tag:blogger.com,1999:blog-177202592024-03-22T00:27:12.572+05:30Life, The Universe and EverythingUnknownnoreply@blogger.comBlogger89125tag:blogger.com,1999:blog-17720259.post-36342937908190356272021-01-31T17:53:00.000+05:302021-01-31T17:53:50.150+05:30Exploration as the only endgame<p>In one of the recent mediations, I landed on the thought
that exploration is not only one endgame, it is probably the only one.</p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoNormal">There is indeed a lot to do, but none of it is the endgame.
There are no places to reach, no goals to achieve, no deeds to do. None that
have any sanctity beyond keeping the entity occupied and directed.<o:p></o:p></p>
<p class="MsoNormal">In this vein, exploration marks the difference between the
repeated and the novel. Clearly, there are many things that are repeated in a
human’s life. There is a routine to most days – and often for the better.<o:p></o:p></p>
<p class="MsoNormal">But the preference and comfort of routine can actually take
a human being down the path of behaving like an automaton through and through.
There is a line that needs to be drawn – to ensure that routine is helpful for
providing a semblance of structure to the life but does not ossify all of it.<o:p></o:p></p>
<p class="MsoNormal">Coming to the more important element of exploration, once
the basic activities are routinized and taken out from the bandwidth
allocation, the rest is open for exploration.<o:p></o:p></p>
<p class="MsoNormal">Let us not get into what to explore and how. The central
idea of this article is to just highlight that exploration alone is necessary
and sufficient as the endgame of a human life. (Assuming here the sustenance
and safety aspects are already covered – partly in exchange for some
routinization).<o:p></o:p></p>
<p class="MsoNormal">This seems like it may get teleological, but it does not. I
am not claiming that exploration is a higher calling of some sort. I am in fact
offering it as an alternative to the nihilist conclusion of any coherent
worldview that is built on what is known to humanity as of now. The modernist
position on this is that one’s life needs to have some purpose - e.g.
“achieving one’s true potential”, “contributing to the wellbeing of fellow
human beings”, “reducing suffering in the world” etc. However, once one has
become disillusioned with the claims of such modernist claims, one may to go
through an intermediate phase of nihilism – “nothing matters” – which can be
liberating or depressing. It is depressing if one is secretly still a modernist
but wants to desperately move on. It is liberating if one has indeed moved on.<o:p></o:p></p>
<p class="MsoNormal">Why would one be disillusioned with modernist ambitions? Not
everyone would. There are lots of people that go about their lives quite
productively with one or more of the modernist ambitions. However, take someone
who sincerely explores the foundations of these ambitions – including one’s
being, nature of self, the degree of control human beings have over their
circumstances. For her, these ambitions turn out to be mired in the unfounded ideas
of an era long gone. We are all dealing in memes that came about over last
couple of thousand years – there is as much sanctity to these memes as there is
to the fact that we have 10 fingers. Both are results of contingencies that
shaped our form, our brains, and our minds. What’s more, unlike the 10 fingers
that are honed over millions of years of evolution, the memes are relatively
recent in origin – not only are they open to questions, but also likely to be
fairly open to improvement in the evolutionary sense.<o:p></o:p></p>
<p class="MsoNormal">That is the only sense that has a direction, rest is
meme-driven and hence open to changes.<o:p></o:p></p>
<p class="MsoNormal">It is in this sense of direction that I am claiming
exploration to be the only endgame. It is continuation of the process that
blindly brought us into existence i.e. evolution. One can extend the idea to
evolution not only of intelligence and life on earth but of solar system and of
the whole universe itself.<o:p></o:p></p>
<p class="MsoNormal">In general, matter has been exploring design spaces –
initially landing on atoms and thus elements and then quickly moving on in
smaller niches to molecules and hence complex chemicals. One strand of organic
chemistry moved much further in complexity and led to life at least on one
planet as we know it. Within this strand, one sub-strand moved further in
complexity of social organization – creating a global interconnected system of
organizing about 7 billion individuals of the species.<o:p></o:p></p>
<p class="MsoNormal">It would be quasi-teleological to say that there is a
purpose to all this i.e. complexity is increasing. I wouldn’t even go that far.
To me, the blind exploration of design spaces that has been going on is enough
as a guideline. When matter first coalesced into hydrogen and helium, we got
stars. However, these were of different size – owing to various contingencies. Some
became black holes, other shone as regular stars of some size or other. Some
matter didn’t coalesce into large enough blocks but remained in orbit around
other large masses – giving rise to planets.<o:p></o:p></p>
<p class="MsoNormal">The story goes on. It is not necessarily of increasing
complexity but exploration of various possibilities from a given starting
point. That is how evolution happened. Such diversity of species suggests that
there is more than one way of being in the world – an elephant as well as an
earthworm. Human is yet another way of being here. It turned out to be a
starting point of larger complexity. Now we inhabit an interesting branch of
this march of exploration – one with a complex society, language, several memes
and spare time and energy for further exploration.<o:p></o:p></p>
<p class="MsoNormal">What we do with that is up to us. The reason I am not all
that enamoured by ‘happiness’ as an alternative to exploration is because it
gets boring pretty fast. Also, owing to the complexities of human brain and
human societies, it is often hard to predict and plan for. It just happens,
when it does. Also, the happiness logic is inverted in modern human societies –
evolution gave us the happiness phenomenon to steer our behaviour towards
survival and procreation. Now we are obsessed with that lever and we keep
pulling on it – to titillate our senses, although we are well-fed and
adequately procreated. <o:p></o:p></p>
<p class="MsoNormal">Exploration is a concrete and controllable agenda to pursue.
It doesn’t prescribe a lot and doesn’t have too many ‘key result areas’. It
asks a simple thing of its practitioners – avoid repeating and attempt to go
through the new rather than the old.<o:p></o:p></p>
<p class="MsoNormal">One can of course be thoughtful about how and what to
explore. But this can easily become mired in complex considerations which may
masquerade as simple improvement of exploration but are really driven by the hidden
agendas of the pleasure-seeking or novelty-fearing modules in one’s brain.<o:p></o:p></p>
<p class="MsoNormal">There is no major prescription. This is an attitudinal shift
to bring about. This is also something to keep in mind to help liberate the
brain from niggles of worries, angsts and so on – most of them quite irrelevant
when seen from the exploratory point of view but major ones if one follows the
modernist thought process of a purposeful life!</p>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-74943031062082900222020-07-25T11:04:00.000+05:302020-07-25T11:04:13.956+05:30History, Geography, Repeat<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal">
A few years ago, I reached a conclusion that had an ‘aha’
element to me – geography drives history. This was based on my fascination with
watching the map of the world (lately this has been the ‘nightlights’ version).
I have made some crude connection between the shape of the world and what
happened in it over the centuries.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>Geography driving history<o:p></o:p></u></b></div>
<div class="MsoNormal">
For example, India and China may seem close but their plains
are quite apart from each other. In fact, South Asia is a relatively contiguous
region separated from the rest of the world by Hindukush in the west, Indian
Ocean in the south and Himalayas in the north and east. Similarly, east and
north Asia is separated from the rest of the world by sea on east and Tibetan
plateau on the west. The list goes on. This explains much of ancient history. Broadly
put, why people kept to themselves within these accessibility circles.<o:p></o:p></div>
<div class="MsoNormal">
Closer home (temporally) the world wars in early 20<sup>th</sup>
century can also be linked to the heavy hand of geography. First world war was
fought at least initially between the naval powers and the landlocked central
powers. The late entry of US into both the wars was also linked to geography in
that it was separated by a huge ocean and could afford to wait.<o:p></o:p></div>
<div class="MsoNormal">
Less obviously but still interestingly, would Vietnam have
been able to withstand the onslaught of US might if it were not so hilly? Not
to take away from the bravery of the Vietnamese soldiers but their Iraqi
counterparts had just the desert to fight in – so very open! (Arguably, today’s
Vietnam may not be able to withstand the significantly improved technology of
US armed forces, but likewise Iraq would have been overrun in 1971 easily by US
forces). Afghanistan was harder to conquer and manage for US than Iraq was –
geography again.<o:p></o:p></div>
<div class="MsoNormal">
More broadly, the spread of culture is based on natural
substructure of geography. For example, today’s Spanish culture (including the
beautiful Flamenco music and dance) is influenced a lot by Arabic one, unlike
say Swedish culture. Even Italian culture is lot less influenced by Arabic one
because they didn’t share the history unlike Spaniards and Arabs. The peak of
Arab power was before navies became prominent – hence land-based movement was
the primary means of influence.<o:p></o:p></div>
<div class="MsoNormal">
Why did Britain, Spain et al become the primary naval powers
when the time came? Easy – their proximity to seas. Germany, Russia and those
‘inside’ couldn’t quite develop navies as fast. Far-out Imperialism remained
the preserve of Britain and France. Here too, interestingly, the first naval
powers i.e. Portugal and Spain trained their sights on Latin America rather
than Asia. When Britain and France did become naval powers, they were forced to
explore North America and follow on from the Portuguese (Vasco Da Gama) on
Asia. Even the broad split of Africa to France and Asia to Britain can be
traced to proximity of France to Africa (both through Mediterranean and
Atlantic). Britain went farthest!<o:p></o:p></div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Geography -> history -> geography<o:p></o:p></u></b></div>
<div class="MsoNormal">
More recently, especially after some thinking on complexity
economics, I have revised my conclusion. First the background. I have
increasingly come to believe that complex systems based on continuity of
causality (effect1 -> effect2 -> effect1) are more common that simple
systems with unidirectional causality (cause -> effect). So the revised
conclusion is as follows.<o:p></o:p></div>
<div class="MsoNormal">
Geography shapes history and history in turns shapes
geography.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
By the second part I don’t necessarily mean actual shaping
of mountains and rivers (though that too has been happening and may increase in
future). It’s more to do with human interaction with geography.<o:p></o:p></div>
<div class="MsoNormal">
Take the location of major cities for example. My own city –
Mumbai – gets bucket-loads of monsoon each year. In recent years – that has also
meant loss of lives, productivity, and property. Why would Indians congregate
in such a prone spot to create the financial hub of their economy?<o:p></o:p></div>
<div class="MsoNormal">
Short answer is – this isn’t a policy choice. Much as the
powers that be everywhere in the world would like dictate where an important
economic hub should be, it is difficult to do that beyond a point (the failed
experiment in India of the International Finance Centre is a case in point). A
medieval Indian king – Muhammad-bin-Tughlaq – tried to shift his capital from a
north-centred Delhi to strategically located Daulatabad. The attempt failed and
he had to reverse the shift. Admittedly, Shahjahan shifted the capital from
Agra to Delhi but that was a minor shift given how the people in power then were spread
across these two cities already.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Coming back to Mumbai. Till the 17<sup>th</sup> century, it
was largely rivers that told people where to settle. Large cities were
typically on the banks of a river. Indian people weren’t seafaring on account
of their cultural biases and also for economic reasons (there was a lot going
on at home itself, since India was home to about 1/4<sup>th</sup> of global GDP
till the 17<sup>th</sup> century).<o:p></o:p></div>
<div class="MsoNormal">
It was the British that founded Mumbai. Its proximity to sea
and distance from the then local powers meant it was safe for them. They then
sewed up the seven loosely connected islands into a bustling town. (After the
brits left, Indians continued the good work of reclamation – Nariman Point in
the 70s, BKC as late as 90s and Worli Seaface in 2020!)<o:p></o:p></div>
<div class="MsoNormal">
In this context, it was history that guided geography.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>What does future hold?<o:p></o:p></u></b></div>
<div class="MsoNormal">
Consider Covid-19 itself. Before Covid the cities had a
hub-like structure – downtown is where the ‘action’ is and where most people
have to go for work. That’s the commercial district. Technology had already
enabled weakening of this dominance but legacy effect of city-centres being
‘central’ was too strong to wane quickly. Covid changed that. Now it is
imaginable to work in a spread-out manner. If people in these commercial
districts are coming to work only 1-2 days a week or not at all, they may
explore living away from city-centre in large houses. After all, if
restaurants, cinemas, theatre, shopping district are all constrained by the
pandemic, and the children’s schools are only online, what’s the upside of
being close to the city centre?<o:p></o:p></div>
<div class="MsoNormal">
Of course, the pandemic will eventually be brought under
control. However, in the meantime, enabled by technology, alternative living
models become viable as people experiment. They may just get the critical mass
that drives the long-term change as well.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In this sense, history will drive geography again!<o:p></o:p></div>
<br /></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-14467639902987978172016-11-05T11:12:00.000+05:302016-11-05T11:12:17.836+05:30The Allegory of the Self<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
The courtiers met again that evening and concluded to
dissolve the court until the resolution of the ongoing confusion. The confusion
was caused by the Amatya’s claims that their beloved emperor was not really
there and that he never was.<o:p></o:p></div>
<div class="MsoNormal">
For long the courtiers had grown accustomed to the modus
operandi of the court – which admittedly did seem a bit peculiar to a visitor
but somehow not to the courtiers themselves. What was peculiar about this court
was that the emperor never spoke to the courtiers and vice-versa. The emperor
(they claimed) sat on the throne behind a veil and nobody ever looked beyond
the veil. They attended the court dutifully and carried out their responsibilities.
They did all that in the name of the emperor. He however never gave them any
direct instruction or took any update in person.<o:p></o:p></div>
<div class="MsoNormal">
The Amatya was always a bit uneasy about this arrangement
and had tried to point out to some courtiers the real mechanism of the
operations of the court. He claimed that someone or other always temporarily
usurped the throne in the name of the emperor and directed others. It just
seemed at the time that this itself was the decree of the emperor. What was even
more intriguing, each of these usurpers themselves believed that they were
usurping at the behest of the emperor.<o:p></o:p></div>
<div class="MsoNormal">
There was the recent case of the Mahamantri taking centre
stage and telling the Senapati to gather the troops for defence on the southern
border. Then there was a time last week when the court clown entertained
everyone for hours. Everyone hoped (but could not find out) that the emperor
enjoyed the performance as well!<o:p></o:p></div>
<div class="MsoNormal">
Amatya claimed that he came to the court early one day and
opened the veil. Lo and behold, there was no emperor. There was no throne.
There was just empty space. He put the veil back again to avoid shocking the
courtiers.<o:p></o:p></div>
<div class="MsoNormal">
One by one, they looked inside the veil and came back
shocked – there was no emperor!<o:p></o:p></div>
<br />
<div class="MsoNormal">
How are we to run the affairs of the court, they asked each
other. Nobody had a good idea. Hence they dissolved the court for the time
being, to look for answers!<o:p></o:p></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-22912786595574434262015-12-13T13:10:00.001+05:302015-12-13T13:10:36.641+05:30The meme of identity<div dir="ltr" style="text-align: left;" trbidi="on">
Some memes are so central to our being that we may find the thought of them being memes almost repulsive. Still, taking that risk, I am suggesting that human society has seen an increasing ascendance of the meme of identity. This meme is summarized as follows:<br />
<br />
"<i>There is a core self that is 'I' for each human being. This self is immutable, continuous in time and transcendent. The sovereignty of each individual is founded upon this self. The core identity of an individual is this self. One finds one's true self over a period of time. If one is true to oneself, life is full of possibilities. If one is not true to oneself, there is anguish and suffering."</i><br />
<br />
I would guess that this identity meme arose in the intellectually curious amongst those having the luxury of not having to work/fight for subsistence - a subset of the early priests. I would further guess that this meme was the preserve of the elite classes till recently - say till the beginning of industrial revolution. Why that might be so is simple: the rest had way too much on their mind - what with the food gathering and the plague and the rituals of being a part of a society. They clearly were not automata - but were quite tightly bound by their roles and the requirements of being alive so as to leave little time for reflection. In a sense, their identity was mass-produced by their social context and installed in their minds without much variation subsequently. The elite classes with the luxury of spare time and energy could probably muse about the questions of who one is and what is one meant to do. The latter also requires some freedom of action to be answered with anything other than the role-based activities in the given social context.<br />
<br />
More recently, as a larger and larger part of the society has been able to afford spare time and energy - and as the legacy systems of identity definition have crumbled around the world - there is a massive growth in the meme of identity - especially its definition and further 'nurture'. Gradually over the last several decades, more and more of human beings are starting to ask - who am i? Few of them of course have stopped to wonder if the question itself is relevant. That reluctance is probably driven by the already weakly established mass-produced identity meme. The social context always installed a simple version of the identity meme in each one of us anyway. It is just that in recent decades, the spare time and energy has meant that there are mental resources available to most of us to attempt refining this meme further.<br />
<br />
I have gradually lost interest in the identity meme. As i noted above, it is based on an already established meme of the same type but simpler construct. There is nothing more sacrosanct than that to the notion of identity. As noted in another one of my blogs, the locus of self is not inside one's head but in the social context. As I read Metzinger, Dan Dennette and Bruce Hood and watched a few other videos related to the topic, I have anyway concluded that the self is an illusion (it is not unreal, it is just far less than it seems). However, as I observe the simple as well as 'profound' human reflections I can't help but feel a sense of amusement at the notion of 'core self', 'true nature', 'real identity' and so on!!!</div>
Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-17720259.post-1080010102326423712015-11-08T11:12:00.002+05:302015-11-08T11:12:56.805+05:30Change matters more than absolutes: (or ‘The unexpected virtues of incrementalism’)<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
Kahnemann and Tversky’s seminal paper on
prospect theory had several path breaking insights. One in particular stayed
with me because of its highly non-intuitive nature. Stated with an example, it
is as follows: Say A’s net worth is Rs. 150 lakh and B’s net worth is Rs. 20
lakh, we are used to believing that A is happier than B or in economics jargon,
A’s utility level is higher than B’s. (For the purpose of this argument, I am
ignoring the claims of there being more to life than money. That is because
this idea transcends money – you can very easily replace net worth in the above
example with “units of being at peace” or “ounces of respect from fellow human
beings” or some such measure of whatever you hold to be more relevant to
happiness than money.)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<span lang="EN-IN">Prospect theory does not make a prediction
of this sort (A being happier than B). It is silent on who has higher utility.
