The General Economics Thread

the thing is. when a theory is wrong on one detail, you take in new evidence and revise it. Not throw it out as useless and wrong unless you find new evidence that completely invalidates the entire theory.

This is the very basic of scientific theory. Models get revised based on new evidence.

edited 19th Dec '12 10:53:26 AM by Midgetsnowman

What Midgetsnowman said. The point of a theory is that you revise it to fix errors and fill in the gaps. Newtonian physics didn't get invalidated by relativity because relativity looks exactly like Newtonian physics in normal situations.

Krugman has admitted to errors, in the past, but saying that the 70's invalidated Keynesianism is a bit like saying that Nate Silver is a hack because he incorrectly predicted one race out of 200-plus. In most professions, a 90%-plus success rate is pretty stellar.

Compare that with Austrian economics, which has a successful prediction rate closer to 10%. Further, when confronted with the failure of their models, the Austrians don't revise them; they dig in deeper. There's no other explanation for why Europe continues to push austerity.

edited 19th Dec '12 11:17:06 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

You could apply that logic to any of the theories, not just Keynesianism.

Bottom line, economics is not a hard science. There seem to be a lot of people who insist the Keynesianism alone is. If you want to make that argument, make sure your reasoning is intellectual rather than political.

Science is not gambling. If a theory says a given phenomenon is impossible and it isn't, that theory needs some correction.

[citation needed]

You really think Austrian Economics is behind contemporary European politics? I highly doubt that.

edited 19th Dec '12 11:20:06 AM by Topazan

I'll just say this again. One side uses mathematical analysis and logic to predict outcomes, and revises its models when they prove inadequate. The other side buys academicians, actively seeks to discredit its opposition, and persists in applying the same formulas over and over again despite repeated failures.

This isn't being political; it's the hard truth. Krugman himself was not political until the past few years; he even considered himself moderately conservative on economic issues — as did Keynes, as did Adam Smith. The conservatives moved so far away from sanity over the past few decades that there is no room left to be moderate.

Austrian, austerian, freshwater... I really think you're too stuck on labels. What would you prefer I call the school of economics that believes in unrestricted laissez-faire capitalism and bleeding the sick with austerity?

edited 19th Dec '12 11:21:21 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

I agree with Topazan here. I've been reading posts around here, saying that evidence speaks to the contrary of certain (Austrian) theories; and yet that's precisely what happened with stagflation and Keynesian theory. But a contrary result simply means "something is wrong". That could mean anything - change in the givens leads to deviation from the model, or there's an invalid argument in the model.

To really challenge a theory, you need to look at the structure of the model and dispute its construction, rather than the results. What are the given conditions? And what does the model argue that will happen from those conditions? Do they make sense?

No wonder there's an emphasis on theoretical soundness rather than just evidence. It matters.

edited 19th Dec '12 11:22:25 AM by Trivialis

I was under the impression that Austrian economics was a pretty fringe movement. Can you give some examples of administrations that have implemented Austrian policy recommendations? (And austerity is not necessarily Austrian, despite the similarity of the words.)

Words mean things. You can't call the Soviet Union "America" just because they're both superpowers. Call those theories by their name.

edited 19th Dec '12 11:25:58 AM by Topazan

Topazan, please tell me what you think Austrian economics means. If it's not what I'm using it to mean, then we have a definition problem that needs to be corrected.

Trivialis, rather than insist that any model that isn't 100% accurate is faulty, why not present a different model that you think might work better and let us analyze it? I've given you all my evidence but you apparently feel that this is not enough.

edited 19th Dec '12 11:25:45 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

The Austrian School of economics is a school of economic thought which bases its study of economic phenomena on the interpretation and analysis of the purposeful actions of individuals.[1][2][3][4] It derives its name from its origin in late-19th and early-20th century Vienna with the work of Carl Menger, Eugen von Böhm-Bawerk, Friedrich von Wieser, and others.

I'm not trying to present the best model, though; I'm trying to learn. And to do that, I need to see what the models say, first and foremost.

@Topazan: Austrian thought is the underpinning of the modern free-market, laissez-faire, austerity-in-bust-times movement, principally associated with economic conservatism. In particular, the notions that inflation comes from monetary expansion and that there is a "natural business cycle" that must be allowed to proceed to "clear the markets".

@Trivialis: According to Krugman's theories, we are in a liquidity trap in which monetary expansion does not drive inflation. According to conservative economists (driven by Austrian principles), we should be having massive inflation right now. Which is correct?

According to Krugman, austerity is self-defeating by driving down GDP and therefore revenues at the same time as it seeks to constrain deficits. Look at Europe and the countries who are pursuing the most austerity are also the countries with the highest unemployment and the highest drops in GDP.

According to Krugman, social supports have the highest return (multiplier) of any form of government spending. According to austerian theory, it collapses economies. In Europe, right now, the countries with the highest taxes and highest amounts of social spending are doing the best in terms of employment and GDP growth.

edited 19th Dec '12 11:37:46 AM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Well, I don't know about other countries, but in America there's isn't a strong Austrian influence on conservative policy. Things like supply-side or trickle-down policies are something else entirely.

edited 19th Dec '12 11:39:45 AM by Topazan

...Did you read my post?

Fighteer, I'm getting concerned about the political tone I'm sensing in these posts. We already have political threads for the implications. But here in the economics thread, I want to see the models for what they are. I'm interested in what they say.

