Tuesday, October 4, 2011

How Can Government Overcome Uncertainty?

S. D. Parsons poses the following question:
“Post Keynesian economists can, with considerable justification, criticize the view in some Austrian circles that it is possible to emphasize both uncertainty and market coordination. However, it would also seem that the Post Keynesian emphasis on uncertainty raises problems for the argument that governments can resolve coordination problems. ... Keynes may well have correctly identified problems of market coordination when he wrote, and correctly identified policy instruments to resolve them. However, given uncertainty, the past is a fickle guide to the future and, given transmutation, the world is now a different place. In conclusion, Post Keynesians have a valid point when they argue that an emphasis on economic uncertainty raises problems for the assumption that market coordination can occur in the absence of governmental intervention. However, it can also be argued that the emphasis on uncertainty raises problems for the assumption that market coordination can occur through government intervention.” (Parsons 2003: 9).
It is not, however, difficult to answer these charges.

When you introduce an intervention to influence the state of a nonergodic stochastic system, that process and outcome is not in the same ontological category or status as the future of that system, without intervention. The past data from which one draws inferences about what the intervention will do consist of examples of past such interventions, ideally of the same type. For example, there is no doubt that induction from past data will not be a reliable method to predict the future value of certain shares on the stock market or the future value of the whole market itself measured by some index, but predicting what happens when an entity with the power to influence certain shares or the whole system is a different matter. If the Treasury bought up the stock of a certain promising company, making the shares scarce when demand is high, announcing it will even support the value of the shares, we can make a empirical prediction about the outcome, which can be falsified. How? I have already addressed the question of the epistemological justification for such things and even Keynesian stimulus (and other government interventions) here:
“Risk and Uncertainty in Post Keynesian Economics,” December 8, 2010.
The problem revolves around whether induction can be rationally justified. If one thinks that induction can be defended rationally, then inductive arguments using past empirical evidence can be used to provide justification for policy interventions. Induction can be reliable when used outside of nonergodic stochastic systems or events. If one thinks that induction has no rational justification, then Karl Popper’s falsificationism by hypothetico-deduction can be used to test predictive hypotheses about what will happened in the future under government intervention. In the absence of falsification, we have empirical support for such polices.

Fundamentally, if Austrians or neoclassicals think that they can evade their own such epistemological problems, they are deeply mistaken. How, for example, does the Austrian praxeologist justify his belief that that the axiom of disutility of labour will continue to be true in the future? Mises explicitly tells us that this axiom is “not of a categorial and aprioristic character”, but “experience teaches that there is disutility of labor” (Mises 1998: 65). In other words, it is a synthetic proposition and its truth is only known a posteriori. Praxeologists require either induction or Popper’s falsificationism by hypothetico-deduction using empirical evidence to justify their belief in its truth now and for the future.

The concept of radical uncertainty in the Post Keynesian or Knightian sense applies to non-ergodic, stochastic systems. But human life does not just consist only of non-ergodic systems. The economic system we know as capitalism, where most commodities are produced by decentralised investment decision-making by millions of agents and consumption by other agents with shifting subjective utilities, is not the only institution of modern life. We have government and quasi-government entities, private non-profit organisations, private voluntary organisations, and at the basic level families.

The free market itself has attempted to overcome uncertainty by certain institutions. Government interventions in economies are merely a much more powerful and more effective instrument for reducing uncertainty than what has emerged on the market.

Its many institutions that exist alongside and influence modern capitalism (such as law courts that enforce contracts, buffer stocks, and even central banks) have developed precisely to deal with uncertainty, as “outside” entities capable of reducing uncertainty by interventions designed to influence the state of the system. Law and order is a basic human institution without which commerce would be impossible. It has been enforced through the ages essentially by governments, not by private enterprise. When, for example, the trade of the Roman Republic was threatened by pirates in the east Mediterranean, it was the state that ended that threat and allowed commerce to resume with confidence. Indeed, some conventions or institutions that reduce uncertainty (for example, forward/future markets for commodities, and even money) are so deeply ingrained that we think of them now as a fundamental part of capitalism. A futures market was developed to reduce uncertainty for producers of commodities, often primary commodities. There is a great deal of evidence that standardised coinage in Western European civilisation was essentially the invention of the state. Indeed, the state had a great role in monetising economies.

Central banks developed in the 19th and 20th centuries precisely because business and financial interests wanted a system that would reduce the uncertainty caused by liquidity crises and financial panics, because they were frightened by the potentially disastrous consequences of unregulated financial markets and banking systems.

It is interesting that the Austrian Ludwig Lachmann’s view that institutions have an important part to play in free market systems is similar to the view I have had described above. It is important to note the logical consequences these ideas had for Lachmann as well:
“Because of his focus on uncertainty, Lachmann came to doubt that, in a laissez-faire society, entrepreneurs would be able to achieve any consistent meshing of their plans. The economy, instead of possessing a tendency toward equilibrium, was instead likely to careen out of control at any time. Lachmann thought that the government had a role to play in stabilizing the economic system and increasing the coordination of entrepreneurial plans. We call his position ‘intervention for stability.’” (Callahan 2004: 293).
While I doubt whether Lachmann’s interventions would have been anything but minimal by Post Keynesian standards, nevertheless his intellectual journey is actually a lesson for his fellow Austrians: once they take fundamental uncertainty and subjective expectations seriously they would find themselves forced to much the same conclusions that he eventually drew.


