Quotation of the Day…

by Don Boudreaux on November 26, 2011

in Complexity & Emergence, Curious Task, Hubris and humility, Man of System

… is from page 336 of Thomas Sowell’s 1980 magnum economic opus, Knowledge and Decisions:

The academic process is a process of pre-arrangement by persons already in possession of knowledge which they intend to articulate and convey unilaterally.  Social processes are processes of systemic discovery of knowledge and of its multilateral communication in a variety of largely inarticulated forms.  To “solve” an academic “problem” is to deal with pre-selected variables in a prescribed manner to reach a pre-arranged solution.  To apply the academic paradigm to the real world is to arbitrarily pre-conceive social processes – the whole complex of economic, social, legal, etc., activities – as already comprehended or comprehensible to a given decision maker, when in fact these very processes themselves are often largely mechanisms for coping with pervasive uncertainty and economizing on scarce and fragmented knowledge.

Or as expressed in the title of Jim Buchanan’s profound 1982 letter-to-the-editor of Literature of Liberty: “Order Defined in the Process of Its Emergence.”

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Michael E. Marotta November 26, 2011 at 4:36 pm

Why doesn’t Bill Gates just wait for the homework to be turned in, ask the prof to show how to do Number 5 on the board, copy the answer in the book and then ask for an open book test to be certain of a good grade in the marketplace?

I watched a TEDx Lecture from Santa Cruz which included the demise of Windows as over 50% of the internet-enabled devices are handhelds with other operating systems entirely. Perhaps my favorite is “vitamin water” which was mocked in the eighties as an obviously dumb idea, judging by its market failure. So, in those cases, the answers from the back of the book changed.

What if professors leased their classrooms, paid for secretarial services, and hung out their shingles, changing the university into an education mall?

Stone Glasgow November 26, 2011 at 7:45 pm

Excellent idea. Unfortunately “education,” is a status-driven process, originally developed for the aristocratic class. It is not a method for learning, which has historically been done as an apprentice.

Today most kids go to school to rise in social status, learning relatively useless things, and go to work (or unpaid “internship”) to learn a trade; or are autodidacts instead.

Nikolai Luzhin, Eastern Promises November 27, 2011 at 5:56 pm

Glasgow

you are a lying when you write, “education,” is a status-driven process, originally developed for the aristocratic class.

Education is inexpensive experience. Alexander the Great didn’t study under Aristotle because doing such was status driven.

Stone Glasgow November 28, 2011 at 6:13 am

Why declare that I am “lying?” I’m offering an opinion. Perhaps I am ignorant.

Ken November 26, 2011 at 11:06 pm

I have speculated on the same question (and I teach college myself).

Nikolai Luzhin, Eastern Promises November 27, 2011 at 5:57 pm

Ken

They would fail miserably because the few great teachers would get all the fees. Remember, Dale Carnegie made his early living on a fee per class basis

SmoledMan November 27, 2011 at 11:43 am

Yet Microsoft has sold 470 million licenses of Windows 7 in 2 years. There is no “demise” of Windows. It’s more of a case of a growing mobile pie. Most people access the internet on a Windows PC.

PG November 26, 2011 at 6:29 pm

“The academic process is a process of pre-arrangement by persons already in possession of knowledge which they intend to articulate and convey unilaterally.”

If this is Sowell’s concept of the academic process at anything beyond the high school level, I’m glad he’s not teaching at my alma maters. The academics most valued by American institutions of higher education are those constantly pursuing new knowledge, whether through scientific experimentation, historical research, re-reading texts in different frameworks or gathering data through surveys and studies. These academics also recognize their students as potential contributors to this process, demanding that the students pursue novel lines of inquiry instead of just summarizing the existing scholarship. The academics who follow Sowell’s process are usually lecturers, not tenured professors, because they’re simply regurgitating knowledge created by others instead of contributing something new.

Stone Glasgow November 26, 2011 at 7:54 pm

The pursuit of new knowledge is always tethered to a straight and narrow world-view, dictated by the most respected scientists and professors. It is not ok to produce research questioning AGW, for example.

As Max Planck said, one must wait for old men to retire and die before new ideas are accepted. Quantum theory in his day was as “irrational” as germ theory in the late 1800s.

Educators organize themselves in hierarchical power structures, somewhat like religious or governmental institutions. We do not learn or publish anything new unless the top dogs are replaced, because they have build their entire careers on the foundations of previous understanding. New ideas challenge that foundation.

EG November 26, 2011 at 8:47 pm

Funny how quantum theory originated in academic circles, which, according to you…is tethered to a straight and narrow world view. Last time I checked, people like Richard Lindzen were also in that same academia which doesn’t produce research questioning AGW.

