Morgan Warstler is now blogging

Here’s a Warstler post sent to me by Josiah:

Early after Obama won in 2008, John Papola asked me what I thought about Scott Sumner’s Money Illusion.  I headed over and got into it.

It has been an ugly 3 years.  But last night I lost a big bet, so….

For the next month or so, I’m going to layout how I let go of my driving political philosophy since the mid-1980’s and adopted Sumner’s.

.   .   .

What is needed as a strategy is a single conservative policy embedded directly into the fabric of our economy, that assures, “growth.”

This can be accomplished through monetary policy, specifically through a new approach by the Federal Reserve.

The Fed is on the verge of throwing out their dual mandate, and instead using only one: Nominal Gross Domestic Product on a Level Target (NGDPLT).

Conservatives must rally their political strength to this idea.

.   .   .

We can Go Gulch, but there’s a smarter trickier way to do it.  If Ayn Rand had been around today, she’d come to understand there is another way.

The answer is NGDPLT.


Tags:

 
 
 

94 Responses to “Morgan Warstler is now blogging”

  1. Gravatar of babar babar
    9. November 2012 at 09:29

    i always thought that morgan was your alter ego, and this is another confirmation!

  2. Gravatar of ssumner ssumner
    9. November 2012 at 10:02

    babar, It was all an elaborate set-up. I’m also the real Bob Murphy. Don’t tell anyone, but you’ll see him capitulate soon.

    But even I couldn’t invent MF . . .

  3. Gravatar of Cthorm Cthorm
    9. November 2012 at 10:26

    FYI – Morgan was blogging at BigGovernment.com before this.

    The post is a rehash of virtually every comment he has made on this blog. He is right too, at least in terms of the incentive structures a 4.5% NGDPLT would create. i.e. clear trade-offs between efficiency and inflation. It’s a uniquely small govt technocratic idea.

    The GOP needs a lot more than that though. The party needs to actively strive to become a big tent again, and the best way to do that is to lean libertarian. Offer an alternative vision of govt and society, one in which the govt seeks to intervene far far less. The party should develop a coherent message advocating much greater legal immigration, separation of church and state and vice versa, broad regulatory reform toward simple rules and recourse, lower taxes, and more emphasis on consumer/taxpayer choices. In my view the primary cause of the Romney campaign’s failure was a failure to offer a clear and credible alternative to Obama.

  4. Gravatar of Doug M Doug M
    9. November 2012 at 11:10

    So, the real question… will you be linking to him in your side bar?

  5. Gravatar of Floccina Floccina
    9. November 2012 at 11:18

    I came to Scot’s position by listening to and reading George Selgin, the funny thing is George seems to not be as much in agreement with Scott as I now am.

  6. Gravatar of Becky Hargrove Becky Hargrove
    9. November 2012 at 11:29

    Floccina,
    That’s why I remember lots of your comments in support of free banking. Arnold Kling – oh if he were still at Econlog – made me aware of Scott’s blog several years ago.

  7. Gravatar of Morgan Warstler Morgan Warstler
    9. November 2012 at 11:34

    Towards Cthorm’s end…

    http://www.morganwarstler.com/post/35346903657/manifest-destiny-mexico

    Note: it is rough doing monetary blogging.

    I put the first post up, and a couple hours later put Digital Socialism, Atomic Capitalism and got 140 comment in the first couple hours.

    NGDPLT needs to be sexier.

    I’m going to get the entire NGDPLT pitch to conservatives done, and them probably just keep trying to answer questions.

  8. Gravatar of Gene Callahan Gene Callahan
    9. November 2012 at 12:59

    “I’m also the real Bob Murphy.”

    Wait a second… *I’m* the real Bob Murphy, folks. Don’t believe this impostor!

  9. Gravatar of Bill Ellis Bill Ellis
    9. November 2012 at 15:07

    Morgan… Scott must feel very luck to have you as an acolyte.

  10. Gravatar of Liberal Roman Liberal Roman
    9. November 2012 at 15:12

    Put simply, the only way for the GOP to survive is to become Scott Sumner. NGDLPT, liberalized immigration rules, pushing redistribution of wealth not through income taxes but through progressive consumption taxes and perhaps even highlighting how occupational licensing is hurting America.

    Basically, the goal of the Republican party today is to make Matt Yglesias Republican. Yglesias has lots of ideas that if they were thought of as top priority would make him person non-grata to the left. Make a home for a young utilitarian like Yglesias in the Republican party and you can begin to restore the GOP to its namesake.

  11. Gravatar of Bill Ellis Bill Ellis
    9. November 2012 at 15:14

    Morgan has left being the most prominent citizen of the “Un-categorized” category of econ trolls…. to one of the soldiers in Scott’s Terracotta Army.

  12. Gravatar of Josiah Josiah
    9. November 2012 at 15:37

    It was all an elaborate set-up. I’m also the real Bob Murphy. Don’t tell anyone, but you’ll see him capitulate soon.

    This is kind of like the end of Rhinoceros, except that everyone is turning into Scott Sumner.

  13. Gravatar of ssumner ssumner
    9. November 2012 at 18:38

    Now that you mention it, I do recall reading Morgan’s blog a few years ago–I must be getting senile.

    Liberal Roman, Good comment.

    Josiah, And I have a big nose.

  14. Gravatar of Saturos Saturos
    9. November 2012 at 19:06

    Will the real Bob Murphy please stand up? Please stand up? Please stand up?

    Oh hey, wait, here he is: http://www.youtube.com/watch?v=vi__4Yt-dJQ&feature=youtu.be

    Josiah, that was a weird play. But Chairs was even weirder. (I still massively prefer Beckett, though.)

  15. Gravatar of Suvy Suvy
    12. November 2012 at 13:46

    I can’t really say I disagree. I think it would definitely be wise to target NGDP and I would also add debt levels to that as well. I find it extremely dangerous when there’s too much debt buildup in an economy–the economy becomes fragile to shocks.

    What I would suggest is something like using NGDP targeting and if the economy gets a private debt level of something like 150% or higher, you set NGDP in such a way that the debt level goes down. I’m not really clear about exactly how this would work, but I would want something of the sort.

    High debt levels scare the hell out of me because it makes you very sensitive to changes in volatility(especially when the debt is used to buy assets). With high debt levels, small changes in volatility have huge impacts and I don’t think that’s a good thing.

  16. Gravatar of ssumner ssumner
    13. November 2012 at 06:56

    Suvy, They tried something like that in 1929, it didn’t work out too well.

  17. Gravatar of Major_Freedom Major_Freedom
    13. November 2012 at 08:08

    Suvy, They tried something like that in 1929, it didn’t work out too well.

    They tried de facto NGDP targeting throughout the 1920s. That didn’t turn out too well.

  18. Gravatar of Suvy Suvy
    13. November 2012 at 08:17

    ssumner,

    They did no such thing in the Great Depression. From 1929-1933, the debt levels actually rose from 160% of GDP to 230% of GDP. They never actually tried to control debt levels.

  19. Gravatar of Suvy Suvy
    13. November 2012 at 08:19

    ssumner,

    To say that they tried controlling debt levels at any point in The Great Depression before 1933 is just flat out wrong. They were on a gold standard and they didn’t have the ability to do such a thing. They let incomes fall faster than debts. If you want to reduce the debt burden, debts must fall faster than incomes.

  20. Gravatar of ssumner ssumner
    13. November 2012 at 17:55

    Suvy, Your data has no bearing at all on the argument I just made. NGDP fell in half, so the debt to GDP ratio tells us nothing about what happened to debt levels, much less what the Fed was TRYING to do to debt levels.

  21. Gravatar of Saturos Saturos
    13. November 2012 at 20:14

    Suvy, the deviation from strict gold-standard maintenance over to debt-level control was precisely what triggered the Great Depression. Hence, the gold standard has no special power in restraining central bank abuse. They didn’t “let” nominal income fall, they caused it to fall, as they were trying to raise the cost of accumulating debt…

  22. Gravatar of Suvy Suvy
    13. November 2012 at 21:35

    ssumner and Saturos,

    By debt levels, I mean debt/income ratios. I should have really clarify what I meant. The last thing you want with a high level of debt is deflation.

    I’m perfectly okay with debts even increasing in nominal terms as long as NGDP is increasing at a faster rate when trying to reduce debt/income ratios(similar to what’s going on right now).

    Having 10% deflation during a time of an extremely high level of debt while NGDP falls 10% a year seems extremely counterproductive when trying to reduce debt/income ratios.

  23. Gravatar of Fed Up Fed Up
    13. November 2012 at 23:27

    Suvy, I am interested if you get this. I’m pretty sure Scott won’t. Both price inflation targeting and NGDP targeting suffer from the same problem. They both ignore private debt and gov’t debt (a medium of exchange problem).

  24. Gravatar of Suvy Suvy
    14. November 2012 at 18:36

    Fed Up,

    I completely agree. I think there’s a huge risk to having a highly indebted society–it makes you fragile and small events can blow you up. It becomes a huge problem when the debt is used to buy asset(one of the reasons being that it drives asset prices up and increases the amount of leverage used to buy assets until that Ponzi scheme becomes unsustainable).

    I would love to get rid of the Federal Reserve, but the only alternative is a gold standard. The problem with a gold standard is that you have a fixed exchange rate so you can’t fix trade imbalances like you could with a floating exchange rate. In other words, I don’t think getting rid of the Fed is practical.

  25. Gravatar of Major_Freedom Major_Freedom
    14. November 2012 at 18:51

    Suvy:

    I would love to get rid of the Federal Reserve, but the only alternative is a gold standard. The problem with a gold standard is that you have a fixed exchange rate so you can’t fix trade imbalances like you could with a floating exchange rate. In other words, I don’t think getting rid of the Fed is practical.

    1. There is a third alternative that you are ignoring: Free market in money production.

    2. There is no exchange rate with gold in a gold standard. In a gold standard, gold weight is the quantity that all goods and services are exchanged against. You are thinking in terms of a fiat money standard when you believe that there is a fixed exchange rate in a gold standard. In a gold standard, GOLD is money, not fiat notes, even though gold certificates could circulate.

    3. There is an inherent built in trade balancing mechanism with gold. If a country imports more, then gold will leave the country, and that will reduce the quantity of money and volume of spending within that country’s borders. This will reduce domestic prices and make them more internationally competitive, thus halting the gold outflow. Similarly, if a country exports too much, then gold will flow into the country, and that will increase the quantity of money and volume of spending within that country’s borders. This will increase domestic prices and make them less internationally competitive, this halting the gold inflow.

  26. Gravatar of Fed Up Fed Up
    14. November 2012 at 22:57

    Suvy said: “I would love to get rid of the Federal Reserve, but the only alternative is a gold standard.”

    I don’t think that is the only alternative. How about a no gold standard, no private debt, no gov’t debt economy?

  27. Gravatar of Suvy Suvy
    15. November 2012 at 04:42

    Fed Up,

    Are you talking about something like the Chicago plan with a central bank and the elimination of a central bank?

    MF,

    We had this exact same argument on a different post. I’m not having this exact same debate again.

  28. Gravatar of Suvy Suvy
    15. November 2012 at 04:43

    Fed Up

    Let me rephrase my previous post. I mean the elimination of fractional reserve with a central bank and fiat money. Is that what you’re referring to?

  29. Gravatar of Fed Up Fed Up
    15. November 2012 at 14:59

    No, I don’t think so. No private debt and no gov’t debt means no fractional reserve lending and no fractional capital lending. It means no lending at all.

  30. Gravatar of Doug M Doug M
    15. November 2012 at 17:54

    Why should to people be prohibited from creating a private contract between one another? That is what private debt is. Some countries do without private debt. Private debt is illegal in some muslim countries.

    But, just because there is private debt doesn’t mean that it should be subsidised as it currently is. Debt usually has favorable tax treatment for the debtors. And, infinte insurance of private debt leads to distorted lending practices, exceesive risk taking, and inefficient allocations of capital.

  31. Gravatar of Major_Freedom Major_Freedom
    15. November 2012 at 18:02

    Suvy:

    We had this exact same argument on a different post. I’m not having this exact same debate again.

    It’s unfortunate you are still clinging to the same inconsistencies.

  32. Gravatar of Fed Up Fed Up
    15. November 2012 at 19:51

    Doug M said: “Why should to people be prohibited from creating a private contract between one another?”

    because it can lead to MOA/MOE problems that affect the whole economy.

  33. Gravatar of Suvy Suvy
    16. November 2012 at 12:08

    Major Freedom,

    “There is an inherent built in trade balancing mechanism with gold. If a country imports more, then gold will leave the country, and that will reduce the quantity of money and volume of spending within that country’s borders. This will reduce domestic prices and make them more internationally competitive, thus halting the gold outflow. Similarly, if a country exports too much, then gold will flow into the country, and that will increase the quantity of money and volume of spending within that country’s borders. This will increase domestic prices and make them less internationally competitive, this halting the gold inflow.”

    You’re right in the sense that instead of the exchange rate adjusting, prices have to adjust. However, if you’re stuck in a situation with a high level of debt where debt/income ratios need to fall along with prices, this becomes almost impossible because as prices fall(wages will fall to since a wage is the price of labor). As wages fall, incomes fall. If incomes are falling, it becomes extremely difficult for debt/income ratios to fall because debts have to contract faster than incomes. You get stuck in a debt deflation which causes incomes to fall even faster as debt/income ratios continue to rise.

    You’re not accounting for all of the feedback mechanisms and the nonlinearity involved in the system. The most important thing to do in this situation is to break the feedback mechanisms. That, to me at least, is one of the biggest flaws with the Austrian methodology–it cannot account for nonlinear systems. I said this last time and I will say this again, the kind of deductive reasoning that they use should only be used in a pure mathematics class. It has absolutely zero use in the real world–especially in the sciences, where social or hard.

    A quote for Ludwig von Mises:
    “Our statements and propositions are not derived from experience. They are not subject to verification or falsification on the ground of experience and facts.”

    The methodology of Mises and Rothbard cannot (and should not) ever be used outside of a pure math class. That’s the only place it should ever be used, not in the real world. Keynes (who has a strong understanding in probability and mathematics) understood this and spoke about this many times. Their methodology cannot account for the nonlinearity and the unpredictability of an actual system. Their methodology should never, ever be used in the real world

  34. Gravatar of Suvy Suvy
    16. November 2012 at 12:28

    Here’s a quote about Karl Popper on Mises. I agree with Popper and his idea of falsification.

    “[Popper] met Mises early in 1935 in Vienna, owing to his interest in my first book….Both he and I were aware of a strong opposition between our views in the field of the theory of knowledge and methodology. Mises saw me as a dangerous opponent.”

  35. Gravatar of Razer Razer
    16. November 2012 at 12:37

    Survy,

    Since you’re so opposed to a gold standard, I can only assume you are for a paper standard. And since the history of paper standard is one of abject failure, I assume that this time, you’ve figured out how to make it work, right? Of course, gold standards or commodity money don’t require coercion and threats of prison on the people to work but that, I guess, is not something you care about.

    So tell us how, this time, you’ll make the paper standard work. We already know the bankers and government will be the biggest beneficiaries of your scheme since they will get to touch the money first, but please tell us how you will make work what’s failed a thousand times prior. And tell us what penalty those of us that don’t want to go along with your inflation scheme will get if we try to use ‘free market money’ like gold? Death? Imprisonment? Torture? Or will you be kind and just rob of us of our wealth through the mechanism of inflation?

    I wonder how you inflationists can say with a straight face that you’re really looking out for us little people when you enact your schemes. You probably expect our gratitude, don’t you?

  36. Gravatar of Major_Freedom Major_Freedom
    16. November 2012 at 12:56

    Suvy:

    I agree with Popper and his idea of falsification.

    Do you agree with the fact that the falsification doctrine is inherently contradictory?

    Falsification itself is nonfalsifiable you know.

    Mises holding Popper as a dangerous opponent does not mean Mises feared Popper is correct, but of caring about the (negative) ramifications should his ideas become widespread.

  37. Gravatar of Major_Freedom Major_Freedom
    16. November 2012 at 13:04

    Suvy:

    You’re right in the sense that instead of the exchange rate adjusting, prices have to adjust. However, if you’re stuck in a situation with a high level of debt where debt/income ratios need to fall along with prices, this becomes almost impossible because as prices fall(wages will fall to since a wage is the price of labor).

    What debt problem? There would be no credit expansion, or at least far less credit expansion, in a gold standard society.

    And even if there was debt, that is no justification to force people into a money regime they don’t want to be in.

    Debt can be liquidated. I don’t get it why you think debt is a trump card. Let the debtors go bankrupt.

    As wages fall, incomes fall.

    Not necessarily real incomes. With lower wages, business costs fall. With lower business costs, prices can fall.

    If incomes are falling, it becomes extremely difficult for debt/income ratios to fall because debts have to contract faster than incomes. You get stuck in a debt deflation which causes incomes to fall even faster as debt/income ratios continue to rise.

    You’re not “stuck” in a debt deflation. Deflation runs its course. It isn’t permanent. Borrowers have no right to hold the rest of society hostage.

    You’re not accounting for all of the feedback mechanisms and the nonlinearity involved in the system.

    You’re accounting for things that are irrelevant.

    The most important thing to do in this situation is to break the feedback mechanisms.

    No, the most important thing is to respect property rights.

    That, to me at least, is one of the biggest flaws with the Austrian methodology–it cannot account for nonlinear systems.

    Austrian economics is the study of acting man. Man is neither linear nor non-linear. It doesn’t “suffer” from this fact. It is a benefit. Humans aren’t mathematical models.

    I said this last time and I will say this again, the kind of deductive reasoning that they use should only be used in a pure mathematics class. It has absolutely zero use in the real world–especially in the sciences, where social or hard.

    You’re still wrong. Synthetic a priori propositions, that say something true about the real world, exist. Praxeology tells us the logical constraints of all possible human action. It doesn’t tell us the content, but then there are no constants in that content anyway, so empiricism is gobbledygook in economics.

    A quote for Ludwig von Mises:

    “Our statements and propositions are not derived from experience. They are not subject to verification or falsification on the ground of experience and facts.”

