Kevin Hassett, is, I believe, the epitome of the mainstream economist: Phd, Univ. of Penn, former Fed economist, American Enterprise Institute, etc. This article actually started out promising, because he pointed to flawed Keynesian theory. But, it appears that Hassett is saying that theory itself is what is flawed, so what was needed instead was empirical data with correlations. He never mentions alternative economic theory (i.e. Austrian theory), only Keynesian theory.
His point is that Congress and the President did not implement policies based on the "new" empirical correlation methods, but rather they continued to use old Keynesian theory.
I think this article provides insite into how mainstream economics swerved into empirical study as opposed to theoretical study in the 1970's, and thus ignored the correct theory of the Austrian school. Was this the "new classical" theory that is spoken of in connection with Keynesian economics?
From the article: "Economists went on to refine techniques that correlate the way things move with each other over time, relying on hard evidence rather than Keynesian theory. These techniques generally find that policies like last year’s stimulus have much smaller effects than the macro models would suggest...Yet the analysis of job creation of the stimulus bill essentially ignores this vast literature."
It also ignores the vast literature of the Austrian school.
http://www.bloomberg.com/apps/news?pid=20601039&sid=a.R9kzhHr0eQ
"The market is a process." - Ludwig von Mises, as related by Israel Kirzner. "Capital formation is a beautiful thing" - Chloe732.
chloe732:This article actually started out promising, because he pointed to flawed Keynesian theory. But, it appears that Hassett is saying that theory itself is what is flawed, so what was needed instead was empirical data with correlations. He never mentions alternative economic theory (i.e. Austrian theory), only Keynesian theory.
The return of the Historical School?
JAlanKatz:The return of the Historical School?
I'm glad you mentioned that. I was thinking the same thing. It sounds like Hassett is implying that theory is the problem, ie, we need facts, nothing but the facts, good data, etc. And when the data changes, we'll change too, etc. My understanding is the Historical School abandoned economic theory and just looked at historical context (and that Menger spent much of his time refuting and defending against it). There is always something standing in the way of sound economic theory.
chloe732: I'm glad you mentioned that. I was thinking the same thing. It sounds like Hassett is implying that theory is the problem, ie, "we need facts, nothing but the facts, good data" etc. And when the data changes, we'll change too, etc. My understanding is the Historical School abandoned economic theory and just looked at historical context (and that Menger spent much of his time refuting and defending against it). There is always something standing in the way of sound economic theory.
I'm glad you mentioned that. I was thinking the same thing. It sounds like Hassett is implying that theory is the problem, ie, "we need facts, nothing but the facts, good data" etc. And when the data changes, we'll change too, etc. My understanding is the Historical School abandoned economic theory and just looked at historical context (and that Menger spent much of his time refuting and defending against it). There is always something standing in the way of sound economic theory.
Indeed. To me, one of the fastest ways to sum up the Austrian position on methodology is "facts do not come with their own interpretations for free." Another is "theory comes before observation, it tells us how to make sense of data." The Menger debate with the Historical School was the source of the first neoclassical consensus - the neoclassical school was united in its support of Menger on the existence of theory. Of course, the agreement is not complete - in particular, we disagree quite strongly on the nature of economic theory - is it a mathematical structure, or is it simply reasoning done properly on a few axioms? Is it formal or informal? And so on. The new neoclassical consensus, of course, was formed around Keynes, and excluded the Austrians, and our notion of how theory works, but we still all agree that theory exists. Now it seems they're starting to doubt that...it makes sense, really. The mainsteam of economics is no longer interested in truth, but in selling policy. They failed to do so on Keynesian grounds, leading to the breakup of the Keynesian consensus in the 70's. After that, the reigning orthodoxy became a mix of monetariam, neoliberalism, and neoKeynesianism. That didn't work either, resulting in the 2008 crisis. They tried to pawn off the failures on monetarism, and keep the neoliberalism and neoKeynesianism, but people haven't been buying. So why not just throw away theory, if the only other choice is Austrianism, and we surely can't have that...
JAlanKatz: "theory comes before observation, it tells us how to make sense of data."
Then you update theory based on new data.
scineram:Then you update theory based on new data.
I do no such thing. Data doesn't come with its own interpretation.
JAlanKatz:I do no such thing.
Then you are stuck forever.
scineram:Then you are stuck forever.
First, if this were true, I could think of worse things than being stuck forever with a correct theory built from undoubtable premises. Second, there are ways to challenge a theory, such as by other theoretical points, just not by empirical points.
JAlanKatz: scineram:Then you are stuck forever. First, if this were true, I could think of worse things than being stuck forever with a correct theory built from undoubtable premises. Second, there are ways to challenge a theory, such as by other theoretical points, just not by empirical points.
Empirical data is useful only to the extent that causal relationships can be inferred from them. This necessitates a method by which all variables must be controlled for. Controlled experimentation is the basis for the scientific method and not empirical data as such. scineram does't seem to understand this part.
The field of Economics does not render the use of controlled experimentation. It is not to say that empirical data can never be of any use. But it simply cannot be used to refute a theory and certainly not to infer causal relationships.
