Austrian economics in ten points

Peter Boettke has written a piece to introduce the main elements of Austrian economics in ten points.

The Science of Economics

Proposition 1: Only individuals choose.

Proposition 2: The study of the market order is fundamentally about exchange behavior and the institutions within which exchanges take place.

Proposition 3: The facts of the social sciences are what people believe and think.

Microeconomics

Proposition 4: Utility and costs are subjective.

Proposition 5: The price system economizes on the information that people need to process in making their decisions.

Proposition 6: Private property in the means of production is a necessary condition for rational economic calculation.

Proposition 7: The competitive market is a process of entrepreneurial discovery.

Macroeconomics

Proposition 8: Money is nonneutral.

Proposition 9: The capital structure consists of heterogeneous goods that have multispecific uses that must be aligned.

Proposition 10: Social institutions often are the result of human action, but not of human design.

As an aside to this, it is worth noting that the most persuasive criticism launched by friendly critics of the Austrians such as Nicholas Gruen, is the limited amount of empirical work in the school. This shortcoming is partly caused by shortage of Austrians and partly by the obsession with maintaining purity in the “dialect of the tribe” in some circles. Fortunately the deficiency is being rectified at other centres of Austrian influence such as the Mercatus Centre at the George Mason University, though of course the gains are coming off a low base. Still, it helps to recall that back to 1974 there was no identifiable Austrian school at all.

More on Peter Boettke.

This entry was posted in Economics and public policy, Geeky Musings. Bookmark the permalink.
Subscribe
Notify of
guest
47 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
13 years ago

I’m enthusiastic about the Austrians.

Their framework offers a superior heuristic to the neoclassical one for thinking about a lot of micro-economic problems. The focus on information and institutions makes a lot of sense.

But what I mean by the ‘Austrian approach’ is their basic ‘evolutionary’ perspective which Hayek presents himself as deriving from Smith. Hayek showed me how much ‘Austrian’ there really is in Smith.

On the other hand a lot of the Austrian’s methodological shibboleths and preoccupations in political economy are hangovers from the socialist calculation debate and these days pretty much for the birds. Eclecticism is the order of the day given the yawning chasm of our ignorance.

And I share Milton Friedman’s view that their macro-economics is mostly the stuff of cranks – and that, sadly, includes Hayek. The overwhelming fact that stares you in the face about macro-economic matters is the presence of positive (destabilising) feedback. But the Austrian school is an orchestrated conspiracy to ignore it.

Richard Tsukamasa Green
Richard Tsukamasa Green(@richard-green)
13 years ago

Whilst the lack of empiricism is a huge problem, I think the tendency to descend into puritan debates is the worse problem.

And non-coincidently both of these are shared by many non-neoclassical schools.

The purity debates contribute to the empiricism problem to a certain extent. I think it prevents people from accepting a “good enough” model that can be tested rather than one that can withstand circularities of arguments about natural rates of interest or capital quantification.

My honours thesis was supervised by an Austrian and a Post-Keynesian, and I have high regard for insights from both schools. But I do wish they’d venture a bit out of the academic ghettos they’re in.

Also, in the Austrian case specifically, there is alot of working towards a desired outcome that satiates libertarian values. This isn’t necessarily a problem if the reasoning is still good; and post war (Hayek II) reasoning on microeconomics and critiques of central planning etc. are very insightful, even if I would not conclude as strongly as they do. I admire that the pre-war stuff was abandoned because it didn’t work.

Unfortunately I can’t see the same in the macro reasoning. It’s still a morality play in search of a reality. Which is sad, because I know they can do better, particularly if they reach out of the ghetto.

davidmc
davidmc
13 years ago

Hi.

My main bone to pick is with proposition 6: “Private property in the means of production is a necessary condition for rational economic calculation.”

This would be true only if entrepreneurial and economizing behaviour required the profit motive. However, I would argue that that is increasingly not the case.

Check out my Radio National Perspective talk entitled Should the financial crisis prompt another look at social ownership?. Here is the podcast and transcript.

See also Economics of Social Ownership for a more extensive treatment.

