Tuesday, December 7, 2010

Methodology & Hubris

I'm friends with a lot of "Skeptics".

I put that in quotations, and capitalize the word, because I think that in many cases it's not strictly true... These are people who are scientists, and who are cheerleaders for science and while I value both of those things immensely, I think there is something deeply flawed about many of the academics and self-styled intellectuals that count themselves among that crowd.

But... As it often does for me, this story starts with an understanding of economics. At least partially...

One of the greatest lessons anyone can take from economics is the point that F.A. Hayek made famous with his essay, "The Use of Knowledge in Society". No matter how knowledgeable one individual or even a group of individuals becomes, their combined knowledge is nothing compared to the total knowledge of all people.

Hayek writes:
"H.9: Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge which cannot possibly be called scientific in the sense of knowledge of general rules: the knowledge of the particular circumstances of time and place. It is with respect to this that practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active coöperation."
What Hayek is saying here is that as much as we know through the scientific method... As much knowledge as we have managed to centralize through that process, there is almost an infinitely greater body of knowledge dispersed between each individual on the planet.

For many self-proclaimed "Skeptics", this idea is utterly ignored. For many academics, unfortunately, the only knowledge worth knowing is found through empirical positivism, or through the scientific method & experimentation.

However... Understanding the limits of knowledge - especially the kind that can be aggregated & centralized through data gathering and statistics, i.e. through science - is key to understanding why a small body of individuals can never know enough about an economy (or a language, a culture, a "society", or anything that is a by-product of human interaction) in order to manage it successfully. This is the basis for the Economic Calculation Problem that plagues socialist societies and why top-down control always fails.

Yet - The "Skeptic" community is positively filled with people who appear to believe that their knowledge is absolute (I suppose because the little bits of decentralized knowledge retained by every individual on the planet aren't scientifically generated, and thus invalid?) and thus top-down control is easily possible!

I have met innumerable people who seem to honestly believe that given enough data & enough research, scientists could just come up with perfect "models" of the economy - or of any other realm of human behavior - and thus give policy-makers the "tools" they would need to manipulate every aspect of our lives in presumably positive ways. (It's a good thing that none of that actually works, because we never bother to even consider the innumerable negative ways such "tools" might be employed...)

Economists and other social scientists have, for decades now, chased after an understanding of human behavior through the tools of the hard sciences.

But this really misses the point!

The economy isn't one big monolithic entity that moves up or down in unison or which can be modeled with complex calculus in any meaningful way. The economy, like society itself, is a name we ascribe to the millions of actions of individuals living in a particular region or even all over the world. Only individuals act, and individuals act purposefully, or as Ludwig von Mises put it, teleologically.

Teleology is a dreaded word in the sciences, in some ways... Creationism is teleological. A teleological argument about nature is to say that it was "designed" with some specific purpose in mind. And of course, that isn't true... But people absolutely do behave purposefully! We each take actions in order to further some goal. Maybe we're acting just to meet our basic needs like seeking food or shelter. Maybe we're seeking reproductive success, or intellectual joy. It doesn't matter what the specific goal is, the point is that in choosing to act at all, we're doing so specifically to accomplish some ends.

We all know this to be true... To quote Bob Murphy from his article, "Mises' Non-Trivial Insight":
"In summary, it's not so much that the method of the natural sciences doesn't work when it comes to human action, but rather that their use would overlook such an incredibly better set of tools that all of us possess. Nobody really knows why stones fall, and so the best we can do is invent physical "laws" that describe the empirical observations as closely as possible.

But when it comes to the actions of other human beings, we do know something about their cause, because each of us has subjective preferences, and each of us uses means to achieve ends."
What this really means is that using tools applicable to natural sciences is kind of silly when it comes to economics.

Human behavior isn't a constant like gravity or the speed of light... Each human is unique in his or her goals & preferences, and these variables are in a constant state of flux.

Human behavior is axiomatic.

We act to achieve particular ends. We respond to incentives - usually in ways that correspond to our goals. We aren't simple machines that each act in programmed, scripted ways... We all have our own unique set of talents, beliefs, values, goals, dreams, hopes and needs. And those factors, combined with the information we have of ourselves and what we derive from the subtle and complex market signals carried by monetary prices (among other things) drive each of us to make specific choices.

No technocratic society can aggregate enough knowledge about anything in as complex a way as price mechanisms and decentralized knowledge already do. So why bother?

Sure, you can use the tools of empirical science to dissect the social sciences, but is that really the best way to understand them?

I think it's pretty clear that it isn't... Yet, from Milton Friedman to the deciples of J.M. Keynes, this is exactly the approach many, if not most all mainstream economists currently take to the study of their discipline. And it's just one example of academics overreaching in their belief in their own knowledge.

So certain are some intellectuals of their knowledge and power that in a recent 60-Minutes interview, Federal Reserve chairman, Ben Bernanke claimed "100% certainty" in his ability to control inflation...

What!? 100%? Really?

But this is the overall problem I have with much of the intellectual crowd in general, even while I often consider myself a member.

So-called "Skeptics" are great at debunking religious dogma, urban legends and superstitious beliefs... They are skeptical of all kinds of valid things... But frequently, they are not skeptical in the slightest about their own knowledge or more broadly that of scientific authorities. They are rarely, in my observation, skeptical about the actions of government... and almost never skeptical about their collective ability to make "better" choices for individuals in almost any area you'd care to name.

If only they could control the decisions people make... The world would be smarter, healthier, safer... You name it. But every time - and I do mean every time - monolithic control is at the intelligensia's disposal, the results are uniformly catastrophic!

This is the consequence of over-confidence in your knowledge and contempt for the combined, but decentralized, knowledge of everyone individually.
"‎To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm." - F.A. Hayek
Ironically, most of the "Skeptics" I know are very skeptical of non-positivist methodology, and in turn ultimately very skeptical of the process that led F.A. Hayek and Ludwig von Mises (among others) to their conclusions... So they'll be perfectly content claiming that Austrian economists are not "scientific", and therefore shouldn't be trusted - even though they have a fabulous track record at predicting things like housing bubbles or massive economic recessions and they have an actually complete understanding of the business/production cycle.

Yet these same folks will often blindly accept the statements of people like Ben Bernanke - in spite of his abysmal record of getting basically everything wrong repeatedly, I assume because the tools Bernanke and his fellow-travelers employ are couched in the language of the hard sciences.

As I see it, the fundamental problem here is the general hubris of intellectuals, and unfortunately, most of the ones I talk to don't even seem able to recognize it. It is a truly remarkable blind spot.

Science is an awesome thing... The scientific method has produced some of the greatest advances in human productivity, in our standards of living, in our health and longevity... It's put men on the Moon and allowed us to explore the depths of the Oceans. I love science. I really do. But hypothesizing, gathering statistics and performing lab experiments aren't the only methods for obtaining knowledge about something - and they aren't even particularly good methods when it comes to analyzing human action.

Skeptics need to do a WAY better job of actually being skeptical where it counts...

Being skeptical of two-bit "psychics" and people who think they've been abducted by aliens is a no-brainer. But understanding the limitations of science and of the amount of knowledge that any one human being can possess - or which can even be catalogued in libraries and papers - takes a lot more wisdom.

***Disclaimer: This essay is not meant to claim that all scientists, or all "skeptics" behave as depicted. Many do not, many of those people are my friends, and the best scientists and economists are all - in my experience - people who are more than wise enough to recognize their limitations.***

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