Economics Questions

Re: Using empirical support only when it suits us?

Isaac "Izzy" Marmolejo — Thu, 13 Jan 2011 06:51:13 GMT

Its a myth to say that Austrians don't use empirical evidence... We criticize the mainstream economists for using empirical evidence for TESTING theories and economic law. But to Austrian Economists, we do not need to test basic economic law because economic law is just fact. For example, we do not need to test that a circle has 360 degrees, it is just fact that a circle is 360 degrees. Same thing applies to economics, we do not need to test the law of demand because we already know it as fact... Austrian Economists use empirical evidence to ILLUSTRATE economic theory, we do not use empirical evidence to TEST theory. We do not need empirical evidence to prove our theories and laws, we only use such evidence to illustrate our theories or laws, but the mainstream need empirical evidence for their theories and laws because they are too concerned about testing the law and applying the scientific method to economics.

I would suggest to you to watch this Walter Block lecture that talks about empirical evidence.

http://www.youtube.com/watch?v=Xn6TXqgyj_M start at 13:45...

Re: Using empirical support only when it suits us?

In Restraint of State — Thu, 13 Jan 2011 06:28:31 GMT

Kaz makes a great point. It's important not to fall into that trap. Something only becomes an empirical issue when theory (which should be logically deduced, though these deductions themselvse are based on empirical observations such as people acting and such) shows there to be forces in play that counteract each other. Then it becomes an empirical issue to measure the magnitude of each effect or simply see which one wins out. Then there is of course trying to explain why the winning outcome won out.

Re: Using empirical evidence only when it suits us?

Solredime — Tue, 11 Jan 2011 00:27:28 GMT

There is no such thing as conflicting data. Only interpretation of data can conflict.

Just thought I'd quote that, because it is very true. Assuming reality is unable to contradict itself, this is exactly true. If you've got conflicts, then either the data was obtained using faulty methodology, or you're interpreting it wrong.

Re: Using empirical support only when it suits us?

Kaz — Tue, 11 Jan 2011 00:06:01 GMT

"As a recovering Austrian economist, I think that the key flaw in Austrian economics is its insistence that economics is an a priori rather than an empirical science. As a result, when empirical evidence supports their positions, they use it. When empirical evidence falsifies their positions, they declare that it's irrelevant because economics is a priori."

I agree with Krugman's point on this, which is a horrifying manifestation of precisely what I've been warning about for some time:

The Rothbardians (not real Austrians) ignore the facts, history, and metrics whenever they feel like it, and then suddenly get interested in using them in those isolated cases where they seem to support the point desired...and this leaves socialists like Krugman and Bernanke with a powerful weapon to discredit REAL Austrian thought.

I just replied to another post, in fact, where this comes up...

Tom Woods tries to claim that everyone living in the Long Depression was wrong about how bad it was, based on his use of METRICS that claim prices fell, yet somehow the economy was just wonderful.

Meanwhile, Rothbard refused to accept the clear metric evidence that the 1920s were not an inflationary boom, but in fact a period of price stability, while he was wrongfully claiming that the Great Depression was caused by that boom, and somehow NOT by the Fed contracting the money supply by 30% in 1929.

Likewise, Rothbardians claiming that the current economic depression was caused by INFLATION of the money supply in the 2004-2008 period, when any examination of the facts shows that the growth of the domestic money supply was at a 60 year low during that period, could be refuted by anyone with a simple chart...leaving me to dread someone like Woods or Murphy actually being confronted by such a chart in a debate with someone like Krugman or Bernanke.

We'd end up with Rothbardianism being debunked...but with Austrianism being seen as discredited, in its aftermath. The former is deserved, the latter would be a disastrous fallacy.

Re: Using empirical support only when it suits us?

In Restraint of State — Mon, 10 Jan 2011 23:48:53 GMT

what Michael said.

Also, something becomes an empirical issue when theory says that there are factors that counteract each other. Then you have to measure which effect dominates and try to see why(sometimes this is also influenced by outside factors). Even in some(probably many) of these cases where it's an empricial issue, there is likely no way to calculate the overall effect coming from a specific factor.

