Monday, July 6, 2009

Confessions of an Arm-Chair Economist: An intellectual life's story

First, let me say that I am not an economist. Nor do I actually own a legitimate arm-chair for that matter.

To be clear, I’ve had no formal training in economics. I have no degree in the subject, I didn’t even take an economics course in high school and though I studied some calculus, I’ve not used a bit of it since I was 18… The point is, as most people will look at it, I’m not qualified like all the “experts” who wind up on CNN and MSNBC and the type who write for the New York Times… You probably know who I mean.

Yet it may be worth noting that by any modern standard neither was Adam Smith.

Despite my lack of schooling, over the years I’ve acquired a deep fascination with the subject of economics, to the extent that I now spend a significant amount of my time each week analyzing and attempting to correct the fallacious statements being made by virtually everyone around me and in the media. But how I arrived with that interest, and the knowledge to stick up for sound economics is actually a result of a long-standing fascination with human behavior and the philosophy of liberty.

What follows is the life-story of my thoughts, and how I became the amateur economist, historian & freedom-fighter that I am today… Let me start at the beginning.

The Early Years:

I grew up with a mother & father who encouraged learning and critical thinking and I can’t thank them enough for that. If I was reading and didn’t understand a word, any questions to my folks often resulted in the response, “There’s a dictionary over there, go look it up.”

I always did.

As good a foundation as my parents provided for my childhood, the story really begins when I was around 12 or 13 years old. That’s when I started seriously asking myself a number of important questions about the world. It started, as it should – with Metaphysics, though I didn't know the word at the time all I knew was that I wanted to make sense of the world and you can’t really start anywhere else.

“Is reality real?” For me, the answer was easy. “Yes. Of course it is.”

A life's worth of consistent experiences combined with the fact that everyone else I’d ever encountered or heard about was in on it too was certainly enough evidence for me. But I realized that even if it wasn’t real… Even if we’re all living in a “dream world” of our own creation, then my inductive experience in that world is filled with people who are all subject to the same laws of physics and understanding anyway. So as a matter of practicality, the question of metaphysics basically answers itself.

I've since realized that recognizing reality as something that is real, verifiable and consistent is the only basis from which to act decisively – and the alternative is a kind of perpetual uncertainty which is intellectually draining and psychologically problematic to say the least.

So there was step one… Metaphysics:
Reality is real and generally consistent.
Now, the question of epistemology is a little trickier but since I spent a lot of time doing science experiments as a kid, I had a head-start on understanding the idea that obtaining knowledge requires observation, experimentation and logical consistency. As my sophistication grew, I came to understand that deductive, Aristotelian logic had allowed me to formulate the kinds of “if::then” syllogisms that we all tend to take for granted and that those allowed me to understand a very wide array of concepts without ever “testing” a thing.

For example, once when I was 6 or 7 and playing outside with my brother, I’d warned him that plugging the entrance to the bee-hive under our house with a rock was probably not the best of ideas. Previously “acquired” knowledge told me that bees have sharp, painful stingers, and I made the assumption that bees might react poorly to someone blocking access to their home. Deduction from the observed fact & the assumed premise was all I needed to form a correct conclusion. I had never run an experiment with respect to this scenario, yet it came as no particular surprise when I wound up running from a swarm of irate, murderous bees and received several stings to my posterior.

No statistics or complex math was necessary (or even possible for my 7 year-old brain) and yet I knew the likely outcome all the same. (Incidentally, my brother, who was the instigator of the whole fiasco, received no stings as I recall. Perhaps there's another broad lesson in there somewhere?)

At any rate, that was step two… Epistemology:
The only way to understand reality is through observations & applied reason.
But there’s no single way to acquire knowledge, so I had to ask another question:

Empirical Positivism or Deduction?


