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"Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice" - Adam Smith

Politics makes us 'stupid' because the world is complex

Written by Sam Bowman | Wednesday 16 April 2014

Ezra Klein has launched his new site, Vox.com, with an essay on ‘how politics makes us stupid’.

The piece is provocative, and Klein uses some interesting examples. Most striking is the study that shows that people’s maths skills get worse when the problem they’re dealing with has a political element and goes against their political instincts. (Klein seems to have slightly misunderstood the study he’s written about, but his basic point stands.)

The basic claim is that people engage in ‘motivated reasoning’ when they think about politics – in other words, they think in order to justify what they already believe, not in order to discover the truth. This, he suggests, is because the politically-engaged people get more loyalty to their ‘tribe’ than they lose by being wrong.

This ‘identity-protective cognition’, as he calls it, makes sense – a pundit who decides that the other side is right about some particular political issue (Klein uses global warming as an example) has a lot to lose in terms of status within the group they’re part of, and little to gain by being right.

Klein says that this has become worse as political parties have become more ideologically uniform and ideological ecosystems, like think tanks, blogs, media, more expansive. Not only is there the external cost of being wrong, but admitting to yourself that you’ve been wrong for a long time is quite difficult too, especially if you’re politically engaged and some of your sense of self is tied up with your beliefs. You could call this ‘rational ignorance’.

Even though that might seem plausible, I think he is assuming too much and is wrong about some of the phenomena he identifies. I’d like to suggest an alternative understanding of political ignorance that, I think, explains more and assumes less.

I think Klein’s fundamental error is to assume that the truth – or, at least, his mode of truth-seeking – is obvious. Basically, he starts off from the position that most people could reasonably see the light if they wanted to. If that’s right, then it could follow that incentive to disbelieve the truth. And “identity-protective cognition” is an interesting way of understanding that.

But suppose truth is not obvious – that we’re ignorant not because we want to be but because, in Keynes’s words, “we simply do not know!”. In contrast to the rational ignorance Klein is discussing, this kind of ignorance comes about because life is complex. The existence of this kind of ignorance is what allows people to disagree without either being willfully ‘dumb’.

To demonstrate his case, Klein uses examples of ideological dogmatism that are based on rejection of the hard sciences. Here he is assuming that a reasonable default position must be to believe in the usefulness of science, so anyone who deviates from that by disbelieving some scientific point must have an incentive to do so. But if they are simply unaware of the fact that science is usually a good way of learning things, them ignoring scientific consensus is simply a mistake.

Klein may see it as being obvious that science is great. But he has probably spent a lot more time thinking about it than most people – for many, rightly or wrongly, the jury is still out on science, as a great man once said. Error, not group loyalty, may be a simpler explanation for people’s refusal to accept what seems to be a well-established truth.

If the truth is difficult to determine, people who have an interest in politics need some way of sorting the truth from the information they can access. Since there is a huge amount of conflicting data and theory in nearly every area of policy (whether garbage or not), people need some way of sorting the wheat from the chaff.

That’s where an ideology comes in. An ideology, I suggest, is a type of ‘web of belief’ that allows people to use what they already believe to be true to sort relevant and true new information from irrelevant and untrue information. As Jeffrey Friedman puts it, ideology “provides pegs on which to hang the political facts of which non-ideologues tend to be so shockingly ignorant”.

This fits with the fact that ideologues are usually a lot more informed than non-ideologues, an important fact that, so far as I can tell, Klein ignores.

Klein’s view is that political ideology ‘makes us stupid’, but ‘closed-minded’ is probably a more accurate term. The vast majority of the public is shockingly ignorant of basic political facts, with the informational 'elite' also happening to be the more closed-minded. The alternative to closed-mindedness may simply be to be extremely uninformed.

This matters because the things Klein blames for politics making us stupid – ‘gerrymandering, big money, and congressional dysfunction’ – are mostly irrelevant if the view I’ve outlined here is correct. In a complex world where the truth is hard to discover, even the purest politics would make us stupid.

This implies a much more fundamental problem with the democratic process than Klein suggests. The trade-off between ignorance and dogmatism may be unavoidable in politics, making a well-functioning deliberative democracy virtually impossible to achieve. This may imply that less cognitively-demanding ways of making decisions, like markets, may be even more valuable than we realise.

