Unappealing Theories

Suppose I posited the theory that every instance of the color blue in the known universe was actually a subset of the color purple, that pure blue didn't actually exist, and that the human brain had developed a means by which these variations of purple were merely interpreted as blue at the level of cognition.

On the one hand, you would be justifiably tempted to invoke the principle of Occam's Razor. That is, the notion that the color blue does not actually exist in the universe and that we merely perceive a conceptual blue in response to certain kinds of purple is unnecessarily complex. It demands too many assumptions. It may very well be a valid and consistent set of logical principles, but it makes more assumptions than required to simply call blue blue and leave it at that.

On the other hand, what is the practical difference between something that is truly blue and something that the brain considers blue, regardless of what is claimed by the author of the Stationary Waves blog?

And, on still another hand, even if we assume that my theory is true, what is the value of our new-found knowledge? We will have to go around replacing all common-language references to "blue" with "special purple" or some equally laborious phrase. The way you live your life will certainly not improve or deteriorate much.

So, on the whole, a theory that demands too many assumptions and offers too few benefits is not a particularly appealing theory at all.

Eternal Suffering
Some think we're experiencing times of unyielding hardship. Consider the following:
The global economic meltdown that began in 2007 has brought suffering to countless millions. We have all witnessed—and in many cases experienced—the devastation.
But it didn’t have to be this way. This kind of financial devastation has been predicted again and again—decade after decade—by propo­nents of the Austrian School of economics. Ludwig von Mises, one of the most prominent Austrian economists, summed up the perennial cri­sis in the title of one of his many books, Planned Chaos (1947). Mises, especially in The Theory of Money and Credit (1912) and Human Action (1949), maintained that the boom-and-bust cycle that has afflicted mod­ern economies is both unnatural and unnecessary. It worsens living conditions for just about everyone. Since the publication of his books, abundant scholarly studies have validated the Austrian view. Yet few people—even among those teaching economics in colleges and universi­ties worldwide—know or understand the Austrian School.
That is the lead-in to today's Mises Daily article, written by Harry C. Veryser. Mr. Veryser continues:
The crisis that began in 2007 should be seen, not as an isolated inci­dent, but as part of a continuing drama that has its origins in US govern­ment manipulation of markets and currency. It is merely part of the cycle that has been the scourge of the West since 1913—which gets us to the story of our modern condition.
The pessimism continues. Veryser asserts:
  • "These new theories—however well-meaning—have had profound and often devastating consequences around the world."
  • "The world has needlessly suffered unspeakable misery as a result of theories and policies that ignore these principles." 
  • "We have all paid the price since."
  • "For years now, we have endured a barrage of bad news: businesses going belly-up, people losing their jobs and homes, government debt soaring."
Now, we all know that I am sympathetic to the Austrian School of economic thought. But, on the other hand, if I knew nothing about the Austrian School and this were my first exposure to it, I would think that the author is proselytizing for a cult. Veryser gives us epic tragedy, a war fought over the course of ages, and a promise of a hard-won victory in the future, with its attendant redemption and salvation for us all.

No, thanks. I'm not into new world religion.

Considering The Whole Message
I certainly do not mean to pick on Mr. Veryser unfairly. His article is a recent example in what I see to be an overall terrible message being promoted by certain members of the libertarian camp. But I want to make clear that I don't actually think these folks intend to convey the message they end up conveying.

Veryser is trying to tell us that if we take the time to reassess certain assumptions in mainstream macroeconomic theory, we have the opportunity to acquire a more accurate economic viewpoint, and this viewpoint will greatly improve not only our scientific understanding of the economy, but also our policy outcomes. That's a great point, and I agree.

The other day, libertarian celebrity Jeffrey Tucker offered the following on his Facebook page:
Mechanic paraphrased: "People who buy new cars are nuts or just willing to pay a high price for vanity. The new models are made mostly of plastic, have terrible visibility, and made to please the regulators not consumers. Used cars, in contrast, are great deals right now, if you are willing to pay cash. You get a much better car for the price."
In a recent article at the Laissez-Faire Book Club website, Douglas French writes:
Houses are black hole money pits that hold a psychic spell over owners, causing them to make irrational financial decisions because of the memories made at the house.
Travel light, avoid the intrusive paperwork, and rent. The money you save and flexibility you gain will be well worth it.
Why all the doom-saying? There's a message being crafted here that extends far beyond the author's intent. It's one thing to get people to second-guess their assumptions. Second-guessing one's assumptions is a highly beneficial self-auditing process that ensures we're always revising our knowledge in favor of truth.

Fine, but we should still consider the whole picture. Interestingly enough, Tucker himself does just that in his review of French's new book, The Failure of Common Knowledge. (See? Failure again.)

