Elon Musk on Regulators

The Federal Aviation Administration had a meeting with Elon Musk they won’t forget. Musk met with them to discuss some approvals for the work one of his companies, SpaceX, was doing. The meeting reads like an episode of Dilbert. The FAA responded in the type of double-speak that only governments seem to master. So what did he do? He told one of the experts they were wrong.

“His manager sent me this long email about how he had been in the shuttle program and in charge of 20 launches or something like that and how dare I say that the other guy was wrong,” Musk says in Ashlee Vance’s book Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future.

“Not only is he wrong,” Musk says, “let me rearticulate the reasons. We’re trying to have a really big impact in the space industry. If the rules are such that you can’t make progress, then you have to fight the rules.

And then he nails the fundamental problem with regulators.

There is a fundamental problem with regulators. If a regulator agrees to change a rule and something bad happens, they can easily lose their career. Whereas if they change a rule and something good happens, they don’t even get a reward. So, it’s very asymmetric. It’s then very easy to understand why regulators resist changing the rules. It’s because there’s a big punishment on one side and no reward on the other. How would any rational person behave in such a scenario?

The asymmetry he’s talking about is loss aversion. And it doesn’t stop at regulators, it extends into other areas as well. The same principle applies to most CEOs, managers and leaders. If you want to predict behavior, take a close look at the incentives.

As Keynes said: “Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

 

Friedrich Nietzsche: On Love And Hate

“We must learn to love, learn to be kind, and this from earliest youth … Likewise, hatred must be learned and nurtured, if one wishes to become a proficient hater”

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German philosopher and writer Friedrich Nietzsche is one of humanity’s most influential and enduring minds. He was particularly good at the aphorism and the brief collection published in Aphorisms on Love and Hate highlights some of his most profound thoughts on the subject.

Commenting on psychological observation, in his typically beautiful prose, he wrote that it would be better to have a blind faith in humanity than a curious one.

[M]editating on things human, all too human (or, as the learned phrase goes, ‘psychological observation’) is one of the means by which man can ease life’s burden; that by exercising this art, one can secure presence of mind in difficult situations and entertainment amid boring surroundings; indeed, that from the thorniest and unhappiest phases of one’s own life one can pluck maxims and feel a bit better thereby: this was believed, known – in earlier centuries. Why has it been forgotten in this century, when many signs point, in Germany at least, if not throughout Europe, to the dearth of psychological observation? Not particularly in novels, short stories, and philosophical meditations, for these are the work of exceptional men; but more in the judging of public events and personalities; most of all we lack the art of psychological dissection and calculation in all classes of society, where one hears a lot of talk about men, but none at all about man. Why do people let the richest and most harmless source of entertainment get away from them?

[…]

Indeed, a certain blind faith in the goodness of human nature, an inculcated aversion to dissecting human behavior, a kind of shame with respect to the naked soul, may really be more desirable for a man’s overall happiness than the trait of psychological sharpsightedness, which is helpful in isolated instances. And perhaps the belief in goodness, in virtuous men and actions, in an abundance of impersonal goodwill in the world has made men better, in that it has made them less distrustful. If one imitates Plutarch’s heroes with enthusiasm and feels an aversion toward tracing skeptically the motives for their actions, then the welfare of human society has benefited (even if the truth of human society has not). … La Rochefoucauld and those other French masters of soul searching (whose company a German, the author of Psychological Observations, has recently joined) are like accurately aimed arrows, which hit the mark again and again, the black mark of man’s nature. Their skill inspires amazement, but the spectator who is guided not by the scientific spirit, but by the humane spirit, will eventually curse an art which seems to implant in the souls of men a predilection for belittling and doubt.

If we’ve offended someone we need only offer compensation:

If we have injured someone, giving him the opportunity to make a joke about us is often enough to provide him personal satisfaction, or even win his goodwill.

On why we attack others, Nietzsche points out that it’s not always to hurt them:

We attack not only to hurt another person, to conquer him, but also, perhaps, simply to become aware of our own strength.

