The Imperious and Mysterious "Lord Keynes" has spent months and years trying to debunk the Austrian Business Cycle Theory. He's found a few of the weaknesses in it that have bothered me for years. However, the essence of the Austrian School and the entirety of economics itself is the concept of human action, human exchange and economic calculation. Like all anti-Austrians, "Lord Keynes" just doesn't get it. Personally, I think it is a psychological aversion to the truth. One can no longer hold the religious beliefs of the Keynesian Hoax if one understands human action, human exchange and economic calculation. There's a reason why Keynes avoided this essential topic in its entirety in "The General Theory", a total aversion that continues to this day.
So, while understanding nothing, LK announces his syllabus of Debunking Austrian Economics 101. I'm thinking that this is a wonderful event because a newbie Keynesian who reads this stuff won't understand economic calculation anymore than LK does (not at all) and will not understand or even be aware that it is at the center of Austrian Thought. LK's pedagogical malpractice is the civilized world's gain.
So, go forth you Keynesians and spout LK's pitiful and uninformed critique of the Austrian School. We will see you coming from blocks away.
Also, you don't want to miss the MMTers rather spastic response to me pointing out that LK still does not understand economic calculation.
One can no longer hold the religious beliefs of the Keynesian Hoax if one understands human action, human exchange and economic calculation.
ReplyDeleteI keep hoping you'll elaborate on this, but it never happens. "Human action is purposeful behavior, therefore Keynes sucks." I must be missing some detail (apparently a well-hidden and closely guarded secret, since you are expressing joy that nobody reading his posts will grasp it), as it does not seem to follow.
There is an air of mysticism about this business, to hear you talk about it.
There is no beginning to the Keynesian fairy tale. Austrian analysis starts with the very empirical beginning, ignorant acting human beings with unmeasurable subjective values who engage in exchange. The terms of those exchanges, prices, are the primary source of information about the values of acting humans and the only objective source of such information. "The economy" is not a machine - in fact, there is no "economy". There are just human beings with different talents who exchange goods and services.
DeleteGovernment intervention distorts those prices, the essential information. That is the cause of economic bad times and the boom/bust cycle. This was all set out very clearly by Mises and Hayek well before the publication of Keynes' “The General Theory” in 1936.
Keynes was well aware of Hayek as his primary opponent prior to publication of TGT. However, Keynes completely ignored the basic analysis of economic reality (the Austrian analysis): Acting subjective humans engaging in exchange and thereby producing objective economic information in the form of prices.
If one believes that the Austrian explanation of reality is correct, then the Keynesian explanation is preposterous. But if the Austrian explanation is so horribly wrong (as both the real and phony “Lord Keynes” imply), WHY HAVE THEY ALWAYS FAILED TO ENGAGE IT? It is because the Austrian explanation is so self evidently true that merely repeating it in a full and fair manner as part of a fair debate would undermine the preposterous Keynesian analysis which depends for its effectiveness upon a complete suppression of the Austrian analysis.
What else is there to say about this? For 40 years, I’ve failed to see what is so allegedly complicated and mysterious about the Austrian analysis. In fact, it’s not complicated at all. The statists simply prefer to not think about it so that their imaginary Keynesian universe is not disturbed.
Well, if it will make you happy, I shall try to engage with these ideas. From the top:
ReplyDelete"There is no beginning to the Keynesian fairy tale." This is akin to saying there is no beginning to Newtonian physics or biology. It's true, but trivially so. There's always something more fundamental. No theory can explain everything while maintaining its falsifiability. Domain specificity is not a bad thing. Nobody tries to calculate the trajectory of a thrown rock or the efficacy of a circulatory system with quantum mechanics.
However, this is not to say that the gap cannot be bridged; simply that doing so does not seem to be necessary for any and all economic analysis to occur. As it happens, Keynes himself laid out an expectations-oriented microeconomic approach in chapter 20 of TGT, based on the groundwork laid in his Treatise on Probability (probability theory being his field before he became embroiled in economics). Unfortunately, not a lot of people appear to understand it. I myself have only just begun to delve into the latter publication, and it is slow going (no thanks to Keynes being a dry and tedious writer).
Interestingly, it could be argued quite reasonably that a "macrofoundation of microeconomics" should also be considered (i.e., macroeconomic data are relevant to individual actors in the market, and therefore are variables of their action), especially when the market confronts the individual as an impersonal, monolithic whole. Even if it is not epistemologically correct to assert the existence of it as a discrete entity, that is instrumentally how millions-if-not-billions of participants address it, and this tempers their expectations and therefore their behavior.
"'The economy' is not a machine - in fact, there is no 'economy'." This is a pointless statement. It's just disputing a definition that nobody forwarded. The only way it could convey any real information is if a) we accept that hypostatization is not necessarily a fallacy, as Mises insisted that it was, or b) if we accept a metaphysics of substance dualism. We are way the heck out of bounds, here.
