Friday, November 5, 2010

Krugman's Hocus-Pocus Economics

Well, following the elections, which were pretty disastrous for the Democrats, at least regarding the U.S. House of Representatives, I figured Paul Krugman's first column would be yet another attack on the Republicans. Instead, he attacked President Obama for not having enough "audacity" in his economic programs.

We have been down this road before. Krugman's favorite theme -- other than Republicans come from the Pit of Hell -- has been that Obama did not spend enough, inflate enough, or regulate enough. What Krugman wants us to believe is that the most leftist president of my life somehow did not have the courage to tax, borrow, and spend, and that Obama's lack of "courage" is what blew up the House.

Writes Krugman:
Mr. Obama’s problem wasn’t lack of focus; it was lack of audacity. At the start of his administration he settled for an economic plan that was far too weak. He compounded this original sin both by pretending that everything was on track and by adopting the rhetoric of his enemies.

The aftermath of major financial crises is almost always terrible: severe crises are typically followed by multiple years of very high unemployment. And when Mr. Obama took office, America had just suffered its worst financial crisis since the 1930s. What the nation needed, given this grim prospect, was a really ambitious recovery plan.

Could Mr. Obama actually have offered such a plan? He might not have been able to get a big plan through Congress, or at least not without using extraordinary political tactics. Still, he could have chosen to be bold — to make Plan A the passage of a truly adequate economic plan, with Plan B being to place blame for the economy’s troubles on Republicans if they succeeded in blocking such a plan.

But he chose a seemingly safer course: a medium-size stimulus package that was clearly not up to the task. And that’s not 20/20 hindsight. In early 2009, many economists, yours truly included, were more or less frantically warning that the administration’s proposals were nowhere near bold enough.
And there's more:
I felt a sense of despair during Mr. Obama’s first State of the Union address, in which he declared that “families across the country are tightening their belts and making tough decisions. The federal government should do the same.” Not only was this bad economics — right now the government must spend, because the private sector can’t or won’t — it was almost a verbatim repeat of what John Boehner, the soon-to-be House speaker, said when attacking the original stimulus. If the president won’t speak up for his own economic philosophy, who will?
There is much economic "hocus-pocus" in these statements, a veritable treasure trove of Frederic Bastiat's "Fallacy of the Broken Window." For all his "the stimulus should have been bigger" line, never does he in this or any other column explain how that move would result in a long-term recovery. Oh, yes, he says it would give the economy "traction," as though an economy is a perpetual motion machine that just needs a little push.

So, what should Obama do? Krugman (of course) has the right answers:
There is an alternative: Mr. Obama can take a stand.

For one thing, he still has the ability to engineer significant relief to homeowners, one area where his administration completely dropped the ball during its first two years. Beyond that, Plan B is still available. He can propose real measures to create jobs and aid the unemployed and put Republicans on the spot for standing in the way of the help Americans need.

Would taking such a stand be politically risky? Yes, of course. But Mr. Obama’s economic policy ended up being a political disaster precisely because he tried to play it safe. It’s time for him to try something different.
The only way to "engineer relief" to homeowners is to give them checks or pay their mortgages if they default. It does not take a Nobel Prize to know that a government program that taxes homeowners who are paying their mortgages in order to give to people who are unable to do so is not going to save the housing industry, but it will send a message to people who work and pay their bills that the government thinks them to be an unlimited ATM for the president to buy votes.

Obama playing it safe? The guy who has pushed through a 2,500-page bill that no one has read in its entirety (and no one person knows exactly what is in it) to engineer a complete government takeover of medical care is "playing it safe"? Maybe in Krugman's world, but definitely not in the world where the rest of us live.

84 comments:

Dune said...

Austrian austerians can only approve of massive cuts in the face of high unused capacity because they live in a fantasy world where only the private sector can initiate growth.

Government spending has never created "traction" by spurring innovation, improving our infrastructure, or bettering our schools.

The interstate highway system was a complete waste, as are satellite communication, modern day air travel and computers. The fact that we have the most advanced university system in the world also means nothing.

Better to have millions of ppl at home watching TV, scratching their bellies while they wait for years to be "allocated" to their proper private sector use.

Good job Austrians!

Bob Roddis said...

I thought that the interstate system caused sprawl, habitat destruction, tacky big box stores at each exit and that nasty GLOBAL WARMING.

And that great "education" system brought us a mindless mob that can't comprehend simple ideas like the law of scarcity or unseen economic consequences.

Let's add the slaughters of WWI, WWII, Vietnam and the current seige of the Middle East to the government debit account.

Good job, statists.

Mike Cheel said...

@Dune How do you know the private sector wouldn't do it better?

Our infrastructure? http://articles.latimes.com/2008/aug/01/nation/na-bridge1 "Of the nearly 600,000 public road bridges listed in the Federal Highway Administration's inventory, about 152,000 are classified as either functionally obsolete or structurally deficient, according to a report released this week by the American Assn. of State Highway and Transportation Officials. Fixing them all would cost about $140 billion, the group found."

Our schools? http://www.associatedcontent.com/article/1178457/home_school_versus_public_or_private.html?cat=4 "The U.S. Dept of Education sponsored a study that showed home schooled children's test scores were exceptionally high. Even the median scores for all grades were much bigger than those students of public, Catholic or private schools. For grades one through four, average home schooled students were generally one grade higher than their counterparts in public school. By the equivalent of eighth grade, those home schooled students were generally considered four years ahead of those in public school."

Most advanced university system? http://www.usnews.com/articles/education/worlds-best-universities/2010/09/21/worlds-best-universities-top-400-.html

Show me some stuff where government has beaten private industry...

William L. Anderson said...

I think that Frederic Bastiat in "The Law" says it best regarding Dune's statements:

"Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all.

"We disapprove of state education. Then the socialists say that we are opposed to any education. We object to a state religion. Then the socialists say that we want no religion at all. We object to a state-enforced equality. Then they say that we are against equality. And so on, and so on. It is as if the socialists were to accuse us of not wanting persons to eat because we do not want the state to raise grain."

Therefore, if we ever object to government doing something, then people like Dune (and others) claim we don't want it done at all.

Dune said...

Wow...I'm being tarred as a socialist for pointing out that satellites are a government innovation.

I guess that's what happens when someone points out (in a painfully obvious way) a widely used and valuable product created by public spending & research. A technology off which thousands of private companies have based their own innovations...

Well this traction stuff is all imaginary anyways, so what does this old socialist care? I'll go back to watching TV in my underwear like the rest of those unemployed chumps. Maybe I'll get allocated someday :)

William L. Anderson said...

I'm still not sure about your point. For the most part, new technologies, including those invented in government labs, don't make life for most people appreciably better until entrepreneurs are able to find ways to produce it and get it to people.

I've never said that all government roads are bad or that all government schools are evil or that government cannot make any technology. I'm just saying that an economic strategy based upon government just spending wily-nily is not going to produce an economic recovery. And out of that, you get that I don't believe government agents ever have invented anything useful?

LK said...

What Krugman wants us to believe is that the most leftist president of my life….

Give us a break. On economics even Nixon, Ford or Carter were to the left of Obama. Remember Nixon’s wage and price controls? You look like you’re old enough to remember the 1970s.

And even Bush oversaw most of the bailouts and takeover of Fannie Mae and Freddie Mac – this wasn’t Obama.

