Karl Popper (who wrote the Logic of Scientific Discovery) and Thomas Kuhn (who wrote the structure of scientific revolutions) approached the problem of knowledge in the domain of DISCOVERY, which we call the physical sciences. At the same time, the CLOSE FRIEND of Karl Popper, Friedrich Hayek, worked on the problem of hubris in the social sciences. Hayek ended up combating Keynes over the frailty of models and reason. Keynes wrote ‘A Treatise On Probability” and then the “General Theory” which led to the governmental use of economic calculation that all of us live under, by trying to solve for unemployment – something Hayek (correctly) stated was not possible in the long run and would lead (as it has) to our bankruptcy. Hayek stated that traditional knowledge that was handed down, and perpetuated by trial and error, was ‘true’ even if we did not understand it rationally as yet. And that our record of rational judgment was exceedingly frail, and that history was filled with examples (past and present) of ridiculous scientific error. Keynes won in the short term however, because his theory solved the problem of socialism by replacing a false pretense of REASON (a managed economy), with the false pretense of PROBABILITY ( a monetarist economy) in the field of national economics. In other words, Keynes gave politicians power over our economies. The power that has led us to our financial crisis.

BOTH Popper and Hayek were countering two problems. A) the use of the fairly new field of statistical analysis and it’s limitations at prediction due to what Nassim Taleb calls the LUDIC FALLACY. And B) the rise of Socialism, and the socialist hubris of central planning . These men, plus Hayek’s mentor Ludwig von Mises, effectively undermined and predicted the impossibility of a socialist economy. Both men stated that human minds are frail and capable of very limited reason and prediction. More importantly, that the Anglo RECORD OF WHAT WORKS, or EMPIRICISM, is a superior form of KNOWLEDGE to the French (and then Marxian) fantasy of RATIONALISM. The fact that the average american does not understand this by doctrinare education difference is probably equal to the use of today’s mysticism in Islam or medieval christianity. It is a means of keeping people ignorant. We have attempted to replace mysticism with science without also teaching history (mythology) which teaches us the error of hubris. We do not teach history because in a pluralistic society, history includes value judgments and value judgements are class, race, and culture judgements. However, aside from class, race and culture, we are taught only the error of the churches, without the errors of silly scientists who were little better than shaman. We did not teach our children HUBRIS. Greek mythology teaches one lesson above all others: Hubris.

To the physical sciences, which is the process of DISCOVERY of what EXISTS already, is the objective of study. The holy grail is to discover the first-causal properties of the physical universe. To economists, the problem is one of INVENTION. This is called Hume’s problem, or the problem of induction. That is, what can humans INVENT given their current state of knowledge. THe problem of economic science, which is the ONLY social science we yet possess, is similar to climate science in complexity, yet additionally more complicated because there is no process of EQUILIBRATION in the intellectual world. (there is no human equivalent to the law of thermodynamics – there is in fact, energy added to the system. We call it ‘increases in production’.) Nor is time constant. In fact, that’s what productivity does: it creates more ‘time’ by using less of it to produce more calories. Instead, of an equilibrium as in nature, the mind of man invents new ideas all the time from permutations of existing patterns and disrupts all attempts at equilibria.

Both forms of our theories, whether physical science or economic science, can only be tested by FALSIFICATION. Unless you can stipulate ACTIONS by which we can prove climate hypothesis false, they are not in fact, scientific. For example, Einstein said that the absence of red shift would falsify one of his theories.

The first principle of Greek Rationalism is SKEPTICISM as a warning against HUBRIS. Hubris is a danger because of the cognitive biases humans of necessity possess because we attribute higher value to that which we study most.

TRUTH IN SCIENCE IS PREDICTION AND FALSIFICATION. Models are not truth. They are tools for rationalizing data. The carpenter may not understand the metallurgy of his chisel. He may not understand the distribution channel for his wood. The scientist is often using chisels and wood that he or she does not understand. If he or she understood, then he or she would understand that the peer review process CANNOT WORK. DOES NOT WORK, and QUANTIFIABLY, given the record, DOES NOT WORK. Furthermore, he or she would understand that only FALSIFICATION, not correspondence with a model, is the means of proving a theory.

Since these two problems DISCOVERY (Physical Science) and INVENTION (induction) are the two fundamental problems of the universe, it is not surprising that we are still incompetent at both.

What is surprising is that in both PHYSICAL SCIENCE and in ECONOMIC SCIENCE, the cognitive bias we bring to our studies, in which we confuse the practical utility of the limited tools and methods of our craft, consistently overwhelms and suppresses the knowledge that in fact, out tools are rough approximations with very poor records of prediction. And that only a combination of prediction and falsification demonstrate the veracity of any theory in either domain.

