The Horse's Mouth

[Dr. Borodog]

A little while ago, in a thread not so far away, someone happened to make these comments:

quote:

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I'm reasonably well versed in the Austrian School's economic theories.
I just find them to have less credibility than Michael Jackson and about
as useful in today's geopolitical economy as a barbers shop on the steps
of the guillotine. Any School of economic "thought" which advocated the
elimination of insurance of bank deposits, allowing bank panics to run
their course, to correct malinvestment (while Mainstream economists
;read sane economists - believe the Great Depression is a historical
lesson against such a policy) isn't worth one quintillionth of a
fraction of my time.

Put simply, the Austrian School of Economics is a tiny group of
libertarians at war with mainstream economics. They reject even the
scientific method that mainstream economists use, preferring to use
instead a pre-scientific approach that shuns real-world data and is
based purely on logical assumptions. But this is the very method that
thousands of religions use when they argue their opposing beliefs, and
the fact that the world has thousands of religions proves the
fallibility of this approach. Academia has generally ignored the
Austrian School, and the only reason it continues to exist is because it
is financed by wealthy business donors on the far right. The movement
does not exist on its own scholarly merits.

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I found these statements to be so preposterous that I just had to ask a very good friend of mine to rebutt them. Dr. Paul Cwik is a Ph.D. economist who, until quitting to finish his degree with the Mises Institute, taught economics at Campbell University. Without further ado . . .

To Mike:

I appreciate your forums’ examinations into the Austrian School. I think I can help you with your “Austrian-basher.” I think that the comments may be a little long, but then when the attacker has poorly defined his own position, it makes response more difficult.

Paul

The author of the two paragraphs commits several ad hominem attacks on the Austrian School of Economics and makes a humiliating contradiction. Either he has studied something that is not “worth one quintillionth of a fraction of [his] time” and thus proves that he has poor time management skills, or that he has not read very much and attempts to argue from authority and thus not resort to reasonable arguments. I wonder how much he has actually read. If he wants to go the route of arguement from authority, I believe that I have him trumped. I have a Ph. D. in Economics and have studied the various schools of economic thought. I have studied the Austrian School since 1989 (meaning that I have had to take formal courses on it). Nevertheless, I do not expect this author to agree with me if I attempted to argue from authority, so I ask the members of this group not to simply accept what is said without investigating it for themself.

Let’s turn to the author’s first attack on the Austrian School. He states that the Austrian School advocated the elimination of insurance of bank deposits before and during the Great Depression. Federal bank deposit insurance (FDIC) did not begin until the Roosevelt administration’s New Deal programs were passed (1934+). The Great Depression is typically thought to have started in October 1929 with the stock market crash, but the actual data shows that there was structural weakness as early as March/April 1929 -— a good five years before FDIC.

Bank deposit insurance is what ALL economists call a “moral hazard problem.” ALL economists (not only Austrians) see that this sort of policy leads to bad behavior. Suppose that you can invest your money into a risky venture or a safe venture. If they both offer the same 5% rate of return, you’ll never put your money in the risky venture. Thus, if an entrepreneur wants to raise money for a risky project, then he’ll have to pay people to take on that risk. Thus, he might offer a return of 10% for the risky venture. Now suppose that the bank is the investor, and it is investing your money that you deposited. If it invests in the risky venture, you may get a higher return, but you have the choice to go to a different bank if you think that your bank is unsound. Now add FDIC into the mix. With FDIC, which venture will the bank pick? It ALWAYS picks the risky venture. Why? If the project is successful the bank makes a whole bunch of money, but if it fails, then the money is covered by the tax-payers. Thus, the very thing that FDIC is supposed to protect against —- unsound and risky bank investment —- is promoted. Furthermore, if there ever was another major bank panic, the FDIC has less than 1% of the funds it supposedly covers. Thus, if there is a major bank panic you’ll want your money in one of the banks that are the first to go under.

