
Why I Am Not an Austrian Economist - crunchiebones
http://econfaculty.gmu.edu/bcaplan/whyaust.htm
======
kriro
Oh boy from experience this is a very loaded discussion.

I personally like the Austrian framework because I find it aesthetically
pleasing (I guess I'm a sucker for deduction). Some of the writing is simply
intellectually interesting and also very scholastic for lack of a better word.
For example, even if you completely disagree with the analysis I'd argue that
"America's Great Depression" is a very good read simply from an intellectual
point of view and "Man, Economy, State" is a very good tome that contains a
framework of thought. I also enjoy the science theoretical musings quite a
bit. The writing on Aristotelian ontology is very good for example.

There's also works where I constantly shake my head at the implications and
political conclusions but intellectually I still love them. "The Ethics of
Liberty" is probably the clearest example of this. Do I think that letting a
baby starve to death because it is basically a parasite is morally desirable:
no. Do I find the idea of trying to deduce an entire ethical framework from
first principles fascinating and the way it is done interesting: yes

There are lots of things about AE that I find irking but the core theory and
the science theoretical basis is very interesting/intriguing to read.

I also like that pretty much everything is readily available on mises.org. I
wish all "schools of thought" would be this forward thinking.

~~~
jcfrei
I read the ethics of liberty as well and came to the conclusion that the
deduction of its ethical framework is flawed (though interesting nonetheless).
Here's a link for those interested in my write-up: [http://jcfrei.com/on-the-
ethics-of-liberty/](http://jcfrei.com/on-the-ethics-of-liberty/)

------
dmichulke
The five reasons given are IMO attributes of Rothbard and Mises but in my view
neither of them is substantial to Austrian economic theory. They deal with
modelling preferences (point 1-3), the influence of third parties (point 4)
and a kind of ridiculous "you use 'subjectivism' so often, it sounds like
you're implying we don't care about subjectivism" discussion (point 5).

Since none of the are integral to Austrian economic theory but a few of them
are against opinions of Mises and Rothbard (and I wouldn't even disagree with
the author's view points here), it's comparable to saying "Darwin said you
should always explore distant nature in a naval vessel and he believed in God,
therefore his theories are wrong".

To substantiate:

1\. Utility Functions vs. Value Scales

Everyone can use the _representation_ of utility he wants, it just has to be
decided whether it's appropriate in the case he applies it to or not. I assume
small quantities of every day items (say potatoes) are easier modeled in
continuous well-defined functions while preferences for the quantity of
shopping malls is much harder to model that way. Neither means the other is
necessarily wrong but as always modelling is not the same as reality.

2\. Indifference

I can personally see how I am indifferent to a few things but it's unlikely
you see it in my actions (other than watching me flip a coin). Now how is that
again related to Austrian Economics?

3\. Continuity

Basically Mises and Rothbard are arguing against modelling various dimensions
as continuous functions. I see how their claim can be true under some
circumstances and how it can be useful under others.

So again how is that relevant to being (or not) an Austrian Economist?

4\. Welfare Economics

> Rothbard could only claim the welfare effects of government intervention
> upon "social utility" are indeterminate

Agreed. Government is not necessarily bad.

The rest of the discussion there is about "assumptions": Whether and how a
third party affects a voluntary exchange.

Again, this is not at all necessary for Austrian economics, and attacking it
is an exercise in futility.

5\. Subjectivism

This argument is not an argument, it's about word usage frequencies and how
they imply things. WTF

~~~
notahacker
Whilst you're right that this is focused on Mises/Rothbard as Caplan
acknowledges in his opening paragraph, it's fair to say that the economics of
Mises/Rothbard is the strand of Austrianism that gets all the attention and
funding; not many people describing themselves as Austrian economists are
followers of Lachmann. So it's more akin to a criticism of Keynesianism which
focuses on arguing most things Keynes, Hicks and the New Consensus
macroeconomists said were wrong.

As for your points:

1\. The position that ordinal and cardinal representations of utility are both
valid in certain circumstances and in practice identical economic models can
often be derived from them is the mainstream economics one which the Mises
strand of Austrianism rejected. If you believe that "neither means the other
is necessarily wrong" you're rejecting one of their core assumptions.

2\. Indifference is pretty easily reflected in actions. Obvious example of a
revealed preference of indifference between two items: "Which one?" "Either
one" (sure, I'll accept that _in some cases_ a person might delegate a
decision because they have a specific preference to give the delegate
responsibility or to be surprised by the choice which is greater than their
preference for one item over the other, but a lot of the time it's clearly
genuine indifference between items. I'm not trying to impress the store clerk
when I don't care _which_ no-name manufacturer my $1 widget comes from). If
Austrian economists insist on (re)defining economics as a set of immutable
laws of human action, it helps not to have such obvious counterexamples to one
of their claims...