    The methodology of Mises and Rothbard cannot (and should not) ever be used outside of a pure math class. That’s the only place it should ever be used, not in the real world.

    So then I take it that the a priori, non-experiential propositions of “observation”, and the constancy principle that the truth of things does not change over the course of time, should not be used in the real world either. Oops, they are, and you accept their use.

    Keynes (who has a strong understanding in probability and mathematics) understood this and spoke about this many times.

    Keynes didn’t know the difference between class and case probability.

    Their methodology cannot account for the nonlinearity and the unpredictability of an actual system.

    It’s not designed to predict human learning and actions based on learning. Nobody can do that.

    Their methodology should never, ever be used in the real world

    Then neither should your methodology, because your methodology is also based on non-observational, a priori propositions.

  38. Gravatar of Fed Up Fed Up
    16. November 2012 at 15:01

    Razer said: “Since you’re so opposed to a gold standard, I can only assume you are for a paper standard. And since the history of paper standard is one of abject failure, I assume that this time, you’ve figured out how to make it work, right? Of course, gold standards or commodity money don’t require coercion and threats of prison on the people to work but that, I guess, is not something you care about.”

    While there is a difference(s) between paper and gold standards, it seems to me the real problem is the debt.

    Also, http://pragcap.com/all-fiat-money-systems-fail-right-wrong

  39. Gravatar of Fed Up Fed Up
    16. November 2012 at 15:02

    M_F said: “What debt problem? There would be no credit expansion, or at least far less credit expansion, in a gold standard society.”

    What about the 1920′s?

  40. Gravatar of Suvy Suvy
    16. November 2012 at 15:48

    “What debt problem? There would be no credit expansion, or at least far less credit expansion, in a gold standard society.

    And even if there was debt, that is no justification to force people into a money regime they don’t want to be in.

    Debt can be liquidated. I don’t get it why you think debt is a trump card. Let the debtors go bankrupt.”

    There are consequences of the debtors going bankrupt. One persons liability is another person’s asset. That creates deflation as incomes fall. The problem is that incomes could fall faster than debts. You still don’t understand. Debts and incomes could adjust at zero while the debt/income ratio blows up. All of this could happen as time approaches infinity. You’re not thinking in terms of feedback.

    “You’re not “stuck” in a debt deflation. Deflation runs its course. It isn’t permanent. Borrowers have no right to hold the rest of society hostage.”

    Why can’t you be stuck in debt deflation? Everything could adjust as time approaches infinity. There’s absolutely no reason why you can’t be stuck in it. That’s just an assumption you’re making. You’re coming up with some bogus a priori assumption about “Borrowers have no right to hold the rest of society hostage”. You’re making assumptions you can’t make.

    “You’re accounting for things that are irrelevant.”

    This makes absolutely no sense. Feedback mechanisms are extremely relevant because an economy is a system of various things(including people) that work together. In any system, the feedback mechanisms are extremely relevant.

    “Keynes didn’t know the difference between class and case probability.”

    You haven’t read Keynes’s work on probability. He did as much work on probability as he did on economics. You should start with his “A Treatise on Proability”.

    “Then neither should your methodology, because your methodology is also based on non-observational, a priori propositions.”

    The methodology shouldn’t be based on using deductive reasoning of a priori assumptions. It should be based on an empirical approach of trying to design a way to replicate the data. Then trying to find out more about the qualitative behavior of the system based on different ways of replicating the data.

    “Austrian economics is the study of acting man. Man is neither linear nor non-linear. It doesn’t “suffer” from this fact. It is a benefit. Humans aren’t mathematical models.”

    The problem is that I’m not treating humans like mathematical models. I’m using mathematics as a tool to measure the world. The use of mathematical models is to qualitatively understand the behavior of the system. Mathematical models are simply a tool; they’re not the end-all-be-all and the never should be.

    The heart of any science(whether social or hard) relies on falsification. We shouldn’t start with a priori assumptions. We should find a way to replicate the data and constantly keep collecting data. We need to develop theories consistent with the data and we need to try and falsify those theories. This is science, that is the essence of the scientific method. That’s what every single science relies on.

    The problem with economics is that it cannot be rigorous and the Austrian methodology tries to make it rigorous. They treat it like a math proof. The real world can’t be dealt with as the proof of a theorem. That way, you can basically say whatever the hell you want based on some ridiculous assumption. It needs to be far more empirically based.

    “So then I take it that the a priori, non-experiential propositions of “observation”, and the constancy principle that the truth of things does not change over the course of time, should not be used in the real world either. Oops, they are, and you accept their use.”

    “Science” started off with this kind of approach a long time ago. Science used this approach for the longest time (I guess it wasn’t really science). The essence of understanding the world relies on studying data, not on a priori assumptions. We should not start with a priori assumptions, we should start with the data. We should build models and ideas that replicate the data. Then, we constantly check everything against the data. We should try to falsify our theories.

    Again, the quote from Popper describes everything and I think Popper is right. We cannot prove, we can only falsify. The essence of the Austrian methodology is to prove.

    “Then neither should your methodology, because your methodology is also based on non-observational, a priori propositions.”

    My approach is a bottom-up approach, not a top-down one. Science starts from the bottom-up. You collect data and you try to replicate the data. You keep trying to falsify the theory by collecting more data. If the theory/idea is falsified, you build a new one. Science is not “fact” in the traditional sense. It is a practical way of understanding the world that can be used.

    The Austrians start with the idea that the market is a process. I start with the idea that the economy is a system. We are dealing with a system that we do not understand, so we start by collecting data. We try to recreate the data in an effort to understand the system. We have to always know that we’re dealing with something that we do not understand and we have to try to constantly falsify everything against the data.

    “You’re still wrong. Synthetic a priori propositions, that say something true about the real world, exist. Praxeology tells us the logical constraints of all possible human action. It doesn’t tell us the content, but then there are no constants in that content anyway, so empiricism is gobbledygook in economics.”

    Just because there are no constants doesn’t mean that empiricism is useless. Do you really think that when the measure the speed of light that everything else is constant? If empiricism is useless in economics, it’s useless in physics. Do you really think that when a biologist studies an ecosystem that everything in each ecosystem at every point in time is constant? Come on man. Yes, you can control some experiments in a lab, but in most cases, you can’t(even in the real sciences). Why do you think statistical sampling exists? Why don’t you try studying population modeling in biology? Do you really think that they can measure a population perfectly at every single point in time? Of course not. In physics, when they first started to try and measure the speed of sound that they did it in some room where all of the other variables were constant(now we can, but there are still plenty of things we can’t do this for)? Of course not. You can’t hold everything constant in the hard sciences either.

    Again, the Austrian methodology(using mathematical proofs) has zero practical use in the real world. We need to have a way where we start with the data. We need to use an empirical approach, a bottom-up approach.

    I’ve said this before and I’ll say this again, the Austrians use a mathematical model. They use a highly mathematical model. Deductionism based on assumptions is how all mathematics starts. I’ll go another stretch and say that the Austrians use the MOST mathematical model of an economy.

  41. Gravatar of Suvy Suvy
    16. November 2012 at 16:22

    Here’s a quote by Keynes on probability by the way.

    “By “uncertain” knowledge … I do not mean merely to distinguish what is known for certain from what is only probable. The game of roulette is not subject, in this sense, to uncertainty … The sense in which I am using the term is that in which the prospect of a European war is uncertain, or the price of copper and the rate of interest twenty years hence, or the obsolescence of a new invention … About these matters there is no scientific basis on which to form any calculable probability whatever. We simply do not know!”

  42. Gravatar of Doug M Doug M
    16. November 2012 at 16:52

    Fed up,

    A world without debt — I does make things alot simpler. Simpler to the point that without debt, we don’t need banks, much less central banks. And, the only way to increase the money supply would be to actually print more money!

  43. Gravatar of Doug M Doug M
    16. November 2012 at 17:04

    Suvy,

    “The problem with economics is that it cannot be rigorous and the Austrian methodology tries to make it rigorous. They treat it like a math proof.”

    Acutally, you have this one backwards. The Astrians firmly believe the economics is not math, and find all of the equations not just absurd, but slightly offensive. They would say that economics is philosophy rather than science.

  44. Gravatar of Major_Freedom Major_Freedom
    16. November 2012 at 22:00

    Fed Up:

    What about the 1920s?

    I said gold standard. 1929s was not a gold standard. Fed created in 1913.

    Suvy:

    There are consequences of the debtors going bankrupt. One persons liability is another person’s asset. That creates deflation as incomes fall.

    Not if the debt is backed by real savings. Debt default then is not deflationary. If I lend you $100, and you then spend it, and then you default, that $100 doesn’t just disappear.

    Borrowers do not have a right to hold the economy hostage.

    The problem is that incomes could fall faster than debts. You still don’t understand. Debts and incomes could adjust at zero while the debt/income ratio blows up. All of this could happen as time approaches infinity. You’re not thinking in terms of feedback.

    You’re not thinking in terms of property rights. You still don’t understand. If incomes fall faster than debts, then debt can be defaulted on.

    “You’re not “stuck” in a debt deflation. Deflation runs its course. It isn’t permanent. Borrowers have no right to hold the rest of society hostage.”

    Why can’t you be stuck in debt deflation?

    Because the desire to consume is practically infinite, and with continually falling prices, at some point the prices will clear the market.

    Everything could adjust as time approaches infinity. There’s absolutely no reason why you can’t be stuck in it.

    Adjustments for my life do not take infinity time. There’s absolutely no reason why you can be stuck in it.

    That’s just an assumption you’re making. You’re coming up with some bogus a priori assumption about “Borrowers have no right to hold the rest of society hostage”. You’re making assumptions you can’t make.

    That there can be perpetual debt deflation is just an assumption you’re making. You’re coming upmwith some bogus a priori assumption about “Borrowers have a right to hold the economy hostage and have non-free market money imposed on them by force.”. You’re making assumptions you can’t make.

    “You’re accounting for things that are irrelevant.”

    This makes absolutely no sense. Feedback mechanisms are extremely relevant because an economy is a system of various things(including people) that work together. In any system, the feedback mechanisms are extremely relevant.

    Feedback is the very thing that prevents continual debt deflation.

    “Keynes didn’t know the difference between class and case probability.”

    You haven’t read Keynes’s work on probability.

    Yes, I have read Keynes work on probability.

    He did as much work on probability as he did on economics. You should start with his “A Treatise on Proability”.

    Already read it.

    I said he doesn’t understand case and class probability. I didn’t say he didn’t write anything on probability. The very fact that he wrote Treatise on Probability is the basis of my judgment.

    “Then neither should your methodology, because your methodology is also based on non-observational, a priori propositions.”

    The methodology shouldn’t be based on using deductive reasoning of a priori assumptions.

    Yes, it should. Empirical data in economics is unique, It isn’t explanatory data the same way physics experiment data is explanatory data.

    It should be based on an empirical approach of trying to design a way to replicate the data.

    It should not be based on an empirical approach because human action, the subject matter of economics, does not operate according to constant causal factors that would enable one to “replicate the data.”. That ony works for phenomena that behaves according to constants as on chemistry and physics.

    Then trying to find out more about the qualitative behavior of the system based on different ways of replicating the data.

    The economy isn’t a controllable “system”. It has feedbacks in the very course of studying it, thus making discovery of constants impossible.

    “Austrian economics is the study of acting man. Man is neither linear nor non-linear. It doesn’t “suffer” from this fact. It is a benefit. Humans aren’t mathematical models.”

    The problem is that I’m not treating humans like mathematical models.

    It’s a problem that you’re not treating humans as mathematical models? Meaning humans are mathematical models?

    I’m using mathematics as a tool to measure the world.

    Mathematics is a non-observational, a priori science.

    The use of mathematical models is to qualitatively understand the behavior of the system. Mathematical models are simply a tool; they’re not the end-all-be-all and the never should be.

    What is it that the rest consists of, if mathematical models only go so far?

    The heart of any science(whether social or hard) relies on falsification.

    False. That’s the “heart” of positivist methodology. Positivism does not have a monopoly on science. Positivism only became popular around the 1950s or so.

    The heart of economic science is a prori deduction.

    We shouldn’t start with a priori assumptions.

    Then you sholdn’t start with falsificationism, because that is an a priori assumption. So is the starting assumption that the contentual truth of things does not change over the course of time. That is the a priori assumption that falsificationism starts with. When you claim a theory has been falsified or confirmed, you are already assuming the a priori assumption that what was true in the past, must be true in the present and did not change in the interim.

    We should find a way to replicate the data and constantly keep collecting data. We need to develop theories consistent with the data and we need to try and falsify those theories. This is science, that is the essence of the scientific method. That’s what every single science relies on.

    No, that’s the positivist method. Positivism does not have a monopoly on science.

    The problem with economics is that it cannot be rigorous and the Austrian methodology tries to make it rigorous.

    No, the Austrian method only deals with the logical categories of human action. It does not predict what people will actually do.

    They treat it like a math proof. The real world can’t be dealt with as the proof of a theorem.

    Yes, it can. The bridge between the mind and external reality is action, and the idealistic categories of action are necessarily categories of reality.

    That way, you can basically say whatever the hell you want based on some ridiculous assumption. It needs to be far more empirically based.

    No, you cannot say anything you want, and no, “humans act” is not a ridiculous assumption, and no, it does not need to be empiricially based (which is based on the false a priori claim that human action operates according to constancy)

    “So then I take it that the a priori, non-experiential propositions of “observation”, and the constancy principle that the truth of things does not change over the course of time, should not be used in the real world either. Oops, they are, and you accept their use.”

    “Science” started off with this kind of approach a long time ago.

    Then don’t argue “science” is not based on non-observational, a priori propositions.

    Science used this approach for the longest time (I guess it wasn’t really science).

    It still does. It still relies on observation, which cannot be justified observationally, and it also still relies on constancy, which is a non-observational a priori proposition.

    The essence of understanding the world relies on studying data, not on a priori assumptions.

    That is an a priori assumption itself.

    We should not start with a priori assumptions, we should start with the data.

    That is another a priori assertion, which by the way is false, because data is meaningless without an a priori theory that is used to understand it.

    We should build models and ideas that replicate the data.

    No, we shouldn’t, because humans do not act according to constancy that would enable such a thing as “replicating data”.

    Then, we constantly check everything against the data.

    …except that claim. That claim is a priori.

    We should try to falsify our theories.

    Economic theories are not subject to empirical falsification. They are not empirical propositions. They are logical propositions. They are subject to rational criticism.

    Again, the quote from Popper describes everything and I think Popper is right. We cannot prove, we can only falsify. The essence of the Austrian methodology is to prove.

    Popper is wrong, because his own theory is self-contradictory. We can prove.

    “Then neither should your methodology, because your methodology is also based on non-observational, a priori propositions.”

    My approach is a bottom-up approach, not a top-down one.

    Your approach contradicts the very requirements you believe are needed in all scientific inquiry.

    Science starts from the bottom-up. You collect data and you try to replicate the data.

    Human action is not based on constancy. Replication of data cannot be done by using constants.

    Data is not the bottom up. Data is half way. The bottom up approach would be to figure out who we are and how we think, and how that relates to what we do and what we observe.

    You keep trying to falsify the theory by collecting more data.</

    Economic theories are not falsifiable, just like falsifiability is itself not falsifiable.

    If the theory/idea is falsified, you build a new one. Science is not “fact” in the traditional sense. It is a practical way of understanding the world that can be used.

    Economic propositions are “fact” in the traditional sense

    The Austrians start with the idea that the market is a process. I start with the idea that the economy is a system.

    The system is not divorced from humanity. The system is driven by human action. The market system differs from other systems in the way humans behave. This is why the market is a process. It is a particular method of human behavior.

    We are dealing with a system that we do not understand, so we start by collecting data.

    You cannot know what data to collect unless you have an a priori understanding of economic life. We don’t start with data. We start with understanding ourselves as actors.

    We try to recreate the data in an effort to understand the system.

    Human action is not based on constancy. Replicating data is a misguided adventure. hmans learn and change over time. The very collecting and learning of data changes us in how we think, and when we think differently, we act differently. There are no constants in human action!

    We have to always know that we’re dealing with something that we do not understand and we have to try to constantly falsify everything against the data.

    Good lord do you ever repeat yourself. You keep saying the same incorrect mantras over and over again.

    You can’t falsify non-falsifiable propositions against any data. The law of marginal utility cannot be falsified, but it is true.

    “You’re still wrong. Synthetic a priori propositions, that say something true about the real world, exist. Praxeology tells us the logical constraints of all possible human action. It doesn’t tell us the content, but then there are no constants in that content anyway, so empiricism is gobbledygook in economics.”

    Just because there are no constants doesn’t mean that empiricism is useless.

    Empiricism that is based on the assumption of constancy does not convey any knowledge of economics. Empiricism is useless in economics if the goal is to learn truth. But it’s not useless if the goal is to maintain a giant welfare employment program.

    Do you really think that when the measure the speed of light that everything else is constant?

    I said there are no constants in human action. I didn’t say there are no constants anywhere.

    If empiricism is useless in economics, it’s useless in physics.

    Non sequitur. That one method is useless in one field of inquiry does not imply it is useless in all others. You are presuming monism in a context where dualism is justified.

    Do you really think that when a biologist studies an ecosystem that everything in each ecosystem at every point in time is constant? Come on man.

    Do you really think that when I make one argument in economics, it necessarily applies to all other fields of inquiry? Come on man.

    Yes, you can control some experiments in a lab, but in most cases, you can’t(even in the real sciences). Why do you think statistical sampling exists?

    In economics: misunderstanding of history.

    Why don’t you try studying population modeling in biology?

    You mean assume constants as in cells and other non actors?

    Do you really think that they can measure a population perfectly at every single point in time?

    No.

    Of course not. In physics, when they first started to try and measure the speed of sound that they did it in some room where all of the other variables were constant(now we can, but there are still plenty of things we can’t do this for)? Of course not. You can’t hold everything constant in the hard sciences either.

    They assumed the speed of sound is constant given other variables are controlled for. It doesn’t matter so much whether they can actually control those other variables, but the fact that they assumed constancy in theory before they made their first observation.

    Again, the Austrian methodology(using mathematical proofs) has zero practical use in the real world.

