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Austrian economics always struck me as kind of hand wavy. I never made it more than 1/3 of the way through the Wikipedia article on it before realizing I didn'

Austrian economics always struck me as kind of hand wavy. I never made it more than 1/3 of the way through the Wikipedia article on it before realizing I didn't know what it was talking about. Does Austrian economics make an testable predictions? Is it based on empirical data? Does it have models? It seems more like a statement of beliefs to me. What am I missing?

hga 16y ago
I have to wonder if you're asking too much out of macroeconomics. There's so many variables, you can't do clean let alone repeatable experiments, etc. It does make testable predictions, but given the above one can always argue about how thus and so made the result irrelevant (either way). Look at the current remaining faithful Keynesians, who say the only problem with the "stimulus" was that it wasn't big enough while the more honest admit it wasn't Keynesian at all to begin with. So let me ask you this: can you or anyone else extract rigorous useful data WRT to all this from Japan's two lost decades?
- jerf 16y ago
  "... the more honest admit it wasn't Keynesian at all to begin with." Nice to see someone else say that for once. If one reads up on what Keynes considers "stimulus" and compare that to what our politicians have labelled "stimulus", less than 10% or so of our "stimulus" was Keynesian. There's a bit of play in that number depending on exactly how you apply definitions, but you certainly can't get it to 80% or 90%. I am fairly Austrian and consider Keynesian economics to be interesting but misguided on some fundamental points, but in all honestly I can't consider the utter failure of this stimulus as evidence against Keynesian economics. From what I can tell, he too would have predicted this to be utter failure, so both true Keynesianism and my preferred systems predict utter failure and therefore I can't use this to distinguish the two. I am however coming to view Keynesian economics in much the same way I view Communism, as beautiful theories that can't survive contact with real humans. It's too easy for the government to squint at Keynesianism and see nothing but "Hey, spend more money and take more power!", which is not an accurate reflection of Keynesianism at all, but it's what they see. (There's a kernel of truth to that simplification, but no more; the reality of the theory is considerably more nuanced and complicated.)
  - hga 16y ago
    Well, I quibble about the "multiplier effect" (which I admit I haven't seriously studied at all), since it's my understanding that it ignores the costs of taking out all that debt (but since I guess this happens in a period when no one wants to borrow anyway ... well, as I said, I haven't seriously studied it :-). However the "can't survive contact with real humans" is spot on. One thing you left out as I understand it is that you're supposed to pay back the money you borrowed after the economy recovers. This of course never happens. True, some countries do decide to seriously pay back debt, I understand Canada did a lot not too long ago, and we paid back a lot of our WWII debt, but those are not the same thing. And countries that run their operating budgets on ever increasing debt inevitably renege on it one way or another (getting conquered was not uncommon in times past), with I suspect the recent technology based boom (say the post-WWII one) being a special case of the game being able to last a lot longer than normal. (I.e. that's our (the hackers) fault :-).
    - jerf 16y ago
      My fundamental quibble is that for the multiplier to kick in, the central spending authority must not only invest in certain things (the part our real-world stimulus failed), but it must invest successfully in projects that also bring value to society. A Keynesian stimulus isn't just paying 10 men to dig holes and 10 men to fill them in, it's paying 20 men to build an important road or something, usually infrastructure, of other importance that will bring wealth to a society. To get the multiplier you must both put money into the otherwise-jammed society and obtain something of value for the money. Skip the second part and you just lost a full 1x factor off your multiplier. This is where I say that even Keynes could tell you this stimulus would fail. For instance, there is a local road that even as I type is being "repaired" with stimulus money. But it didn't need repair. Where a $1 of stimulus here is supposed