In the Boston Globe, I suggest that economists probably know less than we think and are really fighting about something else. Be sure to check out the comments.
A confession
Share
Previous post: Stimulating Reading
Next post: Relative Prices vs. Aggregates
{ 28 comments }
I agree with your points Russ and I want to add a complaint to the mix from the perspective of a curious, intelligent, non-economist citizen that I hope you'll consider and possibly echo:
I don't understand at all how the adjective of 'broken' can be applied to the economy by every commentator who speaks or writes on the subject. It sounds non-sensical to label what is essentially an organic system of growth and decay with a descriptor that refers mostly to mechanical systems.
I think the term is a deeply flawed construct for viewing the economy and leads to sloppy thinking.
No one says that summer is 'broken' when winter arrives; no one says that a forest fire is a broken version of a forest. Yet the winter, the forest fire and the downturn in the economy serve the same function: to test the strong and remove the weak.
The impulse to 'fix', I think, comes in part from this faulty premise of the economy being 'broken'. The argument is not how to 'fix' the economy, it is how to properly understand it.
It make you want to read Orwell's 'Politics and the English Language' all over again.
Russell,
Your creeping scepticism is entertaining to read. Here is some fuel for the fire: what if all science were post hoc story-telling? Here is the post hoc fallacy in its simplest form:
The interesting thing is that by switching the premise and conclusion, a valid argument can be formed:
But only one class of invalid inference satisfies these characteristics: induction. In other words, the post hoc fallacy is inductive.
If A is always, without exception followed by B, then it would be quite sensible to say that A causes B:
If this is true, then the original post hoc fallacy written above can be rewritten to be explicitly inductive:
Therefore, post hoc story-telling is a kind of inductive inference. The arbitrary nature of post hoc story-telling is shared by induction: the mode of inference on which many believe that science depends.
Your problem is not that economics is not a science, but science is not a science.
But while post hoc story-telling may be invalid, so what? Whatever conclusion is reached may still be true. What if, instead of trying to justify the conclusion with the premise (which is impossible for other reasons), the premise was treated like a test of the conclusion.
Then, hey presto, the problem is no longer a problem, not because it has been solved, but instead discarded in favour of a different aim. Rather than using evidence to try and justify a conclusion (as the post hoc fallacy blithely assumes), it is used to criticise and challenge theories.
Do not seek approval of an authority–whether social or intellectual–to think, hypothesise, imagine, and believe. Although your recent podcast with Robin Hanson professed to be about truth, it actually had almost nothing to do with truth. Your concern was not whether or not what you believe is true, but whether or not you can know (i.e. confirm, justify, or validate) that it is true.
Much of what passes for intellectual debate does not consist of criticising theories, but criticising people for believing without satisfying some requisite criteria of "knowledge". The implicit objection is not 'your ideas are false!', but 'you ought not to believe that your ideas are true, because you do not really know'. Is that not the underlying message of the post hoc fallacy?
Are we truth-seekers or knowledge seekers? It is possible to be the former and not the latter, and in many cases preferable.
"Harding (elected in 1920) inherited…one of the sharpest recessions in American history. By July 1921 it was all over and the economy was booming again. Harding had done nothing except but government expenditure…"
Modern Times by Paul Johnson, P 216
Why is so little note taken of that?
Lee Kelly,
I'm about ready to take back the nice things I said about you.
You wrote:
"Your problem is not that economics is not a science, but science is not a science."
Your problem is that you don't what you're talking about.
Economics is a science, and if science is not a science, it is because science is science.
Folks around here need to read the Counter-Revolution of Science by F.A.Hayek.
I'll support the sensible observations and position of JP above
I notice that when I go to the gas station they have gas, that I know they aren't holding just for me – they got it from a supplier – who got it from a refinery – etc, that gas station still takes my U.S. dollars. The same scenario at any store or restaurant.
I stand by the gas pump as I fill my car's tank and look at the 6 lane hiway and see a constant and steady stream of vehicles all day long and well into the evening, and I know that each of those vehicles represent market transactions already made, being made, being set up, and completed; and, not in just the sale of gasoline.
JP,
The real economy may be organic, but macro is political. The political class is heavily dependent on the real economy (no matter how frequently they insist that the dependency works the other way round), so they manipulate it in an attempt to force it to comply with their objectives. There is a good chance that they will destroy themselves in the attempt. It has happened before.
So if the money was well spent and guaranteed pork-free you would agree with the stimulus?
So the only problem with the stimulus plan is corruption?
I don't understand where you're trying to position yourself with this piece..
I love how the very first comment (from danthegas) blasts Russ on the Stimulus, for not being against the Bailout (TARP).
Um… Danthegas, where in the hell have you been?
It's this sort of knee-jerk ad hominem "assume the most liberal position is correct" crap that has us in this mess.
It's the smugness that gets me the most.
I'm off to boil for a little bit.
One more thing:
It's a testament to the efficacy of free markets that individuals as addle-brained as those who read The Boston Globe can enjoy lives of such comfort as to afford them the opportunity to adhere to failed and ridiculous philosophies without repurcussion.
I have a question that I have yet to see anyone address: If gov't spending stimulates the economy, then why hasn't the federal gov't's massive increase in spending in recent years already immunized us against recessions?
