Digressions&Impressions

"Old Ideas in Pure Theory," On the Pre-History of Performativity and Reflexivity in the Theory of Markets under Uncertainty

The Arrow-Debreu theory was not originally put forward for the case of uncertainty, but an ingenious device introduced by Arrow, and further elaborated by Debreu, enabled the theory to be reinterpreted to cover the case of uncertainty about the availability of resources and about consumption and production possibilities...[Arrow's device permits one to incorporate] uncertainty about the environment into a Walrasian model of competitive equilibrium. The basic idea is that commodities are to be distinguished, not only by their physical characteristics and by the location and dates of their availability and/or use, but also by the environmental event in which they are made available and/or used. For example, ice cream made available (at a particular location on a particular date) if the weather is hot may be considered to be a different commodity from the same kind of ice cream made available (at the same location and date) if the weather is cold. We are thus led to consider a list of "commodities" that is greatly expanded by comparison with the corresponding case of certainty about the environment. The standard arguments of the theory of competitive equilibrium, applied to an economy with this expanded list of commodities, then require that we envisage a "price" for each commodity in the list, or, more precisely, a set of price ratios specifying the rate of exchange between each pair of commodities.

it will be useful to give a more precise account of the concepts of environment and event that I shall be employing. The description of the "physical world" is decomposed into three sets of variables: (1) decision variables, which are controlled (chosen) by economic agents; (2) environmental variables, which are not controlled by any economic agent; and (3) all other variables, which are completely determined (possibly jointly) by decisions and environmental variables. A state of the environment is a complete specification (history) of the environmental variables from the beginning to the end of the economic system in question. An event is a set of states...Granting that we cannot know the future with certainty, at any given date, there will be a family of elementary observable (knowable) events, which can be represented by a partition of the set of all possible states (histories) into a family of mutually exclusive subsets. It is natural to assume that the partitions corresponding to successive dates are successively finer, which represents the accumulation of information about the environment.

The definition of equilibrium requires that the agents have the access to the complete system of prices when choosing their plans. In effect, this requires that at the beginning of time all agents have available a (common) forecast of the equilibrium spot prices that will prevail at every future date and event. Radner (1970) "New Ideas in Pure Theory: Problems in the Theory of Markets under Uncertainty," 454-6 [HT M. Ali Khan]

The title of this post is an allusion to Radner's comment (454) that he had intended to submit his paper to a session called, "Old Ideas in Pure Theory." Radner treats so-called, Arrow or Contingent Commodities (recall) as a way to handle "uncertainty about the environment" within a Walrasian model of competitive or general equilibrium. Arrow's key (1953) insight is to connect such a commodity to every possible state (date and event) of the environment in advance. This commodity is a kind of insurance (or option). Below I return to this move as a way to handle uncertainty. One assumption that Arrow (and Debreu after him) relies on is that "at any one date each agent will have incomplete information about the state of the environment, but all the agents will have the same information." That is to say, Arrow had been working with a kind of representative agent model. One of Radner's contributions to this literature is to show how to represent "differences in information among the economic agents." (456)

Now, while extending the model, Radner also recognized several limitations on the Arrow-Debreu model. One line of limitation is that "the theory does not take account of at least three important institutional features of modern capitalist economies: money, the stock market, and active markets at every date." (457) And, in fact, Radner goes on to suggest quite elegantly that money, the stock market, and active markets are responses to uncertainty not just about the environment but also uncertainty about future prices. (457-8) To put the significance of this point poetically -- and, perhaps, go against Radner's  more sober spirit -- here Radner shows how from within a pure (friction-less) model universe, the development of capitalist institutions that allow agents to manage uncertainty may be understood without formalizing this understanding. That's not the end of the matter because Radner then goes on to summarize his earlier results (now known as a Radner Equilibrium) what active (or "incomplete") markets may look like in his model universe (and so make the Arrow-Debreu far more dynamic):

Suppose that no market at any one date is complete in the Arrow-Debreu sense; i.e., at every date and for every commodity there will be some future dates and some events at those future dates for which it will not be possible to make current contracts for future delivery contingent on those events. In such a model, several types of "equilibrium" concept suggest themselves. First, we may think of a sequence of "momentary" equilibria in which the current market is cleared at each date. The prices at which the current market is cleared at any one date will depend upon (among other things) the expectations that the agents hold concerning prices in future markets (to be distinguished from future prices on the current market!). We can represent a given agent's expectations in a precise manner as a function (schedule) that indicates what the prices will be at a given future date in each elementary event at that date. This includes, in particular, the representation of future prices as random variables, if we admit that the uncertainty of the agent about future events can be scaled in terms of subjective probabilities [16].

Radner's reference ("[16]") is to Savage, who had indeed represented uncertainty about future events in terms of subjective probabilities, but the more fundamental trick -- the representation of future prices as random variables --, is (recall) due to Alchian (and flagged by Arrow), but by 1970 was being used more widely (recall Foucault on Becker 1962). So, in Radner's paper we find the three standard ways in which true Knightian uncertainty is displaced by three successor concepts in pure theory (or mathematical economics): (i) treat it as subjective probability (Savage); (ii) treat it as Randomness (Alchian); (iii) treat it as an Arrow commodity.* (It's possible that Radner is the first to use them jointly.) Elsewhere I have explained (for example here) why (i-iii) fail to do justice to Knightian uncertainty (and I add a note below).