to produce, say, $1.20 in "stimulative value", now we're only getting the $0.20 in value. That's not stimulus. That's actively worse than letting the funds sit there, actively worse than the worse case that Keynes fears; now you're destroying capital. Not only does that not help avert the worst case, you actively bring it closer! And this is the "good" part of the stimulus that is actually infrastructure, too. Granted, not every project wastes %100 of the capital, but an analysis of the actual stimulus shows the vast bulk of it does; most of it essentially puts useless and wealth-destroying institutions on life support so they can continue destroying wealth. You don't have to guess what the resulting consequences are, you just have to look around. As an Austrian I believe (with some reason) that a central government is not capable of deciding which projects are actually valuable, any more than a central authority can set prices of any other kind. Moreover, in a relatively efficient economy (it doesn't have to be perfectly efficient), the big infrastructure wins would already have been built, leaving only the dregs behind, things that weren't already built because the economy has decided they aren't of value. So I think right at the heart of Keynesian economic policy is an enormous "... and magic happens here...", right where the stimulating government entity determines how to allocate the stimulation. Which, if you note, rather precisely and correct predicts how the stimulus fails in the real world, which is that it was very inefficiently applied regardless of whose standards you apply, Keynes or otherwise. A Keynesian must believe that this was a poor application of the stimulus concept, but that hypothetically a government usually gets it right, despite my inability to come up with examples of said; an Austrian like me gets to continue believing that governments are foundationally and structurally incapable of efficient allocation of resources.
nazgulnarsil 16y ago
they make qualitative predictions rather than the quantitative ones you need to be considered a science. Of course AE claim that economics is a deductive discipline rather than the inductive ones orthodox economists assume. I sympathize with this view because it would seem that social sciences can never really meet the prerequisites for actual empiricism (controlled variables). statistical regression often has elements of hand waving as well.
davidmathers 16y ago
http://johnquiggin.com/index.php/archives/2009/05/03/austrian-business-cycle-theory/ http://johnquiggin.com/index.php/archives/2009/05/03/austria... Also, http://www.marginalrevolution.com/marginalrevolution/2010/04/krugman-on-austrian-business-cycle-theory.html http://www.marginalrevolution.com/marginalrevolution/2010/04... And, this is the most readable, but keep in mind that it's written by a Keynesian: http://www.slate.com/id/9593 http://www.slate.com/id/9593 Austrian economics, at its core, is based on praxeology and mostly rejects models, math and science. http://en.wikipedia.org/wiki/Praxeology http://en.wikipedia.org/wiki/Praxeology
- hga 16y ago
  I'd be a lot more interested in publications and comments from Austrians; the above are all from their critics and could all too easily be strawmen. The only useful way to approach this is to look at what Austrians themselves have said and what then happened.
- yummyfajitas 16y ago
  Praxeology doesn't reject models or science at all. It rejects reductionism - the claim is that you can't predict human behavior in a complex system based on observations of human behavior in simplified systems. Praxeology simply claims that you can't predict the economy based on experiments where you stick 30 college students into some iterated prisoner's dilemma scenario. Austrians strongly favor models, math and science. They just want robust models which are not sensitive to parameters, and econometrics of revealed preferences rather than highly controlled experiments.
  - CWuestefeld 16y ago
    I'm a big fan of Austrians (I'm a complete Hayek groupie). But I don't think this is quite correct. It seems to me that Austrians really do stay away from mathematical models, at least. But they do have very strong logical models. The praxeology you refer to is really rooted in inductive logical reasoning. The difficulty is that these logical arguments depend on the rationality of the actors in the economy. And while Mises acknowledges that the real reasons for a person's actions may not even be known to one's self, more recent experimentation seems to show that at least in some situations, people really do not behave rationally. Anyway, if you're concerned about a lack of mathematical rigor, but are interested in Austrian ideas, you should look at the Chicago school, with luminaries such as Milton Friedman. The Chicagoans started from Austrian roots, but if anything, their attitude toward mathematical models is the opposite of the Austrians: they virtually invented much of the mathematical techniques that are employed by modern economists.
