Sunday, September 29, 2013

Is Economics a Real Science or a Pseudo-Science?


As a contrarian by nature, I have to wonder if it makes sense for our government to spend trillions of dollars to "stimulate" the economy. In short, do the ex-Goldman Sachs execs and their banker buddies who run the Federal Reserve System and the U. S. Treasury Department really know what they are doing? Another way of stating this is to ask "Is Economics a true science?"


We have seen in recent years (actually centuries) the coming and going of different abstract economic theories and the failed nature of most "modeling" attempts. And the profession's efforts during the last 100 years to "fine-tune" the economy have certainly failed--the cyclical booms and busts have increased in both intensity and frequency. During the past 40 years, while top economists debated the money supply, inflation, fiscal and monetary policy, a series of monstrous financial debacles recurred over and over again. The savings lost by Americans during the recent mortgage melt-down was a monumental failure on the part of the nation's economists.


Admittedly, the melt-down was primarily caused by a misguided political policy to grant loans to borrowers who were not credit worthy on properties with inflated values. But why did economists support those policies? Many worked for financial organizations that profited from the large volume of dubious transactions so were influenced by a bias of self-interest. But many did not benefit directly from the bubble. They just went along with the crowd--the politically correct path. If this analysis is correct, economics is either a fraud or its experts are intellectually dishonest.


Thomas Sowell has pointed out that there are the "hard" physical sciences like math, physics, and chemistry; and there are the soft sciences like political science, sociology, and anthropology. Sowell's distinction indicates that when you are dealing with inanimate objects, like atoms, numbers, and planetary motion, there are certain "laws" that govern activity. But, when dealing with human beings, there is little certainty about anything. So where do we place "economics?" The basis of all economics is what the individual citizens are  from time to time doing, so it has to be a "soft" science! Nothing is more erratic than human activity!


If we admit to this inadequacy, we can see that postulating universal axioms for economic activity is, if not futile, at least subject to wide ranges of predictability. Compared to astronomy, an economic model would be akin to knowing that the earth revolves around the sun somewhere between one and ten times a year, depending on a variety of unknown forces that vary every few months!


Nevertheless, the noted Nobel Prize winning economist Paul Krugman believes that he can manipulate economic activity based on his knowledge of human behavior. In his Introduction to the Folio Society's recent publication of Isaac Asimov's "The Foundation Trilogy," Krugman recalls how as a young man the series inspired him to study economics:  "I grew up wanting to be Hari Seldon, using my understanding of the mathematics of human behavior to save civilization." A true ivory-tower academic, Krugman thus reveals his intellectual arrogance, a preference for abstract theory over scientifically observable results, and an almost Messianic wish to save the world! Please God, keep us safe from such noble intentions!


Krugman may actually have sufficient hubris to believe that he has "The Power" to control the economy, and to understand the "mathematics of human behavior." But does any sane person believe him? Isn't he just a useful tool for the bankers that run the Treasury Department and the Federal Reserve? They are the major financiers of Wall Street. They are playing for keeps and always seem to come out a few billion dollars ahead of everyone else. Aren't they just using all the economic mumbo-jumbo of the Krugman's to line their own pockets? Are all the economists in tacit league with the bankers just to keep their jobs? Do the politicians usually support Keynesian policies merely to justify their position and increase their regulatory power?  If you answered "yes" for all go to the head of the class!


If there is a mathematical formula to human behavior it is best evidenced by the recurring efforts of leaders to administer economic controls, jiggle monetary policy, and apply fiscal/tax incentives to manage their nation's economies. This mathematically predictable hubris on the part of leadership elites has proven to be, unfortunately, a reason to disbelieve all such claims! Robert L. Schuettinger and Eamon F. Butler's book, "Forty Centuries of Wage and Price Controls," documents how such efforts have consistently failed since Hammurabi attempted it about 4,000 years ago! Of course, such predictable behavior, repeating policies that have always failed, and hoping for better results, is a form of insanity. Fortunately, such predictably bad behavior is limited primarily to abstract-thinking intellectuals who are more fascinated with elegant theory than actual results.


