From Smiling Dave:
I've quoted Mises as saying that economics should teach a person two things: Predict the future, and what to do about it.
Menger on economics:
to reduce the complex phenomena of human economic activity to the simplest elements that can still be subjected to accurate observation, to apply to these elements the measure corresponding to their nature, and constantly adhering to this measure, to investigate the manner in which more complex phenomena evolve from their elements according to definite principles.
The goal of scholarly research is not only the cognition, but also the understanding of phenomena. We have gained cognition of a phenomenon when we have attained a mental image of it. We understand it when we have recognized the reason for its existence and for its characteristic quality (the reason for its being and for its being like it is)
Furthermore Jaffe on "Megerian Man":
Man, as Menger saw him, far from being a lightning calculator, is a bumbling, erring, ill-informed creature, plagued with uncertainty, forever hovering between alluring hopes and haunting fears, and congenitally incapable of making finely cali- brated decisions in pursuit of satisfactions. Hence Mengers scales of the declining importance of satisfactions are represented by discrete integers. In Mengers scheme of thought, positive first derivates and negative second derivates of utility with respect to quality had no place; nothing is differentiable.
If this is a major view of Mises, I would count it as a strike against him vs Austrian Economics and into a more "Walrasian" / traditional marginalist nature. To predic the future and tell peoplewhat to do about it seems insane.
"As in a kaleidoscope, the constellation of forces operating in the system as a whole is ever changing." - Ludwig Lachmann
"When A Man Dies A World Goes Out of Existence" - GLS Shackle
Dave,
It was perfectly clear that Mises was saying there is very little (not nothing) that economics can actually contribute to those running a business. He showed over and over that ideological and social issues have economics at their heart. That is the real application of economics, that is what Mises spends the vast majority of Human Action talking about. Originary interest, the consumer's democracy, the importance of capital goods, economic methodology, and the effects of socialism are next to useless for an entrepreneur while everything written in Human Action is absolutely essential to the intellectual who is attempting to discover the true nature of capitalism, socialism, and interventionism. That's 100 percent of the book that's useful for the politically inclined individual, and something like 20 to 30 that is not entirely useless to the business person.
Mises was interested in ideas and how they impacted the political realm much more than he was interested in the inner workings of businesses and how to help them. This is obvious from how he outlined the role of economics in society, which was primarily to help "society choose" its system. It's clear from the quote I gave above, which was almost all (maybe all I forget) of the section of how economics relates to business that the business person is generally alone, and ABCT is clearly one of the most applicable areas of economic theory to running a business in the real world.
However, you're free to interpret Mises however you'd like to in the face of direct contradiction.
When I called Mises' system "ideology" I was going for this definition:
"a system of ideas and ideals, especially one which forms the basis of economic or political theory and policy"
Mises' system is a collection of very specific ideas and methods that represent how one should approach political economy, and it has to do specifically with political ideologies and belief systems.
>Economics has become more decentralized as a science.
No offense, but it sounds like behavioral economics is more of an art. I'm guessing there are no fixed relations, apodictic theorems, or universal constants in behavioral economics. Facts would vary with the period in time and geographical region, for example.
>whole thesis here is that one will be much more accurate if one brings in informations from other sources, especially behavioral econ.
Yes, I think you should incorporate many methods. Another example of the value of combining forecasts: "Polly always predicted Obama to win since her first forecast on January 1st of 2011, more than 22 months prior to Election Day. In comparison, other methods such as polls or prediction markets at times predicted the Republican candidate to win. This is similar to 2004 and 2008, when Polly never strayed from Bush (8 months prior to Election Day) or Obama (14 months) - The task of predicting U.S. presidential elections is ideal for demonstrating the usefulness of combining forecasts" - http://pollyvote.com/
A thymological analysis of Bernanke the Genius would be good too.
And there's always the insight of experienced day traders to take into account: "Typically, a small improvement in a trading algorithm gives you an advantage for a day -- maybe less" - http://adtmag.com/Articles/2011/07/29/Why-HFT-Programmers-Earn-Top-Salaries.aspx?Page=2
One thing I wonder, is if the predictions of AE are bound to come true over long time periods. If non-"ceteris paribus" errors occur and accumulate randomly, then the total error in AE's predictions would grow as the square root of the number of such errors; i.e. AE's predictions will become continually worse. On the other hand, the economy is continually approaching the equillibrium of a constantly rotating economy. Perhaps it's a case of "reversion to the mean" where the total error will be near zero out in the long run.
