Monthly Archives: August 2013

Robert Skidelsky (1980), The reception of the Keynesian Revolution, p89-107 in Milo Keynes (ed) (1980), Essays on John Maynard Keynes, CUP, poses a key question on his opening page 89 and provides what I consider the key answer on page 104.

Skidelsky, parts of pages 98 and 104

The Trias Politica model of democracy fails. A system that relies on war to resolve issues of economic theory is a sick system.

Without war the ideas in this weblog might not be listened to. Europe has started a long period of open stagflation, while the risks of (civil) war are rising. With war, key agents with their ‘normal politics’ might be replaced, and then the ideas in this weblog might be listened to.

Hopefully Angela Merkel will admit after the elections of September 22 that she has been deceiving the voters. Hopefully she will admit later on that she opts for a United States of the Eurozone, that can levy additional taxes on Germany to pay for the problems in the South. Alternatively, by some freak accident of honest reporting in the German media, German voters discover her deception before the election day, and then run to the social democratic SPD that has no solution either, or the new party Alternative für Deutschland that wants to break up the euro and thus will cause such taxes right away anyhow.

See my Economic Plan for Europe elsewhere for a sensible middle road solution. See the About page for the links to the underlying theory. 

PM 1. Skidelsky now opts for a basic income but I see no economic need for that. The mixed economy by itself is able to restore full employment.

PM 2. The German speaking world has a weblog Ökonomenstimme for public discussion by professional economists. I submitted the following text but did not receive a response. I presume that my German is not so well but the text is short and an editor might quickly repair errors. The message would be relevant enough to publish it for public discussion.

Bundestagwahl 2013 und Boycott Holland

Thomas Colignatus
August 24, 2013

JEL A1, E0, P16

Die Wahl zum Deutschen Bundestag am 22. September 2013 mangelt an tüchtige Information und Debatte über den euro, den Währungsunion, den Zukunft Europas und die Steuern die damit kommen.

Es stimmt dass z.B. das Handelsblatt publiziert über den “DeutschlandDuell“, 22. August, zwischen AfD-Chef Lucke und CDU-Finanzexperte Brinkhaus.

Doch es gibt auch ein neu-Theorie für den Optimalen Währungsraum, verfügbar hier am Münchener Working Paper Archive April 2013 und peer-publiziert hier in den Real-World Economics Review Juli 2013.

Der Kern betrifft ein Wirtschafts Oberstes Gericht (Economic Supreme Court) pro Nation in den Währungsunion. Es gibt keine Weitergabe der nationalen Souveränität nach Brüssel. Es gibt aber eine stärkere Überwachung durch eigenen wirtschaftlichen Wissenschaftler. Schuldenbremse sind zweifelhaft da Nationen auch investionen erfordern, und zwar anti-zyklisch.

Die Theorie über den Wirtschafts Oberstes Gericht gibts es länger. Sie wurde lanciert in 1990-1994 für die allgemeine Anwendung auf makroökonomische Politik. Sie ist aber die Zensur der Wissenschaft unterworfen von der Direktion der niederländischen Centraal Planbureau (CPB). Seit 2004 rate ich zu einem Boykott von Holland bis die Zensur aufgehoben ist. Sehen Sie auf der Website


The Peace Palace in The Hague, seat of the International Court of Justice, was initiated in 1900 after the 1899 Peace Conference, and competed in 1913, just before the outbreak of World War I in 1914. On August 28 there will be centenary celebrations.

The Palace and its centenary party are low key. The Nobel Peace Prize tends to draw more attention, and annually. The Palace is a symbol of good intentions and impotence. The high ambitions and the low results create a great sense of imbalance. Perhaps it is okay that the Palace is located at some distance from the truly powerful capitals of the world, but it doesn’t seem okay that conflicts like in Syria can erupt and destroy the peace.

Steel magnate Andrew Carnegie donated a major sum to have the building and its library erected. People thought in terms of bricks and books and elites. A modern magnate would think in terms of the internet and reaching everyone individually. That kind of creativity will be required to prevent the next World War. But the building is beautiul.

