Anti-fragile Arnold and Risky Randy

Arnold is anti-fragile. One house, one spouse. Defensive driver. He would rather not be infected with the virus now. He hopes that by the time he is infected there will be a safe and effective treatment.

Randy is a risk-taker. Likes to go 75 mph on his motorcycle. Thinks that people who eat to live have it backwards. He would rather meet friends at a crowded bar than worry about when he gets infected with the virus.

It is possible that Randy’s behavior imposes a cost on Arnold. That is, the more that Randy risks getting infected and infecting others, the more difficult it becomes for Arnold to avoid contact with people getting the virus. Instead of going to the grocery in the afternoon, Arnold feels like he has to order for delivery or else get up early in the morning to shop in the store while Randy and his friends are still hung over.

Is this additional cost enough to justify the government stepping in and closing the bar so that Randy cannot go there? I do not believe so. I think that government should stay out of it, and let Arnold and Randy make their own choices. Back when we were afraid that Randy could cause excess crowding in hospitals, there was a persuasive public-good argument to change his behavior. Now there isn’t.

Brian Doherty tries to steel-man “openers” (who want to end lockdowns) and “closers.”

Closers see and acknowledge the economic damage we are suffering, but see most of that damage already inherent in the unchecked spread of a disease that kills or seriously harms people to a greater extent than any we’ve dealt with in a century. They thus don’t see the economic problems solvable just by “opening up America.”

As an “opener,” I do not think that lifting restrictions will do a lot to help the economy. I have made that point repeatedly. I agree with the “closer” view that most of the damage comes from the virus itself and the understandable individual responses to it.

The “closer” side annoys me when their rhetoric is based on intentions rather than consequences. That is, they try to make it seem as though “openers” want people to get infected and “closers” don’t. But it is likely that the only margin on which lockdowns can make a difference is that they will make more people get infected later rather than sooner. The number of lives that can be saved by doing that is likely to be small, and it may even be negative. Particularly if almost all of the people whose infections get shifted into the future are healthy people who will get mild or asymptomatic cases, and meanwhile we fail to develop and implement an approach that protects nursing homes.

Overall, I am only mildly on the “opener” side. My problem with Lockdown Socialism is the socialism.

By socialism, I mean the money-printing orgy to have the government send feel-good stimulus checks to households while lavishing bailouts on banks and other large corporations, without raising taxes or cutting spending elsewhere. I also mean taking capital allocation out of the private sector and giving it to the Fed. Whatever the intentions of the backers of the “stimulus” or the “quantitive easing” might be, inflationary finance and turning the Fed into Gosplan are the most important consequences. And in this case, I am going to insist on judging the consequences, not just the intentions.

42 thoughts on “Anti-fragile Arnold and Risky Randy

  1. We have lots of unemployed people who can’t make rent. We also have lots of decaying infrastructure. Since the markets are going to take a while to build the infrastructure for new economic production, it might be wise to re-start the WPA and/or the CCC to hold people over.

    In case you haven’t figured it yet, I’m fundamentally a pragmatist. When a new depression hits, my first instinct is to use our toolset from previous depressions.

  2. “Overall, I am only mildly on the ‘opener’ side. My problem with Lockdown Socialism is the socialism.”

    Unfortunately, the lockdown basically guarantees the socialism. It’s like a bundled good…you cannot buy one without the other.

    And, the tighter the lockdown, the more socialism you will get.

  3. A lockdown without socialism is like a hotdog without a bun. They are bundled goods and trying to unbundle them is a fruitless endeavor. Wish I had a more optimistic take on this.

    • Why is it necessary to have a $2 trillion (and counting) bailout coupled with a lockdown?

      • “You go to war with the army you have, not the army you might want or wish to have at a later time.”
        ― Donald Rumsfeld

        Likewise, you fight a pandemic with the bloated government that you have, not some ideal libertarian one that you wish you had.

    • Imagine the following possibilities:

      1. Relief support to desperate people, paid for by tax increases.
      2. The above, but debt sold to private parties, not taxes.
      3. The above, but debt sold to the printing press.
      4. The above, but to everybody, no means test
      5. The above, but also trillions in bailouts to (some) banks and businesses and colleges.
      6. The above, but also the Federal Reserve and Treasury take over almost the entire business of lending to companies.
      7. The above, but without even trying to set market interest rates and winking because we all know tons of those loans will turn into gifts, but we don’t know how or for whom those decisions will be made.

