Saturday, July 03, 2010

Good For Me, Bad For You

I still hope to publish my critique of Austrian business cycle theory (most recent public version). In my introduction, I need to answer the question why anybody should care about criticism of Austrian business cycle theory or Austrian economics more generally. Mentions of Austrian economics in popular venues helps make my case. And some recent outbreaks are available.

On 8 May 2010, the Maine Republicans adopted a platform with these insane planks:
"V. To Promote the General Welfare
  • Return to the principles of Austrian Economics, and redirect the economy back to one of incentives to save and invest.
  • Cut spending, balance the budget, and institute a plan for paying down debt. Proclaim that generational debt shifting is immoral and unconscionable and will not be tolerated! ..."
Apparently, nobody has told these maniacs that Von Mises declares praxeology, that is, economic theory, to be Wertfreiheit, that is, value-free (Human Action, Chapter II Section 7).

And an unstable liar on Fox News has made Hayek's The Road to Serfdom the number one most popular book at times on Amazon. So Hayek is being discussed in the popular press and among academics who previously had taken no notice. By the way, other works of Hayek are more important for theories of the business cycle. In The Road to Serfdom, Hayek says his differences with Keynes are a matter of pragmatic judgment, not political principle:
"There is, finally, the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them. This is, of course, one of the gravest and most pressing problems of our time. But, though its solution will require much planning in the good sense, it does not - or at least need not - require that special kind of planning which according to its advocates is to replace the market. Many economists hope, indeed, that the ultimate remedy may be found in the field of monetary policy, which would involve nothing incompatible even with nineteenth century liberalism. Others, it is true, believe that real success can only be expected from the skillful timing of public works undertaken on a very large scale. This might lead to much more serious restrictions of the competitive sphere, and, in experimenting in this direction, we shall have carefully to watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure. But this neither the only nor, in my opinion, the most promising way of meeting the gravest threat to economic security. In any case, the very necessary efforts to secure protection from these fluctuations do not lead to the kind of planning which constitutes such a threat to our freedom." -- Friedrich A. Hayek, The Road to Serfdom, Chapter IX: Security and Freedom

The popularity of Austrian economics refracts and contributes to a policy environment in which bad ideas are being adopted with bad consequences.


Anonymous said...

It is funny that they proclaim the need to promote "Austrian" economics "To Promote the General Welfare" when "Austrian" economics regularly denounce attempts to do just that... such as unions, welfare, etc.

At best, they claim to "promote" the general welfare by invoking trickle-down economics (let the rich keep their riches and lets hope some of it finds its way down to those who created it in the first place). And we know how well that turned out...

As for "value-free", well, strange how all the conclusions of "Austrian" economics seem to benefit property-owning class. The notion that capitalism is the best system because "value-free" "science" concludes it is has a long history in attempts to justify capitalism...

And it is somewhat ironic, really, given that the "Austrians" denounce state intervention and regulation and proclaim the benefits of "spontaneous order", how, when it comes to banking, they seek to replace the evolved wisdom of the industry with THEIR ideological precepts and, ultimately, seek to regulate the banks far more than they have been before.

Ultimately, if the gold standard is the best and banks commit fraud via fractional reserve banking, why has no entrepreneur EVER made a fortune by creating a bank with 100% gold reserves? Talk about market failure... could it be that real banking in the real world knows something that the "Austrian" professors do not?

But, yes, the recent popularity of "Austrian" economics on the American right makes critiques of their theory very relevant.

An Anarchist FAQ

Anonymous said...

Robert, your big challenge is to get the economics right.

Are you up to it?

I don' think I've read a Hayek critic who is.

Maybe you'll be the first.