The Peace Palace, The Hague, statue of Justitia (Source: Wikipedia commons)

There are some personal notes. My great-great-grandfather Gerrit Cool (1825-1896) started a marble stonemasonry in Sneek, Friesland. His son and my great-grandfather Thomas Cool (1851-1904) didn’t want to continue in the company and preferred to become an artist painter. See his daughter’s book The five of us in Rome that received a first prize as the best children’s book for girls 1928. When his father died, Thomas sold the company to its recent managers, the brothers Vlietstra. They actually provided much marble to the Peace Palace. But the company didn’t survive the world crisis following the 1929 Wall Street Crash. Thomas made some huge paintings, some two by three meters, of buildings in Rome like the Saint Peter. When Thomas died, his surviving family had a hard time finding a place for those. In the early 1960s a friend worked at the Peace Palace and got it arranged that the paintings could be stored in its attic. In the early 1980s Thomas’s grandchildren inspected them, judged them to be too deteriorated, and had them destroyed. The only remaining large painting is the Colosseum in Moonlight, and this had been stored by my grandmother more safely next to the bicycles.

My own work on world peace concerns the analysis that the Montesquieu system of Trias Politica fails, and that each democratic nation requires a national Economic Supreme Court. The ESCs of the nations would be in scientific contact with each other, and thereby create some co-ordination of the world economy. Hopefully, my book DRGTPE on this finds its way into the Peace Palace library at some time.

Eurogroup president Jeroen Dijsselbloem is not a macro-economist. By training he is an agricultural economist (Wikipedia). He will rely on macro-economists and judge their advice by economic common sense. That common sense may however also be influenced by traditional mercantilist ideas that exports will earn us gold and make us rich. There is also the success of Dutch agricultural exports that may cloud his judgement.

His recent letter of June 19 to Dutch Parliament about the budget deliberations for 2014 contains this key statement (p3):

“Holland is in a so-called debt-recession. (…) The usual pattern of economic recovery in Holland (rising exports, rising investments, rising consumption) is slowed down by the type of crisis.”  (In Dutch gibberish: “Nederland bevindt zich in een zogenoemde balansrecessie. (…) Het gebruikelijke patroon van economisch herstel in Nederland (export trekt aan, investeringen groeien en particuliere consumptie neemt toe) komt door de aard van de crisis langzamer tot stand.”)

But the export surplus in 2013 is about 10% of GDP, see the CPB Central Economic Plan.

The Dutch surplus contributes to the deficits of Soutern Europe. The huge Dutch surplus is part of the European problem. Christine Lagarde of IMF shouldn’t send a team only to Greece but also to Holland, to sternly explain that the situation is intolerable and that Holland should work towards a balance (notably by importing more).

Yes, there is a debt crisis. If you insist on recovery via exports then recovery will be slow. But the debt crisis does not prevent you from tackling the export surplus. Full employment can be restored at home, by proper internal measures.

Dijsselbloem gets his advice from macro-economists who have been emphasizing exports since 1970. The Dutch system of social security creates a huge unemployment on the home market. The Dutch solve this by lower wages and relying on exports. The Dutch have been exporting their unemployment since 1970.

See my 1996 paper on the exposed and sheltered sectors, at EconPapers or a local file with graphs. It is also a chapter in DRGTPE and an update is in CSBH.

The Eurozone group has a president who is one of the key creators of the problems that they discuss, though sadly enough they aren’t aware of this. (That is, they may think that he causes other problems.)

Eurogroup March 15 2013, Schauble, Lagarde, Dijsselbloem (Source: EU Council)

Who advocates a worthy case for a boycott also suffers the task of monitoring the onslaught. Today brought me to Britain and especially to the BBC pages on The Netherlands.

No report on the boycott.

One wonders why they take the effort. These pages are ridiculous. Royalty, dikes, tulips, painters, drugs, some formal elections results, and of course the anti-immigration hiccups of late.

They also mention “Mondriaan” / “Mondrian”. Originally I criticised the BBC for misspelling his name “Mondriaan” as “Mondrian” but it appears that the artist himself started to use that other spelling when he moved to Paris. The BBC turns out to be more accurate on (some) facts than I was, but I maintain that the country report is a cliché.

