Saturday, May 02, 2009

Parable of the ship: why Austrian Economics fails.

Many libertarians and other conservatives look to Austrian economics because they find their preferred positions explained with clear moral stories. But the great fault of Austrianism is that it is not scientific. Science is a better way of knowing than philosophy, because scientific theories have to explain close to all the scientifically collected data. For all the faults of conventional economics, it is far closer to a science than Austrianism because it relies heavily on data. Austrianism has a methodological disrespect of data. It is structured as a medieval philosophy based on authority, rather than systematic adherence to real-world data.

I've collected criticisms of Austrian economics for many years in my index Austrian Economics. But a sheaf of miscellaneous criticisms may not be as clear as a parable.

The owner of a ship noticed that his ship was filling with water. Being an educated man (if not nautically trained) he knew there were many possible causes for water in a ship: leaks in the hull, the bilge pump being broken, waves washing over, condensation, and even the crew urinating in the hold. He heard the bilge pump running, he saw water from waves pouring in the open hatches, but worst of all he smelled urine in the hold! Being sensible, he ordered the crew to shut the hatches and then gave them a lengthy, stern harangue on hygienic use of the head. While he was lecturing the crew, his ship sank due to a combination of causes: large, unobserved leaks in the hull, a bilge pump that was running but not pumping correctly, and condensation that had shorted out warning circuitry.

Now, it's easy to write a story to justify or ridicule any course of action, any philosophy. Indeed, that described Ayn Rand's fiction. But my purpose here is to illustrate ways in which the owner failed to think correctly. Ways which are STRONGLY analogous to Austrian economic methodology.

In every theory-rich subject, there can be a multitude of explanations of cause. For example, there might be 5 possible causes for a specific problem, be it inflation or disease or whatever. All or none of those causes might be valid. If all of them are valid, some might be unimportant because they cause very little of the problem or cause the problem very infrequently or cause the problem only under specific circumstances. But more than one of the causes might be quite important, singly or in combination. Economics is just such a theory-rich subject.

There is no way to identify from philosophy which of these might be the case. You need to be able to observe enough to quantify these factors. However, Austrianism is staunchly against measurement: indeed, it is innumerate because it does not use measurement. Rothbard, Mises, and Hayek railed about how measurements were philosophically invalid.

In the parable, the owner did not investigate condensation; he presumed the pump was working correctly without measurement; he did not attempt to measure leaks; he presumed (again without measurement) that the water sloshing in the hatches was the right amount to explain the filling; and he distracted the crew from finding the real problems with his own assumptions and moral haranguing.

Since Austrians are innumerate, instead they must rely on their assumptions, which needless to say tend to have a very right wing bias. Science does not work that way. Nor can Austrians really defend their assumptions: no assumption about the real world is totally true which means that there is fallacy in all their logic about the real world. They make up for this in bluster and old-fashioned appeal to their own authority.

When confronted with real-world problems that could have multiple causes, logical verbal models are insufficient. You MUST introduce measurement and mathematics into your models if you want to have any hope of valid answers. Logical verbal models are sufficient to specify possible chains (or networks) of causation, but telling which are significant is a quantitative problem that requires measurement.

This is not a new position: it is basic to science and ought to be basic to philosophy. Hume said it very clearly 260 years ago:

Does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Commit it then to the flames: for it can contain nothing but sophistry and illusion.

David Hume, Enquiry Concerning Human Understanding, 12, "Of the Academical or Sceptical Philosophy"

61 comments:

mikeyaustudent said...

"When confronted with real-world problems that could have multiple causes, logical verbal models are insufficient. You MUST introduce measurement and mathematics into your models if you want to have any hope of valid answers. Logical verbal models are sufficient to specify possible chains (or networks) of causation, but telling which are significant is a quantitative problem that requires measurement."


Can you give some examples of mathematical formulas you think are valid for economics?

Gza said...

Anyone who can write "science is a better way of knowing than philosophy" should read more.

Phill Tomlinson said...

I am form a mathematic disposition but even I know models and formulas are useless in such a dynamic and constantly changing system such as a complex economy. Its like trying to come up with precise mathematics for Quantum mechanics - some things just can't be modeled. Austrian economics rationalises as to what happens. The finer details are worked out by prices etc which the austrians say is contantly relaying information back to businesses.

Mike Huben said...

Gza: perhaps you should read less and try experiencing the real world for yourself more. :-) Oh, and just why do you make such an unsupported claim?

Phil: actually, quantum mechanics has an incredibly precise and accurate mathematics. But admittedly, some things are difficult to model. The problem with Austrianism is that they insist on non-mathematical modelling even when the mathematical modelling is good. And they certainly will never discover other good mathematical models that way. The real world does things: the question is whether Austrians can make valid predictions based on their ideas. If all they can do is make merely plausible rationalizations in hindsight, they are not a science. Science generally involves measurement, and they won't do it.

Mark Plus said...

I don't see how Austrian economists have any credibility left any way. For years they've tried to promote their beliefs by making economic doomsday forecasts based on the fact that modern economies generally don't do things the way their theory says. (They'll have some explaining to do in a few years if the American economy stabilizes without a major collapse or hyperinflation.) Yet at the same time they tend to dismiss other people's doomsaying based on environmental or Malthusian concerns. Anyone who has to use apocalyptic rhetoric without supporting empirical evidence to try to get his message heard above the noise probably knows he has a weak idea to begin with.

