Overconfidence and Complexity

"I don't mean to suggest that you're indecisive, Mr Hunter. Not at all. Just...complicated. Of course, that's the way the Navy wants you. Me, they wanted simple."
--Captain Frank Ramsey (Crimson Tide)

Interesting proposition by Peter Atwater: the higher the confidence, the greater the creation of complex systems. Highly confident people and organization embrace innovation and new technology under the belief that there is unlimited opportunity ahead. Things become more interlinked.

Atwater suggests extreme complexity as an indicator of peaks in confidence. Mortgage and derivative markets, healthcare, global sourcing, and even higher ed have been exhibiting this characteristic, he says.

I would add current financial market supply chains that count 'dark pools,' complex market making arrangements, and high frequency trading among their complex features.

Pushing his logic to the extreme in the opposite direction seems to add validity: the lower the confidence, the greater the creation of simple systems.

When confidence is lacking, people like to keep things simple.

R2P

When you hear this sound a-coming
And you hear the drummers drumming
I want you to join together with the band
--The Who

An acronym floating around w.r.t. the Syrian situation is 'R2P.' R2P stands for 'responsibility to protect.' A product of United Nations discussions, R2P posits that countries have a responsibility to protect its citizens against large-scale lethal movements such as war crimes and genocide, and that other countries have a responsibility to help a nation deliver such protection.

In the case of Syria whose citizens have been subject to sizable gas attacks by violent factions inside the country, this is construed by some to mean that the US and other countries are obligated to intervene in Syria's internal conflict by employing military force.

Several problems with R2P doctrine are readily apparent. First and foremost, it intrudes on the sovereignty of nations. Country borders are drawn because of differences. Human tendencies toward sovereign living space reflect natural conditions of self-interest, cooperative exchange, and social diversity. What appears to be unjust violence by outsiders may be viewed as just revolution by inhabitants of the country.

Sovereignty of outside countries is also challenged by R2P. Some countries, such as the United States, have internal processes for legalizing war that supersede collective wishes of other nations. Moreover, it is easy to envision external pressure being applied by the 'international community' to join interventionary action against a nation deemed to need military aid. Conceivably, this leads to the paradoxical situation where country A acts with aggression on country B because B refuses to join in on aggressive actions to 'protect' people in country C.

Determining the type and extent of internal violence that triggers response is another problem with R2P. Is shooting people OK but gasing not? How many people need to be killed before R2P provisions kick in? Do people need to be killed or does there need to merely be a threat of killing before intervention occurs? How big does that threat need to be? How do outsiders looking in even obtain reliable answers to such questions to begin with absent the use of some degree of force?

Finally, R2P situations are likely to be rife with opportunism. Because economizing is a fundamental feature of human action, countries are likely to employ R2P to further their own interests at the expense of others. This might involve using R2P as an excuse to gain favorable access to raw materials (e.g., oil), as a means to install regimes deemed to be friendlier to domestic pursuits, as a way to express certain religious beliefs, or some other motive.

Because government is legalized force, its role must be limited to helping people defend themselves against aggression. It is straightforward to view R2P doctrine as another mechanism for expanding government aggression rather as a tool for limiting government to its legitimate role as a facilitator of self-defense.

UK Votes Thumbs Down

If I go there will be trouble
If I stay it will be double
--The Clash

UK Parliament has voted down military action in Syria. Given the unpopular sentiment here at home, hard to see how putting this war to a Constitutionally valid Congressional vote would not be even more lopsided than the British vote.

This leaves Obama flying solo on any potential assault. Hard to see how he comes out of this whole no matter what he does.

Explain Yourself, Mr President

"You took an oath, if you recall, when you first came to work for me. And I don't mean to the National Security Advisor of the United States. I mean to his boss--and I don't mean the President. You gave your word to his boss. You gave your word to the people of the United States. Your word is who you are."
--Admiral James Greer (Clear and Present Danger)

Some members of Congress appear to be upholding their promises by demanding that President Obama clearly explain his rationale for unilateral Syrian intervention. Boehner's letter includes the following passage:

"It is essential you address on what basis any use of force would be legally justified and how the justification comports with the exclusive authority of Congressional authorization under Article 1 of the Constitution."

Well said, and I might have stopped right there.

I may have added that failure to adequately respond will be grounds for legal action against the Commander in Chief.

"It's Coming. Be Worried. Be Careful."

"I spent the last twelve years of my life building rooms like this specifically to keep out people like us."
--Burnham (Panic Room)

Jim Rogers expects panic when realization hits that money printing is not facilitating prosperity. He thinks that powers to be are desperate for war. As these pages have observed, one lesson of past depressions is that politicians see war as a means for 'solving' protracted economic malaise.

JR expects stocks to go down big and commodities to go up big.

