Sunday, March 17, 2019

A Lower Bound on Viable and Efficient Parenting Reductions

It's been a running theme of mine for a while that prospective parents should invest less in each child, and have more children instead. This is what the twin studies tell you. This is what most of the education random controlled trials tell you. Parental investment just doesn't matter that much. But having more children does matter.

Investment is a loaded word though. The immediate connotation is expensive monetary investments, like college and private school. It's true that you should cut back on these. But in some sense, these can only be the binding constraint if you're very forward looking. By the time you're in a position to actually decide whether to pay for your child's first year of college or just let them have some student debt, it's highly likely that you're long past the point of deciding whether to have more children.

No, the insidious aspects of investment are those in the very early years of a child's life - waking up every two hours to feed them, dealing with crying and tantrums and poopy diapers. And the reason they bite the most is that by the time you're thinking about having another child, many of the worst bits have just passed. The child is now two or three, and you have just started to get the feeling of having gotten over the top of the hill. If you simply stop now, you never have to deal with that phase ever again.

Look, I sympathise with this feeling. I think everyone does, including parents who had lots of children. 

But the mystery is still the time series. Your great grandmother had 7 children, and managed to rub along just fine. Not only that, she did so while washing every dish by hand, washing every shirt by hand, cooking every meal that the household ate, and on a budget a fraction as large in real terms as you have.

Hence the mystery - how did it all apparently get so much harder? What is it your great grandmother knew, but you don't know?

I suspect that one largely unremarked upon aspect is that your great grandmother started much earlier, in her early 20s. All that energy you put into partying into the wee hours and running on a treadmill? She put it into getting up in the night to feed children, and chasing after them by day. 

My guess for the biggest factor is social support structures. Both sets of grandparents living nearby, for instance. Trying to make up for that with hourly babysitters is like running a one man lesson in Ronald Coase's theory of the firm, where you find out that a lot of things are considerably harder to contract on than you thought. Friends and neighbours with lots of children, whom you could turn to when things were tight. Now nobody knows their neighbours. 

So, to the extent you can do this stuff, it's totally worthwhile. Fly in your parents for a while, if they don't live nearby. Try and do like the Mormons do, and make good enough friends with people nearby that you can do shared babysitting things.

These things are hard, though. If your parents live on the other side of the country, or the planet for that matter, rearranging your life or theirs to remedy this distance is probably not practical advice.

But there's another aspect to it. Culturally, a hundred years ago everyone was just far more comfortable with radically increased autonomy for children, and far less moment-to-moment supervision of what they were doing. I remember the Daily Mail depicting this visually in a quite arresting manner, showing how far different generations of Brits were allowed to walk.

Rotheram, Rotheram... where have I heard that name before? Hmm, maybe it's not just cultural norms.

But at a very young age, when children require full time care, was it always this hard? Is it possible to less? Let the kid cry? Let the kid walk around on their own more, at a younger age, without being supervised, even if they sometimes cut themselves or bump their head? Let the kid figure out how to put themselves back to sleep? Let the kid play with the toys on their own, rather than expecting to have one or other parents joining them all times?

Parenting plans, like Mike Tyson's quip about boxing plans, last until you metaphorically get punched in the mouth. It's easy to say in the abstract that you'll just be a little bit more distant when the kid starts demanding attention, but another thing altogether when the kid is screaming their head off. And for someone like me, who has zero kids, there's an inevitable aspect of cheap talk to all this. If someone else has a troublesome child, maybe it's just genetics, or nutrition, or something else hard to fix in the short term. Maybe if you had their child, you'd act the same way.

Still, there is one metric that I think shows that reductions are possible. Namely, the inevitable decline in attention that occurs in nearly all parents between their first child, and their subsequent children. 

For the first child, you're worried about everything going wrong. You're taking endless baby photos, and reading to them all the time. You're doing all sorts of stuff. By child number 4, you just don't have time for that any more. The child is crying? Is this a problem? Depends. Are they fed recently? Is their diaper clean? Are they sick? If the answers are "Yes, Yes and No" respectively, then no, it isn't fundamentally a problem. It's unfortunate, but it's okay to just close the door and let them figure it out. They'll work out just fine.

Hence the minimum viable Holmes advice for new parents:

Aim to bring a fourth child attitude to your first child.

Ask older parents - do they think their fourth child turned out much worse because of the lesser attention paid? Or do the younger children mostly tend to appreciate the more laid back attitude that parents took, and which older siblings are often jealous of?

Not only is it doable, for many aspects of parental involvement it's not even clear what the sign is for the effect of the extra effort.

Of course, there's one caveat here. There is non-trivial evidence of birth order effects, whereby first-born children tend to outperform in life (I trust Scott Alexander probably as much or more than the social science literature on this stuff).  At least some of this effect is probably the extra efforts their parents are putting in.

That said, there's two responses. First all all, this just says that there's something on the revenues side of the ledger. This doesn't mean that the whole project of the extra effort for the first child is actually NPV positive for anyone involved. Indeed, given the extent of the extra effort, finding zero birth order effects would be evidence of a massive failure in rational parental investment.

Secondly, it's not clear how much of the effect of birth order is due to extra parental investment, versus just having more confidence by virtue of being bigger and stronger than one's siblings. It's probably both, of course. But any part of it that's coming from just sibling size doesn't require any investment, and is unbudgeable by your efforts in any case. I think the jury is still out on this one.

More importantly, suppose you believe that there might be an investment and/or confidence channel. If you're worried about this, just load up on the related investment/confidence effect - birth month. It's also true that the oldest children in a kindergarten class tend to outperform in life, for a similar mix of reasons. They're bigger and more confident than their peers, and they get greater investment because teachers and coaches perceive them as more talented when they're young, when they're simply more mature. 

So if you're a big believer in birth order effects signalling something important, just aim to have all your kids be born at the start of the school year. It costs you nothing other than delaying slightly when you start trying to conceive. It'll probably also go a decent way towards offsetting any effects of reduced parenting for the first child (and will be a likely benefit to later children, for no obvious cost). 

And remember, the second you're tempted to feel guilty about this advice and plan, just bear in mind - you're thinking of the wrong counterfactual. The whole point of doing all these reductions in wasteful effort is so that you can easily and cheerfully bring one more child into the world, with a full complement of life's joys, sorrows and experiences. That is something to be proud of, not embarrassed. 

Fourth children turn out just fine.

Thursday, February 7, 2019

Great moments in trend-setting

It's rare that I'm ahead of the curve in very much. But the latest Steve Sailer column had the following puzzling claim:
Nobody can deny Lindsay, Boghossian, and Pluckrose one historic accomplishment: They’ve permanently affixed the name Grievance Studies to their targets.
Before last fall, there were a variety of self-designations that only their smartest critics could keep track of. For example, Steven Pinker tweeted,
Is there any idea so outlandish that it won’t be published in a Critical/PoMo/Identity/‘Theory’ journal?
But if you aren’t quite up to Pinker’s level of brainpower, it’s hard to remember that “Critical/PoMo/Identity/‘Theory’” are all more or less the same moonshine.
But now we don’t need to. They are all just Grievance Studies.
Google searches show that the term “grievance studies” appeared only 85 times in the history of the internet before they announced their hoax last October, but 89,700 times since then.

To which my first thought was: huh? Hasn't everyone been using this term for ages?

No, it just turns out, I've been using it for ages. I couldn't get Sailer's "85 results" number easily. But this post of mine from May 2013 features the phrase. Though, hilariously, it doesn't seem to show up on my google search, and since I'm John Q. Nobody, read by nobody, I contributed almost zero to the currency of the phrase.

I have no idea if I just picked it up from someone else, or it independently seemed like a good description. To slightly paraphrase Moldbug, the great thing about the truth is that, being true, anybody is free to notice it at any time.

Come to Chateau Holmes for fresh social commentary, or be one of the herd reading about it at Sailer's blog six years later!

(I kid - Steve Sailer is a national treasure, and the best journalist of his generation. The fact that he writes for donations at the Unz Review, instead of having major newspapers fight to hire him, tells you everything you need to know about the clown world we live in).

Sunday, February 3, 2019

On the eloquence of the ancients

One of the frequent complaints about modernity that both reactionaries and conservatives agree upon is the lamentable decline in the standards of public discourse. This is pretty clearly true, and you can show it in various different ways.

For instance, Thomas Jefferson spoke English, French, Italian, Latin, and could also read Spanish and Greek. The highly educated Barack Obama spoke... just English.

If you want a non-political example, consider Paul Fussell's observation about World War I poetry. Wilfred Owen, when writing his poem "Dulce et Decorum Est", could write as the ending lines to his famous poem, an untranslated Latin phrase from Horace, with confidence that his audience, which included privates in the army, would know what he meant.

