Sometimes it’s just a mistake
Why did the US government develop all sorts of policies, regulations, tax breaks, etc, which tended to subsidize the real estate industry? Most smart people respond “special interest politics.” OK, so why does Washington keep pressing China to raise its exchange rate, and why did they press Japan in earlier decades? After all, even Paul Krugman admits that a weak yuan doesn’t hurt the US unless we are at the zero bound. And yet this sort of mercantilism has been official US policy for decades. Smart people will tell you that it’s special interest politics—the political influence of the US manufacturing lobby.
But there’s a conflict here. The same US policies that boosted the housing industry, also tended to enlarge our current account deficit—hurting manufacturers. So which is it? Does the US government want a big CA deficit, or not? My theory is that this question doesn’t have an answer, because governments don’t have brains. They don’t have preferences or opinions. They are stupid. Yes, there is someone nominally in charge, but does anyone think Bush or Obama keeps track of all these indirect effects? Just thinking about it makes one realize the preposterous nature of many “special interest” explanations for policy failure.
Some commenters tell me that it’s obvious why the BOJ has a tight money policy. It pushes nominal interest rates to zero, which keeps borrowers like the Japanese government afloat. Others tell me that it’s obvious that the Japanese policy of deflation favors the lenders, the old people who have saved a lot. So which is it? And why aren’t we talking about real interest rates?
Some people tell me that the Fed policy of 2009-10 had the effect of steepening the yield curve, allowing the banks to make money by borrowing short and lending long. Others tell me that Operation Twist, which flattened the yield curve, tends to boost the value of T-securities held by banks. Some people tell me that the Fed’s tight money policy is all a plot to help the “rentiers” who live by clipping coupons. But when the government does QE I’m told that it’s a right-wing plot to help fat cats by boosting the price of securities.
All this seems silly to me. It’s not a zero-sum game, as rich people hold both stocks and bonds. I’m almost certain that the Fed’s (post-2008) tight money policy has hurt low income people, middle income people, and rich people. It’s hurt wealthy people who hold of stocks, and it’s reduced the real interest rate on T-securities. It’s forcing states to reduce benefits to public employees, and it’s depressing the value of 401k retirement accounts for people like me. It’s hurt the job prospects of many low-skilled workers. It’s depressed the value of people’s homes, and their businesses. It’s depressed the stock prices of the big banks.
Given that academic economists clearly don’t have a clue as to what went wrong, why is it such a stretch that government policymakers might be similarly confused. Are they really that much smarter than academic economists?
Also note that these nefarious special interest groups only seem to come out of the woodwork when rates hit the zero bound. Thus they didn’t take control of Australian monetary policy in 2008. And I’d add that monetary policy didn’t seem to change when Obama took office, so these mysterious special interest groups presumably control both our political parties.
Or maybe it’s all just a terrible mistake.
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23. May 2012 at 05:42
I think special interest explanations have tremendous power. I think special interests drive real estate subsidies, and I think that special interests drive trade protection. If the lobbyists for manufacturers thought that cutting out real estate subsidies would help their exports (or reducing competition from imports) then they would lobby for it. Maybe they don’t know. Or maybe they think it is easier to get quotas imposed or export subsidies. Hey, maybe they even are smart and know that an existing trade deficit provides a good “public interest” cover for their arguments.
As for monetary policy, I think special interests do play key roles. And when there are conflicts, then the result is heavily influenced by the net effect.
Only when there is a special interest with no offsetting special interest, and just the “general interest” does the special interest approach say that the general interest is ignored.
And, come to think about it, nominal GDP targeting is in the general interest. It isn’t that people are against it, it is rather they just focus on their special interests, and ignore it.
23. May 2012 at 06:04
I don’t think yours is an alternative explanation to special interests as such, but rather a description of what loads and loads of special interest group decisions generate in aggregate: stupidity. Each individual interest group decision makes sense (for that group). But in aggregate, everyone loses, including the special interests (even they are also members of the public). I guess its back to Bastiat:
“Government is the great fiction through which everybody endeavors to live at the expense of everybody else.”
23. May 2012 at 06:10
Scott: I Agree with bill on this. If you have a look at the current macro policy it is hard to see a very bleach picture emerging. There is strong opposition against increased inflation (even if it comes in short-term form as it is with NGDP targeting), there is strong opposition against higher expected path of taxes (fiscal stimulus). But there is only mild opposition against using fiscal policy for bailing out “too big to fail” institutions. I can’t help myself but this seems pretty one-sided for me.
While I completely agree that long-term there is common interest to have mutually beneficial arrangements between various seemingly opposed groups such as creditors and debtors. But development of such institutions can be completely blocked by shortsightedness of one party especially if individuals consisting it may be harmed immediately. I am sure that people holding government bonds do not wish inflation to rise – it is clear loss for them immediately.
Bill: I would just add that it is also special interests that drive market deregulation, open trade policies and other things. I have read my share of Douglas North who has pretty convincing and very believable explanations on how institutions evolve.
23. May 2012 at 06:33
Ok, Scott this is the tone you need to affect:
http://www.youtube.com/watch?v=eMzj0Bqj9AI&feature=related
Forget “maybe govt. is dunb.”
Open with “prison state” – less govt. is a good END in and of itself.
23. May 2012 at 06:35
“Given that academic economists clearly don’t have a clue as to what went wrong, why is it such a stretch that government policymakers might be similarly confused. Are they really that much smarter than academic economists?”
You seem to assume here is that those “special interests” are smarter than the parties listed above, as well as everyone else, What makes you think that those special interests are better than everyone else in identifying which particular policy action will best serve to further those interests?
Also, if Special Interest A is willing to donate X$ to your campaign in return for pursuing what ostensibly is in the special interest of A, and Special Interest B is also willing to donate X$ to pursue a different policy that has secondary or even primary effects contrary to A’s interest, would not the rational self-serving course of action be to pocket both? From this perspective, those government types end up looking pretty smart. Your comment seems to assume that government officials always act in the general interest rather than their own and that because the different policy actions they undertake tend to counteract each other, they must be stupid. Nothing is further from the truth.
As far as controlling both parties, just take a cursory look at the campaign contributions of banks or hedge funds. They contribute heavily to both parties (Obama was heavily favored in the last election cycle by hedge funds). The only special interests that consistently contribute only to one of the parties are the unions.
23. May 2012 at 06:45
Bill and JV, You both missed the point of my post (probably my fault.) Obviously special interests play a role in policy-making. I’m claiming that we can’t always understand policy by looking at who’s helped and who’s hurt. The pressure for a stronger yuan hurts US real estate, but I doubt they know that.
Nick, You are closer, but still not there. Let’s take a specific hypothesis:
“In 2006 the Fed was pumping up the real estate boom with easy money, because real estate is a powerful special interest group and they dominate Fed decision-making. Then in 2008 an even more powerful special interest came along, John Paulson. He shorted the real estate industry and got the Fed to crush housing with a very tight money policy.”
I agree that what I put in quotes is a logical explanation of the crisis. But in terms of plausibility it doesn’t even pass the laugh test. My claim is that lots of what happens can be explained by special interest groups being STUPID. I’m quite sure that there are very powerful special interest groups that were badly hurt by the Fed’s tight money policy of 2008-09. So why didn’t they stop the policy? Because they saw that interest rates were low and hence (wrongly) thought that money was already easy. In other words they were STUPID.
I never meant to deny that interest groups play a role in policy, I don’t doubt that protectionism is often a response to special interests, for instance. But “sometimes it is just a mistake.” The post didn’t say it is always a mistake.
23. May 2012 at 06:51
Vivian, You said;
“You seem to assume here is that those “special interests” are smarter than the parties listed above, as well as everyone else, What makes you think that those special interests are better than everyone else in identifying which particular policy action will best serve to further those interests?”
Actually, I’m claiming the exact opposite, read it again.
You said;
“Your comment seems to assume that government officials always act in the general interest rather than their own and that because the different policy actions they undertake tend to counteract each other, they must be stupid. Nothing is further from the truth.”
I say what I mean. I didn’t say what you claim I said, and hence I didn’t mean what you claim I meant. Please read my post again. Or to save time just re-read the title of the post. You’ll see the word “sometimes” but not the word “always.”
You said;
“As far as controlling both parties, just take a cursory look at the campaign contributions of banks or hedge funds.”
And precisely how did the catastrophic Fed policy of 2008 help hedge funds and banks?
23. May 2012 at 07:02
Only when there is a special interest with no offsetting special interest, and just the “general interest” does the special interest approach say that the general interest is ignored.
In government there are always special interests and only special interests because it government is based on coercion, not consent. There is no such thing as the general interest in coercion. The general interest is just a secularization of religious interest. Whatever it is, it isn’t my interest.
And, come to think about it, nominal GDP targeting is in the general interest.
NGDP targeting is in the special interests of the initial money receivers. It is in the special interests of those who want fiat money to be imposed on other people against their will. It is in the special interests of those who want central banking.
Most special interests tend to ignore/reject the special interest nature of their desires, and they also tend to defend their special interest desires by pretending that they are really general interest desires, as if they can speak for me. I did not give you permission to speak for me.
It isn’t that people are against it, it is rather they just focus on their special interests, and ignore it.
It is the precise opposite. I am against NGDP, I do not ignore it, and you are ignoring the special interest nature of NGDP targeting.
I think I know now why you always make errors in economics. It’s because you reify universal abstract concepts, pretend they have an interest, and you subjugate actual, Earthly individual interest under it, which is to say you ignore individual action as the foundation of economic science. You believe something in the spiritual world is the foundation of economic science.
23. May 2012 at 07:10
Vivian,
Scott actually thinks this is a sneaky “anti-government” argument he’s making.
Well sneaky isn’t the right word, it’s his roundabout way of saying he’s a Friedmanite.
Which of course is the problem… Scott is HORRIBLE on the attack, the idea that his opposition might actually feel threatened by what he’s saying, bothers him.
It means that he’ll never directly make them feel as though their personal interests are under attack.
I suspect, he’ll grow more bold when he sees that NGDPLT only stands a chance for adoption when conservatives are in power.
Scott, no one, save MF should ever be confused that you want small govt. It doesn’t help your cause, no matter how much you think it might.
23. May 2012 at 07:13
ssumner:
And precisely how did the catastrophic Fed policy of 2008 help hedge funds and banks?
You mean the cumulative $8 trillion loan program from the Fed that bailed out the special interest group banks and prevented them from going bankrupt? You mean THAT “catastrophic Fed policy”?
In case you have not been paying attention, the biggest 5 banks have gotten BIGGER between pre- and post-2008. Before the crisis, the banks owned assets roughly 43% of GDP. After the crisis, they ended up owning assets totalling 56% GDP.
If a collapsing NGDP lays waste to main street, and the special interest banks are getting bailed out by the Fed, can’t you see how that will enable the bailed out banks to accumulate assets on the cheap, and, as what occurred, end up with even more wealth than they did before?
Vivian is right. You are ignoring the special interest nature of bankers.
23. May 2012 at 07:20
Morgan:
I do not deny Sumner’s desire for small government. For all I know that’s what he really wants. My point is that it is actually irrelevant. What matters is whether NDGP targeting does in fact curb growth of government. As I have shown you many times, but you have not yet addressed it, history has shown that even with de facto, repeat de facto, NGDP targeting, the size of government has grown.
Take a look at government spending as a percentage of GDP from 1913 to today, and look at the de facto NGDP growth rates. Look at pre-2008 trend of NGDP, and see that it is roughly 5%, and you will see growth in government anyway.
A cap on growth in aggregate spending does not mean government spending cannot keep growing under it. It can. The issue is not aggregate spending, it is philosophical in nature.
If government hasn’t stopped growing with de facto NGDP targeting, what makes you believe it will stop growing in the future? I know: FAITH.
23. May 2012 at 07:33
Bill Woolsey raises a good point (as he often does) –
“And, come to think about it, nominal GDP targeting is in the general interest.”
I think the “general interest” does have a voice in the sense that a lot of people vote based on a general feeling of how the country is doing. Each major party has a large base, but the victory seems to be decided mostly by that feeling. It’s not something they calculate from economic statistics. No one says “NDGP is on the correct path,” but people do say “the economy is good.” I suspect that most of the time that people were saying the latter, it was caused by the former.
Hoover and Carter both got beat in landslides. FDR and Reagan both won every state (counting DC) but two. No one explained their vote by saying “FDR ended that awful NGDP drop under Hoover” or “Reagan brought the NGDP growth rate down from the Carter years”, but that was the underlying cause.
That’s why I’ve argued that if Obama had filled the Fed seats in 2009 with NGDPLT’ers (Sumner and Romer?) he’d have an approval rating in the 60’s by now – well on his way to a landslide reelection. And almost no one would cite NGDP as the reason.
23. May 2012 at 07:36
i think you guys are missing the point: you are correct that ngdp targeting per se does not curb government. however voters will not tolerate do-nothing liquidationist politicians for very long. eventually as i keep saying, they fear unemployment more than big government.
the strongest argument is *proof* “see, the private sector can create jobs while we are cutting government. see we do not need fiscal stabilizers, see we can have a balance budget amendment.” then people will elect politicians willing to cut the pork.
otherwise you get the same as always: a House KY republican who puts an earmark in the budget to help his district.
discipline only last as long as voters tolerance.
http://www.bloomberg.com/news/2012-05-22/history-shows-u-s-can-stimulate-now-cut-later.html
23. May 2012 at 07:40
Scott, I don’t think that regulatory capture implies that the President is the one being captured. Though I guess I largely agree with you, because many “special interest” explanations for policy failure are dumb. Voters (and politicians, and even some “experts”) like many of the dumb policies that we have. Farm subsidies are popular. Excessively tight money is popular.
23. May 2012 at 07:54
Scott,
This is in response to your reply to my comment that you made at 0645.
Don’t take it so personally when I question the logic of some of the things you write. I’m actually trying my best to give your arguments on monetary policy (and other stuff) a fair reading. It is because I think you might have something valuable to say. You can take that as a compliment.
When I occasionally respond to your columns it is usually to point out some of the things I view as inconsistent or, dare I say, wrong. I see little point in chiming in every time I agree with what you write by saying, “Yes, Scott, I agree”. I doubt anyone cares.
That said, I don’t get the impression you accept critical remarks very well and sometimes I get the impression that you are being evasive and even snarky when you reply to legitimate criticism (I can point to the last comment I made here on the issue of whether there was a $1 billion “subsidy” with respect to the proposed Ex-Im Bank loans. Perhaps I, too, am thin skinned, but I viewed your response to that in the form of an Update as less than gracious–and your original post was clearly wrong on that score). It’s tough to admit error Scott and I make my share of them; however, the manner in which you do (or don’t) admit them matters to me as to whether I can take you seriously. Perhaps it doesn’t matter to you what I think and, if so, that’s fair enough.
Yes, I gave your column very careful reading (twice). And, now, a third time.
“Actually, I’m claiming the exact opposite, read it again.”
Perhaps that is what you thought your wrote, or perhaps it is what you now want us to think you wrote, but it is *not* what you wrote. You’ve placed the blame for inconsistent policy solely on the shoulders of academic economists and government—nary a word about those special interests. The sole message is that they are, presumably, not calling the shots. If what you were claiming was written in that column, it was very deeply between the lines.
“I say what I mean. I didn’t say what you claim I said, and hence I didn’t mean what you claim I meant. Please read my post again. Or to save time just re-read the title of the post. You’ll see the word “sometimes” but not the word “always.”
Scott, I think this is placing too much emphasis on my use of the word “always” (made in a different context and sense). You actually did write in the headline that “Sometimes it’s just a mistake”. But, you do seem to be talking about something different than I am. I did not write that “you seem to assume that government *always* makes mistakes”. And, when you wrote about those mistakes that do happen, it did not appear to me that you were referring to government officials responding, in a self-serving fashion to “special interests”. It appears to me (correct me if I’m wrong) that by “mistakes” you are referring to muddled policy making and not responsiveness to special interests. *That* is why I wrote you “seem to be assuming government always acts in the general interest” (nota bene, here Scott, the phrase “seems to be” which was intended to be rather gentle and to open up the possiblility that Ole Viv just might be wrong).
“And precisely how did the catastrophic Fed policy of 2008 help hedge funds and banks?”
Scott, your reply is not responsive to the original comment—whether government is controlled by special interests. If the Fed Policy of 2008 did not help hedge funds or banks (debatable point) it could be precisely because those hedge funds and banks are not very good at lobbying for policy that is in their best interests. Perhaps that is because their own economists are not any smarter than the academic economists or government officials at judging second order effects of policy.
23. May 2012 at 08:00
… and the enormous amount of uncertainty going forward. I think there is a lot of room to disagree on what the right policy, and what to do in the face of uncertainty.
that’s why we need a policy that performs well under uncertainty and does not rely on central bank perfection, ie. gives the Fed room to make errors without diminishing credibility.
keep up the excellent blogging though, i am starting to see very sophisticated comments from laypeople on economics, expectations, and the Fed so you are making a dent.
🙂
23. May 2012 at 08:09
For real estate, I don’t think you need special interests, or at least not as we tend to think of them. We subsidize home ownership because lots of people either own a home or want to own a home. Thus it’s a politically popular thing to do.
Obviously, a special interest that’s pushing for something that is politically popular anyway is also going to be more effective in pushing for the subsidies to be shaped the way they want, but their influence doesn’t seem to be the main problem.
23. May 2012 at 08:25
Let’s try this – regulatory capture. I’m not alleging any grand conspiracy theory. With a few exceptions, there was no attempt to conceal anything and not much conspiring is needed if the players are all of like mind. A group of foxes guarding the hen house have no need to conspire against the chickens.
The following is a bit long. I’ve cut out all I could, but the cast of characters is large. All the below are quotes, and any characterizations are not mine:
“The Times points out that Goldman alums include:
Former treasury secretary Hank Paulson
Paulson’s bailout chief Neel Kashkari
Interim Treasury investment officer Reuben Jeffrey
Key Treasury players Dan Jester, Steve Shafran, Edward C. Forst, and Robert K. Steel
Key New York Federal Reserve players Stephen Friedman (head of the New York Fed board of governors, who sat on Goldman’s board and owned a substantial stake in Goldman while he was making official decisions – and see this), William C. Dudley (head of the New York Fed’s unit that buys and sells government securities), and E. Gerald Corrigan (charged with convening a group to analyze risk on Wall Street)”
“Time magazine notes:
Among the biggest beneficiaries of the AIG pass-through, at $12.9 billion, was Goldman Sachs, the investment-banking house that has been the single largest supplier of financial talent to the government. Critics have been quick to note “” and not favorably “” the almost uncanny influence of former Goldman executives. Initial phases of the rescue were orchestrated by ex-Goldman chairman Hank Paulson, who was recruited as Treasury Secretary in part by former White House chief of staff and Goldman senior exec Josh Bolten. Goldman’s current boss, Lloyd Blankfein, was invited to participate in meetings with the Fed. AIG’s Liddy is a former Goldman director and an ex-CEO of Allstate. Another alum, Mark Patterson, once a Goldman lobbyist, serves as chief of staff at the Treasury, while Neel Kashkari, who runs TARP, was a Goldman vice president.
