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Austrian Economics: A Panglossian Disorder

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Austrian Economics: A Panglossian Disorder

Postby Le Fou » Sat Jan 07, 2012 2:02 pm

The well-meaning desire to discover in the bourgeois world the best of all possible worlds replaces in vulgar economy all need for love of truth and inclination for scientific investigation. ~ Karl Marx

In Plato’s Euthyphro, Socrates poses the question: “Is the pious loved by the gods because it is pious? Or is it pious because it is loved by the gods?” Socrates concludes that it must be for the first reason. He says it can’t be for the second reason because the gods must love piety for a trait that it has in itself. Some later philosophers, however, disagreed. Chief among them was Gottfried Wilhelm Leibniz. Leibniz maintained that since God is good by definition, whatever God does is for the best. And since everything that happens in this world is ultimately determined by God’s actions, then it necessarily follows that we live in the “Best of All Possible Worlds.”

This idea was famously derided by Voltaire in his novella Candide. Leibniz’s ideas are embodied in the character Pangloss, whose overwhelming optimism leads him to continually conclude in the face of the worst misfortunes that “all is for the best in the best of all possible worlds.” The doctrine has been known as Panglossianism ever since.

Now let's take things down from the level of the gods and into the realm of human action. Might not the Euthyphro dilemma apply here as well? What can we say about what we choose? Do we choose it because we think it is good for us? Or is it good for us because we choose it? I think we are all inclined initially to choose the first option. After all, this is how we experience things. We think something is good for us, we choose it. But then a new question arises: Do we always choose what is good for us? To this question, many people have answered yes. Many of these people seem to ascribe to Austrian Economics. What they assume is that we always choose what is good for us is equally true if we reverse it: what we choose is always good for us. Thus we have arrived back at the Panglossian position.* Consider, for example what Hans-Hermann Hoppe says about the market: "Pareto-optimality is not only compatible with methodological individualism; together with the notion of demonstrated preference, it also provides the key to (Austrian) welfare economics and its proof that the free market, operating according to the rules just described, always, and invariably so, increases social utility, while each deviation from it decreases it."

To this day, Austrian Economists continue to adhere to this Panglossianism and apply it everywhere in defense of the “free market.” Try asking them if sweatshop labor is good for the workers, and they will exclaim, “well, they chose to work there, didn’t they?” Try telling them that CEO’s are paid too much and they’ll say, “well, that’s the rate the market determines, isn’t it?” Try asking them if Wal-Mart is beneficial to society and they will say, “people shop at Wal-Mart, so it must be beneficial to society.” For the Austrian Economist, the free market is the best of all possible worlds. Property is merely the accumulation of past choices. So as long as people’s choices and property aren’t restrained or interfered with, all is for the best in this best of all possible worlds.

This Panglossianism isn’t confined to economics. It has also found its way into psychology. It appears there under the name behaviorism.# The behaviorists believe that “all things that organisms do—including acting, thinking, and feeling—can and should be regarded as behaviors” (Wikipedia). We can tell what is good for an organism by what it does. A famous joke sums up behaviorism pretty well:

Two behaviorists have sex. Afterwards, one turns to the other and says, “That was good for you: how was it for me?”

For the behaviorist, “did you like doing that?” is a pointless question, because if you did it, then you must have liked it. The logical conclusion of this tautology is that I don’t have to worry about what I choose since whatever I choose is good for me! And this is exactly what the Austrian Economist is doing when he proclaims the free market the best of all possible worlds. Despite following a theory in which value is supposed to be subjectively determined, the Austrian Economist finds himself suspiciously incapable of making subjective determinations about something's value. Instead of using his multi-faceted capacity for judgment to determine whether Wal-Mart is beneficial to people, he concludes dogmatically (oops, axiomatically) that it must be beneficial from the objective fact that people choose to shop there. True, society doesn't value something as such. But each of us subjectively determines whether things benefit others or not. The fallacy is not that the behaviorist judges that something is good for you, but that he discounts the idea that asking “how was it for you?” aids in such a judgment.

