Wednesday, June 18, 2008

The Divine method for success#2

This is intended as a partial response to Michael Haimson. Let me know which objections you think still stand

Intro: Dibros' need for motivation

In his intro to the Torah, Ralbag presents Torah as a divine method for success. Key to this method are the Dibros -a ten step approach to implementing the divine method in real world conditions. As Ralbag explains it, these “steps” follow a specific order-one must first liberate oneself from an opposing method for failure and then incorporate a method for success. While this explanation seems to make some intuitive sense, it also fails in an important way. The reader naturally asks himself-what exactly is the experiential basis for this approach of the Ralbag and where do we see evidence for this basis in our own lives? Surely if we were enslaved to a method for failure, the consequences should be readily apparent in our own real world experience! Only the reader who has been persuaded of the failure of his current method would ever become motivated enough to do the hard work of seeking liberation via a new method for success.

In reality this evidence is embedded in the premises of Ralbag, these merely need to be revealed. Let us begin with the first Dibrah- Lo Tachmod.

Lo Tachmod- liberation from Ego centric methods for failure

In his treatment of “Do not Covet” Ralbag identifies the root cause of failure- egocentrism. One who covets, by definition, formulates a world ordered around himself. In order to appreciate the immeasurable destructive power of such an act, we must consider the way in which success must be pursued.

Successful people, be they craftsman, professionals or whatever, succeed by virtue of planning. This commitment to planning is hard won. It is not accidental that so many businesses fail. We want to believe that our dream, beloved to ourselves is realistic, will be beloved to all and will necessarily succeed. Rarely if ever is this the case. Underlying this fantasy is a deep egotistical vision typical of a spoiled child. The spoiled child is accustomed to a world seemingly revolving around themselves. Their parents thwarted the normal emergence of respect for the power of causality and a magical sense of “planning” emerged. Since the spoiled child is accutomed to resources magically coming their way, they are insufficiently critical in their "planning". They expect a world in which desires are easily fufilled, without careful attendance to strategic causal factors.They mistake immediate gains based upon fortuitous circumstances as necessary conditions. The successful person then,is for the most part, one who has learned to forgo immature dreams in favor of well articulated plans.

At the macro level we saw this in the internet bubble.The fundamental premise of the bubble was that the internet released man from the laws of economics. The result was that the fantasy bubble burst, leaving so many businesses in bankruptcy, thousands of dreams shattered. More recently we saw this in the credit industry. Here too the false assumptions that loans could be somehow spun to poor risk borrowers, in contradiction to economic realities. The result again was that the fantasy bubble burst, leaving so many businesses in bankruptcy, thousands of dreams shattered.

It is experience of and a healthy dread for such magical thinking, the notion that one may merely dream without taking account of underlying strategic causal factors, that is the bedrock of success. The chazal crystallize this lesson into a dictum in Pirkei avot- אין בור ירא חטא- a dreamer without experience has no dread of magical thinking.

As pleasant as the tactical “benefit” coming from "coveting" may be- it comes at the expense of strategic loss. Such an act disregards much more strategic principles than the two bubbles mentioned earlier. Both the internet and banking fiascos involved disregard for market principles in specific domains-the internet and banking. The one who covets disregards a more fundamental notion- the very existence of law universal in its application to man. If one denies the reality of law, a principle equally applicable to each and every instance, in what way is rational planning possible at all? How is a mind to maintain planning if it falls prey to magical thinking in the most fundamental premise- the universal applicability of the law?

The pyrrhic victory involved in coveting then is dreadful to the experienced man. How could one not dread disconnecting oneself from the core tool in the battle against magical thinking that has been the source of all failures? It is here that we see the fundamental principle of failure underlying Lo Tachmod. To give in to coveting is to strengthen the very basis of magical thinking-the law applies only where it is useful to me personally. This principle is deeply repugnant to any practical person who has considered the root cause of failure.

The wise person is on the contrary ever vigilant to never, ever give in to magical thinking. The internet is not and cannot be a magical source of wealth outside of known market principles. The mortgage industry is not and cannot be a source of wealth outside of known banking principles.Indeed Goldman Sacks,precisely because strictly adhered to its time honored principles largely avoided the crash of the mortgage market. Warren Buffet succeeds because of legendary adherence to carefully scrutinized principles,in all times good and bad. Universality of law lies at the very core of the mind ordered to success, coveting promotes its exact opposite.

1 comment:

Haimson said...

More interesting still...

When it comes to coveting I took that word to be analogous to desire. The way to explained it implies the willingness of the "coveter" to employ means contrary to the rule of law in order to attain his desires. That I can agree with.

You example of Warren Buffet I find to be very apposite and well made, he is the perfect example of the careful planning and adherence to economic principles that you are pointing out. But he operates in a different realm of the business world. The parts of the business world that suffers from bubbles are the innovative and booming ones. Buffet himself says he doesn't like investing in tech companies because he doesn't understand them as well as more established business sectors. Innovation is the key to progress. Every time a new innovation reaches the market we have a little turmoil; some companies become outmoded and go bankrupt, and mistakes are made that cause harm to the system. But that is the nature of life, economists are just as oblivious to changes in the market as regular people are. To treat economics as a science is a very dangerous thing. There can only be one Warren Buffet, he is famous and wealthy today because he started doing what he is doing before anyone else and was able to make a name for himself that has taken him the rest of the way to his current success (whenever it hits the news that his company is investing in another company or sector that company or sector usually sees an increase in investment from all sorts of other investors, becoming a self fulfilling prophecy almost).

Now Goldman Sacks is a different story, it was 2 traders that saw the coming fall and persuaded their colleagues to allow them to short some subprime mortgages. They still were hurt by the mortgages crash, but due to the innovative spirit of some of their employees they were able to recover it and post a small profit with a bet against the market (at a time where the house of cards were already looking weak). Goldman was actually criticized because they used these short sells to cover their own losses while they allowed their hedge funds (their customers money) to lose 37% during the crisis. Goldman was a fluke, while Buffet is an isolated incident.

The volatility of the market isn't a side point, but the foundation of all human economic activity. Now when it comes to clinging to magical thinking, there is no better teacher of the facts of life than the market, the only way companies can survive is if they are the quickest learners of the changing reality, there I can agree with you that is the reason most businesses fail. But that is why the market works, because we compete and the "best" wins, I don't see how else it can be.