Now, the resulting model has one interesting feature that is flagged by Radner: "since the equilibrium price expectations are self-fulfilling, the observation of the prices in any current market provides information about the true state of the environment (i.e., the specification of the values of particular prices defines an "event" in the set of possible states of the environment)." (459) To the best of my knowledge, Radner is the first formal modeler to note this species of performativity in a (model) market economy.

Some other time I explore what happens if one confuses this model for reality. I close with another observation. Radner had noted another limitation of the original Arrow-Debreu model:

If the Arrow-Debreu model is given a literal interpretation, then it clearly requires that the economic agents possess capabilities of imagination and calculation that exceed reality by many orders of magnitude. Related to this is the observation that the theory requires in principle a complete system of insurance and futures markets, which appears to be too complex, detailed, and refined to have practical significance. (457)

Without noticing  it, perhaps, Radner here echoes one of Keynes's (1921) original reasons for embracing the reality of uncertainty. The cognitive capacities of economic agents are limited. The key word, in fact, is "imagination." After all, cheapening computer power is quickly diminishing the problem of "calculation." Rather, in the Arrow-Debreu universe we need to imagine future possible states exhaustively in advance. Elsewhere, I have complained about the modal commitment to finite, countable universes built into this model (which is supposed to model uncertainty); but even if we leave aside modal metaphysics, Radner is right to note that it is peculiar to think one can eliminate true uncertainty by relying on the imaginations of economic agents; if agents were imagining the unknown unknowns, they wouldn't be.

 

 

The irrational and Ignorance in Natural Life Sentences

Notice that nothing in the epistemic argument here suggests that no prisoners should, in fact, spend the rest of their natural lives behind bars. Instead, the point is that rationality requires that we leave the epistemic door open to acquiring new information. Put bluntly, the argument says that it is irrational for the possibility of parole to be taken off the table at the outset of any sentence....

Nearly all of my students at Stateville are serving natural life sentences. At least a handful of them have been incarcerated since they were teenagers, one since he was 14. While I didn’t know any of their decades-earlier selves, their current selves are some of the most extraordinary students I’ve had in my 15 years of teaching. They are painters and poets, mentors and authors, researchers and advocates. They breathe new life into philosophical questions I’ve been asking for the entirety of my career. And yet we tell these men that who they are now and what they have accomplished matters so little to how they ought to be treated that we won’t even bother to consider it. Rationality demands that we do better.--Jennifer Lackey "The Irrationality of Natural Life Sentences," New York Times.

I  warmly recommend Lackey's Opinionater piece (although I was surprised she did not explore the possible role of the existence of the death penalty in motivating natural life sentence);* she raises important questions about the status quo in the penal code while giving a sense of the significance of philosophy to individuals, including prison populations, and the public. By combining her experiences with analysis, she makes philosophy come alive.

I agree with Lackey's conclusion. Even so, I would argue that it's not always irrational to limit (even severely limit), in the present, the scope of decision-making of future temporal selves or polities: promises, contracts, debts, laws, and treaties all do this; as Elster reminds us, Ulysses did it to listen to the Sirens. 

We may engage in such limitation, or self-binding, for all kinds of reasons, but because Lackey is primarily interested in exploring an "epistemic argument," I note that there is an important epistemic reason to limit the availability of new information, or evidence: doing so can (other things being equal--and of course they may not be equal and in the penal system they are definitely not equal) reduce uncertainty. Enforceable contracts and promises are paradigmatic instruments to reduce (epistemic) uncertainty; they allow, for example, for better and less costly planning and also for more reliable causal inferences.  This is true in low and in so-called high stakes environments. In fact, reducing uncertainty may be more valuable in high stakes environments than allowing new evidence to influence operations. This can sometimes involve eliminating any (or severely restricting) any possible role for new information or evidence. (This is basically a variant of Hume's argument for the extremely strict enforcement of the rule of law.) It's only when a practice is overwhelmingly oriented toward truth, rather than some other end, where epistemic doors have to be kept open (and even, then, there will be constraints -- of time, money, etc. -- that may keep doors closed).

Having said that, nothing in the previous paragraph undermines Lackey's idea that there is something really wrong about ruling "out the possibility of ever considering additional evidence" (that may motivate parole) about the cases she is describing. But I worry that couching it in the terms of contemporary epistemology actually misplaces the problem. Lackey's main argument is described in this passage:

But one argument that is surprisingly absent from these conversations is an epistemic one that has to do with us. For natural life sentences say to all involved that there is no possible piece of information that could be learned between sentencing and death that could bear in any way on the punishment the convicted is said to deserve, short of what might ground an appeal. Nothing. So no matter how much a juvenile is transformed behind bars, and no matter how unrecognizable an elderly prisoner is from his earlier self, this is utterly irrelevant to whether they should be incarcerated. Our absence of knowledge about the future, our ignorance of what is to come, our lack of a crystal ball, is in no way a barrier to determining now what someone’s life ought to be like decades from now.

What Lackey is pointing to here are three, non-trivial moral-political & moral-psychological (if not metaphysical) phenomena (that combine for an argument): (i) persons can change dramatically over time -- let's call this the transformation thesis --, and (ii) imprisonment is imprisonment of whole persons and so the whole characters of these persons matters to the justification of imprisonment. In addition, (iii) imprisonment is justified (at any given time) if the incarcerated person deserves it (at that time). I am going to ignore here the fact that Lackey also sometimes seems to presuppose the unity of the virtues (such that in virtue of her students being wonderful in a variety of ways now implies they are not capable of the kind of crimes now -- let's stipulate that they were rightly convinced [something that may well be worth challenging] -- that landed them in trouble).

