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Time Figures Out Economics - Not!
Is economics ideological by nature? ... It's easy to rag on economics as not being a "real" science, and I try not to do things that are too easy. But in recent weeks I've really started to wonder. It is fascinating, and frightening, to me that smart economists can disagree about whether what the economy needs right now is more government spending or less. The debate isn't about how much stimulus, or how much austerity, or the way such stimulus/austerity should be applied, but rather about which one is called for in the first place. How is this possible? It's like a group of doctors not being able to agree whether a patient's blood should be thinned or coagulated. What am I supposed to make of that? Roger Backhouse, a historian and philosopher of economics at the U.K.'s University of Birmingham, helps me out in his new book, The Puzzle of Modern Economics: Science or Ideology? – Time
Dominant Social Theme: A situation that needs to be addressed.
Free-Market Analysis: We are relieved that Ms. Barbara Kiviat, who looks too young to be writing about economics for Time Magazine, has had her confusion lessened by Roger Backhouse in his new book. However, by giving voice to her puzzlement, Kiviat is enunciating a dominant social theme of sorts: "Economics is confusing and each type of economic discipline deserves its own consideration."
In fact this is how economics is taught, certainly in the US. An economic textbook may provide a full panoply of economic thought, but every school is given equal weight. Like chocolates in a box, each school is to be unwrapped and savored for its particular flavor. One comes away not much enlightened, which is why, perhaps, Kiviat maintains that Backhouse's book has finally given her a much-need perspective. Here's some more from the article:
The more I read Backhouse's book, the more I understood that it's important to distinguish economics from economics as it is typically practiced. Backhouse shows how the current mathematics-heavy top-down approach to economics is not the only one. He traces the origin of the approach – which necessarily assumes that people are rational agents trying to optimize their resources – to the 1930s, but points out that it took some 30 years to really catch on. Before that, the field was rooted in empirical work. Theories tended to be tentative and not all-encompassing. Economists would gather data, and insight from other fields about how people behave (like psychology), in an attempt to come up with explanations about how the world works.
Here's our question: How the heck did Kiviat get an economics gig at Time magazine when she's explaining to us that she only now is realizing that "the current mathematics-heavy, top-down approach to economics is not the only one." It reminds us of a series of Wall Street Journal articles about economics that we covered a while back – each one focusing on an aspect of non-Keynesian economics and writing about the concepts (all of them well known to Austrians) as if they were just-discovered. Kiviat has the same sort of wide-eyed wonder. Here's her bio, courtesy of Time:
Barbara Kiviat recently celebrated her 6-year anniversary covering business and economics for TIME magazine. Over the years, she's written stories about Ben Bernanke, Starbucks, Atlantic City, the zany worlds of real estate, private equity and hedge funds, ING Direct, J. Crew, the people who are buying up our public roads, how Verizon really got her angry by asking for her Social Security number, and why you shouldn't go shopping when you're sad. It's a pretty good gig. Before this, she worked at Mutual Funds magazine, where she got to know everything she possibly could about 529 college savings plans. She also used to work at The Arizona Republic newspaper in Phoenix. Her most indelible memory from that experience is standing in an asphalt parking lot on a 113-degree day accosting Honeywell employees about losing their jobs.
As regards Kiviat's perspective, well ... there really is no excuse. Maybe 20 years ago, or even 10, Ms. Kiviat could be forgiven for not knowing much about various schools of economics. But today, if she wants to find out, all she has do is go online and she can read about different economic schools to her heart's content. She'll even find out that econometrics is generally in a bad odor among a certain set of economists, and frankly her enlightment via Backhouse is kind of puzzling.
This is how the mainstream media used to do it. Hire youngsters, put them on big beats and justify it with the idea that reporting was not an academic exercise but a nitty-gritty investigative one. Frame of reference was actively discouraged – that being the editor's bailiwick. Of course, the editor had just been promoted from the ranks and knew little more than the reporter. And this has been especially true when it comes to economics.
Not anymore. As we have pointed out innumerable times, Austrian, free-market thinking economics is increasingly the economics of choice for the educated layperson. It is even hard to remember when such economics were rigorously repressed and Ludwig von Mises himself was the subject of vituperous analyses, which attempted to make him a virtual economic footnote. Today, on Google, Austrian economic cites are more numerous than Keynesian ones.