Goldman has repeatedly declared that its exposure to AIG was “immaterial” and fully hedged. But some rivals point to the fact that Goldman had uncharacteristically piled into contracts with a single counterparty. “I am shocked that Goldman had this much exposure [with AIG],” says an analyst at a competing bank. “This was a major failing, but they got bailed.”
Goldman got bailed twice: first on its CDS exposure and a second time, to the tune of $4.8 billion, for another AIG fiasco, losses on its securities-lending business.
Indeed, Goldman’s current CEO, Lloyd C. Blankfein, apparently participated in several of the important meetings determining which companies the government would save and which would fail.”
“Edward Gerald Corrigan (born in Waterbury, Connecticut, on June 13, 1941) is an American banker who was the 7th President of the Federal Reserve Bank of New York and Vice-Chairman of the Federal Open Market Committee.[1] Corrigan is currently a partner and managing director in the Office of the Chairman at Goldman Sachs and was appointed chairman of GS Bank USA, the bank holding company of Goldman Sachs, in September 2008.[2] He is also a member of the Group of Thirty, an influential international body of leading financiers and academics.”
Robert Edward Rubin (born August 29, 1938) served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs eventually serving as a member of the Board, and Co-Chairman from 1990-1992. Mr. Rubin was succeeded on July 1, 1999, as Treasury Secretary by his deputy, Lawrence H. Summers. He joined the management committee [of Goldman] in 1980 along with fellow Democrat Jon Corzine, later a U.S. senator and governor of New Jersey. Rubin was Vice Chairman and Co-Chief Operating Officer from 1987 to 1990. From the end of 1990 to 1992, Rubin served as Co-Chairman and Co-Senior Partner along with Stephen Friedman.
Timothy Franz Geithner ( /ˈɡaɪtnər/; born August 18, 1961) is an American economist, central banker, and civil servant. He is the 75th and current United States Secretary of the Treasury, serving under President Barack Obama. He was previously the president of the Federal Reserve Bank of New York.
He was Under Secretary of the Treasury for International Affairs (1998-2001) under Treasury Secretaries Robert Rubin and Lawrence Summers.[9] Summers was his mentor,[14][15] but other sources call him a Rubin protégé.[16][17][18]
Stephen Friedman was Chairman of the New York Federal Reserve Board (which implements the Federal Reserve’s Wall Street policies) while simultaneously serving Goldman Sachs (a company impacted by the quasi Governmental policies of the Federal Reserve) as a Board Director
William C. Dudley (born 1952)[1] is the president of Federal Reserve Bank of New York and vice-chairman of the Federal Open Market Committee.
Dudley worked at Goldman Sachs from 1986 to 2007, holding the position of chief economist for ten years before he was hired by then-president of the New York Federal Reserve Timothy Geithner to oversee the department in charge of buying and selling government securities
23. May 2012 at 08:34
Vivian:
It appears to me (correct me if I’m wrong) that by “mistakes” you are referring to muddled policy making and not responsiveness to special interests. *That* is why I wrote you “seem to be assuming government always acts in the general interest”.
That’s exactly how I read it too.
I’ve read many blog posts of Sumner claiming mistakes by economists, mistakes by government, but I have not yet seen any post about policy that is in response to special interest groups.
I think I know why. Sumner, like Friedman, actually believes the Fed is an intellectual endeavor, created by intellectuals, to benefit humanity, the economy, and so on. He seems to be completely unaware of the special interest group origination, and continuing nature, of the Fed.
He observes $9 trillion cumulative loans from the Fed to major banks during the crisis, and he thinks this is an academic pursuit, rather than a special interest group driven pursuit.
He observes the Fed sending checks to primary dealers, but not him, and he views this as an academic pursuit, rather than a special interest group pursuit.
He observes the Fed buying the Treasury’s debt, rather than Sumner’s debt, or Major_Freedom’s debt, and he views this is an academic pursuit, rather than a special interest group pursuit.
I get it now. Sumner is trying to find “the academic truth” at the back of everything, rather than simply accepting the here and now, on the ground, real world selfish, Earthly desires of individuals with power. He’ll observe special interest group actions, and he’ll try to find whether or not this is an “academic mistake” for “the economy”, or an “academic correction” for “the economy”.
He views the special interest groups the way he views himself, which is why he doesn’t see it in action.
I wonder how much the executives of JP Morgan and Goldman Sachs were thinking “academically” and “for the public good” when they were engaging in back door bailouts with their lender of last resort Fed. I am sure it was all an intellectually driven pursuit. No selfish interests guiding policy. Nope.
23. May 2012 at 08:46
A hundred people sit at a table, each with a $100 in $1 bills.
A little man goes around and takes $1 from each, but then gives $50 to one of them — and the one who gets the $50 is pretty happy.
So the little man goes around again and another winner gets $50. So he goes again. And again. 100 times.
All are $50 richer but $100 poorer, and they all want to stop the stupid system — but none want to lose their $50 “gift”, first (nor in most cases, ever).
23. May 2012 at 08:58
Major Freedom,
My response to Scott was based on policy making generally, and not specifically on Federal Reserve policy. Scott’s opening paragraph refers to policy generally (tax policy, exchange rate jaw-boning, etc), but then he turns more specifically to Federal Reserve policy. There is a difference, but Scott’s presentation is not tight enough to draw the distinction. Clear communication is important, and it is not always the reader’s fault when things get misinterpreted or emphasis placed on the wrong things. One of the mistakes I see made here (and elsewhere) is that what is in the writer’s mind is frequently assumed to be transmitted to the reader by some secret channels of communication. Since I’m not on that wavelink, I tend not to pick it up unless it is clearly set out in writing. Morgan Warstler in his comment to me suggests that he is able to read Scott’s mind . Those things can happen when, for example, you are married to someone a long time, but I don’t know Scott that well. It’s a talent I wish I had.
More to the substantive issue is the fact that, while I think the Federal Reserve is influenced by “special interests” (broadly defined to include former and potential business associates whose calls will be taken, rather than plain vanilla lobbyists), they are probably not as susceptible as elected officials. They can’t take campaign contributions, but those subsequent jobs can be very lucrative and there are, of course, favors to be repaid. The distinction in this regard between the Fed Reserve and government generally is one Scott did not make, although he might now wish that he had.
23. May 2012 at 09:15
But what confusion could inspire sustained deflation? To paraphrase Hume:
“Is [the BoJ] willing to prevent [deflation], but not able? Then is he impotent. Is [the BoJ] able, but not willing? Then is he malevolent. Is he both [able and willing]? Whence then is [deflation]?”
“My theory is that this question doesn’t have an answer, because governments don’t have brains. They don’t have preferences or opinions. They are stupid.”
It’s not so much governments that don’t have brains, but democracies: http://www.cato.org/pubs/pas/pa594.pdf
23. May 2012 at 09:27
Wait a moment, under what conditions have we ever had a reduction in government? Empire collapse is about the only example I can think of.
23. May 2012 at 09:39
Scott is correct.
Real estate subsidies, tariffs and tight money are all popular. No special interest story needed. Its actually worse than that though: policies we have aren’t as extreme as the public would like (except maybe for real estate subsidies).
People don’t vote for their material self-interest because their vote doesn’t matter. Voting isn’t about policies, it’s about looking good at cocktail parties.
23. May 2012 at 09:42
Peter N –
Good points. Jamie Dimon of JP Morgan is on the Board of the NY Fed.
http://money.cnn.com/2012/05/21/news/economy/jamie-dimon-new-york-fed/
Regulatory capture is always a problem with government, but the Fed Regional Banks have board members actually appointed by the banks. I’m not aware of any other industry that has a similar privilege. Defense contractors don’t appoint people to the Joint Chiefs of Staff as far as I know.
I agree that it’s not a grand conspiracy. It is a legacy of the origin of the Fed as a private institution. FDR placed it more under government control, and later(I think the 1970’s) it started paying 95% or so of its profits to the Treasury. It’s still nominally “owned” by the banks, but in effect it’s a government institution as it should be. To me, the obvious next step is to formally nationalize it and remove all private banker seats, and pay 100% of profits to the Treasury.
23. May 2012 at 09:49
I think some of this mess was born truly from good intentions, like increasing home ownership, and people saw the opportunity to butter the bread on all sides and went for it with one law, one rule change piled on top of another, everybody adding in their little tweak here and there, over the course of several years until it gained a life of its own and no body really understood the mess that was being made.
I even think Bernanke’s mistake with inflation targeting was born of good intentions. But it shows strength of character to admit when an idea one has fallen in love with doesn’t match the reality that it was thought to produce. The more I read about his full intention to implement inflation targeting from the time he took the chairmanship at the Fed, with his papers about it down playing the risks, most of which have come to pass, the more convinced I am that he just does not have that strength of character. If he did, he would either fix the problems or resign. Resignation after the awful mess that has been created would be the better course, but the possibility of either remedy is likely remote.
I found quite a bit of information about Bernanke’s love of IT just by googleing ‘Ben Bernanke inflation targeting’. I also got some hits on how investors were preparing themselves for it as far back as 2006. They knew it could turn out rough.
23. May 2012 at 09:58
My response to Scott was based on policy making generally, and not specifically on Federal Reserve policy.
Sure, I was just adding to your point. If you make a point about policy making generally, then the Federal Reserve is implicated. I just fleshed that out.
Scott’s opening paragraph refers to policy generally (tax policy, exchange rate jaw-boning, etc), but then he turns more specifically to Federal Reserve policy. There is a difference, but Scott’s presentation is not tight enough to draw the distinction.
Well I thought it was perfectly clear. He spoke about monetary policy in the 3rd, 4th, 5th, 6th, and 7th paragraphs. To me that means the 1st paragraph about general policy making takes a back seat to Fed policy. After all, this is a monetary policy blog!
More to the substantive issue is the fact that, while I think the Federal Reserve is influenced by “special interests” (broadly defined to include former and potential business associates whose calls will be taken, rather than plain vanilla lobbyists), they are probably not as susceptible as elected officials. They can’t take campaign contributions, but those subsequent jobs can be very lucrative and there are, of course, favors to be repaid. The distinction in this regard between the Fed Reserve and government generally is one Scott did not make, although he might now wish that he had.
The problem is too many Chicago types take their history of the Fed from Friedman and Schwartz. In their rather large tome “A Monetary History”, they devoted a grand total of 11 pages to people’s names behind the creation of the Fed, and they make it appear that the creation of the Fed was just an academic pursuit designed by well intended intellectuals, to save the world from destruction and so on. They completely ignored the selfish motivations, the power struggles between those with more power vis a vis those with less power, and the special interest group nature of why both bankers and politicians would be in favor of a central bank.
23. May 2012 at 10:09
Saying that housing policy is a “special interest” issue is a bit of an odd statement. Subsidies to homeowners/lenders benefit a vast subset of likely voters. It is not like a steel mill or an agriculture subsidy. It’s a “general interest”; social engineering rather than rent-seeking. That is not to say there is not overlap, but I think this sort of situation is better explained by imperfect information than conspiracy theories (I recognize this is the line Scott was going along, sort of).
Think of it this way. The literature on bounded rationality emphasizes that people make most decisions on the basis of apparent interests; they don’t think purely logically or drill down to get the real information, they just use what information is readily available and make an intuitive decision, an educated guess.
If that is the case, we shouldn’t be surprised there is a large constituency for the home mortgage interest deduction (which -appears- to benefit homeowners, but really just raises prices), for a strong manufacturing sector (because cheaper consumer products are harder to “see” than empty factories), et cetera. I think Scott’s explanation represents a quick and dirty but essentially correct application of the economics of limited information to broad political economy questions.
I wouldn’t want to be the guy who tried to test any of it, however.
23. May 2012 at 10:12
Propagation of Ideology:
Regulatory capture is always a problem with government, but the Fed Regional Banks have board members actually appointed by the banks. I’m not aware of any other industry that has a similar privilege. Defense contractors don’t appoint people to the Joint Chiefs of Staff as far as I know.
I agree that it’s not a grand conspiracy. It is a legacy of the origin of the Fed as a private institution. FDR placed it more under government control, and later(I think the 1970’s) it started paying 95% or so of its profits to the Treasury. It’s still nominally “owned” by the banks, but in effect it’s a government institution as it should be.
The Fed started out as a government creation. It is not a private institution. It is “private” the way the old Volksworkshafts in Nazi Germany were “private.” Yes, the means of production are nominally owned by citizens and not statesmen, but they are controlled, regulated, and protected by the state. They are told what to produce, where, in what quantity, what price to sell it for, who to sell it to, etc.
With the Fed, the Congress controls the “dual mandate”. The Fed obeys Congress in this respect.
Calling the Fed “private” is highly misleading.
To me, the obvious next step is to formally nationalize it and remove all private banker seats, and pay 100% of profits to the Treasury.
So you want to turn the Fed from an economically fascist institution to an economically communist institution.
And that would make things better….how exactly?
You’d still be among the last in line to the printing press. You’d still be inflation taxed. You’d still be subjected to the business cycle. What, is it because it would give you a feeling of increased empowerment if the Fed were nationalized as you would then have input as a voter? Over 70% of the voters were against the bank bailouts, it was something voters called their Congressmen in record numbers pleading not to do it, and yet they did it anyway.
23. May 2012 at 10:14
MF
“He observes $9 trillion cumulative loans from the Fed to major banks during the crisis, and he thinks this is an academic pursuit, rather than a special interest group driven pursuit.”
Only the most partisan of partisan special interest hacks actually spew that deeply misleading “9 trillion” number, which of course makes you a massive hypocrite:
http://www.econbrowser.com/archives/2011/12/777_trillion_in.html
http://www.econbrowser.com/archives/2011/12/more_on_those_s.html
Furthermore, this is something many academics would support, and many academic economic theories would suggest loans to banks from the FED in the middle of a credit crunch, that is entirely the point of its function as lender of last resort, this is not something that merely special interest groups support, this is something many economic theories support and can be considered as a matter of academia.
23. May 2012 at 10:28
MF,
For all your posts, you have not actually proven de facto NGDPLT is what I’m talking about.
I’m talking about EXPLICIT stated outloud 4.5% NGDPLT followed with brutal precision.
Under that system:
THE MOMENT you hit 4.5%, you are at 100% of your allotted “growth.”
1. Guess what there is still unemployment.
Sorry, too bad, rates are being raised.
2. Shit China is buying more oil, inflation is going up.
Sorry too bad, up go rates again.
Suddenly government FISCAL spending will categorically be neutered.
This puts liberals in a tight spot. They now have to argue that wealth transfers are good BECAUSE the slow down growth.
Seriously, that’s what they are left with. The funny thing is that’s what they REALLY THINK.
Obama et al want wealth transfers EVEN IF the economy 10 years from now is further along in real terms.
But they can’t SELL THAT.
Meanwhile conservatives have this very vivid proveable re-occurring fact in their face… the kind that dwb wants so much…
Cutting govt. under NGDPLT is immediately rewarded with lower rates for the private sector.
MF, I CHALLENGE you to actually game out what I’m saying to prove it wrong.
Explain to me what the liberals and politicians will say at 4.5% when it is time for rates to go up and there is still 8% unemployment.
And go step by step, they say this, main street says this, banks say this, I want to see how you construct the political argument UNDER MY EXACT TERMS goes against me.
dwb, I’m willing to roll dice that Obama loses. I get the austerity = socialism argument, but I trust my country to not be France.
This has been a 30+ years long game strategy and I’m not going to give it up 6 months to finish line.
Scott doesn’t want what I say to be true, I assume he thinks it isn’t a fair fight that way.
Fights aren’t fair. Nobody said money is a Democratic good.
23. May 2012 at 10:33
Bryan Caplan has a better explanation…
23. May 2012 at 11:08
It seems to me that all the Mistake Makers are forming a special interest group aimed at Covering Up The Mistake.
23. May 2012 at 11:28
The anti-“redlining” policy idea came out of the Boston Fed, and most housing policies were created to “do good”.
Go read the speeches of Bush, Clinton, the Fannie Mae execs, Barney Frank, Chris Dodd, etc.
It’s also true that Frank, Dodd etc got cash and jobs for boyfriends directly from Countrywide and Fannie Mae, etc.
So there was also direct corruption.
23. May 2012 at 11:30
Turns out the Boston Fed research was a crock.
“Scientific” error in the name of doing good.
Not uncommon in the history of science & social science.
23. May 2012 at 11:30
Major –
I actually agree with part of your post. The Fed was created by an act of Congress. The use of the word “private” was not intended to be misleading. It’s just noting the history where banks legally “own” the shares (and appoint Board members) of the Regional Banks, and collect dividends. The government has it firmly under control, and collects almost all the dividends now. There is still no justification for any private bank to have any say at all, or derive any profit from, the issuance of the national currency.
As for the government owning the institution that issues the government currency being “economically communist”, I don’t agree. Unless the Department of Treasury (or Defense, or the Supreme Court, etc.) is also “economically communist.” But then the term is so broad as to be rendered meaningless.
23. May 2012 at 11:35
I’m still struggling to understand the fundamental point of the post.
To me the whole system is by now classic Mancur Olson. Both private and public special interest (yes, some of it dumb and short sighted) has grown up and adapted to a warren of regulation, sometimes with at least a modicum of selflessness, which almost always produces bizarre and tilted outcomes.
Some might say silly.
Not to be naive or belligerent, but why is that hard to understand as the primary cause of what we now have? Our public and private overhead is gargantuan, and most regulation ends up protecting capital instead of adaptability and the ‘little guy.’ We could go on all week about professional licenses, zoning and the behemoth fantasy world of education alone.
Forget all the rhetoric for awhile; even the big government, political, cultural and social engineers must admit over their cups that this thing is in all practicality, not working. We have NINJA mortgage robo-signers while Martha Shmuck can not sell baked muffins out of her house. The fundamental argument against big government central planning is a practical one, not a philosophical one.
Complex systems periodically renew and simplify to survive. As Tainter points out, there is no natural counter force to bureaucracy other than at least partial collapse. And with say, a good third of the professional class now a product of that warren of regulation (and therefore of little marginal value but with great special interest), any scenario analysis of western governments must make collapse the number 1 scenario over the next 50 years.
23. May 2012 at 12:03
People want to know why a handful of good, gray bankers can print trillions while they lose their houses and businesses.
The answers, of course, are not forthcoming. There is no justifying central banking. Eventually, the questions will likely reach a kind of critical mass. This has not happened yet. Wait.
23. May 2012 at 12:08
“And I’d add that monetary policy didn’t seem to change when Obama took office, so these mysterious special interest groups presumably control both our political parties.”
Only complete morons think special interest groupd DON’T control both parties. MP&FOMP(money printers and friends of money printers). Read about them sometime.
23. May 2012 at 12:13
Taking Scotts special case hypothesis…MP&FOMP do things that also benefit other special interest at times. Thus real estate brokers benefited during the upswing and Paulson benefited during hte downswing….the MP&FOMP benefited during the up and down swing….making lots of money on the up swing and eliminating the nouveu riche and competition(Bear Stearns, Lehman, goldbugs) during the downswing while using the crisis to pass legislation giving themselves even MORE power.
23. May 2012 at 13:25
Brito
“He observes $9 trillion cumulative loans from the Fed to major banks during the crisis, and he thinks this is an academic pursuit, rather than a special interest group driven pursuit.”