At the moment we have a discussion on social ownership over at Strange Times.

melaleuca
melaleuca
13 years ago

I’ve long believed the Marxist paradigm must evolve down the path taken by the Strange Times crew if it is to avoid “withering away”. Good to see some apparently intelligent people are working on it. Good luck guys.

But back to the subject of ossified fossils: thanks for yet another Austrian post, Rafe.

Ingolf Eide
Ingolf Eide(@ingolf)
13 years ago

And I share Milton Friedmans view that their macro-economics is mostly the stuff of cranks – and that, sadly, includes Hayek. The overwhelming fact that stares you in the face about macro-economic matters is the presence of positive (destabilising) feedback. But the Austrian school is an orchestrated conspiracy to ignore it.

Nicholas, would you be good enough to elaborate a little?

Richard, your comment “Its still a morality play in search of a reality” suggests you’re of one mind with Nicholas on this so any further thoughts from you would be appreciated as well.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
13 years ago

Thx Ingolf,

I can’t claim to have read a lot of Austrian stuff on macro-economics, but whenever I do they seem to studiously ignore what stares me in the face – that in times of macro-economic crisis there’s a huge collective action problem because everybody’s second guessing what others will do. If other businesses go on investing, there isn’t a problem, if they don’t then businesses other than the ones making the decision not to invest have a problem.

This seems to me to be central to any discussion of macro-economics. But the Austrians turn it all into a morality play about capital market booms leading to overinvestment (even when there’s little evidence of over-investment in capital goods) and liquidation then becomes the logical consequence.

Recall Lionel Robbins recanting of his liquidationist views about the great depression.

Richard Tsukamasa Green
Richard Tsukamasa Green(@richard-green)
13 years ago

It’s (in part) the idea that the recession is a necessary curative follow up to the boom. A painful reallocation of capital to fix the misallocation.

We pay for our sins, or at least the dole queues do. Very carthartic.

A hangover after the binge. But this hangover is felt by people who weren’t drinking, nor were even at the party, or even when there was no drinking by anyone as far as we can tell.

There is no good reason why all industries must have sympathetic hangovers from the few that got on the booze, but that’s what happens in the recession co-ordination problem.

In fact, I guess it’s a deeper problem of an assumption of causality. Bust follows boom, ergo boom caused bust. But broken legs aren’t the necessary follow up to painting the roof, just an argument for safety harnesses. What we observe seems to indicate it’s the confidence and second guessing due to the end of the boom/bubble that causes the recession, and not the boom/bubble.

Ingolf Eide
Ingolf Eide(@ingolf)
13 years ago

Nicholas and Richard, many thanks for the clarifications.

If I’m reading your comments correctly, both of you dislike the language Austrians sometimes use and, more importantly, are unconvinced that crises such as our current one represent anything real that needs to be corrected.

I certainly sympathise with the former. It doesn’t bother me as much as it clearly does both of you but I also sometimes find the moralistic tone grating (and counterproductive).

As for the second, issues in economics probably don’t come much bigger than this. You’ve both spent many years studying these matters so no passing discussion here is likely to change your minds. Richard, your last paragraph in particular suggests a gulf between our understandings of how the economic world works that I’m not even going to try to bridge here. It would almost certainly be a much longer (and quite likely more fruitless) discussion than either of us would wish for. If you do have any interest in how I see things, these two posts about the unfolding crisis lay it out fairly clearly. Also, Nicholas and I had quite a long exchange on these sorts of broad macro-economic matters last year.

Nicholas, well, I guess we’ll just have to agree to disagree. My request for clarification was to see if your current comment might have different implications from those raised in our earlier exchanges. I don’t think it really does so it probably also makes sense for us to avoid getting bogged down in a repeat.

FWIW, this quote from Mises (from Human Action, Chapter XXIX (1)) seems to me to go to the heart of these issues:

At the bottom of the interventionist argument there is always the idea that the government or the state is an entity outside and above the social process of production, that it owns something which is not derived from taxing its subjects, and that it can spend this mythical something for definite purposes. This is the Santa Claus fable raised by Lord Keynes to the dignity of an economic doctrine and enthusiastically endorsed by all those who expect personal advantage from government spending. As against these popular fallacies there is need to emphasize the truism that a government can spend or invest only what it takes away from its citizens and that its additional spending and investment curtails the citizens’ spending and investment to the full extent of its quantity.

