Monday, October 11, 2004

Neo-mordernism applied to Economic Theory,

Ellen has a question about the current Nobel prizes in economics.

This is the sixth year in a row that an American has won the Nobel in Economics. If we're so smart...

...why ain't we rich? Or rather, why are we going to hell in a handbasket? (Rhetorical...BOP is all about answering those questions!)

Here are a couple of real questions about the Nobel-quality economists themselves: if they are breakthrough thinkers (or does the Nobel go to the pedestrian?) who, if anyone, is listening? Or do their theories cancel each other out? You'd think, on the face of it, that we'd have at our fingertips the best damned economic models known to man.

Edward Prescott is going to be on CNBC in a few minutes, to discuss how his work "has influenced public policy." I think I will get a more thorough understanding from my colleagues here.

Stirling then has this response back and forth with Ellen severally and here joined for convenience:
Stirling: The ECB runs on K&P - which is to day rigidly focused on defined goals. It's the way I would have central banks run, because I believe that economic cyclical management should be in the hands of elected politicians. Others don't agree with this (and some very smart others, so you should read their views on this as well). It is the monetary policy that they got the award for.

The business cycle research is more important because no one else was doing it at the time, right at a moment when the nature of the US business cycle was about to change to a long "island of complacency".

Ellen: Prescott is saying that employment is right on track and that taxes should be cut more. Says that economy suffered from Clinton's raising taxes in 1993, that we're still where we were then, Bush hasn't "done enough" in cutting taxes. Advocates privatizing Social Security. He sounds as far to the right as you can get and still be on this planet.

Stirling: That's where it is important to draw the line between the work and the person recommending policies. K&P realized that central banks have to follow through on their promises, which, in fact, is the case. And their work, while intended to buttress the conservative contention that downturns are the "fault" of people who just don't want to work for what the market is willing to pay, ends up being useful in looking at why conservative economics produces economies that "fall down and can't get up".

I thhink they deserve the award, but I wouldn't vote for either of them in an election.

Which is the weakness of liberals - they praise the work when conservatives would damn the man for being politically incorrect.

Which goes back to post-modern epistemology arguments below...

With all due respect to Stirling I think he is making a grave error in drawing a distinction between the man, his economics, and the policy proscriptions.

In a pragmatic metaphysics, one would have to point out that there is no such thing as a completely independent Central bank. The central bank will always have an institutional interest in managing demand for debt instruments issued by Treasury in order to maintain their influence over the yield curve. On the other hand, politicians have a political interest in the Fed's handling of the yield curve because it effectively controls the premium paid on lending to the government and debt service. A looser monetary policy effectively signals a looser fiscal restraint, because politicians are by their position interested in minimizing trade-offs between resource distribution between constituency groups and electorates are constitutionally dispositioned in order to properly price future costs of current borrowing.

The independence central banks is a myth honored profusely by rhetoric in the breech - indeed there is not a single central bank in modern history that does not accomodate both fiscal policy and fiscal stimulus.

Once we take this into account, we can see the Nobel was given for a bunch of garbage. Neither the Austrian or Keynesian schools can be correct. You cannot avoid intervening because there will always be overwhelming incentive to do so, and such intervention will have continually unpredictable affect primarily because changing boundary conditions with regards to crucial commodity, labor, market, and regulatory conditions. The oil economy for instance was the death of classic Keynesian economic theory about central fiscal policy stimulating aggregate demand, because it created inflation under the new commodity conditions.

Bringing the discussion back to point, the man and his thinking on policy cannot be separated from his economics. His economics while supposedly sterile of his political beliefs, is premised upon false assumptions that inevitably act as a stalking horse for such beliefs. After by down-playing the rather active role in engineering economic conditions that every central bank constantly and continuously plays day in and day out, he sets up a condition where government is responsible for fiscal stimulus and therefore sleight of hand creates a justification for constant fiscal immoderation and extension of regulatory interference into the marketplace -

what is widespread government investing of managed accounts into the stock market but a regulatory asset redistribution of marketshare?

What is a rabid position that a moderate tax raise on a prosperity created not by whether taxes were marginally lower or higher but principally because of low commodity prices and central bank manipulation of debt instrument demand - what is that position but an argument for constant stimulus by tax cuts in disguise?

What is a justification of the current job market but an endorsement of capital flight and the regulatory trade and implict central bank manipulations that make such an arbitrage of labor not only profitable but inevitable - and so therefore an endorsement of further government action that would further that aim?

