[boriscleto]

Daily Kos: Familiarize Yourselves With A Liberal Hero / The Falacies of Austrian Economic Ideology

[causey]

I'm prejudiced: I'm not going to read an online article about falacies.
There's a lot to learn from mistakes. The history of economic thought, like the history of any kind of thought, is replete with fallacious arguments, with confusions, and with bits of misunderstanding. Confusions are more than important; they are essential, since hard to locate.
Anyone thinks the value of scholarship lies in the absence of error/confusion? Then the best traditions of thought should probably be kicked off libraries. Besides, there's something odd about assuming that a complex system of thought can be simply false. (Hume is right, Descartes is wrong! Nonsense.)
I read von Mises' Human Action and a couple of tomes by Hayek, and in my humble opinion these guys were very serious thinkers. Which doesn't mean one can't be very critical of them. I am. It's true that sometimes their writing gets ideological--but ideological writing hardly is the exclusive domain of the Austrians.
Serious scholarship consists in a set of attitudes. Among these attitudes, skepticism concerning the reliability of second-hand sources, prudence in the face of new formulaic truths, detachment from ideology, respect of well articulated differing views, focus on ideas (not on people), civility and rigor of language, etc.
Still, apparently, many people find value in calling a view that's sufficiently different from theirs "patently false," "stupid," and so on, as well as in the comfort of agreeing on the appropriateness of such names.
The problem of the American Right has nowadays is not that it has bad ideas, but that it doesn't seriously concern itself with ideas. Actually, to say that it doesn't concern itself with ideas is an understatement. Unfortunately, the heat of its thoughtlessness seems to be capable to engulf a lot of the political and even economic discourse of the Left.


From a leftist Philosophy blog:

Buckley, Rand, Kristol and Bloom are intellectual lightweights and dilettantes (surely Mark Lilla knows this?), and I would think conservative intellectuals would be embarrassed to claim them for their "tradition." Burke and Hayek are entirely different, though I strongly suspect that if he weren't the canonical opponent of the French Revolution, even Burke would not be much read anymore (in a century that included David Hume, Immanuel Kant, and Adam Smith, why would anyone even notice Burke except for his conservatism?). Hayek is a different case, both a bit "pathological" (think of the paranoid weirdness that runs through The Road to Serfdom) and a thinker with genuine ideas, some of which (e.g., the effectiveness of markets in recording information about what people want) are now "conventional wisdom" even on the left (there are several Hayekian moments in G.A. Cohen's last work, Why Not Socialism?) But Hayek is no Burkean conservative, nor are his intellectual heirs: indeed, Burkean conservatives can only bemoan the way markets destroy traditional practices and cultures, whereas Hayekians think they are essential to human freedom.

http://leiterreports.typepad.com/blog/2012/01/conservatism-is-a-tradition-not-a-pathology.html


P.S. Hazlitt's Economics in One Lesson is a popularization book.

[les3547]

Hazlitt's Economics in One Lesson is a popularization book.

Maybe so, but it is highly praised and recommended by experts.

However, I would fault the central Austrian economic premise even if I'd never looked at a bit of macroeconomics. I would do so based on what I understand about human potential.

In the raw world of nature, it is survival of the fittest. Competition helps decide whose genes are passed on, and between predator and prey, who survives. Humanity adds consciousness to the mix, and that has the potential to lift us out of being mere mindless followers of our animal heritage, and into realm of love, cooperation, and concern for all fellow human beings.

The infant mind starts life self-centered. Good influences growing up can teach a person not only is one not the only and most important person on the planet, but that there is great personal satisfaction in working for the good of humanity. When done correctly, working for the good of humanity makes everyone richer because it creates more productive and contributing individuals and diminishes the strife that arises from people not getting their needs met.

Yet in this world are plenty who never quite get past being self-absorbed; often they are in continuous struggle with society pressing them to be concerned for humanity, and their own urges to think only of themselves. Then along the way they might, for example, read Ayn Rand and find support for their selfish urges, find a political party and economic theory that support it too, and at last find relief from the internal struggle to care about anyone but themselves.

