Greg Ip's Voodoo Economic Journalism

Steven Horwitz

In a piece titled "The Republicans' New Voodoo Economics?" Greg Ip writing in The Washington Post tries to connect up the current GOP with a whole variety of what he sees as wrong-headed ideas, including those of the Austrians.  What's most frustrating about the piece is his description of the Austrian view of recessions:  "Austrians considered recessions a natural feature of capitalist economies, and efforts to suppress them via monetary or fiscal policy were apt to distort investment, worsen booms and busts, or lead to inflation."

It's certainly true that Austrians believe that using monetary and fiscal policy will make matters worse, but Ip makes it seem as though recessions just appear from nowhere (a "natural feature of capitalist economies"), when the strongly dominant view among Austrians is that recessions are caused by government monetary policy via the central bank. This misrepresentation makes it look like Austrians are pure fatalists about recessions and their human toll, when in fact a great deal of ink has been spilled as to how better monetary institutions can prevent recessions in the first place, and obviate the exacerbation of those problems that comes from government monetary policy.  Ip's version of Austrian macro nicely fits into the now common narrative (see Lord Skidelsky's comments in the LSE debate and subsequently - see also George Selgin's brand new response) that Austrians simply don't care about trying to prevent recessions and minimize their human toll.  It also likely plays to the pre-conceptions the Post's readers have about critics of activist policy. 

And yes, I'm well aware that Hayek argued that you can get the cycle without activism by the central bank, hence my language of "strongly dominant."  But in the larger rhetorical context, that's some intellectual hair-splitting when the vast majority of Austrian arguments about the source of recessions (rightly or wrongly) have focused on the expansionary policies of central banks.  Greg Ip is utterly unaware of these intra-school debates and his version of the theory is the result either of not bothering to engage with the actual work of the Austrians or intentionally fudging the theory to make it fit the narrative that drives the story.  Whichever it is, it's voodoo journalism.

Putting aside that it might be self-serving, the thing that really bothers me about so many media treatments of the Austrians, is that they focus almost solely on work written 75 years ago, making it seem like there's no modern work in the tradition and that Austrian arguments haven't been advanced and refined in light of subsequent criticisms and other schools of thought.  If journalists are going to discuss or interview living Keynesians and their work, then is it really that hard to Google "Austrian economics" and find some actual, living Austrians who have written on monetary and macro as part of your attempt to understand the role that these ideas might be playing in current policy debates? No one says journalists have to pay attention to Austrian ideas, but if they are going to do so, shouldn't they feel an obligation to talk to actual people who are working on the ideas? Not doing so seems to me to be another example of voodoo journalism.

Cross-posted at Free Banking.

Comments

[Mattheus von Guttenberg]

Is it wrong for me to still consider Mises the definitive source of 90%+ of Austrian theory? He wrote a lot. What's wrong with going back to Mises or Hayek on the capital structure, instead of Garrison or yourself?

[Steve Horwitz]

The fact that people like Roger and Peter Lewin have substantially added to our understanding of capital and that thinking that Austrian economics "is" Mises and Hayek makes it seem like a dead doctrine, or worse yet, a form of hagiography. It's a living, breathing school and if journalists want to know what Austrian economics is, they should talk to practicing Austrians.

[Steve Horwitz]

And I would also contest the claim that Mises is the "definitive source of 90% of Austrian theory." When it comes to cycle theory, for example, Hayek's development of Mises's basic idea is more thorough and "definitive" than Mises.

[Stan Kwiatkowski]

Mattheus von Guttenberg: http://mises.org/books/hayekcollection.pdf

this stuff is not in Mises

[Brad W.]

"Greg Ip is utterly unaware of these intra-school debates and his version of the theory is the result either of not bothering to engage with the actual work of the Austrians or intentionally fudging the theory to make it fit the narrative that drives the story."

This statement describes a very large majority of critics of Austrian econ. I'm not saying everyone who read everything the school had to offer would become card-carrying "Austrians", but for the intellectually honest and curious, they'd certainly come away with more appreciation and respect for it, in my opinion.

