Who cares about future generations?

Niall Ferguson has gotten a lot of attention lately for having bashed the “effete” J M Keynes for his selfish worldview, which was due to his homosexuality-induced childlessness rendering him indifferent to the fate of future generations. (This was apparently NF’s interpretation of Keynes’s “In the long run we’re all dead” quip, which is such a bizarrely dishonest distortion that it can only be understood as a sort of carry-over of the toff’s empty PPE cleverness into his new life as intellectual masseur to the wealthy; he seems to have momentarily forgotten that his personal brand depends on him maintaining the veneer of an intelligent academic historian.)

Brad DeLong has pointed out that there is a long tradition of right-wing intellectuals slurring Keynes as a pervert, and his economic theories as sharing the taint of his perversion. Where you stand depends on where you sit, though Henry Blodget says it is unheard of for

a respectable academic to tie another economist’s beliefs to his or her personal situation rather than his or her research. Saying that Keynes’ economic philosophy was based on him being childless would be like saying that Ferguson’s own economic philosophy is based on him being rich and famous and therefore not caring about the plight of poor unemployed people.

Maybe that’s true, though plenty of non-economists state openly that the economics Weltanschauung derives from the pampered condition prevailing among its devotees.

But do you know who was really effete and childless and indifferent to the fate of our children and grandchildren and future generations? There was that guy who said this

Take therefore no thought for the morrow: for the morrow shall take thought for the things of itself. Sufficient unto the day is the evil thereof.

and this

Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal;

and this

If any man come to me, and hate not his father, and mother, and wife, and children, and brethren, and sisters, yea, and his own life also, he cannot be my disciple.

I can’t wait to see Ferguson and his ideological compatriots go after that guy. I bet they’ll really nail him.

Mutually Assured Logical Destruction

or, What Dr. Tortoise said to Prof. Achilles

I remember reading a biologist — I’ve forgotten who it was — remarking that, in comparison to some other fields, arguments in biology rarely turn venomous, because no matter how certain you may be, based on current knowledge, you can expect that within a few years the question will be definitively resolved one way or the other. If you are indeed correct, science will not suffer for your having indulgent your colleague’s error, and neither will your reputation. And you might be wrong. It’s very difficult to hold to absolute confidence in your own beliefs when they concern a matter of fact, and the fact will be revealed. It is a bit like the logic of keeping the peace through nuclear deterrence.

This was most trenchantly put by the great German mathematician David Hilbert, who famously commented on Galileo’s “cowardly” recantation in the face of the Inquisition:

He was not an idiot. Only an idiot could believe that scientific truth needs martyrdom — that may be necessary in religion, but scientific results prove themselves in time.

Continue reading “Mutually Assured Logical Destruction”

What’s the Matter with Economics?

One of the most politically important economics results of recent years has been the paper by Reinhart and Rogoff on the link between high sovereign debt and low GDP growth. This work is something I’d been following for a while, as R&R’s book was one that I’d admired greatly. Their work claimed to show a strong negative correlation between sovereign debt/GDP ratio and ensuing GDP growth, and was reported as saying that 90% debt/GDP ratio marks a cliff that an economy falls off, killing future growth. This was seized upon by proponents of austerity as proof that budget cuts can’t wait.

As reported here and here by Paul Krugman, and here and here by Matt Yglesias, it now turns out that the result isn’t just theoretically misguided, it’s bogus. Economists who struggled to reproduce the results finally isolated a whole raft of errors and dubious hidden assumptions that completely undermine the conclusion. Only the most blatantly ridiculous fault was an error in their Excel spreadsheet formula that caused them to exclude important sections of the data from their computation. You’d think that this couldn’t get any worse, but instead of apologising abjectly, R&R have tried to argue that none of this was really essential to their real point, whatever that was.

My main thoughts:

  1. Do economists really do their analysis with Excel? I find this kind of shocking, like if I found out that some surgeons like to make their incisions with flint knives, or if airline pilots were calculating their flightpaths with slide rules. Once you accept that premise, it’s not surprising that they made a blunder like this. I’m not a snob about technology. Spreadsheets are great for doing payrolls, and for getting a look at tables of numbers, and doing some quick calculations. But they’re so opaque, they’re not appropriate to academic work, and they’re so inflexible that it’s inconceivable to me that someone who analyses data on a more or less regular basis would choose to use them. Continue reading “What’s the Matter with Economics?”

Daniel Kahneman, Social Psychology, and Finance

I’ve been a booster of the Tversky-Kahneman cognitive-bias revolution since I read their article in Scientific American as a high school student. (To be honest, I’d always lazily thought of it as Tversky’s work, but Daniel Kahneman has had the good sense not to die prematurely, and to collect a Nobel memorial prize.) And I’ve greatly enjoyed Kahneman’s new popular book on his collected lessons from many decades of research on cognitive biases.

