Why Academic Economists Hate the Gold Standard

[DA_Champion]

Faramir,

You can't say Austrians are proven to be right, and argue for the rejection for measurements. If you say measurements have no value, then Austrians can't be proven right, nobody can. Measurements are extremely valuable in the real world, for several reasons.

First, human beings are not as smart as they think they are. You may think you have a perfect theory, you may have conned other people into believing you, but you're still probably wrong. Almost all theories are wrong, that is true even in very sample areas. You need proof.

Second, just because something is rational does not mean it's true. I can create tons of rational universes on my computers, that obey rational rules, and have none of them model reality well. We don't just need to explain a rational world, we need to explain THIS rational world.

[DA_Champion]

It depends on the economist. Keep in mind that the Austrians are fundamentalists.

Also keep in mind the distinction that anyone trained in economics make between positive and normative questions, which - given how you've framed this - you don't appear to be. Somewhere between 70% and 90% of economists will agree on all but the most technical of positive questions. If you want to be a heretic and work for the Canadian Centre for Policy Alternatives then you go against mainstream economic thinking and convince yourself that higher minimum wages actually increase employment.

Consensus opinion has very little value when the desire for truth is minimized. If you go to a convention of civil engineers, and you show them a plan and ask them "is this a good plan to build a bridge" and give them enough time to think about it, any consensus you get will in fact be valuable.

However, if you tell them they'll be fired for rejecting the plan, they might just tell you it's a great plan regardless of its merits. Not only that. but the best social climbers among them will come up with fancy arguments as to why it is a fantastic plan.

It is no surprise that economists will tell you raising the minimum wage will raise the unemployment rate: promoting a pro-ruling-class theology is their job. Similarly, an ancient priest would have told you that you should give some of your gold to the temple, that it is in your best interest to do so. There was no discrepancy between normative and descriptive questions: If you don't give your gold to the temple, you will suffer. That is both normative and descriptive in a hidden manner. Nowadays people are more educated, and thus the traditional purpose of religion is supplemented with the language of science.

In a way, you could say the same thing about AGW and probably many social sciences, although I am not as familiar with them. For AGW, at a minimum, the policy proposals are crazy and don't follow logically from the supposed problem. At worse they trick themselves into believing things that just aint so, and pass it off as science, or even a scientific consensus.

I'm not sure what you're getting at, I think it's clear that all of the policy proposals related to AGW are necessarily economic.

A climatologist can only tell you that current trends (or any specific predicted trendline) will cause a 5 degree rise in temperatures and a 1 meter rise in sea levels. He cannot tell you whether current CO2 emission trends will continue, whether or not higher temperatures are desirable, or how to deal with the situation. For that you need some social science training. You need social sciences to tell you that a significant rise in sea levels will cause problems and be undesirable. The dislocation of a large mass of people has no meaning in a purely mechanistic world view -- it can only be described.

[Godwin]

Faramir,

You can't say Austrians are proven to be right, and argue for the rejection for measurements. If you say measurements have no value, then Austrians can't be proven right, nobody can. Measurements are extremely valuable in the real world, for several reasons.

First, human beings are not as smart as they think they are. You may think you have a perfect theory, you may have conned other people into believing you, but you're still probably wrong. Almost all theories are wrong, that is true even in very sample areas. You need proof.

Second, just because something is rational does not mean it's true. I can create tons of rational universes on my computers, that obey rational rules, and have none of them model reality well. We don't just need to explain a rational world, we need to explain THIS rational world.

No theories can be proven true, only proven false. That is not to say that all theories are false.

The Austrians seem tome consistent methodological individualists. Keynesians and monetarists are not. They suffer from macro economic aggregate fetishism.

[BlawBlaw]

However, if you tell them they'll be fired for rejecting the plan, they might just tell you it's a great plan regardless of its merits. Not only that. but the best social climbers among them will come up with fancy arguments as to why it is a fantastic plan.

It is no surprise that economists will tell you raising the minimum wage will raise the unemployment rate: promoting a pro-ruling-class theology is their job.

You make a spectacular effort to miss the point. It is a generally accepted fact that if you raise the price of something, people will buy less of it. However, socialist ideologues who try to present theories on how labour is a Giffen Good or something lack the empirical evidence and common sense to convince anyone differently. However, the distinction remains as to whether the minimum wage should be set at any particular level or raised or lowered. Rougly speaking, about a third of those who accept that raising the minimum wage will increase unemployment among unskilled workers still think the minimum wage should be raised for other competing policy reasons. It's a fairly clear distinction.

That is both normative and descriptive in a hidden manner.

In economics there is the debate about GDP, GNP and then Gross Social Product or Gross National Happiness or whatever people have come up with since. GDP and GNP are objective but flawed and therefore must be understood not simply as a change in a number but why the number changed. The latter "measures" have normative assumptions built into them in a basically tautalogical manner and yet they are presented as being objective, descriptive measures.