A financier who violates one of these principles, or a lawyer, or a craftsman, is held accountable for violating the ethics of his craft. With free speech, comes the same ethical constraint on Physical and Economic scientists. That is because there is HARM put upon populations whenever our work products are put into the public domain such that they may be used for the purpose of policy. The reason is, that all public policy is the application of VIOLENCE: the forcible taking of resources and the coercion of individual behavior under the treat of violence. The scientist or the economists is appealing for the application of violence to his purposes.

Therefore, a scientist is operating ethically by publishing FACTS. He or she is NOT operating ethically when he publishes theories or predictions unless the theory is accompanied by falsification. Failure to include how to falsify one’s theories is by definition a form of deception.

If we made it possible to sue scientists the way we can sue doctors and CEO’s then no doubt the quality of work would increase dramatically. And the fact that we cannot sue scientists for the harm that they cause, puts them in the realm with fortune tellers and astrologists.

Camus starts The Myth of Sisyphus with this insight.

“There is but one truly serious philosophical problem and that is suicide.”

To which I’ll add:

“There is but one truly serious problem of political philosophy, and that is, why not kill others and take their property?”

We always assume common interest, and that politics starts with debate. Debate is a proxy for violence. But we too often assume that a proxy is equally advantageous. It isn’t. Debate arose uniquely in the west as a means of enfranchising fellow warriors who must pay the high cost of equipping themselves for battle, so that they can participate in the fraternal defense of market centers – what we call towns, or cities, or the polis. It was a transfer of social status and power from the strong to the weak, so that together they might be stronger. The assumed equality in debate is for the purpose of the debate itself. Equality does not exist outside of that venue. There are the weak, and the strong. Violence is still the choice of the strong. And debate is a trade off for them. They hope to be stronger by it. But if debate becomes a means of making them weaker, they have the choice to return to violence.

The only serious question of politics is why the strong do not kill or enslave the weak. From that question all others follow.

If instead, we start with any other assumption, there is already a transfer of wealth going on, from the strong to the weak.

There is a natural conflict between the need to avoid a scarcity of cash and credit, such that all opportunities for increases in productivity within the economy can be exploited, and the fact that fiat money and fiat credit tend to mask, obscure and distort the information that would come from climbing interest rates.

The general strategy has been to monitor the interest rate. However, the interest rate alone is not a sufficient barometer because a) people ‘flock’ or ‘school’ to over exploit opportunities — and b) unfortunately, (and this is becoming a topic of interest by the serious mathematicians in the field due to the plethora of data collected from the boom) it appears the entire economy is becoming governed, not by opportunities and not by productivity, but by nothing more than *responses to the discount rate.* Which means, (as the austrians have said for a century), the distortion caused by fiat money is cumulatively, and recursively the source of booms and busts.

Of course, the fact that those of us say it is logically obvious is countered by the short term quants who fall into the ludic fallacy of probabilism.

There is a way out of this problem. But we would need a long and deep discussion about the nature of government to fix it. We are using a system of lawmaking and taxation that was invented for an agrarian era when the unit of work was at best a season, but accounts were settled annually. We live today in a world where the month is a meaningless topic, and only weeks and quarters are of informational value.

Instead, by the combination of pooling accounts (the error of aggregation of plastic categories under quantitative analysis), taxes (which are disconnected from the causal actions that produce profits), and fiat money and fiat credit (which obscure information signals) we effectively launder causality from the pricing system which is the entire purpose of HAVING a pricing system.

If we issued loans rather than collected taxes, this problem would right itself quite quickly, and both our political rhetoric, and abuses by the government would be much more rational and tangible if we did. Or rather we taxed what we should (income against an averaged three year balance sheet) and we gave loans rather than provided general liquidity, we would allow private money to pursue it’s ends and public money it’s ends.

Furthermore, tagging all financial transactions, then treating the internet, and the financial network as a utility that can tolerate failure through multiple layers of redundancy wouldn’t hurt either. There is nothing magic about this series of prescriptions. They simply prevent the laundering of causal information from the pricing system by the error of aggregation.

In the simplest terms, tax pooling and general funds are money laundering. Loans are causally transparent. Taxes are causally opaque. We cannot have a RATIONAL government if the data that they rely upon is by DEFINITION, IRRATIONAL, null, and void of rational content.

THE DISCOUNT RATE IS, FOR ALL INTENTS AND PURPOSES, AN ERROR OF AGGREGATION.

