Seeing the Obvious


The first time I can remember hearing of William Harvey was in a history of science class in college. I was blown away to learn that we have only known that blood circulates for 400 years. If you don’t know the history this is a good source but here is the short version:

Ancient people had no idea what blood was doing or what the heart was for but they were able to figure out that arteries and veins are different. Arteries seemed to originate in the heart and veins came from the liver. They also knew that both arteries and veins were filled with blood (but somewhat different blood) and that blood has to be distributed to the whole body through vessels that are too small to see, since if you get a small cut pretty much anywhere it bleeds without any visible blood vessels going to it. They knew that both veins and arteries branched off endlessly into channels too small to see but never considered that they were connected to each other. In the 2nd century AD Galen extended these existing beliefs with more observation and analysis, but didn’t fundamentally challenge them. In his model venous blood originated in the liver and carried nutrition to the body, with the right side of the heart participating in that process. The left side of the heart and arteries and lungs delivered fresh air and cooled the body, and the fact that arteries always seemed to be full of blood rather than air was just kinda brushed off.

Over the next 1000 years apparently very little was done in terms of even dissecting animals or human cadavers, maybe because people figured they knew everything they needed to know, so there was no progress. Between about 1200 and 1600 people started doing observations again and figured out that the sides of the heart weren’t completely separate but that maybe blood was getting from one side to the other across the lungs. And also Da Vinci figured out that the heart was a muscle.  Then William Harvey came around and just figured out how things actually worked. He made a lot of observations and did a lot of thinking but the his two strongest points were as follows: First he pointed out that  if you take arterial blood and venous blood out and let it sit somewhere then it ends up looking just the same, so its probably the same stuff.   Second he pointed out that the speed with which blood seems to move through the body makes it completely implausible that the liver is making it all and then it is just all getting eaten up by the body.   Then he said, well, since its the same stuff and it can’t be being created and destroyed in real time, its probably just going around in a closed loop.

There are a decent number of people who seem to believe that Earth is flat.   And there are tons and tons of people who don’t believe in evolution, but no one questions the idea that blood circulates. Even though Jesus didn’t know about it. Mohammed didn’t know about it. William freaking Shakespeare didn’t know about it. It is just blatantly obvious! There is a giant pump in the middle of the body with tubes filled with blood going in and out. Of course the blood is circulating.  To me the story of William Harvey and circulation, more than any other story in the history of science, is that what is obvious to us was not obvious until some genius put enormous effort into making it obvious. Heliocentrism is not at all obvious. Special relativity is not obvious. Atomic theory and anything related to chemistry are not obvious. Even Newtonian mechanics is not really obvious because most things don’t act like F=ma in our high friction world.

To me the story of circulation is a reminder to not take knowledge for granted. There are most likely obvious facts staring me in the face every day that I can’t see because I am making some dumb assumption that I don’t even know I am making. The hardest intellectual work is often not even to question your assumptions, but to articulate what assumptions you are actually making. Harvey clearly articulated all the assumptions that went into the Galenic model of blood flow and then questioned them and found something that should have been obvious for millennia.


The Only Good Idea Is A Bad Idea

I am a mediocre trader. I’m not rich. And yet I have come up with a few good ideas here and there over the years and they have something in common. I always arrived at them by trying to think of something stupid that wouldn’t work. They were all bad ideas that no one thought made any sense.

That is how it has to be. I trade in extremely competitive markets. Every intuitively good idea is done as efficiently as possible by people with tons of experience and resources. Finding ideas with little enough competition for small firms like mine to do profitably requires ideas that people have an aversion to, but which end up working.

I think this is probably true in many activities. In order to make money at a small scale or get attention or interest in your work you need to do something that seems wrong but works somehow. Because then you are competing with a lot fewer people.

But once you have scale or attention then it isn’t as hard to keep it. You just have to do the things that seem right, but require a lot of resources. So it seems like successful people just do things that make sense but it’s not how they got there. They had do something that flew against their instincts and everyone else’s.

What you see with a lot of successful people is that they have one big idea that they milk for all its worth. Nassim Taleb milks the idea of the “black swan” because that is what got him a ton of attention. If “Fooled By Randomness” hadn’t sold he probably would have moved on to something else.  Anyone else could try to expand on the same idea, but they almost certainly won’t be successful. Why would people want to get their black swans from just some random person when they can get them from the guy who invented them?