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Video: Ayn Rand Lecture 2013 by Lars Seier Christensen

Written by Blog Editor | Wednesday 18 December 2013

Lars Seier Christensen is CEO and Founder of Saxo Bank. You can read a full transcript of this speech here

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Why Britain should embrace entrepreneurship

Written by Guy Myles | Monday 28 October 2013

Guy Myles, managing director at Octopus Investments, welcomes The Entrepreneurs Network, a new think tank set up by the Adam Smith Institute.

It’s hard being an entrepreneur. You work every hour God sends. You have people depending on you for their livelihoods. And you’re taking levels of risk most people couldn’t even contemplate.

On top of all that, you probably feel you’re on your own. Within your company, it may be you’re the only one shouldering real responsibility, while the wider world can feel like hostile territory, where you go into battle all by yourself – fighting for finance, for customers, for less red tape, and most of all for recognition.

It’s crazy that we as a country should let entrepreneurs feel unloved or isolated in this way. After all, we’re relying on them to create the jobs and sales that are helping to get the UK economy back on its feet. And they deserve to have their voice heard.

Making a difference in communities

Part of the problem is that smaller businesses don’t attract the attention that commercial giants get, even though their contribution to the economy may be just as important. If one of the big supermarkets unveils plans for a new distribution centre, or a car manufacturer decides to build its latest model in the UK, you’re bound to see it in the news. But if a local furniture factory gradually doubles its staff from, say, 20 to 40, few people will find out. Yet the impact of those extra jobs on shops, tradesmen and support services in the area could be enormous.

That’s why Octopus Investments is so pleased to be sponsoring The Entrepreneurs Network (TEN).  We work with entrepreneurs all the time. They’re great fun, but we see at first hand exactly how much support they need. The ones we back tend to have businesses that are already established. They’re looking to take things up to the next level, and they’re invariably hungry, not just for money, but for ideas, contacts and encouragement.

Why continued support is so vital

We make a point of helping out in any we can. Completing an investment is just the start of the story. Whenever we invest in an unquoted company, someone from Octopus will sit on the board. One CEO has told us this helped him keep his eye on the big picture, without micro-managing. Another said the Octopus director offered a strategy for breaking into the US market.

We came up with the idea of hosting regular forums, such as breakfast seminars, for CEOs from our portfolio companies. These events give them a chance to swap stories and hear how other businesses are coping with challenges and capitalising on opportunities. We may focus a session on a specific sector – such as media, technology or telecoms – but it’s great if we can also create cross-fertilisation of ideas between businesses in completely different fields.

Keeping up the pressure for change

So, we’re hoping The Entrepreneurs Network will provide a bigger arena where entrepreneurs can support each other. But it’s in the area of public policy that I hope TEN can make a real difference. We desperately need a body that can lobby government and policy-makers on the many issues that affect smaller businesses. To take just one example, a major area of complaint in recent years has been the length of time it can take to get work visas for staff coming in from abroad. This is the sort of problem where we need to keep pressuring the government to take action.

As it happens, the UK isn’t such a bad place to set up a business. A report from the World Bank’s Doing Business project put us seventh out of 185 countries on the ‘ease of doing business index’ for 2013. The survey looks at everything from getting building permits and electricity connections to enforcing contracts and trading across borders.

The worrying point is that the UK has slipped a couple of places down the rankings in the past few years. And there are countries like South Korea, Georgia and Malaysia coming up fast behind us. We have to keep working to make the regulatory environment as supportive as possible for small businesses, and that’s the challenge we’re all hoping TEN can rise to.

Guy is co-founder and Managing Director at Octopus Investments.

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Does the existence of intangible goods mean we shouldn't maximise wealth?

Written by Ben Southwood | Monday 14 October 2013

The proposal I made last week—that we abolish parliamentary democracy and turn over decision-making to a a set of betting/prediction markets—faces a number of serious objections. In this post I will deal with the objection that national wealth in principle misses out several important contributions to welfare like liberty, love or other intangibles. I have four further serious objections, which I will attempt to tackle in a third and final piece.

What makes us happy, and helps or allows us to satisfy our desires and preferences, may not be wealth alone. A millionaire who desires only a dishwasher is no better off for all her wealth if she is unable to buy one. A world in which dishwashers are harder to get hold of—perhaps due to a ban—is worse than one in which they are widely available, for a given amount of wealth.

