This is the million dollar question. Or billion!

If you watched the legendary movie “The Social Network”, you know about the romanticized version of the equally legendary creation of Facebook. And you probably know all about the movie antagonists, the Winklevoss Twins.

But since the movie closes on the first years of Facebook, way back more than 10 years ago, you probably don’t know that those same Twins heavily ventured into cryptocurrencies, and while influencing NYC legislation they also invested USD 11 million out of the USD 65 million from the Facebook settlement. In 2013 this allowed them to buy into 1% of the available coins. Which means that they are now the very first Cryptocurrency Billionaires (with a “B”!)

So, this is “The Social Network Part 2: Rise of the Cryptocurrency”

2017 has been a pretty crazy ride for cryptocurrencies in general, Bitcoin in particular.

It was not 10 days ago that we reached “over 9000!”

And just a couple of days later, Bitcoin crossed the elusive 10,000! And when everybody thought that was it, it keeps going up, in the largest and fastest bullish run in cryptocurrency history.

As of the time of this article writing, we are consolidating around the 11,700 mark, going after the 12,000 as we approach 2018 and the entrance of the CME Futures, Nasdaq, and many other big endeavors.

And the world can’t help themselves but ask: “are we in a bubble?”

Or a more precise question: “will I lose everything if I buy Bitcoins today?”

Interestingly, the best answer so far came from traditional Forbes in the article “Is Bitcoin In A Bubble? Check The NVT Ratio”

Traders love their indicators. In computer science, we are getting more and more captivated with statistics, probability, and the dawn of machine learning. But both fields are still far from getting away from the biggest trap of all: “Post hoc ergo propter hoc”.

“Correlation is NOT Causation”

This is the mistake that leads to unbelievable things in humanity. From extremist religions to people selling houses to buy Bitcoins.

Accept that no one can predict the future. We can forecast the short term. If we look hard enough we can find any number of indicators that feel “Sciency” and “Math-y” enough to believe, but at the end of the day, they are as good as lucky tokens or four-leaf clovers.

And the most important thing: It doesn’t matter if Bitcoin crashes hard tomorrow!

Programmers from Tech startups are the very first to shout out the stupid “It is like Tulip Mania all over again” as if this makes them sound wise or something. As I said in my previous article, if you hear anyone repeating this fake news, you know they know nothing.

Equally disingenuous is when I hear people saying “just believe in it, real-world analysis doesn’t apply to Bitcoin.” This is stupid, of course, it does. Both the stock market and cryptocurrencies follow the same behavior: because the players are the same. Not only technical analysis, but behavioral economics also applies. Like Richard Thaler’s Endowment effect:

“People ascribe more value to things merely because they own them.”

If programmers are so honest and wise, why not remind us all of the irrational exuberance in our own field? How about the legendary Dot-com Bubble Crash of 2001?

I was 24 years old back then, and having around 4 years in my career, it was a crazy time to work. I worked in 3 different companies in that period. I saw all of them explode. And damn, I was so eager and so excited, and at the same time so frustrated.

I was frustrated that I lacked the experience, the knowledge, and the capital to pursue those endeavors and ride the big waves.

And when it all went down in 2001, it felt like I had lost the chance. It’s not a pleasant feeling. Rationally I knew that I didn’t miss anything. I lived through it, I experienced it, and as I didn’t have the capital to invest, I also didn’t lose anything when it exploded. But I promised myself that I would take my time to study, get experience, accumulate capital. And when another opportunity like that shows itself to me, I would grab it.

Most importantly. The bubble crashed, and it was spectacular. I never got desperate, or had feelings of “end of the world”. The world never ends, we are too ingenious for that.

The graph above is the Nasdaq-100, a stock market index made up of more than 100 equity securities issued by 100 of the largest non-financial companies listed on the NASDAQ. And that graph is powerful because it feels like Bitcoin is heading towards its inevitable bubble crash as well.

Now, consider the following graph of the Nasdaq-100 from 1999 to today (2017):

Yes, we had a period of depression and very slow recovery. Then the economic crisis of 2008 shot us in the face. But we recovered. Give it 10 years after a crash, and I promise you that we will reach levels above and beyond the previous crisis. That’s how we function. Over time we innovate, we adjust rough edges, we make things more efficient and streamlined.

Now, the Nasdaq-100 is valued at 6,263.70. At the peak of the 2001 bubble, the index was at 4,691.60. So we are 50% above the bubble fever of the 2000s. And it all happened in my lifetime.

And also as I planned in 2001, I was not ready back then. I am now.

Antifragility works like this: you can gamble an amount that, if you lose it, you won’t regret it. But if you win, you win big. Bitcoin is like that. I can invest - let’s say - USD 10,000. If I lose it, yeah, it will hurt but I won’t die because of it. But if it keeps its exponential growth, and doubles in the next 2 months, I will have USD 20,000. And those USD 20,000, 6 months from now, can become USD 50,000, or more.

But it all goes down to: if it crashes, I lose the USD 10,000. That’s fine. And if I want to be really risky, I can apply trading techniques, do swing trading, margin trading, leverage myself, and so forth.

Bottom line is: it really doesn’t matter if this is a bubble or not. If it explodes, cryptocurrencies will go on, in one form or another. We already experienced what it’s like to trade in a 100% digital currency across borders. We won’t go back. The internet didn’t go back, we just couldn’t get offline anymore.

After the historical USD 10,000 break a day ago, Bitcoin and cryptocurrencies in general finally reached the mainstream media in a bombastic way.

Like many in the tech industry, I tried the tech since the very beginning. I mined a couple of bitcoins myself back in 2009, then lost my wallet private key, totally forgot about it, and many years later here I am, kicking myself in the butt :-)

When it reached USD 3,000 I had my interest in the platform totally renewed. And it was a very pleasant surprise to see how big it became. If you follow me, you know how eager I am to learn new things that have real potential. And also how easily I turn my attention full gear into something.

I can only do that because I am not a loyalist to anything. I don’t pick and defend a single language, or a single OS, or a single manufacturer, or a single market. I find it very unproductive if I see myself just defending stuff.

Believe it or not, Cryptocurrencies are here to stay, for a few years at the very least. I remember the feeling when I tried the commercial Internet back in 1993. It feels like that all over again: an uncharted territory with a lot of potential and a lot of things we can’t even imagine right now.

If you follow me, you also know that I am a big proponent of applying Reason. I hate both extreme hype and FUD. Anyone sharing either is someone that wants to be noticed, free attention, but has nothing actually useful to say. “Oh, it’s gonna reach 100k soon! Buy in!” or “Oh, it’s a tulip bubble, you’re an idiot if you buy in!”. Both extremes are imbeciles.

Education is key to anything. The reasoning is the starting point.

As a big disclaimer: I am not recommending anyone to buy into cryptocurrencies without doing your own due diligence. Anyone doing any recommendations for or against is irresponsible. All I can do is convey a personal opinion and technical analysis. This is my role.

One example: did you know that the so often repeated Tulip Bubble never actually existed? Yes, that shows how quick people are to share memes and fake news without actually doing research.

And it’s even more hilarious in the tech industry, where I see many “evangelists” shouting about the “miracles” of starting your own tech startup in hopes of “disrupting” the industry with yet-another-Uber-derivative. Let’s put this straight: anything can be a bubble.

Gold is only valuable because we created a story around it. Gold can’t be eaten. Gold is not even a very good metal to work with. We just created a story and we agreed to it. The same goes for anything we consider “valuable”. What is a fiat currency? It’s a piece of paper, which is useless by itself. But if we all agree on the same story, that “$100” printed on it makes the paper super valuable.

Such is the power of belief.

Anything that we do requires some level of faith. If I perform a job to someone else, I need to have the faith that I will be paid in the future. The confidence comes from a piece of signed paper or even a simple e-mail, and the trust that institutions will help me enforce this payment if need be.

It’s all stories, faith, and beliefs. If you didn’t already, I highly recommend you read Yuval Harari’s “Homo Sapiens” to understand how stories shape our history.

That being said, I find it hilarious that techies considered “serious” are super quick to shout out “this is a scam!” or “this is a bubble!” without giving it 1 second of consideration, check the fundamentals and check the sources. Engineers should know better, and that exposes who actually know how to do proper analysis and who just follow herds blindly.

You can’t say that I was wrong if, for any reason, cryptocurrencies explode tomorrow all of a sudden. Nor that the naysayers were right. This is important: anything in the future is impossible to predict. You have to play the odds. If you don’t have confidence, don’t gamble. But creating stories to justify ignorance is beyond disappointing.

The interesting part about the financial markets is teaching people how to deal with improbability. I have been evangelizing Nassim Taleb in this blog for years, since the 2008/2009 economic collapse. We learned a lot. We learned about “Black Swans” and how to become “Antifragile” and, in good timing, how to have “Skin in the Game”. Engineers should have more of this knowledge, they would come up with much better solutions.

Answering some specific FUDs I have been reading:

“It’s a bubble!”

It may be. As I said, the tech industry is a bubble for all we know. It only requires a few VCs to collude and pull back and leave a bomb to explode behind. Everything is just stories, no matter how much you value something. That’s it.

How do you operate in a bubble? In an antifragile way. First of all, if you’re uninitiated, never, ever invest everything you have. Only invest an amount that, if you lose everything, you won’t be left to die. This is Investment-101.

Try to buy at the lows, and perhaps sell at the highs. Or plan long-term and HODL for a few years. If you need quick returns, learn how to deal with stop-loss orders, for example. Don’t try to outsmart the market if you don’t have trading experience. Or do, but don’t complain when you lose.

Losses or profits, it’s all on you and you alone, not “the market” or “the speculators”. Everybody is an adult. Adults should take responsibility for their own acts. If they lost money in a gamble they didn’t understand, it’s their fault.

“Mining consumes more energy than certain small countries!”

It doesn’t matter. First and foremost, they are not draining free energy. Every miner is paying for it. Now you will see why it’s so bad when governments interfere with free markets. If some country subsidizes the energy, then the supply and demand formula will fail. Obviously.

And techies should know this better. There never was enough bandwidth in ground telephone lines for everybody on the planet to connect to the internet. We had to evolve infrastructure, a lot. We had to add submarine lines. We had to go from dialed modems to ISDN, to cable modems, etc.

Proof of work based mining consumes a heck of a lot of energy, and for good reason. We are trading off energy for integrity. But this is not the only alternative. There are proof of stake implementations starting to be deployed in other alt-coins which are super energy efficient while providing similar levels of trust in the consensus.

The point is that technology evolves fast, you can’t extrapolate into the future based on what we have now. It’s like someone in 1993 saying “the commercial internet can’t happen because telephone lines are too slow if we ever want to have video streaming services”.

“Bitcoin is too centralized, it is too dangerous!”

If you’re a programmer and still don’t know exactly what mining means, I recommend you read my previous article about it first.

Mining is not deterministic. Even if you have the best hardware ever, it’s not guaranteed that you will mine the block first. It’s more like a raffle.

Which is why miners organize into pools, which share the gains between the members.

The concern is that 4 of the biggest pools, AntPool, ViaBTC, BTC.com, and BTC.TOP “control” 62% of the world’s hashpower..

It’s said that anyone controlling 51% of the hashpower could launch a hack attack against the blockchain, being able to rewrite blocks in the recent past and allowing double-spend, for example.

But in practice, it’s not that easy.