Francois Tremblay said...

Funny, your blog claims to be a "Critique of Libertarianism," and yet when I search your blog for some prominent libertarian thinkers:

Proudhon- zero results
Tucker- zero results
Warren- zero results
Bakunin- zero results
Kropotkin- zero results

Or prominent libertarian ideologies:

anarchy- 1 result (irrelevant)
geo-libertarianism- zero results
mutualism- zero results
agorism- zero results
libertarian socialism- zero results
libertarian communism- zero results
market anarchy- zero results

I think you need to rename your blog to "Critiques of late 20th century American partyist Libertarianism." Because it's kindof a disappointment: I was expecting to find some stupid criticism I could post to laugh at, but I didn't even find that.

habba said...

Francois, don't be such an ass.

Francois Tremblay said...

What do you mean? It's not my fault he doesn't know what libertarianism is.

PT-12599 said...

Francois-I submit to you that for all intensive purposes, "libertarianism" as it is defined AND most frequently represented in the U.S. mainstream does indeed reflect "late 20th century American partyist Libertarianism." And as Mr. Huben has done for a very long time now, he has documented his critiques on this particular strain. All the other flavors you discuss are not the intended to be the targets of his critiques because they are arguably the least representative of most self-described 'libertarians.'
Or put simply: Mike critiques what Mutalist blogger Kevin Carson calls 'vulgar libertarians.' That still makes them libertarians in the general sense.

Francois Tremblay said...

So why doesn't he just say that on his blog title then?

PT-12599 said...

Because his site IMHO is for non-libertarians to read critiques of reasonably representative LP platform issues, not for libertarians to read about critiques of their own particular brand of small-L libertarianism.

Francois Tremblay said...

Since most people who call themselves libertarians are not LP supporters, that's a very disingenuous thing to say.

PT-12599 said...

Oh really - "most," Francois? Got hard numbers to back that statement up?

Tell you what: I know libertarianism has many shades. I'll also tell you this: the LP is the most publicly visible organization representing libertarian citizens, period. That's the truth -- deal with it.

If one particular platform ends up being the most representative of all the members of the LP, well, tough luck to all the other libertarians who didn't chime in more. You could say that about ANY political party where there are ALWAYS members on the fringes who disagree to various degrees with certain parts of the platform.

Mike's sites have always been about critiquing positions that have been proposed by a member/institution that would SELF-identify as 'libertarian'. If he doesn't get into all the different types, that's not his job. If they claim to be libertarian one way or another, he is more than entitled to take them at their word.

And I'm pretty much done with this discussion.

Francois Tremblay said...

So am I. I've made my point.

Inquisitor said...

PT. I could not care less what "Huben" did or did not do. Collaging crankish articles on libertarianism is no real achievement. Why don't you prove most libertarians are associated with the LP. Go on. Run along.

Inquisitor said...

"I don't see how Austrian economists have any credibility left any way. For years they've tried to promote their beliefs by making economic doomsday forecasts based on the fact that modern economies generally don't do things the way their theory says. (They'll have some explaining to do in a few years if the American economy stabilizes without a major collapse or hyperinflation.) Yet at the same time they tend to dismiss other people's doomsaying based on environmental or Malthusian concerns. Anyone who has to use apocalyptic rhetoric without supporting empirical evidence to try to get his message heard above the noise probably knows he has a weak idea to begin with."

I don't know why ignorami choose to muse upon subjects they know nothing of. And yet, here you are, doing just that. Put up or shut up.

macsnafu said...

Hey, Mike Huben is doing an actual blog! I'll have to bookmark this for the occasional laugh...

But seriously, Mike, even classical ecnomics tends to favor free markets. You can't seriously diss Austrian economics without a better context than you've provided. You're not trying to say that the Keynesians who got us into our economic mess are right, are you? You're not trying to justify the Federal Reserve's existence are you?

macsnafu said...

Oh, and just to make it clear: Austrian economists are not against quantitative measurement--they are against quantitative measurement AS theory, instead of it being used to measure something that's already been defined by theory.
A simple example: Exactly what does GNP - gross national product measure? What does it mean when the GNP changes? The numbers themselves tell you nothing without a theory that defines those numbers. Science is not a mere numbers game. Mathematics is a logical tool, not a theory.

Phileas said...

"Science is a better way of knowing than philosophy, because scientific theories have to explain close to all the scientifically collected data"

Unfortunaley you don't explain what scence is and unfortunately this can be explained only by philosophy
Otherwise you assume the old story that scinece is mathematic or means "measurements". This is an assumption that you have to justify and in the case of economics Austrkans can demonstrate you that you are dead wrong

Mike Huben said...

Phileas writes:
"... you don't explain what scence [sic] is and unfortunately this can be explained only by philosophy."

Your faith in philosophy is touching. Science is much better explained anthropologically than by philosophy.

"in the case of economics Austrkans can demonstrate you that you are dead wrong"

Please, go right ahead and prove me "dead wrong". Empty boasting about what you claim Austrians can do is not worthy of a response.

Julien Couvreur said...

I would like to join on mikey's unanswered questions earlier:

"Can you give some examples of mathematical formulas you think are valid for economics?"

