My Response to Bill Black’s Comments on Raghuram Rajan’s Article “The Paranoid Style in Economics”

Once again, ate a long post I wrote in response to Bill Black’s comments on Raghuram Rajan’s article . Here is my contribution to that discussion.

The most nasty admissions, and their implications for policy, from Rajan are the ones everyone continues to miss:

Part of the answer is that economics is an inexact science, with exceptions to almost every pattern of behavior that economists take for granted. ….

…

The point is that economic behavior is complex and can vary among individuals, over time, between goods, and across cultures. Physicists do not need to know the behavior of every molecule to predict how a gas will behave under pressure. Economists cannot be so sanguine. Under some conditions, individual behavioral aberrations cancel one another out, making crowds more predictable than individuals. But, under other conditions, individuals influence one another in such a way that the crowd becomes a herd, led by a few.

The first admission, which is really nonsense or rank sophistry, comes in two parts from Rajan’s claim, “that economics is an inexact science”. First, what exactly is an “inexact science”? Exactitude refers to the level of accuracy and precision of detail in an object or its description. Rajan here wants our sympathy that, unlike physics (the discipline against which economists always compare their subject), economics can’t assume the sort of actor identities that enable physicists to make exact predictions and descriptions of bulk material properties from their constituent atoms and molecules. Of course, as anyone who’s read Yves’s Econned or Steve Keen’s Economics Debunked will see quickly, Rajan hides the fact that economics—especially macroeconomics&mdsash;is predicated on exactly the idea that all economic actors are identical, and that large-scale economic behaviors can be explained and predicted from the group behavior of individual actors! In fact, as described by Yves and Keen, the basic ideas of post-WWII economics come from Paul Samuelson’s adaptation of the ideas of ergodicity and statistical mechanics, concepts and subjects that were created by physicists and chemists to predict bulk properties from molecular characteristics! Thus, Rajan is either lying or is completely ignorant of the most basic concepts in his field when he makes these statements.

The second part is that Rajan wants to continue to claim that economics is a science. The most fundamental character of science is its ability to produce robust statements about human sense-perceptions. In other words, any discipline claiming to be a “science” must be able to produce descriptions and predictions that are consistently verifiable by any observer. As many point out, this amounts to Popper’s famous definition that a science must make claims that can be falsified. On this point, which is critical, Rajan’s quotes above and further his statement that [s]o, why not let evidence, rather than theory, guide policy? Unfortunately, it is hard to get clear-cut evidence of causality are admissions that economics cannot be a science: If evidence, i.e., human sense-perception experience, cannot be used to falsify the claims of economists, or even consistently verify those claims, then economics is not a science.

These subtle, but crucial, admissions lead Rajan to admit the truth: Economists rely on intellectually bullying, sophistry, and outright lies to justify their powerful positions in society:

All of this implies that economic policymakers require an enormous dose of humility, openness to various alternatives (including the possibility that they might be wrong), and a willingness to experiment. This does not mean that our economic knowledge cannot guide us, only that what works in theory – or worked in the past or elsewhere – should be prescribed with an appropriate degree of self-doubt.

But, for economists who actively engage the public, it is hard to influence hearts and minds by qualifying one’s analysis and hedging one’s prescriptions. Better to assert one’s knowledge unequivocally, especially if past academic honors certify one’s claims of expertise. This is not an entirely bad approach if it results in sharper public debate.

In other words, instead of admitting the severe limitations of economic theories and the fact that economics is not a science; and by implication that economists should take a more humble role in policy making, Rajan admits that economists simply resort to the most base forms of intellectual dishonesty. The idea that somehow lying leads to “sharper public debate” is completely disproven by his entire article and Black’s commentary, which is about the degradation of the quality of debate among economists!

As for the rest, having followed Krugman’s comments on R&R, I think Rajan’s characterization is simply wrong. Krugman’s point always was that R&R made understandable (albeit embarrassing) errors, and their failure was in not owning up to those failures. The fact that so many politicians and pundits sold austerity on R&R made that failure all the more egregious.

Rajan’s article is just another example of the intellectual and moral failure of economists and economics.

Comments on “Big Data”

Naked Capitalism Ate Another Post,  So I’ll Put My Comments Here:

<b>Big Data and Econometrics That Doesn’t Add Up</b>

Loved the “definition” of Big Data and the juxtaposition of that with the Bloomberg report on reality vs. econometrics.

Big Data looks like another high-tech money sink in the making.  The problem, as the auothor of the definition so rightly lampoons, is that “data” implies statements that are true or have a high degree of reliability.  In short, when we talk of “data” we imply that we actually know something.  I think that reflects the long history when computers and computing time were so expensive that users were very careful not to waste their use on computations that had unreliable inputs; you had to be very sure about what you were doing before you were allowed to do it.  Now, when computing is cheap, the attitude is “who cares?”

So, when you hear about “Big Data” just remember what you’re really talking about:  A computer that holds and maipulates electrical signals that in turn represent numbers that in turn represent something of interest, which may or may not be real.  In short, computers provide representations of representations of things that may be real or abstractions.  The identification of “corrleations” or other “statistical” relationships in the “data” only adds more abstraction from which we have to <i>infer</i> something of human intellectual significance. 

In short, Big Data looks a lot like sculpting with shit.

Which brings us to the Bloomberg piece.  Funny how when the nice acounting of econmic theory can’t be found to add up in real life, we just shrug our shoulders and say “statistical discrepancy” and then keep on going.  In most real sciences, that “discrepancy” would be the alarm that either the theory is wrong, the techniques for measurement are wrong, or both.  In short, referring to my comments above, such statements can’t be called “data” because they’re clearly unreliable. 