Nicholas Gruen
Admin
Nicholas Gruen(@nicholas-gruen)
13 years ago

Ingolf,

There’s so much (possibly) implied in Mises’ passage that it’s hard to know where to start or stop.

The passage has a elephantine ‘excluded middle’. Saying the government isn’t like a normal market player isn’t the same as saying it’s godlike.

I’d say the govt is not outside the system, but it’s the biggest ugliest risk bearer and so is the appropriate risk bearer of last resort. It’s also the market designer (although a lot of that is simply ratifying various evolutions in the market. And it’s the ringmaster.

I detect full Ricardian equivalence for instance. Are you up for that? And does Mises broadside rule out monetary expansion to deal with a downturn?

And by the way, where is Rafe. I’m getting annoyed at this idea that you just start up debates about things that people go to some trouble to try to understand and then just walk away. This is roughly the way various commentators run greenhouse denialism – jump in, make some provocative claims and then retreat saying ‘you can read all about it, I’ve covered all this in my former papers’ – when you go there you find it isn’t all there.

GeoffRobinson
GeoffRobinson
13 years ago

The curious thing about Hayekian cycle theory is its influence on the pre-Keynesian socialists at LSE: Evan Durbin and (to a degree) Hugh Dalton. They saw overinvestment as demonstrating the failure of capitalism compared to a socialist economy.

pedro
pedro
13 years ago

Isn’t the traditional Austrian view that malinvestments pile up due to mispriced (cheap) capital resulting from monetary expansion, eventually that unwinds creating a down turn? Which doesn’t sound too out there when you look at the US housing market and the Fed interest rate and so forth. Once you have the wide spread problems you will get the knock to confidence that is the driver of the recession.

But identifying a cause is not the same thing as prescribing a cure and the liquidationist view is in fact the literal opposite of taking medicine.

Ingolf Eide
Ingolf Eide(@ingolf)
13 years ago

Nicholas, I think Mises’ intent in this quote was a simple reminder that the only resources the government has to draw on are those it acquires, directly or indirectly, from its citizens. Whether in any given situation it might do a better job of deploying them is a separate question. For you, that point obviously didn’t need to be made.

This simple equation is complicated somewhat by the issue of confidence; since individuals’ actions are in part determined by their mood and there’s no doubt governments can affect that mood, it would be foolish to deny the role they can play in fostering (or destroying) confidence. Especially at moments like these. I don’t imagine Mises would argue with that.

The central point, though, as Pedro notes, is that all too often crises are in large part the result of long term interventions which encourage misallocation of capital, as well as at times overconsumption or even overinvestment when a government aggressively pursues mercantilist policies (like China, for example). The Austrian approach doesn’t prescribe tough love for moral reasons (although some individual Austrian economists almost certainly do) but because they see fresh interventions intended to allay the negative consequences of previous ones is no solution at all in the long term. They’re more likely to merely perpetuate the squandering of scarce capital.

Not being an economist, I had to look up full Ricardian equivalence (thanks for the link). It seems a bit of a scholastic type argument to me. I certainly don’t think people are rational enough to figure out and compensate for different forms of government funding in any detail, so whether a government funds itself through taxation, borrowing or money creation will almost certainly produce different results (particularly of course if it’s the latter).

I think in a way you may be misunderstanding Mises, Nicholas. Given our dire circumstances, I don’t know that he would necessarily rule out monetary expansion; I’d guess his intent would be to diagnose the likely consequences of any such action and try to find the best way to return to a soundly based, sustainable monetary system. He would, of course, have been implacably opposed to the policies that over generations brought us to this unenviable place.

Joshua Gans
Joshua Gans(@joshua-gans)
13 years ago

Boettke’s credibilty goes out the window, with this ignorant statement, presented by way of explanation for the always-dubious-sounding Proposition 4:

But Marshall failed to appreciate that costs are also subjective because they are themselves determined by the value of alternative uses of scarce resources.

You’d only need the most passing knowledge of Marshall’s cost doctrine to know that this characterisation is wrong.

jimparker
jimparker(@jimparker)
13 years ago

Hayek knew shit about improvising to meet the payroll of a small business locked into a local community during bad times and Mises would sound off quite different now if he was on the board of GM. Or Google.

