peristaltor (![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png)
peristaltor) wrote2010-07-02 11:54 pm
peristaltor) wrote2010-07-02 11:54 pm
Entry tags:
Swatting at the Swarm, Part I: Adam's Hand and Galton's Ox
I have for several weeks now been contemplating subjects, as the phrase goes, way above my pay grade, specifically why today's economic woes might be far more severe than even a press known for glorying in maim and gore is willing to investigate. It's been difficult, to say the least. There is so much I simply don't know. Hey, don't believe me? Go back to an old entry, Understanding the Economic Clusterfuck, and read the new prefixed addendum and disclaimer I recently added:
With that kind of track record, I should just quit while I'm far, far, far behind. Ah, but that's the danger of learning new stuff and wanting to share it. Try as I may to make declarations of firm substance and indisputable truth, I find myself constantly learning something else that's new to me and needing to correct the record. Yes, if I just shut up and said nothing I would say nothing wrong. But if I were that kind of person, I wouldn't be much of a blogger, now would I?
For that reason, I have decided to lay as much as I have on the table and see what newly acquired items of factual interest in the future obviates the table's heap into a steaming pile of poo. Let's start with the reason I think markets work -- the quite irrational discovery of a market's potential accuracy discovered quite accidentally by Charles Darwin's cousin Sir Francis Galton.
I mention that Galton was Darwin's cousin not to drop names, but to note the irony Galton posed to his cousin's theory of natural selection. Galton was a strong Social Darwinist, someone who strongly believed that his own station in life was the result of good breeding, and further that the social forces that created that breeding should be continued. Hell, let's remember that he also coined the term eugenics. Neither eugenics nor social Darwinism are not, however, somethings endorsed or even suggested by Galton's cousin, Mr. Darwin himself, a point I've raised before. Hitler embraced this philosophy and was wrong. Herbert Spencer, who coined the term "evolution" in reference to Darwin's theory, was wrong, as were Ray Lankester and all the Victorian and Edwardian men of science and letters who got Mr. Darwin's theory so very wrong.
That said, Mr. Galton later in life made a discovery that challenged his assumptions about the nature of social classes and the perceived distinctions between them, and to his credit published these findings. I first learned of his discovery on The Invisible Hand episode of RadioLab. Wandering through a country fair in Plymouth, Galton noticed an ox weight guessing contest, and after it was finished, asked to keep the individual guesses. He did some math to them and published the results in Nature. As a staunch member of the upper classes, he personally felt the guesses, mostly made by those of the lower classes, would reflect their combined ignorance. It turns out he was wrong; though no single person accurately guessed the actual dressed weight of the ox, the mean average of all the guesses turned out to be more accurate than the best individual guesses. From this startling discovery he reached a conclusion that must have been difficult for a eugenicist to admit:
"Might have been expected", that is, from someone who probably only grudgingly accepts the very concept of democracy and would much rather see society progress under the auspicious guidance of its vaunted upper classes only. Perhaps vox deus really does equal vox populi.
I've personally seen this process work. Back in college, friends and I had just moved into a new house complete with six rooms. These rooms varied in size and desirability, though; to charge a flat mean average of the rent would, we reasoned, be unfair to those stuck in the less desirable rooms. We argued, we bickered, we called each other names; but in the end we tried something. Everyone present in this year-long lease would value each room based on what he felt it was worth per month. We all sat in the living room and one by one rated each room personally. After this polling, we compiled the estimates, found averages, applied this to the actual rent to which we were obligated and made necessary corrections. I don't remember who came up with this method, but I do remember I personally did the math. After we finished, I read out the resulting rent per room to the crowd. There was an awed silence as everyone present agreed that the individual room rents sounded quite fair. It was truly one of those weird moments where everyone felt they had gotten exactly what they wanted, yet felt the process that determined that was still fair, and stranger, agreed on by others.
That doesn't happen very often, now, does it.
