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September 29, 2021

Economic Theory: Looking Past the Big Bucks and Misconceptions

Looking Past the Big Bucks and Misconceptions
BY: TARTLE

The Austrian School 

The social function of economic science consists precisely in developing sound economic theories and in exploding the fallacies of vicious reasoning. In the pursuit of this task the economist incurs the deadly enmity of all mountebanks and charlatans whose shortcuts to an early paradise he debunks.

  • Ludwig von Mises

That’s a pretty lofty view of economics and economists. As such it is far, far away from any view that most people have, especially of economists. Anyone who is even the slightest bit informed as to the track record of economists and their pronouncements will at best see them as something like a weatherman. In this view the economist tries to make honest predictions based on the available data but gets it wrong more often than not. At worst, people see the economist as exactly the kind of charlatan Mises decries in the above quote. Economics as a discipline has lost a lot of respect. In short, economics is in trouble. 

A big part of the problem is that too many economists don’t actually start with data. Not that they don’t use data. What they do is start with a theory that they prefer and then find the data to support their theory, ignoring or explaining away everything else. And that is on a good day. On a bad day (which seems to happen more and more) the economist is just providing quasi-intellectual cover to justify the policies of whichever government or corporation that they are working for. You can definitely see this if you pay attention to politics. Each party has its favorite economists to trot out to justify what they are doing, or to attack what the other team is doing, regardless of what the policy is. I first noticed this when way back in the Clinton administration, there was a Democrat move to do away with the “marriage tax” and the Republicans opposed it. Once Bush was in office, the positions flipped. Not that I believe either party really cared about the tax. It was simply another political football. 

This is also apparent in the varying attitudes towards deficit spending. Both parties love it when they are in charge. They just spend it on slightly different things. If you pay too much attention to it, you just might drive yourself bonkers. 

Another issue is that modern economists are too focused on tinkering around with policy, hoping to manipulate the market to get the outcome they want. This leads to extremely shallow thinking as all they wind up doing is at best looking at surface data and then trying to manipulate that so it fits better with their vision. What they neglect is everything below the surface, everything that is actually driving the data they are responding to. 

Let’s get back to economists and their theories for a minute. Economists are often professors, teaching others about economics and how they work. One might be inclined to ask, if they really know so much about economics, why aren’t they rich? Don’t they know how the systems work and how to make use of their knowledge to their own benefit? Perhaps it’s because there is more going on than their equations can account for.

That is one of the central aspects of Mises and his Austrian School of Economics, there is just too much data to actually absorb it all. With any economy there are any number of variables that simply cannot be accounted for. That’s why Mises considered the idea of central planning and that one can control the market to be absurd. It is simply impossible to plan without knowing all the variables. Things will just happen whether you know the cause or not. Not only that, Mises understood that many if not most of the variables are not directly related to money, which is why he advocated for economists studying the social sciences.

Instead, perhaps we should be more humble and realize we can’t know everything and instead, observe the data as it is without imposing theories on it. Then perhaps we can move towards Mises’ goal of understanding the world a little better. 

What’s your economy worth? Sign up for the TARTLE Marketplace through this link here.

Summary
Economic Theory: Looking Past the Big Bucks and Misconceptions
Title
Economic Theory: Looking Past the Big Bucks and Misconceptions
Description

The social function of economic science consists precisely in developing sound economic theories and in exploding the fallacies of vicious reasoning. In the pursuit of this task the economist incurs the deadly enmity of all mountebanks and charlatans whose shortcuts to an early paradise he debunks.

Feature Image Credit: Envato Elements
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For those who are hard of hearing – the episode transcript can be read below:

TRANSCRIPT

Jason Rigby (00:00):

Is the USB thing on?

Alexander McCaig (00:13):

Hold on. Is that better?

Jason Rigby (00:16):

Oh yeah. It's still a little bit of echo.

Alexander McCaig (00:19):

Yeah. I think we're just coming in a little hot for people. There we go.

Jason Rigby (00:23):

Coming a little hot.

Alexander McCaig (00:24):

So, you didn't even tell me-

Jason Rigby (00:29):

I don't think you need that on.

Alexander McCaig (00:29):

You didn't even to tell me I had-

Jason Rigby (00:30):

Because it's going through the... Is it going through the camera?

Alexander McCaig (00:32):

No. You didn't even tell me I had a middle part.

Jason Rigby (00:35):

Oh, in your hair?

Alexander McCaig (00:36):

Yeah.

Jason Rigby (00:37):

Yeah. It looks like you have this like... It's very top and then you have two things going like this.

