Musk again? A lesson in inefficiency and ambiguity

Originally published on Language and Philosophy, September 1, 2023

A friend, explaining why he admires Elon Musk, describes the efficiency of Musk’s auto-transport tunnel: subway train cars are expensive because they can’t be mass-produced, they require large tunnels the boring of which require exponentially greater energy for every increment of diameter, and trains must support rush hour capacity even on off hours, whereas autos are mass-produced cheaply on the assembly line, they require little tunnel space, and on off hours, only the occupied ones run. He concludes that the Musk tunnel is efficient.

Well not so fast, pun intended. And there’s an important linguistic and conceptual lesson to be learnt from that lack of speed.

The carrying capacity of a packed subway/metro car is about 250 people. The average train is eight cars, so about 2000 people running, in NYC, every two to five minutes in rush hour. Off-loading that efficiency onto autos would require about 2000 autos every five minutes, or about 7 autos per second. A car would have to have 1/7th of a second to load onto Musk’s tunnel platform to meet rush hour demand. Not likely.

Even if that were possible, consider an on-ramp for a midpoint station B from destination A to C. In rush hour, there’d be a constant flow headed from A towards C.

A–>——B–>——–>C

To accommodate cars coming from station B, that traffic flow would have to slow down to allow a car to enter into the single-lane traffic of the tunnel, and the on-ramp itself would have to be backed up for the one-by-one entry onto the tunnel, even if this were all automated. A subway train typically has dozens of stations between its endpoints. Imagine the traffic jam in a single lane tunnel at rush hour, each car containing one person since the 2000 people in each train have now been distributed into individual cars. Depressing.

In other words, the Musk tunnel can’t handle rush hour traffic if used for a metro system. It would probably be so slow that either long lines would drive people away, or it will be priced high enough to prevent long queues. You don’t need to think long and hard to figure which option will be the business model. It only makes sense as a luxury shuttle from airport to hotel district for the business class, with a discount during off hours.

And what does the subway/metro serve? The entire public, the society as a whole, the economy that serves everyone. The inefficiencies of the system are sacrifices to the priority it serves. And it is fast. Very fast by compare!

Tunnels are not new. We know when and where to use them efficiently for the public. There’s a reason why we use tunnels only for A to B destinations, like midtown NYC to Weehauken — nobody needs to get out in the middle of a river.  There are projects that serve money, others that serve the public, and some that serve the vanity of their promoters’ public image.

Here’s the lesson: a grotesquely inefficient idea implemented efficiently remains grotesquely inefficient. Its efficiencies are intended to create more profit for the owner. So of course there will be efficiencies in any business model. That does not at all imply that the business purpose is efficient.

This notion of “efficiency” is trading on an amgibuity between the efficiency of the business idea (Musk’s is not) and the efficiency of its implementation (conveniently for his profit). The inefficiencies reveal the respective purposes: serving the public, the society, the economy as a whole or making money serving a luxury economy. This is why Adam Smith despised the wealthy — their servants could have been employed in the productive economy that serves all, but instead were wasted on serving wealthy individuals with no benefit to the nation’s economy, the wealth of the nation.

And it’s a lesson for the libertarian: because the market supplies demand, in unequal societies the wealthy will be served more and better in ways that are inefficient for the economy as a whole and the nation. Smith’s book is not entitled “The Wealth of Individuals” but “The Wealth of Nations”. Remember that.

A note on the Great Stagnation

Originally published on Language and Philosophy, July 12, 2022

It’s ironic that The Great Stagnation was coined by a libertarian, since the problem seems to be one of market incentives. In the private sector, we get the innovations that make money easiest. Even more ironic to hear a Peter Thiel place blame on the university, the one institution where those cheap incentives are least present and most easily overcome and where the structures are in place to overcome those cheap incentives. The university is not without structural flaws, and private sector incentives have found a place in it. But non private incentives are also encouraged, and inquisitive minds looking beyond private incentives justifiably seek the university as a home for their research. In any case, the private sector is not well equipped to overcome market incentives and the history of the last half century tells us that it increasingly finds ways to bury itself in those incentives until it can’t dig itself out of its own dysfunctions or the shit it excreted with which it has covered itself and everyone else, whether that’s externalities like pollution or the multiplication of inessential gadgets that pile the waste heaps higher and higher.