Only the most partisan of partisan special interest hacks actually spew that deeply misleading “9 trillion” number, which of course makes you a massive hypocrite
That’s why I said CUMULATIVE. I recognize it wasn’t as if the fed lent a total of $9 trillion to the banks.
But my point is not in any way refuted or even seriously challenged by looking at total money lent, rather than cumulative totals. The point that you are oh so eager to evade, is the fact that the banks got backdoor bailouts from the Fed…PERIOD. That is enough for my point to be relevant.
You can take YOUR partisan hackery and go chirp at some right wing hack who believes the $9 trillion is somehow a total amount of money the Fed lent to the banks.
Furthermore, this is something many academics would support, and many academic economic theories would suggest loans to banks from the FED in the middle of a credit crunch, that is entirely the point of its function as lender of last resort, this is not something that merely special interest groups support, this is something many economic theories support and can be considered as a matter of academia.
Brito, it doesn’t matter who “supports” it from outside the office. What matters is the motivation of the parties directly involved. There are intellectuals who academically supported eugenics during the progressive era. But does that mean academic pursuits were the primary motivating factor for the people who sterilized people without their consent? or was it a selfish pursuit to make the world better in their subjective opinion?
So how about you address the substance of my post, instead of harping on a stupid straw man of me allegedly trying to mislead people? I specifically used the word CUMULATIVE to avoid being misleading, and yet you’re still saying I am being misleading. It’s obvious you’re being a partisan hack, not me.
Morgan Warstler:
For all your posts, you have not actually proven de facto NGDPLT is what I’m talking about.
You have no actually proven de jure NGDPLT curbs the growth in government. That was your claim, and I am still waiting for proof.
You can’t shift the burden on me to prove that NGDPLT will NOT curb the growth of government!
I’m talking about EXPLICIT stated outloud 4.5% NGDPLT followed with brutal precision.
It doesn’t matter if it’s explicit or implicit. If it’s the SPENDING limits that is supposed to curb government growth, then it doesn’t matter if the NGDPLT is accidental or purposeful.
Under that system:
THE MOMENT you hit 4.5%, you are at 100% of your allotted “growth.”
So what? Government can grow WITHIN that upper limit of 5%.
1. Guess what there is still unemployment.
Sorry, too bad, rates are being raised.
Not if the inflation takes the form of additional credit expansion while there is a drop in velocity of money, which has been happening since 2000, or 1980, depending on whether you look at M2 or MZM.
2. Shit China is buying more oil, inflation is going up.
You mean price inflation? Impossible. If the price of oil goes up, then in a capped total money spending regime, spending on other goods has to fall, which means prices fall elsewhere.
Sorry too bad, up go rates again.
Not when profitability elsewhere falls as a result of increased relative spending on oil.
Suddenly government FISCAL spending will categorically be neutered.
Non sequitur.
This puts liberals in a tight spot. They now have to argue that wealth transfers are good BECAUSE the slow down growth.
Which they have willingly, and eagerly done since 1971, as real wages have not gone up since then, while government has. Why work to earn more, when you can not work to earn less?
Obama et al want wealth transfers EVEN IF the economy 10 years from now is further along in real terms.
And they’ll get it if the prevailing philosophy welcomes it, regardless of NGDP.
Cutting govt. under NGDPLT is immediately rewarded with lower rates for the private sector.
Not if the Fed targets NGDP by buying government debt.
MF, I CHALLENGE you to actually game out what I’m saying to prove it wrong.
Consider it done.
Explain to me what the liberals and politicians will say at 4.5% when it is time for rates to go up and there is still 8% unemployment.
I will say you’re wrong to claim there is a relationship between interest rates and employment. It’s almost as bad as the claim that there is a relationship between aggregate spending and employment.
Interest rates just allocate resources in a particular inter-temporal way. If rates go up, and there is NGDP targeting, then according to you market monetarists, it will all be expected and easily handled by investors.
And go step by step, they say this, main street says this, banks say this, I want to see how you construct the political argument UNDER MY EXACT TERMS goes against me.
Consider it done and done.
23. May 2012 at 13:35
Negation of Ideology:
I actually agree with part of your post. The Fed was created by an act of Congress. The use of the word “private” was not intended to be misleading. It’s just noting the history where banks legally “own” the shares (and appoint Board members) of the Regional Banks, and collect dividends. The government has it firmly under control, and collects almost all the dividends now. There is still no justification for any private bank to have any say at all, or derive any profit from, the issuance of the national currency.
Oh, I get it. So Social Security is private, because seniors receive dividends in the form of social security checks, they “own” the treasury debt that backs the SS trust fund, the voters have it firmly under control, etc, etc.
As for the government owning the institution that issues the government currency being “economically communist”, I don’t agree. Unless the Department of Treasury (or Defense, or the Supreme Court, etc.) is also “economically communist.”
So if the Department of Defense, and the Courts, are communist, since they consist of means of production being owned by the government, then would you agree a government owned printing press is economically communist after all?
But then the term is so broad as to be rendered meaningless.
Nice try, but no. You only named a few government owned departments! Yes, they are all communist to the degree that government owns the resources, the means that are used to achieve the government’s ends. The term isn’t so broad as to be rendered meaningless at all. For any particular means of production, there is only private ownership or government ownership possible. This makes it very specific.
If you want the government to own the printing press, rather than government controlled private bankers, then you want to turn banking from economically fascist to economically communist. You want the government to own a means of production, namely the printing press.
Centralized banking in the hands of the state is one of the ten planks of communism as written in Marx and Engel’s Communist Manifesto. I believe it’s plank 5.
23. May 2012 at 13:55
Cheap money + spending cuts = success. Is this from the Money Illusion? No, the BBC-
http://www.bbc.co.uk/news/uk-politics-18174724
23. May 2012 at 14:20
For everyone who is taking issue with this post, let’s be clear that nobody is saying special interests have no influence on policy. That would be silly. Of course they have a big influence on policy.
The big issue is how political rhetoric tends to some sort of conspiracy theorist mindset, where every action done by the government is for purely cynical reasons. At its most extreme, you get truthers or people who insist we only invaded Iraq for oil or Austrians who think Bernanke is a puppet of the Rothchilds and other clandestine financiers.
The milder variants that Scott mentions still have the same strain of the fallacy of conspiracy theories. For many who believe conspiracy theories, they gravitate towards a world where the government has some sort of omnipotent, omniscient control over everything.
In reality, the “government” is a very kludgy mixture of people who spend days and days grinding out the most insignificant piece of legislation. To see why, say, the bailouts happened, there is actual evidence of what happened when and why.
Did special interests play a role in the bailouts? Sure, but there’s also plenty of evidence that Paulson, Bernanke and the markets truly believed that no bailouts would have brought on another Great Depression. Special interests are just one in a number of highly chaotic variables which influence government laws and actions.
And what’s the point of saying special interests do not, in fact, have totalitarian control over government? Because the totalitarian view implicitly says that convincing real people of, say, market monetarism is useless. The evil special interests will always get their way.
In fact, if Bernanke and Paulson were full-blown market monetarists, fully prepared to unleash everything to prop up AD in the face of AIG failing, we would be better off today. Despite the special interests, changing the attitudes of real people still can have a significant positive effect.
23. May 2012 at 14:40
MF,
I’ve tried looking through your posts for a stitch of evidence, and can’t find a single piece actually supporting your views.
For instance, you say matter-of-factly “It’s almost as bad as the claim that there is a relationship between aggregate spending and employment.” The evidence is extremely strong for AD having a large effect on unemployment. The AD for the US, UK, Spain, Italy, Ireland and so on fell tremendously, and employment just happened to also fall in all those countries as well. AD did not fall below trend in Australia and Germany, and it so happens that unemployment has not increased in those states.
That’s just the present-day recession. I could find dozens of instances in the last 200 years of a fall in AD leading to an unnecessary fall in production and an increase in unemployment. With all this evidence, what would exactly falsify your proposition that aggregate spending and employment have no relation to each other?
At a certain point you have to admit such a view is terribly, terribly wrong. Economics isn’t Yankees vs. Red Sox or Chevy vs. Ford. It isn’t some matter of taste with “my side” and “your side.” There are actually economic which are as factually wrong as saying the sun revolves around the earth.
23. May 2012 at 15:20
MF, tell me my argument, repeat it back to me.
PROVE you actually understand it. I am truly unable to even grasp your response.
Others understand what I’m saying, I at this point don’t think you can even conceptualize it.
—
We aren’t talking about a “then in a capped total money spending regime,”
We are talking about:
X RGDP + Y Inflation (which may be printing) is capped at 4.5%
That’s it. That’s the entire ball of wax.
Now please EXPLAIN my argument, I am 90% certain you can’t do it.
Basic test of debate, say your opponents argument back.
——
Here’s Romney head nodding to NGDP:
“And I’d do it in a way that does not have a huge reduction in the first year, but instead has an increasing reduction as time goes on, and given the growth of the economy, you don’t have a reduction in the overall scale of the GDP. I don’t want to have us go into a recession in order to balance the budget. I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline.”
http://thepage.time.com/2012/05/23/the-complete-romney-interview-transcript/
23. May 2012 at 16:39
Matt Waters:
I’ve tried looking through your posts for a stitch of evidence, and can’t find a single piece actually supporting your views.
For instance, you say matter-of-factly “It’s almost as bad as the claim that there is a relationship between aggregate spending and employment.” The evidence is extremely strong for AD having a large effect on unemployment.
The “evidence”, meaning historical data, doesn’t prove that, for the theory that the decline in employment and the decline in AD are both effects of a prior cause, and that you are mistaking correlation for causation. Just because you observe a correlation between AD falling and employment falling, it doesn’t mean the former caused the latter.
Your problem is that your a priori theory you are using to interpret the historical data, is being taken for granted, and you only think you’re seeing evidence of your theory, when I see the same historical data, but interpret it completely differently because I am using a different a priori theory than you. My theory that AD and employment are both caused by the same prior factor(s), which is why we see a correlation between the two, but not a causal relationship, is also perfectly consistent with the data.
The AD for the US, UK, Spain, Italy, Ireland and so on fell tremendously, and employment just happened to also fall in all those countries as well. AD did not fall below trend in Australia and Germany, and it so happens that unemployment has not increased in those states.
Correlation does not imply causation.
I could just as easily see that when production declines, so does consumption, and then conclude that consumption causes production, rather than the other way around.
That’s just the present-day recession. I could find dozens of instances in the last 200 years of a fall in AD leading to an unnecessary fall in production and an increase in unemployment.
You are misleadingly using the word “leading”.
With all this evidence, what would exactly falsify your proposition that aggregate spending and employment have no relation to each other?
With all the evidence that is consistent with my theory, what exactly would falsify your proposition that AD and employment have a relation to each other?
At a certain point you have to admit such a view is terribly, terribly wrong.
You need to do that with your own theory, because it is wrong when it is subjected to economic first principles. That’s the only way to settle a dispute between two rival theories that are both fully consistent with the data.
Economics isn’t Yankees vs. Red Sox or Chevy vs. Ford. It isn’t some matter of taste with “my side” and “your side.” There are actually economic which are as factually wrong as saying the sun revolves around the earth.
You’re playing sides, of positivism versus praxeology, and you won’t even address competing antecedent theories to your own that the data is also consistent with.
Your approach to economics is all wrong. You’re using the methodology that chemists and physicists use. You have to instead use the methodology that mathematicians and logicians use.
Morgan:
MF, tell me my argument, repeat it back to me.
PROVE you actually understand it. I am truly unable to even grasp your response.
Repeat after me:
If de facto NGDP targeting for the last decades hasn’t curbed the growth of government, je jure NGDP targeting won’t do it either.
Now say that again and again until it sinks in.
Others understand what I’m saying, I at this point don’t think you can even conceptualize it.
You mistake disagreement for misunderstanding.
We aren’t talking about a “then in a capped total money spending regime,”
We are talking about:
X RGDP + Y Inflation (which may be printing) is capped at 4.5%
That’s what I meant. Capped growth.
23. May 2012 at 16:47
@IVV
“Wait a moment, under what conditions have we ever had a reduction in government? Empire collapse is about the only example I can think of.”
– Decommissioning after major wars, the most significant example being WWII
– Under Reagan, the size of the govt as % of GDP and in terms of FTE (full time equivalents) declined very slightly
– Under Clinton/Gore, the size of the govt as % of GDP and in terms of FTE declined substantially (about 12%)
23. May 2012 at 16:51
Matt Waters:
Consider this. Suppose I look at the correlation between employment and AD, and propose the theory that the fall in employment causes the fall in AD. That when employees get laid off, or threaten to get laid off, the money that they would have spent, is not spent, which then reduces AD.
How in the world can your method of observing the data alone, possibly show this theory to be wrong? In other words, when you observe a correlation between A and B, how do you know that A causes B, rather than B causes A, or that another factor X causes both A and B to fall?
See, what you are doing, without even realizing it, is that you are STARTING with the theory that A causes B, and then you observe the data, you see a correlation between A and B, and then you make the FALSE inference that the theory A causes B has been “confirmed”, despite the fact that the theory B causes A, and X causes A and B, are ALSO entirely consistent with the data.
One of my pet peeves with rabid, foaming at the mouth positivists like you is that you are so blinded and so fixated on your a priori theory, that even in your own mind you don’t even address any other competing theory, and then to top it all off, you call those who deny your a priori theory “dogmatists” who “reject evidence”, when in reality, NOTHING that I am saying has been falsified by the data that you say I am ignoring!
See, you can’t look at historical data as the final judge. Data, contrary to what you must believe, does NOT “speak for itself.” Data must be interpreted by an a priori theory that is settled FIRST, BEFORE one looks at a given set of historical data.
Before you criticize what I am saying, you should first understand that I am not a positivist in economics. I reject positivism as an invalid methodology in economic science, because positivism presupposes constancy in relations, which do not exist in human action. Not only that, but even the positivist methodology itself implies that humans MUST change over time, because positivists claim that positivist methodology enables individual humans to learn about the world. Well, learning changes people, and what people learn influences their actions. Positivists hold that learning is a priori unpredictable according to constancy, and so they MUST hold that action is a priori unpredictable according to constancy. In other words, positivism contradicts itself. Positivism is a self-refuting methodology, and that is exactly why you know of equations such as E=mc^2, and MV=PY, but you have no such constant relations concerning human action in your mind. You’re an astrologer and you don’t even know it.
23. May 2012 at 17:47
the definition of positivism is:
A proper theory should make falsifiable predictions. Data may consistent with several theories. Some economists actually do lab experiments, but outside of that the best one can do in economics is look for natural experiments.
The neat trick with Rothbard anarcho-whatever is that its all assumptions, the theory cannot be falsified. No shock that you reject positivism, that would mean confronting data. I have a name for a theory thats all assumptions and that cant be falsified: ideology.
23. May 2012 at 17:56
“If de facto NGDP targeting for the last decades hasn’t curbed the growth of government, je jure NGDP targeting won’t do it either.”
Yes, and once again, I want you to SAY OUT LOUD what my argument is for why there are different.
I don’t want you repeat yourself, I want you to show you can REPEAT and DESCRIBE the difference as I see it, even if I’m wrong.
Once you can prove you know what I’m saying, we can get on to your response.
23. May 2012 at 18:21
Morgan:
You’ve already made your argument very clear. I know what you are saying. Copying what you have said to me, and pasting it back to you, won’t advance this.
I’m still waiting for you to show how NGDP targeting will curb the growth of the state. Your last attempt was full of holes which I exposed.
I want you to show in precise detail why government spending can’t go from 50% to 51% to 52% to 53% to 54% to 55%…etc, relative to NGDP, in a world where NGDP grows by a certain rate, say 5%. I want you to show proof of your argument that distinguishes it from what has happened in the last 50 years.
Remember, government spending is treated dollar for dollar in GDP calculations, so the spin masters can always say GDP is rising, despite the government growing relative to the private sector.
23. May 2012 at 18:24
Negation, I strongly agree.
dwb, Good point.
John Thacker, Doesn’t the President pick the people for the Fed? Doesn’t the President have to sign off on China bashing over exchange rates?
Vivian, It’s obvious to everyone with half a brain that special interests have a powerful effect on government policy. I still don’t see anything I wrote that implied I didn’t know that fact. If there is something, please point to it. I thought it was obvious from the title that I meant special interests usually call the shots (when there are bad policies), but there are some cases where it simply looks like mistakes are being made.
Lots of bloggers refuse to admit errors. When you pointed out that my $1 billion figure was wrong I added an update and admitted I had erred. And now you say I wasn’t “gracious”? Why?
By the way, I wasn’t insulted by your comment here, I just get exasperated as commenters continually claim I said things that I didn’t say. But don’t feel bad, Major Freeman is a million times worse. I consider you a high quality commenter.
Adam, You said;
“We subsidize home ownership because lots of people either own a home or want to own a home. Thus it’s a politically popular thing to do.”
An even greater number of voters buy food, yet public policy is anti-eater.
PeterN, Perhaps it’s all true, but it has no bearing on this post. I never denied the AIG fiasco was about special interests.
Saturos, Yes, the Japanese deflation is intentional.
Bonnie, I agree about Bernanke and IT.
Thanks GMC.
W. Peden, Who said that?
Matt Waters, Good post.
23. May 2012 at 19:01
A proper theory should make falsifiable predictions. Data may consistent with several theories. Some economists actually do lab experiments, but outside of that the best one can do in economics is look for natural experiments.
“Proper” according to what standard? According to who? According to what? Why do theories have to be falsifiable in order for them to be “proper”?
Logic and mathematics are non-falsifiable sciences. Are they not “proper”, and should we reject them as “dogmas”?
The economy is not a lab. Experiments cannot show constancy relations the way physics experiments can do so, because the very process of experimentation in the economy itself changes the subject matter being studied, i.e. we humans. Any learning of any alleged constancy in human action, changes human knowledge, and thus changes their actions, which renders moot the previous claim to a constancy.
Humans are actors. We are physically changing over time. The best analogy I can think of to convey non-constancy in human action, is to consider a human not as a fixed, physically constant entity, but a collection of atoms and energy that are constantly in flux. Think of a human as a temporary aggregation of atoms and energy, which immediately disperses and is replaced by a new set of atoms of energy, in a different configuration. That is what is happening to our bodies. When you look at me, you are looking at an entirely new entity that did not exist yesterday. I may look pretty much the same, I may even have some of the same habits as yesterday, but I am not THE SAME as I was yesterday. My knowledge is different, which is to say the physical orientation of my brain is not the same today as it was yesterday. Even if I learned of some truth of my brain today, even if I learned of some constant causal relation, that very learning process will change my brain into a physically new brain, thus rendering my previous inquiry a historical event that is unique to the past. I cannot use it to make any statements about the future learning I will do, which is to say the future physical structure path of change of my brain.
Denying this is to claim that one has the capability of predicting one’s future path of learning, which incredibly implies that one can know what one will know in the future, today. It would require humans to cease learning because they know everything. Positivism is therefore a method for Gods, not human actors who are “trapped”, so to speak, in the Petri dish.
Human minds cannot be logically consistent when using positivism in economics, which is to say our minds are not structured to be able to use positivism in economics. It is like expecting our minds to be God minds. Sure, positivism in human action might very well be logically consistent for super-human entities, or entities that don’t act, and are all knowing. The human spirit has these conceptions of omniscience, and that’s why positivism is so attractive. It promises such a grand reward, and makes scientists feel incredibly empowered.
