Monday, August 9, 2010

Assault of Thoughts - 8/9/2010

"Words ought to be a little wild, for they are the assault of thoughts on the unthinking" - JMK

- Discover Magazine shares some really amazing information on the human migration to Australia 50,000 years ago - a story which becomes more amazing the more we learn about it. Humans are capable of some really amazing things. This reminds me of one of my favorite books - "Kon Tiki". It's an old one, but if you haven't read it you should. It's about Thor Heyerdahl's journey on a raft across the Pacific to Polynesia. So a little farther east than Australia, but the same idea - that the feats that humans can accomplish with relatively underdeveloped technology are astounding. I recently picked up a used copy of Heyerdahl's book "Fatu-Hiva" as well - this one is about his honeymoon, which he also spent on a raft, on the ocean, and then on Fatu-Hiva, in the Marquesas Islands.

- David Henderson picks up the Phelps op-ed I wrote about recently and makes a really strange counter-argument. He writes:

"If that were true, we could not explain the behavior of oil companies or drug companies. Both could raise their short-term profits by cutting their spending on discovery (oil) and R&D (drugs) to zero. They haven't done that. Why? Precisely because they care about share prices and share prices reflect the market's expectation of the present value of the future stream of net income."
What an odd thing to say. So because oil and pharmaceutical companies don't exemplify the most extreme version of Phelps's point they disprove Phelps's point? Strange. Note well readers: reductio ad absurdum and economics generally speaking do not mix. Economic decisions are not scalar.

- At Critical Rationalism, Alan Forrester clarifies a point about the relationship between evolution and epistemology. There was a somewhat strange post on ThinkMarkets about this recently - I'm glad Alan cleared it up.

- Kate and I went to (among others) Vint Hill Craft Winery, just west of Manassas, this weekend. I highly recommend it for anyone in the D.C. area. Vint Hill makes and bottles its own wine, but it also has people contract for a barrel of their own wine, which apparently makes about three hundred bottles. The winemakers at Vint Hill work with you to produce whatever character you want for your wine. They'll ship in fruit from wherever it needs to come from to get it right. In the end you have 300 bottles, and Vint Hill will buy five or six cases of it to provide at tastings and sell if they like it enough. So we heard about that whole process, and got to try, in addition to several Vint Hill wines, some wines made by other people in the area. It was an interesting business model and a great experience. If you do make the trip to Vint Hill, make sure you also go to Winery at La Grange and Pearmund Cellars, which are owned by the same people. All are excellent.

- A commenter on a much earlier post with similar concerns about the Austrian school shares the blog Human Action, out of South Africa, with me. It seems somewhat typical of the "crude Austrian" genre - everyone is a "socialist" and a "statist". It hits all the usual hot button issues. It doesn't seem to be particularly poorly written. Anyway - maybe check it out. I'm going to follow it for a while and see if it's worth engaging. While I'm on the subject, I also recently started following Roderick Long's "Austro-Athenian Empire". It's a fascinating blog - you should check it out if you haven't already.


  1. Reminds me of this:

  2. Long's blog is a great one. You should also be reading Radgeek:

  3. I haven't tried Vint Hill, but have been to Pearmund and agree that they are excellent.

    I disagree wrt to Phelps's point (or rather to Henderson's point on Phelps's point). It wasn't the "most extreme version of Phelps's point" that Henderson was taking issue with. He took issue with the precise (and quite categorical) statement that Phelps made: "Executives avoid farsighted projects, no matter how promising, out of a concern that lower short-term profits will cause share prices to drop." I think Henderson used the example of oil and drug companies because they are easy to comprehend, but the same statement can be made about any number of companies. These examples are brought to bear in order to support the overall thesis of his post, which is the statement regarding what share prices really reflect. The entire Henderson post probably would have read better if he had led with that statement, but I don't think it makes his post an instance of reductio ad absurdum. It's really a specific counter-point to a rather categorical and overreaching statement by Phelps. Just my $0.02.

  4. Ben - you think "cutting their spending on discovery... to zero" is a faithful, non-extreme version of Phelps's point?

    It seems to me if you cut your R&D budget to 75% of what it was previously, and that is done across the industry, that's a serious reduction in investment demand as a result of fear of the future and a desire to raise short term profits.

    Why in the world is Henderson suggesting that because firms still invest in R&D, Phelps is wrong.

    If Henderson has to appeal to reducing a budget to zero as his standard of evidence, that sounds like a reductio ad absurdum to me.

  5. I may be misunderstanding him but Henderson seems to me to be saying "well - there's still R&D going on in these industries so Phelps is wrong". But Phelps never said these investments would completely stop. That would be ludicrous. Corner solutions are highly suspect in economics - for Henderson to use a corner solution as a falsification criteria is extreme and it is very strange.

  6. I guess I just take Phelps at his word (and I think Henderson was, too) when he states, "executives avoid farsighted projects, no matter how promising." That seems fairly cut-and-dry to me.

    I understand your points regarding corner solutions and the spectrum of R&D budget reductions (though, to fully evaluate Phelps's point, if he's not really making a categorical proclamation, one would also need to look at what "external factors" could be incentivizing such behavior and not just the "internal factor" of short-term results reporting-- factors like potentially increased uncertainty and risk (for example, due to political risk in this and other countries)). I think Henderson was looking at Phelps's statement and thinking to himself, "But executives *don't* avoid farisghted projects." And he provides a counter-point that shows that they do indeed embrace farsighted projects.

    Good discussion, though. Thanks, and have a pleasant day!

  7. "Avoid" means "do none" to you? That just seems strange. That doesn't seem like taking Phelps at his word - that seems like reading him in the most bizarrely extreme light, doesn't it?

    Put it this way - if Phelps truly thought that no projects would be done, what would be the point or purpose of the innovation bank he suggests???

    "factors like potentially increased uncertainty and risk (for example, due to political risk in this and other countries))"

    Doesn't he mention these?

  8. I would agree with your point, Daniel, regarding "bizarrely extreme light" if Phelps didn't add the caveat of "no matter how promising." That choice of wording is pretty exclusive and categorical in nature.

    But, I think we've beaten this dead horse. I was just trying to provide some insight into how Henderson's rebuttal could be seen as reasonable and not simply a reductio ad absurdum.


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