Austrian economics is attractive because it has a fairly simple and comprehensive approach. The discipline encourages people to think for themselves and to trust the market rather than government economic schemes and interference. It states plainly that econometrics, the utilization of heavy mathematics to project economic trends is virtually useless. This is because of the concept of "Human Action."
Human Action shows us that trends are unpredictable because people, when faced with difficulties, will change their behaviors to overcome the problems that beset them. This is very inconvenient for government economists who need to make problem-solving projections based on troublesome trends. It is the reason, in fact, that five-year plans never work. It is the reason Thomas Malthus was wrong when he predicted mass starvation in Britain in the 1700s. Here's how Kiviat describes the process, however:
The current fashion, of course, is to come up with theories about how the world is supposed to work. The obvious problem: people aren't always rational. They are, in fact, influenced by things like advertising and a sense of fairness. As a result, math-heavy top-down models can prove disastrously wrong. Backhouse notes that crises of economics are common. Before the recent financial crisis, it was the crisis of the 1970s and a struggle to account for oil price shocks, waning productivity and stagflation.
For Kiviat and apparently for Backhouse, econometric projections are wrong because "people aren't always rational." Austrian economics tells us that people take human action to avoid problems and these actions make human behavior unpredictable. Not for Kiviat and Backhouse. For these two, trend projections tend to be inaccurate because people are influenced by "things like advertising and a sense of fairness." But Kiviat does not want to leave the reader with the sense that economic analysis is any sense useless or impractical. For this reason, she relates an anecdote about acid rain, as follows:
None of that means economics is fundamentally flawed. Just that we expect too much of it. Backhouse also runs through a few examples of economics working just beautifully. One example: the program in the U.S. in the 1990s to control acid-rain-causing emissions. Setting up a marketplace and letting companies trade permits was a smash success. Companies innovated and emissions came down. Backhouse explains that part of the reason this worked so well was that the economics profession created the environment its equations were meant to describe.
The only trouble we have with this description was that the "acid rain" scare was evidently and obviously a fraud, a fear-based, power-elite promotion. It's not hard to determine this as a matter of fact. There's plenty of information about acid rain on the Internet. All you have to do is type in "acid-rain fraud" and you'll be provided with a whole list. Kiviat may not believe that acid rain was a fraudulent promotion, but at the very least she should have mentioned the caveats in our opinion.
The funny thing about Kiviat's article is that there is a long string of feedback replies beneath it and many are far more literate about economics than she is, apparently. Some of the feedbacks mention the Austrian school in particular and provide her links so that she can read up on these issues for herself. (It is, in fact, a reason why so many mainstream media properties have de-emphasized feedbacks or don't even allow them after certain articles.)
Conclusion: In the other article in today's Bell, we analyze a story in the New York Times that we think sums up the insular, New York-media approach to news and events and why it isn't working anymore. This article by Kiviat is a similar eye-opener. Here is a woman who writes about economics for millions and whose platform is arguably the most prestigious magazine of its type during the 20th century. Yet both she and her editors allow her to publish an article that betrays such ignorance that the feedbacks beneath the article are of far more value than her own erroneous musings. When that happens, you've got a problem.
Posted by Werner on 08/16/10 08:29 AM
Economics are simple. What is complicated is the interface between politics and economics. The weak point of Austrian economics is the difficulty to implement repair measures.
Human beings in a democracy are at the end little egoists and they will never vote for the sacrifice Austrian methods would ask for (Debt reduction combined with benefit reduction). Keynes is much voter friendlier.
So at the end it is not as easy as it seems.
Posted by James Raider on 08/15/10 10:48 PM
This is another example of endless reasons the MSM is becoming irrelevant.
Posted by Chris Paterson on 08/15/10 08:04 AM
One of my favourite books on economics is "Economics In One Lesson" by Henry Hazlitt.
Posted by Desmond O'Rafferty on 08/15/10 07:10 AM
When fraud is obvious people like me stand a chance.The Daily Bell supports me in areas where I have little knowledge. I am grateful.
Thank you !
Posted by TMoore on 08/14/10 06:36 PM
This Click to view link woman is a published author on the subject of economics? One can only ask, "Can such thing be?" She is the poster child for the leveling effects of socialism, which is the antithesis of economics.
