## Wednesday, August 30, 2017

J L Austin

J L Austin once wrote a book How To Do Things With Words. One of the most important - or at least most analyzed - branch of words is "prices" - those signals that firms use to advertise their willingness to part with wares. Prices reflect many things: cost of production*, noise, willingness to purchase and the spatial, temporal & political relations between the seller(s) and the purchaser(s).

Milton Friedman, Theodore Schultz & George Stigler

There's an easy case. In the Heaven of "perfect competition", the price of a good balances two aspects: 1) the aggregate choices of all consumers and potential consumers is indifferent between purchasing and not purchasing an extra bit of that good and 2) the aggregate of all producers must be indifferent between manufacturing and not manufacturing an extra bit of good.

In this topsy-turvy Never-Never Land, "price gouging" - sudden price rise immediately after a natural disaster - is Actually Good. Technocratically and morally good. A rising price reflects a greater need on the part of the consumer, which will be met by profit hungry producers**.

Despite what Richard Posner tells you, we do not live in this place.

Harold Hotelling

It is simply not the case that the rise in price necessarily reflects a change in demand. The change in price can reflect a rise in the monopoly power of firms - a flood creates huge transaction costs. Recall the famous Hotelling Spatial Model of competition - one of the earliest completely specified monopolistic competition models. What happens when the transaction costs increase? We already know this. Transparency goes down, consumer surplus is consumed ... and profits go up. Exactly what is observed.

Ed Chamberlin

Neither is it the case that profit hungry firms can necessarily enter the market to meet demand. In order for a firm to enter a market, the long term expected profit to an entrepreneur must be non-negative. They must be able to overcome, for instance, fixed costs and compete with established firms with increasing returns. A flood creates higher fixed costs for entry - depressing the number of firms that can enter. A bit of price gouging is probably not enough to overcome this effect.

Okay, but let's say you really want to believe in this "perfect competition" story. Maybe it isn't right in detail but you think it gives you the right ... laws of motion. Maybe not always but on average, in a broad sense of the term "average". This was Ol' Frank Knight's opinion on the nature of perfect competition predictions, so you're in good company.

Yes, you admit that most people who hold this position are just contrarians who haven't thought beyond the textbook case. But you're not. You genuinely believe that local multipliers are generally strong enough that price increases - perhaps alongside government spending - generally returned devastated regions to the "status quo ante clades". This is a defensible position, econometrically. At least with small disasters, it seems to be true: every rainy day increases transaction costs - but they don't all destroy the city.

Then how do you take into account that this isn't true in general? Do you think that the unregulated markets of the late 19th century just didn't gouge enough?

I'll make my long story short: automatic disaster relief > price gouging. It's true that there should be changes in economic fundamentals: rain taxes, infrastructure investment, enforcing flood insurance laws, fixing zoning so that flood absorbing lands aren't eaten by sprawl (this is probably irreversible at this point - urban sprawl is one of worst ecological disasters in history but nobody does anything about it...) - but locally, around the disaster the important thing is to get spending back and let the multiplier work itself out. There's no a priori reason to think price gouging will help and not hurt.

Prices are signals, words. Don't think those words can't be "Screw you!".

*"cost" should be understood in a very wide sense.

**It has been well established since Walras that "perfect competition" means constant returns, so small firms can always come up to meet demand in that mystic realm.

## Friday, August 18, 2017

Armen Alchian

Armen Alchian - nicknamed by his friends "the Armenian Adam Smith" - was an economist at Stanford, UCLA and the RAND corporation. He participated in all the economic revolutions of the time - general equilibrium, economics of information, theory of the firm, utility theory and evolutionary economics. Though ideologically attracted to libertarianism, Alchian was a devout pluralist in his methods. He was a great writer - unlike most clear writers, Alchian comes by his clarity honestly rather than by covering up difficulties. Alchian did not participate in the usual tedious academic point scoring games.

The economist who Alchian most resembles is Frank Knight, whose insightful but somewhat mystical Risk Uncertainty And Profit hovers behind much of Alchian's more innovative thinking. Alchian's thinking also engages with the even more mystical writing of Friedrich Hayek, especially his famous essay on knowledge.

Alchian also wrote many important papers on inflation (that is - unpredictability in price level) on resource unemployment and therefore macroeconomics more generally. However, I haven't really read and engaged with these papers, so I will not be able to describe them here. I would recommend that you peruse Glasner's blog for that stuff.

"... automobile makers may buy such things as finished seats from outside suppliers because their inspection is relatively easy. But automobile makers are hesitant to use outside sources to supply sheet metal parts, which are ordinarily only discovered to be out of tolerance only when a car body does not fit together correctly."

- Armen Alchian on what is internal and external to the firm

There used to be two major schools in thinking about the economics of organizations.

There was the Lange-Coase school of high transactions costs. The main take away of this school is that the market cannot see into the firm because it is just too damn expensive to negotiate every little thing out. This school gave economists two avenues to improve life: 1. "Mechanism Design" of institutions with low transactions cost - from carbon markets to fight global warming to Lange's surreal technocratic communism 2. Use the courts to allocate goods optimally outside the market (this is regarded as an important insight - why has never been adequately explained to me)

On the other side was the Mises-Pigou theory that the point of the firm was to organize the production process in a way that "internalized externalities" - made the production process as efficient as possible. This school too leaves us a bifurcated road 1. Reduce legislation so that firms can organize themselves as efficiently as possible 2. Use taxes to discourage firms from doing bad things.

As the above quote shows, Alchian was on the side of Mises & Pigou  in this conflict. The choice of what is internal to the firm is a market choice - the firm keeps close that which is expensive to monitor and lets loose what is cheap.

Alchian's insight here is invaluable, but I find myself in mixed agreement with him. He often emphasizes the firm's ability to find a stable point in all this and the possible suboptimality of regulation - I demure. When Alchian says "Vertical integration identifies for consumers a single point of accountability for service quality", I think - when I am in a polite mood - "Maybe ...".

Fortunately or not, Alchian never engaged in polemic over the conflict between his and Coase's points of view, probably because of their personal friendship and idealogical agreement. It's somewhat amusing to see Coase and Alchian talk as if their theories are in precise agreement when the generation of economists before them had raged as if the distinction was the most important thing in the world.

"A football coach knows that the condition of winning is making more points than his opponent. Does knowing this imply that the coach can know what his team must do in order to win? Does the coach know how this can be done?"

- Armen Alchian on the nature of profit maximization

"There are no implications to 'profit maximization'..."

- Armen Alchian on the positive implications of profit maximization

Alfred Marshall called biology the "Mecca of Economics". His vision was to integrate economics into the vast System of Herbert Spencer. As one of the few people who have read the entirety of Marshall's Principles, I have to admit that his biology was kooky Victorian BS. But the reasons he had this goal were sound, even if Marshall's biology was nonsense.

Alchian made a great stride into achieving a more realistic version of the evolutionary aim. He joined the fray in a rather kooky way - in response to a controversy over the meaning of "profit maximization".

Economists have long reduced the firm to a single equation "Profit equals price times quantity minus costs". This is no idle slogan that can be tossed aside by a sophisticate. This equation contains (in a rather mysterious way) the whole of the neo-classical theory of production. A firm - the neoclassical says - may not change the price because then another firm could spring up and undercut them. Cost - they tell us - are an increasing function of quantity. If the profit in an industry is greater than zero, then another firm will leap in. Therefore - the neo-classical economist says sagely - the quantity the firm may produce is exactly the quantity that sets the price to the rate of cost increase. Brilliant!

