Saturday, June 16, 2012

Reflections on David Gordon's The Philosophical Origins of Austrian Economics


David Gordon's The Philosophical Origins of Austrian Economics is a good summary of the underlying historical issues that lead to the development of Austrian Economics, generally recognized as having been founded by Carl (also Karl) Menger with the 1871 publication of The Principles of Economics, one of the earliest expositions of marginalist theory.

The Austrian School of Economics gathered in Vienna around Menger's innovative contribution and elaborated it differently than the British, of whom Alfred Marshall was a key early contributor to marginal theory. Whereas Neo-Classicalism took at objective stance characteristic of the British mindset at least since Locke and Hume, the Austrian School took a subjectivist one, more in the tradition of Goethe, Leibniz, Kant, Fichte, Shelling, and Hegel. The reasons become more clear based on an understanding of the philosophical underpinnings. The Austrian thinkers did not see their subjectivist position as lacking in objectivity since they take their principles to be grounded in self-evidence that is intuitively certain.

So if you want to understand the debate in a wider context than the economic controversies that led from Classical economics to the Marginal Revolution, which then bifurcated into objectivist and subjectivist schools, read Gordon's short article about the philosophical background. It is probably a bit challenging for those without prior knowledge of the field and the controversy.

However, the intelligentsia of the 19th and early 20th centuries were well steeped in a broad range of knowledge, including philosophy. Such issues were key contributors to the formation of contemporary knowledge, not only in economics but also the sciences. The developers of quantum mechanics were also influenced by similar issues, even though few people are much aware of the philosophical debate at present.

Gordon does a reasonably good job of summarizing the issues involved, although of course any summary of such a limited scope is necessarily  greatly simplified. Moreover, authors taking a particular view generally have difficultly adequately representing opponents' views. That said, I think that the essential points are clearly made, regardless of these qualifications, so quibbling over fine points here would be a distraction.

Gordon confirms my previous statements about Austrian economics following Aristotle's method of deductive reasoning based on self-evident first principles (Greek αιτιαi), which Mises admitted are similar to mathematical axioms. Gordon quotes Mises:
In The Ultimate Foundation of Economic Science, [Mises] addressed the claim of Karl Popper that scientific propositions must be falsifiable. Although Popper was not a positivist, he intended his falsification criterion to separate scientific from non-scientific statements. Mises' comment was dismissive: "if one accepts the terminology of logical positivism . . . a theory or hypothesis is unscientific if it cannot be refuted by experience. Consequently, all a priori theories, including mathematics and praxeology are unscientific'. This is merely a verbal quibble."
Well, it is not a "verbal quibble." It is a basic issue in philosophy at least since Emmanuel Kant distinguished between apriori, synthetic, and synthetic apriori propositions. Apriori propositions  are either necessarily true as tautologies or necessarily false as contradictions, given the formation and transformation rules of a syntactical system, that is, by definition. This means that apriori truth is purely deductive. In contrast, synthetic propositions are empirical, based on either direct observation or inductive probability.

The philosophical question is whether there are synthetic apriori propositions that are necessarily true (probability equals one) and also provide knowledge about how things stand, must stand or ought to stand in the world. Logical and mathematical expressions are apriori propositions that have probabilities of one (tautology) or zero (contradiction), but they say nothing about how things stand in the the world. Rather they define the limits of language, establishing the boundary between sense and nonsense.

The philosophical question is whether there are self-evident propositions that are necessarily true that both say something about how things stand in the world as descriptive, or must stand as causal, or ought to stand as prescriptive, but depend on neither induction or deduction for their truth value. The way philosophers have put this is in terms of whether there is intellectual intuition in addition to sense intuition that provides information about the world, especially causal information or "natural laws" that can serve as the starting point for deduction. The answer of the Austrian School, at least the branch following Mises, is yes. The answer of scientific realists is no.

For scientific realists, mathematics is not scientific. Rather, mathematics is the language of science. As such it is neither scientific nor "unscientific." It is part of the methodology, not part of science as a general description of how things stand in the world. In this view, Mises fails to make the proper distinctions.

This is key because the philosophy of Aristotle and the method that he used was based on appeal to self-evident first principles held to be ontologically causal, hence, primary. Thus, metaphysics is "first philosophy," and ethical principles are considered in the same vein as being determinative. In this view, the positions of those who fail to recognize these first principles and what follows from them are erroneous, and argumentation against them is categorically rejected, since self-evident principles are irrefutable.

Scientific realism strongly opposes this view since its adoption in Christian theology led to what scientists since the Renaissance have seen as a needless delay in the development of the scientific method, not to mention the repression of early scientists and publication of scientific discoveries. It is a matter of historical record, that dogmatism was imposed on the justification of "first principles," "ultimate causes," and "natural law." What was deemed opposed to a dogma was declared to be "unnatural," regardless of whether it was found widely in Nature.

Therefore, it is not surprising to see scientists opposing the Aristotelianism of the Austrian School, as well as that of Ayn Rand's Objectivism, which Libertarians combine with Rothbardian Austrian economics into an ideological dogmatism of individual freedom without social responsibility on the basis of assumed "natural" processes.

The other historical influence on the development of Austrian economics was Hegelian historicism, which also stands in opposition to the timeless truth of first principles, in that it sees knowledge as unfolding though a dialectical process of testing. rather than through observation by experiment as in the experimental sciences, this testing occurs through the crucible of historical conflict among different views. While the Austrian school of economics rejects this view, it makes it historical appearance in this light. While its star it rose to brilliance for some time in opposition to historicism, it was later eclipsed by New Classical emphasis on objectivity, and the Austrian School became increasing marginalized or absorbed into Neoliberalism.

As Gordon observes, the evolution of the Austrian school was a reaction to the previously dominant philosophical school in German-speaking countries, namely Hegelianism. This implies that the original Austrian thinkers were part of the dialectical progression of thought and played a historical role that was at the cutting edge in their day, at least in their cultural environment.

During the post-WWI period in that environment, Logical Positivism of the Vienna Circle was also philosophically prominent, and it criticized the philosophical foundations of the Austrian school of economics as being apriori, hence, not "scientific" in the Positivist sense of being empirical grounded. Karl Popper, also from Vienna, continued criticism in that vein, emphasizing the lack of falsifiability.

As Gordon notes, the Austrian school of economics rejected that criticism, and they do to this day. Their problem now, however, is that science has greatly progressed since then, and a scientific epistemology has emerged that seriously calls into question previous views of philosophical epistemology. The dominant Austrian School has largely ignored subsequent discoveries (as has Neoliberal Economics). So the argument ended in disagreement over worldviews based on fixed principles as norms that provide unquestionable criteria. This is where the contemporary debate seems to be stuck.

Neither the initial Austrian subjectivist view nor the initial New Classical objectivist view that launched the Marginal Revolution in economics stayed abreast of relevant discoveries in related fields. Such theoretical assumptions used in model construction result in representations of how things are that describe imaginary worlds rather than how things actually are in this world of experience. Those assumptions, being largely philosophical and speculative, need to be updated with respect to scientific findings.

As far as I can see, the Austrian school of economics has not successfully refuted the Popperian criticism, let alone taken into consideration more contemporary scientific research into general systems theory, cognitive science, and behavioral psychology. For that reason, I have said that contemporary AE is dated — as is Neoliberal Economics — and both need to do some catching up with developments in knowledge. I don't see that either have done so, and as a result of this failing to keep up, fundamental features of both appear to be dogmatic and ideological rather than reality-based now that greater knowledge is available.

Related to this is the pitting of methodological individualism against Hegelian holism. This also applies to Neoliberal Economics. That debate has also moved forward by great leaps with the contemporary investigation into systems in general system theory, biology, cognitive science, systems analysis and computer science.

Based on newly discovered knowledge, methodological individualism is deficient, at least in any strict form such as the contemporary Austrian and Neoliberal schools use. So they need to revisit this in light of what's happened since the end of the 19th and beginning of the 20th centuries. Just because collective consciousness has not caught up is no reason to ignore the cutting edge, a lot of which is many decades old by now, and taking account of these advances in knowledge is long past due.

I personally understand where the Austrian schoolers are coming from with respect to Aristotle, since I was very much into Aristotle when I studied his works, and there is much to admire about his approach. I think that this orientation will get a rehearing in time, but for the present, it has been superseded by the scientific approach, which itself has surpassed narrow positivism. This stage is not the last either. However, the next step is not to be found by looking backward.

Knowledge is a growing endeavor, and my impression is that neither Austrian nor Neoliberal Economics have sufficiently kept up with contemporary developments to be taken seriously as major players. Proponents of AE need to get up to date and advance their discipline in light of the times, or it will go the way of phlogiston theory, and that goes for Neoliberal Economics, too.

(This is an amplification of a comment)

93 comments:

Unforgiven said...

Tom -

...subjectivist position and lacking in objectivity due to self-evidence.

Should be "as lacking"?

... subsequent discoveries, as has Neoliberal Economics also.

as has, also

... has not successfully refuted the Popperian criticism, let along taken into...

let alone?

... and my impression is that neither Austrian nor Neoliberal Economics have not kept up with this...

double negative?

Thanks for the write up!

Unforgiven said...

One more:

...generally recognized as having bee founded by Carl Menger...

having been founded

Tom Hickey said...

Thanks for the sharp eyes, Unforgiven. All fixed now.

David said...

Well, one could put it in terms of the great philosophical arguments of the Western tradition. Or one could put it in simpler terms as did Mason Gaffney in The Corruption of Economics: Neoclassical Economics was founded by the Trumps and Koch Bros. of their time for the sole purpose of purging the pesky concept of "land" from classical political economy. Even the most ardent Smithians had admitted that a land tax was "the least bad" tax. So rather than try to refute the land taxers such as George, the Neoclassicals submerged the concept of land into the larger concept of "capital." So, instead of having land, labor and capital as the factors of production, we now had only labor and capital.

The Austrians, however useful they were in opposing state theories of money and welfare, were marginalized because they were not intellectually dishonest enough to go along with the excision of land from their theories.

The Neoclassicals later dealt similarly with money and submerged it so it would be taken off the table politically. In this view it would be over charitable to say that they have failed to keep pace with advances in scientific philosophy and would be more accurate to say that they have built a house of cards on egregious lies.

Anonymous said...

Some other typos in there, Tom. Vey interesting comments though.

Anonymous said...

"they have built a house of cards on egregious lies"

The idea that banks can only lend out "funds that they have on hand" is one of the most extraordinary fallacies of the contemporary world.

When such falsehoods become so dominant, and are so utterly wrong, it's difficult not to imagine that there might be a degree of intentional concealment of the truth involved.

Tom Hickey said...