The idea that wealth is to be decided by competition, along with no principles for fairly distributing the wealth accumulated to all participants (or helping willing nonparticipants learn how to participate), serves the selfish well. Learning how to win competitions is often mastered best by some, who then acquire the means to win even better, until at the top are a relative few controlling and possessing far more than they need or deserve.

One can bury the idea of letting competition decide everything with a mountain of economic esoterics, or one can call it "freedom" or liberty (i.e., a market free/liberated from regulation so competition can decide), but none of that helps the central principle work any differently than it ever has.

[vonBaloney]

Maybe so, but it is highly praised and recommended by experts.

However, I would fault the central Austrian economic premise even if I'd never looked at a bit of macroeconomics. I would do so based on what I understand about human potential.

In the raw world of nature, it is survival of the fittest. Competition helps decide whose genes are passed on, and between predator and prey, who survives. Humanity adds consciousness to the mix, and that has the potential to lift us out of being mere mindless followers of our animal heritage, and into realm of love, cooperation, and concern for all fellow human beings.

The infant mind starts life self-centered. Good influences growing up can teach a person not only is one not the only and most important person on the planet, but that there is great personal satisfaction in working for the good of humanity. When done correctly, working for the good of humanity makes everyone richer because it creates more productive and contributing individuals and diminishes the strife that arises from people not getting their needs met.

Yet in this world are plenty who never quite get past being self-absorbed; often they are in continuous struggle with society pressing them to be concerned for humanity, and their own urges to think only of themselves. Then along the way they might, for example, read Ayn Rand and find support for their selfish urges, find a political party and economic theory that support it too, and at last find relief from the internal struggle to care about anyone but themselves.

The idea that wealth is to be decided by competition, along with no principles for fairly distributing the wealth accumulated to all participants (or helping willing nonparticipants learn how to participate), serves the selfish well. Learning how to win competitions is often mastered best by some, who then acquire the means to win even better, until at the top are a relative few controlling and possessing far more than they need or deserve.

One can bury the idea of letting competition decide everything with a mountain of economic esoterics, or one can call it "freedom" or liberty (i.e., a market free/liberated from regulation so competition can decide), but none of that helps the central principle work any differently than it ever has.

I would suggest separating the Austrian description of how things work with what you think is an appropriate prescription for problems -- they don't have to be the same. A basic Austrian lesson is that intervention distorts price signals -- it does not necessarily follow that you should never intervene. You just need to realize the cost of intervention.

A more comprehensive but easy to understand introduction to Austrian thinking is "Economics for Real People" which is available as a real book but also as a free ebook at mises.org. You will find that most of the criticisms of Austrian thinking don't really know what it is, e.g. "we've tried the gold standard, its a failure" or "just look at the effect of deregulation" are silly in the context of actually understanding history and the true context of intervention and regulation and the gold standard and the lack of (saying the "gold standard" doesn't mean anything really since it also can be implemented an infinite variety of ways).

The major problem with Austrian solutions is that they will never be implemented in the real world by real people in real political systems. Austrians can always say, "this or that factor is distorting the market" and they will be right. But there will also never be a distortion-free market in the real world. Still, that doesn't make their descriptions of how market forces operate underneath it all wrong. (It doesn't make them right, either.)

But if anyone looks at the Keyesian ideas (if you can actually nail them down -- Keyes is full of self-contradictions as he was mainly interested in selling whatever he could get people to buy rather than coming up with a logically consistent set of ideas) and calls the results a success, I'd say that person has really low standards.

And for a total 180 from those ideas, Robert H. Frank (whose solutions would be considered much more liberal-minded than Austrians) with his Darwinian ideas deserves a serious look. Frank has several easy to read books on the same theme -- his new one "The Darwin Economy" just came out but I have not yet read it.

But like I said at the beginning, I really think we are in the dark ages of economics. Ideas are bit a bit ahead of practice (naturally), but still no one has come close to figuring it all out, and so we grope in the dark...

