Saturday, December 25, 2010

Group IQ

Not only do we have individual IQ, but group IQ as well.

Despite all the well-meaning diversification of measures of human intelligence into such things as emotional intelligence, spiritual intelligence, and the like, (even basketball intelligence!), the big kahuna remains IQ- general cognitive intelligence. This single measure correlates (to various degrees) with a wide variety of real outcomes, such as academic performance, income, social status, longevity, and health. Putting aside the question of how some tests for IQ might be culturally biased and thus merely entrench the social priviledge they are supposedly used to mitigate, IQ has been a scientifically interesting and rigorous measure for a long time.

One would not necessarily expect that the ability to recall words, or do math & logic problems, recognize patterns, or fulfill other odd questions put by intellegence tests would indicate general capacities to succeed in life. But they do, which indicates that our brains, for all their modularity and complex architecture, have a general and variable capability to grapple with problems, in life as well as on tests. Problems are the real test of intelligence, and not just for humans. Outside my window is a bird feeder which I have had to re-engineer several times after local high-IQ squirrels "solved" its puzzle. It has been almost like an episode of Caddy Shack!

A recent paper shows that individual IQ (also called "g", for general intelligence) doesn't account, however, for performance of small groups. The experimenters derive a new measure, called collective intelligence, or "c". As one can intuitively appreciate, groups have a dynamic of their own, depending often more on how sensitive people are to each other and how well they draw out each other's abilities and virtues, rather than how intelligent each individual is. Getting this dynamic right is the holy grail of management books, courses, and gurus- for business especially, but also for government, nonprofits, academia, juries- all types of groups, really.

This study was done on seven hundred people from the general public, put into experimental groups of two to five and faced with a standard battery of diverse small group problems. The researchers then looked at whether groups tended to perform in correlated ways over disparate tasks, and at what factors accounted for that performance. They found that some groups performed better than other groups across the board, on tasks ranging from checkers and visual puzzles to negotiation, indicating that there is a general collective intelligence factor. To ask how many variables were at work across the different groups and tasks, they performed a factor analysis, which pointed one hidden property that accounts by itself for half the variance in the data ... which they call "c".
"Empirically, collective intelligence is the inference one draws when the ability of a group to perform one task is correlated with that group’s ability to perform a wide range of other tasks. This kind of collective intelligence is a property of the group itself, not just the individuals in it."
But what is "c"? Factor analysis points to hidden variables, but doesn't say what they are, or what they are composed of. One thing it is not, surprisingly, is individual intelligence, which correlated weakly with group performance, whether measured as average group member intelligence, or maximum group member intelligence. The figure shows the relative correlations:

The researchers combed through a few other obvious candidates for measurable group and individual characteristics that might correlate with "c", and which might then be compiled into a proxy/predictive measure for that major factor in group intelligence. They mention looking at the following:

  • Group cohesion
  • Group satisfaction
  • Group motivation
  • Individual personality / temperament profiles
  • Individual psychological security profile
  • Average social sensitivity (which can be measured)
  • Proportion of females
  • Variance of speaking turns- did everyone participate?

The first three, surprisingly enough, showed little correlation, while the last three had high correlation. To put it in numbers, individual intelligence correlated with group performance at 0.18, average individual social sensitivity correlated 0.26, proportion of females correlated 0.23, and variance of turn taking correlated -0.41, (high variance means that one person dominated the group). They mention that the correlation with females in the group was probably the same effect as the social sensitivity measure, so they may be measuring the same characteristic.

Turn taking variance is a group characteristic, thus not the kind of characteristic that can be predicted individually, making this one difficult to apply in general way to group performance prediction, even though it represented by far the highest correlation. Additionally, it could be just another (practical) expression of that same social sensitivity that was measured in other proxy ways.

More interesting was the role of female presence and the correlated social sensitivity and group performance. Now who would have predicted that?!

"Padoa-Schioppa’s proposal that the euro would unite the economies and peoples of Europe is turning out to be true. The common unifying element is the entrenched unemployment that the system has delivered which will define the European landscape for years to come unless nations take the only sensible step and exit the defunct and unworkable monetary system."
and ...
"Now we tolerate high levels of unemployment without a clear understanding of the magnitude of costs that that policy position imposes on specific individuals and society in general. The neo-liberal publicity machine has been running full bore for a few decades now to convince us that unemployment is not a major issue that should be addressed."
and ...
"As an aside, it is true that US is losing ground in global terms and I agree with Johnson on that score. But the US budget deficit is not the reason for the loss of traction.
You cannot go around shooting up places illegally; engaging in wars that actually make the world less safe; treat your own people like dirt by forcing them into joblessness for extended periods; tyrannise and torture prisoners of war in illegal detention camps; and more … and then lecture the rest of us about how wonderful and free and dynamic your nation is. The rest of the world (bar the Eurozone) is moving on and is smarter than that!"