So is Don Boudreaux. So was Hayek and Friedman and Sowell.

“Educators organize themselves in hierarchical power structures, somewhat like religious or governmental institutions”

Humans tend to do that.

Ubiquitous November 26, 2011 at 9:40 pm

Funny how quantum theory originated in academic circles, which, according to you…is tethered to a straight and narrow world view.

Funny how quantum theory and relativity all originated from young researchers, ready and willing to flip the bird to their old professors — and all done without peer review committees.

Besides, you’ve never stepped inside of a university and have no academic experience (that much is obvious). What do you know about it?

EG November 26, 2011 at 10:47 pm

“Besides, you’ve never stepped inside of a university and have no academic experience (that much is obvious)”

You know my one true weakness!

“all originated from young researchers”

You mean genius exhibits itself early? Truly evidence of the failure of academics!

Stone Glasgow November 28, 2011 at 6:17 am

No, genius comes from curious men outside the suppressive hierarchy.

SaulOhio November 27, 2011 at 7:14 am

Interesting that many of the most outspoken AGW skeptics are retired scientists. They have no academic standings to risk by speaking out against the orthodoxy.

Stone Glasgow November 28, 2011 at 6:17 am

Yep

GAAPrulesIFRSdrools November 26, 2011 at 10:07 pm

“If this is Sowell’s concept of the academic process at anything beyond the high school level, I’m glad he’s not teaching at my alma maters.”

Sorry, but most colleges at the undergraduate level-especially in the misnamed “social sciences” -fit this paradigm-and increasingly, curricula are blatant attempts to form the student’s moral and political sensibilities, often at the expense of intellectual development.

EG November 26, 2011 at 10:50 pm

If we’re talking about “solving an academic problem”, we’re not talking about the undergraduate level. And we most likely aren’t talking exclusively about social sciences. That’s like using using kindergarten education as an example.

GAAPrulesIFRSdrools November 26, 2011 at 11:41 pm

“If we’re talking about “solving an academic problem”, we’re not talking about the undergraduate level.”

I see nothing in the original quote to exclude the undergraduate level. The subject is the academic process, not some selected strata.

“And we most likely aren’t talking exclusively about social sciences.”

I said especially, not exclusively.

indianajim November 26, 2011 at 6:33 pm

All models are abstractions; some are extremely useful for particular purposes. To speak of “the academic paradigm” seems to me so overgeneralized as to be of little value. It may be that this paragraph cannot be understood out of context of the remainder of the chapter it derives from or possibly within the context of Sowell’s book in its entirety. Maybe someone more intimately familiar can clarify the matter.

Stone Glasgow November 26, 2011 at 8:09 pm

To teach, one must already know. Academics find it easy to teach 2+2=4, but only because the system is rigid and defined. To teach art or writing or philosophy (or science/medicine), one must define the world as rigidly as the rules of mathematics. One cannot teach students what a “good” painting might be withou a rigid method for identifying quality artwork.

The dirty truth is that very few things can be taught effectively because teaching what is already known requires such rigidly defined systems that new ideas must be rejected.

In teaching economics, there is a tendency to set up a rigid system, and little incentive to show students how little we know about what we imagine we can design. Kids want to learn, not be told “we don’t know and probably won’t ever know.”

EG November 26, 2011 at 8:40 pm

That’s not true at all.

Stone Glasgow November 28, 2011 at 6:18 am

Deep thoughts.

EG November 26, 2011 at 7:34 pm

“To “solve” an academic “problem” is to deal with pre-selected variables in a prescribed manner to reach a pre-arranged solution.”

I don’t get it.

Stone Glasgow November 26, 2011 at 7:57 pm

Academics solve chess problems. Entrepreneurs solve poker problems generated from decks of an unknown size.

EG November 26, 2011 at 8:39 pm

No they don’t.

Ubiquitous November 26, 2011 at 9:17 pm

No they don’t.

That’s why businesses, and other practical enterprises concerned with the real world of practical affairs, will always send a new employee back to a university classroom to acquire “On-the-job training.” One gets “one-the-job training” by sitting behind a desk, listening to a has-been teacher (or a never-was teacher), and reading pre-selected problems in a textbook whose solutions have already been worked out by the authors (check the “answers” section in the back, just before the Index).

For example, in economics textbooks from the mid-1950s, one can find problems such as “What is a consumer device known as a ‘personal computer’ and what, precisely, are its economic inputs in 1979? (Hint: plug the appropriate given values into the Universal Economic Input Equation.) What is its economic output price in 2011? (Hint: Take the answer from the last problem, plug it into the Universal Economic Output Equation; be sure to factor in the rate of profit for this industry in 2011, the going rate of interest in 2011, as well as any other ‘hidden variables.’ For help in dealing with ‘hidden variables’, see previous chapter.)”

