18 Oct 2010

Putting Austrian Business Cycle Theory to the Test

Shameless Self-Promotion 10 Comments

I actually have some empirical analysis in this one. Target: Krugman.

10 Responses to “Putting Austrian Business Cycle Theory to the Test”

  1. Jacob Hedegaard says:
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    Dear Mr. Murphy,

    Speaking of empirical analysis, I think you should look into the BLS data on producer price indices in different stages of production. I have plottet them in a graph here:

    http://jacobhedegaard.dk/uploads/sop.jpg

    The data can be found here:
    Crude: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=wpusop1000&output_view=pct_12mths

    Intermidiate: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=wpusop2000&output_view=pct_12mths

    Finished: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=wpusop3000&output_view=pct_12mths

    The definitions of the different stages of production can be found here:
    http://www.bls.gov/ppi/ppisopallo.htm

    I believe these hold some indication of the explanatory power of ABCT.

    / Jacob Hedegaard

    • bobmurphy says:
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      Thanks Jacob. Yes I am toying with those data myself right now. Unfortunately I don’t think FRED breaks them out in those series; they have the finished goods but not the crude and intermediate, as far as I can tell. (It just looks more official if you can plot it within the FRED system.)

      • Jacob Hedegaard says:
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        Agreed.

        However BLS can’t be discarded as ‘illegit’ – used in my BA on ABCT this summer and my advisors comment was sort of ‘Yeah, if Austrians valued empirical explorations we guess that would look like an indication of the validity of the theory’…

        I’ll be looking forward to a post, if your ‘toying’ is fruitfull.

  2. crossofcrimson says:
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    Great article, Bob. My favorite comment so far on the Mises website:

    “AubreyHerbert October 18, 2010 at 10:16 am

    Is that the smell of napalm?
    No, it’s just the smell of Paul Krugman’s arguments burning.
    I love that smell.”

  3. Nico says:
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    Nice one.

  4. fundamentalist says:
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    Nice job. There is more empirical evidence for Austrian econ if one wants to search for it. I have a collection of papers I found just by googling “Austrian Economics” “empirical evidence”. I’ll share the titles with anyone who wants them.

  5. Bob Roddis says:
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    Life is not complete until you’ve debated a “Chartalist”. We have our very own Chartalist on the “Krugman in Wonderland” blog who goes by the name of APLerner who writes:

    It’s hard to take Robert Murphy serious as an economist since he has bought into all the usual neo-liberal myths, and very clearly is clueless regarding the monetary system of a country like the US. He sums it up in this quote from the above article:

    “Those of us Austrians who have been warning of price inflation have not (yet) been vindicated”

    And you will never be vindicated. Frankly, this piece of ignorance is more relevant than the useless back and forth over structural and cyclical unemployment. Fortunately, the NY Fed has been posting a serious of really important research notes lately (does anyone on this blog bother to read anything outside of mises.org?) supportive of MMT, and everything I have been saying lately regarding the operations of the monetary system. This is very important because once the Fed realizes how the monetary system of the US works then a) policies that actually support full employment will be implemented, and b) much of this Austrian theory will be put to rest since their ideology is based off the false belief that the bond vigilantes are coming and increases in the monetary base actually causes inflation

  6. mario rizzo says:
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    Bob,
    Thanks for this. I will show the chart to my class on policy issues in the hist of thought.

    Mario

    • bobmurphy says:
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      Sure thing Mario. And check out the footnote to the article: I really did “test” the theory and it worked.

  7. Bob Roddis says:
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    Neither the “chartalist” Murphy critic nor “Lord Keynes” at the Krugman in Wonderland blog made any specific, informed criticism of Bob Murphy’s instant article. I’m shocked.

    And, after 18 months of jousting, the assorted noodle-brained commenters on the Yglesias blog found a SECOND critique of the ABCT (in addition to Bryan Caplan’s). This came about because I note at least weekly that there are no critiques of the ABCT, because any such fair critique would immediately demonstrate that we are right. This sends them into a fury.

    This new “critique” is a delightful encyclopedia of really dumb ABCT criticisms:

    http://www.huppi.com/kangaroo/L-ausmain.htm

    I pointed out to the horde of Yglesias commenters that a search in these materials for the words “calculation” (as in economic calculation) and “capital” (as in capital structure) came up with nothing except a few times in quoting Peter Boetke or in the title of a Mises article. There was no discussion by the critic of the concepts whatsoever.

    When I pointed this out, commenting ceased. Again, I’m shocked.