Quotation of the Day…

by Don Boudreaux on October 15, 2011

in Economics, Hayek, Reality Is Not Optional, Religion, Scientism, Seen and Unseen, State of Macro

… is from page 61 of Vol. 9 (Contra Keynes and Cambridge) of Hayek’s Collected Works – and in particular from his 1963 essay entitled “The Economics of the 1930s as Seen from London”:

To me it seems as if this whole effort [begun in earnest in the mid-20th century to scientistically 'scientificize' economics] were due to a mistaken effort to make the statistically observable magnitude the main object of theoretical explanation.  But the fact that we can statistically ascertain certain magnitudes does not make them causally significant, and there seems to me no justification whatever in the widely held conviction that there must be discoverable regularities in the relation between those magnitudes on which we have statistical information.  Economists seem to have come to believe that since statistics represent the only quantitative data which they can obtain, it is these statistical data which are the real facts with which they deal and that their theories must be given such a form that they explain what is statistically ascertainable.  There are of course a few fields, such as the problems of the relation between the quantity of money and the price level, where we can obtain useful approximations to such simple relations – though I am still not quite persuaded that the price level is a very useful concept.  But when it comes to the mechanism of change, the chain of cause and effect which we have to trace in order to be able to understand the general character of the changes to be expected, I do not see that the objectively measurable aggregates are of much help.

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{ 46 comments }

Daniel Kuehn October 15, 2011 at 9:00 am

Ah yes… economists in the 1930s were concerned about explaining the determinants of output and employment because that’s what they had statistics on.

Sure… it’s not as if there was any other motivation to understand output and employment during those years…

Don Boudreaux October 15, 2011 at 9:05 am

Why do you infer Hayek as suggesting that the huge problem of the Great Depression was no motivation for economists to understand what was going on? What in the world, in the quoted passage, suggests that odd interpretation?

What Hayek says here is that economists’ attempts to better understand the Depression – and, more generally, what were then called “trade cycles” – went awry when economists were misled (mostly by themselves) into believing that any such better understanding was best done through the collection of data on statistical aggregates. This criticism issued by Hayek (be it correct or incorrect, agreeable to you or disagreeable) is completely different from what you, Daniel, infer him to be saying.

Daniel Kuehn October 15, 2011 at 9:19 am

Hayek wrote: “To me it seems as if this whole effort were due to a mistaken effort to make the statistically observable magnitude the main object of theoretical explanation.”

My claim is simply that the “whole effort” was not due to the “effort to make the statistically observable magnitude the main object of theoretical explanation” and that a substantial portion of “the effort” was in fact “to make the problems that we were concerned about the main object of theoretical explanation.

You write: “What Hayek says here is that economists’ attempts to better understand the Depression – and, more generally, what were then called “trade cycles” – went awry when economists were misled (mostly by themselves) into believing that any such better understanding was best done through the collection of data on statistical aggregates.” but this does not seem to be what Hayek is saying to me. I thought Hayek was quite plainly saying that they were mislead in choosing the “main object of theoretical study”.

Don Boudreaux October 15, 2011 at 9:30 am

Hayek criticized economists who, inspired to better understand the Great Depression, turn to statistical aggregates for insight.

He did not say that, because macro statistical aggregates somehow came to be widely available, either conceptually or empirically or both, starting in the 1930s, that economists then decided to try to explain the Great Depression.

The “main object of theoretical explanation” (a phrase which immediately follows “a mistaken effort to make the statistically observable magnitude the main object of”) to which Hayek refers is the alleged interrelation of statistical aggregates – but Hayek never denied that economists were led to focus on the particular aggregates that they focused on out of a justifiable desire to understand the Great Depression.

Daniel Kuehn October 15, 2011 at 9:19 am

And – needless to say – I don’t think statistical observability had much to do with what was chosen for study.

Greg G October 15, 2011 at 10:33 am

I understand and enthusiastically endorse the idea that economics has long had far too much confidence in whatever conclusions can be drawn from mathematical models. But there is a related claim that I often see made around these parts that I am less clear about. That is the claim that macro is just the sum of micro events, not a legitimate separate field of study of its’ own with real emergent properties. Is that also the claim here where orders emerge or am I misunderstanding what is being said?

Randy October 15, 2011 at 11:39 am

Personally, I don’t think that macro is legitimate. Don has disagreed with me on this in the past. Specifically, I think macro should be taught in the political “science” department and not in the economics department. The course could be titled PSI300, “Manipulating economic factors to achieve political objectives”.

SheetWise October 15, 2011 at 12:22 pm

“Manipulating economic factors to achieve political objectives.”

+1. Recklessly including both the seen and the unseen.

