Without a grasp of the latest research, you have no idea how relevant your criticism are. It'd be like criticizing free marketers by quoting Adam Smith on the labor theory of value.
Assuming economics was a neutral/apolitical science, you'd be right. However, modern academia is heavily influenced by politics - look at Hal Lewis's letter of resignation in which he mentions the "money flood" and he's a physicist! It's pretty tough to politicize the spin on a quark... much easier to politicize aggregate demand.
Clayton -
justinx0r, I'm confused. Are you suggesting Coase is David Friedman?
I'm confused. Are you suggesting Coase is David Friedman?
No, it's a quote from David Friedman regarding the distortions and half-truths Rothbard wrote about Adam Smith.
Coase:It's irrelevant, so who cares. Also, didn't understand what you were getting at before. Look, you can't criticize modern macro by finding flaws in Keynes. That's just silly.
And my question is, who was doing that?
Also, you misspelled vocabulary ner ner.
Thanks for the heads up. Who says 14 year old girls on the Internet are useless?
justinx0r:No, it's a quote from David Friedman regarding the distortions and half-truths Rothbard wrote about Adam Smith.
Yeah, I got that part. I'm confused as to why you posted it. And more importantly, why you directed it at me.
The mainstream, for quite some time now, has held the position that predictive power, rather than logical consistency, "is the hallmark of a good theory," and now that the Austrians are famous for their correct predictions (and the mainstream econometric models are infamous for their incorrect ones) it's no longer relevant. We have to hear the same one-liner, namely that "economists have predicted 11 of the last 10 recessions," as if this constitutes some sort of argument and/or actually diminishes the explanatory and predictive power of the ABCT (which its always had, by the way).
Also, I always like it when Austrians are accused of attacking strawman. There is some truth to this, but at the same time, you have individuals like Lawrence Summers claiming that the tsunami in Japan will do wonders for its economy! I mean come on now.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
lol, did he really say this? :D In my amateur opinion, if an economist commit broken window fallacy he isn't worth his degree and he is bad economist. But hey, I doubt they teach this in mainstream econ courses... Though I may be wrong.
(english is not my native language, sorry for grammar.)
MaikU:if an economist commit broken window fallacy he isn't worth his degree and he is bad economist. But hey, I doubt they teach this in mainstream econ courses... Though I may be wrong.
Check out the intro...
Well, this just isn't true! The mainstream has never said that logical consistency is not important in a model. In fact, for years now one of the main arguments in favour of mathematical modelling is that a) it forces one to be explicit about their assumptions b) its imposes logical rigour on the models in question.
And as I said, it takes a little gall to say that Austrian models have predictive power when they essentially consist of saying "there's going to be a recession sometime in the future" or "there's going to be a recession real soon" every time we're in a period of economic prosperity.
This is too good! What you did there is said "well, the Austrians do strawmen their opponents because their opponents say REALLY, REALLY ridiculous things like (insert strawman argument here)". Of course, what Summers actually said was a) if you take the standard result that natural disasters boost aggregate demand and b) Japan has been in its economic malaise because of insufficient aggregate demand it follows that c) there's a possibility that the tsunami in Japan might bring some economic benefits, obviously offset by other factors.
Now, you might well disagree with this, but a is a pretty reasonable statement, at least not patently false. b is not worth going into here, but there's a pretty sizeable literature on the subject, so I'd venture to say that it's not obviously ridiculous either.
And the opposite is not true?
lol, didn't anyone tell you that two wrongs don't make a right? Seriously, you guys are the ones outside of the mainstream discussion here, if you want to be part of that discussion its probably not a bad idea to take their positions seriously. Shrill pieces showing the ridiculouslness of ridiculous strawmen won't get you too far in that!
I have never in my life heard anyone cite passages from The General Theory in anything other than a critique of the text itself. And even then it's been less than a handful.
For realz?
Got any examples?
Yep, they're all contained in Pepall, Norman and Richard's fantastic IO book! Or Varian's Intermediate Micro book! Or Macroeconomics by Carlin and Soskice! Or, well, within any number of relatively basic economics textbook that you have never (and will never read). Of course, I suspect you wanted me to type out the model with you or spend the time looking on the internet for one, so you could ignore it.