In a way, you could say the same thing about AGW and probably many social sciences, although I am not as familiar with them. For AGW, at a minimum, the policy proposals are crazy and don't follow logically from the supposed problem. At worse they trick themselves into believing things that just aint so, and pass it off as science, or even a scientific consensus.

I'm not sure what you're getting at, I think it's clear that all of the policy proposals related to AGW are necessarily economic.

To use your own example of the architects, if you take a bunch of scientists and tell them what consensus you need or else they will get their research funding cut off, then guess what the consensus will at least appear to be?

[DA_Champion]

You make a spectacular effort to miss the point. It is a generally accepted fact that if you raise the price of something, people will buy less of it.

No, it's a conjecture.

In the real world, higher prices frequently correlate (causally) with higher quality, and then people buy more of it. You're assuming that the quality of minimum wage workers is independent of their wage, which is an unjustified assumption. A higher minimum wage will mean workers take better care of themselves, are more punctual, more presentable, less stressed, et cetera.

You're also ignoring various second order effects. Higher minimum wage means more consumer spending, and it also means the population takes better care of themselves. If a single mother somewhere is making $11/hour rather than $10/hour, the prospects for the next generation increase dramatically. There are better odds of her children becoming engineers, artists, etc and lesser odds of them becoming criminals, delinquents, etc. In your analysis, which you say has the agreement of economic reverends, you ignore this second order effect, in mathematical terminology, you equate it to zero.

My experience on the matter does not come from fabricated economic models. It comes form having worked several minimum wage jobs (or close to minimum wage), in the period 2001-2004. Previous to that experience I was an ultra-libertarian, and had the same world view as Red Green does now. I was then hit by reality. I saw how employers were routinely stealing from employees, making up rules to exploit them, and how the opportunities for advancement were extremely limited for many people. regardless of how hard or how well they worked. There's a tremendous waste of talent, people are kept down for the psychological satisfaction of sadists at the top.

I presume that most economists that model the demand for unskilled labor don't account for the fact that many employers would rather have less competent employees, who make less money, because they got off on on having people around them who are downtrodden. Many (most?) economists would tell you employers would rather have more skilled workers, to have a more productive business. They leave social facts out of their equations.

To use your own example of the architects, if you take a bunch of scientists and tell them what consensus you need or else they will get their research funding cut off, then guess what the consensus will at least appear to be?

The consensus was around far before the government got involved, it's a very simple argument. If you hold on to more heat, temperatures will rise. It's the same reason people wear jackets in the winter: to hold on to more heat.

There is no analogy with academic economics, which largely abandoned the classical cannon of Smith, Ricardo, and Marx; all of which centered on the labor theory of value and the different versions of it, to focus on more nebulous, less scientific concepts of the past century. For example, the idea that value comes from marginal utility is non-scientific, as marginal utility is not an observable.

[DA_Champion]

Faramir,

You can't say Austrians are proven to be right, and argue for the rejection for measurements. If you say measurements have no value, then Austrians can't be proven right, nobody can. Measurements are extremely valuable in the real world, for several reasons.

First, human beings are not as smart as they think they are. You may think you have a perfect theory, you may have conned other people into believing you, but you're still probably wrong. Almost all theories are wrong, that is true even in very sample areas. You need proof.

Second, just because something is rational does not mean it's true. I can create tons of rational universes on my computers, that obey rational rules, and have none of them model reality well. We don't just need to explain a rational world, we need to explain THIS rational world.

No theories can be proven true, only proven false. That is not to say that all theories are false.

The Austrians seem tome consistent methodological individualists. Keynesians and monetarists are not. They suffer from macro economic aggregate fetishism.

I might be misunderstanding you, but I'd say that without the aggregate, we are just cavemen.

[BlawBlaw]

You make a spectacular effort to miss the point. It is a generally accepted fact that if you raise the price of something, people will buy less of it.

No, it's a conjecture.

In the same way that evolution is a conjecture.

In the real world, higher prices frequently correlate (causally) with higher quality, and then people buy more of it.

Yes and no; which shows you know nothing about economics. Commodities are generally fungible. Companies differentiate their products to get away from competition to create monopolistic competition. The general result is to produce less at a higher price and more profit. The exception to this is if they have some sort of other market advantage that can lead to both higher prices and higher volumes. That's where innovation and entrepreneurship come in.

You're assuming that the quality of minimum wage workers is independent of their wage, which is an unjustified assumption. A higher minimum wage will mean workers take better care of themselves, are more punctual, more presentable, less stressed, et cetera.

No, I am assuming that a minimum wage worker has a maximum value equal to the minimum wage. If they were worth more in the market, they would not be earning minimum wage.

