Sunday, 6 February 2011
If there is one organisation that promotes Austrian ideas, it’s the Von Mises Institute. One article, entitled “What is Austrian Economics?”, published by this Institute, is concerned only with the HISTORY of Austrian economics. It is not concerned with the ideas currently being advocated by Austrians. So that is worth avoiding, unless you are interested in the history of economic ideas.
Wikipedia claims that one of the main Austrian ideas is a rejection of empirical evidence and maths in economics. That makes Austrian economics sound like something out of the Middle ages. Every other branch of science pays attention to empirical evidence and uses maths where appropriate. Why not economics?
There is no question but that some economists use an excessive amount of maths with a view to making themselves look scientific, and with a view to trying to hide the fact that they have nothing original to say. But some economists use too many WORDS. This is not a reason to reject maths or words.
Wiki then claims that “Austrian economists view entrepreneurship as the driving force in economic development, see private property as essential to the efficient use of resources, and usually (if not always) see government interference in market processes as counterproductive.”
Well, we ALL attach importance to entrepreneurship (with reservations) and private property (with reservations). Plus we all realise that government “interference” CAN be counter-productive, but the same time, it CAN bring benefits. So the “Austrian” claim here is not desperately original or distinctive.
Another Von Mises article entitled “Why Austrian Economics Matters” DOES deal with the ideas CURRENTLY advocated by Austrians. These “current” ideas are set out under the heading “The Core of Austrian Theory”. So let’s run through this “core”.
The first sentence reads “The concepts of scarcity and choice lie at the heart of Austrian economics.” No they don’t. The idea that economics is all about the allocation of scarce resources, as it explains in Chapter One of most elementary economics text books, is what economics is all about. In other words (yet again) this is not a distinctive “Austrian” idea.
The next paragraph claims that “It is not possible to collapse tastes or time schedules onto one curve and call it consumer preference. Why? Because economic value is subjective to the individual.” Total nonsense!
Conventional economics is well aware of the fact that each individual has different tastes and priorities. Moreover, those simple standard supply / demand schedules or graphs SPECIFICALLY take this into account, as is clearly explained in every basic economics text book. That is, central to these graphs is the idea that some people value a given commodity, e.g. apples, much more highly than others.
The third paragraph claims that “Similarly, it is not possible to collapse the complexity of market arrangements into enormous aggregates. We cannot, for example, say the economy's capital stock is one big blob summarized by the letter K and put that into an equation and expect it to yield useful information. The capital stock is heterogeneous.”
Well we are all well aware that the capital stock is heterogeneous. That clearly places limits on the generalisations that can be made about the capital stock. But at the same time, SOME generalisations CAN be made. For example, a reduction in interest rates will tend to encourage more investment in capital stock. (Indeed the latter point is specifically made later in the Von Mises article!).
The next couple of paragraphs claim that anti-trust legislation is a waste of time because governments do not have the necessary knowledge to intervene and improve things. Well that (yet again) is not a specifically Austrian idea. Large numbers of economists would agree that the latter idea has some validity, without calling themselves Austrian.
The article then claims that “Another example is the idea that economic growth can be manufactured by manipulating aggregate demand curves through more and faster government spending considered to be a demand booster instead of a supply reducer or government bullying of the consuming public.”
Well non-Austrians have never claimed that economic growth in the LONG TERM can be increased by “more and faster government spending”. What they DO claim is that when demand by the private sector collapses, as it did during the recent credit crunch, demand can be maintained by having government spend more.
Indeed, had the US government not done this during the recent credit crunch, unemployment in the US would have risen to 20% instead of around 10% according to some estimates. Is 20% unemployment what Austrians want?
And before some Austrian tries to tell us that there are dangers in government pumping money into an economy in a recession because that money may cause excess inflation a few years down the road: well we are all aware of that.
As to “bullying of the consuming public”, what exactly is entailed here? Does anyone know of any examples of the police turning up at peoples’ doors and forcing them to consume more? If so, please let me have details.
The next paragraph claims amongst other things that “Prices provide economic actors with critical information about the relative scarcity of goods and services.” Well, that is basic, simple, year one, elementary, GCSE economics! Can’t Austrians rise above this “statement of the obvious” level?
The article then claims that the redistribution of wealth is wrong. (that’s in a paragraph starting “Austrians have also developed impressive critiques of redistributionism.”) So we have no income tax, capital gains tax, etc and just let the unemployed, the sick and the elderly starve?
Another claim is that taxes “forcibly confiscate property that could otherwise be saved or invested”. Really? So the wealthy never fritter away their income on frivolities like champagne, parties, excessively large houses, cars or yachts?
The article then claims that “deficits financed by the public or foreign bond holders drives up interest rates and thus crowds out potential private investment.” So how come we’ve had record deficits combined with record low interest rates over the last two or three years? How come Japan has had the largest deficits over the last decade or so combined with about the lowest interest rates in the World?
Under the heading “Government Numbers” the article claims that the collection by government of economics statistics should cease altogether.
Several further ideas are put in this article which I could demolish. But I’ve read enough.
As readers will gather, Austrian economics is essentially a collection of unrelated ideas, most of them extreme right wing. The fact that they the ideas are unrelated means that the ideas do not form a coherent whole. But that is not a serious criticism: several other “collections of ideas” which are supposedly related are actually not related, e.g. the ideas that make up Modern Monetary Theory, socialism, Monetarism and so on.
For example, couple of ideas which Austrians sometimes claim to be their own which I do agree with are the ideas that fractional reserve and maturity transformation are undesirable, and ideally should be banned.
Austrian economics can hardly be described as sophisticated. It is a collection of largely unrelated and mostly right wing and extreme right wing ideas. The fact that the ideas are largely unrelated, does not make Austrian economics different form a number of other “groups of ideas” like socialism or monetarism where it is perfectly reasonable to agree with some of the ideas in a collection, while disagreeing with others.
But it does mean that it is the INDIVIDUAL ideas that each need examining on their own merits. And some of the ideas do have merits. Anyone who adheres to the whole collection of Austrian ideas has probably been blinded by political prejudice and has no interest in economics.