I am curious to learn a law of economics proven using data. Textbook references appreciated.

Michael Brown said...

I third the motion for an example.

TheLowlyPhilosopher said...

To the readers of this blog:

After perusing this blog and in particular reading the entry, The Parable of the Ship: Why Austrian Economics Fails among others, I felt that if there were others who read this blog in general, and in particular the Parable of Ship and (even though this was originally posted over a year ago) it would be beneficial to offer some criticisms of Mike Huben’s general “philosophical belief system” or rather perhaps what he would prefer should be labeled, his “scientific belief system” and in particular his claims concerning science versus philosophy.

Although I have taken some undergraduate economics I do not pretend to be an expert in Economics. My education is in Philosophy (primarily epistemology, logic and the philosophy of language). And it is from this philosophical education that I believe that Mr. Huben asserts views that are quite simply mistaken.

I will proceed with offering criticism of direct quotations that Mr. Huben espoused in the Parable of the Ship blog entry.

Those quotations being:

1) “But the great fault of Austrianism is that it is not scientific. Science is a better way of knowing than philosophy, because scientific theories have to explain close to all the scientifically collected data. For all the faults of conventional economics, it is far closer to a science than Austrianism because it relies heavily on data.”

2) “Since Austrians are innumerate, instead they must rely on their assumptions, which needless to say tend to have a very right wing bias. Science does not work that way. Nor can Austrians really defend their assumptions: no assumption about the real world is totally true which means that there is fallacy in all their logic about the real world.”

3) “This is not a new position: it is basic to science and ought to be basic to philosophy. Hume said it very clearly 260 years ago: Does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Commit it then to the flames: for it can contain nothing but sophistry and illusion.”

4) “When confronted with real-world problems that could have multiple causes, logical verbal models are insufficient. You MUST introduce measurement and mathematics into your models if you want to have any hope of valid answers. Logical verbal models are sufficient to specify possible chains (or networks) of causation, but telling which are significant is a quantitative problem that requires measurement.”

5) “Your faith in philosophy is touching. Science is much better explained anthropologically than by philosophy.”

From 1) “Science is a better way of knowing than philosophy”. That seems a rather strange statement to make. To know something, is to know something that presumably is true. Whether it is known philosophically or scientifically seems irrelevant. If something is known to be true it is true, is it not?

Mr. Huben additionally states, “scientific theories have to explain close to all the scientifically collected data.” Notice the use of the qualifier “close to all”. Thus by his own admission Mr. Huben admits that science does not explain all of the collected data. What we call Science at best is no doubt, a very useful conjecture or theory that does not completely explain all the observations. Indeed this is what philosophers of science particularly Popper argue; that science is open-ended. Science progresses by falsification. Indeed this is how we have changes in our scientific theory. It is by trying to fit new unexplained and incoherent observations into our present theory and when these observations contradict our present theory we must alter our theory. Kuhn also argued along theses lines when he talked of the Paradigms of science.

TheLowlyPhilosopher said...

From 2) If we actually take Mr. Huben’s argument to its logical conclusion (Science which by the way was once called “Natural Philosophy”) we must ask how can science be totally true?
After all does not Mr. Huben state that “no assumption about the real world is totally true” Then why are science’s assumptions accepted to be totally true?
Or perhaps Mr. Huben would claim that science is purely empirical, indeed when he quotes David Hume he appears to be arguing this. But perhaps he forgot the Philosopher Immanuel Kant who said

“But though all our knowledge begins with experience, it does not follow that it all arises out of experience. For it may well be that even our empirical knowledge is made up of what we receive through our impressions and of what our own faculty of knowledge supplies from itself…Whether there is any knowledge that is thus independent of experience and even of all impressions of the senses. Such knowledge is entitled a priori. And distinguished from the empirical, which has its sources a posteriori that is in experience.”
From The Critique of Pure Reason

The point is that to believe that the only valid knowledge is empirical or rather scientific is quite simplistic as Kant quite well pointed out.

But perhaps Mr.Huben would claim that science has no a priori assumptions, which is patently false. The question is Mr. Huben, how can science prove itself to be true?

Ultimately (induction, science, a posteriori knowledge) and (deduction, logic, a priori knowledge) both are systems that have axioms, principles, postulates, premises that in themselves are not proved to be true but are accepted to be true. Why is science (induction) inherently more conducive to the acquisition of truth than a priori deduction? If you reject a priori deduction (which is admittedly what Austrian economics is built upon) than you must reject the a priori premises that science (induction) is also built upon. But Mr. Huben does not do this. Why the inconsistency?

As the philosopher Wittgenstein said, in his work On Certainty

189. “At some point one has to pass from explanation to mere description.”

192. “To be sure there is justification: but justification comes to an end.”

253 “At the foundation of well-founded belief lies belief that is not founded.”

341 “That is to say, the questions that we raise and our doubts depend on the fact that some propositions are exempt from doubt, are as it were like hinges on which those turn.

342 That is to say, it belongs to the logic of our scientific investigations that certain things are in deed not doubted.”

474 “ This game proves its worth. That may be the cause of its being played, but it is not the ground.”

The point of these examples is to refute the notion that science is not based on a priori principles (something that Mr.Huben criticizes Austrian Economics for).