Alexander McCaig (00:42):

That's great. Like little windshield wipers on my forehead.

Jason Rigby (00:45):

Yes.

Alexander McCaig (00:46):

We're going to leave them there. Yeah. I don't know what's with the feedback. What if I cut this back a little bit? Hopefully that helps. So economics.

Jason Rigby (00:56):

Yes.

Alexander McCaig (00:56):

“The social function of economic science consists precisely in developing sound economic theories and exploding the fallacies of vicious reasoning. In the pursuit of this task, the economist incurs the deadly enmity of all mountebanks and charlatans whose shortcuts to an earthly paradise he debunks." So, that was Ludwig Von Mises.

Jason Rigby (01:21):

Yes.

Alexander McCaig (01:23):

Jason, what's going on with economics today in data?

Jason Rigby (01:25):

Well, I think he puts it at this and this is in the cdn.mises, M-I-S-E-S dot org. It's in their latest PDF magazine. And he says, "What is the point of economics? What is the job of economists? Is this profession doing any good?" So, these are three questions, and he begins to answer them. And I think this is really interesting. He says, "These may sound like absurd questions, but they are no longer rhetorical." The discipline is in trouble.

Alexander McCaig (01:56):

What do you... It's in trouble. You know, the founding piece to any economic theory is having the right data to verify if the theory is correct. And I'm glad someone's asking about Jesus.

Jason Rigby (02:10):

I love it.

Alexander McCaig (02:10):

When do we talk about Jesus?

Jason Rigby (02:14):

When did we talk about Jesus?

Alexander McCaig (02:15):

Yeah.

Jason Rigby (02:15):

So we're going to talk about Jesus and Austria.

Alexander McCaig (02:22):

And Austrian economics. All right. Here's the thing, here's your data- [crosstalk 00:02:25]

Jason Rigby (02:25):

A lot of them are Catholic, right?

Alexander McCaig (02:26):

Most of them are.

Jason Rigby (02:27):

So, they believe in Jesus.

Alexander McCaig (02:27):

Yeah. They believe in Jesus. Ever hear...So it's one in the same here for you, for everybody that's listening. So, if we're looking at this, and all these people that we've coined as brilliant economists over time, even the ones that are running our central banks or treasuries, all that other stuff, or even writing papers out of any of the big Ivy leagues, their whole fundamental idea is that, "I'm going to come up with a theory that explains human nature tied to the spending for goods and services." That's all it is. I want to try and explain human nature. I want to put it in a box that I've defined. And then I want to find data that supports it. The thing is they started with these theories. They're starting with the fundamental idea of how they define economics rather than economics being allowed to define itself.

Alexander McCaig (03:12):

We've run into this problem for all this time, even with our ad systems. Somebody comes in, and they're like, "Oh. Hey, I want to put all these people in a box, so I can deliver them a specific ad. This is the data that I have that supports my theory about who I'm looking for. So, let me just fill it in through this. Oh, it seems to be working." Well, of course it does. You shove people into a box. This is the only opportunity for them to actually learn from this specific area.

Jason Rigby (03:37):

Yeah. And he goes into... When he says it's in trouble, he says this, that it's not just in trouble, but it's deteriorating. There's a strong case reviewing economic study, mostly as a jobs program. This is really big. People need to understand this. One which provides pseudo intellectual cover for political interventionism.

Alexander McCaig (03:55):

What the hell does that mean?

Jason Rigby (03:56):

I would say corporate/political.

Alexander McCaig (03:59):

Oh. It's definitely corporate/political. The reason for that is because corporations drive policy.

Jason Rigby (04:03):

Mm-hmm.(affirmative)

Alexander McCaig (04:04):

Do they not?

Jason Rigby (04:05):

I mean, what is the federal reserve? It's a corporation.

Alexander McCaig (04:07):

It's a corporation.

Jason Rigby (04:08):

Yes.

Alexander McCaig (04:08):

What is the IRS it's corporation?

Jason Rigby (04:09):

Yes.

Alexander McCaig (04:10):

U.S. Treasury, corporation. So, when you look at these things and you wonder, how are these the key drivers here? It's actually incorrect in that format and look at the data. Okay. I've come up with this grand old theory to say that economics are going to work a certain way. So, what I want to do is I want to bring out a dataset that agrees with what I'm saying, and then anything else that may contradict my conservative view of how I think the world works-

Jason Rigby (04:42):

yes.

Alexander McCaig (04:42):

I'm going to omit that data, because what I'm looking at here, I can flexibly, bend this data to work with what I have. So, that means people have this weird fetish around the data like, "Oh, look at this data point that I found. It supports my theory. Let's all jump on board."