BIBLIOGRAPHY

Barkley Rosser, J. 2010. “How Complex are the Austrians?,” in R. Koppl, S. Horwitz, and P. Desrochers (eds), What is So Austrian About Austrian Economics?, Emerald Group Publishing Limited, Bingley, UK. 165–180.

Callahan, G. 2004. Economics for Real People: An Introduction to the Austrian School (2nd edn), Ludwig von Mises Institute, Auburn, Ala.

Parsons, S. D. 2003. “Austrian School of Economics,” in J. E. King (ed.), The Elgar Companion to Post Keynesian Economics, E. Elgar Pub., Cheltenham, UK and Northhampton, MA. 5–10.

35 comments:

  1. This is definitely one the most important issues Post-Keynesians, or any school of economics that takes uncertainty as fundamental and also supports government inventions, have to face.

    We accept that future events are uncertain to varying extents to privately acting individuals. How is it that these same individuals can come together and act in the name of government with some semblance of certainty and know for sure that their interventions will produce the desired results?

    We only have a small sample size of past interventions to work with, and it's tough to separate out all the important variables and their relative contributions.

    In general I would agree that governments have reduced the uncertainty experienced by its citizens and this should had had positive benefits.

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  2. "How is it that these same individuals can come together and act in the name of government with some semblance of certainty and know for sure that their interventions will produce the desired results?"

    Implement the interventions and see what happens? As in the case of Keynesian stimulus in New Zealand in 1936-1938:

    http://socialdemocracy21stcentury.blogspot.com/2011/09/keynesian-stimulus-in-new-zealand.html

    "Post Austrian" is an interesting handle, by the way.

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  3. Government intervention into the economy cannot resolve the problem of economic uncertainty because economic uncertainty is engrained in the very nature of the economy. Keynesian-style government taxation, borrowing, inflating, spending, and regulating (call them "tbisr") are:

    1) Entirely subjective judgments with inherently uncertain outcomes (which is why Keynesian say following tbisr, that if the economy improves, then tbisr are correct, and if the economy does not improve, then tbisr is still correct, it's just that their expectations of the economy were off).

    2) Based on the premise that all relevant data can in principle be observed, when in reality the market contains information utilized by market actors that is not observable.

    3) Based on the fallacious assumption that past ideas and actions of individuals can reveal constant causal operative factors that dictate future actions. No, this problem is not overcome by mentally focusing on the aggregate macro-economy versus specific aspects of the micro-economy. The macro-economy is nothing but a collection of specific aspects of the micro-economy. If one cannot use induction for an aspect of a micro-economy, one cannot use induction for two, three, or however many aspects of the micro-economy make up an aggregate macro-economy. The smallest unit of the economy is the individual, and if you cannot use induction for the individual, then you certainly cannot use induction for more than one individual at the same time. The claim that if we don't presume induction is possible, that we can use Popperist falsification instead, fails to take into account the fact that falsification also fallaciously presumes constant causal operative factors in human action. Hypotheses to test to confirm/falsify is a process that implicitly presumes constancy over time. For human action, there is no such constancy, government included of course. Popperist falsification also fallaciously presumes that the only relevant economic data is observable economic data.

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  4. How, for example, does the Austrian praxeologist justify his belief that that the axiom of disutility of labour will continue to be true in the future? Mises explicitly tells us that this axiom is “not of a categorial and aprioristic character”, but “experience teaches that there is disutility of labor” (Mises 1998: 65). In other words, it is a synthetic proposition and its truth is only known a posteriori. Praxeologists require either induction or Popper’s falsificationism by hypothetico-deduction using empirical evidence to justify their belief in its truth now and for the future.

    How is this a challenge or refutation or rebuttal to Austrian epistemology? Mises recognized that not all propositions are a priori synthetic; that many are a posteriori synthetic, like the disutility of labor. How is this an "evasion" that is "mistaken"?

    If there is any "evasion" taking place, it is the positivists. Their thesis is that a priori synthetic propositions are impossible, such that all propositions are either analytical, and hence an arbitrary verbal stipulations of terms, or they are empirical, and hence hypothetical and non-apodictic.

    The positivists fail to comprehend, or they evade, the fact that the status of the positivist thesis itself betrays its own content. For if all propositions are either analytical/arbitrary or empirical/hypothetical, then what of that positivist thesis itself? It is a proposition. It is a proposition that says nothing can be known that is not either analytic/arbitrary or empirical/hypothetical. Well, if the positivists are right, then the positivist thesis itself must be either analytical/arbitrary or empirical/hypothetical.

    If it's analytical, then it's nothing but arbitrary stipulations of terms used in propositions. It can only be definitional.

    If it's empirical, then it's nothing but a hypothetical, non-apodictic supposition about all propositions.

    In either case, positivism could not qualify as a valid epistemology.

    Now if on the other hand the positivist thesis itself is neither analytical nor empirical, which, I will argue, is how it is presented and how we are expected to accept it, then the positivists cannot deny that a priori synthetic propositions are possible, for the thesis itself is an a priori synthetic proposition, namely, that people can know something true about reality that is neither analytical nor empirical. But that would contradict the positivist thesis that ALL propositions are either analytical or empirical.

