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"Econometrics is a travesty! "

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Aristophanes Posted: Thu, Jul 19 2012 7:23 PM

Original site The opposite of austrian subjective value, but I don't know if he is an austrian.

For the first time since I switched from mathematical statistics to economics (around 1982), I saw an opportunity for scientific research on some really existing (albeit digital) economy. For let’s face it: Econometrics is a travesty! While its heavy reliance on statistics often confuses us into believing that it is a form of applied statistics, in reality it resembles computerised astrology: a form of hocus pocus that seeks to improve its image by incorporating proper science’s methods, displays and processes. Is this not too harsh a judgment on econometrics?

Hayek and scientism

Econometrics purports to test economic theories by statistical means. And yet what it ends up testing is whether some ‘reduced form’, an equation (or system of equations), that is consistent with one’s theory, is also consistent with the data. The problem of course is that the ‘reduced form’ under test can be shown to be consistent with an infinity of competing theories. Thus, econometrics can only pretend to discriminate between mutually contradictory theories. All it does is to discover empirical regularities lacking any causal meaning. To put it bluntly, it is impossible to avoid absurd conclusions such as “Christmas is explained by a prior increase in the demand for toys”. And when we do (avoid them), it is only by accident (or because of a good hunch), as opposed to scientific rigour.

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This is why I don't understand why many Mises.org people are so down on Hayek's social theories.  The more I read him, the more I think he is one of the greatest critics of scientism, which is one of the great banes on the mind of even the average person anymore. It creates diseased minds.

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This is why I don't understand why many Mises.org people are so down on Hayek's social theories.

Late in life, he hated scientism, but he loved socialism. Like Einstein.

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Late in life, he hated scientism, but he loved socialism.

Um...have you read The Fatal Conceit? (I'm assuming here that it was written and/or approved by Hayek himself)

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Jargon replied on Thu, Jul 19 2012 8:45 PM

Smiling Dave:

Late in life, he hated scientism, but he loved social democracy. Like Einstein.

FTFY

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Jargon, have you read The Fatal Conceit?

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Nielsio replied on Thu, Jul 19 2012 9:00 PM

Have you read The Constitution of Liberty?

 

Adam Smith, Ludwig von Mises, Friedrich Hayek, Ayn Rand, Milton Friedman & Capitalism?

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The Constitution of Liberty was published in 1960.  Law, Legislation and Liberty was published from 1973-1979, and is more libertarian than CoL.  Hayek also wrote The Denationalization of Money during this period.  Now skip forward to 1988 and Hayek publishes a full-blown anarchist work, The Fatal Conceit: The Errors of Socialism.  And we're supposed to believe that he was a socialist late in life?  Compared to deathbed Hayek, Rothbard was a socialist (fractional reserve banking as fraud, law that strictly enforces NAP).

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What a lunatic response to try and discredit Hayek's criticism of scientism (and all of the wonderful things it has brought us) on the grounds that he was basically an Austrian conservative...who cares?

The point of the OP is to point out how a real world company (Valve) is taking the next steps in advancing a quasi-Austrian framework, not just on empirical grounds with their company, but with an academic who can bring to the table all of the theoretical implications of what they are doing.

It is awesome. Although they are going to use subjective pricing as a virtual weapon against people who do not confrom to the community standards.

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Um...have you read The Fatal Conceit?

I admit that I haven't, but.....

1. I've seen this: http://mises.org/journals/jls/12_2/12_2_6.pdf. Basically it's Walter Block going on for 27 pages showing how Hayek's Road to Serfdom is chock full of socialism.

2. If Hayek did an about face when he later wrote The Fatal Conceit, more power to him. My reply to vive would then be that folks here don't like Hayek's Road to Serfdom stage of thinking.

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@ SD.  Sure, that's all correct.  My main point of contention was the "late in life" comment.  He was less than halfway through his life when he wrote The Road to Serfdom.

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Jargon replied on Thu, Jul 19 2012 9:15 PM

I admit that I haven't. Should I? I had heard of certain policy recommendations Hayek purportedly made that amounted to social democracy. I'm reading "Prices and Production and Other Works", just so you don't think I don't tolerate Hayek.

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My main point of contention was the "late in life" comment.

Glad we are all in agreement now.

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What a lunatic response to try and discredit Hayek's criticism of scientism...

I don't see anyone who did that here; certainly it was not my intention. I was responding to vive's q.

BTW, my impression of Yanis is that he is like an idol worshiper who has woken up to the fact that his idols [=econometrics] are but useless wood and stones, but has not yet found an alternative [=AE]. Will watch his career with interest.

