Political Economisms

Overview: The Pretense of Knowledge

2020-06-10T21:25:00.004-07:00

In response to an article in the New York Times, I read Friedrich von Hayek's lecture, The Pretense of Knowledge, and found some of his claims to be illuminating. The theme is about the risks of running inflation under monetary policy. Early on he establishes:

It seems...that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error.

Through out this work, the professor makes it clear that the theoretical frameworks in the Physical Sciences cannot be applied in the Social Sciences; Hayek claims that the Social Sciences are larger systems that involve interactions between many agents. Because there are less variables at play in some of their models, the Physical Sciences successfully use the Scientific Method to build models for prediction. The point of contention for the Nobel Laureate is that misapplication of theory became a guiding principle for policy at the time.

Hayek's words are echoed, time and again, when members of Congress deliberate on policy in times of an impending recession. The stance is not a misguided one because it is one based on history. His words came at a time after the United States went through the Great Depression; they became a critique to the policies that tried to counteract high unemployment and depressed aggregate demand for goods and services with economic stimulus. The lecturer points out a popular view on market interventions during recessions:

We know, in other words, the general conditions in which what we call, somewhat misleadingly, an equilibrium will establish itself: but we never know what the particular prices or wages are which would exist if the market were to bring about such an equilibrium. We can merely say what the conditions are in which we can expect the market to establish prices and wages at which demand will equal supply.

Plenty was said, but the idea is that "ignorance" of details keeps the market from achieving equilibrium. In light of this, Hayek proposes that the most that can be said is that prices and wages must be at a level where demand and supply are nearly equal; what those precise numbers are is an uncertainty. The ending sentence pointed out something that is hotly debated during economic recessions, that is, can prices and wages reach a level that could equilibrate supply and demand without government intervention. He opines with:

It is indeed the source of the superiority of the market order, and the reason why, when it is not suppressed by the powers of government, it regularly displaces other types of order, that in the resulting allocation of resources more of the knowledge of particular facts will be utilized which exists only dispersed among uncounted persons, than any one person can possess.

The Laureate seems to be skeptical that the government, an outside entity from the market, can spark activity in the market. In fact, Hayek reiterates that the market lacks all the knowledge about itself; his trail of thought leads a reader to question if an outside force, the government, with less details about the machinery involved, has any hope of doing the job that the market best does itself. The argument on government interventions ends with:

The continuous injection of additional amounts of money at points of the economic system where it creates a temporary demand which must cease when the increase of the quantity of money stops or slows down, together with the expectation of a continuing rise of prices, draws labour and other resources into employments which can last only so long as the increase of the quantity of money continues at the same rate – or perhaps even only so long as it continues to accelerate at a given rate. What this policy has produced is not so much a level of employment that could not have been brought about in other ways, as a distribution of employment which cannot be indefinitely maintained and which after some time can be maintained only by a rate of inflation which would rapidly lead to a disorganisation of all economic activity. The fact is that by a mistaken theoretical view we have been led into a precarious position in which we cannot prevent substantial unemployment from re-appearing; not because, as this view is sometimes misrepresented, this unemployment is deliberately brought about as a means to combat inflation...

Hayek is difficult to condense in this instance because he articulates the thinking that some Congresspeople have, that is, that government intervention is bad because of the belief that the market equilibrates itself. Expounding on the matter, money that is injected into an economy creates an artificial demand in goods and services because of the availability of money. The crux of the argument is that the creation of demand creates jobs, but if that money supply evaporated, demand falters. People lose their jobs as result (the lecturer also points out the supply and demand of labor as something symptomatic of recessions and that labor reallocates itself in a market in the absence of intervention).

It has to be stated, the Laureate Economist is pessimistic when viewing things through the lens of uncertainty. There is too much faith put on the fact that the market can fix itself. Market disorganization due to government intervention is one example of a negative outlook. At the very least, grim as it may seem, the government only helps in keeping inflation down in the short-term. The long-term hope in intervention, that Hayek fails to state, is that the market will be regenerated to a hopeful state where supply and demand are able to provide affordable prices and livable wages.