If pushed, the proponent of prospect theory states, “the data provided is
insufficient. What was A’s and B’s net worth yesterday?”<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">Let us make it interesting. Say A moved
from Rs. 200 lakh yesterday to Rs. 150 lakh today and B moved from Rs. 15 lakh
yesterday to Rs. 20 lakh today. Now prospect theory would predict that B is
happier than A. Most readers would think, “Well, this is obvious! Especially
given the new information.” Stated in the whole detail, this later change of
stance seems logical. However, this does not prevent almost everyone from
offering the response in the first step above when the changes in net worth
were not known and only current levels were known. Perhaps, in absence of the
change information, we assume no change. That is fair but what is noteworthy is
that we do offer an answer – which suggests that most of us think absolute
levels are the predominant drivers of utility (or happiness) and while change
matters, it matters only so much. It is an erroneous assumption. This is where
prospect theory makes a non-trivial contribution to our understanding of
ourselves.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">We human beings are tuned to notice changes
and contrasts. An extreme example of this is the Ganzfeld effect where the
subject is exposed to undifferentiated and strictly uniform field of color for
a long period of time such that the subject stops perceiving the color
altogether (and even hallucinates). Our sense of color is really speaking a
sense of distinction in stimuli. Take away the distinction and the brain slowly
settles down into ignoring the color entirely. Most of our day-to-day judgments
operate with the help of contrasts. We are highly sensitive to changes. Equally
importantly, we are quite insensitive to absolute levels.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">Combining these two connected ideas (high
sensitivity to changes and low sensitivity to absolute levels), one can attempt
to create an optimal path for maximizing utility (or happiness!) over the
course of a single human life. No prizes for guessing that this path would
advocate thorough incrementalism. To put the matter a bit more mathematically,
we are used to thinking (in a manner ignorant of prospect theory’s
observations) that the overall happiness of a person in the whole life – at
least in its material aspects – is some sort of ‘area under the curve’ of
material wellbeing. Hence if A moved from net worth of say Rs. 150 lakh to Rs.
200 lakh to Rs. 125 lakh to Rs. 175 lakh again over four decades of working
life, each of these states lasting for say a decade each, we would calculate
(implicitly) overall happiness over the four decades as 10*(150+200+125+175) = 6500
lakh-years for A. Likewise B with networth movement of say 10 lakh to 15 lakh
to 40 lakh to 100 lakh over the same four decades would prompt us to suggest
her overall happiness to be 10 * (10+15+40+100) = 1650 lakh-years. Clearly in
this case A’s life was nearly 4 times as happy as B’s.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">A prospect theory-informed first-cut
attempt at the mathematics of these two individuals would work differently.
Assuming A and B inherited their starting wealth the first decade has no
utility value. Thereafter, A goes as follows: 10* ((200-150) + (125-200) + (175-125))
= 10* (50 – 75 + 50) = 10 * 25 = 250 delta-lakh-years. (Pardon the units, the
actual units do not matter for the sake of this argument since our intent is to
merely compare the two individuals.) B’s path is a bit rosier: 10 * ((15-10) +
(40-15) + (100-40) ) = 10 * (5 + 25 + 60) = 10 * 90 = 900. It turns out B is
nearly 4 times as happy as A.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">Which prediction is closer to observed
instances? I am inclined to think that it’s the latter. Clearly the above
first-cut mathematics is way too simple. In real life, the absolute levels of
material wellbeing matter too, all the more so in crises and in enabling
risk-taking. However, it suffices to say that the dependence of happiness on
change in the level of these drivers is of far more importance than we
generally acknowledge.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">There is another observation – and this is
not from prospect theory. It is simply based on observing human beings. The
capacity for happiness of every human being is finite. This means, we may have
to modify our equations to put an upper limit of some sorts on happiness units
in each time period, even after making it dependent on change. Beyond a
threshold, a bigger increase in a happiness-inducing input (money, fame, love,
peace etc) does not add to happiness. So if the change in wellbeing is beyond a
threshold, the happiness from that change would max out and not increase
further with the size of the change (for that period). In other words, it might
be better to postpone that extra increase to the next time period if possible.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">To make the mathematics a bit more
explicit, I would state the following.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN">Before prospect theory, happiness over life
of t_max years would be as follows:<o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgafX-NuQqwlKBJJJRp1cchEhpO0zWUSUMOQJ0cNeBmNSNMH0jjJ1P3NtKyOzoFgV3oNiaN5QDUxOTUJk2zBqenztGFcr9ew-5dcZcYTq-dxrd3J-_aNaBz_RgOUXNKxyrJVW8I/s1600/happinessold.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgafX-NuQqwlKBJJJRp1cchEhpO0zWUSUMOQJ0cNeBmNSNMH0jjJ1P3NtKyOzoFgV3oNiaN5QDUxOTUJk2zBqenztGFcr9ew-5dcZcYTq-dxrd3J-_aNaBz_RgOUXNKxyrJVW8I/s1600/happinessold.jpg" /></a></div>
<br />
<div class="MsoNormal">
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<div class="MsoNormal">
<span lang="EN-IN">Where L is the level of material wellbeing
(or level of fame or level of self-actualization)<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN">This prevalent but naïve hypothesis would
suggest that a billionaire is 1000 times happier than a millionaire. Or to switch
to fame as a source of happiness, the person adored by 1 million people is
100,000 times happier than a person adored by say 10 individuals.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN">After prospect theory the equation is
nuanced as follows: <o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9brB_6lDTVlxUU5TrWIPgWZfcnPR2hKbrZcBQbdNKowtD5sY8SzX71Midj4QI9JEJ773fAkl2WxkRntT_yfu5tNBT2xbz7lOyt2tpSXQnGKm1nvloYzqvoKZqAR-Y2Ctt3jhS/s1600/happinessnew.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9brB_6lDTVlxUU5TrWIPgWZfcnPR2hKbrZcBQbdNKowtD5sY8SzX71Midj4QI9JEJ773fAkl2WxkRntT_yfu5tNBT2xbz7lOyt2tpSXQnGKm1nvloYzqvoKZqAR-Y2Ctt3jhS/s1600/happinessnew.jpg" /></a></div>
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<div class="MsoNormal">
<span lang="EN-IN">Where DeltaL/Delta_t </span><span lang="EN-IN">is the
discrete change in level of material wellbeing (whatever driver of happiness
you choose – money, fame etc) across two successive time periods and Delta_max </span><span lang="EN-IN">corresponds to the maximum change in wellbeing
upto which humans are happiness-sensitive to the change.<o:p></o:p></span></div>
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">To get a bit less mathematical and bit more
lyrical, it is more happiness-inducing to get to the summit of life using the
long-winding steps than using the helicopter (if one is available). It may seem
tempting to prefer the helicopter so that one can quickly get to the summit
which can then be enjoyed for longer – rather than wasting time on the steps. However,
our dual hypotheses above (prospect theory and finite capacity for happiness)
predict that the one-time happiness of getting to the summit is likely to be
overshadowed by the cumulative happiness of the multi-step path. Also, the
summit itself is likely to lose its ability to induce more happiness over a
short period of time (because there would be no increase from there on).<o:p></o:p></span></div>
<br />
<div class="MsoNormal">
<span lang="EN-IN"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-IN">Is there a real life implication of this thought?
Maybe! To put it simply, if one has the flexibility of organizing the
improvements in one’s drivers of wellbeing, it is optimal to organize them into
a gradual increase mode than to maximize the jump. Also, since absolute levels of
happiness-drivers matter much less than we are used to thinking of, the hurry
to maximize absolute levels is probably suboptimal use of our limited resources
(time, energy, bandwidth, goodwill etc). Presumably, this could inform some
decisions related to trade-offs in career decisions, location preferences or
social standing pursuits.<o:p></o:p></span></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-25096820171055577422015-07-05T12:11:00.004+05:302015-07-05T12:11:47.670+05:30High time for direct democracy?<div dir="ltr" style="text-align: left;" trbidi="on">
When I came across the idea and mechanism of democracy as a child, i naturally asked why there are representatives voting on our behalf for making laws. As a child, I thought it rather indirect and cumbersome to elect a representative who supposedly would represent your wish in the process of law-making. (just to be clear, i was not a visionary child for having asked this because firstly i was old enough - maybe 12 - and secondly many of my friends also asked similar things then)<br />
As I grew older and learnt more about parliamentary democracy i realized that it is probably the only workable system owing to the large population of the country and the rather complicated business of making laws. I was also a bit confused about the executive branch and the legislative branch because the Indian system has these overlapping - the party in majority in Lok Sabha anyway forms the government often drawing the ministers from the Lok Sabha (sometimes Rajya Sabha) MPs. As I learnt more about the US system with its very clear demarcation between the congress/senate and the cabinet (or whatever they call the group of the president and his men/women as various secretaries), I realized that the executive function is clearly a 'job' - with specific skill requirement and specific tasks to be carried out from morning to evening every day. On the other hand the legislative function is not a matter of skills (in the conventional sense of the term) but of knowing and representing the wishes of a certain section of population (in most democracies, this is geographically divided.) Also, the legislative function is not a job but more so a membership of a conference of sorts which takes place a few times a year in the parliament.<br />
<br />
There were, till recently, sound reasons why we had to stick to a system of representatives being elected for the latter i.e. legislative function. Switzerland has demonstrated that direct democracy can work - but it's an example often ignored because of the small size and relative opulence of Swiss population - not to mention their neutrality in international conflicts - which makes the legislation far less cumbersome than say India's or Malaysia's.<br />
However, has the time come to revisit this system of representative democracy? Does our communications and identification technology at present not allow us to set up a system of voting on all important laws directly? And I mean that question for the country of the size of India - along with the limitations of partial illiteracy, imperfect connectivity and a part of population still below poverty line, While it may sound audacious, it is easy to see that the implementation does not require any technology that is not already in existence and widespread. Aadhar cards with mobile phones and a suitable app with advanced security features can enable Indian citizens to vote on everything directly.<br />
Think of the advances in democracy! Besides the obvious benefit of getting a say in matters of national importance, there is another huge potential benefit - slicing the population eligible to vote by non-geographical criteria as well as criteria different from the static geographical cuts of today. If there is a road to be built between two cities, the populations of these two cities and the towns in between should vote on it, with far off towns having no say in the matter. Likewise if a law affects only farmers, why should a equity analyst vote on it? On tightening or loosening a security law, maybe the whole country can vote.<br />
<br />
The doubters would say the laypersons do not always know the nuances of the law being made and they may vote with their prejudices and biases. This is a fallacious argument. I don't think most individuals (across countries, but more so in India) have very high regards for the intellectual capabilities of their representatives (for example, I personally do not know anything about the person i voted for in the previous lok sabha elections and i voted just because he was of a certain party). Secondly, even intelligent representatives (no, not shashi tharoor, there are many others!) do not necessarily get to vote as they truly wish. In US there is even a position of a 'majority whip'! In India 'high command' tells the representatives to vote one way or other. I have not heard of any noteworthy examples of MPs of any party voting against the party high command's wish and staying in the party long after that! So the next question is - do party high commands know better than the citizens what is good for the latter? More importantly, are they likely to use the criterion of 'better for citizens' as the driver of their voting decisions? If the answers to these are unclear, why not let citizens directly vote with their biases and prejudices?<br />
There is a more constructive answer to this question though. While there may be no elected representatives making laws in such a system, there is clearly a place for formally elected 'proposers' for proposing various laws and clarifying their benefits (as well as problems with laws proposed by other 'proposers'). Some proposers then go about creating proposals and championing them while others oppose them. People hear the arguments on both sides and vote with the accumulated knowledge from these as well as their prejudices and biases. There is room to educate and debate!<br />
(Just to be clear, the MPs are replaced by 'proposers'. There is still the need for the executive i.e. a prime-minister and the cabinet, which in effect will be elected as per the presidential system in US.)<br />
<br />
I do believe the system is up for overhaul - especially considering its many perversions in recent decades, across many countries - developed and developing. Instead of seeing the political choices of our times in two poles of democracy and totalitarian regimes, we are better off pushing the democratic pole further into direct democracy!</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-64749734421776707802015-06-12T11:10:00.001+05:302015-06-12T11:10:25.426+05:30The Locus of Self<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
<span lang="EN-US">The locus of self and its implications for
our understanding of ourselves as well as the society we are a part of is the
topic of this article. I have written about this topic in bits and pieces in
other articles preceding this. However, the topic is major enough in itself to
be explored separately.</span></div>
<div class="MsoNormal">
<span lang="EN-US">At the heart of it, the conclusion is this:
we (at least as we seem to know and model ourselves as) are not residents of
the brains and the bodies that we seem to be a part of. We are not outside it
in a spatial sense (that would be spooky!) We simply do not have a spatial
location. We are enabled by the brains and the bodies in turn. However we do
not reside there.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Now the explanation. Firstly ‘we’ in the
above needs definition. Let us simplify to define the singular of it i.e. I. The
self that we refer to using the pronoun ‘I’ is an illusion, convenient fiction,
narrative center of gravity and so on (much has been written by others as well
as me on this in previous articles). Hence it does not anyway make sense to
look for the location of the illusion. Where does the picture of Mona-Lisa
belong? In the pixels, at the retina of the observer or in the abstract plane
where that arrangement in that specific pigmentation of color for a specific
species called humans has some semantic value (beauty, mystic or whatever
else.)?</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">The self is a complex entity – even as an
illusion. It is also very high up in the hierarchy. It seems so obviously
mundane to us because the ‘us’ observing and commenting on it is also on the
same plane as the self. This is the plane of the strange loop that Hofstadter
refers to in his book. The plane of this entity is in the motion and
arrangement of the hardware – the primeness and chainium being a good
illustrator of it (I have written on this separately.) The hierarchy of
systematization is as follows. This tree has some branches that do not grow
much beyond their starting point.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
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<div class="MsoNormal">
<span lang="EN-US"> </span><span style="text-indent: -0.38in;">•</span><span style="font-family: Calibri; text-indent: -0.38in;">Pre-Energy??</span></div>
<div class="O1" style="language: en-IN; margin-bottom: 0pt; margin-left: .81in; margin-top: 0pt; text-indent: -.31in;">
•<span style="font-family: Calibri;">Energy</span></div>
<div class="O1" style="language: en-IN; margin-bottom: 0pt; margin-left: .81in; margin-top: 0pt; text-indent: -.31in;">
•<span style="font-family: Calibri;">Matter</span></div>
<div class="O2" style="language: en-IN; margin-bottom: 0pt; margin-left: 1.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Isolated
sub atomic particles</span></div>
<div class="O2" style="language: en-IN; margin-bottom: 0pt; margin-left: 1.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Atoms
consisting of sub-atomic particles in a specific arrangement</span></div>
<div class="O3" style="language: en-IN; margin-bottom: 0pt; margin-left: 1.75in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Atoms in isolation</span></div>
<div class="O3" style="language: en-IN; margin-bottom: 0pt; margin-left: 1.75in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Molecules</span></div>
<div class="O4" style="language: en-IN; margin-bottom: 0pt; margin-left: 2.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Simple
molecules</span></div>
<div class="O4" style="language: en-IN; margin-bottom: 0pt; margin-left: 2.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Chained
carbon based molecules</span></div>
<div class="O5" style="language: en-IN; margin-bottom: 0pt; margin-left: 2.75in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Non-self-replicating</span></div>
<div class="O5" style="language: en-IN; margin-bottom: 0pt; margin-left: 2.75in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Self-replicating</span></div>
<div class="O6" style="language: en-IN; margin-bottom: 0pt; margin-left: 3.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Without nervous system</span></div>
<div class="O6" style="language: en-IN; margin-bottom: 0pt; margin-left: 3.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">With
nervous system</span></div>
<div class="O7" style="language: en-IN; margin-bottom: 0pt; margin-left: 3.75in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">With
language and complex society</span></div>
<div class="O8" style="language: en-IN; margin-bottom: 0pt; margin-left: 4.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Social
institutions with causal potency</span></div>
<div class="O8" style="language: en-IN; margin-bottom: 0pt; margin-left: 4.25in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Static
societies with rigid institutions</span></div>
<div class="O7" style="language: en-IN; margin-bottom: 0pt; margin-left: 3.75in; margin-top: 0pt; text-indent: -.25in;">
•<span style="font-family: Calibri;">Individuals
or simple socities without generative language</span></div>
<div class="O6" style="language: en-IN; margin-bottom: 0pt; margin-left: 3.25in; margin-top: 0pt; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span lang="EN-US">The
continuity of the structure as the primary identifier of the unit<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<span lang="EN-US">What makes an atom unique? If we tracked
the existence of a specific oxygen atom, is the atom supposed to be different
after an exchange of electron with another oxygen atom in forming a O2
molecule? What if it returns to the atomic state – and we have no idea whether
it is the same electron that it “contributed” while forming the molecule that
it got back? We do not ask such questions and some may even (partially
correctly) brand them as silly. Why? Because the atom is the specific
arrangement of nucleus and orbiting electrons. Till such time that arrangement
prevails, there is no question to be asked about the identity of specific
constituents. The constituents if you may, are fungible. The structure is the
identity. Ship of Thesius if you will!</span></div>
<div class="MsoNormal">
<span lang="EN-US">Now moving up, it is trivially obvious that
this applies to simple as well as complex molecules – the atoms that make them
can come and go as long as the overall structure of the molecule is maintained.
One more level up and we bump into genetic material or simple organisms like Viri.
