Markets vs. Central Planners, An On-Going Series

A great little vignette from Don Boudreaux about humility and markets.

I remember back in the late 1970s or early 1980s when I first noticed that still water began to be offered for sale in single-sized bottles. I was convinced that this product would fail. “Who would pay for still water in single-sized bottles when still water can be gotten for free out of water fountains and water coolers or at zero marginal cost out of faucets at home?” I reasoned. Whether I reasoned rightly or wrongly, my prediction proved wrong. Reason, you see, is a wonderful and necessary tool, but also one of limited power. My reason could not reveal to me the preferences of millions of other people. My reason could not reveal to me the ambitions and the creativity of entrepreneurs. My reason could not reveal to me the details of an open-ended future in which people are free to spend their money—as consumers, as producers, and as investors—as they wish.

Had I been a government planner in the 1970s or early 1980s—a planner with the finest training, the highest integrity, and a most intense desire to serve my fellow citizens well—I would have counseled against directing society’s scarce resources into the production and distribution of single-sized bottled still water. My reason would have assured me of the prudence and correctness of my decision. And if I were such a government planner whose diktat would have been heeded, no one would ever have learned that my decision stunk.

That markets work better, in all their chaos, than smart, well-intentioned central planners, is in one sense quite counterintuitive.

Questions About Life from Jonathan Safran Foer

What’s the kindest thing you almost did? Is your fear of insomnia stronger than your fear of what awoke you? Are bonsai cruel? Do you love what you love, or just the feeling? Your earliest memories: do you look though your young eyes, or look at your young self? Which feels worse: to know that there are people who do more with less talent, or that there are people with more talent? Do you walk on moving walkways? Should it make any difference that you knew it was wrong as you were doing it? Would you trade actual intelligence for the perception of being smarter? Why does it bother you when someone at the next table is having a conversation on a cell phone? How many years of your life would you trade for the greatest month of your life? What would you tell your father, if it were possible? Which is changing faster, your body, or your mind? Is it cruel to tell an old person his prognosis? Are you in any way angry at your phone? When you pass a storefront, do you look at what’s inside, look at your reflection, or neither? Is there anything you would die for if no one could ever know you died for it? If you could be assured that money wouldn’t make you any small bit happier, would you still want more money? What has been irrevocably spoiled for you? If your deepest secret became public, would you be forgiven? Is your best friend your kindest friend? Is it any way cruel to give a dog a name? Is there anything you feel a need to confess? You know it’s a “murder of crows” and a “wake of buzzards” but it’s a what of ravens, again? What is it about death that you’re afraid of? How does it make you feel to know that it’s an “unkindness of ravens”?

— Jonathan Safran Foer, from his writing on the side of a Chiptole cup. At that Vanity Fair link are Toni Morrison’s and Michael Lewis’s two-minute entries. Worth reading.

Unintended Consequences of Messing with Complex Systems

Ecosystems are complex. When you try to intervene and “fix” one discrete part of an interconnected ecosystem, you’ll likely incur unintended and unpredictable consequences elsewhere. An ecosystem can be a biological community; it can also refer to a large company or even an entire economy. I love Arnold Kling’s metaphor of a country’s economy being like a rainforest. It’s a metaphor that should humble any policymaker who thinks he can simply turn a knob here or a knob there to shape economic outcomes.

In a recent episode of Econtalk on free market environmentalism, there’s an interesting story about wolves in Yellowstone. When wolves were taken out of Yellowstone park, all sorts of weird things happened. A very cool 5 minute video summary (with some beautiful imagery) explains.

Studying One’s Own Work for Imperfections

Garry Kasparov, the chess grand master, obsessively studied his past matches, looking for the slightest imperfection, but when it came time to play a chess game, he said he played by instinct, “by smell, by feel.” After Herb Stein finishes shooting a soap opera episode, he immediately goes home and reviews the rough cut. “I watch the whole thing,” Stein says, “and I just take notes. I’m looking really hard for my mistakes. I pretty much always want to find thirty mistakes, thirty things that I could have done better. If I can’t find thirty, then I’m not looking hard enough.” These mistakes are usually little things, so minor that nobody else would notice. But Stein knows that the only way to get it right the next time is to study what he got wrong this time. Tom Brady spends hours watching game tape every week, critically looking at each of his passing decisions, but when he’s standing in the pocket he knows that he can’t hesitate before making a throw. It’s not an accident that all of these experts have converged on such a similar method. They have figured out how to take advantage of their mental machinery, to steal as much wisdom as possible from their inevitable errors.

