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Economics is the miracle science. Even imperfect capitalist markets routinely raise billions out of poverty.

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August, 2017
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The Gods of Economics are Greek

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Astrological Evaluation of Economic Policy

Examining the omens:

  The gods of physics are undoubtedly mathematicians. Enlightenment in the world of physics generally comes through mathematics.
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They are prone to imprecision and even inconsistency.

  However, the gods of economics are Greek. They are immortal and powerful, but like humans they are prone to passions, conflicts, insubordination and other foibles - like imprecision and even inconsistency.
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  Mathematical economists are the astrologers of economic markets. They are blind to fundamental realities. They can calculate outcomes to nine decimal places, but they will never tell you why their calculations are wrong. They examine their mathematical models like ancient priests examining the entrails of a pig, and pronounce on the omens they see therein for various policies. 
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  Repeated examples are provided by Congressional Budget Office estimates. Its estimates for government healthcare and other long-term budgeted policies have all the validity of priestly estimates for Caesar's campaign in Gaul!
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  Calculations based on opaque aggregates like GDP and national investment levels reveal as little about economic basics as the appearance of Mars within certain constellations reveals about the fundamentals of astronomy.
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  Mathematical economists are prone to the ordinary human passions and weaknesses, just like other professionals. They may be influenced by bias based on political or ideological beliefs or personal interest or theoretical weaknesses. Some advocacy economists willingly check their brains at the door and substitute propaganda myth for analysis. With the most modest of tweaks, they can make their mathematical models sit up and spit nickels. They pretend mathematical rigor, but their gods are Greek.
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Models are mis-specified and require judgment at every analytical step. Erroneous emphasis and a multitude of inaccurate assumptions may undermine calculations. Data errors, unexpected "shocks," and the static modeling of dynamic economic systems routinely afflict mathematical analyses. They thus routinely miss major economic changes.

 

Instead of mathematical rigor, economic mathematical models are afflicted with rigor mortis.

  Manifold limitations of mathematical forms of analysis undermine macroeconomic analysis. Major economic changes are thus routinely missed.

  1. Models are unavoidably misspecified.

  2. Opaque aggregates provide a grossly incompetent picture of reality.

  3. Models require judgment at every analytical step - judgment that is often not acknowledged.

  4. Erroneous emphasis and a multitude of inaccurate assumptions may undermine calculations.

  5. There are inevitable data errors due to weaknesses in government and private data recording and the inherent inexact nature of the accounting arts.

  6. There are unexpected "shocks."

  7. The static modeling of dynamic economic systems routinely afflict mathematical analyses, and market dynamics are in any event poorly understood.

  Both astrology and economic mathematical models present explanations divorced from the living reality.  The systems described are dead. Instead of being enhanced by mathematical rigor, economic mathematical models are afflicted with rigor mortis.
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  The gods of economics are Greek. They perversely refuse to conform to mathematical projections based on opaque aggregates, whether the equations are simple or complex.
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Piketty

  A prime recent example is Piketty's mathematical explanation for the increase in and prospects for inequality. See, Piketty, Capital in Twenty First Century.
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  Increasing concentration of wealth, according to Piketty, involves the relationship of growth and the return on capital. If growth is slow - 0% to .5% - as it was in agrarian societies, and capital yields typically 4% to 5%, then wealth will accumulate from generation to generation. There will be an "inheritance society."
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  Piketty expresses this phenomenon mathematically as r>g: rate of return is greater than economic growth.

"[It] is important to realize that the inequality r>g, amplified by inequality in the returns on capital as a function of initial portfolio size, can potentially give rise to a global dynamic of accumulation and distribution of wealth characterized by explosive trajectories and uncontrolled inegalitarian spirals."

Even as broad approximations, Piketty's opaque aggregates are mugged by the historic facts.