For all his "the stimulus should have been bigger" line, never does he in this or any other column explain how that move would result in a long-term recovery

In the same way that larger and early stimulus packages have resulted in better recoveries and lower unemployment in a ton of other countries: Australia, New Zealand, South Korea, Taiwan, China, Canada, Germany etc.
In the case of Germany a radical government intervention called the “Kurzarbeit” (“short work”) program gave government subsidies to German industries to keep unemployment down:

http://socialdemocracy21stcentury.blogspot.com/2010/09/germany-success-of-keynesianism-and.html

As is typical of a good many Americans, you sound like you’re clueless about rest of the world.

The only way to "engineer relief" to homeowners is to give them checks or pay their mortgages if they default.

Wrong.
The obvious and time tested way is for public asset management companies to buy up bad mortgages and then restructure them, so that the mortgage payments are adjusted to a level the home owner can afford.

This is the reliable method used again and again all over the world to deal with bad assets or non-performing loans.

Bala said...

LK,

Note Prof. Anderson's emphasis on the word "long-term" when he talks of recovery. None of examples you provide "proves" it. In fact, no example can. You need "theory" to do so. And you Keynesians (of all stripes) just don't have it. That's what he is pointing out.

" The obvious and time tested way is for public asset management companies to buy up bad mortgages and then restructure them, so that the mortgage payments are adjusted to a level the home owner can afford. "

And then? Who foots the losses and how? Let's explain the mechanism and the long-term consequences. Talking of that, do you Keynesians ever understand the meaning of the term "long-term"?

" This is the reliable method used again and again "

"Reliable" for whom and for the attainment of which goals? Are these goals ever attainable using these methods (focus once again on the long-term, Keynesian).

LK said...

For the most part, new technologies, including those invented in government labs, don't make life for most people appreciably better until entrepreneurs are able to find ways to produce it and get it to people.

That isn’t the point.
The point is that the private sector did NOT invent a host of modern technologies because there was NO assurance of any profit in the short/medium term in funding the massive R&D needed to create the technology in the first place.

You need government funding of basic R&D to advance science rapidly, and often international government funding to make the massive breakthroughs, as in the Large Hadron Collider or CERN which are almost wholly funded by governments.

And while we are at it you might note the computers, the internet, and a lot of new pharmaceuticals come straight out of the state sector or research funded by the state sector.

Bala said...

LK,

The seen vs the unseen - Bastiat

LK said...

Note Prof. Anderson's emphasis on the word "long-term" when he talks of recovery. None of examples you provide "proves" it. In fact, no example can.

Nor would you be able to “prove” that Austrian solutions would lead to a “long term” recovery if they had been implemented. You’re in the same boat.

But of course no one has followed the absurd Austrian solution of dismantle all government or let the world economies collapse. We have a slight taste of what would happen in the face of austerity in Ireland – utter catastrophe.

And then? Who foots the losses and how?

The creditors take a loss, as in any restructuring of debt. It happens in real world capitalism all the time, in case you hadn’t noticed.

Meanwhile people stay in their homes, don’t get thrown out on the street, and are capable of doing productive work, instead of being homeless. Pretty shocking stuff!

Bala said...

LK,

" Nor would you be able to “prove” that Austrian solutions would lead to a “long term” recovery if they had been implemented. "

I have a theory and you don't. Why do you even try to argue?

Further, I was not the one who was trying to "prove". You were. I just pointed out the in economics, "proofs" of the kind you are trying to show do not exist. Any "proof" that you might want to show would have to be data, and data does not prove anything. Check out Hayek in "Monetary Theory and the Trade Cycle".

" You’re in the same boat. "

We are not. I am dismissing the very attempt to provide "proofs" the way you do. I am dismissing empiricism as a valid tool in economics. I am dismissing you (and your entire Keynesian ilk) as an economic historian who is attempting (in vain) to convince others that correlation implies causation.

" The creditors take a loss, as in any restructuring of debt "

Oh!! I inferred "public asset management companies" to be "government-owned asset management companies". Maybe I misinterpreted you. However, even assuming you are talking publicly listed companies, why are they not doing it now? What and who is preventing them from doing it on their own?

Bala said...

LK,

Just a small addendum. Data does not prove anything in economics.

Bob Roddis said...

I'd like to announce my opinion that LK is not a troll. He has amazing familiarity with the statements of numerous Austrian thinkers and their various disagreements.

He provides a very useful service in once again proving that one must maintain a meticulous ignorance and avoidance of the basic Austrian School concepts of acting man, subjective value and economic calculation in order to be an Austrian School "critic".

I submit that this perpetual meticulous avoidance of our basic ideas by ALL Austrian School critics is proof that our basic concepts are unassailable.

LK said...

"Any "proof" that you might want to show would have to be data, and data does not prove anything."
....
"Data does not prove anything in economics."


Oh my god!! Here's a quick test of your assertion.

(1) US unemployment by the measure U6 (a far more reliable measure) shot up dramatically 2008-2009 during the recession relative to the period 2002-2006.
After the stimulus, it leveled off, only rising slightly in 2010. The correlation is clear.

(2) The empirical data:
http://www.shadowstats.com/alternate_data/unemployment-charts

I am dismissing the very attempt to provide "proofs" the way you do. I am dismissing empiricism as a valid tool in economics

Excellent!
So you admit you can provide no empirical proof of any of your theories?

Finally the truth:

"I am dismissing empiricism as a valid tool in economics"

In which case, if you admit your ideas cannot even be subject to the test of falsificationism, Austrian economics is exposed pseudo-scientific nonsense, like astrology or horoscopes.

to convince others that correlation implies causation.

Correlation between a and b does not prove by itself causation running from a to b, as you need other empirical evidence of causation. That evidence is easily demonstrated in the case of stimulus and recovery.

For Australia, the data on how the Keynesian stimulus rescued the economy is established by Steve Keen:

http://www.debtdeflation.com/blogs/2010/08/18/giving-the-bird-to-the-stimulus/

Oh wait! You don't believe in empirical data because you doing pseudo-science. I forgot.

LK said...

And the idea that humans "act" (acting man) and a subjective theory of value is mainstream neoclassical economics.

Do you really think Austrians are the only ones holding these ideas?

Bala said...

LK,

You Keynesians will never get it. Austrian Economics is firmly grounded in the unassailable axiom "man acts".

Starting from this unassailable axiom, we develop our theory by the application of reasoning. Our conclusions can be invalid ONLY IF our axiom is invalid.

Your rants only show your frustration at being unable to shake the foundation of that axiom.
Your attempts at comparing Austrian Economics to Astrology shows that you understand neither.

And talking of pseudo-science, in the social sciences, data is not a tool for the formation of conclusions about reality. People like you who suffer from Physics-envy may feel the compulsion to do so, but that does not mean you are correct.

Finally, the conclusions of Austrian Economics are falsifiable if you can show that our axiom is falsifiable. So give it a try. I shall be waiting here to have a good laugh at the foolishness of doing so.

Bala said...

LK,

" And the idea that humans "act" (acting man) and a subjective theory of value is mainstream neoclassical economics.

Do you really think Austrians are the only ones holding these ideas? "

No. However, Austrians (unlike the Neo-Classicals) reject the role of Mathematics in discovering the laws of Catallactics.

Bala said...

