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Spreading Hayek, Spurning Keynes

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Re: Spreading Hayek, Spurning Keynes

#11

Post by 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.

Re: Spreading Hayek, Spurning Keynes

#12

Post by CWuestefeld »

yummyfajitas wrote: post #10
davidmathers wrote: post #6

Earlier quoted context omitted.

http://johnquiggin.com/index.php/archives/2009/05/03/austria... Also, http://www.marginalrevolution.com/marginalrevolution/2010/04... 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

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 s…

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.

Re: Spreading Hayek, Spurning Keynes

#13

Post by waterhouse »

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?

Let me put it this way. Suppose you use the methods of mathematics to determine that 7 x 8 = 56, and you decide to test this by arranging physical things in 7 rows of 8 and then counting them up. Suppose you try this, and you end up counting some other number, like 55. Why could this be? It could be that 7 x 8 is actually not 56, or it could be that your physical experiment was badly suited to test the principle (or badly executed). For example, perhaps you were putting drops of water in rows, and two of them combined into a single drop while you were putting down the rest of the drops.

There are two things to say here. First, if the materials you have are highly volatile and it is incredibly difficult to rule out "things happening that you didn't account for" as the explanation when the results of an experiment appear to disagree with your theory, then it's efforts to advance the theory by empirical investigation are likely to be doubtful and fruitless. Note that if your materials are free human beings and you're observing their responses to various stimuli, then the condition in the preceding sentence applies very thoroughly.

Second, even if [the reason the results of a physical experiment appear to disagree with the conclusions of a theory] is that the theory is incorrect, then it is always possible to confirm that the theory is incorrect by theoretical analysis. If you find that arranging physical objects in 3 rows of 4 and counting them up never yields 16, then you can verify by the methods of mathematics that 3 x 4 is not 16. And it is only once you've done this that you actually feel sure that the theory was wrong; until then, you always have the doubt that your experiment was badly designed, executed, or interpreted.

(Imagine telling mathematicians that you were going to test one of their theorems by physical experiment. Or announcing that you had disproven a theorem by physical experiment. I think you would be laughed at. At any rate, they would want you to turn your results into a mathematical argument, with no reference to your experiment.)

I believe it is with these things in mind that Mises and others say things to the effect that economic theory is not subject to empirical verification or falsification.

Re: Spreading Hayek, Spurning Keynes

#14

Post by RyanMcGreal »

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?

Ludwig Von Mises actively spurned empirical testing, claiming that economics are too complex to abstract into evaluative models.

Re: Spreading Hayek, Spurning Keynes

#15

Post by jhpriestley »

yummyfajitas wrote: post #8
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?

They make predictions, but they tend to be more qualitative and less useful for central control than Keynesian policies. The main reason for that is Keynesian economics reduces the many sectors of our economy to a few simple aggregate quantities - e.g., rather than having demand for housing, demand for pizza, demand for computers, we simply have "aggregate demand". An uncharitable person would say that this is simply…

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.

Re: Spreading Hayek, Spurning Keynes

#16

Post by yummyfajitas »

CWuestefeld wrote: post #12
yummyfajitas wrote: post #10

Earlier quoted context omitted.

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 s…

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?

Re: Spreading Hayek, Spurning Keynes

#17

Post by 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.

Re: Spreading Hayek, Spurning Keynes

#18

Post by yummyfajitas »

jhpriestley wrote: post #15
yummyfajitas wrote: post #8

Earlier quoted context omitted.

They make predictions, but they tend to be more qualitative and less useful for central control than Keynesian policies. The main reason for that is Keynesian economics reduces the many sectors of our economy to a few simple aggregate quantities - e.g., rather than having demand for housing, demand for pizza, demand for computers, we simply have "aggregate demand". An uncharitable person would say that this is simply…

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 sectorial demand curves into a single aggregate demand curve.

Austrians/Chicagoans believe this reduction is unjustified.

I freely admit I've only read a small portion of General Theory, though I've read a bit more by newer Keynesians (Krugman and Thoma are two names that spring to mind).

Re: Spreading Hayek, Spurning Keynes

#19

Post by mattmcknight »

goodside wrote: post #9

'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.

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.

Re: Spreading Hayek, Spurning Keynes

#20

Post by danielsoneg »

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.
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