The author also simply asserted that allowing bank panics to run there course is a bad thing. Why? He offers no proof. No argument. Nothing. Just assertion. So I ask him to please tell us and explain to us why -— since he is so well versed in economics.

Furthermore, he argues “to correct malinvestment.” I believe that he is missing a verb. Please allow me to set the stage and the argument. The Austrian School believes that many things can cause an economic downturn. Wars, floods, meteors hitting the surface of the Earth, etc. can cause economic downturns. In addition to these causes, the Austrians identify the pumping of artificial credit into the economy as a cause to downturns. When the Federal Reserve pumps new money into the economy, it drives interest rates below their normal rates. As a result, entrepreneurs are misled into investing into projects. These projects are called malinvestments. These malinvestments are bad for the economy and need to be liquidated as quickly as possible in order to set the economy back on a solid foundation. The longer you deny this liquidation process, the longer the recession drags out. For a short article on this, I invite you to take a look at my article: “The Economy Pulls an All-Nighter.”

In this article, I make an analogy: a student has to pull an all-nighter in order to finish his term-paper. To stay awake, he artificially stimulates himself with caffeine. The student cannot stay on this artificial high forever and when he finally does crash, it’s for a longer time (and deeper). The credit that the Fed pumps into the economy is the same as caffeine the student is taking. There has been a tremendous amount of work in this area. Instead of listening to people argue from authority, I invite you to take a look at the here and decide for yourself.

How big is the Austrian School? I don’t know. I do know that it has been growing at an extremely fast pace. And it has grown internationally, too. It is not a “tiny group of libertarians.” But then, so what? Who cares how big it is? Does a minimum number of people have to agree on something in order for it to be “The Truth?” What does that say about Communism? I guess if we added the number of people in China, the USSR (at its height) and all the other communist countries’ populations together and voted, we’d then get to the TRUTH, right? The Truth is what it is, regardless of the number of people who subscribe to it. So don’t try to argue "The majority of economists say . . . " Argue your point. And don’t attempt to argue that something is bad because “wealthy business donors” are funding it. I don’t think that an argument this unscholarly deserves any response.

Finally, does the Austrian School reject the scientific method found in Physics? YES. Absolutely. Does that make it un-scientific? NO. Absolutely not. The Austrian School uses what is called “Axiomatic-Deductivism.” It is the very SAME method as Mathematics. Does the author mean to say that Mathematics is pre-scientific? Or that Mathematics has led to religious wars?

The primary argument against Axiomatic-Deductivism by the author is that it is based upon logical assumptions. While close, this is not true. The Austrian School points out that in social sciences repeatable experiments are impossible. In other words, we cannot maintain the ceteris paribus conditions —- the ability to hold all other factors constant. Even if you have the same person and repeatedly ask him what he would like for lunch, you’ll get different answers. Nothing in the social sciences is repeatable. Thus, the scientific method that works so well in the Natural Sciences cannot work in the social sciences.

So what to do? This is where Axiomatic-Deductivism comes in. Axiomatic-Deductivism begins with an axiom (something that is always true and cannot be falsified.) Austrian economics begins with the Human Action axiom —- meaning that people choose between ends purposefully. If you attempt to refute the Human Action axiom, you contradict yourself because you purposefully try to show that you don’t act purposefully. From the Human Action axiom, we can deduce that people have preference scales in which they rank their ends. From this we can deduce the Law of Diminishing Marginal Returns. From this the Laws of Demand and Supply are deduced and model of a market is created. If we have not made a logical error, then the model is TRUE since we started with an axiom. Then we apply the model and economic theory to the real world in order to interpret the world around us. That is the proper relation between theory and data. It is not true that Austrians shun real-world data. If there is an instance where the real world does not align with the Law of Demand, we CANNOT say that the Law of Demand is disproved! In the real world there are so many millions of forces that act upon prices that when the Law of Demand may look like it is not working, it is these other factors that need to be taken into account. We need the theory to be able to separate out these forces.

