Black Swans and Nanocivics

One of my favorite economists, Tyler Cowen, talks about Black Swans here:


While I agree with much of the discussion, I think he could improve the specification of his point about countries.  He states:

“If systemic risk is now higher does that mean we should have larger countries or smaller countries? … The small country is more useful because the smaller country is nimble… [or] the smaller economies don’t handle risk as well, they can’t save their own banking systems. … The case for larger countries becomes stronger if you live in a world where you suddenly discover it has more black swans than you think.”

This way of looking at the problem isn’t really the best way to ask the question.

The interesting question is, ”If systemic risk is high, should we have strong central governments empowered with a robust national Keynesian toolkit or strong local control with a national approach even F.A. Hayek would love?”

To start the nanocivics look at the question, consider this figure:

In any society there is distribution of outcome expectations.  While most swarm to the conventional wisdom to form some sort of consensus expectation, there remains a minority (firms, people, governmental entities) which reject the consensus and expect something different.  Some, perhaps only a very few, may even be expecting what the consensus will later deem the Black Swan.

If the preponderance of financial, economic, policy, and business matters are subject to group decision-making through direct or indirect central government control, then every actor is forced behave as if they agree with the consensus expectation.  Is not Keynesian action only possible when it is favored by the majority?

However, in a decentralized system, those whose expectations don’t line up with consensus are free to pursue alternate strategies.  The few who expected the Black Swan stand firm and can continue business or personal operations through the Black Swan event.  Does not Hayek’s Pretence of Knowledge exhortation extend to economic forecasting, business investment, and household borrowing?

The nanocivics preference for empowering the small-scale relationships of local public life and Legatum’s own data on the link between prosperity and freedom agree on this.  After all, free markets are resilient for a reason.  In part, because people and businesses try different strategies based on different expectations about the future.  Their reward comes from the market, not government spoils.

That said, Cowen’s Black Swam remedy of “study more history” is a welcome and timely prescription.

The Thousand Fibers

Herman Melville, obsessed with whales and nanocivics.

It fell to the granddaughter, Eleanor Metcalf, of this long-forgotten and unsuccessful author to thrust, after his death, his works back upon the public.  Although a prolific writer, he found success not with his novels, or poetry, but on the travelling lecture circuit. Victorian audiences thrilled to his stories of travel and he extolled them to attend to the simple relationships of personal life.

Ironically, his great work, which couldn’t crack 3,000 sales in his lifetime, is now a staple of high school and college literature classes; while his advice regarding how we live linked to one another goes unheeded.   Who was he?  Before we find out, let’s look at the dissolution of bonds that he wished to cultivate:

Joel Kotkin describes an unraveling:

Increasingly, family no longer serves as the central organizing feature of society.  An unprecedented number of individuals — approaching upwards of 30% in some  Asian countries — are choosing to eschew child bearing altogether and, often,  marriage as well…

The  widespread movement away from traditional values — Hindu, Muslim, Judeo-Christian,  Buddhist or Confucian — has also undermined familialism. Traditional values  have almost without exception been rooted in kinship relations. The new  emerging social ethos endorses more secular values that prioritize individual  personal socioeconomic success as well as the personal quest for greater  fulfillment.

Likewise, family dissolution in Seoul, South Korean leads to a bitter end:

Once a country where filial duty and a strong Confucian tradition saw parents revered, modern day South Korea, with a population of 50 million, has grown economically richer, but family ties have fragmented. Nowadays 1.2 million elderly South Koreans, just over 20 percent of the elderly population, live – and increasingly die – alone.

Writing of Huntsville, Alabama, Hazel Borys of Better! Cities and Towns offers:

On my last trip to see my aging parents, I was struck again by the loneliness that comes from diminished connections. They are both inspiring people, and in their younger years were notably adept at making connections with and for others…

However, over time those connections are slowly dissolving….

What if our family home had been in a more walkable neighourhood, where they would have been prone to walk the easy thirty minutes a day that is proven to increase memory and decrease the risk of dementia?

These sorts of places are the ones rich in social networks, which – interestingly – build neural networks. Loneliness is as dangerous as smoking, and more dangerous than obesity or inactivity.

