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Source link: http://archive.mises.org/16192/austrian-facts-bring-the-death-of-normal-science-in-macroeconomics/

Austrian Facts Bring the Death of ‘Normal Science’ in Macroeconomics

March 23, 2011 by

A brief period of Kuhnian “normal science” is now over in macroeconomics — the news comes directly from the top guns in the field (see also here, here, here, and here.) What killed it? A series of empirical and conceptual anomalies — Austrian facts — facts too immense to ignore. Austrian facts like the reality of genuine uncertainty, heterogeneous and non-commensurable expectations, money and credit generated malinvestment bubbles, and post-bubble malinvestment and labor discoordinations. Facts that were looming and poised to crack open and remake the science of macroeconomics into something sturdier, something sounder.

For some, none of this comes as a surprise. If you had been paying attention to research scientists like former BIS chief economist William White you were well aware of what was about to unfold.

Make no mistake, the collapse of “normal science” is taking place on multiple levels. The profession is catching on to the fact of the general bewitchment of the macroeconomics profession by a series of non-explanatory, causally empty math constructs. And the fashion for sterile, non-explanatory math constructs is now being challenged by a whole host of rival conception in finance, macroeconomics, and behavioral economics. What we now have are the necessary conditions for a period of re-assessment, novel thought, hard work — i.e. a period of what Kuhn called “revolutionary science” where genuine scientific advance is possible — where scientific progress can take place beyond the old conceptual cul de sac of the failed macroeconomics of the past. (For more on Kuhn and scientific advance, see my paper “Thomas Kuhn and the Differential Selection of Desiderata for Theory Choice Through the Differential Selection of Community Members Acting Upon Alternative Implicit Criteria for Theory Choice.”)

{ 16 comments }

Inquisitor March 23, 2011 at 12:29 pm

I think now is a good time for Austrians to inject themselves in this debate. I wonder how easy it’ll be for the likes of the Ivy Leagues to dismiss Austrian research proposals or for the mainstream to just brush off Austrianism as “unscientific” when its own paradigm is in shambles? I expect insights from behavioural econ, the Virginia School (public choice), finance etc. will be unified under the Austrian body of thought as it supplants the dominant currents of thought.

Daniel Kuehn March 23, 2011 at 12:37 pm

I will take a look at that paper of yours you link to at the end, but I want to just say this now: that’s an atrocious title!

Slim934 March 23, 2011 at 12:42 pm

I would not take too much heart in the IMF piece. The article does say that the standard models failed, but it goes on to say that central banks must have EVEN MORE control inorder to uphold their missions for “price stability”.

At one point it even advocates cross-national capital flow caps and even more trade barriers. The IMF here is openly advocating mercantilism. Why on earth should we expect these rubes to listen to reason when they continue to hold to long dead ideas like this?

tfr March 24, 2011 at 10:55 am

Of course. A bureaucrat is NEVER wrong. They just didn’t try hard enough.
There once was a a gov’t committee to investigate why alcohol Prohibition didn’t work… guess what their conclusions were?

David C March 23, 2011 at 12:45 pm

I think a lot of people had this notion that the universe as we know it ran according to a big formula, and all you needed to do is figure out that formula, and you would be able to figure out anything at any moment from the beginning to the end of time. They made the mistake of presuming that the validity of rationality would mean that everything must be pre-deterministic as well. It was interesting to see how this belief was shattered, first in mathematics, then in physics with quantum mechanics, then in chemistry and a lot of the other hard sciences, and now it’s reaching into politics, economics, and the social sciences. However, just as it opened up entire new frontiers of mathematics and physics, and an entire new age of innovation, I think it will do the same here as well.

AntiNeoFascist March 24, 2011 at 2:33 pm

This!

I have always wondered about statists and liberals that so fervently call for intervention. My conclusion, from talking to a LOT of liberals, is that they believe that there is some formula, some configuration, some combination of regulations, taxes, quotas, subsidies, incentives, monitary/fiscal policy, etc that will simply make the whole thing “just work” to allow the rich to make money (but not too much), the poor to be provided for, the environment to be protected, innovation and competition to progress at ever increasing strides, etc, forever thereafter.

Though, since no such formula exists, when you ask them specifically how much should go to what, they have no idea. But they BELIEVE that there are people smart enough to know. Which is why they vote for the seemingly intelligent/intellectual. Because if ANYONE has the answers, it’s them.