Here too, it is universally acknowledged that the complex molecules that make
these systems are fungible even if potent. One level up to complex organisms
and we realize that even the specific cells (which themselves treat the
specific molecules as fungible) are now dispensable. The higher level
arrangement matters more. </span></div>
<div class="MsoNormal">
<span lang="EN-US">With human beings, things move forward to
abstractions. This is a crucial jump. It is very evident that we never think
twice about someone being the same person after an organ transplant (other than
brain that is – but that’s anyway a matter of fiction for now.) Entire organs
have been replaced in human beings with little difference to their personality
or being.</span></div>
<div class="MsoNormal">
<span lang="EN-US">This individuality is what we need to
examine to understand the locus of human self.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span lang="EN-US">Where
am I?<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<span lang="EN-US">It is at the juncture that I would
introduce the other inference I have reached (and some others before me have
reached too.) It is as follows – it is not that animals evolves into apes that
evolved into us as we know them. Instead it is the substrate of life that
upgraded gradually through evolution to support more and more complex beings
with increasing levels of abstraction. This continues down to the pre nervous
system animals too. The Maturana model of animals and their nervous systems is
relevant here. The nervous systems evolve in response to the pressures of
environment. Some of them evolve sufficiently to enable linguistic domains and
language. This language enables complex societies. After the complex societies
and language are in place, there is sufficient infrastructure for the emergence
of selves on the set. We have arrived, not evolved.</span></div>
<br />
<div class="MsoNormal">
<span lang="EN-US">In this sense, we are aliens to the bodies.
The predecessors to the bodies did not have less evolved versions of the
equivalents of the selves. We showed up relatively suddenly (on the timescale
of evolution.)</span></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-75216497546261572002015-01-23T17:56:00.001+05:302015-01-23T17:56:05.040+05:30The Nature of Money and its implications<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
<span lang="EN-US">While in a simplified theory money appears
to be a veil and a mere convenience for transactions, nuanced thinking in the
matter suggests that money affects the real economy in a very profound way.</span></div>
<div class="MsoNormal">
<span lang="EN-US">At the heart of the matter is the question
of redistribution. The presence and persistent use of money in the economy
continuously redistributes wealth/purchasing power. Thus monetary economics has
an important political underpinning.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">There is also the matter of focus of a
society. Money through its enabling of financial wealth exerts significant
influence over where the society’s resources are used. There is nothing
rational or implicitly optimal about this resource allocation – contrary to the
dogmatic belief of market theorists. (There is a tautological claim some of
them make – the society gets what it deserves, and within bounds of
feasibility, what it wants and that there is no need to question that. The
problem with this approach is that it generalizes the entire population into a
single organism that can deserve or want things whereas in real life the
political economy is founded upon distinction amongst individuals within the
society.)</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Lastly, there is the matter of alteration
in the value systems. While economic theory may choose to remain free from any
commentary on the matters of value systems, it is prudent to note, without
passing a judgment, that value systems of individuals get profoundly shaped by
the idea of money as such (not merely as a means to an end.) This in turn
reflexively boosts the importance of money in the society. If the aim of
economics is welfare, this aspect cannot be ignored. Excessive centralization
of our monetary selves into our personality is probably not utility-optimal. In
other words, obsession with money for the sake of itself it distorting the way
we lead our lives so much that collectively we are probably worse off. A long
term aim of policy should then also be to decentralize money from people’s
lives. This may not be achievable within the narrow toolbox of monetary policy.
However, broader policy framework can use the ‘nudge’ approach to help people
realize more diverse aspects of their being and lead more fulfilling lives.
This may sound revolting to the opponents of ‘big brother’ or ‘soft
paternalism’. However if drug rehabilitation is an acceptable agenda for the
state, the monetary rehabilitation is not very different in principle.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u><span lang="EN-US">Review
of neoclassical position on money and its limitations<o:p></o:p></span></u></b></div>
<div class="MsoNormal">
<span lang="EN-US">It is logical to expect that a small group
of people transacting among themselves will not be subject to money illusion. Say,
5 people are trading just one good amongst themselves and have differing
‘income’ levels in a toy economy. Suddenly if everyone’s income were to be
doubled, the price of the good might have a tendency to double as well. Most
neoclassical economists take this simplistic notion too far and declare that
there is no money illusion in the real economy as well. Whereas interestingly
enough, even in a laboratory experiment, we might be able to detect deviations
from fully rational behavior as people take time to get used to the new state
of affairs and sometimes do not get used to it at all.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">For example, some of them might suddenly
decide to start saving. Some others may not want to increase price because of
reasons of fairness. Still others may expect the incomes to go back to lower
levels and hence play safe. Lack of knowledge, anchoring biases, fairness
considerations, uncertainty will all contribute to people avoiding the jump to
the doubling of price.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">I am reasonably certain that even in the
set-ups where knowledge is universal and available (all 5 are told that their
incomes have exactly doubled simultaneously) and uncertainty is removed (they
are also told that these doubled incomes are permanent and will not reduce), we
will still not see the adjustment to double price for a while, and maybe never.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">In the real life where below practical
deviations occur, this is even more unlikely.</span></div>
<div class="MsoNormal">
</div>
<ul style="text-align: left;">
<li><span lang="EN-US" style="text-indent: -18pt;"><span style="font-size: 7pt; font-stretch: normal;"> </span></span><span lang="EN-US" style="text-indent: -18pt;">Incomes do not rise in tandem.
There is differential growth rate across sectors as a norm.</span></li>
<li><span lang="EN-US" style="text-indent: -18pt;"><span style="font-size: 7pt; font-stretch: normal;"> </span></span><span lang="EN-US" style="text-indent: -18pt;">Tendency to save is almost an
exogenous variable in this picture. Income growth rate and consumption growth
rate may deviate.</span></li>
<li><span style="text-indent: -18pt;">There are lots of different
goods and services. The prices do not respond uniformly. Averaging camouflages
this divergent response.</span></li>
<li><span style="text-indent: -18pt;">Consumers do not adjust their
reactions to prices in real time. They react differently to different price
increases.</span></li>
</ul>
<br />
<div class="MsoNormal">
<span lang="EN-US">Hence the expectation of prices going up
uniformly in line with nominal incomes is a mirage. Of course in a closed
economy, since total expenditure has to be equal to total incomes, the increase
in nominal incomes will lead to rise in the total value of expenditure – price
into volume. If the volume has not grown, prices will grow such that the totals
match. The point however is what goes on below the surface, inside the averages
and aggregates. The simplifying assumption of neoclassical economics is that
everything is uniform. Since things are dealt with either at a single
individual/firm level or only in complete economy-wide aggregates, the implicit
hypothesis is that everything moves in tandem. On pointing out this extreme
assumption, most supporters of the neoclassical theory would say that this is
at best a model and we can always refine it using specific phenomena to
incorporate the deviations.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">That misses the whole point. Starting with
a wrong model and theory and then trying to get closer to reality through
refinements is likely to be epistemologically wrong. What is worse, it is
likely to throw up fairly misleading policy prescriptions.</span></div>
<br />
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">The model is oversimplified but that can be
ignored since refinements will tide over that limitation. A bigger issue is
that the model incorrectly models economic participants as REAs with complete
knowledge and fully calculated rational responses. This is an assumption that
cannot be improved incrementally through incorporating one behavioral bias at a
time and one incomplete information point at a time. Wondering about this one
comes to a more fundamental question – why do we need to cling to the
neoclassical model and then refine it? Why can’t we think of a new model which
also models reality but starts with more real assumptions and is likely to need
less refinement to achieve the same outcome as regards predictions and recommendations?
At the heart of it, the debate boils down to the modus operandi of conducting
studies in macroeconomics. There is no right approach. The limitations of the
neoclassical model seem to suggest that there is probably a much better way of
modeling macroeconomic reality.</span></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-83958250042643365872014-10-29T16:45:00.005+05:302014-10-29T16:46:50.361+05:30Economic theory of value, price and utility<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
Price is a very sensitive topic in microeconomics. There has
been a lot of work done in this domain. Unfortunately most of it is completely
misguided by attempts to theorize about price from a normative thinking process
of ‘what should be the price?’ or ‘how should a rational individual think about
price?’</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
While going through a lecture on Coursera on Neuroeconomics, I revisited this question again in my head. Partly it was prompted by the idea
in the lecture itself – that the ‘value’ something has for an individual has
been generally expressed in terms of price or utility in economic theorizing
and that the Neuroeconomic approach to it is to start with neuronal firing rate
in response to a good/activity and its like reward or punishment value.
Interesting and promising approach indeed.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What i was tangentially thinking about was something related
but different. I was wondering if the entire framework of answering the
question ‘what is something worth to an individual?’ is mistaken. Here’s why.</div>
<div class="MsoNormal">
The conventional attempts at finding out worth of something
to someone is generally focused on the utility of the good/service to the
person and some estimate of the value of the same. There is an implicit
assumption that this is constant across space and time and individuals. All
three are faulty assumptions – there are not even good first level
approximations. That is the reason behind my question above.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Part of the reason is the dependence of value on location,
time and individual. Part is also the very approach of trying to model it like
this. When one implicitly assumes that something has an objective value and
that just needs to be determined through some observation, one is already
committing the folly of creating an imaginary quantity (objective value). One
is then likely to fall into the traps of calling something over-valued,
under-valued, over-priced and so on.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
My view on value and price is as follows.</div>
<div class="MsoNormal">
Value of something is inherently and fundamentally
subjective as well as a function of time and place. It is also reflexively
dependent on perception, network effects and inference about who else is a
consumer.</div>
<div class="MsoNormal">
First of this is simple to demonstrate.</div>
<div class="MsoListParagraphCxSpFirst" style="text-align: left; text-indent: -18pt;">
</div>
<ol style="text-align: left;">
<li><span style="text-indent: -18pt;">Dependence on person: I like QWERTY keyboard
phones while someone else values bigger screen. Even at an aggregate product
level, someone may like orange juice as a refresher while her friend might
prefer a quick call with her fiancé. Given a specific good, different people
will value it very differently – I love tea, my wife does not have tea at all
and i know of a lot of people who have intermediate levels of liking for it.</span></li>
<li><span style="text-indent: -18pt;">Dependence on time: Food is valuable when hunger
strikes, music adds value to a pub night, cab service is more valuable in
monsoon and wee hours etc etc</span></li>
<li><span style="text-indent: -18pt;">Dependence on place: Mineral water at the top of
a mountain is more valuable than in the middle of the city, binoculars are of
value in a desert but not as much in a jungle and so on.</span></li>
</ol>
<!--[if !supportLists]--><br />
<div class="MsoNormal">
Note that if we start without the baggage of goods having a
similar price across people, time and place, the above divergence would point
us in the direction of a non-unique value and price automatically. Only if we
start with the state of the world as it is today that we would attempt to
figure out explanations and workarounds to this obvious state of affairs.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Second set of divergences is more subtle. It is also more
applicable to modern branded goods than to commodities.</div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo2; text-indent: -18.0pt;">
</div>
<ol style="text-align: left;">
<li><span style="text-indent: -18pt;">Dependence on network effects: An app that my
friends use is more valuable than one that nobody uses.</span></li>
<li><span style="text-indent: -18pt;">Dependence on perception: If Hyundai cars are
not perceived to be premium, I would flinch in buying a feature-rich Hyundai
car for a high price point.</span></li>
<li><span style="text-indent: -18pt;">Dependence on inference about who else is a
consumer: If everyone is using Ray-Ban shades, I would also join in. Sometimes
this also has adverse effect – if everyone (‘the masses’) is using Gucci, i
better stop using it (it has become ‘pedestrian’)</span></li>
</ol>
<!--[if !supportLists]--><br />
<div class="MsoNormal">
The value derived from a good/service is hence a complex
function of all of the above factors. Just to be clear, these are not factors
that are small deviations around a secular level. This is precisely the
mistaken stance conventional microeconomics takes. Most economists would
acknowledge the presence of these deviations. However, in the name of
tractability and approximations, they would make an undefendable leap of faith
that a large proportion of value is independent of this and thus can be thought
of as objective.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The other angle often ignored in classical economic theory
with regard to price is how the producers determine it. Most often, the over-generalized
response of economists is that perfect competition persists in most cases and
the producers charge a price that is equal to marginal cost of production. This
is again normative. It is demonstrated in real life only in a small minority of
cases where a highly uniform commodity is traded in a highly transparent manner
(crude oil, steel etc). For most real life cases, price is nearly arbitrarily
determined – producers do take into account the cost plus logic but more often
than not, the linkage is reflexive. If something fetches good price, its input
goods start to reflect that as well through higher pull. It is not only that
input good become costlier and thus output good catch up in terms of price.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Just like we don’t know how each specific biological species
began its journey on earth, the pricing history of each specific good and
service is hard to trace back. Since everything has something or other as input
(including labor) which has its own price, it is hard to study the absolute
level of price of anything in isolation. However, that should not make us
complacent about the origin of price-levels.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
A feedback loop exists between consumers and producers as
well and it is not simply a matter of a producer looking to offer at a price
above a certain minimum and a consumer making sure of a bidding war each time
she is looking to buy something. Real life transactions have a lot of influence
of behavioural factors as well as institutional factors. Some prices are simply
a matter of habit, others of arbitrary anchors and so on. On this base case the
consumer producer feedback takes place.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In summary, value is not identifiable in an objective sense.
Hence a uniform price for a good/service is an arbitrary imposition of
simplicity. I think it is not hard to think about constantly varying prices of
goods and services across people, place and time. The efficient market
enthusiasts will jump at this suggestion and cry ‘arbitrage’. However, insofar
as consumer goods are concerned, it is hard to imagine majority of people engaging
in an arbitrage about making someone else buy something or hoarding some stuff
because it is cheap at that time.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In some cases this already happens – but it is limited to
dependence on place. Convenience stores sell things at a major premium to
supermarkets. However, time dependence, situational factors and person
dependence is almost never factored in. Even more so, the perception effects,
network effects and so on are rarely if ever incorporated into pricing. Even
the limited space dependence of the type of convenience stores vs supermarkets
is a matter of practice – not entirely explained in economic theory.</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-90354197897273839042014-10-07T10:46:00.000+05:302014-10-07T10:46:54.398+05:30Brain as a computer<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
<span lang="EN-US">The big question is – is the brain a
computer? (not only like a computer)</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Turing et al set up the computational
theory of computers. Using those ideas, it seems highly unlikely that the brain
too is one computer – however complicated. But then there are others like
Dennett that argue that the word computer has been used in a narrow context of
a top down machine made of cooperative algorithms. In the wider context that
allows computational capability embedded in competing modules, the brain, according
to this line of thinking, can be safely thought of as a computer.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">The other attack on the idea of brain as a
computer comes from the ‘thinking’ side. We as human beings think. Computers
don’t think, they ‘mechanically’ carry out instructions. Deep down in the
software and hardware of the computer, there are only electrons moving about –
as per a pre-determined circuitry and well defined rules of logic. This set up,
however complex it gets, remains at heart a deterministic machine that at best
simulates the idea that it carries out complicated procedures to solve problems
– and these problems are actually solved by the ingenious programming designed
by humans from outside.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">This is partly correct. The computer is
ultimately a collection of electrons moving about and the overall impression it
gives of immense computing power is simply the effect of the miniaturization of
its circuitry and the consequent space efficiency in managing all that in a
small box sized CPU of it.</span></div>
<div class="MsoNormal">
<span lang="EN-US">Where this analogy loses track is in
forgetting that the brain being ‘more’ than the sum total of its
computational/cognitive circuitry is simply a claim, a matter of faith, an
unverified hypothesis if that. So while it’s entirely correct that computer is
sum total of its billions of logic gates, the brain can also be thought of – in
absence of any compelling evidence to the contrary – as sum total of its
billions of synapses. There is of course the matter of being ‘inside’ the brain
and being able to ‘experience’ this purposeful behavior of human thinking as
against the mere dance of electrons through the logic gates. But this thinking
commits the usual twin-sins of anthropocentrism and lack of imagination. </span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Anthropocentrism
in the sense that when seen from inside the brain, of course it is going to
seem magical, purposive and more sensible than the computer. This sense, this
feeling of purpose and so on is part of its programming. There is nothing
magical about it. But then computers don’t think do they? This is where the
lack of imagination comes into picture. We are unable to imagine that the much
revered thinking of human beings can ultimately be broken down – with a lot of
work sure – into smaller computations that individually are simply signals.
