Comments on the Role of Theory

I have avoided posting on the financial crisis until now, not wanting to add more negativity to the bail-out proposals, however now it is clear it’s not preventing asset declines, I feel OK to use it as a jumping off point for a theoretical discussion on the role of theory.

Theory has an uneasy relationship to data, and this is no more evident than in economics and climate science. In particular, what you see in data is largely determined by your preconcieved theory, and even more so determine your actions. But if your theory is wrong, then your actions can make matters worse than if you had no theory at all.

For example, consider this comment by Ron Paul on the “Austrian” school of economics

F.A. Hayek won the Nobel Prize for showing how central banks’ manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day – and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion….

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection – a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end…. It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

It’s the same destructive strategy that government tried during the Great Depression: prop up prices all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The only thing we learn from history, I am afraid, is that we do not learn from history.

Doesn’t “forced credit expansion” sound like the bail-out plan? But the theory is embedded in the solutions.

Consider Mike “Mish” Shedlock’s post, Pushing on a String In Academic Wonderland.

Keynesian theory suggests the Fed is in a dreaded “liquidity trap”. The reality is there is no such thing as a “liquidity trap”, at least in Austrian economic terms. There is no trap, because it is impossible to prevent the liquidation of credit boom malinvestments.

Purging of bad debts must take place before a lasting recovery can begin. The mistake the Fed is making is attempting to force liquidity down the throat of a market that does not need it and cannot use it.

The credit markets are choking on credit, yet Bernanke is attempting to force more credit down everyone’s throats. Logic dictates the solution cannot be the same as the problem.

Trapped in academic wonderland, such simple logic is far too complex for Bernanke to understand. Sadly, we are all forced to watch Bernanke flop about like a fish out of water attempting to solve a solvency problem with ridiculous liquidity schemes like the TAF, PDCF, TSLF, TARP, and the ABCPMMMFLF.

On the climate front, Ferenc Miskolczi posted a relevant comment yesterday. Critics of his theory have been worried by the stated relationships of the observations to theory; especially the virial theorem and Kirchhoff’s Law.

Telling the truth, in the original versions of the manuscript only the empirical facts were presented. However, one Hungarian astrophysicist (reviewer of the Idojaras journal ) insisted on giving reference or theoretical support for the new equations. He accepted the Su=OLR/f based on the mathematical proof in the Appendix B , but he thought that the other relationships needs some kind of theoretical backing (Su=Ed/A, Su=3OLR/2, Su=2Eu (Earth) and Su=3OLR/(2+Ta) and Su=3Eu/(2(1-Ta)) (Mars). Since no reference existed in the literature for the above relationships I had to create the new ‘laws’. At that time I was not happy about his arguments since new empirical facts alone used to be published, but know I am very grateful to him that he forced me to look deeper into the reasonings behind the equations and found some theoretical explanation.

This is a fair and honest comment, but the reviewer was right also in demanding a context for the empirical relationships, as both observation and theory must agree in science. But as Ferenc then notes, this relationship is not always clear:

However, this is not a ‘perfect’ greenhouse theory, (in science nothing is settled forever, no matter what IPCC believes) but could be a contribution to the better understanding of the radiative processes in the atmosphere.

There are many instances of empirical relationships only given a strong theoretical basis decades or even centuries later. Manning’s formula comes to mind, a hydrological relationship in open channels developed by an Irish accountant two centuries ago that is still used today, and only recently was justified by chaotic flow considerations.

But what about greenhouse and economic theory? Does the current crisis ‘falsify’ the current economic model? What of the solution offered by Austrian economists — abolish the Fed and let the failing banks be absorbed into the big four? The only alternative seems to be liquidation via government resumption with consequent loss of shareholder equity anyway.

Does the stabilization of global temperatures ‘falsify’ the IPCC conclusions? If the sensitivity of temperature to CO2 doubling turns out to be below the lowest value of the IPCC forecast range (1.5C) shouldn’t the IPCC be abolished?

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0 thoughts on “Comments on the Role of Theory

  1. “Does the stabilization of global temperatures ‘falsify’ the IPCC conclusions? If the sensitivity of temperature to CO2 doubling turns out to be below the lowest value of the IPCC forecast range (1.5C) shouldn’t the IPCC be abolished?”

