The GM Bailout and Telepathic Dogs
Karl Smith at Modeled Behavior has a great reply to my post on the GM bailout that features “non-zero orthogonal information,” probability measures, and a hypothetical telepathic dog.
I think the essence of his first point is that no matter how strong one’s overall beliefs about government intervention in the market, that the results of the GM bailout still provide some information that should contribute to how he should see the world. I agree.
I further basically agree with Smith that “the real problem is that the information about GM qua GM is so low that there is a good chance that it is swamped by this bias.” The way I would put this is that we know only the state of the world as it actually exists in the presence of the GM bailout, but the “information” that I really care about is the causal attribution of effects to the bailout. Knowing these causal effects would require us to estimate what the counterfactual world without a GM bailout would look like. My argument is that since we are so poor at estimating this counterfactual world, therefore (to use Smith’s terms), the information is swamped by the bias. Or more precisely, that we are incapable of conducting analysis that should convince rational people who start with different biases to come to a common view of the effects of the bailout.
To be practical about this, Paul Krugman believes that “the auto industry…probably would have imploded if President Obama hadn’t stepped in to rescue General Motors and Chrysler.” I disagree. Until we agree even roughly about this counterfactual world, we can’t agree about the effects of the bailout. But there is no method of analysis that we both accept that can be used to even roughly estimate this counterfactual world, so we’re stuck just disagreeing.
Smith’s second point is that this recognition about of our ignorance calls for “dovishness”:
That is, it calls for being reluctant to accept near term harm for long term benefit. Things that are close up are easier to see. Entropy expands with the arrow of time.
This mediates in favor of being less hawkish on war, less hawkish on the deficit, less hawkish on climate, less hawkish on campaign finance reform, less hawkish on health care, etc.
I also agree with the basic thrust of this, though I would put it as “humility,” or in practical terms, hedging our bets whenever possible. And further, I think it is important to recognize that this applies only at the maximum level of the political hierarchy with which we identify. That is, I think the American government should hedge its bets whenever possible. But trial-and-error improvement within the American political economy calls for sub-entities (say, sates or individual companies) to commit to specific positions, sometimes without hedging.
His third and final point is that while recognizing our ignorance, we need to remember that there is no such thing as “no policy,” saying by example:
One cannot have no tax policy. Even a policy of zero taxes is a tax policy. Even the policy of zero change in taxes is a tax policy.
This is true, of course. What I think recognition of our ignorance leads to, however, is the resulting recognition that what economists and others often call “status quo bias” should more appropriately be called “rational status quo preference.”
If we believe that the current state of a society represents, in part, the current state of an evolutionary process in which functional forms will tend to survive, and further, that various parts of the social organization interact in ways that we do not understand, then both of these observations should lead us to be open-mindedly skeptical of change. This doesn’t mean that all change is bad. In fact, as long we believe that social evolution is eternal, we should accept that any attempt to maintain stasis would be deadly to the society. Some change is essential. But acceptance of our ignorance calls for the burden of proof to be placed on those who advocate any specific change.
To take Smith’s example of tax rates, there is something special about the current tax rate as opposed to all others – it is one part of an organic society that has survived so far, and we don’t really understand what it is about the society that creates this success. Obviously, it’s never really this simple – for example, is the relevant “current state” of society today’s tax rate; or is the specific procedure by which we establish tax rates, which could lead to any given rate; or is the process by which we establish procedures for setting tax rates, and so on up the ladder of abstraction? But at the level of generality of Smith’s reply, this is a rough principle which I think derives from a stance of epistemic humility.
(Cross-posted to The Corner)
If I’ve said it once, I’ve said it a thousand times: you need to read some philosophy of science. There’s a huge literature on our knowledge (or not) of counterfactuals and causal mechanisms that could be readily applied to a lot of the issues you raise.
Anyways, you write: If we believe that the current state of a society represents, in part, the current state of an evolutionary process in which functional forms will tend to survive, and further, that various parts of the social organization interact in ways that we do not understand, then both of these observations should lead us to be open-mindedly skeptical of change. Something like this has been a critical step in all of your recent arguments for a mild conservatism (meaning something like `we should generally prefer to keep the status quo’). To make my point more simply, let me paraphrase:
(E) If society has evolved and is complex then we should be conservative.
You seem to believe (E) by way of some notion that society is fragile, and our ignorant meddling with a fragile system can do irreparable damage. So you support (*) with two premises like these:
(1) If society has evolved and is complex than it is fragile.
(2) If society is fragile then we should treat it conservatively (i.e., be conservative).