The new libertarian, overcome by bias

Originally published on Language and Philosophy, July 12, 2022

If Adam Smith’s Wealth of Nations is the core text that defines libertarianism, then today’s libertarian isn’t libertarian. The argument against government intervention today is as much a defense of possession — property and the unlimited acquisition of property — as it is an argument that markets are more efficient than legislation. And the fiercest argument over legislative meddling is about wealth distribution — appropriating property. Possession again. Opposing taxation has become the central principle of the new libertarian, whether because it is an easy electoral issue, or because Americans have lost trust in their government or become remote from it, or simply fail to understand their government, what it does and gives them or fails to give them and for what reasons, yet they understand the tax bill well enough. Taxation has become the issue to argue against, and freedom, easily embraced by American mythology since America’s childhood and the childhood of Americans, is the stronghold of defense against the IRS.

This defining of libertarianism by what it opposes changes the focus of libertarianism, since the opposition today is not what opposed it when Adam Smith wrote. The role of legislation in wealth redistribution from rich to poor was not his concern. It was government intervention in favor of local commerce, not the poor, that troubled him most. The book is mostly a defense of free trade, not a defense of the rich. He has nothing good to say about the property-rich, and only scathing criticism of their role in the economy. He thinks they produce little, they remove potentially productive labor from the labor force for the sake of having servants who, like the rich themselves, produce little but the personal conveniences of the rich and only the rich, not for the wealth of the nation.

Libertarianism, in other words, has fallen victim to our current cultural polarization in which one side wants the government to intervene in a woman’s own body and choice of pronoun and the books her children may have access to as long as no tax funds are involved, and the wealthy deserve to be defended, defending wealth, deploring wealth redistribution, defending the right to bear arms and deploring the right to personal privacy, defending religion and the death penalty, deploring immigrants and people of color — the whole inconsistent constellation of so-called conservatism, opposed by those who defend wealth redistribution, deplore gun ownership and insist we do something to prevent climate change even though we manifestly can’t (upcoming post on Fool’s Errand Attachment), defend free speech but censor select speech, defend scientific pronouncements from liberal establishments but never criticize them scientifically — the whole inconsistent constellation of current so-called liberalism.

Even the often brilliant and innovative libertarian Robin Hanson falls victim to this polarization. In his pervasive Social Darwinism he deplores encouraging the weak but ignores the weakness of the wealthy. Privilege is conveniently exempted from his Social Darwinism. Privilege weakens as much as struggle strengthens, although it’s worth knowing that competitive struggles will take advantage of any means to win, and the results can be devastating to the society as a whole. It’s easy to forget that the unit of selection is not the individual but the gene or species. A selection for an individual can be destructive to the future of the collective. Monopoly is one such means of success for an individual. Also the use of influence to obtain legislative favors, another observation of Smith’s that greatly troubled him. To prevent such influence would require regulation, but again, today’s libertarian is anti-regulation. They’re just pro-make-money, not at all a Smith interest.

Smith prioritized production, not possession. It’s wealth of nations, not wealth of individuals. Smith objects to gov’t intervention in markets that curtail production. It’s all about the benefits of free trade, especially across borders. What would he have thought about taxing as wealth distribution? He doesn’t say.

In his Age of EM, Hanson warns that the middle classes have a low fertility rate compared with criminals. He describes this with the word “maladaptive” — a term of art in genetics. Reading between the lines in the context of his Darwinism, he’s implying that criminal genes are proliferating and successful genes are not. The enthymeme here is the assumption that becoming middle class is an effect of genes, and criminal behavior is also genetic. I would be surprised if either were true. Using his own social Darwinism, I’d expect the criminal to be smart, risky, fast and aware, the average middle class member more security-seeking, more risk-averse, less aggressive and more dependent on the state, on law, on protection from above. Exceptions will abound, but I’d expect the causes of criminality in a class society would be differences of socio-economic status, upbringing, education, cultural values, and opportunities far more than genes, as if there could be a gene for criminality. And let’s not forget the illegal and legal criminality in the corporate world. 