But introducing "for a given amount of wealth" might be begging the question. Our measure of wealth, to be a good one,  will include some correction for changes in prices (like the official measure). Even under our current system of drug prohibition there are measures of illegal substance prices. Similarly, if we banned dishwashers, perhaps in some bizarre return of the lump of labour fallacy, they might still exist, albeit underground and more costly. In this way the measure would show an expected dip in real wealth in the prediction market for the national wealth effects of dishwasher banning.

And many other restrictions on liberty that we'd have independent reasons against would also depress our wealth, e.g. racist employment regulations, restrictions on travel. Even something like the ability to marry could be factored in—if people want to have marriages, they will have a higher demand for housing in areas where marriages are allowed. However this faces a lot of difficulties in a world where so many goods are unpriced and thus we cannot measure all of these effects. And it's unclear whether all of the cost to an individual of, for example, restrictions on marriage would be fully capitalised into house prices. So there might be some reason to expect a wealth maximising state to be less liberal than the ideal happiness-maximising state would be.

Further, typically unmeasured goods like love—which many people see as one of the most important—may not be measured by any element of the wealth markets. While current parliamentary systems don't necessarily directly consider what effect policies will have on aggregate love in the country, were it to be significantly effected by a (proposed) policy they would be able to factor it in. But a pure national wealth-driven system would not.

This is certainly a difficult objection for the model of government, but it isn't necessarily fatal. After all we know there are devastating problems with the current system, including distorted incentive structures, but even more than that public ignorance. We'd want evidence that not only would maximising expected wealth tend to cut the amount of aggregate love in society—it would do so to an extent that outweighed the improvements in policymaking down to an unbiased, properly incentivised and dispassionately rational decision-making system.

We'd need particularly robust evidence to overturn the strong established empirical connections between wealth and happiness (which presumably takes into account the effect of love on happiness). This means the love objection is not telling on our account without much further exploration. As suggested above, there remains the objection that some liberty contributes to happiness without contributing to wealth, or being fully accounted for in wealth measures, and this stands, and should be weighed against the other benefits gained from the wealth-maximising state. And the wealth-maximising state may well be more liberal than current parliamentary arrangements, given what we know about free markets and long-term growth.

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A new governing paradigm—maximising national wealth

Written by Ben Southwood | Tuesday 08 October 2013

How should governments decide on policy? One answer is that policy should follow a particular ideology, such as libertarianism or socialism. Another answer—direct democracy—is that policies should be arrayed in front of the populace at large so they can pick. Another is that the people at large should choose people who vote on policies from options selected by a third group of people—roughly the Westminster system. Absolute monarchy would give a family and their descendants control of policy. But an under-considered method of choosing policy is via markets.

Here I don't mean getting rid of social democracy and having most or all goods provided by the market; instead I mean choosing policies—whether free market or interventionist, right- or left-wing—with respect to the result of a hypothetical prediction market, specifically, one looking at some measure of national wealth.

Why wealth? Well what we really want to do is make people have better lives—increase their well-being. But measuring well-being directly is controversial and difficult. The two leading theories of well-being are that well-being consists in happiness/pleasure and that well-being consists in satisfying one's desires or preferences. We know wealth makes people happier, particularly when they are poor, but even when they are already well-off, and we know more wealth means more ability to satisfy most different preferences.

Thankfully, both measures (like the official ONS statistic) and proxies (like the total market capitalisation of, FTSE All-Share firms, which make up 98% of total business wealth) of wealth are fairly widely available. Of course, these happen after the fact—so while we could easily judge past governments by their effects on these metrics, we couldn't judge current policy proposals. But that needn't hold us back! We already have markets in future RPI inflation in the UK (and CPI inflation in the US), called TIPS spreads. These take the price differential between RPI-linked and regular gilts or T-bills to work out what the market expects inflation will turn out to be. We know this because if it didn't represent the market opinion, then traders could buy and sell bonds to achieve a higher expected return (i.e. take arbitrage opportunities).

Even a simple, TIPS-like market in national wealth would help us rationally guide policy. It's not exactly clear whether central banks check TIPS markets, but if they did, the markets would give them advance guidance on whether their policy would help them hit their target level of inflation, based on reactions to policy changes, suggestive speeches, and explicit forward guidance like the Carney or Evans rules. In the same way, important policies would shift the wealth markets, and governments could use that as evidence for doubling down on wealth creating policies and for getting out of wealth-destroying moves.

