Kevin, you're not right here. Let's get the accusations sorted out because it's hard enough dealing with the accusations as they are let alone folks misunderstanding what their accusations are supposed to be.
Let's get one thing clear at the outset: Krugman, although an economist, functions fundamentally as a Democrat party operative within his NYT post as a public intellectual. This is why he makes statements that indicate vast economic illiteracy and appears to have no living idea how a market economy actually works.
It is not true that for Droopy, economics is an exact science and only the Austrian school has it right.
After years of debating me and reading my posts, one would think you, of all people, could do much better than this gross misrepresentation of my economic philosophy (one expects nothing less of Kevin than naked demagoguery, but I thought you might be able to step up to the plate and at least attempt some intellectual honesty here)
Neither I nor most other Austrians see economics as an exact science. Indeed, it is the fatuous pretensions of contemporary academic economics to scientific status, and its fixation on abstract mathematical theory and - yes - computer modeling - that explains contemporary academic economics' cloistered, arcane disassociation from actual microeconomic/praxeological reality as to policy prescription, and its signal failures over the 20th century which historical experience seems incapable of correcting. The turning of a serious recession into the Great Depression, the severe and open-ended Keynesian/statist economic stagnation and recession of the seventies, the debt, credit manipulation, and identity politics-based sub-prime mortgage led economic meltdown of the late 2000nds (the identity politics aspect of which is not Keynesian per se), and the same, tired, failed, economically illiterate, ideologically driven demand-side, government debt and spending driven "stimulus" - the same approach that created the present economic crisis in the first place - mentality in attempting to restore the economy, but as any serious free-market economist could have predicted, as simple set the the economic stagnation, high unemployment, declining dollar, and sour investment climate in concrete, where it will stay so long as these policies are followed. This approach is indicative of just what it appears to be: an arcane, rarefied theoretical abstraction that wholly reverses the actual dynamics of economic functioning in a complex, free-market society and justifies unlimited state intervention and meddling in economic life.
Austrian economics is the only really legitimate economics (and Von Mises, Hayek, and many other Austrians were and are as expert in the mathematics of the discipline as anyone else) for the reason that they rightly see economics as, in some sense, a branch of psychology, sociology, anthropology, and social psychology - as a branch of knowledge about human beings and various kinds of societies that is primarily concerned, not with mathematical classroom modeling of "aggregate" this and that but of the incentives, motives, perceptions, subjective value judgements, constraints, conditions, and rational economic calculations that drive individual human self-interest and decisions based on knowledge of surrounding economic dynamics regarding future profit and loss. It studies human action as the ways, means, and psychological factors that animate human economic activity. It is
microeconomic in nature (where all actual economic activity and decisions are made and followed) and anthropological in nature: its seeks to understand what humans do economically and why, not how abstract aggregate entities in mathematical theorems behave in a computer model or on a blackboard.
Contemporary academic economics is primarily concerned with the study of the mathematical theorems and models themselves (which is why they must concentrate on the modeling of "aggregate" phenomena, and not human economic behavior per se). Austrian (and Chicago School) economics is primarily concerned with the study of human economic behavior and the forces, incentives, and constraints that condition and modify it, and therein lies the reason why governments love Keynesianism so much, despite its century of abject failure, and communists like Graham, who actually would like to go much, much father than this in control and domination of economic life by the state, defend it to the intellectual and moral death.
The Austrians are radically opposed to economics as a science, it may be their most distinctive trait. Incredibly, Droopy just re-iterated this in his last post, accusing YOU of thinking economics is an exact science.
Graham is a totalitarian leftist who has no salient knowledge of economics at all. Like his Book of Abraham work, he is a fierce gate keeping regurgitator of others' beliefs and nostrums, not a seeker of knowledge and certainly not of truth.
- classical and neo-classical economics is mathematically based.
Classical economics, including the work of Say and other key figures, is also human behavior and psychological dynamics based, as well as utilizing mathematics for certain purposes. Keynes reversed Say's Law, which was grounded in a clear and rationally articulated understanding of the incentives and perspectives governing individual human economic behavior.
What's interesting about Keynes is that, when his theory first became popular with governments, the vast majority of economics believed they would be (as they have been), disastrous. The consensus was in a completely different direction that is has become today, in which the default position of most western governments is toward vast, spreading leviathan states who are free to use debt and inflation to an unlimited degree to fund their own growth and bloat, and to ensconce politicians, overtly elected by popular suffrage, in positions of permanent incumbency based upon the gratuities that can dispense through that debt and inflation.
