
Spreading Hayek, Spurning Keynes - DanielBMarkham
http://online.wsj.com/article_email/SB10001424052748703418004575455911922562120-lMyQjAxMTAwMDIwNzEyNDcyWj.html
======
billybob
Here are my observations as a layman:

1) The economy is really, really complex, to the point that people who study
professionally are about as good at predictions as a dartboard. 2) Therefore,
monkeying with it means pulling levers on a machine you don't understand. 3)
While pulling those levers (via stimulus, bailouts, etc) may or may not help,
it DEFINITELY costs lots of money.

My conclusion: as much as possible, leave it alone.

Exceptions: "referee" kinds of issues - no stealing from your customers; banks
can't have a bunch of CDO debts off the books, etc. Then let the market work
it out.

House prices falling? Well I guess we built too many houses. Sucks for the
people that are trying to sell, but it's awesome for the people trying to buy.
Leave it alone and it will work itself out. Propping up the market just wastes
money and delays the inevitable day of reckoning.

~~~
danielsoneg
I tend to take this approach with medicine too - the human body's a pretty
complex machine.

~~~
presidentender
Anatomy, physiology and pharmacy are susceptible to investigation via the
scientific method. The economy is not.

Furthermore, the layman had best not mess with his own treatment in many
cases: "Give me antibiotics, they worked last time I was sick!"

~~~
bitwize
_Anatomy, physiology and pharmacy are susceptible to investigation via the
scientific method. The economy is not._

Tell that to Esther Duflo, the only rational economist. Unlike just about the
entirety of the rest of her field, she actually conducts controlled
experiments and gathers _data_ , rather than arguing from a priori
assumptions.

~~~
presidentender
Really? She conducts _controlled_ experiments on economies? Gives stimulus
money to one city and simultaneously does not give money to an identical city
in the same economic climate, something like that?

~~~
bitwize
Basically, yes.

------
tocomment
Austrian economics always struck me as kind of hand wavy. I never made it more
than 1/3 of the way through the Wikipedia article on it before realizing I
didn't know what it was talking about.

Does Austrian economics make an testable predictions? Is it based on empirical
data? Does it have models? It seems more like a statement of beliefs to me.

What am I missing?

~~~
davidmathers
[http://johnquiggin.com/index.php/archives/2009/05/03/austria...](http://johnquiggin.com/index.php/archives/2009/05/03/austrian-
business-cycle-theory/)

Also,

[http://www.marginalrevolution.com/marginalrevolution/2010/04...](http://www.marginalrevolution.com/marginalrevolution/2010/04/krugman-
on-austrian-business-cycle-theory.html)

And, this is the most readable, but keep in mind that it's written by a
Keynesian:

<http://www.slate.com/id/9593>

Austrian economics, at its core, is based on praxeology and mostly rejects
models, math and science.

<http://en.wikipedia.org/wiki/Praxeology>

~~~
yummyfajitas
Praxeology doesn't reject models or science at all. It rejects reductionism -
the claim is that you can't predict human behavior in a complex system based
on observations of human behavior in simplified systems.

Praxeology simply claims that you can't predict the economy based on
experiments where you stick 30 college students into some iterated prisoner's
dilemma scenario.

Austrians strongly favor models, math and science. They just want robust
models which are not sensitive to parameters, and econometrics of revealed
preferences rather than highly controlled experiments.

~~~
CWuestefeld
I'm a big fan of Austrians (I'm a complete Hayek groupie). But I don't think
this is quite correct. It seems to me that Austrians really do stay away from
_mathematical_ models, at least. But they do have very strong _logical_
models. The praxeology you refer to is really rooted in inductive logical
reasoning.

The difficulty is that these logical arguments depend on the rationality of
the actors in the economy. And while Mises acknowledges that the _real_
reasons for a person's actions may not even be known to one's self, more
recent experimentation seems to show that at least in some situations, people
really do not behave rationally.

Anyway, if you're concerned about a lack of _mathematical_ rigor, but are
interested in Austrian ideas, you should look at the Chicago school, with
luminaries such as Milton Friedman. The Chicagoans started from Austrian
roots, but if anything, their attitude toward mathematical models is the
opposite of the Austrians: they virtually invented much of the mathematical
techniques that are employed by modern economists.

~~~
yummyfajitas
I think we disagree only on definitions. I'm treating Chicago as a subset (the
majority, from what I've seen) of Austrians, you seem to be treating them as a
separate group.

I'm also not sure what you mean when you distinguish logical from mathematical
models. Could you explain?

~~~
Perceval
Chicago and Austrian schools are separate groups, despite both being on the
side of less government intervention. They have different
philosophical/methodological roots, and have different histories of their
interaction with government.

~~~
yummyfajitas
I stand corrected.

~~~
lzw
I think monetary policy is the primary axis upon which these two schools are
separated. Chicago is under sway Keynes when it comets minatory policy-- but
note this is not the same as keynsianism which is a modern political theory
that ignores the repercussions of easement that Keynes warned about.