However there are important distinctions between the Bank of England's role in stabilising the nominal side of the economy, and the government's role in making policy that makes it likely that lots of real wealth is generated. The best nominal policies, like NGDPLT, focus on stabilising, or ensuring the stable growth of, some nominal variable. The optimal result is extremely reliable stable growth. But that's not what we want in real wealth. When it comes to real wealth, the more the better. That a policy boosted the markets' expectations of national wealth by 10% in five years would not prove it was an optimal, or even good policy, if there was an alternative that could boost wealth by 50%.

So when it comes to national wealth we need conditional prediction markets. We need markets that tell us what would happen if we implemented a given policy. The specifics of implementing these sorts of markets become quite complex and difficult, as we do not want to restrict the policy choice too much, but it may also not be practicable to open up a gilt market for every permutation of every major political idea. But if we could start conditional prediction markets up, we'd have a range of policy options with very interesting and suggestive evidence of what is best for the country's social welfare.

I think there are some persuasive objections to the results of these markets, and—further—to running policy in any rigidly-linked way to these markets. But I also think they can all be plausibly dealt with, and I will attempt to do so in a blog post tomorrow.

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Quote of the day: On anarchist calisthenics

Written by Sam Bowman | Tuesday 24 September 2013

One day you will be called on to break a big law in the name of justice and rationality. Everything will depend on it. You have to be ready. How are you going to prepare for that day when it really matters? You have to stay “in shape” so that when the big day comes you will be ready. What you need is “anarchist calisthenics.” Every day or so break some trivial law that makes no sense, even if it’s only jaywalking. Use your own head to judge whether a law is just or reasonable. That way, you’ll keep trim; and when the big day comes, you’ll be ready.

— James C. Scott, Two Cheers for Anarchism, quoted in Jason Kuznicki's Cato Journal review.

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Bleeding heart libertarianism and British politics

Written by Sam Bowman | Tuesday 17 September 2013

I have a chapter in a new publication by Liberal Reform, the classical liberal movement within the Lib Dems, in which I make the case that non-libertarians and libertarians may find a surprising amount of common ground if they put their differences of opinion about wealth and income redistribution aside. (Unfortunately, you have to sign up to Liberal Reform's mailing list to read that piece. You use my email address to login instead: sam at adamsmith dot org)

Basically, the chapter is an attempt to sketch out a British political economy of Bleeding Heart Libertarianism, the movement that has sprung up around American philosophers like Matt Zwolinski. The main areas I identify are immigration reform, drugs legalization and 'modern mercantilism' (a broad term for corporate and middle-class welfare).

I do think there's a lot of common ground between libertarians and people on the left, but for a serious dialogue to work I propose that libertarians shift their focus from opposition to wealth and income redistribution to a single-minded focus on the regulatory apparatus of the state: 

I suggest that libertarians concerned with the plight of the poor should abandon their opposition to wealth redistribution in practice and focus instead on the regulatory state, where we have a much greater degree of certainty about the harm caused. For libertarians who wonder if they are BHLs, the question might be: If libertarian institutions existed and serious, significant poverty persisted, would state action be justified in acting to relieve at least some of that suffering, if we had a pretty good reason for thinking that that action would work?

I think that it would, and if you have a serious commitment to welfare so should you. The only problem should be an empirical one, which I cannot say is strong enough to reject all wealth redistribution. While I am extremely confident about the benefits of liberalising planning to allow new homes to be constructed in the UK, I feel less confident about saying that all redistribution is harmful.

So I propose a compromise: a ‘libertarian welfarism’. This might see us reform tax credits and the welfare system into a combination of universal basic income and a ’negative income tax’ that acts as a top-up to people’s wages, adjusted to give a little more to people in low-income jobs and the unemployed. The details of this approach to income redistribution are not important for now: what matters is the idea of a simple, cash-based redistributive mechanism. I find myself very comfortable with this kind of redistribution; other libertarians will be less so. But perhaps they could accept it as the cost they have to pay to persuade others about the other, much more important, things they have to say.

