Start talking about economics, end up talking about how 2+2=4…
Because why not?
NEODOXY. LET’S DO THIS!
In particular I think that it’s very important to realize that there is no such thing as a perfect consensus in any school of economic thought, and therefore I believe that whatever either of us points to as “the consensus” is going to be somewhat arbitrary and anecdotal.
Fair enough. Consensus is probably the wrong word. But I would say that at the very least the neoclassical model of static consumer behavior could be considered a “textbook” model that every mainstream economist must lean and that other models are either extensions (dynamic consumption models) or deviations from (behavioral models) this textbook model. IOW it is a benchmark model that all mainstream economists learn and all consumer behavior models could be compared against. I dont thing Austrians have a similar “textbook” model. I could be wrong.
"I should also note that within the umbrella of what we consider mainstream economics there are a lot of essential elements of AE that are “somewhere” within neoclassical economics, however these are not given nearly the emphasis that they are in Austrian economics… I have never seen a mainstream professor present the market economy as something that struggles towards equilibrium and that equilibrium is never something that is fully reached, that the economy as a whole is always struggling to reach equilibrium and that this is continually broken, and I have also seen this uncertainty surrounding real values and the uncertainty of these values in the market used as the basis for attacks on the capitalist economy. "
I would agree with that. One thing I do like about Austrians is that they do emphasize the market process toward equilibrium over simply finding equilibrium itself. Like I said earlier, I don’t think mainstream eocnomists would disagree with this (and they certainly have models to characterize this process), it is simply not given the emphasis it deserves (even in graduate classes but especially for undergraduates).
“I also think that it’s unfair to sweep aside Austrian macroeconomic theory when talking about differences between the two schools since, well, that does account for about half of all economic studies (I consider all mainstream macroeconomic schools of thought (with the possible exception of real business cycle theory) to be derivatives of Keynesianism which is in turn a derivative of neoclassical economics).”
Well, I don’t mean to overlook it per se. I just wanted to focus on micro for two reasons. First, it seems that if Austrians can agree with mainstream economists on micro there is no reason you couldn’t develop an Austrian macro model using mainstream micro. So it is less a seperate school of thought and simply one more macroeconomic theory of the business cycle. Second, I personally agnostic on most macro issues (i have no clue uncer what circumstances RBC or Keynesian or ABCT is the best model and the data for trying to answer that question are pretty poor). Third, business cycles are boring. 
Another important area where neoclassical and Austrian economists adhere to different beliefs is in the area of economic calculation. In mainstream models it’s never really addressed, which is a massive failure since calculation is what makes the entire economy possible (see the socialist calculation debate) and there are very real outcomes of interfering with this form of calculation.
Hmm I disagree. But maybe it is a matter of experience. I first read Hayek’s essay on economic calculation in my intermediate macro class. I had to read it again in my undergraduate industrial org seminar. Maybe my experience is atypical, but I think Hayek’s argument is solidly neoclassical and fully incoprorated into the mainstream. Of course, it may not get near as much emphasis these days since the socialist calculation debate ended 70 years ago.
he very attitude of economic inquiry within Rothbard’s text is also extremely different than what I’ve seen within any sort of neoclassical work. while Rothbard’s book is filled with life and a more fluid look at human behavior, what I’ve seen out of neoclassicism seems to be extremely rigid, mechanistic, and non-human. This might not even lead to any differences in the description of events, but it is a difference.
Fair enough. Though, imo, Rothbard strikes me more like a prick with a political and methodological axe to grind in 90% of his writings. Which is weird because I love Paul Krugman’s textbook even though in his popular writings he is also a prick with a political axe to grind. But when he is writing about economics he strikes me as a scientist trying to understand naked ape behavior. I find that more appealling. But it could be a difference in tastes.
Student,
You have simply demonstrated the additive property of integrals
No. I assumed that, not proved it, as my post explicitly states.
This is not the same thing as “proving” 2 + 2 = 4. The additive property of real numbers is a totally different beast.
You are conflating three distinct things. A. Additive property of intrgrals. B. Additive property of reals. C. 2+2=4.
You seem to think that “2+2=4” is the same thing as “Additive property of reals”. No, it isn’t. I suggest you go ask someone you trust to clarify this blunder for you.
When I took real analysis several years ago we talked about how you could prove that the set of real numbers satisfied this and other properties, but it is a bit beyond me now.
