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Thread: Why are Austrian economics not taken seriously?

  1. #1

    Why are Austrian economics not taken seriously?

    Why are Austrian economics not taken seriously?

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  3. #2
    because it creates an environment of transparency and takes away power from the politicians and their ability to promise everything to everyone via debt-financing.
    just me

  4. #3
    Why are Austrian economics not taken seriously?
    Austrian economics is taken seriously.

    That's why they ignore it.


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  5. #4
    Because they realize that Austrian economics can be used to effectively solve all of our problems. If I remember correctly, Austria has had the least amount of financial issues.
    "Perhaps one of the most important accomplishments of my administration is minding my own business."

    Calvin Coolidge

  6. #5
    Much of Austrian economics got absorbed into mainstream economics. The emphasis on prices communicating information is pure Hayek and Mises.

    What I assume you are asking is why isn't Austrian Business Cycle taken seriously and why don't people use Austrian methodology?

    The simple answers to those two questions are 1. Austrian Business Cycle has no predictive ability 2. Having a theory derived from logic is fine but if it doesn't comport with reality then it has to be discarded.


    Austrians have predicted five thousand of the last one recessions. Ron Paul and Peter Schiff are Austrians and were bearish during both of the largest bull markets of their lives. You would have to kill yourself and hope life insurance covers your margin debts if you listened to their advice. They predicted out of control inflation during a time when inflation was the lowest of their lives. And then didn't admit they were wrong and take the L.

    The problem with not using data is you don't change when proven wrong. And then you end up making up imaginary inflation and imaginary unemployment to get the world to comply with your theory instead of making sure the theory comports with the real world.

  7. #6
    AE is ignored because it implies that much of what the politicians do, and the voters want them to do, is destructive.

    It's the same as with climate science that contradicts the popular narrative.

    Quote Originally Posted by Krugminator2 View Post
    1. Austrian Business Cycle has no predictive ability
    AE doesn't purport to provided predictions as to the timing or magnitude of effects, and that doesn't make it useless in practice. If we know that a certain state intervention will have a certain effect, and we think that effect is bad, that is reason enough to not pursue that policy: despite our ignorance of precisely when that effect will arrive or precisely how large it will be. AE demonstrates that monetary inflation by the state retards productivity, for example, and that is extremely useful information, despite AE being unable to predict the effects of that policy in detail (when, if ever, will it result in what kind of recession, etc).

    2. Having a theory derived from logic is fine but if it doesn't comport with reality then it has to be discarded.

    Austrians have predicted five thousand of the last one recessions. Ron Paul and Peter Schiff are Austrians and were bearish during both of the largest bull markets of their lives. You would have to kill yourself and hope life insurance covers your margin debts if you listened to their advice. They predicted out of control inflation during a time when inflation was the lowest of their lives. And then didn't admit they were wrong and take the L.

    The problem with not using data is you don't change when proven wrong. And then you end up making up imaginary inflation and imaginary unemployment to get the world to comply with your theory instead of making sure the theory comports with the real world.
    That AE adherents make incorrect predictions as to the timing or magnitude of economic events in no way discredits AE, which, as I said above, does not purport to make any such predictions. Those predictions from a Peter or a Ron arise from their own opinions, not AE. Sure, their general worldview is heavily colored by AE, but that doesn't mean that the prediction logically follows from AE. Your argument is equivalent to saying that math is wrong because a mathematician incorrectly predicted the weather. I might add that none of the schools of economics, including AE's unsound competitors, are useful for making the kinds of predictions we're talking about. Economics simply isn't the kind of science that is capable of making such predictions.
    Last edited by r3volution 3.0; 10-28-2020 at 05:32 PM.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken

  8. #7
    I am beginning to see Austrian Economics as I do communism as far as achieving it goes. Like they say with communism, "It works in theory," but only if you leave human nature out of the equation.

    Austrian Economics is similar in that it works well on paper, but freedom isn't popular in reality. This is a flawed world.

  9. #8
    Quote Originally Posted by RJB View Post
    I am beginning to see Austrian Economics as I do communism as far as achieving it goes. Like they say with communism, "It works in theory," but only if you leave human nature out of the equation.

    Austrian Economics is similar in that it works well on paper, but freedom isn't popular in reality. This is a flawed world.
    That's not really a fair comparison.