See? It was all worked out in advance by smart professors with tenure in the ivy-covered halls of academia; there were no entrepreneurial, poker-like decisions involved that had to be made based on the discovery of decentralized, piecemeal knowledge, along the way. (At this point, please insert CD of Edward Elgar’s famous march “Pomp & Circumstance #2″)

Gaudeamus Igitur, everyone!

EG November 26, 2011 at 10:56 pm

That made no sense. On the job training, is by definition, on the job. It also happened to not be the only type of training. As for “problems in an economic textbook”, I wouldn’t know much about that, but what do you…think…problems look like in bio-chemistry or medicine? Oops!

Ubiquitous November 27, 2011 at 2:47 am

That made no sense.

That’s understandable. You’re a dingbat and a moonbat.

On the job training, is by definition, on the job.

See what I mean? No, not “by definition”; by employer preference. Get it? Because it’s the sort of knowledge that can only be learned locally — “on the job” — and not in a formalized way via classrooms, textbooks, and instructors. If you had a real job instead of living on the dole you’d know what I was talking about.

As for “problems in an economic textbook”, I wouldn’t know much about that,

See what I mean? Even my hypothetical left you rocking back and forth, humming softly to yourself, blowing little saliva bubbles.

but what do you…think…problems look like in bio-chemistry or medicine? Oops!

That’s right, moonbat! Oops! Check a medical text before 1980 and see what pearls of wisdom it has for the diagnosis and treatment of HIV — Ooops! None. That had to be discovered “on the job,” as cases arose. Ooops!! Check a biochem text from the late ’40s, early ’50s, describing the helical structure of DNA — you won’t find it; nor will you find the fact that the secret to DNA’s power lay in the sequence of nucleotides, arranged in 64 possible, 3-nucleotide “code words” called “codons.” It’s a code — just like binary code; just like Morse code; just like ASCII. Ooops! You won’t anything about it in those textbooks because that knowledge had to be discovered “on the job”, during the process of research.

Ooops!

muirge0 November 26, 2011 at 8:41 pm

No academics do tons of original research that has been instrumental to development of many private markets.

muirge0 November 26, 2011 at 8:46 pm

“I don’t get it.”

That’s cause it’s a pathetically ignorant statement. There’s nothing to get… just a bit of railing against intellectualism to compare it to some sort of elitism. They don’t like people that are too smart here… so they try to ear them down. The rulers by force and power have through all of history persecuted intellectuals…. this is more of the same.

muirge0 November 26, 2011 at 8:55 pm

That’s cause it’s a pathetically ignorant statement.

And I should know, since I’m a combination of Grand Master and World Heavyweight Champion of pathetically ignorant statements.

(Whooops! I inserted the wrong end of the cigarette into my holder and accidentally lit the filter-tip. Darn. Can someone spare a loosie? I’ll give you a quarter.)

muirge0 November 26, 2011 at 8:38 pm

Wow isn’t he a professor? He doesn’t even know what the definition of academic???

“To apply the academic paradigm to the real world is to arbitrarily pre-conceive social processes _…”

Here is just one example of academics saving an industry…

http://www.vims.edu/features/research/scallop_management.php

Science-industry partnership revives troubled fishery

In the early 1990s, the scallop fishery along the U.S. Atlantic seaboard was on a sharp downward slide. Commercial fishermen were having to spend more and more time at sea, up to 240 days per year, but were catching fewer and smaller scallops.

Today, that same fishery is the most profitable on the East Coast, with more than $400 million in landed scallops per year in Virginia alone, and an additional $600 million in follow-on economic activity in the Commonwealth.

A large part of the recovery and growth of the East Coast scallop fishery is due to a long-term collaboration between scallop fishermen, fishery managers, and scientists at VIMS. The partnership, which continues today, was begun in the mid-1980s by Dr. Bill DuPaul, Director of the Sea Grant Marine Advisory program at VIMS.

Majuscule November 26, 2011 at 9:29 pm

“…to reach a pre-arranged solution.”

I agree with the overall sentiment of the full passage, but this part of the quote baffles me. In the pure sciences at least (physics, chemistry, biology–and throw in mathematics as well), there are no pre-arranged solutions.

There are, however, bedrock theories that have withstood the results of countless experiments and mountains of data. Thousands of experiments are taking place right now in academic settings where the outcome can be hypothesized based on these theories. But to say that the results are pre-arranged by the researchers to fit a dogma is false.