Saturday, December 18, 2010

Evolution slows down in a crowd

A couple of papers show how small population size allows evolution to flower, by limiting natural selection.

One of the curious questions in biology is why multicellular animals have shown such rapid evolution, while microbes seem a good deal more static. This is not to say that bacteria can't evolve very rapidly in response to selection, or have not evolved an unending variety of metabolic capacities, but that they rarely change dramatically, such as in their physical forms. The Cambrian explosion is a classic example of relatively rapid animal evolution, and even if recent work tells us that it was a good deal slower than "explosion" would imply, animals seem to change over time at a relatively dizzying pace.

This question, biased and subjective as it perhaps is, has many answers, but a crucial one laid out in a few papers by Michael Lynch is that large population size slows evolution dramatically by reducing the chance that slightly deleterious mutations will ever become fixed in a population. Such mutations are the junk out of which new functions arise- the gene duplicates, introns, transposons, superfluous regulatory regions, etc. that pepper our genomes as large eukaryotes. Even entire genome duplications are known to have happened. This argument has significant implications for other evolutionary questions as well, like the origin of introns, early human evolution, and the nature of punctuated equilibria.

The empirical fact is that microorganisms are much less forgiving of "fat" in their genomes- they have little or no "junk" DNA. They have fewer genes, which are typically positioned cheek-by-jowel in close arrays, often even driving several different protein products from a single promoter. A frequent argument for this state revolves around their physical size- human cells are roughly about 50,000 times the volume of a bacterial cell, and yeast cells are about 50 times larger. So for a given genome of physical DNA, the metabolic cost of that DNA is much higher for smaller organisms, for whom a genome typically constitutes 5% of dry weight (compared to ~0.5% for human cells). But Lynch, an evolutionary biologist at Indiana University, has a different answer. Indeed, one might ask which came first- the small size, or the small genome?

The papers are from 2001, 2002, and 2007, of which the first two are math-heavy papers modelling how realistic mutations like novel gene duplications (paper 1) or introns (paper 2) propagate in populations of various size. The third is a more general and perhaps accessible jeremiad against making natural selection the be-all and end-all mechanism of evolutionary change.
"Most biologists are so convinced that all aspects of biodiversity arise from adaptive processes that virtually no attention is given to the null hypothesis of neutral evolution, despite the availability of methods to do so. Such religious adherence to the adaptationist paradigm has been criticized as being devoid of intellectual merit, although the field of molecular evolution has long been obsessed with potential for the ‘‘nearly neutral’’ accumulation of very slightly deleterious mutations. The condition for near-neutrality is fulfilled when the ratio of the powers of selection and drift is substantially <1, i.e., |2Ngs| << 1."  .. where Ng is the population size (N) of the given gene (g) or allele, and s is the relative selective advantage of the given gene or allele.

Insertions like gene duplications and introns are assumed to be, on average, slightly deleterious. A new intron may make the gene slightly slower to be expressed. A duplicate copy may double the gene's dosage, wasting some of the protein product or altering a regulated setting slightly. Typically, such alterations have near-neutral effects. And the issue for evolutionary innovation is why and for how long such mutated material (whether we call it junk DNA or gold-in-the-making) can be kept around in the genome.
"For example, the rate of duplication of entire genes is ~1% per gene per million years..."
For a population of one, any mutation is immediately fixed (i.e. reaches 100% of the population)- no math needs to be done. This is the situation of species on the brink of extinction, and it is dire, because bad mutations far outnumber good ones, and an inability to cleanse the population of bad mutations is fatal. Conversely, for an infinite population, no mutation will ever reach fixation- there isn't enough time. What happens in between? As population sizes go up, it becomes harder and takes longer for random drift to bring a mutant allele to fixation. Indeed the overall probability for any completely neutral allele is 1/2N, where N is the population size. The more time it takes to reach fixation, the more time natural selection has to weed out a deleterious allele, and the smaller "fitness" cost that can be detected and selected against.
Genetic drift of a neutral gene starting at 50% of the population, for populations of different sizes. Percent of population (Y axis) graphed against generations (X). Fixation is 100%, and complete loss of the gene is 0%.
This wiki site graph shows that with increasing population size, time to fixation by genetic drift increases dramatically. For truly neutral alleles, this relationship doesn't make a gross difference, because the number of new mutations arising is also proportional to population size, so overall, the neutral mutation rate of any population is similar, regardless of size. But for slightly deleterious alleles, the story is very different. The longer such an allele exists in a population, competing with its normal counterparts, the less likely it is to survive.