yummyfajitas 16y ago
They make predictions, but they tend to be more qualitative and less useful for central control than Keynesian policies. The main reason for that is Keynesian economics reduces the many sectors of our economy to a few simple aggregate quantities - e.g., rather than having demand for housing, demand for pizza, demand for computers, we simply have "aggregate demand". An uncharitable person would say that this is simply because Keynes was not very good at math. If you simply do this calculus, we should never have a recession. Therefore, Keynesian economics assumes these curves behave in certain tricky ways - this imposes recessions and stimulus comes out as the remedy. Austrian economics, or at least their more modern variants, does not accept the reduction of a complex economy to simple calculus. It views recessions as being caused by misallocation of resources between sectors (i.e., too much housing, too little something else) and recessions as being caused by a lag [1] in re-adjustment. Fine tuning such a complex system is tricky (not to mention many parameters are unknown), and most predictions would simply be qualitative. Such a system is also not amenable to simple calculus (you need big ODE/graph models), which makes it somewhat unpopular. [1] An unemployed construction worker may be unwilling to accept a non-construction job or to leave his hometown. Or he may be willing to make such a move, but not know where to move to. Until his attitudes change or he becomes more knowledgeable, he remains unemployed.
- jhpriestley 16y ago
  Aggregate demand is a money quantity, so it is perfectly well-defined. Keynes never tries to add 1 slice of pizza to 1 computer, and in fact goes into great detail about units and definitions in book 2 ("definitions and ideas") of The General Theory. An uncharitable person would say you've probably never even read it.
  - yummyfajitas 16y ago
    I did not claim Keynes ignored units. I claimed he reduced the economy to a few aggregate quantities and claimed they are sufficient to make predictions. Statistical physics does much the same thing - they reduce a complex newtonian system of 10^23 particles to a few aggregate quantities: temperature, pressure, etc, and makes predictions based on the aggregates. Keynes tries to do the same thing, reducing a bunch of sectorial demand curves into a single aggregate demand curve. Austrians/Chicagoans believe this reduction is unjustified. I freely admit I've only read a small portion of General Theory, though I've read a bit more by newer Keynesians (Krugman and Thoma are two names that spring to mind).
waterhouse 16y ago
Let me put it this way. Suppose you use the methods of mathematics to determine that 7 x 8 = 56, and you decide to test this by arranging physical things in 7 rows of 8 and then counting them up. Suppose you try this, and you end up counting some other number, like 55. Why could this be? It could be that 7 x 8 is actually not 56, or it could be that your physical experiment was badly suited to test the principle (or badly executed). For example, perhaps you were putting drops of water in rows, and two of them combined into a single drop while you were putting down the rest of the drops. There are two things to say here. First, if the materials you have are highly volatile and it is incredibly difficult to rule out "things happening that you didn't account for" as the explanation when the results of an experiment appear to disagree with your theory, then it's efforts to advance the theory by empirical investigation are likely to be doubtful and fruitless. Note that if your materials are free human beings and you're observing their responses to various stimuli, then the condition in the preceding sentence applies very thoroughly. Second, even if [the reason the results of a physical experiment appear to disagree with the conclusions of a theory] is that the theory is incorrect, then it is always possible to confirm that the theory is incorrect by theoretical analysis. If you find that arranging physical objects in 3 rows of 4 and counting them up never yields 