Tuesday, April 28, 2009

Pragmatism is Killing You - Part 1

The biggest threat to your survival is the U.S. Government. Harvard and Yale graduates, among others, who think they are smarter than you, are making the most asinine decisions about our economy and money supply. Why would some of the most brilliant economists in the world give us advice that does not work? Why does every act of the government receive great praise and positive press but no good result?

Why do Republicans promise to solve big government and over-spending done by Democrats only to create bigger government and more spending? The answer to these questions is that there is a wider philosophical movement driving us into the abyss. This movement claims to have the ability to solve human problems through practical action – but the secret is that it does not work.

During the terms of many recent Presidents, the operating procedure has been to react to every catastrophic event with some form of government action, some regulation, law, program, Executive Order or military action that addresses what was wrong in the world. Is it possible that all of this Presidential “action” could be making things worse?

During my economic education, I learned how free markets operate. The core principle of a free economy was that better business decisions result when the government is prohibited from interfering in consensual transactions. Free people, buying and selling products, will most often make rational decisions. If they make mistakes the free market lets them correct so they can move forward. When the government attempts to “fix” or interfere in those transactions, it distorts the ability of people to adjust economically and accomplishes the opposite of the intended result. Writers like Ayn Rand, Henry Hazlitt and others saw free market economic principles as solid guidelines that brought about affluence and prosperity. They were a far cry from other thinkers like John Maynard Keynes who saw government action as a practical means of affecting prosperity. Yet it was Keynes who knew that his own recommendations would have long-term negative repercussions.

Today, the mantra from both conservatives and liberals is that the government should “do something” about economic problems. In fact, the sub-prime crisis was created by the government “doing something” about the economy. There is apparently no one on the scene today suggesting that the government should stop sending good money after bad. Instead we are moving headlong into more government action that will accomplish a worse economy.

A major stock market crash occurred in the late 1920s when President Hoover thought he could “do something” to improve the economy. With capitalism unfairly discredited, at virtually every turn, the progressives, who took power after Hoover, created new programs, new regulations, new laws, protected unions and nationalized industries using the excuse that government action would cure the emergency. Few questioned the fact that everything the government did made things worse. In fact, today, children are taught in school that government action during this period fixed the economy. President Franklin Delano Roosevelt is idolized as a hero for having saved the economy – through government action.

What is government action? What does it consist of and does it really help to improve the economy?

The only thing a government can do is coerce people. The government is essentially a “gun” with the power to force people to do as it demands. Every law, regulation or economic bailout is backed up by this gun. With free people, coercion is the last thing they need; the government can only keep them from doing the right thing. That’s it, nothing else.

When government commands actions, people working for their own self-interest will have to adjust their behavior. This causes losses to those people because it diverts them from taking proper actions. For instance, let’s assume the government decides that interest rates on loans are too high and sets the rate at a level it deems proper. The result is that people now have no ability to choose loans that fit their particular needs. Lenders can’t adjust their loans to the credit rating of the borrowers and as a result they will give some bad loans. Smaller lenders must go out of business because the larger companies can offer borrowers additional benefits due to their size. When the government sets interest rates on loans, it interferes with the interest rates that the free economy would set; rates that are dependent upon the needs of the lenders for profits and the ability of the borrowers to pay. Government thinks it is doing good but, in the name of ‘saving the economy’ it is causing millions of dollars in losses to the lenders and reducing the number of loans available to good borrowers. This is essentially what caused the sub-prime crisis when the government ‘suggested’ low-interest loans for risky buyers.

What is the philosophy that justifies all this practical action that is not practical? It is pragmatism, a philosophy that infects both left and right alike. The left pretends that re-distribution and massive spending schemes are practical ways to improve the economy while the right considers that the only way to gain and/or keep political power is to beat the left to the punch on massive spending programs.

Yet, Pragmatism is not really new in the sense that it is a philosophical outgrowth of Empiricism and holds many of the premises of that prior philosophy. In fact, it is Empiricism that makes pragmatism decidedly impractical. Starting with David Hume, philosophers have been telling us that principles do not matter, that man is incapable of understanding reality and the only thing one can do is take “bold leaps” in human knowledge.

There are essentially two premises that make pragmatism impractical. The first premise comes from Hume. Hume began his philosophical quest by attempting to examine the issues that relate to how man can develop certainty. Though most philosophers assume that Hume was led to his conclusions through rigorous empirical analysis, the truth is that Hume starts with the premise that there is something wrong with human thinking and then he builds his philosophy around that preconceived notion to conclude that there is something wrong with human thinking. He posits that man’s ignorance is created by the inefficacy of human memory. He says sensations are immediate, felt strongly, felt as real, but our recollection of them, our thinking, is fuzzy and this must be why people disagree; why they are contradictory and ignorant in the use of their minds. What he accomplished was to give skeptics the “certainty” needed to blatantly state that there was no certainty. The average man was left blind and incapable of thinking. And since man was incapable of reason, they thought, why should we even teach people how to think?

Hume revealed his view that we are basically fallible when he noted that his study was intended to provide a way for man to gain certainty but then concluded that there was only a fuzzy connection between ideas and impressions. He laid the foundation for an approach to induction that did nothing to advance induction or the acquisition of knowledge. Where scientists during his time, practicing scientific induction, were discovering whole areas of new knowledge and reaching new heights of understanding, Hume was saying that we could only look at concrete facts. While businessmen had the vision and intelligence to take inductively derived knowledge and create whole new industries and magnificent new inventions, Hume was teaching us that there is no necessity, no connection between cause and effect, because we can’t see it.

This conclusion came to him while he was involved in an effort to develop an impenetrable science that would rid the world of superstition. Yet, he provided us with a new form of doubt as the foundation of science and inquiry. Consider David Hume's views about necessity and the "inability" of man to understand reality. Hume held that there are no valid inferences in the jump from observed cases to unobserved cases, from observed specifics to generalization. Building upon his premise that impressions are superior to ideas, Hume uses what he thinks is “pure” empirical observation as a source of knowledge while denigrating the value of induction and conceptually developed knowledge. So science becomes arbitrary expressions of arbitrarily derived generalizations.

For Hume, because we could not see necessity, there is no necessity, there is no source of human knowledge; there is no human knowledge. The hard headed empiricist joins with the faithful rationalist.

This made the way for the second wrong premise of pragmatism offered by Immanuel Kant who pretended to answer Hume’s skepticism. Kant divided reality into what he called the noumenal and phenomenal spheres.

Kant asserted that the noumenal world was essentially unknowable, that the only thing we can comprehend about it is that it can’t be comprehended. This view is related to Plato’s view of the ‘essences’ thought to be only a memory of ideas that reside in another unknowable realm of reality.

For Kant, the phenomenal world was just as inaccessible as the noumenal. Although experience could acquaint man with the phenomenal world and it “felt” like we were dealing with the real world, the phenomenal world was really unreal.

With these Kantian distinctions, man is left with the unknowable in the noumenal world and the unreal in the phenomenal world. This is offered to man as an answer to Hume’s skepticism…yet it is arch skepticism.

Accept this view and you have made the ultimate sacrifice of your mind – which started in a quest for knowledge – to the view that there is no knowledge. Consider what this means: you now have no way of identifying practical action. The senses are invalid and you only have impressions of nothing in particular. And this is an ‘enlightened’ view, they tell us.

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