Successful organisms by definition grow to large populations. Bacteria of even rare species can easily attain populations of ten billion or beyond. A single drop of pond water can contain millions. In the case of humans, such a population is far beyond the natural carrying capacity and indeed is rendering the biosphere serverely degraded and unsustainable as we speak. Macro-organisms simply can't reach these kinds of populations- there are orders of magnitude differences determined intrinsically by the size of the individual.

If one combines these facts with the proposition that gene duplications, introns, and similar junk are the ingredients of novel function, diversity, and speciation, (as they are assumed to be by most biologists), then it is clear that natural selection can be too good. At very large population sizes, every scrap of deleterious DNA is excised and the organism streamlined to perfection. That process eliminates the slop and junk that forms the workshop of evolutionary innovation, ironically enough.

To put this visually, the selective space facing organisms is frequently portrayed as a two-dimensional landscape, with peaks of high fitness, separated by valleys of lower fitness. A major problem is, of course, how to transit from one local peak to another that may actually be higher. If an organism is stuck on a low local peak, and if natural selection is set on "high" by virtue of the organism's high population size, it may never be able to sample other locations in the landscape. Of course, if it has large population size, then it is already successful, and can well rest on its laurels.

This has obvious implications for, among others, the problem of punctuated equilibrium, which has been, to some at least, a rather unsettling finding of paleontology. After long study of the fossil record, paleontologists see many species staying quite consistent in visible respects for long periods of time, only to be suddenly replaced by other species, which then remain stable for long periods as well. What is observed is long-term equilibrium, sometimes accompanied by change, but more often punctuated by rapid revolution.

Punctuated equilibrium is hard to square with the usual gradualist view of natural selection at the largest scales- that species change all the time, and would be expected to optimize and adapt to their environments continuously. But here, we learn that large populations are strongly inhibited from changing, by their inability to accumulate even the least unfavorable alleles. Sure, in their continual race against diseases and simliar frequently changing threats, they are adaptively optimizing all the time. But transiting to truly novel ecological niches or developmental paths is essentially impossible for such large populations, if it requires accumulating any kind of temporarily deleterious genetic material.

Conversely, small populations accumulate junk like this all the time. Small populations can happen at range edges, on islands, or even sympatrically by small alterations of mating behavior, gamete chemistry, and other means. Of course most don't succeed to make much of this isolation. But those who do may eventually gain some new form of selective advantage and return to displace their ancestors, accounting for the observed nature of the fossil record.

Human evolution is a good example. For most of our history, human populations were vanishingly small. That is why fossils have been extremely hard to find, despite very high interest.  What fossils we have indicate that the last 5 million years represent a constant diversification and extinction of species with small populations displaced by other species carrying various innovations in a halting, punctuated sort of process. The punctuations are more frequent and the changes more apparent, since there were never any widespread, huge populations of proto-humans. So we are mostly looking at what in other paleontological contexts would be the punctuation part of punctuated equilibrium.

So, natural selection is not only not the only mechanism of evolution, it postively retards evolutionary innovation if carried to extremes. That, among many other properties, is the secret of the flourishing diversity of large metazoan eukaryotes.

Saturday, December 11, 2010

Religion, reification and idolatry

If idolatry is the worship of created things, and myths about god are our creation, isn't all religion idolatry?

I'd like to follow out a line of thought from a recent post about John Milton, who was deeply concerned with idolatry. Conventionally defined, idolatry is the worship of any object in place of a true god (whatever a true god is). If one's god is nature, then worshipping rocks and plants is not idolatrous, but if one's god is Abrahamic monotheism, then it is. If you worship a golden calf as an image of the Baal / Hathor / Apis cow diety in the Canaanite religions, this is only idolatrous if you are not a believer in those religions. In short, idolatry is close kin to heresy, requiring a definition of what is false and what is true.

At this holiday time, which we know has nothing historical to do with the birth of Jesus, the birth story itself being pure fabrication anyhow, it is hard not to see the entire Christmas exercise as a massive case of idolatry, whether one is a believer or not.

What is one to say? "Oh, never mind about all the crazy claims and tall tales- just go with the flow and worship as you are told!" That may be a festive response, and one appropriate to children, but hardly a philosophically defensible one. Especially when we are accosted by revanchists bellowing about "the reason for the season". Well, that, thankfully, is a lost cause. The Puritans even banned Christmas as biblically unfounded as well as infected with Catholic idolatry.

