Controlling Social Debate

 

We recently came across the following interesting post at sovereignman.com, entitled 'This is what they think of us'. It references an article by an economist working at the Richmond Fed, one Kartik Athreya, entitled 'Economics is hard: don't let bloggers tell you otherwise' (the link leads to the article posted at Scribid).

 

The short version of this article is: unless you have done some post graduate work in economics, you're simply not qualified to opine on questions of macroeconomics, and more importantly, you're definitely not qualified to comment on economic policy. Please leave that to the experts, even if they have, like Athreya himself (in his own words), not contributed 'any earth-shaking ideas' to advance economics as a science, but are instead 'chipping away with known tools at portions of larger problems'. The article is a sleek work of propaganda. It establishes at the outset that among the 'unqualified commentators' we find both those who could be considered to be on the 'right' of the political spectrum (such as John Stossel) as well as those who can be considered on the left (such as Robert Reich). Athreya even mentions two trained economists, Brad de Long and Paul Krugman, criticizing them for discussing macroeconomic policy questions in terms that make the subject 'seem easy'. We are certainly no fans of de Long or Krugman – we are thinking of them as Keynesian establishment economists whose contributions to economic debate we find highly questionable. In fact, we think of these men as dangerous to the everyone's economic well-being, due to their strident advocacy of interventionist policies that have failed whenever or wherever they have been tried. However, if they were confining themselves to 'chipping away in the dark', there would be little opportunity for the public to engage critically with their opinions. This engagement in turn strikes us as important. By meekly diminishing his own contributions to economics, Athreya is establishing in the mind of the reader notion that 'see, I'm a very modest person, I have no ax to grind, but contrary to those bloggers, I'm actually qualified to comment, and yet, I'd rather do important work in obscurity'. Until now, that is. Mind, we do not disagree with everything Athreya says – one of the reasons why the piece is so slick is that it makes a number of fair points, only to arrive at what we believe to be a wrong conclusion (a conclusion that we are sure the Fed wishes to promote, even though Athreya mentions that the views expressed are his own, and not necessarily those of his employer. Rest assured though, he's definitely not biting the hand that feeds him). Whether consciously or not, it uses Hegelian dialectic, establishing thesis and antithesis, to arrive at the synthesis, or conclusion, that the 'experts' should be left in charge of not only of economic theorizing but also of policy. This is the very method with which public debate is generally controlled in the mainstream media of our 'free society' – the debate is a usually sham battle. Someone is established as an 'authority' for a certain viewpoint, someone else as an authority for another. A fake social debate, making ample use of straw men is conducted, shifting the goalposts of the debate from its original content to the idea that the powers-that-be ultimately wish to promote. An excellent description of the methodology can be found at the 'Daily Bell'. Here is the pertinent quote:

 

“From our more modern vantage point, Hegel's dialectic may not seem so persuasive as an explanation of all things – and in fact it probably is not. But for the elite of his day, and for the monetary elite today, the Hegelian dialectic provides tools for the manipulation of society. To move the public from point A to point B, one need only find a spokesperson for a certain argument and position him as an authority. That person represents Goalpost One. Another spokesperson is positioned on the other side of the argument, to represent Goalpost Two.  Argument A and B can then be used to manipulate a given social discussion. If one wishes, for instance, to promote IDEA C, one merely needs to promote the arguments of Goalpost One (that tend to promote IDEA C) more effectively than the Arguments of Goalpost Two. This forces a slippage of Goalpost Two's position. Thus both Goalpost One and Goalpost Two advance down-field toward IDEA C. Eventually Goalpost Two occupies Goalpost One's original position. The "anti-C" argument now occupies the pro-C position. In this manner whole social conversations are shifted from, say, a debate over market freedom vs. socialism to a debate about the degree of socialism that is desirable.”

