George Reisman's "Capitalism."

I've been selfishly reading George Reisman's "Capitalism: A Treatise on Economics."

It is like porn for objectivists. I'm amazed it's even permitted to exist in this world.

It is overflowing with insights and illustrations.

Here is just one: In a section describing modern economists definition of GNP and the belief that represents the total output/production of the nation, he points out (as what he regards as a fallacy, and I fully agree with him)that modern economic thinking argues that wheat and fertilizer and flour are already 'counted' in the value of bread, and so, only 'bread' should rightfully be counted. As well, an automobile already includes the value of 'steel', so the value of the steel should not be counted, or else it is 'counted twice.'

The purely political thinking behind this is clearly that Consumer's are King; they are the be all and end all, the alpha and omega of economic activity, its reason for being, to serve. Producers produce to serve consumers - others.

By following this logic, a Consumer purchases what he values: bread, and he produces shit, so with this type of accounting, the full GNP should be debited by the difference between the value of the bread and the value of the shit...and be credited by whatever King Consumer has managed to do with the additional mote of heat and light and animation that bread (his capital for pruductive consumption) afforded him in his endeavors.

Such as, produce wheat, fertilizer, flour, bread, or steel.

The real insight isn't this full accounting, which modern economic 'thinking' is clearly in deficit of.

The real insight is that the field of economics is largely a political activity in which humans who produce nothing pretend to ascend to judge and emperor over those who do.

My reaction, after looking at most economic thought in depth, is that these folks should get a job and stop stealing value from the rest of us.

regards,
Fred

Post 1

Saturday, February 23, 2013 - 9:34am

Fred,

I'm familiar with Reisman's critique of the value of final product in the conventional view of national income accounting, a critique which I agree with. But your post does him a disservice. Reading it, one would have no idea what he is saying.

Also for those who are interested, Reisman has written an updated (and, I think, more accessible) exposition of his critique in the July 2004 issue of The American Journal of Economics and Sociology entitled "The value of 'final products' counts only itself: today's gross product is net product." Also in the same issue, Jerry Kirkpatrick wrote an article comparing Reisman's Net Consumption, Net Investment Theory of Aggregate Profit to that of Mises and Rothbard.

Almost a year later, In the April 2005 issue of the same journal, James C. W. Ahiakpor wrote a rebuttal to Riesman's article, which Riesman then answered.

(Edited by William Dwyer on 2/24, 1:10am)

Post 2

Saturday, February 23, 2013 - 12:22pm

William:

It may not have been obvious, but I didn't mean to imply that Reisman's actual analysis included King Consumer creating 'shit' from bread. I'm almost 80% certain Reisman never published any such argument; I extended his critique in a direction you clearly disagree with. Indeed, your laser-like analysis has picked up on that hard to detect fact; without you pointing that out, I'm sure, readers of my post would have been severely mislead into thinking that Reisman once presented the bread into shit argument. In fact, he presented the fertilizer plus wheat into flour into bread argument, the steel into cars argument, and i extended the argument.

It was a subtle point, clearly lost on economists.

And now, this is me, pretending not to notice that you bristle at every critique of economists and economics.

You don't have to agree, but I think the constructivist report card is in on the Dismal Science, and it is a giant FAIL. It isn't science; it is only Political Science. There is not an objective science called 'Economics.' There is either liberal economics or conservative economics. It is political wrestling with charts, period. Just my opinion. Feel free to claim it is a an actual science.

I never degreed in economics, only ever took a few courses during my salad days. I read a little, too. Have yet to see anything remotely like science. The models are child like imitations, what one would expect if someone stumbled into an advanced mathematics course, copied what they saw on the board with little understanding, and ran off to put on a pony show, largely devoid of anything like uncertainty analysis or actual calibration. Once you get beyond the simplistic banalities, it appears to me to mostly a means of framing political arguments via obfuscation, to scare the kids, like voodoo doctors of old. The proof of that is, it is the darling of politicos.

I'm familiar in detail with the LTCM modeling fiasco, foisted on Wall Street by fellow MIT nerds. Not much different than the movie '21' with this exception; there was far more actual analsyis effort made to rip off Vegas than Wall Street; simply ignoring un-knowable terms and putting on a "the weather in San Diego tomorrow is predicted to be sunny and warm" pony show on, complete with partial derivatives, did not represent much deep analysis at all. And yet, it snowed the snowable, which was it's intent, raking in billions... for a while. Like many really clever tribal scams. Krugman is a master.

