Austrian economics

SLUSK

Lately I have been reading up on Austrian school of economics and especially about how business cycles are created. http://en.wikipedia.org/wiki/Austrian_business_cycle_theory Other mainstream schools of economics have proven to be totally useless when it comes to predicting the future so why are these theories still in vogue? Why has not the Austrian school of economics gotten more mainstream success when they in fact have been more right than everyone else? For more info about Austrian school of economics http://en.wikipedia.org/wiki/Austrian_School http://www.mises.org

Time Magazine

SLUSK wrote: »

Other mainstream schools of economics have proven to be totally useless when it comes to predicting the future so why are these theories still in vogue?

I quite like Easterly's comment on this: "First, Your Majesty, economists did something even better than predict the crisis. We correctly predicted that we would not be able to predict it. The most important part of the much-maligned Efficient Markets Hypothesis (EMH) is that nobody can systematically beat the stock market. Which implies nobody can predict a market crash, because if you could, then you would obviously beat the market."

Why has not the Austrian school of economics gotten more mainstream success when they in fact have been more right than everyone else?

They haven't been more right than everyone else; they too are "totally useless when it comes to predicting the future". They haven't been given mainstream attention because their ideas are more than a bit loony and, well, out-dated and debunked by empirical reality.

SLUSK

They have accurately called the tech bubble and the following real estate bubble. How is Austrian economics out of touch with reality? Give me examples. They see the real problem with central banks creating inflation and destroying our money, other schools of thought seem to advocate inflation and the destruction of wealth.

Time Magazine

SLUSK wrote: »

They have accurately called the tech bubble and the following real estate bubble.

"They"?

"They" called many bubbles. They didn't say when they'd pop, just that they were inflated. So did the ESRI. And, dare I say it, David McWilliams.

So what's your point?

How is Austrian economics out of touch with reality?

Business cycles happen for more reasons than monetary policy.

Give me examples.

They do not rigorously back up their assertion that monetary policy makes the world a bad place. They're ignored for a reason.

They see the real problem with central banks creating inflation and destroying our money, other schools of thought seem to advocate inflation and the destruction of wealth.

But casually overlook the effects monetary policy on output, or the creation of wealth.

Am I the only one who thinks the Austrians are stuck in a bit of a pre-John Law timewarp?

SLUSK

Bull****, the mainstream economists said there were nothing to worry about, THOSE ****ERS LAUGHED at Peter Schiff when he said there would be a great collapse in 2007 or 2008, we all know who was right. The main cause of business cycles are monetary policies. Well sure you can get supply chocks or new inventions that contribute to business cycles. Inflation makes the world a bad places, it is a tax on savers that is transferred to borrowers. Tell me, how does creating money out of thin air create wealth? It only creates wealth for those who are at the printing presses, ie government and their cronies. It destroys wealth for the vast majority of people.

silverharp

SLUSK wrote: »

Bull****, the mainstream economists said there were nothing to worry about, THOSE ****ERS LAUGHED at Peter Schiff when he said there would be a great collapse in 2007 or 2008, we all know who was right. The main cause of business cycles are monetary policies. Well sure you can get supply chocks or new inventions that contribute to business cycles. Inflation makes the world a bad places, it is a tax on savers that is transferred to borrowers. Tell me, how does creating money out of thin air create wealth? It only creates wealth for those who are at the printing presses, ie government and their cronies. It destroys wealth for the vast majority of people.

At the same time Money managers like Schiff and Puplava was another one who has an Austian perspective lost alot of money for their clients in 08 because they kept their clients in commodity stocks. they were using their "gold bug" party line that the $ was going to 0 when the complete opposite happened.
At the same time the Austrian commentators have been more consistantly critical of Greenspan since the policy response to the dot com bust in 2000. As a group Austrians seem to be able to spot bubbles ,well better then Greenspan anyway lol . Time will tell on the policy response to the crash, Austrians have been very critical of Bernanke's reponse. Economists like Krugman think he has done a good job, I believe Krugman is calling a bottom at the moment and wants more stimulus to make sure.
So I guess the Austrians will be expecting the arse to fall out of the global economy so that they can say we told you so. No doubt Kugman will respond by saying well if there had just been more stimulus it would have been ok.
Interesting times!

SLUSK

Of course it is impossible to accuratly forecast short term trends but Peter Schiff seems to get it right in the long run. Compare the value of every other currency against gold and see where it has been going the last 50-100 years. The gold bulls seem to be right more often than not.

