Why Are We Still Talking to Economists?
by Jeremiah Dyke
by Jeremiah Dyke
more irritating for an apprentice of economy than listening to men
in attractive suits waxing on about their market-awareness. Even
more irritating than these CNBC-type quacks is their army of head-bobbers
diligently accepting their prattle.
Yet, is this
truly it? Is this the best our intelligentsia has to offer? A cornucopia
of Rich-Dad-Poor-Dad books trailing repeated episodes of Jim Cramer’s
It’s not enough
to quote another survey relating rates of returns between portfolio
managers and monkeys throwing darts…though, these humiliations
are still fun to indulge. Yet, who are these charlatans and where
did they get such amazing foresight? The answer is simple really,
these actors are pawning to you yesterdays news from behind the
veil of their crystal ball.
may not speak the jargon of your financial heroes, their jargoned
forecasting is probably only marginally better than your own forecasting.
Similarly their complicated models for predicting asset prices or
unemployment rates are most likely only marginally better than your
own model. This is of course not to suggest that the asset prices
are random, or detached from the inter-connectivity
of human action. It simply suggests that comprehensive marketplace
predicting is dismal at best and thus the wrong is in the question,
not person. This exact inter-connectivity of human action is what
places economic variables in the realm of "Extremistan"
highly subjected to outliers.
So what good
is economics if it is unable to forecast? And more importantly,
why are we still listening to economists?
This is where
economics goes defunct! Economics rests on basic fundamental a
priori principles of self-interest. Economics cannot tell us
what the unemployment is, was or will be! It can merely tell us
that individuals will pursue employment of their labor when the
exchange of that labor for other goods is beneficial. Moreover,
economics can tell us that if you increase taxes on labor,
you have inadvertently changed the ratio of exchange. Labor is thus
less beneficial when the fruits of its undertaking are eroded by
taxation. Similarly, economics can tell us that if you pay
someone to leisure, there is less incentive to labor. Thus, economics
can predict such effects with accuracy while still not having the
ability to predict policy outcomes. Meaning, economics can tell
you likelihoods based on presuppositions of self-interest but are
at a loss to predict an outcome when hundreds of these policies
are pursued at the matching times. This is why there is weight in
the term ceteris paribus.
While the vast
array of social scientists may laugh at economists for interjecting
such capricious language as ceteris paribus the language,
when used appropriately, is a testament of honesty. Economists honestly
don’t know the answer to the questions of aggregate outcomes without
holding all other courses of action constant. Similarly, a mechanical
engineer is ineffective at predicting the outcome of randomly slamming
on the accelerator and breaks of a moving vehicle. This incapability
derives not from the basic premises but from the series of self-canceling
This is where
economics derives its power, not from quacks in expensive suits.
Dyke [send him mail]
is a math teacher who hails free markets and freedom of choice.
2009 by LewRockwell.com. Permission to reprint in whole or in part
is gladly granted, provided full credit is given.