Tag Archives: Comparative Advantae

Understood by No One and Yet Believed by Everyone

IsaacAsimovThe late Grand Master of Science Fiction, Isaac Asimov was the Renaissance Man of the last century and he penned more than 500 books on nearly every subject from biochemistry to the Bible. He was, in short, an astute observer of the universe from nuclear physics to the human condition.

I was recently re-reading Asimov’s seminal “Foundation Series” and came across a little gem at the start of Prelude to Foundation where the Emperor Cleon I speaks with his vizier, Demerzel, about how to hold together the decaying Galactic Empire by exploiting a futuristic social forecasting model. Reading the passage again, it is clear Asimov’s fictional mathematician, Hari Seldon, isn’t the only one predicting the future.

We now live in an age where politicians and business leaders defend Ricardo’s Comparative Advantage Theory and Keynes’ Multiplier Model with religious fanaticism. However, they do not really understand the context behind the math and therefore they completely fail to account for the very serious limitations and potentially fatal assumptions that support these extremely simplified economic models.

Meanwhile, the highly pedigreed economists and business professors whose job it is to keep the American public bamboozled should know and probably do know that applying such simple models in a highly complex and unpredictable real world is extremely risky. However, lacking either Seldon’s brilliance or integrity, they aspire to prestigious appointments and they love being fawned upon whenever they repeat that magic incantation that quells a restless populace: we will spend our way back to prosperity.

It’s really easy to imagine the following conversation happening in the White House today.

[Cleon I:]”But they believe in such things. Therefore, it doesn’t matter whether the forecast of the future is true or not. If a mathematician should predict a long and happy reign for me, a time of peace and prosperity for the Empire– Eh, would that not be well?”

[Demerzel:] “It would be pleasant to hear, certainly, but what would it accomplish, Sire?”

“But surely if people believe this, they would act on that belief. Many a prophecy, by the mere force of its being believed, is transmuted to fact. These are ‘self-fulfilling prophecies.’ Indeed, now that I think of it, it was you who once explained this to me.”

Demerzel said, “I believe I did, Sire.” His eyes were watching the Emperor carefully, as though to see how far he might go on his own. “Still, if that be so, one could have any person make the prophecy.”

“Not all persons would be equally believed, Demerzel. A mathematician, however, who could back his prophecy with mathematical formulas and terminology, might be understood by no one and yet believed by everyone

Demerzel said, “As usual, Sire, you make good sense. We live in troubled times and it would be worthwhile to calm them in a way that would require neither money nor military effort–which, in recent history, have done little good and much harm.

[emphasis added]

Mr. Bernanke, you are no Hari Seldon.

Greg Autry serves as Senior Economist with the American Jobs Alliance, Economist with the Coalition for a Prosperous America and is co-author (with Peter Navarro) of Death by China: Confronting the Dragon – a Global Call to Action. He blogs regularly at: http://www.gregautry.us/blog  and on the Huffington Post.

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