Tuesday, January 26, 2021
  Rare productive piece

A rare piece of PRODUCTIVE writing about economics.

Most discussions of regression to the mean treat it as an unbreakable "mathematical" law, without noticing WHY it happens so often. When you're stuck in meritocracy you can't afford to notice reality.

Gary Smith breaks out of meritocracy by acknowledging the power of LUCK.
Regression happens whenever we make comparisons that involve an element of luck. The most highly rated generally have had more good luck than bad and are not as far above-average as they seem. Nor are the lowest rated as far below-average as they seem. Our lives and the world around us are not slogging to a depressing mediocrity with all companies equally profitable and all people equally tall, intelligent, healthy, and athletic.

Our lives are much more interesting than that. We are constantly buffeted by temporary bursts of good luck or misfortune. Our challenge is to recognize the important role of luck in our lives and not overreact. Life is a bumpy highway, but we should enjoy the ride.
Focusing on the power of luck immediately creates one blazing clarification.

Why does the stock market always lead to maximum evil and criminality?

Because it's a system based solely on betting. And not just simple betting; infinitely piled layers of side-side-side-side-side-bets on increasingly trivial aspects of the previous layer.

In a truly unbiased luck system, an ideal unrigged roulette wheel or dice throw, each player will come out even after a while. The only way to win consistently is CHEATING. Basing the entire economy on a bet system guarantees that the worst and most evil cheaters will rule the economy. Normal humans doing normal jobs will be dead.

The correct solution, as described by God and Mohammed and Marx, is to base the economy on SKILL. Labor is value, and more specifically the skills and styles of labor are value. Every single piece of every single living thing is designed to be USEFUL. Humans desperately need to be USEFUL, need to SERVE A PURPOSE. When the economic system favors gradual steady improvement of SKILL and USEFULNESS, everyone wins.

The Soviet system was the best approximation of a skill-improving economy. America was moving in this direction, with ups and downs, from 1920 to 1970. Since 1970 we've been breaking away from labor and skill, first slowly, then accelerating, then all at once in 2020.

= = = = =

Later thought also produced by Smith's productive insight: Luck is mainly permanent, only partly temporary. Luck has different time factors for individuals and organizations. For each person, luck is permanent and innate. If you're attractive or impressive or likable or aggressive, you will win far more often than the permanent opposites of those qualities. No way around it.

For a business or a small government, luck is much more fleeting and external. A business or farm can win or lose regardless of its innate tendencies, if weather or national governments turn the wrong way.

A city can win if railroads decide to run a track here, or governments decide to run a new highway here. Before Bloomberg turned all cities into holocaust gas chambers, city governments competed and CHEATED to gain those railroads or highways or courthouses or colleges.

There is only one semi-guarantee of permanent luck for a business or government: Save MONEY and SKILL. When you have lots of MONEY savings, you can survive bad weather or consumer fads or highway decisions. You can pause production and use your intelligence and SKILL to find new products or new ways to bring in money. When you preserve your SKILL capital, you'll have the intelligence to use those pauses productively. If you always live in debt and always repel your most experienced workers, you can't even survive normal conditions. You may be fooled by a temporary period of good external luck, but your permanent tendency to go the wrong way will use the good times to incur even more debt and fire even more experienced workers.

Functional civilizations smooth out the extremes in both spatial and temporal directions. They try to smooth out the extremes of permanent human luck. They make room for unpopular people, and constrain the evil tendencies of aggressive demons. Functional civilizations make it easy to save money and hard to get in debt. They pay high interest on savings and charge higher interest on loans. They strictly forbid casinos of all types, especially the NYC type.

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