Once again, you blunder. Real analysis course usually take two possible paths. One is to assume the reals are a complete ordered field, meaning they assume those properties, and do not prove them. The other is to assume the positive integers obey the usual laws of addition etc, what you call the additive property of numbers, and from them construct the real numbers and prove they, too, obey the usual laws. Bottom line, real analysis courses do not prove the additive properties of positive numbers. They just accept them. Courses on set theory usually devote themselves to proving the additive properties of positive integers.
In any case, even if we have either proven or taken as a given all the above rules and properties, a seperate proof is needed to prove the particular fact that 2+2=4.
In any case, I don’t need to prove the additive property to make my main point. Which is that you need the additiive property of real numbers (among other properties) for calculus of real functions to even work.
Same blunder here, repeated. 2+2=4 is NOT the same as the addiitve property of real numbers. You need the latter to develop the calculus. But you do not need the particular fact that 2+2=4 to develop the calculus. The calculus can be developed completely using only symbols such as x, y, z etc. Nowhere is the fact that 2+2=4 used.
Specificaly, I am really not sure how you can say you’re not assuming that 2+2=4 when you take the integral of this function.
I’m sorry, but it is too complicated to explain to you in your current state of confusion about calculus and mathematics. Just take this little epistle to your trusted math teacher, sit humbly before him, and there you will find enlightenment, grasshopper.
The rest of your post makes the same blunder a few more times. Go, my son, swallow your pride. Don’t ask me, who you do not trust. Ask your math teacher. Just be ready for his guffaws and mockery if he isn’t the diplomatic type.
… Srsly guyz? Still?
I’m done, Neo. I sent him to his math teacher.
I hope Paul Krugman never reads this thread. Accept debate with Austrian economist…debate about the philosophy of math instead. Bob Murphy will have to raise something like a million bucks if that ever happened.
“I’m done, Neo. I sent him to his math teacher.”
If so that would be rather embarassing… Gradschool requires a pretty high level of math…
Student,
Just so we’re clear, I’m totally the one on the right… Kid’s a total baller.
“the neoclassical model of static consumer behavior could be considered a “textbook” model that every mainstream economist must lean and that other models are either extensions (dynamic consumption models) or deviations from (behavioral models) this textbook model. IOW it is a benchmark model that all mainstream economists learn and all consumer behavior models could be compared against. I dont thing Austrians have a similar “textbook” model.”
Do you think so? I’d disagree. I think that the Austrian vision of consumer actions is just one of changing, striving, and imperfect,
“Well, I don’t mean to overlook it per se. I just wanted to focus on micro”
I just think that it’s unfair to rule out half of econ and then make the claim that the methodology doesn’t lead to effective differences.
“Hmm I disagree. But maybe it is a matter of experience. I first read Hayek’s essay on economic calculation in my intermediate macro class. I had to read it again in my undergraduate industrial org seminar. Maybe my experience is atypical, but I think Hayek’s argument is solidly neoclassical and fully incoprorated into the mainstream. Of course, it may not get near as much emphasis these days since the socialist calculation debate ended 70 years ago.”
We’re at an anecdotal impass here, but I know that I’ve never seen one of professors so much as mention this, nor have I heard one of my professors so much as mention it. I talked to an economist that I know very well about Marxism and centrally planned economies and she never once mentioned the matter.
“Though, imo, Rothbard strikes me more like a prick with a political and methodological axe to grind in 90% of his writings.”
True fact is true, that’s why I take most of what he has to say with a grain of salt, although I still believe him to be a brilliant economist. Did you ever read the monopoly chapter of MES? That was particularly awful.
“I love Paul Krugman’s textbook even though in his popular writings he is also a prick with a political axe to grind. :P”
I haven’t read anything by Krugman that isn’t one of his fucking blog posts. This could just be because I align myself much more with Rothbard, but I didn’t see a lot of the same idiocy and emotional flaming that Krugman does whenever he talks. I’m sure that ultimately they have very similar reasons for being economists.
Do you think so? I’d disagree. I think that the Austrian vision of consumer actions is just one of changing, striving, and imperfect,
I dunno. As I have posted elsewhere, I am still having a hard time figuring out whether “income effects” are even considered legit in the Austrian model of consumer behavior. I’ve seen 3 authors giving 3 different answers.
http://libertyhq.freeforums.org/viewtopic.php?f=5&t=275
I just think that it’s unfair to rule out half of econ and then make the claim that the methodology doesn’t lead to effective differences.
Well, Austrian macro basically just ammounts of ABCT. And if that is the ONLY difference between Austrians and the mainstream, then I’m not sure why we need things like the Mises Institute advancing a single theory of business cycles. In other words, I think that effectively means Austrians are not a seperate school of thought.