Lackey's epistemic argument is, of course, not irrelevant to these three non-trivial moral phenomena, but I submit that if natural life sentences are irrational in the epistemic sense it will be so because we come to believe (not just because the brain-science evidence Lackey provides, but also, say, inspired by the work of Laurie Paul) the truth of the transformation thesis and some version of (ii-iii). But (i-iii) are substantial theses that deserve independent scrutiny. In particular, if one is moved by epistemic arguments in favor of uncertainty reduction and accepts the limitation of the scope of future action, then it is not obvious one will be moved by considerations like (iii). For, one thing natural life sentences do is to remove, fairly or not, questions about future desert from consideration altogether at the time of sentencing. Of course, if one thinks this question is removed unfairly  (as it seems Lackey does), then one can argue this. But at this point we have left epistemology and slid into ethics or political theory (or something in that ballpark).

And, in fact, Lackey herself notes that "public attitudes can evolve, moving away from a zealous “war on crime” approach to one that sees much criminal activity as the result of broader social problems that call for reform." This suggests to me that beneath the epistemological argument she is really appealing to a Dewey-Anderson style argument about the nature of a proper democratic culture in political life (recall): no political decision is final, and democratic life is itself an ongoing, experimental learning (or epistemic) process in which policies, including legal policies, are tried out and evaluated in light of experience. This argument has deep roots in American culture (e.g.,Thoreau). Of course, this kind of theoretical argument also appeals to epistemic virtues and epistemic standards, but, again, the force of the stance that Lackey exhibits is not primarily epistemic, but rather political and moral. And it strikes me as a mistake to consider those that reject this political and moral stance as "irrational."

So, to sum up, this post is not intended to challenge Lackey's core insight. There is something deeply problematic about natural life sentences and the unwillingness to be receptive to new evidence that may allow one to reconsider a decision is part of the problem. Lackey is right to call attention to it. But the reasons for it being problematic are not really epistemic, but moral and political.

Why care about labeling the argument? Lackey explicitly notes that she treats her argument as an addition to the existing moral (legal, etc.) arguments; so I do not want to suggest she is pretending to be offering a unique argument against natural life sentences. (And, as it happens, I defend the role of epistemology in political theory in my inaugural lecture tomorrow.) But, even so, there is in analytical philosophy a recurring temptation to treat moral and political issues as problems of meaning, language, or epistemology and, 'when we go public,' thereby, fail to do justice to the public's moral concerns (even if these concerns are flawed); by treating these as "irrational" we use reason to end conversation, rather than opening it up--and this would be an odd result, especially because Lackey exhibits so much courage to generate the right sorts of conversations.

On Unlimited Liability

Shadow banks under LPB [Limited purpose banking] will be those without limited liability. They will be permitted to leverage. But the risk of owners' loss will greatly limit their desire to take on leverage as illustrated by the behavior of the unlimited liability banks in Switzerland. Nonfinancial corporations that wish to engage in financial intermediation must operate these businesses as LPB mutual funds.--Christophe Chamley, Laurence J. Kotlikoff and Herakles Polemarchakis (2012) "Limited-Purpose Banking—Moving from "Trust Me" to "Show Me" Banking" The American Economic Review.

One persistent myth about Chicago economics is that it is always in favor of free markets. While this is true, in general, historically the school is very suspicious of free markets in finance. At the height of the depression, the intellectual Godfathers of the school, Frank Knight (a regular in my blogging) and Henry Simons (the smartest Bleeding Heart Libertarian you probably have never heard of) tried to convince the Roosevelt administration to embrace 100% reserve banking (the so-called Chicago plan); this would prevent banks from creating money and, instead, would give the government (or the central bank) full control over money creation (and much else in the financial industry). This is quite radical because in modern credit based, capitalist economies the financial industry is responsible for much of the money creation. (This has not been true in the age of quantitative easing, of course.) In fact, as they developed the plan, they contemplated putting drastic constraints on the whole financial industry. The Chicago plan is not an artifact merely of 'old Chicago'--Milton Friedman defended a version of the plan throughout his life (see here for useful treatment). This is not to deny that other members of the Chicago school, including students of Friedman, also became cheerleaders of the financial industry (e.g., Fama, Miller, Scholes, Merton, Markowitz, etc.).* But versions of the Chicago plan are still being defended in the Chicago school (see here).

Unsurprisingly, features of the Chicago plan were rediscovered and modernized since the events of 2008. The best known is an is an IMF report from 2012 by Jaromir Benes and Michael Kumhof (see here), which is, incidentally, my source for the claim that the financial industry is responsible for much of money creation (not central banks as is commonly believed). But at the top of this post (Chamley et al.), I quote from a quirky (and much shorter) variant on the plan; the paper is worth reading because it pulls no punches and is very funny. Here I want to call attention to a feature of their proposal which deserves wider consideration (even if the Chicago plan never gets implemented). The rule is simple: if you want to take on leverage, then you must have unlimited liability (as Lloyds of London had, and some partnerships still do):

"[W]here owners share joint and several responsibility for the entire amount of debt and other liabilities amassed by the business. Unlimited liability is not capped at a maximum amount and exists regardless of the amount of investment each owner has personally made. If the business is unable to meet any financial obligations or settle any outstanding liabilities, the owner's personal assets can be seized to satisfy the debts."

