Zen and the Art of /.*/

Updated Tuesday, March 9th, 2010 at 10:40 pm.

Original letter sent to the faculty of the economics department at the College of Saint Benedict / Saint John’s University in Collegeville, MN on Monday, July 13th, 2009 - 11:45 am

My name is Mike Phenow. I am a 2005 graduate of Saint John’s. The nature of my correspondence to the Economics Department is a little unconventional and I thank you for your time in indulging me.

Recent developments have brought the discipline of economics to the fore of nearly everyone’s mind — layman, practitioner, and academic alike. In this regard, I am no exception. The much-watched and closely-scrutinized political events of the past few years — in which I have participated, in my own small ways — have led myself and others on an intellectual journey to discover the true causes of the economic crises — and how the vast majority of economists could have utterly failed to either foresee them or satisfactorily explain them.

While the primary focus of my studies at CSB/SJU was computer science, I had a passionate interest in every subject I had the privilege of studying. As a participant in the honors program, I had the wonderful opportunity to take many fascinating courses, one of which was an honors introduction to economics taught be Ernie Diedrich. I remember thoroughly enjoying the class and having great respect and appreciation for Professor Diedrich’s knowledge, accessibility, and passion.

After having spent countless hours in the past few years compulsively following the many developments in the socio-economic landscape and feverishly reading a wide variety of works, both technical and popular, I have reached the unavoidable conclusion that there were some glaring and lamentable omissions in my introduction to economics and the various schools of thought that have contended for widespread acceptance.

When one surveys the writings of the proponents of the various schools of economic thought over the past few years, it becomes painfully clear that most “mainstream” economists, those from the Classical, Keynesian, and Monetarist schools, among others, (whose policies and prescriptions have held sway for decades) were completely broadsided by the historical downturn and are embarrassingly incapable of providing a compelling explanation using their own tools and models.

On the contrary, when one considers the writings of the Austrian economists, so often derided as unscientific quacks, one can’t avoid the conclusion that they not only presciently warned of the impending collapse, but have a coherent, consistent, thorough, and compelling explanation for it.

I am not familiar with the specifics of the current curriculum of the economics department at CSB/SJU, but in the two books that I have from my days there, the third edition of “A Survey of Economics” by Irvin B. Tucker and “The Worldly Philosophers” by Robert L. Heilbroner, there is absolutely no mention of either the Austrian School or any of the many great thinkers that have advanced its study. On the whole, these works have an undeniable bias towards the mainstream methods of economics.

In light of the above observations about the comparative predictive and explanatory abilities of the various schools of economic thought, I have to contend that it is a great disservice to the students of CSB/SJU and a disservice to the honest study of economics to ignore the contributions of the Austrian School.

I am interested to hear your thoughts on these issues and hope, if it has not already happened, that this helps to spark an honest, fair discourse on the matter.

I thank you again for your time.

Follow up letter sent to the faculty of the economics department on Tuesday, November 17th, 2009 - 9:35 pm

Greetings Again,

This past July, I sent the letter below [above here] to each of you in the SJU Economics Department. In these past four months I have occasionally thought back to this letter and reflected upon the possible reasons why I had not received a single response, not even a simple acknowledgement. I have been tempted to recall Euripides’ retort that “your very silence shows you agree” but have instead reminded myself of Carl Sagan’s observation that “absence of evidence is not evidence of absence.”

Just recently, the confluence of two events brought this issue back into my mind. First, just the other day, I received a letter from the university requesting a donation to the Annual Fund. The letter began with these words: “You lived it five years ago. You are a part of it. And you’ve supported it. It is the Johnnie experience.” The second event is the fact that I will be in Saint Cloud this weekend attending a convention for one of my jobs.

I was always given the strong impression that it was important to Saint John’s that the alumni remain engaged in the activities of the school and, more broadly, in the quest for knowledge and understanding.

In this spirit, I respectfully invite any one or more of you to respond to the issues that I raised in my original correspondence. Also, I will likely be dropping by campus sometime either Thursday, Friday, or Saturday to visit my brother and cousin. If any one or more of you are interested, I should be able to arrange some time any one of these three days to sit down — either in an office or over coffee or drinks — to have a friendly discussion about these issues.

I believe that there is no higher aim in life than the sincere quest for truth. Given the profound effects — from the global to the personal — of the recent economic events, I don’t think there is a more relevant or timely issue on which to focus our attention than the proper understanding of the true nature of economics.

I look forward to hearing from you.