Maybe I am not explaining this well enough, because it is just one of those things that one either “gets” or not, and it takes a while to really grasp it, but I don’t mind being called a dogmatist, or one who “denies evidence”, because I know I am right, I don’t just think it, I really do know it, so I know the people who have to change their minds are positivists, not me. My job can only be to convince people that I am right. What I know is settled and done with. There is no refuting it. This may put you off, it may make you think there is no point in debating me, but then if that is what turns you off, it’s only because you want to convince me of what you believe, which is what I am doing as well, but from a unique angle.
The neat trick with Rothbard anarcho-whatever is that its all assumptions, the theory cannot be falsified. No shock that you reject positivism, that would mean confronting data. I have a name for a theory thats all assumptions and that cant be falsified: ideology.
It’s not about not wanting to confront data. Rothbard was a HUGE data muncher and he looked at so much historical data that calling him non-empirical would be incredibly wrong. No, it’s about looking at data in the correct way.
You might not understand this, but when you look at historical data, and you try to make sense of it, you are actually approaching an understanding of the data with a theory that is decided upon BEFORE you even grasp the data. History is meaningless information without an a priori theory to understand it.
You say it’s an ideology, but so what? You adhere to an ideology as well. You adhere to a set of ideas, and a set of ideas that one holds is one’s ideology. You’re using it in a pejorative way when there is nothing wrong with it.
Sumner has an ideology. His includes the non-falsifiable assertion that there can never be correct economic theories, only partially correct theories that are useful.
You have an ideology. Your ideology is that positivism is the only proper method in economics, and a corrollary is that economics must be able to predict human action for it to quality as a valid method. That is non-falsifiable.
Of course human action can’t be falsified. That’s what certain truths should look like if we did in fact come to know them, so why is it so hard to accept non-falsifiability? Absolute truths are of such a nature that one could not even contemplate it being something else without being self-contradictory. A certain truth has that appearance to us.
Contrast that with falsifiable propositions. These propositions are such that contemplating the opposite of them is not logically absurd, which means it is possible for them to be wrong. But how can that be a way to apprehend and acquire knowledge of true propositions? No matter what we learn via falsifiable propositioning, the opposite of falsifiable propositions could always in principle be observed. That can never get us truth. It can only ever get us hypotheses. It leads to skepticism.
No, if we want to learn certain truths, then we can only do so by finding the “cross section”, so to speak, of ourselves, and of physical reality. Where they overlap, is where certain truth can be found. That means that we can’t ONLY observe our surroundings. We ALSO have to engage in non-observable self-reflection. Where they overlap, that’s where certain truths are, and because economics is a study of we humans, economics MUST be grounded in self-reflection, NOT observations outside ourselves.
This is why positivism works in physics and chemistry, but not in economics. It’s because physics and chemistry are studies of things outside ourselves. Economics is a study of US. Therefore, what you call “ideology” is in fact the only proper path to economic science.
Falsifiability as an alleged necessary requirement is really just a misguided reaction by scientists to the dogmas of the priests. That’s all it is. Popper and the Vienna school came up with the falsifiability criterion totally ad hoc. It was never derived from first principles.
One does not have to be a religious ideologue to be a rationalist economist.
23. May 2012 at 19:04
By the way, I wasn’t insulted by your comment here, I just get exasperated as commenters continually claim I said things that I didn’t say. But don’t feel bad, Major Freeman is a million times worse. I consider you a high quality commenter.
When have I said things you said that you didn’t say? Remember, I almost always address the presuppositions being made, more than I address what is literally said. You only get exasperated because you don’t want to even address those presuppositions, because you know that’s where your worldview breaks down into contradiction.
23. May 2012 at 19:32
i am flattered that you wrote all that for me. really! 1245 words for lil ole me! {I understand you get paid by the letter. i’ll email you my paypal account so you can cut me a check. no i do not accept liberty coins.}
23. May 2012 at 20:17
MF,
Because the 4.5% ia HARD CAP.
It is a pie. I nice fluffy white cream pie.
And even the most simple minded guy can now SEE exactly how much of that pie gets eaten by govt.
—-
Look, I can’t make you understand the political power of this, it is the kind of thing the pushes 30 liberal Dems into being Blue Dogs.
Right now there is no clear NEGATIVE effect to increasing public employee pay, you only barely see it in tax ballot initiatives, and even then it is weird and campaigny.
This is WAY MORE powerful UK seeing higher taxes bring in no new revenues and start to get rid of them in a years time.
This is WAY MORE powerful than Wisconsin seeing budget shortfalls become surpluses afer Walker.
This is a MONTHLY positive feedback loop:
1. RGDP good.
2. Inflation bad.
3. Public spending bad.
When we hit 4.5% – and then cut public employees, HEADLINE NEWS – rates stay down, and we get more RGDP.
This is an OBVIOUS political gimme – this is a two foot putt.
You are acting like there’s no gain from repeatedly banging our head on 4.5%, and continually seeing extraction better results when we make room by cutting govt. and making commodity extraction easier.
—-
The point is MF, these are true things, but they aren’t instantly obvious under the current MP.
Clarity FAVORS the private sector, because cutting public employees and making resource extraction easier are TRULY good things.
23. May 2012 at 20:52
Morgan:
Because the 4.5% ia HARD CAP.
It is a pie. I nice fluffy white cream pie.
We’ve already been over this. What is the connection between a finite cap on spending growth, and cap on government? BE SPECIFIC.
And even the most simple minded guy can now SEE exactly how much of that pie gets eaten by govt.
They can already see that now, by simply looking at government spending as a percentage of total spending.
23. May 2012 at 21:08
dwb:
i am flattered that you wrote all that for me. really! 1245 words for lil ole me! {I understand you get paid by the letter. i’ll email you my paypal account so you can cut me a check. no i do not accept liberty coins.}
I would advise you not to flatter yourself on my account. I write primarily for my own benefit, to hone my arguments. I really enjoyed writing that post. I also enjoy trying to help people to understand a whole new way of looking at the world and themselves, that will benefit my interests.
A thousand years from now, praxeology, if it not already the dominant methodology in economics, will be “competing” with whatever flavor of the week happens to be popular at the time, while NGDP targeting will have long before then been relegated to the dustbin of history, just like price targeting. ALL “targeting” monetary schemes collapse, because it denies the individual his own monetary ownership.
23. May 2012 at 23:00
“Yes, the Japanese deflation is intentional.”
But why? Are they crazy? Or are they stupid? Don’t tell me the BoJ thinks deflation is actually good for Japan, or that the Japanese government actually wants deflation.
24. May 2012 at 00:19
“Vivian, It’s obvious to everyone with half a brain that special interests have a powerful effect on government policy. I still don’t see anything I wrote that implied I didn’t know that fact. If there is something, please point to it. I thought it was obvious from the title that I meant special interests usually call the shots (when there are bad policies), but there are some cases where it simply looks like mistakes are being made.
Lots of bloggers refuse to admit errors. When you pointed out that my $1 billion figure was wrong I added an update and admitted I had erred. And now you say I wasn’t “gracious”? Why?
By the way, I wasn’t insulted by your comment here, I just get exasperated as commenters continually claim I said things that I didn’t say. But don’t feel bad, Major Freeman is a million times worse. I consider you a high quality commenter.”
______
Scott,
I’m glad that you consider me a “high quality commenter”, even though I apparently only have “half a brain”. Could you explain how that could be so?
Let’s leave Major Freedom out of this. While he seems to have misinterpreted your post on the same point I did, that can hardly be an argument in your defense.
I’ve already explained to you why your post suggested that special interests are not the (a) problem with failed policy. Your post placed blame on “mistakes” government makes and it also cited the failures of academic economists and government officials. It did not sufficiently (or even remotely, in my view) draw the connection between special interest influence and those bad policy results (aka “mistakes”). You are asking your readers to read too much into what it is you actually wrote.
My comment came after the first comments by JV and Bill. While they did not say so directly, it struck me that perhaps they, too, felt your post was ignoring the perverse effects those special interests can have on policy decision-making. The general thrust of those comments seems to have been, “Scott, you’re mistaken, special interests do play a role”; not “Scott, you are absolutely right”. And, you seem to have agreed with my take when you wrote:
“Bill and JV, You both missed the point of my post (probably my fault.) Obviously special interests play a role in policy-making. I’m claiming that we can’t always understand policy by looking at who’s helped and who’s hurt. The pressure for a stronger yuan hurts US real estate, but I doubt they know that…
I never meant to deny that interest groups play a role in policy, I don’t doubt that protectionism is often a response to special interests, for instance. But “sometimes it is just a mistake.” The post didn’t say it is always a mistake.”
Scott, your read on those comments seems to have been the same as mine—great minds, even when one is only 50 percent functional, sometimes do think alike.
Now, how could these two high-quality commenters, by your own admission, have “missed the point” of your post” and why did you feel the need to clarify it to them? And, yet, in the very next breath I’m labeled as an idiot who can’t read? Scott, I, too, get exasperated when people don’t understand what I write (or intentionally evade what I’ve written). However, if you are as exasperated as often as you seem to claim, should you not at least admit the possibility that it just might have something to do with shortcomings in your expository style or the organization of your arguments? Or, perhaps your blogging is sometimes sacrificing quality for quantity?
Now, I’m not going to evade your request: I owe you an explanation of why I felt your earlier response was (also) insulting. Had this incident not followed, I might have interpreted it otherwise. Having carefully (and correctly) pointing out an appropriate definition of “subsidy” you proceeded to ignore that by assuming that a line of credit by the Ex-Im bank to foreign purchasers of US manufactured goods would constitute a $1 billion subsidy to the manufacturers. Had you given this more careful thought, you would have avoided that blunder. I, tactfully, I think, pointed that out. You proceeded to acknowledge this (Good point, I exaggerated) and that is fair enough (although I did wonder if this was conscious exaggeration or error—choose your poison—it is tough to admit those mistakes). Here, the extreme magnitude of the claim was very germane to the discussion.
This was followed by an “Update” in which you stated:
“Update: Vivian pointed out that the total cost of the subsidy to the US government is considerably less than $1 billion. On the other hand (X) pointed out that corporate jets worsen global warming.”
I thought that “On the other hand”, was oddly misplaced and a bit of a non-sequitur. No offense to X, but it suggested to me that you were intentionally comparing a serious point to a relatively trivial one. Why, “On the other hand” if not to belittle the former? My initial reaction to this was, well perhaps Scott is just be snarky because he had to Update his post. I would have let that slide as perhaps my over-sensitivity, but for your more recent reaction. It suggested to me that, yep, Viv, you read that one correctly.
Scott, this is the last thing I have to say on this subject. Perhaps we can now get back (respectfully, I hope) to the “regular program”. In the future, I’ll try to place more shiny red apples on your desk rather than just those that have worms in them.
** BTW, it is a very good example of those special interests resulting in conflicting policy, as I pointed out in that post. On the one hand, the administration is trying to curry favor with one group by eliminating and rhetorically over-emphasizing our tax subsidies to corporate jet manufacturers and consumers, but, on the other hand, they are counteracting that with a sort of subsidy, albeit a small one, to that same group. My read on the latter is that it might just be influenced by the need to get votes in swing states like Iowa, where Rockwell Enterprises and other component manufacturers employ several thousand in that industry.
24. May 2012 at 04:00
Scott Sumner,
George Trefgarne, who is one of several British economic historians who have re-evaluated our experience in the 1930s and suggested that there are positive lessons from today. Though, in the debate he had with a Labour MP and a Lib Dem MP on a TV show yesterday the conversation featured a depressingly mindless conception of monetary policy = interest rates.
24. May 2012 at 05:12
MF, You said;
“”Proper” according to what standard? According to who? According to what? Why do theories have to be falsifiable in order for them to be “proper”?”
Finally something we agree on!
Saturos, You said;
“Don’t tell me the BoJ thinks deflation is actually good for Japan, or that the Japanese government actually wants deflation.”
Yes the BOJ does, and no the government doesn’t. There’s been a big political battle between the government and the BOJ. Doesn’t that suggest that they have very different views on the desirability of deflation. BTW, the CPI has been fairly flat in Japan, so the BOJ probably believes they don’t have deflation.
Recently the government forced a 1% inflation target on the BOJ, basically by threatening to fire the top officials and replace them with new people.
Special interest politics in Japan may be important, but obviously the BOJ and the government are controlled by different special interests.
Vivian, The very first thing you said was:
“I’m glad that you consider me a “high quality commenter”, even though I apparently only have “half a brain”. Could you explain how that could be so?”
I never even implied such a thing. You really need to work on your reading skills before accusing others.
The second thing you said was:
“Let’s leave Major Freedom out of this. While he seems to have misinterpreted your post on the same point I did, that can hardly be an argument in your defense.”
I never even implied that this was why I was accusing him of always misinterpreting my posts. Where did you get that idea? You really need to improve your reading skills. Stop assuming you know what I mean, and read what I actually wrote.
I assumed from your comment that you believed special interest groups played a role in policy. So obviously I wasn’t accusing you of having “half a brain.” And I said MF was a million times worse, which obviously means he always misinterprets me, not just one time. Please use some logic before accusing me of bad faith.
You said;
“I’ve already explained to you why your post suggested that special interests are not the (a) problem with failed policy.”
This is a nonsensical sentence. Please tell me what you mean. Don’t get cute saying “the (a)” Which is it? I never even implied that special interests play no role in policy mistakes.
You said;
“You are asking your readers to read too much into what it is you actually wrote.”
Just the opposite, I want them to read what I wrote, and not read into it things I never said. I wrote “sometimes” please don’t read into that “always.”
Finally, Your comment about my “ungracious” update is just laugh out loud funny. Has it ever occurred to you that you might be a little oversensitive? Two commenters made points that I thought worth adding to an update, and I added both. I made no editorial comment other than that the two comments worked in opposite directions. You may not care about global warming, but lots of people (including me) think it’s a very important issue. I never even implied that your suggestion was unimportant. You must be new to the blogging world if you think my update was rude. Try reading Krugman or DeLong for a while.
24. May 2012 at 05:13
W. Peden, If he claimed Britain had supply-side problems during the interwar years, I agree.
24. May 2012 at 05:16
Negation there you go again making too much sense. LOL
“Regulatory capture is always a problem with government, but the Fed Regional Banks have board members actually appointed by the banks. I’m not aware of any other industry that has a similar privilege. Defense contractors don’t appoint people to the Joint Chiefs of Staff as far as I know.”
“I agree that it’s not a grand conspiracy. It is a legacy of the origin of the Fed as a private institution. FDR placed it more under government control, and later(I think the 1970’s) it started paying 95% or so of its profits to the Treasury. It’s still nominally “owned” by the banks, but in effect it’s a government institution as it should be. To me, the obvious next step is to formally nationalize it and remove all private banker seats, and pay 100% of profits to the Treasury.”
I agree with you about the 100%. The Fed was actually the “creature” of a compromise-kind of thinking about the book “The Creature from Jekyll Island-of a compromise. There were those who wanted to be purely the private creature of the banks-the banks in particular suprsingly were the main proponent of this view. Then there were those who wanted it to be totally a public, political institution.
I’m mostly partial to that view-to me there shouldn’t be any “Fed independence” as there isn’t evidently in Britain-Osbourne tells the BOE what to do. It’s as if Bernanke took marching orders from Geithner.
Barney Frank and the late Rep. Henry Gonzalez (D-TX) had a lot of good ideas to taking away Fed independence-one way would be to get rid of the regional heads or at least weakening them.
24. May 2012 at 05:39
“They can already see that now, by simply looking at government spending as a percentage of total spending.”
MF, this is wrong. You are starting from a status quo that doesn’t exist.
Repeat after me:
1. Cutting govt. is good thing, it has a positive feedback loop, the PROBLEM is that loop sometimes is too LONG to make sure it is the dominant mindset.
2. Cutting regulations is a good thing, the problem is the same as #1.
What a MONTHLY headbanging on the cap of 4.5% does is give EVERYONE a direct immediate feedback loop:
1. when you cut public employees that keeps rates down for the private sector.
2. when you make it easier to extract commodities from the earth, you keep rates down.
Teaching an animal to do tricks, even a human animal, it is better to get the positive and negative consequences closer to the behavior that you want.
This provides CLARITY and they LEARN.
—-
Look, I like you MF, but I’m also faster on the uptake here.
Wisconsin and UK prove my point nicely. They took 1 year.
I am talking about MONTHLY positive / negative feedback loops.
—-
Imagine Congress passes a law and next month rates go up or down, they pass another law, same thing…. month in and month out this follows a general trend… the NGDPLT market becomes a CLEAR STATEMENT about which laws are positive or negative.
24. May 2012 at 06:35
Mike Sax – Thanks for the kind words.
I like Barney Frank’s bill to remove the Regional Bank President’s votes from the FOMC. Of course I’d prefer to remove the private bank seats from the Regional Banks. I assume the reason he did it that way is for the reason you brought up – compromise. He probably thinks his version is easier to pass.
I think part of the problem is too many on the right hear “private” and automatically think “good”. But while that’s often true, you can’t have private ownership of public assets like the courts, police, military and the issuance of national currency.
And Milton Friedman agreed with you in opposing central bank independence – he said “Money is too important to be left to the central bankers.”, paraphrasing Clausewitz’s “War is too important to be left to the generals.”
24. May 2012 at 07:18
MF,
“Logic and mathematics are non-falsifiable sciences. Are they not “proper”, and should we reject them as “dogmas”?”
Mathematics isn’t a science. The sciences contain and develop knowledge for explaining and predicting reality. Mathematics is a tool used to develop this knowledge. It’s an analytical system that makes it convenient to represent relationships between physical and abstract quantities. Math is MOST DEFINITELY not a science.
“Even if I learned of some truth of my brain today, even if I learned of some constant causal relation, that very learning process will change my brain into a physically new brain, thus rendering my previous inquiry a historical event that is unique to the past. I cannot use it to make any statements about the future learning I will do, which is to say the future physical structure path of change of my brain.”
This is just incredibly daft. The brain analogy is a poor one. It is an extremely complex organ, and the act of observing it for an experiment might cause changes in a different region, separate from the area of study. More importantly, if it is well-characterized how some particular process will change the brain, there’s no reason that based upon some action, which produces some change in the brain, one can’t determine a future path of change, prompting further action, prompting further change, etc. Do you know nothing of statistics, iterative algorithms, signal processing? Don’t make this brain-data comparison again, because it is straight-up wrong.
“I cannot use it to make any statements about the future learning I will do.”
??? Is this a joke? Large swathes of neuroscience are dedicated to this.
“No, if we want to learn certain truths, then we can only do so by finding the “cross section”, so to speak, of ourselves, and of physical reality. Where they overlap, is where certain truth can be found. That means that we can’t ONLY observe our surroundings. We ALSO have to engage in non-observable self-reflection. Where they overlap, that’s where certain truths are, and because economics is a study of we humans, economics MUST be grounded in self-reflection, NOT observations outside ourselves.”
This is just hokum and belongs in a seedy “20 short self-help steps to a billion dollars!” book.
This is why positivism works in physics and chemistry, but not in economics. It’s because physics and chemistry are studies of things outside ourselves. Economics is a study of US. Therefore, what you call “ideology” is in fact the only proper path to economic science.”