These three perspectives on isolation show us a bleak path for modern culture – lose  religion, lose family, lose neighbors, and gain but lonely senior years.

Let’s visit the failed author’s advice:

“We cannot live only for ourselves.  A thousand fibers connect us with our fellow men; and among those fibers, as sympathetic threads, our actions run as causes, and they come back to us as effects.”

Fitting it was then that the ‘sympathetic thread’ of a loving granddaughter led to discovering the unpublished yet now classic Billy Budd and to resurrecting the stillborn Moby Dick.  For Herman Melville, that’s the power of nanocivics, one generation harvesting what another has planted.

The Hobbit… And Blue Wizards?!

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The Hobbit, An Unexpected Journey, is the perfect ideal of how to adapt a book to screen. Almost better than the trilogy, this movie is a Tolkien geek’s dream. Absolutely amazing. Gorgeous cinematography, incredible adaption of storyline, and epic characters. Jam-packed with detail, and dozens of obscure references. Like the blue wizards… Now that’s just awesome.

For those who don’t get that reference, in some of Tolkien’s other writings, there are five wizards mentioned as the only five wizards to ever exist. Gandalf the Grey, Saruman the White, and Radgast the Brown are all well-known to Tolkien enthusiasts in varying degrees. Each are heavily referenced in The Silmarillion and other assorted works, although Radgast is a very minor figure. But they all have backstory. The other two wizards are left completely unaccounted for in all of Tolkien’s writing, and are known simply as ”The Blue Wizards.” No names, no story, no nothing. Thus Gandalf’s line in The Hobbit, regarding the five wizards,”…And the two blue wizards, whose names I can’t remember,” is highly amusing.

Little geek moment there.

Anyway, for all those wondering whether Peter Jackson’s ambitious attempt to expand The Hobbit into a trilogy was worth it? No further worries. The Hobbit is as good as or better than The Lord of the Rings, and only promises to improve with the coming films. The Unexpected Journey is frankly worth seeing for the dwarf/goblin wars alone, including but not limited to Azgog and the story of the Oakenshield. Not to mention the White Council…..

Just go see it if you haven’t already. This is how prequels should be made. (Take notes, George Lucas, take notes.)

Oh, and Thorin Oakenshield, as played by Richard Armitage, is perhaps the single greatest epic Tolkien hero of all time equaled only by Aragorn… If that.

Just saying.

 

The Usual Problem

An Autistic Chap who would like to go viral. www.highfunctioningmomism.com

American debt, missiles from Gaza, centrifuges in Iran and North Korea, drought, flood, insolvent Greeks – what might be our most difficult problem of 2013?

Naill Ferguson offered this late in 2011 and it still rings true:

So the question is not, how do we produce more Steve [Jobs]s? The normal process of human reproduction will ensure a steady supply of what Malcolm Gladwell has called “outliers.” The question should be, how do we ensure that the next Steve Jobs fulfills his potential?

An adopted child, the biological son of a Syrian Muslim immigrant, a college dropout, a hippie who briefly converted to Buddhism and experimented with LSD—Jobs was the type of guy no sane human resources department would have hired. I doubt that Apple itself would hire someone with his résumé at age 20. The only chance he ever had to become a chief executive officer was by founding his own company.

And that—China, please note—is why capitalism needs to be embedded in a truly free society in order to flourish. In a free society a weirdo can do his own thing. In a free society he can even fail at his own thing, as Jobs undoubtedly did in his first stint in charge of Apple. And in a free society he can bounce back and revolutionize all our lives.

Somewhere in his father’s native Syria another Steve Jobs has just died. But this other Steve was gunned down by a tyrannical government. And what wonders his genius might have produced we shall never know.

2013′s answers won’t come from the elite addressing the crisis du jour; the God-given diversity of genius available in the world holds the solutions. Thanks to Gary Becker, we call that human capital in economics.

Consider this business with the autistic:

We don’t need diversity for the sake of it, we are given diversity to make use of it. When the range of people contributing to creating both material wealth and social richness expands, we all benefit. When freedom and liberty decrease, the requirement for conformity increases and we lose the opportunity to innovate and benefit from the unique perspective of the unusual born among us.

