403 sats \ 27 replies \ @SimpleStacker 13 Nov \ on: Wanted: Critics of Austrian Economics econ
Interesting. I certainly wouldn't qualify, as I'm not someone with a deep understanding of the Austrian school of thought.
But, speaking as a mainstream economist who's pretty sympathetic to Austrian ideas, and pretty critical of mainstream economics, I'd say this:
I always got the sense that Austrians are unwilling to engage with mainstream economics using the tools of models and econometrics. They seem way too critical of the mathematical and statistical approach to economics. Most mainstream economists understand that models are just tools--not to be taken too seriously--but still useful in helping us think more rigorously about a particular problem. I think Austrians would probably be taken more seriously by mainstream economists if they were willing to use modern tools to illustrate and argue for their ideas, rather than sticking to a primarily dialectic approach.
But this is just an outsiders' perspective. It's possible that I'm not characterizing the Austrians fairly.
I always got the sense that Austrians are unwilling to engage with mainstream economics using the tools of models and econometrics. They seem way too critical of the mathematical and statistical approach to economics.
I'm in full agreement on this point.
Their view is probably something like "We're the ones who keep sticking our necks out and being right about stuff, while the rest of the profession calls us weirdos. Maybe, it's time for some of the professionally wrong people to actually contend with our ideas."
While I might have more familiarity with Austrian theory than you, I'm also not really an Austrian economist. I do think they are generally right about theory, as far as they go, so I'm not the right person to try to pick them apart. However, I share your position that there are other valuable econ tools that Austrians somewhat carelessly reject.
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The reason why Austrians do not engage in terms of mathematics is because they base their economics on a different concept: logic.
Austrian economics is a chain of reasoning that starts from: humans act.
They draw all conclusions from this basic premise and use no mathematics to prove anything although they sometimes use mathematics on problems involving margins and actions on the margins.
Mainstream economists do not want to engage Austrians on the basis of logic is why they don’t do it.
The conclusions of the Austrian school, including Murray Rothbard, even make sense, common sense when explained step-by-logical-step. They don’t often come to conclusions that are nonsensical on the face of them.
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Mathematics is just logic, though, and it provides many useful analytical tools.
I believe Austrians were right to reject the use of certain mathematics that are inappropriate for the study of human action, but they are overly broad in their condemnation of mathematics.
Some Austrians, like Bob Murphy, are more discerning and recognize that many of the tools in set theory and discrete mathematics are applicable to economics.
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Austrian econ is more like discrete math. It's interested in what happens at the margin of whatever it is that is being analyzed. In particular it's interested in:
- Border cases
- Qualities rather than quantities
- Relative comparisons rather than absolute values
- Partial orders (e.g. those formed by "if x then y" relations)
- Directionality (↑/↓) or sign (+/-) rather then rate of change
- Finite domains rather than functions over continuous sets
- Asymptoticity of recursive functions (which game theory is a study of)
The human element introduces non-determinism.
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Exactly.
My view is that embracing the branches of mathematics that map onto their methods of analysis would benefit them, by immediately integrating a bunch of known results from those fields, and would make it easier for mainstream academics to embrace their work.
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The empirical methods of mainstream econ work with data, once data has been collected.
The a priori methods of Austrians have the benefit that they're suitable for analyzing new phenomena, such as Bitcoin, before there is data on it. Satoshi had to use Austrian, a priori thinking, to create it.
But now we have 16 years of data too, and I think it's easier to spike most people's interest by showing them the data in the form of an NGU chart, than it is by getting them to read the white paper and understand the game theory :)
Which is an example of how empiricism can be useful.
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Yes, Austrians acknowledge the usefulness of empiricism for doing economic history and demonstrating how economic principles played out in the past.
I think they do themselves a disservice in seeming to oppose the use of empirics at all, when what they oppose is the use of empirics for proving theory.
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It may benefit them, however, that is not the way Austrians have pursued their theories from Menger to the present. It is outside of their methods of theoretical exploration.
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Ok I can agree with you on that point! The other point not mentioned is that mainstream economists are using mathematical tools inappropriately to arrive at inappropriate conclusions. Their conclusions depend upon the mythical homo economicus, which last I looked did not really exist.
