because it
To borrow from Warren Buffett, don’t ask the barber if you need a haircut – and don’t ask an academic if what he does is relevant. So I’ll end this discussion of Hayek’s libertarianism with the following observation. As I’ve said, the problem with organized knowledge is that there is an occasional divergence of interests between academic guilds and knowledge itself. So I cannot for the life of me understand why today’s libertarians do not go after tenured faculty (except perhaps because many libertarians are academics). We saw that companies can go bust, while governments remain. But while governments remain, civil servants can be demoted and congressmen and senators can be eventually voted out of office. In academia a tenured faculty is permanent – the business of knowledge has permanent “owners”. Simply, the charlatan is more the product of control than the result of freedom and lack of structure.
If you know all possible conditions of a physical system you can, in theory (though not, as we saw, in practice), project its behavior into the future. But this only concerns inanimate objects. We hit a stumbling block when social matters are involved. It is another matter to project a future when humans are involved,
If I can predict all of your actions, under given circumstances, then you may not be as free as you think you are. You are an automaton responding to environmental stimuli. You are a slave of destiny. And the illusion of free will could be reduced to an equation that describes the result of interactions among molecules. It would be like studying the mechanics of a clock: a genius with extensive knowledge of the initial conditions and the causal chains would be able to extend his knowledge to the future of
However, if you believe in free will you can’t truly believe in social science and economic projection. You cannot predict how people will act. Except, of course, if there is a trick, and that trick is the cord on which neoclassical economics is suspended. You simply assume that individuals will be
In orthodox economics, rationality became a straitjacket. Platonified economists ignored the fact that people might prefer to do something other than maximize their economic interests. This led to mathematical techniques such as “maximization”, or “optimization”, on which Paul Samuelson built much of his work. Optimization consists in finding the mathematically optimal policy that an economic agent could pursue. For instance, what is the “optimal” quantity you should allocate to stocks? It involves complicated mathematics and thus raises a barrier to entry by non-mathematically trained scholars. I would not be the first to say that this optimization set back social science by reducing it from the intellectual and reflective discipline that it was becoming to an attempt at an “exact science”. By “exact science”, I mean a second-rate engineering problem for those who want to pretend that they are in the physics department – so-called physics envy. In other words, an intellectual fraud.
Optimization is a case of sterile modeling that we will discuss further in Chapter 17. It had no practical (or even theoretical) use, and so it became principally a competition for academic positions, a way to make people compete with mathematical muscle. It kept Platonified economists out of the bars, solving equations at night. The tragedy is that Paul Samuelson, a quick mind, is said to be one of the most intelligent scholars of his generation. This was clearly a case of very badly invested intelligence. Characteristically, Samuelson intimidated those who questioned his techniques with the statement “Those who can, do science, others do methodology”. If you knew math, you could “do science”. This is reminiscent of psychoanalysts who silence their critics by accusing them of having trouble with their fathers. Alas, it turns out that it was Samuelson and most of his followers who did not
Tragically, before the proliferation of empirically blind idiot savants, interesting work had been begun by true thinkers, the likes of J. M. Keynes, Friedrich Hayek, and the great Benoit Mandelbrot, all of whom were displaced because they moved economics away from the precision of second-rate physics. Very sad. One great underestimated thinker is G.L.S. Shackle, now almost completely obscure, who introduced the notion of “unknowledge”, that is, the unread books in Umberto Eco’s library. It is unusual to see Shackle’s work mentioned at all, and I had to buy his books from secondhand dealers in London.
Legions of empirical psychologists of the heuristics and biases school have shown that the model of rational behavior under uncertainty is not just grossly inaccurate but plain wrong as a description of reality. Their results also bother Platonified economists because they reveal that there are several ways to be irrational. Tolstoy said that happy families were all alike, while each unhappy one is unhappy in its own way. People have been shown to make errors equivalent to preferring apples to oranges, oranges to pears, and
You have to learn to live without a general theory, for Pluto’s sake!
THE GRUENESS OF EMERALD
Recall the turkey problem. You look at the past and derive some rule about the future. Well, the problems in projecting from the past can be even worse than what we have already learned, because the same past data can confirm a theory and also its exact opposite! If you survive until tomorrow, it could mean that either a) you are more likely to be immortal or b) that you are closer to death. Both conclusions rely on the exact same data. If you are a turkey being fed for a long period of time, you can either naively assume that feeding
FIGURE 3
A series of a seemingly growing bacterial population (or of sales records, or of any variable observed through time – such as the total feeding of the turkey in Chapter 4).
FIGURE 4
Easy to fit the trend – there is one and only one linear model that fits the data. You can project a continuation into the future
