Vox Popoli

What are you doing?
Curious, she inquires.
Explicating the
Austrian Business Cycle.
How rapidly she departs!

Josh has a question:

How do you deal with the criticism that Austrian economics aren’t based on empirical evidence and are thus only nice little theories with no relation to the real world?

I’d point them to Rothbard’s excellent commentary on the subject contained in AGD. Then I’d invite them to contemplate the case of Japan in light of his perspective. Contra the assumptions of the empiricists implicit in Josh’s question, Austrian theory competes rather well in the field of predictive validity, especially of late. Most people would look at Rothbard’s bold assertion that historical statistics cannot be used to test theory and roll their eyes, but never stop to consider the way in which – ironically enough – empirical and scientific experience both tend to support the verity of Rothbard’s logic.

Suppose a theory asserts that a certain policy will cure a depression. The government, obedient to the theory, puts the policy into effect. The depression is not cured. The critics and advocates of the theory now leap to the fore with interpretations. The critics say that failure proves the theory incorrect. The advocates say that the government erred in not pursuing the theory boldly enough, and that what is needed is stronger measures in the same direction. Now the point is that empirically there is no possible way of deciding between them. Where is the empirical “test” to resolve the debate? How can the government rationally decide upon its next step? Clearly, the only possible way of resolving the issue is in the realm of pure theory—by examining the conflicting premises and chains of reasoning.

This reasoning is at the heart of my doubts about Keynesianism, evolution, psychology, the Dark Triad of physics and other quasi-sciences; the intelligent observer has probably already figured out that it is my Austrian School perspective, not my Christianity, that is the primary source of my doubts about neoDarwinism. Now, it’s true that the praxeological approach to methodology has its limits too; the practical superiority of the physical sciences vs medieval philosophy shows that logic must sometimes bow to empiricism. The mistake of modern scientistry is its failure to understand that in certain cases, empiricism is inherently unreliable and a logical approach will be more effective… although at times one is forced to conclude that this is less a failure of understanding on the part of scientists and more a reluctance to abandon their posture of intrinsic intellectual superiority.

The havoc wrought by the appearance of a black swan is no more than the inevitable consequence of forgetting that past results are no guarantee of future performance. This applies to scientific theory as well as to the financial markets.

UPDATE – Reason’s Tim Cavanaugh points out the very problem with empiricism the Austrians describe in Paul Krugman’s defense of neo-Keynesian economic stimulus:

I’ll just point out that Krugman’s case for additional stimulus uses the same logic as Caliph Omar’s decision about the good and bad books in Alexandria. If we don’t stimulate and the economy tanks, it’s because we’re not stimulating; if we stimulate and the economy tanks, it’s because we’re not stimulating enough. There’s no way to refute premises stacked in this way.

It’s long past time the media stops pretending they aren’t taking sides:

On the night of June 24, the media and government become one, when ABC turns its programming over to President Obama and White House officials to push government run health care — a move that has ignited an ethical firestorm!

If this doesn’t convince you that the America of old is dead, I don’t know what will. Tell me the one again about the “watchdog” press and how important it is for the nation’s fredom, will you?

His administration appears to be demonstrating it grasps at least a modicum of the concept of cause-and-effect:

The Obama administration has turned back pleas for emergency aid from one of the biggest remaining threats to the economy — the state of California. Top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching “fiscal meltdown” caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California’s fiscal condition has worsened, leading to high-level administration meetings. But federal officials are worried that a bailout of California would set off a cascade of demands from other states.

I’m a little shocked, I have to confess. I just assumed they’d bail out California and then profess surprise and horror when 40 other states showed up with similar demands. On the other hand, they’re pushing for nationalized health care and handing over broader powers to the Federal Reserve, so perhaps it’s just broken-clock syndrome at work. It’s probably wort nothing that there does appear to be plenty of wiggle room in the language towards the end of the piece, just in case of a real financial emergency….

It’s a penalty, but they count too. Landon Donovan converts and it’s 1-0 USA! Not for long though. Rossi drills a beautiful goal into the corner from distance. Bang… nothing the keeper could do about it. The amazing thing is how many Italian kids are capable of striking the ball like that. 1-1.

