Perspectives on Jordan Peterson

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1. By Jordan Greenhall.

It might very well be the case that 2018 will be known as the “Year of Jordan Peterson”.

. . .Sovereignty is the capacity to take responsibility. It is the ability to be present to the world and to respond to the world — rather than to be overwhelmed or merely reactive. Sovereignty is to be a conscious agent.

2. Russ Roberts writes,

Peterson reminded me that civilization is fragile.

…Because of Peterson, I read The Brothers Karamazov, a big hole in my reading history. What an extraordinary book. Part of me is amazed and ashamed that I’d never read it. The other part of me is thrilled. I don’t think it would have nearly the impact on me in my teens and twenties as it did reading it now. Deeply thought-provoking on questions of good and evil and theodicy, on the dark side of human nature and on the potential for goodness to be redemptive despite that dark side. I’m thinking of inviting Peterson back to EconTalk just to discuss The Brothers K.

Scott Alexander writes,

The non-point-missing description of Jordan Peterson is that he’s a prophet.

. . .prophets are neither new nor controversial. To a first approximation, they only ever say three things:

First, good and evil are definitely real. You know they’re real. You can talk in philosophy class about how subtle and complicated they are, but this is bullshit and you know it. Good and evil are the realest and most obvious things you will ever see, and you recognize them on sight.

Second, you are kind of crap. You know what good is, but you don’t do it. You know what evil is, but you do it anyway. You avoid the straight and narrow path in favor of the easy and comfortable one. You make excuses for yourself and you blame your problems on other people. You can say otherwise, and maybe other people will believe you, but you and I both know you’re lying.

Third, it’s not too late to change. You say you’re too far gone, but that’s another lie you tell yourself. If you repented, you would be forgiven. If you take one step towards God, He will take twenty toward you. Though your sins be like scarlet, they shall be white as snow.

My own thoughts:

For those of us who gaze at college campuses and see students being taught to conform and to bully rather than to think, Peterson offers a rallying point.

He does have some ideas that are intellectually provocative. Scott Alexander points to the theme of chaos and order, which is important in Peterson’s thinking. Russ Roberts points to Peterson’s ability to derive insights from classics in literature.

I still think that he is better as a performer than as a writer. I am inclined to recommend binge-watching him on YouTube over reading his books.

This will be posted in the middle of Passover (note that, as usual, I schedule my posts in advance). The substance of the holiday is progressive, celebrating freedom from slavery. But the form of the holiday is order–doing things in a traditional way. The very word “seder” can be translated as “order.” One could have a discussion at the seder table that takes off from Peterson’s view of the need to preserve order while exploring chaos.

Essays of Israel Kirzner

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They have been collected in a new volume. It prompted my latest essay, but I would not call it a review. Kirzner addresses many difficult issues. For example, I write,

Those of us who wish to defend both methodological individualism and markets are faced with a paradox. When we say that the economy works well, we are claiming to speak for the entire society. But as individualists, we would say that there is no such moral entity as “society.”

Complicated vs. Complex

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Jordan Greenhall writes,

a complicated system is defined by a finite and bounded (unchanging) set of possible dynamic states, while a complex system is defined by an infinite and unbounded (growing, evolving) set of possible dynamic states.

. . .In the case of complication, the optimal choice is to become an “expert”. That is, to grasp the whole of the system such that one can make precise predictions about how it will respond to inputs.

In the case of complexity, the optimal choice goes in a very different direction: to become responsive. Because complex systems change, and by definition change unexpectedly, the only “best” approach is to seek to maximize your agentic capacity in general. In complication, one specializes. In complexity, one becomes more generally capable.

I found this distinction to be interesting. I would argue that mainstream economists treat economic problems as complicated, to be mastered by the expert. Those of us who lean toward Austrian heterodoxy treat economic problems as complex, best dealt with by adaptation.

I recommend the entire essay. His theme is the challenge that social media poses for human culture. As you know, this topic interests me a great deal.

