Saturday, October 6, 2012

Laying out the Road Map

Ok, so I recently threatened activity, and here it is. But before we really get started, let's lay out some ground rules.

       Rule #1.  I will do my absolute best not to preach from a position of intellectual superiority/certainty

This is kind of a big one that has a few different consequences. The focus of this one isn't much in a personal sense- my "worry" isn't coming off as an arrogant prick, but I promise to do my best in this regard as well.

 It's that I had originally considered regearing this blog to be an explanation to all the other poor saps who have yet to understand the important things I have learned from sources much smarter than I am. Yet, I could never bring myself to do it. I never felt ready.  I still didn't get it, certainly not it in it's entirety. Of course, if anyone did understand how everything worked, they should be making infinite amounts of money on the stock market. 

I tacked on "certainty" at the end of the rule because certainty in Economics is an impossibility. In a true science one can set up an experiment to test what happens when changing exactly one variable. Conditions can be controlled precisely so that no other factors interfere with a well-run experiment. In Economics, especially at the Macro level, this is far, far beyond impossible. Despite the cool certainty many Economists have when saying that a spending cut is less damaging to an economy than an equivalent tax increase, there is actually no way to prove this in a carefully controlled experiment. It would require a God-like power to run one trial with the spending cut, turn back time across all the universe, and then rerun the trial with the tax increase. Economists have taken to statistical analysis in place of proper controlled experiments. I won't say that's total garbage, but it leaves much to be desired.

So, to reinterpret Rule #1: I don't have the answers. That's ok.

     Rule #2. People are smart, and ideas are powerful- even the unknowable can be slowly conquerered

I guess this one is kind of a cop out, sort of a repeal on #1. But combining the two, I mean this: we should drop all of our airs that any one person's vision of Economics is the only right one, but collectively we are making progress. In a very real sense the study of Macroeconomics was only created in the 1930's as people grasped to understand the mechanism behind the Great Depression. A suggestion that Economics still espouses some ideas that are equivalent to the common belief of an Earth-centric universe shouldn't surprise or insult anyone. 

So if the classic scientific method isn't available to Economists, what should we use? I dissed the preferred tool of Economists, statistical analysis a moment ago. It has its uses, but I can't even begin to count the number of papers where they prove statistically the exact opposite of the proof from another similar article.

I prefer logic-based tests, even though they're equally flawed, as they conveniently ignore complicating factors, but I personally feel more comfortable using them. So there.

      Rule #3: Rule #1 applies to you too.

I might come to a conclusion here that violates everything you know/believe. Every idea on which you and I have based our understanding of the economy will certainly be looked back on a 1000 years from now has being terribly primitive. Yet, the politically-minded usually hold these economic considerations very much at the core of their own political identity. I think the Economic debate, especially the American one, would greatly benefit from a little less certainty than one's side is absolutely right, and the other side is as wrong as a cartoonish villain. So, let's open our minds and not take an attack on the ideas we imagine to be right as an attack on our character. There's nothing wrong with believing in one particular theory over another, just remember that we're probably all wrong in the very long run.