We’re at an anecdotal impass here, but I know that I’ve never seen one of professors so much as mention this, nor have I heard one of my professors so much as mention it. I talked to an economist that I know very well about Marxism and centrally planned economies and she never once mentioned the matter
hmmm. really strange. Maybe she was just taking Peter Leeson’s advice to Austrians to heart:
"4. No more discussions about the calculation debate.
The calculation debate is very important but has been essentially dead now for a very long time. There is no reason for you to recount this debate, rehash its components, etc. We all get the point. You will feel drawn to rehash the calculation debate nevertheless. Resist this urge."
http://austrianeconomists.typepad.com/weblog/2007/03/austrian_vices_.html
but more seriously, it could be our respective academic environments (i would say most faculty at my undergrad were very intellectually open). if you take intermediate macro and they don’t include it as a syllabus reading, raise hell!
I haven’t read anything by Krugman that isn’t one of his fucking blog posts. This could just be because I align myself much more with Rothbard, but I didn’t see a lot of the same idiocy and emotional flaming that Krugman does whenever he talks. I’m sure that ultimately they have very similar reasons for being economists.
probably true. if you want krugman at his popular-econ-writing peak see his writings from the 90s.
A lot of people like his piece “In Praise of Cheap Labor”
http://web.mit.edu/krugman/www/smokey.html
I personally like his article “The Accidental Theoriest” (the hotdog & buns model blew my mind).
http://web.mit.edu/krugman/www/hotdog.html
“Well, Austrian macro basically just amounts of ABCT. And if that is the ONLY difference between Austrians and the mainstream, then I’m not sure why we need things like the Mises Institute advancing a single theory of business cycles. In other words, I think that effectively means Austrians are not a separate school of thought.”
I get exactly the opposite out of this. First of all you haven’t shown that there are indeed no differences between neoclassicism and Austrianism. Secondly business cycles (and the associated makeup of the macroeconomy) are by far the largest part of macro. I know that this is bad evidence of this fact, but wiki barely talks about anything else, my principles class talked about little other than economic aggregates, . Furthermore Austrian macro and micro are much more intimately linked than in mainstream economics, and the Austrian disposition against statistical, empirical, and quantitative analyses, as well as its emphasis on avoiding over-aggregation both set it quite apart. The entire makeup of ABCT, the time-structure analysis of production is wholly unknown in mainstream economics. There are also disagreements about certain aspects of monetary theory, as well as a much greater emphasis on behalf of Austrians on the importance of capital.
While the differences between mainstream economics and Austrian economics may not be as large as the differences between the former and Marxist economics, I certainly think that it qualifies itself as another school of thought since its very base components, as well as its advocacy of outcome and explanation of events, are much farther apart than the difference between, say, Keynesianism and Monetarism.
“hmmm. really strange. Maybe she was just taking Peter Leeson’s advice to Austrians to heart:”
Well I know she’s not an Austrian, but nontheless this is still something I’ve never heard discussed, and as for this advice:
“if you take intermediate macro and they don’t include it as a syllabus reading, raise hell!”
I’m afraid that it’s too late 
My intermediate macro teacher followed in Keynes’ footsteps and called Hayek a “classical economist”… I also don’t quite agree with that advice, since I think that the calculation argument, beyond being of massive importance politically, also demonstrates a large number of other important principles. I do agree that Austrians talk about it too much, but I also feel as though it was massively misunderstood by the mainstream economic establishment. For instance a quote by Heilbroner (which was wholly supported by the authors of a history of economic thought book I read) basically said that the fall of the Soviet Union showed that Mises and Hayek were right, when what the fall and the inefficiency of the USSR didn’t really exemplify the calculation argument at all.
“the hotdog & buns model blew my mind”
C’est ce qu’elle a dit
I’m becoming increasingly disillusioned with behavioral economics. It may well yield interesting results, but currently the research done is far too spread out, far too “anarchistic”, and much too anecdotal to actually yield any substantive results. I’d be surprised if we saw a coherent melding of behavioral and neoclassical economics (or worse, and independent school of behavioral economics) before a couple of decades from now, and the fact is that by that time some of the core of the data collected may literally be obsolete. Mises wins the day as far as methodology goes. How some people act is not how other people act in certain situations, and the law of large numbers doesn’t help us too much when there are specific actors in question in specific circumstances. Furthermore these beliefs change over time.