The man is not seperable from his economics and this post-modernistic distinction of policy and consequence from theory by the introduction of artificial assumptions is the real weakness of liberal argumentation.

In a neo-modernistic philosophy one demands that each theory be considered not in its ideal form but in its operational form, and that having done so one is culpable for embracing all the consequences of that theory if implemented over all domains of experience.

If considered in that light, the man, his economics, and his policy prescriptions become clearly revealed in their full light - that the Nobel committee has been buffaloed into giving a prize in economics to two second rate hacks who by introducing false assumptions framed the entire discussion in such a way to be a stalking horse for their otherwise unacceptable public policy prescriptions.

So therefore in this light it is clear that there is no gap between the theory and its consequences. It is merely that we have not recognized the theory as directly implying of a necessity the consequence. Things are in other words going exactly as planned. The current economy is precisely the result that one would predict after the adoption of such a model, and as a matter of fact over time will converge more and more strongly instead of as of now merely approaching it.

The great gimmicry of post-modernism was to substitute one set of consequences that were directly consequential of a theory of causation and replace them with expectations of another - and then to manage the gap between reality and expectation by rhetorical slight of hand. There is nothing wrong whatsoever with the theory, it is doing precisely what one would expect it to do in the real world. The expectation gap comes in because the initial framing of the argument included a suspension of disbelief that introduced unrealistic assumptions that led others to conclude that different results would be brought about by following this course of action.

If Prescott still sounds so surprisingly right-winger and wing-nutty to our ears it is because we have been taken in by the scam that it was some sort of neutral economic analysis in the first place.

One need not condemn a man or his work for being impolitic - that is the way of post-modernism. In neo-modernism one need only apply a pragmatic metaphysics to strip away the presentational optical illusions and then having revealed the inner heart for all is beastial ugliness condemn it for what it truly has as its core essence. Or in a neo-modernistic fashion one could alternatively embrace it - provided one has first seen fit to accept all the revealed necessary and implied consequences of the complete impact of such a theory of causation.

So by all means endorse Prescott, so long as you understand that he is merely another shrill completely out-of-touch lunatic fringe anarcho-capitalist and is not even bothering to disguise it because of his contempt for your intellectual ability to see through his patently ridiculous charade that he is suggesting some objective, neutral, and politically unbiased theory.

If you study scientific history of nature of science philosophy, then you learn right away that one of the great myths regarding intellectuals and scientists in particular is that they are in some what "neutral" or "objective". A good scientist is never neutral - he is heavily biased - it is just that if he is a good scientist is he heavily biased in favor of process, review, and feedback and if he's not then he's just another ideologue pushing his point of view.

33 Comments:

At October 11, 2004 at 8:48 PM, Anonymous Anonymous said...

Okay, this is way OT, Oldman, but are you behind this whisper campaign about Bush being wired?

If so, brilliant.

 
At October 11, 2004 at 10:10 PM, Blogger Oldman said...

Anyone with illusions of control should have them dashed. You cannot "control" history. You can merely release latent forces and ride them somewhat selectively. You cannot make people whisper what they do not want to whisper, and usually you can't think up what they will whisper about.

The rumors about George W. Bush being wired are a proxy representative for the quite well justified latent anxiety of an American public that is concerned that they have an idiot President. Personally I couldn't think of a meme that insidious and that perfect and implement it. No one could.

But putting an idea out there and letting people think what they want and run with the idea to mutate it into whatever works for them - that works as well as with third world revolutionaries as it does with internet rumors.

So the lesson is that there is no one behind anything. There is no man behind the curtain. There is no invisible hand and you should quietly go about your business because there is nothing to see here now.

 
At October 11, 2004 at 11:58 PM, Anonymous Anonymous said...

LOL

 
At October 12, 2004 at 5:18 AM, Blogger slothrop said...

regarding Ellen's question, perhaps it is because the world does not function according to economic theories, perhaps economics is a frame. When you are inside the frame you are by definition missing a lot and thinking in accord with rules that constrict your ability to understand.

 
At October 12, 2004 at 8:58 AM, Blogger Grand Moff Texan said...

Oh dear, oldman. Are you saying that people should be held responsible for the consequences of the policies they are advocating?
In a neo-modernistic philosophy one demands that each theory be considered not in its ideal form but in its operational form, and that having done so one is culpable for embracing all the consequences of that theory if implemented over all domains of experience.

I'm not sure that this generation of "Ph.D.'s as spokesmodels" is ready for an age of responsibility. When you tell some fop who's busy balancing angels on the head of a pin that his hair is on fire, you tend to get a blank look!

