Information, ignorance, trade-offs and system collapse

Posted on April 1, 2020 by Nicholas Gruen

Whoever is doing PR for this virus has certainly come up with a natty logo.

An argument someone put to me today which makes a lot of sense. In the GFC markets collapsed not just because there was too much risk in the system – though there was – but because it was hidden. With the various bits of sub-prime debt sliced and diced into teensy pieces many of which had different risk characteristics anyway, it was impossible for many people on the hook to know their position. And so they couldn’t participate any longer in the market – because people wouldn’t accept them as a counterparty. And so one part of the market seized up after another.

One can distinguish between two approaches to the coronavirus crisis –  high information and low information. In low information countries which can’t locate the risk the trade-off between economic and health policy is very extreme. One needs to lock down the population to get the rate of spread down. These countries include China (early on), most countries in Europe and the US – though people are saying the Germans have better information – and are doing better.

Australia has done a lot of testing but it doesn’t seem to be very well targeted, though no doubt it’s getting better. Meanwhile, Singapore, Taiwan and South Korea have proceeded with much lower disruption to their economies, much less need to lock their population down, because they can track the virus with testing and strong case management of those who test positive.

I’ve previously noted my amazement at the official Australian policy of simply assuming that this will go on for six months because it seemed to me we weren’t given good reasons to believe that it was impossible to get the virus under control and then get rid of it with a short sharp shock of 4 to 8 weeks as New Zealand are trying to do. I now add this point. We were assured again today that we’re in this for six months.

If we can’t transition to a quick exterminate the virus strategy, why can’t we transition to the proven East Asian Strategy in the space of four to eight weeks? I also wonder why we’re not using normal tech much more. If you attend school in Nanjing now, they take your temperature on the way in. If it’s elevated you’re not welcome in the building. With over 80 per cent of coronavirus cases having elevated temperature, it’s a very efficient test.

Posted in Economics and public policy, Health | 2 Comments

Crowdsourcing the crisis: crossing the is/ought barrier

Posted on March 31, 2020 by Nicholas Gruen

I recently reposted my old column on blogging the 2008 crisis and there’s been some great blogging of this crisis. What about crowdsourcing the crisis? To some extent, we’re doing that with people out here in television land suggesting stuff and bureaucrats and politicians ‘triaging’ those ideas along with their own and their masters’ to try to respond to the spectacularly difficult position we’re in.

But having to be funnelled through the bureaucracy, this system is necessarily going to focus on all the big things – which are the most important things at least in the short term. In the longer-term however fine-grained attention to detail is arguably more, perhaps a lot more important. The graphs I’ve used above show the staggering difference in productivity growth over a long period of time between two hierarchies one of which has a functioning system of encouraging and implementing ‘bottom-up’ improvements while the other doesn’t.

When the Government 2.0 Taskforce ran in 2009, lots of people were saying “why can’t we have a Wikipedia of government?” My answer then, as now, is that Wikipedia and open source software were unusual outliers, or to change the metaphor, low hanging fruit. If crowds are to displace the work of well-organised hierarchies they need a focus of convergence. With open-source software, it’s software that works or works better. With Wikipedia, the point of convergence is the NPOV or ‘neutral point of view’. You can’t get agreement on Wikipedia on whether Donald Trump is a good president or not, but you can about when he was born.1

Although there were various near hoax stories, for instance, that the New Zealand police got the police act written on a wiki, the fact is that running a government is not about what is the case, but what ought to be the case. There was also a lot of hype about prediction markets at the time. Prediction markets are fine things, but they’re on the same side of the is/ought divide. They give you insights into the likely state of the world and provide only indirect insight as to what we should do.

The point of convergence is not just a guide for participants in their own work and in their choice of whose work is published (on Wikipedia) or enters the codebase (in open source software). It’s the principle around which a deep and hierarchical meritocracy is built.2

In deliberative discussion which is necessary to decide good from bad policy, we’ve not done so well. At the time of the Government 2.0 Taskforce. we pointed to the way in which the new tools held out hope of such a possibility but didn’t say much about how to build them. I went on a lot about the prospects it gave for the existing system to open up to new possibilities – for instance in identifying new talent. It still could, but existing systems aren’t very good at doing that.