I think that a much better way to go about behavioral economics would be to take a more psychological approach and try to find the most universal and prevalent laws of human behavior, and then combine a praxeological approach with some laboratory work and field experiments. With the current methods being used I think that you would need a massive government-funded institute with funding in the hundreds of millions, if not billions to get the appropriate kind of data to get effective and meaningful data, although even then much of what they would find would probably be temporary. I think that this is all indicated by the inability for behavioral economists to actually publish and large and meaningful works relating to current events, although I can’t really make this judgment until I’ve read animal spirits. This is the first attempt at behavioral macro that I’ve ever seen, so I’ll be interested to read it. i do think that the description sounds interesting:
The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, “animal spirits” are driving financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity.
Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government–simply allowing markets to work won’t do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life–such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes–and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.
Animal Spirits offers a road map for reversing the financial misfortunes besetting us today. Read it and learn how leaders can channel animal spirits–the powerful forces of human psychology that are afoot in the world economy today.
I think that, regardless of the truth or falsehood of these claims, it really just astounding how monumental the claims themselves are. Nonetheless, I think that the Keynesianism inherent behind this work probably pervades and destroys anything good behind all of this. Anyone who thinks that there is no rationality behind the human economy is just wrong. Challenging the tacit neoclassical assumption of homo economicus has been the greatest achievement of behavioral economics, but going too far with that is wrong. I also think that it’s interesting that when we saw decades of relatively mild business cycles we saw the rise of new classicism and monetarism, both of which were relatively anti-government, but now that we’re seeing the return of depression economics we’re seeing a revival of Keynesianism. The confidence these authors have in government, and their evident of ignorance of the indisputable roll that the state played in the recent recession practically invalidates any solutions they provide, regardless of how insightful their description of market failure is. Well, we’ll see.
Edit
Also, this is all a very ironic standpoint since I’ll probably be working with my professor on work for behavioral economics next year… I may even coauthor a paper XD
Behavioral economics sounds a lot like thymology. If that is the case, Mises double wins.
I’ve decided that if I had no life and an infinite resistance to idiocy that I would dedicate myself to trying to smash some sense into the sad ball of self-righteous nonsense and economic barbarism that is tumblr. The political posts are infinitely more disgusting and shameful to me than the pornography
Also, on further reflection I find it extremely silly that these economists cite confidence in ever rising housing prices as an example of animal spirits. I sincerely wonder if either of these economists thought that there was a housing bubble when it was going on, or what their opinion about the SEC just letting the housing bubble happen, and that the federal reserve, which is also tasked with the role of ensuring sound lending standards was convinced that everything was fine while the bubble was inflating as late as 2006. The federal reserve’s stated role in banking regulation:
Each Federal reserve bank shall keep itself informed of the general character and amount of the loans and investments of its member banks with a view to ascertaining whether undue use is being made of bank credit for the speculative carrying of or trading in securities, real estate, or commodities, or for any other purpose inconsistent with the maintenance of sound credit conditions; and, in determining whether to grant or refuse advances, rediscounts, or other credit accommodations, the Federal reserve bank shall give consideration to such information.
Good fucking job guys.
I’m also in the process of reading Wood’s meltdown. I’ll probably write a review that gets posted here and on the Voluntaryist Reader when I’m done. It’s a great book, particularly because it actually deals with Austrian bubble theory, and it does so without being especially unrealistic. It provides a strong, reasoned case for the free market that is easy to understand and that relies upon human motivations, actions, and imperfections, as well as pointing out why the non-thought of “regulation” just won’t work and has never worked. The 50 pages or so that I’ve read thusfar has made me far more competent at arguing for the free market case in relation to business cycles, since financial regulation and bubbles weren’t really dealt with by Mises, Hayek, and Rothbard.
A request for help (this will become a thread if no one answers it)
Hmm, I actually have a question concerning Wood’s interpretation of the business cycle in Meltdown. He seems to be arguing that too many investments occur at one time and that there aren’t enough resources within the economy to allow this to occur, yet I thought that Mises specifically argued that what caused the business cycle was not “overinvestment”, but rather “malinvestment”. I fail to understand this point.
Woods states that what happens is that there are not enough complementary goods to allow for the completion of all projects that are undertaken during the boom. How I interpret this with my current understanding of ABCT is that what happens is that, if old prices and the old interest rate had persisted then these complementary goods would have been produced, but since they haven’t, and it’s no longer profitable to do so, some projects are left uncompleted.
Thoughts? This would seem to be an accurate and reasonable interpretation, there’s just something that doesn’t add up with this description and the way that Woods is describing this aspect of the business cycle.
I’ve been a critic of this statement. As with most things, a lot of confusion can stem from unclear language. Can you clarify what you mean by this?
