Digressions&Impressions

Against Merit (I think)

[Perhaps today's post is the product of my belief that given my skill-set, I have manged to over-achieve in my professional career.--ES]

I used to embrace an article of faith that all hiring and appointments should be based on defeasible and broadly construed meritocratic principles that may be bent for some other important principles (overcoming past discrimination, ensuring diversity for various reasons, etc.) I still think this would improve the actual societies we live in. But recently I have come to wonder if an ideal society that is fully meritocratic (a so-called meritocracy) would be worth having.

Before I get to my concern let me offer four, important qualifications: first, a meritocracy is compatible with some (even considerable) chance if, for example, it is also a market based society. (As even Hayek and Frank Knight taught, market outcomes always involve some chance.) Second, by raising concerns about merit, I do not mean to advocate for nepotism or for willful incompetence in the actual world. I am here exploring a feature of far-off, counter-factual ideal theory. While I am unfamiliar with a political theory that is fully grounded in embrace of merit, lots of theories appeal to meritocratic principles along the way (see Rawls here).* Third, here I am ignoring the debates over the many flawed proxies for merit (IQ, race, religion, gender, etc.) that rightly cause concern among many people of good will over the very idea of objective merit. (I am stipulating for the sake of argument that merit can be established and that the criteria/proxies are multi-dimensional, context sensitive, and sensible, etc.) Fourth, meritocratic decision procedures or rules that settle athletic or sports competitions are fine.** So, I do not object to a boxing referee saying 'may the best man win' (unless, perhaps, we should urge the referee to use 'person' instead of 'man').

But while fair play and our sense of fairness are important commitments in support of justice, we should not confuse the way we envision an ideal society with the norms that regulate a boxing match. I think the analogy between a boxing match and a meritocracy is not accidental. We care about meritocratic principles in zero-sum contexts: that is, in circumstances where there are winners and losers. Obviously, we do not always describe patterns of merited outcome in terms of wins/losses (or rankings), but it is a fairly common temptation to do so.

In a meritocratic situation, other people's advancement would be entirely fair and one's (relative or absolute) disadvantage fair, too. But would an entire meritocratic society be worth having, that is, flourishing, happy, content, inspiring, and politically stable? I have started to question this. While undoubtedly there are more psychologically galling things in life -- Nietzsche famously called attention to being the object of pity --, it is surely very annoying to be told that one deserved to lose. It is worse, I think, if one is told repeatedly and frequently by a whole society's morality and shared commitments (I hesitate to call it 'ideology') that the systematic pattern of outcomes in which one always end up on the losing side is morally just and due to your cognitive, physical, psychological, aesthetic (etc.) flaws, especially, perhaps, if it all seems true.

Thus, I worry that a meritocracy does not generate widespread contentment, but rather widespread frustration and anger (if not self-loathing). If that's right (big if--it turns on one's moral and empirical psychology), then a meritocracy, even if fair, would not be worth having as such. Maybe the bad-making features of meritocracy can be contained or eliminated, but perhaps we should be cautious when we rely on appeals to merit when we are thinking of structures of ideal society or ideal principles to live by. 

 

 

On the Economist as Physician, revisited

If all this is true, it would be as silly and immoral to "let nature take her course" as for a physician to neglect a case of pneumonia. It would also be a libel on economic science, which has its therapeutics as truly as medical science.--Irving Fisher (1933) "Debt-Deflation Theory of Great Depressions," Econometrica (347).

Fisher wrote these lines at the height of the great depression just as the age of antibiotics was commencing and so, thereby, the possibility of reliable curative treatment of pneumonia. For, Fisher the analogy between physician and economist does not reside in a do-no-harm-principle, but rather in the moral command to "gladly share such knowledge" as will aid the patient, that is society, when one has the means to do so. That is to say, in Fisher's hands the economist-as-physician metaphor is a moral call to political action (in fact to reflate the dollar in order to stop the vicious spiral of debt-repayment and deflation/high unemployment/debt-trap, familiar to modern reader from the Greek situation).

Fisher is not the first to use the economist-as-physician metaphor. As Jason Stanley has noted in a different context, the trope goes back at least to Plato (recall). It was undoubtedly revived in the hands of the eighteenth-century physiocrats who often literally combined medical practice and being an economists (cf. Quesnay). Even so, Fisher's piece is the first modern use of the metaphor within economics I am familiar with. (To the best of my knowledge, utilitarians did not conceive themselves as physicians of society.) Obviously, I welcome correction by my readers.*

One admirer of Fisher, qua mathematical economist (bot not qua eugenicist) was Milton Friedman, who called Fisher "the greatest economist that the United States has ever produced." Friedman certainly knew  the Debt-Deflation piece well (see here), and was, thus, familiar with the passage quoted above. Perhaps it inspired him to embrace the economist as physician metaphor in his writing, including in a piece, "the cause and cure of inflation," in which he sustains the metaphor throughout. The most famous use by Friedman is offered in the context of defending his (quite modest, actually, but politically non-trivial) involvement in offering economic advice to Pinochet. (I have discussed the episode here.)

