Per Bylund

I read a lot of reviews on this book before I got it and read it. They were all very positive, so one would have to conclude that the book is a magnificent piece of literature, right?

Wrong. I’ve read this book and reviewed it for a journal and it is horrible. It is horribly written – it consists of a number of narratives and personal experiences mixed with open-ended questions and loose thoughts. The chapters don’t even go well together – the book has no “flow.”

As for content, it is even worse. Yunus is an economics professor with a good education from an American university. Yet it seems, when reading the book and some of his most outrageous claims, he didn’t get far through the course literature. Actually, he couldn’t have opened any of the books, because he doesn’t seem to understand much at all about economics or how markets work.

Instead of facts and real arguments, what you get is a seemingly endless stream of politically correct statements and poignant empty phrases (if there is a difference between the two). And Yunus is frequently contradicting himself; whenever he states support for something only a page later it takes it back and states a contradictory opinion. Yet he doesn’t realize this is so.

The concept itself, the social business, is about as bad as the book. The reader doesn’t get much of an idea of how it would work, how it could be implemented, or exactly what it is. Rather, it seems to be all the things Yunus likes that is missing from other business ventures. Of the two examples mentioned in the book – the Grameen Bank and the Grameen-Danone yogurt enterprise – neither is, according to Yunus, a real social business.

We learn that there is no limitation as to how successful social business can be, yet there are no examples of social businesses around that can show us the true potential. And it is even the case that Yunus himself hasn’t even created one!

It is sad that in this book Yunus pleads for the reader’s support through using a language and words that makes the reader feel good. There are no real arguments available (it seems), so all you get is a ton of political correctness. If you believe no arguments for politically correct views are necessary (only because they are politically correct?), then this is definitely a persuasive and inspiring book. But if you want something more, something concrete and of substance, then you will be terribly disappointed by what Yunus presents in this book. I, for one, was a bit offended while reading this book – it seems Yunus assumes he doesn’t have to provide me with arguments for his supposedly revolutionary economical concept; I should trust his authority and go with the flow of the never-ending political correctness.

Frankly, I am surprised so many seem to fall for this terrible argument. I would personally consider using the book in argumentation class to show how terribly bad an argument can be – and what errors should be avoided. I could understand if you are moved by Yunus’ obvious dedication and belief in the social business – but if you are convinced by the so-called argument or are moved by the concept as it is presented in this book you are just plain stupid.

See also my review (co-authored with Mario Mondelli) of Yunus’s book published in the Electronic Journal of Sustainable Development in 2009.

I was recently recommended to read Bryan Caplan‘s 1999 article “The Austrian Search for Realistic Foundations” (JSTOR). Caplan is no doubt an intelligent scholar, but he does not show this fact in the mentioned article. Rather, to any reader knowledgeable in Austrian economics, this article appears at best to be a spectacle.

The reason for this post’s title is the very basic mistake Caplan makes throughout the article. Granted, it is all too prevalent in scientific discourse and it is a very easy mistake to make (I am bound to have made it myself at times). In fact, it is not a phenomenon exclusive to science; one may argue that it is a fundamental part of political discourse and rhetoric, especially in agitation. Yet science is supposed to be free of rhetoric, so why does Caplan make this mistake?

The answer is that most people (and this most likely applies to Caplan in this case) are not aware of them committing this type error. The problem is perspective: the fact that one cannot understand another’s arguments simply because one does not share his or her perspective. (more…)

In an article recently accepted for publication in the Quarterly Journal of Austrian Economics, I draft a model for explaining how firms emerge in the market place. Whereas theories of the firm generally attempt to explain the rationale for firms, their boundaries, and how they are internally organized, there are pretty much no studies at all on how firms emerge and what the process looks like.

This process is targeted in my article, and I use the fact that division of labor provides a production process with increasing returns to scale but that this division of labor is also restrained by the contextual degree of specialization. In the market, therefore, we will find a somewhat homogeneous specialization degree. Any actor choosing to limit the scope of his or her productive activities to a much further degree will find the products of his efforts incompatible with the surrounding market. Therefore, there is a trade-off between the increased efficiencies of division of labor and the cost of incompatibility. (more…)

It is undoubtedly the case that most students do not only accept the state of things, but they never even question why things are the way they are. This should perhaps not be loathed, since the answer most students would be likely to get upon questioning is “this is the way it has always been – deal with it.” That’s not much of an answer.

In my program, in contrast to most PhD programs, there has not been a formal and required exam as part of the program. Recently, however, this has changed. The reason for this is that the department has received poor scores in peer reviews and that the dissertations produced by students have not always been of the best quality. Fair enough, poor results should lead to change in order to effectuate improvement.

The reaction by the department is to increase the number of tests students have to take, and this is – as far as I understand – imposed retroactively also on students in the “old” program. Not only will there be a qualifying exam after the student has finished the program’s core course, but there is a paper to be submitted after the second year and a comprehensive exam as part of the dissertation proposal.

This is where I get confused. I fully understand the attempt to “control” that students have indeed understood the materials in the courses before they get to move on and start working on their research. But then, when they have reached the point where they are to defend their dissertation proposal to their committee, does it make sense to have another written test?

I think not.