Andrew_M_Garland October 15, 2011 at 1:46 pm

Economies are immensely complicated as the result of millions of inputs and outputs related to individual wants. We can roughly measure some things, but cannot do controlled experiments.

Political and selfish economic motives drive the public discussion. The economic factions cannot even agree if World War II was an economic bane or boost, so what hope is there for a more detailed analysis?

About Economics in One Lesson: The Lesson   by Henry Hazlitt (1946)
( easyopinions.blogspot.com/2008/11/economics-in-one-lesson-lesson.html )

[edited]: “Economics is haunted by more fallacies than any subject known to man. This is no accident. The difficulties of the subject are great enough, and they are multiplied a thousandfold by the special pleadings of selfish interests.”

Stimulus plans take the following form:
Step 0: Take resources from the people, especially the ones who organize work.
Step 1: Distribute those resources to the applause of the recipients and the public.
Step 2: Explain why this must be repeated until prosperity emerges.

Political Note: For best effect, omit Step 1 from all discussions or reference. Say that the money was just lying around doing nothing.

Fooling the Future
Spend tax revenue to fool businessment into following the economic plan designed by politicians.

vikingvista October 15, 2011 at 10:29 am

I was sure you’d have an indignant response about how Hayek’s economics were motivated by ideology.

Daniel Kuehn October 15, 2011 at 10:41 am

It seems that leveling those sorts of accusations is Russ’s territory. That’s not how I view Hayek personally.

Methinks1776 October 15, 2011 at 10:46 am

Purposely misrepresenting Russ is firmly your territory.

Disingenuous? People will decide for themselves.

Invisible Backhand October 15, 2011 at 12:16 pm

Methinks is always at the front of the line with a baseless insult.

Why don’t you visit Dan’s blog and see if he knows what he’s talking about?

http://factsandotherstubbornthings.blogspot.com/

Sam Grove October 15, 2011 at 12:45 pm

The thing about Daniel is that he has been trained in a particular perspective, and, while extremely intelligent, his vision is thereby constrained to that perspective, which is the mainstream in nature.

Austrian economics is decidedly NOT mainstream in perspective which makes it very difficult for those with a mainstream perspective to grasp is very well.

Smart as he is, Daniel has, on occasion, evinced cluelessness about the radical perspective many of us here entertain.

Of course, some visitors here evince their cluelessness in nearly every post.

Methinks1776 October 15, 2011 at 1:41 pm

Irritable Bowel, why don’t you publicly engage in your violent fantasies of rape and mowing down innocents in grocery stores on Daniel’s blog since you find it more in keeping with your sick worldview?

Invisible Backhand October 15, 2011 at 1:51 pm

violent fantasies of rape

Why are you bringing up Ayn Rand now?

L. F. File October 16, 2011 at 7:15 am

@Sam Grove says: “Austrian economics is decidedly NOT mainstream in perspective which makes it very difficult for those with a mainstream perspective to grasp is very well.”

And do you also concede that the Austrian disciples fail equally to grasp the “mainstream perspective” very well?

lff

Adeyanlo Uganwe October 16, 2011 at 1:18 pm

So are we pretending that Invisible Backhand isn’t actually Daniel Kuehn?

Methinks1776 October 16, 2011 at 1:39 pm

So are we pretending that Invisible Backhand isn’t actually Daniel Kuehn?

I’m willing to bet a fortune that IB is not DK. Daniel Keuhn is neither vile nor stupid – the defining characteristics of Irritable Bowel.

vikingvista October 16, 2011 at 4:46 pm

L.F. File,

The interesting thing about mainstream perspectives, is that we are all immersed in them. So, no.

vikingvista October 16, 2011 at 4:49 pm

I agree with Methinks. DK has persuaded me on one or two things, which is why I would never wish him banned. But IB can barely get his thoughts in order.

Methinks1776 October 16, 2011 at 4:57 pm

Viking, interesting. Which two things?

vikingvista October 16, 2011 at 5:01 pm

What I remember off hand is a weakness in one of Tom Woods’ arguments in utilizing work by Christina Romer. I don’t even recall the specifics, because what really struck me was simply that I had to concede to DK.

Methinks1776 October 16, 2011 at 5:05 pm

ah. Shukran.

L. F. File October 16, 2011 at 9:14 pm

vikingvista writes: “The interesting thing about mainstream perspectives, is that we are all immersed in them. So, no.”

I would suggest that some are less deeply “immersed” than others and this shallow grasp would be as likely to pertain to one side of the argument as the other.

lff

vikingvista October 16, 2011 at 9:29 pm

Ahlan bekum. With what qualifies as counterpoint around here, it’s a diamond in the rough.

vikingvista October 17, 2011 at 3:35 am

L F File,

Although conceivable, how likely is it really that someone has familiarity with Mises or Hayek, but not mainstream classroom six o’clock news talking head stump speech Yahoo! Finance Congressional hearings NY Times economics?