Here’s a last word on differences in human capital from Tyler Cowen:

If you are in some way genetically “extreme,” and suddenly better at finding/pairing with similar extremists, the numbers of that type in a population can rise relatively rapidly. … One way to interpret this is to believe that the internet will, over time, increase human genetic diversity.

I’ve long believed we need more strange nonconformists. Pair up and make more of you. You’re our only hope!

 

 

Giving Thanks for Sobornost and Catallaxy

This Thanksgiving I’m thankful for Sobornost and Catallaxy.   While often mistaken for a Ukrainian side dish consisting of spiced beets and a Greek method for preparing heavily oiled pig liver patties, these are not epicurian delights for your holiday meal.

Here’s wikipedia notes on them both:

Nikolai Lossky explained that sobornost involved  “the combination of freedom and unity of many persons on the basis of their common love for the same absolute values.”[4]

…catallaxy was … coined and made popular by Friedrich Hayek who defines it as follows:[3]

‘the order brought about by the mutual adjustment of many individual economies in a market’.

Nanocivics is where they intersect.

Nanocivics captures the idea of sobornost because exchanges we make – family, commercial, spiritual, emotional and intellectual exchanges - form and regulates those common bonds.  Civilization is, fundamentally, the outgrowth of those exchanges and bonds.  Society possesses common ideas and common loves because parents share them with children and because friends/teachers/artists/everyone share them with one another.

Also, nanocivics caputes the idea of catallaxy because the small-scale relationships of local public life are a spontaneous order.  People don’t need to be told to make social networks, they just do. People don’t need to be told to make cities, they just do.  We have a society because catallaxy works from the bottom-up, like DNA in a human cell, to make our families, our neighborhoods, our cities and our world.

Not Catallaxy

 This has both sobornost and catallaxy.

 

 

The Most Interesting Quote In the World

I like to consult with defunct economists from time to time, just to see if there’s anything in the ash heap worth relighting so we can stand in its glow again.

Let’s try something from Friedrich Hayek, best remembered as the author of The Road to Serfdom.  This from his 1967 work Studies in Philosophy, Politics and Economics:

We must make the building of a free society once more an intellectual adventure, a deed of courage. … Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in power of ideas … the battle is not lost.

Yep, that still burns bright.  Perhaps you’ll agree that nanocivics offers just that intellectual adventure, or real vision if you prefer.  More on that here.

Oh, and here’s Hayek’s mad skills on the mic:

 

 

I think these books are about the making of the video:

The connection between growth and, well, growth

The Shanghai region (left) and the greater Tokyo region (right) aren’t that different and they both compete with regions in the U.S. for jobs and development.

 

We’d all like faster economic growth but sometimes we act like it shouldn’t involve too many people. Adding more people to an area increases the number of folks who need to provide value in the economy in order to make a living. If they do, we’re all better off. Urbanization – this very process of growing larger and larger cities – benefits the economy and we would be wise to support, not hinder, the connection between regional growth and economic growth.

To start, let’s define a region as an urban core, or core(s) and the surrounding areas that are roughly a daily commute to the same. For example, the Dallas-Fort Worth region includes areas a commuting distance west of Fort Worth and a commuting distance east of Dallas. The core areas need to draw on the outlying labor supply to fully support the employment opportunities at the core. It is employment in these core areas which drive the productivity of the modern economy.

We need the core parts of the region to keep growing, so we have to maintain transportation access to them. Likewise, we need the suburban and near-rural areas to keep growing so we can’t restrict growth in those areas. Because employers chase the available labor market, both the core and the extremities of a region need be healthy to allow the region to grow. Too often, political lines are drawn along the idea that the core competes against the fringe for growth. This is occasionally true but only after the region has competed against other regions (including those outside the U.S.) to attract the growth in the first place.

If we divide up as a nation, suburban and rural versus inner city and urban core, none of our regions will successfully compete in a world economy.

Economists who practice in urban theory will typically discuss the benefits of urbanization: increased exchanges of innovative ideas, greater flexibility for the workforce from access to employers in multiple industries, shared access to specialized business services that save costs for all industries, and greater efficiency in providing core infrastructure (electric transmission and sewer treatment, for example). In regional economics, bigger turns out to be better.

