Another way of looking at it

What I'm not going to do in this post is to make any attempt to convince you that the developed world's economy is headed towards imminent decline. Some people are convinced that it is; some people are convinced that it isn't; others are somewhere in the middle. It doesn't matter to me where on this continuum of probability you are, but I hope that regardless of your opinion on the matter that you are able to enjoy today's post. Because in today's post I will assume that the developed world's economy is indeed headed towards some sort of imminent decline (even though I am unconvinced of this myself) and illustrate a counterintuitive idea that I hope is new to you.

So don't worry; I'm not trying to change your world view. Instead, I'm trying to show you a glimpse of another one, and after I'm done we can all go back to assigning our our probabilities to the event.

Are you ready? Let's begin. The developed world's economy is soon to undergo an unstoppable decline…

* * *

Our economy is about to undergo a long and hard decline, possibly one that proves terminal; our very way of life is threatened. This is terrible news. Hopefully our leaders are doing something about the problem! While we as individual citizens steel ourselves for the future and make whatever preparations we can, we can only hope that policy changes are enacted that make a bad situation as good as it can be.

But what would such policy changes look like?

I won't claim to be an expert on classifying Malthusian catastrophes or on proposals for circumventing them, but I have spent a lot of time reading what a lot of people have to say about what kinds of policy changes we should be making, and I've noticed a common assumption being made in most cases. It is the idea that if uncontrolled growth got us into this unsolvable mess then we should be limiting if not outright countering those forces of growth so as to soften the upcoming decline. In other words, we should try to un-grow our way to something more manageable.

Even proponents of this idea recognize that this is not a popular course of action. After all, it generally entails getting people to consume less stuff. For example, if carbon dioxide emissions will be our downfall then we should consume less fossil fuel and deal with the consequences, be they pleasant or unpleasant: e.g., driving our cars fewer miles, maintaining backyard gardens, warmer houses in the summer and cooler ones in the winter. While most of us are all for the idea of our neighbor consuming less fossil fuel, we generally balk at the idea of doing so ourselves (except in a few exceptional cases here and there), and when most people think this way, that it is our neighbors who should be cutting back, we find ourselves stuck in a stalemate.

But stepping around the anti-consumption policies' unpopularity and assuming that such policies somehow could be implemented and executed, what then? There remains a basic problem called Jevons effect. Briefly stated, this is the phenomenon that an efficiency increase in resource consumption actually leads to an overall increase in the demand for that resource.

The problem going on here with Jevons effect is that as more people reduce their consumption of a resource there is necessarily created additional incentive for using that resource. To illustrate, imagine the following scenario. Imagine that everyone reduced their gasoline consumption by driving their cars fewer miles. What would happen is that we would happily find ourselves with an oversupply of gasoline and the price of gasoline would drop. This drop in price would create an economic incentive for businesses to find new ways to develop new goods and services that, to put it bluntly, convert gasoline into profit. While we would all benefit from the innovation of new goods and services, we would eventually find ourselves consuming as much or more gasoline as we did previously, only now our economy is even more dependent the stuff than it was before. And if gasoline consumption is to be our downfall then this is a bad thing.

Call me unimaginative, but I don't see anyway around this problem. More generally, I don't see any way around the problem of un-growing a complex system. The risks of overgrowth are obvious, especially to those of us still contemplating the ramifications of the recent pop in the housing bubble, but the risks of not growing are every bit as real, too. You may be willing to give up a portion of your fair (or unfair) share of resources of the planet, but that means that someone else will swoop in and gobble up what you painstakingly forwent.

In my previous post, Mr. Rook and Mr. Bishop discussed this very dilemma, though through in a somewhat contrived scenario. It was revealed that Mr. Rook's home town, Goodsizetown, is poised to face some obvious problems if it grows according to the diabolic schemes of Mr. Knight and Mr. King. But wait! It turns out that if the town doesn't grow then it's poised to be swallowed by neighboring towns who are growing. Maybe Mr. Knight and Mr. King aren't so diabolical after all. It should be no surprise that Mr. Rook has no real solution to the problem except to try to leave Goodsizetown and foul up someone else's nest.

So what's going on? Does life inherently suck? Is there no solution to this problem? I think the answer is both yes and no.

Yes, I believe there is no mathematical solution to the problem. That is, I believe there exists no long-term, effective method for complex systems dynamically to un-grow as their environmental constraints tighten and to regrow as their environmental constraints are lifted. Don't take my word for it; I urge you to look for counterexamples in nature (and in human history) of complex systems that un-grow. Yes, complex things can become smaller, but in such cases it's rarely a peaceful shrinking. Rather, it tends to involve a whole lot of struggle and death. Un-growth doesn't seem to be a common design pattern in the natural world, and nature has had eons to solve countless problems. That un-growth is rarely an applied solution after so much opportunity should be our hint that un-growth is not a successful strategy for dealing with resource constraints.

But this means that the answer to questions is also no. Nature has found a general solution to problem in death and rebirth. Organisms, species, and entire ecosystems grow and mature and increase in both complexity and heterogeneity until growth can no longer be obtained; then the thing passes away only to be replaced by nature's next attempt to exploit available resources. This pattern is so common as to suggest that, however some of us may struggle to fight against it, entire societies, economies, and civilizations are bound to same cycle of rise and fall. And I for one am suspicious of a strategy of un-growth as an attempt to break or “soften” the cycle even though growth is, on the surface, what gets us into the mess to begin with.

After all, if nature most often applies the pattern of grow and die (or rise and fall) and not grow and un-grow, then it seems probable to me that nature has endowed us with tools best suited for growing and dying, not growing and un-growing—however painful growing and dying may be.

So to our imminent decline I say: bring it on. Let's grow our way right into it and through it. I trust that the pattern of rebirth will lead to something worthwhile in the end, and meanwhile the ensuing suffering is inescapable anyway. Even in the worst of cases nature will have eons more to try new iterations.

* * *

And that is that. Now we are all free to go back to believing whatever we wish about the likelihood of our world's imminent decline. Whatever likelihood of this it is that you believe, I hope you are now armed with yet another way of thinking about it.