The Austrian thinks that he applies his axiom consistently everywhere, but he in fact reverses himself when he judges that his policies would be the best for everyone. That is, he says that people would be better off if they did what they aren’t doing rather than what they are doing, but his praxeological definition requires him to say that our current choices are better than the unchosen alternatives. The Austrian uses his axiom to support the free market, but in truth the free market doesn’t allow any more choices than totalitarianism does. Whether you’re slave or free doesn’t change the fact that you are still making choices all the time, and thus still living in the best of all possible worlds.

The Austrian thinks he can resolve this problem by employing a second axiom, which is the flip side of the first, that whatever affects me (or my property!) without my choosing is bad for me. This is known as the NAP (Non-Aggression Principle). Let’s consider some of the implications of this tautology. If my friends sneak into my house and throw me a surprise birthday party, that's bad for me. When someone pushes me out of the way of an oncoming car, that's bad for me. When someone destroys my house, that’s bad for me; but when the owner destroys his house that I’m squatting, that’s not bad for me. When I talk to someone else, that's good for me; but when they talk to me, that's bad for me (appropriately, when I employed this argument my opponent could only respond with silence). Something is always happening to me outside of my choice. So we must paradoxically conclude that we live in the worst of all possible worlds and all is for the worst.

If choice is conflated with what is good for oneself, then there is no way I can do something good for another person. It is a world in which by definition we are completely antagonistic to each other.

The Austrian Economist says that A is not A. She says that good is something other than good—that good is choice. But good and choice are two distinct concepts. I know that I don’t always choose what I think is good for me because sometimes I choose without thinking. If I walk out into the street without looking and get hit by a car, I chose to step in front of an oncoming car, but I made this choice without thinking of stepping in front of a car. Mises said: “Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life.” The truth is that human action is not always purposeful behavior. A large portion of our actions are performed by instinct or without knowledge of the entirety of what we are choosing. This can apply to a wide range of human actions—including those that take place in the market.

Let’s put it better: good sometimes appears as choice; or good takes the form of choice. We might use choice to help us determine what is good for someone, but it cannot be the sole criteria. If my friend chooses to smoke, I may conclude that she enjoys something about smoking, but given my knowledge of the effects of smoking, I cannot say that it is good for her. Her choice in this instance does not outweigh other factors. On the other hand, if she chooses to eat chocolate, I can probably safely conclude that eating chocolate is good for her, as eating chocolate generally isn’t harmful. Now I know how you’re going to answer, “so you want to forcibly stop people from smoking!” Not so fast! We also have to evaluate whether using force to stop my friend from smoking is beneficial to her. It is not contradictory to say that my friend’s smoking is bad for her and my stopping her is also bad for her. So the Panglossian statement, “it is good for us because we choose it” is not categorically false nor is it categorically true. Its truth is relative to context.

I maintain that I have the power to judge whether someone's choices are good for him or her. If I can't do that, then I must maintain that communication doesn't exist, and that other people are completely unknowable. Let's say I have a friend who is allergic to peanuts and who has never been to a Thai restaurant. One day I take her out to one and she orders satay. Since I know that satay has peanuts, I can judge that her choice is bad for her. Yes, I am saying that sometimes I know what’s best for you better than you do. This kind of thing is a lot more common than you would think. Consumers have very little knowledge as to what their choices are doing. Despite what they tell you, prisoner’s dilemmas actually do occur in real life. But these apologists of capitalism ignore Voltaire’s conclusion that “we must cultivate our garden.” Instead, they delve ever further into sophistry and doublethink: “Don't worry about it, the market will take care of it—all is for the best in the best of all possible worlds.”

The whole project of Austrian Economics is rotten to the core.



*In the original Euthyphro dilemma, if the gods only loved the pious, then it might be reasonable to conclude that it is pious because it is loved by the gods.

#Interestingly, Knight Dunlap suggested the term praxeology for the school of psychology that would become behaviorism. However, John B. Watson, the founder of behaviorism, rejected the term.
Last edited by Le Fou on Mon Jan 09, 2012 10:59 pm, edited 2 times in total.
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Postby Pedro E. » Sat Jan 07, 2012 2:21 pm

I just skimmed your post, but it seems you compared praxeology to behaviorism. Praxeology is contrary to behaviorism.

I'll read it more carefully later though. I'm too sleepy right now and your post is too long.
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Re:

Postby Le Fou » Sat Jan 07, 2012 2:33 pm

Pedro E. wrote:I just skimmed your post, but it seems you compared praxeology to behaviorism. Praxeology is contrary to behaviorism.

