207 sats \ 7 replies \ @elvismercury 4 Nov 2023 \ on: Meta Econ Takeover Day18 meta
This is my beef w/ the Austrians. I think a lot of the thinking is compelling; but there's only so many decades you can go predicting apocalypse before people tune it out and you marginalize yourself.
Here's a very recent example. The argument makes sense. The situation seems bad! But okay, people have literally been predicting the debt-driven implosion of Japan, specifically, for how long?
First off, we may know how the book ends but we don't know how each chapter ends. Many times the financial system has seemed on the brink, and we somehow muddle through. Because the economy is made of hundreds of millions of people who are trying their best to dodge the boulders. So it could take months, it could take years, it could take decades.
I get it, this isn't physics, the system is astoundingly complicated. To me, that also means that more humility, rather than less, is called for. Yet humility is not among the most prominent features of most Austrians.
Or probably any economists.
Or probably anyone at all, I suppose.
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You bring up a lot of good points. I think this attitude is especially widespread among goldbugs too, for example. Makes it hard to take any of them seriously when they've been preaching to hide gold bars under your bed for decades.
I think overall the Austrians would do better by just focusing on smaller aspects of day-to-day effects of bad policy rather than an umbrella doom-and-gloom prediction.
It would help alleviate some of the issues you mentioned and also hopefully make their commentary relevant for the average person.
Curious to hear what you think.
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Gold bugs are another great example.
I think overall the Austrians would do better by just focusing on smaller aspects of day-to-day effects of bad policy rather than an umbrella doom-and-gloom prediction.
This makes a lot of sense, but I think they're in a pickle. From my reading of Mises, I would say that a caricaturish-but-directionally-correct summary would be something like:
"Praxeology / catallactics is the One True Theoretical Foundation that, at scale, manifests in economics in the large. But action is individual, we can't generalize across people, time, or geography; and I don't even care what the data says about any of it, because we are reasoning forward from first principles."
But then if that's true, what's left for the economists? It's like they had their Euclid, and what work remains amounts to increasingly esoteric geometric proofs. I'm sure I've made my summary too extreme, but I don't think it's too too extreme. Mises rejects empiricism repeatedly in favor of the ideological purity that the deductive model provides. I've wondered about this for a while, perhaps @Undisciplined has some insight.
Anyway, I think drilling into elements of policy that are sideways w/ Austrian principles is good and helpful. Many of the arguments are both simple and compelling, and have the benefit of being explicable and comprehensible to normal people. You can read it as philosophy and get a lot out of it, or at least, I did. But then people want to know what's going to happen, and Austrians can't give them that in a satisfying way except to propose doom arising in months, years, or decades.
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I'd say you pretty well stated it.
There are still open questions in the Austrian tradition and scholars making headway on them, but a lot of the low-hanging fruit has been picked. Also, as you said, the very nature of Austrian Economics excludes precise predictions. That's actually where empirical work enters the picture
We can look at history and draw quantitative conclusions (this is what I do, btw) to questions where theory only gives directional answers. We can then make predictions based on those conclusions, but the caveat is always "If the prior relationship holds..."
My view is that there's a hierarchy of methodological approaches:
- Preferably, you can answer the question with the Austrian deductive approach that makes very minimal assumptions about people's preferences.
- If not, see if it can be answered using modern methods from abstract algebra and set theory, which might require some more assumptions about preferences, but aren't very restrictive.
- Create an experiment that closely resembles the question and see what people do.
- Finally, if all else fails, look at real world data and use econometrics to create natural experiments and see what people do.
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Something I've noticed personally, is that trying to include every relevant caveat and detail often leads to clunky writing or speaking. Generally, there's a trade off between clear communication and accurate communication. The clear version can come off as being overly confident.
When pressed, Austrians (and other good economists) will provide all those caveats and that will make them sound much more humble.
If you listen to Bob Murphy, he tends to be really good at balancing those things.
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Yeah, that is definitely true. Someone asks an expert whether something is a good idea or not, and then the expert talks for half an hour and at the end of it the person is still confused. I've been on both the giving and receiving end of it. It's frustrating either way. The modern media environment does not help matters.
I haven't listened to Murphy in a long time, but I enjoyed his books -- I read the study guide to Mises after I read HA, and then I read his own book, which I thought was very clear. He's a good communicator.
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They generally respond to that sort of complaint by pointing out that timing can't be determined by theory alone, but I agree with you.
There's a somewhat technical point that I think many of them miss that leads to excessively dour predictions. In the Austrian framework (and really in all modern economic thought), costs are defined as the next best alternative. That means losses are the difference between what actually happened and what could have happened.
Austrians are great at pointing out where policy is leading to losses, but there's an implication that losses will mean that the economy will shrink and that's a non-sequitur. As long as losses are less than new economic production, the economy will continue growing.
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