Goodsizetown

Mr. Bishop: Hey there, rook. Have you made a decision whether to walk away from your home mortgage?

Mr. Rookie: No. Indeed, additional developments have come about that have complicated the situation, and they are not good.

Mr. Bishop: Oh no. What's happened?

Mr. Rookie: The worst kind of happenings have happened: political happenings.

Mr. Bishop: Oh no!

Mr. Rookie: No, indeed! As you know, the municipality in which in I live, Goodsizetown, is a good-sized town.

Mr. Bishop: Yes, I know. Goodsizetown is a marvel of urban development that achieves the convenience, diversification, and excitement of a larger city while avoiding many of the pitfalls, such as traffic, pollution, and crime.

Mr. Rookie: Aye. We residents of Goodsizetown are happy with our state of affairs, but change is coming, and it is a bad form of change. The Goodsizetown City Council is seeking to make changes to its long-standing urban development policies to promote rapid growth.

Mr. Bishop: I didn't realize that Goodsizetown had a urban development policy.

Mr. Rookie: Yes, it does. The policy is—or, was—to remain a good-sized town.

Mr. Bishop: By what means does—or, did—it aim to remain a good-sized town?

Mr. Rookie: Mainly through urban growth boundaries; strict zoning laws; and adequate funding for parks, libraries, and other public spaces—all to keep the city compact, pristine, and desirable. The urban growth boundaries are the chief means, though; they forcibly prevent Goodsizetown from growing too large and thereby acquiring the same problems that afflict every too-large city in the country, such as traffic, pollution, and crime.

Mr. Bishop: And I suppose it is these urban growth boundaries that are targeted in the policy changes?

Mr. Rookie: Yes, though not only are the boundaries to be expanded or nullified, but the Council is proposing to pass legislation that will actively encourage growth and development beyond the current boundaries.

Mr. Bishop: Through what means will growth be encouraged?

Mr. Rookie: The worst kind: lower taxes.

Mr. Bishop: How are lower taxes a bad thing?

Mr. Rookie: Well, lower taxes aren't a bad thing—

Mr. Bishop: —Then why did you say they are a bad thing if they aren't a bad thing?

Mr. Rookie: Because you didn't let me finish. I was going to say that lower taxes aren't a bad thing—

Mr. Bishop: —But you already said that.

Mr. Rookie: Because I'm trying to reestablish continuity within the dialog. And aren't you falling out of character by interrupting?

Mr. Bishop: Sorry. Please continue.

Mr. Rookie: Ahem. I was going to say (and have already partially said) that taxes aren't a bad thing if you're the one benefiting from them. But the tax decreases being proposed aren't for us regular hard-working Goodsizetowners; instead, they're incentives being offered to businesses to move in and help grow the city.

Mr. Bishop: I see. It's too bad that Goodsizetown's growth boundaries are abstractions—mere lines on paper—and that the city is not surrounded by tangible, physical boundaries such as mountains and Indian reservations, in which case only the most obtuse of city councils and urban planners would grow the city past the point of happy repletion and to the point of having predictable problems such as traffic, pollution, and crime.

Mr. Rookie: Yes, I struggle to imagine even naive politicians and greedy developers despoiling the natural boundaries of such an obviously hypothetical cityscape. However, here in Goodsizetown we play the cards we were dealt.

Mr. Bishop: Why is Goodsizetown's City Council making these changes?

Mr. Rookie: It appears that two Council members, one the principal mover and the other the principal shaker, are pushing for the change. Their motives are clear enough, at least to me! The principal mover, Mr. Knight, happens to own huge tracts of land just outside the current urban growth boundaries and is seeking to profit handsomely by developing that land after the boundaries are expanded or nullified.

Mr. Bishop: And the principal shaker?

Mr. Rookie: The principal shaker is Mr. King, who owns the two biggest car dealerships in Goodsizetown. He expects to profit handsomely as well after the boundaries are lifted. After all, with more people living in Goodsizetown, he should be able to sell more cars.

Mr. Bishop: Yes, how else will Goodsizetown achieve the traffic problems indicative of a respectable metropolis but by putting more cars on the road?

Mr. Rookie: It saddens me to think of it. They say that Goodsizedtown could double in size within the decade. Double! Imagine the traffic! Imagine the pollution! Imagine the crime!

Mr. Bishop: Yes, so sad. But how can a mere two council members push through such groundbreaking policy changes? Why aren't other members who don't stand to profit personally opposing the changes?

Mr. Rookie: Mr. Knight and Mr. King have managed to cajole a majority of the remaining members, as well as the Board of Planners and the mayor himself, Mr. Pawn, that growth is indeed in their interest.

Mr. Bishop: What a coup! How did they manage to do that?

Mr. Rookie: It seems that, like me, many council members, planners, and even the mayor himself have done poorly in the recent housing downturn, and Mr. Knight and Mr. King need only point out that a rapid influx of new residents will surely cause a rebound in home prices—especially with homes that are centrally located, as all current homes are sure to remain as Goodsizetown spreads outward in all directions like a middle-aged couch potato.

Mr. Bishop: Well, at least your home value will rise too.

Mr. Rookie: Yes, but at the cost of Goodsizetown no longer being a good-sized town. We home owners gain a few tens of thousands of dollars in home equity while the Mr. Knight and Mr. King make millions. It seems so unfair.

Mr. Bishop: Is there not sufficient opposition to these policy changes to prevent them from occurring?

Mr. Rookie: Possibly. An alliance has formed consisting of mom-and-pop shop owners, school teachers, and tree-huggers. They perceive the growth-seeking policies as being dangerous and counter to their own interests. But their alliance is not a prosperous one, and they cannot afford to spend as much advertising their position as Mr. Knight and Mr. King can afford. Besides, it appears that there may be a flaw in their anti-growth position anyway.

Mr. Bishop: What do you mean, “flaw”? I thought it was agreed that growth would lead to increases in traffic, pollution, and crime and that therefore growth should be avoided.