@ David

The "charitable way" to say it is that economics is policy-oriented and the assumptions are the way that policy prescriptions are introduced by the backdoor. Once the assumptions are admitted the theory follows and from the theory the policy recommendations. There is therefore no policy neutral economics. All economic theories based on capitalism are economics of the ownership class, just as all economic theories based on socialism are economics of the working class. Theories of mixed economies are compromises between the two conflicting factors, land no longer being considered a major factor since the decline of feudalism. However, as David observes, that is simply not the case in that land and ownership of industrial means of production were folded together into a common factor of capital since agriculture was industrialized and RE considered investment in the accounting sense.

So the question then becomes how serving of the interests of any class are the assumptions of an economic theory. The capitalists' reasoning is that a rising tide raises all boats. Even Marx admitted that capitalism was an improvement over feudalism, just as feudalism was an advance over monarchical despotism.

But the question remains, Is there a better way? That entails both philosophical and scientific reasoning. No contemporary economic theory does a very good job at this yet. Too many previously debated issues in philosophy are ignored, and too much contemporary scientific knowledge is not taken into account.

The result is theories that are either self-serving policy prescriptions in disguise, or else woefully short of the potential of the existing and quickly developing human knowledge base. Economics needs to look out the window of the ivory tower and catch up, as well as ;urge itself of self-serving assumptions that are designed to privilege one factor over another, hence one class or some classes over others.

Dan Lynch said...

Are you a philosophy major, Tom ?

Tom Hickey said...

Another reason for this is that the Academy has become to fragmented, and also significant aspects of it have been captured by interests. This is particularly true of economics in general and especially the mainstream, which is both insular and captured.

Tom Hickey said...

Dan, I was a philosophy prof.

Tom Hickey said...

Thanks, Anonymous. I went through it again and squashed some more bugs.

Matt Franko said...

" There is therefore no policy neutral economics. "

Amen. Only morons do not recognize this....


rsp

Matt Franko said...

Tom,

Another thing that is interesting here that you and Dave point out is how much the concept of ownership of "land" has become less important.

I could see back in the day where having access to land (and the food it would produce) would be directly related to what the Austrians seem to be going for (rugged independence, blah blah..).

But with all of the automation in ag, we dont need a lot of small farmers anymore.

So what is the model to let people still achieve a level of independence, satisfaction etc.. but not go to communism or on the other hand let the 'free-market' vermin end up taking over everything?

resp,

Tom Hickey said...

@ Matt, this is the problem with concentration of wealth, centralization of power, economies of scale, capital intensive industry and agriculture, buyouts of possibly innovative competition, intellectual property rights that are costly to obtain and maintain, etc.

The notion of many small businesses and farms gives the lie to the so-called free market in which competition reduces profit to near cost of goods sold.

Moreover, the exceptions are not withstanding. While it is true that that high tech some entrepreneurs like Bill Gates and his partners, Jobs and Woz, and now Zuckerberg and cohort can still catapult to the top of the heap through risk-taking, superior knowledge, and hard work, what is the probability of this happening? Pretty low. Even among these, it was really only Jobs and Woz that built a hugely successful company out of a garage without a lot of prior infrastructure in place. Gates sold IBM on using operating system that he picked up from someone else, and Zuckerberg and friends plugged into the Internet, needing only some relatively low cost servers and some space to launch. Interestingly, eBay grew out of a community "service" that was monetized, as did Craig's List.

I'm not saying it is impossible to a successful entrepreneur on a small scale, either. I know many people who are. But it is not an avenue that is open to very many people, and the odds against making it for more than a few years are large. From what I can tell, the way to potential success this way is in niche markets that aren't profitable enough for bigger firms to be bothered with.

I am sympathetic to liberalism in general including economic liberalism. But the conditions have to be in place for it to work, and they aren't. As a result any economics based on it is actually a policy prescription for a de facto plutonomous oligarchy masquerading as liberal democracy.

Dan Lynch said...

Interesting that you went from philosophy to economics, Tom

I took the equivalent of a minor in econ once upon a time, and quite enjoyed it, but never used it professionally, and of course I now question most of what I was taught, anyway.`

The GFC motivated me to take another look at economics, and to consider alternative models like MMT.

Tom Hickey said...

Dan: "The GFC motivated me to take another look at economics, and to consider alternative models like MMT."

Precisely what got me into it, Dan. I did a business minor along with a Phil major as an undergrad and took Econ 101 using Samuelson's text in 1960, and courses in accounting, investments, etc. My father got me into equities as a kid and I traded actively for a while. But other than that, no background in econ excepting where it intersects with philosophy. When the GFC hit and the mainstream economists said no one could see it coming, whereas I picked it out clearly based on my trading experience, I figured I better check out where their heads were at. I serendipitously ran into a comment by Ramanan somewhere I can't recall that pointed me toward MMT, which seemed to be to be quite obviously correct.

David said...

Even Marx admitted that capitalism was an improvement over feudalism, just as feudalism was an advance over monarchical despotism.

I was just re-reading a translation of Dante's tract "De Monarchica"
in which he argued that feudalism and monarchical despotism were deteriorated Romanism. Capitalism is only an advancement over the previous 2 in the sense that capital flows more freely in the body politic, (to use the physiocrat's metaphor) at least theoretically. This wasn't so much a problem under Rome because a monopoly was maintained on the issuance of gold coinage by the Romans while issuance of silver coin and lesser moneys was usually left to the prerogative of the vassal states. This monopoly was maintained by "Rome" until the sacking of Constantinople in 1204, after which all hell broke loose, as all the vassal kings and petty princes fought and jockeyed for position to be the one to control the gold.

In such an environment a cultured cosmopolitan like Dante found everything he valued under constant threat. It is no wonder, then, that he yearned for the return of the Roman Empire which he saw as the only possibility for a return to peace and progress in the humane pursuits. His argument is rendered in impeccable Aristotelian logic, and Aristotle is simply referred to as "The Philosopher" throughout.

Too many previously debated issues in philosophy are ignored, and too much contemporary scientific knowledge is not taken into account.

This is well taken as we shouldn't be too quick to take historical developments such as capitalism as necessarily representing progress if it is only a departure in one aspect from a regressive deterioration of a previous cultural pattern. If we think we have excellent principles we would, like Dante, wish to found an empire upon them. And yet we can't go back and ignore all that has taken place and go back to a "golden age." The neo-liberal world order that now is firmly in place and seems to me have combined the power of Rome with the narrow-mindedness of the feudal lord.

Dan Lynch said...

I heard about MMT at Corrente, where Lambert has some of Bill Mitchell's stuff posted. I was extremely skeptical at first, for all the usual reasons, but kept reading anyway. And am still reading. :-)

Ironically, back in the 70's, I had "fallen in love" with Milt Friedman's economic theories. You have to give Milt credit for his superb framing -- he used positive language and positive values, like "Free to Choose," his theories were very logical, he seemed to have an answer for everything, and he looked like a kindly grandfather. It's just that his policies have been a disaster in the real world !!!

My disappointment with Chicago school economics taught me to be skeptical of ivory tower economic theories until they have been proven in the real world. Some ideas sound great, but just don't work out. When a failed economy is causing millions to suffer, we should be pragmatic and willing to try new things. It's insane that our leaders are blindly adhering to a failed ideology.

Tom Hickey said...

David: "The neo-liberal world order that now is firmly in place and seems to me have combined the power of Rome with the narrow-mindedness of the feudal lord"

Ravi Batra observes that the Roman Empire was built by an exceptional warrior class, which was the source of its vast power, whereas feudalism deteriorated into rule by acquisitors was lords jockeyed for territory and wealth.

The present state of the West ruled by neoliberalism is the deterioration of the colonial empires, gained by conquest and reminiscent of Rome. The US is the inheritor of that neo-imperial and neocolonial empire owing to its economic power as much as its military power, and instead of being under the rule of either the warrior class or intelligentsia, it is under the rule of the grand acquisitors acting a feudal lords contending for a larger share of the pie.

Matt Franko said...

David,

"The neo-liberal world order that now is firmly in place and seems to me have combined the power of Rome with the narrow-mindedness of the feudal lord."

What about the FACT that this so-called "world order" are morons and dumb as tree stumps and thinks that they have to borrow the govts own currency? In effect surrendering any true govt authority or "power" that they would believe they possessed.

I do not see any historic parallel as possible when in history the govt minted actual physical coins and logically would never believe that they would have to borrow coins that they themselves minted.

Consider that we currently may be in a very unique period in world history as far as how stupid those in/around positions of authority are.

It may be an insult to Rome or fuedal lords to compare their performance to that of this group of morons....

Resp

Bob Roddis said...

I searched and searched and search this piece for the word “action”. I even pasted it into a word.doc and again searched for the word “action”. I can’t find it. Then I looked for the word “act”. It’s not there either. How could anyone possibly understand what Mises even meant by “a priori” without some understanding of his concept of human action? How can one presume to analyze and/or refute it without even mentioning it?

I can only assume that this piece is intentionally false and misleading because it completely avoids and evades the essential concept that it claims to be discussing. Just as I constantly complain that Keynesians of all stripes evade and avoid the basic Austrian concept of economic calculation.

David Gordon:

The characteristic method of Austrian economics, carried to its culmination in Mises, is deduction. One starts with a self-evident axiom ("man acts") and with the aid of a few subsidiary postulates, deduces the entire science of human action.

Murray Rothbard:

It should be noted that for Mises IT IS ONLY THE FUNDAMENTAL AXIOM OF ACTION THAT IS A PRIORI; he conceded that the subsidiary axioms of the diversity of mankind and nature, and of leisure as a consumers' good, are broadly empirical.

http://mises.org/rothbard/praxeology.pdf

jrbarch said...

Dear Tom – I know almost zilch about philosophy, but, I think there is some sort of ‘key’ in how we define knowledge:

Somewhere I think that philosophy says that if in the beginning there were nothing, then nothing comes out of nothing. So, there must have been something. And obviously: this something must have always existed, as it couldn’t come out of nothing. And will always exist - as it cannot disappear into nothing (not its nature). And we are a part of that.

So - Was, Is, and always Will Be.

I think there are also arguments that this something is One? That something cannot occupy the same essential Space-Time-Being as something else. That there is in reality, no such thing as nothing; only something can exist – therefore it is Infinite (whatever that means). What are finite are the waves (forms and consciousnesses) upon an Infinite Ocean.

So, how should we define ‘knowledge’?

And this little bubble of the human mind, that loves to reason and reason and reason …..

How will it know knowledge …????

Cheers …
jrbarch

Tom Hickey said...

@ Matt

Oh, I think they know full well all about the difference between exogenous and endogenous money creation. They use the myth of exogenous money creation leading to inflation to ensure that as much money creation as possible come from endogenous money creation by banks. If government were to get in the game, the rents that the banks collect on credit extension would be curtailed and that would be "anti-capitalistic."

Tom Hickey said...

Sorry, Bob, but that Mises quote I pulled from Gordon's article says it all. Mises is claiming that praxeology is on the same footing as mathematics.

As a matter of fact the action principle is not original with Mises. It comes straight out of Book I of Aristotle's Nichomachean Ethics, where it is a first principle, based on Aristotle's teleological biology, which is rejected by modern biology.