It is easy to see how the faculty obviously panicked and felt the need to “do something.” Another test is however the wrong way to go. To understand this, let’s have a look at the process leading up to the dissertation defense. This process means the student works alone and/or together with his/her advisor to produce a text introducing the problem, the literature, what value is to be produced, the methods to do so and the expected problems and results.

When one’s advisor finds that the student is ready to defend the proposal and the committee has had a chance to review and comment on the proposal, then the student is invited to orally defend the proposal. The committee will ask questions and make sure the student knows what he’s/she’s doing. That’s fine; after all, the student is supposed to learn how to do research.

But at this point, what does a written test based on the material in the proposal add to the process? This is difficult to understand. It is especially troublesome since the comprehensive exam is a written test with limited time and closed books. How many researchers would you guess study the literature to the point of memorization before they write grant applications and research project plans? Of course they don’t – why would they? It is a waste of time to memorize details of others’ research that may not be relevant. And even to the point it is relevant, the articles and books are always available and need to be reread a thousand times in order to produce a fair analysis.

So “real” researchers don’t do that – but students should?

But maybe there is a reason to test the students – for sake of quality. Sure, this could be the case. Let’s have a look at this argument: students are to write a closed-book, memorization-testing exam on the material on which they are to do research in order for the department/faculty to make sure that the dissertation will be of good quality. Of course, for this to be even close to a real solution we need to assume that memorization of material makes one’s own research better and that the test as constructed by the committee does just this. Also, we need to assume the committee consists of experts in the exact area chosen by the student for research.

But remember the process as discussed briefly above. No student gets to defend his/her dissertation proposal without the consent and approval of the advisor. So if the department has experienced low-quality dissertations the problem is really that advisors don’t take their job seriously and let students defend their dissertation proposals prematurely. (We here ignore the troublesome fact that committees seem to consistently have chosen to approve proposals and dissertations of poor quality.)

So it must be concluded that the comprehensive test, as it is designed in my department, can only be seen as a test of whether the advisor has done his/her job properly. If the student is allowed to defend the dissertation proposal he or she must have already been deemed “ready” to do so by the advisor (and committee). So the student needs to take a comprehensive exam on the basis for his/her own research because the department cannot trust the advisor to do his/her job?

I guess this is where the pseudo-arguments “but everybody else does this” and “this is how it has always been done” are added. After all, without these pseudo-arguments there would be nothing left. The students are forced to literally waste weeks of their lives memorizing details of research they already know in order for the department to know the advisor and committee have done what they are supposed to.

If the problem is that some advisors (I doubt it is even a majority) allow their students to defend their proposals (and dissertations?) prematurely, then it is reasonable to assume the faculty already know who they are. But they are obviously afraid to bring this out in the open, possibly because they are likely to make enemies with people they have to work with for the rest of their lives. After all, academia spells t-e-n-u-r-e and this means life-long service in the same department. So it is a lot easier to have students jump through another hoop for the sake of appearing to assure quality and thereby saving face and avoid making enemies.

So what does this mean? It means, of course, that I will have to spend a lot of time memorizing things I believe my committee members believe is important in the material relevant for my research. It also means a break from my line of thinking and this, in turn, means I will have to start over with the research project – thereby losing even more time. Then I can finally do the research that I am in the department to do in the first place.

For the record, I sincerely doubt my advisor would allow me to defend an unfinished proposal. Instead, he would be frank with me and tell me that my proposal simply doesn’t cut it. After all, I am working with him to produce a document that will be approved by the committee (the advisor usually has the last word) – and if not, then the advisor has obviously not done his job. So this means I am not really affected by the new rules, except for the hoop-jumping part: I will most likely have to take the test. In order for the department to know “for sure” (if there is  such a thing) that my advisor has done his job.

It also means I will have to memorize a bunch of stuff that I am likely to challenge in my own research. I fail to understand how memorizing [at least some] conclusions that I am sure are wrong, or at least drawn on faulty bases, would help me, unless it is the case that I have misunderstood the articles and that another read will help me understand this mistake (both conditions are, of course, necessary for this to not be a complete waste of time).

Does this help my research? I sincerely doubt it. Does it potentially improve the quality of my future dissertation? Not a chance. The reason for this is that what is important in a PhD student’s research is not whether articles have been memorized, but whether (1) he or she can think (which is undoubtedly a scarce quality in academia…) and (2) if he or she has received proper guidance from his/her advisor.

The former is not dependent on a formal test such as the now offered comprehensive exam. In fact, if the student can think intellectually a dumb memorization-based test is likely to either bore the student (hopefully not to such a degree that he/she decides there are more worthwhile activities to spend lifetime on) or dull his/her mind.

The latter is also independent on any formal test of the student, since guidance is rarely testable and what is important is finding and understanding the literature. Both should be easy to identify in a proposal and oral defense, whereas they are both quite impossible to test in a formal written exam.

So why enforce a comprehensive exam, especially if in addition to a qualifying exam and a required two-year research paper? I have, I believe, suggested the true reasons above. But it must be concluded that since there is no logical reason to test whether a student has memorized the existing literature, especially since what is of importance is the judgment of primarily the advisor and secondarily the committee, there is no real reason to have such a test.

Sometimes the world isn’t very rational. Or, perhaps, in a tug-o-war world where one’s turf is everything one has, the only thing one can do is jump through the right hoops and hope for the best.