All events have causes is the axiom that science is built upon, but the axiom is in itself not proved to be true by science. It is accepted as being true (that is it is a necessary supposition for the pursuit of science). But these axioms are no less valid than the axioms that Austrian economics utilizes. Indeed all axioms ultimately are not provable; they are accepted as being true and the rest of the logical framework as it were follow from the acceptance of these axioms.
I repeat, the criticism of Austrian economics because it is based philosophically on a system built from deductive a priori axioms is not valid in of itself for if it were, the same criticisms of accepting a priori axioms ought to and must be applied to the empirical scientific methods which are also built on a priori axioms.

TheLowlyPhilosopher said...

From 3) It seems ironic that Mr. Huben quotes David Hume when the main contribution to modern philosophy that Hume is known for is his argument against the certainty of induction and thus science. Hume famously is known for his argument that just because the Sun has risen for billions of years we cannot be certain that it will rise tomorrow. We cannot derive certainty from scientific observations (induction). Thus Hume rejected the idea that science and induction could give us absolute knowledge only probable knowledge.

From 4) “You MUST introduce measurement and mathematics into your models if you want to have any hope of valid answers.”
The criticism is that the Austrian school of economics regards measurement (data and observations) as being overall, not important or very relevant for the study of economics.
Indeed, the Austrians argue that what we call the economic system is so complex with multitudes of constantly dynamic variables that science cannot hold the independent variables constant to observe the dependent variables. The misconception is that the Austrians hate science or the scientific method. On the contrary they argue that science has great value in things that science can be relevantly applied to such as; Mechanics, Physics, Chemistry etc.
It is just not (with very rare exceptions) applicable to the study of economics which is in their view purely deductive. That is, the study economics is similar to the study of logic in that is deductive from first a priori principles.
The use of mathematical models and statistical techniques etc. the Austrians basically argue, you can call it what you want, but it is not really science, as it is traditionally known.
Science, the Austrians would argue is repeating the same experiment over and over again with strictly controlled variables and observing the results. (The scientific method) This cannot be done with a system as complex as the economy to any high degree of proficiency and certainty. How does one know that all the variables are being held constant? As Mr.Huben states from 1) “For all the faults of conventional economics, it is far closer to a science than Austrianism because it relies heavily on data.” If the theory that is proposed to explain the “data” cannot be experimentally verified, tested and confirmed by repeating the experiment then would it really be science?

Mr.Huben argues that you must introduce measurement and mathematics to have valid answers because verbal logic is not sufficient. What about symbolic logic? Are not the symbols and methods of mathematics ultimately translatable into algorithmic logical processes?

From 5) and in closing, to state, “your faith in philosophy is touching” displays a childish condescending attitude. Science is a branch of philosophy, indeed what is a PhD in physics anyways? A doctor of philosophy degree in physics.

The fact is whether Mr. Huben accepts it or not, Philosophy is the mother of all other intellectual pursuits. Everything intellectual is derived from and of Philosophy!

Mike Huben said...

I respond at:

TheLowlyPhilosopher's foolish defense of the Austrians.

zdz said...

Austrian Economics are based on the fundamentals, and the fundamental driver of life is evolution. Economics is nothing more than a form of cultural evolution, and is thus much better understand as the complex result of interaction between a dense mass of relatively primitive actors (us). What Austrian Economics fails to see is the natural tendency in nature to form bigger units out of the existing smaller units an then let the evolution go on on this higher level too. Animal and people are just conglomerates of cells, and the individual cell is not that important anymore. Nowadays economics is a game between a few dozen countries composed by human cells. There is no room anymore for economic freedom, just like there is no room for clean racing teams at the 'tour de doping' in france. A modernized Austrian Economic theory should include a meta-level of a few dozen actors (the countries) which do not respect any of the fundamental rules of civilization, that rather act like primitive animals thriving to survive.

Julien Couvreur said...

zdz, Austrians do see emergent behavior as a very important part of economics. They also consider large groups, such as nations.

But they do not forget that "at the bottom", only individual humans make choices and act. Therefore, any macro theory needs to rest on and be consistent with microfoundations.

Economics need "microfoundations" meaning a plausible explanation why people act the way they do.

Mike Huben said...

"... only individual humans make choices and act."

That statement is wrong in so many ways!

Many of our most important decisions are NOT based on individual decision making, but on group decision making. It's not an accident that we have juries of several members, as opposed to a single judge. The idea is that many points of view are less likely to overlook mistakes, or omit important possibilities. Scholarly knowledge of all sorts, including science, is likewise established by communities. Individuals may do the creative work leading to proposals, but the evaluation of which proposal is best is a social function performed by groups.

If you want examples that are NOT human, we can start with robo-traders on the stock exchanges, which are very important economically now. You could also call humans acting as agents less than human in their functionality, since they are often expected to behave in stereotyped manners like automatons.

Likewise we could claim that only individual organs or individual cells "act", and deny the existence of "humans". You are really just a collection of cells. Or we could take the selfish gene approach and call you a robot constructed in the interest of your genes.

"Therefore, any macro theory needs to rest on and be consistent with microfoundations."

Yet another unjustifiable and stupid error. Science is loaded with examples of analysis at MANY levels without regard to lower levels. Gas laws were constructed long before the nature of atoms and molecules was well understood. Science is also famous for inconsistent foundations, such as quantum mechanics and relativity.

