03/08/2016 How Mathematics Can Make Smart People Dumb

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How Mathematics Can Make Smart

People Dumb
Jan 2016

How Mathematics Can Make Smart

People Dumb
ises Daily: Friday, July 01, 2011 by Ben O'Neill

M Mathematics can sometimes make smart people dumb. Let me explain

what I mean by this. I don't mean that it is dumb not to be good at
mathematics. After all, mathematics is a highly abstract and challenging discipline
requiring many years (decades even) of study, and there are plenty of very smart
people who have little understanding of it, and little ability to use it. What I mean is
that mathematics quite often bamboozles people into accepting very silly arguments
? arguments that are so silly that if you stated them without draping them in
mathematical negligee, you would instantly become an object of ridicule to all those
people who 〄unked out at basic algebra back in high school.

The danger of mathematical arguments is that a person can sometimes follow an

absurd path of reasoning without being alerted to its absurdity, due to the fact that
their mind is so lost in the verbiage of mathematical equations that their common
sense fails to penetrate it. As a statistics teacher, I have to guard against this
problem constantly in my students.[1] One of the main di刀culties in teaching
applied mathematics is that students can become bamboozled by the mathematical
machinery they are using, to the detriment of their ability to reason sensibly about
the nature of the problem that the mathematics is designed to describe.

One of the most common errors in applied mathematical analysis is to fail to notice
when a mathematical argument [proves too much]
(http://en.wikipedia.org/wiki/Provingtoomuch). This occurs when the same
argument can be deployed more generally than in the particular case being
considered, and in other cases where it can be deployed it leads to conclusions that
are clearly absurd.[2] Though this can occur more generally ? in nonmathematical
reasoning ? it is a particularly acute danger in applied mathematics, due to the fact
that understanding mathematical arguments generally requires a high level of
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training and intellectual e唀ort. It is very easy to get lost in equations and theorems
and fail to see the forest for the trees.

An Example of Applied Mathematics

Going Horribly Wrong
Let me give you an example of this phenomenon in action. The Australian
government recently announced that it will attempt to enact legislation to impose a
tax on industrial carbon-dioxide emissions, with some of the revenue being
earmarked as compensation for a唀ected consumers. At a pro-government political
rally in Sydney, a young activist proudly displayed what he clearly thought to be a
devastating economic argument in favor of this "carbon-pricing" scheme. See for
yourself:

The "Say Yes" rally to support a proposed carbon-dioxide-emissions tax (June 5,

2011, Sydney, Australia)[[3]](http://mises.org/daily/5413/How-Mathematics-Can-
Make-Smart-People-Dumb#note3)

To those readers who have not studied neoclassical microeconomics, this is

probably just a big bunch of gibberish. But to those who have, it should look quite
familiar. The graph is a "utility analysis," which purports to show that imposing a tax
on polluting products (which increases their price) and simultaneously giving
compensation back to consumers would make them better o唀 than they were
initially ? in other words, it purports to show that the Australian government's
proposed scheme, or something like it, would make people better o唀.

This is a classic example of a mathematical analysis that proves too much. Notice, in

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the graph in the sign, that the two products are labeled "C" (for clean products) and
"P" (for polluting products). Although they are labeled in this way, the fact that the
horizontal axis represents the consumption of polluting products plays absolutely
no part in the analysis. There is nothing in the graph representing the pollution that
these products cause, and so the label is merely a name. The letter "P" is nothing
more than an algebraic symbol, one that could just as easily stand for pies, pastries,
printers, pizzas, polka lessons, picture frames, pole dancing, ponies, popcorn, pool
tables, poppy-seed mu刀ns, pornography, postcards, potatoes, potpourri, poultry,
pumpkins, puppies, pudding, or any other good or service (including goods and
services that don't start with the letter "P").

Thus, by the exact same mathematical argument, the graph implicitly purports to
show that a government can make people better o唀 by taxing any good and then
compensating the consumers of that good. Though the government taxes the
polluting products in the graph, the sign maker could just as easily have switched
the labels on the axes so that the government taxes the clean products, and the
result, according to the same analysis, would still be a consumer who is better o唀.

In fact, the analysis in the graph could be taken further than this. Why stop taxing
there? Repeating the same analysis, the government could increase the happiness
of their subject population further still by imposing a tax-and-compensation scheme
on the polluting goods, andthen the clean goods. But why even stop there? They
could then impose another tax-and-compensation scheme on the polluting goods,
then on the clean goods, then on the polluting goods, and so on. Each time, the
same analysis would purport to show that the consumer would become better o唀.
In fact, the analysis could be repeated ad in䨀nitum, allowing the government to
completely transcend the problem of scarcity by boundlessly increasing the possible
consumptions sets of the consumer.[4] How wonderful!

