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Samizdata, derived from Samizdat /n. - a system of clandestine publication of banned literature in the USSR [Russ.,= self-publishing house]

Samizdata quote of the day

And the idea that is the bedrock of all economics is the understanding that complex economic order emerges spontaneously, without central design or guidance, when private property is secure and markets are at least reasonably free – when, in short, there reigns what Adam Smith called the “the obvious and simple system of natural liberty.”

Too many economists today, busy mastering mathematical technique or striving to make their work relevant for current holders of political power, lamentably never learn – much less master – these and other foundational ideas. But no amount of mastery of the idea of the likes of Nash equilibrium or of the Stolper-Samuelson theorem is worth a damn without a mastery of these older, less sexy, yet foundational ideas.

Donald Boudreaux

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24 comments to Samizdata quote of the day

  • CaptDMO

    In MY personal sphere of influence (US) I’ve noticed astonishing expertise in the latest complex economic theory,as promoted by The UN, and (US) “appointed” Fed. Management, from folks just out of college…
    with ASTONISHING debt, demanding Gub’mint “intervention” in so-called “health care”, mandated wages, employer hiring quotas, Illegal alien/ “refugee” indulgences AND welfare, (What does one call indulgences that aren’t paid for?), and over looking “minor” offense consequences for “poor” folks.
    They never seem to understand “broken windows”, unusually expensive “organic” prepared (and taxed) food, or “the magic hand” though.
    It gets worse, we have a plethora of Tee Vee “elite Humanities experts”, with Communications degrees, of the same ilk.

  • Nicholas (Unlicensed Joker!) Gray

    What is needed is someone like Gödel. Before him, mathematicians believed that they could prove that mathematics could be self-consistent. Gödel went the other way, and tried to prove that it was not self-explanatory- and proved his point! We need an economist to try to disprove the belief of the other economists that central planning could work. “The Road to Serfdom” had good arguments, but might need to be updated, and put into mathematical forms, or given a name (Hayek’s Law). If we don’t, then all their training inclines them to keep looking for the ‘right’ degree of control.

  • I think it’s a hubris that the highly-educated seem to adopt: they emerge from the universities believing their own bullshit and thinking they are smarter than the whole of mankind that preceded them. I see it in my own workplace, where persists a belief that if enough terribly clever people with no relevant experience congregate in a room and discuss something for long enough, they will discover a solution which works much better than the standard industry one which has been adopted after decades of operational feedback and raw experience. Some humility wouldn’t go amiss among those who are allegedly the smartest people around.

  • Jacob

    The point is that under a “natural”, free system, where economic order emerges spontaneously, there is not much need or employment for economists. So, the “new” and complicated economic theories are a make-work scheme for economists – whereby they make use of government coercive power to get themselves fine, well remunerated jobs, financed by other people (taxpayers).

  • Paul Marks

    A good post – however a young person writing their essays on this assumption (in most schools, including private schools, and universities) would be FAILED.

    For example the absurdities of J.M. Keynes (that government backed Central Banks should keep up the Credit Money supply – using various mathematical disguises for nonsense) are treated as objective fact – and the “Monetarists” (who are presented as the alternative – if any alternative is presented at all) do not really challenge this. For example even Milton Friedman did not denounce the Central Planning of the Benjamin Strong Credit Money bubble of the late 1920s – on the contrary for Friedman (as for Keynes) it was the failure to keep the Credit Money bubble going that was the problem.

    Whilst the education system remains like this (including most private schools – due to J.S. Mill style government approved examinations and the need to get students into “good” universities) the situation will continue to be without hope.

  • Jacob

    The modern economic theories are actually very simple, and can be summed up in three words: “Print more money”.

  • pete

    For all of human history economics has been based on the strong dominating the weak.

    The only difference these days is that we pretend it isn’t.

  • Expatnik

    For all of human history economics has been based on the strong dominating the weak.

    For all of human history? That’s a ludicrous fortune cookie profundity.

  • Bod

    For all of human history economics has been based on the strong reality dominating the weak fantasy.

    Of course, the study of Economics is subject to all the faddishness, shamanism and dumbfuckery that humans bring to every subject from time to time.