Mr. Rookie: It is agreed, but it turns out that, as deftly pointed out by Mr. Knight and Mr. King, that a lack of growth has its own risks.

Mr. Bishop: How so? Are the people afraid of a lack of traffic, a lack of pollution, or a lack of crime?

Mr. Rookie: No, but it turns out that two of our neighboring cities, Sprawlville and Yuppyburg, have already grown very big by pushing for these sorts of growth-seeking policy changes two decades ago. The result is that Goodsizetown is poised to be overrun with Sprawlvillers and Yuppyburgers who made a killing in the recent real estate run-up, despite the ensuing popping of that bubble, and are seeking a good-sized town to which to escape traffic, pollution, and crime. They're moving to Goodsizetown and running up prices and making the economic standard cost-prohibitive for us native Goodsizetowners. Mr. Knight and Mr. King say we must grow if we are to maintain our way of life.

Mr. Bishop: But growing is surely going to ruin your way of life.

Mr. Rookie: Yes. Either we grow, in which case we bring about the problems of the larger city, or we don't grow, in which case we get swallowed by larger cities and they bring their problems to us.

Mr. Bishop: So what are you going to do?

Mr. Rookie: I don't know. If only I weren't underwater on my home mortgage then I could cash out now and move to our third neighboring municipality, Quietcomfyhamlet. I hear there's no traffic, pollution, or crime there and that prices are quite reasonable!

B. F. Skinner Is a Strange Loop

If I had thought about it then I would have figured that, other than both being books written by American academic types, B. F. Skinner's Walden Two and Douglas Hofstadter's I Am a Strange Loop have little if anything in common. The former is a fiction novel about the application of behavioral science to create and maintain a utopian society; the latter is a non-fiction exploration of self-referentiality and consciousness. Okay, after writing the previous sentence I realize that both books are, in a way, about psychology, but that is not where this blog post is going.

Despite knowing that knowledge and wisdom having a unifying tendency, I was surprised when I read the following passage in I Am a Strange Loop.

Although I received from readers a good deal of positive feedback (if you'll excuse the term), I also received some extremely negative feedback concerning what certain readers considered sheer frivolity in an otherwise respectable journal. One of the most vehement objectors was a professor of education at the University of Delaware, who quoted the famous behavioral psychologist B. F. Skinner on the topic of self-referring sentences:

Perhaps there is no harm in playing with sentences in this way or in analyzing the kinds of transformations which do or do not make sentences acceptable to the ordinary reader, but it is still a waste of time, particularly when the sentences thus generated could not have been emitted as verbal behavior. A classical example is a paradox, such as “This sentence is false”, which appears to be true if false and false if true. The important thing to consider is that no one could ever have emitted the sentence as verbal behavior. A sentence must be in existence before a speaker can say, “This sentence is false”, and the response itself will not serve, since it did not exist until it was emitted.

Douglas Hofstadter
I Am a Strange Loop

There it is, one of those strange coincidences we all come across in life, like when you learn a new word and its definition and then hear that word used several times during the next few days; I finish a book written by B. F. Skinner and then read about him in the next one I start.

What the education professor quoted B. F. Skinner on was Hofstadter's monthly column Metamagical Themas in the magazine Scientific American and its playful exposition of self-referential sentences, of which I quote a few examples below (because I find them deliciously funny and can't resist passing them on to others).

If the meanings of “true” and “false” were switched, this sentence wouldn't be false.

This analogy is like lifting yourself up by your own bootstraps.

If wishes were horses, the antecedent clause in this conditional sentence would be true.

If you think this sentence is confusing, then change one pig.

Laura and I read Walden Two together as part of our book-club-for-two. We gave each other short reading assignments and then discussed the reading after a few days, so we ended up having a good conversation about the book as we read it. During those conversations, we argued, among other points, whether Skinner wrote himself as the character Frasier, who espoused the theoretical ideas underlying the utopia and promoted the society's practical properties, or else wrote himself as the character Castle, a philosophy professor visiting the society and who argued that the utopia necessitated grave imperfections that, even if invisible to a visitor such as himself, made the utopia in reality a dystopia. At first I thought Skinner wrote himself as Castle, probably as a way of showing the potential for excess within his behavioral science, and Laura argued that Skinner wrote himself as Frasier.

Probably the reason I thought Skinner wrote himself as Castle was that Castle's point was agreeable to me; it seemed obvious to me that Walden Two was a dystopia that happened to have a great, though misleading, visitor's tour. Though, Castle's argument was not my argument. Sadly, my argument was never brought up in the book, and so I could only imagine how Frasier would have responded to my questions. (And after reading Skinner's quote above, I can imagine Frasier's response only too well, unfortunately, but I'm getting ahead of myself.)

My argument was that Walden Two could not be a utopia, or at least could not remain a utopia indefinitely, because all human societies are necessarily self-governing (unless we're dealing with a science-fiction earth presided over by alien overlords, such as in Arthur C. Clarke's Childhood's End) and a self-governing system, which is to say a self-referential system, is necessarily riddled with limitations in its expressive power. In mathematics this limitation is formalized in Gödel's incompleteness theorems. In computation it's formalized in Turing machines and the halting problem.

More to the point, the problem with a behavioral-science-equipped utopia is this: the society's members are conditioned to behave “correctly” in order to make for a better society, but what conditions the conditioners? What makes the conditioners condition “correctly”? It's a age-old problem in political theory and ethics: who watches the watchers?—who polices the police?—who spies on the spies?

The idea with behavioral conditioning is that individuals are conditioned to behave in ways that promote the best interests of all individuals within the community. In theory this is possible, though the details of its implementation are far beyond our current level of understanding, but consider what guarantees are in place to ensure such perfection. To guarantee perfection (or as close to perfection as possible) then the conditioning process itself must be without flaw, but what keeps the conditioning process flawless? Clearly the conditioners themselves must be subject to a sort of meta-conditioning that keeps the conditioning in line. But what keeps the meta-conditioners in line? There must exist meta-meta-conditioning for the meta-conditioners. And meta-meta-meta-conditioning for the meta-meta-conditioners. And meta-meta-meta-meta-conditioning and so on.

