Thursday, December 2, 2010

Keyneso-Austrianism and Steve Waldman

I know "Austro-Keynesianism" rolls off the tongue easier, but I just can't bring myself to put the Austrian school first.

Anyway, in response to Steve Waldman: YES. Steve jumps into a debate that's been going on for a couple days about "hangover theory" and "morality plays" and a lot of other quite roughshod framing and comparison of Austrianism (which rarely gets named explicitly) and... I don't know... "general gluttism": Keynesianism writ large to include all descendants of Thomas Malthus and occasionally Jean-Baptiste Say. Steve writes:

"Austrian-ish “hangover theory” claims, plausibly, that if for some reason the economy has been geared to production that was feasible and highly valued in previous periods, but which now is no longer feasible or highly valued, there will be a slump in production. It wisely asks us to consider not only the prosperity we measure today, but the sustainability of that prosperity going forward. I am not “Austrian”, and have no interest in defending specific claims regarding the roundaboutness of activity or the role of central banks in causing bursts of quasiprosperity. But as Brad DeLong wisely reminds us, it is good to be somewhat catholic in our evaluation of macroeconomic schools, and to take what is useful from each. I consider myself Keynesian at least as much as I am Austrian, but I recognize good and not-so-good offshoots of both schools. (Austrian and Keynesian ideas are more complementary than most people acknowledge. The Austrians focus on unsustainable arrangements of real capital, while the Keynesians focus on unsustainable arrangements with respect to money, debt, savings, and income. I think both approaches are fruitful.)".

I don't agree with all of it, but I agree with the general thrust of the post. This whole "schools of thought" approach to macroeconomics seems sillier and sillier to me by the day. What we are doing is hitting on various and sundry economic processes that show up in varying combinations from time to time. And yes, sometimes we're just wrong too. But for the most part what separates "schools of thought" is not their rightness or their wrongness but their applicability in any given situation.

So why do I still call myself a "Keynesian"? Partly because a lot of people still think and talk in terms of schools of thought so I'm in a way forced to take a side (or too cowardly to resist... whatever the case may be). Partly because my formative years as an economic thinker have been in the midst of a classically Keynesian depression. But a lot of it is because I agree with Keynes that he presents (and his descendants have elaborated on) a genuinely general theory that tells us how what we think of as traditionally "Keynesian" depressions can occur, but also tells us how other things can occur as well. In other words, Keynesianism has a better chance of incorporating and featuring the insights of others in its more general theory than vice versa.

I provide some discussion of what I think of as fabricated "differences" between the Austrian school and the mainstream in the comment section of this recent Coordination Problem post, and I also talk a little about what I think the real differences are (the irreconcilable differences being methodological, and the reconcilable differences being analytic).

9 comments:

  1. But for the most part what separates "schools of thought" is not their rightness or their wrongness but their applicability in any given situation.

    That's a little ridiculous. I'm not "80% Austrian" because I think there was intertemporal capital discoordination and "20% Keynesian" because I see a liquidity trap. You shouldn't look to borrow terms and concepts from other schools on such an ad hoc basis. If you feel a specific school has something valuable to say that yours didn't, then try to find out why. Chances are they differ on more than "rightness" or "wrongness" (though that is the big decider), but things like methodology.

    You should reform your opinions from the bottom-up. If, for instance, you accept intertemporal credit expansion then try to reconcile that with your current school of thought, not paste it haphazardly with it. Our recent disagreements on Austro-Keynesian reconciliation derive from this. You see a valuable explanation for depressrion, but you barely dig under the ground to see how it was created (and how that might clash with your current view). It appears to me that you want to just add ABCT with your holistic view of Keynesianism without addressing any of the fundamental concerns.

    I agree with Milton Friedman on this point - that there is no Austrian economics, there is only good and bad economics. The Austrians HAVE included contributions that other schools emphasize and guess what - they run it through the praxeological machine and sometimes it works. Hayek, Lachmann, and Kirzner did not use praxeology. But the Austrian school can incorporate their insights because they have been in agreement with the general view of economics via praxeology.

    I think more schools need to take this route. Instead of holding mutually incompatible views (which is what I think you are doing), do the research into the methodology or the basic assumptions and find out if something you are borrowing really does fit. If not, something has to give.

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  2. Mattheus - why do you say 80% and 20%? These are not mutually exclusive ideas. I believe completely in both intertemporal discoordination and liquidity traps (and as I've said before - stop saying that intertemporal discoordination is "Austrian". What's "Austrian" is rearrangements of the time structure of production. Everyone thinks in terms of intertemporal choice and intertemporal discoordination).

    If you feel a specific school has something valuable to say that yours didn't, then try to find out why

    You're completely missing the point. If schools of thought were mutually exclusive this would not be true at all. My argument is that we've been presented very little evidence that the ideas of what we call "schools of thought" are mutually exclusive.

    "It appears to me that you want to just add ABCT with your holistic view of Keynesianism without addressing any of the fundamental concerns"

    Right on the first point, wrong on the second.

    "I agree with Milton Friedman on this point - that there is no Austrian economics, there is only good and bad economics."