LK,

" Correlation between a and b does not prove by itself causation running from a to b, as you need other empirical evidence of causation. "

Ha! Ha! Ha! This was most hilarious. More than "more data", what you need above all is a "theory". That requires "reason", something you Keynesians are bereft of.

LK said...

Austrian Economics is firmly grounded in the unassailable axiom "man acts".

Correct. The human action axiom.

Starting from this unassailable axiom, we develop our theory by the application of reasoning. Our conclusions can be invalid ONLY IF our axiom is invalid

LOL! You can infer very little from human action axiom itself.
For serious inferences you need auxiliary hypotheses which are synthetic propositions:

http://socialdemocracy21stcentury.blogspot.com/2010/10/mises-praxeology-critique.html

Who ever heard of an axiomatic system with only ONE axiom!!

Even Mises himself refutes you:

“Every theorem of praxeology is deduced by logical reasoning from the category of action. It partakes of the apodictic certainty provided by logical reasoning that starts from an a priori category. Into the chain of praxeological reasoning the praxeologist introduces certain assumptions concerning the conditions of the environment in which an action takes place. Then he tries to find out how these special conditions affect the result to which his reasoning must lead. The question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience. But if the answer is in the affirmative, all the conclusions drawn by logically correct praxeological reasoning strictly describe what is going on in reality” (Mises, 1978 [1962]. The Ultimate Foundation of Economic Science: An Essay on Method, 2nd edn, p. 44).

Unfortunately, your attempt to defend Austrians economics by appealing to Misesian praxeology is a total failure. Misesian praxeology has been abandoned by serious Austrian economics.

Bala said...

LK,

" US unemployment by the measure U6 (a far more reliable measure) shot up dramatically 2008-2009 during the recession relative to the period 2002-2006.
After the stimulus, it leveled off, only rising slightly in 2010. The correlation is clear. "

But the causation isn't. That requires a theory first. And you don't have it.

Count to 10 said...

"You need government funding of basic R&D to advance science rapidly, and often international government funding to make the massive breakthroughs, as in the Large Hadron Collider or CERN which are almost wholly funded by governments.
"
As a physicist, let me tell you: the LHC has no prospect of making any new technology for a very long time -- it only skews demand to it's needs.

LK said...

That requires a theory first. And you don't have it.

Evidently you never heard of Keynes' General Theory and the theory of effective demand developed from it, which is also the basis of both New Keynesian and Post Keynesian economics. Even the New Classicals recognize aggregate supply and demand macroeconomics.
Please consult a first year economics textbook. They are available at fine bookstores everywhere.

Bala said...

LK,

Which auxiliary hypothesis are you disputing? You must be talking of "scarcity" considering how you (like your Lord, the original Keynes) rail against Say's Law. That's been torn apart ages ago.

LK said...

As a physicist, let me tell you: the LHC has no prospect of making any new technology for a very long time.

And where did I say it would make new technology???
The LHC does basic science research.
Nice straw man argument.
As a "physicist", perhaps you ought to learn elementary logic so you can avoid logical fallacies?

LK said...

Which auxiliary hypothesis are you disputing?

So now you are retreating from your absurd claim that Austrian economics is derived solely from the human action axiom, are you? Conceded defeat?

Shocked that Mises refutes you in his own words?

Trying to avoid embarrassment by shifting the issue to Say's law?

Bala said...

LK,

" Evidently you never heard of Keynes' General Theory and the theory of effective demand developed from it "

Oh!! That one. The one that was based on a refutation of Say's Law, a refutation that has long since been torn to shreds. I am amazed you still call that a "theory".

And thanks for explaining why all forms of Keynesianism and Neo-Classicism are nothing less than voodoo. You explained it all in brief.

Bala said...

LK,

" Shocked that Mises refutes you in his own words? "

No. I've read Mises, Rothbard as well as Hayek. Plus I never said there are no auxiliary hypothesis.

Now, stop trying to slime out and explain which of them, the action axiom and the auxiliary hypotheses, are you disputing?

Count to 10 said...

You know, I have no knowledge of the axioms mentioned above. I can't even say that the asturians have the theory right -- I just know that their macroeconomic prescriptions are better than the Keynesians.

Basically, the Keynesians get caught up in numerical monetary amounts, and then imagine that government spending is external to the economy. The reality is that money is just a place holder for the promise of goods and services, and government spending is just a re-ordering of the economy (which generally reduces overall production).

It's all well and good to praise the good results of various grand government expenditures, but you can't know that we wouldn't have had even better things if the resources used in them had been used elsewhere. How many inventions were delayed or never even invented because the potential inventor was busy trying to land a man on the moon?

Bob Roddis said...

The key concept to be meticulously ignored and avoided is economic calculation.

Further, the problem of economic calculation is derived from the "you only got one axiom" of purposeful ignorant humans.

If you have 35,293 axioms but don't comprehend the problems of economic calculation, you're still a doofus.

Anyway, what "axioms" do Keynesians actually hold other than claiming that the theft and fraud of money dilution really isn't theft or fraud because if the government steals, it's not theft?

LK said...

Plus I never said there are no auxiliary hypothesis.

Excellent excellent!
If there are "auxiliary hypothesis" (as you now admit), then Austrian economics CANNOT be derived solely form the human action axiom.
You admit you are wrong.

Bala said...

LK,

" If there are "auxiliary hypothesis" (as you now admit), then Austrian economics CANNOT be derived solely form the human action axiom.
You admit you are wrong. "

Puhleeeese. Pray tell us which one(s) you are refuting from among the action axiom and the auxiliary hypotheses that Austrian Economics uses to derive its principles.

Count to 10 said...

"And where did I say it would make new technology???
The LHC does basic science research.
Nice straw man argument.
As a "physicist", perhaps you ought to learn elementary logic so you can avoid logical fallacies?"
The LHC explore sub atomic physics, something that is already known well beyond any technology exploiting it.
This is not to say that new technology hasn't been developed to be used by the LHC, but it's results aren't going to give us any immediate paths to technological innovation.
Basic research is fun and may well be worth supporting, but those decisions should be left to those with the resources to devote to it.

And get a grip. There was no logical fallacy in what I wrote.

Bala said...

LK,

You claimed that Austrian Economics is pseudo-science because it is "unfalsifiable". I was just giving you material to show that it is false. The best way to refute Austrian Economics is to refute the action axiom. Failing that, you could come to the auxiliary hypothesis. If you can't do it even then, maybe you should just stop making a fool of yourself.

p.s. The last bit is just a friendly suggestion.

LK said...

Basic research is fun and may well be worth supporting, but those decisions should be left to those with the resources to devote to it.

Oh? You support government funding of basic sciences research, do you?

And your attempt to impute to me an argument I do not hold IS a straw man argument, a logical fallacy.

LK said...

The best way to refute Austrian Economics is to refute the action axiom

No, it isn't.
The human action axiom CANNOT be used to infer much at all about economics.

A neoclassical could hold the human action axiom and come to completely different conclusions about economics, through their own auxiliary hypotheses.

Austrian require many auxiliary hypotheses to make any serious inferences in praxeology.

The severe problems with praxeology are already shown here:

http://socialdemocracy21stcentury.blogspot.com/2010/10/mises-praxeology-critique.html

Bala said...

LK,

" The human action axiom CANNOT be used to infer much at all about economics. "

That says it all. You won't explain but you will dismiss. Wow!! That must be a wonderful thing to be able to do.

