One would think Matthew Yglesias had become quite well versed in Austrian Economics by now or at least slightly familiar, but alas that is not the case. Sadly all one can do is shake ones head as I think it is a lost cause and he really is not interested in learning why it was Ron Paul stated that “We are all Austrians now.”
Here is his latest attempt to confuse and befuddle as he leaves one discombobulated and none the wiser. Yglesias crawls along as he confounds fact and fiction and then reaches his crescendo of confusion when he states:
“Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting and country after country stimulated real output by abandoning the gold standard and engaging in deficit spending. Then for a long time after World War II, policy elites more or less agreed on a combination of “automatic” fiscal stabilizers (the deficit naturally goes up during recessions as tax revenues fall and social service outlays rise) and interest rate cuts. And it worked, so nobody much cared about Austrian economics outside of crank circles.”
Of course, no prestigious circle cared much about Austrian economics except the one that matters most that gave F.A. Hayek a Noble prize in 1974 for his pioneering work in the theory of money and economic fluctuations and his penetrating analysis of the interdependence of economic, social and institutional phenomena.
If Matthew or anyone else wants to see the error of their ways it is a quick click away and a short read to the real story behind America’s Great Depression.
{ 37 comments }
http://hanseconomics.wordpress.com/2012/01/07/slate-gets-its-wrong-big-time/
Here’s another great Austrian response to the Slate piece.
http://tinyurl.com/7m25d52
Yet another response (from the same blog) with more of a line-by-line refutation of the Yglesias piece.
I don’t think what Matthew Yglesias needs is to read Rothbard’s book on the Great Depression. He wouldn’t be persuaded either way. What he needs to do is take a class on the history of economic thought in the 20th century (by the way, a good history of this period still needs to be written).
In what fashion were Austrian ideas discredited during the Great Depression? Were they refuted, or were they forced out of the picture by another paradigm? I think that any study of the period would find that the latter is more true than the former. I agree that, to some extent, Austrian ideas were challenged, but I think that if you were to objectively look at all the sides you’d find that these challenges were inadequate — it’s not to suggest that Austrian theory is therefore correct (a theory is not as correct as its detractors are incorrect), but it does suggest that Austrian capital theory deserves a second look if your view on it is shaped by incorrect criticisms of it.
Anyways, that is not his worst crime; his worst crime is to call Austrians “cranks.” Yet, there are a wide array of Austrian economists who are very well respected by a broader range of non-Austrian economists. Rejection of some of Austrian capital theory does not mean that Austrians are therefore cranks (or, is anybody who disagrees with you a “crank”?).
“Were they refuted, or were they forced out of the picture by another paradigm?”
Something is wrong with that question. I do think such a type of question should only be applied to theories of physics. Things you can test again and again in a “all other things being equal” setting. You may ask whether Newton’s theory of gravitation was refuted or whether it forced out of the picture by another paradigm. The answer being “yes” and “yes”.
What we are talking about is, was actual economic policy based on Austrian ideas or not? If not, well, then the discussion is moot from the get-go because you can’t say anything about Austrian ideas by looking at what transpired after your policy was applied.
Suppose a forest burns down and some guy comes along and he has the theory that it will grow back in stages. After you repeatedly apply napalm onto the area, you actually find that the forest doesn’t grow back – it is replaced by moss and toxic, dorny grasses. Was the theory that the forest would grow back refuted? Not so. You can only find that in this precise instance, the theory that the forest would grow back definitely does not apply. Maybe it had something to do with the napalm, who knows?
Newton’s theory of gravitation was not refuted, it was improved upon. ‘Physics is an exact science of approximation.’ – S. Hassani
No. You can “improve upon” if you do engineering. (If you engineer a plane, you will use Newton.) If you do a physical theory, you need to be like the DoD: only the best will do (but better things may come later on).
Gravity a central inverse-square force with infinite speed? It’s no.
I have no idea about what you just wrote. Have you ever ‘done’ physics? Newton’s Second Law pops out of the Schrodinger equation (I prefer Heisenberg’s matrix mechanics, though). Additionally, ever solved the hydrogen atom? It’s approximation on top of approximation.
>> Newton’s Second Law pops out of the Schrodinger equation
For gravity? I have to say that is doubtful *at best*. In other words: Citation needed.
Gentlemen
The topic at discusion here is economics, not physics. Please, please do not get the two confused. Seriously, check what Mises wrote about the grave error of trying to apply scientistics to economics.