So yeah, there's some reading for you. Check it out, or don't, attacking strawmen is pretty fun too.
Kind of like how the tales of big Paul Bunyan dragging his big axe on the ground and Pecos Bill ridding a tornado and then getting lost in the desert and being thirsty helped us make a great deal of sense of the Grand Canyon and the Rio Grande.
Yes, that is a perfectly reasonable and fair analogy to the point that I was making.
And astronomers and geometricians can kick up a fuss about how assuming the Earth is flat just because the horizon looks flat is a flawed analysis, but if it helps us explain why Austrialians don't fall off the bottom (and informs travel restriction policy) that's pretty good.
Right, except, no because that theory would lead to a whole bunch of bullshit predictions. A better example would be when physicists assume that there is no friction, of course, it isn't literally true, doesn't mean that the model is useless though.
And you think any of this is relevant because, what? ABCT didn't predict and/or can't explain a certain recession? Which one might you be talking about?
It turns out that if you want to make an empirical claim along the lines of "the drop in output between year y and year z can be explained the Feds action by mechanisms a, b and c" then you're going to have to provide data in favour of that claim. Asking others to show how the data is inconsistent with your model before you've provided the data or the model, is a little bit lazy!
Say there is a man armed to the teeth on the roof of a building in a crowded city. He tosses 100 live grenades a day from the roof onto the street. The local police assure everyone that everything is just fine and that the grenades pose no danger. The Austrian prediction would essentially consist of saying "Someone is going to get killed sooner or later." Would you say they are predicting 11 out of the next ten deaths?
AE explains WHY the govt meddling [=tossing grenades] we are constantly experiencing will produce recessions [=someone getting killed] after a boom period [=the fun of watching the grenade fly through the air].
It desn't strike me as a valid criticism of AE to say "You keep saying the same thing, lighten up for once." More convincing if you could show counterexamples to the prediction, and/or WHY the prediction doesn't follow from the given information [=explaining why no one will die from the tossed grenades].
Now, you might well disagree with this, but a is a pretty reasonable statement [to say tsunamis are wonderful for Japan. Shame we don't have a few more Katrinas ourself, one in every state, so we could finally see some green shoots].
You poor thang, brainwashed to believing the Emperor has New Clothes. Your only possible escape is a fat dose of humility, so you could ask us humbly why Summers is so wrong.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
The distinction between "mathematical" and "verbal" methods is a false dichotomy, there is no meaningful distinction between the two... all math can be stated verbally and all (formal) verbal arguments can be stated mathematically. So, all the "you like Austrian economics because it doesn't require math" bullshit is just a veiled appeal to authority to try to intimidate non-experts into silence. I'm more comfortable with math than I am with economics but I can clearly see with my own two eyes that the bullshit-per-word ratio among Austrian economics is much lower than in mainstream economics.
The trouble with the mainstream social sciences is that they really, truly do not understand what mathematics is. Let's start with set theory, perhaps the most foundational of all modern mathematical disciplines. A set is constructed in the following manner: "All objects with property X are a member of this set." So, if X is "divisible by 2" then the set is the set of even numbers. And so on. But this idea of properties is very intriguing... can we choose just any property and substitute it for X? The answer is no, you can't. Some properties are self-contradictory, such as the defining property of Russell's set ("a set which is not a member of itself"). The difference between analytical objects - the synthetic objects of mathematical study, such as line segments, fractals or pi - and empirical objects is that the properties of analytical objects are exhaustively known, whereas the properties of empirical objects are only partly known. So, when I say "the set of all red objects", I'm not talking about a truly well-defined set since there is actually quite a bit of fuzziness around what red is, exactly, and what it means for an object to be a particular color. This is quite different than the situation with even numbers because the properties of natural numbers (what it means to be a natural number) are exhaustively known.
