Why Are We Still Talking to Economists?
by Jeremiah Dyke
Nothing is 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 Mad-Yelling! 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. Though you 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 actions. This is where economics derives its power, not from quacks in expensive suits. August 24, 2009 Jeremiah Dyke [send him mail] is a math teacher who hails free markets and freedom of choice. Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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