Austrian Economics vs. Keynesian Economics

[borrofburi]

I found it interesting...

 

[Case]

I'm surprised he's still alive, really. Not only does he speak the truth about the past, he also makes accurate predictions about the future...

 

[obsidianavenger]

 

[obsidianavenger]

its actually quite shocking to see the two juxtaposed like that. i always thought austrian economics made more sense in theory... apparantly they make better predictions too

i do wonder how cherry picked those examples are though. i also wonder how free ben bernanke would have felt to say "we're heading for a recession" as such a statement from him probably would have caused a recession by making people nervous...

 

[Aught3]

I was thinking about posting that video, OA. I think the alcohol metaphor is extremely clever.

 

[Aught3]

I just had a thought that is relevant to this thread, I haven't thought about it much so it might be a stupid question but I'm going to ask anyway.

First just assume that the predictions made by Austrian economics are impressive to you. Assume they're are specific, accurate, etc. all the things it would take to convince you of a prediction. So my question is can a rationalist approach to a question, like the Austrian approach to economics, ever be verified by real-world predictions? If not, even assuming that these predictions are specific, accurate, and timely should we remain non-committal towards the theory regardless?

 

[borrofburi]

I do not believe I understand the question... Are you saying if austrian economists made fantastic predictions that came true, would I believe them? Isn't that why I believe science?

 

[Aught3]

I do not believe I understand the question... Are you saying if austrian economists made fantastic predictions that came true, would I believe them? Isn't that why I believe science?

Yeah sorry I was trying to form the thought and the question at the same time But you've managed to phrase it much better than I did.

So basically, if Austrian economists made fantastic predictions is that positive evidence for their theory, or do they have to justify it another way?

Accurate predictions is partly why we accept scientific theories but Austrian economics is explicitly non-scientific and takes a rationalist standpoint, at least, that is my understanding.

 

[borrofburi]

To me they're just tools, any tool that consistently makes accurate predictions will be accepted by me until such a time as a better tool comes along (one that makes more accurate predictions), I see no good reason to reject a tool other than by such predictions.

 

[obsidianavenger]

I do not believe I understand the question... Are you saying if austrian economists made fantastic predictions that came true, would I believe them? Isn't that why I believe science?

Yeah sorry I was trying to form the thought and the question at the same time But you've managed to phrase it much better than I did.

So basically, if Austrian economists made fantastic predictions is that positive evidence for their theory, or do they have to justify it another way?

Accurate predictions is partly why we accept scientific theories but Austrian economics is explicitly non-scientific and takes a rationalist standpoint, at least, that is my understanding.

i've been reading von mises recently; my understanding is that the austrians start from a set of assumptions and state: if these conditions hold then our theory follows. there is an empirical component, namely the question of whether or not things in the world actually conform to the conditions they've laid out. if the world behaves as the theory predicts it should, that becomes more likely....

 

[Aught3]

i've been reading von mises recently; my understanding is that the austrians start from a set of assumptions and state: if these conditions hold then our theory follows. there is an empirical component, namely the question of whether or not things in the world actually conform to the conditions they've laid out. if the world behaves as the theory predicts it should, that becomes more likely....

From what I've been reading it's even worse than that. Austrian economists seem to think that their theories and even propositions can't be falsified with reference to external facts or experience. If it holds for falsification it seems to me that it should hold for verification. I understand borr's position on it though.

 

[Ozymandyus]

its actually quite shocking to see the two juxtaposed like that. i always thought austrian economics made more sense in theory... apparantly they make better predictions too

i do wonder how cherry picked those examples are though. i also wonder how free ben bernanke would have felt to say "we're heading for a recession" as such a statement from him probably would have caused a recession by making people nervous...

To be fair, someone could very easily juxtapose these same people and make Schiff look like an idiot when he was sure each year would be a giant bust while the economy boomed each year.

Both economic models have merit and are relatively accurate, one just runs slow and steady and the other runs hot and cold.

 

[borrofburi]

To be fair, someone could very easily juxtapose these same people and make Schiff look like an idiot when he was sure each year would be a giant bust while the economy boomed each year.

Except so far as I remember, schiff always said "it's coming", not "this year there will be a bust"; meanwhile the keynesians were making fun of him essentially claiming there was no bust at all coming.

 

[richi1173]

Except so far as I remember, schiff always said "it's coming", not "this year there will be a bust"; meanwhile the keynesians were making fun of him essentially claiming there was no bust at all coming.

