Tag: John Maynard Keynes

Education and the Question of Intuition

An intuition pump is a thought experiment structured to allow the thinker to use his or her intuition to develop an answer to a problem. The phrase was popularized in the 1991 book Consciousness Explained by Tufts philosophy and neuroscience professor, Daniel Dennett.

We argue in this education-completing book, that our intuitions are puzzling in a way that “intuition pump” talk does not cope with at all.

Let’s go immediately to the example of simple versus compound interest in basic finance.

You borrow $100.00 for a year at an annual interest of 100%, without compounding and hence simple. A year passes and you owe the lender the initial $100 plus one hundred percent of this amount (i.e., another hundred). In a year, you owe $200.00, and every year thereafter, if the lender is willing to extend the loan, you owe another hundred to “rent” the initial hundred.

This is written as A+iA, where A is the initial amount (i.e., $100.00) and i is the interest. This can be re-written as A(1+i)n where n is the number of years. Thus, if n=1, you owe: A(1+i), which is 100×2 (i.e., the $200 we just saw). There’s nothing tricky in this.

You then are introduced to compound interest (i.e., where the interest accumulates interest). You can see where compounding by 6 months (semi-annually, or half a year) or 12 months involves dividing the n (the exponent over 1+i) by 12 months, two half-years or 365 days. You could routinely go to days and hours and minutes and seconds and nanoseconds and you could calculate interest payments compounding for each case.

But here is where your intuition falters and fails: suppose you compound continuously?

You get to the number e as growth factor where e=2.71823

Simple algebra does show that at 100% interest, $100 of a loan becomes $100 multiplied by e1 (hundred percent=1) or just e (i.e., you owe $100e).

This gives you $271.82.

So what has happened?

At one hundred percent simple interest you owe $200.00 to the lender. Continuous compounding means you owe $271.82. Instead of owing $100 in interest, you owe $171.82. Your interest bill has gone up by $71.82 or about 72 percent.

Does that seem intuitive? Probably not.

How could one ever apply an “intuition pump” to this arithmetic? We get to the 72% increase in interest by using e which has nothing very intuitive about it. Thus it’s not clear that “intuition pumps” will work here.

You use compound interest arithmetic to get a number which you would never have been able to estimate based on standard intuition since like the 22/7 or 3.14 for π (pi), there’s nothing to “recommend” 2.71823 in and of itself. This means that the link between computational arithmetic understanding and your “gut” or “sixth sense” is feeble at best.

By exploring this way of thinking you could deepen your “meta-intelligence” (i.e., perspective-enhancement). The British economist Pigou (Keynes’s teacher) says that people have a “defective telescopic facility” (i.e., have a poor or even erroneous sense of time-distance).

How one might strengthen one’s sense of time-distance or “far horizons” is not clear.

Movies As Parallel Universities: The Promised Land

The Promised Land is a Polish film masterpiece based on Nobel laureate Reymont’s 1899 novel. The novel describes the industrialization of the Polish city of Łódź in the nineteenth century and reminds one a little of Upton Sinclair’s The Jungle of 1906 but with the emphasis not on dangers and miseries for labor but on the “mad dance” of the capitalist industrial free-for-all:

“The Promised Land (Polish: Ziemia obiecana) is a 1975 Polish drama film directed by Andrzej Wajda, based on the novel by Władysław Reymont. Set in the industrial city of Łódź, The Promised Land tells the story of a Pole, a German, and a Jew struggling to build a factory in the raw world of 19th century capitalism.”

(Wikipedia)

Wajda presents a shocking image of the city, with its dirty and dangerous factories and ostentatiously opulent residences devoid of taste and culture. The film follows in the tradition of Charles Dickens, Émile Zola and Maxim Gorky, as well as German expressionists such as Dix, Meidner and Grosz, who gave testimony of social protest. Think also of the English poet, William Blake’s metaphor describing industrial England as a world of “dark Satanic mills.”

Reymont, the author of the original novel, was in his heart a ruralist and intensely disliked the modern industrial world, which he saw as maniacal and destructive.

In the 2015 poll conducted by the Polish Museum of Cinematography in Łódź, The Promised Land was ranked first on the list of the greatest Polish films of all time.

