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Algorithms Are Fine — Until Governments Use Them Against Us

February 3, 2018 in Economics

By Robert A. McKeown

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By: Robert A. McKeown

If you’re a frequent user of social media platforms you’ve probably noticed something akin to being watched or even monitored. Suddenly, an advertisement appears for a product you might have reviewed on Amazon or eBay. A series of videos appears to the right of your YouTube page relating to something you’ve watched days earlier. Facebook only shows you news feeds for posts you may have interacted with and ignores all of your other friends. The examples go on and on.

The answer lays in algorithms. These are logical mathematic equations which are designed to produce a certain outcome. A simple example would be if A>B and B>C then A>C. Putting it another way, if John prefers bananas to oranges and oranges to apples, then John prefers bananas to apples. But, does he always?

Positivism in Economics

In the study of economics, the Chicago school, Harvard, and MIT have long been advocates of what is known as economic positivism. This mathematical model-based theory of economics relies on certain normative and also certain positive assumptions. If an anomaly doesn’t fit the normative assumption, it is simply ignored. The economist continues ignoring certain “outliers” and comes to some definitive conclusion. These conclusions are then implemented as public policy by the state or banking institutions, like the Federal Reserve. Not unlike the algorithms used by social media, economic positivism is almost entirely mathematically based and relies heavily on “all things being equal” or better put, “all things being quantifiable.”

Just like in our above example, how can an economist quantify John’s taste in fruit? In proper economic terms, how can an economist quantify a utility? That is, how can an economist assign a numerical value to someone’s satisfaction or preferences? But, that is what the mainstream has been doing for over 100 years.

By making certain “one size fits all” assumptions, mainstream economics has been treating consumers as herd animals. This “feed at the trough” mentality ignores the individual in the vastness of the market. They do so because our myriad of different preferences and choices are not quantifiable. It would be an impossible task to mathematically reduce all of our choices and preferences to a simple equation. But, by dismissing individuality, mainstream economics can positively determine the success or failure of public policy decisions. Ergo, we end up with housing bubbles, bond market bubbles, college loan bubbles, stock market bubbles, and on …read more

Source: MISES INSTITUTE

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