Alexander McCaig (04:57):

I'll use a personal story as a point in case. When I used to be at temple university in Philadelphia, I was in the business school there. These professors would sit in these huge auditoriums and they'd be telling people, "Okay, these are the fundamental equations you use for analyzing markets or economics." I was like, great. And they said, "Any sort of trading, anything that's based off of the time value of money is fundamentally on these items right here." I was like, okay. And I said, "Is everybody using this?" I raised my hand in a big group. Is everyone using this? And they're like, "Yeah, everybody uses it." I was like, great. And this works? Well, yeah, everyone's using it. All right. Okay, good. So if this is telling me how the market should act or how economics should play out, why aren't you a billionaire? Why don't you hold all the resources? Or why aren't those resources completely evenly distributed across everyone? If everyone's using the same equation?

Jason Rigby (06:00):

Because he talks about those are yes-men and yes-women.

Alexander McCaig (06:02):

Yeah.

Jason Rigby (06:03):

And I figured out our board, by the way. Just a short, quick note.

Alexander McCaig (06:05):

Did you figure out the board?

Jason Rigby (06:06):

Yeah. I'll tell you right now everybody can do this live do this live. That's acting as a webcam. So, it's getting its audio from there and the board. So if you cut the board off, I think we'll still be fine.

Alexander McCaig (06:15):

I honestly don't even think it'll push through to that.

Jason Rigby (06:18):

Because that's where the Echo's coming from.

Alexander McCaig (06:21):

I think we're actually running two streams at the same time. You see the one on top and the one on bottom.

Jason Rigby (06:25):

Oh. That's what's causing it, [inaudible 00:06:29].

Alexander McCaig (06:29):

It's all good. It's all good. We'll just leave-

Jason Rigby (06:30):

This is awesome.

Alexander McCaig (06:31):

We'll leave a little echo now. But here's the point. I'm asking this question and the professor is getting a little frustrated.

Jason Rigby (06:37):

Right?

Alexander McCaig (06:38):

Well, he's like, "Well, this is just what everyone uses." I was like, just because everyone uses it doesn't mean it actually works. I was like, point in case you're not rich. You're standing here as a professor telling me how the world works when clearly it hasn't worked out for you. So, why would I listen to any of this crap that you've coined up for some sort of economic theory and put all this data behind it to support it. All you've done is look at history and said, "Oh, this has defined our theories moving forward." Of course, you're going to look at all these points in history that fit into your model to say that this is what's going to happen. It's like the QAnon of economics.

Jason Rigby (07:11):

Yeah. And he gets into this because he says most of the programs nowadays, especially in modern economics is mathiness. So, it creates all these quants.

Alexander McCaig (07:21):

That's what I'm saying.

Jason Rigby (07:22):

But there's no real economic theorist.

Alexander McCaig (07:25):

No. It's all quants.

Jason Rigby (07:26):

Right?

Alexander McCaig (07:26):

We're going to look at this data and we're going to create a mathematical model that fits what we want to see. Anybody can make math say what they want it to say. But the thing is they don't look at the data and respect it just as it is. Data is... We've said this a million times, Jason, it's agnostic, right? So, because it's agnostic, it doesn't care. It's data is so secular within itself. Why would the data want to specifically say that, oh, economics need to be a certain way? It just is what it is.

Jason Rigby (07:55):

Yeah. Behavioral economist Nobel peace prize winner, Esther Duflo said this, "The economist as a plumber, as a perfect encapsulation of what ails economics today, it focuses on tinkering with policy adjusting inputs here and there to create some desired outcome," which is what you're talking about. But I like that view, it's very simple, of being a plumber and you're just moving the pipes, tinkering, saying Oh. Okay. This works. We've got flow now.

Alexander McCaig (08:21):

This is in a good 90 degree angle. You know, I got to change it a little bit. It's off a couple of degrees. Oh, look at that, money's moving through. Of course, it will. If you've created a small area where you've decreased resistance-

Jason Rigby (08:32):

right.

Alexander McCaig (08:32):

Money, currency is actually going to move through there.

Jason Rigby (08:35):

And you'd love this statement. Listen to this. She says, "The one dimensional focus is always on the seen rather than the unseen."

