Economists as Liars

Robert Waldmann makes some strong statements:

"...The conclusions of economic theory as presented by many or perhaps most economists do not follow from current economic theory, but rather from the 50 year old efforts at mathematical economic theory...

The problem is, I think, that when they talk to non economists, many economists pretend that traditional economic theory is a good approximation to reality. By 'traditional' I mean 50 year old. The fact that the conclusions are the result of strong assumptions made for tractability and are known to not hold without these assumptions is irrelevant...

...Once a model has been put in textbooks, it becomes immortal invulnerable not only to the data (which can prove it is not a true statement about the world but no one ever thought it was) but also to further theoretical analysis...

...I think the worse problem is that economists who are also libertarian ideologues are lying about the current state of economic theory, not only its very weak scientific standing, but the fact that, even if it were all absolutely true, their policy recommendations do not at all follow from current economic theory..." -- Robert Waldmann

Read the whole thing. (Hat tip to Ezra Klein)

Update: Having now read Mark Buchanan's New York Times editorial, I'm not at all sure I agree with Robert Waldmann in aspects of his post not quoted above. Buchanan is arguing for an agent-based modelling, out-of-equilibrium, econophysics approach. Buchanan maybe overstates the contrast between his approach and most mainstream economics, but Waldmann's post contains an element of boundary-patrolling anyways.

Jeffrey Miron And Propertarian Advocacy Taught At Harvard

Jeffrey Miron teaches EC1017 at Harvard. "A Libertarian Perspective on Economic and Social Policy" is the course title, and PDFs for the lectures are available for download.

Based on the notes for the three lectures I looked at, Miron supposedly derives propertarian policy from intermediate principles (e.g., "efficiency"), with little to no data on relative magnitudes. I don't care for this approach myself, never mind the policy conclusions. He seems to mention no names. The reading list (from Spring 2009) does not include his book (which I haven't read). Perhaps Miron's experience is that Harvard students can be counted on to bring up Rawls, Karl Popper's piecemeal social engineering, Alan Haworth, and even Nozick.

'Libertarian' Used Correctly

"Less World! More Bank!"

I have been reading Phil Edwards' 'More Work! Less Pay!' Rebellion and Repression in Italy, 1972-7 (Manchester University Press, 2009). He occasionally uses the word 'libertarian', for example:

"the group re-emerged within the 'area' as the Collettivi Politici Operai (CPO; 'Workers' Political Collectives'), opening itself to left-libertarian as well as Leninist influences." -- Phil Edwards (p. 69)

and in translating:

"The first, numerically in the majority, is the 'creative' wing, libertarians with radical leanings ... These are the 'small-a' autonomists, who at one time or another fight for a 'better quality of life' ... The second large strand is that of the professors, the intellectuals, the theorists of the message ... The third strand, finally, is that of the 'capital-A' autonomists, or Autonomia operaia organizzata ['Organised Workers' Autonomy']" -- M. Monicelli, L'ultrasinistra in Italia 1968-1978 (1978, Phil Edwards' translation)

Apparently, the custom of street performances at protests emerged from the area of autonomia. Antonio Negri was a member of the CPO. Perhaps activists in Detroit might consider the establishment of social centers (centri sociali) by squatting in abandoned buildings.

Robert Nozick, The Refutation Of Rational Choice, Etc.

"Robert Nozick has a unique place in the annals of rational choice theory: he refuted it." -- Ian Hacking (1994)

My reaction, when reading this, was, "What?" Hacking is referring to a paper by Robert Nozick¹ on Newcomb's Paradox. I'm fairly sure I've read something about this paradox, but I had to look it up.

Suppose there exists a psychic that has shown themselves to be extremely reliable in their predictions. And the psychic has presented you with a choice, based on one of their predictions. You are presented two boxes, one transparent and one wrapped such that you cannot see the contents. The rules are that you can take either:

• Just the opaque box, or
• Both boxes.

The transparent box contains $1,000, as you can plainly see. If the psychic has predicted you will pick just the opaque box, they have placed $1,000,000 in it. If they have predicted you will pick both boxes, they have ensured that the opaque box contains nothing. The prediction has been made, and the boxes have been sealed. You know all these conditions but not what the prediction was. What should you do?