  The economic characteristics and trends involved in Piketty's analysis are broad enough to survive statistical imprecision. That economic inequality was extraordinary before WW-I, declined substantially during the period of the great wars and depression, and has since considerably recovered is simply beyond question. However, even as broad approximations, his opaque aggregates are mugged by the historic facts.
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  Somehow, capital accumulated in the vast Vanderbilt fortune did not come close to dominating the financial scene at the end of the 19th century. Carnegie and Rockefeller fortunes did not come close to dominating the financial scene at the end of the 20th century. Is anybody stupid enough to believe that capital from the Bezos, Gates or Buffett fortunes or those of the other current billionaires will dominate the nation's finances 80 years from now?
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The problems with opaque aggregates:

 

 

 

 

 

There is the dead professionally managed capital that Piketty stupidly thinks will conquer the financial world, and live successfully managed entrepreneurial capital that in every generation will leave the dead capital behind in the dust in any reasonably free and competitive market.

  The aggregate for "capital" is obviously too broad and opaque to be meaningful. There are a multitude of devils in the  details. The GDP calculation has always been of dubious accuracy. For today's increasingly complex economy, it is a work of fiction
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  There is government "capital" and private "capital." Government capital includes not only the invaluable Golden Gate bridge but also bridges to nowhere and other boondoggles. Amtrak is valuable in the Northeast corridor but an economic burden in many other areas.
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  Private capital includes capital in competitive export industries that enhance economic strength but also the capital in subsidized industries like zombie banks and politically favored manufacturers that in some nations may actually be a heavy economic burden. Mathematical economists generally intentionally ignore these and a multitude of other distinguishing factors.
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  More to the point, there is the dead professionally managed capital that Piketty stupidly thinks will conquer the financial world, and live successfully managed entrepreneurial capital that in every generation will leave the dead capital behind in the dust in any reasonably free and competitive market.
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  Of course, in the socialist or other highly regimented economies such as Piketty loves so much, competition and entrepreneurial vigor will be conspicuous by their absence or greatly limited, so inherited and politically favored wealth may maintain dominance.
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  The gods of economics are Greek, and they do not bestow their favors in accordance with mathematical equations.

Mathematics as a Propaganda Ploy.

 Enmeshed in the mathematics propaganda ploy:

    Economics and sociology have become increasingly dependent on mathematical forms of analysis. Unfortunately, these efforts are rendered ludicrous by the impossibility of accurately measuring or calculating some of the most important of the pertinent outcome determinative variables.
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The inherent ineptness of government management is always determinedly ignored or ridiculously denied.

 

 

The effort to measure aggregates that can't be measured interferes with the essential task of professional evaluation.

 

It is soon most of the  middle class that become government dependents.

  Efforts to turn nonscientific practical arts into "sciences" for propaganda purposes of enhanced professional prestige and credibility began in the 19th century and, unfortunately, will continue unabated into the 21st century.

  • WW-I - undoubtedly the most stupidly fought war in history - was the product of military "science."
  • Marx claimed "scientific" precision, but his theories are actually not even logical. (see, Karl Marx, Capital (Das Kapital)(vol 1)(I), Introduction to Vol. 1, Parts I & II, at section on "Propaganda myths.") The Keynesians who led the United States into the decade of economic instability and often concurrent double digit inflation, unemployment and interest rates from 1972 to 1980 were similarly afflicted. The bankruptcy of much of the third world between 1975 and 1985 was the result of massive credits encouraged according to "scientific" socialist and Keynesian theories.
  • Political "science" and social "science" are taught in our universities without any effort to examine the gross limitations of the government decision making processes upon which policy is generally dependent. The inherent ineptness of government management is always determinedly ignored or ridiculously denied.