Or, if you think I'm cherry-picking this, price-onomics computed the reading grade-level of the State of the Union address over time. If you plot it versus the starting year of the president's term, this is what you get:

Which, I will readily acknowledge, looks a lot like a slow descent into idiocracy.

And, to be fair, this is my depressing first order assessment of how the matter stands.

But, if I were to put a small positive spin on this, it would be the following.

Suppose that the level of reading education has declined precipitously. Conceptually, this could be because
i) The total amount of education has declined. 
ii) The efficiency per hour of education has declined. 
iii) The fraction of education devoted to reading has declined

Out of these, I'm pretty sure #1 isn't the case. We spend more time in school and college than ever. Not only that, but the biggest increase is probably among the least educated, who once upon a time would have gone straight into agricultural jobs, etc.

The second part I'd be willing to believe. We spend endless time on pozz and diversity propaganda, whereas back in the past they were probably drilled on the important stuff and didn't screw around.

But I think the biggest underappreciated factor is #3.

In particular, it's easy to forget just how enormous the increase in education was in quantitative disciplines. I suspect, but can't prove, that the fraction of people that are learning calculus, chemistry, and physics is a lot higher. In particular, without a calculator, a lot of these disciplines become much more labor intensive in terms of how many calculation examples you can give to illustrate a principle. 

There's an even more concrete example.

The field of statistics as we know it didn't really exist until Sir Francis Galton invented it in the mid-19th century. Don't believe me? He came up with standard deviation, correlation, regression, and regression to the mean. Try, if you will, to imagine what your statistics class would have been like before that. There's the mean, the mean?

And without these tools, think how many other discussions become impoverished.

Economics doesn't have any data without computers. But without regression and correlation, it doesn't have any meaningful way to discuss causation, or to resolve arguments with data (even if you were willing to do it by hand). Hence the whole discipline becomes only theory. And theory back then was largely essays. Economics didn't become mathematical until Von Neumann, Oskar Morgenstern and Paul Samuelson, all of whom did their major work after World War 2. Finance as a serious academic discipline didn't exist before Harry Markowitz, around the same time. And this is without discussing the disciplines that trivially didn't exist, like computer science, and those that only became formalised later, like psychology.

Take out all of the high school and college education devoted to these subjects, and ask yourself - what's left to do other than read the classics and learn languages? Not only this, if you could erase all your knowledge of the above subjects and replace it with more eloquence and knowledge of the classics...would you? Would the bargain seem worth it?

To me, it's not obvious at all.  

As I wrote about a while ago - expressions of a desire to do some self-improvement task are pretty much like a politician's unfunded campaign promises. That is, unless you specify exactly what in your week it is you're willing to give up in order to make it happen, it's not actually a serious plan. And just like in politics, the two standard answers are both bad. I'll get rid of waste and duplication! In your life, like in politics, there is assuredly waste and duplication, but it's similarly assured that you probably won't get rid of it. Or you'll just run a budget deficit by sleeping less. Which works in the long run about as well as you'd expect.

So it is with the importance of a classical education. It doesn't mean you shouldn't do it. It just means that simply cutting out the modern leftist propaganda from the curriculum won't turn you into Jefferson. You've got to cut much closer to the bone, into subjects that actually do matter.

The other lesson, of course, is that Sir Francis Galton was a god damn genius, and is criminally underappreciated. It's hard to imagine the social sciences existing without him.

Friday, January 25, 2019

Project Jacob

In the financial world, it is a reliable rule of thumb that the largest and most lucrative forms of arbitrage will be those that don't strike the average investor as being an arbitrage. If they did, they'd have been traded away already. So how would they be seen by the average person? Probably as just weird. The kind of thing that nobody thinks about very much, because it's too obscure. If they do turn their mind to it, they assume there must be some big reason that nobody else is doing this, even if they can't quite articulate what it might be.

So it is, I suspect, with society more broadly.

So with this in mind, before I get to the punch line, I want to start with a few assumptions, and see where we end up. If these sound like things you already know and agree with, please bear with me and keep reading – this is exactly the point. My aim is to show what possibilities flow from things we mostly agree on, because the conclusion might strike you as rather surprising if I started with it.

1. Genes matter a lot for individual traits, and individual traits define the society to a large degree

The first of Turkheimer's laws of behavioral genetics is that nearly everything is heritable to a significant degree. Overall political ideology has a significant genetic component – approaching 60%, by some estimates. The impact of WEIRDO political culture and the Hajnal line are just some of the many indications to this effect. A society is determined to a considerable degree by the distribution of who is living there. If reactionaries have more children, on average the future looks more reactionary.

2. Parenting, like all shared environment terms, matters much less than people think.

This is kind of a mish-mash of Turkheimer's second and third laws. Related to #1, people tend to significantly overestimate the effect of environment on outcomes, because they fail to control for genetics. I suspect that most readers of this august periodical are conversant in the findings of HBD, and one set of the most important is the twin studies. The general finding of most of them is that genetics matter a lot, and idiosyncratic environment matters a lot, but shared environment doesn’t matter very much for adult behavior. Once children can select their own environment upon reaching adulthood, the impact of shared environment drops a lot, often to almost zero. The environment that does matter is mostly idiosyncratic, which, frankly, we don’t really know what it is. Some combination of school peers, parasites, measurement error, etc. But most of what’s included in parenting is shared environment (school district, general attitude of parents), or gene-environment interactions. What matters most is who your parents are. How they parent seems to matter less than nearly everybody thinks. In most contexts, reactionaries are willing to embrace this idea.

3. Having more children is valuable, but very difficult to scale within the context of marriage

The injunction we are often told on the right is to marry and have children, as a means of propagating ourselves and our values. This is a very worthy enterprise, but one that is almost impossible to scale at an individual level. Unless your wife is young, there is a hard limit on how many children you can have. Unless you’re young yourself, finding a wife young enough to have many children is likely to be hard. Finding one willing and eager to do so is harder still. All of this is magnified if one lives in cities, where the cost of having many children is much higher. Bottom line – having more children yourself is important, but the impact that each of us can have in this respect is likely to be a drop in the ocean. The problem is simply one of scale. You and I could try to convince everyone in the west to have more kids, and that’s definitely worthwhile. But if we could convince everyone of whatever we wanted, we’d already be able to solve lots of problems. The issue is that convincing the populace of anything when one lacks power is very hard.

4. Even outside the context of marriage, having lots of children with lots of women is financially impossible for anyone with means, and generally promotes degeneracy.

The Bronze Age Pervert mindset, frequently joked about, is to take a group of elite Chads and send them out to impregnate thousands of hot teens. The problem, of course, is that if you do this, you end up with endless single mums and degeneracy, because you can’t marry more than one of the women you are impregnating. To make matters worse, the modern court system with ruinous child support makes this strategy catastrophically costly to anyone with any financial prospects whatsoever. The only people who can afford this strategy are those who are, as the lawyers say, “judgment proof” – they live on welfare and crime, so can’t be held to account for any child support payments, which makes them much more willing to impregnate lots of women. Because everything is heritable (see point 1), we end up with a significant expansion of the worst traits of criminality, low impulse control, and violent tendencies. This is dysgenics exemplified.

5. Subverting valuable but unguarded institutions is an important aim.

One of the genius moves of the left during the 20th century was to find resources that were important, but relatively unguarded, and take them over. Academia or the media, for instance. These were always decent jobs, but weren’t perceived as being quite as influential in the past as they later became. Fighting over things which everyone knows are important (e.g. Supreme Court nominations) is extraordinarily difficult. Subverting and taking over institutions which are important, but not yet realized to be important, is a much more promising strategy.

So far, so good.

So based on the above, the question is: as reactionaries, if we want to increase the number of children we have so as to propagate reactionary ideals, is there any way to do it that doesn’t involve getting crushed by the court system or increasing the amount of degeneracy in society? Is there an institution that we can subvert that will help us achieve this aim?

The answer is yes.

And the answer is shockingly simple.

Go to a sperm bank, and donate.

In evolutionary sperms, the unpopularity of sperm donation is simply mind-boggling. It is a colossal unguarded resource – the wombs of thousands of women, openly seeking to bear your children while you are legally shielded from any costs whatsoever of raising them. If humans were fitness maximizers, men should all be beating down the doors of these places to fight each other off. But we aren’t. We’re adaption executors instead, spending all our resources and energy into banging women (which evolutionarily would have produced lots of children) while simultaneously trying not to actually get those same women pregnant. Meanwhile sperm banks are just considered weird. The main people who go are idiot college students not really thinking about the consequences and just treating it like it’s an easy source of beer money. If reactionaries started going there en masse, we’d probably be a large component of the potential pool.

