US POLITICS XXXIX

[Horza]

Austrians =/ Chicago School

[ljkeane]

A couple points on economics (subject I find fascinating but am no expert in):

-It seems to me that there is a belief that everyone must fall into one of two categories:

1) Keynsians (also called "saltwater" economists, Krugman is one of these)

2) Austrians (named after "Austrian School", aka "Chicago School", aka Friedman disciples, aka "freshwater" economists)

Er no, the Austrian school is completely different from the Chicago school, and Friedman certainly wasn't part of it. It was named the Austrian School because in the late 19th century it was based around the University of Vienna, also about the last time it contributed anything of significance to economics in my opinion.

The Austrian School is very far from the mainstream, generally economists are divided between neo keynesians and neoclassical/monetarist theorists (Friedman and the Chicago school).

[Shryke]

Austrian School and Chicago school are different.

Even though they are both composed of laissez-faire "fuck everyone" crazies.

Austrian School hates real data though.

[ljkeane]

So in what ways, then, do the Austrian and Chicago approaches vary? I'm guessing from you post that the Austrian school was more religious in its free-marketeering. But that's just my hunch.

They both generally favour laissez-faire market based approaches to government spending but their reasons for doing so are significantly different, Austrians tend to be less flexible on that though.

The key differences are on monetary policy/theory, the Chicago school supports reasonable monetary policies and fractional reserve banking and the Austrians are insane.

The Austrian School also likes to ignore empirical evidence and use vague hand waving about 'universal human principles'.

[Shryke]

They both generally favour laissez-faire market based approaches to government spending but their reasons for doing so are significantly different, Austrians tend to be less flexible on that though.

The key differences are on monetary policy/theory, the Chicago school supports reasonable monetary policies and fractional reserve banking and the Austrians are insane.

The Austrian School also likes to ignore empirical evidence and use vague hand waving about 'universal human principles'.

Well, Chicago school also loves to ignore empirical evidence, they are just less up front about it.

2) Friedman and Keynes are less different than many suggest as I hinted earlier

Not really.

[sologdin]

a disingenuous prick. He makes the obligatory statement that we need to get control of longterm costs, but he's never met a government program he didn't like. He'd be left of center even in Europe. I believe he's a socialist to his core, and asking him how to limit government spending is like asking an arsonist how to put out a fire. He wants to shrink the private sector in favor of the public sector.

heh. this reads as a criticism that "krugman's conclusion differs from mine; krugman is therefore biased against my position." perhaps the data demands the conclusion, rather than the concluder's desire or lack of candor or whatever?

ETA--

i tend to think of the chicago school guys as true bean counters without any concepts or historical perspective, and the austrian school guys as attempting to derive their economic conclusions ex nihilo from a set of philosophical preferences, data be damned.

[ljkeane]

OK, based on that, I conclude the following:

1) Austrians are insane

Correct.

2) Friedman and Keynes are less different than many suggest as I hinted earlier

There are some fairly fundamental differences. Friedman's theories were essentially a response to Keynesian economics so they do agree on some things but they are still significantly different.

[ThinkerX]

Hmmm...

1) ...on the more paranoid sites, the Austrians have a big following...which is probably no great surprise. Some of the more paranoid sorts, though, using Austrian principles (such as they are) did correctly call the big meltdown of 2007-2008. They also claim that the financial catastrophe could have been 'fixed' much more easily with austrian methods - mostly, if I understand the reasoning correctly, because there is no way it could have gotten quite that bad in the first place.

2) Many of the more paranoid sorts also advocate ending 'fractional reserve banking', abolishing the federal reserve, and reimposing the gold (or other precious metal) standard. Worth noting here...way back in the early days of his career, in a paper lovingly preserved (maybe) on the more paranoid sites, was a paper by one 'Greenspan' making a fairly solid case for the gold standard. Along with this are comments from him and others from about twelve or fifteen years ago predicting *exactly* what would happen in the event of a housing bubble (serious oversimplication there).

3) The Chicago School has a...selective memory...to put it kindly. One of the early laboratories (countries) for their approach was Chile. The *ONLY* reason they were able to enact their policies there was because the CIA stepped in and overthrew a legitimate government, imposing a murderous dictator in that governments place, who promptly made the scions of the Chicago school his top economic advisors. The members of the Chicago school both hail the extremely dubious 'success' of the mess in Chile while trying to distance themselves from the murderous regime that made that 'success' possible.

4) Another oft repeated claim about the Chicago school is that they preach what amounts to thinly disguised oligarchism.

So that you know, I tend to regard the economists of all schools as being seriously out of touch with reality - with them, dogma comes first, even if it means ignoring the facts. This fully applies to keynsians as well.

[Shryke]

The crisis wasn't difficult to predict.

Strangely, countries like Canada came out more then fine because of stricter financial regulations.

But I mostly agree with you about the Chicago School.

[Horza]

Keynesians are open to the idea that economics is a social science.

Chicago Schoolers want to believe it's a branch of physics.

Austrians are convinced it's metaphysics.

[The Marquis de Leech]

Another summary:

Keynesians: Government action is desirable in mitigating the effects of the business cycle (Keynesians support expansion in social welfare, public works, etc). Obsessed with getting unemployment down through stimulating spending.

