Tuesday, March 31, 2015

The nature of economic laws

"To make economics a science is to suppose that its conclusions, even if hypothetical, have the same certainty as, for instance, those of physics; to assume, in other words that the same constancy which is discoverable in the dropping of the stone and its fall to the ground, is also discoverable in the relation between the imposition of tariffs and the movement of prices. This latter relationship is not one between abstract concepts, but between men's acts, and human ingenuity is continually altering relations between them. In short, when the economist professes to give us universality, he forget that an economic law is not merely like a physical law, one which man can understand and use, it is also one that he can alter. For the laws intended to cover man's asked and all of those he, unlike the stone that is dropped, it is conscious, and this very consciousness involves freedom to act differently. A law of human action can therefore be at best no more than a statistical generalization about the past, and if that is all that it is, there is no a priori probability that it will have any applicability in the future; for men may change their minds about what they want, or they may be led, by the discovery of a new invention or the examination of statistics of the past, to act in ways that hitherto had not occurred to them or that had been regarded as impossible." -- T.M. Knox, "The Study of Economic Activity," Philosophy, 1936

Economic History

"to tear economic history out of its context and to study it by itself as if the economic activities of the epoch were something separate or separable from its other activities, or as if economic institutions had a history of their own, is to make it unintelligible or else to reduce it to propaganda in favor of the dubious dogma of the materialist interpretation of history." -- T.M Knox, "The Study of Economic Activity," Philosophy, 1936


We need to have a name for the pairing, in current sports reporting, of absolute worship of "statistics" combined with absolute ignorance about how to do probabilistic reasoning. "Stapidity"?

For instance, the NBA draft lottery is a domain in which we can be sure pure probabilistic reasoning applies, since it is deliberately set up that way. If a team has a 42.3% chance of getting the top pick, that's that: there is no point looking at "recent history" to see how teams in that position did, since in a random sampling, we expect to see subsets with different distributions of results than we will get as our sample size approaches infinity. And we know with certainty (unless we suspect the NBA has a broken random number generator) that in the limit, 42.3% of such teams will wind up with the top pick. And yet:

"And as the fine folks at ESPN Stats & Information pointed out, recent history says not to be too confident the Lakers will keep the pick should they enter the lottery in that fourth spot, even though 82.8 percent seems like a solid figure.

"Over the past five years, teams that had a pre-lottery position of fourth dropped to sixth on two occasions: the Golden Warriors in 2010 and Washington Wizards in 2011." (Italics mine.)

The implication is that 82.8% is really only about the same as 60%, since if we look at the last five cases, that is the percentage we get. And if a fair coin comes up heads twice in a row, we know it isn't really fair!

Monday, March 30, 2015

The steeds of Poseidon

Smith on Human Capital

J.A. Smith, that is:

"Is labour capital? If a labour meeting labor in act, "labouring," certainly not. But the strengths, etc., which is employed in labor certainly is actual capital when it is in use, potential capital before it is in use. The labourer is therefore just as much and as really "a capitalist" as the employer. More exactly, the abilities, etc. presupposed by economic labour are capital, and their possessor is 'a capitalist.' But they are not usually recognized as, or named, capital... The refusal to call them capital wrongly separates them from other parts of wealth." -- J.A. Smith, “Further Notes on Some Fundamental Notions of Economics: Capital,” Economic Review, 1914.

Although Smith does not use the term "human capital," it clearly is what he is talking about. Of course people, such as Adam Smith, had earlier noted that increases in human skills play an important part in increases in production. But had anyone earlier than 1914 explicitly asserted that such skills are capital?

An Interesting Way of Viewing Consumption

"Consumption is the inverse of production, and 'the consumer' the inverse of 'the producer.' To consume, in the economic sense, is to diminish, and in the end to destroy, the utility or 'commodiousness' of a commodity, and 'the consumer' is the person who has legally the final right to do this." -- J.A. Smith, “On Some Fundamental Notions of Economics,” Economic Review, 1913.

This definition helps to illuminate the notion of household production, and clarifies just what are producer goods and what consumer goods. So putting a piece of bread in the toaster is an act of production, and the untoasted bread still a producer's good: the good's utility is still increasing. It is only the toasted and buttered piece that is a consumer good, and it becomes that in the process of having its utility destroyed.

