Saturday, February 17, 2018

The Terrible Power of Tiny Trends

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Einstein is said to have remarked that “compound interest is the most powerful force in the universe”, or maybe he said it was “mankind’s greatest invention”. Or more likely he said no such thing, and this quote ended up being attributed to him later, as is the case with so many of his supposed quotes (nor does it just happen to Einstein.) Regardless the quote persists because it has an element of truth to it. Compound interest acts as something of a juggernaut, slowly gathering momentum until it’s essentially unstoppable. All the way back in 1769 an Anglican minister and actuarial mathematician named Richard Price gave this example of its power:


A shilling put out at 6% compound interest at our Saviour’s birth would . . . have increased to a greater sum than the whole solar system could hold, supposing it a sphere equal in diameter to the diameter of Saturn’s orbit.


But, of course, no one did invest a shilling at 6% at the time of Jesus’ birth. And the reasons why are probably obvious, but they bear reexamination despite their obviousness.


Perhaps the most obvious reason no one did it, is that there are no banks which have survived from that time till this. And after the recent financial crisis, it should be an open question as to what it even means for a bank to “survive”. There are some very old banks in England, but it’s pretty clear that none of them would have survived for the last 300 years (or even the last 30 without government help. And not only did no banks survive from 0 AD until now, but no country has survived. (As you may recall I argued in a previous post that very few countries have survived intact for more than about 100 years). If it had been possible to make such an investment, another question is who would the beneficiary have been. The Japanese Imperial Family has apparently been around that long, but I’m not aware of any others. Or perhaps there’s some organization that, had they been far-sighted enough, could now own a sphere of money as big as the Solar System? There are a few Christian Churches who, in theory, trace their organization all the way back to the death of Jesus, (which I suppose is close enough) and perhaps if any banks and countries had survived with them, they could have made that investment.


However, even if the Orthodox Church of Jerusalem or Emperor Suinin had wanted to make such an investment and even if there had been a bank around to accept it and hold on to it all the way down to the present day (paying 6% interest the entire time, though even 1% would probably still get you the Earth and all of its productive assets.) There is still one, final, insurmountable hurdle. They must have figured out some way to ensure that no one, in all the time between 0 and 2018 AD, could have ever raided the “piggy bank”. That everyone from bandits, to the government (or are those the same thing) would have left that giant pile of money sitting there, untouched for over two thousand years. And of all hypotheticals we’ve considered, that is the least realistic of them all.


In any event, regardless of what Einstein did or didn’t say, it’s evident that the power of compound interest is checked by many things, the stability of the banking system, and of nations, by impatience, greed, and the longevity of organizations. And this is probably a good thing, even if the Japanese Imperial Family would do a great job of running the world, I think the process of selling it to them would be hugely disruptive. And in fact I would swear that I heard a podcast a couple of years ago (Radiolab maybe?) that claimed there was a time when people were so worried about bequests that lasted for 100s of years, that moves were made to limit them, but for the life of me I can’t find it. In any event it’s not important, the important thing I want to emphasis is first, the power of even a tiny effect if that effect compounds (and even non-compounding effects if they last long enough.) And second that when things get derailed it’s often because of instability rather than the reverse.


Compound interest draws a lot of attention, not only because it provides exponential growth, but also because it’s a simple system which is easy to track. Anyone can sit down and put together a spreadsheet and see exactly how big the principal gets, and if they like, they can adjust the interest rate and see that earning a 6% interest rate is way better than a 20% improvement over earning a 5% interest rate. The question I want to examine is whether there are other things which act like compound interest in their potential for growth (and by extension impact) but which we have missed because they’re hard to measure. Is there anything on which we’re accumulating a sort of societal compound interest and if we are, which things are accumulating a positive interest rate and which things are accumulating negative interest?


It may be that there are only a few things like that, and that even if we don’t have a firm handle on them, people are still aware of them, and working to solve them. But I’m also interested in things which don’t compound or do so very slowly, but which might be disastrous if they continue for long enough. These things are even harder to see, but more important to discuss because of that.


Let’s start by looking at societal trends that most closely resemble compound interest. Here, the first one most people think of is population. I already spent a post talking about this, so I don’t intend to spend much additional time on it, but you can immediately see where the fact that population compounds causes problems on both ends of the spectrum. First you have a potential Malthusian Catastrophe, which people have been discussing since, well, the time of Malthus, and more recently, particularly in the more developed world, people have started noticing potential problems on the other side of things, of having too low of a birth rate, which compounds in the other direction.


As I said in my previous post I think both directions have the potential to be catastrophic, and to again quote from one of the all time great movies of the past century, Tommy Boy, “In auto parts, you’re either growing or you’re dying. There ain’t no third direction.” As it is with auto parts so it is with humanity. I don’t think there’s a very credible, non-dystopian scenario where we have a precisely stable population.


In an attempt to not be entirely pessimistic, let’s now turn to look at something which compounds in a good way: knowledge. In fact not only does knowledge compound, but the rate at which it compounds is going up. It’s as if you had an investment that started out paying 1% per year, but quickly went to 10% and then 100%. I am often critical of technology, particularly when it’s implemented naively, but this is one things it has done quite well.


