Social Democracy For The 21St Century: A Post Keynesian Perspective
If you are not interested in the fratricidal minutiae of Austrian economics, skip this post!
Mises and Hayek Dehomogenized?: A Note on a Schism in Modern Austrian Economics
Lord Keynes
As philosopher, I find this debate fascinating in that it is is about ontology and epistemology — calculation and the knowledge problem. These are central issues not only in economics.
There are three principal classes of uncertainty:
Ontological uncertainty is the position that what will happen is indeterminate at any point in time, e.g., in a non-ergodic complex adaptive system subject to emergence and reflexivity (feedback).
Epistemic uncertainty is a weaker claim asserting that in highly complicated but not necessarily complex systems, it is not possible to know all outcomes in advance even through the system is ergodic. For example, astronomers do not know and probably cannot know when and if an as yet unidentified astroid will collide with earth, even though in principle this could be known if astronomical data were more complete.e.g., due to more capable instrumentation.
Aleatory uncertainty arises from randomness or chance occurrence, colloquially called "luck." While probability regarding an event like the tossing of a fair coin may be certain mathematically and in the long run the hits will closely approximate, clusters of short run hits, the "lucky streak," are unforeseeable and unpredictable.
All of these apply in economics.
17 comments:
I submit that there is now Information Technology available for us to remove ALL Ontological and Epistemic Uncertainty from our (ie the financial) part of the economic systems we operate...
rsp,
I submit that non-quantum aleatory uncertainty is basically the same as epistemic. If we knew how hard the coin was flipped, the direction of the motion, the points at which that force was applied, which way the coin faced before it was flipped, the wind, etc, then we can predict whether we will get heads or tails.
Ontological seems to be just chase theory stuff. If measurements were perfect, then it would not exist.
That is a fascinating list of types of uncertainty, I have to say!
Surely there is another type of uncertainty that could be added to the top of the list -- and perhaps is even worse than all the others: the uncertainty that exists if (as many philosophers think) induction lacks rational justification.
I mean, in an extreme case, you might argue: how do we even know the whole laws of the universe we thought were constant will not suddenly change tomorrow? I.e., we might wake up and discover gravity no longer holds.
LOL LK,
"We're out of money!" would change over to: "We're out of gravity!"....
;) rsp,
@ LK
Very Humean. :) On Hume's analysis, we are constrained by nature to "believe" in regularity. Kant, of course, "explained this in terms of the transcendental conditions for experience and the categories of understanding through which we organize knowledge iaw our mode of knowing, which is being borne out by cognitive science, although in a less "reasonable" way. Wittgenstein used Ockham's razor to dispense with the epistemological assumptions by cutting to the chase of logic, which might be compared in economic theory to cutting to the chase of accounting. In Tractatus 6.3–6.3751, causality is seen simply as "the form of a law. The Spark Notes on this section are reasonably accurate.
Actually, because modern society is institutional as well as cultural, we face this radical uncertainty of changing structure in modern economies wrt institutional policy changes that can alter the course of events sometimes drastically.
Unlearning the History of Thought II
Coincidentally, we are facing this kind of uncertainty right now owing to dysfunctional politics and "radical" behavior on the part of some of the key players. Should they prevail, things could shift radically rather quickly depending on the balance of political forces.
Market Radicals: The GOP's Betrayal of Conservatism by Alex Zakaras, Associate Professor of Political Science, University of Vermont
In fact, by any reasonable standard, it is the Republican agenda that has become radical. In the world as we know it--a world of massive international corporations and densely interconnected global economies--the libertarian agenda of minimal government and maximal privatization is as yet untried. America is closer to realizing it than any other affluent democracy: our tax rates and welfare spending are among the lowest in the modern industrialized world. But as Republicans have made clear, they think American government is far too big, far too aggressive in its regulation, and far too profligate. They want a pre-New Deal government for an age of truly global economic and ecological challenges. In the world as we know it, then, the libertarian agenda is a bold and unprecedented experiment.
" then, the libertarian agenda is a bold and unprecedented experiment..."
Let's get that Statue of Liberty all fixed up and ready to go!
Maybe LK will finally stop claiming that the Hayek quote (see page 7 below) I originally presented is the definitive statement of economic calculation:
http://www.flickr.com/photos/bob_roddis/7534880182/in/set-72157630494776170
We've told him 151 times that he didn't know what he was talking about.