Higher in the artistic food chain, Milton also created an enormous fable about the fall of man, illustrated with dynamic characters, fantastic scenes, and pathos, (with not a few dollops of mysogyny), in Paradise Lost. What did he think he was doing? He knew his art was not true to any kind of fact, even if it embroidered on accepted scriptural sources. He was vivifying his own belief and that of his readers by fabricating a story. Was he also worshipping directly? God already knew the story- he certainly didn't need to be told the docudrama version. One may conclude that Milton was not dealing with god at all, but feeding the religious meme that lives by worship as an artistic and social bonding activity rather than consummating any transaction with the divine.

He enriched the clearly false religious narrative that bonds believers, but enriched the narrative of plain humanism as well, since his characters are never science fiction- however divine or fallen, they are always human. And that is the answer for me- that the art of Milton, and of religion generally, is very human art, investigating the trials and joys of the human condition. Religion itself is an enormous metaphor- a complex system of drama-symbols (devil, god, salvation, damnation) for us- our concerns and our psychological potentials.

A fine example came up in a recent New Yorker article, discussing the restoration of the early 1400's Ghent altar piece, by Jan van Eyck. It is fabulous- stunningly realistic, sympathetically human, and absurdly theological, with a large crowd of luminaries raptly adoring the lamb- a lamb facing the viewer with blood streaming out of its neck/heart into a golden chalice. Whew- what is going on there? How is this different from worshipping the golden calf?

The difference is presumably that the lamb isn't a "real" lamb, but a symbol for Christ (as if the golden calf wasn't a symbol for Baal). Similarly, the Catholic church can say that its army of symbols and costumes are not really there to be worshipped directly, (perish the thought!), but represent that which the theology says is immanent. All of which Milton couldn't stand, though he went right on to deploy and even richer myriad of symbols in his own writing.

At some point one has to ask what is symbol for what, and where does it all end? The atheist simply points out that the case for anything extra-natural underlying all this symbology is nonexistent, and the even if such sub-reality did exist, no one has the evidence about it required to tell all these stories. It is all tall tales and tomfoolery.

What we do have is the love of art- the desire to express the inexpressible and represent ourselves and our inner loves, fears, and explorations in the only way we know how- through concepts and symbols that can activate and share the numinous feelings we have about life. Our psychological depths are veritable oceans of symbol generation, recombination, and propagation, as we occasionally appreciate through dreams. Religion is a sort of waking communal dream, drawing up these riches for mutual enjoyment, whether lushly decked out with incense, stained glass and gilding, or astringently meditative. It is the feelings that are the alpha and omega, not the so-called knowledge, systems of theology, mythical history, deadening hierarchy, etc.

So I come to my title, that religion is a collection of symbols and practices by which we express our feelings. Feelings that ascribe great powers to the mind, hidden levels to the cosmos, and personality to nature. Feelings whose expression is a powerful source of mutual bonding and psychic affirmation. To take any of this seriously as some sort of factual narrative or portrayal of sur-reality is to reify metaphors & symbols. And to reify a metaphor is to engage in idolatry.

Can't we honor our feelings and share our art without making totems of their symbols, which, man being man, inevitably decline into magic relics, dogmatic "beliefs", and incarnate deities? Is that too much to ask?

  • America in decline? Not whether, but how fast.
  • Future of the desktop.
  • Compromises with the GOP continue...
  • Bill Mitchell quote of the week is back, in spades!
"While the hard-line Austrian school types were saying we should have let the crisis play out – it is clear that they have little understanding of the depth of the crisis and how much public intervention was required to stem the collapse. The scale of the US Federal Reserve credit line intervention is staggering. If the public interventions had not been made then we would have endured a major depression beyond doubt."
"None of the developments that the illegal foreclosure scandal has exposed are covered in mainstream microeconomic or macroeconomic textbooks. There we just learn about private optimising agents pursuing self interest to maximise welfare for all of us. It is a fairy tale without any application to the real world we live in."
"The conservative agenda is to tear down the public elements and to convince us that we cannot rely on government. But that agenda is not consistent with a generalised social well-being. It is a recipe for accelerating the transfer of real goods and services to the elites with economic power. It works – for a time – and then collapses. When it collapses we witness the ultimate hypocracy – the request for the state to socialise the losses."
And also...
"Rather, it was the capture of governments by the neo-liberals and the resulting regulative laxity that allowed the crisis to occur. And as usual – a poor diagnosis leads to a poor remedy. By erroneously implicating fiscal policy and macroeconomic policy in general as the cause of the crisis these characters can easily convince us that fiscal austerity and harsh cuts in pay and conditions are the way forward. They recruit the mainstream members of my profession to tell us that this will free up space for a strong private spending recovery.
It is patent nonsense. Ireland began its cruel austerity push nearly 2 years ago. They were meant to be enjoying prosperity by now. Instead, as was obvious to anyone but the denial cohort, their plight is worsening and they are being propped up by handouts from foreign governments."