Or, perhaps, rather foolish. Nobody who studied the firm - from the unusual Thorstein Veblen to the very careful Richard Lester - could find any evidence that workers are paid "their" marginal product. This incomprehensible formulation is no straw man - it can be found in, for instance, Stigler.

Alchian throws away such nonsense - anyone would have to. Instead, Alchian rethought what it means for a firm to "maximize profit". Profit  maximization is meaningless in the presence of uncertainty. In this new interpretation, the competitive process is broken into two steps. In step one, a firm commits to producing a quantity and therefore paying a cost. In step two, consumers consume a quantity of produced goods. Firms are punished on the difference between the predicted demand for current production and the actual demand. Obviously, perfect prediction is an equilibrium of this system. Any dynamics that take you to this equilibrium will make economic analysis valid - no matter how stupid the dynamics are. Alchian gives the example of imitation dynamics (which are just about as 'dumb' as dynamics can get), Richard Day gave a more careful example which includes feedback.

Alchian's theory makes sense of Frank Knight's speculations on the nature of entrepreneurial rent - if a man has the local knowledge to better forecast than his sister, then that man may charge her for his time. But more importantly, they give a comprehensible connection between the Neo-Classical theory and the screaming torrent we call reality - it is the equilibrium theory.

However, Alchian's system isn't quite complete. He doesn't have a clear idea of what it is that punishes the badly predicting firms. Only later would Gary Becker explain correctly what Alchian meant to say - resource constraints on the firm were the whip punishing firms that missed their production quota. In other words - marginalism of the firm was just marginalism, scarce resources = scarce resources. Nothing else is involved.

Though very intellectually satisfying, this is harmful to the idea of a positive theory of the firm. Alchian's ideas apply equally to a monopolistically competitive firm, a monopolist and a firm in a highly competitive market. Luckily, we now understand the mathematics of evolution much better than Alchian and have done much work in the area. For a tour I recommend Bowles & Gintis's fascinating speculations, John Sutton's bounds approach to monopolistic competition and any paper with Tit For Tat in the title.

Incidentally, Alchian was one of the first people to play the iterated prisoner's dilemma. Alchian, unsurprisingly, played ungenerously.

