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Sir Humphrey

Why do economists insist on rational markets?

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Forgive me as this may become a bit technical. I will try to keep this as brief as possible.

 

This comes down to a conflict between positivism and humanism. Positivism is the belief that all that is true can be proven by science and that the future is inevitable (determinate). Humanism is a belief in the human self as well as the outside world (partial indeterminism).

 

The reason that many economists like to reject behavioural finance is that it is unscientific, and therefore must be untrue, (since only science is truth). They are correct that behavioural economics it is not scientific, but wrong that it must be untrue, (IMO). But why?

 

Positivism is based on the assumption that only logic (analytical reason based on observation) is valid and that synthetic reason (reason based on what we know to be true within ourselves is invalid). An example of a synthetic argument is "I think therefore I am (exist)". Positivists reject this argument as it is not permissible in formal logic (as indeed it is not). Instead, positivists have to assume that the outside world exists, and assume thier own existence. This is at the core of the argument that science is a religion: it is based on a leap of faith (an assumption that something exists).

 

This has serious ramifications, as it would make science irrational, since it is based on an unjustified assumption.

 

But there is an escape. If scientists admit that science is not the entire truth, then they can accept "I think therefore I am" as a valid synthetic argument. However, this alone does not rescue science, but instead leads to postmodernism. Since we now accept the self and the non-self (positivism only accepts the non-self and not the self), how can yo be sure of what is the non-self? There is still an assumption (leap of faith) namely that scientists are telling the truth as they see it (are honest). This is because the argument "I intend to do something so therefore I do it" is (as Wittgenstein points out) is not an analytical (logical) argument, but a synthetic one.

 

So to trust science, you have to accept the synthetic argument to justify intentionality. This now also justifies humanism, since it allows arguments about human intention. It also allows discussion of ethics as being meaningful, since these are based on synthetic arguments.

 

So therefore we arrive at a happy conclusion: that science can explain the natural world around us, but not ourselves. To explain human behaviour, we can construct synthetic arguments, which can then be analysed by logic. It can also avoid the idea that markets are like forces of nature, but functions of human understanding.

 

Why is this important? It relates to totalitarianism: a belief in inevitability leads to totalitarianism, since it renders choice irrelevant. But wehat do we mean by choice? Market theorists assume that choice must be scientific. However, this is not real choice, since it must always be to a rational conclusion. Choice has to mean the ability to choose on non-rational grounds, such as the basis of emotion (emotion has no real meaning to a positivist). As explained above, market choice is based on a leap of faith, and does not admit the possibilty of being wrong (as it is "scientifically proven"). Thus it is fundamentalist in nature.

 

This has relevance to liberty. Market fundamentalists claim to be only in favour of negative liberty: the freedom to act unhindered. However, this is because that behaviour must lead to an inevitable conclusion. The inevitable consequence is the dehumanising enslaving of humanity, where the good life is entirely material. Market fundamentalists only believe that people can follow the market, which is not true liberty at all. This is the conclusion of positivism, but as argued above, this is based solely on faith.

 

To avoid this fate, what is the conclusion? The answer is some positive liberty. But does that not lead to the road to serfdom? As I argue above, free market fundamentalism also leads to serfdom. It also leads to environmental destruction. If the state controlled everything, then people would then again be enslaved. But if the state controlled nothing, then enslavement would result. Obviously some control (positive liberty) is required, but it needs to be demarcated.

 

Firstly, on what basis do we decide? Public consensus, which can be derived from various forms of democracy. Security and welfare can be justified on negative liberty grounds (the prevention of harm). The right types of positive liberty can allow humans to fulfill their potential, and so must be at least partly free of market forces. To fulfill their potential, people need transport, health, education (to list just three). These are the tools for people to be free. A democratic state providing or controlling these services is not a road to serfdom, but a road to freedom. A private company cannot provide these alone, as they are guided by market forces.

