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Mind and culture – Vygotsky’s view May 30, 2009

Posted by thedukeofurl in Culture, Mind, Psychology.
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Vygotsky1934

Culture and mind are closely related, more closely than most of us realize. And the situation has not much altered since Vygotsky’s time – he died in 1934. My summary of Vygotsky’s views are based on his Mind in Society: The Development of Higher Psychological Processes (1978). The mediation that Vygotsky had in mind was not that of either S-R or S-R-S stimulus-response theory so beloved by the behaviorists, but one involving symbolic activity on the part of the person, in particular on sign use. For him, higher complex psychological processes were not reducible to atomistic simple reflexes, as this could not take account of the integrative character of the higher processes. On neural integration, see Goldberg, The Executive Brain (2001).

For the behaviorists, the mediating functions of the brain were considered to be as simple as possible. For Vygotsky, more structure and associated functionality had to be built into our conception of the brain’s activity. Moreover, it was necessary to add brain functioning to descriptions of psychological processes, necessarily at complex levels but also at simple levels when activity other than simple reflexes were involved.

In Vygotsky’s opinion, what was required was a more integrated approach to the analysis of psychological processes that could explain both simple reflexes and the complex higher processes by means of the same framework that did violence to neither. An explanation of complex processes in terms of combinations of simpler processes did justice to neither and was misleading about both. In particular, what needed to be shown was how culture was associated with the higher psychological processes that involved the symbolic activity which was absent in the simpler processes. The reductionist explanations of his time and of ours were, and still are, unable to do this.

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Deepak Moorjani, Deutsche Bank, & the NYT May 28, 2009

Posted by thedukeofurl in Economics.
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On 10 May 2009, Zero Hedge published a story about an employee of Deutsche Bank Japan, Deepak Moorjani, who had been trying to get the bank to reform its risk practices and management. In a letter sent to the New York Times and published in their Dealbook section on 16 April 2009, Moorjani sets out his case against Deutsche Bank’s risk culture. Zero Hedge tired to link to the letter but found a 404 error instead – the Times had removed the piece, presumably on advice of legal counsel after being contacted by Deutsche Bank or its lawyers.  Moorjani was involved in litigation with a unit of Deutsche Bank at the time and, presumably, still is. Fortunately, you can find the letter in its entirety here: http://www.scribd.com/doc/14757881/Another-View-Deutsche-Banks-Culture-of-Risk. This document is a damning indictment of Deutsche Bank’s practices.

The removal of this entry by the New York Times is not quite the same action as that taken by the Daily Telegraph in regard to their Patterson report. In the case of the Telegraph, no legal case was being brought by any of the parties involved, although the Telegraph might have had concerns that one might suddenly materialize. It is unfortunate that Zero Hedge did not obtain any legal opinion concerning whether the Times may have had to remove the Dealbook entry for legal reasons.

Moorjani is a rather courageous individual and Deutsche Bank have acted like bullies, employing legal means to attempt to silence him. Fortunately, new Japanese labor law* protects Moorjani from arbitrary dismissal, which is what such dismissal would have amounted to in his case, although DB would no doubt differ with me on this.

* For a summary of Japanese labor protection, see http://www.scribd.com/doc/13453568/DLA-Piper-Legal-Background (provided by Moorjani at Scribd).

Update: There have been reports that Deutsche Bank has been engaged in “naked short selling”, a dubious activity at best, which the SEC has only recently, and reluctantly, decided to address – http://www.deepcapture.com/deutsche-bank-sold-massive-amounts-of-phantom-stock/.  DB have also been accused of fraud – http://www.dbankfraudinfocenter.com/information.php, and the list of bank fraud news sites is uncomfortably long.

Daily Telegraph news story suppressed May 27, 2009

Posted by thedukeofurl in Economics.
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Naked Capitalism, Zero Hedge, and The Analytic are all engaged in trying to discover the truth of a report by Evans-Pritchard that appeared in the Daily Telegraph and which was suddenly removed from the paper’s web site following a complaint.  According to the report, Mark Patterson, chairman of MatlinPatterson Global Advisors, a private equity firm and recipient of initial TARP funding, said in a meeting in Qatar that the Geithner bailout was a sham and that the banks were insolvent.