[Don Lloyd]

Steve,

'Practicing' Austrians bear their own responsibility for the acceptance of their work by every other group, primarily based on the clarity of their logic and the effectiveness of their marketing.

New has no inherent advantage over old, and there is some reason to suspect that Austrian Economics has a disadvantage in attracting the very highest aptitude males that also probably usually have high mathematical aptitudes on a statistical basis. These males are likely to be relatively attracted to mathematical mainstream economics, mathematics itself, engineering, and science. Of course, all these other fields may suffer by an abundance of noise due to lower aptitude members.

Regards, Don

[robert_o]

Mr Ip should have at the very least consulted the Wikipedia entry on the topic.

[Martin]

"Putting aside that it might be self-serving, the thing that really bothers me about so many media treatments of the Austrians, is that they focus almost solely on work written 75 years ago, making it seem like there's no modern work in the tradition and that Austrian arguments haven't been advanced and refined in light of subsequent criticisms and other schools of thought."

Steve,

the moment that Tea partiers such as Bachman, talk about reading 'Microeconomic Foundations and Macroeconomics: An Austrian Perspective' on the beach instead of Ludwig von Mises, journalists will be associating Austrian economics with work done by modern Austrians.

I think though that this will change in the coming years now that (introductory) textbooks in the tradition are becoming available, Murphy's Lessons for the Young Economist comes to mind.

In the mean time you'll have the ungrateful job of writing to/about the Greg Ip's of the world to correct them. It wouldn't be too bad to distance yourself from those calling themselves Austrians to continue your research paradigm in a more favorable light, similar to what you've done here on the 1st of January 2010: http://www.coordinationproblem.org/2010/01/new-thinking-for-a-new-decade-1.html

"The name Austrian economics has been lost as a focal point for a tradition of economic scholarship, and is now a focal point for something else. We have to let it go."

ps. I recently read your article on Say's law. And a bit more on Say's law in general. How different is Say's law and your position from the New Classicals and in particular Lucas (1972), that unanticipated changes in the money supply cause fluctuations?

[Martin]

"New has no inherent advantage over old, and there is some reason to suspect that Austrian Economics has a disadvantage in attracting the very highest aptitude males that also probably usually have high mathematical aptitudes on a statistical basis. These males are likely to be relatively attracted to mathematical mainstream economics, mathematics itself, engineering, and science. Of course, all these other fields may suffer by an abundance of noise due to lower aptitude members."

Don, I don't see why? I have a very high mathematical aptitude, however I do not consider this to be a substitute for economic reasoning. The reason I study economics is because I want to develop this to understand economic phenomena, the math is just something you pick up on the way when needed.

By the way, the Math used in Graduate programs in economics is not terribly difficult, so I do not see why you would need a high mathematical aptitude. Sure when compared to the population, but that is merely because you have to engage in abstract reasoning at a high level because you need to pick up various concepts. If you're good at math you will be good at that and if you're good at that you'll probably also be good at math.

The math is the easy part in economics. The hard part is actually doing the economics. Even if you're good at math, you have to be sure that your economic interpretation of it is not utter rubbish. That's far more difficult than any math you might have to do in econ.

[Martin]

What I forgot to add, if Austrian economics has trouble attracting people of high aptitude it is because of the status of the field within the wider profession. I don't see why someone however with a lower aptitude would elect to do Austrian economics, because it has lower status. That's penalizing yourself twice. At least within neoclassical econ you can mask lower aptitude in math even when you're
'bad' at math.

[Daniel Kuehn]

re: "Putting aside that it might be self-serving, the thing that really bothers me about so many media treatments of the Austrians, is that they focus almost solely on work written 75 years ago, making it seem like there's no modern work in the tradition and that Austrian arguments haven't been advanced and refined in light of subsequent criticisms and other schools of thought."

I can sympathize with you on this, but I'm not sure it's entirely journalists' fault. This is the orientation of a lot of Austrians and Austrian writing too. It's something that Peter gets frustrated with with other Austrians all the time, so the fact that this is what outsiders seem to notice as well shouldn't be all that surprising.