Being ‘inside’ this, our imagination does not generally extend enough to allow
us to see the trees in the woods of our thoughts.</span></div>
<div class="MsoNormal">
<span lang="EN-US">I imagine thoughts to be computations being
carried out inside the brain using the signal processing mechanisms built on
the infrastructure of neurons and synapses. Clearly the modern computers differ
significantly in their architecture and their very organization from the human
brain. However, the fact that individual signals are processed in a huge amount
to carry out an overall computational or cognitive task is the fundamental
common thread between the two.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Another attack is generally from the qualia
camp. We ‘perceive’ things – some are red, some are pungent and some are
symmetrical. We do not merely compute and measure these things, we actually
‘experience’ or ‘sense’ or ‘perceive’ them. The image of a desk with a phone,
remote and small box is ‘real’ in my mind. It might have been arrived using
computation by my brain. But the final product is this distinct image that
cannot be explained using computational terms. This is the summary of the
qualia argument. I do realize there is some unexplained phenomenological
account that is needed of this experience. However to me, when seen from an
alien’s point of view and from outside, this qualia problem is more curiosity than
a fundamental premise of human mind being non-computational. Clearly human
mind’s computational architecture is not fully understood by – well human
minds! There could be several things that we do not know yet about the details
of the perception process that can explain the presence of qualia. It is a
sub-problem in my view.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Stating succinctly, my current thoughts on
the computational view – the brain is vast collection of neurons and synapses –
which act as the logic gates for computations. There are several systems or
modules in the brain. Some are nearly autonomous systems (breathing, digestion
etc) while others are learned but semi-autonomous – walking, cycling, language
etc. Lastly, there are systems that are equipped to handle highly unspecific
situations – which are located mostly in the neo-cortex and are most well
developed in humans. These systems are an evolution driven feature to survive
in the world using one’s wits – i.e. ability to think on the fly using the
inputs from the surroundings and computations about a suitable course of action
highly customized to that specific instance. This ability to deal with each
situation as it turns out differently requires different mode of computation
than say the one that deals with digestion or even locomotion.</span></div>
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">Connecting my other thoughts about the self
written elsewhere, this system also harbours the socially constructed self. The
reflector module is inside this system. It is required by this system only –
you don’t need reflection to walk or to digest food. The special place of the
reflector module inside this system makes human beings believe that they are
different from the ‘dumb’ systems of computation carried out in the silicon
based computers. When told more about the modules of digestion and locomotion,
most humans would grant that these modules are indeed like the silicon based
computers. They will most likely still exclude higher thinking (the ‘self’)
from this lowly description. Ask an alien though, and it would simply believe
that the ‘higher’ thinking is different only in its details from ‘lower’
thinking and the ‘self’ created by the higher thinking is another module inside
the brain of the being.</span></div>
<span lang="EN-US" style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"><br clear="all" style="mso-special-character: line-break; page-break-before: always;" />
</span>
<br />
<div class="MsoNormal">
The way mind is computational is very
different from the way the brain is computational. For the mind, the logical
reasoning and cognitive processing comes at a very later stage of development.
The brain has multiple modules – some mechanical (respiration), some purposive
(problem solving). The mechanical modules might resemble the silicon based
computer in the processing of signals and information. The higher (or those
dealing with less deterministic tasks) modules are unlikely to be computational
in this way.</div>
<br />
<div class="MsoNormal">
<span lang="EN-US"><br /></span></div>
<div class="MsoNormal">
<span lang="EN-US">For example, if I am solving 2+3 in a
silicon based computer, I would use logic gates that help me solve this. That
might have a few of those gates at best which will effectively throw the
output. If I am solving it in my brain though, the problem is set up in the
world of very high level concepts of 2,3 and +. This makes the neuronal support
required for it several orders of magnitude larger than that needed for the
silicon based computer. This all fine from evolutional point of view because
the need to solve 2+3 came up much later for organisms (if at all it can be
said to be a need.) The ability to deal with a complex and ever changing
environment is their first priority. For that they need the complex modules
dealing with ideas. That same module if pressed into the service of solving 2+3
will continue to use its established methods – which from the computing
efficiency point of view are highly inefficient.</span></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-76628536079906255292014-08-03T23:31:00.002+05:302014-08-03T23:31:28.589+05:30Stories, Rhetorical Devices and Making Sense of the World<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
Reading up on some of my earlier thoughts – especially the
one concerning non-linearity, nihilism and the will to act – I realized that I
have also been teleologically motivated in the search for stories. In that
article I had questioned if non-linearity of human life should prompt us into
inaction or lack of interest in any proactive action. I replied with the
argument that there are means to some ends and these ends are themselves means
to some other ends. Eventually ending up at happiness. Overall, the article
sounded positive and life-affirming – almost a pre-emptive strike on nihilistic
implications of the non-linearity of life.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is common of human beings. The search for stories. We
look for the narrative, the story, the purposiveness and meaning in actions,
projects, desires and wishes. The conceptual glue that binds our observations
of self and the rest of the world. Something that tells us that things are
happening with some logic – good or bad – and some ‘sense’. The brute
meaninglessness of non-purposive quasi-random happenings is deeply disturbing
for us. I don’t know why.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is common also to our more sophisticated theorizing
about the world. 'The Selfish Gene' is a remarkable book. So is 'The Universe Next
Door'. The Myth of Sisyphus, too, is. But all of them have in common an implicit
belief in the existence of order, structure and a hidden presence of purpose.
Selfish gene does the best job of baring it but falls short in the follow
through. The need for the teleological comfort is too high to do so.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I do not claim to know the real nature of things any more
than others that have given the matter some thought. I can present some
speculations though. They are as below.</div>
<div class="MsoNormal">
The happenings in the universe – including the subset of
human life in it – are quasi-random. There are levels of randomness of course.
What drives the relative extent of matter and antimatter at the time of
big-bang (or at least the relative extent of what we model to be matter and
anti-matter)? What drives the specific values of various constants of nature
(as we model them, again!) This is the highest level of randomness known to us.
We come to eventually call it the laws of nature. They are so in the context of
the lower level observations of the working of the universe. But at their own level,
they are just as random.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The next level of matter and energy interacting is moving
randomly in most senses but is bound by the regularities imposed by the higher
order randomness. So a star on exhausting its fuel will tend to follow one of the
three fates (as per our modeling currently) depending on its mass. This
classification is no doubt governed by the specific value of constant of
gravity. The size of a given star though has nothing to do with this. Stars of
various sizes exist within the regime of the same law. The law binds how they
evolve post fuel emptying. It also governs how the nuclear reactions and
gravity interact to define the size of the star when it is burning. This is
just an example. The limited point is – at this level, though some regularities
can be found, a lot is still randomly occurring.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
At the level of carbon-based life forms, the randomness
comes of age. Their very beginning is probably result of a chance occurrence
(as we have modeled for now.) Their subsequent evolution is a combination of
chance events and their internal building. Stripped of the special status to
life vs non-life, the living things can be seen as special agglomeration of
matter that process energy in an efficient manner to accumulate more matter and
to generate other similar agglomerations. Why they do so is an inaccurate
question. There is no why. The living things started to be ‘living’ by chance
and evolved further by chance as well.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Things become lot more complicated as humans show up on the
scene. They become complicated not inherently but because the author of this
article is a human being, a descendant of these early risers. He is too close
to the matter to disentangle himself from the ‘subjective’ view. He will give
it a try anyway.</div>
<div class="MsoNormal">
Human beings are a fairly complex biological machine that
came out as one of the outcomes of evolution along with the rest of the flora
and fauna. Is there a grand purpose to such brainy organism to develop?
Probably not. Why are there so many species? Because there can be. And because
there are. Why do humans have large brains and an ability to think? Because they
could and they did. There was no purpose to humans getting big brains. Not
anymore than there was to the first living organism getting a gene to replicate
its design. Also biological evolution is not a special process going on as the
queen of all evolutions – to bring out the grand prize i.e. humans at the end. It
is simply a process that is feasible amongst billions of other processes in the
known universe. That process led to some sufficiently complex agglomerations of
matter to replicate and eventually to grow ‘brains’. There was no purpose to
that.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The human society that came thereafter is the most
confounding of the lot. By virtue of its complexity. Also by virtue of its
closeness to the author’s mental make-up. It is one thing to marvel at the
evolution of the cold, non-living universe and even accept the lack of purpose
in its evolution. It is entirely another thing to see the culture, language and
the whole structure of thought that one inherited as an incomplete and
potentially over-teleological construct of a desperate human civilization. The
former is of ‘academic’ interest. The latter has far more significance in my
limited existence. The former has at best indirect and very abstruse
implications for my worldview. The latter has immediate implications for how I
live. Hence the difficulty.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Nevertheless, here is my attempt to see that human society
and its evolution for what it has been. The social evolution is well documented
in terms of its facts and events. However, through the entire narrative there
is a remarkable thrust on continuity and purpose. All the actors of history act
with some intent and they succeed or fail. Then others take it up from there
and continue the intentional actions with success or failure. And so on.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The real history is probably lot more prosaic. What goes on
in human society at individual and collective level is too confusing for a
single being to fathom and model. Hence we build stories that are consumable at
an individual level and revel in them. Over a period of time we come to see
these stories as the true representations of reality. Even that is generous. We
come to see the stories as truths – the reality itself.</div>
<div class="MsoNormal">
Let us start with the individual. What the individual does
is only apparently purposive. When I introspect about a specific decision I
made, I am only half-sure of where it came from. Many decisions are follow-up
decisions to earlier ones. Some are part of a project, in a manner of
interacting with the surrounding once the basic project is defined. But this
merely pushes the question to the definition of the project itself. Most
projects come about in response to quasi-random stimuli. Granted that most have
a specified objective. But the ultimate objective in most cases is down to
either an unspecified non-individual institutional set-up (which is then result
of quasi-random evolution itself) or furthering happiness of some human(s) or
reducing pain of some human(s) or creating cognitive ease for some human(s)
(the cognitive ease is similar to but yet different from happiness or pain in
that it is not felt with that intensity, although it is quite powerful in its
own way.)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Many other actions are reactions to stimuli – bodily stimuli
(to eat, excrete or seek shelter etc) or social stimuli (answering phone,
responding to a fact based query and such) and so on. Proactive actions are
part of a project (explained above) or pursuits of happiness/pain-reduction. As
I have noted in an article elsewhere, happiness and pain are now quasi-random
in human set-ups. They were useful in evolution for the sustenance and
procreation of the organism. In absence of daily threats to life and missing need
to procreate in large numbers, the pleasures and pains are now vestiges of
evolutional legacy. They are not ‘useful’ in the conventional sense of
furthering the organism anymore. But they exist and they are there. In a way,
in absence of anything else to drive actions now, they have become yet another
driver of proactive action. They share the berth with many other quasi-random
drivers though, as noted earlier in this article.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The sum total of the above then is the life of an individual
that is prone to quasi-random internal stimuli and drivers and quasi-random
social stimuli that come from equally arbitrary set-ups. The individual’s
reaction to this is quite curious though. For some reason, maybe evolution
linked, the individual seeks to bind the experience together in the form of a
story. Each experience needs an explanation. This explanation is of an
arbitrarily chosen standard. It probably boils down to cognitive ease. Individuals
use a combined approach of themselves working towards such an explanation and
‘buying’ some readymade ones. They do not necessarily stop living in absence of
the explanation. But they strive for it. And that shapes their reactions. This
striving leads to some major drivers at a collective level for sure. But it
would be ambitious to give this striving too much influence over individual or
collective matters.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What I wish to draw attention to is somewhat simpler. There
is no comprehensive story to our actions – individually or collectively. Lot of
random things happen that drive our make-up, our interpretations and our
drives. Lot of random things happen that lead to specifics of the various
situations we face. There is no doubt some degree of predictability to things
and there is no doubt some semblance of limited purposiveness to our actions.
However, in its entirety, the grand schemes have no value. Even limited
purposiveness is quite prone to specific instances of large random inputs.</div>
<br />
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
We can make stories to make life bearable. Life as we have
it is anyway a product of chance events in its origin and subsequent evolution
– biological and social. Stripped of the vagaries of life that keep one
occupied, the individual like me eventually finds out that the precious life is
simply a series of happenings over a few years.</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-52361695326586696392014-04-19T13:19:00.002+05:302014-04-19T13:19:38.616+05:30An attempt at summarizing my understanding of postmodern thought<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoListParagraph" style="margin-left: .25in; mso-add-space: auto; mso-list: l0 level1 lfo4; text-indent: -.25in;">
<br /></div>
<div class="MsoNormal">
Postmodernism is by definition a very plural worldview. There
is no clearly identifiable core per se. However, there are some recurring
themes which most of its adherents would tend to agree on. I think that the primary thrust of postmodernism is literary, social,
political and historical. It is not directed at sciences or their critique. This
took me a while to come to grips with. When I realized this, some confusion
went away. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Postmodernism has often been introduced briefly by borrowing
Lyotard’s statement – “postmodernism is the incredulity towards all
metanarratives.” Rightly so. If there is to be one one-sentence summary of
postmodernism, this would be it (for now.) What does it mean? In short, it
levels the field between all competing worldviews. At the same time, it also
declares all of them to be ‘untrue’ in some sense. This is a very nuanced point
and is often mistaken by naïve critiques of this statement.</div>
<div class="MsoNormal">
The postmodern stance with regards to the earlier worldviews
is that they are epistemically partial at best and hollow at worst (not because
of any inherent issue but more so because of the very nature of human
epistemic apparatus). The worldviews/meta-narratives might contain grains of
factual ‘truth’ (using the convention of collective agreement and
reproducibility for empirical matters and collective sense of ‘logical’ for a
priori matters). Besides these, the worldviews routinely contain articles of
faith, belief, opinion, stand etc. The overall construct includes some ‘true’
facts, some ideas, some interpretations and so on. This collective is not
necessarily ‘wrong’ or ‘incorrect’ (in fact, postmodern stand is that such a
statement has no meaning.) However, competing worldviews are routinely calling
each other so (‘wrong’, ‘incorrect’, ‘inhuman’, ‘oppressive’, ‘cruel’ etc.)
Postmodernism enters this tournament and tells them that the prize is a hoax.</div>
<div class="MsoNormal">
Let me go beyond the colorful analogy. Postmodernism does
not take a stand on right, wrong, just, correct and so on. It has a good reason
to do so, which we will come to later. However, in not taking a stand, it also
declares that the stands taken by everyone else are also arbitrary. This is not
a light charge on the stand-taking in the spirit of “I am not taking the stand because
I am confused and hence it is only fair that nobody else should take a stand too.” There is
more to it. That is what we come to now.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Postmodernism draws a lot on its critique of the role of
language in human life. While earlier worldviews took language as simply a tool
to express thoughts and ideas and rarely doubted its neutrality,
postmodernism got into the depth of this toolbox itself. The modern stance
regarding language is understandable. In fact, that continues to be the stand
taken by majority of humanity even now. Language is language. It has a
structure, words, grammar and so on. Someone uses it to construct stories,
someone else for poetry, yet someone else for a political speech and someone
writes erotic novels with it. It is malleable, universal and (while nobody
bothers to check it) impartial to all who use it. In fact, we rarely bother to
even stop and question this. It is too internal to us. It is a part of who we
are. Questioning language is like questioning our nose or liver.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
And yet when any sensible person reviews the role played by
language in our discourses, it is hard to miss that language does not merely
clothe our thoughts, it builds them. Without language, there would be no
thoughts in the conventional sense that we experience them. If you do not
believe me, try it right now. Hold off reading, close your eyes and try to
think without language.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
While we think we use language to ‘express’ or ‘articulate’
our thoughts, we always use language to ‘construct’ them. Even if that were
true, what of it? One might argue that language used for everyone on
collectively agreed principles to communicate thoughts. Where does the ‘incredulity
towards all metanarratives’ emerge from this?</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Here, we need to take a slight detour to revisit Wittgenstein
– in his study of linguistics, the nature of logic and his eventual claim that
language simply cannot address some questions. (<a href="http://en.wikipedia.org/wiki/Philosophical_Investigations">http://en.wikipedia.org/wiki/Philosophical_Investigations</a>)</div>
<div class="MsoNormal">
Excerpt from Wikipedia entry: <span style="background-color: white; color: #252525; font-family: Arial, sans-serif; font-size: 9pt; line-height: 115%;">He
alleges that the problems are traceable to a set of related assumptions about
the nature of language, which themselves presuppose a particular conception of
the essence of language. This conception is considered and ultimately rejected
for being too general; that is, as an essentialist account of the nature of
language it is simply too narrow to be able to account for the variety of
things we do with language.</span></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What this leads us to is a dead end of sorts. What are we to
do if someone asks us – ‘is it right to let one person die to save two?’
We get into ‘rational’ evaluation and get somewhere. We argue vociferously –
some would say it is the individual’s ‘right’, others would say it is ‘pragmatic’
to do this and so on. Ultimately, if it came to action, the actor would decide
based on a combination of factors, including some situational ones, some
unconscious ones and some ideological ones. What Wittgenstein claims is not
that this action is irrelevant but that the debate is. Our use of language to
address such questions is too ambitious. The structure of language is not equipped to deal with this.
Thus our thinking is unable to 'answer' these questions logically. What seems 'logical' is merely a product of some assumptions which are themselves questionable. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There is more. It is not that we are dumb or our language can
be ‘improved’. These questions are simply invalid. They are not in the realm of
thinking and evaluation. They simply belong to the domain of activity.</div>
<div class="MsoNormal">
This is the fatal blow to the meta-narratives referred to
earlier in this essay. To the extent that a metanarrative has no such
statement barred by the Wittgensteinian inference above, it can at least claim
to be valid. However, it does not take much to realize that anything amounting
to a useful worldview is unlikely to be simple enough to be free from
opinion, faith, belief and ideology. Hence all substantial metanarratives are untrue. They are not 'incorrect', they are simply 'untrue'.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Postmodernism does not offer one more metanarrative to
replace these. It simply states that any such attempt it based on invalid
grounds.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
There are three nuanced points here.</div>
<div class="MsoListParagraphCxSpFirst" style="mso-list: l1 level1 lfo1; text-indent: -.25in;">
</div>
<ol style="text-align: left;">
<li><span style="text-indent: -0.25in;">1</span><span style="font-size: 7pt; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">This incredulity is extended only to
metanarratives. The smaller units of discourse such as a logical sentence and a
fact of nature are dealt with differently. See below.</span></li>
<li><span style="text-indent: -0.25in;">2.</span><span style="font-size: 7pt; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">Most postmodern thought also includes a conjecture
on why these metanarratives came to be in the first place and why they are so visible even when they are manufactured.</span></li>
<li><span style="text-indent: -0.25in;">3.</span><span style="font-size: 7pt; text-indent: -0.25in;"> </span><span style="text-indent: -0.25in;">The critique of postmodernism on the ground that
this itself is a metanarrative misses the point. There are multiple levels of organization
of thought and each higher level can make claims about the lower levels.</span></li>
</ol>
<!--[if !supportLists]--><br />
<div class="MsoNormal">
<br /></div>
<div class="MsoListParagraphCxSpFirst" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->1.<span style="font-size: 7pt;">
</span><!--[endif]-->Naturalism is a metanarrative and so is feminism.