    Mattheus, isn't this largely my point! That these "schools of thought" are illusory? That it's just a matter of what's right and wrong and lots of schools of thought can say right things?

    "Instead of holding mutually incompatible views (which is what I think you are doing), do the research into the methodology or the basic assumptions and find out if something you are borrowing really does fit."

    Your argument here would be much more convincing if you actually took a moment to tell me what views I hold are incompatible! Of course if views are incompatible you can't hold them. I've never argued that you can. And I also conform everything to my methodology/epistemology. You're just bent out of shape that that isn't praxeology.

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  3. These are not mutually exclusive ideas. I believe completely in both intertemporal discoordination and liquidity traps

    As do I. I didn’t say you believing in liquidity traps precludes believing in capital discoordination. I said that the underlying reasons for either conclusion are incompatible. Now.. I believe in a type of liquidity trap, if you could call it that, and one that I have assimilated into my Austrian framework (It’s just a nasty consequence of cartelized fractional reserve banking).

    My argument is that we've been presented very little evidence that the ideas of what we call "schools of thought" are mutually exclusive.

    Specific points might not be. For instance, I can hold a belief in the time structure of production as well as hold a belief in Adam Smith’s “invisible hand.” Points from mutual schools are not always incompatible, but the foundational methodology is. We’re talking epistemology, Daniel – not certain conclusions. This is why I want you to go back and dig in the Keynesian epistemology, dig around in your assumptions (for us, axioms). Because while you might be able to hold a type of capital discoordination explanation and have it be reconcilable with a few Keynesian theories, it doesn’t jive with the rest.

    This should be strange, no? Presumably there’s only one science of economics. There can’t be two schools who are both true.

    That it's just a matter of what's right and wrong and lots of schools of thought can say right things?

    If I came across an African shaman who has no contact with civilized world, and he believed he saw little fairies dancing around his head, and they told him that E=MC^2 – he would be correct in taking a definite stance on that position. It just seems like a potentially problematic methodology because it is more likely to lead one to wrong conclusions than right ones. Likewise, I’m not arguing that some schools are not correct on particular topics – I’m just arguing that we need to spend more time on epistemological concerns so we can use processes that work (like telescopes) rather than depending on processes that don’t always work (like invisible fairies).

    Your argument here would be much more convincing if you actually took a moment to tell me what views I hold are incompatible!

    When speaking of Austrian and Keynesian compatibility in June (http://www.economicthought.net/2010/06/unequivocal-keynesian-contributions/), I wrote this:

    “Never once have I heard a Keynesian describe a depression as a readjustment of capital to the needs of consumers. This is the difference between the Austrian and Keynesian frameworks.”

    To me, this seems to be the difference between both schools. The Keynesians are adopting a certain picture and the Austrians another.

    I express this here: http://www.economicthought.net/2010/11/define-economy/

    Specifically in my last comment, to which you did not respond.

    These inconsistencies are because we have methodological incompatibilities. You believe in the paradox of thrift and shortfalls in aggregate demand. These are incompatible in the Austrian framework because an economy is not an "end" or an "agent" in itself, that can get sick or be damaged; it's just a network of people.

    You're just bent out of shape that that isn't praxeology.

    Was the ad hominem necessary?

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  4. "I said that the underlying reasons for either conclusion are incompatible. Now.. I believe in a type of liquidity trap, if you could call it that, and one that I have assimilated into my Austrian framework (It’s just a nasty consequence of cartelized fractional reserve banking)."

    You may just have to elaborate these points more. I'm not sure why the underlying reasons are incompatible, and I'm not sure what an "Austrian framework" liquidity trap would entail (although I'm interested in hearing it).

    Points from mutual schools are not always incompatible, but the foundational methodology is. We’re talking epistemology, Daniel – not certain conclusions.

    Sure. You of all people should know that I've never argued that Austrian school epistemology is compatible. You, however, overestimate how essential the epistemology is to the Austrian school (it works the same for mainstream "schools of thought" - mainstream epistemology isn't all that essential for a lot of mainstream theory).

    Because while you might be able to hold a type of capital discoordination explanation and have it be reconcilable with a few Keynesian theories, it doesn’t jive with the rest.

    I have heard this far too many times with far too little details or elaboration.

    I’m just arguing that we need to spend more time on epistemological concerns so we can use processes that work (like telescopes) rather than depending on processes that don’t always work (like invisible fairies).

    Mattheus, epistemological discussions are interesting and fun. But I have already moved past the idea that your epistemology is largely bunk (or at the very least misapplied). If you want to justify your invisible fairy to me, we can have that discussion but I'm proceeding under the assumption that your invisible fairy is bad methodology, that the Austrian school's insights occasionally come coupled with it but are not dependent on it, and because they are not dependent on it your invisible fairies are not going to keep me from engaging with Austrians who don't believe in fairies.

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  5. I think the comment where you try to differentiate Keynesianism and the Austrian school is confusingly vague. I think both involve adjustments to capital in response to consumer demand - it's just a very different kind of adjustment that's going on. I'll just say that - there is a real difference between them, I don't think it's what you write there, and I think it's an unnecessary difference that is by no means grounded in the methodology as you suggest.