It's an assumption, not a self-evident first principle. Actually, the Nichomachean Ethics is one of my favorite philosophical works, so I am predisposed toward Aristotle's arguments there.

But it doesn't fly today to claim that first principles are self-evident. It's a sure way to be labeled an ideological dogmatist outside of subjectivist circles.

I happen to be a subjectivist and so I appreciate the issues involved, and I realize how difficult it is for subjectivists to establish any criteria that are satisfactory to objectivists because criteria are by definition "objective." So the recourse of subjectivists is to say to objectivists, "You just don't get it." Or to assume or stipulate rather than make categorical assertion based on supposed self-evidence.

Tom Hickey said...

jrbarch: "I think there is some sort of ‘key’ in how we define knowledge"

Absolutely. Definition of basic terminology is part of the framing of assumptions and norms as boundaries of a worldview and criteria within the worldview. Different philosophies are frameworks of different worldviews based on the boundary conditions the definitions and stipulations lay down as norms and criteria.

Trixie said...

I didn't read the article either since we all know NO ONE does. But I did my own 'CNTRL-F' searches as well. Results:

Middle = 1
Stage = 3
Government = 5(!!!)

Using advanced concatenation techniques (I used Excel), we can conclude Middle Stage = Government. And you know what THAT means since "middle" is synonymous with "center". Therefore Gordon is saying:

Center Stage = Government.

It's all right there.

(Faints)

Did I mention the book cover was RED?

Unforgiven said...

Ya gotta love a girl what gets the vapors from an Excel spreadsheet.

Trixie said...

Exactly Unforgiven. And it's just a matter of time until I start to GRAPH. Because WATCH OUT.

(Snorts)

Thanks for the laugh though, I needed it.

Anonymous said...

To say that Austrian economics follows “Aristotle’s method of deductive reasoning” suggests a very instructive and revealing comparison with a historical phenomenon.

One of the greatest intellectual debates in Byzantium revolved around the nature of angels: whether they had gender, matter, things like that.

The Byzantine empire, as is well-known, consisted of the eastern parts of the Roman empire, with strong Greek cultural influences, that subsisted as a political entity after the dismemberment of the western portions of the empire and the fall of Rome.

The debate was conducted through deductive reasoning, using biblical passages as premises. Byzantine scholars, largely theologians, had long abandoned more mundane and practical pursuits, and were great admirers of Aristotle.

I don’t know whether this is obvious to all, but those debates remind me of Austrian economics…

Septeus7 said...

Quote: "It comes straight out of Book I of Aristotle's Nichomachean Ethics, where it is a first principle, based on Aristotle's teleological biology, which is rejected by modern biology."

Of course it is rejected by all modern science as obviously false. Man doesn't act. There is no such thing as simple action in the entire universe. There is interaction and there is reaction but never just action i.e. free energy...an unbalanced force. cannot happen...

There is a physical context which orders the possible actions thus creating the possibility of knowable physical law. You cannot deduce the context i.e. phase-space that induces the characteristics of motion.

Science is the opposite of deductive and aprioristic. Science is inductive and abductive i.e. historical observation and creative reason (hypothesis).

Anyone who read either Kepler or Riemann knows why you can't use apriorism and get any true knowledge.

It not just modern biology that rejects the Austrian school's anti-science. It is all of physics, all of chemistry, all of whole of physical science which rejects the anti-physical mystical Austrian school which seems quite Taoist.

Anyone who believes knowledge comes from deduction is an idiot who either hasn't read or understands Cusa, Kelper, or Leibniz, Gauss, Ampere, Riemann, Godel, Pasteur, Mendeleev i.e. the whole of modern science since the rejection of deductive arguments for geocentrism or lunacy.

The Austrian school is rooted in the philosophy of geocentrism and is quite literally lunatic therefore can consist of nothing total but the absence of the ability to reason about reality.

Seriously, why in the 21st century are we having to deal with this medieval crap? We ended these arguments in the 1600s. The Austrians are the lunatics of economics in both style and method. They have no substance.

Anonymous said...

"Man acts" seems to be pretty obvious to me. What am I not getting here?

Matt Franko said...

Anon,

Some of the Byzantines (intellectuals) may have been off on that wild goose chase, but at the top (warriors) I'm pretty sure they were not morons and were able to recognize their own authority and how their state currency system operated...

http://mikenormaneconomics.blogspot.com/2011/10/public-safety-as-private-security.html

Rsp

Bob Roddis said...

Anonymous said...

"Man acts" seems to be pretty obvious to me. What am I not getting here?

What you are not getting is the purposeful and congenital evasiveness of MMTers. Of course it’s obvious. It is self evident. Is it really like math or not? Even if it were “testable" and potentially falsifiable, who the hell cares? What kind of a statement it might be ‘philosophically” is simply not particularly relevant to the basic Austrian argument. What we have here is a bunch of ignorant “progressives” who seem to hate the concept of private property as the essential institution protecting people, especially poor and powerless people, from the rampages of unconstrained government power and will go to any lengths to avoid engaging its most virulent critics directly on the merits. The most that MMT can accomplish is to take the final restrictions off the ability of those government butchers to finance their rampages. MTTers have a vested psychological interest in thinking that they are the solution to problems when their policies are not only part of the problem, they are the essence of the problem themselves.

Not only do humans act, but they act in a state of profound ignorance. The government bureaucrats running the SWAT teams so beloved by the MMTers act in a state of especially profound ignorance. I just wrote the following in these comments a few days ago and in response, we get another round of evasive gobbledegook:

As John Carney has written:

MMTers do not seem to fully appreciate the problems of ignorance and calculation that inform Austrian economics. They seem to recoil at even thinking about them because of the implications for the limits of political action.

http://tinyurl.com/7sycbey

That’s a nice way of saying that:

a) You MMTers are oblivious to the problems of ignorance and calculation that are ever-present in human society;

b) The problems of ignorance and calculation that are ever-present in human society render your policy proposals to be insane;

c) You suspect in your little hearts that a and b are true, but recoil from finding out for sure.
We can try and psychoanalyze why you guys won’t grapple with or engage basic Austrian concepts, but the fact remains that you will not, have not, and apparently cannot. Anyone with a basic understand of Austrian concepts can see that a mile away. The recoiling continues.

Anonymous said...

In Bob Roddis' ideal world:

average people will be forced to change their prices and wages or they will be forced to starve.

http://bobroddis.blogspot.co.uk/2012/06/keynes-explains-how-to-trick.html


Roddis reveals the true authoritarian and fascistic tendencies which lie behind the deceitful anarcho-capitalist rhetoric about "freedom" and "choice".

These so-called "libertarians" hate society. They hate democracy. They hate human rights. They hate political freedoms. They hate everything that doesn't conform to their fundamentalist beliefs.

Bob Roddis said...

And, as I constantly point out, no one in the real world believes that government spending or "macroeconomics" cures poverty or economic depressions.

The source added that data has shown voters are more concerned about whether Democrats will spend too much than that Republicans will cut too much and that "macroeconomics" is a tough sell with independents.

http://www.politico.com/blogs/burns-haberman/2012/06/spending-too-much-versus-cutting-too-much-126328.html

Indeed.

vimothy said...

I think you're missing a trick here, Tom.

Firstly, what motivates this argument? Looks like you want to be able to say "Austrian economics isn't worth thinking about", without having to actually think about Austrian economics. Hence your a priori dismissal of it here because it has the wrong epistemology and methodology. That seems like pretty strange behaviour for a subjectivist.

[You also manage to dismiss in passing a non-existent school of economic thought called "neoliberal economics".]

Secondly, I don't think that you have justified what seems to be the implied major premise of your argument. I get the strong impression that not being "up-to-date" in terms of theories of knowledge is bad for a school of economics, or that being an Aristotelian is bad--but why?

Finally, let's say I grant that Austrian economics is deficient and agree to junk the whole school without any consideration of its content, purely on the basis of its methodology being invalid. What are we then contrasting it with? Not neoclassical economics, surely. Then what--PKE? In practice I don't see much evidence that anyone treats this issue as decisive.

Tom Hickey said...

Bob,, if AE wishes to conduct itself in the manner of philosophy, and increasingly theology as Mises and Rothbard are canonized a prophets, it is welcome to do so. But it will not be taken seriously by anyone else who is educated in contemporary science, or philosophy for that matter.

I don't see that it is a big step to advance the teaching of a school in accordance with developing knowledge. The work of Keynes developed into Old Keynesian aka Neo-Keynesianism (John Hicks, Franco Modigliani, and Paul Samuelson) through the Neoclassical synthesis, New Keynesianism through accommodation with monetarism, and Post Keynesianism initially through work by Michał Kalecki, Joan Robinson, Nicholas Kaldor and Paul Davidson.

On the other hand, AE is now mostly associated with the Mises-Rothbard school, which has not pursued accommodation with advances in knowledge but rather sticks to its fundamentally philosophical methodology, although even philosophers largely repudiated that methodology many decades ago, and turned their attention toward developing more rigorous analytic methods.

I am just saying that the present course of what seems to be the dominant, or less most well-known, branch of AE, is doomed to go the way of phlogiston theory if keeps talking about economic "phlogiston" and doesn't accomodate. Dogmatism is out in the scientific age and claiming that self-evident synthetic apriori propositions can form the basis for a deductive system is rejected by scientists in all fields.

It's a matter of criteria. If some make an assertion, then criteria are applied to evaluate its truth value from 0 to 1. There are two recognized criteria. The first is syntactical or purely logical, and it is application of the rules of a syntactical system to determine whether the assertion is in (tautology) or out (contradiction). The is the area of logical and mathematical proof. The second is observation including inductive probability. Self-evidence and appeal to authority are ruled out due to historical experience showing that they are unreliable as criteria of truth. Virtually everyone who is serious and is taken seriously adheres rigorously to these criteria through logical/mathematical rigor and experimental science. If one doesn't join this game and play by the rules, then one is considered to be a quack, a kook or a dogmatist.

As I have said, if you folks want to admit you are doing philosophy and not science, then fine. Have at. Everyone is qualified to be a philosopher of sorts. But you have are going to enter the contemporary philosophical debate be ready for some very rigorous analytic methodology to be applied to what you say. Doing philosophy isn't beanbag these days, any more than doing math or science is.

Bob Roddis said...

Perhaps MMTers can wish Austrian Economics away despite Hayek winning the quasi-Nobel Prize. Obviously, that’s not decisive, but can one just completely ignore the content and substance of AE? (for MMTers, apparently so).

Then there’s this. In February, 2011, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:

Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.

http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1

As John Carney says:

MMTers do not seem to fully appreciate the problems of ignorance and calculation that inform Austrian economics.

Or partially appreciate. Or have even a scintilla of appreciation.

Tom Hickey said...

Anonymous: ""Man acts" seems to be pretty obvious to me. What am I not getting here?"