Saying "we use mathematical methods in modern economics" as some sort of boast is silly. The properties of the simplest physical objects - quarks, gluons, etc. - are not exhaustively known. The human brain - and even more, the sum of all human brains, human society - is the most complex physical object we know of. Physicists struggle to put meaningful error bounds on their models, even though they are dealing with phenomena that are quite simple by comparison to the phenomena of the social sciences. So, I really don't understand the prancing and strutting over the use of mathematical methods in economics or other social sciences.
Finally, Austrian economics has something that obviates the need for statistical-wizard economists... it's called the entrepreneur. UPS has a software program that maps out routes for its delivery trucks in such a way as to minimize the global number of left-hand turns taken by all trucks. This is an astoundingly complex computational problem, a lot harder than some multiple linear regressions run in Matlab. It is entrepreneurs who model the economy and respond to consumer demands. If they can profitably use statistical methods to do this, they will.
"UPS has a software program that maps out routes for its delivery trucks in such a way as to minimize the global number of left-hand turns taken by all trucks."
Did not know that, very awesome.
Is this seriously coming from the person who claimed that Austrians defined utility as purely physical pleasure felt from performing an action or achieving a goal?
As someone who has managed to trudge through sections of the book, all one can do is criticize the theories that Keynes either creates himself or are Malthusian fallacies brought back from the dead. Anything from Keynesian capital theory to his view on savings is up for grabs.
Yep, they're all contained in Pepall, Norman and Richard's fantastic IO book! Or Varian's Intermediate Micro book! Or Macroeconomics by Carlin and Soskice! Or, well, within any number of relatively basic economics textbook that you have never (and will never read). Of course, I suspect you wanted me to type out the model with you or spend the time looking on the internet for one, so you could ignore it. So yeah, there's some reading for you. Check it out, or don't, attacking strawmen is pretty fun too.
You don't think it's a little demanding to have the person you're debating with read three books before continuing the discussion with you? If I bluntly told you to go read Man, Economy, and State, Economics in One Lesson, and The Theory of Money and Credit you'd rightly call that ludicrous. But if you post the models I can assure you that someone on this forum will address them.
I don't understand why you're so beholding the statistical analysis in economics. Statistics do not operate under the condition of ceteris parabus, and even if they did every consumer has different preferences which would be expressed in the market despite what you're professors might tell you about homo economicus. Even claiming that you can map such a complex and chaotic system as an economy with models which spit out precise data on how much output or real income will supposedly be effected by following a certain policy is narcissism of the highest order.
If this is truly the intellectual rigor and education you are receiving at your graduate institution than it seems like you would've been better off just burning the tens of thousands of dollars required in tuition fees for the warmth of the flames.
EconomistInTraining:lol, didn't anyone tell you that two wrongs don't make a right?
I wasn't necessarily agreeing with your assertion. I was just pointing out how you refuse to even mention that Austrian theory is the most caricatureized of any. What is the point of accusing a wrong that you yourself are guilty of? Even if the other side is guilty as well, how in the world does that help your case? You seem to think that "two wrongs don't make a right" is a valid trump of being a pot calling a kettle "black."
Seriously, is the Internet getting so crowded that teenage girls are spilling over into economics forums?
1) You have no idea who I am or what I've read. You really don't want to go there.
2) I wasn't asking for examples of "a decent Intermediate Micro/ Macro II book". I was asking for examples of this "lot of stuff that flies well under the radar of most Austrian discussion". Please provide some specifics as to significant and important aspects of economics that are found in intermediate textbooks that are ignored in Austrian discussion.
I'll say. They are perfect examples of things that, "while somewhat 'unrealistic', help us make a great deal of sense of the world out there." Just like you said.
Austrians don't have problems with thought experiments. They have problems with forming policy based on untrue assumptions.
What does any of that have to do with my question or the statement I was responding to? Which recession are you asserting Austrian theory did not predict or cannot explain?
While this is undoubtedly a fascinating conversation, would you guys mind taking it to another topic?
The "Austrian" model also predicts the calamitous effects of various government "counter-cyclical" interventionist policies. According to the Austrian framework, the attempt to re-inflate the economy and bail-out unsound business practices will "prolong the agony" and turn a sharp and quick depression phase into a "lingering and chronic disease" (as it facilitates the accumulation of malinvestment and prevents the structural realignment necessary for a sustainable and sound recovery).
