Thoughts on economics and liberty

Tag: My book reviews

My notes on Taleb’s books

While on the subject of books, I thought it would be a good idea to also publish my comments made 2 1/2 years ago re: Taleb’s books on FTI’s internal communications.

Fooled by Randomness (by Nassim Nicholas Taleb)

Posted by me on FTI Google Group 12 February 2008: I think the book is relevant to FTI in many ways (also Black Swan). He doesn’t preach the philosophy of freedom directly but points out the gaps in current economic thinking which is often centralist or does not distinguish centralised solutions sufficiently from free market solutions. His analysis of human nature is very similar to the basis on which classical liberalism is founded (e.g. much of the stuff he writes about finds a mention already in the first chapter of my manuscript: “Discovery of Freedom”).

The concept of black swan applies both to downside risks and upside risks (a sand castle suddenly falls with the last additional sand particle; a book or movie or other product such as FTI suddenly gains momentum after its word of mouth reaches critical mass). The thing is to anticipate both the black swans. FTI’s black swan tipping point (ie. point of rapid growth) should come, in my view, once we have 100 serious leaders committed to freedom.

Finally, his book, Black Swan analysed the weaknesses of the centralised US financial system well before most others. The only comparable analyses were from the Austrian school of thought (mises.org), which I believe is on the money in terms of its analysis. Taleb favourably talks about Hayek and, of course, Hayek is the most influential thinker (so far) from the Austrian school.

Check out this page (Taleb’s home page) http://www.fooledbyrandomness.com/imbeciles.htm

The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events “unlikely”.

Also: http://www.econtalk.org/archives/2007/04/taleb_on_black.html

and (this one is great stuff from the UK Time) http://business.timesonline.co.uk/tol/business/economics/article4022091.ece

The key thing we learn from this book (along with Hayek) is that centralised planners of all sorts are living in a fools paradise. No one can have access to all the local information which influences real life events. Even the best brains make frequent mistakes of statistical inference and we are all fooled by rare events. That is great background reading for people who believe in minimal regulation and justice without needless interference by pompous bureaucrats and politicians who pretend to know everything about the world.

The Black Swan

A few months later I had read The Black Swan and found that it pretty much refers to the same issues that Fooled by Randomness does. Despite Taleb’s conceited (but fast reading) writing style, both books are well worth a read, if only to provide real-life evidence of the folly of macro-economic policy makers who have ABSOLUTELY no clue about the price system and human incentives (and weaknesses). Keynesians and ‘central planners’ such as the central bankers imagine they understand human nature. They don’t. That’s the key message here. If they did understand human nature they would understand their own limitations first.

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Introduction to Steven Landsburg

For reasons I can't fathom I was not aware of the works of Steven Landsburg so far (including The Armchair Economist of which I vaguely recall seeing the title somewhere many years ago). Accidental browsing last week led to my buying his 2007 book, More Sex is Safer Sex which is an astoundingly well written and clear headed book. I'm half-way through this book at the moment, just as I'm half way through 15 odd half-open books that surround my bed. 

I checked out his work at Wikipedia (here). I am convinced he is one of the finest proponents of critical thinking around. I've just ordered the Armchair Economist and The Big Questions from the Book Depository and will have something to say about his books in the coming weeks.

But to start the ball rolling,  I'm posting a few links to his works. I encourage you to investigate his work (if you are not already familiar with his work). You'll end up being enlightened, or at least delighted. I guarantee that. 

LINKS TO LANDSBURG'S WORK

Steven Landsburg's home page (with links to useful articles)

All  Steven Landsburg's articles on Slate, here  (sort by date if you wish)

Subscribe to his blog.

CLOSING NOTES FOR THIS BLOG POST (AFTER FINISHING THE BOOK)

Finished Steven's book a couple of days ago. It lived up to expectations till the very end. It ended with a vigorous pitch for the use of cost-benefit analyses in policy making. Quite similar in that to Robert Frank's advocacy of cost-benefit analyses. Also an excellent section on obesity policy that I'll talk about separately. Despite a few policy differences between Steven Landsburg and Robert Frank, I think both of them provide valuable insights into micro-economic and social policy. I'll talk more about Steven Landsburg when I've gone through his other two books that I've ordered.

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Review of Gut Feelings by Gerd Gigerenzer

My review of Gut Feelings: The Intelligence of the Unconscious, by Gerd Gigerenzer, London: Penguin, 2007. [the version I have is sub-titled, "Shortcuts to better decision making"]

As an economiser of time and money, I often let books sit in shop bookshelves till they reach the end of their useful life and reach the clearance bins. These bins are not always the best source of good books, but the last few copies of best sellers often end up there as well, which makes it a reasonable place to browse on my afternoon walk at work. This one, Gut Feelings, is yet another good book I found in a clearance bin. 
 