- Austrians are supposed to criticize classical economics for math because of its latent determinist powers, aiding planners to build a state based on a classical/communist hybrid called market socialism. Keynesian economics shares a broad similarity to market socialism in that it takes the powers of math and applies to fine-tuning an economy. In other words, the problem with math here is that society becomes an engineering project.
Partly. The main problem with the abstractions of academic mathematical economics is that they do not - and cannot - capture anything approaching the actual dynamics of a complex market economy - precisely the reason it must concentrate itself upon further abstract theoretical structures, i.e., aggregate phenomena.
- Liberals like Krugman who lambast "rocket science math" -- and by the way, Krugman won a Nobel Prize for his work in game theory no less -- do so for entirely different reasons. His target isn't the Austrians, they are barely on the map, but the Chicago School (still a minority). The Chicago School's central dogma is that the market cannot be predicted, therefore, Krugman is not criticizing Chicago for the same reason the Austrians Criticize Keynes for math. Krugman's criticism of math is more of a ploy to be the voice of the common man, and in all its irony, charges Chicago math for being the engine that drives wall-street wealth and greed.
In other words, Krugman is an intellectual hack who has sold his soul and knowledge of economics to the Left, and now spends most of his time composing class-war diatribes and prancing around among the Manhattan glitterati and intelligentsia as a moral paragon and defender of "the people." (which is what most of these people are doing with each other in any case).
Both you and Droopy are opposed to myself and probably EA, not each other, when it comes to harboring a disdain for math, but the disdain is for entirely unrelated reasons.
I don't disdain math, I just don't believe it has much value beyond the constructing of thought experiments in abstract terms (which is fine) it
does not and cannot predict what actually happens in the real microeconomic world - the world of human actual among countless millions of freely interacting, self-interested human beings making countless value judgements regarding economic transactions.
It becomes more confusing though, because the liberal or "policy schools" of economics are pro-Keynesian and light on math. The "theory" schools are neoclassical, and heavy on math. But lets not confuse math as a language of description with math as a tool to "predict the market" and therefore empower the state.
But that's what Krugman is all about, Gad. Its just like AGW; if there's math, computer code, or "science" involved, it must be true. Austrian economics is
logical economics; its core thesis and propositions are
a priori in nature, and derive from knowledge and observance of human nature and psychology and the vastly complex interactions of human beings within a vastly complex society and economic system.
Let's let Von Mises himself explain (and I will add italics to make my main points):
The problems of prices and costs have been treated also with mathematical methods. There have even been economists who held that the only appropriate method of dealing with economic problems is the mathematical method and who derided the logical economists as "literary" economists.
If this antagonism between the logical and the mathematical economists were merely a disagreement concerning the most adequate procedure to be applied in the study of economics, it would be superfluous to pay attention to it. The better method would prove its preeminence by bringing about better results. It may also be that different varieties of procedure are necessary for the solution of different problems and that for some of them one method is more useful than the other.
However, this is not a dispute about heuristic questions, but a controversy concerning the foundations of economics. The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relations between the various phenomena.
The ideas and procedures of the mathematical economists are not uniform. There are three main currents of thought which must be dealt with separately.
The first variety is represented by the statisticians who aim at discovering economic laws from the study of economic experience. They aim to transform economics into a "quantitative" science. Their program is condensed in the motto of the Econometric Society: "Science is measurement."
The fundamental error implied in this reasoning has been shown above.[1] Experience of economic history is always experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment. Statistics is a method for the presentation of historical facts concerning prices and other relevant data of human action. It is not economics and cannot produce economic theorems and theories. The statistics of prices is economic history. The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus.
There is no such thing as quantitative economics. All economic quantities we know about are data of economic history. No reasonable man can contend that the relations between price and supply is, in general or in respect of certain commodities, constant. We know, on the contrary, that external phenomena affect different people in different ways, that the reactions of the same people to the same external events vary, and that it is not possible to assign individuals to classes of men reacting in the same way. This insight is a product of our aprioristic theory. It is true the empiricists reject this theory; they pretend that they aim to learn only from historical experience. However, they contradict their own principles as soon as they pass beyond the unadulterated recording of individual single prices and begin to construct series and to compute averages. A datum of experience and a statistical fact is only a price paid at a definite time and a definite place for a definite quantity of a certain commodity. The arrangement of various price data in groups and the computation of averages are guided by theoretical deliberations which are logically and temporally antecedent. The extent to which certain attending features and circumstantial contingencies of the price data concerned are taken or not taken into consideration depends on theoretical reasoning of the same kind.