If one person claims that everything is white and another claims that everything is black, they are indeed contrary positions, but they make the same error. It is the error of monism.

The behaviorist says that our actions determine all of our thoughts. The praxeologists simply reverses that and says our thoughts determine all of our actions. The truth is that our thoughts and actions interact dialectically. Neither is universally dominant over the other.
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Postby Pedro E. » Sat Jan 07, 2012 3:04 pm

Ok, I read most of your post, and I must say I basically agree with you. Where I disagree is that I don't think this objection is fatal to AE. In fact, I think it's a logical conclusion of AE, as this article tries to show.

Anyway, I don't think the proposition "we always choose that which we think is good for us" necessarily conflates choice with good. The good is logically prior to the choice. Non-choosing animals (and even plants) also have a good to aim at, even if they're unable to choose means to achieve it. So the choice must necessarily be for the sake of the good, not the opposite.

I do think there is something like "knowingly choosing the bad" (which is called akrasia), but I think that proposition employs a psychological sense of knowledge, not a praxeological one. So it shouldn't bother praxeology.

Another problem that I saw is that you talked about choosing "to get hit by a car" without knowing the car is coming. I don't think that makes any sense.

The behaviorist says that our actions determine all of our thoughts. The praxeologists simply reverses that and says our thoughts determine all of our actions.


Not really. Praxeology is not guilty of psychological determinism, in my opinion. Praxeology is not about causal laws such as "I have a motive X for doing Y which causes my doing Y". Praxeology says something like "I have a motive X for doing Y which *constitutes* my doing Y".

That is, the motive for doing Y has a conceptual connection with the action, not a causal one.
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Re: Austrian Economics: A Panglossian Disorder

Postby ctmummey » Sun Jan 08, 2012 2:30 am

One of those people was the Austrian Economist Ludwig von Mises. If Mises is right, then we always choose what is good for us is equally true if we reverse it: what we choose is always good for us. Thus we have arrived back at the Panglossian position.*


Not sure I agree w/your logic here. Isn't Mises saying we choose what is good for us amongst the choices available? If you reverse that you are saying something different, right? (Leaving aside what he would mean by 'good' - if he uses this term I'd think he'd mean good=shit we want)
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Re: Re:

Postby Francois Tremblay » Sun Jan 08, 2012 2:37 am

Le Fou wrote:The behaviorist says that our actions determine all of our thoughts. The praxeologists simply reverses that and says our thoughts determine all of our actions. The truth is that our thoughts and actions interact dialectically. Neither is universally dominant over the other.


Actually, they're both completely wrong.
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Re: Austrian Economics: A Panglossian Disorder

Postby NoPast » Sun Jan 08, 2012 3:08 am

Austrian economics is terrible and blows down to "X is true because Mises/Hayek/Rothbard said so" ...but c'mon they are easy target and very few take them seriously outside mises.org and the right-libertarian blogosphere

WHat about mainstream economics?They give their discipline an aura of scientific rigor that they do not possess, and often serves to allow economists to obfuscate un-empirical normative claims under the guise of a positive field (with an ample dose of technical language and mathematics to impress people who assume anything written in a mathematically rigorous manner is very Impressive and Scientific).

Obviously the purpose of mainstream economics(in both the neoclassical and NeoKeynesian forms) is to serve as rationalization for the various bogus claim pro-status quo like "we need the state AND capitalism"

Luckily, more and more people are taking the view that mainstream economics is not a science. To be sure, there are still quite a few people who look and see ALL THAT THERE FANCY MATH LOOKIN STUFF, are dazzled by it, and then dig in their feet and decide that economics is a hard empirical science, but those people are becoming fewer and fewer in my view.
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Re:

Postby Le Fou » Sun Jan 08, 2012 8:39 pm

Pedro E. wrote:Ok, I read most of your post, and I must say I basically agree with you. Where I disagree is that I don't think this objection is fatal to AE. In fact, I think it's a logical conclusion of AE, as this article tries to show.