It's an inescapable problem though there might be a solution. It might be that the conditioning process could hit upon a pattern that happens to spit out perfect conditioners, who themselves will spit out other perfect conditioners, and so on indefinitely. But it's not obvious that that would always be the case, and furthermore, I suspect it cannot be true in the general case just as it's formally proved to be impossible to write a computer program that can debug all other computer programs in the general case, due to the same self-referentiality loophole. In reality, utopian behavioral conditioning would have to be highly dynamic in order to adjust for environmental changes that would require on-the-fly behavior changes in society members, such as with resource abundances and resource scarcities, and it seems plausible that it's just a matter of time before the conditioning process happens to become corrupted and begins to spit out non-perfect members who go on to wreck the nice little utopia.

That was my argument when reading Walden Two, and I wanted badly for Frasier to address the question of by what guarantee were the conditioners kept in-line, but alas, Frasier avoided the pointed and reduced his argument to the tired and refutable point that bad things happen because bad people are in charge and that Walden Two is different because there good people are in charge.

After finishing Walden Two I could no longer defend the point that Skinner wrote himself as Castle. It seemed too much like Skinner really did believe that behavioral science could lead to a wholly new kind of better society, and this quote of his in I Am a Strange Loop is further evidence. And so, in light of those old questions—who watches the watchers?—who polices the police?—who spies on the spies?—and empowered with the hope of his new, potent force of behavioral science in the wake of World War II's destruction, is it any wonder that B. F. Skinner would rail against the “waste of time” that is self-referentiality?

Fifty-fifty

“Are you Edward?”

Sometimes I'm asked whether I am any of the characters in a dialog I write, and by “sometimes” I mean I was asked once, a long time ago, whether I'm Edward. The answer is, of course, no. And yes.

The answer is “no” because (1) I have previously written myself explicitly as a character in a dialog, which should suggest that, in a Yogi-Berra-sorta-way, I'm being myself only when I am myself, and (2) it's a little dishonest, intellectually, to make a fictional character mouth one's own words wholly and completely.

But the answer is “yes” because every word in every dialog is my own, so I suppose I am all of my own characters and am being a little bit dishonest.

Douglas Hofstadter

I stopped blogging reading logs and decided instead to try to work into my posts my reading material whenever and wherever applicable. An example is with this post from a few months ago, in which I explain some of my thoughts inspired by reading a book on philosophy.

Lately I've been reading I Am a Strange Loop by Douglas Hofstadter. I'm only three chapters into it, and thus it's too early for me to write about, but I will say this of Hofstadter's more famous book, Gödel, Escher, Bach: beyond being one of the most joyous and inspiring books I have read, it was GEB and not any of Plato's works that taught me the value of the dialog format for expressing ideas. What better way to anticipate the skeptic's questions but to write him into the essay and have him duke it out with the author? Done well and the concepts come alive within the narrative. Done poorly and it's still better than a poorly written essay.

Hofstadter's books are on the frontier of what we know about complexity. Specifically, they're about a peculiar subset of self-referential complexity from which arises consciousness and thinking. That his books are modern and yet so metaphorical and unscientific demonstrates, I think, that our collective body of knowledge lacks a rigorous and quantifiable understanding of complexity: a science of complexity. It's not merely that we lack sufficient ability to think about thinking; we lack sufficient ability to understand what complexity actually is.

Why did Rome fall?

I find it disturbing that after fifteen hundred years of thinking about it, we still can't figure out why the Roman Empire collapsed (or even agree that it did collapse rather than evolve into feudalism), and yet we expect to know how to run our own nation and solve our own contemporary problems.

I suspect we'll never know why Rome collapsed because at a minimum we'll always lack necessary firsthand data to formulate a rigorous conclusion. For example, we can only estimate big-picture metrics of the classical era such as GDP, yet alone can we figure out with suitable accuracy stats such as the empire's annual budgets for road maintenance. I further suspect that any useful explanation of Rome's collapse will necessarily involve some explanation of complexity and the general pattern of growth (the increase of complexity and heterogeneity) and decline (the decrease of complexity and heterogeneity).

Today's world

That brings us back to today. We can't figure out Rome's problems, even with the benefit of hindsight, and yet it's becoming increasingly clear, at least to many of us, that today's complex world is sailing towards a modern Charybdis and Scylla. In short, on the one hand, our current recessionary problems highlight our need to grow the economy to reestablish solvency within both the public and private sectors, and on the other hand, our environmental problems highlight our need to shrink the economy to something sustainable and lasting. Odysseus chose to sail towards Scylla and lose only a few of his men rather than lose his entire ship to Charybdis. My question is: which monster is which in our current predicament?

Only a foolish and superficial study of history emboldens one with the belief that human progress is at all smooth or even monotonic. History is rife with ups and downs, rises and declines, beginnings and new beginnings, and it takes a great fool to think that our civilization will be different in these ways. But it takes a different kind of fool to think that this wonderful bubble that is the First World can be timed or predicted. Malthus argued that the decline was near during the initial years of the Industrial Revolution, which makes him wrong by about two hundred years and counting. Currently, many environmentalists and economic pessimists think the decline is near, again. Maybe they're right; maybe they're wrong. I don't see much difference, in terms of accuracy, in predicting the fate of a civilization and predicting the stock market. In both cases we're only taking stabs at it.

Not too long ago I told my dad in some detail about some of my ideas of where I think things are heading in the financial markets. We're not crass individuals, but we do enjoy discussing market news. To me it seems no less frivolous than discussing politics or professional sports. I can't remember what I was arguing for that day, though it probably had to do with retracting money supplies and deflationary spirals. My dad listened patiently through my spiel and after I had exhausted my fuel, he calmed said: “You know, I think you may be right.” I said, “Really?” To which he replied: “Yeah, I give it fifty-fifty odds.”

Yes, fifty-fifty. But here's to striving to make it an interesting and cohesive fifty-fifty.

The Human Bubble, pt. 3

Mr. Bishop: I seem to have lost my train of thought. Could you please repeat the question?