    The problem with communism is internal to the theory; it wouldn't work even if it existed.

    There's no problem with laissez faire itself; the problem is that it's difficult to bring it into existence under current political conditions.

    Laissez faire is an iphone before Apple was founded; Communism is a hammer made of cotton candy.
    "Democracy is the theory that the common people know what they want, and deserve to get it good and hard."

    -H. L. Mencken



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  11. #9
    Quote Originally Posted by Krugminator2 View Post
    Much of Austrian economics got absorbed into mainstream economics. The emphasis on prices communicating information is pure Hayek and Mises.

    What I assume you are asking is why isn't Austrian Business Cycle taken seriously and why don't people use Austrian methodology?

    The simple answers to those two questions are 1. Austrian Business Cycle has no predictive ability 2. Having a theory derived from logic is fine but if it doesn't comport with reality then it has to be discarded.
    Successfully forecasting particular market outcomes and sussing out the general laws that govern all economies are no more the same thing than winning at the craps table and deriving the laws of mathematical probability are the same thing. In both cases, success at the former does not imply success at the latter, and vice versa.

    Just as mathematics is the working out of the necessary consequences of the abstractions of quantity and dimension, economics is the working out of the necessary consequences of the abstraction of human action. As such, Austrian economics (including ABC) comports fully with reality - just as does mathematics - and when done correctly, it cannot possibly be otherwise.

    Quote Originally Posted by Krugminator2 View Post
    Austrians have predicted five thousand of the last one recessions. Ron Paul and Peter Schiff are Austrians and were bearish during both of the largest bull markets of their lives. You would have to kill yourself and hope life insurance covers your margin debts if you listened to their advice. They predicted out of control inflation during a time when inflation was the lowest of their lives. And then didn't admit they were wrong and take the L.
    Name one school of economic thought for which the same sorts of things cannot be said of any of its wannabe swamis/gurus, or any of the forecasts ever attempted by them. (IOW: Name for me any school of economics whose crystal-ball gazers are never mistaken ...)

    The purpose of economic science is not to tell us what stocks to buy, how many to buy, when to buy them, or how long to hold on to them.

    Market forecasting is to economic science as horse racing is to probability theory. Some mathematicians will no doubt try their hand at playing the ponies - but no matter how many trifectas they may lose, probability theory is not thereby invalidated.

    Quote Originally Posted by Krugminator2 View Post
    The problem with not using data is you don't change when proven wrong. And then you end up making up imaginary inflation and imaginary unemployment to get the world to comply with your theory instead of making sure the theory comports with the real world.
    In what ways have any of the (allegedly) "predictive" and "empirical" schools of economic thought been changed after having been proven wrong? On the contrary, the models they employ are merely tinkered with to bring them in line with past "data" while they remain singularly unable to anticipate future "data." This is not how (real) predictive science is supposed to work ...

    Consistently successful predictive economic models are chimeras - and they always will be. The quest for them is a symptom of "physics envy." But physics (unlike economics) is able to flush its failures, such as geocentrism and caloric theory (or humorism and miasma theory in medicine). Economics, as the field currently stands (and as will continue to be the case for as long as it persists in the pretense of being a predictive science), has no such mechanism. As a result, it collects "schools" and "models" in much the same way that cryptozoology collects sasquatches and chupacabras.



    The Truth About Economic Forecasting
    https://mises.org/library/truth-abou...ic-forecasting
    Graeme B. Littler (08 May 2013)

    Astrologers, palmists, and crystal-ball gazers are scorned while professional economists are heralded for their scientific achievements. Yet the academics are no less mystical in trying to predict the direction of interest rates, economic growth, and the stock market.

    Forty years ago, Thomas Dewey was defeated by Harry Truman, stunning the political experts and journalists who were certain Dewey was going to win. While questions about “scientific” polling techniques naturally arose, one journalist focused on the heart of the matter. In his November 22, 1948, column in Newsweek, Henry Hazlitt said the “upset” reflected the pitfalls of forecasting man’s future. As Hazlitt explained:

    The economic future, like the political future, will be determined by future human behavior and decisions. That is why it is uncertain. And in spite of the enormous and constantly growing literature on business cycles, business forecasting will never, any more than opinion polls, become an exact science.