Sincerely,
Mike

Reply received from John F. Olson, the chair of the economics department, on Wednesday, November 18th, 2009 - 6:55 pm

Mike,

My apologies for not responding sooner to your July e-mail. Quite simply and honestly, the demands this fall semester on my time for teaching, overseeing student research projects, advising students, administering the department (including hiring, reviewing, and mentoring faculty; responding to student and administration requests; etc.), serving on college committees, and other responsibilities have left me with a growing list of unaddressed items which included your e-mail. As well, for the other Economics faculty, I know they too have been quite busy with their work as we are “stretched thin” by the current tight fiscal environment of the institutions. (As well, some of those addressed in your emails are our two departmental office managers or are no longer faculty here.)

Your July e-mail did provoke some discussion among several of the CSB/SJU Economics faculty. Your single exposure (in the Honors section of our introductory course with Ernie Diedrich) to the CSB/SJU Economics curriculum provided only an initial step into the breadth and depth of the program. There exists above that entry-level course a coherent framework of Economics courses, structured to have students acquire knowledge and develop analytical reasoning skills in Economics within the liberal arts curriculum of CSB/SJU. Our introductory course sets a basic undergraduate foundation for further study of the subject, whether that occurs within our Economics curriculum or in other realms. More simply stated, the intro course is just the tip of the iceberg; it’s a starting point.

As for particular “schools of thought” in Economics, the CSB/SJU Economics curriculum addresses these. While our primary emphasis is directed to developing our students’ analytical skills (and not to any particular doctrine), exposure to the diversity of methodologies and perspectives in Economics is included explicitly among our departmental learning goals for Economics majors. Learning activities and materials to accomplish this goal appear in most upper-level Economics courses, as relevant or appropriate to their content. Courses such as ECON 326 (History of Economic Thought) and ECON 328 (Economics, Philosophy, and Method) provide more specific, focused study of the schools of thought and methodology in Economics. Further, the faculty of the CSB/SJU Department of Economics individually hold to a variety of different analytical and methodological perspectives, although we are collectively in agreement about the learning goals we seek our students to achieve on these and other matters. Thus, a closer examination of the CSB/SJU Economics curriculum does not support your contention that we do a disservice to students.

John

John F. Olson, Professor and Chair
CSB/SJU Department of Economics

Reply to John F. Olson, chair of the economics department sent on Monday, November 23th, 2009 - 3:15 pm

Hi John,

Thank you very much for the gracious and thorough response. I understand the many demands on your time and appreciate you sparing some on my account.

I am happy to hear that my initial email provoked some discussion. You make a very good point and I wholly grant that my single exposure to the curriculum provided only an initial step into the breadth and depth of the program, as I alluded to in my initial email. Certainly I am not in any position to speak with any authority about the rest of the program. Further, it is encouraging to hear your broad-minded approach and principled goals for Economics majors. It is this broad-minded approach and these principled goals that attracted me to a liberal arts education in general and Saint John’s in particular. I think your overall attitude is spot-on and does a great service to all students, particularly the emphasis it places on individual critical inquiry.

That said, I hope you won’t think me overly imprudent (or impudent) for prying a bit further. More specifically, I am concerned with (and merely inquiring, as the above concession alludes to) whether Austrian methodologies and perspectives are taught as merely another historical footnote or a current, valid body of knowledge with important contributions to relevant issues. I am concerned with whether students are given a reasonably thorough and fair exposure to methodological individualism and the Austrian theories of the business cycle, value, money, credit, capital, and interest rates. I am concerned with whether students are given exposure to Mises, Rothbard, Hayek, and Hazlitt on a footing at least equal to the likes of Keynes, Galbraith, Friedman, and Krugman.

Further, I think it is a reasonable expectation that the department of a particular discipline at a college be able to speak with some authority about the important issues relevant to their field. One expects to be able to approach the biology department and get some informed, compelling explanations for biological phenomena, within the present scope of that field. While, as I stated above, I have a great appreciation for a principled and broad-minded approach, no serious biologist gives any credence to the argument that they ought to be merely “teaching the debate” between evolution and creationism.

I’m far from being alone in having an expectation that economists ought to be able to say a few things authoritatively about economics. This very expectation, as I’m sure you’re aware, was expressed by — and you can’t make this stuff up — the Queen of England. She wanted to know how economists could have utterly failed to predict the timing, extent, and severity of the economic crisis. The response from a prominent group of mainstream English economists cites a failure of “collective imagination,” being “charmed by the market,” and “wishful thinking combined with hubris.” These are not the words of intellectuals who deserve to be taken seriously. Imagine if this was the response of a group of astronomers who failed to predict or even explain an important astronomical event. It would instantly be derided as flagrantly intellectually dishonest.