Plot

“Karol Borowiecki (Daniel Olbrychski), a young Polish nobleman, is the managing engineer at the Bucholz textile factory. He is ruthless in his career pursuits, and unconcerned with the long tradition of his financially declined family. He plans to set up his own factory with the help of his friends Max Baum (Andrzej Seweryn), a German and heir to an old handloom factory, and Moritz Welt (Wojciech Pszoniak), an independent Jewish businessman. Borowiecki’s affair with Lucy Zucker (Kalina Jędrusik), the wife of another textile magnate, gives him advance notice of a change in cotton tariffs and helps Welt to make a killing on the Hamburg futures market. However, more money has to be found so all three characters cast aside their pride to raise the necessary capital.

On the day of the factory opening, Borowiecki has to deny his affair with Zucker’s wife to a jealous husband who, himself a Jew, makes him swear on a sacred Catholic object. Borowiecki then accompanies Lucy on her exile to Berlin. However, Zucker sends an associate to spy on his wife; he confirms the affair and informs Zucker, who takes his revenge on Borowiecki by burning down his brand new, uninsured factory. Borowiecki and his friends lose all that they had worked for.

The film fast forwards a few years. Borowiecki recovered financially by marrying Mada Müller, a rich heiress, and he owns his own factory. His factory is threatened by a workers’ strike. Borowiecki is forced to decide whether or not to open fire on the striking and demonstrating workers, who throw a rock into the room where Borowiecki and others are gathered. He is reminded by an associate that it is never too late to change his ways. Borowiecki, who has never shown human compassion toward his subordinates, authorizes the police to open fire nevertheless.”

(Wikipedia)

Notice the sentence above:

Borowiecki’s affair with Lucy Zucker (Kalina Jędrusik), the wife of another textile magnate, gives him advance notice of a change in cotton tariffs and helps Welt to make a killing on the Hamburg futures market.

Textiles and hence cotton prices and tariffs are, as elsewhere, “the name of the game” in Łódź industry.

There is a concrete basis in reality for this 19th century version of our derivatives trading contributing to 2008 and the Great Recession:

In a discussion of futures markets, we read:

“Already in 1880 merchants were buying an idea rather than a palpable commodity, as we saw happen in the grains futures market. In that year, sixty-one million bags (coffee, in this example) were bought and sold on the Hamburg futures market, when the entire world harvest was less than seven million bags!

It was this sort of speculation that caused the German government to shut down the futures market for a while.”

(Global Markets Transformed: 1870-1945, Steven Topik & Allen Wells, Harvard University Press, 2012, page 234)

The danger with such speculative excesses is that the economy, national or global, becomes a “betting parlor” (bets on bets on bets in an infinite regress, as in the lead-up to 2008) and governments have been paralyzed and passive in the face of such “casino capitalism” (to use Susan Strange’s vocabulary) because laissez-faire neoliberal ideology has a profound hold in the West, especially in Anglo-America.

Professor Milton Friedman (died in 2006) argued in interviews going back to the 1960s and before, that speculators fulfill a valuable economic function since they “keep the system efficient.”

The current semi-dismantling and neutralizing of the Dodd-Frank financial reforms and guidelines has to do not only with lobbying but also with the hold of various strands of such “laissez-faire” ideology and market fundamentalism.

Keynes’s classic essay, “The End of Laissez-Faire” tends to yield to the countervailing force of this market fundamentalism/“laissez-faire religion.”

Words and Reality and Change: What Is a Fluctuation?

Ludwig Boltzmann who died in 1906 was a giant in the history of physics.

His name is associated with various fields like statistical mechanics, entropy and so on.

A standard physics overview book called Introducing Quantum Theory (2007, Icon/Totem Books) shows a “cartoon” of Boltzmann which says, “I also introduced the controversial notion of fluctuations.” (page 25)

In common parlance, some common synonyms of fluctuate are oscillate, sway, swing, undulate, vibrate and waver. While all these words mean “to move from one direction to its opposite,” fluctuate suggests (sort of) constant irregular changes of level, intensity or value. Pulses and some pulsations suggest themselves as related.

Expressions like “Boltzmann brains” refer to this great physicist Boltzmann and you can find this notion described here: “Boltzmann Brain.”

Notice that the word “fluctuation” occurs four times in one of the paragraphs of the article “Boltzmann Brain,” as you can see:

“In 1931, astronomer Arthur Eddington pointed out that, because a large fluctuation is exponentially less probable than a small fluctuation, observers in Boltzmann universes will be vastly outnumbered by observers in smaller fluctuations. Physicist Richard Feynman published a similar counterargument within his widely read 1964 Feynman Lectures on Physics. By 2004, physicists had pushed Eddington’s observation to its logical conclusion: the most numerous observers in an eternity of thermal fluctuations would be minimal “Boltzmann brains” popping up in an otherwise featureless universe.”