I DARE him to come up with a real argument that smashes the Austrian School.

Dr. Paul Cwik

And just let me add, as a physicist, that Paul is absolutely correct that falsification by experimentation, the cornerstone of physical science, ala Newton, cannot be used in economic theory, since economic "experiments" are non-reproducible. If the person in question wishes to argue that axiomatic deduction is somehow incorrect, I'd like to see his logical argument. Oops; never mind. Logical argument is "pre-scientific," so he must not need one.


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You will respect my philosophai.

[Stirrerredux]

Oh for the love of...

Even though debating you is like trying to win a pissing match with a skunk, I will attempt a rebuttal if only for those who might be persuaded by Dr Cwik's reasoning. Unfortunately, due to the pressure of various deadlines, it will not arrive until at least next saturday when my schedule is clearer. As fulfilling as engaging in mutual mental masturbation with an ideological idiot over the merits (or lack thereof) of discredited, disregarded and antideluvian economic schools is, real life must take precedence.

I have decided that, since the subject is so vast (and I don't have PhD economists to do my donkey work for me) my rebuttal will take the form of extended essays in PDF format which I'll host on my personal site.

This is not a cop out. Feel free to bump this thread up every day until I respond.

I will just say, since you make a point of appealing to authority on a regular basis, that holding a PhD does not make one the arbiter of all worthwhile human knowledge. It merely proves that one has the discipline to perform month, after month, after month of tedious research. For what little it's worth to you, for every PhD holding economist who supports the Austrian school, there are dozens who see it for what it really is. You will come across many of their opinions in my rebuttal.

Oh, and by the way Borodog, that low rumbling sound you hear? That's Karl Popper spinning in his grave like a fucking dynamo.



[This message has been edited by Stirrerredux (edited 03-04-2004 10:55 PM).]

[Stirrerredux]

The ideological idiot is you, by the way, not Dr Cwik.

[Death Mage]

This ought to be interesting. I can hardly believe I am saying this, but I can't wait to see what trollboy comes up with.

[Dr. Borodog]

Stirrer,

Thank you. I could not have scripted a better response.


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You will respect my philosophai.

[Stirrerredux]

quote:

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Thank you. I could not have scripted a better response.

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It's pretty obvious you don't have the flair.

Anyway. Enough flaming. Let me get on with research for my rebuttal and then you can open up with both barrels.

[This message has been edited by Stirrerredux (edited 03-04-2004 11:06 PM).]

[Stirrerredux]

Ah Death Mage, still stinging from the bitch slapping I gave you over the Iraq War? Believe me, I'm rather looking forward to concretizing my thoughts on the Austrian School. I'm firmly convinced I'm in the right and have the time and copious books, references and critiques to support myself. Still, it should be an interesting exercise, whatever the outcome. Even if I turn out to be utterly wrong and Borodog rips me a dozen new assholes before prancing off for an eternity feasting with the immortals, at least I'll have learned something. That you are a relentlessly dogmatic idiot, however, will not change. Sorry 'bout that.

[This message has been edited by Stirrerredux (edited 03-04-2004 11:08 PM).]

[extropalopakettle]

He may annoy some people, but I vote we keep him.

[Death Mage]

Stirrer, my only interest in this is seeing weither or not you are even remotely capable of making an argument based on the realm of reality and facts rather than irrelevent flights of fancy and delusions of grandure. I am also curious to see if Borodog has truely completely lost his mind, as seemed evident by his anarchy debates, or if that particular shortcoming is simply just a massive gaping achelles heel in his logical processes.

[Vegetable]

As far as I could discern, he seems to go out of his way to say not to trust him just because he has a PhD. I find it funny that you attacked him, saying he was demanding that you take his word for it just because he's a PhD. After saying that he's flaunting his authority on the subject, you seem to go on to say, that your side has more authority since more economics PhD's agree with you. This decree, seeming to say that a majority of people agreeing makes a thing true, makes me believe that you didn't even read Boro's post.

