Saturday, November 16, 2013

Mainstream Economists Will Literally Do Anything To Avoid The Austrian Business Cycle Theory

By, Chris Rossini

From Bloomberg View:
Economists have long argued that they shouldn’t be expected to predict crises, such as the one that almost sank the global economy five years ago.
Do "economists" all think in tandem? Of course not. Austrian economists predicted the housing and stock market busts, but unfortunately the predictions fell on deaf ears. Or they were laughed at.

After the bubbles burst, the Austrian economists were not sought for their advice on how to avoid such calumniates in the future. At least they weren't sought by the mainstream media. On the other hand, public interest in Austrian economics has been booming on the Internet.

It should be pointed out that Austrian economists didn't just fall from the clouds to predict the latest bubbles only. Two very well-known Austrians (Ludwig Von Mises and FA Hayek) warned of the 1929 crash, which also fell on deaf ears at the time.

Using the Austrian Business Cycle Theory as your guide, you most certainly can "predict crises". Just don't look for exact predictions like "The recession will occur in May of 2013". Always look at such predictions with a watchful eye. For the world is much too complex to make such exact statements.

Bloomberg View shows the lengths that mainstream economists will go to avoid confronting the Austrian School:
Many, including some Nobel Prize winners, maintain that crises are by their very nature unpredictable. At the same time, others -- aided by engineers, physicists, ecologists and computer scientists -- are developing ways to detect and quantify systemic risks, including measures that regulators could use to identify imbalances or vulnerabilities that might result in a crisis.
They're bringing in the engineers, physicists, ecologists, and computer scientists. (!!!)

Once again, economics is wrongly being treated as a physical science. This a monumental error that mainstream economists just can't (and won't) let go of.

Economics is a deductive science. People are not like rocks, trees, or machines. Instead, we are all thinking individuals, who make choices based on our own individually chosen value scales.

Mainstream economists would rather perish than admit the obvious. There are several reasons why this is the case.

The first reason is because the government would no longer listen to them. Governments are all about grabbing power and control. They want economists who will present "models" on how to increase control. It doesn't matter that the "models" can't possibly do what the designers say they can do. Government doesn't need the "models" to succeed. It just needs an excuse that it can point to, in order to act. Mainstream economists are there to provide the excuse...period.

This leads to the second reason that mainstream economists would rather die than admit the truth. There are rewards for providing excuses to the government. You'll be showered with unbelievable pomp and circumstance, and you will never have to worry about your material well-being again. Nobel Peace prizes and prestigious university positions are passed out to thundering applause.

Such rewards are well worth it to these "economists". The only other requirements are to never mention the Austrian School, other than by calling it fringe, crazy, and any other derogatory name you can come up with. In other words, keep the truth at bay, and out of public discourse.

Fortunately, information is no longer under the thumb of government and its "media". Ron Paul bucked the system and brought Austrian Economics into public discourse. As a result, the school of thought is spreading amongst the populace at incredible speeds.

On the dark side of the coin, the only control that the government and its model-creating economists are exerting, is a controlled destruction of the economy.

Follow @ChrisRossini on Twitter


  1. You can apply physics to human action. 'All men live to pursue happiness'.

  2. In February, 2011, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:

    Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.

    What excuse can the "mainstream" possibly now have for refusing to allow the basic (and not particularly complicated) economic concepts of "the knowledge problem", the problems of central planning, the pricing process as information and economic calculation/miscalculation into their tiny brains?

  3. From article: "Many, including some"... What kind of fallacy is THAT?! A call to semi-authoritarian somewhat-consensus? (rolls eyes). Listen, any idiot could see the housing / stock market crash coming. I sold "many, including some" shares in Sept 2007 and "All including most" (LOL) in December, 2007. Durrr... Is a Nobel Prize winner smarter than a 5 year old? "Many, including some" may not be (hahaha)

    Oh, don't look now, but ...

  4. Chris. Pretty good post and I agree with most of what you said. I just think there a few nuances you've forgot to mention when you are talking about "Economics" proper and "Prediction".

    Austrians would all say that "Prediction" is not included within the realm of Economic Science. Many positivists use the meaning of "prediction" the same way those in the natural sciences (most particularly those in the Physics discipline) use it. That is, they belive econoimc theory provides non-necessary statements (if/then statements) which take the form of "predictions". This is incorrect.

    There is a difference between Theory and History (which Mises coined Praxeology and Thymology). Thymology is interested in the realm of Economic History & Entrepreneurial Forecasting of future events. I'm sure you know this but others may not.

    Within the context of the financial collapse and fed induced business cycles, all of those who made predictions were not making statements as an "Economist." They were definitely USING economic theory which can provide a framework to assist in predicting trends or patterns. But, these individuals should be considered "Thymologists" and not "Economists" (even if they all were in fact professional economists).

    Walter Block has a great post on this topic as well -

    So to repeat, it is not the role of the economist to make predictions. Economics (more precisely Economic "Theory") is a purely descriptive a priori Science that provides a framework of necessarily true propositions. This body of knowledge differs from the knowledge that applies the theory - that which is Thymology, which is not a science but more of an art.

    Those who are most skilled at predicting future events can be spotted by those people are successful entrepreneurs.

    I've written a pretty extensive yet easily digestable blog post on the topic of methodology in response to a neo-classical fellow which can be accessed below.

    1. Great stuff Andy...and a perfect complement to this post. Thank you

    2. No problem Chris. I think more needs to be said on this topic and methodology, but I also know that a lot of people's eyes glaze over since this may seem like inside baseball.

      Take care!