What we had discovered that day in college, what Sir Francis discovered that day with his Plymouth contest entries, may have been what Adam Smith described in describing his now famous (or infamous) invisible hand. To refresh, here's an excerpt I recently quoted:
If we assume Galton's ox-guessings and Smith's invisible hand to be one in the same, we seem to be invoking a sentience that underlies all of human experience, yet is summarily dismissed by most experts in the various fields attempting to explain human behavior, everything from psychology to economics to sociology to astrology. Why? It must be dismissed because it cannot be isolated. It depends upon people living and working and talking together for anything of merit to occur. Researchers cannot cull one member from the herd in isolation and prod and poke with any accuracy. Why? Because any one member of society is insufficient to represent the sentient, emergent whole; thus the sciences that focus on individuals -- and theories proposed by individuals -- fall short of even describing this underlying intelligence of the crowd. Really, name the discipline, and I can with some preparation find their particular blind spot that discounts and sometimes outright dismisses this emergent quality Galton discovered in group decisions. No one understands what causes this phenomenon.
We are humans. We tell stories, to each other and to ourselves. Especially to ourselves. Stories we cannot tell -- because we don't understand them, because we heuristically cannot understand them -- tend not to get told, tend to get discounted and trumped by other stories that better fit our preconceptions and mental models. And because of that, the stories we tell must reflect reality to feed the underlying sentience of emergent societal intelligence.
They aren't. Partly for reasons Rushkoff alluded to, partly for reasons involving heuristics, our stories are being hijacked, a topic I hope to discuss in the next entry.
Disclaimer, June 16, 2010: Much of the information you read below is wrong. I wrote this before I readellenbrown's Web of Debt. Therefore, I missed details extremely important to the thrust of this post.
For example, below I state that interest is created through loans. This is incorrect. The money issued at the time the loan is finalized is the money actually created. Money is literally loaned into existence by banks, not printed by the Federal Government as everyone seems to assume.
I'm sure I'll post an update soon. For now, though, I intend to leave the post below intact. It will give me a chance to review what I've learned over the years by showing me what I believed in the past to be true. I apologize for the mis-information.
With that kind of track record, I should just quit while I'm far, far, far behind. Ah, but that's the danger of learning new stuff and wanting to share it. Try as I may to make declarations of firm substance and indisputable truth, I find myself constantly learning something else that's new to me and needing to correct the record. Yes, if I just shut up and said nothing I would say nothing wrong. But if I were that kind of person, I wouldn't be much of a blogger, now would I?
For that reason, I have decided to lay as much as I have on the table and see what newly acquired items of factual interest in the future obviates the table's heap into a steaming pile of poo. Let's start with the reason I think markets work -- the quite irrational discovery of a market's potential accuracy discovered quite accidentally by Charles Darwin's cousin Sir Francis Galton.
I mention that Galton was Darwin's cousin not to drop names, but to note the irony Galton posed to his cousin's theory of natural selection. Galton was a strong Social Darwinist, someone who strongly believed that his own station in life was the result of good breeding, and further that the social forces that created that breeding should be continued. Hell, let's remember that he also coined the term eugenics. Neither eugenics nor social Darwinism are not, however, somethings endorsed or even suggested by Galton's cousin, Mr. Darwin himself, a point I've raised before. Hitler embraced this philosophy and was wrong. Herbert Spencer, who coined the term "evolution" in reference to Darwin's theory, was wrong, as were Ray Lankester and all the Victorian and Edwardian men of science and letters who got Mr. Darwin's theory so very wrong.
