Must a journalist listen to the true believers in Austrian economics?
Greg "PrestoPundit" Ransom e-mails, with regard to my parsing of the views on recessions of Paul Krugman and Tyler Cowen, which contained a very brief discussion of Austrian business cycle theory:
Krugman's attacks on Hayekian economics are considered ridiculous, embarrassing -- if not brain dead -- by those who actually know Hayek's work. It's pathetic stuff, really.
I would be good ethics as a journalist (and scientist?) to report this truth of the matter.
And, no, I don't count Tyler Cowen as a reliable reporter of the work of Hayek. There is much evidence that Cowen is familiar with the work of Murry Rothbard. But Hayek, not so much.
Cowen gets some of the core of Hayek's work wrong, just for starters.
So why don't you go to people who actually know the Hayekian account -- economists like Roger Garrison and Steve Horwitz.
This would be honest journalism, and honest science.
TIME is known for such stuff, right?
All I was doing in my post was comparing a couple of recent opinion pieces by prominent economists, not trying to render a comprehensive verdict on Friedrich Hayek's 1920s writings about business cycles. (I didn't even mention Hayek in my post.) But Ransom raises an interesting question: If I'm going to write about something like Austrian economics, should I rely on the likes of Cowen--a knowledgeable (Ransom's snide comments notwithstanding, Cowen has written a very serious-looking book called Risk and Business Cycles: New and Old Austrian Perspectives that cites Hayek extensively, so I think he's familiar with the man's work) and by my reckoning fair-minded observer--or a true believer?
I should note here that "Austrian economics" really means two different things. One is the Viennese economic tradition, begun in the 1870s by Carl Menger, that produced such greats as Eugen von Böhm-Bawerk, Joseph Schumpeter, Ludwig von Mises, Friedrich Hayek, Gottfried Haberler, Oskar Morgenstern, and Fritz Machlup. It's a pretty broad tent, with its members sharing a free-market bent and a preference for words over equations but not a whole lot else. The works of several of them are well-embedded in the economic mainstream.
People in the U.S. who self-identify as believers in Austrian economics, though, tend to follow a much narrower path, that of Mises and his American disciple Murray Rothbard. They are extremely libertarian (at the first meeting of the Mont Pelerin Society, a libertarian group organized by Hayek in 1947, Mises stormed out saying "You're a bunch of socialists"). They yearn for a return to the gold standard. Many possess a near-religious conviction that their beliefs are correct and that all other economic theories are pure folly. Some of them--I'm thinking here mainly of the crowd around Lew Rockwell--combine these beliefs with far loopier stuff. Others--such as financial pundits Peter Schiff and Michael Shedlock--often let their rabid Austrian leanings overpower (and, to my taste, ruin) otherwise trenchant economic analyses. Am I going to go to these people for perspective on the business cycle or Austrian economics? No, I don't think so.
On the other hand, I'm not going to do like Krugman and dismiss Austrian economics as "about as worthy of serious study as the phlogiston theory of fire." Just because something is outside the mainstream doesn't mean it's wrong. I guess the best thing for me to do would be for me to read more of the source material myself. I've dabbled in Hayek and Schumpeter and even Rothbard. If I devoured all of Menger's Grundsätze der Volkswirtschaftslehre, in German, that ought to give me a certain authority, right?
That's not going to happen anytime soon, so I'll keep relying on Tyler Cowen. I will also try to follow Ransom's advice, though. Roger Garrison of Auburn and Steve Horwitz of St. Lawrence University, the two modern Austrian-school economists he recommends, seem on first examination to be more interesting than loopy or strident, so I'll start looking out for their writings. First step, adding the Austrian Economists blog, to which Horwitz contributes, to my feed reader.
Update Lew Rockwell weighs in on my taxonomy of Austrians:
The author hilariously sees Austrian economics as divided into two parts: the nice one, entirely in the super-wealthy Koch Brothers ambit, and the mean one, in mine!