  Deceptions, intentional or unwitting, by economists and sociologists engaged in the intellectual discourse on public policy will remain a major problem as long as these fields continue to reduce professional analysis to mathematical calculation with no semblance of validity. In subsidized fields like health care and university education, academics and medical providers and their rapidly multiplying administrative personnel gleefully absorb all the government money provided and then scream for more. The gold-plating of facilities arises as if by some inescapable natural law.
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  The most essential question - most recently missing from the health care policy debate - is seldom asked: Where are the cost constraints?
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  What will happen to costs as legislators, administrators, and the courts continuously fiddle with the program and providers learn to game the system? What will be the impact of the next recession on current calculations?
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  Lacking effective cost constraints, it is not just the poor that become dependent on government for access to subsidized markets like healthcare and college tuition. It is soon most of the  middle class that become government dependents. See "Lies, Damn Lies and Projections. See, also, "Capital as Purchasing Power," segment on "Advocacy scholars."
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  The land of the free and the home of the brave is transformed into the land of government dependents and the home of the administrators who govern their lives. See, Hayek, The Road to Serfdom.
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   Indeed, aggregate economic models have proven so unreliable that not even the economists who work with them will vouch for their accuracy any more. See, Hendry and Ericsson, "Understanding Economic Forecasts."
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Mathematical economics is presented like a secular religion that must be accepted as a matter of faith. 

 

Anything that cannot be expressed as an equation is ignored, efforts are made to measure the immeasurable and calculate the incalculable, and evaluations are often based on phony "body count" benchmarks and indexes.

 

The efforts to enhance professional prestige by the deceptions of the "science" propaganda ploy have proven to be far from harmless.

   The ability to predict outcomes is the ultimate test of theory. However, published predictions and expectations have failed so miserably so often that many modern economists are now reduced to the ludicrous assertion that economic theory should not be judged on the basis of its ability to predict outcomes. Economic theory is somehow different and must be accepted as valid even if it never successfully predicts anything. It is thus presented like a secular religion that must be accepted as a matter of faith.
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  The tendency to believe one's own propaganda is one of the classic mistakes of the propagandist. All of the phony social "sciences" have suffered substantially from efforts to live up to their "scientific" image. Theories that are not based on mathematical reasoning are routinely ignored. Perfectly reasonable - and indeed clearly superior - objections to statistically and mathematically based reasoning are routinely rejected for lack of mathematical analysis. Anything that cannot be expressed as an equation is ignored, efforts are made to measure the immeasurable and calculate the incalculable. Evaluations are often based on phony "body count" benchmarks and indexes.
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  Indeed, the world has suffered immensely due to the limitations of those authorities who limited their professional understanding to the bounds of their "scientific" knowledge and insisted beyond reason that obvious objections be rejected.
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  As pointed out above - World War I - the Keynesian inflationary dislocations of the 1970s - the extensions of massive credits that bankrupted many third world nations in the 1970s and 1980s - and decades of decline and despair for billions of people afflicted with socialist and other command economy schemes - were all justified and facilitated by authorities acting on purportedly "scientific" principles.
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  The affliction is not limited to the political left. Neo-con enthusiasm for nation building has embroiled third world nations in unending conflicts. See, i.e., Boot, The Savage Wars of Peace, and Ferguson, Colossus. Policies based on perfect market theories collapsed spectacularly during the last recession. Market perfection is inevitably undermined by the inherent imperfections of the human participants and the weaknesses in the pertinent government policies. See, Scott, Capitalism: Origins and Evolution; Morgenson & Rosner, Reckless Endangerment.
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  The efforts to enhance professional prestige by the deceptions of the "science" propaganda ploy and mathematical analysis that lacks validity have proven to be far from harmless.
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  Some of the most influential economists have reduced themselves to mere technicians who uncritically apply mathematical forms of economic analysis and maintain a false pretense of scientific "rigor." They serve as propagandists. The electorate pays them well to mislead the electorate.
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  However, the gods of economics are Greek. They perversely condemn mathematical economists to be repeatedly mugged by reality. The tragedy is Greek in its scope and in the breadth of the suffering that is the frequent result.
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