At this point, I might toss out a statistic on how fast knowledge is currently doubling, and I will, but it’s going to get a little meta. If you do a Google search on rate of knowledge doubling you’ll get one of those info boxes, and it will say that knowledge is currently doubling every 12 months and soon it will double every 12 hours. This box links to an article written in 2013. The article has no reference for the current 12 month doubling rate (and in fact it actually says it’s 13 months) but does link to an IBM paper (on an unrelated subject) for the 12 hour doubling rate. When you look at the article it actually says 11 hours (and by the way, I can forgive both roundings, I appreciate the elegance of going from 12 months to 12 hours) and goes on to say that the 11 hour number is set to happen “four years from now”. When was the paper written? 2006! Meaning back in 2013, knowledge was presumably already doubling every 11 hours, and possibly even quicker than that. And who knows what the doubling rate is now. I looked for a more current figure, but all of the top results reference the same 2013 original from the infobox, and most of them repeat  the claim that “Soon information will double every 12 hours” not aware that that was a prediction from a 2006 paper for the rate of doubling in 2010.


In any event, I assume knowledge has a certain rate of doubling, and that the rate is increasing. And when people are optimistic about the future, what you find when you peel away the layers is that they are mostly relying on this positive compounding overwhelming any other negative compounding or even any other negative trends. To put it simply, they feel that the future is going to be awesome because we’re getting smarter. I am definitely sympathetic to this point of view, and it has a lot going for it, but I’m not sure it’s quite the unalloyed good people think it is. First, however fast knowledge is increasing, the human brain isn’t getting any more powerful. And I’m well aware that this leads directly to transhumanism, but as I just pointed out with some of the questions in the last post, replacing ourselves with artificial intelligence in order to keep up with the growth of knowledge, is something which could end very badly. Of more immediate concern, the pressure for scientific knowledge to increase has lead to a massive system of “publish or perish” which has in turn created the replication crisis. All of which is to say, as I so often do, I hope the optimists are right, but I think the challenges are vastly more significant than they think.


The other famous compounding trend that’s gotten a lot of attention over the last few decades is  Moore’s Law. Of course any mention of Moore’s Law has to be accompanied by the obligatory mention of concerns that it’s running out of steam. The next step in this discussion is for someone to come along and mention quantum computing and how it will revive Moore’s Law. And of course all of this, once again, leads directly into transhumanism, AI and the aforementioned awesome future, which I’ve probably already spent enough time on.


As the circle widens evidence of compounding or exponential effects becomes harder to find. And we start to move into the realm of long term trends which may or may not have compounding effects. Despite this, even if something doesn’t grow or shrink exponentially if grows or shrinks period for long enough, inevitably problems are going to arise.


I have already discussed lots of things which fit this criteria, and so I’ll mostly be reviewing trends we’ve touched on previously. To start with, there’s, naturally, the national debt, which I discussed a few months ago. I think a case could be made for the debt growing exponentially, certainly if you look at it just starting in 2000 (or even 1980) that’s what the curve looks like, even as a percentage of GDP. However if you widen the view and go all the way back to the countries founding you’ll see lots of debt peaks which later dropped to more manageable levels. It should be said that on all previous occasions the peak was due to war, and the war ended. This time there is no war (or if there is, it shows no signs of ending). For this reason and others I’m on record as saying that I expect the debt to essentially follow the track it’s already on rather than dropping back as it always has before. As to what that might mean, I recommend reading my previous post.


Another area where exponential growth is often mentioned is social media. And as I’ve pointed out a couple of times this isn’t necessarily a good thing. The more persnickety among you may argue that growth in social media is just a subset of the growth in knowledge (or even Moore’s Law) which we’ve already covered, but while most people don’t directly interact with “knowledge” they are intimately involved with Facebook. Also, I don’t consider this to be something that truly compounds, for one, I suspect that Facebook’s growth will be more of an S-Curve, than an unbounded arc towards infinity. Additionally and obviously there aren’t infinite people… All of this doesn’t matter, because Facebook and similar social media sites are interesting for another reason. If you grant the premise, which I and an increasing number of others have made, that Facebook is actually doing more harm than good, then I think it provides a great example of something that’s not intrinsically bad, but only becomes so after significant growth.


In other words, if we look at the trends associated with Facebook that actually concern people we can see where they all started out benignly, and only began causing problems once the curve/userbase reached a certain level. Let’s just look at a few examples of trends within social media.


Coordination: Looking back to my Moloch post I mention that the best way to get around “races to the bottom” is to coordinate. Unfortunately Facebook has taken coordination to a level where instead of bringing people together it’s allowed them to splinter into incredibly narrow ideological niches.


Speech: As I pointed out in the last post where I talked about social media, we’re discovering that excessive speech can be used to censor almost as effectively as actual censorship.