But at the same time as the possibility of opening up discussion more widely presented itself, so the scope for media gotcha also ramped up. There were now millions of pairs of eyes looking for opportunities to misrepresent officialdom and get the resentment spiral going for their side of the ideological divide, or maybe just for kicks. And the incumbent system was already paranoid about being misrepresented, as well it might have been, given the mass media’s lack of interest in asserting its own role in being an active ‘umpire’ of partisan debate – it was simply optimising eyeballs and clicks long before social media revved up the effect.3

So we needed to explore digital tools to establish more meritocracy online. As I’ve argued elsewhere, that is a critical part of the middleware of democracy about which we’ve done next to nothing. As far as policymaking is concerned, shortly after the conclusion of the Government 2.0 Taskforce, a couple of volunteers helped me build a demonstration site which was an attempt to work towards a solution to these problems.

I chose fiscal policy as a good area in which to build a proof of concept. Below the fold is an edited version of a concept document produced then.  Continue reading →

  1. Just to drive home the point, the NPOV even works if you can’t agree even on that. Then you can agree on the disagreement about the source. “The NYC records say Donald Trump was born in NYC on June 14, 1946, but Barack Obama has raised doubts about this and has presented evidence that Donald Trump was not born, but rather hatched and that this took place in 1947 in Kenya”. ↩
  2. As I wrote here,
    • The vast outpouring of content available on the internet also means that one of the critical services provided by platforms is the filtering of content.
      • In purely social networks like Facebook and Twitter ‘friending’, ‘trending’ and ‘tagging’ provide principle means of filtering.
      • However, where users are interested in the quality of the content, either the project hierarchy filters good from bad content itself a la Wikipedia or it establishes a means by which reputations can be judged. Thus eBay records and presents reputational information to enable users of the site to identify good trading partners. Other sites like Slashdot have built organic, meritocratic elites within the project based on the community’s perception of the quality of individuals’ contributions with enhanced influence rewarding enhanced reputation.

    ↩

  3. See this post, especially section III for examples. ↩
Posted in Democracy, Economics and public policy, History, Politics - national, Web and Government 2.0 | Leave a comment

The master, his emissary and the balance of risk

Posted on March 27, 2020 by Nicholas Gruen

Is this a bunch of black patches on a white background? It is. Of course it is. (Remember you’re at Troppo now. No mucking around.) It also depicts something which you can’t unsee once you’ve seen it. Such is the power of perspective-taking. Now get back to reading the post and stop slacking off on the pictures.

The performance of expertise is tangled up in status displays. Often that subtly displaces what should be the true object of inquiry. Thus, for instance, economists will often be drawn off into spinning their view of a future which A. G. L. Shackle engagingly called “kaleidic”. As I’ve argued, they should, instead, be focused, as weather forecasters are, on understanding how much they know – which in forecasting would actually involve understanding how little they know. Further:

  1. Without confidence intervals around the forecasts, they could do more harm than good and
  2. Forecasts about the major risks to the economy would probably be more useful than point forecasts. They should be issued in a probabilistic form such as “We estimate the chances of recession in the next 6 months has risen from 10 to 20%”.

At the highest level of generality, these problems can be thought of in terms of Nietzsche’s story of the Master and his Emissary. In the story, the Master of a great kingdom can only run his empire by sending emissaries out to govern provinces. The emissary is a competent fellow, but the competence he’s shown his master is tightly defined in some domain – say accounting, and running committees. When the emissary usurps his master, his part of the kingdom declines because he lacks wisdom. You know – the wisdom that the master has – masters are like that. Continue reading →

Posted in Coronavirus crisis, Economics and public policy | 6 Comments

What things shouldn’t we be wasting this crisis on?

Posted on March 27, 2020 by Nicholas Gruen

Not sure Winston ever said that, but it sounds like the kind of thing he might have said. Quote investigator doesn’t tell me sadly. Grateful for any others’ researches in comments below.

The subject of this post has been a theme of some conversations I’ve had with some people in Canberra. What things should we have been doing before the crisis that the crisis concentrates the mind sufficiently to try to do now? And what things should we have been thinking of, but weren’t till the crisis arrived?

Though lots of things need to be done quickly and needn’t have some long-term game plan attached, it’s worth thinking about what long-term benefits might come. Doubling the dole, I’m hoping will make it more likely that when the payment is ‘normalised’ it goes back to a more humane level than it was at. There will be little need for the government to be stingy with it when it’s trying to engineer a recovery in six or more months time.

The Commonwealth being the government with the big tax base and a central bank sitting behind it should be offering broad underwriting of State schemes of tax relief. It might hopefully use that to bring about some rationalisation of state and federal taxes at the end of the process – and closer cooperation between states and the feds – for instance allowing the Commonwealth to collect tax for the states to simplify administration for businesses.