Hanson is a strange hybrid of fox and hedgehog. He has one theory to explain everything, but he has the great talent of finding surprising details. But they are always consistent with his one narrow idee fixe, social Darwinism.

So he points out that whenever we try to improve ourselves, we choose inequality. This is a bit loaded, since taking it as a Kantian categorical, it just means all boats will rise. But there’s no mention of which kinds of inequalities might be be costly with little benefit compared with inequalities that provide great benefits to all, and few downsides. Nor does he take into account the value of the incentive for the improvement. It matters: do you want doctors who seek wealth or doctors who are genuinely interested in medicine or helping the ailing? Surely these incentives should be on the table for discussion, not merely the fact that we all at some point want to improve regardless how unequal that makes us.

Finally, don’t forget that natural selection does not ensure that any species of the moment will not go extinct. Extinction is very much a part of the process. What might make a species successful in one environment may be disastrous in another. Uncurated ecologies lose species, and weeds will thrive. If our essential necessary environment is each other, then it’s up to us to learn how to live with each other, and that includes dealing with our inequalities. If that means eliminating wealth, well, the Smith of Wealth of Nations would applaud. What’s wrong with the goal of rising to the level of competence but not beyond?

Privilege is the dark secret of the libertarian think tanker. Every libertarian should deplore it, but the think tankers protect it. Privilege, socially supported, is not Darwinian success, any more than a monopoly is a free market efficiency.

I’d like to see an educational program that will separate the elite from the economically privileged. Our current private education system replicates inequalities by syphoning the privileged into positions of power through their elite educations. What we need are educated elites without privilege. 

Piketty and immigration

Originally published on Language and Philosophy, July 15, 2014

Just finished Piketty’s Capital in the 21st Century. His central claim is that the ratio of capital/labor increases as economic growth decreases because the rate of return for capital remains constant, and, he claims further, the growth rate will decline through the rest of the century as the population rate (the rate, not the absolute population) declines.

He recommends a tax on wealth/capital. But if he’s right that the rate of growth will decline ceteris paribus, seems to me his wealth tax is not the only option: opening the borders should slow wealth inequality. Open borders w/naturalization would also counterbalance the political influence of wealth, Piketty’s underlying complaint against wealth accumulation.

His tax could happen in Europe, but not likely here in the US. How would a push for immigration fare as a means to grow the economy? With an alliance of business with immigrants? After all, Piketty’s prediction is a ratio, not an absolute quantity of wealth or its buying power. r>g holds when g increases, even though the ratio of wealth-income decreases. It would be a win-win for business and immigrants. It should not hurt unions in the long run either, although in the short run it might hurt a lot. 

China’s economy

Originally published on Language and Philosophy, December 28, 2013

I’m reading Beardson’s new book on China’s economy. He observes that when the RMB rose against the dollar (2005-8), exports increased faster than imports, counterintuitively (and contrary to US wishes). Beardson attributes it to squeezing more productivity out of labor. He also reports that the Chinese banks, government controlled, lend mostly to government enterprises, devoting itself to infrastructure in the recession, far more than to the private sector, yet the private sector throve. It’s a picture of a resilient private sector independent of the political superstructure.

A young economy grows despite parental constraints. Reminds me of a passage in Smith comparing England’s aging economy with the American colonies’ youthful growth, except that colonial growth included high wages and full employment. That would change dramatically in industrialization and the immigration it depended on. China has the rough equivalent in the migration from the land to the manufacturing centers.

