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Spreading Hayek, Spurning Keynes

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Re: Spreading Hayek, Spurning Keynes

#21

Post by Perceval »

yummyfajitas wrote: post #16
CWuestefeld wrote: post #12

Earlier quoted context omitted.

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…

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?

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.

Re: Spreading Hayek, Spurning Keynes

#22

Post by jhpriestley »

yummyfajitas wrote: post #18
jhpriestley wrote: post #15

Earlier quoted context omitted.

Aggregate demand is a money quantity, so it is perfectly well-defined. Keynes never tries to add 1 slice of pizza to 1 computer, and in fact goes into great detail about units and definitions in book 2 ("definitions and ideas") of The General Theory . An uncharitable person would say you've probably never even read it.

I did not claim Keynes ignored units. I claimed he reduced the economy to a few aggregate quantities and claimed they are sufficient to make predictions. Statistical physics does much the same thing - they reduce a complex newtonian system of 10^23 particles to a few aggregate quantities: temperature, pressure, etc, and makes predictions based on the aggregates. Keynes tries to do the same thing, reducing a bunch of…

Okay, I assumed you were talking about the 'aggregation problem' (the aggregation of unlike quantities, rather a common pitfall in economics).

If you agree that aggregate demand is a well-defined quantity, then I'm not sure what you're objecting to. You can disagree with a theory based on this curve, but the curve itself requires no justification beyond a proof that it is well-defined.

Re: Spreading Hayek, Spurning Keynes

#23

Post by jerf »

hga wrote: post #4
tocomment wrote: post #2

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?

I have to wonder if you're asking too much out of macroeconomics. There's so many variables, you can't do clean let alone repeatable experiments, etc. It does make testable predictions, but given the above one can always argue about how thus and so made the result irrelevant (either way). Look at the current remaining faithful Keynesians, who say the only problem with the "stimulus" was that it wasn't big enough whil…

"... the more honest admit it wasn't Keynesian at all to begin with."

Nice to see someone else say that for once. If one reads up on what Keynes considers "stimulus" and compare that to what our politicians have labelled "stimulus", less than 10% or so of our "stimulus" was Keynesian. There's a bit of play in that number depending on exactly how you apply definitions, but you certainly can't get it to 80% or 90%.

I am fairly Austrian and consider Keynesian economics to be interesting but misguided on some fundamental points, but in all honestly I can't consider the utter failure of this stimulus as evidence against Keynesian economics. From what I can tell, he too would have predicted this to be utter failure, so both true Keynesianism and my preferred systems predict utter failure and therefore I can't use this to distinguish the two. I am however coming to view Keynesian economics in much the same way I view Communism, as beautiful theories that can't survive contact with real humans. It's too easy for the government to squint at Keynesianism and see nothing but "Hey, spend more money and take more power!", which is not an accurate reflection of Keynesianism at all, but it's what they see. (There's a kernel of truth to that simplification, but no more; the reality of the theory is considerably more nuanced and complicated.)

Re: Spreading Hayek, Spurning Keynes

#24

Post by sabat »

danielsoneg wrote: post #20
billybob wrote: post #17

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, l…

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

I presume you're being ironic.

Re: Spreading Hayek, Spurning Keynes

#25

Post by yummyfajitas »

jhpriestley wrote: post #22
yummyfajitas wrote: post #18

Earlier quoted context omitted.

I did not claim Keynes ignored units. I claimed he reduced the economy to a few aggregate quantities and claimed they are sufficient to make predictions. Statistical physics does much the same thing - they reduce a complex newtonian system of 10^23 particles to a few aggregate quantities: temperature, pressure, etc, and makes predictions based on the aggregates. Keynes tries to do the same thing, reducing a bunch of…

Okay, I assumed you were talking about the 'aggregation problem' (the aggregation of unlike quantities, rather a common pitfall in economics). If you agree that aggregate demand is a well-defined quantity, then I'm not sure what you're objecting to. You can disagree with a theory based on this curve, but the curve itself requires no justification beyond a proof that it is well-defined.