      When Kling is arguing against Lockdown Socialism, he is looking at 7 – which is reality – and justifiably warning of catastrophic consequences.

      And then people come back and say, “But #1 is important! Desperate people!”

      It’s like if you send a kid to the store with a hundred dollar bill and instructions to bring back one apple and all the change, and he comes back with an apple, no change, and $99 worth of candy. “What the heck, Jimmy?” – “But dad, don’t forget the apple!”

      • Again, you can argue all you’d like against the various measures and I will support quite a lot of what you are trying say.

        My point is that your ideal approach was never ever likely to come to fruition with the government and electorate that we have.

        A crisis ensues and our government reacted in the exact manner in which it was setup to react.

        “You go to war with the army you have, not the army you might want or wish to have at a later time.”
        ― Donald Rumsfeld

        Likewise, you fight a pandemic with the bloated government that you have, not some ideal libertarian one that you wish you had.

        • Your point is well taken, but if I may… I think a lot of people see value created in arguing for “what ought to be”, even in the face of a situation where they will not win the argument. To argue for a more restrained and viable level of intervention is not (on this particular blog) to assume some naive take that it will happen.

          Yes, of course, this terrible government is going to make terrible decisions. We can still try to argue for and shape the thinking of smart people and hope at some small level it becomes contagious.

          • Point well taken – thanks for your perspective.

            I guess my beef is that a lot of the people that are (justifiably) concerned about the level of government spending were the exact same people advocating for a strong lockdown. For whatever reason, they failed to connect the dots.

            And, in hindsight anyway, there were probably better, more cost effective alternatives to a strong lockdown.

        • I still don’t understand. Handle presented 7 possibilities. Why does it follow that the “army we have” necessarily implies outcome 7. Why not 5? Why not 3? None are libertarian ideals.

  4. Is the Fed really turned into Gosplan, or is it basically handing out low interest payday loans to keep everything afloat for a while?

    As an economist I think the 2008 outcome was suboptimal, but still much better than other, even worse possible outcomes, and what I took away from that lesson was that my worst-case scenarios of temporary bailouts becoming permanent government run sinkholes more or less didn’t come to fruition. Nor did a complete financial collapse.

    Basically, delaying a market response in a way that rides out a panic and allows for (more) orderly wind down is both different and better than Gosplan. I think that needs to be acknowledged and I also think it’s a fair reading of the intent of the action.

    • I watched the Last Dance this past weekend. The analogy presented to Jordan by the Bulls owner when he wanted to come back from an injury too early was, “If you had a terrible headache and I gave you a bottle of pills, and nine of the pills would cure you and one of the pills would kill you, would you take a pill?”

      Just because the bailouts didn’t become permanent run government sinkholes or because we avoided a complete financial collapse doesn’t mean we’re understanding the risk/reward ratio.

      John Cochrane writes in Bailout redux:

      “But the Fed made money in 2008” you may retort. And it has a half chance of making money again. If the recession wraps up in September and these “loans” get paid back, it will do nicely. If the recession goes on a year and all these “loans” go sour, it will not look so pretty.

      • I hope our host will allow this OT excursion:

        I’m watching The Last Dance too, and I’m actually a huge Bulls and NBA fan, and it’s been great to see behind the curtains. Mostly, it’s reinforced my view Jerry Reinsdorf (the Bulls owner) ultimately didn’t take the advice he gave Jordan and ended up making a whole series of really terrible decisions. The intellectual and economic history behind the life of Jerry Reinsdorf is actually astounding. I could tell a coherent story that Reinsdorf is a paragon of what should be the villain of modern economics. Not the robber baron capitalist that people commonly imagine, but the “Rent-Seeking Baron” whose vast fortune has been made and sustained almost entirely through manipulation of regulatory regimes.

        He started out working for the IRS, figured out that several loopholes, and then went out on his own orchestrating real-estate deals that took advantage of them (most of this sort of rent-seeking culminated with the affirmation of these loopholes in the Supreme Court case Frank Lyon Co vs. US, and were later closed by the Tax Reform Act of 1986). He invested the proceeds of this fortune into ownership of baseball and basketball teams that, in spite of generating billions of dollars in wealth, do a great job out of extracting corporate welfare in various forms out of local governments.

