Tuesday, February 14, 2012

The Bafflement of Colleagues

I recently wrote to an economist colleague to request some references on the idea of moral hazard as it has made its way into economics form the insurance industry. I have since found further references by other means, but my request sparked an exchange in which I found myself confronted by puzzlement on the part of my colleague . . . and a pressing need to further clarify what I mean by the tragic outlook, and what some critics have meant when they said such an outlook poses a moral hazard.

One crucial point of clarification - a point on which my colleague insists - is that the original meaning of moral hazard is very restricted in scope. It really only applies to principal-agent relationships under conditions of uncertainty, particularly relationships within which the principal (i.e., an insurance firm) in effect shields the agent (i.e., the insured client) from certain losses. The hazard, from the insurer's point of view, is that being shielded from risk will change the behavior of the agent with respect to those same risks, possibly bringing about greater losses than would otherwise have occurred.

So, on the face of it, the tragic outlook cannot be subject to the moral hazard objection, because there is no principal involved, and agents (i.e., you and I) are not shielded from risk. I'll have more to say about a possible extension of the moral hazard objection in another context, but I think the intuition behind it is having, in some more general sense, "nothing to lose."

But my colleague started asking other tough-minded questions about the coherence of the tragic outlook itself and, in formulating my responses, I've come to a better and more articulate understanding of what I mean.

To that extent, I am generally grateful for the bafflement of colleagues.

Here is how I first characterized the outlook:

First, if what I'm doing sets up a 'moral hazard', it does so in an unconventional, even perverse sense of the term. In its conventional usage, it applies to situations in which individuals are protected from the consequences of assuming certain risks; the idea comes from the insurance industry, as you know. The worry about the tragic view is that it will have the same effect by a different mechanism: if the game is up, what does it matter whether we assume terrible risks now, or fail to act so as to avert certain risks. The common element, I think, is the sense on the part of the agent that there is nothing to lose, an attitude that can breed negligence, or even recklessness.

Second, the tragic view would only constitute a (perverse) moral hazard if we could know with some certainty what the losses would be and how great they are. I'm not proposing an apocalyptic vision of certainty that total losses are at hand. Instead, I propose that terrible losses are possible, perhaps even likely, at some point soon . . . we know not the hour. There is still much we may do to avert or reduce losses, to preserve our most essential projects, to get organized.

My colleague responded by confirming that the logic of moral hazard, in its original sense, does not map readily onto the situation I describe. The situation is, in his words, "messy". As part of my response, I attempted further clarification of "the situation" as I see it, in these terms:

I should also clarify that my own "tragic" view is not that doom is unavoidable or, at least, it is not that any particular doom is unavoidable. It's simply that terrible losses are always a latent possibility, and we can sometimes foresee conditions that could bring them about. It is possible that we may hit on some trick to forestall a particular set of losses, but we have no grounds for thinking we are entitled to be saved, as Wendell Berry put it, from the logical consequences of our folly.

Whatever salvation we manage, we'll have to manage it ourselves, by the sweat of our brow or the seat of our pants . . . with no guarantees.

I referred him to earlier posts on this blog.

In reply, my colleague requested more precision. What am I in fact claiming? Are we facing certain doom, or not? What probability of how much doom?

This was an entirely useful request. I replied:

In the long run, of course, we're doomed. It's a question of finding the right time-scale. Sometime within the next fifty years or so, I will die, perhaps horribly; I may be in the middle of doing something important (to me or to others) at the time.

Sometime within that same span, we may, for all intents and purposes, run out of a critical resource for which (it seems) we are unlikely to find substitutes, while we're in the middle of doing things that are important (to us or to others) at the time . . . like the project of passing on what we've learned to another generation, so they have something to build from (i.e., the project of civilization).

Sometime in the geological future, H. sapiens sapiens will go extinct. Sometime beyond that, the sun will turn into a red giant and swallow the Earth. Sometime long after that, in the cosmological future, there will be either a Big Crunch (a "Gnab Gib", as Douglas Adams puts it) or heat death.

Pick the right scale, and total loss (in a broad, normative sense) is inevitable.

At the current time scale, we are always vulnerable to loss (in a broad, normative sense) of varying degrees of severity . . . and the mechanisms that may drive that loss are either beyond our control, outside our knowledge, or both. This is the direct connection to tragedy in the Greek sense, as elaborated by Nussbaum in The Fraglity of Goodness. To some degree, as Nussbaum points out, it is very difficult to face up our vulnerability, very difficult for us to accept the possibility of undeserved loss, without secretly hoping for some saving grace: divine intervention, biospheric self-correction, a technological, economic or cultural silver bullet, the anthropic principle, or some other cosmic bias toward satisfying narrative closure (. . . and they all lived happily ever after).

So, we're vulnerable, and we've no reason to think we're entitled to salvation.

We also face what may be irreducible uncertainty about the mechanisms that may lead to terrible losses. They can sneak up on us. Even if we think we see them coming, we don't know exactly when or how they will play themselves out, or how severe the crisis will be, or how many of our most important projects will be disrupted . . . or how many of us will die, when a crisis comes.

Right now, it certainly looks as though a crisis may be upon us. It certainly looks as though terrible things are likely (or even very likely) to happen in the near-to-middling future.

In a presentation I'll be making at a conference next month, I use the term "peril" . . . and I chose it carefully. These are perilous times: we are currently at risk for immanent, terrible losses . . . but we can't be sure and, even if we were sure something bad were going to happen, we don't know exactly what, or exactly how bad it will be.

Some, like Kunstler, are convinced that something very bad is already beginning, and is going to go on for quite some time ("The Long Emergency"); even then, there isn't certainty of doom, and Kunstler works hard to muster some hope that, however much we lose, we won't lose everything. But we have to wake up, he argues, face our responsibilities, and act to make sure that, however many human beings are still around at the other side of the emergency, a couple of centuries from now, they are carrying on the project of civilization.

Anyway, the tragic outlook is intellectually and normatively modest: it does not require any claim of certain, immanent doom. Nor does it claim to know of some kink in the cosmos or some deus ex machina that will save us from whatever perils we do end up facing.

The tragic outlook may be a kind of emergency preparedness.

Sooner or later, at one scale or another, we will, individually and collectively, confront terrible losses without redemption. We should accept that as our lot, and prepare to meet whatever happens, at whatever scale, with maturity, courage, resolve and dignity . . . not with indignation, as though the cosmos owes it to us to let us continue all our projects.

It may be a bad example, but I think of Cassandra in Aeschylus' play Agamemnon. The eponymous king brings her back to Argos as a war trophy/sex slave from Troy. He goes into the house, where Clytaemnestra waits to murder him. Cassandra, who has the gift of prophesy but is cursed never to be believed, knows full well what will happen to her if she goes in the house. She resists, but knows she's doomed. Finally, she gathers herself, says farewell to the chorus, bids them pass on a message to posterity about heartbreaking loss, and walks across the threshold with her head held high and her eyes wide open.

Agamemnon, by contrast, is clueless and vaguely pathetic in meeting his death. In the next play, Aegisthus, Clytaemnestra's lover and co-conspirator, goes to his death, at the hands of Orestes, with vainglorious bluster, convinced he can control his own destiny by main force; he's utterly contemptible.

This is the closest I have yet come to a precise statement of the tragic outlook. I find it oddly comforting, as it shows more clearly the difference between tragedy and apocalypse, between resolve and despair.

We have work to do and, as far as we know, there is still some time yet to get it done.