You may remember perhaps you’ve also heard the term, perhaps on a PBS Nova episode on quantum fluctuation.

In the classic history of science book, The Merely Personal by Dr. Jeremy Bernstein (Ivan Dee, Chicago, 2001), one encounters the word fluctuation all over:

“This uniform density of matter …and fluctuations from the average are what would produce the unwanted instability.”

“So Einstein chose the cosmological constant…” (page 83 of Bernstein’s book)

Suppose we allow our minds to be restless and turn to economics to “change the lens” we are using to look at the world, since lens-changing is one of the pillars of Meta Intelligence.

What do we see?

In 1927, Keynes’s professor Arthur Cecil Pigou (died in 1959) published the famous work, Industrial Fluctuations.

In 1915, twelve years earlier, the famous Sir Dennis Holme Robertson (died in 1963) published A Study of Industrial Fluctuation.

The word fluctuation seems to be migrating to or resonating in economics.

The larger point (i.e., the Meta Intelligent one): is the use of this word a linguistic accident or fashion or is something basic being discovered about how some “things” “jump around” in the world?

Is the world seen as more “jumpy” or has it become more jumpy due to global integration or disintegration or in going to the deeper levels of physics with the replacement of a Newtonian world by an Einsteinian one?

The phenomena of change—call it “change-ology” whooshes up in front of us and a Meta Intelligent student of the world would immediately ponder fluctuations versus blips versus oscillations versus jumps and saltations (used in biology) and so on. What about pulsations? Gyrations?

This immediately places in front of you the question of the relationship of languages (words, numbers, images) to events.

The point is not to nail down some final answer. Our task here is not to delve into fields like physics or economics or whatever but to notice the very terms we are using across fields and in daily life (i.e., stock price fluctuations).

Notice, say, how the next blog post on oil price dynamics begins:

“Our oil price decomposition, reported weekly, examines what’s behind recent fluctuations in oil prices…”

The real point is to keep pondering and “sniffing” (i.e., Meta Intelligence), since MI is an awareness quest before all.

Essay 79: Past and Present Thinking

History is “forever new” and we keep asking “what’s new?” but the past is “forever suggestive” and so we inquire here as to whether the past gives us interesting echoes of the more recent.

Specifically, we juxtapose the “closing of the gold window” in August 1971 (Nixon) and the British gold standard gyrations between 1925 and 1931, when England left gold (i.e., September 1931).

At the time, under Nixon, the U.S. also had an unemployment rate of 6.1% (August 1971) and an inflation rate of 5.84% (1971).

To combat these problems, President Nixon consulted Federal Reserve chairman Arthur Burns, incoming Treasury Secretary John Connally, and then Undersecretary for International Monetary Affairs and future Fed Chairman Paul Volcker.

On the afternoon of Friday, August 13, 1971, these officials along with twelve other high-ranking White House and Treasury advisors met secretly with Nixon at Camp David. There was great debate about what Nixon should do, but ultimately Nixon, relying heavily on the advice of the self-confident Connally, decided to break up Bretton Woods by announcing the following actions on August 15:

Speaking on television on Sunday, August 15, when American financial markets were closed, Nixon said the following:

“The third indispensable element in building the new prosperity is closely related to creating new jobs and halting inflation. We must protect the position of the American dollar as a pillar of monetary stability around the world.

“In the past 7 years, there has been an average of one international monetary crisis every year …

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.

“Now, what is this action—which is very technical—what does it mean for you?

“Let me lay to rest the bugaboo of what is called devaluation.

“If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today.

“The effect of this action, in other words, will be to stabilize the dollar.”

Britain’s own experience in the twenties is explained like this:

“In 1925, Britain had returned to the gold standard.

(editor: This Churchill decision was deeply critiqued by Keynes.)

“When Labour came to power in May 1929 this was in good time for Black Friday on Wall Street in the following October.

“After the Austrian and German crashes in May and July 1931, Britain’s financial position became critical, and on 21st September she abandoned the gold standard.

“London was still the world’s financial capital in 1931, and the British abandonment of the gold standard set off a chain of reactions throughout the world.

