The Junk Science of Modern Macro-Economics

John Mauldin has published another almost-there Thoughts from the Frontline: GDP: A Brief But Affectionate History.  I say “almost-there,” because like many of Mauldin’s pieces, he gets almost-there – almost to the truth about economics and economists – without going all the way to the evident conclusion.

In this piece, he questions the cornerstone macro-economic statistic, GDP; to set the stage, he first offers a definition of “pure science” by Gauri Shankar Shrestha:

“Measurement theory shows that strong assumptions are required for certain statistics to provide meaningful information about reality.  Measurement theory encourages people to think about the meaning of their data.  It encourages critical assessment of the assumptions behind the analysis.

“In ‘pure’ science, we can form a better, more coherent, and objective picture of the world, based on the information measurement provides.  The information allows us to create models of (parts of) the world and formulate laws and theorems.  We must then determine (again) by measuring whether these models, hypotheses, theorems, and laws are a valid representation of the world.”

Mauldin then goes on to apply this observation to macro-economics:

The problem we have today in economics is that many people, and not a few economists, seem to regard economics as “pure science,” as described above by Gauri Shankar Shrestha.  If you delve deep into measurement theory, you find that all too often the way in which you measure something determines the results obtained from your experimental model.

…if you’re using models, as we do in economics, to determine policies that govern nations, your efforts can result in economic misdirection that seems for a time to work but that all too often can lead to a disastrous Endgame.

Mauldin casually offers the reason for macro-economics as it has developed over the last 75 years or so – “to determine policies that govern nations,” as if this is a natural condition.  It is central planning.

He goes on to explain the fallacies behind the targets that are utilized in this all-encompassing method of central planning:

…GDP is a relatively late-to-the-party statistic, thoroughly malleable in its construction and often quite contentious in its application.

“Thoroughly malleable,” and I will add, thoroughly meaningless.

Mauldin points out the direct issue at hand – the issue with GDP in this instance, and, in my opinion, with all measures of macro-economic activity:

What we are going to find is that developing the concept of gross domestic product was more than a dry economic and accounting undertaking.  At its very core, GDP is John Keynes versus Friedrich Hayek writ large…. The very act of measuring GDP as we do gives the high and easy intellectual ground to those of the Keynesian persuasion.

It is Keynesianism versus Austrianism; it is central economic planning versus free markets, subjective value, and imperfect knowledge; it is automatons versus human action.  Unfortunately even here, Mauldin doesn’t get it quite right:

Sheldon Richman Comments on Proportionality

His commentary is worth a read for those interested in this topic.  To summarize:

For reasons too obvious to need elaboration, a system of justice aimed at restitution makes eminently good sense, especially from a libertarian perspective. Someone is wronged, so the perpetrator should, to the extent possible, make things right.

…the principle of restitution undercuts the case for punishment, correction, and deterrence as direct objectives of the justice system. The point isn’t to make perpetrators suffer or to reform them or to make potential perpetrators think twice. What good are those to the present victim? Correction, deterrence, and even some suffering (say, shame and embarrassment) may be natural byproducts of a system of restitution, but they are not proper objectives, for where could a right to do more than require restitution come from?

He concludes that restitution is as far as the NAP allows; one of my concerns with this view is that it offers basically a free-ride to the offender – if the offender is caught, all he loses is the property he never would have otherwise had in the first place (setting aside aggressions against the physical body, which opens up a different set of issues).  Heads, I win; tails, I don’t lose.

Richman, however, deals with my concern by leaving room for dealing with repeat offenders:

…a perpetrator who presents a continuing and persistent threat to others might legitimately be confined for reasons of community self-defense, not for punishment, reform, or deterrence.

In my previous post on this topic, I offered definitions to some of these terms and others – terms that describe more than restitution when considering the proper response to violations of the NAP.  While rejecting these alternative ends, Richman offers a situation where something more than restitution is acceptable: when faced with a repeat offender, locking him up is acceptable when done for the purpose of self-defense.

It seems to me that this still leaves the interpretation and application to the standards agreed upon within a given community.  A “continuing and persistent threat” is a subjective criterion that must be put into objective form – a jail cell is completely objective, after all.

