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Some Hume-ility for the Austrian Economists

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by David

David Hume

Back when I was studying Liberal Arts at Dawson College, I learned about a Scotsman who proved that you couldn’t prove anything. His name was David Hume, he lived in the 1700s, and he argued that all knowledge is inductive and empirical, that is to say, we only know anything from experience: if we see a hundred zebras with stripes, we can only make an educated guess that the next one we see will have stripes too. I remember reading Bertrand Russell’s 1945 book A History of Western Philosophy, where he said that nobody has ever disproved Hume’s epistemology, and I’m pretty sure that assessment has held up.

I didn’t really know it until recently, but I am a Humean. And apparently, I’m in good company. Nobel prize-winning economist Paul Krugman has listed Hume’s An Enquiry into Human Understanding  as one of his major inspirations, which he read in college:

Then I read Hume’s Enquiry, this wonderful, humane book saying that nobody has all the answers. What we know is what we have evidence for. We do the best we can, but anybody who claims to be able to deduce or have revelation about The Truth – with both Ts capitalised – is wrong. It doesn’t work that way. The only reasonable way to approach life is with an attitude of humane scepticism. I felt that a great weight had been lifted from my shoulders when I read that book…. You look at people who are very certain, and have these beliefs of one form or another and you think, “Maybe they really know something!” And what Hume says is, “Actually, no. They don’t.”

Krugman argues forcefully for various economic policies in his columns, but I think that he would admit that his knowledge is provisional, and based on experience, rather than immutable truths. In this way, he’s like the man who inspired him, John Maynard Keynes. As The New Yorker’s John Cassidy wrote of Keynes:

At the heart of his vision, however, there is an elusive combination of boldness and humility. It calls not merely for the management of risk but for something politically and intellectually far more demanding: the acknowledgment of uncertainty. 

And where did Keynes find his inspiration? Not from Karl Marx: Keynes (correctly) called Marxism “complicated hocus pocus.” No, Keynes built on the economic thought of another British empiricist, Adam Smith. And from where did Smith derive his empiricism? From his good friend and fellow Scotsman David Hume.

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Written by David Weinfeld

July 9, 2012 at 18:01

Posted in economics, philosophy

Quitting Goldman Sachs and the Logic of Capitalism

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by David

The internets is all abuzz about a fellow named Greg Smith, a former executive director of Goldman Sachs who publicly announced his resignation for the firm on the op-ed pages of the New York Times. Smith argues that while the firm used to be a place with a “culture” that “revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients,” it has become a place dedicated solely to making more and more money. “Today, if you make enough money for the firm (and are not currently an ax murderer) you will be promoted into a position of influence.” He writes of attending “meetings where not one single minute is spent asking questions about how we can help clients. It’s purely about how we can make the most possible money off of them.”

While most readers, I think, have rightly praised Smith for his decision, others have been somewhat critical, pointing to the fact that he quit only after receiving his latest bonus, or that his op-ed reads like a cover letter for his next job application, particularly this paragraph:

My proudest moments in life — getting a full scholarship to go from South Africa to Stanford University, being selected as a Rhodes Scholar national finalist, winning a bronze medal for table tennis at the Maccabiah Games in Israel, known as the Jewish Olympics — have all come through hard work, with no shortcuts. Goldman Sachs today has become too much about shortcuts and not enough about achievement. It just doesn’t feel right to me anymore.

The mention of the Maccabiah Games is especially amusing. Still, though I also applaud Smith, this Star Wars parody of the op-ed expresses my sentiments well.

Seriously, was Goldman Sachs ever really a place with that culture of honesty, “revolved around teamwork, integrity, a spirit of humility, and always doing right by our clients”? Does anyone think “humility” and associate that with Goldman, or any investment banking firm, or really any high-level finance job on Wall Street? I think the first word most of us think of is “douchebag.” I’m sure that even when Goldman and Sachs were 19th century German-Jewish immigrant peddlers schlepping their dry goods around America, their business motto was always about the bottom-line.

