Economic Schools of Thought

[westvirginia]

You might get more out of him if you picked on the Swiss...

 

Nah, he's laughing his ass off at you if you do that. The missus, though European, is a dish. What she's doing with a midget economist defies logical explanation, but so does the website that shows pictures of hot chicks with Showtime Rotisseriebags.

[wiegie]

umm, yeah, that's what I meant when I said "the math is bad". this sums up the austrian attitude.

your link goes a long way to proving that Austrians are neither mainstream nor a major school in economics.

 

The following excerpt helps sum up the problem with their attitude (I'll note that the following quote is from the link I posted in my initial post in this thread. It was written by someone sympathetic to the Austrian point of view.)

 

4.3. Mathematics, Econometrics, and the Progress of Economics

 

More than anything else, what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics, research tools that Austrians reject on principle. They reject mathematical economics on principle because of the assumptions of continuity and differentiability. These objections were examined in section 2.3 and found wanting. Similarly, Austrians reject econometrics on principle because economic theory is true a priori, so statistics or historical study cannot "test" theory. Fair enough, but as section 4.2 argued, econometrics and other empirical work can play a more modest role: to help determine how big (or trivial) various theoretically relevant factors actually are.

 

In short, the principled Austrian objections to mathematics and econometrics (M&E) fail. This does not mean, however, that M&E are immune to a weaker criticism: to wit, that they simply have not delivered the goods. When Mises wrote Human Action in 1949, economists' use of M&E was still in its infancy. There is now nearly fifty years' worth of research using M&E. The science of economics has made progress, but how much of it is due to the use of M&E?

 

Let us consider the question empirically. Here are a few of the best new ideas to come out of academic economics since 1949:

 

 

Human capital theory

Rational expectations macroeconomics

The random walk view of financial markets

Signaling models

Public choice theory

Natural rate models of unemployment

Time consistency

The Prisoners' Dilemma, coordination games, and hawk-dove games

The Ricardian equivalence argument for debt-neutrality

Contestable markets

 

Formal mathematics was the main language used to present these ideas in academic journals. But was math instrumental in the discovery of these ideas? Or did the journal articles merely take an interesting intuition and then work backwards to determine what mathematical assumptions implied it? Out of the whole list, there are few plausible cases where mathematics was more than an afterthought: maybe Idea #2, and possibly #3. Even there, intuition, not math, probably played the leading role.[57]

 

The contributions of econometrics to economics are similarly meager - particularly because econometrics has "crowded out" traditional qualitative economic history. The popularity of econometrics has made it very difficult to do research in any period lacking convenient "data sets"; it has also enforced an uneasy silence about any topic in economic history (like ideology) that is difficult to quantify. When simple econometrics failed to yield universal agreement among informed economists, this merely provided the impetus for econometric theorists to supply increasingly complex estimators and other tools. Truly, this is a case of looking for car keys underneath the streetlight because it is brighter there. The root cause of disagreement is simply that causation and correlation are different, yet almost everyone tends to interpret a correlation as causal if they find the results plausible, and as spurious if they do not.

 

Better experimental design - including the method of "natural experiments" - is a step back in the right direction, but it is only an uneasy beginning. My own view is the econometrics is not useless, but must become a subordinate tool of the economic historian rather than vice versa. Friedman and Schwartz's A Monetary History of the United States is close to the optimal mix - careful historical analysis supplemented with econometrics, rather than vice versa.[58]

 

M&E have had fifty years of ever-increasing hegemony in economics. The empirical evidence on their contribution is decidedly negative. This does not mean, however, that working economists ought to immediately cease to employ M&E in their work. This has been the Austrians' main response, and it has led to their extreme isolation from the rest of the economics profession. The simple fact is that M&E are the language of modern economics, much as Latin was the language of medieval philosophy. These professional languages waste a lot of time and make it difficult for laymen and academics to communicate. But once mastered, even dissident scholars can use these tools to speak their minds.

Now, let's be clear, I agree that many mainstream economists treat mathematics as an end unto itself and that many mathematically-based models bear almost no relationship to the real world, but NO normal economist rejects the idea that mathematics can indeed be a useful tool.

[wiegie]

umm, yeah, that's what I meant when I said "the math is bad". this sums up the austrian attitude.

your link goes a long way to proving that Austrians are neither mainstream nor a major school in economics.

 

The following excerpt helps sum up the problem with their attitude (I'll note that the following quote is from the link I posted in my initial post in this thread. It was written by someone sympathetic to the Austrian point of view.)