Oh, what does it mean to you? This is the point. You interpret it one way, someone can interpret in another way precisely because it is as much subjective as objective. It is framed to look objection, but people will think of "man" (Gr. Mensch means human being rather than male) in terms of their own experience and generalize from that. Ordinary language is "rich" and therefore imprecise. This is why science imposes rules for formulating operational definitions of key technical terms, and certainly all the terms in a first principle are key.

Let me put this way. What qualifies Mises to elaborate a theory of action that is spun out of his head. Theory of action and agency are area of scientific exploration in a number of fields — biology, evolutionary science, psychology, anthropology, sociology, and general system theory, for example. There is also a rich history of action theory in philosophy extending millennia into the past. Even after all this investigation and debate, there is still no universally agreed upon theory of human action.

So Mises theory is self-evidently true, or Mises's theory as elaborated by Rothbard? Those claims are have no basis for general acceptance. If the theory really were "self-evident," then there would be no disagreement among experts about it, just as there is no fundamental disagreement of experts in logic, math or the sciences when criteria can be applied to test claims, e.g., proofs or hypotheses.

Tom Hickey said...

Vimothy: "Firstly, what motivates this argument?"

I am partial to Austrian economics if only for the reason that I am half Austrian by birth, and I have affinity for the Austrian economics as thinkers. I admit that they made contributions in their day. My point is simply that if AE is going to advance, it is going to have to take into account what has happened in the interim. So I see this more as advice than as criticism.

Looks like you want to be able to say "Austrian economics isn't worth thinking about", without having to actually think about Austrian economics. Hence your a priori dismissal of it here because it has the wrong epistemology and methodology. That seems like pretty strange behaviour for a subjectivist.

I am saying that those who subscribe to a rigorous approach based on objective criteria will dismiss the dogmatism of AE out of hand and not give it a hearing at all. In this view, there are no rigorous subjective criteria.


V: "[You also manage to dismiss in passing a non-existent school of economic thought called "neoliberal economics".] "

Neoliberalism is political view that equates policy with ultra-liberal economics based on free markets, free trade and free flow of capital on the argument, very similar to AE's calculation problem, that the invisible hand of markets is the optimal distributional mechanism. So while neoliberalism is a political theory it is based on a particular view of economics that is anti-government other than in advancing "free market capitalism."


V: "Secondly, I don't think that you have justified what seems to be the implied major premise of your argument. I get the strong impression that not being "up-to-date" in terms of theories of knowledge is bad for a school of economics, or that being an Aristotelian is bad--but why?"


Two separate issues. First, if one doesn't have a good theory of knowledge or human nature, etc., then one's assumptions will be biased and the theoretical models based on them will not reflect what actually is and happens. It is difficult to see how one could hold that one has an adequate theory of knowledge without being abreast of the field, a field to which many disciplines now contribute.

Secondly, while I am a subjectivist, I recognize that if I am going to communicate in today's universe of discourse I have to accomodate to the basic rules, which involves rigorous justification in terms of objective criteria instead of appealing to subjectivist criteria that are not only in dispute but in disrepute.

Aristotle is often invoked in many contexts. Philosophically, there is considerable disagreement of how to interpret him, and I think that much of the interpretation is off-base. But that is another story. The fact is that Aristotle has been invoked by subjectivists from the time of Aquinas to argue for dogmatic positions and in scientific circles, Aristotle has a bad name, justly or unjustly. I would say the issue is Aristotelianism rather than Aristotle. Adopting an Aristotelian approach and methodology is considered the antithesis of science and anyone who embraces its assertions of self-evidence will not get a hearing by rigorous thinkers today.

(continued)

Tom Hickey said...

(continuation)

V: "Finally, let's say I grant that Austrian economics is deficient and agree to junk the whole school without any consideration of its content, purely on the basis of its methodology being invalid. What are we then contrasting it with? Not neoclassical economics, surely. Then what--PKE? In practice I don't see much evidence that anyone treats this issue as decisive."

In my view, no existing economic school yet treats the subject adequately in light of contemporary knowledge in related fields. I think that AE, or at least the more dogmatic subsets of it are most in need of updating. I consider neoliberal economics in the same boat, since it uses a lot of the same unexamined assumptions. Neoclassical economics is doing its best to build a formalized and scientific economics, but here, too, I think that the epistemology and theory of human nature is off-base, which skews the assumptions. I am not alone in this, of course. Evolutionary scientist David Sloan Wilson, cognitive scientist Antonio Demasio and many others have shown the weakness of major assumptions. I think that PKE is more on the right track in attempting to integrate governmental policy, money & banking, and finance, into economics in terms of operational description.

But so far, there is no general theory of economics that meets the scientific test of general theory in terms of explanatory and predictive power. I do not think that economists working alone, apart from relevant disciplines, will be able to develop one either, due to hidden assumptions (encroachment of subjectivity) and ignorance of significant information that may be available. Finally, failure to submit assumptions for critical interdisciplinary review is a grave mistake.

Tom Hickey said...

I like Hayek, and Keynes had complimentary things to say about The Road to Serfdom.

I would agree that Hayek's “The Use of Knowledge in Society” is a first-rate piece and I would cite it in arguing against cb interest rate setting.

And, of course, Abba Lerner was a student of Hayek at LSE in the early 30's.

Anonymous said...

"comply with the demands of capital or starve"

The ethics of Bob Roddis encapsulated in one simple sentence.

Anonymous said...

The rothbardian cult teaches its members that it is ethically acceptable to wage violent jihad against the government of the united states.

They believe that taxation is theft and that violence is acceptable to defend private property against theft.

Rothbardian cult members are permitted by their cult dogma to use whatever level of violence necessary to defend their property against government "theft".

They are a dangerous extremist fundamentalist cult which poses a real threat to the lives of government employees.

Tom Hickey said...

Anonymous: ""comply with the demands of capital or starve"

The scary thing is that this is the neoliberal position that the ruling oligarchy actually holds, rather than some marginal economists or peripheral political group. "Don't let a good crisis go to waste" is the slogan of disaster capitalism. The corollary is "if there isn't a good crisis handy, then manufacture one."

Bob Roddis said...

The original comment about lowering prices and wages or starve was tongue-in-cheek. Keynesians, in their bizarre anthropomorphism, give human characteristics to "prices", hence the term "sticky prices". My point was that after a Keynesian-style price bubble collapses, people will find themselves poorer than they had previously believed and will have to charge more realistic (and lower) prices and wages. And they will.

Prices aren't sticky, the problem was caused in the first place by the Keynesians and people are smart enough to lower their prices and wages. Of course, they are not going to starve (unless "progressives" burn all the oranges and kill all the pigs like in "The Grapes of Wrath").

Tom Hickey said...

Bob: "Keynesians, in their bizarre anthropomorphism, give human characteristics to "prices", hence the term "sticky prices". 



Post Keynesians reject the "stickiness, made popular by Paul Samuelson, as "bastard Keynesianism.

"


Bob: "My point was that after a Keynesian-style price bubble collapses, ... "



PKE would call it a Minskian asset bubble collapse, and the fact is that now wealth has dropped to 1992 levels due especially to the fall of housing prices and the ensuing results of debt-deflation following upon the culmination of the financial cycle in Ponzi finance.



The austerity program of neoliberalism aka disaster capitalism is designed to reduce wages without reducing prices, thereby reducing the real wage and increasing corporate margins. It is working, largely due to the intense propaganda campaign being waged to convince workers using bogus claims that lower wages are necessary for fiscal sustainability.



There is virtually no market expectation of inflation in the foreseeable future at present as shown by the flight to bonds of strong currency in spite of historically low interest rates.

Free marketers accept that markets are the most reliable price setters and predictors of the rate and direction of future price change, which is reflected in the slope of the yield curve. The yield curve is now historically flat.



One cannot claim that markets are optimal price determinants, which involves "expectations" as predictions of future price changes and also claim that markets are wrong, unless one also claims that markets are manipulated. 



Of course the claim is that markets are manipulated. But then the expectation should be that the Fed will be raising rates or closing out assets acquired for its book during QE, driving bond prices down sharply in the near or not very distant future. But the market is not pricing that in.



Bob: "people are smart enough to lower their prices and wages"



Evidence please. 



Wages typically fall through policy that reduces bargaining power of labor. Price is cost based, excluding labor cost, much of it is determined internationally by the cost of materials, especially energy resources. IN order to reduce prices firms either have to reduce profit margin or other costs have to fall. The obvious one is labor since it is the largest and easiest for management to control. There's not much management can do to influence cost of either energy or materials.

Jeremy said...

The point that mathematics is a language or framework for doing science is spot on, but I don't see how it refutes the Misesian view that praxeology is on the same footing as math. As I read them, the Misesians teach that praxeology is the framework for understanding human behavior or the social sciences just as math is the framework for understanding the inanimate physical world or hard sciences (logic being the ultimate framework that binds them both).

In light of this, I don't see how the Misesian claim that sound economic science is value-free has been refuted. Economics is as value-free as physics, because praxeology is as value-free as geometry. To borrow Hayek's phrase, it is simply the Pure Logic of Choice.

Gordon does a good job of explaining the philosophical origins of AE, but the single best defense (IMHO) of AE's methodology is given by Roderick Long in a couple papers and forthcoming book (draft available at his website in pdf) that apply Wittgensteinian insights to these questions and put forth a good effort to answer concerns stemming from the nature and possibility of apriori synthetic statements.

While I lean toward the Misesians on methodological questions, I would enjoy reading someone with a strong background in philosophy really have a go at Long's approach.

Jeremy said...

Reading the comments, I'm not sure what Tom means by the phrase "philosophy and not science," as though the two aim at different things. Does he think all knowledge is possible only by means of a "scientific test of general theory in terms of explanatory and predictive power?" I doubt it, since that rules out making sense of mathematics for all but the most Millian empiricist.

Mises's view rests on the observation that some knowledge (i.e., science) such as mathematical truth is not beholden to any such method. So I don't see how the claim that Austrians are doing philosophy rather than science (which, I think roughly translates to "practicing a different method of arriving at truth") is a very good argument. I mean, it's certainly convincing if one believes that no other method could possibly yield genuine knowledge, but that view is clearly more dogmatic and doctrinaire than the Misesians. It simply denies what the Misesians are arguing without answering any of their arguments for the desirability of their method in the first place.

I don't mean to accuse Tom of this across the board, since his post and comments are clearly thoughtful and worthwhile. I just don't think it's sound footing to fall back on.

Bob Roddis said...

Price is cost based

Prices are ALWAYS based upon the subjective values and whims of the parties to the transaction. That’s why GM stock could collapse in value. The price of the stock did not reflect the “costs” of the various inputs of the physical capital, anymore than an unwanted, poorly designed or unhip car with a low clearance price represents anything but what people will exchange for it. And when the same stupid car suddenly starts selling for $100,000 20 years later due to its value as a piece of camp nostalgia, that new price had nothing do with the cost of its inputs either. The input costs will TEND to reflect the later selling price but only because if they don’t, the business will go out of business.