User Base: Having a massive user base is what makes Facebook appealing, it also provides a single point of failure where one bad decision can have a gigantic impact. And I’m not even talking about the whole Russia/Facebook controversy, I’m talking about how tiny changes to one of the algorithms is national news.


One trend which I haven’t spent a lot of time discussing is the rise in inequality. It’s not that I haven’t been aware of the discussion or the underlying problem, I just wasn’t sure that I had much to say about it that was unique or interesting. Still it’s a problem I’m interested in, so just recently I started reading The Great Leveler, I expect I’ll eventually devote an entire post to the book, but for now it does have something interesting to say which ties directly into the current topic. From the book jacket:


Ever since humans began to farm, herd livestock, and pass on their assets to future generations, economic inequality has been a defining feature of civilization. Over thousands of years, only violent events have significantly lessened inequality. The “Four Horsemen” of leveling--mass-mobilization warfare, transformative revolutions, state collapse and catastrophic plagues--have repeatedly destroyed the fortunes of the rich. Scheidel identifies and examines these processes, from the crises of the earliest civilizations to the cataclysmic world wars and communist revolutions of the twentieth century. Today, the violence that reduced inequality in the past seems to have diminished, and that is a good thing. But it casts serious doubt on the prospects for a more equal future.


Here we see two interesting ideas associated with rising trends in general. First they often have unintended consequences. (A topic which can never get too much attention.) In this case it’s the unintended consequence of reducing violence. And as great as this is, Scheidel argues that much like a forest fire, you need one every so often to clear out the accumulated deadwood. Which is not to say that you couldn’t have a post-violence society which was more equal, but in which everyone is objectively worse off. Thus even knowing, that sans violence, inequality is just going to continue to rise, that may still not be a trade we’re willing to make. And so, inequality just keeps growing, but this takes us to the second point illustrated by the example. Things can’t grow forever, and as we saw in the example of trying to earn compound interest since the birth of Jesus, when they do break, it’s generally though instability, of exactly the sort Scheidel is talking about. If we avoid mass-mobilization warfare, does that just mean we’ll eventually have a transformative revolution, or that if we avoid both the state will just collapse? Which wraps this point in with the first one. It may be that you can only avoid a forest fire for so long, and that eventually one comes whether you want it or not. Recall that it’s not just the rich getting richer, most everyone else is getting poorer, are you sure that’s a trend that can continue forever without ever crashing under its own instability?


In other words all of this is to say that no matter how innocuous or small a negative trend is, if it continues for long enough something has to break. Fortunately humanity has gotten pretty good at making course corrections. Still there are some recent trends where our attempted course correction has so far been ineffective. And other cases where the course we should take is clear, but difficult. And finally there are some cases where I’m not sure what sort of course correction we should make, and even if I was I’m doubtful we’d ever take it. In closing I’d like to provide one final example that combines a little bit of all of those issues.


The example I’m thinking of is the recent increase in deaths of despair. Here, most of the attention has been focused on people overdosing on opioids, and my sense is that people feel it’s a problem we’ve just recently become aware of, and that we have corrected our course, it just hasn’t quite taken effect yet. I certainly hope that is true, but even if it is, there’s more going on than just opioid addiction. First, it’s not as if opium was just barely discovered, or that heroin was only recently created (Bayer started marketing it over the counter in 1895.) The epidemic of overdosing is largely unique to our time and place. Second, even if you strip away deaths of despair to do opioids, you still have an increase in suicides and deaths from alcoholism. One writer puts it this way:


Opioids are like guns handed out in a suicide ward; they have certainly made the total epidemic much worse, but they are not the cause of the underlying depression.  


(As long as we’re on the subject did you see the story about the fentanyl bust in Boston? 33 lbs, which may not seem like much, but fentanyl is so bad, that’s enough to kill every person in Massachusetts.)


Returning to the quote, if there is an underlying depression, and I believe there is. All of the explanations for it involve things like job loss, and inequality, both of which seem destined to get worse. As I already said we’re pretty good at course correction, but job loss is unlikely to get better as automation becomes more prevalent, and if we buy the thesis of The Great Leveler, inequality is unlikely to get better absent violence. Accordingly there is at least some justification for thinking that the trends are going to continue, that whatever course correction we have initiated is not going to be enough.


I said that the second possibility is a change of course which is clear, but difficult. In this case it’s clear that we need to remove the despair. Most sociologists agree on what that would take: more high-paying manufacturing jobs, stronger families, and a general feeling of being useful. Some of those are easier to define than others, but all are incredibly difficult to accomplish. Though my argument for a long time has been that this is what people were hoping for when they voted for Trump. And while I assume some of them genuinely thought he could give them all that, I imagine most were making a speculative attempt to complicate.


Finally deaths of despair also fall into that category of problems where I’m not sure what to do. The world has moved on and we can’t turn back the clock. Trump can promise to bring back manufacturing jobs till the cows come home, but he’s unlikely to have much of an impact. The trends we see are too massive to be stopped so trivially. Thus saying we need more high-paying manufacturing jobs is not all that different from saying we need a miracle.


