How Little We Know

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"How
little we know
How
much to discover
What
chemical forces flow
From
lover to lover"

Can you hear
Sinatra's voice? Then tell me, what's the rest of the lyric? Can't
remember? Join (most) of the rest of us. Those of you who know the
whole lyric, tell me exactly what you'll be doing 2 hours from now.
These are hard questions. Maybe for this web site and non-Sinatra
fans a political question is fairer. What man is seventh in line
to become President should the first six in line die?

I know so very
little. How much thought does it take to understand that truth?
Almost none. I could ask myself a few questions like the above that
I can't answer. I could visit a library. I could wonder how a baby
grows, or why it thunders but doesn't rain.

How little
I know about myself as well. I do not know why I write these articles.
A number of possible reasons have spun through my head, but I have
no idea which ones explain my choice. Socrates advised us to "know
thyself." That suggests that he thought that we didn't know
ourselves but that it would make a good investment if we did.

Still less
do I know about other people. How many people do you really know
well? I mean, you know what they want and why, how badly they want
it, how they would act in different situations, and so on. That's
practically impossible.

The fact is
that we have limited knowledge when we make choices. We constantly
make decisions while living in the dark world of uncertainty. Marriage,
job, children, the future, health, death, satisfaction, happiness – we never know what's going to happen to us or what will please
us or make us happy or sad.

Why are we
ignorant of so much? Half the story is that knowledge is costly
to obtain and use. We use time and other resources to find out something.
Meanwhile we could have been doing something else, and that counts
as a cost too. Information about the future is very costly. Most
of the time, we cannot know the future at any price.

The other half
of the story is that knowledge is valuable. If I can use a piece
of knowledge or think I might use it in the future, then I may want
to gather it in. Actually, we often invest time in the expectation
of gaining knowledge without knowing at the outset whether we will
or won't. If you, dear reader, are still with me, then you are anticipating
that in the rest of this piece, you will gain more than the cost
of reading it, a few minutes of your time.

I'll spell
out 5 gains from learning. I'm reading some books on policing right
now. I am hoping to learn enough to be able to say something intelligent
about private policing. That was first. Then, I counted on a certain
amount of serendipity. Experience has taught me that. Third, there
is some inherent pleasure in learning. Fourth, it's good for the
health of me and my brain. Fifth, learning creates options that
I can exercise in the future. Knowledge widens my available range
of opportunities, now and in the future. This could be the most
important aspect of all. It has to do with profiting in the future
in unanticipated ways by learning something now.

Curiosity is
one of those fine and natural human characteristics that, within
normal bounds, works in our favor. I'm in favor of encouraging it,
not killing it. It leads to learning, serendipity and widening of
opportunities.

I have written
that I make
many mistakes
and that everyone does. We cannot help it. The
main reason for it is that we make decisions under uncertainty.
And the reason for that is that it is too costly to get the knowledge
to dispel the uncertainty completely.

Each of us
selects what we want to know and what we want to ignore. Much of
the selection is done without thought. I believe that this is because
thought is costly too, and it often does not pay us to think about
things. Habits and other rules are cheaper methods sometimes. I
believe that economic principles of choice apply to our internal
brain processes.

My model for
man includes a component that says that each of us learns what we
think rewards us individually, net of the costs of learning. The
rewards can take many forms – satisfaction, pride of accomplishment,
happiness, love, friendship, money, pleasures, power, etc.

The costs of
knowledge suggest to me that I can never know myself fully, and
still less can I know you. Practically speaking, this model of man
and knowledge suggests to me that, although I can advise you, put
out my ideas, warn you, help and counsel you, what I cannot do is
effectively make your decisions for you. I simply do not know enough.
You are responsible for that, in my view.

In addition,
if you handle your own affairs, then you will garner all the benefits
and pay all the costs of your choices. That will surely keep you
on your toes. If things work out badly for you or me as we go our
ways, since life is by no means easy for anyone and hard for very
many, then we may have to accept the help of others. And if things
work out well, extending help to others is another one of those
fine human characteristics that will never die.