On morality and the ordering of good he writes:

The accepted hierarchy of the good, based on how a low, higher, or a most high egoism desires that thing or the other, decides today about morality or immorality. To prefer a low good (sensual pleasure, for example) to one esteemed higher (health, for example) is taken for immoral, likewise to prefer comfort to freedom. The hierarchy of the good, however, is not fixed and identical at all times. If someone prefers revenge to justice, he is moral by the standard of an earlier culture, yet by the standard of the present culture he is immoral. ‘Immoral’ then indicates that someone has not felt, or not felt strongly enough, the higher, finer, more spiritual motives which the new culture of the time has brought with it. It indicates a backward nature, but only in degree. The hierarchy itself is not established or changed from the point of view of morality; nevertheless an action is judged moral or immoral according to the prevailing determination.

On offending and being offended he offers:

It is much more agreeable to offend and later ask forgiveness than to be offended and grand forgiveness. The one who does the former demonstrates his power and then his goodness. The other, if he does not want to be though inhuman, must forgive; because of this coercion, pleasure in the other’s humiliation is slight.

Nietzsche offers an interesting perspective on seeing things that are out of place in today’s world — they are leftovers of a previous age.

We must think of men who are cruel today as stages of earlier cultures, which have been left over; in their case, the mountain range of humanity shows openly its deeper formations, which otherwise lie hidden. They are backward men whose brains, because of various possible accidents of heredity, have not yet developed much delicacy or versatility. They show us what we all were, and frighten us. But they themselves are as little responsible as a piece of granite for being granite.

On the concept of good and evil, he notes a sober point with respect to why a bad man cannot grow out of good soil.

The concept of good and evil has a double prehistory: namely, first of all, in the soul of the ruling clans and castes. The man who has the power to requite goodness with goodness, evil with evil, and really does practice requital by being grateful and vengeful, is called ‘good’. The man who is unpowerful and cannot requite is taken for bad. As a good man, one belongs to the ‘good’, a community that has a communal feeling, because all the individuals are entwined together by their feeling for requital. As a bad man, one belongs to the ‘bad’, to a mass of abject, powerless men who have no communal feeling. The good men are a caste; the bad men are a multitude, like particles of dust. Good and bad are for a time equivalent to noble and base, master and slave. Conversely, one does not regard the enemy as evil: he can requite. In Homer, both the Trojan and the Greek are good. Not the man who inflicts harm on us, but the man who is contemptible, is bad. In the community of the good, goodness is hereditary; it is impossible for a bad man to grow out of such good soil. Should one of the good men nevertheless do something unworthy of good men, one resorts to excuses; one blames God, for example, saying that he struck the good man with blindness and madness.

Then, in the souls of oppressed, powerless men, every other man is taken for hostile, inconsiderate, exploitative, cruel, sly, whether he be noble or base.

Commenting on our economy of kindness he writes:

Kindness and love, the most curative herbs and agents in human intercourse, are such precious finds that one would hope these balsamlike remedies would be used as economically as possible; but this is impossible. Only the boldest Utopians would dream of the economy of kindness.

On the contribution of goodwill to culture, Nietzsche writes:

Among the small but endlessly abundant and therefore very effective things that science ought to heed more than the great, rare things, is goodwill. I mean those expressions of a friendly disposition in interactions, that smile of the eye, those handclasps, that ease which usually envelops nearly all human actions. Every teacher, every official brings this ingredient to what he considers his duty. It is the continual manifestation of our humanity, its rays of light, so to speak, in which everything grows. Especially within the narrowest circle, in the family, life sprouts and blossoms only by this goodwill. Good nature, friendliness, and courtesy of the heart are ever-flowing tributaries of the selfless drive and have made much greater contributions to culture than those much more famous expressions of this drive, called pity, charity, and self-sacrifice. But we tend to underestimate them, and in fact there really is not much about them that is selfless. The sum of these small doses is nevertheless mighty; its cumulative force is among the strongest of forces.

Similarly, there is much more happiness to be found in the world than dim eyes can see, if one calculates correctly and does not forget all those moments of ease which are so plentiful in every day of every human life, even the most oppressed.