I expect many people to find this kind of thinking quite outrageous, but to me the really strong arguments for libertarianism are based on our beliefs about ignorance and incentives, not justice, so they should only preclude redistribution of wealth as a matter of pragmatism. There's no intrinsic reason you can't combine those ideas with "left-wing" beliefs about what a good world looks like any less than they can be combined with "right-wing" beliefs about the kind of world we watnt. I don't know if libertarians will ever be able to have the same influence on the left that we've had on the right, but it's worth a try.

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Professor Kenneth Minogue

Written by Dr Madsen Pirie | Monday 01 July 2013

Sadly Prof Kenneth Monogue has died. Born in New Zealand and educated in Australia, he taught at the LSE since 1959, eventually being appointed Emeritus Professor of Political Theory. He fought tirelessly and bravely for freedom at a time when it mattered most, and has a huge range of scholarly works to his credit, including "The Liberal Mind," "Nationalism," and "Alien Powers - The Pure Theory of Ideology." He made an important contribution to the understanding of ideologies, and took apart some once-popular ones with forensic skill.

He was a good friend and supporter of the Adam Smith Institute, along with other right-thinking think tanks. We knew him personally for over 35 years and enjoyed his wit and charm as well as his insight. He often attended ASI functions and was widely liked and admired by our members.

He was 82 when he died, having just attended and delivered a paper at a successful conference of the Mont Pelerin Society in the Galapagos Islands, which both Eamonn and I attended. He was a former President of the Society. He remained lively and alert to the end of his life and died quickly and among friends. His shrewd observations and mischievous sense of humour will be much missed.

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Think Piece: Good and bad arguments against positive discrimination

Written by Ben Southwood | Thursday 27 June 2013

The US Supreme Court has just left one Texan affirmative action scheme in place, but it has recently busted schemes elsewhere. I discuss what libertarians should think about positive discrimination and affirmative action.

Many of the arguments libertarians make against affirmative action/positive discrimination do not hold. For example, it neither needs to interfere with equality before the law, nor does it need to imposed by state coercion. And in its favour, affirmative action may be one way to overcome some of unjust forms on inequality in our society. On the other hand, it is clearly not even close to the best way of dealing with unjust inequality. And some evidence suggests that these schemes actually hurt those they are designed to help. But without sufficient evidence perhaps the best short-term approach is to allow universities to experiment with their admissions process, so they can among them discover the best approach.

Read the whole thing.

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Check your fallacies

Written by Dr. Madsen Pirie | Friday 21 June 2013

The latest game on the left is called "check your privilege," and if you make any point about others perhaps less advantaged than you, you are given to understand that you cannot really comment objectively, given your advantage.

It’s quite an old game.  Marxists used to call it "sociology of knowledge", but the rules were similar.  All of your opinions were alleged to be only the product of your class interest, and could therefore be discounted.  If you advocated market economics and classical liberalism, for example, this was simply an expression of your class interest as a member of the bourgeoisie.  It has the advantage that the intellectual content of your views can be ignored.  Opponents do not have to argue with what you say; since it represents only your class interest it can be ignored.  There is an exception.  One group is sufficiently detached from the class system that their views have objective import.  These are the Marxist intellectuals, of course.

The fallacies in "check your privilege" are straightforward and easy to identify, though Herbert Marcuse (remember him?) would no doubt have dismissed them as part of "bourgeois logic."  First is the argumentum ad hominem In which what is said is discounted, not because of any flaw or fault in its argument, but because of something pertaining to the arguer.  It is not the substance or sense of what is said that is being criticized, but the status of the person putting it forward.  The fallacy lies in the fact that the argument itself is not addressed, but irrelevant material is considered in its place.

The second fallacy is the genetic fallacy.  Despite the name this has nothing to do with Darwin or Mendel, but involves a dislike of where an argument comes from.  People are less inclined to accept views from those they dislike, whatever the merits of the actual views.  The mistake is to suppose that the source of an argument affects its validity.  A common meme is to assume that eventually someone will associate one side of an argument with Adolf Hitler, but it is still committed if you think that the views of rich white males can be discounted because of the three categories of those holding them. 

Other fallacies are touched on, but all belong to the category of informal fallacies of relevance (intrusion), and represent considering that qualities pertaining to the arguer somehow undermine and diminish the argument.  They don't.  In its latest form it is simply an anti-intellectual way of doing down what the other side is saying without facing the difficulty of considering their argument.

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