But please do prove that this disillusioned student is but a little confused.

As someone who is aiming for a career in academia and, hence, with academics or scholars, I get to see quite a bit of what is going on “behind the scenes” in university departments. I also get to know quite a few people who claim to be scholars (and they are truly not) as well as people who use only the dirtiest tricks they can find to belittle, denigrate, and smear fellow scholars that they don’t like.

Some people are truly narrow-minded jerks, and quite a few of them seem to have taken refuge to academic departments at publicly financed universities. Most of them, it seems, are simply not interested in creating knowledge, finding the truth, and all the other things most of us would probably expect from researchers and professors.

Whereas I could write this blog post on all the little things that I have discovered and that have annoyed me, I will only discuss something that I find particularly annoying and unworthy anyone working with science: conscious and purposeful smearing for the sake of … smearing.

The art of undermining somebody’s authority and reputation through spreading rumors and attacking them behind their backs is practiced in most trades, and so too in academia. One should not assume that scientists, supposedly fact-oriented and logically stringent seekers of The Truth, do not play dirty tricks on each other and spend enormous amounts of time and energy waging and fighting petty faction wars in departments or even within offices. Politics seems to be a “natural” part of most organized  bodies of people in which they do not naturally and solely share a specific aim.

In any case, academia is just like any other such body but perhaps more puerile. The hierarchy is very fixed while often informal and it is a highly held custom to kick on anyone who’s on a lower level. Also, if there is something you do not like – do not hesitate to attack their person rather than their research, and do whatever you can to make straw-man arguments with as sarcastic tone as possible.

There are plenty of examples of such behavior, but perhaps Brad DeLong‘s treatment of Austrian Economics is the best recent example. Not only do comments correcting Dr. DeLong’s assertions mysteriously disappear from his blog or are as mysteriously shortened, but he does not give people disagreeing with him a chance. He is simply not interested in other views. Scholarly? Not very.

Steve Horwitz comments on DeLong (all the necessary links to comments back and forth are provided by Horwitz; Mellon was President Hoover’s Treasury Secretary):

First, DeLong cuts off the part of Murphy’s post where he provides the evidence that Hoover rejected that view and that it did not dominate his administration.  Brutally dishonest.  Bob replies in the comments, and I follow up.  DeLong then truncates the part of MY comment where I point to Larry White’s JMCB paper that demonstrated that even MELLON was not a “liquidationist” and neither were the Austrians.

This is not a very unusual or extreme behavior and Brad DeLong is hardly an extremist (extremely ignorant and puerile, maybe – but not an extremist). Rather, this is quite common behavior in the land of academia, where everybody’s constantly guarding their turf and aren’t interested in any arguments or facts unless they strengthen their own view.

The fact is that most academics are hardly sholars; they are mostly people who are too smart for politics but too lazy to do the work necessary to be successful in any other trade. And many professors have never even tried any other line of work. In fact, some even look down upon people with experience outside of academia as if that would be something despicable.

Academia and science simply doesn’t work the way it theoretically should, i.e. the way John Stuart Mill defended free speech: only through allowing everybody to speak their opinion can we have sufficient ground to weed out the obviously bad and false. If academia would work this way, it would be eagerly receptive to new ideas and not only accept but even long for new perspectives and challenging ways of explaining real phenomena. Embracing the ideas of the one who challenges you and what you believe in is the way towards scientific progress.

The fact is that academia works in a way that is quite the opposite. New ideas are not embraced; rather, they are fought, silenced, and ridiculed – and editors of scientific journals even refuse to publish papers that are too “controversial.” To be published, new scientific results need to be “scientifically correct” rather than true to the facts.

I guess the question that pops up in your mind now, dear reader, is why the heck I so badly want to be part of this? My answer is that there are a number of exceptions to this rule and that working with but one true scholar and a hundred nitwits is a privilege – it is very rewarding to be around and work with a true genious. Also, I love doing what professors do: I love research and I love teaching – I could even spend ours on committees without necessarily being bored to death.

What scares me, however, is that there are so many “great” self-proclaimed scholars out there that do not know what the word means. And that they fall to such low levels in ways of fighting their petty turf wars. I am scared about this fact, but I am not afraid of them nor what they do. My background in politics have prepared me for the worst, and the fact is that I too can play this game – and I have formal training through 15 years in politics, which most academics do not. They will not know what hit them.

So I say: let me do what I do best and do your worst in honest critiquing of my work. And if you cannot, but prefer to fight dirty, bring it on. It is not a threat, it is a promise.

In a previous post I discussed the well-known fact that economists’ predictions are always wrong, and why they always are. But one obvious problem with predictions was left out of the discussion, and I would like to discuss this problem in a separate post. In contrast to the previous post, which was quite general in tone and content, this issue is mainly methodological and somewhat philosophical.

The previous post discussed the problems of measurement and the very problematic assumption that “people are like rocks,” i.e. that individuals share a fixed and observable nature in the same way that rocks have common simple properties. I also stretched the discussion to cover the ever present tension between the Weberian concepts of erklären and verstehen.