Trust a business man, who depends for his success on reality, to get the facts comprehensively and in depth. I find it difficult to trust critics, promoting their reputations on personal theories and selecting facts to dress them up; or utopian reformers and revolutionaries, viewing only blood and hope through their rose lens; and economists, most of whom undermine their credibility by their entrenched partisan polarization (I exempt Eichengreen and Cooper); and the journalists who, as outsiders, look at the economy almost as anthropologists studying exotic behavior. Reading Beardson is like getting advice on pianos from a tuner. Not the whole story, but a lot better than anyone esle that’s mongering them or themselves.

Fear of the Fed

Originally published on Language and Philosophy, July 7, 2013

At a recent Occupy Alt Bank (Occupy’s Alternative Banking think tank) there was this exchange.

‘Banks find ways to skirt any regulation whatsoever,” said one member.

“Jailing the CEOs will curtail their risk behavior,” replied another.

I wondered: “They can’t be jailed for skirting the law unless they break it. But there is a way to curtail risk outside regulation and law entirely — the Fed.”

Both Barry Eichengreen and George Cooper, independently and from different political perspectives, came to the same conclusion, and even Greenspan in effect admited this: the Fed encourages risk through stabilizing the economy, broadcasting its intentions to keep the money flowing. If the Fed (I know, I know, it’s counterintuitive and sounds just awful) were less transparent, played its cards closer to its chest, and threatened to tighten money suddenly and by surprise, letting a few excessively risky institutions fall off the cliff, the banks would learn a piece of Old Testament Fear of the Fed. The threat itself might suffice after one example. It’d have an effect similar to jailing CEO’s, but without the need for a law, a court, prosecution, evidence or lawyers. Of course, you wouldn’t want the Fed to try this now in the midst of a recession, but during flush times.

Stiglitz has complained about this as well — the Fed used interest rates to prevent business cycle downturns, encouraging risk.

The Fed has no oversight, so you can’t even effectively lobby them. But it might help for the public to know this stuff and for Occupy to stake out a position.

Alt Bank is producing a book on breaking up the banks. I’m disappointed that they’re not including a chapter on the Fed. Including a brief history of its failure in the Great Depression, Volcker’s success stemming inflation, and Greenspan’s questionable use of rates (in light of the flagging US export economy and the Fed’s encouragement to shift to a financial economy — another issue that should be addressed) would lead to a couple of recommendations: less Fed transparency and yet more oversight and accountability. Difficult to juggle those two…

At what price?

Originally published on Language and Philosophy, June 7, 2013

It’s supposed to be well-established that commodity prices are the inverse of interest rates. Interest rates are as low as they can be and luxury housing prices in NYC are high, for example, and the stock market is flying too. But the rest of the economy is not wildly inflated. Why?

Easy money (low interest rates) flows into commodity inventories (we saw that leading up to the Arab Spring), on the one hand, and on the other, it curbs extraction of new resources and commodities because the low interest rates reduce their monetization, or so the theory goes. Yves Smith posted on it back in 2008:

https://www.nakedcapitalism.com/2008/03/falling-interest-rates-explain-rising.html
Here are the originals:
http://www.hks.harvard.edu/fs/jfrankel/CP.htm

Click to access CampbellM&CPnberNov.pdf

Click to access ifdp1065r.pdf

That easy money/low interest rates leads to inflation has been orthodoxy since Friedman at least. It was Volcker’s successful program to curb inflation by increasing interest rates, causing a recession, and Bernanke’s opposite strategy to take us out of recession, allowing inflation. But it also has a specific reflex in commodity prices. QE2 caused a global price hike in food prices as investors left the dollar for commodities, that caused the Arab Spring. Not exactly what Bernanke anticipated. His response was washing his hands: other nations have to deal with their own inflation, he quipped, cynically, I thought.

Hayek

Originally published on Language and Philosophy, May 22, 2012

Hayek became something of a hero to Libertarians for presenting the strongest possible arguments against government intervention in the free market and in particular against government redistribution of wealth. But even in The Road to Serfdom he advocates for a social safety net. Recently a few bloggers have tried to make sense of this apparent contradiction, including the estimable Matt Yglesias.

