Quotation of the Day…

by Don Boudreaux on October 11, 2011

in Scientism

… is from page 248 of Will Durant’s 1957 book The Reformation; here, Durant summarizes a theme from William of Ockham:

How much nonsense is talked or written by mistaking ideas for things, abstractions for realities!

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Scott G October 11, 2011 at 6:30 am

True or false: much less nonsense would be talked and written about, if economists sold their products directly to paying customers?

Capitalism is about profit and loss
You subsidize the bad economists and there’s no end to the loss

vidyohs October 11, 2011 at 6:52 am

Good question. Makes me think of how much nonsense has been written about, discussed, and even brought into reality since the first time someone was stupid enough and strong enough to force individuals into a collective thinking it would be more productive than leaving individuals alone to pursue their own self interest in a free market.

vidyohs October 11, 2011 at 7:32 am

http://www.therightscoop.com/open-thread-grinding-america-down/

To the list at the end, I add one not shown, but one I heard in a meeting of looney left radicals here in Houston at St. Thomas U. “Kill capitalism”.

kyle8 October 11, 2011 at 7:46 am

I think that a lot of really stupid ideas in the past were created just out of sheer boredom. Before television started to soak up a lot of people’s time they had the time on their hands to create socialism, eugenics, and the General Theory.

The Other Eric October 11, 2011 at 11:10 am

Kyle, you’ve obviously never sat in an editorial production meeting. The Everest-like mass of stupidities can take your breath away.

You may be on to something about TV keeping the more dangerous would-be mob members on couches.

Rob October 11, 2011 at 8:41 am

Yeah. Those stupid neanderthals. Forming themselves into groups like they did! What idiots!

vidyohs October 11, 2011 at 9:30 am

The intelligent people here know that forming into a group is not an answer until you know what kind of group was formed.

For instance your Neanderthals formed into loose family groups in which private property was recognized and cherished, not a socialist collective, so your comment is just another looney left attempt at misdirection, a disingenuous attempt.

Invisible Backhand October 11, 2011 at 10:25 am

For instance your Neanderthals formed into loose family groups in which private property was recognized and cherished,

Did you just make that up?

Darren October 11, 2011 at 1:55 pm

Isn’t a family group a kind of socialist collective? It’s just a matter of size.

Methinks1776 October 11, 2011 at 1:58 pm

It’s not only a matter of size. There are real differences between familial relationships and those with strangers. You would take a bullet for your children, would you take time away from them to toil to provide me with a lifestyle to which I think I have a right? Let’s hope not.

vidyohs October 11, 2011 at 4:07 pm

Nope. Now you and the clown, IB, above are really reaching to attempt to make socialism/collectivism appear natural.

You can’t even reliably call a family group a dictatorship, there are just too many weak fathers.

Furthermore there is solid evidence that ownership of private property existed, and was respected, in family groups, and in tribal groups.

And for IB, nothing is more natural to life than claiming, defending, and using private property.

W.E. Heasley October 11, 2011 at 7:04 am

“How much nonsense is talked or written by mistaking ideas for things, abstractions for realities!” – Will Durant

Lets put Durant’s grand insight into action. “Society”, a very abstract item, is constantly framed by politicos as a living, breathing, shake hands with it anytime, concrete item. To further concrete the abstract concept politicos purposely frame society as government and government as society. The next purposeful politico step is to add the proposition that if a perceived problem exists in “society“ (in the now framed concrete concept of society) then the problem needs solved by government because society is government and government is society.

Ah, the evil of it all!

Nikolai Luzhin, Eastern Promises October 11, 2011 at 9:16 am

Putin is magnificent.

Russian Crony Capitalism wins again. YEAH!!!

Putin for President

Putin and Radicova: Caeser and Cleopatra.

The really really stupid “Austrians” played right into his hands. Strong central powerful government prevails when idiots try to play the power Game. The Solidarity Party refuses to support the Gov’t which it had pledged to support. The Prime Minister ties the vote to a non-confidence motion. The vote fails. The gov’t collapses. Oh, a deal had been cut with another party who is brought into the “new gov’t” to replace Solidarity. Putin, behind the scenes, provides the muscle and power and rewards.

Lessons learned: The Solidarity Party breached its contract and promises to support the Government and found itself out in the street (hopefully there will be a few Tony Soprano wacks to follow, but with democracy you don’t get to take failed leaders out to the blade to die face up) because the rest of the World realized that we are looking at a financial black hole.