The objective form given to this subjective criterion must be one acceptable to the community, else it will not last. So, while I thank Richman for helping to sharpen my vision a bit on this topic, in the end I am at the same place where I have been almost from the beginning of this journey – ultimately the response to a violation of the NAP must be acceptable to the larger community, else the community will not thrive and may not survive.

The Not-Just War Theory

My recent post on the history of American wars, and my conclusion that no major American war can be considered “just” (with my placeholder for the south in 1861), that all Americans who died in these wars died for lies or died as the aggressors, got me to thinking – so, just when is a war…just?  Well, as you know, this ground has been ploughed:

Just War Theory: The purpose of the doctrine is to ensure war is morally justifiable through a series of criteria, all of which must be met for a war to be considered just. The criteria are split into two groups: ‘the right to go to war’ (jus ad bellum) and ‘right conduct in war’ (jus in bello). The first concerns the morality of going to war and the second with moral conduct within war.

Philosophers and theologians infinitely more capable than I am have attempted to answer such questions.  I will leave these questions to men such as Augustine and Aquinas, or to ancient Indian epics like the Mahabharata.

Perhaps easier to answer: when is a war not just? 

Fair warning – I am not going to get deeply philosophical with this (even if I wanted to do so, I am not very well qualified).  I am just throwing this out for some thought / consideration, and to help me work on my thinking on this topic.

I will suggest three criteria: if any one of these is violated, a war cannot be just.  To be clear, I do not suggest that if a war meets these criteria it is, therefore, just (application of the non-aggression principle must also be considered).  Instead, I suggest that if a war violates any one of the following, it cannot be just:

First, the financing of the war must be voluntary; second, those doing the fighting must do so voluntarily; finally, the justification for entering war must be based on truth. 

Why these three?  I will start with the first two – the voluntary nature of funding and joining. 

It seems to me that if a cause is just, enough volunteers will be found.  If enough don’t volunteer (in time and money), then it would seem the fight is not justifiable in the eyes of those asked to do the fighting and funding.

I don’t just consider “just” only in regard to the enemy, the other.  It isn’t merely a question of “just” in regards to my killing him.  What of the one forced to do the fighting and funding?  Is it “just” that someone is forced to fight when he does not want to do so?  Forced to fund the fight when he does not see the value in the cause?  Can a war, built on a foundation of forced participation, be considered “just” in the eyes of those forced to support it?  Is there justice to be found behind the threat “or else”?

It seems not.  Where the initiation of aggression begins, justice begins to end.  Aggression in the form of forcing others to do the fighting and funding eliminates the possibility of a “just” war, it seems to me.

Now, what of my third item – the justification must be based on the truth?  When asked to take the most solemn action – the cause of death over an enemy – can justice be found if the foundation for the action is built on lies?

That’s it – pretty superficial, but I am trying to work through these points.  The best way to start is to put something in writing.

From Decadence to Dawn

A lesson from our past; a possibility for our future…

I am reading for a second time the book by Jacques Barzun, “From Dawn to Decadence: 1500 to the Present, 500 years of Western Cultural Life.”  I am scarcely qualified to describe the depth and breadth of this volume – some background of the book and author will have to suffice:

Highly regarded here and abroad for some thirty works of cultural history and criticism, master historian Jacques Barzun has now set down in one continuous narrative the sum of his discoveries and conclusions about the whole of Western culture since 1500.

This book does not represent a passing fancy, but a summary of a lifetime’s work; Barzun was over 90 years old when it was published in 2000. 

Over seven decades, Barzun wrote and edited more than forty books touching on an unusually broad range of subjects, including science and medicine, psychiatry from Robert Burton through William James to modern methods, and art, and classical music; he was one of the all-time authorities on Hector Berlioz.

At 84 years of age, he began writing his swan song, to which he devoted the better part of the 1990s. The resulting book of more than 800 pages, From Dawn to Decadence: 500 Years of Western Cultural Life, 1500 to the Present, reveals a vast erudition and brilliance undimmed by advanced age. Historians, literary critics, and popular reviewers all lauded From Dawn to Decadence as a sweeping and powerful survey of modern Western history…

I can only add: almost every sentence in the book bears witness to the depth of one who has studied a subject for seventy years. 