It is this elevation of theory over practice that renders economics a "soft" science. In engineering, a machine must function efficiently to be used, regardless of the beauty of its design. To the extent that economic theories have been tested in practice they have never proven useful. No attempt was ever made to measure their effectiveness, nor can such measurement be accurately made.  Without accurate measurement no pursuit can be called scientific.  The economic health of a society is the sum total of its inhabitants' activity and, humans being as unpredictable as they are, most governmental efforts to direct their energy serve more as a suppressant than a stimulus. In fact, economics, although a soft science, has proven to give us mostly hard financial landings.

Sunday, September 15, 2013

The Need To Revisit Our Foreign Policy -- This One Isn't Working Well!


The current fiasco over Syria has highlighted the confusion and inconsistency of America's foreign policy.  Secretary of State John Kerry" attempts to explain each new twist and reversal in the failed policy of his President has made a laughing stock of this administration.  Ironically, the general policy during the last six years has been a continuation of the George W. Bush policies that Obama campaigned against and promised to reverse. But today we are still enmeshed in the Middle East conflicts. The number of Americans killed in Afghanistan under Obama now exceed those killed under the Bush presidency. Camp Gitmo remains open, and the Muslim extremists are gradually taking over one more country after another. The subversion of relatively stable regimes in Libya and Egypt was supported by American force only to increase the influence of our enemies. The president's recent threat to bomb Syrian government bases would have also helped the extremists take over one more nation. That such folly was avoided only by the intervention of Russia and Iran indicates the extent to which American leadership has fallen.

American liberals and most Democrats opposed the Iraq war because, among other things, they argued that nation building was not the responsibility of America. However, after WWII we did make decent and viable democracies out of Germany, Japan, and South Korea. Our resident generals were not limited by today's politically correct "rules of engagement," and working with industrious and educated populations, those three countries responded positively.  However, we have discovered that the Muslim nations in the Middle East are a different kettle of fish--they are torn by religious fanaticism, divided by the mutual hatred of ancient tribal grievances, and segregated into diverse religious sects that are devoted to wiping out all other groups. And the populations are primarily uneducated and unemployed, living off the flow of oil money that can only be produced by the expertise and initiative of foreign companies and workers. If the Iraq and Afghanistan conflicts did nothing, they at least showed that we cannot repeat the Japanese miracle in the Middle East. Unfortunately, the diplomats in Foggy Bottom, and the President, have not learned this fact.  Why, when it is now so obvious, have they failed to see this point?

We are suffering from an excess of internationalism. This dates back to the defeat of isolationism during the last century when the original founding principle of America to avoid foreign entanglements was dominant.  As with most "isms," there seems to be no happy medium. The cure for today's excessive foreign interventions is to seek such a happy medium, but the thousands of government employees in the State Department, and many of our political leaders, have nothing else to do and believe it necessary "to lead" by action and talk to justify their positions.  The result is that America is always sticking its nose into the affairs of other nations. A recent egregious case was Obama's lecturing Russia's leader, Putin, about gay rights. So much for knowing how to win friends and influence people!

It is useful to recognize how the world has changed when devising foreign policy. The Cold War is over, world commerce is thriving and connecting more and more nations and their people, and we need not worry so much about so-called "strategic interests" in every corner of the globe. We do not have to "control" the Middle East to get oil because there are plenty of other sources and the nations there will want to sell it on the world market anyway. And, if China or Russia want to try their hand at controlling the Middle East, let them--after all that region is known as "the graveyard of civilizations." Finally, if we were to disengage, there would be less reason for foreign people to hate us.

