Cafe Hayek - Latest Comments in Truth and Economics

Re: Truth and Economics

dg lesvic — Tue, 27 Jan 2009 16:18:18 -0000

ChrisF,

I wrote;

"You said that my approach works very well if there are no constants and doesn't if there are constants."

I meant,

You said that my approach works very well if there are no variables and doesn't if there are variables.

Sorry about that.

Re: Truth and Economics

dg lesvic — Tue, 27 Jan 2009 14:28:51 -0000

ChrisF

You said that my approach works very well if there are no constants and doesn't if there are constants.

That's what I've been saying, too, so where is the disagreement?

You may be right about the butterfly. We may never know all of the effects of its actions. We may never all of the effects of a given human action. We may never know all there is to know about the world. And probably won't. Nay, certainly won't.

But does that mean that we can never know anything about it? Does that mean that all scientific inquiry is vain, and should be halted?

All I hear from people like you and Martin is that we shouldn't think.

Then, what should we do, join the Taliban?

Re: Truth and Economics

dg lesvic — Tue, 27 Jan 2009 14:14:35 -0000

ChrisF,

Ignore my last post. That was no good.

Here's the solution to your problem.

F equals ABC times XYZ divided by CRAP amd multiplied by BULLSHIT.

Re: Truth and Economics

dg lesvic — Tue, 27 Jan 2009 14:08:30 -0000

ChrisF,

You wrote,

"...it may be impossible to identify the change due to any one factor."

For instance?

Re: Truth and Economics

ChrisF — Tue, 27 Jan 2009 11:20:24 -0000

dg lesvic --

My argument would be that it may be impossible to identify the change due to any one factor. A butterfly flaps its wings and there is a hurricane on the other side of the world.

The standard approach for what you're doing is "Holding everything else constant." That works very well if, for example, you have F(x,y) = x + y and you want to hold y constant to see what F does when you change x. But, let's say you have F(x,y) = (x if y is odd, y if y is even). If you hold y constant, you will never discover F. It's even worse if F is a function of 1000 variables or 10,000,000 or 4 billion, each one of which is a person.

Re: Truth and Economics

dg lesvic — Tue, 27 Jan 2009 10:26:31 -0000

Greg,

If that was directed to me, I don't know what you're talking about.

Re: Truth and Economics

Greg Ransom — Tue, 27 Jan 2009 08:41:56 -0000

This is a fools version of "science". It essentially excludes most of astronomy and most of Darwinian biology, two of our most outstanding sciences.

This model of "science" has done a tremendous amount of damage in economics and the social sciences.

Someone wrote:

"The Scientific Method is the method of the controlled laboratory experiment, of a single factor of change in an otherwise unchanging environment."

Re: Truth and Economics

dg lesvic — Tue, 27 Jan 2009 07:47:31 -0000

ChrisF,

You wrote,

"The ocean is chaotic enough that it will never be possible to understand why any specific wave happened and, even if you could figure that out for one wave, it won't help you with the next wave."

Economics isolates each factor of change from every other, telling you the effect of each by itself.

Isn't that worth knowing?

Re: Truth and Economics

ChrisF — Tue, 27 Jan 2009 05:57:09 -0000

What if trying to figure out what happened to the economy is equivalent to trying to figure out why a single wave in the ocean happened to be bigger than its neighbors?

Macroeconomics is concerned with discerning how broad ranges of people will act under certain conditions. So, for example, if you put a tariff on, say, French wine, there is a view that this will cause French wine producers to complain to their local representative in the French Government, who will talk to his other friends in the French Government and they will, collectively, decide to respond by imposing a tariff on American cars. That's a lot of predicting. What if the wine makers just say "Good Riddance" and don't lobby? Or, what if the French Government is busy dealing with some other crisis?

The point is that macroeconomics is all about looking at the behavior of a chaotic system and trying to figure out what a steady state will look like given a certain set of inputs. Sometimes, this is possible. But, I suggest that sometimes it is completely impossible. The ocean is chaotic enough that it will never be possible to understand why any specific wave happened and, even if you could figure that out for one wave, it won't help you with the next wave.