  • From my current literary project:

    “And frankly sir, the WIN button was just stupid…Mister President, money is not wealth, it is simply a tool to facilitate the trade of the goods and services that actually constitute wealth. And when the supply of money is increased, and thus debased, the nominal price of goods must be adjusted upwards to compensate. Do you understand, sir?”

    The scene is set in May of 1976 so some names have been changed to protect the idiots in office.

  • Thailover

    First, I think most people have a problem “believing” in spontaneously occurring, non-directed order, even if they understand it in theory. For example, evolution theory of the species. It’s academically fathomable how the vast biodiversity of the entire planet can be a product of species evolution, but to look at it whilst contemplating it, it’s hard to wrap one’s mind around, hence the hordes of people who default to a belief in an immortal, disembodied designing consciousness that, to me, seem just as difficult to accept and it lacks cogent theory to boot. Evolution of species is simple, (not complicated), but VERY complex. On some levels, it’s as simple as the random walk theory. And yet…

    Secondly, It’s kinda hard to sell someone on the idea of a job where one’s job is to leave things alone. ‘Better to leave university being an “expert” in twiddling, tweaking and consulting.

    Third, people in large don’t want a natural economy, they want a “managed economy”, just like they want to believe that China can “cheat” the US in trade deals. Once politicians learned that one can sometimes affect the aggregate demand curve by artificially lowering the cost of money, there was no turning back. The problem is, their “stimulus” not only makes things feel better today, but at the cost of making you feel like shit tomorrow, there comes a time when the “stimulus drug” no longer works and we find ourselves in a “liquidity trap” as we’re in right now.

    It’s funny to me however how the government meddlers are allergic to meddling in a positive sense on the supply side of the equation, which of course means LESS taxes, LESS regulations, in short, meddling by doing less meddling. They seem to prefer to think that the world begins and ends on the demand side of the equation. Hell, even most “smart” people seem to have difficulty discerning the concepts of tax RATE from tax revenue, and when the former is draconianly high, the latter becomes scarce as a consequence.

  • Thailover

    Leslie Bates,
    That reminds me of the story Carl Satan used to tell about Eisenhower and how he was shocked to find out that fully half the population has below average intelligence, and asked how we can correct this problem, lol.

    Yes, not only is money not wealth, lack of money isn’t poverty either. The creation of wealth is the creation of a good or service that has value to yourself and/or others. And poverty isn’t lack of money and CERTAINLY not lack of other people’s money. It’s lacking the knowledge or ability to create and keep wealth. I invite those who dispute this to examine lump-sum lottery winners ten years after they’ve won and see how many of them have pissed it away.

  • Thailover

    Pete said,

    “For all of human history economics has been based on the strong dominating the weak. The only difference these days is that we pretend it isn’t.”

    No, pretending that economics = the strong dominating the weak is exactly where we screw economics up. All economics is based on trade, including the trade of money for good or service, and free trade only occurs when both sides WIN in the exchange. If both sides didn’t profit from the exchange, both parties would not voluntarily participate.

    Bob buys yet another hard cover “Harry Potter book” when he decides he wants the book more than the 20 buck asking price, and when he decides he would rather have the book than anything else he could trade that $20 bill for. From Bob’s perspective of his own quality of life, he’s grown better off, i.e. richer from the exchange. And of course the publishers have enough ‘potter’ books and would rather have the $20, of which, J.K. Rowling cuts her cut.
    Millions of consumers have gotten together and voted with their wallets to make Ms. Rowling a billionaire. That’s not the strong dominating the weak, that’s the common people making another common person rich and powerful by voluntary choice.
    The enlightened perspective to be gained from this is that in free exchange, there are no “victims”, no “weaklings”, just to free participants engaging in win-win activities. That is, voluntary cooperation to mutual benefit.

    When Ms. Rowling sells yet another novel, both (rather all) parties become WEALTHIER.
    This is EXACTLY why nations like the US is uber-wealthy compared to the rest of the planet. Is it because we are “exploiting” the rest of the world and taking more than our fair share?

    No. Because America has more wealth today than EXISTED on the entire planet just 100yrs ago.

    The enlightened realization is that economics, like life itself, is NOT zero sum, where if one party gains, others must lose. Rather one person’s achievements are not earned at the expense of those who have not earned or achieved it themselves.

  • Bod

    Exploitation.

