The trouble with revolutionary thinking

http://www.chinahistoryforum.com/index.php?showtopic=15534

It follows a pattern

1) Reform is good!!!! Conservatives are bad!!!!!
2) Yaahhhh!!!! We won the revolution. Things will be perfect!!!!
3) Wait!!!! Things aren’t perfect, what’s wrong!!!!
4) There must be *enemies of the people* and *secret agents* among us which are destroying the perfect situation.
5) Well lets go find and destroy them!!!!

This happened with Mao. This happened with Stalin. I saw this happen with the overseas democracy supporters in Tiananmen. It ends with secret police, cultural revolutions, and people killing each other. It gets worse because once you have a cultural revolution, things get even worse, which causes more effort to find enemies.

The basic problem is the assumption that the problem is because of “bad people” when in fact the problems are much more complex. If you replace the “bad people” with the “good people” then things won’t improve. Look at China, 1911 revolution happened, Qing was gone, and it took another 70 years before China had any sort of real economic growth. I don’t blame Sun Yat-Sen for waiting to overthrow the Qing. I know things from history that he didn’t.

Note on Chinese saving rates

One thing that is important to recognize is that the United States is at a trade deficit with just about everyone, so changing the RMB value isn’t going to change anything, what you need to do is to cause the dollar to drop with respect to everyone. If you just change the RMB value, then you change the US-China trade deficit but not the deficit with respect to other parties.

Also, it’s not clear to me that it is a good thing for China to save less given the demographic shift that is going to happen once the baby boomers retire, nor do I think that replacing labor with capital is such a bad idea, given the demographic shift that is going to come.

It also concerns me that when talking about optimal policies for China, that Western economists ignore demographics. If you ask your average Chinese peasant *why* they are saving so much, they will respond with healthcare, education, and retirement, and that seems to be a lot more sensible an answer than what is coming out of economic think tanks.  If you tell them that the collective wisdom of the Western economists is that they should spend their retirement money now and have nothing left in twenty years, they will (correctly) question your sanity.

Moments of self-doubt

Everyone in academia has them from time to time.  Moments when you look out and think to yourself, oh my god i’m a complete idiot and totally doomed.

It’s a little worse for me since I’m trying to do something totally different.  There’s something called social validation which is useful.  You think to yourself “what the hell am I doing pretending that I’m a professor” and than you look at your office, your parking space, and the piles of papers on your desk, and you realize that someone is giving you a paycheck to be a professor.

My trouble is that I don’t even have that.  I’m basically forging ahead being a freelance junior faculty member without the normal support structure of a university.  I have to invent things as I’m going along, and no one is telling me whether I’m winning or losing.  So when I have those moments of “what the hell am I doing” I don’t have an organization to fall back on.   The closest thing that I have is the forum at the Chronicle of Higher Education, which is proving very useful, because it tells me that the difficulties that I’m having doing something original, aren’t unique to doing something original.

I miss my mother.  She passed away a while ago, and one of the things that she had was absolute faith in my abilities.  I could talk to her when I had moments of doubt, and just hearing someone that believed that you would pull through was useful.  At MIT, I had a network of people that I could also rely on.  Listening to someone complain about their situation was useful, because it told you that you weren’t unique.  Seeing people  that you regarded as being on the same level as you pull through was also useful, because you could say to yourself, if they could do it, so could I.

What makes my life difficult right now, is that I don’t have anyone like that anymore.  A lot of people have passed away.  I’ve lost track of most of the people I knew at MIT.  I can simulate what some of them would say in my mind, and that helps, until I look at the room and realize that I’m the only one there.

But I pull through.  I’ve done it before.  There’s no reason to suspect that this time will be different.  And ultimately I have history and philosophy on my side, I hope……

What I’m doing is unique for the early 21st century, but there are examples of it happening before.   The sheng yuan scholars of the mid-19th century, and Ludwig Von Mises, who famously was not a paid faculty member or for that matter Confucius. And then there is philosophy, one has to believe that if one is on the side of history, that this will give you power.  The current university structure has only existed since the end of  World War II, but scholarship and learning has existed for a lot longer than that.  One has to believe that there is something fundamental in virtue and scholarship that one can gain strength and power from.

Maybe.  Maybe not.

But I have come to the conclusion that to have a life worth living, you must at some point risk everything for your beliefs, if only to see if they are worth anything or not.

But it is still lonely.  It is still painful.  It is still scary to risk public humilation.

But if you are living with pain.  If you’ve been humilated before.  Then you can act with some boldness that would be impossible for normal people.

So accept the fear and the doubt, consume and digest it.  Acknowledge it.

I am terrified, I am afraid, and I severely doubt my ability to do what I want to do.

But I’ve never let that stop me before……

And it’s not going to stop me this time……

Esoteric and exoteric

I’ve been reading a lot of Leo Strauss recently. I got his book the “City and Man” and I’ve also got “Persecution and the Art of Writing” on order. Strauss is notorious for insisting that political speech has an esoteric reading for the initiate and an exoteric reading for the masses.  The idea is that the exoteric reading is a red herring, but the esoteric reading is the important one.

From doing the same thing in blogs, I have this suspicion that the opposite may be true, and that it is the exoteric reading which reveals grand truth whereas the esoteric reading is something that is somewhat trivial.  In hiding messages in this blog what I’ve finding is that the esoteric message is important for me and maybe a few other people in the world, but it’s unlikely to encode any universal truth, but it is the exoteric reading that would be of interest to people living in radically different times and places.

Protected: I still hate Christmas

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Past and present

The past and present have a very odd relationship.  You would think that once something happens that it is finished and unchanging, yet while you cannot change the events of the past, as time moves on, things happen which change your views of the past, and you sometimes learn something about the past that puts things in a different light.  Meanwhile the past changes the present.

