Arnold Kling  

Two Links

Wisdom Worth Repeating... Money--Designed or Emergent?...

Both feature Tyler Cowen.

Here (or perhaps you should start here), he talks about stories. It is classic Tyler, playing cat and mouse games with your head. Basically, he is saying that stories have an advantage in that they serve as a filter for viewing the world, making them very economical in terms of memory and understanding. However, they have a disadvantage in that they serve as a filter for viewing the world, which means that they filter out information that might help us see reality with fewer biases. But watch it yourself. It's funny and insightful, and well worth your time.

On a completely different note, also worth your time is Steven Randy Waldman's account of a meeting between bloggers and Treasury officials.

Tyler is a master at synthesizing diverse strands. At a certain point, he took control of the meeting, and teased out what was common to our often conflicting comments -- skepticism that unsustainable aspects of the financial system that preceded the crisis were actually being changed, a sense that problems were being papered over or accommodated rather than solved.

I was not invited to the meeting. Although I would have enjoyed it, my sense is that I would have added little or no value at the margin. My sense is that the meeting served to underline the differences between insiders and outsiders. The bloggers represent outsiders who, regardless of ideology, are skeptical of the ability of regulators to supervise large institutions.

Our view is best expressed by Baseline Scenario's Simon Johnson and James Kwak, who apparently were not at the meeting in person although were likely represented in spirit. That is, regardless of the intentions of regulators, when financial institutions are large, they become politically powerful. It is a variation on the cliche that if you owe the bank one dollar, the bank controls you, but if you owe the bank a million dollars, you control the bank. Small institutions can be controlled by regulators. With large institutions, the control shifts in the other direction.

Naturally, the officials in the regulatory community are less likely to see things that way. They are more likely to overestimate both their own ability to regulate large financial institutions and the value that those institutions provide to the economy.

Having said that, it could be there are people within Treasury who are quite sympathetic to the outsider point of view. They might have been trying to get that point of view more "air time" within Treasury. Or they might have been trying to bestow some credibility on that point of view by making it known that they were willing to sit down with bloggers.

Steven, who was there, takes a less charitable view, as you can tell from his must-read report. But my guess would be that somebody at Treasury genuinely sympathizes with the outsider point of view and is trying to bring it more into play.

COMMENTS (7 to date)
Greg Ransom writes:

You can call anything a "story".

One more Tyler Cowen card trick ...

Greg Ransom writes:

It also makes a difference that the "regulators" are all part of the same Wall Street back-slap group -- and they've all got hundreds of millions of their personal dollars on the line with the firms they are "regulating".

It also make a difference that Wall Street has their Congressional and White House bosses in their back pocket ...

Lee Kelly writes:

I am always underwhelmed by Cowen. Perhaps I have spent too much time thinking about these matters already -- it doesn't seem novel or interesting.

Greg Ransom writes:

There are some very good books on metaphor by philosophers that cover the ground Cowen explicates in terms of "story". Anyone could learn alot from these books.

R. Richard Schweitzer writes:

In all this, the issue not faced seems to be:

What are "Regulators?"

What are their functions (intended & by extension)?

Shall we return to Chief Judge E. Barret Prettyman's classification under Administrative Law (Barbour Lectures, U.Va. Law);

"The job of the Administrator is to adminster the law."

Instead, are we asking adminstrators to make judgments as to the propriety or quality of the actions and judgments of others?

What is really being sought from what is being proposed?

John Papola writes:

Smells like Taleb’s “narrative fallacy”. I can’t wait to check it out...

Larry writes:

Stories are filters, but they also work as compression algorithms, i.e., as an abstraction or model. By using story forms to remember events, we avoid having to independently remember elements that are common to other instances of similar stories. Instead, we incrementally remember the features that distinguish one instance of a story from others, summarizing the repeated features by a reference to one or more stories.

Why are there only 7 story forms? Because they are the ones that suit our brain organization, and that provide reasonable approximations to the common range of experience. As our world changes, and we change accordingly, we may correspondingly need new story forms to be able to handle the novelty

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