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A Convert: Winterspeak and the Public Purpose Of Banking

Over on Winterspeak, I found another convert.

….a bank should be required to keep all loans it makes on its books until maturity.

In under six hundred words he provides a solution to a great deal of the problem. I’ve extended this basic line of reasoning to explain WHY banking should be run this way, WHY the public should and must insure banks, and WHY we can provide redistribution using these institutions, and HOW to look at government differently. But then I’m trying to solve the broader problem.

To determine how we must govern, we must agree on what life we desire. To agree on that life we must understand what kind of creatures we are. These two statements are as old as philosophy itself. However, these ancient questions are formulated with an assumption about our power of decision making: we may not be able to make decisions with out the institutions that help us do so.

The civic republican tradition of political participation assumes we can make such judgements, or that we need only philosophical knowledge or religious tradition to do so. When, at some level of complexity we cannot sense the data with which to make these decisions in any possible way.

I’ve included the article here in it’s entirety for posterity.

Winterspeak
The Public Purpose Of Banking
THURSDAY, NOVEMBER 12, 2009

The Public Purpose of Banking
While Lloyd Blankfein claims bankers are worth Billions, even as they destroy Trillions, it’s worth taking a look at what the public purpose of banking is. Chicago economists, sit back down, the public purpose of banking is not to enrich their shareholders any more than the public purpose of pharmaceutical companies is. Capitalism works by enriching owners as they compete to provide some value to customers. So, what is the value that banks deliver to their customers?

First, what is a bank? My definition is simple and goes to the heart of their public purpose: a bank is an entity that has a reserve account at the Fed. That is it. If you have a reserve account at the Fed, it means you can lend unconstrained by your reserve balance. Briefly, this is how it works:

1. You make a loan. This debits your reserve account, and you credit a receivable account.
2. The loan gets deposited, which credits that reserve account, and credits a liability. Note how the loan created the deposit, not the other way around.
3. If the loan and the deposit are made at the same institution, that institution has no net change to its reserve levels. If the loan and deposit were made at different institutions, then the institution short reserves borrows what it needs from the institution long reserves overnight. That’s it.

If you or I make a loan, we cannot use the reserve credit that the corresponding deposit creates to top up our own reserve levels. Thus this clear, operational difference between banks and non-banks.

Ultimately, the Govt creates all reserves, so why not just have the Govt make loans directly? Because we do not want the Government to make credit decisions, they are too likely to dole out money to politically connected constituencies, while starving worthwhile, but unconnected borrowers. You can see this today, as banks and unions get Billions, while shop keepers, dry cleaners, manufacturers, and restauranteurs shutter their businesses and go on the dole. An institution that makes loans it knows will not be paid back is not making loans at all, it is making gifts, and the operational bankruptcy of the FHA is a great example of this in action. Many adjectives come to mind: corrupt, wasteful, abominable, unfair, fraudulent, etc. This is the opposite of Responsible Governance. Barry, we really expected more.

So, to keep responsible lending, we put private capital infront of public capital and ask that private capital take the first loss on loans it makes which turn out to be bad. Ultimately, taxpayer money is there as backup, but it should not be directing investment. We call this institutional arrangement a “bank”.

This simple sensible construct is utterly lost on policy makers and the commentariat alike. For banking to do the job it is meant to do (ie. make loans that will be paid back), a bank should be required to keep all loans it makes on its books until maturity. It should be forbidden to participate in any secondary markets, in any way. It should not run a prop trading desk. It should not sell insurance. It should not have a fee-for-service business. It should simply conduct its own credit analysis, make loans, and service them. And in return for providing this public purpose, a bank shall have a reserve account at the Fed.

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Climate Data, Trust In Science, Secular Humanism, Truth, and Economics

The crisis over climate data has been met with numerous statements about preserving the “sanctity” or trust in the wisdom of science and scientists. As if our scientists were an improvement over their theological predecessors, or their pragmatic and prostituting peers in politics. But that can hardly be true, if one understands the history of science, or the scientific method and it’s limits, or the behavior of human beings belonging to schools of thought, in history. People are driven by material gain, status, and power, and have significant cognitive biases in favor of those selfish traits, that appear in all aspects of human behavior, not just in politics, commerce, or religion, but also in science.

My position has been, along with many, that it certainly appears as though the data says the climate is cooling, along with it’s normal historical ice age cycle.