Even the Austrians who do produce new work seem to feel the need to cite and stay beholden to work from 75 years ago more than other schools of thought. Modern Keynesianism reproduces the flavor of the revolution that occured in 1936 - it's an offspring of that work through several new versions, evidence, and revisions. But how much Keynes is actually cited? It's not the case with modern Austrian macroeconomics.

Take Garrison's Time and Money, which is billed as a modern restatement of ABCT and Farmer's Expectations, Employment, and Prices which is billed as a modern restatement of old Keynesianism (so we're not even necessarily dealing with a book that even wants to be in the tradition of successive neo- new- and synthesis- version of Keynesianism). Garrison has 17 references to Hayek and 8 to Mises, and a detailed discussion of both. Farmer has two references to Keynes (the same number as Garrison has, fwiw).

I think a lot of the reason why the general public sees Austrianism as heavily drawing on older literature is that Austrians see Austrianism as heavily drawing on older literature.

It would be interesting to take an "average age of citations" for various journals and authors to explore this issue.

[Daniel Kuehn]

Another way to think of the "focusing on things 75 years ago" is this: how many Keynesians could you imagine saying "you can understand Keynesian economics without reading the General Theory"? How many Austrians could you imagine saying that about Mises or Hayek? There's no conspiracy here - people get these impressions for a reason.

That's not to say people are opposed to reading Keynes. But the only place anyone is ever assigned to read him is in a history of thought class.

[Troy Camplin]

Austrianism doesn't attract those with simplistic thinking. Math is simplistic thinking (the simplest form of knowledge we have). Thus, Austrianism doesn't attract many mathematicians. As the math catches up with the complex models of Austrian economics, more mathematicians, knowing a great deal of very complex math, will be attracted to it. Even so, the math will be so complex it will have to be done by computers, so it will be more accurate to say that computation will become more popular.

[Fearsome Tycoon]

Fudging the facts to fit the narrative is not "voodoo journalism," it is simply "journalism." The idea that the journalist is to inform rather than manipulate died decades ago.

Troy, no offense, but you have no idea what math is.

Daniel, Austrian econ definitely follows a more classical model of knowledge than the modern model, which is to assume that anything worth knowing from more than 20 years ago is already incorporated in the modern literature. (Of course, there is far more early 20th C literature available to the Austrian economist in the first place, while literally all the Keynesian has is Keynes). I would bet that not only have more Austrians read more early 20th C Austrian econ, but that proportionally more of them have read Wealth of Nations, too.

[Daniel Kuehn]

Fearsome Tycoon - He doesn't have any idea what economics is either.

[Peter Boettke]

Daniel has an important point. A few years ago J. Robert Subrick and Scott Beaulier wrote a paper, see http://mercatus.org/publication/appeal-new-old-and-middle-aged-austrians

One of their arguments is actually the backward nature of Austrian citation practices. They point out that if you look at even the most successful Austrian publishers, you will see that their dates on citations to papers and books is much further back in time than say the citations one finds in the work of top economists such as Shleifer or Glaeser, let alone a recent Clark Medalist like Duflo.

We think differently about economics as an enterprise. I think this is because we have the same temperament as Kenneth Boulding talks about in After Samuelson, Who Needs Smith? (1971) --- and that is that we focus on those contributions were are part of the "extended present".

I have tried to capture this with the notions of "mainline" and "mainstream" -- the Austrians sit within the "mainline of economic thought", but do not currently sit in the "mainstream". This is why you get not only within the scientific community, but in the broader intellectual culture these confusions.

Daniel is right, there is no conspiracy, but there is a lot of confusion about the nature of the sciences of man, and the purpose of the policy-relevant disciplines, and what they can and cannot deliver.

[Fearsome Tycoon]

Daniel, the difference is that unlike Troy, who clearly has not done any advanced reading in mathematics (let alone written any interesting proofs), I actually do know what I'm talking about, because I actually have read the material.

