I'm an economics professor in one of the few departments where people specialize in Austrian economics, and after years of exposure to them: I still don't understand what they are claiming. Of course each person ends up with many specific beliefs, and many of those beliefs are correlated with being in that group. But that is not the same as core claims that they share because they are in that group.
If I can't understand someone's claims, and I'm not sure they even have clear claims, then I can't exactly say they are wrong. In contrast, theism does make relatively understandable claims.
The Austrian school does indeed have issues in their stated epistemological position, but I still have to respect an economist who, in 2004, explained how the implicit assurance of government bailouts made the economy fragile.
It is as if at least some of them are letting evidence affect their thinking despite the official philosophy. Maybe, rather than bashing them, we should try to extract useful evidence based models from their successes.
One of these days I'm going to write my own version of Why I'm not an Austrian Economist. Perhaps after a year or so in graduate school.
As a result of the Austrian's epistemology, they are completely against any sort of model. It's reality or bust. The fact is, they can't do economics without resorting to a model of some sort. Austrians won't admit this - agents are somehow ontologically fundamental entities, so they claim they are studying reality per se. Since they claim to eschew models, Austrians eschew the rigor of mathematics in the models they implicitly create, which just makes things go haywire.
There are a variety of Austrian mistakes related to not understanding that economics (and science in general) is model building. For example, some Austrians claim that neoclassical economics fails because it relies on calculus, which relies on continuity, but humans can't perceive infinitesimal changes. Austrians also rail against aggregation, but, again, that's just because they don't understand that they are building models.
Bryan Caplan published the essay I linked to above in a journal (at least in some form. I haven't read the journal version), and the Austrians respon...
I don't have the time to post a defense of the Austrians, but I encourage anyone who is really interested in the subject to read this comment thread: http://commentlog.org/bid/4408/Feynman-Rothbard-and-the-Science-of-Economics
This thread contains the best explanation I've seen of the Austrian position, and it actually makes a lot of sense. In economics, there is simply not enough variables to do a controlled experiment. So you have to use deduction and reason in order to understand events. Insisting on using Popperian falsifiability where such a procedure is not possible, creates the well known keys and lamp post fallacy.
This looks like a good place to post what I think is the best critique of the Austrians out there: Bryan Caplan (who is sympathetic to the Austrians) does a good job of arguing that the Austrian foundations fall into two categories 1) not different than mainstream economists 2) wrong.
It starts here Why I am not an Austrian economist, continues some back and forth between Walter Block and Hülsmann (an Austrian) and Caplan:
There's more here (links from the appendix 1). Some of these are in .doc form.
I should also point out that I do think the Austrians are ...
I think we need to be a little more conscious of what "Austrian economics" is supposed to mean. I like to think of it as everything coming down from the "Mises Circle." Mises headed one of those Viennese "circles" of which the "Vienna Circle" is the most famous. He had amazing people around him, including Hayek, Oskar Morgenstern, and Fritz Machlup. If you trace it out, it turns out that these guys had a big hand in shaping post-war orthodoxy in microeconomics. (http://rss.sagepub.com/cgi/content/refs/16/1/45) If...
I'm not an Austrian by any means, but I do see myself as something of a fellow traveler. It's been a few years since I studied Austrian methodology, but I remember Rothbard (at his best) being above the criticisms leveled at Mises (who does deserve them). After trying to find relevant passages of Rothbard, I've actually put my views of him through a mini-Crisis of Faith. Here we go...
Rothbard defines a praxeologist as someone who
..."believes (a) that the fundamental axioms and premises of economics are absolutely true; (b) that the theorems and conclu
Is contamination with non-empiricism one of the dangers of studying economics? I ask because I tried to read J. K. Galbraith's The Affluent society. The first chapter is convincing on the point that things have changed and we face new problems. He also says that new problems require new solutions.
If he meant new in the sense of freshly computed that would be OK. Instead he went out of his way to emphasise that he meant new in the sense of different.The new solutions would necessarily be different from the old solutions. He fired off some pretty rhetorical ...
But the point of a priorism isn't to make empiric predictions in the first place. To examine this, let us consider the example of putting two apples in a bowl, adding another two apples, and being left with four apples. This is often used, erroneously, as an empiric test of 2+2=4, but what you actually have done is not add two and two together but started with four apples and moved them closer together into a single container. That you frame this in terms of addition is somewhat arbitrary, and if you lived in a counterfactual universe where a fifth apple a...
W. W. Bartley III criticised presupposititionalism in his book "The Retreat to Commitment". Bartley pointed out that knowledge doesn't need to be justified, i.e. - there is no need to show that it is true or probable. Rather, rationality has to do with holding all of your positions open to criticism. We don't need justification because theories can be criticised without justifying anything. If I make an experimental observation that clashes with a theory then there is a problem to be solved independently of whether the observation is right or wro...
I don't see any problem with a tautological definition of "selfishness", as long as you realize what it can and can't do (eliminate "impossible possible worlds" but not "possible possible worlds"). Of course, you should also have a word ("selfishness" is often used for this too) for utility functions that don't count the well being of others.