THIS ERROR THEN “FINACIAL-IZES” THE ECONOMY OUT OF THE PURSUIT OF PRODUCTIVITY.

(Of course, under that scenario the profits of the big banks would be captured by the public sector.)

The first reason that the USA wanted it’s own money is so that it did not export profits to England or France in the form of currency appreciation. The second reason was to reduce trade friction between the colonies. The third was because private money is a riskier proposition, and trade was artificially limited by the instability and problems that came from runs and scares. The reasons that the USA developed the banking system and fiat money was because there was a shortage of money to lend in order to finance the westward expansion of the country.

Credit money is useful to all societies and it DOES cause inflation, because there is no way for people to KNOW when and when not to lend. As long as there is credit money there will be booms and busts. Paper money is necessary for the same reasons – there are artificial limits to competitive productivity without paper money, and without fiat money. Furthermore, as we have seen in the PIGS countries, fiat money tends to decrease corruption. Early in US history, when they tried a multiplicity of monies it created financial instability and trade friction. It was only after taking the dollar off the gold standard that we saw the abuse of it. The question is, if there is a geographic opportunity, should private investors profit from that or should the government profit from it? That is not the same type of investment as the use of private personal knowledge for the purpose of increasing production. Since only the government, which consists of citizens who spend their time on geographic protection, protects the geographic territory, and since the citizens are shareholders in the government, then to expect the government to conduct territorial wars, yet to allow private profiteering of the windfall opportunity of geographic expansion because the state is unable to create money to provide the credit, is for individuals to PRIVATIZE WINS AND SOCIALIZE LOSSES. This may take a few readings to understand. But this is the entire point.

Christian Classical liberalism and it’s restatement as Hayekian libertarianism differs from jewish anarchism and it’s restatement as Hothbardian libertarianism almost entirely because christians are philosophically fraternal land holders, and their metaphysics assumes the necessity of land holding, while jews assume land is magically held by someone else because they are metaphysically nomadic and have been diasporic since being conquered by Rome. These assumptions have been part of both groups’ tribal sentiments, philosophy and cultural ethics for thousands of years. Judaism is an arrested civilization. Christianity is an overextended civilization. But you will have a hard time pointing to the success of non-landed civilizations.

So, in the end, private money is as often a means of privatizing wins and socializing losses as is fiat money a means of destroying productivity and socializing profits that were made by individuals taking personal risks. The problem with money is that it serves to coordinate diverse and dispersed and fragmentary human KNOWLEDGE, and that gold, or hard money, or private money, because it is scarce, serves better to make use of that dispersed knowledge by capturing willingness to put it behind any initiative or investment that might be poorly considered. While soft money helps to solve the problem that occurs when people have a willingness because they agree on an opportunity for investment, yet they cannot obtain the scarce money to do so. Our problem is not necessarily fiat money. It is that the state can use ‘pooling’ of funds to mask transfers. That is a deeper conversation. But hopefully I have given you some food for thought.

All societies in history, without exception, appear to have a ‘referee’ or ‘judge’ — usually an elder male. This topic has been researched to death: Egalitarian tribal warfare societies have some elder male. Chieftain societies tend to concentrate decision making power. Urban societies develop specialists. Advanced civilizations have micro-specialists (judges). Likewise, as they grow, societies also develop specialists for extra-group conflict resolution (warriors), and specialists for in-group conflict resolution (politicians). It is impossible to have a peaceful and prosperous society without conflict resolution because planning and risk taking necessary for production become impossible.

If we continue our evolution into industrialization, market economies become so much more productive than any other in history, that shareholders (people who pay the cost of adhering to norms and rules) desire returns on their investment in that society via conformity.

The problem for social scientists, and the citizenry, is not the rational constitution of, and methods used by these different specialists in conflict resolution. The problems are the coordination of their activities, the setting of priorities, and the limits on their privatization of opportunities (corruption), as roles filled by individuals evolve into institutions and then into methodological, self interested bureaucracies.

In the private sector we use prices, money and accounting and contracts to coordinate our activities – they are empirical. Instead, the bureaucracies coordinate their activities using laws, regulations and rules – and laws and rules are insufficiently granular and empirical for the size and complexity of our current population sizes and the resulting complexity of our devision of knowledge and labor (instead their moderately rational, which is less precise, and more reliant on interpretation).

This is the problem with the rule of law – the formal principle for any law is that it must apply to all people equally in order to protect the citizenry from overreach. It is by definition and necessity a GENERAL rather than SPECIFIC tool. If instead, our government operated as a bank and insurance company, it would be empirical, calculative and specific rather than rational and deliberative, and general.