    Was the ad hominem necessary?

    That was not an ad hominem, Mattheus. I may have misdiagnosed or overstated your reaction (ie - bent out of shape). I don't think I did, but I may have. Either way it's not an insulting to be flustered at something. So it's not an insult or an ad hominem to point out that you seem flustered.

    If I denigrated you, that would be an ad hominem.

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  6. You may just have to elaborate these points more. I'm not sure why the underlying reasons are incompatible, and I'm not sure what an "Austrian framework" liquidity trap would entail (although I'm interested in hearing it).

    The general points of incompatibility are what we've always been talking about. Apriorism, methodological individualism, etc. There's nothing new here.

    For instance, we get via Menger (and via meth. indiv.) that the origin of money is as a marketable commodity, from this certain conclusions follow about what it means to "demand money," "save money," etc. This is why Austrians don't agree with AD concerns when money is involved - because the introduction of money does not entail something existentially above and beyond what normally happens in direct exchange.

    That's one incompatibility I found by using the Austrian method. There are dozens more.

    You, however, overestimate how essential the epistemology is to the Austrian school

    I would be careful when you criticize someone of "misunderstanding" an extremely important part of the Austrian school when you yourself have done little extensive research into the subject.

    I have heard this far too many times with far too little details or elaboration.

    Please see every post where I disagree with your conclusions. Or every post where I talk about Keynesianism on ET. I give details, Daniel. Maybe you just don't like what I have to say.

    If you want to justify your invisible fairy to me, we can have that discussion but I'm proceeding under the assumption that your invisible fairy is bad methodology,

    So you've already accepted a conclusion, and yet you're inviting me to argue it anyway? That's sure to get me to expend effort communicating with you on this.

    Epistemology is the root of all science. Until you have hashed out a complete theory on how to derive knowledge, any so-called knowledge you derive has a likelihood of being incorrect. Epistemic concerns should be at the top of your to-study list because so much hinges on it.

    that the Austrian school's insights occasionally come coupled with it but are not dependent on it,

    This is just wrong. How many times have I told you "praxeology is a priori?" ALL Austrian conclusions are derived via praxeology. If you reject praxeology as a source of knowledge, you reject all Austrian claims of truth. It's really that simple.

    and because they are not dependent on it your invisible fairies are not going to keep me from engaging with Austrians who don't believe in fairies.

    There are none. To the extent people consider themselves "Austrian," they are some manner of Misesian praxeologists. Just because people like Bob Murphy use graphs to illustrate points does not mean there is a camp of Austrians who reject Mises.

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  7. So it's not an insult or an ad hominem to point out that you seem flustered.

    If I seem flustered, it might be because we have had this conversation multiple times and I never seem to make any progress.

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  8. It seems the blog gods decided to smite me again. I posted a lengthier response to your response and I guess it only recorded my later entry. Excellent.

    Well, I'm sure we'll have this discussion again. Sorry for leaving you hanging

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  9. For instance, we get via Menger (and via meth. indiv.) that the origin of money is as a marketable commodity, from this certain conclusions follow about what it means to "demand money," "save money," etc. This is why Austrians don't agree with AD concerns when money is involved - because the introduction of money does not entail something existentially above and beyond what normally happens in direct exchange.

    I don't follow. If you specify that money is different because it is a medium of exchange, as I think a lot of economists do, then you acknowledge the prospect of "general glut". If you don't want to act like there's anything different about money, that's fine - then the "general glut" just becomes a market specific glut where there's an oversupply of goods and undersupply of money, but no general glut.

    Call it what you will, but they seem to be analytically identical to me. I'm not sure how this apparently Mengerian view changes things (and I'm not sure how different of a view it really is - we view money as a commodity, just a commodity with important properties).

    I would be careful when you criticize someone of "misunderstanding" an extremely important part of the Austrian school when you yourself have done little extensive research into the subject.

    I feel pretty confident since most of the justification you usually provide me is simply the claim that "well if its not praxeological its not Austrian". I.e. - defining away my concerns instead of presenting any legitimate argument for why Austrian theories require praxeology to be made.

    So you've already accepted a conclusion, and yet you're inviting me to argue it anyway? That's sure to get me to expend effort communicating with you on this.

    Well life is a learning process and I'm always opened to be convinced. My point is only that I am not an agnostic on this question, and I will not proceed as if I were an agnostic on this question. I will not proceed as if a challenge to the epistemological bases of my claims is a legitimate challenge at all. My point is, this does not mean I won't engage in epistemological discussions and debates - only that if the debate is not epistemological, I'm not going to think much of a critique that boils down to an epistemological counter-argument. Does that make sense? I want to make clear I will not act like I'm an agnostic on this, but at the same time I'm still always up for talking about it.

    ALL Austrian conclusions are derived via praxeology. If you reject praxeology as a source of knowledge, you reject all Austrian claims of truth. It's really that simple.

    I have read or listened to three different versions of ABCT none of which relied on praxeology to convince me. I'm sure Mises gets to ABCT with praxeology too. That's great. I've never suggested a priorism is inherently a problem. But that does not amount to the claim that "ALL Austrian conclusions are derived via praxeology".

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