The game of business strategy

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Greg Lewis says,

Sellers on eBay don’t quite know what gets them to the top of the search results in response to a query, but as they discovered when they made free shipping something that pushed you way up the rankings, suddenly everybody started offering free shipping. People figured it out.

The algorithm itself, the exposure, the possibility of being exposed to a customer might buy a product, very powerful and if you just start up-weighting certain features of the seller, what the seller is offering, then pretty soon, sellers will either figure it out or will die, in the sense that they won’t be on the platform and selling there much longer.

Pointer from Tyler Cowen. Tyler and I both find economists who work in business often to be more fascinating than pure academics.

I found that this wide-ranging interview reinforced many themes of mine. Business is turning into a strategy game. Price discrimination explains everything. Economic models tend to be too simple, and instead we need trial-and-error learning in many situations.

Would you buy this book?

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The title is Predicting the Markets: A Professional Autobiography. It has many favorable reviews on Amazon, but they seem to pre-date the official release of the book, which makes one suspicious. Maybe you will download the Kindle sample and leave your comments here.

1. I was aware of Yardeni back in my days at the Fed, when he was a leading Wall Street forecasting guru. In fact, I was surprised to find out he is still active–I would have assumed he had aged out of the profession or died, given how well established he was by 1980, when I started at the Fed. But he had only graduated with his Yale Ph.D four years prior to that.

2. Many of the names and events that he recalls from the 1960s, 1970s, and 1980s are familiar to me. I vividly remember that he coined the term “bond market vigilantes.” It served to emphasize that the financial markets do not necessarily strictly respond to the short-term interest rate that the Fed can control. When bond market investors were really inflation-phobic, they kept long-term rates higher than the Fed wanted. More recently, between 2003 and 2006, the bond market did the opposite–keeping long-term rates low even when the Fed was tightening. This is what made the Bernank mutter about a “global savings glut.”

3. I preach, “stare at the world, not at your models,” and Yardeni adopted that in practice as soon as he left Yale. He says that around 1988 he converted from being a macroeconomist to a microeconomist. He writes, “I have become increasingly convinced that most of the more interesting and relevant influences on the outlook for the global economy have occurred at the microeconomic level.”

4. In a chapter (still part of the Kindle sample) on economic history, he credits the decision taken in June of 1938 to suspend mark-to-market accounting for banks as helping to end the Roosevelt recession that hit in 1937. My first exposure to the accounting issue was in the 1980s, when book-value accounting allowed many under-water savings and loan associations to remain in business, and that was not a good thing–it made the inevitable bailout more expensive. The problem is that not marking assets to market makes the institution less transparent to regulators. So I was long in favor of market-value accounting.

But I have since come to hold a different view of financial intermediation, in which full transparency could be a bug, not a feature. The function of banks and other financial intermediaries is to hold risky, long-term assets while issuing low-risk, short-term liabilities. This permits households and nonfinancial firms to do the opposite. This is somewhat magical, as long as it is not carried to excess. Market-value accounting takes away some of the magic, and it has the property of turning liquidity crises into solvency crises. I still think that when government is backing deposits (and going beyond that with its de facto commitment to prop up big banks) the regulators need market-value accounting. In 2008, instead of advocating getting rid of market-value accounting, the approach that I advocating for keeping banks from all dumping assets at the same time would have been to temporarily relax capital requirements.

5. I have doubts that I would enjoy the whole book. Yardeni’s life represents a “road not taken” by me, and nothing I’ve read so far gives me regrets. I regard my own experiences as more interesting than his. Tyler Cowen says he would like to see more memoirs. I wonder if he could get through this one.

Off-topic: fantasy inefficiency

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A commenter asks,

Have you thought about efficient markets and fantasy baseball?

I.e., if you knew the market prices (via aggregating other auctions from this year) for a standard Yahoo! league, can you think of a better strategy than trying to maximize the difference between those values and what you pay

I do not think that the market is efficient. For one thing, On Yahoo, prices seem anchored much too closely to the pre-draft values posted by Yahoo. I jokingly refer to it as the YSRP–Yahoo Suggested Retail Price.

