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476 sats \ 13 replies \ @scottathan OP 6 Jan freebie \ parent \ on: New Thinking in Austrian Economics econ
That's a fair take. Older Austrian work does often feel like beating a dead horse these days. I'm a fan of Bryan Caplan's work and his points make a lot of sense, yet I do think Austrian economics may still have more to offer us.
For one thing, the recent debates over behavioral economics have opened the door for a deeper analysis of rationality that Austrian economics is uniquely suited to help with. Austrian economists have recently been forced by behavioralists to experiment with what rationality means, which is easier from an Austrian context given its historical differences from the neoclassical conception of rational choice.
In addition, I feel like the knowledge-centric (epistemic) approach is still a very open ended research project. Hayek's work started off the conversation on how the price-system aggregates distributed knowledge. But just as Michael Shannon's first paper on information theory opened the doors to decades of research on networks that continues today, there is so much more that can be done with knowledge in economics, especially if combined with recent work on graph theory and chaos theory.
Finally, as we enter an age where big data and economics are working closer and closer together, there is a lot of interesting work to be done on with building algorithms and mathematics around Austrian axioms. I'd suggest this paper if that idea interests you.
There is one other paper I ran into recently diving into this further if you want to give it a look, although I sadly haven't had the chance to read it yet.
Austrian Economics as a Relevant Research Program
Hayek is one of my favorite economists of all time, but I do not consider myself an Austrian economist. To be clear, I have a PhD in econ so I am an economist by training. I have always found their views on the use of mathematics in economics short sighted.
I would argue the paper about complexity science in economics demonstrates this. Effectively they have been so opposed to math in econ for so long that, instead of figuring out how to use math in econ, they more or less waited until others developed a method that fits their worldview. Not only that, they need to convince other Austrian economists it could be useful.
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This is a view I've always held, as well. Bob Murphy is one Austrian who I think understands the value of mathematics in economic analysis.
Most of the older Austrians conflated "math" with the kind of real analysis that's so common in mainstream theory. I think many of the Austrian critiques of relying on that type of mathematics are fine.
What they miss is that the kind of work Kenneth Arrow did is also highly mathematical. He was making use of powerful deductive tools that apply to the strict paradigm of ordinal preferences that Austrians rightly emphasize.
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There's a strong complementarity between the Austrians and the main stream of the profession. As the main stream expands into new areas for the discipline, they generally do so with less rigorous methods than the Austrians. That leaves room for the Austrians to sort of bat cleanup. When they weigh in on the new topics, many errors get corrected and some new insights get added.
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How do you define rigorous methods? Certainly, opining from an armchair can't be considered rigor.
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The biggest piece of rigor is the Austrian treatment of value, rationality, and knowledge.
Value
Austrians consider value to be subjective, or at the very least that people will act as if it is subjective. No other tradition rigorously maintains this precept. Classical and Marxist economists consider value to derive from labor, and neoclassicals see it as deriving from cost more generally.
In addition, Austrians don't consider value and preferences to be static, but that they will constantly change and shift, even moment to moment, depending on the individual.
Rationality
Neoclassical economists essentially consider all people to be purely rational economic actors. Behavioral economists question this precept, but end up maintaining that we are permanently irrational.
Austrians focus more on actions being purposeful; people take intentional actions that make sense to them given their immediate situation. In addition, they see people as capable of learning and improvement, becoming more rational over time. This is a far more realistic view of the human condition that produces more rigorous results.
Knowledge
The neoclassical school considers knowledge to propagate instantly throughout society. Austrians such as Hayek reject this. Contemporary Austrians have actually started to study how quickly knowledge will propagate, which is a far more rigorous framework and research project.
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I fundamentally disagree with everything you said about value. At no point in my several years of economics training did I learn that value is derived from labor. Quite the opposite actually. The only time I heard that value was derived from labor was in philosophy of economics when covering Marx.
I also disagree with your premise "no other tradition maintains this precept". That is only because the vast majority of economists don't consider themselves part of a tradition. They just do economics research. There is a whole host of people who do research that would align with various Austrian viewpoints.
Please define how you are measuring the rigor of a result. Nevertheless, suppose I grant that this is true, you are assuming that the rigor of a result is the metric to prioritize. What is the value of a rigorous result without understanding e.g., precision?
Let me suppose the rigor of a result is measured by the generalizability of results. IE, if minimum wage is above market wages, unemployment will increase. This is a rigorous result under my supposed definition as it is widely generalizable. Why is that better to know than something less generalizable but more precise?
As far as knowledge goes, Non-Austrian economists call this friction. Models assume no friction to glean insights. All economists know that in the real world there is friction.
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Classical and Marxist economists consider value to derive from labor,
Really? Who in the modern era, other than Marxists, buys into the labor theory of value?
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Basically, no one: The Classical economists were Smith, Ricardo, Mill, Malthus, and Marx.
Most modern economists are neo-classical, which is sort of classical + subjective value theory.
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Nice summary. Value and Rationality represent core Austrian insights that the rest of the school of thought is built on. The propagation of knowledge is one of the main theoretical contributions. At least that's how I look at it.
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Deductive reasoning from first principles is not "opining from an armchair". Logic can be checked for consistency.
The reason I say it's more rigorous is that they make fewer unrealistic assumptions about preferences than most mainstream economists do, which makes their findings more general.
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I subjectively view the generalizability of results as less valuable than the precision of results.
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That's fine, you do you.
I think there's a lack of clarity on how I'm using "rigorous", because I mean it in the sense of developing theory.
My work is predominantly empirical and "rigorous" means something entirely different in that context. Many economic questions are inherently empirical and Austrians at best could give directional answers from theory alone.
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Those are interesting links, appreciated!
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