On Models and Model Building
Today model building is the preferred method of research in fields as otherwise diverse as investment banking and climatology. Experts in the various disciplines are zealously convinced of the efficacy of their models. Such reliance on models has proven disastrous in the past.
From 1930s to 1970s macro-economists built enormously complex models of economic systems designed to serve as basis for long term economic planning. Psychologically the models were impressive in that they gave people the illusion of knowledge and control. Unfortunately, those models didn’t work except perhaps to provide employment and professional advancement for cadres of economists. A macro-economic model consists of a series of equations, a set of variables, and a list of relations between those variables expressed by coefficients of the model. Although the original in-put out-put equations may have been created by means of observations of a functioning market-based economy, once fixed into the model, empirical and theoretical in-puts became conceptually redundant. The model itself became a black-box mechanism for formulating and implementing policy. And, according to developmental economist Michael Todaro such plans provided important psychological benefits in "mobilizing popular sentiment and cutting across tribal factions with the plea to all citizens to 'work together,'” so that an “enlightened central government, through its economic plan, [could] provide the needed incentive to overcome the inhibiting forces of traditionalism in the quest for widespread material progress." Reliance on such models by central governments was often disastrous for developing economies.
In fact, despite the solemn assurances of the experts, these models proved to have very little explanatory power or predictive power. They relied equations which were themselves time and place dependent. At best they represented snapshots of a particular economy at particular times although they were used to predict the behavior of other economies at other times. Not only were macro-economists unable to predict the state of an economy ten years out, they were rarely able to predict the state of an economy ten weeks out.
With the enormous computing capability of computers and advances in statistical analysis models have become more and more sophisticated although they may in fact be based on very little theory and relatively few well chosen empirical observations. Linked to computer graphics, today’s models are as beautiful, as impressive, and as entertaining as Star Wars battle scenes. We seem to quite literally see the world developing before our eyes. Nevertheless, the fundamental logic of model building has not changed. In many respects Google Earth is the finest of models. Its empirical content is many times more solid than the empirical content of global warming models. Nevertheless, while Google Earth can tell us a great deal about Portland Oregon today or even tomorrow it cannot tell us a great deal about Portland Oregon 50 years from now. Such snapshots can give us no very dependable method of predicting the future and thus formulating and implementing rational policy.
Population growth models based on data from 1950 -1970 is inapplicable to population growth patterns in 2009. Investment banking models were based on data from 1945 - 2005 during which time single family housing prices in aggregate increased. The models based on these data predicted that single home mortgages in aggregate had less than a 1% chance risk of default. As a result neither the government nor the investment houses required margins for trading in these aggregated mortgages and their derivatives and the derivatives of their derivatives. The unintended consequences of these models led to an enormous multiplication of liquidity and astronomic growth in leverage and thus M3 – which has not been measured in three years. Financial collapse was certain but not predictable from within these particular models. According to Freeman Dyson of Princeton, almost all funding in global warming research is now being devoted to model building and relatively little funding has been devoted to actually determining what is happening in the real world.
The results of this reliance in climatology on models rather than on observation, experiment, and theory is as likely to be as disappointing as similar reliance on econometric models was in the mid twentieth century and investment banking models which led to our current financial collapse. Believers in these climate change models, in particular, are becoming increasingly dogmatic. No countervailing opinions even from within a particular disciplines are allowed to undermine the faith in the model itself. Critics are castigated as heretics. Unlike genuinely scientific theories like Newtonian mechanics, these models cannot be tested. The models create the appearance of precision by the magic of long division, but there is little real precision in their predictive ability more than two or three weeks out. When the model builders encounter facts which seem to contradict the predictions of they invariably tinker with the model and announce that the model simply needed a little adjusting. The proponents of these models will not admit even the possibility of being fundamentally in error. Too much seems to be at stake.
A model is not a theory. A genuine scientific theory is a net which addresses, at best, only certain aspects of reality. In its essence a theory is a simplification and so while its powers to explain are high, its ability to predict is limited except in very controlled conditions. What the theory cannot interpret in its terms, it must ignore. A sophisticated theorist will recognize the limitations of any particular theory. Today’s model builders, in contrast, believe that they have somehow reproduced reality and in their zeal they are often able to use “enlightened central governments” “to mobilize public sentiment” in their various causes.