I have read many books from Rothbard, Hayek, Mises, Woods, Murphy, Schiff, Menger, etc.
Every once in a while i will read journal entries made by institutionalists or keynesians or socialists. I have read William Stevenson, Krugman, Keynes (yes, General Theory, although i'll admit i only read about 250 pages of it. I can see it on my shelf getting ignored while i read Schumpeter) Das Capital was brutal because it was in a political philosophy class (i read it alongside Carl Menger's "Principles" and wrote my term paper comparing the two and calling Marx out for obfuscating economic language and forever confusing people who start their learning of the subject for his PoV. There really aren't any books that aren't very specific and over my head about econometrics, behavioral, public (welfare) economics.
Plus, being in a Big Ten school i am subjected to the other points of view constantly. My public policy class was not about government finance it was theoretical health economics. "Social Margin, cap and trade, etc." It was miserable. I am going to do a full blog post to expose Jonothan Gruber's "Public Finance and Public Policy" textbook is a propaganda tool. The author has a PhD in Economics from MIT and is the chairman of a public health research NGO.
I am a member at the "econgirl" blog, she and most members are very hostile towards Austrian economics and she admitted when the Keynes vs. Hayek rap video came out that she knew nothing of Hayek and had only auxiliary knowledge of the Austrian school of thought, despite her PhD in economics from Harvard... She was, however, somewhat familiar with Frederic Bastiat. I suspect that many don't see the connection of the French Liberals and Austrians that Rothbard expounds constantly.
My current E305 Money and Banking class has so far avoided any kind of lay language regarding central and/or fractional banking. I have raised my hand a few times to bring issues up and when we got to the central banking chapters my professor prefaced the lecture with Ron Paul and dissent of the Fed. We went over McFadden and his regulations, but not his mysterious poisoning...(haha =/)
So, yes, i read the opposing views. Doing so is the only way to call yourself "right" anyway. You cannot wander around the world knowing nothing of others opinions, but subjecting your own ignorant opinion to them. I also find that at a school where more people are concerned about getting drunk, than about learning, that it is rather easy to talk sense into them one on one. They have no intellectual defense. They are puppets, zombies, dupes, marauders, for the mainstream news and other opinion molders (their professors and jon stewart).
Eating Propaganda
What do you mean i don't care how your day was?!
It's irrelevant, so who cares. Also, didn't understand what you were getting at before. Look, you can't criticize modern macro by finding flaws in Keynes. That's just silly.
In a certain sense, no it's not. What Keynes provided macroeconomics was a common framework, through the interpretation of Hicks and Samuelson. So, if you disprove Keynes you can disprove the basis of the common macroeconomic models. Some of the relevant concepts: marginal efficiency of capital and liquidity preference theory of interest.
Heh, I read nothing but the alternatives.
These days, I have taken an interest in Post-Keynesian and Modern Monetary Thinking ideas, although often feeling suspicious of them from particular perspectives, especially given their rather circular "Taxes = Demand for Money" argument.
I only read the Austrian School's books in sudden bursts, in which I am on a long hiatus from Austrian School literature, and then suddenly read several small books of theirs during a short period. That way, Austrian books always seem fresh and fascinating.
In my life, I have not read one single full blown treatise on economics, and always stick to smaller, topical books, sorted by monetary theory or international trade or cosmopolitan finance and so on. There is so much effort involved in understanding every single treatise, as I have discovered from others, that it takes you a while before you have even decided whether you agree with the ideas.
This is spot on. It's funny how Austrians characterize the current macroeconomic debate as themselves vs. the Keynesians (see Hayek/Keynes rap). Don't they know that Keynesianism has been shot down long ago by the Lucas critique?
Claudius,
Rejecting Phillips' Curve is not the same as "shooting down" Keynesianism. This is evident by what I said earlier, about the fact that even Neoclassical models are based on principles largely established by Keynes and his interpreters.
The policy prescriptions of Real Business Cycle Theory (neoclassical school of macroeconomics which grew out of Robert Lucas' rational expectations) is the diametric opposite of what Keynes prescribed. Have you ever heard of saltwater vs. freshwater?