The public does not trust academia, or the scientific community. It does trust particular scientists who are also public intellectuals. THe press likes to trust and advocate science because secular humanism has become today’s religion. In an effort to counter scholastic religion, secular humanists frequently tolerate what it considers acceptable losses.

But given that, due to current events, we know most mathematical economics since the second world war is faulty, because the logic behind it was faulty. Because they sought to justify government intervention in the economy by monetary policy: Something Hayek believed was the intellectual’s fascination with their levers and their desire to run tests on society to experiment with their efficacy.

And there are numerous other ‘givens’.

Given that over nine tenths of research papers contain logic errors that invalidate their conclusions, whether in physical science or social science.

Given that it at least appears that the peer review method of publishing articles is becoming invalidated when compared to the more difficult job of writing books that require broader integration of a paper into a network of theory.

Given that our universities are rated by input rather than output criteria, and that this bias has material impact on society.

Given that it certainly appears that there is a great deal of ’skewing’ in the community, on top of the pervasive errors in the logic of conclusions.

Given that academic departments are not materially meritocratic, but political – and radically so.

Given that we produce large bodies of research that are faulty and repeatedly proven faulty whenever they aspire to affect the political debate, in order to make it easier to obtain grants.

Given that academia does not separate teachers from researchers, and that students see their best teachers evicted from universities, for what appears to be political interests of intrenched parties, and all of us who are educated walk around with this knowledge and experience.

It becomes somewhat hard to understand why the public should believe in the myth of scientific ethics.

Scientists pursue self interest, just like the rest of us. But there are no checks on that self interest when the testing criteria for that self interest is obscured by all the behaviors above. The rest of us are tested by the market.

And it appears that the market is a much better test.

Scientisim has replaced theology as a means of influencing policy. But I’m not entirely sure it’s all that much better than arguing about angels on the head of a pin. It certainly seems we should be at least as skeptical of our scientists as we were of our theocrats.

And perhaps more so.

Adam Ozimek

Curt,

The scientific community is a market; a market of ideas. You should not put more stock in individual scientists or “public intellectuals” than in scientific consensus and the market of ideas in which consensus if forged and challenged. The market for ideas is as competitive, self-interested, and as meritocratic as most other free markets- all of which share problems like you cite above.

@Adam

“The market for ideas is as competitive, self-interested, and as meritocratic as most other free markets- all of which share problems like you cite above.”

That *cannot* be true.

The market has no claim to truth, nor is it a weapon of political coercion. It is ultimately and entirely pragmatic, and the means by which we fill each other’s wants by the pursuit of self interest, at the lowest cost, despite the fact that all people seek to game, or circumvent that market whenever possible.

Markets exist, and always have. The state has generally, created sufficient stability so that markets can evolve in a fashion in which only the government molests them. And the government molestation is determined as good or bad only by how it redistributes the profits of its molestation: to itself or to the public. A public who must also fail to molest itself by interfering with trade or property, as well as refrain from molestation of the state.

But, the moment that ideas are used to influence government policy, they make claims to truth. Our concept of truth is as a method of coercion.

In the context of this discussion, which was the public TRUST in the scientific community, trust must imply truth not pragmatism. Otherwise the conversation is meaningless.

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Flashlights, Power Grids, Institutions of Calculation, Pride and Human Frailty

The difference between the schools of quantitative and behavioral of economics consists largely in which errors they choose to accept in furthering the utility of their craft.

Each of these schools masters a set of conceptual levers with which they seek to solve problems. Or more realistically, the people in the school learn levers, and define their schools by the limits of those levers. They explore their field with levers. They do not necessarily even understand, or agree upon the problem they are solving with those levers. Often, they redefine the problem by the levers at their disposal – a form of unintentional circular reasoning that is rarely evident except in retrospect.

A lever is something that they can use to run a test. Testing is the sensory tool of science. But more clearly, methods and their tests are extensions of human perception. Think of them as an insects antennae. They sense whatever they are designed to sense. But it is up to humans to synthesize that new sensory data into a cogent whole. The problem occurs when our specialists become so enamored of their sensors that they bias their perception of the whole, as something designed to be explored by the sensors at their disposal.

Like any school of thought, the limits of that school are determined by the methodological scope of it’s levers, what effects they ignore, or what priorities the school’s practitioners give to which effects either considered or ignored. Most often, practitioners become enthralled with the levers they best understand. These ignored effects, and preferred levers, constitute errors. THey must be errors, if they eliminate or ignore information — information that may be either influential to the test, or influential to secondary causes.