And it goes without saying that this project is enormously scalable. As the marketing goes, you can make a difference in the life of a family! What they don’t say, because it weirds people out, is that you’ll probably make a difference in the lives of dozens, if not hundreds of families. This becomes an enormous force multiplier to any group with small numbers.

Not only that, but this project is compatible even with a world view that thinks single motherhood is undesirable. The effect is not to increase the number of single mums in the world. Anyone going to the sperm bank has already made up their mind to have a child, whether it's a good idea or not. Unless the sperm banks get shut down, the change is entirely one in composition, not in number. The only question is whose children these women will be having, and what traits will these children have. Since everything is heritable (see law 1!), it's better if the children have reactionary fathers, than soy-boy loser fathers.

Moreover, this can be done alongside a traditional lifestyle oneself. Donate while young and single, or if your wife/girlfriend is okay with it. Doing it while single is probably easier – future wives may be uncomfortable with the idea, but if it is presented as a fait accompli, they’ll probably find a way to make peace with it, especially because it likely doesn’t impact very much in one’s day-to-day life. Then after that, get married and have your own children with your wife and raise them yourself, just as you were planning to before. Most young men masturbate for free. Instead, they could get paid to impregnate hundreds of women with almost no negative consequences to themselves. And yet almost nobody does. Go figure.

There are, however, at least two caveats worth mentioning (and probably more – these are the ones that came to my mind). First, in the age of genetic testing, it is increasingly unlikely that you will be able to maintain true anonymity to your donor children or their parents forever. Some places actually put any recipient adult in touch (anonymously) if they want to. Truthfully, this is probably better, as it’s preferable to have people email you than turn up at your office. There’s too many ways to track people down, from genetic tests to compiling scraps of information into endless google searches. If you go down this path, it’s worth trying to preserve anonymity with sensible steps (turn your 23andme to private, obviously). But you should assume that you may get some contact from the recipient mothers or their children, at least to some extent. Probably not a lot, and probably not most of them. But it’s worth assuming the worst. If this prospect is too uncomfortable to you, then it may not be a good idea. To me, the idea doesn’t seem that troubling, once I actually thought about it. Still, your mileage may vary.

Second, I imagine that some of you (maybe most of you, maybe all of you) will have ethical issues with the idea of having children that one doesn’t have contact with. This is a totally fair viewpoint. If one feels this way, particularly from a religious basis, then definitely don’t do it. But if one is less troubled by this aspect, then perhaps it’s not an insurmountable objection. There is certainly a strong qualified defense of the idea in the pragmatic angle – even if sperm banks should be shut down altogether as an abomination, in the world we live in, they’re not going to be. The main change we make is at the margin of what kind of children result. You might be tempted to wonder if your children will turn out badly because they won't have you there to raise them. But remember point 2! Parenting doesn't matter that much. Genetics do. Still, if one feels strongly that there is an ethical objection to the whole enterprise, then one might feel that this would be lending some kind of implicit support to it. Again, I don’t tend to feel as strongly on this point, but I imagine some of you probably will.

If you're thinking that this whole idea sounds really weird, it struck me as weird too when I first considered it, but it grew on me more and more as I thought about it. And the more it went on, it began to seem like it actually meets a large number of reactionary goals. The fact that it seems weird is exactly why it’s unguarded. Paul Graham once wrote a great essay about this in the context of startups. He said that the best startup ideas were the ones that sound bad, but were actually good. You don’t want the ones that sound good and are good – everyone is trying to do those ones, so you’ll have stacks of competition. But the ones that sound weird at first (turn your car into a gypsy cab! Let strangers stay in your house when you’re not there) but are actually really good are the absolute best prospects of all. I think this has the potential to be one of those. In the scheme of the trichotomy, this is much more techno-futurism than traditionalism – in family terms, it’s more neocameralism and less throne and altar. So be it. I think the ability to recognize these possibilities is one of the big advantages of neoreactionaries over paleoreactionaries.

More importantly, this might be the golden age in which to undertake this project. In another 5 or 10 years, we might get to the point where recipients get to select traits based on the full genome of the donor. To the extent that single women seeking donor sperm likely skew progressive, if they understood HBD, they might screen us out themselves. Right now, they can’t.

Even turning up for the initial tests is valuable – if it turns out your sperm count or motility is low and you can’t donate, this is almost certainly knowledge that you’d like to have so you can start trying to have children sooner.

I'm open to being convinced that I'm wrong on this. But so far, it makes a disturbing amount of sense to me.

Saturday, December 1, 2018

War-gaming the Chinese Nuclear Option with US Treasuries

[ In the quite useful parlance of Scott Alexander, the epistemic status of this post is fairly uncertain, so take with a grain of salt.] 

As the economic tension between the US and China slowly ratchets up, I've found myself thinking recently about the financial nuclear option that China has, and how it might play out. 

What I mean by the nuclear option is China strategically using its large reserves of US Treasury Bonds and Bills to cause maximum economic and financial chaos in the US. This is something one occasionally hears about, but the discussion seems to be split between serious economists who blithely assume it will never happen, and doomsayers that think it will be the end of the world. As you'll see, I'm somewhere in the middle. 

Then again, I'm not a macroeconomist, so take my views as just an educated guess. Perhaps the easiest way to do it is just to assume that I'm playing the Chinese, and that I wanted to cause maximum carnage. What would I do, and how would it play out? I am almost certain that I'm not giving the Chinese any new ideas here, and since I'm John Q. Nobody in any case, I don't feel particularly guilty at writing this publicly. For instance, here's a recent statement from a Chinese diplomat [Update: Cui Tiankai is actually the Chinese Ambassador to the US, so this is pretty close to the official position of the Chinese Government]:
Cui said he did not believe Beijing was seriously considering using its massive US Treasury debt holdings as a trade war weapon, citing concerns that such a move would destabilize financial markets.
Translated back from Diplomat language, this means: We'd like to remind you that we could use our massive US Treasury Debt holdings as a trade war weapon. 

So without further ado, here's how I'd play the Chinese side. 

The first thing to realize here is the poker mindset. You don't want to be thinking of your chips as money. The money is spent when you walk in. Once you sit down, the chips are ammunition, used to defeat other players at the table. What you get at the end is the prize, but if you're thinking on every raise about the rent money, you're toast.

So it is here. If I were China, I would assume that the current holdings of US Treasury debt are like an ICBM. We're no longer trying to maximise the value of the holdings, or even preserve the value of the holdings as a strategic asset of China. We're treating the assets as already worth zero. Because, as we shall see, the policies designed to keep the value of the assets high are almost the exact opposite of the ones aimed at causing carnage.

US Treasury obligations play a very important role in the financial system. In many applications, we need to know a "risk-free" interest rate, and typically the rate on short term (i.e. 30 day ) US Treasury Bills is used as a proxy for this. They're denominated in dollars, which are fiat, so the Treasury can just print as many as it wants. Even "print" is a euphemism - press a button, and the dollars electronically appear. So there's very little reason why the US ever couldn't pay its short term obligations. It might choose not to, either because it went crazy (e.g. during the Clinton government shutdown, or the debt ceiling debate), or because the amount of dollars required to print would cause massive inflation whose cost would be worse than defaulting on the debt, but again, it nearly always could pay. And in practice, it always has paid. Which is why short term US T-Bills are treated as a proxy for the risk-free rate in lots of financial models, such as those used by banks.

But this interest rate is determined by supply and demand in the market for Treasury assets. China has accumulated a ton of them, and could dump them on the market at any time. In bond terms, the yield or interest rate* is inversely related to the price (assuming a zero coupon bond, as is the case for short term obligations like T-Bills, though the logic is similar for coupon bonds). Dump lots of T-Bills on the market, the price drops, and the interest rate rises. When the interest rate rises, every bank who has a short term financing gap that they were planning on covering on the overnight lending market is suddenly in a huge hole. Chaos ensues. 

So I'm China. As a preparatory step, beforehand I'd take all my own financial institutions and ensure that they're not holding any US treasuries privately as collateral on anything. Slowly switch to safe stuff for my own accounts - gold, Euro bonds, whatever. The point is that we're going to screw everyone holding treasuries, and everyone else too. But we definitely want to minimise our own banks' exposure. We want to try to get the financial side of the Chinese economy as close to self-sufficient as possible. 

The basic step is dumping Treasury assets. If we do it right, the first asset dump will be a surprise attack that will spook the market as much as possible. To ensure maximum carnage, I'd begin my sales at maybe 3pm EST. The aim is to do it shortly before market close in the US, when lots of financial institutions have to mark their accounts to market at the end of the day. 