You can find the report here – http://zerohedge.blogspot.com/2009/05/mark-patterson-its-sham-banks-are.html .

A number of disturbing inferences arise from this case.  One is that web content is inherently fragile and can disappear overnight. Were the paper deposited in a library, some record of it will have been kept (as has luckily happened electronically in this case, but you can’t count on it). An argument for a publically accessible digital archive available into the indefinite future as “hard copy” in principle is?

Another is that a media organization, presumably after consultation with its lawyers, removed a news report simply upon receipt of a complaint, which may never be recoverable from the original source.  There does not appear to be anything to stop the newspaper from digitally shredding the report thereby having it “go missing”.

Should Mr Patterson’s comments be viewed as a matter of private concern although made in a public arena? If what the paper initially published was factually incorrect, as MatlinPatterson claim, then surely the paper should have left the story as is, as it has had to do with the hard copy version, and issued a public apology to Mr Patterson in a subsequent issue of the paper. This would seem to be the most appropriate way of dealing with such conflicts.

The thing is, if Patterson did say what he is reported as saying, he is right.  “Geithner’s put” is rubbish.

It will be interesting to see whether Naked Capitalism, http://www.nakedcapitalism.com/ , The Analytic, http://theanalytic.com/ , and Zero Hedge, http://zerohedge.blogspot.com/ , will be able to get to the bottom of this affair.

Clive Thompson, journalist & blogger May 27, 2009

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If you haven’t encountered Clive Thompson before, you have a treat in store. He is principally a science, technology, and culture journalist for NY Magazine, Wired and other publications. His blogs can be found on my blogroll, but an interview from a little over a year ago can be watched via reportr.net: http://reportr.net/2008/02/19/video-clive-thompson-on-blogging/.  He has a number of interesting things to say about blogging and how it might aid in stimulating the creativity and organization of your thoughts.

Check him out if what he does and says seems of interest to you.

This is Thompson on Facebook & Twitter – http://www.nytimes.com/2008/09/07/magazine/07awareness-t.html?_r=3&pagewanted=all.  However, I do not completely agree with his conclusion that the person you see most clearly is yourself.  I would characterize the situation rather this way: that the person you see most clearly is the person you have prepared others, including yourself, to see.

You might actually, as a consequence of incessant preparation, see yourself less clearly than before.  In a certain sense, you are programming yourself and others.  We do this throughout life, but this is highly intense and possibly more continuous.  Unless you take deliberate steps, you may have nowhere to hide, except perhaps from yourself.

Erving Goffman, the role theorist for whom social interaction was like theater, and Charles H. Cooley, devisor of the concept of the looking-glass self, might easily have seen Facebook and Twitter functioning simultaneously as a looking-glass by means of which you continually adjust your presentation and as the theater in which you are almost constantly “on show”.

The Velocity of Money, a thriller May 27, 2009

Posted by thedukeofurl in Economics.
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“Velocity of money” is a term referring to the number of financial transactions in a given moment of time.  For a stock exchange, the time might be measured in minutes, but for the average consumer, it might be a day or a week. The more financial transactions there are per unit of time, the greater the velocity.

However, the title of this post refers only incidentally to financial transactions. It is the title of a thriller by Stephen Rhodes (aka Keith Styrcula) published in 1997. The plot concerns a conspiracy to bring about a crash of the financial markets using a computerized trading program based on the derivatives market, and begins, as thrillers do, with a body dropping out of a window of a skyscraper onto and into the roof of a NY cab, in this case the body of a banker.

What might come to the reader’s mind is an image of the suicides that took place in 1929, the time of the stock market Crash, sometimes referred to as the Great Contraction to distinguish it from the Great Depression. This, of course, is no suicide, but murder.  And the life of our hero, a securities lawyer at a Wall Street firm, is naturally eventually in danger, and his wife is newly pregnant.