De Rossi’s goal was poor defending, the US player looked like a little kid trying to use his “good” foot instead of the one that was in the right position. 2-1 Italia. Pirlo makes a lovely move and a perfect soft cross to Rossi, who puts it away without hesitating. 3-1 Italia.

The USA actually didn’t play badly for a team down a man, but the defending was a little shaky and unlike the Italians, the attackers and midfielders were hesitant about taking shots. Luca Toni is overrated, as always; it was amusing to see Howard stone him so easily twice.

An insightful thought regarding the Federal Reserve:

There are better and worse ways to manage the Federal Reserve, but most are a matter of luck and hindsight. As economist Marc Faber has written, “When…the public…finally realizes that central bankers are no wiser than the central planners of former communist regimes, the tide will turn and monetary reform will come to the fore…. market forces [will] drive economic activity, and not some kind of central planner….”

I’ve always thought highly of Marc Faber, but this is brilliant. What he’s pointing out is that the Economic Calculation Problem developed by Mises and refined by Hayek applies to the central banks just as it applied to the socialist central planners of yore. This assertion, which rests on a widely accepted economic concept, can be readily supported by both logic and empirical evidence and amounts to a powerful refutation of the very concept of central banking.

The important thing isn’t the Fed’s ability or inability to completely enforce its target price of money, but that it can’t possibly know the intersection of the independent valuations of money set on a dynamic basis by the various buyers and sellers any more successfully than the Soviet planning boards could identify that intersection for the various consumer goods they managed. Therefore, its actions will inevitably be incorrect no matter what it does, notwithstanding the occasional blind luck.

Peter King fails to account for inflation:

1964: Namath $142,333 per year
2009: Sanchez $10 million per year

Of course, if you substitute real dollars for nominal ones, Namath was receiving the 2009 equivalent of a $979,067 annual salary. If one considers how much the NFL has grown in terms of audience and revenue production over the last 45 years, a 10x increase in player salaries really doesn’t sound all that outrageous. And, that’s using the official CPI statistics, which the BLS was kind enough to inform us is around half the actual rate of price inflation.

What is outrageous is the way in which veteran players are consistently shortchanged in favor of rookies who have never played a single down in the NFL and have a 50 percent chance of being worthless to their teams. But, I suppose we probably shouldn’t be surprised that an SI sportswriter doesn’t know the first thing about money. “How on God’s green earth can Washington cut Americorps? It’s one of the best federal motivators for kids out of college to give a year of their lives to volunteer with some of the neediest agencies and people in our country. Wake up, Washington.”

Have a look at that FY2010 Federal budget, Mr. King. There’s your answer. You know, in the big red lines that go WAAAAYYY south of the horizontal axis marked zero.

Will Obama cap Bernanke?

The economic history of the last 30 years is the triumph of monetarism over neo-Keynesian economics. When conventional Keynesian measures proved incapable of taming the inflation and high unemployment of the 1970s, new Federal Reserve Chairman Paul Volcker made what his successor later described as one of the most important policy changes in the last 50 years. He raised interest rates to previously unthinkable levels in a successful attempt to reduce the money supply, which broke the inflationary cycle, and, after a brief recession, led to a great economic expansion that lasted for nearly 20 years.

I was looking up the entry on the Methodenstreit, started poking around as you do, and discovered that the Wikipedia article about The Irrational Atheist describes a book that is barely recognizable to me. Among other things, neither Dinesh D’Souza nor his book had anything whatsoever to do with TIA; I purposefully refrained from reading What’s So Great About Christianity? or any similar books until after completing my own book. According to the Wikipedia rules, I’m not allowed to edit the entry myself, but perhaps some of you – either critics or fans, I don’t really care which so long as you’re capable of writing reasonably accurate summaries – might be willing to do so. I suppose it would be fitting to use either The End of Faith page or the one for The God Delusion as an acceptable model.