A little background: when I started the Mises Institute (an organization unmentioned by Time) 26 years ago, the head of the Koch Family Foundation angrily pledged to destroy me if I went ahead. "We have worked too hard to rid Austrian economics of Mises," he said. Hayek, he claimed, was their man, though, of course, he was far better than that, and a good supporter of the Institute. But the real problem turned out to be Murray Rothbard. It was the greatest of the Misesians and the founder of modern libertarianism whom the Koch World Empire longed to smash, and still does. Murray, founder of Cato, was the one man in the ambit to say no when the Kochs decided to jettison Mises for reasons of DC preferment. Otherwise, they felt, it would be harder to curry favor with the Fed and the Republican party. Hayek's views on central banking, gold, conservatism, and competitive currencies are no more DC-friendly than Mises's and Rothbard's, but they are ignored, and just his name invoked.
Update 2 By the way, the reason I didn't mention or link to the Ludwig von Mises Institute (which Lew Rockwell founded and runs) in my original post was that I didn't want to tar it with the "far loopier" brush that I applied to LewRockwell.com. I was and am of the impression that the Mises Institute generally sticks to economics while Rockwell's own site ranges more widely and at times strangely.
Well, that and the Mises Institute is in Auburn and I'm part of the vast global conspiracy of Alabama fans.
Update 3 More on the topic.
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The headlines at the Austrian Economists blog seem kind of angry, but I suppose it is frustrating for them to see the world turn the other way. Whether they were right about how the world could have been run, the man on the street is going to have a hard time distinguishing between new free market advocates and old. Right or wrong, the perception is that Krugman and his kind are getting their turn.
I think some skepticism is called for. There have been a tag-team of free market types that brought us to this point. Certain conservative sorts have happily tagged each team in turn, no matter the philosophy, if it meant lower taxes & etc.
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the ultimate problem with relying (or even considering) these kinds of theorists is that they define economics almost exclusively in terms of business cycles, resulting in pro-business bias as a foundation for any discussion of the economy.
What is needed is for economic writers to eliminate the phrase "business cycle" from their vocabulary for a few years as a means of forcing them to take a broader view of economic issues -- especially how economic issues affect "average" people. IMHO, any economic writer who over the last eight years discussed GDP growth more often than wage stagnation should be placed on a long term sabatical....
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As a well verse Austrian economist myself, I will at least say thank you for incorporating the school of thought into your site. For years, the entire school was virtually ignored -- our warnings, our fears, and our level-headed interest in increasing efficiency in markets.
I do disagree on your thought of some Austrian School advocates having "loopy" opinions. The work of Dr. DiLorenzo on Lincoln is one of the reasons I came to realize that much of our culture's firm beliefs are riddled with historian rewrites, leaving the Average Joe to just believe what he's told, and follow what the neighbors are doing.
It's probably a good thing that the economy (in a macro sense) is having difficulties. More people will wonder how so many experts were wrong, and eventually they'll find us Austrians. When they do, even those without an aptitude to understand Keynesian economics will find that the Austrian School is easy to understand (see: Hazlitt) and even makes sense. Words, not equations, are what bring life flavor and understanding. The equations that the typical Keynesians write, and rewrite, and rewrite again, never hold much strength for long. Eventually, they're always wrong.
I'll trust the words and warnings of the Austrians, who have never really changed their tune. Debt is bad, fractional reserve banking is bad, regulations are usually bad. Fairly simple to understand.
Thanks, again, for at least bringing it up as a debate point.
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Economics is politics by means of mathematics. Statistics, mostly, which don't have such a good reputation for veracity.
After paying attention to the Mises and EconLog blogs for a while, it became pretty clear that they aren't any different. From what I've seen, you pretty much know what they will conclude before you even take the time to read their analyses.
(Their total indifference to the plight of people out of work is pretty frightening ... though the abstraction of unemployment and "creative destruction" always seems to be from an Olympian perspective for the economics crowd, Marxists most especially included.)
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Odograph, you have it all wrong - you're implying that "free-market types" have had us living in some sort of "laissez-faire" economic system since 1980 - nothing could be further from the truth! We've lived under a heavily-regulated economy with massive govt interference since 1913 - some would even say it's been this way sine 1865. I'll stick with 1913. The truth is we've tried everything BUT the Austrian approach and now the frauds on the left and in the middle are trying to the place blame for our economic ills on free market ideology? Tain't so McGee!
