Is Austrian Economics BS?

[cavalier973]

[youtube]http://www.youtube.com/watch?v=f8XH4BJiLvE&feature=related[/youtube]

[Zhwazi]

The "it's impossible to know" idea never got anybody anywhere, and I hope that's not the Austrian position. People's behavior isn't unpredictable, it's just so expensive to get the information needed to determine what even one person will do that it's difficult to predict individual people. However, looking at the widespread forces you can get a good idea of what people in general will do. You can't know whether it will rain in any arbitrary location on an arbitrary day more than 2 weeks out, but that doesn't stop climatologists from using math to predict what the general climate will be in 5 or 10 or 100 years.

Like climatologists, Austrians can't experiment to test their model in anything but the smallest levels (e.g. you can test that higher CO2 levels absorb more long-wave radiation, or that people prefer present goods to future goods) and you have to build out with reasoning after that. But climatologists at least try to make predictions about how things are going to happen and how much. I've seen Austrians predicting a crash, but I didn't see anyone try to say anything like how big of a crash it would be. I'd like to be proven wrong as I'm by no means an authoritative source on Austrian economics and don't follow it very closely.

[cavalier973]

"Austrians can't experiment to test their model in anything but the smallest levels".   
Neither can the Keynesian, Chicago, or Marxist schools.  They like to pretend that they are doing empirical testing, but they are using make-believe numbers.  Which information do they consider relevant, when they build their models?  How can one know that the information chosen as a basis for their models is relevant?  The statistics they use are usually provided by the government, which has an interest in presenting itself in the best light possible, so how can we be sure that the statistics used are reliable?

[Zhwazi]

I said that in my first post in the thread:

The reasons why are pretty obvious, if you have libertarian conclusions, you're not going to propose violence to test a theory, nor will you tend to be trusting of government-provided statistics on anything.

Austrians seem to take the attitude that you can't, not that you just shouldn't.

They could go with the government-provided numbers and make some predictions, and try to compare that to the real data to check for consistency and get some estimate of how much the stat is fudging the numbers, try to correct for the error, and make predictions based off that. Reality is always there to verify against. It'd be a lot more work than using government-provided numbers but if you can do that and end up with substantially more reliable predictions (as you should be able to by not basing predictions on distorted information) it should show.

I've seen no effort toward anything like that. That's something worth criticizing Austrians about.

And again, I'm open to being shown that there is some effort to do this, but I haven't seen any.

[Turd Ferguson]

No system is perfect, but at least with the Austrian system, when an inbalance happens in the market, it will correct itself much faster because there is no bloated central planner that always moves slowly to correct it due to its big fat bloated beaurocracy and paperwork, red tape and political favors that always slow things down.

Example: A guy opens a store selling widgets. he's selling the shit out of them. Everyone wants one.

Someone else says to himself "Hey, you know what? I'm gonna sell widgets too. I'll make tons of cash!!!"

All of the sudden, everyone wants in the widget game. Next thing you know, business slows down due to the fact that there are too many widgets being sold by too many different people. What happens? Some of them close shop, some sell something else, some lose everything they invested"

At least with this system, the person who got into a game that had too many players already in it is the only one who suffers, but learns from his mistake.



Same situation with central planning will take much longer to correct itself because governments always like to prop up a failing model because they dont want to feel the pain that is needed to correct the bubble. Good example of that is the housing bubble. EVERYONE is paying for that fuck-up. Even people who didnt play the game. Their taxes are paying for it.

[Zhwazi]

That's not the Austrian system. The Austrian system (if it exists) is an approach to understanding economics. What you're describing is a libertarian political/economic system. Austrian economics is not the only libertarian economic movement by a long shot. Austrian economics just describes an approach to learning about the forces at work under free markets or under statism, the conclusions are not specific to Austrian economics, and the policies advocated by Austrian economics are not specific to Austrian economics.

[Turd Ferguson]

That's not the Austrian system. The Austrian system (if it exists) is an approach to understanding economics. What you're describing is a libertarian political/economic system. Austrian economics is not the only libertarian economic movement by a long shot. Austrian economics just describes an approach to learning about the forces at work under free markets or under statism, the conclusions are not specific to Austrian economics, and the policies advocated by Austrian economics are not specific to Austrian economics.

Yeah, and the approach to understanding economics uses the same principal I described in the last post. It's the same idea. The free market as opposed to centrally planned economics.


You wanna split hairs.

[Fred]

golden rule - now roll that blunt

[Zhwazi]

It's not splitting hairs, I'm saying the "Austrian system" is a method (rationalist praxeology), you're saying the "Austrian system" is the socioeconomic system that Austrians would say is optimal, which is free markets. Free markets are not Austrian anymore than they are Chicagoan or mutualist. All three share free market and decentral conclusions but what differentiates them is the way they reach those conclusions. If you're going to call a system Austrian and not simply free-market it should be contradistinct against the Chicago school approach to free markets at the very least.