"The year before the H-bomb was successfully created ... we in the economics division at RAND were curious as to what the essential metal was—lithium, beryllium, thorium, or some other. The engineers and physicists wouldn’t tell us economists, quite properly, given the security restrictions. So I told them I would find out. I read the U.S. Department of Commerce Year Book to see which firms made which of the possible ingredients. For the last six months of the year prior to the successful test of the bomb, I traced the stock prices of those firms. I used no inside information. Lo and behold! One firm’s stock prices rose, as best I can recall, from about $2 or$3 per share in August to about $13 per share in December. It was the Lithium Corp. of America. In January, I wrote and circulated within RAND a memorandum titled 'The Stock Market Speaks'. Two days later I was told to withdraw it. The bomb was tested successfully in February, and thereafter the stock price stabilized." - Armen Alchian inventing the Event Study "We assert: 'All prices are Martingales.' And we conjecture a second proposition: 'No quantity variables are Martingales.'" - Armen Alchian on flexible prices "Nor do I find it warranted to call the stock market 'efficient' any in pertinent sense just because the present price is an unbiased estimate of the forthcoming price. I would rather call it unbiased." -Armen Alchian on the efficient markets hypothesis Because of his excellent writing, Alchian is often considered a 'literary' economist. But Alchian was capable of doing math. At RAND, Alchian wrote a paper (already linked) making sense of the notion of cost in a production process - cost is denoted in units of equity - this is the secret key between Alchian's analysis and the Becker analysis. Alchian kept a long interest in how the stock market moved information - one of his students, William Sharpe, got a Nobel Prize for stock market stuff. But if I had to choose an Alchian paper with math, I would point to his more philosophical 1974 paper on the notion of a martingale as a sign of the depth of his thinking on these issues. This paper is not just about the idea of an unbiased random variable, but on the notion of what it means for relative prices to be flexible. He gives a picture of some imaginary time series that have clear patterns, but whose relative prices give no information. An enormous amount of economics is dedicated to thinking through these kinds of models - all Tom Sargent's work for one. The strict separation between price martingales and quantity martingales explains why neo-classicals placed such an emphasis on "price flexibility" - why the theorists like Stigler have such a horror of a price floor. If prices are a martingale, then their shifts don't disturb the underlying balance of goods and services - the scarce resources stay where they are. There is no unemployment, not really. The only "unemployment" comes from information frictions that cause the prices to not quite be martingales- they'd be "sticky". Now, obviously, there is more unemployment that can be found from information friction. If it was just information friction, then unemployed workers could just reduce their so-called "reservation wage" (the lowest amount they'd work for, more or less) and always find a job. But recessions are real, and in a recession reducing the reservation wages raises unemployment. The price signals are confused. Even when not in recession, unemployment is not just due to information frictions. Because unemployment is unpleasant, firms can use it as a punishment for shirking workers. If workers are willing to work for less, this tool becomes less effective and unemployment must rise. Firms and workers can work out labour/"leisure" trade-off through the quantity channel too. So Alchian misses important pieces of the market in his assumption that prices are martingales and quantities are not. With all due respect to Hayek, information is sent through the quantity channel, even if that channel is noisier than the price channel. But Alchian (and Hayek) deserve attention for putting the problem so clearly. Alchian deserves more respect, in my opinion, because he was less dogmatic on this issue - he cited and spread papers such as this one that featured "involuntary unemployment". "Before condemning violence (physical force) as a means of social control, note that its threatened or actual use is widely practiced and respected—at least when applied successfully on a national scale. Julius Caesar conquered Gaul and was honored by the Romans; had he simply roughed up the local residents, he would have been damned as a gangster. Alexander the Great, who conquered the Near East, was not regarded by the Greeks as a ruffian, nor was Charlemagne after he conquered Europe. Europeans acquired and divided—and redivided—America by force. Lenin is not regarded in Russia as a subversive. Nor is Spain’s Franco, Cuba’s Castro, Nigeria’s Gowon, Uganda’s Amin, China’s Mao, our George Washington." - Armen Alchian on alternative means of governance "Incentives are the prizes in the game of life-the goals individuals seek - the carrots. Through the ages of Tutankhamen, Alexander, Caesar, Louis XIV, and the Atom, they have remained the same. Men want, and have always wanted, exorbitant wealth, tyrannical power, idolatrous prestige, lavish consumption, and undisciplined leisure. ... What does explain the disparities? Differences in the relations between costs and goals." - Armen Alchian on the utility function There is a mysticism to the work of many economists. An economist speaks of optimality more often than Dr Pangloss and stability in a world in constant torrent. One reason that I like the works of Alchain is that there is a sort of reality to them. They are philosophical, even when they are technical. "Cost is a choice" - dull. "Cost is a choice in different forms of equity" - interesting! "Firms, of course, evolve" - hogshew. "Selection on firms is on their ability to forecast" - neat! Another example: Alchian's work Why Money? is a economic philosophy gem, deriving the existence of money from the network of trade. A good will become money if the costs of identifying the quality of a good are low for everyone - that's why kings put their stamp on it! This is obviously an important work and one that opened the door to fundamental new research. I said I wouldn't quote Alchian on macro, but I can't resist one: "Why would a cut in money wages provoke a different response than if the price level rose relative to wages – when both would amount to the same change in relative prices, but differ only in the money price level? Almost everyone thought Keynes presumed a money wage illusion. However, an answer more respectful of Keynes is available. The price level rise conveys different information." This is one of those things that is so obvious after it is pointed out to you. In many economists there is the magical thought - it all depends on the relative price level. But Alchian is more careful - prices of complex items adjust more slowly than prices of simple items and people are complex. In a crude Keyensian system, a cut in money wages ahead of the business cycle would signal bad times and depress spending - a raise of the price level (with wages lagging behind) would signal good times and encourage spending. In the Classical & Neo-Classical system, this signalling does not occur, only the relative price levels matter. Yes, there really was a Keynesian Revolution. This observation makes the difference between neoclassical and Keynesian economics at least partly testable! I know that Alchian has attempted these tests and generally hasn't found the desired lags. And I know many economists - such as Andolfatto - have pursued this avenue more deeply. But I don't know much beyond that and will therefore be silent. ## Monday, August 14, 2017 ### A Productive Read: A Review of Pasinetti's Lectures on the Theory of Production Luigi Pasinetti This is a very fine book that should be read by anyone who has a sufficiently strong background knowledge of linear algebra. Pasinetti is a fine writer who brilliantly exposits all aspects of the so-called "Sraffian" or "neo-Ricardian" theory using algebra and numerical examples. Pasinetti paces the book musically, showing how the concepts of Sraffian theory illuminate the problem of disaggregated production. Pasinetti makes it easy to understand what I call the Central Sraffian Theorem and why it may be wise to place it at the center of economic analysis. Piero Sraffa Pasinetti begins with a chapter on the precursors to the linear Sraffian system. Unlike most of these kinds of chapters, Pasinetti keeps things worth reading by using simple mathematical models instead of tedious linguistic analysis. Pasinetti expounds the basics of the old Ricardian system in aggregate and disaggregated along with its Marxian gloss. This chapter also distinguishes the production coefficients of Walras - which assume constant returns to scale - and the distribution coefficients of Sraffa which Pasinetti will work with. In the next chapter, Pasinetti moves to the simplest analyses of the so-called "Input-Output" method, going over the primary practical difficulties and introducing concepts he will use throughout the book. The meat of the book begins in chapter three, where Pasinetti develops the linear theory of production in the mode of Sraffa, again pausing to explain how the coefficients are not necessarily the static production coefficients of Leontief-Walras. In chapter four, Pasinetti completes the analysis using both basic algebra, linear algebra and numerical examples of the Leontief-Walras case where the distribution coefficients are also the static production coefficients. This chapter introduces the conditions on which a distribution matrix may correspond to a stable productive economy: that the Perron-Forbenius eigenvalue should be less than unity. Economically, this means that the "quantity of input" should be less than the "quantity of output" with linear algebra providing precise meaning to the words in quotes even in the case of complete disaggregation. With those four chapters as introduction, Pasinetti begins his wonderfully clear exposition of the Sraffian system. Where Sraffa's exposition was brilliant but mysterious, Pasinetti lets the theory free with it's assumptions and their reasons completely out in the open. Essentially, Sraffa's system is a very large production network, which you can think of as a directed graph with positive weights. Sraffa tries out a few conceptual/topological assumptions about the nature of the network of production - it should be connected, the weights should positive, etc.. Assuming that the network is constant in time, Pasinetti & Sraffa can use the Perron-Frobenious theorem to find the amount of surplus production. The division of the surplus (between workers and capitalists) might seem - at first - a difficult problem. If we want to find the wages* in terms of some numeraire - gold, dollars, corn - then changing the wage rate must decrease the quantity that goes to capitalists, but not necessarily in a simple manner. This is unpleasant, because it is not necessarily convex. This means that a Bergson–Samuelson social welfare function would not guide a social planner - not even the distributed one that we call "the market". (History of economic thought fans will recall the tie between convexity and general equilibrium was first noticed by Joan Robinson) I had to draw this one, Pasinetti would never draw something with Samuelson in the name. Pasinetti was able to spot an assumption even I managed to miss when reading Sraffa - that Sraffa's construction of the so-called "standard commodity" requires the physical own-rate of reproduction of the "basic commodities" that enter into the production of every good (labor, etc) must be less than the the physical own-rate of reproduction of all other commodities. I will put the Central Sraffian Theorem carefully: If the assumptions on the production network hold and prices (or wages, at least) are stated in terms of the standard commodity, then