In spite of my profound disagreement with the authoritarian political system of Chile, I do not consider it as evil for an economist to render technical economic advice to the Chilean Government, any more than I would regard it as evil for a physician to give technical medical advice to the Chilean Government to help end a medical plague. (Newsweek, June 14, 1976)

Friedman implies that sharing technical, economic knowledge is always moral. Perhaps, Friedman thinks it is moral to to dispense treatment that only benefits the members of the Chilean Government (which, let's stipulate, were seriously immoral); the morality of such treatment has been explored in Night Train to Lisbon by Pascal Mercier. Friedman ignores here how the experts' incentives may corrupt his judgment. Unlike physicians, economists still do not have a code of ethics, although George DeMartino is developing the intellectual framework for it (recall).  (We philosophers are no better.) But it is more likely that the main justification of Friedman's position is meant to be the more utilitarian thought that the cure has good consequences not so much for the Chilean Government, but for the majority of Chileans citizens who suffer from bad economic policies (analogous to ending "the medical plague"). It does not follow, however, that there is always a duty to dispense treatment; Friedman does not imply, for example, that it would be wrong to neglect societies that can benefit from his cures. His use of the economist as physician metaphor is not a call to action.

 

 

On Love and philosophical knowledge

[5]    Love is not blind, nor yet forgiving. "O yes, believe me," as the song says, "Love has eyes!" The nearer the intimacy, the more cuttingly do we feel the unworthiness of those we love; and because you love one, and would die for that love to-morrow, you have not forgiven, and you never will forgive, that friend's misconduct. If you want a person's faults, go to those who love him. They will not tell you, but they know. And herein lies the magnanimous courage of love, that it endures this knowledge without change.

[6]    It required a cold, distant personality like that of Thoreau, perhaps, to recognise and certainly to utter this truth; for a more human love makes it a point of honour not to acknowledge those faults of which it is most conscious. But his point of view is both high and dry. He has no illusions; he does not give way to love any more than to hatred, but preserves them both with care like valuable curiosities.--Robert Louis Stevenson, "Henry David Thoreau: His Character and Opinions" Cornhill Magazine, June 1880.

One of the joys of blogging is that my readers educate me constantly; last week David Duffy called my attention to Stevenson's essay on Thoreau. I would be remiss if I failed to mention that the point of Stevenson's essay, which is an unsparing portrait of Thoreau, is to vindicate Thoreau's political thought and behavior as a good man's horror for injustice. 

Last year, in discussing John Williams' Stoner, we encountered how love can be a means toward self-knowledge:

• Love is not an end but a process through which one person attempts to know another and unintentionally learns more about oneself as reflected in the insights and actions of the other.

As is often the case in novels about the literary life, one may treat this as a metaphor for reading novels. So, it then follows that:

• Reading a novel is not an end but a process through which one person attempts to know imagined others and unintentionally learns more about oneself as reflected in the insights and actions of the others. 

Let's call this the by-product knowledge of self through engagement with the other, real or imagined. While it may be logically possible that there may be ways to gain the same knowledge through other means than by way of the by-product knowledge of self, its existence suggests that in so far as philosophy aims at self-knowledge we may need loving engagement with others to achieve this. 

But love may also be an unintentional means toward knowledge of other. This is not to deny ('unlocking mysteries' and all that) we may also sometimes love in order to know more about the beloved. Since few of us are saints -- and the true saints would, to simplify Susan Wolf's famous analysis, probably be insufferable, maybe unlovable in the way that Thoreau seems (again to quote Stevenson) a "cold, distant personality" --, as we become known to our lovers our flaws and shortcomings become known to them, too. This is, after all, what makes some of us feel vulnerable even with modest forms of intimacy. That is to say, love can produce by-product knowledge of other (and, in addition, we may be that other). We recognize this fact about love, because its rupture (or worse) often is said to involve betrayal. When one experiences it (betrayal), it cannot be treated as mere curiosity.

Stevenson has no doubt that such by-product knowledge of other can generate conditions under which we can exhibit magnanimous courage; this is a fancy way of saying, love puts one in a position to keep some secrets. One may even say that from this vantage point discretion is a key virtue of true lovers.

I was going to end my post there. But here's an afterthought: on Stevenson's account, Thoreau's willingness to spill the beans on the nature of love, suggests he is not a jilted or disappointed lover of mankind; rather Thoreau is a less humane (and in a certain sense dishonorable) lover of humanity. If we allow -- and this may be a step too far for some -- Thoreau to be a philosophical exemplar (and it is worth asking what the conditions are for philosophy to sustain horror at injustice), this suggests that philosophy is, in part, too, about uttering truths that from the perspective of society dishonor mankind in the service of a (for lack of a better term) higher love of humanity. If that's right then, indeed, there are many professors of philosophy, but few philosophers. 