    Again, you were wrong the first time and it won’t be right a second time. Austrian method is highly useful. At the very very least, apart from all its contributions, it can expose your methodology as self-contradictory. Your methodology can’t say anything about the Austrian merhod. All you have are constant “we should do this, we should do that” mantras that are based on zero logical rigor.

    We need to have a way where we start with the data. We need to use an empirical approach, a bottom-up approach.

    Like that. Same mantra, repeated over and over.

    No, we should not start with data. We should start with ourselves. How we think. How are brains are logically structured.

    I’ve said this before and I’ll say this again, the Austrians use a mathematical model. They use a highly mathematical model. Deductionism based on assumptions is how all mathematics starts. I’ll go another stretch and say that the Austrians use the MOST mathematical model of an economy.

    There is zero mathematical modelling in Austrian theory.

  45. Gravatar of Major_Freedom Major_Freedom
    16. November 2012 at 22:06

    Sorry about the horrible formatting. I don’t know who said what in that last post.

  46. Gravatar of Saturos Saturos
    17. November 2012 at 04:08

    Holy Crapola.

  47. Gravatar of Saturos Saturos
    17. November 2012 at 04:08

    “There is zero mathematical modelling in Austrian theory.”

    Oh dear…

  48. Gravatar of Suvy Suvy
    17. November 2012 at 06:56

    “No, we should not start with data. We should start with ourselves. How we think. How are brains are logically structured.”

    The behavior of the aggregate is disproportionately less predictable than the behavior of each individual.

    “There is zero mathematical modelling in Austrian theory.”

    You clearly know very little math. They use a highly mathematical model that is quite useless for anything more complex than a algebra proof in a math textbook. I have a degree in math and I’m almost done(one more semester left, woohooo!) with my graduate degree in a field called Operations Research(with a minor in Statistics), if you know what that is. I have plenty of mathematical modelling experience as I’ve done that since high school. I suggest you actually go and learn real mathematical modelling rather than act like you know what you’re talking about.

    “Again, you were wrong the first time and it won’t be right a second time. Austrian method is highly useful. At the very very least, apart from all its contributions, it can expose your methodology as self-contradictory. Your methodology can’t say anything about the Austrian method. All you have are constant “we should do this, we should do that” mantras that are based on zero logical rigor.”

    Do you see engineers use rigor? When you deal with a complex system, you can’t make it rigorous because there’s too much uncertainty and complexity to deal with. Now, when you add in a human element, it makes all of the methodology you’re using completely useless. Do you see an engineer seeing what a priori assumptions he can make when building an aircraft? Hell no. He starts with prior data and examples. In economics, we’re dealing with something far more complex; the use of a priori assumptions and deductive logic doesn’t make sense. Try using it when modeling populations in biology. Do you really think it would have any use. Coming from someone that’s done a lot of modelling, that method would be completely useless.

    As for the debt example, let me give you a simple counterexample. In the Great Depression from 1929-1933, debts fell 20% in nominal terms(an annualized rate of 4.5%) while incomes fell about 50%(let’s suppose an annual rate of 10% to be nice). There’s no reason that this couldn’t go on forever if there was no reflation. What stopped this process was the reflation from 1933-1937 when debt/income ratios started to fall.

    “They assumed the speed of sound is constant given other variables are controlled for. It doesn’t matter so much whether they can actually control those other variables, but the fact that they assumed constancy in theory before they made their first observation.”

    This statement flies in the face of every single sense of logic. If you assume constancy when things aren’t constant, you could get very different results(I know this was the case for many places in science).

    As for empiricism in the hard sciences like physics, when was the first time that Einstein’s General Theory of Relativity was actually tested in an area where all other variables were held constant? Probably not until CERN, even if now. In the hard sciences, we face similar epistemological problems like you do in economics. Do you really think that all of Newton’s theories were completely testable at his time? Of course not.

    “Mathematics is a non-observational, a priori science.”

    You don’t know what math is then. Math is a way of thinking. It’s a way of logic and it has its uses as a way to measure he world. Not as a way to prove things about the real world. The role of math lies in measurement. Math really isn’t a science at all.

    “That there can be perpetual debt deflation is just an assumption you’re making. You’re coming upmwith some bogus a priori assumption about “Borrowers have a right to hold the economy hostage and have non-free market money imposed on them by force.”. You’re making assumptions you can’t make.”

    What I was trying to do was say why can’t something happen. I never said it works like that all the time(it didn’t in pre-Great Depression deleveragings, but these kinds of things are usually highly sensitive to the initial conditions).

    “Then you sholdn’t start with falsificationism, because that is an a priori assumption. So is the starting assumption that the contentual truth of things does not change over the course of time. That is the a priori assumption that falsificationism starts with. When you claim a theory has been falsified or confirmed, you are already assuming the a priori assumption that what was true in the past, must be true in the present and did not change in the interim.”

    No, the reason you use falsification is because of the problem of induction. It’s not the use of an a priori assumption. We need to find the most practical way of dealing with things, and data is the best way to try and understand a system that we don’t inherently understand.
    http://en.wikipedia.org/wiki/The_problem_of_induction

    “Yes, it can. The bridge between the mind and external reality is action, and the idealistic categories of action are necessarily categories of reality.”

    The problem is that in a math proof, you can’t account for second, third, fourth, etc order effects. You’re scope is very limited in this area.

    “You’re not thinking in terms of property rights. You still don’t understand. If incomes fall faster than debts, then debt can be defaulted on.”

    You’re not thinking in terms of second and third order effects. That default could cause incomes to decrease further and you could get into a situation where increased defaults cause a faster rate of incomes as debt and incomes eventually approach zero.

    “Not if the debt is backed by real savings. Debt default then is not deflationary. If I lend you $100, and you then spend it, and then you default, that $100 doesn’t just disappear.”

    I actually agree. I think the only way a gold standard makes sense is if you get rid of fractional reserve.

    Doug M,

    “Acutally, you have this one backwards. The Astrians firmly believe the economics is not math, and find all of the equations not just absurd, but slightly offensive. They would say that economics is philosophy rather than science.”

    The problem I have with the Austrians is that they’re dealing with this as a math proof. The real world can’t be dealt with as a math proof. In my eyes, the way they do things is the essence of rigor. An equation is just a more simple way to write a statement. For example, saying the amount of money in circulation is base money plus credit money(both me and MF agree on this) is a mathematical statement. M=Mb+Mc. Math is a way to write something that takes 2 pages into one equation. It’s an efficient way to write information. At it’s core, any equation is just information.

    Also, I find the Austrian view of math as “stupid” to just be hogwash. They use a mathematical approach–in my eyes, their approach seems the most rigorous by far.

  49. Gravatar of Major_Freedom Major_Freedom
    17. November 2012 at 09:06

    Suvy

    The behavior of the aggregate is disproportionately less predictable than the behavior of each individual.

    There are not constants in human action at either the individual nor the group level.

    “There is zero mathematical modelling in Austrian theory.”

    You clearly know very little math. They use a highly mathematical model that is quite useless for anything more complex than a algebra proof in a math textbook.

    You clearly do not know Austrian theory. Austrian theory is entirely verbal.

    I have a degree in math and I’m almost done(one more semester left, woohooo!) with my graduate degree in a field called Operations Research(with a minor in Statistics), if you know what that is. I have plenty of mathematical modelling experience as I’ve done that since high school. I suggest you actually go and learn real mathematical modelling rather than act like you know what you’re talking about.

    Austrian theory is not mathematical modelling. I am telling you that you are wrong to say otherwise. That has nothing to do with my actual mathematical knowledge.

    “Again, you were wrong the first time and it won’t be right a second time. Austrian method is highly useful. At the very very least, apart from all its contributions, it can expose your methodology as self-contradictory. Your methodology can’t say anything about the Austrian method. All you have are constant “we should do this, we should do that” mantras that are based on zero logical rigor.”

    Do you see engineers use rigor?

    Not in economics.

    When you deal with a complex system, you can’t make it rigorous because there’s too much uncertainty and complexity to deal with.

    The logical categories of human action are apodictic. The content of human action is complex.

    Now, when you add in a human element, it makes all of the methodology you’re using completely useless.

    It is precisely the human element towards which Austrian theory is geared.

    Do you see an engineer seeing what a priori assumptions he can make when building an aircraft? Hell no.

    Wrong. Even the engineer makes use of a priori propositions. For example, the a priori proposition of constancy in relations over time.

    He starts with prior data and examples.

    No, he starts with himself, whether is he is aware of it or not.

    In economics, we’re dealing with something far more complex; the use of a priori assumptions and deductive logic doesn’t make sense.

    Yes, it does.

    Try using it when modeling populations in biology.

    Austrian theory only deals with human action.

    Do you really think it would have any use. Coming from someone that’s done a lot of modelling, that method would be completely useless.

    You have to stop making the false a priori assumption that there has to be one methodology for all intellectual inquiry, such that if one method is used in economics, then it has to be used in biology, and vice versa.

    As for the debt example, let me give you a simple counterexample. In the Great Depression from 1929-1933, debts fell 20% in nominal terms(an annualized rate of 4.5%) while incomes fell about 50%(let’s suppose an annual rate of 10% to be nice). There’s no reason that this couldn’t go on forever if there was no reflation.

    There is no reason it should go on forever. People aren’t so stupid that they would hold out for higher prices and starve to death.

    What stopped this process was the reflation from 1933-1937 when debt/income ratios started to fall.

    It could have been stopped by the market process.

    “They assumed the speed of sound is constant given other variables are controlled for. It doesn’t matter so much whether they can actually control those other variables, but the fact that they assumed constancy in theory before they made their first observation.”

    This statement flies in the face of every single sense of logic. If you assume constancy when things aren’t constant, you could get very different results(I know this was the case for many places in science).

    That is precisely why falsification, which presupposes constancy, does not work for human action and hence economics.

    Falsification PRESUPPOSES constancy, because when the researcher concludes that a past considered theory is later falsified or confirmed, that requires that the theory is assumed as being constant. For if constancy was not presupposed, then the researcher could not conclude that a past theory was falsified or confirmed. He would just be able to conclude OK, before the data revealed such and such, and today the data reveal such and such, and nothing else follows. Only if constancy is assumed can the researcher discard or maintain various theories over time through the method of falsification.

    As for empiricism in the hard sciences like physics, when was the first time that Einstein’s General Theory of Relativity was actually tested in an area where all other variables were held constant?

    You are misunderstanding what I mean by constancy. I don’t mean holding variables constant. I mean the assumption that the theory itself, the truth of it, is either always true over time, or never true. When a theory is falsified, it means that the constancy assumption is leading the researcher to conclude that theory is not correct, because the current observations contradict what the theory predicts.

    Probably not until CERN, even if now. In the hard sciences, we face similar epistemological problems like you do in economics. Do you really think that all of Newton’s theories were completely testable at his time? Of course not.

    You have to stop conflating natural sciences with social sciences. What is true epistemologically in one is not necessarily true epistemologically in the other.

    “Mathematics is a non-observational, a priori science.”

    You don’t know what math is then. Math is a way of thinking. It’s a way of logic and it has its uses as a way to measure he world. Not as a way to prove things about the real world. The role of math lies in measurement. Math really isn’t a science at all.

    Math is a science, which is why mathematics is in the science department at virtually every university. Some mathematicians such as Hawking believe that practical mathematics allows us to learn the structural fabric of reality. You have no idea of the very field you are studying.

    “That there can be perpetual debt deflation is just an assumption you’re making. You’re coming upmwith some bogus a priori assumption about “Borrowers have a right to hold the economy hostage and have non-free market money imposed on them by force.”. You’re making assumptions you can’t make.”

    What I was trying to do was say why can’t something happen. I never said it works like that all the time(it didn’t in pre-Great Depression deleveragings, but these kinds of things are usually highly sensitive to the initial conditions).

    You are wrong to say that market correction can’t happen.

    “Then you sholdn’t start with falsificationism, because that is an a priori assumption. So is the starting assumption that the contentual truth of things does not change over the course of time. That is the a priori assumption that falsificationism starts with. When you claim a theory has been falsified or confirmed, you are already assuming the a priori assumption that what was true in the past, must be true in the present and did not change in the interim.”

    No, the reason you use falsification is because of the problem of induction.

    No, induction also presupposes constancy. When you induce from the past, you are a priori assuming that the “laws” that were true in the past, must be true in the present.

    It’s not the use of an a priori assumption.

    Yes, it is. It is an a priori assumption because it is not contained in the falsification method itself. It is presupposed before the first test is made.

    We need to find the most practical way of dealing with things, and data is the best way to try and understand a system that we don’t inherently understand.

    Not in economics.

    “Yes, it can. The bridge between the mind and external reality is action, and the idealistic categories of action are necessarily categories of reality.”

    The problem is that in a math proof, you can’t account for second, third, fourth, etc order effects. You’re scope is very limited in this area.

    Irrelevant. Your ability to engage the actual arguments being presented is what is limited.

    “You’re not thinking in terms of property rights. You still don’t understand. If incomes fall faster than debts, then debt can be defaulted on.”

    You’re not thinking in terms of second and third order effects.

    You’re not thinking in terms of property rights.

    That default could cause incomes to decrease further and you could get into a situation where increased defaults cause a faster rate of incomes as debt and incomes eventually approach zero.

    False. The desire to consume is practically infinite. Nobody will cease spending altogether when money exists in their accounts. Incomes do not fall to zero. You’re making a priori assumptions that are unwarranted. There is no empirical example of incomes falling to zero.

    The problem I have with the Austrians is that they’re dealing with this as a math proof. The real world can’t be dealt with as a math proof. In my eyes, the way they do things is the essence of rigor. An equation is just a more simple way to write a statement. For example, saying the amount of money in circulation is base money plus credit money(both me and MF agree on this) is a mathematical statement. M=Mb+Mc. Math is a way to write something that takes 2 pages into one equation. It’s an efficient way to write information. At it’s core, any equation is just information.

    False. Austrians do not deal with reality using math proofs. Austrian theory is not mathematical.

    Also, I find the Austrian view of math as “stupid” to just be hogwash. They use a mathematical approach–in my eyes, their approach seems the most rigorous by far.

    You don’t understand Austrian theory.

  50. Gravatar of Suvy Suvy
    17. November 2012 at 12:30

    “False. Austrians do not deal with reality using math proofs. Austrian theory is not mathematical.”

    Take a class in topology, set theory, real analysis and then tell me that(I’ve taken a class in all three of those).

    “Math is a science, which is why mathematics is in the science department at virtually every university. Some mathematicians such as Hawking believe that practical mathematics allows us to learn the structural fabric of reality. You have no idea of the very field you are studying.”

    It “can” be considered a science, but mathematics is about logic. It is, at its core, a way of thinking. The Austrian methodology is highly mathematical.

    “It could have been stopped by the market process.”

    No, it could’ve been stopped only by a debt reset. Either through inflation or some sort of a debt jubilee. The liquidation process alone could very well have worsened the process.

    Note: Saying the market is a process is a mathematical statement.

    “Wrong. Even the engineer makes use of a priori propositions. For example, the a priori proposition of constancy in relations over time.”

    Uhhhhh, I don’t even know where to start with this one. Many engineers are actually not very good at formal logic. There’s a reason why in every single engineering curriculum that there is not sort of formal logic class that is taught.

    Before I say any more, I have one question. What is your mathematical background?

  51. Gravatar of Suvy Suvy
    17. November 2012 at 12:33

    “False. Austrians do not deal with reality using math proofs. Austrian theory is not mathematical.”

    It seems to me like you’ve never done a math proof before. I’ve done entire math tests without writing a single equation. The methodology they use is that of a math proof. Take a real analysis or a set theory class and then get back to me on this.

  52. Gravatar of Mike T Mike T
    17. November 2012 at 13:36

    Suvy,

    Your obsession with mathematics is blurring your thinking here. You keep attempting to show in a condescending manner how your alleged superior mathematics knowledge and background somehow gives you authority here, but you haven’t shown how Austrian theory is mathematical. I hope it’s not where you say…

    “It [mathematics] is, at its core, a way of thinking. The Austrian methodology is highly mathematical.”

    Mathematics is a way of thinking; therefore, Austrian methodology is mathematical? Is that the grand leap your are making? By this logic, what is not mathematical? Incidentally, Austrian economics is not a methodology. It is a theory in which it’s uniquely characterized by its use of praxeological methodology; a methodology rooted in the study of human action, quite different from mathematics (assuming you define mathematics a bit more narrowly than “a way of thinking”).

  53. Gravatar of Suvy Suvy
    17. November 2012 at 13:55

    Mike T,

    What I’m saying is that the praexological method is math. In math, you start with assumptions and you deductively prove things. That is what pure mathematics is; that is what rigor is.

    Once you hit pure mathematics, that’s what you do. You start with assumptions and you prove things. That logical process is math. Contrary to what most people think(at least from my experience), the deductive approach is math. I think that de

    I was actually talking to a friend yesterday about a book by Richard Dawkins(I can’t remember which one it was and I haven’t read Dawkins’ book). However, my friend was telling me how the entire book felt like math even though there wasn’t a single equation or number in the book. You don’t need to have numbers and equations to use/do math.

    Mathematical rigor and logic starts from a priori assumptions. Then you use deductive logic and come up with theorems and other propositions.

    Whenever someone says that the use of mathematical models in economics is garbage but uses a priori assumptions and deductive logic, it seems contradictory to me. That is a mathematical model. I remember the first thing I learned in my macroeconomics class by a the best economics professor I ever had. He told us on day one that any sort of explanation of how things work is a model–I think he’s right on that. Not only that, but if you use an approach based on deductive logic; that’s math. Therefore, the Austrians have a mathematical model.

    Now, I go back to the Mises quote earlier. He talks about how he can’t be wrong; that’s because he is right. What he’s doing is developing a theory that can’t be proven wrong or right. That’s not science.

  54. Gravatar of Fed Up Fed Up
    17. November 2012 at 18:02

    Doug M said: “Fed up,

    A world without debt — I does make things alot simpler. Simpler to the point that without debt, we don’t need banks, much less central banks.”

