From: gcf@panix.com (Gordon Fitch)
Subject: Re: Who knows how economics works?
Summary: ...the Shadow knows.  Heh, heh, heh, heh....
Date: Fri, 6 Nov 1992 12:21:14 GMT
Organization: mydog in exile

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_.

_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.

But no one in her right mind would suggest that we
understand human psychology in a predictive sense.  We don't
know what individuals are going to do, and since they relate
to one another in very complex ways, we don't know what
aggregates of individuals are going to do.  For long
periods, random behavior seems to cancel itself out, and
then, just as economists start fingering their partial
differentials with growing pleasure, something blows up.

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.

_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.
A year ago last spring, George Bush's economists told him
that recovery was on the way, and he believed them, to the
obvious detriment of his political fortunes.
 
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.

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    )*(
( 1238 Blg. Grn. Sta.,  NY NY 10274 * 718.273.5556 )