pull down to refresh
20 sats \ 3 replies \ @Undisciplined 28 Dec 2024 \ on: What Makes Austrian Economics Unique? econ
The focus on entrepreneurial decision making is one of the huge distinctions. It's not that other economists are unaware of that, but the emphasis of the models is always equilibrium (or balanced growth paths). The process of converging to equilibrium is generally taken for granted.
Yes, but the mainstream economists don't usually view entrepreneurial effects as changing the economy in any really large manner. They are thinking in terms of integrated aggregates doing the actions, while is is really one entrepreneur at a time making the production decisions with respect to time and available resources for profit.
They think government, which takes with one sticky-fingered hand and gives with the other while producing nothing, nothing at all.
reply
Yes, the macro models that I learned in grad school had a way-too-simplified view of the firm.
Here are some of the assumptions that modern macro models often make about the firm:
- It frictionlessly converts labor and capital inputs into outputs, usually via a Cobb-Douglas or CES production function.
- It has no fixed costs of production and exists independently of any decision made by anyone in the economy.
- It is commonly owned by all the consumers in the economy and simply returns its profits to the consumers.
You are right that in such models there is no channel through which entrepreneurial decision making is reflected.
Interestingly, macroeconomists recognize the weaknesses of these assumptions, but they make them in the name of mathematical convenience, so that their models are more solvable.
This tradeoff, simplifying models for the sake of mathematical tractability, is probably one of the biggest problems in modern economics. It's become impossible to publish anything without a solvable model (whether by hand or by computer), and so rather than dealing with the underlying complexity through reasoning, economists just assume away the complexity.
reply
It seems to me that the simplifications needed to make the mathematical models work make the models less than useless for making economic decisions and policy. They reflect an unreality that the economists may recognize but are trapped by the model they are employing to understand the firm or the economy in general. I think this is the main reason Austrian Economic school is superior in predictions and actually making policy decisions.
reply