Researchers at CERN recently announced the tentative discovery of a subatomic particle that travels faster than the speed of light. If true, this discovery would turn the central dogma of physics upside-down. Some physicists have surmised that the CERN results are an errant data point. If so, further experiments will back that assertion. But if the CERN data is reproducible, then physicists will be forced to re-examine virtually all of the theoretical underpinnings of physics going back to Einstein.

The central dogma of molecular biology (i.e. DNA –> RNA –> proteins) has been in the last 20 years or so with the discovery of epigenetic mechanisms.

Majuscule November 26, 2011 at 10:00 pm

Experiments in pure science tend to control for a finite number of variables. Theories emerge from reams of data produced over time. The CERN results are startling precisely because the theory behind quantum mechanics is so strong.

When the variables increases in a given experiment, the data rests on shakier ground. Meteorology is so difficult to accurately model for more than a couple of days in the future because the number of variables is so great. The underlying physical processes that shape weather are relatively well-understood. But even the most powerful supercomputers cannot handle the number of variables that factor in the long-term behavior of fluid mechanics.

Modeling economic behavior seems to parallel this due to its sheer number of unknowns. I agree with Sowell in that no one person or entity can possibly account for the variables (i.e., independent economic decisions), made by billions of individuals around the world and use the data to make effective policy decisions.

EG November 26, 2011 at 10:59 pm

” I agree with Sowell in that no one person or entity can possibly account for the variables (i.e., independent economic decisions), made by billions of individuals around the world and use the data to make effective policy decisions.”

Yep. Just why does he think that “academics”, grouped together, think otherwise? How can he know what …millions of individuals around the world think and use the data to make his decision?

Jon Murphy November 26, 2011 at 11:08 pm

I think everyone here is missing the point.

This is not an argument against academia. All that is being said is what often is taught in the classroom is not what happens in real life. Having gone (thank God) right from college into the real world recently, I can attest to that fact.

Academia often exists in a cocoon, devoid of the real world. It’s easy for a professor to sit in his office and expound on a General Equilibrium Theory or what effects would a stimulus have on the economy or how to solve the issue of poverty. But realistically, these discussions don’t mean anything to those of us working. That is why you so often see “academic” economists like Ben Bernanke, Krugman, et al, who have written very well respected academic papers, fall flat on their face in real applications (all due respect).

Again, it’s not an argument against academia. It’s a reminder to leave the cloister from time to time and wander around.

Greg Webb November 27, 2011 at 4:19 pm

Yep. They have all gone on tangents.

EG November 26, 2011 at 11:16 pm

“In the pure sciences at least (physics, chemistry, biology–and throw in mathematics as well), there are no pre-arranged solutions”

So in short…in those fields where results can be proved or disproved…you results can be proved or disproved? Whereas in those fields which aren’t really sciences, anything you say goes. Crazy.

So why exactly does Sowell think that he can group together thousands of scientific and non-scientific disciplines into one aggregate term called “academics”? And then impose…pre-selected variables in a prescribed manner to reach a pre-arranged solution? Where does he think economics falls in the spectrum?

I’m getting pretty tired of this “anti-academic” trend in the “right” or “libertarians”. Yeah, lets attack science because some professor in Native American Women’s Struggles Studies 102 at Middle-of-Nowhere POS State says he doesn’t like capitalism. That will get results!

Jon Murphy November 26, 2011 at 11:22 pm

Why is it that questioning a conclusion/hypothesis is suddenly seen as anti-intellectualism? The entire purpose of education is to question. it seems to me that using anti-intellectualism is the new “Red Scare.” It’s just another way to silence dissent.

You don’t find global warming to be a compelling argument? Anti-intellectualism.

You believe in God and science? Anti-intellectualism

You don’t think solar power is the way to go? Anti-intellectualism

Jon Murphy November 26, 2011 at 11:25 pm

I mean, this is a perfect example. All Sowell says is “Remember to come out of your ivory tower once in a while and walk among us mortals,” and rather than address the concerns he raises, the cry is “How dare you question the Almighty Academics? You must be a backwards, redneck, bumpkin who is anti-intellectual!”

Greg Webb November 27, 2011 at 4:21 pm

Sowell’s idea is to keep academics grounded in reality. Not many have taken his advice.

GAAPrulesIFRSdrools November 27, 2011 at 12:05 am

“I’m getting pretty tired of this “anti-academic” trend in the “right” or “libertarians”. ”

Much of academia is a fraud and people are beginning to recognize it.

From the indoctrination masquerading as education to the decades long excessive cost increases (that come despite endowments, favored tax status and the firm attachment to the federal teat), that now render the acquisition of a degree to be an exercise in financial speculation, the model is broken.