My favorite response by economists is “… but we don’t consider that economics, so we dont consider this a problem for us to solve.” When in fact, economics is simply the school of measurement of the social sciences, when we choose to make material improvements in life — due to the increasing division of labor and resulting decrease in prices – our method of determining political policy. Economists then ignore the secondary causes of their research: they seek to justify a tool, rather than follow a chain of causation.

In the quantitative (abstract) and experiential (experiential and logical) schools of economics, participants either err on the side of understanding human behavior in favor of models that support levers of government intervention, or they err on the side of understanding that there are consequences to policy in the absence of knowledge about secondary causes. The difference in priority between the quantitative and the behavioral, is simply the priority that each gives to it’s methods. They seek to solve the problem from different ends of the human spectrum.

For example, the behaviorists did not understand the stickiness of prices and contracts over time, nor the importance of having sufficient money in the system, nor the problem with their concept of freedom, its relation to property, property to calculation and incentive, or the epistemology that property permits humans to employ.

The quantiatives did not understand number of very important things, primarily the nature of entrepreneurship, the limits of the DSEM (dynamic stochastic equilibrium model) the nature of what numbers can represent as categories given that factors of production, and even all objects in human experience, have different utility at different times. Nor did they understand how important habitual knowledge, (traditions and habits) are in society, and how quiclky humans forget them when they are not of daily use due to social programs or credit money, inflation, or taxation.

Nor did any of them understand that the problem we faced was the nature and dependence of society on human calculation itself, and that accounting practices, government by and laws, as well as the democratic system of government, are effectively laundering useful causality from the pricing system, as well as distorting it through the use of excess credit money.

This axis of differences between abstract quantitative and experiential logical is intersected by those people that err on the side of institutional conservatism as a protection against fashion or err on the side of institutional change as a means of altering society by way of its institutions of cooperation and conflict resolution. However, both ends of teh spectrum ignore either the opportunity for change in preference for risk against institutions, or ignore the impact on institutions in favor of experimental change.

And these differences are not minor or meaningless. It is the difference in the philosophy of giving people tools by which to better themselves and others, by fulfilling wants, and rewarding those who do so, and the opposite camp, which desires to change the status of humans at the discretion of the political managers who can achieve the power to pull the levers of their choice, and create class conflict over the spoils of productivity gain.

The debate rages. However, it appears, at least after cautious study of the history of ideas, that experiments that extend our institutions of calculation are those that are material investments in humanity. And those that are more fashionable, are minor adjustments to class, power, and material randomness as we fitfully pursue life.

Our problem is not economics. It’s calculation. Our political system is destroying our ability to calculate – because it’s members do not understand the underlying problem of human calculation, nor the need to modify government to facilitate it.

That change, that one change, is the single most important modification we need to make to our institutions.

Redistribution becomes calculable under that model. Class warfare becomes unnecessary. And to support Durkhiem, it prevents the state from suppressing freedom and individuality, because it no longer needs to, nor does it need to be a costly behemoth sitting on top of our society, nor can it, because it’s worth would be measurable.

That is the methodology that we need: measurement of causality.

Prediction is simply a silly chimera to compensate for the lack of information because we launder causality from our political efforts, and to justify the pulling of levers of government through taxes and laws because we lack that measurement and the information it contains.

And if my argument appears to favor both sides, yielding confusion rather than clarity, it is because we must continue to compensate for the practical reality of human frailty and foible, while creating institutions that allow us our political expression as a vent for our frustrations, while building a set of institutions that make our society increasingly calculable, comparable, forecastable, perceivable, and thusly one of cooperation in a division of knowledge and labor.

But we must not, ever, think that politics is more than a vent for the resolution of conflict between groups. Our society is it’s institutions of calculation. Our fitful political rhetoric an amusement and distraction that rails against our lack of control over them, while at the same time our prosperity entirely dependent upon them.

And we must constantly monitor our schools of thought, as well as our own fantasies, so that we are not so enthralled in our pride, that we forget that we are inventing our future, not discovering it, and that each of these methods, schools of though, political systems, is a flashlight in the dark, and our institutions of calculation the power grid that keeps them lit.

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Simplicity Is a Relative Measure, Not A Test Of Truth

A left-leaning blog-squatter on Economist’s View repeatedly makes requests for simplistic reasoning, thereby making his level of understanding, that by which all rhetoric should be judged: a measure which is obviously arbitrary.