the relationship between how much excess production goes to the workers (wages) and how much goes to capitalists (profit) is linear. Since a line is convex, Bergson–Samuelson social welfare is deterministic again. Woo. Further, Pasinetti shows that this unit for wages makes wages exactly equal to the labor commanded by the system - just as Adam Smith tried to tell you 241 years ago. If the distribution around the network really is stable for all time, as Sraffa assumes and Pasinetti assumes for now, then one can expand the distribution backwards as the sum of the history of splits of surplus product - as Marx might have told you. The Central Sraffian Theorem is sufficient to show historical materialism is coherent (though not necessarily correct). Pasinetti then goes on to consider Marx's infamous "transformation problem" in a very helpful and unpretentious way. Pasinetti suggests that Marx's garbled account is due to to Marx's habit of moving parameters around that don't affect the production network, solving this special case and then lastly declaring the general problem solved. For instance, if we want to know the maximum level amount of excess output, it doesn't matter if we set wages equal to zero. Analyzing the system with great care, Pasinetti is able to reformulate the Central Sraffian Theorem in this way "The rate of surplus value is inversely related to the wage." (well, Pasinetti is more precise, but this gives the flavor). If all the excess production of the economy is given to the workers, the surplus value is exactly zero. This makes sense of Marxist political economy (if Sraffa's assumptions hold). Joan Robinson Unfortunately, no book from this school is complete without the inevitable chapter on "reswitching". Reswitching is all about taking seriously the concept of a function - is A a function of B or is B a function of A. A breezy theory where everything is linear makes everything a function of everything else - but life is not so breezy. Pasinetti is characteristically scintillating, spreading light over this darkened field. He starts by considering three sets of worlds, which adopt three different production networks for the creation of a product. The rate of profit for a capitalist is uniform across industries (remember how Pasinetti defines profit), so the capitalist would like to be in the world with the production network that minimizes cost. However, which world that is depends on the profit rate. Therefore, profit rate determines choice of technique but choice of technique does not determine profit rate. This is the only theoretical fine point in reswitching. Pasinetti goes on to consider special cases and the general case in turn, but the result is the same, choice of technique is a non-invertible function of profit. The upshot of all this is that the solution to the problem implicit in the Central Sraffian Theorem is the fundamental problem of the economy. If you want to know how an economy is structured, you have to know how it divides its product between its people. In the final chapter, Pasinetti considers exogenous growth in a disaggregated Sraffian growth network. Expressing the system in terms of a standard commodity, Pasinetti finds a linear trade-off between current consumption and growth rate - just as Irving Fisher et. al. would have told you. The level of discussion is not quite as high as the well known DOSSO textbook (esp. Chapter 12), which made the knife edge transversality problem of a growing economy rather clear (of course, this was for Leontief-Walras fixed coefficients case, not the more mysterious Sraffa case). One could look at the above picture and think - with Irving Fisher - that all you need is an indifference curve. Pasinetti closes his system instead with a hypothesis on savings rates - which, obviously, are the reverse of present consumption. The hypothesis is this: workers cannot save but capitalists can. So Marxist political economy is not quite saved in the Cambridge Neo-Ricardian system. Workers have more to lose than their chains - capitalists are their bank accounts. In general, any relation between current consumption and distribution of excess product will turn the analysis of the exogenous growth case back into the static case. This book is short, clear and eye-opening. Anybody who reads this will come out with a better understanding of economics than when they went in - no matter how much they know now. The only two flaws of the book are: 1) sometimes vital assumptions are put in footnotes and 2) there is a bit too much point-scoring against Paul Samuelson for my taste. Also, I still find the meaning of the constants in the Sraffian distribution matrix mysterious in a growing economy, but this may be just me. A+, ten stars, book's alright. * Pasinetti calls "wages" and "profit" the distribution of the excess product to workers and capitalists respectively. ## Monday, July 10, 2017 ### Easy Money This is just a bad version of this post by Miles Kimball and this post by Nick Rowe. I mostly follow Kimball, but I use slightly different terminology. I'm more careful about distinguishing between firms and industries. There's nothing more complicated in this post than some homework in a micro class. Really, this is just a simple New Keynesian model. The model as it sits isn't quite coherent, but I had fun looking through it. Why not go watch some cartoons? There are four levels of analysis: 1. Consumer Demand 2. Firm Price Setting 3. Industry Size 4. Macro Policy Every level of analysis requires all the others. Maybe this post needs to be read twice. I'm going to work in equilibrium, on the assumption that the complicated cybernetic process of searching for a stable social situation is already done. I'm also doing everything without risk or uncertainty, for no good reason. We can think of this as a (bad) sociological analysis of four kinds of people (or one person in four aspects) - a consumer, capitalists, entrepreneurs and a central banker. In a (Nash) equilibrium, no consumer, capitalist, entrepreneur or central banker wants to change their parameters given the choices of all the others. In a way, this is a cartoon! Some simple notation to start with. Each industry is denoted by $$i$$. Each firm is denoted by $$f$$. I assume each firm $$f$$ only produces one good. The product of two firms are in the same industry $$i$$ if they are perfect substitutes at all price and output levels. I won't use subscripts except to denote firm and industry. The quantity demanded of industry $$i$$ is $$Q_i$$. The price of the good from industry $$i$$ is $$p_i$$. The quantity of the $$i$$th good produced by the $$f$$th firm is $${}_f q_i$$. The number of firms in industry $$i$$ is $$n_i$$. CONSUMER DEMAND We start with consumer demand, but don't forget that consumer demand isn't "first". This is equilibrium analysis where everything determines everything else. Consumer demand is handled via a representative agent - that is, a single real valued utility function standing in for all purchases in a society. The agent can choose among a number of good or hold money. $\max_{\vec{Q},M} U(\vec{Q},M)$ The name "representative agent" was chosen by Alfred Marshall to emphasize that she isn't an "average" or "marginal" agent. So I will assume a Marshallian quasi-linear utility function. I assume that $U(\vec{Q},M) = M + \hat{U}(\vec{Q})$ Where $$\hat{U}(\vec{Q})$$ is strictly quasiconcave and homogeneous of degree one. In short: the representative agent has homothetic preferences in goods and linear preferences in money. Finally, the own price elasticity of each good $$i$$ $$\eta_i$$ is assumed to be strictly greater than 1. The representative agent subject to the restriction that consumption and savings together make up the whole of income. That is: $\vec{p} \cdot \vec{Q} + M = Y$ The representative agent takes prices as given by firms and income as given by the macroeconomic situation. FIRM LEVEL Since each firm $$f$$ only makes a single good $$i$$, it is easy to write it's revenue function: $\max_{p_i,{}_f q_i} p_i {}_f q_i - C_f({}_f q_i)$ I write this as a two part maximization problem to emphasize that out of equilibrium the firm is exploring both prices and quantities. It will turn out that once the right price is found, the quantity is forced. The price in industry $$i$$ is independent of the firm by the law of one price. You can also think of this as being a representative firm analysis if you want. I assume that $$C_f$$ is increasing and concave up everywhere for all firms. In perfect competition, we would have that price equals marginal cost $$p_i = C'_f ({}_f q_i)$$. But that's not realistic. But in monopolistic competition, we have only prices are only proportional to marginal cost $p_i = \mu_i C'({}_f q_i)$ For some markup $$\mu_i > 1$$. where $\mu_i = \frac{\eta_i}{\eta_i-1}$ The firm has no control over this, it is determined by the consumer. Because $$\frac{p_i }{ \mu_i }$$ doesn't depend on firm $$f$$ neither does $$C'({}_f q_i)$$. This is ensured by the fact that $$C_f$$ is concave up - this gives that $$C'_f$$ is monotonic and therefore $$C'^{-1}_f$$ exists. Since we're in equilibrium, each firm can take all the other firm's quantities as given. Since we also have $\Sigma_f C'^{-1}_f(\frac{p_i}{\mu_i}) = Q_i$ once $$p_i$$ is chosen, so is $${}_f q_i$$. That means that the second term on the maximization problem is purely decorative. INDUSTRY LEVEL A firm $$f-1$$ can explore setting different prices or producing different quantities. But another action is possible - an entrepreneur can attempt to make a new firm $$f$$. The new entrepreneur is enticed by the possibilities of increasing returns, so her $$\gamma_f = C''_f > 0$$ . Long run monopolistic equilibrium gives us that $\gamma_f = \mu_i$ at the equilibrium level of production with the equilibrium number of firms. What this means is that the $$f$$th firm will only get in the industry if it has a high enough markup. Once again we have something that seems like it depends on the details of a firm and something determined by the level of industry in equilbrium: $\mu_i = C''_f({}_f q_i)$ Kimball assumes that $$\mu_i$$ is a monotonically decreasing function of $$n_i$$. The thought experiment goes like this - the $$n$$th firm in industry $$i$$ will have a harder and harder time finding a production with higher returns to scale and therefore a higher markup. This means that $$\mu^{-1}_i$$ exists and the equilibrium number of firms is: $n_i = \mu^{-1}_i(\gamma_f)$ MACRO POLICY Everything in the above was micro, but we have enough assumptions to incorporate macro as well. Recall that we had as a constraint $C + S = Y$ where $$C = \vec{p} \cdot \vec{Q}$$ and $$S = M$$. Prices were chosen by firms, quantities by consumers. Liquidity preference gives us $M = L(r,Y)$ For no reason, I choose a Tobin-Baumol Square Root demand for money. Each trip to the bank has a transaction cost $$T$$. Holding cash has an opportunity cost in holding bonds*, which pay a real interest rate of $$r$$. Therefore, the transaction demand for money is $M = \sqrt{\frac{T Y}{2 i}}$ We can plug in our $$C + S = Y$$ condition for a quadratic polynomial in $$M$$ with one positive root by Descartes' Rule Of Signs. The quantity of money held by the representative agent would be $M = \frac{T}{4r} + \sqrt{\frac{T^2}{16r^2}+\frac{TC}{2r}}$ One can think of this as the natural policy for a central bank. It has to set an interest rate consistent with a given level of consumption $$C$$ and output $$Y$$, and $$M$$ is determined by those three inputs. If I set $$T = 4$$ I can easily solve for the effect of changing the interest rate on the level of consumption by the chain rule. $\frac{\partial C}{\partial r} = -(\frac{1}{r}+C+\sqrt{1+2 i C})$ Notice that the natural policy isn't neutral - for all positive $$r$$ and $$C$$, $$\frac{\partial C}{\partial r} < 0$$. The reason for this easy analysis isn't that I chose an easy liquidity preference function, it's because I chose a quasi-linear utility function. This caused the micro analysis to separate from the macro analysis. CONCLUSION Anyway, it is a fun and cute system. What I'd