There’s nothing to keep asset prices of stuff owned by the rich artificially high after a fiat funny-money boom has collapsed other than government bailouts, regulations and more fiat funny-money printing via keystrokes. WHICH IS WHY THEY DO THEM. There is no tendency whatsoever for such prices to remain artificially high in the market after the boom ends if only because any potential buyers are now also too broke to buy anything due to the prior distortions of the price, investment and capital structure induced by the prior fiat funny-money printing via keystrokes.

vimothy said...

Tom,

As both a non-Austrian and a non-philosopher, I probably don’t have anything very substantial to add here.

For what it’s worth, my take on Austrian economics is this: it’s a fringe school. If it abandons some essential features, it might cease to be a fringe school, but it would also cease to be Austrian economics.

Okay, so you want to suggest that maybe there’s something to be gained by leaving the fringe; but what? It can’t be the respect of mainstream economists, I wouldn’t have thought (because that wouldn’t interest you). I can only imagine that it’s the respect of non-economists. Is that right?

It seems to me that Austrians would be much better off doing the sort of research that they think is worthwhile rather than worry about what other people think of them. That way, their output will reflect their interests, and if it is actually good, it won’t be because they’ve constructed something with the express intention of appealing to particular groups of people or academic trends.

That’s all very general and abstract, though. In practice, when I read a paper or blog by an Austrian economist, I don’t think about Aristotelian metaphysics or whether Austrian economics as a whole is fatally flawed. I think about topic of the paper or the blog post instead.

And my impression from doing that is, whatever the faults of Austrian economics qua school of thought (and on some level I suppose I must agree that it has faults, because I’m a non-Austrian), Austrian economists write interesting and useful stuff all the time.

I think that it would be much more interesting to see MMTers engage with that rather than write off Austrian economics in principle.

Addendum

Neoliberlism could be considered as a policy regime or as a political philosophy, but it’s not a school of economic thought like Austrian economics, so tying the two together in terms of methodological or epistemological flaws doesn’t really make sense, as far as I can see. (E.g., Austrians are also neoliberals).

Anon,

They are a dangerous extremist fundamentalist cult which poses a real threat to the lives of government employees.

On the assumption that this (frankly, totally bonkers sentence) isn’t satire: Austrian economics is the sort of thing that excites nerds—like Dungeons & Dragons or science fiction. It’s no more a threat to the lives of government employees than Games Workshop or the novels of Isaac Asimov.

y said...

"a fiat funny-money boom"

If you look closely you will see that MMT is opposed to allowing fiat funny-money booms.

MMT is about ensuring that there is the correct 'quantity of money' in the economy at any given point in time to maintain full employment AND price stability ( defined as low inflation), in a sustainable (non financial ponzi-scheme) way.

Part of achieving this goal involves reining in the banking sector, which many argue is the main source of asset-price ponzi-type bubbles.

Anonymous said...

Vimothy

I was referring to the rothbardian cult, which lies on the extreme-right wing fringe of the austrian school.

The rothbardian cult teaches its followers that taxation is theft. It also teaches its followers that violence against government employees and government property is morally justifiable in the defence of one's property against government 'theft' (taxation).

Read the cult's 'literature' and you will see just how distorted and hate filled it is.

vimothy said...

Tom,

Something that I would find really interesting would be a comment or even a longer post discussing MMT's methodology and epistemology and putting it in some kind of philosophical context--a "philosophical origins of MMT", if you like.

Bob Roddis said...

Something that I would find really interesting would be a comment or even a longer post discussing MMT's methodology and epistemology and putting it in some kind of philosophical context--a "philosophical origins of MMT", if you like.

MMTers are central planners who apparently never learned in school that central planners do not have the knowledge necessary to centrally plan. Thus, their overt hostility to private property. Hayek’s devastating writings on this topic are one reason he was awarded the Nobel Prize.

The inherent lack of knowledge by central planners is the fatal EPISTEMOLOGICAL flaw in all "progressive" "thought". The fact that basic Austrian concepts [like what a normal person would learn in the first ten minutes of study of Austrian Economics] eviscerated MMT’s naïve notions of central planning decades ago is a main reason why MMTers “recoil” from analyzing Austrian concepts and simply wish they would go away.

http://tinyurl.com/7sycbey

y said...

You describe any government involvement in the economy as "central planning" so your comments are meaningless.

Tom Hickey said...

@ Jeremy

Mises confuses math with science. Math is NOT science, which is descriptive, explanatory and predictive, where as math is a symbolic language that says nothing about the world in itself. The axioms of a deductive systems are stipulated. Scientific hypotheses and laws are equations that are interpreted semantically in terms of a theoretical model that claims to be representational of how things stands.

Math in itself says nothing about how things stand but only about the relationships of signs as logical symbols. The "certainty" of math lies in the proofs that articulate the symbolism or deduce theorems from axioms. The criteria of the system are the rules (formation and transformation) and other stipulations about sign use.

The asssertion, "Man acts," is a general description of the world, It's logical form can be analyzed, e.g., For all x, F(x), where f is interpreted as behaving in ways that fall into the set of acts, and x is a variable whose argument are human beings. This is a more or less scientific statement put in ordinary language that makes a claim about how things stand in the world. As a claim about the world that says the set of human beings is a subset of beings that behave in way that puts them in the category of beings that act. This is not a statement of the type, "The set of positive integers is a subset of the set of real numbers."

Why this is so introduces criteria. The statement about math is definitional, known to be true based only on analyzing the technical terms. However, "Man acts," is quite different. It makes a claim about the world. It is therefore either an empirical claim, and so empirical claims are self-evident according to scientific method, or else it functions differently, e.g., as a theoretical assumption, in which case is also subject to criteria.

The first step in analyzing an ordinary language statement is looking at how the term is used in context. The involves examining Mises use of "act," "action," "agency," and so forth, which is fields that study human action and agency do, and there is a great deal of controversy within and among these field.

So it turns out that Mises is proposing a theory of human action in this context, and the criteria for judging it are the same as would be used to evaluate any other theory. One cannot just claim that one's theory is "self-evident" when there are opposing theories stated quite rigorously.

Mises theory could win the day in the debate and be accepted as the best explanation, but not without entering the debate, and certainly not be declaring its deductive starting point as self-evident. This is a non-starter.

vimothy said...

Bob,

I think that the work done by Mises and Hayek gives a good intuitive explanation of why central planning won't "work". (Cosma Shalizi's recent essay on central planning as a linear programming problem provides a more formal explanation).

But it seems wrong to suggest that MMTers are central planners, or that the failure of central planning damns all progressive concerns from the get-go.

Tom Hickey said...

Bob: "The inherent lack of knowledge by central planners is the fatal EPISTEMOLOGICAL flaw in all "progressive" "thought". The fact that basic Austrian concepts [like what a normal person would learn in the first ten minutes of study of Austrian Economics] eviscerated MMT’s naïve notions of central planning decades ago is a main reason why MMTers “recoil” from analyzing Austrian concepts and simply wish they would go away."

Non-sense. As I said, just about every one agrees that complexity rules out precise explanation and prediction without better data and a more comprehensive theory. But to concluded that nothing useful for policy can be known and applied through available methodology doesn't follow from that. It's a logical jump.

Moreover, it is no more known that trusting to the invisible hand of so-called free markets produces the results claimed. There is no evidence of this. Opponents claim that this is because there are no truly free markets. That is another point of ours. "Free markets" as defined in the premises of the argument do not exist. Moreover, there is a very low probability that they will ever exist in a complex economy due to the institutional arrangements. Supposing that these institutional arrangements could be change so as to establish and preserve "free markets" in this sense is highly implausible, especially in an environment of open economies.

But you are welcome to keep trying to get the American Empire to impose this system on the world in the name of democracy.The likelihood of this working out as you expect is exceptionally low. How do I know. I read history and social science.

Tom Hickey said...

Bob: "Prices are ALWAYS based upon the subjective values and whims of the parties to the transaction."

If Austrian economists believe this, they should get out of the ivory tower and start some businesses, and then tell me how price works.

Financial markets are totally different from goods markets. Financial markets are trading savings vehicles based on perceived risk/reward, portfolio management strategy, and liquidity preference, all ov which are admittedly quite subjective.

However, goods markets are markets in which prices are set rather than negotiated, and firms compete with each other to attract customers using a variety of economic factors and non-economic technique (advertising and marketing, position, branding, etc.). The dominant factors are market share and profit margin. Profit margin is based on cost of goods sold, and firms adjust profit margin based on capturing market share.

y said...

MMT actually advocates govt policy which responds automatically to market activity, rather than trying to plan that activity in some way. It's about maintaining a level of effective demand (through a large enough govt deficit)that allows the economy to maintain full employment (along with price stability) in the face of demand leakages through private sector savings desires.

As Mises himself argued, increases in the supply of money are NOT inflationary if they are offset by an equivalent increase in the demand for money.

An increase in the demand for money (increased savings desires) has to be *accomodated* by an increase in the supply of money if full employment is to be maintained.

Bob Roddis said...

If Austrian economists believe this

This is what Hayek won the Nobel Prize for. This is why Hayek's article on KNOWLEDGE is in the top 20 of the century. The completely and purely subjective nature of prices is the CORE AND ESSENCE of Austrian Economics. That information CANNOT be replicated by planning and scheming bureaucrats backed up by your beloved SWAT teams. You somehow missed this?

The Austrians refuted the Labor Theory of Value a century ago.

What did you think Mises meant by him saying that the State Theory of Money was acatallactic?

http://consultingbyrpm.com/blog/2012/03/murphy-on-mises-on-money.html

Hayek made this point crystal clear soon after winning the Nobel Prize:

“The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.

The basic concepts are quite simple to comprehend. "Progressives" simply do not want them to be true and thus purposefully avoid their meaning. Or fail to grasp them.

Tom Hickey said...

vimothy: "Okay, so you want to suggest that maybe there’s something to be gained by leaving the fringe; but what? It can’t be the respect of mainstream economists, I wouldn’t have thought (because that wouldn’t interest you). I can only imagine that it’s the respect of non-economists. Is that right?"

Austrian economics, Marxist economics, Keynesianism and other "fringe" schools — taking New Classicalism as the mainstream, tend to be based on some historical authority that they accept and defend. This can be an overly "conservative" and "traditionalist" position that adheres too closely to pervious authority to advance. Austrian economics has many sub-schools, as do Marxist-Marxian economics and Keynesianism. Some sub-schools are more flexible and attempt to stay abreast of developments in knowledge. What I am saying to all of them, and to New Classicalism in a different way, if that they need to look out the window at developments in related field. And I am also saying to the more doctrinaire sub-schools that they will remain marginal unless they play serious catch-up and start talking in the universe of discourse of the day rather than the 19th or early 20th centuries. The world has moved on.