Piet Mondriaan and his model (Nelly van Doesburg), 1923. (Source: Wikipedia Commons, some colours added)

PM. The BBC HARDtalk program is recommendable, on the other hand, e.g. with George Papaconstantinou about his time as finance minister of Greece 2009-2011. A HARDtalk session with Dutch minister Jeroen Dijsselbloem on the Dutch censorship of economic science would be nice.

Germany has elections on September 22, 2013. Angela Merkel supports the euro and is against financial transfers to Southern Europe though standard economic theory explains that a common currency requires such transfers. Merkel doesn’t mind her inconsistency and the misleading of voters since her goal is to win. After the elections, developments will force her to choose and perhaps then she will confess that the euro requires a United States of Europe with Germany to pay the bill. But power first, truth later.

Merkel thus shows herself a worthy daughter of Helmut Kohl who introduced the euro without telling the general public about the consequences that were already known to economists at that time.

The curious thing is that anyone can find this information on the internet, in economic textbooks, in the ample discussions on the European crisis, in the election programs of other parties, notably in Alternative für Deutschland (AfD) that has been founded for this very reason. German voters don’t seem to care. They seem to prefer the seeming certainty of the Merkel Ostrich Act above the uncertainty of new information and hard choices.

Merkel’s minister of finance Wolfgang Schäuble finally made some comments now that a new programme for Greece is required. Apparently not right away, the unemployed in Greece will have to wait till after the German elections. Bernd Lucke of AfD rightly comments: “He is miles away from laying all his cards on the table and talking straight with the population.” (Financial Times, August 20.) Will the German Election Summer finally turn hot this coming month or was this FT article just a fluke of reality ? A point is that economics professor Bernd Lucke is at danger of becoming too political himself too, as he apparently neglects my new suggestion for the theory of the optimal currency area, see MPRA or RWER.

A Ph.D. thesis by journalist Jens Peter Paul gives an interview with Helmut Kohl from 2002 where he clarifies his considerations, see this article by Valerina Pop at the EU Observer (2013). Kohl professes that his main concern was to prevent war. His circumstances were not as peaceful as presently is the case: the reunification of Germany was contentious and the USSR hadn’t collapsed yet. If it is true that the European political elites had been slowly manoeuvering towards a United States of Europe anyway then one might conceive an argument that a move towards a single currency might give good leverage (which argument of course neglects crucial national sentiments).

Kohl & Merkel make a complex couple. Merkel abhors the election finance scandal that Kohl caused and that forced her to replace him. Kohl abhors having been caught and replaced. Helmut Kohl is reported to have said that Merkel now is destroying his Europe, but he denies to have said so, see here. In 2012 we saw a forced meeting-again with clenched smiles, see here. British commentator Paul Goodman states: Merkel is Kohl, Cameron is Major.

Let us wish that Merkel doesn’t want to be a worthy daughter of Kohl and comes out clean. There is nothing to be afraid of, see my said paper on money.

Helmut Kohl, Angela Merkel, Ostriches (Source: Wikipedia Commons)

PM. The article by Valentina Pop has a comment that refers to dr. Rath who points to persistent German efforts at world domination since 1900 (with some farmaceutical companies that annoy him and that have undeniably nazi and holocaust links). Kaiser Wilhelm clearly hated the British Empire (and his British mother). A quick introduction is provided by the open letter in the International Herald Tribune, December 12, 2012 in relation to the Peace Prize for the EU. In itself it is striking that the first EU Commission President Walter Hallstein is a German who apparently wrote on European “integration” already before and during WW II. This however is not mentioned in Wikipedia (yet). In itself one can understand that Germany after WW II opted for European integration rather than being dominated by France and England. Perhaps it is a good idea for the EU Parliament to provide funds to historians to look into that open letter (and to farmacists for dr. Rath’s other claims).

I am burrying bottles at the beach of Scheveningen with messages for the future.

If human civilisation develops in stable manner, perhaps not with 3% but 0.3% economic growth, then in the year 2345 the economic level would be 1.003^(2345-2013) = 2.7 as much as today. People aren’t likely to notice the difference. My impression is that there will be digital, nano, and bio revolutions to the (non-) human body and society. People and sentinel robots might be too involved to notice the difference nevertheless.