Maybe "optimist" isn't quite the right word, although it is an antonym for both cynics and pessimists. However, what you seem to be saying is that if an employer - out of the goodness of their heart - pays and employee more than is economically justified in the short run, then the employee - out of a sense of duty or whatever - will reinvest the additional wages in self-improvement to the benefit of their employer.

You're also ignoring various second order effects. Higher minimum wage means more consumer spending, and it also means the population takes better care of themselves. If a single mother somewhere is making $11/hour rather than $10/hour, the prospects for the next generation increase dramatically. There are better odds of her children becoming engineers, artists, etc and lesser odds of them becoming criminals, delinquents, etc. In your analysis, which you say has the agreement of economic reverends, you ignore this second order effect, in mathematical terminology, you equate it to zero.

I'm not ignoring it at all, which you should have known if you read what I wrote. Most economists agree on the effect of the minimum wage itself, but not whether it is a good idea. Sure, if a minimum wage single mother is making an extra $2000 a year it bodes well for her and her proginy, but that is counter-balanced by other $10 single moms who lose their jobs because they are no longer worth employing, and there are societal consequences to that.

The consensus was around far before the government got involved, it's a very simple argument. If you hold on to more heat, temperatures will rise. It's the same reason people wear jackets in the winter: to hold on to more heat.

But whether or not you wear a jacket is determined by the season and the relative position of the Earth and the Sun. The fact that I put on a T-shirt is less important that if it is February or July in terms of how warm or cold I will be. That choice on my part is virtually irrelevant.

There is no analogy with academic economics, which largely abandoned the classical cannon of Smith, Ricardo, and Marx; all of which centered on the labor theory of value and the different versions of it, to focus on more nebulous, less scientific concepts of the past century. For example, the idea that value comes from marginal utility is non-scientific, as marginal utility is not an observable.

First off, the prevailing main stream economics views are neo-classical which come from Alfred Marshall et al in the early 20th century. Keynes, and the Chicago School have been duking it out for half a century while marxists and the Austrians cling to the fringes. The "labour theory of value" is strictly Marx: no one else bought in to it then and basically only bought and paid for union economists (who are generally marxists) believe that today.

Of course, marginal utility or the marginal labour product (the latter is what we are really talking about) can be measured directly, but then again neither can a pi-meson or all the other goofy things physicists claim to have conjured up in the LHC. However, the evidence leads back to the theory for it to be accepted.

And the analogy between economists and climate scientists is completely apropos because neither are particularly good at predicting anything a useful distance in advance.

[DA_Champion]

In the same way that evolution is a conjecture.

No, it's a scientific theory. It was a conjecture when it was first thought out. But since then it has developed into a scientific theory that makes testable predictions, many of which are verified, and many of which can be verified in a laboratory setting. Detailed evolutionary models make further predictions that can be tested and applied by future experiments and observations.

No, I am assuming that a minimum wage worker has a maximum value equal to the minimum wage.

Yes you are.

If they were worth more in the market, they would not be earning minimum wage.

Theology.

But whether or not you wear a jacket is determined by the season and the relative position of the Earth and the Sun. The fact that I put on a T-shirt is less important that if it is February or July in terms of how warm or cold I will be. That choice on my part is virtually irrelevant.

OK -- so wear a winter coat in July and a tshirt in February, and then get back to me on whether or not the decision feels irrelevant.

It's a huge difference. In the case of the winter, it's not "virtually irrelevant", it's the difference between life and death.

First off, the prevailing main stream economics views are neo-classical which come from Alfred Marshall et al in the early 20th century. Keynes, and the Chicago School have been duking it out for half a century while marxists and the Austrians cling to the fringes. The "labour theory of value" is strictly Marx: no one else bought in to it then and basically only bought and paid for union economists (who are generally marxists) believe that today.

I think you're implying that Marx is responsible for the theory of value. He's not. He inherited it from his intellectual predecessors, Adam Smith and David Ricardo, among others.

http://en.wikipedia.org/wiki/Labor_theory_of_value

I would be amazed if you actually think Marx is responsible for the labor theory of value.

The fact the views of academic economists are labeled "neo-classical" is irrelevant. Academics love to attach the prefixes "neo" and "post" to various schools of thinking, and they don't always necessarily mean what the naive interpretation implies.

Of course, marginal utility or the marginal labour product (the latter is what we are really talking about) can be measured directly, but then again neither can a pi-meson or all the other goofy things physicists claim to have conjured up in the LHC. However, the evidence leads back to the theory for it to be accepted.

You've compared economics to evolution, and now you're comparing it to particle physics. I suspect it is also on par with chemistry, computer science, and cell biology.

