Yes, Master - 2020 New Year's Resolution fulfillment

You may not remember the before times, but I do. Way back then I had a conviction in a belief, that while I still do hold it, I must admit I was wrong to hold so strongly. I fulfilled my perpetual, annual New Year's Resolution in 2020 by changing my mind on just how easily willing people are to submit to authority when in a state of fear. Let me explain.

Although I am a student of history and well aware of the many cases of a populous submitting to the king, the conqueror, or the soothsayer promising protection for only the price of precious liberty and self-determination, I foolishly and naively did not connect that reality to my view (hope) for the current world. Time and place again throughout 2020 did I find that view shaken and proven faulty. 

There were recent, stark clues that should have told me the line would not hold. 9/11 and the terrorism threat of the early 2000s was but a hint of how quickly and thoroughly people would yield liberty and self determination in the midst of fear. In that case we traded away freedom for security and as the predictive aphorism goes got neither--just theater and blunt rules with unintended consequences and predictable government excess and abuse. 

Likewise in the financial and economic challenges of the last 25 years we saw populist calls for regulation and takings. We got both repeatedly and with greater gusto in each pass. Captured interests worked hard to draft the legislation and interpret the rules to favor vested interest and the status quo. The experts gave us bailouts and promises to never again . . . allow the wealthy and the powerful to face devastating losses. 

And then came a pandemic. I expected tyrannical nations would react harshly. I expected better from the nations of the free. The Higgsian ratchet is a powerful and reliable effect. This is true because FOOL (Fear Of Others' Liberty) and FOOM (Fear Of Others' Mistakes) are dominant forces in times of great stress. 

I believed that people, not just free people but all people, would gradually and eventually strongly resist and rebel against coercive, dictatorial edicts that did not just seem but were proved to be ineffective, unjust, inconsistent, and in many cases counter productive. While resistance occurred, I was and am still shaken with how little was offered. 

Perhaps I am being too harsh on myself. To be clear I am not advocating nor saying I expected violent resistance. That is not required to stop what we have seen. The popular will alone prevents or enables power from corrupting to this degree. So maybe people are making a practical tradeoff that I am not appreciating. To make a small example, masks and mask policies are often just a wink and a nod letting us go about our lives. In this fashion they are akin to Robin Hanson's example of the public drinker's brown paper bag.

Yet my reading of my fellow man does not make me think this the case. I see people truly scared and truly allowing if not endorsing the lockdown of free lives. Acquiescence is all the permission the powerful need to take more from others. 

If I were to put it into a 2x2, it would look something like this:

Fighting for freedom is the degree to which one will actively take actions against oppression. This is offense. Resistance to coercion is the degree to which one will impede oppression. This is defense. Both play a crucial role and are interconnected in an effective and just battle for liberty. 

Coming into 2020 I put Americans in particular and people generally on the blue line. My revised belief is that the typical person is on the red line--a decided shift away from where I once thought we were.

Reading Between the MSM Lines - Partial List

Follow the money. If you want to know something about the credibility of a source, look into what they are actually getting paid to do. For example:

• Fox News gets paid to shout scary ideas at old people.
• MSNBC gets paid to say snarky comments that make their friends giggle.
• CNN gets paid to pretentiously spout conjectures that sound important.
• CNBC gets paid to use buzzwords and pretend noise is signal to make viewers feel smart.
• ABC, CBS, & NBC news all get paid by trying to resemble what their viewers remember traditional network news looked like.

Turn off the news. It makes you dumber.

52 Things I Learned in 2020

Like all of us, I learned a lot about disease, pandemics, epidemiology, government crisis management as well as a lot of misinformation about all these topics. I am very confident that I have an inflated and undue confidence in what I "know" about these things. I am also very confident that most people are in the same boat as me. 

Let's set all that aside to cover the items I collected over the year as truly new knowledge. They are only in the general order of when I learned them or saved them to my list. My apologies in advance for those things learned that turn out to be untrue or otherwise faulty (bound to happen).

1. Chimps can learn to do something regular humans cannot do. [UPDATE 9/21/21: Turns out maybe not.]

2. I generally knew that abortion rates have been declining over the past decades (e.g., specifically it has declined 24% from 2006-2015). Yet I did not know the distribution of abortions by age of the fetus/baby--65% before 8 weeks, 91 before 13 weeks, and almost 99% before 20 weeks all inclusively I presume. (BTW, I greatly miss SSC).