To watch occupiers launch incoherent cliche laden rants, against “the Jews” is the best reason to question academia and its claim of utility bordering on indispensability.

Who ever said the academy is above criticism, asks this Penn State graduate?

Majuscule November 27, 2011 at 12:17 am

I don’t understand your position. I’m a libertarian and I have an extensive academic background in the hard sciences. I’m not even remotely anti-science or anti-intellectual.

Sowell missteps in my opinion is when he impugns academia as a whole. There is a significant difference between disciplines that deal with objective data (e.g. physics, chemistry) and those disciplines which are largely subjective (e.g. literature, philosophy). I’m more attracted to the hard sciences but I am able to appreciate the value of subjects such as poetry and art.

The social sciences (e.g. linguistics, history) fall somewhere in between–they are based on objective facts, but there are often wildly differing interpretations. Economics is in this category.

Where Sowell gets it right is when he decries the tendency of many academic social scientists (including economists) to use their influence to engineer society with top-down controls via government policy. A structural engineer can successfully design a bridge or skyscraper by applying his knowledge of physics and mathematics. There are a finite number of variables that have to be taken into account.

But when a social engineer applies his knowledge of economics to design a policy to achieve a particular outcome, he is severely limited by not possibly knowing the literally billions of variables that go into the equation. To believe otherwise is the definition of hubris.

Dan J November 27, 2011 at 3:55 am

Maybe the broad brush stroke on academics is embellishment. But, take Muirgeo….. A doctor of medicine and first aid treatment who supposes his degree and practice makes him a genius in economics and societal organizing. The community organizer and constitutinal lawyer has taken his love of wishing to reorganize society thru his own narcissism. But, time and time again, individuals well hearsed in their respective fields of study become arrogant, jump high upon their soapbox and begin preaching as to how others should do as they say.
The chemist, physician, historian, etc.,… All proceed to opine on how things ‘should’ be…… And some look to implement their ideas, via govt, without consent from the human ‘lab rats’, even disregarding those who wish to not participate.

kyle8 November 27, 2011 at 8:35 am

This is an age old problem which you describe, It was one of the reasons that the people of ancient Athens hated Socrates. He walked around the city asking people their opinions and discovered that a person who was very good at what they knew, but ignorant f things outside their field.

Nevertheless, they still insisted that their opinions must carry weight since it was obvious that they were such a clever fellow.

muirge0 November 27, 2011 at 9:37 am

I am no expert in economics. But the profession is as divided as any and I have read much from both sides. It is the very rational and real world consistent explanations from Keynesian economist who seem to explain things more logically and consistent with historical evidence and ongoing trends. I have been following the economic debate for over a decade and the Keynesians were the ones who warned of this coming economy and now the failure of austerity measures continues to confirm their claims.

The Hayekian claim against the use of knowledge to direct the economy is BS. The policy changes that lead to concentrated wealth at the topped and stalled demand in the middle are fairly obvious and easily addressed in theory but not so in practice when you have a 60 vote rule to get anything passed the senate and tons of elitist money and influence doing a great job of not allowing change.

Again….record bank profits while the rest of the economy stagnates has some pretty obvious causes and some pretty simple solutions….none of which can be found in the libertarian recipe of doing more of the same.

Jon Murphy November 27, 2011 at 9:58 am

“I am no expert in economics.”

As evidenced by every post you’ve ever made and highlighted even more by this one.

Austrian economists have been warning of the recession for nearly a decade. If fact, it was the policies advocated by such Keynesian as Krugman (Don’t forget, he said after the tech bubble burst that we need a housing bubble to make up for lost ground) that not only set the stage for the crisis, but perpetuated it.

You also grossly misunderstand the Hayekian use of knowledge. You interpret it has blind groping in the dark for an answer. That’s pathetically incorrect (and confirmed by your bias that we are anti-intellectual). Austrians warn that knowledge is DECENTRALIZED, meaning NO ONE PERSON OR GROUP OF PEOPLE HAVE ALL THE KNOWLEDGE YO ALLOCATE RESOURCES EFFICIENTLY. What this means is to allow a bottom-up plan to come about, as a top-down plan will be limited simply because of the limited knowledge. You interpret that any action not taken by the government is no action at all, that it is doing nothing. But it’s not doing nothing. It’s doing something. We want plans by the many, not by the few, not this banal authority of DO-SOMETHING.