The statement that “2+2=4” or that “2 is the only even prime” are not.
Postmodernism is raising a question about the credulity of naturalism or feminism.
It is not questioning the validity of “2+2=4”. No doubt, it has an attitude towards the latter as well. That is interesting and somewhat liberating. What we consider
logical is based on our structure of language and conventions. In a slightly
different language of base 3 for example 2+2 = 11. Now if you know a little bit
of mathematics, you will say that 2 stands for two instances of something – say two
men. Addition stands for combing them while retaining their identities and
distinction. Hence when we say, two plus two, we are saying bring two men first
and then bring two more and start counting them. What they make as a result is
same – referred to as 4 in base 10 (actually in any base larger than base 5)
but 11 in base 3.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
The postmodern response is not to refute the logic of these claims. It is
simply to point out that this is how we construct our language. This is how we
build our conventions of it – formal language like mathematics and logic or
informal language like English. All of these are systems of rules. Once we take
the rules as a given, the ‘truth’ of some claims and ‘falsity’ of some others
will follow.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
Another example is empirical. In Euclidean geometry, angles of a triangle
add up to 180 degree (or two pi radians). For triangles drawn on the surface of
a sphere, they add up to more (anywhere between slightly more than 180 degrees
to say as high as nearly 540 degrees – think of a triangle with one point at
north pole, other two points near each other on equator and the line connecting
these nearby points being taken across the globe.) Again a matter of frame of
reference or the rulebook. Hence “2+2=4” (or for that matter “2+2=11”) is not
fundamentally or a priori ‘true’ as much as ‘internally consistent’ with the
rulebook of that particular sign system. Is this a big deal? Have I simply replaced
‘true’ with ‘internally consistent’?</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
It is a big deal, especially considering the veneration we accord to ‘the’
truth. In our fantasy, ‘the’ truth is independent, self-referential, profound
and all such. ‘Internally consistent’ is far shorter a claim. It is a claim
of observation. It has no profundity and more importantly no finality. Perhaps
the most important aspect of ‘internally consistent’ as against ‘true’ is that it
is not unique. There are many ways to construct an internally consistent
geometry for example. None of these are true or false. None are fundamentally
any better or worse than each other.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
To summarize: postmodern claim about metanarratives is that they are not
credible. As regard analytical ‘truths’, postmodern stand is that they are products
of the language they are constructed in – and are thus ‘internally consistent’ instead
of the magnanimous ‘true’. As regard empirical truths, they are simply the
latest theory of how things work. (I have not elaborated on this last point,
but a quick review of Karl Popper’s falsification principle would explain this with
great lucidity.)</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->2.<span style="font-size: 7pt;">
</span><!--[endif]-->At the beginning of this essay I made a claim
that the primary thrust of postmodernism is socio-political, historical and literary
rather than empirical. I had a reason to say so. Postmodernism arose in
reaction to the modern notion of how society should be organized, how new ideas
from scientific advances should inform our worldview and how we should view our
place in the universe. It is a critique of these human matters rather than any
philosophy of science.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
Postmodernism came up as a reaction to what seemed like the use of
metanarratives for oppression and exploitation. To that extent, postmodernism -
for some its adherents - tends to have political under-currents. It seems to
prefer an anarchist society and tends to view worldviews and metanarratives as
ploys deployed by vested interests to their own ends.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
I do agree with the critiques of postmodernism when they claim that
postmodernism seems to contradict itself in this sphere at times by taking a political
stand. A true postmodern attitude to politics is in fact absence of a
recommendation regarding opinion. Hence any opinion could be admitted insofar
as it did not have overarching claims regarding where its legitimacy came from.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
But therein lies the rub. While fighting the general proliferation of
competing metanarratives, it is hard to push through a view of incredulity towards
metanarratives without taking a stand. While I referred earlier in an analogy
to the tournament where postmodernism enters to declare the prize to be a hoax,
in real social discourse, one gets heard only when one has something to say.
The construct of language does not allow a well defined postmodern rhetoric to
flourish in the current social set up, at least.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
Nevertheless, for those that sense what the spirit of postmodernism is,
its political implications are simple enough. Postmodernism may not stand a
good chance in a social fight outside of the individual. However, within a
given individual, it can warn her that all metanarratives are power-plays. The subtlety,
(because of which it would fail to gather followers in a popular sense), is
that postmodernism has no recommendation regarding how to form your own
worldview. In fact, this might be its Achilles’ heel. For a budding
intellectual, postmodernism is sterile. If I seriously follow the thought of
following no metanarrative, I suddenly find myself unhinged. The postmodern
response to it is vague. Different adherents have said different things.
Foucault for example says that maximizing one’s own pleasure is a good guiding
principle. That seems too narrow to begin with – although that is where a thoughtful
journey might end. It also fails to inspire – something that a serious
worldview has to do in the context of current cultural and social set-up. A
worldview as sterile as postmodernism then is starting out with a huge
handicap. But I digress. Coming back to the main point of its political
recommendation, postmodernism can be seen as the liberating first step. The
second step is then to find out what you would like to use this liberation for.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto; mso-list: l3 level1 lfo2; text-indent: -.25in;">
<!--[if !supportLists]-->3.<span style="font-size: 7pt;">
</span><!--[endif]-->Some critiques point out that ‘all metanarratives
are invalid’ is itself a metanarrative and hence self-contradictory. I would
argue that it is not. Firstly I have explained earlier that a metanarrative is
different from a statement of logic or empirical finding. Some would say that ‘all
metanarratives are invalid’ is a pretty strong ideological stance and has a
fair amount of belief in it and this could qualify to be a metanarrative itself.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
This is partly true. Hence I am adding a qualifier to Lyotard’s statement.
‘Postmodernism is incredulity towards all first-level metanarratives.’ Is this
simply a language-game, where I raise this statement to the second level
metanarrative state and thus claim it to be valid? It might seem so but it is
not.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
Any system of signs does not operate at a single level. For example, when
I claim the validity of “2+3=5”, I am using the higher (or lower, whichever,
but different) level assumption about what 2,3,+ and = mean. Once this higher
level assumption is considered valid, I can gauge validity or invalidity of
2+3=5 and 2+3=7. Without the higher level assumptions or system, the lower
level statement cannot be evaluated. A simple demonstration is trying to read a
language you don’t know. The symbols don’t mean anything. You don’t have the
higher level assumptions.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
As regards statements about metanarratives and worldviews are concerned,
one can similarly see the relevance of such a higher level system. I would say
the following statements are all competing approaches to worldviews/metanarratives (merely an illustration.)</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; mso-add-space: auto; mso-list: l2 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]-->a.<span style="font-size: 7pt;">
</span><!--[endif]-->There is exactly one correct metanarrative/worldview.
All other worldviews are false.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; mso-add-space: auto; mso-list: l2 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]-->b.<span style="font-size: 7pt;">
</span><!--[endif]-->All worldviews and metanarratives are correct.
In their given context, they serve the useful purpose of helping an individual
live with the vagaries of life.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: 1.25in; mso-add-space: auto; mso-list: l2 level1 lfo3; text-indent: -.25in;">
<!--[if !supportLists]-->c.<span style="font-size: 7pt;">
</span><!--[endif]-->All metanarratives are invalid. They are
constructed using the language to serve specific purposes of their users.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
These are all higher level statements about metanarratives. Say, the
first one does not implicitly mean that it itself is that one correct
metanarrative. Similarly the third one does not become invalid as a
metanarrative in itself.</div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpMiddle" style="margin-left: .25in; mso-add-space: auto;">
Seen from the other side, i.e. the contents of the typical metanarratives, this
becomes even clearer. Most metanarratives are systems that assume some things,
repose faith in some others and follow some ideological stance. These particulars
are ‘real’ – in the sense that they deal with human lives. At a core level, a
typical metanarrative at the first level does not bother to make too much of a
statement about the nature of metanarratives, language and its limitations and
so on. Of course, it might contradict another first level metanarrative (e.g.
Theism vs Naturalism). But it does not aspire to make too many claims about epistemology
and construction of worldviews in the first place. In short, a typical first
level metanarrative is generally not self-referential. In fact that is the appeal
of most of these. They are seductive for precisely that reason. By avoiding any
reference to self, they remain clear of any criticism by followers. A faithful
follower of some of the popular first level metanarrative would rarely come
across a contradiction in it. These systems tend to be internally
self-consistent. (There might be others that did not manage that and thus
perished – sort of survival of the fittest logic for ideas!) In precisely this
characteristic of these systems lies the means of exploitation. When the Jihdist
is sent on a suicide mission, he believes that he is going to meet virgins to
copulate after death (not all for sure, many simply do it for the money their
families receive.) The constructors of their metanarrative exploit this
unquestioning faith. Much less visible and less extreme examples abound in our
daily lives. More on that later though.</div>
<br />
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto;">
In
summary: first level metanarratives generally serve specific purpose of providing
individuals and societies with internally consistent rulebook of living. Second
level metanarratives are not very common nor popular. Postmodernism, even if considered
as a metanarrative, is a second level metanarrative and is thus not
self-contradictory.</div>
<div class="MsoListParagraphCxSpLast" style="margin-left: .25in; mso-add-space: auto;">
<br /></div>
</div>
Unknownnoreply@blogger.com1tag:blogger.com,1999:blog-17720259.post-37053707927141862532014-04-13T11:29:00.000+05:302014-04-13T11:29:18.195+05:30Delusion of Agency<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
Going through the philosophical schools of thought in
general, one can’t help but notice two things – the anthropo-centrism and the
excessive assumption of agency of human beings for their destiny. The first of
these I will deal with separately but the second merits some explanation here.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Our studies of matters concerning ourselves – i.e. ‘humanities’ and social studies – have been afflicted with this limitation since early days. Our
notion of self is one of active decision making individual – who acts for
better or worse and makes judgment calls, right or wrong, and assesses
situations and decides. It is axiomatic and is rarely questioned. There is no
doubt the discussion on free will – but that is one-zero. While it captures an
important part of this delusion, it still misses the crux of this matter – even
if we are free to decide, what we decide matters only so much.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
What I am proposing is an alternate view of our selves. We
are not the analytical, rational and in-control selves we think we are. We are
organic machines that have skills to navigate the world to survive as long as
possible and procreate. Our skills make several additional things possible –
which eventually brought us wonderful things like language, technology, arts
and so on. However our pre-programmed aspiration at the fundamental level is
still the same as our ancestors. We of course infuse additional aspirations on
the way – driven by our cultural context amongst other things. Nevertheless the
end result is a much messier sum of several drives rather than the neat
segregation that many psychological models have us believe (e.g. id, ego,
superego or rational self and emotive self etc). No doubt such models help us
understand ourselves a little better – with the hope that we can use that to
advance our innate and acquired aspirations and to avoid pain. However, these
are approximations. And given our tendency to long for clarity, we quickly fall
in love with these models and start thinking of them as realities rather than
the maps (territory and the map again! <span style="font-family: Wingdings; mso-ascii-font-family: Calibri; mso-ascii-theme-font: minor-latin; mso-char-type: symbol; mso-hansi-font-family: Calibri; mso-hansi-theme-font: minor-latin; mso-symbol-font-family: Wingdings;">J</span>)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In my messier formulation, human beings are a combination of
constrained, guided and self-willed individuals who are still prone to internal
randomness as well external one. They act within the roles partially
bestowed/imposed on them by their context and partially conceived and built by
themselves. The evolution is itself messy though. It does not progress in a
linear manner of input leading to output – of whatever proportion. Instead the
output is always a complex function of input from agent, context, and some
random factors. The agent then evolves partially by its own will and partially
without it. The without it portion need not be in accordance with the own will
– it can be neutral or even against.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The evolution within is mirrored on the outside as well. In
fact, briefly visiting the excessive anthropocentrism mentioned at the
beginning of this article, one may conjecture that ‘outside’ and ‘inside’ is a
human-centric view of the reality. In contrast to this, one may take an alien’s
point of view and see the continuum which includes some organic life-forms –
whose ‘insides’ are merely additional material for study in the continuum,
without a special place.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Anyway, the evolution is mirrored on the outside in the
sense that the output of an activity in general is a complex function of
actors’ inputs and context. Thus over time, both the actor and the context evolve – in
complex ways which are very hard to predict. The actor however has the
reflective faculty – which models the reality on an ongoing basis. In this
reflection the actor may choose to accord a disproportionate share of the
outcome of internal evolution as well as evolution of the context to her own
inputs. Owing to the complexities of both evolutions, it is quite hard to
disprove such delusion. In any case, there is nobody that has an interest in
doing so. Also the actor moves forward not so much by accurately describing
reality but by surviving as long as possible. In physical matters, an accurate
enough description is coincidental with survival – knowing where mountain ends
and not trying to walk in air is a good choice for example. In matters more
epistemological or philosophical, such urgency is missing. Believing that one
controls one’s destiny – or at least one’s internal situation – is hardly a
survival handicap. Given the vagaries of life, it may even confer an advantage
(refer to Kahnemann’s Engine of Capitalism for a parallel – incorrectly
overoptimistic entrepreneurs push forward innovation – thus benefitting the
society but not necessarily themselves, at least in a material sense).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Am I saying anything non-trivial? Probably. If we allow for
this worldview to create the (admittedly fluid) foundation of our representation
of reality, we will probably not even ask many philosophical questions, answer
many others differently (at the very least more tentatively) and in the domain
of sociology, economics and psychology, frame our research in a manner very
different than it is being done now.</div>
<div class="MsoNormal">
Same holds for political science as well as active discourse
on politics.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
I am proposing combining behavioral school of thought with
the awareness of the overwhelming important of context and with the recognition
of randomness inherent in evolution within and without human actors.</div>
<br />
<div class="MsoNormal">
At a personal level, I use this awareness to find peace and
tranquility – although I am quite aware that these are aspirations and not
foregone beliefs once I accept the foundation. That is because my inside is
also not entirely under my active control and I can only hope to steer it
towards this worldview over time as much as I can!</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-12115738053796438642014-03-12T18:18:00.001+05:302014-03-12T18:18:38.737+05:30Economics with Fewer Equations<div dir="ltr" style="text-align: left;" trbidi="on">
The theme that economics is less like physics and more like
biology is not new. However it is more a fringe view than a mainstream one.
Even now, I would guess that the general expectation of an economic journal in
publishing a paper is what mathematical basis it has and how robust the
Econometrics is. Several recent things have pointed to a better direction.<br />
<div class="MsoListParagraphCxSpFirst" style="text-align: left; text-indent: -0.25in;">
</div>
<ul style="text-align: left;">
<li><span style="text-indent: -0.25in;"><a href="http://www.economist.com/node/16636121" target="_blank">The economist article on agent based models</a></span></li>
<li><a href="http://www.amazon.com/Growing-Artificial-Societies-Science-Adaptive/dp/0262550253" style="text-indent: -0.25in;" target="_blank">The book – growing artificial societies</a></li>
<li><a href="http://www.amazon.com/The-Origin-Wealth-Remaking-Economics/dp/1422121038" style="text-indent: -0.25in;" target="_blank">The book – origin of wealth, especially the early sections</a></li>
<li><a href="http://www.bloomberg.com/news/2013-11-15/actually-economists-can-predict-financial-crises.html" style="text-indent: -0.25in;" target="_blank">One recent article in Bloomberg by a theoretical physicist</a><span style="text-indent: -0.25in;"> </span></li>
</ul>
<!--[if !supportLists]--><br />
<div class="MsoNormal">
The essential argument is same. We can’t draw up pretty
equations to predict people’s behavior. Generally it is argued that these
equations are trying to predict the behavior of only the “model” or average
individual or the behavior of the collective. The implicit assumption in the
usefulness of this approach is that this “average” study is genuinely the
median behavior and the deviation around this median is noisy but controlled. Also
it is assumed that the noise is averaging to zero and has no impact on the
overall behavior of the economy. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It is not very different from saying that a
ball of steel has electrons inside it moving in all directions. However, at no
point is the ball moving anywhere on account of this movement. The diverse
directions of movement of the electrons are random and thus cancel each other
out at the aggregated level. Similarly it is argued implicitly that in
equationalizing economics, individual differences of behavior around the “mean”
are random and they cancel each other out. As it turns out, more often than
not, they do not.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Some systems in economics may indeed be amenable to a linear
model of this sort. However most useful phenomena are non-linear and dynamic
and thus do not readily lend themselves to this approach. Imposing this
approach on those systems then is bound to yield erroneous forecasts. I have elsewhere
argued with the example of the billiards table where the physicist refuses to
predict where each ball would be after the first strike. Physics concerns
itself with questions like conservation of momentum in each interaction and the
inertia and friction and so on. No physicist would try to build a model of the
average ball and then hope that some contained linear variation around it would
be a good way to explain how the strike leads to the evolution of the table.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Conventional economics is routinely trying to do this. I
don’t know how it came to be here. The book 'Origin of Wealth' offers some
explanations. Historically Walras and his contemporaries were quite enamoured
by the success of physics with equations and tried to use the same in their
work. Since then, almost as a historical accident, economics has continued to
progress in that direction. The author of origin of wealth even goes ahead and
calls this a century long detour. Audacious maybe? But most likely quite
accurate description of what has gone on since.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The beer game example in origin of wealth is quite
illuminating. (<a href="http://en.wikipedia.org/wiki/Beer_distribution_game">http://en.wikipedia.org/wiki/Beer_distribution_game</a>)</div>
<div class="MsoNormal">
A simple trigger at the customer demand end causes all sorts
of fluctuations in the supply chain although after the initial reaction, the
variation in customer demand is taken out. It goes to show that in absence of
perfect information and strategic gameplay between transacting parties, the
supply chain can exhibit very dynamic patterns – which are far from
equilibrium. The Growing artificial societies authors call it far from
equilibrium economics.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The opposition to the equationalizing of economics earlier
was countered with TINA. What do you propose, the proponents would ask. Since
the opponents never really had much of a proposal, the conventional equilibrium
economics continued. Now in computational economics, complex adaptive systems
and agent based modeling, there might be a genuine alternative.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This approach can open up new areas of dynamic modeling
which were intractable for analytical solutions. This can also help learn
emergent phenomena which are otherwise blackbox to top down modelers.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>What are the limitations?</u></b></div>
<div class="MsoNormal">
One needs to start somewhere. Where one starts can
significantly impact the answers one gets. Hence the approach is somewhat prone
to curve fitting. Some intellectual discipline and robustness inducing
techniques are required in this case.</div>
<span style="font-size: 11pt; line-height: 115%;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;">The
micro leading to macro is an interesting theme and a long cherished dream of
economists. However, conventionally the two have stayed separate. The agent
based modeling with inclusion of complexity approach can start to make this
reality.</span></span><div>
<span style="font-size: 11pt; line-height: 115%;"><span style="font-family: Helvetica Neue, Arial, Helvetica, sans-serif;"><br /></span></span></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-90149245127846964392013-12-08T10:41:00.000+05:302013-12-08T10:41:06.973+05:30Bitcoins and alternate currencies : some speculation<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
Greenspan seems to say that <a href="http://www.smh.com.au/business/bitcoin-a-bubble-not-a-currency-says-former-fed-chief-alan-greenspan-20131205-2yrs8.html" target="_blank">bitcoins are a bubble</a>. Insofar as he is referring to them being prone to Tulip-Mania like
irrationally high price rise and subsequent price fall, he is probably right.