May I suggest that economics is a natural phenomenon much like the change of the seasons or, perhaps, the behavior of bees inasmuch as economics arises from the realization that cooperation among individuals is mutually beneficial. Also, economics is a theoretical science not subject to experimentation i.e. empiric validation. Theories are based on past events only. As the saying goes:
Prediction is difficult, especially when it involves the future...
Posted by Avenist on 08/14/10 11:55 AM
Life, for almost all of its existence, has been a zero-sum situation. Hominids lived in a zero-sum situation for most of their existence. Under such a condition, the best strategy for an organism is control of resources necessary for its survival and reproduction. It was the likely reason for tribal warfare and conflicts within the tribal social hierarchy. Control was successful, for tribes and alpha-males.
Late in the life of a particular hominid, Homo sapiens, technology improved sufficiently to allow the development of positive-sum economics and therefore trade. Because the nature of technology and trade is spontaneous-it is constantly being created and renewed-the use of control as a survival strategy is doomed to fail.
Freedom, of the market and society, is what is the successful strategy in today's world.
Posted by John Edwards on 08/14/10 03:36 AM
There is just so much going on in the world of elite promotions at the moment.
I think they're all designed to throw us off guard by trying to confuse us by pouring out meme after meme, promotion after promotion, one dominant social theme after another.
All building a deceptively fragmented framework to hang the all dominating edifice of rule by authority.
Sure, we're seeing a lot of defensive pieces in the MSM that may give us the impression that the mercantilist system is under threat of collapse.
But I get the uneasy feeling that through the MSM, it's brainwashed victims are in the process of being inoculated to the truth about our perverted systems of privately owned, international corporations.
Entities who have been made unreasonably rich and powerful by joining themselves to venal and corrupted governments that have happily connived in plundering the people of their hard earned wealth through unreasonably structured over-taxation, favouring the power elite (always!).
These power elite, these creators/masters of the systems and people who control our lives,hopes and dreams, the bankster dynasties, when all else falls apart and they can't keep their ponzi money schemes afloat any more, will ferment and start murderous wars of wanton slaughter and destruction, just to cover their failed monetary and financial tracks.
And keep POWER.
Now lets see, didn't Rumsfeld announce on 9/10/01 that the Pentagon had lost $2.3T and had no idea where it had gone.
And then 9/11 happened the next day.
Could almost see it as fortuitous when seen from the Pentagon Bean counters POV (money men, quietly behind the scenes making things right with the military).
At the moment I am seeing economics as that framework I mentioned earlier as an extension of the warfare state.
While Central banks sit at the centre of this financial web that extends into every aspect of our lives, we are entirety without the ability to enable equal competition between different systems of commerce, with the more dynamic, and therefore resilient, systems winning out.
I can remember the wave of privatisation of government assets that swept from one western democracy to another in the 80's. It was like watching a slow motion train wreck as we sold off solid, money making government enterprises to private and publicly listed companies.
Progress at all costs or we'll be a banana republic was the fear based promotion that pushed us into accepting the dominant societal theme, privatisation of government assets good.
Worked like a charm. The majority of sheeple wouldn't even consider the very real concern that we were reducing the governments ability to fund it's own programs which would ultimately mean they would be milking us poor stupid, stupid, stupid tax payers to extinction.
Now that wasn't hard was it, Ms. Barbara Kiviat ?
Posted by Rolland Carpenter on 08/14/10 02:33 AM
Your analysis and viewer comments actually deal with the economic disaster we are experiencing. Most government spokesmen and Wall Street acolytes are overly optomistic. But after 50 consecutive years of deficit spending, Fed and government responses (larger deficits) can hardly be honored as "Keynseian" or based on any other economic "theory". What we have could better be called "policalism".
Posted by Abaete Ramalho Valverde on 08/14/10 01:30 AM
Your article points out the general basic issue of the economical models, but from my prospective as an engineer the main problem lays in the fact these economical theories and models consider only applying or use scalar quantities and from my point of view they are essentially of vectorial nature not to say tensorial for that matter.
If an engineer uses a wrong conceptual model, data or makes the wrong calculation and latter the building collapses, he will probably end his life in jail, not say the list. Now when will society start to understand that professional working in areas of economy, finance and administration must be held accountable. There is no more space and time to accommodate excuses, especially for actions of irresponsibility in these specific areas and latter blame the mathematical model or theory applied. The economical ' financial reality cannot be in opposition to the physical reality.