Are Bernanke and Paulson Austrians, Chicago Moneterist' or Keynesians? Most of the folks cheerleading this expansion of big govt are Keynesians or Public Choice folks and have been pushing the ball in this direction for a long time.
Only a sap would believe these people have been on the sidelines and out of power for 28 years.
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If I devoured all of Menger's Grundsätze der Volkswirtschaftslehre, in German, that ought to give me a certain authority, right?
Why not devour it in English? The Mises Institute is the authority on Menger in the language of the American Founding Fathers.
It's $20. Email me with a delivery address, and I will buy you a copy.
That's not going to happen anytime soon, so I'll keep relying on Tyler Cowen.
It's my understanding that if you want to know where to eat, ask Tyler Cowen. If you want to discuss Austrian economics, Tyler's statist apologia disqualifies him.
If you're really curious, you will listen to the true believers. What is your alternative? To listen to the fake believers or no one at all? Since it's clear your background on Austrianism is lacking, take the plunge.
Also nice save on linking to Mises by quoting Lew Rockwell's blog. Maybe you could drop a link to LRC or Mises in your blogroll. Mises.org after all is the most read economics website on the internet.
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barracho,
I am a bit confused.. you say that you have been "paying attention to the Mises and EconLog blogs" and determined that they are "Economics is politics by means of mathematics. Statistics, mostly, which don't have such a good reputation for veracity." - I say that you really haven't paid much attention at all then. Austrian economics is basically devoid of statistics or mathematics which are useless in macro prediction - the place for such tools is to support logical theories and to gain a view of historical data, but not to forecast future events. The Austrian foundation is based on the axiom of action (humans act, which implies intent and desiring change towards a defined goal) and the entire sphere is deduced through logical trains to arrive at so called 'economic laws' like supply & demand, or the business cycle. If you are truly able to derive their predictions without following the analysis then you may just actually be a logical Austrian without knowing it!Regarding to "Their total indifference to the plight of people out of work is pretty frightening" - what is it you expect from an economic point of view? If you are looking for emotionalism or empathy, these are things which are not related to determining ause and effect of economic and political actions. Austrians are people too, they sympathize and (perhaps more than others) understand the hardships which the average person face - but an economic forum, or discussion of political actions effecting an economy, is not the place to do such talk. For instance, I can talk about the effects of minimum wage upon the low wage earner at the margins and determine such politically motivated 'laws' are not in the best interests of folks... but I can still empathize with the unemployed person asking for a handout at the street corner and give him some voluntary help (money).
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I'm not sure barracho meant to comment on this blog. Maybe he got confused.
Austrians are the classic liberal champions of those hurt by socialism and fascism. Austrians are for equality of opportunity, and the right to own property, which is a necessary component of class movement. Typically people improve their economic and social conditions by accumulating capital. Government welfare ruins this incentive system, by creating a permanently dependent underclass.
Poor people don't need a handout. They need liberty and opportunity.
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I'm sure if you kept a journailistically open mind you would have found the dozens of times writers at mises.org were ahead of the curve on the housing situation. Not to mention the great track record of Peter Schiff. Your readers might be interested in his commentary in 2006 where he was made fun of for predicting gloom in the housing market. http://www.youtube.com/watch?v=A92VUmEw-gU
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So, in other words, you are unwillingly to look into Austrian Economics. Wouldn't it have just been easier to admit that than to write an entire column pretending to understand something you (obviously) do not?
No wonder TIME magazine is becoming increasingly irrelevant. As long as the cheap joke continues to be substituted for "journalism" and your hack research on Austrian Economics passes for intrepid reporting it won't be long until media dinosaurs like TIME are rendered to the dustbin of history.
Good riddance.
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I'll be more straightforward for the benefit of my detractors:
Economics is politics by means of mathematics.
Austrian economic theory is not economics, but it is politics.
Because it is politics, every conclusion is gerrymandered from the available facts, thus allowing you to predict "findings" ahead of time. There is no risk an Austrian economist will come across data with which his theory will not reconcile.
Bet on it.
They're no worse than the rest, tho.