Most mainstream economists are no more scientists then were Pharo's magicians who turned sticks into snakes.
I don't know why it is so hard to understand this point. If they can't control their variables, then they are not dealing with science just because they collect data and run statistics on them. They are a mockery to the scientific community.
Pure controlled experiments are unattainable. You can never control for everything, otherwise there would be no need for experiments.
scineram: Pure controlled experiments are unattainable. You can never control for everything, otherwise there would be no need for experiments.
Which is why science is a never ending process, however, it does yield results. The proof is this thread!
Economics that deals with real humans does not allow for any such controlled experimentation at all. This is not to say that the subject of economics cannot be studied in a scientific manner. It's just that the subject under observation is a totally different beast then that typically found in the physical sciences. Different methods must be applied.
Do you think choice, exchange or wealth are concepts that are experimentally derivable?
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
As Giles asked earlier, if you have two consistent mutually contradictory models, how do you choose between them?
scineram: As Giles asked earlier, if you have two consistent mutually contradictory models, how do you choose between them?
Take a logic class. There's such a thing as a valid and sound argument.
Political Atheists Blog
So, Katz, I'm just wondering, not trying to be a dick or anything, what happens if the data doesn't coincide with the apriori theory? Do you try to revise the theory?
bloomj31:So, Katz, I'm just wondering, not trying to be a dick or anything, what happens if the data doesn't coincide with the apriori theory? Do you try to revise the theory?
The difficulty here is, I'm not clear on what it would mean for the data to fail to coincide with the theory. The theory is just a framework into which the data is placed, it is explanatory, not predictive. It doesn't say "the CPI will fall" or even "if A, then the CPI will fall." It might say "if A, then there will be price deflation." If A happens, and there is no price deflation, that would seem at first to be an instance of what you're talking about. But, in fact, it might well be that CPI is a poor measure of price deflation, that A didn't actually happen, properly understood, or the fact that the theory talks about "all else being equal" and other effects dwarfed the price deflation that was occurring. So rather than tell what I'd do in such a case, I will just point out that it is a category error to talk about this happening.
Take a case that actually can be observed - status symbols. That is, quantity demand for a status symbol can rise (in boom times) as price goes up. This looks like a clear case of theory (law of supply and demand) being violated by empirics. Yet, the proper conclusion to draw would be totally different - that there is psychic income, and when you consider psychic income, you realize that you don't have the same car evaluated at two different prices, but rather two different goods evaluated at two different prices. Or, even better, subtract the psychic income from the value of the money paid and you see that the curve returns to looking like it should look.
Theory is knowable a priori and explains the data. Our task is to understand how they fit together, not to try to 'compare' two different things.
I see, alright thanks for that.
krazy kaju:There's such a thing as a valid and sound argument.
How does it concern what I said?
What name is Giles posting under?
scineram: krazy kaju:There's such a thing as a valid and sound argument. How does it concern what I said?
By definition, there cannot be two valid and sound models contradicting one another.
My question was how do you decide which is correct?
Caley McKibbin:What name is Giles posting under?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
nirgrahamUK: Caley McKibbin:What name is Giles posting under? You will revel in your success all the more when you discover this without assistance (if you do). good luck!
My best guess is hayekianxyz. I don't remember him being here very long and he is a free banker.
scineram: My question was how do you decide which is correct?
The argument that is sound is the correct argument.
hayekianxyz has been around since before Giles's departure, IIRC. I'm pretty sure you misinterpreted what scineram said.
krazy kaju: scineram: My question was how do you decide which is correct? The argument that is sound is the correct argument.
You're missing the point I'm trying to make here. Obviously, there will be inconsistencies and logical errors in any chain of reasoning, it's naive to assume that we could figure out the entirety of economics by following on from the action axiom with our limited faculties.
But the more important point is this, depending on the axioms you choose to begin with you'll end up in different places, even if you don't make any logical errors. Of course, it's true Mises did choose to begin from a reasonable starting place, human action, but others have decided to start from equally valid starting places such as reproduction. The difference is that Mises came up with economic theory that extolled the virtues of the market whereas Hollis & Nell came up with an a priori theory of economics that was Sraffian. Clearly, these two can't both be true, so, what now?
See Caldwell's discussion of a priorism in Beyond Positivism for an elaboration.
JAlanKatz: scineram:Then you update theory based on new data. I do no such thing. Data doesn't come with its own interpretation.
"You don't need a weatherman to know which way the wind blows"
Bob Dylan
hayekianxyz: You can't have history without theory. But that doesn't imply that some theories don't do a better job of describing the data than others. You're really kidding yourself if you don't think that economics, Austrian or otherwise, revise their theory when it's clearly at odds with the facts.
I've explained in a separate post that such a statement is a category error. To answer your first point here, of course some theories do a better job than others. The ones that are correct allow one to draw true conclusions from the data, while false theories do the opposite. That's why you want true axioms, not false ones.
JAlanKatz:That's why you want true axioms, not false ones.
