Hodak Value

Megan McArdle has really stepped into the collectivist swamp in her new gig at The Atlantic. Just check out the responses to her posts. Part of the problem is that she is speaking in a slightly different language from that of The Atlantic's normal readers. So, here are some basic definitions of certain terms that appear to be causing at least some of the confusion.

Self-interest: You doing what you want to do.
Enlightened self-interest: You doing what I want you to do.
Social contract: Those with political power telling everyone else what to do.

Contrast the last definition with this:

Brute-force collectivism: Those with political power telling everyone else what to do.

I hope that helps.

OK, let's take a look at the logical content of this statement:

My opinion is that when you plead guilty to a crime, you shouldn't serve. That's not a moral stand. That's not a holier-than-thou. It's just a factual situation.

Here is clue, John: Any statement that includes the word "should" (or "shouldn't") is a moral stand. "Should" statements are not factual. You should go back and get some education.

And, by the way, anyone who says their attitude is not "holier-than-thou" doth protesteth. But, apparently, they can still get lots of votes.

This colorful sign is posted at airports and rail stations all over the country, so I've been seeing it a lot recently. I wonder if it means anything at all? I mean beyond the CYA function it serves our politicians. That I understand: As long as the threat level is "Elevated" or worse, our senior public officials have a magic pass to turn responsibility into blame if anything bad happens. Instead of saying "We failed you," as they do in more honorable societies, our politicians get to say "I told you so." See the difference? "We failed you." "I told you so."

In a society where authority comes with accountability, the incentive is for people to be careful about how much authority they assume. In a society where grabbing authority comes with little incremental accountability, you get...Homeland Security, the FDA, OSHA...

Websters defines risk as "possibility of loss or injury." That broad definition means different things to different people. So, here are two versions of the expanded definition of risk:

Risk (scientist): A probability of loss or injury; often used to trade off against the probability of gain or reward
Risk (politician): The likelihood of loss or injury; easily used to justify more power or tax funding

The political view is immediately distinguished from the scientific one by its reliance on availability bias. Nowhere is this scientist/politician distinction better illustrated than our Homeland Security Advisory System. From a politician's point of view, there is always a possibility of terrorist attack. Beyond that, their assignment of a color code appears to be based on a secret lotto wheel or big, fuzzy dice with only three possibilities: "Elevated" "High" and "Severe."

Scientifically, what we've experienced with this color-coded system makes no sense. Sure, they've been very good at raising the alert after an incident occurs, but what good does that do anyone? We have been never been below Yellow alert--an "elevated" risk. For most of the time since the system has been put into place, we have been on Orange alert--"High" threat. After five years of this nonsense, we have plenty of data on threat levels vs. actual incidents. You'd think there should be a correlation between the two. Anyone care to guess what that correlation is?

Illegal labor. What an ugly term.

Definition: I want to work for you. You want me to work for you. Someone else gets to say: "Too bad."

That someone else very likely has zero interest in this proposed transaction; they just don't want me to work for you. They will call me "illegal" because they can, and use that as an excuse to stop us from agreeing to help each other out.

Or that someone else might have some pie-in-the-sky, stupid-ass reason for wanting me to not be able to work. They might belong to some organization called Californians for Population Stabilization. This organization actually says that there are "too many people." Yes. In a state with one of the lowest population densities in a largely unpopulated country. If this sounds disingenuous, that's because it is.

Californians for Population Stabilization, like most organizations using the term "illegal labor," is actually a front for the unions. Unions are deathly afraid of anyone possessing two hands and a brain because such persons represent labor competition. Unions would like all labor competition to be banned. This reflects a profound ignorance about the nature of an economy, that it's a fixed-pie, zero-sum game. It ignores that those hands are attached to a mouth, and that brain contains aspirations. In other words, a working human being creates at least as much demand for labor as supply.

Thus, labeling certain people as "illegal," intended to undermine their ability to support themselves, actually undermines their potential as sources of jobs for others. We're used to unions engaging in self-destructive behavior by undermining the companies and industries they dominate. At least in those cases, some existing workers get a temporary benefit from bleeding their companies, even if it eventually undermines their jobs. But why should we put up with union attempts to keep other people from working for everyone's benefit?

I've been seeing these ads on TV with a child saying, "I'm too young to vote, but if I could..." they say they would vote for the candidate who will "fix" health care, and protect Social Security and pensions. This ad is sponsored by the AARP.

