Parts to Wholes: the Socionomic Systems Nexus

Over the weekend we got involved in three major threads of exchanges about the economy, credit collapse, the dangers of inner city collapse, social policy and on and on. There were three constant struggles common to all: 1) figuring out what the facts were, 2) figuring out how to analyze the problems and 3) figuring out why most people seem to willfully ignore those in favor of simple, ideological choices. The latter is the most important because the policy failures that are causing us so much trouble are largely of our own choosing - that is politicians gave us simple solutions to complex problems because that's what we wanted. Interestingly many of my discussants weren't entirely immune from the problem when it gored their own ox. So one of our key challenges is to find a way to explain these things simply enough to be grasped without damaging the accuracy. And the bigger challenge is to do so in a compelling and convincing fashion that causes folks to setp back. We're still looking for the magic beans that make that possible, let alone easy, but in the meantime let's start with at least explaining some of the cases. Just to set the stage though you might find this essay by Paul Graham a worthy introduction to the art of reasoned discourse (How to Disagree)

Getting Started

We're going to start by introducing a series of "small-scale", that is mostly local, policy choices that are good examples of Unintended Consequences (UiC) and some key ways to think about them. Which you can see at right. When people and politicians complain about UiC sometimes it's reasonable because of the complexity. More often, in fact almost all of the time, it's because a simple solution that sounded "right" was adopted but not thought thru. Not because it couldn't have been. And there's actualy a simple way to think about it. Ask the question - "what happens next ?". In other words what are the rippling results from these choices. And usually the way to start answering the question is by asking how do the incentives for the players change - who benefits, who gets hurt and what are the costs and benefits. All driven by the oldest of economic physics - when the price goes up people want less and conversely. For example during the 80 years war with Spain during the Dutch Revolt the City of Antwerp, the commerical capital of northen Europe, was under siege by the Spanish Army but because so much food was being smuggled in they survived very well thank you. Then the city fathers passed a series of price controls that capped what could be charged, the smugglers were no longer compensated for their risks, the city began starving, the Army conquered and sacked the city and it was replaced ever since by Amsterdam. After years of holding out things were comletely reversed in months. Can't happen here you say ? Think again. They failed to work their way across the columns of the table.

Wolves in Yellowstone

Here's one example of of a fairly complex problem where supression of the wolve population led to a rise in the elk population in Yellowstone. When wolves were re-introduced a more natural ecological balance was re-created that led to the restoration of the original ecology. Which was and is much healthier, more stable and robust and more appealing.

Lessons from the Wolf Bringing the top predator back to Yellowstone has triggered a cascade of unanticipated changes in the park's ecosystem. In the dead of winter in 1995 the National Park Service and the U.S. Fish and Wildlife Service brought 14 wolves into Yellowstone by truck and sleigh. Gray wolves (Canis lupus) from Canada, these were the first to call Yellowstone home since the creatures were hunted out of existence there early in the 20th century. A year later 17 more Canadian wolves were added. Biologists hoped that the reintroduction would return the mix of animals to its more natural state. They expected, for instance, that the wolves would cull many of the elk that lived in the park. The wolf introduction has had numerous unexpected effects as well. The animals' impact on the flora and fauna in the park has been profound. Indeed, the breadth of change has been so far-reaching that researchers from around the country have come to study the alterations. The wolf-effect theory holds that wolves kept elk numbers at a level that prevented them from gobbling up every tree or willow that poked its head aboveground. When the wolves were extirpated in the park as a menace, elk numbers soared, and the hordes consumed the vegetation, denuding the Lamar Valley and driving out many other species. Without young trees on the range, beavers, for example, had little or no food, and indeed they had been absent since at least the 1950s. Without beaver dams and the ponds they create, fewer succulents could survive, and these plants are a critical food for grizzly bears when they emerge from hibernation. Although the jury is still deliberating the effects of wolves, early evidence strongly suggests that the canids are unwitting restoration biologists. By simply doing what they do--mainly preying on elk--they are visiting great changes on the Yellowstone ecosystem. Many of the changes are positive for those things humans value, and for experts to accomplish some of these same goals would be hugely expensive. Wolves have brought other lessons with them. They dramatically illustrate the balance that top-of-the-food-chain predators maintain, underscoring what is missing in much of the country where predators have been eliminated. They are a parable for the unintended and unknown effects of how one action surges through an ecosystem.

 Mis-guided Social Policies

Now let's consider several representative social policies that have badly damaged the economies of many major cities in this country and around the world. Always and without fail. The chart considers Rent Control, Corporate Taxes, Minimum Wages, Land Use Controls and Drug Laws. And for each we trace thru several stages of the what next question by examing how the incentives worked themselves out. If you'll look at each you can see, we believe, how none is a surprise. For example imposing rent controls increases demand but decreases upkeep because renters get below market prices while landlords can't get a return. As that keeps working less housing is built and the situation worsens and worsens until the inner city often looses affordable housing all together. Yet where luxury housing is often exempted the market leads to new construction. If you wondered why housing in NYC is expensive, scarce and limited to the high-end there you go. For some of the data and analysis behind this see either/both Basic Economics: A Common Sense Guide to the Economy and/or Applied Economics: Thinking Beyond Stage One by Thomas Sowell.

All Together Now

Worse yet these things work together synergistically. Rent control to create affordable housing does the oppositie, corporate taxes lead companies to quit investing and them move thereby eliminating many middle class jobs, minimum wages increase the demand for higher-skilled labor, make capital using technology more profitable and make it more difficult for under-educated minorities to get on the job ladder and develope skills and experience. And so and so on. When you put them all together you have the working folks driving hundreds of miles for minimum wage jobs as energy and food prices increase and those left in the city become an underclass prone to violence, gang warfare and never-existing opportunities. All because well-intenioned folks tried to do the "right" thing that really suited their own prejudices without examining the consequences.

Take a look at the "synergies" summary and see if our take on how all the pieces work together to get a vicious downspiral of socio-economic decay. All because of good intentions, bad judgement and intellectual laziness. 

The Parable of the Homeless Dog

A story that illustrates that attitude in part for me is a common experience we all have. Meeting a stray dog who wags his tail and after we pat him to make ourselves feel good starts to follow us home. Well we aren't prepared to acquire another responsiblity so we chase him away. The morally correct choice in my book would be to walk on by in the first place rather than raise the dog's hopes and then dash them. Now don't take this as condescending or patronizing - it's not. Or not intended that way in any case (hmm...more UiC ?). What it does is illustrate how doing the emotionally satisfying thing in the moment and walking away is irresponsible and immoral. If you really want to fix the dog's problems you need to find him a way to get fed and housed, preferably on a more permanent basis. 

For some good examples that use real world problems to depict consequences you might see some of the more interesting episodes of NUMB3RS.  Gang war in LA was and is a recurrant theme and we all "know" it and the associated crime levels are endemic. But it wasn't until hearing some of the stats that the extent of the problem came clear(er) to us.

• "The OG": When Don and his team are called to the murder scene of a Los Angeles gang member, they learn the victim is a fellow agent who had been working undercover.
• "Sacrifice":A researcher is murdered in his home, and Charlie must reconstruct data erased from his computer while Don investigates possible suspects.

The last one is a head fake, as Randy Pausch calls it, because it's based around the ability (hypothesized of course) to develop Sabermetrics for socio-economic analysis. We'd change the direction of the story to decide how and where to invest in bad areas not disinvest. And speaking of Pausch - a final note. Have you considered that besides all the other things we said in the prior post (Sunday Morning Reflections: Ramblin Randy's Rules of Life, Living and Love) that over and above everything else he was facing reality as it is. Not as he wants it to be.