecticut and I had the impression they were referring more specifically to that locale, although I can't be sure. The national economy has been pretty darn good but I had no need to inquire further and trigger the Bush-bash that was likely to follow. In light of this, Dan Mitchell's post at the freedom and prosperity blog caught my attention. He remarks:

Politicians promised in the early 1990s that an income tax was the only way to stabilize Connecticut's budget and help the economy. Not surprisingly, the results have been just the opposite.

...then goes on to excerpt a report from the Yankee Institute:

Today, even after adjusting for both inflation and population, Connecticut spends more tax revenue and has more employees on its payroll than it did in 1991. ...Since Connecticut began to tax working, net job creation has ground to a halt. Economists, politicians, and reporters frequently cite the fact that Connecticut has yet to regain the number of jobs it had at its period of peak employment in the summer of 2000. But a recent Federal Deposit Insurance Corporation report revealed that the problem goes back even further -- since the early 1990s, "no other state in the country has had such stagnation in employment." ...Between 1991 and 2004, the most recent figure available from the U.S. Census Bureau, median household income in the Nutmeg State fell by almost $3,300. In contrast, the national figure rose by almost $2,800. ...In the 1990s, Connecticut was one of only two states to lose population. That should not have come as a surprise. Research shows that high-tax states such as Connecticut have been losing population to low-tax states for decades. ...

Obviously the complexity of other factors contributing to this state of affairs makes it difficult to say or prove anything. But it sure makes you think!

Raising the Dead

As time passes, I trust the media less and less. If my trust gets much lower, I'll end up assuming the opposite of what I read. During the latest mideast conflict between Lebanon and Israel, the main stream media was caught manipulating photographs and photographic sequences numerous times (here and here, for example). Indeed, the new term fauxtography has been coined to cover all these frauds.

So, when I read about the police crack down on striptease funerals in China, I immediately assumed that it was just a joke. While I suppose that striptease is one way to put the "fun" in "fun-eral", I figured some gullible reporter was hoodwinked by some Asian prankster, and it didn't actually happen. But I've now waited a week for Snopes to discredit the story and there's still no mention of it.

It's not just the general concept that's unbelievable. The world's a big place and there are a lot of cultural viewpoints, so the striptease funeral concept sounds (barely) plausible to me. What's even more unlikely to me is the name of the place in which the striptease happened: Donghai (pronounced Dong High). I mean really, what are the odds of that?

But it gets worse (or better, depending on how you look at it). According to Wikipedia:

In Chinese mythology, Donghai is the domain of the Donghai Longwang (东海龍王), or "the Dragon King of the Eastern Sea"

Donghai Longwang? So let me get this straight. They were using striptease to raise [support for] the dead in Donghai which is the center of Donghai Longwang. A remarkable convergence of names and places for this story, don't you think?

Did You Say Woof?

Israel's predicament of being surrounded by neighbors that fervently want to destroy it reminds me of "The Story of the Czar, the Rabbi, and the Dog":

The Czar appointed a brutal and ruthless minister to govern an area in western Russia. The minister learned that there was a highly esteemed rabbi in one of the Jewish communities in his area, and wishing to assert control over that community via intimidation, called in the revered and elderly rabbi. "If you are so wise," taunted the minister, "how about teaching my dog to talk? If you succeed, I'll let you live. If you fail, I'll have to kill you." The rabbi replied, "I accept your challenge. I can teach your dog to talk in a year."

When the rabbi later told his wife and students about his decision, they were astounded: "How could you say you could teach the dog to talk?"

The rabbi's answer was definitive: "A lot can happen in a year. In a year, the minister could die. In a year, the Czar might replace the minister. In a year, I could die. In a year, the dog could die. In a year, I could teach the dog to talk."

As a quick aside, as an entrepreneur, I know of several small companies (not any of mine, of course) in dire circumstances that have used similar reasoning to make future promises that they almost certainly would not be able to keep, because hey, a lot can happen in a year.

In the middle east, the rabbi represents Israel, the Czar is Israel's muslim neighbors, getting the dog to talk represents getting Israel's neighbors to accept its existence, the minister represents Iran, and the year represents the time until Iran has a sufficient nuclear arsenal to critically damage Israel.