The point remains that a new director at the Dutch Central Planning Bureau (CPB) in the year 2345 might not be much concerned by a letter of a former employee of 1982-1991 about a new economic analysis. The new director in 2013 doesn’t care and it is hard to imagine that successors will do so. How many bottles do I need to dispatch to which distant future ?

At the time of Chaucer (1343-1400) the Dutch and Anglo-Saxons could fairly understand each other. When Chaucer wrote about a knight, he pronounced the k, and the Dutch understood knecht, which is still a modern Dutch word for a servant for some lord. Six hundred years later we need professional translators who are aware of the k problem. Modern computers help close the gap again and they might get increasinly better (until they refuse to be our servants). I might help readers to translate my communication with the new CPB director. But this is a tricky exercise. Some subtle elements of Dutch culture are rather difficult to transfer (and might no longer exist in 2345).

The new CPB director has no background in economic science. She is an economist who worked in the government bureaucracy only. This is like president Obama appointing someone to the chair of the Council of Economic Advisors who has no background in economic science either. Some Dutch professors of economics protested to this appointment but have turned silent. In my view, the Dutch cabinet of ministers abuses its power of appointment, so my protest is permanent.

There exists a particular Dutch culture of talking with each other. A protestant might meet a catholic and they might hate each other’s guts and pray in church for eternal damnation, but they would smile with some bitterness, and agree to repair the dike to reduce the risk of flooding.  When a protestant (catholic) son and catholic (protestant) daughter fall in love, their parents might howl of indignation, but some arrangement is found, so that at least some of the offspring end up in the proper church. A recent example are the protestant King and his catholic Queen.

Thus, when the new director of the Dutch CPB refuses to talk with me then this is serious.

The general message of this weblog is that the Dutch are not as tolerant and free-minded as the world thinks they are. The particular Dutch culture of talking with each other might be seen as fitting with that image of tolerance. Perhaps my message doesn’t seem so consistent but I still think that it is. Another Dutch habit is to neglect others, like protestants and catholics neglecting each other’s existence, till a problem arises, with the need to talk. Apparently the new director doesn’t see the problem (yet).

Below is the exchange in emails, where I invite the new director of the Dutch CPB to talk with me, and the decline by the directorate secretary. Translate and experience the horror.

Appendix A: Email to Laura van Geest, the new director of the CPB

Date: Mon, 12 Aug 2013
To: Laura van Geest (CPB)
From: Thomas Cool / Thomas Colignatus
Subject: Verzoek tot een gesprek

Geachte mw. Van Geest,

Nu u bent aangetreden als directeur van het CPB bent u ook verantwoordelijk voor de behandeling vanaf nu van de censuur van de economische wetenschap door de directie van het CPB sinds 1990.

Voor de volledigheid meld ik dat de huidige economische crisis de juistheid van mijn analyse sinds 1990 bevestigt, en dat die analyse wegen biedt om de crisis aan te pakken. Dat er op het CPB geen onderzoek wordt gedaan naar deze bevestiging komt wellicht doordat mijn analyse in de ban is gedaan maar dat zou dus niet juist zijn.

Gaarne verzoek ik u om een gesprek waarin ik u nader kan toelichten over het falen van uw voorgangers Zalm, Don en Teulings t.a.v. de integriteit van de wetenschap. Ongetwijfeld zal uw omgeving en met name de juristen van EZ en BZK u verkeerde informatie geven. Weliswaar heeft de ambtenarenrechter censuur en ontslag toegelaten, maar dat betekent niet dat de ambtenarenrechter voldoende rekening heeft gehouden met de integriteit van de wetenschap.

Hieronder nog delen van enkele emails die ik in verband met uw benoeming aan de onderdirectie zond.