It is expensive to mine. USD 20,000 in equipment can only mine around USD 11 per day, without subtracting all the costs including the depreciation of the machines. Anything other than mining is very risky and unprofitable. The system is built in a way that hackers would have to spend so much money at such high risks that it’s easier to just follow the rules.

And again, the alt-coins and forks are experimenting into new ways to make it even harder in the future.

“Visa performs thousands of transactions per second. Bitcoin can never do that!”

Again, this is a useless argument. It’s like saying “gold can’t be exchanged fast enough, it will never be good”.

We already have several alt-coins such as Litecoin and others trying to solve the problem of fast transactions. Consider that all alt-coins are kind of tied to Bitcoin, the same as the dollar used to be tied to the gold. And if the so-called Lightning Network ever goes live, we can cross boundaries between blockchains more easily as well.

Visa doesn’t transact dollar “bills”, they make virtual transactions in their internal databases. Only when the merchant withdraws, it’s converted to fiat dollars.

You can easily add Bitcoin to the mix of options in a Visa transaction system. That’s how a credit card works today. You only pay 30 days later. And it works. What’s the matter?

And again, we will solve this in time. Let the technologies mature and demand starts to need it and the solution will come up.

“It doesn’t serve any social function.”

Most of the criticism against cryptocurrencies comes from the “elite” population in first world countries. If you’re a white person in the USA, with a good income in dollars or someone similar in Europe, with lots of Euro. You are mostly concerned with “Bitcoin is too slow for me to buy goods at the shopping mall” or “the transaction fees are too high for my daily Starbuck’s coffee”. And you start shouting that “Bitcoin serves no social function”.

But this is absurd. You don’t live in South America, Africa, Southeast Asia. You are not in Venezuela where their currency was broken by the current dictatorship. Can you imagine your beloved dollar bill worth less than toilet paper?

You don’t live in Zimbabwe where the army seized power. You don’t live in Asia, a place under constant threat of nuclear missiles on their heads coming from crazy dictator Kim Jong-Un.

So, yeah it doesn’t serve a social function in your daily sugar intake from 7-eleven. It’s too slow to buy 2 gallon super gulps and the fees are too high. But if you live anywhere in the world where the government poses a threat to their citizens, having an unregulated, decentralized, store of value, which you can easily take out of the offending country, is a life saver. Even in countries like mine, Brazil, you don’t want to have everything in Reais in case dictator-wannabes like Lula or Bolsonaro actually go crazy and coup.

“I don’t see it. I just don’t see it. And I don’t care.”

This is the most honest thing to say, at least it’s assuming your own ignorance and your own lack of interest.

And there is a good reason for that. In terms of tech, the USA follows what Silicon Valley says. And many other countries just keep repeating what comes from there. So techies are used to following what Google or Facebook or Apple are saying.

Now, the blockchain technology didn’t come from them directly. It’s not a Google product. And worse, it touches their fragile moral beliefs. They think it’s ok to receive huge amounts of VC money as a “reward” for what they “believe”, their “culture”, their arbitrary “values”. They don’t believe in making their own money. And even though VCs are from the financial market, techies despise Wall Street and the financials. The Starbuck’s hipsters hate the suit and tie traders and their so-called “dirty tactics” to make money.

It’s hilarious actually; in the end, they all want one thing, and one thing only: more money. But hipsters are very hypocritical when it comes to saying that. “I don’t want money, I want to disrupt the market”. Yeah, right, keep telling yourself that.

Now, consider that this whole cryptocurrency buzz is not coming from the West. It’s all from Asia. Japan, South Korea, Singapore, China, they are the ones steering the market. Japan, as a country, has already regulated and accepted Bitcoin as proper currency and they have 60% of the market share, alone.

This is a heavily Asian driven phenomenon. And we are just getting started.

So this is not an “if it happens” scenario. It already did. Biggies like the CME Group, Nasdaq will start having Bitcoin offerings. We are lagging behind discussing stupid trivial issues that will be fixed in the long run.

Cryptocurrencies are here to stay. My recommendation if you are truly someone that values knowledge: learn about it.

“The foundation of that is the open source world: the biggest capitalist experiment in software and a living example of what a Laissez-faire Free Market looks like. The best place to maintain and improve technology commodities.”

The confusion comes from the word “free”. Because of the freedom principles of Free Software, a lot of people associate open source with one big “socialist” experiment. My thesis is the opposite: free software is the most capitalist thing in software. No government regulates it, no agency protects bad projects, every exchange is voluntary, and competition decides who survives. No sector of the real economy works like that; the closest historical period was late 19th century America, before the Federal Reserve and the federal income tax.

Matt Asay wrote on CNET, in “Open source: It’s about capitalism, not freebies”:

“The secret is to use open source as a means to an end, not the end itself. Open source is a means to cheap distribution, a way to get software into the hands of would-be buyers at little to no cost. It’s a way to make the software experience social and less risky, because users can try before they buy and because they can tailor (or pay someone else to tailor) software to their needs for a lower cost than proprietary software affords.”

And he was even more blunt in “Sorry, socialists: Open source is a capitalist’s game”:

“[Sarah] Grey writes that ’there are alternatives to capitalism’. She’s right. Unfortunately, open source isn’t one of them. Open source is the essence of Free Market Capitalism.”

Definitions, so nobody fights a strawman

First, the terms I’m using. Capitalism is private ownership of the means of production, with voluntary exchanges between the owners of that property. A Free Market is those exchanges carried out with no coercion and no regulator: supply, demand, and prices stay in the hands of the participants.

Socialism, in the classical sense, is state or collective ownership of the means of production. Public healthcare and free education in a market economy are welfare policies, not socialism. The target of this text is the model where the State owns production.

With these definitions, defending classical socialism and defending individual liberty are opposite positions: the first requires subordinating everyone’s property and choices to a central authority.

Free software is private property under a license

Open source code has an owner, always. Copyright belongs to the authors, and using, copying, or modifying that code is only possible because the owner granted a license. Without a license, nobody has any right over someone else’s code, as Jeff Atwood pointed out in “Pick a License, Any License”:

“Because I did not explicitly indicate a license, I declared an implicit copyright without explaining how others could use my code. Since the code is unlicensed, I could theoretically assert copyright at any time and demand that people stop using my code. Experienced developers won’t touch unlicensed code because they have no legal right to use it.”

There’s a practical test for this property: the owner can pull the code out of circulation whenever they want. In March 2016, Azer Koçulu unpublished his packages from npm, including the tiny left-pad, after a name dispute with the Kik app. Thousands of builds broke that same day, as Ars Technica reported. The source code stayed on GitHub; what he removed was the distribution from the registry.

Agreeing with Koçulu or not is irrelevant. The package was his property, and the decision to remove it was his. The interesting part came after: nobody got arrested, no regulator stepped in. npm restored the broken package and changed its unpublish policy. The market absorbed the shock and grew antibodies, without taking away anyone’s right to walk out.

The Ruby community lived through a smaller version of this in 2009, when _why deleted his projects and vanished, as I wrote here.

When the disagreement is internal, the exit mechanism is the fork: whoever disagrees clones the project and competes with the original. That’s what happened with io.js, born as a fork of Node.js in 2014 and merged back in 2015 under the newly created Node.js Foundation, once negotiation made sense. History has plenty of thriving forks: WebKit from KHTML, LibreOffice from OpenOffice.org, MariaDB from MySQL, X.Org from XFree86. And there are derivatives that outgrew their origins, like Ubuntu from Debian.

A fork is voting with your feet. It’s expensive, because it means maintaining an entire project, and that’s exactly why it only thrives when the motivation is real.

Competition implies the right to fail

In a market with no regulator, nobody keeps a bad project artificially alive. For every PostgreSQL out there, dozens of databases tried and died. For every relevant Linux distro, hundreds became footnotes. That’s a sign of health: selection is working.

The justice of this process is blind. Code doesn’t carry its author’s biography, and the market hands out no medals for good intentions. A project survives if it convinces users and contributors of its technical merit, and dies if it doesn’t.

Opening the code, by the way, saves no one. Nokia finished open-sourcing Symbian in 2010, when the platform was already losing ground to the iPhone and Android. The gesture changed nothing: too little, too late.

I compared this process to natural selection in an old screencast (in Portuguese). The software that adapts best to the demands of its environment is the one that reproduces the most, as users and contributors. The graveyard of dead projects proves selection exists and works.

And the landscape shifts all the time. Apache HTTP ceded ground to NGINX. Firefox lost a huge slice to Chrome. Perl ceded to Python and to newer languages like Go. MySQL lost prestige among developers to PostgreSQL, faced the NoSQL wave, and still gained a competing fork, MariaDB, after the Oracle acquisition. None of these projects had squatters’ rights to the throne.

The programmer pays to participate

The free software market has a curious inversion of values. At a company, the programmer gets paid money to write proprietary code. In a well-known free project, it’s the programmer who “pays”, with their time and skill, to get code accepted. In return they get reputation, learning, portfolio, and yes, a bit of vanity. It’s a voluntary exchange that benefits both sides, like any other.

“Price” here isn’t measured only in money. Value is anything with supply and demand, and competition sets the price. The currency of this market is technical competence demonstrated in public.

That has a hard consequence: convincing others is part of the game. If your idea has value and still nobody adopts it, the most likely explanation is the idea or how you presented it, not the audience’s stupidity. Blaming the audience is the fastest way to devalue your own cause.

The paradox of “socialist” free software

Picture the opposite model: the software world under classical socialism, with production controlled by a central authority.

Without individual ownership of projects, competition ends. A bad project that serves the controllers’ agenda stays alive, even when a technically superior alternative exists. Choice leaves the hands of the users and moves to the hands of the controllers. There would be no left-pad accidents, and the price of that would be a huge catalog of derelict software nobody wants to use.

Without the individual benefit of exchange, volunteering ends. No competent programmer would donate their best hours without reputation, learning, or freedom in return. And if contribution becomes a mandatory quota decreed in the name of the “social good”, everyone will do the bare minimum to fill the quota. Soviet production worked exactly like that in pretty much every sector, with the results we all know.

Without competition, innovation ends. Innovation is born from an individual’s will to solve their own problem their own way. Eric Raymond opened “The Cathedral and the Bazaar” with that idea:

“Every good work of software starts by scratching a developer’s personal itch.”

Innovation is also transgressive, because it makes entire professions obsolete. Travel agencies nearly vanished once buying tickets online became trivial. Video rental stores died with streaming. Uber squeezed cab drivers, Airbnb squeezed hotels. Whoever stayed stuck in the old model suffered, and the world moved on.

Software was the same. The GNU Hurd folks didn’t celebrate when Linux exploded. Nokia found no humor in Android. MySQL doesn’t root for PostgreSQL. Whoever resists the market’s dynamics gets left behind. Harsh, and absolutely fair.

The dystopia of the protected monopoly

Proprietary software can be good or bad; the problem shows up when it becomes a protected monopoly. 1990s Microsoft was a de facto monopoly. We can argue forever about whether the Department of Justice ruling was fair, but the decisive blow to the monopoly came from the market: free software, with GNU and Linux, and then the commercial internet, which took the platform monopoly away from Windows.

Imagine an alternate future where Microsoft convinces the US government that Windows is essential to national security and deserves permanent protection. Everything would have stopped. To this day we’d be using a 100 MHz Pentium running some Windows 98 derivative, on dial-up, because “nobody needs more than that”.