Anyway, I don't think the proposition "we always choose that which we think is good for us" necessarily conflates choice with good. The good is logically prior to the choice. Non-choosing animals (and even plants) also have a good to aim at, even if they're unable to choose means to achieve it. So the choice must necessarily be for the sake of the good, not the opposite.

I do think there is something like "knowingly choosing the bad" (which is called akrasia), but I think that proposition employs a psychological sense of knowledge, not a praxeological one. So it shouldn't bother praxeology.

Another problem that I saw is that you talked about choosing "to get hit by a car" without knowing the car is coming. I don't think that makes any sense.

Thanks, for your reply. I have to admit that I haven't read much of Mises or the other big name Austrians. That's why I'm posting it here first, so I can get some feedback as to whether my characterizations are accurate. I'll look at that Long piece. My impression is that he is one of the more reasonable "praxeologists." I think I get what you are saying about choice. We can define it in different ways. But what I see from Misesians is that they equivocate on the term. I linked to several examples in my post. To the accusation that Wal-Mart puts mom-and-pop stores out of business, they say that we chose to put the mom-and-pop out of business. But in reality, we may not see how our individual choices do that. We only chose to put the mom-and-pop out of business in the same sense that we chose to step in front of an oncoming car. Such a definition of choice cannot be used to justify markets. Are there praxeologists that don't support markets?
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Re: Austrian Economics: A Panglossian Disorder

Postby Le Fou » Sun Jan 08, 2012 8:41 pm

ctmummey wrote:
One of those people was the Austrian Economist Ludwig von Mises. If Mises is right, then we always choose what is good for us is equally true if we reverse it: what we choose is always good for us. Thus we have arrived back at the Panglossian position.*


Not sure I agree w/your logic here. Isn't Mises saying we choose what is good for us amongst the choices available? If you reverse that you are saying something different, right? (Leaving aside what he would mean by 'good' - if he uses this term I'd think he'd mean good=shit we want)

You may be right that it is not logical to invert it that way. The thing, this is what I see Misesians do all the time.
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Re: Austrian Economics: A Panglossian Disorder

Postby Francois Tremblay » Mon Jan 09, 2012 12:44 am

The concept of "choice," if taken literally, is meaningless anyway, so there's no point in founding a whole ideology on it. It's just a metaphor for the variety of reactions that human beings have to the same stimuli.
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Re: Austrian Economics: A Panglossian Disorder

Postby ctmummey » Mon Jan 09, 2012 6:31 am

If taken literally??? Stimuli??? What have you been reading that put you on this reductionist kick?
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Postby Pedro E. » Mon Jan 09, 2012 7:28 am

My impression is that he is one of the more reasonable "praxeologists."


I completely agree.

But what I see from Misesians is that they equivocate on the term.


I agree that they usually equivocate on the term, since they usually follow Mises in being value subjectivists.

To the accusation that Wal-Mart puts mom-and-pop stores out of business, they say that we chose to put the mom-and-pop out of business. But in reality, we may not see how our individual choices do that. We only chose to put the mom-and-pop out of business in the same sense that we chose to step in front of an oncoming car.


Did they really say something like that? I think they were probably just saying that "mom-and-pop going out of business" is a consequence of you choosing to buy in wal-mart instead of buying in their shop.

Such a definition of choice cannot be used to justify markets.


I believe you're right only because I believe you cannot justify anything whatsoever with a subjective conception of value.

Are there praxeologists that don't support markets?


I don't think so. But there are praxeologists that give good reason to support markets, without the flawed subjectivism of Mises.
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Re: Austrian Economics: A Panglossian Disorder

Postby ProstheticConscience » Mon Jan 09, 2012 12:18 pm

NoPast wrote:WHat about mainstream economics?They give their discipline an aura of scientific rigor that they do not possess, and often serves to allow economists to obfuscate un-empirical normative claims under the guise of a positive field (with an ample dose of technical language and mathematics to impress people who assume anything written in a mathematically rigorous manner is very Impressive and Scientific).