    We know how well economists forecasted the eighties: from the 1982 recession and the employment boom to the Crash of 1987, no major forecasting firm came close to predicting these turns in the market. And following the Crash, virtually every professional forecaster revised his economic forecasts downward, all because the historical data suggested that the stock market was a reliable barometer of future economic activity. The economy then continued to expand and the stock market eventually reached new highs.

    After President Eisenhower’s heart attack on September 24, 1955, the stock market experienced a massive drop. The stock market later recovered as the president recovered; like 1987, 1955 turned out to be one of the statistically best in economic history.

    Despite the sorrowful record, most economists remain die-hard advocates of forecasting. Most have spent years in college and graduate school learning the tools of their trade, and can’t bring themselves to admit their own entrepreneurial errors. As one investment advisor put it: “No matter how many times they fail, their self-assurance never weakens. Their greatest (or only) talent is for speaking authoritatively.”

    Of their errors, the forecasters contend that it’s only a matter of time before they master the techniques. Though that day will never arrive, economic forecasting remains an integral part of the economics mainstream. The original motto of the Econometric Society still holds sway: “Science is Prediction.”

    Whether one uses a ruler to extend an economic trend into the future, or a sophisticated econometric model with dozens of equations, the problem is still the same: there are no constant relations in human affairs.

    Economics, unlike the natural sciences, deals with human actions, plans, motivations, preferences, and so on, none of which can be quantified. Even if it were possible to quantify these things, changing tastes (and all the factors that affect tastes) would make the data almost instantaneously useless to the forecaster. And then there are the millions of “unimaginable” things, like Eisenhower’s heart attack, which constantly crop up, influencing people in unpredictable ways.

    Economic statistics (i.e., history) do not imply anything about the future. Because data show the relation between price and supply to be one way for one period of time doesn’t mean that it cannot change. As Mises pointed out, “external phenomena affect different people in different ways” and “the reactions of the same people to the same external events vary.”

    Some economic forecasters like to argue that economic forecasting is not unlike predicting the weather (and should also be equally difficult). Not only is the nature of these two problems entirely different, but one can reasonably expect that as scientific methods become more sophisticated, weather prediction could theoretically approach perfection. This is because there are constant relations among physical and chemical events. By experimenting in the laboratory, the natural scientist can know what these relations are with a high degree of precision. However, human society is not a controlled laboratory. This fact makes the forecaster’s job of accurately predicting future events impossible.

    Forecasters try to get around this problem by linking events in historical chains, and randomly guessing that if one variable reoccurs, then the others will necessarily follow. But this is a sophisticated version of the logical fallacy, post hoc ergo propter hoc (after this, therefore, because of this). This has led major forecasters to seriously study astrological patterns and to build mathematical models that correlate weather patterns with business cycles. Once the forecaster throws out economic logic, anything could have caused anything else, and all variables in the universe are open to study. One mainstream forecasting theory for investors, for example, is based on the rate at which rabbits multiply.

    Does this mean we can know nothing about the future? No, the best forecasters are successful businessmen, whose entrepreneurial judgment allows them to anticipate consumer tastes and market conditions. As Murray N. Rothbard points out:

    The pretensions of econometricians and other “model-builders” that they can precisely forecast the economy will always flounder on the simple but devastating query: “If you can forecast so well, why are you not doing so on the stock market, where accurate forecasting reaps such rich rewards?”

    Forecasting gurus, instead, tend to disdain successful entrepreneurs.

    The myth that economists can predict the future is not just harmless quackery, however. Central planners use the same theories to direct the economy. Yet by setting production goals with the data collected by the planners themselves, they destroy the very process that directs free-market production.

    Central planners try to overcome uncertainty by substituting formulas for entrepreneurial judgment. They believe that they can replace the price system with commands, but they miss the whole purpose of individual action on the free market. As Ludwig von Mises said, they make “not the slightest reference to the fact that the main task of action is to provide for the events of an uncertain future.” In that sense, central planners are no different from professional forecasters.

    Don’t expect unemployment among forecasters, however. Many have cushy jobs with the Congress, the White House, and virtually every agency of the U.S. government, and will happily issue predictions to no end.