Smith should know this. He is a clearly a smart, accomplished individual. But he got a full ride to Stanford. Presumably that means no loans, no debts. Why did he go work for Goldman in the first place? Did he honestly believe that even 12 years ago, the job was about anything other than helping rich people get richer, and getting rich in the process? Or was he sucked into the elite school culture that said that I-banking and consulting are the only way to go? A culture that said that the job was prestigious, a place for the smart and talented to excel, never mind what they were actually doing.

Also, we should not single out Goldman Sachs. I’m sure Smith would have worked at a different bank if Goldman had rejected him, and that bank would have the exact same “culture,” or lack thereof.

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Written by David Weinfeld

March 14, 2012 at 22:21

Occupy Economics?: A Report Back from the Nerdiest Protest I’ve ever been to.

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By Peter

I just got back from Chicago, where, along with attending the American Historical Association, I participated in a series of protests held by Occupy Chicago, along with CACHE (Coalition Against Corporatization of Higher Education) that targeted the American Economics Association (AEA). Its not everyday that the worlds of street protests and academic conferences blend so well. But then again, part of the point was to “puncture the bubble,” that academic economists live in.

The protesters gave out “alternative” awards for Most Conflict of Interests (Columbia’s Glenn Hubbard), Intellectual Narrowness (Harvard’s Greg Mankiw), and top prize, the “Toxic Waste of Space Award” (Harvard/Obama administration’s Larry Summers). Other than a brief yelling match that one protester got in with a professor, the tone was light and fun. Protesters “accepted” awards acting as Mankiw, Hubbard, and Summers (who reminded us how much smarter he was than us) and served “Rahmon” noodles, in honor of the Chicagoans impoverished by Rahm Emmanuel’s neoliberal policies. Overall a lot of fun, albeit fun that might have gone over the heads of the random shoppers on Michigan Ave.

According to protesters: “The bankrupt ideologies of ‘neo-liberalism’–trickle-down theory, austerity, deregulation, privatization–have all been proven empirically disastrous. Those ideas still enjoy a monopoly in the mainstream debate due to the massive scale of academic subsidizing by the bought AEA and it’s cohorts in the 1%.” Watch a great interview with an organizer at the bottom of this post.

It just so happens the protests came at a time of particularly hot debate about the ideology of the economics profession. The recent release of the minutes of the 2006 Federal Reserve Meetings well illustrates—along with Timothy Geithner’s utterly pathetic sycophancy towards Alan Greenspan—that the High Priests were asleep on the job, completely unaware of the looming housing crisis. Said one professor quoted by the New York Times:

“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”

“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.”

Not the discipline’s finest moment, no doubt.

I have a longstanding hatred/fascination with the foundational logic taught in modern Economics courses: its technocratic imagination, its inability to question its own premises, its ahistorical logic (see Daniel Rodgers’ Age of Fracture, Chapter 2 for more on how society, power, and history dropped out of the Economics discipline), its inattention to moral consequences, its reductionism (like the horrid Freakonimics series, which thinks all aspects of human existence can be explained by their simplistic assumptions about human behavior), and its normative amorality (seriously, studies have shown that taking economics makes students less generous people).

And this is all important because Economics inhabits a unique disciplinary position. Part academic discipline, part incubators of elite policy makers, academics in no other departments transition so seamlessly from academia to government to Wall Street. Look at a figure like Larry Summers, who has (in the last five years alone!) inhabited leading roles in all three worlds. While taking money from Wall Street while producing intellectual material about Wall Street suggests casual corruption, the influence that economists, and what Tony Judt called economism (the tendency to think of all social problems in terms of the marketplace) has deep ramifications on our public policy. The very power of economists makes it more likely that they will be captured by elites. I think, then, it is fair to target the AEA, even if many, if not most, economists are actually innocent of any corruption. It matters to the public what economists talk about, much more so than whats going on in, say, the MLA.

