Thursday, April 08, 2010

Eruption of Discussion on Austrian School Economics

  • Martin Wolf, of the Financial Times asks whether Austrian economists have a superior understanding of financial crises. (Having him ask this on April Fools Day doesn't help my case that Austrian Business Cycle Theory is still worth refuting.)
  • Paul Krugman answers and clarifies.
  • Brad DeLong answers. (I don't like that Brad makes Austrian school economics to be almost solely a matter of policy advocacy with little supposed analytical content behind it. That may be how Ron Paul and random internet-based commentators put it, but something different can be found in old literature.)
  • Tyler Cowen comments. (I think the point is to throw out ABCT.)
  • What do you think of this old post from Peter Boetke? Does he get at a fundamental weakness of mainstream price theory in lacking any convincing dynamics?

12 comments:

Anonymous said...

Of course neoclassical economics lacks any tenable theory of the dynamics of market adjustment. It's a scandal.

But then again, neither does Austrian economics. Natural language hand-waving doesn't cut it.

As someone entering the field of economics from Computer Science/AI it was a real *shock* to find the ubiquity of equilibrium modeling and comparative statics. Even dynamic general equilibrium theory is misnamed (and an oxymoron).

Why is economics so backward in this respect?

-Ian.

Shane Taylor said...

John Quiggin wrote up his view of and case against ABCT last year. You can read his post here.

Greg said...

Robert-- the comments of Krugman and Cowen are an embarrassment to the economics profession, as I am guessing you are well aware.

Greg said...

Ian asks:

"Why is economics so backward in this respect?"

The barrier here is that the "dynamics" of production / valuation coordination is mathematically non-tractable.

You actually have to thing hard about things and gain some understanding to get this point.

The whole "natural language" canard in my judgment is a signal someone hasn't understood the issues at hand.

Greg said...

Ian, have you studied Wittgenstein?

Anonymous said...

>The barrier here is that the
>"dynamics" of production >valuation coordination is
>mathematically non-tractable.

On what grounds?

I should point out that I've written many papers on dynamic models of economic systems, so you'll have your work cut out convincing me here.

-Ian.

Anonymous said...

> Ian, have you studied Wittgenstein?

Yes ... ?

Anonymous said...

I think one of the reasons that Austrian economics is not taken seriously is the tendency to reject formal tools, such as mathematical or computational modeling techniques. These techniques are ubiquitous in science, not because they guarantee correct theories (far from it), but they provide deductive mechanisms that are truth-preserving. This kind of machinery is very important, especially in economics, because it is very difficult to deduce from local causal relations (e.g., increased supply tends to reduce prices) to aggregate causal outcomes (e.g., global dynamics). What seems hard to understand, from the outside, is how modern Austrians think that natural language is a privileged form for reasoning about economic phenomena. Certainly success in almost all other areas of science strongly suggests otherwise.

-Ian.

Robert Vienneau said...

Thanks for the comments. I'm in agreement with Ian.

I'm, at best, ambivalent about John Quiggin, and I think his commentators adequately took that post apart. But consider this statement: "Says Law ... is obviously true in a barter economy." Since almost any sort of dynamics is possible in a general equilibrium, I don't see this. A complete analysis of ABCT would have to include examination of issues of hysteresis. I read Sraffa as having raised these issues in his review of Hayek.

Anonymous said...

Notice that Lachman plainly explained while Sraffa didn't grasp Heyek though the latter rejoined enough

About the critiques of Quiggin/Krugman seems to me that they simply demonstrate all the flaws of keynesianism: no theory of capital, absence of time, understanding of interest rates as a pure monetary phenomenon, etc

Robert Vienneau said...

No. In "Austrian Economics Under Fire" (1986), Lachmann denies that Sraffa offers an internal critique of Hayek's book. Instead, according to Lachmann, Sraffa is attacking from the position of Sraffa's 1960 reconstruction of the classical theory of value. Lachmann is mistaken. I agree with Kurz's "The Hayek-Keynes-Sraffa Controversy Reconsidered" (2000).

Anonymous said...

Lachman explains why Sraffa is wrong to conceive diverging interest rates while Hayek counterd Sraffa about his mistakes about "stolen saving". Which misses completely the point