 

That love is not an end but a process through which one person attempts to know another and unintentionally learns more about oneself as reflected in the insights and actions of the other. - See more at: http://digressionsnimpressions.typepad.com/digressionsimpressions/2014/01/love.html#sthash.KqqwRImn.dpu

In Memoriam: Herbert E. Scarf (1930-2015)

[This has been contributed by M.A. Khan.--ES]

In retrospect we can see that Scarf's course mapped out the whole development of high economic theory for the next twenty or twenty-five years. Scarf's teaching was a revelation to me of what could be accomplished in the classroom, with the appropriate attention to systematic organization, consistently careful preparation, and a judicious balance of lecture and discussion to maintain contact with the level of students' understanding. --Duncan Foley (1998)

Herbert Scarf, a towering figure in mathematical economics as the subject presents itself during the last half of the 20th century, passed away on November 15, 2015 in Sag Harbor, NY. This inadequate statement is written in memoriam.

Scarf's sterling contributions to mathematical economics -- he saw his fields as mathematics and economics -- are well-recognized, and now constitute the very vernacular of the subject. His name has become an adjective appended to Ss-inventory policy, to algorithm, to lemma, to counter-example, and also, in conjunction with Debreu, to theorem. His 1962 paper on the "analysis of markets with a large number of participants" predates the papers of Debreu-Scarf and Aumann, and the full impact of his work on non-convex and discrete structures in economic theory, as they manifest themselves in indivisible commodities and in increasing-returns-to-scale technologies, has perhaps yet to be fully delineated and understood by the economics profession.

However, in this brief statement, the author should like to complement his epigraph and draw further attention to his influence as a teacher and a role-model of what it means to be a scholar. I was privileged to take his famous course in Mathematical Economics (Econ 107) in the Fall of 1970. Scarf began each lecture punctiliously two minutes after the hour and ended it five minutes before, a delivery executed on the blackboard in his enviable handwriting. These were lectures, always graced with a smile and enlivened with exemplary humor, dazzling performances week after week. The fact that a proof seemed so natural and so inevitable, effortless and easy, when he presented it, but was a jumble of ideas difficult to recollect and reconstruct after, was the staple of graduate-student conversation semester after semester during my four years at Yale's Cowles Foundation.

His influence on how "one carried oneself" was pervasive: not only his lectures, but his presence in seminars, as an oral examiner, as a member of a dissertation committee, actually in any conversation, left its indelible mark. His constant emphasis on the pursuit of perfection -- but also when to "stop fussing and leave well enough alone," sentiments that undoubtedly stemmed from Tjalling Koopmans -- was at the forefront in the minds of all who were privileged to work with him. I still recall his polite remark on one of my drafts -- he was nothing if not supremely elegant and scrupulously tactful -- "I am sure that the parts I have not read are very interesting."

I miss and mourn him.

M. Ali Khan
November 23, 2015

Why is the IMF Protecting Central Bankers?

Macroprudential policy is a complement to microprudential policy and it interacts with other types of public policy that have an impact on systemic financial stability. Indeed, prudential regulation, as carried out in the past, also had some macroprudential aspects, and the recent crisis has reinforced this focus; hence, a clear separation between “micro” and “macro” prudential, if useful conceptually, is difficult to delineate in practice. Moreover, no matter how different policy mandates are structured, financial stability tends to be a common responsibility, reflecting the far reaching consequences of financial crises. This calls for coordination across policies, to ensure that systemic risk is comprehensively addressed. Equally important, macroprudential policy is no substitute for sound policies more broadly, including, in particular, strong prudential regulation and supervision, and sound macroeconomic policies. Operational independence in other policy areas, including monetary and microprudential policy, should not be undermined in the name of macroprudential policy.

To be effective, institutional arrangements for macroprudential policy need to ensure a policymaker’s ability and willingness to act—including clear mandates; control over macroprudential instruments that are commensurate with those mandates; arrangements that safeguard operational independence; and provisions to ensure accountability, supported by transparency and clear communication of decisions and decision-making processes.--INTERNATIONAL MONETARY FUND (2011) "Macroprudential Policy: An Organizing Framework [Emphasis added.--ES]

After the stagflation of the 1970s, the conventional wisdom in the 1980/90s trough the turn of the century was that central banks should be made as independent as possible from political control; this conventional wisdom was translated in high degree of operational independence in most advanced economies (see here for useful distinctions and history). Let's stipulate, for the sake of argument, that if keeping inflation low is the only/main monetary policy objective that such independence makes sense and is supported by sound empirical evidence. Even so, the two decade experiment with central bank independence has to be judged a failure, and it is distressing that the IMF is unwilling to discuss the issues frankly.