Apparently many initially are very decided on what they would do. But people split half-and-half on what that is. Anyways, Hacking states that this example shows that two principles of rational decision-making are not necessarily consistent². I guess he is correct, and I'm in no position to challenge that this is of philosophical interest³. But, since no such psychic can exist, I find other examinations of rational choice theory of more practical import.

By the way, I want to give a qualified defense of Stephen Metcalfe's comments in Slate on Nozick's Wilt Chamberlin example⁴. Strictly speaking, Metcalf's confusion about which Keynes comment was on which Hayek book is irrelevant to these comments later in the article⁵. And I accept that he doesn't describe the logic of Nozick's argument⁶. Neither did I. It is perfectly legitimate to argue that the rhetorical force of the argument comes from elements of the argument extraneous to its strict logic. And that is what Metcalf does⁷.

Footnotes

1. Nozick's "Reflections On Newcomb's Paradox" (in Knotted Doughnuts and Other Mathematical Entertainments (ed. by M. Gardner), W. H. Freeman, 1986).
2. Choose dominant strategies. Maximize mathematical expected utility.
3. I find Wittgenstein perennially fascinating.
4. Metcalf's Slate followup is here.
5. So is the fact that Nozick was smoking dope during the period in which he wrote Anarchy, State, and Utopia; I was startled to find he mentions in his book his experiences while under the influence. More by Brad DeLong on Nozick is here. Even more can be found in the Delong's blog archives.
6. By the way, Yglesias is mistaken in concluding, "Since as best I can tell nobody does hold such a [patterned] theory [of distribution]". Nozick explicitly states that marginal productivity gives such a patterned theory. Nozick is confused, since marginal productivity, correctly understood, is a theory of the choice of technique, not a theory of distribution.
7. Although I am not convinced appealing to guilty regret over the history of race relations in the United States has anything to do with Nozick's rhetoric.

Nozick's Anarchy, State, and Utopia

1.0 Overview
Propertarianism, misleadingly called "libertarianism" by its fans, is a political philosophy. Do any supposedly rigorous arguments exist for this philosophy? Some cite Robert Nozick's 1974 tome, Anarchy, State, and Utopia as a demonstration that this question can be answered in the affirmative.

The book has three main parts. In the first part, Nozick argues that a state can emerge from an anarchistic state of nature without violating anybody's rights. The state, according to Nozick, evolves from a private protection agency; its clients become citizens. In the second part, Nozick argues that a state that tries be to more than a minimal state will violate somebody's rights, especially their right to property. For the distribution of property to be just, according to Nozick, three conditions must be met:

• The original acquisition of property must not have violated anybody's rights.
• The transfer of holdings must be likewise just.
• Whatever injustices may nevertheless have arisen in original acquisition or transfer must be rectified justly.

In the last part, Nozick provides a recipe for cookbooks of the future. He describe an association of voluntary communities, where people are free to join whichever commune they like. Only some of these communities may initially be propertarian.

This obvious decomposition of the book explains the three-word title. Despite Nozick's pretense to be presenting an analytic argument, I did not find nearly as much structure at a lower level. The first part seems to beg how people in an original anarchy would behave. Nozick postulates bourgeois contract-making; I think feudalism would more likely result. He continually brings up objections and needed refinements, pursues the argument to an arbitrary level, and then declares the resolution of these details beyond his scope since he is not writing a work of psychology or epistemology or whatever. So I find it difficult to summarize much more of the book.

2.0 Popular Bits
I think Nozick originated many sayings now popular among propertarians. Maybe some he reformulated or re-emphasized.

Nozick's calls his version of Descartes' demon "The Experience Machine". His story is a science fiction story with technology, tanks to float in, and computers. It raises the question, "What else can matter to us, other than how our lives feel from the inside?"

Nozick comes fairly close to saying that there is no such thing as society:

"But there is no social entity with a good that undergoes some sacrifice for its own good. There are only individual people, different individual people, with their own individual lives."