Met vriendelijke groet,

Thomas Cool / Thomas Colignatus
Econometrist (Groningen 1982) en leraar wiskunde (Leiden 2008)
Wetenschappelijk medewerker CPB 1982-1991

[… parts of email …]

Appendix B: Reply by the secretary of the directorate of the CPB

From: “Edwin van de Haar”
To: “Thomas Cool”
Date: 14 Aug 2013
Subject: reactie van het CPB

Geachte heer Cool,
Namens mevrouw Van Geest wil ik hierbij laten weten dat zij geen prijs stelt op een gesprek met u. Ook de huidige leiding van het CPB deelt uw interpretatie van de gebeurtenissen die 22 jaar geleden tot uw vertrek bij het CPB hebben geleid in het geheel niet. Noch voelt zij zich geroepen of verplicht u de gelegenheid te geven uw economische opvattingen verder uit te werken. Natuurlijk kunnen wij ons goed voorstellen dat dit voor u heel vervelend is. Dit hebt u de  afgelopen jaren op vele verschillende wijzen aan ons en anderen kenbaar gemaakt. Voor zover daar  aanleiding voor was hebben wij er ook op gereageerd. Dat zullen wij in de toekomst echter niet meer doen, aangezien de verschillen van inzicht tussen u en het CPB onoverbrugbaar en inhoudelijk onveranderd blijken.
Namens het CPB wens ik u verder het allerbeste toe.
Met vriendelijke groet,
Dr Edwin van de Haar
Directiesecreatris CPB

This weblog might confuse readers. Let me increase the confusion by wondering why Christ came down to Earth.

With a low tolerance for confusion, readers might decide that this weblog is all nonsense, instead of making the wiser decision that it actually makes sense. There might be heated discussions over dinner tables in the capitals of Europe what to think of this weblog and its advice to boycott Holland. From confusion to sense, that is the question.

In earlier religions we find gods walking the Earth, like Zeus taking the form of a bull and kidnapping & making love to the damsel Europa (wikipedia). Personally I find the interpretation more sensible that it concerned a cow and then likely the goddess Hathor, while ‘erep’ would be an ancient word for “sunset, the West” (hence the beginning of the night and the realm of the moon). The point however is that Zeus’s activities on Earth are of circumstantial relevance while the focus is on the affairs in heaven. This is entirely different from the New Testament that focusses on God / Christ on Earth. There ought to be a good reason why the Bible is so different from other religions. The following is a tentative answer.

Willem Zitman, Egypt: “Image of Heaven” , 2006, provides the clue. See the cover of that book below and his website that gives much of the text. (Dutch readers could look at Sterrenbeeld van Horus, 2000.)

Zitman argues that Egyptian religion regarded the country as an image of heaven. The god Osiris was both the Nile itself and the god of fertility active on Earth itself. The back cover (on the left) shows the geography of the Nile correlating with the star sign of Scorpio. The front cover (on the right) shows the “strong arm” in the sign of Orion, with Orion’s belt at Gizeh, and major pyramids built along that “strong arm”. That “strong arm” is apparently an ancient weapon, that may have started out as tying a stone to one’s wrist. Its influence still is reflected in the phrase “the strong arm of the law”. (There isn’t an easy wikipedia reference yet.)

To achieve the first correlation Zitman presents Scorpio rising on the East but in mirror image. However, when Scorpio is presented as setting in the West, then an observer standing in the Nile delta and looking South could project with greater ease (I presume). Overall, Zitman’s suggestion makes more sense than random locations of the pyramids.

Cover of "Egypt: Image of Heaven" by Willem Zitman, Frontier Publishing 2006

Cover of “Egypt: Image of Heaven” by Willem Zitman, Frontier Publishing 2006

My book The simple mathematics of Jesus follows others in the suggestion that the Bible found a major inspiration in Egyptian religion. The Old Testament already has Moses as a Son of God leading his people to the promised land, and making the sacrifice of not entering himself. Compare Ramses = Ra Mss, with Ra = the Sun god, and Mss = Son of. Thus Moses = Mss = Son of (the unspoken). The New Testament has the Son of God again walking the Earth and making a more dramatic sacrifice (though only the suffering for he resurrects).

Hence the new idea: the earlier suggestion that the Bible found major inspiration in Egyptian religion clearly explains why Christ came down to Earth: the Bible adopts the perspective of Egyptian religion in this too.