For, as the most recent financial crisis reminded us, Central Bankers have more roles than fighting inflation. They have considerable responsibility for the health of the financial system as a whole (now known as systemic risk), and they bear some non-trivial responsibility for preventing financial bubbles*--the clean-up of which is not just very expensive and painful to the economy, but also has non-trivial distributive consequences. While there is plenty of blame to go around, central banks failed to take the punchbowl away when they could; as recounted before, there was considerable cognitive regulatory capture, reliance on outdated models  (which treated mortgages as safe--this mistake was especially clear in the public utterances by the Dutch central bank director, Wellink), and a permissive attitude (enshrined in Basle agreements) toward banks' internal risk modeling (the list is longer). This is not to deny that (a) some central banks acted prudently in the run-up to the great recession [Canada's has been widely praised], and (b) some central banks performed well in the eye of the storm (in my non-expert view Bernanke did so).

Now, one may claim that politically controlled central banks would have performed just as badly. This is by no means obvious. For, while it's clear (let's stipulate) that politicians are sometimes permissive of inflation in order to nudge employment along, even this is not a universal rule given the political clout of pensioners and other people on fixed incomes not to mention creditors, all of whom dislike inflation intensely. Moreover, it is by no means obvious that they would want to risk being held responsible (even retrospectively) for the gigantic financial bail outs we have witnessed. Even if some politicians would have behaved no differently than the central bankers did, it is extremely unlikely, given the varied political conditions and coalitions in different countries/continents, that they would have acted so uniformly mistakenly as the central bankers have done. I am not claiming that politicans always get it right, but the fact of the matter is, when the central bankers screw up, as they did, the central bankers don't pay for their mistakes; it's the taxpayers that do--that is to say, the incentives are, in fact, aligned incorrectly to sustain central bank independence.

It says something of the mistrust of politicians among the intellectual, economic, and financial elite(s) that the argument(s) and observations just sketched are not being discussed more widely. (Undoubtedly I have simplified the situation and maybe I have overlooked something important.) In fact, the IMF report quoted above -- which is supposed to be a technical report not a political report -- goes out of its way to repeatedly insist, on the basis of no empirical evidence whatsoever,** that central bank independence should be sacrosanct. Obviously, if there were robust knowledge that could guide macroprudential and monetary policy, then, perhaps, one could make an argument that rule-following, public spirited experts should be entrusted with independence. But as the IMF report notes, such knowledge is as of yet unavailable. The big picture decisions of managing the financial system are, in fact, political -- because uncertain and distributive in character -- and should be made by politicians, even if some politicians prefer otherwise (so that they can never be blamed). Either way, it is by no means obvious that keeping central bankers independent promotes "accountability."

 

On Lack of Progress

It is not all books that are as dull as their readers. There are probably words addressed to our condition exactly, which, if we could really hear and understand, would be more salutary than the morning or the spring to our lives, and possibly put a new aspect on the face of things for us. How many a man has dated a new era in his life from the reading of a book! The book exists for us, perchance, which will explain our miracles and reveal new ones. The at present unutterable things we may find somewhere uttered. These same questions that disturb and puzzle and confound us have in their turn occurred to all the wise men; not one has been omitted; and each has answered them, according to his ability, by his words and his life.-- Thoreau, "On Reading," Walden.

If we can get past Thoreau's immodesty -- he comes close to grouping himself among "the wise" --, we can understand him as saying that there is no progress in the underlying circumstances of human life. There is, however, variation in the answers  given to the enduring "questions that disturb and puzzle and confound." Some of that variation can offer a "new aspect," but he resists the idea that the new is also an improvement. Rather, the best books (past and present) make available in speech what we may call, purportedly impossible thoughts ("the at present unutterable things we may find somewhere uttered"). The denial of progress does not entail pessimism. For, as Thoreau insists time and again, once articulated or exhibited, impossible realities can be made to exist: "If you have built castles in the air, your work need not be lost; that is where they should be. Now put the foundations under them."

Thoreau insists that the wise exhibit a kind of integrity between words and deeds. That is, philosophy and philosophical lives disclose and revive options that are were locally unavailable in word and deed. These disclosed options can be improvements over the present baseline--they are "salutary" because they are life-affirming (recall), but it is clear that Thoreau thinks these do not secure permanent improvements. Why this is the case is not explained entirely. (To be clear: Thoreau thinks industrial and material advancements are not an improvement because they generate wants that make us psychological slaves.)* Evoking Montesquieu, he claims that ages have spirits apt to them; but Thoreau warns his confident nineteenth century readers, eras come and go. 

While, in context, Thoreau is primarily concerned with spiritual and cultural flourishing, there is also a political tenor to his remarks. That's clear from the fact that the section ends with the observation  that "to act collectively is according to the spirit of our institutions." Here "our" refers to American or, more likely, New England's (or even just Concord's) institutions. In fact, while there is (echoing Emerson's Self-Reliance) a non-conformist, individualist strain in Thoreau, he also recognizes that at least in some ages, collectives are the proper locus of action for some purposes: "Instead of noblemen, let us have noble villages of men."