Austrians are pretty much hard money. There are some interesting comments made
by rothbards and Friedman about each other ot illustrate the split.

The schools reach similar conclusions on a number of issues, though.

You already accepted they are separate, I'm just trying to add flavor here,
not win a point.

------
goodside
'Peter J. Boettke, shuffling around in a maroon velour track suit or faux-
leather rubber shoes he calls "dress Crocs," hardly seems like the type to
lead a revolution.'

The Austrian school is not new. Why does Boettke have to be leading a
'revolution' to justify the article? It should be enough to be interesting. Or
even just right.

~~~
mattmcknight
Agree that the Austrian school is not new. The revolution is that it had been
out of favor at most US academic institutions, and he's been trying to bring
it back. It's a bit of a story that goes along with people beginning to
question the standard story line of the great depression, bias in academia,
and failures of purely quantitative approaches. Of course, the whole concept
of behavioral econ is a bit of a paradigm shift as well, and the intersection
of the "imperfectly rational" actor with business cycle theory is quite
useful.

------
mhd
So, you're either Keynesian or Austrian? Doesn't that simplify a bit too much
or is current economic science really that easy to put into different camps?

Other than that, debates about that issue always remind me of debates about
food. Some people seem to have simple models, but can't explain a lot. Some
people (Pollan et al.) say that it's too complicated anyway, so here's my
personal wisdom. And while some people in white labcoats might know a bit
more, people just listen to those selling the hamburgers or the organic tofu.

------
weeksie
I find economics, more than almost any other topic of discussion amongst
techies, elicits an incredibly strong Dunning-Krueger effect. Mention
economics, particularly something like Austrian economics which doesn't have
complex mathematical models, and all of the sudden everybody is an expert.

I don't pretend to understand the vagaries, and I tend to read Paul Krugman
columns, but the vehemence in which people who are completely unqualified in
the field will attack expert opinions is stunning to me.

~~~
lzw
The error is to assume that krugman is an expert and that people who disagree
with him are unqualified.

This is because much of what passes for economics is rationalizations given
with a political purpose, and the primary propagandist in that effort is
krugman. Remember. This is the guy who advocated that we should have a housing
bubble, the denied we were in one, etc.

He is, to be sincere, and embarrassment to the science of economics.... But he
is the government designated esparto and so there are millions of people who
believe his nonsense because they don't know better and trust the experts.

Actually, the science of economics isn't that hard, nor is it complicated
enough to need ot listen to an expert. You can teach yourself. Economics in
one lesson is the tittle of a book that im sure you will find enlightening....
And it was written by an expert.

~~~
weeksie
This is exactly what I'm talking about. I only mentioned Krugman because he's
often vilified by the same people who get wound up in economics threads.

People on the Keynes side of the equation also get wound up over mentions of
Chicago School stuff.

That said, it is weird that you're saying Krugman is some sort of government
designated expert when almost every column he writes is critical of the
economic policies being made in Washington. He disagreed with the size of the
stimulus (he wanted it to be larger), he thinks the Fed has its head in the
sand, etc. . . .

And as far as Paul Krugman being an expert, I find it very strange that you
would disagree with that. You might disagree with his policy positions but he
is most definitely an expert in the field.

Notice I never made any judgements about policy itself. My remark was that
people who are not qualified in economics dismiss people who are right out of
hand: Krugman is just a good example because he really seems to rile up
libertarians and Austrians.

Personally my favourite opposing viewpoints to Krugman are made by Tyler
Cowan, I like to read them both. Anyway, it's not my objective to get into a
policy discussion, I was interested more in the meta-observation which you so
handily provided reinforcement for.

~~~
hga
Economics, especially macroeconomics, is a little too big to say which such
certainty that " _... he is most definitely an expert in the field._ "

We're talking about the problem of recovering from a leverage based bubble, an
area where Ben "Helicopter" Bernanke (Chairman of The Fed) is an expert. If
you look at what Wikipedia cites for Krugman's areas of specialty, they will
touch on some of the issues of this but they don't seem to be directly
related: <http://en.wikipedia.org/wiki/Paul_Krugman>

~~~
weeksie
Expert; meaning he's studied macro economics, holds a PHD, teaches at
Princeton, and is widely regarded as such, I'm aware his specialty is currency
crises but it's not exactly like that's the only thing he knows.

That doesn't mean he's right (any or) all the time but it does mean that his
opinions, even when wrong usually have a strong basis in established research.
I'm using it in the same way that I'd say Bernanke, Paulson, Tyler Cowan, Greg
Mankiw, etc. . . are experts.

------
macromicro
Does anyone else think that the surge in sales of the Road to Serfdom stemmed
from the viral youtube rap battle? <http://www.youtube.com/watch?v=d0nERTFo-
Sk>

~~~
hga
Depends on how you score it. A big (% wise, bigger than that of _Atlas
Shrugged_ ) sales increase preceded the video, e.g.: [http://www.cato-at-
liberty.org/soaring-sales-for-road-to-ser...](http://www.cato-at-
liberty.org/soaring-sales-for-road-to-serfdom/) suggests by about a year.