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  5. The concept of radical uncertainty in the Post Keynesian or Knightian sense applies to non-ergodic, stochastic systems. But human life does not just consist only of non-ergodic systems. The economic system we know as capitalism, where most commodities are produced by decentralised investment decision-making by millions of agents and consumption by other agents with shifting subjective utilities, is not the only institution of modern life. We have government and quasi-government entities, private non-profit organisations, private voluntary organisations, and at the basic level families.

    ...and according to your past argument that induction cannot be trusted as we go to the "micro" up from the "macro", it means that individual and separate institutions such as governments, GSEs, non-profits, charities, and families, and including for-profits and all other institutions, all of which comprise the group-level buildings blocks of our present society, which in turn are fully and completely determined by the most fundamental building blocks of any economy, namely individual humans, constancy-based induction becomes, and in fact always is, an irrational quest.

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  6. The discussion of central banks in GOVERNMENTS overcoming uncertainty requires us to be clear on what government is.

    Because weren't central banks originally private banks that received a charter to manage treasuries of authorities?

    And aren't central banks across the world generally independent entities which do not allow legislators, judicial authorities, or executive leaders of government to intervene in their actions?

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  7. 1/2

    The free market itself has attempted to overcome uncertainty by certain institutions. Government interventions in economies are merely a much more powerful and more effective instrument for reducing uncertainty than what has emerged on the market.

    Ex cathedra nonsense. It's no salvation to know with certainty you're getting robbed, only to be uncertain about the after effects of such robbery on the victim and on others, as well as the economy as a whole, versus not being robbed, and being uncertain about the after effects of one's own spending/investment on themselves and on others, as well as the economy as a whole.

    Government intervention just replaces one uncertainty with another. Your mind is confused because it is focused on only the immediate moments. In the one case you don't presume to know what an individual will do in the market, and in the other case you presume to know what individuals in the government will do. You ignore the uncertainty in government intervention and only claim it reduces uncertainty because you believe the government can perform experiments on the macro-economy, and thus collect induction data, whereas individuals in the market cannot perform experiments on the macro-economy, and thus cannot collect indusction data, all of which is supposed to mean that uncertainty is more pronounced in the market than it is with a government hampered market. That's crazy talk.

    Furthermore, you arbitrarily presumed to not have knowledge in the one case that is the market, but have knowledge in the second case that is the government. Well, if you PRESUME to not have knowledge about what a market actor will do, but you PRESUME to have knowledge about what a government actor will do, then OF COURSE it will seem in your mind that government intervention can "overcome uncertainty" and is "much more powerful and more effective" in reducing uncertainty compared to the free market. You're setting things up in your mind so that the conclusion is already implied at the outset.

    Anyone can do that. If I presume to know what a market actor will do (namely myself), but I don't presume to know what a government actor will do, then in my mind, OF COURSE I will come to the conclusion that the free market reduces uncertainty more than government intervention. And here is the hilarious thing about that: My presumption here IS ACTUALLY TRUE IN REALITY, whereas your presumption is false. You can't know what others will do by more than you know what you yourself will do. Since we are all individuals, regardless whether the individual is in the market or the government, it means that uncertainty is maximally reduced for the individual when he is the most free to act. When the individual is the most free to act, he can be most certain about what he will do, and when all individuals taken together are most certain about what they will do, it follows that uncertainty in the macro-economy is maximally reduced.

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  8. 2/2


    If you don't understand the above, then just ask yourself why investing in a world portfolio carries less uncertainty than investing in a country portfolio. The reason is because a world portfolio is closer to an optimal system where individuals are free to act relative to, vis a vis, other individual actors. The more specific your portfolio gets, the more individuals are less free to act relative to, vis a vis, other individual actors. Within a country, individuals are hampered by local governments. Across two countries, two individuals, one in each country, are more free to act relative to each other.

    This is why freer markets are safer places to invest, and why uncertainty is less, and why less free markets are less safe place to invest, and why uncertainty is greater. An investor would be more certain about their investment in the US than he would be with the same investment in North Korea. The seemingly paradoxical result is that the more rigid an economy is, the more government control there is, the more uncertainty rises for individual investors. An investment in North Korea is subject to arbitrary violence from the state, whereas an investment in the US is less subject to arbitrary violence from the state (although the US is getting worse for this). When markets are more free, then given the fact that the individual actor is most certain about his own future action, it means that freer markets contain less uncertainty relative to government hampered markets where individuals are less free to act, and thus the actions that do take place are less in line with individual preference.

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  9. Its many institutions that exist alongside and influence modern capitalism (such as law courts that enforce contracts, buffer stocks, and even central banks) have developed precisely to deal with uncertainty, as “outside” entities capable of reducing uncertainty by interventions designed to influence the state of the system. Law and order is a basic human institution without which commerce would be impossible. It has been enforced through the ages essentially by governments, not by private enterprise. When, for example, the trade of the Roman Republic was threatened by pirates in the east Mediterranean, it was the state that ended that threat and allowed commerce to resume with confidence. Indeed, some conventions or institutions that reduce uncertainty (for example, forward/future markets for commodities, and even money) are so deeply ingrained that we think of them now as a fundamental part of capitalism. A futures market was developed to reduce uncertainty for producers of commodities, often primary commodities. There is a great deal of evidence that standardised coinage in Western European civilisation was essentially the invention of the state. Indeed, the state had a great role in monetising economies.