 

Whether it was his intention or not,  Athreya's article strikes us as being about this very desire: to control social debate. Here is an expert, with a diploma that proves his expertise, telling us that anyone lacking this documented expertise is simply not worth listening to. After all, economics is a complicated subject, so how can anyone expect the opinions of non-experts to be worthy of attention? The public, so Athreya's argument, would do best to ignore the bloggers who make it all 'seem easy'. 'Economics is Hard' Admittedly, Athreya actually has a point that many bloggers are at times overreaching, and that their lack of expertise can lead them astray. We agree that the subject of economics requires a considerable amount of study if one wishes to comment on it in depth. As the French economist Frédéric Bastiat has made clear, a good economist must think about far more than the immediately obvious – he or she must also consider what is 'unseen'.  Athreya goes on to establish why macroeconomic theorizing is 'not simple'. To quote from his article:

 

“The main problem is that economics, and certainly macroeconomics is not, by any reasonable measure, simple. Macroeconomics is most narrowly concerned with the tracing of individual actions into aggregate outcomes, and most fatally attractive to bloggers: vice versa. What makes macroeconomics very complicated is that economic actors… act. Firms think about how to make profits, households think about how to budget their resources. And both sets of actors forecast. They must. One has to take a view on one’s future income, health, and familial obligations to think about what to set aside for retirement, how much life insurance to buy, and so on. Of course, all parties may be terrible at forecasting, that’s certainly a possibility, but that’s not the issue. Even if one wanted to think of all economic actors as foolish and purposeless organisms making utterly random choices, one must accept that their decisions will still affect, and be affected by what others do. The finitude (sic) of resources ensures this “accounting” reality. Beyond this, some may recall that Economics 101 is usually insistent on reminding students of the Fallacy of Composition: what is true for some may not be true for all. Much of macroeconomics is dedicated precisely making sure that when we talk about the “economy”, we don’t fall afoul of this fallacy.”

 

(our emphasis) We certainly agree that the individuals, firms, etc. that make up the economy act, and that their purposeful actions and planning for the future in light of the scarcity of resources  shape the economy and market processes. This web site is called 'Acting Man' in an allusion to this fact. It is the title of the first chapter of Ludwig von Mises' magnum opus 'Human Action', which starts out with the proposition that can be called the first and most important economic axiom of the Austrian school:

 

Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego’s meaningful response to stimuli and to the conditions of its environment, is a person’s conscious adjustment to the state of the universe that determines his life.”

 

However, many so-called 'fallacies of composition' that Athreya mentions en passant as though they were established facts (without naming concrete examples), are at the heart of economic controversy. As an example for a 'fallacy of composition' controversy, the Keynesian 'paradox of thrift' idea holds that what is good for the individual is not necessarily good for the economy at large – i.e. an individual's act of saving may be good for the individual, but if many individuals decide to save more, then it is held to be bad for the economy at large. However, this is a point of strong contention – Austrian economists hold that on the contrary, an increase in savings is the only way economic progress can occur. They in turn think that a number of Keynesian concepts in fact represent 'fallacies of composition'  – as an example for this see George Reisman's comments on the alleged problem of 'hoarding'. Athreya then goes on to say:

 

“The punchline to all this is that when a professional research economist thinks or talks about social insurance, unemployment, taxes, budget deficits, or sovereign debt, among other things, they almost always have a very precisely articulated model that has been vetted repeatedly for internal coherence. Critically, it is one whose constituent assumptions and parts are visible to all present, and can be fought over. And what I certainly know is that to even begin to talk about the effects of unemployment, debt, deficits, or taxes, one has to think very hard about many, many things. Examples of this approach done right in the context of some of the topics mentioned above are recent papers by Robert Lucas of the University of Chicago, Jonathan Heathcote of the Minneapolis Fed, or Dirk Kreuger and his co-authors. Comparing, even momentarily, such careful work with its explicit, careful reasoning, its ever-mindful approach to the accounting for feedback effects, and its transparent reproducibility, with the sophomoric musings of auto-didact or non-didact bloggers or writers is instructive. For those who want to really know what the best that economics has to offer is, you must look here.”