In sum, our
individual decisions relate to our own particular knowledge and
our own opportunities, to our own wants, and to our own resources,
among other things. When we act, our choice depends on our theories
of what works, what might bring us rewards and how big they might
be, what the costs might be now and in the future. Uncertainty dominates
the future, but knowledge is one method of removing some of it.

Social Security

According to
my model of man, it is wrong, for example, for me to force you to
save money. How you handle your financial affairs is one of the
most central aspects of your life, right up there with your religious
views, whom you may choose as a spouse, and your line of work. How
can I possibly meddle in this without taking away a very important
part of your life, one that involves relationships of young and
old, work and leisure, husband and wife? How can I take away your
future options without making you worse off? I can't.

There is only
one even remotely plausible way, and that is if I take away $20
from you and give you back $40. But this way is wrong because of
the principle of my action, which involves coercion and establishes
the idea that theft is right under some circumstances. Even more
wrong, if I can logically say that, is if I give you back $40 and
you understand that I have taken $20 of it from a passing stranger.

Consider the
passage of the Social Security Act of 1935. What model for man did
this presume? What ethics? Francis
Townsend
played a role. It is said that he proposed a pension
plan based on forced savings after seeing three old ladies rummaging
in garbage cans for food. He also presented a petition to Congress
with a reported 10 million signatures. One source says 20 million.

Townsend proposed
a $200 a month payment to every retired person over 60. That's something
like $2,900 a month in today's dollars. It was to be financed by
a 2% tax on business transactions. No wonder he got millions of
signatures. This was a very large free lunch to be paid for by someone
else. This led to the Social Security Act of 1935, which passed
the House by a 372-33 vote (27 not voting) and 77-6 (12 not voting)
in the Senate.

This sorry
episode in American history displays how self-interested behavior
works to society's detriment when it is harnessed to the political
machinery rather than the free market. A great many people were
quite willing to accept a healthy and unearned bounty stolen from
others. Their self-interest overruled any ethical considerations.
Nearly all the politicians were quite willing to accept the political
benefits of passing the legislation. President Roosevelt pressured
the Supreme Court with the threat of packing the Court. It then
caved on the issue. The self-interests of all these leaders trumped
any consideration of their oaths of office, liberty, the Constitution,
or ethics.

The idea that
they did not know enough to tamper with the lives of millions or
the lives of millions to come and that their actions were for this
reason alone wrong, as well as ethically wrong, was overruled by
the attraction of personal gain. Those who actually believed that
this legislation was for the good of the people or the country were
simply wrong in their belief. These legislators had absolutely nothing
to give to pensioners but what they stole from other taxpayers.
How can such a theft be good? What lesson does it teach except that
thievery is allowable and praiseworthy, that it is the noble work
of statesmen?

Conclusion

If you are
ever even remotely tempted to support the coercive acts of the State,
just remember that the legislators do not know enough to live your
life for you. They simply do not have enough knowledge and cannot
possibly have it. If they hold hearings from now to Doomsday, they
won't know enough. Hearings are charades, packed with witnesses
whose testimony plays a pre-arranged role in the play staged for
public consumption. If someone does say something that discomforts
the script, you can be sure it will be ignored or twisted into conformity.
If a politician makes a speech about the public benefits of legislation,
you can be assured that this is hogwash and worse, designed to assuage
the gullible. Lying comes as natural to a politician as warts to
a toad. Our rulers know enough only to seek their own gains by using
the political system.

Now then, the
Attorney General Alberto R. Gonzales is seventh in line to succeed
the President.

And How Little
We Know continues

"How
little we understand – what touches off that tingle
That sudden explosion – when two tingles intermingle
Who cares to define
What chemistry this is
Who cares with your lips on mine
How ignorant bliss is
So long as you kiss me – (and) the world around us shatters
How little it matters – how little we know
(how little we know, how little we know,…)

July
16, 2005

Michael
S. Rozeff [send him mail]
is the Louis M. Jacobs Professor of Finance at University at Buffalo.

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