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Ignorance and Markets

This is an unsigned editorial from the January 2009 issue of Philosophy (vol. 84, no. 327). Submitted for comment, without much commentary from my end. (Yet.)

Editorial: Ignorance and Markets

It may not be true that no one predicted the recent crash in the financial world. But it is certainly true that most well-informed observers and participants, including most importantly those who believed they were actually running things, were caught unawares. If they had been aware, they would have been able to avoid the worst consequences, at least for themselves, and even profit from the situation.

The 2008 financial crash has been compared to the fall of the Berlin Wall, in that just as the one signalled the end of an uncritical belief in socialism, at least of a centralised sort, the other signals the end to an uncritical belief in markets.

Let us leave aside the point that the markets of 2008 were actually heavily regulated in all sorts of ways, and so hardly unfettered. There is in fact an interesting parallel between 1989 and 2008 in one significant respect. Both events were largely unforeseen.

In one sense this is encouraging. For all our knowledge and technology there is much, even in human affairs, which is unpredictable and uncontrollable. This is, in a sense, judgment on hubris. It can also be liberating, particularly for those who do not see themselves as masters of the universe.

But should 2008 be seen as a decisive moment as far as belief in markets is concerned? Much will depend on what is meant by a market, no easy question when, as already mentioned, no markets to-day are unfettered, and are not likely to be in the foreseeable future.

We should, though, not forget that for followers of Adam Smith, such as Hayek, one of the main philosophical arguments in favour of markets was precisely the unpredictability of human action and of events more generally. From this perspective markets are not seen as perfect predictors, which there cannot be. But in situations of uncertainty they are seen as the most efficient and least hazardous way of disseminating information in a society and of responding to what cannot be predicted. It would be somewhat paradoxical if a failure of prediction was in itself taken to be an argument against a system which takes unpredictability as its starting point.

— Philosophy 84 (2009), 1. Cambridge University Press.

Thoughts?

Wednesday Lazy Linking

On Mutuality in Aid

Bill Easterly recently wrote a brief article on the importance of attending to issues of complexity and spontaneous order in debates about government foreign aid transfers (and the small army of planners, developers, charity-workers, et al. that come along with those grants). It’s interesting enough, but I’m mentioning it because there are a couple comments from David Ellerman beneath the post, which are really worth noticing. First:

One could go on but I might try to cut to the chase and indicate why theories that may give some insights when applied to physical systems (e.g., self-organizing sand piles) and insect societies may rather "miss the boat" when applied to human affairs.

The mistake in applying complexity theory to human relationships such as the education, management, development aid, and helping in general is that the basic problem is NOT that the human systems are complex, messy, nonlinear, etc. The basic problem, across the whole range of the human helping relationships (like aid) between what might be called the helper and the doer, is that success lies in achieving more autonomy on the part of the doers, and autonomy is precisely the sort of thing that cannot be externally supplied or provided by the would-be helpers. This is the fundamental conundrum of all human helping relations, and it is the basic reason, not complexity, why engineering approaches and the like don't work. Thus the application of complexity theory to development aid–as if the basic problem with aid was the complexity of the systems–is unhelpful from the get go.

— David Ellerman (19 January 2011, 1:21pm), in re: Complexity, Spontaneous Order, blah, blah, blah…and Wow

Of course, human social life is complex, messy, nonlinear, and whatever else, and if you aim to study it, or to do something on the basis of your study, then you had better keep that in mind. But what you had best keep in mind, when it comes to the doing something part, is not so much some theoretical insight about top-down views of patterns of human activity, which you could have observed from Mars, say, through a very large telescope; it’s something about the human relationships that you are entering into — how you think about and how you treat the people you are supposedly coming along to help out with all their problems. (And just who are you? What are the problems you’re trying to solve, and whose are they, really?) For those who are interested in such things, this is of course the issue at stake in the Anarchist analysis of the difference between mutual aid and charity.

The second worth noticing are the comments on how this kind of discourse gets packaged, and how it spreads. I think the bits about the role of management theory as a vector for the fads to spread throughout institutionalized aid economics are especially insightful, and important:

Sticking to applications of complexity theory in the social or human sciences (the notion of a spontaneous order is an older and more profound topic), one should consult Ben Ramalingam's ODI paper at: http://www.odi.org.uk/resources/download/583.pdf . Ben and colleagues make a sustained attempt to usefully apply complexity theory to the problems of development aid–but I fear with little success. One can always reformulate some bits of old wisdom (openness, restraint, humbleness, courage) in terms of the jargon of some new faddish theory, but that is hardly a distinctive contribution of the theory. As Ben notes, there has for some time been a craze in organizational theory and business management to apply the buzz and jargon of complexity theory but with little if any results that are new or distinctive. Interconnectedness! Nonlinearity! Sensitivity to initial conditions! Unintended consequences! Adaptive agents! Wow!...

— David Ellerman (19 January 2011, 1:21pm), in re: Complexity, Spontaneous Order, blah, blah, blah…and Wow

And:

Ben, I do appreciate that your uses of complexity theory have been guarded and (as one can see from my book) I am certainly a great fan of eclecticism and interdisciplinary thinking. If anyone comes to some insights through complexity theory (as I also have, e.g., the series-parallel interplay between "exploitation versus exploration"), then that is great–even though other routes may also have been available. … My problems lie in how seemingly every advance in the natural sciences is turned into a fad, usually first in management theory, which is then used to avoid looking at deeper persistent sources of dysfunctionality. In business enterprises, management sits astride huge organizations based on the employment relation, but then constantly tries to escape the resulting dysfunctionality by surfing the latest fads popularized from the natural sciences. Similarly, we see the large development aid bureaucracies that are deeply failing for structural reasons but constantly grasping for the latest fad-theories to explain why it wasn't working as expected and to provide rhetorical cover for their new ways of doing development assistance.

In short, my message is: eclectic interdisciplinary approaches to development, Yes; new popsci cover stories for the failures of the development aid bureaucracies, No.

— David Ellerman (19 January 2011, 9:25pm), in re: Complexity, Spontaneous Order, blah, blah, blah…and Wow

(Via Will Wilkinson @ The Fly Bottle 2011-01-20.)

See also:

Housing and Urban Development

Here’s a view of the Southwest neighborhood in Washington, D.C., in 1949, before government planners came along to Develop it. The buildings are mostly small rowhouses, some of them dating back to the 18th and 19th centuries. A lot of the people living there were poor; most of them black folks or European immigrants. There were bustling commercial districts, grocery stores, a lot of little shops, and a movie theater.

It's an aerial view photo of a neighborhood filled with little rows of houses and shops, lots of green space, small roads criss-crossing.

Before.

Here’s a view of the Southwest neighborhood in 1963, after it got Urban Renewed. Every square inch on this map was claimed under eminent domain; this is what the award-winning urban planners and developers did with it.

It's an aerial-view photo of the same neighborhood. Almost every building has been leveled and a giant paved freeway is running through the vacant lots and the handful of buildings.

After.

Wikipedia describes what happened in between the Before and the After as the 1950s rebuilding.

Here’s another photo from 1979, when the highway construction was complete and the government had finished some brutalist office and residential buildings, new office complexes for HUD and the EPA, and some government housing projects. Some of these developments were widely praised; some even won an award.

Thank goodness government is around to develop these neighborhoods for us. Just think of all the blight and unlivable neighborhoods we’d have if they just left it up to the people who live and work in a neighborhood to determine the conditions under which they want to live and work.

(Thanks to BeyondDC.com 2011-01-10.)

See also:

Friday Lazy Linking

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