L. F. File October 17, 2011 at 11:06 am

vikingvista,

I would think the “immersion” would begin with “mainstream classroom” and then move to “six o’clock news talking head stump speech Yahoo! Finance Congressional hearings NY Times economics” to keep current. To me this would leave one with rather superficial exposure to the the mainstream after serious classroom study and surely equate with rather shallow “immersion”.

Keeping up with the Austrian perspective would present less of a problem I should think. Reading the Mises Institute site regularly and an occasional dip in here would cover 90% or so of what is going on I should think.

This argument – you cannot possibly understand my perspective because you are so focused on the mainstream – has been no more convincing in support of Marxist than it is of Austrian economics for the same reason.

lff

vikingvista October 17, 2011 at 4:21 pm

” This argument – you cannot possibly understand my perspective because you are so focused on the mainstream – has been no more convincing in support of Marxist than it is of Austrian economics for the same reason.”

You apparently think Marx is not mainstream. Not only is his name a household word around the world, many of his ideas are expressed daily by school teachers, pundits, politicians, and man on the street interviews. It seems to me the last hundred years has seen the mainsteaming of socialism, even without complete acceptance of Marx’s views on the ultimate evolution of property rights. How you can compare that to Austrian economics, which almost nobody is even aware of, relatively speaking, is beyond me.

Does every person know as much about mainstream economics as a PhD with a traditional economics education? Of course not. But what people today absorb from the media, let alone what they acquire through formal study surely isn’t Austrian.

Perhaps the point of contention here, is the meaning of the word “mainstream”.

L. F. File October 17, 2011 at 6:43 pm

vikngvista,

I was taking both Marxist and Austrian economics as rather all or nothing systems and in that sense I see no more evidence of mainstream Marxists than mainstream Austrians – unless you want to count “Supply Side” economics as Austrian.

Am I wrong in thinking that keeping up with Austrian econ would be a much simpler matter than trying to keep up with the mainstream?

lff

brotio October 17, 2011 at 8:02 pm

And do you also concede that the Austrian disciples fail equally to grasp the “mainstream perspective” very well?

(Despite the way you loaded your question, I’ll go ahead and answer it.)

No,

Same as the dominant liberal media bombards us with the Regressive (HT: Vidyohs) vision for America, it also bombards us with Krugmanism and Keynesianism whenever economics is discussed.

Since the dominant liberal media is only interested in Keynesian and Krugmanist economics, all we have to do is turn on the TV, or open the NY Slimes. Regressives have to actually seek us out to learn what we believe.

L. F. File October 17, 2011 at 9:20 pm

Brotio,

“Since the dominant liberal media is only interested in Keynesian and Krugmanist economics, all we have to do is turn on the TV, or open the NY Slimes… ”

Do you really think you can get anything but the most superficial idea of current mainstream economic thought from the msm? I think you made my argument!

“…Regressives have to actually seek us out to learn what we believe.” As I said before reading two blogs semi-regularly will keep you up to speed on Austrian thinking.

lff

Sam Grove October 17, 2011 at 10:16 pm

@Sam Grove says: “Austrian economics is decidedly NOT mainstream in perspective which makes it very difficult for those with a mainstream perspective to grasp is very well.”

And do you also concede that the Austrian disciples fail equally to grasp the “mainstream perspective” very well?

Why would I?
The mainstream viewpoint is well known far and wide.

Austrian economists, being in the minority, MUST be familiar with the mainstream perspective in order to critique it with any authority.

You might ask Bob Higgs, as he had years of training in the mainstream perspective and is now of the Austrian perspective.

vikingvista October 17, 2011 at 10:54 pm

“I was taking both Marxist and Austrian economics as rather all or nothing systems and in that sense I see no more evidence of mainstream Marxists than mainstream Austrians – unless you want to count “Supply Side” economics as Austrian.”

If you only consider all-or-nothing systems, then “mainstream” has no meaning, and no system has any influence.

Supply side is not Austrian economics. I think it is fair to say that most of those who proudly proclaimed their love of supply side economics during its heyday in the 1980′s (1) had nothing remotely has detailed or fundamental an economic theory as the Austrians, (2) were unquestioning advocates of government monopoly central banking, and (3) were frequent spewers of keynesian rhetoric themselves.

It is true that the Internet has made a great deal of all kinds of knowledge available to almost anyone. It is not true that the mere availability of such knowledge makes it part of mainstream culture. I’d bet a poll of whether or not government spending can effectively stimulate the economy in a recession would result in a quizzical look from over 90% of those you ask, simply because they never considered anyone would think any different.