 

Allow us to note here that the 'carefully vetted models' have a big disadvantage: they almost never have any discernible bearing on real life. Athreya's boss Ben Bernanke is the living, walking and talking proof of this. Bernanke is a highly regarded academic economist, and he has a huge staff of 'economic modelers' at his beck and call, all of them no doubt using 'carefully vetted models'. So how do we explain his utter failure to correctly analyze the state of the economy and make even a single correct economic prediction in the period preceding the recession? The video below has by now rightly become famous – it is an amalgamation of Bernanke's pronouncements on the economy prior to the crisis.

 


 

Bernanke: Why are we still listening to that guy?

(Via Youtube.com)


 

So maybe Athreya will reveal to us in his next paper how all those 'carefully vetted models' happened to fail poor Ben Bernanke? How come he made all these sotto voce declarations that were subsequently proved completely wrong? Is Bernanke incompetent? Is he misguided (we happen to believe he is)? Is it possible that the models have – oops – failed? What should be 'fought over' is economic theory itself – the real question here is whether all of this 'careful modeling' actually makes any sense whatsoever. Surely if it is grounded in wrong a priori assumptions it simply can not possibly 'work' or be of any practical value. Athreya lauds Robert Lucas, Dirk Kreuger and Jonathan Heathcote as examples of economist doing what he calls the 'best economics has to offer'. We are not familiar with Kreuger's or Heathcote's work, and even if we were, a critique would be beyond the scope of this post (their work may well have great merit, but even though we read a lot we can't read everything). However, a quick perusal of their papers available online reveals they are both econometricians by method. Yes, these are economists doing a lot of 'careful modeling', liberally employing statistics and mathematics to buttress their arguments. The 'reproducibility' of their research in all likelihood  works strictly within the confines of the countless ceteris paribus assumptions they base their mathematical models on.

However, neither economic statistics (which are merely a description of economic history – and often an imperfect one at that), nor mathematical models are criteria for determining the correctness of an economic theory. It is however this point that is, or should be, at the center of public debate over economic policy. Robert Lucas, a prominent proponent of the Chicago School and a Nobel prize winner is of course not exactly an obscure figure. In Lucas' case we certainly acknowledge that he has made notable contributions to economics (see e.g. the 'Lucas critique' ). However, as Robert Murphy notes, in the wake of the 2008 financial crisis, Lucas demonstrated what Murphy calls a 'strange faith in Bernanke', on which Robert Higgs has commented as well. The main (but not only) problem Austrians have with what could be deemed the more pro free market wing of the Chicago School is of course precisely the fact that its belief in the free market does not extend to the sphere of money – that it accepts the central planning of monetary policy by the Fed, and is merely critical of its practical implementation  on various historical occasions and thus eager to find the right prescriptions for 'better monetary planning' (an endeavor that suffers from the same problem that bedevils all central economic planning, i.e. the calculation problem). When attempting to elucidate laws of economics it can of course be quite helpful to make use of hypothetical constructs such as e.g. the 'evenly rotating economy' (ERE), which Mises and Rothbard used to explain a number of economic principles, but these authors were very careful in noting that such hypothetical constructs were mere clutches aiding in explanations and not descriptions of reality. The 'equilibrium state' of the ERE can never be attained in real life. Mises had the following to say on the use of mathematics in economic theorizing and how praxeology differs in approach:

 

"Logic and mathematics deal with an ideal system of thought. The relations and implications of their system are coexistent and interdependent. We may say as well that they are synchronous or that they are out of time. A perfect mind could grasp them all in one thought…. Within such a system the notions of anteriority and consequence are metaphorical only. They do not refer to the system, but to our action in grasping it. The system itself implies neither the category of time nor that of causality. There is functional correspondence between elements, but there is neither cause nor effect. What distinguishes… the praxeological system from the logical system is precisely that it implies the categories both of time and of causality"

 

Athreya then goes on to complain:

 

“Why should anyone accept uncritically that Economics, or any field of human endeavor, for that matter, should be easy either to process or contribute to? To some extent, people don’t. Would anyone tolerate the equivalent level of public discussion on cancer research? Most of us readily accept the proposition that Oncology requires training, and rarely give time over to non-medical-professionals’ musings. Do we expect advances in cell-biology to be immediately accessible to anyone with even a college degree? Science journalists routinely cite specific studies that have appeared in specific journals. They generally do not engage in passing their own untrained speculations off as insights. But economic blogging and much journalism largely does not operate this way. Naifs write books, and sell many of them too. People as varied as Matt Ridley and William Greider make book-length statements about economics. I’ve never done that, and this is my job. This is, to say the very least, bizarre.”

