Enlighten me about the Austrian school of economics, please

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WilliamWDelaney
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20 Dec 2011, 12:24 pm

Based on what I have read about it so far, the Austrian school of economics strikes me as anti-scientific. It seems to be based entirely on ideology and some childishly simple-minded assumptions about human behavior that have never been observed to be true in practice. Its models of how markets actually behave seem to have been created by a third-grader, cribbing ideas from third-rate philosophy texts more on the basis of catchy language than syllogistic credibility. In short, my current perception of it is that it is worthless trash.

Anyone care to either change that perception or correct it for accuracy?



Jacoby
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20 Dec 2011, 4:54 pm

What are you reading?



visagrunt
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20 Dec 2011, 6:20 pm

No, I do not care to challenge your perception.


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Master_Pedant
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20 Dec 2011, 6:33 pm

Austrian economists tend to focus a lot more on verbal logical models than other economists and a generally distrustful of statistical & mathematical models. Taken to the extreme by some of the "anti-positivists" this can result in an almost Medieval theological approach to investigating, as many (but not all) Austrians tend to have a very "chaotic" and metaphysically libertarian concept of human volition. In preferring verbal logical models to mathematical models, Austrians ironically resemble old institutionalist economists and some Marxian economists (even though Marx was something of a fan of statistical and empirical economics when practicable, according to some economic history lectures I've heard).

Austrian economists - > Fundamental uncertainty with scarcity
Mainstream economists (New Keynesians, Monetarists, New Classical Economics) - > No fundamental uncertainty, but scarcity
Post-Keynesian economists - > Fundamental uncertainty without scarcity

The Post-Keynesians tend to acknowledge the fundamental uncertainty of the future but, contrary to Austrians, argue that this makes legal and bureaucratic conventions necessary to provide a baseline of stability in an uncertain world. Post-Keynesians, while less mathematical than Mainstream economists, are probably more mathematical than Austrians.


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Last edited by Master_Pedant on 20 Dec 2011, 6:34 pm, edited 1 time in total.

Master_Pedant
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20 Dec 2011, 6:34 pm

visagrunt wrote:
No, I do not care to challenge your perception.


Jesus Christ, WHY THE HELL COMMENT IN THE THREAD THEN??! ! This obtuseness is ridiculous.


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marshall
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20 Dec 2011, 8:04 pm

WilliamWDelaney wrote:
Based on what I have read about it so far, the Austrian school of economics strikes me as anti-scientific. It seems to be based entirely on ideology and some childishly simple-minded assumptions about human behavior that have never been observed to be true in practice. Its models of how markets actually behave seem to have been created by a third-grader, cribbing ideas from third-rate philosophy texts more on the basis of catchy language than syllogistic credibility. In short, my current perception of it is that it is worthless trash.

Anyone care to either change that perception or correct it for accuracy?


I think it suffers the same problem of ideological contamination as Marxist economics. It does have historical theoretical contributions that have been adapted by most mainstream economists. The difference is mainstream economists have at least tried to quantify theories that are only explained verbally by Austrian economists.



ruveyn
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20 Dec 2011, 8:28 pm

From the Wiki article:

Methodology

Methodology is where Austrian economists differ most significantly from other schools of economic thought. Mainstream schools such as Keynesians and Monetarists adopt empirical, mathematical, and statistical methods, and focus on induction to construct and test theories. Austrian economists reject empirical statistical methods, natural experiments, and constructed experiments as tools applicable to economics, saying that while it is appropriate in the natural sciences where factors can be isolated in laboratory conditions, the actions of humans are too complex for such a treatment because humans are not passive and non-adaptive subjects. As Austrian economist Jeffrey Herbener has noted "there are no statistical characteristics to human behavior. It is purposeful rather than random, and changeable rather than constant".[35] Austrian economists claim one should instead isolate the logical processes of human action. Mises called this discipline "praxeology."[36] The Austrian praxeological method is based on the heavy use of logical deduction from what they assert to be undeniable, self-evident axioms or irrefutable facts about human existence.[37]


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Austrian School economics is a priori derived from first principles. Keynesian economics is inductive.

Arguments based on "human nature" overlook the effects of cultural particulars on human behavior. That is a weakness.

ruveyn



Awesomelyglorious
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21 Dec 2011, 12:01 am

WilliamWDelaney wrote:
Based on what I have read about it so far, the Austrian school of economics strikes me as anti-scientific.

Potentially true. This really depends on the Austrian, as some really do seem to be trying to maintain some ideological assumptions(often those associated with Rothbard and the Mises Institute), and others are actually still engaged in mainstream economic research, and thus are hard to consider anti-scientific.