Moreover, there is a tremendous opportunity developing for a new paradigm in economics after the recent debacle that the mainstream suffered in not foreseeing the approaching crisis and then being unable to propose a fix that worked. The emerging world looked to the developed world for knowledge and technology, but now they are distrustful of what they see in realm of mainstream economics and policy.

Economics needs models that can deal with complexity and assumptions that square with findings in related fields.

I am jumping specifically on the Mises-Rothbardian approach because it is the poster child of doctrinaire. MMT economists have similarly critiqued the "bastard Keynesianism of early Hicks and Paul Samuelson, and the New Keynesianism of, e.g., Greg Mankiw, while also going after Lucas, Barro, etc. But they have more or less ignored AE as fringe, and I am jumping in to that gap.

Btw, I think that Lord Keynes has amply analyzed AD in terms of the various sub-schools from the PKE POV. Here I am dealing with a small but important part of one sub-school because it is dominant now.

I realize that they are unlikely to shift course away from being doctrinaire, since it is an ideology more than a scientific approach. If they want to ignore the advice about how to shift the framing to make it more acceptable, even without altering the POV to any great degree, that is their choice. I just think it is ill-advised to adopt a doctrinaire frame that turns serious people off when it is possible to take a more qualified approach. But that would mean being open to criticism without rejecting it out of hand based on claims of "irrefutable truth," "self-evidence," and arguments from authority.

As far as appealing to non-economists, I think that the Mises-Rothbardian Libertarianism is doing fine. Liberalism that advertises greater "freedom" is always attractive. The question is whether that is a bogus promise based on erroneous claims. And as Aquinas says in his intro to De ente et essentia, paraphrasing Aristotle, "A small mistake in the beginning becomes a great one by the end."

Tom Hickey said...

vimothy: "Austrian economists write interesting and useful stuff all the time.

"I think that it would be much more interesting to see MMTers engage with that rather than write off Austrian economics in principle.
"

As John Carney said, both parties should focus on what they can agree over and instead of continually arguing over irreconcilable differences.

Tom Hickey said...

vimothy: "Something that I would find really interesting would be a comment or even a longer post discussing MMT's methodology and epistemology and putting it in some kind of philosophical context--a "philosophical origins of MMT", if you like."

Good suggestion, vimothy.

y said...

William Vickrey (1996):

"Many profess a faith that if only governments would stop meddling, and balance their budgets, free capital markets would in their own good time bring about prosperity, possibly with the aid of "sound" monetary policy. It is assumed that there is a market mechanism by which interest rates adjust promptly and automatically to equate planned saving and investment in a manner analogous to the market by which the price of potatoes balances supply and demand. In reality no such market mechanism exists; if a prosperous equilibrium is to be achieved it will require deliberate intervention on the part of monetary authorities.

In the heyday of the industrial revolution it would probably have been possible for monetary authorities to act to adjust interest rates to equate aggregate planned saving and aggregate planned investment at levels of GDP growing in such a fashion as to produce and maintain full employment. Generally, however, monetary authorities failed to recognize the need for such action and instead pursued such goals as the maintenance of the gold standard, or the value of their currency in terms of foreign exchange, or the value of financial assets in the capital markets. The result was usually that adjustments to shocks took place slowly and painfully via unemployment and the business cycle.

y said...

http://www.columbia.edu/dlc/wp/econ/vickrey.html

y said...

cont...

Current reality: The time is long gone, however, when even the lowest interest rates manageable by capital markets can stimulate enough profit-motivated net capital formation to absorb and recycle into income over any extended period the savings that individuals will wish to put aside out of a prosperity level of disposable personal income. Trends in technology, demand patterns, and demographics have created a gap between the amounts for which the private sector can find profitable investment in productive facilities and the increasingly large amounts individuals will attempt to accumulate for retirement and other purposes. This gap has become far too large for monetary or capital market adjustments to close.

On the one hand the prevalence of capital saving innovation, found in extreme form in the telecommunications and electronics industries, high rates of obsolescence and depreciation, causing a sharp decline in the value of old capital that must be made good out of new gross investment before any net increase in the aggregate market value of capital can be registered, together with shifts from heavy to light industry to services, have sharply limited the ability of the private sector to find profitable placement for new capital funds. Over the past fifty years the ratio of the market value of private capital to GDP has remained, in the U.S., fairly constant in the neighborhood of 25 months.

On the other hand, aspirations for asset holdings to finance longer retirements at higher living standards have increased sharply. At the same time the increased concentration of the distribution of income has increased the share of those with a high propensity to save for other purposes, such as the acquisition of chips with which to play high stakes financial games, the building of industrial empires, the acquisition of managerial or political clout, the establishment of a dynasty, or the endowment of a philanthropy. This has further contributed to a rising trend in the demand of individuals for assets, relative to GDP.

The result has been that the gap between the private supply and the private demand for assets has come to constitute an increasing proportion of GDP. This gap has also been augmented by the foreign trade current account deficit, which corresponds to a diminution of the stock of domestic assets available to domestic investors. For an economy to be balanced at a given level of GDP requires the provision of additional assets in the form either of government debt or net foreign investment to fill this growing gap. The gap is now tentatively and roughly estimated for the U.S. to be equal to about 13 months of GDP. There are indications that for the foreseeable future this ratio will tend to rise rather than fall. This is in addition to whatever role social security and medicare entitlements have played in providing a minimal level of old age security.

In the absence of change in the flow of net foreign investment, a government recycling of income through current deficits of somewhat more than the desired growth in nominal GDP will be needed to keep the economy in balance. Curtailing deficits will correspondingly stifle growth.

vimothy said...

Tom,

[Incidentally, for reasons that are mysterious to me, when mainstream economists name a school of thought, they usually restrict themselves to a pool of about four words. “New classical” economics is not actually the dominant paradigm in economics. It’s a (by now old) school in macro. The dominant school in macro has been called “new neoclassical synthesis”. The dominant approach in economics as a whole is usually called “neoclassical”, or simply mainstream economics.]

I must confess to still finding your argument a bit confusing. Fringe schools will be taken seriously by the mainstream of the economics profession if they use its “language”, i.e., the modern methodology of mathematical modelling and econometric testing. (In fact, some fringe economists are already taken seriously by the mainstream—for example, Barkley Rosser, Pete Leeson, Nobel laureate Doug North, etc).

Beyond that, why should economists care about being taken seriously by chemists, or philosophers, or psychologists? Do chemists worry about what economists think of them? I can’t imagine that they do. What about philosophers?

It’s my impression that, for whatever reason, economics attracts people who are long on opinions and short on the time to learn anything about the subject. So what we end up with is lots of uninformed historians and physicists and statisticians and so on offering their opinion on whatever aspect of the discipline they’ve become familiar with through reading the FT or watching Newsnight. If economists appeal to these people, what do they actually gain?

So one question is why is gaining the respect of a specialists in other fields a worthwhile end. Another question is what specialists in particular and what rule are we using to add people to this set.

It also seems odd to be rejecting mainstream economics on the one hand, and then setting up the “scientistic”, naturalistic approach as the sole standard of knowledge on the other. Scientism has problems of its own (see also: modernity). For that matter, science has problems of its own.

“The history of the philosophy of science in the twentieth century is a tale of the steady retreat from the assumptions of positivist verficationism. But this means a retreat from the position that scientific theories can be known to be true—and for some, from the position that they can be true.” (Mark Anderson)

If you’re going to go with scientism, then you’re going to end up somewhere similar to mainstream economics. Perhaps that’s as it should be. I don’t see why you can’t advocate the sorts of policy that MMTers favour from within the (considerably richer) framework of modern economics. But I don’t see that it’s self-evident that scientism is the be-all and end-all.

Tom Hickey said...

Vimothy, I can name names of mainstream economists that have recommended disastrous policy based on "ideological economics" who are considered to be either New Classical or New Keynesian economists. But I don't need to because Bill Mitchell has not only named them but shown the ideological basis for their policy recommendation.

Of course, not all economists of those schools agree over policy. But a great many policy recommendations of prestigious economists are blatantly political, justified on their economic expertise, which often means prestige, since non-economists aren't able to the understand the economics.

As a result a lot of the supposedly expert-based policy recommendations get sold politically as slogans that appeal to the naive commonsense worldview, e.g., the government as household analogy, or anything short of neoliberalism being "socialism" or leading to it. These economists either bless these slogans, or do not explain that they are wrong, or even qualify them.

Ravi Batra has observed in his work as an economic historian how chief members of the intelligentsia prostitute themselves to justify the rule of acquisitive class and are amply rewarded for doing so by the acquisitors with prestige, renumeration, and even a share in power as advisers to government or official appointments.

There is push for a professional code of ethics for economists, and it was rejected by the major economics professional association.

Tom Hickey said...

"Beyond that, why should economists care about being taken seriously by chemists, or philosophers, or psychologists?"

Because experts in other fields are criticizing the assumptions of economists pointing out how they are deficient and leading to models of imaginary worlds that when confused with the actual world are producing bad economic policy. Such policy is needless resulting in not only inefficiency but also social and political ineffectiveness of achieving social, political, and individual goals that are conducive to well-being and prosperity, not to mention widespread adverse consequences globally.

Mainstream economists have so far rejected such criticism as irrelevant, ignored it, or are in denial it. I know of no major mainstream economist that has addressed it.

MMT economists do as institutionalists in that institutionalism is bound up in anthropology, sociology, history, and evolutionary science, as well as philosophical considerations of ethics, for instance.

Meanwhile, the mainstream is claiming that science is amoral, just a description of the world. However, the world of their assumptions is an immoral world and a highly inefficient and ineffective world, too, from a managerial standpoint. The simple advice is to pull back the curtain and look out the window, and then compare what you see to your model.

The answer is that this is due to too big government and too much regulation and that a neoliberal regime would resolve that. That's neoliberalism, not economics, It is normative rather than descriptive and it looks suspiciously like the assumptions function as norms to force the desired conclusions.

As Randy Wray points out, Paul Samuelson knew how it works and admitted he feared letting ordinary people know because the rabble cannot be trusted.

Tom Hickey said...

"So what we end up with is lots of uninformed historians and physicists and statisticians and so on offering their opinion on whatever aspect of the discipline they’ve become familiar with through reading the FT or watching Newsnight. If economists appeal to these people, what do they actually gain?"

These are indications of the economic arguments behind policy recommendations used to push neoliberalism politically. These other people are smart enough to see through the facade and some of them actually go and examine the assumptions and criticize them. Have you read David Sloan Wilson's Economics and Evolution as Different Paradigms series?

Tom Hickey said...

Interesting we hear about Nobel laureate economists all the time in the media but Doug North, Elinor Olstrom, etc.? Maybe in obituaries.