In a different interview, Rogers opines, "We've had perilous times and it's going to get worse...It's coming. Be Worried. Be Careful."

position in SPX, commodities

Sighting In Syria

It's years since you've been there
Now you've disappeared somewhere
Like outer space
You've found a better place
--Everything But The Girl

As various militaries proceed to sight in Syria, domestic stocks head south. Yesterday's ~2% loss puts the SPX near fish-or-cut-bait levels on the uptrend line marked by last year's pre-Thanksgiving lows.

Many of the commodity indexes that I follow have broken out to the upside as is oil trading up with the Middle East heat and even gold getting some mojo on (now comfortably north of $1400).

Meanwhile, Treasuries have rallied but not as much as one might expect given the geopolitical tension. Ten yr yields have yet to break down below resistance into the next lower 'box.'

Interesting set up that should be telling if/when missiles fly in the desert.

Risk and tensions are escalating...be careful out there.

position in SPX, oil, gold

Empty Promises

Second time around
I'm still believing
The words that you said
--Naked Eyes

It goes without saying that this president does not have the Constitutional power to unilaterally authorize military action against Syria. Unfortunately, it has happened so many times in the past by so many other presidents that people must believe that what is going on here is legal.

Congress is complicit by not taking legal action to block the president's orders.

All of these people have taken oaths to uphold and defend the Constitution.

Empty promises once again.

Human Actors and Contracts

"It is my duty to myself and to any man who is working for me that he honor all his contracts. When you came here you found out that we always honor our work, even when it means taking a loss."
--James Duncan MacHardie (From the Terrace)

Social science inquiry necessarily places the behavior of human beings front-and-center. In studies of economic organization, cognition and self-interest are particularly important (Williamson, 2008).

Simon (1957) famously observed that human actors are intendedly rational, but only limitedly so. Because people are boundedly rational, all complex contracts will be limited in their completeness. There will be gaps, omissions, oversights, etc. Fortunately, however, people are also capable of foresight. They have capacity to look ahead, and can therefore craft mechanisms ex ante to deal with disturbances as they arise which facilitate continuity and mutual gain during contract implementation.

Self-interest is also axiomatic of human behavior. In the context of contracts, most people will do as promised and some will do more. However, particularly as conditions change and stakes increase, defection from the spirit of a contract, thereby forcing termination or renegotiation, cannot be ruled out. Once again human capacity for foresight comes in handy. Readiness to defect can be mitigated by introducing safeguards ex ante that deter ex post opportunism.

Problems and features of human behavior therefore make it attractive to take some economic transactions out of the market and to place them either under control of a single hierarchy or under joint control of inter-firm hierarchies by means of contracting.

References

Simon, H. 1957. Models of man. New York: John Wiley & Sons.

Williamson, O.E. 2008. Outsourcing: Transaction cost economics and supply chain management. Journal of Supply Chain Management, 44(2): 5-16.

Restitution

In violent times
You shouldn't have to sell your soul
In black and white
They really, really ought to know
--Tears for Fears

In courts of law, people who have harmed others are sometimes ordered to pay 'restitution' to compensate victims for injury or loss. Restitution (to 'restore') is intended to make someone whole after their property (broadly construed) had been taken from them.

Properly applied, payment of restitution is consistent with property rights. What is unjustly taken from a person should be returned to that person.

However, for restitution to be just, the connection between a person's loss of property and someone else who has taken it must be specific and direct. For example, offspring of a parent who has taken someone else's property cannot be held liable for the parent's bad behavior.

Restitution is less likely to be just when it is lagged by significant periods of time. For example, children of a person who was robbed are unlikely to have legitimate claims for restitution to be paid by the grandchildren on the thief.

Doing otherwise creates a land grab mentality where people seek payouts from others who have done them no wrong.

Discipline

"Your focus needs more focus."
--Mr Han (The Karate Kid)

Today's second reading from Hebrews 12 notes the importance of discipline. Discipline can be viewed as internal focus that does not waver in the face of external 'noise.'

Achieving difficult goals requires discipline, lest we become distracted or give up.

Developing discipline is hard work and might require an individual to deal with considerable pain. Athletes, for example, might endure much physical discomfort in pursuit of disciplined training regimens.

But the pain associated with discipline may not be limited to the physical variety. Chastisement of others, temptation to reduce focus, and emotional letdowns from setbacks create mental anguish that could dwarf physical pain in many instances.

Paul tells us that the pain associated with discipline is worth it, for "later it yields the peaceful fruit of righteousness to those who have been trained by it."

It is easy to associate the lesson of the second reading with the question posed in today's gospel from Luke 13. Someone asks Jesus whether only a few will be saved. Christ replies that the door will be narrow. Make every effort to come in through the door, he advises, because many will try to enter and will be unable to do so.

Through discipline, we can become unwavering in our focus on making it through that door.