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The best criticism of me I read today
The fallacies of Cowen and Krugman are of the most basic sort -- errors only made possible by men captured by a deeply false conception of "science", and hence a pseudo-scientific capital-free, causally impossible, aggregate "modeling" approach to the macroeconomy, rather than a causally real relative price / heterogeneous capital ordering process approach, just as Hayek explained in his Nobel Prize lecture.
Here is the full article. I thank Bryan Caplan for the pointer.
Addendum: Angus comments.
Posted by Tyler Cowen on October 21, 2008 at 04:36 PM in Sports | Permalink
Comments
So this means you understand the criticism?
My apologies for the snark. I really am frustrated with the low level of debate.
And if truth be told, I'm a purchaser of books by Tyler Cowen, and I'm a regular reader of his blog.
So it's pretty clear my beef with Tyler is directed at his macroeconomics, and not so much his micro or his ability to explicate economic concepts.
Posted by: Greg Ransom at Oct 21, 2008 4:48:11 PM
Whether or not you agree with ABCT, I think Robert Murphy's essay was very well done. It illustrates that something is clearly wrong with how Krugman views capital (and therefore capital consumption), even if it doesn't necessarily convince the reader of the truthfulness of ABCT.
To me it seems like mainstream economists just keep criticizing the marginal components of ABCT without addressing the more fundamental Austrian insights: How the interest rate is a coordinating signal like other prices in an economy, and how capital consumption can give the illusion of wealth creation during a boom.
Posted by: Grant at Oct 21, 2008 4:55:26 PM
Well, we can't all be perfect. Though I strive for excellence in my criticisms of Tyler. Now I have the template.
Although I thought the "Tyler Clown" part was better. I just dig calling people clowns.
Posted by: Andrew at Oct 21, 2008 4:56:47 PM
I thought Bob Murphy's article was great. Very clear as a way to illustrate what he thinks Cowen and Krugman are missing.
The thing that confuses me is why Tyler is linking to Greg Ransom's post as the criticism, rather that linking to Bob Murphy's original criticism. Seems a little too roundabout for my taste.
Posted by: scott clark at Oct 21, 2008 5:06:02 PM
Sorry, but is this some sort of post-modern critique of the Alan Sokal variety?
Posted by: Naadir Jeewa at Oct 21, 2008 5:06:58 PM
If that was the best, what was the worst? And don't say me.
Posted by: Don the libertarian Democrat at Oct 21, 2008 5:15:13 PM
The thing that confuses me is why Tyler is linking to Greg Ransom's post as the criticism...
I assumed it was because Tyler read my article yesterday. Surely he is saving it for the December 31st, "The best criticism of me I've read all year" post.
And Tyler, again, what I cannot fathom is why you are citing high consumption and high investment as embarrassing to ABCT. They are necessary components of the story. The boom would be sustainable, but for that conjunction. Right? So maybe the story is dumb, but why do you keep claiming that this feature hurts it?
And note that is not last minute excuses on my part. Garrison's PowerPoints clearly drive home the difference between a savings-induced sustainable expansion in the Hayekian triangle, versus a central-bank-induced UNsustainable expansion. See how the two ends of the Hayekian triangle got tugged in the Fed version?
Once again for clarity: Tyler is saying that the Austrians can't explain how higher-order investments go hand-in-hand with increased consumption, whereas his theory (Tyler's) of real wealth can explain it. But I'm saying no, it's the other way around: If the boom were financed by real savings from Chinese etc., then it could have continued forever. That would have been normal Solow growth.
Ah, but if the boom is (partly) based on an unsustainable increase in consumption and investment which is not funded by real savings, THEN you understand why a crisis eventually occurred.
(Really, I realize Tyler wrote a whole book on this, and I am totally ready to apologize if I've been insane the last week. But I don't think it's me.)
Posted by: Bob Murphy at Oct 21, 2008 5:23:36 PM
It seems to me the Austrians are an agenda in search of a theory. I don't see Krugman that way at all, or any of the 'liberal' (i.e., truly moderate) economists. Folks at Berkeley and Princeton spend all their time thinking about how their theories might be wrong, searching hard for the clear testable implications, and eating a big bowls of crow when their theories are proven wrong. Brad Delong does this extremely well. For a leaning libertarian, Cowen does a decent job of it, too.
But the Austrians? Or even, these days, the Mankiws, Beckers and Hassetts of the world? They have quit economics as a science and are now selling snake oil. To have proven their scientific credentials they would have had to have eaten a Holy mountain of crow. They didn't.
Facts have consequences...
Posted by: mike at Oct 21, 2008 5:32:27 PM
It seems to me the Austrians are an agenda in search of a theory. I don't see Krugman that way at all, or any of the 'liberal' (i.e., truly moderate) economists. Folks at Berkeley and Princeton spend all their time thinking about how their theories might be wrong, searching hard for the clear testable implications, and eating a big bowls of crow when their theories are proven wrong. Brad Delong does this extremely well. For a leaning libertarian, Cowen does a decent job of it, too.
But the Austrians? Or even, these days, the Mankiws, Beckers and Hassetts of the world? They have quit economics as a science and are now selling snake oil. To have proven their scientific credentials they would have had to have eaten a Holy mountain of crow. They didn't.
Facts have consequences...
Posted by: mike at Oct 21, 2008 5:33:58 PM
Mike - how has Becker quit doing economics exactly?
Posted by: jason voorhees at Oct 21, 2008 5:39:02 PM
mike, I think the problem is that there don't seem to be many serious criticisms of Austrian capital and business cycle theory. Austrian claims are often ignored rather than criticized, or criticized wrongly (as Tyler does).