On his poetic exploration of pity, he offers:

In the most noteworthy passage of his self-portrait (first published in 1658), La Rochefoucauld certainly hits the mark when he warns all reasonable men against pity, when he advises them to leave it to those common people who need passions (because they are not directed by reason) to bring them to the point of helping the sufferer and intervening energetically in a misfortune. For pity, in his (and Plato’s) judgment, weakens the soul. Of course one ought to express pity, but one ought to guard against having it; for unfortunate people are so stupid that they count the expression of pity as the greatest good on earth.

Perhaps one can warn even more strongly against having pity for the unfortunate if one does not think of their need for pity as stupidity and intellectual deficiency, a kind of mental disorder resulting from their misfortune (this is how La Rochefoucauld seems to regard it), but rather as something quite different and more dubious. Observe how children weep and cry, so that they will be pitied, how they wait for the moment when their condition will be noticed. Or live among the ill and depressed, and question whether their eloquent laments and whimpering, the spectacle of their misfortune, is not basically aimed at hurting those present. The pity that the spectators then express consoles the weak and suffering, inasmuch as they see that, despite all their weakness, they still have at least one power: the power to hurt. When expressions of pity make the unfortunate man aware of this feeling of superiority, he gets a kind of pleasure from it; his self-image revives; he is still important enough to inflict pain on the world. Thus the thirst for pity is a thirst for self-enjoyment, and at the expense of one’s fellow men. It reveals man in the complete inconsideration of his most intimate dear self, but not precisely in his ‘stupidity,’ as La Rochefoucauld thinks.

In social dialogue, three-quarters of all questions and answers are framed in order to hurt the participants a little bit; this is why many men thirst after society so much: it gives them a feeling of their strength. In these countless, but very small doses, malevolence takes effect as one of life’s powerful stimulants, just as goodwill, dispensed in the same way throughout the human world, is the perennially ready cure.

But will there be many people honest enough to admit that it is a pleasure to inflict pain? That not infrequently one amuses himself (and well) by offending other men (at least in his thoughts) and by shooting pellets of petty malice at them? Most people are too dishonest, and a few men are too good, to know anything about this source of shame.

Finally on what we can promise, Nietzsche stirs our thoughts with this beautiful passage:

One can promise actions, but not feelings, for the latter are involuntary. He who promises to love forever or hate forever or be forever faithful to someone is promising something that is not in his power. He can, however, promise those actions that are usually the consequence of love, hatred, or faithfulness, but that can also spring from other motives: for there are several paths and motives to an action. A promise to love someone forever, then, means, ‘As long as I love you I will render unto you the actions of love; if I no longer love you, you will continue to receive the same actions from me, if for other motives.’ Thus the illusion remains in the minds of one’s fellow men that the love is unchanged and still the same.

One is promising that the semblance of love will endure, then, when without self-deception one vows everlasting love.

Aphorisms on Love and Hate will stir your mind and awaken your soul.

Charlie Munger on the Medical System

Long a fount of wisdom, Charlie Munger provided us fascinating insight on everything from energy policy and mental models to how good gamblers think and making effective decisions.

At the Daily Journal Meeting (held March 25th 2015), Munger answered a question on Obamacare:

Of course the system of medical care, as evolved under the United States, has much wrong with it.

On the other hand, it has much that’s good about it. All the new drugs and devices, and new operations, medicine has taken more territory in my lifetime than it took in the whole previous history of mankind. It’s just amazing what’s been done.

A lot of it is obvious and simple, like inoculating the children against infantile paralysis, scraping the tartar off your teeth so you don’t wear plates when you’re 55 years old, and so on. People now take those benefits for granted, but I lived in a world where a lot of children died. Every city had a tuberculosis sanitarium, and half the people who got tuberculosis died. It’s amazing how well medicine has worked.

On the other hand, compared to the best it can possibly be, the American system is pretty peculiar. It’s very hard to fix. One kind of insanity is to say, “We’ll pay you so much a month for taking care of the people, and everything you save is yours.”

That is the system the government uses in dealing with the convalescent homes. That’s a great name, a convalescent home. You convalesce in heaven. You don’t convalesce them at home. [laughs] It’s attempting to have a euphemistic name.