like do do is see how changing the interest rate changes the equilibrium number of firms. What I need to do is unpack Kimball's condition for $$n_i$$. No moral. *There's no bond market in my system. This is the incoherent bit. ## Saturday, July 8, 2017 ### They Killed Fritz! A Review of Unfiltered: The Complete Ralph Bakshi Ralph Bakshi This beautifully illustrated book covers the life and work of Ralph Bakshi, one of the great post-WWII artists. Bakshi work covers the whole of modern art: from ashcan realism to abstract expressionism, from doodling with a number 2 to acrylics and oils to bricolage made possible only with cutting edge technology. Bakshi is such a capital "G" Great that I feel the need to frame him up with a capital "Q" Question. What can art do? No artist has ever stopped a war, not artist has ever saved an old lady from cardiac arrest, no artist has ever cured a child's cancer. Maybe art can feel good, but so can drugs and masturbation. Maybe most art is a masturbatory drug, conning the audience into thinking they've done something when all they've done is lost another day and gained another pound. If human beings were "perfectly logical" (whatever that means) and everything was explicit, maybe art would be useless. But as philosophers have hammered on us for hundreds of years, everything is not explicit. The tissue of every society is made of norms: unspoken rules, prejudices, superstitions, hypocrisies and methodologies. Most of these are implicit and unspoken. Art has the power to expose and affect the unofficial rules. Ralph Bakshi as an artist whose greatest goal is exposing the unspoken norms of life. It's certainly a theory. Ralph Bakshi, Unknown Photoboming Child and Ralph Radino at Coney Island Bakshi grew up in Brownsville, Brooklyn, New York, New York, USA as it transformed from a Jewish ghetto to a Black one. Even when Bakshi began his life in Brownsville in 1939 boys from the burg had made good and bad: The Horowitz brothers had broken free of of their violent boss and formed the greatest slapstick group of all time: The Three Stooges. The vicious organized crime rings led by Meyer Lansky and Benjamin Siegel ruled the streets with an iron fist. Aaron Copland premiered his first ballet. Abe Reles's "Murder, Inc." hitman racket killed their thousandth man. Danny Kaye had his first success on stage. Paul Terry Bakshi's first job in the art world (how oxymoronic that sounds now) was at Paul Terry's Terrytoons. Terry had sold the place wholesale to CBS the year before, betraying a lifetime of handshake contracts. CBS put the modernist Gene Deitch in charge of new production. Deitch had left Jam Handy (they made most of the shorts you see on MST3K) for the new world of TV, where he hoped that UPA style would allow him to be creative and on budget. What Deitch didn't know was that Terry had forced CBS to take on Bill Weiss as manager of Terrytoon's existing catalog. Weiss proceeded to do everything in his power to hobble the studio (he had been on the receiving end of many a handshake). Bakshi was in the best of worlds and the worst of worlds at Terrytoons. He was under the wing of some great old-timers: Connie Rasinski, Jim Tyer, Bob Kuwahara. But Deitch and TV were going the way of UPA. Bakshi wanted to make cartoons with the life and energy he experienced in Brooklyn, he wanted to animate mass quavering with weight, he wanted crooked & pulsating lines. It was tough but he was learning. The first cartoon Bakshi helped animate did have one thing that he wanted to bring to the screen - ethnicity: But overall, Terrytoons was cramping. Through a suspicious miracles (that turned out to be hot air) Bakshi ended up in charge of Paramount's animation division. He directed a series of barely released theatricals as semi-pilots for TV shorts. What Bakshi didn't know was that, like Bill Weiss at Terrytoons, Burt Hampft at Paramount wasn't looking for a director to take his studio to greatness, he was looking for one to take it to the grave. The money was in syndicating existing cartoons, not producing new ones. Bakshi was scooped up by another executive, Steve Krantz - an independent. Krantz needed a warm body to produce some animation properties he sort of owned: Rocket Robin Hood and, of course, Spider-Man. Krantz dangled to Bakshi an irresistible lure - Bakshi's name on the studio door. No boss, only customers. It was garbage of course - Krantz horded the money for himself and Bakshi Studios was at the mercy of the network. Then, in 1969, Bakshi did something nobody saw coming, a goal so lofty nobody even aspired to it. He made a movie. Fritz The Cat is the best entry into the Bakshi experience. It's not a terribly pleasant movie. Fritz is a shiftless, unpleasant, naively misogynistic hippie. If you want to know why people hate David Crosby watch this movie for a few minutes. Fritz in the comics was even worse. R. Crumb is profoundly fucked up. What makes Fritz so fascinating then? One is Bakshi's idea to use live recordings of non-actors. The movie begins with a construction worker worried that his daughter is sleeping with an unpleasant hippie. In real life, the man speaking was a construction worker shootin' it with Bakshi in a bar after work. Bringing that level of reality into a movie is impossible. But Bakshi had an advantage that John Cassavettes didn't - Bakshi was working with animation. Bakshi had a level of control and timing that no live action director could possibly have. And so Fritz The Cat is more real than a live action movie could possibly be. The backgrounds of Fritz The Cat are beautiful. By collecting mountains of reference photos and with colossal command of acrylics, Bakshi were able to fuse the structure of Ashcan Realism and the emotional coloring of Impressionism. The movie features wonderfully fluid animation from veterans - Irv Spence (who did most of the Tom & Jerry shorts), Jim Tyer, etc. While Disney was going around telling everyone how what an animated film needed was a big time producer, Bakshi was getting better animation for less than a million dollars. The House of Mouse came out with Robin Hood, the recycled animation movie, the next year for six times the budget. It didn't make a third of what Fritz made. I guess I should say another few words about R. Crumb. I can see why Crumb acts the way he does - acts like the movie is some stain on his reputation. Says idiotic, patently false things like the movie is "red neck". You see Fritz is Crumb. Fritz is what Crumb wanted to be. This says very bad things about Crumb - Crumb's version of Fritz is a rapist. Bakshi's Fritz is just unfaithful - even disapproves of rape. Wikipedia gives this quote of Crumb "They put words into his mouth that I never would have had him say.". This refers specifically to Fritz quoting The Beatles. R Crumb, an old school jazz fan, hated rock and The Beatles. Fritz liking rock music is - to Crumb - worse than being a rapist. In theory, Crumb could be honest. He could say that he didn't want to give Fritz to someone else because he identified with the dipshit too much, that he was bullied by his wife into selling the rights for Serious Cash (millions) and that his feud with Bakshi (Crumb shunned any artist who worked with Bakshi) was childish. If you think he'd do that, you don't know R. Crumb. Lucky you. Let's skip ahead now to Bakshi's most incendiary movie, Coonskin. It was originally titled Coonskin No More and that is a so crazy better title, holy shit. The movie would have made it with that title. Bakshi's movies were being destibuted by schlockmeisters like the blacksploitation kingpin Jerry Gross and the infamous Samuel Z Arkoff. Satire is the art of using comedy to bring out the norms of society. Coonskin is a satire on race relations. Blazing Saddles is another one. The difference between Coonskin and Blazing Saddles is despite the fact Blazing Saddles has some naughty words, it lets everyone off easy. Blazing Saddles is one of the gentlest and kindest movies ever made. Gene Wilder plays The Waco Kid (whom the script tries to tell us is an old alcoholic ex-murderer) with such sweetness I could see ISKCON using him as a model for the young Krishna. Cleavon Little plays his character as Bugs Bunny - the right choice comedically but it makes it hard to see him as a victim of racism. Gene Wilder and Cleavon Little have such real and warm friendship that you could toast bread on it. The movie isn't fun because it's incendiary or because it has such deep things to say about race, it's fun because you can see a lot of warm, fun people singing songs, tell jokes, use naughty words and get into naughty situations. By the end of Blazing Saddles, blacks and whites are owning land and living together in peace and harmony. In the real world, the Pre-WWII Solid South was practically a 3rd World Country because the elites in control of her would rather grind her into dust than allow a black man to have a factory job. Even worse in this regard is the movie In The Loop, which is very funny but a total whitewash on the UK's role in Iraq. In the movie, the UK characters are all very torn on the war and it weighs on their conscience that they "have to" start a war to appease the insane Americans. Of course, this is complete horseshit - the UK administration at the time was very pro-war. The movie tires to tie this to the American character, Americans will start a pointless land war in Asia but won't swear. They don't even know the difference between an Englishman and a Scot, the idiots! Okay, sure, Malcolm Tucker is just as much a warmonger ... but at least he swears. It's a total pat on the back. That said, the Elephant Man reference from In The Loop is just about the funniest thing ever. Coonskin isn't a very funny movie. It is occasionally funny, but it is much more gross, mean and disturbing. Laughter comes from a place of comfort, whatever comedians try to tell you. Laughter is comforting. Coonskin is a satire in the sense that it uses cartooning and exaggeration to get at the ugly norms of society, but it isn't a satire in the sense that it's laugh-a-minute. Coonskin lets nobody off - not cops, not liberals, not activists, not the church, not the blacksploitation heroes that make up its lead characters and especially not the mafia. It's a gross, bleeding, waling movie. The "Melvin The Roach" sequence is one of the greatest vignettes in any movie. I suppose I gotta talk about the controversy around this one. I'm against censorship, of course, but I do see why someone might morally object to this movie. This is a movie that exposes society's norms, but if your goal is to change those norms this might not be the best strategy. After Coonskin, Bakshi was stuck in a weird place. No matter what Quentin Tarintino tells you, people didn't go to Grindhouse theaters to be challenged. We didn't really think about the gore any more than in Tom & Jerry. Besides that, a lot of those theaters were in black neighborhoods and "racist" was not a good look, sales-wise, even if it was bullshit. Bakshi decided for his next movie he'd do it all metaphorically, in a fantasy world. He could have the same morals and less people would bring their baggage. At the same time, a weird young arty hippie director was reeling from his failure to get his big idea - a violent mockumentary about Vietnam shot while the war was in progress - off the ground. He had a new idea for a Roger-Corman-esque low budget SF epic. This weirdo and Bakshi both pitched to the same person, Alan Ladd Jr at Fox. Bakshi's pitch was titled War Wizards. The other guy's pitch was Star Wars. One of these movies did a little better than the other. Is Wizards a ... good movie, strictly speaking? Well, it's okay if you're in the mood for it. Old school SF stuff. Very New Wave and trippy. But you can tell that the movie lost it's budget halfway through. This is when Bakshi began rotoscoping. Nowdays you CGI rotoscope an SF movie and you get a billion dollars, but Bakshi wasn't so lucky. Rotoscoping allowed Bakshi to make a New Wave SF epic on a$2M budget, but the movie definitely tests the viewer's tolerance for this technique.