- What is considered “human” here? What is “action” here? What is “purposeful”?
- Is this sort of stuff on a spectrum? Or is anything perfectly human or else perfectly not-human; perfection action or else perfectly not-action; perfectly purposeful, or perfectly not-purposeful? Is there a point where something that would appear to be human is considered not-human? At what point do we consider what would appear to be action as not-action? At what point does what would appear to be purposeful become not-purposeful?
- Is a “human” always fully consciously aware of his “action”? What about his “purpose” for such “action”?
- Does all of the “human” participate in each “action”?
Just some questions that result in me being skeptical of a statement like this that I percieve to be kinda vague.
Woods is primarily a historian, so if there are any strange things there, go with the classic explanation.
That said, the word “overinvestment” has different meanings depending on the context. In HA, it means what is often called a general glut, a lack of AD, a money shortage, in short too much was made and nobody can, or wants to, buy it all. This is evident on page 854 [878 of the pdf file] where he writes:
There is no need to tell us that an ampler supply of various commodities
would be welcome to all people. The question is whether there is any means
of achieving a greater supply other than by increasing the productivity of
human effort by the investment of additional capital. All the babble of the
welfare propagandists aims only at one end, namely, obscuring this point,
the point that alone matters. While the accumulation of additional capital is
the indispensable means for any further economic progress, these people
speak of “oversaving” and “overinvestment,” of the necessity of spending
more and of restricting output. Thus they are the harbingers of economic
retrogression, preaching a philosophy of decay and social disintegration.
Malinvestment, of course, means investing in the wrong things.
That’s Mises’s use of these words. In later times, some Austrians blurred this distinction, and started using overinvestment as either a synonym for malinvestment, or as a technical term for a specific component of malinvestment [which I am not clear about]. I imagine they were comfortable doing so because the non Austrian literature started using other words for what they used to call overinvesment, e.g. lack of AD.
Woods’s ideas, if not his choice of words, comes from Chapter 20 of HA.
…if old prices and the old interest rate had persisted then these complementary goods would have been produced, but since they haven’t, and it’s no longer profitable to do so, some projects are left uncompleted.
It depends on why the prices and interest rates persisted.
First we’ll look at the situation absent all govt intervention after the first intial increase of the money supply that lowered interest rates and started the boom going. In such a scenario, prices depend on supply and demand. If old prices had persisted, then that means the supply and demand situation was the same. If the old interest rate had persisted, after the intial dip in interest rates caused by the introduction of printed money and FRB, that means time preferences were the same and consistent with a low interest rate, meaning people were consuming less, and the resources were not being consumed, but were available for long term projects.
So that if prices and interest rates stayed the same, that means the underlying reality was the same, meaning there was enough to go round to complete the planned projects.
That’s the way things look if there is no govt or central bank intervention.
But if prices stay the same due to wage and price controls, and/or interest rates stay the same due to constant injection of new money into the economy, then the prices and interest rates no longer conform/reflect the underlying reality. While prices are the same, supply may have dropped or demand may have increased, and there will be shortages. If interest rates are kept artificially low, that means that the reality is that time preferences are high, meaning people prefer to consume now not later, meaning resources will be gobbled up now, not saved for the long haul, and will not be available to complete the projects.
Mises points out that with respect to interest rates, the illusion can be kept up that time preferences are low by keeping rates low, but the day will come when the resources will be actually used up, and then [since he did not assume price controls] prices will shoot through the roof, what he calls a crack up boom, which I presume means hyperinflation.
I’d recommend the first section of HA.
“What is considered “human” here? What is “action” here? What is “purposeful”?”
In a praxeological context we use the word “human” to mean a being actively making purposeful decisions. Purposeful implies having means, ends, and an understanding of available choices.
“Is this sort of stuff on a spectrum?”
I think that it’s sort of on a spectrum up until a point. My dog’s actions are obviously less then purely reactionary, but I doubt that he’s very aware of his choices at a particular time. This is not to say that humans always know their options, but that they are doing more than just reacting, they choose between ends and imaginatively develop new visions for their world, evenif it is done in a way that is rather… Stupid. It’s much easier to point to an example of human action than where the exact cutoff is.
“Is a “human” always fully consciously aware of his “action”?”
Depends on what you mean by this. The full repercussions of any single human action are beyond human comprehension.
“What about his “purpose” for such “action”?”
It depends upon the action
“Does all of the “human” participate in each “action”?”
What do you mean by this?
In addition to Human Action, I recommend the introduction to Theory and History.