    In the Austrian view, on the other hand, economists have three functions: to further our understanding of the free market, to identify possible consequences of government policies, and to counter economic myths.

    Economic forecasting has nothing to do with these objectives. In fact, by presenting itself as the only scientific dimension of economics, forecasting has helped discredit the whole discipline, and fueled an exodus of economists from the more mundane academic world to the arena of state control and coercion, to the detriment of every American.

    [bold emphasis added - OB]

    "The Truth About Economic Forecasting" by Graeme B. Littler is licensed under CC BY-NC-ND 4.0
    Last edited by Occam's Banana; 10-28-2020 at 07:07 PM.

  12. #10
    Quote Originally Posted by Krugminator2 View Post
    Much of Austrian economics got absorbed into mainstream economics. The emphasis on prices communicating information is pure Hayek and Mises.

    What I assume you are asking is why isn't Austrian Business Cycle taken seriously and why don't people use Austrian methodology?

    The simple answers to those two questions are 1. Austrian Business Cycle has no predictive ability 2. Having a theory derived from logic is fine but if it doesn't comport with reality then it has to be discarded.


    Austrians have predicted five thousand of the last one recessions. Ron Paul and Peter Schiff are Austrians and were bearish during both of the largest bull markets of their lives. You would have to kill yourself and hope life insurance covers your margin debts if you listened to their advice. They predicted out of control inflation during a time when inflation was the lowest of their lives. And then didn't admit they were wrong and take the L.

    The problem with not using data is you don't change when proven wrong. And then you end up making up imaginary inflation and imaginary unemployment to get the world to comply with your theory instead of making sure the theory comports with the real world.

    Here's your problem: they were right, by technical standards. What they've said should have happened in a market governed by even standard rules. However, it's hard to predict what tool the Fed is going to throw into the mix and that's where the unpredictability enters.

    By all means, the predictions from the likes of Paul and Schiff are based in something. The problem is they can't determine what the Fed will do next, and that's a big part of the problem.
    Welcome to the R3VOLUTION!

  13. #11
    Quote Originally Posted by RJB View Post
    I am beginning to see Austrian Economics as I do communism as far as achieving it goes. Like they say with communism, "It works in theory," but only if you leave human nature out of the equation.

    Austrian Economics is similar in that it works well on paper, but freedom isn't popular in reality. This is a flawed world.
    I think you're confusing "Austrian economics" with "libertarianism" or "laissez faire capitalism" - but strictly speaking, Austrian economics is neither of those things. In fact, "Austrian economics" is just ... economics ... (and human nature, as embodied in the "action axiom," is an inherent, and indeed, foundational, part of economics ...)

    Also, unlike communism and socialist economics, Austrian economics is not normative. It does not seek any particular outcome, such as a dictatorship of the proletariat or state ownership of all capital property (i.e., "the means of production"). Rather, it merely attempts to identify the laws and propositions by which economic outcomes, whatever they might be, are produced - as, for example, the Law of Demand dictates that if there is a minimum wage then (all else being equal) higher unemployment will result.

    But Austrian economics makes no policy prescriptions. An Austrian economist could favor a government-mandated minimum wage. He would have to acknowledge that this would, ceteris paribus, increase unemployment - but if he is willing to accept that trade-off (for whatever reasons), then he can still be fully "Austrian." Of course, most Austrians are libertarians who would oppose things like a minimum wage - but strictly speaking, that is because they are libertarians, not because they are Austrians.

  14. #12
    Quote Originally Posted by Okie RP fan View Post
    Here's your problem: they were right, by technical standards..
    No. They weren't right. They were wrong. Scoreboard doesn't lie.

  15. #13
    [QUOTE]
    Quote Originally Posted by Occam's Banana View Post
    Successfully forecasting particular market outcomes and sussing out the general laws that govern all economies are no more the same thing than winning at the craps table and deriving the laws of mathematical probability are the same thing. In both cases, success at the former does not imply success at the latter, and vice versa.

    I don't think anyone makes successful macro predictions based on theory or economic data. And yet Austrians makes those predictions constantly and act like their predictions should come to fruition with the regularity of the sun coming up. Their constant predictions are intertwined with school of thought. Mises made those predictions. I was just reading an old forum from the 90s where George Reisman was dooming. Robert Murphy makes those predictions. Here is he predicting double digit inflation even though nothing in markets indicated that would happen. https://www.econlib.org/archives/201...my_inflat.html The Treasury market forecasted zero inflation for as far as the eye can see but Robert Krugman Murphy thinks markets are just arbitrary.