On the other hand, hitting #1 on Amazon in the middle of this year...:
[http://www.cato-at-liberty.org/hayeks-road-to-
serfdom-1-on-a...](http://www.cato-at-liberty.org/hayeks-road-to-serfdom-1-on-
amazon/)

------
hga
_"What I'm really worried about is an endless cycle of deficits, debt, and
debasement of currency," Mr. Boettke says. "What we've done is engage in a set
of policies that's turned a market correction into an economy-wide crisis."_

Which is what a lot of people believed made the 1930s depression Great: first
Hoover (an engineer) and then FDR engaged in massive and unprecedented
intervention in the economy (pre-Keynes-ian, seeing as how his major work
presenting his theories on the subject was published in 1936). (Which is not
to say that recovering from over-leveraging is ever easy.)

Those didn't exactly take the shape of the above (from memory, aside from FDR
seizing the nation's gold at the traditional $20/oz price and the repricing it
at $35/oz), but certainly we're entitled to question a "stimulus" bill that
cost more than the Iraq war
([http://www.americanthinker.com/2010/08/does_barely_true_mean...](http://www.americanthinker.com/2010/08/does_barely_true_mean_true.html))
that doesn't even look it will accomplish the traditional (e.g. FDR) goal of
it winning elections for the party in power.

~~~
jbooth
Except Hoover didn't engage in either a massive or unprecedented spending. All
his public pronouncements and actions show that he was concerned with keeping
the budget close to balanced over stimulus, whereas FDR was the opposite.

EDIT: Here you go:
<http://www.usgovernmentspending.com/year1929_0.html#usgs302>

Total federal spending went from 3.8 to 4.3 billion under Hoover over the 4
years from 1929,1930,1931,1932. Hopped to 5.1 billion in FDR's first budget.
15% is "increased spending", 3% is really not, in the context of rolling over
a large institution, it's basically holding even or cutting a little.

Far lower rate of increase under Hoover than under, say, Reagan. Hoover also
lobbied for a big tax increase in 1931 to "balance the budget", and typically
in economic contractions the states and municipalities cut spending, because
they have to run balanced budgets by law most of the time.

Also, the recent stimulus bill was over 1/3 tax cuts -- so it's not really
like like they're spending more than the Iraq war. More fun with statistics.

~~~
hga
" _Except Hoover didn't engage in either a massive or unprecedented spending_
"

Then I guess it's fortunate I said "massive and unprecedented _intervention_
in the economy".

As for "tax cuts", in Washington that's scored as spending, e.g. you can't in
theory cut a tax (rate, of course D.C. ignores dynamic scoring) without making
up for it elsewhere. When you apply the "money is fungible" rule and you're
running an annual deficit, it comes out the same, either requires the same
amount of money to be borrowed to cover it.

Your last (now edited out) point is a bit off since the fight over
interpretation of the Great Depression has been going on from the very
beginning and looks to be without end. There was certainly a CW, after all the
(political) victors write the history, but that doesn't mean it's The Truth.

I don't remember your including Reagan's budgeting in your first draft, so
I'll just point out that he was fighting and winning an existential war,
something that didn't burden Hoover.

~~~
jbooth
Even on intervention, what'd he do, he held the federal budget pretty stable,
he did the Smoot Hawley tarriffs which were large but I wouldn't call them
"massive" or "unprecedented"..

What's the huge intervention? I see perhaps slightly more active than the
typical President but, considering the massive and unprecedented
circumstances, I don't see a whole ton of activity.

Regarding the never-ending debate on the topic of Hoover vs FDR, sure,
although I'd say the victory was well-earned, and that documented statistics
on government spending are a pretty solid fact.

~~~
hga
The two big ones I'm somewhat familiar with are:

"Jawboning": convincing companies to not decrease wages in the face of
deflation, so they just went bankrupt instead.
(<http://en.wikipedia.org/wiki/Herbert_Hoover#Great_Depression>, first
paragraph.)

And then there's the
[http://en.wikipedia.org/wiki/Reconstruction_Finance_Corporat...](http://en.wikipedia.org/wiki/Reconstruction_Finance_Corporation)

There's lots more although many not as consequential _and_ unprecedented (i.e.
excluding Smoot-Hawley and the massive tax rate increase), as a quick read of
the first link will indicate.

~~~
jbooth
Fair points, I could nitpick at those too but I can see where you're coming
from. I guess I just see his actions as more "reactive" rather than
"intervention". If the economy's falling apart, and the government's
intertwined with it, then you're going to see some increased activity from the
government.. I tend to differentiate between whether the person's running
around sticking their thumb in various holes in the dike (Hoover) or
rebuilding the whole dike (FDR).

Subjective measurement, though, so YMMV.

------
warmfuzzykitten
Great profile of a weak academic spreading his economic religion.

