Monday, March 08, 2010

More on Austrian idiots

"Hayek came to Cambridge in January 1931 to give a one-lecture version of his theory to the Marshall Society before starting on his LSE lectures. His exposition was greeted with complete silence. Keynes was in London, but Richard Kahn, who was in the audience, felt he had to break the ice. 'Is it your view', he asked hayek, 'that if I went out tomorrow and bought a new overcoat, that would increase unemployment?' 'Yes,' replied Hayek, turning to a blackboard full of triangles, 'but it would take a very long mathematical argument to explain why.'

- Robert Skidelsky, John Maynard Keynes: The Economist as Saviour, 1994, p. 456. [Quoted from Kahn, The Making of Keynes's General Theory, p. 182.]

So the fact that a long chain of people all the way to the sheep farmers who raised and sheered the sheep for the wool in the overcoat got paid by this transaction, and thereby got their employment, is going to raise unemployment... how? I'm sure Hayek could find a mathematical argument which would suggest such an outcome, but it would not be a mathematical argument that corresponded to any reality recognizable as this world. Maybe it's that Star Trek universe where Spock has a beard and is evil, or somethin' like that, but in this universe, if you spend money, somebody got paid to be employed with that money.

One of the things I learned getting my mathematics and computer science degree was that mathematics is a model. Whether any particular system of mathematics corresponds to any particular problem in our universe is one that can be determined only via testing whether observations match your model, because a model is not reality -- a model is, well, a model. Consider one of those plastic models of an F-15 fighter jet. This model isn't real. It's a simplified version of the real thing. It doesn't actually fly. You can't open it up and see the internal components of the turbines, or the circuit boards for its radars, or anything like that. On the other hand, you can use this model to demonstrate to students what an F-15 fighter jet looks like and how it is used in combat. But the moment you start confusing your model with, well, reality, you've jumped the shark into outright delusion -- which apparently has happened to far too many economists.

-- Badtux the Demand-side Penguin


  1. Honest to moloch, I am speechless.

    Whaaaa . . . ?
    jXb the shocked and awed trombonist

  2. Almost midnight here, and I'm too tired to trust my ability to construct an active link. You'll have to cut and paste, but I think it's worth it.



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