So, first step, I would start with a massive dump of Treasuries on the market. Not the whole amount  - one must always keep troops in reserve. But enough to cause a big spike in short term interest rates, and enough to panic everyone in the market.

So, this happens at say 3pm. The other reason to do it close to the end of day is as follows. We cannot raise interest rates forever. Indeed, we may not even be able to raise them for very long. The reason is that whoever is playing the US Fed has an obvious countermove. As soon as they realise what's going on, they'll step into the Treasury market themselves and start buying treasuries to raise the price and lower the interest rate. Remember, they're doing this with printed dollars, which are in an almost infinite supply, up to the point of causing inflation. And if you're the Fed, the tradeoff between inflation versus short term market chaos is like worrying about becoming addicted to morphine when you've just been shot in the leg. The choice is obvious - they'll buy, in whatever quantity needed to prevent interest rates from going through the roof.

If they can do this, what's the play? Well, first of all, there's the surprise attack. We're gambling that they don't necessarily have a plan set up to immediately deal with this and implement the massive purchases necessary. Maybe they do, in which case the first round effects aren't as dramatic as we'd hoped. But we can help ourselves by giving them a limited amount of time before market close - just enough time for everyone to react and price in the carnage, but ideally not enough time for them to respond properly.

The aim is that every bank who's long in Treasury assets and has borrowed against them (which is a lot of them) was accounting for this collateral at a low interest rate, and a high price. Suddenly, with minutes left on the equity clock, they realise they're on track to be insolvent by the end of the day, as the collateral on their obligations is rapidly dropping. Loans get called in. Prices of their equities fall, making everyone else panic, making the market as a whole crash. 

So, that's the aim. How would I ensure this gets played up?

Having done the initial dump at 3pm, I would make an announcement at 3:15 or 3:30 or so. The Chinese government is planning to liquidate all its remaining US Treasury obligations and US Dollar denominated assets, immediately. Moreover, we will be switching to Euro Bonds and Euros.

What's the point of this?

In normal trading times, this would be crazy. You're just inviting people to front run your trades, selling before you sell so you get a worse price and then buying back off you later at a profit.

But in chaotic times, this is ideal. We're trying to maximise price impact, not trying to maximise value. By announcing our intentions, we tell the whole market - lots more treasury sales are on the way. What will they do? Start dumping their own Treasury assets, pronto, and switching to Euro ones. In this way, we're not just using our own Treasury reserves. Now the second round of selling is coming from every other financial institution with a fast-moving trader and a desire to stay solvent. Of course, this still doesn't count for squat if the Fed puts in an infinitely large buy order, but there's a long term point. We want as many financial institutions as possible to stop holding US Treasury assets, so the Treasury is basically having to hold the whole lot themselves. This is functionally equivalent to just printing money to cover the entire deficit. They'll do it if they have to, but they don't really want to.

And in the mean time, now the Fed is not only trading against us, but trading against lots of other people in the Treasury market as well. Which makes it harder for them to just take steps that would somehow freeze us out of the market. 

Anyway, let's assume we're playing against a highly competent Fed. Unbeknownst to us, they have contingency plans in place to send enormous buy orders if the price drops sufficiently, and so we don't get anywhere much in terms of disrupting the Treasury market. What then? Has the plan failed?

No. The Treasuries are only step one. The real action is in the foreign exchange market. The Fed is going to have to provide me as China with lots of US Dollars to purchase all the Treasury assets off me. As they do, what's my response? Immediately start selling those US Dollars and buying Euros. In large quantities, as fast as possible.

In other words, we're trying to tank the US dollar. And this is something the Fed has a much weaker position on. Why? Because while they can print up an infinite amount of US Dollars to purchase treasuries, they can't print up any Euros at all to buy US Dollars. Sure, they have some reserves, and you can bet your ass they'll use them. But now there's a finite target. We may even have some idea of how much we're having to trade against, yet in any event, it's a finite and achievable task. And the more they support the T-Bill, the more they give us ammunition to attack the currency.

Which gets to the other point - why buy Euros? Why not buy Renminbi?

Because China wants a weak dollar, but it doesn't really want a strong Renminbi. When the dollar weakens, the US gets imported inflation on its many foreign goods. It also makes it easier for US exporters, so it's not all bad (we have to assume that trade between the US and China will be totally frozen, so it's just other countries we're thinking about). So a big drop in the US Dollar will cause significant inflation in the US.

China relies on exporting industries, so it generally wants a weak Renminbi. Instead, the aim is to make the Euro strong instead.

You might wonder, would the Europeans actually want this? What if they started printing Euros to resist it? 

Well, they might. But I'm not so sure. What we're really trying to accomplish as China is a shift in the question of who gets to be the global reserve currency. It's not going to be China. But it may easily be Europe. A large part of the Euro project was trying to set up a global counterweight to US financial hegemony. There are probably a fair number of Euro policy-makers that would be quite pleased to see the US dollar get displaced. The main advantage of being the global reserve currency, when we're talking fiat, is getting to run enormous ongoing deficits without creating inflation. If the US can't sell its Treasury debt to global investors any more, it runs a real risk that printing more money will result in inflation. As the reserve currency, so far this hasn't happened. 

Indeed, this was surprising to many people during the financial crisis - the Fed was printing like crazy and buying up all sorts of things. Why didn't it result in lots of inflation? Well, part of the reason is that the dollars weren't circulating back into the US economy in the same way. Foreigners buy up the debt. If they bought Euro debt instead, European countries would face much lower borrowing costs, the famous exorbitant privilege that the US currently has. Not only that, but being the reserve currency means that other countries want to invoice in your currency, and hold assets in your currency to hedge against this risk, and have banking services with your country. So being the global reserve asset fosters the development of your financial sector. If the US Dollar goes out of fashion, expect New York to become significantly less important relative to Frankfurt and London as the place of global financial markets. 

It's not just me that thinks this, by the way. This is approximately the argument in the recent Gopinath and Stein paper. They' don't say as much on the question of how one might shift between equilibria, but they more or less agree on the effects of being the dominant currency for trade, invoicing and financial development.

In other words, we're potentially peeling off the Europeans from the Americans. We're saying, hey, don't just instinctively support Uncle Sam here. We think it's probably in your interests to play along with us.

Why might this also be important? Because the other thing that the Fed will probably do in this scenario is call up every other Central Bank in the world and demand that they start buying US dollars with their own currency reserves. Assume that lots of serious threats are made here. If we're China, we can't overwhelm everyone. But if we can convince the Europeans to think twice before buying dollars, then maybe Japan thinks twice too, and India, and Australia, and before you know it, suddenly everyone is holding Euros instead. Russia certainly would be pleased to see the change, so you can count them out. Bye bye US financial hegemony.

Ideally, if I were China, I'd implement this plan when the US was in a recession, or near it. Because this means it's a lot more costly for the US to take the other option to support the currency - let the bond sales go on and interest rates rise. Because this will almost certainly tank the US economy if they do. 

That's the basic play. I think. As I said, I have a lot of uncertainty as to how large the effects would really be, even under the Holmes plan. Maybe global investors believe China won't be able to displace the US, and so don't sell many Treasuries or US Dollars. Maybe they do, and USG threatens their governments that they'll get Color Revolutioned if they don't demand their banks fall into line. This is pretty close to an act of war, so you'd be crazy to do this as China without expecting serious repercussions. And if the aim is to displace the US Dollar as the global reserve currency, you've pretty much only got one shot at it. Once you've fired all your missiles, they're gone. If people stick with the US, in the long run China might end up weakened, and you've destroyed the value of a substantial foreign currency reserve in the process. 

Anyway, this is a guess. Maybe I'm totally wrong, either in what they'd do, or what the consequences would be.

But let's assume for the moment that I'm approximately correct. One obvious question is, would they actually do this?

It's like a nuke. Generally speaking, no. Firstly, the main aim will be short term chaos. The effect on interest rates will likely be temporary, and the Fed will find some excuse to declare that all the financial institutions aren't actually insolvent at 5pm, no matter what market prices say. The currency play is harder for them to deal with, but also speculative as to how big the effect will be, and if its actually worth it. Maybe the US decides its okay with a weak dollar after all? Many other places are okay with this policy. Stranger things have happened.

Actually, it's not even like a nuke, as much as being like two guys in a bar fight, and one of them is threatening to burn the whole bar down, but he's standing closer to the door, so he won't get burned as much. Chinese financial institutions will suffer too. Chinese exports will suffer, big time. And it's a large gamble to see who else goes along, somewhat like a leadership challenge in a parliamentary system. The votes are taken by all the other countries. If you win, you can win big, but if you lose, you're off to the back benches or worse.