Unlimited liability greatly reduces the incentive within the the financial industry to make one-way bets in which insiders get all the gains and socialize the losses; it will create serious incentives to improve underwriting standards, do due diligence, and monitor risk. (Obviously, I am not claiming that limited liability is the sole reason leverage can get out of hand; governments everywhere subsidize debt in the financial sector rather than equity.)** This is not just a matter of prudence, it's also a matter of morality (or social justice); in his recent book, Alexander Douglas has nicely argued the moral significance of proper underwriting standards. Reducing moral hazard is one important benefit from reducing leverage; the other is reducing systemic risk--all other things being equal, less leveraged banks means a less fragile system. It's also an easier policy to implement than macro-prudential regulation (which requires skills and information/knowledge that we simply do not possess yet, and probably will never obtain).

Unlimited liability in leveraged finance is also a matter of fairness. In many places the law is very much stacked against debtors (especially in Europe), who can enter bankruptcy if they are unable to pay back a loan. Unlimited liability in the financial industry, say among corporate officers and underwriters, evens the scales again; it ensures that financial creditors, too, run genuine risks. In fact, it treats creditors' losses as ordinary business debts (which they are). It also ends the ugly spectacle in which governments become collection agencies for banks when they have been reckless (or worse).

Somebody may argue that unlimited liability is rather drastic. For it makes one very vulnerable to the effects of fraud or disastrous bad luck. This is why I propose allowing some exceptions to the liability of the (modest) sort allowed to debtors (e.g., modest allowances (see here for an example).) This is also a matter of fairness.

Note that unlimited liability for leveraged financial services companies (banks, insurance companies, investment banks, shadow banks, etc.) can be decoupled from the Chicago plan. While it undoubtedly would reduce leverage in an economy, it is by no means obvious it would reduce the availability of credit in the long run. (I am ignoring here transition period issues.) For, the government has many ways to supply credit to the economy--leveraged banks are just one such mechanism.

Finally, a believer in the efficient market for ideas may ask, if unlimited liability for leveraged financial intermediaries is so prudent, then why is it not widely adopted? The answer is obvious (if one reflects briefly on public choice theory): there is a rich and powerful group of people who have every reason to spend a good chunk of their shareholders' money (it's legal, and it's called 'lobbying') to prevent it from being imposed on themselves. If even Chicago is not fond of leveraged finance, neither should our legal code be.

Trump Panic; On "the Breakdown of Trust between Elites and Base..."

One thing is certain: If the Republican party had the same rules in 2015 as it did in 1915, Donald Trump would not be a problem. His entire candidacy is premised upon the breakdown of the relationship between the elites and the base, whose mutual accord has been central to the effectiveness of the postreform rules. For all its defects, the old nomination process, which placed power exclusively in the hands of the state and local organizations, would have dispatched Trump's candidacy with ruthless efficiency...

After this cycle, the Republican party desperately needs to reform its rules. This does not mean tinkering at the margins, playing with delegate allocation formulas and debate schedules, as the Republican National Committee did after 2012. The 1970s reforms allocated power within the party based on a premise of mutual trust and respect between the voters and the establishment. Without that foundation, the rules are a liability and need to be substantially redrafted. The real danger is not that a clownish demagogue like Trump will win the nomination this cycle, but that a demagogue who is not so much a clown eventually will.---Jay Cost, The Weekly Standard,

The mixture of democracy and free markets (and free movement of people) is unstable. This is due to the fact that markets are inherently disruptive, given that they aggregate the the constantly bombarded preferences of (thereby?) fickle consumers,  and that (democratically established and/or enforced) existing rules skew the outcomes toward those with political clout. As I noted before this instability can become toxic if, in the context of heterogenous populations, the status quo generates reasonable expectations that get violated--as they must given the way markets generate uncertain outcomes. In times of stagnation, increasing inequality, and huge gains for well-protected (rent-seeking) insiders, it is to be expected that populist appeals can be mapped onto some us/them distinction that allows some us to be the authentic, united people -- even a moral community -- that excludes elites and would be (inauthentic -- e.g., immigrants, wrong religions, 'inferior' ethnicities, etc. --) members of the people.* The electoral and political success of populism, and (more important) accompanying polarization and destabilization of the familiar status quo, in turn makes some of the elites mistrustful of democracy.

One such mistrust, familiar from libertarian circles (recall) with mistrust of redistribution and rent-seeking, sees in democracy a potent moral danger in which in the polling booth the uneducated, whom cannot grasp complex phenomena, make bad decisions in the voting booth that turn out to have immoral consequences. Such libertarians prefer either markets or experts (or both, but with preference for markets) over democracy (sometimes they prefer lots as a species of democracy). Of course, it is not just libertarians that may prefer expert rule--as I have noted the European Union is a technocratic enterprise in which, thanks to the fate of Weimar and the instability of Third Republic, democratic 'input' is kept to a minimum.

There is also a longstanding conservative mistrust of democratic, popular sovereignty (going back to Burke). The impact of the Donald Trump is re-activating this trope the Republican party. What makes Jay Cost's analysis noteworthy is not that he is openly calling for an end to the accessible, primary system of picking the party-standard bearer, but rather his analysis that what makes intra-party democracy possible is a kind of tacit social compact involving  mutual trust and respect between (party) 'base' and (party) 'elite.' This trust facilitates a structure in which "The [Republican] party voters possess the formal power to decide, but there is a vast infrastructure of donors, strategists, and insiders—an elite establishment—whose job is to control informally the people's decision." The intra-party success of populism (which is directed against the elite(s)) undermines that trust and respect (etc.).