Flamed Diving

SLUSK wrote: »

Of course it is impossible to accuratly forecast short term trends but Peter Schiff seems to get it right in the long run.

I always get it right in the long-run, observe.

I predict that, in the long-run, the Irish economy will recover and grow beyond 2006 levels.

This will eventually happen, in the long-run.

Will you watch loads of videos and read blogs about me now?

Flamed Diving

SLUSK wrote: »

Bull****, the mainstream economists said there were nothing to worry about, THOSE ****ERS LAUGHED at Peter Schiff when he said there would be a great collapse in 2007 or 2008, we all know who was right.

Which economists laughed at Peter Schiff? I distinctly remember seeing a video where Ben Stein laughed at Schiff, but he is a journalist, not an economist. Is this what you refer to?

Ok, just watched it again. Apart from Art Laffer, here are the laughing "economists":

Mike Norman - BIZRADIO network host
Some long haired guy who looked like a pornstar named Tom Adrion??
Ben Stein - A political commentator with an undergrad in economics
Charles Payne - Author of 'Be Smart, Act Fast, Get Rich'

Where are all the laughing economists?

Time Magazine

SLUSK wrote: »

Bull****, the mainstream economists said there were nothing to worry about

What are "mainstream economists"? You talk about them as if they're a unified grouping. Do you think Robert Shiller and Robert Lucas agree on everything?

The reality is a lot more complex.

A lot of economists didn't talk about the banking sector because they don't care about the banking sector. There are microeconomists, who have no interest in it. There are econometricians, who have little interest in it. There are macroeconomists, about half of whom have an interest in it. So of that one-sixth or so of economists in whose domain it lies, who said there was nothing to worry about? The behaviouralists? The monetariests? The free marketeers who didn't say there was nothing to worry about, but rather that it couldn't be predicted?

THOSE ****ERS LAUGHED at Peter Schiff when he said there would be a great collapse in 2007 or 2008, we all know who was right.

Who laughed at him? And who's Peter Schiff? He's a guy with a degree in economics who, as far as I can see, has never published an economics paper.

Why are there so few PhD economists think Austrian economics is anyway decent?

In March my 5 year old nephew correctly predicted that Fulham would beat Manchester United. That was a surprise. I'm sure people would have laughed at him had he said it. Thing is though, my nephew has been successfully indoctrinated in the faith of Anyone But United and always predicts that Man Utd will lose. Thus his prediction that they'd beat Fulham isn't all that strange or impressive.

Similarly Austrians always predict that monetary policy will cause recessions. Not to say that Austrian economists are no smarter than a 5 year old, but, well, you know.

More seriously, David McWilliams has been saying since at least 1997 that the housing market was over-heated. Turns out he was right, eventually. He's not an Austrian. Nor is Nouriel Roubini. So what makes Austrians better than these guys?

And that's before we get to the other major flaws about ABC, or any business cycle theory for that matter.

The main cause of business cycles are monetary policies.

Would you like to back this statement up?

Well sure you can get supply chocks or new inventions that contribute to business cycles.

And other business cycle theories, more complicated than what I can only conclude to be a politically-motivated Austrian one, have very much gone out of fashion in economics? Why? Because they're crap. Business cycle models don't capture dynamics right. There are other things at play. But, of course, Austrians tend to refuse to accept mathematics on principle.

Inflation makes the world a bad places

(Lol)

Inflation makes the world a bad places it is a tax on savers that is transferred to borrowers.

Agreed. That overlooks the positives of it, though.

Tell me, how does creating money out of thin air create wealth? It only creates wealth for those who are at the printing presses, ie government and their cronies. It destroys wealth for the vast majority of people.

Well there are many ways. One way is to look at inflation as the mechanism by which a government can smooth consumption of a country. Lower interest rates now to incentivise people to stop hoarding cash and spend now if their expectations are incorrect. But of course Austrians tend to take the line that humans can never make mistakes and market outcomes are optimal. That's the sort of thing that scares me more about Austrians than the fact they get lucky with their simplistic model.

DagneyTaggart

This might interest, and save some time, of those minds currently being seduced by the Austrian School. Why I am Not an Austrian Economist by Bryan Caplan: http://economics.gmu.edu/bcaplan/whyaust.htm

Taken from the conclusion:

"Mises and Rothbard certainly produced an original alternate paradigm for economics - and applied this paradigm to a number of interesting topics. Unfortunately, the foundations of their new paradigm are unfounded, and their most important applied conclusions unsound or overstated."