[jeffkrol]

In the raw world of nature, it is survival of the fittest.

Actually it is survival of the "reproductively fit".................... and can have little to do w/ "strength" ect....

you could be the strongest, fastest, most cunning predator of species "A" but if it "A" wiped out by it's own biological flaw (some new bacteria 100% fatal) you as the "strongest" ect. with a inflexible diet will surely go extinct.......

Keep that in mind..............


It is the species most diverse, most prolific and most flexible in changing environments that is truly the "strongest".......... which leads to the cockroach......

Which brings us a bit to capitalism which can flourish in almost any political system..........

, "this or that factor is distorting the market" and they will be right. But there will also never be a distortion-free market in the real world

Which brings the Austrian school into the realm of unreality.............

[les3547]

Actually it is survival of the "reproductively fit".................... and can have little to do w/ "strength" ect....

you could be the strongest, fastest, most cunning predator of species "A" but if it "A" wiped out by it's own biological flaw (some new bacteria 100% fatal) you as the "strongest" ect. with a inflexible diet will surely go extinct.......

Keep that in mind..............

I've never thought otherwise. I never said or have thought "fittest" means strongest, fastest, etc.

[les3547]

I would suggest separating the Austrian description of how things work with what you think is an appropriate prescription for problems -- they don't have to be the same.

I'm not sure what you mean by that. I wouldn't venture an appropriate economic prescription since I don't believe I am qualified. The only thing I feel comfortable criticizing is faith in unregulated competition to create an economy that serves all of humanity.

[vonBaloney]

I'm not sure what you mean by that. I wouldn't venture an appropriate economic prescription since I don't believe I am qualified. The only thing I feel comfortable criticizing is faith in unregulated competition to create an economy that serves all of humanity.

I hear lots of people say things like "unregulated competition leads to bad outcomes, therefore Austrian economics is bunk". That doesn't follow.

[les3547]

I hear lots of people say things like "unregulated competition leads to bad outcomes, therefore Austrian economics is bunk". That doesn't follow.

It doesn't necessarily follow, but it might follow if unregulated competition leads to bad outcomes, and if unregulated competition is the core principle of Austrian economics. Like trying build a house on sand, a poor foundational principle leads to problems in its supportive and derivative devices.

[causey]

However, I would fault the central Austrian economic premise even if I'd never looked at a bit of macroeconomics. I would do so based on what I understand about human potential.

What would that basic premise be? (I don't think there is any single basic premise of Libertarianism. In any case, I haven't been able identify one.) I suppose you think it's a sort of social-Darwinist premise. I'm afraid you're taking on a straw man. Ayn Rand is representative of the narrow Objectivist current--she's a pseudo-intellectual. Please, take a look at more serious libertarian literature. The variety of the self-declared libertarian population is pretty large. Not as large as the variety of those who think of thsemselves as being Christians, though.
And we wonder conservatives believe Obama is a socialist...

unregulated competition is the core principle of Austrian economics.

The idea of laissez-faire is not foundational; rather, it's a conclusion of a number of distant premises and assumptions. Austrians have deep reasons for it (leading further down to a set of principles), and there's much to be learned through becoming familiar with these reasons. I believe so even if I don't think they are *right*.
The feeling of knowing what is the case stands in the way of the progress of one's understanding. I get it quite often...

[vonBaloney]

It doesn't necessarily follow, but it might follow if unregulated competition leads to bad outcomes, and if unregulated competition is the core principle of Austrian economics. Like trying build a house on sand, a poor foundational principle leads to problems in its supportive and derivative devices.

"Bad outcomes" is totally subjective, and changes all the time -- it means nothing other than "current preference". Again, separate the analysis of how things work from policy prescriptions. Austrian economics doesn't tell us what to desire, it just describes what happens and the likely effects of this or that policy. In other words, you can be an Austrian (i.e. agree with their description of how economies operate) and an interventionist at the same time (believe that by fiddling with this or that, you can achieve whatever it is the current day and age would like to see happen). In this respect, command of the Austrian ideas would HELP you be an interventionist because you'd have some understanding of the side-effects you are going to create with your fiddling.