As an aside, Goldwater-Reagan style conservativism was, itself, a successful, popular and (in its race-baiting moments, populist) revolt against moneyed, East coast elites (and the 'culture' of welfare/hand-outs, etc.).  This conservative movement fizzled out, after forty to fifty years of success, in the second term of G.W. Bush (Iraq, Wall Street, etc.). (Trump is clearly a very different kind of populist.)

Cost, who calls for a return to a more heavy handed (formal) elite-managed selection procedure to maintain the integrity and longevity of the institution, does not reflect on the causes of the breakdown of trust between base and elite (which has been manifested, in part, by successful electoral challenges to (powerful) Republican incumbents). In fact, Cost is merely expressing the elite side of the breakdown of the trust. One important way in which trust breaks down if (tacitly) agreed upon expectations are systematically violated. (This is why there is a close connection between justice, trust, and stability.) The conservative movement has always been a coalition between cultural and Christian conservatives with (a much smaller group of) libertarians (who tended to represent, sometimes uneasily, business interests). While this is not always and everywhere a natural coalition, it is not entirely strange: markets and open borders generate permanent disruptions, and, for all the benefits these may bring, the subsequent dislocation feeds a desire for cultural and social stability (and slowing down of change).

Cost names a real danger: that a demagogue who is not so much a clown (but still a bit!) eventually will win the nomination and, thus, have a shot at the Presidency. He does not name the other danger (exhibited by his piece, but prevalent in Europe, too): that the "vast infrastructure of donors, strategists, and insiders" -- the rich, the highly educated, and the technocrats -- will give up on  democracy as an end, and only see it as as a, dispensable, tool.

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. 

 

 

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."

 

Bad News for some Libertarians and Conservatives on Precautionary Principles

[T]he acknowledgment of uncertainty and unknowability does not lead to a political-philosophical recognition of the fragility of modern life. On the contrary, this uncertainty itself becomes a ground for security action and intervention on the basis of speculation and imagination. As Francois Ewald put it...The precautionary principle invites one to anticipate what one does not yet know, to take into account doubtful hypotheses and simple suspicions. It invites on to take the most far-fetched forecasts seriously."--Marieke de Goede (2012) Speculative Security: The Politics of Pursuing Terrorist Monies, 50

The precautionary principle can be understood as follows: "if an action or policy has a suspected risk of causing harm to the public or to the environment, in the absence of scientific consensus that the action or policy is not harmful, the burden of proof that it is not harmful falls on those taking an action." Prior to reading De Goede's book I had two general reflections on the nature of precautionary principles (PP); first, the application of a PP is a means of pausing action, that is, as a moral tool that (a) could be used by Libertarians and Conservatives to slow down the machinery of government decision-making and (b) could be used by Progressives and Environmentalists to call attention to harmful, social consequences of policies on folk (or non-folk) that lack lobbying power. For, the precautionary principle is a natural accompaniment of uncertainty: if you don't know the wide consequences of an action on bystanders, you should be careful about advocating/pursuing it. It is a way to shift the burden of proof.

And, second, I worried that once Kuhnian ideas of science -- which treat science and consensus as strongly correlated -- are integrated into science's self-understanding, a (manufactured) scientific consensus itself could mask either considerable underlying uncertainty or facilitate further harms (see my piece with Lefevere for more reflections on the moral significance of such consensus). In practice, there are (i) complex judgments about whose risks and harms are counted in the context of justifying a course of action (or inaction) in light of PP (for an excellent example, see Kukla and Wayne's analysis here) and (ii) complex judgments about what possible futures one wants to allow (Arrow and Fisher (1974) showed that even without risk aversion "that the expected benefits of an irreversible decision should be adjusted to reflect the loss of options it entails.")**

Of course, logically the principle also facilitates government action because (and again quoting Wikipedia): PP "is used by policy makers to justify discretionary decisions in situations where there is the possibility of harm...The principle implies that there is a social responsibility to protect the public from exposure to harm, when scientific investigation has found a plausible risk" (emphasis added). That is, a precautionary principle can also function as a call to action. But because PP is a burden shifting demand, I had always viewed it as a means for slower, more responsible action that I associated with a generally conservative political outlook. (Given that I tend to view environmentalism as a species of conservatism, this fit my priors nicely.)

De Goede's book, which creatively uses Foucault-ian ideas, disabused me of the ideas in the previous paragraph. Rather she shows that precautionary principles are used to justify preemption; they are invoked in the "war on terror in the face of risks that are thought to be at once uncertain or unknowable and catastrophic to the extent that they require immediate action." (De Goede, xxviii)* The most chilling moments in the book are quotes from legal decisions that use the language of "temporary precautionary measure" (167) to deny those suspected of terrorist sympathies normal legal standards of evidence even in the absence of any criminal action (or evidence of intent). To what extent such precaution still falls under the classical precautionary principle (with its emphasis on scientific consensus) is, of course, also tricky; are the security and legal experts as well as the data-miners really representing a genuine scientific consensus?

Now, one might claim that given the-call-to-action-feature of a precautionary principle, we should not be surprised by such abuses; all principles are liable to abuse, after all. It is an open empirical (and contextually subtle) question if the abuses generated by applying precautionary principles are worse than their absence. It is familiar paradox, after all, that where such principles are needed most, they are most likely to be abused.

But rather than debating the merits of the precautionary principle, here I call attention to the key point in De Goede's book: in (urgent) contexts that focus on precaution (e.g., security), "the appeal to uncertainty replaces the demonstration of evidence as grounds for taking action" (174; see also p. 199). If this merely upends familiar habits of thought (and threatens cherished conservative principles), this would not be very disconcerting. But as De Goede notes, once such ideas get widespread bureaucratic uptake (not just in context of terrorism), a state of emergency is normalized and legally recognized. That's not just bad news for Libertarians and Conservatives.