Nobody is so bold as to maintain that a rise of a percent in the supply of any commodity must always — in every country and at any time — result in a fall of b percent in its price. But as no quantitative economist ever ventured to define precisely on the ground of statistical experience the special conditions producing a definite deviation from the ratio a : b, the futility of his endeavors is manifest. Moreover, money is not a standard for the measurement of prices; it is a medium whose exchange ratio varies in the same way, although as a rule not with the same speed and to the same extent, in which the mutual exchange ratios of the vendible commodities and services vary...
...There is in the field of human action no means for dealing with future events other than that provided by understanding.
The second field treated by mathematical economists is that of the relation of prices and costs. In dealing with these problems the mathematical economists disregard the operation of the market process and moreover pretend to abstract from the use of money inherent in all economic calculations. However, as they speak of prices and costs in general and confront prices and costs, they tacitly imply the existence and the use of money. Prices are always money prices, and costs cannot be taken into account in economic calculation if not expressed in terms of money. If one does not resort to terms of money, costs are expressed in complex quantities of diverse goods and services to be expended for the procurement of a product. On the other hand, prices — if this term is applicable at all to exchange ratios determined by barter — are the enumeration of quantities of various goods against which the "seller" can exchange a definite supply. The goods which are referred to in such "prices" are not the same to which the "costs" refer. A comparison of such prices in kind and costs in kind is not feasible. That the seller values the goods he gives away less than those he receives in exchange for them, that the seller and the buyer disagree with regard to the subjective valuation of the two goods exchanged, and that an entrepreneur embarks upon a project only if he expects to receive for the product goods that he values higher than those expended in their production, all this we know already on the ground of praxeological comprehension. It is this aprioristic knowledge that enables us to anticipate the conduct of an entrepreneur who is in a position to resort to economic calculation. But the mathematical economist deludes himself when he pretends to treat these problems in a more general way by omitting any reference to terms of money. It is vain to investigate instances of nonperfect divisibility of factors of production without reference to economic calculation in terms of money. Such a scrutiny can never go beyond the knowledge already available; namely that every entrepreneur is intent upon producing those articles the sale of which will bring him proceeds that he values higher than the total complex of goods expended in their production. But if there is no indirect exchange and if no medium of exchange is in common use, he can succeed, provided he has correctly anticipated the future state of the market, only if he is endowed with a superhuman intellect. He would have to take in at a glance all exchange ratios determined at the market in such a way as to assign in his deliberations precisely the place due to every good according to these ratios.
It cannot be denied that all investigations concerning the relation of prices and costs presuppose both the use of money and the market process. But the mathematical economists shut their eyes to this obvious fact. They formulate equations and draw curves which are supposed to describe reality. In fact they describe only a hypothetical and unrealizable state of affairs, in no way similar to the catallactic problems in question. They substitute algebraic symbols for the determinate terms of money as used in economic calculation and believe that this procedure renders their reasoning more scientific. They strongly impress the gullible layman. In fact they only confuse and muddle things which are satisfactorily dealt with in textbooks of commercial arithmetic and accountancy.
Some of these mathematicians have gone so far as to declare that economic calculation could be established on the basis of units of utility. They call their methods utility analysis. Their error is shared by the third variety of mathematical economics.
The characteristic mark of this third group is that they are openly and consciously intent upon solving catallactic problems without any reference to the market process. Their ideal is to construct an economic theory according to the pattern of mechanics. They again and again resort to analogies with classical mechanics which in their opinion is the unique and absolute model of scientific inquiry. There is no need to explain again why this analogy is superficial and misleading and in what respects purposive human action radically differs from motion, the subject matter of mechanics. It is enough to stress one point, viz., the practical significance of the differential equations in both fields.
The deliberations which result in the formulation of an equation are necessarily of a nonmathematical character. The formulation of the equation is the consummation of our knowledge; it does not directly enlarge our knowledge. Yet, in mechanics, the equation can render very important practical services. As there exist constant relations between various mechanical elements and as these relations can be ascertained by experiments, it becomes possible to use equations for the solution of definite technological problems. Our modern industrial civilization is mainly an accomplishment of this utilization of the differential equations of physics. No such constant relations exist, however, between economic elements. The equations formulated by mathematical economics remain a useless piece of mental gymnastics and would remain so even it they were to express much more than they really do.