But of course, this being economics, we define the theory to be truth and reality as a “deviation”.

Response to Philip Pilkington’s The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism

Hi, all!  I tried to post this to Naked Capitalism, but my comment appears to have been eaten.  Here’s what I wrote:

Another excellent article, Philip.  I haven’t had time to read Robin’s essay, but I’ll venture a few thoughts nonetheless.

1. I think the key distinction between Nietzsche and Menger is Menger’s equation of “value” with “needs”.  While both agree that no object has any value intrinsic to itself, Nietzsche would say that we give an object value at the moment we assign value to the object for whatever reason.  Menger seems to do the same, but by introducing “satisfaction of needs” as the <i>universal</i> basis for defining “value”, Menger slips in a fixed standard to the extent that our “needs” are assumed constant over time (e.g., the need for food, water, clothing, and shelter).  What Menger therefore really says is that we value the satisfaction of our needs; the objects that actually do the satisfaction are irrelevant.  Robin therefore really missed the boat.

The idea that satisfaction is the real source of value leads us down the rat hole very quickly.  First, although the satisfaction of some needs is quite constant over time (food, water, etc.), many of our “needs” are quite variable as you so correctly note:  As an adult with a 11-month old son, it’s quite clear that his needs and mine often diverge quite radically both for fundamental needs (diet) and variable needs (amusements).  Second, even with fundamental needs there is variability among people of different cultures that is constant with time; indeed, the very definition of culture depends on the variance in assigning value to, say food:  Would you be surprised to find a difference in selling pork ribs in Tel Aviv or Mecca vs. Chicago or Kansas City?  Many people would rather starve than violate cultural taboos on eating certain foods or performing certain acts.

2. I can forgive much of 19^th Century economists their absurdities, since they like all the other early social scientists were trying to see how far they could take the Newtonian view of the world into human affairs.  For Samuelson and the rest of the post-WWII economists, I am just dismayed.  Even if you accept that they too were just trying to apply the (then) new ideas of game theory and statistics to attempt to put flesh on the bones of Marshall & Co., by the early ’60s the rise of sophisticated advertising techniques that could literally create “need” in large swaths of the population should have told them that the 19^th assumptions of constancy of need were indeed outmoded.  What seems to drive this intellectual train wreck forward are political forces, such as the fear of Communism, and the desire of certain groups to regain the power the lost in the New Deal and post-war reconstruction of Europe and Japan.

By using mathematics to create a cargo-cult science of economics, these groups (largely hidden) were able to sing a siren’s song of “scientific freedom” as the natural state of human affairs as opposed to “unnatural” (as in Sodomite) economic planning.  Yet, the history shows just what a huge lie this claim is:  Untold billions have been spent creating public policies, sold to the public by government propaganda, to enforce this alleged “natural” state of human existence.  As you so rightly note, our economic policies are completely normative, not natural.

3. I think we have to look at the use of mathematics in two lights.  First, in the metaphysical sense, most neo-classical economists are much like the Pythagoreans, who created a cult of numerology stemming from the eternal truths of (correct) mathematical statements.  It seems many economists refuse to accept any criticism of their work on the grounds that their mathematical expression don’t just express some fundamental, and therefore eternal truth, but actually embody an eternal truth as a sort of Torah.  (And although the Austrians generally eschew mathematics, they nevertheless fall into this category, sans equations.)

Second, those economists who don’t fall into the first category nevertheless use the inherent (and eternal) truth of (correct) mathematical statements to bamboozle themselves, their students, an the unwary public that the interpretations of those mathematical statements—what really count—must also be true ipso facto.  of course, as Poincare and Hilbert were so wise to caution, the truth of mathematical statements does not extend to the interpretations of nature described by those very same statements.  This is where Friedman’s bastardization of the scientific method is so pernicious—By claiming that any successful “prediction” is scientific “causation”, economists simply have to point to any random similarity to claim success.  Real scientists know this is nonsense, that controls and consistency have to be demonstrate to justify a casuistry relationship, but the propaganda machine noted above—with its phony-baloney “Nobel Prize”—swamps out any chance of reasoned critique in the public.

4.  The combination of these factors has been devastating to Western culture and civil society.  By creating this cult of mathematical superstition, we have also created a selection mechanism that gives the most psychopathic the most power in our society.  People who have reasonable powers of sympathy and empathy are at a huge disadvantage in a culture that is based on so-called “Iron Laws” of human behavior that are expressed as anodyne mathematical statements; this creates a disastrous positive feedback loop since the worst human beings are the most advantaged by this charlatanism.

5.  Finally, I think we need to stop worrying about “Left” and “Right” so much.  I believe that our best approach to returning to a civil, sustainable culture is to focus on restoring our democracy.  To do that we have to establish an economics that is bound by the primacy of democratic needs.  In turn, much of the neo-classical, laissez faire agenda has to be scrapped for the reasons noted above.  By abandoning the idea of a “Left” for the ideas of “democracy”, we can stop carrying all the baggage of the Cold War and Marx’s often muddled ideas.

More Troubles for K12–Do They Succeed By Coopting Local School Boards?

The Portland Press Herald has a story today (http://www.pressherald.com/news/operator-of-web-charter-schools-gets-a-bad-grade_2013-01-18.html) about another K12 failure, this time in the Adams 12 school district near Denver, CO.  According to the story, not only is the K12 virtual charter, The Colorado Virtual Academy, one of the district’s worst performing schools, but it also appears to be trying to take over the local school board.  Concerns over the independence of a proposed K12 charter school here in Maine were a key reason that charter’s application was denied, leading to an angry tirade by our governor.

 

 

Opending Day

Lots to write about.  Keep an eye on this space.