History, Aaah History

I never studied much economics until I was long out of school. I did so then to get to grips with its seeming irrelevance. I had become involved in questions of economics of the practical kind and found little – or none – of value in whatever textbooks I picked up to educate myself. I was a history major. Looking for narrative and building models based upon the lessons of prior generations just feels sensible to me. Modified, of course, by the knowledge that, while history may appear to repeat itself, it never repeats itself exactly. For one thing the actors have changed. For another, so has everything else. But ideas resonate. Since all words can only be vague approximations of the sharpness of our thoughts, the theories that provide the core of our responses to problems are also approximations. They are general, while the problem at hand is specific. This implies that when we apply them we have latitude and need to adjust them to circumstances. There is no single answer, no “silver bullet”, and no ideal. There is just the continuing unfolding of events, the constant pressure to learn, and the overwhelming consequences of being unable to adapt: failure, or, in the extreme, ultimate extinction.

History tells us this. Nothing can ever be the way it was. That unfolding is incessant. And failure to learn dooms us eventually to fall victim to change because the presumption that knowledges acquired in the past is appropriate for the present is the most dangerous of all illusions. Being steeped in even the most brilliant of all theories is meaningless if the environment has rendered that theory obsolete.

This is why I ascribe to Karl Popper’s dictum that all life is problem solving. Life itself is a solution to a profound problem. That of the ever changing universe. If yesterday provides only approximate guide to how to survive today we need to hone that guide to sharpen its relevance. We need to learn. This implies being adept at forgetting some things and being skilled at problem solving in real time. Forgetting the wrong things leads to disaster.

Of course some solutions maintain their relevance longer than others. There are problems that repeat closely enough to their past pattern that an old solution is still useful. Such solutions can be codified and embedded deep into the machinery of life. They become what I call “primary knowledge”. The code transmits forward information sufficient to resolve a repeat, or near repeat, of an old problem. Our landscape is littered with primary knowledge. DNA can be thought of this way. So too can the rules and routines of business. So too are the traditions of society and its institutions. Vastly different yet united in their representation of coded learning projected forward to guide future action. In the hope that such action will enable successful solution to a future problem. In this way primary knowledge provides continuity, stability, and well understood response. It is this predictability that is its strength. We know what we’ll get. We know it works. We can take comfort in its efficacy.

But, as Popper tells us, the universe doesn’t care for tradition. It never is the same. It is akin to river Heraclitus warns us about. It may appear to the same, it may have all the surface qualities of continuity, but underneath is roiling change and turbulence, which, when accumulated, alters everything. And renders primary knowledge useless. Worse, it dooms anything dependent solely upon primary knowledge. We really can never step into the same river twice.

So we need to learn. And the ability to learn, what Popper described in his notions of falsification, is what I call “secondary knowledge”. This is our ability to solve unique problems by maintaining and then deploying a set of talents consisting of both outward and inward flows of information, and then the ability to process that information in order to devise new solutions quickly. Better yet: it is preferable to be able to test those solutions before applying them. The falsification process can be truncated that way, and the risk of failure reduced. We do this by thinking through problems and countering them with what we call ideas. These ideas can be tested and pay the consequences of failure, saving us from that fate and allowing us to adapt until we locate an idea that passes muster. Once we have, we have learned. The problem is solved and the solution can be stored as part of our primary knowledge to be replicated and used anew.

Why am I lost in all this?

Read these quotes:

“For hitherto war has been the only object of governmental loan-expenditure on a large scale which governments have considered respectable. In all the issues of peace they are timid, over-cautious, half-hearted, without perseverance or determination, thinking of a loan as a liability and not as a link in the transformation of the community’s surplus resources, which will otherwise be wasted , into useful capital assets.” – Keynes, 1933

“It is a complete mistake to believe that there is a dilemma between schemes for increasing employment and schemes for balancing the budget – that we must go slowly and cautiously with the former for fear of injuring the latter. Quite the contrary. There is no possibility of balancing the budget except by increasing the national income, which is mush the same thing as increasing employment.” – Keynes, 1933

“There are still people who believe that the way out can only be found by hard work, endurance, frugality, improved business methods, more cautious banking, and, above all, the avoidance of devices.” – Keynes, 1933

“We are of the opinion that many of the troubles of the world at the present time are due to imprudent borrowing and spending on the part of public authorities …. [which] mortgage the budgets of the future, and they tend to drive up the rate of interest … the depression has abundantly shown that the existence of public debt on a large scale imposes frictions and obstacles to readjustment very much greater than the frictions and obstacles imposed by the existence of private debt.” – Hayek & Robbins, 1932

“Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world.” Keynes, 1935

I could go on. As I kept coming across these quotes, taken from the debate between Keynes and classical economists during the 1930’s as he developed his General Theory, I kept on noting how apt they are today. We really are re-living the depression. We really are locked in our own depression. Our primary knowledge now is that same as it was then. We forgot during the interim what we learned in the 1930’s. We forgot Keynes. Or, rather, we unlearned him. We fell prey to an ideological backlash that banished exactly those solutions most appropriate in our current circumstances.

Instead our current policy solutions are mainly those of the classical economists, which were shown to be in error back then and are in error today. When we deploy Keynes it is half-heartedly and with regret. For we are convinced he is apostasy. He is not the pure or the ideal. For he teaches us that intervening in markets is a better course than allowing them total freedom. He places a constraint on freedom, and that notion is not in vogue.

Worse: when the centrists in politics are all homogenous in their thinking, as they are today. When they are all in the thrall of erroneous theory and are replicating the tragedy of the 1930’s. When they have all deliberately abandoned the positive message of social or activist response and taken up cause with the pessimism of conservatism that teaches us to abandon ourselves to the fate and destiny of “natural forces”, they expose us to the rise of extremism. For people want response. They yearn for action. They demand leadership. They thus gravitate to anyone who promises to lead and fight for a cause. When the centrists are frozen by their inherited primary knowledge those who offer an alternative, however specious, however pernicious, however awful it may be, will develop a following.

In the 1930’s the utter failure was that of the centrists in Germany. They dithered and were beholden to outmoded ideas. Hitler wasn’t. We know the result.

Today?

Political instability is on the rise. This is not because people have become more extreme. Nor is it because we have more virulent ideas today – we don’t yet have a modern version of Nazism. It is because our elite is inept and locked in error. It cannot lead because it cannot shed its old ideas. It cannot bring itself to learn. Or re-learn.

History, aaah history.

We forgot the wrong things.