This is my new definition of chutzpah.

For those of you who haven't studied the numbers, AARP is the organization most committed to the greatest inter-generational wealth transfer in world history. They have saddled today's kids, those cute ragamuffins who can't yet vote, with $39 trillion in liabilities in excess of assets for Social Security and Medicare. Now, the AARP wants to continue that campaign in the name of the kids.

(Below the fold is a math challenge)

John Edwards released a statement giving some details about how he would erode our liberty. In the introduction alone, he mentions "social compact/contract" seven times, which should give you an idea of how he bends in the trade-off between individual rights and collective obligations. I've already provided a practical definition of social contract, which sounds all pleasant (social) and legal (contract):

"Social contract" - Those with political power telling everyone else what to do.

Contrast with this:

"Brute-force collectivism" - Those with political power telling everyone else what to do.

Today, I want to highlight one of the groups Edwards wants to empower--regular workers. Here is what he means by that:

"Regular worker" - Union member, or someone who isn't a union member, but should be.

Edwards clearly believes this is a potent constituency:

Unions helped ensure that regular workers were part of the social contract in the last century, but today the right to unionize is poorly enforced and routinely violated by employers...The share of workers covered by union contracts has fallen by nearly half since 1978. To help the 60 million workers who would join a union if they could, Edwards will pass the Employee Free Choice Act to let workers unionize when a majority of them sign cards... He will also ban the permanent replacement of strikers to give workers the leverage to demand their fair share of rewards for their work

In Jared Diamond's excellent book Guns, Germs, and Steel poses a question via the mouth of a Papuan native: "Why do you have so much cargo?"

"Cargo" is a native word for 'stuff,' as in the kinds of goods commonly produced by an advanced society. Every primitive culture that has come into contact with an advanced civilization for the first time has shared an understandable awe at the explorer's (or invader's) 'cargo'--from their explosive armaments down to their metal shoe buckles.

Now, a civilized person might assume that natives faced with 'cargo' might try to understand how it was made so they might begin to build approximations of it. But that would reflect the civilized person's naivete. In fact, primitive people commonly endow things with a mystical property that goes beyond its form or function. For them, everything is guided by a higher spirit, a spirit may send the cargo their way versus toward someone else.

Down that mystical path, natives will begin engaging their existing theories about what moves the spirits, and begin to exhibit what, to us, looks like strange behavior to persuade the spirits to drive cargo their way. This is called a cargo cult.

Civilized people look upon cargo cults with a sense of wonder and amusement. We shake out heads at shirtless people dancing and praying to their version of Gaia, as if that might somehow make a washing machine appear. Civilized people would never do that.

Government climate scientists: policy advocates who may or may not have science credentials, such as PhDs in physics or chemistry

The USA Today headline was "Scientists: Weather extremes consistent with global warming." Wow. They're not exactly saying the weather extremes are actually caused by global warming, but that distinction is bound to be missed by headline readers, which is the likely intent of the headline writers. More to the point, they're implying that scientists are making this connection. So, you'd think that they were quoting scientists. They work at something called the U.S. Climate Science Change Program.

Folks, these people are not scientists, they are advocates. They may have scientific credentials, and may even conduct real science in other contexts, but in this context, they are advocates.

Science is a process of developing and testing models based on theoretical and empirical evidence. Models tell you the relationship between A and B. Concluding that B is bad and therefore we should do less of A is advocacy.

I won't get into whether the climate models behind the grand pronouncement of this headline has any merit or not (better persons than I have looked at this already). I will only suggest that once a scientist has signed up for "change" they are no longer doing science. They are doing advocacy.

Sometimes, the line can be blurred. Let's say that a scientist develops a model that says: "If you put tennis balls into a toilet, the world will blow up." If they release these findings, it may safely be implied that they are doing two things at once: they are explicitly illustrating a relationship between tennis balls in toilets and global destruction; and they are implicitly advocating against tennis balls in toilets. Although these things are happening at the same time, one can still distinguish between their science and advocacy.

When Einstein wrote and published his paper on Special Relativity, he was acting as a scientist. When he wrote a letter to FDR suggesting the possibility of developing a nuclear bomb, he was acting as an advocate. That's not to say that Einstein wasn't a scientist when he wrote that letter. The point is that the letter itself was advocacy, not science.

