Following up on Lex’s point…
For most of the course of human events, mankind lived in tribes. Behavior was regulated by intimate and persistent relationships, many with blood relations. The prolonged development required by human children assumed prolonged immersion in a cultural torrent fed by close physical proximity to fathers, mothers, brothers, sisters, aunts, uncles, cousins, grandparents, and the occasional stray outsider. Through this immersion, acceptable behavior was impressed on a child’s mind through a mix of deliberate and accidental lessons cumulatively applied over decades. When personal survival depended entirely on face to face relationships with others, the incentive to conform to what the tribe found acceptable was strong.
- knave: puts individual interests before group interests
- saint: puts group interests before individual interests
- moralist: conditionally puts individual interests before group interests
If moralists can punish knaves for not pursuing group interests, they will willingly put group interests ahead of their individual interests. If moralists can’t punish knaves, they opt out of pursuing group interests and only pursue their individual interests.
Since any human group is roughly ¼ knave, ¼ saint, and ½ moralist, this potentially pits ¾ of the group against the knaves. Within a tribe, knaves face an additional problem: the size of a tribe is usually smaller than Dunbar’s number. Dunbar’s number is the “number of individuals with whom a stable inter-personal relationship can be maintained” within the limits of the human mind. If group size is less than Dunbar’s number (around 150 people), moralists can know who’s a knave and who isn’t, allowing them to monitor and punish known knaves.
Consistent face to face intimacy with saints or moralists makes knavery difficult.
David Ronfeldt’s institution (equivalent to one of Joseph Tainter‘s complex societies), counteracts moralist surveillance of knavery. The institution is a sort of super-tribe of tribes stacked on tribes. It feeds off the same instincts that bind individuals to tribes but is one step removed from the intimacy and persistence of a true tribal bond. While an institution can create a semblance of intimate and persistent relationships with individuals (often through identification with a real or mythic figure thought to be emblematic of the institution), there is a large gap between institution and individual.
The number of individuals within an institution is potentially larger than Dunbar’s number. Within an institution, everyone can’t know everyone else persistently and intimately. This gives knaves the room for maneuver that they lack in the more intimate confines of the tribe. Knaves exploit the freedom bestowed by people who aren’t aware of their knavery to counter the numerical advantage saints and moralists enjoy over them.
They can create alliances with other knaves to form rent-seeking groups. They can dupe saints into supporting efforts to create institutional complexity to replace simpler tribalism. Saints think they can use such complexity to raise everyone to a higher level of institutional purity. Knaves know they can use such complexity to camouflage pursuit of their own interests instead of the institution’s. Knaves, playing the saint, can even rally moralists to support opportunities to generate complexity secretly intended to pursue knavery. Since the survival of knaves in an institution doesn’t necessarily rely on the good will of moralists who know them intimately, they can actually get away with generating complexity to advance personal interests at the expense institutional interests.
Moralists within an institution attempt to detect and punish knavery. But, if knaves can generate enough complexity, moralists get frustrated and eventually withdraw their support from the institution. They revert to tribal loyalties (what John Robb calls “primary loyalties”). The moralist strategy of “lite up, tune in, and drop out” is a major contributor to the collapse of institutions that Tainter explored in The Collapse of Complex Societies. Moralists in institutions like the Western Roman Empire became frustrated with the increasingly Byzantine (literally) complexity of the late Empire and opted out. The Empire collapsed and Isaac Asimov had his plot for the Foundation series.
Taleb has started pushing the need to re-personalize institutions to make them more resistant to negative black swans. A principle Taleb has recently pushed aggressively is that the “captain goes down with the ship; all captains and all ships”. Application of this principle would reverse the current logic of limited liability and leave people who introduce complexity into institutions fully exposed to the consequences of their actions, for good or for ill. This principle doubly applies when knavery created such complexity as camouflage for their free riding.
Taleb, singing from the songbook of his homeboy John Robb but with greater focus on city-states than fighting grizzly bears, points out that:
In an antique city state, or a modern municipality, shame is the penalty for the violation of ethics; in larger organisms like the mega Nation-State, with a smaller role for face to face encounters, shame ceases to play its duties of disciplinarian. We need to re-establish it. (This is one of the causes of the fragility of the nation state).
Taleb, repelled by an imposed encounter with regulator turned regulatory arbitrageur Alan Blinder, lists some downsides of knavery-prone complexity:
[T]he more complicated the regulation, the more prone to arbitrages by insiders. So 2,300 pages of regulation will be a gold mine for former regulators. The incentive of a regulator is to have complex regulation.
