Thursday, March 28, 2013

Is income equality inherently good or bad? What are it’s causes?

To answer this week's questions: No and I don't know.

No, income equality (or inequality) is not inherently good or bad. As I recently tried  (badly) to explain in a video for, it matters greatly what the source of inequality is. If inequality is the result of free trade, then I see no problem. If it is the result, as it often is, of political power, then I do have a problem with it. I can't understand why income inequality seems to drive people mad while political power inequality bothers so few. Similarly, we know from behaviorial economics experiments that people's perceptions of inequality are highly contextual depending on whether people feel like "the rich" earned the income legitimately or not. See AEI's Arthur Brooks' work on this point.

And I don't know what causes it. If you look around the world, it is really, really, really hard to discern a pattern about what causes inequality.

Reactions to the video: On the one hand, I liked the video for its naked empiricism. This comports well with my own approach to economic freedom. Richard Wilkinson approaches the problem with data in hand, and I appreciate that point. Too often the debate about inequality is hampered by no (or worse selective) data. The evidence does appear to be strong that income inequality is associated with various negative social consequences, at least if you hold income itself constant.  Nevertheless, although I have updated my priors a bit, I remain unconvinced that we can or should do much about income inequality.

A few "yeah, buts...":

1. If you look only at the OECD (i.e., already mostly rich nations) you will see that income itself matters little for various social outcomes. But this glosses over the fact that income matter A LOT for social outcomes when looking at poor countries. The gains to be had by taking say the Democratic Republic of Congo from its current $1500 of average income (or whatever it is -- I didn't look it up) to $15000 are HUGE. The gains to be had by taking the inequality of the U.S. to that of Sweden are mild by comparison. GDP per capita still matters and for most of the world's population, concerns about income inequality are really putting the cart before the horse. To be fair, Wilkinson acknowledges this but so briefly that it would be easy to miss. Frankly, I am more concerned about getting the Congo up to decent living standards than I am debating the finer points of differences in social outcomes across already-rich nations.

2. I think the causality runs mostly in the other direction, especially with regard to social trust, which Wilkinson emphasizes a lot. I think countries with lots of social trust (driven in large part by homogeneous ethnic cultures) are likely to have less inequality naturally and also because they are more willing to redistribute income.  I was influenced on this point by Bo Rothstein (whose recent book I reviewed for Public Choice). The problem is I don't know how you can just create more social trust in a place like the United States.*

3. I wonder what he would say about immigration? Adding poor immigrants to the United States would MASSIVELY increase their well-being, but would also, taking Wilkinson's evidence at face value, increase inequality in the U.S. and thus worsen some social outcomes. Should we really keep these potential immigrants poor in their home countries in order to modestly enhance some social outcomes here?

*Actually, if social trust is most the result of having more homogeneous political bodies, then a strong argument can be made for federalism at a minimum and even breaking the U.S. in to smaller countries. There is a lot of distrust among whites and blacks, southerners and northerners, city dwellers versus rural people, and so on. If our political entities were smaller and more homogeneous, maybe we would have more social trust and ultimately less inequality. Just a thought...What do you think?

Tuesday, March 26, 2013

Life Lessons

I first read Hazlitt's masterpiece the summer before my junior year of high school. That was the summer where my friends all got jobs and I didn't, save for a few of the odd variety. I think it was also the summer where I discovered the enormous quantity of free books made easily accessible by internet. Regardless, by then I knew and started taking advantage of that fact. I stumbled upon Hazlitt early-on, by chance. I sought to gain a general understanding of a variety of topics, and economics was one of many. It was the title that drew me to Hazlitt's work. Economics in One Lesson was exactly what I was looking for in a book. What I got out of it was so much more than that.

If economics truly is the dismal science; that is: one that's harmful to its practitioner's. Then Hazlitt's work is more dangerous than any gateway drug out there. It had me hooked. The clarity which he brings to even the murkiest of economic concepts is unrivaled. As someone whose economic knowledge was shaped by the popular superstitions held both by the general public and those in power, Economics in One Lesson was a book of revelations.

