134 sats \ 15 replies \ @SimpleStacker 13 Nov \ parent \ on: Wanted: Critics of Austrian Economics econ
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.
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?
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Iceland had no state but had property for about 1,000 years. Property rights were enforced by society in general.
Sue the bastards!!! A tort is a tort is damage done to someone else. Lawfully you can recover damages done to you.
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Doesn't a lawsuit presuppose a court of justice which presupposes a state?
Maybe we are defining state differently. "Enforced by society in general" sounds a bit like a public entity of some kind
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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