Ralph Bakshi

Bakshi continued to make movies throughout the 70's and even into the 80's. His adaptation of about half of Lord Of The Rings ... well, it has its defenders. Bakshi's heart was in the right place. American Pop and Hey Good Lookin' are good entries in the post-American Graffiti nostalgia genre that apexed in Forrest Gump (though the only completely good American Grafiti rip-off is Animal House). Fire And Ice is good and the rotoscoping really works for it, but that's more Ralph Bakshi directing a Frank Frazetta movie than a Bakshi movie. And his last attempt at big Hollywood movie was Cool World, where big tough ex-boxer Bakshi was bullied out of creative control by Kim Basinger.

John Kricfalusi

During this time Bakshi worked on a lot of smaller projects, mostly with his protege John Kricfalusi, also known as John K. Bakshi's output at this time ... well, the studio's output looked suspiciously like K's later cartoons and suspiciously unlike any of Bakshi's. Bakshi and K helped recreate TV animation with their Mighty Mouse reboot, but this really should go in a review of a John K book.

Bakshi's main creative outlet since the budgets dried up has been painting. Bakshi is a marvelous painter. Most of his work would be described by an art critic as post-Francis Bacon extremist expressionism while remaining figurative. I'm also quite fond of his George Herriman inspired ink sketches.

Bakshi also released a short film a couple years back called Last Days Of Coney Island. Check it out above.

All in all, this is a gorgeous, glossy book, filled with beautiful art and a fantastic true narrative. When I read this book, I can hear Bakshi's scratchy Brooklyn voice. There isn't two pages in a row that doesn't have some amazing drawing barely saved from the ash can. Absolutely inspired from start to ... the mid-80s.

## Wednesday, June 28, 2017

### Mill, A Milquetoast?

David K Lewis

David K Lewis was one of the better metaphysicians of the post-war environment, one of the few footnotes to Wittgenstein & Hume really worth reading. I don't agree with him about everything (for instance, he's a Bayesian), but I think he was onto the right track on a lot. He introduced the general idea of a "cooperative game", demonstrating one channel through which costless signalling could remain stable. This lead him distinction between 'Language' - the dead formal, metaphysical thing that is studied in logic classes - and 'languages' - the living, social & biological stuff that music is made of - which is very pretty. Of course, it's all in the Tractatus, but in it Wittgenstein dismissed probability and evolution which put W off course. Lewis had his flaws as well - his papers are full equilibrium analysis functionalist sociology, so he never explores a concept which exists for itself against the bodies it inhabits. People like Brian Skyrms, Josef Haufbauer and Simon Hutteger have worked to examine the theory out of equilibrium and impurely cooperative cases. The results have been robust - complete communication occurs in many models out-of-equilbrium behavior with probability one.