16, then you can verify by the methods of mathematics that 3 x 4 is not 16. And it is only once you've done this that you actually feel sure that the theory was wrong; until then, you always have the doubt that your experiment was badly designed, executed, or interpreted. (Imagine telling mathematicians that you were going to test one of their theorems by physical experiment. Or announcing that you had disproven a theorem by physical experiment. I think you would be laughed at. At any rate, they would want you to turn your results into a mathematical argument, with no reference to your experiment.) I believe it is with these things in mind that Mises and others say things to the effect that economic theory is not subject to empirical verification or falsification.
RyanMcGreal 16y ago
Ludwig Von Mises actively spurned empirical testing, claiming that economics are too complex to abstract into evaluative models.
lzw 16y ago
Austrians correctly predicted: The great depression The rise of Naziism The decline of the soviet union, and it's fall, and why it would fall, based on economic principles about 50 years before it happened. The appearance of the housing bubble in 2000, along with the prediction that it would burst and take down major banks. In my lifetime, when krugman and politicians have been saying one thing, and austrians have been saying another, consistently the austrians have turned out to be right. Meanwhile the politicians in question are no longer in office, and krugman contradicts himself regularly. Plus, if you will read some austrian writings you will find the are retry straightforward and comprehensible. Unfortunately, on topics like this, wikipedia has a very strong left bias, so it is best to go to the source. Start reading the daily articles at mises.org or check out Henry hazlitts book "economics one Eason" which you can get there. Mises.org also has many major Austrian books for free download
svv 16y ago
Austrian economics is heavily into modeling, even though they don't usually call it that. In fact, its immersion in the ontological, methodological and epistemological issues around economics (and some nearby social sciences) is in many aspects unique in comparison with the more mainstream approaches. The thing is, most "Austrians" traditionally avoid conventional mathematical models, as well as formal notations, preferring to use plain textual reasoning. In some aspects it's good: they do not limit themselves only to what is easily rendered to math (correlations go well with maths, causal relations not so well (but perhaps manageable), formalizing teleological reasoning about human choice-making is much harder). In other aspects, the lack of formal notations is really bad: most modern economists have mathematical, not philosophical training, and to an unaccustomed eye the Austrian texts actually do look like non-sensical hand-waving. It takes quite some studying to see the actual rigorous structure and careful choice of terms behind those walls of text -- and I won't go into why there aren't that many incentives for most people to study those kinds of books. I actually think Austrians would gain a lot from adopting more formal notations (perhaps not of the kind adopted by mainstream nowadays). After all, Hayek himself have failed to finish his own book on the theory of capital (which is one of the distinctive concepts in the Austrian economics), because of the sheer complexity of it. Keeping rigor and precision without the formal language is really hard; and formalized representations might be better suited for independent review and verification. However, in case of economics, the problem domain doesn't lend itself for easy formalization. > Does Austrian economics make an testable predictions? Is it based on empirical data? These are some hard questions about Austrians that pop up quite often. It's true that at its heart much of Austrian economics is based on deductive reasoning from a priori assumptions (the correct analogy, they say, is mathematics, not physics). Theories do not follow from the facts; instead, the observed facts are explained on the basis of the theories we find reasonable, and the best theories are those that provide the best (i.e., the simplest and the most general) explanations. This is not really a uniquely Austrian approach, but I believe it's a good way to approach their research. However, there's not a single strong view on apriorism even within the Austrian school. Mises indeed was quite a radical a-prioist. Hayek and Menger much less so -- and that, I believe, for a good reason.

