A blogger over at Corrente, a blog that sometimes covers MMT stuff, they criticize crude Austrian objections to macroeconomics and aggregation (often hilariously paired with Garrison's own aggregate models [this is a knock on the crude Austrians that can't see the irony, not Garrison]).
The post raises some important points about complexity theory. This is another thing about the crude Austrians I've found absolutely unfathomable. In the same breath that they criticize aggregated analysis, they claim to appreciate complexity and emergent order.
If there is ONE CONCLUSION of complexity theory, it's that complex aggregates composed of many interacting parts can exhibit stable behavioral patterns that are not immediately obvious from looking at the interaction of the parts. And this isn't exactly a new point in economics either - this is Mandeville/Smith stuff. And yet somehow the people who pay so much lip service to complexity are often the same ones that critize thinking about aggregates.
Sunday, March 25, 2012
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I've never had a problem with "macro" economics, per se, in fact, I find it much more interesting than microeconomics.
ReplyDeleteMacroeconomics can exist, and there certainly is "Austrian Macroeconomics". Austrians just believe that one must start at the microfoundations, and then carefully build up to the macroeconomics. An important criticism that I believe Austrian economics makes against other economics is that they ignore the bridge between micro and macro-the structure of production. Meaning micro and macro are hermetically isolated and then the aggregative nature of macroeconomics becomes problematic by ignoring relative price changes, relationships relating to the production structure, etc.
Like a typical crude Austrian :), I'll end with an appropriate quote by Murray Rothbard:
"Following the manner of the English classical economists of the nineteenth century, the monetarists rigidly separate the "price level" from the movement of individual prices; monetary forces supposedly determine the former while supply and demand for particular goods determine the latter. Hence, for the monetarists, monetary forces have no significant or systematic effect on the behavior of relative prices or in distorting the structure of production. Thus, while the monetarists see that a rise in the supply of money and credit will tend to raise the level of general prices, the ignore the fact that a recession is then required to eliminate the distortions and unsound investments of the preceding boom. Consequently, the monetarists have no causal theory of the business cycle; each stage of the cycle becomes an event unrelated to the following stage." (AGD, xxxiii)
"Austrians just believe that one must start at the microfoundations, and then carefully build up to the macroeconomics."
DeleteWhy would you believe that? That is not typically how other fields studying complex, emergent phenomena proceed. We knew a whole lot about inheritance before we knew about DNA. We got a long way with chemistry before we knew crapola about the interior of atoms.
This claim strikes me as sheer assertion.
The short answer is that this is in line with the praxeological method, i.e, deductions. Start with the action axiom, some basic empirical postulates (leisure, resources, particular thought experiment, etc), deduce Marginal Utility, Time Preference, Law of Returns, specificity, imputation, basics of capital theory, etc. Then use above principles to analyze barter exchange, then developed money economy and all its interrelations.
DeleteThe Natural sciences, as we can perform controlled experiments and we do not know the cause of them from the get go (in economics, we know its action), we obviously have to use different (and more quantitative) methods.
Who are you talking about exactly? Crude Austrians (Ludwig von Mises Institute) and those who are interested in complexity theory (Koppl, Rosser) are at the opposite ends of the spectrum.
ReplyDeleteThe top academics at the LvMI, such as Salerno, are hardly "crude Austrians."
DeleteThey are a bit 'I know this guys conclusion before reading his article'
Delete"Crude Austrians (Ludwig von Mises Institute).. "
DeleteRoger Garrison, who Daniel said was not a crude Austrian, is an Adjunct Scholar at the Mises Institute - has been for years.
I'm not really following why you consider criticism of aggregated analysis and appreciating the insights of complexity theory to be at odds with another. In fact, one of the main insights of complexity theory is that in many circumstances where the aggregate phenomenon under consideration is the product of a sufficiently complex process, we will not be able to predict the future of that aggregate on the basis of aggregate information alone - an insight which is very relevant for economics. Wolfram's book and the literature on cellular automata are full of these kinds of insights. So while you are certainly correct in saying that in certain circumstances aggregates can display a high degree of regularity (despite a high degree of complexity of it's sub-parts) - and on such a basis we may able to glean certain insights - that's only one side of the coin. By the same token, certain phenomena are not amenable to such analysis, and to think so is not only ignorant, but dangerous.
ReplyDeleteRight - this is the point that I regularly make about prediction.
DeleteOn studying aggregates - I might be slow here, but you seem to be claiming you don't follow my point, and then conceding my point. Huh?
The point is that criticizing aggregated analysis and appreciating complexity are not mutually exclusive, which you seem to be implying. In certain cases I can criticize aggregated analysis from a prediction standpoint and still fully appreciate the insights of complexity theory - in fact, some of those criticisms are products of complexity theory. That's why I don't really follow your reasoning....
DeleteThis is off topic, but I was looking at preference assessments in my own field, and am very curious if you have any suggested research articles or reading on how economics approaches the topic.
ReplyDeleteThanks much!