In Discovery of Freedom (DOF, still a draft which will take another year to complete) I explore human nature at some length. The debates about rationality vs. unconscious intuition and even bad judgement; the debates about whether we are altruistic or not; have now become staple fodder for many outstanding academic and popular books, based initially on the work of  Kahneman and Tversky.
 
In DOF I've got extensive an discussion on this literature. For some reason,  I have not yet read Malcolm Gladwell's Blink, nor had I read this book, Gut Feelings. Yet, those who have read the earlier versions of DOF will have noticed that I had come to somewhat similar conclusions suggested in Gut Feelings – namely, that we are implicitly rational. Indeed, that is the underlying theme of my PhD dissertation itself (here). Thus, the concept of implicit contracts (implicit rationality) is not new, and one could even argue that it forms the foundation of modern economics. My specification of the social contract in DOF is similarly bsed on such implicit rationality. I therefore fully agree with Gigernzer that, ‘gut feelings themselves have a rationale based on reasons’ . Unconscious reasoning (or implicit rationality) is at the heart of our rapid-fire gut feelings.
 
As I write in DOF (draft), it is now becoming clear that just like our cerebellum undertakes extremely fine-tuned movements by implicitly making enormously complex mathematical calculations that would defeat most computers that have been designed so far, so also our behaviour is often driven by what can perhaps be best described as super-rationality. Even our irrational or emotional behaviours like love, for instance, have deeply rational reasons, which would take us many more decades of work to understand fully. 
 
What I got out of this book, therefore, is not just a validation of what I'd been already thinking anyway, but very useful additional information to reinforce and supplement my arguments in DOF. To that extent I think this is an excellent book. In particular, I've been concerned about the bounded rationality and altruism literature that claims to prove that we frequently violate what would otherwise be considered as being in our self-interest.  For instance, in their Nobel Prize winning studies, Kahneman and Tversky found that we often draw erroneous conclusions based on the way information is presented to us. These are the biases of anchoring, availability, framing and representativeness. Other biases include the base rate fallacy, conjunction fallacy, loss aversion, peak-end rule, preference reversal, status quo bias and fundamental attribution error. We easily slip into logical fallacies, as well. Our mind doesn’t always seem to think as rationally as it could, upon colder reflection. A recent study demonstrated that we make systemic errors in purchase decisions which are framed as special deals. 
 
I am not quite convinced about this, and would side with Gigerenzer in arguing that if ALL factors are accounted for, we would find a very good adaptive reason for such behaviour. Second, reason, or rationality, is no guarantee of truth. We can reason wrongly! We can draw the wrong conclusions. No one is infallible. Perfection is not the standard of rationality. Purely rational people may possibly never marry, beset by so many doubts about the future they would be. Some irrationality may therefore be ‘rational’, at least in the interest of the reproduction of the species. Indeed, were we to factor in all possible information, we may well find that ‘[o]ften what looks like a reasoning error from a purely logical perspective turns out to be a highly intelligent social judgment in the real world’. Given the complex rational computations that our brain undertakes to propel us around in the real world, it is impossible to imagine that our social responses are actually unreasonable.
 
Anyway, there is much discussion of such things in my draft manuscript, and by the time I finish it, I would have hopefully refined my views further. 
 
Regarding Gigerenzer's work, this is an excellent book and he might be well advised to study standard economic literature that has for long now known about implicit rationality and discussed it at length. That might give him many more examples to justify his points further, regarding the implicit rationality of intuition and gut feelings. The heuristics and short-cuts designed by our brain (and emotion) are adaptive and can't really be ad hoc as some people have started thinking these days. 
 
A book well worth buying and reading carefully. Very well written on top of that. I wish I could write so well!
 
One thing particularly relevant to FTI: I was particularly fascinated by Gigerenzer's analysis of way people vote for political parties. His 'string' model is simple and clear. It is important to not confuse the voter with too much detail. Voters vote on broad perceptions about the philosophical niche a party belongs to. Classical liberalism is a very clear political niche, and it might be useful to simplify this information for the purposes of the lay Indian who doesn't have time to think about policy. Keep It Simple, Stupid. That message comes through loud and clear from this book. Very useful message.
 