3\. Austrian Economists following the approach of Mises insist that modelling
dimensions as continuous functions is never acceptable. ergo if you believe
continuous dimensions are sometimes a useful modelling assumption, that's a
pretty good reason not to be an Austrian economist (even if you think their
objections to the representation of _some_ dimensions as continuous
differentiable functions are valid; it's not like Austrian economists are the
only people offering such critiques)

4\. Considering that the thrust of Mises/Rothbard's arguments is that
government is [almost always] bad for allocation of resources, it's a pretty
major shortcoming that based on their own foundational assumptions they can't
actually argue that even the most egregious examples of government
misallocation of resources actually are misallocation of resources.[1] (Many
mainstream economists also argue against the validity of interpersonal
comparisons of utility, but could at least have some grounds for argument that
lesser quantities of output under a price-fixing regime are suboptimal on the
grounds of Kaldor/Hicks inefficiency since they're willing to consider non-
revealed preferences.)

5\. Caplan doesn't elaborate on this particularly well, but it's a standard
claim by Austrian economists that mainstream approaches involving quantitative
analysis aren't compatible with the concept that value is subjective. It's
also pretty well established that many classes of quantitative mainstream
model work pretty well with Austrian-style subjective preferences (viz. based
on ordinal preferences within a budget constraint).

[1]obviously Austrians have lodged other objections like claiming that
allocation of resources for production in the absence of a price system is
"impossible" (clearly incorrect) rather than merely less efficient, and
generally subscribe to ethical arguments that government intervention is
"coercive" except when used to prevent people from using resources other
people claim ownership over. But not being able to say "West Germany produced
better economic outcomes for its citizens than East Germany, or even than
medieval Prussia" is a pretty major disadvantage in an economic theory.

------
SquishyPanda23
It was interesting to see his comments on Hayek.

Friedman had something similar to say about Hayek:

"[I am] an enormous admirer of Hayek, but not for his economics. I think
Prices and Production is a very flawed book. I think his [Pure Theory of
Capital] is unreadable. On the other hand, The Road to Serfdom is one of the
great books of our time".

From
[https://en.m.wikipedia.org/wiki/Friedrich_Hayek](https://en.m.wikipedia.org/wiki/Friedrich_Hayek)

~~~
mikeyouse
It's funny that modern Hayek adherents are so militant about preventing things
that Hayek himself was completely fine with. He saw a government role in
pricing externalities, banning poisons, preventing deforestation and
pollution, limiting working hours or other manipulative labor contracts,
preventing private fraud, and in wealthy societies, providing minimum food,
clothing, housing and social insurance.

That list would make many at Mises scream bloody murder. Man our discourse is
just so petty.

~~~
piokoch
"That list would make many at Mises scream bloody murder" \- I would say only
those who don't understand what Capitalism is. The common misconception is
that Capitalism is the system where people are free to do whatever they want,
especially those who has a lot of money. That's not true; the system that
allows for that is called Feudalism. Obviously Hayek understood the
difference.

It is interesting to analyze why so many people fail to understand what
Capitalism is. My guess is that unfortunately many modern "western" countries
are slowly moving away from Capitalism into some kind of modern version of
Feudalism. And people with very deep pockets are indeed able to do what they
want - last financial crisis is a good example, although multiple banks were
behind it, they didn't go bankrupt, but were saved using taxpayers money.

The end result is that people think that "Capitalism is wrong", "Capitalism is
not working", etc. They are just not aware that Capitalism is no longer here.

~~~
arethuza
Feudalism is generally defined to be about a hierarchy of relationships linked
to land ownership and associated payments or service.

e.g. Here in Scotland the last elements of feudalism were only removed in
2000:

[https://en.wikipedia.org/wiki/Abolition_of_Feudal_Tenure_etc...](https://en.wikipedia.org/wiki/Abolition_of_Feudal_Tenure_etc._\(Scotland\)_Act_2000)

------
freedomben
Might consider adding (1997) to the title. Even tho the article isn't date
stamped, the author indicates the approximate year:

> _I was able to attend the 1989 Mises Institute summer seminar at Stanford,
> where I met Murray Rothbard and many of the leading Austrian economists for
> the first time. It is now eight years later;_

~~~
yig
He also writes: "I have just completed my Ph.D. in economics at Princeton, and
will be joining the faculty of the economics department at George Mason in the
fall." He joined GMU in 1997 according to
[http://econfaculty.gmu.edu/bcaplan/cv.html](http://econfaculty.gmu.edu/bcaplan/cv.html)
.

~~~
EGreg
He also wrote “last week, as we were celebrating the summer solstice...” which
puts the article probably sometime in late July.

------
soVeryTired
Regarding points 1 and 2, I think any argument that relies on the concept of
utility in some essential way is either false or trivial. Take for example the
theorem that "utility-maximizing individuals equalize the marginal utilities
of goods consumed divided by their prices".

Utility can't be measured directly, and must be inferred from a consumer's
behaviour. It's begging the question to infer an agent's utility function from
their behaviour and to simultaneously conclude that the behaviour maximises
the utility function: that's true by construction.

On the other hand, we can assume a functional form for an agent's utiilty for
a given basket of goods. I guarantee that real-world preferences are more
complicated than any function we can write down, so any prediction we make
about an agent's preferences will almost certainly be wrong.

All in all, utilities are a nice toy, but aren't really any use outside of the
world of theory.