That’s the logic of handing the market’s decisions to a central authority: don’t invent email, it will hurt the mail carriers; don’t build websites, it will hurt the printing plants; don’t create free software, it will hurt the government’s programmers. Every dictator uses the same speech, “for the good of the people”, and every speech of “for the good of the people, whatever the means” ends in the same place.

Tyranny and the end of free software

The worst possible case for a free project starts like this. A developer builds a piece of software to solve a problem and opens the code. For twenty years, hundreds of people use it and contribute.

Then a cause comes along, any cause, and someone appoints themselves its representative. Through social pressure and propaganda, the maintainers become pariahs. The trade press amplifies it, because controversy attracts readers. The code stops being the subject: what counts now is each contributor’s personal opinions, appearance, and past.

From that point on, participating in the project becomes a risk. Contributing pays no value anymore; all it pays is exposure. One by one, the people who actually wrote code walk away, and the project withers. It’s a perverse way of seizing a property and destroying its value without formally confiscating anything.

Ayn Rand dramatized exactly this mechanism in Howard Roark’s trial in “The Fountainhead”, and I wrote about it in 2011:

“I came here to say that I do not recognize anyone’s right to one minute of my life. Nor to any part of my energy. Nor to any achievement of mine. No matter who makes the claim!”

That’s the warning. A political layer on top of a free project destroys the market that sustained it.

Conclusion

None of this condemns anyone who contributes out of social motivation. Whoever trades their code for the feeling of helping is making a voluntary exchange like any other, and outside software that has a name: donation and volunteer work. The trouble starts when someone decides that other people’s property must serve the cause they picked.

Solving the world’s problems is much harder than arguing about them. Bill Gates delivered that message in 2000, pushing back on the hype that PCs would end poverty:

“Fine, go to those Bangalore Infosys centers, but just go and try those guys three miles outside, and look at the people who are living without a toilet, without running water… The world is not flat and PCs are not, in the hierarchy of human needs, in the first five rungs.”

Programmers, from any social class, have internet and resources to spare, enough to spend the day on social media debating how to save the world. The people actually working on those problems are outside that circuit, doing instead of talking.

I’ll close with a real story someone told me, names removed:

A: Man, nobody gives my [minority] a chance.

B: Why don’t you help me fix these issues in this open source project? Then you can give talks about it.

(A vanishes. B waits, gets tired, and calls C, who fixes the issues and gets the speaking slot.)

A: See, B? You’re one of the oppressors who won’t give people like me a shot, and you’d rather hand the opportunity to C.

And a personal note to wrap up. People label me an “Ayn Rand follower”, and they’re wrong: Rand merely put in writing, before me, what I already thought and practiced. Same goes for Bastiat, Friedman, Hayek, or Menger. They’re references, and references are not owners. Judging an idea by its author instead of judging the argument on its merits is the definition of ad hominem, and I don’t respond well to fallacies.

There’s a branch of research known as “Behavioral Economics,” a strand different from traditional Economics. Classical Economics starts from the premise that people are rational and decide based on cost-benefit analysis. Behavioral Economics factors in the social, cognitive, and emotional forces that shape our day-to-day decisions.

We like to believe we make rational decisions all the time, but most of the time we’re guessing and deciding on emotion. And that produces some fascinating results. One of the best-known researchers in the field is Prof. Dan Ariely, author of the book “Predictably Irrational.”

In the book he looks at how we see prices, why price isn’t a simple matter of “supply and demand,” why we’re dishonest, and how the placebo effect works. It’s the result of years of empirical experimentation.

Watch this excerpt I subtitled from his TED talk on the subject:

Why does this matter? Because we deal with people every day. We make decisions influenced by others or, worse, that will affect others. And we sleep with a clear conscience, convinced we picked the best rational option with the data we had on hand.

But what if our decisions aren’t that rational after all? What if we’re easily influenced by data and circumstances? Better yet: what if recognizing this fact helps us understand our limitations and actually decide better?

That’s why it’s worth understanding your own psychology. Anyone in a management position needs it more than most, because the job itself is already “managing people.”

We are irrational, predictably irrational. Use it to your advantage.

I decided to kick off 2013 with an article I hope reads as a positive message for the year. The message is simple:

The world today is good, very good, and it's getting better and better.

I get frustrated every time I see theoretically “educated” people who prefer to believe the world is getting worse, that we’re worse off today than yesterday. Today we’re “impersonal,” we don’t play in the street anymore, we lost solidarity, we burn our forests, every corporation is a villain, people suffer more.

Respectfully, I disagree with all those ideas that we’re getting worse. One symbolic reason to write this today is that we made it through 2012, one of the last known “End Times” prophecies, as if it were nothing (which, by the way, it always was).

Anyone who reads the news knows we have increasingly overcrowded metropolises, violence flaring up all the time in various parts of the world, wars in the Middle East, religious intolerance and terrorism, natural disasters that “seem” to be the result of the infamous “Global Warming.”

All of that is true. And none of it is a symptom that the world is getting worse.

The World Is Better

Despite all the cataclysmic prophecies, let me sum it up fast: the world is better today than it was 50 years ago, 100 years ago, or millennia ago. Fortunately there are people in science, doing serious research and work, who piled up data year after year, and today we can compare it item by item. One of these organizations is Gapminder, which puts all of this data out there so you can see it with your own eyes.

I recommend watching the TED talks by Hans Rosling reading that data. He shows how over recent decades we raised life expectancy for most of the world, improved quality of life, and sharply cut poverty, malnutrition, and inequality. The vast majority of people today live better, with more comfort, and for longer.

Violence is dropping too, as this TED talk by Steven Pinker shows. The book Abundance, by Peter H. Diamandis, gives you even more data on this era of abundance we’re in.

And even the dreaded Global Warming gets constantly questioned. Plenty of scientists aren’t convinced by the data we have. And it hardly matters whether Global Warming is “real”: there are clearly people raking in money and fame off the “fear” of this possible natural phenomenon. Watch the documentary Cool It, where researcher Bjorn Lomborg debunks, one by one, the things you, a reader of this blog, probably never stopped to think about.

Example: if the Kyoto Protocol had succeeded the way the lobbyists wanted, it would have lowered the world’s temperature by all of 0.008 degrees Fahrenheit by 2100. And the European Union’s climate policy would drop the temperature by a mere 0.1 degrees Fahrenheit, at the ridiculous cost of USD 250 billion a year for the next century. With half that money you could wipe out poverty, hunger, and disease worldwide.

If everyone in the United States switched to a Prius, it wouldn’t cover even 0.5% of the carbon that technically should be cut by mid-century. And if everyone in the United States used nothing but energy-saving lightbulbs, it wouldn’t cover even 0.2% of the carbon to be cut.

Comedian George Carlin explained this in the clearest way I’ve ever seen:

Getting it?

Who Does This Benefit?

No “small act,” like recycling an aluminum can, makes much difference on its own today (don’t worry, it doesn’t hurt by itself either). What really makes a difference are the steady advances of science. Disciplined experimentation and the buildup of knowledge one day led us to agriculture, keeping famine at bay even with the world’s overpopulation.

That achievement has been sliding back thanks to fads like “organic food”, which ignores years of progress in agronomic technology, the same progress that made sure our generation exists at all.

The reason for this article is to question the obvious: who does all this benefit? The easy answer is the big corporations that know how to cash in on it. But they aren’t the problem. The problem is the people who make it easy for the corporations, turning every discussion into a moral judgment.

Today, if I say I don’t help any “social” cause, I somehow become guilty of someone’s misfortune. A story that bugs me to this day came from a friend I respect a lot. He’s a successful businessman, and he feels a little guilty for having more than others. So when he can, he offers alms and that sort of thing. One day, if I remember right, one of those beggars snubbed the alms, and my friend didn’t know if he was even allowed to feel as frustrated as he was.

That’s my long discussion about the Rights of Man. And to be crystal clear, I’ll spell it out: I have no obligation to help anyone, just as nobody has any obligation to help me.

The key word here is “obligation.” I always have the choice to help or not, but never the obligation. Exercising that choice is an individual call that nobody gets to judge.

The world is simple: everything I produced, by my own effort, is mine and no one else’s. If I want to donate it, that’s my choice. If I want to throw it away, that’s another perfectly valid choice of mine. Nobody has a right to something of mine, and nobody gets to judge what I do with it. The reverse holds too: I’ll never have a right to anything of anyone’s for free, and I should never judge what others do with their own possessions. It’s simple.

Alms and donations are the same thing. I’ll give to whomever I want, when I want, and if I want. And I don’t judge anyone who donates or who doesn’t. Now, it really gets to me when someone has the nerve to think they can judge me for what I do with something entirely mine.

Go back to my story: why does that friend of mine need to feel “guilty” for something he’s not guilty of? Everything he earned came from his own effort and sweat, so it’s his. On top of that, his work made lots of jobs possible, and even let other companies exist, spreading indirect wealth to plenty of people. Why should he feel guilty for not giving away for free something that’s his?

This is the prostitution of the mind that working people suffer daily. The more they work, the harder they push, the more they earn, the more guilt they feel and the more judged they feel. And who are these “others”?

This is the real target of my article. I want to expose the people who benefit from this orgy of fake altruism and ignorance. Charismatic types who talk pretty, with inspiring speeches (especially the ones who invoke justice, inspiration, and motivation), who pile on the hyperbole and present almost no data from a credible source.

They all run the same speeches, the same pompous, contentless routine. They show videos of the world falling apart, apathetic people, little kids, repeating the same old “We must…”, “We need to…”:

"We need to unite," "We need to be more supportive," "We need to care more," "We need to think about our neighbor," "We need to put down the phone and really connect," blah, blah.

BULLSHIT!

Anyone who says a lot of “We need to,” always in the first person plural “we,” clearly wants to be the dictator of a group. Someone who on his own has little to offer, so he rallies more people to borrow the credibility of the masses. And past a certain headcount, whatever he says starts to seem valid.

This is only possible because we let it happen. Because we don’t look at the data, we don’t dig for the facts, we get moved by any slickly edited video with animals, landscapes, and children, especially children in some miserable stretch of the African interior. We applaud every one of these demagogues.

And you know what demagogues like that do once they have masses behind them? They make everyone who is actually working, creating, and producing wealth in the world feel guilty. They point the crowd at these people and pressure them to “share” their property, making them feel lousy if they don’t. And they do it in a “cheerful,” almost festive way: they park the property-owner in the middle of the crowd and say things like “guys, wouldn’t this guy be super cool if he donated what he has to our cause?”, clapping and smiling sarcastically while they shame and corner the producer, leaving no way out.

This, ladies and gentlemen, is called fraud. It’s a fraudulent, criminal, and plainly offensive act. Let’s be clear: I won’t put myself through the abuse of criminal acts. And neither should you.

The lesson here is simple. If someone comes to talk to you about another person or group, ask: “who does this benefit?” If someone tells you “such-and-such company must be going bankrupt, since it doesn’t even have money to donate to this very important social cause,” why does the person passing that along care? Who does it benefit? Then flip the question: why would a company not donating necessarily mean it’s in bad financial shape? The most obvious answer, “the company has no interest in donations,” seems “morally too ugly” to consider. And that’s exactly the likeliest one. Except we’ve reached such a degrading point in our morality that this choice is almost treated as a crime.

Don’t Fall for the Talk

So pay attention: the world today is better than yesterday. Don’t doubt it. Donating and taking part in social causes are valid things. But judging others for not taking part is a crime.