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Jargon - Yeah, I really recommend The Fatal Conceit.  It's relatively short but really strikes at the core problems of the state and comes out completely against it.  I'd say it's my favourite work on free market anarchy.

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Wheylous replied on Thu, Jul 19 2012 9:46 PM

The point of the OP is to point out how a real world company (Valve) is taking the next steps in advancing a quasi-Austrian framework

The economist they hired is run-of-the-mill new Keynesian, from what I understand: The Global Minotaur: America, The True Origins of the Financial Crisis and the Future of the World Economy (Economic Controversies)

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Did you read what he said?  He may be a Coase or a Keynes...

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All that matters is Hayek the thinker's analytical framework and what can be drawn from it,conclusions which the orignators themselves may not have seen (this is a common thing in science,and would also be a very Hayekian way to look at things).  His personal politics and ideology at best should be tertiary concern.

I am becoming convinced that most of the critiques written by Rothbardian types on the Misesmain site are ideologically / politically driven.  

Furthermore, at the time Road to Serfodom was written for a very specific audience.  It's a book built to help bridgea  dialgoue.  It's not a book directed at libertarians (though it was a book that helped make libertarians, and was around before libertarianism was an actual movement).

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Also from this Horowitz article  http://austrianeconomists.typepad.com/weblog/2009/12/the-false-dichotomy-of-rothbardian-anarchism-and-hayekian-classical-liberalism.html :

 

 

2. There is a story about Hayek from the 1970s that may or may not be apocryphal, and I suspect some of our more senior commenters can verify this, that is relevant here. Supposedly when he was engaged in a conversation about anarchism with a bunch of young libertarian academics(presumably at Menlo Park) in the 1970s, Hayek said something like the following "Look, I'm an old man now and I came to my classical liberalism in a different era, so I can't accept where you all are now. But, if I were a young man today, I suspect I might well be this type of anarchist." 

 

And if you check the site a bit, you will find it is verified to a degree.

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Nielsio replied on Thu, Jul 19 2012 10:53 PM

Aristippus,

I think I mistook the two books of Hayek. I think I was supposed to say 'have you read L,L & L?'. Because I'm pretty sure that's where I got all that stuff from Hayek from, for in the video. He was 74 at that time.

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His personal politics and ideology at best should be tertiary concern.

Unless you ask what people didn't like about him.

For instance, say someone asks, "What's not to like about O. J. Simpson, he scored a lot of touchdowns?"

"He was a cold blooded murderer."

"That's only of tertiary concern, you politically driven ideologue."

I am becoming convinced that most of the critiques written by Rothbardian types on the Misesmain site are ideologically / politically driven.

If you mean they disagree with Hayek's politics and ideology, yes.

Furthermore, at the time Road to Serfodom was written for a very specific audience.  It's a book built to help bridgea  dialgoue.  It's not a book directed at libertarians (though it was a book that helped make libertarians, and was around before libertarianism was an actual movement).

White man speak with forked tongue.

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Unless you ask what people didn't like about him.

I never asked a question.  I said I didn't understand something,and I still don't.   And to clarify further, I don't know why people choose to make mountains out of molehills due to things that should be of tertiary concern.  Which is what all this anti-Hayek mentality is to me.   My not understanding wasn't supposed to be taken as a passive statement, but rather anassertion that it shouldn't be done.

I should have said "Rothbardians have no interesting ground on the Hayek critics that I've noticed on Mises.org" - which is the tone I  meant to convey. 

 

 

 

White man speak with forked tongue.

Rephrase:

Road to Serfodom was written for a specific audience.  It's a book built to help bridge a  dialogue.  It's not a book directed at libertarians, in fact it was written before there was any actual libertarian movement (though it was a book that helped convert people to libertarianism).

 

 

 

 

 

 

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Road to Serfodom was written for a specific audience.  It's a book built to help bridge a  dialogue.  It's not a book directed at libertarians, in fact it was written before there was any actual libertarian movement (though it was a book that helped convert people to libertarianism).

There are two possibilities here. Either he really believed all the socialism he wrote in R. to Serfdom, or he didn't.

If he did, he's a socialist right there.

If he didn't, but was lying in order to build bridges or whatever, white man speak with forked tongue.

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OK, I don't know what else to say, I'm done for now.

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Aristippus replied on Thu, Jul 19 2012 11:24 PM

I think I mistook the two books of Hayek. I think I was supposed to say 'have you read L,L & L?'. Because I'm pretty sure that's where I got all that stuff from Hayek from, for in the video. He was 74 at that time.