The Rookie: I was asking what this newly discovered bubble of yours is.

Mr. Bishop: Oh, yes. Children.

The Rookie: Children?

Mr. Bishop: Yes, children.

The Rookie: That's it? Children?

Mr. Bishop: Well, more like the birthrate.

The Rookie: Oh, no! Don't tell me you're about to ramble on about some Malthusian viewpoint about the unsustainability of population growth. Hasn't that been known for a long time?

Mr. Bishop: Don't worry, I'm not referring to population growth. Population growth may be a bubble—must be a bubble, for eventually in the best of cases we'll run out of atoms in the universe to sustain it—but even the current population size is an obvious candidate for being a bubble. After all, either we develop the technology to sustain the current population without depleting non-renewable resources, or we die off to a sustainable population level. That's tautological, and proof by definition.

The Rookie: So if you're not referring to population growth as a bubble then to what are you referring?

Mr. Bishop: I'm referring to population shrinkage, the trend within industrialized societies of parents having ever fewer children. It has the tell-tale sign of being a bubble.

The Rookie: Yes, it's well known that birthrates are declining within industrialized societies, but by many this is viewed as a solution towards the problems caused by overpopulation. What is this tell-tale sign of declining birthrates being a bubble?

Mr. Bishop: The tell-tale sign is similar to a contradiction in market fundamentals. If you remember earlier in our conversation, what felt like a week ago, we discussed how the Palm stock IPO was clearly a bubble because the stock's soaring price signified that the market valued 3Com, excluding its subsidiary stake in Palm, to have negative worth.

The Rookie: Yes, I remember that. It had to do with the market valuing Palm stock so highly that 3Com's partial ownership of Palm came to be worth more than all of the rest of 3Com, thus making that rest of 3Com have, as you say, a negative net worth, which it obviously didn't. But what does this have to do with birthrates? It's not as if children have price-earning ratios or that they pay out lucrative quarterly dividends.

Mr. Bishop: I bring up the point about Palm to remind us that some bubbles are not merely subjective valuations that succumb to the psychological whims of investors. Rather, some bubbles are based on fundamental mess-ups in valuations.

The Rookie: What's the fundamental contradiction in a declining birthrate?

Mr. Bishop: This, that a population of any species cannot sustain itself unless each mature adult averages at least one successful offspring.

The Rookie: That's your fundamental contradiction?

Mr. Bishop: Yes. You seem surprised.

The Rookie: But it's so obvious as to be ridiculous.

Mr. Bishop: How so?

The Rookie: Of course industrial societies' declining birthrates will lead to population shrinkage. That's the whole point! Eventually populations will decrease, hopefully to sustainable levels, at which point the birthrate can again increase to establish equilibrium. There's nothing contradictory about it.

Mr. Bishop: Oh, really?

The Rookie: Yes.

Mr. Bishop: Then let me ask you this: are birthrates declining because of some centralized plan to decrease the population?

The Rookie: No.

Mr. Bishop: So then what is causing birthrates to decline?

The Rookie: Money. In industrialized societies it's becoming increasingly cost prohibitive to have more than one or two children per couple. Educated people recognize this fact and, with the aid of a multitude of family-planning options, are electing to have fewer children.

Mr. Bishop: And they are doing so to the point where birthrates in some countries are now lower than two children per female.

The Rookie: Food, clothes, daycare, college tuition... It all adds up!

Mr. Bishop: Yes it does. Are we in agreement that, in general, the cost prohibitive nature of raising children is owing to an increase in the expense of raising children and not owing to a decrease in the income of the parents?

The Rookie: Assuming that you agree with the statement, then yes, we are.

Mr. Bishop: And are we in agreement that a birthrate of less than two children per female is insufficient to sustain population levels?

The Rookie: Yes, we are in agreement.

Mr. Bishop: Well then, we are also in agreement that the social and economic forces that are causing the increase in the expense of raising children are themselves unsustainable.

The Rookie: I suppose so. But I think that's the whole point. A low birthrate will cause the population to shrink, and it will continue to shrink until it reaches a sustainable level, at which point the birthrate will increase and the population will establish a new equilibrium. That new equilibrium will entail a less costly socioeconomic environment for raising children. You see, the free market will correct the overpopulation problem, even if it takes a few centuries to do so. This is a soft correction; no bubble here.

Mr. Bishop: I think we are in agreement with each other more than you wish. Assuming incomes hold constant over that time—for are we in agreement that any increase in average income will merely offset the equilibrium to be that of a larger population?—

The Rookie: —Yes.—

Mr. Bishop: —Then you are arguing for a deflationary scenario in which prices decrease over time (and in neat correlation with the decreasing population). But deflation of the scope and magnitude you are talking about—multiple generations—will collapse interest-bearing markets, which require an increase in the monetary supply to continue functioning. So you see then that, financially as we understand things now, overpopulation cannot be fixed with a “soft correction”?

The Rookie: Though you spin a good argument and twist my words around well, I'm unconvinced. Perhaps future parents will appropriate more of their income towards luxuries and less towards their children. That could be one way in which the cost of raising children decreases without the money supply shrinking.

Mr. Bishop: But the crux of your point is that the declining birthrate is due to the cost of raising children. Presumably an increase in luxury-based spending will correspond with an increase in available income for raising children, which is denying the low birthrate.

The Rookie: Maybe people feel less of a biological imperative for having children than you think.

Mr. Bishop: Well, if that's the case then surely our species is in trouble.

The Rookie: I suppose you're right about that. To go back to your point about money, it sounds to me like you're saying that either the cost of raising children will remain high, in which case the population will shrink indefinitely, or else the cost of raising children will decrease, in which case the money supply will shrink indefinitely. In either case we're screwed.

Mr. Bishop: An apt adjective to use, given the subject matter.

The Rookie: You've given me something new to think about, but somehow I cannot say I'm convinced that we're as doomed as you think. Surely there's a way to shrink the population safely.