J.A. Smith on Why a Market for Establishing Property Rights Is a Nonsensical Idea

"in the establishment of my wealth presupposes a system of recognized and established rights. What I own (by law or custom) consists of rights and nothing else; my wealth therefore consists of rights and nothing else." -- J.A. Smith, “On Some Fundamental Notions of Economics,” Economic Review, 1913.

Alfred Marshall leading us by the nose in a circle

'we are told [by Marshall] that [wealth] consists of two classes of goods, which together constitute "economic goods." If we ask what quote economic goods" far, we are informed that quote economic goods" include quote those goods, and only those, which come clearly within the scope of economic science, as defined in Book I." (p. 127). But as "economic science" is there defined as "the study of Wealth," we are clearly being led by the nose in a circle. Wealth is defined as consisting of all those goods, and those only, which come clearly within the scope of the Science of Wealth.' -- J.A. Smith, “On Some Fundamental Notions of Economics,” Economic Review, 1913.

Friday, March 27, 2015

Rationalism in ethics

I believe I was the first person to note in print just how Aristotelian Oakeshott's analysis of rationalism is, although I must credit Noel O'Sullivan for dropping the hint that got me going in that direction. Here is the kind of thing I was getting at:

"At the start of the Nicomachean Ethics, Aristotle observes that moral action does not arise from deliberation. In order to think clearly about virtue, one must first already have a virtuous disposition formed by good habits. Aristotle drily remarks that the endless ethical debate of some philosophers is really just a sophisticated way of doing nothing. You become virtuous – and thus able to understand virtue – by acting virtuously. Nobody ever reasoned their way into right living."

"...the endless ethical debate of some philosophers is really just a sophisticated way of doing nothing": Peter Singer springs instantly into my mind!

Humpty Dumpty

Reading traditional Catholics is an interesting experience for me. I often agree with their analysis of what has gone wrong and how it went wrong. But I find their remedy implausible: Humpty Dumpty had a great fall, and all the king's horses, and all the king's men, can't put Humpty together again.

John Locke

"The confused man's Hobbes" -- C.B. Macpherson

Thursday, March 26, 2015

A Bayesian Spirit Catcher

Since my recent posts on material and spiritual explanations have been so egregiously misunderstood by some commenters, let me try again, with a new tack.

Bayesian inference is given by the rule:

Our H is: "Hildegard of Bingen had visions sent from God."

Our E is that we discover that Hildegard was suffering from migraines. (By the way, this idea is just sheer speculation on the part of Oliver Sacks, with little evidence behind it. But let us imagine it confirmed.)

Let us say someone like my friend Ben Kay has the prior P(H) that Hildegard experienced divine visions of 0. (Ben is a committed atheist.) Then E arrives. Ben touts it as, "See, she just had migraines." But this is insincere: with a P(H) of 0, for any evidence that arrives, Ben will have a P(H | E) of 0!

I have another friend, an Inuit fellow named Nahallak, who thinks Hildegard's life story makes her report of divine visions likely, so that he has a P(H) of .8. But he is also convinced that if someone does have a divine vision, that is certain to affect their body in a profound way! So while P(E) (the probability someone has migraines) may be, say, .2, he also believes that P(E | H) is .2: he was already certain that divine visions have some physiological impact, and so the possibility that someone who experiences divine visions has migraines is simply the probability that they have migraines. So for Nahallak, P(H | E) is .8. The new evidence has no impact, and this is not due to "irrationality," but because Nahallak is a logical Bayesian updater.

To be fair to my critics, there is one class of people for whom this new evidence might result in a P(H | E) different from P(H): if someone thinks visions from God are possible, but, if they occur, the person receiving them will show no physiological response to the vision whatsoever, then P(E | H) will be 0, and the migraine discovery will falsify H. But this is a very odd position, and I have never heard of anyone who holds it. The person in question would have to acknowledge that seeing a tree, or feeling a cold wind, or hearing from one's mother, all produce a physiological response, but receiving a communication from the very source of all being itself leaves the recipient's body completely unmoved!

So, what I have been trying to say is that, except for the very odd position of the last mentioned class of people, E provides no new evidence at all as to whether Hildegard had divine visions or not. If your P(H) was already low, it will remain low, but if it was high, it will remain high, and logically so. And nothing in my argument, anywhere, was about what one's initial P(H) ought to be, so the people arguing about this were completely missing what my posts were about.

And the fact that every person who misunderstood this analysis already had a P(H) at or near 0 is, I think, good Bayesian evidence that I have analyzed this situation correctly!