Two little news items.
Littler: There's an interesting blog reflection on Liberty
up at the Kenyon Review
Bigger: Speaking of Reflections, Chana has just come out with another book - Reflections on the Logic of the Good
is just a case study of the ideas in this work (which actually precedes Liberty). It is the sort of fundamental philosophical study which you just don't see much anymore. A MUST read in my totally unbiased opinion :)
More Iraq discussion:
Overwhelming evidence of failure now? Or sometime in the future?
It has been four years and about 3800 American lives. Military spending is a lower percentage of GDP than the early Clinton years. The US is involved in a war that by traditional standards might not even be considered a war. It certainly isn't a Vietnam.
We are willing to run from Iraq. But looking historically, the country is doing better than those that were targeted under our 'War on Drugs.' Colombia was an incredibly violent place for decades - with the one distinction being that no one cared. The US continued to support the country and now, finally, it is recovering. Such a thing didn't happen overnight, and wouldn't have without our support - through many many setbacks. War is a very very difficult business. But we should really give up on all international efforts if 4 years of difficulty will stop us cold. The War on Poverty or Drugs should have been given up many many many years ago on this measure.
Consider: Rio has a murder rate that is almost the same as Iraq. Few people consider Rio to be in a civil war. There is, effectively, a war afoot there - but nobody is asking the Brazilian government to pull away. In fact, it has taken time, but they've cut that rate by some 20% over the last 10 years. However, Brazil and Colombia, for all their issues, aren't nearly as important as Iraq.
The war in Iraq is quite interesting because it is a war of ideas - not of territory. The other side's goal is to maintain chaos and death so that the US will withdraw and the IDEA of US power and dedication to freedom will be forever shattered. This is why Iran is funding both the Sunni and Shia terrorists. They want chaos. This was the strategy laid down by Zarqawi before he was killed - his correspondance calling for it was clear. This is why they bombed the Samarra Mosque (which kicked off the upswing in violence we're still in). The US desire, on the other hand, is to deliver peace under a free government. We don't need to hold the territory either - just pacify it. Failure to do so will be roughly equivalent to withdrawing from Beirut. It will be a clear sign of weakness and it will generate a monster down the road.
It has become far clearer recently that the bulk of Iraqis support the American side of the equation. They may not like America, but they don't want chaos. Moqtada and the Accord Front both rejoined Parliament today. The Sunni tribesman have launched attacks on al Qaeda in lots of their territory. Even Moqtada has stepped away some from his Iranian backers. The locals aren't happy with the violence. The American surge, while INCREDIBLY young, has helped in some areas. The very concept that we will surge has provided support and confidence for our friends to stand up to the terrorists. Not much though, as the Senate and House push for retreat. Mosul isn't suddenly being bombed because people in Mosul have decided to start killing each other. It has suddenly been bombed because people who aren't from there are moving their activities from their 'home bases.' The goons and the gangs are being displaced, but are trying to carry their party elsewhere. This really is progress. The locals in Mosul know their neighbors aren't behind the campaign, and so while it can kill many it will be much harder for it to create war between groups. But it won't be done in 3 months.
The way I see it, the goal isn't to unite Iraq or solve the Sunni/Shia conflict. Such things are indeed beyond us. As I wrote in an earlier conversation (and from here I'm quoting an earlier conversation), the key is to change the methods by which the battle is fought. (see the below message)
From a conversation with a left-wing German colleague at work:
The Americans aren't going to solve the Shia-Sunni conflict. I don't think they need to. The key is to change the methods by which the battle is fought.