In case you think that Israel might be safe if Iran had nuclear weapons, lets consider some statements made by Iran's President Ahmadinejad.

From the Washington Post regarding the conflict in Lebanon: "Although the main solution is for the elimination of the Zionist regime, at this stage an immediate cease-fire must be implemented,"

From CBS News: "So we are asking why the American government is blindly supporting this murderous regime [Israel]."

From the New York Times: "Our dear Imam said that the occupying regime [Israel] must be wiped off the map and this was a very wise statement."

It looks to me like these statements are representative not only of President Ahmadinejad, but of a majority of the people in power in Iran. Possibly even worse, President Ahmadinejad believes in the 12th Imam, a messianic figure, who will "return to save the world when it had descended into chaos", and "that humans can stir up chaos to encourage him to return." Bombing Israel with nukes and the expected retaliation by Israel might be just what the doctor ordered in order to stir up adequate chaos to get Mr. Twelve Imam (aka Muhammed al-Mahdi) to save the world. To be clear here, the expected retaliation by Israel is a feature of, not a bug in, the plan.

But since Israel cannot conquer the entire middle east, it has little choice but to hope it can teach the dog to talk. After all, a lot can happen in the remaining time. In that time, Ahmadinejad and the believers in Mr. 12th could die. In that time, Iran might be replaced by someone else as the regional hegemon. In that time, the current citizens of Israel might die of old age (and many of them are childless, so what do they care what happens after that?). In that time, Iran's nuclear weapon program might be dismantled by shrewd European negotiation. In that time, maybe Israel's neighbors will learn to be willing to live in peace with it.

In that time, maybe Israel could teach the dog to talk.

Arab Rules

To be hawkish or dovish? Or, for Israel, to be or not to be? But which is which? That is the question. Whether tis nobler to suffer the rockets and mortars of outrageous fortune or to take arms against a sea of Hezbollum?

The dovish approach didn't seem to work so well. The Israelis withdrew from Lebanon, withdrew from Gaza, were preparing to withdraw from the West Bank, but still the rockets came down. Bummer!

What about a hawkish approach? Even more fundamentally, what is a viable hawkish approach to the problem? A "proportionate" response doesn't seem useful. Hezbollah fires a few missiles into random population centers in Israel, so Israel fires a few missiles randomly back into Lebanon? Nah, doesn't cut it.

The more intense response that we're currently witnessing doesn't strike me as working particularly well either. What's the end game? How can Israel finish this war and end up with a lasting peace? I can't imagine how that can happen, but it could be that I'm just short on imagination.

I've seen a number of articles calling for the end of Israeli restraint. Fight fire with fire they say. A good example of this genre is contained in an editorial from Arutz Sheva (Israel National News.com) by Ellen Horowitz:

The Western concepts of fair play, moral equivalency, proportional response and restraint seem more suitable for a sporting event than for a war against an enemy who deems such concepts as absurd. Israel's timeout for an investigation must seem downright laughable to an adversary who would litter any playing or battlefield with penalty flags and fouls. The UN referees best pack-up and go home, because any whistle-blowing will fall on deaf ears.

Nobody understands that better than Dutch attorney and former UNHCR official Johan Rhodius. Last week, I had the opportunity to exchange thoughts on Israel's predicament with him.

Mr. Rhodius asserts that the very existential nature of Israel's wars make the Western concepts of proportionality and restraint irrelevant. And by insisting on the Jewish State's adherence to such notions, the Western world demonstrates a lack of moral clarity and endangers itself by weakening Israel. [...]

Mr. Rhodius goes on to say that the Western concept of restraint has permeated the Israeli justice system and weakened Israel's state of security. Terrorism, by its very nature, knows no restraint: "It's not moderate, proportionate, objective or unprejudiced."

Her concluding sentence?

Israel best ... learn to play by Arab rules, and get the job done.

But I think this last sentence is an awkward way to conclude. What sorts of actions should be taken in order to play by Arab rules? Since the Arabs (especially Hamas and Hezbollah) would love to slaughter every last Jew in Israel if they could, does that mean that Israel should attempt to perpetrate a mass genocide against Arabs? Does it mean that Israel should indiscriminately target civilians? Should Israel enter treaties and then ignore them? Aren't these the sorts of things that playing by Arab rules implies? Or is there something less horrific that still qualifies as playing by Arab rules and will somehow help the situation?