Then again, putting a bow-tie on failure and calling it respectibility may well be the only growth industry left...

 
At October 12, 2004 at 12:51 PM, Blogger Grand Moff Texan said...

What the hell is this about?

 
At October 12, 2004 at 1:28 PM, Blogger Oldman said...

It's what I've alluded to several times in the past, it's that various branches of the government have chosen to throw in with Bush - the Federal Reserve Banking system, the BLS, the SEC, and various players whom you would like to think would at least pretend to be neutral - like Chris Matthews and other media etc. have actually decided to warp and distort numbers to be on Bush's side. It's why Kerry can't get traction. The Establishment is against him.

I fully expect Kerry to win the popular vote on election day, and to win the Presidency by winning the majority in the states needed, and then on a technicality and vote-stealing rigging that the electoral college win will be awarded to Bush and he will be crowned as leader.

I'm not a conspiracy theory type, possibly because I often am one of the ones working behind the scenes. When you're the puppet-master you tend to know the score. The score this time around is the Establishment came off the bench for Bush. If you ask why, that's a good question to explore, but as of now I fully expect the fix to be in.

 
At October 12, 2004 at 11:12 PM, Anonymous Anonymous said...

Oldman,

I hope you are wrong about the possibility of the election being nullified by that pack of kleptocrats and ideologues in D.C. Because it would mean the end of democracy and the U.S. as we know it.

Plus could you imagine the global ramifications, especially how the financial markets would respond to such a overthrow?

Not to mention the massive schism and chaos it would create here at home.

Rodger

 
At October 13, 2004 at 12:33 AM, Blogger Oldman said...

The financial markets were going to slowly tank anyway over the next year for other reasons. If anything this move will be approved by them. After all an elite oligarchist takeover would primarily benefit the rich.

You're correct about it being the end of democracy, but not for the obvious ones. There have multiple times during the history of the United States of America where groups have seized effective power for a time or fixed elections. What will end democracy is that they are about to dispense of the illusion/pretense of respecting elections.

I could be wrong of course, but I am seeing a lot of bad signs out there.

 
At October 13, 2004 at 1:26 AM, Anonymous Anonymous said...

Kerry has to win by enough of a margin to make it unstealable. Whether he can do that - I'm not sure. Even if he has a good margin, there are states where the vote count is whatever SES or Diebold say it is (no, that's not exageration), and as long as there's a fig leaf, they'll steal it.

If Bush II wins I'm strongly reccomending to all my American friends to get out. There comes a time when staying is just stupid. You fight while there is a realistic chance of victory. Once that is gone, you leave.

Ian.

 
At October 13, 2004 at 6:43 AM, Anonymous Anonymous said...

As someone with 30 years experience as an business economist I can not see why anyone would pay attention to anything Prescott says. His theories have no connection to reality as far as I am concerned.

For example, his idea that recessions are a rational response to developments is just plain funny. My experience is that recessions occur when the business community makes a mistake. think about it. Recessions occur when business has involuntary and excess inventory aqccumulation or excess investment. Now,someone tell me this is a rational reaction to events.

P.S. this is why the consensus never forecast a recession. To correctly forecast a recession the consensus has to forecast that the consensus forecast of demand is wrong. It does not happen.


Spencer

 
At October 13, 2004 at 4:17 PM, Blogger Oldman said...

Ian, I am beginning to feel affection for you even though I've net met you or vice versa - but if your current advice had been taken then we would have never stuck out Valley Forge, we would have just let the South keep slavery after the first part of the war went bad for the union, we would have signed a peace treaty with Hitler ceding him Britain, and we would have let Red-baiting McCarthy become President.

I'm sure that it would be wiser for some to leave, especially if they're vulnerable. I would have no compunction about sending the elderly, young, or caretakers away. However if we just let this lie, where are we going to run?

If we allow this to go unchallenged, where in the world will we find refuge and liberty? There is no where to run. There is no place to hide. If it is lost here, the long shadow will fall over this era of human history. If it is not challenged here, the riders of the apocalypse shall spread unhindered throughout the whole earth.

We are not just merely talking about an ideal here, we are talking about greedy fools who would bring ruination on the world economy and choke the life off this planet and bring wars and famine to bleed all of mankind. These guys are the bad buys - the evil movie villians out to destroy the world and reshape it into a hideous vision - and if we don't rise to the challenge then no one will.