    Exactly! Plus, no debt would expose a lot of the flaws of economists and economic theory.

    And,”And, the only way to increase the money supply would be to actually print more money!”

    I’d rather say medium of account (MOA) / medium of exchange (MOE) instead of money, but OK. My point is how more MOA/MOE (currency plus demand deposits) is created and how it is distributed matters.

  55. Gravatar of Fed Up Fed Up
    17. November 2012 at 18:07

    M_F said: “Fed Up:

    What about the 1920s?

    I said gold standard. 1929s was not a gold standard. Fed created in 1913.”

    What about the 1870′s?

  56. Gravatar of Major_Freedom Major_Freedom
    18. November 2012 at 00:12

    Suvy:

    “False. Austrians do not deal with reality using math proofs. Austrian theory is not mathematical.”

    Take a class in topology, set theory, real analysis and then tell me that(I’ve taken a class in all three of those).

    Already have.

    “Math is a science, which is why mathematics is in the science department at virtually every university. Some mathematicians such as Hawking believe that practical mathematics allows us to learn the structural fabric of reality. You have no idea of the very field you are studying.”

    It “can” be considered a science, but mathematics is about logic. It is, at its core, a way of thinking. The Austrian methodology is highly mathematical.

    False again. You can keep repeating the same falsehood over and over again, but you will continue to be wrong as long as you keep claiming that the Austrian is mathematical.

    The Austrian method is NOT mathematical. I challenge you to prove your a priori assertion by referencing Austrian texts.

    “It could have been stopped by the market process.”

    No, it could’ve been stopped only by a debt reset.

    That’s what I said. The market process. The market process includes debt resets.

    Either through inflation or some sort of a debt jubilee. The liquidation process alone could very well have worsened the process.

    It would have been a painful correction. It wouldn’t have worsened it in the long run.

    Note: Saying the market is a process is a mathematical statement.

    No, it is not. Not all logical statements are mathematical statements.

    “Wrong. Even the engineer makes use of a priori propositions. For example, the a priori proposition of constancy in relations over time.”

    Uhhhhh, I don’t even know where to start with this one.

    How about starting with the recognition that even engineers make use of a priori propositions.

    Many engineers are actually not very good at formal logic. There’s a reason why in every single engineering curriculum that there is not sort of formal logic class that is taught.

    Too bad you don’t understand formal logic.

    Before I say any more, I have one question. What is your mathematical background?

    Somewhere between you feeling uncomfortable and you needing to play the official degrees game.

    Off the record, graduate degree. But that shouldn’t matter. It should not matter what my background is. Arguments stand on their own feet, not on the degrees of the person who utters the arguments. I do not respect you for intending to bring into the argument one’s credentials. It is irrelevant.

    “False. Austrians do not deal with reality using math proofs. Austrian theory is not mathematical.”

    It seems to me like you’ve never done a math proof before.

    This has nothing to do with my mathematical experience. You are making an incorrect assertion that Austrian economics is mathematical. I am merely correcting you on that incorrect assertion. It is a total non sequitur to conclude off of my argument that you are wrong about Austrian theory, that I somehow do not understand mathematics.

    I’ve done entire math tests without writing a single equation. The methodology they use is that of a math proof. Take a real analysis or a set theory class and then get back to me on this.

    You have a penchant for telling me your credentials, rather than telling me an on topic argument that stands as a refutation, or challenge, to my arguments. I will not concede an argument based on the credentials of the proponent. That is not how higher level inquiry works.

    What I’m saying is that the praexological method is math. In math, you start with assumptions and you deductively prove things. That is what pure mathematics is; that is what rigor is.

    This is false. Praxeology is not math. The fact that praxeology contains deductions, does not mean that praxeology is mathematics.

    Once you hit pure mathematics, that’s what you do. You start with assumptions and you prove things. That logical process is math. Contrary to what most people think(at least from my experience), the deductive approach is math. I think that de

    Not all deduction is math.

    I was actually talking to a friend yesterday about a book by Richard Dawkins(I can’t remember which one it was and I haven’t read Dawkins’ book). However, my friend was telling me how the entire book felt like math even though there wasn’t a single equation or number in the book. You don’t need to have numbers and equations to use/do math.

    Your friend is also confused.

    Mathematical rigor and logic starts from a priori assumptions. Then you use deductive logic and come up with theorems and other propositions.

    Not all a priori assumptions are mathematical.

    Whenever someone says that the use of mathematical models in economics is garbage but uses a priori assumptions and deductive logic, it seems contradictory to me. That is a mathematical model. I remember the first thing I learned in my macroeconomics class by a the best economics professor I ever had. He told us on day one that any sort of explanation of how things work is a model–I think he’s right on that. Not only that, but if you use an approach based on deductive logic; that’s math. Therefore, the Austrians have a mathematical model.

    False. Austrians do not have a mathematical model. They have a praxeological model. Human action is not mathematical. The economic laws deduced from the axiom of human action are not mathematical either.

    Praxeology is AKIN to mathematics. But is isn’t mathematics proper.

    Now, I go back to the Mises quote earlier. He talks about how he can’t be wrong; that’s because he is right.

    That isn’t what he argues.

    What he’s doing is developing a theory that can’t be proven wrong or right. That’s not science.

    It can be proven right or wrong. It is proven right or wrong by logical deduction. It isn’t proven right or wrong by historical data, because the propositions are not historical.

    Suvy, it is clear that you have not read any Austrian literature in detail. All you claims show proof positive that you haven’t read it, or if you have, that you don’t understand it. None of your claims are correct. All you have are bare a priori assertions.

    ——————-

    Fed Up:

    What about the 1920s?

    “I said gold standard. 1929s was not a gold standard. Fed created in 1913.”

    What about the 1870′s?

    National bank acts. Not gold standard.

  57. Gravatar of Suvy Suvy
    18. November 2012 at 05:10

    Major Freedom,

    How do you not consider the praxeological approach mathematical? The praxeology is a mathematical approach. The use of formal logic is a mathematical approach.

    “False. Austrians do not have a mathematical model. They have a praxeological model. Human action is not mathematical. The economic laws deduced from the axiom of human action are not mathematical either.”

    The use of deduction from the use of any axiom is a mathematical procedure. The “economic laws” deduced from the axiom of human action are mathematical because they use axioms and deduction. That’s the essence of mathematical rigor.

    “This is false. Praxeology is not math. The fact that praxeology contains deductions, does not mean that praxeology is mathematics.”

    Praxeology uses deductive logic based on the axioms of human action. That is a mathematical procedure. They build a mathematical model.

    “Your friend is also confused.”

    My friend was actually talking about this from reading The Black Swan by Nassim Taleb and The Misbehavior of Markets by Benoit Mandelbrot. That’s how we were talking about Richard Dawkins’ book. If you actually go through The Black Swan, Taleb talks about Richard Dawkins’ book in the same light as my friend did–there’s a quote about it. That being said, very few people have the mathematical knowledge, talent, and insight as Mandelbrot and Taleb(especially Mandelbrot). I actually agree with them on that statement. Books can be written in math and not have a single equation or even a number. Mathematics is a way of thinking(it’s a great way of thinking, but you can’t build sciences around that approach).

    “You have a penchant for telling me your credentials, rather than telling me an on topic argument that stands as a refutation, or challenge, to my arguments. I will not concede an argument based on the credentials of the proponent. That is not how higher level inquiry works.”

    I’ve been doing this. I just want to make sure that if you’re talking about something technical, you know what you’re talking about. If someone has never done pure mathematics and they’re saying intro calculus is mathematics and talking about mathematical approaches, then what they’re saying shouldn’t really be taken into consideration should it? That’s why I was asking.

    “Not all deduction is math.”

    The process of deductive logic is mathematics. You start with a priori assumptions and you deductively prove things. That is what mathematics is. That is what a mathematical approach is. It doesn’t matter what the a priori assumptions are based in(whether human action or not). The use of a priori assumptions and deductive logic based on those assumptions is a mathematical approach.

    Now that I know you have some mathematical background, I can give you an example.

    Take something like Geometry. You make many assumptions like Euclid’s postulates. Suppose you take something like Euclid’s Fifth postulate. If you accept it, you get Euclidean geometry. The process of derivation(the use of deduction) is mathematics.

    You can use whatever axioms you want, but that process is mathematics. Formal logic is mathematics.

    “It can be proven right or wrong. It is proven right or wrong by logical deduction. It isn’t proven right or wrong by historical data, because the propositions are not historical.”

    The whole point of science is falsify versus the data. You formulate a question, you come up with a hypothesis and a prediction, you then TEST the prediction(either against experiments or data), then you analyze your results/data. This is the core of the scientific method. If you’re testing against deduction, you’re not doing science!
    http://en.wikipedia.org/wiki/Scientific_Method

  58. Gravatar of Suvy Suvy
    18. November 2012 at 05:24

    Major Freedom,

    It seems to me like you want an approach based on a priori assumptions and deductive logic. I want a data-driven approach that’s empirically based. I always want to be checking against the data.

    By the way, I’m not alone in my criticisms of Austrian methodology.
    http://econfaculty.gmu.edu/bcaplan/whyaust.htm

  59. Gravatar of Suvy Suvy
    18. November 2012 at 05:28

    Here’s another one.
    http://www.jacobroundtree.com/2012/07/15/the-methodology-of-the-austrian-school-a-critique/

    And another one.
    http://azizonomics.com/2012/08/28/a-critique-of-the-methodology-of-mises-rothbard/

    I could find many more, but I think the general idea is clear. We must test against the data.

  60. Gravatar of Saturos Saturos
    18. November 2012 at 06:50

    Suvy, exactly. Science is about data. And math is more than just numbers and quantities.

  61. Gravatar of Fed Up Fed Up
    18. November 2012 at 16:39

    M_F, let’s say there was a gold standard for MOA/MOE.

    Let’s say that leads to price deflation. Good for an economy or bad?

    Is there any period you consider to be a gold standard in the history of the USA?

  62. Gravatar of Major_Freedom Major_Freedom
    18. November 2012 at 16:52

    Fed Up:

    Let’s say that leads to price deflation. Good for an economy or bad?

    Good for individuals, because with the given money balances, and given demand, falling prices occurs on the basis of growing productivity.

    Don’t forget, with falling prices comes falling costs as well, since costs arise from expenditures of factor inputs that carry prices, and when prices of labor and capital goods falls, then falling output prices on the basis of increased output won’t reduce profitability. This is what is meant by “healthy deflation.” Think electronics. Prices for electronics gradually falls because the productivity in electronics is so high that not even helicopter Ben can print enough dollars to make those prices rise. And yet, there are no systematic problems in the electronics industry. Profitability isn’t gradually declining as prices gradually fall. More is produced for lower prices, and that means revenues are no less.

    What occurs in the electronics industry can occur in ALL industries. Competition and increased production can generate continually falling prices (and COSTS!) over time, and allow given nominal cash balances to purchase more and more goods.

    Is there any period you consider to be a gold standard in the history of the USA?

    Difficult question, because it would require me to know whether the state interferred in the production of money. Even during the 19th century, the state heavily interferred, setting up no less than two central bank experiments, and allowing fractional banks to suspend redemptions and refusing to prosecute on behalf of bank customers. Then there was the national bank act in the late 19th century. There were perhaps fleeting periods of time when there was what I would call a gold standard, but that is all history. Whatever occurred in the past has no bearing on what people ought to do in the future. Besides, I advocate for a free market in money, not a state imposed gold standard. I don’t want to force you to accept gold by the state demanding gold taxes from you. I want you to be free to accept any money you want, and, relating to this, free to choose whichever dispute resolution mechanism you want.

    But, if you ask me about which is relatively superior, I would say that gold is relatively superior to fiat money, because with gold, the state is severely constrained in its ability to spend, and that ensures more freedom for everyone else.

  63. Gravatar of Major_Freedom Major_Freedom
    18. November 2012 at 17:06

    Suvy:

    It seems to me like you want an approach based on a priori assumptions and deductive logic. I want a data-driven approach that’s empirically based. I always want to be checking against the data.

    Economic propositions are not historical-empirical propositions.

    The law of marginal utility for example is not established by observing past actions. We come to know the law of marginal utility through self-reflection. Its validity is established through ratiocination. You cannot observe people practising the law of marginal utility. It is an understanding of what people are doing.

    More importantly however, or, more generally, you cannot even comprehend past historical data UNLESS you have already accepted and are utilizing, an a priori theory

    Economic data is meaningless, random data without an a priori theory.

    By the way, I’m not alone in my criticisms of Austrian methodology.

    http://econfaculty.gmu.edu/bcaplan/whyaust.htm

    “Economic Science and Neoclassicism”, by Jörg Guido Hülsmann

    “Austrian Theorizing: Recalling the Foundations”, and the errata, by Walter Block

    “Kaldor-Hicks Efficiency and the Problem of Central Planning”, by Edward Stringham

    “Probability, Common Sense, and Realism: A Reply to Hülsmann and Block”, by Bryan Caplan

    “Realism: Austrian vs. Neoclassical Economics, Reply to Caplan”, by Walter Block

    “Rejoinder to Caplan on Bayesian Economics”, by Walter Block

  64. Gravatar of Major_Freedom Major_Freedom
    18. November 2012 at 17:08

    Fixed hyperlinks:

    “Kaldor-Hicks Efficiency and the Problem of Central Planning”, by Edward Stringham

    “Probability, Common Sense, and Realism: A Reply to Hülsmann and Block”, by Bryan Caplan

  65. Gravatar of Major_Freedom Major_Freedom
    18. November 2012 at 17:14

    Suvy:

    For economic propositions deduced from action, there is no possible state of the world that can refute them. They are true for all possible actions. No action will ever be without opportunity costs. No action will ever be without the logical categories of profit and loss.

    The foundation of disagreement is in philosophy of science. You believe the only valid method is positivism. But Austrians have already shown that this method does not work in economics. There is no excuse for you to cling to what has already been “falsified”.

  66. Gravatar of Fed Up Fed Up
    18. November 2012 at 18:38

    M_F said: “More is produced for lower prices, and that means revenues are no less.”

    What happens if an industry is no longer supply constrained? For example, prices fall 5% and quantities only go up 1% so that revenue falls?

    And, “Think electronics. Prices for electronics gradually falls because the productivity in electronics is so high that not even helicopter Ben can print enough dollars to make those prices rise. And yet, there are no systematic problems in the electronics industry. Profitability isn’t gradually declining as prices gradually fall.”

    I’m thinking the DRAM market. Micron (MU) topped out at around $120 per share. Now at around $5.50.

    And, “This is what is meant by “healthy deflation.””

    I believe I have heard bernanke talk about “unhealthy deflation” too.

    And, “What occurs in the electronics industry can occur in ALL industries.”

    I believe the electronics market is different than some other markets.

    And, “Good for individuals, because with the given money balances, and given demand, falling prices occurs on the basis of growing productivity.”

    I can see wages falling 5% while prices fall 3%. I can also see rich entities using the MOA/MOE as a savings vehicle.

  67. Gravatar of Major_Freedom Major_Freedom
    18. November 2012 at 19:26

    Fed Up:

    M_F said: “More is produced for lower prices, and that means revenues are no less.”

    What happens if an industry is no longer supply constrained? For example, prices fall 5% and quantities only go up 1% so that revenue falls?

    For an individual company, it would mean fewer revenues. But the desire for consumption in general is practically infinite. So prices falling in the aggregate doesn’t mean that people will consume the same. They would consume more, because the fall in prices is due to increased supply.

    My argument is that prices fall DUE to increased production. So if prices fall 5%, it is implied that production increases in such a way that revenues do not fall (which you can rather crudely think of as supply rising by 5%).

    But if prices do fall by 5% and supply increases by only 1%, then you’re talking about a reduction in aggregate spending. So your question is really “what happens when aggregate spending falls?” Well, if aggregate spending falls, then aggregate profitability will fall, because while a reduction in spending decreases revenues pretty much instantly, costs will only fall with a time lag, since costs are a function of expenditures made in the past, sometimes years in the past.

    But there would be no reason for aggregate revenues to fall when there is no fall in aggregate money supply trends. In our economy, the aggregate money supply consists in part of credit expansion, and this money can literally disappear from existence.

    And, “Think electronics. Prices for electronics gradually falls because the productivity in electronics is so high that not even helicopter Ben can print enough dollars to make those prices rise. And yet, there are no systematic problems in the electronics industry. Profitability isn’t gradually declining as prices gradually fall.”

    I’m thinking the DRAM market. Micron (MU) topped out at around $120 per share. Now at around $5.50.

    You can’t pick one firm as evidence for an entire industry.

    And, “This is what is meant by “healthy deflation.””

    I believe I have heard bernanke talk about “unhealthy deflation” too.

    He should, because he’s encouraging it by prior unhealthy inflation, which sets the economy up for future unhealthy deflation.

    And, “What occurs in the electronics industry can occur in ALL industries.”

    I believe the electronics market is different than some other markets.

    I believe that the falling costs and prices in the electronics industry can occur in all industries.

    And, “Good for individuals, because with the given money balances, and given demand, falling prices occurs on the basis of growing productivity.”

    I can see wages falling 5% while prices fall 3%.

    If wages fell 5%, then perhaps capital goods spending rose 5%. Or, if wages fall without any increase in capital goods spending, then business costs will fall by 5%. There is no reason why, here at least, prices can’t fall by 5% as well.

    I can also see rich entities using the MOA/MOE as a savings vehicle.

    EVERYONE who earns MOA/MOE can “use the MOA/MOE as a savings vehicle.” Money holding isn’t limited to rich people. Low income earners will earn the same percentage real return on their money (when prices fall on the basis of increased production) as rich people. A dollar is a dollar. If you can see rich people using MOA/MOE as a savings vehicle, then you should see poor people being able to do the same thing.

  68. Gravatar of Suvy Suvy
    18. November 2012 at 22:58

    “More importantly however, or, more generally, you cannot even comprehend past historical data UNLESS you have already accepted and are utilizing, an a priori theory”

    Not true. Data is a measurement of something. That’s all it is. Data has nothing to do with any sort of theory.