The relevance of the novel for our purposes, however, is not its aspects as a thriller, but its prescience in suggesting that the ongoing 1990s bubble could burst, something denied by many at the time, though there was a bit more than a hiccup in this period.  Rhodes worked for an off-shore financial firm and influences for the thesis of collapse are some of the usual suspects, such as John Kenneth Galbraith and Hyman Minsky, but also Alan Greenspan, C. P. Kindleberger (an expert on the Depression), and the computer hacking magazine, Phrack (a recent article is Hacking your Brain: Artificial Consciousness).

The stock market crashed dramatically in October 1929, not as a consequence of some shadowy conspiracy, but through independently converging causal chains, though the precise character of this causal network and it’s role in the disaster is still a matter of hot dispute. Is a conspiracy to bring down an entire financial system plausible, even if it were possible?

It is difficult to see how it would work. Small-scale conspiracies carried out on individual currencies and sets of institutions have taken place historically.  The primary problem of a conspiracy on this scale would seem to be the difficulty of getting everyone, who normally are in competition with one another, to cooperate to bring down a system from which they are gaining enormous benefits. It is difficult to see how any of these individual players could see such an action as being in either their personal or collective interests.

I was happy to suspend disbelief for the enjoyment of the read and, although Rhodes makes the events seem somehow plausible, I thought then and I think now that such a conspiracy is unlikely. Neither the Great Crash of 1929 nor the Credit Crunch of 2007-08 were the consequences of conspiracies to bring the events about, but rather the inevitable consequences of the way business was being carried out in what had become the normal way every day.  While it might be more satisfying to blame a few conspirators for the “interesting” times we are currently living in, it seems that greed, ego, ambition, collusion, incompetence, and even more than a little fraud, according to some accounts (and not just by the Bernie Madoffs), are the primary engines of our current catastrophe.

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For an extensive list of such novels, arranged by genre and then by author, see http://projects.exeter.ac.uk/RDavies/bankfiction/bigbang.html by Roy Davies. You may be surprised, as I was, to discover that one of the great expositors of poltical economy, John Kenneth Galbraith, wrote two novels.

Sal Khan of Khan Academy May 26, 2009

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I recently came across a variant of the good bank-bad bank proposals that have been made recently over the past few months by Salman Khan and David Leinweber that they published online on 11 November 2008 – “New American Bank Initiative” – http://cift.haas.berkeley.edu/docs/nabi/nabi-Nov11.pdf.  You can also watch Khan explain this plan to a CNN reporter on video using his own educational ‘tool’ – (http://www.youtube.com/watch?v=_ZAlj2gu0eM). In both the paper and in the CNN interview, Khan gives credit for this particular version of the good bank-bad bank solution of the crisis to a univeristy friend, Todd Plutsky.

Khan has set up a youtube affiliated educational web site devoted to explaining visually and in terms that are easily understood concepts in mathematics, physics, finance and banking, and the current credit crisis – http://khanacademy.org.  In Bailout 14: Possible Solution, Khan shows the viewer the letter he received from Plutsky. He is a brilliant expositor of ideas most people find difficult, and he does it in such a way that you will wish you had come across him before. His explanation of his friend, Plutsky’s, solution to the financial crisis is a model of clarity.

If this is such a good idea, why isn’t it being implemented? You may well ask.  The answer is simple.  The bankers don’t like it (although Citigroup has expressed an interest). And they don’t like it for a very good reason from their point of view.

The toxic assets they possess will be eliminated by being passed onto the ‘bad bank’, which will then be allowed to fail, which means that they will receive no remuneration for these toxic assets for which they overpaid.  It also means that the extent of the toxicity due to their poor management of other people’s money will be publically revealed for the scandal it is.