That creates huge incentives to delay care and keep the money. The government has strict rules, compliance systems, and so forth. If we didn’t have that system, the cost of taking care of the old people in convalescent homes would be 10 times what it is. It was the only feasible solution.

The rest of the world is going in that direction, because the costs just keep rising and rising and rising.

If the government is going to pay A anything he wants for selling services to B, who doesn’t have to pay anything, of course the system is going to create a lot of unnecessary tests, unnecessary costs, unnecessary procedures, unnecessary interventions.
Psychiatrists that keep talking to a patient forever and ever with no improvement, of course that system is going to cause problems. The alternative system also causes problems.

Add the fact you’ve got politicians and add the fact you’ve got existing players who are enormously rich and powerful, who lobby you like crazy. A state legislature, now, is just 19 percent or whatever it is of GDP going to the medical system, imagine what the lobbying is like.

We get these Rube Goldberg systems. We get a lot of abuse of various kinds. There’s hardly an ethical drug company that hasn’t created multiple gross abuses, which are in substance growing through the bribery of doctors, which, of course, is illegal.
You have all these ethical companies. Ethical meaning it’s the designation of a drug company that has patented drugs. They’ve all committed big follies. The device makers of anything have been worse. There’s been a lot of abuse and craziness, and the costs, of course, just keep rising and rising.

That’s in a system that every child has been the greatest achiever in the history of the world. It’s very complicated. I think it will get addressed more because…We probably will end up with systems that are more like we do with the convalescent homes.
If you look at medicine, what’s happening is that more and more they’re going to a system where they pay somebody X dollars and everything they save, they keep. That system has some chance of controlling the cost. If you go into a great medical school hospital today, and you’re within a day of dying of some obvious thing like advanced cancer, the admitting physician is very likely to ask for a test of your cholesterol or any other damn thing. All the bills go to the government. As long as the incentives allow that, people will do it and they’ll rationalize their behavior. Something has to be done along that and more than is now being done.

I think the drift will be more in the direction of the block care. I don’t see any other system that would have controlled cost in the convalescent homes.

By the way, your doctor can’t just walk by every bed in the convalescent home and send the bill to the government. That’s not allowed by the law. But if you transfer the patient into a hospital, he can walk by the bed five times every day and send a $45 bill to the government.

If the incentives are wrong, the behavior will be wrong. I guarantee it. Not by everybody, but by enough of a percentage that you won’t like the system.

I think that’s enough on a subject that’s so difficult. I think we can see where it’s going. We may end up with a whole system that’s…In the Netherlands, they have a system where the same people are giving a free system to everybody and a concierge system to the others. It’s working pretty well.

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Merchants Of Doubt: How The Tobacco Strategy Obscures the Realities of Global Warming

There will always be those who try to challenge growing scientific consensus — indeed the challenge is fundamental to science. Motives, however, matter and not everyone has good intentions.

***

Naomi Oreskes and Erik Conway’s masterful work Merchants of Doubt: How a Handful of Scientists Obscured the Truth on Issues from Tobacco Smoke to Global Warming, was recommended by Elon Musk.

The book illuminates how the tobacco industry created doubt and kept the controversy alive well past scientific consensus. They call this the Tobacco Strategy. And the same playbook is happening all over again. This time with Global Warming.

Merchants of Doubt

The goal of the Tobacco Strategy is to create doubt about the causal link to protect the interests of incumbents.

Millions of pages of documents released during tobacco litigation demonstrate these links. They show the crucial role that scientists played in sowing doubt about the links between smoking and health risks. These documents— which have scarcely been studied except by lawyers and a handful of academics— also show that the same strategy was applied not only to global warming, but to a laundry list of environmental and health concerns, including asbestos, secondhand smoke, acid rain, and the ozone hole.

Interestingly, not only are the tactics the same when it comes to Global Warming, but so are the people.

They used their scientific credentials to present themselves as authorities, and they used their authority to try to discredit any science they didn’t like.