How many have even read North's short paper Economics and Cognitive Science," or are aware of Ostrom's 8 Principles for Managing a Commons:

1. Define clear group boundaries.
2. Match rules governing use of common goods to local needs and conditions.
3. Ensure that those affected by the rules can participate in modifying the rules.
4. Make sure the rule-making rights of community members are respected by outside authorities.
5. Develop a system, carried out by community members, for monitoring members’ behavior.
6. Use graduated sanctions for rule violators.
7. Provide accessible, low-cost means for dispute resolution.
8. Build responsibility for governing the common resource in nested tiers from the lowest level up to the entire interconnected system.

Tom Hickey said...

"So one question is why is gaining the respect of a specialists in other fields a worthwhile end. Another question is what specialists in particular and what rule are we using to add people to this set."

Generally in important matters good managers will seek input from all parties privy to relevant information and will also consider carefully opposing views of experts.

Who and what should be considered when the information stock is so large? The first criterion is generally who has been correct in the past about similar issues.

It's interesting that economics is taught to managers, but management is not taught to economists and they are considered expert policy advisers anyway.

Tom Hickey said...

Vimothy: "It also seems odd to be rejecting mainstream economics on the one hand, and then setting up the “scientistic”, naturalistic approach as the sole standard of knowledge on the other. Scientism has problems of its own (see also: modernity). For that matter, science has problems of its own.

“The history of the philosophy of science in the twentieth century is a tale of the steady retreat from the assumptions of positivist verficationism. But this means a retreat from the position that scientific theories can be known to be true—and for some, from the position that they can be true.” (Mark Anderson)



If you’re going to go with scientism, then you’re going to end up somewhere similar to mainstream economics. Perhaps that’s as it should be. I don’t see why you can’t advocate the sorts of policy that MMTers favour from within the (considerably richer) framework of modern economics. But I don’t see that it’s self-evident that scientism is the be-all and end-all.

No one believes in Positivism, and Wittgenstein trashed Logical Positivism as an interpretation of the Tractatus at the time. Theories are neither true nor false. Hypotheses, if well-formulated, are testable by well-designed experiments. Theories are constructed of well-accepted tested hypotheses that get promoted to rule status called scientific laws, in terms of which normal science is done wrt to the prevailing theory, which contains a lot of tentative hypotheses and problems to be explored.

There is no generally accepted economic theory that would qualify as a scientific general theory. Moreover, due to the nature of economics being policy-oriented, it is normative as well as positive. Scientists of related fields can contribute to the positive element, while the normative falls broadly under ethic, which is a branch of philosophy. Logic is also considered a branch of philosophy.

Rather than consider all the relevant inputs, mainstream economists are still wedded to 18th and 19th century physics in hewing to equilibrium models.

vimothy said...

Tom,

I don't need to because Bill Mitchell has not only named them but shown the ideological basis for their policy recommendation.

My feeling is that, in general, economists make policy prescriptions on the basis of whatever their research says, or whatever they think is the consensus position coming out of other research going on in the field.

Bill Mitchell doesn’t like the sort of policies that they suggest. Presumably there is an “ideological basis” for this: Bill is a socialist. So he writes blog posts denouncing mainstream economists for using the particular classes of models (or whatever) that tend to throw out these policy prescriptions.

You don’t like them either; again, presumably for ideological reasons. Therefore, you collect criticisms of mainstream economics and mainstream economists. No economist could ever meet this criticism, because in order to understand their reply, you would have to learn a lot of really boring theory. Their failure constitutes another piece of evidence to add to the growing pile.

Tom Hickey said...

vimothy, do I need to work through the complicated math to understand the assumptions, which include and exclude in order to simplify the model?

I think not. Most experts including Bill say the math is fine. It's the assumptions that are ideological. That is not economics. It is philosophy of economics that examines the foundations of the subject and assumptions, definitions and language use are part of the foundations separate from doing economics in terms of particular issues.

Utility and agency are not economic concepts, for example. They are philosophical ones that have been debated for millennia and investigated scientifically to boot. There is no generally accepted scientific view of either. New Classicalism stipulates one of those views as it if were self-evident and does not examine it rigorously and defend it against many objections. This is erecting a norm and deducing conclusions from it that are necessarily normative. Yet, New Classicalism claims to be non-normative and amoral rather than moral.

BTW, as a separate but related issue, I was just reading a prominent GOP senator saying that eliminating food stamps from the farm bill now coming up for a vote was "a moral issue." Of course, the opposition is also arguing that it is a moral issue.

But economically, it is a question of the size of the deficit given economic conditions and the targeting of government spending to get the most bang for the buck (multipliers) while doing the most good in terms of utility taking public and private into account. Public utility is "welfare" as in "the general well-fare" (preamble to the US Constitution).

vimothy said...

Tom,

[I'm pretty sure you don't mean "New Classicalism"—instead you actually mean "neoclassicalism".]

Let me try to break down what you’re saying:

1., Economists make Assumptions.

2, Assumptions can be considered generally, as if they were a single object, without reference to the particular models in which they are embedded.

3, “Experts” (who?) agree that Assumptions are “ideological”.

I don’t think this is a good way to think about the problem. You need to put things in their proper context to see if a given set of assumptions are appropriate. There’s no way to make this decision in advance, for all assumptions simultaneously.

It’s not that you need lots of complicated maths either. You might need lots of complicated economics, but it seems hard to see how you could do philosophy of economics without any economics whatsoever.

vimothy said...

Tom,

Take this statement,

“Rather than consider all the relevant inputs, mainstream economists are still wedded to 18th and 19th century physics in hewing to equilibrium models.”

To someone unfamiliar with economics, this is both plausible (don’t economists go on about equilibrium a lot?), and reassuringly easy to pick holes in (if the economy was in “equilibrium” then nothing would happen, right?).

However, economists haven’t simply imported the concept of equilibrium from 18th century physics and left it there untouched. It’s actually a word with several different meanings in economics. Moreover, heterodox economists make use of it as well. An example of which is: Wynne Godley. One of the major themes of Godley’s work is (of course) the analysis of equilibrium dynamics.

Major_Freedom said...

Bob Roddis:

The reason why MMTers don't address Austrian concepts when they try to hand wave it away, is the same reason they are not even attempting to analyze or critique the government's monopoly over the money supply.

MMTers start with the proposition:

"We live in a society where money is monopolized by the state. You might not like it, but that's what we have. Deal with it."

They don't even critique the state's monopoly over money in any way. Ever. Either they refuse to do so, and are hence intellectually dishonest, or they can't do so, and are hence intellectually bankrupt.

Either way, this is why they do not show any evidence that they grasp basic Austrian concepts.

Since they do not critique the state's monopoly over money, they have shown themselves incapable of looking at the world in any other way than through a central planner's eyes. They're not central planners, but they can only understand the economy from that perspective. It is a mystical view of course, since they are not a central planner. They are viewing the economy from a perspective that is outside themselves. This is why they're just airheads. They are not understanding the economy from their own perspective as an individual actor. They do not yet understand what they are.

My guess as to the reason why they refuse to even contemplate the possibility of acting in a state of ignorance vis a vis the facts concerning other people, is that doing so would invariably lead them to understanding themselves as ignorant, which is terrifying to them. That's why they latch onto the "certainty" of the monopoly over money system they were born into. That's why they do not grasp Austrian concepts.

Tom Hickey said...

vimothy: "You might need lots of complicated economics, but it seems hard to see how you could do philosophy of economics without any economics whatsoever."

Philosophy of economics is about 1) critiquing the foundations of existing economics and what economists do, and 2) asking what a more appropriate economics would look like in terms of normative considerations wrt outcomes. In other words, humans were not content historically with letting the invisible hand of nature work and they created artificial arrangements as cultural institutions. It is possible to look at that historical project based on actual outcomes and norms.

See, for example, Philosophy of Economics entry in Routledge encyclopedia. Hausman also wrote the entry in the Stanford Encyclopedia. He has several books out, too.

The Philosophy of Economics: An Anthology and Economic Analysis, Moral Philosophy and Public Policy

Also Joan Robinson, Economic Philosophy

Robinson was an awesome thinker.

In addition, sociology and anthropology have specialized fields in economics that examine foundations.

Marx had a PhD in philosophy and did his dissertation in ancient Greek philosophy although later he turned his attention to social and political philosophy and joined the debates that were then raging. He was well acquainted with the anthropology of the time and is considered one of the founders of sociology. He was not an economist by training and trained himself by reading the Classical economists. In the history of thought it is considered to be chiefly a philosopher that reacted to the Hegelianism dominate in his time.

Because it is still far from being a science, I see economics as a branch of social and political philosophy. Contemporary philosophy is not speculative in the traditional sense. Speculative philosophy pretty much ended by the close of the 19th century. Classical economists are generally considered "worldly philosophers." Austrian economics was initially and extension of the philosophical debate at the time. New Classicalism introduces emphasis on mathematical methodology.

But economics still remains a branch of social and political philosophy and it will remains so until the issues of complexity are conquered and a lot more is known scientifically about how human beings actually work in terms of biology. That will likely have to wait for development of AI.

Tom Hickey said...

vimothy: "To someone unfamiliar with economics, this is both plausible (don’t economists go on about equilibrium a lot?), and reassuringly easy to pick holes in (if the economy was in “equilibrium” then nothing would happen, right?).

However, economists haven’t simply imported the concept of equilibrium from 18th century physics and left it there untouched. It’s actually a word with several different meanings in economics. Moreover, heterodox economists make use of it as well. An example of which is: Wynne Godley. One of the major themes of Godley’s work is (of course) the analysis of equilibrium dynamics."

See Complexity Economics

vimothy said...

Tom,

If you flat-out reject the notion of equilibrium because you don't like the connotations, then you have to chuck Godley out as well. I don't see the Wikipedia page you linked to really addresses that.

Tom Hickey said...

@ Major_Freedom

MMT analyzes the system as it is. It doesn't propose how it ought to be.

MMT also lays out causal consequences of alternative monetary institutional arrangements on outcomes and policy space.

vimothy said...

Tom,

Your brief summary of philosophy of economics is nice, but doesn't seem to deal with the problem.

I'm saying that it's not possible to make a judgement on something without knowing anything about it.

For example, you seem to think that because 18th century physicists had a concept of equilibrium, which has now been superseded, any economic theory that uses a concept of equilibrium is invalid.

But you haven't established this. In order to do so, you'd need to actually get involved in what the theory says and the role equilibrium plays within it.

Tom Hickey said...

vimothy, Godley-based macro is an advance as far as I can see from my understanding, but it is a very small step that doesn't really get economics that much closer to being a science rather than a branch of philosophy. There's just too much we don't understand about complexity of events and human cognition-behavior and their relation.

As Soros points out in his general theory of reflexivity, what is required is a general theory of consciousness and scientifically we hardly even know where to begin and have only begun to take baby steps.

I am not opposed to using concepts like equilibrium to the degree they are useful tentative steps. But some seem married to their favorite concepts even when they turn out to be worse than useless in that they result in actual damage.

Tom Hickey said...