Lewis wrote extensively on ethics as well. His theory of meaning is an ethical theory - according to Lewis, your implicit promise to say sentences which are True is your continuing payment to the languages you inherited. His 1989 paper "Mill And Milquetoast" explores the ethical question of whether we should let other people believe falsehoods. Let's get into it.

John S Mill

Mill believed that the facts that your neighbor should believe things that you are certain are wrong give you no right to force her to change her mind. This is called "tolerance". It is a limited, merely intellectual tolerance but it is a tolerance. Mill's justification of this "tolerance" is pragmatic and utilitarian - at least overtly. I would be open to the proposition that Mill actually believed human beings should be given dignity and therefore rights. In this case the point of Mill is that even a cruel despot should be "tolerant" since "tolerance" has such enormous pragmatic benefits.

Lewis agrees with the conclusion, but not the reasoning. Partly this is because Lewis is not a utilitarian (even though he claims to not mind utilitarianism, his parenthetical aside on page 6 reveals his true, anti-utilitarian opinions). Even though I'm not a utilitarian either, I'm going to defend Mill.

Let's choose a particular one to be concrete. Given a particular economic system - such as the United States today - what is the optimal tax on a commodity?  Should we force the Diamond-Mirrlees level on society or put it to a vote? If we vote, should every level of taxation be allowed?

Mill proposes the later to both questions. This is "tolerance". Lewis attributes to Mill a few ground rules for defending "tolerance":

A. The justification must be pragmatic and utilitarian. This one is obvious.

B. We must take the other person's opinions seriously. We cannot argue that because the population is large each vote is harmless nor may we argue that because nobody takes an argument seriously it can be dismissed. Further, we cannot argue that a person should act differently on the flimsy ground that she is wrong - their subjective beliefs are not valued because they could be other beliefs.

Lewis summarizes Mill's major arguments for "tolerance" as follows:

1. A tolerant population is less error prone. It is well known that independent guesses at a number converge on the actual answer rapidly. A population that doesn't use social or physical pressure against extreme guesses - too low or too high - may actually converge faster than one that attacks extreme guesses because opinions are more independent.

2. The intolerant suffer from a 'fallacy fallacy'. Let's say the neighbor has exactly the right guess at the optimal tax rate - but defends it with a word salad political theory arising from the job system of Final Fantasy Tactics. If we oppress the latter nonsense, then we lose the former truth.

3. A tolerant population will tend to believe the right answer for the right reasons. If we always impose the Diamond-Mirrlees level, we can miss things. Let's say everyone pays the same rate of income tax - in particular, skilled and unskilled labor can't be distinguished by the tax system. It's well known that smart governments (even cruel ones) have universities. Why? Overpaying skilled labor in public production makes production more efficient. It's possible for society to get this right only if we allow opinions.

4. An intolerant population can lose track of purpose. We want the optimal tax on a commodity. But if we mechanically apply the Diamond-Mirrlees level it can become a sort of goal in itself. It becomes a taboo to use another level, even if Diamond & Mirrlees assumptions flagrantly don't apply. Some have argued that the 2% inflation rate has become this.

Lewis attributes to Mill, but discounts, two more reasons for "tolerance":

5. We may have a preference for diversity. Mill and Lewis has in mind a question - like the optimal tax rate - that we don't particular want diversity on for it's own sake. Time has shown that people like diversity a whole heck of a lot. The real problem is that if we introduce enough of this we trivialize "tolerance". Mill wants us to take opinions seriously, not giggle at how fun it is to disagree.

6. Tolerance can make us better as people and thinkers. This can be interpreted in a personal or a Hegelian way. Lewis is dismissive, but again doesn't give very good reasons. The real reason is that this option still doesn't give us a reason to take the other opinion seriously and not just as target practice.

Lewis also gives another reason that "tolerance" may be preferred. It might be that in"tolerance" in general costs so much more than "tolerance" (either individually or on the whole) that a society may prefer "tolerance" in reality even if not in theory.

David K Lewis

Phew! That sure is a long list of alleged benefits to "tolerance"! Mill believes that this list is strong enough to take on all comers, even within the limits he gives himself. Lewis, however, thinks that there is an in"tolerant" person who could knock Mill down.

Joseph de Maistre

Comte de Maistre was a French ultra-royalist and Catholic fundamentalist who sold his wares to easily flattered aristocrats. He pawned off on them all kinds of funny stories about how great the old days of monarchy were and wasn't afraid to give it a strong boost via telling bald faced lies to do it. Since he wasn't hemmed in by any need to tell the truth, his writing has a great deal of energy - centuries of warfare between petty princedoms suddenly become a thousand years of peace, the Houses of Borga, Medici and Sforza become infallible Atlases upon which the world can depend. He famously argued that the death penalty and the world's cruelty to innocents were the same and good - they both sent the blood of the innocent back to God. He didn't hold this belief very consistently. Somehow it was always both someone else's blood and someone else's duty to move it around. The princes that patronized him liked this part too.

Imagine Mill speaking in a young prince's left ear and de Maistre speaking in his right ear. The prince is to appoint the inquisitor who roots out heresy and sedition (the same thing to de Maistre). Should the prince appoint a cruel, vindictive inquisitor or a relaxed, "tolerant" one? Ol' de Maistre is telling Alexander I that he should prize order above all else and this means a cruel, vindictive inquisitor. Can Mill knock de Maistre down?

Lewis doesn't think so. Lewis thinks he can give de Maistre a sentence that overcomes any Millian argument:

"You might as well oppose the suppression of heresy on the ground that dungeons cost too much money."

What de Maistre is arguing is that the young prince should have 'lexicographic preferences'. There are various states of the world are like a vector. They might be written $$(Wealth, Knowledge, Order)$$ or $$(Sex, Digestion, Energy)$$. The entries of the vector are written in order of importance to the prince. In words, between any two states, the prince prefers the one with the highest value in the first different entry. Thus $$(2, 0)$$ is preferred to $$(1,99999999999999999)$$. No amount of changing the second entry will make the prince prefer the first state.

If the prince has de Maistrean preferences - as Lewis supposes - then there is no amount of arguing the nice points of 1-6 will help. Violent order is in the first entry, it is weighted infinitely more than what Mill can give.

Lewis argues that Mill only has one option - he must violate his principles. Either he can suppress de Maistres or he can refuse to leave the de Maistrean argument alone. He can argue that Millian order is actually better than de Maistrean order. This violates rule B.

John S Mill

But Mill has a counterattack. Lewis thinks he can beat Mill with lexicographic preferences, preferences that don't make a smooth utility function. But Mill also has lexicographic preferences! Lewis said somewhere that he was attempting to make unsystematic contributions to philosophy on the theory that there were enough systemic theories already. But Mill did not say this. Mill had/wanted to have a system. Mill can use all his arguments against de Maistre.

Lewis is right as far as he goes. You can't fight gains with infinitesimal changes. Lexicographic de Maistrean preferences would beat Mill's arguments *if* all Mill can only affect the later entries.