But here is a major inefficiency. Suppose I told you that there is a pitcher who last year won 13 games, struck out 203 batters, had an ERA under 2.5 and a WHIP under 0.9 In a 12-team mixed league, in what round would you be willing to take that pitcher?

It sounds like a starter you would take early in the 2nd round. But it actually is the combined statistics of Chad Green and Chris Devenski, who in 12-team mixed league are drafted in garbage time if they are drafted at all. So we can not spend resources on a top starter and pick those two guys instead.

You cannot use that trick with hitters, because they don’t take days off the way pitchers do. If you have two first basemen who each hit 20 homers, you can only play one of them at a time (assuming all your other positions are filled), so it does not give you 40 home runs. Although dang if owners on Yahoo don’t act like they can play their bench hitters. Some owners draft a bench that consists entirely of hitters, which I think has to be wrong. If I have 5 players on the bench, then I want at most 3 hitters. The strategy I am favoring here calls for 3 pitchers and 2 hitters on the bench.

With four of the top middle relievers, the top of our pitching staff is taken care of. Fill out the rest with 2 top-tier relievers and 5 late-round starters. That means in the Yahoo format that 10 out of your first 12 picks can be hitters. (In an auction format, it means spending over $200 of a $260 budget on hitting).

Another way that the Yahoo Rotisserie format favors this approach is that there is no innings minimum but there is an innings maximum of 1400. If we find another closer early in the season and everything else is going ok, we might blow off wins and strikeouts to lock up the other pitching categories.

With this approach, I think we can come out of the draft close to the top in all five hitting categories plus the pitching ratio categories. We are near the bottom in wins, but not hopeless. We are decently positioned in saves, but that is a category that really gets shuffled once the season gets going. We’d better hope that the closers we chose are not among those who lose their jobs during the season, and it would be nice if we pick up one of the relievers who gets promoted to closer and does the job.

We will have a good ratio of strikeouts to innings, but we will be short of innings (late-round starters usually give you only 160 innings or so). If we can add a 6th starter without messing up our ratios, then we can be competitive in strikeouts.

In an efficient market, we should have a one out of three chance of finishing in the top 4. But with this strategy, I think our chances are closer to two out of three.

This year, I tried this strategy in a Yahoo money league. Money leagues are the only ones you can rely on to be reasonable. In other leagues, owners will bail out before the draft is even over, and then you are stuck playing the whole season with only a handful of serious owners.

Anyway, I executed the strategy, spending mostly on hitters. Fortunately, others in my league were not into this strategy. If anything, starting pitchers went above YSRP more than hitters did.

By May, when a hitter comes off the disabled list, nine of my ten hitters will be projected to hit at least 25 home runs (and my tenth is projected to hit just under that), with eight of the ten projected to have batting averages over .280. My team is not projected to be near the top in stolen bases, but that is not a big worry.

I only bought two middle relievers, but I will raise that to four right away, because I also took two players that I knew were on the disabled list, and I will immediately bring in middle relievers for them. When the two players return from the disabled list in late April, the plan is to keep the middle relievers and to drop my least-useful bench hitter and starting pitcher as of that time.

On paper, by May I will have a 1st-place team. But meanwhile, there is the actual baseball season, and nothing happens like it’s supposed to on paper.

The game-playing society

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My latest essay.

During the industrial era, the key word was systematic. Factories and assembly lines turned production into a system. We invented the discipline of political economy, which analyzed the capitalist system. From Leon Walras in the 19th century to the Congressional Budget Office today, economists have used systems of equations as a way of interpreting the economy.

. . .I claim that we are entering the era of games, in which the key words are scorekeeping and strategy.

The main idea in the essay is, if valid, really profound. Whole books have been written about less. Read the essay twice, and then see what happens if you look contemporary phenomena and try to view them through the “era of games” lens.

Will Jews divorce the left?

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The BBC prints a scathing letter from “Jewish leaders.”