WHAT!? Explain this distinction to me. How are physics and chemistry not also studies of US? We depend on very specific physics and chemistry. I think it’s clear what you’re trying to say but the distinction you’re making is wrong. Where, for example, would you classify biology? Positivist science? Or not?
Either way cut it out with the science allusions, to the broad public they muddle your point and to the scientist, present irritating and contrived comparisons.
24. May 2012 at 07:32
brain chemistry has a proven, scientific, link to behaviors and mental diseases, no? (like bipolar disorder, etc.). Also, isn’t there a proven scientific link between certain areas of the brain and behavior (i.e. play a part in problems like aphasia). Plus, certain mental disorders are highly inheritable…
24. May 2012 at 07:38
dwb – yes, yes, and yes.
24. May 2012 at 08:05
just trying to lend a hand there. biochem undergrad – i am not as dumb as i look. Fight the good fight, but its hopeless. MF is not trying to persuade anyone just “hone his argument.” proceed as rapidly as possible to stage 4) ignore and perhaps stage 5) needle him early and often.
24. May 2012 at 08:30
dwb, I find myself unable to abide by that simple maxim of internet commenting, “Don’t feed the trolls”. So I am forced to resort to 5), needling. I did a lot of biochem early in my academic career, biochem FTW! Conceptually it’s brilliant fun but practically it’s…squishy. I got tired of playing with liquefied DNA. Now I play with neural network models…
24. May 2012 at 08:39
it sounded like you were still at stage 2) attempt to debate MF. yes, proceed to the needling, its much more entertaining (although you have to scroll down a lot).
24. May 2012 at 09:21
MF,
I was in a pretty foul mood yesterday, so I apologize for the edge on my post.
I’m not sure where to start with how exactly your logic works. Let’s start with human action. The base of classical economics, such as supply and demand, presupposed a simple human action. If one vendor is selling an orange for 2 dollars and another for one dollar, nearly all humans will get the one dollar orange. Assuming the same for the supply side and you get the basics of Micro 101.
But even that utterly basic part of economics assumes a “positivist” cause and effect on human action. There are other possible, perfectly logical reasons for, say, the success of Wal-Mart other than lower prices. It’s logical to say that people prefer dirtier stores. Walmart has dirtier stores and therefore they saw higher sales. That’s a perfectly logical argument.
How would one disprove such an argument with airtight logic? Well, you could ask the people shopping at Walmart. They would all mention lower prices. You could also do a correlation of prices and sales, and dirtier stores and sales. The former correlation does not prove causation, but the lack of correlation in the latter does disprove correlation.
Ultimately, even in physics and chemistry, one can’t be absolutely certain of anything. You have to take the current evidence and produce a system of causation that makes the most sense given Occam’s razor. In the case of Walmart, maybe some third factor produces both lower prices and higher sales, but no such explanation exists with near the simplicity of human action preferring lower prices.
So concerning AD and unemployment, like with people shopping at Walmart, people are unemployed due to human action. Specifically managers decided to lay off or fire people. Why did managers do this? Well, you can ask them like you can ask the Walmart shoppers. They would say declining sales (ie AD). Maybe the manager’s are lying or wrong, but they were the ones who made the decision and the most simple explanation is that declining sales did in fact lead to them reducing employment.
There are some other explations still with plausibility and simplicity, such as skills mismatch. Like in the Walmart example above, it’s perfectly logical to say that the skills mismatch caused unemployment. However logical it is however, it still can be disproved by evidence. In the case of today’s recession, skills mismatch cannot explain how unemployment has reached across all sectors.
Instead, an equally logical explanation also matches both what managers say and the evidence. With sticky wages, a 10% decline in AD will lead to 10% lower real production instead of a 10% decline in wages. The fact that a decline in AD has to be either a decline in employment or wages is a mathematical identity. The feline in employment vs. wages also has a lot of evidence. Finally, you can again ask why managers don’t reduce wages instead of employment.
If you don’t have this positivist thinking, then as the Walmart example shows, you can’t really believe anything about anything. Does every single human action have a precise cause and effect with no stochastic elements? No, there is some human action that mimic quantum mechanics. But like with quantum mechanics, stochastic elements can be accounted for and means still show a precise cause and effect.
24. May 2012 at 10:55
ssumner:
“”Proper” according to what standard? According to who? According to what? Why do theories have to be falsifiable in order for them to be “proper”?”
Finally something we agree on!
Just to be clear, because here you’re “agreeing” with…questions, are you saying valid theories don’t have to be falsifiable?
PS Like I said before, we agree on many things, we just don’t agree on money and banking, and 99% of your posts are on that topic so it just looks like I am being antagonistic for the sake of being antagonistic. It’s like two friends with common interests who just so happen to be raging fans of two different sports teams, and then talking to each other about that sport 99% of the time.
Morgan:
“They can already see that now, by simply looking at government spending as a percentage of total spending.”
MF, this is wrong. You are starting from a status quo that doesn’t exist.
Yes, it does exist. Government spending statistics can be observed. Total spending statistics can be observed. People can, and do, divide one number by the other, to see what government spending as a percentage of the total happens to be. I myself have done it on more than one occasion. It’s not hard.
Just because the Fed isn’t currently targeting NGDP, it doesn’t mean NGDP doesn’t exist and can’t be observed. After all, something has to already exist in order for the Fed to target it.
1. Cutting govt. is good thing, it has a positive feedback loop, the PROBLEM is that loop sometimes is too LONG to make sure it is the dominant mindset.
The “feedback” is more or less INSTANT. Each quarter we can observe government spending, and total spending (NGDP). If that is “too long”, then we don’t have to target NGDP, we can just increase the frequency of tracking the two statistics to get a monthly observation.
What a MONTHLY headbanging on the cap of 4.5% does is give EVERYONE a direct immediate feedback loop:
1. when you cut public employees that keeps rates down for the private sector.
2. when you make it easier to extract commodities from the earth, you keep rates down.
If government spending is cut, and there is an effect on interest rates, that already happens today without NGDP targeting. Nobody sets interest rates on their loans by looking at NGDP anyway.
Teaching an animal to do tricks, even a human animal, it is better to get the positive and negative consequences closer to the behavior that you want.
That already happens now.
Really Morgan, why can’t you get this? If people really cared about government spending, then they can go out and look at government spending statistics as a percentage of total spending statistics. Nothing is significant about a constant 5% NGDP growth rate. What matters is the difference between government spending and total spending. We can OBSERVE the percentage of government spending to total spending TODAY.
This provides CLARITY and they LEARN.
They can be clear about it and learn about it now. If they are so stupid that they can’t even divide one number by another number in 2012, then dividing the one by the other in NGDP targeting in 2015 won’t be any more clear to them.
dwb:
“Logic and mathematics are non-falsifiable sciences. Are they not “proper”, and should we reject them as “dogmas”?”
Mathematics isn’t a science.
I disagree. At the universities I went to, in all cases, mathematics was in the science department. My friend even got a master’s degree in science, an MSc, and his major was mathematics.
Mathematics is a science because it is not a faith based inquiry.
If you don’t want to define mathematics as a science, then you’d just be quibbling over definitions. OK, if mathematics isn’t a science to you, then Austrian economics isn’t a science the way mathematics isn’t a science. It would be false to say that Austrian economics isn’t a science the way divinity studies isn’t a science.
The sciences contain and develop knowledge for explaining and predicting reality.
Austrian economics contains and develops knowledge for explaining reality. It rejects the notion that human action is predictable according to constancy.
If you science MUST be able to predict in accordance with constancy in relations, in order for it to be defined as a science, then what happens when you come into contact with a subject matter that cannot be predicted according to constancy in relations? Are you going to say the subject matter is inherently not reality? That humans cannot possibly grasp it in any way? That anyone who does try to grasp it, but uses a unique method because the traditional method doesn’t work on this particular subject matter, they are engaged in an “unscientific” pursuit? Well so what, if a particular subject matter requires a unique method of inquiry that you define as unscientific, then so be it. To you I willingly and with enthusiasm use “unscientific” method akin to mathematics and logic.
Or, I’ll keep doing what I am doing, by rightfully calling it science just mathematics is considered a science in probably every university in the world.
You know what you’re doing? You’re being a semantic tyrant. You are trying to use the word “science” as a way to refute or grant access to the realm of “academic validity.” By insisting that something is not science, you believe you can squash it from being a valid field of inquiry.
Your conception of science is just the same old positivist definition. That’s all it is. You insist that I adopt your definition of science, when I would rather not quibble over definitions, and instead inquire into the nature and structure of reality, and just like the alleged “unscientific” mathematics enables me to do that, so too does the allegedly “unscientific” praxeology enable me to do that.
Mathematics is a tool used to develop this knowledge. It’s an analytical system that makes it convenient to represent relationships between physical and abstract quantities. Math is MOST DEFINITELY not a science.
You’re just again insisting that I adopt your positivist framework. That’s why you have labelled mathematics as “analytical.” Sorry, I reject positivism as an invalid method in economics. I hold that mathematics is not merely analytical, but it is objectively grounded. I hold that mathematics is grounded in counting, and counting is grounded in human action. The reason why humans can all do math and communicate in the universal language of mathematics, is because all humans are actors.
Mathematics doesn’t just make developing knowledge easier. The praxeology behind mathematics is a NECESSARY foundation for ALL knowledge. Mathematics is one branch, and economics is another branch, from this same foundation.
Mathematics is definitely a science. Economics is definitely a science. I define science differently than positivists.
“Even if I learned of some truth of my brain today, even if I learned of some constant causal relation, that very learning process will change my brain into a physically new brain, thus rendering my previous inquiry a historical event that is unique to the past. I cannot use it to make any statements about the future learning I will do, which is to say the future physical structure path of change of my brain.”
This is just incredibly daft. The brain analogy is a poor one.
I thought it was an excellent analogy. You’re just mad that I came up with it, that’s all.
It is an extremely complex organ, and the act of observing it for an experiment might cause changes in a different region, separate from the area of study.
Ah yes, the good old “It’s extremely complex!” and so “You’re wrong and I’m right” defense. If it’s extremely complex, then you can’t say anything about it either, which means you have no knowledge to say I am wrong.
See, this is your problem. You want me to just take what you are saying on faith. You want me to question my own conception of truth, so that I can be rescued by your conception of truth. You attack my ability to think, by telling me my own mind is too complex for me to understand at all, so that I can swoon by your mastery of sophistry and just listen to you instead. Sorry, I am not going to do that. I know what I know, for it’s my own mind, and your words mean nothing to the reality of my own mind that is open to me and not you.
I used the physicality of the brain as an analogy for the logical necessity in what I am saying. You always have to keep in mind that my primary argument is about logic. We have to logically presuppose that learning alters our minds. Since I am a physicalist, I used the physicality of the brain as an analogy. I don’t have to know the exact chemistry and physics of my brain to know what is logically going on up there. Nobody does. It’s how non-neuroscientists are able to live and enjoy happy lives, and think and act.
My mind is powerful enough to be able to know the basic truth that I have desires and I must use means to accomplish those desires. I don’t need to know anything about neurons or synapses before I can know this. I as me am on an ontologically higher ground compared to everything I could possibly learn ABOUT me. I have arms, but I am more than just my arms. I have a brain, but I am more than my brain. I have neurons, but I am more than my neurons.
More importantly, if it is well-characterized how some particular process will change the brain, there’s no reason that based upon some action, which produces some change in the brain, one can’t determine a future path of change, prompting further action, prompting further change, etc.
You see that? You say “if it is well-characterized” and “then there is no reason”. You’re arguing from ignorance. You’re taking a leap of faith. I challenge you to turn that conditional “If”, into a certain “Since”.
How in the world can you base your entire philosophy of science on a conditional “If”? Your worldview is build on a house of cards in a hurricane.
If you say you are able to predict your future path of learning, based on some constancy of relations, than that means you are implying one can learn something before they actually learn it. If you admit that your life consists of a PATH of learning, and not an instantaneous moment of grasping everything true about the universe, then you cannot tell me that you can know your future path of learning to collapse it into a moment by predicting the future path based on constancy! Don’t you get it? It would be like you saying you’re going to take a road you’ve never travelled before, and don’t have a map for, and you’re claiming to be able to know what the whole road looks like based on looking our your rear view mirror.
You’re telling me “Oh Major_Freedom, you unscientific galoot, me as the scientist extraordinaire can tell you that IF there is some constant connection between past road directions and future road directions, I can KNOW what the future path of the road will be! That’s how science works! If you’re going to say ANYTHING “scientific” about the road, then it MUST be in the form of a prediction! If not, then you’re an unscientific dogmatist.”
Do you know nothing of statistics, iterative algorithms, signal processing?
Yes. I also know of pompous people who want to sound smart, by sending a list of all kinds of areas of inquiry, so as to intimidate, without of course showing he actually understands these things, which makes me laugh.
Don’t make this brain-data comparison again, because it is straight-up wrong.
No, it’s absolutely 100% correct. All of these alleged constancies you’re claiming can be found, REQUIRE that your brain change in a priori unpredictable ways in the very process of learning them. Either that or you’re claiming to know now what you will learn later, before you even learn it.
“I cannot use it to make any statements about the future learning I will do.”
??? Is this a joke? Large swathes of neuroscience are dedicated to this.
Neuroscientists don’t seek to predict what learning path I will take. They study the biophysics of brain processes, and in so doing, the scientists alter their own minds in a priori unpredictable ways. They also don’t know what they will learn, before they learn it. What I am saying applies to all humans, not all humans less neuroscientists.
I am not in a neuroscience lab. Neuroscientists cannot be claimed be able to predict what they don’t even observe.
“No, if we want to learn certain truths, then we can only do so by finding the “cross section”, so to speak, of ourselves, and of physical reality. Where they overlap, is where certain truth can be found. That means that we can’t ONLY observe our surroundings. We ALSO have to engage in non-observable self-reflection. Where they overlap, that’s where certain truths are, and because economics is a study of we humans, economics MUST be grounded in self-reflection, NOT observations outside ourselves.”
Wait for it…
This is just hokum and belongs in a seedy “20 short self-help steps to a billion dollars!” book.
There it is!
If you can’t mentally keep up, then might I suggest doing something else other than relegating yourself to childish antagonism?
“This is why positivism works in physics and chemistry, but not in economics. It’s because physics and chemistry are studies of things outside ourselves. Economics is a study of US. Therefore, what you call “ideology” is in fact the only proper path to economic science.”
WHAT!?
Is this really a wise choice of words when reading words on blogs?
Explain this distinction to me. How are physics and chemistry not also studies of US?
They are studies of the physical properties of us, but they are not the study of our actions. Action is a teleological phenomena. It is means and ends oriented. Physics and chemistry are biological phenomena.
It is like saying while physics and chemistry can enable us to know the composition of the road, only teleology can enable us to know why the road is in the shape and direction it is in, rather than some other shape and direction. If you look at a road, what do you see? Do you only see a strip of concrete and paint? Or do you also see a product of human ends and desires? That the reason the road has the direction it has, is because humans desired it to be that way? Could you have predicted by looking the road builders brains last year, that they would have built this road in this way this year? Or should we take the intentions of the road builders as a given, based on something we could never predict by looking at them in the past?
We depend on very specific physics and chemistry. I think it’s clear what you’re trying to say but the distinction you’re making is wrong.
Why is it wrong? Why is it wrong to make a distinction between learning and the learner that is learning? Why is it wrong to make a distinction between the properties of a thing, and the thing that owns those properties?
Chemistry and physics may describe a whole slew of things about me, about my properties, but those properties will never EXHAUST me. I will always use every knowledge I acquire about me, as means to accomplish my subsequent ends. In this way, knowledge about me can never catch up to my future intentions. I would have to know more than I am even in principle capable of knowing.
The reason why you think chemistry and physics can one day be used to predict everything, is because you don’t yet fully recognize what you really are. You don’t yet fully grasp that you’re not a God that has a bird’s eye view of yourself. You are you. Because of that, you will never be able to acquire the knowledge that can enable you to do what you believe positivism can do. Positivism, if it could work for human action, could only be done by beings who are not human actors. Neuroscientists won’t be able to do it, because the more they learn about the human brain, the more their own brains will change in a priori unpredictable ways, and so there won’t be any constancies capable of being learned in their own actions either. Everything they learn about the brain, will affect their own brain in an unpredictable manner, because they too are not Gods.
Where, for example, would you classify biology? Positivist science? Or not?
Again, I am not one to argue over definitions. It’s a waste of time. To answer your question, I would classify biology as a positivist science to the extent that biologists make predictions based on the constancy of relations assumption, and I would classify it as non-positivist to the extent that it is a labelling system.
Either way cut it out with the science allusions, to the broad public they muddle your point and to the scientist, present irritating and contrived comparisons.
Hahaha, no, I will not “cut it out.” I am not concerned with the broad public, nor am I concerned with scientists. I am posting a reply to you, to address what you said, to respond to your points, and so on. I am going to continue to be a splinter in your mind.
brain chemistry has a proven, scientific, link to behaviors and mental diseases, no?
Then use it to prove what I will do this time next year.
(like bipolar disorder, etc.). Also, isn’t there a proven scientific link between certain areas of the brain and behavior (i.e. play a part in problems like aphasia). Plus, certain mental disorders are highly inheritable…
Don’t these truths have to be learned as well? How do you know who will learn them and who won’t? How do you know how people will act on the basis of learning these truths? Again, you would be compelled to take intended goals as a given, not these truths. The truths can only ever be used as means to further human ends. They cannot BECOME human ends.
24. May 2012 at 11:04
a. i took no opinion on whether math is a “science” or not. I know of some mathematicians who think of their work as art, as pure and unsullied by practical application, i know some other economists treat their models the same way. conversely, i also know mathematicians who only do applied math.
b. so if we took math and put into liberal arts wings its not science anymore, that’s all we need to do here to settle the debate?
c. who cares.
24. May 2012 at 11:36
How is food policy anti-eater? It’s certainly pro-food-producer, or at least certain kinds of food producers ($$$), but I’m not sure that’s the same thing.
If what the eaters are interested in is the highest abundance of the cheapest available calories, I think policy’s pretty pro-eater. And I guess I think on average, that’s what eaters are interested in.
24. May 2012 at 12:19
MF,
People make a lot of money by being able to accurately predict human action. And studies show that even in the face of corrective evidence, people don’t abandon their beliefs, so are you really sure that people change in unpredictable ways upon learning new information? I doubt you have changed your mind about anything because of any piece of evidence or argument given here. Ever.
24. May 2012 at 12:40
Matt Waters:
I was in a pretty foul mood yesterday, so I apologize for the edge on my post.
No worries. I can take it. I always ALWAYS bring out the edge in people in debating. It’s something I have come to learn as almost always necessary in order to get at what people really think, what their core principles really are, and why they think what they think. Most people have been soiled by years and years of education that is more indoctrination. We are educated in a way that denies us our own individuality, precisely because education has that quality. Only self-education can enable a person to truly learn about themselves, and hence learn about reality. Education from others can only take you so far. Other people can only ever teach you about what you and they share in common. You will never learn about all of you through others only.
I’m not sure where to start with how exactly your logic works. Let’s start with human action. The base of classical economics, such as supply and demand, presupposed a simple human action. If one vendor is selling an orange for 2 dollars and another for one dollar, nearly all humans will get the one dollar orange. Assuming the same for the supply side and you get the basics of Micro 101.
