Jim has a post on the GM bailout where he lays it out the disagreement in the context of his larger views on the world.

I hold the belief, quite strongly, that the net effect of the GM bailout will be negative. More precisely, I hold the belief that over a series of many such decisions, a mindset that would have been stringent enough not to have sanctioned the GM bailout is likely to lead to better overall economic outcomes for America. This belief is ideological – not in the sense that I just hold it for inexplicable reasons that cannot ever be changed by empirical analysis – but in the sense that I don’t believe that human beings currently have the capability to conduct the kind of analysis that should convince a rational observer to change his mind about the GM bailout in isolation from a more profound paradigm-shift-like change in his beliefs about the world.

I like this statement of the problem. That GM qua GM holds such little information that we can’t expect a change in our perceptions about GM without a change in our larger view.

Still, I don’t think that’s right and here’s why. Any non-zero orthogonal information about GM alters the posterior probability that the bailout of GM was a good or bad idea independently of the general analysis of government intervention.

Let me give an example that will sound silly but is completely true. Suppose that I asked my dog whether or not she felt we should bailout GM. More concretely I ascertained her preference for going down to the GM lot and being petted by Bill a GM dealer who would likely have to move should GM close.

My dog expresses pleasure at seeing Bill. Noting this I should increase my willingness to bailout GM.

You might reply that there could be other dogs who might meet Bill if he leaves and though my dog will be sad those dogs will be happy. This is true.

However, those dogs exist as probability distributions and as such have inherently less weight than my dog.

Or to be more explicit the future world in which my dog is happy with Bill has a a larger measure across probability space than do these other worlds.

Probability measures is all that reality is. Not because of some deep quantum properties but simply because we interact with the world through a series of filters. Our minds – whatever that might be – are trapped inside of a box inside of our heads.

We get information which we process with varying degrees of reliability to get a probabilistic estimate of the world on the outside. Everything comes through the filters.

This means that there is no threshold level of reality that somehow separates beliefs about one set of things from another. It means there is no point at which we can objectively analyze a phenomenon without an appeal to numerous auxiliary hypothesizes or conjectures.

What matters is not our mental capabilities, but our the orthogonally of conjectures within our belief system.

So coming back to the dog example. If I have no particular reason to believe that my dogs feelings about Bill are related to the general goodness or badness of government interference then her opinions about Bill are orthogonal and thus influence the optimal bailout of GM independently of overall ideology.

Now, that having been said the key problem in all of this is bias. That unlike my dog I have preferences over beliefs about government interferences. This means that it much more difficult to generate orthogonal analysis.

In other words knowing that I either want or don’t want more government interference is going to influence how it is that I see the GM bailout. And, further the real problem is that the information about GM qua GM is so low that there is a good chance that it is swamped by this bias.

However, the quality of the analysis in and of itself is neither here nor there. Stupidity, as always, is not reverse intelligence. It is the absence of intelligence. So long as I have any positive intelligence, no matter how infinitesimally small, it contributes.

Jim also says

Acceptance of this degree of ignorance doesn’t cut equally against all ideological positions. It leads naturally to a call for decentralized decision-making, experiments, and entrepreneurial groping toward knowledge.

I think this is more or less right. Though with some additional caveats

I think it calls for dovishness in general. That is, it calls for being reluctant to accept near term harm for long term benefit. Things that are close up are easier to see. Entropy expands with the arrow of time.

This mediates in favor of being less hawkish on war, less hawkish on the deficit, less hawkish on climate, less hawkish on campaign finance reform, less hawkish on health care, etc.

At the same time we must also remember that one cannot have no policy. It really feels like zero is a special number, and in some cases it is, but often it isn’t.

Let me explain. Suppose we are wondering whether or not to cut taxes to fight the recession. This is a favored policy of mine.

One cannot have no tax policy. Even a policy of zero taxes is a tax policy. Even the policy of zero change in taxes is a tax policy.

So what are we to do? Well on the one hand if we change our tax policy then we increase uncertainty about what might happen. Not necessarily in a specific nailed down, like “businesses won’t know what to do” kind of way, but just in a “who knows” kind of way.

Maybe there was something special about this level taxes that we were unaware of and generally one should not go messing with things.

On the other hand, we know that there are a lot of people hurting today, and it really seems like even the direct impact of lowering their taxes would ease their pain. That means a lot.

Maybe we don’t know for sure how this will affect the economy but we have a fair sense that – at least right now, today – people are happier when their taxes go down and that is a good thing. We also know that people are particularly sad today, so lowering their taxes today seems particularly good.

That’s one level of weighing.

Then we take our best guess at what taxes will do longer term. Its always a guess. It is a guess that when I step outside my door I will step onto the porch and not – absent beliefs about the long history of the universe – the much more likely possibility of empty space.

Yet, like all guesses it is useful and made more useful the more bias we can wring out of it.  The force of this guess should always be tempered by our uncertainty and the further into the future we push our analysis the less certain we become about it. The future is uncooperative that way.

We mix all that into a pot, stir and we get our answer. Its not very reassuring. This bothers folks and I do see them reaching for reassurance all the time.

However, as always, not to worry. You’ll die, your family will die and everything you care about will wither away. This country is not forever. This world is not forever. And, our story only has one ending.

Just do the best you can and don’t fret. Nothing will work out in the end.