Chicago: Government spending is inflationary, and regulations distort market signals (Chicagoians support tax cuts for the rich, privatisation, etc). Obsessed with using monetary policy to get inflation down, with unemployment concerns playing second (or third, or fourth...) fiddle.

Austrians: Fiscal and monetary interventionism is a crime against The Market, and the first step on the road to Socialism. Obsess about the conspiracy of paper money.

[ThinkerX]

One of the big gripes I have against most economists these days - Keynsians, Chicago School, and Austrians alike - is how completely they embrace the whole 'infinite growth' thing. None of them really acknowledge that we live on a finite planet with finite resources that can and will decline. The Keynsians are particularly guilty of this mentality.

[TrueMetis]

One of the big gripes I have against most economists these days - Keynsians, Chicago School, and Austrians alike - is how completely they embrace the whole 'infinite growth' thing. None of them really acknowledge that we live on a finite planet with finite resources that can and will decline. The Keynsians are particularly guilty of this mentality.

You do realize we have rockets right? and the the universe is infinite? We really aren't the far off from being able to harvest resources from space.

My main understanding is that Canadian banks, quite simply, leveraged themselves in less risky way. The big American banks went big time on the risk thing and the Canadians kept it at a ratio of something like 1:20 while the Americans were more like 1:30 (don't quote me on the exact numbers).

Because they had to, the regulations wouldn't let them go any riskier

[ThinkerX]

You do realize we have rockets right? and the the universe is infinite? We really aren't the far off from being able to harvest resources from space.

1) Rockets are not cheap. What is needed is a very cheap way of getting to and from space. Best proposal I've seen so far in that regard is the so called 'space elevator' - which, at an absolute minimum, is decades away, and that is assuming some key technological questions can be resolved. Another possible solution would be a 'railgun' or 'electromagnetic launcher', which is also a ways off.

2) Space travel comes with its own set of problems and hazards - everything from zero gravity (which might actually be good for certain types of manufacturing processes) to radiation to other things like a lack of water.

That said, space travel does offer some promise. (I actually advocate such, and post occasionally on a site or two dedicated to space travel and astronomy).

The big concerns though revolve around things like oil - which is probably either at 'peak' or close to it (likely the so called 'bumpy plateau' at the current time), shortages of other minerals, decline of arable land, and over population in general. Classic economics factors none of this into account. In these systems 'growth' is good and that is pretty much that. The notion that growth can have limits is regarded as absurd by the fools who buy into these economic theories.

Take a minor example from my past: Most of a decade ago, I was working at a corporate chain pizza joint in a somewhat isolated town. There were (and are) other pizza joints there, but the one I worked at pretty much had the market cornered. Thing was, while we were making money for the corporate morons in charge, we were not experiencing 'growth' - making significantly more money over a month to month period. The long term manager of said pizza joint quit and the corporate morons lumbered into action, sending one of their own down to do things 'properly'. He said he was going to enact policies that would increase our sales and make more money. Tried telling him about small town, somewhat isolated, already had the market pretty well cornered. His response, more or less, was 'that is irrelevant. There is no reason at all sales cannot continue to increase'. He then enacted his policies which featured running off the 'core' people (including myself) who actually knew how the business worked and introducing a pile of rules intended for much larger metropolises - that this was a small, somewhat isolated town made no difference. To make sure these changes were adhered to he brought in his own handpicked manager from the states before leaving. The quality of service fell, as did the amount of business we did. The place dang near went out of business within three years of that. All because the corporate leadership could not accept that there were limits to growth in a small somewhat isolated town.

[TrueMetis]

1) Rockets are not cheap. What is needed is a very cheap way of getting to and from space. Best proposal I've seen so far in that regard is the so called 'space elevator' - which, at an absolute minimum, is decades away, and that is assuming some key technological questions can be resolved. Another possible solution would be a 'railgun' or 'electromagnetic launcher', which is also a ways off.

While rockets are not cheap the average resources gained from a asteriod or meteor would recoup it pretty fast. Though your right a space elevator or equivilant would be the most practical. Though I disagree with your thought it is decades away knowledge gorw exponantially and given a proper budget and the right incentives it could be achieved rather quickly.

2) Space travel comes with its own set of problems and hazards - everything from zero gravity (which might actually be good for certain types of manufacturing processes) to radiation to other things like a lack of water.

I figured most of it would be done with robots which would be the most difficult to get right.

[Le Communard]

You do realize we have rockets right? and the the universe is infinite? We really aren't the far off from being able to harvest resources from space.

Perhaps, but even then Space Exploration only has an effect on the admittedly scarce mineral recourses of humanity. It doesn't at all address the loss and/or destruction of all our others.

[The Marquis de Leech]

You're talking about how the Chicago guys helped put Pinochet into power in Chile.

[Nitpick]The Chicago guys didn't put Pinochet in power. That was done by Kissenger and Company. Friedman and friends were only enlisted after Pinochet realised (1975ish) that being in power involved decisions more complex than "how should we horribly torture that socialist today?"[/Nitpick]

[Max the Mostly Mediocre]

that is assuming some key technological questions can be resolved.

Security questions, too. If Kim Stanley Robinson taught me one thing, it was that you don't want space elevators to fall.