Sabri wrote: > Can we assign a probability to such events, I don't know.
If people are going to act like people (mindful of the consequences), then -- one way or another, by choice or default -- people will be effectively assigning probabilities. Subjective probabilities, based on hunches or whatever, but probabilities nonetheless. I wrote about this on my review of Paul Davidson's book, The Keynes Solution, forthcoming on the RRPE. An excerpt follows. * * * Take his [Paul Davidson's] critique of ergodicity. Plainly, this is the assumption that our economic future is, in some fundamental sense, a replica of the past and, hence, amenable to probabilistic estimation on the basis of historical data. This notion was, prominently, the target of chapter 12 of Keynes' General Theory. To refute it, Keynes points to the fact that the choices of individuals purchasing durable goods in a capitalist society (more specifically, businesses acquiring fixed capital items) are bets whose ultimate success or failure hinges on the behavior of those individuals (and businesses) taken collectively. The ability of capitalists to derive returns from capital accumulation requires that the stars of their economic future align properly, when these stars are not cosmic bodies on oblivious trajectories, but the very economic moves of all participants in the economy. In fact, this argument on the paradoxical nature of social life can be generalized: Since what keeps any society together is the cooperation among people (trading in markets being only a particular, rather perverse form of bridging the overall social division of labor), the choices individuals make are self-fulfilling in the sense that their outcome depends on whether they, collectively, engage in or withdraw from their communal or civic life, trade, etc. In the narrow case that Keynes entertains, individuals choosing their spending levels do not face the regular objectivity of the physical world, indifferent to human pretence. The economic environment is not given but endogenous. And when social institutions fail, collective behavior subverts the status quo, or particular individuals (or institutions) are powerful enough to influence collective behavior, or impose conditions on it, the paradoxes become apparent. From time to time, economists rediscover these chicken-and-egg "anomalies" under various guises. In microeconomics, examples of them are increasing returns, monopolistic and oligopolistic behavior, and the economic effects of networks. In macroeconomics, there is endogenous growth, policy ineffectiveness, and the Sonnenschein-Mantel-Debreu theorem (pulling the rug under the feet of the microfoundations approach). In econometrics, there are identification problems, simultaneity, etc. Indeed, the objectivity of the social outcomes that individuals confront is self-referential. Such is the general nature of social objectivity. So, how can plain probabilistic calculation -- say, of the kind used to determine disaster insurance premiums -- help people pin down this shifting kind of objectivity? It is like trying to guess the outcome of a coin toss only to find that in its trajectory the coin mutated into dice or a deck of cards. It is of note that in Capital, a book that predated Keynes' General Theory by over six decades, a work Keynes dismissed as "scientifically erroneous" and "obsolete," Karl Marx argued that the robustness of the capitalist social order, i.e. its superficial appearance as a hardened fact of nature, was not sheer illusion that a mere collective change of mind could dispel, but in the last analysis the result of the fragmentation and conformity of the producers to the status quo. Only when the producers, acting in concert, took direct control over social conditions that resulted from their cooperation, transforming at once their circumstances and themselves, would the ossified texture of social life under capitalism reveal itself to be a mirage. Perhaps, to modern readers, Keynes' narrower and elegantly stated case against the ergodic assumption would seem more compelling. Yet, one wonders why, three quarters of a century later, his case proved so ineffective in influencing its intended audiences: economists and policymakers in the globally-hegemonic English-speaking societies. Davidson bemoans the "perversion" of Keynesianism after World War II, manifest in the fact that no U.S. president, from Roosevelt to Obama, has properly implemented Keynesian economics. Clearly, the power of Keynes' ideas was no antidote to their alleged perversion, which the author traces to earth-shattering events such as Samuelson's misappropriation of the "Keynesian" academic badge. The power of Keynes' argument proved to be so flimsy as to allow for petty academic intrigues to blunt its edge. It is not only that the appeal of Keynes' ideas is trumped by the clout of vested interests. More fundamentally, there is no way around the ergodic assumption! However a society organizes its economic affairs, to the extent the productive power of their labor permits this, people will take action in anticipation of its outcome. It is tautological to say that forethought (however tentative) is at the core of all purposeful human activity, i.e. of human labor in general. And forethought can only be informed by past experience. As Søren Kierkegaard noted: "life must be lived forward, but can only be understood backwards." Merely "knowing" in the abstract that the objectivity of social life is self-fulfilling provides no clue to individual behavior. People need to anticipate the concrete consequences of their actions to the extent possible. They only have their experiences to determine whether in the next instant everything solid will remain solid or melt into air. That their social life is frequently disrupted, that occasionally or frequently the disruptions include financial panics and crises, alters nothing fundamental: all people can do is update their "information sets," learn to expect occasional or frequent disruptions, and keep going. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