@ Vimothy,

Yes, I should have said neoclassical rather than New Classical in referring to marginalism and Walrasian equlibrium. This is where the problem began in thinking that economics could be formalized.

When econometrics came along, New Classicalism became the dominant paradigm to the degree that at least some people doing economics using this methodology regard every other approach as unscientific and primitive.

I don't have a problem with neoclassical economics in that it was an interation, and Alfred Marshall warned against trying to get too much out of simple models, which is what those models all were.

When econometrics became the rage, some people thought that the more complex menat that economics had finally been formalized into a true science. But there are two major problems. First the models are still simple in comparison with the math of complexity,and secondly, the models are simplistic based on their assumptions, such as rationality, ergodicity, and the assumption of a representative agent. They don't take into account complexity, reflexivity, uncertainty, and finance, for instance, and they presume scarcity.

So while this may be an advance in formalization, it is represented as saying more than it does when it comes to economic policy, especially by asserting near certainty. So I don't have a problem so much with the economics as I do with certain economists wrt to policy pronouncements that are overstated based on the assumption.

I also have issues with the assumptions in this regard. While many economists admit that they are simplified to make the models tractable, some then go on to draw sweeping policy conclusions, and also argue when challenged that the assumptions hold in fact rather being stipulated for model construction.

There is no scientific evidence that speaks for some of these assumptions and a lor of evidence that speaks against them. I don't mind calling them working models as aids in thinking about problems (Alfred Marshall) but pretending that they are scientific because of the formalization is just wrong. The assumptions are philosophical rather than inductive, as I have said, and they are not only speculative but also normative in that they are value-laden. The models therefore produce conclusions that support a specific ideological POV that often favors adopting neoliberal policy.

vimothy said...

Tom,

A major problem when analysing economic processes is that everything is interdependent. Because of that interdependence, it’s not feasible to do economics without some degree of formalisation. It’s just too complicated.

You seem to be suggesting in places here that formalisation was some kind of “original sin”. Disregarding the merits of mathematical modelling, that’s quite strange in light of your comments on Austrian economics and Wynne Godley. If formalisation per se is wrong, that aligns you with the Austrians against Godley.

It’s also worth remembering that all social sciences use formal modelling and quantitative methods to some extent. If economics differs, it differs in degree, not in kind.

You also seem to suggest that it’s not the formalisation that’s the problem, but the primitiveness of the formalisation. With better mathematical tools, we could have better results. It’s hard to know what to do with this, but I doubt that many economists would disagree with the principle. The challenge then is to build on what we know. You can’t do that whilst also chucking out what we know because you dislike the connotations.

vimothy said...

Tom

Your criticism of mainstream economics is also very general and abstract. When we try to turn to more concrete examples, like the issue of who uses “equilibrium” and why, we see that it doesn’t really stick.

Saying that the models economists use are simplified is true in a sense, but it’s also not very helpful. Why is it not very helpful? Firstly, the point of making models is to simplify reality. All models make simplifications. If they did not, then they wouldn’t be any use. So that statement is true, but trivially so.

Secondly, because you’re not actually familiar with the models in question, you’re not making an informed judgement here; rather, you’re summarising and passing on information you’ve heard that conforms to your priors. How do you know that this information is good? You don’t, it’s just a guess. Since you are only human, using this method suggests the strong possibility of bias.

Finally, statements that are so general are not always useful. Equilibrium is bad (except when it’s not). Models assume representative agents (except when they don’t). Models fail to take into account X, Y and Z (except when they do). In order for your criticism to carry weight, you really need to address some specific examples rather than making unsupported categorical statements.

Tom Hickey said...

vimothy, OK, let me state more simply. I have no issues with anyone doing whatever, although I may think somethings are ill-conceived or just a waste of time. But when some people draw conclusions illicitly, e.g, that go beyond the data, assumptions and their limitations, or the design of the model or experiment, then I have a problem with it. It's either ignorant or self-serving, and it is unscientific even though it may be represented as science ("true knowledge").

The big problem with "pretend science" is using data, assumptions ("self-evident" principles included here), and formalized models that don't support sweeping conclusions based on the rationale. They happens typically in policy sciences, such as economics and health care, which are heavily influenced by both ideology and outside money, since power, control and profits are involved every policy decision.

Would you trust your life to a single medical study that has not be replicated and was funded by an interested party, with some likelihood that negative information has not been disclosed? Chances are you will receive at least one such recommendation in your lifetime.

Would you trust the fate of a country on a cet. par. study when all things are changing?

Policy decisions are often based on reasoning to justify it that goes well beyond what is actually justified.

If I were an astronaut, I would be OK with trusting my life to rocket science because it has been shown to be sufficiently exact to get me where I would be headed with a high degree of probability of success. That is not the case in either medicine or economics.

If a procedure or prescription drug is recommend, do I check it out to the degree I am able? Of course. Do I check out alternatives, including non-allopathic? If available, also of course.

I just went to my doctor who is Chinese and a faculty member at the university hospital here. I was having a problem with allergies, and she told me if effect that most of the US food supply is poison and to eat only organic or natural, and nothing processed in any way.

While I was surprised to hear it from a professor of medicine in a large teaching hospital in the US, this was nothing new to me since Rachel Carson and others had been pointing to this decades ago and now there is multi-billion dollar organic and natural food industry in the US with venue for distribution. Iowa City has coop at which I shop that carries only organic, natural, and locally grown by small producers.

Prior to her, my doctor was another faculty member at the same teaching university. He asked he I wanted a test for which I am eligible, I asked him for his opinion. He took the time to explain to me the research, including the probabilities, making sure I understood. I asked him for his opinion again. He said at your age the negatives outweigh the positives mathematically, but you have to make up you own mind. You could be in the tail. I decided to forego the test even though covered by Medicare.

At this time, AMA policy was to recommend the test for everyone even through it was killing people. Several years later the policy was revised.
(continued)

Tom Hickey said...

(continuation)

The situation is at least as critcal in economics as a policy science, and all one has to do is look around at the smoldering wreckage of not only economies but also lives to see the folly of currency policy based on advice of economic experts recommending neoliberal policy based on New Classical and New Keynesian rationale.

If people want to create models of imaginary worlds in order to gain greater insight into how things in the real world might work, fine. But to take those models and claim that the real world does work this way is unscientific and should be seen for what it is — prescriptive ideology.

So what I am saying is that policy sciences aren't all they are cracked up to be.

I am not claiming that any economic school is right or wrong unless they can be shown to be in terms of specific assertions, claims or policy options, and I am not attacking mainstream economics for doing economics but for doing policy, although as I have said, I think that some assumptions are too simplified to be useful at all, and they create a risk of going beyond their limitations in drawing policy conclusions.

All exploration is useful, if only to illuminate the negative. But in the process it is also useful to distinguish the purely speculative, e.g, philosophical and historical rationales, from the exact, which generally applies only to a narrow band of highly reliable data, limited variables and no other conditions supervening. There is a wide range of probability lying between. Generally policy science doesn't clarify this when it is used for policy recommendation, or in advising on strategy and tactics. The Pentagon "whiz kids" were terribly wrong on Vietnam, and Cheney and Rumsfeld were on Iraq, too.

What the Fed chair should be saying is that he really doesn't have any scientific rationale for Fed policy showing that there is a high probability for the expected results and that it is a more or less educated guess, or hope maybe, rather than a tested hypothesis. In other words, a crapshoot.

Tom Hickey said...

vimothy, I am not attacking equilibrium as such, I am attacking its misapplication. The most basic laws of physics, thermodynamics, are based on equilibrium and all natural processes tend toward increased entropy. Then the question become, what about organic systems that don't behave like inorganic ones. To answer this question — I am paraphrasing Ilya Prigogine in Order out of Chaos here — the life sciences had to come up with a suitable explanation that was in the bounds of the laws of thermodynamics. It did this in terms of complex energy flows during the lifetime of an organism.

I don't have any problem in economics using this as an analogy and a guideline. I often use this myself in thinking about the global economy as a global system. For example, how can free markets, free trade and free flow of capital result in a state approaching equilibrium when there is not a free flow of labor and national boundaries create other blockages instead of acting as conduits? So presuming that trade will ever equilibrate at at stable condition in the world economy is setting off on fool's errand.

Moreover, as has been pointed out by many other, uncertainty, non-ergodicity, complexity, and reflexivity have to be taken into account unless the model is so simple as to be inapplicable to the real world. Assuming scarcity, near perfect competition and information, and using representative agency to simplify models for formalization may be interesting to econometricians, but please leave it out of policy discussions, or at least adequately represent the limitations of the method instead of using simplistic conclusions drawn from imaginary world for real world policy that affects the lives of billions of people directly or indirectly.

Getting back to equilibrium, the answer has been to develop models with more than one state of equilibrium. Fine, that is step in the right direction. But the question is how har it goes in completing our understanding of modern economies. That is ultimately determined by the results of policy based on it since well-designed experiment is not practical and simulation is not definitive.

So far the results are confirming economics to be the "dismal science." I think that is unfair to science. It's not science at all.

Tom Hickey said...

vimothy: "Finally, statements that are so general are not always useful. Equilibrium is bad (except when it’s not). Models assume representative agents (except when they don’t). Models fail to take into account X, Y and Z (except when they do). In order for your criticism to carry weight, you really need to address some specific examples rather than making unsupported categorical statements."

I am not an economist and will never become one. I am ia philosopher interested in social and political philosophy, and a citizen of the US and world who is interested in seeing both become better through better policy.

I am interested in economics as a "policy science" although I don't think it meets the criteria of being a science. It is basically philosophy with scientific aspects, and I am criticizing what I see as the interface been philosophy and science in a policy-oriented discipline.

So I have no interest and see no need to go through the models. I look at the recommendations and outcomes, and ask, with outcomes like this, why did we adopt this policy? Then I see policy claims that are based on economic reasoning, and I question the economic reasoning. I accept the math withough working through it, since that is not my field and math experts are satisfied with it from the most part. (Bill Mitchell has said that this has issues with even some of the math, for example.)

Steve Keen seems to do a pretty good job as an economist in his "Debunking Economics," as have others. They are PhD economists, so I'll leave that to them.

What I as a philosopher look at is the methodology, logic, assumptions etc. relevant to the model construction, as well as attendant philosophical issues that tend to be unrecognized or submerged.

I look at other fields also. Did you read Hausman on Philosophy of Econ? He elaborates on problem areas in the way econ is done. Have you read David Sloan Wilson's series "Economics and Evolution as Different Paradigms"? Have you carefully Soros's General Theory of Reflexivity. Not to mention the PKE criticism of ignoring finance in economic models. Oh, and the mainstream just blew off the Cambridge Capital Controversy. These all contain highly articulate criticism of mainstream economics and how it is used, obviating my need to under the modeling in detail, which critics have called unnecessarily mathematical in light of the required simplification of assumptions.

But the icing on the cake is the policy outcomes based on following mainstream policy recommendations. They have been disastrous and predictably so by "fringe" experts.