In response to several of the comments on this earlier blog post, Bob Higgs e-mailed the following note to me; it’s a note with which I fully concur. I reproduce it here with Bob’s kind permission.
It seems to me [Bob Higgs] that some of the frequent commentators at Cafe Hayek enjoy arguing for the sake of arguing, rather than really digging into the position against which they are arguing (regime uncertainty, in particular) to determine how “soft” and “ambiguous” it is, relative to ostensibly “hard” “scientific” variables such as “excess capacity.” (I notice, by the way, that they never seem to notice the hard evidence on corporate-bond yield curves that I have used to assess regime uncertainty in the 1930s and during the past decade. What’s not “hard” about these data? I grant that their changes still require interpretation, about which reasonable people may differ, but the bond yields are in any event as “hard” as economic data get, and certainly “harder” than BEA data on “excess capacity.”)
A good exercise for them would be to dig into the BEA’s nitty gritty to discover how the numbers on “capacity” are derived. I believe they would find that the number of arbitrary and even stupid assumptions that underlie those derivations–not to mention all of the questions related to aggregating the various industries into a single national aggregate–cast heavy doubt on their status as “scientific” data.
They might also give thought to the fact that it is not “aggregate demand” that is weak. Demand in some parts of the economy is weak, but in other parts it is strong. It is stupid to suppose that if, say, the federal government increases its deficits (for example, in order to transfer ever more bailout money to state governments so that they can continue to pay their bloated payrolls), that action will necessarily increase real output and decrease unemployment. When millions of houses stand unoccupied, spending more money on prison guards and welfare administrators in California will not help to reduce the number of unemployed construction laborers in Florida. The whole “aggregate demand” notion, as well as the models in which it is embedded, is so absurdly alien to an understanding of how a real economy operates that one must simply shake his head in wonder that economists ever fell in love with it.
But, alas, some people always want a single numerical data series or a single regression equation to provide a conclusive answer to a complex problem. (By all means, never allow historically grounded judgment to enter the picture, even if some economists have a well established record of good judgment, whereas others have manifestly terrible records.) This sort of thing, though many older economists suffer from it, seems to me to be a form of intellectual adolescence. Grow up, compadres; start to think about the complexity of the economic system and about how people THINK about the decisions they have to make–they are not automatons, after all, but persons capable of changing their minds, reconceptualizing the issues they face, reacting to new fears impinging on them, and so forth. This broader vision, it seems to me, represents a form of intellectual maturity. Unfortunately, such maturity has almost been declared illegal by the leading lights of the economics profession since the 1930s. Scientism has been the bane of economics since before I was born, and looks as if it will continue to be for a long time after I have died.