However, in claiming that they have no ‘basis’ and are hence a bubble is
conceptually incorrect. This is because implicit in such a claim is another –
that the ‘real’ currencies are not like this and have a more solid ‘basis’. In fact,
they don’t. All modern currencies are <a href="http://en.wikipedia.org/wiki/Fiat_money" target="_blank">fiat currencies</a>. They do in fact
have a stronger basis in the central bank, banking system and the home economy.
However, conceptually they are no different than a widely accepted form of
payment.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
That is not to say that bitcoins are on their way to become
an alternate currency anytime soon. However, that does bring forth an important
question. How does something become a currency? Or less ambitiously, how can
something like bitcoins in the modern world become a currency? (The former is
too general a question and is very hard to answer. The latter is easier due to
the particularization afforded by placing it in the current context.)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It boils down to development of a critical mass of
individuals and organizations accepting something as a means of payment. Why
they would do so is of course the next question. That has varied answers. Broadly
though, I can think of the following three.</div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;">1. The (perception of) failure of the currently
accepted currencies in some way – massive inflation worries is one possibility,
difficulty in online payments is probably another, perception of
over-regulation, lack of faith in banking system which backs most of the currency
besides the central bank.</span></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;">2. The opportunity to carry out some project not
feasible in the current context.</span></div>
<div class="MsoNormal" style="text-indent: 0px;">
<span style="text-indent: -0.25in;">3. Speculation over the wider acceptance of the new
currency</span></div>
<div class="MsoNormal">
The first and second motives are based in themselves. The
third is a transient motive. However, the interplay among these has
implications for whether something becomes a bubble and bursts or gets accepted
as a real currency.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The question of critical mass is crucial. Currencies have
tremendous <a href="http://en.wikipedia.org/wiki/Network_effect" target="_blank">network effect</a>. If more and more people start accepting a
currency, that in itself becomes a strong reason for even more to accept. The
reverse also holds. One place where this is being played out even now is the
status of Dollar as the reserve currency and the currency of choice for
international trade, especially in oil. Below the critical mass, the people
trading into the currency for the third motive above will quickly abandon it.
With values falling, those in first two motives will also be forced to stop
dealing in it.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
This is where the institutional framework backing a currency
and the economic interests served by it become crucial. If the currency manages
to do something very useful for a sufficiently large group of people and
organizations, they would try to find a way to make it work. In parallel, if
the institutional framework for a currency is well developed and has a sponsor
in a suitably empowered entity, it can grow.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Probably the most important element of the institutional set
up is that of seigniorage. This is the privilege that comes to the
‘issuer’ of a currency, if there is one. In the gold standard currencies, there
is no ‘issuer’ since everything is backed by equal value of gold. In the fiat
currencies’ case, the central banks and hence their respective governments are
the issuers. (Tangent: <a href="http://mises.org/daily/3823" target="_blank">Rothbard</a> describes brilliantly the evolution of
the federal reserve in the US and the interaction between governments and
central banks and monetization deficit etc.)</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
If the issuers get greedy, inflation ensues and can quickly
become hyperinflation (Germany, Poland, Zimbabwe). I don’t know what the
issuing mechanism for bitcoins is. I am sure something this obvious has already
been dealt with and seigniorage hopefully taken out or made transparent.
However, if and when the stature and acceptance of the currency grows, these
worries might start haunting the users. It is interesting to draw a parallel
with the growth of modern currencies and their convertibility into gold. Till
as late as second world war, there was a constant tension between users and
issuers of the currencies – the users routinely converting their currency
holdings into ‘species’ (a term used for gold and silver) and issuers suspending
‘specie payment’ every now and then. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
For bitcoins, Dollar is the ‘specie’. As
the users of bitcoins try to conduct transactions outside the regular users of
bitcoins, they will need payment in ‘specie’. This is a crucial juncture. If
the non-users of bitcoins keep insisting on payment in ‘specie’, the critical
mass of bitcoin users may not grow much – although the legitimacy afforded by
the notional acceptance of the bitcoins in the outside world is quite
comforting for the present users to stay put. On the other hand if the
non-users start to keep the bitcoins and postpone conversion, that could really
provide a strong boost to the growth of bitcoins. The non-users thus become
users or at least part-time users (they don’t actively transact but store
bitcoins for speculative reasons.)</div>
<div class="MsoNormal">
The case of a <a href="http://www.wired.com/autopia/2013/12/tesla-bitcoin/" target="_blank">car dealership accepting bitcoins for payment</a>
is thus interesting. Equally interesting is the ban imposed by <a href="http://www.bloomberg.com/news/2013-12-05/china-s-pboc-bans-financial-companies-from-bitcoin-transactions.html" target="_blank">China onpayments using bitcoins</a>.</div>
<span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;"><br /></span>
<span style="font-family: "Calibri","sans-serif"; font-size: 11.0pt; line-height: 115%; mso-ansi-language: EN-US; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-fareast; mso-hansi-theme-font: minor-latin;">The
growth of capitalism and government spending in 19<sup>th</sup> century and
early 20<sup>th</sup> century created the basis for the central banking and
modern banking system that we know today – along with the fiat currencies that
they support. The growth of internet in 21<sup>st</sup> century might be able
to support a new form of currency – which is as unlike the current currencies
as these current currencies were to gold back then! </span></div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-73554529756141922642013-10-11T10:58:00.002+05:302013-10-11T10:58:39.090+05:30Origin of Wealth - review of part I<div dir="ltr" style="text-align: left;" trbidi="on">
<div class="MsoNormal">
The title of the book - Origin of Wealth - is misleading. And that is a good
thing. The origin of wealth could easily have been a history of money and
wealth (not different from say ‘Ascent of Money’ – a great book but more
descriptive than imaginative.) Instead it is precisely what the subtitle says –
Evolution, Complexity and the Radical Remaking of Economics.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The book’s introduction talks in great detail about the
failure of traditional economics and the challenges that has posed. The first
chapter covers general question of how is wealth created and quickly moves on
to describe economy as a complex system. The second chapter dwells on the
traditional economics and its emphasis on equilibrium systems. So far nothing
revolutionary and new happens. The fun starts with the third chapter entitled A
Critique – Chaos and Cuban Cars. The similie is quite accurate. The basis of
traditional economics seems as outdated as the Cuban cars. The experience of
the Santa Fe institute dialogue is also very enlightening. It describes how
natural scientists were nearly aghast at the assumption-making and theorizing
of economists. The chapter goes through several “laws” of economics and
describes how they don’t quite hold. It also goes on to describe why economics
might have taken the ‘century long wrong turn’ by tracing the origins of this
ill-fitting approach to Walras’ emphasis on using equilibrium models from
half-baked theories of then available physics. The chapter ends with the
coverage of what the author calls ‘misclassification of the economy’. That is
apt. The Walrasian classification of an economy as a stable and equilibrium
system is a gross oversimplification and fundamentally incorrect. An economy is
a dynamic and non-linear and thus complex. This sets the stage of next section.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Chapter 4 is highly fascinating. It starts to get into the
real complexity modeling. Although it covers a relatively simple model, it is
quite illuminating. The sugarscape described in the chapter is quite an
eye-opener. It talks of how markets, inequality, banking and so on emerge as
properties of the system when modeled like a agent-based-system without
specifying any of these things. Some steps seem like flights of fancy. However,
the general tone is quite serious, believable and most importantly reproducible
to anyone who bothers enough to model the sugarscape. I of course feel special
affinity towards this approach since it gels well with my thinking about using
agent based models and simulations to observe emergent properties rather than
abstract those from intuition and black-box-like observation of the system as a
whole.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Chapter 5 gets more general and still stays quite
interesting. It talks about dynamics. The primary coverage is of static systems
vs nonlinear systems. More importantly the idea of oscillating equillibria is
discussed. Subsequently the chapter goes into the discussion of using nonlinear
systems to explain economic phenomena such as business cycles. He exemplifies
with the widget production case – which is itself quite interesting and hits
home with the very real scenarios. The chapter also describes John Sterman’s
attempt at nonlinear modeling of business cycles across industries.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Chapter 6 focuses on agents. This chapter also describes
deductive learnings vs inductive learning and classifies the computer’s
methodology as deductive and human ones as inductive. That is an interesting
though known distinction. It still is brought home beautifully when the author
notes that while Deep Blue can play chess as well as Gary Kasparov, the latter
can also tie his shoelaces unlike the former. There are some things or skills
which are very easily accessible to inductive learning but are very difficult
for deductive thinking. Pattern recognition is a prime example. Human beings
can reasonably read decently written hand-writing without much error and
difficulty. Computers find it extremely hard to do so and have to go through a
laborious process to get there – and still with errors.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Traditional economics assumes that human beings possess
infinite deductive capacity and do not need inductive learning since they are
already perfect in their decision making. The author then proposes that
complexity economics would take the reverse view and try to model individuals
as agents with inductive machinery and limited deductive powers – but a decent
learning program. The frog example is quite illustrative in this regard.
Subsequently the chapter goes through a more detailed agent based modeling of
stock markets and describes how the simulation at Santa Fe institute led to
indicating a close to real life stock market with the attendant volatility,
booms and busts and so on. It boils down not to random noise but competing
beliefs in the actors’ minds – different hypotheses about what makes money. The
economy by extension can also be modeled using boundedly rational agent with
inductive skills and competing hypotheses about how to achieve their goals.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The subsequent chapters cover emergence and evolution and are equally fascinating. I will cover them in another blog. The second part on evolution of physical and social technologies starts to look lot less exhilirating conceptually - so i might cover it briefly later.</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-52741868312262301692013-05-11T12:18:00.001+05:302013-05-11T12:18:20.955+05:30Evolution of institutions in human society<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal">
Institutions in human society can evolve in two ways.</div>
<div class="MsoNormal">
For one, transactions which start to repeat get recognized
by the relevant actors as conventions. Over time these conventions may give
rise to more rigid institutions. This is emergent variety of the evolution of
institutions.</div>
<div class="MsoNormal">
Secondly, someone with coercive power (generally a state but
in a narrower settings can be corporate head office or military general)
imposes set of rules. These rules are either accepted by the recipients or
rejected. When accepted they become institutionalized. (Even when rejected
there might be a counter-institution that may develop in some cases.) The
question of whether these rules are imposed on account of <a href="http://en.wikipedia.org/wiki/Soft_paternalism" target="_blank">soft paternalism</a> or
vested interests or general lunacy (or idiosyncrasy) is immaterial. The common
thread is that they are imposed from outside. They may be ‘sold’ to the
recipients by their proponents – and if they are, it may be with the true
intent or with a façade or some combination. It is also possible that the
proponents are not all on the same page regarding the intent and that fact itself
drives how the rules are sold.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In either case, once an institution evolves into more rigid
form, it starts to guide/restrict behavior (that is whole purpose of any
institution.) Since it is the transactions arising out of the behavior that
gives rise to institutions in the first place, the evolution of subsequent
institutions is then affected by the combination of transactions and current
institutions. This also includes the modifications in the institutions.</div>
<div class="MsoNormal">
Thus we come to the reflexive relationship between transactions
of actors and the institutions that evolve out of them and guide their
subsequent evolution.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
It can be likened to the interrelationship between water and
the ground shaped by it. The water has some tendencies, which are inherent to
it. The ground has some starting structure. The movement of water then alters
the ground in some ways. The evolved structure of the ground itself starts to
affect subsequent behavior of water (with the same tendencies). The structure
of the ground at any given point of time is hence an outcome of a complex
process of interaction between the ground and the water.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<img height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiJIQeQp2IyPPWK0b123OkGPq03ozV7e0kXdjbaVgMdX9qpPK_IUT9fqu9Od0ti4vgG49aTHak6Zm8yGWqpS91C89hD2QlSom1nGXIaV09MQCscesKO6FYTG977BONUKtYBK147/s400/emergent-gestures-3-sat.jpg" width="400" /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
In general self-emergent institutions tend to be solving
some felt need. The imposed institutions may not necessarily do so. The
ideological variety on paper at least aspires to address some need. The vested
interests driven one will typically find a façade of a need to address.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
How real the need is and how long it lasts will have an
important bearing on the success or failure of the institution. However, the
strength of the sponsor of the institution also has an equally important
bearing on the success. It is entirely possible that a very naturally emergent
institution was so strongly opposed by a powerful opponent that it failed to
evolve. Its time having gone and it being replaced by something else, it may
never evolve again. (some standards in the internet space are an example). On
the other hand, it is possible that some institution exists primarily because
its sponsor was so powerful and purposeful. (the continued presence of
autocratic governments in middle east are an example). Most of the cases will
of course be of an intermediate variety. Here the success of an institution
will be a combination of inherent coherence of the institution with its
context, its appeal to the audience and the strength of its sponsor.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b><u>Path of evolution<o:p></o:p></u></b></div>
<div class="MsoNormal">
The other noteworthy aspect of this phenomenon is that the
path of evolution of the institutions is not unique. Since the stimuli from
transactions are partially stable and partially random, it is hard to imagine
that the institutional evolution is unique and will flow from the starting
point of the society and the tendencies of people.</div>
<div class="MsoNormal">
<b><u><br /></u></b></div>
<div class="MsoNormal">
<b><u>Who builds them
then?</u></b></div>
<div class="MsoNormal">
Also noteworthy is the inference that the institution
building is open to vested interests, soft paternalists/ideologues and the
society itself. At all times some combination of these are trying to build
institutions to their ends. The vested interests have selfish ends, the
ideologues/soft paternalists have ideological ends and the society itself has
no stated and coordinated goals (its behavior as a collective is <a href="http://en.wikipedia.org/wiki/Emergence" target="_blank">emergent</a>).</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Who succeeds at what times is not a foregone conclusion. In
fact these forces may be allying with each other as also opposing each other
from time to time.</div>
<div class="MsoNormal">
E.g. the "<a href="http://nudges.org/" target="_blank">Nudge</a>" theorists are trying to work against the
natural dispositions of people which are supposed to be in their bad interest.