Predicting the Polls

2012-11-06T07:16:00.000-08:00

As of 4:00 AM today, Nate Silver's FiveThirtyEight forecast projects that President Obama has a 91.6% chance of winning re-election with 315 Electoral College votes and 50.9% of the Popular Vote. What Silver also notes in his blog is that the only way Governor Romney can win the Presidency in the 2012 General Election is if the Polls are statistically biased against him. The FiveThirtyEight forecast also projects that the Democrats have a 95.3% chance of holding onto the Senate with 52 seats, meaning that President Obama and the Democrats will continue to set foreign policy for the United States after the Election (foreign policy is determined by the Senate and the President of the United States).

Oddly enough, Paul Krugman wrote a comment that may capture how voters are feeling after seeing political ads on television. Mr. Krugman's frustration is understandable, but the Nobel Laureate is mistaken if President Obama will change whether Congress will work with the White House to pass legislation in the coming year. The fact that the U.S. Congress is a bicameral establishment, that is, a Legislative body with two chambers (the House of Representatives and the Senate) complicates whether the President will sign any bill into law. Barbara Bardes in her textbook, Politics: Essentials 2011-2012, makes the point that the Framers of the Constitutions failed to anticipate the rise of Political and she might be, indeed, correct in her assessment, however, the Framers of the Constitution mention Factions in the Federalist Papers, thus, making the Bardes' statement questionable. If anything is certain its that the Constitution was designed to keep the government from passing bills too quickly.

Update on the Polls

2012-10-06T19:55:00.001-07:00

From my last post, the polls on the Presidential race slightly fluctuated during the last two weeks, but more importantly, this is the last post where I'm going to refer to Silver's graph showing when the Convention bounces will evaporate:

John Kerry at the DNC 2012

2012-09-21T17:46:00.000-07:00

One of the speakers that was amusing to hear during the 2012 Democratic National Convention was Senator John Kerry's speech because he made statements that approached satirical proportions. One of the reasons why the failed, presidential candidate's speech is ironic is because he criticizes the current Presidential challenger, Mitt Romney, when in fact Kerry had just as much political baggage as a candidate for President. What's most interesting about reading the transcript of the speech is that the speech is just about foreign policy. The senator starts off his speech as:

Holding Obama's Polling to a Higher Standard

2012-09-20T10:42:00.003-07:00

Lately, Obama's been getting some numbers in the polls that reveal he's losing the bounce from his 2012 DNC. Indeed, Nate Silver from the New York Times predicted that the President would lose his edge near the end of the month. Here's Silver's model predicting how the Convention bounces for each party will fade after two or three weeks:

Obama's Lead Tenable?

2012-09-13T10:33:00.000-07:00

I forgot to mention on my last post that Silver also pointed out in Saturday's article that it was not whether President Obama would get a boost from the Democratic National Convention, but how long his boost will persist. Though, the NYTimes blogger pointed out that Presidential candidates get boosts from their conventions; he also pointed that poll volatility (how sensitive the poll numbers are or how they shift towards one candidate) for this election is low, meaning that perhaps convention boosts may linger beyond two or three weeks. What is interesting about the volatility table that Silver put together is that elections that had high volatilities were elections that resulted in ousting an incumbent, thus, making the incumbent an one term president (James Carter and George H.W. Bush). If high volatility implies that an incumbent will get ousted, then this year's volatility implies the incumbent President will win reelection.

On the other hand, Silver argues that in order for Governor Romney to win the General Election Romney will need to rely on just more than turning out his base in large numbers. In fact, the blogger points out that the Challenger's strategy of turning out his base isn't enough because of results from the past two General Election turnouts. The former Governor will need to gain ground among minorities to get a more defined victory come November. Moreover, among three hypothetical turnouts for November, The Times Columnist uses his third table as the one that will likely be result for the General Election because the President won't be getting as much support from white voters as in 2008. Still, under two of the three scenarios that Silver points out the President seems like he'll win reelection.