Thoreau's general denial of progress keeps him relevant. (This is compatible with the thought that some changes involve some moral progress.) Every generation thinks itself ahead of those that came before; that our belated, temporal starting-point somehow secures us special privileges in solving life's questions. (I often note with fascination how students can be amazed to discover the characteristics of their modernity in texts written one or two millennia ago.) By this I do not merely mean that we have not beaten death nor that we have not implemented an equitable tax-regime yet. Rather, every age has eluded finding a formula to generalize living wisely or, what amounts to the same thing, peacefully.** Yet, as always, there is no paucity of seers that point the path toward the annihilation of our enemies.

Dirty Hands and/or Beyond Good and Evil in the Woods of Walden

[This is the five-hundredth D&I; this post is dedicated with gratitude to my regular readers.--ES]

I went to the woods because I wished to live deliberately, to front only the essential facts of life, and see if I could not learn what it had to teach, and not, when I came to die, discover that I had not lived. I did not wish to live what was not life, living is so dear; nor did I wish to practise resignation, unless it was quite necessary. I wanted to live deep and suck out all the marrow of life, to live so sturdily and Spartan-like as to put to rout all that was not life, to cut a broad swath and shave close, to drive life into a corner, and reduce it to its lowest terms, and, if it proved to be mean, why then to get the whole and genuine meanness of it, and publish its meanness to the world; or if it were sublime, to know it by experience, and be able to give a true account of it in my next excursion. For most men, it appears to me, are in a strange uncertainty about it, whether it is of the devil or of God, and have somewhat hastily concluded that it is the chief end of man here to "glorify God and enjoy him forever."--Thoreau, Walden.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness

In the quoted passage, Thoreau recognizes two axiological dimensions: (i) good (God) vs evil (devil) embraced by the many; low (mean) vs high (sublime) embraced by the elite few. Anticipating Nietzsche, Thoreau wants to reject, or at least experiment with rejecting, good and evil. For, on his view the basic human condition is uncertainty about the end of life. He suggests that the response to this uncertainty, which is exemplified by the Westminster Catechism (which Thoreau quotes here), has solidified the first axiology. He does not, however, explain what  the proper end is that belongs to the second axiology; one might wonder if it is merely the experience of the sublime, but it is clear that in a proper experiment the outcome is not fully known in advance.

Thoreau also rejects here the Socratic idea (proposed in his superior Apologia Pro Vita Sua) that philosophy is not just the study of death, but that true philosophers practice dying, (Phaedo 62-7). Or, at least, Thoreau rejects it as a settled fact; it is not obvious that it belongs in the "economy of living" which just is "philosophy." In addition, e strongly implies that the axiology of good vs evil just is life-denying (because ultimately rooted in theodicy and a belief in afterlife) and a kind of practice of resignation.* Moreover, he suggests that while there may be a right to (of) life, this is empty -- or at least merely formal -- prior to an exploration of what is, and what it is good for. 

Having said that, there is a certain doubleness in Thoreau's stance. For, he does not merely hold himself up as a more deliberate response to the uncertainty over the nature of life. He also proposes to report his findings to others. It is not fully clear that such reporting is identical to "trying the experiment of living" that he is an exemplar of. As I suggested yesterday, there is a distinction here between being a true philosopher and a true teacher, and it is not obvious that one be both. Perhaps, Thoreau implies that one can be these in successive stages.

A reader may worry that I have turned Thoreau too much into a proto-Nietzsche. This is not altogether unfair concern, but it is worth noting that the impressions offered above are to be discerned, too, in Thoreau's describes of his relationship to the polity:

One afternoon, near the end of the first summer, when I went to the village to get a shoe from the cobbler's, I was seized and put into jail, because, as I have elsewhere related, I did not pay a tax to, or recognize the authority of, the State which buys and sells men, women, and children, like cattle, at the door of its senate-house. I had gone down to the woods for other purposes. But, wherever a man goes, men will pursue and paw him with their dirty institutions, and, if they can, constrain him to belong to their desperate odd-fellow society. It is true, I might have resisted forcibly with more or less effect, might have run "amok" against society; but I preferred that society should run "amok" against me, it being the desperate party.

Thoreau's withdrawal from the polis does not originate in a political act, but does have non-trivial political consequences. His failure to pay the poll-tax -- which is simultaneously a badge of liberty [one has at least property in one's own body] and equality among the citizenry, while also being regressive and marking men as distinct from women, children, and slaves -- is consequentially a refusal to recognize an authority that facilitates the market place in human bodies; an authority that treats men unequally and denies liberty. To be clear, throughout Walden, Thoreau treats commercial life as a species of slavery, too; and so even if chattel slavery is abolished, Thoreau understand the American project as such as facilitating slavery of a different kind (mindless work; work as an end as such; etc.) 