Saturday, December 4, 2010

Mises, Hayek, and Friedman

Gosh- it almost rhymes, doesn't it? A foray into Austrian and conservative economics.

While studying updated Keynesian economics, I keep hearing about the other side, exemplified by Ludwig von Mises, Friedrich Hayek, and Milton Freidman- prominent leaders in successive phases of conservative economics in the 20th century. Additionally, the Atlantic magazine recently ran a puff profile of Ron Paul, with glowing references to Mises, whetting my curiosity about this virtually forgotten economist.

Reading samples of their work, it quickly becomes apparent that we are not dealing with equal intellects. Hayek (The road to serfdom) is far and away the deepest and most interesting of the bunch. Friedman was solid in some respects, but was overly ideological, cherry-picking his stories and evidence, failing to quite understand banking, and wedded to both his hypotheses and to always being right. Which is very annoying. And Mises.. just an out and out crank, whose ongoing theme is that gold is the only reliable form of money. For all his cult-like following, Mises never gained a permanent academic position, either in Austria, or later in the US, indicating that others saw him similarly. Here is a relatively coherent sampling of Mises's thought.

(I am indebted to Bill Mitchell's blog for ongoing insight into these issues, and to a 2002 review of later parts of this history, by David Colander.)

The immediate predecessor to Mises was the Austrian economist Eugen von Böhm-Bawerk, who, in opposition to Marx, developed the idea that capitalists, far from exploiting labor, offer labor the opportunity to work and gain income in advance of sales, taking upon themselves the risk of enterprise and economic uncertainty. He wrote extensively on the roles of capital and interest in a modern economy. He, Mises, and Hayek all cut their teeth in the Austrian finance ministry, which was in the thick of world-wide problems with gold, silver, and bimetallic monetary standards, followed by the German and Austrian hyperinflations of the 1920's.

At the beginning of this story (late 1800's), most people were only comfortable with some precious metal backing (or actual content) to their currency. For example, the US went off the gold standard during the Civil War, and issued greenbacks for the first time. This allowed inflation, which essentially amounted to confiscation of private wealth in the North for the sake of war finance. The Confederacy did the same, with far more disastrous hyperinflation. (As had the Continental Congress before them.) Popular sentiment as well as contemporary economic theory forced the country back onto the gold standard within a decade, leading to the chronic deflations of the late 1800's. While now all countries are permanently on fiat paper money, in those days none were, and the lessons of history all said that paper money led inexorably to inflation.

Original greenback

Given the metallic standards, money was originally a mostly private affair. The original way a mint worked was as a service to private people, not as an issuer of the government's money. You brought your gold or silver to the mint, and it would mint you your coins as per the official coinage weight and design of the day. The mint might charge a small fee, and that would be that- money supply established! Mises makes a great deal of this origin of money- that people come up with money as a spontaneous convention, which in many cultures has converged on the most precious, portable (in small amounts!), durable, and divisible substance- gold.

"I would like to attack the problem from another point of view and say: “There is nothing in the world less fit to serve as money than paper, printed paper.” Nothing is cheaper."

The issue, of course, is that a gold standard, while it does virtuously constrain everyone in a monetary system, including the government, has many disadvantages as well. Firstly, it is not elastic. When economic production doubles, does the gold supply double? Maybe yes, probably no. They are not fundamentally coupled, so one's money will be worth different amounts of real goods as new gold discoveries are made, or as economic growth makes static gold more valuable. This is a particularly painful problem in the case of deflation, where those with gold (banks, rich people) find their real wealth increasing effortlessly, while those producing goods, and especially those in debt, find what they sell buying less, and their debts rising in value over time.