I'm starting to suffer from Stanley Kurtz "Hawkish Gloom". It's not just Israel that's in trouble:

This means that the entire Western world now stands in a position roughly analogous to that of Israel: locked in an essentially permanent struggle with a foe it is impossible either to placate, or to entirely destroy — a foe who demands our own destruction, and whose problems are so deep they would not be solved even by victory.

There seems to be no satisfactory outcome possible, especially with regards to Iran:

The West is on a collision course with Iran. There will either be a preemptive war against Iran’s nuclear program, or an endless series of hot-and-cold war crises following Iran’s acquisition of a bomb. And an Iranian bomb means further nuclear proliferation to Egypt and Saudi Arabia, as a balancing move by the big Sunni states. With all those Islamic bombs floating around, what are the chances the U.S. will avoid a nuclear terrorist strike over the long-term?

My current prediction, and I obviously hope that I'm very, very wrong, is that we'll do nothing of significance to address the problem - primarily because there's nothing that can be done that a civilized society can or should be willing to do - until we suffer horrific damage (nukes or otherwise) at the hands of terrorists.

Then we will no longer be a civilized society and we will be willing to play by Arab Rules.

What's Going On?

I've heard of the concept of the "fog of war" and I'm no expert and not very knowledgeable about the execution of wars, but I'm bewildered at how hard it is to get a reading that I can have any confidence about regarding the current conflict between Israel and Hezbollah (primarily) and Hamas (secondarily). According to the various information sources that I've been reading, there is a huge range of possibilities in what's going on. Israel's military is either performing incompetently or is making good progress. Hezbollah is standing firm or is hurting. The Israelis are deliberately targeting civilians or they are carefully minimizing damage to the civilian population and infrastructure. Qana was a massacre or it was a hoax. A cease fire is imminent or the fighting will continue.

I fully understand why it's so difficult to get information. Events in the middle east seem to always elicit a tremendously emotional response from just about everybody which tends to limit objective viewpoints. As a result, journalists from both sides publish intensely biased stuff. As an example, Reuters is now facing a bit of a scandal because a number of their headline photographs turned out to have been doctored in an anti-Israel fashion. Even if journalists wanted to be perfectly objective, it would still be difficult since both Israel and Hezbollah are, understandably, putting out fake news as part of disinformation and psy-ops campaigns. As a result, the amount of real, verifiable, non-contested information is extremely limited.

With the available information sources providing what is essentially random information (basically covering all possibilities), I decided to try and find an objective proxy that might reflect the overall status of the conflict. Conveniently, Tigerhawk posts a comparison of the Tel Aviv Stock Exchange 100 (TA100) versus the Dow over the last few months.

Tigerhawk's analysis of the graph is that the TA100 "sold off broadly at the start of the crisis, but the progress has been impressive since Israel began its campaign to disarm Hezbollah. If you believe in the distributive wisdom of the financial markets in assessing geopolitical risk, Israel is improving its position." He further asks, "The two indices traded essentially in tandem, but started to diverge significantly in mid-June, a month before Hezbollah made its move and almost two weeks before Hamas kidnapped Gilad Shalit. Did the market "know" that Israel was on the brink of some security crisis ... ?"

I personally don't think these markets are anywhere nearly strongly correlated enough to make such strong statements or put forth such questions. On the other hand, the fact the the TA100 isn't plunging does, I think, support rather more modest assertions. For example, I do think the market is saying that the near to mid term consequences of this war for Israel's economy will be at most marginally negative. The market is therefore saying that all factors, including world opinion (plus resulting embargoes against Israel, if any), infrastructure damage, and the security of Israel (including the results of inflaming its Arab neighbors), will likely not have all that big of an impact.

Israel looks likely to survive the next few years, anyway.

Developing World

I currently consider the world broken down into three groups economically: the developed world, which consists of countries like the Anglosphere and Europe; the poor but rapidly developing countries such as China, India, and the other Asian Tigers; and the basket case countries such as South America and Africa. This last group has not made much progress, well, ever.

