Arnold Kling  

Galbraith vs. the Internet

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Name My Book, Part II: Vote on... New and Exciting Economics...

From my latest essay,


The death of the entrepreneur was greatly exaggerated. Over the past two decades, the strength of entrepreneurialism has been unmistakable. The economy has been much more dynamic than Galbraith would have predicted. Many of the industrial giants, which in Galbraith's view were self-perpetuating, have fallen. The steel companies, chemical firms, and aerospace firms of yesteryear have shrunk, with most of them merged out of existence. On the other hand, companies like Microsoft, Intel, and Wal-Mart, which were not part of the economic landscape in 1968, are now more important than the old industrial base.


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CATEGORIES: Economic History



TRACKBACKS (3 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/455
The author at The Burden of Proof in a related article titled The Entrepreneur & Education writes:
    Just a quick note to direct your attention to 2 great discussion taking place at EconLog: Galbraith vs. the Internet, about how Galbraith was wrong and free marketeers were ... [Tracked on February 9, 2006 8:32 AM]
COMMENTS (16 to date)
T.R. Elliott writes:

Mr Kling: Having similarly compressed my lifetime's income into a few years, a talking point you frequently repeat, I believe you need to incorporate the role of luck into this statement. I understand that anyone who comes upon a large pile of money, as we have, finds it convenient to massage the ego, displaying with pride one's accomplishment. Yet luck also plays an important role in our society, something Libertarians are unable to deal with. Hence Caplans obsession with IQ.

In the present case, I think your characterization of the Left is antiquated and unrealistic. Having working in entrepreneurial environments with individuals from both the Left and the Right, neither demoted the role of the entrepreneur.

You are fighing old battles. The world has changed. It's time to move on. I know it's hard, but you can do it.

Robert Schwartz writes:

The myth of the unchanging and unchangeable industrial world is one that Gailbraith and the left lived by for a very long time. You can still hear its echoes in the NYTimes business page articles bemoaning the collapse of the last bastions of the old order like union contracted benefit plans.

The truth was of course, that the smart economist at Harvard was Schumpeter, who said that capitalism was a tidal wave of creative destruction, not Galbraith, who was just another Democrat party hack.

Josh writes:

T.R.

Good that you know so many open-minded, modern liberals. However, living in the Boston area, the liberals I talk to (and whose work I read on the op-ed pages in the Globe) behave much closer to Arnold's characterization of a liberal than to yours. But perhaps that's just Boston.

And I think that for every ounce of underestimation Arnold and Bryan have for the role of luck, you seem to have two of overestimation. No one gets to be Bill Gates without a healthy dose of luck. But to hear liberals talk, all of life is a coin flip, with luck being the driving force behind all the differences we see in people. And I'm not sure that's the case either...

Jam writes:

Doesn't "mature industrial enterprise." mean large, old companies? Is not this quotation referring to the notion that large, mature, stodgy companies are poor places for entrepreneurship?
And might that be why so many of the large, techno companies buy their new product technology rather than develop it in-house?
examples: Microsoft, Adobe and Cisco have all bought their way into new lines of business whilst Apple still exhibits entrepreneurship with a product like iPod.

liberty writes:

Galbraith has to be the economist who was most wrong about the most number of things, since Marx. It would be interesting to collect predictions from economists - about population meaning the end to prosperity, Socialism surpassing capitalism in productivity, etc. and compare them to reality, then look at the assumptions thy made - and assumptions they ignored (eg supply/demand, incentives, price calculation etc) - and write an article, maybe a book about what we can and should learn from all of it.

It seems to me that macro-economists still get away with ignoring well proven economic laws and making absurd assumptions that lead to crazy predictions, and nobody ever calls them on it.

Galbraith and Marx are like the Lamarcks of economics - they should have at least that bad of a reputation (at least Lamarck had some insight and some of his ideas are still used to inquire about parts of evolution we don't understand) but instead they are considered great economists who have perhaps made a few mistakes or who have just fallen out of fashion.

Lamarck's little oopsy-daisies didn't cause millions of deaths by economically-induced-famine.

Yet Marx and Galbraith continue to receive praise and not scorn, and their ideas or variants of them are still taught in universities everywhere with much more respect than you ever see of Lamarck.

T.R. Elliott writes:

Josh: I'm surprised. I worked for Bolt Beranek and Newman in Cambridge with a whole host of MIT and Harvard types. Lots of liberals. Lots of conservatives. I left the company maybe 12 years ago and went to QUALCOMM because I did feel that BBN was too fixated on Govt funding and the Govt R&D model. But that had nothing to do with conservative versus liberal values. That's what you expect for any organization, whether a university or a think tank, that operates on a cost plus basis. I did analysis and determined that (a) wireless was the next wave and (b) QUALCOMM was the entrepreneurially company second to none.