But wait a minute. You don't need to be a mathematician, or an economist, to 䨀gure

out that there is something funny going on here. Either some step in the analysis or
some starting assumption must be faulty. In a moment I will explain what this is, but
really, this exercise is largely academic. The point here is that the conclusion from
the analysis is so absurd that something in the analysis must obviously be wrong,
even if we are unable to pinpoint exactly what it is. It proves far too much.

Suppose that this young fellow had eschewed mathematical explanation in this
instance, and instead simply stated his argument verbally: "If you have two types of
goods (let's call them C and P) and the government taxes one of those goods (say,
good P) and then pays consumers of that good compensation, then those
consumers will be better o唀 than they were to start with." A question would
immediately spring to the listener's mind: How much compensation is needed for
this to happen? And in particular, is the revenue from the tax enough to cover it?
Isn't this important in deciding whether this argument is a valid reason to support

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the tax? In verbal form, these questions would present a serious challenge to the
analyst, and an opportunity for him to discover a serious 〄aw in his assumptions.

The Error with This Analysis

In fact, these questions are the key to the 〄aw in the analysis. Notice that in the
second step listed on the sign, the consumer is given compensation that allows him
to a唀ord the same bundle of goods that he initially started with. Since the price of
the polluting products has increased, this means that the cost of the compensation
being paid in the analysis is equal to the amount of polluting products initially being
consumed, multiplied by the increase in price from the tax. (In mathematical
parlance, this is t ? P0, where 0 < t < 1 is the price increase due to the tax.)

Can the government a唀ord this, using the revenue it extracts indirectly from these
consumers? Well, let's start by being as generous as we possibly can to the
argument, by invoking some fanciful assumptions in its favor. Let's assume ?
contrary to every sensible understanding of government ? that the tax-and-
compensation scheme can be enacted and administered without any costs at all. In
this case, the net revenue taken from the consumers would be equal to the gross
takings, which is equal to the amount of polluting products being consumed after
the imposition of the tax, multiplied by the increase in price. (In mathematical
parlance, this is t ? P1, where 0 < t < 1 is the price increase due to the tax.)

See a problem? The gross revenue taken from consumers uses the actual
consumption level afterthe imposition of the tax, but the compensation payment
given to consumers is based on the amount of revenue that would have been raised
based on the consumption of polluting productsbefore the imposition of the tax.
Since the analysis shows that the consumer is consuming less of the polluting
products after the imposition of the tax than before, this means that the revenue
taken from consumers cannot possibly cover the compensation payments being
made. (Since P0 > P1 we have t ? P0 > t ? P1.)

In fact, using the exact kind of mathematical model being used in the sign, it can
actually be shown that the amount of compensation required to fully compensate a
consumer for a price rise (called the "compensating variation"), just to make them as
well o唀 as they started, is largerthan the gross revenue extracted from the price rise.
[5] That is, there is always some loss in consumer "utility" in this kind of scheme,
even if we ignore any administrative costs to impose and run it, and devote the
entire gross revenue from the price increase to compensation. Thus, the only
possible argument that could be made along these lines is that giving consumers
moremoney than they are paying in and shifting these excess costs onto others
(e.g., producers) could potentially make them better o唀. But even then, an honest
economic analysis of this situation would also need to look at the costs to others
from this scheme, rather than obscuring the loss of revenue.
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Obviously, the situation becomes much worse if we make more realistic

assumptions about the administrative costs of the scheme, since this reduces the
net revenue available for payment as compensation. In reality, a taxation scheme of
this kind would require very large amounts of money for the government to create
and administer, and would also impose compliance costs on the taxpayers. The
situation also becomes worse for the consumer if he receives only part of the tax
revenue in compensation, rather than the full amount. There would also be
disparities in the compensation between consumers, so that some would be worse
o唀, even if others got a large amount. Possible rent-seeking behavior and other
economic issues could make the situation worse still, until a very grim picture of the
scheme starts to emerge.

In the sign in the picture, the compensation required to get to the blue utility curve
(making the consumer better o唀) would cost more than the gross revenue from the
tax. In fact, even the compensation required to get back up to the black utility curve
(making the consumer as well o唀 as they were before the tax) would cost more than
the gross revenue from the tax. Add administration costs for the scheme to this, and
other realistic issues, and now you need to come up with an awful lot of extra
money that is nowhere to be seen.

In fact, regardless of the 䨀ndings of a utility analysis of this kind, there is one
overriding economic argument against a coercive scheme such as the one being
proposed. If it werepossible to increase consumer satisfaction by taking people's
money and then giving it back to them in a revenue-neutral fashion in this way, then
presumably consumers would be able to do this themselves ? they could make
voluntarily contractual arrangements for a scheme like this without any coercion
being applied. The fact that they do not, and that they need to be coerced into
compliance, demonstrates, by virtue of the principle of revealed preference, that
they are not better o唀 under such an arrangement, regardless of the purported
䨀ndings of any economic models.