Did Mill make this mistake because he thought preferences always led to a standard real valued function? That doesn't sound like our JS Mill. JS Mill wasn't Jevons. Mill doesn't use explicitly represented, mathematically defined utility functions. On the contrary, in Utilitarianism Mill says

"Whoever supposes that this preference takes place at a sacrifice of happiness- that the superior being, in anything like equal circumstances, is not happier than the inferior - confounds the two very different ideas, of happiness, and content. It is indisputable that the being whose capacities of enjoyment are low, has the greatest chance of having them fully satisfied; and a highly endowed being will always feel that any happiness which he can look for, as the world is constituted, is imperfect. But he can learn to bear its imperfections, if they are at all bearable; and they will not make him envy the being who is indeed unconscious of the imperfections, but only because he feels not at all the good which those imperfections qualify. It is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are a different opinion, it is because they only know their own side of the question. The other party to the comparison knows both sides."

In short, Mill can have lexicographic preferences too! He can try make lofty preferences infinite in weight compared to base preferences.

Let's look at what Mill is doing and why. Mill's boons are all to the same thing - discovery of the truth. This gives a hint on how Mill can try to beat de Maistre. Whatever de Maistre says about order and hierarchy, Mill can say this "Is it true we have order and hierarchy? The only way to tell this is if we have 'tolerance'.". Mill can do this to whatever the prince has first in his lexicographic preferences, Mill can always convert "'s' is desirable" into '''"'s' is true" is desirable'''. Mill can always try to put truth and therefore his arguments at the top of the preference vector.

Girolamo Savonarola

Again, more concretely. Mill can try to prevent the prince from appointing a Savonarola on the grounds that a Savonarola by overprosectuing punishes the faithful as well as the faithless and thereby erases the distinction between faith and faithlessness. Mill can say that discovering the truth of faithfulness requires a certain amount "tolerance". This is a reasonable argument. Mill's argument fits in nicely with Lewis's pragmatic reason for the concept of Truth to be instantiated - individuals in a society desire to have meaningful signs.

In short, Mill may have been many things, but he was not a milquetoast.

## Monday, June 19, 2017

### Why Should We Believe In The Truth

David Hume

There are two main rivers in modern thought. One is the English Philosophy based on a misreading of Hume. The English Philosophy emphasizes epistemology. What's the point of having weird objects if we can't learn anything about them? The other is the European Philosophy, and is - coincidentally - based on a separate misreading of Hume. It emphasizes ontology, the question of what kinds of objects exist. Epistemology is easy - if reliable witnesses exist the whole problem is solved.

Richard Rorty

Two sub flows within these rivers are called "ordinary language philosophy" and "pragmatism".

Pragmatism is primarily concerned with the reduction of the big concepts like Truth and Justice to simpler practical and evolutionary concepts. It began, like all philosophy, with the Socratic attempt to show that a truly good man will - by divine coincidence - be satisfied, if not happy.

Richard Rorty was one of pragmatism's ablest modern adherents. Rorty holds (with men like Peirce, James and Dewey) that, to quote Peirce, "The truth is a kind of efficiency.". Rorty gathered and sharpened weapons from all over philosophy and even science to defend his vision. He is almost infamous for using humor and sarcasm (saints be) to denigrate the "bad, old philosophy" that holds that there is something like Truth or even a first person point of view.

G K Chesterton

Pragmatist philosophy is reformist and scolding. You betta get rid of dis Truth jazz or you'll tie yaself in stupid knots. Contrariwise, the philosophy of ordinary language is conservative. The philosopher of ordinary language operates on the theory that languages and linguistic communities are highly evolved things and a lone philosopher far more likely to be muddleheaded than an entire linguistic community. Such a philosopher says, with Chesterton, "Dick, my friend, it will do you no good to tell me you don't what good Truth is. Only when you can tell me you do understand, will I let you fiddle around.".

To such a person, that Rorty, Peirce, James & Dewey's theories are wrong is as plain as South Dakota. The fact is, when ordinary people use the word "true". Let me give an example.

You can hear it, right? Darth Vader clearly says "Search your heart. You know it to be true!". He is referring to an event that happened in the past, not in the future. Certainly not future efficiency. All the pragmatist theories of the truth just don't correspond to a theory of how the word truth is used. All of Rorty's irony and sarcasm can't overcome the fact that this is the concept used and no other. He may as well mock those bad, old philosophers who have only two eyes.

Rorty the reformer comes in and says "Very well, sure he thinks he used that concept. But he really shouldn't. He certainly shouldn't say 'Search your heart.'. Vader should say 'If you think I killed your father, your fascination with the Dark Side will become mysterious and difficult.'. The important thing is not that Vader fathered Luke in the past, but what that means for the future.".

Charles Darwin

This is wrong. The concept of backwards looking capital T Truth did not evolve in this way or for this reason. Languages evolve in many ways. We know, for instance, that high dimensional signals are more stable in come signalling games than simple ones. In other words, mathematics teaches us that the birds sing beautifully. That sure is kind of it.

Math teaches us more than this. We know from the detailed analysis of signalling games by people like John Maynard Smith, David Lewis and Brian Skyrms when communities evolve meaningful signalling. Truth in language is a repeatedly evolved strategy for dealing with ambiguity. An ambiguous situation for a speaker & listener pair is one with many approximately equally likely outcomes. Communication becomes meaningful because the speaker can lead or mislead the listener.

Where Rorty is right is that the concept of Truth is instantiated in the world for pragmatic, evolutionary reasons. Forward looking ones. But he blunders by saying that it is thus for true sentences - blunders into ordinary, boring error. Backwards and outwards looking Truth exists and is useful - maybe even occasionally used in situations not so important.

Why does Rorty make this mistake? One is that if he were to admit Truth he would have to admit ethics. If backwards looking Truth is so dang useful, Truth ought to be made into a habit - this is the essence of pragmatism, the reduction of things to practicality. If Truth exists, then philosophy is not just a kind of writing, but an instructive kind of writing. Philosophy should encourage us to be reliable witnesses (not necessarily perfectly reliable). Heck, one might even say that if reliable witnesses exist, then the whole problem would be solved...

This would go against Rorty's biggest conviction. Rorty was a "structuralist". His view of society was that it was like a giant building, maybe a library. Sure, sometimes a book got out of place. Maybe there are mice or cockroaches to be exterminated. But overall, society as an organic whole is organized and everything has its place. He often talked of people being "programmed by their linguistic community" to use certain sentences. This is implicit social science ... the worst kind of social science.

In reality, communities are dynamic, evolving and structurally indeterminate. Further, even if a structure is in place, that doesn't mean that it implies anything on the individual level. A particle of water wanders randomly, perhaps quickly perhaps slowly, through a stationary cloud of fog...

Nannerl, Wolfgang, Anna Maria and Leopold Mozart

The so-called 'classical' style of music was meant to emulate the perceived simplicity and grace of ancient - or 'classical' - art (that it bore no resemblance to the music of those time was just a bonus). The best practitioners, such as CPE Bach, Joseph Haydn or Wolfgang Mozart, used stereotyped finger movements and chordal patterns to build large musical pieces quickly and have them played clearly. But it does not follow that a moderate amount of knowledge of this musical language makes Mozart's music predictable. Musical language is not a simple Markov process. Musical language sits on the top of Chomsky's linguistic hierarchy. Pretending that Mozart was just pushed by this social structure or that linguistic community is pseudo-scientific if it doesn't give us good hypothesis about Mozart's music.

Once we move beyond a structural equilibrium analysis, we can see that truth in signalling games is both common and observed. Individual and their problems come back into sight. Only then is the Truth plain.