As Mises acolyte Murray Rothbard puts it: "In a developing free-market economy unhampered by government-induced increases in the money supply, prices will generally fall as the supply of goods and services expands. And falling prices and costs were indeed the welcome hallmark of industrial expansion during most of the nineteenth century."  Planning for Freedom, p.247

A shocking and typically blind statement, really. While the Austrian school is inflation-phobic in the extreme, and supposedly supports "sound" monetary value, it turns out that deflation is just fine. This obviously shows which side of the perennial class conflict they occupy. I would also note that deflation exhibits an exponential process of sorts when it is rapid (as does inflation conversely). As the currency becomes more valuable, it gets horded, and less is used for economic activity or lent out. What is the point if just holding it gets you regular returns? Less exchange leads to more deflation, and the system seizes up with nothing happening, unemployment prevalent, and no easy way out. So proper monetary management aims for a Goldilocks mean of stable monetary value- the ideal is 1-2% inflation which encourages money circulation and investment, without eroding its value unduly.

Also, government temptations hardly disappear on a gold standard. A customary way to run such a standard is to issue paper notes redeemable for gold at a set amount. But does the government have to hold a full amount of gold to "back" each note and outstanding ledger entry with gold? Not really. As long as it has enough to meet the expected traffic of redemptions, it only needs enough, say, to back 1/10 of the outstanding currency. How about 1/20? Or 1/100? These kinds of games are every bit as tempting as running an outright fiat currency, and at some point, public confidence breaks down, a run occurs, and the government summarily "closes the gold window", as Nixon finally did in 1971.

So, as Keynes said, gold as monetary backing is a barbarous relic. But Ron Paul and countless gold bugs and libertarians around the world pine for its return, as part of a more general program of breaking the stranglehold that contemporary governments have over us all. It is our collective faith in our collective government that is the monetary standard now, and while there have been many bumps on the road, we seem to have the sophistication these days to make a go of it.

The formative experience for the Austrians was the German (and Austrian) hyperinflation of the 1920's. This horrible and traumatic loss of a key foundation of civilization seared into them a distrust of government and a love of gold that still animates so many today and gives gold coins a semi-mystical aura to the older generation. The German experience is well-told here, (but see here for a contrasting account), and I will only mention a couple of aspects. First is that the process began easily enough. A weak government didn't want to tax to cover its needs, but kept spending without a macroeconomic rationale. It also allowed its all-too-independent central bank to lend excessively, especially to foreign currency speculators. This set the stage for continuous inflation.

Second, many investors and businesses did fine in the inflation- those who were a step ahead could take out loans soon to be worthless, and/or buy real estate or gold to preserve their savings, etc. Life certainly became more complex, but some people came out ahead- it isn't only the government that wins. Lastly, such inflation leads to an interesting exponential process, where as it heats up, everyone gradually realizes that their money is becoming worthless, and all money gets sucked out of its hiding places- mattresses, savings accounts, etc. The beginning of this process creates the illusion of prosperity, but the end of course creates the spiralling worthlessness where people are paying for bread with wheelbarrows of notes.

So Mises kept preaching the gospel of "sound money" and the dangers of government control, topics that were continued in various forms by Hayek and Friedman. Friedman wrote an interesting book on bimetallism- the once-common practice of backing money with both silver and gold, (Christmas theme, anyone?), which he deems more stable than either silver or gold alone, for what that is worth in hindsight. The reason is that the more inflationary metal will always drive out the lesser. If gold is getting scarce and more valuable, then people will hoard it and instead bring their silver to the mint for coinage. Thus, in a world of economic growth, where a metal standard is almost always deflationary, it is better to have two horses to choose from, rather than only one, as geologic and technologic vagaries alter the supplies of these metals (for instance, cyanide processing of gold ores). Friedman doesn't come out explicitly for a return to such a standard, but sighs and moans about the bad historical behavior of governments with fiat currencies.

Friedman's mantra is that inflation is always a monetary phenomenon. In a way, this is a truism, since the problem certainly is money getting less valuable. But the underlying idea just isn't correct, since Zimbabwe's catastrophe shows that plummeting real economic production can also cause a disconnect between money value and the economic production base it rests on, again leading to inflation. And it can be a banking problem as well, if banks are not closely regulated. It isn't always the government "printing" excess money. He is right, however, that inflation is never merely a psychological issue of "wage expectations" and the like. There have to be real factors at work.

Incidentally, do we hear about the "money supply" on the evening news any more? No we don't- this was Milton Friedman's hobby horse, now thankfully retired. It turns out that all the measures of "money supply" are hopelessly uninformative- it is terribly hard to measure, and impossible to control in any direct way. These days, the Federal reserve just sets the interest rate to adjust the rate of money/credit growth coming from the banks, and leaves it pretty much at that, barring the kind of special crisis/financial meltdown we are currently in.

