Austrian Economists win Nobel!

[Jtorsella]

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[Jeez]

Some of the comments in CNN comment section are hilarious

 

[Seraphim]

This mostly sums up my view (comment from the article):

And don't even get me STARTED on Al Gore.

Who in 2008 was nominated with... And won over a Polish nurse that personally saved over 2500 Jewish children from the Warsaw Ghetto. Was captured by the Gestapo. Tortured. REFUSED to give up the names of the children. And then, after escaping with two broken legs... Went back to rescue MORE Jewish Children.

The most sickening part... She died that year (2008). Making her ineligible to win in the future.

Sorry Nobel Committee. You are a complete disgrace.

 

[eduardo89]

One of my friends had Sims as a professor at Princeton. He really likes the guy, apparently he teaches econometrics, no idea if he's a free market guy

 

[ababba]

Sargent's most famous paper is titled "Unpleasant Monetarist Arithmetic" and it highlights the connection between fiscal and monetary policy. The point is that monetary policy cannot be independent of the federal government, because if the government runs budget deficits, eventually the Fed has to print money to pay off the obligations. Consumers realize this is true and expect higher inflation when the government runs deficits. Its very sympathetic to the Austrian view, just like a lot of the work of Robert Lucas.

Sim's work is all empirical. The problem that he tries to solve is that Macro time series data series are all correlated, but how do you know which variables cause which other variables? For example, does money growth cause changes in output or do changes in output cause changes in money growth?

 

[willwash]

LOL. I thought you were going to say "...decades ago"

 

[kah13176]

One of my friends had Sims as a professor at Princeton. He really likes the guy, apparently he teaches econometrics, no idea if he's a free market guy

So he puts equations to complex systems. "The economy is not a class you can learn in college; to think otherwise is the pretense of knowledge."

There's a reason there's never any math in Rothbard or Mises.

 

[ababba]

So he puts equations to complex systems. "The economy is not a class you can learn in college; to think otherwise is the pretense of knowledge."

There's a reason there's never any math in Rothbard or Mises.

So there are probably millions of examples where math is important for the everyday decisions actors make in the economy, but somehow when it comes to policy math is irrelevant? We can't even attempt to calculate an expected value?

I'm obviously sympathetic to the Lucas critique but mathematical models can tell us a lot about the economy, especially as descriptive tools rather than policy prescriptions.

And the point of Sims original work is precisely that the systems aren't complex, just a few variables.

 

[kah13176]

So there are probably millions of examples where math is important for the everyday decisions actors make in the economy, but somehow when it comes to policy math is irrelevant? We can't even attempt to calculate an expected value?

I'm obviously sympathetic to the Lucas critique but mathematical models can tell us a lot about the economy, especially as descriptive tools rather than policy prescriptions.

And the point of Sims original work is precisely that the systems aren't complex, just a few variables.

Using equations to predict the end result of a policy decision is equivalent to using an equation to predict how the weather in Iowa is affected after a butterfly flaps it's wings in Japan. This is exactly why Keynesian economics fails time and time again.

Further, you find these equations make a LOT of assumptions - that the ideas they are predicated on are correct; that people always behave rationally; that humanitarian impacts don't matter (e.g. let's inflate the money supply, ignoring that it eats away people's savings), etc.

There's a reason physicists (hard scientists) make fun of economists ("soft" social scientists) for the dubious way they throw equations around.

 

[ababba]

Using equations to predict the end result of a policy decision is equivalent to using an equation to predict how the weather in Iowa is affected after a butterfly flaps it's wings in Japan. This is exactly why Keynesian economics fails time and time again.

Further, you find these equations make a LOT of assumptions - that the ideas they are predicated on are correct; that people always behave rationally; that humanitarian impacts don't matter (e.g. let's inflate the money supply, ignoring that it eats away people's savings), etc.

There's a reason physicists (hard scientists) make fun of economists ("soft" social scientists) for the dubious way they throw equations around.

You make this too easy because the example you use is precisely the perfect case where you need to use math. Lets take the inflation tax. A lot of people make all sorts of claims about how bad this tax is but you need a quantitative analysis to show the magnitude of the tax. We can measure exactly how large this tax is because we use math to calculate its magnitude. Its a very small fraction of government revenue. We can also use math to figure out how much more revenue we would get if we printed more money. Of course this math would not be exact because people change their holdings of currency in response to changes in government policy. This is the Lucas critique, its well understood and respected by all mainstream economists. However, this doesn't mean that we shouldn't do any math whatsoever, its still important to think about how large the inflation tax would be for different levels of money growth.

Empirical work in economics is very difficult because economists for the most part cannot run the controlled experiments that people in the hard sciences can. That doesn't mean you give up. That means you treat the results with skepticism and try to improve the empirical methods. That's exactly what this nobel prize is for.