"he proclaims that price controls will lead to rationing by non-price means. But this is only true if the provider of the good in question is attempting to maximize profit; ...
I'd only like to add a small contribution, concerning Mises's argument that "The human being cannot see the infinitely small step" and thus continuous functions cannot be used as models.
Discretely sampled (digital) signals are used all the time in engineering, and they are analogous to their continuous counterparts (analog). Particular care must be taken when "converting" between one and the other; but for most purposes they're pretty close.
All the appliances you have at home now take discrete samples of continuous quantities (physical ...
It sounds like there's some equivocation creeping in there too. If Mises is going to define happiness as "whatever people aim at", he shouldn't rely on the connotations of happiness; his argument shouldn't change if the word is replaced with "gensym01". Similarly for "self interest" and "gensym02".
It seems to me that the whole thread is littered with academics who adhere to intellectualism vs realism. Austrian economics is about the latter. One of the best (but overlooked) books to read (fundamental stuff - which is what most academics fail to take into account) is Hazlitt’s “Economics in one lesson”. It’s essentially Austrian school 101 and I think most of you in here need to retake the course. The Austrians were always right and now it WILL become evident. Austrian economics is existential economics (in a sense), and that fact puts them apart from...
I would think it would be pretty obvious why theism is always the example used. Standard human in-group/out-group dynamics and similar psychological factors. Unlike merely being of a different religion (at least in the US) being an atheist often comes along with (even causally triggers) a certain degree of alienation from many others in society. This alienation drives atheists to strongly signal group membership when around others of their kind and gives them a strong need for reassurance that indeed they are the ones in the right not the majority. Add...
According to the about page, this group holds mathematical modeling in high esteem. A central idea being that the mind itself, individually and, by extension, groups of minds, can be mathematically described and modeled.
I would be interested to hear how one claims to correlate the results of a model to the workings of the mind. It sounds to me more like the result of industrious researchers mixed with computing power which is sufficient for the task of repeatedly tweaking a complex model until the product resembles an observed reality. Afterward, chos...
I'm an economics professor in one of the few departments where people specialize in Austrian economics, and after years of exposure to them: I still don't understand what they are claiming. Of course each person ends up with many specific beliefs, and many of those beliefs are correlated with being in that group. But that is not the same as core claims that they share because they are in that group.
If I can't understand someone's claims, and I'm not sure they even have clear claims, then I can't exactly say they are wrong. In contrast, theism does make relatively understandable claims.
Wow! Maybe you should read Hazlitt’s work in ”Economics in one lesson” to get you back to Austrian Economics basics and start from there. The core claim is simple, “government interventions do more bad than good and the smaller and less intrusive the government the better the capital allocation and decisions will end up being from the private sector and price signaling”. Sounds familiar? P.S. The “broken window fallacy“ in the first chapters is again one of the most fundamental notions in Austrian Economics and it’s pretty clear. What is it that you don’t understand? Be specific.
Response to: The uniquely awful example of theism
Why is theism such an ever-present example of irrationality in this community? I think ciphergoth overstates the case. Even theism is not completely immune to evidence, as the acceptance of, say, evolution by so many denominations over time will testify. Theism is a useful whipping boy because it needs no introduction.
But I think the case is overstated for another reason. There are terrible epistemologies out there that are just as bad as theism's. Allow me to tell you a tale, of how I gave up my religion and my association with a school of economics at the same time.
I grew up in a southern Presbyterian church in the U.S. While I was taught standard pseudo-evidential defenses for belief, such as "creation science" and standard critiques of evolution, my church was stringently anti-evidentialist. Their preferred apologetic was something called presuppositionalism. It's certainly a minority apologetic among major defenders of Christianity today, especially compared to the cosmological or morality arguments. But it's a particularly rigorous attempt to defend beliefs against evidence nonetheless.
Presuppositionalism (in some forms) hangs on the problem of induction. We cannot ultimately justify any of our beliefs without first making some assumptions, otherwise we end in solipsism. Christianity, then, justifies itself not on evidence, but on internal consistency. It is ok for an argument to be ultimately circular, because all arguments are ultimately circular. Christianity alone maintains perfect worldview consistency when examined through this lens, and is therefore correct.
Since I've spent a lot of time thinking about this--it can take a considerable effort to change one's mind, after all--I can imagine innumerable things wrong with it, but they're not the focus of this entry. First, I just want to note how close it is to a kind of intro-level Bayesian understanding. Bayesians admit that we must have priors, that it's indeed nonsense to think we can even have an argument with one who doesn't. We must ultimately admit that certain justifications are going to be either recursive or based on priors. We believe that we should update our priors based on evidence, but there's nothing in the math that tells us we can't start with a prior for some position of 0% or 100%. (There is something in the math that tells us such probability assignments are very bad ideas, and we have more than enough cognitive bias literature that tells us we shouldn't be so damn overconfident. But then, what if you have a prior that keeps you from accepting such evidence?) It doesn't have any of the mathematical rigor, but it comes very close on a few major points.
