Well, the Mises Institute has done it to me again. I was so taken by Jeffrey Tucker’s recent lecture, “How Government is Unraveling Civilization by Force,” that I posted it on a social news site, calling attention to what I considered the lecture’s most provocative moment: Tucker’s quoting of Lew Rockwell: “It’s as if the socialists discovered that their plan creates poverty, so they decided to change their name to environmentalists to make poverty the goal.” The quote, aside from its combative tone, summarized the lecture rather well.
Sometime I think I engage in online economic and political debates because they sharpen my rhetorical skills and to force myself to re-examine and re-explore my libertarianism. Other times, I think I’m driven by a masochistic determination similar to the impulse which led me to sport of distance running as a teenager.
I immediately found myself in another long, long, frustrating debate about the Austrian school with a anonymous user who at least seemed earnest in his belief.
I’ve always admired the willingness of the Austrian School, and that of its great ambassador, Ron Paul, to address the best of the opposition. The willingness stands in stark contrast to the usual public debate, in which each side acknowledges only the most ridiculous, desperate, disreputable members of its opposition as if they represented the whole. The public debate consists of little more than building and burning straw-men.
I want to share the debate which ensued not to burn my own straw-man, though I admit, it occasionally lapsed into absurdity, but to demonstrate how statist ideology fails to live up even to the standards by which it judges and condemns the Austrian School.
One of the most challenging steps in my eventual acceptance of the Austrian School, was realizing the supremacy of theory over empiricism. I do not blame anyone for initially recoiling at the suggestion that economics defies empiricism, or, at least, defies an empiricism comparable to that of the hard sciences. I did.
When asked to live up to their own empirical standards, it becomes evident that statism begins with axiomatic acceptance of state power and free-market fallibility, and relegates the empiricism and math they so readily demand of the Austrian School to a role no more important than that of parsley on a steak. It is a garnish; little more than counting. They count taxes, budgets, unemployment checks, paper dollars, volumes of concrete, cheese, meat, corn, cosmonauts, tanks. They attempt to understand human society in all its complexity but their only tool is a tape measure.
Here’s the debate:
HIM:
That statement is so far removed from reality it’s disturbing to know that people consciously make this their world view in order to support an equally delusional ideology that actually creates poverty in the real world.
> Austrian economics was ill-thought of by most economists after World War II because it rejected mathematical and statistical methods in the area of economics.[27] Its reputation rose somewhat in the late 20th century with the work of Israel Kirzner and Ludwig Lachmann, as well as a renewed interest in Hayek after he won the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (a.k.a. the Nobel Prize in Economics).[28] Following Hayek, one of Ludwig von Mises’s students, Murray Rothbard, became prominent in both Austrian applied theory and Libertarian philosophical thought.[29] However, it remains a distinctly minority position, even in such areas as capital value.
It’s interesting to know that the Austrian School of Economics has basically been unable to show that any of their principals actually hold up in the real world. The whole sub field of economics basically only works as a thought experiment.
ME:
For the sake of argument:
> It’s interesting to know that the Austrian School of Economics has basically been unable to show that any of their principals actually hold up in the real world.
Keynesian Economics vs. Austrian Economics
Applying Economics to American History
HIM:
Applying theory after the fact is something any idiot can do. There is no mathematical or scientific basis to anything Austrian School economists claim. It’s like Voodoo Economics, it’s all faith based.
ME:
Well, the first of the two videos I posted show Peter Schiff, a follower of the Austrian School predicting the crash of the housing market at a time when Bernanke, the Fed, and all the Media’s talking heads were saying it was impossible. Watch the video and you’ll see him ridiculed for making his prediction.
Other examples:
– In his book Socialism (1920), Ludwig Von Mises not only predicted the collapse of the Soviet Union, but said the country would be full of factories which produced almost no ready consumer good.
– Congressman Ron Paul, Austrian School follower, July 16, 2002:
> by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges of Fannie, Freddie, and HLBB have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions.
– When the world entered the all-paper money regime, most economists said than the price of gold would fall from $35. The Austrians predicted the opposite.
– The Austrians were right about the 1970s stagflation and the explosion in the price of gold after the gold window was closed.
Your move. :)
HIM:
There is nothing more than theory to any of that. That’s the entire point and you’re actively trying to ignore and obfuscate that point.
