The Pathetic State of Neoclassical Economics

[phattonez]

Where is your proof that those things are correct?

 

[Onion Eater]

Where is your proof that those things are correct?

Simplified Exposition of Axiomatic Economics

Theorems 12 and 13.

 

[phattonez]

Simplified Exposition of Axiomatic Economics

Theorems 12 and 13.

I can't find them, but I doubt that it is proof based on an experiment anyway.

 

[Onion Eater]

Simplified Exposition of Axiomatic Economics

Theorems 12 and 13.

I can't find them, but I doubt that it is proof based on an experiment anyway.

Mathematical proofs are based on experiments???

Aha!!! You're one of T. Mosley's mini minions!

Austrian economics is based off of observations (i.e. empiricism) of human behavior for several hundred years. Based off of those observations, it is possible to make certain predictions as to what the result of similar behavior today will be. From that same empiricism, it is possible to construct a logical framework which can be used to explain most or all human social behavior and decision making, and what effect any number of events might have on such decisions.

Certain axioms might also become apparent during such study.

Mosley has sent his army of ankle biters out to sink their sharp little teeth in the ankles of anybody who agrees with Ludwig von Mises' belief that economic laws are, like those of logic and mathematics, a priori.

Praxeology is a theoretical and systematic, not a historical, science. Its scope is human action as such, irrespective of all environmental, accidental, and individual circumstances of the concrete acts. Its cognition is purely formal and general without reference to the material content and the particular features of the actual case. It aims at knowledge valid for all instances in which the conditions exactly correspnd to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. They are a necessary requirement of any intellectual grasp of historical events. Without them we should not be able to see in the course of events anything else than kaleidoscopic change and chaotic muddle.

And you're one of them.

 

[phattonez]

I'm saying that they're a priori. However, your little Socrates dialogue says that theories are worthless if they can't be proven. A priori deduction isn't proof in the scientific sense, though it is the best way to do economics.

 

[Onion Eater]

A priori deduction isn't proof in the scientific sense.

So Pythagoras did not prove his theorem?

Example #1.

Pythagoras deduced that the square of the hypotenuse equals the sum of the squares of the sides of a right triangle from Euclid's five axioms:

1. To draw a straight line from any point to any point.

2. To produce [extend] a finite straight line continuously in a straight line.

3. To describe a circle with any center and distance [radius].

4. That all right angles are equal to one another.

5. The parallel postulate: That, if a straight line falling on two straight lines make the interior angles on the same side less than two right angles, the two straight lines, if produced indefinitely, meet on that side on which are the angles less than the two right angles.

What would you have had him do?

Walk around with a tape measure looking for triangular objects, record the length of their sides and then "prove" his theorem by using linear regression to find the correlation coefficient of the square of the hypotenuse and the sum of the squares of the sides?

 

[phattonez]

I don't think a triangle is nearly as complex as humans. You can't prove things about human action. You can prove things about triangles, it's not that hard to prove the pythagorean theorem. Just work from the definition of a right triangle and you have it. You can't do that with humans. A priori assumptions are the most accurate way to explain human behavior, but you can't say they work in every single case because we're not all the same like right triangles are.

 

[Onion Eater]

You can't prove things about human action.

So, economics is just a mass of free-floating opinion, is it? The best thing about post-autism is that everybody can participate because everybody has an opinion... just like everybody has an ***hole.

That attitude may work at the Mises Institute, which recruits 14-year-olds and will promote them to moderator when they're 16 if they've proven their loyalty to the cult. But there are real economists on Debate Politics.

I grow tired of these children. Is there anybody reading this thread who has a PhD? Who has a stake in neoclassical economics? Who at least knows big words like “deduce” without having to be pointed to a dictionary?

I wait for a worthy opponent.

 

[phattonez]

Yes, only you know anything. Just brush everyone else aside. Isn't philosophy a mass of free-floating opinion? Seems like economics is like that, but that's because most economics use empiricism while ignoring the fact that the conclusions they draw from that data may contradict what basic tenets of human action would tell us.

 

[Onion Eater]

I don't think a triangle is nearly as complex as humans.

Not true. Triangles have three sides, while you have only one.

Is there anybody reading this thread who has a PhD? Who has a stake in neoclassical economics? Who at least knows big words like “deduce” without having to be pointed to a dictionary?

I wait for a worthy opponent.

I continue to wait.

 

[phattonez]

If you don't have a PhD you are automatically stupid and cannot question anybody with a PhD. This is what is wrong with academia in general.

 

[oldreliable67]

Ah, kids today!

Actually, I have enjoyed this exchange very much. Thanks to both for your contributions.

While reading this thread, I have been reminded of Arnold Kling's denunciation of "macroeconometric" (his term) models. His main criticism is that in such models, cyclical movements are confounded with structural changes. Moreover, when researchers attempt macroeconometrics, "they are attempting turn different time periods into controlled experiments." That is, a central part of modeling, especially in the early econometric days, was focused on modeling expectations...which still can't be done without resorting strong restrictions and lagged dependent variables, cobwebs, etc.

The point I'm trying to get to in this obtuse way, is that your discussion reminds me of the seems-to-never-end conflict between those who posit theorems and those who model, and the machinations employed by those who model while trying to adhere to some set of theorems/axioms/et al. Always interesting.

 

[drz-400]

1)* One's value scale is totally (linearly) ordered:i)*Transitive;*p ≤ q and q ≤ r imply p ≤ rii)*Reflexive;*p ≤ piii)*Anti-Symmetric;*p ≤ q and q ≤ p imply p = qiv)*Total;*p ≤ q or q ≤ p

Why is this necessarily linear? Couldn't this be more generally true as an affine function, since what someone values may not nessarily go through the origin (0,0). I mean, maybe I value something like a sock at 0 if their is only one, since I want a pair.

