This week I will introduce one of the most profound paradigms for understanding the world that I’ve ever encountered.
I’ll use it to help illustrate a contrarian theory that claims to help explain the global economy, as well as the class schisms that are increasingly a feature of the developed world.
“The Ship of Theseus”
[11 Minute Read]
You have a ship. Over time, you replace each plank as it wears out. Once all the planks have been replaced- is it still the same ship?
Ships, Santorini Sunset, Bad Camera Zoom, 2009.
We ourselves are just a collection of cells; apparently all of them will be replaced and renewed over the course of seven years. And yet we still feel a sense of continuity in time. Our Ship of Theseus is the same ship.
If your intellect is rebelling at this exercise: hold that dissonant sensation, it will be very useful.
Ever since Charlie Munger made them the foundation of his investment philosophy, “Mental Models” have been one of finance’s favorite topics. Mental models aspire to make us more aware of our biases and improve our decision making (a comprehensive list is linked below). And that’s cool, they are a great discipline! Making yourself more rational and unbiased, especially when it comes to your own finances, is obviously a valuable exercise. However, the inexorable rise of more powerful computational intelligences mean trying to outcompete solely on the basis of rational thought is a secularly losing proposition.
Iain McGilchrist’s eccentric triumph The Master and His Emissary makes the value of the Theseus thought experiment explicit. He draws a fascinating distinction between the characterological differences of the two hemispheres of our brain. He believes they experience the world in two different ways. Even if it proves to be simply a metaphor, it’s an infinitely elegant one.
“Experience is forever in motion, ramifying and unpredictable. In order for us to know anything at all, that thing must have enduring properties. If all things flow, and one can never step into the same river twice - Heraclitus’s phrase is, I believe, a brilliant evocation of the core reality of the right hemisphere’s world - one will always be taken unawares by experience, since nothing being ever repeated, nothing can ever be known. We have to find a way of fixing it as it flies, stepping back from the immediacy of experience, stepping outside the flow. Hence the brain has to attend to the world in two completely different ways, and in so doing to bring two different worlds into being.
In the one, we experience — the live, complex, embodied, world of individual, always unique beings, forever in flux, a net of interdependencies, forming and reforming wholes, a world with which we are deeply connected.
In the other we ‘experience’ our experience in a special way: a ‘re-presented’ version of it, containing now static, separable, bounded, but essentially fragmented entities, grouped into classes, on which predictions can be based. This kind of attention isolates, fixes and makes each thing explicit by bringing it under the spotlight of attention. In doing so it renders things inert, mechanical, lifeless. But it also enables us for the first time to know, and consequently to learn and to make things. This gives us power.”
The right hemisphere sees the whole ship, the flow of undifferentiated experience. The left hemisphere divides the world into planks (ideas and concepts), discrete parts that can be understood and manipulated. It’s how we communicate with each other in a common language. We need both, in balance.
This is far more profound than any “mental model” I’ve ever encountered.
Anything that “flows” cannot be truly described: because to describe it separates it from the flow. And everything flows.
“Dividing the cow in half does not give you two smaller cows. You may end up with a lot of hamburger, but the essential nature of “cow” - a living system capable, among other things, of turning grass into milk - then would be lost. This is what we mean when we say a system functions as a “whole.” Its behavior depends on its entire structure and not just on adding up the behavior of its different pieces.” - Draper Kauffman
The global network we have now built is literally incomprehensibly large. As I have tried to illustrate, the amount of information being generated is already effectively infinite. Our intellectual brain cannot hope to grasp it. Moreover, this new network flows. And as we have seen, we do a very poor job conceptualizing things that flow, relative to discrete, abstracted ideas.
We are at a critical cognitive handicap across two absolutely fundamental dimensions of the new exponential world!
Here’s a specific, valuable macroeconomic example.
Michael Pettis and Matthew Klein’s excellent book Trade Wars Are Class Wars argues that national stereotypes obscure critical mechanistic accounting relationships caused by global capital flows. Simplistic heuristics like “efficient Germans” and “lazy Greeks” fail to account for the necessities of the global balance sheet. The article linked below from Alex Williams explains it brilliantly (it still took me at least six attempts to “get it,” while clumsily articulating it to my wife on a long hike).
As Klein and Pettis argue, German elites saved a large and growing proportion of national output. To preserve their export advantage, they couldn’t return the savings to households (in the form of higher wages), so they invested abroad. A lot of that capital flowed into other countries and thus lowered lending standards. Hence leading to unproductive projects in Southern Europe. Moreover, the Chinese don’t like to save, and Americans don’t like to spend; both are responding to macroeconomic constraints. According to the authors:
“The persistence of the American current account deficit can only be explained by excessive saving abroad and the U.S. role in absorbing these excess savings. Calls for Americans to behave more prudently miss the point: it is not Americans who have decided to borrow too much. As long as there are Americans who want to borrow- and in every country, there are always people who are willing to borrow under the appropriate conditions- the U.S. financial sector will find them and lower interest rates and lending standards until loan targets are met.”
Insatiable German demand for foreign investments leads to inexorably lower lending standards in the form of dodgy U.S. packaged mortgages. Voila: 2008 Global Financial Crisis.
The individual planks of national economic behavior can only be fully understood as a part of the overall ship of international capital flows.
Putting aside the merits of Klein and Pettis’ argument (I am obviously not a macroeconomist), you can see the broader application here. A complex systems theory understanding of the world will teach us how it flows. Because that discipline reveals surprisingly universal insights, it’s at least as valuable as understanding the facts and figures on the ground. And yet… I feel like it gets a lot less attention?
In fact, while researching this piece, the world-class synthesizer at Sloww.co, Kyle Kowalski, pointed me to Blas Moros’ Teacher’s Guides. Blas has written an 80 page summary PDF on the key books and theses on complexity and systems thinking. That’s incredibly valuable work! [Don’t worry, I’ll be pulling out some key insights over the weeks to come].
Most importantly, the tendency of the intellectual mind to abstract from reality is the root cause of a vast amount of unhappiness. The further from immediate experience we stray, the less vitality we have. Happiness is a flow not an idea.
“People say that what we’re all seeking is a meaning for life. I don’t think that’s what we’re really seeking. I think that what we’re seeking is an experience of being alive.”- Joseph Campbell.
Two other interesting things this week.
- Read. Balanced Sheets by Alex Williams (23 minute Read).
- Why Read: One of the most interesting articles I read in 2020. If Klein and Pettis’ book is right, it means that this book is critically important for anyone that wants to understand the global economy, as well as the rapidly evolving class schisms within our own countries. I read about 15 summaries trying to find one that had sufficient explanatory power, this was by far the best.
- Read: Mental Models from Farnham Street (60 minute Read).
- Why Read: 109 different mental models explained. Essentially a short book (and it’s available in that format). The domain where mental models are most useful is in making better personal decisions: neutralizing bias and making fewer obvious mistakes. If there’s a section and discipline that makes most sense to dig into, especially in light of the “Theseus Thesis” above, it’s models for systems thinking. The whole world, stock market, and our selves are nested complex adaptive systems. Therefore, the key principles are surprisingly uniform across them. You get a very high return on your learning.
Have an amazing weekend!
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