The German magazine Bild reported yesterday that the Mallawi Museum is destroyed and robbed, supposedly by members of the Moslem Brotherhood. (Dutch readers: de Volkskrant.) Zahi Hawass is quoted: “I have tears on my eyes and my heart is bleeding because we are loosing the best we have…..our heritage.” There would be bitter irony too. Moslems regard Jesus as the prophet Isa (i.e. not as the Son of God). When Jesus derives from ancient Egyptian religion, the Egyptian Moslems who destroy the Egyptian heritage also destroy the fountain of their own religion. One wonders whether Egypt will copy Syria and whether the pyramids are strong enough to survive this kind of Egypt.

PM. A note on consistency. Aymen Ibrahem has an important novel explanation of the ancient Egyptian view on solar eclipses. The hieroglyph called Akhet gives a sun between mountain Bakhu of sunrise and mountain Manu of sunset. In his analysis this actually indicates an eclipse rather than the daily event. The Great Pyramid appears to be called the “Eclipse of Khufu”, and so on. This explanation might seem to conflict with the explanation by Willem Zitman of a geographical projection, since the stars would not necessarily coincide with (solar) eclipses. However, my hypothesis is that the ancient Egyptians saw the sun, moon, planets and stars somewhat as the eyes of gods. The act of seeing requires the emission of rays of light. See here for the Eye of Horus. Thus each godly eye would have its own mountains in the firmament where it might eclipse. I tend to consider these two explanations as fairly consistent. Though, granted, ancient Egyptian religion and cosmology remain a soup.

There are at least two “Earth Economics” websites.

The first website is an off-shoot of Herman Daly‘s research in ecological economics, see here. Quote: “Earth Economics provides robust, science-based, ecologically sound economic analysis, policy recommendations and tools to positively transform regional, national and international economics, and asset accounting systems.” However, they neglect the work of Dutch economist Roefie Hueting on how to account for the environment in the UN System of National Accounts. The Daly-Cobb Index of Sustainable Economic Welfare (ISEW) allows one to substitute home maintenance for the destruction of the ecology, which is silly. Hueting’s index of environmentally Sustainable National Income (eSNI) is the only index in the world that is properly based both in economic theory and statistical practice. See my paper The Old Man and the SNI.

The second website concerns the new economics textbook Earth Economics by Peter van Bergeijk of the Institute of Social Studies (ISS) in The Hague. The ISS gets its students from all over the world and thus it seems warranted that it pays attention to the world itself. This is a YouTube presentation by Peter explaining that the world is a closed economy and that there is emergent world governance perhaps as we see emergent stability in chaotic systems. Paraphrased: “We see governments all applying the same economic policy (of austerity) and thus the effect is similar to how there would be only one government following that policy.” See also a summary at Edward Elgar’s blog and this longer paper at SSRN.

I tend to enjoy Peter’s work in economics. Peter is open to the importance of the arts, and not only since he paints himself. His Ph.D. thesis (now here) had the important conclusion that economic boycotts are counterproductive. The power elites have the power to insulate themselves and only the weak general population suffers, while it also loses the ability to oppose the power elites. A better policy is to integrate troublesome countries in the world economy such that the internal countervailing powers generate moderation. The only reason that I still dare to advise to a boycott of Holland is that Holland is a wealthy country where a boycott would still achieve the desired outcome, i.e. the end of censorship of science.

It is wonderful that Peter now focusses on world governance. In the past Jan Tinbergen already focussed on this but the subject has been slipping from attention, even though we have the ecological crisis of which climate change is only an aspect. (The two websites are linked, if not by HTML then by content.)

I have some misgivings however.

(1) Peter states that he introduces the global dimension because he wanted to teach about an existing closed economy. This is convoluted. We don’t have a world government thus the world isn’t an existing closed economy in the sense of the Keynesian model. In common definitions we still have countries that trade. In the Edgeworth box the boundary conditions of world resources are given, so there is no need to switch to a closed economy model.