When Jews complain about an obviously anti-Semitic mural in Tower Hamlets, [Labor leader Jeremy] Corbyn of course supports the artist. Hizbollah commits terrorist atrocities against Jews, but Corbyn calls them his friends and attends pro-Hizbollah rallies in London. Exactly the same goes for Hamas. Raed Salah says Jews kill Christian children to drink their blood. Corbyn opposes his extradition and invites him for tea at the House of Commons. These are not the only cases. He is repeatedly found alongside people with blatantly anti-Semitic views, but claims never to hear or read them.

More discussion by Dalibar Rohac.

Could something like this happen in the U.S.? Today, the vast majority of Jews in this country are more closely affiliated with the left than they are with Judaism.

Well, first of all, it may not be happening in the UK. It could be that these “Jewish leaders” are unusually conservative politically. I am not familiar with the scene there.

Many of my Jewish friends proudly took part in the march for gun control last weekend, expressing their solidarity with the left. But some of them also noted the DC Council Member who said that the Rothchilds control the weather. As of now, they see Democratic anti-semitism as a fringe phenomenon and right-wing anti-Semitism as a serious threat. We’ll see what happens as that view continues to collide with reality.

Ben Thompson and James Allred on Facebook

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It’s a podcast, and if you haven’t come across it yet, I strongly recommend it. One central point is that Facebook is an advertising company, which means that freely sharing their data with app developers was a strategic mistake (never mind the privacy issues). They claim that Mark Zuckerberg was too enamored of the platform model and too reluctant to accept an identity as an advertising company. They make the point that regulating Facebook so that it cannot give away data would be good for Facebook and bad for start-ups that otherwise could make use of Facebook’s data.

What they say makes sense, but:

1. Zuckerberg has built a powerful, successful company, and they are just kibbitzers.

2. One can argue that refusing to accept an identity as a ____ company has enabled Amazon and Google to be successful. Amazon has failed at some thinga, but they succeeded as a cloud computing company, and nobody really saw that coming. Google has failed at some things, too, but other things, such as buying YouTube, were successful.

3. In general, it seems as though these companies try to create new opportunities and then see which ones work, rather than decide what to do based on some grand strategy. They create “luck.”

4. Thompson and Allred point out that Facebook “stumbled” into being a dominant advertising platform on mobile. But maybe they stumbled into it in part by making opening up their data to app developers. Maybe if they had kept their platform closed, app developers would have been forced to operate independently, competing with Facebook or working against it rather than with it. As it is, they helped steer Facebook into the mobile market.

Listen to the podcast before making your own comments.

A question on the President’s tariffs

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From a reader:

What’s the best case you can make for Trump’s tariffs?

This is one of the harder questions that I have been asked.

First of all, the phrase “Trump’s tariffs” hits me the wrong way. It should be the job of Congress to set tariffs. They should never have passed whatever legislation it is that gives the President the authority to set tariffs.

But trying to be charitable:

1. Maybe he is really using them as economic sanctions. Think of them as a way to reward friends (by giving exemptions) and punish enemies (by not doing so). The problem with trying to justify the tariffs this way is that the victims of the sanctions are people in both the U.S. and other countries, not the leaders of other countries. If you are going to give the President any points for this, you have to believe that economic sanctions have great symbolic meaning and that this symbolism will affect other governments’ behavior. Not easy to buy that.

2. Maybe tariffs are an example of the “least-harm principle,” which is that if somebody is committed to doing something bad, you hope that they pick the tactic that does the least harm.

I first formulated the principle my senior year at Swarthmore Colleg, which was when the Lettuce Boycott became the cause du jour on campus. Some of my fellow econ majors wanted to raise objections to the left’s insistence that the dining hall only serve union-picked lettuce. I suggested that we should not bother, since there were so many bigger issues around. “It’s the least significant issue they could have chosen. We should be happy that this is what they are focused on. Call it the least-harm principle of knee-jerk liberalism.”

So, maybe the tariffs are the least-harm way for Mr. Trump to satisfy the trade-nationalists in his coalition.