Over the course of more than twenty years, these men did almost no original scientific research on any of the issues on which they weighed in. Once they had been prominent researchers, but by the time they turned to the topics of our story, they were mostly attacking the work and the reputations of others. In fact, on every issue, they were on the wrong side of the scientific consensus. Smoking does kill— both directly and indirectly. Pollution does cause acid rain. Volcanoes are not the cause of the ozone hole. Our seas are rising and our glaciers are melting because of the mounting effects of greenhouse gases in the atmosphere, produced by burning fossil fuels. Yet, for years the press quoted these men as experts, and politicians listened to them, using their claims as justification for inaction.

December 15, 1953, was a fateful day. A few months earlier, researchers at the Sloan-Kettering Institute in New York City had demonstrated that cigarette tar painted on the skin of mice caused fatal cancers. This work had attracted an enormous amount of press attention: the New York Times and Life magazine had both covered it, and Reader’s Digest— the most widely read publication in the world— ran a piece entitled “Cancer by the Carton.” Perhaps the journalists and editors were impressed by the scientific paper’s dramatic concluding sentences: “Such studies, in view of the corollary clinical data relating smoking to various types of cancer, appear urgent. They may not only result in furthering our knowledge of carcinogens, but in promoting some practical aspects of cancer prevention.”

These findings, however, shouldn’t have been a surprise. We’re often blinded by a ‘bad people can do no right’ line of thought.

German scientists had shown in the 1930s that cigarette smoking caused lung cancer, and the Nazi government had run major antismoking campaigns; Adolf Hitler forbade smoking in his presence. However, the German scientific work was tainted by its Nazi associations, and to some extent ignored, if not actually suppressed, after the war; it had taken some time to be rediscovered and independently confirmed. Now, however, American researchers— not Nazis— were calling the matter “urgent,” and the news media were reporting it.  “Cancer by the carton” was not a slogan the tobacco industry would embrace.

 

With the mounting evidence, the tobacco industry was thrown into a panic.

 

So industry executives made a fateful decision, one that would later become the basis on which a federal judge would find the industry guilty of conspiracy to commit fraud— a massive and ongoing fraud to deceive the American public about the health effects of smoking. The decision was to hire a public relations firm to challenge the scientific evidence that smoking could kill you.

On that December morning (December 15th), the presidents of four of America’s largest tobacco companies— American Tobacco, Benson and Hedges, Philip Morris, and U.S. Tobacco— met at the venerable Plaza Hotel in New York City. The French Renaissance chateau-style building— in which unaccompanied ladies were not permitted in its famous Oak Room bar— was a fitting place for the task at hand: the protection of one of America’s oldest and most powerful industries. The man they had come to meet was equally powerful: John Hill, founder and CEO of one of America’s largest and most effective public relations firms, Hill and Knowlton.

The four company presidents— as well as the CEOs of R. J. Reynolds and Brown and Williamson— had agreed to cooperate on a public relations program to defend their product. They would work together to convince the public that there was “no sound scientific basis for the charges,” and that the recent reports were simply “sensational accusations” made by publicity-seeking scientists hoping to attract more funds for their research. They would not sit idly by while their product was vilified; instead, they would create a Tobacco Industry Committee for Public Information to supply a “positive” and “entirely ‘pro-cigarette’” message to counter the anti-cigarette scientific one. As the U.S. Department of Justice would later put it, they decided “to deceive the American public about the health effects of smoking.”

At first, the companies didn’t think they needed to fund new scientific research, thinking it would be sufficient to “disseminate information on hand.” John Hill disagreed, “emphatically warn[ing] … that they should … sponsor additional research,” and that this would be a long-term project. He also suggested including the word “research” in the title of their new committee, because a pro-cigarette message would need science to back it up. At the end of the day, Hill concluded, “scientific doubts must remain.” It would be his job to ensure it.

Over the next half century, the industry did what Hill and Knowlton advised. They created the “Tobacco Industry Research Committee” to challenge the mounting scientific evidence of the harms of tobacco. They funded alternative research to cast doubt on the tobacco-cancer link. They conducted polls to gauge public opinion and used the results to guide campaigns to sway it. They distributed pamphlets and booklets to doctors, the media, policy makers, and the general public insisting there was no cause for alarm.