There was a classic European author (I can't remember who) who said that the reason there was religious peace in Amsterdam had nothing to do with a lack of desire of individual groups to control and direct others. It had to do with the fact that there was a multiplicity of groups - none of whom had the power to dominate. Peace was not through the elimination of faction, but through the multiplication of it. Faction is multiplying in Iraq. There are quite a few parties, the Shia aren't all aligned with each other and neither are the Sunni. Before long, the locals will realize there's no purpose to the fight. This is why the Sunni tribesmen have turned against Al-Qaeda and the other militants in a big way. The fight is being sustained, not by Iraqis, but by foreign fighters - foreign fighters who have no problem killing lots of civilians just to maintain chaos. This was the strategy laid down by Zarqawi before he was killed - his correspondance calling for it was clear. Iran is doing the same thing. If these guys can be slowed down (and I think they can, once civilians can see that America isn't withdrawing and they and their families won't be killed if they resist), then the country will settle into being a very contentious, somewhat liberal, democratic state.
The American role isn't to bring peace to both sides. It is to provide the support necessary to allow a political/religious marketplace to develop. It is like the accumulation of wealth. You can get wealth by stealing it or forcing others to give it to you (the main method for a long time) or you can get wealth by creating value. The market serves as a mechanism to enable the latter approach at the expense of the earlier one. The Americans can provide the conditions, by fighting extremist groups, for this sort of political market to emerge. If this sort of political marketplace can emerge ANYWHERE in the Arab world, it will be tremendously positive for all of us. The example can be greatly helpful to all Arab peoples living under the twin impositions of totalitarian dictatorship or the potential rise of the Muslim Brotherhood. The Arab world trails even Africa in terms of education, for example. There are real problems, but they don't need to be that bad. The Arab world can be a much more pleasent place - and it has been. Muslim countries can succeed in having this sort of marketplace. For all it's problems, Turkey isn't such a bad place. If they had nukes, I wouldn't care. Iran can also have this sort of marketplace - and under liberal leadership I wouldn't care whether they had nukes. Lebanon wasn't too bad prior to the civil war - it was long-term flaws in their constitution that brought them down.
If there can be a marketplace of ideas within the Arab world, the export of a tremendously destructive vision can be brought to an end.
Check out shirenetworknews.net. It is a very well produced and thoroughly enjoyable satirical look at the news of the week - combined with a strong interview with a newsmaker. They certainly have a slant (and a fixation on religious totalitarianism), but it is very well done. Enjoy!
The below was written in response to a WSJ article on Blinder:
After reading Pain From Free Trade... I have a few thoughts to share with you.
First, Blinder and other economists (and even people in the workforce) tend to focus on categories of jobs that can't be offshored due to person-to-person or on-site requirements. I think this is actually a poor long-term tool for predicting the dynamics of job movement. A great deal of technology is focused on enabling remote delivery of a variety of these services (think remote surgery). Furthermore, highly skilled people in these trades can come to the U.S. and displace locals just as they might do from a distance.
In my opinion, the 'American difference' has never been about the quality of our education (we tend to score poorly on standard tests) or the protections at our borders. It has to do with two more fundamental components: the style of our education and the flexibility of our social, economic & political systems.
The vast majority of countries train people for specific jobs - from dentists to landscapers. Education is far more focused far earlier than it is in the U.S.. These people become the classic cogs in their societies' great economic machines. In the U.S., our educational system has a fundamentally different goal. The liberal arts education, and the late specialization, are both designed to teach Americans how to learn. Where others are cogs, we are oil. We change careers often and this is fundamentally built into our educational DNA. We may not be as strong as others in particular fields, but we are far better at filling the cracks as new opportunities are created - or as we create them.
Our educational system does not stand alone in this characteristic. Our entire society is built on flexibility. We honor trailblazers in all fields, including the ones they create. This flexibility is what makes our economy so dynamic. It is why we have sustained our growth where others like Japan or most European countries have faltered. Economists love to paint long-term pictures of the economic future. But these paintings are even less reliable than long-term weather forecasts. They necessarily fail to take into account the unpredictable changes that will roll through the global economy because of human ingenuity and the ever shifting web of circumstance. A directed economy scores well - until these uncertainties add up - and then an economic shudder runs through the entire system.