 

On Rawls and Esotericism

A more far-reaching example concerns John Rawls…A new study of his thought has shown when his A Theory of Justice (1971) is read in conjunction with his later Lectures on the History of Moral Philosophy (2000), as well as an unpublished manuscript containing notes for eighteen lectures on Kant and Hegel, it becomes clear that important elements of his theory derive from an elaborate and profound engagement with the thought of Hegel. But while Rawls’s enormous debts to Kant are well-known because amply elaborated in A Theory of Justice, his similar debts to Hegel – was something of a pariah in most analytic philosophy departments of that time – are virtually unknown because completely suppressed. In the six-hundred odd pages of the original edition of A Theory of Justice, there are only two fleeting mentions of his name. It would seem that, fearing the disapproval or at least the noncomprehension of his primary audience, Rawls remained silent about an intellectual relationship that is ultimately crucial for the full understanding of his thought. Needless to say, this limited act of concealment does not rise to the level of full-blown esotericism. The point, however, is that this forceful and high-minded moral philosopher, who was already safely ensconced at  Harvard, was nevertheless moved to take a real step in the direction of esotericism by conditions of “adversity” that fell very far short of genuine censorship or persecution. Once you open your eyes to it, in short, you discover that defensive esotericism is so natural a phenomenon that even in the extremely open and tolerant environments of modern liberal democracies you still come across traces of it with surprising frequency.-- Arthur M. Melzer, Philosophy Between the Lines: The Lost History of Esoteric Writing, 135. [HT Norma Thompson]

While I was preparing a post on Transformative Experience and Rawls, Scholar.google alerted me to the citation of my first adult publication on Hume's and Smith's friendship in Arnhart's perceptive, critical review of Melzer's book; Arnhart is also critical of Straussianism more generally. (I have never met Arnhart, and I was very pleased by his use of my work in criticism of Straussianism (recall).) Alerted by Thompson's review, I checked Melzer's book online for the treatment of Rawls, which I copied out above. In his footnote to the quoted passage, Melzer cites a Columbia dissertation by Margaret Meek Lange and a German book by Schaub; I was unable  to locate either (but will keep looking).+

What to make of Melzer's interpretation of Rawls?

First, liberal democracies can also generate circumstances of persecution; Rawls lived through wartime censorship during the Second World War and the McCarthy era. George Reisch's scholarship has revealed that the Cold War inhibited public engagement by analytic philosophers (in fact, he credits Rawls with re-starting analytical philosophy's renewed engagement). A Theory of Justice was written during the polarization of the Vietnam war which generated its own censorship practices and fault-lines even at Harvard (recall this post on Railton). Moreover, as Melzer correctly notes, analytical philosophy was (and is) not hospitable to some intellectual enterprises (although the targets can shift--recall this post on Priest). It is, therefore, not silly to explore to what degree such facts shaped Rawls's presentation.++ Having said that, Melzer, who writes in an age of Snowden and Wikileaks, seems a bit too eager to flatter ("extremely open and tolerant environments of modern liberal democracies") some of his intended readers.

Second, one important legacy of Rawls on analytical philosophy -- one pointed out to me by Charles Larmore -- is his citation practices (obviously Larmore shouldn't be held responsible for my other ways of approaching Rawls). Whereas Oxbridge (recall) had taught analytical philosophers to do away with most footnotes (if you didn't know whose positions were being discussed obliquely you didn't belong in the game anyway), Rawls created a sense of community by including sources and critics alike into the conversation from the generous Preface onward (with self-critical footnotes on omitted references). It does not follow, of course, from this fact that Rawls would cite everybody and everything that matters to his development or that he would not practice some forms of "suppression," but it is odd to overlook this feature of Rawls (I return to this below).

Third, as a general rule one should be cautious in reading Rawls's later Lectures back into A Theory of Justice; it should especially be avoided as a means toward discovering his "debts" to earlier sources. These Lectures have many aims (including one that Rawls does not mention: the formation of a remarkably cohesive and institutionally successful school), but the least of these is to help the student and scholars retrace Rawls's sources for A Theory of Justice. (Here's one bit of evidence: Rawls effaces his knowledge of the economists--Knight is deleted from the story, and economics is treated as an enterprise distinct from philosophy (recall).)

Fourth, on p. 314 note 16, of A Theory of Justice, Rawls tells the attentive reader (while discussing Arrow and Knight) to "see the footnotes" in Arrow and Knight on particular pages. So, Rawls's note is modest evidence that Rawls is not stating explicitly all that he thinks is relevant in the pages of A Theory of Justice. These notes do, in fact, call attention to further historical sources for Arrow and Knight, and, perhaps, too, Rawls, and help explain the way the intellectual landscape is understood. (Some other time I'll say something about Knight's notes.) In particular, in his notes, Arrow mentions Rousseau and Milton in the context of discussing the 'Idealist' tradition (which in Arrow's presentation also includes Kant and T.H. Green.)** (I return to this footnote in the sixth and final point below.)

Fifth, Hegel clearly matters to Rawls of the Lectures, and I have no doubt he wants his student-audience to understand A Theory of Justice alongside Hegel. We know that Rawls owned and read Hegel's Philosophy of Right in German in a 1955 edition.*** So it is not impossible that Hegel was a very important source to Rawls in the sixties (after all, he cites him in English translation in A Theory of Justice). Rawls is confident enough to insist in a footnote that Hegel, in turn, is indebted to Smith's Wealth of Nations. But A Theory of Justice also calls attention to sources heavily influenced by and engaging with Hegel: in addition to Knight, Marx and Bradley deserve mention. Moreover, we know that Rawls had carefully read Bosanquet, Kelsen, and Schumpeter, and he owned the great Christian Liberal Idealist, Green (with whom Rawls has considerable affinity).