3. An astronaut almost drowned in space in 2013 (both of these start around the 10-minute mark) and you cannot burp in space, therefore you don't drink carbonated beverages in space. 

4. I learned a lot about speed from this Patrick Collison post including: "Walt Disney's conception of 'The Happiest Place on Earth' was brought to life in 366 days." As a side note, see item 52 below. 

5. Rio averages (or was as of this story) 24 shootouts per day. 

6. The college wealth premium, the benefit to overall lifetime wealth for a person attending college versus foregoing it, might be close to zero.

7. NIMBYism now has a tracking index. 

8. The tiny island nation of Tuvalu has a recently discovered artificial natural resource. Paging Ronald Coase...

9. Richard Nixon committed treason.

10. The often thrown around (buzzword) term "disruptive" when describing technology, innovation, et al. has a specific meaning and is often misused.

11. I learned many things from Adam Minter on EconTalk including that the thrift is a 17-billion dollar industry, Goodwill's mission is employment training for hard-to-employ people, and Marie Kondo didn't invent decluttering but rather emerged from it.

12. Among other interesting facts, which always are surprising at least to me (and I tend to be aware of economic gravity), I learned that 95% of U.S. commercial ginseng production all comes out of Marathon County, WI.

13. This article was almost the base for my 2020 New Years Resolution fulfillment. It still makes the list here for helping me understand when "sustainable" is not a boo word.

14. Testable is not equivalent to falsifiable and Karl Popper was wrong--this one is deeper than most will realize.

15. "The Central Social Institution in Prague was home to the world’s largest vertical file cabinet. It consists of 3,000 drawers, 10 feet high, reaching from floor to ceiling and covering approximately 4,000 square feet. The drawers are all equipped with roller bearings." -- Be sure to check out the pictures.

16. The real size of countries is astonishing.

17. It is legal for politicians to text you spam.

18. The first two of Clarke's Three Laws.

19. Trying to say that sex is binary is an oversimplification that probably is devoid of meaning.

20. Civil War veteran and amputee James Hanger designed and built a new, lightweight leg from whittled barrel staves and went on to found Hanger, Inc. which remains a key company in prosthetics.

21. The real price of LEGO pieces have declined by about half in the last 30 years--lots more including nuance on this learned fact at the link.

22. USB drives get heavier as you load more data on to them.

23. Dictionaries do NOT in most cases list pronunciations in order of best or preferred or most common first.

24. Florence Nightingale was an innovator in health data statistical analysis and data presentation.

25. 530 Boston Police Department employees made over $200,000 (equal to the salary of the mayor of Boston) in 2019. The highest paid made over $350,000.

26. The fatality risk to police and sheriff who patrol makes it only the 16th most risky occupation, and the magnitudes of the differences from the top 15 is meaningfully large.

27. There are more possible games of chess than there are atoms in the universe.

28. Walter Duranty, an NYT journalist in the 1930s, won a Pulitzer Prize for a work of lies that covered up Stalin's mass murder in Ukraine. A heroic man, Gareth Jones, exposed all of this. Sadly, history is remembered poorly to say the least.

29. Karl Marx neither originated nor popularized the term "capitalism".

30. The "Lord of the Flies" is not just wrong in theory and disproven in analogous fact time and time again, but an actual, real-life version actually happened to disprove it specifically.

31. Fish sticks have an interesting origin story.

32. I always thought the Elo Rating System was named for some acronym or shorthand for a mathematical term. Rather it is simply named for its creator, Arpad Elo. Quaint I must say.

33. & 34. I learned many things (two of which I'll list) listening to Terry Anderson on the podcast The Curious Task. The first (located about the 5-minute mark) is a story of the trade axe, which found its way through the beauty of the natural market well ahead of the explorers. The second (located about the 21-minute mark) is the fact that the disgusting "General" Custer was only a general when he was fighting Indians. Otherwise he was a lieutenant colonel--talk about bad incentives. 