Regardless of who is right and who is wrong (the Misesean explanation is more complete), none of this helps the Keynesians, inflationists and interventionists in the slightest. There is still no evidence that the market fails and their various interventions do nothing except to make planning for the future more uncertain and unpredictable than it already is. Keynesianism is the cure for the problem that does not exist while being the problem itself.
"Maybe LK will finally stop claiming that the Hayek quote (see page 7 below) I originally presented is the definitive statement of economic calculation"
LOL.. You've implied that it is the major/essential/fundamental idea of economic calculation, you absolute idiot, and you are now a proven liar.
The proof in roddis's own words:
(1) Like every other non-Austrian, you guys just do not understand the essential concept of economic calculation or the concept of the equilibrium price structure that does not yet exist.
Hayek:
“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept.
http://mikenormaneconomics.blogspot.com/2011/09/how-every-brain-is-hardwired-for-math.html?showComment=1316168553179#c771371940295103598
(2) There is no essential dispute between Hayek, Mises, Rothbard, Lew Rockwell or me regarding the following which states the basic Austrian understanding of the economic galaxy. In a 1975 speech, Hayek stated:
“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept.
http://mikenormaneconomics.blogspot.com/2012/07/on-august-15-1971-great-day-in-us.html?showComment=1341773333379#c8360382458311007008
No "dispute between Hayek, Mises, Rothbard," you say? Not even that is right.
I guess Rumsfeld wasn't too far off with his very similar but much less eloquent commentary on uncertainty:
"There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don't know. But there are also unknown unknowns. There are things we don't know we don't know."
Lord Keynes, you miserable lying bastard. I’ll say it again. In the context of A) why the market works and socialism and Keynesianism do not; and B) why our current problems are caused and not cured by inflationist and interventionist policies, there is no FUNDAMENTAL dispute between the Misesian and Hayekian analysis in a manner that helps inflationists and/or interventionists refute either analysis. The Misesian analysis is more complete philosophically. But without prices and more specifically undistorted prices, informed planning is crippled. That Hayek omitted from his analysis a precise emphasis upon the importance of forward-looking entrepreneurship does not help justify Keynesian analysis whatsoever.
Further, the Hayek quote you insist upon misrepresenting over and over and over and over and my introduction to it concerned the “structure” of prices that does not and is not allowed to exist and which thus cannot be measured statistically. I expressly DIFFERENTIATED the concept of economic calculation from from the concept of the “structure” of prices that does not exist.
The proof in roddis's own words:
(1) Like every other non-Austrian, you guys just do not understand the essential concept of economic calculation OR the concept of the equilibrium price structure that does not yet exist.
You are the one who has continued to insist that the Hayek quote about the structure of prices that does not yet, if at all, exist was the definitive expression of the distinct concept of economic calculation.
Further, while I do not like the term “equilibrium structure”, Hayek in his presentation suggests that he does not like it much either. Hayek stated:
These discrepancies of demand and supply in different industries, discrepancies between the distribution of demand and the allocation of the factors of production, are in the last analysis due to some distortion in the price system that has directed resources to false uses. It can be corrected only by making sure, first, that PRICES ACHIEVE WHAT, SOMEWHAT MISLEADINGLY, WE CALL AN EQUILIBRIUM STRUCTURE, and second, that labor is reallocated according to these new prices. ****
The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured. ****
In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”
What Hayek means here by the "equilibrium structure" are undistorted prices which do not exist but which would not misdirect labor and investment to "false uses", meaning malinvestments.
There is no FUNDAMENTAL dispute between the Misesian and Hayekian analysis in a manner that helps inflationists and/or interventionists refute either analysis.
(1) But without prices and more specifically undistorted prices, informed planning is crippled.
No, that is false in the Misesian system. In Mises's view, prices are generally and nearly always disequilibrium prices (meaning not cost of production prices), and a tendency to market clearing values equates supply and demand.
Prices are not conveyers of Hayekian "knowledge":
“The price system is not—and praxeologically cannot be—a mechanism for economizing and communicating the knowledge relevant to production plans."
Salerno, Joseph T. 1990. “Ludwig von Mises as Social Rationalist,” Review of Austrian Economics 4, p. 44.
Bob Roddis does not understand basic Austrian concepts.