A lot of famous people don’t even need to milk their one idea anymore. They can just be ordinary and people will continue to like them due to familiarity and that one original thing they did once. Would anyone hire Bruce Willis or Robert Deniro to be in a movie if they were unknowns now? It doesn’t seem likely based on any performance they have given in the last 20 years or so.

There is a big downside for already successful people to come up with new bad but genius ideas. They are likely to fail, and a lot of people are watching. They might expose their earlier genius as just luck. So successful people who continue to take big chances are very rare. Consider Steve Jobs. He consistently took chances, and even though he’s been dead for 7 years, the only new thing that Apple has produced since then is the Apple Watch. What a hit! The only person like that today in the business world seems to be Elon Musk. In the celebrity world Donald Trump also seems to take big risks.

So, if you have few resources and can’t get anywhere by playing it safe, what do you do? There are clearly more bad ideas that are just bad than idea that seem bad but are actually good. How can you separate them? Its really hard. As far as I can tell there are 2 key factors that give an idea potential. One is that there has to be a lot of uncertainty about the outcome. Stubbing your toe is a bad idea, but you know how its going to turn out. There is no uncertainty, so there is no room for it end up working out. The other is that the worst case scenario can’t be that bad. Failure is the most likely outcome, so failure has to be survivable. Then, that’s it. You just have to try things. As long as you have massive uncertainty and limited downside and the feeling like your idea is stupid and doomed, then you are on the right track!

Leaks and Creeps: A Comey/Trump Dialogue

Trump is sitting behind his desk in the oval office. Comey enters and sits.

Trump: Hey Gigantor, how’s your hammer hangin’?

Comey: *silence*

Trump: I wanted to talk to you about this golden shower thing. Its ridiculous. I don’t want Melania to think it might be true. Pee? Its disgusting. Hookers? I don’t need hookers. I got no problem getting women. No problem at all. I could give you some tips sometime. Could you investigate this stuff and prove its fake news?

Comey: Oh no, sir. Its so hard to prove that something is a lie, and besides, we wouldn’t want anyone to think that you were under investigation.

Trump: About that, absolutely everyone thinks that I’m under investigation. Could you tell them I’m not?

Comey: No can do. Get someone else to do it.

Trump: Why the fuck not?

Comey:  (holds up his hands) Wow, look at the size of my hands. They’re enormous. Want to compare hand size?

Trump: Uh, nevermind. I hate all these leaks coming out. Isn’t it terrible. All these leaks?

Comey: It is just terrible. But hey, there’s nothing you can do about it. Leakers gonna leak, you know.

Trump: Maybe we could ask the reporters who is leaking to them. That has worked before.

Comey: I don’t think so.

Trump: You wouldn’t leak on me, would you Jimmy, would ya?

Comey: Never sir. I’m not a leaker. Let me just jot down a note to myself here. (Pulls out notebook with “Future Leaks” written on the cover and writes “loves being peed on, has to pay for sex” in it)

Trump:  Let me ask you about this McCabe guy. He seems pretty conflicted. Shouldn’t we just get rid of him?

Comey: Absolutely not! Andy is a true pro. He’s a man of enormous integrity. Unlike you, you giant spray-tanned turd.

Trump:  I gotta ask you something. I know that everyone in DC hates me with a passion. I know you hate me with every fiber of your being. So, do you think you can be loyal me as the president or will you violated the law and your personal ethics just to try to screw with me?

Comey: Well, frankly I’m a little offended that you would ever think I would be loyal to you, you pudgy fuck.

Trump: Hey, can I fire you?

Comey: Oh yeah, absolutely. I serve at your pleasure. You’re not under investigation or anything. The FBI is full of professionals. No ongoing investigations will be affected if I leave. And hey, there would be no hard feelings at all and I definitely wouldn’t leak anything and everything I can as soon as you do. In a way I wish you would. Just do it. Do it. Do it. DO IT MOTHERFUCKER!

Trump: Ok, I gotta admit, I like being the tallest guy in the room, so you’re fired.


Comey storms out.

Trump, to himself: What a dork…Hey, I wonder if they’re talking about me on Fox.