Yes, I think neoclassical economics is a much more serious target than Austrian economics, which is more or less a mystery cult. I mean, neoclassical economics is actually concrete enough to be wrong.
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Re: Austrian Economics: A Panglossian Disorder

Postby ctmummey » Mon Jan 09, 2012 3:42 pm

NoPast wrote:Austrian economics is terrible and blows down to "X is true because Mises/Hayek/Rothbard said so" ...but c'mon they are easy target and very few take them seriously outside mises.org and the right-libertarian blogosphere


What a pair of shitty statements. No serious Austrian scholar lady or fellow just says, "Mises is right". I could take that sentence and replace Austrian w/progressive and Rothbard w/Krugman and right-lobs would be lapping it up. Secondly, the idea that any ideology or movement is not worthwhile because very few people take it seriously is a great way to legitimize the establishment and to circumscribe political and/or economic discussions to what the ruling class deems acceptable. :)
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Re: Austrian Economics: A Panglossian Disorder

Postby neverfox » Mon Jan 09, 2012 6:40 pm

Do we always choose what is good for us? To this question, many people have answered yes. One of those people was the Austrian Economist Ludwig von Mises.

Citation?
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Re:

Postby Le Fou » Mon Jan 09, 2012 9:47 pm

Pedro E. wrote:Did they really say something like that? I think they were probably just saying that "mom-and-pop going out of business" is a consequence of you choosing to buy in wal-mart instead of buying in their shop.

Well, I might be inferring a bit into their statements considering what they've said elsewhere. But they did say things like:

"Whatever voluntary action/exchange transpires in the market is, by definition, better (more strongly preferred) for the parties involved than the action/exchange that did not happen."
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Re: Austrian Economics: A Panglossian Disorder

Postby Le Fou » Mon Jan 09, 2012 11:02 pm

neverfox wrote:
Do we always choose what is good for us? To this question, many people have answered yes. One of those people was the Austrian Economist Ludwig von Mises.

Citation?

Admittedly, I haven't found a clear and concise one from Mises himself. Until I do, I've edited it to include this quote from Hoppe: "Pareto-optimality is not only compatible with methodological individualism; together with the notion of demonstrated preference, it also provides the key to (Austrian) welfare economics and its proof that the free market, operating according to the rules just described, always, and invariably so, increases social utility, while each deviation from it decreases it."

Interestingly, the article I found the quote from also compares AE to behaviorism:

The crucial assumption - shared by both Mises and Rothbard - is that no preference can exist which cannot be revealed in action. But why assume this? Is this not a peculiar importation of behaviorism into a body of economic thought which purports to be militantly anti-behavioral? Thus, in his introduction to Mises' Theory and History, Rothbard tells us that:

One example that Mises liked to use in his class to demonstrate the difference between two fundamental ways of approaching human behavior was looking at Grand Central Station behavior during rush hour. The "objective" or "truly scientific" behaviorist, he pointed out, would observe the empirical events: e.g., people rushing back and forth, aimlessly at certain predictable times of day. And that is all he would know. But the true student of human action would start from the fact that all human behavior is purposive, and he would see the purpose is to get from home to the train to work in the morning, the opposite at night, etc. It is obvious which one would discover and know more about human behavior, and therefore which one would be the genuine 'scientist.'[18]

Just as there is more to my action than my behavior, there is more to my preferences than my action. I can have all sorts of preferences that are not - and could not be - revealed in action. For example, my preference for ice cream yesterday can no longer be revealed, since I had no ice cream yesterday and any present action regarding ice cream would merely reveal a present preference for it, not a past one. And yet, I have introspective knowledge of my ice cream preferences from yesterday. Similarly, I can never reveal my preference for products at prices other than the market price, but by introspection I can know them.

In precisely the same way, I can know some cases in which I am indifferent. I am often indifferent between the colors of clothes; though I pick one color, I know that I would have picked the other if the prices were not equal. The behaviorist might deny the reality of my mental states, but clearly that is not the route Mises or Rothbard would want to take. Indeed, Mises and Rothbard themselves use hypothetical preferences in other contexts. The interaction of supply and demand let us observe but a single point - the equilibrium price and quantity - but nevertheless Rothbard draws demand curves showing the quantity desired at all possible prices. Similarly, one can only observe that I choose a green sweater; but this does not rule out the possibility that I was actually indifferent between the green sweater and the blue sweater.

[...]