 

4.3. Mathematics, Econometrics, and the Progress of Economics

 

More than anything else, what prevents Austrian economists from getting more publications in mainstream journals is that their papers rarely use mathematics or econometrics, research tools that Austrians reject on principle. They reject mathematical economics on principle because of the assumptions of continuity and differentiability. These objections were examined in section 2.3 and found wanting. Similarly, Austrians reject econometrics on principle because economic theory is true a priori, so statistics or historical study cannot "test" theory. Fair enough, but as section 4.2 argued, econometrics and other empirical work can play a more modest role: to help determine how big (or trivial) various theoretically relevant factors actually are.

 

In short, the principled Austrian objections to mathematics and econometrics (M&E) fail. This does not mean, however, that M&E are immune to a weaker criticism: to wit, that they simply have not delivered the goods. When Mises wrote Human Action in 1949, economists' use of M&E was still in its infancy. There is now nearly fifty years' worth of research using M&E. The science of economics has made progress, but how much of it is due to the use of M&E?

 

Let us consider the question empirically. Here are a few of the best new ideas to come out of academic economics since 1949:

 

 

Human capital theory

Rational expectations macroeconomics

The random walk view of financial markets

Signaling models

Public choice theory

Natural rate models of unemployment

Time consistency

The Prisoners' Dilemma, coordination games, and hawk-dove games

The Ricardian equivalence argument for debt-neutrality

Contestable markets

 

Formal mathematics was the main language used to present these ideas in academic journals. But was math instrumental in the discovery of these ideas? Or did the journal articles merely take an interesting intuition and then work backwards to determine what mathematical assumptions implied it? Out of the whole list, there are few plausible cases where mathematics was more than an afterthought: maybe Idea #2, and possibly #3. Even there, intuition, not math, probably played the leading role.[57]

 

The contributions of econometrics to economics are similarly meager - particularly because econometrics has "crowded out" traditional qualitative economic history. The popularity of econometrics has made it very difficult to do research in any period lacking convenient "data sets"; it has also enforced an uneasy silence about any topic in economic history (like ideology) that is difficult to quantify. When simple econometrics failed to yield universal agreement among informed economists, this merely provided the impetus for econometric theorists to supply increasingly complex estimators and other tools. Truly, this is a case of looking for car keys underneath the streetlight because it is brighter there. The root cause of disagreement is simply that causation and correlation are different, yet almost everyone tends to interpret a correlation as causal if they find the results plausible, and as spurious if they do not.

 

Better experimental design - including the method of "natural experiments" - is a step back in the right direction, but it is only an uneasy beginning. My own view is the econometrics is not useless, but must become a subordinate tool of the economic historian rather than vice versa. Friedman and Schwartz's A Monetary History of the United States is close to the optimal mix - careful historical analysis supplemented with econometrics, rather than vice versa.[58]

 

M&E have had fifty years of ever-increasing hegemony in economics. The empirical evidence on their contribution is decidedly negative. This does not mean, however, that working economists ought to immediately cease to employ M&E in their work. This has been the Austrians' main response, and it has led to their extreme isolation from the rest of the economics profession. The simple fact is that M&E are the language of modern economics, much as Latin was the language of medieval philosophy. These professional languages waste a lot of time and make it difficult for laymen and academics to communicate. But once mastered, even dissident scholars can use these tools to speak their minds.

Now, let's be clear, I agree that many mainstream economists treat mathematics as an end unto itself and that many mathematically-based models bear almost no relationship to the real world, but NO normal economist rejects the idea that mathematics can indeed be a useful tool.

[wiegie]

Nah, he's laughing his ass off at you if you do that. The missus, though European, is a dish. What she's doing with a midget economist defies logical explanation, but so does the website that shows pictures of hot chicks with Showtime Rotisseriebags.

thanks ?

[SEC=UGA]

and now Wiegie is just being redundant....

[Azazello1313]

your link goes a long way to proving that Austrians are neither mainstream nor a major school in economics.

 

maybe you've missed the fact that I have essentially agreed with you on that point from the very beginning. it's more of a line on economic thought that rejects much of what we call "economics". it's an outsider position by self-definition. and all of bryan caplan's criticisms seem spot-on. but at the same time, I do think the many aspects of the austrian 'critique' have a lot of merit and have been tremendously influential on 'mainstream' economics (again citing the greenspan quote)

[Trojanmojo]

Reading this thread is like watching turtles fu(k.

 

[bushwacked]

All is good. Az "won't pretend to be an expert" Zello got the last word on something no one give a flying f about.

[Azazello1313]

All is good. Az "won't pretend to be an expert" Zello got the last word on something no one give a flying f about.

 

obviously you care. and that is enough for me.

[SEC=UGA]