Sometimes vested interests may have a common agenda in exploiting these natural
dispositions (case in point is fatty food). So we have the ideologues vs vested
interests plus society. At other times, some other combination may be at
loggerheads. Sometimes it might boil down to just two out of these three
participants.</div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-88453363231010236902013-05-05T20:49:00.001+05:302013-05-05T20:50:20.751+05:30The idea of emergent phenomena and downward causation<div dir="ltr" style="text-align: left;" trbidi="on">
<br />
<div class="MsoNormal">
Recently I came across some things written on emergent
phenomena. While I was searching for “<a href="http://en.wikipedia.org/wiki/Emergence" target="_blank">emergence</a>” as a theme and thus was not
enlightened about emergence itself, I did come across something interesting in the
same domain. This is called <a href="http://www.informationphilosopher.com/knowledge/downward_causation.html" target="_blank">downward causation</a>.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Downward causation is when the higher order phenomenon exerts
influence on its constituents. This effect, if it can be inferred from the structure
of the system is called weak downward causation and if not, strong downward
causation. The weak downward causation is relatively simple idea – the parts
make the whole and the whole in turn affects the parts; and that the effects of
whole on parts are integral to the coming together of parts. The strong
downward causation is a much more powerful idea – since in this case the parts do
make the whole but it starts to influence parts in ways not foreseeable from
the parts alone. A set of new phenomena hence emerges at the level of the
whole.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Let us work with an example. If a lot of people walking on a
rope bridge decide for some reason to move towards its one side, the rope
bridge will tilt to that side and could potentially trip. The whole in this
case is influenced by its parts and influences the parts in turn. The fact that
the rope bridge turns over is neither unpredictable nor surprising. On the
other hand, in equity markets, the stocks constituting an index start to move
in a similar direction, they make the index move in that direction. Now some
market participants start to get influenced by the overall movement of the
index in one direction and that guides their actions regarding the constituents
of the index. In this case, the parts move the whole, the whole starts to
influence the parts in unpredictable ways.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Another example is the economy. Let us specifically refer to
what is called the <a href="http://en.wikipedia.org/wiki/Paradox_of_thrift" target="_blank">paradox of thrift</a>. While individually saving is considered a
virtue, if everyone starts to save more in an economy, the total and per capita
income is bound to fall. In a mathematical identity sense, this is weak form of
downward causation since the behavior of the system can be predicted from the
parts and their interconnections. Where it may start to become strong form
downward causation is if the very act of falling incomes prompts people to save
even more thus creating a vicious circle of greater savings and lesser incomes.</div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
The presence of downward causation raises a fundamental epistemological
question as regard our methods of enquiry in sciences hard and soft. The
<a href="http://en.wikipedia.org/wiki/Reductionism" target="_blank">reductionist </a>and analytical approach is likely to hit its bounds when dealing
with real life due to presence of emergence and downward causation. Stated
simply, knowing how electrons and molecules behave will still not tell us how systems
like whether evolve and knowing how individuals react to economic incentives
will not tell us how the economy will evolve. Granted that the study of parts
is a crucial first step in most enquiries. The almost exclusive focus on
reductionist methods is quite a limiting feature of our knowledge building
endeavour though. In general the reductionist conclusions are aggregated
clumsily into larger wholes (as in economics) or left to statistical techniques
(e.g. thermodynamics and gas theory) or simply left alone (particle physics vs
real objects).</div>
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<br /></div>
<div class="MsoNormal">
<a href="http://en.wikipedia.org/wiki/Fritjof_Capra" target="_blank">Fritjof Capra</a> draws attention to this in his emphasis on
<a href="http://en.wikipedia.org/wiki/The_Turning_Point_(book)" target="_blank">synthetic thinking</a> besides analytical thinking in the pursuit of knowledge. As
we grapple with the complexities of real life and real system, and armed with
the computational power unheard of just 20 years ago, I suppose we can start to
build models of emergent phenomena and downward causation.</div>
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<br /></div>
</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-50942356829265249232013-03-03T20:33:00.003+05:302013-03-03T20:34:17.635+05:30Random symmetry breaking and its continuation through human beings<div dir="ltr" style="text-align: left;" trbidi="on">
In the book <a href="http://books.google.co.in/books?id=ET5BggPsN5kC&source=gbs_similarbooks" target="_blank">The Theories of Everything</a>, John D Barrow describes a profound concept. It is called <a href="http://en.wikipedia.org/wiki/Symmetry_breaking" target="_blank">random symmetry breaking</a>. It is quite a mouthful. The essence is simple though.<br />
<br />
We believe (for good reason and with sufficient empirical comfort) that there are laws of nature. However, these laws are more like constraints rather than specific directions regarding the evolution of the universe - on any scale. To take an example, when the glass bowl falls on the floor, it breaks and its pieces fly in all sorts of directions. The law of gravitation (actually the curved space-time geometry because of earth's mass, in an Einsteinian universe, but for the example, law of gravity will be fine) will dictate that the bowl when unsupported should fall to the ground. Some complex laws of material physics will govern how much of impact can the material (glass in this case) handle and what happens when the impact exceeds that limit. Hence with sufficient comfort we can be sure that the bowl will break. The laws of nature as we know them will tell us as much. They won't however tell us how many pieces the bowl will break into and where they would fly and land.<br />
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We are not sure but quite certain that the laws governing these are not only unknown to us, but they don't exist. Stated simply, how the bowl break and where the pieces fly to are not governed by laws. What is it governed by then. That is where random symmetry breaking comes into picture. It tells us that some phenomena are random - purely so. They are not governed by laws. Other examples include which way the additional grain on a pile of sand goes, where the ball in the roulette settles and so on.<br />
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<br />
If you pause for a while and take a look around, you will realize that when it comes to real life, more is explained by random symmetry breaking or plain random occurrences than by laws of nature. The randomness drives the path of evolution of the universe lot more than laws. The laws can be likened to the guardians (a la Jedi in star wars) who watch out for the general structure of the universe. The specifics are left to the population. Random events and causes are the population while laws are these guardians. The laws are all powerful, but they do not determine singlehandedly how the universe evolves.<br />
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Nowhere is the phenomenon of randomness as useful as it is in biological evolution. The very basis of evolution is <a href="http://evolution.berkeley.edu/evosite/evo101/IIIMechanisms.shtml" target="_blank">random exchange of genes</a> among the mating members of a species - thus creating a population with a wide variety of attributes. Some of these are useful for survival and those individuals live to see another day and procreate. Thus the useful attributes percolate down the generations and harmful ones get eliminated. There is no design. Simply a lot of randomness thrown at the big bad world which then reacts to the species and kills all but the best. Over a period of time, majority of the species is "best" - so much so that some members of a relatively more evolved species (but with still a limited imagination) have to invent the concept of an omnipotent deity to deal with the elegance of the outcome!! (for those who did not get the sarcasm, i am referring to <a href="http://www.acsu.buffalo.edu/~jbeebe2/design.htm" target="_blank">human beings, inventing god</a>)<br />
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Outside evolution also, random symmetry breaking continues to shape the evolution of physical world. This post is about its effects in the mental world of humans and its evolution. I have come to believe that the way we form beliefs and ideas is quite prone to randomness. Very many different stimuli constantly vie with each other to grab our attention. We like some and dislike others. However, an even more important thing is that we are exposed to some and not others. Thus the subset we like is already a subset of what we are exposed to. While we may choose to like or dislike something, it is generally hard to control what we are exposed to and what we are not. (Trust me, it is hard... and nature be my witness, i have tried!). What we are then is a product of a fairly random factors affecting our mental make-up, attitudes and thoughts.<br />
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It goes further.<br />
<br />
I was reading up on habit formation. The sense i got through the limited understanding i could build in a short time is that we are essentially <a href="http://en.wikipedia.org/wiki/Dopamine" target="_blank">dopamine </a>addicts - not very different from lab rats. The way we form habits is quite similar to how rats do it. That is not so bad. Habit formation is about efficient use of mental resources to automate some activity. However, when i studied the <a href="http://people.duke.edu/~hy43/role%20of%20basal.pdf" target="_blank">neurology of habit formation</a>, i came across the mechanisms of some neural pathways becoming more active through constantly higher potential than the rest - thus causing them to fire quickly and release the reward in the brain (i.e. dopamine). We are in a way slaves to our neural pathways. Maybe not quite slaves. We are probably more like subjects of a king namely the structure of our neurons. We can affect how that structure evolves but we cannot change it overnight. We are governed by it whether we like it or not.<br />
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How do these pathways get formed? Some are through willful actions of the individuals. Many others are simply responses to stimuli - and we are thus back at random symmetry breaking. The random stimuli that we are routinely exposed to make us react. These reactions affect the neural structure without our active control - albeit to a small degree. But all these small effects add up and soon we are evolving in two parallel tracks - one through our willful actions and one through random stimuli.<br />
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It is not always for the worse though. Random stimuli and our evolution in reaction to them is often more useful than willful action. But that still leaves the discomfort as regards free will. We do not even evolve with our only free will. In fact, what we consider our free will is itself a combination of some 'genuine' free will and some imposition from the neural circuitry of our (specific and respective) brains.<br />
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To that extent, we are part of the vast continuation of random symmetry breaking that is going on in the universe. We interfere with it on and off but the general direction is still governed by the flow of RSB!</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-87523970927670617192013-01-19T16:25:00.002+05:302013-01-19T16:36:48.772+05:30The Redundancy of Issuance of Government Debt<div dir="ltr" style="text-align: left;" trbidi="on">
Governments have been issuing debt since the <a href="http://en.wikipedia.org/wiki/Government_bond" target="_blank">1693 issue</a> of government bonds by Bank of England to fund England's war against the French. In the times when governments did not have seigniorage it made sense to borrow. After all the government was like any other entity such as firms or trusts. In the era of fiat money though, government debt issuance is redundant.<br />
Here's why. The money that we take for granted in the day to day operations of the economy is not unicolored. There is so-called high powered money (HPM) and there is credit money. The most familiar form of HPM is cash (with Gandhiji on it!). However, there are other forms of HPM - probably more relevant in the modern economy. These are governments account balances with commercial banks and commercial banks' deposits with the central bank (RBI in case of India). Basically, all of government's transactions - capital or P&L - are settled in HPM of some form or other.<br />
Credit money on the other hand is the money stock created by banks on the basis of their lending activities. Banks are constrained in their lending by the capital adequacy ratio. To the extent that they do lend though, they in effect create credit money. This money is used by all of us for transactions. Unless we cash out our deposits, most of our economic activities remain in the domain of credit money. Banks settle transactions amongst themselves using HPM and through the settlement mechanism offered by the central bank. However, insofar as the transactions are between two accounts of the same bank, there is no settlement and both account-holders are dealing in purely credit money of that bank.<br />
When we pay taxes or buy government securities in the primary market or undertake any activity that requires us to pay some money to the government, the bank where we hold an account settles the transaction using HPM. In the mirror image, when the government pays for goods and services to private entities, the banks where the recipients hold accounts get HPM. In general the government receives as well as pays money around the year and the HPM balances with banks keep moving up and down within a band.<br />
However, in most modern economies, banks are allowed to borrow HPM from the central bank - in India this is the repo mechanism. Banks borrow HPM by keeping government securities as a collateral. They are also allowed to keep money with central bank. In India this is called reverse repo when banks keep money with RBI. This is allowed to smoothen the HPM flows within the economy as government buys and taxes, borrows and repays and banks also settle accounts amongst themselves besides with government.<br />
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Now back to issuance of government debt. Think about what happens when government issues fresh debt. Let us assume for now that banks have no net borrowing from the central bank and all the HPM they have is already being used. With the issuance of debt monies have to be paid by private individuals buying the bonds to the government. They write cheques from their bank accounts. These banks as mentioned above have to settle this transaction with the government in HPM. In this case they have no spare HPM. Hence they will go and borrow it from the central bank at the repo rate. The central bank then credits the accounts of these banks with it with HPM. This HPM is then given to the government - through the government's account with the central bank. The government could have avoided the entire process and simply credited the accounts of individuals it wanted to pay (without "borrowing" elsewhere, thus creating new money). That amounts to "money-printing". This money is created out of thin air. However, one would notice that the HPM required to settle the government borrowing is also coming out of thin air - through banks borrowing afresh from central bank. M1 (same as HPM) has grown by the same amount in both cases. The issuance of debt has merely added additional tradable financial securities in the economy.<br />
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Since banks pay interest as per the repo rate to the central bank, the interest payment from government is mostly sent back to it through the interest payment on repo borrowing by banks. The process just ends up creating more transactions in a circle.<br />
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Would the permit to print money not let lose the scourge of hyperinflation? This is where the behavioral implications might seem to suggest some relevance for issuance of debt after all. When the government is printing money, it can start to abuse its powers (a la <a href="http://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_Republic" target="_blank">Second Wiemar republic</a>). When the government is borrowing, the fact that this creates a longer lasting liability might deter it from doing so indefinitely. There could also be legislation about debt ceiling like one in US. The reality of course is that the liability created by the government is matched by the asset in the form of lending by central bank to commercial banks for HPM of the same amount - thus leading to no new net liability.<br />
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Money printing and debt issuance by government are effectively the same. There was a difference in the times of gold-backed currencies. HPM could not be borrowed indefinitely and the government's borrowing came out of a finite pot of savings stock limited ultimately by the amount of gold in the central bank lockers. In that context, money printing was anyway not on - beyond what was backed by real gold. In case of fiat currencies, government borrowing is same as printing money.<br />
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It would seem that the concepts of debt-issuance, money multiplier, money supply, crowding out are built on the foundation of a pre-1971 monetary system which no longer exists. The fiat money based monetary system of today's requires a completely new approach.</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-87527629419052230682012-10-26T09:58:00.001+05:302012-10-26T09:58:29.107+05:30Economic inequality<div dir="ltr" style="text-align: left;" trbidi="on">
I have long thought about the causes, nature and effects of economic inequality amongst people. It includes inequality of income, wealth and opportunity. My first essay on this matter was written in September 2005 (<a href="https://dl.dropbox.com/u/44881936/income%20distribution.pdf" target="_blank">available here</a>). It attempted to forecast two long term paths of evolution possible as regards inequality. One was the utopian path where inequality dwindles with increasing average level of prosperity – due to reducing population, increasing stock of capital and increasing productivity. The other was dystopian path where inequality is forced down by uprising amongst the have-nots, but the overall prosperity on the decline. I had then taken no stand regarding which one was more likely.<br />
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The topic was brought forward in my thinking by what was probably an interesting set of co-incidences. Firstly, I recently came across and bought two books on inequality namely "<a href="http://books.google.co.in/books?id=6rocDTE5dksC&dq=price+of+inequality&hl=en&sa=X&ei=qhCKULytGOfvmAXcm4G4Ag&ved=0CC8Q6AEwAA" target="_blank">Price of Inequality</a>" by Joseph Stiglitz and "<a href="http://books.google.co.in/books/about/The_winner_take_all_society.html?id=QcSqqFzzlz4C" target="_blank">The Winner Take All Society</a>" by Robert H. Frank, Philip J. Cook. One talks of the general increase in inequality in US in particular and its likely ill-effects on the American society. The second talks of the institutions which have evolved in the modern society – mostly informal, some formal – that make for a winner-take-all situation across most major walks of economic life.<br />
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Secondly, I happened to start reading "<a href="http://books.google.co.in/books?id=xpw-96rynOcC&printsec=frontcover&dq=general+theory+keynes&hl=en&sa=X&ei=xhCKUKOpK8vCmQWk4oCAAQ&ved=0CC8Q6AEwAA" target="_blank">The General Theory of Employment, Interest and Money</a>" by John Maynard Keynes, around the same time. I am still on the first few chapters. It is clear from this part already that Keynes was fairly unorthodox in his approach and wrote the book primarily to question the classical economic theory assumptions, and proposing an alternative. Part of the theory relates to the full employment ideology of classical economics and its theoretical limitations which make it so unlikely to observe in real life anywhere.<br />
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Thirdly, the latest issue of The Economist (<a href="http://www.economist.com/node/21564556" target="_blank">link here</a> and <a href="http://www.economist.com/node/21564410" target="_blank">here</a>), speaks of a progressive politico-economic system that attempts to reduce inequality without hurting economic growth. It echoes part of Stiglitz’s ideas including the claim that inequality now has reached a level that threatens prosperity of many (if not all, eventually) and is clearly sub-optimal. This is different from the typical neo-classical position that some amount of inequality is inevitable and probably even desirable to allow for genuine difference amongst individuals as regard their endowments, skills, risk appetite and some would say even luck. The desirability of inequality comes from its effect on entrepreneurial individuals who in the pursuit of individual riches end up enriching the society as well – through inventions, better run organizations, innovations, new products and so on. Some have now started wondering if the current level of inequality is well past the basic minimum required to get all these benefits.<br />
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My thoughts in this matter are driven by two independent starting points/positions. For one, I believe that the extent of opportunity, behavior of entrepreneurs, nature of institutions and intervention from government are not uniform across time and space to make any material statement about inequality which is general and universally applicable in nature. Coming to the specific question of current times, in advanced economies and in emerging economies, and especially in India, can we say that inequality is too high and is likely to start affecting collective well-being?<br />
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The west has it worse. The opportunities have gone down, corporations have started to become predatory, profit pursuit has pushed low end jobs out of the economies and service sector is reeling under real estate bubble burst and financial services crash. In the interim the capitalist institutions have made it difficult for all but the most innovative and lucky entrant to make it big (a Google here, a Facebook there but nothing else). The shortage of opportunities means that everyone is now looking to grab share from others rather than try to create new “pies”. The governments across the rich world are divided over their response. The left leaning ones (current US, France, Scandinavia) are using Keynesian fiscal intervention to boost falling incomes thus hoping inequality does not become worse. The right leaning ones (Romney’s US) are likely to go for lower fiscal spend and smaller government intervention. Beyond that though, as Stiglitz painstakingly details, rent-seeking on part of the established corporations is not always necessarily through explicit government largesse. A variety of other mechanisms persist. Depending on the relative strengths of the transparency-seekers (mostly NGOs and some individuals and rare politicians) on one hand and the rent-seekers (mostly large corporations in some industries) on the other this may play out to favor few or the many.<br />
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The emerging markets are not that badly placed. Growth has slowed down but not enough to warrant a grabbing of each other’s pie yet. There is a different problem that is starting to plague emerging markets though. The emergence of rentiers – connected with and benefitting from the government policies – is causing at worst loss of welfare and at best serious distraction from pursuit of prosperity by the general public and the well meaning companies.<br />
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The economic future of the emerging markets hence is likely to be strongly influenced by how the rentiers are handled. If they were to have a free reign, inequality will increase and to make matters far worse, people’s prosperity will not! The political and economic institutions in the emerging world hence have the nuanced task ahead of them – to leave the economic participants alone to pursue growth and prosperity while guarding against the most unscrupulous of the lot that is trying to grab economic rents (wealth without adding value).<br />