Conversely, economists who focus on ‘macro’ topics typically disdain interest in the total output of the economy (gross domestic product, GDP) with a preference to the more refined GDP per capita (total output per person).  China and Japan represent well the differences between the two; let’s look at them using the United Nation’s estimates for 2010 in U.S. dollar values.

China, the second largest economy in the world, had a GDP $5.7 trillon. Japan, the third largest economy in the world, had a GDP of $5.4 trillion. Seems like two similar countries, right? Not really, China has many more people than Japan so the output per person must be much lower. China’s output person was $4,354 and Japan’s was $43,141. So, Japan’s better off, right?

This answer isn’t so clear because it’s worth pointing out that intellectual bias against raw GDP obscures our basic lesson of urban economics: the more people you have around, the more opportunities there are for various synergies and savings to develop.  So, while GDP per capita is a great measure, increasing urban population itself also provides economic benefits, which later turn into increases in GDP per capita.

We can instead point out that the average person in Shanghai is roughly as well of as the average person in Tokyo. Further, that the difference between the two countries is China’s vast inland poor. Indeed, China is in the midst of the largest migration in human history and urbanization alone is part of the economic formula that has allowed China’s coastal urban areas to thrive. As the video from the Economist below describes, since 1978, 160 million Chinese have migrated to China’s urban areas. That’s equivalent to the entire population of Mexico plus the entire population of Spain leaving home and going somewhere else.

 

Thus, while our biggest competitor has been embracing large-scale regional growth that will help them for years to come, what have we been doing? Unfortunately, we’ve been talking up urban versus suburban political divisions.

 

Grow Dat? Yes, Grow That!

“Go ahead, you know you want some strawberries. You don’t have to hide under there, you can eat them.”
Photo from growdatyouthfarm.org

It’s an old observation that connecting with the land and the natural cycles of agriculture is a great teacher of humility, wisdom and common sense.  This is why agrarian philosophies are resurgent.  Some mull over philosophies, other live them.

New Urban News highlights the Grow Dat program in New Orleans.  As the video shows, they’re action oriented:

 

 

This is the joy of focusing on the small scale relationships of local public life.  Who Dat is nanocivics in action.  The relationships and lessons built through cooperative, hands-on farming and food preparation benefit anyone who tries their hand.  The good folks in Grow Dat have learned to make synergy and value for others through competition and cooperation; they’ll carry that for a lifetime.

Visit these guys to learn more.

Invisible Hand, what up? Part 1

New Castle, NH
flicker commons/inaweofGodscreation

The Invisible Hand is perhaps the most well-known economics turn of phrase. During a recession, it may seem not only invisible, but missing altogether. What does it really mean? And, where is it these days? This post will cover the first question and we will explore the second question in a part 2 post.

Here’s economist Peter Leeson, author of The Invisible Hook: The Hidden Economics of Pirates, on the first question:

“In 1776 Scottish moral philosopher Adam Smith published a landmark treatise that launched the study of modern economics. Smith titled his book, An inquiry in the Nature of Cause of the Wealth of Nations. In it he described the most central idea to economics which he called the “invisible hand.” The invisible hand is the hidden force that guides economic cooperation. According to the Smith, people are self-interested; they’re interested in doing what’s best for them. However, often time, to do what’s best for them, people must also do what’s best for others.

The reason for this is straight forward. Most of us can only serve our self-interests by cooperating with others. We can achieve very few of our self-interested goals, from securing our next meal to acquiring our next pair of shoes, in isolation. Just think about how many skills you’d need to master and how much time you’re require if you had to produce your own milk or fashion your own coat, let alone manufacture our own car.

Because of this, Smith observed, in seeking to satisfy our own interests, we’re led, “as if by an invisible hand,” to serve others’ interests too. Serving others’ interests gets them to cooperate with us, serving our own. The milk producer, for example, must offer the best milk at the lowest price possible to serve his self interest, which is making money. Indirectly he serves his customers’ self-interest, which is acquiring cheap, high-quality milk. And on the other side of this, the milk producers’ customers, in their capacity as producers of whatever they sell, must offer the lowest price and highest quality to their customers, and so on. The result is a group of self-interest seekers, each narrowly focused on themselves but also unwittingly focused on assisting others.”