Some people constantly fondle a small, clean, paperweight version of how the world should work – especially mildly uncomfortable in their skins white anglo males who feel they never got their just desserts – and so assume if you tweak a macro lever here and poke a micro button there it should all come good eventually for them…and maybe others.

Fuggedaboutit. The sheer whacky charm and eternal perversity of human nature will always see:
“The best laid schemes o’ Mice an’ Men, Gang aft agley,
An’ lea’e us nought but grief an’ pain, For promis’d joy!”

Sinclair Davidson
Sinclair Davidson
13 years ago

Boettkes credibilty goes out the window

Sure.

jimparker
jimparker(@jimparker)
13 years ago

I certainly hope the following quote was running through Mises head circa 1920.

“All theory, dear friend, is gray, but the golden tree of life springs ever green.”

Mike Pepperday
Mike Pepperday
13 years ago

I can’t get past proposition 1. Collectives do make choices. Firms, Councils, religious groups make economic choices individuals could not make.

Proposition 3. The facts of social science are what people think but there is structure which is not explained by atomised individuals. Look about the democratic world (where people are pretty free to think what they want) and see a pattern. Call it left and right or whatever you will and add a few dribs and drabs but it is a very, very limited range considering it is made of billions of individuals. There is a higher order there that is driving economics (and all social life).

Proposition 4. Utility is subjective however there is hypocrisy here. On the one hand they claim it is subjective but then in every practical expression or discussion assume, but do not say, (a) that money is the only utility and (b) that everyone wants more of it. When did you see a game theory experiment that offered rewards of esteem? Or of social acceptance? They offer money only and they never justify it.

That’s enough. The Austrian economics might have been a great insight for people fighting a Methodenstreit with the Kaiser’s economists (I read that somewhere) but it is an impoverished view of economic exchange.

pedro
pedro
13 years ago

Mike

I think the point of proposition 1 is that only people have brains so a company or collective has decisions made by the individuals that manage it. As compared to suggesting that every decision is made by a single person acting alone. The point being that all decisions are affected by the subjectivity of the individuals who make them.

Prop 3 address the same concept. People make decisions based on what they think or believe. They are not guided by a higher force or ruled by mathematics. Austrians are bid on subjectivity as compared to rationality, I think.

Prop 4 is the same theme also. All values are subjective, that includes the valuation of opportunity costs. The hard cost of a factor of production to me is underpinned by subjective elements forming the market for that factor. I don’t think it would be fair to typify austrians with game theory design.

The Mises quote is also intended to make you realise that people set digging and filling in holes are less available for productive use by an other employer.

melaleuca
melaleuca
13 years ago

Rafe says:

“The likeihood of the subprime collapse was clearly signalled in 1999 but the game went on regardless.”

You can point us in the direction of all those posts you did in 1999 warning us about this “clearly signalled” impending crisis?

Joshua Gans
Joshua Gans(@joshua-gans)
13 years ago

All values are subjective, that includes the valuation of opportunity costs.

This doesn’t necessarily follow. When there is only one factor of production, as in Smith’s deer and beaver example, subjective valuation is irrelevant to opportunity cost. When there are more factors of production, the relative prices of goods depend on factor prices, which in turn depends on the supply of those factors. That’s when

The hard cost of a factor of production… is underpinned by subjective elements forming the market for that factor…

which was more-or-less what Marshall himself said.

But this is not say that technical coefficients don’t enter the story. Does anyone seriously suggest that they don’t?

In standard modern value theory, which is essentially a marriage of Marshall, the early Austrians and Walras, relative prices depend on utility functions and technical coefficients.

There is no modern ‘Austrian’ theory that presents a viable alternative to standard price theory, and which somehow by-passes technical factors. That such a thing exists is just one of the conceits of the ‘Austrian’ autodidacts that populate the internet.

pedro
pedro
13 years ago

I don’t know if there is any separate austrian price theory and I think that the values are subjective point is a simplification to show the underlying truth that subjectivity comes in at all levels.

James if you are I are cavemen then the price in deer hides we agree on a flint axe I make is still a subjective assessment on my part and yours. No prices are determined in the absense of subjective value judgements by buyer and seller. But that is not to deny that sellers take costs of production into account and so on.