And I should say you are doing a good job of promoting traffic on your laughable blog. I have no intention of wasting any more of my time on that nonsense. Give it here if you care for a discussion.

Bala said...

LK,

" Austrian require many auxiliary hypotheses to make any serious inferences in praxeology. "

OK! So which auxiliary hypothesis are you refuting?

LK said...

The auxiliary hypotheses are numerous.

As a first example, we can take free trade: Mises can be destroyed as easily as Ricardo, because his "praxeological" argument for free trade and comparative advantage requires real world conditions:

(1) capital is not internationally mobile to a significant extent;
(2) domestic factors will be re-employed in the sector/sectors in which the country’s comparative advantage lies;
(3) workers can be re-trained easily.

Conditions (1) and (2) are simply NOT met in the real world today.
Condition (3) is not always true.

Years ago Paul Craig Roberts demolished the hapless Misesians on this:

http://mises.org/daily/1420

Bob Roddis said...

It's not surprising that the lack of individual freedom, property rights and sound money causes poverty. I'm not surprised that people suffering under such poverty would be willing to work for peanuts and thus lower the standard of living of others far away.

Similarly, Ireland and other countries would not now be going through a period of "austerity" if it hadn't been impoverished by Keynesian policies in the first place.

Thus, it's important to end the poverty-inducing policies of socialism and Keynesianism so that everyone can enjoy a high standard of living. It's an outrage that so many are still living in total poverty due to the long-refuted nonsense of the socialists and Keynesians.

Bala said...

LK,

It's strange, but I just finished reading MES and read HA a few months ago but I don't recall these being mentioned or even indicated as auxiliary hypothesis. I really thought you will mention scarcity, the subjective value concept, the ordinal nature of utility, the theory of diminishing marginal utility, the silliness of the notion of infinitesimal steps in human action, etc. Instead, you go straight to a set of convenient notions that help you set up (your usual) straw-man.

LK said...

but I just finished reading MES and read HA a few months ago

Really?? So you have read Human Action? Did you perhaps fail to notice this:

Ricardo expounded the law of association in order to demonstrate what the consequences of the division of labor are when an individual or a group, more efficient in every regard, cooperates with an individual or a group less efficient in every regard. He investigated the effects of trade between two areas, unequally endowed by nature, under the assumption that the products, but not the workers and the accumulated factors of future production (capital goods), can freely move from each area into the other.

Mises, 1996 Human Action: A Treatise on Economics (4th edn), p. 159.

Did this slip you mind? Or this?:

Ricardo, however, starts from the assumption that there is mobility of capital and labor only within each country, and not between the various countries …. Now, Ricardo’s assumptions by and large held good for his age. Later, in the course of the nineteenth century, conditions changed. The immobility of capital and labor gave way; international transfer of capital and labor became more and more common. Then came a reaction. Today capital and labor are again restricted in their mobility. Reality again corresponds to the Ricardian assumptions.

Mises, 1996 Human Action: A Treatise on Economics (4th edn), p. 164.

Mises is writing in 1949, long before the new era of globalization from 1980 onwards. Capital and labour have become highly mobile again. Therefore the auxiliary hypotheses that are the basis of comparative advantage do not hold.

LK said...

Similarly, Ireland and other countries would not now be going through a period of "austerity" if it hadn't been impoverished by Keynesian policies in the first place.

Neoliberal bubble economics based on private debt, badly regulated financial systems, and asset bubbles is NOT Keynesianism.

Where did Keynes say that asset bubbles are the way to grow an economy??

It's no wonder Austrians aren't taken seriously outside their own circles. They dont even know what Keynesianism is.

Bala said...

LK,

" Therefore the auxiliary hypotheses that are the basis of comparative advantage do not hold. "

The law of comparative advantage holds not just for "geographical regions" but even for individuals. Just to quote Mises,

"The case is analogous to that of a surgeon who finds it convenient to employ for the cleaning of the operating-room and the instruments a man whom he excels in this performance also and to devote himself exclusively to surgery, in which his superiority is higher." - Human Action, 4th edition, pp161

Mises goes on to say this.

"The theorem of comparative cost is in no way connected with the value theory of classical economics. It does not deal with value or with prices. It is an analytic judgment; the conclusion is implied in the two propositions that the technically movable factors of production differ with regard to their productivity in various places and are institutionally restricted in their mobility. The theorem, without prejudice to the correctness of its conclusions, can disregard problems of valuation because it is free to resort to a set of simple assumptions. These are: that only two products are to be produced; that these products are freely movable; that for the production of each of them two factors are required; that one of these factors (it may be either labor or capital goods) is identical in the production of both, while the other factor (a specific property of the soil) is different for each of the two processes; that the greater scarcity of the factor common to both processes determines the extent of the exploitation of the different factor. In the frame of these assumptions, which make it possible to establish substitution ratios between the expenditure of the common factor and the output, the theorem answers the question raised.

The law of comparative cost is as independent of the classical theory of value as is the law of returns, which its reasoning resembles. In both cases we can content ourselves with comparing only physical input and physical output. With the law of returns we compare the output of the same product. With the law of comparative costs we compare the output of two different products. Such a comparison is feasible because we assume that for the production of each of them, apart from one specific factor, only nonspecific factors of the same kind are required." - HA, 4th edition, pp 161-162

So what are you refuting in this?

LK said...

So now you admit that the auxiliary hypotheses do actually apply to trade between nations?

Mises law of association applies to individuals.

The law of compartment advantage as applied to nations by Mises and modern Austrians does not hold, because the auxiliary hypotheses required by Ricardo do not hold, precisely as Paul Craig Roberts argued:

http://mises.org/daily/1420

Another Austrian myth demolished.

Bala said...

LK,

Hey!! I asked a question. How does that translate to this?

" So now you admit that the auxiliary hypotheses do actually apply to trade between nations? "

I do not care for links. Knowing you, these are just diversionary tactics to deflect from the main debate, which is that Keynesians are not economists but economic historians.

If you want to debate, put up your arguments here. Otherwise, just forget it.

In any case, I think you are still not attacking the auxiliary hypotheses but trying to divert attention from your inability to engage in the core debate which is that your empiricism is not economics.

LK said...

I do not care for links.

Or you refuse to read an article on Mises.org that demolishes the case for comparative advantage???

Mises (1996 Human Action: A Treatise on Economics, 4th edn, p. 159) is PERFECTLY clear that immobility of labor and capital IS an assumption that is the basis of the argument for comparative advantage (= auxiliary hypothesis).

You have lost this argument.

divert attention from your inability to engage in the core debate which is that your empiricism is not economics.

Empirical evidence is admitted even by Mises to be relevant for determining the truth of auxiliary hypotheses:

into the chain of praxeological reasoning the praxeologist introduces certain assumptions concerning the conditions of the environment in which an action takes place. Then he tries to find out how these special conditions affect the result to which his reasoning must lead. The question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience.
Mises, 1978 [1962]. The Ultimate Foundation of Economic Science: An Essay on Method, 2nd edn, p. 44.

You should have told Mises that "empiricism is not economics."!
It would have been news to him!

Bala said...

LK,

I did read that article. I don't see what it adds to this discussion given that it says that in the absence of institutional factors that restrict the mobility of factors, the law of comparative advantage does not work. I fail to see how it contradicts what Mises said.