Now let me turn to Hayek, author most famously of "The road to serfdom". The title sounds a bit alarmist, even McCarthyite, and the book does veer a bit back and forth between froth and sober political theory. But the core consists of very sound analysis, both political and economic, that today we regard on both the left and right as conventional wisdom. His ideal is traditional English liberalism, (strongly laissez-faire), advocated with the true fervor of a former student of Mises and an immigrant who spent the height of his career teaching at the London school of economics.

His first theme is relatively straight economics, inherited from the Austrian school and developed by Hayek into Nobel-prize work: the superiority of markets over socialist or communist economic planning. Hayek wrote at a time (1940's) when socialism had been intellectually respectable for decades, and many thought that the economic miracles of the Soviet Union showed that it was a truly viable economic, if not social, system. The bloom was not quite off the communist rose (sickle?), and socialist parties would continue to have strong influence in Europe for decades, though increasingly defanged in favor of liberalism (just look what has become of the Labor party in England!). The economic successes of the Nazi system also provided strong arguments in favor of direct state economic control. Fascism was thought, in economic terms, to be the practical middle way between communism and laissez-faire.

There was, in short, a real debate whether the burgeoning complexity of modern economic systems would be best met by explicit state planning, or whether the old system of higgledy-piggledy markets would continue to be up to the task. Hayek was a complete believer in the latter, making the trenchant argument that complexity is exactly what markets do best, organizing millions of personal preferences and a thousands of supply constraints into an efficient system perfectly suited to continue serving human needs for private goods into the modern age. As we might put it now, markets are parallel processing information systems, far superior to the kind of serial processing, however well-meaning, that bureaucrats can devote to economic affairs. In this, of course, he was doing little more than restating Adam Smith, however important it was at the time to do so.

He was fully aware of the need for public goods and the many forms of public support (legal, educational, macro-economic, regulatory, etc.) needed for markets to work, so wasn't as doctrinaire as many other Austrian acolytes. But he didn't compromise in his conviction that in the long run, the Soviet system in particular could never outproduce the free systems of the West ... if the systems of the West remained free!

"The refusal to yield to forces which we neither understand nor can recognize as the conscious decisions of an intelligent being is the product of an incomplete and therefore erroneous rationalism. It is incomplete because it fails to comprehend that the coordination of the multifarious individual efforts in a complex society must take account of facts no individual can completely survey. And it fails to see that, unless this complex society is to be destroyed, the only alternative to submission to the impersonal and seemingly irrational forces of the market is submission to an equally uncontrollable and therefore arbitrary power of other men." p.224

Freedom was the mainstay of Hayek's, and the Austrian philosophy generally. Mises had a whole mythology of markets being the natural state of man, who voluntarily exchange goods with no compulsion or state apparatus. To which I have one answer- the family, the even more elemental state of nature comprising complete state control of the means of production, as well as everything else. Hayek stuck with easier territory, explaining how markets are one important mechanism of freedom, allowing each consumer the sovereign choice of products, (barring monopolies and other problems), and bending each producer to virtual slavery at the customer's beck and call (had never heard of advertising, apparently).

Freedom to employ capital, freedom to choose products, and freedom to work and be paid by one's ability- each was central to Hayek's view, and each was in danger when the private economy was put under what went by the name of "planning" at the time- socialism or communism. Once one official is given the task of specifying what widgets should be made here, for the common good, some other price has to be "stabilized" there, some worker has to be shifted around over there, and pretty soon, the whole system has to be run out of 10 Downing Street. That was the road to serfdom that Hayek was talking about, and, among many other examples, our military-industrial complex is eloquent testimony to the inherent morbidities of such a system, however well-intentioned.

The issue was quite live at the time, as Britain was destined to keep some of its war-time economic planning apparatus in place into peacetime, to minimize disruptions on returning to free markets, to help repay its enormous wartime debts, and as part of the Labor party platform. Britain's excellent state-run health care system was born at this time, as a continuation of war-time institutions. The socialists argued that wartime planning worked so well that it was the only solution to long-term economic competitiveness against such planning behemoths as Soviet Russia.

The Nazi economic system was another influential template, with its stunning success in putting everyone in Germany to work and building, out of the economic ruins of the Weimar Republic, an economic juggernaut that almost defeated the entire Western world. After the war, Eisenhower took a page from that playbook by building the American Autobahn, er, interstate highway, system.

