On Feb 1, 2009, at 12:36 PM, Andre Uratsuka Manoel wrote:
I would disagree with you on the assertion about Keynesians. Actually,
Keynesian theory is very much in the reality-based side of economics.
Keynesian theory = epicycles
Austrian theory = Kepler-ian dynamics
The Keynesians argue that the epicycles model *must* be correct
because the Austrians cannot explain the precession of Mercury. This
is, of course, a false dichotomy. Biblical creationists often use an
identical argument, asserting that because evolution cannot
definitively explain everything we see in biology, Biblical
creationism *must* be correct.
Both models are incorrect, but the nature of their incorrectness is
very different such that one is clearly superior to the other as a
matter of science *even if they produce identical results in practice*.
I live in a country that lived under both camps and I have problems
with the far left as much as I have problems with the far right, but
the assertion on Keynesians seems to me to be very exagerated. Would
you mind to explain that?
Keynesian theory is pretty badly broken from a system perspective.
You start with a set of tacit assumptions largely derived from a self-
serving ideological perspective that has little to do with economics
per se, and attempt to back-fill a general theory that describes a
system like reality. The problem is that you have to add so many
inelegant hacks, inconsistencies, and workarounds to make it vaguely
approximate reality that the result is a very brittle description that
has relatively little value with respect to informing policy except as
rationalization. But since the conclusions appeal to the biases of
the political class, they do not look at it too closely.
Austrian theory is broken in a different way: it starts with a simple
and elegant system model, but simplifies away enough functions and
ignores enough factors that it is too crude of a model to fine-tune
policy effectively even though many people try. Note also that some of
the functions that are simplified out of the model are done so because
they involve areas of mathematics that are not well understood yet
though they are being actively researched.
I am neither an Keynesian nor an Austrian in perspective, but it is
pretty obvious that the Austrian model can be elegantly extended to
increase the resolution and utility of that model whereas the
Keynesian model cannot except by adding more epicycles that make it
even more brittle than it already is. This is not a "left", "right",
or otherwise political observation, this is a mathematical observation.
In short, knowing nothing else, I would invoke Kolmogorov's née
Occam's Razor. The popularity of Keynesian policy with governments is
that it prescribes more political power and market intervention, not
because it is a better theoretical model.
On the stimulus package is necessary because it is better to throw the
kitchen sink to restore positive expectations and a path to growth
than to simply do nothing. The debt burden will end up high anyway
because of deflation and deflationary expectations. The fight is
against a depression, not a common recession, so to spend 10% of the
GDP in preferably long-term infrastructure spending sounds better to
me than to have the same 10% of the GDP chopped-off and then have
nothing to show for it, but mass unemployment and reduced future
potential GDP due to the destruction of infrastructure.
That is the argument, but it does not follow nor make any kind of
sense. It is a specious argument intended to justify the behavior of
the government to a population that understands neither economics nor
has any grasp of how taxpayer money is already spent.
The talk of infrastructure spending is a fine example. Ignoring
whether or not it will have any positive return on investment,
precisely what "infrastructure" are they talking about and why is it
not already funded? It is quite obvious that most Americans are very
confused about who pays for what infrastructure, how that funding is
structured, or where that money goes, a fact that is being exploited
for political benefit.
Cheers,
J. Andrew Rogers