Kevin Vallier thinks that there’s a difference between welfare conducted by an administration or by law, but since laws are created by administrations, it’s hard to see the line between the two, and I haven’t noticed that Hayek himself drew it. On the other hand, Vallier does object to Hayek’s frequent slippery slope arguments as running together the conceptual with the empirical. “Slippery slope” understates the character of Hayek’s approach. He doesn’t object to a mere conceptual possibility opening a possible pathway, he argues that the slopes are necessarily slippery. At several points in the Road to Serfdom he provides compelling arguments that any least gesture towards government intervention in redistribution, for example, leads inevitably to totalitarianism. There is in his responses an element of defensive alarmism evident not only in his general concern but commensurately in the extremity of his argument.

A defensive call  serves a useful purpose, even if it isn’t always a coherent program. That’s also consonant with his views on uncertainty, which undermine program. So I’m with Yglesias on this. Besides, it’s easy to accuse Hayek of inconsistency when he himself rejected consistency as a program.

dismal complaint

Originally published on Language and Philosophy, March 2, 2012

Naked Capitalism posts an interview The New Priesthood, with Yanis Varoufakis, a Greek economist who currently heads the Department of Economic Policy at the University of Athens, in which he criticises economics as self-reflexive and unfalsifiable because economists won’t commit to factual prediction of the economic weather.

Whatever troubles the field, his criticism can’t be it.

Empirical observation is a constant chastisement for *all* the sciences, not just economics, but physics or neuroscience or any empirical science. Self-referentiality is no bar to a science: above all logic but also math, neuroscience, linguistics, cognitive science, and many others, refer to their own subject matter. Reflexive hypotheses can be predictive, and their predictions can be tested.

One mustn’t confuse reflective *science* with a reflective regression in *implementation*. Moreover, a regressive theory becomes a reductio of itself if practiced — you can’t implement an infinite regression, so it can play no role among the phenomena.

Implementing theories does complicate the science — but it is not a flaw in economic science. It’s just that the science must attempt to model the consequences of acting on economic hypotheses. But this is also a traditional part of science called trial and error.

It may be an embarrassment to the dignity of human intelligence that many of our scientific advances have been driven by accidents within trial an error, but it is surely not a *failure* of science. It’s an embarrassing success (and usually viewed not as embarrassing but perhaps unjustifiably as brilliance).

In any case, analogizing economists treating a crisis as a surprise meteor undermines Yanis’ own argument. Is cosmology a non science because not every meteor’s location or arrival can be predicted??

Physics doesn’t purport to tell the shape of the next snowflake or when it will begin to rain today. It does tell me why we generally stand on the earth and not float through the air. The problem with economics may be that we expect too much. Just because we ourselves are the agents of our own economy shouldn’t lead us to expect us to predict it any better than any other science. And yet that’s exactly what economists try to do. I think it’s because there is a moral call in the field that is tough to ignore for those who hear it.

The challenge for economics has always been not its lack of predictive ability, of which it has about as much as any natural science, but the moral dimension: Adam Smith long ago pointed out that labor gets shafted in the balance of wealth.

What’s dismal about economics is that the economy often works most efficiently and exuberantly at the price of a human sacrifice. The big question is whether the failures of those who wish to resolve that moral quandary are greater than the occasional crises of the economy. This is also a matter of trial and error.

That undergrads are more cooperative than those who chose to become economists may say more about why students choose economics. The experiment didn’t track those undergrads who went into econ and those who didn’t and what happened to their cooperativeness afterward. So it may say little or nothing about what is taught in economics. In any case, to assume that the personal attitudes of the scientists affect the science is to assume what was to be concluded: that it is a non science. If it is a true science, then the personal biases of the scientists won’t matter (well, that’s an idealization: even physicists take sides on theoretical issues, defend them, promote them and make their reputations on them and get their funding to promote them). Determining whether a discipline is science should depend on its predictive success — its testability — and its simplicity within itself and in relation to other sciences. But bear in mind that the Popper model is also an idealization that doesn’t correspond accurately to the actual practice of even the hardest sciences, even in logic, for example.