    This is all utter garbage, based on the just world fallacy, and based on an ignorance of government and the market. Government law courts, central banks, and all other government institutions were not developed to deal with and reduce uncertainty. They were developed to act as tools of systematic social parasitism, for the benefit of those who refuse to internalize responsibility in making choices that are constrained by peaceful interaction with others, at the expense of those who do internalize responsibility in making choices that are constrained by peaceful interaction with others. Parasitic actors consume at the expense of productive actors who are not rewarded. That's it. Nothing more. Everything else is smoke and mirrors. Humans are a species that must make choices at the individual level. Those who refuse to accept this, find reality to be a terror, and so they run to others to make choices for them. In a free society where individuals are ends in themselves, individuals who would otherwise be able to live as social parasites through the state, would instead be faced with having to either work or steal from others themselves. When the individual has to make this choice, it is far more difficult to choose violence, compared to calling on the state to use state violence.

    When enough individuals refuse to take responsibility for their own reality, then statist systems arise. And within statism, if enough people come to regard the state as a source of prosperity, instead of social cancer, then it is possible for violent exploiters to prey on the philosophical weakness of otherwise peaceful humans by becoming members of the state, which then turns more and more people away from rational and productive activity, and towards irrational unproductive activity. With enough statism, individuals will become cogs in a chaotic system of irrational production and total uncertainty. An individual living in North Korea, or the former USSR, had absolutely no idea if in the middle of the night they will be kidnapped and killed by the state for doing something "wrong." Maybe they didn't clap enough during a dictator's speech, or maybe they didn't sing loud enough, or weren't quiet and still enough, during the national anthem, or maybe they didn't cry enough during a dictator's funeral. Individuals who have no control over their own lives have zero certainty about what will happen to them. The more control people have over their own lives, the more certainty they will have. Thus, the more economic freedom the individual has, the more certainty they will have as well.

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  10. Central banks developed in the 19th and 20th centuries precisely because business and financial interests wanted a system that would reduce the uncertainty caused by liquidity crises and financial panics, because they were frightened by the potentially disastrous consequences of unregulated financial markets and banking systems.

    More just world fallacy nonsense and more ignorance about the market. No, central banks arose because governments, bankers, and intellectuals in general could not, or did not, drill down at the source of why there were repeated liquidity crises and financial panics. It's because of the banks engaging in what you call FRB, with government sanction, protection, and approval. Instead of dealing with the problem by enforcing demand deposits to carry 100% reserves, they instead dealt with the problem by kicking the can down the road, and creating a monopolistic entity of legalized counterfeiting, which only exacerbated the problem by enabling credit expansion booms to persist for longer periods, which only creates larger and more painful corrections (recessions).

    The bankers were "frightened" in going bankrupt for engaging in FRB, and governments were "frightened" in losing a source of borrowing and taxation, and depositors, the victims, were of course afraid of losing their life's savings.

    Fiat money based on FRB is money that is capable of literally disappearing upon defaults and bankruptcies. This would not be the case in 100% reserve banking. All the fears and uncertainty with bank panics would literally disappear with 100% reserve. Everyone's demand deposit accounts would be backed 100% by money.

    Now, at this point, you're probably raging again about contract violations. This is beyond moronic, even for you, because YOU ADVOCATE for state intervention in the economy to "reduce uncertainty." Well, given that you support governments violating the citinzery's economic freedom and their ability to freely contract with their own private property the way they want, why in the world would you be against the government enforcing 100% reserves, or free banking? You can't evade this by attacking me and saying I'm violating "Utopian Rothbardia laws" therefore I am wrong. For that would be the fallacy ad hominem tu quoque. This is about your desire for more certainty, and your support of governments interfering in what would otherwise be an anarchist, freely contracting, private law society. If you are willing to support the government in violating private contracting when it comes to Keynesian policies "stablizing" the economy, then why not support the government enforcing 100% reserve or free banking, which would eliminate/reduce the extent to which banks can inflate? You're not being honest with yourself by supporting Keynesian policies that require interfering in free contracting, but being against government policies that enforce 100% reserves or free banking on the basis that it interferes with free contracting. You'd be like a serial killer who says he won't kill Mr. X specifically because murder is wrong.

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  11. I am repeating what I wrote on your recent Steve Keen post, but the whole 'you say the future is uncertain but how can governments predict the future huh?' is simply abject nonsense. It only makes sense in the bizzarre world of governments vs markets.

    For example, I can design a safety system for some activity (say, tree top climbing) whilst still being vulnerable to falling should I use the system myself. Nobody suggests that safety engineers need to be indestructible.

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  12. Lord Keynes: Speaking of government intervention and uncertainty, have you ever read Allan Meltzer's book on Keynes? It pre-dates Geoff Tily's "Keynes Betrayed", but Meltzer's interpretation of Keynes is that Keynes actually held a strong belief in the role of monetary policy to alleviate uncertainty.

    http://www.amazon.com/Keyness-Monetary-Theory-Different-Interpretation/dp/0521022754

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  13. Urgh, I forgot to add my username at the end of the post with Allan Meltzer's book. It's an interesting work, apparently.

    Also Lord Keynes, will you get back to my e-mails eventually? I'd like to keep corresponding with you.

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  14. "The claim that if we don't presume induction is possible, that we can use Popperist falsification instead, fails to take into account the fact that falsification also fallaciously presumes constant causal operative factors in human action. Hypotheses to test to confirm/falsify is a process that implicitly presumes constancy over time."