These are just typical Austrian claims in support of their pseudoscientific, authority-based assertions.

Julien Couvreur said...

"Many of our most important decisions are NOT based on individual decision making, but on group decision making."

You ignore that groups are composed of individuals. In other words, individuals individually agree to participate in a proposed decision making process. The group has no "mind of its own".
Another undeniable way to state it is that the group decision can be traced back to individual decision.


"You are really just a collection of cells."

Yes, but cells don't have will. They do not make choices and act. They only react.

Robo-traders are extension of the mind of their owners. I design the algorithm and decide to let the algorithm execute transactions on my behalf. Again, all decisions are directly due to individuals' decisions.

"These are just typical Austrian claims in support of their pseudoscientific, authority-based assertions."

Since you oppose a priori reasoning, I will ask you to prove this assertion empirically, before I take your claim for it.

"Science is loaded with examples of analysis at MANY levels without regard to lower levels."

What is true for physics is not true for mathematics or social sciences.
Physical has proven its value and method by producing strong results, macro-economics of the kind you suggest has not. It may not be impossible, in the absolute, but there is little evidence in support of your claim.

zdz said...

@Julien Couvreur
"Austrians do see emergent behavior as a very important part of economics. They also consider large groups, such as nations."

After studying evolution, it's easy to understand the basics of Austrian Economics. The same principles, like composition of "primitive actors" to higher level units with complex emergent behaviour.

But there is one big point that messes up the whole thing at the higher level. We know from our personnel life, that there are different environment that stimulate different kinds of competition. An engineer, a software developer or a soccer pro compete by performance and capability. To make a career in the catholic church or some human rights organization, you need an entirely different set of skills (opportunism, lying, pretending, acting, networking, manipulating, building intrigues ...).

Although austrian economics are really based on common sense, that is empirically observable reality, it seems the assumption is that the criteria for economic 'fit' is the same on all levels, and therefore a free market will will bring the best results on a local and on a global scale.
But on global scale its all lies, manipulation, scam and fraud (in one word: politics). Although thats definitly evolution with a lot of competition, the criteria of 'fit' and success are completely different from those in more honest local economics.
I never read something serious about a way to model this kind of "scambag-economics".

Diego said...

Mr. Huben, you must ask yourself what drives you to make these posts and comments. Your arguments seem to support the notion that you do not act, and that if you ever form part of a jury, you would not make a conscious decision in the process of deliberation.

Historians realize that there are really no such notions as a "nation" or "country" or "religion" who act, it is always people within these groups who take decisions and act upon them. Evidently, it is not the decision of a nurse to give medicine to a sick man that caused Hitler to invade Poland, although that decision may have taken place at the same exact moment in time, and just a few meters away from the place Hitler made the final order. The historian must choose what persons and which actions were relevant in order to make his analysis.

Mike Huben said...
This comment has been removed by the author.
Mike Huben said...

What incoherent drivel.

It's because you're trapped in Austrian propaganda terms, such as "act".

I've created a new page for that particular term:

http://critiques.us/wiki/Act

It will be part of my glossary of libertarian propaganda terms.

Diego said...

So what you are saying is that when someone receives an order and executes it, that person never decides to follow or not?

And that a habit is something that you can learn or break on purpose?

And that when you act you cannot commit errors? Or that satisfying a whim is an action? just as deciding not to do something on a whim?

Or that when you have a strong biological impulse you cannot use your reason to control it? Or to let go?

I am not sure you quite understand the concept of action in any way. See Merrian-Webster: 1- a) the doing of a thing: deed; b) something done voluntarily. 2- a state of real existence rather than possibility... 4- the process of doing.

I am not arguing with your despise of austrian economics. But you do have a wrong description of what action is to austrian economists.

Mike Huben said...

I quoted Rothbard for the Austrian definition, you idiot. Austrian economists do not use the dictionary definition for the word "act".

Anita said...

Two problems with your post Mr Huben. Firstly your example is completely misrepresenting the reasons why Austrians do not believe in the use of mathematics. In the case of the sinking ship any Austrian would most certainly advocate the use of maths because what the captain is trying to figure out deals with INNANIMATE objects. Austrians object to the use of mathematics only when it comes to events directly involved by the way human beings choose because the experiment becomes self determining.

Secondly, at no point does positivism argue that the aim of positivism is to find a single cause for economic affairs. Neither does Austrianism by the way. In fact Milton Friedman in his Methodology of Positive Economics says that the aim of positivism was to enable people to make decisions about policy issues without there being any dispute about the effects of the policy. The aim of positivism was from the get go to create a wertfrei science which coincidentally also the aim of Austrian economics. Also if Austrians are so terrible at predicting how come they are the only school of thought that predicted this coming crisis when people like Paul Krugman and Ben Bernanke were making grandiose statements such as "the housing bubble will never burst"?

Diego said...

Mr Huben, I remind you that it is you who makes the comparison with the English language, "This dog-whistle term from Austrian Economics differs from standard English usage by..."