“record bank profits while the rest of the economy stagnates has some pretty obvious causes and some pretty simple solutions”

Bank profits are higher because people are paying off debt. I don’t see how that’s a problem. Additionally, how is the economy stagnating? Manufacturing is at an all time high. Retail Sales are at an all time high. In the last three months, the US economy has added nearly 2 million jobs in the private sector, a time frame when the economy usually sheds jobs. Capital equipment production is exploding. New Orders are showing further growth ahead. Housing is growing again (albeit mildly). So is Nonresidential Construction (also mildly). If Black Friday sales are any indication, then it will be the best Christmas season since 2007. Show me where the economy is stagnating.

Jon Murphy November 27, 2011 at 9:59 am

Also, Disposable Personal Income increasing.

Dan J November 27, 2011 at 2:21 pm

Keynsians warned of the impending financial collapse? You think only people who subscribe to GOVT stimulus and greater GOVT controls thought an inevitable crash was looming?
Lending institutions were ordered to consider welfare benefits as part of income toward meeting the almost non-existent qualifications for a mortgage. Lending institutions were threatened with lawsuits should they arbitrarily deny a loan to someone who met lowest qualifications.
Since, those ‘bad’ loans would be bought by Fannie and Freddie, regardless of bundling, the lenders obliged. They wouldn’t be on the hook for high default loans….. So why fight the GOVT, and why not take the ball and run with it.
BofA did put up a fight and they were excoriated. Ran up before congress and Janet Reno. Told that if stats were not found to be more to the federal GOVT liking, BofA would be brought up on discrimination charges.
From denial of diversifying and expansion, to lowered credit ratings, threats of lawsuits and criminal charges, ACORN picketing, etc.,… And then positive incentive of Fan/Fred buying loans and giving lenders a quick positive return as opposed to waiting on payments for a profit, the federal GOVT directed the housing boom and inevitable bust from market distortions.

GAAPrulesIFRSdrools November 27, 2011 at 2:43 pm

I am no expert in economics. But the profession is as divided as any and I have read much from both sides.

Tell you what “doctor”, since there’s plenty of contentious debates in medicine, let me read up and hang out a shingle.

The problem with you, is that you are to economics, what some guy with a subscription to “PREVENTION” (and its pretty clear from your prose that you never venture far from the statist echo-chamber) is to medicine-cocksure and unqualified.

I seem to recall the first rule of the Hippocratic Oath is “first do no harm”, or are you OK with iatrogenic ills, as long as the efect is economic and the introducing agent is the state?

Greg G November 27, 2011 at 3:02 pm

“Austrian economists have been warning of the recession for nearly a decade.”

This is not something to brag about. A broken clock is right twice a day. Most decades have recessions.

Jon Murphy November 27, 2011 at 3:21 pm

Heh, I see your point Greg G, but I don’t think I explained what I was saying. There were some Austrians saying in 2001-2002 that if we didn’t get our house in order, we’d be facing a massive recession in the latter part of the decade. In 2005, at a meeting of CEOs and manufacturers, an Austrian economist Alan Beaulieu said that the economy would enter recession in 2007, the market would crash in October 2008, and the recession would be the worst since the ’30′s.

Jon Murphy November 27, 2011 at 3:36 pm

I should also mention, the numbers I cite are 12 Month Moving Totals. This eliminates seasonality and one can see the greater trends.

Greg G November 27, 2011 at 3:36 pm

Jon

It is always possible with hindsight to discover individuals who have made accurate predictions. I am not convinced any school of economics is very good at predicting recessions. Any individual who is capable of accurately making such predictions should be very rich. Did Beaulieu get rich betting on recession in 2007 and market crash in 2008? If so, I will be very impressed. If not, I want to know how many wrong predictions he has made that we are not hearing about.

Anyway, don’t Austrians believe such specific aggregate macro predictions are “the pretense of knowledge” – impossible even in principle?

Jon Murphy November 27, 2011 at 3:42 pm

Believe it or not, I agree with you Greg. In hindsight, it is easy to see who’s predictions are correct and who’s are incorrect. And I agree that no one school is any better/worse than the other one at predictions. In most cases, it’s just a matter of analyzing trends, which is primarily what I do. By looking at economic trends, one can make predictions of 4-6 quarters fairly easily (quantitative forecasts are harder).

Greg G November 27, 2011 at 3:55 pm

Jon

If you really can make consistently accurate 4 to 6 quarter predictions and back them up with good investments you should eventually become very rich. One thing I like about Austrian economics is the recognition of the difficulty of prediction.

I don’t mean to disparage what you do but I think most economic prediction just extrapolates existing trends. If you predict the weather by looking outside you will often be right – except when you are not.

Jon Murphy November 27, 2011 at 4:10 pm

Predicting the stock market is impossible. The stock market is very much a random walk. I’m talking about the larger economic trends (of which the stock market is largely divorced).

