sobota, 15 stycznia 2011

Cranky Critiques of The Austrian School

Steve Kangas, a liberal political journalist, argues that The Austrian School is a crank science:
http://www.huppi.com/kangaroo/L-ausmain.htm
Let's apply a crankometer to the arguments themselves:

Summary:

The Austrian School is "based purely on logical assumptions", which, allegedly, "is the very method that thousands of religions use". Wow, where do we start here. First off, there are no "logical assumptions". Logical can only be conclusions. Assumptions are statements we accept to be true, but cannot actually prove to be true. Preferably, assumptions should be self-evident. Otherwise, they are dogma, which religions are based on. And even though religions use assumptions, they dabble in logical reasoning (mostly non sequiturs) to produce logical conclusions only when it suites them. But here Kangas seems to be saying that religions use logical arguments to reach conclusions based on self-evident assumptions. Now, I could picture a rational person saying that only if he was high or mad, so you better buckle up for the rest of the ride through all the crucial arguments of his essey:

Introduction:

"Mainstream economists dismiss the Austrians as cranks."

Austrian methodologies so cranky!
Everybody with a government job says so!

"Several of its founding figures struggled to make ends meet, rejected by universities which did not view their work as sound."

Public universities. No wonder. Would you consider a work that says you are evil as a sound one? Well, only if you actually accept you are evil, but that rarely happens. Rather, you would have never become evil in the first place.

Scientific Method:

"Humans are not born knowing that two plus two equals four. It is something they must learn from their environment, namely, school."

And in the first school back then, they simply made a vote, how much two plus two should be...

"The fact that we have thousands of different religions in the world is remarkable evidence of the fallibility of this [Austrian] method."

Logic unpopular? Logic fallible! Quite a logic!

Statistics:

"A good analogy is the study of gases."

Yeah, gases are good analogy to people, so we can use statistics in economics all right.

Methodological Subjectivism:

"Even granting the premise that humans are endowed with free will,"

Wow, thank you Kangas, for a collectivist, you're just too generous in your grants...

"there is no denying that even impersonal forces affect human actions to a very large degree."

We live in a mostly impersonal environment that affects our actions, like laws of physics, accidents, natural disasters or luck, which allegedly prevent us to make subjective decisions. If Kangas is so retarded that laws of physics prevent him from making subjective decisions, then let him speak for himself.

Methodological Individualism:

"Even in their primary role as organizers, entrepreneurs depend on the group."

Precisely that "dependence" (as Kangas understands it) is why entrepreneurs are the primary driving force of the market process. They are at the top of the structure, they run the whole economy, so obviously they "depend" on people, because they need people for hire. As you go from top to bottom, trough all the managament levels, the "depenency" on the group lessens. Finally at the lowest level, you have ordinary workers, whose work does not "depend" on the group at all, but on the workers themselves. Of course, this is somewhat twisted understanding of "dependency". Normally we would say the workers depend on entrepreneurs to provide jobs. So, yes, we are all interdependent, there are proactive entrepreneurs who build and then run the economy from scratch and there are workers who passively benefit from all the entreprenural hard proactive work. Workers only need to sign up for jobs earlier created by entrepreneurs, before they can finally start all the complaining about "exploitation".

"Individual firms are rarely the basic unit of the economy; almost all products run through several firms before completion."

Precisely that's what basic means, you usually need a couple of basic units to build something more complicated than basic. Elementary basics, Kagan!

"Picking out the entrepreneur as the primary level of analysis is like singling out the quarterback as the isolated actor of a football team."

No, picking out the entrepreneur as the primary level of analysis is like singling out the owner as the isolated actor of a football team. Kangas must have had a hard time in school, a nerd, but even jock-quarterbacks were brighter.

"Different branches of science actually seek to explain human behavior at many different levels: the gene, the individual, the group, and the specie. Being open to different types of methodologies is characteristic of mainstream science. Insisting on only one methodology at all times is a feature of crank science."