A silver lining, though, to the economic collaspe might be a rethinking of some economic thought.

Writing about the great shift in Economics departments that occurred in the 1970s, as Samuelson, Galbraith, and the other Keynesians lost favor, Daniel Rodgers writes:

“The economic crisis of the 1970s was, in short, not merely a crisis in management. It was also, and at least as painfully, a crisis in ideas and intellectual authority. An extremely confident analytical system had failed to explain or make sense of the unexpected.”

The results, according to Rodgers, were that the profession increasingly moved towards a more neoclassical model and microeconomics prevailed over macroeconomics. Meanwhile, the logic of markets and economic thinking invaded other disciplines: rational choice theory in political science, the “law and economics” movement in law schools, etc… One hopes that our recent crisis and the inability of our policy elites to predict or solve the problem, will produce a similar paradigmatic shift. This time, though, hopefully it will be away from such apologias for capitalism.

So in that spirit, I wanted to highlight two interesting thinkers. The first, I saw over at Crooked Timber, where New School economist Sanjay Reddy gives a fabulous interview about the need to bring moral reasoning back into the study of Economics. Reddy argues against the notion that Economics is a value-neutral science, restoring an “evaluative framework” to the discipline. It is impossible, he argues, to come to purely technical solutions to most problems. In a sense, Reddy is asking that we take moral sides before we engage in economic debate. First, for instance, we say that a goal of policy should be to aid the poor, then we figure out ways to so.

This seems to fit well with an article in the latest issue of Jacobin magazine (also featuring an excellent piece by friend of the blog, Andrew Hartman), by Mike Beggs, calling for radicals to occupy economics. Begg’s article asks economists to be less technocratic, and more openly political in their ends. Beggs takes a middle ground (for radical intellectuals), acknowledging that “mainstream economics is both an ideological bastion of capitalism and a genuine social science.” A tool for understanding the world, it is also wrapped up in a set of assumptions that are not neutral, but that favor a free market approach to the world. Nevertheless, as Begg’s points out, the stereotype that many have of a discipline of Milton Friedmans is actually unfair. A wide swath of economists agree with the need for some government intervention, and, other than a few reactionaries in Chicago or George Mason, most also acknowledge the importance of Keynes. The problem, Beggs suggests, is “not that mainstream economics was delusional, or biased to the right, but that it was technocratic.” It presumed it could manage and control, rather than take sides in class warfare.

In the opening editorial of Jacobin, the editors declare that, as the rebellion of Occupy Wall Street spreads, “we are in the last throes of the era of Ezra Klein.” What they mean, I think, is that the tepid liberalism of the technocratic elite (poor Ezra has, a bit unfairly, become a symbol of this) says nothing to the fundamental message of the OWS movement: the restoration of politics—full throated politics—to our understanding of class and economics. Class will no longer be something discussed in dry studies by the Brooking Institute or in economics seminars, but in the chants and marches in the streets, as those without challenge those with. Millions of people simply standing up and rejected these “market-based” solutions that have been crammed down our throats, will do more to change the dialogue than any polite article or policy paper ever will.

Written by Peter Wirzbicki

January 16, 2012 at 23:21

Romney, Bain, Letters, and Archives

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by David

Mitt in the middle, celebrating his first love, money, along with the boys of Bain capital

People in both parties are attacking GOP frontrunner Mitt Romney for his time at Bain Capital, a private equity firm that bought companies, downsized them–that is, fired many employees–and then sold those companies at a profit. Even his rivals in the Republican primaries have taken something of an anti-capitalist line, in opposition to the free markets that Romney represents.

As readers of this blog can guess, I don’t have a particularly high opinion of Mitt Romney. The only office I’d ever elect him to would be the captaincy of team douchebag. Nonetheless, it’s important to know whether we’re asking the right questions about his time at Bain.

My free market friend Josh, now writing for Forbes, has identified the right questions. But first, he explains some basic but important economics.