Using Mathematics to Make the

Dumbest Argument Possible
If one were a supporter of a carbon-dioxide-emissions tax (I am not) then I doubt
one would be too pleased with the above argument being presented in its favor if it
were expressed in verbal form. Yet, add some mathematical bells and whistles to
this absurdity, and you get a sign that was described by one sympathetic observer
as the "Best Sign" at the rally.[6] In fact, not only is the analysis in the sign 〄awed,
but when it is done properly, it actually leads to the exactopposite conclusion from
the one asserted to be true; it alerts us to the fact that the tax-and-compensation
scheme will leave the consumer worse o唀, unless they are given additional money,

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plucked like manna from heaven.

Aside from the above instance where this argument is made in mathematical form, I
do not recall ever hearing a single advocate of a carbon-dioxide-emissions tax make
the asinine assertion that tax-and-compensation schemes of this kind would
increase the happiness of consumers regardless of the good being taxed. They are
not quite that silly. Almost all arguments in favor of taxation schemes of this kind
are based on completely di唀erent reasoning from this, usually using "negative
externality" arguments that assert actual pollution problems. These arguments
cannot really be captured in a single consumer-utility graph, since they involve
assertions of interactions between the actions of one consumer and the preferences
of another. The mathematical argument presented in the picture above is therefore
not an advancement of the pro-tax position. It actually does a serious disservice to
this position by presenting an incorrect and very ill-considered justi䨀cation for it.

This shows the particular danger of getting bamboozled by applied mathematical

analysis, to the extent that absurd premises slip through the net undetected. It
allows a person to make the dumbest argument possible for a particular
proposition, while maintaining a supreme measure of con䨀dence, and indeed
cockiness, in his own position.

When doing applied mathematical analysis we need to be careful not to fall into this
trap. Though mathematics is a specialized discipline, beyond the understanding of
many people, a sound analysis in applied mathematics should generally be
translatable into a sound verbal argument, at least in a heuristic form. Its arguments
are progressions from premises to conclusions based on logic, and hence, if you
cannot explain the structure of your argument and its premises (at least in heuristic
terms) to people without much mathematical training, you probably do not have a
broad enough understanding of the structure of the argument to warrant reliance
on it.

The Purpose and Value of

Mathematical Arguments
I have not shown this example simply to demonstrate the dangers of having inept
economics students present their ham-䨀sted policy analysis in public. It is actually
demonstrative of a wider point regarding the use and abuse of mathematical
arguments: mathematics cannot do scienti䨀c problems for you. All that mathematics
can do is to allow you to state problems in quantitative form and 䨀nd the logical
consequences of various assumptions about the problem you are trying to solve. A
mathematical argument shows that certain premises lead logically to certain
conclusions. But it does not guarantee that those premises bear any resemblance to
reality. Whether or not they do is an important matter, deserving the utmost
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consideration.

Mathematics is meant to augment logical argument, by providing the ability to

clearly de䨀ne a problem, and to ensure that all necessary assumptions are made
explicit in the analysis. Its advantage over "literary" argumentative methods (when
used properly) is that it ensures that the analyst is not making assumptions that he
is unaware of, and is not making leaps in argument that are illogical. However, when
mathematical arguments are used to obscure, rather than enlighten, the result is
that they tend to hide assumptions that are being made.

The argument presented in the sign above hinges on the fact that it hides any
discussion of the amount of revenue needed for the compensation payment that is
assumed to be made. It does not compare this amount to the actual amount of
revenue taken from consumers due to the price rise, and as soon as this issue is
considered, we see that the argument presented in the sign is either wrong or at the
very least highly misleading. Actually, the real purpose of the sign above is not to
convince but to obscure. The purpose is to prevent rational debate on the subject by
warding o唀 the approaches of anyone who has not studied mathematical
economics and is unable to penetrate the meanings of the various lines on the
graph. Like so many purported scienti䨀c justi䨀cations of government power and
intervention, the argument in the sign needn't be remotely sensible so long as it is
arcane enough to keep the ri唀ra唀 from understanding the argument that is being
made ? and the premises of that argument.

It is an appeal to authority, with the authority in this case being a bunch of fancy
graphical work. Like so many purported scienti䨀c justi䨀cations of government
power, it is based on false premises and/or shoddy logic, masquerading as bona 䨀de
scienti䨀c analysis. It is the voice of a pretentious elite saying, We couldn't possibly
explain our reasoning to you in a way that you could understand, so just defer to
our clearly superior intelligence, bitches. (Note: mathematics can sometimes make
smart people dumb, but it cannot make them pretentious mediocrities; they do that
on their own.)

When mathematical arguments prove too much, it is often as a result of faulty

assumptions. If an applied mathematical argument leads to a conclusion that is
highly counterintuitive, or if the form of argument can be deployed just as e唀ectively
to prove other conclusions that are highly counterintuitive, then this is good reason
to further scrutinize the assumptions made in the argument.

Mathematics is a fascinating and powerful discipline, and one that I love a great
deal. Enjoy it to the extent that you are able. But, as Ayn Rand used to say, check
your premises!

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