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Now we're fully aligned.
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I think Austrians are right about a lot of things too. In fact, I show clips of Joseph Salerno's Mises Institute lecture on Calculation and Socialism in my Micro Principles class.
And I agree that mainstream economists need to keep Austrian ideas in mind more often as they write about their policy ideas. Mainstream economists need to:
- Remind themselves that the "benevolent social planner" doesn't actually exist
- There's a big difference between external validity and internal validity
- The incentives of our profession bias us towards interventionism ( as well as saying kooky, counterintuitive things)
- There are many values people care about besides consumption, including ideas like liberty and freedom. (We're not just consumption machines just as happy to consume the same amount as a slave than as a free person.)
But, yeah, that being said, I don't see the two sides engaging each other academically unless they bridge the methodological gap, which seems too wide at this point.
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I think some of the Austrians, for instance, Robert Murphy, do use some of the same methodological tools as mainstream economists. If you read his articles and theses on time preference and the natural rate of interest, you can see the mathematical tools of mainstream economists being used. Hayek also uses mathematics to demonstrate some of his various ideas.
I think the problem may be that Austrian economics comes to vastly different conclusions on the ordering of society for the optimum results for everybody. They deny that the state has a role to play in the economy that is benevolent, decent or even useful. Mainstream economists find that anathema because they are court jesters.
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I wonder if it really just boils down to what you think of the state's role in correcting so-called market failures.
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It could if you were willing to let the state interfere in the market. Austrians generally say that there are no market failures, only state-interference-in-the-market failures.
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What would Austrians call an externality if not a market failure? And how would Austrians respond to the idea that markets presuppose enforceable property rights, and that a state is needed to enforce property rights?
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They deny the state is needed to enforce property rights. They presuppose enforceable property rights but who does the enforcing may be where they differ. Externalities are not market failures according to the theory. Externalities are enforced on the market by the state’s interference. After all, a tort is a tort unless protected by the state.
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I think this is where I would differ. Historically, I just don't see much precedence for functional markets that weren't in some way backed by state enforcement of property rights. It seems like a utopian vision to think otherwise.
And I don't think I understood your point about externalities. What is the Austrian solution to a factory that dumps pollutants into a river upstream of a village?
One point here is that Austrians don't view deviations from a hypothetical equilibrium as a market failure. They would say something like "You're definition of market equilibrium was based on faulty assumptions."
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I don't know if I've shared my econ hierarchy with you before, but I'd be curious what you think about it.
If we order methodologies as follows:
- Austrian: deductive reasoning from first principles
- Mathematical modelling: a few simplifying assumptions plus mathematical logic
- Experimental econ: well designed experiments testing points of ambiguity in theory
- Econometrics: statistical analysis of real world data
I basically have more confidence in the results from higher on the list than the results from lower and really I only believe results from lower if they can be made consistent with results from higher.
Ironically, all of my professional work is from the lowest rung of the ladder.
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I'd basically agree with your ordering, except that I'd say that #1 and #2 usually end up with "it depends" (e.g. on some key elasticity), which then necessitates #3 and #4.
#3's problem is that this is pretty much impossible for most questions of economic significance. Small scale experiments aren't sufficient because they don't reflect real world decision-making conditions.
And #4 of course is full of problems, so the credibility really just depends on the research design and the circumstances of the study. IMO one paper is insufficient to conclude anything, but if you have lots of papers with different methodologies, across different settings, all showing the same thing, you can have more confidence. Still have to be careful, due to various biases in the publication process.
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I should have had the caveat "when appropriate" for the ones below being consistent with the ones above.
Where I think this hierarchy helps is that it limits the range of interpretations of results from the weaker methodologies. Instead of thinking a regression overturned some foundational economic principle, the researcher would instead try to figure out what other mechanism might be at play.
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I mean, the types of questions that people are answering these days with their econometric tools are so small-scale compared to what Austrians like to talk about, that it's not even necessarily a methodological gap it's also simply a difference in the scope of analysis.
I suppose I'm coming at it from a microeconomist's perspective. I think I'd agree with the Austrians more in their critique of math/stats when it comes to macro. (As you can tell, I'm not really a fan of modern macro.)
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Yes
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