35. A key and underappreciated part of the conceptual framework of externalities is the role of expectations--"Externalities exist only when another party’s actions create unexpected spillover effects."

36. A cheap, effective and painless method of stopping tooth decay has existed for over 100 years and is only now beginning to be used in the USA despite use abroad for some time.

37. A team of scientists may have discovered new organs in the human head.

38. Half of Canada's population lives at a latitude south of Lake Superior.

39. The Anti-Digit Dialing League (ADDL), founded in 1962 to oppose telephone number dialing made of just numbers, is still active and fighting hard against the tide of 10-digit dialing.

40. & 41. Here is another example (EconTalk with Virginia Postrel) where I learned a lot and am listing but two items. First (about the 18-minute mark) Luddites were hypocrites and second (about the 40-minute mark) hemp DID NOT stop being produced because of marijuana’s prohibition--it lost out in the marketplace well before that.

42. In 2019 Japan's population on net shrank at the rate of a person a minute.

43. There is a monument to Soviet Army soldiers in the U.S.

44. The widely-used (and misused and overused) concept of Black Swans was invented by Bertrand Russell.

45. & 46. Okay, last two-for-one. The Tim Ferriss podcast interview of Steven Rinella taught me two things of note: First (about the 11-minute mark) is that New Mexico is the state with the second most hypothermia deaths behind Alaska, and second (about the 1-hour, 21-minute mark) is the story of The Children of Llullaillaco. The early discussion of hypothermia wasn't too new to me, but it was nevertheless fascinating.

47. Historically almost all of the return in the stock market, for the S&P500 at least, is captured after hours (between the close and the open).

48. Among other amazing facts about real Christmas trees is that at the large producers they use helicopters sunup to sundown to load up to a thousand trees per hour onto truck trailers.

49. Using cotton-tipped swabs (Q-tips, et al.) to clean ears is probably NOT that bad after all. Note: there is an interesting subtext lesson here about science and incentives--so apt for 2020.

51. Listening to The Great Antidote with Tevi Troy I learned a lot about political rivalries and petty grudges and childish behavior including the degree and nature to which Bobby Kennedy and Lyndon Johnson absolutely hated each other. 

52. As referenced above in item 4, perhaps the most amazing speed to build, create, develop was done in 2020 as Moderna's vaccine for SARS-CoV-2/COVID-19 was developed in 2 days! What I learned was how fast a for-profit company can develop a brand new vaccine, but I must lament how unfortunate it is that government won’t let that technology work for us in a free and timely manner, which costs us immensely in lives and happiness. 

Sorry I ended the list on a sour note, but it is fitting that the first and last items were about science and that the list ended with grimness. 2020 was a great year for science, a sad year for so many, and a bad year for government policy.

Here is to more learning in 2021. Hopefully the tuition won't be so high.

Being Relieved and Reassured When I am Wrong

Considering the realm of points of view where thoughtful minds can disagree, we simply cannot have very much confidence that all of our views are correct and justifiable. In fact unfortunately it is likely that we are right only half of the time, an epistemic coin flip. Therefore, it should be reassuring when we discover areas within this realm where we are incorrect because then we can have more confidence in our other points of view being true. 

Similarly I take comfort when I find error or at least disagreement with the intellectuals I follow and admire. This lets me know I am thinking critically, which holds even if they are right and I am wrong. 

To make sure I am not just stubborn and cherry-picking my points of agreement, I always seek to change my mind (2020 edition coming soon). And by the same token, we must be careful not to use this as a cognitive bias giving confirmation and validation to views we should now doubt. 

If there are correlations and other entanglements between points of view, doubt cast upon one of these casts doubt upon all of them. Being wrong about one part of a system probably means one must be less confident in one's views about the other parts of the same system and perhaps wrong about the system itself. The Bayesian updating is a sticky wicket. 

P.S. One recent example for me was listening to an episode of The Libertarian Angle podcast.  The host Jacob Hornberger is someone for who I very much align in my view of the world. He ran in 2020 to be the Libertarian Party's presidential candidate. If he would have won, I would have gladly voted for him. In fact I would have ideologically preferred him as the actual candidate over Jo Jorgensen (Jorgensen was probably the better candidate for general electoral appeal). Yet he has strong beliefs with high confidence that the JFK assassination was a regime change conspiracy done through the CIA and the rest of the national security state. The case he makes causes me to adjust my views slightly but only slightly. I can believe there was unacted-upon desire to thwart Kennedy's foreign policy changes (Kennedy was making concrete movement away from war and hostility). I just don't believe this materially came together in a conspiracy of action. 