In Praise of David Hogg

I see a lot of right wing people be triggered by David Hogg in general, and particularly now that he is cashing in with a book deal. Why?

What he did was turn lemons into lemonade. He said, oh it sucks that people I know got murdered but how can I get rich and famous out of this. That’s great! Will anything he says or does ever help to prevent a school shooting? Of course not. But that is not the point. The point is for him to take money from suckers. There should always be a constant flow of resources going from suckers to non-suckers. That way the suckers shrink and die and the non-suckers proliferate. David Hogg found a way to fleece suckers and he is going for it! That’s evolution in action.

This is the kind of entrepreneurial spirit that everyone on the right should celebrate. And it doesn’t hurt that he tends to turn off a lot of people on the left, and that gun control is probably a losing issue in the midterms. That’s just a bonus though. The key thing is that David Hogg is living the American Dream. He is using tragedy to separate fools from their money, and thus making the world ever so slightly less foolish.  He should be an inspiration to us all!

Syria-ously, ISIS Won

Recently Trump said he wanted to leave Syria without having completely destroyed it. We usually like to create complete chaos in middle eastern countries, so letting Syria retain a semblance of a government is a big change in policy.  Subsequently, there was a supposed poison gas attack which may or may not have been done by Assad,  the guy who we were gonna let stay and run the place. We don’t allow poison gas even though its less lethal than conventional bombings because its icky and it was worse than conventional bombings were 100 years ago when airplanes barely worked.

Now we have done some more bombing and will probably stay there to make sure that meanie fights fair and only murders children with high explosives. No poisons allowed! People on the right are upset because they don’t like us getting involved in pointless “humanitarian” missions that don’t serve our national interest. Other people are upset, not so much because they disagree with the mission, as because they think Trump will screw it up and cause a nuclear war with Russia. Both these groups can chill. We have been more or less continuously screwing around with the middle east since the end of world war 2 when the UK gave up trying to manage the region. Its too much to expect Trump to be able to overthrow the last 75 years of institutional inertia and completely change the direction of US foreign policy. So the right should lighten up and let the Donald do what he can.  The people who are worried about world war with Russia should keep in mind that we’ve been skirmishing with them in that area for decades. We were fighting them in Afghanistan in the 80s.

So for me what we are doing in Syria is boring. Its what we have been doing in that region since well before I was born. What is interesting is who has won in this conflict. A lot of people will say that ISIS lost. They were gaining ground for awhile but heavy bombing by the major powers has beaten them back and now they have basically no territory left. I think that is a bunch of shit. As soon as the massive wave of Muslim immigrants got accepted into Germany then ISIS could have declared victory.

Now, supposedly the ISIS people consider Shiite Muslims to be apostates and hate them. They only like a pure, literal interpretation of the Koran and think any later modifications are a denial of the perfection of the original document. Maybe those particular people see the fact that they have lost their territory as a real defeat. But Muslims who are bent on long term conquest can find a pretty big silver lining. Now there are an extra million+ Muslims in Europe! And more are coming all the time.  Stability is not returning to the middle east any time soon.

There is also a backlash against the Muslim immigrants from people who consider them an invading army. This has 2 great effects. One is that it keeps the Muslims from integrating into the European society as effectively. That way, they keep their culture and have more of an incentive to fight against the foreign culture in which they find themselves. The other great effect is that the left feels an instinctive need to come to the defense of the oppressed minority. So now, in the post ISIS era we have a situation where half the political spectrum of the western world is devoted to furthering the interests of devout Muslims. They will fight any efforts to modify conservative Muslim cultures to fit better into more liberal western societies. Suggesting that women are not the property of men is sexist and racist now!

There is no end in sight to massive levels of Islamic immigration into Europe. Sure, at times the right will win and attempt to restrict immigration, but then at other times the left will win and throw the gates wide open. There is no end in sight to Muslims in Europe having a significantly higher birth rate than the native population. The projections are that in 30 years Europe will be close to 15% Muslim and at that point Muslims will start to gain a lot of political power in many European countries.