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barracho,
I understand where you are coming from. Economics seems to be entwined with politics in almost every area. But, it is not economics which drive politics, rather the other way around. Economics is a separate and distinct science. It is a fact, with all other things being equal, that an increase in supply will tend to lower the price. This is apolitical. It is a statement and reflection on the nature of human beings and the actions they choose. What politics does is take that fact, obliterate the 'why' and then make political policy supported by a twisted version of economics. Austrian theory is apolitical as well, though many if not all Austrians also use Austrian theory as support for their political views. An Austrian writing from an economic standpoint will note that a governmental increase (or creation) of a 'minimum wage' above marginal wage levels will naturally result in increased unemployment. This is a natural cause & effect fact of human action (and reaction). The same Austrian economist might ALSO give his political opinion by saying and concluding "Therefore we should abolish the minimum wage laws" - a purely political statement and not economic. Economics is a means, usually used to a 'political end'.
In regard to discovering data which do not fit a particular theory or economic law, Austrian economics is based and deduced through logic, NOT derived from historical data. Thus, any historical data which appears to conflict must mean that either (1) Variables and influences are hidden which affect the outcome, or, (2) the logic which the theory is based upon is flawed or incorrect. Austrians continually test and challenge all economic theories and predictions which helps to weed out 'bad logic'. In addition, Austrians have an obvious keen curiosity about history, noting that history is often never written about by economists, but rather by folks which interject their own personnal bias into data collected and perspectives given.
Lastly, economists cannot, by nature of economics, be able to moralize about political actions or other economic action supported by economics in asserting some sort of 'objective' morality. That sounds like alot of goobly-gook, and it is, because to actually explain my meaning would take many more paragraphs. Basically, I mean to say that ethics and morality cannot be determined through economics - economics just describes cause and effect. Economics (of any flavor) does not tell me that murder is wrong, that determination is rooted in each of our moral character and value system. The reason why Austrian Economics appeals to so many Libertarians is because their moral code is supported and buttressed by the economics, as it provides an alternate argument for why 'Freedom works'. -
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barracho said, "Austrian economic theory is not economics, but it is politics"
I've heard a lot of people try to refute the Austrian school using all kinds of anecdotes and half-truths, but I must say you take the cake for originality!
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First off, I have to defend Lew and company at LRC. They say things that are certainly not mainstream, but hardly loopy given you have some perspective on their opinions. I came to the same conclusions when I first started reading LRC (willing to deal with its perceived nuttiness and condescending tone for the occasional deep insight), and confess that as I read more and more history and economics, I found myself appreciating the blog more and more.
Anyway, I think adding the Austrian Economists blog to your reader is a good first step, although I would also advise adding the Mises Institute blog. At the Austrian Economists blog, make sure you take the time to read the comments. The exchanges on that blog are really great. Also highly recommended (and this could be a huge time-saver) is the Foundation for Economic Education's Austrian economics seminars from this past summer, which they released as an audio podcast here: http://www.fee.org/seminars/austrian/
They aren't preaching to the choir at these seminars and are thus forced to explain and differentiate the Austrian perspectives and the insights that lay the ground work for their investigations.
Lastly, consider this. I don't believe there are many Austrian economists at any level or any institution that would expect you to accept their theories without fair examination. Mostly, they only seem frustrated that their work doesn't get the attention they feel it deserves (i.e. it is dismissed often without due examination). For what it's worth, I feel they are justified in their frustration.
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@dixieflatlineconstruct: Thanks for the offer! But I really do want to read it in German. My German's pretty good, and the prospect (however slim) of being able someday to respond to an Austrian-econ argument with, "Well, I fear that's a mistranslation of Menger," is just too appealing to pass up.
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The best book for an introduction to Austrian economics is titled (strangely enough), "An Introduction to Austrian Economics".
http://www.mises.org/store/Introduction-to-Austrian-Economics-An-P72.aspx
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Schumpeter did in fact not believe that capitalism would last forever, leave alone the Austrian view that minimal government would. Here is a link to Schumpeters views on capitalism, and its possible demise:
http://bigotblog.wordpress.com/2008/10/24/will-capitalism-end-the-post-capitalist-world/
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