Hazlitt had a gift for explaining and analogizing economic theories in a seemingly effortless manner.  Of course, he applied this treatment to only the theories he liked, and I've since come to learn that many economic concepts ought be treated with greater nuance he grants them. But, considering the size of the book and its targeted audience, Hazlitt's oversimplification is understandable and easily forgivable. If it inspired many misinformed laymen (and women) take an interest in economics, as it did for me, then perhaps his oversimplification is even commendable. Economists, who've gained a reputation for their esoteric, should take a lesson from Hazlitt. Make that two.

What's Won't We Agree On Next?

One lesson, my fabulous behind! I can barely get through a 10th grade reading level fiction in a month, let alone 198 pages over my spring break!

But in all seriousness, Hazlitt's "Economics in One Lesson" provided some (personally) much needed reasoning on a slew of economic topics. There were many fallacies that I, as a long-time public layman, had whole-heartedly believed to be true at some point in my life (some of which I only recently - since reading - have changed my mind on), which gave me a great appreciation for Hazlitt's methodic and clear debunks. If only the rest of the population at large was like us - reading economics in their spare time to distance themselves from ignorance - all these fallacies would be gone (and quickly, judging by how quickly I changed my mind)! Plus, considering that I consider myself a logical thinker, I would say that Hazlitt's lessons actually filled in a few holes in my *layman* economic logic that I had, up until now, not been able to reconcile.

But my blog isn't to discuss how much I would agree with him at every point (or even the insignificant points that I don't) and why. I know that's what economists are supposed to do, but it's feeling so beaten to death for me! Rather, I'd like to ask a few questions, and I'd love if a Hazlitt incarnate could answer:

What "fallacies" are we currently presented with? What's on the chopping block? Who are the opposing sides of the argument, and who's evidence is suggesting truth?
And most importantly, why can't we come to agreement on such modern contentions? That wasn't meant to be rhetorical, I am actually curious as to what specifically prevents consensus. Are we at a standstill until evidence presents itself?

I apologize for the lack of a proper critique, but hopefully this will spark some friendly discussion upon our next meeting.

The Tunnel Vision of the Masses

          Reading through Henry Hazlitts book "Economics in One Lesson" brought up quiet a few economic fallacies. Reading through the ideas brought up exemplifies exactly why many economic policies are either ill thought out or designed with the mindset of not accounting for everything the policy or decision is affecting. How common in politics is it that accepted economic fallacies such as the Broken Window Fallacy and Protecting a dead industry ca
n be seen? Why are policies like these enacted when they have been proven to fail time and time again?

          I don't have a solid answer, but I can hypothesize to some extent why theories such as the ones mentioned above continue to exist and flourish. First of all is the fact that while they may seem completely logical on first glance on further study they fall apart. This simple fact as the effect of making it so that idea's that are actually correct can become lost when the "common knowledge" is brought up in politics. Politicians aren't working towards people's best interests at all times. Politicians work towards getting re-elected and receiving support. Because of this while an economic idea might be completely fallacious the politician itself might be uneducated to this fact (sadly) but more likely is their intended support group to be uneducated upon the basic ideas that said policy might lie upon. This could be because of many reasons such as apathy or simply never being taught or understanding a why such a policy can be bad.

          My second theory for why policies like this are enacted ties closely to my previous idea. I believe policy makers simply do not account for all effects of a policy. While to a certain extent understanding every single effect a policy will have on an economy is impossible it is still important to try and understand the effects their policies have. Enacting a policy that supports one group tremendously while severely setting back the rest of the economy or vice verse of helping a significant portion of the economy a tiny bit while setting a particular sector or group of people at a disadvantage could be the result of simply not enough forethought. 
         In the end I don't know of a solution that would break this trend but I hope for our future that we can instill the tenants of economics in ourselves and the people around us.

Thursday, March 21, 2013

More on Hazlitt

I'm at James Madison Univesity today to give a talk so time is a little compressed...

I had so much fun last week searching for contemporary examples of the issues Hazlitt discusses in One Lesson. So let's continue in the same vein for a bit:

"Stabilizing" Commodities: The Sugar Program means taxpayers/consumer lose when prices are high and when prices are low.

