Elite Folly and Selection Bias

averaging over the whole population, Ph.D.s have more sensible views.

Talk about selection bias.
You have a PhD and you have in your opinion sensible views.
Therefor averaging over the whole population, Ph.D.s have more sensible views.

What about your having a PhD and your judging “sensible” from the perspective that you are sensible isn’t self-selecting? Even if you try to fall back on the respected opinions of what are sensible economic views you are already self-selecting to favor PhDs.

Marx didn’t have liberal values in the classical sense. Modern liberals are only sympathetic to Marxism because both oppose a lot of the same ideas. His economics was garbage. Even the modern Marxists seldom bother defending the labor theory of value, the falling rate of profit, and his many other bad economic ideas.

I’m not at all convinced that academics have more common sense or predictive skills than the average businessman with a shrewd grasp of the money markets.

If you go back to the creation of the euro for example, I distinctly recall that “educated” opinion was confident that it would be a simple matter of up, up and away for the new currency. But it actually FELL at its launch from $1.18 to I think around $0.84 in 2000.

There were lots of average Brits without P.hD’s who indulged in “I told you so”.

Also a couple of decades ago “educated” forecasters were in a funk, crying future disaster scenarios. They warned that the millennium would see an end of fossil fuels, and all kinds of doomsday scenarios were churned out – based purportedly on educated academic opinion.

Apparently they were unable to foresee radical technological development and in particular, advances in geophysics.

Don’t start me on the recent crew of academics who are political bloggers on the side, some of whom fancy their chances in the political arena. I’m not at all convinced that being a highly adept “pyjama” analyst of political affairs provides the the right stuff to actually succeed in that arena.

Academics of whatever stripe are theory based. They view life in the abstract and extrapolate opinion based on an understanding that is at one remove from that which they are studying. Also floating a wrong or even idiotic opinion, doesn’t result in your company going under, so they have a lot of slack when it comes to hypotheticals. All of which makes me skeptical of pronouncements emanating from the ivory towers.

The current state of economics is equivelent to trying to explain biology using physics.

It is true that the basic principles of physics drive any and all of the occurences in biological systems. However, to try to explain a biological system using physics is a completely futile activity.

The complexity involved with economic systems overwhelms the use of basic economic principles to explain.

Different, more humble, and more cautious recommendations and implementation are what is called for.

I go along with cc. People who are actually engaged in business and who have a first hand understanding of trends, tend to have good instincts when it comes to forecasting etc.

There is great value though in the academic approach also because it provides an extensive knowledge base that a professional working in the financial sector will almost certainly lack, due to the specialized nature of his/her occupation. Academic research also offers hypothetical scenarios with respect to future trends that are well worth considering, quite aside from questions of their accuracy.

Years ago I worked for a Building Society in London, England. I remember there was a quiet, pipe smoking accountant in the office who never said much. However he was a whizz when it came to the stock market and seemed to have a very good grasp also of economic trends in the country. I remember he read the London Times and did crosswords. He was always being approached by co-workers for advise on various financial matters.

Speaking of trends … anyone has any insights about where the economy is headed in 2006/7? 🙂

1. Marx was a horrbily bad economist, not one of his theories has survived the empirical test.

Even when he wrote his stuff he was wrong (for example predicting wages would keep falling).

If you want a good laugh check out Marx theory on how the rate of intresst was determined.

Anyone who wants to defend Marx can answer this simple question for me.

Marx said wages would fall and profits would fall, but the economy would become more and more productive (actually because the economy becomes more and more productive).

How exaclty does this theor yof growth hang togheter? Where does all the production go? Not everyone who has a beard and invents new words has something intresting to say.

2. OK I accept Caplans argument, educated non-academist are more sensible than average, academics and intellectualls are less (read the NYT about any economic issue, for example free trade or outsorcing).

But he has not explanied why the people who stay in the idea-producing sector are so much more irrational than those who don’t. After all, they are unproportionally influencial.

One test is that the mushier the social science leftwing they are. Start with English, text-analysisn, sociology and go rightwards to political science, evolutionary psycology and economics.

I would really want an answer to this question. Why are so many intellectualls extremely left wing? As a test anyone who doesn’t understand that the harsh prisons sentances reduce crime or that free trade is good for the economy, or that thinkks Marx was a good economist (sorry, I don’t want to insult anyone). Hayek had a reasonable explanation, but I don’t think it covers all of it.

Don’t worry Zac, I’ve talked to plenty of uneducated people and highly educated people. I stick to my guns that SUCCESSFUL people tend to GET IT. Although, I do think that people who are more educated tend to be (though not necessarily) more successful and confident in their ability to survive changes in the economy.

Still, we have an aquaintance who didn’t finish high school who openned his own manufacturing company then sold it for a nice chunk of change and took a job with the buyer. He doesn’t complain about outsourcing or China. If you can think for yourself you know you’ll get by.

A lot of the master degree holders I’ve met in the tech industry on the other hand are very pessimistic and keep waiting to be outsourced. A lot of them, sadly, haven’t really kept up with their skills–they have a job, they dimly focus on, but nothing else. I guess its easier to blame the president than to take responsibility for your own continued education.

Aidan,

And after September, 2000, when in fact the euro got even closer to merely $0.80. it turned around and went all the way up to nearly $1.40. It is now somewhat above its starting point at about $1.22. I do not know what volatility says to the average Brit in the street.

A widely accepted explanation ex post for the decline of the euro is that there were a lot of black market European currencies floating around, especially Deutschemarks, which needed to be turned into other currencies, especially US dollars, prior to January 1, 2002, when it finally became not allowed to have any local currency in Euroland. As long as all that cash was getting transferred, there was this big down drag on the euro. Once that was mostly over, the euro could do as was forecast and has.

Tino asked, “Why are so many intellectualls extremely left wing?”

Most academic intellectuals are among the class of people who receive more from the government than they pay in taxes. They see promising students on financial aid and don’t think that the tax dollars used to generate that financial aid would have gone to as good a use were they not taken from whoever earned them. They centrally plan their class meetings and decide on the distribution of grades, so they associate central planning and distribution with results that they like. Basically, their own working environments are like ideal left-liberal communities. They assume that the rest of society can be molded to have the same characteristics in a self sustaining way.

Perhaps, Bryan, the noneducated folk have a poor understanding of economics because they believe the economic beliefs of educated elites in positions of power who have a poor understanding of economics.