Private equity firms like Bain often seek to fix firms that have failed to adjust to economic change. This can mean downsizing, increased automation, offshoring, and the like. These changes make enterprises more efficient, and in some cases save firms that would otherwise have gone bankrupt. These kinds of changes also produce broad-based gains that should not be discounted, particularly in the form of lower consumer prices. We could not, and should not, have stopped these changes in the economy.

As Josh notes, certain classes of workers have been hit especially hard. While capital has benefitted, workers have seen layoffs, pay-cuts, and long term unemployment, particularly those with skills that have become less valuable or even obsolete. Josh is right to argue that as a businessman, Romney was correctly concerned with making his company profits, not with the plight of his laid off workers. But Josh wisely adds, “while the human effects of these economic shifts are not properly the concern of business executives, they are the concern of government officials, and Romney wants to be president.” And so the right questions are:

What policy implications arise from the economic shifts of the last few decades, driven (in small part) by private equity. Does rising income inequality mean that fiscal policy should be more redistributive? Does a reduction in job security call for a stronger safety net? Do new workforce needs mean we need a shift in education and training policies?

Basically, the president is not a CEO, and it’s his or her job to care about all the workers, and the economy as a whole. And if you don’t want to take Josh’s word for it, take Paul Krugman’s, who said pretty much the same thing in his recent column. Josh reminds us that “as governor of Massachusetts, Romney’s signature policy achievement was a universal health care program—that is, a safety net program that reduces the cost of job loss or income loss.” Of course, Romney has said that Romneycare worked for Massachusetts, but the Affordable Care Act, patterned after Romney’s plan, is no good for nation. But that’s a whole other discussion.

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Written by David Weinfeld

January 14, 2012 at 14:19

Blissfully Ignorant of Investment Banking

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by David

A couple weeks ago, I wrote an op-ed in my college paper, The Harvard Crimson, titled “Boycott Wall Street,” advocating that undergraduate jobseekers avoid the financial sector and look for more interesting and/or public spirited work. The piece is written in the same vein as my earlier post and the sign I held at an OWS rally that read “Wall Street Made My College Classmates Boring.” It made a (very minor) splash, quoted on the New York Times blog along with a similar piece that came out in Stanford’s college paper the same day, and earlier op-eds at other elite schools, including Dartmouth and Yale. A little more digging reveals similar stuff from Cornell and MIT.

I have written about this issue before. But thinking about all this stuff more made me realize how naive I was when I entered college. Maybe blissfully ignorant is a better term. When began my freshman year at Harvard in 2001, I had a solid grounding in European history. I had analyzed great novels, plays, and poems. I could tell you about Biblical source criticism, and Cartesian philosophy and the difference between Kantian and utilitarian ethics. Further back in high school, I could even do math and science at a reasonably high level.

But I did not know what an investment bank was. I didn’t know that was a thing, a profession someone could have, an investment banker. The words “hedge fund” meant nothing to me. And I certainly didn’t know what a consultant was, because I hadn’t seen Office Space yet.

I did know very basic economics, about supply and demand. I knew that there were safe investments in some stocks and riskier ones in others. But to me, banks were, well, banks. They were boring. They were places where you saved and stored your money, maybe watched it collect a little interest. And being a banker seemed like an incredibly boring job. As I understood it, smart, high-achievers went into scientific research, engineering, medicine, academia, law, journalism, activism, or the arts. Maybe they became business people, who made stuff that people wanted, employed lots of workers with a creative new idea or product. But they certainly didn’t become bankers. Anyone could do that job.

Well I guess I was wrong. Lots of smart people became, and become, investment bankers. People who, like me, didn’t know that was a thing, didn’t know what they wanted to do. Unlike me, they drifted into finance and consulting because it seemed like the thing to do, the best option available, what recruiters sold the hardest. I still think that’s a shame. I still think that the financial meltdown happened, to quote Calvin Trillin, “because smart guys had started working on Wall Street.” I want smart people to stay away from jobs on Wall Street, or better yet, to regulate those jobs to prevent another collapse.