The Human Bubble, pt. 2

The Rookie: The question still remains: how does one know for sure whether one is within a bubble or else if one is within a permanent upward trend? The cases of the Palm IPO stock bubble and the more recent housing bubble had, now viewed in hindsight, obvious clues of their bubbly nature and so, as you point out, should have been obvious while within them. But I doubt that all bubbles are marked with such obvious contradictions as these two were. For example, the price of oil bubbled two years ago, but its increase seemed to be based on solid fundamentals; we were (and still are) finding new oil at a fraction of the rate of our overall consumption, and the new fields we find are generally more expensive to bring to maturity than were the old fields we're currently depleting. These fundamentals suggest an upward trend for the price of oil, but oil prices two years ago turned out to be a bubble after all.

Mr. Bishop: Yes, I suppose so. Maybe there are some contradictions going on with oil prices, but if so then they're not obvious to me. On the other hand, oil prices did rebound quicker than tech stocks or housing prices. Perhaps oil prices were indeed less bubblish.

The Rookie: Maybe so. Still, I don't see how even a keen awareness of the nature of market bubbles helps a person to avoid them, and I fail to see the value in being able to detect a bubble after the fact. I want to know when a bubble has formed before it pops.

Mr. Bishop: I suspect there is no way to know for sure, either practically or theoretically, when one is within a bubble. Consider the case in which a market's behavior is random, like how a coin toss is random. If I were to toss a fair coin one hundred times then we would expect that coin to land heads-up about fifty times. If, sometime partway through the hundred tosses, the coin had landed heads-up five times in a row, then the next flip still has an equal-likely chance of landing heads-up as it does of landing tails-up.

The Rookie: I understand that mathematically, but it seems unlikely that you would ever have six heads in a row within a mere hundred flips of a coin.

Mr. Bishop: Believe it or not, it's less probable not to have six heads-ups in a row than otherwise. But only slightly less probable.

The Rookie: No kidding?

Mr. Bishop: Yes, really. Randomness is less random than people often intuit, which is what makes it so hard to predict.

The Rookie: That's an interesting fact about the coin and an interesting example to bring up at a cocktail party, but I'm skeptical of the claim that markets are entirely random. Markets are based on real-world events, and though much that occurs in the real-world may be random, some of its events are not random. If even a small portion of a market's behavior is non-random then an aware individual should, in theory, have an advantage, however slight, in predicting future behavior, including bubbles. Right?

Mr. Bishop: No, indeed! It's possible for a market to be entirely non-random and still produce behavior that is impossible to predict. For example, imagine that a market is patterned on a fractal, such as constant number of local upswings and local downswings always occurring within a macro upswing and different, though constant, number of local upswings and local downswings always occurring within a macro downswing, and further imagine each of those local upswings and local downswings each having occurring within them the same constant number of even smaller local upswings and smaller local downswings and so on to infinity.

The Rookie: That's way too complicated for me. Can't you draw a graph?

Mr. Bishop: In a dialog? Nonsense. The point is that you're imagining some hypothetical market fluctuations being based on a small set of simple rules and, furthermore, as you zoom in on a small section of a historical price chart, you see that the pattern in the zoomed-in section is the same as in the bigger, zoomed-out section.

The Rookie: I'm still having trouble envisioning this, but it seems like if market prices followed a pattern involving simple rules and, furthermore, if I knew what those rules are then I would be able to predict future prices, at least on average over a long enough period of time. I'd surely take advantage and become very rich!

Mr. Bishop: That's just it: if the market is based upon a fractal pattern then it does not necessarily follow that one would be able to predict future prices.

The Rookie: You mean to say it's possible that market behavior is based on a simple set of rules and yet is unpredictable anyway?

Mr. Bishop: Yes, and that's the difference between something being random and something being chaotic. If something is random then it's based on no pattern and it's future behavior is thus unpredictable. If something is chaotic then it is based on a overarching pattern, but because you don't know where in the pattern you are, your ability to predict future behavior is no better than if the system were random.

The Rookie: Ugh, this sounds too complicated for me. I just want to know what I need to do to avoid making another mistake like buying a house during a temporary price run-up.

Mr. Bishop: In that case I have no advice but this: do what you can to think about one's current circumstances and environment within a historical context, and make the best decision you can without getting caught up in the various manias and depressions of the people around you.

The Rookie: That seems like sage advice. Have you used your own advice to discover any bubbles that we may currently be within?

Mr. Bishop: No, not within the context of the financial markets. If you're looking for a stock tip with which to make a quick buck then I have nothing for you. For that I can only recommend the Wall Street Journal, some push-pins, a wall, some darts, and a lousy aim.

The Rookie: Joke you may, such a stock-picking plan sounds like a good idea for those of us who seem to have a knack for picking the wrong stocks. At least achieving market average through random selection would be an improvement for us.

Mr. Bishop: Alas, market average, according to some, is not average at all but is rather the practical maximum for a minimal amount of risk over a long enough period of time. But let's ignore the financial markets for now. To answer your question another way, I have discovered a bubble, though it involves money only indirectly.

The Rookie: What bubble is that?

The Human Bubble, pt. 1

Mr. Bishop: How's it going, rook?

The Rookie: Not so well, I'm afraid. I'm far underwater on my home mortgage and am thinking about walking away from it. Do you suppose that's an ethical thing to do?

Mr. Bishop: I'm just a bishop and therefore can't pretend to be an authority on matters of morality. What's your opinion?

The Rookie: I'm looking at it strictly from a business perspective, in which case it seems like the best course of action is to walk away. Then again, perhaps I don't have the best judgment in matters of business and money. I bought that house because, at the time, I thought that prices were going to continue increasing and that soon I would be unable to afford any house at all. Alas, who could have foreseen such a reversal of fortune from the good times of just a few years ago?

Mr. Bishop: Well, now that may be a question I can answer! I suppose the person who would have foreseen the reversal of fortune would have been someone who knew about the Palm IPO during the dot-com bubble.

The Rookie: What? You mean the company that makes PDAs?