[Stirrerredux]

Oh I read it, my point was two pronged.

You see, Borodog seems to think that the opinions of PhD's are final and beyond dispute and their views are so tortuously complex as to be utterly beyond anybody who hasn't earned a PhD himself, signed in blood and snatched the pebble from the old blind guy's hand.

To combat this frankly rather dangerous point of view I argued that on the one hand, the opinions of PhD's, although valuable, are not sacrosanct, set in stone decrees andon the other hand that even if he did think that, I've got more of them on my side than he has on his, so I win anyway.

[Vegetable]

Stop me if i'm wrong but didn't he specifically say you shouldn't take his word for it just because he's a PhD, and offer things like... facts.. and.... logical arguements?

[Stirrerredux]

Oh, Dr Cwik said that, sure. But then again, he seems like someone you could have a rational discussion with.

However, I was speaking of Borodog's tendency to say "PhD holders agree with me so shut up and get back in your box". Borodog generally appeals to authority on a regular basis so my comments have a broader frame of reference than just the contents of this thread.

[Dr. Borodog]

[Dr. Borodog]

[Confused passerby]

Wait.

When were all humans rational?

[Stirrerredux]

quote:

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Ah . . . again your miraculous control of logic and reasoning astounds the reader.

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As does your dextrous use of sarcasm.

quote:

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Good, good. Stick with what you know. Ad hominem has always worked so well in the past, why change now?

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Well, with you how could it fail? It's like hitting the proverbial barn door.

quote:

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Assertion, assertion, assertion.

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Arguments and evidence are coming, just be patient. If you think it'll help you can make a little paper doll of me in the meantime and call it a fuckwit until you achieve catharsis.

quote:

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What, do you have to explain to someone that Euclidian Geometry is "pre-scientific?" Should be tough, not being able to use logic and all, since it too is "pre-scientific."

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No, I have to work to earn money to eat. I say this with a truly heavy heart but when assessing my priorities I feel that paying my bills is slightly higher up the totem than arguing economics with some arrogant pissant on the other side of the internet.

quote:

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So? It would seem that you are well versed in ALL KNOWLEDGE. At least, you sure seem to think so.

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Ah, another example of your dextrous use of sarcasm. Do you read a lot of Wilde?

quote:

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You perhaps think that inviting the commentary of experts is apparently not "fair." After all, how are your preposterous assertions supposed to hold up to some who demonstrably actually knows what he's talking about!

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I'm quite confident that my forthcoming rebuttal will convince you that I know more than enough about the Austrian School to hold my own in a discussion about it. Then again, if the ghost of Murray Rothbard visited you in a dream to tell you that Smith's invisible hand was being manipulated by lemurs from the fourth dimension, I probably wouldn't be able to disabuse you of that notion either.

quote:

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I know, a terrible sin. Consulting with someone who might be more knowledgeable about something. Certainly a situation YOU'D never be caught dead in! You'll stumble your way through any discussion, no matter how little you know!

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Oh my, how I'm going to love watching you eat those words

quote:

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But apparently scanning the results of a google search on "Austrian economics" does, judging by your characterization of it!

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My actual views on the Austrian school are considerably more nuanced than the two paragraphs you quoted in your OP (which were written in the heat of the moment half way through a flame war, I might add) may have led you to believe. The fact that I said my rebuttal would take at least a couple of weeks and would take the form of extended PDF essays should have tipped you off to that but never mind. Judge my knowledge of the Austrian school on what I will present for your edification in a couple of weeks.

quote:

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Gee, I wonder what that month after month after month of tedious research could have been related to? Baking? Auto mechanics? Hmm . . .

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No, unlike you he seems to know his shit.

quote:

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Could it possibly be . . . that perhaps doing months, nay, YEARS of study and research into a topic might actually make one better qualified than some random internet boob to talk knowledgeably about a particular field? Nah. Google will do just as well.