 

So you can see why many economists who insist that economics is pure science fail to accept behavioural economics. Behavioural economics is humanistic economics, as it explains the behaviour of humans, in turn based on their emotions. Since it justification is based on two synthetic arguments ("I think therefore I am" and "intention leads to action") it is more rational than the supposedly rationalist economists, who hide their leap of faith. It also avoids postmodern nonsense, as it does not apply synthetic argument to the area of science. Both humanism and science are strengthened as a result. Robert Shiller comes up with positive liberty suggestions with regards to the housing market, environmentalists to save the environment, and social democrats for society. All try to promote human flourishing.

 

Most actual scientists realise that science cannot explain everything, but sadly economists seem to be ignorant of the philosophical underpinning (epistemology) of their work. Classical microeconomists do not seem to even accept any conception of Popperian falsifiability, which is not even the last word in the philosophy of science.

 

Personally, I tend to be convinced by Irme Lakatos in terms of the correct philosophy for science BTW. His reasoning is partly synthetic (as indeed is Karl Popper, who rejected positivism). It is mainly useful to apply in terms of classical microeconomics, (which I consider to be degenerate in Lakatos's terms).

 

http://en.wikipedia.org/wiki/Imre_Lakatos

 

Whilst I personally am reasonably confident in the possibilty of Macroeconomic theory, I think it should be treated as an area of humanities. This is owing to the fact it is based on human behaviour, which cannot be entirely explained by science. Better a good humanity than a bad science. This is how I justify my own position of Keynesianism underpinning by behavioural economics rather than microeconomics. This is in contrast to neo-classical Keynesianism, monetarism or Austrian economics.

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So therefore we arrive at a happy conclusion: that science can explain the natural world around us, but not ourselves.

...

Market fundamentalists claim to be only in favour of negative liberty: ...that behaviour must lead to an inevitable conclusion. The inevitable consequence is the dehumanising enslaving of humanity, where the good life is entirely material. Market fundamentalists only believe that people can follow the market, which is not true liberty at all. .

 

in GENERAL, fundamentalists rarely make big money,

while good technicians do

 

If you agree with that, it should tell you something

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in GENERAL, fundamentalists rarely make big money,

while good technicians do

 

If you agree with that, it should tell you something

 

I agree that technical analysis can be a useful diagnostic tool for specific areas. My contention would be that they are not completely reliable, and need to be viewed in terms of externalities. In other words, take them with a pinch of salt.

 

It seems to me that most of the technical analysis here is predicated on the synthetic statement that intentionality leading to action (in other words, people can decide in accordance to thier hopes and fears and are not slaves to reason). If everything that is meaningful could be explained by science then a fixed, definite probabilty on something happening. Hope and fear would be logically impossible to influence action, so could be ignored as meaningless.

 

However, the study of the mathematics of probably (developed for the study quantum physics) shows this is not possible/not yet discovered. This is because probability is recursive.

 

The financial system as it is said up by CDOs etc seem to think that perfect hedging is possible. However, my arguments demonstrate this is based on faith, as accepting science on a non-faith basis involves accepting that science cannot explain all of human behaviour (at least at a micro level).

 

BTW, Kondratieff waves are based on synthetic reason (indeed I imagine they are based on dialectical materialism - the discredited epistemology of Leninism that synthetic ideas can exist outside the human mind). It seems that free marketeers make an opposite mistake: that analytical ideas are the sum of human ideas, which is obviously false since human existence can only be non-faith justified by a synthetic argument "I think therefore I am".

 

I should point out for Enlightenment obsessives that no scientist accepts unaltered Enlightenment values. Enlightenment rationality is no longer accepted by scientists or most philosophers (even philosophers who detest postmodernism). I also detest postmodernism, but accept that it is has a valid critique (buried under mountains of mumbo-jumbo). This critique for me confirms a form of existential humanism, combined with natural science for the area of science. It also rejects Marxism (which IMO is inconsistant with humanism, at least in it's "scientific" form).