Finally, already in the original preface to A Theory of Justice, Rawls had made it clear that he understood that not all readers could grapple with his "long book" in the same way. He provides several road-maps (which allow one to taste the "essentials of the theory" and the "basic parts of the book" (xviii-xix). Rawls distinguishes among his readers in virtue of them having different conceptions of freedom to follow their "preferences and to look at the problems which most concern" them (xix). This hint shows that Rawls thought himself capable of writing for a heterogeneous audience. In fact, and surprisingly enough, the hint entails that Rawls thought his most careful or patient reader(s) were those most willing and capable to suspend acting on their preferences (self-command). We learn from the part of the book that Rawls tells his reader is safe to skip that "the morality of self-command... becomes truly supererogatory when the individual displays its characteristic virtues of courage, magnanimity, and self-control in actions presupposing great discipline and training" in the service of "superior ends in a manner consistent with justice." (419)

 

 

On Econogenic Harm

Economists, on the other hand, generally do not give sufficient attention to the ways that their own practice induces harm. We even lack the language to discuss economist-induced harm. There is no parallel in economics to the concept of medical malpractice, of course; economists are not held legally liable for their mistakes, no matter how severe the effects. More broadly, there is no economic analogue to the concept of iatrogenesis [see here--ES]. There should be. We need a concept, and a corresponding term, to name what is as-of-yet unnamed. Let us refer to the harm economists cause with the term ‘econogenic harm.’

[E]conomists recognize that harm is a regular and, likely, ineradicable feature of economic practice, as Hicks understood. It needs to be said plainly: economists are in the harm business. Almost always we cause harm as we try to do good. Hence, the Hippocratic directive “first, do no harm,” if taken as an inviolable mandate or a decision rule, has no relevance in economics since it would imply that economists can do nothing at all.

Yet, we have no professional economic ethicists, or any texts, journals, newsletters, curriculum, regular conferences, or other forums that explore systematically what it means to be an ethical economist, or what it means for economics to be an ethical profession. Unfortunately, the absence of professional economic ethics deprives us of a tradition of careful inquiry into the nature of and responsibility for econogenic harm.

This can’t be the proper attitude of a responsible profession that is committed to enhancing the welfare and freedoms of others. Instead, the prevalence and severity of econogenic harm carries an ethical burden for the economics profession to attend more carefully to the nature and distribution of the harms that its practice causes.--George F. De Martino.

De Martino makes a very important point: all economic policy -- including the obviously beneficial ones -- creates harms, and many policies create a wide variety of harms. (This is why a do-no-harm-principle would entail that economists couldn't do anything.) This may be thought surprising because before recommending policy economists are sometimes thought to rely on a Pareto improvement standard, where, by definition, nobody is made worse off. Of course, lots of harms are not monetary (and this tends to be overlooked by defenders of the Pareto standard). In fact, in practice, economists rely (as De Martino notes) on the less stringent Kaldor–Hicks criterion which only demands the possibility of compensation to those made less well off due to the policy change. (And, in fact, often it is the case that if such compensation were paid it would not be clear that the policy would still be worth executing due transaction/enforcement costs.)

Even if one rejects the thought that not all harms can be fully compensated in monetary fashion, there is still another intuitive way to grasp that all economic policy will generate harms. For, (nearly) all policy violates reasonable expectations that have been developed by members of a society. Even if these expectations are founded on some initial injustice, their violation will be experienced as a harm.*

I should note, by the way, that recognition of De Martino's insight puts some pressure on the feasibility of my second norm of analytical egalitarianism, which (recall) states:

Experts/philosophers should not promote policies where the down-side risks of implementation are (primarily) shifted onto less fortunate others.

Experts/philosophers should not promote policies where the down-side risks of implementation are (primarily) shifted onto less fortunate others. - See more at: http://digressionsnimpressions.typepad.com/digressionsimpressions/2014/05/two-norms-of-analytic-egalitarianism.html#sthash.GfWIewdO.dpuf

If it is inevitable that all economists's policy advice generates some harms, it is likely that at least sometimes (unexpected) harms will accrue to the less fortunate.

Some of the harms that are a consequence of economists's policy guidance can be recognized in advance by way of thorough, ordinary cost-benefit analysis. But as De Martino noted in a lecture I recently attented many harms that are a consequence of economic policy are also non-economic in character and tend not to be recognized in economic models at all. (This is true even if one would allow, controversially (and unrealistically) that all harms can, in principle be repaired by economic means.) For, as already noted above, economic policies disrupt habits or forms of life. Moreover, it is a truism in economics that economic policy generates unintended consequences, so that it is also true that economists know (again echoing De Martino) there will be harms they cannot foresee in advance.

As I reported recently, in light of work by my colleague Marieke de Goede (about which more before long) I have lost faith in precautionary principles in the context of public policy; these principles are too easily abused by government officials and their policy advisors. But it does not follow one can't make minimizing harm, all things being equal a permanent feature of economic policy.  This would entail a duty to seek out, in advance of implementation, the sources of possible (non-monetary) harm that would arise as a consequence of policy. So, we can reformulate the second norm of analytical egalitarianism as follows:

Experts/philosophers should in the policies they promote minimize harm, all things being equal and, in so doing, should not advocate policies where the down-side risks of implementation are (primarily) shifted onto less fortunate others.