Update on Presidential Polls

2012-09-07T21:54:00.000-07:00

Nate Silver just published an article on his blog wherein he points out the state of the Presidential race. Three national tracking polls released their findings on the race: Gallup, Rasmussen, and Ipsos with Obama leading with Gallup and Ipsos, but losing in Rasmussen's poll. The case that Silver makes is that the polls were conducted in the interim period between conventions, meaning, that the pollsters are giving data that looks bad for Romney. In fact, what makes matters worse is that Rasmussen and Gallup have given Romney an edge because of their "house effects," so that means the race looks to be heading towards an Obama victory (The FiveThirtyEight forecast has Obama winning the Electoral College with 314 votes, the Popular Race with 51.3%, and the probability that the President wins re-election is 78.1%).

Polls on the Presidential Race: Romney vs. Obama

2012-09-05T15:42:00.001-07:00

I'm not sure how many people are familiar with Nate Silver, the NYTimes' Columnist/blogger who analyzes polls, but today he posted an article that argues that President Obama is the favorite to win the election in November. It's important to note how the blogger makes his prediction, so here's a blueprint as to how he works: the way that Silver makes his prediction is by taking an average of all polls leading up to an election wherein he assigns a certain "weight" to each pollster, that is, according to each pollster's methodology and its "house effects," meaning the model takes into account a pollster's credibility and any bias a pollster has. The model also includes other variables that affect the presidential race such as: Economic Indicators, State Polls, and National Polls. Needless to say, Silver does a better job at explaining his forecast model; so, I won't try to do what he does best.

What's more important from Silver's number crunching are his findings because traditionally candidates have gotten, on average, about a four point boost from their Convention. In regards to the Republican National Convention, Romney is not faring too well. In fact, after Silver averaged out the polls released after the RNC he found that Romney is just below average with a 3.1 point bounce. Moreover, when the columnist compares Romney's poll numbers Romney is likely to lose the race in November.

Romney fans might be disappointed if President Obama gets a good bounce from the Democratic National Convention. In fact, if the President gets a bounce above 4 points, then Romney will have something to worry about. For anyone interested in betting who's going to be president your chances might be with Obama.

Romney Taps Paul Ryan

2012-08-11T08:26:00.001-07:00

Romney has spoken and the man for the number two slot is Paul Ryan. Congressman Ryan has been criticized for his budget plan that will gut Health Care programs, but is pro-life which will help Romney with the Conservative people in his party.

Romney's V.P. Choice Announced Tomorrow

2012-08-10T22:08:00.002-07:00

Former Governor Mitt Romney will announce his choice for Vice President of the United States of America at 8:45am before heading off on a four day bus tour through battle ground states. After months of speculating voters will see who will share a potential ticket to the White House. The New York Times article points out how coincidental it is that the Romney will announce his decision on the U.S.S. Wisconsin, the same state that Paul Ryan represents. The New York Times stopped short of saying that Ryan will be the V.P. pick, but it is implied because the article juxtaposes the state where the announcement will be made and the Congress person representing Wisconsin. If Romney is playing a chess game, then he is distracting his opponents by drawing attention elsewhere and checkmating voters with a radically different choice.

Romney's Looking Glass

2012-04-15T18:47:00.001-07:00

Rick Santorum's win in Louisiana reiterates concerns that people are not ready to coalesce around Mitt Romney, even though, Romney won 27% of the vote in Louisiana compared with the 49% that Santorum won. In fact, several of Romney's opponents have pointed out details about him that would compel voters to vote against him in the general election. For example, when he was still trying to get the G.O.P. nomination Rick Perry accused Mitt Romney of "vulture capitalism;" Around the same time Newt Gingrich criticized Romney's Cayman Island accounts; and recently Eric Fehrnstrom, Romney's own political advisor, said that the former Governor of Massachusetts' campaign will be like an Etch a Sketch when it transitions to the general election. Nate Silver, the blogger who makes projections based on polls, makes an interesting point that as voters get to know Romney they like him less, therefore, Silver's comment implies there is still "an anyone, but Romney" candidate people want.

