Spud still doesn’t understand the word rational, does he?

The error was in basic economics and is telling. It tells us that the Treasury still clings to pure market theory. This says that people are rational and perfectly predict the consequences of the future in their current behaviour.

No, if people could perfectly predict then Keynesian stimulus would not work because Ricardian Equivalence (no Professor, go and look it up, you’ll learn something that way). That Ricardian Equivalence only partially works some of the time means that we don’t think that people do perfectly predict.

And that’s not what we mean by rational anyway. All we do mean is consistent. And that really is explained in he entry level text books. You should try reading one one day.

13 comments on “Spud still doesn’t understand the word rational, does he?

  1. Tim, You need to edit to show the quote. I’m sure most readers can tell where the idiocy stops but still …

  2. Tim – apparently he is more in touch with the real world than the entirety of classical economics so quoting ‘Ricardian equivalence’ to him will just elicit the response that he knows more than you and decided that conventional economic was ‘nonsense’ after a term at Southampton.

    Lest we forget he is on record as saying he has ‘changed the world’ – how can mere mortals stand against that?

  3. “And that’s not what we mean by rational anyway. All we do mean is consistent.”

    ‘Consistency’ is a purely formal property. Rationality involves consistency of both form and content. You can have desires with a formal consistency but an irrational content — eg a plan for suicide. Broadly speaking, the content of rationality is the satisfaction of human needs and desires – and defining those involves moral judgements.

  4. VP

    You may eat your cynical words when In centuries to come it is not copies of the Wealth of Nations and Das Kapital that people have showing prominently on their bookshelves to demonstrate what polymaths they are, but a leather bound Joy of Tax. Perhaps it might even replace the Bible on Desert Island Discs?

  5. I always understood ‘Homo Economicus’ as just a bench mark/starting point/framework to use when considering human actions/choices. Only an idiot would think it means man, with perfect knowledge, maximises monetary return at every opportunity. It’s the intellectual warm up lap of an economics A level, a Professor should know more than this. To me economics is the study of nuance, second and higher order effects, feedback loops. This man has no subtlety of thought.

    I suppose if you had completed more than one-term of Economics at Southampton, or at least read Freakanomics you would be familiar with behavioural economics and understand this enables you to add further complexity and nuance to the rational man.

    What rational does mean though is that in Time 0 your ranking preferences are internally consistent (transivity), if I prefer A over B and B over C, then I must prefer A over C. Does he think this is no longer a useful assumption?

    When I hear people criticise economic rationality I find they tend to mean “boos hiss, evil capitalists who don’t value fluffy bunnies and Gaia and why am I not paid very much for my interpretative dance of FRC Ethical and Auditing Standards 2016”

  6. “…why am I not paid very much for my interpretative dance of FRC Ethical and Auditing Standards 2016”

    Confucious, he say: in the land of the bald, all the barbers are beggars.

  7. That’s where perhaps economics chose the wrong word. For rationality does mean more in other areas. But in economics it really does mean just consistent. If you prefer A to B and B to C then you prefer A to C .

  8. Tim, the same problem occurs with the term natural rate of unemployment, ooh the heartless bastards.

  9. Murphy has a tendency, in common with other dull-witted plonkers, to take a term of art stripped of context and dogmatically use it as if it had its more quotidian meaning*. This goes a long way towards explaining his uncanny ability so unerringly to grasp the wrong end of any proffered stick.

    * you sometimes see people doing this disingenuously as a rhetorical ploy; I extend no such benefit of the doubt to anyone whose thinking is as stolid as Murphy’s

  10. No Tim. Economics chooses the correct word. Rationality is a purely subjective term. The way Theo’s defining it requires a prior agreement over what is moral. Again a purely subjective term. Moralists are not rational.

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