But thinking about it in this way misses a larger point. Are nukes pointless simply because in equilibrium its unlikely they'll get used? Wrong. As long as the threat to use them is somewhat credible, they can make excellent negotiating chips.

And this isn't just hypothetical. This actually happened. 

In 1956, during the Suez Canal crisis, Britain, along with France, decided to implement a military initiative to take back the Suez Canal, which Egypt's President Nasser had recently seized off them.

They felt that, as sovereign countries looking out for their own interests, they could just go ahead and do it.

Wrong answer. 

You know who was annoyed at not being consulted? Dwight Eisenhower. So what did he do?  He called up Sir Anthony Eden, and among other things, he threatened to dump the enormous US holdings of British War Debt, while simultaneously cutting Britain off from borrowing. The pound would tank in value, and Britain would be in chaos. The chaos didn't have to be permanent, necessarily, though it might be. But it would certainly last long enough to permanently end the political career of Sir Anthony Eden.

And so Eden backed the @#$% down.

If there was one day where it became completely clear to all concerned that the US was now the world's financial and military hegemon, this was it.

Maybe the Chinese will never do it.

But you'd be a bolder man than I to think that they'd never threaten it

All I can say is that I hope some of the smart people at the Fed are thinking about this more than I am.

Saturday, November 17, 2018

Out of the dust, a new empire

I recently watched Empire of Dust, the 2011 documentary about Chinese development in the Democratic Republic of Congo.

Perhaps you, like me, have trouble keeping straight in your head which is which between Congo and the Democratic Republic of Congo. Congo has Brazzaville, and is merely very bad. The Democratic Republic of Congo has Kinshasa, and stakes a strong claim to being among the worst countries on the planet. An easy mnemonic is that because democracy makes everything in Africa worse, the Democratic Republic of Congo is obviously the bad one. The DRC is a country so screwed up that you can have a war where 5-6 million people die, and you never hear about it because the whole thing is so confusing and depressing that nobody knows what narrative to give, and it's hard to cast as a simple morality play.

I'd seen the trailer linked in a few places, and wanted to watch the whole thing. If you don't have the patience for the remaining 75 minutes, the trailer below is well worth watching for a flavor:

The whole documentary can be found here.

As is appropriate, the trailer contains the most hilarious and quotable lines. No-BS Chinese guy (Lao Yang) delivering some tough realtalk to an African guy (Eddy), saying that the latter's country was left lots of infrastructure and development potential by the colonials when they left, and they (the Congolese) squandered it all through laziness and poor governance. Plus since the Chinese guy is actually working there, he has a lot more scope to claim that he knows whereof he talks. In other words, you can't just accuse him of ignorance - have you been to the DRC? Of course not. So if you don't like his words, you have to find some other angle of attack.

To a western audience, it has the wonderful frission similar to playing cards against humanity - hearing someone utter hilarious taboos, but here with the possibility that they might be true. Eddy gives textbook rationalizations, but with a look as though he doesn't really believe them, and just smiles as he's called on them. Meanwhile, Lao Yang has the easterner's qualified immunity from charges of racism that forces the audience to listen a little longer. Of course, modern progressives would say he is racist (I think - it's hard to keep track of whether minorities can still be racist in The Current Year, or whether the Chinese count as minorities). But in any case, even if one could address him directly, one knows with certainty that if you accused him of racism, neither he, nor his employers, nor his countrymen, would give a flying fig. Take away the power of accusations of witchcraft, and watch how quickly people lose interest in the whole topic of witches.

While the density of both hilarity and insight is lower in the rest of the documentary than in the trailer, it is nonetheless interesting. Because while the trailer mostly gores progressive oxen, the rest of the documentary contains parts that might somewhat surprise a reactionary.

In particular, when the subject of the Chinese in Africa comes up, the standard perspective seems to be that the Chinese are swallowing the choicest parts of the continent in a quest for resource extraction and strategic pieces of infrastructure. They are on track, so the narrative goes, to be the continent's next colonial powers, and probably a lot less charitable than the Europeans they belatedly replace.

If the documentary has one lesson, it is this: rumors of a massive Chinese empire rising rapidly on the African continent are greatly exaggerated. Instead, one gets the impression of Chinese management having to battle with the same problems as everyone else in Africa.

Suppliers are unreliable. Lao Yang drives for a long time to try to find a gravel supplier for his cement project. When he gets there, the workers are standing idle around the machines, because the boss hasn't turned up yet. It's midday. They don't know when he'll be in. They've called him. They can't do anything until he arrives.

Indeed, similar problems arise with the Chinese company's own native workforce. It's a rotating cast who sometimes turn up, and sometimes don't. They need to have basic instructions repeated to them. Don't lose your equipment, or your pay will be docked. Don't slack off, but take your work seriously. Don't steal from the worksite. These are all things that I wouldn't have thought to mention as a manager, since they seem to go without saying. Apparently, not in the DRC. Various Chinese employees recount how they would leave a worksite having given instructions for the Congolese to complete a task, and find out later that the whole Congolese workforce had just wandered off ten minutes later.

The other slightly incongruous aspect that you might be pondering from the trailer - how did they find a well-dressed, eloquent, Chinese-speaking Congolese guy to be the interlocutor to the main Chinese boss, in the middle of nowhere DRC? And why is he so willing to just sit there and take Lao Yang's abuse? You quickly learn that Eddy is the translator, so doesn't really have a choice in the matter. He seems quite competent, and indeed a workforce of Eddies would likely do well. But the rest of the workers seem cut from quite a different cloth. And even with Eddy, one senses flashes of resentment and dual loyalty. When talking with a gravel supplier, Lao Yang is trying to find out where the guy is buying it. Eddy tells the Congelese gravel guy that the Chinese will just try to buy the entire operation - in other words, don't tell him, because it will put you out of business. Eddy of course doesn't translate this part of the discussion back into Chinese, but we as the audience get to hear both parts.

All of which might make you wonder - why do the Chinese put up with all this? Why don't they just bring in their own workforce? Towards the end, one gets the answer. They don't have a choice. Far from being a superpower, in the middle of the DRC, they're a very small minority, and their continued viability is dependent on them being able to give jobs to the Congolese, and presumably grease enough palms in the local government that everyone finds them to be beneficial overall.

Indeed, for all the claims about how the Chinese will make nasty neo-colonial dictators, the overwhelming attitude of the Chinese characters to their Congolese workers and circumstances is weariness and low level frustration. There's little evidence of abuse, or terrible work conditions, or even any threat of force whatsoever. It's quite possible that this exists, and the filmmakers just chose to not depict it in order to get access. Yet the picture presented seems credible, and you can see why. The workers in the Chinese company are basically like a foreign embassy. They're a tiny number of foreigners who are not only far from home, but far from any help that home can offer. If the natives turn hostile, you're done. The ability of the Chinese to project force into the middle of the DRC in a targeted, credible way on short notice is pretty damn close to zero. The same would probably be true for westerners, to be honest. If you all get chopped up, what's the Chinese government going to do? Send its one aircraft carrier to bomb random bits of the DRC in revenge? The country barely even has a functioning government. What would it even achieve?

And so you just have to muddle along as best you can. The narrative of the story is primarily about the attempt to find gravel for a cement factory, and the various travails they encounter along the way. It's portrayed as a microcosm of the struggle of the whole Chinese project. And the general sense one gets is that it's far from obvious that they'll actually succeed. The things that would make it hard for you to get a successful commercial operation going in the DRC are pretty much the same problems that the Chinese face. In the battle between Chinese commercial zeal, and Africa's intractably inhospitable commercial environment, it's not clear who to bet on.

There's a related aspect, which reactionaries will admit about China, but then oddly forget when it comes to the Chinese in the African context. To wit: the Chinese approach to development isn't exactly first rate either. It tends to be a bit slap-dash and poorly planned, with strong central demands to just get things done resulting in buildings that have a habit of falling down, collapsing holes in sidewalks, poisoned baby formula etc. And that's in China. In other words, this ain't a Japanese Just-In-Time inventory management system. When Lao Yang finally finds a potential gravel supplier, he can't tell him exactly how much gravel he's going to need, or when he's going to be paid. Lao tells him, essentially, I'll pay as the money comes in. To which I found myself thinking - they haven't committed the damn money yet? Stop just blaming the Congolese if your own lines of credit aren't set up. How is this guy meant to plan ahead to supply you with gravel if you can't give him a clear timetable of what you need and when?