[les3547]

The idea of laissez-faire is not foundational; rather, it's a conclusion. Austrians have deep reasons for it (that is, layers of principles), and there's much to be learned through becoming familiar with these reasons. I believe so even if I don't think they are *right*. (I don't think Kant is *right* either, and it took me 5 years to get to a raw understanding why. But this understanding made it much easier for me to see a lot of other things.)
The feeling of knowing what is the case stands in the way of the progress of one's understanding. I get this feeling often.

I was using the term "foundational" to mean its core mechanism, not the logic or philosophy that leads one to conclude it works. Trusting that mechanism is what's at issue for me. And then there's the matter of how one has arrived at believing a core mechanism is worthy of faith. If faith is based on rationalism rather than empirical observation, that too is reason for doubt.

What would that basic premise be? (I don't think there is any single basic premise of Libertarianism. In any case, I haven't been able identify one.) I suppose you think it's a sort of social-Darwinist premise. I'm afraid you're taking on a straw man. Ayn Rand is representative of the narrow Objectivist current--she's a pseudo-intellectual. Please, take a look at more serious libertarian literature. The variety of the self-declared libertarian population is pretty large. Not as large as the variety of those who think of thsemselves as being Christians, though.
And we wonder conservatives believe Obama is a socialist...

I am far more intimate with Libertarian philosophy than economics. I'd rather not debate very much here why I so completely disagree it is good for humanity. I'll just repeat what I've said in other posts, that any system meant for humans must be built on constructive human potentials if it is to be successful over the long term. I believe two aspects of being human are "foundational" potentials: individuation and unity with others. Both can also be done in unhealthy ways or in healthy ways. On the unity side, a system that encourages welfare dependence, for example, is supporting destructive human potential. Libertarianism over-emphasizes individuation, and that means unity features of a such a system will be lacking. Just as both individuation and unity must develop in a person for him/her to evolve in a complete way, so too must any human system encourage and rely on each potential.

[causey]

And then there's the matter of how one has arrived at believing a core mechanism is worthy of faith. If faith is based on rationalism rather than empirical observation, that too is reason for doubt.

OK, then. Straw men are nice and easy.

P.S. Can a person observe anything without hypotheses? How? Facts just throw themselves at him? What would be a non-propositional fact--that is, a fact that does not involve judgment? (Any scientific observation requires working hypotheses.)

[les3547]

"Bad outcomes" is totally subjective, and changes all the time -- it means nothing other than "current preference". Again, separate the analysis of how things work from policy prescriptions. Austrian economics doesn't tell us what to desire, it just describes what happens and the likely effects of this or that policy. In other words, you can be an Austrian (i.e. agree with their description of how economies operate) and an interventionist at the same time (believe that by fiddling with this or that, you can achieve whatever it is the current day and age would like to see happen). In this respect, command of the Austrian ideas would HELP you be an interventionist because you'd have some understanding of the side-effects you are going to create with your fiddling.

I was only making a point of logic, I wasn't arguing that understanding Austrian economics couldn't be useful. The logic followed your statement that if "unregulated competition led to bad outcomes" it doesn't mean it's bunk. I was trying to say that if its core principle is bunk, then like most reasoning based on false premises, its prescriptions cannot be trusted.

Also, I'd disagree that bad outcomes are "totally" subjective, or that "it means nothing other than current preference." If economic practices end up with the majority of wealth possessed by 1% of the population, for instance, and nearly half the remaining population living below the poverty line, then the issues go way past fickle subjectivity and preference.

[les3547]

OK, then. Straw men are nice and easy.

I hope this is still a friendly conversation. I think in the past we've not agreed on the trustworthiness of rationalism, but it sure is nice to find an intelligent person to exchange ideas with, even if we don't agree.