The predictions I do are largely extrapolations. However, we do have forecasters who do long term predictions with accuracy of about 96%.

Overall, I agree with you. But looking at trends and news, one can easily predict what will occur. If a government keeps printing money, you can predict a weak currency, for example.

Greg Webb November 27, 2011 at 4:29 pm

Jon, the issue is timing, not accuracy of the prediction. If the Fed keeps inflating the money supply by monetizing the national debt and the federal government continues its anti-business rethoric, then the US will have stagflation. When it will begin I cannot say. And, my aummptions about government policy may prove to be wrong. Hope so. But, would not bet against it.

muirge0 November 27, 2011 at 6:32 pm

Jon said, “Austrian economists have been warning of the recession for nearly a decade.”

And the Jon said, “Additionally, how is the economy stagnating? ”

Thanks Jon… your incoherence and cognitive disconnect are quickly making it apparent that you too like most proclaimed libertarians are an unserious ideological thinker.

Just so you all know JON HAS PROCLAIMED AN END TO THE RECESSION. I will post this to my own blog so I can remind you how wrong you were in this silly silly prediction. The Keynsians are making no such claims and suggesting at best we will bounce along the bottom if not go int another recession or something much worse.

Yeah you are on record as being a total dope… thanks for putting it to history.

muirge0 November 27, 2011 at 6:35 pm

Hey everyone…. there is this looney guy naked out in the middle of the street twirling around and screaming at the top of his lungs, ” HEY EVERYONE…LOOK AT ME…I AM A GD FULL ON IDIOT….HEY LOOK AT ME!!!!”

I give you Jon Murphy,

“Additionally, how is the economy stagnating?….. Show me where the economy is stagnating. “

muirge0 November 27, 2011 at 6:44 pm

Jon I put a post on my blog dedicated to you and your claim of economic recovery. I put on my iPhone calendar to remind me 6 months from now to review your claims…see you then.

http://ablankspotonthemap.blogspot.com/2011/11/hey-look-at-me-i-am-jon-murphy.html

Nikolai Luzhin, Eastern Promises November 27, 2011 at 5:27 am

Majuscle asserts, that one can not us “economics to design a policy to achieve a particular outcome, he is severely limited by not possibly knowing the literally billions of variables that go into the equation. To believe otherwise is the definition of hubris.”

that is where you are very wrong. We just did the opposite (and have been since Keynes started writing and speaking).

Majuscule November 27, 2011 at 9:07 am

If by “the opposite” you are referring to the Keynesian “stimulus” enacted by Congress in 2009, then I am not convinced.

The Act siphoned $800 billion from the private economy and was engineered by 307 politicians in DC who buy into the ideas of Keynes. The ostensible goal of lowering unemployment has not occurred. That doesn’t make me “very wrong.” In fact it illustrates my point.

It is amazing to me how so many people believe that a phenomenon as chaotic as economics can be controlled or manipulated in a meaningful and effective way.

It reminds me of proponents of dubious cloud seeding programs designed to modify weather to achieve a desired outcome. The chaotic nature of fluid mechanics in the atmosphere is so profound that the effects are impossible to accurately model.

Keynesian economists are trying to induce rain by seeding the clouds, but instead they are prolonging and intensifying the drought.

muirge0 November 27, 2011 at 9:49 am

That’s baloney. The economic literature clearly supports the claim that even the watered down stimulus DID work and now that the stimulus is gone we are seeing continued stagnation even a second recession following the libertarians advice to do nothing. Austerity measures are making Greece worse not better.The evidence is clear.

http://tinyurl.com/3opf8tr

Our current economy has structural problems that a stimulus itself will not cure. Bottom line is you will NOT see our economy recover until some major changes occur that improve middle class wages. These changes will most likely relate to tax increases on excess wealth and will also address our trade imbalance. Hopefully speculation, banking asymmetries and corporate board structure will be addressed as well…these thing WE KNOW are harming our economy and the solution is not simple minded libertarian do nothingism…. that’s a solution for how we got here and how to muddle along.

Until then plan to here more of Prof Boudreaux telling us how good our trade policy is oblivious to the disastrous economy it spawned.

Nikolai Luzhin, Eastern Promises November 27, 2011 at 11:05 am

Majuscule thinks the Act [Stimulus] siphoned $800 billion from the private economy

where, pray tell, is the evidence of such crowding out?

Dan J November 27, 2011 at 2:25 pm

Gotta love how a person thinks that the road to prosperity is by means of forcibly taking it from 300 million and then having 536 people allocate as they arrogantly see fit, as opposed to the 300 million people who once had that wealth say it should be directed.

Greg Webb November 27, 2011 at 4:31 pm

Dan J, it just proves that they are stupid statists.