Nozick formulates a non-aggression principle, now called the No-Initiation-of-Force principle in propertarian polemics:

"An underlying notion sufficiently powerful to support moral side constraints against the powerful intuitive force of the end-state maximizing view will suffice to derive a libertarian constraint on aggression against another."

Nozick creates a well-known example with Wilt Chamberlain. Wilt Chamberlain's contract with a basketball team gives him a share of the gate. People "cheerfully attend his team's game". Nozick's imagines that when they buy their tickets, part of the price is that each person "drops" 25 cents "of their admission price into a special box with Chamberlain's name on it." What can be wrong with all of these voluntary transactions making Chamberlin rich? In the course of this exposition, he comes up with a clever turn of phrase:

"The socialist society would have to forbid capitalist acts between consenting adults." (my emphasis)

3.0 Some Absurdities
Nozick's book is a work of political philosophy containing much economic reasoning. But Nozick makes many mistakes in economics, and ignores what seems to me some major problems in political philosophy.

For example, I think a major question in political philosophy is how people with different ideas of good and evil can live together. Nozick acknowledges he doesn't address this question:

"I have proceeded in this essay (as much as possible) without questioning or focusing upon the assumption common to much utopian and anarchist theorizing, that there is some set of principles obvious enough to be accepted by all men of good will, precise enough to give unambiguous guidance on particular situations, clear enough so that all will realize its dictates, and complete enough to cover all problems that actually will arise. To have rested the case for the state on the denial of such an assumption would have left the hope that the future progress of humanity (and moral philosophy) might yield such agreement, and so might undercut the rationale for the state.

... the day seem[s] distant when all men of good will shall agree to libertarian principles... People who prefer peace to the enforcement of their view of right will unite together in one state."

In contrast to my opinion, Nozick thinks Marxian exploitation is a normative idea¹:

"One traditional socialist view is that workers are entitled to the product and full fruits of their labor; they have earned it; a distribution is unjust if it does not give the workers what they are entitled to."

Nozick doesn't understand marginal productivity. He incorrectly thinks that it is a theory of distribution:

"Almost every suggested principle of distributive justice is patterned: to each according to his moral merit, or needs, or marginal product, or how hard he tries, or..."

I could cite many more instances in which Nozick makes this mistake.

Nozick erroneously ignores the possibilities of multiple equilibria and of path dependence:

"Let us suppose that we know from economic theory that under the standard assumptions defining a competitive market economy, income and wealth will be distributed in an efficient way, and that the particular efficient distribution which results in any period of time is determined by the initial distribution of assets, that is, by the initial distribution of income and wealth, and of natural talents and abilities. With each initial distribution, a definite efficient outcome is arrived at."

Also, Nozick begs the question of the definition of property rights, of how a society determines what can be a commodity and what cannot. I could cite even more examples of Nozick getting economics wrong.

Nozick has a definite view on the always burning question of whether or not slavery is compatible with propertarianism. He thinks it is:

"Perhaps no persons completely sell themselves into slavery... Since this very extensive domination of some persons by others arises by a series of legimate steps, via voluntary exchanges, from an initial situation that is not unjust, it itself is not unjust."

And again:

"The comparable question about an individual is whether a free system will allow him to sell himself into slavery. I believe that it would."

4.0 Conclusion
I do not find Nozick's book convincing². You might want to read it to understand some context for certain debates in political philosophy. Nozick treats Rawls in the second part of his book. Before having read Nozick, I already knew about some of the popular bits from having read Alan Haworth. Nozick tends to be cited by many soi-disant libertarians - I suspect by more than have actually read him.

Footnotes
¹Nozick does foreshadow John Roemer's game-theoretic definition of exploitation:

"An individual benefits from the wider system of extensive cooperation between the better and the worse endowed to the extent of his incremental gain from this wider cooperation; namely, the amount by which his share under a scheme of general cooperation is greater than it would be under one of limited intra-group (but not cross-group) cooperation."

Nozick formulates "a condition of stable associations" much like this in the third part of his book.

²This is probably not surprising, given my preconceptions.