Why think (1)? Why think that an evolved and complex system is, for that reason, fragile? Certainly some evolved and complex systems are fragile (e.g., alpine ecosystems and 1950s-style patriarchal families). But others are homeostatic or robust: they are capable of surviving — even flourishing — when subject to a wide variety of changes. Sometimes environmental changes lead to extinction, but sometimes they lead to the evolution of new organisms. Further, given the epistemological implications you draw from complexity, it seems that you would have to withhold judgment on whether society is fragile: we can’t know whether it’s fragile until after we conduct the experiment of trying to change it.
Why think (2)? The descriptive claim that something can be broken does not imply the normative claim that it should not be broken. If you also think that our society is more-or-less successful — as you seem to — then you might have reason to believe that, if it is also fragile, we have reason to treat it gently and thus be conservative. But someone who thinks that our society is not especially successful — for example, someone on the left who thinks that our society is profoundly unjust — does not seem to have any reason to maintain the status quo, whether or not it is fragile. If you think the egg is perfect as it is, you’re going to be concerned about breaking it. But if you think the egg should be made into an omelette, its fragility is a feature, not a bug.
In short: With regard to (1), you seem to be caught between calls for epistemic humility and a belief that society is fragile. With regard to (2), you seem to be begging the question against the progressive, assuming that the status quo should be preserved.
Finally, there’s an easy fix here: just include, as explicit premises, the implicit conservative assumptions. Then your argument will be valid. It won’t, of course, be entirely convincing to folks on the left. But, as certain philosophers of science have been pointing out for a couple of decades now, values play an important and ineliminable role in much of scientific inquiry, and the important thing is to be honest about how and where they’re doing so.
— Dan Hicks · Jun 6, 12:28 PM · #
Dan,
Thanks for the thoughtful and detailed comments. I’ve actually read an enormous amount of philosophy of science (though perhaps it doesn’t show in my posts, or maybe I just didn’t understand it!). The first two chapters of my upcoming book are a review of the subject from Francis Bacon through Kuhn.
I don’t think it’s quite right to say that I’m implicitly arguing that society is fragile, just that it’s complicated enough that we don’t understand it very well. Even in any one of the various interventions we might attempt is very unlikely to break it, it may still be the case that it is also very unlikely to improve it.
Best,
Jim
— Jim Manzi · Jun 6, 03:23 PM · #
The argument seems to be: “The staus quo at any given point in time hasn’t failed, as demonstrated by its existence. So we should hew to the status quo at any given point in time (which will maintain its existence).”
We could have invoked that in the Eisenhower era, and maintained 90% top marginal tax rates. Should we have?
We could have invoked that in the 60s, and not passed civil-rights legislation. Should we have (not)?
We could have invoked that in the 00s, and not cut taxes radically.
It gets more complicated: pre-civil war, which constituted maintaining the status quo: extending slavery to the territories, or not extending it to the territories?
The argument seems to apply equally to scientific research and development. Rational status-quo bias suggests we should not engage in such activities.
A weaker form: the status quo has not failed utterly, so we shouldn’t stray too far from the status quo. Radical changes are dangerous, because these counterfactual futures might fail utterly. That seems pretty obvious and not terribly useful — how far is too far?
This all just to say: I don’t see how labeling status-quo bias as being “rational” helps us make policy decisions — except to say: “don’t make policy decisions.”
This before even touching upon the power of incumbents, and their obvious incentives to maintain the status quo even at the expense of the general well-being (including, ultimately, their own, or at least their grandchildren’s).
It’s not crazy to see an argument for the rationality of status-quo bias as being a “rational” response to those incentives.
— Steve Roth · Jun 6, 05:18 PM · #
Speaking of the GM bailouts, the David Skeel article in today’s WSJ is mandatory reading: The Real Cost of the Auto Bailouts
— The Reticulator · Jun 6, 06:14 PM · #
from a history GM:
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/06/01/timeline-key-dates-in-general-motors-history.aspx
Nov 2008 – GM warns its liquidity will fall short of the minimum needed to run its business by the first half of 2009.
Dec 2, 2008 – GM seeks U.S. government aid of up to $18 billion.
Dec 19, 2008 – GM and Chrysler granted $17.4 billion in government loans.
Obama takes office, Jan 20, 2009
Context, indeed.
— BobN · Jun 6, 09:04 PM · #
I see two explanations for this (and for your past critiques of social science analysis). The first is that your belief that we cannot know anything is so fundamental that it paralyzes you into inaction, and therefore into conservativism, at least some form of which supports inaction over action (even if it’s not a form we’ve seen on this earth for a while). The second is that you’re a conservative who likes to undermine entire fields that have a tendency to challenge your perspective, and are therefore leaning on the ill-considered argument that since we can’t know everything for sure, we can’t know anything, in order to support your pre-existing political beliefs. I really don’t know which one I believe — I have no way of assessing the relative merits of the underlying counterfactuals.