    “For economic propositions deduced from action, there is no possible state of the world that can refute them. They are true for all possible actions. No action will ever be without opportunity costs. No action will ever be without the logical categories of profit and loss.
    The foundation of disagreement is in philosophy of science. You believe the only valid method is positivism. But Austrians have already shown that this method does not work in economics. There is no excuse for you to cling to what has already been “falsified”.”

    If that method doesn’t work in economics; then it doesn’t work in physics. The whole point of science is not necessarily to be right. It is to have a model that gives us a practical way of looking at things and can give accurate results. For example, Isaac Newton was wrong, but his model was very valuable.

    Do you really think that looking at the position of the stars can be dealt with in an experimental manner? Of course not. Do you really think that 90% of the stuff they come up with in physics was experimentally testable when they came up with it or that everything else was constant when it happened. Of course not.

    It seems to me that you’re saying that economics should use a mathematical approach(a priori assumptions and deduction) instead of a scientific approach(collection of data and falsification).

    “Economic data is meaningless, random data without an a priori theory.”

    Data is just a measurement. For example, 5% unemployment tells you that 5 out of every 100 people looking for work is unemployed. All data is just some sort of a measurement. It measures a quantity that we all want to know.

    Whenever you talk about starting with a prior assumptions and then use deduction; that’s the process of creating a (mathematical) model. You start with an assumption and you deduce from the assumption; that’s how models are created.

    “For economic propositions deduced from action, there is no possible state of the world that can refute them. They are true for all possible actions. No action will ever be without opportunity costs. No action will ever be without the logical categories of profit and loss.

    The foundation of disagreement is in philosophy of science. You believe the only valid method is positivism. But Austrians have already shown that this method does not work in economics. There is no excuse for you to cling to what has already been “falsified”.”

    What I gather from this statement is that the only way to go about economics is the use of models based on a priori assumptions.

  69. Gravatar of Fed Up Fed Up
    19. November 2012 at 15:14

    M_F said: “But the desire for consumption in general is practically infinite.”

    No, I don’t believe it is. That is my point. Right now, it is the rich have everything they want and most of the lower/middle class can’t afford to buy more stuff by their monthly budget.

    And, “But if prices do fall by 5% and supply increases by only 1%, then you’re talking about a reduction in aggregate spending.”

    I’m talking about supply increasing 5%, prices could fall 5%, and demand only rises 1%.

    And, “But there would be no reason for aggregate revenues to fall when there is no fall in aggregate money supply trends.”

    What if people start saving in the MOA/MOE so that the amount of MOA/MOE in circulation falls (lowering velocity)?

    And, “In our economy, the aggregate money supply consists in part of credit expansion, and this money can literally disappear from existence.”

    Instead of money, I would say that demand deposits that are used as MOA/MOE can literally disappear. Agreed. I disagree for currency.

    And, “He should, because he’s encouraging it by prior unhealthy inflation, which sets the economy up for future unhealthy deflation.”

    I believe you are referring to price inflation caused by debt. Too much debt is a medium of exchange problem. I’m pretty sure bernanke assumes real aggregate demand (real AD) is unlimited. There is the problem. I believe his deflation speech is incorrect.

    “There is no reason why, here at least, prices can’t fall by 5% as well.”

    Yes, there is. Companies will remove capacity to try to maintain business profits and/or try to maintain the stock price.

    And, “If you can see rich people using MOA/MOE as a savings vehicle, then you should see poor people being able to do the same thing.”

    Not if poor people aren’t able to save by their monthly budget.

  70. Gravatar of Doug M Doug M
    19. November 2012 at 17:16

    Fed Up,

    ““But the desire for consumption in general is practically infinite.”

    No, I don’t believe it is. That is my point. Right now, it is the rich have everything they want and most of the lower/middle class can’t afford to buy more stuff by their monthly budget.”

    This is a fundamental underpinning of classical economics. If something is good, you probably want more of it. That doesn’t mean you are willing to pay more to get more. Perhaps it would be more clear to say that demand is effectively infinite at some price. i.e. GM could sell 10 million cars if they dropped the price of a new Cadalac to $5,000.

    The implications of the statement is that there is no such thing as a glut, there is merely a bad price that prevents the market from clearing.

  71. Gravatar of Major_Freedom Major_Freedom
    19. November 2012 at 19:08

    Doug M:

    No, I don’t believe it is. That is my point. Right now, it is the rich have everything they want and most of the lower/middle class can’t afford to buy more stuff by their monthly budget.”

    1. I didn’t say the ability to consume is practically infinite. I said the desire to consume is practically infinite. The poor can’t afford to buy more stuff not because they don’t have enough dollars. it is because there is a lack of capital accumulation that would make the productivity of labor high enough to enable a reduction of prices of consumer goods in real terms. More dollars will make prices higher and not enable people to buy more goods.

    2. The rich do not have everything they want. They think about consuming more relative to you the same way you think of consuming more relative to impoverished people in Africa. Even if a person has a yacht, private jet, and beachfront mansion, if you ask them, they will tell you what things could be improved upon in terms of quality, and having a bigger and/or better quality yacht, bigger and/or better private jet, and so on. Not even devout ascetics are capped in terms of their desire for additonal wealth. Monks for example are willing to accept more people into their culture, and that requires more clothes, ink, paper, temples, etc.

    This is a fundamental underpinning of classical economics. If something is good, you probably want more of it. That doesn’t mean you are willing to pay more to get more. Perhaps it would be more clear to say that demand is effectively infinite at some price. i.e. GM could sell 10 million cars if they dropped the price of a new Cadalac to $5,000.

    Yes, that is basically what I am intending to say.

    The implications of the statement is that there is no such thing as a glut, there is merely a bad price that prevents the market from clearing.

    General gluts are impossible. What is possible is partial relative overproduction of some goods (which can comprise a very large portion of the total market, during depressions say), and a partial relative UNOBSERVABLE underproduction of other goods.

  72. Gravatar of Major_Freedom Major_Freedom
    19. November 2012 at 19:32

    Sorry, I messed up the response flow.

    Fed Up, my response to your first paragraph (where you denied the desire for additonal wealth is practically infinite) is above in my response to Doug M.

    “But if prices do fall by 5% and supply increases by only 1%, then you’re talking about a reduction in aggregate spending.”

    I’m talking about supply increasing 5%, prices could fall 5%, and demand only rises 1%.

    You initially said supply increases 1%. Now you’re saying supply increases by 5%.

    OK, given your new numbers, if supply increases 5%, prices fall 5%, and nominal demand rises 1%, then your saying NGDP rises 1%. Ok, so what?

    “But there would be no reason for aggregate revenues to fall when there is no fall in aggregate money supply trends.”

    What if people start saving in the MOA/MOE so that the amount of MOA/MOE in circulation falls (lowering velocity)?

    Then the world will end. Billions would die. The only people who could save us are legalized counterfeiters.

    Seriously, If that happens, then a new tendency would arise, where the value of money rises, prices and costs fall, and the population of people would continue on with higher cash balances. The specific changes that take place in the economic system depend on what type of spending is reduced. Consumption? Investment?

    “In our economy, the aggregate money supply consists in part of credit expansion, and this money can literally disappear from existence.”

    Instead of money, I would say that demand deposits that are used as MOA/MOE can literally disappear. Agreed. I disagree for currency.

    The demand deposits that can disappear would be demand deposits created by bank credit expansion.

    “He should, because he’s encouraging it by prior unhealthy inflation, which sets the economy up for future unhealthy deflation.”

    I believe you are referring to price inflation caused by debt. Too much debt is a medium of exchange problem. I’m pretty sure bernanke assumes real aggregate demand (real AD) is unlimited. There is the problem. I believe his deflation speech is incorrect.

    Too much credit is also a structure of production problem, because credit expansion affects interest rates. The effects of inflation and other nominal variables are not restricted to nominal concepts. Money is not neutral.

    “There is no reason why, here at least, prices can’t fall by 5% as well.”

    Yes, there is. Companies will remove capacity to try to maintain business profits and/or try to maintain the stock price.

    Then other companies will expand capacity and take the market share. Your challenge is not good enough.

    “If you can see rich people using MOA/MOE as a savings vehicle, then you should see poor people being able to do the same thing.”

    Not if poor people aren’t able to save by their monthly budget.

    If an individual is too poor to hold money, then they’re too poor to buy investment products. They aren’t benefited by having the saving in MOA replaced by saving in something else. If you complain that the rich will save in MOA in a gradual price deflation world, as if this counts as a knock against gradual price deflation, then you would also have to complain that the rich will save in some investment products in a world where people don’t save in MOA, because the poor living paycheck to paycheck would be equally unable save.

    Your complaints against gradual price deflation, by trying to say it benefits the wealthy, ring hollow. Try again.

  73. Gravatar of Major_Freedom Major_Freedom
    19. November 2012 at 19:58

    Suvy:

    “More importantly however, or, more generally, you cannot even comprehend past historical data UNLESS you have already accepted and are utilizing, an a priori theory”

    Not true. Data is a measurement of something. That’s all it is. Data has nothing to do with any sort of theory.

    False. One has to understand the concepts of measurement, data, and observation, first. You can’t even consider yourself to be observing and measuring data unless you already have a theory of observation, measurement and data!

    Moreover, one cannot make sense of any data unless one has a theory with which to understand the data. Without a theory, data is nothing but meaningless, random symbols. You are simply not cognizant (yet) of the a priori theoretical considerations that you seem to be totally taking for granted. It’s there, you just have to be a thinker to grasp it. As of now, you’re thinking you’re a camera but you don’t have any knowledge of the camera parts, nor do you know how your camera works. You’re just pointing and clicking believing you’re taking meaningful pictures.

    “For economic propositions deduced from action, there is no possible state of the world that can refute them. They are true for all possible actions. No action will ever be without opportunity costs. No action will ever be without the logical categories of profit and loss.”

    “The foundation of disagreement is in philosophy of science. You believe the only valid method is positivism. But Austrians have already shown that this method does not work in economics. There is no excuse for you to cling to what has already been “falsified”.”

    If that method doesn’t work in economics; then it doesn’t work in physics.

    Another false a priori statement. You are again fallaciously presuming methodological monism. It is not illogical or factually incorrect to argue that there can be one science for the natural, external world, and a different one for the subjective, internal knowledge and action world.

    You yourself are verifying this dualism by the very fact that you are arguing I am wrong.

    The whole point of science is not necessarily to be right. It is to have a model that gives us a practical way of looking at things and can give accurate results. For example, Isaac Newton was wrong, but his model was very valuable.

    Is that statement, the one you just made, also not right, but at best only useful? Usefulness prespposes a theory of right and wrong for us humans.

    Do you really think that looking at the position of the stars can be dealt with in an experimental manner? Of course not.

    Do you really think that asking me if I am really thinking something I have not shown I am actually thinking, that you are in any way engaging what I am actually arguing?

    Do you really think that 90% of the stuff they come up with in physics was experimentally testable when they came up with it or that everything else was constant when it happened. Of course not.

    Physics is physics. Knowledge of physics is a different science. Knowledge and action science is a priori. The natural external world is a posteriori.

    It seems to me that you’re saying that economics should use a mathematical approach(a priori assumptions and deduction) instead of a scientific approach(collection of data and falsification).

    No, I have told you at least three times already that my methodology of economics is not mathematical. A priori and deductions are not necessrily mathematical. Mathematics also makes use of these concepts, but they are praxeological concepts.

    “Economic data is meaningless, random data without an a priori theory.”

    Data is just a measurement. For example, 5% unemployment tells you that 5 out of every 100 people looking for work is unemployed. All data is just some sort of a measurement. It measures a quantity that we all want to know.

    False. Data is not just a measurement. Data and measurement themselves are theoretical concepts. Knowledge of 5% unemployment is only possible if you have a theory of what it means to be unemployed, and what it means to be a percent, and what 5 means.

    Whenever you talk about starting with a prior assumptions and then use deduction; that’s the process of creating a (mathematical) model. You start with an assumption and you deduce from the assumption; that’s how models are created.

    False. Mathematics is not necessarily implied with deduction and a priori propositions. However, deduction and a priori propositions are necessrily implied with mathematics.

    What I gather from this statement is that the only way to go about economics is the use of models based on a priori assumptions.

    They’re not so much models as they are logical categories. Economics is not history. If you say that last year, unemployment was 5% on average, then you are not doing economics. You are doing data collecting of unique historical data that does not reveal costancies of human action.

  74. Gravatar of Fed Up Fed Up
    19. November 2012 at 21:17

    “The rich do not have everything they want”

    I don’t believe that. Apple, Intel, Bill Gates, and Warren Buffett are good examples.

    Send me five million dollars. I’ll prove it by retiring early.

    I get in this argument about that a lot. It gets tiresome.

    About the cadillacs, buy more of them. Buy less of other cars.

    “General gluts are impossible.”

    They are if real AD is not unlimited.

    “OK, given your new numbers, if supply increases 5%, prices fall 5%, and nominal demand rises 1%, then your saying NGDP rises 1%. Ok, so what?”

    No, real (not nominal) demand rises 1%, NGDP falls about 4%.

    “Then the world will end. Billions would die. The only people who could save us are legalized counterfeiters.”

    Exactly, create more MOA/MOE so entities stop saving in MOA/MOE or something similar. The new MOA/MOE has to be created in the right way and distributed evenly.

    “The specific changes that take place in the economic system depend on what type of spending is reduced. Consumption? Investment?”

    Consumption reduced, then investment reduced, then consumption reduced, then investment reduced… MOA/MOE is destroyed along the way.

    “Too much credit is also a structure of production problem, because credit expansion affects interest rates.”

    Can you expand on that one?

    “The demand deposits that can disappear would be demand deposits created by bank credit expansion.”

    Aren’t all demand deposits INITIALLY created from bank or bank-like credit expansion?

    “Then other companies will expand capacity and take the market share.”

    No, housing and auto industries just recently.

    “They aren’t benefited by having the saving in MOA replaced by saving in something else.”

    They could be if it increases capacity to maintain employment or a financial asset is bought that can go down in value “rebalancing” the economy.

  75. Gravatar of Suvy Suvy
    20. November 2012 at 08:28

    “False. Data is not just a measurement. Data and measurement themselves are theoretical concepts. Knowledge of 5% unemployment is only possible if you have a theory of what it means to be unemployed, and what it means to be a percent, and what 5 means.”

    This is semantics; what you’re saying would depend on how you define by data and measurement; I agree that measurement is a concept (not data though). However, measurement has a practical use in the sense that it’s something we can use to accomplish other things. Data would be something like 5 meters. That is a measurement of some kind. All data is a measurement. I do agree that measurement is a concept, but it comes from a practical perspective.

    “False. Mathematics is not necessarily implied with deduction and a priori propositions. However, deduction and a priori propositions are necessrily implied with mathematics.”

    That statement is completely false. The mathematical process is that way of thinking. You have just described the process of mathematics.

    “They’re not so much models as they are logical categories. Economics is not history. If you say that last year, unemployment was 5% on average, then you are not doing economics. You are doing data collecting of unique historical data that does not reveal costancies of human action.”

    I never said that saying unemployment was 5% on average was doing economics. I agree with everything but the first sentence. The whole point of a model is to start with a priori assumptions and use mathematical logic(deduction) to find out the results. That is a mathematical model; that’s the core of mathematical modeling. It doesn’t matter whether you use words or whether you use differential equations–it’s the exact same thing; it is deduction and mathematics.

    “Physics is physics. Knowledge of physics is a different science. Knowledge and action science is a priori. The natural external world is a posteriori.”

    What are you defining as “the natural external world”?

    I don’t know if “knowledge and action science is a priori” while the “natural external world is a posteriori”. I think an economy is a part of the natural, external world, but human behavior is an addition that adds another layer of unpredictability and uncertainty. To deal with this by only using deductive logic based on a priori assumptions cannot give you very much detail.

    “No, I have told you at least three times already that my methodology of economics is not mathematical. A priori and deductions are not necessrily mathematical. Mathematics also makes use of these concepts, but they are praxeological concepts.”

    You clearly don’t understand mathematics then do you; mathematics is that way of thinking. They aren’t praxeological concepts; they’re mathematical concepts that are used in praxeology. Do you think mathematics came first or praxeology came first? That process is mathematics; the process of deduction from a priori assumptions is a way of thinking; what you have described is the procedure of mathematics and the mathematical rigor. That way of thinking is mathematics!

    “Another false a priori statement. You are again fallaciously presuming methodological monism. It is not illogical or factually incorrect to argue that there can be one science for the natural, external world, and a different one for the subjective, internal knowledge and action world.”

    I would argue that economics isn’t about “internal knowledge” and the “action world”. An economy is a system of different things working together; exactly like a physical system. The only thing is that human behavior is a part of that system.

    I am not viewing the market as a process. Instead, I am starting from the point of the economy being a system of various things working together. An economy is a part of the natural world with another level of uncertainty and unpredictability. Using a priori assumptions and deductive logic leads to a very limited understanding. Much more could be understood by using data.

  76. Gravatar of Saturos Saturos
    20. November 2012 at 08:50

    MF, are your expectations of how the economy behaves any different from Suvy’s? Can you precisely state these differences, in a way that can be checked or followed up?

  77. Gravatar of Major_Freedom Major_Freedom
    20. November 2012 at 11:10

    Fed Up:

    “The rich do not have everything they want”

    I don’t believe that. Apple, Intel, Bill Gates, and Warren Buffett are good examples.

    Examples are not evidence against my argument about the entire rich population. For every Buffet, there are thousands of other rich people who are non-Buffeting around.

    At any rate, what I argued is an apodictically true logical category of action, Fed Up. The fact that these people are acting, and, specifically, consuming, means that they prefer more over less. If they really wanted no more, then they would cease being actors.

    The desire for more over less, because it is tied up with action, means that the desire to consume more is not restricted to only poor people.

    Send me five million dollars. I’ll prove it by retiring early.

    You just proved you want more than you have. If I gave you 5 million dollars, you would almost certainly invest a portion of it, and even if you didn’t, even if you held the entire sum as cash, you would still want more, namely, you would act to exchange the money away so as to acquire more than what you have, i.e. consumer goods. If you really were correct that rich people don’t want more, then you simply take the money, and hold it as cash until you die, and not only that, you would cease seeking to acquire more consumer goods in the future.