It’s a staggering amount of blind faith.

Daniel March 24, 2011 at 4:21 pm

As I understand it, there’s nothing in the universe stopping it from being deterministic or not.

But if it is deterministic, and considering information theory, you’d need a “universal computer” bigger than the universe itself to compute the entire universe. An interesting cop-out is to affirm that the universe “computes itself”, which doesn’t really tell us anything.

In conclusion: whether it is deterministic or not, it’s not possible to tell the future.

An addendum: Maxwell’s Demon is an interesting analogy for positivistic attempts at “calculating” man, weather or the universe, that is, an attempt to optimize the system would require more energy gathering information about the system than the energy saved in the optimized system.

J. Murray March 23, 2011 at 1:02 pm

Economics will continue to fail as long as those in the mainstream operate under the assumption that a free market actually exists.

fundamentalist March 23, 2011 at 1:35 pm

I don’t have much confidence that the majority of economists will change. Read “WHY YOUR GRANDFATHER’S ECONOMICS WAS BETTER THAN YOURS: ON THE CATASTROPHIC DISAPPEARANCE
OF SAY’S LAW” by STEVEN KATES in the most recent Quarterly Journal of Austrian Economics. The debate has been going on for over 300 years.

The problem is not bad science, but dishonesty. To paraphrase the Apostle Paul, they know the truth and suppress it because they don’t like it.

Abhinandan Mallick March 23, 2011 at 6:51 pm

I think there is a danger that the alternative offered by the Austrians could be misinterpreted as simply offering (while at the same time I am excited by these developments myself!) an alternative flavor of macroeconomics, when its analytic and price theoretic apparatus is completely different.

Bruce Koerber March 23, 2011 at 8:11 pm

Those who were previously able to stay insulated from inspection, safe in their little castle surrounded by a moat, now have to explain their fantasies to people who use logic and to the scrutiny of serious and critical thinkers.

The dustbin is their new ‘castle!’

filipinofreedomfighter March 24, 2011 at 4:06 am

As long as the economics profession answers to the government (their biggest customer) there will be no improvement. However, I believe this will lift the veil of the state and encourage economists in the mainstream (who want to maintain their integrity) to move to Austrian-oriented research areas.

geoih March 24, 2011 at 5:58 am

I think it’s a little early to start proclaiming victory. Read some of the comments from the first linked article by Stiglitz. One guy is advocating a carbon based monetary system and another guy is saying that the key to recovery is government debt.

Macro-economics still has too many political advantages to expect it to suddenly go away. These guys have been calling the tune for government spending for decades. They aren’t going to give that up simply because their theories are crap. They’ll simply modify their models and try again.

iawai March 24, 2011 at 7:48 am

What’s wrong with advocating carbon-based currency? The underlying technology today is different than centuries ago, and a free-market in choosing currency may settle on carbon, silicon, platinum, or some other materials as the primary means of exchange. Gold and solver are the historical norms, but, as with all things, no one of us knows what will work best. The only problem is when a govt removes monetary choice and replaces commodities with paper and digital tickets that may be issued at will.

Brian Macker March 24, 2011 at 7:58 am

Hey, and paper notes are mostly carbon, so one can argue we are already on a carbon-based currency. Dry tree leaves are mostly carbon too. Perhaps we should use those. LOL.

I’m not of the opinion that the market would settle on carbon as a monetary base, let alone tree leaves. There’s a lot more carbon out there than is contained in tree leaves, btw.

What’s wrong with specifically advocating carbon-based currency? It’s stupid.

Carbon doesn’t have one of the important properties that other currencies have, a scarcity that makes it valuable enough that we don’t have to transport enormous quantities to make a trade.

I want to buy a car, here’s several thousand tons of tree leaves (however much mulch is worth one car) that I brought over in my pocket.

I’m all for the market settling on one or more commodity monies but I very much doubt a carbon money is in the future.

What’s wrong with specifically advocating carbon-based currency? To put it politely, it’s not very intelligent.

fundamentalist March 24, 2011 at 8:10 am

The money used isn’t the problem; the problem is credit expansion. Credit “money” makes up over 90% of the money supply, whether you use gold, carbon, platinum or land.

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