Moreover, Thoreau suggests this problem is not just an American problem. I say this not to deny the usual thought that Thoreau's move to the pond on the 4th of July is an attempt at a spiritual re-founding and renewal of the very idea of America (which, of course, has universal aspirations). For, according to Thoreau it is a fact of human nature (or at least male nature) not just American nature that people want to make others complicit in the dirty hands of political  life ("men will pursue and paw him with their dirty institutions, and, if they can, constrain him to belong to their desperate odd-fellow society"). While the state facilitates domination and servility, none of us are allowed a refuge where are unsullied; because we are all collaborators and we have no mercy on those that try to escape it.

Finally, one may think that the proto-Nietzschean (beyond good and evil, etc.) strain discerned above is belied by the moral condemnation of the state. But the list of Thoreau's charges -- "pursue and paw," "dirty institutions," and especially the two-fold repetition of society's desperation and violent rage (amok) -- suggests that the criticism is not only or even so much ethical, but rather a noting of the state's facilitation of a permanent denial of a life-affirming, true joy and healthy sanity. Rejecting the Hobbesian dictum that the state is conducive to life and its boundaries the locus of rationality, Thoreau insists that to accept the contracted authority of the State, as constituted thus far, is an frenzied act of a kind of permanent despair, that is, the worst form of suicide.

 

On Fame in Philosophy

That which Epicurus could promise his friend, this I promise you, Lucilius. I shall find favour among later generations; I can take with me names that will endure as long as mine [habebo apud posteros gratiam, possum mecum duratura nomina educere.] --Seneca, Letter XXI

Seneca reveals that he writes for two (possibly three) audiences: his official addressee and 'student,' Lucilius, and posteriority. (The third audience is composed of his contemporaries who may read the letters addressed to Lucilius.) It follows from this remark that Seneca understands his letters not only as particular advice to a particular person, but also -- for lack of a better word -- as exemplary. This is one reason why in my series on Seneca's Letters, I have been paying attention to the different personalities and character types encountered along the way. Seneca teaches how to teach and reach different souls at once. Let me give an example of this last point.

Regular readers may recall that this is not the first Letter in which Seneca reveals that he is "doing business with later generations" [posterorum negotium ago] [that's from Letter 8, recall]. So this is at least the second explicit reminder of one of the points of the second Letter: he is writing in order to generate an enduring text. By repeating the point he allows that careless readers catch it. That I do so, too, is a reminder that my daily digressions are meant to entertain and instruct multiple audiences.

To more careful readers Seneca also reveals something about his self-understanding: not all fame is enduring, but all fame is a kind of magnet (I almost wrote 'reference magnet' but decided that has become a technical term) that brings other people and material into its orbit. From that vantage point, for example, the enduring Rawls is fairly generous (he names lots of folk in Theory of Justice [such that the omissions almost become more revealing [recall]]).

But enduring fame in philosophy is not just about name recognition, Seneca claims. The philosopher must also live honorably [honeste esse vivendum]. This is no easy matter, as enduring reflection on Seneca's life has revealed. In fact, in the previous letter, Seneca had distinguished between being a true teacher and being a true philosopher, and identified himself (or so I argued) with the former not the latter. He is only a partial exemplar of the philosophical life. As Thoreau puts it to be a philosopher is not merely to have subtle thoughts, nor even to found a school, but so to love wisdom as to live according to its dictates, a life of simplicity, independence, magnanimity, and trust.

Professional philosophers that teach in universities often express the thought that what we do should not be confused with the art of living; we are better at subtle distinctions (which even Thoreau grants is part of philosophy). It is, after all, true that the standards for tenure and for research excellence are only loosely connected with the kind of lived integrity we find in the lives of, say, Wollstonecraft or Spinoza. (To say this is not to ignore their blemishes.)

But it does not follow that the love of wisdom is irrelevant in the stories we hand down about our analytical teachers; I have been, in fact, amazed how often the stories that I was told about older generations did not emphasize intellectual doctrines but rather focused on questions of character: at Chicago I heard multiple stories about Carnap's social conscience; Dummett's generosity toward refugees (which he also defended intellectually) may well endure long after his theory of truth; Russell's courageous pacifism may well be remembered long after analytical philosophy is forgotten; Stebbing's heroic public integrity and private generosity toward refugees will be rediscovered by generations looking for a philosophical exemplar of virtue (cf. Heidegger). These stories suggest that even analytical philosophers -- who always self-identified in opposition to purportedly irresponsible philosophical projects -- believe there is more to the philosophical life than puzzle-solving and clarifying concepts.

