The unknown unknowns

Nassim Taleb has written a new book, The Black Swan: The Impact of the Highly Improbable. (See the description in my book list on the sidebar). His main point is that most of the highly trained and highly paid experts in government and industry and academia and the media who produce endless learned projections about future stock and commodity prices, oil prices, sales volumes, interest rate movements, government spending, projects costs and the like simply don’t know what they are doing. And in fact, a little simple research supports this observation. Look at the past projections in fields like these and the success rate is not much different from that of an untrained person simply predicting a continuation of whatever the current trend happens to be.

The experts will defend their analyses by pointing out that when they were wrong (which is more often than not) it was because unusual circumstances intervened – wars, unanticipated scientific breakthroughs, natural disasters, unusual weather, terrorist actions, the collapse of a government or an empire, an unexpected shift in fashions, labor unrest, or any of an endless litany of other “unusual”, “one-off” events that were extremely unlikely, and therefore not factored into their predictions.

Taleb’s point is that although each these events may be highly improbable and unlikely in themselves, for future projections over any significant period (say more than a few weeks) it is nevertheless highly likely that one or more highly improbable and unpredictable events will occur during the periods being projected, and that these improbable events will tend to have massive consequences, rendering the projection worthless.

Despite the impressive mathematical models and learned theories that the practitioners believe in, and use to impress the gullible public and clients and justify their high status and salaries, most of these projections are worthless for spans of more than a few weeks or perhaps a few months, because they have no way to factor in the (inevitable) unexpected and unanticipated.

The lesson here is to know what one does not know. Donald Rumsfeld took a lot of ridicule from the Plain English Campaign and many journalists for his statement many months ago that it was the “unknown unknowns” that were the biggest problem. But he was right (for once), and those who ridiculed him were just exposing their own ignorance. There are, in fact, “known unknowns” and “unknown unknowns”, as he correctly stated.

In fact, we each know a good bit less than we think we know, and we would be wise to always remember that. Weather forecasters know that they can’t predict accurately for more than a few days (actually significantly fewer days than most weather channels and newspapers report); they know what they don’t know. Would that other public pundits could learn the same humility.

What’s wrong with public education?

Historically public education in the United States has had a positive effect. Most of our population is reasonably literate, and most have at least a basic understanding of simple math, a rough idea of recent history, and some sense of the sciences. This is certainly an improvement from 100-150 years ago, and is largely due to universal free public education.

Having said that, it is pretty clear that our current public school system isn’t up to the task of preparing the next generation for today’s complex and technological world. In America we currently spend about $7000 per student per year, or about a third of a trillion dollars per year on public education, far more than any other nation. Even in terms of per capita spending, only Norway exceeds the United States. Yet in a recent United Nations ranking we are only about twelfth in the world in terms of education. One can quibble about what is the correct measurement, but even without measurements it is clear from the remedial work colleges need to do these days with incoming freshman that our public schools aren’t performing as they should.

I have one grandchild already being home schooled, and another that will be home schooled starting next year. The reason in both cases is the same – the public schools just aren’t good enough (and there are no adequate private schools nearby). Too much time each day is wasted in crowd control. Too much time is wasted in federally mandated testing to measure the school, not help the individual student. Too much time is wasted waiting for “mainstreamed” special needs students to catch up with the class. Too much of the evening is wasted on mindless fill-in-the-blanks homework. Too much time is wasted cramming canned facts rather than really learning. Too much time is wasted on textbooks designed for the lowest common denominator. It’s no wonder so many of our children grow to hate school, and hate learning!

The granddaughter who started home schooling last year is already at least a year ahead of her former classmates in most of her subjects, has far more time left over for other things she loves, like Irish step dancing, reading, violin and piano, and still has more time for simple childhood play than she used to. And she still loves learning. I suspect most children in public school could advance about as fast if the cookie-cutter mass production educational system didn’t hold them back so much.

Of course changing the public school system will be difficult. There are too many vested interests: unions, school boards, the state and Federal educational bureaucracy, and textbook publishers. Nevertheless, as I argued in a post months ago, our very survival as a nation, even as a civilization, depends on the quality of the education we give the next generation. Fixing this situation ought to be a high priority for all of us. Since it clearly isn’t, I expect more and more of the better-educated and better-off people to opt out of the system in the coming years and either home school or send their children to private schools. That will only make the problem worse, of course.

Recommended: The Real Problem with Pakistan

I recommend Fareed Zakaria's new Newsweek article, The Real Problem with Pakistan. As is so often the case these days, the simplistic public view of events doesn't match up with the real-world complexity of most interesting situations, and Pakistan is a prime example.

America’s shame?

Some people spend a lot of time reminding us of the shameful things in our past, like slavery and the way we dealt with native Americans and the expansionist policies that lead us to sweep across the American continent in the early days and absorb the land claims of the Spanish and French and British. Here is a somewhat different outlook on this history.

It is true that in our early days parts of our nation endorsed slavery, as has much of the rest of the world through most of history. But in fact we fought our way out of that mindset, at the cost of a bitter civil war, which is more than some parts of the world, especially northern Africa and some Middle East countries, have done to this day.

