There is an article by Richard Epstein on the usual array of labour market recommendationts that always appeal to the economically illiterate.

The constant uncertainty about taxes and regulations is a deal-killing transaction cost that produces no collateral benefits. So long as macro-economic policy remains fixated with moving all the levers at once in different directions, it will act as a drag on the marketplace. Stability of expectations is key to a strong macroeconomic market.

The same mistakes are now very much at work in labor markets, where they do more than their fair share to increase the high level of unemployment. The dominant, though mistaken, attitude is perfectly captured in a letter by Risa Kaufman, the Director of the Columbia Law School Human Rights Institute, who claims that ‘the United States’ failure to enact meaningful protections enabling workers to accommodate the demands of work and family is not only out of step with countries around the world, but it is also counter to international human rights standards.’

These human rights people find work to do everywhere they turn. Anything that makes life a bit tougher than someone might like is becoming a human rights issue which seems to be some kind of international disease. But every solution Ms Kaufman suggests will only make matters worse for the unemployed, and for the employed as well for that matter. As Epstein writes:

What theory of human rights finds a moral imperative in killing jobs to satisfy some abstract and noble ideal?

What’s the theory. The theory is that every problem is caused by someone doing something and that if they stopped doing whatever it was that was causing the problem, the problem would go away. They are not killing us with kindness, we are being killed by their ignorance and stupidity, but it’s nice of them to wish that things were better than they are.

Richard Epstein has put together an article, In Praise of Income Inequality, which scissors to ribbons the notion that making people richer at differential rates is somehow contrary to our social good. Here is the core of the issue:

Consider two hypothetical scenarios. In the first, 99 percent of the population has an average income of $10 and the top 1 percent has an income of $100. In the second, we increase the income gap. Now, the 99 percent earn $12 and the top 1 percent earns $130. Which scenario is better?

This hypothetical comparison captures several key points. First, everyone is better off with the second distribution of wealth than with the first—a clear Pareto improvement. Second, the gap between the rich and the poor in the second distribution is greater in both absolute and relative terms.

The stark challenge to ardent egalitarians is explaining why anyone should prefer the first distribution to the second. Many will argue for some intermediate solution. But how much wealth are they prepared to sacrifice for the sake of equality? Beyond that, they will have a hard time finding a political mechanism that could achieve a greater measure of equality and a program of equitable growth. The public choice problems, which arise from self-interested intrigue in the political arena, are hard to crack.

The reality is that people do make inter-personal comparisons. And not only that, there are some people who really would prefer that others were made worse off even if it would mean they were made worse off themselves. Envy is the single largest driver in economic and social relations. But we should recognise it, not by succumbing to the desires of some to crash the whole apparatus because they hate the success of others. We should instead call them out on it and make them justify ruining the prospects of us all so that they can indulge in their vicious attitudes towards success.

The large problem is that those who harbour these anti-social beliefs, but who are also in a position to infuse those attitudes in policy, are doing all right for themselves since if they are able to influence policy they have, by definition, achieved a position of power. It is a problem for everyone that someone can make a really good living by representing the envious and worm eaten by pretending they are really in favour of equality and fair dealing. They never seem to think they themselves should suffer the reduction in living standards they impose on others. No good ever comes of having these people in power but how to fight them off remains a perennial problem.

I noted in an earlier post Menno Rol’s characterisation of the epistemology of Charles Sanders Pierce. There has now been a very insightful reply from Altug Yalcintas who takes this much further along.

Menno Rol wrote: ‘The heart of the epistemology of Pierce can be formulated as the claim that sticking to old beliefs is a man’s normal inclination and that this is in fact rational.’

I agree. However, Menno Rol also wrote: ‘In order to learn, we update old beliefs with a certain unwillingnessin the face of counterevidence, facts that we stumble upon daily. The updating process runs via hypothesis making: inference to the best explanation. What counts as the best explanation depends not only on the newly encountered facts, but just as much – or even more – on our old beliefs. Again, this is rational.’

I disagree with Menno Rol here because scholars, who run into counter-evidence or refuting reasoning, do not always change their minds or update their beliefs. I think the reason is that ‘epistemic costs’ in scholarly life are significantly high.

Epistemic costs, to my understanding, refer to the costs involved in operating the various scholarly arrangements such as collecting data, drafting papers, arguing with other scholars, and replicating the results of old models. Epistemic costs are sometimes so high that, for example, errors that scholars made in the past such as plagiarism and deterioration of data are not always remediable today. As a consequence, scholars sometimes keep reproducing erroneous models. There are at least two reasons for this: (1) there is almost no reward in the academy in going back to the models and explanations of older generations and (2) it is sometimes impossible to replicate what older generations wrote. This suggests that the scholarly world is a world of positive epistemic costs in which negative externalities are not always and perfectly self-corrective. Perfect solutions do not come about so easily because scholarly mechanisms, such as refereeing and reviewing as well as the ethics of scholarly behaviour and certain codes of act, including the issue of liability, that help increase the productivity of scientific processes, cannot fully correct or cure the harmful consequences of individual scholarship. The problem of epistemic cost is that we do NOT ‘update old beliefs’ in the face of counter-evidence and errors frequently remain uncorrected.

Reminding the SHOE-List Ramzi Mabsout’s original question: would anybody suggest any cases in which old habits of thought prevent scholars from changing their minds despite the fact that there is sufficient evidence to abandon a refuted paradigm?

In its own way this is a longer version of economic theory advances funeral by funeral. As he argues, “there is almost no reward in the academy in going back to the models and explanations of older generations”, part of the reason that the history of economic thought remains so far outside the mainstream. And given how difficult it is to even get people to look at evidence from the past, he is surely right where he wrote, “we do NOT ‘update old beliefs’ in the face of counter-evidence”. He finally returns to the original question, “would anybody suggest any cases in which old habits of thought prevent scholars from changing their minds despite the fact that there is sufficient evidence to abandon a refuted paradigm”.

The example of Keynesian macroeconomics, and especially the notion of aggregate demand, ought to be ripe for refutation but this has not been even remotely the case. The straightforward fact is that government policy now not only ignores macroeconomic theory but acts precisely in the opposite direction. From The Australian we have this summary of the communiqué issued by the G20 just this week:

In a carefully worded final statement, G20 leaders said at the weekend they were committed to ensuring ‘sustainable public finances’ and stood by their prior commitments to halve their budget deficits by this calendar year and stabilise their debt levels.

And we are not talking about economies that have begun to find their way back but economies at the bottom of the cycle and in many ways still trending down. These are economies in deep recession with high unemployment, the very conditions for which Keynesian theory was supposedly designed. But they have tried the Keynesian solution and it not only has not worked but has unambiguously caused economic conditions to deteriorate. Yet there are no major articles within the profession arguing on the need to abandon Keynesian theory. This is a conundrum to myself and you really do have to ask why that is.

And then from nowhere, this.

The back story is to explain why there were so many pictures of the meteorite which was because virtually every driver in Russia has a dashboard camera since the legal system is about as trustable as you might expect.

It is that the unexpected can happen in so many ways that makes being in business so chancey and the management of economies so difficult. An economic system that is built on the recognition that things will happen out of nowhere, some good most bad, is the only way to make the best of a very difficult job. Peeling the hands of governments back from their various attempts to “run” things once the rules of the road have been put in place is the best you can hope for.

Here, by the way, is a video of that meteorite:

[Via Instapundit]