 

I suppose my view puts me roughly in agreement with George Orwell (who thought that communism and unrestricted capitalism would lead to dehumanisation - the boot on the face of humanity).

 

EDIT: Clarification: "Scientific Marxism" is dialectical materialism. Earlier humanist Marxism has a lot going for it, as it seems to share a lot of reasoning with environmentalism and even old-fashioned Toryism (the ends are similar, only the means are in dispute). Anyone who talks about class or "pigmen" accepts some of Marxism. Nonetheless, I do not consider myself Marxist by any stretch of the imagination, since I believe in progress rather than revolution. IMO, revolutionary moments are Lakatos style tipping points rather Kuhn style paradigm shifts I need to disclaim that I am not an expert on Marxism.

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Critics of postmodernism (and I am one) often mention the Sokal Affair as a serious criticism of postmodernism.

 

http://en.wikipedia.org/wiki/Sokal_Affair

 

However, treating people in strictly scientific manner (behaviourism) has an equally devastating criticism:

 

http://en.wikipedia.org/wiki/Rosenhan_experiment

 

People should be aware that philosophical objectivists such as A.C. Grayling are a very much a minority view in modern philosophy.

 

I state this because I am sick to death of the nonsensical debates of science vs God in the newspapers. To be clear: science can offer overwhelming evidence against religious doctrines such as crude creationism, but provide no logical proof or non-proof for the idea of a creator. Sensible theologians now reconcile evolution with the idea of a creator. In other words, science can disprove literalist readings of the bible, but not God (of some sort).

 

This is because analytic and synthetic reason only applies to the period after the start of the Universe. Science is agnostic, not atheist. I personally am agnostic as I am unprepared to make a leap of faith either for or against God.

 

EDIT: Comment about Francis Wheen and Jamie Whyte removed as possibly unfair.

 

EDIT 2: Futher justification from one of the most recent books on the philosophy of mind. http://consc.net/book/intro.html

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To be clear: science can offer overwhelming evidence against religious doctrines such as crude creationism, but provide no logical proof or non-proof for the idea of a creator.

 

Ah, your fellow countryman Isaac Newton would be very disappointed to hear this considering it was his great task to show that God is the origin of the universe and natural phenomena.

 

Are you familiar with the work of that other great Englishman, John Henry Newman, on epistemology? If so, what do you think of his argument for faith based on conscience?

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Ah, your fellow countryman Isaac Newton would be very disappointed to hear this considering it was his great task to show that God is the origin of the universe and natural phenomena.

 

Are you familiar with the work of that other great Englishman, John Henry Newman, on epistemology? If so, what do you think of his argument for faith based on conscience?

 

I consider the possibility of a leap of faith, and make no comment on the creation or non-creation of the universe.

 

Newtonian physics are disproven, kaput, falsified BTW. Lots of philosophers and scientists have tried to prove the existence of God from logic, but none have succeeded (at least not yet). It is just a matter of belief.

 

I also make no claims as to whether religion is a good thing or not. I think Richard Dawkins is quite wrong to make the arguments he makes. What he should be arguing against is fundamentalism, which I think is very, very wrong.

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"The functions that cannot and should not be governed purely by market forces include many of the most important things in human life, ranging from moral values to family relationships to aesthetic and intellectual achievements. Yet market fundamentalism is constantly attempting to extend its sway into these regions, in a form of ideological imperialism. According to market fundamentalism, all social activities and human interactions should be looked at as transactional, contract-based relationships and valued in terms of a single common denominator, money. Activities should be regulated, as far as possible, by nothing more intrusive than the invisible hand of profit-maximizing competition. The incursions of market ideology into fields far outside business and economics are having destructive and demoralizing social effects. But market fundamentalism has become so powerful that any political forces that dare to resist it are branded as sentimental, illogical, and naive.