It is true that in earlier centuries we overran the Native American tribes, and broke most of the treaties we made with them, just as happened in almost all cases in history when a more advanced civilization displaced a less advanced one. But in fact we have largely grown out of that and our courts and legal system have been defending their rights in recent years, which is more than happens for minorities in many part of the world to this day.

It is true that in our early days we engaged is a systematic expansion to absorb the land claims on this continent of the Spanish, French and British, who of course would have just as readily taken land from the new American nation if they could. In that our behavior was exactly like that of most peoples through history, and like more than a few nations even today. But we have grown out of that, and despite plenty of opportunity to conquer more land with our superior armed forces, we no longer do so.

It is true that we have on occasion oppressed minorities, be they Irish or Italian or Native American or black or women, or what have you. But in fact we have been growing out of that, largely because of the American ethic of equality, which is more than can be said for most of the world, where oppression of this or that local minority often isn’t even a subject for public discussion.

I don’t think American’s have to apologize for ancestors who held views that, while not enlightened by today’s American standards, were common if not universal in their day, and are still common in parts of the world today. On the contrary, I think Americans ought to be proud of the steady progress our nation has made, and is still making, toward enlightened views. This is more than can be said for most of the rest of the world.

A republic….if you can keep it.

At the end of the Constitutional Convention in Philadelphia on September 18, 1787, as Benjamin Franklin emerged from the last meeting, a Mrs. Powel, waiting outside, asked him: "Well Doctor, what have we got, a republic or a monarchy?" "A republic if you can keep it" responded Franklin.

Unfortunately, we don’t seem to be keeping it.

A republic is a form of government whose legitimacy is based on popular consent and whose governance is based on popular representation and control. On the surface I guess we still look like a republic – we still vote for congressional representatives and presidential electors.

But in fact our federal government, and most of our state governments, are mostly run by unelected people to whom we have never given any consent and who don’t represent us in any meaningful way. It is in fact largely run by bureaucrats in federal and state agencies, legislative staffers, K-street lobbyists, and the wealthy senior managers of large businesses and organizations who fund political campaigns. These are the people who craft the laws and regulations and policies that actually affect our daily life. Some tiny fraction of these laws and regulations and policies are nominally debated and voted on in Congress or state legislators, but most are not – they are just promulgated and enforced by federal or state government agencies.

In the early days of our country the government was pretty small, and the government’s influence on people’s daily lives was pretty limited. And indeed many of the early bitter political battles were over the assumption of very minor powers by the federal government, like establishing a federal bank. I suppose it was inevitable that as the nation grew in size and power, the government and government powers would have had to grow as well. But we have long since reached the point where we are no longer truly a republic, but are ruled rather by a relatively small aristocracy composed of political insiders, senior civil servants, and wealthy political backers.

This ought to disturb us. It certainly would have disturbed Ben Franklin.

The end of capitalism?

Immanuel Wallerstein, a sociologist and prolific author who is a Senior Research Scholar at Yale among his other positions and accomplishments, has recently written The End of the World As We Know It, and The Decline of American Power. Both are well worth reading, though not as light reading. And both cover a wide spectrum of subjects

In particular, I find interesting his argument that the world is entering a period of fundamental transition from its current equilibrium capitalist system to some unknown new system, which he doesn’t pretend to be able to predict. His argument, in sum, runs like this:

The world’s current capitalist system depends on accumulating capital from profits. Profits come from the difference between the cost of production of an item and its selling price. Now in the absence of monopolies or other market distortions, selling price is capped by the effect of competition. If the price is set too high (too much profit) it encourages competitors to come in and sell at a lower price, driving the price back down again.

So the main way producers increase profit is by reducing the costs of production. There are three main ways of doing that:

(1) find sources of lower cost labor, by moving (outsourcing) production to rural third world countries with lower wages and little or no worker organization,

(2) externalize some production costs by passing them on society at large (like dumping waste products into the air or ground water, or using up non-renewable natural resources), and

(3) externalize some production costs by riding free on existing infrastructure, largely by finding ways of avoiding carrying any of the costs (taxes) to build or maintain that infrastructure.

Wallerstein argues that we are rapidly exhausting these three modes of reducing costs. (1) We are rapidly running out of low-wage countries we can outsource to, so wages are becoming an increasing proportion of the production cost, (2) we are rapidly reaching ecological exhaustion and depletion of cheap natural resources (like cheap oil), and (3) the spread of democracy is increasing demands for public expenditures on health, education, pensions and the like, and so increasing the tax burden on the costs of production.

So, he argues, the system is putting an increasing structural squeeze on profits, which will eventually make it unprofitable to be a capitalist. Some (as yet unknown) new world system will have to evolve, which may be better or may be worse.

Interesting theory! Not a common view, and there are some strong counter-arguments, but his fundamental thesis is interesting and worth considering.

The peer trap

None of us ever see the “real world”, whatever that is. Our views are always distorted by our culture, our expectations, our experiences, and a myriad of other factors. One of these obscuring factors is the ”peer trap”.