    That is abject nonsense.

    If the law of gravity stopped tomorrow, you could still test scientific hypotheses using Popper's method.

    Likewise, Popper's method does not assume "constant causal operative factors in human action" at all.

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  15. Prateek Sanjay said...
    Because weren't central banks originally private banks that received a charter to manage treasuries of authorities?


    Some were; others were not.

    And aren't central banks across the world generally independent entities which do not allow legislators, judicial authorities, or executive leaders of government to intervene in their actions?

    The period of cetral bank independence is a neoliberal policy implemented over the past 30 years (in the UK, for exmaple, the Bank of England did not gain its independence until the 1990s).

    From 1945-1980/1990s, central banks in many nations were just an arm of government, subordinate to the Treasury often.

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  16. "It's because of the banks engaging in what you call FRB, with government sanction, protection, and approval."

    FRB was invented by free actors on markets. Blaming government for its invention, popularity or widespread practice is just nonsensical.

    "If you are willing to support the government in violating private contracting when it comes to Keynesian policies "stablizing" the economy, then why not support the government enforcing 100% reserve or free banking, which would eliminate/reduce the extent to which banks can inflate?

    Because that would destroy the benefits that FRB provides.

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  17. "Government law courts, central banks, and all other government institutions were not developed to deal with and reduce uncertainty. They were developed to act as tools of systematic social parasitism, for the benefit of those who refuse to internalize responsibility in making choices that are constrained by peaceful interaction with others"

    Yes, clearly, government defence forces, which protect citizens against foreign aggression, or law and order, protecting businesses against theft and helping to enforce contracts, were all just a wicked plot "to act as tools of systematic social parasitism".

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  18. "Based on the fallacious assumption that past ideas and actions of individuals can reveal constant causal operative factors that dictate future actions"

    If you really believe that no future human action ever can be predicted from the past, then the whole edfice of much of Austrian economics comes crashing down, there would be no reason to suppose that

    (1) the disutulity of labour will continue in the future.

    (2) markets will tend to have plan/pattern co-ordination because businesses/investors will continue in the future to seek profitable oppurtunities and learn by Kirzner's entrepreneurial discovery process.

    (3) businessmen will continue seek profit at all. and so on and so forth.

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  19. "The claim that if we don't presume induction is possible, that we can use Popperist falsification instead, fails to take into account the fact that falsification also fallaciously presumes constant causal operative factors in human action. Hypotheses to test to confirm/falsify is a process that implicitly presumes constancy over time."

    That is abject nonsense.

    You know, at this point, whenever I see you say "nonsense" or "utter garbage" or whatever, I immediately know that something wrong, or something evasive, or something misrepresenting an argument, or completely missing the point, is about to take place.

    If the law of gravity stopped tomorrow, you could still test scientific hypotheses using Popper's method.

    ...and I was right.

    Not only are you missing the point, but you could not even KNOW that the law of gravity has changed using Popper's method.

    Using Popper's method NECESSARILY IMPLIES the a priori assumption that things don't change over the course of time. The time between the hypothesis, to the time that observations are collected, to the time that a confirmation or falsification is made, DURING THAT TIME, in order for the Popperist method to even work, it requires that things have not changed over the course over that time.

    You could not test whether the law of gravity has changed in between the time you make the hypothesis and the time that you make a confirmation/falsification, because the very nature of the conclusions "confirmation" and "falsification" themselves necessarily imply constancy over time. You could not say that a hypothesis made in the past has been confirmed or falsified in the present unless you have already presumed that the a priori proposition of constancy during that time.

    If your observations of the gravity are different, then you could not conclude that the old gravity theory has been falsified, and you could not even say that a new theory has been confirmed, unless you make the constancy assumption. By saying that the past theory of gravity has been falsified, what the Popperist is saying is that they were wrong about gravity. That the old theory was wrong because it has been falsified by observation.

    Upon the introduction of Einstein's theory of relativity, scientists did not say that Newton was right but the law of gravity has since changed. They said Newton's theory has been falsified (for large distances, but for smaller distances, it serves as a practical approximation).

    Confirmation and falsification make no sense in a world where the laws change over time.

    Likewise, Popper's method does not assume "constant causal operative factors in human action" at all.

    Those who utilize Popperist methodology in the social sciences sure do. Merely denying it is no argument.

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  20. "It's because of the banks engaging in what you call FRB, with government sanction, protection, and approval."

    FRB was invented by free actors on markets. Blaming government for its invention, popularity or widespread practice is just nonsensical.

    The market, AGAIN, for the MILLIONTH TIME, is NOT a location, or group of people. It is a PROCESS of human interaction.

    Yes, FRB was invented by bankers, but that doesn't mean that FRB is a free market process, any more than murder being invented by someone prior to the world's first government, doesn't make murder an invention of "the market".

    Individuals in the government can act peacefully, and people in the private sector can act violently. But in order to qualify as a violent action or a market action, it doesn't matter what the names of people are, it depends on what they do. Bankers who engage in FRB violate private property rights.

    Everything you have said in the last week has been nothing but a justification of voluntary loans by clients being loaned out by the bank. NOBODY disputes that.

    What your problem is, is that you continue to conflate tantundem demand deposits, with loans.

