Right Reason

Justin Wolfers: Better than a Witch-Doctor?

How does one react when one's predictions have been falsified. Well, let's get an example from Justin Wolfers trying to explain why the markets did not crash when Donald Trump was elected: 

 

My own view is that last week’s stock market gyrations reflect a more fundamental market failure.

Call it a failure of imagination. Investors simply failed to imagine how they might feel when they woke up to President-elect Trump.

....

This failure to fully imagine the implications of the new world is not rational, but it’s very human. I know that my thoughts in the days after Mr. Trump’s win are different than those that dominated my election-eve conversations.

 

Mr. Wolfers' explanation assumes that we know what the markets are communicating and that we, being the educated economists that we are, know the possibilities of a Trump administration better than traders do, hence the invocation of market-failure theory. Reading the tea-leaves that are market sentiments is fraught with danger. It is more the purview of warlocks and witch-doctors, whose rituals offer them perception uninhibited by time and ignorance,  than serious economists.

Market agents foresee and adapt. When they fail to foresee and adapt, market agents lose their money and their ideas go extinct. No practicing economist should be invoking market-failure theory to credit himself with greater clairvoyance than the markets. Then again, maybe practicing economists are no better than warlocks and witch-doctors. One may have been better listening to one rather than Mr. Wolfers!

The market process is there to check the errors of market agents. There is no such check on the error of economists, they may read the tea-leaves all they like without reality ever asserting itself.

I think we are better off trusting people with skin in the game than commentators massaging their own egos with incantations of market failure. 

That Dogs Have Personalities

From “Man’s best friend”:

Past experiments have hinted that animals can feel sympathy. Rats and monkeys had been found to forgo food to avoid delivering electric shocks to relatives. Similarly, apes have recently been documented consoling one another after conflicts. However, all these experiments and observations were demonstrating an animal's sensitivity to distress in other members of the same species. Deborah Custance and Jennifer Mayer of Goldsmiths College, London, set out to see if dogs could detect the emotional state of humans.

To do this, Dr Custance and Ms Mayer conducted an experiment to study the response of dogs when a nearby human suddenly began to cry. The researchers knew that interpreting responses would be difficult, since dogs tend to whine, nuzzle, lick, lay their heads in laps and fetch toys for people in distress. Although such actions hint at a dog wishing to offer comfort, they could also be signs of curiosity, or suggest that a dog is simply distressed by seeing its master upset.

….

Dr Custance and Ms Mayer suspected that if exposure to crying led dogs to feel distress, then regardless of who was crying, the dog would go to their master to seek comfort. They also theorised that if curiosity, rather than empathy, was the driving force, then the humming would cause dogs to engage with people.

As they report in Animal Cognition, “person-oriented behaviour” did sometimes take place when either the stranger or the owner hummed, but it was more than twice as likely to occur if someone was crying. This indicated that dogs were differentiating between odd behaviour and crying. And of the 15 dogs in the experiment that showed person-oriented responses when the stranger cried, all of them directed their attention towards the stranger rather than their owner.

As a dog-owner, I'm consistently entertained how these kinds of experiments experiments (I’ve seen others about whether dogs have personalities, which they do) only show what any dog-owner already knows as a matter of daily experience. Yes, the last line of the article does hang a lampshade on a dog-owner’s disbelief that any peer-researched article is necessary to establish that dog’s respond to emotional cues, but still I must laugh that we’re still at this stage of understanding the psyche of man’s best friend.

Charles Darwin frequently used dogs to illustrate the way that animals would express their emotions in The Expression of the Emotions in Man and Animals. He plainly understood that emotions and personality were not limited to human beings. Being a man who had quite a fondness for the animals, Darwin frequently wrote quite warmly about the canine emotional life:

But man himself cannot express love and humility by external signs, so plainly as does a dog, when with drooping ears, hanging lips, flexous body, and wagging tail, he meets his beloved master. Nor can these movements in the dog be explained by acts of volition or necessary instincts, any more than the beaming eyes and smiling checks of a man when he meets an old friend. (Darwin1890:11-2])

For Darwin, the humble dog was man’s reminder of his lowly origins. That such an animal, stooped on all fours and incapable of arithmetic, could express emotion was a daily corroboration of the animal origin of his moral nature.

A Campaign of Identity Politics?

From "The Democrats Screwed Up" by Frank Bruni:

Other factors conspired in the party’s debacle. One in particular haunts me. From the presidential race on down, Democrats adopted a strategy of inclusiveness that excluded a hefty share of Americans and consigned many to a “basket of deplorables” who aren’t all deplorable. Some are hurt. Some are confused.

Liberals miss this by being illiberal. They shame not just the racists and sexists who deserve it but all who disagree. A 64-year-old Southern woman not onboard with marriage equality finds herself characterized as a hateful boob. Never mind that Barack Obama and Hillary Clinton weren’t themselves onboard just five short years ago.

Political correctness has morphed into a moral purity that may feel exhilarating but isn’t remotely tactical. It’s a handmaiden to smugness and sanctimony, undermining its own goals.

Much like any other year in politics, 2016 will not be understood until a generation out. Only then will have future events revealed the year's long-term consequences and only then will have historians studied the events and personalities involved in sufficient detail. Alas, as Søren Kierkegaard once wrote: “It is perfectly true, as the philosophers say, that life must be understood backwards. But they forget the other proposition, that it must be lived forwards.”

With that caveat, I quite like Mr. Bruni’s post-mortem on the strategy and fortunes of the Democratic party in 2016.

 

One has to wonder how this devastating defeat will affect people’s estimation of Barack Obama’s legacy. For the past couple of years, he has been as smug as they come. Yes, his smugness has appealed to people who sympathize with him and who learn Democrat. For other people, that smugness has been quite vexing and has served to alienate many of the voters Mrs. Clinton would have needed to win. As Jonah Goldberg has noted: “One of the central insights of both the Obama campaign and administration (the difference is subtle but real) is that Obama benefits when his critics overreact.”

The strategy of trolling conservatives, however entertaining it may have been, has the necessary effect of making a portion of America a butt of a joke. By attacking the prestige of many of the White working-class workers who once provided the winning coalition of Roosevelt’s New Deal or Johnson’s Great Society, Mr. Obama may have done his party long-term harm for short-term praise from its more vocal segments and all for next to no gain in terms of actual policy. Yes, there is the Affordable Care Act, but let’s not forget that the legislation was so popular in 2010, when it still had yet to be voted on in the Senate, that Massachusetts voters voted a Republican vocally opposed to the bill to succeed Ted Kennedy upon the late senator’s death. Obamacare has not gotten any more popular since then. When he leaves office, the unofficial leader of the Democratic party shall be turning over all three branches of the federal government to a Republican majority.

Still, even GQ, otherwise a magazine of fashion, was quick to acclaim Mr. Obama earlier this year as being “Mt. Rushmore great”. One has to wonder how such a manifestly great president could hand over all three branches of government to his opponents. I think the answer comes down to identity politics and to the fact that, during his administration, President Obama raised the social prestige of the kind of people who tend to read magazines such as GQ.