Now, of course, as you know, this is perhaps an unfair comparison, as economic events do not follow the comparatively neat and orderly rules of astronomy. To think so would be, well, “wishful thinking combined with hubris.” But this is precisely the point. It is the econometric methodologies that have so long held sway that were utterly incapable of predicting or explaining the recent economic events, while it is the Austrian insistence on methodological individualism that allowed the Austrian economists to both predict and explain the crisis.

It is true that Ptolemy’s geocentric model of the universe (which was both overly complex and overly simplified) was able to make some reasonably accurate predictions about mundane celestial events under normal observational circumstances, but it was doomed to fail when challenged by the heliocentric model proposed by Copernicus because the latter was more elegant while also acknowledging the fundamental complexities of the natural phenomena. More importantly, it more closely conformed to reality.

Despite the fundamentally complex and emergent nature of “the economy,” the proper study of economics can tell us some important things about it with relative certainty. The vital pursuit of economic knowledge was progressing quite fruitfully in the Austrian school through and beyond its “Copernican” stages when Keynes came along and boldly proposed his Ptolemaic theories full of aggregates, multipliers, and econometric equations, introducing both unnecessary complexity and over-simplifications. The much more accurate, useful, and compelling theories of the Austrian economists were not refuted or superseded — they were merely sidelined and ignored.

A closer inspection of the Economics curriculum at CSB/SJU, as posted publicly on the website (http://www.csbsju.edu/economics/curriculum), presents a rather different picture, with all due respect, than the one you paint. The introductory courses are clearly separated, as was my experience, into distinct micro- and macro-economic segments and prominently features the topics of circular flow, aggregate supply, and aggregate demand. The second course in the standard track is micro and the third macro. Following that is a course devoted to quantitative methods. Also included are requirements for advanced courses in mathematics, including calculus.

All of these topics betray a severe bias towards the mainstream, econometric, Keynesian / neo-classical / monetarist / etc. schools of thought. It was Mises who brilliantly demonstrated that the distinction between the micro and the macro is completely unnecessary and belies fundamental problems in methodology. It is the Austrians who have repeatedly demonstrated the fundamental fallacy and unworkability of dealing with aggregates. It is the Austrians who have repeatedly demonstrated that there can be no meaningful econometric calculation, that values are not just determined at the margins, but that they can only be ordinal and not cardinal, making it meaningless to attempt any arithmetic calculations of values, much less attempting to employ calculus. Many, if not all, of the other elective courses also betray an orientation distinctly unsympathetic to the Austrian perspective.

You cite two 300-level courses as evidence of the breadth of the curriculum. The description of the first course, “History of Economic Thought”, says: “schools and views considered include the ancients, scholastics, mercantilism, classical political economy, Marxian, neoclassical economics, and institutionalism.” Of the seven listed, the Austrian school is conspicuously absent. Only the scholastics were very significantly related to the Austrians and were merely an early precursor. In a semester-long course that already has the ambition to tackle seven different schools of thought, it is a stretch to think that an unmentioned eighth is likely to get a fair representation. The second class cited, “Economics, Philosophy and Method”, would appear to show more promise for being likely to present the philosophy and methods of the Austrian school, but given the nature of the rest of the curriculum and the conspicuous absence of the Austrian school from the History course, one could hardly be optimistic.

But of course, why harp on the Austrian school? Surely there have been hundreds of different flavors of economic theory throughout the world and throughout history and surely it would be an unproductive waste of time “teach the debate” between all of them. This I wholly grant. Most have been refuted or superseded. The Austrians have not been. Further, as mentioned above, the profession of economics ought to be able to say something accurate and compelling about the nature of economic reality. Well, as a whole, the mainstream, orthodox economists have put forth a wide variety of proposals, predictions, and commentary over the years with one important, prominent characteristic in common — they’ve been mostly wrong most of the time. The Austrians, on the other hand, while being the ones to most strongly disavow the predictive abilities of sound economics (the nature can be known, but not the timing, and the quality can be known, but not the quantity), have had, by far, the best track record of making accurate predictions. (http://mises.org/journals/scholar/Thornton6.pdf)

Now, were this merely a discussion of the computer science department teaching more towards Windows vs. Mac vs. Linux, it would not be worth my precious time or yours to further debate the matter. But this is fundamentally different. The functioning of complex economies and the effects of various economic policies has a terribly profound, often lamentably-tragic, impact on the lives of countless individuals. Being as over-worked as everyone is, few individuals have the time to gain their own thorough understanding of economics and instead, understandably, look to professional economists for accurate answers and sound advice or will even spend a lot of money to earn a degree in economics themselves.