 

[emazur]

I just listened to NPR's report on these guys - based on it, they sound VERY much like Ron Paul when it comes to government stimulus, effects of inflation, and unintended consequences:
http://www.npr.org/2011/10/10/141215969/economics-nobel-awarded-to-two-u-s-professors

 

[LibertyIn08]

You make this too easy because the example you use is precisely the perfect case where you need to use math. Lets take the inflation tax. A lot of people make all sorts of claims about how bad this tax is but you need a quantitative analysis to show the magnitude of the tax. We can measure exactly how large this tax is because we use math to calculate its magnitude. Its a very small fraction of government revenue. We can also use math to figure out how much more revenue we would get if we printed more money. Of course this math would not be exact because people change their holdings of currency in response to changes in government policy. This is the Lucas critique, its well understood and respected by all mainstream economists. However, this doesn't mean that we shouldn't do any math whatsoever, its still important to think about how large the inflation tax would be for different levels of money growth.

Empirical work in economics is very difficult because economists for the most part cannot run the controlled experiments that people in the hard sciences can. That doesn't mean you give up. That means you treat the results with skepticism and try to improve the empirical methods. That's exactly what this nobel prize is for.

X2.

For Kah:

More than anything else, what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics, research tools that Austrians reject on principle. They reject mathematical economics on principle because of the assumptions of continuity and differentiability. These objections were examined in section 2.3 and found wanting. Similarly, Austrians reject econometrics on principle because economic theory is true a priori, so statistics or historical study cannot "test" theory. Fair enough, but as section 4.2 argued, econometrics and other empirical work can play a more modest role: to help determine how big (or trivial) various theoretically relevant factors actually are.

In short, the principled Austrian objections to mathematics and econometrics (M&E) fail. This does not mean, however, that M&E are immune to a weaker criticism: to wit, that they simply have not delivered the goods. When Mises wrote Human Action in 1949, economists' use of M&E was still in its infancy. There is now nearly fifty years' worth of research using M&E. The science of economics has made progress, but how much of it is due to the use of M&E?

Let us consider the question empirically. Here are a few of the best new ideas to come out of academic economics since 1949:

Human capital theory
Rational expectations macroeconomics
The random walk view of financial markets
Signaling models
Public choice theory
Natural rate models of unemployment
Time consistency
The Prisoners' Dilemma, coordination games, and hawk-dove games
The Ricardian equivalence argument for debt-neutrality
Contestable markets

Formal mathematics was the main language used to present these ideas in academic journals. But was math instrumental in the discovery of these ideas? Or did the journal articles merely take an interesting intuition and then work backwards to determine what mathematical assumptions implied it? Out of the whole list, there are few plausible cases where mathematics was more than an afterthought: maybe Idea #2, and possibly #3. Even there, intuition, not math, probably played the leading role.[57]

The contributions of econometrics to economics are similarly meager - particularly because econometrics has "crowded out" traditional qualitative economic history. The popularity of econometrics has made it very difficult to do research in any period lacking convenient "data sets"; it has also enforced an uneasy silence about any topic in economic history (like ideology) that is difficult to quantify. When simple econometrics failed to yield universal agreement among informed economists, this merely provided the impetus for econometric theorists to supply increasingly complex estimators and other tools. Truly, this is a case of looking for car keys underneath the streetlight because it is brighter there. The root cause of disagreement is simply that causation and correlation are different, yet almost everyone tends to interpret a correlation as causal if they find the results plausible, and as spurious if they do not.

Better experimental design - including the method of "natural experiments" - is a step back in the right direction, but it is only an uneasy beginning. My own view is the econometrics is not useless, but must become a subordinate tool of the economic historian rather than vice versa. Friedman and Schwartz's A Monetary History of the United States is close to the optimal mix - careful historical analysis supplemented with econometrics, rather than vice versa.[58]

M&E have had fifty years of ever-increasing hegemony in economics. The empirical evidence on their contribution is decidedly negative. This does not mean, however, that working economists ought to immediately cease to employ M&E in their work. This has been the Austrians' main response, and it has led to their extreme isolation from the rest of the economics profession. The simple fact is that M&E are the language of modern economics, much as Latin was the language of medieval philosophy. These professional languages waste a lot of time and make it difficult for laymen and academics to communicate. But once mastered, even dissident scholars can use these tools to speak their minds.

http://econfaculty.gmu.edu/bcaplan/whyaust.htm A good read for any "Austrian" economist on this forum. (Most of whom don't understand the actual Austrian argument against Mathematics.)

 

[S.Shorland]

I wrote to my MP stating that I objected to QE and that I was buying Gold to ameliorate my plight but that it was immoral as it stole my purchasing power.He wrote back with 'message received and understood' but now we have another £75 billion doled out.You could send a copy of 'EIOL' by Hazlitt but how can you make them read it.