Government Price-Fixing: Hey Taxi!

What Rent Control Does: Well for one it lets rich people live in cheap apartments.

Do Unions Really Raise Wages? Yes for union workers but they are putting themselves out of work in the long run.

The Assault on Savings: The Kroog again!

Leaving One Lesson aside, I wanted to recommend Hazlitt's little dystopic novel, Time Will Run Back.  Here is's description:

It begins in a fully socialist society in which the new leader, who finds himself in that position only by accident, begins to rethink the economic basis of the system. He first begins to wonder whether the economy is doing well at all, and how they might discover this. This sets the leadership on a path to thinking about prices and calculation, and the very meaning of productivity.
Trading is introduced when the leadership can't see anything wrong with the idea of trading rationing tickets, and shortly markets appear, and everyone seems to be better off as a result. So on it continues. Slowly, piece by piece, he dismantles central planning and replaces it with a market system. All the while, the characters engaged in a Socratic-style discussion about the implications of money, exchange, ownership, markets, entrepreneurship, and more.

I'm a big fan of libertarian-themed dystopic literature generally especially of the young adult variety (like The Shadow Children series, The Hunger Games trilogy, or many of Cory Doctorow's books).

<shameless plug> My wife has an unpublished novel, tentatively titled Counteract, in the young adult/dystopic/libertarian genre herself. You can read the first chapter here by joining her "fan club." If you like, please share with your friends--especially your agent and publisher friends!</shameless plug>

Wednesday, March 20, 2013

Why I think Henry Hazlitt is dope

Picture this, a young man in his 19th year of life who has just moved back to Alaska to work during the summer before his freshman year of college. He visits the house of an old friend where his mother resides, after talking about his choice of major and up coming classes she gifts to him a book. This book was called " Economics in One Lesson " by Henry Hazlitt.

At the time, this young man was a staunch liberal who believed in several things. Some of these were that any government spending was good, businesses could only be improved by subsidies to industry and tariffs on foreign goods, and that inflation was caused purposely by big business to increase profit across the board. He would learn very quickly that all of this was false, but that his dreams for a futuristic and prosperous nation were not. 

This young man was myself, within 6 months of receiving this book I had finished my first economics class and had an amazing time participating in my first semester of SWEET had an amazing time. 

Within Henry's book, I gained an interest. I went from having little or no understanding of economics to having a basic scope of some of its principles. I understood things like supply, demand, the broken window fallacy, the tragedy of the commons, and many other things which put into perspective the reasoning behind decision making and voluntary exchange. I learned that things have value, and people value things differently, and that this concept was key to understanding how to achieve efficient usage of said items. I learned that a proper balance between regulation and freedom lead to an optimal social outcome. 

And I learned that in one easy summer afternoon a man can feel much better about his future in business than he had that morning simply from reading a book. 

Whereas now I would call this book introductory and simplistic, to someone dipping their toes in economics or just wanting an easy to understand explanation of some of its fundamentals it is an ideal work. I would suggest it as summer reading for any introductory economics class, be it high school or secondary education. 

Well done Henry, Well done

Henry Hazlitt
1894 - 1993

Friday, March 15, 2013

Is Hazlitt old fashioned or current?

I know many people who claim Hazlitt's Economics in One Lesson was an early inspiration. I really can't say this. I remember reading it for the first time pretty late in my training, probably in grad school, and not being that impressed. I mean it was good, but it came across to me and my grad school ego as being well a tad simple and old fashioned.  But rereading it this week as caused me to reevaluate.

So let's play a game. Let's see if I can find a current analog to most of the chapters.

II. The Broken Window

I know this is low-hanging fruit but if we didn't have Paul Krugman around we'd have to invent him. To wit, the Kroog embraces the broken-window fallacy head on here.  Let's not even talk about alien invasions.

III. The Blessings of Destruction

Did you know Hurricane Sandy was a good thing?

IV. Public Works Mean Taxes

"Obama calls for $50 Billion Public Works Plan" and you know what? It'll be "fully paid for."