While this norm would be incompatible with certain forms of utilitarianism, it is a fairly minimal ethical constraint on policy. Obviously the approach I advocate leaves room for judgment. It would also slow down and make more transparent some policy making; but these are features of my position not bugs.

 

 

 

Wisdom in economics...Keynes, Savage, and Friedman

The maximization of such an expected value may also be regarded as a maxim for behavior. As such, it promises to have important implications for statistical theory. Cf. L. J. Savage, "The Theory of Statistical Decision," Journal of the American Statistical Association, XLVI (March, 1951), 55-67. Success of the maxim in this domain, as in any other area of decisions involving uncertainty, depends, not on its empirical verification for the economic behavior of men at large, but on its acceptability, to individuals who are particularly concerned with such decisions, as a rule guiding "wise" behavior in the face of uncertainty.--Milton Friedman & L. J. Savage (1952) The Expected-Utility Hypothesis and the Measurability of Utility (463).

Yesterday, at a workshop I co-hosted with Rogier de Langhe in Ghent, David Teira called attention to the quoted passage in a  paper (co-authored with Rasmus Winther) he presented. The passage occurs in the first substantial footnote of the Friedman/Savage paper (which by building on work by Von Neaumann & Morgernstern, together with their earlier 1948 paper, generated the canonical treatment of the axioms of expected utility theory).* Hereafter I will call their joint 1952 paper: 'F&S1952.' Teira astutely noted that the quote puts a normative ("wise") interpretation on expected utility theory. This is surprising because standard historiography suggests that the normative interpretation was a much later consequence, the result of criticism (see, for example, this fine paper by Hands.) In fact, the standard story can base itself on F&S1952:

Two quite different classes of objections are made to this particular convention for assigning a "measure" to utility:... (2) that any convention that would treat utility as measurable is undesirable or unnecessary... The second objection, on the other hand, cannot be accepted. It would deny economics a mode of speaking and expressing theories that has been found useful if not indispensable in other sciences. It expresses a viewpoint that its proponents would find impossible to apply consistently; they would have to deny themselves the privilege of speaking of money income, or stock of money, or size of population as measurable. If this viewpoint seems persuasive for utility, it is, we think, partly because some hypotheses that would, if verified, have implied convenient measures of utility were actually flagrantly contradicted by experience, and partly because of a widespread confusion between positive economics and normative economics, a widespread tendency to use the same word---utility- to stand for two quite different things: on the one hand, a quantity that it is useful to regard an individual as maximizing in interpreting his behavior and predicting his reactions to changed circumstances, and, on the other hand, a quantity that he "should" maximize or that society "should" maximize or help him maximize. The identification of these two conceptually different magnitudes is a maxim for wise behavior or an ethical precept, not a scientific proposition, and is in no way required by the adoption of a particular convention for "measuring" utility. (474)

This is the closing paragraph of F&S1952. Here wise behavior is in the domain of normative not positive (or empirical/scientific) economics. As is well known, for Friedman the distinction between normative and positive economics is central to his methodology of economics (which he was working on at the time and which he published in 1953). And, his ''as if" methodoloy is fully present in the first sentence of F&S1952: "individuals choose in such circumstances as if they were seeking to maximize the expected value of some quantity." Now, Teira offered an interesting explanation for the presence of a normative conception in F&S1952, and here I don't want to steal his thunder.

Before I get to what I take to be the significance of the footnote, I should note that, I think the footnote reflects the influence of Savage. For three reasons: (i) it fits uneasily with Friedman's larger methodology at the time; (ii) in the note they explicitly appeal to Savage's work, and (iii) Savage thought that one could treat uncertainty as a species of risk: one treated the probabilities as subjective (see his Foundations of Satistics), although Savage was quick to note that “we must be prepared to find reasoning inadequate to bring about complete agreement.” (1954 [1972]:7; see also 3, 67ff.) So, Savage did not endorse the ideal that there could be full consensus about wisdom. By claiming that this line of thought reflects Savage's influence, I do not mean to deny the significance of it to Friedman's thinking.

For, the idea that wisdom in the face of genuine uncertainty could still be a species of (mathematical) rule-following is an important rupture with earlier modes of thought which understood wisdom in terms of judgment. For example, at the hight of the financial crisis, Keynes had argued, reflecting widely held belief, that in the face of genuine (computational) complexity, that is uncertainty, central bankers should be given considerable "discretionary power" (to manage its reserves): he denied that “the rules of wise behavior by a central bank could be conveniently laid down -- having regard to the immense complexity of its problems and their varying character and varying circumstances." (Quoted from Bibow.) Of course, Keynes insisted that the discretionary power should not be absolute; as Bibow notes, Keynes thought that the economic and moral aims of the central bankers should be set by government.

Friedman, by contrast, in reflecting on the experience of monetary policy during the financial crisis in his great work with Anna Schwartz came to think that much of monetary policy ought to be rule-based (see, for example, here, and here). Whether we think of these rules as robust heuristics (to be ignored in some future emergencies) or as a species of optimizing rationality is a further question that lay in the future. Sadly, whether it's wise to think of wise behavior in conditions of uncertainty as an instance of utility maximization was not debated in full when introduced into the literature, perhaps because it was treated as pertaining to 'individuals' (who are free to do what they wish) rather than social institutions; or, perhaps because sometimes footnotes fly under the radar screen.