Re: Using empirical support only when it suits us?

Sieben — Fri, 07 Jan 2011 12:59:51 GMT

The math on the thread is just junky. The actual idea is pretty simple.

I don't think models like that prove anything at all. Just that you can fit a curve to data. The point is that there is no such thing as a reality that can't be made to fit your worldview. This is bad if you let leftists get away with it. This is good if you show leftists you can pull their crap too (in my case, in a much more sophisticated way). So you force them to retreat back to theory which is where you want to be anyway.

Re: Using empirical support only when it suits us?

Jonathan M. F. Catalán — Fri, 07 Jan 2011 08:18:33 GMT

I've noted that a lot of Austrians have tried to use empirical evidence to try and prove a point, rather than simply illustrate it (or apply theory to history), and it's something I've commented on (one and two) before. However, I don't think it's a widespread problem, or a general contradiction within the Austrian School.

Re: Using empirical support only when it suits us?

slugmises — Fri, 07 Jan 2011 08:05:16 GMT

Thank you I. Ryan for explaining well the point I'm trying to get across. To ensure credibility and consistency, I would think these tactics would be highlighted and discouraged here.

@ Caley, I'm not sure I completely understand your analogy but I think I get your gist and appreciate your contribution.

@ Sieben, impressive thread. Hopefully someday I'll be able to understand it. :P

Re: Using empirical support only when it suits us?

Sieben — Thu, 06 Jan 2011 16:35:30 GMT

It is a total mistake to use empirical evidence, especially the way they do. It assumes an instant relationship between cause and effect. "The tax rate was 50% and we had 5% gdp growth. High tax rates are okay!". I have a rant/solution here.

Re: Using empirical support only when it suits us?

Lewis S. — Thu, 06 Jan 2011 16:02:02 GMT

Caley wrote:

What mainstream economists do is find one "killer" study and go straight to option A. At that point we're expected to immediately call the demolish firm to raze the Mises Institute and burn the books in every library and start QE1-100 or whathaveyou.

Exactly. And it's important to note that whenever Austrians do cite a historical example, mainstreamers hardly ever (I want to say never) provide any theoretical interpretation of that example to show why it's not worth considering; it seems they would rather just ignore it and go about their "book burning." Austrians, on the other hand, can and do couple historical exposition with theory. To be frank, I'm not quite sure who the economists are that resort to empirical data for tactical reasons. From my experience, Austrians often resort to statistical data to demonstrate that mainstream intrepretations of that data are simply wrong. To do this, one needs to apply theory as well.

One instance comes to mind - DiLorenzo has a lecture where he breaks down Standard Oil's pricing history, but his point was that the actual data does not support the common understanding that prices were increasing and production decreasing rather than to use it as any kind of example of the workability of Austrian theory. Granted, he's responding largely to the laymen, but I've seen many a mainstream economist foolishly cite Standard Oil as an example of monopoly.

Re: Using empirical support only when it suits us?

I. Ryan — Thu, 06 Jan 2011 15:13:27 GMT

slugmises:

"As a recovering Austrian economist, I think that the key flaw in Austrian economics is its insistence that economics is an a priori rather than an empirical science. As a result, when empirical evidence supports their positions, they use it. When empirical evidence falsifies their positions, they declare that it's irrelevant because economics is a priori."

Exactly, I've had that thought for a long time.

Sure, it's fine to use an example in history to illustrate your point, but it's simply demagoguery to act as if you're doing anything other than giving an example. And, in fact, a non-historical example would work just as well for this, but usually they favor the historical ones for two purposes: (a) if their audience believes that it actually happened, the example will be more "vivid" in their minds (where it would take some solid fiction writing ability to pull that off with something made up), and (b) it catches the people who still take empirical evidence seriously into being more likely to get convinced by their argument. The former reason is unremarkable, but the second is pure demagoguery.