Mr. Bishop: Yes, exactly. In the year 2000 Palm was owned by 3Com, who decided to spin off the company in a public offering. Soon after, Palm's stock price soared to dizzying heights. Then the tech bubble popped and Palm's stock price came crashing down.

The Rookie: Sure, I understand that bubbles exist and that markets sometimes behave irrationally. But sometimes markets behave rationally when prices increase. How can one tell the difference except after the fact? What's so special about Palm's IPO?

Mr. Bishop: What's special is that the IPO was obviously a bubble based on simple fundamentals knowable at the time. 3Com didn't spin off the whole company; rather, they spun off a small fraction of it while maintaining ownership of the remaining majority. But in the frenzied buying of the IPO, the market cap for the entirety of Palm became larger than 3Com's market cap.

The Rookie: I don't follow.

Mr. Bishop: Basically, the market was saying this: that something 3Com owned was worth more than all of 3Com put together. That's saying that 3Com had a negative net worth when excluding their Palm subsidiary.

The Rookie: Oh, I see. That does seem to be a contradiction, being as how 3Com was and is a successful company. But again, how does Palm's IPO relate to the housing bubble? There was nothing inherently contradictory about the rise in housing prices a few years ago. Based on what we knew at the time, it could have been a permanent trend, right?

Mr. Bishop: You said that when you bought your house you were afraid that prices could continue rising and you would soon be unable to afford a house, correct?

The Rookie: Yes, I did.

Mr. Bishop: And at the time you were stably employed and earning good money, correct?

The Rookie: Yes.

Mr. Bishop: So if you, due to rising prices, were to become unable to afford a house then who exactly would be able to afford one?

The Rookie: People who had even more money than I.

Mr. Bishop: Which is a smaller number of people than the number of people who have as much or more money than you, correct?

The Rookie: Yes, obviously.

Mr. Bishop: And all during this time the number of houses is not decreasing, correct?

The Rookie: Correct. Houses were being constructed everywhere they could squeeze them in, it seemed.

Mr. Bishop: So let me summarize. You were afraid that a resource of increasing availability was going to become affordable to a fewer number of people.

The Rookie: Well, when you put it that way...

Mr. Bishop: Did you imagine entire tracts of newly constructed houses lying vacant for want of an owner who could afford them? Did you imagine prices continuing to rise further despite high vacancy rates?

The Rookie: No, of course not. What if other people had become wealthier in comparison to me? They could have maintained the price increases. People who already owned houses were, in fact, gaining wealth quite rapidly. Maybe these vacant houses you describe would be bought as second homes by existing home owners using their primary homes as leverage.

Mr. Bishop: Sure, and some were. Equity in one house may be used to buy another house. But houses do not undergo mitosis; at some point the money borrowed to buy a house must be paid off, and eventually it must be paid off using money made outside of the house's appreciation itself.

The Rookie: So you're saying that a rise in housing prices by itself cannot sustainably drive housing prices upward? That makes sense.

Mr. Bishop: For you to have become priced out of the housing market—assuming a stable supply of houses—then either others would have had to come into more money or else you would have had to come into less. We already established that at the time you were stably employed. Did you expect others to begin making more money then you—on average?

The Rookie: No.

Mr. Bishop: So there was nothing to fear. It would have been impossible for prices to continue increasing.

The Rookie: Yes, I suppose you're right. I feel like such a pawn. But still one question remains.

Mr. Bishop: Which question is that?

Liberty revised, pt. 2

The programmer-in-the-woods

The programmer-in-the-woods is our hypothetical marvel of modernity; he is equipped with a valuable trade skill, software development, which he employs for general profit while simultaneously procuring many of his own basic needs by living in the wild. He is the man who balances a mastery of technology while avoiding a great dependency upon it. He fits into the modern economic model of optimizing his wage earning potential through self-specialization while maximizing his overall freedom by steering clear of the metropolis and exacting greater control over his own behavior and environment. If the programmer-in-the-woods has such a good deal, why then do we not see more programmers-in-the-woods?

The quick answer is that the programmer-in-the-woods doesn't have such a great deal in comparison to the programmer-in-the-city. After all, is it not a benefit to live near a grocer and thus have a freedom from having to grow one's own food? To live near shops and thus have a freedom from having to make clothes, tools, and other necessities? To live near doctors and have a freedom from illness, as far as that's possible? And so on?

How good is the quick answer? As discussed in the previous post, freedom froms are not freedoms but instead are securities. The quick answer maintains that if these are securities then they are securities than enable other freedoms, and so the securities are freedoms—or, at least, they're as good as freedoms. For example, not having to grow my own food means that I have more time to blog on Mondays and Thursdays. If I were the programmer-in-the-woods and my chicken coop had a coyote-sized hole in it today then it seems unlikely that I would have found the time to finish this blog post. The burden of growing one's own food would then be an impairment upon one's freedom of action.

But consider this: despite being enabled, through a thousand urban conveniences and thousand vain pursuits, to self-actualize to our practical maximum potential, we programmers-in-the-city display a remarkable similarity in lifestyles; our housing is similar to where the main distinction is whether it's shared such as an apartment or standalone such a house; our methods of transportation are automotive and, much of the time, frustrating; our diets rely upon heavily processed foods though we may wish it otherwise; we lack community; and we never seem to have enough time for all our interests. Is this the best we can do? Were all other options inferior? Or maybe these are clues that the choices that led us to become the programmer-in-the-city were, in fact, illusory.

There are two forces I'll note here. The first is that the programmer-in-the-city is necessary because the programmer-in-the-woods is not viable on a large scale. An economy of programmers-in-the-woods is less sustainable in that it's inefficient to have a programmer unable to deal with a time-critical situation at work, such as fixing a bug that has brought down the entire system, because he's instead dealing with that coyote-sized hole in his chicken coop. Economies are more efficient when individuals specialize—when programmers are able to devote themselves to software only, and it makes sense that software shops value such (potential) devotion enough to pay a lot more for it. They could hire a telecommuting programmer-in-the-woods contractor or two at a much cheaper rate—and some do—but the bulk of the army of a software shop must necessarily be people who don't have to worry about starving. (And judging by the looks of the industry, this appears to be a requirement satisfactorily met.)