Exactly how we apply reason, and which tools we use, depends on what we are studying. The same tools don't always work for the same subjects. My experience with the bees was entirely deductive, and my knowledge of that subject was obtained through making conclusions which followed from a few observed initial premises. And although a “test” was in fact performed, it was unnecessary and it certainly was not voluntary! But some things do need to be tested to be understood properly, and no axiomatic reasoning will suffice. For example, if I wanted to determine the tensile limit of a steel cable prior to building a bridge – I could not simply deduce the exact number from a set of well-known axioms or general observations. I would need to subject the cable to a series of controlled tests and record detailed measurements of the results.

This is where stuff starts to get really muddy… How do you know which is which?

It really depends on what question you want to answer. Systematic testing is a great tool to answer the questions, “What properties does this have?” and “How does this work?”, but deduction is the tool you want to use when you’re dealing with the question, “What will happen if…?” or “Why did this happen?” In a lot of ways, this is the difference between obtaining facts about the world, and obtaining understanding of what those facts mean. There is some overlap, of course, but it works relatively well as a rule-of-thumb.

One really important general principle I’ve discovered: If the subject you’re trying to learn about is capable of changing its mind, then deduction is nearly always the way to go. Individual people, unlike steel cables, have this annoying tendency to have wildly diverging properties not only compared to other individuals, but even in day-to-day comparisons with themselves.

Teen-aged People Watching:

By the end of Junior High or the beginning of High School, I'd managed to answer the “big” philosophical questions of Metaphysics & Epistemology... By then, I knew that reality was real and that I had a fairly good grasp of the tools I needed to understand it. So as the social lives of everyone around me started to grow more dramatic and complicated, my curiosity about what made everyone tick increased.

I’ve always been an “observer” of human behavior. As anyone who knows me well could tell you, I am the kind of guy who goes to parties and converses with only a few people while watching everyone. From a few years of observation, I had concluded a few basic working axioms about people.

Out of these basic axioms, quite a lot can be deduced about who people are and how they are likely to act – especially if you have any decent idea of what a person’s values are.

1) People act in accordance with their own values & interests; This is mostly subconscious and varies widely in each person.

a) Corollary A: Observing actions can reveal the person’s core values.

b) Corollary B: People only engage in exchanges when they expect to achieve a higher value.

2) Only Individuals act; This should be self-evident, but everyone makes his or her own choices based on his or her independent values – even though influenced by peer pressure & other external factors.

3) Everyone responds to incentives; Incentives may be both positive and negative and they may be real/tangible, or merely assumed.

I was figuring out these things by the time I was a freshman in high school, so to be honest, I hadn’t yet considered their relevance to the field of economics. In fact, I didn’t really care about economics at all. All I cared about was trying to understand why people did what they did, and what I could learn about human behavior. (I’m still learning…)

Arriving at Ethics & Politics:

Now, flash forward a couple years again… I’m 16 years old. I’ve already determined my Metaphysics and my Epistemology, and I’ve concluded that people are autonomous, independent actors. I’m not a particularly large fan of the concept of a priori knowledge, but of all the ideas claimed to be axiomatic in that way, I think that self-ownership is one of the most obvious. If people are independent and autonomous; that is, if people have free-will, then they must also be responsible for their choices. Further, because humans do not have the ability to share or read minds, only an individual can know his specific thoughts or values. Given those truths, there can be no valid reason to subordinate one person’s actions or thoughts to the will of another by force.

Thus, my ethics are:
Liberty/non-aggression, self-realization and the pursuit of individual value.
Ethics to politics is simple… If one person has no right to force another how to live or act in any particular way, then certainly no group of people has that right, no matter how many people assert otherwise, therefore the only possible purpose of government would have to be to operate in defense of those who’s rights were violated through the initiation of force by another party. This obviously means that life, liberty & property are paramount, and that no government and no individual has any moral authority to inhibit speech of any kind, or to bar or mandate particular associations, or to regulate contracts & business arrangements among consenting adults where no harm is done to another party. “Economic” and “personal” freedoms are all the same thing… Freedom is freedom.

