Thursday, 19 February 2009

A story about evidence

There were two traders who used to cross the desert in Kenya, carrying incense from one city to another and metalwork back the other way. The trip was a long and hot one, and they travelled with two camels each and always with just a bit more food and water than they strictly needed.

For many years their trade carried on successfully - occasionally with a sandstorm, once losing some goods and camels to a thief, but never with a real crisis. Their wealth gradually accumulated, and they were able to expand their caravan to six and eventually ten camels; but no matter how rich they became, they never forgot to carry an extra waterskin and packet of cured beef: they were wise enough to know that riches cannot stop you dying of thirst.

But still it came to pass that on one difficult trip, the wind was strong and they had to camp for an extra day; when they reached the next oasis it was dry; and the spare water was soon gone. With three days to walk to the next water, and the sun stronger than ever, their mood was grim.

"What shall we do?" said the younger trader to the older. "I fear that we will never see the city again."

"My grandfather told me once of a time when he nearly perished," replied the older man. "Eighty years ago, in the greatest sandstorms of his time, he was caught in the desert with six camels and a cargo of wine. There was a tribe who camped nearby but they were hostile and he had only escaped recently from their swords. After a day of dehydration he was near to succumbing. In desperation he slaughtered a camel and drank its blood; drank a pint of wine; and finally he worked himself into a frenzy, drew his sword and raided the supplies of the tribe for milk and meat."

"And...what happened?"

"He lived to tell the tale, so it must have worked. Perhaps we can follow his example."

"But there is no tribe nearby, and we have no wine," said the young trader.

The older man nodded. "We still have the camels."

"Your grandfather's story is inspiring. But even if true, there's no evidence that drinking blood on its own will save us. I have worked hard for my camels and I will not kill them for nothing."

The old man sighed and drew his knife. "If you have no evidence, sometimes you only need common sense. We are going to die in this desert if we do nothing. I am slaughtering one of mine."

So he killed the camel, drained its blood, filled his waterskins and drank from one. And then they set off once again towards the distant oasis with the nine remaining camels.

One day later, in the height of the afternoon heat, the young trader gave in and begged for a share of the blood; his colleague offered it and they both survived to reach the oasis two days beyond.

Once back in the city they were soon able to replace the slaughtered camel and continue to build their wealth. The older man never mentioned the fact that he'd sacrificed his camel to save both their lives; but the young trader never forgot it.


In recent months I have frequently seen the complaint that there is "no evidence" that fiscal stimulus works, and therefore we should not try it. Sometimes, as the old trader said, evidence is not needed if you have enough common sense.

The moral of this story is: If you have insufficient liquidity, you should try anything that might work. Sacrificing some wealth in order to make it to the next oasis is better than dying rich.

Incidentally, the two traders retired and wrote their joint memoirs a few years later: The General Theory of Employment, Interest and Camel Blood, by Kenyans.

9 comments:

Anonymous said...

I want that minute of my life back.

liberty said...

Only problem: for it to be a good analogy, you'd have to chop off one of your own legs and drink its blood.

There is also no evidence that it would work, and in fact good reason to believe that it might do more harm than good, because ultimately you are taking the new liquidity from yourself, not from an extra camel.

E.Z. said...

Two months later, they both died from a horrible disease they contracted from drinking camel blood.
Ironically, a friendly caravan had been only a day's travel behind them, and if they had waited they would have been fine.

When you have full control of the narrative, you can make up facts that make any decision look like the correct (or even 'common sense') one.

Leigh Caldwell said...

Thanks for your comments, everyone. I'm fully aware of the dangers of using loose allegories to "prove" a point! But I hope it has at least added some little extra illumination to the debate.

The meta-point is not that fiscal stimulus is necessarily the right decision, but that sometimes you need to make a choice without convincing evidence in either direction.

Russell Hutchinson said...

Hi Leigh, I hope you realized that my tongue was firmly in my cheek in my blog post linking to you. To atone, here is an equally awful economics joke:

Journalist: "How much do Icelandic banks owe?"
Icelandic Finance Minister: "About $60 billion US"
Journalist: "WHat's that in Krona?"
Icelandic Finance Minister: PAUSES...."I guess it's all of them"

Michael J Roberts said...

I like it. :-)

Nice work.

Michael J Roberts said...

Oh, but there IS evidence fiscal policy works. Not the kind laboratory scientists have, but still pretty good. You know, WWII and such. So it's not just common-sense Keynesianism.

Still, it's a nice story, even if the analogy isn't perfect.

Leigh Caldwell said...

Russell - I kind of guessed. I have had some experience with acerbic Kiwi wit in the past. We broke up after three months though.

Thanks for your comments Michael. I agree that on balance, the data from the 1930s-40s does tend to point towards the effectiveness of fiscal stimulus. But many people legitimately feel there is great uncertainty about the relative effects of New Deal spending, military mobilisation, (eventual) monetary loosening and endogenous recovery based on renewal of the capital stock.

I think theory does give enough reasons to believe that the direct fiscal stimulus component is effective, if money is loose enough to let it work. But the evidential problem is that we have never really been able to try that in isolation of other factors. Nor do we have enough separate instances to use conjoint analysis to isolate the component due to stimulus.

I note with interest your latest posting on Greed, Green and Grains - I will send you an earlier article from Knowing and Making which argues for a similar effect.

beezer said...

Sounds like the old Burt & I joke where the two downeasters are talking about the need for neighbors to share for the continued benefit of both. Then Burt asks about the need for a pig, to which I responds "Now Burt, you know I got a pig."

Seems like it's always the little guy's pig that keeps getting swiped by Wall Street. Personally, I'm out of pigs.