Sione
Well, since the Second Law pops out, the Second Law states F=ma (more precisely the time-derivative of momentum) *and* F also =Gmm/r^2, then, yes.
“Newton’s law has since been superseded by Einstein’s theory of general relativity, but it continues to be used as an excellent approximation of the effects of gravity. Relativity is required only when there is a need for extreme precision, or when dealing with gravitation for extremely massive and dense objects.” – wiki Newton’s law of universal gravitation
Unless you plan on going .9c anytime soon (special theory of relativity) or chill at a black hole (general relativity), Newton (and Maxwell) do just fine.
Well, Sione, I’ll have you know that there is a ‘science’ called “econophysics” – I’m not kidding.
http://hanseconomics.wordpress.com/2012/01/07/follow-up-on-slate/
Here’s another response (different than the one I posted above) to the Slate piece with a line-by-line refutation of some of his more shaky claims.
I would point Yglesias to this: http://www.coordinationproblem.org/2010/11/what-austrian-economics-is-and-what-austrian-economics-is-not.html
You’re priceless Steve. You take a holier than thou with the founders of the Mises Institute on other blogs, and then in the comments on their site, try to shamelessly self promote your own work.
ALthough I have seen some nasty (and imho, wholly unwarranted) comments by Horwitz here and there, the more takedowns of Yglesias the better.
Slate? A joke.
In my opinion, to quickly explain the Great Depression from an austrian and austrian-friendly perspective, you’d need:
[ul]
[li]Mises Business Cycle Theory[/li]
[li]Bohm Bawerk and Hayek on Capital Theory (important—-without this ABCT as a theory is incomplete)[/li]
[li]Roger Garrison and Capital Based Macroeconomics[/li]
[li]Friedman & Schwartz on money supply (with the caveat that their money supply prescriptions alone weren’t going to solve everything and would only set up a bigger bust down the line)[/li]
[li]Rustici on the monetary effects of Smoot-Hawley[/li]
[li]Rothbard on historical context and the specific policies in the 1920′s & 1930′s
[li]Amity Schlaes on policy issues and class warfare in the 1930′s[/li]
[li]Robert Higgs on policy issues and regime uncertainty[/li][/ul]
Understand this is a skeleton of a list. There are dozens of sources, austrian and non-austrian, that would help, but I think these are the most important basics. Any opinions?
One of the real failures of Austrian Economics is its failure to predict when the mainstream economics “Broken Clock Model” will be right again. Does Matthew Yglesias have an answer to this question? This is also a fundamental question of probability. Suppose we toss a coin 20 times and observe 20 heads. What is the probability of that the next throw will be a tail.
A) 0.5 – the coin is fair – we have just observed a low probability event.
B) 0 – the coin is two-headed.
C) Some small number based on the Bayesian approach that adjusts the probability of a head or a tail based on previous results.
This is the same situation that the mainstream Keynesian Economists find themselves in. After a very large number of false predictions, which of the 3 scenarios models best what has been observed? (Keynesian would probably not use 0.5 in A – probably something like 0.95 or 0.99)
This Slate article is an embarrassingly inaccurate analysis. For example:
“For one thing, as George Mason University economist Bryan Caplan, who’s ideologically sympathetic to the Austrians, points out, it’s hard to understand why businesspeople would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”
The Austrian theory has been around for 100 years and the author fails to tell the reader that Hayek actually won the Nobel prize for his work on this theory. The author gives the impression that this objection has never been address in the last 100 years.
Of course some businesspeople, investors, and bankers might get a suspicion that the market interest rate might be below the natural interest rate. They may have gotten burned in the previous business cycle or have read Murray Rothbard’s book America’s Great Depression. However, that doesn’t mean that all businesspeople, investors, and bankers get the same suspicion. Most of the time someone will take the bait based on the lure of short term profits and investment gains. Old farts get replaced by the young risk takers.
Isn’t is also virtually impossible to know what the “proper” interest rates are in a world of monetary distortion?
I have heard the analogy (Garrison, maybe?) of radio signals being distorted, i.e. business people simply can’t discern what the market is saying, try as they might.
Indeed, how could they? They’d need to be able to ascertain where the interest rate should be, based on market considerations, but given that supply and demand in this case are both fudged by funny money enshrined by legal tender and bloated by credit expansion, that is nigh impossible, especially since it’s an on-going heist.