"Taxes = Demand for Money"\
Shouldn't this read, "taxes=demand for legal tender"?
The policy prescriptions of Real Business Cycle Theory sound good, basically govt stays out of the way. Too bad it reached the right conclusion from the wrong assumptions.
It's sorta like this:
1. 2 plus 2=5
2. Add your age.
3. Therefore, laissez faire is the right response.
I think Austrian economics appeals to the economically illiterate because it's not a rigorous science. Its outright rejection of empirical evidence, refusal to make use of econometric and statistical methods, and lack of mathematical formalization allows anyone with a moving pie hole to join in the debate.
This is more than just being a dick, this is obvious trolling.
Have you ever heard of saltwater vs. freshwater?
That debate is actually rather trivial from the Austrian perspective. It consisted of essentially various branches of the same general school of thought quibbling over minor issues (such as interest-rate targeting vs money-supply targeting, and the effectiveness of monetary policy vs the effectiveness of fiscal policy, etc). Some Austrians don't even see a big difference between Friedman and Keynes (except when it came to monetary theory, of course, but their general frameworks were essentially identical).
Both sides employed the income-expenditure model, adhered to what Hayek called the "mythological" notion of capital (a self-replenishing "fund" consisting of perfectly homogenous, complementary and substitutable capital goods, which merely "expands"), focus exclusively on the roll of fixed capital (durable goods), assume that the demand for capital goods varies in the same direction as the demand for consumer's goods, etc.
Also, Austrians use the term "Keynesian" in the most general sense possible, namely referring to those that hold certain assumptions (some of which I've mentioned already above). This includes Keynes, Neo Keynesians, New Keynesians, supply-siders, and possibly monetarists.
And EconomistInTraining goes missing...
That's his modus operandi; debate and ridicule opponents, disappear like smoke in the wind whenever any of his statements are seriously questioned. He's done this before in other threads when debating people like Esuric and liberty student.
Also, Austrians use the term "Keynesian" in the most general sense possible, namely referring to those that hold certain assumptions (some of which I've mentioned already above).
Not just Austrians, but some Keynesians themselves. Garrison's interpretation of Friedman as a "Keynesian" is actually heavily based on Axel Leijunhufvud's "Keynes and the Keynesians: A Suggested Interpretation", where he writes,
One must be careful in applying the epithet “Keynesian” nowadays. I propose to use it in the broadest possible sense and let “Keynesian economics” be synonymous with the “majority school” macroeconomics which has evolved out of the debates triggered by Keynes’s General Theory (GT).
I'd like all of the elusive commentators that pop up here frequently with hit and run posts about math to start giving their background. Mine: I won an award for the highest math score in my county and generally pretty much aced math all through school (random calculation errors and all that) while skipping grades. "Wild" guess: they are all Joe Average. (Minus sarcasm: I guarantee they are internet posers.)
I was first in my class at Princeton, I have an I.Q. of a hundred and eighty-seven, and it's been suggested that Stephen Hawking stole his Brief History of Time…from my fourth grade paper.
You know I was kind of going to respond in this thread in your favour, because as I've said before, I do think it would do much good if Austrians who are interested in serious intellectual debate read neoclassical economists and their textbooks more seriously. But this kind of bull you've just cited annoys me to no end.
Theories in the natural sciences are built from hypotheses, or more precisely hypothetical propositions used from whom consequences are traced, and when these predictions do not accord with observation they are falsified, but not proven true, since false premises can yield true conclusions. The entire point of this methodology is to refute hypothetical premises concluded to be false. This has NOTHING to do with modelling, which simply refers to the practical application of physical laws in certain scenarios, reasoning as to what factors we can ignore and to what approximation. "Modelling" NOTHING to do with the discovery of physical laws, if you want to emulate the natural sciences then you should perhaps learn the entire point of their methodology, and certainly not mistake empirical corroboration of conclusions of false premises as somehow corrobrating your "theory" built from a tissue of fallacies.
"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."
I support that arguement askebabs.
And so modest! (I kid, I kid).