Posted by K Kluth on 08/14/10 01:00 AM
Government is the outcome of mercantilism; those who wield power over others. Anarchy is the the human condition absent mercantilism. Mercantilism mixed with government has resulted in corporatism which is how elites control society today. Anarchy is not a "pre-determined ideological perspective" but basic human nature.
Reply from The Daily Bell
Mercantilism mixed with government has resulted in corporatism which is how elites control society today.
Excellent insight. We may borrow it.
Posted by C Moore on 08/13/10 11:54 PM
Sorry, I suppose MPs count as people too.
Just look what happened to America, civil war broke out, violence ruled, oppressive government won the day. Would a free market country manipulate their currency like Switzerland has been doing lately?
Reply from The Daily Bell
Switzerland has seen better days, it is true.
Posted by C Moore on 08/13/10 11:28 PM
I appreciate your responses Lila and I would like to think I condider peoples arguements based on their merits not from a predetermined ideological perspective.
But I really can't get my head around how a free market society would work in reality without somebody seizing power and curtailing other people's liberties.
You may be free to fight back under anarchy but you probably won't win, only the best armed and strongest will be the winners, these people will gain power through violence. These warlords may start to conspire together to increase their power, use their influence to convince the masses that they deserve power because they gained it under a free market. Sound familiar? This has happened before and history tends to repeat itself.
But government is inevitable, so we should at least try to create a government that stays out of the way as much as possible without giving a new government chance to form. Instead of total anarchy. The Anarchistic ideology seems to ignore basic human nature.
Reply from The Daily Bell
"But I really can't get my head around how a free market society would work in reality without somebody seizing power and curtailing other people's liberties."
A version of it pretty much worked in America right up to the Civil War. It works to a degree in Switzerland today and some other countries as well. Just look around and use the Internet as a study aid. Note: Please do not write violent things in your feedback. We will delete them.
Posted by Lila Rajiva on 08/13/10 11:07 PM
MSM co-opting the opposition...
Dead right ...
Posted by Lila Rajiva on 08/13/10 10:53 PM
1. Actually, universal pacifism WOULD work. I think you mean unsystematic pacifism.
Even so, your point doesn't hold against libertarianism, which doesn't argue for universal pacifism..or any kind of pacifism. It argues for an-archy, a different thing. Under anarchist conditions you are perfectly free to fight back or defend yourself, as long as you abide by the non-aggression principle. You could also hire private police to defend yourself.
2. A "fair" government run by "the people"? The evidence shows that "the people" are always represented by "some people," to whom the benefits of rule flow, thereby co-opting them....unless we are talking about very small states with high levels of ethical development and social cohesion.
"Fair" is the basis of many unfair practices...and is entirely subjective in many cases. So you are back to representative democracy, in which case, see above.
3. People who rise to the top economically don't do so solely because they "rip people off". The fact that we've come to believe that shows we live in a near-criminal society, not a free society/market. Businesses don't work by ripping people off. On the other hand, that's exactly how patronage systems work.
and that's exactly what we have. The root of patronage? The patron " government..
Reply from The Daily Bell
Very good. Education in every paragraph.
Posted by C Moore on 08/13/10 10:19 PM
1. I am against war and and in most situations a pacifist, but I realise that a world based on universal pacifism would not work. One nutter with a Knife could physicaly force everyone else to serve him and live as a king. This has parallels with a completely free market world, in a world with no government only the most ruthless and brutal would survive, like the mafia families living outside of the law. That isn't a world conducive to liberty.
2.I'm sure that a fair system of government is possible, maybe have twelve ministers responsible for different areas of government, no political parties and no backscratching among the ministers. The ministers would be paid very well butfull information on their incomes and outgoing would be available to the public to avoid bribery and corruption. Elections would take place every year for the ministers' positions and there would be a term limit of 4 years. Encourage citizens to educate themselves and be involved in the political process. Measures like these could ensure a fair government run by the people.
3. The idea that everyone would be better off under a free market only works when everyone is equal, equal in intelligence, infuence, capital, attractiveness even. In reality certain people will rise to the top and rip other people off, this is how government got going in the first place, there was a time when we were apes with a free market system but as we became more intelligent certain individuals dominated others and governments were born, this will inevitably happen again uder a total free market system. We'd be better off setting up a decent government now instead of preparing the soil for another brutal government in the future.