The former kind of science strictly emphasizes explaining facts and establishing simple causal relationships that can be derived from the observable properties of the entity. The latter stresses the subjective understanding of what is going on, and finding a way of rationally establishing a way to “see” how things work and are related. Weber explicitly states that erklären is the purpose and method unique for the natural sciences whereas the social sciences need to have a verstehen-based perspective. Predictions, hence, are possible only in sciences based on the erklären methodology and this is the conflict in economics: a fundamentally social science attempting to make use of primarily (only?) the methods and methodology of the natural sciences.

But predictions are problematic in and of themselves even if we ignore the tension arising from using erklären methodology studying verstehen phenomena. The very nature of predictions imply the usage of historic data to say something about the future. As we know, and have known at least since the days of the Ancient Greeks, it does not follow from the fact that the sun has risen every morning for centuries that it will continue to do so. History and future are not the same and may even be very different. What makes the future so troublesome is that it is fundamentally uncertain and we cannot use the certain facts of history to create knowledge about it.

As was stressed in the previous post, extrapolating doesn’t necessarily make sense. Doing the same maneuver for predictions about the future from data about historical events makes even less sense. Tomorrow will not be exactly like yesterday, which is a fact everybody knows and should know. This fact is true for details as well. That a rock falls to the ground if dropped today does not mean it will do so tomorrow.

However, we can conclude that a rock will fall to the ground if dropped tomorrow if we can show what makes it drop and we can rely on the properties of these causes being the same tomorrow. A rock has a fixed nature with certain properties and these do not change. We have been able to establish that a rock is dead matter that responds to exogenous forces in a very reliable and predictable way – we know that a rock is a rock is a rock and that this means something in terms of its nature.

It may be the case that tomorrow does not have gravity or that all rocks have turned into lollipops, but that doesn’t change the fact that rocks, according to our defintion, are rocks and that they respond to different forces in certain ways. We cannot with complete certainty say that everything will be the same tomorrow, but we can make general statements that will hold true for the things, forces, and properties we have specified (if we have done a good job specifying them). 

Now try the same thing with a human being. An individual is an individual is an individual. If this is true in the same sense as a rock is a rock, then we should be able to establish if one and every individual likes ice cream, responds the same way to stimuli like heat and cold, reacts to a certain situation the same way with a high level of certainty. 

Try the latter and compare a rock with an individual. Expose the rock to exogenous forces and observe its “behavior” and what happens to it. Then expose an individual to some stimuli and observe the behavior. Repeat it and observe the behavior – is it exactly the same? You will find that different individuals react in different ways to stimuli – and that one individual’s reactions will change over time as he or she learns. The rock never learns.

So even if the way a rock is affected by certain experiments is not purely certain for the future, it is very much predictable. The way John Doe reacts to, e.g., a speeding car about to hit him is different every time – and may not [ever] be the same as how Jane Doe reacts. It is not predictable; we cannot know what will happen (i.e. how the individual will react). 

So how will people react to lower prices in a certain good? We can attempt to predict that tomorrow, if the price for widgets is 10% lower, people will purchase 500,000 more widgets. But that doesn’t make sense. If the price is indeed lower it does not follow that the people who bought a widget yesterday at the higher price are more likely to buy a widget again. It also doesn’t follow that people in general value the widget in the same way. 

The only thing we can say is that ceteris paribus people will tend to purchase more of the cheaper good, at least for as long as they subjectively expect to be better off through purchasing one [more]. People want to be better off (which follows from the definition of better) and therefore make choices to improve their situation – to the best of their ability. But their preferences change and their ranking of those preferences change – as do their needs, perspectives, experience, knowledge, etc. An individual is not an individual is not an individual, at least not the same way a rock is a rock is a rock.

The problem of induction is problematic in natural science where dead matter is studied, even though the deathness of matter makes its properties reliable and effects predictable. Add life to the equation and the problem of induction becomes insurmountable and obviously so. 

Some things do seem to be repeated over time and the saying that “history repeats itself” may be thought to disprove the point I am making. But it doesn’t. It may be true that history tends to repeat itself if we do not learn from it, but the problem is that there is no “we” in the sense that there is a “rocks.” Individuals are different from each other and they change over time; humankind may not learn from the lessons of history, but it is equally true that situations do not repeat themselves – only man-made abstractions of them do. It is rational to learn from the essence of a situation not to repeat it or its negative consequences, but it is equally rational to say that things have changed and therefore the outcomes may do so too.

The lesson to be learned is that collectivism doesn’t work when we speak of human behavior simply because human behavior is not as tightly bound to the properties of “human” as the effects on a rock are to its properties. The reason is that human consciousness is not necessarily the same as the human body – one could possibly predict the effects of stimuli in medicine, but not in economics. Medicine works with the properties of the human body, i.e. its constitution and chemical and biological relationships (however complex); economics studies human behavior, where one individual’s choice to act is not based on the same facts as another’s, and a specific individual tends to learn – and change – from experience.

The general conclusion at the moment seems to be that there is a need for a new set of theories of the market and economics – “crisis economics.” The reason for this need is the fact that “no one” predicted the current downturn and crisis, and that the predictions made turned out as wrong as they could possibly be. In fact, many economists predicted increased growth and continued prosperity while the true future held an economy in freefall with a number of imploding industries and sectors. 

