passenger or policymaker

Alexander Hamilton is probably my favorite founder, not because he was necessarily the most brilliant (though he’s up there), or has the best life story (though he does…), but because he was right where nearly everyone was wrong. Outside of George Washington, you could take away any of the founders and reasonably expect their place to be taken by someone with similar views. Hamilton was an exception. History has borne out his belief that American survival and prosperity hinged upon a militarily and economically integrated United States. Hamilton’s actions provided the opportunity for the US to become the economic superpower of the mid-late 20th century.

Hamilton wasn’t a popular man. He was brash and direct to a fault, but more than his mannerisms, his ideas themselves engendered a political and, at times, personal revulsion. He told brilliant men that not only were their proposals not optimal, but that they were backwards, and that the direction they actively support traveling would bring about our destruction. Compromises would be famously hashed out, but there was no real middle ground to walk.

Nassim Taleb, author of The Black Swan: The Impact of the Highly Improbable, plays a similar role today. Taleb is telling governments and policy-makers that they have it all wrong. Whereas Hamilton demanded economic and military integration, Taleb asks only for economists, bankers, and civil servants to get a real job.

Taleb observes the brazen interventions of government and business leaders into complex systems as foolishly overconfident. I think 18th century physician (and American founder) Dr. Benjamin Rush is a prime example of this trend. Rush was a brilliant man and student of medicine, however, he he was overconfident about what he knew. Rush was a champion of bloodletting because he was not aware of how little he understood about how the human body worked.

The problem with knowledge is that the human mind will be more confident it is correct with more pieces of information, even if that additional information is not useful, "Give a bookie 10 pieces of information about a race and he’ll pick his horses. Give him 50 and his picks will be no better, but he will, fatally, be more confident."

Taleb sees "governments and policy makers" as the modern-day bloodletters, who "don't understand the world in which we live." Taleb isn't critical of the policy-makers ignorance, but he is critical of "their attempt to control the ecology, [when] they don’t understand that the link between action and consequences can be more vicious. Civil servants say they need to make forecasts, but it’s totally irresponsible to make people rely on you without telling them you’re incompetent."

Let me take a step back and explain the phenomenon with which Taleb is concerned. His book title references how it was assumed that all swans were white for quite some time, but all it took was "the sight of just one black swan" to destroy that theory. Taleb argues that "every theory we have about the human world and about the future is vulnerable to the black swan, the unexpected event. We sail in fragile vessels across a raging sea of uncertainty. “The world we live in is vastly different from the world we think we live in.”

Taleb is therefore very critical of policy-makers, economists, and most of all, bankers, because "they live in a fantasy world in which the future can be controlled by sophisticated mathematical models and elaborate risk-management systems."

Normally, I would be skeptical of this type of expert-bashing, as it's usually accompanied by some superficial pandering to the "common man" or some other abstraction. But Taleb can't be dismissed so easily.

He has an alternative, less ambitious, but he would argue more effective attitude towards progress, "Medicine improved exponentially when the tinkering barber surgeons took over from the high theorists. They just went with what worked, irrespective of why it worked. Our sense of the good tinker is not infallible, but it might be just enough to turn away from the apocalypse."

Taleb is pushing inductive over deductive reasoning, which resonates with what other smart people are saying with regards to economic development, and jives with the tendencies I (among others) have observed towards overconfidence.

Bill Easterly, author of The Elusive Quest of Growth, is similar to Taleb in in his damning indictment of economic development experts. Easterly argues that while we have seen tremendous economic growth over the past 100 years, it has been in spite of the advice of economic development experts, not because of it. He argues that "the end of the “development expert” paradigm does not mean the end of hope for development. Development is already gradually ending poverty (global poverty rates have fallen by more than half in the past three decades) – not be- cause of development experts such as those who wrote the World Bank Growth Commission report – but thanks to more freedom for more of the 6.7bn individual development experts alive today." (If "freedom" seems a little vague, worry not, I will have a post exploring this notion more fully in the future.)

Megan McArdle also had a recent post which adds a nuance to the aforementioned overconfidence cognitive failing -- a self-importance bias. McArdle is writing specifically about adoption officials and airport security guards, but the lessons are broadly applicable:

"A big part of the problem is that people have a natural tendency to over-estimate their own importance. Nobody takes a job he believes is a waste of time, and people self-select into professions they happen to think make a big difference in society. So TSA security screeners believe they're making air travel safer, even when the evidence says they're not. Patent attorneys believe they're promoting innovation, even in industries where the evidence says otherwise. And adoption officials naturally believe that they play a vital role in ensuring kids get placed in loving home."

The lesson I take from these stories is not that we are incapable of understanding anything, but that our fortunes will benefit from understanding that our minds are programmed to overestimate how much we know and how important we are to causes we care about. It is only when we are separated from the suffering brought on by our egoism that these delusions feel harmless or even pleasant.

I would rather join John Maynard Keynes' “brave army of heretics, who, following their intuitions, have preferred to see the truth obscurely and imperfectly rather than to maintain error, reached indeed with clearness and consistence and by easy logic but on hypotheses inappropriate to the facts.”

I haven't exactly reconciled Taleb's fierce criticism of economists, nor Easterly's dismissal of economic development experts, but I am inclined to believe that rather than shutting the door on "experts" the proper response is to cut the fat on what these experts are capable of understanding and sharing and what they are not. In the end, it equals gradualism over revolution, more tinkering, less forecasting, more experimentation, less paternalistic restraints and dictates, and perhaps most uncomfortably, reconciling the fact that we are resigned to be passengers in some processes that we simply cannot affect one way or another.

Taleb's warning is akin to a Greek tragedy. To act with the certainty of a paternalistic planner is to act hubristically; no man can understand the infinite amalgam of interrelated processes that make up the world around him, and if he acts as if he does, he will be punished by the force of his ignorance.

Self-awareness is the difference between a passenger who knows he is a passenger and a passenger who thinks he is a policy-maker and therefore makes the world a lot worse for him and everyone else through his floundering back and forth.