Stone Glasgow October 15, 2011 at 12:18 pm

A bit like a cocktail-party host who, upon seeing the amount of drinking subside, begins pouring drinks from full glasses into empty, instructs bartenders to pour doubles for guests who tend to spill their drinks, and adding copious amounts of water to the liquor bottles.

All without concern regarding passed out stupors, hangovers, and without wondering if more drinking is a good idea or daring to consider the original source of the beverage ingredients.

SheetWise October 15, 2011 at 12:27 pm

And damn what the guests want!

Stone Glasgow October 15, 2011 at 12:56 pm

Yep

Stone Glasgow October 15, 2011 at 1:06 pm

And if by chance some sober guest objects to all of the manipulation, and implies that it might be best for the party if guests are free to choose their own pace of consumption, she may say:

“Nonsense! What makes sense to you, on a personal level, has no bearing on how a party is best organized. The game changes when you look at the big picture; my God, look, over there! At least 15% of the guests have stopped drinking, and my bartenders have nothing to do!”

spencer October 15, 2011 at 1:23 pm

Of course, the core of George Mason economics–

do not bother me with the facts–

my mind is already made up!!!

Just like Russ saying he is opposed to Keynesian economics

not because it works or doesn’t work–

but because he is opposed to government.

Methinks1776 October 15, 2011 at 1:30 pm

So, can we count you as a supporter of the Stalinism because it worked to industrialize Russia?

After all, whatever works, right? The ends justify the means is the core of your “economics”.

kyle8 October 15, 2011 at 9:12 pm

I am not a distinguished professor of economics but I oppose Keynesianism because it demonstrably does not work.

It didn’t work in the 1930′s, it didn’t work in Europe and America in the 1970′s, ti didn’t work in Japan in the 1990′s and it didn’t work for Obama.

It is crap, it does nothing but cause massive debt.

Harold Cockerill October 16, 2011 at 8:56 am

“does nothing but cause massive debt”.
Yes, Keynesianism doesn’t work but it causes a lot more problems than just debt.

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L. F. File October 18, 2011 at 8:40 am

Sam you say: ”

“…The mainstream viewpoint is well known far and wide. ”

Well, it may be “known far and wide.” but I don’t think the viewpoint is “well known” and it is certainly poorly understood by many.

Austrian economics did not emerge one day fully developed. It is rooted in the same classical economic theories of Adam Smith and David Ricardo as what you are calling the current mainstream viewpoint. The major differences are due to the Austrian adherence to much of classical theory that has been dropped or modified by the mainstream in the early twentieth century. Since then development in both Austrian and mainstream economic thought has occurred.

You maintain that Austrian economics is less well understood by the mainstream economists because the Austrian viewpoint is held by a fewer economists and so less well known.

I would maintain that the magnitude of contributions of a relatively small number of Austrian economic thinkers does not really compare to the magnitude of the output of mainstream economists and so the difficulty of understanding their viewpoint is much greater than understanding the Austrian viewpoint.

Mainstream media coverage of both Austrian and mainstream economic perspectives is far from adequate for a reasonable understanding of the different viewpoints. However, it should be clear that catching up on the development of Austrian economics is far easier than grasping the breadth and depth of development in the wide mainstream of current economic thought built by literally thousands of economists working for nearly a century.

lff

L. F. File October 18, 2011 at 9:17 am

vikingvista,

We are getting a bit off point but my intent was to show that mainstream thought was not bereft of Austrian influences.

Austrian econ may be trying to dodge “Supply Side” association since it has been a rather miserable failure but in 1987 it was viewed as heavily influence by Austrian economic thought – and not just from liberal commentators.

“…Rather, it (Supply Side economics) is a shorthand description for a body of economic policies firmly rooted in the free-market tradition of classical economics, Austrian economics, and other schools. It draws upon such resources to support policies aimed at reducing the size of government and government control over the economy. Thus it has far more in common with Austrian economics than it has in conflict.”

Bruce Bartlett in Freeman – April 1987
http://www.thefreemanonline.org/columns/supply-side-economics-and-austrian-economics/

lff

vikingvista October 20, 2011 at 4:50 pm

Supply side economics is not just classical economics. Its distinguishing characteristic is a disregard for the adverse consequences of government deficit spending, believing that the economic growth arising from reducing production hurdles (which, as you would expect, was a demonstrable success) will overcome it (which was its failure). As such, supply side economics is also a political theory and is at odds with public choice theory and the data. By data, I mean the fact that deficit spending creates a demand curve for greater government expenditures, which eventually worsens government drag on the economy.

To reduce the adverse effects of the government on the economy, the focus must be on reducing government spending (as well as regulatory burdens). Spending ultimately is taxing plus the added burden of depleting capital markets. Curbing the spending is the only effective way of curbing taxes. Supply side economics blithely ignores this reality, which is why it fails.

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