As such, it would be far less easy to rely upon supposedly moral arguments, that are in effect, universally, without exception, forms of deception or convenient rationalizations and justifications for either theft, class warfare, or corruption. This is the hole in our philosophy of government. (It is the hole some of us are trying desperately to fill with a solution.)

Mystical Political Religion and the concept of good and evil was invented by the Persians to separate the persian people from the indians who were, at that time, similar peoples. Mystical religion was invented to cause conflict and political division. All cultures developed religions of some sort. If by religion we mean a body of habituated knowledge consisting of Myths and Rituals – but which in modern terms we call ‘education’. History and Political systems are in effect, Myths and Rituals too. If we look at history, the lower clases make use of and rely on mystical religion for insurance and education, the (admittedly small) middle classes on craft, guild, contract and trade, and the the upper classes on politics and bureaucracy, and the different classes cooperate by sharing those different cooperative strategies. So, even the ancient politicians learned how to use education for political purposes. Thats where we get mystical religion from. (See Nietzsche if you can manage it. Gimbutas, Weber and Armstrong otherwise.)

Moral principles are, without exception, under analysis, economic principles – and as economic principles they can be rationally articulated, or embedded in a narrative like a fairy tale, so that they may be taught to children who cannot grasp more abstract, rationally articulated ideas. There is no need for religion to achieve moral education. The fact that all religions, even post-buddha buddism, have developed a myth of afterlife is to add the force of violence to mysticism. The fact that we teach mystical religious principles instead of rationally articulated moral principles makes it impossible to create political compromises between religious traditions – which encourages conflict. More importantly, religious traditions are economic strategies – they promote the values of particular social orders. (west=fraternal and technical, middle=tribal and mystical, east=familial and bureaucratic) This difference is why the west developed the industrial revolution twice (greece and england) and no one else ever has. It’s simply a better strategy for experimentation. (See Hayek, Weber and Armstrong)

Selfishness, as defined by Rand, is a play on words in order to hook people’s attention. It is a classic marketing trick. It assists her in marketing her ideas specifically because the word ‘selfish’ has negative connotations.

While she uses the word ‘selfishness’ the general idea is used by other writes as any one of: individualism, responsibility, enlightened self interest, or pragmatic self interest.

The purpose of the idea of self interest is epistemic: you can’t KNOW enough to work for other people’s interest in a division of knowledge and labor. In a division of knowledge and labor, you can’t KNOW very much. We’re necessarily ignorant. Our view of the world is very limited. It’s simply a proscription for ‘think globally, act locally’. So, self interest, or selfishness is simply a play on words for the purpose of making us look at individual responsibility inversely – as taking care of others by taking care of ourselves, rather than as the duty that we have to one another to take care of ourselves.

Rand was trying very hard to market individualism and freedom during a period of socialist expansion, when there was rampant false attribution of success to the soviet model by western sycophantic pseudo intellectuals – the soviet model that had destroyed her family. So she is making a play on words to hook your attention.

There is nothing in rand that is not, at least in implication, in Adam Smith or Frederic Bastiat.

Hayek tries to remind us that the source of freedom that we know as Classical Liberalism was a product of the English empirical pursuit of science, and the analysis of data that had accumulated by the 18th century, as the middle class grew in size. But that at the same time, the French were pursuing the concept of freedom as a REACTION to the english, by RATIONAL or verbal reasoning, rather than by data – the germanic protestant versus latin catholic approach to life shows up everywhere.

These rational arguments are moral arguments. Moral arguments are by definition specious. But they are easier to digest by the common person, and easier to manipulate by politicians.

In large part, the language of freedom was distributed by translation that were made from french literature using the french interpretation in rational terms of english empirical principles and reasoning. So the language we use today to discuss freedom has become the rational of the french, rather than the empirical of the english. This french rationalism is where marx obtained the foundation of socialism and communism.

From Mish Shedlock:

“Look at it this way: If we take all of the cuts the Ryan has proposed and all of the cuts the administration has proposed, we are still not there. However, if we add them together, then kill the department of energy and the department of education, and cut still more from the defense budget, we might have a solid chance at balancing the budget in 10-12 years. In other words we need more defense cuts + some of Rand Paul’s ideas + some of Paul Ryan’s ideas + some of Obama’s ideas.”

I’ve been thinking exactly the same thing.
That’s what it’s going to take.

(Wonkish) And as long as we kill the department of education it’s worth it to me. But afterward, we should hang the boomers by the millions for their ignorance and stupidity. (I’m a Jones Generation, along with Gates and Jobs, not a Boomer.)