All expressions are increasingly abstract evolutions of directly experiential concepts, and perceived simplicity in communication is a function of the commonality of experiences shared by the participants. (Hence the still misunderstood nature of evolution as undirected.)

Insight just is the opposite – the communication of unseen patterns – or insight would not be a scarcity and therefore of value, or notice. Quantitatively measured categories require presupposed invariance in the category definition (the variables), while the qualitative nature of human choice, the content of human memory from experience which determines the interpretation of ‘facts’, both serve to undermine such analysis. Our native method of calculation is to use effort, property (objects of utility) and time. Numbers simple help us fine tune our perception and measurement.

Next, history and it’s data are correlative assumptions without an underlying theory of causality described by human action. Historical correlation of events is simply an updated variation of the will-of-god. Facts are not facts unless they have a theory and correlation is not a theory. Mathematics is not causal, only narratives are causal. Narratives are only causal if they are expressed as a chain of human actions which are testable by the application of behavioral norms and comprehensible incentives. So correlative political statements attributing policy to resulting economic factors are not necessarily causal, especially given the time delay. Furthermore, external factors that are more influential than policy must be included or eliminated lest we attribute cause to symptom.

For example, the much repeated error on this board attributing 90’s success to Clintonian policies rather than the lack of those policies interfering in the speculative growth technology, and the fall of the soviet model, and the rise of the chinese model. Politicians have few short term levers. And they are largely punitive (tax and law) or positive (credit) but they have many long term levers Unfortunately our system encourages them to act for the short term, and so does the ideology of class warfare under the rubric of ‘equality’, given the material differences in human capacity for production in a post-agrarian world.

So if this is a forum for political advocacy of a position independent of such understandings, then that’s one thing, but as I understand it, it’s a forum for the discussion of economics, which, as a young and not well understood science, is of material consequence, since economic productivity has replaced religion and moral conformity as the means of compelling one group or another to the bidding of the others by the application of the violence of government through physical, tax, or credit (tax) means.

In other words, many people are make assumptions in order to support a confirmation bias, and rely upon a requested simplicity where none exists, and if it does exist, it does so by requiring that events, and causes, be perceptible to the individual, when the entire reason we have economies and institutions and habits and quantitative tools is to extend that perception, which is naturally limited to property and perceived utility.

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From The Private Sector: We Don’t Need Stimulus We Need Credit

1) From the private sector: We don’t need stimulus we need credit. Banks simply wont lend. While the process of correcting bank balance sheets is underway, that same process must occur in small and medium sized business before any turnaround can occur. In my largest company’s case, our banks have been failing gradually, and we have been cost cutting, not because of decline in profitability, but because of decline in borrowing capacity, and an inability to find new banks willing to lend. About 20% of the work force was affected. In the other company I own, we are experiencing similar problems.

2) We need an area of growth that creates opportunity, and we need it in an area where we can CREATE DEMAND by innovating (taking risks by trial and error). Demand is not simply naturally derived from abstract confidence, it is created by investment, risk, promotion, advertising, and sales. People consume according to stimuli and status attainment. But they have to be aware of opportunities for stimuli and status attainment. And we must constantly develop new products to inspire them to work, risk, borrow and spend. The government is not stimulating anything that will help us CREATE demand. For example, building power plants, or a new power grid, which reduce costs and allow us to compete by discounted power cost rather than discounted labor cost. It is creating further expenditure requiring infrastructure. This is of course, a temporary fix, that is a long term drain on the economy. Instead, stimulate the creation of opportunities. Or at least, understand that there are a minimum of three classes 1) banking and finance, 2) entrepreneurs, engineers and scientists, and 3) clerks, laborers and craftspeople, and that stimulus generally helps the first and the last, but the middle is where the job creation comes from. And fundamentally, the entrepreneur cannot borrow today. Entrepreneurs, while often called capitalists are rarely possessed of a lot of capital. They are possessed of the ability to unite capital, knowledge and resources (including labor) in pursuit of opportunity for mutual gain.

3) Fixing the problem of an incalculable economy (loss of consumer confidence because of decrease in anticipated opportunities, and therefore disincentive to risk money and credit) is repaired most easily by having the government fund banks to buy back depreciation in home prices, and refinance those new homes, preserving the equity of the homeowner. THis would return to government (the treasury) the accountability for their actions in flooding the economy with unproductive credit, and the resulting distortionary prices.. This one policy enactment (which a number of us tried to promote in the spring of 08) would have the most efficient and quickest effect on changing consumer confidence because it can occur fast enough that the stickiness of wages and prices can correct. Countering uncertainty requires acting on debt reduction (home balance sheets) faster than the contracts (wages and prices) can be renegotiated in the private sector, which is a collection of promises and agreements and habits between individuals.