    "If you are willing to support the government in violating private contracting when it comes to Keynesian policies "stablizing" the economy, then why not support the government enforcing 100% reserve or free banking, which would eliminate/reduce the extent to which banks can inflate?

    Because that would destroy the benefits that FRB provides.

    AHA! No wonder you refuse to advocate for the abolition of FRB. You think it provides "benefits."

    Well, I must ask you: BENEFITS TO WHOM?

    Certainly not the millions who are laid off because the FRB induced business cycle. Certainly not those whose money is lost due to bank failures. Certainly not savers who are rewarded with a lower return on account of FRB generating temporarily lower interest rates on loans as compared to 100% reserve.

    What you MEANT to say is that FRB benefits bankers (which is a price you're willing to pay), but more importantly, it benefits the state, which is your primary qui bono, and those the state gives money to, coupled with a distorted economic worldview that confuses more loans and lower interest rates as being sources for greater prosperity, when it does nothing but waste capital and cause unemployment.

    By increasing the supply of loans and lowering interest rates, all FRB does is REDISTRIBUTE capital and labor from where they otherwise would have gone, to other places that can only be maintained with accelerating credit expansion. This acceleration is necessary because any given dose of additional credit expansion has less and less of an effect on its ability to sustain a more and more distorted economy.

    It's like inflating a balloon with more and more water, and expecting the continually distorting balloon surface to hold up, even though the growing water supply is causing the distortion of the balloon surface. It some point, either water has to be taken out of the balloon, and the surface then corrects, or if one doesn't want the surface to correct, more water has to keep flowing into the balloon until the surface doesn't grow any more to new water and breaks.

    Since accelerating credit expansion would eventually collapse a currency, central bankers tend to avoid hyperinflation, and so tend to choose correction and saving the currency instead.

    This is why, time and time again, you statist Keynesians keep claiming things like "the central bank tightened policy thus causing a recession." Yes, superficially it is true, but it's the proximate "cause". The real cause is the prior credit expansion, when creates an inevitable choice of "recession" or "collapse the currency."

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  21. 1/2

    "Based on the fallacious assumption that past ideas and actions of individuals can reveal constant causal operative factors that dictate future actions"

    If you really believe that no future human action ever can be predicted from the past, then the whole edfice of much of Austrian economics comes crashing down, there would be no reason to suppose that

    (1) the disutulity of labour will continue in the future.

    Not an Austrian a priori axiom, as Mises clearly wrote. It is empirical.

    (2) markets will tend to have plan/pattern co-ordination because businesses/investors will continue in the future to seek profitable oppurtunities and learn by Kirzner's entrepreneurial discovery process.

    Entrepreneurs make guesses, not scientific predictions based on constant causal operative factors. Those who guess right earn profits, those who guess wrong, incur losses.

    The price system coordinates investment and consumption, as well as industries relative to others, by punishing movements away from what and when consumers ACTUALLY want to consume, and rewarding movements towards what and when consumers ACTUALLY want to consume.

    Most importantly, the fact that one can be consistently correct in one's guesses, by consistently guessing right that consumers want to eat, cloth themselves, and shelter themselves, among other things, does not mean that one is discovering a constant causal operative factor of human action. One is in fact merely observing a repeating primary and originary choice pattern. It does not necessarily have to continue, it can change at any time depending on what individuals choose.

    When a given consumption pattern does change, on the basis of primary and originary choices changing, then the price system will coordinate and "fix" the economic structure to be more in line with the newer pattern. As consumer preferences change, a new revolution in the price system will generate a new pattern of profit and loss, and will punish movements away from it and reward movements towards it. The "it" is constantly changing according to consumer choice, which may or may not undergo significant changes over time. Sometimes the choices repeat themselves, sometimes they don't.

    It's of course easier to invest and produce into a more constant pattern of consumption rather than a chaotic one, which is why such investments are considered less "risky" and attract more investment thus generating a lower return, whereas more chaotic consumption patterns like real estate and luxury items and art, carry significantly more risk and thus less investment and thus higher return.

    If a consumption pattern remains unchanged, on the basis of the same primary choice being made over and over again, thus attracting more and more investment from those less forward thinking investors, this doesn't mean that backward looking investors are discovering a constant causal operative factor in human action. It just means they've discovered a series of repeating choices, a pattern of consumption that the backward looking investor has been producing into. This pattern can of course change tomorrow, and those forward looking investors who guess right will be rewarded, and those who guessed wrong will be punished.

    The price system will coordinate consumption patterns and investment, and profit and loss will coordinate production according to changed consumer preferences.

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  22. 2/2


    (3) businessmen will continue seek profit at all. and so on and so forth.

    That statement betrays the fact that people are willing to risk money, for example in a casino, having no idea where the roulette ball will land. That they have no way of knowing through constant causal operative factors where the ball will land, does not mean that they won't make a bet.

    I know your metaphysical worldview is one that yearns for rigidity and constancy and no changes, which is why you posted this rather amusing ode to government intervention as allegedly decreasing uncertainty. You WANT the government to decrease uncertainty because your worldview cannot accommodate it.

    It's why you don't understand Austrian economics and why you flock to aggregate, constancy implying schools like Keynesianism.

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  23. Pete,

    You should start a blog named "Social Darwinism for the 21st Century: An Austrian Perspective"

    Then you wouldn't have to worry about the evil liberals preventing you from forcing your perfect, absolute truth on those who are clearly asking for it.