So, my politics as a natural consequence of those ideas is:
Non-interventionism, guaranteed individual liberties & laissez-faire capitalism.
And just as these conclusions started solidifying in my mind, a few serendipitous events occurred…

First, I discovered that my high school had a phenomenal U.S. History Teacher who read constantly and was passionate about teaching. That encouraged me to begin a more in-depth study of the US Constitution and American History. So I studied the philosophies guiding Thomas Jefferson, James Madison, Thomas Paine & the other Founding Fathers in creating the Bill of Rights. This in turn, lead me to study history more broadly and the more I read, the more I discovered that the greatest evils of the world have consistently been committed by the hands of tyrants, most often not guided by any inherent “evil” intentions – but actually instead, by the best of intentions, grand ambitions and… tremendously bad ideas. I also discovered that many of the things I’d been taught about history were either myths or outright fabrications.

Second, through the study of history, my innate curiosity and my generally pedantic nature, I started asking more questions and digging a little deeper into virtually everything I was being taught. I’d always done this, but by high school I’d become a full-blown skeptic and started demanding that all arguments presented to me were logically non-contradictory and the facts I accepted were more rigorously vetted. Not surprisingly, many of my teachers did not like these traits, but it has propelled me to regularly practice fact & logic checking my own thoughts and those of others. It’s one of my more annoying characteristics, but I tend to see it as a feature, not a bug.

Finally, and probably most importantly, during this crucial juncture in my intellectual life I was encouraged by my mother to read Ayn Rand’s “The Fountainhead”.

No book has had a more profound effect on my thoughts.

Ayn Rand’s writing didn’t tell me a single thing that I hadn't already figured out for myself by the time I read the book... I say this not to brag, but in defense. There is a lot of sometimes-warranted criticism that Objectivists are just hero worshipers, blindly following a set of beliefs out of appeal to authority. But, since I didn't acquire my beliefs from the book, I cannot fit that category (I am also not strictly an Objectivist, nor oblivious to legitimate criticisms of the philosophy).

What “The Fountainhead” actually gave me was far more valuable. It helped refine my thoughts and for the first time provided me with a sense of solidarity. Suddenly, I was not alone in my beliefs, plus I now had a working model with which to hone and clarify those beliefs! For the first time, a novel actually deliberately depicted rational thought and the pursuit of happiness, material & intellectual success as virtuous! Even within my own relatively neutral upbringing, I had been bombarded by teachers & media hawking collectivist idiocy, so discovering a powerful support of reason & liberty was life-altering.

So the solidification of my laissez-faire beliefs occurred before I’d even graduated high school and by the time I’d finished reading “Atlas Shrugged”, I emerged with a carefully developed philosophy supported by historical & contemporary research and clear, non-contradictory logical arguments. My critical thinking skills had been sharpened by innumerable debates... Being an atheist, libertarian know-it-all with no inhibition for getting into arguments has a few side-effects, after all! Along the way, my eyes had been opened all the more to the abuses of power, and the importance of human liberty.

Then I went to college at a university where the honors program was headed by a respected professor of French Revolutionary history. So I read Voltaire, Montesquiue, John Locke & David Hume...

The Road to Becoming an Arm-chair Economist:

Now, let’s flash forward one last time to the present.

I’m 26 years old and have a master’s degree in music composition (probably surprising, given the rest of this story, isn’t it?), yet I’ve been spending an increasing portion of my spare time engaged in radical defense of laissez-faire Capitalism, and economics in general. Writing that sentence even seems absurd to me. As I said, I'm no economist!

But those of you who fully understand the implications of my intellectual-life's story will realize that I had no choice but to wind up where I am today. The field of economics is truly where the rubber meets the road for liberty. It is the battleground where rational thought must urgently be applied to local & national policies if a defense of individual liberty is to have any meaning at all. It’s where everything else I care about converges.

It follows from everything else I’d concluded that laissez-faire capitalism is necessarily the only moral economic system, because it is the only system in which there is no external coercion used to force a proscribed outcome, and people & their property are secure from theft, force, or fraud… Absent government tampering, this is a purely voluntary system. Unfortunately… Because the modern expression of “capitalism” is really quasi-fascist corporatism, capitalism isn’t all that popular.