Additional Lessen: Go have your blog to yourselfs. You have no ideas, thoughts, or insights, and have no idea how the world works or where it is going. You didn’t even know what was going on in Slovakia, but others told you, like Observer who came as a prophet

Observer shows up as a prophet to warn you of events half a world away and you are so arrogant and taken with yourselves you do not realize from where he came or why

Putin has your names and addresses

Here is Bloomberg’s report

Oct. 11 (Bloomberg) — Slovakia may approve the euro region’s retooled bailout fund after a political storm that will probably topple Prime Minister Iveta Radicova’s governing coalition.

Slovakia’s largest opposition party, which pledged to reject the motion today, will back the revamped European Financial Stability Facility in a second vote, should lawmakers fail to approve it today, Robert Fico, the group’s leader, told reporters in the capital Bratislava today. That would give the measure a majority. There is no date set for a repeated vote.

Slovakia is the only country in the 17-nation euro area that hasn’t ratified the measure, following approval in Malta yesterday. The Freedom of Solidarity party, one of the members of Radicova’s four-way coalition, said it won’t support the EFSF even after the premier tied a no-confidence motion on her government, denying the plan a majority.

“The government is set to fall, but the bailout fund will eventually be approved,” Grigorij Meseznikov, the head of the Public Affairs Institute, a think-tank in Bratislava, said by phone after Fico’s comments. “It could take a few days, though.”

Parliament begins debate of the measures at 1 p.m. in Bratislava.

Dan H October 11, 2011 at 9:53 am

What amazes me is how some people (namely Keynesians) refuse to believe that the laws of microeconomics somehow do not apply to macroeconomics.

Greg G October 11, 2011 at 10:24 am

When the whole exhibits different properties than the sum of its’ parts that is a form of emerging order. It is ironic that people devoted to a blog about emerging order in economics would find that baffling.

Randy October 11, 2011 at 11:36 am

Re; the whole being different than the sum of the parts. Interesting concept, but I don’t see how it could possibly be true. I mean, the word “sum” has a meaning. It seems more likely that the whole was calculated without including all the factors – probably by politicians – probably by lazy and/or agenda driven politicians seeking to justify political behavior by collecting just enough information to sell the propaganda to a gullible population.

Greg G October 11, 2011 at 11:48 am

The idea of emergence is not that the rules that underlie the behavior of the individual parts do not apply. The do apply. But new phenomena occur through the interaction of the parts that is not seen in the individual parts. That is why there are macro phenomena that cannot be predicted by micro phenomena. Which is exactly why economists have such an appalling record at making predictions.

Randy October 11, 2011 at 2:12 pm

And again, these new phenomena do not occur spontaneously. They are unexplained because not all of the micro details are understood. What the Keynesians try to do is arrogantly ignore the details they do not understand, rewrite the literature as if they have discovered a whole new field of study, then incorporate the measurements they have into a design that seems to reveal the conclusion they desire to achieve.

Greg G October 11, 2011 at 4:29 pm

Randy I am pointing out that Keynes is claiming they do appear spontaneously in a new emergent order. You are arguing a reductionist position on this. That doesn’t mean you are wrong but it does mean we have some strange bedfellows here. Keynes is saying macro is a legitimate emerging economic order that emerges from micro phenomena. The Austrians want to argue the reductionist position here while celebrating emergence when it suits them. This is a blog where “orders emerge”……sometimes.

Randy October 11, 2011 at 4:41 pm

If Keynes really believes that the economy in total is an emerging order, then why does his theory focus on trying to change it? Order is order. Is Keynes theory then a theory of disorder? And now that I say that, it does seem that it is.

Greg G October 11, 2011 at 5:13 pm

Of course the reason Keynes focused on trying to change the economy was that he found it very unsatisfactory during the Great Depression. But if I understand you correctly Randy, what you really want to know is why did he think he could change it in any predictable way. The answer is that general trends are predictable in a way that specific details are not. Think of weather, which is an emergent system. We know that if the planet warms that storms in general will get more intense. But we can’t predict the specific storms very well.

So Keynes had a general desire to increase the velocity of money through the economy. He claimed that a big enough deficit by the government could have that effect in a depression. And most people believe that it did (although not on this blog).

Methinks1776 October 11, 2011 at 5:31 pm

The answer is that general trends are predictable in a way that specific details are not.

Why is that? Are general trends set in stone in ways that specific details are not? Are general trends immune to spontaneous changes? Do attempts to control general trends not impact decisions at the micro level in unpredictable ways which leads to new and unpredictable macro trends to emerging?

And most people believe that it did .

People believe all sorts of things that are not founded in facts. Please, where is the evidence that it did?