From Jonah Lehrer’s How We Decide.

Ben Franklin Didn’t Like the Choice of Bald Eagle

As a Franklin devotee, I kind of loved this anecdote. Fight on, Ben!

In 1782, after years of argument and indecision, Congress concluded that the bald eagle would make an appropriate symbol of national power and authority, and so it was decided that the bird, depicted with its wings outspread, its talons grasping an olive branch, etcetera, should be adopted as the emblem for the great seal of the United States….Not everybody agreed with the decision… Benjamin Franklin thought the turkey a better choice and considered the bald eagle—a plunderer and a scavenger of dead fish rather than a hunter, and timid if mobbed by much smaller birds—an animal of bad moral character and in fact a coward.

(From Netherland by Joseph O’Neill.)

Quiet Celebrations

Think of “celebration” and, if you’re like me, you think of athletes celebrating a win on the field. You think of a soccer team winning the Olympic gold medal and rushing the field, hugging, screaming…unabashed ecstasy.

But not all celebration involves such a spirited display. In fact, more often in life, a person’s reaction to amazing news is more subdued.

Consider this scene from the movie Pursuit of Happyness. Will Smith’s character is told by the firm he’s interning at that he has a full-time job as a broker. After much struggle, landing the job is quite an achievement. His response to the news? Stoic. Steady. Wet eyes.

Another example actually does come from the world of sports, but in the locker room, not on the field. Brandon Belt, a player on the San Francisco Giants, being told in spring training he had made the big league club. It’s in the first few minutes of this clip (embedded below). Rather than break out into cheering, Belt is quiet, and starts lightly crying. Why does he cry quietly here, but rush the field after his team win a game? Is it just the social / group dynamic?

Barbara Ehrenreich wrote a book intriguingly titled Dancing In the Streets: A History of Collective Joy. I haven’t read it because I generally don’t like Ehrenreich, but a paragraph review of the book seems apropos:

It is a truism that everyone seeks happiness, but public manifestations of it have not always been free of recrimination. Colonial regimes have defined spectacles as an inherently “primitive” act and elders harrumph at youthful exultation. Social critic and bestselling author Ehrenreich (Nickel and Dimed) teases out the many incarnations of sanctioned public revelry, starting with the protofeminist oreibasia, or Dionysian winter dance, in antiquity, and from there covering trance, ancient mystery cults and carnival, right up to the rock and roll and sports-related mass celebrations of our own day. “Why is so little left” of such rituals, she asks, bemoaning the “loss of ecstatic pleasure.” Ehrenreich necessarily delineates the repressive reactions to such ecstasy by the forces of so-called “civilization,” reasonably positing that rituals of joy are nearly as innate as the quest for food and shelter. Complicating Ehrenreich’s schema is her own politicized judgment, dismissing what she sees as the debased celebrations of sporting events while writing approvingly of the 1960s “happenings” of her own youth and the inevitable street theater that accompanies any modern mass protest, yet all but ignoring the Burning Man festival in Nevada and tut-tutting ravers’ reliance on artificial ecstasy. That aside, Ehrenreich writes with grace and clarity in a fascinating, wide-ranging and generous account.

What Questions Are You Thinking About?

I like Robin Hanson’s advice to frame a conversation this way — it can be a telling litmus test:

I know many folks who consider themselves intellectuals. I guess they think that in part because if you asked them “What have you been up to lately?,” they’d tell you about books, articles, blogs, or twitter feeds that they’ve been reading. Or perhaps TED talks they’ve watched. This is why I prefer the question “What have you been thinking about lately?” And I’ll usually be a bit disappointed if the answer isn’t about a question they’ve been trying to answer.

Yes perhaps if they just mention a topic, that really stands for some questions about that topic. But often people thinking about a topic are mostly trying to find more supporting evidence for things they already believe. Less often are they taking what I consider the most productive intellectual strategy: focus on an important question where you don’t know the answer.

Once you start to think about a question, you’ll probably soon start to break it down into supporting sub-questions. Instead of asking “How can we get world peace?” you might ask “What most goes wrong when the United Nations intervenes?” or “Why do citizens on the losing sides of wars support them?” And hearing about your interesting sub-questions might just make my day. That is why I, like the Harvard admissions dean above, will be especially eager to hear that you’ve been thinking about interesting questions.