(1) "You are the one who has continued to insist that the Hayek quote about the structure of prices that does not yet, if at all, exist was the definitive expression of the distinct concept of economic calculation. "
Oh, so now your Hayek quote is NOT the "definitive expression of the distinct concept of economic calculation"? LOL...
Pretty much everything you been saying for years now has fallen apart.
(2) "What Hayek means here by the "equilibrium structure" are undistorted prices which do not exist but which would not misdirect labor and investment to "false uses", meaning malinvestments."
So you're saying "undistorted prices" are those that gravitate to their market-clearing values?
By this theory, there is no other way to clear that labour market or product markets except by market- clearing prices.
Yet they are precisely what are largely non-existent in real world capitalist economies because of price administration.
Supply and demand tend to be equated by quantity adjustments, not flexible prices.
That confirms and proves Keynesianism, and refutes the Austrian theory.
Ryan,
I dont trust anything out of Rumsfeld, I lay a lot of the 2008 chaos (leading to present underperformance) at his door due to how he mis-managed the macro-economic effects of the GWOT (bidding up the price of domestic building materials) and kick starting the housing bubble...
He imo doesnt know what CAN BE known with current remote sensing and relay and display... we are UNDER utilizing our IT in 'public finance'...
iow, if someone said to me right now: "hey, you dont know if a tornado could strike where you are 2 hours from now" , I would have to say bullshit because now we have weather radar, weather satellites, displays, a database of seasonal data, etc... which ELIMINATES ALL uncertainty about a tornado striking me here today...
This same process could EASILY be used to monitor the financial system in real time right now and display current financial events numerically/graphically down to the firm/household/individual level so authorities would never be uncertain about what was going on in our financial system.
Here is a listing of current functional/operational areas that have developed published XML Schemas/markup languages for the efficient interoperability of data between entities working with information in their respective areas:
http://en.wikipedia.org/wiki/List_of_XML_markup_languages
NOTABLY missing is anything to do with Treasury/CB Agency functions.
These morons would have you believe that these financial operations are some sort of Darwinian "natural selection" type of out of control or uncontollable "animal spirits" or some such nonsense... it's pagan at core.
Hence comes in all the "uncertainty", like they said "we could never see this coming, etc" that is BULLSHIT.
Perhaps I would agree that when you have morons (Rumsfeld) in control, "you dont know what could happen"....
rsp,
ie these morons would have us believe that our financial system "by nature" (very pagan term coming in here) contains ontological and epistemic "uncertainties" that the "invisible hand" operates within... this is ABSURD AND PURE BULLSHIT, very pagan/wild basically.
Next they will have us offering divine services to some sort of "gods of the market" or some such nonsense... like Roger mentions downthread an "ouija board" or some sort of moron apparatus...
WE are 100% in charge of these systems... and today we have the IT to manage them VERY effectively.
rsp,
There is no "invisible hand". There are only human beings who cannot read each others minds and who are trying to determine what other human beings need and want while everyone is operating with limited information. That limited information then gets distorted by Keynesians, monetarists, government spending, subsidies, fiat funny money loans and funny money issuance.
In the context of A) why the market works and socialism and Keynesianism do not; and B) why our current problems are caused and not cured by inflationist and interventionist policies, there is noFUNDAMENTAL dispute between the Misesian and Hayekian analysis in a manner that helps inflationists and/or interventionists refute either analysis. The Misesian analysis is more complete philosophically. But without prices and more specifically undistorted prices, informed planning is crippled. That Hayek omitted from his analysis a precise emphasis upon the importance of forward-looking entrepreneurship does not help justify Keynesian analysis whatsoever.
This is the set of assumptions, largely shared by neoclassical and Austrian economics, that Keynesianism and Post Keynesian denies and argued against as imaginary and non-representational. It is wrong "philosophically" wrt presumptions and assumptions, and empirically wrt observation.
c'mon Bob we dont have to "read each others minds" to know that we ALL want certain minimum access to the surplus... a robust "means of subsistence" for us all and decent standards of living...
There should not be "mind reading" required to know this.
And the information does not get "distorted" it doesnt even exist (!) as it is NOT measured and recorded for human review and analysis.... where is it?
NOT here:
http://en.wikipedia.org/wiki/List_of_XML_markup_languages
Where all the non-morons are going....
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