"It has been asserted that Ricardo’s law was valid only for his age and is of no avail for our time which offers other conditions. Ricardo saw the difference between domestic trade and foreign trade in differences in the mobility of capital and labor. If one assumes that capital, labor, and products are movable, then there exists a difference between regional and interregional trade only as far as the cost of transportation comes into play. Then it is superfluous to develop a theory of international trade as distinguished from national trade. Capital and labor are distributed on the earth’s surface according to the better or poorer conditions which the various regions offer to production. There are areas more densely populated and better equipped with capital, there are others less densely populated and poorer in capital supply. There prevails on the whole earth a tendency toward an equalization of wage rates for the same kind of labor." - HA, 4th edition, pp 162-163

Basically, Mises is saying that if Capital and Labour are freely mobile across "national borders", theories of international trade are superfluous. Get it? SUPERFLUOUS.

So, you have not yet shown the invalidity of ANY auxiliary hypothesis of Austrian Economics. You have just demonstrated that a particular part of the theory may not be relevant today given the conditions. However, if conditions revert to what they were in the past (which they could), the law would be seen in operation again. That, incidentally, was Mises' main point.

My! My! How you twist and torture arguments and points to suit your silly case against Austrian Economics.

p.s. I wanted to say the same thing myself because that's what logic told me. Still, it was nice to know that Mises said the same thing. Thanks for making me search and dig deeper.

LK said...

You have just demonstrated that a particular part of the theory may not be relevant today given the conditions

Well done!
And not just irrelevant, downright harmful to some national economies as well.

And as for Mises' belief that with mobility of capital and labor "there prevails on the whole
earth a tendency toward an equalization of wage rates for the same kind of labor" he utterly ignores the fact that this means impoverishment for industrialized nations. There is no necessary benefit to international trade for industrialized nations under these conditions.

Theories of international trade are NOT superfluous as long as there are units called nations.

P.S.
You now appear to have dropped the idea that "empiricism is not relevant economics."

Another concession??

Bala said...

LK,

" And not just irrelevant, downright harmful to some national economies as well. "

How quickly you display your complete lack of understanding. What is this "national economy" thingy? Nothing more than a set of institutional factors that intervene in and distort the functioning of the market economy in the geographic region that it claims as its territory.

Actually, in true Keynesian style, you have it ALL backwards. It is not Ricardo's Law of Comparative Advantage that is downright harmful to national economies. It is rather that the "States" or the "National Governments" that are downright harmful to the operation of the market economy and hence of society at large.

" he utterly ignores the fact that this means impoverishment for industrialized nations "

No. On the contrary, he warns the governments of these industrialised nations that unless they cease all their interventions in the market economy immediately, Ricardo's Law of Comparative Advantage will ensure that the people of their nation shall be impoverished. The blame for that lies not on Ricardo's Law of Comparative Advantage but on the government's intervention in the market economy.

You sound like one of those people who blame gravity for air crashes.

" Theories of international trade are NOT superfluous as long as there are units called nations. "

When all factors are free to move, the very concept of "nations" is superfluous. So, your claim is vacuous at best and @#$%^$^ at worst.

" You now appear to have dropped the idea that "empiricism is not relevant economics."

Another concession?? "

ROFLMAO. As I understand it, "Empiricism" is the notion that facts prove or disprove ideas and that theories can be developed from facts. I never agreed to that. If you think I did, you aren't reading or thinking or both.

To know the proper role of facts in the development of theory, read 'Monetary Theory and the Trade Cycle' by Hayek. It is available for free at http://mises.org/books/monetarytheory

LK said...

he warns the governments of these industrialised nations that unless they cease all their interventions in the market economy immediately..

And here we see the imaginary, fantasy world of Austrian economics. A fantasy utopian world as ridiculous as the Marxist stateless socialist paradise.

All government economic interventions in the world will NEVER be dismantled. People freely vote for them. You think laws against child labour or unsafe work place conditions exist only because of "evil" governments?? That people would rather dismantle all welfare that protects them when they are unemployed so that they will just starve??

That some countries will adopt complete free trade polices, and let other governments pursue mercantilism and industrial policy sucking in capital from many other nations, and impoverishing them?

When all factors are free to move, the very concept of "nations" is superfluous

Pure nonsense.
With factor mobility, whole regions will be impoverished as capital moves overseas.

"Empiricism" is the notion that facts prove or disprove ideas and that theories can be developed from facts

The truth of synthetic propositions can only tested by looking at the real world. This is what Mises is admitting in the quotation of him above.

You even deny that??? LOL...

Bala said...

LK,

It is interesting to note that you acknowledge that your arguments have been thoroughly demolished and that you do not wish to discuss economics any more.

" The truth of synthetic propositions can only tested by looking at the real world "

Replace "truth" with "applicability". When have you ever understood anything that Mises said? As usual, in true Keynesian style, you get it all backwards.

" And here we see the imaginary, fantasy world of Austrian economics. A fantasy utopian world as ridiculous as the Marxist stateless socialist paradise. "

All Austrian Economics tries to do is to explain the working of a free market and how intervention causes distortions in the market economy. It goes so far as to say that the greater the level of intervention, the deeper and more widespread will be the damage done. Ignore it as much as you want. Call it all the names you wish. What you cannot do is to wish away the outcomes it predicts - destruction of the economic system.

Just read Mises' arguments on Economic Calculation in the Socialist Commonwealth. That is all your precious government interventions are taking the world towards.

LK said...

So for all your comments above, all you have done is conceded time and again that you were wrong on

(1) Praxeology being derived SOLELY from the human action;

(2) That empirical evidence not being necessary for praxeology;

(3) that praxeology has no subsidiary hypotheses;

Also, you make the massive concession that "in the absence of institutional factors that restrict the mobility of factors, the law of comparative advantage does not work".

So comparative advantage does not work because of empirical facts about the real world that refute the hypotheses of Ricardo, also assumed by Mises??

You are to be congratulated. You have given powerful arguments refuting your own Austrian economics.

Bala said...

LK,

" You have given powerful arguments refuting your own Austrian economics. "

Go on. This getting mighty hilarious.

" That empirical evidence not being necessary for praxeology "

That I was wrong is your claim. You sound like Hitler. I mean to say that you believe that repeating the same lie a thousand times will give it veracity.

As for the "solely" bit and the subsidiary axioms, I explained that i was giving you the means to demolish Austrian Economics. There was nothing to be "right" or "wrong" in it.

Sadly (for you), you have been completely unable dislodge even 1 brick from the edifice of Austrian Economics. Instead, the utter stupidity of your Keynesian framework has been exposed.

"in the absence of institutional factors that restrict the mobility of factors, the law of comparative advantage does not work"

Ha! Ha! Ha! There is one factor that you just cannot move around - That's called "land".

In any case, if all factors were mobile, the law does not work because it is not applicable in THAT circumstance. Further, the absence of institutional factors that restrict the mobility of factors means that we are talking of a free market. So I couldn't care less if the Law of Comparative Advantage does not operate at the level of nations. As I said, in that state of the free market, the very concept "nation" would become superfluous and human well being is most likely to be maximised via the free market.

It is truly hilarious to see you denying the point that the day the Law of Comparative Advantage becomes superfluous, so does your precious "government".

LK said...

