Hi Guys,
Economists are a weird lot. I reached this unexpected observation after doing just a little reading that focused on the lives, beliefs, theories, and eccentricities of famous and not so famous economists and economic philosophers. Indeed, many of them had strange behavioral peculiarities and life patterns. Perhaps that unlikely behavior influenced their thinking framework when formulating their models.
But given their unusual foibles and unorthodox activities, a reasonable question can be asked: How trustworthy are their economic constructions? Certainly their sometimes unseemly actions are cause for pause.
Here are illustrations of a few of their odd behaviors that surely cannot be considered mainstream, especially when placed in their time period context.
Karl Marx was a phrenologist; he believed that a person’s personality was revealed by the bumps on his head. Stanley Jevons believed in astrology; his sunspot theory that supposedly controlled the economy was based on that heavenly superstition. John Maynard Keynes was a palm reader; he judged the intelligence and merits of a man by the line length and contours in his hands. Milton Friedman practiced his announced graphologist skills at parties and even at serious technical gatherings; he claimed that he could discover the character of a person by analyzing his handwriting.
I was reintroduced to these personality quirks while rereading Mark Skousen’s book “The Making of Modern Economics”. Skousen wrote the tome as a counterpoint to Robert Heilbroner’s “Worldly Philosophers” which was mandatory reading when I was exposed to Economics 101 in college. Skousen’s book is continuously gaining traction within the academic community and a revised edition has been recently released. It is full of stories that illuminate the intriguing personalities of leading economists.
One such story about Adam Smith is particularly appealing. Apparently Adams was kidnapped as a child at age four. The curious aspect of the story is that the gypsies who executed the kidnapping returned him a few days later. From their perspective, he would never have qualified as an acceptable gypsy. Once rejected by gypsies, Smith is now recognized as the grandfather of modern economics.
So, given these idiosyncrasies, how much can us amateur economists (we all make economic decisions each and every day) trust the insights proffered by the economic elite?
Although we must always be skeptical and should, as a mater of good practice, defer to primary information sources, my answer to the “how much” question is “plenty”. When stripped of its mathematical complexity and verbose vocabulary, much of what economists advocate is merely commonsense wisdom.
Please especially note my injunction that defers to visiting original sources. Secondary sources are not automatically faithful to the concepts and intentions of the originators. They interpret as well as present. The Maureen Dodd-like frequent use of ellipses serve as an excellent illustration of distortion and misrepresentation by this technique. This act is shameful, but common.
For example, Milton Freidman is often reputed to have said “We are all Keynesians now”. That quote always puzzled me since Friedman was a constant foe of Keynesian-inspired government central economic planning and demand stimulated policies.
If accurate and complete, that quote directly contradicts Friedman’s well known position that “Inflation is always and everywhere a monetary phenomenon”. Friedman consistently blamed misguided government intervention policies as the basic cause of economic downturns in a capitalistic system. The famous quote lacks completeness and is therefore a distortion. Friedman’s “all Keynesian” comment is the mischievous victim of a dishonest ellipses application.
Friedman was hostile to most forms of Keynes’s models. When questioned about the improbable citation credited to him, Friedman said the following: “ I was never a Keynesian in the sense of being persuaded of the virtues of government intervention as opposed to free markets.” Simply put, he was quoted out of context.
Friedman finally believed that the economist’s toolbox was sufficiently flexible to handle all economic distortions and dislocations. In the late 1990s he challenged economists to generate a set of axioms on a single page that summarize the economic wisdom accumulated over three centuries of political economic research and theorizing.
Many economists and economic writers have responded to that challenge.
Henry Hazlitt published his best selling book “Economics in One Lesson” in 1946. His single lesson was: “The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.” Hazlett emphasizes the tradeoffs between short-term and long-term outcomes and complex, multi-party interactions. It is never a single, isolated event.
Professor Randall Bartlett does a superior job in a The Great Courses lecture series developed by the Teaching Company in 2010. The title of the brief course is “Thinking like an Economist”. Professor Bartlett identifies 6 fundamental principles and 3 core concepts to guide economical decision making.
The 6 principles are: (1) properly aligned incentives, (2) no free lunches, (3) interactions happen, (4) unanticipated influences apply, (5) unintended consequences occur, and (6) no one entity is in total control.
The 3 core concepts are: (1) individuals and institutions make rational decisions from their restrictive perspective, (2) economic decisions are based on the margin, on marginal utility, and (3) we optimize cost/benefit tradeoffs. All of us (private individuals and national agencies alike) seek to deploy limited resources efficiently to maximize our rewards and to satisfy our specific goals.
Mark Skousen accepted the test and addressed the Friedman single page challenge in 1997. To summarize, his one page economic axioms were: (1) self-interest freedom, (2) growth with expanded savings, (3) unconstrained trade, (4) fostering competition, (5) cooperation, (6) division of labor, (7) knowledge dispersion,
profit and loss scoring, (9) opportunity cost assessments, (10) pricing mechanisms, (11) causality relationships, (12) uncertainty realism, (13) labor and wages, (14) restricted government controls, (15) non-neutral money modeling, and (16) public finance considerations.
Many of these items merge into the same set identified by Professor Bartlett. I significantly abbreviated Skousen’s “Economics in One Page” outline and did not do it justice. Here is a Link to that simplified economics presentation:
http://www.thefreemanonline.org/columns/economics-in-one-page/So, the subject of economics is not necessarily complex. Its practitioners work hard professionally and privately to remove its dull label. The authors cited earlier have made successful attempts to breath life and understanding to the topic.
I encourage you to avail yourself of their gallant efforts. Your portfolios might benefit from their insights. In the end, economic study is simply applied commonsense, nothing more.
Let me close with a few pertinent quotations from the top-tier of the economic world that demonstrates the need for flexibility in these matters.
Paul Samuelson said: “ I hate to be wrong. But I hate more to stay wrong.”
Milton Friedman noted: “ There is no Austrian economics – only good economics and bad economics.”
Finally, from John Maynard Keynes: "When the facts change, I change my mind, What do you do, Sir?”
I do too. I’m sure you do also. Flexibility is survivability.
Best Regards.
Comments
I am not in the abnormal behavior sector an individual or investor; but I do have investment battle scars upon my arse to verify I have been in the monetary trenches a time or three.
Take care,
Catch