Of course, the old argument is this: everyone wants to use stimulus to build roads because they require unskilled labor, and therefore have an immediate effect on the least flexible people in the economy. But these roads have to be maintained perpetually, and high cost, and generally are not. When, planes on the other hand cause the opposite reaction.

Then the question becomes, not just one of redistribution, or debt, but urgency, and motivating all of the productive classes of finance, entrepreneurship and labor, to work together. Not focusing on just one or another, but all three. This is one of the other failures of the bias that comes from overemphasis of monetary policy: forgetting that we have to move all three classes of people in order to stimulate the economy.

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Response To Economists View: One Way To Look At The Bush Years

RE: “One way to look at the Bush years is that job growth was lousy so the Fed (and the government policies) subsidized construction jobs by creating a housing bubble. That jobs program abruptly ended. It is now time for a new jobs program. For the longer run, it is time for a different labor policy that will create many more jobs.”

It’s not just a way to look at it, it’s what happened. They wanted to create this ownership society as a means of countering the growth of urbanized socialism, and the diminishment of freedom, and competitive prosperity. This is the most important dimension of the multi-dimensional philosophy that they have been following. (We tend to classify them as having a simplistic philosophy but it is not so. It is not useful to underestimate the thought of your competitors.) The rest of it is essentially a universalist christian concept for the material benefit of mankind, (going back to Alexander) that promotes democracy as a means of exporting control over world resources in order to keep prices low, and maintain military and political power.

The problem is for their philosophy, that in the end, society has become urbanized, and large and dense. And the epistemology of urbanites is very different from the epistemology of farmers. There is more similarity between the evolutionary tendencies of urbanites and slavery economies, than the evolutionary tendencies of farmers, for precisely these epistemological reasons. THis difference has been understood for a long time, and written about extensively. However, our current status of behavioral economics has not reached a sufficient state of maturity to connect this set of tendencies, with density of population, and availability of opportunity cost at the expense of perceptibility of causality. Furthermore, our calculative institutions (accounting and taxation) as they are currently practiced, effectively launder causality from our information systems, and require us to rely on the farmer vs urbanite dichotomy as a religious or political difference, or ‘taste’, or even as a strategy of class warfare,versus relying upon factual information that allows us to analyze our behavior and make judgments about it.

Fortunately we know how to fix these issues, so that the epistemological clarity of farming (visibly of cause and effect) is available to the urbanite.

Unfortunately, we have a form of government that distracts us from solving this problem by individual profiteering on the resolution of conflicts between groups and classes.

Our biological sensitivity to fairness, which compels us to work hard, and endure costs, in order to punish those who steal from us, or treat us unfairly, seeks to commit violence, control, or punishment between groups in order to feel fairness has been satisfied.

However, this masks the underlying problem as one of solving the underlying problem as one of extending human senses, perception, and comparitive and calculative ability such that we can make decisions for collective benefit.

There is an argument that such accountability, which would come from epistemological clarity, would still be avoided by the peasantry, because of necessity we much manage consumption through the pricing system. However, redistribution can mollify discontent as it has in much of europe, assuming that there is anything to redistribute, because the population provides competitive value in contrast to other competing groups.

I have a more benign view, which is that if a sufficient number of people can understand that this is a problem of providing information, on the scale that was provided by double entry accounting, and the inventory process facilitating taxation, and the standardization of currency, a small number of simple policies can be enacted that will provide us with the information we need, and therefore will allow us to cooperate, profit, and redistribute without the necessity of relying upon democratic negotiation for the purposes of resolving disputes between classes.

Capitalism is with us forever as a set of institutions, precisely because humans cannot, in real time, process complexity of information without those institutions. Redistribution is likewise with us forever, since there is a difference between the necessity of incentive and the necessity of calculative power, and the preference for fairness. Likewise, social and economic classes are with us forever, because people requires status differences in order to pursue the mating ritual, and will create them faster than such differences will be redistributed, just as they will create black markets to circumvent anti-capitalist activity.

But capitalism and socialism as biases, are only necessary as biases, because we cannot calculate, measure, and compare, the complexity of society in which we live.