But even that utterly basic part of economics assumes a “positivist” cause and effect on human action. There are other possible, perfectly logical reasons for, say, the success of Wal-Mart other than lower prices. It’s logical to say that people prefer dirtier stores. Walmart has dirtier stores and therefore they saw higher sales. That’s a perfectly logical argument.
How would one disprove such an argument with airtight logic? Well, you could ask the people shopping at Walmart. They would all mention lower prices. You could also do a correlation of prices and sales, and dirtier stores and sales. The former correlation does not prove causation, but the lack of correlation in the latter does disprove correlation.
Ultimately, even in physics and chemistry, one can’t be absolutely certain of anything. You have to take the current evidence and produce a system of causation that makes the most sense given Occam’s razor. In the case of Walmart, maybe some third factor produces both lower prices and higher sales, but no such explanation exists with near the simplicity of human action preferring lower prices.
So concerning AD and unemployment, like with people shopping at Walmart, people are unemployed due to human action. Specifically managers decided to lay off or fire people. Why did managers do this? Well, you can ask them like you can ask the Walmart shoppers. They would say declining sales (ie AD). Maybe the manager’s are lying or wrong, but they were the ones who made the decision and the most simple explanation is that declining sales did in fact lead to them reducing employment.
There are some other explations still with plausibility and simplicity, such as skills mismatch. Like in the Walmart example above, it’s perfectly logical to say that the skills mismatch caused unemployment. However logical it is however, it still can be disproved by evidence. In the case of today’s recession, skills mismatch cannot explain how unemployment has reached across all sectors.
Instead, an equally logical explanation also matches both what managers say and the evidence. With sticky wages, a 10% decline in AD will lead to 10% lower real production instead of a 10% decline in wages. The fact that a decline in AD has to be either a decline in employment or wages is a mathematical identity. The feline in employment vs. wages also has a lot of evidence. Finally, you can again ask why managers don’t reduce wages instead of employment.
If you don’t have this positivist thinking, then as the Walmart example shows, you can’t really believe anything about anything. Does every single human action have a precise cause and effect with no stochastic elements? No, there is some human action that mimic quantum mechanics. But like with quantum mechanics, stochastic elements can be accounted for and means still show a precise cause and effect.
1. You’re not actually postulating logical arguments when you say things like “While it may be a logical argument, it’s empirically falsified.” What you are doing is postulating empirical arguments of the form “If A then B”, and then realizing that A took place, and then B did or did not follow. The kind of logic I am talking about is more fundamental than historical events. The logic I refer to concerns the cognitive “boundaries” of understanding historical events. It is means and ends oriented. I can’t use this logic to determine how many employees a Wal-Mart will lay off, or whether or not they will gain more sales because of dirty stores. These are empirical questions for historians. The economist, well the Austrian economist, is far more limited in what he can tell you. He can tell you only the basic laws of economics that are always true. If the context is some series of historical events, then thymology can be used to interpret why those events took place and not others. We can only explain empirical events after they occur, and ascertain the intentions and goals of the individual actors at that time, in those places.
2. It is not true that not having positivist thinking prevents one from believing anything about anything. You ask if every single human action has a precise cause and effect with no randomness, and then proceed to answer no, some human action has random elements, but that randomness can be accounted for, which means precise cause and effect is the case after all. I will tell you that the way you are thinking is exactly how an actor would think. An actor acts in order to bring about effects that would not have taken place without the action. This presupposes causality. Actors MUST presuppose causality in the world around them. A non-causal reality is literally unthinkable. But, and here is where Austrian logic diverges from the mainstream: While action in the world presupposes causality in the world, it requires that action itself be non-causal. In other words, while we can coherently think of a world that is past causally determined, we can’t coherently do that with ourselves as actors. Perhaps one can consider this a cosmic joke, or perhaps one can consider non-causality as some sort of stage in the universe’s evolution, or maybe causality and non-causality have always co-existed, and we have just come to label non-causal phenomena as “random” or “unpredictable.” I don’t know.
What I do know is that if an actor is going to view the world around him as past-causally determined, he cannot coherently view himself that way at the same time. Why is that? Well, this part is very tricky to explain, but the gist of it is that we cannot coherently aim at achieving something we regard as already past and settled.
Let me give you an example. Suppose there are two boxes. One is made of see through glass, the other is opaque. The clear box has $10,000 in it. You can see the money. The opaque box, because it is opaque, you don’t know what’s in it. I am standing beside you. I tell you I am a perfect predictor. That is, I can predict the future based on past events. Suppose you believe me, on the basis that it follows from the nature of positivism. In positivism, it is in principle possible for a person to be able to predict future events based on knowing past events. So here is what I offer you:
I give you two choices. You can either choose to take ownership of only the opaque box, or you can take ownership of both boxes. Here is the catch however: I tell you that beforehand, I either put $1 million in that opaque box, or I didn’t. I also tell you that I can predict your actions. Here is what I predict: If you choose to take only the opaque box, I will have put $1 million in the opaque box. If you choose both boxes, I will have put nothing in the opaque box.
Since it is stipulated I am a perfect predictor, I know what you will choose. Since you trust me as a predictor, you also know that if you choose to take both boxes, I tell you I predict you will get only $10,000, but if you choose to take only the opaque box, then I predict you will get $1 million plus $10,000.
So now we’re at the moment of choice. It’s now time for you to choose. What will you choose? Will you choose the one clear box, or will you choose both boxes? There are two arguments here that I think are both plausible and correct.
The first argument is to say OK, if I tell you I am a perfect predictor, and I predict that you will have chosen both boxes, that nothing will be in the opaque box if you choose both boxes, and if I predict you will choose only the opaque box, that $1 million will be in the opaque box, then according to trusting the predictor, me, you should pick only the opaque box, to get the $1 million. The choice is easy isn’t it? You choose the opaque box. $1 million is better than $10,000.
The second argument is to say wait a minute, if the predictor, me, has already made a prediction, then at this point in time, I have already put either the $1 million in there or not. That action is already past and settled. The opaque box either has the $1 million in there or it does not. So that means, using a different argument here, if the $1 million is in the box, then taking both boxes will get you $1 million plus $10,000, and if the $1 million is not in the opaque box, then taking only the opaque box will get you nothing. So surely the best option is to take both boxes. $10,000 is better than nothing, and $1 million plus $10,000 is better than $10,000.
I think both arguments are correct in their own right. But they of course can’t BOTH be right, for they contradict each other. So what’s going on? Here I think my logic is finally explained. My logic is that it would be incoherent for someone to think they can even be in such a situation. We cannot coherently aim at choosing something that we consciously regard as already past and settled. In other words we can’t coherently regard ourselves as past causally determined.
While I am not saying I know for a fact we are not past causally determined, since perhaps a super human entity with super-human powers of logic could actually see us as past causally determined, what I I submit is that one can never do it. One cannot step outside themselves and look at themselves the way scientists look at atoms and molecules in a lab. If you say we can, then I will just direct your attention to the scientist himself, and ask you if he can consider himself as past causally determined such that he can know his own future by basing his prediction on past events. Who can know their own future? It’s impossible. Do you see why I am against positivism? Positivism works for phenomena that can be coherently regarded as past causally determined. It cannot possibly work for phenomena that cannot be coherently regarded as past causally determined, namely ourselves. It would be like a property of a thing being claimed as the thing itself by the owner of that property. Positivism is a tool, and that tool has an owner. The owner gives meaning to the tool. The tool cannot be regarded as giving meaning to the owner, from the owner’s perspective.
24. May 2012 at 12:54
dwb:
a. i took no opinion on whether math is a “science” or not. I know of some mathematicians who think of their work as art, as pure and unsullied by practical application, i know some other economists treat their models the same way. conversely, i also know mathematicians who only do applied math.
b. so if we took math and put into liberal arts wings its not science anymore, that’s all we need to do here to settle the debate?
c. who cares.
My apologies. I cited your username in bold, instead of RJ’s. All of that was directed at him.
RJ:
People make a lot of money by being able to accurately predict human action.
I fully agree. But I reject the notion that they are correctly predicting human action on the basis of having found a constancy relation the way chemists and physicists do so in the lab.
This is why you can’t learn how to be an entrepreneur out of a textbook, whereas you can learn how to be a physicst and chemist out of a textbook. It’s why economists who try to mimic physicists are poor, and why entrepreneurs with that je ne c’est quoi are wealthy. If economics really did teach us about how to predict human action, then economists the world over would be the richest people, not college drop outs and entrepreneurial spirited non-economists.
It’s also why Wall Street lost billions when economic PhDs infiltrated the profession and convinced businessmen that the constant “rho” estimate of volatility of mortgage defaults in their sophisticated MBS pricing models, blew up in their faces, why the belief of a constancy between AD and employment blew up in their faces in the 1970s, and why the belief of a constancy between interest rates and foreign exchange rates blew up LTCM in the 1990s.
And studies show that even in the face of corrective evidence, people don’t abandon their beliefs, so are you really sure that people change in unpredictable ways upon learning new information?
Studies show. Studies show. Studies show. If I had a nickel for every time someone cited unnamed studies to prove a point actually derived from ideological agenda, I’d be a millionaire.
You claim that in the face of corrective evidence, people don’t abandon their beliefs? So will you apply that claim to yourself as well, or did you leave a convenient escape hatch? That everyone are doomed to stupidity and repeating past mistakes, while you are able to correct them?
If any study argues that corrective evidence doesn’t change behavior, then what are we to make of those who engage in the study itself? If it is true, then the study itself could not be claimed to change the behavior of the researchers if it presented corrective evidence.
I doubt you have changed your mind about anything because of any piece of evidence or argument given here. Ever.
Look in the mirror. You won’t change your mind about not accepting the non-constancy of human action, despite the plethora of logic and evidence otherwise.
24. May 2012 at 12:57
Oh and RJ, I responded to you above in another post, but I incorrectly prefaced it with “dwb”. In case you wanted to see my response to your last post about mathematics allegedly not being a science.
24. May 2012 at 16:25
“Look in the mirror. You won’t change your mind about not accepting the non-constancy of human action, despite the plethora of logic and evidence otherwise.”
Isn’t that a predictable constancy in my actions?
24. May 2012 at 20:08
MF,
You know, I never did like philosophy. I thought I would like it, since it supposedly is the foundation for everything, but it does always seem to boil down to utterly pedantic arguments that stretch for hundreds of pages.
I would like to recant somewhat my paragraph of stochasticness. I do think that every human action has a certain cause when it happens. As you say, no human could go through the world without presupposing their actions have an effect. All of these actions also happened because of a certain alignment of neurons at a certain time led to some muscular movement. Some outside force then had to cause that alignment of neurons.
What I meant by stochastic effects was in more macro terms. For example, if I had to predict the price of heating oil exactly over next winter, I couldn’t do it. But once the winter actually happens, an omniscient being could see how every alignment in weather forecasts and alignment in the neurons of oil traders led to a certain price of heating oil. In terms of human action, stochasticity is just a mathematical method for accounting for our lack of omniscience and the fact our understanding of, say, weather patterns can only be put as PDF functions due to unknown causal factors. The PDF functions for human understanding does NOT mean the path of heating oil price had a certain, deterministic cause and effect. Every movement of heating oil did in fact have some certain cause and effect.
So since we cannot predict human action, is it wrong to say that a milder winter wouldn’t reduce heating oil prices? The obvious answer goes back to basic supply and demand, which like I said presupposes predicable human action as much as lower AD cause higher unemployment.
So for all the analogies and philosophical arguments, I’m still don’t see how the views you lay out could believe anything about anything. If you can’t predict human action, then how could you say that free banking leads to better human outcomes? There’s some logic that says it does, but there’s equally logical logic that says free banking leads to worse outcomes.
So, yeah, I will stay with the market monetarist views which have been shown hundreds of times in the past to actually work. It takes a lot of logical contortions to look at the early-80’s and say interest rates and Fed action had no influence on employment. The Fed raised interest rates and employment plummetted. They lowered them and we had a sharp V-shaped recovery. There was no exterior actor on both interest rate policy and employment. The causation is clear however you look at it.
25. May 2012 at 01:26
MF if you dont make a falsifiable.argument its mere tautology. Evidently you need to learn Godels Incompleteness Theorem.
25. May 2012 at 02:14
Mike Sax, you’ve learnt Godel’s Incompleteness Theorems? That’s incredible, I don’t know that much math. But as I understand they have little to do with tautologies or falsifiability. Unfalsifiable statements are not necessarily tautologous; for example, “You are a brain in a vat” is unfalsifiable and yet not a tautology. A tautology is a statement that is true in every logical world – but a statement false in some logical world is not necessarily falsifiable (it cannot necessarily be shown that ours is the false world).
25. May 2012 at 02:32
I wouldnt say I wholly learnt it LOL but I did read the biij and commentary. I belueve it is related to tautilogy though I dont remember the entire.argument offhand. It relates first mathematical systems. Bertreamd Russell had thought that he and.Whitehead had.written a wholly self enclosed system in the.Pricipia Mathematica. Gidel proved that any such system is neccrssarily imcomplete. It cant be wholly proved withim the system itself. It may be totally right but cccant be wholly proven from within-ergo its incomplete. I say all tgis wirh some caurion I hae to refresh my memory but what I said is on the rigjt track
25. May 2012 at 08:15
Major Freedom: “Logic and mathematics are non-falsifiable sciences. Are they not “proper”, and should we reject them as “dogmas”?”
Again read Godel’s Incompleteness Theorem and tell me they’re non-falsifiable. In mathematics an unfalisfiable theory is a tautology, nothing more. If you prove something is non-falsifiable you’ve ended the conversation for a real scientist rather than begun it.
You are correct that mathematics is a science-indeed as has been urged, perhaps the “Queen of the sciences.”
Of course there are two kinds of mathematics-applied and pure mathematics; pure is macromathematics.
But the virtue of mathematics is not nonfalsifiablity. I think this is likely the locus of the whole problem with your entire approach.
You come here and proudly brandish your dogmatism as if it’s some virtue. But what that means is to prove what you say to me I have to accept you as correct before you even open your mouth. It’s like the old Stalin Show Trials where the verdict is already given to the judge before he hears the trial.
“The economy is not a lab. Experiments cannot show constancy relations the way physics experiments can do so, because the very process of experimentation in the economy itself changes the subject matter being studied, i.e. we humans. Any learning of any alleged constancy in human action, changes human knowledge, and thus changes their actions, which renders moot the previous claim to a constancy.”
So it’s not a lab this doesn’t prove that you don’t need actual proof.
“Maybe I am not explaining this well enough, because it is just one of those things that one either “gets” or not, and it takes a while to really grasp it, but I don’t mind being called a dogmatist, or one who “denies evidence”, because I know I am right, I don’t just think it, I really do know it, so I know the people who have to change their minds are positivists, not me. My job can only be to convince people that I am right. What I know is settled and done with. There is no refuting it. This may put you off, it may make you think there is no point in debating me, but then if that is what turns you off, it’s only because you want to convince me of what you believe, which is what I am doing as well, but from a unique angle.”
So basically you know everything about economics and maybe those who accept the tautology of Major Freedom can also know everything. This is why nonfalsifiable claims are meaningless. I either assume your right before I start reading your argument or I never get it.
As for all your caustic talk of positivism you basically misuse this phrase and it fits awkwardly in a macroeconomic discussion rather than where it belongs in a philosophy of science discussion.
25. May 2012 at 09:17
RJ:
“Look in the mirror. You won’t change your mind about not accepting the non-constancy of human action, despite the plethora of logic and evidence otherwise.”
Isn’t that a predictable constancy in my actions?
It’s a present tense argument, contingent upon what I am writing.
Matt Waters:
You know, I never did like philosophy. I thought I would like it, since it supposedly is the foundation for everything, but it does always seem to boil down to utterly pedantic arguments that stretch for hundreds of pages.
Well, everyone adheres to “a” philosophy that is their own. If you don’t like it, if you would prefer to talk only about ideas that presuppose your philosophy, then you run the risk of being an adherent to bad philosophy in my judgment, or at least bad philosophy in your own judgment if you took the time to look at it closer.
I would like to recant somewhat my paragraph of stochasticness. I do think that every human action has a certain cause when it happens. As you say, no human could go through the world without presupposing their actions have an effect.
You see that? Your philosophy is evolving. It may look pedantic, but just consider how far reaching the effects of that evolution has on your thinking about the world. Philosophy interests me greatly because it allows me the ability to be able to choose what to think and do not just at a superficial level, but at all levels.
If there is one thing that I feel sorrow about, it is watching people debate and argue and discuss, without ever resolving their differences, because they are not even addressing their philosophical convictions. Imagine two people, one who has the philosophy that the mind is incapable of knowing any part of reality with certainty, and another who has the philosophy that the mind is capable of knowing parts of reality with certainty, imagine them to be debating politics, or economics, and then both of them are expecting to resolve their superficial disagreements, and both are believing the other to be stubborn, or unwilling to face the evidence, or whatever. Imagine if only they addressed their core philosophical convictions!
All of these actions also happened because of a certain alignment of neurons at a certain time led to some muscular movement. Some outside force then had to cause that alignment of neurons.
“Some outside force.” You see what you are saying? You’re saying that humans are completely contingent, and cannot be viewed as a primary causal force in the universe. Whatever we do, it must have been the effect of a prior “outside” cause. That may very well be the case, but again, I hope my above two box argument made this understandable, that even if that is the case, we could not even coherently regard ourselves as being past causally determined, when we act.
What I meant by stochastic effects was in more macro terms. For example, if I had to predict the price of heating oil exactly over next winter, I couldn’t do it. But once the winter actually happens, an omniscient being could see how every alignment in weather forecasts and alignment in the neurons of oil traders led to a certain price of heating oil.
An omniscient being would be able to know that NOW. It won’t have to wait until the winter. He would be able to know every particle in the universe, their current trajectories, and know exactly where they will be at any moment in the time in the future. Or would it? Would it be able to know itself? If it’s omniscient, then we should say yes. But if it’s omniscient, it would know its own future. Any entity that knows its own future cannot be considered an actor, because action consists of selecting means to accomplish desired ends. But, if we insist that humans aren’t really making choices, that we’re all past causally determined, then we’re right back at incoherence again as per the two box argument above. Whatever it is that is happening with me, my conviction is that I am a primary causal force in the universe. If the universal laws do allow for a temporal entity “built” from prior energy and matter to itself be a “prime mover”, then it look exactly like it looks now, with the existence of me; of me being convinced that I am a prime mover and that I am not past causally determined.
What you probably meant to say is that HUMANS, specifically yourself, will be able to predict better and better the closer you get to the intended date of prediction.
No determinist and no materialist has ever shown me, directly in person or in writing throughout the centuries, why the universe specifically disallows temporal entities from being prime movers. When I press them, it is always, ALWAYS built on assuming that things outside of me, the truths of things outside of me, must be true for me as well because I am not special, that I am just a speck of flesh on a blue planet in a universe that is incomprehensibly larger than I. When I hear that, I do not feel self-doubt. My first impression is why does this person want to tell me I am not special? It is, I think, because they cannot see the specialness in themselves and so they cannot see it anywhere else either. They haven’t yet awoken as a prime mover. They have the flesh to do it, but they’re still “sleeping.” They don’t want to “wake up” and they mortally fear being asleep in a reality of fully awake prime movers. It’s why they lock their doors and turn off the lights when actually sleeping, rather than laying with alligators in broad daylight.