As mentioned, I am reading the book now for the second time – the first time being several years ago.  I feel much better prepared to at least somewhat understand minor portions of the topics about which Barzun writes.  I will likely write a few posts based on the book, and otherwise use some cites from the book here and there in my writing.

But first, I – like Barzun – will take a detour.  Despite the title and time range Barzun offers (he begins his story with Martin Luther), he devotes a few pages of the book to the Middle Ages, a period of history upon which I have written a good deal.  He indicates that history is not as neatly divided or defined as the labels we place upon times and places – Europe did not turn a distinct chapter at the moment Luther tacked his complaints on the church door.  Additionally, he offers that the popular perception of the Middle Ages is faulty; much of what is attributed to the modern age has its roots in this so-called dark period.

Certainly you have noticed that the title of this post has it backwards – this is not the title of Barzun’s master work, you shout.  You are correct.  And with the background work out of the way, I will get to the point. 

A Return to Proportionality

I return to this subject, initially addressed in my post here, and prompted by a post by Robert Wenzel and EPJ.  I have had reason to think more about this subject, and thought it best to try to organize (and therefore test) my thoughts on digital paper.

I have been thinking about this on and off in the few weeks since the original post, but more recently due to further dialogue with “Autolykos” in the comments.  There were also other comments in that thread that are deserving of exploration.

As background: in Wenzel’s original post, he cites Rothbard from “The Ethics of Liberty”:

The victim, then, has the right to exact punishment up to the proportional amount as determined by the extent of the crime...The proportionate level of punishment sets the right of the victim, the permissible upper bound of punishment...

Wenzel replies:

But, even if we go along with the idea that proportionality should be the remedy, and I am far from sure we should, I ask, who is to determine this so-called proportionality? One thing that Austrian school economics teaches us is that all valuation is subjective.

Wenzel suggests that Macy’s can execute a shoplifter if it so chooses.  

Now, to dive further in….

Rothbard, in the above, introduces “punishment.”  In the comments, Brett Middleton (June 5, 2014 at 10:14 AM) writes:

The problem I'm having is with the whole idea of "punishment" or "retribution" to begin with, since this seems to go beyond the idea of restitution for harm done. Restitution must be proportional to the damage by definition, and the only argument needed to preserve proportionality is on how to properly value that damage. Is a libertarian really entitled to more than being made whole? Is it possible to set a value on punishment to include it in the restitution due? Me, I'd rather have the stolen property or its value back (along with a bit for time and effort dealing with the theft), since punishment doesn't put any merchandise back on the shelf.

In response to one of my comments, Autolykos (June 19, 2014 at 9:35 AM) adds:

My concern is justice, not deterrence.

Rothbard, at least in the cited section, specifically wrote of “punishment.”  However, Brett Middleton and Autolykos introduce several other possible purposes / reactions to the original crime.  Let’s look at definitions of these several terms, and in each case some further terms that must be defined.  In each case, I selected what I felt to be the definition(s) that best fit the topic at hand:

Punishment: a penalty inflicted for an offense, fault, etc.

Penalty: a punishment imposed or incurred for a violation of law or rule; a loss, forfeiture, suffering, or the like, to which one subjects oneself by nonfulfillment of some obligation; something that is forfeited, as a sum of money.

Retribution: requital according to merits or deserts, especially for evil.

Requital: a retaliation for a wrong, injury, etc.; something given or done as repayment, reward, punishment, etc., in return.

               Retaliation: return of like for like; reprisal.

Reprisal: (in warfare) retaliation against an enemy, for injuries received, by the infliction of equal or greater injuries; the action or practice of using force, short of war, against another nation, to secure redress of a grievance

Restitution: reparation made by giving an equivalent or compensation for loss, damage, or injury caused; indemnification; the restoration of property or rights previously taken away, conveyed, or surrendered; restoration to the former or original state or position.

Reparation: the making of amends for wrong or injury done: reparation for an injustice; Usually, reparations.  Compensation in money, material, labor, etc., payable by a defeated country to another country or to an individual for loss suffered during or as a result of war; restoration to good condition.