Actually most AEers constantly act as if they take empirical evidence seriously. I mean, it's pretty hard not to. So they give historical examples and raise them up as more than just examples. But then whenever somebody presents a superficially conflicting empirical example, they fall back on one of their main tenets: Empirical examples aren't anything but examples, and they can't prove anything. And so on. So they depend on empirical examples because of their own skepticism about such a radical conclusion, but fall back on that central tenet whenever it's turned around on them. Either that, or it's just a bunch of demagoguery: Use it when it suits us (for converting layman), and deny it when it doesn't suit us (when arguing with more capable people). I mean, I still don't know why so many of the AE theorists care about history. It's fine for somebody like Tom Woods or whatever to care about history: I mean, that's his interest, right? But, for one of the theorists to constantly bring up the historical examples, and not be careful to explain their limitations (that is, their absolute uselessness for their purpose at hand), well, that just strikes me as propaganda. Or something.

(By the way, I'm pretty tentative about these opinions, so don't take them too strongly.)

Re: Using empirical evidence only when it suits us?

Caley McKibbin — Thu, 06 Jan 2011 08:33:06 GMT

In my understanding it is not a contradiction. Allow me to offer an analogy to make it obvious. Suppose that a scientist performs an experiment that he interprets as a black swan to the laws of physics. Should he:

A. publish a book declaring the laws of physics wrong?

B. revise his interpretation of the experiment?

C. file it in the records, unsure what conclude at the present time?

The only stupid option is A. It is one experiment. Now suppose the alternate case where the scientist interprets the evidence as expected according the laws of physics. Is it stupid publishing a book declaring the laws of physics correct? It is ridiculous as the laws of physics are already believed based on many prior evidences. Nothing practically changes. This particular evidence is just one more drop in the bucket.

What mainstream economists do is find one "killer" study and go straight to option A. At that point we're expected to immediately call the demolish firm to raze the Mises Institute and burn the books in every library and start QE1-100 or whathaveyou.

The question is then whether or not the opposing argument would be considered valid if conflicting data is presented, considering the original statistics were likely biased.

There is no such thing as conflicting data. Only interpretation of data can conflict.

Re: Using empirical evidence only when it suits us?

slugmises — Thu, 06 Jan 2011 06:56:16 GMT

That's how I see it. Claiming that economic theory is not developed through empirical studies does not mean one is barred from citing empirical data. If theory is sound, we should expect there to be some data corroborating it. If theory is sound and yet a historical event appears to contradict it (Cox says, ceterus paribus, unemployment should fall under the specified conditions, yet the unemployment rate rises during a period in which the conditions are met), then the problem is with the application of the theory (there are other factors which caused unemployment to rise).

The question is then whether or not the opposing argument would be considered valid if conflicting data is presented, considering the original statistics were likely biased. Would an Austrian counter this conflicting data and continue to argue in terms of empirical support, or would s/he back out claiming there are too many variables for conclusive support? If the latter is the case then using any empirical support in the first place seems contradicting.

@ Caley

1. You're right, I meant empirical support.

2. The issue is contradiction.

Re: Using empirical evidence only when it suits us?

Caley McKibbin — Thu, 06 Jan 2011 06:25:25 GMT

1. There is no such thing as empirical evidence. There is only one type of evidence: evidence.

2. No evidence has falsified AE.

Re: Using empirical evidence only when it suits us?

Michael J Green — Thu, 06 Jan 2011 06:18:18 GMT

Empirical evidence can help illustrate a point. The key point is that empiricism leads to faulty theories.

That's how I see it. Claiming that economic theory is not developed through empirical studies does not mean one is barred from citing empirical data. If theory is sound, we should expect there to be some data corroborating it. If theory is sound and yet a historical event appears to contradict it (Cox says, ceterus paribus, unemployment should fall under the specified conditions, yet the unemployment rate rises during a period in which the conditions are met), then the problem is with the application of the theory (there are other factors which caused unemployment to rise).

I'm going to assume that the commentator meant he was a casual reader of Austrian economists, as he failed to grasp Misesian methodology, parroting the frequent mischaracterization. Again, the issue is with the development of economic theory, not the citing of data to persuade an audience of the theory's merit and applicability in interpreting real world phenomena.