Mike Pepperday
Mike Pepperday
13 years ago

Pedro
I am not sure what you are saying in the first case. Why is a collective decision taken by the leaders acting as individuals? If the collective has a vote the leaders would be doing as bidden – and it is likely a decision which no individual could make. If you took individual shopkeepers (say) they would have all sorts of ideas and hard to predict. But the Chamber of Commerce, of which they are the members, will take very predictable positions. That is an illustration of the usefulness of the higher order analysis.

People are not guided by a higher force? They must be. How else do you explain the astonishingly limited range of economic / political positions around the world? Certainly people (and collectives) decide based on belief. But for their beliefs people choose from a very short prix fix menu, not a la carte. You can have left or you can have right, each being a collection of dishes that go together – you are not allowed to mix dishes across the two menus. Is “allowed” the right word? SOMETHING is putting a remarkably restricted order into the world of beliefs.

If game theorists aren’t Austrians they are pretty close. What I said stands: they (Austrian, rat choicer, or free marketeer – don’t need to get into the quibbles between sects) SAY sanctimoniously that utility is purely subjective and they ASSUME cynically that more money is the only utility.

Ingolf Eide
Ingolf Eide(@ingolf)
13 years ago

It’s unlike you to traffic in such simple stereotypes, Nabokov. Besides, amongst schools of economics, I would have thought Austrians the least deserving target; their cornerstone belief is after all the ultimately mysterious individuality of man. To quote Mises yet again:

There is no standard of greater or lesser satisfaction other than individual judgments of value, different for various people and for the same people at various times. What makes a man feel uneasy and less uneasy is established by him from the standard of his own will and judgment, from his personal and subjective valuation. Nobody is in a position to decree what should make a fellow man happier.

To establish this fact does not refer in any way to the antitheses of egoism and altruism, of materialism and idealism, of individualism and collectivism, of atheism and religion. There are people whose only aim is to improve the condition of their own ego. There are other people with whom awareness of the troubles of their fellow men causes as much uneasiness as or even more uneasiness than their own wants. There are people who desire nothing else than the satisfaction of their appetites for sexual intercourse, food, drinks, fine homes, and other material things. But other men care more for the satisfactions commonly called “higher” and “ideal.” There are individuals eager to adjust their actions to the requirements of social cooperation; there [p. 15] are, on the other hand, refractory people who defy the rules of social life. There are people for whom the ultimate goal of the earthly pilgrimage is the preparation for a life of bliss. There are other people who do not believe in the teachings of any religion and do not allow their actions to be influenced by them.

Praxeology [what Mises calls the study of human action] is indifferent to the ultimate goals of action. Its findings are valid for all kinds of action irrespective of the ends aimed at. It is a science of means, not of ends. It applies the term happiness in a purely formal sense. In the praxeological terminology the proposition: man’s unique aim is to attain happiness, is tautological. It does not imply any statement about the state of affairs from which man expects happiness.

At the risk of overgeneralising, the perception of Austrian economics has probably been quite badly damaged by those more interested in using it as a weapon in politics than in the study of economics itself.

Joshua Gans
Joshua Gans(@joshua-gans)
13 years ago

Pedro, I can only repeat: to the extent that your statement — i.e., ‘the underlying truth that subjectivity comes in at all levels’ — is correct, it’s exactly what orthodox price theory says anyway. If you think there is some profound insight there that’s been overlooked by generations of economic theorists, then you’ve gotten the wrong end of the stick.

As for your second point, this is what Smith says:

If among a nation of hunters, for example, it usually costs twice the labour to kill a beaver which it does to kill a deer, one beaver should naturally exchange for or be worth two deer.

Where is the subjective element?

rog
rog
13 years ago

Just for Mel (dated 19990;

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980’s.

”From the perspective of many people, including me, this is another thrift industry growing up around us,” said Peter Wallison a resident fellow at the American Enterprise Institute. ”If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

pedro
pedro
13 years ago

James, I didn’t think there was any profound insight. I just misunderstood you to be suggesting that some values/costs are not in any way subjective.

