By Simon Grey, on March 28th, 2011
Its principles are as follows:
1. The business cycle is a completely virtuous cycle. Slumps are the price we pay for booms. Recessions are the just punishment for the excesses of previous expansions. The fact that the rich reap the rewards regardless, and the poor are the ones punished regardless, is of no importance to the Austrian school. Every graph of the financial crises showing crashes and bubbles is just God’s continuing morality play. Government intervention in this “virtuous” cycle prevents God and/or nature from rendering justice with the “tough love” everyone needs – and thus is evil. The Austrians are always in a state of continual frustration because no nation in the world seems to be willing to wait out financial crises and depressions trusting in the “magic of the market” to fix everything – that mirable dictu, keeps crashing and suffering from persistent instability. Instead of waiting for God’s judgement, people – to the amazement of the “Austrians” – still resist walking calmly to the grave from starvation or homelessness!! They say: “if this is virtue, then the Devil has ascended Heaven.” Nonetheless, the “virtuous business cycle of capitalism” has a certain seductive power. Not because it offers any solutions, but because it explicitly offers nothing: Welcome to God’s Plan.
I have never heard any Austrian economist ever say at any time that the boom-bust cycle is a “virtuous cycle.” It has been described as a natural cycle, where an artificial boom always leads to a bust. And history has demonstrated that interference tends to be much, much worse than letting simply waiting for the free market to run its course (cf. FDR’s Folly).
2. The Austrian School rejects a scientific foundation to economics. The failure of any political regime to endorse the virtuous business cycle theory of the Libertarians gives rise to all sorts of political backwardness and numbness to reality in its supporters – listening to them frequently arouses a generous desire to help them with a wake-up “dope slap,” after such tortured jewels as: “the people are too stupid to understand,” or “the people are entitled to nothing,” and other too-vulgar-or-racist-to-repeat sentiments. So few believe them, in fact, that they have become hostile to any group or government or institutional level of analysis at all. Instead they advocate strict adherence to “methodological individualism” – analyzing human action exclusively from the perspective of individual agents. Austrian economists also argue that mathematical models and statistics are an unreliable means of analyzing and testing economic theory, and advocate deriving economic theory logically from “basic principles” – read “divinely inspired principles” – of human action. They have even given their methodology a name, “praxeology.” Additionally, renouncing science altogether, the Austrians reject experimental and empirical research altogether. They reject testability and falsification en toto. The great virtue (not!) of a theory that rejects testing and falsification is, of course, that it cannot be disproved!
Actually, the complaint with the mathematical models used by mainstream economics isn’t the math; it’s the assumptions and definitions. Also, you seem to ignore the fact that all scientific disciplines are inherently axiomatic. This is also true for mathematics. Anyone who has done a precursory examination of “official” statistics can easily see how Orwellian the system has become. As such, analysis based on the official statistics is bunk, because the underlying assumptions are bunk. Besides which, economic phenomena is simply too complex to be perfectly and completely explained by simplistic models.
3. The role of the state in Austrian and now Libertarian theory is more confused than its transparently false propositions on the business cycle. The first Austrian, von Hayek, was actually a social democrat and strongly supported standard social democratic policy on the key role of the state in providing services that were market failures. He differed only on whether the post office should be public or private. But latter day Austrians at the Von Mises Institute take this notion for a ride off the sanity cliff, calling for the end of public schools, roads, post offices, Internet, media of any kind, health care, retirement, fire stations, etc, etc, etc.
Actually, the Austrian school was founded by Menger, Bahm-Bawerk, and Wieser, so 0 for 1 there. Also, private schools out-perform public schools, private highways out-perform public highways, private delivery (e.g. UPS, FedEx, DHL) outperforms the USPS (in fact, FedEx subcontracts for USPS because they’re so much more efficient), private providers of internet and media are superior to public-provided alternatives, private health care is measurably superior to public health care (and that’s with all the expensive regulation and taxation in place), private retirement aren’t effectively bankrupt (unlike, say, social security), and the few private fire stations that exist are superior to their public alternatives. The Austrian argument is that the state is inferior to the market at providing pretty much any and every service and good imaginable, which is why it is unnecessary. 4. Like many cultish theories, libertarian economics rise in popularity reflects public dissatisfaction with the performance of large institutions in many areas of economic and public life. They often correctly identify corporate corruption as a source of the decay of these institutions, but rather than reform the corruption, they become captured by an attractive, but ultimately doomed, ideology that – due to its futility as a guide to leadership – strengthens the very corruption they decry.
That a theory’s devotees are cultish has no actual bearing on its validity.This use of ad hominem argumentation is reprehensible, and does not suffice as a logically valid argument.
If, as noted before, public goods (indeed, the state itself) are vastly inferior to privately provided goods, then what, exactly, is the point of reform? Particularly since abolition is not only cheaper, but more equitably?
And why the emphasis on leadership? People are quite capable of deciding for themselves. And if they aren’t, it still does not follow that the state need exist. Perhaps someone needs to study private charity in America during the 19th century (by which I mean read de Tocqueville).
In all, this attack is simply ludicrous. It is full of falsities and half-truths, and is riddled with logical errors. The lesson to be taken from this display of blatant stupidity is that one is should spend more time reading than writing, particularly when one is ignorant and devoid of the ability to string together a logical, coherent thought.
By Eldon Mast, on May 12th, 2010
Back in July 2009, Intel asserted that the young recovery of 2009 would be anything but lackluster.
On Tuesday, the leaders of the chip giant re-asserted their claims for 2010 and beyond.
Paul Otellini, Intel’s CEO, told analysts that its earnings per share and revenue should grow at an average annual rate in the “low double-digits” over the next few years. “We are on top of a growth engine,” Mr. Otellini said.
You may remember that last year — in the face of a global financial crisis — Intel chose to spend $7B in new U.S R&D facilities, while competition retrenched in the face of credit woes. Intel can now exploit those technological advantages and continue to deliver new products with much higher performance and lower power consumption. Otellini stated that those advances now drive the company’s products into a plethora of new devices such as cellphones, digital TVs, car electronics, cameras, and other consumer electronics.
“Intel has a unique set of attributes that no one can replicate,” Mr. Otellini said. “This stuff gets harder to do and we are going to get better at it.”
For Intel, it looks like 2010 (and perhaps 2011) will also be anything but lackluster.
By Claus Vistesen, on October 15th, 2009
This one should really go on Beta.Sources, but I thought that it deserved attention over and above the fold too. It is a couple of years old, but still well worth a look; hat tip (an old BW blog post).
We investigate the consequences of demographic change for business cycle analysis. We find that changes in the age composition of the labor force account for a significant fraction of the variation in business cycle volatility observed in the U.S. and other G7 economies. During the postwar period, these countries experienced dramatic demographic change, although details regarding extent and timing differ from place to place. Using panel-data methods, we exploit this variation to show that the age composition of the workforce has a large and statistically significant effect on cyclical volatility. We conclude by relating these findings to the recent decline in U.S. business cycle volatility. Using both simple accounting exercises and a quantitative general equilibrium model, we find that demographic change accounts for a significant part of this moderation.
Over and beyond the idea that demographics may act as a strong catalyst of capital flows (i.e. domestic savings/investment dynamics) and thus how demographics may transmit volatility in the global economy, the direct relation between volatility and demographics is fascinating. In fact, it is of course entirely intuitive if you apply e.g. a life course perspective in which you look at issues such as timing of housing purchase, durable and non-durable purchase, as well as the ultimate transmitter; age dependent risk aversion and/or an age dependent intertemporal consumption decision profile.
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