"No offense, but it sounds like behavioral economics is more of an art. I'm guessing there are no fixed relations, apodictic theorems, or universal constants in behavioral economics. Facts would vary with the period in time and geographical region, for example."
There's a lot of truth to this, although you can't justify calling behavioral economics an artform. Behavioral economics is about applying psychology to economics. This means that some of its discoveries will be more "permanent" and universal than others. This does not make it an artform, just a branch of study with highly dynamic variables... A human science.
I'm highly skeptical of psychology, and this is why there are definite limits on the scope and possibilities for behavioral economics.
"One thing I wonder, is if the predictions of AE are bound to come true over long time periods. If non-"ceteris paribus" errors occur and accumulate randomly, then the total error in AE's predictions would grow as the square root of the number of such errors; i.e. AE's predictions will become continually worse. On the other hand, the economy is continually approaching the equilibrium of a constantly rotating economy. Perhaps it's a case of "reversion to the mean" where the total error will be near zero out in the long run."
I think it depends entirely upon the time period and in what way you're talking about. Some relationships will be more volatile and more prone to "non-ceteris-paribusness" than others would be. It should also be pointed out that praxeological predictions tend to be extremely general, part of what protects them on this front, but it actually also means that some predictions in the real world are impossible. Country A has a lower time preference than country B, but you cannot say that country B is going to have a higher rate of growth than country B since there are always other factors involved. Praxeology will help you get there, but ultimately it may well be guesswork.
OK,
after skimming the wikipedia article and reading skimming a couple Boettke articles that were favorable towards behavioral economics (just do a search for behavioral econ on the coordination problem blog, they'll show up - they looked interesting) here's my thoughts now that I am an expert in behavioral econ:
1) Yes, I can see why someone would be drawn to behavioral econ for it's "irrationalism" and / or different view than a classical/neoclassical homo economius
2) At first I thought it was linked with behaviorism - which would probably not be compatible with AE
3) I still don't think psych should be in econ - it may be a type of "bridge" subject to show how social sciences function different than natural sciences, at least in certain regards. I am always half - tempted to argue that psychology is purely therapeutic if it is to make sense, if that were the case that alone should disqualify it as a social science - but we'll leave that be for now.
4) the main concern on the anti-psychologism:
I don't think it is accurate to accuse one of being overly methodologically rationalistic, particularly when expectations and a certain attitude towards time are considerd, to say that we are still in a "logic of action" / a "logic of success" in an Austrian model: the logic which we think is the logic with which one acts. What then remains, is the course of action.
In other words, it is not the psychological conditions or causes but the logical consequences which are the basis for an analytical social science.
Vive,
I agree that behavioral economics cannot be the "base" for economic research. Attempting to make psychology the center of economic inquiry would be foolish, although I think that this is something we can look forward to in the future. Rather I think that if properly utilized behavioral economics can magnify our actual knowledge and predictive power. It is not a replacement to praxeology, but something to be used in conjunction with it.
Nice try, but nothing you quoted contradicts anything I wrote.
And it's either meaningless due to vagueness, or else just false, to say "Mises was interested in ideas and how they impacted the political realm." He was interested in how the theories of quantum mechanics will influence the 1948 presidential election?
You have everything backwards. Even if there was no political movement called socialism, Mises would be interested in it as an economic system, meaning a possible way of running an economy. It has nothing to do with politics, and everything to with economics. His interest in politics was a subset of his interest in economics per se, not the other way around. You notice he didn't write about political issues that were not rooted in economics. But he did write about economic topics that have nothing to do with politics.
In any case, let's not conflate "what Mises was interested in" with "economics".
If that's what you meant by ideology, you are way off base thinking AE is an ideology. Would you say geometry is an ideology? That chemistry is an ideology? They have ideas and methods, right? A science [meaning a body of knowledge] is not an ideology. Economics is a science.
and it has to do specifically with political ideologies and belief systems.
So totally wrong. It has to do with economics. I am guessing you haven't read Theory and History, which should set you right about these matters.
But I tire of this discussion. Think what you like, that's fine.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
When I say "political" I mean relating to social issues and how society should be organized as well as governed. This includes direct economic organization. There's a reason why Mises starts ranting about liberalism and anarchism out of the blue earlier within the book, it's because he sees them incredibly relevant to the matter of securing the economic system, which they are. Mises argues against economics for high-brow theorizing and specifically for what is useful: understanding how economics affects society. I can understand if this could be misinterpreted as talking about "elections" per se. Nonetheless this one's obvious misunderstanding:
"He was interested in how the theories of quantum mechanics will influence the 1948 presidential election?"