This is to say that there exists a race towards the city. The programmer-in-the-woods, our icon of balance between specialization and self-sufficiency, finds himself increasingly pressured to specialize fully to maximize wage earning or else to go off-grid fully to maximize self-sufficiency (if he is able). Those sticking it out in the middle are likely feeling pressure to tend more towards one extreme.

The second force to note is the distinction between choice and freedom. Currently I'm endeavoring to decide the advantages and disadvantages of different frame materials for a triathlon bicycle, which is to say I'm wrapped up in a rather specific problem. I can't imagine the programmer-in-the-woods spending time on such a problem, probably owing to how there aren't many triathlons held in that pristine little lake in the middle of his woods. The urbanite may view my choice as a freedom that the programmer-in-the-woods lacks, but I'm not so sure. My choice is fitting squarely within an existing pattern for urban life: that entailed by the fitness-oriented aspiring triathlete. The programmer-in-the-woods would not spend time on deciding frame materials for a triathlon bicycle because he is presumably too busy devoting his time and creative energies to cultivating his garden—both literally and figuratively. The programmer-in-the-woods and the programmer-in-the-city are equally trapped within their own lifestyles; the difference is that programmer-in-the-woods is deciding the entirety of his lifestyle, for his lifestyle is his survival; whereas, I am deciding only details within my lifestyle, and I am able to choose those details only to the extent that I successfully maintain my specialized role within the economy that sustains me. The programmer-in-the-city has many choices but only so far as those choices fit within the overall framework of his being a programmer-in-the-city; in this way his freedoms are secondary to the freedoms of the programmer-in-the-woods.

But it's not a bad deal, being a programmer-in-the-city. I enjoy my pursuits, however vain they are. Most of you reading this are Xs-in-the-city and hopefully enjoy your own lives, and so perhaps you feel inclined to attach a judgmental value that being an X-in-the-city is better than being an X-in-the-woods. This is not the aim of this post. The aim of this post has been merely to highlight how specialization necessarily leads to a decrease in overall freedom. Perhaps it is worth asking why we sometimes feel that this trade-off somehow impugns our lifestyles?

Liberty revised, pt. 1

In recent posts I've touched upon a broad idea: that as a nation grows it necessarily evolves greater complexity as a whole and that that complexity arises through the increasing specialization of its constituent parts, namely we as individuals. The specific aspect of the idea that I wrote about was that specialization itself necessarily correlates to a decrease in individual liberty and that, based on the assumption that the nation's growth cannot be checked by any individual, it is therefore unwise to worry about one's personal liberties.

I now realize that I was wrong to write what I wrote previously, though not ideologically. Ideologically, I still believe that what I wrote is valid, and I look forward to its ongoing defense. However, what I was wrong about was my approach to the topic. As I said, the topic is broad, delving deeply into abstract concepts of evolution, complexity, and freedom, not to mention practical aspects such as sociology and political philosophy. It's wrong to tackle such a complicated issue head on in such a short essay (or maybe even in a long one). What's needed is a better way of showing the idea.

But the posts were not a total loss; I know in at least one reader's case they provoked some thoughtful introspection, and in a subsequent email dialog that reader wrote to me the following.

[J]ust because you exercise a specialized skill doesn't mean you necessarily limit your freedoms. I could, for example, program for a tech company but live out in the woods. I just need an internet connection and power.

I suspect this is an idea that has occurred to many software developers and probably with greatest frequency when doing activities such as waiting in traffic or paying property taxes. It's certainly occurred to me many times. So, using the example of the hypothetical programmer-in-the-woods, the question is raised: does individual specialization necessarily correlate to a decrease in individual
freedom?

What is freedom?

I don't see anyway good way of proceeding to write about the programmer-in-the-woods without first defining, however incompletely, the term freedom. I apologize for having to do this; the term has come to represent many things, some of which are outright contradictory, and it's a specific type of freedom in which I'm arguing is necessarily limited by specialization. That type of freedom is, put simply, the ability to do what one wants.

Some people will say that one may enjoy a freedom from fear, in which a person is knowingly safe, or a freedom from hunger, in which a person is kept well fed. There are, I suppose, a countless number of freedom froms; take a bad thing, X, and one may conceptualize a freedom from X. Though freedom froms are important and good, they do not constitute the type of freedom I'm interested in (within the scope of this argument, not personally) because they do not enable one to do anything. They are securities; they are protections and insurances against bad states and bad results.

Not in all cases is gaining a freedom to a net benefit. Sometimes having a freedom to do something masks a lack of freedom that represents a wider range of choice. For example, all things held equal, it is good to have the freedom to choose from a wide range of nifty features for one's car, such as its color, but for some people such a freedom is a false choice; a greater freedom is independence from the automobile and the freedom to transport oneself and one's stuff without incurring the great expenses, both internalized and externalized, of private motorized transport. That we have so many options of what kind of car to buy is largely derived by the economies of scale in the industrialized world and that the car has become ubiquitous and necessary for millions of people.

This concept may be difficult to see for a car lover who can't fathom life without the car; probably there exists a element of subjectiveness here. However, the freedom of whether to own a car (made possible only by not needing one) allows for a greater range of behaviors than the range allowed by the choice between driving a black car with power windows and a fifth gear or a red car with manual windows and only four gears. In the former case one's life may take many different patterns; in the latter case the freedom at hand has little effect on the overall pattern of one's life.

But still you may be a car lover and disagree with this example. Imagine other similar examples, such as the lesser freedom to choose your full-time career versus the greater freedom to choose not to work at all. Hopefully the general point is illustrated: gaining a specific freedom doesn't necessarily entail increasing one's overall quantity of freedom; some freedoms are gained at the cost of losing other, larger ones. This has not to do with how much a freedom is valued or esteemed but with how much that freedom enables a person to behave in new, profound ways. In brief, the type of freedom in which I'm interested (for this argument) is the ability to invent for oneself the pattern of one's life. I hope this is a sufficient working definition to continue with our programmer-in-the-woods.