That I was wrong is your claim. You sound like Hitler

LOL!
Mises:

into the chain of praxeological reasoning the praxeologist introduces certain assumptions concerning the conditions of the environment in which an action takes place .... The question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience.
Mises, 1978 [1962]. The Ultimate Foundation of Economic Science: An Essay on Method, 2nd edn, p. 44.

An assumption about "real conditions of the external world" is a synthetic proposition.

Do you dispute this basic point???

If the "question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience, then we need empirical evidence.

Are you still denying this?? Still??? Thank you, you are a laughing stock.

Bala said...

LK,

" Thank you, you are a laughing stock. "

The question is "to whom?"

" question whether or not the real conditions of the external world correspond to these assumptions is to be answered by experience, then we need empirical evidence. "

Note that Mises uses the word "correspond". Nowhere does he suggest that a theory may be invalidated by empirical evidence. This is the point that you are stubborn on denying.

I still suggest you read Monetary Theory and the Trade Cycle by Hayek. Here is the link.

http://mises.org/books/monetarytheory.pdf

Sorry about the error last time I mentioned it. I missed the .pdf in the end. Read and learn. You will realise that I know what I am talking of and that you are wrong.

Empirical evidence can only show correlation. Correlation is not causation. Without explanation of causation, a theory is vacuous. Hence, your attempt to be empirical in the realm of economics is utterly vacuous.

LK said...

Nowhere does he suggest that a theory may be invalidated by empirical evidence. This is the point that you are stubborn on denying.

The theorems are inferences of praxeology are arrived at by deduction. But once synthetic hypotheses are introduced into the deductive arguments as premises, empirical evidence becomes VITAL for establishing the truth of the premises, since a deductive argument with an untrue synthetic premise will yield a false conclusion. This is a basic law of logic. I would love to see you refute this! Please, please try!

Thus empirical evidence has a fundamental role IN THIS RESPECT.

You continue to deny this?

LK said...

And you have your own fellow Austrians showing the passages where Mises and Hoppe admit the need for empirical evidence:

http://blog.mises.org/14266/mises-keep-it-interesting/comment-page-1/#comment-732693

Oh wait!
Attempts "to be empirical in the realm of economics" are utterly vacuous!!

Bala said...

ROFLMAO.

Did you read what Fallon had to say just above the comment you referred? Do you think that 1 random comment on the mises blog justifies your position?

You are truly priceless, especially in the way you make such a royal jackass of yourself.

Thanks for the laughs. You are a great entertainer.

" You continue to deny this? "

I have said this before and I will say it again. Read "Monetary Theory and the Trade Cycle" by Hayek. Available at

http://mises.org/books/monetarytheory.pdf

It contains what I consider the proper role of empirical evidence in the evolution of economic science. It is NOT what you say the role is. Why are you refusing to read something I offer as support while simultaneously insisting that I read the links you provide (which I do)?

Bala said...

LK,

" But once synthetic hypotheses are introduced into the deductive arguments as premises, empirical evidence becomes VITAL for establishing the truth of the premises, since a deductive argument with an untrue synthetic premise will yield a false conclusion. "

Does this mean that every time you get a false conclusion, the theory is wrong? Are you saying that every false conclusion reflects the weakness of the underlying deductive argument?

A conclusion different from that predicted by a theory could mean that the data is insufficient or that parameters not included in the original analysis may also have a role to play in the current circumstance. Think Bastiat and the principle of the seen vs the unseen.

You just do not fail to amuse.

LK said...

It contains what I consider the proper role of empirical evidence in the evolution of economic science.

Ahh.. Finally the truth.
Now you admit a role for empirical evidence!!
Your statements above are now exposed as utterly wrong.

And as for Hayek, it is well known that he DISAGREED with Mises on the role of empirical evidence.
In a letter that Hayek wrote to Terence W. Hutchison dated 15 May, 1983, Hayek stated:

I had never accepted Mises’ a priorism .... Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM (quoted in Caldwell, B. 2009. “A Skirmish in the Popper Wars: Hutchison versus Caldwell on Hayek, Popper, Mises, and methodology,” Journal of Economic Methodology 16.3: 323–324).

So all you have done is point out more severe contradictions between Austrians economists.

Well done!

Bala said...

LK,

What is this "Ahh.. Finally the truth"? I asked you at least 3 times to read a particular book. What's so "Ahh.." about it except that you finally decided to read what I said?

Now read "Monetary Theory and the Trade Cycle" at

http://mises.org/books/monetarytheory.pdf

What has been exposed is your ignorance and dogged refusal to read that which (you know) is certain to cut the flow of your meaningless prattle.

" Now you admit a role for empirical evidence!! "

And I still maintain that the role is not that of validating or invalidating ideas. Why is it this difficult to understand this simple point? Too much of Keynesian gobbledygook floating around in your head?

LK said...

And even in Hayek's "Monetary Theory and the Trade Cycle" he is clear that empirical evidence is important:

In thus emphasizing the fact that trade cycle theory, while it
may serve as a basis for statistical research, can never itself be established by the latter, it is by no means desired to deprecate the value of the empirical method. On the contrary, there can be no doubt that trade cycle theory can only gain full practical importance through exact measurement of the actual course of the phenomena it describes
p. 12
....
Such a theory could only be “false” either through an inadequacy in its logic or because the phenomena it explains do not correspond with the observed facts

So a theory is false when it does "not correspond with the observed facts"??? Its truth must be measured by empirical evidence.?

Thanks again.

LK said...

Also, reviewing your comments above you have conflated 2 conflicting Austrian methodologies:

(1) The aprioristic praxeology of Mises, and
(2) The methodology of Hayek, which rejected pure a priorism and admits a role for empirical evidence and is even closer to Popper’s falsificationism.

Unfortunately for you, Mises’s methodology (1) is very different from Hayek’s methodology (2), and you CANNOT conflate them without severe contradiction.

Have you never read Hayek’s rejection of Mises’s pure a priorism in “Economics and Knowledge” (1937) where he criticises and rejects Mises’s aprioristic praxeological method??

Have you never read Hayek’s favourable comments about Popperian falsificationism?

LK said...

And yet another devastating blow for you:

Do you now accept Hayek’s methodology??

If so, then there is essential agreement between Hayek and Keynes on methodology!!

“It is interesting to find the Austrians in general agreement with Keynes on important matters of methodology (See also Lachmann, 1983, pp. 374-75.)” John Pheby, New directions in post-Keynesian economics, p. 65ff

So, like Hayek, you too agree with Keynes? I am impressed.

LK said...

You might also care to read a quite intelligent article by the Austrian Ludwig Lachmann called “John Maynard Keynes: A View from an Austrian Window,” South African Journal of Economics 51 (1983): 253–260:

“In the field of methodology Keynes and the Austrians agree that economics is a social science to which methods that have proved successful in the natural sciences should not be applied without careful inspection, and that, in particular, all attempts to ‘give numerical values’ to the parameters of economic models ignore the essential meaning of economic theory. It is hardly surprising that even here we find differences of accent and perspective, but … they do not amount to much …. Keynes concurs with Hayek's misgivings about numerical values. …. But Keynes’s mind also moves in another direction. ‘I also want to emphasize strongly the point about economics being a moral science. I mentioned before that it deals with introspection and with values. I might have added that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous. It is as though the fall of the apple to the ground depended on the apple’s motives, on whether it is worthwhile falling to the ground, and whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the centre of the earth’ … Keynes sees in social facts manifestations of the human mind. While to Hayek it is the complexity of these facts, their multitude and diversity, that defies the attribution of numerical values to social concepts, to Keynes it is their mental character … that does so. Rather to the surprise of some of us, Keynes emerges as being more deeply committed to subjectivism than is his Austrian opponent. Lachmann 1983: p. 256.