Indemnification: the act of indemnifying

               Indemnify: to compensate for damage or loss sustained, expense incurred, etc.

Restoration: a return of something to a former, original, normal, or unimpaired condition.

Justice: the administering of deserved punishment or reward.

Deserved: justly or rightly earned; merited

Deterrence: the act of deterring

               Deter: to discourage or restrain from acting or proceeding

I think I have captured them all.  Take a look again at the list; these all came up in a few comments in an obscure blog (mine).  As response to an aggression, several possibilities have been presented: punishment, retribution, restitution, justice, deterrence.  I further defined these with an additional ten terms.

Water, Water Everywhere…

Have you ever seen a picture of the earth from space?  It’s pretty blue – a lot of liquid.  That stuff is called “water.”  Something God made sure there would be plenty of – perhaps more abundant than any other resource on the planet, except, maybe, air.

Well, you wouldn’t know it if you lived in the western United States, facing a panic due to a catastrophic drought.  Yes, catastrophic.  (Go back to that satellite image of the earth….)  

Guess who is in charge of water on that little blue ball?

Las Vegas may be toast – for those who have never been there, it is in the middle of an inhospitable desert, so 8 months of the year it really is toast.  But now it is serious:

“The situation is as bad as you can imagine,” said Tim Barnett, a climate scientist at the Scripps Institution of Oceanography. “It’s just going to be screwed. And relatively quickly. Unless it can find a way to get more water from somewhere Las Vegas is out of business. Yet they’re still building, which is stupid.”

Perhaps someone will suggest a market price for water.

Las Vegas gets its water from Lake Mead:

It is located 25 miles outside the city and supplies 90 per cent of its water. But over the last decade, as Las Vegas’s population has grown by 400,000 to two million, Lake Mead has slowly been drained of four trillion gallons of water and is now well under half full. Mr Barnett predicts it may be a “dead pool” that provides no water by about 2036.

A 25% population increase over ten years – a calamity; why, that’s about 2% per year compounded growth.  Overwhelming.  No wonder the lake is running dry – who could ever meet an increased demand for their product, at a catastrophic growth rate of 2%?

Perhaps someone can suggest a market price for water?

Nope, a government boondoggle instead – a giant straw in the lake:

That rescue project is costing $817 million and is currently expected to be complete by late 2015, but it is not viewed as a long-term solution.

Eight hundred million isn’t a long term solution – maybe it will buy another year or two.  Have I mentioned that someone might consider a market price for water?

Las Vegas also wants to build a separate $15.5 billion pipeline that would pump 27 billion gallons of groundwater a year from an aquifer 260 miles away in rural Nevada.

Fifteen billion dollars, I guess instead of a market price for water.

“The drought is like a slow spreading cancer across the desert. It’s not like a tornado or a tsunami, bang. The effects are playing out over decades. And as the water situation becomes more dire we are going to start having to talk about the removal of people (from Las Vegas).”

Removing people (by force?), instead of a market price for water?

Most of that water is used to sprinkle golf courses, parks and lawns so the water authority has declared war on grass, paying homeowners to remove it from their gardens at the rate of $1.50 per square foot.

Paying to remove grass, instead of a market price for water.

One proposal is for landlocked Nevada to pay billions of dollars to build solar-powered desalination plants in the Pacific off Mexico, taking Mexico’s share of Colorado River water in exchange.

Billions of dollars, instead of a market price for water.

You think Nevada is nutty?  Get a load of California:

California is dealing with its own three-year drought, possibly its worst in half a millennium, which Governor Jerry Brown has described as “epochal”.

A three-year drought is “epochal.”  I guess Jerry hasn’t read the Old Testament.  Three years….

Go look at that picture of the earth again; see all the water?  That’s what God gave us.  Seventy-five percent or so of the earth’s surface is covered in it, yet there isn’t enough to sustain a 2% annual growth rate of people in Nevada.

Perhaps someone might suggest a market price for water.

First Ever! bionic mosquito Interview

No, I didn’t interview myself.

Recently I was interviewed by the “Political Badger.”  For those interested, the Q&A can be found here.