Any company, any worker runs one very simple operation: trades. A worker trades the value of what they produced for money. A company trades a product for money. And someone who takes part in social causes trades their own work capacity for another kind of currency: conscience. Every donation is a transaction of your money or possessions for “you feeling good about yourself.” It’s a commercial exchange like any other. After all, have you ever seen anyone donate with the goal of feeling bad about it afterward?

This gets more obvious when you run into the infamous weekend do-gooders. People who want to buy positive karma because they’re frustrated, depressed, unhappy with themselves. So they jump into “save the world” movements, donate money, donate time, donate work. But the moment they get bored, they’re back at the beach, at a barbecue playing soccer, out by the pool. Except now they’re “morally in the black” and put themselves in a spot to judge everyone else with an “I helped and you didn’t.”

Just to be clear, I’m not talking about everyone who’s charitable. Plenty take it dead seriously and, in most cases, stay anonymous, because they’re not in it for attention, they’re in it to help. But the type I’m talking about is in the business of “feeling good,” and that needs an audience, needs telling everyone what good people they are, how everyone should copy them to feel good the same way. Like addicts pushing drugs because the drugs make them feel good.

And they’re worried about the little children? See the trauma they’re putting them through by telling false stories of the end of the world:

The very existence of people like this is one more piece of evidence of how much better our times are. At the start of the 20th century, no one would spare a thought for “social causes” like today: many didn’t even have enough to eat, had no clothes, died from common diseases.

Except this crowd keeps getting more irritating and more tiresome. In case it wasn’t clear, I’m fully in favor of serious social causes, and I can’t stand the weekend do-gooder hipsters. There are serious movements that deserve respect being stained by these groups. Want to really give yourself to a cause? Join organizations like the Red Cross, work on it full-time, and never force anyone, physically or morally, to make the same choice you did.

This goes for social causes and for any kind of “cause.” Be sharp for once: there are plenty of clever people who want you doing the dirty work for them. Be suspicious of anyone who speaks for “us,” for the “good of all,” or any cheap demagoguery of that sort.

The world today is better, check the data, and it keeps getting better. All we have to do is work and produce more and more wealth. Producing is how the world got here, and producing is how it keeps improving. Taking wealth from others, what plenty of people euphemistically call “sharing,” was never the way.

• [Off-Topic] The Cult of Gray Morality
• [Off-Topic] Man’s Rights
• [Off-Topic] The Argument from Intimidation

Only this year did I finally sit down to tackle this doorstop of a novel. I’m about halfway through, loving the story and the ideas. Objectivism is the philosophy that best describes the way I like to think. If you’re curious, I recommend Rational Egoism: The Individual from Ayn Rand by the Brazilian Rodrigo Constantino, one of the few local writers I read regularly.

As it happens, the first part of the film version directed by Paul Johansson is supposed to premiere this year. I liked the casting of Taylor Schilling as Dagny Taggart and Grant Bowler as Henry Rearden. To me, Bowler has a touch of Gary Cooper playing Howard Roark in The Fountainhead, the 1949 film that adapts Rand’s novel of the same name:

I was right at the passage that reaches James Taggart’s wedding, where Francisco D’Anconia, a filthy-rich industrialist known to the press as a playboy, gets cornered by a guest at the party:

• Senor d’Anconia, what do you think is going to happen to the world?
• Just exactly what it deserves.
• Oh, how cruel!
• Don’t you believe in the operation of the moral law, madame? Francisco asked gravely. I do.

Rearden heard Bertram Scudder, outside the group, say to a girl who made some sound of indignation:

• Don’t let him disturb you. You know, money is the root of all evil, and he’s the typical product of money.

Rearden did not think that Francisco could have heard it, but he saw Francisco turning to them with a gravely courteous smile.

And then comes one of the best speeches I’ve ever read. Francisco holds forth on Money. We rarely stop to think about the trivial stuff of daily life, and money is one of those things: we all have it, use it, earn it, and lose it, yet understand very little about it. The speech is almost an ode to money, and I figured I’d share it to whet your appetite for the whole novel.

Here is Francisco D’Anconia’s speech. First, a language note: in Portuguese we talk about “winning” money (ganhar dinheiro), while Americans say “make money.” We earn, they make. The difference matters more than it looks, and the speech circles back to it at the end.

Remember that old chestnut, “Does money buy happiness?” The speech answers that in part, along with the other one, “Is money the root of all evil?” Read on:

The Money Speech

Jsu Garcia as Francisco D’Anconia

So you think that money is the root of all evil? Have you ever asked what is the root of money? Money is a tool of exchange, which can’t exist unless there are goods produced and men able to produce them. Money is the material shape of the principle that men who wish to deal with one another must deal by trade and give value for value. Money is not the tool of the moochers, who claim your product by tears, or of the looters, who take it from you by force. Money is made possible only by the men who produce. Is this what you consider evil? When you accept money in payment for your effort, you do so only on the conviction that you will exchange it for the product of the effort of others. It is not the moochers or the looters who give value to money. Not an ocean of tears nor all the guns in the world can transform those pieces of paper in your wallet into the bread you will need to survive tomorrow. Those pieces of paper, which should have been gold, are a token of honor — your claim upon the energy of the men who produce. Your wallet is your statement of hope that somewhere in the world around you there are men who will not default on that moral principle which is the root of money. Take a look at an electric generator and dare tell yourself that it was created by the muscular effort of unthinking brutes. Try to grow a seed of wheat without the knowledge left to you by men who had to discover it for the first time. Try to obtain your food by means of nothing but physical motions — and you’ll learn that man’s mind is the root of all the goods produced and of all the wealth that has ever existed on earth.

But you say that money is made by the strong at the expense of the weak? What strength do you mean? It is not the strength of guns or muscles. Wealth is the product of man’s capacity to think. Then is money made by the man who invents a motor at the expense of those who did not invent it? Is money made by the intelligent at the expense of the fools? By the able at the expense of the incompetent? By the ambitious at the expense of the lazy? Money is made — before it can be looted or mooched — made by the effort of every honest man, each to the extent of his ability. An honest man is one who knows that he can’t consume more than he has produced. To trade by means of money is the code of the men of good will. Money rests on the axiom that every man is the owner of his mind and his effort. Money allows no power to prescribe the value of your effort except the voluntary choice of the man who is willing to trade you his effort in return. Money permits you to obtain for your goods and your labor that which they are worth to the men who buy them, but no more. Money permits no deals except those to mutual benefit by the unforced judgment of the traders.

Money demands of you the recognition that men must work for their own benefit, not for their own injury, for their gain, not their loss — the recognition that they are not beasts of burden, born to carry the weight of your misery — that you must offer them values, not wounds — that the common bond among men is not the exchange of suffering, but the exchange of goods. Money demands that you sell, not your weakness to men’s stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade — with reason, not force, as their final arbiter — it is the best product that wins, the best performance, the man of best judgment and highest ability — and the degree of a man’s productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money. Is this what you consider evil?

But money is only a tool. It will take you wherever you wish, but it will not replace you as the driver. It will give you the means for the satisfaction of your desires, but it will not provide you with desires. Money is the scourge of the men who attempt to reverse the law of causality — the men who seek to replace the mind by seizing the products of the mind. Money will not purchase happiness for the man who has no concept of what he wants: money will not give him a code of values, if he’s evaded the knowledge of what to value, and it will not provide him with a purpose, if he’s evaded the choice of what to seek. Money will not buy intelligence for the fool, or admiration for the coward, or respect for the incompetent. The man who attempts to purchase the brains of his superiors to serve him, with his money replacing his judgment, ends up by becoming the victim of his inferiors. The men of intelligence desert him, but the cheats and the frauds come flocking to him, drawn by a law which he has not discovered: that no man may be smaller than his money. Is this the reason why you call it evil? Only the man who does not need it, is fit to inherit wealth — the man who would make his own fortune no matter where he started. If an heir is equal to his money, it serves him; if not, it destroys him. But you look on and you cry that money corrupted him. Did it? Or did he corrupt his money? Do not envy a worthless heir; his wealth is not yours and you would have done no better with it. Do not think that it should have been distributed among you; loading the world with fifty parasites instead of one, would not bring back the dead virtue which was the fortune.

Money is a living power that dies without its root. Money will not serve the mind that cannot match it. Is this the reason why you call it evil? Money is your means of survival. The verdict you pronounce upon the source of your livelihood is the verdict you pronounce upon your life. If the source is corrupt, you have damned your own existence. Did you get your money by fraud? By pandering to men’s vices or men’s stupidity? By catering to fools, in the hope of getting more than your ability deserves? By lowering your standards? By doing work you despise for purchasers you scorn? If so, then your money will not give you a moment’s or a penny’s worth of joy. Then all the things you buy will become, not a tribute to you, but a reproach; not an achievement, but a reminder of shame. Then you’ll scream that money is evil. Evil, because it would not pinch-hit for your self-respect? Evil, because it would not let you enjoy your depravity? Is this the root of your hatred of money? Money will always remain an effect and refuse to replace you as the cause. Money is the product of virtue, but it will not give you virtue and it will not redeem your vices. Money will not give you the unearned, neither in matter nor in spirit. Is this the root of your hatred of money? Or did you say it’s the love of money that’s the root of all evil?

To love a thing is to know and love its nature. To love money is to know and love the fact that money is the creation of the best power within you, and your passkey to trade your effort for the effort of the best among men. It’s the person who would sell his soul for a nickel, who is loudest in proclaiming his hatred of money — and he has good reason to hate it. The lovers of money are willing to work for it. They know they are able to deserve it. Let me give you a tip on a clue to men’s characters: the man who damns money has obtained it dishonorably; the man who respects it has earned it. Run for your life from any man who tells you that money is evil. That sentence is the leper’s bell of an approaching looter. So long as men live together on earth and need means to deal with one another — their only substitute, if they abandon money, is the muzzle of a gun. But money demands of you the highest virtues, if you wish to make it or to keep it.

Men who have no courage, pride or self-esteem, men who have no moral sense of their right to their money and are not willing to defend it as they defend their life, men who apologize for being rich — will not remain rich for long. They are the natural bait for the swarms of looters that stay under rocks for centuries, but come crawling out at the first smell of a man who begs to be forgiven for the guilt of owning wealth. They will hasten to relieve him of the guilt — and of his life, as he deserves. Then you will see the rise of the men of the double standard — the men who live by force, yet count on those who live by trade to create the value of their looted money — the men who are the hitchhikers of virtue. In a moral society, these are the criminals, and the statutes are written to protect you against them. But when a society establishes criminals-by-right and looters-by-law — men who use force to seize the wealth of disarmed victims — then money becomes its creators’ avenger. Such looters believe it safe to rob defenseless men, once they’ve passed a law to disarm them. But their loot becomes the magnet for other looters, who get it from them as they got it. Then the race goes, not to the ablest at production, but to those most ruthless at brutality. When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter.

Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot. Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’ When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded. Do not ask: ‘Who is destroying the world?’ You are. You stand in the midst of the greatest achievements of the greatest productive civilization, and you wonder why it’s crumbling around you, while you’re damning its life-blood — money. You look upon money as the savages did before you, and you wonder why the jungle is creeping back to the edge of your cities. Throughout men’s history, money was always seized by looters of one brand or another, whose names changed, but whose method remained the same: to seize wealth by force and to keep the producers bound, demeaned, defamed, deprived of honor. That phrase about the evil of money, which you mouth with such righteous recklessness, comes from a time when wealth was produced by the labor of slaves — slaves who repeated the motions once discovered by somebody’s mind and left unimproved for centuries.