Bala said...

LK,

You are downright hilarious, especially in the way you clutch at straws. Here is the complete paragraph from MT&TTC.

"Empirical studies, whether they are undertaken with such practical aims in view, or whether they are confined merely to the amplification, with the aid of special statistical devices, of our knowledge of the course of particular phases of trade fluctuations, can, at best, afford merely a verification of existing theories; they cannot, in themselves, provide new insight into the causes or the necessity of the Trade Cycle.

This view has been stated very forcibly by Professor A. Lowe. 'Our insight into the theoretical interconnections of economic cycles, and into the structural laws of circulation', he says, 'has not been enriched at all by descriptive work or calculations of correlations.' We can entirely agree with him, moreover, when he goes on to say that 'to expect an immediate furtherance of theory from an increase in empirical insight is to misunderstand the logical relationship between theory and empirical research'.

The reason for this is clear. The means of perception employed in statistics are not the same as those employed in economic theory; and it is therefore impossible to fit regularities established by the former into the structure of economic laws prescribed by the latter. We cannot superimpose upon the system of fundamental propositions comprised in the theory of equilibrium, a Trade Cycle theory resting on unrelated logical foundations.

All the phenomena observed in cyclical fluctuations, particularly price formation and its influence on the direction and the volume of production, have already been explained by the theory of equilibrium; they can only be integrated as an explanation of the totality of economic events by means of fundamentally similar constructions. Trade Cycle theory itself is only expected to explain how certain prices are determined, and to state their influence on production and consumption; and the determining conditions of these phenomena are already given by elementary theory. Its special task arises from the fact that these phenomena show empirically observed movements for the explanation of which the methods of equilibrium theory are as yet inadequate. One need not go so far as to say that a successful solution could be reached only in conjunction with a positive explanation of elementary phenomena; but no further proof is needed that such a solution can only be achieved in association with, or by means of, a theory which explains how certain prices or certain uses of given goods are determined at all. It is not only that we lack theories which fulfil this condition and which fall

Bala said...

outside the category best described as 'equilibrium theories', theories which are characterized by taking the logic of economic action as their starting point; the point is rather that statistical method is fundamentally unsuited to this purpose. Just as no statistical investigation can prove that a given change in demand must necessarily be followed by a certain change in price, so no statistical method can explain why all economic phenomena present that regular wave-like appearance which we observe in cyclical fluctuations. This can be explained only by widening the assumptions on which our deductions are is based, so that cyclical fluctuations would follow from these as a necessary consequence, just as the general propositions of the theory of price followed from the narrower assumptions of equilibrium theory.

But even these new assumptions cannot be established by statistical investigation. The statistical approach, unlike deductive inference, leaves the conditions under which established economic relations hold good fundamentally undetermined; and similarly, the objects to which they relate cannot be determined as unequivocally as by theory. Empirically established relations between various economic phenomena continue to present a problem to theory until the necessity for their interconnections can be demonstrated independently of any statistical evidence. The concepts on which such an explanation is based will be quite different from those by which statistical interconnections are demonstrated; they can be reached independently. Moreover, the corroboration of statistical evidence provides, in itself, no proof of correctness. A priori we cannot expect from statistics anything more than the stimulus provided by the indication of new problems.

In thus emphasizing the fact that Trade Cycle theory, while it may serve as a basis for statistical research, can never itself be established by the latter, it is by no means desired to deprecate the value of the empirical method. On the contrary, there can be no doubt that Trade Cycle theory can only gain full practical importance through exact measurement of the actual course of the phenomena which it describes. But before we can examine the question of the true importance of statistics to theory, it must be clearly recognized that the use of statistics can never consist in a deepening of our theoretical insight.

Even as a means of verification, the statistical examination of the cycles has only a very limited value for Trade Cycle theory. For the latter — as for any other economic theory — there are only two criteria of correctness. Firstly, it must be deduced with unexceptionable logic from the fundamental notions of the theoretical system; and secondly, it must explain by a purely deductive method those phenomena with all their peculiarities which we observe in the actual cycles. Such a theory could only be 'false' either through an inadequacy in its logic or because the phenomena which it explains do not correspond with the observed facts. If, however, the theory is logically sound, and if it leads to an explanation of the given
phenomena as a necessary consequence of these general conditions of economic activity, then the best that statistical investigation can do is to show that there still remains an unexplained residue of processes. It could never prove that the determining relationships are of a different character from those maintained by the theory"

In particular, note this line that you cited

"Such a theory could only be 'false' either through an inadequacy in its logic or because the phenomena which it explains do not correspond with the observed facts."

Did you notice the word "only"? Looks like you missed out on some sessions in Logic 101 (once again, in true Keynesian style).

ROFLMAO. You really are good for a laugh. Anytime.... Just keep it going. I am sure I am not the only one finding this amusing.

LK said...

Empirical studies ... can, at best, afford merely a verification of existing theories

Empirical evidence verifies theories?? Your beaten again.

As for econometric statistics, Keynes himself doubted their usefulness, and Hayek distinguishes the need for (1) other empirical evidence from (2) econometric statistics.

Completely destroyed again.

LK said...

And typically you utterly refuse to answer the question posed above:

Do you now accept Hayek’s methodology over Mises's??

If so, Hayek's methodology is DIFFERENT from the aprioristic praxeology of Mises.

Of course you will continue to refuse to answer the question, because once you do you're completely destroyed yet again.

Continuing silence will prove that

Bala said...

LK,

You just don't cease to amuse, do you?

"Empirical evidence verifies theories?? Your beaten again."

What happens if it does not verify? What does Hayek have to say on that? Still hung up on your hilarious interpetation of "only"?

" Do you now accept Hayek’s methodology over Mises's?? "

Wait a sec. In the passage I copied out, Hayek DOES NOT contradict Mises. He still says statistics cannot prove or disprove/validate or invalidate a theory. He clearly lays out the method for developing theories which is to start from solid foundations (axiomatic) and then use reasoning. So Hayek has given a fairly dignified (undeserved, though) burial to your empiricism.

Still clutching at straws?

"Of course you will continue to refuse to answer the question, because once you do you're completely destroyed yet again."

I have answered it many times, except that you never recognised it. You are putting up a straw-man. In the passage I have highlighted, there is no "Mises vs Hayek". Hayek has not given any greater importance to empirical data than Mises has. He has placed it, rather ceremoniously, in its little corner, to be pulled out only (oh no! here we go again.....) when necessary.

LK said...

He clearly lays out the method for developing theories which is to start from solid foundations (axiomatic) and then use reasoning

No, he doesn't. What you're describing here is apriorism.
Read Hayek’s rejection of Mises’s pure a priorism in “Economics and Knowledge” (1937) or his explcit
rejection here:

I had never accepted Mises’ a priorism .... Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM (quoted in Caldwell, B. 2009. “A Skirmish in the Popper Wars: Hutchison versus Caldwell on Hayek, Popper, Mises, and methodology,” Journal of Economic Methodology 16.3: 323–324).