It is also useful to recognize that America's multi-national corporations have been much more successful in "foreign affairs" than our government has been. You don't read about it in the mainstream media, but Kellogg, Intel, Exxon, Microsoft, and hundreds of others have elaborate investments and manufacturing operations in virtually every country on earth, including  some of the most unstable nations, and they are doing well. They build factories, employ local residents, follow their laws, pay taxes, and thrive. Why is it just our government that is always in trouble everywhere? Two reasons: 1.) Our government has no legitimate interest or reason to bother other nations, and 2.) Governments tend to do most things poorly, as overwhelminly proven by our recent efforts in the Middle East.

While it has been a noble idea for America to be a beacon of freedom, and to stand up for human rights, the best way to do that is by setting the example--not by preaching to others. Our objective should be to restore our own house to optimum financial order, eliminate corruption, fix our schools, and maintain our military might. The constant urge to intervene everywhere on earth has us overextended and earned the ill-will of many nations. The best medicine for our foreign policy would be to stop all foreign aid payments, return all our troops to America, completely close every endangered embassy, and let the State Department rolls be cut in half through attrition--then they could only do half the mischief they currently inflict on us.  


Wednesday, September 11, 2013

Nature Vs. Nurture  --   Part  III  --  Culture Trumps Both Genes and the Environment

In Parts I and II we have noted how the huge advances made by human societies over the last 5,000 years were made possible, unfortunately in only a few regions of the world, by the gradual accumulation of knowledge and the development of enabling institutions, beliefs, and attitudes. Thus, our extraordinary "evolution" has been cultural, and not biological. There has been no significant change in the genetic ability of the world's human population over that same period. The vast improvements for the "winning" nations' people, in both affluence and freedom, have resulted from the way those societies have been organized and their children reared.

History tells us that a safe environment combined with the provision of healthy nutrition and stimulating experiences will make useful and mature adults. Consequently, in America, vast sums have been spent on schools and colleges in the hope of providing the best "environment" for our childrens' development from childhood, through adolescence, and into adulthood. Curiously, before 1900, children grew up with very little of those advantages, and yet the nation grew from a wilderness outpost to a world superpower. And, we must note, much of the Industrial Revolution was fueled in England by generations of youth with virtually no education who were apprenticed out at puberty to work in a trade. So we must ask two questions: Is it really necessary to make the physical environment so attractive? And what accounts for the undeniable success of England and America when the physical environment was harsh?

Robert Epstein, writing in "The Case Against Adolescence," has argued that we are hurting ourselves by trying too hard to provide extraordinary security and stimulation to our youth, because it has led to a harmful "deferment" of growing up and is creating a new generation of immature adults. Maura Pennington, writing in Forbes magazine has described the related problem about how many of today's young adults are "lost," plagued by an internal emptiness and lack of purpose.  "In a life with goals and meaning, anything can be achieved.  Without it, a person is lost. . . The lost ones are smart.  They pay attention to what goes on in the world.  They read the news along with the lists of 37 GIFs.  Yet what can they do?  They have minimal discretionary income and their free time is spent unwinding from occupations that force them to look at backlit words for eight hours or deal with whining strangers.  They are fully adults and can’t boast of anything their parents had at this age besides better means of communication, which many are horrible at maintaining."

Pennington writes this about the half of the country's youth who are overindulged. She doesn't even address the problems of the other half, many illegitimate, isolated in urban and rural ghettos, with little hope of ever having meaningful roles in the mainstream society outside gangs, drug dealers, and personal dependency. This dual problem illustrates the fact that the "environment," as it affects our youth, is made up of two parts: the physical and mental. It seems that we have overdone the physical part and neglected the mental and spiritual basis of both personal and national strength. In Parts I and II the point was made that throughout history progress has been made possible by encouraging the creativity of individuals whose positive attitudes and motivations drove them to make use of the enabling institutions they enjoyed. Unless the culture and the family injects a purposeful mind-set in its youth, the provision of a beneficial physical environment is wasted. Surprisingly, it is the collective "attitude" of a populace that makes or breaks a nation! Race, genetics, and luxurious surroundings are irrelevant.