Well the point was that Hayek drifted further away from socialism as he got older: 1920 Hayek was a communist, 1940 Hayek was a minarchist with qualifications, 1960's Hayek was perhaps less socialistic, 1970's Hayek was less socialistic still, 1990 Hayek was a free market anarchist.  From his well-known quote from the 70's about the fact that he would be a market anarchist if he were younger, and also from his discussion of the cosmos in Law, Legislation and Liberty, it is clear that he was certainly leaning in that direction even then.

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Fact is, Hayek's observations on scientism are relevant and prescient.  His personal beliefs are of little concern to the evidence of what he spoke on.  What is quoted in the OP is an observation that an economist had about economics and it is also an observation Hayek made in the past.  It supports the whole "mises political agenda", Austrian Economics, as well as the general libertarian framework.

Can we get some posts about the Steam (Valve) digital economies?

 

 

 

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1. His initial studies show that there is no equilibrium price for things [due to changes in the makeup of the economy], but there is a tendency to equilibrium.

Note that this economy has no room for entrepeneurship, as all possible uses for everything are known. Thus there will be a tendency to equilibrium, according to AE, [until the next change in the makeup of the economy, which happens when the software company changes the software with updates and the like].

So his results are consistent so far with AE. Of course, mainstream economics is in agreement here as well.

2. An interesting thing emerges from the comments. Even though he thought he had all the data at his disposal, he didn't. Because there are "black market" transactions going on, where players trade their game items for real world money, something that doesn't get reported to the software company.

Just brings out Mises' point about how the world is too complex to know things just from gathering data, because you don't know what to look for without theory telling you what's important.

3. Also an interesting note to the bitcoin crowd. He spells out that money has to have intrinsic value to get started, and the commenters ask him well what about paper money? So that even a mainstream guy understands about Mises' Regression theorem.

 

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In his next post, he begins to understand more and more about how even with all the data at his disposal, he doesn't have all the data at his disposal.

In his own bumbling way, riddled with mistakes both of fact and logic, he eventually stumbles onto the realization that there are thinking acting human beings behind those numbers, that not all transactions are created equal, and that you cannot just put them into a number cruncher and expect to get meaningful information. Very enlightening post.

Just for giggles, here are the bloopers in three of the four points he makes:

1. He pops out the old chestnut that Menger had it all wrong, that central planners invented money as a way of keeping tabs of debt.

Luckily, our man Bob Murphy has shown how ridiculous such a notion is.

2. He discusses this scenario:  It is Thanksgiving. Mum has slaved over a hot stove all day to produce the turkey for everyone and, at the end of the day, it is expected that each ‘recipient’ of her ‘gift’ will help with the washing up. One family member declares that he will not be participating in the clean up and asks: “How much should I pay you to get out of my washing up duties?” The answer, most probably, is: “Get lost!”

This supposedly proves that it is perfectly possible to be utterly familiar with money, to use it all the time, but to refrain basing decisions on what to produce and for whom exclusively on monetary transactions.

So far, this is in accordance with AE, which says clearly that not all actions are for money alone. But he thinks this provodes support for his point 1, which of course it doesn't. Proving that some transactions do not involve money [washing up after Thanksgiving] when there is no money changing hands in the first place teaches us nothing about what is going on in transactions where money changes hands.

3. He defines pure and impure transactions:

What is a pure exchange? It is an impersonal market exchange where the relationship between the buyer and the seller is fully reducible to the objects exchanged (e.g. apples and oranges) and to the exchange ratio (e.g. two apples for one orange). Moreover, it is a relationship that expires the moment the transaction is completed.

He then makes the incredible blunder of saying that working for a salary is an impure transaction, by definition:

Take for instance the employment contract through which employees ‘sell’ their labour to employers. By definition, this is an impure transaction. Think about it: the employee cannot simply ‘leave’ after selling her ‘asset’ (i.e. her labour) to the employer. She must stay on the premises while her labour is ‘diffused’ through the company’s network.

Think about it. The employee certainly can 'leave' after selling her asset (i.e. her labour). Because she has not "sold" her asset until she actually sits down and does the amount of work agreed to. Just as when I contract to sell a washing machine to be delivered two weeks from now, say, the transaction is not completed until the buyer actually gets his washing machine.

Has the Valve company hired the wrong man for the job?

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SD, I have thoughts on some of that, but am going to a wedding today.  I'll post tomorrow or Sunday.

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