And if you know anything about operations management, you know that the problem of unreliable suppliers has a well known solution - stockpile inventories in advance to take into account the estimated distribution of delays, so you only have a managably low probability of running out. In other words, it's only the first instance of delay that is a good excuse for running short. If you know you're dealing with jokers, you should be able to at least partially plan around them being jokers. Did the need for gravel just suddenly arise yesterday? Was this an unanticipated event in the development of a cement factory? Don't make me laugh.

Instead, for all the view of China as a monolith engaging in development, the individual Chinese managers seemed pretty much on their own, trying to scrounge around as best they could, and not always succeeding.  In other words, watching the documentary I came away with an unexpected feeling of sympathy for the Chinese in the DRC. Maybe they're going to take over the place, but it's going to be a hell of a slog in the mean time for the people on the ground. It's like with neighbourhood development. Sometimes, the gentrifiers beat out the ghetto. Sometimes the ghetto wins. It's not always easy to say in advance which way it will go.

But I can say the following. The Holmes Investment Trust is sure as hell not going to be setting up any cement factories in the Congo anytime soon.

Thursday, November 8, 2018

The Button C Option

As I've been forced to contemplate recently, otherwise sensible people in America love democracy. They'll look at the ridiculous farce that is the way government actually runs, and agree that it's a total goat rodeo. They'll reflect that their interactions with government are usually maddening, kafka-esque exercises in surrealism. And boy howdy will they vent at long length about the apotheosis of the US voting system, the current occupant of the White House.

And yet, when all that's done, they'll be genuinely shocked when you tell them you didn't vote, on principle, and that the whole idea strikes you as stupid.

In many ways, the tragedy is not just that people have such a misplaced, sentimental attachment to the current system.

Rather, the tragedy is a lazy form of status quo bias, where people can't conceive of any alternative to the status quo, unless it's already been tried. They fall back on that maddeningly stupid Churchill quote about democracy being the worst system of government except for all the rest.

As a side bar, whenever people say this, I like to remind them of what else Churchill said on the subject of democracy. He wrote an imagined conversation with his late father, Sir Randolph Churchill, which he only wanted to be published posthumously.

"War", he [Randolph] said, sitting up with a startled air. "War, do you say? Has there been a war?"
"We have had nothing else but wars since democracy took charge."
"You mean real wars, not just frontier expeditions? Wars where tens of thousands of men lose their lives?"
"Yes, indeed, Papa,", I said. "That's what has happened all the time. Wars and rumours of war ever since you died."
"Tell me about them."
"Well, first there was the Boer War."
"Ah, I would have stopped that. I never agreed with 'Avenge Majuba'.
It must have taken a lot of soldiers. How many? Forty thousand?'
"No, over a quarter of a million."
"But what happened in the Boer War?"
"We conquered the Transvaal and the Orange Free State."
"England never should have done that. To strike down two independent republics must have lowered our whole position in the world. It must have stirred up all sorts of things."
"What flag flies in Strasbourg now?"
"The Tricolor flies there."
"Ah, so they won. They had their revanche. That must have been a great triumph for them."
"It cost them their life blood", I said.
"But wars like these must have cost a million lives. They must have been as bloody as the American Civil War."
"Papa,", I said, "in each of them about thirty million men were killed in battle. In the last one seven million were murdered in cold blood, mainly by the Germans. They made human slaughterhouse pens like the Chicago stockyards. Europe is a ruin. Many of her cities have been blown to pieces by bombs. Ten capitals in Eastern Europe are now in Russian hands. They are Communists now, you know - Karl Marx and all that. It may well be that an even worse war is drawing near. A war of the East against the West. A war of liberal civilisation against the Mongol Hordes. Far gone are the days of Queen Victoria and a settled world order. But having gone through so much, we do not despair."
He seemed stupefied, and fumbled with his matchbox for what seemed a minute or more. Then he said:
"Winston, you have told me a terrible tale. I would never have believed that such things could happen. I am glad I did not live to see them."

Tell me, dear reader, when you compare the above passage to his celebrated one-line quip, which one seems closer to a raw, honest assessment of the matter? And which one sounds like a punch line to gin up the rubes?

The most important starting point, which I'm always trying to find different ways to impart, is to dislodge the idea that we've exhausted all possible alternatives in the search space of types of government.

Suppose we have an evolutionary process, where different places find different types of government, and the more successful ones reproduce and crowd out the weaker ones.

If we had that, then perhaps we would observe what we find today - the seemingly richest places tend to all love voting.

But to be convinced that you're at an optimum, you need to have faith that there actually is a genuine search process across the range of governments. That the prevalence of democracy is the result of a genuine optimisation, not just military imposition.

To my mind, I see shockingly little experimentation with genuinely different forms of government, even at small scales.

And when one does find stuff that seems pretty good, and doesn't fit the modern narrative of how to produce strong governance (British Hong Kong, Lee Kuan Yew's Singapore, the late Austrian Empire), for some reason that doesn't raise any curiosity as to whether these might work in the modern west, or what other variants might be possible.

So along those lines, here's a Holmes thought experiment that I find works quite well to at least get people thinking.Take a generally educated person, liberal or conservative, and present them with the following.

Suppose we have an election, and there are several buttons you can pick.

Button A gets you Hillary Clinton as president.

Button B gets you Donald Trump as president.

Button C randomly selects a CEO of an S&P 500 company, and (assuming they're willing), makes them president, with another similarly chosen CEO as vice-president. (If you want to be be more stringent, require that their firm's stock return has beaten the S&P 500 Total Return Index for the past 5 years)

Button D is the same as Button C, except it also gives the new CEO-president essentially dictatorial powers - they have a fixed term of office, but they can do everything they could do as a corporate CEO, including setting budgets, firing anyone they want, determining organizational policy - the whole lot.

These are the options on offer.

Me? I'm a Button D guy.

I can definitely see the argument for Button C.

But I'm utterly mystified as to why anyone would pick Button A or Button B.

Actually, this is not quite true - most major companies are chock full of pozz and stupidity, as hilariously documented by the twitter feed Woke Capital. So maybe a CEO would be more leftist, and if someone wanted to argue strongly for Trump instead of Button C, I could understand.

Nonetheless, I think we can agree that to most people, Buttons C and D present as fairly compelling possibilities.

Meanwhile, the Holmes experiment is a very minimal modification to the current one. Take the options from the last presidential election, which everyone was so jazzed up over. And just add a few more. Nobody likes them? Nobody votes for them! Problem solved. As the economists say, what we have is simply a degenerate case of the Holmes plan (for both meanings of the term "degenerate", as it turns out).

But both Buttons C and D select for several very good things.

First, competence. The person is actually able to run a major corporation.

Second, they don't actually want the job. Anyone desperate enough to go through the total farce that is the years long presidential selection process is probably so narcissistic and desperate that I don't think I want them to actually be in charge. It's a variant on the Groucho Marx quip - the club shouldn't let in anyone too desperate to be in the club.

Third, (and this is something that the right probably has to grudgingly admit) gravitas. This is something always worth emphasising to Dems. Whether you like Trump or hate Trump, it is hard not to see him as a significant step down the road towards President Dwayne Elizondo Mountain Dew Herbert Camacho from the movie Idiocracy. The guy appeared on WWE, for crying out loud. Meanwhile, Marcus Aurelius wrote one of the classics of stoic philosophy as a personal journal that he didn't intend anyone to see, while leading active Roman military campaigns. I'm just saying, it wouldn't hurt to aim a little higher in terms of kingliness.

And fourth, (this is more Button D specific), simply having unified authority and responsibility would be such an improvement on the current debacle that I'd be willing to roll the dice (literally) on which competent executive gets to run it.

But if you decide Button D is too risky - hey, I understand! That's why I'm willing to compromise on something moderate and reasonable, like Button C.

And in my experience, a surprisingly large fraction of educated people will agree that Button C would be a superior technology to our current system.

Which gets to the point, that I like to drive home.

We could actually have Button C if we wanted to.

There's no technological obstacle. I'll write the code that scrapes the list of names and draws from the Excel random number generator. It won't take take me long.

And if you're willing to seriously contemplate Button C, why are you so attached to the nonsense that we have now? Why do you keep unthinkingly repeating that democracy is the best system of government possible?

In case it wasn't obvious, I don't at all think that either Button C or Button D is anywhere near the best we can do.

But they're not crazy. And if they spur people to think of better variations... mission accomplished.

Wednesday, October 24, 2018

The Protocols of the Elders of Albion

As part of my slow, winding journey through the canon of Moldbug primary sources, I recently finished Ernst Graf zu Reventlow's "Vampire of the Continent". Moldbug describes it as "German World War I propaganda", and I think that's a fair description. If you know what I think on the subject of propaganda, I don't think this should even vaguely be a knock against reading it. A quick test is the following: can you accurately summarise a case for why the German cause in WWI was just? If not, chances are that reading a strident defense of the cause will be quite illuminating.