In an opinion piece in the National Post the obvious question is asked: Why Do We Have Economists? The question had to be asked, especially since there has been no real “blame game,” no real and public debate on why all predictions turned out wrong, and no consequences for the economics profession. After all, economists often stress the fact that action is taken under rational assumptions of consequences and that all actions have consequences of some form. The army predicting economists is obviously an exception to that rule.

As some sociology professors frequently joking: say what you will about economists, but you will always get a straight and precise answer – and you always know that it is wrong. So the question asked by the editor of the National Post should be well taken; it is an important one. Why do we have economists?

But there is a question that is more important, especially for the professional economists who make all these “always wrong” predictions, and that is what makes the predictions always turn out wrong? The answer to this question lies in the error of Milton Friedman in his now famous (should-be infamous) article “The Methodology of Positive Economics” and the people who followed him (and still do).

Economics prides itself of being a deductive science, i.e. that new knowledge is deduced directly and logically from true premises or assumptions. Friedman argued that it doesn’t matter if the assumptions are wrong as long as one can extract general rules from which one can make predictions that are somewhat reliable and come close to the truth. What he spelled out was a theory of economics aiming to be a natural science, where exactness is both important and possible. In economics, however, we should learn that exactness is neither important nor possible.

In order to provide a positive, rigorous science that can produce exact predictions, one has to through out all understanding (in the Weberian verstehen-sense) and rely solely on cold data. One cannot make predictions unless that which is studied is perfectly observable and with clear boundaries. But what if we apply this line of thinking on human action, which is the core of what is studied in economics. Are the causes, nature, and consequences of human action perfectly observable and have clear boundaries? How do we measure the causes of an individual’s actions? His choice of action? The action itself? Its consequences?

The latter comes closer than the former, but it is still not even close to having the properties of the objects studied in the natural sciences. Mixing x grams of A with y grams of B may always create the substance C, and exposing D to E or F may always show exactly z – but doing m to one individual does not necessarily create the same effect as doing m to another. People are not simply responding perfectly and blindly to exogenous influences, there is a whole lot of other things going on that are at least as important as certain influences. Some call it “free will,” but you don’t have to go as far into metaphysical or religious pondering to realize that people are neither rocks nor [simpler] animals.

The problem of economic prediction is just that underlying assumption that we can “easily” predict the outcome of numerous people through meddling with some of the variables that affect people’s choices. It is simply not the case that different individuals choose to act the same way when exposed to (or influenced by) the same stimuli. Our bodies may – may – react in the same way, but our minds do not. 

To this some might retort: thanks to the law of large numbers we can generalize our conclusions despite individuals not being alike. When the law of large numbers is applicable, we can simply assume that if we just have a sample large enough all potentially skewed or unrepresentative data will even out and we will find The Truth about human beings. But this does not change the problem at hand – we are still generalizing in the same way, but only with more data and more individuals. 

Even if we accept the law of large numbers as a sufficient reason to use statistics to understand people, we will have to face the problem with their not being the same. That people, being boundedly rational, would always choose more over less (which necessarily follows from the definition of choice) does not mean they will choose a particular outcome over another in every situation. Each individual will make a subjective assessment of his preferences and rank them, then make a choice based on what he knows of his ranked preferences (this is the decision process, whether it is carried out consciously and reflectingly or not). But the ranking may change depending on circumstances as well as what the individual has learned.

Making perfect predictions the way Friedman proposed means we must take the quality of being human out of every individual, or at least “even it out” in order to calculate precise predictions. What do we learn by knowing that people without personalities and without “inner depth” (some call it soul) would necessarily act according to our the predictions? Probably not much.

Furthermore, the predictions are based on extrapolating well beyond what is reasonable. Establishing one person’ s assessment of everyday risk and the costs he accepts to take care to avoid this risk, and translating it into dollar amounts, does not necessarily give us monotonous knowledge of this individuals preferred choices. It does not follow that he would accept a high risk to lose his life if he was paid some muliple of the cost he was willing to take on for smaller risks.

Predictions simply do not cut it. So why do we have economists?

The answer to this question is that we do not need most economists, but we do, at the same time, need economists more than ever. The reason for this is that the economists working on predicting the exact outcome of hundreds or thousands (or millions or billions) of individuals’ simultaneous choices are worthless, their methodology is fundamentally flawed and they are nothing but frauds. And they should be treated accordingly.

While we think of what to do with the predicting economists we need to find the real economists, the people who understand the market and can tell us how it functions and what is required for it to function well. Very few economists understand what the market is about and how the emergent order arises, subsists, and what it effectuates. These economists were able to say a long time ago that we were heading towards a meltdown, and they did. They even published these warnings, but nobody listened or wanted to hear about it. “Nobody” here denotes the prediconomists and the political elite that [usually] hire them. 

Economists need to do what businesses did a long time ago: go back to basics. There is no need for armies of economists trying to predict the exact results of public policy, of interest rate changes, or monetary policy, etc. The use of prediconomists is not to learn about the future or politics, but as “useful idiots” disguising blind, naive, and ignorant attempts to regulate people’s choices through granting the commandeering of society an air of scientificity. And they serve well as scapegoats when their predictions turn out to be wrong and the people in charge can hide behind their “good intentions.”

What there is a need for is real economists who do not engage in futile attempts to “scientifically” make exact predictions of people’s future choices. We need people to tell us how the market works so that we can reap the full fruits of our hard work and profit from the risks we take.