    No, because as Stock Market people so often tell you, every downturn is followed sooner or later by an upturn. Same with IPCC and Global Temperature – “It’s in the pipeline”. (But stored where in the pipeline?). The moment there is a swing – and probabilistically there will be – the crowing self-justification from the IPCC will be deafening.

    Seriously, a young chap selling me petrol, hailed from Russia, said “Governments require a constant state of fright. Unless they can keep the public frightened, they become ignored”. Not bad for a 23-year-old.

  2. “Does the stabilization of global temperatures ‘falsify’ the IPCC conclusions? If the sensitivity of temperature to CO2 doubling turns out to be below the lowest value of the IPCC forecast range (1.5C) shouldn’t the IPCC be abolished?”

    No, because as Stock Market people so often tell you, every downturn is followed sooner or later by an upturn. Same with IPCC and Global Temperature – “It’s in the pipeline”. (But stored where in the pipeline?). The moment there is a swing – and probabilistically there will be – the crowing self-justification from the IPCC will be deafening.

    Seriously, a young chap selling me petrol, hailed from Russia, said “Governments require a constant state of fright. Unless they can keep the public frightened, they become ignored”. Not bad for a 23-year-old.

  3. But Geoff, If you are going to argue that no evidence falsifies a theory, then whatever happens the theory is not divorced. Would ten years of recession defeat Keynesian economics? I don’t know, but thats what I mean about the uneasy relationship of data to theory. You would have to have a very promiscuous relationship to data to be like that. People who demand falsification are like the fundamentalists of science.

    Maybe the data are married to a model, maybe they don’t care about each other, or maybe flirting with some other theory. I get the distinct impression a lot of people don’t care about anything except self-justification these days. Perhaps as you say, governments are in an abusive relationship with the public, and there is no interest in theory anymore — only emotional kicks. The IPCC is very, very weak on theory. GCMs are very weak on theory, they can live with just about any reality you want to name.

  4. But Geoff, If you are going to argue that no evidence falsifies a theory, then whatever happens the theory is not divorced. Would ten years of recession defeat Keynesian economics? I don’t know, but thats what I mean about the uneasy relationship of data to theory. You would have to have a very promiscuous relationship to data to be like that. People who demand falsification are like the fundamentalists of science.

    Maybe the data are married to a model, maybe they don’t care about each other, or maybe flirting with some other theory. I get the distinct impression a lot of people don’t care about anything except self-justification these days. Perhaps as you say, governments are in an abusive relationship with the public, and there is no interest in theory anymore — only emotional kicks. The IPCC is very, very weak on theory. GCMs are very weak on theory, they can live with just about any reality you want to name.

  5. I won’t try sarcasm again. Serious now.

    You point about the uneasy relation between theory and data ia good. Maybe a working definition of a “good researcher” is one who closes the gap between theory and data. The famous people of science have done just that.

    Science and economics used to have a divide. With science, or more correctly matematics, starting with 1+1 =2, one can build a structure which can be examined from all angles and honed so nobody more can find a fault (at least for the moment).

    With economics, however, the data go through an extra phase, which is interreaction with a populace. It is well documented that a populace can (and does) behave irrationally, so there is an extra dimension to overcome before acceptance of a “good” economic theory. It has to be people proof. To date, none has been.

    Climate science is in a nether world at the moment because the past standards of purer science are being weakened by a process like the interreaction with an irrational populace. In this case the irrational populace includes some of the climate scientists.

    It is therefore difficult on a single blog to talk of pure subjects like mathematics, fairly pure subjects like bench chemistry, then a big jump to climate science and an even bigger jump to economics.

    Maybe one can devise an acceptable unison between these 4 examples and maybe it will increase understanding. Don’t let me dissuade you. My guess is that there are unsurmountable difficulties arising from imperfect information and the vagaries of human behaviour.

    I will not understand theories involving interaction with the populace until I understand what causes people to slaughter each other with amazing frequency through the process called warfare. That will not be in my lifetime.

  6. I won’t try sarcasm again. Serious now.

    You point about the uneasy relation between theory and data ia good. Maybe a working definition of a “good researcher” is one who closes the gap between theory and data. The famous people of science have done just that.