As Milton Friedman once said;
“It’s fortunate that the capitalist society is more productive, because if it were not it would never be tolerated. The bias against it is so great that… it’s got to have a five-to-one advantage in order to survive.”
And so, I’ve been challenged again & again. For 10 years I’ve been challenged by everyone I’d ever talked to about liberty. What always struck me as interesting though is that the questions have always been essentially about economics. No one likes talking philosophy anyway, but if you do manage to get a bit out of them, they’ll always agree intellectually that freedom is a wonderful thing. But when you leave the abstract world of thoughts, everyone has their own little “but what about ___!?” issues and turn against freedom as soon as they think of money being involved. “Of course everyone should be free to say what they want, to do what they want and associate with whomever they wish…” That is to say, unless any of that has anything at all to do with “buying” or “selling” something. Then all bets are off!

So I’ve been bombarded with questions like:
“What about worker’s rights? Wouldn’t everybody be working 18 hour days with no breaks in a free market?”
"What about minimum wage laws? Everyone deserves to make a reasonable ‘living’ wage!”
“Money is the root of all evil! What about people having too much money?”
“People are selfish! What about people who don’t want to share?”
“Wouldn’t a carefully planned society be more efficient and better than just leaving everything to ‘chance’?”
Each time a new question arose, I tackled it as I’ve always done – through study, research and re-evaluating my own premises. But each time, far from being convinced by the arguments of Marx, Engels, or J.M. Keynes in favor of central “planning” and socialism, I’ve come back a stronger supporter of freedom with more knowledge and more understanding.

And each time, I have also come away more curious about economics as a scientific discipline and as a branch of philosophy.

Somewhere along the way, I discovered Milton Friedman. Friedman the “microeconomist” provided case after case to show, in empirical terms, exactly what happens when governments adopt irrational economic policies and stifle liberty. Regardless of methodological legitimacy, most people simply don’t like dealing in axiomatic philosophy – they’d rather be told cold, hard numbers… “Facts”. And Friedman always made it about the facts.

But, obviously, I am a philosophy guy…

So while Friedman’s legacy allows us to definitively know that government planned & controlled economies always fail in their stated goals and destroy wealth and real prosperity, we’re still left with the question; “Why?”

So I searched for more answers. It was finally when I read “The Use of Knowledge in Society” by F.A. Hayek that once more, the thoughts and observations rolling around in my mind were solidified into coherent, useful comprehension.

And so my attention shifted a little from Friedman to the Austrian School.

I read Mises and Rothbard. I read Higgs, Reisman, Schiff & Murphy, Rockwell and of course Ron Paul. I read Hazlitt and Bastiat, some Adam Smith, and countless essays by Williams and Sowell.

The last few years have been a blur of new learning about the Federal Reserve, the history of money, and price-signaling, about the Austrian Business Cycle Theory, about inflation, and I’ve come to see market booms as negative events and the busts as positive ones. But most of all, I finally understand why most economists I see in the media never seem to know what they’re talking about! It’s not that they’re bad “scientists” per se; it’s that they are using the wrong analytical tools entirely.

Enamored with the veneer of “hard science”, most economists waste their time creating these beautiful mathematical models which, in spite of all their amazing calculus, fail to describe reality at all. Politicians love those economists because statistics can always be used to show how some government program will be an economic boon. When the prediction doesn’t match the model, the models get changed… And when the new model doesn’t predict reality, it just gets changed again. What they don’t do however, is re-examine their premises. If they did, then they might come to the conclusion that they should actually spend more time developing cogent logical arguments around real-world observations. But most importantly, it seems that most professional economists never stop to address the limitations of their own knowledge.


For all my review of the last 10-15 years of intellectual development, my remarks have been mostly introspective. Naturally, there have been omissions – lots of them – as long as this essay is, there’s no way I could possibly cover every event that led me to where I am today. However, one of the omissions from the previous sections has been the consequences of my position.