As some of you may know, the “piracy” trial ended with the conviction of the administrators of the web site The Pirate Bay to one year in jail as well as (for Sweden) record-high damages to the entertainment industry. Whereas it is not clear if they have committed a crime – hell, it isn’t even clear that a crime has been committed – some interesting facts about the trial have emerged.

The courts in Sweden are highly politicized. As is common in civil law countries (like most Western non-anglo-saxon countries), the Swedish court system is not based on principles such as the courts or judges discovering law (which is, originally, the case in common law countries) – they but enforce the law as decided by The Ruler, be he king or a faceless parliament – and trial by peers (the jury system).

The courts do, however, have a pseudo-jury system where a judge runs the show but a number of people are chosen to assist the judge in finding the defendant guilty or not guilty of crime. These people are appointed by the political parties with representation in the parliament. In other words, there is a kind of political jury system where the political elite gets to appoint who will make sure justice is upheld. That the same elite enacts the law that is tried in the courts is not a problem to most Swedes, it seems.

In this particular trial, a high-profile trial with international coverage, the politicization of the Swedish courts is extra troublesome. The road to the trial has been paved with scandals, where the entertainment industry’s organization Antipiratbyrån not only has done the police’s job at raides against private web hosting firms, but they have worked closelly with the police investigators and even hired or paid a number of them. Furthermore, the U.S. government has pressured the Swedish government into taking a number of actions that are not necessarily allowed in the Swedish system of “justice” – sometimes even outright prohibited. 

This has not stopped the investigation, however, which is still partly based on what was found or interpretations made based on the illegal investigations. The propaganda war is also an important part of the story, where the public obviously supports and engages in file sharing (both the legal and the copyright-violating kinds) while the political elite is whole-heartedly on the side of the industry. In fact, the political elite has been enacting a number of laws significantly reducing the rights and privacy of Swedish citizens only to get to the small number of illegal file-sharers.

It is in this context that a trial with a judge and politically appointed judge assistants (nämndemän) is highly problematic. But, as I have already mentioned, this seems to not be a big problem in the Swedish public debate. The special interest owns the political elite, and the political elite both enacts and enforces the law.

Furthermore, the trial has been tragicomic. The defendants’ lawyers have very frequently objected to the prosecutor’s use of evidence not previously shown to the court. There are transcripts from the courts showing how one of the defendant’s lawyer objects saying the prosecutor is “doing it again” and that he “did it yesterday” and “will you never learn?” The court never disallowed the evidence even though the defendants had to react without any preparation whatsoever.

Also, the court has consistently misunderstood what the technology does. The prosecutor has repeatedly made statements about the “copyrighted files on the Pirate Bay server,” whereas anyone who has the slightest knowledge of the bit torrent technology knows that there should be no such files. The Pirate Bay had only a torrent library – a type of links that any search engine also has (but torrent/file links, not web links).

These problems set aside, what has caused a debate after the conviction is that new information about the judge has surfaced. Not only is he ignorant of this particular technology and allowed the prosecutor’s consistent use of procedurally prohibited conduct. He is also a member of the Swedish Organization for Copyright. In other words, he is a member of the organization that promotes copyrights and has done so since 1954.

Does this mean the trial is dismissed and needs to be done all over again? Not necessarily – the court could decide that his membership further his knowledge of the issue rather than makes him biased. And it is likely that the request for appeal from the defendants will generate exactly this assessment. 

How, then, would the appeals court assess the fact that this same judge asked (asked, not ordered) one of the politically appointed assistants to step down and leave the court due to probable bias because he was a musician and member of the same organization? It would probably think this is a separate issue and that it was the correct call by the judge…

The fact is that this is a minor issue considering what has been going on for a long time during the investigations. Police investigators have been contracted by the Antipiratbyrån and then, when/if fired from the police, hired by them. The Antipiratbyrån folks have been assisting the police during raides even though it is strictly illegal to do so – yet the politicized system of “justice” has not reacted. The Swedish government has broken its own laws to please the U.S. government and a U.S.-based industry that is way off track and unwilling to change its business strategies despite the technological advances. And the entertainment industry has received legal privileges to take actions that not even the police has the right to take.

There are simply so many strange things going on that undermine the court system, the government legal system, the legitimacy of enactment and enforcement of laws for the sake of protecting a relic of intellectual property, that this doubtlessly will be known to future generations as something to be truly ashamed about. That is, if you are a statist. If you are not, then this was expected; what was not expected is that this has been going on without even trying to cover it up.

This is a legitimate question even though it doesn’t necessarily imply that economists (American such, at least) in general are Republicans. But it is a fact that economists in general tend to be to the “right” (according to the common understanding of the political right) of e.g. sociologists and political scientists. It is also a fact that you will find more libertarians in this discipline than in virtually any other such in academia. Why is this so?

The general leftist might not find this question troubling, since the “obvious” answer is that economists work with money and capital and therefore have a natural and benefiting relationship with capital owners in our capitalist economy. This may be an answer that explains some individuals’ actions and convictions, but it is hardly the reason economists in general – theoretically or in reality – tend to have free market ideals. But it may be an easy way of avoiding over-simplifying and over-politicizing the issue.