V. Taxes Discourage Production

Not according to some.

VI. Credit Diverts Production

One word: Solyndra.

VII. The Curse of Machinery

The ATM gaffe!

VIII. Spread-the-Work Schemes

The 35 hour work week.  Hey why stop at 35 hours?

IX. Disbanding the Troops and Bureaucrats

Teacher Layoffs.

X. The Fetish of Full Employment

We really should have a Census every year. Ya know for the jobs! (Ok this could go in Chapter IX too.)

XI. Who's Protected by Tariffs

If you like candy, not you.

XII. The Drive for Exports

The Export-Import Bank, but it's "fully paid for" so don't worry about it.

XIII. Parity Prices

The minimum wage must keep pace with prices.

XIV. Saving the X Industry

Too easy:

Old Henry doesn't look too old fashioned now does he? Sigh.

Wednesday, March 6, 2013

Austrian Economics, or Philosophical Economics?

I don't like the term Austrian economic thinking as a name for a school of thought. It is more an attachment to the prestigiousness of the individuals involved in creating the school of thought rather than the understanding or the application of the thought its self. I would propose the name Philosophical Economics or possibly even Logical Economics. This is because they use a lot of logic and not a lot of actual observation and data analysis.

Mises is cool and all. I like the philosophical approach to economics, where you lay down foundations for what should happen by easy to follow assumptions based on proven laws of economics and basic logic to prove an expected outcome or theory. It allows you to move much faster through ideas rather than waiting to find statistically relevant data on massive macroeconomic or even large microeconomic issues and theories. Its dope! it really is. you can race through large trains of thought without the footwork of gathering lots of data. Because by using logic, you can essentially prove something without the brass tax data. You can still have empirical evidence, and examples, and charts n such, but it does not have to be nearly as exact as something based on loads of data collection. You are essentially free of large scale data collection and tons of annoying math!

But this post is to much of a repeat from lsat week.

The biggest problem with this is that you get people who take philosophy as law. Without a basis in math and data, you can run into monumental problems especially if people start to take this to heart and apply it to economic policy. Essentially it could work logically on paper but then again the earth being flat used to work out philosophically on paper as well. The point being that no matter how good of a philosopher you are your never going to have even close to perfect information thus your theories will always be imperfect and the flaws in them can cause untold damage in horrible negative externalities. When people take ideas like totally free markets will achieve the optimal social outcome you get problems like the great depression on the 1930s, housing market crashing due to uncontrolled housing markets and predatory loans, ect.

Also, many austrians feel like negative externalities do not exist. which is just to convenient, because they absolutely do exist and can cut big holes in the hulls of the Austrian super tanker.

So in the end, please start calling it Philosophical economics instead. It gives the listener a much better idea that what they are listening to is unproven theory and not substantial and proven fact.

Deal bro.

Here is a picture of Karl Marx to piss people off.

Tuesday, March 5, 2013

The Economic Science, or Why UAF Should Offer Economics as a B.Sc.

I'll admit I never watched the Walter Block video. Having blocked YouTube to increase my productivity, it will be at least spring break until I do. That being noted, I've managed to combine my preconceptions about Walter Block with the information given by my sweet colleagues to give myself some context. I hope I'm not too far off mark.

Economics, like any other science, rests on a basic Cartesian foundation of reasoning. As with any other science, knowledge must be supported through induction, deduction, and abduction. Every economist not itching to rekindle debates settled four centuries ago ought to agree with this. Even Austrian economists, who argue that only deductive reasoning from a handful of principles is useful, should accept the validity of a of non-deductive economic argument if it contains the requisite logical soundness. Thus, while a presumption against certain varieties of reasoning may be useful, a principled disuse of them is not. Such anti-scientific thinking would have no place in a modern economics textbook, no less an economics school.