~~~
roymurdock
in econ 101 utility is measured in “utils”

eg 1 banana = 10 utils, 1 apple = 5 utils, 1 car = 100 utils, etc

utils are just a proxy for money and/or time which are interchangeable through
wages paid for labor

money is our real world way of valuing the utility of goods, labor, and more
generally time (the scarcest resource of them all)

utility functions will never describe an individuals preferences perfectly
(hell you couldn’t perfectly describe the utility of any of the transactions
you make) but they’re useful when describing and predicting aggregate
behavior, especially when fed a lot of consumer data (higher confidence)

all of game theory also uses the concept of utility to weigh payoffs and there
are many many real world applications of game theory

its not perfect but no models are perfect, that’s why we have statistics and
probability theory to guide us as well

~~~
wazoox
Except you can't compare the utility of things from different classes like
bananas, hammers, cars, overcoats and paintings. It just doesn't make any
sense. Finally "utility" is a different way to formulate the same thing as
"use value" as opposed to "exchange value".

In Marginalism, you compare utility from agent to agent but you can never
attribute an absolute value.

~~~
roymurdock
say i pay you $1000 in wages this month

how do you decide how to allocate it between rent, food, savings,
entertainment, etc.

most rational people would use some type of internal or subconscious utility
calculation to decide what how to budget their income

i dont know what marginalism is or why its useful when you can simply
approximate a value by looking at the price of the good/service and use that
to compare with other goods and services

~~~
nybble41
There's nothing wrong with the idea of an _internal_ utility calculation. The
problem comes in when people try to compare or sum utility across multiple
individuals. I might have a personal utility function which says an apple has
higher utility to me than an orange, while your personal utility function says
just the opposite. It makes no sense to try to mix these together in an
attempt to estimate just how much apples or oranges are worth to the two of us
collectively.

Money is a reasonable approximation of "aggregate utility" most of the time,
but that holds only so long as interactions between individuals remain
voluntary and there is enough trade in similar items to establish a "customary
price". It doesn't work well for goods which are not customarily traded for
money, or as a basis for orchestrating involuntary interference in the market.

------
throwaway_98554
"(...)Mises alone, and perhaps Rothbard, who stumbled upon Operationalism in
economics, but instead of comprehending that a truthful proposition must be
BOTH externally correspondent, and existentially possible to construct via a
series of rationally testable operations, attempted to somehow conflate Jewish
Law, and Mathematical Logic and instead, created the pseudoscience of
‘praxeology’ under which they claim all economics must be produced by a
sequence of operations.

This left Mises respected but a laughing stock without a position.
Unfortunately he did not understand what he had stumbled upon, and he could
have reformed economics. But he failed. He failed because he was committed to
his dogma, and committed to his error."

[https://www.quora.com/What-are-some-criticisms-of-the-
Austri...](https://www.quora.com/What-are-some-criticisms-of-the-Austrian-
school-of-economic-thought/answer/Curt-Doolittle)

------
jonathanstrange
I'm not convinced by the way the author argues. For example, he gives _U=a_
ln(quantity of apples)+(1-a) _ln(quantity of oranges)_ as an example of a
utility function and in the very same section claims that neoclassical
economists only use ordinal scales, hence the criticism of presuming cardinal
utility doesn't apply.

But does it really make sense to use a nonlinear function to represent ordinal
preferences?

As a philosopher working in the so-called theory of value structure -
basically, about the meaning of 'better than' \- my criticism of preference
modelling would be different and applies to both camps. First, if the
modelling is descriptive we know that people have e.g. non-transitive
preferences and completeness also doesn't hold. Second, there are also pretty
good arguments against the transitivity of 'better than' from a normative
perspective that at least need to be defused somehow. IMHO, the right solution
points towards conditional preferences and/or lexicographic decision
procedures. In a nutshell, multiple criteria interact in complicated ways and
the assumption that the outcome of aggregating them is a neat complete
preorder is generally not warranted. (And there is plenty of work on
nontraditional decision theory by e.g. Fishburn to support alternatives.)
Third, there are good arguments why some of our evaluative comparisons between
items are cardinal, at least on an interval scale, whereas others are purely
ordinal. I understand why this would be an undesirable point of view for an
economist, though, since there is no known rationally and normatively
justifiable way of aggregating ordinal and cardinal utilities into a
meaningful overall assessment. From a measurement-theoretic perspective, an
overall ordinal utility is the best you can get in this case. There seems to
be a certain tendency of economists to dismiss certain plausible views because
they are technically undesirable rather than on the basis of substantive
arguments.

Another thing is that as far as I can see, economists who presume ordinal
utilities do not seem to care enough about Arrow's Theorem in contexts with
multiple attributes. At least they should make clear that IIA ought not hold
when ordinal preferences are aggregated.

~~~
soVeryTired
I think I agree with the crux of what you have to say, but do you have an
example of people having non-transitive preferences?