Some may argue the other side of the simplified leftist coin: that there is a “selection bias” and therefore that people who like money and capital(ism) are more likely to choose to work with and study money and capital. This too may explain why some of the individuals in economics feel they belong on the right. But it doesn’t explain why virtually a whole discipline identify with the “right” side of the political spectrum.

The real answer should be based in simple economic theory: the theory of incentives, or, rather, the assumption that people do what they have an incentive to do. This is a core understanding in economics of the true nature of human action. People do what they have an incentive to do, and understanding this may lead the individual economist researcher to the solution to many a problem. Understanding that people do what they have an incentive to do explains virtually any social standards or institutions.

What this means here is that economists think this way and therefore necessarily think this way also with respect to politics and the organization of government. Seeing that individuals in government are acting on their incentives means seeing all the possible problems with government. For instance, take any democratically elected parliament taking the proposed budget to a vote. If the members of parliament would pay whatever is spent themselves they would have a great incentive of minimize the budget, make sure that it is spent and distributed efficiently, that only projects with great chances of success and with real benefits would see the light of day. But this is not the case; politicians choose what to spend other people’s money on.

Imagine what this screwed up set of incentives would mean in another setting, e.g. a common grocery store. We know that the owner or manager of the store makes sure to hire those he can trust to sell (and not steal) the groceries and he will only buy those groceries he knows people will buy. Why? Because his ass is on the line – if he spends most of the budget on groceries nobody wants he will lose customers and therefore his own money…and perhaps the whole store. 

Now imagine the same situation but where the owner or manager can decide how much money he gets to spend through simply taking other people’s money. Whoever lives in the area has to pay whatever percentage of his income to the owner of the grocery store so that the grocerer can buy goods to offer his customers. Now what are the incentives for him to buy only good products, only products people will like, and hire people he can trust? It makes more sense to buy the cheapest groceries, no matter if people like them, and hire the people he likes or people he feels sorry for or people he wants to do a favor. 

It is not necessary to ask which grocery store will be of greater utility for the customer, even if some of the groceries in the “political” grocery store are for free. 

This is how any political parliament works: politicians claim they are limited by their budgets, but they get to decide the size of the budget (and take the money necessary) and even if they should stay within the budget. It is often the case that they spend way more than they take from people, thereby not only spending people’s earned incomes but also the money they will earn in the future. So any political organization is, in terms of incentives, totaly screwed up. Or, to translate it into economic lingo, the incentives between the principal (voter) and agents (politicians) are misaligned.

So it makes sense for economists to identify with whatever politician that seems to understand more (read: seems to be less ignorant) about these things. And these people, at least rhetorically, are often found in the political right. I say rhetorically, since it is pretty obvious to whoever understands politics that in the choice between Bush and Obama neither one understands the first thing about economics. But Bush was able to make it sound like he had a fraction of a clue. 

The interesting point is not really that economists identify with the political right, but rather why they do not follow their theoretical understanding all the way through and demolish the State – at least in their thinking. Some of them clearly do (I am one), but not very many. 

So what we have here is really a whole academic discipline that understands, or supposedly understands, economics and therefore can identify the lack of aligned incentives in political organization – but don’t do so all the way. Economists either do not fully believe economic theory or they do not believe government is what it is (and claims to be). Which is it?

Some clearly do not understand and do not wish to understand economic theory nor apply it on other things than their precious formulas and functions. Such economists will never find any truth and will not produce anything of value to anyone. But what about the rest? It is clear that many economists live in symbiosis with the State and therefore do not wish to think about it in less positive terms. After all, the government employs a lot of economists and economists find it very prestigeous to work for the people with political power. So they simply neglect to apply their economic understanding on the organization they wish to serve.

So how about the rest, i.e. economists who do understand economic theory and wo do not find it necessary to lie to themselves in what regards the State? The answer to this question is what is very sad. It should be the case that economists who end up identifying with the political “right” while supporting government simply do so because they are as brainwashed as most people. Despite being scholars in economics they have learned throughout their lifetimes that there is no way to survive without government.

Economists (many of them) may not like government, but they accept it and even support it. And they use their sound theories to make government more efficient and effective – simply because they have been taught that there is no other way. To a free-thinking individual with economic understanding this is of course the same as saying that a certain industry “must” function like the “statist” grocery store mentioned above – but that we need to make its wasteful operations as efficient and effective as possible not to get “too much waste.”

Anyone understanding the competitive market understands that waste is not acceptable, that waste is minimized automatically through the profit motive and the pressure from competition. The problem here is not only that government is a monopoly and that the profit motive is nonexistent. The problem is also that it is an organization that can “legitimately” force its customers (and non-customers) to pay for its costs while it can supply whatever it wishes at whatever cost it finds most appropriate. 

Government, in other words, is an organization that is much much worse than any monopoly mentioned in economic theory – it is a monopoly cubed, judging from the weird incentives it creates and the effect it has on the market. There is therefore no way of understanding economists’ support for government other than that they have given up in the sense not applying what they know to it. Brainwashing works, even on those who have dedicated your whole professional lives to learning the truth – and when the truth speaks out clearly against government.