Listening to Hornberger gave me a bit of a challenge to my priors about the Kennedy assassination as he is very much more informed about it than am I. At the same time I didn't change my mind and adopt his view. If we do finally someday get a release of the classified records from the assassination (Trump surprisingly agreed to extend the classified status in 2018 until 2021), I might discover I was completely wrong. Either way I'm relieved and reassured because it shows I am not simply outsourcing all of my views to my intellectual heros, and if I am wrong about this, I can have more confidence in the areas where Hornberger and I are in agreement. 

Three Characters From Bewitched Have Taken Over America

I know this is a hopelessly-dated allusion, but it is important that we remember the great works of fiction and see how they are commentary on real life. 

Although Bewitched first aired a bit before my time, it was in afternoon reruns when I was in my formative grade school years. In addition to the pure entertainment value of this sitcom, it was good for a young kid to learn from some of the characters in this show. Notably, the caricatures of the Larry Tate, Gladys Kravitz, and Endora.

For those who don't know exactly what I'm talking about, let me explain. 

Larry Tate is the boss of the show's main male character, Darrin Stephens. Larry is a rudderless client yes-man obviously willing to do anything and everything a client asks no matter the cost. He will turn on a dime to agree with a client even if it awkwardly and obviously makes him contradicts himself. It is not that the customer is always right. It is that he doesn't really care about the customer's needs. He only wants the customer's business. This means he would gladly let a client make a mistake as long as it meant Larry gets the business. 

Larry Tate is seen today in all those who so willingly and easily succumb to the demands and desires of those in power and authority. Read this how you like, but I see it in those who would wear a mask in the shower if Dr. Fauci so commanded along with those who would believe aliens (space or illegals) voted repeatedly, fraudulently for Joe Biden. 

Gladys Kravitz is the nosey neighbor who thinks everyone else's business is her business. She freaks out about other people and the goings on around her on a regular basis. 

Mrs. Kravitz is seen today in every so-called Karen and other busybody who so much wants to patrol, police, and protect other people's lives. Less someone point out the gaslighting that poor Kravitz endured, I will admit that She Was Right! in her observations at least. But she was not right to be minding other people's concerns. Adults should be allowed to make their own mistakes, and we should defer to others with respect to their own choices. We likely do not know best for other people. Whether she is on the local zoning board or guiding health policy (be it for cocaine and vaccines or for social distancing and ruling business essentialness), Gladys Kravitz doesn't see it this way. 

Endora is the mother of the main character, Samantha Stephens. Endora believes herself to be quite superior to mortals. She would be quite happy to control and command all of her daughter's life as well as any others who got in her way. She wasn't always harsh about it instead using charm and seduction more often than brute force.

Endora is seen today as always in government at so many levels. She will steamroll over the lives and desires of Samantha and Darrin (people everywhere) if it serves her. She seduces the Larry Tates of the world and uses the Gladys Kravitzes of the world preying upon their respective weaknesses. The effect of government is Endora, but the composition of government is individuals. Those individuals are not fully Endora by themselves, but when good intentions are combined with poor incentives and weak principles, the outcome is Endora.

Partial List of Current Practices Future Humans Will Detest as Immoral and Indefensible

I've speculated on this before, as have others. As we sit anxiously awaiting a new year so as to put the current one behind us, this thinking is on my mind. None of these are specific to this year, but I could write and probably will write soon on my hope that many things about this year will someday (hopefully soon but unfortunately not soon enough) be thought of as abhorrent or at least a very, very poor use of cost/benefit analysis.

Here is the short but important list:

• Abortion
• Immigration restrictions (especially for those seeking to escape poverty or tyranny)
• Trade restrictions (to a lesser degree)
• Tolerance for people living (anywhere) involuntarily in a condition of (meaning without a reasonable ability to escape) extreme poverty (coupled with no acceptance for ignorance as to the solution for extreme poverty--we know how to fix this--free markets and free minds)
• Living conditions of the institutionalized elderly
• The death penalty

Short note on abortion (perhaps the most controversial item on the list): Nearly all of the arguments in favor of abortion today sound to me very similar to those arguments made contemporarily to and in apologetic memory of slavery.

