Ep. 44 Steve Patterson Challenges Rothbardians: Economic Theory Is More Empirical Than You Think
Steve Patterson–host of “Patterson in Pursuit”–talks to Bob about one of his recent essays, in which Patterson challenged the standard Misesian/Rothbardian view on economics. Specifically, Patterson claims that you can’t get very far with pure a priori reasoning–even pretty basic economic laws rely on empirical assumptions.
Mentioned in the Episode and Other Links of Interest:
- Steve Patterson’s essay challenging a priori economics.
- The podcast Patterson In Pursuit.
- Bob’s appearance on Patterson in Pursuit.
- Steve Patterson challenges empiricism with poker.
- Steve Horwitz’s essay on methodology.
- The Lara-Murphy Report.
- How you can contribute to the Bob Murphy Show.
The audio production for this episode was provided by Podsworth Media.
There is something I learned while studying a masters in philosophy which we might call the zombie problem. You can create a hypothetical and then swap out the person for a zombie. This is usually a non-sequitur and can be applied to any topic.
For example, Zombie gets a raise. This causes the zombie to dislike himself and he works poorer. Hence it follows that in my example, my example is. In other words, it’s a tautology and not an explanation.
Give The black belt to every one in the class, and the younger class aswell. Give it 5 years and then see how well the fresh black belt owner performs. Similarly with the minimum wage increase. Legislator gives the same increase to the worst slob on the workplace aswell. IS that motivating or just breeds resentment as a rule? Towards employer (because he’s just following law and doesn’t appreciate you especially at all), and The co-worker, that gets the same increase as you without any merit.
We need to pass minimum belt legislation … make it illegal to hand out any belt lower than black belt.
If your dojo can’t ensure that everyone gets black-belt on day one … then you don’t deserve to call yourself a Sensai.
Yes, the metaphysical framework requires you to look for causes other than the increase in the minimum wage or the change in the color of the belt to explain a contradictory result. That’s what makes it a priori. Hayek seemed to think that Mises didn’t understand the empirical nature of markets, remarking that Mises didn’t respond to such a criticism. Mises understanding that markets are empirical would explain his lack of response. All Patterson is saying is that the future is unknown, which is something that Austrians are quite comfortable with–“There are no constants in economics.”
Great episode Bob!
Got excited there for a moment, but what a nothingburger. The guest does not understand what Ceteris paribus means. (Admittedly, there is a discussion about different uses of the phrase on its wiki page: https://en.wikipedia.org/wiki/Ceteris_paribus).
If we go with the “causal isolation” meaning, then all the examples he’s giving are merely examples of a prime cause having multiple effects. This has nothing to do with “all else being equal”, see Bob’s stove burner thought experiment. Clearly what ceteris paribus means is not “causes will have no effects except the one I mean”. It means “there are no other (prime) causes”.
All these other effects can be investigated either empirically or a priori, just like any other effect can. This seems completely orthogonal to a priorism or empiricism.
Now it can be very limiting so use these possibly competing a priori arguments to figure out what will happen in the real world: what if some kids get intimidated by new belts and the added pressure, while others gain confidence and become better? One could devise an empirical experiment to test this. Or one could devise an a priori argument: based on my understanding of psychology, maybe I think that kids with helicopter parents will crack and kids with relaxed parents will improve.
So I guess I agree with the idea that, sometimes, you have to combine methodologies to complement each other. But there wasn’t really any major insight into the nature of a priorism or Ceteris paribus.
About the handbag issue (Veblen goods?): if we consider the combination of value and price for a good instead of just the price, the paradox goes away. The price can influence the value of a good to a person, e.g. by providing exclusivity/status (handbags) or convenience. For example, I regularly buy a matched set of 2 items at the grocery store whose prices add up to not yield any coin change. I top up my tank and try to hit an exact dollar amount, for fun. Does this make the world harder to predict? You bet. But that’s true for both methodologies. Did we control for people who gain marginal utility from hitting round numbers?
“Minimum wages causes unemployment” is not necessarily an Austrian principle. The debate should have centered around the a priori “knowledge” principle of Missus, and not a specific policy. Steve’s argument that there may be different unpredictable psychological responses to a policy that “all things considered” should result differently proves Missus’s principle that human action is unknowable and should not be interfered with by central planning.
Gene Epstein posited something similar in his debate against the Jackoban editor, when he said it would be fine for workers to freely set up socialist businesses as long as people were free to leave. The profits may be less but maybe the workers would feel better in that environment.
Indeed. Even if it turns out that some benefit from a minimum wage increase and others don’t, no model cannot predict the ratio correctly, and even if it could it’s immoral to force your model-driven policy on others by force. That’s the real ancap view anyway: “government policy never has its intended effect and BTW it’s immoral”
I didn’t find Patterson’s challenge impressive. His argument seems to just boil down to the idea that if psychological caprice (or whatever) isn’t physically impossible, then there are no economic laws (or rather, they have this silly “ceteris paribus” caveat and thus do not apply to the real world). But why, then, even discuss economics? If whatever isn’t physically impossible is within the realm of possibility and cause-and-effect is just a question of empirical regularity, I don’t see how we can have any economic theory.