    Science and economics used to have a divide. With science, or more correctly matematics, starting with 1+1 =2, one can build a structure which can be examined from all angles and honed so nobody more can find a fault (at least for the moment).

    With economics, however, the data go through an extra phase, which is interreaction with a populace. It is well documented that a populace can (and does) behave irrationally, so there is an extra dimension to overcome before acceptance of a “good” economic theory. It has to be people proof. To date, none has been.

    Climate science is in a nether world at the moment because the past standards of purer science are being weakened by a process like the interreaction with an irrational populace. In this case the irrational populace includes some of the climate scientists.

    It is therefore difficult on a single blog to talk of pure subjects like mathematics, fairly pure subjects like bench chemistry, then a big jump to climate science and an even bigger jump to economics.

    Maybe one can devise an acceptable unison between these 4 examples and maybe it will increase understanding. Don’t let me dissuade you. My guess is that there are unsurmountable difficulties arising from imperfect information and the vagaries of human behaviour.

    I will not understand theories involving interaction with the populace until I understand what causes people to slaughter each other with amazing frequency through the process called warfare. That will not be in my lifetime.

  7. Hi Geoff, I suppose I am a theory fundamentalist because when I did research I would write 4/5ths of the paper first, then fill in the data with the experiment. That way, I wouldn’t lose focus on what I was trying to do or test.

    I don’t think for a moment that falsifications like falling temperatures or stockmarkets are going to cause people to question their theories or assumptions. But I think that is part of where the frustrations in dealing with these people (also known as scientists) comes from.

    If the response of CSIRO to accusations that their scientists are reporting results completely at variance with actual data (the DECR), is to beef up the legal disclaimers so they are covered against misrepresentation, then that tells you something, does it not?

  8. Hi Geoff, I suppose I am a theory fundamentalist because when I did research I would write 4/5ths of the paper first, then fill in the data with the experiment. That way, I wouldn’t lose focus on what I was trying to do or test.

    I don’t think for a moment that falsifications like falling temperatures or stockmarkets are going to cause people to question their theories or assumptions. But I think that is part of where the frustrations in dealing with these people (also known as scientists) comes from.

    If the response of CSIRO to accusations that their scientists are reporting results completely at variance with actual data (the DECR), is to beef up the legal disclaimers so they are covered against misrepresentation, then that tells you something, does it not?

  9. The need, the driver, is the need to survive. — People, like microprocessors, are interrupt driven, by Fear. — “Only the paranoid survive. ” — Paranoia Schizophrenia, need is the reason for this pair. — Over-reaction, or the necessity, compensating for sparse information ?

    Eco-Fraudsters, fooling, crying wolf, at the sight of a lost sheep, making safe bets, over-reacting, Doing the survival thing ? — Or just lining their pockets, the fashionable , IPCC, ManPigBear, informing the EcoZombie ?

  10. The need, the driver, is the need to survive. — People, like microprocessors, are interrupt driven, by Fear. — “Only the paranoid survive. ” — Paranoia Schizophrenia, need is the reason for this pair. — Over-reaction, or the necessity, compensating for sparse information ?

    Eco-Fraudsters, fooling, crying wolf, at the sight of a lost sheep, making safe bets, over-reacting, Doing the survival thing ? — Or just lining their pockets, the fashionable , IPCC, ManPigBear, informing the EcoZombie ?

  11. Re admin at 4, attempts to avoid legal liability cause me to write letters to Prime Ministers, in Mandarin if needed, which I shall do if my futher homework supports the initial impressions. A real test was commenced this evening. I sent some data. I wait to see what will be done in theory.

  12. Re admin at 4, attempts to avoid legal liability cause me to write letters to Prime Ministers, in Mandarin if needed, which I shall do if my futher homework supports the initial impressions. A real test was commenced this evening. I sent some data. I wait to see what will be done in theory.

  13. On the connection between data and theory, a quite deep lesson can be learned from the following frivolous cartoon.

    There is a change in the volume of ladies’ underwear that has a strong visual correlation with time. What can we hypothesise from this diagram? Just above, I mentioned 4 groups in society who reactions were typically different. Let’s use them again.

    The “mathematical” scientist would dismiss it on the basis of a change of preferred female fashion and maybe note that although there was some interest, it lacked the challenge to get into it seriously.

