Hello,
On Sun, Feb 1, 2009 at 7:48 PM, J. Andrew Rogers
<[email protected]> wrote:
> On Feb 1, 2009, at 12:36 PM, Andre Uratsuka Manoel wrote:
> Keynesian theory = epicycles
> Austrian theory = Kepler-ian dynamics
Interestingly, the image I have in my head is the very opposite of
that. My impression is that Austrian school studies economics was kind
of a fringe with insights but also not much pragmatism.
[... analogy with creationism deleted ... ]
> 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.
Listen, the problem with your assertion is that it applies very well
to Laissez-faire schools of thought, too. If you could just get into
more detail on what the problem is actually, it would be much better.
Is the basic concepts of macroeconomic aggregates that are a problem?
> 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.
Much better, thanks.
> 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.
It may very well be so, but the fact that some groups like a policy or
theory that benefits them is not in my opinion a good enough reason to
dismiss them. Otherwise it would be necessary to dismiss policies that
prescribe less market intervention because those are defended by a lot
of people who would benefit from them. I think that reasoning on the
merits is a better way to go. If I were to choose based on defenders
of a theory I would definitely choose Keynes over the Austrian School
because I admire many people who defend the former way more than those
people I know who I defend the later.
> 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.
Not really, It is a reasoning that comes from the macro instead of Micro domain.
> 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.
There are a lot of concepts here. Let me try: Firstly, ROI calculation
in government spending should take externalities into account. One
externality that does exist is the mere fact that you will keep some
of the economy going instead of being idle as it would without such
spending. That infrastructure spending is usually not made by
government because when all you want is to build infrastructure then
some spending has lower justification than when what you want is just
to spend money as fast as you can. The choice of which spending to do
is actually not that important. It is better to do infrastructure
spending but what is necessary is to just get the economy going. The
alternative, since there is no way to cut interest rates is to just
wait for the economy to decrease so much that we may spend the
following 10 or 15 years just getting to what we had in 2007. I am not
that brave.
Of course, that is my view and I am very much contaminated by
Keynesian thinking and Macroeconomics. But you probably have an
alternative. I would really like to understand it.
Do you disagree with the concepts related to Aggregate Demand and to
identities like
Demand = Consumption + Investment + Government Spending + Net Exports?
Then, after all that money is spent, what do you think will happen
that will make that spending so bad? Is that a moral hazard problem?
Will it be ineffective? Counterproductive? What would a better
alternative be? Should the goverments tighten their belts, balance
their budgets and wait it out? Should another reform be made?
Andre