I can't think of one off the top of my head, and the classical economic
argument is that non-transitive preferences would create a 'happiness pump'
where I get stuck in a loop trading one thing for another and feeling good
about the trade every time.

~~~
jonathanstrange
These are called Spectrum Cases in the metaethical literature and have been
discussed by Larry Temkin, Stuart Rachels, and others. Here is an example:

A_1: One year of intense pleasure.

A_2: Two years of slighly less intense pleasure than A_1.

A_3: Four years of slightly less intense pleasure than A_2.

. . .

A_n: 2048 years of very low pleasure (slightly less intense than A_{n-1}).

In every pairwise comparison we judge that A_{i+1} is better than A_i.
However, we also judge that for some A_j in the spectrum, A_1 is better than
A_j. Repeated applications of transitivity would contradict this, hence
"better than" cannot be transitive.

Before you dwell on the example, note that the same construction can be made
with well-being and it may be made as realistic as you desire. As the size of
his book already hints, Temkin (2012) discusses a vast number of variants in
many evaluative domains.

Money pumps under certainty are one argument against this. The problem is to
explain what's wrong with your judgements in Spectrum Cases then. There are
many other replies. John Broome suggests that "better than" is simply
transitive by virtue of its meaning, but that misses Temkin's point and he's
perfectly aware of this reply. You can also get away with giving up
completeness, but the solution is not very convincing. It boils down to
claiming that two adjacent items are incomparable somewhere in the spectrum,
which is extremely implausible. In my personal opinion the only viable
solution is a lexicographic approach that takes into account that two or more
dimensions at play. I'll spare you the details, though.

On a side note, there is an older tradition of arguing against the
transitivity of "better than" based on measurement errors or the
indistinguishability of adjacent items. This started with Luce (1956). In
these cases, only the transitivity of "equally good" fails but "strict better
than" remains transitive, hence this can be modelled with semiorders or
interval orders. The representation theorems for utility representations
change, but this is well-explored and not a problem. Spectrum Cases are much
worse, if you buy into them, because they show that "strict better than" is
not transitive.

~~~
soVeryTired
That's really interesting, thanks!

------
tobmlt
Since this is trending, you might be interested in the responses from the
Austrians themselves:

[https://mises.org/wire/caplan-and-responses](https://mises.org/wire/caplan-
and-responses)

Note Caplan replies to some of this and it's linked in the same place. Reader
beware - I do not recall the jist of it all as it's been some time (~10 yrs)
since I last saw this. Interestingly, Caplan has a profile on Mises.org:
[https://mises.org/profile/bryan-caplan](https://mises.org/profile/bryan-
caplan)

Cheers.

Edit, more Caplan stuff I find worth linking
[http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18](http://econfaculty.gmu.edu/bcaplan/anarfaq.htm#part18)

------
mark_l_watson
re “I conclude that while self-labeled Austrian economists have some valid
contributions to make to economics, these are simply not distinctive enough to
sustain a school of thought“

This seems a little crazy to me. I think there is a world of difference
between current economic philosophy that runs the US-centered world and
Austrian Economics as depicted on the Mises web site.

I am not an economist but I do sometimes read the Mises.org web site and until
recently I made monthly contributions to support the site.

I credit Mises.org with information that led me to divest my retirement
accounts out of the stock market in 1997. That saved me a lot of money.

~~~
simias
I'm not sure I understand your argument, the Mises Institute could make valid
contributions to the field of economics without being a distinctive school of
thought. I mean the paragraph you've quoted says exactly as much, in full:

>I conclude that while self-labeled Austrian economists have some valid
contributions to make to economics, these are simply not distinctive enough to
sustain a school of thought. The task of developing an alternate Austrian
paradigm has largely failed, producing an abundance of meta-economics
(philosophy, methodology, and history of thought), but few substantive
results. Whatever Austrian economists have that is worth saying should be
simply be addressed to the broader economics profession, which (in spite of
itself) remains eager for original, true, and substantive ideas.

He doesn't say that Austrian economists are always wrong, he says that even
when they're right their works do not justify a completely different economic
paradigm. The fact that anecdotally you saved some money by following their
advice doesn't really contradict that IMO.

~~~
jplayer01
I don't even see how he saved money. If he'd stayed in the market, he would've
made tons of returns by now. It's more like he avoided short-term loss and
long-term profit. Unless for some reason he was invested in companies like
stufffordogs.com.

~~~
mark_l_watson
I waited a few years and returned to investing in the stock market.

------
AndyMcConachie
The Koch brothers gave money to the GMU economics department and played a hand
at picking professorships.

[https://www.washingtonpost.com/local/education/george-
mason-...](https://www.washingtonpost.com/local/education/george-mason-
president-some-donations-fall-short-of-academic-
standards/2018/04/28/bb927576-4af0-11e8-8b5a-3b1697adcc2a_story.html)

~~~
soVeryTired
Finally, an explanation for the existence of Tyler Cowen!

------
freedomben
For people interested in learning more about the author's (Bryan Caplan)
background and views: [http://thepolitic.org/an-interview-with-bryan-caplan-
profess...](http://thepolitic.org/an-interview-with-bryan-caplan-professor-of-
economics-at-george-mason-university/)

~~~
thedailymail
I don't agree with Prof Caplan on a lot of things but generallly respect his
intellect. But I was very surprised and disappointed to read his views here on
alcoholism being a matter of choosing "a beverage over one's family" rather
than a legitimate medical issue.