So long as production was ruled by force, and wealth was obtained by conquest, there was little to conquer. Yet through all the centuries of stagnation and starvation, men exalted the looters, as aristocrats of the sword, as aristocrats of birth, as aristocrats of the bureau, and despised the producers, as slaves, as traders, as shopkeepers — as industrialists. To the glory of mankind, there was, for the first and only time in history, a country of money — and I have no higher, more reverent tribute to pay to America, for this means: a country of reason, justice, freedom, production, achievement. For the first time, man’s mind and money were set free, and there were no fortunes-by-conquest, but only fortunes-by-work, and instead of swordsmen and slaves, there appeared the real maker of wealth, the greatest worker, the highest type of human being — the self-made man — the American industrialist. If you ask me to name the proudest distinction of Americans, I would choose — because it contains all the others — the fact that they were the people who created the phrase ’to make money.’ No other language or nation had ever used these words before; men had always thought of wealth as a static quantity — to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were the first to understand that wealth has to be created. The words ’to make money’ hold the essence of human morality. Yet these were the words for which Americans were denounced by the rotted cultures of the looters’ continents.

Now the looters’ credo has brought you to regard your proudest achievements as a hallmark of shame, your prosperity as guilt, your greatest men, the industrialists, as blackguards, and your magnificent factories as the product and property of muscular labor, the labor of whip-driven slaves, like the pyramids of Egypt. The rotter who simpers that he sees no difference between the power of the dollar and the power of the whip, ought to learn the difference on his own hide — as, I think, he will. Until and unless you discover that money is the root of all good, you ask for your own destruction. When money ceases to be the tool by which men deal with one another, then men become the tools of men. Blood, whips, and guns — or dollars. Take your choice — there is no other — and your time is running out.

The Critique

I’m sure plenty of people feel uneasy reading this. The argument is solid, but the idea sounds “wrong” at first blush. In the book, right after the speech, comes this scene:

There were people who had listened, but now hurried away, and people who said, “It’s horrible!”, “It’s not true!”, “How vicious and selfish!”, saying it loudly and guardedly at once, as if wishing that their neighbors would hear them, but hoping that Francisco would not.

• Senor d’Anconia, declared the woman with the earrings, I don’t agree with you!
• If you can refute a single sentence I uttered, madame, I shall hear it gratefully.
• Oh, I can’t answer you. I don’t have any answers, my mind doesn’t work that way, but I don’t feel that you’re right, so I know that you’re wrong.
• How do you know it?
• I feel it. I don’t go by my head, but by my heart. You might be good at logic, but you’re heartless.
• Madame, when we’ll see men dying of starvation around us, your heart won’t be of any earthly use to save them. And I’m heartless enough to say that when you’ll scream, “But I didn’t know it!”, you will not be forgiven.

You could imagine that a character who talks like this puts “money” above everything else. The story shows the opposite, and what comes next is even more surprising. That’s why I recommend reading the novel to the end ;-)

And this speech isn’t the whole story. To see where all of it lands, the companion piece is John Galt’s speech.

Bonus

The thing that probably best sums up what Rand meant with Atlas Shrugged is John Galt’s speech. It’s worth reading on its own, out of the novel’s context, and there’s a Portuguese transcription.

There’s another take on the same idea in the novel The Fountainhead. My next post carries Howard Roark’s speech, which makes the same case as John Galt.

I love the Wear Sunscreen video. I think I first saw it in 2003 or 2004 and it stuck with me as a warning, something to remember once in a while. The parts I like most:

“Be careful whose advice you buy, but be patient with those who supply it. Advice is a form of nostalgia. Dispensing it is a way of fishing the past from the disposal, wiping it off, painting over the ugly parts and recycling it for more than it’s worth.”

Another important part:

“Maybe you’ll marry, maybe you won’t. Maybe you’ll have children, maybe you won’t. Maybe you’ll divorce at 40, maybe you’ll dance the funky chicken on your 75th wedding anniversary. Whatever you do, don’t congratulate yourself too much, or berate yourself either. Your choices are half chance. So are everybody else’s.”

I was reminded of this while reading What the Dog Saw by Malcolm Gladwell, in the chapter where he talks about another author I like, Nassim Taleb, who wrote the excellent Fooled by Randomness. That chapter happens to be on Gladwell’s blog, and this is the excerpt that caught my eye:

“For Taleb, then, the question of why someone was a success in the financial marketplace was vexing. Taleb could do the math in his head. Suppose that there were ten thousand investment managers out there, which is not an outlandish number, and that every year half of them, entirely by chance, made money and half of them, entirely by chance, lost money. And suppose that every year the losers were tossed out, and the game replayed with those who remained. At the end of five years, there would be 313 people who had made money in every one of those years, and after ten years there would be nine who had made money every single year in a row, all out of pure luck. Niederhoffer, like Buffett and Soros, is a brilliant man. He has a Ph.D. in economics from the University of Chicago. He started the idea that by rigorous mathematical analysis of patterns in the market an investor could identify profitable anomalies. But who’s to say that he isn’t one of those lucky nine? And who’s to say that in the eleventh year Niederhoffer will be one of the unlucky ones, suddenly losing everything, suddenly, as they say on Wall Street, ‘blowing up’?”

The article is long, but I’ll spare you the details: Victor Niederhoffer literally ‘blew up’ in October 1997. He lost practically everything.

The Apple Miracle

In 1997, Apple was considered practically out of the market, with a bad product line, terrible image, declining market share, huge losses. That’s when Steve Jobs returned.

In 2009, Apple is one of the most admired companies in the world, its market value multiplied dozens of times, shows extraordinary profits, the brand is one of the most recognized and adored in the world, its products are envied by the whole industry.

This is the story of the CEO of the Decade, from iMac to iPod, to iPhone and now the iPad. We all love stories like this. Imagining that a great brain, a genius, a hero, alone bends an entire industry to its feet. Twelve uninterrupted years of success.

I love this story too. It has fascinated me since the 90s, and I’ve known the whole arc since it began in 1976: the Macintosh in 1984, Pixar in 1995, the great return in 1997, the iPod in 2001, iTunes in 2003, the iPhone in 2007.

But I can’t help imagining how much of it was pure luck, and when the day of the great turn to bad luck will come. I hope it doesn’t happen, of course, but history shows it’s a question of time.

The Magic Recipes

What I find funniest is how many “analysts,” “specialists,” and “gurus” like to cite stories like Apple’s, Warren Buffett’s, or the Victor Niederhoffers of the world as the keepers of “Magic Recipes for Success.”

There’s an entire industry, from psychologists to MBAs, Ph.D.s, and economists, with tons of books and analyses tracing the routes of great people and successful companies. They all try to find what those people have in common and, from there, sell procedures that “guaranteed” will lead you to success.

It’s an easy task: if it works, the formula works; if it doesn’t, it was you who didn’t follow the formula correctly. You can’t go wrong.

I’m tired of hearing: “we should follow this path, because that’s how company XYZ, of great success, does it.” Little do they know that much of it can be pure luck. And luck is uncontrollable, tied to the situation where it happened, impossible to replicate on demand.

In a chaotic world, it’s impossible to replicate the millions of variables that led to a phenomenon. In retrospect, we can see many of the macro factors, but we will never know all the micro-factors that influenced the result. So it’s futile to try.

You can learn from mistakes. Learning from successes is much harder, especially the kind of success that takes an Apple from near-bankruptcy in 1997 to stardom in 2009. Not even the largest supercomputers in the world would be enough to analyze all the variables involved.

Admiring great successes is a good exercise. It inspires us to try different things and to review our points of view, and there’s something healthy in that.

But it’s stupid to go around quoting or imitating others. “Let’s do X because this successful guru said so.” That’s blindness, it’s acting without knowing what you’re doing, it’s failing to understand that someone’s success may very well have come from pure luck. A lot of people prefer to believe it came from sweat, personal effort, and merit, 100% the fruit of their perspicacity and intelligence.

As Taleb says, this sounds like heresy in a culture that treats “sweat = success,” but that’s how the world works. Species evolve or go extinct based on pure randomness. Homo sapiens is here by pure chance. It’s a fact to accept.

There’s more: retrospective analyses are dangerous. After the fact, it’s simple to trace the path backward and see most of the steps that were taken. The trick is that in the past, at the moment of deciding, nobody knew how the story would unfold.

That’s why you can’t compare today’s critic, who says “oh, but you should have done Y,” with the decision-maker of the time, who didn’t have knowledge of the future. And retrospective analyses don’t work as recipes for the future, because the set of variables and circumstances will be totally different.

Heroic stories are part of our folklore, our culture. I already talked about this in the article The Power of Myth: Redux, and I recommend taking a look if you haven’t read it.

Given that, one of the dangers is good old analysis paralysis, when we want to evaluate every possible variable before making any decision. Accept that you’ll never have them all, and no matter how much you manage to analyze, your chances of getting it right don’t improve that much. As I said before:

“Whatever you do, don’t congratulate yourself too much, or berate yourself either. Your choices are half chance. So are everybody else’s.”

Having said all that, what should a person or company do? “Satisfy customers?” That’s just one aspect of the business. “Deliver good products?” One more aspect. What you do along the way gives you sustainability or not, but don’t confuse things: the purpose is only one.

A marketer will tell you the main thing is “satisfying the customer.” A production engineer, “increasing productivity.” An investor, “increasing the value of the company.” A computer scientist, “creating innovative technologies.” A sociologist, “making a difference in the world.” And so on.

The purpose of a company is “making money sustainably.” Just that.

Note: I’m not saying everything comes only from luck, of course not. I’m saying it’s useless to try to separate one from the other in past cases, and even worse to use it as a model for the future, precisely because of that uncertainty.

Information < Knowledge < Understanding Or What? < How? < Why?

The story goes like this. There was a Ford Foundation birth control project in India, and the team was frustrated trying to teach family planning and birth control, with no results at all.

“Indians are irrational.”

That’s what they thought, because:

“They know that the number one enemy is the population, and here we are teaching about control, giving contraceptives, and even a radio as a reward. But look what happens. They go home, turn on the radio, and with music make a new baby.”

Some time later, The New York Times ran a story about a Brazilian woman who had given birth to her 42nd child. And they thought: “If that’s not being irrational, then I don’t know what irrational is.”

But thinking about it: “If one woman can have 42 children, then why do Indians, on average, only have 4.6? That means they know how to practice control, but aren’t willing to do it. Maybe we’re trying to solve the wrong problem.”

Later they discovered that, at the time, there was no social security, no retirement, and no unemployment benefits. So having 3 sons was, by default, the retirement system. Every couple’s first priority was to secure their own old age.

Statistically, having 3 sons requires an average of 4.6 children in total. Unsurprisingly, once a couple hit 3 sons, they stopped. Now, who’s the irrational one? The Indian couple who won a free radio, or the Ford Foundation guy who figured they’d give up their own retirement for a dinky little radio?

When we talk about “birth rate problems,” we have the information, or the what: couples averaging 4.6 children push the population up too fast. We also have the knowledge, or the how: birth control programs, contraceptives, lectures. What’s usually missing is the understanding, the why.

Without that understanding, we keep applying cookie-cutter recipes that simply don’t work. Once we understand the why, we can derive far more effective solutions.

Remember all that talk about root cause analysis, or the five whys? They’re all ways of going after the real cause behind the symptoms.