Lots of private investors are aware that a fake bubble is being created with fiat money, however they feel obligated to participate in the bubble because to refrain to do so would be leaving money on the table. I participated in the tech bubble of the 90s and I saw with my own eyes companies suffer which tried to avoid taking on a lot of debt in order, for example, to come up with vendor financing deals (lending their customers money to buy their gear) or to launch huge new product development projects because the customers buying their old equipment today demand that they have a “story” for moving to expected next generation of products.
A lot of people think they can figure out how to ride the bubble up to near the top, sell out and make money, and then watch when the bubble pops and comes crashing down. Investors in the stock market in the 20′s played this game all the time, similar to the recent housing bubble – a lot of people knew a correction was coming, but thought they could play the game. Of course, a lot of unaware people were left underwater when the bubble popped.
j_in_mesa
“….econophysics”.
Indeed.
Also there is pixiecolology, gnomatics, dragonomics, fairygy, microhobbitery and knucklewittery.
Yup.
And none of it has anything to do with economics.
Cheers
Sione
…And lets not forget the socialists all time favorite, phrenology.
Dragonomicists, such as myself, are coming to the fore. Wait for my weekly column in the NYT – do you know some are criticizing the idea that increasing the supply of dragons reduces the purchasing power of said dragons? That said, keep your money in swords [NYSE: SWD].
Win.
“Unless you plan on going .9c anytime soon (special theory of relativity) or chill at a black hole (general relativity), Newton (and Maxwell) do just fine.”
No. You need both special relativity and general relativity corrections to get a GPS system to work accurately.
GR for that? Thx for the info.
As I noted on Wenzel’s blog, Yglesias speaks nothing of the Austrian method, its structure, and framework, instead focusing on Business Cycle Theory as being indicative of our approach to economics.
It’s like trying to explain to a freshman engineering student earthquake-resistant design and expect them to design a 100-story building in San Francisco – for construction – before they’ve ever been exposed to any preliminary engineering coursework.
Whereas you can’t design a beam if you don’t know statics, you’ll never get Austrian price and capital theory without understanding the axion of action at least.
Also, Ron Paul didn’t say “we’re all Austrians now;” he said that he waits for the day when we’ll be able to say, like Nixon had said about Keynes, “we’re all Austrians now.” Big difference.
As if “stimulating real output” is a major concern of the Austrian theory of cycles. As if “real output” isn’t “stimulated” during the boom phase due to arbitrary interest rate manipulation. As if Austrians even deny that you can successfully stimulate “real” aggregate output through various exogenous interventions.
You’re absolutely right. This passage unquestionably proves that he is indeed absolutely clueless about what he’s trying to critique.
No matter how many times I see a picture of Matt Yglesias there’s just something…creepy about him. And yet something familiar, but I just couldn’t put my finger on it. But today I think I figured it out. Just look at these two pictures and tell me we’re not looking at closely related cousins:
http://thinkprogress.org/wp-content/uploads/2011/11/YglesiasMatt.jpg
http://worldmustbecrazy.com/wp-content/uploads/2009/10/WoolyWillyOpt.jpg
He’s just another yupster that decided to get a day job.
Hello I am slate journalist. I am going to go to wikipedia, read cliff notes on Ron Paul’s End the Fed, followed by skimming an “investigative journalism piece” over at Mother Jones. Having researched all there is to know about them from aforementioned sources during my coffee break, I’m going to fill you in on what Austrian economics is all about.
Austrians are a bunch of neo nazi neo confederate child diddling satan worshipping terrorists. They advocate exterminating the poor, abolishing government provision of food, water, air and sunlight, and are in favor of legalizing cannibalism. Among their proponents is the standard line up of right wing bogey men like Glenn Beck, Rush Limbaigh and Bill OReilly who are generally responsible for concocting their entire ideology. Austrian policies were firmly followed in every major country on earth for the past 80 years and were responsible for every war, famine or calamity that occurred since then, both manmade and natural. Only crazy antisocial cranks subscribe to Austrian theories, and it would be good if they were all made subject to a mental health review. All of this is 100% factually accurate. Anyone who disagrees is obviously a crank or a brainwashed paulbot. Thankfully courageous and intrepid reporters at slate like me are out to expose this public menace.
Tim
Oh, come on. Tell us what you really think!
Sione
Yup, your story checks out: you’re a slate journalist all right
At this point, the whole left wing is just guys in horn rimmed glasses talking about the presidential campaign. That’s my impression anyway.
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