"Government intervention distorts those prices, the essential information." This is also trivially true, since we've defined "those prices" as the prices that arise absent government interference. By the same token, any Microsoft venture distorts prices if we consider them to definitionally exclude Microsoft. Ditto for if they exclude Bob Roddis; with a single transaction, things won't wind up quite the same way they would have, had you not done that.
"If one believes that the Austrian explanation of reality is correct, then the Keynesian explanation is preposterous." Again! "If one believes [the explanation that states that Keynesian economics is preposterous], then..."
So far, it's been nothing but tautologies. And not to come off rude (since I am pretty sure you didn't come up with this stuff), but I'm more than just beginning to suspect that it's "turtles all the way down," so to speak.
1. There is no beginning to the Keynesian fairy tale." This is akin to saying there is no beginning to Newtonian physics or biology. It's true, but trivially so. There's always something more fundamental. No theory can explain everything while maintaining its falsifiability. Domain specificity is not a bad thing. Nobody tries to calculate the trajectory of a thrown rock or the efficacy of a circulatory system with quantum mechanics.
DeleteRight off the bat, you’ve changed the subject and made a wholly and absurd implication that the Keyesnian Hoax is akin to quantum mechanics. There it is. That’s the nature of your scam right there.
Note that you’ve essentially admitted that the basic Austrian axiom and postulates are true because you said they were ”tautologies”. Rothbard wrote:
Actually, despite the "extreme a priori" label, praxeology contains one fundamental axiom — the axiom of action — which may be called a priori, and a few subsidiary postulates which are actually empirical. Incredible as it may seem to those versed in the positivist tradition, from this tiny handful of premises the whole of economics is deduced — and deduced as absolutely true. Setting aside the fundamental axiom for a moment, the empirical postulates are: (a) small in number, and (b) so broadly based as to be hardly "empirical" in the empiricist sense of the term. To put it differently, they are so generally true as to be self-evident, as to be seen by all to be obviously true once they are stated, and hence they are not in practice empirically falsifiable and therefore not "operationally meaningful."
http://mises.org/daily/5195
Further, there is no basis whatsoever to suggest the necessity of a theory of economics that might be parallel to that of quantum mechanics. The purpose of quantum mechanics was to explain phenomena that could not be explained with Newtonian physics. But there are no phenomena that are not, were not, have not and cannot be fully explained using the basic Austrian concepts. That is why you guys ALWAYS change the subject and can never fairly and calmly repeat the basic Austrian concepts. IT IS SELF EVIDENT THAT THEY ARE TRUE and explain all economic phenomena.
Again, there is no need for an economic "equivalent" of quantum mechanics because basic Austrian concepts explain it all.
To be continued.
Change the subject nothing; it's called an analogy. I'm talking about domain specificity. No single field of science can explain everything. When you claim the following:
ReplyDelete"But there are no phenomena that are not, were not, have not and cannot be fully explained using the basic Austrian concepts."
Then you're admitting that it's not a falsifiable theory. We may as well be debating the existence of God or the existence of radical free will. If literally every outcome confirms your theory, it is a theory with no actual explanatory power.
Talk talk talk all around the issue. Continue to avoid pointing out exactly those problems that Austrian concepts allegedly do not explain.
DeleteThe sole purpose of the “quantum mechanics of economics” nonsense is to trick average people into thinking that economics is some kind of unintelligible nightmare that only the genius level “progressive” elect might ever be able to understand. The Keynesian elect is like a religious priesthood. The purpose is to keep average people at bay, confused and defenseless. It’s like “The Emperor’s New Clothes”. It’s a hoax.
I'm seeing a lot of rhetoric and no argument. The point is exactly that it can claim ANY outcome from a given circumstance arising from human action as verification. That is actually a Bad Thing. When presented with the same opportunity, Jay could buy a burrito or a pretzel from the vendor. Or he could challenge the vendor to a round of tennis. Or he could launch himself from the cliff conveniently beside the vendor. In any of those cases, Austrians will claim that this conforms exactly to their theory, since clearly he did what had the most subjective value to him, knowing all the implicit tradeoffs and such. Ta-daa!
ReplyDeleteI may as well ask you to point out exactly what is not explained by determinism (hint: nothing), but at least I recognize that the entire subject is only interesting as a thought experiment, and has no practical use. On the other hand, you appear to embrace this aspect of your position; your whole case for Austrian School economics seems to be "chant this mantra! See, you have said it, of course it is true!"
Keep your prayers and creeds, and keep your thought experiments. Give me science. In lieu of that, I'll take an argument that doesn't amount to "I am right because people do what people do - you can't prove it wrong!"
"I'm seeing a lot of rhetoric and no argument."
DeleteAhhh!!! Look who's talking.
"The point is exactly that it can claim ANY outcome from a given circumstance arising from human action as verification."
While it "can" it doesn't. In fact, it does not claim that empirical evidence is a verification of the theory.