I still don’t really know what investment banking is (though I suspect some investment bankers could say the same thing). I know regulated investment banks are crucial to our modern economy, and can do lot of good things. And I know enough to know that unregulated, left to run amuck, they have done a lot of damage. Sometimes I just wish I could return to the blissful ignorance of my youth, when banks were just boring and not harmful.

Written by David Weinfeld

October 22, 2011 at 17:46

Depression, Debt Ceilings, and Derivatives

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by David

Depression

Just finished reading the latest exchange in the New York Review of Books between Dr. Marcia Angell and her interlocutors on the effectiveness of psychiatric drugs. As Julian previously observed, Angell, a senior lecturer at Harvard Medical School’s Department of Social Medicine and the first woman to edit the New England Journal of Medicine, wrote two provocative book reviews that argue that psychiatric illness is fundamentally misunderstood, that depression and other mental illnesses are overdiagnosed and that medication is over-prescribed and often ineffective. Moreover, she  argues that the pharmaceutical companies are heavily invested in making us believe that these medicines work when in fact tests of their effectiveness are inconclusive at best, that testing results are skewed because of Big Pharma’s influence, and that many psychiatrists are shills for Big Pharma. In sum, Angell thinks that the whole field of psychiatry is a big mess, or perhaps even a big lie.

Several psychiatrists have responded critically, including Dr. Peter Kramer, a clinical professor of psychiatry at Brown, in the New York Times, and Doctors John Oldham (president of the American Psychiatric Association), Daniel Carlat (Associate Clinical Professor of Psychiatry at Tufts University School of Medicine and author Unhinged: The Trouble with Psychiatry–A Doctor’s Revelation of a Profession in Crisis, a book which Angell reviewed favourably in the previous pieces), Richard Friedman (Professor of Clinical Psychiatry at Weill Cornell Medical College) and Andrew Nierenberg (Professor of Psychiatry at Harvard Medical School). They all contend, in the nasty tone for which the NY Review of Books letters section is famous, that psychotropic drugs, including anti-depressants, work. Angell’s response, arguing her case again, is similarly hostile.

Who wins the debate? I have no idea. You see, I’m not a doctor. I’m not a scientist. I’m not even really a social scientist, though the University of Chicago and Stanford might think that I am. I’m a historian. I turn on the TV and have no clue how it works: I’m just happy when I can watch Curb Your Enthusiasm. Similarly, I can read these articles about psychiatric drugs, but I don’t have the time, energy, or expertise to evaluate them. I don’t really know what a dopamine receptor is, so I have to take these doctors at their words. And whose words should I trust?

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Written by David Weinfeld

August 5, 2011 at 15:06

Underdeveloping a Libertarian Paradise

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by Bronwen

I’m currently on a research trip in Kenya, so have been following the news of the debt crisis from afar.  In a country, and a region, currently facing a real crisis of famine, in part caused by the inability or unwillingness of various regional governments to prepare for the third drought season in a row, the fake crisis manufactured by extremist politicians in the US does seem a bit silly (silly, but still with wide ramifications, as an article in the Kenya Daily Nation argues).  But in both cases, the unwillingness of governments to put governance before politics is marked, as this political cartoon reveals.

Not long ago, a blog I follow posted this video, a tourism video for a ‘libertarian paradise.’

When travelling or working in Africa, Asia, South America, and other parts of the so-called ‘developing’ world, the things that mark countries as ‘more’ or ‘less’ Read the rest of this entry »

Written by apini

August 2, 2011 at 11:47

Damn the Man, Save the Stuff We Like

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by apini

I just re-watched Empire Records for the first time since…1998?  It used to be my favorite movie.  It didn’t really hold up as well as I had hoped, but something did stick with me after watching it again.  Remember when we used to pay for stuff in order to stick it to the man?  Like at the end of the movie, where everyone comes along and buys loads of CDs and records and beer in order to keep the store alive in the face of a corporate take-over?