Re the deer and beaver, the story suggests would would be the purely rational position, but it is not evidence of real life. For example, the guy with the two deer might think beaver tastes like crap. Or the beaver guy might have had a good hunt and now has a surplus of beaver threatening to rot. Also, the story contains an assumption that is an obvious fallacy, things are rarely so comparable.

Sinclair Davidson
Sinclair Davidson
13 years ago

James M. Buchanan has a very nice little book Cost and Choice that deal with these issue. Chapters 2 and 3 go to the heart of the discussion here. Some choice quotes from Chapter Two.

With the advent of “welfare economics,” regardless of how this might be defined, such previously admissible methodological fuzziness no longer passes muster. If idealized market interaction processpure or perfect competitionis used as the standard for deriving conditions which are then to be employed as norms for interference with actual market process, the question of objective measurement must be squarely faced. If prices “should” be brought into equality with costs of production, as a policy norm, costs must be presumed objective, in the sense that they can be measured by others than the direct decision-maker.
Only Hayek and Mises seemed to be completely aware of this problem and of its major importance, although many other economists seem to have been vaguely disturbed by it. Subjectivist economics, for Hayek and Mises, amounts to an explicit denial of the objectivity of the data that informs economic choice. The acting subject, the chooser, selects certain preferred alternatives according to his own criteria, and in the absence of external change he attains economic equilibrium. This personalized or Crusoe equilibrium is, however, wholly different from that which describes the interactions among many actors, many choosers. In the latter case, the actions of all others become necessary data for the choices of the single decision-maker. Equilibrium is described not in terms of objectively determined “conditions” or relationships among specific magnitudes, e.g., prices and costs, but in terms of the realization of mutually reinforcing and consistent expectations. The difference between these two approaches, the objectivist and the subjectivist, is profound, but it continues to be slurred over in the neoclassical concentration on the idealized market interaction process in which all individuals behave economically. In an unchanging economic environment populated by purely economic men, the two approaches become identical in a superficial sense. In a universe where all behavior is not purely economic, where genuine choice takes place, the important differences emerge with clarity.
At this juncture in the development of economic theory, we must, I think, ask why the convincing arguments of Hayek exerted so little weight. Without question, objectivist economics continues to carry the day, and few of its practitioners pause to examine critically its methodological foundations. There are, no doubt, several reasons for this failure, but undue attention paid to the definition of equilibrium, although of immense importance in itself, may have retarded acceptance of the more general subjectivist notions. Neutral readers of the impassioned debates on socialist calculation might have been led to think that the central issue was really one that involved the possibly erroneous derivation of policy criteria from stationary equilibrium settings. Indeed this is an issue, but the subjectivist critique is obscured here. As noted earlier, this concentration on equilibrium, of which Hayek, Robbins, and to a lesser extent Mises, all are guilty, left the way open for Lerner to drop all references to general equilibrium in his derivation of the policy rules that explicitly require the introduction of objectively measurable costs.

Some choice quotes from Chapter Three.

The following specific implications emerge from this choice-bound conception of cost:

1. Most importantly, cost must be borne exclusively by the decision-maker; it is not possible for cost to be shifted to or imposed on others.
2. Cost is subjective; it exists in the mind of the decision-maker and nowhere else.
3. Cost is based on anticipations; it is necessarily a forward-looking or ex ante concept.
4. Cost can never be realized because of the fact of choice itself: that which is given up cannot be enjoyed.
5. Cost cannot be measured by someone other than the decision-maker because there is no way that subjective experience can be directly observed.
6. Finally, cost can be dated at the moment of decision or choice.

melaleuca
melaleuca
13 years ago

Right Rafe, so while the impending subprime crisis was as obvious as an erection on a doberman as far back as 1999, you admit you didn’t actually see it coming yourself. Thanks.

melaleuca
melaleuca
13 years ago

“Community groups like ACORN had a mission to launch actions against banks that were not issuing enough bad loans… ”

Evidence please …

Joshua Gans
Joshua Gans(@joshua-gans)
13 years ago

Rafe, I’m not taking a ‘dig’ at Boettke, I’m saying that he’s wrong. I note that neither you nor Sinclair have attempted to defend the proposition itself. Showing me his CV is brazenly an argument from authority, and not good enough. At least Pedro, who doesn’t even qualify as an autodidact, had a go — even if he was floundering.