Nikolai Luzhin, Eastern Promises November 27, 2011 at 5:23 am

more tripe and non-sense

Thomas Sowell is a fool, who like the Newt, is only what a dumb person thinks a smart person sounds like.

There is no “academic process” against which he rails. Neither learning nor knowledge comes from socialization.

It is repeatedly been shown that one learns more at Harvard and other top schools because they have better teachers.

Sowell, who has spent a lifetime around academia, has never produced a student worthy of note. why would anyone read him?

kyle8 November 27, 2011 at 8:38 am

Hilarious, a lefty troll who calls two incredibly brilliant men idiots. A marvelous mixture of hubris, ignorance, narcissism, self deception and lunacy.

Nikolai Luzhin, Eastern Promises November 27, 2011 at 11:07 am

Sowell and Newt are brilliant?

No, the people who listen to them are stupid and they think that Sowell and Newt are what smart people sound like.

Jon Murphy November 27, 2011 at 9:13 am

“It is repeatedly been shown that one learns more at Harvard and other top schools because they have better teachers.”

HAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA!

Whew. Thanks, man. I’ve not laughed like that since I watched the Koch Brothers steal candy from a kid on Halloween.

Nikolai Luzhin, Eastern Promises November 27, 2011 at 11:09 am

sorry Murphy, since you are not at an Ivy League school, but we the test results for lawyers and doctors show, consistently, that Harvard, Yale, etc., do a better job with students who have the same ability than lesser titles

Jon Murphy November 27, 2011 at 11:50 am

It seems to me Nik, that you are saying that public schools (such as UMASS, Penn State, K-State, UNH) could never hope to compete with private enterprises such as Harvard, Yale, et al. It’s almost that you are saying that private enterprise will always outperform public enterprise. But that cannot be, as you constantly claim private enterprise is nothing but greedy people and public is the way to go. Maybe you are just too blinded by the glint on Harvard to realize this?

GAAPrulesIFRSdrools November 27, 2011 at 2:49 pm

sorry Murphy, since you are not at an Ivy League school, but we the test results for lawyers and doctors show,

Wow, what fine grammar you have, “ivy leaguer”.

muirge0 November 27, 2011 at 9:53 am

You are right Nikolai, academics and their research are hugely important in the contributions they make to private industry as well as the educated work force they deliver. When Sowell speaks to the failure of academia I think he is projecting…. He more than any professor is an indoctrinator of students and the general public. He says what all the libs want to hear. He is feeding them the gruel they love.

GAAPrulesIFRSdrools November 27, 2011 at 2:46 pm

You are right Nikolai,

I love it when the bot talks to itself.

Dan J November 27, 2011 at 2:27 pm

At 80 yrs of age, Sowell, shows more wit and sense than that of the arrogant 30-60yr olds.

GAAPrulesIFRSdrools November 27, 2011 at 2:46 pm

It is repeatedly been shown that one learns more at Harvard and other top schools because they have better teachers.

Bovine Excrement.

Majuscule November 27, 2011 at 12:09 pm

@ Nikolai: “where, pray tell, is the evidence of such crowding out?”

Seriously? How can you be so obtuse? $800 billion dollars doesn’t just appear out of thin air. There are 3 ways that government obtains the money to spend:

1) Direct taxation of the income of private individuals and corporations. Excise taxes and tariffs also are directly paid by private actors.

2) Borrowing through the issue of bonds. But the bonds must be paid back with interest. The principal and interest are paid for with revenue from direct taxation of the private economy.

3) Printing money. The problem is the value of the dollar is diluted in the process. Inflation is effectively a stealthy tax on the savings of private individuals.

All the revenue obtained by the government ultimately derives from the private economy. The 2009 stimulus leeches all of its $800 billion from private hands and allocates these resources where the enlightened thinkers on Capitol Hill direct it.

Nikolai Luzhin, Eastern Promises November 27, 2011 at 5:52 pm

Majuscule

please go read a few dozen economics books, trying to grasp simple concepts like the velocity of money.

If the gov’t borrows $800 billion it has not crowed out $800 billion in private spending. Any owner of a bond, which is an asset can sell such and obtain cash to spend or pledge such as collateral and borrow what they lent the gov’t.

To understand, which I don’t you can grasp, one just has to look at Keynes paradox of thrift. What if, instead of lending the $800 billion to the gov’t the bond buyers took their “cash,” put it in Mason jars, and buried such in their back yards. How does this activity lead to economic growth or growth in demand for goods or services.

Friedman said it pretty well—I put up the exact quote a few days ago. Low interest rates show a lack of money and/or an inadequate velocity or both.

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