As a result, much is being made of the fact the world economy is booming. And, better yet, the poorest countries such as those in my basket case group, have had very strong increases in GDP per capita. The claim is that the poor are finally getting richer faster than the rich!

Unfortunately, I'm afraid the claim is probably too strong. Because the rich are still getting richer, demand for commodities such as energy and metals has been increasing, driving up prices, really for the first time in decades. Those poorest countries have no other source of income and wealth except exporting commodities. So, by sheer luck, their GDP per capita is increasing nicely at the moment, especially since they have very little other income.

But I wouldn't bet on sustained increases in commodity prices in the long term. As a result, I predict the basket case nations will find that their GDP per capita levels off and stagnates once again within the next few years.

Firm Beliefs

I started writing on this blog for a variety of reasons. One of those was to "enlighten" others on a variety of topics, particularly in matters of economics. I've think I may have had some positive effect in some non-contentious areas of economics, but I've had absolutely no effect regarding subtopics like the effect of taxation and deficits on growth and wealth creation. It seems that everyone has their preconceived notions (fortunately, a few people actually agree with my preconceived notions), and nobody is willing to abandon their beliefs regardless of the evidence.

A recent article in the Washington Post explains some of the mechanisms that ensure that people hold on to their beliefs despite the evidence.

Psychological experiments in recent years have shown that people are not evenhanded when they process information, even though they believe they are. (When people are asked whether they are biased, they say no. But when asked whether they think other people are biased, they say yes.) Partisans who watch presidential debates invariably think their guy won. When talking heads provide opinions after the debate, partisans regularly feel the people with whom they agree are making careful, reasoned arguments, whereas the people they disagree with sound like they have cloth for brains.

Unvaryingly, partisans also believe that partisans on the other side are far more ideologically extreme than they actually are, said Stanford University psychologist Mark Lepper, who has studied how people watch presidential debates. [...]

In an experiment that pols may want to note closely, researchers recently plopped 10 Republicans and 10 Democrats into scanners that measure changes in brain-blood oxygenation. Such changes are thought to be linked to increases or decreases in particular areas of brain activity.

Each of the partisans was repeatedly shown images of President Bush and 2004 Democratic challenger John F. Kerry.

When Republicans saw Kerry (or Democrats saw Bush) there was increased activation in brain areas called the dorsolateral prefrontal cortex, which is near the temple, and the anterior cingulate cortex, which is in the middle of the head. Both these regions are involved in regulating emotions. (If you are eating an ice cream cone on a hot day and your ice cream falls on the sidewalk and you get upset, these areas of your brain remind you that it is only an ice cream, that not eating the ice cream can help keep those pounds off, and similar rationalizations.) More straightforwardly, Republicans and Democrats also showed activation in two other brain areas involved in negative emotion, the insula and the temporal pole. It makes perfect sense, of course, why partisans would feel negatively about the candidate they dislike, but what explains the activation of the cognitive regulatory system?

Turns out, rather than turning down their negative feelings as they might do with the fallen ice cream, partisans turn up their negative emotional response when they see a photo of the opposing candidate, said Jonas Kaplan, a psychologist at the University of California at Los Angeles. [...]

The result reflects a larger phenomenon in which people routinely discount information that threatens their preexisting beliefs, said Emory University psychologist Drew Westen, who has conducted brain-scan experiments that show partisans swiftly spot hypocrisy and inconsistencies -- but only in the opposing candidate.

When presented with evidence showing the flaws of their candidate, the same brain regions that Kaplan studied lighted up -- only this time partisans were unconsciously turning down feelings of aversion and unpleasantness.

This study is certainly closely aligned with my experiences on this blog and also commenting on other blogs (not to mention my experiences in actual, real live, face-to-face conversations). Obviously, being human, I must suffer from the same problem, so my worldview is also based on partisan thinking and y'all should ignore whatever I say. Researchers are probably also prone to this effect. Of course, if the researchers who did the research referred to by the Washington Post article were also affected by this, then the results of their research is bogus, and such an effect doesn't actually exist. But, if it doesn't exist, then they weren't affected, so their research is valid, so it does exist. But if it does exist ...

And so we end up with paradox.