There is however a more serious flaw in Rothbard's welfare economics - a flaw which again flows from his behaviorist insistence that only preferences demonstrated in action are real. Thus, Rothbard rejects the argument that the envy of a third party vitiates the principle that voluntary exchange increases social utility: "We cannot, however, deal with hypothetical utilities divorced from concrete action. We may, as praxeologists, deal only with utilities that we can deduce from the concrete behavior of human beings. A person's 'envy.' unembodied in action, becomes pure moonshine from a praxeological point of view... How he feels about the exchanges made by others cannot be demonstrated unless he commits an invasive act. Even if he publishes a pamphlet denouncing these exchanges, we have no ironclad proof that this is not a joke or a deliberate lie."[22] Indeed, Rothbard could have taken this principle further. When two people sign a contract, do they actually demonstrate their preference for the terms of the contract? Perhaps they merely demonstrate their preference for signing their name on the piece of paper in front of them. There is no "ironclad proof" that the signing of one's name on a piece of paper is not a joke, or an effort to improve one's penmanship.

Rothbard's refusal to acknowledge unobserved preferences would have to impress even B.F. Skinner. What possible reason could we have to believe that utility is "moonshine" unless expressed in concrete actions? At every moment, by introspection we are aware of preferences unrevealed by our behavior. Figuring out the mental states of other people is obviously more difficult, but that hardly shows that their mental states do not exist. The statist could easily reverse Rothbard's objection, and claim that since there is no "ironclad proof" that third parties do not object to other people's voluntary exchanges, it is impossible to say whether that they increase social utility. Thus, Rothbard's welfare economics terminates in agnosticism about not only the benefits of intervention but the benefits of voluntary exchange.
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Postby Pedro E. » Tue Jan 10, 2012 2:12 am

Whatever voluntary action/exchange transpires in the market is, by definition, better (more strongly preferred) for the parties involved than the action/exchange that did not happen.


The only problem I see here is the conflation of "better" with "more strongly preferred". I agree with AE that an exchange only occurs because both parties value the other one's item more than their own. But I deny that people's preferences are always identical with what is good for them.


And about the caplan article, I think he misses the target. It's not that the austrian economist denies psychological preferences. It's just that psychological preferences are irrevelant for economics. And there can be no indifference when we're talking about praxeological preference.

There was a very interesting debate (second post has all the links) between caplan and the austrians from MI. I highly recommend it.
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Re: Austrian Economics: A Panglossian Disorder

Postby Francois Tremblay » Wed Jan 11, 2012 6:19 pm

You tricked us into looking at a Bryan Caplan article. That's almost like being Rickrolled. Dammit.
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Re: Austrian Economics: A Panglossian Disorder

Postby shawnpwilbur » Wed Jan 11, 2012 9:00 pm

Every time I see this thread title, I want a "panglossian disorder" to be "the best of all possible disorders." But I know all too well that Austrian economics is not that. And I am sad... :cry:
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Re: Austrian Economics: A Panglossian Disorder

Postby ctmummey » Thu Jan 12, 2012 1:37 am

haha. what would be the best of all possible disorders? being normal?
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Re: Austrian Economics: A Panglossian Disorder

Postby Birthday Pony » Thu Jan 12, 2012 1:41 am

Addiction to opiates.
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Re: Austrian Economics: A Panglossian Disorder

Postby ProstheticConscience » Thu Jan 12, 2012 11:53 am

Hypomania.
What if capitalism is unsustainable, and socialism is impossible? We're fucked, that's what. - Ken MacLeod

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Re: Austrian Economics: A Panglossian Disorder

Postby neverfox » Thu Jan 12, 2012 1:44 pm

Birthday Pony wrote:Addiction to opiates.

Not until someone develops a readily-available selective kappa opioid antagonist. But I think I'd much prefer safe, sustainable entactogen-empathogens along the lines of MDMA that can be taken daily without the negative side-effects.
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A positive and scientific morality, we have said, can give the individual this commandment only: Develop your life in all directions, be an "individual" as rich as possible in intensive and extensive energy; therefore be the most social and sociable being. (Jean-Marie Guyau)
If you can read this, you are the resistance.
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Re: Austrian Economics: A Panglossian Disorder

Postby Birthday Pony » Thu Jan 12, 2012 8:30 pm

The only negative side effect of opiates is death, which will happen anyway. So let's do this! Okay? Okay. I've got the kool-aid.
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