If the trends can’t be stopped, and as I said, I hope they can. It may initially not seem like a catastrophe. But this is where the length of the trend becomes important. Taking just the opioid component (and remember there’s a lot more going on with deaths of despair.) If things merely continue as they have been we’ll end up with 420,000 additional dead people in the US over just the next 10 years (basically equal to all the US soldiers who died in World War 2). And that’s not all deaths that’s deaths over the pre-epidemic baseline, which I’m pegging at around 1999-2000. (Figures extrapolated from charts linked to in the show notes.) This all assumes that we stop it here, and it doesn’t get any worse. If, on the other hand, the trend continues to rise at the same rate it has been, a 5x increase over 17 years (from 1999 to 2016) then by 2035 we would have a quarter of a million people dying every year.


I don’t think that will happen, and it’s possible that the opioid epidemic is a better example of a trend we missed than a trend which will continue. Which is to say that if you had predicted that overdose deaths from opioids would go from around 10,000 in the year 2000 to 52,000 in the year 2016, people would have thought you were crazy. And if they had believed you they would have done everything in their power to stop it. The question I want to leave with, is what are the current trends where we’re metaphorically in the year 2000. Trends just at the beginning of their rise, or even worse beginning to compound, where this is the time to act. Is there any way of identifying them, and if so, is there anything we can do? Or, are these trends similar to inequality, something that can only be reversed significantly by instability and violence?


I suspect I’ll be referring back to this post a lot, particularly since there are a lot of examples I didn’t even touch on. I’ll cover one of them in my next post.





This is my new record for the longest post. If you like in depth (or rambling) writing, then consider donating. If you don’t like that sort of thing, then how did you ever end up here?

16 comments:

  1. I'm less concerned with trends, such as the opioid epidemic, that we may not have solved yet, but where there is a clear will on the part of large numbers of people to resolve it. These trends, I think, are subject to the "Adams Law of Slow-Moving Disasters". In other words, if you look at bad stuff that's happened in the past, versus what people thought would be horrible, you notice we're really bad at predicting what will become a life-changing catastrophe.

    And part of that is likely due to the fact that when we see something coming far off, we can usually stop it. The concern, then, if we're talking about slow-moving disasters, is for two categories of disaster:
    1. Sneaky disasters. These are things we can't see coming until we're far enough into exponential growth that it's too late to stop. For example, say some company developed a drug that cures obesity, but the side effect is it causes everyone who took it to have a complete mental breakdown 15 years after taking it. This is enough time for drug approval, and by this time hundreds of millions of people could be insane. I'm having a hard time thinking of real-world examples of this one, since by definition they're unknowable in advance.
    2. Disasters nobody WANTS to stop. I'm thinking here of the Legend of Murder Gandhi, a Less Wrong post about slippery slopes. Here the concern isn't that we don't know we're on a slippery slope. It's that we don't care. Classic examples here include the Culture Wars, the road to socialism/communism, expansion of executive power, etc.

    The kind of thing that's likely to get catastrophic in this scenario is where the future society is indifferent about things that we would take to the streets about. But it's a ratcheting effect, because nobody wants to roll things back once we make the change. Another example: my grandma doesn't like to shop online because of security concerns, something that used to be a huge concern generally. Now people post intimate details of their lives on social media, despite the fact that Snowden revealed the US government is collecting everything, they broke SSL, that HTTPS is now less than worthless, and a myriad other security concerns. But people today are concerned with security challenges in the FUTURE, even though we never really solved the challenges of the past. We just got used to reduced privacy.

    So what will we get used to next, and how long until it's too late to stop it?

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    1. Re #1, I think you can credit irrationality to save us...or tenth man theory. Tenth man theory says if 9 people agree the 10th should disagree just for the sake of disagreeing. It's briefly featured in World War Z. Anyway, I think it's an evolved mindset in humans. When everyone agrees on something, the 'itch' for someone to disagree gets stronger and stronger. Perhaps it's partially a status thing since demonstrating you can buck convention may demonstrate evolutionary fitness. Also evolution wise I suspect it preserved our brains.

      Brains consume a huge amount of energy. Nature, I suspect, would have rather reduced our brains in favor of hard wired instincts. Keeping our brains made us more flexible in finding ways to live with different environments but at the price of being somewhat sub-optimal in all environments. We are inclined to adopt and try so many wrong things no matter what.

      Case in point, vaccine skeptics. If there was a brain dead clear example of a bad belief, that's it. Yet there's always a stubborn minority who will invent a reason not to use some or all vaccines.

      In your example, then, I suspect what would happen is after the first 15 years, if 50% of obese people used the magic pill 25% would double down in refusal to try it. Even if it was clearly a perfect pill, it would probably take multiple generations for anywhere near 100% adoption.

      In the case of a perfect pill that's sub-optimal but it would limit the damage if it took 15 years or more to really see the side effects.