Government policy should not encourage particular positions or training. It shouldn't shut down competition in certain fields. Inevitable change will only be more painful if it is resisted. A billion small changes, spread over decades, are easier to handle than a few massive ones caused by the bankruptcy of a anachronistic system. France is a great example of this. Government policy should ensure that our legal, educational, health and other basic systems are dynamic enough to handle whatever may come. In most cases this will involve tapping the creativity of the private sector. The quality that will enable the middle-class American to continue to prosper is their inherent flexibility, and the flexibility of the system that has been created around them. The strains arise where these systems have fallen far behind the needs and strengths of the modern world (think Social Security when compared with Australian Superannuation).
There will be economic pain with change - but sticking our heads in the mud and resisting that change will only make it all the worse when it comes.
Take a look at the show on www.religiousliberalism.org for a wonderful, historical, take on all of this. It starts from the very basic political history of our American system and expands to talk about economics and just about everything else.
I had the opportunity to discuss the Baker proposal with a friend of a friend who knew people on the commission. As a general rule – it is far easier to tear down than to build up. We need constructive advice now – and so I did my best.
Here are my comments:
First off, I'm not criticizing Baker's thoughtfulness or thoroughness. When you define your intellectual approach to a problem - from the very start - you prejudice the result. In essence, you can box yourself in simply by defining yourself as a realist.
Let me lay out my intellectual approach to this issue. First, I absolutely agree that diplomacy is critical. But with certain people, it will be ineffective and that must be understood from the get-go. That doesn't mean there aren't other, positive effects.
The comparison is often made with the situation in North Korea. There, we have actively considered only diplomacy. Quite frankly, there is absolutely nothing militarily we can do with Kim Jong Il. Of course, knowing that the key to his power and longevity is nuclear weaponry, Kim Jong Il has never negotiated in good faith. He has a target, he is paranoid, and nothing we can offer him will deter him. Have the talks thus been useless? In fact, they haven't. We've forged much stronger partnerships and levels of understanding with South Korea, Japan and even China. Long term, China is the solution to the problem. They alone can eliminate the regime and threat of Kim Jong Il. For now, North Korea is a problem because they want it to be. Diplomacy can alleviate their need to have a foil in the region. In reality, we are negotiating with the Chinese.
Looking at Iran, we have another group that will never negotiate in good faith. We can offer Kim Jong Il food and fuel. But Iran's economy, while weak, is far stronger than North Korea's. They won't be deterred by economic measures short of a blockade.
I believe that within the Iranian regime there are two groups.
1) Those who use Islam as an excuse and mechanism for power. They have supported nuclear weapons research because, like Kim Jong Il, they see it as key to their own longevity. They are realists - much like the 'communist' leadership of the later days of the USSR. It is highly unlikely they would use such weapons against other countries.
2) The true believers. They would willingly destroy Israel and are doing everything in their power to create popular support for that position - in order to force the realists to go along with them. It is their holy mission.
So how do we tackle this situation? There are several possible methods:
It is, I believe, almost a non-starter as far as being a cure.
The other side, whether realist or Islamist, aren't negotiating in good faith. The bomb is absolutely critical to them. Diplomacy is, nonetheless, an opportunity to strengthen our other alliances. If we do negotiate with them, we shouldn't seek their acquiescence. Rather, we should have multi-party talks, with Israel, Turkey, Iraq, Iran, Pakistan, Afghanistan, the Gulf States etc... We can use negotiations to strengthen our position with these parties - and even more critically, give them an opportunity to find common ground on Iran with one another. Israel is especially important here. It is a chance to get Israel off the agenda – and they are the most threatened of all.
So, diplomacy is useful, but not a cure for the problem. Note, we shouldn't be talking about Iraq. Iran and the bomb are the issue - we know they have been funding terrorism in Iraq. The Shia groups in Iraq are to Iran what North Korea is to China - a thorn in our side. We need that funding to dry up, and Iran won't agree to that. It isn't in their interest.
2) Do we accept the realists getting the bomb, in the hope that the Islamists won't get power down the line?
That seems like an extremely dangerous position - especially since the Islamists are the ones in power now and don't look (yesterday's elections notwithstanding) like they will be backing down any time soon.
3) Do we pursue all-out-war?