Re: Truth and Economics

Mark Yannone — Tue, 27 Jan 2009 05:08:02 -0000

Before you argue about truth, look at the authority. If government has no authority to act in a certain way, then there is no need to debate its effectiveness. For instance, we have no need to argue about the effect of violating the Second Amendment. Your economic analysis of a violation of the Bill of Rights is of no interest.

That takes care of 82 percent of the issues, and I've got a study to prove it.

Re: Truth and Economics

Paul Ralley — Tue, 27 Jan 2009 02:32:53 -0000

I have a backlog of econ talks to listen to, but I shall promote this to the top of my list.

Thanks for this great service, it gives me a massive consumer surplus!

Re: Truth and Economics

Mike Farmer — Tue, 27 Jan 2009 01:51:03 -0000

One too many "but"s.

Re: Truth and Economics

Mike Farmer — Tue, 27 Jan 2009 01:48:45 -0000

If you are asking if social engineers use central planning to correct the negative consequences of their incentives, I'd say yes, thus the vicious cycle of intervention. But this is not a condemnation of free choice, but rather condemnation of social engineering, central planning and "incentives".

Re: Truth and Economics

Babinich — Tue, 27 Jan 2009 00:46:19 -0000

Mike Farmer on Jan 26, 2009 @ 3:24:46 PM

"As a non-economist I conclude that economics is not a viable guide for central planning. Human intereactions are too complex, and if interactions are left to the free choices of free people, without violating the rights of others, then the economy is dynamic."

Does 'Central Planning' becomes more practical to social engineers if free choice goes cockeyed because of the implementation of incentive altering legislation?

I'd answer this question with a resounding "Yes"!

Re: Truth and Economics

dg lesvic — Mon, 26 Jan 2009 18:53:59 -0000

Dr T,

You wrote,

"The scientific method...almost never is used in economics.

No other method is used, by real economists.

The Scientific Method is the method of the controlled laboratory experiment, of a single factor of change in an otherwise unchanging environment.

The economist uses that method no less than other scientists, with only this difference. His "laboratory" is within rather than outside his own mind. For, while he cannot create an actual environment of no change, he can imagine it.

And this method of imaginary constructions, the specific method of economics, is as universally valid, objective, and scientific as any other.

Re: Truth and Economics

Martin Brock — Mon, 26 Jan 2009 16:02:25 -0000

Furthermore, the true libertarians who opposed Social Security at the time of its enactment opposed it for the reasons above, not because its "rate of return" was too low. One doesn't earn a "rate of return" on the support of one's parents, because this support is itself a return on investment. Expecting a "return" on this support (or on payroll taxes) is like expecting a return on your mortgage payment.

Re: Truth and Economics

Martin Brock — Mon, 26 Jan 2009 15:51:33 -0000

... the complaint about Social Security and other programs is how prices are factored into things.

My complaint about Social Security is about how costs are not factored into things. The historical precedent for Social Security is not "saving for retirement". The precedent is "supporting elderly parents"; however, because the system is dressed up superficially to resemble "saving for retirement", it is extremely inequitable for parents and extremely disrespectful of children.

In the popular imagination, Social Security says, "Give money to the government, like an investment, and you earn entitlement to benefits when you retire." In reality, the program says, "Support your parents collectively, and you may expect all children collectively to support you." Given the history and the pay-as-you-go nature of the program, it can't be saying anything else.

Social Security is nothing like investment in non-human capital, and no economist with a clue will claim to know that replacing Social Security with such a system is even possible, because no historical precedent for universal retirement by purchasing non-human capital exists. In reality, labor is the most valuable resource in practically all productive endeavors. I'm not asserting a labor theory of value, but the labor theory of value is approximately true insofar as labor is most of the value of everything human beings value. That's not just my opinion. It's the opinion of Ludwig von Mises and Julian Simon and many other, classically liberal economists.

Since we all have parents but we don't all have children, Social Security is obviously a boon to people who support few or no children. Deadbeat dads (and moms) do far better under the system than supportive parents, because they "earn" the support of their children by supporting their parents, not by supporting their children. These non-supportive parents may use earnings not directed toward the support of their children to buy entitlement to other rents imposed on children, like Treasury notes or real estate yielding more conventional "rent".

Thus the people earning the least of this rent imposed on children are the parents who invest hundreds of thousands of dollars in their support and therefore may purchase less of the entitlement. This consequence of the system is undeniable, yet the denial is palpable.

