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Comment by cotsuka | Hacker News Reader

Austrian school not holding much weight with academics is like wondering why creationism doesn't hold much weight with academics. Lots of things can be explained with creationism, but it doesn't mean it's right. Many Austrian economists rail against the use of quantitative models and such. But without them, how can you measure the efficacy of your policies? Faith that the policy works... But most academics like to be able to test things.

I'm also not saying creationism isn't right. I can't prove anything.

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> ...the use of quantitative models and such. But without them, how can you measure the efficacy of your policies?

Here's a better question: if you measure the efficacy of your policies and find that they have not achieved the intended effect, on what would you base the extension and expansion of those policies? Faith? Insanity?

The reason I ask is that a few months ago, two senior economists at the SF and NY Feds published a letter, "How Stimulatory Are Large-Scale Asset Purchases?"[1]. Their conclusion:

"Asset purchase programs like QE2 appear to have, at best, moderate effects on economic growth and inflation."

Emphasis mine. For reference, QE2 involved $600 billion of Treasury purchases.

[1] http://www.frbsf.org/economic-research/publications/economic...

Right. There's no way to disprove theories that are tested in this way. Proponents of the theories being tested could always say that the attempt wasn't large enough, that the officials didn't believe enough in the policy, that the gods were angry that quarter, etc., etc. At some point you need a sound theory to draw back on that does not require this sort of testing to stand on its' own.

What is your argument exactly? You say, "If you measure the efficacy of your policies and find that they have not achieved the intended effect, on what would you base the extension and expansion of those policies?" But then your example, QE2, achieved the intended effect. As you say, it had a moderate effect on economic growth, and with only a moderate effect on inflation. Nobody claimed it would be a magic bullet. Monetary policy without coordinated fiscal policy can only have moderate effects.

And strangely enough, nobody outside of neoliberal bank-interest lobbyists has actually wanted quantitative easing. Keynesians want the labor market and consumer demand propped up, social democrats want infrastructure investment towards those ends, and radicals are looking for a debt jubilee.

Indeed, the term Keynsian has been uselessly spread to cover both New Deal style stimulus spending and printing money and giving it to the banks.

The two are not the same, they are connected only by the theory of trickle down Reaganomics.

So far the predictive value of these models has been zero and Austrians tend to have a much clearer understanding of what is happening on a macro level. That's been my experience over the last decade or so. After awhile it helps to notice such things.

Academics being funded by Keynesian politicians has surely nothing to do with it.

Anecdotal but I would imagine it's similar in reputable state schools in red states: Texas has very few Keynesians yet economics professors at the University of Texas are overwhelmingly Keynesian.

Virtually everyone you encounter in the government subscribes to Keynesian economics to the degree that they understand anything at all about economics. When economics is explained in the media at all it is through the lens of Keynesian economics.

Yes, well, Keynesianism is an important piece of the neoclassical synthesis. To be droll: "mainstream theory is mainstream."

University of Chicago and the other "freshwater" schools show that non-Keynesian schools can get funded.

I'm not sure how this casts doubt on the Austrians or supports the Keynesians, or vice versa.

I'm saying calling something Austrian or Keynesian is inherently political. We should come up with economic models, whether they're Austrian, Keynesian, alien, or dumb, test them against data to see if they hold up, and refine until we get close. Aka, what scientists do.

Great article the other day from Krugman about this very topic. Economics might be a science, but economists are not being scientists about it. http://krugman.blogs.nytimes.com/2013/10/21/maybe-economics-...

You can make models all day, and I think it should be done in the pursuit of knowledge, but to imply these models can accurately predict behavior is a bit naive IMHO.

Economics in a globally integrated economy are of similar complexity as weather, if not worse.

Keynesians have been driving the bus for quite some time now, if they have it all figured out as many seem to imply, why do so many things (deficits and debt plus extreme government interference in the bond market, as just a few examples) seem to continue to deteriorate.

I don't know if Austrians would do a better job, but to look down one's nose at them seems a bit delusional to me.

Austrians, for the most part, make no testable predictions. They essentially reject math as a tool, and insist that unless you implement their preferred systems 100%, then they won't work at all, and then explain all observed failures by claiming that it would have worked better if things had been pushed further.