~~~
fingerlocks
I believe the professor is discussing the implications of choosing A over B,
not examining why the choice was made.

~~~
thedailymail
But that is the point. Most addiction experts don't describe alcohol
dependence in terms of choice, but as a physical addiction.

------
throwawayjava
I enjoyed this article because it provided a level-headed and analytical
critique of a topic that is mired in politically charged emotion.

For example, sections 2.1 and 2.2 resonated with me because, as a
mathematician, because I can plainly see how the algebraic structure chosen by
Rothbard for representing utility is going to severely impact the
reasonableness of his models.

There are several other compelling examples, where anyone who has done a bit
of mathematical modeling can see that the neoclassical school of thought is
simply providing better tools for achieving the desired outcomes.

------
baby_wipe
> while Hayek turned almost entirely to philosophy, law, and intellectual
> history after the 1930's

If he's claiming The Use of Knowledge in Society (1942) isn't about economics,
then you have a very narrow view of economics. I mention it only because this
essay was such a major contribution.

~~~
throwawayjava
_> If he's claiming_

He's not.

To take your example, Section 3.1 critiques _The Use of Knowledge in Society_
via a critique of _Human Action_ (which was published by Mises nearly a decade
after 1942). Many of the observations in Section 3 (and 3.1 especially) are
directly relevant to _The Use of Knowledge in Society_.

------
SubiculumCode
I wonder about Modern Money Theory Economcs..often thought of as the polar
opposite of Austrian Economics.
[https://en.wikipedia.org/wiki/Modern_Monetary_Theory](https://en.wikipedia.org/wiki/Modern_Monetary_Theory)

~~~
jabl
Some thoughts about MMT:

0) If you, as a layman (and why not, if you're an expert as well), are going
to have an informed opinion on economic issues, you owe it to yourself as well
as whoever you're going to discuss it with, to educate yourself broadly and
study both sides of an issue. Seems that too many people who discuss on the
internet happened for some random reason to read a book, then (maybe) continue
to read books in the same vein, and are subsequently unable to look out of the
ideological pigeonhole they have jumped into. Don't become that old bore that
rants endlessly about "libtards/global financial capitalism/whatever" at xmas
dinner, while the rest of your family sits there in an embarrassed silence
wishing you to drop dead or at least STFU so that the kids can have their
presents! For some background that explains the thought behind MMT, I can
recommend Mitchell & Fazi, Reclaiming the State.

1) I don't understand the obsession with the gold standard that some in the
Austrian school seem to have. Or if not gold, some other valuable commodity,
energy, basket of commodities etc. Whatever. Bretton Woods is over, deal with
it. The only underlying reason I've been able to find is that to people who
dream of a nightwatchman-state, the notion of a state with fiscal and monetary
power is poison.

2) The core of MMT, namely the description of the macroeconomics of a
sovereign government with a monopoly on issuing its own floating fiat
currency, is not new per se, but it's explained maybe slightly differently
than usual, but it explains it pretty well. And given how confused people seem
to be about macroeconomics, fiscal policy, and fiat currencies, being able to
explain it clearly is a big deal.

3) As for the policy implications of MMT. MMT teaches us that in terms of
monetary and fiscal policy governments are not as constrained as is commonly
thought (the usual anti-MMT slurs of "printing your way to Nirvana" and
subsequent hyperinflation tells more about the ignorance of whoever is
presenting those). Now, most of the MMT proponents are pretty left-leaning, so
they tend to want to use that extra fiscal space for various social programs,
but one has to keep in mind that's a policy choice and not something inherent
in the theory itself. Another policy choice would be to buy weapons and engage
in various foreign policy adventures, but again, nothing that MMT per se
prescribes.

~~~
SubiculumCode
To be clear, I've read a number of articles, primers, and research manuscripts
about multiple economic theories, though often focusing on MMT, so I am not
one of those that hears things like 'national debt' and goes howling at the
moon and agro at the dinner table, and indeed am a step away from the common
person in terms of education on the matter, but I am a neuroscientists, not an
economist, and this is HN where there is almost always someone else that knows
a whole lot more about something than yourself.

~~~
jabl
My point #0 wasn't specifically aimed at you, but at the general state of the
economic policy discourse. Sorry about that.

Coming from a STEM field myself, the state of economics with wildly different
schools of thought is quite perplexing. But I guess that comes with the
territory, considering that you can't really do society-wide experiments on
different economic models, and even if you could, societies are so complex
it's very difficult to discern the effect of a single measure.

------
ThomPete
Any economic school of thought holds the answer to unknowns in other economic
school of thoughts. The idea of following a specific school always struck be
as desparate. Any economics thinker worth their salt would never subscribe to
just one school as they would know, at least today, that the world isnt
predictable and there are fare more externalities to considder. This is also
why i am a big opponent of policy guided by economists. They should serve as
advisors not policy makers which is often the case today.

~~~
candiodari
Instead of listening to people who know a little, we should listen to people
who know nothing at all ?

Surely I'm misunderstanding something here.

~~~
ThomPete
The questions is what it is they know.

You can be very wrong even though you are completely logical all the way down
to your premise.

All policy decisions have consequences sooner or later. Economist can neither
predict, save or create the financial market.

The things economists can say something useful about are different than what
they are being used for. We should ask economists to calculate how public
spending is going to be affected by various policies but the idea that they
should be asked for advice on fundamental questions and thus what to implement
as policy and not is simply a misguided idea to begin with.

People make the economy not economists. Economists should be treated as
custodians not psychics which is happening all to often today IMO.

~~~
candiodari
I wonder who you would suggest does better ?

> Economist can neither predict, save or create the financial market.