But it seriously baffles me that these people expect to intimidate us with their ability to solve "complex" DSGE equations. They way they throw out these terms makes it sound like they're a concept they spent three minutes reading on Wikipedia, declared themselves masters of the subject, and then decided to throw it in our faces as some sort of blot against out intelligence. I'm by no means savvy in economics, seeing as its a subject that I've only had time to study off and on for the past year, but even I can see through this facade.
I have not read the alternatives. I received basic mainstream economic education up to the end of high school. They taught me about the business cycle etc. I have no interest in reading up on mainstream intricate mathematical models of macroeconomics because i get my economic education from youtube videos (joke). But there are definitely more mainstream economists that have never heard of Austrian economics, than there are Austrian economists who have never had the privilege of being educated in mainstream economics. I would be willing to read some good books on what would be considered mainstream economics if you could suggest some, but as time is short and there are so many good books that i have still yet to study from the Austrian school. It is unlikely that I will spend too much time on them, if i did it would probably only give me a better way to convince mainstream economists to become Austrian economists.
I plan on finishing MES +HA and some other core works before moving on and read some more mainstream stuff. I don't see any difference between this and starting with the mainstream stuff and reading austrians later, and it is certaintly less dogmatic than ignoring the austrian school entirely.
Its good to read the alternatives, after a point you will become a better economist not by reading more Austrian works but by reading more Neoclassical works (since you will better understand Austrian critiques about them, become more knowledgeable about mainstream economics, and sharpen your critical thinking skills). You don't necessarily have to read JMK's GT to critique Keynesianism, a much better book to read would be a modern macroeconomics textbook (such as one by Mankiw etc).
abskebabs, I knew if I was going to try to get that shit past you it wouldn't fly haha! I'm not going to argue about the natural sciencies with you, but I do think that when you say this:
his has NOTHING to do with modelling, which simply refers to the practical application of physical laws in certain scenarios, reasoning as to what factors we can ignore and to what approximation.
That sounds a lot like what goes on in economics, economists will try to find a simplified model of economic phenomena and put it against the data to find out what forces are the most important etc. But maybe I'm not getting what goes on in the natural sciences. Of course, I'm not sure there are too many (if any) laws in economics (diminishing marginal utility/ marginal returns?) at least not as I understand them in the natural sciences.
As to the rest of you, I dissapeared cause my professors wouldn't let me get a grade for posting here! That and I had birthday celebrating to do, I'll get back to all of you soon enough.
Happy belated birthday btw!(if it was yours)
It's strange in a sense, sometimes I feel like we're all arguing past each other. If what you've described as the goal of economic modelling were to be understood and confined to that description, then it would not constitute economic theory but an empirical branch/attempt to do economic history. For instance in accord with Menger's goods theory you'd use it to carry out statistical analysis to check the effects of changes in prices of fairly specific complementary factors on each other's prices in particular historical situations(Menger cites the stop of cotton imports following the American civl war as a good example, considering its effects on the prices of complementary factors in cotton goods industries and the wages of associated specific labour). In short you'd use it to do what praxeology alone cannot do, to give you a clue as to "how much" as well as the "what." But if you think you're going to use real R squared values to "test" the fact that the goods value of 2nd order goods specific to producing bread don'tl exist when you lack one of the complementary factors, e.g. flour, then you are nothing more than severely mistaken to the point of absurdity.
But just as the models of engineering don't "test" the laws of physics they apply, neither would economic models "test" economic laws(especially if they are built from assumptions already known to be categorically false, in which they would be little more than vain mental masturbation). You are probably right that what can be said by pure economic theory is limited without an understanding of history. I don't think anybody would dispute that. This doesn't make it not a worthwhile endeavour however, and neither would history supercede economic theory as so many seem to have misunderstood since Menger started the Methodenstreit.
I came upon mises.org only as an accident of looking for something in a subject that was until then entirely mysterious to me. After that I began paying attention to commentary by economists in the media. After hearing a painful amount what the typical, representative economist has to say on various matters I lost all interest in the "alternatives". It's a good thing that I did not listen to economists before I studied AE. Otherwise, I would most likely have shut myself off to the subject before learning anything about it.