dlg – Sweet Talk

My latest at EE is a stab at a Schumpeter-Knight-Kirzner-North synthesis. Boiled down, I find it useful to distinguish risk, uncertainty, and non-ergodicity as zones in a function of decreasing knowledge of possible outcomes. Risk describes well-governed, well-understood probability functions. Uncertainty describes well-governed, but poorly understood probability functions, and non-ergodicity describes wild probability functions. Another way to think about it that risk is a threat to an individual, uncertainty is a threat to a firm, and non-ergodicity is a threat to society. I’m not sure if the way I parse these ideas are capital-T True, but to me this is useful. At the risk of immodesty, that’s good enough for me.

Protection against the unknown satisfies deep atavistic cravings common to many species. In humans, this desire is strong enough to divert many billions of dollars into insurance schemes of one sort or another. A, if not the, function of the finance industry (or at least the vibrant, robust derivatives markets) is to allow people to pool and trade risk (even when what they’re actually trading is uncertainty), easing tensions about the obscure future, permitting long-term planning and investment. Read through a 10-K sometime and you’ll see that quite a bit of the fluff is devoted to talk about how the firm devotes resources to contingency planning and how well diversified they are. One of the big reasons many economists flog the virtues of a stable rule of law is that the productive capacity of the many industries of the nation suffer when the threat of capricious expropriation looms.

I submit to you that the hedge we enjoy against big social upheaval (by this, I mean developments that destroy entire industries, change the political process, or result in mass migrations) is rhetoric. If citizens are comfortable with the decline of patterns of production and exchange, they will be naturally less prone to petitioning the legislature for redress. A civilization that tolerates dynamism, that accepts the destruction part of creative destruction will more aptly resist ossification. The civilization that yields to truculent Ludditism will waste precious resources on protecting incumbents, shielding defunct industry, and perpetuating inefficiency. A society, in other words, of untempered backwards-looking faith is one that will mire itself in the treacle of the past.

Our best hedge against non-ergodicity is to learn to stop worrying and love what truly matters in life.

The local bar was one they had all started coming to quite recently, but soon they found they couldn’t get away from it. They came not for the brews but for the conversation. No one knew who was the first regular at the place, but slowly a group had formed. They were not entirely like-minded, and certainly not all of the same background or age. But there was something that each of them found in each of the other that kept them coming back; the conversations born of the group were just so much better than any pair of them could have produced.

Francis began to speak, and they hushed up from their various side conversations. For this was their strange habit; they talked all together sometimes, and more often in smaller subgroups, but every so often one would speak up and the rest would listen for a spell.

“Arguments and essays are storytelling, no different in kind than novels or comic books.”

“I think we’ve heard this one before,” Black noted with a grin.

“But you’re taking it kind of far this time,” Ham protested, “storytelling is storytelling, but there are consequences. Some stories help us find truth. Some are responsible for real, material progress.”

“There are all kinds of truth,” Francis continued, “and material progress is stumbled on in a lot of different ways. Engineers playing around with creating the laser just thought they were doing something cool, and now it fixes eyes. Botox was made purely for the purposes of vanity, and now is used to treat chronic migraines.”

“That’s all well and good, but no one ever cured migraines with a comic book,” Van replied.

“Are you going to let him say his piece?” Will chastised.

“Careful about indulging my desire for a captive audience,” Francis said by way of thanks, “different sorts of stories serve different purposes, I’ll grant you all. But most of the time we tell them for the same reasons; because we love stories, we love to explore their structure, play with different ways of telling them, find different endings. It’s the same with philosophy and science. Don’t you find ideas kind of beautiful? Once you really get into them? Isn’t argument really about feeling that your cherished ideas have been tarnished in some way by other people’s?”

“OK, we get it,” Marc jumped in, “ideas are fun. Novels are fun. They’re all stories. We’ve heard this all before, you’ve told this story maybe one time too many. Where are you going with this?”

“You sure are an impatient lot,” Francis replied, “but you’re the biggest addicts of all! None of you are specialists in the areas we tell stories about, yet none of you can cease talking about this stuff, coming up with notions, ideas more or less baked, throwing the spaghetti to see what sticks.”

“That’s what everyone’s getting at dude,” Ron said, “you’re preaching to the choir. We get it. Move on.”

“The best stories never get old,” Francis murmured, and they laughed, and moved on to to less well-worn ground. As the hours stretched out, they peeled off in ones and twos, eventually all returning back to their homes and their families.

Duke and Francis were the last to leave. “I think you’re muscling in on my turf with this approach,” Duke said.

“It’s not polite to break the fourth wall,” Francis replied as they walked out. Duke thought the term came from theater, not prose, but he decided to let it be.