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  24. "If you really believe that no future human action ever can be predicted from the past, then the whole edfice of much of Austrian economics comes crashing down, there would be no reason to suppose that

    (1) the disutulity of labour will continue in the future.

    (2) markets will tend to have plan/pattern co-ordination because businesses/investors will continue in the future to seek profitable oppurtunities and learn by Kirzner's entrepreneurial discovery process.

    (3) businessmen will continue seek profit at all. and so on and so forth. "

    The lack of constant in human action does not necessarily mean that human decision making is a world of perpetual chaos, or that entrepreneurs have nil basis on what to make their plans (a very Lachman/Shacklian world I suppose). Humans can and do reuse the same means to satisfy ends (the successful ones at least), just as entrepreneurs base their future plans off successful exchanges in the past.

    When humans find that something worked out for them, if they want to achieve that same end, they will do it if it has worked out for them in the past. If an action relates to other humans, then they assume (we cannot "KNOW") that the other humans will respond in a similar fashion. In short, we are constantly engaged in the process of understanding, or trying to impute specific ends and goals to other humans based off what they do and how they interact with us (I believe Mises called this thymology). Similarly, if entrepreneurs had a successful "round" of market transactions, then, by assuming that conditions will be similar enough and by trying to understand their customers decision making process, will they try to enact a similar plan in the uncertain world. Empirical data clearly plans a monumental role in all human decision making, market and non market, in estimating and predicting the future.

    The big grip praxeological Austrians make is that, while we can observe what other humans acted on and the corresponding ends that they used, this does not mean that we can now KNOW what they will do, in the sense of isolating particles in a laboratory and making a true scientific "law". Therefore we cannot "predict" in the sense that we apodictically know what will happen based off a given empirical event.


    In a side note, markets do not have to have a "coordination of plans" espoused by Hayek in order for Austrian economics to work. On the ride to the never never land of equilibrium, there can be winners and losers along the way.

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  25. "Not only are you missing the point, but you could not even KNOW that the law of gravity has changed using Popper's method."

    Popperian hypothesis:
    (1) this object will fall to the ground when let go.

    Test
    (2) When let go, the object does not but floats. (result replicated many times by mnay independent experiments)

    Conclusion
    (3) Popperian hypothesis (1) has been falsified.

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  26. Not an Austrian a priori axiom, as Mises clearly wrote. It is empirical.

    Which means that, under Misean epistemology, it isn't true. Because economics can't be empirical, as you've said many times.

    It's understandable that the disutility of labor can't be derived from the praxeological axioms, though.

    I know your metaphysical worldview is one that yearns for rigidity and constancy and no changes

    Not a single person here has ever expressed that worldview. I know you've already admitted that you see everything in black and white, but your inability to distinguish the assertion that some things might be predictable, from the assertion that the world is rigid and static, makes you look retarded.

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  27. "Implement the interventions and see what happens?"

    I'd design the interventions with a safety valve.

    For example, implement a Job Guarantee programme paid for by the state. Express that you expect the increased demand to be met by increased activity not increased prices and put in a levy targeting price rises.

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  28. Anonymous:

    "Not an Austrian a priori axiom, as Mises clearly wrote. It is empirical."

    Which means that, under Misean epistemology, it isn't true.

    It's better to say that under Misesian epistemology, it cannot be shown to be true a priori.

    It's not a category of thinking, it's an empirical proposition, as Mises noted.

    Not all propositions are a priori. It does not pose a challenge to Austrian praxeology.

    I know your metaphysical worldview is one that yearns for rigidity and constancy and no changes

    Not a single person here has ever expressed that worldview.

    It doesn't need to be explicitly expressed. I'm talking about reading between the lines.

    ReplyDelete
  29. "Not only are you missing the point, but you could not even KNOW that the law of gravity has changed using Popper's method."

    Popperian hypothesis:

    (1) this object will fall to the ground when let go.

    Test

    (2) When let go, the object does not but floats. (result replicated many times by mnay independent experiments)

    Conclusion

    (3) Popperian hypothesis (1) has been falsified.

    LK, you're still missing the point. Let me be more clear. I am not trying to refute the veracity of Popperist methodology when it comes to the physical world and physical laws. All I am saying is that the Popperist methodology requires, in order for it to work, the a priori proposition that things don't change over the course of time. That's it. As long as that is true, it can apply.

    From the time you proposed the hypothesis, to the time you made the falsification claim, the methodology requires that gravity has not changed over the course of time.

    And I am also saying, as a corollary, that this constancy assumption does not apply to human action.

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  30. (3) Popperian hypothesis (1) has been falsified.

    One more point that should be noted in this example:

    Under Popperist methodology, yes the original hypothesis was falsified, but the hypothesis is not and cannot be considered refuted. In other words, the relation implied in the hypothesis, the if-then statement of "if I let go of this object" - "then it will fall to the ground" is not and cannot be considered apodictically false.

    The correct conclusion to make under Popperist methodology is to say that while the hypothesis as stated is not correct, if other variables, that have heretofore been neglected or ignored, are included and "controlled" for, then the relation might be observed and thus you will see the object fall to the ground.

    The if-then relation implied in any Popperist hypothesis is never considered absolutely false. After all, all propositions in Popperism are either hypothetical or analytic. There are no apodictic propositions in Popperism.