— Daniel · Jun 6, 09:17 PM · #
My previous comment got eaten for some reason, so here is the short version:
If being “humble” means accepting the status quo for fear of all manner of potential future disasters, you are enshrining institutional sclerosis as a reasonable (perhaps the only reasonable) method of governance. This did not work well for 1980s Eastern Bloc Communists or late-era Iraqi Baathists. The desire for stability caused their leaders to ignore systemic rot for fear of potentially catastrophic change. They got it anyway.
— rj · Jun 6, 10:16 PM · #
The first is that your belief that we cannot know anything is so fundamental that it paralyzes you into inaction, and therefore into conservativism…
I missed this statement of belief from Mr. Manzi. Did Google perhaps personalize the results so that Daniel got one article that matches his buying preferences, and I got different one, all under the same heading(s)?
— The Reticulator · Jun 7, 01:59 AM · #
This labeling a preference for the status quo as rational is problematic.
This is best illustrated by an example. Consider what I suspect Manzi would believe to be the status quote wrt to climate change: what is called the “business as usual” case. He sees this as continuation of a pre-existing “status” that should be preferred becuase it exists (i.e. it exists as the result of some sort of equilibrium arising out of a complex process that we don’t understand).
But business as usual is NOT a “status” at all in this sense. Business as usual involves a deliberate program of perturbing atmospheric composition to an extent far outside anything that has existed since the beginning of civilization. Rather than status quo it is bold venture into the unknown.
What is the “status quo” depends on how you look at the problem. Since Manzi is a conservative his bias causes him to define the status quo in a way that lablels business as usual that status quo. An environmentalist might define it as the present CO2 level.
— Mike Alexander · Jun 7, 12:16 PM · #
Mike, you seem to be conflating the term “rational” with “good.”
— The Reticulator · Jun 7, 02:21 PM · #
Daniel:
rj:
From the post above:
Mike:
From the post above:
— Jim Manzi · Jun 7, 04:00 PM · #
@Jim Manzi: I don’t think that the quotes you highlight from your post directly address my argument.
If “some change is essential” but we can’t extract any conclusions from the auto bailout because it’s possible for someone who has a little background in economics can play word games about how many angels can dance on the head of a piston, we have committed to freezing policy.
In fact, it sounds like the same argument advanced by creationists – point to a few gaps in the fossil record and we’re supposed to change our curriculum to allow for the possibility that Yaweh did it all.
According to your argument, “rational status quo preference” is only rational when the status quo is sustainable. But we can’t know that if we toss out counterfactuals or projections as “swamped by bias.” So we’re once again paralyzed by our inability to see into the future with 20/20 vision.
Paralyzed, that is, until some unknown authority, based on undeclared standards, decides that we have reached a point at which “some change is essential.” How, pray tell, is that anything other than a dressed-up version of saying “change is needed when I think it is” just like everyone else?
— rj · Jun 7, 04:47 PM · #
rj:
My argument is not that I have unique insight into what policies should be changed how, but that (in simplified terms) others don’t have such insight either that can be separated from their overall worldviews. That is, the question of, for example, “What were the economic effects of the GM bailout” is not amenable to technical, non-ideological analysis by anyone.
— Jim Manzi · Jun 7, 07:51 PM · #
That is, the question of, for example, “What were the economic effects of the GM bailout” is not amenable to technical, non-ideological analysis by anyone.
So you throw your hands up on the issue and accuse everyone else who has looked at it of being too ideological to draw conclusions using observations or existing models. I think that sounds more like a fashionable “pox on all their houses” condemnation of the political and pundit classes than any sort of epistemological framework for evaluating policies.
You write that you aren’t claiming any special insights on specific policies, yet you somehow determine which policies are amenable to analysis and which aren’t. Just like the ill-defined line between “rational status quo preference” and policy paralysis, you simply can’t punt on making evaluations and decisions at some point.
I apologize if my tone is a little strident, but I have been following the “humble policymaking” debate on this and other blogs and I have never read a direct answer to the question of how one knows to be “humble” about one’s analysis abilities without doing the kind of analysis that epistemic humility warns against.
— rj · Jun 7, 09:30 PM · #
Here’s what leaves me confused.
I think Jim reads empirical research about the economy. I think he uses that to feed his judgment.
Does that make his judgment any better that that of somebody who’s read an article in USA Today?
If not, why does he read them?
If yes, shouldn’t we give more credence to those who read empirical studies of the economy, and incorporate their findings into their ideology/world view?
— Steve Roth · Jun 7, 11:34 PM · #