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It seems to be based entirely on ideology and some childishly simple-minded assumptions about human behavior that have never been observed to be true in practice.

Austrian economics is very perverted by ideology, but it is hard to say it is "based entirely on ideology". I have no idea what you mean about assumptions, as a lot of assumptions that Austrian economics uses are also used by mainstream economics. I mean, the only real difference is that Austrians tend to be focused upon the economy as a process, while mainstream economists are more focused on equilibrium states, and Austrians consider fundamental uncertainty and difficult to foresee changes in the market a very significant issue in economic thinking.

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Its models of how markets actually behave seem to have been created by a third-grader, cribbing ideas from third-rate philosophy texts more on the basis of catchy language than syllogistic credibility.

I can't really comment. Yes, there are some areas where an Austrian economist will use the "super-simple free-marketeer model", but I hardly how this libertarian tendency which even exists in non-Austrians, really shows anything about anything specifically Austrian. If anything... Austrian notions of economic systems are more likely to involve complicated ideas, because understanding something as a process is often more complicated than understanding any theoretical equilibrium.

As for "cribbing ideas from third-rate philosophy texts"... I don't know. That sounds more like the Mises Institute, and yeah, there is some of the railing against positivism using outright BS, but that's not fundamental to being an Austrian economist. Frankly, I tend to find Hayek's thoughts interesting.

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Anyone care to either change that perception or correct it for accuracy?

I really don't know, because I don't really know what is the source of your perception of the field. I mean, if we're talking about internet Austrians, the Mises Institute, and Rothbard, then your perception of *that* group is totally on-target. The problem is that Austrian economics is basically broken into two factions: One faction is focused on public opinion and libertarian ideological purity and only tends towards in-group discussions, and that faction is the one that most people become aware of, it is also the faction that seems more like a religion. The other faction is focused on academics and changing intellectual opinion and as such it is harder to run into unless you hang around a university somewhere or pay attention to these kinds of things, and these folks actually will publish in mainstream journals and can even get noticed for their works as economists.

I mean, the simple issue is that your statements are profoundly bold, but become questionable because many economists say that Mises or Hayek have some form of essential insight that could not be found elsewhere, or that deserves recognition at least. However, I am not sure where to begin with corrections. Especially given, and this must be noted, Austrian economists(at least those outside the Mises institute) still go around publishing articles that they are proud of even though many of these articles have to be written to the methodological standards of neoclassical economists, and they can intelligently interact with their peers as well as evidenced by people with some Austrian influence who do not consider themselves Austrian.

Master_Pedant wrote:
In preferring verbal logical models to mathematical models, Austrians ironically resemble old institutionalist economists and some Marxian economists

I don't think there is an irony to this. Austrians have a real resemblance and one that many of them are fine with facing up to.

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contrary to Austrians, argue that this makes legal and bureaucratic conventions necessary to provide a baseline of stability in an uncertain world

That's...... highly difficult to untangle. You have to realize that many Austrians, following Hayek, have accepted the need for legal and bureaucratic conventions, with Hayek seeing common law as a great thing because of how its conventions adapt case by case. I think the real issue ends up being degree of law, and also questions about the degree to which the market tends to arrive at good outcomes.



Awesomelyglorious
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21 Dec 2011, 12:10 am

marshall wrote:
I think it suffers the same problem of ideological contamination as Marxist economics. It does have historical theoretical contributions that have been adapted by most mainstream economists. The difference is mainstream economists have at least tried to quantify theories that are only explained verbally by Austrian economists.

I think the problem of ideological contamination is reasonable.

I don't think a failure to quantify should count too much against the Austrians as generally Austrians simply think the real phenomena are difficult to quantify into models. However, as must be mentioned, there are many Austrian economists who publish works not read only by Austrian economists and when they do this, they're usually fine with quantitative dressing, even though they still believe that the quantitative stuff is probably dressing. (And much of it probably is, although I don't think Austrians object to statistical analysis, except perhaps the kind/degree used for macroeconomics issues compared to microeconomics issues.



marshall
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21 Dec 2011, 12:56 am

Awesomelyglorious wrote:
marshall wrote:
I think it suffers the same problem of ideological contamination as Marxist economics. It does have historical theoretical contributions that have been adapted by most mainstream economists. The difference is mainstream economists have at least tried to quantify theories that are only explained verbally by Austrian economists.

I think the problem of ideological contamination is reasonable.

