Re: gross substitution

["John M. Legge" <jlegge@xxxxxxxxxx>]

One can readily preserve science while rejecting the concept of an actuarially predictable future, as mathematicians and scientists going back to Poincare have done.  J. Barkley Rosser links this work to economics in his book, and will do an even better job when he brings Kauffman into his second edition.  Exponential complexity arises in every sufficiently complex system (essentially, every realistic system with more than two components) making predictions about the future subject to an unbounded increase in uncertainty, even in a system where all micro interactions are understood to an arbitrarily exact but finite extent.

Dixit and Pindyck demonstrate that liquidity preference is rational in their "Investment Under Uncertainty," producing a theoretical result that reproduces real corporate investment behaviour extremely well.

The scientific method requires reproducible experiments, such that when the conditions under which different attempts at the experiment are carried out are the same the results, subject to no more than quantum uncertainty, are the same.  Physicists can make quite accurate predictions about the air in a bottle, but they can't tell you, expect in very general terms, what the weather will be like next week.  Real Chicagoans don't sell their winter overcoats on the day that the calendar says that Spring has arrived.

Friedman and some of his acolytes (even Krugman on a bad day) assert that this is all smoke and mirrors: that there is some underlying property of markets that makes them efficient such that a knowledge of past prices is sufficient to predict future ones, or at least their mean value with a finite standard deviation, for EVER.  This is the ergodic axiom, and it has no scientific validity.

Paul refuses to get involved with such theoretical arguments concerning the dances chosen by angels on the head of a pin, and rejects the pin and the angels entirely by asserting the non-ergodic axiom, that the future is fundamentally uncertain.  Barkley and I and many others assert that the future is unknowable and incalculable, basing our arguments in hard science and mathematics.  Since we don't know and can't find out what dances the angels will choose tomorrow, we go into the world as if the future was fundamentally uncertain and have, and expect others to have, a finite liquidity preference, just as we would find winter overcoats in many Chicago closets even in midsummer,

JML

From: William B. Ryan wrote:
<snip>
>
> Perhaps I don't understand what is meant by the ergodic axiom--the
> word is not in common usage.  If it means that we generalize from
> knowledge to make predictions, it would seem that if we reject this
> axiom and accept its negation, we are saying that the formulation of
> testable hypotheses is a meaningless endeavor.  Science would become
> an illusion.
>