Yet the truth is that market fundamentalism is itself naive and illogical. Even if we put aside the bigger moral and ethical questions and concentrate solely on the economic arena, the ideology of market fundamentalism is profoundly and irredeemably flawed. To put the matter simply, market forces, if they are given complete authority even in the purely economic and financial arenas, produce chaos and could ultimately lead to the downfall of the global capitalist system."

 

George Soros

 

http://www.thirdworldtraveler.com/Global_E...lism_Soros.html

 

But hey! What does he know about Capitalism! :P:lol:

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One further point.

 

I need to emphasise the role of the state in an open society. Provided the state is democratic (and I support Proportional Representation BTW) then it is legitimate for the state to regulate (not control) civil society.

 

The problem with Popper and Hayek's view of the open society is that it is not actually democratic; it is plutocratic. Thus is becomes yet another form of tyranny, where the benefactors exercise control over the workings of civil society without checks and balances. Such control would lead to corruption without state regulation. Bear in mind if you have any doubt that an open society would lead to uncontrolled trade unionism. If you accept Hayek's argument, then that is the position you have to agree with.

 

Also, the arguments on the open society also concentrate too much on positive liberty. The state has a role in negative liberty in providing security (such as in policing, welfare, health, education and defence). If people have to provide their own security in those areas, it does not leave the opportunity for most people to flourish in the open society. It would only allow a few to flourish and the rest to live hand to mouth.

 

It is obvious that such a system would be unsustainable in the long run. You have to find a balance between security (negative liberty) and the opportunity to flourish (positive liberty). If you think that the open society alone can solve problems, then you are just another kind of fundamentalist.

 

This would seem to be the realisation of George Soros, whom I believe advocates a mixed economy.

 

What many do not understand about mixed economies is that they are NOT the same as central control. In the UK historically (under the post War consensus), parastatals (I use the example of British Rail) received government funding which was then spend in accordance to the wishes of BR Senior management. Government intervention only occurred if BR operated against the public interest (and even then often failed to do so). This is how the SNCF in France still works. This allows a balance between short-term marketism and long-term strategic planning. BR could also cross-subsidise from it's profitable Intercity sector to fund non-profitable but essential regional services, allowing services to be run with less taxpayer subsidy.

 

IIRC, public subsidy since the end of BR has risen 5 fold. So denationalisation has in fact led to an increase in centralised control and a reduction in running the railway as a service, (as is evidence by the huge fare inflation). This has broader economic effects of stoking inflation and reducing the potential growth of the economy as a whole.

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Newtonian physics are disproven, kaput, falsified BTW. Lots of philosophers and scientists have tried to prove the existence of God from logic, but none have succeeded (at least not yet). It is just a matter of belief.

 

Newtonian physics are very instrumental for use in everyday life unless you're studying matter at very high velocity. I use his laws of physics every day in my job as an engineer (I have never used Einsteinian physics or quantum physics in my field), with full knowledge that they are merely instrumental and not "true." I have no more faith in Einsteinian physics or quantum physics; they are merely instrumental in their own respective spheres.

 

Lots of philosophers have also tried to prove the existence of themselves unsuccessfully (as you have pointed out). That doesn't mean they don't exist, and it similarly doesn't mean that the existence of God can't be inferred from his creation even though no one has developed a formal logic to do so that satisfies your criterion of logic.

 

I would be interested in hearing your opinion on John Henry Newman. I would not characterize his assent to belief as the "leap" of faith that you are talking about.

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Newtonian physics are very instrumental for use in everyday life unless you're studying matter at very high velocity. I use his laws of physics every day in my job as an engineer (I have never used Einsteinian physics or quantum physics in my field), with full knowledge that they are merely instrumental and not "true." I have no more faith in Einsteinian physics or quantum physics; they are merely instrumental in their own respective spheres.

 

I agree that it has its uses as a tool in everyday life. However in terms of pure science, it is falsified research programme (to use Imre Lakatos's refined falsification theory). It is a sort of very refined heuristic. Just because something is falsified, it does not mean it is useless.