In all due respect to you, Blaw Blaw, The Efficient Market Hypothesis is of lesser epistemological merit than Maxwell's Equations.

And the analogy between economists and climate scientists is completely apropos because neither are particularly good at predicting anything a useful distance in advance.

There is the further difference that they have different foundations. Climatology starts from known science: physics, chemistry, geography, et cetera. It's applying known material. Economics starts from an unknown foundation: the behavior of human beings. It makes assumptions about said behavior (axioms), and then shows, mathematically (to the extent of the limited mathematical aptitudes of most economists), that these assumptions lead to guaranteed outcomes. However, there's no reason to believe these axioms.

Let's go query one of the greatest thinkers of human history and find out what he thinks.

The underlying physical laws necessary for the mathematical theory of a large part of physics and the whole of chemistry are thus completely known, and the difficulty is only that the exact application of these laws leads to equations much too complicated to be soluble.

That is the situation with which climatology begins. There are challenges there, but at least they're not debating the merits of phlogiston, homo economicus, or other such theories.

Anyhow, I think this discussion has cleared up some issues for me. Both economics and real science largely operate by assuming their foundations. The difference is that there is a lot more analysis needed as to the foundations of economics. On the other hand, the foundations of applied physics are entirely known at this point, to an accuracy of 10 or 12 decimal figures or more.

[Godwin]

You make a spectacular effort to miss the point. It is a generally accepted fact that if you raise the price of something, people will buy less of it.

No, it's a conjecture.

In the real world, higher prices frequently correlate (causally) with higher quality, and then people buy more of it. You're assuming that the quality of minimum wage workers is independent of their wage, which is an unjustified assumption. A higher minimum wage will mean workers take better care of themselves, are more punctual, more presentable, less stressed, et cetera.

You're also ignoring various second order effects. Higher minimum wage means more consumer spending, and it also means the population takes better care of themselves. If a single mother somewhere is making $11/hour rather than $10/hour, the prospects for the next generation increase dramatically. There are better odds of her children becoming engineers, artists, etc and lesser odds of them becoming criminals, delinquents, etc. In your analysis, which you say has the agreement of economic reverends, you ignore this second order effect, in mathematical terminology, you equate it to zero.

My experience on the matter does not come from fabricated economic models. It comes form having worked several minimum wage jobs (or close to minimum wage), in the period 2001-2004. Previous to that experience I was an ultra-libertarian, and had the same world view as Red Green does now. I was then hit by reality. I saw how employers were routinely stealing from employees, making up rules to exploit them, and how the opportunities for advancement were extremely limited for many people. regardless of how hard or how well they worked. There's a tremendous waste of talent, people are kept down for the psychological satisfaction of sadists at the top.

I presume that most economists that model the demand for unskilled labor don't account for the fact that many employers would rather have less competent employees, who make less money, because they got off on on having people around them who are downtrodden. Many (most?) economists would tell you employers would rather have more skilled workers, to have a more productive business. They leave social facts out of their equations.

To use your own example of the architects, if you take a bunch of scientists and tell them what consensus you need or else they will get their research funding cut off, then guess what the consensus will at least appear to be?

The consensus was around far before the government got involved, it's a very simple argument. If you hold on to more heat, temperatures will rise. It's the same reason people wear jackets in the winter: to hold on to more heat.

There is no analogy with academic economics, which largely abandoned the classical cannon of SKmith, Ricardo, and Marx; all of which centered on the labor theory of value and the different versions of it, to focus on more nebulous, less scientific concepts of the past century. For example, the idea that value comes from marginal utility is non-scientific, as marginal utility is not an observable.

Higher prices would be expected to correlate with higher quality because the marginal costs of better quality exceed the marginal costs of lower quality and the the price in the market place will be greater. This is different than the conjecture that if I raise the price of my product, people will assume it is better quality than before.

Blaw Blaw referred to a the theoretical possibility that goods such as staples consumed by the poor where a rise in the price of that staple has such an impact on the budget, the poor consume more of it and cut back on higher quality consumption.

Its not the quality of the worker that is at issue but the marginal value of the labour. If workers are needed to turn a bolt on an assembly line a degree in mechanical engineering will not necessarily improve the quality of the work. If you are sufficiently disenchanted you may find clever ways of sabotaging your employers output. Quite often employers do not want to higher better quality workers (read overqualified) because they will be unhappy and generate higher costs for the firm.

The domestic auto companies provide an example of the consequences of paying above market wages for assembly line tasks.


I see no conflict between your assessment of the social relations between employer and employee and economic theory correctly interpreted. As the Austrians know in economic theory, costs are subjective and an employer would hire about up to the point where marginal costs and benefits equate. Irrationality is competed away as firms that can prduce a better product for less will expand. But it does not happen overnight. We do not arrive at the Big Rock Candy Mountain.