On Austrian economics.

From the mailbag:

Last week, “Hard Candy” asked, “What is your opinion on the Austrian School of Economics?”

Before I respond, let me warn you that my answer would probably not please the purists of the Austrian (or “Vienna”) school or of the Keynesian (i.e., mainstream) school of economics. The Austrians would find reasons to call me a “socialist” or “statist,” the Keynesians would find reasons to call me an “anarchist” or “shill for the rich,” and both would find reasons to say I have no idea what I’m talking about. I’m not saying I’m going for the middle ground, I’m just saying that the purists tend to be a bit tightly wound.

I have a generally favorable opinion of the Austrian school. In fact, one of the my favorite blogs is Cafe Hayek, named for a Nobel Prize winning economist who was an Austrian in both the academic and, having been born in Vienna, the literal sense. If I may briefly continue to plug http://www.cafehayek.com, that’s http://www.cafehayek.com, allow me to quote myself:

“I like this website not merely for the subject matter, but also because of the authors: one was an economics professor at my alma mater; the other wrote The Invisible Heart, a novel about the adventures of a high school economics teacher.”

I should add that the one who taught at Clemson can be a bit abrasive at times. Anyhow, back to the subject. Why do I have a favorable opinion of the Austrian school? Two reasons: one that has to do with how Austrians and Keynesians look at the economy, and one that has to do with their policy prescriptions.

First, I sympathize with the Austrian view of our ability to understand the economy. The Keynesian school is essentially an attempt to create a “grand unified theory” of economics. The Austrian school makes a vitally important criticism of the Keynesian effort, which is that it’s never going to work. The world is too chaotic. There are too many people interacting in too many ways, too many times a day, with too many resources, under too many conditions that shift too quickly, for a single model to be all that useful in predicting what people are going to do.

To that, one might say, “But shouldn’t we study the economy and at least attempt to model it?” I say, sure. Go ahead and try to figure it out. It’s important that we try to figure it out as best we can, because the more knowledge, the better– but you’ve got to be willing to update the model constantly and incessantly, and you’ve got to understand you’re rolling a rock up a steep hill.

A ridiculously simplistic version of my first reason: is economics a “social science” or a “social study”? Keynesians: science. Austrians: study. I think the Austrians are right.

Second, I tend to oppose government intervention in the economy, as do most Austrian economists. The mere existence of Lord Keynes’s General Theory and its later iterations leads many folks (not necessarily economists, but “folks”) to believe that the economy can be “macro-managed,” and that central governments should intervene heavily in the economy. The Austrian school argues that economies are far too complicated to be managed from above. Again, I think it’s important to study the economy as scientifically as possible, even with Keynesian tools of analysis– but it seems to me that the more we learn about the economy, the more obvious it becomes that it is too complicated to be managed effectively by governments, especially as populations grow. I think most Austrian economists would agree with that view.

A more interesting question (not that Austria vs. Keynes is uninteresting) would have been whether I favor the Austrian/Vienna school or the Chicago school. I’d need time to ponder that one, preferably whilst eating a Chicago-style Vienna Beef hot dog. I just discovered Let’s Nosh down on San Jose this weekend, so my mind’s wandering thataway right now.

9 comments

  1. Well put. Very well put. I wouldn’t claim to be a pure Austrian myself, but the school definitely impacted my view of economics in general. I’m not sure how you’re defining a pure Austrian though. I believe I agree with your opinions stated above. While I don’t think there’s anything wrong with studying the economy and attempting to analyze it as many do, I do believe they receive far too much credibility and reliance.

    On another note; I’m a huge fan of Russ Roberts and very much enjoy listening to his podcasts: http://www.econtalk.org/
    In fact, I became so much of an enthusiast that I downloaded and read his entire course material/lectures for Econ 611 Microeconomic Theory I & II. Absolutely fantastic.

    I’m not as familiar with Don Boudreaux, aside from his appearances with Russ Roberts on EconTalk.

    Enjoyed the post 🙂

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  2. I remember “Tracy” mentioning Dr. Boudreaux’s class. I didn’t realize that Dr. Boudreaux was back at George Mason. Never mind that he went back 15 years ago.

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  3. There’s actually a very well done rap video by John Papola and Russ Roberts on econstories.tv called “Fight of the Century” between Keynes and Hayek.

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  4. Sorry to double post, the video preceding it by the same team is “Fear the Boom and the Bust”. Much more humorous I might add.

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  5. @Hard Candy: I haven’t read Nicholas Wapshot’s recently published Keynes Hayek: The Clash that Defined Modern Economics, but it’s probably along the lines of what you’re looking for.

    For Keynesian and Austrian perspectives on recent and current economic matters, you’d probably be best off following blogs by prominent Keynesian and Austrian economists.

    –Here’s Paul Krugman’s blog at the New York Times website. He’s a left-of-center Keynesian.

    –Here’s Greg Mankiw’s blog. Mankiw’s a right-of-center Keynesian.

    –Here’s the blog at the Ludwig von Mises Institute. Ludwig von Mises was a prominent Austrian economist.

    –The aforementioned Cafe Hayek is Austrian.

    You can presumably follow links at these websites to other Keynesian and Austrian websites.

    May I ask whether you have taken or are enrolled in econ courses?

    @Hoyticus: “Hoyticus”? Seriously?

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  6. I took some basic econ classes in college but my field doesn’t really require any extensive business knowledge and my program was too packed to take many classes for fun. I just find it interesting and am trying to educate myself in areas that my formal education didn’t cover.

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  7. Since we’re talking about Austrian resources, I’d like to plug a few of my favorite podcasts that fly in the face of mainstream ideas:

    gt;Why recycling can be harmful: http: //www.econtalk.org/archives/2007/07/munger_on_recyc.html
    gt;Why price gouging is good: http://www.econtalk.org/archives/2007/01/munger_on_price_1.html
    gt;Why public transportation is bad: http://www.econtalk.org/archives/2008/07/munger_on_the_p.html
    gt;Subsidies and Externalities: http://www.econtalk.org/archives/2008/03/munger_on_subsi.html

    Actually, any time the interviewee is Munger, it’s bound to be funny and entertaining:
    http://www.econtalk.org/archives/_featuring/mike_munger/

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