It may seem simplistic that society can be better managed by implementing changes in accounting, taxes, banking, credit, and the scope of lawmaking, but our society is changing BECAUSE of changes in these things. Instead, these institutions are what made our complex society possible, and our social systems, because they require decision and legislation rather than simply relying on evolution of business practices, simply evolves much more slowly. If we simply correct this problem, we can get away from class warfare, and into cooperating between classes for mutual gain.

In other words, we are trying to build a science of economics on testing assumptions because we lack data needed to actually understand causality. We will have a much easier time if we have the data, and we have the technology, in both accounting and record keeping, to maintain causality in our data.

Truth=Causality

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Comparing Medical, Technical, Educational, and Political Testing Methodologies

There was a great deal of research and discourse on technology in medicine when computing systems began to enter the operating room in the 1990’s. In particular, in the use of anesthesia. The most commonly discussed example was a difference in turning knobs, in which one machine turned right to increase and another turned left to increase, and in confusion the patient was killed. This and other events caused a systemic review of medical equipment and the development of standards. THe emphasis in the medical community however, was just as directed at training it’s staff as it was at the hardware. This has not been the case in IT, largely because costs of risk are more easily assumed, and costs of failure are perceived as more tolerable. However, this tolerance is due in large part to a lack of visibility by executive management, to the breadth and impact of those risks, partly because of a lack of understanding of business risk measure by IT management, and in many businesses a failure of IT and Accounting and Finance to share sufficient information for IT to do so.

The medical and engineering fields attempt to solve the problem of risk and recovery differently. They do so because of biases. Those biases evolved from the methodology and traditions of the culture of the profession. There is a tendency to think that IT has fully commoditized and therefore can be regulated as is plumbing and electricity, but IT is far closer to medicine in it’s complexity than are the more mechanical traditions. And this confusion, or error in philosophy is common within many different specializations or social groups. From technical specialties to the philosophical biases of entire civilizations.

The medical field, especially in surgery and hospital care, includes infinite risk (people die, and there is a high liability cost) and consists of actions are taken by people using tools. This set of properties has made their industry focus on the human element: on improving people, and in particular, on the assumption of failure, therefore improving people.

In medical devices, there is an extraordinary emphasis (due to research papers) on producing tools with very consistent user interfaces that are extremely simple and consistent (such as dials turning the same direction producing similar results) and an emphasis on protocol (scripts that are followed), and lastly on training people to use these tools in order to reduce failure.

But every process is seen as a human problem of discipline and training. Not of engineering at lower cost, or productivity — but as risk reduction. Production costs are far lower than the costs of failure.

This is true for the military as well, where vast numbers of people must work in extraordinarily deadly conditions, under extreme duress and exhaustion, using complex and dangerous tools. Soldiers are taught very simple behaviors, one of which is to speak entirely in facts, rather than interpretations – one of the primary purposes of western basic training. To teach soldiers to separate opinion from recitation of observation.

Similarly, when it was found that different hierarchical social structures around the world prohibited airline crews from communicating effectively and was causing deadly crashes, these crews were taught english and declarative mannerisms by training specifically to overcome these cultural biases and lack of clarity in communication –which is why english is the language of transportation. English contains a spoken protocol of clarity which english speakers do not understand, just assume, and that clarity originated in the western military tradition of enfranchising all citizens in a militia.

Epistemology. This is a word meaning, in practice, ‘the study of how we know what we know’. Every field has an assumed epistemology. Teaching, Soldiers, Politicians, Engineers, Plumbers, and even psychologists, have a means of understanding causality, and a means of testing themselves. Because each field is limited and includes different kinds of risk and failure, people use different testing criteria for planning and choosing their actions.

Teachers for example over rely on written tests rather than question and answer, and therefore test most often for short term memory rather than understanding. This has consequences for all societies, but largely for our political system which relied on rhetorical ability.

Protestant churches in the colonial period were effectively debating forums for local social solutions — something that is required of a democratic system.

Furthermore, another consequence of teaching methods, that attempts to reduce costs, is that of literally destroying boys minds (physical damage to the brain development) by making them sit for hours a day. (Or by the use of drugs to cause similar brain damage.) This destroys society in doing so, because while girls learn to cooperate through compromise, men learn to cooperate through displays of competition and experimentation with dominance, and if prevented from doing so they will not develop a interest in the real world, fail to take responsibility and have little interest in society. All because of the epistemology of teachers, in an effort to perform ‘efficiently’. (And as fathers they will play world of Warcraft, not because they want to but because during their development they were forcibly harmed by these teachers.)