        In short, he’s the poster boy for why I’m a small government libertarian.

        Anyway, back to the subject at hand, the headache vs. death analogy is dependent on the underlying risks. Just like 2008 isn’t necessarily reflective of what will happen in 2020. I would totally concede that.

        All I’m saying is that we are dealing with a massive one-shot game, and 2008 is the only somewhat comparable prior that comes to mind.

        What’s most comparable is that we are faced with an unknowable counterfactual.

        Cochrane is completely right that if all these loan go bad, it won’t look good.

        But there’s no counterfactual there. If we did nothing, there’s a sizeable chance that things would look a lot worse now and a lot worse later. While we can’t know for sure, my belief is a world where we allowed everything to crater would be worse.

        • But there’s no counterfactual there.

          From Arnold’s post Alex Tabarrok on how people learn:

          We have no personal experience of deficits leading to bad outcomes. People like me point out that in theory the government has to stop piling on debt at some point. But if people need to learn that lesson from experience, it will be too late.

    • It’s not Gosplan, it’s Gift-plan.

      These aren’t loans, they’re “””loans”””. There is little expectation of ever getting paid back, or intention or appetite to ever collect.

      The government wants to be able to reserve the right to forgive if things stay sour, and they like your face that day, or to collect if they don’t.

      They just can’t do that through banks. They can’t have the banks absorb more hits, and if they were going to give 100% guarantees to whatever bonds banks buy, then what’s the point?

      The fact that they had to do this with the Treasury guaranteeing potentially massive Fed losses is one hint of what is expected to happen.

      • But if we’re looking at expectations, then we have to take them seriously and look at the Fed’s overall capacity, what it’s doing, and the overall economics expectations being signaled (e.g. look at TIPS spread).

        I’d be the first to call understanding how markets respond to Fed actions as complicated and fickle, but the basics are pretty consistent. People whose fortunes depend on it don’t see this turning into the Great Depression anymore, and they also don’t see us turning into Zimbabwe and creating hyper-inflation.

        From a pragmatic perspective, it seems like a reasonably good outcome is expected.

  5. This sounds like ‘Society did what it could here’ and we need to open the economy up so our Great Capitalist Society can thrive again.

    1) At this point where is the evidence COVID-19 cases are declining. Right now I see the declines in New York are covering increases in most of other states. Again, the data is lumpy here, such as case & deaths data have weekend declines, but don’t

    2) Considering there are 44K deaths at this point, I still wonder why people are claiming 60K deaths is the expected toll here. We are reaching 60K deaths in 10 – 14 days at this point and probably reach 150K by the end of the year. So I don’t see any evidence the original 100k – 240K deaths was an exaggeration here.

    • I don’t think there is any claim here as to what the final death toll will be. The question is at the margin how many more lives will be saved by the “closer” view? Arnold thinks the number will likely be small or maybe even negative.

  6. Arnold,

    Q: What would you say to the argument that openers de facto countenance informal coercion because employers would ‘coerce’ employees to come to work (and thereby to risk exposure)?

      • See Michael Munger’s analysis of ‘truly volunatary exchange’:
        https://www.aier.org/article/what-does-voluntary-actually-mean/

        If I understand correctly, here is how the argument might apply in the current situation (my attempt at steel-manning):

        There is sharp asymmetry in bargaining power between employers and employees in a deep recession. Employees lack alternatives (outside options). Employers can impose risky workplace conditions by threatening termination. This amounts to soft coercion. Long-term unemployment insurance and/or lockdown imposed by government protect employees from the new, radical asymmetry in bargaining power.

        My intuition is that coercion by government via lockdown cuts more broadly, and deepens recession — perhaps further weakening bargaining power of employees.

        I hope that readers with jump in, probe, clarify, brainstorm.

    • I know that you addressed this to Arnold, but hope that you don’t mind me jumping in.

      Employees face risks all the time at their jobs all the time (police, fire, construction, manufacturing, etc.) and they willing consent to assuming those risks. Is this defacto coercion or just capitalist acts between consenting adults?

      • Thanks for jumping in — I should have addressed the question to everyone! I lean libertarian, and am keeping a hopeful eye on Sweden. My interlocutors offer a counter-argument, that legal coercion by government (lockdown w/ threat of arrest) and private ‘coercion’ by employers (threat of termination) are substitutes — a pick-your-poison argument. Might Arnold and readers steel-man — and rebut — this argument?