(2) My book DRGTPE also discusses world governance and suggests that this will be improved when countries have their own national Economic Supreme Courts (ESCs). In my analysis economic theory is important as an own separate factor in policy making and thus it requires special protection. That countries nowadays tend to follow the same policy (of austerity) is not a sign of convincing economic science but a consequence of unscientific processes. 

(3) My paper Money as gold versus money as water (RWER July 2013) gives an amendment on the theory of the optimal currency area and suggest that ESCs are the route also for the euro and world money.

(4) My 2005 paper on a World Parliament suggested that people can already start on creating such a parliament as an NGO, by setting up world political parties, holding elections, having parliamentary meetings, and paying voluntary (tax) contributions. Eventually such a parliament might develop some countervailing power to the UN setup. The European Union might be a bad example how countries could co-operate but we could all learn from the experience.

Peter’s book suffers from neglecting DRGTPE. I told him a decade ago about the censorship of science by the directorate of the CPB but he has been neglecting it. Students from all over the world come to The Hague to learn about economic science and “Earth Economics” but aren’t given science and aren’t told about the key results.

Sic transit gloria mundi.

The counterfactual is a complex notion for statistics, with an offshoot into philosophy witness this entry in the Stanford Encyclopedia of Philosophy. Judea Pearl in his fabulous book Causality (2000:33-34) states:

“(…) asking what percentage Q of subjects who died under treatment would have recovered had they not taken the treatment – will encounter (…) difficulties because none of these subjects was tested under the no-treatment condition. Such difficulties have prompted some statisticians to dismiss counterfactual questions as metaphysical and to advocate the restriction of statistical analysis to only those questions that can be answered by direct tests (…)”.

There is a difference between metaphysics and reasonable issues that are difficult to measure. A problem is that mathematics has tended to base statistics within probability theory while the material sciences are also concerned about causality.

A highschool textbook question gives a straightforward example how the counterfactual arises naturally.

The question describes that farmers are hindered by rats eating their crops. They may hire one or two rat catchers. The students are asked to create the formulas and calculate and plot various outcomes. The highschool discussion stops there since the learning goal is limited to understanding recursive forms. We can look a bit deeper at the implied counterfactual however.

The example starts with 1400 rats which population grows with 40% per period. A catcher can catch 400 rats per period. For a single catcher the highschool students must construct the formula is r[t] = 1.4 * r[t-1] – 400, with r[0] = 1400. What is it for two catchers ? Let us call them John and Paul.

The highschool textbook seems to allow the answer r[t] = 1.4 r[t-1] – 800. In survival analysis we however know about the effect of competing causes. It may be that Paul catches a rat that only a few hours later would have been caught by John if Paul hadn’t been earlier, or conversely. They might both stumble on the same rat and catch it both: rather than recording such double catches, they may allot such catches to each in turn. This creates the statistical difference between a catch and a rat, where a catch may indicate only a half rat. There is also the difference between the joint operation of two catchers and the conjoint event of both catching the same rat.

The population of rats at the end of the period would be 1.4 * 1400 = 1960 (which is our first counterfactual) except for the fact that a single catcher diminishes this by 400. Thus the catch rate is f = 400 / 1960 ~ 20% and the survival rate is s = 1560 / 1960 ~ 80%.

Assuming that the catchers are equally effective, the joint rat survival rate is (1 – f)^2 = s^2. With two catchers, at the end of the period there are s^2 * 1960 = 1242 surviving rats. Thus jointly 1960 – 1242 = 718 rats are caught. Assuming independence, each catches 359 rats, which is less than the single result of 400. Overall we would get the table on the left (for rats). That table generates a marginal success rate of 359 of 1960 rats, which marginal rate apparently is conditional on the presence of another catcher.

If we want to maintain the original marginal catch rate of 400 of 1960 rats, then we get the table on the right (for catches). It follows that 82 rats would be caught by Paul and John conjointly. The latter is a pure counterfactual, since it would be hard to determine which rat is caught by the one that otherwise would have been caught by the other. (Marking a rat and releasing it again might be an option but this assumes no affect on its behaviour like going into hiding.)

































This number of 82 thus is the counterfactual that comes about straightforwardly in a fairly simple case.