I think this is a non-starter as well. Iraq is a far better place to fight than Iran. The territory favors us greatly. And if attacked, Iranian nationalism will make our lives very difficult. Unlike Iraq, they have a true and long-standing nationalist tradition. So boots on the ground or even air force action won't do us any good. It will strengthen those perceived to be standing up to us.
4) Do we try to close the borders with Iran?
This is nearly impossible - and more critically - does nothing about the bomb.
5) Support revolutionary groups?
This is absolutely critical. And I have very good sources telling me we are doing a pathetic job of this. This is the ideal solution. In effect, it is negotiating with the Iranian people and not the 'leadership.' They are certainly trying it with us (letters to the American people, their allies like Chavez talking to our people etc...) It is a very very important path to pursue.
If the revolutionary approach doesn't work, we need to blockade them. It may not make many friends in Iran - but it WILL fix up Iraq, Lebanon and Syria due to the lack of Iranian cash. With weaker Shia groups, we can get the Saudis to dial back the Sunni groups. This will also free up our military resources. It could have positive impact on the nuke issue too. The realists may like their power, but they also like the luxuries that come with it. And there are enough of them that they might actually need a partially functional economy to maintain those luxuries (unlike North Korea). If this works as a tool to get them to slap the Islamists down, then we will have not only won a temporary reprieve - we will have established a mechanism for reward and punishment in the future.
So, my recommendation is start multi-party diplomacy, support revolution and blockade as a last resort. If Iraq is our first concern, and not the bomb, then blockade earlier rather than later - and clearly connect that action with Iranian action in Iraq. This will dampen nationalist backlash - as we are only doing the blockade in reaction to foreign adventures.
As a final area, it is easy to say support revolution. But actually doing it is another issue. In Iran there are a number of major issues:
1) The Iranian revolutionary groups are widely seen as incompetent and as busy tearing into each other as the regime. They would make great political parties in a post-revolutionary era - but they are not an effective revolutionary force at this point.
2) The Islamist brownshirts permanently maim those who dare to protest. And they do not mind fighting a losing battle or hurting innocent civilians. That said, they too have to eat - and a lack of oil revenues can make that difficult (blockade might help revolution).
3) The Iranian people don't seem to care. Again, this is an issue a blockade and monetary issue *could* help fix. To get a democratic and liberal revolution you need mass support.
On the other side, there are some tremendously positive factors:
1) The regime is widely hated.
2) The mainline Iranian army itself is a threat to the regime. They are not trusted by the regime, and they are already somewhat equipped with arms. They can give us a tool to physically support any revolt and handle the aftermath.
3) There is a strong pre-Islamic nationalist tradition. People continue with the fire festivals, despite them being totally illegal.
4) Of course, oil is a weak spot economically.
To me, this points to a revolutionary effort driven not by this group or that group (although we should be funding them all). Rather it points to an effort driven by the U.S. using one of our greatest skills - marketing and propaganda. As a multi-point plan, by order of execution, we can:
1) Hearken back to the roots of Persian tradition in propaganda films, satellite news services, our radio services etc... No more playing pop hits, play Persian music - perhaps updated by exiled musicians - but music banned by the regime. Add in the ideas of religious liberalism in good measure.
2) Pursuing contacts (and buying them) with the mid-level leadership of the army. Just funding this guys can make their lives and their soldiers lives much easier. The added necessity of hiding their newfound wealth can further distance them from the regime. Work with the Mossad on this - they have better Persian contacts than we do - and they are liked far more than the British (who used to have great contacts).
3) Fund revolutionary groups and insert them into the country (like Lenin was injected) to cause trouble)
4) Blockade, but at the same time very clearly push the idea that this is limited to the Islamic regime and we respect and support Persia
5) Create an official policy of removing the senior leadership as Israel did with Hamas. This is to force them into hiding and weaken their ability to stay in front of things.
6) Wait. Never fly a single plane over Iran, never move a single soldier in. Maintain clearly that Iran is off-limits for our military - although assassins might still work there, they are not there to establish control – and they should probably be Persian themselves.
It is aggressive, but it is not quite war. And I think it is the best chance we have of fomenting revolt and resolving this issue to our own advantage and the advantage of the world as a whole.