Muslims don’t have to achieve a majority in Europe to get their way politically, though I think they will do that next century. All they have to do is care more about issues related to the middle east than the rest of the population.  The right tends to be isolationist and the left is pro-Muslim, so if Muslims start telling left-wing politicians that interfering with the establishment of a caliphate is Islamophobic, they will listen. The Islamification of Europe will make the dreams of ISIS easily realizable.

Toxic Individualism

Libertarians like to make a distinction between individualism and collectivism, in addition to the classic left vs. right political divide. Communists and Nazis are both far to the collectivist side, but Nazis are right wing and communists are left wing. far to one side of the collectivist side and libertarians are far on the individual side.

pol compass

This distinction made sense when there were many people who honestly believed that a top down managed economy could outperform a free market economy.   For instance, Nobel laureate Paul Samuelson famously predicted that the Soviet Union would imminently overtake the US economically. He didn’t remove that prediction from his textbooks until 1989! But at this point there is no excuse for not knowing that capitalism is the best method for achieving overall economic progress.

Now everyone knows that capitalism/democracy harness individual incentives for good collective ends. In the market you have the incentive to try hard and get rich for yourself, but the result is a strong growing economy that benefits the society as a whole. Each individual is somewhat expendable since they can make the wrong bets and suffer the consequences. Some individuals will be winners and some will be losers, but the collective, the country or the society or whatever, will always end up winning.

People on the left today are not collectivists because they don’t put the fate of any group, be it a community, nation or the whole human race above the interests of individuals. They put the neediest individuals at the top and think that all the larger groupings should be sacrificed to the interests of those individuals. They are not libertarians because they support an authoritarian state to impose their views, but their views are individualistic. Collectivists know that individual rights and autonomy are crucial for the overall benefit of the group, but that ultimately it is the species, the nation, the community and the family that are more valuable than the individual.

Toxic individualists don’t want America to be strong. They don’t even want the human race to be strong. They care only about raising up the worst off individuals, even if the costs vastly outweigh the benefits. They are altruists, but they are altruistic individualists who care nothing for what their “selfless” obsessions with other people’s selves will do for the whole.

I was inspired to think about this topic by something called the “demon core.” The demon core, if you don’t want to click on the link, was a 14 lb plutonium ball that was built made during the Manhattan project. It would have been the fissile core of the 3rd bomb to be dropped on Japan but they surrendered before that happened. It was subsequently used to do research at Los Alamos.  It got its nickname because it killed a few scientists who were using it for research in two separate incidents. Basically, what happens with plutonium (or uranium) is that randomly atoms will break apart into lighter elements and release energy + a neutron. If the neutron hits the nucleus of another plutonium atom then that atom will also undergo fission, breaking into smaller elements and releasing more energy and another neutron. If the piece of plutonium is small then most of the random neutrons that get released will exit without hitting another nucleus. But as the chunk of plutonium gets bigger the probability that each neutron will hit another nucleus gets higher and higher. A “critical mass” of plutonium is one in which the number of neutrons hitting other nuclei is high enough that the number of neutrons bouncing around inside the object keeps increasing exponentially. If that happens then the amount of energy and neutrons that are released will grow exponentially until the entire piece blows up and that is an atomic bomb. The demon core was 5% smaller than critical mass, so just leaving it alone it wasn’t too dangerous. But putting objects near it that reflected neutrons back could cause it to start to achieve that run away process of fission. So these 2 different scientists were both standing next to it and physically manipulating neutron reflecting materials to see what the neutron output would do. In both cases their hand slipped and they accidentally started the chain reaction. In both cases they were able to stop the process very quickly (if they hadn’t been able to its likely that a ton of people would have been killed). In both cases they died what I am assuming were horribly painful deaths due to radiation poisoning.

These scientists knew the risk of what they were doing. They knew that radiation was harmful. They knew that they were basically standing next to a nuclear bomb and taking it to the edge of exploding. No scientist in the US would do anything remotely like this today. This was less than 75 years ago and the risk tolerance of normal, intelligent people was seemingly orders of magnitude higher than ours is. Is that the biggest social change that has occurred since the industrial revolution? I think it may be. Its an unbelievably massive change. So many risky behaviors that were routine even 25-30 years ago are now considered practically criminal. When I was a kid most children rode their bikes without helmets. If they were not far from school they walked and there were crossing guards at the busy streets to help young children not be hit by cars. Now, if you let a 1st grader walk to school out of your eyesight you are likely to get in legal trouble. Leaving a 10 year old safely at the own home by themselves watching an ipad for an hour can get you in legal trouble. You can never ever leave children unattended in a car while you run into a store. My parents used to do that all the time.