If I just threw in the word "economic" into the passage you quoted then I assume you'd be satisfied and be that much closer to actually understanding someone else's position.
"Nice try, but nothing you quoted contradicts anything I wrote."
Correct. It doesn't because you have awful reading comprehension and you'll interpret most anything in the way you want to. You're a fascist reading the Communist Manifesto and thinking that Marx agreed with him. What I've been saying here is the simple interpretation of what Mises wrote. You are aware of where those quotes came from, right? They came from the section "The Role of Economics in Society". The single instance where Mises mentions business he shows how economics isn't that useful to them and could even be misleading. This is the ONLY explicit time in the entire book Mises fully deals with the connection between business and economics (although he does mention it in passing elsewhere). In the same section he keeps talking about politics, society, and the economy as a whole and the importance of economics to these areas. There were several more quotes I could have pulled, just short of quoting the entire damn section. This is where Mises explains "The Role of Economics in Society", and he applies it almost soley to the matters of society re
"You have everything backwards. Even if there was no political movement called socialism, Mises would be interested in it as an economic system, meaning a possible way of running an economy. It has nothing to do with politics, and everything to with economics. His interest in politics was a subset of his interest in economics per se, not the other way around. You notice he didn't write about political issues that were not rooted in economics. But he did write about economic topics that have nothing to do with politics."
There's a reason that Mises wrote a book on socialism and devoted decently large sections of all his other books, (besides his first) to the matter of socialism; it's because he saw it as the largest threat to society. Meannwhile Syndicalism got merely a section of HA and a few mentions in socialism, it is because it is much less of a threat. At any rate, the fact that Mises... And you... talk against abstract theorizing and Mises wrote again and again about social and economic affairs IN HIS SECTION OF HOW ECONOMICS ACTUALLY APPLIES TO SOCIETY AND IS USEFUL. This is how economists help their fellow men and why economics is worthwhile.
If I am right about why Mises wrote about economics then this certainly applies... Particularly the part about economics
"I am guessing you haven't read Theory and History, which should set you right about these matters."
I read T&H twice. You won't be able to find where it contradicts me because it doesn't. Mises says very specifically that economics is value free, but he says that in all his work. Yet he takes up a huge portion of Human Action arguing against doctrine after preexisting doctrine, that is almost always political with political ramifications, and explaining why it is fallacious. If Mises wasn't interesting in how things applied to society and how should organized HA would have looked hella different, and Mises wouldn't have kept talking about the importance of economics in political affairs when he talked about how economics applies itself to society.
1. Here's a little quote from Roger Garrison in Time and Money about usefulness of economic knowledge to businessmen.
Oddly enough, he gives the exact example I did.
All [=stuff like this] is mine. Also, emphases are mine.
Undoubtedly, the extent to which policy-makers and market participants make use of both kinds of knowledge [=business knowledge and knowledge of economic theory]
is dependent on the institutional setting and the policy regime. A change in the direction of increased policy activism on the part of the central bank, for instance, will increase the benefits to entrepreneurs and other market participants of their under- standing the short- and long-run relationships linking money growth to interest rates, prices, and wages.
Stated negatively, entrepreneurs who experience a sequence of episodes in which the central bank is implementing stabilization policy or attempting to “grow the economy” may face a high cost of not understanding how money-supply decisions affect the market process.
Thank you, Mr Garrison.
2. Neo, I won't enjoy replying to you if you keep up that tone.
So don't consider my silence an admission of anything.
You are still wrong, and I stand by what I wrote earlier.
I hope the reader will have no problem seeing where you err.
"2. Neo, I won't enjoy replying to you if you keep up that tone.
You are still wrong, and I stand by what I wrote earlier."
I really don't care about what you have to say Dave. Your ability to misread very straightforward pieces of information already makes for a bad understanding of actual economic relationships, so dogmatism and a misunderstanding of the purpose of economics itself, as well as a straw-manning of the economist whose words you hold so dear are traits which I am not at all surprised to see from you.
As for the quote you included, it doesn't contradict what I've been saying which is not that economics is useless to businesspeople, merely that it is not very useful and that there are many more useful skills to have. Mises agreed with this notion and he said so. For whatever reason you are just too dim to acknowledge this. As someone who adheres to a school of economic thought that is heavily against over-aggregation and homogenizing economic data it should be clear that a knowledge of specific investment is a lot more valuable than knowledge of what the economy as a whole is doing, and furthermore a knowledge of how two different variable shifts will play out, how intense or which one will rule one another out is an infinetely more useful skill for the entrepreneur than merely a wide view of economics. Economics aids him, but it's only the beginning of the battle, and in many cases it is wholly irrelevant to him because he is dealing with his own industry, not the economy as the whole or the sum of all markets and firm that relate to his own firm.