I would argue the problem is much more than the government selects economists
based on what exactly they predict. For example:

[https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-
to...](https://www.cnbc.com/2017/11/02/trump-picks-jerome-powell-to-succeed-
yellen-as-fed-chair.html)

[https://www.theguardian.com/business/2013/oct/09/obama-
janet...](https://www.theguardian.com/business/2013/oct/09/obama-janet-yellen-
us-federal-reserve)

In both cases the selection procedure gave up what these people did to get
selected. Janet Yellen had strong academic credentials and a theory on how to
prevent economic crashes, which clearly Obama was partial to. Of course we
just pretend she wasn't Vice Chair in 2011, because that would be a definite
fly in the soup. Powell seems to have been selected on a promise to take the
market into account (ie. to try to preserve the inflated prices of stocks),
which Trump seems to like, or at least he used to.

The point is, both people were selected based on their opinions. To say that
their actions represent economists is stupid. They represent Obama's and
Trump's philosophies, not economists.

~~~
ThomPete
You can't look at economics like that. Consequences of decisions made at one
point sometimes take decades to manifest themselves.

The point is that the idea that you can steer the economy through economical
theory is what is wrong here.

~~~
candiodari
> The point is that the idea that you can steer the economy through economical
> theory is what is wrong here.

I don't understand. That statement is so obvious I would call it a tautology.
Of course you can.

~~~
ThomPete
... and think you can forsee the consequences.

~~~
candiodari
You keep avoiding the question I ask about who CAN foresee the consequences
...

Do you think the same about all the sciences btw ? I mean, there are plenty of
systems much more complex than the economy. Climate, for example. Are they
entirely unpredictable too ?

~~~
ThomPete
I don't avoid anything I am telling you that I don't believe economy is a
science.

------
feenix566
Imagine you're the President and the economy just collapsed. You have two
economists in your office offering advice. One tells you to spend a lot of
money and go into debt to get the economy working again and the other tells
you to cut back on spending and otherwise do nothing. Which one are you going
to listen to? Obviously the first one's advice would be a lot more popular
than the second.

If we begin with the assumption that politicians are selfless servants of the
people who only want to do what's best for society at large in the long run,
then you would conclude that politicians will carefully examine the theories
and methods of the two economists' schools of thought. If we begin with the
assumption that everyone, including politicians, is primarily self-interested,
then you would conclude that a politician would just do what's popular with no
regard for how the two economists arrived at their advice.

I believe people are primarily self-interested. From that perspective none of
this discussion about economic theories matters because politicians are just
going to do what's popular anyway.

The proposition that people are primarily self-interested is therefore in my
opinion the only idea of value that's come out of the study of economics,
which is the study of human behavior after all.

------
LiweiZ
As a layman, I think Austrian school lacks of quantitive ways to do repetitive
applied work for fields and industries compared to the mainstream schools. And
many of the tools and information sources were not available at Mises' time.
Our society is based on calculation. Economics as a tool for management teams
has to provide effective calculation for as many things as possible. People
communicate and make decisions based on the calculation framework and the
results. The world's economic states are modelled in a more or less
approximate way. The school that can offer more "fact-based" and measurable
data and results are welcomed by decision makers and the people work for them.
Organizations need them. When many of organizations are using similar
frameworks, the can communicate with other similar parties. It's easier for
parties to make their data and results compatible to their own system. Just
some random thoughts from a layman. And yes, I love Mises' work. But the
tooling is missing for a lot of applications. There can be very limited
actionable decision you can make if you adopt it. I'm probably misinformed,
misunderstood and biased. Just some of my observations and thoughts.

~~~
parasubvert
You make good points, the main reason these tools don’t exist , however, is
that I thought Mises and others felt that economics was about logical
deduction from the axioms of human action - Praexology. and thus there was no
need for math or empiricism to validate the theories - they were Prima facie
correct.

~~~
henvic
Indeed. And it is a good thing in my layman's point of view because we better
explain things in a simpler way and reach conclusions with math only if it is
really required. It's like qualitative vs. quantitative.

That said, no one would judge you for doing math. However, the important
pieces (axioms) don't require it.

Lack of math doesn't mean anything bad. See Frédéric Bastiat and Gustave de
Molinari. Both are amazing and no math required :)

~~~
feanaro
Everything boils down to mathematics one way or another, even logic.

The trouble with praxeology is not the lack of math, though; it is the notion
that results need not be validated empirically because they're based on logic.
However, your assumptions (i.e. axioms) need not hold in nature and any number
of mistakes could had been made in the reasoning process. This is why being
based on logic does not make a model magically free of errors.

------
stuaxo
The Mises quote is completely anti-science:

> But the main fact is that there are no constant relations. > Economics is
> not, as ignorant positivists repeat again and > again, backward because it
> is not "quantitative." > It is not quantitative because there are no
> constants. > Statistical figures referring to economic events are historical
> data. They tell us what happened in a nonrepeatable historical case.[27]

~~~
andrenth
It doesn’t strike me as anti-science, more like anti bad science?

If you can’t reliably reproduce an experiment, you can’t make statistical
inference from it.

The reproducibility crisis in the humanities is very well known.