I normally don’t like talking about politics. I hate it. I’ve always thought it was a huge waste of time.

But faced with the more unhinged strains of left-wing populism, with the ignorance that glorifies Cuba’s tyrant-socialism or Venezuela’s totalitarian dictatorship, with the clamor for re-nationalization and the movements against privatization, all of it propped up on the idea of “the good of the people,” “for the benefit of the majority,” “helping the weak” and other such nonsense, I decided to offer at least a small philosophical contribution.

I translated one more chapter from Ayn Rand’s book, The Virtue of Selfishness, which deals with exactly this subject. Keep in mind it was written in the context of the 1960s. Even so, it’s striking how little has changed on this front.

Before the chapter, one more passage from the introduction, on the foundation of the “rational egoism” of Objectivism:

Observe the indecency of what passes for moral judgments today. An industrialist who produces a fortune, and a gangster who robs a bank are regarded as equally immoral, since they both sought wealth for their own “selfish” benefit. A young man who gives up his career in order to support his parents and never rises beyond the rank of grocery clerk is regarded as morally superior to the young man who endures an excruciating struggle and achieves his personal ambition. A dictator is regarded as moral, since the unspeakable atrocities he committed were intended to benefit “the people,” not himself.

Observe what this beneficiary-criterion of morality does to a man’s life. The first thing he learns is that morality is his enemy; he has nothing to gain from it, he can only lose; self-inflicted loss, self-inflicted pain and the gray, debilitating pall of an incomprehensible duty is all that he can expect. He may hope that others might occasionally sacrifice themselves for his benefit, as he grudgingly sacrifices himself for theirs, but he knows that the relationship will bring mutual resentment, not pleasure—and that, morally, their pursuit of values will be like an exchange of unwanted, unchosen Christmas presents, which neither is morally permitted to buy for himself. Apart from such times as he manages to perform some act of self-sacrifice, he possesses no moral significance: morality takes no cognizance of him and has nothing to say to him for guidance in the crucial issues of his life; it is only his own personal, private, “selfish” life and, as such, it is regarded either as evil or, at best, amoral.

…

Since selfishness is “concern with one’s own interests,” the Objectivist ethics uses that concept in its exact and purest sense. It is not a concept that one can surrender to man’s enemies, nor to the unthinking misconceptions, distortions, prejudices and fears of the ignorant and the irrational. The attack on “selfishness” is an attack on man’s self-esteem; to surrender one, is to surrender the other.

Chapter 12 – Man’s Rights

If one wishes to advocate a free society — that is, capitalism — one must realize that its indispensable foundation is the principle of individual rights. If one wishes to uphold individual rights, one must realize that capitalism is the only system that can uphold and protect them. And if one wishes to gauge the relationship of freedom to the goals of today’s intellectuals, one may gauge it by the fact that the concept of individual rights is evaded, distorted, perverted and seldom discussed, most conspicuously seldom by the so-called “conservatives.”

“Rights” are a moral concept — the concept that provides a logical transition from the principles guiding an individual’s actions to the principles guiding his relationship with others — the concept that preserves and protects individual morality in a social context — the link between the moral code of a man and the legal code of a society, between ethics and politics. Individual rights are the means of subordinating society to moral law.

Every political system is based on some code of ethics. The dominant ethics of mankind’s history were variants of the altruist-collectivist doctrine which subordinated the individual to some higher authority, either mystical or social. Consequently, most political systems were variants of the same statist tyranny, differing only in degree, not in basic principle, limited only by the accidents of tradition, of chaos, of bloody strife and periodic collapse. Under all such systems, morality was a code applicable to the individual, but not to society. Society was placed outside the moral law, as its embodiment or source or exclusive interpreter — and the inculcation of self-sacrificial devotion to social duty was regarded as the main purpose of ethics in man’s earthly existence.

Since there is no such entity as “society,” since society is only a number of individual men, this meant, in practice, that the rulers of society were exempt from moral law; subject only to traditional rituals, they held total power and exacted blind obedience — on the implicit principle of: “The good is that which is good for society (or for the tribe, the race, the nation), and the ruler’s edicts are its voice on earth.”

This was true of all statist systems, under all variants of the altruist-collectivist ethics, mystical or social. “The Divine Right of Kings” summarizes the political theory of the first — “Vox populi, vox dei” of the second. As witness: the theocracy of Egypt, with the Pharaoh as an embodied god — the unlimited majority rule or democracy of Athens — the welfare state run by the Emperors of Rome — the Inquisition of the late Middle Ages — the absolute monarchy of France — the welfare state of Bismarck’s Prussia — the gas chambers of Nazi Germany — the slaughterhouse of the Soviet Union.

All these political systems were expressions of the altruist-collectivist ethics — and their common characteristic is the fact that society stood above the moral law, as an omnipotent, sovereign whim worshiper. Thus, politically, all these systems were variants of an amoral society.

The most profoundly revolutionary achievement of the United States of America was the subordination of society to moral law.

The principle of man’s individual rights represented the extension of morality into the social system — as a limitation on the power of the state, as man’s protection against the brute force of the collective, as the subordination of might to right. The United States was the first moral society in history.

All previous systems had regarded man as a sacrificial means to the ends of others, and society as an end in itself. The United States regarded man as an end in himself, and society as a means to the peaceful, orderly, voluntary coexistence of individuals. All previous systems had held that man’s life belongs to society, that society can dispose of him in any way it pleases, and that any freedom he enjoys is his only by favor, by the permission of society, which may be revoked at any time. The United States held that man’s life is his by right (which means: by moral principle and by his nature), that a right is the property of an individual, that society as such has no rights, and that the only moral purpose of a government is the protection of individual rights.

A “right” is a moral principle defining and sanctioning a man’s freedom of action in a social context. There is only one fundamental right (all the others are its consequences or corollaries): a man’s right to his own life. Life is a process of self-sustaining and self-generated action; the right to life means the right to engage in self-sustaining and self-generated action — which means: the freedom to take all the actions required by the nature of a rational being for the support, the furtherance, the fulfillment and the enjoyment of his own life. (Such is the meaning of the right to life, liberty and the pursuit of happiness.)

The concept of a “right” pertains only to action — specifically, to freedom of action. It means freedom from physical compulsion, coercion or interference by other men. Thus, for every individual, a right is the moral sanction of a positive — of his freedom to act on his own judgment, for his own goals, by his own voluntary, uncoerced choice. As to his neighbors, his rights impose no obligations on them except of a negative kind: to abstain from violating his rights.

The right to life is the source of all rights — and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.

Bear in mind that the right to property is a right to action, like all the others: it is not the right to an object, but to the action and the consequences of producing or earning that object. It is not a guarantee that a man will earn any property, but only a guarantee that he will own it if he earns it. It is the right to gain, to keep, to use and to dispose of material values.

The concept of individual rights is so new in human history that most men have not grasped it fully to this day. In accordance with the two theories of ethics, the mystical or the social, some men assert that rights are a gift of God — others, that rights are a gift of society. But, in fact, the source of rights is man’s nature.

The Declaration of Independence stated that men “are endowed by their Creator with certain unalienable rights.” Whether one believes that man is the product of a Creator or of nature, the issue of man’s origin does not alter the fact that he is an entity of a specific kind — a rational being — that he cannot function successfully under coercion, and that rights are a necessary condition of his particular mode of survival.

“The source of man’s rights is not divine law or congressional law, but the law of identity. A is A — and Man is Man. Rights are conditions of existence required by man’s nature for his proper survival. If man is to live on earth, it is right for him to use his mind, it is right to act on his own free judgment, it is right to work for his values and to keep the product of his work. If life on earth is his purpose, he has a right to live as a rational being: nature forbids him the irrational.” (Atlas Shrugged.)

To violate man’s rights means to compel him to act against his own judgment, or to expropriate his values. Basically, there is only one way to do it: by the use of physical force. There are two potential violators of man’s rights: the criminals and the government. The great achievement of the United States was to draw a distinction between these two — by forbidding to the second the legalized version of the activities of the first.

The Declaration of Independence laid down the principle that “to secure these rights, governments are instituted among men.” This provided the only valid justification of a government and defined its only proper purpose: to protect man’s rights by protecting him from physical violence.

Thus the government’s function was changed from the role of ruler to the role of servant. The government was set to protect man from criminals — and the Constitution was written to protect man from the government. The Bill of Rights was not directed against private citizens, but against the government — as an explicit declaration that individual rights supersede any public or social power.

The result was the pattern of a civilized society which — for the brief span of some hundred and fifty years — America came close to achieving. A civilized society is one in which physical force is banned from human relationships — in which the government, acting as a policeman, may use force only in retaliation and only against those who initiate its use.

This was the essential meaning and intent of America’s political philosophy, implicit in the principle of individual rights. But it was not formulated explicitly, nor fully accepted nor consistently practiced.

America’s inner contradiction was the altruist-collectivist ethics. Altruism is incompatible with freedom, with capitalism and with individual rights. One cannot combine the pursuit of happiness with the moral status of a sacrificial animal.

It was the concept of individual rights that had given birth to a free society. It was with the destruction of individual rights that the destruction of freedom had to begin.

A collectivist tyranny dare not enslave a country by an outright confiscation of its values, material or moral. It has to be done by a process of internal corruption. Just as in the material realm the plundering of a country’s wealth is accomplished by inflating the currency — so today one may witness the process of inflation being applied to the realm of rights. The process entails such a growth of newly promulgated “rights” that people do not notice the fact that the meaning of the concept is being reversed. Just as bad money drives out good money, so these “printing-press rights” negate authentic rights.

Consider the curious fact that never has there been such a proliferation, all over the world, of two contradictory phenomena: of alleged new “rights” and of slave-labor camps.

The “gimmick” was the switch of the concept of rights from the political to the economic realm.

The Democratic Party platform of 1960 summarizes the switch boldly and explicitly. It declares that a Democratic Administration “will reaffirm the economic bill of rights which Franklin Roosevelt wrote into our national conscience sixteen years ago.”

Bear clearly in mind the meaning of the concept of “rights” when you read the list which the platform offers:

“1. The right to a useful and remunerative job in the industries or shops or farms or mines of the nation.

“2. The right to earn enough to provide adequate food and clothing and recreation.

“3. The right of every farmer to raise and sell his products at a return which will give him and his family a decent living.

“4. The right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home and abroad.

“5. The right of every family to a decent home.

“6. The right to adequate medical care and the opportunity to achieve and enjoy good health.

“7. The right to adequate protection from the economic fears of old age, sickness, accidents and unemployment.

“8. The right to a good education.”

A single question added to each of the above eight clauses would make the issue clear: At whose expense?

Jobs, food, clothing, recreation(!), homes, medical care, education, etc., do not grow in nature. These are man-made values — goods and services produced by men. Who is to provide them?

If some men are entitled by right to the products of the work of others, it means that those others are deprived of rights and condemned to slave labor.

Any alleged “right” of one man, which necessitates the violation of the rights of another, is not and cannot be a right.

No man can have a right to impose an unchosen obligation, an unrewarded duty or an involuntary servitude on another man. There can be no such thing as “the right to enslave.”

A right does not include the material implementation of that right by other men; it includes only the freedom to earn that implementation by one’s own effort.

