Austrians often say that mainstream economists are systematically wrong (and corrupt, but lets leave that out of the question for now) my question to you is quite simple. Research institutes aren't profit maximisers in the narrow sense. On the other hand, firms are usually modelled as such, now, why don't firms employ Austrian economists? Presumably if Austrians have correct analysis more often than other economists firms would profit from employing them. So why don't they?
He's almost as generous in making broad, sweeping (baseless) assertions as you are. ;)
Freedom of markets is positively correlated with the degree of evolution in any society...
[Deleted: Send me a PM if you wish to discuss why. Dondoolee]
In States a fresh law is looked upon as a remedy for evil. Instead of themselves altering what is bad, people begin by demanding a law to alter it. ... In short, a law everywhere and for everything!
~Peter Kropotkin
Firms maximize their profits. If corporatism is an option, they'll focus their energy on that to the extent it is profitable for them to do. Understanding the macro-economic inefficiency does not change the optimal action on the firm level. Even if the management would care about the immorality of corporatism, they wouldn't be able not to lobby as this would make them uncompetitive against corporations who do lobby profitably. The state replaces the natural order with a less principled, artificial one.
Consultant, how does this answer my question? As a basic matter of fact, many firms do employ, macroeconomists (amongst others). So my question is quite simple, why don't they employ Austrian economists, given that they're allegedly correct more often on average than "mainstream" economists.
Please leave questions of lobbying, ethics and "natural orders" out of this because I'm not quite sure they're relevant.
Austrians are not more often correct than "mainstream" economists. Austrians do not make predictions since they think that predictions per se are impossible to make. But corporations need some kind of prediction, so they employ mainstream economists. But at least here in Germany (according to ef-magazin.de) there a few big corporations that employ austrian economists since they are more critical in the evaluation of forecasts.
Nassim Nicholas Taleb, though not an austrian economist, explains it in his book "The Black Swan" that people need numbers to clinge on, so they listen so bogus in order to get those numbers instead of listening to realists that say that predictions are nearly impossible to make.
Where have you been for the past two years? Every Austrian in the blogosphere has been touting the fact they've called the recession! Bob Murphy has made numerous predictions about the course of the recession (and put money on it). Granted, they're not quantative predictions, but they're predictions nonetheless. For example, if there were a law that banned Corn Flakes, Austrians (and everybody else) would predict that the price of Corn Flakes would rise, that's a prediction.
So my question is, if mainstream predictions are wrong or at least misguided why do firms make use of such predictions? Surely Austrian predictions on topics such as the business cycle would be of relevance to a large firm.
Okay, sorry for not answering your question.
There just aren't that many Austrians. But a lot of them do participate in the financial system... particularly if you broaden the definition of "austrian" to people like peter schiff. I know Doug French used to work in banking... I think this conversation will be mostly anecodtal. I don't know if there are any studies either of us can point to conclusively.
@EconomistInTraining: Sorry I couldn't help you, thought you meant with predictions quantitative predictions. Maybe the rest of the text showed one part of the puzzle.
But then, this brings us to a different issue altogether. Let's stick with the assumption that Austrian economics are correct more times on average than mainstream economics and presume that firms would like to employ them. Wouldn't this raise the returns to learning Austrian economics and mean that more people would pursue such a path? In any case, there are Austrian economists and my problem is just that I would imagine them being more common in industry if they really were that much more insightful than mainstream economists.
You're right, this will mostly be about anecdotes, and unfortunately the plural of anecdote isn't data. Which is why I don't imagine establishing much here, much less the falseness of Austrian economics or the validity of neoclassical economics. But, I think it's an interesting question nonetheless. As an aside, forgetting Austrian economics why do firms employ mainstream economics if they're consistently wrong?
economistInTraining:Wouldn't this raise the returns to learning Austrian economics and mean that more people would pursue such a path? In any case, there are Austrian economists and my problem is just that I would imagine them being more common in industry if they really were that much more insightful than mainstream economists.
Even if the underlying philosophies of economists are wrong, the market test will sort out which models and methods are good.
economistInTraining:As an aside, forgetting Austrian economics why do firms employ mainstream economics if they're consistently wrong?
EconomistInTraining: Austrians often say that mainstream economists are systematically wrong (and corrupt, but lets leave that out of the question for now) my question to you is quite simple. Research institutes aren't profit maximisers in the narrow sense. On the other hand, firms are usually modelled as such, now, why don't firms employ Austrian economists? Presumably if Austrians have correct analysis more often than other economists firms would profit from employing them. So why don't they?
Because no one can predict what government policy will be, so Austrians are no better at predicting the future as opposed to anyone else. So their analysis is not necessarily any better than anyone else. Peter Schiff and Mike Shedlock are two examples. One thinks there will be deflation, the other thinks there will be inflation. Both are from the Austrian school of thought.
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
the market test will sort out which models and methods are good.
That's precisely my point, if that's the case why aren't more firms employing hordes of Austrians to for signs of the coming recession or whatever?
They're consistently wrong on fox news, when they're not getting paid and can just run their mouths to satisfy their political agenda. The reality is that most banks *really did* know that the housing market would collapse, that the stimulus wouldn't work, etc etc. Mainstream economists are probably really good when they have to put their money where their mouth is.
Well, Fox news is hardly relevant to the question. Sure, Fox news may employ idiots like Beck to bullshit for a few hours so they can keep a few rednecks happy. This doesn't prove that he's correct, it just proves that people will pay large sums of money to feed their own irrationality. With large firms it's a different story altogether, part of the problem for any firm is figuring out what's really going to happen in the economy, what effects will a given piece of regulation do, what's likely to happen to exchange rates and where inflation is headed.
By the way, of course banks knew that the crash was coming. The problem was that knowing that a crash is coming is altogether different from knowing what form it will take and when it will happen. Nobody knew exactly when the crash was coming, if investors knew today that a crash was coming tomorrow, it'd hit today.
You can make predictions with some level of specificity. The problem with big business is that they pull people out of business and finance schools, which teach economic modelling as a component of business decision making. Before these people even get jobs they are already bamboozled by the mythical need for full time staff economists for continual structural modelling. Then they go out and hire these fellows who are too happy to get paid to play into the delusion. It's a popular snake oil market.
Peter Schiff is good because he works on the ground level as an entrepreneur and combines this with being able to detect the bad signs.
Sure, but why do businesses continue to employ these people? The price of PhD economist is pretty steep and yet firms will often pay good money for them, alongside there mathematical modelling abilities.