Meanwhile the matter of society and its organization relies massively on economics. If you're actually interested in knowing what Mises had to say about the place of economics within society I would start with the "Crisis of Interventionism" onwards into "The Place of Economics in Society". It's not long, only about 30 pages. I'll give you a little spoiler alert though, by my count there's 15 sections that deal with the matter of how economics applies to society and political systems, while only 1 even mentions the importance of economics in business, and even then he says directly that economics doesn't alleviate the fundamental function of the entrepreneur. In the section "Economics and the Citizen", what does Mises say?
There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a self-appointed elite of supermen. In such vital matters blind reliance upon “experts” and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of selfdetermination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny is at stake. Very few are capable of contributing any consequential idea to the body of economic thought. But all reasonable men are called upon to familiarize themselves with the teachings of economics. This is, in our age, the primary civic duty
He doesn't say anything about how the common man needs to know economics for knowledge of his own wages and investments, no, he says that it is the citizens primary civic duty to understand economics. That is where the primary use of economics is. Not with businesses. What is primarily at stake for the common citizen, what he sacrifices when he does not understand economics, is not his personal economic wellbeing in the market economy, but rather he submits his rights to a group of political elite.
If this is not convincing to you then you are a fool.
Neodoxy: He doesn't say anything about how the common man needs to know economics for knowledge of his own wages and investments, no, he says that it is the citizens primary civic duty to understand economics. That is where the primary use of economics is. Not with businesses. What is primarily at stake for the common citizen, what he sacrifices when he does not understand economics, is not his personal economic wellbeing in the market economy, but rather he submits his rights to a group of political elite. If this is not convincing to you then you are a fool.
This section reminded me that everyone on this forum is a nerd.
^
Et pourquoi est-ce?
On a note that diverges from the present line of discussion but which is more true to the original purpose of the thread and hits on some areas that have been previously discussed.
Yesterday in my managerial econ course we talked about why economic predictions tend to be so volatile. In particular my professor mentioned Nate Silver's book, although I was also happy to note that he mentioned a work that you recommended to me Vive, "Black Swan", although most of the information that he cited was drawn from the former work. In particular he argued that the inaccuracy of economic forecasting was because of
1. Inaccurate data
2. Constant changes in economic variables and conditions
3. Determining cause and effect based off of economic data is extremely difficult
All in all I thought that these were generally fair reasons. Number 2 in particular is especially Austrian in its understanding of the economy. While 1 goes under the assumption that there are quantitative laws of economics, no one denies that the extent of certain variables is important. For instance he cited the fact that it is now evidence that in the early days of calculating American GDP that its growth was off by an average of slightly more than 1 percent per year. Similarly initial data is often highly flawed because of the speed at which it is collected, a result of the level of "demand" for these statistics.
Third point isn't how I would phrase the issue, but it's certainly a prevalent problem. What is going on and what is actually causing what? What is the impetus for a change that we are currently seeing? This is, of course, the primary problem with praxeological prediction. If you always knew what the true impetus of an economic condition was then you would have an infinitely easier time predicting future outcomes. Nonetheless, I do not think it's fair to say that mainstream econ is unconcerned with making predictions. I think that mainstream econ is very concerned with making predictions, but it lacks a true understanding of the epistemological problems in making these predictions, regardless of what their theories actually state.
Regardless of how Mises felt about praxeologies' ability to make predictions, I don't think that anyone more thoroughly appreciated the chaos inherent in human society that make extensive future predictions very practical.
Baxter,
I also thought you would be happy to know that my professor actually mentioned the fact that a large number of different methods of forecasting tend to be correct over singular methods, although I thought the explanation have gave for this was a weak one.
Reread what you wrote, and then contrast it with most forums throughout the internet.
Is this what you're getting at:
"He doesn't say anything about how the common man needs to know economics for knowledge of his own wages and investments, no, he says that it is the citizens primary civic duty to understand economics. That is where the primary use of economics is. Not with businesses. What is primarily at stake for the common citizen, what he sacrifices when he does not understand economics, is not his personal economic wellbeing in the market economy, but rather he submits his rights to a group of political elite.
If this is not convincing to you then you are a fool."
vs.
?
OH I see what you've been trying to say now - that makes sense in a way...or at least I understand why one would entertain the thought of behvaioral econ and think it may yield good results
oh wow, this would have been a fun class, cool he mentioned "Black Swan"