"It cannot be denied that Fascism and similar movements aiming at the establishment of dictatorships are full of the best intentions and that their intervention has, for the moment, saved European civilization. The merit that Fascism has thereby won for itself will live on eternally in history. But though its policy has brought salvation for the moment, it is not of the kind which could promise continued success. Fascism was an emergency makeshift. To view it as something more would be a fatal error."
- Mises

Hayek devotes some attention to exploring the origins of Nazism, making an interesting case that it was the unholy spawn of left and right low-brow anti-liberal sentiment in Germany, combining socialists and nationalists. Thus the name: national socialism, which is so curious to the naive observer. It is sort of as though Sarah Palin decided to ally herself with American labor unions and the Chamber of Commerce in a new system combining jingoistic nationalism, militant trade protectionism, and encouragement of "rational" monopolies among the largest businesses. All for the low, low price of dictatorship!

"It will be those whose vague and imperfectly formed ideas are easily swayed and whose passions and emotions are readily aroused who will thus swell the ranks of the totalitarian party." p. 153

"The way in which, in the end, with few exceptions, her scholars and scientists put themselves readily at the service of the new rulers is one of the most depressing and shameful spectacles of the whole history of National Socialism." p. 209

"It should never be forgotten that the one decisive factor in the rise of totalitarianism on the Continent, which is yet absent in England and America, is the existence of a large recentgly dispossessedmiddle class." p.229

The point, of course, is that what seems like rational planning at the outset turns inexorably into a nightmare of state control over everything and everyone. Such systems also select for exactly those people who are willing to make the brutal tradeoffs that liberal-minded idealists would blanch at, and which democracies would endlessly dither over: "... socialism can only be put into practice only by methods which most socialists disapprove ..." (p.151).

Hayek makes lengthy points about the rule of law, and how it is antithetical to a regulatory, "planning" state. If the law sets out explicit rules confining the state's behavior, then it can not really meet economic contingencies as they arise. At the same time, such a rule of law constitutes a guarantee of personal freedom, since the state is boxed up with its explicit rules, while the individual is free to live around them.

To put it in aphoristic terms, if the law knows you and you don't know the law, you live in despotism. If the law doesn't know you, but you know the law, you are (relatively) free. Proper laws (public, non-retroactive, limited in scope, etc.) can be changed through democratic institutions. But if the law authorizes open-ended/arbitrary forms of meddling, regulation, "planning", excessive secrecy, and so forth, then we are, as it were, on the road to serfdom.

What to think of all this? Hayek's concerns were understandably overheated due to the dramatic times. His fallacy was of the classic slippery-slope variety, and though we have to ask how free we really are in our highly regulated, patted-down, terror-alerted nations of today, the basic ethic of English liberalism seems to remain alive, even ascendent. China over the last three decades has essentially taken the road back from serfdom. There was a middle way, and it wasn't fascism. It was Keynesianism- the insightful use of state power to manage economies on the macro level against the all-too inevitable failures of free markets, without displacing them, indeed making them more fair, robust, and effective.

Unfortunately, over the last couple of decades, Keynesianism went into occultation in academia, as Friedman, Lucas, and other Chicago school neo-Austrians pursued their ivory tower models of perfect markets, rational actors, and evil governments. The resulting public debate is now weirdly unmoored from its proper foundatations, as mainstream economists hold their noses as they recommend Keynesian stimulus, and simultaneously engage in self-defeating deficit hysteria. The ideological content of mainstream economic thought is so prevalent that it goes virtually unnoticed, making explicit and persistent corrective public commentary so critical.

The Austrians and their progeny make the basic error of thinking markets are the point, where they really are a tool, of human betterment. And conversely, of thinking that government is somehow optional instead of integral in the economic system (that we can "go Galt", as it were). As we have learned in countless areas like health care, environmental management, and the financial system, markets can be disastrously defective, completely unable to cope with problems of their own making or with others we desperately need to solve. Indeed, functioning markets require rather close state supervision. There is no shame in that, and we should continue to search for ways to use markets creatively and as widely as possible (e.g. a carbon tax, cap-and-trade). But ultimately, the buck stops with the state, so it is better to tend to the long-term health of our political systems than to denigrate them as incapable of doing what they so patently need to do.

  • Martin Wolf, on the inevitability of Irish default, and generally on liberalism in a strong state: "The Irish banking system is worse than too big to fail; it is too big to save."
  • Pottersville- Austrian ideal, or "planned", progressive mess?
  • Obama's message is ... the GOP is right!
  • Another reason to disregard mainstream economics textbooks.
  • The free market and shopping: our real religion?
  • Gender and deep reporting.
  • Is the Afghan government for or against the Taliban?
  • Love in grade school.
  • Corruption in the US, political and intellectual.
  • But there are occasional glimmers of sanity in the media.