I don't think a failure to quantify should count too much against the Austrians as generally Austrians simply think the real phenomena are difficult to quantify into models. However, as must be mentioned, there are many Austrian economists who publish works not read only by Austrian economists and when they do this, they're usually fine with quantitative dressing, even though they still believe that the quantitative stuff is probably dressing. (And much of it probably is, although I don't think Austrians object to statistical analysis, except perhaps the kind/degree used for macroeconomics issues compared to microeconomics issues.


I agree that creating a truly predictive quantitative model is impossible without shielding the information from economic players who could use the information to alter their behavior. This issue comes in to play in situations where behavior is governed by speculation. It's incredibly hard to model when a bubble will burst for instance. I'm not sure this means all quantitative models are useless dressing though. They can help with understanding even if they aren't truly predictive. I have trouble with verbal arguments because it can be so easy to miss something via a slight-of-hand. The Austrian and classical Keynesian logical descriptions of business cycles each seem to tell half the story while ignoring the other half. Austrians talk about the problem of credit bubbles and malinvestment leading up to a crisis while ignoring the destructive feedback that can happen when demand plummets afterwards. Keynesians do the opposite.



Master_Pedant
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21 Dec 2011, 3:40 am

marshall wrote:
It's incredibly hard to model when a bubble will burst for instance.


I'm not so sure about modeling exactly when bubbles will burst, but Steve Keen's done some work on mathematicizing the verbal models of Hyman Minsky.

http://www.debtdeflation.com/blogs/2011 ... sky-model/

[youtube]http://www.youtube.com/watch?v=9wFTwHnIcos#![/youtube]

==============================================================================================

If you have an hour of free time, I'd recommend watching the video below (note that the volume is quite low and so you'll have to turn it up).

First verbally describes the model and then describes some (very intensive) work he's done to mathematically model them.

[youtube]http://www.youtube.com/watch?v=YoaUTpr2SNo[/youtube]


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WilliamWDelaney
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21 Dec 2011, 8:48 am

Awesomelyglorious wrote:
As for "cribbing ideas from third-rate philosophy texts"... I don't know. That sounds more like the Mises Institute,
Oh, are they a bad example of the breed? I may have been hasty to dismiss it entirely as rubbish, then.

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pete1061
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21 Dec 2011, 11:45 am

I'm no economist, and I'm terrible at the art of debate.
All I know is whatever economic model the world is using right now is failing miserably.


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Awesomelyglorious
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21 Dec 2011, 12:45 pm

marshall wrote:
I agree that creating a truly predictive quantitative model is impossible without shielding the information from economic players who could use the information to alter their behavior. This issue comes in to play in situations where behavior is governed by speculation. It's incredibly hard to model when a bubble will burst for instance. I'm not sure this means all quantitative models are useless dressing though. They can help with understanding even if they aren't truly predictive. I have trouble with verbal arguments because it can be so easy to miss something via a slight-of-hand. The Austrian and classical Keynesian logical descriptions of business cycles each seem to tell half the story while ignoring the other half. Austrians talk about the problem of credit bubbles and malinvestment leading up to a crisis while ignoring the destructive feedback that can happen when demand plummets afterwards. Keynesians do the opposite.

The issue is two things:
1) Quantitative models cannot handle qualitative variables/qualitative relationships. So, if you had a cultural theory of the business cycle, you may not be able to provide quantitative analysis, even though such a theory could hypothetically be correct.
2) The focus on quantitative models causes as a matter of method economists to ignore things hard to quantitatively analyze, even if those things are important. One professor I had cited technology as an example of something REALLY IMPORTANT for economists to understand that economists had been avoiding because they couldn't put it into a straight-forward model.

I don't think the quantitative analysis adds all of the value you think it does. I mean, philosophers use formal logic a lot but it's mostly castles in the air. (Economists use math a lot to build castles on the air as well) Math as an approximation causes people to mistake the math for the insights being expressed in the math, so people forget approximations are approximations. What has generally been found is that most "great ideas" in economics during the Neo-classical period could have been expressed without mathematics, and in all likelihood I wouldn't even be surprised if a verbal explanation was generated before the math, translated into math, and then most people translated the math back into verbal making this rather pointless.



Awesomelyglorious
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21 Dec 2011, 12:46 pm

WilliamWDelaney wrote:
Awesomelyglorious wrote:
As for "cribbing ideas from third-rate philosophy texts"... I don't know. That sounds more like the Mises Institute,
Oh, are they a bad example of the breed? I may have been hasty to dismiss it entirely as rubbish, then.

They write for a popular culture of libertarian radicals. That's going to lend them to having ALL of the problems you describe, even if this isn't inherent to Austrian economics.

In any case, Hayek is not a good writer, but he is a good thinker.