    I get in this argument about that a lot. It gets tiresome.

    I get your argument a lot too. It is not tiresome because saying the truth never gets tiring. People get tired of doing things they don’t really believe in.

    About the cadillacs, buy more of them. Buy less of other cars.

    Or buy more books.

    “General gluts are impossible.”

    They are if real AD is not unlimited.

    Real demand is practically infinite. The desire for more real goods has always, and will for the foreseeable future as long as human action remains, far outstrip(ped) the ability to produce. It’s the very reason why economic progress occurs. Economic progress occurs because desire exceeds ability.

    “OK, given your new numbers, if supply increases 5%, prices fall 5%, and nominal demand rises 1%, then your saying NGDP rises 1%. Ok, so what?”

    No, real (not nominal) demand rises 1%, NGDP falls about 4%.

    Have you made up your mind now? Are these the final final numbers?

    OK, if supply rises 5%, and real demand rises by 1%, and NGDP falls 4%, then you are proposing a decline in aggregate spending. Here, there was a partial relative overproduction of some goods, and a partial relative (and unobservable) underproduction of other goods. The reason why there is no corresponding increase in real demand for the underproduced goods is because they don’t exist. If the state does not interfere, then over time people will produce more of what is underproduced, and less of what is overproduced, that is, resources and labor will be reallocated so as to reduce the partial relative imbalances. Then, the reason for the initial drop in spending would be eliminated, and so we can say there is no reason inherent in the market process that would result in a drop in NGDP.

    When NGDP falls, one has to ask why people would want to suddenly seek more cash and spend less. Hint: It isn’t because people want more dollars to look at.

    “Then the world will end. Billions would die. The only people who could save us are legalized counterfeiters.”

    Exactly, create more MOA/MOE so entities stop saving in MOA/MOE or something similar. The new MOA/MOE has to be created in the right way and distributed evenly.

    I was being purposefully extremely sarcastic, and the funny thing is you actually believe that nonsense.

    If the central bank creates more money, then it will just be setting into motion the very affects that themselves cause the sudden collapse in spending. The priori inflation MISLED investors and consumers into setting prices that encourage unsustainable capital configurations. It is madness to believe that doing more of what caused the problem in thefirst place, can solve the problem.

    “The specific changes that take place in the economic system depend on what type of spending is reduced. Consumption? Investment?”

    Consumption reduced, then investment reduced, then consumption reduced, then investment reduced… MOA/MOE is destroyed along the way.

    Only credit expansion created money be destroyed in this way. With hard money, a reduction in consumption spending can make it possible to increase the demand for capital goods. A reduction in consumer spending does not cause a reduction in investment. Consumer goods are not the only goods that earn revenues.

    “Too much credit is also a structure of production problem, because credit expansion affects interest rates.”

    Can you expand on that one?

    Read the Austrian theory of the business cycle.

    “The demand deposits that can disappear would be demand deposits created by bank credit expansion.”

    Aren’t all demand deposits INITIALLY created from bank or bank-like credit expansion?

    No. A demand deposit can also be initially created with currency bills deposited into a bank, if someone wanted to do that. It is more accurate to say the overwhelming majority of demand deposits are initially created by credit.

    “Then other companies will expand capacity and take the market share.”

    No, housing and auto industries just recently.

    Market share is not limited to one industry.

    “They aren’t benefited by having the saving in MOA replaced by saving in something else.”

    They could be if it increases capacity to maintain employment or a financial asset is bought that can go down in value “rebalancing” the economy.

    You moved the goalposts. You initially made the context one where poor people are benefited or not by basing it on their own saving versus not saving. Now you are saying poor people can benefit if OTHERS save. Well, if you want to introduce other people saving, then you have totally abandoned your initial complaint about poor people not being able to “save” in cash as if poor people are worse off because of that one point.

    However, if there is a transition to saving in the form of cash instead of investment assets, then what will happen is that the prices of assets will fall. This is because the nominal demand for assets falls. It is not necessarily the case that saving more in cash will reduce capacity. It may in fact increase capacity, if the cash saving comes at the expense of consumption. For then the relative profitability of capital goods will increase as compared to consumption, which will redirect capital towards producing capital goods.

    ———————————-

    Suvy:

    “False. Data is not just a measurement. Data and measurement themselves are theoretical concepts. Knowledge of 5% unemployment is only possible if you have a theory of what it means to be unemployed, and what it means to be a percent, and what 5 means.”

    This is semantics; what you’re saying would depend on how you define by data and measurement; I agree that measurement is a concept (not data though). However, measurement has a practical use in the sense that it’s something we can use to accomplish other things. Data would be something like 5 meters. That is a measurement of some kind. All data is a measurement. I do agree that measurement is a concept, but it comes from a practical perspective.

    It isn’t semantics, Suvy. The concept of observation for example has two different logical categories associated with it. On the one hand, observing others making observations is a pure sensory perception. On the other hand, you must have a theoretical understanding of what it means for someone to make an observation, which is a knowledge derived not from observation itself, but from self-reflecting on yourself as an actor. A non-actor would never be able to know that an observer is observing. Only those who are able to have an understanding of observation can know someone else is observing.

    The same is true for the concept of employment. Non-actors will never know that someone is performing labor for an employer. Only those who understand what it means to work, will be able to say he is observing others laboring or not laboring.

    “False. Mathematics is not necessarily implied with deduction and a priori propositions. However, deduction and a priori propositions are necessrily implied with mathematics.”

    That statement is completely false. The mathematical process is that way of thinking. You have just described the process of mathematics.

    No, you’re still incorrect. Yes, deduction and a priori propositionining is a component of mathematics, but mathematics does NOT have a monopoly on these concepts. Mathematics contains these concepts only because they are true in a wider science that contains mathematics. Mathematics has adopted these concepts. The concepts do not necessarily adopt mathematics.

    “They’re not so much models as they are logical categories. Economics is not history. If you say that last year, unemployment was 5% on average, then you are not doing economics. You are doing data collecting of unique historical data that does not reveal costancies of human action.”

    I never said that saying unemployment was 5% on average was doing economics. I agree with everything but the first sentence. The whole point of a model is to start with a priori assumptions and use mathematical logic(deduction) to find out the results.

    False. Deduction is not necessarily mathematical. Mathematics is necessarily deductive.

    That is a mathematical model; that’s the core of mathematical modeling. It doesn’t matter whether you use words or whether you use differential equations–it’s the exact same thing; it is deduction and mathematics.

    Incorrect. The deductions based on human action are not mathematical. You are completely unjustified in asserting that if one thinks deductively, that one is necessarily thinking mathematically.

    The reason why they teach logic in one class, and mathematics in another class, and the reason why there exists textbooks on logic and different textbooks on mathematics, is because logic and mathematics, while they utilize many similar and the same concepts, does not make them equivalent.

    Mathematics is a sub-category of logic.

    “Physics is physics. Knowledge of physics is a different science. Knowledge and action science is a priori. The natural external world is a posteriori.”

    What are you defining as “the natural external world”?

    Non-action phenomena.

    I don’t know if “knowledge and action science is a priori” while the “natural external world is a posteriori”. I think an economy is a part of the natural, external world, but human behavior is an addition that adds another layer of unpredictability and uncertainty. To deal with this by only using deductive logic based on a priori assumptions cannot give you very much detail.

    I know what you think. You don’t need to keep repeating the same things over and over again.

    The economy deals with human action. Economics is not chemistry. Human behavior is not just an addition of complexity onto the same methodological monism of positivism. Human behavior is, and must be, understood as belonging to a different class of logical categories. Humans learn over time. The very act of finding constancies in the market, via positivism, changes us as actors. After all, that is why positivists do what they do. To learn. Learning changes who we are. Thus, constancy cannot logically be presupposed when studying that which human knowledge, and actions based on knowledge, is a component of the subject matter. Positivism is not applicable to human knowledge, and thus not applicable to human action, and thus not applicable to economics, because positivism presupposes constancy in the subject matter as an a priori foundation.

    This is why the treating of history and theory as equivalent, as in chemistry and physics, is a false equivalence in human action.

    “No, I have told you at least three times already that my methodology of economics is not mathematical. A priori and deductions are not necessrily mathematical. Mathematics also makes use of these concepts, but they are praxeological concepts.”

    You clearly don’t understand mathematics then do you; mathematics is that way of thinking. They aren’t praxeological concepts; they’re mathematical concepts that are used in praxeology.

    Again, for the third time, nothing I have said would provide sufficient information for you to conclude that I don’t understand mathematics. Yes, mathematics is “that way of thinking”, but that doesn’t mean it is necessarily mathematical.

    Chemists use the same concepts as physicists, but that doesn’t mean physics is chemistry.

    Those concepts are established praxeologically. Mathematics BORROWS those concepts. The reason why mathematicians use those concepts is because mathematicans are actors. The knowledge of those concepts derives from researchers being actors, not necessarily mathematicians per se.

    Do you think mathematics came first or praxeology came first?

    Logically? Praxeology. Praxeology is the science of human action. Action is necessary for mathematics. Mathematics is not necessary for action.

    That process is mathematics; the process of deduction from a priori assumptions is a way of thinking; what you have described is the procedure of mathematics and the mathematical rigor. That way of thinking is mathematics!

    False! Mathematics is a way of thinking praxeologically concerning quantities. The foundation of mathematics is action. To the extent that mathematics utilizes these concepts, they are borrowed from the fundamental science of action, then the praxeological constraints are typically abandoned, which then turns mathematics into a quasi-religion, and then those quasi-religious concepts are then re-imposed into economic science, spoiling it. Ergo you.

    “Another false a priori statement. You are again fallaciously presuming methodological monism. It is not illogical or factually incorrect to argue that there can be one science for the natural, external world, and a different one for the subjective, internal knowledge and action world.”

    I would argue that economics isn’t about “internal knowledge” and the “action world”. An economy is a system of different things working together; exactly like a physical system. The only thing is that human behavior is a part of that system.

    I know what you believe. You have repeated yourself many times.

    I would argue that economics is about internal knowledge and action, because “the different things working together” are…dun dun dunnnn…human actors

    To the extent that the economy is a physical system, we will never know the ultimate causes. Subjective individual values (morals, values, desires, etc) are outside the scope of positivist science.

    I am not viewing the market as a process. Instead, I am starting from the point of the economy being a system of various things working together.

    What things? Human action, and the results of it, right? I hope you aren’t adding in the concrete that goes into the production of buildings.

    An economy is a part of the natural world with another level of uncertainty and unpredictability. Using a priori assumptions and deductive logic leads to a very limited understanding. Much more could be understood by using data.

    It cannot be understood the same way you understand non-praxeological phenomena.

    Data can only tell you history. Yes, history has much more information than economic principles, and is far more rich in detail, but I never claimed economics tells us everything, or even as much as history. What economic science does do is tell us the logical constraints of all possible economic phenomena, and, I would argue very importantly, allows one to understand history with good theory rather than bad theory.

    Imagine two people, one person who doesn’t understand economics or mathematics, and another person who does, and both of them are telling a third person what happened in the past. Who would give a better picture?

  78. Gravatar of Major_Freedom Major_Freedom
    20. November 2012 at 11:28

    Saturos:

    MF, are your expectations of how the economy behaves any different from Suvy’s? Can you precisely state these differences, in a way that can be checked or followed up?

    You want me to predict hyperinflation? LOL

    Our debates should be sufficient to showing you our differences. If you need more, then I will need to know what else Suvy thinks. It’s ongoing.

    What do you have in mind? Your question is quite open ended.

  79. Gravatar of Suvy Suvy
    21. November 2012 at 15:07

    “I know what you think. You don’t need to keep repeating the same things over and over again.

    The economy deals with human action. Economics is not chemistry. Human behavior is not just an addition of complexity onto the same methodological monism of positivism. Human behavior is, and must be, understood as belonging to a different class of logical categories. Humans learn over time. The very act of finding constancies in the market, via positivism, changes us as actors. After all, that is why positivists do what they do. To learn. Learning changes who we are. Thus, constancy cannot logically be presupposed when studying that which human knowledge, and actions based on knowledge, is a component of the subject matter. Positivism is not applicable to human knowledge, and thus not applicable to human action, and thus not applicable to economics, because positivism presupposes constancy in the subject matter as an a priori foundation.

    This is why the treating of history and theory as equivalent, as in chemistry and physics, is a false equivalence in human action.”

    The economy doesn’t only consist of humans action; it consists of random events. Randomness plays a huge role in the economy (as do other, non-human things). When studying the economy, we have to be able to understand how randomness and uncertainty play a role. This is the single most important part (and most ignored part) of Keynes’s thinking.

    “No, you’re still incorrect. Yes, deduction and a priori propositionining is a component of mathematics, but mathematics does NOT have a monopoly on these concepts. Mathematics contains these concepts only because they are true in a wider science that contains mathematics. Mathematics has adopted these concepts. The concepts do not necessarily adopt mathematics.”

    There is no way you can say you understand math. Those concepts ARE mathematical reasoning. There’s a reason why when you take an actual mathematics class you do so many proofs; because proofs test that ability. The methodology you describe consists in mathematics; not the other way around.

    Also, are you telling me that praxeology came before mathematics? Mathematics is the wider science that you’re talking about. That methodology is mathematics. Below is a quote from a textbook of an intro class I had in mathematical rigor and thinking(after calculus).
    “[This book] guides students to think and to express themselves mathematically–to analyze a situation, extract pertinent facts, and draw appropriate conclusions”
    The methodology you describe is a way of doing that. Ergo, you’re using a mathematical model. There are way more quotes I can pull up from my textbooks that basically say that your comment is junk.

    “What things? Human action, and the results of it, right? I hope you aren’t adding in the concrete that goes into the production of buildings.”

    The concrete is a part of it. So is luck, randomness, uncertainty, and many other things. Human action is a part of it, but so is every other thing involved. There are so many other factors in an economy other than human action.

    “Data can only tell you history. Yes, history has much more information than economic principles, and is far more rich in detail, but I never claimed economics tells us everything, or even as much as history. What economic science does do is tell us the logical constraints of all possible economic phenomena, and, I would argue very importantly, allows one to understand history with good theory rather than bad theory.”

    Economic science tells us the logical constraints of all possible economic phenomena? You’re kidding me right. We can’t know the constraints of economic phenomena; there’s simply too much involved–we live in a world that we do not understand. Every single assumption made in almost every single economic model(including the Austrian model) is usually broken at some point when you deal with the real world.

    Data can tell you more than history. It can measure the world for you right now. If I do a study and find 3% unemployment today; that is a measurement. However, I do agree with your general premise. I think an essential part of economic study needs to be economic history.

    “I would argue that economics is about internal knowledge and action, because “the different things working together” are…dun dun dunnnn…human actors”

    There aren’t just human actors; there are all other sorts of actors and players. We interact with the world(things like nature, geography, etc) and those things interact with us. All of these things play a very important role in an economy. So does luck, randomness, and uncertainty.

    “The economy deals with human action. Economics is not chemistry. Human behavior is not just an addition of complexity onto the same methodological monism of positivism. Human behavior is, and must be, understood as belonging to a different class of logical categories. Humans learn over time. The very act of finding constancies in the market, via positivism, changes us as actors. After all, that is why positivists do what they do. To learn. Learning changes who we are. Thus, constancy cannot logically be presupposed when studying that which human knowledge, and actions based on knowledge, is a component of the subject matter. Positivism is not applicable to human knowledge, and thus not applicable to human action, and thus not applicable to economics, because positivism presupposes constancy in the subject matter as an a priori foundation.”

    A part of the economy is human action, not all of it. Constancy can’t deal with human action, but it can deal with the other parts of an economy and assuming certain constancies can tell us the behavior of the system under certain circumstances. That’s why I emphasize that models should never be the end-all-be-all. For example, making the rational expectations assumption and developing models around it tells us how people behave under the assumption. It can tell us more about the behavior of the system in certain situations and has practical value. However, to blindly follow it will lead to trouble. This is why we use mathematical models. They can help us observe the qualitative behavior of the system.

    “Those concepts are established praxeologically. Mathematics BORROWS those concepts. The reason why mathematicians use those concepts is because mathematicans are actors. The knowledge of those concepts derives from researchers being actors, not necessarily mathematicians per se.”

    If anything, praxeology borrows those concepts from mathematics. What came first, mathematical logic or praxeology? That method of mathematical logic goes far back to ancient societies. Nassim Taleb even talks about it in his books Fooled by Randomness and The Black Swan.

    “Logically? Praxeology. Praxeology is the science of human action. Action is necessary for mathematics. Mathematics is not necessary for action.”

    This is absolutely absurd. The methods praxeology uses are derived from mathematics. The concept of praxeology came well after the development of mathematical thinking.

  80. Gravatar of Major_Freedom Major_Freedom
    21. November 2012 at 19:25

    Suvy:

    The economy doesn’t only consist of humans action; it consists of random events.

    Random events the subject matter of which is human actions, which cannot be predicted using constants, which thus appears to us as “random.” Just because it looks like there are a random number of people who walk in and out of a library each day, does not mean that the individuals are acting randomly. No, they are all purposefully going in and out of the library.

    Randomness plays a huge role in the economy (as do other, non-human things). When studying the economy, we have to be able to understand how randomness and uncertainty play a role. This is the single most important part (and most ignored part) of Keynes’s thinking.

    Randomness is but a short hand for saying “I don’t know what an individual will learn and do in the future, so I will assign a percentage to various possible actions.”

    “No, you’re still incorrect. Yes, deduction and a priori propositionining is a component of mathematics, but mathematics does NOT have a monopoly on these concepts. Mathematics contains these concepts only because they are true in a wider science that contains mathematics. Mathematics has adopted these concepts. The concepts do not necessarily adopt mathematics.”

    There is no way you can say you understand math. Those concepts ARE mathematical reasoning.

    Again, you’re wrong. Mathematical concepts are derived from reasoning that is wider than mathematics. Mathematics borrows deduction and a priorism from the much larger philosophy of science. The fact that mathematics utilizes those same concepts, does NOT imply that should one use those concepts, that one is doing mathematics.