hga 16y ago

I have to wonder if you're asking too much out of macroeconomics. There's so many variables, you can't do clean let alone repeatable experiments, etc. It does make testable predictions, but given the above one can always argue about how thus and so made the result irrelevant (either way). Look at the current remaining faithful Keynesians, who say the only problem with the "stimulus" was that it wasn't big enough while the more honest admit it wasn't Keynesian at all to begin with. So let me ask you this: can you or anyone else extract rigorous useful data WRT to all this from Japan's two lost decades?

jerf 16y ago
"... the more honest admit it wasn't Keynesian at all to begin with." Nice to see someone else say that for once. If one reads up on what Keynes considers "stimulus" and compare that to what our politicians have labelled "stimulus", less than 10% or so of our "stimulus" was Keynesian. There's a bit of play in that number depending on exactly how you apply definitions, but you certainly can't get it to 80% or 90%. I am fairly Austrian and consider Keynesian economics to be interesting but misguided on some fundamental points, but in all honestly I can't consider the utter failure of this stimulus as evidence against Keynesian economics. From what I can tell, he too would have predicted this to be utter failure, so both true Keynesianism and my preferred systems predict utter failure and therefore I can't use this to distinguish the two. I am however coming to view Keynesian economics in much the same way I view Communism, as beautiful theories that can't survive contact with real humans. It's too easy for the government to squint at Keynesianism and see nothing but "Hey, spend more money and take more power!", which is not an accurate reflection of Keynesianism at all, but it's what they see. (There's a kernel of truth to that simplification, but no more; the reality of the theory is considerably more nuanced and complicated.)
- hga 16y ago
  Well, I quibble about the "multiplier effect" (which I admit I haven't seriously studied at all), since it's my understanding that it ignores the costs of taking out all that debt (but since I guess this happens in a period when no one wants to borrow anyway ... well, as I said, I haven't seriously studied it :-). However the "can't survive contact with real humans" is spot on. One thing you left out as I understand it is that you're supposed to pay back the money you borrowed after the economy recovers. This of course never happens. True, some countries do decide to seriously pay back debt, I understand Canada did a lot not too long ago, and we paid back a lot of our WWII debt, but those are not the same thing. And countries that run their operating budgets on ever increasing debt inevitably renege on it one way or another (getting conquered was not uncommon in times past), with I suspect the recent technology based boom (say the post-WWII one) being a special case of the game being able to last a lot longer than normal. (I.e. that's our (the hackers) fault :-).
  - jerf 16y ago
    My fundamental quibble is that for the multiplier to kick in, the central spending authority must not only invest in certain things (the part our real-world stimulus failed), but it must invest successfully in projects that also bring value to society. A Keynesian stimulus isn't just paying 10 men to dig holes and 10 men to fill them in, it's paying 20 men to build an important road or something, usually infrastructure, of other importance that will bring wealth to a society. To get the multiplier you must both put money into the otherwise-jammed society and obtain something of value for the money. Skip the second part and you just lost a full 1x factor off your multiplier. This is where I say that even Keynes could tell you this stimulus would fail. For instance, there is a local road that even as I type is being "repaired" with stimulus money. But it didn't need repair. Where a $1 of stimulus here is supposed to produce, say, $1.20 in "stimulative value", now we're only getting the $0.20 in value. That's not stimulus. That's actively worse than letting the funds sit there, actively worse than the worse case that Keynes fears; now you're destroying capital. Not only does that not help avert the worst case, you actively bring it closer! And this is the "good" part of the stimulus that is actually infrastructure, too. Granted, not every project wastes %100 of the capital, but an analysis of the actual stimulus shows the vast bulk of it does; most of it essentially puts useless and wealth-destroying institutions on life support so they can continue destroying wealth. You don't have to guess what the resulting consequences are, you just have to look around. As an Austrian I believe (with some reason) that a central government is not capable of deciding which projects are actually valuable, any more than a central authority can set prices of any other kind. Moreover, in a relatively efficient economy (it doesn't have to be perfectly efficient), the big infrastructure wins would already have been built, leaving only the dregs behind, things that weren't already built because the economy has decided they aren't of value. So I think right at the heart of Keynesian economic policy is an enormous "... and magic happens here...", right where the stimulating government entity determines how to allocate the stimulation. Which, if you note, rather precisely and correct predicts how the stimulus fails in the real world, which is that it was very inefficiently applied regardless of whose standards you apply, Keynes or otherwise. A Keynesian must believe that this was a poor application of the stimulus concept, but that hypothetically a government usually gets it right, despite my inability to come up with examples of said; an Austrian like me gets to continue believing that governments are foundationally and structurally incapable of efficient allocation of resources.

nazgulnarsil 16y ago

they make qualitative predictions rather than the quantitative ones you need to be considered a science. Of course AE claim that economics is a deductive discipline rather than the inductive ones orthodox economists assume. I sympathize with this view because it would seem that social sciences can never really meet the prerequisites for actual empiricism (controlled variables). statistical regression often has elements of hand waving as well.

davidmathers 16y ago

http://johnquiggin.com/index.php/archives/2009/05/03/austrian-business-cycle-theory/ http://johnquiggin.com/index.php/archives/2009/05/03/austria... Also, http://www.marginalrevolution.com/marginalrevolution/2010/04/krugman-on-austrian-business-cycle-theory.html http://www.marginalrevolution.com/marginalrevolution/2010/04... And, this is the most readable, but keep in mind that it's written by a Keynesian: http://www.slate.com/id/9593 http://www.slate.com/id/9593 Austrian economics, at its core, is based on praxeology and mostly rejects models, math and science. http://en.wikipedia.org/wiki/Praxeology http://en.wikipedia.org/wiki/Praxeology