As I tried to explain above before you insulted me, most of those examples are included. See Mises in Human Action for instance: "Most of a man’s daily behavior is simple routine. He performs certain acts without paying special attention to them. He does many things because he was trained in his childhood to do them, because other people behave in the same way, and because it is customary in his environment. He acquires habits, he develops automatic reactions. But he indulges in these habits only because he welcomes their effects. As soon as he discovers that the pursuit of the habitual way may hinder the attainment of ends considered as more desirable, he changes his attitude. A man brought up in an area in which the water is clean acquires the habit of heedlessly drinking, washing, and bathing. When he moves to a place in which the water is polluted by morbific germs, he will devote the most careful attention to procedures about which he never bothered before. He will watch himself permanently in order not to hurt himself by indulging unthinkingly in his traditional routine and his automatic reactions. The fact that an action is in the regular course of affairs performed spontaneously, as it were, does not mean that it is not due to a conscious volition and to a deliberate choice. Indulgence in a routine which possibly could be changed is action."

Now, perhaps Mises and I are idiots, as you enjoy saying, and austrian economics sucks as a method to study economic phenomena, but you should correct your definitions. Most of those things you say the definition of action excludes are included.

Mike Huben said...

Anita, you can talk about misrepresentation when you stop it yourself. I have not brought up positivism here, nor Krugman, nor Bernanke nor "single cause".

Really, if you'd like to criticize something I wrote, then you should learn to cite the passage you are criticizing.

In my example there are both animate and inanimate factors: unless you think the crew are automatons. Mathematics is still entirely reasonable for dealing with the Austrian "animate" behaviors: there are several fields, with Game Theory most popularly known. And indeed, the mathematical economics behind the gambling industry is a perfect counter-example to claims that "animate" actors rule out mathematics.

And if you want to whip out claims of what Krugman and Bernanke said, cite a credible source.

Credible sources have pointed out a variety of people who predicted the bursting of the housing bubble and consequent economic turmoil. None of the academics who predicted recession were Austrian. However Austrians have been routinely predicting recession or worse every year for decades, and when recessions come along they tend to be for different reasons than the Austrians cited. Take a look at the Mises blog for 2007 for example.

Mike Huben said...

Diego: Rothbard was a direct student of Mises, as you probably know. He and Mises use the term "act" as a fallacy of the shifting middle term. At some times they intend their specific revised meaning, and other times not. That sort of deliberate ambiguity is a common PR tactic to confuse the debate.

But thank you: I've improved my page by adding this:

When criticized for such redefinitions, a common defense is to provide caveats that allow indefinitely extended (and thus inconclusive) argument. Here is an example from Mises' Human Action: "The fact that an action is in the regular course of affairs performed spontaneously, as it were, does not mean that it is not due to a conscious volition and to a deliberate choice. Indulgence in a routine which possibly could be changed is action." These caveats remove all the logical strength of the original definition, and make any particular case a matter of authority about whether or not the term applies.

This sort of redefinition and caveat system is also very common in Objectivism and other crank fields. It's really a form of epicycles: complex, ad hoc and unjustifiable corrections to theories to allow the rhetorical defense of their differences from knowledge of the real world.

Anita said...

Also the reason why Austrian economists are constantly predicting recessions during booms is because according to Austrian business cycle theory a boom will always be followed by a bust. Care to name a single boom that was not followed by a bust? You cannot it is impossible, every boom in history has been followed by a bust which is why it is called a cycle!

Mike Huben said...

The Bernanke article was from 2005. Reasonable people disagreed at that time. Later, still before the bust, they did not, or did not publicly because it could cause a panic.

The list of Krugman citations is comic. Most are from 2001, long before the bubble really grew. One from 2005: "That's why it's so ominous to see signs that America's housing market, like the stock market at the end of the last decade, is approaching the final, feverish stages of a speculative bubble." That's about as clear a position of Krugman's as you could ask for.

As for Austrians predicting the bubble, it's obvious that they did not do it with Austrian methodology. Take a look at the first example on that list, Housing: Too Good to be True by Mark Thornton. He provides graphs of how investments and housing starts change over time: where is that described in Austrian methodology? And he gets some things embarassingly wrong: "Housing bubbles typically do not pop like a balloon; they don't even crash like stock markets."

Perhaps you should follow some of those links before you believe the lies. That's why arguing with libertarians and Austrian believers is so tedious: you have to fact-check everything because almost every argument is laden with a tangled mess of bad logic, bad facts, bad history, and outright lies.

Anita said...

Austrians do not say that you should not use graphs to illustrate a point!!!!! They say you should not use maths in order to reject a theory that is a priori valid.

Also these quotes are hardly comic. If mainstream economics is so good at predicting it should be able to do so before the situation is irreversible. Can show me how mathematical modelling has helped us PREVENT a crisis by prediting it early enough? No because it never has. Predicting that the housing bubble will burst two weeks before it does is hardly an achievement. Also Thornton and the rest of the Austrians have NEVER made a claim to being able to predict. The fact that they do so successfully often is interesting especially because they make no claim to being able to make such predictions. Other economists make claims to being able to predict and the only reason why not all these predictions fall flat on their faces is because the only way to confirm them is ex post therefore you can never fully reject them. Mainstream economists have famously abused mahematics to predict a whole manner of crazy things notice the extremely famous Card and Krueger paper that found that minimum wages increase EMPLOYMENT!

