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.
Is that because mathematical modeling is not core?
I've never known an Austrian to ever reject modeling in toto, only poorly-constructed models on an individual basis.
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.
Marginal analysis, the cornerstore of modern economics, is based on axiomatic logical deduction. If we can't have a priori knowledge, then we can't have economics, or philosophy, or any science.
You use statistical tools to make inferences on the largest portions of data.
If your statistical tools are broken then you're going to get flawed results.
What is the Austrian reason for the financial crisis?
To simplify a rather complex issue, the manipulation of the money rate of interest via credit expansion on the part of the Federal Reserve.
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.
You'll be a minority if you're in an economics program and you're an Austrian. You'll most likely be a minority if you're anything on than a neoclassical, to be honest.
Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse
Many Austrian economists predicted the housing bubble. Likely the best known Austrian warning of the crisis was Peter Schiff who was scoffed at.
Read this Mises Daily by Daniel James Sanchez analyzing the stunning wrongness of Federal Reserve Chairman Ben Bernanke. The YouTube video he cited is no longer available because the YouTube account associated with the video was terminated due to multiple third-party notifications of copyright infringement from A&E. You can watch it here.
There is a good explanation of the crisis from the Cato Institute.
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? I thought poor government policy, legislation, and regulation led to a great number of mortgages being given to those who could not afford it. Combined with the securitization of mortgages, when the incredible number of loans defaulted, the insurer of those loans could not pay the claims thus having a massive ripple effect in the economy. I certainly understand how the Fed has been introducing artificiality in the market for a long time. I asserted that you want the most natural market as possible. I was told that's not possible and that large markets only exist with massive government intervention. To this person, it was a good thing. I would characterize myself as free market/Austrian. How much of a difference is there between the two? I say free market because I like a lot of Milton Friedman's principles or positions on market dynamics. However, if I'm not mistaken, I think he views the Fed as having a legitimate function.
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.
You're kidding, right? As opposed to the reasonable mainstream view, which is, "Capitalism did it!" Like a little kid crying that his bicycle bit him when he fell off...
The financial crisis was precipitated by a gigantic bubble in housing, caused by artificially depressed interest rates making credit artificially easy. Real consumer preferences became desynchronised from expressed consumer preferences. Without the essential price of a free interest rate available to lenders, they can only miscalculate on a grand scale.
The real 'problem' with Austrian economics is that it concludes that there's nothing for a central planner to do. That's why pompous annointed experts in the position of central planner aren't inclined to mention it with respect in polite company. Do you really find it surprising that they prefer dull-eyed econometricians who will look at a single arbitrary data point and inevitably conclude that there is something to be done - some legitimate purpose the omniscient central planner can fulfill?
Pretending that you're quantifying something fundamentally unquantifiable, such as human desire, is just wishful thinking. It doesn't make it so.
How is trying to simplify the billions of ever-changing wants of millions of people in some graphs and small equations not a silly, broken and doomed concept?
I am not kidding. I could post a link to the thread, but this person may actually post on here. I doubt it, but I'm not sure. Personally, I think this person is full of crap. I disagree with virtually everything we discussed. I was not versed in the Austrian line of thought, but I understand that you do not want artificiality in the markets. Government is practically soley responsible for such matters. Also, according to this person, centralized planning worked in the Soviet Union in the 1950s, but it didn't work in the 1970s. I said then it didn't work. It could for a limited amount of time, but it was unsustinable and simply took a few decades to not work.
Having this philosophical bent, is there a job for us out there? I'm considering a master's in economics, but I'm trying to determine if this is simply a serious hobby for me.
I agree. I was told the opposite should work. We look at the market activity and make our assumptions from that.
"I'm a math major, physics minor senior. How are the statistical tools broken?"
in physics and math you deal with fixed resources. But humans are not fixed. They are not numbers. Their values are always changes because they are never going to be satisfied with what they have.
"I would characterize myself as free market/Austrian. How much of a difference is there between the two? I say free market because I like a lot of Milton Friedman's principles or positions on market dynamics. However, if I'm not mistaken, I think he views the Fed as having a legitimate function."
well, Friedman's methodology was positvism and he was known for his infamous book, "Essays in Positive Economics ".... I cannot find the source of the quote at the moment, but I think this is the book where Hayek said that this is the 2nd most dangerous book in Economics after Keynes' General Theory.
My Blog: http://www.anarchico.net/
Production is 'anarchistic' - Ludwig von Mises
Right. It is silly to expect or apply such explicit and deterministic laws with human action.
I have not read any of Friedman's books, just listened to some interviews and discussions on Youtube. I liked his free market ideals. I downloaded Human Action; Man, State, and Economy; and Individualism and Economic Order, but I have yet to read a lot. I may buy the books, though.
Friedman is awesome...his methodology shouldnt keep one away from studying him
I like his free to choose concept. His exchange on youtube with "Michael Moore" is fantastic, in my opinion. I always break things down into principle and philosophy. Practicality can always sort itself out once you have a correct foundation. I guess I should study his laissez faire approach.
shackleford:they have not given any reasonable explanation for the recent financial crisis.
Business cycle theory is like the most important aspect of Austrian economics, lol. Austrian theory explains the crisis, mainstream and Keynesian theory does not quite square with the data.
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.