T. Greer has pointed out that laws passed by past Congresses were quite terse compared to the multi-volume laws that Congress puts out now and the even larger reams of paper consumed by the regulations that implement those laws. Perhaps increased complexity in American society since 1964 has something to do with it but knavery unleashed also plays a powerful role. Roman plebes pushed hard to get the Twelve Tables published so everyone could know the law that Roman patricians had monopolized as way to control the plebes. The Twelve Tables arrived at by the Decemviri (just like the 9/11 commission, only trying to take over the country) even had a nursery rhyme quality so that the mostly illiterate plebes could memorize them. Do you think the plebes would be satisfied when the road they started on ended in the (again literally) Byzantine complexity of the Code of Justinian?
[T]he difference between letter and spirit of regulation is harder to detect in a complex system. The point is technical, but complex environments with nonlinearities are easier to game than linear ones with a small number of variables. The same applies to the gap between legal and ethical.
The human mind, especially that of the moralist, is linear. Wrong A is committed and Punishment B should follow. Knaves, in attempting to confound the linearity of the moralist, introduces complexity that crosses over into non-linearity. “Wrong A, if not Wrong B, may be followed by Punishment C unless Wrong D happens, in which case…” and so on. Moralists follow informal principles that culture inculcates into them from birth. Knaves prefer formal rules that leave gaps where free riding can flourish. This free riding may violate informal principles of the latent tribal codes moralists follow but doesn’t violate the formal rules that knaves created. Knaves seek to be in charge of codifying and enforcing rules. They want as many rules as possible. That way knaves can crowd out simpler tribal principles and expand complex institutional rules, broadening opportunities for free riding.
[R]egulation, like drugs, has side effects, and like drugs, it can harm the patient — something in my work I call the iatrogenics (harm done by the healer). People do not mention that regulation helped promote the Value-at-Risk method of risk measurement in replacement to age-tested heuristics — these methods blew up banks.
Complexity has side effects that even knavery can’t anticipate. Those side effects can be toxic. They can even sweep knaves away in their wake, even though knaves do their best to entrench themselves in protective complexity. Saints, beacons of well-intentioned virtue, can create complexity in their zeal for earthly perfection that would make even knaves shudder. This complexity of the anointed can generate even more toxic side effects than the complexity of the damned.
[W]e need a more severe monitoring of the activities of public officials and a solution to the following conflict. In African countries, government officials get explicit bribes. In the United States they have the implicit, never mentioned, promise to go work for a bank at a later date with a sinecure offering, say $5 million a year, if they are seen favorably by the industry. And the “regulations” of such activities are easily skirted.
I’ve long wondered if the ability to take retired politicians, senior commanders, and civil servants and give them well-paid jobs in consulting, think tanks, and corporate boards was a better path to domestic peace than expecting noble poverty and opening yourself to conspiracies by disgruntled former functionaries. America has always traded the ubiquitous micro-corruption that characterizes knavery in most human societies for a more obscure macro-corruption that has characterized knaves in finance and other elite fields. Perhaps loosing a limb every once in a while through macro-corruption is better than death by a thousand cuts through micro-corruption. However, if macro-corruption is leading to loss of the body along with a limb, the time may have come to cut down the scope of macro-corruption in America.
The Greeks had respect for the banausoi, those who had to make a living in the professions, but many argued against trusting them in running the affairs of the city on grounds that “a funeral goods merchant would not be trusted to wish for the good health of his fellow citizens.” The point has been debated through the ages, from Xenophon to Seneca (who took the opposing point), but it is even starker today in the age of lobbyists and a shift in middle class values that tolerates the “everyone needs to make a living” even when the means to “make a living” are harmful to society.
The passing of simple informal tribal principles and their replacement by an every growing body of complex formal institutional rules increases the complexity of an institution. Increased complexity, Tainter argued, consumes increased energy. Some of this is caused by the intrinsic nature of institutional complexity. But a lot of it is caused by competing swarms of knaves simultaneously free riding off of the institutions, contributing to diminishing returns for the entire institution. Rules destroy persistent intimacy and shroud knavery. Rules increase energy consumption. They push institutions to the point that the moralists who bear their weight drop their load, opt out of complexity, and into simplicity, threatening whatever benefits complexity offers in the process.
The solution to unnecessary complexity is moralists’ monitoring and punishing knavery. The question is whether the circumstances that bring moralists and knaves face to face again is a conscious adjustment or a cataclysmic collapse.