Here’s what Adam Smith, author of The Wealth of Nations, wrote:

“It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”

That is, we pay the butcher and the baker a monetary price for their effort. We don’t tell them we are hungry and hope for the best; we give them the means to satisfy their own needs when we pay them. Thus, we ourselves had better find a way to satisfy someone else’s needs or else we won’t have the resources to pay for diner.

So that’s the invisible hand, the order in society generated by many people freely seeking their own, but only able to do so successfully by serving others.

In troubled economic times, the second question, ‘where is the invisible hand?’, comes to mind because something about the system seems not to be working. What’s blocked it or made the unseen force disappear? Has something bound the hand, or blocked its effect?

Part 2 will cover the question of why the invisible hand seems to be missing these days.

Lessons from Gettysburg

Walkable Gettysburg
Photo by Jeremy Hess courtesy of the Gettysburg CVB

I’m in Gettysburg for a few days and the city, as you would expect, has much to offer.

Of course, Seminary Ridge comes to life when you see the Lutheran Seminary. The narrow streets and historic buildings leading to the edge of Cemetary Hill make it shocking to learn that only one civilian was killed in those three days of fighting despite the proximity of town to battle. Walking the mile of Pickett’s Charge, where 12,000 started out over that hopeless mile but only a few hundred managed to temporarily breach the Union line, brings life to the obvious courage and the athleticism of the men. There’s an easy 10 feet rise in the final 30 yards of the charge, where they would have been completely exposed and met by a five foot stone wall at the end of their run.

The local economy of the time was the traditional American family farm. That long-gone economic model held so many benefits for society in terms of encouraging a multi-generational approach to the land and to the importance of daily labor. The battlefields all hold stories of families that cleared, tended, maintained, and harvested with a view toward building a sustainable future in what was still a young country. By and large, they were successful and we would not have advanced from the Civil War to winning two World Wars without that agricultural vision.

However, while I’ve nothing against a healthy nostalgia for the family farm, I’ve always considered it unrealistic to bring it back in any large-scale sense.  You can family farm a niche crop or animal with great success.  However, family farming a mass production food product often involves too much competition from too vast of commercial enterprises.  Should this render the family business obsolete?

Certainly not, Gettysburg, here again, provides the example.  The old town offers grandfather-father-son law offices, multi-generation doctor’s offices, family-run restaurants, and, of course, family owned tourist traps of every size.  Seeing this diversity in the city put me in mind of this Allan Carlson suggestion:

…governments should favor family-owned micro-enterprises. The most socially disruptive effect of the industrial revolution was the way it severed the place where adults work from the place where adults live. Most of our current family questions—from loud disputes over gender roles to child care to low fertility—derive from this great disruption.

Remarkably, the 21st Century has been blessed by technologies that can help to restore the bond between workplace and home: notably the home computer and the internet. Accordingly, tax systems should favor new, home-based, family micro-enterprises. Financial bodies should mobilize capital, at favorable rates, for these family entities. State regulations should protect these family businesses from the depredations and intrigues of the big corporations.

From brothers and cousins shoulder to shoulder summoning the bravery necessary for Pickett’s Charge to small-town Maine boys fighting with their life-long friends from intimate one-room schoolhouses and holding Little Round Top with an audacious bayonet charge, Gettysburg demonstrates the power that comes from the small-scale connections.  It is all too easy to look at America today (or England, if you like their statistics better) and see we lack that fidelity to family and place.

Just as farmers around Gettysburg cleared out forest and rocks to make fields for their grandchildren, we would be wise to take some advice from Carlson and clear out places in our lives and our public policy for our future generations.  Maybe then, instead of harvesting a debt crisis, our progeny could be endowed with the inheritance necessary for the challenges of the second half of this Century.

 

P.S. The Allan Carlson quote comes courtesy of the self-described at-home mom and Catholic writer Erica Walter.