History

How Most Economists Make Their Reputations

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psychic

From xkcd

Economics is not a predictive science, i.e., economists do not make better predictions than mere chance. Yet most economists build their careers based on selling the idea that they can predict the consequences of different economic decisions under real-world conditions. Just like the character in the cartoon, economists build their reputations by advertising the few times they got lucky and guessed right, while convincing people to ignore their many, many failed predictions.

As one wag said of  Paul Krugman,”He has successfully predicted 9 of the last one recessions.”

He’s far from alone in that.

The only economists whose works stand the test of time are those who explain why economics isn’t a predictive science and that we shouldn’t make decisions based on the belief that it is a predictive science. This is why Adam Smith is still studied 230 years later while all his contemporaries who argued that they did have predictive powers have been forgotten or discredited.

Quote of the Day

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No one will ever be rich enough to buy his enemies by concessions.

Otto von Bismarck.

(This was quoted in the very excellent book I just finished reading, From Roosevelt to Truman: Potsdam, Hiroshima and the Cold War, by Wilson D. Miscamble, C.S.C.)

Quote of the Day

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Chet Richards, in a comment on this thread at Belmont Club:

For an economics professor, Gregory Clark has a very poor grasp of U.S. economic history. The real question is: what have we lost through our current redistributionist (i.e. socialist) policies?
 
LBJ instituted the “Great Society” as a redistributionist scheme. I well remember that at the time critics were saying that LBJ’s program was grossly underfunded and that it would have a very negative impact on the US economy. LBJ not only publicly admitted that the critics were right, he even openly gloated that future generations would just have to live with the consequences. On top of LBJ’s ego we had to suffer from the adoption of the “Limits to Growth” policy that was enacted in the early 70’s by liberal neoluddites including Nelson Rockefeller’s gang (and Richard Nixon). This policy choked off growth during the 1970’s by doubling the Capital Gains Tax.
 
So what have we lost? The long term economic growth of the US from its founding to 1970 was 4.5% through thick and thin. Growth losses during recessions and depressions were compensated by growth overshoots during the recovery period. Since the population was also growing, the per capita growth rate works out to about 3.5%. In 1970 the long term per capita growth rate dropped to 1.5% and has remained at that level ever since. (These days an annual total GDP growth of 4% is regarded as phenomenally good!)
 
Working the numbers for the period from 1969 to 2009 we have a per capita GDP growth of 4x with a 3.5% per capita growth rate. With the true per capita growth rate of 1.5% the per capita growth during this period was actually 1.8x. If we had not had LBJ and “Limits to Growth” our per capita economy would now be about 2.2x larger than it currently is. Factoring in the population growth gives us about the same ratio.
 
Conclusions: 1) Almost all of us have suffered a profound loss of the prosperity that should have been ours. 2) Revenues to the Government would have been substantially larger than they currently are and taxes would have been much lower. 3) Inflation would have been much lower which means our savings would not have been eaten away (and taxed) by inflation. 4) Current policies to expand redistribution are going to create even more loss of wealth and increase in poverty.
 
Shed a tear, folks, for what might have been, and what we likely will still lose.

Historians in denial

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Tomorrow I shall go to London Library and collect my reserved copy of “The Forsaken” by Tim Tzouliadis, the tragic story of American workers who went to the “new paradise”, that is the Soviet Union in the early thirties and what happened to them. (Hint: it is not very pleasant.) After that, I shall have to read “Spies”, the latest in the revelations about the far-reaching Communist network in the United States of the thirties and forties. I have already read with great glee the revelations about I. F. Stone.

It would be awfully nice if at some point we could have a few revelations of that kind here and not have to rely on the Americans to give us the information. But what with our libel laws and paranoid secrecy, which makes it impossible to get hold of important documents, I cannot see that happening any time soon.

Meanwhile, I have re-read “In Denial” by John Earl Haynes and Harvey Klehr about historians trying to wish away documents and evidence about Communism and its agents. Not only re-read but wrote about it on the Conservative History Journal blog. I’ll be glad to hear American reactions.

Book Review: The Bloody White Baron

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The Bloody White Baron: The Extraordinary Story of the Russian Nobleman Who Became the Last Khan of Mongolia by James Palmer

Special note: It was Lexington Green who brought this book to my attention.

The 20th Century was remarkable for its voluminous bloodshed and civilizational upheaval yet for inhuman cruelty and sheer weirdness, Baron Roman Nikolai Maximilian Ungern von Sternberg manages to stand out in a historical field crowded with dictators, terrorists, guerrillas, revolutionaries, fascists and warlords of the worst description. Biographer James Palmer has brought to life in The Bloody White Baron an enigmatic, elusive, monster of the Russian Civil War who is more easily compared to great villains of fiction than real life war criminals. Palmer’s bloodthirsty Mad Baron comes across like a militaristic version of Judge Holden from Cormac McCarthy’s Blood Meridian or perhaps more like Hannibal Lecter with a Mongol Horde.

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