Quotation of the Day…

by Don Boudreaux on December 3, 2011

in Hubris and humility, Man of System, Scientism, Seen and Unseen, Self-deception

I removed this ‘quotation of the day’ because its author, John Kay, correctly notes that I didn’t ask for permission to quote from his book.  While I believe that the very brief quotation that I posted in this space falls squarely within the fair-use doctrine, Mr. Kay seems to be upset that I quoted from his book Obliquity without his permission.  So I take down the quotation, with apologies to him.

BTW, in his comment – in which he goes on to complain about my failure (in a different post) to note that Rockefeller achieved market dominance by controlling the railroads – he seems never to ask the question that was asked by some other scholars who’ve examined the history of Standard Oil: what was in it for the railroads?  Rockefeller bargained with suppliers of an input (rail transportation), and he had lots of economically justified bargaining chips (such as his willingness to self-insure).  He gave something to the railroads; they gave something in return.

Did this bargaining harm Standard’s rival refiners?  Yes.  Did it harm consumers?  No.  There’s no evidence that Standard’s actions resulted in higher prices or lower quality for final consumers – quite the opposite.  So the fact that Standard’s business practices didn’t resemble “competition” as it is modeled in economics textbooks shows only that economic textbooks have too cramped a notion of competition.

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Steve_0 December 3, 2011 at 9:53 am

The curious task…

persiflage December 3, 2011 at 9:54 am

Yup. What he said. As an older engineer, I constantly fight the propensity of the youngsters to use models and flimsy analysis as a substitute for judgement and real world experience. The numbers generated (by modern high-speed computer analysis!) carry a false certitude, based on limited input parameters. Basing the success of a project (or an economy) on this level of analysis (and hubris) can only end in tears.

Krishnan December 3, 2011 at 11:02 am

Yup to that (!) … “Simulators” with nice front ends are often abused – the idea that garbage in can be garbage out OR that the simulator may not have the appropriate models for the particular case is often lost on those that take “computers” and “programs” as the “final word” – the idea that some one programmed those computers, wrote the software for calculations AND that they made mistakes is often a difficult lesson to teach – …

EG December 3, 2011 at 1:42 pm

That made very little sense, if for no other reason that the very concept of a “simulator” is to “simulate”. The image you see in your head when you open your eyes, is a simulation of the real world. It doesn’t mean that it isn’t good enough for…your purposes.

Krishnan December 4, 2011 at 9:10 am

Yes, simulators are “designed” to simulate. If the “simulator” is say a 747, and if you do not “see” what you expect to see out a window, you know the “simulator” is wrong/bizarre/whatever. If however the simulator is doing calculations on some internal combustion engine or a distillation column or a pump – then yes, there is potential for abuse if the basic models used to create the simulations are incorrect or derived using some faulty assumptions (and yes, it can happen)

EG December 3, 2011 at 1:39 pm

No offense, but that’s a sweeping simplification, and simply not true. If your argument is that “youngsters” make “flimsy analysis”, then that’s totally unrelated to the models or modeling of engineering systems. Nor does this argument have any relation to “economic systems”.

If there’s one profession that most certainly does not “base the success” of anything on “hubris”…its engineering. You’re barking up the wrong tree here.

The problem, is economists pretending to be engineers.

Krishnan December 4, 2011 at 9:14 am

The GUI-ification of complex programs has in many cases blinded “youngsters” to what is indeed behind those icons they can pull up, connect and ask to “run” the simulation – Yes, the programs used today are far, far better than they used to, but they are still, after all, written by some other “youngsters” who may have ignored key assumptions/critical issues (and yes, that can and does happen)

Jon Murphy December 4, 2011 at 9:26 am

Also, with this simulators (as I am sure you’ve already mentioned) cannot possibly take into account every possible variable. After all, you cannot know what you don’t know.

anthonyl December 4, 2011 at 10:08 am

That’s Paul Krugman to a T. He has said it himself. He likes stories where people predict the future with mathematical formulas. He wanted to be the Sheldon.
I read the series and loved it at the time but now realize its’ premiss is bogus. Apperently some people never got the memo.

Scott December 4, 2011 at 10:15 am

“If there’s one profession that most certainly does not “base the success” of anything on “hubris”…its engineering.

If you don’t think that arguments and decisions are made in engineering because one person is just certain that they know best without much evidence then you just haven’t operated at the right levels (closer to the production floor).
The truth is, so many decisions have to be made by systems engineers that some of it is going to be rule of thumb, on the spot, and argument by authority. That is all breeding ground for pride to be involved. Good engineers will try and keep it out, bad engineers won’t. Because managers like to hear “this is the answer” not “I’ll have to look” the bad ones tend to be promoted and in charge of more decisions.