Observe, in this context, the intellectual precision of the Founding Fathers: they spoke of the right to the pursuit of happiness — not of the right to happiness. It means that a man has the right to take the actions he deems necessary to achieve his happiness; it does not mean that others must make him happy.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” – Thomas Jefferson

The right to life means that a man has the right to support his life by his own work (on any economic level, as high as his ability will carry him); it does not mean that others must provide him with the necessities of life.

The right to property means that a man has the right to take the economic actions necessary to earn property, to use it and to dispose of it; it does not mean that others must provide him with property.

The right of free speech means that a man has the right to express his ideas without danger of suppression, interference or punitive action by the government. It does not mean that others must provide him with a lecture hall, a radio station or a printing press through which to express his ideas.

Any undertaking that involves more than one man, requires the voluntary consent of every participant. Every one of them has the right to make his own decision, but none has the right to force his decision on the others.

There is no such thing as “a right to a job” — there is only the right of free trade, that is: a man’s right to take a job if another man chooses to hire him. There is no “right to a home,” only the right of free trade: the right to build a home or to buy it. There are no “rights to a ‘fair’ wage or a ‘fair’ price” if no one chooses to pay it, to hire a man or to buy his product. There are no “rights of consumers” to milk, shoes, movies or champagne if no producers choose to manufacture such items (there is only the right to manufacture them oneself). There are no “rights” of special groups, there are no “rights of farmers, of workers, of businessmen, of employees, of employers, of the old, of the young, of the unborn.” There are only the Rights of Man — rights possessed by every individual man and by all men as individuals.

Property rights and the right of free trade are man’s only “economic rights” (they are, in fact, political rights) — and there can be no such thing as “an economic bill of rights.” But observe that the advocates of the latter have all but destroyed the former.

Remember that rights are moral principles which define and protect a man’s freedom of action, but impose no obligations on other men. Private citizens are not a threat to one another’s rights or freedom. A private citizen who resorts to physical force and violates the rights of others is a criminal — and men have legal protection against him.

Criminals are a small minority in any age or country. And the harm they have done to mankind is infinitesimal when compared to the horrors — the bloodshed, the wars, the persecutions, the confiscations, the famines, the enslavements, the wholesale destructions — perpetrated by mankind’s governments. Potentially, a government is the most dangerous threat to man’s rights: it holds a legal monopoly on the use of physical force against legally disarmed victims. When unlimited and unrestricted by individual rights, a government is men’s deadliest enemy. It is not as protection against private actions, but against governmental actions that the Bill of Rights was written.

Now observe the process by which that protection is being destroyed.

The process consists of ascribing to private citizens the specific violations constitutionally forbidden to the government (which private citizens have no power to commit) and thus freeing the government from all restrictions. The switch is becoming progressively more obvious in the field of free speech. For years, the collectivists have been propagating the notion that a private individual’s refusal to finance an opponent is a violation of the opponent’s right of free speech and an act of “censorship.”

It is “censorship,” they claim, if a newspaper refuses to employ or publish writers whose ideas are diametrically opposed to its policy.

It is “censorship,” they claim, if businessmen refuse to advertise in a magazine that denounces, insults and smears them.

It is “censorship,” they claim, if a TV sponsor objects to some outrage perpetrated on a program he is financing — such as the incident of Alger Hiss being invited to denounce former Vice-President Nixon.

And then there is Newton N. Minow who declares: “There is censorship by ratings, by advertisers, by networks, by affiliates which reject programming offered to their areas.” It is the same Mr. Minow who threatens to revoke the license of any station that does not comply with his views on programming — and who claims that that is not censorship.

Consider the implications of such a trend.

“Censorship” is a term pertaining only to governmental action. No private action is censorship. No private individual or agency can silence a man or suppress a publication; only the government can do so. The freedom of speech of private individuals includes the right not to agree, not to listen and not to finance one’s own antagonists.

But according to such doctrines as the “economic bill of rights,” an individual has no right to dispose of his own material means by the guidance of his own convictions — and must hand over his money indiscriminately to any speakers or propagandists, who have a “right” to his property.

This means that the ability to provide the material tools for the expression of ideas deprives a man of the right to hold any ideas. It means that a publisher has to publish books he considers worthless, false or evil — that a TV sponsor has to finance commentators who choose to affront his convictions — that the owner of a newspaper must turn his editorial pages over to any young hooligan who clamors for the enslavement of the press. It means that one group of men acquires the “right” to unlimited license — while another group is reduced to helpless irresponsibility.

But since it is obviously impossible to provide every claimant with a job, a microphone or a newspaper column, who will determine the “distribution” of “economic rights” and select the recipients, when the owners’ right to choose has been abolished? Well, Mr. Minow has indicated that quite clearly.

And if you make the mistake of thinking that this applies only to big property owners, you had better realize that the theory of “economic rights” includes the “right” of every would-be playwright, every beatnik poet, every noise-composer and every nonobjective artist (who have political pull) to the financial support you did not give them when you did not attend their shows. What else is the meaning of the project to spend your tax money on subsidized art?

And while people are clamoring about “economic rights,” the concept of political rights is vanishing. It is forgotten that the right of free speech means the freedom to advocate one’s views and to bear the possible consequences, including disagreement with others, opposition, unpopularity and lack of support. The political function of “the right of free speech” is to protect dissenters and unpopular minorities from forcible suppression — not to guarantee them the support, advantages and rewards of a popularity they have not gained.

The Bill of Rights reads: “Congress shall make no law … abridging the freedom of speech, or of the press …” It does not demand that private citizens provide a microphone for the man who advocates their destruction, or a passkey for the burglar who seeks to rob them, or a knife for the murderer who wants to cut their throats.

Such is the state of one of today’s most crucial issues: political rights versus “economic rights.” It’s either-or. One destroys the other. But there are, in fact, no “economic rights,” no “collective rights,” no “public-interest rights.” The term “individual rights” is a redundancy: there is no other kind of rights and no one else to possess them.

Those who advocate laissez-faire capitalism are the only advocates of man’s rights.

Nassim Taleb and Benoît Mandelbrot must be watching this crisis, tragically, through very different eyes from ours. Some people are probably tired of hearing it, but I’ll repeat my recommendation: read both.

Take this excerpt from The Black Swan, published in 2007, by Nassim Taleb:

Globalization creates interlocking fragility, while reducing volatility and giving the appearance of stability. In other words it creates devastating Black Swans. We have never lived before under the threat of a global collapse. Financial institutions have been merging into a smaller number of very large banks. Almost all banks are now interrelated. So the financial ecology is swelling into gigantic, incestuous, bureaucratic banks — when one falls, they all fall. The increased concentration among banks seems to have the effect of making financial crisis less likely, but when they happen they are more global in scale and hit us very hard. We have moved from a diversified ecology of small banks, with varied lending policies, to a more homogeneous framework of firms that all resemble one another. True, we now have fewer failures, but when they occur … I shiver at the thought.

The government-sponsored institution, Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deemed these events “unlikely.”

No, Nassim is not a prophet, a fortune teller, or a guru. He’d actually hate being called a guru. He just made an observation based on what all of us ignore: the human machine is lousy at dealing with abstractions, like Randomness.

Don’t get me wrong: this is no argument against globalization, nor any pseudo-socialist nonsense. The important part is the second paragraph of the quote.

It’s Happened Before

Long-Term Capital Management was the darling of the financial world: an American hedge fund formed in 1994 that had among its founders not one, but two Nobel laureates in Economics, Robert C. Merton and Myron Scholes. They believed they had the mathematics (cough Gaussian cough) to predict any kind of event.

In 1998, LTCM lost USD 4.6 billion. The Russian crisis destroyed their Gaussian theories, which completely ignored and underestimated Black Swans.

And you think people learned the lesson? Unfortunately we’re more stubborn than that: Scholes and Merton’s theories are still taught in economics programs to this day.

This is no exclusive trait of the economic world. Plenty of other fields accept and employ absurd theories, with no foundation and no results, and still treat them as the next great revolution. Ordinary people let themselves be fooled by names and credentials. If credentials were worth anything, a Nobel destroyed in 1998 should mean something.

I often say this: companies and charlatans who sell methodologies (of any kind: financial, human resources, management) have the easiest job in the world. All they need is to be good salespeople.

If the client succeeds after implementing the methodology: “See? You succeeded because you implemented our revolutionary methodology.” And that client becomes a “success story” in the portfolio.

If the client fails: “Of course it failed. You didn’t implement it exactly as we said, your teams lacked commitment. There’s nothing wrong with our methodology; the problem is you.” That client will never show up in the portfolio, since nobody likes to publicize failure.

Fooling people is very easy. And don’t look sideways: you’re implementing one of these methodologies today. I know it.

Falsifiability

People have the nasty habit of asking the wrong question: “how do we know if a theory is true?” That’s how they get the wrong answers, which lead to even worse decisions.

As I’ve said several times in previous articles, we are built to be fooled. Worse: we consciously refuse to exercise our skeptical muscles.

Every time we see a “success story,” we automatically accept the theory as “true.” Or, in an even more twisted version: “I’ve never heard of a case where this methodology failed, so it must be valid.” That’s what most “managers” and “executives” conclude. How many times do we need to repeat this?

Absence of evidence is not evidence of absence.

Today we use a lot of statistical data to make decisions. Statistics is very useful when used the right way. Used the wrong way, it’s an enormous disaster.

The reasoning is always the same: “for the last 3 years we’ve been growing 2% every month, so we can conclude with certainty that we’ll keep growing 2% in the coming months.” Everyone has done this. Until a Black Swan shows up and the excuse changes: “I don’t know what happened, it was an accident, because according to the data this shouldn’t have happened.”

Let’s be crystal clear: a rare event is called rare precisely because it doesn’t happen all the time. And it’s exactly this kind of rare, random, unpredictable event that usually delivers the billion-dollar losses or the billion-dollar gains. It depends on whether you’re the Gaussian type or the Paretian type.

But back to the original problem: is past statistical data enough to guarantee a theory’s validity?

Obviously NOT.

The most that past data can do is guarantee a theory’s falsifiability. As Nassim explains in Fooled by Randomness: with past data we can prove a theory is invalid, but we can never prove it is valid.

Today we know Newton’s classical physics is invalid, because Einstein’s Theory of Relativity overturned it. But we know in which contexts classical theory can still be used and when we need relativity. Good scientific theories are the ones that provide criteria to judge their falsifiability, never their validity.

Astrology and other pseudo-sciences are dogmatic. Anything dogmatic should be automatically discredited, since it blocks any attempt to check its falsifiability. That’s the signature of charlatans.

The argument I described in the previous section is exactly what charlatans do: if it worked, credit the theory; if it didn’t, you applied it wrong. The prediction failed despite Mars being aligned with Saturn because Mars was “a tiny bit” off position. Otherwise it would have worked.

Nassim gave another great example: “I have just completed a thorough statistical examination of the life of President Bush. For 55 years, close to 16,000 observations, he did not die once. I can hence pronounce him as immortal, with a high degree of statistical significance.”

Fallacies

Lately I’ve given several tips on things to avoid. If the subject is management or control, especially of people, and the theory doesn’t take Pareto into account, throw it out.

If a theory leaves no room to evaluate its falsifiability, it’s charlatanism. Throw it out.

Self-help books work like that: they offer flowery theories, covered in honey, attractively packaged. But unlike scientific theories, they never let anyone try to prove they don’t work. They only assert that they work, cite “success stories,” and hide every failed attempt.

Since the beginning of last month I’ve been traveling every week to give talks, and I always stop by the airport or bus station bookstore. Paying closer attention, the featured books are almost all of this kind: cheap charlatanism.