Also, I would appreciate it if you did not resort to Ad Hominem in your responses it makes them much more credible. I was also wondering if you had any comments to show why a Prisoner's dilemma would lead to the same response every time as suggested in my previous post given the complexity of interhuman relations and interractions and our ability to perceive of events and consequences that go further than our immediate gratification.

Mike Huben said...

Anita: "the reason why Austrian economists are constantly predicting recessions during booms is because according to Austrian business cycle theory a boom will always be followed by a bust".

Golly, and nobody else has ever known this! Let me make a prediction: at some time soon the hands of the clock will be at the same position. Golly, I must be a seer: it's come true! This sort of prediction is called cold reading, and it's a basic tool of psychics and other frauds such as Austrians.

What makes a prediction interesting is when it is precise or distinctive enough to avoid inevitability. Fools like you are suckers for that sort of trick. Learn something about how cycles such as cyclic population buildups are scientifically characterized before you naively believe Austrian rubbish about cycles.

Anita said...

You criticise me for logical fallacies yet to resort to the oldest one of them all Ad Hominem. I see no reason to attack you personally yet you have done so repeatedly. I am sure you are more than capable of attacking the theories I believe in without attacking the person that I am. The point is Business Cycles are not inevitable. Booms and busts are not inevitable they become inevitable due to the system of central banking. Predicting that it is this system that causes the inevitability of booms and busts is not as self evident as predicting time. Also even if Austrians had failed to predict the current crisis which like I said before they never claim to be able to make preditions they are the school of thought that has been best able to explain it and THAT is the aim of the Austrian school. You cannot accuse someone of failing to achieve something they did not aim to achieve. I criticise non Austrians on their ability to predict because they believe that they can.

Also, what ideology do you stand for? Anti-libertarianism is not exactly an ideology. What are you actually for? I would be very interested to hear what your genuine beliefs are and not just what you stand against.

Mike Huben said...

That is really funny backpedalling, Anita. Throw a whole bunch of standard Austrian excuses, no matter what sort of incoherence they have together. A boom will always be followed by a bust, but Business Cycles are not inevitable, central banking is at fault, we don't claim to make predictions but "Austrian economists are constantly predicting recessions during booms".

Oh, and the indignant plea against ad hominem. I'm not saying your arguments are wrong because you are stupid. I'm saying you are obviously stupid because your arguments are so egregiously wrong. You can't even get the informal fallacies right. Perhaps you mean that I am insulting: tough. If you think you deserve respect, earn it.

And if you want to know my ideology, sorry: I don't have one. My beliefs are not ideological. If you don't know the difference between the terms, educate yourself. However, I do have some pages describing myself. Do the minimal work to find them. Don't expect a handout.

Anita said...

Mr Huben,

the fact that Austrians make predictions does not mean it is the purpose of the science they have developed to make predictions. It is with positivism that the idea that the role of economics is to predict originated. And notice how in one of the most fundamental essays for the formation of positivist ideology and mathematisation of economics The Methodology of Positive Economics Milton Friedman explicitly states an envy for the natural sciences in footnote 2 to justify his use of mathematics. It is nothing besides envy for the natural sciences that has led to mathematisation of economics. However, if the mathematisation was productive the cause for the inclusion of mathematics in economics would be immaterial. It is not useful though, it has merely led to an endless production of papers that do not help explain human behaviour and are rarely cited in any subsequent papers. The Economic Science as a result of this mathematisation has become a set of disjointed disciplines that together do not form a coherent science. How is it possibly that a science can emerge that shows no coherent link between how individuals and firms behave (microeconomics) and how society as a whole behaves (macroeconomics)? The reason is that none of these disciplines can account for choice and uncertainty. How can a mathematical model include choice and uncertainty and resolve problems of class probability? The difference between social sciences and natural sciences and the reason why Austrian economics makes no claims to being able to predict as a science on its own is because economics deals with CLASS probability whereas natural sciences deal with CASE probability. How can you use the same method for sciences dealing with totally different things?

Diego said...

Mr. Huben,

Im glad that now that critique on the concept of action is not that it excludes so many things, but that it includes what it says it excludes, as well as too many more things. Perhaps there is something

Meanwhile, you should keep waiting for an empirical proof of the concept of opportunity cost.

Liv said...

hahahahahahah your explanation why "action" is not necessarily a HUMAN act but it can be extended to ROBOTS ("so commonly used nowadays") is hilarious!!!

But keeping respect to your arguments (if we can call them this way since I haven't understood yet what you want to the defend other than criticizing the Austrian School), I would like to understand what YOU call "act" - because obviously you are NOT quoting Austrian definition of it, although you say you are; you're ignoring the very tiny "detail" Austrians insist on, and that is, even if your not conscious whilst making decisions, your acts are NECESSARILY DELIBERATE. I'd like to see a robot saying "I do this work because I WANT IT".

Plus, I'd like to say that I'm really sorry for you: creating this blog in order to criticize an ideology but WITHOUT PROPOSING ANYTHING NEW (you said explicitly you have no ideology yourself) must be really said..........!

Mike Huben said...

Liv, that's one of the more incoherent comments I've seen lately.

You patently did not understand my criticism of the idea of action.