Closet Keynesian

2012-03-04T21:34:00.003-08:00

Recently on a post, Frank Schaeffer cited the renown Economist Paul Krugman as a critic of Obama. I don't recall reading Krugman criticising Obama in any op-ed as of late and am not sure how to take the journalist's writing because he is on President Obama's side, yet he's incorrectly juxtaposing Krugman with Mitt Romney, a candidate for the G.O.P. Nomination, as critics of the President. In fact, Schaeffer acknowledges Krugman's work, yet he claims that,

Both [Krugman and Romney] have often loudly predicted that he [Obama] made the economy worse and was putting America on the wrong economic path. Both are being proved wrong by the economic comeback we are in.

Economic Austerity

2012-01-30T19:38:00.000-08:00

Paul Krugman released a post on his blog about how austerity does not work because spending helps keep jobs, rather, than using a laissez-faire approach that leads to massive unemployment during recessions. Krugman appeals to a National Institute of Economic and Social Research think tank who claims that:

Britain is doing worse this time than it did during the Great Depression. Four years into the Depression, British G.D.P. had regained its previous peak; four years after the Great Recession began, Britain is nowhere close to regaining its lost ground.

State of the Union, South Carolina, and Poll Numbers

2012-01-26T16:23:00.000-08:00

A few things happened over the weekend, as during the week, such as Gingrich's win in South Carolina; the State of the Union Address; and the recent poll numbers--from various data gathering agencies--neatly put together in Nate Silver's blog. It's appropriate to explain why I cite Silver frequently and that's because he tends to gather data collected from several agencies that conduct polls, compiles the polls into one set, and makes statistical predictions on outcomes be it baseball, politics, etc. Alhough, Silver does point out that there is inherent statistical errors in his model, he makes educated predictions that are sometimes accurate. Therefore, my posts are written with an objective attempt and should not be assumed as 'liberal' because I'm citing someone who works for a news agency that is slightly liberal (The New York Times).

Poll's Numbers and Tonight's Debate

2012-01-19T17:05:00.000-08:00

Here's another report from Nate Silver's blog wherein he finds that Gingrich and Romney are at a tie for votes in South Carolina. Throughout the post, Silver points out that the last few days in the South Carolina primary made Perry and Huntsman drop out of the race, made candidates attack Romney's history with Bain, and changed the results of Iowa's Caucus--favoring Santorum, thus, affecting the dynamics of the G.O.P. Race. It is for this reason that Silver claims that his prediction for the race is unstable, yet, he still claims that there is Gingrich momentum.

Today's debate (on CNN) should change the playing field in the GOP race, especially, because Silver has both Gingrich and Romney at a tie for South Carolina's primary. Perhaps, after Saturday's debate, Jeff Smith will have a "new president" as an inspiration for a new book.

Updates on the Conservative Vote

2012-01-15T00:00:00.000-08:00

The NYTimes released an article that states the conservative vote is divided in half--where Gingrich and Santorum have a quarter each and Romney has about half to himself. The concern for conservatives is that they haven't chosen a candidate to coalesce around. In fact, one voter supporting Santorum states that, "The question is whether either one alone can get enough votes to win, or whether Romney wins by default." There is clearly, then, anti-Romneyism in South Carolina for several reasons (among them being Bain).

Paul Krugman Criticizes Romney

2012-01-14T00:00:00.000-08:00

The economist Paul Krugman in his op-ed on the New York Times argues that the last president who was a business person was Herbert Hoover, though, Krugman does point out--to a lesser extent--that former President George W. Bush was also a business person. What is more interesting is the economic downturn that both Hoover and Bush faced during their presidency. Just as compelling is that both presidents ended up rated as the worst presidents; so, although, Hoover and Bush were business people the economy ended badly for later presidents.