This is why Bayesianism appealed to me. It seemed similar to the supposedly deep argument I understood for God's existence, like something I could actually work with. (This is why, I think, anti-religion Overcoming Bias posts didn't throw me into defense mode.) This is also why I used to find Austrian economics so compelling.
For those who aren't familiar, Austrian economics is a radical free-market school, the intellectual product of Ludwig von Mises, Friedrich von Hayek, and Murray Rothbard. Before I continue, in hopes of taking any Austrian economists reading this out of defense mode: I still find many Austrian insights useful, I admire Hayek for his work on knowledge and institutions, and Mises for the economic calculation argument. But the first section on epistemology in Mises' magnum opus, Human Action, is probably the best example of Dark Side Epistemology I have yet seen outside of religious apologetics or standard woo-woo. What does economics (or in Mises' case, praxeology, an expanded science of all human action that seeks to understand more than resource allocation) investigate? After excluding psychology, Mises tells us,
No laboratory experiments can be performed with regard to human action. We are never in a position to observe the change in one element only, all other conditions of the event remaining unchanged. . . The information conveyed by historical experience cannot be used as building material for the construction of theories and the prediction of future events. . . Neither experimental verification nor experimental falsification of a general proposition is possible in its field. (p. 31)
Well, ok. So how does economics tell us anything at all?
Praxeology is a theoretical and systematic, not a historical, science. . . It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts. (p. 31)
In other words, the assumptions built into economics (which is a subset of praxeology)--people have preferences, are selfish (in the tautological sense--even altruist acts are self-serving to Mises), and they take rational action to satisfy those preferences--are unquestionable, ultimate givens. No evidence could ever confirm or disconfirm the predictions of economics, because it is an a priori science, just like math or logic. It is deductive--it starts from some assumptions, and its case rests on those assumptions alone, not on any evidence. (And he has a word for those of us seeking instances of human irrationality. On page 103, he claims out that any sign of preference reversals can never be considered irrationality, because preferences cannot be considered stable, even across spans of a few seconds. If your by-the-second preference changing leads you to be pumped for money, so be it. You're still by assumption a rational actor, satisfying his desires.)
You can understand why I think this sounds so similar to presuppositionalism. And, if you've been following Overcoming Bias, you can see how a Bayesian would differ from these views.
I saw the same problems with presuppositionalism as I did Mises' epistemology. So what if it's deductive? What if your deductive logic doesn't conform to the real world? This could be true of math just as well as economics. What if 2 + 2 didn't really equal 4 in our world? Could there be any way to convince you? If the answer is no, then aren't you just starting from the bottom line? If your deductively valid economic argument makes a prediction that is observed to never be true in the real world, would this not affect your rating of your deductions' usefulness? If your deductions are non-disprovable, why do you make so many claims regarding their predictive value? What does your logic not predict?
To really solidify the feeling that Mises' predictions about economics are comparable to the Bible's predictions about how the world works, consider the following. As I mentioned, Mises defines self-interest tautologically:
Praxeology is indifferent to the ultimate goals of action. Its findings are valid for all kinds of action irrespective of the ends aimed at. It is a science of means, not of ends. It applies the term happiness in a purely formal sense. In the praxeological terminology the proposition: man's unique aim is to attain happiness, is tautological. It does not imply any statement about the state of affairs from which man expects happiness. (p. 15)
However, Mises specifically predicts economic outcomes based on self-interest as, well, actual self-interest. For instance, on page 763, he proclaims that price controls will lead to rationing by non-price means. But this is only true if the provider of the good in question is attempting to maximize profit; if the producer is willing to take a hit in the wallet out of the goodness of his heart for his customers' well-being, as Mises' tautological definition of self-interest allows, a small price ceiling could conceivably have no effect.
So when are we to believe Mises? When he says economics is a deductive logic that can never be tested in the real world, or when he makes predictions that can be tested in the real world? When should we believe presuppositional apologists? When they claim that "the Bible is the word of God" is an ultimate given, or when they tell us all about miracles (evidence for God) that we can test in the real world (by finding evidence for a global flood)?
The insistence on placing assumptions further and further away from our real ultimate givens, our real recursions, our real mystical priors, is a dark side epistemology. If we can devise a test for one of our assumptions, by golly, as rationalists we're called to test it. If that assumption fails, we have to perform a proper Bayesian update. We have to use all of our evidence available to us.
So to answer what other forms of irrationality we can regularly cite, I'd like to nominate Austrian economics, or at least those of its followers who still eschew the introduction of statistics, behavorial economics, or experimental economics into the discipline. It certainly isn't as pervasive as religion. It's a very minor branch of a specific discipline. Not all of its conclusions are wrong, but I think there's at least a little evidence of dial-cranking in Austrianism. And I think its epistemology is quite awful, as awful as the most evidence-defying justification for theism.
Reference: Ludwig von Mises. Human Action. San Francisco: Fox & Wilkes, 1996.