Does Active Investing Work in Theory?

We know active investing almost always doesn't work in practice. The vast majority of professional money managers underperform their respective index over meaningful periods of time. Let that sink in. Compared to what we could easily do on our own through indexing, most of the people we pay very large sums to invest our money give us back less after they do their job and take their fee. For those few that do, we say they earn alpha--return in excess of the market for the same level of risk taken. 

As a side note realize something. Your Uncle Fred with all the great stock picks or your friend who just quit his job to start day trading and who has actually has been making money trading stocks, bonds, options, or whatever HAS NOT been taking the same level of risk as any index. Those two happen to be winners in a likely random pool of many people taking on tremendously more risk than they realize. If 10,000 people all flip coins ten times in a row, some of them almost certainly will get ten heads in a row (singularly by itself a 1 in 1,024 chance). 

However, I am focused on professionals here. Guys and gals who dress sharp, use all the right jargon, are actually highly intelligent and reasonable, and who most of the time lose money for their clients. Perhaps their clients are buying something else than returns [paging Robin Hanson--investing professionally isn't about making money]. Highly likely in many cases. It feels good to deal with these pros. Plus they can in fact help investors stay disciplined--better to make 5% versus the benchmark's 6% over 10 years than to bail out when the market declines and earn only 1% over that same 10 years. Fortunately for EMH and unfortunately for this theory, this affect has been shrinking to recently be nearly nothing.

So, while active management doesn't work in practice, does it work in theory? Start with the assumption of a manager that can consistently and reliably earn 1% alpha. When her benchmark is up 6%, she is up 7% on average. Why does she need your money? 

I can think of two likely reasons:

1. She could want to use it to reduce her own risk. 
2. She could have more opportunity than she can herself realize.

Notice that these are not altruistic motivations. The first is fairly unfavorable for the client--you are giving her money not for your benefit but for hers. She uses the additional funds to smooth out the volatility in her own income. When you pay a management fee to her, you are directly subsidizing her income. And just the use of the funds themselves is an indirect subsidy allowing her to invest more broadly. All of this might be justified if the second reason holds.

In the second she only would invest your money once she has invested all of her own money including all the money she can borrow at less than the total return of the investment, which is the market return plus alpha (6% plus the 1% in this case). Theoretically and in practice she will charge you a small fee to cover transaction cost plus a little profit to her to let you participate in her investing endeavors. Yet as we saw in the first reason she should probably be paying you as you are giving her a benefit of lower risk in the form of a smoother income stream.

Essentially this is an arbitrage which we know is going to have a limited capacity. Even if she is in that elite company of professionals who can outperform the market, her last idea (say the last stock her analysis says to buy) will be her worst idea and only be at best just as good as the market itself. It seems very likely by the time she gets to your money, we are firmly in reason-one (personal risk reduction) territory. 

This is quite damning for professional money management--in theory. What might save it and asset managers like myself who do in fact invest client money with money managers? 

First, we must admit just how challenging it is to find professionals who can outperform the market. Second, we must consider that the first reason above, income-smoothing risk reduction, might actually have a win-win aspect to it. Yes, she does enjoy less risk by using your money, but she doesn't get this for free. In fact she is probably risk averse enough that the second reason doesn't hold firmly.

Rather than fully lever all of her available resources--put her risk at ludicrous speed--she would likely prefer giving you most all of the risk of her performance and collect a steady fee for doing so. She is giving up the potential for return upside so that she has only very little downside risk. This flips the concern from being a pure doesn't-work-in-theory problem to being a pure principal-agent problem. sigh We can't catch a break. Now we have to worry that she isn't incentivized properly to continue to do what we hope she can do--outperform the market at the same level of risk. But at least we partially rescued active management in theory.

As bad as this is (in theory), this is in public market active management. The same forces are at play plaguing private markets like private equity and private debt. At least public markets are not opaque, very hard to benchmark, illiquid, et al.