That said, the book is less a strict account of the leadup to WWI, and much more a general slander on Great Britain's character and history. You can think of it, in other words, as the Protocols of the Elders of Albion, except that instead of being a forgery that purported to be from the mouths of Britons themselves, it's just a standard case for the prosecution. Because the approximate message is "England is responsible for screwing up European countries for the last 500 years". This is an interesting counterpoint to the usual sins of the British Empire from the leftist perspective, which tend to wax lyrical about its treatment of native peoples in its colonies. But you seldom hear very much at all about its apparent injustices against other European countries.

Reventlow's history of England proposes several key aspects to the English character. In his telling, in the 16th and 17th century, England was essentially a pirate nation, using its large fleet to slowly predate on other nations' shipping. Having then an advantage on shipping, it used this to take over other European colonies - once cut off from reinforcements from home by the shipping advantage, they were unable to withstand English naval attacks, and so even though England discovered relatively few new land areas itself, it nonetheless ended up with a very large empire. From there, it pursued a strong policy of mercantilism, reacting hostilely to any other nation that seemed to be developing a significant trading and shipping business, partly by securing rights in foreign ports which it then used to monopolise trade in those areas. Finally, it pursued a policy on the continent of setting one European power against another, using others to fight its battles and form alliances against whichever country was looking most threatening at the time as a potential competitor.

Let's take this as all being true, if just for the purposes of argument. There's a couple of responses one might have to this as a European, and specifically a German:

1. Huh! Those Brits really are better at the Great Game than we are, and we are dupes and fools for repeatedly being suckered and bested. Hats off to them!

2. The British succeed by using low and disreputable tactics that mark them as villains and blackguards. They are hostis humani generis, and all civilised nations should ally to defeat them.

It seems pretty clear that #2 is what Reventlow is going for. He embraces the second half of #1 (many Germans are too honest and too naive to understand Britain's perfidy), but he seldom acknowledges what a Machiavellian would say - the Brits played a tight game, and honor be damned when it comes to nations.

You see this interplay in a variety of places. For instance, during the Napoleonic Wars, England's main early contribution was... the destruction of the Danish Navy in 1807. This was for the crime of continuing to trade with revolutionary France, but also just proved handy in general, because it's one less country with a threatening navy. Meanwhile, Spanish and German troops did most of the actual fighting against Napoleon, and Europe as a whole ended up significantly weakened.

#2 works pretty well for describing the ways Britain strangled other countries' navies and trade, which seem pretty grim, if effective.

But take #2 has a much harder time with the issue of why other European nations kept lining up to fight its battles. Ally with the Dutch to fight for independence against the Spanish when Spain was strong, and do so in the name of protecting Protestantism. Keep this up until the Dutch look like they might be getting too strong, then ally with France to fight the Dutch.  Ally with the German nations to beat Napoleonic France. When the Russians start looking too strong and might threaten business interests in Asia, ally with the Ottomans and the French to fight them and let the French take most of the casualties. Stay out of it when Prussia and France fight each other. etc.

In the Reventlow telling, Britain's opposition to Germany came relatively late, in part because Germany had been devastated by the 30 Years War. Hence the policy of "gang up on the most threatening European power" didn't turn its attention to Germany until the late 19th and early 20th century. Reventlow claims, quite credibly, that without the devastation of the 30 Years War, Germany might have been a major power much sooner.

If you want a summary of the mindset that does purport to be exactly the same sentiment, except spoken from the mouths of British civil servants, Yes Minister does it quite well:
Sir Humphrey: Minister, Britain has had the same foreign policy objective for at least the last five hundred years: to create a disunited Europe. In that cause we have fought with the Dutch against the Spanish, with the Germans against the French, with the French and Italians against the Germans, and with the French against the Germans and Italians. Divide and rule, you see. Why should we change now, when it's worked so well?
Hacker: That's all ancient history, surely?
Sir Humphrey: Yes, and current policy. We had to break the whole thing [the EEC] up, so we had to get inside. We tried to break it up from the outside, but that wouldn't work. Now that we're inside we can make a complete pig's breakfast of the whole thing — set the Germans against the French, the French against the Italians, the Italians against the Dutch... The Foreign Office is terribly pleased; it's just like old times.
Hacker: But surely we're all committed to the European ideal?
Sir Humphrey: [chuckles] Really, Minister.
Hacker: If not, why are we pushing for an increase in the membership?
Sir Humphrey: Well, for the same reason. It's just like the United Nations, in fact; the more members it has, the more arguments it can stir up, the more futile and impotent it becomes.
Hacker: What appalling cynicism.
Sir Humphrey: Yes... We call it diplomacy, Minister.

Cynical, and yet apparently very effective.

On the other hand, there are certain actions that England took that do just look straight out predatory. If one is trying to evaluate a theory like the current one, it's somewhat useful to find facts where the theory offers a competing explanation to the standard one. Of course, to evaluate the relative merits often requires a lot more research. An easier test for the lazy, and somewhat more illuminating one, is to find facts where one realises that one essentially has no theory at all, and this offers the first one.

For instance, why is Quebec part of Canada? I knew about the Battle of the Plains of Abraham, and the question of how it ended up part of Britain's colonies. But there's the other question of why. Suppose that you were a generally civic-minded leader of Britain. You already had a lot of colonies in North America by 1758. Not only that, it's a gigantic continent with a relatively sparse population, mostly made up of Indians that you have been pretty successful in driving out. The French have a few colonies up in the frozen north. Where would you choose to expand? Would you:

a) Live and let live, leave the French to their part, and settle somewhere else up the enormous East Coast of North America? Prosperous French colonies will then come to our aid if needed, or at least make good trading partners.

b) Instead of taking uninhabited land, engage in a seven years' long conflict to crush and subjugate all the French colonies in North America?

Obviously the answer is b)! And that's why you're some nice guy reading a blog, and not the leader of a world-bestriding empire.

Or, to take another example - what the hell happened to Spain? How did it go from being the most powerful country in the world in 1500, to being a joke and a basket case by 1900, getting humiliated and having most of its last of its colonies taken off it by the US?

I suspect most people don't have a good answer on hand to this question, other than some shrug and reference to the tides of history. But Reventlow has a theory. And it's that Britain invested heavily in shipping, and used this to predate on Spanish treasure ships coming back from its colonies. England fought off the Spanish Armada and sank a good fraction of its ships in 1588, carved off various colonies and bled Spain the War of the Spanish Succession (while again letting continentals do most of the fighting), fought the Spanish fleet again at Trafalgar, etc.

Spain's power was, in this retelling, worn down by British political intrigues, military attacks, predation, and the slow grind of centuries that didn't have a decisive single moment that you can readily point to.

Is this the full story? Almost certainly not. Does it have a ring of possible truth to it? You bet. Do you have a better theory? If so, leave it in the comments. I sure didn't.

Similarly, I didn't know exactly what happened to Holland either. There was the Dutch Golden Age starting in the mid 1600s, and ... then what? England allying with France to defeat it, and then subjugating it further in the War of the Spanish succession, is a definitely plausible theory.

The question is, should we be outraged? Reventlow wants us to be, but the basis for this is not exactly obvious. Full Machiavellianism is an entirely defensible position when it comes to international relations - whatever works. Reventlow views it as unsporting or ungentlemanly to predate on other Europeans. But one doesn't have to be a full leftist to see that there's quite a large ethical blind spot as to how the European powers got their colonies in their first place. It being the early 20th century, the native peoples don't even rate a mention. But even more strikingly, not everyone who we would consider modern Europeans even rates a mention. The most hilarious instance of this is from the translator (an Irishman)'s introduction:

Founded on piracy, the British Empire has been built up at the expense of humanity. The English commenced by robbing the Spanish treasure-ships — acts of murderous and dastardly brigandage which are held up to Englishmen to-day as deeds of prowess. 
They continued by robbing Canada and the States from the French, Gibraltar from the Spaniards, India from the French and the Portuguese, South Africa from the Dutch, Egypt and Cyprus from the Turks, Malta from the Italians — and last, but not least, Ireland from the Irish. 
Germany, in fighting for her own existence, is fighting also for the liberation of the world. The great day of liberation will surely come, sooner or later. The condition sine qua non of that liberation is the destruction of England's maritime supremacy. 
For as long as England rules the waves, humanity must remain her slave. This is a fundamental truth. And another fundamental truth is that England's maritime supremacy cannot be destroyed until IRELAND IS A FREE COUNTRY. 
The one criticism which can be levelled against Count Reventlow's admirable work is that it has not sufficiently insisted on this second great truth. As long as Ireland remains a British colony — or, rather, a British fortress — England can at any time shut off the whole of Northern and Eastern Europe from all access to the ocean; even as, by means of Gibraltar and Port Said and Aden, she can close the Mediterranean. Ireland is the key to the Atlantic. Release Ireland from her bondage, and the Atlantic is at once opened up to Europe. 
Therefore must Ireland be restored to Europe, if Europe is to be free. An independent, neutral Irish Nation would be the natural bulwark of European liberty in the West. The freedom of Europe depends on the freedom of the seas ; and the freedom of the seas depends on the liberation of Ireland. 
In other words - I spent ages translating this damn thing from German out of a hatred of England, and this bastard doesn't even have the courtesy to mention Ireland anywhere. The hilarious part of this pitch is that he's left arguing that Ireland is actually super strategically important you guys!!! . Reventlow didn't forget to mention us because we're unimportant peasants whose rights get reduced to zero in the same way the Native Americans and Caribbean people do, no, he did so as a terrible strategic oversight.  It's not enough to say "I'm pissed because I happen to be Irish", no, you, American reader, should be convinced of the importance of liberating Ireland for the sake of its crucial role in global peace. Ireland was, of course, liberated in 1922, at which point a lasting peace broke out and England was no longer able to threaten anybody on the continent. Of course.

Stealing, in both the Reventlow and translator world, is a crime, but only if carried out against other Europeans. These days this doesn't strike us as a particularly compelling moral line in the sand, but that's all the more reason to read what people actually used to think. This was considered a sufficiently plausible viewpoint that the Germans paid to get the English translation shipped to the US, during WWI, by U-Boat. I didn't even know they had them in WW1, but there you go.

There are lots of other nuggets in there that are fascinating too. For instance, King Edward VII was claimed to have played a significant diplomatic role in 1904 in personally steering diplomatic efforts with regard to the Austrian Empire, and would make annual visits to the Austrian Emperor to this effect. This is something I'm always apt to forget, but Henry Maine would be at pains to emphasise - Kings in England had real power, long after the Glorious Revolution, and their influence was only lost slowly and gradually. Apparently in 1900 they were still significant players in setting state policy.  

The other aspect that's interesting is that the leadup to WW1 is really freaking complicated. My school history class just parachuted us in at the assassination of Archduke Franz Ferdinand by Gavrilo Princip as being some sort of trigger of an odd set of alliances, without any real explanation of who he was or why. The fact that Austria had just annexed Serbia wasn't mentioned, let alone the question of why they'd done so (Turkey under the Young Turks was threatening various Austrian possessions, and Austria in turn... see, I told you it was complicated). 

Finally, another reason to read it is to get a view into a very old and very unfashionable mindset these days - mercantilism. The Reventlow depiction of the English is almost incomprehensible to a reader steeped in modern economics. When other nations go into recession, that's bad news for us. Comparative advantage and trade make us all richer. We want other countries to become rich, to buy more of our stuff. 

Yeah, not these guys. They want other countries broke and isolated, because this ensures they won't be a political threat, and lets us ship more of our own goods to other countries to dominate international trade and shipping.

It may be dumb economics, but is it dumb politics? That's much harder to say. And given how successful the Brits were at it, if you believe Reventlow at all, you have to give the idea more credit than you might have otherwise.

Overall, the case is obviously a highly partisan exaggeration, but an informative one nonetheless. There is a right wing case against the British Empire, even if it's largely forgotten, and even if it's somewhat confused.

When all is said and done, I'll give Reventlow this: the old school English were some tough and shrewd bastards, who played a tight game for centuries, and were stone cold killers if you got on the wrong side of them. No matter what you think of the overall merits of the British Empire, if you were standing on some land that they decided they wanted, in the immediate future you were going to have a pretty bad time. A contrary to what modern leftists would have you believe, being Spanish or French, as opposed to Native American, Indian, African or anything else, didn't commend them to you in the slightest.

Monday, September 10, 2018

The other counterfactual to wasteful childhood spending

In the modern world, much parental investment in their children is wasted. Parents would almost certainly be better off investing less per child.

They overinvest relative to what the twin studies reliably tell us we should do. Genetic influence is large for most things we care about (e.g. 62% for core educational achievement in the UK. Or if you want a wider sample of traits, look at Table 1 here and see how many are in the category of "high heritability"). Not only that, but most parenting is in the category of common environment, in the language of twin studies - non-genetic factors that are common to both twins in a family. And shared environment generally doesn't do very much, particularly for outcomes measured in adulthood. Which means that all the things you do in common for your children, whether it's the choice of school district, or commonly instilled values, or not having a TV in the house, or whatever... none of them do that much. The components of that which cost you money are probably money spent in vain. The environment terms that do seem to matter are mostly idiosyncratic environment: the non-genetic factors that differ between two twins in a family. Unfortunately, we don't really know what these are. People like to talk about peers at school, but it's also parasites, and head trauma, and infectious diseases, and measurement error, and lots of other weird things.

To sum all this up - parenting doesn't matter very much. It certainly doesn't matter nearly as much as people these days think it does. The main reason nobody notices this is that parenting is nearly always correlated with genetic variation. What matters is if you have the kind of genes that would make you want to read a book to your children each night. Whether you actually read the book or not is far less important. Outside of twin studies, adoption studies, and a few other places, these things are very difficult to tease apart.

But I suspect a lot of people will instinctively resist this conclusion. Am I really saying parents should spend less on their children? People being what they are, they will resist the scientific validity of the above claims because they sound like they're implying parents should be more stingy towards their children. How could I be so heartless and selfish!

First off, if you're ever tempted to deny basic facts just because you don't like the conclusions that flow from them, you're so many levels deep in shonky motivated reasoning that I don't know how to help you.

But more importantly, you're assuming a particular counterfactual, one which I never stated.

I said that parents should spend less per child. And that's true.

When I say that, you're assuming that the relevant tradeoff is "take the money you were going to spend on maths tutoring, and spend it on a fancy new car for yourself". In other words, you make the choice between altruism and selfishness, and then declare yourself righteous by advocating on the side of altruism.

But spending-per-child has both a numerator and a denominator.

People only seem to think of the numerator, to spend less in total. Of course, there's another way to reduce spending per child. Namely, hold total spending constant, and have more children.

And it's bizarre that this is almost never the tradeoff that people think of, even though they should. The real tradeoff should be "skip the maths tutoring and have one more child".

When phrased this way, the choice is much harder to feel righteous about, because now altruism is stacked on both sides of the ledger. And the altruism is actually quite jarring when considered explicitly.

"I'm saving for my child to have a debt-free college experience at the best university possible! What could be more noble than that?", asks John Q. GenXer. Well, let's phrase it differently. Suppose that you have two children, and you want to pay for both of their college. You're setting aside, what, $400K or so? In practical terms, that would go an awfully long way towards funding the entire existence of child #3. Suppose you had to confront the actual child #3, in some hypothetical universe. You have to tell him, "Sorry, son, I chose for you not to exist so that your older brother wouldn't have to have college debt."

Put that way, it doesn't sound nearly so noble, does it? In fact, it sounds downright disturbing and shallow.

And yet that's the actual alternative being faced. It doesn't feel that way, because the children you don't have aren't salient, or even fully real. But if they were, they'd be much harder to treat so callously.

The "aborted daughter" meme made this point very powerfully:

The late, great Gary Becker made a similar point, in the language of economics. People don't love their children, as much as they learn to love them. Because exactly as above, at some point people typically make a choice to stop having more. And yet if the children came along by accident, they'd love them anyway, very intensely, and would risk their lives to save them. But ex ante, they go to considerable lengths to make sure the children don't exist in the first place.

People aren't perfectly altruistic, of course. Surviving on zero sleep for 10 years, instead of 4 years, is a non-trivial difference to one's quality of life over the period. If a couple decides they simply can't do any more, so be it. Let he who has donated all his wealth to charity cast the first stone.

But there is a group of people for whom the alternative counterfactual is crucially important. These are the couples who feel that they might like to have one more kid, but they just can't afford it. Those are the people who are making the wrong choice. The piano lessons and the maths tutoring don't matter. If endless driving the kids to weekend soccer is too hard, just don't put them on the soccer team. They'll survive. If you don't have a huge house, then maybe they'll have to share a bedroom. People have turned out just fine, starting with much worse.

Have one more child, and spend less on each one.

The spending doesn't matter. The child does.

For the world, firstly. And for the child themselves.