 

[Onion Eater]

1) One's value scale is totally (linearly) ordered:

i) Transitive; p ≤ q and q ≤ r imply p ≤ r

ii) Reflexive; p ≤ p

iii) Anti-Symmetric; p ≤ q and q ≤ p imply p = q

iv) Total; p ≤ q or q ≤ p

Why is this necessarily linear? Couldn't this be more generally true as an affine function, since what someone values may not nessarily go through the origin (0,0). I mean, maybe I value something like a sock at 0 if their is only one, since I want a pair.

Transitive, reflexive, anti-symmetric and total do not imply that phenomenon cannot be valueless. These are all relations between one or more phenomena; they do not specify what the value of p, q or r is, or preclude it from being zero.

I discuss axiom #1 further in my Non-Mathematical Explanation of the Axioms.

An ordering is a way of comparing any two items in a set. For instance, if you were a grade-school teacher, you could order all of the children in your class by height. Asking them to form a line from the tallest to the shortest is unambiguous. There may be some squabbles as to which of two boys is taller, but the issue can easily be settled with a tape measure. If it cannot, then they are of equal height and (conceptually, if not literally) they occupy the same point on the line.

Intelligence is a different matter. What if one child is good at math, another at chess and a third excels in music? Which one is more intelligent? There is no tape measure that can resolve this dispute. Thus, intelligence is not an ordering, while height is. I claim that value is an ordering, like height. Specifically, it is transitive, reflexive and anti-symmetric.

But what does “total” mean? It means that any two items can be compared. An example of an ordering that is not necessarily total is subset. It can be total: If one’s sets are defined as everybody less than or equal to 5’0’’, everybody less than or equal to 5’1’’, etc, then all of those sets can be ordered by the concept of subset just as the children were by height. But what if one set is girls and one set is blondes? Not all girls are blonde, but neither are all blondes, girls – boys can have yellow hair too. So subset can be, but is not necessarily, total. Height is a total ordering and, I claim, so is value.

 

[Onion Eater]

A person is not mainly concerned with stock when making economic transactions, but rather their future expectations of their disposable income. Income, is not a stock.

All of my decisions are made based on my wealth. My income varies dramatically from day to day and from week to week. There are days when I make thousands and there are days when I make nothing or lose money. The same variance (scaled up) can be seen from one week to the next or from one month to the next. That's because I'm a businessman. Your point of view is very much that of the salaryman.

Being an entrepreneur is like playing no-limit hold'em. Your win rate per hour may be an interesting statistic that you can calculate after the poker tournament is over. But, when you are sitting at the table, all that matters is how many chips you have in front of you at that moment.

All of the poker player's decisions are based on wealth, not income. The same is true of the businessman. He gambles with what he's got. If the IRS didn't ask for income figures, he would never calculate them. Income is a useless concept; it has nothing to do with the actual operation of a business.

 

[Khayembii Communique]

So Pythagoras did not prove his theorem?

A triangle is an abstraction. A human is not.

 

[drz-400]

Being an entrepreneur is like playing no-limit hold'em. Your win rate per hour may be an interesting statistic that you can calculate after the poker tournament is over. But, when you are sitting at the table, all that matters is how many chips you have in front of you at that moment.

All of the poker player's decisions are based on wealth, not income. The same is true of the businessman. He gambles with what he's got. If the IRS didn't ask for income figures, he would never calculate them. Income is a useless concept; it has nothing to do with the actual operation of a business.

Why would someone quit at poker if they recently had won a lot of chips?

 

[Onion Eater]

So, economics is just a mass of free-floating opinion, is it? The best thing about post-autism is that everybody can participate because everybody has an opinion... just like everybody has an ***hole.

That attitude may work at the Mises Institute, which recruits 14-year-olds and will promote them to moderator when they're 16 if they've proven their loyalty to the cult. But there are real economists on Debate Politics.

Apparently not.

 

[oldreliable67]

All of the poker player's decisions are based on wealth, not income. The same is true of the businessman. He gambles with what he's got. If the IRS didn't ask for income figures, he would never calculate them. Income is a useless concept; it has nothing to do with the actual operation of a business.

{emphasis mine}

Totally false. Almost. Cash flow is the key variable for any business; income is a key component of cash flow. To grow, a business must re-invest free cash flow. Free, or available cash flow is predominately net income after taxes plus non-cash expenses (depreciation allowances and tax credits for r&d or other investments being the principal examples). I qualified my statement with 'almost' because it is possible for a business to generate free cash flow without earning after-tax profits. But not indefinitely. Without positive cash flow, any business is ultimately and inevitably doomed.

Most economics texts and economists focus their analysis on profits and profitability, when they are actually referring to the ability to maximize cash flow. It is a simplification, perhaps useful in the econ classroom, but there are also distinct differences. These differences are important, as they are frequently the targets of fiscal policy, as governments attempt to either stimulate economic activity (as per Obama's current ideas about r&d tax credits and a one-year period of fully writing off investments in plant & equipment) increase revenue (as with the oft-repealed investment tax credit).

 

[phattonez]

The poker player would change his mind if his expected outcome were to change. If he only has $5, he'll probably run away and take what little he has left if he's playing against a professional gambler. If he only has $5 to his name though, he'll probably bet it all and take on some guy he's trying to hustle.

Wealth is an important factor, but so is expected income. In my example, the risk was greater in the former case, so he'd probably be more cautious with his money. In the latter case, the risk was much less (and hence the reward much more probable) so he's probably take that risk.