    The “hard” scientist might also note the correlation and wonder how it would be possible to measure actual volumes. He might wonder if all were worn in the winter or all in the summer, that is, were there Time of Years corrections to be made (“TOYS”). This scientist might conclude that a simulation or stimulation experiment might be non-serious fun, laugh at it and then leave it.

    The “climate scientist” might assume that there was visual evidence that the volume change had a component of climate change, or that the diagram was suggestive. Proxies are in shorts supply. Why, in cases going back to Pompeii, reconstructions of the garments were possible; there was a calibration period in the thermometer era replete with photography and literature descriptions. Sometimes the thermometer was inside the garment, with a reduction in noise. So, there might be some smoothing and end padding, a search for a low-pass filter, “adjustment” to make the garments fit better, weightings applied to the principal components. Since all wearers could not be assumed to be of constant mass, there would be a need for a supercomputer-model calibration.

    The final “group” is the general public and its irrational behaviour. A part of the world would be offended by just the cartoon, because women are supposed to be covered from head to foot. Irrational. A portion of the public that is sometimes called the troublesome 3% by pollsters would believe that the graph was correct and would form irrational conclusions. Economists, seeing that the thong worked well in practice, would wonder how it worked in theory. Irrational. Many people in underdeveloped countries would not even recognize the items pictured. Many people in developed countries might not recognise them either. So it is irrational to ask their deductions.

    My personal reaction is also irrational. I figure a pantaloon left leg saying to a right leg, “Between you and me, this smells”. But then I’m Aussie.

    Admin, our minds are different. My career approach has been to sketch the hypothesis, do the experiment, get the numbers, verify them, analyse them, explain the initially inexplicable, then finally write up the results with strong caveats. I cannot recall ever having written up most of the postulate before gathering the data.

    That’s odd. Maybe it’s why you are more successful than I am. I’m backwards.

  14. On the connection between data and theory, a quite deep lesson can be learned from the following frivolous cartoon.

    There is a change in the volume of ladies’ underwear that has a strong visual correlation with time. What can we hypothesise from this diagram? Just above, I mentioned 4 groups in society who reactions were typically different. Let’s use them again.

    The “mathematical” scientist would dismiss it on the basis of a change of preferred female fashion and maybe note that although there was some interest, it lacked the challenge to get into it seriously.

    The “hard” scientist might also note the correlation and wonder how it would be possible to measure actual volumes. He might wonder if all were worn in the winter or all in the summer, that is, were there Time of Years corrections to be made (“TOYS”). This scientist might conclude that a simulation or stimulation experiment might be non-serious fun, laugh at it and then leave it.

    The “climate scientist” might assume that there was visual evidence that the volume change had a component of climate change, or that the diagram was suggestive. Proxies are in shorts supply. Why, in cases going back to Pompeii, reconstructions of the garments were possible; there was a calibration period in the thermometer era replete with photography and literature descriptions. Sometimes the thermometer was inside the garment, with a reduction in noise. So, there might be some smoothing and end padding, a search for a low-pass filter, “adjustment” to make the garments fit better, weightings applied to the principal components. Since all wearers could not be assumed to be of constant mass, there would be a need for a supercomputer-model calibration.

    The final “group” is the general public and its irrational behaviour. A part of the world would be offended by just the cartoon, because women are supposed to be covered from head to foot. Irrational. A portion of the public that is sometimes called the troublesome 3% by pollsters would believe that the graph was correct and would form irrational conclusions. Economists, seeing that the thong worked well in practice, would wonder how it worked in theory. Irrational. Many people in underdeveloped countries would not even recognize the items pictured. Many people in developed countries might not recognise them either. So it is irrational to ask their deductions.

    My personal reaction is also irrational. I figure a pantaloon left leg saying to a right leg, “Between you and me, this smells”. But then I’m Aussie.

    Admin, our minds are different. My career approach has been to sketch the hypothesis, do the experiment, get the numbers, verify them, analyse them, explain the initially inexplicable, then finally write up the results with strong caveats. I cannot recall ever having written up most of the postulate before gathering the data.

    That’s odd. Maybe it’s why you are more successful than I am. I’m backwards.

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