        • Off the top of my head — threat of termination comes from a single employer among a very large number of alternatives whereas government coercion comes from a monopolist (at the national level at least). Government coercion obviously is backed by force whereas mere threats of termination are not (although in an exception-proves-the-rule situation, there was this incident). Also, in this instance, employers who cannot keep their employees from becoming infected and spreading the virus throughout their workforce will not be open long and that is (probably needlessly) backed by threats of regulatory action. What’s more, during this crisis, unemployment benefits are so generous that for many workers they pay far better than employment did, so it is going to be very hard for employers to use threats to induce employees to return to work.

          • Slocum,

            Thanks for your helpful analysis. You persuade me that the ad-hoc increase in unemployment benefits strengthens the short-term exit option for employees. And lockdown has no short-term exit option. But some workers will fear that unemployment would have adverse long-term consequences (after lockdown and after exhaustion of ad-hoc benefits) if recession persists or becomes depression. Conversely, some firms will invest in long-term workplace safety.

  7. Yes, this sums up the current situation accurately.

    But what to do?

    Aside from working to preserve the health and well being of my family, there is not much else to do but judge. Nothing wrong with judgments, especially coming from a well-respected and thoughtful source such as the proprietor of this blog, who can influence thinking. But, I being personally more guilty than most, indulging in judgment is too often narcissistic, impractical, and non-pragmatic.

    The liberation demonstrators offer one approach, and, they have been effective to some degree in getting politicians to take the politically risky move of re-opening where it is reasonable to do so and in exposing the character and incoherence of other politicians. Although I applaud their determination to return to work, I choose not to join them in consideration of the risk to my family members as well as my own health condition.

    Amplifying the libertarian echo chamber has yet to be persuasive to any discernible degree on much of anything, so I suppose by default inclination and lack of other alternatives, the most I can do is pound the drums for pragmatic radicalism:

    – the extant tax system is dystopian, so, to prevent hyperinflation, chuck it all out now and replace with a Singapore-style Goods and Services Tax;

    – the beneficiaries of the current system, sinecured babblers spewing Pigouvian do-gooderism; big cat rescuers, think tank scribblers and all the rest of their “charitable” ilk; the race-baiters and hard left hustlers of academia; et al, are the opposing forces of meaningful opposition to hyper-inflaton, but they are too politically powerful to defeat in a two-party, first-past-the-post autocracy like the USA. To enable meaningful reforms, the average voter must be entrusted with the means of exacting democratic accountability which is best accomplished in a parliamentary system of government with multi-party proportional representation. An article V constitutional convention to chuck out the old constitution and replace it with a Swiss-style constitution, is essential if the USA is to be saved; and,

    -an article V constitutional convention will happen sooner if the working people demand one by means of a general strike. Independent and populist voters and their representative groups should begin now to organize a nationwide walk out. If the economy can be shut down to protect the interests of coastal elites, it dam well can be shut down to advance the interests of workers.

    Getting my garden in, home brewing, and drying meat, has been occupying much of my time lately, but, I have begun to find scintillating ideas perhaps constituting the elements of a philosophical framework for such a revolution in the works of Andrew Fletcher and in the Westminster Confession of Faith. I suspect that returning to our Scottish Enlightenment roots may be the surest path out of our current quandary.

  8. We get deflation then a regime change which gets hyperinflation. But the hyper inflation can be spread out with an intelligent central bank regime.

  9. Randy’s figures,
    “I’m young and healthy. A vaccine or treatment is years away. I’ll take one for the team. I’ll get infected now, increase herd immunity, stay economically active. I’ll save the world for Arnold. He’s old and frail. He can stay home under the covers.”

    Arnold should be grateful. No?

  10. Some people are recovering with permanent kidney danage. Lung damage. Heart damage.

    If SCOTUS strikes down the ACA then we go back to pre-existing conditions and recision. Maybe Covid 19 antibodies becone like HIV – uninsurable.

    Too much we don’t know.