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Well, not necessarily. It all depends on how much the Random Internet boob knows about the Austrian School. As I shall demonstrate over the coming weeks, I know far more than you give me credit for. I'm quite confident that I'll be able to give you, and possibly even Dr Cwik, a run for your money. Whether I'll win the argument is another matter but you both seem to have overestimated me. Something I'm very glad of indeed.

Put simply because I think that works best for you, the challenge has been extended and the challenger has accepted. Now shut the fuck up and let him get on with it.

quote:

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Yes, that certainly did make Copernicus incorrect. As Vegtable pointed out, this line of "reasoning" (if you can call it that out in public) has already been "preemptively refuted."

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Ironic then, that I only presented it as a swift rebuttal to your constant appeals to authority.

quote:

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You mean, once you figure out what they are? Yes, the intellectual honesty of someone who chooses a position he doesn't understand before cherry-picking quotes to support it is staggering.

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As opposed to the intellectual honesty of Borodog, who believes that there is only one interpretation of any idea, philosophy or school that way being his way. It may stagger you to learn this but it is actually possible to review the same evidence and writings as you, come to a diametrically opposite conclusion and not be wrong by default.

Just out of interest, if, for arguments sake, I wanted to think like you would it be better to make the incision by the temporal lobe or just above the eye socket?

quote:

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I suggest you do a little reading before you shoot your mouth off about Popper and the Austrian School

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And I suggest you read Popper's 'Logic of scientific discovery' to find out how his theories have been co-opted by certain members of the Austrian School. Other than that, thanks for the article, it gave me a new idea for a section of my rebuttal that I'd not had yet.

Run along now.



[This message has been edited by Stirrerredux (edited 03-05-2004 12:30 AM).]

[Aarondalf]

This just proves that Pablo was wrong about stirrer being a good debater (had to get you back for that poodle comment )

Boro might be harsh, but at least he backs it up. Stirrer does nothing except flame.

[Stirrerredux]

Well, do you think you could come up with a comprehensive critique of an entire school of economic thought in one night?

Jeez, patience is a virtue, people.

Also since people, for some reason, tend to focus solely on my flames and look the other way when I make an actual argument, I'll type them in red and bold them when I get around to my rebuttal.



[This message has been edited by Stirrerredux (edited 03-05-2004 12:43 AM).]

[Aarondalf]

No, I couldnt. But, assuming I could come up with a reply at all, I would have said: 'I'm pressed for time, I'll get back to you'. Boro puts a counter point to every point you make. If you just flame him, he flames you back.

You make some points too, but often when he makes a point you just flame him. You have a way with words thats for sure. But at best you are equal with him on that front. Playing with words doesnt always equal logic though.

I dont profess to know much about any of it, but based on both your arguments I tend to agree with him.

[Stirrerredux]

Point humbly taken. From this point on I will not flame Borodog no matter how much I want to.

[Stirrerredux]

Having said that, Borodog worries me because he's one of those people who perceives an attack on his beliefs to be an attack on him. Hopefully he won't interpret my rebuttal as a flame

[Vegetable]

[Dragon Phoenix]

Pfffft... even I can do that

[Stirrerredux]

quote:

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10 GL bucks says he can't figure out how to make red font.

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The

rebuttals

will

be

in

PDF

format.

No HTML necessary.



[This message has been edited by Stirrerredux (edited 03-05-2004 08:04 AM).]

[Stirrerredux]

Oh, and by the way

[Dr. Borodog]

[Werebear]

Stirrerredux - maybe if you typed a quick summary of where your knowledge has been accrued, it might help your argument seem more than just flaming. Although I await your much-vaunted PDF files, at the moment you seem little more than someone with a general opinion, backed by minimal searching for ideas that support your own side. Maybe it was the unneeded verbal abuse scattered liberally. To me, that always makes an argument seem weaker. *shrug*

[Pablo]

Anyone else wonder about Stirrer's identity besides me?

I smell a big rat.