My conclusion:
One can get rid of all macroeconomic forecasting teams in various government and other agencies, such as World Bank, and replace them with the simple predictions of betting agencies (e.g. Sportsbet). That forecast will not only be cheaper but much BETTER, than the forecasts of economists. 
 
Addendum

Discussions on this book: http://www.nytimes.com/2007/08/28/science/28conv.html

Many reviews here: http://www.powells.com/biblio/9780670038633

A scholarly review: http://www.springerlink.com/content/u1j57344734tj480/

 

 

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The Difficult of Being Good, by Gurcharan Das

On my recent trip to India I was fortunate enough to be able to purchase about 15 books, including The Difficult of Being Good by Gurcharan Das. I don't think I'm going to have the time to write reviews on all these books, but perhaps I could write briefly on a few (I've already written on some of these books in the Freedom Team of India's March magazine (click here).

A recurring stomach sickness, brought along from from the India trip, gave me the time off to finish Gurcharan's book yesterday. So here are some preliminary thoughts. I propose to read this book in more detail in future, so I might update this post at that stage.

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Overall recommendation: Excellent book. Well worth a read. Beautifully written. I find Naipaul's writings difficult and boring to read. I haven't finished even one of his books yet. But all four books of Gurcharan that I've read so far are a breeze (the others are: A Fine Family, India Unbound' and The Elephant Paradigm). Start to finish in one go. Fantastic writer. In my view a far more deserving candidate for a Nobel prize in literature than many boring writers who've been awarded such a prize. At the least I hope Gurcharan Das is awarded an honorary doctorate by Harvard or some other top university for the outstanding research skills he brings to bear on this book.

Strong points: Coverage of a wide range of issues in the philosophical context of the Mahabharata. It is good to be able to learn so much from such a short book (only 300 pages excluding the prelude and closing notes).

Weak points: In a book that is so wide-ranging and ambitious in scope, there would naturally be areas where others would have different views. These are not weak points, essentially, and don't detract from the book, but worth noting that some interpretations and generalisations can be disputed. I touch upon two of these here:

a) I notice excessive referencing of John Rawls. Now, Rawls was a philosopher who gave significant importance to envy in the creation of a political society. I therefore argue in my draft manuscript, 'The Discovery of Freedom' (DOF), that "A Theory of Justice is, at its heart, a rationalisation for economic distribution. Rawls can perhaps be thought of as a latter day Marx" with his inordinate emphasis on economic redistribution and dilution, almost destruction, of property rights.

Rawls makes 'self-respect', not freedom, the primary human value. Rawls has suggested that a society must ensure that ‘our person and deeds [are] appreciated and confirmed by others who are likewise esteemed and their association enjoyed.’ In DOF I argue that "The society’s recognition of our worth is a piffling matter. The free man with his fierce pride in himself and sense of dignity cares not for what others may think about him. The free man, unlike collectivist intellectuals it would seem, is not a whimpering puppy seeking a rub of his back from every passerby."

It would be hard for Gurcharan Das to make claims that he is a "libertarian" (he does so in this book) if he doesn't get away from his continuing fascination with Rawls. In DOF I have also shown the many failures of Rawls's 'difference principle'. I don't see why Rawls should figure in this book at the expense of far superior philosophers like Immanuel Kant and F.A.Hayek, among others. I'd therefore suggest that Gurcharan examine Rawls far more critically. To begin with, Gurcharan may consider reading Chapter 3 of my manuscript, DOF.

2) There are a other issues I could take with this book as well. Chief of these other issues is the idea of referencing Rahul Gandhi's views! It was a shock (bolt from the blue) to find Rahul's views cited in a book where morality is being discussed. Would Gurcharan please spend some time explaining to us the moral basis of Rahul's actions? I have referred to the severe immorality found in India in my article in the FTI magazine (once again, linked here), and have questioned the value of even remotely considering the views of the corrupt leaders of India. These people have destroyed India's potential. What moral lessons can we hope to get from people like Rahul who are part of India'smost corrupt organisation, the Congress party? Please let us not start citing India's most corrupt people in a book of moral philosophy! There's got to be a minimum moral standard in life. Spare us the "writings" of the enemies of India! We need to have the self-respect to dissociate ourselves clearly and unequivocally from criminals.

SUMMARY OF THE BOOK

The book is an extensive and well-thought out review of the Mahabharata, a story that I learnt on the lap of my grandfather in Jagadhri when I was around 4-6 years old (see my grandfather's photo here) .