In terms of human action, stochasticity is just a mathematical method for accounting for our lack of omniscience and the fact our understanding of, say, weather patterns can only be put as PDF functions due to unknown causal factors. The PDF functions for human understanding does NOT mean the path of heating oil price had a certain, deterministic cause and effect. Every movement of heating oil did in fact have some certain cause and effect.
I don’t understand this paragraph. You say the path of oil prices had a certain cause and effect, but then you say every movement of price of oil has “some” cause and effect, which of course leaves open randomness to pricing. Which is it?
I think you aren’t settled yet because you refuse to ground all price movements on human action.
When people buy and sell oil, aren’t they purposefully setting those particular prices rather than other prices? Shouldn’t we then say that ALL price movements are exactly a product of human action, which you said way above at the beginning of this latest post, presupposes causality?
So since we cannot predict human action, is it wrong to say that a milder winter wouldn’t reduce heating oil prices?
Yes. It is wrong for the same reason it was wrong for investors and regulators to believe that the national housing market won’t experience a reduction in prices.
The obvious answer goes back to basic supply and demand, which like I said presupposes predicable human action as much as lower AD cause higher unemployment.
Actually no, it doesn’t. The law of supply and demand isn’t an empirical prediction. It is a logical relation. The law as I consider it says that prices are a function of quantity of goods sold for money, and quantity of money sold for goods. P=D/S. If the demand IS $100, and the supply IS 100, then the average price MUST be $1 per. Or, another way of saying it, every price has a specific demand and supply associated with it.
This is not making an empirical prediction of what will be sold, nor in what quantity produced, nor how much money will be offered for them. These are where the empirical predictions come in. The ultimate grounding for the law of supply and demand is praxeological. It is like saying there is no such thing as square circles. It is not an empirical prediction. It is a logical argument.
So for all the analogies and philosophical arguments, I’m still don’t see how the views you lay out could believe anything about anything. If you can’t predict human action, then how could you say that free banking leads to better human outcomes?
I never said it leads to “better human outcomes.” I said fractional reserve banking does not increase real wealth, that fractional reserve banking makes actual rate(s) of saving unobservable, and that fractional reserve banking increases the number of property claims to money, without a corresponding increase in property, which turns money claims into lottery tickets.
The question of “better human outcomes” implies a subjective judgment is present, which then leads me to asking “WHOSE” subjective judgment?
There’s some logic that says it does, but there’s equally logical logic that says free banking leads to worse outcomes.
And what logic is that?
So, yeah, I will stay with the market monetarist views which have been shown hundreds of times in the past to actually work.
Free banking has shown it works better than market monetarism.
See what I did there? Unstated standard allows me to say my plan works better, without even having to explain!
It takes a lot of logical contortions to look at the early-80’s and say interest rates and Fed action had no influence on employment.
Who said that? Not me.
The Fed raised interest rates and employment plummetted.
You see that? You’re going right back to your a priori theory that there is a direct relationship between interest rates and employment.
The problem with that theory is that it doesn’t even fit the facts.
The Fed raised the fed finds rate from 1977 to 1980, and employment kept on increasing. Then as the Fed lowered the rate to under 10% in 1980, from a previous local high of 17%, employment fell. Then as the Fed raised rates once more, this time to almost 19%, employment went up. Then the Fed lowered the rate once again until 1983, and during that time employment fell once again. Then, the Fed raised the rate yet again to about 12% in late 1984, and during that time, you guessed it, employment rose. But then a weird thing happened beginning in 1984. The Fed lowered the fed funds rate, and yet employment ROSE! It kept rising and rising despite the Fed funds rate going up and down.
So much for your “If the fed funds rate increases, then employment decreases” theory.
Your a priori theory about interest rates and employment is based on a fallacious belief that “cheap money”, because it “gets more money flowing”, can increase NGDP, and NGDP is allegedly the primary causal force in employment, production and every other economic phenomena.
In other words, you are fallaciously believing the empirical evidence only fits your story, when in fact competing theories also fit the data, which means you can’t claim your theory to have a monopoly over the data.
They lowered them and we had a sharp V-shaped recovery.
No, that is false.
There was no exterior actor on both interest rate policy and employment. The causation is clear however you look at it.
One cannot observe causation. Causation can only be inferred.
Your post just took a nosedive. You were doing so well until you blurted out “So, yeah, I will stay with the market monetarist views.” It is almost as if you had in your mind someone slapping you on the head for thinking outside the box, as if “I adhere to market monetarism” is a faith based declaration, as if one can only start with that conviction, and THEN one tries to justify it by contorting the facts and twisting the logic, so that this ad hoc judgment can be presented as some sort of result of first principles thinking.
Market monetarism seems to be a poison of the mind. Ingest it, and your mind will do loops trying to tolerate it.
25. May 2012 at 09:28
Mike Sax:
MF if you dont make a falsifiable.argument its mere tautology. Evidently you need to learn Godels Incompleteness Theorem.
I am aware of Godel’s incompleteness theorem. Funny how you have to throw in everything but the kitchen sink at me.
You say “mere” tautology as if it’s useless. Except the Pythagorean theorem is ALSO a “tautology”, in that it is already implied in the conceptualization of a right triangle. But would you claim it is a useless theorem? That it doesn’t expand our knowledge of things? Would you say it immediately comes to the minds of a child who observes a right triangle?
Yes, the entire framework of Austrian economics is one giant tautology. But it is a tautology the way the PT is a tautology. None of the propositions are immediately apprehended just by considering the concept of human action. They have to be thought out. They do expand our knowledge over things.
Now, the seeming discrepancy between the above and Godel, is actually rather easily dealt with. Godel’s Incompleteness theorem presupposes the concept of infinity to be valid and applicable in the course of mathematical proofs to which Godel applies. But here’s the catch with that: Human action precludes infinity. They are inimical with each other. Godel’s theorem does not apply to systems that are inherently finite, in the sense of having an “upper bound” so to speak. Godel found that he could always engage in a “…plus 1” type game that renders any mathematical theory inconsistent, or incomplete. But for human action, this cannot be done. Our actions are delimited at all times, in all places, always. There is no “…plus 1” continuousness associated with it.
So all the principles deduced in Austrian economics cannot be refuted by any theory that requires infinity to be valid, including Godel. His theory applies to unbounded theories about things like the unbounded natural number system. No human actor could ever actually act upon infinity, count to infinity, even conceive of infinity by way of action.
25. May 2012 at 09:42
“Funny how you have to throw in everything but the kitchen sink at me.”
Not really. You were the one who was getting kind of metaphysical above. As you were making claims about the nature of mathematics and nonverifiablity I figured I might as well go there.
Especially as you say, “there is one thing that I feel sorrow about, it is watching people debate and argue and discuss, without ever resolving their differences, because they are not even addressing their philosophical convictions. Imagine two people, one who has the philosophy that the mind is incapable of knowing any part of reality with certainty, and another who has the philosophy that the mind is capable of knowing parts of reality with certainty, imagine them to be debating politics, or economics, and then both of them are expecting to resolve their superficial disagreements, and both are believing the other to be stubborn, or unwilling to face the evidence, or whatever. Imagine if only they addressed their core philosophical convictions!”
So you’re the one in a sense who is always throwing in the kitchen sink and turning a marcoeconomic debate into an ontological and epistemological one. You should therefore want us to get into what the real differences are then.
It does seem to me that the reason mainstream economists have this requirement about making only falsifiable claims goes back to Godel.
So let’s look under the kitchen sink. As a start the basic Incompleteness Theorem:
“The first incompleteness theorem states that no consistent system of axioms whose theorems can be listed by an “effective procedure” (e.g., a computer program, but it could be any sort of algorithm) is capable of proving all truths about the relations of the natural numbers (arithmetic). For any such system, there will always be statements about the natural numbers that are true, but that are unprovable within the system. The second incompleteness theorem, a corollary of the first, shows that such a system cannot demonstrate its own consistency.”
“The first incompleteness theorem states that no consistent system of axioms whose theorems can be listed by an “effective procedure” (e.g., a computer program, but it could be any sort of algorithm) is capable of proving all truths about the relations of the natural numbers (arithmetic). For any such system, there will always be statements about the natural numbers that are true, but that are unprovable within the system. The second incompleteness theorem, a corollary of the first, shows that such a system cannot demonstrate its own consistency.”
http://en.wikipedia.org/wiki/G%C3%B6del%27s_incompleteness_theorems
I would suggest that you want to argue for your own brand of Austrianism’s consistency from within. That may sound fine to you. HOwever it might give a clue why so many others don’t find you persauisve no matter how supremely self confident you might think you are about your own system.
25. May 2012 at 09:44
While you claim that positivism is based on some belief in superhuman ability you’re belief in your tautology enables you to feel that you know everything regarding economics vs those who don’t see your truth are in need of your enlightenment. So in reality anit-postivism for you gives you something like a superhuman belief in your own knowledge.
25. May 2012 at 09:48
Mike Sax:
Major Freedom: “Logic and mathematics are non-falsifiable sciences. Are they not “proper”, and should we reject them as “dogmas”?”
Again read Godel’s Incompleteness Theorem and tell me they’re non-falsifiable. In mathematics an unfalisfiable theory is a tautology, nothing more. If you prove something is non-falsifiable you’ve ended the conversation for a real scientist rather than begun it.
In mathematics, infinity is “permitted.” Not in human action. Thus, the non-falsifiable propositions in economics are immune from Godel’s theorem. It’s apples and oranges.
You are correct that mathematics is a science-indeed as has been urged, perhaps the “Queen of the sciences.”
Tell that to RJ. He vehemently denies this. His faith will probably be more assured by you than me, because you go to the same “church.” <- not an insult.
Of course there are two kinds of mathematics-applied and pure mathematics; pure is macromathematics.
I consider mathematics a tool, and as such, the only way such a tool can be filtered, or transformed, from idealistic conceptions, to human action, is by way of applied mathematics.
It’s kind of like the transition from theology to meditation. Theology is purely mental. Meditation is kind of sort of like applied theology and is bodily.
But the virtue of mathematics is not nonfalsifiablity. I think this is likely the locus of the whole problem with your entire approach.
Except I never said non-falsifiability of mathematics is a “virtue”. I hold it to be an attribute. I don’t see how accepting it to be non-falsifiable is somehow a mar on my position.
You come here and proudly brandish your dogmatism as if it’s some virtue.
??? It’s not dogmatism. No more than mathematics is a dogma.
You’re proudly brandishing your dogma, which is trying to understand human action by using ONLY the tools of mathematics, as if praxeology IS a form of mathematics.
You’re misapplying your knowledge. YOU are coming here all proudly with Godel and incorrectly trying to use Godel to say something about praxeology, which isn’t mathematics? Goodness. Did you say I came in here all proud because you know that’s what you are doing?
But what that means is to prove what you say to me I have to accept you as correct before you even open your mouth. It’s like the old Stalin Show Trials where the verdict is already given to the judge before he hears the trial.
Nonsense. I am not asking you to take anything I am saying on faith, let alone before I even open my mouth.
“The economy is not a lab. Experiments cannot show constancy relations the way physics experiments can do so, because the very process of experimentation in the economy itself changes the subject matter being studied, i.e. we humans. Any learning of any alleged constancy in human action, changes human knowledge, and thus changes their actions, which renders moot the previous claim to a constancy.”
So it’s not a lab this doesn’t prove that you don’t need actual proof.
I didn’t say I don’t need actual proof. What’s up with you dude? You sound mad.
“Maybe I am not explaining this well enough, because it is just one of those things that one either “gets” or not, and it takes a while to really grasp it, but I don’t mind being called a dogmatist, or one who “denies evidence”, because I know I am right, I don’t just think it, I really do know it, so I know the people who have to change their minds are positivists, not me. My job can only be to convince people that I am right. What I know is settled and done with. There is no refuting it. This may put you off, it may make you think there is no point in debating me, but then if that is what turns you off, it’s only because you want to convince me of what you believe, which is what I am doing as well, but from a unique angle.”
So basically you know everything about economics and maybe those who accept the tautology of Major Freedom can also know everything.
No, I don’t know everything about economics. That’s a straw man. I said WHAT I KNOW is settled and done with. I didn’t say that this is equivalent to “everything.” What’s up with the all or nothing mentality?
This is why nonfalsifiable claims are meaningless.
Non sequitur. That doesn’t even follow from the prior statement. Plus, both statements are wrong in their own right. Two wrong statements, one is wrongly claimed to follow the other. Can anyone be more wrong?
Look. You’re in over your head. For I can easily show what you are saying as contradictory:
You say non-falsifiable statements are meaningless. OK, then what about the statement “All non-falsifiable statements are meaningless”? Is that a falsifiable proposition, or is that a non-falsifiable proposition? If that statement is to have meaning, then according to you it must be a falsifiable statement. Well, if it’s a falsifiable statement, then using your own logic, you are ipso facto obligated to accept the possibility of meaningful non-falsifiable statements. You cannot reject them a priori, or else your statement would become non-falsifiable and hence meaningless according to you.
Either way, I’m right about this and you’re wrong. Just deal with it and move on. I recommend you not make a fool of yourself trying to thump your chest any more. I feel embarrassed for you.
I either assume your right before I start reading your argument or I never get it.
False dichotomy. You can refrain from judgment, read, learn, and then get it.
As for all your caustic talk of positivism you basically misuse this phrase and it fits awkwardly in a macroeconomic discussion rather than where it belongs in a philosophy of science discussion.
Caustic talk? Look who’s talking.
And you haven’t even shown how I am “misusing” the phrase.
….is that it? You know, if you don’t accept what I am arguing, then that’s one thing. But to have your attitude whilst doing it, makes me believe that you’re more interested in playing alpha dog than sticking to the arguments. I’d rather stick to the arguments, but because you turned this into a sports game, I’ll put my jersey on if you want.
25. May 2012 at 10:15
Major, it’s nothing to do with being alpha dog. As you say you want to get to where the real differences are I’m helping you along is all.
You say that I want to be top dog and yet rather facilely claim that I’m “in over my head” which suggests that maybe you’re imputing your motivations to me. I’m all for a meeting of the minds as you claim.
As for talk about being mad it’s unfortunate for you of all people to play that card.
“And you haven’t even shown how I am “misusing” the phrase.”
I just don’t hear any coherent definition of positivism in your spiel. To me the burden of proof is on you to show you even know what positivism is. I don’t recognize it from your usage.
You don’t need to feel embarrassed for me as you have plenty to be embarrassed about on your own behalf.
“WHAT I KNOW is settled and done with.”
Major, I’m just trying to help you out. You come here as a missionary thinking you can win people over to your particular brand of Austrianism. It doesn’t seem to be working. At least many here don’t seem to find it persuasive-in this context that’s the argument about falsifiability. When you make nonfalsifiable claims they aren’t persuasive. To make something falsifiable is simply to make them verifiable.
Whatever you may think is settled and done with few others seem to agree with you. As you have the missionary project it’s up to you to be more persuasive. As you’re not maybe the tautological approach isn’t working. If you want to simply continuing to argue “I’m right because I am” that’s’ your choice.
But if you seek to evangelize for Austrianism you might want to shore up your approach.
25. May 2012 at 10:19
Mike Sax:
“Funny how you have to throw in everything but the kitchen sink at me.”
Not really. You were the one who was getting kind of metaphysical above. As you were making claims about the nature of mathematics and nonverifiablity I figured I might as well go there.
With Godel though? Praxeology isn’t mathematics. Mathematics is actually subsumed under praxeology, which of course makes infinity unwelcome.
Especially as you say, “there is one thing that I feel sorrow about, it is watching people debate and argue and discuss, without ever resolving their differences, because they are not even addressing their philosophical convictions. Imagine two people, one who has the philosophy that the mind is incapable of knowing any part of reality with certainty, and another who has the philosophy that the mind is capable of knowing parts of reality with certainty, imagine them to be debating politics, or economics, and then both of them are expecting to resolve their superficial disagreements, and both are believing the other to be stubborn, or unwilling to face the evidence, or whatever. Imagine if only they addressed their core philosophical convictions!”
So you’re the one in a sense who is always throwing in the kitchen sink and turning a marcoeconomic debate into an ontological and epistemological one. You should therefore want us to get into what the real differences are then.
There is a difference between addressing the presuppositions of people’s actual claims, and throwing in mathematical theorems as a means to refute someone about economics.
It does seem to me that the reason mainstream economists have this requirement about making only falsifiable claims goes back to Godel.
I thought it went back to Popper. Popper’s falsifiable criterion was advanced in a book published in 1934, which means he must have been working on it in the years prior, while Godel published his two incompleteness theorems in 1931.
So let’s look under the kitchen sink. As a start the basic Incompleteness Theorem:
Oh do we really have to?
Darn.
“The first incompleteness theorem states that no consistent system of axioms whose theorems can be listed by an “effective procedure” (e.g., a computer program, but it could be any sort of algorithm) is capable of proving all truths about the relations of the natural numbers (arithmetic). For any such system, there will always be statements about the natural numbers that are true, but that are unprovable within the system. The second incompleteness theorem, a corollary of the first, shows that such a system cannot demonstrate its own consistency.”
See how that requires infinity?
Human action makes infinity an impossible concept. EVERYTHING about human action is finite. If in principle I were say everything that is true about me, right now, right here, it would necessarily be a finite collection of propositions. Godel would require that something outside me verify my statements, or else these truths would be “incomplete” or inconsistent. But then what about that verifying thing? Its statements would also have to be verified externally to it. And so on. Up and up we go, in a never ending process. Is that possible in the universe? If it is, humans will never know it, so we can’t say Godel’s theorem is anything other than a tautology itself. In mathematics, it is possible to continuously add 1, or another dimension, but only if infinity is presupposed. But where infinity cannot apply, or does not even exist, Godel’s theorem is inapplicable.
I would suggest that you want to argue for your own brand of Austrianism’s consistency from within. That may sound fine to you. HOwever it might give a clue why so many others don’t find you persauisve no matter how supremely self confident you might think you are about your own system.
It’s what I said before, it’s because those people are open to be convinced but only if their core philosophical convictions are unshaken, meaning they don’t address them themselves. They want to keep their inner convictions, and only debate the superficialities. Since it rarely goes further than the superficialities of whether or not 4% or 5% is the best rate of spending growth, that’s why many others aren’t persuaded. Yhey can only be persuaded if they themselves address their own core philosophy. I cannot do this. They have to do it. I can’t force people to think to address their core philosophical beliefs. 99% of the people here believe themselves to be, and appear to be, positivists, but in practice they’re all a priorists. That’s where disagreements are resolved. That’s where people can understand why 5% NGDP is an absurd advocacy.
You blame me for not being able to force people to address their own philosophical convictions? That’s just your own feeling of omnipotence manifested as a standard for judging me. If I cannot be omnipotent, I fail.
While you claim that positivism is based on some belief in superhuman ability you’re belief in your tautology enables you to feel that you know everything regarding economics vs those who don’t see your truth are in need of your enlightenment.
No, I don’t feel that I know everything. Stop trying to put your poison on me. I know very little, but what I know, I KNOW. You keep mistaking that as being some sort of holier than thou know it all.