Get it?
Hayek "never accepted Mises’ a priorism" - NEVER.
And Hayek moved closer to Popper's falsificationist views on methodology, with a fundamental role for empirical evidence.

Also your ridiculous error is to use only one passage from one of Hayek's early books to cite his methodology.

LK said...

In the passage I have highlighted, there is no "Mises vs Hayek". Hayek has not given any greater importance to empirical data than Mises has.

Oh really?
You have completely shot yourself in the foot.

Karl Popper: Life and time, and values in a world of facts, p. 114

The complete collapse of all of your assertions is complete.

Bala said...

LK,

Do you read? I said

"In the passage I have highlighted, there is no "Mises vs Hayek". Hayek has not given any greater importance to empirical data than Mises has."

Did you read the first 6 words of that sentence or, as usual, did you read what you wanted to and understood what you preferred to?

YOU referred to the other Hayek quotes. I didn't. Frankly, it doesn't matter what Hayek "moved towards" when what I am citing has no connection with it.

Further, when I cited Hayek from MT&TTC, I wasn't making an appeal from authority. I was giving you a reference to the basis of what I am saying. That Hayek changed his (stated) position later does not matter for this. I could agree with the "earlier Hayek" and disagree with the "later Hayek", especially if the two sound very different, can't I?

Stop clutching at straws and look for some serious wood instead.

LK said...

That Hayek changed his (stated) position later does not matter for this.

LOL! Did you not read Hayek in HIS OWN WORDS???:

I had never accepted Mises’ a priorism .... Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM (quoted in Caldwell, B. 2009. “A Skirmish in the Popper Wars: Hutchison versus Caldwell on Hayek, Popper, Mises, and methodology,” Journal of Economic Methodology 16.3: 323–324).

He NEVER accepted Mises’ a priorism! NEVER!
His position did NOT change.
There is no "earlier Hayek" and "later Hayek" - this is a fiction only in your mind.
Another shocking error.

Bala said...

LK,

Did you read the passage I copied from MT&TTC? Looks like you didn't. I said "That makes sense". I did not say "Hayek is my God and I agree with whatever he said". That's what you are trying to get me to say. Go find someone at your level for such tomfoolery.

LK said...

Did you read the passage I copied from MT&TTC? Looks like you didn't

Already did.
It confirms Hayek's use of empirical evidence.

I did not say "Hayek is my God and I agree with whatever he said"

His position in MT&TTC confirms that he "never accepted Mises’ a priorism".

So you cannot accept (1) Mises' apriorism AND (2) Hayek's comments in MT&TTC without severe contradiction.

Thank you for a productive debate, even though you lost - badly.

Better luck next time.

Bala said...

LK,

You are truly mind-blowing and your powers of imagination are mind-boggling.

I wonder how when a person says this

"Empirical studies, whether they are undertaken with such practical aims in view, or whether they are confined merely to the amplification, with the aid of special statistical devices, of our knowledge of the course of particular phases of trade fluctuations, can, at best, afford merely a verification of existing theories; they cannot, in themselves, provide new insight into the causes or the necessity of the Trade Cycle."

and then this

"'Our insight into the theoretical interconnections of economic cycles, and into the structural laws of circulation', he says, 'has not been enriched at all by descriptive work or calculations of correlations.' We can entirely agree with him, moreover, when he goes on to say that 'to expect an immediate furtherance of theory from an increase in empirical insight is to misunderstand the logical relationship between theory and empirical research' "

and then this

"the point is rather that statistical method is fundamentally unsuited to this purpose."

and then this

"But even these new assumptions cannot be established by statistical investigation. The statistical approach, unlike deductive inference, leaves the conditions under which established economic relations hold good fundamentally undetermined; and similarly, the objects to which they relate cannot be determined as unequivocally as by theory"

and then this

"But before we can examine the question of the true importance of statistics to theory, it must be clearly recognized that the use of statistics can never consist in a deepening of our theoretical insight."

and then this

"Even as a means of verification, the statistical examination of the cycles has only a very limited value for Trade Cycle theory. For the latter — as for any other economic theory — there are only two criteria of correctness. Firstly, it must be deduced with unexceptionable logic from the fundamental notions of the theoretical system; and secondly, it must explain by a purely deductive method those phenomena with all their peculiarities which we observe in the actual cycles."

(Note the emphasis on "as for any economic theory" in this previous bit) and then finally this

"If, however, the theory is logically sound, and if it leads to an explanation of the given
phenomena as a necessary consequence of these general conditions of economic activity, then the best that statistical investigation can do is to show that there still remains an unexplained residue of processes. It could never prove that the determining relationships are of a different character from those maintained by the theory"

you come to the conclusion that Hayek did not dismiss the role of empiricism in the development of economic theory? You are, as I have maintained, priceless. Carry on the jokes. It is truly amusing.

p.s. You win an argument when you offer better arguments. Not when you just keep repeating the same erroneous notions and insisting that you have "won".

LK said...

You continue to fail to distinguish (1) empirical evidence in general from (2) econometric statistics.
Hayek does not deny the role of (1) even though he (like Keynes) questions the usefulness of (2).

And you fail to read Hayek in "Economics and Knowledge" (1937), p. 33:

I shall contend that the empirical element in economic theory - the only part which is concerned, not merely with implications but with causes and effects, and which leads therefore to conclusions which, at any rate in principle, are capable of verification - consists of propositions about the acquisition of knowledge.

Bala said...

LK,

And you fail to distinguish a dismissal of empiricism, i.e., the notion that empirical evidence can validate or invalidate a theory, from a dismissal of the empirical method and its relevance to the acquisition of knowledge.

Keep trying. I haven't yet stopped laughing.

LK said...

And you fail to distinguish a dismissal of empiricism,

Hayek does not "dismiss" empiricism - this is a fantasy of your mind.

Such a theory could only be “false” either through an inadequacy in its logic or because the phenomena it explains do not correspond with the observed facts Monetary Theory and the Trade Cycle, p. 12.

Keep discrediting yourself - it is impressive.

Bala said...

LK,

"Only" still troubling you, is it? You should catch up on those missed sessions of Logic 101.

And it wasn't Hayek I was referring to. It was me dismissing empiricism. I was only using Hayek's arguments.

LK said...

And it wasn't Hayek I was referring to. It was me dismissing empiricism.

So now you're admitting that Hayek himself does not "dismiss" empirical evidence?

All your statements above are collapsing with every new comment you make.

Bala said...

LK,

I said that I dismiss "empiricism" (defined as the notion that facts may validate/invalidate theories), not empirical data. Looks like you can't read.

" So now you're admitting that Hayek himself does not "dismiss" empirical evidence? "

While Hayek does not dismiss empirical evidence as such, he dismisses the notion that empirical evidence could validate/invalidate ideas. Here's the closing sentence in the passage I copied.

" If, however, the theory is logically sound, and if it leads to an explanation of the given
phenomena as a necessary consequence of these general conditions of economic activity, then the best that statistical investigation can do is to show that there still remains an unexplained residue of processes. It could never prove that the determining relationships are of a different character from those maintained by the theory"

Further, if you just scroll up, I referred to this particular passage not to dismiss empirical data but to show the "proper" role of empirical data in acquisition of knowledge. It is interesting to note your contorting yourself and distorting arguments to manage your cognitive dissonance.