Our view of the world is heavily influenced by our peers, the people around us which who we interact daily. But people tend to associate, marry, work with and live in the same neighborhoods as people much like themselves. So academics are usually surrounded by academics, religious people by other religious people, investment bankers by other investment bankers, poor people by other poor people, Hispanics by other Hispanics, and so on. This model doesn’t fit everyone, but it does fit the vast majority of the population.

The peer trap is our natural tendency to think that the whole world lives and thinks much as we do, because, certainly, most of the people around us live and think much as we do. And of course that is an error.

One of the unique strengths that America has is that, because of its immigrant roots, it encompasses a wide variety of outlooks and so there is more opportunity to become aware of differing and alternative views of the world. Our diversity is our strength. Some other nations are seriously hobbled by the homogeneity of their populations – it seriously narrows their thinking.

But in any case, those who would see the world more accurately need to work to actively avoid the peer trap, and be aware that whatever their own views, most of the world doesn’t share them.

The blink of an eye

We have been traveling through the mountains of Alaska and Washington and Montana the last few days, and I am suddenly acutely aware of how dynamic the earth is. Everywhere we look are the traces of miles-deep glaciers, great mountain-building upheavals, massive earthquakes, unimaginably huge floods, lava flows thousands of feet deep, great asteroid collisions, etc. etc. To those who will look, it is clear we humans live precariously on the surface of a restless, dynamic planet.

That the earth seems so stable to us that we happily build cities like Seattle in the shadow of an active volcano, or cities like Los Angeles right on top of a major earth fault, or seacoast cities like New York right where a tsunami can wipe them out, is a testament to how poorly we understand the planet we live on.

Of course people keep building in flood plains or on unstable mud hillsides or in the middle of flammable forests, and the government sometimes even helps them to rebuild when the inevitable disaster overtakes them. New Orleans comes to mind as a recent example.

I guess this is because, by nature’s time, our human lives are but a blink of an eye. Indeed, the entire life of our whole species to date is but the blink of an eye to most natural processes. That ought to keep us from getting too puffed up about our importance in the whole scheme of things.

Humans as animals

A prevalent myth in our culture, abetted to certain extent by most religions, is that humans are somehow “above” the rest of the animal kingdom, gentler and kinder perhaps. Two world wars in the last century and the yearly litany of “ethnic cleansings”, “wars of liberation”, daily terrorist killings in the Middle East, urban drug wars, and the like should have cured us of this myth, but apparently it hasn’t.

In fact, humans are social animals, running in packs, and share many attributes with other pack animals. Our packs are ruled by “alphas”, mostly male, whether they are the toughest thug in the gang or the multimillionaire CEO of a multinational corporation in a tailored suit. Our civilizations have advanced enough that now an alpha (almost always) male can rule a whole country or even an empire, rather than just a local tribe, but the mechanism is the same.

Like most pack animals, we distrust the outsider, and if they seem defenseless enough we will attack them, or at least exclude them as far as possible. In more advanced civilization the attack may not necessarily be physical, but it will be effective. Ask any minority. Ask those who tried to date or marry “out of their class” or out of their religion or, heaven forbid, across racial boundaries. Ask gays and lesbians.

Like many pack animals, we tend to pick on and exploit the weaker members of the pack. Anyone who has watched playground dynamics can see this. In our culture we generally, though not always, try to train our young out of the more egregious forms of oppression and intimidation, but the subtler forms always remain.

Like most pack animals, we create hierarchies and pecking orders for ourselves. Every group has its leader, surrounded by immediate subordinates who acquire power by association with the leader, and so on down the chain to the lowest member of the pack. This is the same whether we are talking about a street gang leader and his cronies, or a leading politician and his staff, or a CEO and his senior managers. And as in any pecking order, those at the top always arrange to get first pick of the choicest morsels.

Like most pack animals, violence is part of our genetic makeup because it has survival value. Civilization (sometimes) restrains our violent tendencies, or at least channels them toward more socially acceptable forms, such as war and sports. But it remains a potential for every human under the right conditions. One only has to look at human behavior where civilization has been eliminated or its control temporarily suspended.

So the next time the news reports that some minority is being slaughtered in Africa, the Balkans or the Middle East, remember the pack animals. The next time the news reports that another CEO has awarded himself a multimillion dollar bonus while cutting jobs, pay and benefits in his company, remember the pack animals. The next time you hear of some religion or culture in which the husband rules absolutely over his spouses and children, remember the pack animals. The next time a group of “good old boys” beat a gay to death, remember the pack animals. Like it or not, we are animals, whatever bold promises religions or philosophies may make.

Civilization’s great advance is to move humans far enough that we will generally trade with the stranger rather than killing him on sight. Civilization’s great advance is to move humans far enough that we value a few other things besides brute force. Civilization's great advance is to expand our concept of who is in our pack to include more than just our blood kin. But at root we are still pack animals, in evolutionary terms just barely out of the jungle. Any workable political or social system has to account for that.