That movie came out in 1995, before anyone really knew what the internet was for and before everything became free.  To my generation, music, movies, news, software all came free from the not-yet-illegal-but-will-be-as-soon-as-the-corporations-figure-it-out services.   For us, getting stuff for free was a right that corporations were trying to deny us.  Couldn’t they see that their models were out of date?  Couldn’t they see that content should be freely available to everyone?  Take that, Corporate America – we’re getting our stuff for free!

It didn’t help that the corporate bad guys were about as square and whiny as David Spade in PCU.  They whined about how being able to get things for free was

cutting into their profits.  As though teenagers care about corporate profitability.  They called what we were doing piracy of all things.  Like piracy’s a bad thing.  And the ‘You wouldn’t steal a car’ ad campaign presumed too much.  They made it so easy to hate them and all the things they stood for, just like Music Town in Empire Records (banning visible tattoos, revealing clothing, loud music, etc).  Newspapers seemed trickier, but Rupert Murdoch was buying them all anyway, right?

So what changed for me?  Why am I sitting here, about to click ‘confirm’ on my New York Times app subscription?  I think it’s for the same reason I just donated to NPR/APM.  And the same reason that I Read the rest of this entry »

Written by apini

March 31, 2011 at 12:41

Economists: Scientists or the Court Poets of Wall Street?

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By Wiz

The blogosphere is wondering whether or not economics is a science. Ryan Avent and Mathew Yglesias say yes, and Krugman thinks maybe not. Atrios says “Basically the ignorant bullies took over the profession to some degree.”

There seem to be a couple of obvious things missing from this debate, that perhaps this humble intellectual historian could add. First thing lacking is any critical understanding of what science is. The general assumption seems to be: if economists can operate in some sort of “objective” world, in which value and personal bias don’t structure your results, where in good Gradgrindian fashion “facts and nothing but the facts,” determine your answer to a given question; in which scholarly debate can come to final conclusions about matters; where political power, ideology, and hegemonic values aren’t determining the results; where predictions can be made with some confidence, etc… If these things exist then we’re scientists!

Unfortunately, by most of these standards most scientists aren’t scientists either. In other words, even when dealing with cells and atoms this is a hard ideal to reach. To me, if there is one thing that historians, especially intellectual historians, can remind the world is that people are always the product of their time. They never exist in the rarified abstract space that is imagined here, where politics, discourse, and ideology don’t affect them. This isn’t to advocate some vulgar nihilism, but rather to remind people that conclusions are always provisional and always affected by the positionality of the observer.

And if I could posit a general theory of human knowledge here: one’s ability to even approach the scientific ideal of detached neutral observation gets harder and harder the more you study people and the less you study not-people (official scientific term there). And though you would excused in not realizing this when you read most economists, the profession is still ultimately concerned with human issues: wages, economic inequality, human motivation, environmental destruction, etc… Remember, after all, that Adam Smith was a moral philosopher, not a physicist. The idea that anyone could be drily scientific and objective about these issues– that their own personal biases, preferences, and, frankly, self-interest–would not color what they do is ludicrous and almost comically naive. Read the rest of this entry »

Written by Peter Wirzbicki

March 22, 2011 at 23:16

How a Tokyo Earthquake Could Devastate Wall Street – revisited

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by apini

An interesting, but not surprising, angle to the Japanese disaster coverage has been the focus on its impact on the financial markets. I just read Michael Lewis’s The Money Culture two weeks ago and there’s some really interesting predictive analysis of what would happen in the 1980s to world financial markets if there was an earthquake in Tokyo. Ignoring the 1980s ‘Japan-o-phobia’, it’s worth taking a look.

Written by apini

March 15, 2011 at 16:31

Posted in Earthquake, economics, Japan

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