SmoledMan December 3, 2011 at 11:10 pm

The reverse is true in software engineering. The youngins’ prefer to just do minimal design and dive into coding. The older engineers want to endlessly design, design, design.

Steve C. December 3, 2011 at 10:34 am

It’s fundamental, “if all you have is a hammer”. To refine the point, if all your success is based on your hammering skills.

Clausewitz divided war into two functions. Preparation for war and war proper. There is a place for systems management/analysis in both spheres. The error is thinking the numbers (when applied to war proper) are ground truth.

The military leaders, for all their flaws, knew combat is a human activity. The outputs are dependent on human behavior. Bomb tonnage dropped per sortie is a decent measure of the ability of your air force system to deliver the goods. Does it effect the enemy? Are you hitting the right targets? Are the pilots accurate? It’s a challenge to link cause and effect.

These folks were heavily influenced by the work of Dr. Deming. They didn’t follow Deming’s own advice to

Check (analyze the results)
Act (on what you’ve learned and start again)

vidyohs December 3, 2011 at 11:19 am

Good post, sir. Unfortunately I know firsthand too well that much of what government, military included, does…….rather seems to do….is because of the prevailing attitude that “if it looks good on paper” that is all it takes to satisfy the chain of command, and ultimately the public; because they all know that the public can be lied to with impunity as the lie is virtually never investigated and thus never made public.

rbd December 3, 2011 at 12:19 pm

And the public can seem so apathetic at times. Most of my extended family couldn’t care less about national government. I would venture an explanation because they don’t understand it ~ they don’t understand economics and politics. It takes some initiative to learn economics and politics, but failure to do so will always result in government diminishing an ignorant people’s liberties.

Invisible Backhand December 3, 2011 at 10:38 am

Don truly does not get irony:


Invisible Backhand December 3, 2011 at 11:39 pm

But Don, and everyone else here, should understand this:


vidyohs December 3, 2011 at 11:16 am

For more insight on the type of man Robert McNamara was, along with insights on how American industry reacted to war in WWII, read Trading with the Enemy by Charles Higham.


The Reckoning by David-Halberstam also provides info on McNamara and his performance at Ford, as well as gives little known information about foremost the American auto industry, and also the energy industry and labor.


kyle8 December 3, 2011 at 8:37 pm

He left out one more ingredient that McNamara and the other wiz kids had. Hubris, overwhelming arrogance and hubris.

Greg Webb December 4, 2011 at 12:45 am

Yep. Much like Obama and his group of arrogant thieves and political cronies.

Krishnan December 4, 2011 at 8:06 am

“permission to quote”?? I am puzzled. It was not as if something was taken without attribution … So, do newspapers, magazines, blogs ask permission from anyone they quote? I cannot imagine they have to.

My guess is the author is upset at how you had used the quote – that you were making a point that he did not agree with.

Jon Murphy December 4, 2011 at 8:47 am

Yeah, I mean what is the fair-use doctrine? I always thought, as long as you property cite a work, you can use it?

And, with all due respect to Mr. Kay, I’m surprised he’s objected to the free publicity. I didn’t hear about his book until you mentioned it, and now it’s on my reading list. After all, the only thing worse than being talked about is not being talked about.

Methinks1776 December 4, 2011 at 9:09 am

It’s the New Economic Thinking.

Krishnan December 4, 2011 at 9:50 am

If Don had quoted him and said how terrible Rockefelller was, Kay would have been pleased … I think Kay is ticked off that Don used the quote to make a point that Kay had not intended – so …

SmoledMan December 4, 2011 at 9:58 am

You’re never gonna be popular in the barrio talking about the virtues of capitalism.

Methinks1776 December 4, 2011 at 10:07 am

Will we have to employ a medium to get permission from Lord Keynes (now existing in the long run) to quote him?

Jon Murphy December 4, 2011 at 10:35 am

I talked to Keynes last night. He’s cool with this blog. He says he never professed to knowing everything and he enjoys the intellectual battle. Oh, Hayek says ” ‘sup, y’all?”

brotio December 4, 2011 at 9:49 pm

I talked to Keynes last night.

I’m sure Kuehn can find a nit to pick in that comment.

Jon Murphy December 4, 2011 at 9:56 pm

Like the fact he’s been dead for nearly 66 years?