Gratefully, after those salad days, I did business all over the world, and I got to tell you, I never saw anyone drag out their Samuelson in all that time to reference some banality, not once. Not unless it was some charlatan trying to snow someone out of cash-- like what regularly goes on in and around the Beltway.

regards,
Fred

Post 3

Saturday, February 23, 2013 - 2:18pm

Fred,

You wrote:

There is not an objective science called 'Economics.' There is either liberal economics or conservative economics.

Economics, psychology, sociology, history, cultural anthropology... there are quite a few 'bodies of knowledge' that have similar problems.

Any body of knowledge can contain errors at a given point in history, since we aren't prescient, and we assume that the application of logic over time will let us correct the errors. However, if to be a science, there must be no major errors, this presents some problems.

When adherents line up on different sides of a disagreement and thereby form 'schools of thought' within a given body of knowledge, one side (at least) is going to be in error. The so-called soft-sciences appear to me to be the ones with most factions, and the least tenuous grasp of reality. I suspect this is so mostly because of their approach to volition which is an aspect of human nature which is critical in those sciences.

But even in many of the hard-sciences there are disagreements - they tend to not last as long, since hard sciences by their nature, usually arrive at a time when experimentation proves one side to be right and the other wrong. But factions exist for a time... even in physics.

If we can't have something called a science because it has different schools of thought, I think we are in trouble for several reasons. Science is more about observing certain procedures in the acquisition of knowledge, with those procedures being designed to reduce error. If we take entire areas of our universe and say we won't apply scientific procedures to the acquisition of knowledge here or there, we aren't going to be better for it. And we have in effect set an unrealistic standard ("Hey, prove, somehow, that your theory is perfect BEFORE we can bring it into science, and if anyone disagrees with it, we'll throw out the entire science.")

Having said all of this, I want to mention two things: Pseudo-science and hidden agendas. Those are ugly parasites that attempt to get a ride to where they could never go on their own. They try to sneak inside of proper science by pretending they are proper science. We see some of this in Meteorology. This science of weather is attempting to gain more understanding and predictability in a complex area whose roots are fairly simple principles from physics and chemistry. But look at the degree to which some of climatologists and then some of the far left political agitators have attempted to drive their agendas wrapped up as pseudo-science. Krugman's New York Times' column is an example of taking a hidden agenda of wanting to destroy liberty in order to achieve political control over people by creating psuedo-scientific arguments that pretend to be economic science.

I think there is a real science of economics, but that we have understand that in this field we will also run into honest errors, the babbling of idiots, and lies from sleaze-bags with agendas.

I think that at some distant day in the future the philosophy that becomes predominate will have a solid understanding of the simple fact that we humans make choices. The philosophy of science for each of those sciences that deal with human behavior in some way (economics, psychology, etc.) will reflect that. And thus there will be a foundation upon which limits can be set regarding what can or can't be done in the science.

And, as a society we need a lower toleration for nonsense and lying, and we need better training at critical thinking.

Post 4

Saturday, February 23, 2013 - 3:01pm

Steve:

I'm not aware of any distinction or definition of hard sciences that require them to be devoid of uncertainty; what distinguishes them is precisely the treatment of uncertainty as itself a science, a requirement in presenting scientific argument. Science has plenty of warts; the distinction is, excellent science puts those warts front and center, it doesn't smooth them over or ignore them altogether.

It demands rigor to honestly characterize uncertainty. It demands another kind of skill -- political skill -- to hide uncertainty.

The hard sciences have certainly suffered from 'politicization.' Even and especially at places like MIT. (It is getting harder to get through an issue of Technology Review without tossing it aside in disgust.)

Politics has seeped into everything. We can claim that has always been the case, and maybe to a degree, that is true. What has changed, I think, is using argument like "it has always been the case" as justification for embracing the full-on politicization of science, as opposed to an incentive to clean it up.

It has for sure always been in political science.

Full disclosure of uncertainty analysis, including enough data to reproduce the uncertainty analysis. Presentation of counter data along with supportive data. Presentation of methodology sufficient for peers to reproduce and verify the claims. Other than ratcheted iterations(sometimes the answer is, our hypothesis was wrong; excellent science doesn't simply throw away those trials and resultsl politicos making political argument do, as a matter of course. See Krugman.)