What has changed? I think that it is a toxic individualism that has taken hold. No one can take the emotional hurt of any individual being harmed or neglected, so they impose enormous collective costs to minimize the chance of it happening.

Anti-vaxxers are another example. Most of them know that the risk of vaccines are small. And yet, if they can prevent the small chance of harm to their child by imposing a larger expected harm on the collective they will do so.

People who care about the collective don’t bemoan the fact that best and brightest are getting more resources to do more good. They celebrate it. Its what is supposed to happen. It is what will make our nation strongest in the long run. People who want to prop up the weak at the expense of the strong and the whole are the true individualists.

Failure is Life. Stasis is Death

The human ability to learn from others is the source of our enormous advantage in the animal kingdom. We can pass on knowledge across time and space to a much greater degree than other species and build on that knowledge over time in ways that no life before us could. And yet we suck horribly at learning from others.

In my business, I have seen many occasions where someone has been exposed to a profitable strategy at one firm and then utterly failed to replicate it. Very smart people who understand exactly how a trading algorithm works can have enormous difficulty reproducing it.

Blockbuster video could see Netflix and Red Box coming a mile away. It tried to compete with both of them, and was much bigger and had more resources than either at one time, but it just couldn’t get the details right.

Amazon’s business strategy was no secret (at least its retail strategy). Wal-Mart had an enormous and very efficient distribution system and has spent many $billions trying to compete, and yet Amazon continues to grow and take market share year after year.

In “Thinking Fast And Slow” Kahneman describes 2 different systems for thinking. Type 1 thinking is fast, easy and intuitive. Type 2 thinking is slow, deliberative, effortful and more logical.

I think the notion of Type 1 vs Type 2 thinking can be easily generalized to organizations. The tasks that the organization has been streamlined to accomplish with little bureaucracy or internal effort are Type 1. New or different tasks that the org is not optimized for are Type 2. Amazon was built to be a Type 1 e-commerce business. Wal-Mart, even with so many more resources and expertise, couldn’t make that effortful change to develop new efficiencies and become Type 1 at e-commerce as well.

On Jon Stewart’s episode of “Comedians in Cars Getting Coffee” he says that the hardest thing he ever did was shifting the focus of the Daily Show from celebrity news and a light tone to political news and a harder satirical tone. It seems like such a small change. The format stayed the same. It was still a half hour TV show where he sat a desk and read jokes about news stories. But apparently just making an adjustment in the content of the jokes was a multi-year battle behind the scenes. Its amazing just how difficult it is to make any deliberate changes to the core functioning of an organization that is successful. The inertia and habits are ingrained at every level.

This is my experience in the trading industry. Every successful strategy seems to be embedded within the very particular organizational capital and capabilities of a specific firm. Trying to do something similar elsewhere seems like it would be so easy, but in practice it is next to impossible. The whole organization has to shift to accommodate the strategy and most of the time it simply can’t be done. Earlier in my career, my thought was always that if I could just learn what the successful firms were doing, their secrets, then I could be much more successful. Mostly, there aren’t secrets and what there are can’t really be transferred.

We dig ruts of habit and efficiency in our organizations, and getting out of them to make a change is an enormous task. Therefore, its a very good thing that corporations tend to not live too long. Its inevitable that successful corporations will develop habits that make it difficult to adapt to major changes. So once new firms bring that change about we see old firms shrink and die. All the innovation and success of our economy is based on this ability to destroy organizations as soon as they are not useful and free up the resources within them.

Other organizations like governments and Universities have the same issues. They get good at doing certain things in certain ways, and it is very difficult to get them to make substantial changes. For core government services it seems like stability and predictability are more valuable than innovation, so having a very long-lived and hard to change organization may be an advantage. However, everyone expects universities to be crucibles of innovation, and many people expect government to change in fundamental ways, and those hopes are probably in vain. Other people fear potential change in these very old and nearly static organizations, and those fears are almost always overblown.

Someone overestimating the risk of change.