I was recently informed on another forum that Austrians are not taken seriously in academia and they have not given any reasonable explanation for the recent financial crisis. Is that because mathematical modeling is not core? I was also told that starting from first principles or behavioral analysis to understand or describe a market is useless since there are a great number of consumers, markets, governments, etc. You use statistical tools to make inferences on the largest portions of data. What is the Austrian reason for the financial crisis? The thread was about getting a master's in economics and what the job entails in industry. From the impression I was given, Austrianism and economic philosophizing in general is purely academic and not taken seriously. I'm curious what you guys think here.
shackleford: Well, clearly, I have a lot to learn about Austrian economics. I watched the video with Peter Schiff. Those other jackasses were completely wrong and constantly ridiculed him. Why? It's almost like they had an agenda to support the house of cards. It also appears that the biggest purported contribution from Keynes is the effectiveness of a direct fiscal stimulus in a depressed economy. We were told this in my macro class. I always suspected this is utter nonsense, as the federal government is the most inefficient and cumbersome entity in the U.S.
Well, clearly, I have a lot to learn about Austrian economics. I watched the video with Peter Schiff. Those other jackasses were completely wrong and constantly ridiculed him. Why? It's almost like they had an agenda to support the house of cards.
It also appears that the biggest purported contribution from Keynes is the effectiveness of a direct fiscal stimulus in a depressed economy. We were told this in my macro class. I always suspected this is utter nonsense, as the federal government is the most inefficient and cumbersome entity in the U.S.
Welcome to the world of Austrian economics. :)
Your suspicions are correct. If you're interested in learning more, I suggest you start with these three vids. Watch them in this order. They will blow you away...
(Bear in mind, these are full lectures...roughly an hour each...so be sure you have the time available to finish one before you start it. I realize it can be tough to watch something on a computer that long (especially a lecture), but you may be surprised. Grab a snack and get comfortable. These will give you the best foundation you can get in this amount of time.)
(If it would be easier to listen to them on an mp3 player, you can download the audios....here, here, and here.)
"Oh, I understand the reasoning completely. It only makes sense to use propositional logic to deduce economic theory. I'm a math major, physics minor senior. How are the statistical tools broken?"
The tools are fine, but their use is improper. To explain, in economics there are many things that can be known by deduction as you pointed out, but there are some things which one cannot guarantee like predicting the exact desirable output for a factory in some unknown future based on collected consumer data in the present. The present collection of data tells us what's happening *now* or more properly what has happened in the recent past, but it doesn't give us indicators of the exact magnitude or nature of the next turn of events. Econometrics are okay for sketching out the history of an economy, but it doesn't reveal any new relationships to construct theories upon.
"The power of liberty going forward is in decentralization. Not in leaders, but in decentralized activism. In a market process." -- liberty student
I watched the first video. It was pretty good. I'll try to watch the first in a little bit. I'm at work, and it's kind of slow right now. Someone linked the Krugman-second-coming-of-Keynes article. I forget the Austrian response to why fiscal stimulus is a failure in a recession/depression. It seems to me that another reason why is on the aggregate the funds are taken from a large number of consumers and investors. This would certainly have a multiplier effect in an economy where products are mostly interdependent. The effect would more limited if the fiscal stimulus were taken solely from one entity. Yeah, the statistical tools are okay. It's simply mathematics. The mathematical models and data are descriptive, not prescriptive, or at best just a guess of future trends.
I picked up Applied Economics by Thomas Sowell. I'm reading that right now. It's a fairly easy read.
shackleford:Someone linked the Krugman-second-coming-of-Keynes article. I forget the Austrian response to why fiscal stimulus is a failure in a recession/depression. It seems to me that another reason why is on the aggregate the funds are taken from a large number of consumers and investors. This would certainly have a multiplier effect in an economy where products are mostly interdependent. The effect would more limited if the fiscal stimulus were taken solely from one entity.
You'll get an indirect answer for that in the second video, as well as the third. But if you'd like even more, I highly recommend this article (in fact, everyone should read it anyway. And then there was an entire Mises Circle event focused on the failure of the Keynesian state.)
Excellent. For the next step I might recommend Economics for Real People and/or Common Sense Economics (both of which you will find links to free downloads there). (Or you might go back to Sowell's Basic Economics and/or Lessons for the Young Economist. Both of those are more introductory books, whereas the former two might be considered more intermediate. Either way How an Economy Grows and Why it Crashes is one anyone can and should read, anytime.)
I don't think it's true to say that Austrian-school economists weren't able to predict the housing bubble/bust. There were plenty of people trying to sound the alarm, but times were so good, nobody wanted to hear it. Even the Bush administration tried to fix it twice in the years preceding the meltdown, which was ultimately unsuccessful mostly because congress wouldn't allow it. A few friends of mine are econ-guys, and they saw it coming at least a year in advance, and they were sounding the alarms to anyone who would listen... and most people would just look at them funny, as if to say, "why are you guys such downers?"
Now, I do think the Keynesians will have some splainin' to do, since they were all convinced that they could fix all this by printing and spending money. When it didn't work, their only defense is epitomized by Krugman, who believes it's not working because we didn't print and spend enough. This depression-recession-whatever-you-want-to-call-it will be known by most rationally-minded economists as the end of the Great Keynesian Experiment. Of course, Keynesians will continue as usual - their plan didn't work because of all the greedy, low-brow banks and consumers who refused to spend their money like they were supposed to.
