Austrian Economics: Not Just Wrong

Posted by dbhalling 5 years ago to Economics
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Numerous Objectivists and well-meaning advocates of freedom are surprised when I show them that Austrian Economics is not a pro-reason, pro-freedom, intellectual movement. When I show them what the Austrians are saying, they make all sorts of excuses for the Austrians, including that the Austrians do not mean what they are saying, that these errors do not affect the excellent economic work the Austrians have done, and that these problems are limited to a small minority group of Austrians. It is time that we take a good look at what Austrian Economics says and examine whether we want to lend our good name to this movement. Below I discuss some of the common talking points.

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  • Posted by $ ObjectiveAnalyst 5 years ago
    Hello dbhalling,
    A very interesting and powerful argument. A house built on a faulty foundation.
    As you know, I have read many of your critiques along these lines and much of the Austrians' published works. Your critiques leave me believing they should have stuck with bean counting, analytical and statistical analysis of economics and left much of the philosophy to others. As you demonstrate, they have come to many inescapable truths, but undermine their own credibility when you get in the weeds and examine their metaphysics and epistemology.

    Still, I think Rand was right: "What Rand admired about Mises were his criticisms of socialism and Marxism." They may have attacked it from the wrong foundation, but there is no denying they identified and pointed out the failures.

    To the non-objectivist they argue persuasively for policies which are contrary to Marxism, Keynes and the progressives. This may not stand up to pure objective analysis, but it may have the benefit of countering others that are disposed to fall for Keynesian economics. In this case the ends are beneficial even if the means are faulty, since the Marxists, Keynesians, etc. are wrong on all counts. We will never edify all about the problems, but we all suffer the consequences of bad policies born of the worst prescriptions.

    Seeing things as you do, it would behoove all of us to promote those economists that argue from solid footing, congruent with Objective reasoning. When you have time, I would like to see an article by you (considering your obvious knowledge gained from investigation in this area) that lists and promotes those that in your mind are found most acceptable, standing on solid reasoning. You have told us who is wrong and why. Please tell us, in addition to Rand, and especially those trained economists that have it right and why. Together such articles and analysis could be the foundation for your next fine book.

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    • Posted by 5 years ago
      Hi OA,

      Thanks. I absolutely agree that the Austrians are good at finding the weaknesses in many of the Keynesian and Marxists economists and we can draw on their ideas in this area.

      Unfortunately, there are no simple answers to the second question. Many people/economists have contributed insights to an objective theory of economics, but I cannot endorse any of them whole heartedly. Interestingly Malthus provides perhaps the fundamental starting point for economics.

      , I can provide you with a list of economists who I think have made profound insights into economics and have influenced my thinking.

      Jacob Schmookler (Inventions, econometrics): Schmookler did some ground breaking work on inventions, the process of inventing, and economics. He made this incredible profound and insightful statement:
      “Unfortunately, neoclassical as well as classical economics seems better adapted to the analysis of replication than to that of technological change. The vast economic changes since the Stone Age, or for that matter during recent centuries in the West, were possible only because of technological progress.”
      I do not know enough about Schmookler’s broader philosophical background so I cannot say whether I would agree with him, however I will say that econometrics is an attempt to make economics a proper science (empirical data). How successful it has been I do not know.

      Gregory Clark (Economic historian): Clark has a thesis for what caused the Industrial Revolution, which I disagree with. However he asks the two most important questions in economics:
      1. What is the cause(s) of real per capita increases in economic wealth?
      2. What is the cause(s) of the Industrial Revolution?
      I was fortunate enough to meet Clark at Freedomfest last year and he sort of moderated my talk. We have different answers for these questions, especially the second question, but at least he is asking the right questions, which is more than I can say for most of economics. He also is spot on of his analysis of how economics works in a Malthusian economy. I doubt that I would agree with Clark’s philosophical underpinnings, which may be part of why he gets the answers wrong to these important questions.

      B. Zorina Khan (Economic historian): Khan has done more work on the history of patent systems and their effects on the economy than any person in history. I do not know enough about Khan’s broader philosophical background so I cannot say whether I would agree with her.

      Robert Solow (Keynesian, New growth economics): I disagree with almost everything Solow says, however his work showing that economic growth is mainly the result of increasing levels of technology and is the only cause of real per capita increases in economic growth is incredibly profound and echoes the work of Schmookler.

      Paul Romer (New growth economics, mathematical Kenyesian): Romer picked up the ball from Solow and has advanced new growth economics. His understanding of what is the key to economic growth for second and third world countries is spot on. He also has provided a number of other insights into new growth economics. His policy prescriptions for economic growth in first world countries is incorrect. This is because he has tried to fit the insights of new growth economics into earlier economic models, including the nonsense of perfect competition. Mathematical economics which is based on the mathematics first developed for quantum mechanics has been almost completely fruitless. I would agree with the Austrians that that this endeavor cannot provide much useful information about economics, but not exactly for the same reasons. I am sure that I would not agree with Romer’s underlying philosophical basis and I think it is part of why he makes these mistakes.