  11. “…or cut spending elsewhere “

    One thing the pandemic has demonstrated is that there is more than ample spending that can be cut. John Cochrane links today to an essay by Judge Glock inventorying the plethora of useless, contradictory federal government pandemic plans. Devolve this function to the states and slash the worthless federal bureaucracy now.

    https://johnhcochrane.blogspot.com/2020/04/we-were-prepared.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed:+TheGrumpyEconomist+(The+Grumpy+Economist)&m=1

  12. > Back when we were afraid that Randy could cause excess crowding in hospitals, there was a persuasive public-good argument to change his behavior. Now there isn’t.

    Please explain to me why this is no longer the case

  13. Point of clarification regarding the use of the term “anti-fragile.” My point is a narrow term of vocabulary and semantics.

    Randy sounds like he is risk-loving or risk-indifferent. But it is Randy who is anti-fragile.

    Randy is going out and making new friends, cultivating a variety of experiences (including adverse events) with the implicit notion that what doesn’t kill him makes him stronger.

    Arnold is risk-averse. He may not be fragile. Arnold may be growing more robust in very narrow and easily disrupted domains by increasing his hoard of wealth, rest, household goods, and professional prestige as a blogger. But Arnold is the one who is getting more fragile.

    If Arnold waits 4 years to catch the corona virus it may be worse 4 years from now, other things being equal. He will get it when he is 4 years older. Arnold is waiting for technology to come to his rescue. This may be entirely rational.

    But Randy is the anti-fragile one. Once Randy gets the virus and recovers from it, he may be safer than before. Randy may take a wider variety of new jobs if he becomes immune. In the meantime, Randy is a bit like “Fat Tony” who is just going about his business. Probably he is “noticing things.”

    In the Black Swan schema, Randy is more like “Fat Tony” and Arnold is like “non-Brooklyn John.” And I’m pretty certain that is it Fat Tony who is anti-fragile.

    Please correct me if I’m missing something.

    • You are avoiding risk of ruin. Randy emerges happier, maybe, or emerges dead, maybe. If every time the opportunity presented itself to take a small probability of death, you take it, you will eventually die a premature death. Of course, this isn’t mathematically true if the probability is small *enough*, but at least Taleb would say if you don’t know the probability, as you don’t here, then you err on the safe side. Antifragility explicitly isn’t about optimization, it’s about survival. “Make your money, but you must first survive.” So it wouldn’t be the one who emerges happier, with more friends, it would be the one who emerges with permanent habits of wearing masks, not touching your face outside, and washing your hands when you arrive at a destination.

      • I’m not saying that Randy isn’t foolhardy. Maybe he is. The motorcycle example implies he engages in thrill seeking behavior. There are so many many data variables omitted from the example that we can’t say how foolhardy Randy is.

        My point is a more basic one. Randy is the person who is pursuing anti-fragility. Maybe he’s a foolhardy, carefree, pleasure-loving dolt who is soon to die–we don’t know. We don’t even know how old Randy is–is he 22 or 62?

        I don’t think Arnold’s example was given to calculate who has the superior strategy . To me, it seems it was given to point out that Randy’s behavior imposes externalities on Arnold.

        For the moment I maintain my assertion that Randy is pursuing anti-fragility. In contrast, Arnold acts like he is fragile and risk averse, which is something different.

        Am I missing something? Have I mis-understood what anti fragility is?

        • I am also not saying that Randy’s strategy is better or worse. I am saying that you are missing something.

          Randy is not becoming more survivable because of the volatility in the world, he is intentionally taking on an additional risk of ruin and trading it off for a benefit (new friends). If the volatility were removed, he would incur the same benefit but more strongly. If someone were to emerge with habits like mask wearing, that would be emerging stronger because of the volatility; if there weren’t a pandemic, that person would not start wearing masks to protect themselves.

          “Consider that Mother Nature is not just “safe.” It is aggressive in destroying and replacing, in selecting and reshuffling . When it comes to random events, “robust” is certainly not good enough. In the long run everything with the most minute vulnerability breaks, given the ruthlessness of time…You have to avoid debt because debt makes the system more fragile. You have to increase redundancies in some spaces. You have to avoid optimization.”

          The term is about learning from volatility to remove risk exposure. It’s the opposite of trading off additional risk exposure to optimize some objective. At least by Taleb’s definition, you are completely wrong, and I think his definition is the dominant one in the collective consciousness.

          • Thanks for your thoughtful reply. I’m talked out and have exhausted anything useful to say.

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