~~~
notahacker
Mises' argument was that even a systematic pattern of results in economics
should always be understood as merely a set of discrete observations dependent
on historical context and unobservable phenomena and therefore no valid
conclusions could be reached from induction, not even falsification of a
claim.

------
f00_
Last year, I finished The Great Transformation by Karl Polyani, published in
1944 (the same year Hayek published The Road to Serfdom), Judea Pearl's The
Book of Why and Mastering Metrics by Angrist and Pischke.

The methodology of Austrian economics seems completely unscientific, I believe
a part of praxeology is disregarding empirical evidence(?). Reminds me of
something like Ayn Rand's egoism. It just seems to me you can't persuasively
argue a philosophical theory without empirical justification

I have a more favorable view towards Polyani's methodology, who largely draws
on historical sources. The historical approach seems at least some what
grounded compared to the pure theory used in much of economics

Economic theory and statistics can't answer questions like "How much of an
effect can we expect if we were to raise minimum wage by one dollar an hour".

A randomized control trial is the gold standard, and the way forward seems to
be more experiments like the RAND Health Insurance Experience and the Oregon
Health Insurance Experiment. Even these results and their policy implications
are subject to debate, so how could pure theory even get close?

However, randomized experiments in the social sciences often aren't feasible
for cost or ethical reasons. So econometrics has developed tools to work on
natural experiments, or even observational data, like Differences-in-
Differences, Instrumental Variables, Regression Discontinuity designs.

Even a brief skim of methodological considerations in economics reveals how
much uncertainty there is. I am only a fan of economics (only high school and
college microeconomics) so I'm likely wrong

~~~
minikites
>The methodology of Austrian economics seems completely unscientific, I
believe a part of praxeology is disregarding empirical evidence.

That's exactly it, it's more of a religion you have to accept on faith as
opposed to a useful model for governing a society.

[https://en.wikipedia.org/wiki/Praxeology](https://en.wikipedia.org/wiki/Praxeology)

>Austrians argue that that empirical data itself is insufficient to describe
economics; that consequently empirical data cannot falsify economic theory;
that logical positivism cannot predict or explain human action; and that the
methodological requirements of logical positivism are impossible to obtain for
economic questions. Ludwig von Mises in particular argued against empiricist
approaches to the social sciences in general, because human events are unique
and "unrepeatable".

~~~
kriro
I'd call it an axiomatic system rather than a religion. Austrians distinguish
between theory and history (pretty bad name). Theory is basically the action
axiom and what you can derive from it and history is the application of this
theory to the analysis of the empirical world. Explaining the great depression
through the lense of the theoretical framework would be an example of history
for example. As far as I know there's nothing wrong with trying to predict the
future through this theoretical framework but you might be wrong. This is
basically Austrian entrepreneurship (sort of forward oriented history).

The way I see it from a science theoretical POV is that the action axiom and
what you derive is basically the "hard core" of the research program (at least
Lakatos makes the most sense for me with regards to science theory).

------
snidane
Good article, but a bit too long for me to participate into discussion. Will
read the rest of it later.

This debate between neoclassicals and austrians reminds me of logicians and
people from static typing systems endlessly arguing about which logic or type
system is the best and complete, without flaws, inconsistencies and paradoxes.
They are trying to reconstruct the world from axioms but get stuck at the very
bottom in these petty debates.

In the meantime we have people which just whip out Python or other dynamic
language, accept its flaws, but produce some real working software which
powers the world. Similarly in logic, people just infer generalizations from
examples (inductive reasoning) instead trying to build axiomatic truth so that
they can reason deductively.

My 'real world' comments to that economic debate.

1\. subjectivity. Humans share 99% of DNA not only among themselves but also
with pigs. It's evident that some people have subjective preferences, but vast
majority of human needs are similar. Housing and food are obviously the
largest markets out there

2\. welfare, ie. connecting micro to macro When you observe microparticles of
gas (motion, collisions, velocity) you don't get macro (temperature, pressure,
density) values until you put the gas into a container, ie. introduce a
boundary condition. Similarly for economics, you can observe individual
collisions (transactions) but unless you observe what happens at the boundary
(scarcity of certain goods) you won't make it to macro values (wealth
distribution, poverty)

3\. monopoly. You get monopoly when you constrain supply of certain good in
the economy. This can happen artificially (pharma industry preventing other
companies from entering the market because of inexperience and safety). Or
naturally (network effects - all utility (electricity, gas, water, railroad,
internet providers, law and justice) companies eventually merging into one).
Because of natural monopolies you need a government, but only for those.

The last point about monopolies is the georgist (Henry George) critique of
both neoclassicals and austrians. The monopolies are the cause of poverty and
unequal wealth distribution, because in the money eventually ends up in the
black holes (monopolies) and rarely make it out. The biggest market of all -
housing - is a perfect example. All the money ends up parked in real estate.

George back then proposed a remedy. To price 'private property' as a service.
The private property owners are those consuming the government services. Eg.
Houses require guarding by firefighters, police against squatters and court
system to resolve disputes. These services should be financed from taxes based
on property then. But nowadays they are financed from taxes on labor (income
tax) and consumption (vat, sales taxes). In other words those people that
don't own anything pay for the services of those that do own.

It's likely no conspiracy, it's just one of those cases where people measure
the thing which is easier to measure, not the one which is important to
measure.