Alexander McCaig (08:42):

Of course, it's a one-dimensional focus. It's like when I take a telescope, and I put it up into space, what are you looking at? You're looking at the stars. You don't have a telescope pointed at the blackness unless you're working on some radio spectrometer to look at other things that can't be seen with the human eye. But all we typically focus on is what's right in front of our face. But what are all the hidden drivers, the things that... The inter dimensional things. And the reason I say that is because you have physical thing, physical thing in space in between. Why are you not paying attention to the space in between? Because that space in between makes up 99% more matter in itself than the stuff you're actually witnessing. So, then how can you possibly say that your theoretical model of economics based on the data that you've only been able to collect, which is albeit quite limited, defines everything that is possibly happening?

Jason Rigby (09:32):

Yeah.

Alexander McCaig (09:32):

And this is where this logic fails.

Jason Rigby (09:34):

Just because we don't understand the 99% doesn't mean that it's not reality, and it's not truth.

Alexander McCaig (09:39):

Yeah. That's precisely correct.

Jason Rigby (09:41):

It's just, we haven't developed our knowledge enough to understand that, but it is what it is.

Alexander McCaig (09:46):

It is what it is. And if you look at the aspects of positivism and they say like, okay, we need more theoretical ideas around economics. Well, let's think about positivism. It is a theoretical theory that [inaudible 00:10:00] knew as genuine knowledge is exclusively derived from the experience of natural phenomenon. So that means everything I observe through my sensory experience is data, legitimate data that I can interpret through reason and logic.

Jason Rigby (10:16):

I love that.

Alexander McCaig (10:16):

And with that reason, and logic leaves me with the exclusive source of all certain knowledge. So, if I haven't seen the unseen, then I don't have the full picture. I don't have all the knowledge. I create my own paradox, and I'm essentially working in a lie, and then forcing that model, that's a lie on everybody else. So, something that would be albeit quite natural, allowing it to define itself, you're not letting it do that. You are defining it. You are defining what you can't see.

Jason Rigby (10:44):

Speaking of definition, this is so brilliant. Listen to this. Mises saw economics very differently.

Alexander McCaig (10:51):

Oh, Ludwig? Of course, he did.

Jason Rigby (10:52):

I want to get into this and then we'll close out. He said, the point of social science in his view is to help us understand the world and that improve our fortunes within the world. So, let's get into this. A good economist should be studying social science.

Alexander McCaig (11:07):

He doesn't care. He only wants to boost an economy.

Jason Rigby (11:09):

Yeah.

Alexander McCaig (11:09):

He wants to boost the efficiency of a government and corporations in the economy.

Jason Rigby (11:13):

A certain select.

Alexander McCaig (11:14):

They think that money is the key driver to human happiness, evolution and growth. It's not. Social science, understanding the actions and interactions between individuals and living things. Those are the key drivers or the system they're working on the thing that's tertiary, or maybe in four or five, six degrees removed.

Jason Rigby (11:31):

They're also working on that 1% and then allowing that 1% to get richer.

Alexander McCaig (11:35):

So, again-

Jason Rigby (11:37):

So, that's where all the interest in energy is going to.

Alexander McCaig (11:40):

Imagine if I had a model. I created a planet. That's my model. Big closed system. And I had 7 billion people on my planet, but I only gave 1% of the oxygen, which is required to survive to just that 1% of my 7 billion. How long do you think my planet would last?

Jason Rigby (11:59):

Not long at all.

Alexander McCaig (12:00):

It wouldn't.

Jason Rigby (12:00):

Right.

Alexander McCaig (12:01):

I would have to artificially supply oxygen to all those other, 6.99999 billion people-

Jason Rigby (12:07):

That's what's happening.

Alexander McCaig (12:08):

Oh, that's right. And that's where you get all this printing, this quantitative easing, because the model that they had, doesn't actually sit within the basis of reality. It doesn't fundamentally work with the social determinants of what's actually going on or social interactions.

Jason Rigby (12:20):

So when we look at Tartle, for instance... And we'll close on this, when we look at Tartle and we see the ability to be able to go across borders, the ability to be able to exchange currency, eventually with TCOIN, and to be able, people, to take ownership and sovereignty of their data. When we look at the model that Tartle has, how has that differentiate from what is going on now in these economic scientists.

Alexander McCaig (12:48):

Because our focus is on the primary driver. Like I said before, they're focusing on multiple degrees removed from the things that actually create action within civilization. Our focus is on civilization. You cannot move without thought. Thought recorded is data, okay? Putting in work from a raw amount of energy, calorie or food, should determine your earning of this reward. And the more I work, the more I evolve, the more priority I should receive. And that's how Tartle solves that.

Speaker 4 (13:26):

Thank you for listening to Tartle Cast with your hosts, Alexander McCaig and Jason Rigby. What humanity steps into the future, and resource data defines the path. What's your data worth?