Domain Dependence

You can now pre-order my next book – a Kindle ebook titled A World Class Transportation System – which will be released on October 7. However, if you are a member of Strong Towns, we will send it to you for free (details to follow). In short, it is a great time to become a member. You must join by October 1 to get that deal, so don’t delay. And for those of you wondering what is going on with the backlog of stuff I’ve written, there is an update now on my personal site.

Whenever I talk about America’s reckless monetary policy, I’m inevitably told to stop. Stick to planning, Chuck is one of the nicer responses. You’re an idiot is another common one. Here’s another from Facebook last Friday:

I love all the planning and development stuff yall put out but the economics stuff is not at the same level.

Ouch. And that from someone whose Facebook page indicates he studied economics at TX State and the London School of Economics.

This phenomenon is called domain dependence. Domain dependence is the phenomenon that prompts people to adopt a different approach or worldview depending on the domain.

For example, cities are complex adaptive systems. When I point that out, there is general agreement. When I take the next step and explain how the natural inclination of planners to try and control these systems – to calculate growth rates, predict absorption rates, zone property based on their projections for market demand, etc… -- is folly, that it actually demonstrates their severe lack of understanding, readers here cheer. We need more humility in the face of this complexity, an understanding that would prompt us to think and act more incrementally.

When I say that traffic is a complex adaptive system, again, the feedback here is a general consensus. When engineers try to project traffic and model how real people will respond to their schemes, they are demonstrating their severe lack of understanding of complexity. I point that out and you applaud. Engineers need more humility in the face of complexity. They need to understand the limits of their knowledge and adopt a more modest, more incremental, mindset.

When we switch domains to the economy – the ultimate complex, adaptive system – the consensus vanishes. All of a sudden, our ability to project in the face of overwhelming complexity is considered sound, despite the horrific track record. Our confidence amid massive intervention away from anything resembling a market economy is supreme. There is no need for modest, no need for humility. We got this one under control, Chuck, and you sound like an idiot when you question it. (By the way, let’s not talk about 2008 – that was someone else’s mistake.)

A large reason for this switch is that, unlike cities or traffic, economics is deeply intertwined with our national politics. Or more precisely, with the rhetoric of our national politics (since both parties have overwhelmingly embraced our current monetary policy, relegating real criticism of the Federal Reserve to the likes of Rand Paul and Elizabeth Warren). The undisciplined mind can apply a humble logic to complex adaptive systems in one domain and then, when overwhelmed by their political sentiment, find themselves ungrounded in another.

The same thinking applies to other complex, adaptive systems such as the human body and climate change. If you haven’t noticed, I’ve avoided talking about the latter for five years now because, if your (politics-inspired) reaction on the economy is consistently like this, you’re going to go berserk when I explain either our (a) complete inability to predict climate change with any degree of confidence or (b) what a humble approach looks like in the face of that. If you’d like some insight on that line of thinking, read this from Nassim Taleb.

So let me make one observation of the obvious: If you loaned someone money today, you would expect them to pay you more than 0% interest. (And to all you economists who want to argue now that a bank deposit – which is paying essentially no interest – is actually a loan to the bank, get out of your silo. Read some sociology. Normal people put money in banks because it is safer than having it under their mattress. They are trying to protect their savings, not loan the bank money. It is fear, not greed or even prudence, that is driving them.)

So if the market rate for money is greater than 0%, then the Federal Reserve keeping the overnight rate at 0% while also pumping money into the economy to artificially lower mortgage rates and treasuries is a distortion of the market for money. This is the base measure of account for all transactions conducted in dollars. Switching domains, it is akin to pumping carbon into the atmosphere. Both the economy and the climate are complex, adaptive systems and, in both cases, we do not know how the infinite number of complex variables involved will collide, feedback and evolve in response to our action.

Even scarier, with a complex, adaptive system, the same input in similar circumstances at a different time could yield wildly different results. Just because you were right once – or a thousand times – doesn’t mean you will be right the next time. And when you consider what we’re betting here on being right, well….you should be scared too.

What drives me insane about most economists is the lack of humility, the supreme confidence in their own ability to understand what they are doing. It is the same thing that drives me crazy about engineers, planners, economic development advisors and the whole range of professions that profess to use simple equations to explain infinite complexity. They don’t know what they think they know.

This is sometimes painfully obvious in hindsight.

When Janet Yellen says she expects the economy to grow at such and such a percent, her utterances change the course of the economy and essentially negate any data she was using to make that prediction.

And the risk of the economist is asymmetrical. If they guess right, they’ll be applauded and maybe boost their earnings slightly. If they’re wrong, we in society will lose big time, but they will get paid just the same. They can try their theories out on us – the same way planners did with urban renewal and engineers did with forgiving design – and we are forced to live with the results.

I reject this whole cloth. Not only do I reject it, I find it immoral. I think history will someday look back at this entire period of time -- the “American Century” through to whenever the next economic order is established – as the age of hubris, a time where unprecedented affluence allowed society’s leaders to develop an Icarus complex, an unfounded belief in their own capacities, sowing the seeds of their own demise.

So, Chuck, what do we do differently? That’s a fair question. I don’t have the capacity to answer it when it comes to the economy. I’m trying to answer that question for the complex, adaptive systems that are American cities, but even that is a work in progress. My sense is that there are parallels – we need to get more local, think more incrementally and be more respectful of wisdom that was gained over time by trial and error – but I can’t say with great confidence.

Here’s what I’m asking of you, Strong Towns advocates: drop your domain dependency. Be equally skeptical and questioning of economists as you are of engineers, of transit systems are you are of highways, of new drugs as you are genetically modified foods.

Skepticism is not distrust. Skepticism is an acknowledgement that there are things we can’t possibly know. That might sound scary at first, but there is a ton of power in that acknowledgement. Live it and you’ll start asking an entirely different set of questions, and have an entirely different set of insights, about the world you live in.