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    2. Regarding #2, I had to look up Murder Ghandi (namely Ghandi is offered $1M to take a pill that increases his chance of becoming a murder by 1%, he takes it because he can save many lives with $1M and since he is such a pacifist increasing the odds by 1% is unlikely to actually cause him to snap, keep repeating this offer and at some point he should stop taking it but now he does because he isn't the same nice Ghandi as when it started)

      Funny thing, on large populations we don't have that problem. If a higher DIU limit results in 1% more drunk driving deaths, that will be dozens to hundreds of people. If we raise it again, we again see more deaths. At some point the cost of more deaths leads us to stop trading freedom. I'm not sure how this really plays out on a societal scale and the hypothetical Ghandi pill is strange at the individual level (what are the 'odds' really that you're going to murder someone in the next hour?)

      The example of internet security is a good one because it seems to more there's more concern about privacy these days from multiple fronts. Platforms like Facebook are treated with more skepticism by us today because we've been made aware of problems that we never would have guessed would have mattered (corporate profiling of our private info, fake consensus by swarms of bots generating false 'movements', etc.). Facebook and other sites are reacting because the public is no longer buying the 'hey they give it away for free so why complain?' line.

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    3. The point with the Murder Ghandi example is that 100% Ghandi is never going to hurt a fly, so he agrees to the 1% pill, since it's a good deal for him. But by the time you get to 92% Ghandi you're effectively dealing with a DIFFERENT PERSON, who's less concerned about going to 91% than the original Ghandi.

      And yes, privacy is still a concern on the internet, as it has been since I first got on back in the 90's. But the concerns continue to shift to whatever the big companies are doing today, not the fait accomplis of yester-year. The internet community today has already taken the pill, and is contemplating the NEXT pill. Depending on your perspective, you might think we're 98% considering trading down to 97% in order to get some great things Google and Facebook have to offer in return. But given what they're actually doing (capturing and storing in searchable format all communications by phone, text, email, web behavoir - including dwell time at different parts of the page!, secure communications, etc.; and that's just what we KNOW about!), there's a good case to be made we're at 12% debating the merits of going down to 11%. But how do we roll back even to 50%, let alone 90%! We're not about to give back all the goods that got us here. There's no clear way to climb the slippery slope, and no clear impetus to do so.

      That's the problem. When a 'tiny-trend' gets scary, it's still possible to get society behind making changes. But when the nature of the trend is that it changes the population making the decision, we may find ourselves with no defense against disaster.

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    4. Also, to the point about the dissenter: I believe the perspective from evolutionary theory is that it is often the outliers who survive during times of disaster. For example, an insect that burrows into the soil during the winter should not burrow too deeply, since then it will take longer to get out during the spring thaw and will therefore be less capable of competing with those insects that burrow less deeply. Still, some small percent of insects will randomly choose to burrow more deeply than others, even though it's less advantageous to do so. When a winter is particularly harsh, the shallow-burrowing insects are frozen to death, and the deep-burrowers survive to the next generation. In this generation, shallow-burrowing once again proves more advantageous.

      Among billions of insects, some will burrow extra deeply. They will be selected against in all years except the most extreme. This trend is alive with humans as well. We may mock the holocaust deniers and anti-vaxx - and be right to do so! - but in truth we just never know what kind of crazy behavior is going to survive the next near-extinction-level event.

      The point isn't whether some humans will survive, though. The point is that there will be tragically preventable levels of suffering and death if there is a selection event we could have avoided. But by definition these are hard to detect.

      I've thought of an example from history: Bismark's entangling alliances and his successors' inability to understand them; combined with Germany's feeling of being robbed of history by coming to power at the end of the colonial era; combined with myriad other factors in France, Britain, Austria, and Russia; were all factors that led to WWI. Perhaps the reason we weren't able to stop or even predict that conflict (and the magnitude thereof) was because there were so many factors in play. Humans are good at projecting forward from simple cause-effect relationships. But multi-causal isn't something we handle very well.

      For example, try to tease this one out in a way that leads away from some bad end: China has no naval path to international waters unless they claim small islands Japan owns; Japan and China aren't friends after all that brutality during their last major war, Japan suspects a Chinese naval build-up might be a prelude to some well-deserved vengence; DPRK is led by a dynasty that wants to self-perpetuate; South Korea wants reunification, and doens't like the guns pointed their way; China likes the current buffer-zone arrangement, but wouldn't mind owning North Korea for its Pacific Ocean access; Russia doesn't want China to have access to the Pacific right on their boarder; Indo-China trades heavily with the North Korean regime and likes the status quo; the US wants to maintain naval hegemony, while eliminating a growing nuclear threat; China feels a little cheated by history after the Great Leap Forward turned into such an embarrassment. What's going to happen? When? What to do about it?

      That's the difference between multifactor and single factor. It's easier to figure out what to do with a heroin or meth epidemic.

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    5. I'm not really clear how this pill works. I think I'm reading it keeps Ghandi the same but with a 1% chance he might become an insane killing zombie. You're telling me it moves Ghandi 1% away from strict pacifist and towards the opposite....so after 50 or so pills Ghandi is a radically different character.