The “beautiful” theory only exists today because it hasn’t met a Black Swan on its path yet. “Ah, it’ll never happen, because it never happened before.” And that’s exactly why it may have even better odds of happening: because it never has!

Watch out for the following fallacies:

• Induction Fallacy: the fallacy where induction goes wrong. Induction means trying to find general principles from known facts.

• Narrative Fallacy: the creation of a post-hoc story so that the event seems to have had an identifiable cause.

• Regressive Statistical Fallacy: believing that the probability of future events is predictable by examining occurrences of past events.

• Ludic Fallacy: believing that the structured randomness found in games resembles the unstructured randomness found in life. It’s the problem of confusing the map (model) with the territory (reality).

The last one takes into account:

• it’s impossible to have all the information
• very small variations in the data can lead to enormous impact (the Butterfly Effect, and yes, it happens all the time)
• theories and models based on empirical data are flawed, since events that haven’t happened yet can’t be taken into account

It’s the example Taleb explains: you’re drawing colored balls from a covered box, without seeing inside. You pull 5 white balls and 5 red balls and, from this empirical data, conclude that "always 1 red ball will come out for every 2 balls drawn." Little do you know there’s a hole under the table with a boy hiding in it. Hearing your claim, he starts handing you more white balls than red ones. That’s reality.

We exercise our skepticism far too little. Nobody needs to become paranoid, but we could all evaluate things a little better than the mediocre way we do today.

Emotions

As Malcolm Gladwell says in Blink, we do make decisions in the blink of an eye. Of course, the decision will be as good as our experience, knowledge, and skills.

Taleb describes the case of a person who needed brain surgery because of a tumor, and the doctors had to remove the part of the brain responsible for our emotions. Everything else remained intact.

“Excellent!” someone might think. Here is a 100% rational person, who won’t let emotions get in the way of reason, and who should be making smart decisions all the time.

Surprise: this person became completely incapable of making any decision. They could barely decide to get out of bed. The studies show that our decisions are driven far more by the emotional part than by the rational one, contrary to what we imagine.

Anyone who has worked with artificial intelligence concludes that we humans need an approximation mechanism, because it’s simply impossible to take every variable into account. Evaluating everything we know would take so long that predators would have wiped us out millennia ago.

Deciding in the blink of an eye, or worse, trying to be “rational,” has advantages and disadvantages. Open-minded, highly studious people, experienced in many fields, will probably make many right decisions very fast (some by luck, some wrong). Closed-minded, mediocre people will make many wrong ones.

An example of a wrong decision: trusting pseudo-science salesmen.

Karl Popper used to say one should not take science too seriously. It makes sense: science allows itself to be wrong and refines itself over time. If you take everything too seriously, you risk betting on theories that haven’t been truly put to the test, and your next decision may be the very Black Swan that falsifies them.

Conclusion

Be very, very careful with experts. Without denigrating every kind of expert, because many are genuinely good: experts in abstract, intangible things like “methodologies” and “economics” should always be viewed with suspicion. A good credential doesn’t make a theory better or worse. It’s simply irrelevant.

Don’t let your decisions be biased by non-scientific theories: pseudo-science, superstition, astrology, homeopathy.

Again, read Taleb: what he says is obvious, but for some reason we all ignore it. Few people truly understand randomness. Stop frantically watching Bloomberg and refreshing your browser every 5 seconds to check financial indices. None of that will help you: you already ignored the Black Swan, you already lost.

Just a hint about Agile philosophy: I’ve always found it smart that Agile methodologies insist so much on short Sprints and iterations. They know predicting the long-term future is impossible, so they prioritize what really matters and plan only the short term, what’s effectively possible. Agile methodologies look tailor-made to defend against the Black Swans that still haunt traditional software development teams, as I explained in my previous article.

Everyone only ever saw white swans in the past and infers that Black Swans don’t exist. That’s where the danger lies!

I don’t remember whether I wrote about this in a post or in my book, but there’s a piece of common sense I call “Evolution Through Competition”. Debates like “Ruby VS Java” or “Rails VS J2EE” are not exclusive to the Ruby on Rails crowd. Look at the other recent fights in computing:

• Firefox VS Internet Explorer
• Macs VS PCs
• Windows VS Linux
• C# VS Java

Microsoft is the favorite for the villain role. It plays in practically every computing market, so it will always take criticism: “Windows is bad”, “Office is junk”, “Internet Explorer is worthless”, “Visual Basic is not a professional language”. Some of those arguments are valid; others are just narrow-minded grumbling.

Criticism is constructive when someone acts on it. Radicals are useless in this world. People who only curse and never do anything are irrelevant, as the saying goes: “if you’re not part of the solution, you’re part of the problem”.

Hats off to everyone who turned their frustration with the status quo into high-quality alternatives to Microsoft’s criticized products. None of them is perfect, but the dedication deserves recognition. These days I only use Firefox (or Camino on the Mac, which runs the same Gecko engine).

Linux, backed by technology giants like IBM and Silicon Graphics, gained advanced filesystems such as JFS and XFS, NUMA support, clusters, more advanced thread management, virtualization like Xen, and much more. That made it a trustworthy choice for serious servers.

Apple stopped being a stubborn company too. It learned to admit its mistakes and pull off ever cleaner transitions: from Motorola processors to IBM’s PowerPC, from the obsolete MacOS 9 to MacOS X, built on a Unix core, and now from PowerPC to Intel’s Core Duo and Core 2 Duo. Change in order to evolve.

Microsoft, for its part, is not sitting still. Watching competitors rise against it, the company built an answer to most of the criticism: Windows Vista. Despite the stumbles and delays, it promises to be a robust, modern system. Better than Linux? Better than MacOS X? Who knows. But evolution is happening. Same story on the development platform: under threat from Java, it created .NET. Both have strengths and weaknesses, but .NET has fantastic features nobody should ignore.

This phenomenon goes well beyond IT: it is built into capitalism. The genius of competition is that it inevitably drives evolution. Companies today are better than they were ten or twenty years ago. That is exactly why monopolies need to be eradicated.

Take Brazil’s telecom market. Back in the days of the inefficient state monopoly known as Telebrás, getting a phone line took months and cost an obscene amount of money. Today, with competitors like Telefonica and Embratel, a line is installed practically overnight at a reasonable price. The service is far from perfect (ask Procon), but things only started improving after privatization. That much is undeniable.

So what does any of this have to do with Rails? One corollary of this reasoning: technologies that are rarely discussed and rarely criticized tend to stagnate or, worse, to be forgotten. It is the monopoly effect again. A company that goes too long without competition gets comfortable, gets worse, falls apart, until someone finally shows up to dethrone it. In a healthy market, competition is a must.

Look at cases like BeOS, or languages like Nemerle and Scheme. They all keep small niches, but the market at large forgot them. That does not mean they were bad; for various reasons, they were never criticized or grilled enough.

I explained all of that to get to this point: Ruby and Rails are under constant criticism, watched closely, grilled without ceremony. And that is excellent. Every gear of evolution is turning. Thanks to all this attention, smart people in the community stood up to fill the gaps, pushing RoR quickly to levels it would never reach alone. Some examples:

RoR doesn’t support Internationalization

For some, this is a serious flaw, made worse by the fact that Ruby itself is not very Unicode-friendly. Remember, Ruby was born in Japan, for the Japanese, in the early 90s. I covered the subject in the book; long story short, today we have solutions like Globalize.

RoR has no equivalent to EJBs

True, despite being extremely bureaucratic, current EJB containers are quite robust. RoR amounts to just the servlet container of a full J2EE stack. But thanks to Ezra Zygmuntowicz we now have BackgrounDRb. It works roughly like a Message Bean for running asynchronous tasks. Not necessarily better, but it is a solution.

RoR is nothing more than a template generator

The same old scaffolding talk. Plenty of newcomers and ill-informed critics believe Rails is just the scaffold method. They are flat out wrong, though scaffolding is an incredible concept, difficult or impossible to pull off in static languages. Rails’ default scaffold is too simple: it does not, for example, interpret the relationships between tables. Several alternatives showed up, and the most interesting are Streamlined and AjaxScaffold, as I mentioned a few posts ago.

RoR only favors Green Field projects

“Green Field” is what we call a project started from scratch, no legacy, where we get to pick the implementation and follow Rails conventions from day one. The problem is building a Rails module on top of a database that already exists, completely outside the conventions. That takes work. To make it easier, Robby Russell is writing the Acts as Legacy plugin, an Active Record extension that promises to smooth things out.

RoR uses scriptlets: code mixed with HTML, and that is terrible

A never-ending debate. Rails’ view engine, Erb, does use the equivalent of JSP or PHP scriptlets, with raw Ruby code mixed into the HTML. In Rails’ case, it is a great feature. But some people prefer something closer to taglibs: HTML free of programming, especially when Web Designers join the project. A great alternative is Liquid, which brings functionality similar to Velocity from the Java world. That way we can please Greeks and Trojans alike.

RoR alone is too raw. Python, for example, has Zope/Plone

Rails is a framework. Some people want to extend the fight and claim Rails loses to Zope. For the uninitiated, Zope is an excellent application server with a CMS, written in Python. Sure, comparing a CMS to a framework is apples and oranges. Even so, smart solutions are already being written in Rails. In the CMS space (content, blogs) we have the famous Typo and Mephisto. For eCommerce, Shopify.

RoR uses good Design Patterns but doesn’t implement newer concepts like Rules Engines

A Rules Engine, or Business Rules Engine, manages business rules. The concept gained traction recently and is still maturing, so every vendor implements it differently. In the Java world, one of the most famous is JBoss Rules (Drools). In the Ruby world, an alternative called Rools already exists.

RoR doesn’t have as many libraries as Java

True. Even though Ruby is over 10 years old and Rails gains new plugins all the time, Java undeniably has a huge library collection, perhaps second only to C/C++. A new development could change that: Sun just hired the creators of JRuby, a way to run Ruby code directly on the JVM, opening the door for Ruby to reach every Java library out there. If Sun does its homework, we’ll soon have a JVM Ruby with high performance, robustness, internationalization support, and access to an endless supply of libraries.

Finally, why was Rails written in Ruby? Couldn’t there be a “Jails”?

Many people question the fact that Rails is written in Ruby. At first glance it looks like the programmer’s grudge against Java. Study the most popular languages and it becomes clear that Rails is only Rails if it’s Ruby. The proof is in the recent frameworks (most still unfinished) that copy the same concepts in other languages: Grails in Groovy/Java, CakePHP in PHP, Castle in .NET. Read the docs, try the code. They all try, but none of them has the same “feel” as Ruby on Rails.

And that is part of the game. Those alternatives need to exist, for two reasons. First, competing frameworks force the Rails community to innovate and evolve faster, never getting comfortable. Second, they help justify the choice of Ruby for building Rails.

The message is simple: don’t let criticism bother you. Accept it, understand it, evolve. The real world has no room for the Highlander fantasy, “there can be only one”. A technology that reigns alone should be afraid: there is nowhere left to go but down. Evolution works in cycles, like everything in life: born, grow, die.

As a consultant, my job is to pick the “best of breed”, the best of each sector at that moment. A solution that is good today may be replaced tomorrow, so we systems professionals need to stay current every single minute. Choosing by brand name, or out of ignorance of the alternatives, is a recipe for inefficiency and obsolescence.

Open your eyes.