I wish it weren't that stark. I wish it were that awful. I wish that these guys had stayed in the realm of Mayberry Machiavellis or even Nixonian corruption. They're 'The Big Bad' and they won't stop until they've remade the entire world into their twisted image.

 
At October 13, 2004 at 4:17 PM, Blogger Oldman said...

Ian, I am beginning to feel affection for you even though I've net met you or vice versa - but if your current advice had been taken then we would have never stuck out Valley Forge, we would have just let the South keep slavery after the first part of the war went bad for the union, we would have signed a peace treaty with Hitler ceding him Britain, and we would have let Red-baiting McCarthy become President.

I'm sure that it would be wiser for some to leave, especially if they're vulnerable. I would have no compunction about sending the elderly, young, or caretakers away. However if we just let this lie, where are we going to run?

If we allow this to go unchallenged, where in the world will we find refuge and liberty? There is no where to run. There is no place to hide. If it is lost here, the long shadow will fall over this era of human history. If it is not challenged here, the riders of the apocalypse shall spread unhindered throughout the whole earth.

We are not just merely talking about an ideal here, we are talking about greedy fools who would bring ruination on the world economy and choke the life off this planet and bring wars and famine to bleed all of mankind. These guys are the bad buys - the evil movie villians out to destroy the world and reshape it into a hideous vision - and if we don't rise to the challenge then no one will.

I wish it weren't that stark. I wish it were that awful. I wish that these guys had stayed in the realm of Mayberry Machiavellis or even Nixonian corruption. They're 'The Big Bad' and they won't stop until they've remade the entire world into their twisted image.

 
At October 13, 2004 at 4:17 PM, Blogger Oldman said...

Ian, I am beginning to feel affection for you even though I've net met you or vice versa - but if your current advice had been taken then we would have never stuck out Valley Forge, we would have just let the South keep slavery after the first part of the war went bad for the union, we would have signed a peace treaty with Hitler ceding him Britain, and we would have let Red-baiting McCarthy become President.

I'm sure that it would be wiser for some to leave, especially if they're vulnerable. I would have no compunction about sending the elderly, young, or caretakers away. However if we just let this lie, where are we going to run?

If we allow this to go unchallenged, where in the world will we find refuge and liberty? There is no where to run. There is no place to hide. If it is lost here, the long shadow will fall over this era of human history. If it is not challenged here, the riders of the apocalypse shall spread unhindered throughout the whole earth.

We are not just merely talking about an ideal here, we are talking about greedy fools who would bring ruination on the world economy and choke the life off this planet and bring wars and famine to bleed all of mankind. These guys are the bad buys - the evil movie villians out to destroy the world and reshape it into a hideous vision - and if we don't rise to the challenge then no one will.

I wish it weren't that stark. I wish it were that awful. I wish that these guys had stayed in the realm of Mayberry Machiavellis or even Nixonian corruption. They're 'The Big Bad' and they won't stop until they've remade the entire world into their twisted image.

 
At October 13, 2004 at 5:55 PM, Anonymous Anonymous said...

Gotta agree with Oldman, running won't work this time. There's no place left to run and hide where the effects of Bushco will not be felt. Can't hide anywhere from radioactive fallout or from a world wide ecological collapse. We have to stand and fight, whether we like it or not.

He's right that if this pack of lunatics and evil SOB's are allowed to run the country it will bring about the ruination the planet and possibly modernity itself. They are that dangerous and are backed by 10s of millions of fanatical fundamentalists who literally worship Bush and his policies and who will back him to the hilt.

And lets include that Bushco also controls the world's largest navy and air force than canconventionally bomb any country on the face of the earth back to the 1700's.

Rodger

 
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A number of East German states has seen an upswing of extreme-right parties, which closely associate with neonazis or effectively are neonazis themselves, in recent state elections.

While for a large part the evidence suggests that they were primarily elected in protest against current administrations and not for their policies, and thus the situation is fundamentally different from the US, business is already feeling the backlash from investors and prospective "high-value" employees who are starting to avoid those regions.

Could something similar happen in the US? Rational investors should take government fiscal policy into account in their models & investment decisions, and employment/business immigrants should care about economic & social policy & happenings also.

A number (small but steady & increasing) of my Indian coworkers has been moving back to India, citing as motives family closeness, cultural fit, and economic/career prospects, roughly in this order (although the latter is probably rather the enabler). But it also has been pointed out to me that "people think we want to go abroad at any price, but that's increasingly less so" as India steadily improves economic infrastructure. We don't have many Chinese in the group, but I'm hearing for them in general it is similar.

 
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