Randy October 11, 2011 at 5:39 pm

No, my thought is simply if he really believed the economy to be an order then he would have understood it to be the way it ought to be, whether he approved or not. The fact that he tried to change it proves that he did not believe it to be an order, but rather, a system that he and his political partners had a right to mess with.

Greg G October 11, 2011 at 6:06 pm

Methinks, you ask whether or not general trends are subject to spontaneous changes. The answer is: They are but we are terrible at predicting exactly where that tipping point is in economics. If you cool water you know you will get the emergence of a self organizing order at 32 degrees.

Your point is well taken that, when you mess with a much more complex emergent economic system, you might get unexpected results. But when you are in the depths of a Great Depression it is a pretty safe bet that you want a decisive increase in the velocity of money.

The emergence of a healthy economy after WWII is the evidence that this worked. We had a long experiment from 1929 to 1932 with much smaller increases in spending. That failed miserably. We had another experiment with cutting back in 1937. That failed miserably. Then we were forced by WWII to increase spending much more and that was followed by more positive economic effects than anyone anticipated. Evidence is not proof but this is about as good as evidence gets in economics.

Greg G October 11, 2011 at 6:21 pm

Randy your comments are still unclear to me. Are you suggesting the world and the economy are deterministic systems? If so, you may be right but that is a controversy for a different blog.

If not, then I would say that everyone in a free society has the right to advocate “messing with” the economy and anyone who advocates any policy position is doing so.

I love Hayek but he does tend to say that the things he likes about the economy are the result of an evolutionary process and the things he doesn’t like are interfering with that evolution. It’s all evolution. The discovery of emergence doesn’t solve the problem of doing the hard work of figuring out what works although it helps us understand why some things fail.

Randy October 11, 2011 at 6:35 pm

Greg,
I’m saying that you’re saying that Keynes thought of the economy as an emergent order. I”m saying that whether he said it or not there is plenty of evidence that he didn’t really believe it. You’re saying there’s some sort of contradiction in believing in emergent orders and not believing in Keynes ideas. I’m saying that there is no conflict, because Keynes did not really believe that the economy was an emergent order.

I believe that the economy would be an emergent order if the politicians (like Keynes) would stop introducing disorder. Keynes, as evidenced by his theory, believed that the economy was in disorder and needed to have politicians meddle with it in order to bring it into a state of order that the politicians preferred.

Richard W. Fulmer October 11, 2011 at 6:40 pm

Greg G
There is no question that government interference in the market place can impact the economy. To increase the velocity at which money is spent just print a lot of money very rapidly (see the Weimar Republic). The issue is whether the government action taken will improve or harm the general economy.

One of the risks of changing things at the macro level is that if we get it wrong the impact can be devastating. Take, for example, the creation of the housing bubble as a result of the Fed’s easy money policies, the government’s push to lower lending standards for home mortgages, the “Greenspan put,” etc. Or take your example of global warming. Suppose that our government significantly raises the cost of energy generated from fossil fuels. This might reduce carbon emissions, but it could have the opposite effect if it drives energy-intensive industry to countries that impose no restrictions on emissions.

Another problem with government intervention is that it is hard to undo. Most scientists now agree that corn-based ethanol has probably resulted in more CO2 emissions rather than less, but ethanol subsidies have proven to be politically untouchable.

The problem with complex systems is that they’re, well, complex. Take your example of storm intensity. Some scientists believe that global warming may actually reduce it. Storms are driven by temperature differences, and the areas near the northern and southern poles are warming more rapidly than are other areas. The result is more uniform temperature and, theoretically, fewer and less intense storms. Which scientists are right? Which hypothesis do we base our policies on, and what happens if we get it wrong?

Greg G October 11, 2011 at 7:26 pm

Randy, you say “the economy would be an emergent order if the politicians (like Keynes) would stop introducing disorder.” So did the economy used to be emergent when Adam Smith and Hayek first described it only to have Keynesians stop the emergence?

When Keynes described the paradox of thrift he was describing it is as real emergent phenomenon. The Austrians disputed that and claimed that savings flowed through to investment in a much less problematic way. Today we have astonishing amounts of cash held at negative real interest rates and even occasional negative nominal rates. If that doesn’t convince you Keynes’ liquidity preference is a real emergent phenomenon I don’t know what would.

Randy October 11, 2011 at 7:57 pm

Greg,
Okay, let’s take the paradox of thrift. As I understand it, it means that if the producers decide to start saving more, the politicians will be less able to exploit them. The decision to save more is an emergent order. The idea that politicians getting hurt is some sort of “paradox” is pure propaganda. They never had the right to exploit in the first place and the fact that they are now being hurt is simple justice.

