[Guest post] Uncertainty

I think the pragmatic rationalism that built America is fading. A symptom of this immanent dark age is that people today, in general, don't understand science and math very well. Carl Sagan has suggested that the last scientifically literate president may have been Thomas Jefferson. It's arguable that the growing political "controversy" involving scientific questions does not stem from substantive disagreement between a few experts, but from the general ignorance of millions with respect to the ways of science and nature.

Of all the scientific and mathematical disciplines, those that deal with uncertainty are the hardest for people to understand. Here's a test. Which of these hypotheses is more likely: A) I'm a liberal or I voted for Obama? B) I'm a liberal and I voted for Obama? If you think it's B, as many of you probably did, my point is proved. A conjunction (and) is always less likely than disjunction (or).

As more evidence for the assertion that, statistically speaking, we are a country of statistical idiots, I offer the Powerball and Mega Millions lotteries in 43 states. Effectively, these lotteries are a tax on people's ignorance, or at least their general inability to appreciate the statistical theory of expected value. Maybe people think that with luck, the rules of chance may be "just a scientific theory". Here in PA, last year our state lottery took in $3B, paying out 60 cents on each dollar wagered. Wow! My old bookie Vinnie used to pay $8 on a penny number before the staties locked him up.

Anyway, people seem to have absolutely no fear of giving their money away to the government in lotteries, or to private casinos (where allowed by law). People love to take a chance.

Yet GOP leader John Boehner, among others, endlessly flog the talking point that uncertainty has businesses "sitting on their hands". Scary, scary uncertainty; it scared away the magic job creation unicorn. Small businesses are frightened the government may change some rules. Better to not invest at all. Safer to play the lottery. It may rain today so we'd better cancel the barbecue. People hate to take a chance.

If such fear is real, it's not in any sane entrepreneur, it's being conjured in the electorate. Furthermore, I say it's caused by the same thing that causes most fear: ignorance. People fear what they don't understand and understanding of probability is as rare as filling an inside straight. Aside from the irony when conservative pundits reference arcane, academic scientific theories in support of the assertion that businesses are hamstrung by uncertainty, I think such smoke and mirrors plays to people's general scientific and probabilistic ignorance to leverage fear of the unknown for political ends.

Starting a business always has and always will require an act of faith in the face of withering uncertainty. Every entrepreneur makes a sort of Pascal's Wager, betting there will be a near infinite payoff a long way down the road, making the finite suffering along the way worthwhile. In this theme, how about a Bible quote highlighting an ancient truth

When times are darkest, and most uncertain, these are the best times to invest. Buy on rumor, sell on news.

Conservatives complain when people blame the government for their problems, and now they say it's regulatory uncertainty causing our slow recovery. Analysis paralysis? What about weak demand, John Boehner? Are not weak demand for product and rising production efficiency far more significant reasons businesses are reluctant to invest?

I guess the concepts of product demand and production costs only dominate the concerns of most small businesses that make real products or offer real services with intrinsic economic value. These corny ideas don't apply in the same way to big corporate rent seekers with Washington lobbiests on retainer. I can see how regulatory uncertainty would stifle investment in a business model based on altering regulations to help capture cash without the messy necessity of making anything.

Posted at 14:58 by Nadz   [/guest/nadz]   Comments | Perm Link |
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