So, even those of us that teach in universities can point the way toward the road of true philosophy, as teachers, without either publishing in it or being ourselves true philosophers. How to do this without sounding peevish or moralistic is no easy matter. We teach not just by our writings, our class personae, but also in our moments of exemplary behavior. If our students inside and outside the classroom find their ways onto such a path, then this may generate the conditions for a worthy, enduring fame. 

Seneca, of course, is not allowed to promise something the delivery of which he cannot ensure even if we recognize that by so promising it, he makes it more likely that the desired outcome occurs.  History favors such bravura.

Economists's Policy Advice Still based on Dubious Models

More than half a decade has passed since the start of the financial crisis. So it is worth investigating if the elite policy economists that advise governments and that dominate policy discussions rely on more robust models of reality than the generation that dominated discussion prior to the crisis (allowing that some of the same faces keep recurring, phoenix-like, from the firestorms they helped generate). In order to explore this question, I look at an influential document whose conclusions I largely endorse—so that I can focus purely on the arguments, assumptions, and evidential practices. I have picked Anat Admati and her collaborators’ “Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation,” because Admati and Hellwig (one of the co-authors) are the authors of the widely read (2013) The Bankers’ New Clothes.  The paper (“Fallacies, Irrelevant,” etc.) beautifully exposes a lot of special pleading by bankers and their advocates and offers sensible policy advice (to simplify: banks need a lot more true equity) based on the straightforward insight (again to simplify) that bankers’ costs are not necessarily social cost. (It does so in the kind of language any regular reader of a newspaper can understand.) Better capitalized bank should, all things being equal, reduce “systemic risks.” Along the way it correctly criticizes one of the most important and simultaneously regressive policy scandals of our time:  government subsidies on bank debt which encourage excessive risk-taking and basically make poor people subsidize the life-styles of relatively wealthy folk for little, if any, social benefit. In addition, Admati et al. correctly criticize the bank rules (associated with the more recent, so-called Basle agreements) that allow banks to rely on (i) their internal evaluation of their risks by way of (ii) “risk weighted assets”—a metric primarily designed to encourage banks to buy government bonds and keep creating mortgages on real estate.  It turns out, however, as we will see below that they are more critical of (ii) than (i). [In fact, their criticism of (ii) echoes The Bankers’ New Clothes.]

Okay, let me get to my criticism(s): when it suits them in their piece, Admati et al. assume without argument that (a) capital markets function properly (despite providing evidence to the contrary) and (b) that banks actually know how to estimate the risks of their loan-book just fine.  So, for example, when responding to the concern that economic growth/activity may be harmed (at least in the short-run, transition period) by the demand for higher equity – the easiest way to get there is to deleverage, that is to reduce the loan book --, they argue that “as long as the bank is currently solvent…the bank should be able to raise the desired capital quickly and efficiently through, for example, a rights offerings. Indeed, the inability to raise the capital needed…provides definitive evidence of the bank’s solvency,” (emphasis in original).

Now, the quoted claim in the previous paragraph is undoubtedly true in theory, but in practice it is by no means obvious for (1) there is considerable uncertainty about bank balance sheets – nobody really believes the accountants [recall]; some banks are so complex that it is doubtful anybody understands the underlying health of the bank at any given time-and nobody has access to relevant data to price accurately systemic risk. So, (1) can create conditions in which it very hard for otherwise solvent banks to raise equity. The converse is possible, too: (2) as long as governments maintain a fairly implicit guaranty for those banks that are purportedly too big to fail, their equity can be priced attractively enough to short term speculators. The upshot of (1-2) is that there is no reason to believe that equity markets will either provide the right signal about bank solvency or supply banks with the relevant equity. (It does not follow, of course, that equity markets won’t supply the needed equity. It’s just that no compelling argument has been given.)

There is a related problem: throughout the piece, (c) they assume that shareholders “will require a lower expected return to be willing to invest in a better capitalized bank.” That is, they assume that markets accurately understand/price risks and, thereby, adjust expected returns adequately (e.g. “in a market in which risk is priced correctly, and increase in the amount of equity financing lowers the required return on equity in a way that, absent subsidies to bank debt and other frictions, would leave the total funding costs of the bank the same.”) Now, let’s stipulate that when stated as a coarse-grained fact of the market’s ability to evaluate relative riskiness of stocks and bonds (etc.) this is undeniable true. But what we have learned during the last decade is that markets are quite capable of exhibiting lack of fine-grained discrimination among assets—this happens during a bubble as much as it happens during a crash. It’s quite possible this is due to misaligned incentives (taxes, subsidies, guarantees, bad compensation plans, etc.) and failed regulation, but it is downright silly to rely on models that do not just assume these sources of friction away in the context of policy, but also are too fine-grained (they have high degree of exactitude, but no reason to believe they are accurate).