 

Lots of philosophers have also tried to prove the existence of themselves unsuccessfully (as you have pointed out). That doesn't mean they don't exist, and it similarly doesn't mean that the existence of God can't be inferred from his creation even though no one has developed a formal logic to do so that satisfies your criterion of logic.

 

All I am arguing is that it cannot YET be proven with PURE analytic (logical) inferences. This is what many people call "reason". Scientific positivism is the position that only analytic arguments can be used in science, and that science is all that is knowable. My argument is not against religion, but against militant atheists such as Daniel Dennett, Richard Dawkins and the other so called "brights".

 

You can construct agruments for and against God with SYNTHETIC arguments. Indeed, as I argued above, synthetic arguments are required to justify science. IMO, this is a still reason, but with a broader definition than allowed by Wittengenstein, Ayn Rand etc etc. I am not a logician, but I believe that fuzzy logic etc is a means of incorporating synthetic argument into formal logic.

 

This is actually the mainstream view of science since WVO Quine published "Two Dogmas of Epiricism" in the early 1950s. The philosophy of Popper and Lakatos (and indeed Kuhn) use synthetic arguments. The point I am making is that many economists do not seem to actually understand science properly and fail to realise that it is irrational to treat analytical science as the potential sum of human knowledge (owing to an epistemic reducio ad absurdum I mention above).

 

To come back to God. It is difficult to make statements about God without causing offence one way or the other.

 

The "leap of faith" is the currently accepted justification for believing in God. The way it works is as follows. You look at the world around you and have to see how credible it is that God exists or not. Such musings may relate to human suffering or whatever. You compare modern knowledge with scripture to see which religion corresponds with current knowledge (both of oneself and of science). This involves a non-literal reading of scripture (that it could be allegory for instance). If you find it beyond credence that there is not a God, then you then come to belief in God. This is in the absence of conclusive proof, but more of a belief that the alternative is not credible. This is a weak form of synthetic argument.

 

In fact, a belief in a creator is probably inevitable in a weak form. I can imagine a scenario where the universe was created deliberately. I can imagine a scenario where it was created by accident. But I cannot conceived of a third idea. But sadly, this is not a proof, since reason of either synthetic or analytical can only apply to the universe, not the time before it, or an area outside the universe, (or indeed after it).

 

In a roundabout way, I am making the argument that Dostoevsky made: that science does not provide an answer for the deeper human need. I am pointing out that logic is actually on Dostoevsky's side.

 

EDIT: I am guessing you are not in the UK. The press debate I am referring to is here. I am in agreement with Lord Winston. A.C Grayling's response is downright false, (it is a synthetic argument dressed up as analytic - very dishonest).

 

http://education.guardian.co.uk/higher/new...2064899,00.html

 

There is a debate that science and religion is incompatible. My argument is that they are compatible, provided religion does not involve Biblical literalism and the suchlike.

 

http://www.bartbusschots.ie/blog/?p=330

 

This guy sums it up in a very eloquent fashion. I suppose my "religion" would be humanism.

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http://en.wikiquote.org/wiki/John_Kenneth_Galbraith

 

These quotes are as good as Buffett's.

 

Sample:

 

Perhaps this should go on the property board.

 

There is something wonderful in seeing a wrong-headed majority assailed by truth.

 

I like this one too.

 

I react to what is necessary. I would like to eschew any formula. There are some things where the government is absolutely inevitable, which we cannot get along without comprehensive state action. But there are many things — producing consumer goods, producing a wide range of entertainment, producing a wide level of cultural activity — where the market system, which independent activity is also important, so I react pragmatically. Where the market works, I'm for that. Where the government is necessary, I'm for that. I'm deeply suspicious of somebody who says, "I'm in favor of privatization," or, "I'm deeply in favor of public ownership." I'm in favor of whatever works in the particular case.

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