From: jfh@reef.cis.ufl.edu (James F. Hranicky)
Newsgroups: talk.politics.theory
Subject: Re: Who knows how economics works?
Date: 8 Nov 92 18:44:53 GMT
Organization: Univ. of Florida CIS Dept.

Newsgroups: talk.politics.theory
Subject: Re: Who knows how economics works?
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Organization: Univ. of Florida CIS Dept.
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In article <1992Nov6.122114.2231@panix.com> gcf@panix.com (Gordon Fitch) writes:
>gf:
>| >   ... [T]here is the suggestion that we educate people
>| >about the economic consequences of their decisions.  "We"
>| >can't do this, because "we" don't know how economies work.
>
>jfh@beach.cis.ufl.edu (James F. Hranicky):
>| ... There are some who do know how the economy works. They are
>|     the members of the Austrian School of Economics.
>|     (c.f. Skousen,"Economics on Trial")
>
>Someone reprinted some of Skousen here a year or two ago,
>and I was definitely not impressed, but I don't remember
>enough of it to say why any more.  Basically, however, I
>find two sets of reasons to say that we don't know how
>economics works: the _a_priori_ and the _a_posteriori_.

You really should read that book--or perhaps "Human Action" by von Mises.

>_A_priori_, economics, in spite of all the numbers 
>involved, depends on human psychology.  That what 
>determines value, and what brings labor, wealth, capital, 
>and so forth about.

This is what Mises called "the ultimate foundation of economic science"
The underlying mechanism for economies is the desire for each individual
to better his circumstances given immediate choices. The free market
rewards those who think long term, rather than short term. He considered
this quality _a_priori_, and not subject to refutation--I agree. Why else
would someone act except to try and better their situation, in their own
judgement? 

>But no one in her right mind would suggest that we
>understand human psychology in a predictive sense.  We don't
[deleted because of news server policy]

Mises doesn't attempt to discover motives, and so doesn't say he fully
understands all human psychology--just the final result--acting in order
to better one's situation. Mises vehemently stays away from trying to 
quantify tastes and values, and stays away from equations of almost any
sort.

>Probably, any economic system works if people believe in
>it.  Different things, at different times, charge them up or
>depress them.  In 1943, when Germany was under an insane
>tyranny and being bombed flat, their production rose.  In
>1992, in a world devoid of serious enemies and under a
>relatively free, business-oriented government, our
>production has been virtually level.  Yet insane tyrrany
>is not the key to success; the world has a number of them,
>and they are much worse off and show little improvement.

But you yourself make a prediciton--insane tyrrany is not the answer,
and based on history it will not work in the long run.
Often in economics, small aberrations occur, but there are fundamental laws
(Supply and Demand, Gresham's, Say's, diminishing returns, etc.) which hold
nonetheless.

>_A_posteriori_, we find that economists simply don't produce
>accurate predictions.  If you read the Wall Street Journal,
>you'll notice that every one of them with a reputation to
>protect hedges.  The fact is, if someone could accurately
>predict the economic fortunes of any region of the world,
>she could make herself a multi-billionaire in a few years.
[deleted]

I belive Skousen is rather well off, but I don't know any figures. The 
proponents of the Austrian School predicted the depression of the 30's,
when no one else was listening to them. Friedrich von Hayek predicted the
stagflation of the 70's some thirty year before it happened. The Austrians,
on the other hand, don't boast to be able to predict *when*, only *what*.

>After the fact, of course, economists can explain everything, 
>just like psychologists (see above).  But even the infamous 
>Karl Marx could do that.
>
>I suppose very, very broad predictions of economic matters
>are possible; for instance, I've recently predicted that the
>accumulation and diffusion of informational capital will
>bring about certain political changes, like the fading-out
>of large-scale corporate capitalism.  But I don't see any
>way of saying just how and when those changes will take
>place; human beings and their works are just too 
>unpredictable.

You almost sound like an Austrian. What will eventually bring about
the demise of large-scale corporate capitalism is the inflationary policies
of the world's central banks. With every business cycle it seems the 
corporations get hit harder and harder. There are other things at work 
(destructive union poilicies, large amounts of regulations, etc.), but
the inflation problem coupled with the national debt problem poses serious
threats to world prosperity. I wonder, if the U.S. goes under, will capitalism
get the blame? As history shows, of course it will--people already blame the
depression of the 30's on the capitalist system, a fully incorrect assertion.
Oh well.

>About the most you can say for economics is that it is an
>unfinished project, with very large areas still unexplored.
>To pretend otherwise is shamming.
> )*(    Gordon Fitch    )*(    gcf@panix.com    )*(


As far as I am concerned, the Austrian viewpoint is the most correct--it
just make the most sense, and I guarantee I am not shamming. There really
isn't that much to explore--it all boils down to capitalism works *best*
(not perfectly) for the largest amount of people, and government interference
into the market merely hurts production by pulling capital out of the market,
and directing production in less efficienct ways against the wishes of the
consumers. The two most destructive things about our system now are the
constant devaluing of the dollar by the Fed, and the huge debt, onto which
our benevolent government piles more every year. No economy can survive
that forever. Of course, I can't predict *when* things will get real
bad :) :| :(

Jim Hranicky (jfh@reef.cis.ufl.edu)





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