While I do not consider economists who disavow hard data to be anti-science, I believe their methodology too often resembles such thinking. I understand the complexity of isolating variables in a complex world full of complex people, but that challenge is not unique to economics. Just as Thermodynamics can be derived from a falling apple and not total knowledge of all celestial bodies, the Law of Demand can be derived from experiments which reveal a customer's maximum willingness to pay for a good at a given quantity. No intimate knowledge of every price in the market is needed to support the law, just the absence of contradictory evidence. This is where economic studies have been useful. Indeed, they have demonstrated where such theories conform to the real world and where they require revision. Where they fail to do so, blame should be attributed to flaws in the study, not to flaws in studies.

Catholic Church v. Galileo

You all know me a bit by now, or at least enough to know that I consider myself a subscriber to scientific theory and reasoning as my main form of reasoning/rationalizing reality. As such, when I am presented with arguments, much like those in Walter Block's presentation, I tend to jump to solutions that align with what I consider to be "scientifically" logical.

*Also, Elliot hashed out a lot of this argument with me several weeks ago, so I credit him with some of my articulations. Consider him a contributor to my blog!

As most economists can *hopefully* agree upon, the foundations of economics lay in a few choice axioms regarding human behavior. If we were to equate this to the sciences, we'd likely call these the baseline principles, or "laws" that macro-theories are based upon. The idea is that these baseline principles are timeless, consistent, predictable, universally accepted ("proven" in some cases, or unable to be disproven), and inhabit all interactions in both micro and macro application. Everything that stems from these laws must conform, at their foundation, to the aforementioned parameters. This sets up a pretty solid model for approximating phenomena (within the scope of the laws). 

Science on the whole, with this understanding, can be considered a positive field. Within the sciences, approximations of phenomena (for the vastvastvast majority, negligible-exception most part) can be empirically-derived, and such empirically-derived data lends itself to the ever-expanding model of our universe. The reason model is italicized is that it is simply that: a model, not reality. Although empirical data is the most logical derivation of/closest thing we have to reality, our limitations as data-collectors reject the possibility of a perfect model from which to predict the rest of reality. We can get close, but we'll never be perfect. Therefore, our approximations of other things based off of model should be taken with a grain of salt.

However, just because our model isn't perfect doesn't mean that it isn't pretty damn good at predicting things. In fact, it's the best thing we have! Because we're so rigid about what we allow in, and so anal about taking misinformation out, we've developed a pretty reliable, relevant, and predictable (though not perfect) model. And we do want to predict reality; we want to find out how entities behave, and in what conditions, and to what degree, and to what magnitude, and to what accuracy. This is where science gets normative. In the interest of time (and your interest) I'll skip my proof, and get to the punchline: After something has been proven to death (and never disproven), it becomes regarded as a normative statement. Walter Block's "Triangles have 180 degrees" idea is a perfect example, and as my high school science teacher loves to add "Gravity exists" is another one. Each has its roots in empirical data, but it is referenced as a universal truth that doesn't need to be proven each time it's referenced. 

The reason for bringing this all up is twofold:

Firstly, I wanted to draw the relationship between normative and positive statements, and will sum it up here:
Normative: relating to an ideal standard or model
Positive: Information derived from sensory experience, logical and mathematical treatment is the exclusive source of all authoritative knowledge
As I stated previously, I viscerally fall into the positive camp, but I'm not afraid of the normative. For as I've described, the normative is based on the positive, and the two should not be regarded as mutually exclusive.

Secondly, I want you to go back through what I've written and replace the word "science" with "economics". That's really the main point of all this. I feel as though economics and science are not really all that different. In fact, just as chemistry and biology are branches off of the physics tree trunk (that is to say, they all subscribe to the same fundamental laws), I believe too that economics is a very distant, budding branch. As a branch, it's very young, and deals with a level of complexity that humans, given our technological/psychological limitations at this point in time, may not be equipped to efficiently or effectively model.

To back up a bit, when you look at economics, you see that there are, similarly, a set of laws or "axioms" in this case, that dictate the behavior of all economic phenomena. I would guess that these axioms arose and are perpetuated much like the fundamental laws of physics (empirically), but are now regarded normatively (see the end of paragraph 4 if you don't follow). From these axioms, and the ever-increasing collection of economic data, a model of economics is being developed, and can be used to predict realities, much like science!

