12
Dec
2016
The Continued Importance of Austrian Capital Theory
I can’t remember if I pushed this before? Anyway this was the talk I gave last August in Rosario, Argentina. Keep in mind for my opening joke routine that people in the crowd needed to hear the translators, since many of them didn’t speak English. That’s why I had to sloooooow it down.
Great talk. Well I am still so baffled why this important analysis is ignored by the mainstream. Why would you use rough unrealistic models instead of more realistic ones? Shouldn’t you strive to improve your models to match better the actual reality?
I’d even understand people who would favour the two-pronged approach (like Gene Callahan seems to do) that both stories, the Austrian and Keynesian are more or less true, but then you need to figure out what actually applies in a certain recession, or at least consider the Austrian analysis accordingly when you suggest any policies.
Also I understand if someone like Keynes says he is (rightfully) concerned by people getting fired en mass in a recession, and to avoid stress on the social fabric short term measures are needed to power through this situation. But then you would need to acknowledge that at some point, in a controlled manner you would need to give the market the possibility to rearrange properly in a slower pace.. It is like finding yourself in a desert with only enough water for two days, but you need 4 days to reach the next town by foot if you walk/rest normally. You cannot just walk calmly, with your usual 10 hours of good sleep, else you would be dead, right?! In that situation you have to stress your body and power through. But then you need to rest and regain your strength!
If we would at least get to this stage of discussion it would be great already.. But a precondition would be to acknowledge that the interest rate cannot be meddled with by drecree.. And no mainstreamer will want to admit that.
Skylien,
Macroeconomists are working on methods that allow for the relaxation of some assumptions. Machine learning and agent-based modeling are definitely in the macro mainstream as I hear it.
Many mainstream macro folks looked closely at ABCT in the wake of the crisis:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2363560
Nicholas Cachanosky, an Austrian macroeconomist, has been incorporating mainstream financial models into ABCT
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2799501
http://www.ncachanosky.com/research.html
Cachanosky is one of my favorite researchers. I especially like a lot of the work he’s done on ABCT applied to the dollarized economies of Latin America. Lots of thought provoking stuff.
Yes Nicolas is awesome, I want to work with him when I get my other stuff out the door.
BTW he was the guy I was referring to in the video who was babysitting me down there.
Sounds like a start. I will go through those links. Thanks.
I would be interested in applying some agent based modeling to the basic Austrian principles. IMHO this would be consistent with Praxology.
Running an agent based computer simulation is a logical (and repeatable) method to take your assumptions and then find out the consequences with an economy based on those assumptions. Publish open source and anyone can repeat the test, or tweak your starting assumptions.
However, you cannot really simulate things like human learning (you can have a rough go at it). Austrians should be getting into this, because it provides a mathematical basis, without going into things like differential equations (which take you down the various “hydraulic” models of economics). Differential equations are really difficult to relate back to Austrian principles, but that problem shouldn’t happen with agents. Worth a try anyhow.