I have no problem with autodidacts getting involved in discussions — that’s what we’re all doing here. But I lose patience when thr autodidacts pontificate on issues way out of their depth, dismiss as incompetent anyone whose conclusions they dislike (whether or not they understand how these were reached), and pour scorn on eminent writers whose work they aren’t even up to reading.

Mike Pepperday
Mike Pepperday
13 years ago

I, too, will have a go at Rafe – referring to No 30.

Scoffing and insults like “mystical group mind” indicate a lack of sound argument.

The discussion is not methodological individualism. It is about Boettke’s propositions. Nothing wrong with MI. As you say it is individuals who have opinions and who vote for the collective resolution.

The point, though (if you wish to consider it), is that the resolution is (or may be) not one that any individual could make. Analysis at the level of the level of the individual does not suffice. The resolution reflects the minds of those who make it and of the past – the traditions. Collective resolutions, and thus their economic consequences, are moderately predictable. A survey of the members’ minds will be a very poor, or hopeless, predictor of collective decisions.

In other words, a collective such as a party or religion or a firm has an existence – a life – that transcends its individual members.

With reference to the prix fix at No 23, how do YOU account for the limited menu?

Ingolf Eide
Ingolf Eide(@ingolf)
13 years ago

Rafe, re: 34, Barry Ritholz had an amusing comment about the efforts in some quarters to pin the blame for the subprime mortgage crisis on various government efforts to lend to minorities:

As I have been writing here for many years now, there were a 1,000 things that led to the current crisis. However, I have chosen to focus on, in priority of significance, causation and impact, items # 1-10. Other people seem to wish to focus upon items #67, 219, and 467.

No doubt some bad loans were made as a consequence of the CRA (Community Reinvestment Act) and other initiatives, but they were marginal in the overall scheme of things. Robert Gordon wrote about these matters back in April this year. The whole article’s worth a read but let me just quote his last paragraph:

It’s telling that, amid all the recent recriminations, even lenders have not fingered CRA. That’s because CRA didn’t bring about the reckless lending at the heart of the crisis. Just as sub-prime lending was exploding, CRA was losing force and relevance. And the worst offenders, the independent mortgage companies, were never subject to CRA — or any federal regulator. Law didn’t make them lend. The profit motive did.

Joshua Gans
Joshua Gans(@joshua-gans)
13 years ago

I am too busy to debate the fine detail…

No, too far out of your depth. As usual.

Gummo Trotsky
Gummo Trotsky
13 years ago

Methodological individualism is for Barbie and Ken dolls.

Mike Pepperday
Mike Pepperday
13 years ago

Rafe, You say “But MI is Boettkes first proposition.”

Beg to differ. Boettke’s proposition is: “Only individuals choose.” I say that is individualist.

Methodological individualism is a social science approach to the study of human affairs. It does not imply individualism for an MI approach can deliver information on collectives. A non-MI approach would be to, say, collect records of what a certain institution has done in certain circumstances (and maybe predict its behaviour).

Boettke is a social scientist and I expect he does take an MI approach. However his proposition 1 is a statement of conclusion, not approach. The “only” makes it, well, dogma. It makes the statement individualist (and tells us something about Boettke).

Leave off the “only” and apply MI. Individuals choose. Yes, they may choose to adopt a collective decision. Already MI has brought us away from individualism. Nobody knows what the collective will choose but all involved individuals choose to surrender their choice. The decision will become known after the vote or whatever – a collective choice. Thus an MI approach can show that collectives can choose.

melaleuca
melaleuca
13 years ago

Rafe says:

“One thing at a time Mel. What do you think of the New York Times piece?”

You always pull the same stunt, don’t you Rafe. You make some mendacious claim then go off on some tangent when you can’t back it up. It’s downright ungentlemanly behaviour on your part and certainly not in keeping with the spiffing traditions of this fine old blog.

As to the NYT piece, here’s my counter-google that trumps it: http://www.prospect.org/cs/articles?article=did_liberals_cause_the_subprime_crisis

pedro
pedro
13 years ago

Floundering James? First it’s beaver and deer and now you throw in fish. It’s hard to keep track.

melaleuca
melaleuca
13 years ago

Well yes, Rafe does seem to be floundering.