Kangas, jumping mindlessly from "levels"to "methodologies", does not seem to understand what scientific method actually is. Biologists analyze nature on a different level than physicists, but they use exactly same scientific method. A scientific method consists of the collection of data through observation and experimentation, and the formulation and testing of hypotheses. Note that mathematics does not use the scientific method. Now, since Kangas believes people are like gases, no wonder he believes economists should use exactly same methodology as physicists. Austrians, on the other hand, believe people interactions are somewhat more complicated, to the extent that you cannot test your hypotheses against observations. You cannot really experiment with people same as physicists experiment with inanimate matter, or even as biologists experiment with animals that lack consciousness. With conscious people there is no repeatability required to use scientific method same as in physics or biology. Kangas, think for a second, if observations could actually prove or disprove economic theory, would there really be "different types of methodologies" in economics? Why would then economics be split into so many opposing camps for that last couple of centuries, like, say, psychology? Still, Austrians believe you can use logic to deduce economic laws from certain self-evident truths, precisely like in mathematics, but unlike in psychology. The laws (the logical conclusions) are not testable against observations, but can still be used to predict future events or interpret the past. Like, for example, the collapse of every socialistic country. In other words, the fact that every socialist country collapses does not itself prove Austrian theory, but is just a logical deduction from self-evident truths.

"Methodological individualists claim that individuals seek to maximize their personal rewards. But if this were true, then soldiers would become conscientious objectors instead of risking death in war. Charity, favors, volunteer work, loans and other forms of altruism would never happen. Parents would not sacrifice for their children. True believers would not sacrifice their resources or their lives for a cause. Yet these things happen."

According to Steve Kangas, people fighting for their own country, for a cause, giving money to charities, favors, volunteering etc are not maximizing their own personal rewards. But they do it, and they do it repeatedly. In other words, Steve Kangas subjective feeling is, they are stupid. Kangas, speak for yourself! I, for one, find giving money to charity as personally rewarding.

Starting assumptions:

"Austrians commit the very same sin they accuse mainstream economists of doing, by calling for utopian starting conditions before their model will work as advertised."

Well, Austrians do not find lack of government aggression "utopian", so they ignore it in their starting conditions. After all, historically, that's precisely what starting conditions were. However, Austrians do analyze in detail the results of government agression on top of the free market, like eg Rotbard's Power and Market. On the other hand, mainstream economists never account for their, truly utopian, simplifications. People never had symmetric information, they were never fully rational beings, living in a world of no change etc. As Kangas admits, mainstream economists are slowly catching up with Austrians by "discovering" all that. Hopefully, mainstream will finally "discover" all the self-evident assumptions of Austrian theory by themselves, but can't they just read a book written 50 years ago instead?

The Market Process:

"Both companies and governments provide goods and services in exchange for money."

Right, except a small difference with governments is, just try not buying the services!

"Companies and politicians that do not perform well go bankrupt or are voted out of office."

Right, that's why everyone is as happy with their government as with their favorite soda brand...

Monopolies:

"John D. Rockefeller monopolized oil under his Standard Oil Company"

Between 1870 and 1885 the price of refined kerosene dropped from 26 cents to 8 cents per gallon. At the very pinnacle of Standard’s industry ‘control,’ the costs and the prices for refined oil reached their lowest levels in the history of the petroleum industry:
http://www.dadyer.com/Economic%20Readings/witchhunting%20for%20robber%20barons.htm

Monopolies simply do not exist on the free market. Anyone who wants to prove there has ever existed a monopoly on the free market, should at least have evidence of rising prices. But try to read all of the "monopoly" reports again, you will only find revelations about some vague possible rise in some undeterminate future, never an actual, historical rise.

The Gold Standard and Business Cycle:

"The theory that the Fed's monetary expansion and easing of credit restrictions results in "malinvestment" is an unsupported claim."

Right, because ninja loans make perfect mainstream economic sense ;)

The History of the Austrian School:

"Socialism means that workers own the means of production, not private individuals or an elite group."

Kangas does not consider workers as private individuals then? No wonder for a collectivist...

"As you can see, socialism is hardly synonymous with a central planning committee."

No, actually, I can't see, show me please a socialist government with no central planning commitee.

The politics of the Austrian School:

"One presumes the extraordinary losses evoked in the above quote refer to corporate profits."

Indeed, the profits are "merely" the sole objective measure of economic efficiency, let's ignore them...

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