Austrian theory is NOT a study based on evidence. That's exactly the problem with it?

[ClayTrainor]

I just got this response from someone on youtube, and i'm not sure how to respond.

[1/2] Austrian theory is NOT a study based on evidence. That's exactly the problem with it.

watch?v=rMn2R5txO28

The Austrian School operates by the rejection of the scientific method in favor of verbal logic. They operate by the outdated philosophy of rationalism instead of empiricism, which means they rationalize things in their head instead of actually testing them. That's why they don't get published in mainstream journals.

 

[Chase]

Economic positivism is specifically rejected because Austrians are unique in understanding that the economy is, in a sense, the net sum total of human action. Other schools attempt to define mathematical frameworks and posit assertions about how the "economy" behaves, as if economics is like physics or chemistry. But since all economic decisions are based on individual value scales / judgements of opportunity cost, it is not possible to make empirical predictions about the future state of the system because there is no empirical way to quantify the inputs.

That other schools are empirically falsifiable is exactly what is WRONG with the other schools, and why none of them saw this crash coming.

Edit:

Have a look at this. The Mises Institute has written and published far more text, audio and video on these subjects than you could possibly consume. Here's a place to start:

http://mises.org/story/2944

 

[Met Income]

I would love to be able to test Austrian economics. That would mean we'd actually be experiencing it, which our govermnments won't allow us to do.

 

[stag15]

Austrian Economics is just common sense, which most people don't have, so it doesn't make sense to them.

 

[ClayTrainor]

Economic positivism is specifically rejected because Austrians are unique in understanding that the economy is, in a sense, the net sum total of human action. Other schools attempt to define mathematical frameworks and posit assertions about how the "economy" behaves, as if economics is like physics or chemistry. But since all economic decisions are based on individual value scales / judgements of opportunity cost, it is not possible to make empirical predictions about the future state of the system because there is no empirical way to quantify the inputs.

That other schools are empirically falsifiable is exactly what is WRONG with the other schools, and why none of them saw this crash coming.

Edit:

Have a look at this. The Mises Institute has written and published far more text, audio and video on these subjects than you could possibly consume. Here's a place to start:

http://mises.org/story/2944

People like you are the reason i love this forum so much!

Thanks man!

 

[BenIsForRon]

Good post Chase.

The theme of your post could also be applied to agricultural science. We've been so focused on making the best pesticides/herbicides/fertilizers for so long that we've forgot how to do the basic art of farming. Now we've got super weeds and massive amounts of erosion, and scientists don't know what to do. All they know how to do is research new chemicals, not farm in a sustainable fashion.

 

[TonySutton]

Good post Chase.

The theme of your post could also be applied to agricultural science. We've been so focused on making the best pesticides/herbicides/fertilizers for so long that we've forgot how to do the basic art of farming. Now we've got super weeds and massive amounts of erosion, and scientists don't know what to do. All they know how to do is research new chemicals, not farm in a sustainable fashion.

+1

 

[carmaphob]

Austrian Economics is just common sense, which most people don't have, so it doesn't make sense to them.

LOL!!
If George Carlin where alive...

 

[Omphfullas Zamboni]

Science Is as Science Does

by Benjamin C. Richards


I have a bone to pick with Keynesian economists. It is not that they are overseeing the systematic destruction of our economy, although I do object to that. It is not that they are widely trumpeting the necessity of the plunder of the American people on behalf of big bankers, although I do disapprove of such doings. I will even leave aside for today their willful destruction of the so-called "money" that I am forced, against my will, to use.

The quarrel I have with them today is that, in all their nefarious schemes, they insist on claiming for themselves the mantle of "empirical science." I have a deep personal affection for "empirical science," and so I beg to be allowed to speak a word or two in its defense...

Continued:
http://www.lewrockwell.com/orig10/richards-b1.html

 

[bucfish]

Savings is their key to their theory. Savings is the key to the truth to any economy. Screw all the other numbers just look at the savings rates.

 

[Zippyjuan]

Savings is their key to their theory. Savings is the key to the truth to any economy. Screw all the other numbers just look at the savings rates.

Let us consider two countries. One has a very high savings rate- one has a very low one. Both experience bubble in housing prices followed by the bubble bursting and an ensuing banking crisis. Their central banks brought rates down to near zero with little impact. Would savings rates predict the outcome? By the way, the two countries are Japan in the 1990s and the US today. Did high savings protect Japan from having the crisis? Both governments borrowed and spent to try to get out of the crisis. Japan borrowed from its citizens, the US will have to borrow from other countries mostly. Japan suffered their "lost decade". We are still waiting to see how ours turns out.

An interesting comparison: http://www.entrepreneur.com/tradejournals/article/191646706.html

 

[Epic]

How is this for "empirical"...

http://www.marginalrevolution.com/marginalrevolution/2005/01/if_i_believed_i.html

(And this is from a detractor in 2005)

 

[Paulitician]

"They operate by the outdated philosophy of rationalism instead of empiricism, which means they rationalize things in their head instead of actually testing them."

Austrians would argue it's impossible to actually test things, adapted to the scientific method, about the economy. That's why they use a different methodology in the first place. And if he's (or she's) going to critique Austrian economics about empiricism, he should critique mainstream economics even more on that aspect because they actually purport to be positivist, and fail at it IMO. Think about, if economics were to be as methodologically rigorous as the natural sciences, as say physics, chemistry etc., do you think it would get anywhere? It'd still being trying to get itself off the ground, so to speak. (Or at least, you'd have to be completely skeptical about what every single economist would say.)