It's not enough to borrow the form of equations and charts and claim that we are modeling. With complex modeling, there is a well accepted methodology for presenting inherent uncertainty: the presentation of ensemble results, not just cherry picked results. (Happens in weather modeling every day; not only multiple models, but for a given model, each model is run across a range of input values, because the inputs are not known with precision. The resulting 'spaghetti plots' present a more realistic representation of uncertainty than a single model run.

Something that politicos intent on taking advantage of some model runs inevitably under-report. Laymen don't understand model ensemble results, they want to see a number; they want a computer model to spit out 'the answer.' Listen to the language carefully. They will present climate results to fractions of degree C...then gloss over the real uncertainty with words like "may indicate" or "might mean" because if they published the actual ensemble 'spaghetti' results of their climate models, instead of cherry picking the spectacular "may indicate" runs, folks would be put to sleep instead of 'energized' into political action, and that exact process has been used to justify the politicization of climate science.

The long running battle between the definition of hard science and soft science is itself a political battle. "Soft science" is a broad brush, but it is more than just hard science in areas with boundless uncertainty. Where it is -primarily- political in nature -- where the primary reason for its being is political, it is clearly a leg lifting tactic to borrow the veneer of science and not its deep form. But as you point out-- and climate 'science' these days is certainly an example -- so called hard science is not immune to the process.

regards,
Fred

Post 5

Saturday, February 23, 2013 - 5:04pm

Fred,

It seems that we are both mostly in agreement. The conclusion for me is that any science, hard or soft, requires some honesty and a rigor for it to give value and do its job - but it is a science even when it has some junk in it. There are some areas that are never going to be science because their subject area doesn't exist (like Astrology). And, that any science can be abused by those with political agendas.

It looks like the main difference is that the soft sciences are easier to abuse, and often are better suited to serving the twisted desires of those who have political agendas.

Philosophy is like a soft science, but even softer. That is, it is easier for those who choose to abuse reason, to use it for political leg lifting (as you put it).

My key point is that there are areas of potential knowledge where we want to categorize our understanding under a heading - a title - and these different areas should be called "science" even if there are some nutty factions, and tons of errors, and some people are using it to leg-lift.

We should name an area as a science, and then try to fill it with good knowledge and not propaganda or nonsense. The "science" part is the area... the content comes later and clearly can be iffy.

If we don't take that position - that Economics, for an example, is a science, then we don't have something to put on the workbench and work on. Instead we've given it the Krugmans when we should be cutting them out - saying, "Krugman is pretending to do economics when he says X, but that is really some pseudo-science gobbly-gook to disguise his agenda." There is a valid understanding to be had in every area of the universe that actually exists, but getting the best grasp of that means throwing out the parasites and their made-up theories.

For me, economics is a science, because it is a valid area of study and one that we can find principles for as opposed to Astrology, for example, which will never go anywhere because there is no there.
------------

My bias in all this is due mostly to my relation to psychology. You think economics has a lot of nonsense, you should see the range of nutty theories in psychology. But clearly that is an area of importance that we should study.

Post 6

Sunday, February 24, 2013 - 8:18am

Steve:

Classic Krugman

I've criticised this before.

1] No calibration; none.

2] In the opening paragraph: "We argue that this approach sheds considerable light both on current economic difficulties and on historical episodes, including Japan�s lost decade (now in its 18th year) and the Great Depression itself.

Indeed, he ran the gamut of cable and news outlets selling his "paradox of thrift...paradox of toil" arguments to support his advocacy of accelerating public debt fueled spending, and argued that the math in his work proved that lowering business taxes during a 'liquidity trap' would contract the economies, and in fact, raising business taxes was called for.

The opening paragraph: the part that maybe .01% of those paying attention might actually wade through. The rest will listen to Mr. Nobel Prize winning economist's soundbytes and concede his authority, unquestioned.