Then there’s regulation. Continue reading →

Posted in Democracy, Economics and public policy, regulation, Sortition and citizens’ juries | 6 Comments

Hoisted from archives: Wrapping up 2008: the year of the first blogged financial crisis

Posted on March 26, 2020 by Nicholas Gruen

Since we’re blogging the next crisis, I thought now was a good time to reheat the blogging of the last one. intriguing to think of all the changes, and in many ways how much steam has gone out of blogging, and yet how resilient it has been when we need it! Enjoy!

I wrote this column for the Fin at the end of the year [2008 NG] only to discover that I was on leave. Anyway, it was put in this morning’s Fin in a slightly edited back form. The original is below.

Blogging the Crisis: Enter the bright world ushered in by 2008

George Soros called 2008 the end of an era the bursting of a super-bubble. It also the beginning of an era: The era in which an unlikely cast of characters assembled themselves to crowdsource answers to the global financial crisis.

In late 2006 a former academic in English with decades of experience in Americas mortgage industry, off work ill, began posting at finance industry blog Calculated Risk, anatomising her industry and prophesying doom with encyclopedic knowledge and wry hilarity.

Why were things going off the rails?  “Because God hates us” she suggested beginning a paragraph that explained yet another attenuation of the relationship between borrower and ultimate lender in the (by then) stupefyingly complex chain of mortgage securitisation.

To retain her good name in the industry she wrote pseudonymously using only her family nickname Tanta. But in the intellectual hothouse of the blogosphere she rapidly gained the authority she deserved even being cited in Federal Reserve research.

Welcome to the turbocharged ecology of cyber-opinion where intellectual esteem matters rather than notoriety or media budgets: Where towering figures usually, but not exclusively, top academics, direct the traffic, and literally hundreds of high quality contributors weigh in with posts and comments like a set of strategically placed cameras around a sports ground. Blogs like Naked Capitalism, Angry Bear, Follow the Money and Grasping Reality bring you the action from every angle. Continue reading →

Posted in Best From Elsewhere, Blogs TNG, Democracy, Economics and public policy | Leave a comment

6 post-Corona Institutional questions

Posted on March 26, 2020 by Paul Frijters

The mass hysteria of the corona crisis is raging, with the resulting self-isolation of whole economies and populations. The loss seems greater with every new forecast on the economic collapse than I initially thought, and the benefit of imprisoning and terrorizing the population smaller than I initially thought, leading courageous little Sweden to forego these options. High-level media and calm commentators are waking up to the longer-term implications, though the population is still too overcome by fear.

I want to share 6 areas where we should think of international institutional reform to prevent another hysteria like the one we are going through now. I don’t want to presume any answers but simply want to hear your thoughts and suggestions, so am merely laying out the challenges.

They are: i) How to diminish the normality of apocalyptic thinking, ii) How to read China better, iii) How to prevent international contagion of panic through social and regular media better, iv) How to reduce the fragility of international supply chains, v) How to foster better cooperation between countries in the EU, and vi) How to regain our lost freedom and reason.

Over the fold I explain them in more detail.

Continue reading →

Posted in Business, Climate Change, Cultural Critique, Economics and public policy, Health, History, Life, Political theory, Politics - international, Public and Private Goods, regulation, Religion, Science, Social, Society, Terror | 12 Comments

It is 1984. A message from London.

Posted on March 24, 2020 by Paul Frijters

People shuffling in the street, afraid to look others in the eye, get close, and be accused.

Fear as a silent ghost hovering above the city, watching us, like drones.

The panic in the eye of the mother as her little toddler cycles by an older woman on the street, too close.

The glee of the neighbourhood bully as she shouts at a couple embracing in the park, taking pictures with her phone.

The stern voice of the expert on the news who has discovered yet 5 more reason for why he was right last week.

The bombast of the politician who sheepishly looks through our screens, almost apologetic at introducing more restrictions and for what his experts are urging. Fines. GPS tracking. A gulag for the unwilling.

The desperation of the black teenager shouting abuse at himself on the street, echoing the words shouted at him at home where they are cooped up with 10 in a small apartment.

The shame in the eyes of the men who have no jobs and little savings.

The gratitude in the eye of the middle aged woman as someone returns her smile on the street, acknowledging she exists.

A beautiful day in which the first stirrings of spring can be seen: cherry blossoms.

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