This is the actual quote taken from Paul Johnson's book "Modern Times" on page 216. Notice the word 'cut' in front of government expenditure.
"Harding inherited an absentee presidency and one of the sharpest recessions in American history. By July 1921 it was all over and the economy was booming again. Harding had done nothing except cut government expenditure, the last time a major industrial power treated a recession by classic laissez-faire methods, allowing wages to fall to their natural level."
"Modern Times" by Paul Johnson, p.216
So, if a trillion in stimulus is good,then why not three trillion?
On th eother hand if we cut taxes and grow the economy the government will wind up with even more revenue. But we don't want to tax and spend, so what do we do? Cut taxes some more, untilwe get to zero tax and zero revenue.
Obviously both of those ideas have failings, how about if we actually try to find some middle ground?
Matt,
Thank you for being the only other person beside myself to have taken any note of this.
Failure of aggregate demand and "underconsumption" was a MASSIVELY influential view in the 1920s.
That's right. In the 1920s.
Massively influential among politicians — and among ECONOMISTS.
In all the ways that matter, Keynes in 1936 was merely a retread of Foster and Catchings in the 1920s — a re-tread making Foster and Catchings respectable among Marshallian economists.
"Since at least the Great Depression, economists have theorized about what causes the economy to slow down or speed up."
The idea that economic thinking on this topic began in the 1930s is crazy talk.
Russ writes:
"Since at least the Great Depression, economists have theorized about what causes the economy to slow down or speed up."
re. science
Ultimately, all science is no more than the same thing happening again and again, so therefore, we conclude, it must be so always. This, ultimately is why we believe the sun will rise tomorrow before seven.
Any scientific theory will have to begin with a premise. The thing is that most scientific phenomena is fairly inconsequential to our day to day lives and won't affect our jobs and does not usually have a moral and ethical component. And figuring how to grow seedless watermelons will involve far less ideology then say, "helping americas middle class families". So it's much less emotional.
Economics is about human nature. It's about how a human who desires things will interact with the other humans in an attempt to realize those desires and how they will respond to him in their attempt to realize theirs. And as in every science some will hold A to be true and some B. That does not make it any less legitimate as a science.
Pure performance art Russ. The irony of most of those comments reflecting your doubts about economic thought is hilarious.
dg lesvic,
[my comment above was an accident]
dg lesvic,
The underlying point of my claim that 'science is not a science', was that by its own standards, so-called scientific reasoning fails.
While economists (and other scientists) reject post hoc story-telling, they are quite comfortable with induction. But post hoc story-telling is just a specific case of induction. Either induction is good reasoning or it isn't, but for most people, and especially economists, it seems to be both simultaneously. There is a problem here–not for me, but for anyone who takes these kind of views.
Much of Russ's recent philosophical musings keep coming back the the theory-ladenness of observation. They are the slow realisation that evidence is logically very weak, and consistent with innumerable mutually inconsistent interpretations. The post hoc and inductive problem I sketched above are just ways in which this problem manifests.
"I have a question that I have yet to see anyone address: If gov't spending stimulates the economy, then why hasn't the federal gov't's massive increase in spending in recent years already immunized us against recessions?" – ID
*drinks a fifth of Wild Turkey in order to simulate Mierduck's ability to comprehend written English*
Because that money was spent while a Republican was President.
Lee: Not saying you are wrong one way or the other, but I would point out that it is perfectly acceptable that Induction in general is acceptable reasoning, a subset of it, post hoc, is not. A general heading of Induction could contain many related methods of reasoning, with some being functional logically and some not.
I think your critique of science lends itself more to the social sciences in general, as opposed to all science, or just economics. The differences in method and thought between the so called hard and soft sciences is really staggering, especially when you go from a hard science background to a soft science setting.
It seems to me that both of your plans are for the government spending $819 Billion, just in different ways. So aren't both alternatives Keynesian? Is it time to change the name of this site to Cafe Keynes? Or split it into two blogs, one Cafe Roberts-Keynes and the other Cafe Boudreaux-Hayek?
Also, is it possible to carry your theme of nobody knows anything a little too far?
Lee Kelly,
Economics is not an empirical science. It is a theoretical science.
"Empirical fact enters into the theory, but only at the level of basic axioms," such as the disutility of labor, the variety of resources, and the goods on the shelves. But the theory itself is "a priori to all other historical facts."
Rothbard, America's Great Depression, P 81 and P 305, note 4.
We can understand how water evaporates, forms clouds, and eventually rains back to earth.
We can't know where and when which instance of evaporation will be returned to earth.
Sam Grove,
I'd love to know what you were getting at.
Care to elaborate?
"In 1921 there was a bad recession but nothing happened akin to what happened in 1929" or someting like.
What of the stock market crash of 1987? It was worse than the 1929 crash yet I wasn't in line for bread and soup?
dg lesvic
There are truths that we hold to be self evident.
We know that evaporation will lead to rain. What is much more difficult to predict is exactly when or where rain will fall. This does not make meteorology less sound as a science.
We know that too much government intervention and regulation will set the stage for negative economic activity. We also know that deregulation, lower taxes and less spending will ultimately result in positive economic activity. We know that it cannot be otherwise.
To predict when and how is an entirely different matter and just because a certain economist cant predict what will occur and when, does not make his economic theory any less sound.