El Diablo December 5, 2011 at 12:24 am

I talk to Keynes every night. He still doesn’t make any sense. And what an egotistical bastard!

Ubiquitous December 4, 2011 at 1:02 pm

John Kay went out of his way to be unprofessionally rude because he was playing a game of one-upmanship and intimidation (so common in academia, no?). He’s a shill, bought-and-paid-for at a Soros-funded organization called the Institute for New Economic Thinking (INET). Stiglitz, among other crypto-socialists, sits on the board. The director of the Institute is another Soros-connected economist and banker named Robert A. Johnson, who is also a member of the Franklin and Eleanor Roosevelt Foundation. INET has been exposed in a number of different sites, including the following:


INET’s executive director is Robert Johnson, an international investor and financial consultant who previously was a managing director at Soros Fund Management.

Key members of INET’s governing board include:

Drummond Pike, founder and president of the Tides Foundation

Erik Berglof, founder and president of the Centre for Economic and Financial Research in Moscow, and a non-resident senior fellow at the Brookings Institution

John Shattuck, former vice president of Harvard University and former executive director of the American Civil Liberties Union’s Washington, DC office

INET’s advisory board has included such individuals as:

Jeffrey Sachs, an economist and longtime affiliate of George Soros who directed the United Nations Millennium Project, a massive redistributive scheme calling for the governments of wealthy countries to commit a portion of their GNP to promoting “the economic development and welfare of developing countries.” (Sachs has praised socialists as “both the heirs and the leaders of the world’s most important and most successful political path,” and has lauded their “strong commitment to universalist ethical principles and fiscal re-distribution.”)

Paul Davidson, an economics professor who is a strong proponent of the Keynesian view which holds that active government intervention in the marketplace is the best method of ensuring economic growth and stability;

Robert Dugger, a managing partner with a global asset management company and a board member of the Democracy Alliance;

Thomas Ferguson, a political science professor and longtime contributing editor to The Nation;

Duncan Foley, an economics professor who has praised Karl Marx for the “great insights” of his “very relevant and very powerful” analysis of capitalist society and its flaws;

James Heckman, a University of Chicago economics professor who calls for massive public funding of “educational and development resources” for young children from “disadvantaged families”;

John Kay, the founder of Britain’s largest independent economic consultancy, who has derided “the mantras of market fundamentalism”; the “American business model” founded on “unfettered self-interest, privatization and low tax”; and the “’one-size-fits-all’ globalization” that “hurts developing countries”;

Axel Leijonhufvud, a longtime professor at UCLA and the University of Trento (Italy), who embraces Keynesian economic doctrine;

Kenneth Rogoff, an economist who contends that America’s “unbridled capitalism” has caused “huge inequalities” which have led to “tensions” and “social friction,” and who favors the inheritance tax as a way to “eve[n] out the distribution of income across generations”;

Amartya Sen, an economics profess who has discussed “the huge limitations of relying entirely on the market economy and the profit motive,” and who says that the economic crisis of 2008 was “partly generated by a huge overestimation of the wisdom of market processes.”

In an effort “to extend our global community, accelerate the rate of change, and broaden the impact on the field of economics,” INET has set up a network of smaller “Institutes” on major university campuses to “act as hubs in extending the INET vision around the world.” The organization has also established formal partnerships with the London School of Economics and Political Science, the Centre for International Governance Innovation, and the James Martin 21st Century School at the University of Oxford.
INET’s advisory board has included a number of individuals with ties to the London School of Economics, which was founded in 1895 by members of the socialist Fabian Society. Among these INET board members are UC Berkeley economics professor George Akerlof, Princeton economics professor 
Markus Brunnermeier, Citigroup economist Willem Buiter, Financial Markets Group member 
Charles Goodhart, and economics professor
 Perry Mehrling.

* Established in 1976 by California-based activist Drummond Pike, the Tides Foundation was set up as a public charity that receives money from donors and then funnels it to the recipients of their choice. Because many of these recipient groups are quite radical, the donors often prefer not to have their names publicly linked with the donees. By letting the Tides Foundation, in effect, “launder” the money for them and pass it along to the intended beneficiaries, donors can avoid leaving a “paper trail.” Such contributions are called “donor-advised,” or donor-directed, funds.

Through this legal loophole, nonprofit entities can also create for-profit organizations and then funnel money to them through Tides — thereby circumventing the laws that bar nonprofits from directly funding their own for-profit enterprises. Pew Charitable Trusts, for instance, set up three for-profit media companies and then proceeded to fund them via donor-advised contributions to Tides, which (for an 8 percent management fee) in turn sent the money to the media companies.