Among other things, I think the wikipage on the Euthyphro Dilemma would benefit from my critique of it, since it’s a more fundamental reduction of Socrates’s construction than the obvious arbitrary angle. I suggest that it serves as a good example in why it’s beneficial to read the argument you are looking to criticize in its entirety rather than simply accepting the common summation of it. (In case you haven’t read the appendices, the salient point is that Socrates had to cheat in order to construct the logic required to support the dilemma, and he even admits that he is doing so in the text. So, the so-called Euthyphro Dilemma is a non-starter in its original polytheistic terms, as well as being inapplicable to a monotheistic scenario.)

And don’t forget, according to those examples, any criticisms should be directed to me for responses to be added to the wikipage later. I think that’s an incredibly stupid Wikipedia policy, but we don’t make the rules, we just play by them. I think one mistake that conservatives and libertarians have made is to simply concede the online encyclopedic ground rather than fighting for it by utilizing the techniques that are explictly deemed permissible by the Wikipedia editors. For example, if Richard Dawkins is permitted to deny the public charge that he is an atheist fundamentalist, then every other target of public criticism has to be permitted similar denials… it’s interesting to note how the “criticism” sections of several wikipages contain more text that can be best described as “response to criticism” than they do actual criticism.

So, my response to the charge of Nazihood in the section entitled “Feminism, multiculturalism and equality” is as follows: I reject the label on what should be the embarrassingly obvious grounds that libertarians are damn near the cardinal opposite of Nazis.

1. It’s always surprising how much harder even the simplest fill-in-the-blanks are than what would otherwise appear to be difficult multiple choice questions. If questions three and six were reversed, I wonder if even one in ten of those who got it right on the multiple choice would have still done so. On a tangential note, a surprising number of people who scored 80 or more answered “Roosevelt” on question six. I didn’t expect to see that.

2. I was pleased to see how many people understood that Goldberg is making a connection between religion and fascism. I was somewhat less pleased to see how many people misunderstood the nature of that relationship. Just to be clear, fascism!=theocracy. An important element of fascism is the sacralization of secular politics, which is not at all the same thing as the politicization of a religion.

3. I found it very amusing that one quiz-taker who called himself JonahGoldbergIsALying$*%! or something to that effect only scored 30, which is one correct answer above the monkey score. As a rule, if you want to set yourself up as a critic – and especially if you’re going to assume a position of intellectual superiority – it tends to help to be able to demonstrate you possess at least some evidence of a clue regarding the subject. Of course, as we saw in the Blumenthal video, no one is so certain that he “knows his shit” as a complete ignoramus with a college degree.

NB: the correct answer to Question Six was not, in fact, “Benjamin Yahoo”.

4. A note to the superficially pedantic. Given that literally everyone who has read Liberal Fascism is perfectly aware that Fascism began with Benito Mussolini – the fact that this week’s reading is entitled “Mussolini: the Father of Fascism” would be your first clue – it is really not necessary to repeatedly point this out as if you are saying something meaningful when people are discussing pre-20th century governments and ideologies. In such context, “fascism” is understood to mean “proto-fascism”. Ideas seldom appear ex nihilo, so discussing the potential intellectual roots of an ideology is a perfectly reasonable thing to do for those who are interested in the matter.

5. I was impressed at how well people retained most of the more important facts in the introduction. It’s fallen back to 64 percent since Jonah posted the link at The Corner, but at one point, after several hundred people had taken the quiz, the AVERAGE score was 72 percent. That’s quite good, especially compared to the average 59 percent on the introduction to the last book. Give yourselves a self-congratulatory pat on your collective back, if that’s not too fascistic. You know, given the alliteration and supreme flexibility of the word, I’m a little surprised no budding young sci-fi author has adopted it as a euphemism. Doesn’t “motherfascist” sound less contrived and more expressive than the lame Battlestar Galactic “frack”?

Anyhow, I hope you enjoyed the quiz and invite you to take a crack at the one that will be posted next weekend. A ten-question quiz will be posted each Saturday, followed by a 25-question final covering the entire text at the end. But, the quizzes will stay up, so if you happen to be busy or fall behind in your reading, you can always take them later.