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  31. The if-then relation implied in any Popperist hypothesis is never considered absolutely false. After all, all propositions in Popperism are either hypothetical or analytic. There are no apodictic propositions in Popperism.

    That's... the entire point. What was your point? Some of us don't consider apodictic certainty to be a legitimate concept, in the same way that atheism isn't a religion. True believers just don't get it.

    It doesn't need to be explicitly expressed. I'm talking about reading between the lines.

    There's a significant difference between "reading between the lines", and what you're doing, which is intellectual fraud. Please feel free to not fabricate pure nonsense and attribute it to other people, mkay?

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  32. "The if-then relation implied in any Popperist hypothesis is never considered absolutely false. After all, all propositions in Popperism are either hypothetical or analytic. There are no apodictic propositions in Popperism."

    That's... the entire point. What was your point?

    My point is that since Popperism requires non-hypothetically true propositions, that is, a priori synthetic true propositions, about reality in order for it to even work, it contradicts itself when it claims that all propositions can only be hypothetical or analytic.

    Some of us don't consider apodictic certainty to be a legitimate concept, in the same way that atheism isn't a religion. True believers just don't get it.

    So are you saying that it is absolutely wrong to hold that apodictic truths are knowable? That it is an attribute of human epistemology that no apodictic truths can ever be known?

    "It doesn't need to be explicitly expressed. I'm talking about reading between the lines."

    There's a significant difference between "reading between the lines", and what you're doing, which is intellectual fraud.

    That's not an argument, that is just a smear.

    Please feel free to not fabricate pure nonsense and attribute it to other people, mkay?

    You're obviously not a very apt logical thinker.

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  33. My point is that since Popperism requires non-hypothetically true propositions, that is, a priori synthetic true propositions, about reality in order for it to even work, it contradicts itself when it claims that all propositions can only be hypothetical or analytic.

    Congratulations for once again showing your complete ignorance about everything.

    When someone says that "only empirically verifiable sentences can be true or false", that person is stating a rule, not a fact about the world; rules aren't true or false, rather, they are useful or not. A sentence such as "in chess, the bishop moves diagonally" is of a different sort than "the book is on the table", they say different things (and I don't mean that in the sense that one is about chess and the other about books); similarly, a sentence such as "a proposition is true if it corresponds to something in the world" (for an example of another rule) or "v = d/t" is of a different sort than "Ludwig von Mises wrote Human Action": the later is one that can be true or false, but the former two are rules and as such can only be either useful or not.

    When people attack it for its supposed self-contradiction, all they do is to declare that they don't know anything about the subject and that their opinion on it should be completely disregarded.

    So, uh, thanks for making it clear that your opinion is completely irrelevant and uneducated.

    Not that anyone needed the help, of course.

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  34. Oh God.

    I have been reading Pete's posts and they are hilarious.

    He's basically arguing that unless a methodology produces a guaranteed truth that will never EVER change, that methodology is useless.

    (of course, how does Pete validate his a priori reasoning? By more a priori reasoning!)

    I'm laughing so much that I will die of it.

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  35. Anonymous:

    "My point is that since Popperism requires non-hypothetically true propositions, that is, a priori synthetic true propositions, about reality in order for it to even work, it contradicts itself when it claims that all propositions can only be hypothetical or analytic."

    When someone says that "only empirically verifiable sentences can be true or false", that person is stating a rule, not a fact about the world;

    Utterly false. They are stating a "fact about the world" because Popper and his followers DENIED that synthetic a priori propositions are even possible.

    They didn't say "we deny synthetic a priori propositions are possible only as a rule, for convenience."

    rules aren't true or false, rather, they are useful or not.

    Congratulations on having no clue what Popperism entails.

    Suppose though, for the sake of argument, that your incorrect assertion was correct. Well, then first of all, Popperists cannot claim that rationalists are wrong to argue that synthetic a priori propositions are possible. At best, all they can say is "we don't like that rule." Second, if it were only a rule, then Popperism cannot qualify as an epistemology. Epistemologies are not based on arbitrary rules.

    A sentence such as "in chess, the bishop moves diagonally" is of a different sort than "the book is on the table", they say different things (and I don't mean that in the sense that one is about chess and the other about books); similarly, a sentence such as "a proposition is true if it corresponds to something in the world" (for an example of another rule) or "v = d/t" is of a different sort than "Ludwig von Mises wrote Human Action": the later is one that can be true or false, but the former two are rules and as such can only be either useful or not.

    This muddleheadedness does not say what you want it to say.

    When people attack it for its supposed self-contradiction, all they do is to declare that they don't know anything about the subject and that their opinion on it should be completely disregarded.

    Non-argument. This is just a baseless attack founded upon utter ignorance of both Popperism and criticisms against it.

    So, uh, thanks for making it clear that your opinion is completely irrelevant and uneducated.

    Non-argument.

    He's basically arguing that unless a methodology produces a guaranteed truth that will never EVER change, that methodology is useless.

    Human action by its very nature presupposes an unchanging physical reality. It would be impossible otherwise. Popperist methodology presumes the same thing, and your butchering of Popperist methodology explanation presumes it "as a rule only." LOL

    (of course, how does Pete validate his a priori reasoning? By more a priori reasoning!)

    Of course. The same way Popperist methodology outcomes are falsified or confirmed by, you guessed it, only Popperist methodology!

    You're terribly confused.

    I'm laughing so much that I will die of it.

    It's your loss.

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