But that was a long time ago. I never found time later to follow up on that tale. Despite a copy of Rajaji's Mahabharata sitting on my bookshelf for many years now, I've avoided reading the story or thinking much about it. I generally don't read fiction, and I have treated Mahabharata as fiction, to be read only when one has a lot of time on one's hand. Some snippets I have definitely read in various contexts, such as my philosophical readings and writings. And of course, I've skimmed through the Gita on a few occasions.

Gurcharan Das has (quite strongly!) kindled my interest in the Mahabharata. In all my readings on philosophy I never thought of analysing Mahabharata as a book of moral and political philosophy. Indeed, Gurcharan's work has perhaps given the Mahabharata a new lease of life across the world. It will surely be more widely read in the context of its moral philosophy, thus enhancing its international stature. Indeed, I suspect Gurcharan's book would become a key reader for that purpose. A must read. Gurcharan's is clearly a great contribution to the human search for meaning in life.

I'm primarily interested in free will and freedom, of course, and it was gratifying to note that Krishna, after his discourse to Arjun, finally left the decision to Arjun, thus:

The knowledge I have taught …

consider it completely

then act as you choose. (p. 99 of the book)

This is perhaps the MOST significant contribution of the Mahabharata to moral philosophy. Gurcharan picks up on this, but perhaps fails to fully appreciate its import. This needs further exploration. For many years now I have been trying to find something, ANYTHING, in ancient Hindu scriptures that would show me that there was at least some encouragement given to freedom of choice and independent thought.

The fact that the Indian agnostics, 2500 years ago, were well ahead of most modern thinkers, has become clear to me from a (sketchy) reading of Indian literature. The fact that pre-Buddhist thinkers influenced Greek thought and led to the sophistry which finally led to Socrates has also become clear to me now (see this blog post of mine).

But that there was at least some freedom of thought in Hindu scriptures was

simply not obvious to me from all my readings so far! This is a positive lead in that direction. Did the Hindu god (Krishna) actually want people to choose their moral position and to think independently? (For I've read elsewhere that all aspects of the Hindu’s life are prescribed in the sastras, leaving little scope for the creation of new knowledge).

And yet this lead is perhaps not conclusive. As I note in DOF, the Mahabharata (Anusasana Parva, Section CLXII) decries reason: ‘That knowledge, O king, which is derived from reason (or inferences), can scarcely be said to be knowledge. Such knowledge should be rejected. It should be noted that it is not defined or comprehended by the word. It should, therefore, be rejected!'

I've also shown in my draft manuscript that satyameva jayate ('the truth triumphs') was actually not intended in the Upanishads the way it is commonly interpreted in India.

So what is it in Hindu scriptures that encourages anyone to critical thinking? Nothing! Or very little! But I stand to be corrected should new information (not known to me yet) be found.

Gurcharan advocates that the Mahabharata be taught as a literary text in schools (in his last chapter, p.301). That raises the question: is the Mahabharata purely a religious book? My father's view (see his book on Vedic metaphysics here) is that the message of the Gita is a summary of the Vedas, and that the Mahabharata was written with a view to communicating the key messages of the Vedas to the laity. A religious book, surely. Just like teaching the Bible as a book of literature in schools. Questionable.

In any event, the lessons from Mahabharata that Gurcharan draws out are in the realm of advanced university courses in philosophy. The subtlety of morality is not something that school children can determine merely by reading the story of Mahabharata. For them I'd prefer teaching simple rules like the Golden Rule (which the Mahabharata also advocates: "One should never do to another what one regards as injurious to oneself") and the categorical imperative.

WHAT NEXT?

By all means let's all read and mull over the Mahabharata.

But can Indians please TAKE INDIA FROM BEING ONE OF THE WORLD'S MOST IMMORAL and CORRUPT COUNTRIES IN THE WORLD into something that even closely resembles an ethical society? I am severely disappointed at India's governance system which is rooted in total corruption.

In this situation, the need of the hour is ACTION. At p. 58 of his book, Gurcharan Das writes, "When there is no other recourse, citizens must be prepared to follow the Pandavas and wage a Kurukshetra-like war on the corrupt."

I'd like to see some serious action from Gurcharan Das on the lines that Gandhi took up. No point preaching. There needs to be direct action or public support for action that will lead India to an ethical outcome (e.g. the work of organisations like the Freedom Team of India).

The time for sweet talk about India's contributions to subtle moral philosophy is over. Ethics needs to move from the ivory tower to the street. The time for action has come.

SILENCE IN THE FACE OF DRAUPADI HARAN IS SURELY THE BIGGEST SIN OF ALL. LET ALL INDIANS REMEMBER THAT KEY LESSON.

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