What I said shouldn't even be controversial. The modern model of the academy is that all relevant knowledge is incorporated in current literature and textbooks, so there's no need to spend much time in the classics as such. This is pretty well-known. You don't find economists citing Keynes' General Theory much for the same reason you don't find mathematicians citing Newton's Principia Mathematica much.

I'll repeat it--Austrian economists seem to follow a more classical model of knowledge and education (think the education model of Great Books schools) rather than the modern model (the Ivy League model). That's based on having read quite a bit of both Austrian and mainstream economists.

[Silvano Fait]

I took part in the FEE's seminar at Irvington in August (wonderful experience) and I understand Horwitz's disappointment, but there are several problems and we can't expect they'll be fixed or even understood by journalists.

1. The word "Austrian" is dense of meaning from an historical perspective, but it is limiting. For many "consumers" of AE and libertarians it is like a tattoo or a flag: a useful “sign” to distinguish "our tribe" from the rest.

2. At the same time you can graduate in Economics knowing nothing about Mises and Hayek almost everywhere in the world: many people became acquainted with AE outside of the academia and they became acquainted tanks to the strong sense of identity which distinguish the school.

3. Obviously this is a vicious circle and it is very dangerous. In such way AE often assumes the likeness of a church with its gods and saints always quoted like prophets (especially in financial blogs every time there is a financial crash or just a sustained increase in M2). Try to write "Crack up Boom" on Google and after "Israel Kirzner" and compare the result (last time I checked the ratio was 1,75 - homonyms included). Rothbard did everything to kept alive AE and its "orthodoxy", but wanting or not he gave also life to a kind of pop-economics political biased that can’t be seriously accepted in academia. Sometimes I think it is a structural problem which characterizes the heterodox schools of thought. Huerta De Soto is doing a great job in Madrid, he literally created an “Austrian” environment from nothing, but he is making similar mistakes.

4. At the moment there aren’t updated and competitive textbooks with a strong Austrian flavor that can be used to teach micro or macro at graduate level. The cores of Austrian ideas should growth and develop without the need of quoting every time Mises or Hayek: they should become more independent.

5. There are few empirical research made by Austrians, even from an historical perspective. Traditionally statistic measurements like GDP are rightly criticized, but there aren’t serious attempts to recreate more “Austrian” friendly econometric formulas (I know only the “True” Austrian Money Supply and Gross Output and they’re not regularly updated or applied). In the long run it’s not possible to dismiss everything without offering an alternative. I don’t think it’s a good strategy.

6. There aren’t many second best solutions proposed by Austrian in policy issues: the range of proposal is very narrow. The impression is that there is a strong interest in opposing or removing state interventions, but very few in attempting to reform it gradually since every compromise is often perceived like a dirty political work.

7. Many discussions about monetary theory still deal with money multiplier in an obsessive fashion. Interesting developments like free banking sometimes are considered very near to “heresy” in the internal debate among the same Austrian too.

I aim to consider myself an economist with a strong Austrian background without always remarking that I’m “Austrian”. I’d like to have more students, teachers, economists and professionals sharing my background without thinking that we’re a special and blessed “group”.

[McKinney]

"they focus almost solely on work written 75 years ago..."

Of course they do! The left doesn't care about truth. They care about winning arguments at all costs.

The whole point is to portray the economics as being ancient and therefore out of date and unscientific.

Greg Mankiw once posted that he didn't read anything that was older than 20 years.

Of course, that makes sense in physics and some natural sciences. It makes no sense in history.

[Troy Camplin]

Math is the simplest form of knowledge. You can use it to perfectly describe the simplest levels of reality, like physics, but as things become more complex, like with living organisms, it becomes less and less useful. It goes from a perfect description of physical reality to a statistical description of biological reality, and on to an even less accurate statistical description of psychological reality. And since social systems are more complex yet, it doesn't take a genius to figure out that the math is even less useful. Why? Because math is very good at describing very simple relationships, but useless for solving complex ones. Ever heard of the traveling salesman problem? It's not solvable. Why? It's too complex for math to solve. And that's a relatively simple network problem.