      But then I'd say Ghandi already decided not to take that pill. Ghandi was not always a strict pacifist all his life, but he was never a murderer. During his life he decided that simply being the type of guy who will flip someone off for cutting him off in traffic but not murder anyone was just not good enough so he went down a road of extreme pacifism both for his own good and the good of everyone else's. I suspect he would therefore reject the $1M for taking the pill then because becoming less of who he is would actually not be worth $1M and in terms of the example he would set for all $1M would be a joke even if it was all put to the most optimal charitable causes possible.

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    6. I get your Bismark example and hypothetical possible future war with China and Japan. But I'm not seeing it as clearly tragically preventable. A lot of stuff seems obvious in retrospect but not in the moment. For example, it is pretty surprising that the US and USSR never went to war. A lot of very smart people felt an all out war around 1950 or even 1960 would have been a good choice because waiting longer would just let both sides build nuclear weapons to the point that war would be an extinction level event. Yet as much as history seemed to imply the Cold War should have eventually went hot, it didn't.

      I can see just as many possible cases where China doesn't care. Navies are becoming secondary these days anyway. China's going after a 'belt and road' strategy that will try to stretch their influence through all of Asia into Africa. If China today has enough access to the sea to keep thousands of Wal-Marts fully stocked, if they took their 5 aircraft carriers to 15 or 20, they would have plenty of sea access without bothering Japan.

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    7. The cold war is a great counterpoint. However, it goes back to the problem that humanity is fairly adept at evading disasters that stem from simple extrapolation - which a US/USSR war clearly was. (The earliest call to go to war with the USSR was probably Patton on the doorstep of Berlin. Clearly this was a straightforward predictable eventuality, and therefore avoidable.)

      Meanwhile, many colonial powers prior to WWI thought war was unthinkable, since it would be such a huge cost and there would not be any conceiveable gains that could outweigh those costs. Meanwhile, the Germans thought there was no way the British - their natural ally - would join a conflict against them, or that the Russians could mobilize quickly enough to counter their strategy. How to prevent WWI? With the understanding of hindsight (that they didn't have) there are a couple of ways:
      - Britain and other colonial powers could have recognized the growing German economy and the growing German dissatisfaction with a status quo that favored incumbents and held down rising economic powers.
      - The Germans could have recognized that shifting from monarchical to republican forms of government meant that fighting their neighbors based on an outdated Schlieffen-type plan was bound to fail, and that a better long-term economic and political strategy was to create an unbalanced relationship of economic dependency between themselves and Britain (and other great powers), thereby granting them soft-power leaverage in their bid to become a great power.
      Again, that's all hindsight. But the point is that it is possible to imagine a way out of the precarious pre-war years without it all ending in armed conflict. The problem is that everyone was pursuing their own interests in a way that ignored the possible confounding effects of other nations' interests.

      Same with China. Their interests are not too dissimilar to Germany's pre-WWI. And they may, at this point, be pursuing the second strategy I outlined above, making the US overly dependent on trade with them. But I don't see them giving up their naval pursuits any time soon. Navies allow you to project power by allowing you to transport your aircraft carriers and cruise missles anywhere on the globe. But none of that matters if you can't get your navy into and out of port without asking permission from your neighbors. Especially if those neighbors are your traditional enemies. That gives your enemies a de facto veto on your ability to project power. And sure, they're pursuing power in other areas, such as cyber warfare and a sort of economic colonialsim, but that does not indicate a DECREASED desire on the part of China to get their navy unchained. If we want to avoid conflict with China in coming years, perhaps we should consider that either we partner with our allies to help China get open access to international waters, or we stand by and watch as they take that open access by force. Or war. The benefit to granting China a couple of islands in Japan is that we could use that as leverage to help them resolve the cold conflict in Korea.

      Multicausal problems often come with multiple solutions, and many tools and compromises available at our disposal. But we tend to think in terms of direct problems and direct solutions.

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    8. I'm not seeing how China is limited in terms of ports. https://en.wikipedia.org/wiki/People%27s_Liberation_Army_Navy#/media/File:Major_Naval_Units.png seems to have several ports their navy can use without running into Japan.

      In theory navies project power but in reality only the US navy can project power. The US Has multiple carrier groups and the ability to actually project serious ground forces over the seas. Look around for the infographic that puts the US navy against the *rest of the world*. For the rest of the world projecting naval power means being able to launch some bombing raids overseas...at best.

      Replaying history here is pretty dangerous. You project a nice negotiated reconciliation. I pointed out that maybe a fast war would have been better. In the Cold War, eventual war was seen as inevitable so if the US had struck early, say when Patton wanted, a more serious one might have been avoided. But then we know now the Cold War never went nuclear. If Patton had gotten his way and WWIII had ended up costing 10M lives we might be patting ourselves on the back thinking we saved ourselves from a nuclear war killing billions when the reality is we know history worked out without a WWIII.

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    9. Of course, nobody knows the counterfactual for either historical or future events. As to China's naval limitations, a quick look at international waters (https://goo.gl/images/EkNcZb) reveals that in order for any Chinese naval vessel to go from Chinese soverign territory to the Pacific Ocean they have to go through territory controlled by another nation. That's why they want those uninhabited islands Japan owns so badly. If you have to ask for permission to project power, you don't have any.