From the same paper, in the model assumptions:

"Imagine a pure endowment economy in which no aggregate saving or investment is possible, but in which individuals can lend to or borrow from each other. Suppose, also, that while individuals all receive the same endowments, they differ in their rates of time preference. In that case, �impatient� individuals will borrow from �patient� individuals. We will assume, however, that there is a limit on the amount of debt any individual can run up. Implicitly, we think of this limit as being the result of some kind of incentive constraint; however, for the purposes of this paper we take the debt limit as exogenous.
Specifically, assume for simplicity that there are only two representative agents, each of whom gets a constant endowment (1/2)Y each period."

Read those assumptions; what world is he modeling? A pure endowment economy? Is it necessary to read any further?

He then establishes his mathematical model based on -those assumptions- and makes the claim in his opening paragraph that the results -- aggregate supply/demand curves which both have the same signed slope(!) -- provide some kind of insight into the current tribal economic cluster fuck.

He knows he is safe in pulling off such obvious nonsense because of his utter contempt for the American electorate. He knows 99.9% of America is never going to read or comprehend his paper. It is entirely usable as poltical voodoo pony show to beat the unsuspecting into mind numbed submission.

It is bunk. It is propaganda masked as math. It is an abomination in an Obama Nation. Read those assumptions; what world is that?

I'll tell you what provides insight into the current tribal economic cluster fuck; the tribe awards the Nobel Prize in Economics to a political flack like Krugman.

regards,
Fred

Post 7

Sunday, February 24, 2013 - 9:49am

Fred,

It leaves me bewildered. What is going on in his mind? How much of the stuff he has written does he actually believe?

Post 8

Sunday, February 24, 2013 - 12:10pm

Great points, Steve.

I think a good boundary between science and non-science is whether repeatable measurements are integrated.

When Fred talks about investigators who carefully outline their methodology (so that others could repeat the same tests and look for their own results), then they are performing science. However, repeatability by itself isn't science without some kind of a measurement. And measurements are useless if they don't integrate -- and that's where most folks go wrong. Many investigators may be accidentally thinking that they are performing science because they are acting just like scientists act in the lab, but aren't double-checking to see if what they measured really matters or whether it integrates with the rest of all knowledge.

Let's say, for example, you wanted to study unicorns and you listed your methodology for doing so (so that others could repeat the experiment). Let's say you point a telescope up at 45 degrees from a GPS point and whatever, whatever, whatever. Lo' and behold something bright is sitting right in the middle of the field of the telescope and it has a certain, measurable luminosity -- and you conclude that that is the luminosity generated from a white unicorn. In truth, it may just be Polaris (the North Star) or some other heavenly body, but -- because of your gullibility and confirmation bias -- you go ahead and conclude that it's a unicorn.

Other scientists can repeat your methods and procedures and they, too, will discover a shining object. But the problem is when you inject meaning into the numbers when it doesn't belong there -- the problem is philosophical. Scientists do science like scientists, but when scientists create discussions of discovered evidence, they do so as philosophers. A science paper starts with an 'introduction' section, then a 'material and methods' section, then a 'results' section, then a 'discussion' section. Only the 2 sections in the middle are purely scientific. Both the introduction and the discussion are steered by your prior worldview (your philosophy).

In a 'magic' world where unicorns are supposed to exist, there will be people acting just like scientists act, but they are not actually performing science. In order for something to be scientific, it has to have repeatable measurements that integrate. This is a 'litmus test' which can and should be applied to economics.

Ed

(Edited by Ed Thompson on 2/24, 2:20pm)

Post 9

Sunday, February 24, 2013 - 1:53pm

Steve:

I don't think he believes any of it; what goes on in his mind is contempt for those he is trying to snow.

He is first and foremost a politico. The only thing he believes in is what he wants; in this case what he is arguing for, which is, endless, boundless public debt fueled public spending, without limits.

His so called economic argument? It's complete and utter total bullshit. He has contempt for those he is trying to snow with it. He thinks it is entirely sufficient nonsense to snow 99% of America, and he is pretty much accurate in that assessment. Few are actually reading his papers and critiquing them, and where that happens, it just doesn't impact his goals, which are purely political. He wants what he wants, period.

Look at those assumptions in his paper. What world is he modeling? He knows that, for his purpose, none of that matters in the least. Look at the man's face. The contempt is apparent. It's almost like he's making his papers absurd to validate his own contempt.

regards,
Fred

Post 10

Sunday, February 24, 2013 - 2:12pm

Ed,

I'm not sure about the repeatable measurements. I need to do more thinking in this area. I know that working up an initial theory may have nothing in it that is a repeatable measurement, but that initial theorizing is integral to the scientific process.