hga 16y ago
I'd be a lot more interested in publications and comments from Austrians; the above are all from their critics and could all too easily be strawmen. The only useful way to approach this is to look at what Austrians themselves have said and what then happened.
yummyfajitas 16y ago
Praxeology doesn't reject models or science at all. It rejects reductionism - the claim is that you can't predict human behavior in a complex system based on observations of human behavior in simplified systems. Praxeology simply claims that you can't predict the economy based on experiments where you stick 30 college students into some iterated prisoner's dilemma scenario. Austrians strongly favor models, math and science. They just want robust models which are not sensitive to parameters, and econometrics of revealed preferences rather than highly controlled experiments.
- CWuestefeld 16y ago
  I'm a big fan of Austrians (I'm a complete Hayek groupie). But I don't think this is quite correct. It seems to me that Austrians really do stay away from mathematical models, at least. But they do have very strong logical models. The praxeology you refer to is really rooted in inductive logical reasoning. The difficulty is that these logical arguments depend on the rationality of the actors in the economy. And while Mises acknowledges that the real reasons for a person's actions may not even be known to one's self, more recent experimentation seems to show that at least in some situations, people really do not behave rationally. Anyway, if you're concerned about a lack of mathematical rigor, but are interested in Austrian ideas, you should look at the Chicago school, with luminaries such as Milton Friedman. The Chicagoans started from Austrian roots, but if anything, their attitude toward mathematical models is the opposite of the Austrians: they virtually invented much of the mathematical techniques that are employed by modern economists.

yummyfajitas 16y ago

They make predictions, but they tend to be more qualitative and less useful for central control than Keynesian policies. The main reason for that is Keynesian economics reduces the many sectors of our economy to a few simple aggregate quantities - e.g., rather than having demand for housing, demand for pizza, demand for computers, we simply have "aggregate demand". An uncharitable person would say that this is simply because Keynes was not very good at math. If you simply do this calculus, we should never have a recession. Therefore, Keynesian economics assumes these curves behave in certain tricky ways - this imposes recessions and stimulus comes out as the remedy. Austrian economics, or at least their more modern variants, does not accept the reduction of a complex economy to simple calculus. It views recessions as being caused by misallocation of resources between sectors (i.e., too much housing, too little something else) and recessions as being caused by a lag [1] in re-adjustment. Fine tuning such a complex system is tricky (not to mention many parameters are unknown), and most predictions would simply be qualitative. Such a system is also not amenable to simple calculus (you need big ODE/graph models), which makes it somewhat unpopular. [1] An unemployed construction worker may be unwilling to accept a non-construction job or to leave his hometown. Or he may be willing to make such a move, but not know where to move to. Until his attitudes change or he becomes more knowledgeable, he remains unemployed.

jhpriestley 16y ago
Aggregate demand is a money quantity, so it is perfectly well-defined. Keynes never tries to add 1 slice of pizza to 1 computer, and in fact goes into great detail about units and definitions in book 2 ("definitions and ideas") of The General Theory. An uncharitable person would say you've probably never even read it.
- yummyfajitas 16y ago
  I did not claim Keynes ignored units. I claimed he reduced the economy to a few aggregate quantities and claimed they are sufficient to make predictions. Statistical physics does much the same thing - they reduce a complex newtonian system of 10^23 particles to a few aggregate quantities: temperature, pressure, etc, and makes predictions based on the aggregates. Keynes tries to do the same thing, reducing a bunch of sectorial demand curves into a single aggregate demand curve. Austrians/Chicagoans believe this reduction is unjustified. I freely admit I've only read a small portion of General Theory, though I've read a bit more by newer Keynesians (Krugman and Thoma are two names that spring to mind).