Well, how do you choose between two true axioms?
hayekianxyz:Obviously, there will be inconsistencies and logical errors in any chain of reasoning, it's naive to assume that we could figure out the entirety of economics by following on from the action axiom with our limited faculties.
That's why theory evolves. Someone notices an error in the chain of reasoning and then proceeds to fix and modify that chain of reasoning. That's how the Austrian school had evolved from Menger to modern times.
hayekianxyz:But the more important point is this, depending on the axioms you choose to begin with you'll end up in different places, even if you don't make any logical errors.
If you don't make any logical errors, then your two arguments cannot be contradictory. If they are, then you made logical errors. That or all forms of knowledge are unattainable.
hayekianxyz:Of course, it's true Mises did choose to begin from a reasonable starting place, human action, but others have decided to start from equally valid starting places such as reproduction. The difference is that Mises came up with economic theory that extolled the virtues of the market whereas Hollis & Nell came up with an a priori theory of economics that was Sraffian. Clearly, these two can't both be true, so, what now?
Search for errors in logical reasoning. Go.
Actually Hollis didn't really do much of anything re the economics, Nell did, and reading the critical article on the Mises website would indicate how one would criticise Nell's contributions (because reproduction is a species of action, and is not in anyway fundamental; an axiom in the sense being used here is a fundament), so in future Giles do make sure you've read the stuff before posing questions like these...
Freedom of markets is positively correlated with the degree of evolution in any society...
hayekianxyz:Well, how do you choose between two true axioms?
You don't, there can't exist two true contradictory axioms.
Jon Irenicus: Actually Hollis didn't really do much of anything re the economics, Nell did, and reading the critical article on the Mises website would indicate how one would criticise Nell's contributions (because reproduction is a species of action, and is not in anyway fundamental; an axiom in the sense being used here is a fundament), so in future Giles do make sure you've read the stuff before posing questions like these...
Bruce Caldwell answers this point in the work I referenced, so in future Jon do make sure you've read the stuff before posing questions like these... All kidding aside, reproduction is necessary for action, so in that sense I'm not sure how fundamental action is. And yes, you're correct, Nell was responsible for the economics, I should have clarified this.
I take it you mean Lavoie's critique?
JAlanKatz:You don't, there can't exist two true contradictory axioms
You're correct, but this doesn't matter for what I'm saying. The point I was trying to make is that depending on where you begin you will end up with different conclusions. How does one choose between these conclusions without reference to the empirical world?
By the way, two more general points:
hayekianxyz:You're correct, but this doesn't matter for what I'm saying. The point I was trying to make is that depending on where you begin you will end up with different conclusions. How does one choose between these conclusions without reference to the empirical world?
By rechecking the premises, only one can be a priori true.
All kidding aside, reproduction is necessary for action, so in that sense I'm not sure how fundamental action is. And yes, you're correct, Nell was responsible for the economics, I should have clarified this. I take it you mean Lavoie's critique?
Reproduction of goods is a species of action... and yes.
JAlanKatz:By rechecking the premises, only one can be a priori true.
Testing end experiments?
scineram:Testing end experiments?
I don't know what you mean, but to answer what you might be asking, by thinking and figuring out what mistake he made.
hayekianxyz: reproduction is necessary for action, so in that sense I'm not sure how fundamental action is.
reproduction is necessary for action, so in that sense I'm not sure how fundamental action is.
Well it depends how you view it- clearly, action is logically prior to reproduction since it is merely a type of action but it would seem that reproduction is temporally prior to action- that of coming into being. This raises the interesting conclusion that the chicken must certainly come before the egg as not to succumb to the regressus ad infinitum fallacy which the idea of reproduction being logically basic does since it does not explain the current action of present existence.
hayekianxyz: The point I was trying to make is that depending on where you begin you will end up with different conclusions. How does one choose between these conclusions without reference to the empirical world?
The point I was trying to make is that depending on where you begin you will end up with different conclusions. How does one choose between these conclusions without reference to the empirical world?
Well since action cannot be denied by self refutation then it's a prior true however you still have the problem of application of the axiom. Which brings me onto the whether the analytic/ synthetic (I think that's the right words) dichotomy holds true. If not you can make general empirical claims and hold them as a priori such as the dis-utility of labour.
So your correct in one sense that we need reference to the empirical world but it doesn't preclude the pure a priorism of action or a general rationalist methodology. It would seem most efficacious to start with pure a priori statements with as few empirical postulates as possible and go from there which is how Austrian economics has operated since Mises. It would be stupid to empirically test the dis-utility of labour and similar statements.
The atoms tell the atoms so, for I never was or will but atoms forevermore be.
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Physiocrat
To be clear, they mean reproduction of goods. If it were biological reproduction the idea of it as an axiom would be truly idiotic, as it would not even meet the criteria of serving as an a priori truth.
Jon Irenicus: To be clear, they mean reproduction of goods. If it were biological reproduction the idea of it as an axiom would be truly idiotic, as it would not even meet the criteria of serving as an a priori truth.
Sorry about that. I read it a long time ago. Btw when they mean reproduction does that include initial production or merely a continuous cycle?
Latter, continuous production. I'm rather surprised you guys thought they meant biological reproduction.