      Friedman, Hayek, Von Mises: The big three in pro-capitalist or free market economics of the 20th century. Of the three I like Friedman the best. They deserve credit for shooting down some of the worst aspects of Keynesian/Marxist economics. However none of them made any major advances in the important areas of economics. Probably because they never asked the right questions. Friedman like the other two thinks economics should be value free and therefore rejects Natural Rights and the proper understanding of property rights. Friedman like Hayek and Adam Smith are progeny of David Hume and the Scottish enlightenment and as a result are not pro-reason and science.

      Classical Economists:
      David Ricardo did amazing work on the economics of trade. I suspect that he had stronger philosophic foundation than Smith, but in my research I have not been able to prove this.
      Thomas Malthus: I definitely disagree with his philosophical basis (fundamental Christianity) and it is easy for capitalists to dismiss Malthus. However, it is important to remember that Malthus was right for all of history until he wrote his essay. He is still right for about 15% of the world’s population. It is mistake to dismiss Malthus’ work.

      Bioeconomics: With the exception of Malthus this area has not been that fruitful and has generally been an area where economists try to prove Malthus right in a variety of different areas. Despite this the work of Edwin Schrodinger (physicist) in this area is very thought provoking although ultimately wrong.

      My work builds on
      New Growth Economics: The main problem has been that economists have not seen that the insights of new growth economics require a rethinking of economics from the ground up. Instead most economists have tried to graft it onto their other economic ideas.
      Historical Economics: This provides the long run, broad perspective of economics that was critical to my thinking.
      Bioeconomics: Despite its lack of success, this provides the potential to put economics on a sound scientific foundation. Malthus provided the insight between the connection of biology, evolution, and economics. Unfortunately no one has really created anything significant in this area since then.
      Rand, Locke, Natural Rights, and the Enlightenment: These provide the philosophical basis of my work.
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      • Posted by Zenphamy 5 years ago
        db; That's an excellent addition to your writings, txs.

        I think I'd just add that so many that ask the incorrect questions, provide screwy analysis, and give incorrect answers are doing so from the basis of attempting to buttress pre-existing ideas of social thinking and concepts, or desires to engineer/control societies, rather than from valid attempts to define, understand, and explain economics from the point of human interactions and humanity's progress and survival.
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  • Posted by Herb7734 5 years ago
    What you say is true. Austrian Economics must be cherry-picked. Actually, free market capitalism is such a simple method, that it flummoxes economists looking for their PhD's. It is fully explainable in about five pages or so. It only gets to appear complicated when the "buts" appear. When a capitalist advocate gets questions But, what about this, But what about that. You either labor or create. By doing that, or combinations of that, you are remunerated. Period That's pretty much it. It should be included within a rational philosophy as a bonus.
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  • Posted by $ allosaur 5 years ago
    Me old dino is gonna go prehistoric crude here.
    Why the hell would I make anything new and of value just to give it away?
    "Stupid is as stupid does."~Forrest Gump
    Screw a bunch of libtard pseudo-intellectual Austrians!
    Besides exporting Arnold Schwarzenegger, what have Austrians ever really done for us?
    Discounting stupid for a patent philosophy about patents, by the way.
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    • Posted by $ puzzlelady 5 years ago
      Wiener Schnitzel, classical music (Mozart, Beethoven, et al.), Herbert von Karajan, Red Bull, Schnapps, strudel, Freud, Peter Lorre, Hedy Lamarr, Billy Wilder, Sachertorte, Alpine skiing, Peter Drucker, the Austro-Hungarian empire, and the assassination of an Archduke that started a World War. Not bad for a little country hemmed in by 8 others.
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  • Posted by DrZarkov99 5 years ago
    Absolutist thinking is always flawed. Buying into the notion that one should endorse without question any particular school of economics (e.g., Austrian) is a dead end. Like it or not, Objectivism is irritatingly parallel to Anarchism, wherein both fantasize a world of rational actors where few actually exist.

    In the real world, it's challenging to institute a real free market, as there will always be the truly greedy ready to crush smaller competitors. Government interference is a necessary evil to promote as much economic freedom of action as possible, patents being one such interfering mechanism.

    Enforcement of individual rights requires authority, usually presented by government justice structures. Trying to deal in absolutes in the real world is fruitless. Compromise in matters of principle becomes the regrettable but necessary mechanism for a society of wildly varying humans to exist and interact amicably.
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    • Posted by 5 years ago
      The problem with your statement is that Objectivism does not assume rational actor - that is nonsense from economics.

      A real economics, such as I outline in my book Source of Economic Growth, does not give a damn if you are a rational actor. It just states that if you do not receive enough calories a day (and other needs) you die.

      Try building a rocket to the moon without absolutes or creating a computer.
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