      And it's true that the US Navy projects the most power around the world, but there are places where our ability to project power is balanced by the potential for threats by powerful regional actors (even if they're only powerful relative to other regional actors, since nobody really compares to the US globally). For example, when Russia strong-armed Georgia into the ridiculous conflict they fought in the 2000's, the US wanted to invervene, but couldn't because the Russians still have huge numbers of tanks, not to mention nukes, that they put in play and on deck. That deterred US action so Russia got Abkhazia and S. Ossetia. Again, the situation in Urkaine allowed the US limited freedom of action due to the balancing effect of the Russians in the region (interestingly, another example of strategic action based on securing important naval access). China wants to have similar balancing capabilities in their region, including in Indo-China, etc. For that, they don't need enough carrier groups to dominate the world, just enough to deter action by the power that does - the US.

      And I'm not sure what we'd be losing by granting China the ability to shore up a major strategic vulnerability if it means we can use that as leverage to achieve our own strategic ends in North Korea. Perhaps it limits our influence in the short term as described above, but in the long term that influence will be limited anyway if it interacts with Chinese economic trends to drive future conflict.

      Of course, I could be wrong about the whole thing. As you pointed out, nobody knew the Cold War wouldn't end in nuclear war. My point is that if you're looking for a trend that builds expoentially over a long period of time, that seems to sneak up on us, and that has major downside risks, there are historical lessons to be learned; namely, that people are pretty bad at stopping, or even identifying, multi-causal trends. And the Chinese situation is one such example, where most people don't even know why China and Japan are fighting over tiny islands in the Pacific, or how that relates to boader strategic-political concerns. If we don't know about building 'tiny-trends', how can we guard against their downside impacts when they enter exponential growth?

      A fast war with Russia at the end of WWII made no sense, since the Russians still did have lots of tanks, and the US was streaching through Europe and across the Atlantic to get to Germany; to push much farther and hit the USSR on their own turf in order to enact regieme change seems desitined to fail.

      Considering how much the Russians gave during that conflict in order to effect a win (even though they were also guilty of atrocities) I don't see history treating the US kindly to that kind of aggression even if Patton had won and marched through Moscow. There are dozens of ways it would likely have ended very badly, with national and global PR the first major concern.

      Fighting unneeded wars seems like a speculative attempt to complicate, and doesn't make much sense when you're winning. Same with China, it makes a lot of sense to do what we can to avoid conflict. Not by bowing to the whims of political competitor nations, but by negotiating those whims to effect positive ends for ourselves.

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    10. https://en.wikipedia.org/wiki/Territorial_disputes_in_the_South_China_Sea#/media/File:South_China_Sea_claims_map.jpg has an interesting map indicating China seems to have claimed quite a bit of sea territory. International waters only extend 200 miles from a country's coast so I'm not seeing why China could not send a ship from its coast out into the deepest Pacific without ever getting within 200 miles of any country.

      Perhaps the most significant chart is this, http://www.businessinsider.com/magnitude-of-us-naval-dominance-2013-11. According to wikipedia, China would like to expand their aircraft carrier force....to three. In terms of scale China is not just far from the US it doesn't really seem like they want to go there. Nor does it really make sense for them to try. China's potential for land influence is huge and just as the age of the battleship was waning after WWI you could argue that the age of the aircraft carrier is coming to an end. China would be foolish to try to out navy the US just as Tesla would be foolish to try to match General Motors manufacturing capacity or AirBNB would be to try to buy a host of hotel properties to challenge Hilton.

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  2. It's interesting how banks are seen as a kind of ex machina....standing somehow outside of society. The 6% idea is premised on that.

    Putting money into a savings account is no different than making a loan. In theory, you make a loan, charge some interest. Then when you get the money back make another larger loan, again charging interest. Repeat until you own the world.

    For that to work, though, someone else, who is also in the world, borrows money from you, does something productive with it, earns enough to pay you back plus have a little extra for himself. You are never going to own the world because if this pattern holds the other chap is always going to be richer than you, otherwise you won't have anyone to loan your money too. When numbers are small, the person doing the lending calls the shots (as you learn when you try to get a car loan or mortgage). When numbers are big, it's the borrowers who really call the shot (see the what happened to people who loaned money to Trump when he got in trouble, at the end of the story they eat the crap burger rather than the other way around).

    Duration is a concept in bonds that mirrors this problem. The tricky part is not making the loan but what you do with the money when it is paid back to you. In the early 80's 30 year bonds had very high interest rates, but if you purchased them you wouldn't get those interest rates because every coupon payment you receive for the next 30 years could not be reinvested at that original high rate but had to be reinvested at the lower rates that prevailed in the future.