As an honors student paying a lot of money to attend a semester-long introduction to economics course, I left equipped with the tools to believe that the US housing market, the Wall Street investment banks, and the US dollar were all perfectly reasonable, safe places to be, without once hearing mentioned the name of a single Austrian economist or a single Austrian theory that would have definitively, and correctly, told me otherwise. I left equipped with the tools to believe that we can elect public officials who will give us bread and circuses and guns and butter, that we can believe that deficits don’t matter, that we’re all Keynesians now — without once hearing mention of the possibility that we were on a wildly unsustainable trajectory and bound on a crash course with catastrophic collapse.

As early as 2002, immediately after the inflationary dot-com bubble began to be re-inflated into a real-estate bubble, Austrian economists were correctly predicting the nature of the malinvestment and the inevitable collapse (http://www.youtube.com/watch?v=rhJaVEWAG24). As late as 2006 and 2007, Austrians were pointing out the already-underway corrections to the market, while most mainstream economists were — literally — laughing out loud at them and betting, rather brazenly, on real-estate, the Wall Street investment banks, and the US dollar (http://www.youtube.com/watch?v=ADVEiTo7tDE, http://www.youtube.com/watch?v=zdVP_sgCETo, http://www.youtube.com/watch?v=2I0QN-FYkpw). People may harbor their own fascination with Ptolemaic economic methods and theories, but when it comes to the realm of honest intellectual debate, the merits of various methods and theories have to be assessed with the most uncompromising intellectual honesty, with the compelling being accepted and developed and the uncompelling refuted and discarded.

I apologize if my analysis appears impudent or strident, but I think this is a matter of rather pressing importance, given the current state of affairs and the certain direction of future affairs. I think the Queen is still awaiting a satisfactory response.

Most Sincerely,
Mike

Reply received from John F. Olson, the chair of the economics department, on Tuesday, December 1st, 2009 - 9:24 am

Mike,

This is just to let you know that I received your long response and have passed it along to the rest of the Economics faculty for their consideration.

John

Reply to John F. Olson, the chair of the economics department, on Tuesday, February 16th, 2010 - 12:45 pm

Hi John,

This is Mike Phenow again. I really do hate to be a pest, but having just received a another letter from the SJU Annual Fund and being in the midst of struggling through these tough economic times, I am reminded that I never received a response to my rejoinder.

I understand that your time (and that of your colleagues) is both valuable and limited, but would very much like to hear your thoughts on these matters.

Thanks,
Mike

Reply received from John F. Olson, the chair of the economics department, on Friday, March 5th, 2010 - 3:49 pm

Mike,

I did forward your lengthy reply on to the department’s faculty. The department did take some time at a regular department meeting to discuss your suggestions and those made by others. While grateful for your interest, the department was unanimous in a decision not to change the curriculum in its current structure or content.

John

Reply to John F. Olson, the chair of the economics department, on Tuesday, March 9th, 2010 - 10:19 pm

John,

Thanks for the conclusive answer and thanks for taking time at a regular meeting to seriously consider this matter with the entire department.

That said, I am, not surprisingly, quite disappointed in the decision reached by the faculty. I will not be donating to the school so long as the economics department refuses to teach sound economics and I will certainly do my best to dissuade potential economics students from studying at such a school.

This issue is simply too important. Economics makes or breaks entire societies and is one of the strongest currents running throughout the course of human history. A proper understanding of sound economics is absolutely essential to a true understanding of history, politics, sociology, business, law, ethics, and even morality and philosophy.

It is a tragedy that in the year 2010, with such a rich historical record, such a vast body of knowledge on the subject, as well as ubiquitous, cheap, and instant access to such information, we continue to perpetuate such terrible ideas.

Fiat money is inherently inflationary. Inflation (properly defined as an increase in the supply of money) is deceptive, destructive, regressively confiscatory, and thus, imprudent and immoral. It creates mal-investment, which leads to unsustainable booms, which result in inevitable busts. It transfers wealth from the unsuspecting and helpless masses to the government and those closest to government. It utterly violates the individual’s right to their justly-acquired private property, the fruits of their labor, and thus, ultimately, their own lives, rendering them slaves to those in control of the supply of money. It removes from the people the most important veto power on the government and grants to the government endless, unchecked, and deceptive access to the wealth of the people which enables all manner of evil.

Most dramatically of all, the debasement of currency ultimately leads to the collapse of entire societies. History has borne this out time and again we will likely have the misfortune of having this mercilessly play out around us in our own lifetimes.

I apologize for the dramatics and for the contentious exchange, but I stand by my original claim that you are doing your students a disservice. I think you are on the wrong side of this argument and I think time will find you on the wrong side of history.

Mike