Didn't it take a number of years before anyone was able to come up with ways to measure some of Einstein's theories of relativity? Yet what he was doing, all in his head, or the back of an envelope, was science.

The modern understanding of science is taken to be "...a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe." The key word there is "testable"... at some point it must be testable.

But the older understanding - the one Aristotle worked with was that "science refers to the body of reliable knowledge itself, of the type that can be logically and rationally explained."" That view requires the knowledge to be logical, rational, and reliable but not testable. (Quotes pulled from the Wikipedia article on 'Science')

"Aristotle maintained the sharp distinction between science and the practical knowledge of artisans, treating theoretical speculation as the highest type of human activity... Aristotle's influential emphasis was upon the "theoretical" steps of deducing universal rules from raw data, and did not treat the gathering of experience and raw data as part of science itself." [Emphasis mine, from same Wikipedia article]

The move away from Aristotle towards a much more experimental science was good in that it incorporated the repeatable measurements - the tests of the theory. But I suspect that this was also the time where our grasp of the nature of causality, and identity were made fuzzier.

I liked this quote from that Wikipedia article, "...in his book Consilience, EO Wilson said 'The human condition is the most important frontier of the natural sciences.' " I agree, and currently that frontier is very lawless :-)

I can see that none of these observations is very helpful in distinguishing science from philosophy, or any other bodies of knowledge, which is a reasonable goal. But I don't think that a requirement for experimentation is adequate, and I'm not sure about "repeatable measurements."

Quite a hodge-podge: Science, natural science, physical science, social sciences, hard sciences, soft sciences, empirical sciences, academic studies, experimental science, science as a body of knowledge, science as a method (scientific method), formal science, applied science, basic science, pseudo-science, junk science, fringe science, scientific misconduct, cargo-cult science...

"Major advances in formal science have often led to major advances in the empirical sciences. The formal sciences are essential in the formation of hypotheses, theories, and laws, both in discovering and describing how things work (natural sciences) and how people think and act (social sciences)." [ibid]

Right now, at my current state of ignorance, I'd say that science is made up of a few different types of basic processes, and the first starts with a theory and then moves on to the second which would be the repeatable measurements stage. I'm not sure that all theories in science can make it to that second stage (I'm thinking about some aspects of psychology).

Post 11

Sunday, February 24, 2013 - 2:17pm

Fred,

You might be right. But I see some narcissism and that would go naturally with an almost delusional ability to believe his own nonsense. I suspect that he has certain beliefs that he takes seriously, and they would include his privately held justifications/rationalizations for being an elite who should be in control, and that one of those beliefs is that because he is "special" and his cause is "special" that he gets to make up all of the nonsense that he does, and that he knows is nonsense.

Post 12

Sunday, February 24, 2013 - 2:46pm

Steve,

Good stuff. I agree with you that the beginning of science comes just after an observation wherein one fires up the machinery of the mind in order to engage in the enterprise of theorizing. It's the scientific method and it starts with some kind of an observation, which is followed up upon by some kind of an attempt to understand. The abstract 'attempt to understand' is made concrete when one forms a hypothesis and lays out a means to test it in a reproducible way, making sure that whatever conclusions drawn from the test must not be shown to be in contradiction to your body of knowledge ...

I think that bright light in the sky is a unicorn. Let me see what would have to be true in order for that to be the case. Let me see how I might measure the unicorn, or an aspect of the unicorn in some standardized way so as others could potentially repeat what I did. Let me take a moment to ponder whether the idea of floating unicorns fits in with -- or integrates with -- everything else I know about how the world works.

:-)

When Einstein was engaging in a similar thought process, he was peforming science -- not because others could make the needed measurements (they didn't even know about his theory!), but because the thought process led him to formulate objectively-testable hypothesis (testable in a potentially repeatable way), and it led him to discard contradictory notions. In stark contrast to this thought is that of Paul Krugman, who I am currently channeling right now -- utilizing my new-age, post-modern, existentialist skills ...