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The second starting point of my position is the relevance of wealth for individual well-being. Our global social evolution in last few years is towards the milieu of supremacy of money and wealth as the ultimate and overarching drivers of well being. This trend has been more pronounced in Anglo-Saxon world (US, UK), BRICs and Middle East while considerably attenuated in Western Europe and probably Japan. In general though, we have started implicitly or explicitly agreeing with the money income and consumption being the most important drivers of individual well-being.<br />
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This trend has meant a vigorous pursuit of higher incomes and consumption at the cost of much else. While the liberal position on this matter is to leave people alone to decide their preferences, the real life society knows that it influences the thinking and value system of its constituent individuals. Hence while everyone is free to believe what she thinks is right, she has to start some place in deciding this – and that’s where the social set up she finds herself in exerts the most powerful and yet most subtle effect. In the context of individual pursuits hence most individuals in the modern world are under a fair bit of pressure to earn more and spend more. There are more opportunities to earn and there are more avenues to spend. <br />
<br />
The less heeded part of the equation though is that the link between consumption and well being is not linear. At low levels of consumption, more is definitely better. At higher levels, more is neither necessarily better nor worse. The rich are not miserable at all, but they are not happier as a rule. An empirical graph I came across in this connection showed a very low variation amongst individuals at the lower end of this consumption-wellbeing curve. This means at low levels of consumption, as income and consumption grows, most people become better off. Hence one can be confident of a trend. At high level of income and consumption the variation balloons. Now there is no trend. Some individuals get much better off with more income while others are unaffected and many become worse off. <br />
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If we took away the emotionally charged titles of the x and y axis and showed the scatterplot to any student of statistics or econometrics, she would tell us that these variables are not correlated – there is no statistically significant relationship between them. Hence it is most likely that at these levels of income people are better off or worse off because of entirely other factors – health, fame, meaning etc.<br />
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What does that have to do with inequality? Well, the optimizing optimist in me thinks that the informal institution of unlimited wealth pursuit that we as a society have established is in complete contrast to what our nature allows us and offers us in terms of well-being. Inequality, from the standpoint of a grand population level optimization, is irrelevant when it is relatively small but is terribly sub-optimal when it is large. It gets worse because of the constant reinforcing feedback it provides to the sub-optimal institution of unlimited wealth. Solutions? That is a long path! (The Economist’s special report on true progressivism might be good starting point, though)</div>
Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-77303293404950271922012-08-27T12:05:00.000+05:302012-08-27T12:05:53.278+05:30Quantum mechanics and a revision of epistemological belief<div dir="ltr" style="text-align: left;" trbidi="on">
I have signed up for a course on Quantum mechanics and quantum computation at coursera.com – a very interesting site for a wealth of short courses from 18 of the world’s best universities. As I went through the course, I came across a very intriguing characteristic of quantum mechanics namely the nearly untrue mathematical abstractness of it all.<br />
<br />
<br />
To be fair, the greatest minds in quantum mechanics had always maintained that there is nothing intuitive about quantum mechanics. Consider this quote of Niels Bohr for example,<br />
<br />
<em>“If anybody says he can think about quantum physics without getting giddy, that only shows he has not understood the first thing about them.”</em><br />
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As I went through some of the basic principles, I realized how true this was. Coming to the more direct impact on my thinking though, I have been forced to revise my near-religious faith in the “trueness” of the theories of physics. From a rational point of view I have always believed (after the first year at IITB, post the course in introduction to philosophy) that no knowledge is certain, no theory is “right” (but many are wrong!) and there is no finality to any of our understanding of the world. Everything is tentative and subject to refinement – not only in calculation and observation but also in the very model of reality we have constructed on the basis of it.<br />
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However, emotionally I was always a believer in our current model of the universe – however incomplete it might be. The belief was that it was in the generally correct line – and needed refinement. As I think more objectively, it is qualitatively no better than the worldview few centuries ago (and I might even go a step further and say many thousands of years ago as well).<br />
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Why is that? Well, for one, quantum mechanics is a reaction to the various paradoxes observed at the atomic level (e.g. the wave-particle duality of photons). It does not seem to answer why nature is organized a certain way, it only aspires to describe its working in a manner consistent with observation. That in itself is an ambitious goal no doubt. The abstractions required to achieve “explanability” in quantum mechanics sometimes robs one of any intuitive feel for it.<br />
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That is an absurd criterion for something being right, I understand. Intuition is a faculty evolved in human beings for purposes entirely different from understanding the nature of reality. Hence intuition does fail very often while considering phenomenon far removed from day to day life in terms of size, complexity and duration. That does not make these phenomena non-existent or inexplicable. The description of such phenomena will hence remain a story legible to our rational minds but not to our intuition.<br />
<br />
So far so good! But that also means I have no way of knowing if the theory is any closer to truth than the earlier one. It fits experimental observations better – but that is a very indirect and circumstantial evidence. One may point out that that is pretty much all on offer in the current organization of our present universe. However, that is tantamount to saying – this is life, live with it. It does not make the theories more accurate. Hence the abovementioned revision in my faith in physics.<br />
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What is the revised thought then? It goes as follows. Physics and allied sciences are human endeavours to understand the way nature works. They are supported by human faculties of analysis and imagination as also apparatus for making measurements to an appropriately desired level of accuracy. The models of reality produced by these endeavours are working prototypes of the way we see the world. Like any other models the following basic truth applies to them – “all models are wrong; some are useful!”</div>
Unknownnoreply@blogger.com2tag:blogger.com,1999:blog-17720259.post-11498918998517711432012-06-18T22:33:00.001+05:302012-06-18T22:33:58.937+05:30Macroeconomic thoughts on the prosperity<div dir="ltr" style="text-align: left;" trbidi="on">
A very interesting mix of intellectual and contextual inputs marked recent weeks for me. I have been reading the "Introduction to Post-Keynesian Economics" by Lavoi while also ruminating about the nature of money in general. In parallel I chanced upon a copy of the Communist Manifesto that I had bought some time ago. Last but not the least, I had a short vacation in South Africa last week - which prompted me to think about the issue of macro-level prosperity yet again.<br />
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Conclusions first. Firstly, the macro prosperity of a given society is a very strong function of the amount of work people are willing to do and their ingenuity. The first decides the total amount of person-hours available to the society while the latter influences how well these hours are utilized.<br />
Secondly, the distribution of wealth and income amongst the members of the society is driven by the institutions evolved within the society. Institutions here is used in a much wider sense of organizations of all sorts as well as established conventions and social habits. Private property, rule of law, rational system of justice, centralization of use of force to the state, international trade relations driven by nations etc are all examples of institutions.<br />
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Now to the details.<br />
What makes a group of people more or less prosperous? Let us first define prosperity. Without attempting to be exhaustive and accurate, I would describe (rather than define) prosperity as the state of availability of almost all basic necessities of life (list subjective) and ample access to the opportunity to get the incremental luxuries (list subjective). US and Scandanavia are definitely prosperous, India is not and South Africa has islands of prosperity in it.<br />
Now that we have described prosperity, let us conduct a thought experiment on a group of say 10 people in a decentish farm land. To start with let us say that they all work at the farm and produce enough to eat for everyone. If they work little harder, they will have more to eat and vice-versa. This amounts to the first half of the first of our conclusions above. In general more work the society does, the more it has to consume.<br />
Now to the trickier developments. Let us say someone discovered the wheel barrow (who discovered it specifically is irrelevant now, but highly important in the later part below on distribution of wealth). Now 5 people are enough to produce more than enough for everyone to eat. Let us say these 5 already produce more than the 10 did earlier.<br />
It is logical then to hope that either all 10 will work half of what they did earlier or 5 will start to work on something else. Mathematically these are idential possibilities. However, behaviorally it is unlikely that all 10 will work proportionately less. Even if they do, they will tend to use their spare time as if 5 were upto something else.<br />
The big question is - what do these 5 do? That brings us to the second half of the first half of our conclusions. If the society is dumb (smaller brains, malnourished people, lack of proper communication or any other hindrance to being smart), they will be effectively forced to idle. What happens here then goes already into the second conclusion of distribution of wealth. Let us park it for now and return to what non-dumb societies do. Mostly the spare 5 people will engage in creating some goods or services which would improve the society's consumption - and thus welfare and prosperity (calm down environmentalists and rural utopianists - i know consumption is not welfare and all that, i am barely refering to this very primitive group of farming 10 people only).<br />
They could weave better clothes, improve farming further, write poetry or study the movement of stars for season predictions. Either way, if they do something that adds value to the society as whole, they will end up improving general standard of living.<br />
They could idle out of choice as well. Which together with the fate of the dumb society, brings us to the question of distribution of wealth.<br />
In the all-10-farming mode, let us say they were sharing their produce generally equally - not entirely independent of the expectation that they were also probably producing similar amounts anyway. Now if the discoverer of the wheel barrow decided to keep the invention private and use it to make extra produce for herself, the economy of this small society would evolve differently. This discoverer would then start to "save" some produce - to the extent feasible. Eventually she would be able to "hire" the services of some others to farm for her using the wheelbarrow. At this stage, the smart society will still do well since its individual will then quickly move to doing something else useful. There is a catch though. What is useful will start to get influenced by the now richer members of the society. That is still not too bad if the not so rich still get to use some of the new goods and services.<br />
The dumb society is not so lucky. If the spare personhours are not spent on anything "useful" in any way, very soon, the discoverer of the wheelbarrow will start to use her produce to buy everyone's time to her bidding. In effect thus, she and her employees are now producing everything that the society needs in terms of food. As stated above, the wheelbarrow allows 5 alone to produce all that the society as a whole demands. The balance 5 (either actual 5 people or half of everyone's time) now are "unemployed" in the conventional sense. The income has shifted in favor of the discoverer and there is sustained unemployment in this society. This by the way, will be the new equillibrium - with the macro output of the society same as earlier but distribution much different from earlier.<br />
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This taken to the logical conclusion points to the painful reason for more complex modern economies to remain in low prosperity levels for long periods of time. This is the reason of institutional constraints. These constraints thus effectively make a society dumb - while the individuals are quite smart in isolation, the collective is dumb because the way they organize themselves has structural limitations. A low prosperity society thus is essentially a suboptimally organized group of people in terms of its economic institutions. Agreed that it can be dumb as well and may have cultural reasons to be low on hard-work as well as ingenuity. But taken at the level of modern nation states, the statistics alone of the typical distribution of human attributes of intelligence and creativity would dictate that each modern country would have a fair number of smart people and would thus be adequately endowed.<br />
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Where to from here?<br />
Well, the biggest task of a modern state on the front of pursuit of economic prosperity for its people is to simply build and promote a set of institutions that make the economic organization optimal - weeding out the obstacles and outdated institutions being a part of this task.<br />
In English that would translate into the following<br />
1. Relevant skill building through education (not arts, science, commerce but vocational and actual application oriented skills - while keeping arts for the genuine scholars of languages and social studies - not entirely different from what the recent movie "Faltu" propounded)<br />
2. Promoting creation of new goods and services (increasing productivity in agriculture and manufacturing would keep reducing the labor intensity of these industries and its important to keep using the spare personhours to keep exploring something new that people can buy)<br />
3. Democratizing access to credit while maintaining acceptable governance standards - microcredit and mSME credit is a good start but profit seeking in these by banks and credit providers might suck out most of the value generated by them into returns on capital rather than on labor.<br />
4. Keynsian state - using spare capacities everywhere (and especially through slower times of business and agri cycles) to create public goods - to which there is no end. One can start with the essentials like roads and ports and slowly move to creating stadia, large hadron colliders (and even pyramids for crying out loud, if everything else seems to be in place).<br />
(This state will create money supply in the process but in the post-Keynsian thought, that is almost immaterial. More on that later.)<br />
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The above translation into English of the first para of "Where to from here?" is highly India-centric. Greece could revive its economy using some other interpretation of this first para and US and Japan could interpret it in their own ways.<br />
For exmple, in Greece, the people indeed seem to be working far less than what the national income seems to suggest and that is funded by loans. The sub-optimality of economic organization there is that the prosperity is based on access to cheap loans and that needs correction.<br />
For US, the over-reliance on real estate and financial services activities was the sub-optimality and correcting that would mean getting people to start being skilled in some other things and starting to produce those - how about cars, defence equipment or some version of modern-day pyramids (say a much bigger international space station) - considering the low cost of borrowing for the American state.</div>Unknownnoreply@blogger.com4tag:blogger.com,1999:blog-17720259.post-54139883648406837282012-05-13T20:24:00.001+05:302012-05-13T20:24:19.761+05:30Eurozone - the real issue of half baked integration<div dir="ltr" style="text-align: left;" trbidi="on">
As the Greeks contemplate exiting the Euro and the Spanish continue to suffer from not only increased unemployment but also the constant spectre of loss of access to bond markets, one tends to forget some obvious macro features of Eurozone that make it financially no worse than US. And yet, bond investors are piling on US government debt at negative real yields (with murmers of the government looking for ideas to introduce negative nominal yields too!) and shunning most of the Eurozone debt.<br />
They are not wrong!<br />
For one, Greece did default and did it with quite a large margin (nearly half of the face value of the bonds) and nobody "rescued" the bond buyers (other than of course the european banks - which got doles from ECB). Secondly, there is a fundamental problem with Eurozone economies which differentiates them from US.<br />
This is the problem of half-baked integration of the economies. The Euro area is a common currency zone but there is no fiscal integration of the sort seen in a single country. If currency is same but bonds are different for a group of countries, it is likely to produce some difficulties which will not exist for a single currency country. <br />
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The obvious remedy to any massive unemployment is not available to Spain or Greece - or for that matter to Germany either. This is the remedy of very loose fiscal policy for a controlled period of time. It needs to be accompanied by domestic banks buying large amounts of government debt and a parallel incentive for everyone to spend rather than save - at least through the crisis. Counter-intuitive as it may sound, this obviously props up aggregate demand and keeps the government funding domestic - thereby reducing dependence on global bond markets. (One reason that i maintain that India's rating by S&P and Moody's etc is utterly useless is that Indian government has no foreign debt to speak of and almost all of its debt is domestically funded, ditto for Japan.)<br />
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Eurozone countries' fiscal independence is a mirage though. As shown by North Europe's insistence on the "fiscal compact", any help from north is contingent on austerity - exactly at the time when it hurts the most.<br />
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How is US different? For one, it has a single federal government that runs most of its budgets and deficits thus issuing bonds. Also unlike individual Eurozone countries, most of its debt is also funded domestically - and the part that is not i.e. Chinese and other East Asian reserves invested in US GSecs is held for safety and not returns. Lastly, US being a single country can follow the policy of fiscal loosening to prop up demand - without say Nevada or California claiming that they are getting a raw deal in the process (which as a matter of fact some states might be getting - but nobody knows or analyses that). In Europe fiscall quasi independent governements do not want to "fund" some other country's "profligacy" and thus want to control fiscal loosening.<br />
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The crux of the matter is - how much will Germany succeed in fiscal austerity imposition before pushing through the fiscal integration. The balance - through inflation and currency depreciation - would be the effective funding the north europeans would have done for the south europeans.</div>Unknownnoreply@blogger.com0tag:blogger.com,1999:blog-17720259.post-32664356739881149922012-03-11T23:45:00.000+05:302012-03-11T23:45:24.649+05:30US Treasuries - the new cash!<div dir="ltr" style="text-align: left;" trbidi="on">The economist in a <a href="http://www.economist.com/node/21549919" target="_blank">recent article</a> has described the increasing use of US treasuries as cash by many investors. I have been thinking about the nature of money and wealth in general and have increasingly come to believe that this is not an oddity.<br />
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Some context first: I have argued in <a href="http://www.swapnilpawar.com/2007/04/capital-and-imminent-oversupply-of-it.html" target="_blank">my earlier post,</a> that the stock of global financial capital will keep growing at a very large pace. It is obvious to anyone that observes the workings of modern economies that a part of the cumulative savings in a given year get added to the investments of this year and leads to further increase in savings stocks - also termed wealth. I will write about the nature of wealth seperately later. It is interesting to note however that the rate of increase of savings stock is only going to go up as it benefits from the accumulation effect (something similar happens to stock of knowledge as well, though sadly there limits on human creativity soon start to block further progress!).<br />
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As the savings stock goes up, the investors are increasingly going to want to park it somewhere. While a part will go into the risky assets, a large proportion will nevertheless go into "safe assets". The safest asset of course is cash. However, there is not enough cash to hold the trillions of dollars of wealth in the world today. What is the next best thing? US treasuries.<br />
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If you observe carefully enough, you will realize that short of being accepted for exchange of goods and services (for now!), US treasuries resemble the ordinary US Dollar in many ways. They are both the obligation of the US government. They are both unsecured. They are both fairly liquid in terms of exchange value. And lately, thanks to QE, they both offer zero interest!<br />
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The similarities are neither superficial nor temporary. The world, as it turns out, does need something of the sort of "cash" to hold its wealth - which it does not wish to deploy into anything risky. If we revisit one of the reasons of mortgage backed securities becoming so popular, it is plain that the demand for safe assets is very high - large enough to prompt bankers to concoct artificial treasuries (As the safest tranche of the Mortgage Backed Securities).<br />
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As the demand for this cash goes up, the prospect of negative interest rate on US treasuries will become quite real. How is negative interest rate plausible? One goes back to the analogy of the locker. The locker is provided as a service and the owner of the locker is charging one for the safety assured. In a similar vein the US government is now looking to charge a premium for the safe keeping of the investors' funds that it assures (even with a AA+ rating! what a shame S&P?!).<br />
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How long will this go on? Probably for a long while. Even after the QE ends and the US as well as the world returns to moderate growth path, the demand for cash is not going anywhere - Sovereign wealth funds, pension funds, less optimistic common investors will all demand more and more of US treasuries over the time to come!<br />
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What does it mean? It means there is more financial wealth in the world than it needs. The US government is in essence a proxy for parking it with a safe enough borrower till the world sorts itself out. A shake-out like 2008 will repeat and cause some more reduction in paper wealth. However everyone wants to guard against losses in such a shake-out. Hence they will continue to park in the new-found cash till the mess concludes. The deeper issue is that the financial wealth will start diminishing slowly (through inflation as well as an explicit negative interest rate on treasuries if it arrives) even as everyone waits for the wealth reduction to conclude. But the massive ocean of liquid wealth that this will keep building will keep the financial world a very turbulent affair for a long time to come!</div>Unknownnoreply@blogger.com3