Show me where there are any mathematical or scientific examples that support those things happening in real world situations.
There are none, the Austrian School of Economics has never worked as anything other than a theory.
ME:
A valid concern. This point deserves more attention that we can give it here. Nevertheless:
I believe economics, the study of human action, defies mathematical or “scientific” modeling because of its complexity. In fact, mathematical modeling seems to always cherry pick whichever data provides the best propaganda — like the Soviet Union claiming a high GDP as evidenced by the fact that it produced vast quantities of concrete. Never mind the fact that citizens (subjects?) didn’t want more concrete. They wanted food, jeans, cosmetics, condoms, etc.
From F.A. Hayek’s Nobel acceptance speech:
> It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences an attempt which in our field may lead to outright error. It is an approach which has come to be described as the ?cientisticattitude an attitude which, as I defined it some thirty years ago, ?s decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed.. . . . Unlike the position that exists in the physical sciences, in economics and other disciplines that deal with essentially complex phenomena, the aspects of the events to be accounted for about which we can get quantitative data are necessarily limited and may not include the important ones.
edit: PS — how can you read Ron Paul’s 2002 statement about a housing bubble, or watch that Peter Schiff video where he gets ridiculed for predicting the housing crash, and not respect the forecasting power of Austrian Economics?
HIM:
That’s not a valid excuse for explaining why their models don’t work when in real world situations. If human behavior was too difficult to predict then how is it that they have developed an economic model that predicts how a free market would operate?
It’s not too difficult, they just got it wrong, that’s why the Austrian School of Economics is a relic from over a century ago.
ME:
Human behavior is not too difficult to predict and model with theory — artificially low interest rates create business cycles, minimum wages cause unemployment, government subsidies of loans cause irresponsible lending.
Human behavior too difficult to predict and model with math.
HIM:
BS, absolute bs. The whole field of statistics exists to predict human behavior. Google is so good at predicting human behavior using their alogrithmns that they know what you’re thinking.
Austrian Economists deny this because their philosophy of economics does not stand up to any real scrutiny.
http://www.huppi.com/kangaroo/L-ausmain.htm
> Summary
>
> The Austrian School of Economics is a tiny group of libertarians at war with mainstream economics. They reject even the scientific method that mainstream economists use, preferring to use instead a pre-scientific approach that shuns real-world data and is based purely on logical assumptions. But this is the very method that thousands of religions use when they argue their opposing beliefs, and the fact that the world has thousands of religions proves the fallibility of this approach. Academia has generally ignored the Austrian School, and the only reason it continues to exist is because it is financed by wealthy business donors on the far right. The movement does not exist on its own scholarly merits.
A pre-scientific approach? Please. Austrian Economics was destroyed a long time ago.
ME:
I’ve offered many examples of Austrians accurately forecasting economic events.
Can you offer examples of where the number crunchers have done similar things?
Can you offer examples of economic theories arrived at by your “scientific” approach from whichever school of economic thought you believe has the best approach?
Also, if you’re in the mood, why didn’t all those number crunchers see the housing bubble collapse coming?
> http://www.huppi.com/kangaroo/L-ausmain.htm
They quote Paul Samuelson, the mathematician/economist, who, as late as 1989, claimed the Soviet economy was poised to overtake ours, and that it served as proof that command economies can thrive.
> Mainstream economists believe in fiat money; Austrians believe in the gold standard.
> Mainstream economists assert that the mystery of the business cycle is deep and poorly understood; Austrians claim the government causes it.
I would say these two points are accurate.
Perhaps I’d be better off agreeing to disagree, but I think the case for business cycles caused by artificially low interest rates is closed. I think it’s supported both deductive and empirically.
Likewise, the case for commodity money (money that can’t be printed) is huge. I’m surprised anyone out there is even attempting to defend fiat money.
HIM:
But, you just said that people actions are impossible to predict, are they or aren’t they?
Why won’t proponents of Austrian economics test their theories like everyone else?
Why does Austrian economics fail to stand up when tested like other ideas about economics are able to?
Why? Because it’s a failed theory that real economists gave up on over 100 years ago. It’s a rich mans philosophy that’s sold to plebes to keep their hopes alive.
It’s voodoo economics, it’s faith based optimism, it’s religion disguised as economics, nothing more than worshiping the false god of the market.
ME:
> But, you just said that people actions are impossible to predict, are they or aren’t they?