The industry’s position was that there was “no proof” that tobacco was bad, and they fostered that position by manufacturing a “debate,” convincing the mass media that responsible journalists had an obligation to present “both sides” of it.

Of course there was more to it than that.

The industry did not leave it to journalists to seek out “all the facts.” They made sure they got them. The so-called balance campaign involved aggressive dissemination and promotion to editors and publishers of “information” that supported the industry’s position. But if the science was firm, how could they do that? Was the science firm?

The answer is yes, but. A scientific discovery is not an event; it’s a process, and often it takes time for the full picture to come into clear focus.  By the late 1950s, mounting experimental and epidemiological data linked tobacco with cancer— which is why the industry took action to oppose it. In private, executives acknowledged this evidence. In hindsight it is fair to say— and science historians have said— that the link was already established beyond a reasonable doubt. Certainly no one could honestly say that science showed that smoking was safe.

But science involves many details, many of which remained unclear, such as why some smokers get lung cancer and others do not (a question that remains incompletely answered today). So some scientists remained skeptical.

[…]

The industry made its case in part by cherry-picking data and focusing on unexplained or anomalous details. No one in 1954 would have claimed that everything that needed to be known about smoking and cancer was known, and the industry exploited this normal scientific honesty to spin unreasonable doubt.

[…]

The industry had realized that you could create the impression of controversy simply by asking questions, even if you actually knew the answers and they didn’t help your case. And so the industry began to transmogrify emerging scientific consensus into raging scientific “debate.”

Merchants of Doubt is a fascinating look at how the process for sowing doubt in the minds of people remains the same today as it was in the 1950s. After all, if it ain’t broke, don’t fix it.

Farnam Street Think Week

Every year Bill Gates takes a think week, where he reads and ponders the future. This is how he reframes his perspective, gains new insights, and recharges his mental batteries.

This sounds like a good idea to me.

Escape the winter blues and join us for a week of reading on the beach in the mornings, afternoons spent thinking, and evenings with long dinners with fellow participants discussing ideas.

Some details:

  • The event runs March 18-23. Jeff and I will be flying in the 17th and leaving the 24th.
  • Anyone can register. After meeting thousands of Farnam Street readers in person over the years I know you’re a pretty awesome crew. So, anyone can sign up  … but I only want people who are going to take this seriously.
  • Space is extremely limited. There are only 20 spots.
  • You have a say. Dinners are the only organized events and they will each have a theme. After registration closes, we’ll email participants to get ideas on what they want to discuss and what they’ll be reading. You’ll also get a list of what Jeff and I will be reading that week.
  • Registration closes on February 29, at 11:59pm EST.
  • Discounted rates at the hotel. Things in Hawaii can be expensive. Since we hold a lot of conferences, we managed to lower the room rates by hundreds of dollars.

If this sounds like your idea of fun — reading, thinking, and hanging around a bunch of like-minded people drinking wine and discussing ideas — then I’ll see you there.

This has the potential to recharge your batteries and change your life.

You can find more information and sign up here.

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Recognizing Our Flaws is The Beginning of Wisdom

A short post today that packs a punch.

The liberating power of humility is one we’ve covered before. In fact, it’s a concept that is core to understanding your Circle of Competence. Now Russ Roberts adds to our collection of wisdom with this excerpt from How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness:

As I have gotten older, I have become less confident and maybe more honest. The economy is too complex; we can’t measure the interactions of all its various pieces with any precision. We don’t have enough data, and we don’t understand how things fit together. We are drunks looking for our lost keys under a lamppost not because that’s where we lost our keys but because that’s where the light is. We should be humbler and more honest. Our empirical studies are very imperfect. We often hold the views we do because of ideology and principle. Then we find some evidence that supports those views. We ignore the rest … An awareness of reason’s limits is a caution sign to remind us that we’re not as smart as we think; we’re not perfect truth seekers. We’re flawed. Recognizing our flaws is the beginning of wisdom. Many things look like nails that do not benefit from being pounded. That should induce caution and humility for those with hammers … Humility is an acquired taste. Once you come to like it, it’s a dish best served hot. It’s amazing how liberating it can be to say “I don’t know.”

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