I’ve been thinking quite a bit about my high school Latin teacher.  One thing that he reinforced in me was a respect for both law and history, and a deep appreciation for classical Roman learning.  Something that I wish I could do at some point would be to regain my fluency in Latin, but I still find the oratory of Cicero against the Catiline conspiracy to be stirring, and I still think deeply about the implications of the period between the Republic and the Empire to current events, and I also think much about the historical processes which led to the fall of the Western Roman Empire.  The thing that you get when you read classical texts is that people 2000 years ago were still people, with motivations and ambitions that are still recognizable today.  It’s important when living in a period of time in which everything is changing to realize that a lot of the important things, in fact probably most of the important things, haven’t changed in all of that time.

In thinking about Roman history, my sense is that the history and philosophy of classical Rome and that of classical China aren’t very far apart, and one of the things that civilization has lost is a sense of connection with its roots.

Why quantitative finance is important for a quantitative theory of Austrian economics

The reason that derivative markets and quantitative finance is important in developing a quantitative theory of Austrian economics is that you end up with observable quantities, which allow for hypothesis testing.

Thoughts on the history of US Securities Law and Austrian economics

I have a pile of books, and when I get bored, I often just choose a book at random and start reading it.  The lucky book of the day was a book on US Securities Law, and I’ve started reviewing those books in the last few days.

The thing that interests me is not so much American Securities Law as it currently exists, but howAmerican Securities Law developed over time.  The interesting thing about US Securities Law is that most of it has developed without much input from the legislative bodies.  Except for the passage of key bills such as the Securities Act of 1933 and the Securities Exchange Act of 1934, most of US securities law has developed through an interaction between the courts and the SEC.  In particular, most of the issues of what is in the PRC Securities Law are issues that were developed through a detailed development of rule 10b-5.

The implication of this to the PRC, is that it would appear to me that the lack of “Western democratic institutions” aren’t a major barrier to the development of PRC Securities Law and PRC Corporate Law, because democratic institutions weren’t that important in the development of those laws in the United States.  One thing that I’ll be thinking about over the next few months is to look at the development of Securities Law in the United States and try to look at the analogous institutions in China.  In particular, I’m interested in the exact dynamics between the SEC and the Federal Courts.

The other thing that I’ll be thinking about is the relationship between these ideas and Austrian economics.  The two things that I’ll be thinking about are:

1. the relationship between Austrian economics and the use of empirical data.  Austrian economics prides itself on being derivable from the principles of interactions between individuals, but at the same time I get the sense that a lot of Austrian economics (such as Rothbard) is maybe a little too ideological, and not sufficiently empirical,
2. the other thing that I think is a weakness of Austrian economics is the theory of the firm.  Austrian economics at its core is about the interactions between individuals, but I think there is insufficient thought given to how individuals form institutions.  This fits in with my interest in securities law and corporate law.  It would appear to me that corporations are creatures of the state rather than entities spontaneously produced by individuals.

One other thing.  It occurs to me that the reason I don’t like neo-classical economics is that I’m too familiar with how corporations work to believe that they maximize profit, and I’m too familar with myself to believe that individuals maximize utility.  Where I think the pricing system comes to play is not the corporations maximize profit, but rather than corporations with large losses cease to exist.

So among the many things I have to do over the next year are:

1. read more von Mises and Hayek
2. figure out what neo-Austrianism is
3. read more about institutionalism
4. read more economics papers.  I have to learn to talk the talk.

One final thing.  The reason that I’m interested in Austrian economics is that it has a very good explanation for the deficiencies of the Chinese economy under central planning with the economic calculation problem and Hayek’s “road to serfdom” analysis.  Also the building blocks of Austrian economics provides the potential for understanding and making public policies decisions about the Chinese economy.

This is in contrast to neo-classical economics.  I can’t think of a single useful insight that neo-classicial economics can bring to analyzing the Chinese economy.

Director’s notes on previous article

A lot of my previous comments came out of the years that I spent arguing the Taiwan issue.  What I found was that most of those arguments involved logical, rational arguments that wasn’t convincing anyone.  Usually these arguments involved started with a self-consistent logical framework and rule and then arguing based on that rule.  The trouble is that if you came up with an answer that you didn’t like, you could reject that logical framework and come up with another one.

Ultimately, I had to think deeply about what is “real” in international relations or domestic relations, and focus on things that could be justified based on observation and empirical data rather than stuff based on logical frameworks without connection to reality.  What is “real” in international relations is “will” and “power.”  This goes back to Clausewitz.

One problem thinking in terms of “will” and “power” is that it destroys power of “rational generalists.”  If you come up with a rational theory of international law and behavior, then you can apply it to every situation without knowing that much about each situation.  However, that theory just will not describe the real world in which people are irrational, and if you want to understand the real world, you have to dig very deep to understand the details of any conflict.  I think I have a good sense of what people are willing to fight and die for in the Taiwan conflict, but this knowledge is totally useless if I were to look at Uganda, which probably has some equally complex set of parameters.

Also, I talk about the irrational, and one of the major fallacies of the twentieth century is that irrationality is bad.  This isn’t the case.  I would go through extreme pain and suffering for my wife and kids.  I wouldn’t go through anywhere near the same amount of pain and suffering for someone elses wife and kids.  This is irrational.  It is also not necessarily a bad thing.  Part of the paradoxes of the discussions of international law and international relations, is that the actors are all based on this irrational human quirk.  The same sort of “sense of belonging” that creates families also creates nations.  Confucius understood this, but most international lawyers don’t.