I've learned quite a bit from you and others in this forum. But when I keep seeing the stereotypical response noting that Keynes is accurate and the other side isn't, it becomes a hindrance to actually learning. I want the explanations on the theories first, and judgement on them second. The point is that I look at them myself and reach the correct conclusions, rather than just being handed those conclusions.

My frustration comes from the fact that I have presented both the theories and examples where they are accurate and inaccurate. What more information do you want?

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

What would be helpful is a rundown of a given theory, like this or this: for the Austrian one, for instance.

If it predicts one result and the actual result is another, something went wrong. But the question is, where did it go wrong? Is there a faulty assumption or an argument and why? That helps repair the idea and see where it is and isn't very applicable.

I also want to point out: the matter of economics isn't simply Keynes/Krugman on one side, laissez-faire on the other. There's a wide array of different theories, tapping on various basic principles, with overlaps between these theories. You talked about being stuck on labels, but I'm not sure what you mean by that. Those labels describe certain ideas and note the more detailed differences.

As matters currently stand in American politics, there are only two economic theories that matter. Krugman and his allies are proponents of one, and the GOP in general are proponents of the other. There are "middle of the road" approaches that seek to mix and match the two theories in order to achieve a politically acceptable compromise (*cough* Obama) but they don't count as theories in and of themselves.

edited 19th Dec '12 12:08:00 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Well this thread isn't about American politics, and I would like to be more knowledgeable in the various theories for what they are.

This may be just me, but it seems a little disrespectful to ask a random poster to just explain an extremely broad concept to you in depth to your own personal satisfaction. They have college courses on these things for a reason. There's a difference between saying 'Your statement is unsound for this specific reason that I am now pointing out' and just asking someone for more information in bulk. If you really want pure infodumps, Google or the library are probably better sources.

And Topazan appears to be driving this thread primarily by nitpicking terminology. I don't see that as particularly helpful when the average person probably doesn't even know what the term 'Keynesian' is in the first place - which does not necessarily correlate to total ignorance of very basic economic concepts like why we shouldn't have to give the rich more money to get tolerable-wage jobs when they're already sitting on piles of the stuff.

Furthermore, I think Guantanamo must be destroyed.

I suppose I can lay out the GOP's economic principles as I understand them...

• Taxes are coercive and must only be applied to the minimum degree necessary to maintain government functions.
• Government's primary role is to get out of the way and let business do its thing.
• We should be allowing the free market to determine prices and wages.
• As individual initiative and responsibility are the tenets of a free society, anything that undermines these things should be removed. This includes social programs, and any other forms of government aid or income support.
• Government regulation always has a negative impact on business; therefore it should be kept to the minimum amount possible.
• Debt is bad because it creates a burden on future workers. We should strive for a balanced budget under all circumstances.
• Recessions and other declines in productivity are natural outcomes of the business cycle and should not be interfered with. The economy emerges healthier in the long run from these "survival of the fittest" situations.
• Most unemployment is "structural" — that is, people improperly suited for the available jobs, whether through lack of skills, education, or desire.
• It is in our best interests to encourage "job creators" as much as possible, because it is their confidence in government policies that drives hiring decisions.

edited 19th Dec '12 12:42:17 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

@Karkadinn

You're right but my intention isn't to argue. This topic isn't so much about arguing what's right, but analyzing the current trends.

I guess I'm asking for basic descriptions on these trends because there are people around here knowledgeable in this field. And if they want to make a statement about a theory, then I'm interested in what idea within that theory where they have problems.

...I agree with Triv. We've only been hearing about the Austrian and Keynesian schools of thought, and, while they may be the most relevant to modern American society, they aren't the only ones out there, and, to make the most informed decision possible, one must know what all the options are. So what other models exist?

Well, I am a layman and I am primarily familiar with the two schools I've already mentioned. What others are there?

I should also point out that the IMF has adopted a more or less Keynesian point of view on the European crisis, and most of the counterarguments to the austerity programs come from this place. The austerity hawks in Europe are basically working with the same theory as the American conservatives, so it is at this point about those two competing theories.

I suppose we can discuss Marxist or Maoist or anarcho-libertarian theories if you want to, but those have no particular relevance in today's world.

edited 19th Dec '12 12:44:56 PM by Fighteer

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Some schools I found on The Other Wiki that I find interesting, but The Other Wiki gave little explanation and/or an explanation that just confused me further include:

• Post-autistic economics
• The Stockholm School
• Neo-Ricardianism
• Neo-Marxian economics

In addition, there are probably many more that I just don't know about that are interesting and/or have merit.

Also, you shouldn't forget about Anarcho-Communist/Anarcho-Socialist theories.

edited 19th Dec '12 12:50:23 PM by deathpigeon

I can certainly try to forget about them...

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"

Hey! :V They're legitimate theories which have been successfully utilized in the Anarchist-Catalonia and the Free Territories in Ukraine during the Russian Civil War. *Happens to be an anarcho-communist.*

Look, anything that depends on people being rational actors with minimal governance is doomed to fail when applied on a large scale. It just can't work. It's why laissez-faire capitalism doesn't work; it's why anarcho-anything doesn't work, it's why libertarianism doesn't work.

"It's Occam's Shuriken! If the answer is elusive, never rule out ninjas!"