I don't think you have read Paul Krugman or Nouriel Roubini. Peter Schiff is just the most vocal and abnoxious one of the pessimistic bunch.

Notice the date uploaded.

 

[obsidianavenger]

i've been reading von mises recently; my understanding is that the austrians start from a set of assumptions and state: if these conditions hold then our theory follows. there is an empirical component, namely the question of whether or not things in the world actually conform to the conditions they've laid out. if the world behaves as the theory predicts it should, that becomes more likely....

From what I've been reading it's even worse than that. Austrian economists seem to think that their theories and even propositions can't be falsified with reference to external facts or experience. If it holds for falsification it seems to me that it should hold for verification. I understand borr's position on it though.

the basic idea seems to be that economics cannot proceed like other sciences because you can't set up controlled experiments or anything even remotely like them. which is true. he also says that the economy is in a state of constant flux and depends on the changing valuations of individuals which are entirely unpredictable. so any widespread economic events can't be pinpointed in their cause to a specific action or policy... for example, everyone used the financial crisis to decry that part of the economy that they don't like. liberals said that this wouldn't have happened if we had more regulation of the banks, conservatives blamed the fed for manipulating interest rates to such a low level and creating a bubble. to me at least, both arguments seem pretty plausible, and theres little evidence to prefer one over the other. the fact that the austrians have a complex system backing their claims that appears logically sound adds weight on their side.

i agree though, a little silly to say "this is true regardless of whether it accurately models the world"

 

[borrofburi]

I don't think you have read Paul Krugman or Nouriel Roubini. Peter Schiff is just the most vocal and abnoxious one of the pessimistic bunch.

2006? You mean right before it? Schiff was ahead of Krugman (and being laughed at by him) by quite a bit...

 

[richi1173]

2006? You mean right before it? Schiff was ahead of Krugman (and being laughed at by him) by quite a bit...

When did Krugman laugh at Peter Schiff? Give me a source?

Anyways, it does not matter. Your statement was:

meanwhile the keynesians were making fun of him essentially claiming there was no bust at all coming.

And as I have shown, this is not the case. Both Krugman and Roubini and many others predicted the current economic crisis and of course both of them are Keynesians.

 

[Aught3]

I have to agree that I didn't find the predictions very convincing, mostly because I was saying something similar a few years ago and I didn't know anything about the Austrian approach to economics. Anyone could have seen the rapidly rising house prices and predicted a coming fall - as many did.

the basic idea seems to be that economics cannot proceed like other sciences because you can't set up controlled experiments or anything even remotely like them. which is true.

Even if you could set up such an experiment it would probably be completely unethical given how many lives you would affect. However, there is a huge amount of economic data available and although it might not be able to call itself a science, economics surely has the ability to proceed in a scientific manner.

everyone used the financial crisis to decry that part of the economy that they don't like. liberals said that this wouldn't have happened if we had more regulation of the banks, conservatives blamed the fed for manipulating interest rates to such a low level and creating a bubble. to me at least, both arguments seem pretty plausible, and theres little evidence to prefer one over the other.

Well I don't think more regulation would have helped. From what I understand simply enforcing the current regulation would have prevent the bundling of mortgages into worthless yet highly rated derivatives. I don't know what the argument is for a low interest rate being a cause but it wouldn't surprise me given that buyers were accepting ridiculous amounts of money from the banks knowing full-well they could not pay it back.

 

[obsidianavenger]

Even if you could set up such an experiment it would probably be completely unethical given how many lives you would affect. However, there is a huge amount of economic data available and although it might not be able to call itself a science, economics surely has the ability to proceed in a scientific manner.

science based on flawed data may as well be useless. in the case of econ, you're right, even we we could set up controlled experiments, we shouldn't. the data we have is in determining specific causal forces because there are so many forces acting in the economy we can't keep track of them all- choosing between them as to what action caused what is practically arbitrary. hence the "analysis" of the recent crisis serving only to confirm people's preexisting beliefs about the economy. the aprioristic work of the austrians was meant to bring some level of scientific rigor to the mess...

 

[Aught3]

the aprioristic work of the austrians was meant to bring some level of scientific rigor to the mess.

Are you sure about that? The Austrian system seems to avoid scientific methodologies and take a more philosophical approach. A priori science is a contradiction in terms.