waterhouse 16y ago

Let me put it this way. Suppose you use the methods of mathematics to determine that 7 x 8 = 56, and you decide to test this by arranging physical things in 7 rows of 8 and then counting them up. Suppose you try this, and you end up counting some other number, like 55. Why could this be? It could be that 7 x 8 is actually not 56, or it could be that your physical experiment was badly suited to test the principle (or badly executed). For example, perhaps you were putting drops of water in rows, and two of them combined into a single drop while you were putting down the rest of the drops. There are two things to say here. First, if the materials you have are highly volatile and it is incredibly difficult to rule out "things happening that you didn't account for" as the explanation when the results of an experiment appear to disagree with your theory, then it's efforts to advance the theory by empirical investigation are likely to be doubtful and fruitless. Note that if your materials are free human beings and you're observing their responses to various stimuli, then the condition in the preceding sentence applies very thoroughly. Second, even if [the reason the results of a physical experiment appear to disagree with the conclusions of a theory] is that the theory is incorrect, then it is always possible to confirm that the theory is incorrect by theoretical analysis. If you find that arranging physical objects in 3 rows of 4 and counting them up never yields 16, then you can verify by the methods of mathematics that 3 x 4 is not 16. And it is only once you've done this that you actually feel sure that the theory was wrong; until then, you always have the doubt that your experiment was badly designed, executed, or interpreted. (Imagine telling mathematicians that you were going to test one of their theorems by physical experiment. Or announcing that you had disproven a theorem by physical experiment. I think you would be laughed at. At any rate, they would want you to turn your results into a mathematical argument, with no reference to your experiment.) I believe it is with these things in mind that Mises and others say things to the effect that economic theory is not subject to empirical verification or falsification.

RyanMcGreal 16y ago

Ludwig Von Mises actively spurned empirical testing, claiming that economics are too complex to abstract into evaluative models.

lzw 16y ago

Austrians correctly predicted: The great depression The rise of Naziism The decline of the soviet union, and it's fall, and why it would fall, based on economic principles about 50 years before it happened. The appearance of the housing bubble in 2000, along with the prediction that it would burst and take down major banks. In my lifetime, when krugman and politicians have been saying one thing, and austrians have been saying another, consistently the austrians have turned out to be right. Meanwhile the politicians in question are no longer in office, and krugman contradicts himself regularly. Plus, if you will read some austrian writings you will find the are retry straightforward and comprehensible. Unfortunately, on topics like this, wikipedia has a very strong left bias, so it is best to go to the source. Start reading the daily articles at mises.org or check out Henry hazlitts book "economics one Eason" which you can get there. Mises.org also has many major Austrian books for free download

svv 16y ago

Austrian economics is heavily into modeling, even though they don't usually call it that. In fact, its immersion in the ontological, methodological and epistemological issues around economics (and some nearby social sciences) is in many aspects unique in comparison with the more mainstream approaches. The thing is, most "Austrians" traditionally avoid conventional mathematical models, as well as formal notations, preferring to use plain textual reasoning. In some aspects it's good: they do not limit themselves only to what is easily rendered to math (correlations go well with maths, causal relations not so well (but perhaps manageable), formalizing teleological reasoning about human choice-making is much harder). In other aspects, the lack of formal notations is really bad: most modern economists have mathematical, not philosophical training, and to an unaccustomed eye the Austrian texts actually do look like non-sensical hand-waving. It takes quite some studying to see the actual rigorous structure and careful choice of terms behind those walls of text -- and I won't go into why there aren't that many incentives for most people to study those kinds of books. I actually think Austrians would gain a lot from adopting more formal notations (perhaps not of the kind adopted by mainstream nowadays). After all, Hayek himself have failed to finish his own book on the theory of capital (which is one of the distinctive concepts in the Austrian economics), because of the sheer complexity of it. Keeping rigor and precision without the formal language is really hard; and formalized representations might be better suited for independent review and verification. However, in case of economics, the problem domain doesn't lend itself for easy formalization. > Does Austrian economics make an testable predictions? Is it based on empirical data? These are some hard questions about Austrians that pop up quite often. It's true that at its heart much of Austrian economics is based on deductive reasoning from a priori assumptions (the correct analogy, they say, is mathematics, not physics). Theories do not follow from the facts; instead, the observed facts are explained on the basis of the theories we find reasonable, and the best theories are those that provide the best (i.e., the simplest and the most general) explanations. This is not really a uniquely Austrian approach, but I believe it's a good way to approach their research. However, there's not a single strong view on apriorism even within the Austrian school. Mises indeed was quite a radical a-prioist. Hayek and Menger much less so -- and that, I believe, for a good reason.