Re: Truth and Economics

Mike Farmer — Mon, 26 Jan 2009 15:40:31 -0000

dg lesvic, thanks, that makes a lot sense.

Randy, irrational exuberance, indeed. I'm dizzy with all the plans put forth. As a real estate broker, I have no idea how to predict in the midst of all this manipulation. Buyers and sellers are probably a little confused, too.

Re: Truth and Economics

cpurick — Mon, 26 Jan 2009 15:08:38 -0000

Hmm. I distinctly remember hearing that the ratio of the ring finger to the index finger is a strong indicator of whether you're attracted to men or women. I don't think it matters if you're a man or a woman, if you get my drift. Apparently it has something to do with estrogen in the womb. Longer ring finger means you'll like women, longer index finger means you'll like men.

Not surprisingly, Oil Shock's study says the high testosterone crowd makes all the money.

This no doubt irritates some women, especially ones with really long ring fingers.

Re: Truth and Economics

Dr. T — Mon, 26 Jan 2009 15:02:37 -0000

What does this tell you about economics as a science?

I like economics, but the claim that it is a true science irks me. The scientific method, the foundation of natural sciences such as physics, chemistry, and biology, almost never is used in economics. At best, economics barely qualifies as a social science. There are observations, hypotheses, more observations, correlations, models, and conclusions, but there are few useful experiments that can challenge the conclusions.

Economics should just define itself as itself. There is no need to claim it is a science; it is misleading to do so.

Re: Truth and Economics

Oil Shock — Mon, 26 Jan 2009 13:48:42 -0000

They have got "data" to prove it. Empiricism gone wild.

The longer a trader’s ring finger,” suggests Agora Financial analyst Sam Buker in Whiskey & Gunpowder this morning “the more money he’ll make.” Sam is citing a Cambridge study in which the U.K.’s leading minds went around London measuring digits of various investors, which might help explain why the pound is tanking.

“Those with the longest fourth digit made over five times the money of their less-well endowed colleagues. The average salary was $537k. The long-ring group netted a healthy $828k, while the shorties had to make do with $145k.

Re: Truth and Economics

dg lesvic — Mon, 26 Jan 2009 11:38:48 -0000

Mike Farmer,

You're a better economist than you give yourself credit for, for you instinctively understand what economics is and isn't, and who is and isn't an economist.

Since we live in a world of scarcity, we must all economize. But that doesn't make us all economists. Economics implies something beyond Home Economics, the problems of Ma Kettle in her kitchen; it implies Political Economy, the problems of nations and social classes in the market and the political arena, and not its passing data but eternal truths.

The data by itself is a meaningless jumble. It is only through the logic of economics that we can make sense of it. But while the logic is essential to an understanding of the data, the ever changing is irrelevant to the eternal logic. So though the macro-economic plotters of the data and "governors" of the nation's economy use economics, they do not contribute to it. And, however more complex the data of the overall economy than that of the corner grocery store, they are still more like Ma Kettle, adjusting to changes in the data, than Adam Smith, discovering eternal truths, and not economists, like Smith, but economic "managers," like Ma Kettle, though on a larger scale, and, unlike Ma, doomed to failure.

Re: Truth and Economics

Randy — Mon, 26 Jan 2009 10:42:42 -0000

Mike Farmer,

"A good economist is probably more valuable predicting the negative consequences of bad economic models..."

Agreed. Because politics is exceptionally prone to irrational exuberance.

Re: Truth and Economics

Lance — Mon, 26 Jan 2009 10:34:15 -0000

Russ,

How about Martin Feldstein or Kenneth Rogoff? They've advocated stimulus proposals, yet they're pretty much aligned with free markets.

Re: Truth and Economics

Mike Farmer — Mon, 26 Jan 2009 10:24:46 -0000

As a non-economist I conclude that economics is not a viable guide for central planning. Human intereactions are too complex, and if interactions are left to the free choices of free people, without violating the rights of others, then the economy is dynamic. All an honest economist can do is try to be on the edge of the change, interpreting what's happening to help people make the best decisions. But, to me, trying to plan the economy based on economic model is useless and counter-productive. A good economist is probably more valuable predicting the negative consequences of bad economic models than creating a working model to plan and control the economy.