Peter Klein wrote a blog post yesterday on the Mises Economics blog continuing the agorist vs. anarcho-capitalist discussion on organization. In his post, Klein summarized his contribution to the discussion followed by a quoting Rothbard’s assessment of agorists view on organization. But both Klein and Rothbard make unsupported general conclusions that they seem to base on some agorists’ personal preferences rather than agorist theory.

It is true that agorists in general do not fancy “organization, hierarchy, leaders and followers, etc.”, which is a common preference among anarchists of all varieties. Rothbard (and Klein) is right in that there is not necessarily anything wrong with voluntary organization or voluntary “membership” in hierarchical structures where one is subjected to the rule of majority vote or the whims of a ruler. But as good economists both Rothbard and Klein seem to assume too much: there is nothing wrong with making an informed decision to take a low-level position in a hierarchy ceteris paribus.

Ceteris paribus should here be understood as choosing in a situation where the only thing that distinguishes the hierarchical position from the non-hierarchical is hierarchy. But this is hardly ever the case in State society. Rather, individuals have to choose (if at all) from a very limited set of alternatives, where hierarchy and submission is part of all or most of the alternatives. Vietnamese children working in a Nike sweatshop are better off than as child prostitutes, ceteris paribus. But one cannot take the choices as exogenous to the political situation in the area, the region, the country, or the world. A political theory such as agorism needs to take into account the effect of political rule in the choices people make.

Agorists do just that: they realize that the limited options for a child, i.e. working in a sweat shop or becoming a prostitute, are not the result of the market but of political institutions. The choice in itself may be easy, but the context certainly isn’t. The person making the choice is subjected to political oppression through the unavailability of choices due to political regulation, rule, and coercive institutions.

This is not the same as making choices “subject to” alternatives made available in a free(d) market. The market measures costs to benefits and awards individuals with alternatives to the extent economically feasible. Political rule, however, causes imbalances in the marketplace which forcefully (directly or indirectly) removes alternatives that should have existed were it not for political oppressive rule. The choice between a sweat shop and prostitution is a choice only because of politics; it is not a “real” choice set, since it is forcefully limited.

The same is true with any choices we make today, and agorists, compared to other anarcho-capitalists, tend to put more weight on the choices that have been forcefully taken away from us. While many libertarians would compare a choice to status quo, an agorist would compare the choice situation with that which should obviously have been real in a free market. It is not an economic analysis, it is a political analysis based on a radical passion for justice.

This is relevant to the debate on organization, since agorists have a slightly different perspective than anarcho-capitalists, especially economist anarcho-capitalists. There is of course nothing supporting any counter-factual view on what would have been the case under different circumstances. But it is reasonable to draw some conclusions: the child would have more alternatives in a free market than sweat shop work and prostitution, of which some would likely have been better than both.

Only the better alternatives are important to our analysis, but it is safe to say that we can remain fairly confident that such better alternatives (subjectively identified and valued) would exist. State oppression has therefore deprived the child (in this case) from the choice he or she would have made were it not for State oppression. An economic analysis, at least using the tools commonly taught in academia, is too limited: it does not take into account the fundamental and far-reaching effect of the State on institutions and individual as well as collective behavior.

From this perspective, it is not necessarily the case that people in a freed setting would organize the way the presently choose to. It could be the case that people organize in large corporations, but it is unlikely. Why? Because people in general tend to dislike being “bossed around” by others, and they tend to very often dislike management because it is management or because they believe management’s decisions are incorrect or improper. Ask yourself: in a free(d) market, would more or fewer people choose to work in large structures where their actions are subjected to the decisions/management by others?

The answer isn’t necessarily obvious, but considering the multitude of organizational solutions that would be available were it not for the State, as well as the cost of e.g. corporation-like limited liability if fully internalized by the individual actor/organization, the answer becomes clearer. Agorists don’t despise or dislike organization per se, but I believe it is reasonable to say their analysis takes more facts into account. In quantitative economics lingo, agorists tend to control for many more variables.

So how does this relate to Klein’s post and the Rothbard quote? It provides the reason agorists, on average, are more skeptical than other libertarians to contemporary organizational structures. Agorist theory does not dismiss organization, but agorist class theory identifies, comparatively speaking, a great many more State-caused and State-inflicted problems with severe effects on the very bases on which choices are made. This makes agorists more skeptical towards organizational choices in contemporary State society.

If it were indeed the case that agorists were opposed to organization in and of itself, they would abstain from organize themselves. But this is not the case: agorists organize their efforts in the Molinari Institute as well as the Center for a Stateless Society and the Agorist Action Alliance.

Furthermore, agorists are strong proponents of voluntary organizing of free markets to create individual wealth while withdrawing support for the state to the greatest degree possible and providing real and viable free alternatives to State-controlled institutions. Agorism provides a theory for how to set the world free through liberating yourself and thereby fully take advantage of the economic incentives naturally provided in a free society. So-called counter-economics is a cornerstone in agorist theory and practice, and arranging or joining a counter-economy is voluntary in a sense no choice made in the State sanctioned market ever is. This is perhaps what distinguishes agorists from anarcho-capitalists the most: that they define “voluntary” in a much more absolutist sense.

Cross posted as a comment to Klein’s blog post. For more information, see my articles Saving the World through Saving Yourself, A Strategy for Forcing the State Back, and my previous blog post The Savior Complex.