    There’s a reason why when you take an actual mathematics class you do so many proofs; because proofs test that ability. The methodology you describe consists in mathematics; not the other way around.

    No, it is the other way around. Mathematics is a subsidiary science of the wider science of logic. It’s why logic and mathematics are taught separately.

    Also, are you telling me that praxeology came before mathematics? Mathematics is the wider science that you’re talking about. That methodology is mathematics.

    False. Praxeology logically precedes mathematics. The methodology is not mathematics. Mathematics borrows those concepts.

    Below is a quote from a textbook of an intro class I had in mathematical rigor and thinking(after calculus).

    “[This book] guides students to think and to express themselves mathematically–to analyze a situation, extract pertinent facts, and draw appropriate conclusions”

    The methodology you describe is a way of doing that. Ergo, you’re using a mathematical model.

    Non sequitur. The passage you quoted does not prove your assertion correct.

    There are way more quotes I can pull up from my textbooks that basically say that your comment is junk.

    Your first quote was nowhere close to proving your assertion correct. And quoting passages is not how to do logic. You’re committing the argumentative fallacy of argument by assertion. You are just ex cathedra repeating the same claims over and over, with zero substantiation or argumentative rigor.

    “What things? Human action, and the results of it, right? I hope you aren’t adding in the concrete that goes into the production of buildings.”

    The concrete is a part of it. So is luck, randomness, uncertainty, and many other things.

    The physics and chemistry of concrete is outside the scope of economics. You are highly confused.

    Human action is a part of it, but so is every other thing involved. There are so many other factors in an economy other than human action.

    Like what? Everything you have said so far are in fact not economics.

    “Data can only tell you history. Yes, history has much more information than economic principles, and is far more rich in detail, but I never claimed economics tells us everything, or even as much as history. What economic science does do is tell us the logical constraints of all possible economic phenomena, and, I would argue very importantly, allows one to understand history with good theory rather than bad theory.”

    Economic science tells us the logical constraints of all possible economic phenomena? You’re kidding me right.

    No, I am not kidding.

    We can’t know the constraints of economic phenomena; there’s simply too much involved–we live in a world that we do not understand. Every single assumption made in almost every single economic model(including the Austrian model) is usually broken at some point when you deal with the real world.

    False. You’re just arguing from ignorance.

    The concepts of profit and loss, law of marginal utility, opportunity costs, and scarcity, to name just a few, are all logical constraints to all possible economic phenomena. No matter what you do, these logical categories will be present in your actions. They are logical categories of action. Nothing you can do can ever refute the law of marginal utility. Nothing you can ever do can transcend the categories of profit and loss. Nothing you can ever do can abolish the law of scarcity. Nothing you can ever do can ever avoid the law of opportunity costs.

    Data can tell you more than history. It can measure the world for you right now.

    There is no such thing as right now, in the hard science physics sense. As soon as you say “now”, it becomes history.

    The concept of “now” is actually a praxeological concept.

    If I do a study and find 3% unemployment today; that is a measurement.

    If you find 3% unemployment, it becomes history. As soon as you conclude 3%, you are making a judgment of what transpired, and the data may already be changing as you are uttering your historical conclusion.

    Your mind isn’t instantaneously able to know current events. There is always a time lag.

    However, I do agree with your general premise. I think an essential part of economic study needs to be economic history.

    Human action does not occur according to constant causal operative factors, the way atoms and molecules do. You aren’t doing economics when you collect data on unemployment. You are doing history. History in economics is unique. Humans acted during that time given their knowledge at the time, and their preferences. Both their knowledge and preferences can change over time, so you can’t extrapolate from history any data that can allow you to know what will happen in the future, the way physicists can extrapolate from history to know what a chemical compound will do.

    “I would argue that economics is about internal knowledge and action, because “the different things working together” are…dun dun dunnnn…human actors”

    There aren’t just human actors; there are all other sorts of actors and players.

    No, that’s zoology, not economics.

    <i We interact with the world(things like nature, geography, etc) and those things interact with us.

    Water interacts with other entities, but water does not purposefully act. “Interaction” is not the subject matter of economics. Interactions is the subject matter of biology, or geology, or meteorology.

    You’re a mathematician in training. You unfortunately do not understand economics, because you’re trying to shoehorn mathematics into a field of inquiry where it does not belong.

    All of these things play a very important role in an economy. So does luck, randomness, and uncertainty.

    These concepts relate to human action. They are mental tools of cognition. To the extent the material world affects humans, that is not economics, but biology, or nutrition, or bio-chemistry.

    A part of the economy is human action, not all of it.

    What else does it contain? Everything you have proposed thus far are untenable.

    Constancy can’t deal with human action, but it can deal with the other parts of an economy and assuming certain constancies can tell us the behavior of the system under certain circumstances.

    What other parts of the economy?

    That’s why I emphasize that models should never be the end-all-be-all.

    Is that a model?

    For example, making the rational expectations assumption and developing models around it tells us how people behave under the assumption. It can tell us more about the behavior of the system in certain situations and has practical value. However, to blindly follow it will lead to trouble. This is why we use mathematical models. They can help us observe the qualitative behavior of the system.

    Blindly following mathematical models is just as foolish as blindly following rational expectations models.

    The science of human action does not presuppose what rational expectations presupposes.

    “Those concepts are established praxeologically. Mathematics BORROWS those concepts. The reason why mathematicians use those concepts is because mathematicans are actors. The knowledge of those concepts derives from researchers being actors, not necessarily mathematicians per se.”

    If anything, praxeology borrows those concepts from mathematics.

    Nonsense. Mathematics borrows from what praxeology has made explicit.

    What came first, mathematical logic or praxeology?

    Logically, praxeology. Temporally, mathematics.

    That method of mathematical logic goes far back to ancient societies.

    That’s because human actors go far back to ancient societies. Human actors have minds that are logically structured, and this structure naturally guides human thinking. Later philosophers have shown that the reason mathematics was discovered so early, is because of the mental structure of human minds. These rationalist philosophers studied the human intellect via self-reflection, and have shown why mathematics is understandable to even a three year old. It’s how our brains are wired. Our brains MUST wired in a particular way BEFORE we can ever understand mathematics. Praxeology studies the human mind (and body) in action. The active mind is logically a priori to particular sciences such as mathematics. Mathematics without praxeology is nothing but arbitrary verbal conventions. Yet mathematics has been devastatingly effective as a tool to understand the real world. For those who don’t understand the praxeological foundations of mathematics, the success of mathematics must seem like a miraculous event. I know better.

    Nassim Taleb even talks about it in his books Fooled by Randomness and The Black Swan.

    His books are actually tomes that support MY convictions, and they cast doubt on yours. It is precisely the illusion of certainty that the use of mathematics in economics has created, that Taleb chastised. He argued that just because you can make a mathematical model of the economy, it doesn’t mean it is a model akin to the Schrodinger Equation, which is able to predict the trajectories of particles with such accuracy that it is like measuring the width of North America within the diameter of a single human hair. Why? Because particles don’t act. They don’t learn. Their pattern of behavior is always the same when the same inputs are present. The double slit experiment for example ALWAYS produces the same diffraction pattern. Always. This constancy is not present when the subject matter LEARNS over time, such that its nature fundamentally changes. You are not the same thing you were in the past. The same causal input will not always generate the same reaction. This is because you learn.

    “Logically? Praxeology. Praxeology is the science of human action. Action is necessary for mathematics. Mathematics is not necessary for action.”

    This is absolutely absurd. The methods praxeology uses are derived from mathematics. The concept of praxeology came well after the development of mathematical thinking.

    That A logically preceded B does not imply nor require that A temporally precede B in terms of thinking, or discovery. Praxeology does logically precede mathematics, even though praxeology as a distinct science followed mathematics in history. The reconciliation of this seeming problem is that mathematicians were assuming and sensing the whole time what later praxeologists have only revealed and detailed in a more systematic fashion.

    There are many instances of science B following science A, even though science B is more fundamental, and actually grounds science A.

    Again, your confusion stems from your inability to distinguish between theory and history. Natural scientists treat them as equivalent, when in the field of knowledge, theory and history are separate fields of inquiry.

  81. Gravatar of Suvy Suvy
    22. November 2012 at 08:53

    “His books are actually tomes that support MY convictions, and they cast doubt on yours. It is precisely the illusion of certainty that the use of mathematics in economics has created, that Taleb chastised. He argued that just because you can make a mathematical model of the economy, it doesn’t mean it is a model akin to the Schrodinger Equation, which is able to predict the trajectories of particles with such accuracy that it is like measuring the width of North America within the diameter of a single human hair. Why? Because particles don’t act. They don’t learn. Their pattern of behavior is always the same when the same inputs are present. The double slit experiment for example ALWAYS produces the same diffraction pattern. Always. This constancy is not present when the subject matter LEARNS over time, such that its nature fundamentally changes. You are not the same thing you were in the past. The same causal input will not always generate the same reaction. This is because you learn.”

    I’ve read most of his academic papers. He NEVER argues against the use of math completely, he argues against the false use of math. I actually agree with almost everything he says. You clearly haven’t read his work. You do realize that his hero was Benoit Mandelbrot right? He advocates the use of Mandelbrotian distributions and Mandelbrotian probability. He also praises the likes of John Maynard Keynes and Hyman Minsky because he’s actually read their work and understands what they were trying to do.

    He uses and builds mathematical models all the time. He also uses mathematics as a measurement. What he’s against (and I agree) is the blind predictive use of mathematics. Math should be used as a way of measurement

    Here’s one of his papers that supports my point about math.
    http://www.imf.org/external/pubs/ft/wp/2012/wp12216.pdf

    “Nonsense. Mathematics borrows from what praxeology has made explicit.”

    This is a lie. Mathematics has been doing this for multiple millenia.

    “Blindly following mathematical models is just as foolish as blindly following rational expectations models.”

    You don’t understand what I said did you. Here’s the crazy part: THAT’S WHAT I’VE BEEN SAYING ALL ALONG. That includes the Austrian model.

    “Praxeology does logically precede mathematics, even though praxeology as a distinct science followed mathematics in history.”

    You’re kidding me right?

    “No, that’s zoology, not economics.

    <i We interact with the world(things like nature, geography, etc) and those things interact with us.

    Water interacts with other entities, but water does not purposefully act. “Interaction” is not the subject matter of economics. Interactions is the subject matter of biology, or geology, or meteorology.

    You’re a mathematician in training. You unfortunately do not understand economics, because you’re trying to shoehorn mathematics into a field of inquiry where it does not belong."

    Don't you understand the critical importance nature plays in economics do you? Geography is essential to how an economy operates. For example, if you live near the coast, that will affect how an economy operates. Depending on the size and industry of the country, it impacts all sorts of economic factors(like the debt sustainability level). For example, a private debt/GDP ratio of 150% is a lot higher in Australia than it is in the US.

    Economics is far more than just human action. It's 20 million other things and randomness plays an essential role. The Austrian model is primarily a deterministic model; we live in a stochastic world.

    It seems to me like you're making no effort to understand what I'm even saying

  82. Gravatar of Suvy Suvy
    22. November 2012 at 08:58

    “Human actors have minds that are logically structured, and this structure naturally guides human thinking.”

    That’s not true at all. We’re not logically structured. We’re emotionally structured. There’s many psychological experiments done on this. Also, Taleb talks about this in his books. He talks about how we are not wired to live in a “Extremistan” world. He talks about how we’re not logically structured because we get Fooled by Randomness. That’s the essence of his book; that’s its main point. It seems to me like you haven’t even read Taleb or Mandelbrot and claim they’re against the use of math in economics. They argue against the predictive power of mathematics in the way it’s used. Almost all of Taleb’s papers use mathematics extensively. I suggest you read them before talking about them.

  83. Gravatar of Major_Freedom Major_Freedom
    22. November 2012 at 09:26

    Suvy:

    I’ve read most of his academic papers. He NEVER argues against the use of math completely, he argues against the false use of math. I actually agree with almost everything he says.

    Yes, and that “false use of math” is precisely the application of it to non-constant human action. Go ahead, write down any mathematical equation. It will necessarily be based on constancy in relations. Taleb only sensed this truth in a rather tangential manner, but the core of his position is consistent with my argument I am making here.

    You clearly haven’t read his work.

    You clearly haven’t read his work. Neat game, isn’t it?

    You do realize that his hero was Benoit Mandelbrot right? He advocates the use of Mandelbrotian distributions and Mandelbrotian probability.

    Mandelbrot was a mathematician more closely related to my position, because of his work on chaos and fractals.

    He also praises the likes of John Maynard Keynes and Hyman Minsky because he’s actually read their work and understands what they were trying to do.

    So Keynes and Minksy are correct…if one reads their works? One is obligated to “praise” their works if one has read their works? Well, I have read their works, and I hold both of them to be incorrect in many respects, and partially correct in other respects, and right about things they were not novel contributors in.

    He uses and builds mathematical models all the time. He also uses mathematics as a measurement. What he’s against (and I agree) is the blind predictive use of mathematics. Math should be used as a way of measurement

    In economics, measurements are necessarily of historical unique information, that are grounded in the unique knowledge and prefers applicable at the time. In the present, knowledge and preferences have since changed. There is no constancy from there to here. Sure, use mathematical equations as a way of measurement, but you’ll only be doing history, not economics.

    Here’s one of his papers that supports my point about math.

    http://www.imf.org/external/pubs/ft/wp/2012/wp12216.pdf

    That paper actually makes a lot of arguments that supports my point about math.

    “Nonsense. Mathematics borrows from what praxeology has made explicit.”

    This is a lie. Mathematics has been doing this for multiple millenia.

    Accusing one of lying presupposes that you know their true mindsets, such that their mindsets contradict their professed convictions. Since you don’t know my true mindset, you can’t accuse me of lying.

    And it is neither a “lie” nor is it false. Mathematicians have been doing mathematics for millennia precisely because they are actors who have utilized a priori concepts that exist in the much wider scope of science of action (and knowledge). Mathematicians have only been aware of these praxeological concepts sort of on automatic pilot. It took many centuries before those concepts were finally made explicit.

    I am not saying mathematicians consciously borrowed from praxeology, as if mathematicians read books on praxeology and then said mmhmm, aha, I shall use these concepts in my pure and practical mathematical endeavors going forward.

    I am talking purely in the realm of ideas, and what is logically prior to the other. It is not the case that because B followed A temporally, even by up to 2000 years, or more, that it follows that A is logically a priori to B. There have been many instances throughout the history of thought were logically prior B followed temporally prior A. For example, the study of bacteria and viruses temporally followed the study of sickness symptoms by many thousands of years, but the study of bacteria and viruses are nevertheless logically prior to the study of sickness symptoms. Another example, the study of astrophysics temporally followed the study of astronomy by many thousands of years as well. But astrophysics is logically prior to astronomy.

    Science does not work the way you assume it works. Science through history contains look back events, reinterpretations, discoveries of what has incorrectly thought to be something else, and forehead slapping events where the scientists learned that what they have been doing all along can be understood better by using a different theory. And so on.

    Again, it is not the case that B following A in time, means that A is logically prior to B. Logic != History.

    “Blindly following mathematical models is just as foolish as blindly following rational expectations models.”

    You don’t understand what I said did you. Here’s the crazy part: THAT’S WHAT I’VE BEEN SAYING ALL ALONG. That includes the Austrian model.

    Except the Austrian model is not a mathematics model.

    “Praxeology does logically precede mathematics, even though praxeology as a distinct science followed mathematics in history.”

    You’re kidding me right?

    No, I am not kidding. Why would I be kidding? Does my intonation give any hints that I am kidding? No.

    Any response? Or is cat got your tongue shock the only thing you can muster?

    Don’t you understand the critical importance nature plays in economics do you? Geography is essential to how an economy operates. For example, if you live near the coast, that will affect how an economy operates.

    That will be constrained by the subjective values, knowledge, and action of the individual people involved. You are missing the entire argument being presented here. To the extent that geographical phenomena are considered, they do not affect economics unless there is a changed human action component. If something changes and it isn’t related to human action, like the solar flares on distant stars, then they are outside the scope of economics because human action isn’t economizing those solar flares. They are not objects of human action.

    What you are talking about is all the various phenomena that humans may judge and value and use as means to make decisions in their lives through history. The meteorological phenomena itself is not economics. Not even the past actions of people is economics. What is economics is the theoretical propositions that are constraints on all possible human action, e.g. profit, loss, marginal utility, etc.

    Depending on the size and industry of the country, it impacts all sorts of economic factors(like the debt sustainability level). For example, a private debt/GDP ratio of 150% is a lot higher in Australia than it is in the US.

    There is no constancy based impact of these factors. The same exact tornado will not necessarily be followed by the same exact human behaviors. Thus, these events are for historians, not economists.

    Economics is far more than just human action. It’s 20 million other things and randomness plays an essential role.

    No, those 20 million other things are the fields of meteorology, and chemistry, and geology, and so on. They are not economics.

    The Austrian model is primarily a deterministic model; we live in a stochastic world.

    The categories of human action are not stochastic. They are apodictic. We do not live in a stochastic world. We live in a world that at least contains purposeful, non-random human behavior. A stochastic universe would not have allowed us to be here.

    It seems to me like you’re making no effort to understand what I’m even saying

    Don’t mistake total and utter rejection for me not understanding you. I understand you very well. I just know it’s wrong.

  84. Gravatar of Major_Freedom Major_Freedom
    22. November 2012 at 09:33

    Suvy:

    “Human actors have minds that are logically structured, and this structure naturally guides human thinking.”

    That’s not true at all. We’re not logically structured.

    You just contradicted yourself. In order to even make your argument, you are implementing logic. Telling me “that’s NOT true” presupposes logic of non-contradiction. It is not true, instead of true. It cannot be both true and false. Telling me that we’re not logically structured, is a logically structured argument.

    We’re emotionally structured.

    That is a logically structured argument.

    There’s many psychological experiments done on this.

    All of them presuppose praxeology. Action in designing the experiments. Using scarce means to test one’s theory. Outcome either confirming or falsifying a theory, and acquiring knowledge because of it. These psychological experiments are utilizing the very logical concepts you deny exist.