 

Well, no-one keeps Athreya from blogging or writing a book. Note that once again, he is careful to mention two people with a completely different philosophy to show that his condemnation is evenhanded. Greider is a journalist who is philosophically a leftist, and thus a supporter of state intervention in the economy. Ridley is a journalist on the exact opposite side of political spectrum, a libertarian who believes the government should adopt a policy of laissez-faire. Neither has formal economic training, however, Athreya's assertion that a lack of formal training automatically means that one cannot possibly usefully contribute to a debate about economic policy is nonetheless wrong.

 

How the debate should be framed

Economics is a social science, not a natural one. In spite of the rise of the 'econometrician', personified most prominently in the person of the late John Samuelson, economics is not akin to the natural sciences. There is a big difference between leaving medicine to medical professionals or nuclear science to nuclear physicists and leaving economic policy to economists. You could say that economics is too important a subject to be left to economists alone. Sure enough, the papers written by the economists Athreya cites as admirable researchers require formal training. It does not automatically follow that the policy recommendations these papers support or imply are therefore the correct policies that should be followed. Friedrich Hayek warned in his Nobel prize acceptance speech about the 'scientist' approach to economics. He contended that the use of mathematical models and statistics so favored by modern-day economists can not substitute for correct theory.  Hayek strongly believed in the impossibility of central economic planning. However, if a macro-economist employed by the state does not contribute to central economic planing, then what does he actually do? Athreya's  contention that macroeconomics and economic policy should be 'left to the experts' runs into the problem that government relies on economic theorists to provide the scientific justifications for its interventions – and it is precisely because of these interventions that we now find ourselves at the juncture of economic crisis. Government intervention is  the very topic that is the biggest bone of contention between the different schools of economic thought. Formal economic training is neither required to recognize this fact nor is it required to intelligently comment on it, although it is certainly helpful in framing economic arguments. Athreya tries to remain 'apolitical' by naming non-expert economic commentators from opposite ends of the political spectrum who espouse wildly different economic philosophies. In this way he attempts to distance himself from the very idea that economics has a political dimension. However, any macro-economist whose work results in  explicit or implied recommendations for government policy is espousing a political position (for either more or less intervention and therefore coercion), whether he likes it or not. There is a vast gulf between economists belonging to different economic schools of thought. Consider for a moment  that one trained economist – William Anderson – writes a blog entirely dedicated to disproving the theories espoused by another trained economist, namely Paul Krugman. It is aptly named 'Krugman in Wonderland'. This type of dispute is not even mentioned by Athreya – he makes as if it didn't exist or as if it were already settled. This is however evidently not the case.  The fact of the matter is that there are competing schools of economic thought that lead to completely different conclusions regarding the extent to which the market economy should be left to its own devices or should be 'steered' by 'experts'. We would contend that in a true free market economy there would be far fewer paid jobs for macro-economic theorists. They would only survive in this profession  to the extent that they could produce work considered valuable enough to get someone to pay for it voluntarily. There would not be any tax-payer financed sinecures from whence they could plan. It is only natural that many mainstream macro-economists would therefore prefer to avoid this debate. In a true free market economy there would for instance be no Federal Reserve – and thus there would automatically be approximately 1,500 fewer jobs for trained macro-economists. We have previously pointed out Hans-Hermann Hoppe's monograph 'Natural Elites, Intellectuals and the State', which is highly recommended reading for a deeper understanding of what is at issue here.

As Hoppe notes:

 

“There are almost no economists, philosophers, historians, or social theorists of rank employed privately by members of the natural elite. And those few of the old elite who remain and who might have purchased their services can no longer afford intellectuals financially. Instead, intellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand ("tenured"), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen. What you will discover is mostly irrelevance and incomprehensibility. Worse, insofar as today's intellectual output is at all relevant and comprehensible, it is viciously statist. There are exceptions, but if practically all intellectuals are employed in the multiple branches of the state, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.”