An aggregate theory of any sort has two separate pieces. The first is the definition of the aggregate. The second is a a reduction of the more complicated system to a simplified one based on the aggregate, i.e. showing that theories based on the aggregate quantity are sufficient to predict the world.

I'll make the analogy to statistical physics again. You can always define the average temperature and pressure in a vessel. One can come up with simple calculus laws, such as PV=nT and make predictions(remember high school chem?). Sometimes that's an oversimplification, since temperature and pressure vary from place to place within the vessel. Sometimes you can't even use simple gas laws and need to revert to newtonian or quantum mechanics.

The belief of Austrians (and myself) is that for the most part, the simple calculus of aggregates is an oversimplification and hides important details necessary to explain the world.

One example: you can make a two-sector model of the economy, say [housing, everything else]. In this case, demand is a vector, say [housing demand, other demand]. The demand shock is in housing, and that's where a lot of the unemployment lives (there is some unemployment in "everything else" due to knock-on effects). It's fairly clear to see that stimulus will have different effects depending on whether it is a housing stimulus or an "everything else" stimulus, and that stimulus can mostly only help with the knock-on effects.

A theory based solely on aggregate demand is completely incapable of recognizing this, since it doesn't even have the variables to describe it. The AD theory simply studies AD=housing demand + everything else demand, and tries to go from there. If, for example, housing demand = alpha x AD, and everything else demand = beta x AD, an AD-based theory would be very useful since it would just hide unnecessary complexity. If that isn't the case, then an AD-based theory hides necessary complexity and gives the wrong answers.

Re: Spreading Hayek, Spurning Keynes

#26

Post by [deleted] »

mhd wrote: post #11

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…

[deleted]

Re: Spreading Hayek, Spurning Keynes

#27

Post by yummyfajitas »

Perceval wrote: post #21
yummyfajitas wrote: post #16

Earlier quoted context omitted.

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?

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.

I stand corrected.

Re: Spreading Hayek, Spurning Keynes

#28

Post by 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.

Re: Spreading Hayek, Spurning Keynes

#29

Post by presidentender »

danielsoneg wrote: post #20
billybob wrote: post #17

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, l…

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

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!"

Re: Spreading Hayek, Spurning Keynes

#30

Post by hga »

jerf wrote: post #23
hga wrote: post #4

Earlier quoted context omitted.

I have to wonder if you're asking too much out of macroeconomics. There's so many variables, you can't do clean let alone repeatable experiments, etc. It does make testable predictions, but given the above one can always argue about how thus and so made the result irrelevant (either way). Look at the current remaining faithful Keynesians, who say the only problem with the "stimulus" was that it wasn't big enough whil…

"... the more honest admit it wasn't Keynesian at all to begin with." Nice to see someone else say that for once. If one reads up on what Keynes considers "stimulus" and compare that to what our politicians have labelled "stimulus", less than 10% or so of our "stimulus" was Keynesian. There's a bit of play in that number depending on exactly how you apply definitions, but you certainly can't get it to 80% or 90%. I a…

Well, I quibble about the "multiplier effect" (which I admit I haven't seriously studied at all), since it's my understanding that it ignores the costs of taking out all that debt (but since I guess this happens in a period when no one wants to borrow anyway ... well, as I said, I haven't seriously studied it :-).

However the "can't survive contact with real humans" is spot on. One thing you left out as I understand it is that you're supposed to pay back the money you borrowed after the economy recovers. This of course never happens.

True, some countries do decide to seriously pay back debt, I understand Canada did a lot not too long ago, and we paid back a lot of our WWII debt, but those are not the same thing.

And countries that run their operating budgets on ever increasing debt inevitably renege on it one way or another (getting conquered was not uncommon in times past), with I suspect the recent technology based boom (say the post-WWII one) being a special case of the game being able to last a lot longer than normal. (I.e. that's our (the hackers) fault :-).

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