It doesn't make Austrian economics right or wrong, or mainstream economics right or wrong, it just means they're less than ideal. (Obviously, most of us here believe Austrian economics is more correct than say Monetarist, Keynesian, Neo-classical etc. economics, and I believe for good reasons too.) They disagree on the philosophy of methodology, and if you aren't aware of this difference/conflict, I suggest you read up on it because it's very fundamental.

 

[Knighted]

By the way, the two countries are Japan in the 1990s and the US today. Did high savings protect Japan from having the crisis? Both governments borrowed and spent to try to get out of the crisis. Japan borrowed from its citizens, the US will have to borrow from other countries mostly. Japan suffered their "lost decade"

Well, there are a few things to consider with Japan. Their reported savings rate is calculated by the Japanese government by a different method than the US uses. Some papers have been written that demonstrate that if the Japanese savings rate is approximated using the US method, the difference between the US and Japanese savings rates is much less vast.

Another thing to note is that Japan's savings rate began a sharp decline starting around 1976. At that time, it was about 23% (unadjusted.) By the time their crash rolled around in 1990, it had dropped to about 12%. In the years since while their economy continued to stagnate, it fell even further and hovered somewhere around 2-5% over the last few years I believe.

 

[Conza88]

There is a reason that video has disabled comments and ratings...

 

[Bruno]

I would love to be able to test Austrian economics. That would mean we'd actually be experiencing it, which our govermnments won't allow us to do.

This

How can you test what governments fail to practice? Create an economy of hundreds of millions of consumers in a lab?

 

[Bruno]

Economic positivism is specifically rejected because Austrians are unique in understanding that the economy is, in a sense, the net sum total of human action. Other schools attempt to define mathematical frameworks and posit assertions about how the "economy" behaves, as if economics is like physics or chemistry. But since all economic decisions are based on individual value scales / judgements of opportunity cost, it is not possible to make empirical predictions about the future state of the system because there is no empirical way to quantify the inputs.

That other schools are empirically falsifiable is exactly what is WRONG with the other schools, and why none of them saw this crash coming.

Edit:

Have a look at this. The Mises Institute has written and published far more text, audio and video on these subjects than you could possibly consume. Here's a place to start:

http://mises.org/story/2944

Excellent response!

 

[Minarchy4Sale]

Honestly, this rationalism v empricism argument is the crux of the debate between modern 'scientific' collectivism and classical liberalism. The reason that rationalism is imperfect is because perception is imperfect. If the fundamental facts that rationalism relies upon are unstable, the house builds is also unstable. Empricism is simply a means by which to clarify our assumptions.

Where Empiricists go wrong is when they assume that you can answer all questions empirically. It isnt possible, it is limited to what is physically measureable, and you cannot extrapolate measurements of small systems out to larger systems. Empiricism is a very limited tool, incapable of leading to value judgments, and worshiping that method as if it were some kind of oracle is the source of a vast number of problems in the world.

We have replaced blind faith in clergy with blind faith in 'scientists'.

This I think is why I am a fan of the 'rationalize but verify' schools of political economy. (Public Choice Theory, Positive Political Theory, etc... ) Scientific method is important for verification, but to throw rationalism out the window because it sometimes gives us wonky results based on a wonky foundation is just retarded.

 

[tmosley]

Austrians make predictions based on their theories that come true more often than not. This means that their model is a good one for predicting human action. It also fits in with a common sense understanding of how people act.

I would say that Austrianism IS empirical (a claim I have made many times in the past), because their logical theories came from real world observations of of many economic systems, and have been able to accurately predict human action at large scales on many different occasions (for example, they accurately predicted the downfall of the Linden Dollar and the the collapse of the Second Life economy). This is how the scientific method works. You take observations of the real world, you formulate a hypothesis, you find a way to test your hypothesis, then you prove that said hypothesis was either wrong or right. The more testable predictions you make that turn out to be correct, the greater the likelihood your theory is correct. All it takes is one failure to throw your theory into question, which requires you to start the process over.

Even if they don't know it, they have used the scientific method. Even if they claim empiricism is folly, they still use it. It doesn't matter what they say, only what they do.

 

[Paulitician]

Well, I find it ironic that you can make very good predictions with Austrian economics, yet Austrian economics is not a predictive science per se. But I'll have to take issue with things you've said tmosley...

This is how the scientific method works. You take observations of the real world,

Yes, Austrians have done this, with their humans act axiom

you formulate a hypothesis,

Well, yeah I suppose Austrians do this

you find a way to test your hypothesis,

I suppose they would if they could, but there are not reliable ways to test (in the way most people are thinking) economic hypotheses in the real world. Which is why they derive their theory deductively... so if logical deduction is a certain way of testing things, well then yes your statement is still correct so far.

then you prove that said hypothesis was either wrong or right.

But it's kind hard to "prove" things scientifically like this, much less things about economy. One way Austrian economists prove their theory is by logical reasoning. If their logical reasoning is completely sound, and their premises that they are working with are correct, then their conclusions would be apodictically certain, as they say...

The more testable predictions you make that turn out to be correct, the greater the likelihood your theory is correct.

That's the thing, those predictions are not very testable. It's difficult to do scientifically sound expirements in economics, if not completely impossible.

All it takes is one failure to throw your theory into question, which requires you to start the process over.

Austrian economists use one scientific methodology like you just described, but it is not empiricist--it is logical. So you're not wrong here, but there is a certain nuance that needs to be acknowledged.