It's so stupid. Their defense is it could have been much worse. I remember my macro professor saying that. It would have been even worse if we didn't spend the money!
shackleford:It's so stupid. Their defense is it could have been much worse. I remember my macro professor saying that. It would have been even worse if we didn't spend the money!
According to the very people who said it had to be done, everything would have actually been better if they had actually done nothing. No seriously. They said so. Have a look. (Starts at 0:42)
I think it's important to know that beyond the bravado, it looks like it's probably the case that REALLY, very few mainstream economists, really believe anymore that their models can predict anything or can stand to make any reliable predictions, at least not since the 60s. And this isn't abskebabs the radical "Austrian" speaking, I can tell you for a fact this is pretty much the opinion of the guy who taught us econometrics this year! Correlation doesn't necessitate causation and finding high R^2 regressions hardly settle issues.
Furthermore, even though it is apdictically valid that for 2 independent distributions that the covariance is zero, the reverse is certainly not necessarily the case, as in the case for instance of many joint probability distributions that are symmetric about the mean of one of the variables. Also, even for probability distributions that are mutually exclusive, it's highly unlikely that you'll necessarily yield a covariance of -1. Try it on a few distributioins you know, e.g. with a pack of cards and you'll see.
"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 far as the housing bubble, read the FED publication that was sent out to all banks. After that it is easy to link financial crisis.
I start my masters program in december. Tell all your freinds to visit.
Austrian economists did not predict the current recession; neither are they predicting future hyperinflation. They aren't predicting anything. I know it seems like they are predicting something, but they're not. A prediction is something more than declaring that some event will happen sometime in the future. An unbounded existential statement is not a prediction. Austrian "predictions" of the current recession and future hyperinflation are like "predictions" that unicorns exist and will be discovered one day. No matter how long we go without finding a unicorn, the claim is never falsified. And if a unicron is discovered we can claim to have accurately "predicted" the event.
Okay, maybe I am being a wee bit harsh. Not all Austrians do this, but some surely do.
Modus Tollens:Austrian economists did not predict the current recession; neither are they predicting future hyperinflation. They aren't predicting anything. I know it seems like they are predicting something, but they're not. A prediction is something more than declaring that some event will happen sometime in the future. An unbounded existential statement is not a prediction. Austrian "predictions" of the current recession and future hyperinflation are like "predictions" that unicorns exist and will be discovered one day. No matter how long we go without finding a unicorn, the claim is never falsified. And if a unicron is discovered we can claim to have accurately "predicted" the event.
Oh please. This "perpetual doomsayer" nonsense again? Is that what you'll call me if every time you ask me, I reconfirm that yes, you will die someday? I'm just right by default because if I say it long enough eventually it will happen? Or is it that I happen to know something about the reality of your biological makeup, that makes certain things inherently true?
Are you really going to argue that there is no such thing as cause and effect certainty? Is there absolutely nothing that can happen in this world that would allow one to say with a virtual certainty that a certain effect will occur?
And on top of that, these "predictions" were not just blind comments. They were explanations in detail of exactly what would happen and why.
Watch an Austrian do just that...
John,
I've seen the speech. Back in 2009, I agreed with Schiff. I thought purchasing gold seemed like a good idea. I read Murphy, Woods, and others at the Mises Institute and was genuinely concerned about pending hyperinflation. But the hyperinflation has been imminent for 3 years now. Eventually I decided that I was just wrong -- time to look for answers elsewhere. At what point do you call it? How long do we have to wait?
Your certainty is just a feeling; it offers no protection from errors, but it can blind you to them. Learning is a risky business. Every time you cast a judgement it is possible you are making a mistake, but unless you put your ideas on the line you'll never learn anything at all. Maybe the explanations behind these "predictions" seem compelling to you, but that is just all the more reason to be critical.
Modus Tollens:hyperinflation has been imminent for 3 years now.
Well there's your problem right there. You obviously didn't listen to any one of the people you've mentioned.
Modus Tollens:I've seen the speech. Back in 2009, I agreed with Schiff. I thought purchasing gold seemed like a good idea. I read Murphy, Woods, and others at the Mises Institute and was genuinely concerned about pending hyperinflation. But the hyperinflation has been imminent for 3 years now. Eventually I decided that I was just wrong -- time to look for answers elsewhere. At what point do you call it? How long do we have to wait?
It's the unprecedented money creation that delayed it. Nobody could have predicted that. As soon as that stops we are going to see the effects Schiff has been predicting for years.
Nero,
How does printing money delay hyperinflation? I always thought it increases inflation?
To Modus Tollens:
Do you regret buying gold in 2009? Gold began 2009 at about $875, ended 2009 at about $1,100. Now it's flirting with $1,500. What's not to like?
Lately Peter has been saying we will have high inflation, say 20 to 30 percent a year, but it remains to be seen if the govt will do enough printing to create hyperinflation. He thinks they just might avert it at the last minute. What is the definition of hyperinflation? I've seen two definitions. Over !00% a year, or so high that people dispose of money the instant they get it.
The theory is that price inflation is caused by printing money, but that there is a lag between the creation of the money and they increase in prices.
I don't know how long wehave to wait, but from my shopping for food and gasoline, he have high inflation now.
One last thing. Peter claims the increase in gas prices from $2 to $4, and the rise in commodities across the board, is a consequence of QE1. We have yet to feel QE2.
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It's easy to refute an argument if you first misrepresent it. William Keizer