That the counterfactuals exists should not be a problem for statistics, epidemiology and philosophy. Once you start modelling, counterfactuals pop up by implication. The problem is only that some issues are difficult to measure.

In this rat case it would be smart to assign John and Paul different areas so that they can avoid getting in each other’s way. This is common sense and could be assumed in the textbook question. This also assumes that the catch rate depends upon density and that the density doesn’t differ per assigned area, and so on.

Issues become more complex when epidemiology considers different causes of death (other than John and Paul). Who dies from a heart attack can no longer die from cancer. In that case the observations provide us with the table on the left while the table on the right is a figment of our imagination. It is amazing how much still can be said empirically, however. At some point though the general cause of “old age” takes over and statistics may become polluted when it is tried still to identify a single cause.

Counterfactuals might have a bad name. If the moon were made of green cheese then the trees would grow to heaven, is the common counterexample to hypothetical arguments. We are here in the realm of literature. This attitude isn’t reasonable for science however when the questions concern real issues.

Overall it might be wiser to look first at an argument itself and worry less about the implied counterfactual. A focus on the counterfactual might induce the idea that it isn’t relevant since it isn’t factual or part of reality, but such an attitude destroys the very process of argumentation.

I came to writing this because of that textbook question and reading in Pearl, and wondering why such issues aren’t discussed accessibly in highschool. Students would learn more than just constructing recursive formulas.

For this weblog I may add that the argument “If the world would boycott Holland …” should better be judged on its merit so that the present counterfactual has a larger chance of becoming factual.

PS. 1

Let us recover the hidden death and survival rates from the data, assuming independence. We assume one cause C with death rate f and other causes OC with death rate g. The conjoint catch rate is f g. For cause C its share in the joint catch may be taken as f / (f + g). Formally we have the following tables, with the total population normalized to 1.














f g

g (1 – f)




(1–f) (1–g)

1 – y


f (1–g)

(1–f) (1–g)

1 – g



1 – x




1 – f


x = f (1 – g) + f / (f + g) * f g
y = g(1 – f) + g / (f + g) * f g

In a numerical example, let the observations be given as in the table of the left. Then we can solve the equations (1 – f) (1 – g) = 0.64 and y = g (1 – f) + g / (f + g) * f g = 0.17. We find the solution values on the right.

































When C and OC are not independent then other tricks are required, which depend upon the case at hand. When such causes are interdependent, like when a general rise of disease reduces immunity and affects the various states, then we would look for deeper causes.

(PM 1. The standard approach in survival analysis has the competing risk model. It is a bit awkward that I cannot quickly point to the possible similarities and differences in the above approach with that standard survival approach, and have to look into this further. PM 2. Let me indicate a study by Mackenbach et al. (1999) on competing risks that aren’t independent.)

PS. 2

Pearl (2009:379) is stern on econometrics: “In almost every one of his recent articles James Heckman stresses the importance of counterfactuals as a necessary component of economic analysis and the hallmark of econometric achievement in the past century. For example, the first paragraph of the HV article reads: “they [policy comparisons] require that the economist construct counterfactuals. Counterfactuals are required to forecast the effects of policies that have been tried in one environment but are proposed to be applied in new environments and to forecast the effects of new policies.” Likewise, in his Sociological Methodology article (2005), Heckman states: “Economists since the time of Haavelmo (1943, 1944) have recognized the need for precise models to construct counterfactuals… The econometric framework is explicit about how counterfactuals are generated and how interventions are assigned…” And yet, despite the proclaimed centrality of counterfactuals in econometric analysis, a curious reader will be hard pressed to identify even one econometric article or textbook in the past 40 years in which counterfactuals or causal effects are formally defined. Needed is a procedure for computing the counterfactual Y(x, u) in a well-posed, fully specified economic model, with X and Y two arbitrary variables in the model. By rejecting Haavelmo’s definition of Y(x, u), based on surgery, Heckman commits econometrics to another decade of division and ambiguity, with two antagonistic camps working in almost total isolation.” Notice that Haavelmo’s paper tended to cause econometricians to replace Tinbergen’s path analysis (advocated by Pearl) with significance testing (see Ziliak & McCloskey 2007). There is still work to be done.