" In any of those cases, Austrians will claim that this conforms exactly to their theory,"
Wrong. Austrians will make no such claim. They take every case as a given, the datum, and explain real economic phenomena such as prices, wages and rates of interest.
"Give me science."
What IS science? Why is the Austrian approach not "science"? Scientology, anyone????
"Ahhh!!! Look who's talking."
DeletePretty sure it was me. I was the one who was talking in the part right there, and the only one in this comment box making arguments more substantive than "A=A." But thank you for your thoughtful and incisive critique of "no, u."
"Wrong. Austrians will make no such claim. They take every case as a given, the datum, and explain real economic phenomena such as prices, wages and rates of interest."
Wait, what? Are you telling me that the action axiom and the various corollaries and postulates of Austrian School economics do not suffice to explain any of the claimed actions? Isn't that a heretical falsehood by construction, since to deny the action axiom is a performative contradiction? "Tak[ing] every case as given" is just empty verbiage, in light of this.
"What IS science?"
This is the core of the philosophy of science. While there is no shortage of debate on the matter, and really no limit on the depth of this line of inquiry, for the sake of this discussion I am quite content to use the Wikipedia definition: "Science ... is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe," without getting into the finer details of things like falsificationism.
"Scientology, anyone????"
...
Thank you for your input, regardless.
This was going to be a comment asking why you haven't approved my other comment, yet, since you've apparently had time to make another post. But rereading this exchange, it has finally sunk in that I am actually arguing with a person whose response to "that's a tautology" is "so you admit that it is true!"
ReplyDeleteI could take the time to explain the difference between "the sky is blue" and "the sky is the sky," but I am not sure I see a point in trying.
Whether you post this or not, please have a good day.
Your missing comment didn't seem to appear in the "awaiting moderation" folder prior to today. We need more government regulation of Google to force them to fix that.
DeleteThe essence of the "tautology" is that there is NO OTHER SOURCE for the information created and transmitted by free market prices other than those free market prices. That's the DEEP THOUGHT behind the Austrian School.
DeleteIn February, 2011, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:
Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1
The “knowledge problem” is real and it ought to be understood. It is at the core of Austrian School analysis but Keynesian and other inflationist school recoil from having even a basic familiarity with such a core concept.
Bob,
ReplyDelete"The essence of the 'tautology' is that there is NO OTHER SOURCE for the information created and transmitted by free market prices other than those free market prices. That's the DEEP THOUGHT behind the Austrian School."
Just so we're clear: the information transmitted through free market prices is transmitted through free market prices. Interesting.
The only thing that makes the above statement at all interesting is the "no other source" line. If we're to conclude that there is some sort of qualitatively distinct Free Market information conveyed in such a way, then this remains an empty tautology. (If you are getting sick of seeing that word, that is most unfortunate, but here is a way to look at it that may be better tailored to your perspective: a spade is a spade.)
Now, if the above is incorrect, and the only takeaway is entirely quantitative (i.e., as expressed in money terms), then suddenly this thing has some legs. Problem is, I'm not sure it's particularly convincing, since it's still making a claim that is unfalsifiable; there is no way to conclusively illustrate a negative claim through induction. Furthermore, given the incredibly elastic and variable nature of legislative activity and enforcement strategies, it doesn't even seem likely. "Of the infinite set of possible state policies and combinations thereof, no other configuration yields the same set of prices as this" is roughly the same as saying "on an infinite timeline, a million monkeys hammering randomly on a million keyboards will never produce a work of Shakespeare." In essence, it seems to rely on a backwards view of probability.
HOWEVER, even if we ignore all of the above and take as given your claim (of which I am, again, skeptical), then all you've illustrated is that this set of prices is different from that set of prices or that other one, etc. Since your worldview hinges on the underlying normative assumption that "this set of prices is superior," you are effectively smuggling in an ethical or aesthetic claim through the back door.
"Libertarian" ethics is of course a whole other can of worms, but whereas I've here uncovered it as the core of every economic argument I've ever seen you make, maybe in the future you could spare everyone the mystification and cut right to a discussion of ethics. Leave aside claims about employment, accounting, interest, profit, what have you; they just obscure the real, fundamental difference of opinion at play.
Hope this helps.
Hayek made this topic crystal clear:
ReplyDelete“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.
The basic concepts are quite simple to comprehend. "Progressives" simply do not want them to be true and thus purposefully avoid their meaning. Or fail to grasp them.
Notice to all of you inflationists out here:
ReplyDeleteYou are free to dispute the empirical truth that the only serious method of determining the subjective economic values of other humans beings is by examining the terms of their exchange transactions. Give EMPIRICAL EXAMPLES IF YOU WISH TO DISPUTE THAT. Don't drone on with phony quasi-philosophic babblings about the nature of the empirical assertion. You only engage in such nonsense in order to change the subject (and avoid engaging the assertion) because you have no substantive response to the assertion.