There is the capital reswitching criticism, which sounds valid to me, but it probably isn't fatal to the theories. I would love to see an Austrian answer to that.
Posted by: Grant at Oct 21, 2008 5:39:08 PM
Grant -- Garrison has supplied one.
Google "garrison" and "capital" and "reswitching".
Hayek came very close to identifying the reswitching problem in his _The Pure Theory of Capital_.
If you'd like the reference, I'll send it to you.
Posted by: Greg Ransom at Oct 21, 2008 5:48:54 PM
What puts most people off of the Austrians is that the typical discourse on blogs such as these (or on political forums where Ron Paul adherents and similar armchair Austrian fanboys congegrate) sees the Austrian proponents assuming the mantle of ultimate truth. Not only is everyone else wildly wrong, the Austrians are if not infallibly correct then the "clearly most right" of the bunch. It doesn't matter whether the level of debate is lofty or mud-caked, it's still the same grudge-laden attitude dispensed from atop very high horses.
Posted by: MM at Oct 21, 2008 6:04:51 PM
Capital theory has its place. The sushi story is nice and may have a good place in undergraduate macro.
But it does not explain our current situation. It doesn't explain most business cycle fluctuations.
What are Mr. Murphy's testable implications? Who is our economy's Paul Krugman misleading private investment? And what capital stock has been consumed, like the island fishing nets, save for that which used to be provided by the federal government (e.g., roads, electric transmission networks, etc.)?
Austrians are ignored because facts have proven Austrians wrong.
You see, if we take the idea that economics is a science, then it is about theory and evidence. Some of rightmost side of the field seem to see theories that fit their beliefs, and pay no attention to the other half, the whole evidence thing. That seems similar to the problem Marxists had awhile back, and so the field abandoned them, too. What's shameful is that some near-Austrian hacks still have way too much professional standing.
Ya know, I think the Austrian's belong in government where they can be the one-handed economist every politician is looking for...
Posted by: mike at Oct 21, 2008 6:05:38 PM
mike, Murphy's piece was attempting to illustrate how there could be co-movement in consumption and investment. If you're looking for evidence that our current crisis is an Austrian business cycle (and all Austrians I've read believe there were factors at play other than low interest rates) you'd need to look elsewhere.
Greg, thanks, I'll give it a read.
Posted by: Grant at Oct 21, 2008 6:25:21 PM
"Austrians are ignored because facts have proven Austrians wrong."
The most convincing argument I have ever heard!
Posted by: Jay at Oct 21, 2008 6:35:48 PM
I laughed when I was this post under the rubric "sports." Come on, Tyler!
Posted by: Eric at Oct 21, 2008 7:03:42 PM
I meant "when I saw this post...'
Posted by: Eric at Oct 21, 2008 7:07:39 PM
What was the effect of the monetary policy between 2001-4 on the housing bubble? Keep in mind that the CRA and related were passed before. I think that is the question raised by Tyler's comments here.
Posted by: Pedro P Romero at Oct 21, 2008 7:16:39 PM
As an informed observer but no expert, if Austrian theory were so ridiculous and easy to refute, it would have happened already. The fact that Krugman and Cowen are better at piling on ridicule than refuting it suggests to me that they don't have any good arguments. But maybe I'm missing something.
Posted by: bjk at Oct 21, 2008 7:48:02 PM
How about a compliment for balance:
You sure take criticism very graciously.
Posted by: adina at Oct 21, 2008 7:58:06 PM
Yet more evidence that Hayekians are the biblethumpers among the economists.
Posted by: ogmb at Oct 21, 2008 7:59:57 PM
mike,
you don't even sound like you're attempting to understand. You're simply trying to share a preconceived and general opinion you have of Austrians regardless of what's actually being discussed.
What Greg and Bob have done in their respective articles is DEMONSTRATE why what Tyler and PK said was wrong. They did it. It's right there for you to read.
I'm no economist and don't claim to be. BUT, based on what I have taken an interest in reading concerning Austrian Economics, I can just say that both Tyler's and PK's repeated critiques of ABCT always strike me as overly simplified, cursory, hollow and forced into some methodological framework that ignores the deeper implications and inner workings that underpin the theory. IOW, it's as if they are critiquing a shallow and flawed understanding of the ABCT as would be explained by some "arm chair Austrian" non-economist...but never as it is presented by a real economist who truly understands Austrian Economics.
Besides, PK actually knows very little about Austrian Economics...if much at all. Krugman's understanding of it strikes as what he may have heard from someone who heard someone talking to someone about someone who read an article about it once back in the day. Very superficial. And then Krugman forces what little he has picked up along the way into his way of understanding economics...which isn't really that honest.
I'm really not sure where you get the idea that "the facts" refute Austrian Economics either.
Posted by: John V at Oct 21, 2008 8:16:09 PM
So let me sum up Mr. Ransom's post:
"ooh, ooh, look at what Bob Murphy wrote...you see, I completely agree. I mean, he's completely right, here, let me copy everything he says into my post...you see! I told you! Hayek and Von Mises are, in fact, deities who need NO correction ever, they were so smart...yes, what Murphy says here...yes, harumph, yes, yes, that is absolutely correct. Therefore, Tyler Cowen=moron. And Paul Krugman=bigger moron."
Posted by: Tim at Oct 21, 2008 8:23:47 PM
I guess Angus has accurately assessed the quality of that idiot Ransom. Incidentally, Ransom used to have on his info details the delightfully absurd claim that "is a world recognized authority on the work of FA Hayek". I did not realize that publishing zilch went hand-in-hand with being a world recogized authority.
Posted by: Alex at Oct 21, 2008 8:26:14 PM