Putting that together with my longstanding contempt for the finance profession (expressed at greatest length here, but more generally listed here), I was particularly delighted to start in on the chapter titled “The Illusion of Validity”, where Kahneman lays into the self-serving illusions of finance professionals. It turns out, though, that this chapter is an intellectual trainwreck, with oversimplifications piling up on crude distortions, while the whistle of self-satisfied self-promotion shrills incessantly in the background. It’s both insufferable and so poorly reasoned that it begins to call the reliability of the rest of the book into question. Kahneman doesn’t claim to be free of the cognitive biases he analyses in others, but you might expect more self-awareness.

Continue reading “Daniel Kahneman, Social Psychology, and Finance”

Math anxiety turns political

In a recent interview, vice presidential candidate Paul Ryan was asked about the problem with his party’s proposed “budget” (if we may loosely use that word for a set of proposals that refrain from actually saying how much money will be raised, or how it will be spent), and suggesting that it would “take me too long to go through all the math”. He actually spent a couple of minutes avoiding wasting time by going through all the math. And in an interview the following day he further expatiated on his mathless mission of mercy: “I like Chris [Wallace, the interviewer]. I didn’t want to get into all of the math on this because everyone would start changing the channel.”

Sure, you may think you want to know how I’m going to be covering the pension and health care you think the government has promised you (“federal government legacy costs”, as his running mate might term them), but trust me, the answer involves MATH! MATH, I TELL YOU! Imagine Jack Nicholson at the end of A Few Good Men yelling, “You want the math? You can’t handle the math!” Paul Ryan is a selfless soul who has descended into the pit of reckoning, done battle for your sake with the math demons, and returned with a golden budget for all our sakes. Surely we cannot be so cruel (and so self-destructive) as to demand details of the horrors he encountered there. Maybe Obama has done okay protecting us from bin Laden and alQaeda, but only Paul Ryan is going to be able to save us from Euclid and alGebra. Continue reading “Math anxiety turns political”

Who built that?

Obama vs. Romney vs. Brecht smackdown

 

I’ve avoided writing comments on US politics, mostly, but here’s something that really needs another perspective. Mitt Romney has seized upon a comment of Barack Obama in a campaign speech:

If you are successful somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business, you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet, so then all the companies could make money off the Internet. The point is, is that, when we succeed, we succeed because of our individual initiative, but also because we do things together.

Romney mocks this statement as anti-capitalist, anti-entrepreneur, which to a certain extent it is; at least, it is opposed to the maximalist Führerprinzip of heroic capitalism. This is how Romney puts it:

To say that Steve Jobs didn’t build Apple, that Henry Ford didn’t build Ford Motor, that Papa John didn’t build Papa John pizza, that Ray Kroc didn’t build McDonald’s, that Bill Gates didn’t build Microsoft … to say something like that is not just foolishness, it’s insulting to every entrepreneur, every innovator in America, and it’s wrong.

Well, sorry if they’re insulted, but they seem to have a pretty thin skin. The left has been defending Obama by saying this is twisting his words out of context (which it is), and that Obama LOVES entrepreneurs, which is also probably true. But the fact that they are fighting on these terms just shows how low the left has sunk, both intellectually and spiritually. There was a time when the left could have said, the entrepreneurs and business leaders certainly have their roles to play, but they are not the only ones making a contribution to the country, or to building a business. (Well, there were also those on the left saying that the entrepreneurs and business leaders are thieves and scoundrels, who will be the first with their backs up against the wall when the revolution comes.)
As so often, the quintessential formulation of this apparently difficult political concept comes from Bertolt Brecht: “Who built the seven-gated Thebes/ In the books I find only the names of kings./Did the kings lug the massive stones?/…Caesar smashed the Gauls./ Didn’t he at least have a cook?” So the proper response to Romney would be, “Steve Jobs built Apple. By himself? Didn’t he at least have a cook?” Continue reading “Who built that?”

Where the money is…

Mathematical finance as an accessory to crime

Not long after I finished my PhD in probability theory, a significant fraction of the field was devoured by the financial mathematics moloch. Particularly in Europe, probability theory positions disappeared, to be replaced by openings in financial mathematics, which either went unfilled or cycled among a very few senior researchers and a few quick-change opportunists (and, gradually, their fledgeling academic progeny).

Everyone felt they had to get in on the action, and of course there was a certain amount of positive feedback. When many jobs chase few graduates, it generates huge demand among students for training in such a demonstrably burgeoning field. Obviously, the academic feedback was limited by the fact that most of the eager young ‘uns were seeking employment in banks, not in academia — but the banks were hiring as well. Anyway, just about 10 years ago, a Dutch colleague asked me if I might be interested in joining his own institute’s planned financial mathematics group, for which they were proposing to create TEN new positions. My reply was that finance did not interest me as a topic of research, but I added that there was something unseemly — bordering on unethical — in mathematicians’ headlong chase after banking lucre. The current generation of mathematicians is the trustee of a vast and powerful system of analysis, whose creators were supported, honoured, and financed by public institutions. What is it but a crime, when we abscond with the fruits of this scholarship, and sell it off (cheaply) to banks, who will use it to extract billions of dollars from financial markets? Continue reading “Where the money is…”