RoR: Forum

This quote echoes what Fred said in that post-that-was-an-article-unto-itself on Ethics of Capitalism.

Ed

Post 1

Sunday, August 5, 2012 - 7:39am

Yes, I understand the obvious intention of the quotation. That said, a little thought reveals this to be just "Mom and apple pie," i.e., a glittering generality or glib statement with emotional appeal.

What about a constitutionally limited government restricted to an army, police, and courts of law? This quote says that if you come home from vacation to find your house burglarized, if you call the police, they will never leave. It says that if you stand in front of city hall with a sign that says "The mayor is a fool." and the police arrest you,once you go to court to protect your rights, you never will leave the criminal justice system. And of course, if America were attacked, the "retaliation" would never end but would be an excuse for endless war.

Now, each of those has some truth. If you have been victimized and gone to the police and then to court, you have a horror story with which to warn the rest of us. It is why libertarians open the door to the complete privatization of police service - even given a monopoly on law within a geography. And yet, the reality is not merely binary. In other words, the police really do leave... and leave you alone... even wars end, as all wars must. Therefore, we can imagine a constitutionally limited government that "holds your hand when you cross the street" (by installing traffic signals, for instance), and yet does let go on the other side.

Second, we use synonyms to keep our writing lively. Risk, uncertainty, insecurity, exposure, danger, threat, peril, jeopardy, chance, wager, luck, venture... And yet, each has a specific meaning, differentiable from the others. I have recommended here Against the Gods: the Remarkable Story of Risk by Peter Bernstein. Bernstein says that risk is not uncertainty. Risk is calculable and the arithmetic of risk invented by Pascal and Fermat made capitalism possible. Other times and places have merchants, but capitalism is a recent invention. Calculable risk ended man's dependence on the whims of the gods.

One of my favorite stories is about Caldecott Chubb, founder of the insurance company. Sometime in the early days of the firm, his clerks were running about wringing their hands because a ship with their insured cargo had been reported lost. Old man Chubb just smiled and said, "If there were no losses, there would be no premiums." Risk is calculable and is not the same thing as insecurity.

It is a minor point. I said that I understand the intention of the quote. I only point out that cheering and cheerleading are for people who are not actually in the game... and here, the game is thinking.

Post 2

Sunday, August 5, 2012 - 10:39am

Michael:

I think you understand what you mean by risk. I think I understand what I mean by risk. But for many, IMO, the statement that 'risk is calculable' is tantamount to 'outcomes are determinate.'

Risk may be calculable, but not outcomes. The reason is because risk is finite.

I think this distinction is key to much of what often went terribly wrong on Wall Street. In some fundamental way, it is related to that existential terror that is always bubbling sometimes close and sometimes far below the surface of the human psyche. We want to believe that risk in the universe has been tamed. We want to believe that it has been managed into a corner, rendered harmless by being 'calculated,' granting us unfettered clear access to the success we seek.

We can calculate risk...with some uncertainty even in that. And even that uncertainty is at best estimable. And still, risk is finite, non-zero-- even at an amusement park.

Quants come rolling out of places like MIT and even sometimes exactly MIT and present a dazzling model that nearly almost always works; LTCM. This draws a massive influx of capital seeking 'nearly' risk free returns. And then risk re-asserts its finiteness and exposes the blind side that is human wishful thinking.

But that is what humans always do. We take on risk. And here is the key; sometimes we win.

Sometimes. And that sometimes is enough of an incentive that still we do it, even to the point of reassuring ourselves that we have dialed in the extent of that sometimes; we have put a fence around its extent, have precisely or not calculated just how big we estimate that risk to be, as if all of our endeavors were accurately modeled by a game of craps and were not influenced by rules outside of the game we claim we can see fully.

And still our existential terror at this aspect of the universe drives us; as modernity, we play 'what if' with our management of risk, and try to build amazing structures to minimize risk, but unsatisfied, we yet strive to totally eliminate it. By we I mean our free association institutions of commerce as well as government and sometimes, questionable alliances between the two.

And here is another thing that humans do; when given half the chance, when facing the impossible task of significantly reducing risk even more than reasonable intellect already has, if we discover a means of shedding risk unseen and unwillingly onto others, that will do as well. And that is -especially- the case with selective marriages between commerce and the guns of government.

The role of government -should be- as traffic cop, to keep the fat fingering of both risk and forced association out of our markets. To police against the foisting of crap, false value for real value. To police against the gaming of the games.

As opposed to, deliberate gamer of the games in an attempt to forcefully realize equal outcomes independent of behavior or choices or especially self chosen exposure to risk.

The ethics of selectively shedding risk unwillingly onto others is something that needs to be considered because when it overwhelms our economies to too great an extent, it will kill the engines that drive our economies up those slippery, risky hills. There is an ethical system for the management of risk, and then there are those that are selective and based on force, by some directed at others.

So there is the real 'risk' in our current economic games; to what extent can we let shed risk models permeate the economies before we have broken them all? Do we even have the tools to calculate or even estimate that risk, or do we just run the experiment and add a data point to history?

regards,
Fred
(Edited by Fred Bartlett on 8/05, 10:40am)

Post 3

Sunday, August 5, 2012 - 12:58pm