The catch in the economic model is, very unlike the sciences, human behavior is a heavily complex amalgamation of principles/laws/axioms that we have yet to fully understand. Not only do we not really have a grip on what we at our core, but we understand very little about how we change, and change our minds. We have a few basic basic basic axioms (such as, humans "act" and "want"... no duh), but that's all we can really rely on. To our credit, that's a pretty good start in economics, and gives us some foundation to begin feeling around (however blindly). When we start exploring and observing economics, we start seeing trends and patterns that economists quickly tend to want to make "normative statements". This isn't necessarily a bad thing. Aggressively clinging to perceived absolutes is what we've done for centuries in many fields (even science). Consider the "World is Flat" or the "Sun Revolves Around the Earth". Yes: for the time being, utilizing that information to run the world, or to predict other things may yield some pretty funky results, but the important thing is that we're interested and we're trying. Hopefully, as soon as someone sees that things aren't adding up, they'll experiment, and either back up the observation with some evidence, or disprove it with some evidence. It isn't until we get some damn evidence that anything can be considered in the "normative": it must be proven empirically, then regarded as normative. That's when we'll start making some progress.

My last thought before I let you go: it is because of all of our past misconceptions in all fields all across the board that I firmly believe no one should be so rigid in their beliefs. ESPECIALLY IN ECONOMICS for, like, a thousand reasons. Because economics deals with variable human behavior, it unfortunately has to deal with the fact that humans, human values, behaviors, cultures, social rules, etc. etc. etc. are constantly changing; that is, the conditions are constantly changing under which economists can run experiments (which as scientists are well aware, makes taking data extremely difficult, and often not worth it if the conditions are changing too much too quickly). We're hard to pin down and look at instantaneously, because we can't, by our very nature, be instantaneously solved. Unfortunately that's all human behavior is, and that's all economics STUDIES! Again, it's not impossible to do, just extraordinarily inefficient given our capabilities. What economists can do (and have done) is look for the empiric trends in human behavior during specific time periods, and see if such behaviors transcend their initial conditions. When they do, there's a pretty good case to be made for it being closer to universally true, and closer to being a normative statement. Economics hasn't been around long enough to have many of those, which is why I don't think any economist should parade around with too many normatives (beyond the axioms). More economists have been proven wrong than right, and the "right" normative statements that have stuck around have only done so because they've withstood the test of time and a wide variety of test conditions.

Anyway, my closing point is that economists should be very humble and careful with their beliefs, and learn that there are no normatives before positives. If they don't heed that warning, they may just look like the Catholic Church in 1616 trying to arm wrestle with Galileo's Heliocentric model of the universe...they got their asses kicked.

Conflict Point Of View Values

1% chance of error is still a chance of error disclaimer: Our ever changing serendipitous world requires that we hold our reservations even in times of great certainty. In fact, maybe Austrians being Libertarians is just coincidence
Coincidence or not? Video
However unlikely, if we discount the possibility, we could fall prey to a type I error. Remember, parsimony is key to scientific discovery.

Having said that, we can get closer to the point. Does it even matter if the whole Austrian school is of a solitary political belief (libertarianism)? No. Go figure out why presidents are stone-masons. or even better, go find out why Democrats and Republicans always overshadow libertarians. The two competing schools of political thought are mutually-perpetuated. It's not a choice between the right political power and the wrong one, it's choosing the lesser of two evils (democrat and republican), because the good choice (libertarianism) is not popular enough to win!

Let's examine a disagreement demonstrated on this very blog. 
Doclawson is right. Economics is boring.
Walter Block is also right. Economics is interesting.

YOU CAN'T PROVE THAT ONE WAY OR ANOTHER. It doesn't matter who is right, or more right. The most important bit is the hype associated with the fact that one of these two points must be wrong, right? Wrong. These people are both right because together they have propagated a mutually beneficial subject: economics. Both of their livelihood's have benefited. To outsiders, this may seem like a disagreement, but to the two parties involved,

How is it that economics has survived so long?
gains from trading the information, interesting subject matter, and most importantly: Conflict.