A Message With Scant Personal Benefit
Tucker writes:
It takes a shockingly long time for the masses of people to pick up on new realities. This is especially true if the new realities reverse very old trends that have burrowed certain false assumptions in our minds.
As examples, most people even today assume that you should:
  • get as much formal education as possible
  • buy a house as a solid investment
  • look to the stock market as an economic barometer
  • trust the Fed as the nation’s money manager.
Another thing that everyone knows: Prisons keep us safe from predators.
But what if all of these things are wrong, and not just a bit wrong, but wholly incorrect?
Indeed! What a great question! What happens to you when you start to question your basic assumptions about the value of formal education and home ownership? Consider how the world might change if these things prove to be "failures of common knowledge."

Just consider it. Consider a world in which most people eschew formal education. Consider a world in which most people rent their homes. Consider a world in which people completely ignore the value of stocks on the stock market when considering the overall performance of the economy.

Then, by definition, this would be a world in which most people lack formal education and own little if any real-estate, a world in which few people invest in the stock market and most people allow their general impressions of the economy rule over their conception of what is going on in their economic universe.

We've just described every poor, developing nation and destitute country town I've ever been to.

Like a universe in which "special purple" takes the place of "blue," the universe accidentally being described by the Tuckers and Frenches and Verysers of the world offers us great deal of second-guessing our prevailing assumptions. In return, we get to conceive of a "better" world in which few people are formally educated home-owners and stock-market investors.

Forgive me, but the is the exact opposite of the libertarian utopia I would rather see.

Walk The Other Way
Let's revisit The Stationary Waves Principle Of Coming Out On Top, shall we? The principle states: When you see a crowd of people all going one direction, that's your queue to go the opposite direction.

Here, we have a trickier application of the principle, because these an-cap libertarians are positioning themselves as the "alternative" to the supposed "mainstream" way of thinking. This is a highly effective branding of the issues.

But, it's wrong. The libertarian universe is almost completely dominated by Jeffrey Tuckers and Lew Rockwells and Tom Woods's. Most people who hear a libertarian message hear theirs. And their message seems to be: Don't waste your money on a college education [note: all of these men are highly educated], don't waste your money on real estate [note: some of these men have earned a lot of money by investing in real estate], reject conventional wisdom and learn to be an anarcho-capitalist.

The fact is, in recognizing the market bubbles that exist in real-estate, education, and stocks, these very intelligent men are mistakenly forgetting the many years they engaged in formal education and market investment.

It is not unlike the rich, successful businessman who, after years of hard-work and financial success, urges people to shrug off the chains of materialism and spend more time stopping to smell the roses.

What I mean is this:
  • Only the very well-educated folks are in a position to talk about the comparative merits of higher education. It takes a great deal of education to get to that position of criticism.
  • Only those who own a great deal of real estate are in a position to advise against buying more. They already own that magic amount real estate that is economically beneficial; they don't need more.
  • Only those who buy low and sell high are in a position to say, "Don't buy stocks." They already bought their stocks and are preparing to sell.
Get Some Perspective On This Stuff
The story goes that a student once asked Euclid why bother studying geometry, to which Euclid turned to another person and scoffed: "Give him threepence, since he must needs gain from what he learns." Many will students around the world will continue spending large sums of money pursuing knowledge in the form of formal, higher education. In the end, few will consider that time wasted, because knowledge is inherently valuable.

Similarly, as Douglas French scoffs at those who dream of home ownership so that they may acquire the fond memories of events that occur within those walls, those dreamers are laughing all the way to the bank - the memory bank.

As a young man or woman, you have to start somewhere. Much to your chagrin, you cannot emerge from your teenage years and magically become a rich and knowledgeable wandering playboy (or playgirl) without putting a lot of time and hard work toward acquiring that knowledge, money, and expertise.

In a way, I feel that the libertarian vision being promoted here - probably quite by accident - is a false one. It is certainly possible to become self-educated in anything, but it is also a lot of hard work, and your life will be fighting you every step of the way. It is certainly possible to live a happy and fulfilling lifetime in a string of rented apartments, but real estate offers you a stronger credit rating a reasonably liquid stock of equity that can be leveraged toward additional investments.

The point is, however much a particular market bubble exists, that bubble is not a sufficient argument against plodding forward with one's chosen life path. I have a college degree, and frankly, I treasure that knowledge. I own real-estate and I am extremely happy that I do. Both have proven to be quite lucrative for me.

In order to gain from these things, I had to march to the beat of my own drum. While others were studying "business administration," I studied economics. While others were building new homes, I was investing in income property.

Bubbles always apply, but so does insight.

There is much more to be gained with an optimistic, insightful, and nuanced world-view than there is from questioning absolutely every conceivable thing you have ever come across. At a certain point, it doesn't matter whether blue is blue or whether it is merely a cognitive hiccough. If you want access to higher paying jobs, you will need to acquire certain market signals, such as a college diploma. If you are going to spend hundreds of dollars a month on the roof over your head, you may as well acquire equity while you're doing it.

The point is, it's always fair to question your assumptions, but in doing so you should keep in mind that which will actually benefit you. Adhering to a nebulous conception of ideological consistency while simultaneously shooting yourself in the foot will give you a small boost of personal integrity at the expense of a large dip in quality of life.

Besides, many of the people telling you to avoid diplomas and houses already have theirs.