The toxic waste created by these institutions is estimated by some to be over a quadrillion dollars, which is more money than the world has. It can never be paid off, only written off.  Bankers would rather that no one became aware of this for a certainty, if they even know themselves, and some politicians agree with them, especially those who have “palled around” with bankers in the recent past.

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Other more technical discussion of the good bank-bad bank solution are: 1) Reorganizing the Banks by Bulow & Klemperer – http://www.voxeu.org/index.php?q=node/3320 ; 2) Willem Buiter’s How to Set Up a New ‘Good Bank’ – http://blogs.ft.com/maverecon/2009/02/how-to-set-up-a-new-good-bank/ which has links to other discussions of this, including his own development; 3) Buiter’s good bank-bad bank illustration – http://blogs.ft.com/maverecon/2009/03/dont-touch-the-unsecured-creditors-clobber-the-tax-payer-instead ; 4) The Right Way to Create a Good Bank and a Bad Bank by Hall and Woodward – http://www.voxeu.org/index.php?q=node/3132.

Why no one is agreeing with Brown’s additional ‘plan’ March 26, 2009

Posted by thedukeofurl in Economics.
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Brown’s desire to pump more money into the banking sector is either being received unenthusiastically or rejected. There will be a number of reasons for individual responses. But one will be that it will be folly to put any additional funds into a set of institutions that are insolvent, can be shown to be insolvent, and whose directors (who have mostly not been replaced) brought their banks to ruin. It would be not unlike shipping your money to a black hole from which it will never return nor could any return be generated.

In 2007, Fitch Ratings sat down with a sample of 45 loan documents and discovered that fraud was involved in the majority of these loans. Some of them were tagged as questionable but the loans were granted nevertheless. Some of these were structured investment vehicles, many of which were devised to avoid regulation or to commit outright fraud.

What Fitch found is only the tip of the iceberg. The derivatives market debt, which is predominantly responsible for the current financial crisis, not subprime loans though they were the trigger for the collapse, in estimated to be massively in excess of world GDP. And this was in 2007, before the collapse.

The gross world product (GWP) for 2008 is estimated to be $70.65tn (purchasing power parity) or $78.36tn (official exchange rate) (CIA World Factbook). The derivatives debt is estimated by some to be as high as $1.5 quadrillion. This is obviously much greater than the world GDP. There is obviously no way that this can be paid down. It must in some way be written off.

Krugman has objected to Geithner’s plan, which he contends is nothing more than the Paulson plan redesigned. And to show how serious the current situation is, he has calculated a significant comparison of 1930 with now (from his blog, The Conscience of a Liberal).

“the change in industrial production, measured in logs, from the previous peak in 1929-30 and 2007-9.

[I am not allowed to post an image here so I will just have to provide you with the URL. Apologies. http://krugman.blogs.nytimes.com/.]

At first, the current recession didn’t hit industrial production all that hard. But the pace accelerated dramatically last fall, so that at this point we’re sort of experiencing half a Great Depression. That’s pretty bad.”

James K. Galbraith, in a piece in the Washington Monthly issue for March-April 2009 and in interviews, has suggested ways of dealing with what are irreparably insolvent banks, as has Willem Buiter, in his Mavercon blog for the Financial Times. Both advocate at the very least a radical restructuring of the banking system. *

It is clear that neither Brown’s not Geithner’s plans will work. Galbraith contends that this may well be because Geithner and his colleagues are trapped in old ways of thinking – this may leave them unable to think themselves out of the real box in which they find themselves. If they are trapped in old ways of thinking, then they have to be let go and others found who can think “outside the box”.

The Governor of the Bank of England recently made a public statement that no more money was available for fiscal stimulation. This statement is not quite as pellucid as it might appear to be. There certainly is no more money to plough into insolvent banks. But it may be possible to do a Roosevelt and provide money for projects that will generate tax revenue which will fund further projects utilizing a kind of multiplier effect. For this to work, it must me the major part of any financial package, not a subsidiary part. So far, it hasn’t been.