Georgetown business-school professor John Hasnas once wrote:
“Cassandra’s curse was to always tell the truth about the future, but never be believed. If you add to that curse that she would be ridiculed, derided, and shunned for making her predictions, you have a pretty fair approximation of what it feels like to be a libertarian.”
I’ve been always been an unabashed and very outspoken skeptic. So much of what I’d been told to believe and think about the world as a youth was simply wrong, and that has taught me to always look a little deeper. And I’ve been wrong, of course! But being proven wrong is an wonderful thing actually… Being proven wrong always means you’re just one more step in the direction of truth. However, because I care about truth, it’s made me pedantic, and I’ve been ridiculed and called various names over the years. I’ve been called “arrogant” more times than I could possibly count and even when I was 13 or 14 year old Boy Scout, I’d apparently earned the nickname “Professor”. Ironically, I’ve gotten called arrogant far more times when I was dead right about something than when I’ve been wrong.

But for much of my life I’ve been making accurate predictions about human actions and the implications of various government policies. Most of this stuff I think is obvious if you simply detach yourself from the TV occasionally and think about what is going on in the world rationally. In 2004, I was questioning why my parents’ new home in Madison, Wisconsin was so expensive – at the time I was in college and had no special knowledge of the Federal Reserve System, or the CRA or anything at all except roughly what my folks made and that Madison is not Manhattan. So when they sold their house two years later for vastly more than they bought it for, it was quite clear we were experiencing a bubble. I kept saying, prices would have to come crashing down… That was still before I’d learned much of anything about economics, but for me it was just common sense. Also back in 2006, just by recognizing some basic patterns in human behavior, I knew Barack Obama would not only get the Democratic nomination, but that he would win the Presidency… I was told that America was “too racist” to ever vote for Obama. Then, last year, when Henry Paulson rammed through a $700 Billion bailout and executive power-grab, I wrote my senators and pleaded with them to vote no, and attempted to explain why it wouldn’t work. I explained why the bailouts were morally wrong, why they were destined to fail as economic policy, and why they would make things worse to my family and friends as well and most of them just said, “Well, the Government has teams of experts working on this problem, you can’t know any better than they do!”

That’s possibly the most frustrating thing of all.... To be demonstrably right again and again, and yet have people who know me well still think that I don’t know what I’m talking about. For whatever reason, most people would rather desperately cling to the false hope that this time the “right people are in charge” and will get everything right. It never seems to occur to anyone that perhaps when the job is making decisions for hundreds of millions of individuals there’s no such thing as “the right person”. As usual, it all comes down to taking a moment to apply a little more critical thinking.

But of course, none of this is taught in school. For a lot of people like me, that’s ok. I’ve always found that the skills and understanding I’ve acquired which are of any value at all have usually come as a result of my self-directed study – and almost never from passively sitting in a classroom. And honestly, I’m not really convinced that critical thinking skills even can be “taught” in any conventional sense. Critical thinking, like learning most skills, takes constant individual practice, the willingness to accept that quite often you will simply be wrong, especially at first and an awful lot of research.

Unfortunately –few people bother to put in the work and as a result are easily manipulated by a media and a government always just a little too happy to make things “easy” for them.

This is not just a travesty for rational philosophy and natural rights, but an unmitigated disaster for human prosperity, liberty and happiness.

* * * * *

…And so… In the immortal words of one of my favorite mentors, I shall “keep punching”.

We’re at a crucial juncture in the struggle for human progress. The United States is now farther away from its founding principles of Life, Liberty and the Pursuit of Happiness than I’d ever dreamed possible when I first read those words. To me the truths were “self-evident”. It seems sad that so few others seem to share that thought any more… And now the stakes are high for humanity as we march blindly backwards into tyranny, slavery, and poverty.

So I will continue to spend as much time as I can spare being an arm-chair economist and a lecturer in political theory & rational philosophy… That way, fifty years from now I will be able to look back on this moment proudly. Win, lose or draw, I will have done my very best to fight for reason and liberty.

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