Closely associated with the Tides Foundation are:

Wade Rathke, President of the New Orleans-based Local 100 of the Service Employees International Union, and founder and chief organizer of the Association of Community Organizations for Reform Now (ACORN).

Teresa Heinz Kerry, wife of Senator John Kerry. From 1994 to 2004, the Heinz Endowments, which Mrs. Kerry heads, gave the Tides Foundation and Center approximately $8.1 million in grants. Until February 2001, Mrs. Kerry also served as a trustee of the Carnegie Corporation of New York, which has given Tides numerous six-figure grants.

The Tides Foundation and Tides Center also receive grants from the U.S. federal government. Between 1997 and 2001, these grants included the following: $395,219 from the Department of Interior; $3,350,431 from the Environmental Protection Agency; $3,487,040 from the Department of Housing and Urban Development; $208,878 from the Department of Agriculture; $39,550 from the Department of Energy; $93,500 from the Small Business Administration; $10,986 from the Department of Health and Human Services; and $84,520 from the Centers for Disease Control U.S. Agency for International Development.

Emil December 4, 2011 at 1:56 pm

Honestly, who cares who or what he works for and who pays him. He has the same right to make money and make friends as anyone else. (Soros also has this right as have the Koch brothers). He should be judged on the quality of his argumentation – complaining about someone quoting him is silly enough, no need to bring in conspiracy theories.

vance armor December 4, 2011 at 7:59 pm

The Koch brothers have abandoned libertarian causes. Today, they promote Chris Christie as the GOP presidential candidate of choice. They still fund some of the Kochtopus organizations of libertarians, but they have discovered how valuable rent-seeking can be as well. In reality, they just want to pollute, and in their old age they have discovered that libertarian doctrine is quite hostile to their desire to pollute groundwater and the atmosphere, etc. So now they are turning to conventional Republicans to promote, who will, of course, allow them to pollute. “Efficiency” demands such pollution, right? Coase theorem, anyone? Never mind that transactions costs are never zero — we’ll just have Republican politicians and Republican regulators and Republican judges let the oil companies pollute to their hearts’ content.

Ubiquitous December 5, 2011 at 2:50 am

“Efficiency” demands such pollution, right?

Wrong. It demands that decisions regarding allocation of resources be made in accordance with the market price system. Where there is no market price system, there is no economic calculation; where there is no economic calculation, there is no efficient allocation of resources.

And the way to implement a market price system is to privatize resources so that it’s all private property.

See the following video of economist Harold Demsetz speaking at PERC (Property & Environment Research Center) from summer 2010.

Demsetz Lecture on Coase and Externalities

vance armor December 5, 2011 at 5:30 am

I agree with Demsetz. That’s why I put the word “efficiency” in quotes. The point I am making is political, or even rhetorical, rather than a point of positive economics. It is the MISUNDERSTANDING and twisting of free market economics to suit the short-sighted rationales of big business and Republican Party corporate statist interests that I am addressing.

Sam Grove December 4, 2011 at 11:08 pm

Honestly, who cares who or what he works for and who pays

That depends on whose ox is being gored.

The left is ALWAYS keen to counter arguments with associative guilt, so it seems fair to point out their hypocrisy.

Ubiquitous December 4, 2011 at 7:29 pm

Honestly, who cares who or what he works for and who pays him.

Among others, a troll calling itself Invisible Backhand cares. He, she, or it, must admit that John Kay’s perspective on economics is the result of funding his Institute for New Economic Thinking has received from its paymaster, George Soros. That would be consistent with his constant harping on the Koch brothers and the Mercatus Center at GMU.

Then again, consistency was never IB’s strong point.

Jon Murphy December 4, 2011 at 7:32 pm

Nor was caring. Or thinking.

Ubiquitous December 5, 2011 at 2:56 am

economic textbooks have too cramped a notion of competition.

Indeed. The neoclassical doctrine of “perfect competition” is to blame. See this lecture by Israel Kirzner at the Foundation for Economic Education (FEE) from February 1988.

Competition and Entrepreneurship

Russell Nelson December 8, 2011 at 2:22 am

Please don’t do that again. You *do* have the right to use brief quotes in a review or to comment on something without having to ask for permission. Copyright is NOT property. Copyright is a bargain. We give up something; they give up something; and we’re both happy with that bargain. They give up perpetual rights, and we give up the right to copy in whole. That bargain comes with fair use rights. Anybody who tries to break that bargain should properly be ignored.

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