The rejection of Brown’s stimulus package by others can not be taken at face value. It is not enough to know that they reject it; one must also know why they reject it. Only then can one know how they are viewing the recession and how they view dealing with it. This is important because this recession, being global in scope, requires a coordinated global response. On that, Brown is undoubtedly right. This is because the banking institutions and hedge funds that created this problem in the first place are global institutions whose effects, including their indebtedness, are global in reach.

* Donald Moggridge argues that something akin to the Marshall Plan was needed to get the US out of the Great Depression – what Roosevelt did was good but not enough. (Donald E. Moggridge, “Policy in the Crises of 1920 and 1929”. In Financial Crises: Theory, History and Policy, C. P. Kindleberger and J. P. Laffargue, eds. (1982))

Rosalind Franklin & DNA March 24, 2009

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On Ada Lovelace Day, we should remember a remarkable woman scientist, Rosalind Franklin, who was instrumental in the discovery of the double helix structure of DNA. Without her X-Ray diffraction photograph #51 that she sent to Watson and Crick at Watson’s request, they may well have never achieved the insight they did in the time they did. After all, Linus Pauling was hot on their heels.

Sadly, she did not receive the recognition she deserved in this respect during her lifetime. Had she been alive when the Nobel Prize was awarded for the discovery of the structure of DNA, she would have undoubtedly shared it with Watson, Crick, and Wilkins.

Problem analysis vs. Problem solutions January 26, 2009

Posted by thedukeofurl in Economics, logic.
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Unfortunately, there is no necessary logical connection between the analysis of a problem and its solution. The two are essentially independent. So, someone could analyze a problem correctly but provide incorrect proposals for solving said problem. In accepting Roubini’s assessment of the problem, we do not need to accept his ideas on how it can be solved or what he thinks might be poor solutions, as his philosophical/theoretical stance will largely determine what he believes to be viable.

This is a problem with a lot of discussions in economics. Lots of assumptions not made either explicit enough or at all. Others introduce ideas that they think are new but have actually been around for years. For example, Soros’s introduction of the notion of reflexivity (a kind of feedback loop in economic behavior) has been a known problem in philosophy and parts of social science for over 50 years. Yet most economists fail to acknowledge this except for Soros and a few others. Neoclassical economists like Stigler and Friedman ignored it completely and possibly weren’t even aware of the issue. Keynes was aware of this problem though he didn’t discuss it in these terms.

Since a solution of a serious economic problem invariably involves a political (policy) dimension, economists aren’t very good at incorporating socio-political policy considerations into their analyses, hence their solutions should be inspected closely.

Skidelsky on Ferguson on money January 26, 2009

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Robert Skidelsky, who has produced a renowned biography of Keynes, has recently reviewed Niall Ferguson’s book and TV program on the ascent of money. He thinks the book superb. While rightly critical of Ferguson, he is too “nice” to him. He doesn’t drive the dagger in far enough.

http://www.skidelskyr.com/site/article/book-review-can-you-spare-a-dime/

Skidelsky rightly rejects Ferguson’s adherence to neoclassical economic principles and his quasi-social Darwinism along with his views on behavioral finance. Ferguson’s views on behavioral finance are not as sophisticated as those of one of the founders of this perspective, Robert Shiller, but Skidelsky considers behavioral finance to be a dead end. He may be right, though this is an exceedingly problematic area.

Skidelsky is right to insist that there is a distinction between the notion of “uncertainty” and that of “risk”. But there is another essential distinction to make and that is between these and “ignorance”. Uncertainty and ignorance are not identical and in ignorance lies an inability to assess risk at all. Just as with uncertainty, we need to distinguish between personal ignorance and what could be called “real” ignorance, that of which we are all truly ignorant. For example, there were many trading in complex derivatives who were ignorant of what they were dealing with and hence unable to assess the risks inherent in these instruments, but it would have been possible for some of them to have informed themselves and thus acquired some ability to assess the degree of risk involved in dealing with these financial instruments. On the other hand, we are truly ignorant of what the future may bring and the further away the future is, the greater our ignorance and the greater our inability to inform ourselves. Both sorts of ignorance are involved in the current financial crisis, in addition to various degrees of uncertainty and risk.