Even if they're on to something, they don't give the unconvinced very much to work with. Most of their arguments push every economic dial in a single direction no matter the current state of the world, which says to me that there's no way that approach could lead to a reasonably balanced economy.

I think econ is messed up in all sorts of ways, but I don't think the Austrian school has the answers, they strike me as far too religious and unbalanced to be believable, and quite frankly I see way too many words and far too little math coming out of their camp to buy any of it. Every other science leans on math to great benefit, I refuse to believe that econ is somehow the one exception where it's not useful, especially since at its core it's about optimizing certain numbers.

I'd suggest any unwillingness to make specific mathematically testable predictions is correct acknowledgement that the field is too complicated to do so. As I've said, you can make a model and tweak it by picking and choosing inputs until you can make it successfully back test with historic data, but any comprehensive correctness is likely tenuous if not specious.

Having a complex model that appears correct but is actually wrong is quite dangerous. Observe long term charts (debt, debt to gdp, etc) in various countries throughout the world. We're told by economists and the federal reserve in very serious tones using large words and complex models that everything is all figured out, but the charts continue to get worse. Even during the glorious Clinton years of supposed robust surpluses, debt increased every year. Hindsight being 20/20, we now know we were just in a bubble.

Austrians speak in broad principles rather than specific mathematical formulas, and in my opinion, their broad (vague) predictions of what will happen if you do <x> are far closer to honest reality than any other camp.

> They essentially reject math as a tool, and insist that unless you implement their preferred systems 100%, then they won't work at all

What? What Austrian has ever said that?

Austrian's very rarely deal with absolutes in the real world and mainly deal with relative analysis (If you go with X bad policy, these negative things can occur).

> then they won't work at all, and then explain all observed failures by claiming that it would have worked better if things had been pushed further.

What occurrences are you referencing when an Austrian got policy control?

> and quite frankly I see way too many words and far too little math coming out of their camp to buy any of it.

They reject the idea that maths is a useful tool in economics due to it being a social science.

Economics forecasting is harder than the weather.

How do you build an economic model that can deal with the introduction of mobile phones? What about some new energy source that cut the cost of energy dramatically? What about the fall of Communism?

Also the weather doesn't have expectations that react to the weather forecast. Economic models get incorporated into people's expectations and this feedback can actually alter the economy. If you read up on The Phillip's Curve and stagflation you can see an example of this interaction.

Weather is actually decent for forecasting. You can constantly get new data to verify your model against. If you are forecasting for a week you have hundreds of tests to do per week.

Any forecasting where the predictions matter over the scale of decades is harder because the time span means you will have less data available for validation.

The basic problem is that the models are not testable in the way you think they might be. Economics is inherently a deductive discipline and anything you can think of as coming from economics that is valuable in any way came from someone's head and not from testing models. Economists get into trouble by trying to pretend they are physicists.

Economics is not a science. You can't test hypotheses rigorously. Which makes these debates 100x harder.

This is true, but it is also true for other sciences (eg meteorology, mentioned elsewhere).

I'm not sure what the solution to the untestable hypothesis problem is.

Krugman<-Spew

Austrians distinguish between theory and "history" and Hayek has argued that you can at best make "trend predictions" due to the uncertainty of the world.

I do not understand why there seem to be no Austrian quantitative models and the like as part of the "history" (bad name as it includes both application of theory towards historical periods and predictions). Predicting the future is an entrepreneurial act in the Austrian sense and if the Austrian model is good/better one would expect better predictions from someone working from these foundations.

I agree that there's quite a few laymen and not all that many pure Austrian theorists (and the few that exist seem to be working in management science and the like not in economics).

I'm not sure what defines a proper science in the science theoretical sense these days but if you take something like Lakatos (which is basically what I'm roughly comfortable with don't know about newer developments) I'm not sure mainstream and Austrian economics would differ all that much (probably both non-science by his criteria)

The most tilting thing about Austrians in general (and I'd certainly say I sympathize with their core ideas alas I don't have enough time to investigate properly) is that they attack "mainstream economics" based on a view that is pretty far removed from current mainstream economics. Most are stuck at thinking "ZOMG Keynes" at least I haven't met all that many that knew what a DSGE model is for example.

I don't see the similarity.

Just edited my comment for clarity.

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