Methinks1776 October 11, 2011 at 8:00 pm

Greg,

The war soaked up unemployment, killed a lot of people and destroyed capital stock. What there is no convincing evidence of is that it ended the depression.

First of all, every Keynesian expected the economy to return to a depressed state at the end of the war – when spending dropped sharply. Also, many of Roosevelt’s business killing policies were rolled back after the end of WWII. It was easier to do business and regime uncertainty dropped sharply. So, I don’t know how you can reasonably attribute the post-WWII boom to government spending.

We had a long experiment from 1929 to 1932 with much smaller increases in spending.

And with meddling and a decreasing money supply, thanks to the ineptitude of the Fed. Why are you sure it’s the smaller increases in spending that failed to resuscitate the economy? Smaller than what, infinity?

We had another experiment with cutting back in 1937.

Not that the intervening years restored the U.S. to that all important full employment. In that same year, the U.S. was also running an experiment with jacking up taxes and regulation. There was a tremendous amount of regulatory uncertainty in the 1930′s. What makes you think it’s a dip in spending that created a recession within the depression and not the other factors?

It seems odd to me that depressions (which is what recessions were called before The Big One) lasted from a few months to a couple of years before government decided to strongly interfere in the economy. When it did, the depression lasted more than a decade. Shouldn’t that give us pause?

Evidence is not proof and it’s not good enough even in economics. Especially in economics. I’m a trader. I have to make decisions about how to allocate capital every day – capital that was committed to my stewardship by the willing, not unwilling taxpayers. Every day I have to figure out how much of my profit or loss was me and how much was luck. I do it because I seek to learn from my mistakes so that I am always improving. I make many decisions daily, I guess many millions of trading decisions over my career. I’ve made plenty bad decisions with fantastic outcomes and plenty good decisions with terrible outcomes. But, after so many millions of decisions, I can somewhat confidently say that my P&L is due in large part (but not entirely) to skill. I can’t say it’s entirely due to skill because there are too many exogenous variables that affect the outcomes for me to take all the credit. And, you know, my task is much simpler than trying to create specific outcomes in complex system. How can you be so comfortable attributing so much of any economic outcome to such thin evidence?

Greg G October 11, 2011 at 8:05 pm

No Randy, the paradox of thrift is not about politicians, producers, or propaganda. It is simply a claim that if too many people try to save too much all at the same time, the resulting drop in economic activity can, in extreme cases, make everyone poorer – even though in ordinary times savings would make an individual wealthier.

Methinks1776 October 11, 2011 at 8:09 pm

Today we have astonishing amounts of cash held at negative real interest rates and even occasional negative nominal rates. If that doesn’t convince you Keynes’ liquidity preference is a real emergent phenomenon I don’t know what would.

I would be more persuaded if at the same time we didn’t have rising regulation and threats of increased taxes.

Tax rates will rise because government spending is so high. When tax rates rise, they decrease the after tax return on investment. Investments take years to pay off. So, even if taxes are lowish today, they are unlikely to be in the future – when the investment is cash flow positive.

Regulation is on the rise. The headlines are as yet unwritten Dodd-Frank and Obamacare. However, what’s getting less attention is aggressive ad hoc rule making by regulators in the absence of anything passed on Capitol Hill. There are more and more poorly thought out regulations (read: ones that don’t improve the market, but impose massive burdens) on the books now than there were in 2007 and everyone expects it to get worse. Many companies in heavily regulated industries have thrown in the towel as regulatory costs have driven already squeezed profit margins negative.

Faced with such realities, businesses have a hard time assessing the risks. It can’t last forever (one hopes), so it’s best to sit on cash at even marginally negative interest rates rather than take massive losses on new investments.

This doesn’t seem logical to you?

Greg G October 11, 2011 at 8:52 pm

Methinks, No, sorry that doesn’t seem logical to me at all. Taxes were much much higher after WWII than they are today. Regulation was on the rise and the world was full of uncertainty. And Libertarians were universally predicting the preservation of New Deal reforms would result in doom. Instead we got the longest sustained period of economic growth in our history. No idea is ever fully proved. But some are fully disproved.

Taxes are likely to rise in the future but I would be astonished if they reach the level they did after WWII.

Methinks1776 October 11, 2011 at 9:19 pm

Taxes are likely to rise in the future but I would be astonished if they reach the level they did after WWII.