We Flit About Joyfully in the Light

Imagine a vast hall in Anglo-Saxon England, not long after the passing of King Arthur. It is the dead of winter and a fierce snowstorm rages outside, but a great fire fills the space within the hall with warmth and light. Now and then, a sparrow darts in for refuge from the weather. It appears as if from nowhere, flits about joyfully in the light, and then disappears again, and where it comes from and where it goes next in that stormy darkness, we do not know.

Our lives are like that.

Those are the opening words of the introduction to The Upanishads as translated and collected by Eknath Easwaran, a classic of Indian / Hindu spiritually.

From where we came and to where we go afterwards — who knows — but for minuscule amount of time that we’re alive, we are like the sparrow that emerges and follows the light, darts around playfully, and then before long returns to the vast darkness outside, never to be seen again. I like this image.

Invest in Yourself at the Low End and High End


Suppose you categorize your existing skills and knowledge into three buckets: low, medium, and high. There are things you have no expertise in or knowledge of (low), there are things you know a little bit (medium), and there are things you are already quite good at or knowledgeable of (high).

If you want to invest in yourself, where should you focus your time? At the low end, medium end, or high end of your existing abilities and knowledge?

Let’s consider the impact of improving yourself in each scenario.

Going from Illiterate to Literate: You do not know how to surf, but then you become an elementary surfer after 20 hours of effort. You know nothing about Islam, but then you become literate with the basic names and facts. You’re totally lost when you hear the word “Twitter,” but then you have a basic understanding of Twitter’s role in the social media ecosystem.

When your understanding of X goes from nothing to something — when your understanding crosses a minimal threshold — that knowledge or skill area becomes associative. Humans are creative by being able to see the associations between what we know and between the memories we hold. When you know a topic just well enough, you can come up with metaphors related to the idea. (And metaphors are the best transportation for ideas). For example, I’m not at all an expert in Italian politics, but I know enough about the country’s past and present political situation to know that volatility is the norm, and so I can credibly refer to Italy when discussing another topic I know a little, which is volatility and risk more generally.

It can be transformative to go from knowing nothing and to knowing a little. Sure, it’s hard to get started. As Josh Kaufman notes in his forthcoming book The First 20 Hours, you feel foolish or lost in the early hours of any new pursuit. But it’s critical to undertake. For me in this category, I’m considering investing in my knowledge of corporate finance, basic European history, and certain kinds of dancing, to offer just three examples.

Going from Literate to Good: It’s safer and easier to get slightly better at something you’re already good at. For example, I’m a decent chess player. I could spend a bunch of time and become slightly better, but it would take a long time to get to great. I’m already good enough that I can connect my knowledge of chess to other parts of my life; I use chess as a metaphor for other things. So short term improvement isn’t as exciting.

Going from Good to Great: Getting better at things you’re already good at is a popular business idea thanks to thinkers like Marcus Buckingham who preach the importance of building on “strengths.” But it’s an unintuitive idea for many people. In school, you’re told to focus on shoring up weaknesses. Parents and teachers pay special attention to the C’s and B’s on the report card, not A’s. This attitude sticks. So if you can switch to the strengths religion in adulthood, you’re ahead of many. Building on natural or existing strengths puts you on the fast track to craftsmanship. Craftsmanship that involves rare and valuable skills is the stuff of remarkable careers. For me, example existing strengths or deep knowledge areas include communication, online media, Spanish, networks. I’m excited by the prospect of going from 95% proficient to 99% proficient in a few key areas.

Bottom Line: It’s valuable to be world class or an expert in something the market desires. It’s valuable to be informed just enough in something to see the connections across disparate fields or experiences. But it’s not especially valuable to be pretty good but not great at something, or reasonably familiar but not a domain expert in a knowledge area. Thus: invest in yourself at the low end and the high end of your existing skill set and knowledge base.

Chinese Prison Torture, 2013 Edition

(That said, credits in World of Warcraft are valuable enough that Chinese prison guards reportedly force convicts to perform monotonous tasks within the game for 12-hour stretches at a time, building up credits which can then be sold for many times the guards’ official salary.)

That’s a parenthetical in Felix Salmon’s excellent discussion of the Bitcoin bubble and the future of currencies in general.