I don't need to define "act" any more than I need to define "soul": they have no explanatory value in my way of thinking. Thinking with the Austrian idea of "act" is as stupid as thinking with "soul": both are silly fictions that have nothing to do with the real world.

I'm not "defending" an alternative view: not even my own. I am pointing out that various libertarian views (including Austrianism) are clearly wrong. It is fallacious to presume view A is wrong because view B is right: both could be right. It is also fallacious to claim that because view A is wrong, view B must be right: view C could be right.

I have my own philosophy: evidently you are unaware of the difference between ideology and philosophy.

Haris said...

It is funny how you criticise Liv for misunderstanding your argument when you have patently no idea what Austrian economics is about. The large number of comments criticising your misuse of terms, your blatent misrepresentation of ideas and your inability to follow Austrian arguments should be an indication that maybe you should do some reading. Also while you do that, take a page from the Austrians book that says science should be "wertfrei" maybe then your writing will stop being so emotionally wrought and obviously biassed.

Liv said...

Obviously YOU don't know the difference between the two: "philosophy" comes from Greek and it means "love for wisdom"... you search to learn more and more about the world (which necessarily means you cannot have your OWN philosophy... knowledge is independent of the human being who absorbs it). And "ideology" comes from "ideas" (which would be the only single possible thing you could have... and you don't.)

With that said, in order for whichever debate to flow, you need to define terms... so we know we're "speaking the same language". If you don't care about definitions (and yes, defining soul is actually EXTREMELY important as well for example in some religions), than it's clear enough you do this blog to convince YOURSELF of a fake reality... the reality "of your own" (using the words you've used).

And yes, I have nothing to say against that. But just to let you know: this is NOT the libertarian point of view.

Mike Huben said...

Shorter Haris: You're a doodyhead!

Shorter Liv: Define: define!

Look, if you two knuckleheads want to make a real contribution, quote something I've said and explain what is wrong with it. Vague "you're wrong, you know nothing" claims unaccompanied by an example are worthless.

Joanna Liberation said...

http://critiquesofcollectivism.blogspot.com/2011/02/mike-huben-goes-philosophical.html

Marco said...

You are ideological.

Here's a quote from your Non-libertarian FAQ:

"Beyond this perceived class interest, libertarian dislike of "initiation of force" isn't much different than anyone else's. It may be humanitarian, defensive, etc."

You believe that there is such thing as a class, and that class can have an 'interest'.

That makes you a closeted Marxist.

Daniel Fernando said...

This is the worst definition of marxist ideology of all.

You should study more about sociology and marxism.

lambchowder said...

Look at these Austrians sperg out, everything with them comes down to definitions and quibling over their meaning, then they go "math can't know things maaan."

No such thing as class? Doyyy.
Best was the guy up there who tried to assert that philosophy was a reliable way of knowing things. Philosophy deals with unanswerable questions, hence its called philosophy. Did philosophy ever determine if we are free actors or deterministic? How about if a boat reassembled piece by piece on a voyage is the same boat at the end of the journey? No.

godisdead said...

y'all acting like children

Arthur Schler said...

Speaking of measurement... @Mike, I understand that you're a man who's eager to learn about the world. That's the same with me. ;-)
Whenever someone is claiming something, it should be possible to find out if it's true or false. You just have to find ONE logical reason in order to falsify what the other one has said. Measuring the reality is a way too, but the problem still remains: HOW do you measure?
You see, it's no problem to "measure" e.g. that every victim of a crime did something which at the end made the delinquent commit the crime EXACTLY on that person/victim.
But you wouldn't therefore support the theory that in order to shut down crime, nobody shouldn't DO ANYTHING, would you?
My point is: If you WANT to hold a certain theory down, you will ALWAYS be able to find certain data to proof that. Just shut out (up?) evrything else and you're fine.
What I'm asking you: Are you really satisfied with that?

IceManSaul said...

I like the parable of the ship. It actually explains why modern economics fails, and Austrian economics succeeds. An political solution to economic policies fails simply because there ARE so many possible causes for a problem.

A free market version of the ship analogy would have one person responsible for watching the monotoring circuitry, another checking the hull for leaks, another responsible for securing all the hatches, and so on. A free market allows many different people to contribute their minds to solving a complex problem with multiple causes and variables.

Modern neoclassical economics is much closer to the top-down approach of the captain, one person identifying a couple causes, addressing those, and thinking he has solved the problem.

Mike Huben said...

IMS wrote:

"An political solution to economic policies fails simply because there ARE so many possible causes for a problem. "

That's what technocrats do. Did it ever occur to you that deciding what tasks should be performed by markets and what tasks should be performed by governments is a political solution? It cannot be decided well by ideology: it must be decided by experience.

"A free market version of the ship analogy...."

Did it ever occur to you that crews of ships, including captains, are assembled through markets (excepting conscription)? Did it ever occur to you that owners assemble little government-like centralized hierarchies in their own companies? There's a reason they do that, called the theory of the firm. Very few companies have market-like transactions within.

You can suppose all you want about the magic of perfect, imaginary free markets. In the real world, there are market failures that prevent the perfection you desire. If you cannot identify the market failures, then you need to learn some more economics.

But my purpose here is to illustrate ways in which the owner failed to THINK correctly. Ways which are STRONGLY analogous to Austrian economic methodology. I recommend that you re-read the post more carefully with this in mind.