A sound economic deliberation must never forget these two fundamental principles of the theory of value: First, valuing that results in action always means preferring and setting aside; it never means equivalence or indifference. Second, there is no means of comparing the valuations of different individuals or the valuations of the same individuals at different instants other than by establishing whether or not they arrange the alternatives in question in the same order of preference.
In the imaginary construction of the evenly rotating economy, all factors of production are employed in such a way that each of them renders the most valuable service. No thinkable and possible change could improve the state of satisfaction; no factor is employed for the satisfaction of a need a if this employment prevents the satisfaction of a need b that is considered more valuable than the satisfaction of a. It is, of course, possible to describe this imaginary state of the allocation of resources in differential equations and to visualize it graphically in curves. But such devices do not assert anything about the market process. They merely mark out an imaginary situation in which the market process would cease to operate. The mathematical economists disregard the whole theoretical elucidation of the market process and evasively amuse themselves with an auxiliary notion employed in its context and devoid of any sense when used outside of this context.
In physics we are faced with changes occurring in various sense phenomena. We discover a regularity in the sequence of these changes and these observations lead us to the construction of a science of physics. We know nothing about the ultimate forces actuating these changes. They are, for the searching mind, ultimately given and defy any further analysis. What we know from observation is the regular concatenation of various observable entities and attributes. It is this mutual interdependence of data that the physicist describes in differential equations.
In praxeology, the first fact we know is that men are purposively intent upon bringing about some changes. It is this knowledge that integrates the subject matter of praxeology and differentiates it from the subject matter of the natural sciences. We know the forces behind the changes, and this aprioristic knowledge leads us to a cognition of the praxeological processes. The physicist does not know what electricity "is." He knows only phenomena attributed to something called electricity. But the economist knows what actuates the market process. It is only thanks to this knowledge that he is in a position to distinguish market phenomena from other phenomena and to describe the market process.
Now, the mathematical economist does not contribute anything to the elucidation of the market process. He merely describes an auxiliary makeshift employed by the logical economists as a limiting notion, the definition of a state of affairs in which there is no longer any action and the market process has come to a standstill. That is all he can say. What the logical economist sets forth in words when defining the imaginary constructions of the final state of rest and the evenly rotating economy and what the mathematical economist himself must describe in words before he embarks upon his mathematical work, is translated into algebraic symbols. A superficial analogy is spun out too long, that is all.
Both the logical and the mathematical economists assert that human action ultimately aims at the establishment of such a state of equilibrium and would reach it if all further changes in data were to cease. But the logical economist knows much more than that. He shows how the activities of enterprising men, the promoters and speculators, eager to profit from discrepancies in the price structure, tend toward eradicating such discrepancies and thereby also toward blotting out the sources of entrepreneurial profit and loss. He shows how this process would finally result in the establishment of the evenly rotating economy. This is the task of economic theory. The mathematical description of various states of equilibrium is mere play. The problem is the analysis of the market process.
A comparison of both methods of economic analysis makes us understand the meaning of the often-raised request to enlarge the scope of economic science by the construction of a dynamic theory instead of the mere occupation with static problems. With regard to logical economics, this postulate is devoid of any sense. Logical economics is essentially a theory of processes and changes. It resorts to the imaginary constructions of changelessness merely for the elucidation of the phenomena of change. But it is different with mathematical economics. Its equations and formulas are limited to the description of states of equilibrium and nonacting. It cannot assert anything with regard to the formation of such states and their transformation into other states as long as it remains in the realm of mathematical procedures. As against mathematical economics the request for a dynamic theory is well substantiated. But there is no means for mathematical economics to comply with this request. The problems of process analysis, i.e., the only economic problems that matter, defy any mathematical approach. The introduction of time parameters into the equations is no solution. It does not even indicate the essential shortcomings of the mathematical method. The statements that every change involves time and that change is always in the temporal sequence are merely a way of expressing the fact that, as far as there is rigidity and unchangeability, there is no time. The main deficiency of mathematical economics is not the fact that it ignores the temporal sequence, but that it ignores the operation of the market process...
...Economics is not about goods and services; it is about the actions of living men. Its goal is not to dwell upon imaginary constructions such as equilibrium. These constructions are only tools of reasoning. The sole task of economics is analysis of the actions of men, is the analysis of processes.