“It’s hard to grasp that other investors have different goals than we do, because an anchor of psychology is not realizing that rational people can see the world through a different lens than your own.”
I have held positions that are at odds with my position now. I think I can still pass the Ideological Turing Test on those ideas, but I’m less sure of that than I used to be- when you’re settled in a way of thinking, the uniqueness of that framing becomes harder to see. Your set of assumptions feel true and unalterable. Making your foundational beliefs genuinely alterable is uncomfortable and taxing.
One difference I can grok about my mindset now versus maybe a decade ago is that back then I could see failure around me but couldn’t really appreciate Chesterton’s Fence. As a result, I lived with an assumption that behind persistent problems were probably just dumb people. This is a bit of a straw man, but I didn’t have the hands-on experience to understand the sheer hairiness of even pretty common problems. Andrew Sullivan’s blog introduced me to Burkean conservatism. Over time, and especially through my work, I’ve discovered that really smart people are behind many many more large-scale shitty things than I had previously supposed, often because nature is indifferent, communication is unreliable, incentives are misaligned, and fighting chaos is generally exhausting. I think that was the theme of my earliest musings on this blog, really- for me, it was fertile ground for metacognition back in 2012-2013, and now has cooled into just another set of ‘true things about the world’ that frame how I see almost anything.
To be clear, there is plenty of arational/irrational behavior out there. But irrationality is not always a sufficient condition for large-scale, persistent problems.
The Reasonable Formation of Unreasonable Things
I’ve referenced Morgan Housel before. He has a very consistent brand, and the themes he hammers on speak heavily to the priors I just mentioned, and which I’ve described on this blog this year, last year, and (in more oblique/half-baked ways) way before then.
From a recent paper of his, “The Reasonable Formation of Unreasonable Things”:
This report will argue three points:
- Bubbles are not anomalies or mistakes. They are an unavoidable feature of markets where investors with different goals compete on the same field. They would occur even if everyone was a financial saint.
- Bubbles have less to do with rising valuations and more to do with shrinking time horizons among people playing a different game than you are.
- Protecting yourself as an investor is mostly a function of understanding and acting upon your own time horizon, accepting that other people’s goals are different than your own.
Again, bubbles and other failures are not necessarily the results of a lack of reasoning. It’s a structural problem. (I recommend reading the whole thing- it’s not very long.)
Both Housel’s paper and Cowen’s The Complacent Class mention Hyman Minsky, a theorist of cyclical economic crises. Per Cowen, “Minsky had argued that periods of financial stability contained the seeds of their own destruction, because eventually all that stability would cause investors to let down their collective guard and take too much risk.” Elaborated a bit by Housel:
The instability hypothesis basically goes like this:
- When an economy is stable, people get optimistic.
- When people get optimistic, they go into ever increasing amounts of debt.
- When they pile on debt, the economy becomes unstable. Minsky’s big idea was that stability is destabilizing. A lack of recessions plants the seeds of the next recession. Which is why we can never get rid of them.
This sort of Hegelian, cyclical, ‘balance’-type logic is everywhere, and I’m not sure it’s a shape I appreciated a few years ago. I’ve seen it multiple times, reading Taleb for instance, and after reading the Archdruid’s book on the Laws of Spiritual Ecology but it’s a frame I appreciate a lot more now.
One of the big lessons of this framing, one that is somewhat fetishized in Silicon Valley ’startup’ hype literature, is that failure is absolutely necessary for growth. Healthy markets are built on corpses of businesses. Survivable species are built on corpses of member organisms. Adaptability requires feedback. The issue with the SV literature is that it is not always clear to the readers that they are the organisms, not the species. It might be something worth doing, but we should be clear-eyed about the fact that startups are overwhelmingly likely to die, probably painfully.
The End of History and the Last Man
I never read Fukuyama’s End of History, although it was referenced in school years ago. Instead, the book has been framed to me by cultural osmosis, and recently by this Aeon article. It seems to me from the article’s characterization of Fukuyama that he has defined a cyclic (‘elder game’) history at the end of big-H History itself, based again on the reasoned interests of the players involved.
- Of course small h ‘history’ continues after the End of History, but Fukuyama is actually fairly pessimistic about what happens next. He suggests that, although we have had great progress in creating more productive, egalitarian societies in the past millennium, imperfect liberal democratic capitalism is the least inherently contradictory form of society possible by human nature. He suggests that from this point in time forward, a series of forces will move us away from and back towards this political equilibrium. (Hegel believed this about 19c Prussia, so it is still an arguable thesis- just not the strawman it’s usually painted as.)
- Fukuyama frequently returns to the concept of thymos [basically, ‘pride’, the need for recognition and respect] in human society. He thinks that in its own twisted way, late capitalist modernity is relatively good at capping and directing this human drive towards productive (or at least less destructive) ends. If some people do not feel appropriately respected or engaged, they will resort to breaking things and pushing society back ‘down into History’, i.e. creating more inherently contradictory and less rational societies.
- Humans don’t just exhibit thymos, but also ‘megalothymia‘: “a desire not just for respect and proportionate recognition, but a need to disproportionately dominate over others in ostentatious and spectacular ways.” This is the driver, he thinks, behind empires, great art, and also obviously vicious and oppressive events.In the early 90’s, when he expanded his essay into a book, Fukuyama decided to use a pop culture reference as an exhibit of megalothymia in the empty future of the Last Man. He namedrops Donald Trump.
- “The Last Man”: This part of the title is a Nietzsche reference. After the death of God, there is no replacement, and [article:] “The vast majority of modern human beings would now be small-minded, stunted, pathetic creatures, possessing no sense of how to achieve greatness, only of how to accrue petty comforts and easy pleasures in a materialistic, self-obsessed world. In other words, if megalothymia went out of human life, so would greatness. Only base mediocrity would remain.”
- The Last Men at the end of history can either lay about in the sun like dogs, or (as Fukuyama believed) become hungry for megalothymia that was denied to them in the egalitarian abundance. They’d want to try to climb to a new (nonexistent) plateau in history. Especially those who used to be at the top of the social hierarchy and now feel cheated. Since the Far Left (as Fukuyama saw it) was discredited, the biggest threat would come from the right, “relying on human impulses for mastery and domination that the hollow comforts of consumer capitalism could not hope to appease.”
Even here, I don’t read irrationality into the games we play at the end of Fukuyama’s cultural evolution towards liberal democracy. The values that push us away from his proposed equilibrium are common human values. People pursuing their interests and seeking higher ground in the fitness landscape will cause pain in pursuit of a better life. In Cowen’s framing, Ages of Complacency sow the seeds of Ages of Dynamism. In Howe and Strauss’ framing, each subsequent generation responds to the problems and blindnesses of their age and move the pendulum back between building, sustaining, and deconstructing institutions.
Idiots exist, but idiots are not necessary.