On the question of the relation between theology and philosophy, it’s important to distinguish 3 senses of ‘theology.’
1. [theoretical] ‘theology’ in the sense of the academic/theoretical discipline of religious doctrine,
2. [confessional] ‘theology’ in the sense of the church’s (or a religious group’s) *non-theoretical* statement of belief/dogma (creed or confession),
3. [heart-religious] ‘theology’ in the sense of personally knowing God as a sinner who has been ‘born-again’, or regenerated by God, given eternal life (made alive spiritually) by God’s Spirit, and given saving faith in Jesus Christ.
As to the first (theoretical) academic discipline sense, philosophy is more basic, but basic to all theorizing is the question of the third sense. This article may help:
I hope this is useful in thinking through the distinctions, Bob.
I wasn’t convinced by Patterson’s arguments. It seems as if he doesn’t understand the ceteris paribus assumption. We might never be able to observe the actual effects of an action in isolation, but that doesn’t mean that we can’t logically deduce what the impact of that act would be if we could isolate it. But it would be great if Bob would do a solo show with his thoughtful response to Patterson’s arguments.
On the minimum-wage point, as I see it, the notion is that, if an employer is forced to pay more than he otherwise would, then he will take action to try to offset that additional cost; that might be to fire some employees, but it might be not to hire the next employee, to trim other components of compensation packages, to change working conditions, etc. In addition, as Don Boudreaux often points out, employers have conditioned themselves to life under a minimum-wage regime, and so they might proactively organize their businesses under the expectation that more increases will be coming down the line. Thus, when increases actually occur, we might not be able to perceive an incremental, adverse effect.
I also thought that Patterson might have contradicted himself when he noted that the law of diminishing marginal utility is pretty much a cast-iron a priori. If I recall correctly, this law is what leads to the law of downward-sloping demand, and the Austrian view on minimum-wage legislation is just an application of this law, namely, that at higher prices, employers will demand less labor, ceteris paribus. If I’m correct, then if Patterson believes in the law of diminishing marginal utility, I don’t see how he could argue against the adverse effect of impactful minimum-wage legislation.
Finally, one comment on the discussion around luxury goods the high prices of which are said to increase demand among those who assume higher quality or higher prestige from higher prices (Veblen goods). I don’t believe that this example refutes the law of downward-sloping demand. That law only applies to individuals, not aggregates. Thus while increasing the price of a good might attract new buyers who take the higher prices to signal something positive (and these new buyers might spend more than the buyers who vacate the market would have spent), it is also the case that, for an individual buyer, she will value the first luxury handbag more highly than the second, and thus will be willing to pay less for the second, and then the third, etc.
Hmmm. My understanding is that Rothbard, at least, says you’ve got to have a couple of empirical facts to start and then can deduce, a priori style, from there and that’s why he is an Aristotlean in contrast to Mises’ Kantianism.
In regard to your discussion on ceterus paribus, holding all things equal is a distortion of the Latin. Let us start with base Latin meaning of the words in the phrase:
cetera: for the rest, in all else, in other respects, otherwise
paribus: equal or fit/suitable/customary – a derivative of Par.
Paribus is more like a par on a golf course. It implies not changing inputs and allowing all outputs to vary naturally. “Holding all else constant” is the opposite of Latin meaning of ceterus paribus. A quite natural example comes from physics. Let us take an object that is in a certain location and has a certain non-zero velocity. It is not possible to hold both the position and the velocity constant.
The example above does not cover force. Therefore, if the natural state described above did not have a force then applying a force for that particular state would violate ceterus paribus. However, if the object is in the surface of the earth and gravity is material force, then the application this natural and usual force would not violate ceterus paribus.
The base of this logic can continue, striking a object (a baseball) with a bat can be usual and customary force in framework of baseball game. Ceterus paribus is relative to the framework and understanding of the claimant and can be interpreted many different ways by the reader of the claim. The use of ceterus paribus can be a means of sloppily defining the framework by the claimant, but may be suitable if the claimant’s readers know the par conditions.
Extrapolating to economic frameworks, it is easy to see that same impossibility of keeping all else constant, but a generalized understanding of what ceterus paribus could mean in certain case can be true enough to be useful.
He advocates inflation as a way to redistribute wealth from consumers to entrepreneurs in order to create more and better businesses in the future. He even flat out says, if we take money from some people and give it to Jeff Bezos, we get amazon, and that clearly increases the net wealth of the country.
Two obvious problems. Inflation discourages saving, and thus destroys investment capital as well. Secondly, inflating money into the hands of entrepreneurs is the equivalent of offering artificially low interest loans. In fact, such low interest, the entrepreneur does not even need to return the principle. But artificially low interest loans are precisely the source of the boom bust cycle. Sorry, mate nothing for free.
If it were true that reappropriateing money into hands of entrepreneurs from savers and consumers would improve the wealth. Then consider the extreme case, in which all money is handed to entrepreneurs. What would be the outcome of those investments? .. No one would have any savings to buy the outputs of those investments, and they would collapse.
The future is never certain. This guy wants all economic maxims to be certain… its a social science man, chill….. this guy is SO ACADEMIC.