How do you make sure conflict is not detrimental?
You can't. You can try all you want, but demagogues will always be able to use it for their own personal gain.
Charisma is key when popular opinion determines the lifespan of your life's work (for politicians). If you can't teach a layman why your school of thought is beneficial, you could be wasting you time.This is the lesson to be learned by economics: competition and conflict exists in almost all social circles. To infiltrate those circles with information, it is necessary to find something that people fundamentally disagree upon (closest to median divide that you can find), and argue both sides of it.

Great Dictator Speech. Video

Nazi Austrians - Nastrians. As far as i can tell, Nazism was viral and non-preventable through political beliefs. Trying to resist Nazism by expressing other political beliefs would be like trying to resist a tidal wave by doing the crawl-stroke.

Math: The Ultimate Science

            Mathematics is the purest form of logic that we have at our disposal. This is because math is derived from the universe. It is the most precise of all the science, and so extensive that it required its own category of study. When a theory is at odds with our mathematical understanding we assume that the theory is wrong. Scientists always differ to math. The dismal science is no exception.
            Economics is not as precise as physics or chemistry, but not from a lack of trying. The data that economists deal with is not as refined as that of chemists or physicists. Economists deal primarily with quantitative data such as statistics, trends, surveys. Unfortunately these tools are inexact when they apply to humans. Humans tend to be unpredictable. None the less the tools that economists use are capable of providing us with qualitative information about the economy. With such tools, and a lot of trial and error economists have developed several axioms to be relied upon. When Walter Block talked about a study that concluded that rent controls were beneficial to the economy we knew it was wrong because it broke pre-established axioms. Similarly an astronomist would not give much heed to a study that claimed that the sun orbits the Earth. Once something is graduated into the likes of an axiom in economics, contradictory evidence is disregarded. To the extent that if the contradictory evidence was true, the person who presented it would win a Nobel Prize in economics.
            Economics is still not fully understood. The fact that there are still multiple theories as to how the economy works/how it should be treated is a result of this. Chemistry no longer competes with alchemy because chemistry has been proven to be the correct theory. Economics is still in a sort of adolescent phase of understanding. This is because as I have mentioned before it is difficult to apply math to human action. Eventually economists will determine that one school of thought is ‘correct’ and we can finally put old ideas to rest. The prevailing theory will most certainly be rooted in a conclusive mathematic base. If the math does not match up it is because the experiment is faulty or the theory is wrong. You really can’t throw too much math at a problem.

Monday, March 4, 2013

The difference between economic theory and reality.

      Over mathification of economics comes with many problems that I illustrated in my previous post. Over mathification implies that the person doing the calculations is able to have perfect information or at the least enough information to make your calculations. Not to say the results of whatever calculations should be wrong or right but that you can't make every economic statement based on this idea and that the math isn't necessary for economic theory.
         On a similar tangent I believe that just because an economic theory seems fine on paper doesn't mean it extends to the real world. Walter Block talked about the world illustrating economic theory instead of proving it in his talk on Austrian Economics and Libertarianism. I find his complete and utter confidence in his theories slightly unsettling in light of the fact that they don't necessarily work all the time. This could be for a variety of reasons, many of which he isn't taking into account. It's this simple fact that he theories can be wrong seems to make for the fact that they don't take everything into account which is an impossible feat.
          This argument extends for my ideas n transitivity. I agree with Walter Block on the idea As of now though I make the point that in the flawed system that exists transitivity might have it's place. As of now the rich are more able to keep and make money than the poor. The rich are also resistant to fail as a group as seen in the housing crash in 2009. The rich maintained their money while the lower classes also lost. In this instance a “free market” isn't in action therefore I believe economic theory doesn't necessarily work properly. IN this case I see the possibility of transitivity working due to the fact that the world isn't a perfect economic model. What i'm essentially trying to say is that while the mathematics and theories of economics are noble pursuits you shouldn't completely rely on them for your opinion on everything. The world is a crazy place and it won't always follow the grand plan being enacted in your imagination.