So what have been the cultural factors that accelerated national advances and led to the personal growth and maturity of its citizens? Clearly, the technical innovations that built prosperity were devised by hard-working and ingenious individuals--governments did not invent the cotton gin, the combustion engine, the electrical generator, and antibiotics, nor did they design the bridges, airplanes, and magnificent buildings that adorn the land. And we know that those individuals who deserve credit were no smarter or more capable than the people populating the areas in the world that stagnated. What caused the different outcomes? The common denominator for progress has often been attributed to the personal characteristics passed down from prior generations endowed with the Greek-Judeo-Christian heritage. That heritage celebrated the importance of each individual human life and encouraged personal accomplishment, honor, thrift, and family. The uniquely Christian idea of free will taught those people that they were responsible for their behavior, and endowed with the capability to accomplish great things. After the Protestant Reformation, Kings, priests, and aristocracies were resisted, since everyone's prime allegiance was owed directly to God, and secular authorities became secondary. In most Western nations the coexistence of Science and Faith was affirmed. The resulting freedom and personal striving unleashed the wonders of modern technological progress, and it occurred very rarely anywhere else on earth!     

There is a lesson about the rise and fall of nations here: America was founded by self-reliant and restless people who were sick and tired of waiting for Old Europe's aristocracies to grant them equal opportunity and economic liberty. These like minded individuals arrived in the New World and founded a land of freedom that remained for a long time unburdened by aristocrats or intellectuals. The only thing they brought with them was the English common law and a respect for private property. And, it is noteworthy that the subsequent success of these common immigrants was unparalleled in history.  It was their attitude and beliefs that set them apart. Each new generation was imbued with the values and attitude of the pioneers.

But, with the huge success we have enjoyed, our populace has grown a hundred-fold, and not everyone is as fearlessly independent as those who crossed the oceans to carve out free lives for their families from a wilderness.  It doesn't help that our educational elites teach the children that all cultures are equally good, and go on to denigrate many of the unique features that made America great. And it looks like the tipping point for America has been reached--approximately one-half the voters now want a permissive mommy state, especially if she is indulgent and "compassionate" with her hand-outs, regardless of the dollar costs or its impact on the independence of the people. More harmful is the splitting of the populace into two halves--the spoiled and advantaged versus the despairing and dependent--a division greatly valued by the two major political parties that feast off the grumblings and emotions of both sides. The result is that neither the haves nor the have-nots possess the essential attitude and beliefs that made our grandparents and our country such winners. As Paula Cole laments:              
                                   Where is my John Wayne
                                Where is my prairie song
                                   Where is my happy ending
                                      Where have all the cowboys gone
In summary, our genetics and physical environment have not changed; indeed the physical environment has improved. But our beliefs and attitudes have softened, motivation has declined, and the former moral compass is being lost. The self reliance and contribution of a growing portion of the citizenry is falling. The "best and brightest" are increasingly applying themselves to careers that feed off the bureaucracy, the growing regulatory morass, and the corrupt alliance between Wall Street and Washington.  Moral relativism and multiculturalism have blurred the difference between constructive behavior and dishonorable behavior.  These trends, seen so clearly at the national level,  are simply reflections of the populace at large.

It should be obvious that if all America's children were raised to be responsible, honest adults, and raised their families to repeat the process, as they have for generations past, the nation would keep getting stronger and more prosperous. Given security, and even a half-reasonable physical environment, both our children and our nation will succeed if they maintain the positive and constructive beliefs and attitudes of our forbears. Without such a mental and spiritual foundation, no nation, or individual, regardless of their endowment, can long endure.   

But, to look for a bright side to it all-- It was a great run--for almost 400 years! Not too bad for just another of the recurring cycles in the rise and fall of successful societies. The shame is that it is all just so darn predictable! It doesn't have to end!