That said, Mr. Galton later in life made a discovery that challenged his assumptions about the nature of social classes and the perceived distinctions between them, and to his credit published these findings. I first learned of his discovery on The Invisible Hand episode of RadioLab. Wandering through a country fair in Plymouth, Galton noticed an ox weight guessing contest, and after it was finished, asked to keep the individual guesses. He did some math to them and published the results in Nature. As a staunch member of the upper classes, he personally felt the guesses, mostly made by those of the lower classes, would reflect their combined ignorance. It turns out he was wrong; though no single person accurately guessed the actual dressed weight of the ox, the mean average of all the guesses turned out to be more accurate than the best individual guesses. From this startling discovery he reached a conclusion that must have been difficult for a eugenicist to admit:
It appears then, in this particular instance, that the vox populi is correct to within 1 per cent. of the real value, and that the individual estimates are abnormally distributed in such a way that it is an equal chance whether one of them, selected at random, falls within or without the limits of -3.7 per cent. and +2.4 per cent. of their middlemost value.
This result is, I think, more creditable to the trustworthiness of a democratic judgement than might have been expected.
"Might have been expected", that is, from someone who probably only grudgingly accepts the very concept of democracy and would much rather see society progress under the auspicious guidance of its vaunted upper classes only. Perhaps vox deus really does equal vox populi.
I've personally seen this process work. Back in college, friends and I had just moved into a new house complete with six rooms. These rooms varied in size and desirability, though; to charge a flat mean average of the rent would, we reasoned, be unfair to those stuck in the less desirable rooms. We argued, we bickered, we called each other names; but in the end we tried something. Everyone present in this year-long lease would value each room based on what he felt it was worth per month. We all sat in the living room and one by one rated each room personally. After this polling, we compiled the estimates, found averages, applied this to the actual rent to which we were obligated and made necessary corrections. I don't remember who came up with this method, but I do remember I personally did the math. After we finished, I read out the resulting rent per room to the crowd. There was an awed silence as everyone present agreed that the individual room rents sounded quite fair. It was truly one of those weird moments where everyone felt they had gotten exactly what they wanted, yet felt the process that determined that was still fair, and stranger, agreed on by others.
That doesn't happen very often, now, does it.
What we had discovered that day in college, what Sir Francis discovered that day with his Plymouth contest entries, may have been what Adam Smith described in describing his now famous (or infamous) invisible hand. To refresh, here's an excerpt I recently quoted:
"By preferring the support of domestic to that of foreign industry," Smith explains of the average person, "he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention."
Smith assumes that people would be biased against international trade, naturally preferring the security offered by sourcing goods locally -- and that his readers would agree with him on this point. Like the founders of America who may have differed on almost everything else but this, Smith saw economics as characterized by small, scaled, local economies working in interaction with one another and guided by the enlightened self-interest of individuals. This was not a reaction to "leftist" regulations on corporate power, but against the unfair practices of early transnational corporations, which were operating on a level completely removed from the real affairs of people and the proper stewardship of resources.
(Douglas Rushkoff, Life, Inc., Random House, 2009, pp. 33-34, emphasis by the author.)
If we assume Galton's ox-guessings and Smith's invisible hand to be one in the same, we seem to be invoking a sentience that underlies all of human experience, yet is summarily dismissed by most experts in the various fields attempting to explain human behavior, everything from psychology to economics to sociology to astrology. Why? It must be dismissed because it cannot be isolated. It depends upon people living and working and talking together for anything of merit to occur. Researchers cannot cull one member from the herd in isolation and prod and poke with any accuracy. Why? Because any one member of society is insufficient to represent the sentient, emergent whole; thus the sciences that focus on individuals -- and theories proposed by individuals -- fall short of even describing this underlying intelligence of the crowd. Really, name the discipline, and I can with some preparation find their particular blind spot that discounts and sometimes outright dismisses this emergent quality Galton discovered in group decisions. No one understands what causes this phenomenon.
We are humans. We tell stories, to each other and to ourselves. Especially to ourselves. Stories we cannot tell -- because we don't understand them, because we heuristically cannot understand them -- tend not to get told, tend to get discounted and trumped by other stories that better fit our preconceptions and mental models. And because of that, the stories we tell must reflect reality to feed the underlying sentience of emergent societal intelligence.
They aren't. Partly for reasons Rushkoff alluded to, partly for reasons involving heuristics, our stories are being hijacked, a topic I hope to discuss in the next entry.