Skidelsky is right to pour scorn on the Black-Scholes calculation of the degree of risk of investment, set at some millions of years. The number is so large that it is almost inconceivable that anyone actually believed it. It might, however, have led some to believe that the probability of a bad slump was near zero in the short term. Even this suggests an unacceptable degree of ignorance, credulity, or stupidity on the part of those charged with managing other people’s money. Social systems have never been that stable or regular. And it is absurd to believe otherwise.

Skidelsky is also right to be skeptical of any intrusion of social Darwinism into the realms of society and culture. Nevertheless, at the end of the 19th and the beginning of the 20th century, Darwin’s theory of natural selection was applied rather crassly to counter social movements such as trade union agitation, welfare for the indigent, health care for the poor, and the like. So crude was this application that it discredited itself. It rose again in the form of social biology, a more subtle but still inadequate theory of human behavior and social organization. It has now insinuated itself into the field of evolutionary psychology and related disciplines and, it seems, into some contemporary interpretations of economic history. You can find forms of this argument in criticisms of Roosevelt’s New Deal, though the perspective is not usually explicitly mentioned – it may even be unconsciously appealed to. Some of these critics have been influenced by monetarist doctrines, as Ferguson has. Whatever the faults of Roosevelt’s New Deal or, indeed, of economic theory, a social Darwinist-based critique, however couched, can not and does not “deliver the goods” (as Keynes once said in a different context). That this perspective is still in play is nothing short of an intellectual scandal.

I take some issue with Skidelsky’s unconditional attribution of Platonism to mathematics. There is an alternative tradition, primarily derived from Kant, that avoids Platonist excesses, that of constructivism. Kant viewed mathematics as a construction of the human mind. We can view it as a cultural construct. This means that mathematical objects are not real in the way that physical objects are, and it means that terms like “discovery” and “invention” become more complicated in their application. Irrespective of this, Skidelsky’s view that mathematical economics has little application to social reality is, I believe, well founded. And the belief that such mathematics can be used to significantly reduce unknown future risk requires at the very least an ahistorical approach to the subject, which Skidelsky himself accuses some monetarists of being.  I am skeptical whether this charge can truthfully be leveled at Stigler, whose sometimes vicious ad hominem attacks on the views of others may have other roots.

There is another reason that I think mathematics plays a role in certain areas of economics, and this is that it is seen by some of its practitioners as akin to a technology, viewed as not being unlike engineering and applied physics.  Except that economics is not a science in that sense if it is one at all.  I would have liked Skidelsky to make more of this and possibly brought in Keynes’ theory of probability, but this is no doubt expecting too much of a review.

I believe I am more optimistic than Skidelsky with respect to Keynes’ view of our economic future, though it is clear that Keynes’ timeline is much too short. We are probably going to go through a Depression-like period, though hopefully unaccompanied by the disastrous policies of that time. Nevertheless, I would like to believe, with Keynes, that sometime in the future people could be relieved of the necessity of scrabbling for an economic livelihood and be able to leisurely cultivate science, art, literature, and life itself. Maybe, just maybe, we can even find a way to live free of fear, at least of each other.

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I have come across an unusual historical account of economic theory, The Wealth of Ideas by Allesandro Roncaglia (CUP 2006), which has been influenced by the ideas of Kuhn and Lakatos, a refreshingly novel approach, I think.  Then there is The Romantic Economist: Imagination in Economics by Richard Bronk (CUP 2009).

http://www.rgemonitor.com/financemarkets-monitor/255257/everything_you_wanted_to_know_about_credit_default_swaps–but_were_never_told
is a defense of credit default swaps.  It is from Roubini’s site.  With Roubini, I am beginning to feel that I have to separate his analyses of the current financial crisis from his proposed solutions, as I am not convinced that what he has said so far is adequate.  But I may well be wrong.