[cavalier973]

[youtube]http://www.youtube.com/watch?v=PTUY16CkS-k[/youtube]

[cavalier973]

http://www.lewrockwell.com/woods/woods166.html

"We could ask Yglesias about time preference, the heterogeneity of capital, or the Hayekian triangle – all of which are fairly central to an understanding of Austrian theory – and we may as well be asking him to explain the Copenhagen interpretation of quantum physics. He knows none of this. All he knows is that if the Austrian theory is correct, his cherished overlords are part of the problem rather than the solution. Human beings can arrange their affairs without the violent intervention of the state? That’s a world our blogger refuses even to consider."


http://financialservices.house.gov/media/pdf/031711grant.pdf

[cavalier973]

http://mises.org/etexts/EconReasoning.pdf

"You might think that economists would be glad to have a common-
sense foundation for their discipline. But some of them are
not. In contrast to the Austrian School, which fully accepts the
deductive approach, many economists think that it is unscientific to
rely purely on deduction. Deduction plays an important role in economics,
no doubt; but premises ought not to be accepted just
because they are held “self-evident.” Rather, what is important is
the conclusions which these premises imply. These must be subject
to test. Whether the premises are self-evident or even true matters
little; only predictions count. As we shall see, Austrians reject this
view."

[cavalier973]

http://www.thefreemanonline.org/headline/getting-it-right-or-knowing-you-got-it-wrong/

"Most standard economic models seek to demonstrate how, under certain conditions, resources will be allocated optimally by the free market. Those same models can also show that if the specified conditions do not hold, then resources will be less than optimally allocated. This generally referred to as “market failure” because free markets fail to achieve that optimal allocation. Many mainstream economists argue that government can step in and either change the conditions under which the market operates, or directly allocate resources itself, so that society reaches that optimal allocation pattern.

Notice that optimal allocation is the goal. In other words, what is valuable about markets is the degree to which they “get it right,” with the “it” being the resource allocation. Government intervention is deemed justified by people who believe that, in some cases, it can allocate resources better than markets can.

For Austrians, the fundamental issue is not whether markets get it right. True, Austrians think markets are pretty good and governments quite bad in that respect. And even though Austrians might explain things differently from the mainstream, there are plenty of mainstream economists who would agree with those general conclusions. Note, though, that the question here is still about getting it right.

Where the Austrian view differs, I would argue, is in understanding that markets are also really good at helping people to know when resources are not optimally allocated and providing the signals and incentives needed to correct the mistakes. Being adept at getting things right at a given point is of course a good thing. But it is probably more valuable — given that we aren’t likely to get things perfectly right on a regular basis — to be able both to know when we are wrong and to have an incentive to do better."

[LTKoblinsky]

It's not splitting hairs, I'm saying the "Austrian system" is a method (rationalist praxeology), you're saying the "Austrian system" is the socioeconomic system that Austrians would say is optimal, which is free markets. Free markets are not Austrian anymore than they are Chicagoan or mutualist. All three share free market and decentral conclusions but what differentiates them is the way they reach those conclusions. If you're going to call a system Austrian and not simply free-market it should be contradistinct against the Chicago school approach to free markets at the very least.

Zhwazi is right on this one. Chicago and Austrian schools are both based on Free Market ideology. Austrians come that way via deduction. Chicagoans come that way via numbers. I think most economically literate free market supporters fall somewhere in between. Principle backed by evidence. A lot of recent economists (Norberg, Skousen, DiLorenzo, DiIanni) take this approach.

[BobRobertson]

Yeah, and the approach to understanding economics uses the same principal I described in the last post. It's the same idea. The free market as opposed to centrally planned economics.

You wanna split hairs.

If I may, he's not quite splitting hairs.

The Austrian economic analysis is "value free". That means it's not about "right" and "wrong", merely about "efficient" verses "inefficient".

For example, competition in the field of poison gas manufacture will lead to the highest quality and the lowest price, even though feeding people into gas chambers is not a "good" thing to be doing in the first place.

Listening to an entire Mises University, http://media.mises.org/mp3/MU2010/ will take a few days. Ok, several weeks of commute time in the car. Anyway, what you will get is people explaining EXACTLY the kinds of issues you and Zhwazi are bickering about.

As an example, it's not that Austrian theories cannot be tested, it's that by setting up such a test one sets up the contradictory situation of trying to plan spontaneity.

That is why the most effective means of Austrian analysis is upon events that have happened, to explain why.

Intelligent people will then use the "why" to avoid making the same mistakes in the future.

The one single major problem with Austrian economics is that it directly addresses the inefficiency of central planning and coercive intervention.

Politicians, bureaucrats and other control freaks simply HATE to be told they're wrong, and thus they take every opportunity to point out how Austrian economics cannot be correct.