I guess you could start with it's impact on the USD. The price of gold is another example. Look at Bob Murphy's predictions, as well as Schiff's. When you predict high or even hyper inflation year after year, and inflation ends up being below historical average, something must be flawed in your model or way of understanding the monetary system. I'm not saying I'm anti Austrian, but there is nothing wrong with re-evaluating, especially in a "science" like economics, where there is still a lot that we don't understand.
I notice that you never replied to Occam's Banana, who had the best response for you, shedding the most light upon what you're asking. I'd encourage you to do so!
In the meantime, here's a little more thoughts from my little brain:
You are looking at economics as a science. OK. And so it should be judged by the same standard as other sciences. Seems reasonable. In physics, if you have a theory, how do you know if it's true? Easy: it predicts the future! That's it. That's the sum total of how we decide what's true and false in physics.
And so you're applying that same standard to economics. As you say, if you predict one thing, but a different thing happens, then your theory is bogus, plain and simple. It may
seem right. You may have a bookshelf full of Keynes explaining why it
should be right. Just so, you may have a bookshelf full or Aristotle explaining the spontaneous generation of life, or why women have fewer teeth than men. But if it fails to predict the future -- if next year you count all the teeth in all the mouths of Athens and the tally is grossly off -- then your theory is wrong. (In the actual history of science, what will most likely happen at this point is that you or someone else will come up with a mitigating factor explaining why the amazing properties of the water in Athens causes women to have an unusual amount of teeth, almost as many as men, in fact, and that the original theory is still totally sound and correct. But ideally, at that point you should instead start rethinking everything, and be willing to toss the theory out entirely.)
And that's all great! About the false predictions disproving the theory, that is. All Austrians would probably agree with you. Here's the kicker, though: Austrians, true Austrians, don't make predictions. At least not as Austrians, they don't. Not scientifically they don't. No scientific predictions are coming out of the Austrian School. Austrian economics is not an empirical science. It does not make future predictions. Its theories are not of the kind that can be confirmed or disproven by predicting or failing to predict the future. The entire methodology of the Austrians is completely different.
So, in what sense is economics a science, you ask. In the same sense as mathematics or logic. You can't disprove Pythagoras by measuring a bunch of triangles. Mathematics is not fundamentally an empirical science. Neither is economics, though both do have very solid, empirical consequences.
Here's the methodological insight -- the break-through! -- of the Austrians: humans are not billiard balls. They are unpredictable. They'll do something different every time. They're always learning. Or forgetting. The situation's always different. You just don't know what they'll do. And so you can't predict their future. You can predict the future of that ball rolling down the ramp, but you can't predict the future of that child in the bassinet. Much less 6 billion of them. You can't predict the interest rate next year. You can't predict inflation. You can't predict the global currency markets. You can't even predict the local haircut market. It all just depends on the individual choices of billions of independent, unpredictable, out-of-control human beings.
The other schools of economics do not accept this. And so they do make predictions. And their predictions will generally be wrong, one way or another. If they get something right, it will probably be by luck or coincidence. Only the Austrians step out of that game. Only the Austrians have recognized the fundamental difference between physics (and chemistry, and astronomy...) and economics.
The Keynesians predict. The New-Keynesians predict. The Post-Keynesians predict. The Monetarists predict. All these "main-stream" schools predict. And they get it wrong, over and over and over. And so, of course, they come up with excuses about remarkable tooth-proliferating properties of the Athenian baths. Just as neo-Ptolemaic theories prevailed for almost 200 years after Copernicus, neo-Keynesian variants still control economics and government policy today. It's amazing, but it's true! They are so obviously failed and wrong that at some point maybe someone will notice. Maybe in 200 years. As for the Austrians: we noticed already.
For the investor, these things have very real consequences! It's not just academic! If you believe that this gaggle of New-Keynesians and Post-Keynesians and Old Keynesians have correct theories you likely will lose money! Their theories predict the future, and that future will not come true (except by random chance). If you believe that someone -- anyone -- has an inside track to the future, you will likely lose money. Jim Cramer doesn't know the future. Warren Buffet doesn't know the future. Paul Krugman doesn't know the future. To the extent that Peter Schiff predicts the future, he is not an Austrian, he's just another crystal ball-gazer. His predictions are just as foolish and wrong as the rest.
The reason I picked Peter Schiff as the subject of this thread is just to point out: no one is immune from this lack of knowledge of the future actions of humans. Even people we like and with whom we agree.