“Strangely enough Germany and Austria maintained the gold standard…”

(Europe of the Dictators, Elizabeth Wiskemann, Fontana/Collins, 1977, page 92-93)

Nixon’s policies gave us the demise of Bretton Woods, while the economic gyrations of 1925-1931 were part of the lead-up to World War II.

The setting is both “infinitely different” across the decades but the feeling of “flying blind” applies to both cases: U.S.A. “closing the gold window,” August 1971 and Britain’s overturning Churchill’s 1925 return to the gold standard, by 1931. One gets the sense of “concealed turmoil” and a lot of “winging it” in both cases. Policy-makers disagreed and they all saw the world of their moments “through a glass, darkly.”

Essay 26: Extracting Educational “Signals” from the “Noise” Around You

A student should train him or herself to extract “signals from noise” in the world all around oneself.

For example:

You see the British movie Carrington with Emma Thompson concerning the British painter Dora Carrington. In her “circle,” which overlaps the Bloomsbury Group of such luminaries as Keynes and Bertrand Russell, there’s a scholarly member called Gerald Brenan, who became a world-famous analyst of the Spanish Civil War (1936-1939):

“Edward FitzGerald ‘Gerald’ Brenan, CBE, MC was a British writer and Hispanist who spent much of his life in Spain. Brenan is best known for The Spanish Labyrinth, a historical work on the background to the Spanish Civil War, and for South from Granada: Seven Years in an Andalusian Village.”

His basic information is:

Born: April 7, 1894, Sliema, Malta
Died: January 19, 1987, Alhaurín el Grande, Spain
Spouse: Gamel Woolsey (m. 1931–1968)
Movies: South from Granada

Think of Brenan’s book title, The Spanish Labyrinth. Ask yourself if the concept of a national labyrinth is not exceedingly eye-opening. Would it not be very educational to study the features and characteristics of the American, Chinese, or Russian “labyrinths?” Would not any country’s political economy overlaid with its labyrinthian realities be very instructive?

Think of the Trump labyrinth in October 2019, all the players, deceptions, overlapping functions, pressures. paymasters both hidden and overt and obviously it’s all a kind of “deception machine” which is its own labyrinth. Thus, without even having read the Gerald Brenan masterpiece on Spain, the very name of the book is eye-opening and informative in a “meta-intelligent” way (i.e., it tweaks your sense of overview right away).

Another example: you look at a syllabus for a history course on English history and notice a title: The Shaping of the Elizabethan Regime by Prof. Wallace T. MacCaffrey (1968/1971). The very title alerts you to the fact that the evening news right now is about “the shaping of the Trump regime.”

The word “regime” supplants the usual “the administration” and the power politics and musical chairs are constant. The Elizabethan regime had similar features on a smaller scale. The basic phenomena are comparable and apply to all regimes. Your sense of overview becomes stronger by ranging between then (Elizabethan times, Tudor England) and now (Trump regime juggling.)

Take an example from TV: PBS had a Nature program entitled The Queen of Trees which takes one single tree in Africa and shows you the complexity of the micro-ecosystem it lives by:

“Nature reveals the importance of an unlikely partnership between a regal tree and a tiny wasp in The Queen of Trees.

“It may be one of nature’s oddest couples: a tiny wasp that can barely be seen, and a giant fig tree, the sycamore, which shelters a remarkable menagerie of wildlife among its limbs. The wasp and the fig depend on each other for survival. Without the wasp, the tree could not pollinate its flowers and produce seeds. Without the fig, the wasp would have nowhere to lay its eggs.

“The Queen of Trees shows this delicate dance of survival in exquisite detail, including spectacular close-ups of the wasp’s remarkable life inside a ripening fig. To capture such incredible images, filmmakers Victoria Stone and Mark Deeble spent two years camped out near a giant sycamore fig in Kenya’s outback, documenting the tree’s pivotal role as a source of food and shelter for everything from gray hornbills, Africa’s largest bird, to swarms of invading insects searching for food. In a surprising turn, some insects come to the tree’s aid—sparking a battle.”

The intricacies of the tree give you a sense of the limits of knowledge: if we can hardly really understand the “life and times” of one tree in Africa, does the pretense of science that we will one day know everything about everything expressed in rigorous equations, no less (à la Stephen Hawking’s visions) seem suddenly very unlikely and quixotic? The tactics and alliances and “politics” of the tree are “infinitely” complicated by themselves and thus getting an overview of the multiverse seems supremely hubristic.

These three examples show you the process of extracting “signals” from the “university” all around you.