[This message has been edited by Pablo (edited 03-05-2004 10:12 AM).]

[Antrax]

Having read only the first paragraph of the first post, I feel that I know enough of what goes on to reply.
Economics, unlike math or physics, is not an exact science. Ergo, there isn't really any "right" or "wrong", but rather more and less mainstream ideas, and more likely than not, more than one school of thought. Ergo, while I have the utmost respect for anyone with a PhD., it doesn't prove anyone right or wrong.
Antrax

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"Look, that's why there's rules, understand? So that you think before you break 'em" - Lu-Tze, Thief of Time

[Dr. Borodog]

Sorry, Antrax, but I'm afraid you're wrong, in this case. Austrian economics is an "exact" science, in the same sense that mathematics is. Beginning with axioms that are not in dispute, and following logical deductions, if one makes no logical errors, must lead one to Truth, i.e. statements that are undeniably correct.

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You will respect my philosophai.

[Stirrerredux]

Werebear - What I first read about the Austrian Economic school it seemed to make a lot of sense. Then I read "Hayek's Social and Political Thought" by Roland Kley (Friedrich Hayek was a prominent Austrian economist) which blew shotgun sized holes in several of his key theories. Obviously, the Austrian School is more than the sum of the theories of one man but as I probed deeper I found more and more flaws. I will detail them over the next few weeks. This is a big project and I need time to put all the information together.

<Remainder of post deleted because I temporarily forgot my promise not to flame Borodog>



[This message has been edited by Stirrerredux (edited 03-05-2004 11:01 AM).]

[mith]

I'm never going to be able to take any political/economical/etc. argument seriously anymore, because I'll just end up imagining what Borodog and Stirrer would have to say on the matter.

[Antrax]

Well, please correct me if I'm wrong -- my friend studied economics and I read most of his books, and though I can't spell any of their names, weren't there a bunch of paradigm shifts, and isn't economy based on models to begin with? And aren't there two schools even today?
Antrax, who doesn't claim any university-leve knowledge, only layman stuff

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"Look, that's why there's rules, understand? So that you think before you break 'em" - Lu-Tze, Thief of Time

[firemeboy]

[Dr. Borodog]

Antrax,

There's nothing wrong with any of what you said, but none of what you said implies that "nobody can be right or wrong."



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You will respect my philosophai.

[Antrax]

Well, models are by definition an approximation only. Also, paradigm shifts are rarely total - most likely the older schools still have supporters, even if less so. These facts combine to lessen the accuracy of economics as an exact science.
Antrax

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"Look, that's why there's rules, understand? So that you think before you break 'em" - Lu-Tze, Thief of Time

[Antrax]

Having read the thread in entirety, I feel compelled to point out that while Dr. Cwik is no doubt very knowledgable in economics, philsophy isn't his major field. I can easily refute his axiom, and still claim I did so randomly. That does not weaken what he says afterwards, of course, but the presumption for self evident truth is too great to ignore. Following, by his claims economics is not a science at all, as no economic theory provides predictions which can be disproved by experimentation. Not everything that uses logic is scientific.
Thirdly, "The truth is what it is" is not only a tautology, but also a fallacy, as it assumes the existence of truth. But I digress -- economically speaking, I believe Dr. Cwik is right and Stirrer is wrong.
Antrax

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"Look, that's why there's rules, understand? So that you think before you break 'em" - Lu-Tze, Thief of Time

[Dr. Borodog]

I have no interest in arguing anything with anyone who assumes truth does not exist. I have never been able to understand why such people bother to make arguments.



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You will respect my philosophai.

[Werebear]

Sure, Borodog. Just ask any religious leader what the truth is, and he'll have an answer down pat, and can refute anything you say. There's truth for you... absolute and unchangable.

Actually, I think you two need to define "truth" better if you're going to argue it. I think our good Dr. is referring to truth as "the best way we can figure out to do things", and Antrax is referring to truth as "THE best way with no better way possible".

But I could be wrong.