This is not about feelings. This is about logical presuppositions. Why not address my arguments about positivism rather than trying to turn this around into a chest thumping game?
So in reality anit-postivism for you gives you something like a superhuman belief in your own knowledge.
So in reality you’re making crap up in order to feel better about your own inadequacies. I am here making it clear that positivism doesn’t accomplish what you think it does, that it requires super-human intellect, and that makes you feel inferior. You then interpret that feeling of inferiority as somehow being my fault, which you then respond to by imagining me to be feeling the opposite of what you’re feeling. It’s a classic psychological case of reaction formation.
25. May 2012 at 10:20
“You’re proudly brandishing your dogma, which is trying to understand human action by using ONLY the tools of mathematics, as if praxeology IS a form of mathematics”
On the other hand Major I’d love to know how you arrive at the idea that I’m doing any such thing.
25. May 2012 at 10:37
Major Freedom “You blame me for not being able to force people to address their own philosophical convictions? That’s just your own feeling of omnipotence manifested as a standard for judging me. If I cannot be omnipotent, I fail.”
See this is my point-as you are constantly turning a macro debate into a philosophy of science debate I figured I’d go with it a bit.
But it seems that you’re saying that the reason so few are following you in your brand of Austrianism is that they lack the correct philosophical ideas.
“Since it rarely goes further than the superficialities of whether or not 4% or 5% is the best rate of spending growth, that’s why many others aren’t persuaded. They can only be persuaded if they themselves address their own core philosophy. I cannot do this.”
You say that an economic discussion is superficial because people don’t address their own core philosophy. But if Austrianism can only be accepted with the right core philosophy aren’t you engaging on a superficial level by starting at economics? You ought to eschew economic discussion which only touches the problem superficially and engage it at the level of core philosophy. I don’t know why you say you can’t do this-people engage in philosophical debates as well as economic debates.
You might solve the problem if you started at the root of the problem which you say is philosophical. Only then would someone be ready for Austrianism.
25. May 2012 at 10:41
Mike Sax:
Major, it’s nothing to do with being alpha dog. As you say you want to get to where the real differences are I’m helping you along is all.
The fact that you think you’re helping me along is exactly what the alpha dog seeker in you would do.
You say that I want to be top dog and yet rather facilely claim that I’m “in over my head” which suggests that maybe you’re imputing your motivations to me. I’m all for a meeting of the minds as you claim.
Except you were the one who introduced into this debate something other than topic related ideas. You turned this personal. I would much rather have preferred to stick to the ideas and arguments. But you’re bringing alpha dog stuff into this, and so I responded in kind, not to make myself the alpha dog, but to put yours back in the cage so the table doesn’t get flipped over.
As for talk about being mad it’s unfortunate for you of all people to play that card.
Yes, it’s unfortunate. It’s unfortunate that you had to call my arguments “daft”, without even having the courtesy of providing a counter-argument.
“And you haven’t even shown how I am “misusing” the phrase.”
I just don’t hear any coherent definition of positivism in your spiel. To me the burden of proof is on you to show you even know what positivism is. I don’t recognize it from your usage.
That’s because I didn’t define positivism. I took it for granted that you understood it. I guess I was wrong.
You don’t need to feel embarrassed for me as you have plenty to be embarrassed about on your own behalf.
No U.
“WHAT I KNOW is settled and done with.”
Major, I’m just trying to help you out.
I didn’t ask for your help. Your desire is not to help me. What good would that do for you? Stop lying to yourself. You’re only trying to insinuate as much so as to make me and others believe you’re not doing this to satisfy your alpha dog desires, which was made very clear. You see how I got you to address your own core philosophical views? You don’t like what you see, and so you’re trying to turn this into a let’s help Major_Freedom session.
Please note, I don’t mind being used in this way. By all means, use me to help yourself. Use me as an image for what you don’t like about yourself.
You come here as a missionary thinking you can win people over to your particular brand of Austrianism.
You come here as a missionary thinking you can win me over to your particular brand of Market Monetarism.
It doesn’t seem to be working.
Oh it’s working alright. I got you to face your core philosophy. It doesn’t have to immediately work. Usually people are convinced, but then they say they’re not, because they want to feel like they convinced themselves, that they have the power, that they’re not going to let a silly internet Austrian do it. It’s OK, I get it.
At least many here don’t seem to find it persuasive-in this context that’s the argument about falsifiability. When you make nonfalsifiable claims they aren’t persuasive. To make something falsifiable is simply to make them verifiable.
Good lord. You really don’t know what positivism is about do you? Falsifiability is definitely, absolutely, certainly NOT about “making” propositions verifiable. In fact, falsificationism was a reaction AGAINST verificationism! There is no “verifying” in falsification. Verification is a component of logical positivism, which is separate from the falsificationist positivism described above.
Whatever you may think is settled and done with few others seem to agree with you.
A few others? Then I consider myself to have won.
As you have the missionary project it’s up to you to be more persuasive.
Persuasive? I don’t want to be persuasive. I want to be right. Those who change their minds according to persuasiveness, rather than correctness, I tend to stay away from, because their standard of judgment tends to be their own feelings. I can’t compete with someone who uses their feelings as standard of judgment of right and wrong.
As you’re not maybe the tautological approach isn’t working. If you want to simply continuing to argue “I’m right because I am” that’s’ your choice.
But that is not what I am arguing, so how can you say anything about me “continuing” to argue in that way? After all the explanations I have written, you have the gall to say my argument is “I am right because I am”? Incredible.
But if you seek to evangelize for Austrianism you might want to shore up your approach.
You’re no judge of that. You can’t even get your own arguments in order.
25. May 2012 at 10:45
“Except you were the one who introduced into this debate something other than topic related ideas. You turned this personal. I would much rather have preferred to stick to the ideas and arguments. But you’re bringing alpha dog stuff into this, and so I responded in kind, not to make myself the alpha dog, but to put yours back in the cage so the table doesn’t get flipped over.”
Non sequitor but entertaining. When did all this happen?
25. May 2012 at 10:46
“That’s because I didn’t define positivism. I took it for granted that you understood it. I guess I was wrong.”
I understand it the question is you do. Your usage of it makes that doubtful.
25. May 2012 at 10:53
Mike Sax:
“You’re proudly brandishing your dogma, which is trying to understand human action by using ONLY the tools of mathematics, as if praxeology IS a form of mathematics”
On the other hand Major I’d love to know how you arrive at the idea that I’m doing any such thing.
Oh I’m sorry, I thought you wanted to play the game of spewing out “you’re brandishing your dogma” without showing evidence for it. Now you want to change the rules?
Major Freedom “You blame me for not being able to force people to address their own philosophical convictions? That’s just your own feeling of omnipotence manifested as a standard for judging me. If I cannot be omnipotent, I fail.”
See this is my point-as you are constantly turning a macro debate into a philosophy of science debate I figured I’d go with it a bit.
See, I am not “turning” a macro debate into a philosophy of science debate. It takes two to tango. You said “I might as well go along.” THAT is when THE DEBATE turned. Before, it was just me yelping.
But it seems that you’re saying that the reason so few are following you in your brand of Austrianism is that they lack the correct philosophical ideas.
BINGO.
“Since it rarely goes further than the superficialities of whether or not 4% or 5% is the best rate of spending growth, that’s why many others aren’t persuaded. They can only be persuaded if they themselves address their own core philosophy. I cannot do this.”
You say that an economic discussion is superficial because people don’t address their own core philosophy. But if Austrianism can only be accepted with the right core philosophy aren’t you engaging on a superficial level by starting at economics?
I start with philosophy, and then I consider economic arguments. Economics did however lead me into philosophy historically. For others it might have been the other way. If one starts with economics, then the road will be tougher, because then the only way to find out of if one is wrong about one’s philosophy, is when their economics fails in practice. How many times has THAT happened! Austrians don’t need to say things like “As positivists, we must first TRY to enact world-wide communism, and only THEN we can know whether or not that there will be no price system for the means of production, hence no cost accounting, and hence production will become chaotic and wasteful.” We also don’t need to say things like “As positivists, we must first TRY to enact $100,000 an hour minimum wage tomorrow, or any wage above the market clearing level, and only THEN can we know whether or not unemployment will be higher than it otherwise would have been.”
Austrians start at the correct initial starting point, so that we don’t have to be idiots and find out whether we are right or wrong by blindly groping along haphazardly, based on seemingly good, but superficial, arguments. Market monetarism suffers from the same flaw as Keynesianism in this respect, or at least its practitioners.
You ought to eschew economic discussion which only touches the problem superficially and engage it at the level of core philosophy. I don’t know why you say you can’t do this-people engage in philosophical debates as well as economic debates.
I can’t do this FOR OTHERS. They have to make that choice. Like you did.
You might solve the problem if you started at the root of the problem which you say is philosophical. Only then would someone be ready for Austrianism.
What do you think I am doing right now?
25. May 2012 at 10:54
“use me to help yourself. Use me as an image for what you don’t like about yourself.”
Major the only use you have for me is some delightful comic relief. Your sophomoric attempts at psychologizing are relief enough. For this I thank you.
By the way I’m not a Market Monetarist though I find it more compelling than the Major Freedom version of Austrianism.
25. May 2012 at 10:56
Mike Sax:
“Except you were the one who introduced into this debate something other than topic related ideas. You turned this personal. I would much rather have preferred to stick to the ideas and arguments. But you’re bringing alpha dog stuff into this, and so I responded in kind, not to make myself the alpha dog, but to put yours back in the cage so the table doesn’t get flipped over.”
Non sequitor but entertaining. When did all this happen?
I don’t think you know what non sequitur means.
“That’s because I didn’t define positivism. I took it for granted that you understood it. I guess I was wrong.”
I understand it the question is you do. Your usage of it makes that doubtful.
As your last post made clear, you actually don’t.
25. May 2012 at 10:57
Mike Sax:
“use me to help yourself. Use me as an image for what you don’t like about yourself.”
Major the only use you have for me is some delightful comic relief. Your sophomoric attempts at psychologizing are relief enough. For this I thank you.
Haha, abort! Abort!
By the way I’m not a Market Monetarist though I find it more compelling than the Major Freedom version of Austrianism.
Why?
25. May 2012 at 11:10
Major it’s been fun as always. We’ll touch on more later. I wonder was that you who answered a recent post of mine?
Because this guy sounds a lot like you. If it’s not I’ll know that the problem is not just you but Austrianism in general.
http://diaryofarepublicanhater.blogspot.com/2012/05/gop-wall-street-journal-herman-cain.html?showComment=1337099821369#c2799627028641102588
Again if it’s not you I’m shocked but confirms that all Austrians sound like this.
25. May 2012 at 11:33
Mike Sax:
I wonder was that you who answered a recent post of mine?
It’s not me.
BTW, is that what you call an invite to your blog? If you want me to post there, you can just ask.
Again if it’s not you I’m shocked but confirms that all Austrians sound like this.
Well that shouldn’t be surprising, because mathematicians always sounds the same too. 2+2=4. I mean they all talk like that! I want more diversity!
“He’s just like this guy, a simpering gold bug, full blow Austrian and verbiose with a capital V!”
Tell me how you really feel about me Mike.
BTW, I am an advocate of a free market in money production, not gold per se. I just use them interchangeably because the free market process tends to always result in precious metals being money. But strictly speaking, I want money to be whatever results from voluntary, peaceful exchanges, and respect for private property rights. That means no criminals, no cheats, no counterfeiters, and thus no central bankers.
BTW, your posts on your blog look to be the same length as Ivan’s.
25. May 2012 at 11:41
MF, Yes valid theories don’t have to be falsifiable. They must be persuasive. For instance, a theory about what caused WWII does not need to be tested by doing another 100 WWIIs as an experiment, and finding it holds up 95% of the time, in order to be valid.
Adam, I was talking about food policies that restrict output (set asides, quotas, etc.)
25. May 2012 at 11:41
Major I really had wondered if Ivan was you under an assumed name. Many readers at Money Illusion also read Diary of a Republican Hater. You would certainly be welcome to read and comment there.
I was just reading a bit of a primer on Austrianism-I’ve read some Rothbard and Hayek but not much and now I see more the significance of your claim quoted above:
“”You’re proudly brandishing your dogma, which is trying to understand human action by using ONLY the tools of mathematics, as if praxeology IS a form of mathematics”
Turns out your whole praxeolgoy is about these deductive axioms about the nature of human action you guys all ascribe to. So the positivist rant is because you think that economics unlike the “hard sciences” shouldn’t use empirical and mathematical models.
I’m less a Market Monetarist than a Post Keynesian. The one place I might agree with you guys is the problems that can come from the credit cycle.
25. May 2012 at 11:42
Again would be happy for you to visit/comment
27. May 2012 at 15:57
ssumner:
MF, Yes valid theories don’t have to be falsifiable. They must be persuasive.
Persuasive? According to what standard? According to who? Who has to be persuaded? If I can “persuade” a moron, or a 5 year old, does that mean my theory is valid? Or do I have to persuade you before it becomes a valid theory (hahaha!)?
For instance, a theory about what caused WWII does not need to be tested by doing another 100 WWIIs as an experiment, and finding it holds up 95% of the time, in order to be valid.
One CANNOT repeat WWII 100 times. It’s already past and settled, never to be repeated, since people, the subject matter of economics, have changed. People’s ideas have changed. Their actions have therefore changed. It is not even in principle possible to “test” the cause of WWII, so it’s not about not “needing” to test it, for one cannot even test it. No, it has to be something else.
By saying a theory only has to be “persuasive”, you are denying that a theory has to be grounded in an objective, rational foundation. You’re subjecting theories to whatever suits your feelings, whatever makes you feel like it is right. Well, how do you know that what persuades you is closer to truth than what persuades others that contradicts your theory?
If I am persuaded of the theory that persuasiveness is the wrong standard, while you are persuaded of the theory that persuasiveness is the right standard, then who is wrong, and why are they wrong? Be specific. Will you go the ridiculous route and say it should be decided by popular vote? Or a vote by a vanguard of the population, who are to decide by vote what is true and what is false?
Sumner, the more you talk about your epistemology, the more I realize why you make so many economic errors. You actually believe a non-falsifiable theory can be validated by you simply being persuaded of it. Wow. So Keynesian non-falsifiable theory and Austrian non-falsifiable theory could only be wrong according to you simply because you’re not persuaded of them?
I’m speechless.
27. May 2012 at 16:16
Mike Sax:
Major I really had wondered if Ivan was you under an assumed name. Many readers at Money Illusion also read Diary of a Republican Hater. You would certainly be welcome to read and comment there.
Sorry, but I am a political atheist. “Diary of a Republican Hater” is a blog devoted to hating people not because of who they are as individuals, but what group you want to identify them as belonging to. It’s the same premise for racism, sexism, and lifestyle prejudices. I wouldn’t read any blog that is devoted to hating groups.
I was just reading a bit of a primer on Austrianism-I’ve read some Rothbard and Hayek but not much and now I see more the significance of your claim quoted above:
“”You’re proudly brandishing your dogma, which is trying to understand human action by using ONLY the tools of mathematics, as if praxeology IS a form of mathematics”
Turns out your whole praxeolgoy is about these deductive axioms about the nature of human action you guys all ascribe to. So the positivist rant is because you think that economics unlike the “hard sciences” shouldn’t use empirical and mathematical models.
Bingo. Just like mathematicians would say empiricism is the wrong approach to mathematics, so too do Austrians say that empiricism is the wrong approach to human action.
See what a little reading can do? You just did what 99% of anti-Austrians never do. Kudos.
I’m less a Market Monetarist than a Post Keynesian. The one place I might agree with you guys is the problems that can come from the credit cycle.
Understand that credit expansion is a component of the aggregate money supply, and hence a component of aggregate spending, and you’ll see why NGDP targeting that presupposes credit expansion – which by the way is the case in our society, as long as inflation is carried on through the banking system – leads to a required acceleration in the rate of inflation, and thus eventual currency collapse.
28. May 2012 at 12:26
MF, You said;
“Wow. So Keynesian non-falsifiable theory and Austrian non-falsifiable theory could only be wrong according to you simply because you’re not persuaded of them?
I’m speechless.”
Yup, and I think everyone else feels the same way. The objective/subjective distinction is been out of favor in epistemology for quite some time. Read some Rorty please.
28. May 2012 at 13:30
ssumner:
Yup, and I think everyone else feels the same way. The objective/subjective distinction is been out of favor in epistemology for quite some time. Read some Rorty please.
???
So the foundation of you accepting the “persuasiveness” standard, is yet another subjectivist standard of “everyone else feels that way”? You’re just building one subjective standard on top of another. One could just have well have said in the early 19th century: “I am persuaded slavery is good, and I think everyone else feels the same way. The slave emancipation doctrine has been out of favor for quite some time. Read some Caroline Hentz please.”
I reject the claim that whatever the mainstream believes is right, is in fact right. Empirical history has refuted that belief countless times.
I have read Rorty by the way. What Rorty brings to the table is just the same ancient call for skepticism and nihilism in economics. His book “Philosophy and
the Mirror of Nature” is a vicious attack on the rationalist foundation of economics. He claims no common ground exists between humans that would make a rationalist epistemology possible. It’s all about rhetoric; about keeping the conversation going.
OK then, if it’s all about being persuaded to Rorty, if Rorty is right about this, that there are no truths based on common, objective grounding, then what about his own pronouncements? If there is nothing like truth based on common, objective grounding, then all of his talk, all of his rhetoric, cannot be claimed by you to be saying anything true either! Indeed, his entire edifice is self-refuting: denying that an objective case can be made for any statement, while at the same time claiming this to be the case for his own views. In other words, Rorty’s system is a performative contradiction. By advancing Rorty’s beliefs, one would be falsifying the content of one’s own statements.
Therefore, if Rorty is right, then he must be wrong about his own pronouncements. In fact, his logic goes even more absurd when consistently applied. For not only would I have to take Rorty as saying nothing objectively true, I could not even claim to know with certainty that he even wrote a book on philosophy, or that the words in that book are even what he believes they mean. No truth based on common objective grounding means I cannot take seriously Rorty’s own pronouncements that presuppose such a grounding.
Or is it merely to be entertained by Rorty? Is that it? Forget about truth, let’s just settle on whether some book or some philosophy entertains us. Well, I can say that I am not at all entertained by Rorty’s philosophy, and therefore Rorty is wrong.
28. May 2012 at 16:25
I just thought of another thing re: Rorty.
What about the very problem of determining whether or not a persuasion has even taken place, let alone persuasion of something correct? According to Rorty’s nihilism, and therefore Sumner’s nihilism, that question would also have to be decided on the persuasion having been correctly identified as actual persuasion, rather than something else other than persuasion.
In other words, we’d have to be persuaded that we were persuaded that we were persuaded that we were persuaded…etc. Rorty’s rejection of objective truth would imply that we can never break out of mere talk and ground our talk in something other than talk. Truth then is no more than the subjective belief that what one believes is objectively true. And again, if that’s the case, then Rorty’s talk cannot be considered as anything more than entertainment, of mere talk, and it doesn’t say what it seems to say, which is something true about human epistemology.
Ladies and gentlemen of the jury, those of you who follow Sumner and trust his judgment, I implore you to just look at his epistemology. He’s taking you to la la land, where truth and falsehood are whatever he wants them to be, not what they actually are.