At one point in their paper, they recognize the severity of the issue:

Finally, the assumptions underlying the Modigliani-Miller analysis are the very same assumptions that underlie the quantitative models that bank use to manage their risks, in particular, the risks in their trading books. Anyone who questions the empirical validity and relevance of an analysis that is based on these assumptions is implicitly questioning the reliability of these quantitative models and their adequacy for the uses to which they are put – including that of determining required capital under the model-based approach for market risks. If we cannot count on markets to correctly price risk and adjust for even the most basic consequences of changes in leverage, then the discussion of capital regulation should be far more encompassing than the current debate.

To be clear, I love Modigliani-Miller—it is elegant, and a very useful model to help one think about balance sheets and taxation; it originates in the golden age of mathematical economics. But it does not follow that the underlying assumptions (no arbitrage, efficient markets, and – worst of all – the treatment of uncertainty as randomness) are robust in the real world (multiple Nobel prizes to the contrary). As I have repeatedly argued, these assumptions encourage market participants to take controlled bets on outcomes rather than recognizing that they have no firm grip on underlying distributions (and, thus, modalities).

Oddly, the whole quoted paragraph is intended as a rhetorical flourish; they do not propose a more encompassing approach to capital regulation. This is really astounding: one would think that after the collapse of LTCM, Bear Stearns, Lehman, ING, RBS, ABN Amro, the whole Irish banking industry, and a long list of other banks (including mortgage banks), some humility about the banks’  ability to “manage” their risks would be in order.

To wrap up: my criticism does not target the policies advocated by Admati. I have no expertise to offer better proposals. Moreover, her piece is required reading for anybody that wants to learn how different governmental policies (taxes, regulations, accounting standards, subsidies, etc.) impact different stake-holders in banks and, thereby, different political agents in society. It really exposes lots of myths, and its underlying moral stance – dismay at liberal democracies’ persistence at encouraging socially wasteful efforts in finance – is admirable. But let’s hope that somewhere there are freshly minted PhDs in economics that will provide a path to more robust models; it’s been enough time since the crash for young minds to start afresh.

A composer meets a philosopher on the bus

The only coöperation which is commonly possible is exceedingly partial and superficial; and what little true coöperation there is, is as if it were not, being a harmony inaudible to men. If a man has faith, he will coöperate with equal faith everywhere; if he has not faith, he will continue to live like the rest of the world, whatever company he is joined to. To coöperate in the highest as well as the lowest sense, means to get our living together.--Thoreau, Walden, "Economy."

I arrived at dusk at Istanbul's Taksim square to the start of the Muezzins's Azhan surrounding us from all sides. I enjoyed the moment to get roasted walnuts. I looked up at Ghezi park--oddly familiar from the protests despite the (minor) construction at the edges. I knew that at the metro stop, I was going to say goodbye to Niklas Seidl, my unexpected travel companion of the last ninety minutes; Niklas is a German composer and cellist with the Cologne based group, Hand Werk; he has a (German) state fellowship to be in (part-time) residence in Istanbul. (You can see and hear him play here.) He told me about the sights and sounds encountered through his explorations of Istanbul's neighborhoods. We had met earlier in line at the airport-bus-stop, and we had talked through the Friday afternoon slow, rush hour bus-ride into town.

I had been given a glimpse of the creative life, and I felt refreshed; the short night's sleep and my travel forgotten. Sometimes an encounter with a stranger can be exhilarating because ordinary reserve and strategic behavior is absent. (To be sure I don't think of contemporary classical composers as the exemplars of the creative life.) As the sounds of the azhan faded into the background, I descended into Istanbul's metro system. I had to resist the urge to send Bellow's Herzog a text-message, see; once underground I looked for the token machine.

The next morning I woke to the view below. The news from Paris had kept me up late (and I was pleased by Facebook's safety check button); I overslept from a non-restful sleep. I had too little time to go down to the shore-line for a breakfast and hike. Instead, I enjoyed a quiet morning in the hills reading and savoring Walden.

As I contemplated Thoreau's stirring words and the beauty of my surroundings, I was struck by the recurring temptation to view Thoreau's self-described life of true philosophy as somehow a refuge from the real world. Yet, if it is a refuge then it is not a cowardly one; it requires courage to live an experimental life, to avoid embracing despair, and, not to put too fine a point on it, to resist the call to war.

Before writing this post I explored some of Seidl's compositions on youtube. (He works in multiple media at once.) My favorite one today, which is simultaneously funny (even satirical) and sad, is an uncanny meditation on a certain, ordinary-life-presence-of-the-sublime that resonates with my mood this week-end. It also illustrates one of Seidl's claims he made during our shared bus-ride: a lot of contemporary classical music can, despite the reputation of avant-garde elitism, be appreciated at once without prior musical background (unlike, say, much of the Baroque chamber music -- which we both admire --, which often presupposes familiarity with other music in order to be enjoyed). It doesn't follow, of course, that there are no puns and motifs that can be savored only by the advanced student. It's called talgwaren & Absterben; I like that the meaning of 'talgwaren' is mysterious to me. Anyway, here it is: