I Have Never Felt So Irrelevant
The dystopian von Pepe sends me Karl Smith’s taxonomy of various explanations of the business cycle, which I’ve seen people linking but I hadn’t actually read. The following excerpt took the wind out of my sails:
Recalculation
There are some people, I am thinking Arnold Kling here, who believe in what I might call a neo-Austrian view. I don’t think there are any formal models here and I might be mistaken but I think many in this camp eschew formal models. What there is, is a basic sense that markets work as an evolutionary process.
Within that process transitional pains are to be expected and recessions are just a big version of that. Arnold is currently the most vocal intellectual in this School but if you had to nail down what the Peter Schiffs of the world are thinking, its probably closest to something like Recalculation.
If anyone says that the government caused a bunch of people to buy houses they couldn’t afford and now we are working through the pains of that, they are effectively a Recalculationist.
In summary, for these guys recessions are caused by mistakes which take time to be corrected. There is no treatise as such but you can try:
And then if you click on the link–which yes, in this day and age is an unclothed URL, which simply gives me the willies in its indecency–you go to a google search for Arnold Kling’s various posts at EconLog on “Great Recalculation.”
What’s really so depressing about this, is that this guy Smith is obviously not trying to put down the Austrians. Go read his post; he’s really just trying to honestly answer Ezra Klein’s question about the different models for explaining the business cycle.
Yet Smith either doesn’t know about the various treatises laying out the Austrian theory of the business cycle, OR, he thinks they are so useless that Ezra Klein should just go read Kling’s blog posts.
This isn’t just a failure of Mises.org, it’s also a failure of the GMU guys. I mean, why doesn’t Smith know about Tyler Cowen’s book on Austrian business cycle theory?
I haven’t felt like this since high school.
Bob, I suggest that if you haven’t read “How I Found Freedonm in an Unfree World” by Harry Browne, you should do so now.
I wouldn’t worry in any case about Karl Smith. He many be a great guy but why should we care about what he knows or doesn’t know about Austrian economics? One can’t measure one’s success by the degree of recognition from others.
As I am sure you know better than most, the level of ignorance about Austrian economics and its many (unattributed) contributions to modern economics is vast. Not only have most economists not been exposed to Austrian economics in school, they have been left with the vague sense that Austrians are beyond the pale and a bunch of cranks with whom one should be careful not to be seen associating. I suspect that many in the mainstream are reluctant even to reveal any familiarity with Austrian ideas for fear of the taint or giving Austrian ideas some legitimacy. Also, again as you probably know better than most, there is no career incentive in the mainstream academy to be acquainted with Austrian economics.
While the crisis has given the Austrian school a tremendous boost in credibility and profile, that has mostly been outside the academic world, i.e., the financial markets, influential commentators and the general public. Even though some Austrian ideas, in particular the notion that easy money created the housing boom, seem to have now been accepted by the mainstream, few in the mainstream are crediting the Austrians with the idea and saying “Yup, those Austrians were right all along and, boy, did we get it wrong!”.
Arnold Kling’s recalculation story gives mainstreamers a way to refer to the Austrian story and discuss it without having to mention the A-word (Austrian). Yes, Arnold has attempted, unconvincingly in my view, to distinguish “recalculation” from Austrian theory (a bit like trying to distinguish “economic recalculation” from “economic calculation”). But, whatever, his heart’s in the right place. It’s the ideas, not their label, that count.
Attempts to introduce Austrian economics into the “respectable” academy will continue to meet resistance because of rampant statism and statism’s servant, scientism. Most economists are apologists for the state, either becuase they are instinctively collectivists or because they are just in too deep. Oh well – universities are being disintermediated anyway.
Bottom lione: don’t worry, be happy. You’re doing a great job. You’ve got a bunch of books in the can, you’re self-employed ( a very good thing), you’ve got lots of projects on the go, a nice little blog, you’re having fun, you believe in what you’re doing and you’re on the side of truth. Doesn’t sound too bad to me.
Well, you could argue the glass is half-full. Kling (and Schiff) are respectable gateway drugs to ABC, and we can be happy that people like Smith are getting some exposure, even if they haven’t (yet) more fully explored the literature.
Ask yourself, 10 years ago, whether somebody like Smith would have seriously considered the Austrian take at all.
To Peter St. Onge,
Don’t forget the other gateway drug, Ron Paul.
That guy has made more free-market constitutionalists and inadvertently made more free market anarchists than anybody in recent memory. 🙂
To Robert Murphy,
Should somebody email Smith all the Powerpoint files and MP3’s of Roger Garrison’s talk on capital and business cycles? 🙂
Maybe I’m reading too much into your post, but I wouldn’t worry too much about what this guy knows. He sounds like a typical mainstream guy, smart but with the totally wrong framework. The site reads like a smarter version of Freakonomics (of which I am not a fan.)
While admittedly it’s a bit annoying and a little disheartening, keeping score like this isn’t the point. The point is to search for and espouse the truth, no matter what it is. I am relatively new to this (about 4 years in) and it seems to me like these ideas are popping up in places I’d never expect. It’s spreading.
Bottom line, this stuff is not going to go away. Though not without it’s problems, no other explanations come close to what has happened. I know I’m part of the choir and because of that you can consider my words suspect, but I think these ideas are too good to just vanish or disregard.
Be honest. You’ve always felt this way.
Unfortunately until someone makes a formal mathematical model for the ABCT, it won’t really penetrate far.
“I Have Never Felt So Irrelevant”
I can help you there. Bob.
Write about the world food crisis:
http://www.ft.com/cms/s/0/12b06cee-d300-11df-9ae9-00144feabdc0.html
Feel irrelevant now? You don’t even get a mention near the Libertarian Isles of the Blogosphere (core region):
http://xkcd.com/802_large/
Well, for one thing, Tyler Cowen’s book sucks as an explication of Hayek’s work in macro.
Rothbard called depressions “clusters of entrepreneurial errors.”
One thing that puts me off the Austrians is the assertion that all depressions / recessions are money policy / banking related.
Surely there are other sources of “clusters of entrepreneurial errors.”
I’m sure that the competitive process over time would tend to weed out error making (including cluster error making) entrepreneurs, but, at the very least, there would be other government policies (besides money policy and government enforced Fractional Reserve Banking cartels) that generate forms of regime uncertainty (a la Higgs) that kick off “clusters of entrepreneurial errors.”
To use a non-economic analog, in the evolutionary model of biology, competitive pressures and natural selection lead to speciation and extinction, but sometimes you get “clusters of evolutionary errors” , “mass extinctions” too. Most biologists attribute mass extinctions to “exogenous” factors, comet impacts, volcanic plumes, humans , that sort of thing. But there are some indicators that these may emerge “endogenously”. See for example the computer model of evolution called “Tierra”. Tierra models speciation, competition etc. Every now and then, without endogenous forcings, Tierra goes into mass extinctions. Maybe similar factors drive at least part of the business cycle.
We might sometimes overgeneralize, especially in a blog post or op ed, but most Austrians who formally write on the business cycle go out of their way to say that it just explains one type of boom-bust cycle, namely that due to credit expansion. If the government announced tomorrow that anyone caught using power tools would be executed, that would probably cause a bust too.