Posted by C Moore on 08/13/10 09:23 PM
As a lover of freedom, I am all for free markets and personal choice, but I sometimes wonder whether the "Austrian" perspective is best economic outlook for an increase in liberty in the long run.
I'm sure the Daily Bell will agree that a certain amount of government intervention in public life is necessary in order to maintain law and order, to stop violent gangs from seizing control for example. So we agree that government has a role in a civilised society, the question is what level of government intervention will lead to the highest quality of life for the citizens of the country?
I've been listening to Webster Tarpley for the past few weeks and he makes a good case against the Austrian perspective, he argues that the government DOES have a major role to play in the economy, investing in infrastructure to create jobs, investing in practical sciences, regulating industry to keep them from resorting to evil in order to make a profit, things like that.
I'm pretty naive on the topic of economics and I would be glad to be schooled in the Bells perspective, but I feel the idea that the "invisible hand" will sort out all our problems is flawed. I think transparancy and honesty in a government is the most important thing, not free markets.
Reply from The Daily Bell
1. "I'm sure the Daily Bell will agree that a certain amount of government intervention in public life is necessary in order to maintain law and order, to stop violent gangs from seizing control for example."
2. "I think transparancy and honesty in a government is the most important thing, not free markets."
Where do you draw the line?
3. Here is a question for you: If every regulation is a price fix, and every price fix is a distortion of the economy leading to scarcity, a queue or both (a general misallocation of resources that enriches some at the expense of others) then what queues and scarcities do you want to impose? And why?
The best government governs least.
Posted by Pat Fields on 08/13/10 07:03 PM
Lila Rajiva Cite: "It's not that the MSM is populated with stupid people..far from it. But they've been brought up their whole lives to think they are the "right" people from the "right schools" with the "right ideas"... and everyone else is just a hick or a terrorist or a barbarian.."
I might have been more inclined to agreement here ... prior to the expose' of 'Journo-List'. Since that revelation, I can't think of them as anything less than the 5th Column Newspeak co-ordinated propagandists they've now proven themselves to have been for quite some time.
Posted by Pat Fields on 08/13/10 06:39 PM
Weeble Cite: "If you can't beat 'em, join 'em, then scatter them."
That seems to be their M.O., because we're seeing that ploy replicated country-wide in the Tea Party Movement. They're fielding counterfeit 'TPM Candidates' everywhere and our co-ordinators are having to waste their precious time filing court injunctions and countermanding their phony propaganda.
That's why I cringe when the MSM begins 'touting' Austrian economic principals. I just know it's a co-opting maneuver.
Posted by James Jaeger on 08/13/10 04:55 PM
Good article DB. Expose the ignorance and obfuscations of the dominant mainstream media whenever possible!
Posted by Clayton on 08/13/10 04:31 PM
I have to agree with Lila's first comments, wily and deceptive, yes!
On reading your quotes from Ms. Kiviat's article, it strikes me that the promotion being developed concerns Austerity vs. Stimulus. The Neutrality issue is a diversion. What the PE is looking to do is to present a new set of dual isms, which will fit their existing political choice mechanism of Conservative (prudent, grim, self-denying, etc.) and Liberal (compassionate to a fault, happy, hopeful, etc.).
This drops into the preconceived ideas the people have of Republicans and Democrats. Once the issue is contained, the various ideological parties to the debate can be lined up on one side or another of their Meta Equation. The Austrians (while acknowledging the virtue of their assertions) can then be portrayed as being on the side of the insensitive. The Keynesians (even if their assertions are known to be completely without merit) are left in the place of the ones who really get how you feel.
Emotions rule and although the austerity measures will perhaps meet at the moment with grudging approval, as soon as the immediate crisis passes, we can go back to our self-indulgent lifestyles and extraordinarily high time preferences. And, all this talk of economics can be damned and ignored.
There is a concept that is widely applied in Psychotherapy. It can be summed up by the question, "It may be true, but is it helpful?" So, to hell with the Math and the Praxeology, how can you make me feel better today?
I agree with the DB in being happy that we are getting a little air coverage these days. However, it is essential that we manage our own image and not let the PE manage it for us.