Doctors do not make these kinds of errors. Because the cause and effect of their actions are visible. The cause and effect of political policy, in particular, monetary policy, is likewise opaque, and politicians seek to keep it so.

Fire regulations are fascinating, and building codes in particular, because of how few office building fires we have. The cost of construction is heavily influenced by these codes, and has dramatically risen, and both regulations and costs continue to expand despite the fact that they appear no longer to reduce risk. Conversely, firemen still drill and practice on a regular basis which is good, but we still allow tall buildings to be constructed despite the fact that it is dangerous to put many people in a building of more than six stories, that it creates congestion, and in general, research is conclusive, that people don’t like working in them, and that they are unhealthy environments, and heat dissipators and energy consumers.

Effective military organizations run drills. Lots of them. The US in particular runs them constantly. Some NATO countries (Hungary) by contrast only allow their soldiers to shoot one to three bullets in all their basic training in order to reduce costs. But in practice, these organizations are symbolic in nature and are incapable of fighting. Partly because fighting in adverse conditions is largely dependent upon the relationships between soldiers built through shared experiences.

People are not that smart IN time, but fairly smart OVER time. We can solve problems given time. The only way to reduce the time, which is equivalent to cost, of recovery from failure is to pre-compute, or pre-train people to recover from failure, and in particular in the process of discovering how to recover from failure.

If IT management applied the same discipline, they would, once a quarter, create a scenario where three or more elements of their systems failed within a short period, and the staff had to recover from it. This is the approach most military tacticians take to educating their people.

There is too often an emphasis on the efficient achievement of goals, rather than on giving people goals and inserting ‘lessons’, or hurdles and obstacles for them to overcome.

In IT engineering, risk is rarely stated, because it is rarely visible, despite the catastrophic cost to business. Errors are considered to be functions of the machinery, rather than of the people using and maintaining it. People are considered a cost to be minimized so that more work can be put through them.

If a system cannot be assembled and disassembled and tested at every point in the process, then the people cannot understand how to recover it under duress. This mastery by intentional reconstruction is how Formula One racing teams think of the process of engineering. They constantly drill, because of the value of time in racing.

IT is this value of time, and its lost productivity cost, that is hidden by IT. furthermore, IT does not report on the problems it solved and the cost of those problems sufficiently to keep management informed and educated on risks.

THe converse happens as well, which is that IT is a resistance to change, because the impact of that change is something they don’t understand, because they have spend too little time in drills.

Some companies are constantly fighting this battle. Citicorp for example, was a cluster of different banks under one management system and brand name, but not under one infrastructure (I hope I have the bank right here, I am pulling from memory). This meant that in the financial crisis, it was less able to react, because they kept costs down by keeping risk high, by not developing a common infrastructure, both technologically and organizationally.

Doctors have extraordinary peer reviews post success and post failure. They spread knowledge by discourse and question and answer. (Part of this is the skill of medical students in analytical thinking and rhetoric versus that of the IT population.) However, the concept of improving people thorough discourse is consistent in their approach.

Each patient is a new experiment, having the potential for failure or success and the consequential new learning that comes from either.

Retail shops use secret shoppers to test for shoplifting and customer service. The military uses maneuvers, and even uses it’s own members to test it’s own security. IT rarely conducts planned failures. To see how the staff reacts and to educated them. IT does perform upgrades. And for this reason, upgrades and system maintenance are one of the most important means of keeping the staff trained, because they fulfill as similar function to drills and teach the value of redundancy.

These assumptions, this epistemology, is different for every little field of specialization. But what happens in each field is that they in turn confuse the methods, practices, tools, means of testing, and general operating philosophy then become assumptions about the nature of the real world, and assumptions about human nature, and even human capability, and in particular human plasticity and adaptability, as well as human learning and understanding. WHen in fact, we must first understand the human animal as the maker and maintainer of complex systems, and that the human animal has very specific properties, none of which are terribly impressive without extraordinary role playing, testing and training in real world (versus written or spoken) conditions, where, they must cooperate toward complex ends, in real time, under conditions of duress.