    Also, Taleb talks about this in his books. He talks about how we are not wired to live in a “Extremistan” world. He talks about how we’re not logically structured because we get Fooled by Randomness.

    Then how is he able to not be fooled? How is he able to know he is being fooled, if he wasn’t certain about his being fooled, which means he can’t be fooled about being fooled?

    That’s the essence of his book; that’s its main point. It seems to me like you haven’t even read Taleb or Mandelbrot and claim they’re against the use of math in economics.

    I never said they are against using math in economics. I said their arguments support my position, and cast doubt on yours.

    They argue against the predictive power of mathematics in the way it’s used.

    The ONLY way it can be used.

    Almost all of Taleb’s papers use mathematics extensively. I suggest you read them before talking about them.

    I have. I suggest that you read Austrian economics before you talk about it. It is obvious you have not read a single Austrian text on method.

  85. Gravatar of Major_Freedom Major_Freedom
    22. November 2012 at 14:11

    Suvy:

    A Note On Mathematical Economics

    For a realization that mathematical logic is essentially subordinate to the verbal, see Vocabulaire Technique et Critique de la Philosophie, pgs 574, 579. Hope you can read French.

  86. Gravatar of Suvy Suvy
    22. November 2012 at 15:43

    “The ONLY way it can be used.”

    THAT IS COMPLETELY FALSE. It’s much easier and much more feasible to measure sensitivity to rare events than to predict. There’s actually a branch of mathematics for it called sensitivity analysis.
    http://en.wikipedia.org/wiki/Sensitivity_analysis

    “You just contradicted yourself. In order to even make your argument, you are implementing logic. Telling me “that’s NOT true” presupposes logic of non-contradiction. It is not true, instead of true. It cannot be both true and false. Telling me that we’re not logically structured, is a logically structured argument.”

    I’m making logically structured arguments, yes. However, humans are not logically structured. We actually have a very poor understanding of living in “fat-tailed” world. To say that I do everything logically is just wrong. I’m not logical when it comes to things like friends, family, etc.; I’m emotional.

    “Then how is he able to not be fooled? How is he able to know he is being fooled, if he wasn’t certain about his being fooled, which means he can’t be fooled about being fooled?”

    He actually dedicates several chapters to this in his book; he is fooled. He just understands that he can be fooled. He even gives many examples of this. You should read his work before you tell me about it.

    “I never said they are against using math in economics. I said their arguments support my position, and cast doubt on yours.”

    They don’t cast a doubt on my position at all. In fact, my position is almost the exact same as theirs; I’m being dead serious on this. My position on this issue actually came from reading their work and theories extensively. Their arguments completely changed the way that I viewed the world.

    Here’s a quote by Taleb on this point.
    “Tragically, before the proliferation of empirically blind idiot savants, interesting work had been begun by true thinkers, the likes of J. M. Keynes, Friedrich Hayek, and the great Benoit Mandelbrot.”

    I actually agree that mathematics in economics shouldn’t really be used the way it is. It should be used for measurement. It should be used to understand the qualitative behavior of the system. Ironically enough, I don’t think mathematics should be used for prediction in the way that it is. Mathematics is best used for sensitivity analysis. Monte Carlo simulation should be used much more often than it. Chaos Theory and Nonlinear Dynamics should be used much more. Traditional statistical methods should be used much less since they fail when dealing with rare events.

    “I have. I suggest that you read Austrian economics before you talk about it. It is obvious you have not read a single Austrian text on method.”

    You haven’t even read his Fooled by Randomness. As for Austrian works, the first book I read in economics was The Road to Serfdom. I read some other papers and got really turned off because they seemed too ideological and these people didn’t seem practical. I tried to read Rothbard’s A Monetary History of the United States and I just couldn’t make myself do it.

    By the way, I actually am a libertarian. I just don’t want to read about politics and beliefs when dealing with a science.

    As for the article you posted, there’s one thing I disagree with.
    “Economics, on the other hand, starts from an axiom that is known and meaningful to us — human action.”

    Again, I actually agree the most with the Post-Keynesian approach to economics. It seems to me that the Post-Keynesian approach is closest to what Keynes actually argued that economics should be about. I don’t agree with the neoclassical approach to economics at all.

  87. Gravatar of Suvy Suvy
    23. November 2012 at 15:49

    Just a note.

    I misspoke earlier when I said Rothbard’s A Monetary History of the United States

    I meant his book A History of Money and Banking in the United States.

  88. Gravatar of Major_Freedom Major_Freedom
    25. November 2012 at 14:10

    Suvy:

    They argue against the predictive power of mathematics in the way it’s used.

    “The ONLY way it can be used.”

    THAT IS COMPLETELY FALSE.

    NO IT IS COMPLETELY 100% TRUE.

    It’s much easier and much more feasible to measure sensitivity to rare events than to predict.

    That doesn’t imply use of mathematical models.

    There’s actually a branch of mathematics for it called sensitivity analysis.

    Irrelevant.

    “You just contradicted yourself. In order to even make your argument, you are implementing logic. Telling me “that’s NOT true” presupposes logic of non-contradiction. It is not true, instead of true. It cannot be both true and false. Telling me that we’re not logically structured, is a logically structured argument.”

    I’m making logically structured arguments, yes. However, humans are not logically structured.

    If you’re making a logically structured argument, because your mind is necessarily only able to think in terms of logic (non-contradiction, identity, excluded middle, etc), then you are logically structured.

    We actually have a very poor understanding of living in “fat-tailed” world.

    It is not necessary to my argument that we understand everything about the world, including what we perceive to be statistically or probabilistically unlikely events. Even that presupposes logical structure.

    To say that I do everything logically is just wrong.

    It’s clear you don’t understand what logic means. It doesn’t mean you are homo economicus, perfectly weighing all alternatives and doing mathematical calculations to calculate every decision you make, such as where to aim in the toilet, or what friends to make. The logical structure I am referring to is NOT what you seem to assume it is, which is a machine-like, robotic-like calculation machine.

    I’m not logical when it comes to things like friends, family, etc.; I’m emotional.

    You are logical there because you understand your friends according to the basic laws of thought. If you are emotionally attached to someone, you have an understanding of who they are. They are kind, nice, generous, funny, whatever, and these understandings are constrained by the laws of thought. If you understand one of your friends as generous, then you necessarily understand them to be not not generous, and so on. A friend cannot be both A and non-A. If they are A, then you logically understand them to be not non-A.

    “Then how is he able to not be fooled? How is he able to know he is being fooled, if he wasn’t certain about his being fooled, which means he can’t be fooled about being fooled?”

    He actually dedicates several chapters to this in his book; he is fooled.

    How do I know he’s not fooled about being fooled?

    He just understands that he can be fooled. He even gives many examples of this. You should read his work before you tell me about it.

    I have read his work. You just have a different understanding (misunderstanding actually) of his work, and you assume that because I have a different understanding than you, I must not have read his work.

    His examples of being fooled presupposes he understands what it is to not be fooled in those particular scenarios. One cannot claim that one can be fooled in X, unless one also understands how not to be fooled in X.

    “I never said they are against using math in economics. I said their arguments support my position, and cast doubt on yours.”

    They don’t cast a doubt on my position at all.

    They do very much, because they are showing you that mathematical models are necessarily unable to describe human action. They show all heretofore models are flawed.

    My position on this issue actually came from reading their work and theories extensively. Their arguments completely changed the way that I viewed the world.

    Then you haven’t understood what they wrote.

    I actually agree that mathematics in economics shouldn’t really be used the way it is. It should be used for measurement.

    Measurement is necessarily historical. Historical economic information is unique. The data of economic history is determined by people’s knowledge and preferences at the time the actions are made. Humans learn and because of that, history does not tell us what humans are necessarily constrained to do in the future, and there are certainly no constants that are revealed by history that determine future actions.

    It should be used to understand the qualitative behavior of the system. Ironically enough, I don’t think mathematics should be used for prediction in the way that it is. Mathematics is best used for sensitivity analysis. Monte Carlo simulation should be used much more often than it.

    Monte Carlo simulations predict outcome distribution probabilities which give the researcher the very false sense of certainty that Taleb warns against. Now you’re telling me they should be used more. And you claim to understand Taleb’s main lesson?

    Chaos Theory and Nonlinear Dynamics should be used much more. Traditional statistical methods should be used much less since they fail when dealing with rare events.

    So do Monte Carlo simulations.

    “I have. I suggest that you read Austrian economics before you talk about it. It is obvious you have not read a single Austrian text on method.”

    You haven’t even read his Fooled by Randomness.

    Yes, I have read Fooled by Randomness. You haven’t read Austrian works.

    As for Austrian works, the first book I read in economics was The Road to Serfdom. I read some other papers and got really turned off because they seemed too ideological and these people didn’t seem practical. I tried to read Rothbard’s A Monetary History of the United States and I just couldn’t make myself do it.

    So you haven’t read Austrian methodology.

    By the way, I actually am a libertarian. I just don’t want to read about politics and beliefs when dealing with a science.

    Austrianism is wertfrei. You don’t need to introduce politics. Economics is an a priori science akin to mathematics (not mathematics). It is not an empirical science.

    As for the article you posted, there’s one thing I disagree with.

    “Economics, on the other hand, starts from an axiom that is known and meaningful to us — human action.”

    Why?

    Again, I actually agree the most with the Post-Keynesian approach to economics.

    Post Keynesianism is chock full of economic contradictions.

  89. Gravatar of Suvy Suvy
    27. November 2012 at 07:38

    “That doesn’t imply use of mathematical models.”

    You have to understand that mathematical models work in certain situations. They break down in certain areas so we can measure how they break down and stay convex to their breakdowns. That way, you don’t need to use math to predict the future.

    “If you’re making a logically structured argument, because your mind is necessarily only able to think in terms of logic (non-contradiction, identity, excluded middle, etc), then you are logically structured.”

    “Mandelbrot was a mathematician more closely related to my position, because of his work on chaos and fractals.”

    I’ve read almost every single paper of Mandelbrot’s work. I still have his books (and his textbook) on my nightstand. I actually make a lot of references to a lot of his works on this blog to support my points. My points are almost the exact same as his on almost every single position. I literally copied his positions because I was so compelled by his work.

    “Monte Carlo simulations predict outcome distribution probabilities which give the researcher the very false sense of certainty that Taleb warns against. Now you’re telling me they should be used more. And you claim to understand Taleb’s main lesson?”

    The use of math isn’t just for prediction, it’s for the qualitative observation of a system. Monte Carlo simulations are very good for this. Not only that, but they are an extremely robust tool that can be used very well for analyzing data. For example, a non-parametric bootstrap is a very useful tool to measure data that is much more robust than other typical statistical tools.

    “Austrianism is wertfrei. You don’t need to introduce politics. Economics is an a priori science akin to mathematics (not mathematics). It is not an empirical science.”

    Economics is not akin to mathematics. Starting with a priori assumptions and deducing from them gives very limited results.

    “Measurement is necessarily historical. Historical economic information is unique. The data of economic history is determined by people’s knowledge and preferences at the time the actions are made. Humans learn and because of that, history does not tell us what humans are necessarily constrained to do in the future, and there are certainly no constants that are revealed by history that determine future actions.”

    Not true, take a look at the Taleb paper I posted above on bank stress tests. He advocates using the mathematical model and then testing the model against areas where it fails and staying convex to the model’s failure. Measuring where the model fails is not a measurement of history; it’s a measure of the limitations of the model.

    “They do very much, because they are showing you that mathematical models are necessarily unable to describe human action. They show all heretofore models are flawed.”

    Not true. Just because mathematical models can’t be used to describe human action in a deterministic way doesn’t mean that they’re useless.

    “Why?”

    I already said why. Human action is a small part of the economy; there are many, many other factors in the economy as well.

    “How do I know he’s not fooled about being fooled?”

    Read the story about Nero Tulip and John the high yield trader. Read the part where he talks about George Soros. There are other parts where he talks about it in the book.

    “They do very much, because they are showing you that mathematical models are necessarily unable to describe human action. They show all heretofore models are flawed.”

    When did I say models aren’t flawed? You’re putting words in my mouth. Just because models are flawed doesn’t mean they’re useless. There’s a very important distinction here.

    I never said that we should only listen to models. I said that models are a tool in the toolkit. They do fail and we have to stay convex to the areas that they fail.

  90. Gravatar of Major_Freedom Major_Freedom
    27. November 2012 at 08:33

    Suvy:

    “That doesn’t imply use of mathematical models.”

    You have to understand that mathematical models work in certain situations. They break down in certain areas so we can measure how they break down and stay convex to their breakdowns. That way, you don’t need to use math to predict the future.

    Mathematical models do not work in economics because they necessarily presume constancy in a field of inquiry that is not grounded on constants. Knowledge and actions are not able to be regarded as past causally determined on the basis of constants.

    “If you’re making a logically structured argument, because your mind is necessarily only able to think in terms of logic (non-contradiction, identity, excluded middle, etc), then you are logically structured.”

    “Mandelbrot was a mathematician more closely related to my position, because of his work on chaos and fractals.”

    I’ve read almost every single paper of Mandelbrot’s work. I still have his books (and his textbook) on my nightstand. I actually make a lot of references to a lot of his works on this blog to support my points. My points are almost the exact same as his on almost every single position. I literally copied his positions because I was so compelled by his work.

    Unfortunately, you are fallaciously imposing mathematical concepts onto economics where they don’t apply, such as constancy in mathematical equations.

    “Monte Carlo simulations predict outcome distribution probabilities which give the researcher the very false sense of certainty that Taleb warns against. Now you’re telling me they should be used more. And you claim to understand Taleb’s main lesson?”

    The use of math isn’t just for prediction, it’s for the qualitative observation of a system.

    My argument is that observations in economics are necessarily historical. Mathematical modelling in predictions, if they utilize constants, is unwarranted. The constant used in the MBS pricing model for example blew up in the faces of those who utilized it.

    Monte Carlo simulations are very good for this. Not only that, but they are an extremely robust tool that can be used very well for analyzing data. For example, a non-parametric bootstrap is a very useful tool to measure data that is much more robust than other typical statistical tools.

    Not if the phenomena is not constant. Bootstrapping is good for phenomena in which the probabilities are presumed as constant over time.

    “Austrianism is wertfrei. You don’t need to introduce politics. Economics is an a priori science akin to mathematics (not mathematics). It is not an empirical science.”

    Economics is not akin to mathematics. Starting with a priori assumptions and deducing from them gives very limited results.

    Austrian economics is akin to mathematics in the sense that it is a priori. And nobody claimed the a priori propositions and deductions were not “limited.” Yes, it is limited, but all particular sciences are limited.

    “Measurement is necessarily historical. Historical economic information is unique. The data of economic history is determined by people’s knowledge and preferences at the time the actions are made. Humans learn and because of that, history does not tell us what humans are necessarily constrained to do in the future, and there are certainly no constants that are revealed by history that determine future actions.”

    Not true, take a look at the Taleb paper I posted above on bank stress tests. He advocates using the mathematical model and then testing the model against areas where it fails and staying convex to the model’s failure.

    Not a rebuttal. Stress tests depend on facts that are held as constant. And the stress tests are constrained by the logical categories of action anyway.

    Measuring where the model fails is not a measurement of history; it’s a measure of the limitations of the model.

    A model that utilizes actual empirical values such as bank assets.

    “They do very much, because they are showing you that mathematical models are necessarily unable to describe human action. They show all heretofore models are flawed.”

    Not true. Just because mathematical models can’t be used to describe human action in a deterministic way doesn’t mean that they’re useless.

    This is also not a rebuttal to what I said. I said mathematical models are flawed if they presume constancy and if they are used in economics. Economic history is not economics.

    “Why?”

    I already said why. Human action is a small part of the economy; there are many, many other factors in the economy as well.

    Everything that is economic is grounded in human action. Every natural phenomena, if it is going to be relevant to economics, is related to action.

    “How do I know he’s not fooled about being fooled?”

    Read the story about Nero Tulip and John the high yield trader. Read the part where he talks about George Soros. There are other parts where he talks about it in the book.

    Not a response. I am asking you how do I know he isn’t being fooled concerning THOSE VERY arguments.

    “They do very much, because they are showing you that mathematical models are necessarily unable to describe human action. They show all heretofore models are flawed.”

    When did I say models aren’t flawed?

    When did I say you said they are not flawed?

    You’re putting words in my mouth. Just because models are flawed doesn’t mean they’re useless. There’s a very important distinction here.

    Just because a model is useful for economic history, it doesn’t mean it is useful for economic science.

    I never said that we should only listen to models. I said that models are a tool in the toolkit. They do fail and we have to stay convex to the areas that they fail.

    A tool for history only.

  91. Gravatar of Saturos Saturos
    27. November 2012 at 09:06

    Suvy, are you actually planning on doing this with MF?

    … I wish you luck.

  92. Gravatar of Doug M Doug M
    27. November 2012 at 09:54

    Taleb on mathematical economics…

    What has gone with the development of economics as a science? Answer: There was a bunch of intelligent people who felt compelled to use mathematics just to tell themselves that they were rigorous in their thinking, that theirs was a science. Someone in a great rush decided to introduce mathematical modeling techniques (culprits: Leon Walras, Gerard Debreu, Paul Samuelson) without considering the fact that either the class of mathematics they were using was too restrictive for the class of problems they were dealing with, or that perhaps they should be aware that the precision of the language of mathematics could lead people to believe that they had solutions when in fact they had none. . . . Indeed the mathematics they dealt with did not work in the real world, possibly because we needed richer classes of processes — and they refused to accept the fact that no mathematics at all was probably better.
    – Fooled by Randomness

    He is not talking about mathmatical logic; he is talking about mathematical models. He is talking about MV=QP and Y=C+I+G+X-M and econometrics. His particular bete-noir is VaR, Monte Carlo Simulation of returns of a portfolio of assets.

  93. Gravatar of Major_Freedom Major_Freedom
    28. November 2012 at 07:02

    Doug M:

    Looks like you, contrary to Suvy, actually read Taleb’s work.

  94. Gravatar of Fed Up Fed Up
    17. January 2014 at 15:16

    Too bad I lost track of this post. Attempt to fix that.

    zyxzyxooxmi

Leave a Reply