    The middle class savings account, though, tempts one to be unaware of this. Kind of like a video game where mayham maay be befalling the universe but you can go to a 'store' that will sell you weapons to fight the monsters...the store always has inventory and always keeps the prices normal despite the world being destroyed outside :) Anyway the bank makes you unaware of all the problems with reinvesting interest earned, people who default etc. because they take a cut from you for worrying about that.

    Of course if anyone did leave a shilling in a savings account for 2000 years, what would happen is the the bank would lower the rate from 6%. Then they would make it 0%. They might even charge a management fee. You would never own the world unless the world itself grew as fast or faster.

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    1. There's a famous saying, "If you owe the bank a million dollars, the bank owns you. If you owe the bank a billion dollars, you own the bank." This is effectively what happened in the most recent banking crisis (at multiple levels) with Bear Stearns and Lehman Brothers. The creditors of BS (that abbreviation appeals to me) were mostly American banks. So when it looked like they were going under, the American banks strong-armed the US Government (the third level of owned-due-to-excessive-debt-exposure) into saving the bank - or at least its creditors. Conversely Lehman's creditors were mostly Japanese banks. So the American legislators didn't care about letting it go under. BS owned the US banks who were their creditors (Chase mostly, I believe), who in turn owned the People. And by "owned" I mean, "were too big a liability to allow them to fail". Clearly, it's a bad idea to continue this trend. But nobody seems to have the political will to do so. The most we got was a promise in Dodd-Frank that "next time we'll do something about it, even if this time all we do is grease the same wheels that went off the tracks last time."

      Sure. Except by the time the next crisis hits, We the People will be even more thoroughly pwned by the banks than we were last time around.

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    2. I think the narrative was a bit different. Lehman was allowed to go down and the world was shocked that it wasn't just one company going down (like Enron was) but the entire market. The bailouts began not so much because BS owed money to US banks while Lehman owed money to Japanese banks, it was because no one was really sure who owed money to whom. Laugh at the bank in Japan getting screwed but then you wake up and realize that bank owed money to multiple huge firms in your country and now they are collapsing too.

      As much as people want to tarnish the bailout, the problem is it cost nothing. Just figuring almost everything was paid back with interest it was a near break-even to slight positive for taxpayers. Considering it probably kept GDP from collapsing it was a huge positive for taxpayers.

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    3. Since this is a multicausal situation, both stories can be true at the same time. BS was bailed out first, and everyone expected the same for Lehman when they started casting about for assistance. There's not really a good public explanation for why Lehman didn't get treated the same as BS, especially since the BS bailout implied equal treatment for other failing investment banks, and Lehman was comparatively much smaller. Since that's what everyone expected, the world was shocked the policy 'changed' for Lehman. US officials appear to have viewed a failure of the smaller Lehman as being a contained way to allow market correction, since the firm's direct creditors were mainly foreign. But as you pointed out, they didn't understand to what extent everybody owed everyone else, such that when Lehman went under it triggered systemic collapse. That lead to bailouts because of fears that the systemic collapse could worsen and become catastrophic. Nobody knew how deep the interdepndency went, since even the failure of a relatively small institution had dire consequences, so the thinking went straight to a "save everybody" mentality.

      Did the bailouts cost nothing? Nominally, maybe, when considering only direct loans. But the bailouts were more than just those loans, and included a lot of tax incentives (foregone revenue is still technically a cost) and other direct or indirect gifts that helped banks, cost taxpayers, and were never even intended to be paid back. Then we get Interest on Reserves, where banks were literally paid money not to lend - a benefit that was a greater return that treasury bonds and was only available to banks, not the public. Add to that all the rounds of QE, where the Treasury claimed assets for their nominal value in return for cash to banks. Combined, these cost orders of magnitude more than we got back in interest on the direct loans.

      This last one (QE) was larger than all the others combined, and represented a huge transfer of financial risk from the banks to the taxpayers. And while taking all that risk, banks kept the returns. Which is probably the biggest cost of all. During the lead up to the crisis, nobody at the big banks had their hand on the wheel, because the assumption was that Uncle Sam would bail out any individual firm that went under if a limited crisis struck. And everyone assumed from their contribution to all that profitable bad behavior that the coming crisis would be limited and contained by the Fed stepping in and making sure nobody lost much if things went South. Then the crisis struck, and things went South like Sherman, and even though people doubted their ability to do so the Fed picked up all the slack.

      The only change the financial industry has seen since the crisis (and subsequent disastrophe of unplanned domestic policy) is that now banks expect bailouts to include the largest financial crises, and that whole sectors of the economy will be saved. Hence the expectation that the next crisis will be worse than the last. The underlying incentives have not changed, only intensified. And we paid the banks for the privilege.

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    4. Well TARP you are talking taxpayer money but the Federal Reserve creates money so interest on reserves, QE, all done with created money so I don't think the narrative works there. I can't come up with even a semi-plausible scenario where taxpayers have to literally bail out the Federal Reserve.

      I think the Lehman narrative was as you say, after BS market orientated critics were talking about moral hazard and letting the market work. Perhaps the Fed figured Lehman was smaller and more likely to find a buyer or it's implosion would be contained like a bankruptcy. They then got burned.

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