Here's an example regarding payment for work: Kling, I imagine, is paid by TCS to write articles and I can't imagine they'd be paying him if they weren't getting material to support their ideological predilections (given that it's really a PR/advertising agency, not a policy or economics or business organization). So TCS is an organization that pays for a certain class of publications. It says nothing about the competence of writer--Kling writes fine stuff interesting analysis. But the environment will dictate much. Similar at BBN. And I didn't like it.

So my leaving BBN for QUALCOMM had everything to do with the mindset, but it was not a liberal/conservative mindset. It was a pork mindset, and that's a mindset that spans all ideologies, including writers for internet publications.

Getting back to the issue I brought up: Luck is a very strong component. As is skill, but skill itself is a combination of luck (genes, e.g. Caplan), environment, etc. Plus lots of sweat and effort.

But take two people. Both similarly competent. Both come up with an idea. One patents it first. Not by much time. Luck. Pretty much. Or a company selects one guy over another because the person making the selection doesn't like Boston and does like San Diego. It happens.

One cannot discount luck. It plays a role. A strong role. As do so many other matters that people can control.

And my experience is that people who are lucky translate it into their personal merits. Those who aren't find external reasons. Both are wrong.

Another point with respect to Galbraith is that the time frame of the assessment of him, for a social science such as economics that has many theoretical and practical problems (severe in many cases): the jury is still out on many issues. It's too short to magisterially claim that they've put it all to rest.

I believe the next 100 years will turn much on its head, including the thinking of libertarians (amongst others).

The Boston Globe has never been of much interest to me. Though the opinion page of that paper is no more nonsense than the garbage we get from the WSJ opinion page. The latter is 100% fact free. It's embarassing the errors they make. And I'm sure the Globe is similarly fact free.

Funny though: CA. Mass. Seattle. All fairly liberal states. All highly successful. Go figure.

So a question: Who owns most of the IPR in this country? Small entrepreneurs?

carla writes:

TR,

I am still trying to understand your point. Are you trying to make one? Please put forward a model of how you think the world works and we can then test it. If you wish to cast stones, feel free but please tell us what you are aiming at before telling us you never miss.

dearieme writes:

Surely Galbraith's writing falls more into the category of belles lettres than of Economics?

liberty writes:

>Another point with respect to Galbraith is that the time frame of the assessment of him, for a social science such as economics that has many theoretical and practical problems (severe in many cases): the jury is still out on many issues. It's too short to magisterially claim that they've put it all to rest.


So, shall we sacrifice another 100 million lives to try communism again, eh?

Economic laws have been well proven and Galbraith et all well disproven, no more years of testing required.

liberty writes:

>The truth was of course, that the smart economist at Harvard was Schumpeter, who said that capitalism was a tidal wave of creative destruction, not Galbraith, who was just another Democrat party hack.

Schumpter was still wrong about a lot of things too. Only ones who have been correct are Hayek, Mises et al.

Would love to see a list of predictions made by the Galbraith lot against the facts that the real world market has brought forth.

T.R. Elliott writes:

Liberty: The 100s millions dead is a red herring, a straw man. The black and white that leads you to decide that non-acceptance of 100% free market libertarian concepts is a turn to either Marxism, or more accurately, totalitarianism, is illogical and not worth debating. Regarding Galbraith, my general point is that he believed economics needed to get back to its roots in political economy, similar to the way in which Adam Smith was a strong believer in a moral function to political economy. Modern economics has divorced much of itself from this aspect, trying to mathematize itself, creating models that, if I'm not mistaken, are not very predictive and questionably descriptive. When they don't work well, we're told that the theories are correct, the assumptions wrong. Or another way to put it: Go away, I'm having fun with my theories, even if they don't apply to the real world.

Hence we have books, which I think no different than the pablum people here probably thought was produced by Galbraith, like Freeconomics, which is very popular and will soon enough be forgotten. Attempts to demonstrate economics in action which is little more than polling and sifting of data to make an interesting story. Economics is a social science. And questionably useful in a complex world in which market failures are a fact of life.

Carla: Here's a good start. Point me to the evidence that economics is a successful science in descriptive terms and predictive terms. I'd like to start reading it. I understand that economics brings many insights on the workings of markets, the idea of incentives, and the likes. All well and good. But then the society, the community, must decide which of those concepts are appropriate. Property, rights, etc are all subject to debate within the society. I believe studies have shown that most people have a strong communal aspect to their thinking. That in fact it is primarily economists passing through ideologically motivated economics curriculums who believe selfishness or greed is the only trait. Studies have indicated otherwise. But then, like I said above, economists just redefine the utils that are maximized in order to make the model fit the world. I think that is fallacious.