The line between science and advocacy is further blurred by high impact results with a low statistical significance. For example, statistics may indicate a less than one chance in 20 (a common standard in science) for the relationship between tennis balls and global destruction to be true. But the stakes are so high that a less than one-in-20 chance may still be alarming. In this case, it is clearer that a scientist publishing these results is acting as an advocate, but it's less clear that they are also acting as a scientist since their work has not met a common standard for scientific achievement.

People working in a "Climate Science Change Program" illustrate this blurred distinction. Scientists suggesting that industrialization creates global warming are acting as scientists as long as they are clear about the statistical significance, or lack thereof, of their findings. But scientists who know that the statistical significance of their findings are low, and parade the results anyway, and highlight the negative effects of global warming, or linking global warming to select events in order to portray it as bad, are simply advocates in white robes.

Michael Kinsley and Conor Clarke have opened up a discussion on Bill Gates's new, big idea: "creative capitalism." Kinsley tries to confer some intellectual heft upon these musings by labeling Gates "the most successful capitalist in the history of the world."

Bill Gates is arguably the most successful businessman in history, and he achieved his success in a largely capitalist system, so I suppose it's fair to refer to him as a successful capitalist.* But does that endow Gates with any special insight into the system of capitalism, i.e., the legal and social framework under which market-based economies function? In other words, does his great success as an economic agent make him a great economist? I don't think so, any more than my cat's ability to jump from the floor to the window sill without knocking over a vase makes her a great mathematician or physicist.

Gates is certainly more self aware of market and political processes than a cat is about angles and muscle reflex, but that doesn't get him anywhere close to being an expert on capitalism. In fact, one of the key features of economics is that you don't have to be an expert in anything except your space in the overall market in order to be a financial success. Ignorance of unrelated matters may even help, if it contributes to enhancing one's focus on one's own business.

All this is not to say that Gates has nothing to say about capitalism. His contributions, however, are far more likely to be empirical than theoretical. Unfortunately, I'm doubtful that he will be forthright about his achievements on the empirical front. I doubt we will hear about the virtues of vaporware in marketing, or how the vigorous attempt to monopolize via the network effect gave him a sustainable competitive advantage. I say this as one who was never bothered by Gates's ruthlessness in achieving market dominance. I actually supported Microsoft in their defense against federal anti-trust charges.

So, I don't think Gates will defend capitalism the way he practiced it, red in tooth and claw. It appears that he has joined the pursuit of a third way. That's a shame, because he does understand vanilla capitalism better than most, and the Gates Foundation is capable of doing much good short of saving the world. But the title of "world's most successful capitalist" makes him no more likely to develop a better approach capitalism than his ability to leap onto a big, new stage will enable him to develop a new proof in math or physics.

* I tend to think of a successful capitalist as one who made their pile as an investor rather than entrepreneur, but that's a minor quibble in this discussion.

Randy Pausch of "Last Lecture" fame passed away at the end of last week. It was quite an exit.

I was inspired by Randy in many ways, not least by the number of people he had touched in his years as a teacher. Before his "Last Lecture," Randy thought he would be best remembered on the Internet for his talk on time management. In that talk, he showed Covey's matrix on prioritization. The key is to do what's important, and leave off what's not, regardless of urgency. If you do it right, the important stuff is less likely to become urgent.

The whole thing has made me rethink my priorities, including the value of daily entries on this blog. These things take time for me to write, time that arguably comes at the expense of things I'm actually paid to do, not to mention time with my family. I have toyed with simpler posts, but others have already cornered that market. I was hoping someone would join me to post material. A couple of people I thought would be great have, in fact, asked to contribute, but other things overtook them and they crapped out on me (you know who you are, you rats!).

So, I will likely drop down to a couple posts per week along these lines:

- Comments on executive compensation (for my clients, if not my fans)
- Catalogue of examples of perverse incentives, especially unintended consequences of well-intentioned policies, great and small (for a maybe future book)
- The occasional movie or book review (as little as I get out)

If there is news about corporate incentives, I will feel compelled to blog about it more promptly since that seems to get picked up by the major news outlets and sometimes leads to broader coverage. We'll see.

In the meantime, Randy's inspiration will remain with me so I might contribute anything like what he was able to in his too few years.