The highlight in Krugman's argument is that running an economy is different than running a business because in his words, "Making good economic policy isn’t at all like maximizing corporate profits." The reason for this is in another of Krugman's op-ed where he states that as a nation the United States owes money to itself, therefore, does not need to pay itself. In fact, Krugman points out that the U.S. hasn't finished paying itself money the country owes itself from World War II. The economist ends his op-ed with statement that embraces taxes because "Britain, in particular, has had debt exceeding 100 percent of G.D.P. for 81 of the last 170 years" and taxes helped offset the Brittish deficit.

Update on Romney's Poll Numbers

2012-01-13T11:54:00.000-08:00

Here's another update from Nate Silver's blog. At the moment Romney is leading the group at 28.9%, with Gingrich at 24.0%, and Ron Paul at 19.1%. It's safe to say that Romney's poll number is up from what it was yesterday.

Here's a link to a video by the PAC supporting Gingrich. The video is a documentary style ad that is attacking Romney's time with Bain. The Washington Post gives the video four pinocchios and PolitiFact is looking into the veracity of the video. At then end of the article there's a video showing the ads used against Romney by Ted Kennedy in a bid for a senate seat in Massachusetts.

Some of the rhetoric behind the Gingrich-PAC ads is that Romney's claim that he created 100k jobs is ungrounded as FactCheck, Politifact, and FactChecker claim.

Update on Romney's Poll Numbers

2012-01-12T15:20:00.000-08:00

According to Nate Silver, Romney seems to be losing some voters in South Carolina. This might be, in part, due to the attacks on Romney by his opponents. The attacks are on how Romney likes firing people, yet more chilling is Gingrich's new ad that lists Romney's doings with Bain and the state of Massachusetts.

Looking at Silver's graph Romney is on a downward trail, meaning, Romney will keep losing supporters according to the model. Although, Silver does warn that his model is premature; so, therefore, his polling model requires more data points to give a reasonable 'guess' on whether Romney will take South Carolina.

Seeing as how Silver gives a momentum booster in his analysis, I'll give a qualitative reading on how Gingrich is faring because according to Gingrich himself he "...is well liked in the South." There is one aspect haunting Gingrich and it is that historically President's come from the pool of "150," those being senators (100 Senators) and governors (50). Men from the pool of the "150" that have historically been nominated to become President. One of the few anomalies was Gerald Ford (from the House of Representatives) who became President when Nixon step down. Thus, by historical precedence Santorum could win, however, it seems like Ron Paul is getting support from independents--which may give him the nomination.

To see whether Romney can beat Obama one can look to California where recently Meg Whitman lost the race to Jerry Brown. Perhaps, the race for the governor's seat in California is a useful presage of what will come in November because California politics showed that people don't want someone from the private sector such as Whitman, who is now the President and CEO of Hewlett Packard.

New Hampshire Results

2012-01-11T07:17:00.000-08:00

Once again, Nate Silver did a great job at predicting who was going to win the primary in New Hampshire, although, Silver couldn't predict whether Gingrich or Santorum would finish in 4th or 5th place. In fact, the race for 4th place was close enough to call it a tie.

What I found surprising is that Romney's numbers didn't go down as much given his performance during the debates over the weekend because his opponents were talking across him almost ignoring him. One example is when Romney was mute during the debate was when Santorum and Paul were raging over who is more conservative when looking at each other's record in congress.

Upon reading news blogs (CNN, The Huffington Post, The Washington Post) I found out that people were claiming that Romney won the debate when in fact he wasn't participating in the debate. Judging from the amount of screen time on the candidates Paul and Santorum were assumed by yours truly to win/gain some momentum from the debate, and seeing the results from the NYTimes; my assertion that Paul performed well is correct, but incorrect when looking at Santorum.