No I didn’t. I said human behavior is too complex for physics-like mathematical models. Reread my comments.
I offered you many examples of accurate forecasts of important events made by Austrian School economists when all “mainstream” economists were predicting the opposite.
Do you have any examples of the triumphs of mathematical modeling in economics?
HIM:
Yes you did, you said human behavior is impossible to predict and then you claimed Austrian Economists had predicted human behavior plenty of times. Take your hocus pocus fruity economic theories and find someone dumb enough to buy them because no one with half a brain has given a fuck about Austrian economics in over 100 years. Except suckers.
ME:
Just re-read this whole thread. Nope, I didn’t. I said it’s impossible to model with math.
Perhaps we should agree to disagree about Austrian Economics.
Can you make the case for mathematical modeling in economics? Perhaps cite some instances where mathematical economics predicted significant events?
HIM:
That’s why Austrian economics is a myth, it’s been placed on the scrap heap of failed economic thought.
Peoples behavior can be quite reliably predicted using mathematical models, all modern theories are tested that way to insure that they work. The only people who claim that mathematical and scientific models don’t work are Austrian economists because those models show that Austrian economics don’t work.
Do you know what they call theories that don’t work? Failures, that’s when you pick yourself up and make new observations and come up with new theories that actually represent what happens in the real world.
That’s what most people do anyway. If you’re an Austrian School Economist you hold onto a dead theory for 100 years after it was tossed on the scrap heap of failed economic theories.
The Austrian School of Economics is worthless.
ME:
Can you name some non-Austrian economic theories that work?
Can you name some successes of your approach to economics, or successes of economists who believe in your approach?
HIM:
There are currently only two basic schools of economics, supply side and demand side. Economics alternates between serving the needs of one before switching back to serving the needs of the other. These two elements are constantly in and out of balance. Take away all of the names and different schools of thought and that is all economics ever tries to achieve.
The Austrian School is really just old school supply side economics.
All currently used economic models have been tested in the real world economy and all share similar elements. Regardless of that, it always comes down to an argument over who to favor in order to create a successful economy.
The wealthy claim that they make the economy run and rewarding them with more money means that they can create an even greater economy.
Everyone else, when they’ve really examined how money flows, tends to see that demand creates a healthy economy. So they favor a system that doesn’t punish effort but ensures that there is enough consideration for the demand side of the equation to keep things working.
ME:
Okay, you still haven’t cited any successful predictions, or articulated any theories, but thanks for the explanation. Serious questions here:
> The wealthy claim that they make the economy run and rewarding them with more money means that they can create an even greater economy.
Who does the rewarding?
> they [everyone else] favor a system that doesn’t punish effort but ensures that there is enough consideration for the demand side of the equation to keep things working.
What sort of system gives “consideration for the demand side”?
Also, if you think of any successful predictions of significant economic events made by non-Austrians please let me know. Or let me know of any theories.
HIM:
Those who continue to work and support their empires while accepting less and less for more productivity every year. Ultimately this leads to demoralized workers who rightly demand their contribution to the success of the overall system be recognized.
You have a very limited idea of who should be rewarded for a successful nation.
I’m apparently not answering your questions in a way that you can understand I’m answering them.
ME:
1) Nothing you’ve said rests upon a foundation of mathematical proof similar to what you’ve demanded of Austrian Economics.
2) I cited examples of when Austrian economists accurately forecasted major economic events (despite mass denial and ridicule). Can you cite examples of non-Austrian economists accurately forecasting major economic events?
3) All your theories (none of which seem to involve any math or empirical study), presuppose a very powerful, very benevolent force which presides over an economy, selecting winners, and upholding “justice”. For example:
> it always comes down to an argument over who to favor in order to create a successful economy.
> The wealthy claim that they make the economy run and rewarding them with more money means that they can create an even greater economy.
> favor a system that doesn’t punish effort but ensures that there is enough consideration for the demand side of the equation to keep things working.
> workers who rightly demand their contribution to the success of the overall system be recognized.
> You have a very limited idea of who should be rewarded for a successful nation.
I’m interested to hear you elaborate on who does the “rewarding,” “favoring” and “ensuring,” how they do it, and what would happen if they didn’t.
HIM:
Dude, you just don’t get it. That’s life.
ME:
Obviously not. Thanks for the dialogue.