Greg, the top marginal tax rate was 90% after the war. It was offset by a plethora of tax deductions for just about every expenditure. Nobody paid that rate, thus the incentive effect was understandably muted. The vast majority of tax deductions disappeared after the 1986 tax reform act. Any tax increases now, unaccompanied by offsetting tax deductions, would have a huge incentive effect.

That is, unless you’re arguing that you’ll work as hard for $30 as you would for $100.

Some of the New Deal distortions were kept. Some policies were rolled back. The political environment was not as unfriendly toward business as it was during Roosevelt’s reign. That’s undeniable. Uncertainty is always with us, political and regulatory risk is another matter. That declined after Roosevelt died.

Randy October 11, 2011 at 9:27 pm

Yes, Greg, that’s what the textbooks say. But why would they say that? Its clearly superficial. And it is just as clearly meant to serve as a justification for a political agenda.

Greg G October 11, 2011 at 8:36 pm

Methinks, I know it is true that many who called themselves Keynesians predicted depression would resume after the war without more deficits. But Keynes never said that. If you think he did then show me where. In fact, no less an authority than Hayek claimed that Keynes told him he thought the time for deficits was over right after the war. There is a You Tube video of Hayek saying that which is easy to find. Keynes has been ill served by many of his purported followers. Most people believe Keynesian economics means support for unending deficits.

My layman’s reading of the “General Theory” could not turn up any such claim. Keynes advocated a countercyclical fiscal policy. He never advocated the deficits in times of economic health that became known as Keynesianism. I think Keynes was partially to blame for this. “The General Theory” would have been more accurately titled “The Special Theory on How To get Out of a Depression.”

Yes, uncertainty was reduced after the war. It became certain that the New Deal reforms would last and taxes would stay high while we paid down the debt.

Yes, the Fed did a terrible job allowing the money supply to shrink. Keynes recognized that which is why he wanted deficit spending – to expand the money supply.

Evidence is not proof but it’s all we have to go on even though we would like more certainty. Reasonable people are sure to disagree about causation in complex systems.

Methinks1776 October 11, 2011 at 9:28 pm

“The Special Theory on How To get Out of a Depression.”

Oh, I agree. However, Paul Samuelson thought the U.S. was doomed to return to depression after WWII and I don’t think anyone thinks Keynes was poorly served by him. Correct me if I’m wrong.

What Keynes utterly fails to prove is that anything particularly special happens during a recession that makes government more capable of directing an economy than it is in periods that are not recessionary.

And Libertarians were universally predicting the preservation of New Deal reforms would result in doom. Instead we got the longest sustained period of economic growth in our history.

Until the 1970′s.

Greg G October 11, 2011 at 10:08 pm

Methinks, I am a layman not an economist or professional trader. I have read a fair amount by and about Keynes, Hayek and Friedman but the truth is I know almost nothing about Samuelson. So maybe I’m the only one, but I do think Samuelson served Keynes poorly if he represented Keynesianism as the advocacy of deficits after the war and during a times of healthy economic growth.

And it wasn’t only income tax that was higher after the war. Estate tax, capital gains tax, tax on interest income and effective corporate tax rates were vastly higher than today. So remember that when you say we couldn’t have healthy growth after a tax increase. You never want to find yourself arguing that something couldn’t happen that has already happened.

Methinks1776 October 11, 2011 at 11:21 pm

Greg,

Paul Samuelson was a nobel laureate and a professor of economics at MIT and a prominent Keynesian. His economics text was the most popular for decades. There’s more. Google him.

I’m not sure what part of “high taxes were offset by a large number of deductions that reduced taxes to a percentage well below the marginal tax rate” you missed, but I’m saying it again. Does it matter that the posted tax rate is 90% if deductions bring it to 30%? No. The effective tax rate (the rate actually paid) wasn’t nearly as high as the posted percentage.

It’s possible to get growth in the presence of high taxes. The question is how much growth are you killing? It’s the question of the seen and unseen. As long as you’re reading the work of economists, you might want to throw Bastiat into the mix. He had a couple of interesting things to say.

david October 11, 2011 at 10:01 am

I am reading “Ideas Have Consequences” by Richard Weaver. So far, he places the blame for the decline of the West (as he sees it) on, essentially, William of Ockham and the displacement of reality or truth as perceived by the intellect with empiricism (“endless induction” in Weaver’s elegant and unfortunately accurate phrasing). Ockham’s razor was an early form of Friedman’s positive economics and so this discussion is of interest to those interested in Austrian economic thought. Generally a great book.

Seth October 11, 2011 at 10:13 am

…especially when you pay them unemployment for 99 weeks.

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