Second, point me to a cellular automata or similar type simulation in which a complex free market economic system is set loose. Start with the intitial conditions of current inefficiencies existing in the market place. And a second simulation with perfect initial conditions. You choose. Tell me where it takes us. If you cannot produce this, then the piecemeal focus on this little issue or that little issue is largely worthless. Show me the theoretical evolution of a free market simulation. I would love to see it.

I'm pro free market. But I think a natural outcome of free markets is concentration of power and market breakdowns. The feedbacks that exists in the real world, which are not modeled in economics if I'm not mistaken, lead to these outcomes.

So I think the focus should be for economists to demonstrate how accurate their theories are. Point me to the starting point, the track record, for economists and their theories.

So to the question of casting stones. The authors of this blog imply the truth and factual import of their ideas and opinions. Yet so many of them seem derived from wishful thinking. Hence, for example, a post on this board a while back on Shale oil. I read the report that was referenced and easily determined it was nonsense. Yet the author of the post assumed that the ideas in the Shale Oil report were good news until he back tracked when James Hamilton analyzed it and found it to be very questionable.

Now, there are a lot of interesting issues in economics: What's going on with the yield curve. Analysis of energy. Analysis of monetary theory and the likes. All very interesting and useful. And even in these areas there are a host of unsolved problems. Economists seriously don't know what is happening in many cases and are guessing. There is no better way to describe it. Guessing with their models, but it seems little more than guessing to me. And the putting into the mix a large set of words which are tantamount to hand-waving.

So if there is so much guessing and inability to describe or predict in areas such as monetary theory or energy or trade imbalances or yield curves or other areas in which economists have a strong handle on what is going on, why would anyone want to waste too much time on topics that are not going to be mathematized. The language of economics is interesting and useful, but at some point, in the real world, when addressing an important issue, whether in the private sector or public sector, if someone walks into the room blathering generalities and incentives and similar language: they will be thrown out of the room so productive work can continue. It's an interesting philosophical exercise to consider some of the issues brought up here, but people should understand that the world very frequently does not work they way it is described here. Many solutions are proposed that are little more than guesswork.

What am I aiming at? First, I don't have to aim at anything. Science is not always about proving something. Science is often about disproving something. And given that I believe there is a strong ideological component to the posts on this site, I'll throw a few rocks now and then. It's valid. Today's target was Galbraith, for example. And a continued attempt to structure an argument in which education is an unnecessary public good, and therefore should be privatized.

My disagreements are not intended to question the competence nor good nature nor any aspect of the authors except—I do question whether much of what they are posting is doing much more than preaching to the choir. And will in good time arrive at the destination of most opinions. They go nowhere. Do nothing. Are forgotten. Here's an example:

http://www.townhall.com/opinion/columns/gregforster/2006/02/10/185982.html


Are private schools better than public? Both sides can mine the data and twist it to make their cases. This is not science. On either side. It's data mining such that the conclusion if fixed and the data is then collected that will prove the conclusion.

Useless.

T.R. Elliott writes:

Liberty writes: "Schumpter was still wrong about a lot of things too. Only ones who have been correct are Hayek, Mises et al."

This is laughable. Hayek said that economic theories can never be verified or falsified by reference to facts. All that we can and must verify is the presence of our assumptions in the particular case.

Basically, what Hayek has proposed is a rational theory that cannot be proven. And when it doesn't work, he claims that the theory is right and the facts must be reinterpreted.

Hayek and the Austrian school is a religion. A metaphysics. A cult. Hence the strong association between people who admire him and those who admire Ayn Rand. Both cultic figures.

If not for the funds of right wing think tanks and right wing wealth, I think the Austrian school, Hayek, and Mises would be nonentities. Because they aren't science.

David Thomson writes:

I have nothing else to add but to say that I agree completely with Arnold Kling. This article has been bookmarked on my favorite's list.

T.R. Elliott writes:

Mr Thomson: You should print a copy of the article, mail it to Kling, have him sign it, and return in a self-address stamped envelope. You can then hang on the wall and worship it daily. :-)

liberty writes:

>Liberty: The 100s millions dead is a red herring, a straw man. The black and white that leads you to decide that non-acceptance of 100% free market libertarian concepts is a turn to either Marxism, or more accurately, totalitarianism, is illogical and not worth debating.

When did I say that non-acceptance of 100% free market is a turn to Marxism? I said Marx created Marxism, hence the deaths. And as for totalitarianism, it has been well proven that there is no other way to perform economic calculation in a socialist society than with totalitarian rule; consumer preferences require a market.

>Hayek and the Austrian school is a religion. A metaphysics. A cult. Hence the strong association between people who admire him and those who admire Ayn Rand. Both cultic figures.

>If not for the funds of right wing think tanks and right wing wealth, I think the Austrian school, Hayek, and Mises would be nonentities. Because they aren't science.

Because, in general, only cult figures recieve the nobel prize...

liberty writes:

funny that you mention wealth... the creation of which is basic desired end of the study of economics.

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