------
jayalpha
I have posted it already but I will post it again (as a former Austrian).

1\. Mises, who did not work one day in his whole live in a private free market
enterprise, has fundamentally not understood capitalism. He describes free
market barter economies, e.g. in the middle ages, that have nothing to do with
capitalism. At least he describes them very good, including, why interest
exits etc.

2\. He fundamentally does not understand the need to pre-finance industrial
production. The pressure to recover the debt gives capitalism its impressive
dynamic. But in the end it is basically a ponzi scheme that relies on a) ever
increasing debt, because previous debt is settled with new debt. b) a growing
economy that allows the creation of more debt.

Mises got the idea, while thinking very hard on a desk in an academic
environment, that companies "save money to make investments". This can not be
observed in reality. Very few companies are able to do this (e.g. IT companies
like google). Most companies take shitloads of loans to pre-finance new
production in the expectation that this loans can be repaid,recoverd with
future economic growth. e.g. selling more cars.

Gail Trevberg touches some of this ideas (I got it from a German book from
1998) in this blog post: [https://ourfiniteworld.com/2011/02/21/there-is-no-
steady-sta...](https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-
economy-except-at-a-very-basic-level/)

3\. Credit expansion can bring about a temporary boom. But such a fictitious
prosperity must end in a general depression of trade, a slump.” — Ludwig von
Mises

This is his biggest joke since it is a tautology. Every boom goes with a
credit expansion and every credit expansion goes with a boom. It is the
principle of a debt based society. He is correct that a boom always ends in a
bust. But this is a feature of capitalism, not a bug.

This is how capitalism works: [https://i.ibb.co/9nms8xK/Net-
Worth.jpg](https://i.ibb.co/9nms8xK/Net-Worth.jpg)

~~~
AnimalMuppet
> Mises got the idea, while thinking very hard on a desk in an academic
> environment, that companies "save money to make investments". This can not
> be observed in reality. Very few companies are able to do this (e.g. IT
> companies like google). Most companies take shitloads of loans to pre-
> finance new production in the expectation that this loans can be
> repaid,recoverd with future economic growth. e.g. selling more cars.

If I understand correctly (and I may not), Mises' position was closer to true
in his day than it is today. The debt-based investment is a more recent
phenomenon.

~~~
jayalpha
Yes, as "recent" as capitalism. The need to pre-finance industrial production.
Basically I would not call anything before the industrial revolution
capitalism. Free market economy maybe, but this is something else.

~~~
AnimalMuppet
I'm not saying that it didn't happen before, say, 1970. But financing
expansion by either capital (stock) or retained earnings was more the norm.
Debt-based expansion became more popular starting around 1970 +/\- 10. (Or so
I read recently, IIRC, here on HN. Can't cite a source immediately.)

------
crb002
Secretary of Polk County Iowa Libertarians here.

It's an information theory issue. Information travels at the speed of light or
less.

Hayek married his cousin, but he was right that information transfer over
large distances creates huge latencies in CAP theorem analysis of Markets. To
me, Austrian just means don't pretend information latency is zero or bandwidth
is infinite.

~~~
f00_
The author (rightly in my view) doesn't group Hayek under Austrian.

What you're talking about sounds like transaction costs and information
asymmetry, which are interesting. Hayek's work is interesting to me, even as
someone who would self describe as a socialist.

His decentralized market solution to the economic calculation problem, the
information from prices (price signals) tell producers and consumers to
increase/decrease supply and demand.

But markets aren't perfectly competitive, there are monopolies. Markets are
embedded in societies, they don't exist outside of them. Markets don't
guarantee an optimal equilibrium. 50% of R&D spending is by the government.

He also did early work on neural networks, published The Sensory Order in
1952, 3 years after Hebb's The Organization of Behavior

~~~
crb002
It's deeper than transaction costs. CAP theorem, C being consistency, has many
information processing frameworks as "not efficient" in that there is
information asymmetry. Add on top this that market information is many times
communicated over noisy channels, and that many channels don't have the
bandwidth to communicate more than approximations.

------
rajacombinator
Long and interesting read, still working through it. He has numerous logical
errors and he fails at refuting any of Mises’ arguments so far in my reading.
Perhaps Mises and his followers have not been able to construct as elaborate
machinery as the neoclassicalists, perhaps it is not possible. Either way it
doesn’t matter, policy and action should and do follow moral (or immoral)
principles. Modern economic theory is just the theology justifying it.

------
Mikeb85
This article didn't need to be written. No serious economist is an 'Austrian'
economist. No one identifies themselves by the labels that modern day
'Austrians' argue about. The field has moved on. It's all about quantitative
modelling, maths, observation, etc... Past Austrian school economists have
contributed things, but the modern day 'Austrians' are basically neckbeards
who argue on the internet about Hayek and Mises and contribute nothing new to
the field.

~~~
aetherson
Note that the article is from approximately 20 years ago.

~~~
notahacker
It's also probably _increased_ in relevance since then, given that Mises-style
Austrian economics has been much more successful in establishing itself as an
important theory on the internet than it ever has been in academia.

Above all, it's a well-reasoned piece from someone who was sympathetic and
proximate to leading contemporary Austrian economists.