I know that math is less complex than physics, which is less complex than chemistry, which is less complex than biology, which is less complex than psychology, which is less complex than the social sciences and the humanities. That doesn't mean that math is easy -- or that it doesn't result in fascinating proofs. It just means it is the least complex form of knowledge. Because humans evolved to interact in complex social environments, we are able to understand them to a great extent (and even there, obviously, we make mistakes). Math is so simple that we have great difficulty in understanding it. That seems counterintuitive, but just because something is counterintuitive, that doesn't mean it's not true (as any quantum physicists will tell you).

And before you go mouthing off about what someone knows, Fearsome Tycoon, you probably should find out what they do or don't know. It's probably a waste of time, but I did write a book titled Diaphysics where I talk about the philosophy of mathematics and the nature of complexity.

Daniel merely thinks that anyone who doesn't believe his economics is ignorant of economics. That, and he's annoyed at me because I keep telling him that he has yet to get beyond folk economics in his basic economic thinking. I'm not saying I don't understand what that would annoy him -- but that doesn't mean I don't know anything about economics. I mean, just because I believe that Daniel believes a large number of rather silly things about the economy, that doesn't mean that I think him completely ignorant of it, either. I wouldn't bother with him if I did.

[Martin]

"Daniel has an important point. A few years ago J. Robert Subrick and Scott Beaulier wrote a paper, see http://mercatus.org/publication/appeal-new-old-and-middle-aged-austrians"

Pete, concerning your paper, shouldn't Austrians focus primarily on competition, innovation and (intellectual) property rights? This seems given their view of the market the most suitable course of action.

[Fearsome Tycoon]

You can use math to perfectly describe physics? That's news to me. All math ever does is model physics, and the models are of varying quality. Even the BTEs aren't a perfect model of molecular physics, let alone the Navier-Stokes equations.

And yes, I've heard of the traveling salesman problem, and you're wrong--it can indeed be solved. The four-color theorem was proved, too.

BTW, I have my BS and MA in math, currently wrapping up my PhD doing some applied math in the engineering department. So there goes your theory that Austrian school econ doesn't apply to mathematicians...in fact, Keynesian econ doesn't appeal to me precisely because it is so simplistic and not half as mathematical as it pretends to be.

[Troy Camplin]

I was thinking more quantum physics than macrophysics (as I implied in my hierarchy, though I should have made that clear) -- certainly the math isn't perfect for a variety of macrophysical problems, particularly things like fluid dynamics. Simple physical systems are at least theoretically computable, while complex systems are not. That was my point.

The traveling salesman problem can be solved for 3 cities, but not for 100.

And I never said that Austrian school economics doesn't apply to mathematicians (I also don't know how your example applies to that). I argued that the economy is so complex we don't have the mathematics to describe it -- and it is highly unlikely that we ever will. I do agree with you on Keynesianism.

[Martin]

Troy, mainstream macro has accounting identities and behavioral relations between variables. I think as far as math goes, that is pretty simple.

BTW speaking of simplistic thinking, this is pretty simplistic (and self-congratulatory) thinking:

"Austrianism doesn't attract those with simplistic thinking. Math is simplistic thinking (the simplest form of knowledge we have). Thus, Austrianism doesn't attract many mathematicians."

If 1 & 2 are true, 3 does not necessarily follow without some auxiliary (implausible) assumptions.

[Troy Camplin]

That's my point: 1) math is too simple to explain complex phenomena, and 2) even the math used is simple, for math (making it even more useless in understanding the economy).

Mathematicians tend to think of the world mathematically and, thus, simply. If it can't be computed, what do you need a mathematician for? And why, then, would a mathematician be interested? Austrian economics says the economy is so complex as to be incomputable. And it is. Fortunately, not all human thinking (indeed, the vast majority) is not mathematical and, thus, is able to understand much about the economy -- so long as it doesn't veil itself from such understanding with math's promise of precision, a promise that prevents true understanding of a system that is hardly precise in that way, precisely due to its complexity.