 

Note in this context that the process of capital accumulation and economic progress, the division of labor and the complex latticework of production structures that has made our modern industrial civilization possible owes exactly nothing to 'economic theory'. It is the result of saving and entrepreneurial activity. As a rule, most successful entrepreneurs are hardly trained economists. Athreya's conflation of the social science of economics with the natural sciences is the key mistake and 'straw man' of his paper. One has nothing to do with the other.

As Ludwig von Mises stated (in Money, Method and the Market Process):

 

“The social sciences cannot make use of experiments. The experience with which they have to deal is the experience of complex phenomena. They are in the same position as acoustics would be if the only material of the scientist were the hearing of a concerto or the noise of a waterfall. It is nowadays fashionable to style the statistical bureaus laboratories. This is misleading. The material which statistics provides is historical, that means the outcome of a complexity of forces. The social sciences never enjoy the advantage of observing the consequences of a change in one element only, other conditions being equal. It follows that the social sciences can never use experience to verify their statements. Every fact and every experience with which they have to deal is open to various interpretations. Of course, the experience of a complexity of phenomena can never prove or disprove a statement in the way in which an experiment proves or disproves. We do not have any historical experience whose import is judged identically by all people.”

 

Athreya ends his article with an appeal – he writes:

 

[And] I hope that non-economists who write about economics start routinely to do so in a way that references and discusses the premises that lead to particular conclusions about a given issue. Economics is full of this sort of “if-then” knowledge, which, if communicated well, could significantly sharpen the public discussion. This is not asking a lot, it is asking just enough.”

 

This is fair enough. Economic debate however is not only shaped by what could be deemed essentially neutral expertise – it is first and foremost a debate about which economic theory is actually correct, and what therefore the extent of government involvement in the economy should be. Government's role in the economy has grown ever larger in recent decades. It bestows privileges on some actors in the economy (the banks, first and foremost, but also numerous other entities that are versed in the art of lobbying), redistributes wealth by taxation, spending and inflation, and smothers the economy in a jungle of regulations that grows like weeds every year.  The extent of government interventionism is the main topic of economic debate, and it is a debate that the public and interested laymen should definitely be involved in. Athreya fails to mention even once that the question about which economic theory best describes the workings of the economy is not yet decided among economists. There are a number of  things most economists can agree on, but there are very large differences about a plethora of essential concepts among the different schools of economic thought. It is not a situation that is comparable to the natural sciences (e.g. physicists disagree only on theories that can not yet be experimentally verified; everything else they agree on). Among economists, many fundamental questions of theory are not yet settled. We would of course wish it were otherwise, given that we believe the Austrian school has the answers which competing theories lack (a good indication of the verity of this statement is the fact that Austrian economists correctly predicted what Bernanke failed to predict – and can explain why). The problem from our point of view is that the competing theories hold sway in the formulation of policy – of this there can be little doubt in view of an $860 billion 'economic stimulus' spending package (the Keynesian prescription) and a Fed that has lowered its administered rate to zero and blown up its balance sheet into the blue yonder (the Monetarist prescription) in order to 'battle the recession'. The fact that these policies have failed in the past and have failed elsewhere (for example in Japan) is a strong hint that modern mainstream economics may in fact be using the wrong premises to arrive at its interventionist conclusions. The interested layman can at this point in time probably not help to be at least a bit puzzled by what is happening, and a demand to 'just leave it to the experts' has very little chance of flying these days.

 


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Dear Readers!

You may have noticed that our header carries ab black flag. This is due to the recent passing of the main author of the Acting Man blog, Heinz Blasnik, under his nom de plume 'Pater Tenebrarum'. We want to thank you for following his blog for meanwhile 11 years and refer you to the 'Acting Man Classics' on the sidebar to get an introduction to his way of seeing economics. In the future, we will keep the blog running with regular uptates from our well known Co-Authors. For that, some financial help would be greatly appreciated. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

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