For example, human civilizations are different largely because social orders were initially established by their warriors and their battle tactics. It may seem odd that the east, west, steppe, desert, and mystical civilizations all are caused (Armstrong, Keegan) . It is uncommon that even westerners understand that western battle tactics in europe were heavily based on maneuver (chariots) the required cooperation. Cooperation required political enfranchisement, political enfranchisement led to equality, equality led to debate, debate led to logic, logic led to science and rationalism. This is different from both the tribal raiders, the mystical zoroastrian as well as the chinese familial and hierarchical traditions. An interesting problem for intellectual historians has been why Confucius could not solve the problem of politics and directed the civilization to familial structures instead. Or that the primary difference between east and west is the assumption that our job is to leave the world better than we entered it, that the purpose of man is to transform the word for his utility, that man is the ultimate work of nature, versus the eastern view that our job is to work in harmony with the world, (non-disruption), that humans are somewhat vile by nature, that man is necessarily in class structures, and that truth is less important than the avoidance of conflict (except when it involves barbarians). These differences led to our different concepts of life itself.

In IT there is a cultural assumption that the engineers job is to prevent failure, or, to work with the systems without causing additional complexity that increases the probability of failure, or to repair from failure. However, few organizations are structured such that there are drills, and processes by which to recover from failure for the entire purpose of educating the human element in the system.

This cultural legacy is largely due to the perceived (although not factual) high cost of IT implementations, largely as a remnant of the fact that during IT’s development, a great deal of research and development, in pursuit of competitive advantage, was conducted in-house, with the resulting failure of research and development programs. In fact, IT infrastructure costs were significantly lower than many previous innovative technologies adapted by business. (In particular, electricity as a replacement for steam or water power.) And by comparison, the calculative burden an uncompetitiveness placed upon companies by antiquated accountancy methods, or government taxation programs, or building codes, are often higher than IT costs. In Europe for example (as well as in California) businesses for small networks, rather than more efficiently combine into larger organizations with lower administrative costs, just to avoid these external expenses.

So, this is not only an IT problem, but an executive management problem: the CEO cannot authorize budget for risk mitigation, (nor cover himself by doing so) if the IT management does not understand and quantify the risk, or it’s probability.

( If Executive management does not promote better methods once presented with the information, then the popular revolt is the only real solution (go work somewhere more worthy of your talents that doesn’t reduce it’s cost of doing business by counting on the fact that you’ll live under greater unnecessary stress, and possibly lose sleep and health, or even risk your job, because you were not allowed to engage in preventative activities. Conversely, if you dont provide them with that knowledge, in form and quality at least equal to those provided by sales and accounting organizations then they are not to blame for your inability to do so. They have an epistemology too: which is that they are told many things by many people, and must be able to test these bits of gossip and opinion somehow and only numbers can provide that ability.)

IT management has long been criticized for wanting a seat at the table, but not warranting a seat at that table. (Nick Carr) But in general, these people may understand the craft, but often fail to understand the metrics and management of capital in a business, In other words, executives are included for their ability to postulate theories and deliver results. Customer service internally and externally, Risk (Failure Management), Productivity Contribution by the improvement of competitiveness, and Cost OF SErvices, are all criteria by which IT organizations should be measured. From the “ultimate question” for customer service, to cost of service, all of these are measurable. But you cannot judge that service if the management does not adequately measure it, and report on it, so that the executive management of the organization is capable of understanding and making decisions that support IT’s mission.

Think of how much information the Accounting (history) and Finance (future) organization gives to the CEO. THink about how much the Sales organization gives to the CEO. THink of how LITTLE marketing organizations tend to give by comparison, and think of how much less than marketing, the IT organization gives.

The respect and influence that a function of the company has over the distribution of resources in the company has largely to do with the metrics that it provides the management team. And how much exposure to risk the IT organization inserts into the business by failing to see the management of complex systems as one of engineering rather than one of human development and the testing of humans for failure, and the measurement of humans in their ability to recover from failure.

Just as public intellectuals try to change public opinion to influence policy, by the use of narrative and argument, as well as data and it’s interpretation, because they need to help people think differently who have previous intellectual assumptions and biases dependent upon the methods and tools that they use in daily life and then apply outside of that domain of experience, IT management, and to some degree, the staff, must look at the underlying assumptions both in IT and in general business management and develop the discipline internally to experiment with failure, in order to teach the human component of complex systems, how to react in short time periods, while at the same time, using metrics and measures to inform the policy makers in executive management, so that they can intelligently and rationally make decisions about the allocation of resources for the purpose of creating profit (a measure of our use of the world’s resources), and the reduction of risk, so that all members of the organization, who are choosing to invest in this stream of income and friendships and knowledge at this organization, instead of an alternative stream of income, friendships and knowledge at another organization, can reduce the risk and cost to themselves in the event of failure of those estimates of risk.

It’s all economics after all.