I want control and I want people to think I can fix things, so that they will feel that they need me. In this manner, I will achieve unearned self-esteem, which is the best kind, because you don't have to work for it. Since as a child I thought that the rich get rich by making the poor more poor, and since old and dear beliefs are something to cling to when you have not engaged in the work necessary for authentic self-esteem as a human being -- I will continue to hold onto these stale beliefs, even in the face of contradicting evidence, if for nothing else out of sheer terror and existentialist angst at feeling totally incompetent and unfit for reality. Therefore, there will have to be victims. In defending anti-man and anti-value ideas, I will have to be shrewd sometimes, but I do have terrible character to begin with, so that shouldn't be hard for me.

Whew [sighs]! Channeling someone else's thoughts is exhausting!

:-)

Ed

(Edited by Ed Thompson on 2/24, 2:49pm)

Post 13

Tuesday, March 12, 2013 - 5:01am

The 'pure endowment economy' is a darling of politicos.

INTRODUCTION
The model presented in this paper is very simple. It includes two infinitely-lived agents with rational expect
ations living in a pure endowment economy, i.e. in an
economy with neither production nor investment processes. Each period, agents receive their individual endowment of one non-durable good and then trade it competitively in a centralised market.

Or as I like to call it, "A Lost Episode of Star Trek."

What world are these people modeling?

Every year, we wake up from our slumber, and our 'endowment' of 'non-durable goods' falls from the sky, unabetted by "production or investment processes."

This is the modeling world favored by politicos of a certain bent, that being, you and I bent over from a government aiming real guns at real people, based on their 'science.'

It's like the entire circus pulled into a cul de sac years ago and never left.

regards,
Fred

PS: Modeling the behaviour of investors and producers (and workers--this is a 'pure endowment the economy') is too hard; therefore, we will model economies as if they didn't exist at all, and then yet still claim that our models have applicability to the economies that are.

All that matters when modeling something called 'the economy' is that consumers get free stuff falling from the sky, unabetted, and exchange it for other free stuff. But...they differ in their time rate preference or somesuch.

Consumers are King, after all, and don't require work, investment, or production in order to decide which way to sprint downhill.

(Edited by Fred Bartlett on 3/12, 5:09am)

Post 14

Friday, March 15, 2013 - 7:18am

Paul Krugman is an endless source of mirth.

Some of his latest:

But after peaking in 2009 at $1.4 trillion, the deficit began coming down. The Congressional Budget Office expects the deficit for fiscal 2013 (which began in October and is almost half over) to be $845 billion. That may still sound like a big number, but given the state of the economy it really isn�t.

Bear in mind that the budget doesn�t have to be balanced to put us on a fiscally sustainable path; all we need is a deficit small enough that debt grows more slowly than the economy. To take the classic example, America never did pay off the debt from World War II � in fact, our debt doubled in the 30 years that followed the war. But debt as a percentage of G.D.P. fell by three-quarters over the same period.

Right now, a sustainable deficit would be around $460 billion. The actual deficit is bigger than that. But according to new estimates by the budget office, half of our current deficit reflects the effects of a still-depressed economy. The �cyclically adjusted� deficit � what the deficit would be if we were near full employment � is only about $423 billion, which puts it in the sustainable range; next year the budget office expects that number to fall to just $172 billion. And that�s why budget office projections show the nation�s debt position more or less stable over the next decade.

So we do not, repeat do not, face any kind of deficit crisis either now or for years to come.

It really isn't a big number...given the state of the economy. Which we will now imagine away. Repeat.

What goes through folks minds when they read arguments like this from a Nobel Prize Winning Princeton Professor?

We are nowhere near full employment...but let's imagine what the deficit would be if we were...and then assess our condition based on that imagining.

From "Dwindling Deficit Disorder" NYT.

Post 15

Friday, March 15, 2013 - 7:28am

It's always a fool's errand to try and divine motivation from the public utterances of others. But that never stopped me before.

1] He believes this stuff.

2] He is a desperate politico, clinging to the gig and keeping his eyes ever on the prize: boundless public spending at any cost. And so, the merest hint of any reduction of pressure on the public borrowing/spending accelerometer must be shrieked at as "austerity!" and he's calculated that he's largely safe in uttering any nonsense imaginable; see 3.

3] He simply has contempt for all of us, and this is his latest gibberish, published in the NYTimes, proving that his contempt is totally justified. I mean...just look at the man's face.

Post 16

Friday, March 15, 2013 - 7:55am