    One of those words that doesn’t travel well between Europe (or the UK at least) and the US.

    I was writing some copy back in the last millenium, just after I moved to the states and was writing some boilerplate about how the firm I was working for generated profits by exploiting trends inherent in futures markets. I was shut down on that one pretty quickly by the compliance department of all people because … well … exploitation is bad, mm-kay? Made me think of moving back to Blighty, it did.

    Anyway, back to a more germane point – it is possible for there to be ‘losers’ in an economic exchange, but it only tends to happen when one or more participants in the trade enjoys some degree of coercive power over the others.

    If only there was some kind of political philosophy that articulated such ideas ….

  • Regional

    Farnarkling, wankers sitting a circle talking shit.

  • Jerry

    ‘where persists a belief that if enough terribly clever people with no relevant experience congregate in a room and discuss something for long enough, they will discover a solution which works much better than the standard industry one which has been adopted after decades of operational feedback and raw experience.’

    I’ve seen the same thing in ‘management’ thinking, especially at higher levels of management. As in –

    If you can manage a factory, you can manage an office. Management is management. The people, occupations, duties, expertise, or the final product / outcome has no bearing on how to manage the process/factory/office/hedge fund etc.

    Yeah, right.

  • Sam Duncan

    “What is needed is someone like Gödel. Before him, mathematicians believed that they could prove that mathematics could be self-consistent. Gödel went the other way, and tried to prove that it was not self-explanatory- and proved his point!”

    Maths at that level is definitely not my field, but if I understand what Gödel and his contemporaries were on about – which is very far from certain – couldn’t it be said that economics is actually an uncomputable problem, or a whole set of them? If you think you’ve devised algorithms that accurately model the economy, as modern economists do, people will use them to try to gain an advantage, and you end up with a sort of paradox: knowledge of the system alters the system.

    Of course, that doesn’t mean it’s completely ineffable. We know certain broad rules: bad money drives out good, supply and demand usually balance over time, and so on. But these things aren’t strict mathematical relationships; they can’t be computed, only demonstrated by the economy itself.

    Or am I way off-base? I mean, I think I’m right, but it possibly has sod-all to do with Gödel. 🙂

    “First, I think most people have a problem ‘believing’ in spontaneously occurring, non-directed order, even if they understand it in theory.”

    Absolutely. My favourite example, which I’ve probably mentioned before, was on a documentary about Brian Eno in which he enthused at length on Darwin’s amazing discovery of spontaneous order in biology and how utterly stupid anyone who thought there “must” be an intelligence behind it is, then in the very next breath talked about his involvement in some EU city planning initiative that was going to get a whole lot of smart people like him together to tell us rubes how we should be running our lives.

    I think it’s that even when people know about it, even when they’re shown that it works, they still don’t really trust it.

  • Alisa

    The study of economics is a behavioral science, with all which that implies. Economic planning to study of economics is what engineering is to physics – which is to say, it is (an attempt at) engineering of behavior.

  • CaptDMO

    Regional: Farnarkling
    *sigh*, quit MAKING me look stuff up!
    You forgot the …”but not actually doing anything” bit.

    Bod: “.. well … exploitation is bad, mm-kay..”
    Apparently, so is discrimination, and merit.

    Alisa: I’ve always held that economics was the polite word to use for PoliSci,(a la ‘The Prince’, PP ACA) when in genteel, or delicate, company.

  • Regional

    CaptDMO,
    But not actually achieving anything to be more precise.

  • Nicholas (Unlicensed Joker!) Gray

    Hayek’s Law- “Local people have far more interest in, and knowledge of, and power over, local conditions than a non-local people or government can ever have.”

  • Alisa

    You have a point, Capt.

  • Lee Moore

    All economics is based on trade, including the trade of money for good or service, and free trade only occurs when both sides WIN in the exchange. If both sides didn’t profit from the exchange, both parties would not voluntarily participate.

    This made me feel a bit queasy, even though I sympathise with the general drift. Economics is the study of scarcity. Trade is one of the best solutions to scarcity. But only because it is a subset of “trade-offs.” Robinson Crusoe can benefit from economic thinking as he plans the use of his time and the resources on his island, even if there’s no one else to trade with at all.

  • Alisa

    Lee, it should have said economies instead of economics – a common morphological error, FWIW.