    Austrians constantly think they know better. The unfettered confidence in the face of constantly being wrong is very Trumpian. It is one thing not to think markets are perfectly efficient (which I of course do not, thankfully). It is another to completely ignore market signals.



    Name one school of economic thought for which the same sorts of things cannot be said of any of its wannabe swamis/gurus, or any of the forecasts ever attempted by them. (IOW: Name for me any school of economics whose crystal-ball gazers are never mistaken ...)
    Market monetarism. It relies on market expectations and market reactions to form opinions. Not hunches. Not theories. Not opinions. The market's opinion is the only one that matters.

    In what ways have any of the (allegedly) "predictive" and "empirical" schools of economic thought been changed after having been proven wrong? On the contrary, the models they employ are merely tinkered with to bring them in line with past "data" while they remain singularly unable to anticipate future "data." This is not how (real) predictive science is supposed to work ...
    There is no need to predict the future. That's the point. Markets do it very well. Market Monetarism has been right been right about everything the last 12 years. Didn't think QE would be inflationary. Thought monetary policy could be quite effective when interest rates at zero.

    Quote Originally Posted by Occam's Banana View Post

    Consistently successful predictive economic models are chimeras - and they always will be.
    Right. Do me a favor. Call up Ron Paul and tell him that. He speaks with such certainty of what the future holds when he goes on CNBC. It is always inflation and impeding doom. It is 2020 now. He has been doing this since at least the early 80s. When have you ever heard him say, "You know, the economy looks great. Unemployment is low. Productivity is high. Inflation is under control. Things look good for the foreseeable future." It is always something about the Fed and how we will soon be punished for our sins.
    Last edited by Krugminator2; 10-29-2020 at 07:26 AM.

  16. #14
    Really interesting post. Will come back later to read all posts adn tell my opinion.

  17. #15
    I tend to think that AE is used by the ultra-wealthy, inner-circles, the folks who can get away with it.

    For the common folk and society as a whole, the Keynesian model is used in order for the above to retain control.

    This is what the AnCap/Agorist sees, and practices AE every chance he/she gets.

    Perhaps @CCTelander can expand.
    “The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.”

    Read the RPF trolls' playbook here (post #3)

  18. #16
    Quote Originally Posted by PAF View Post
    I tend to think that AE is used by the ultra-wealthy, inner-circles, the folks who can get away with it.

    For the common folk and society as a whole, the Keynesian model is used in order for the above to retain control.

    This is what the AnCap/Agorist sees, and practices AE every chance he/she gets.

    Perhaps @CCTelander can expand.

    I'm not quite sure what you think I could expand on here. I do have a good fundamental understanding of AE but I'm by no means any kind of expert. I suspect your intent was to elicit my ancap's view of counter-economic activities and how that contributes to advancing the cause of liberty, but I'm not entirely sure. Could you elaborate? Thanks.
    Chris

    "Government ... does not exist of necessity, but rather by virtue of a tragic, almost comical combination of klutzy, opportunistic terrorism against sitting ducks whom it pretends to shelter, plus our childish phobia of responsibility, praying to be exempted from the hard reality of life on life's terms." Wolf DeVoon

    "...Make America Great Again. I'm interested in making American FREE again. Then the greatness will come automatically."Ron Paul



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  20. #17
    Quote Originally Posted by CCTelander View Post
    I'm not quite sure what you think I could expand on here. I do have a good fundamental understanding of AE but I'm by no means any kind of expert. I suspect your intent was to elicit my ancap's view of counter-economic activities and how that contributes to advancing the cause of liberty, but I'm not entirely sure. Could you elaborate? Thanks.
    I always enjoy your perspective and how you put into words our point of view. Yes, you suspected right.
    “The right to life is the source of all rights—and the right to property is their only implementation. Without property rights, no other rights are possible. Since man has to sustain his life by his own effort, the man who has no right to the product of his effort has no means to sustain his life. The man who produces while others dispose of his product, is a slave.”

    Read the RPF trolls' playbook here (post #3)



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