Friday, September 11, 2015

Tyler Cowen is Not Exactly in Tune with Austrian School Business Cycle Theory

If you haven't yet scratched Tyler Cowen off the list of modern day Austrian school economists, you will after this.

Cowen, who occupies the Holbert C. Harris Chair of economics as a professor at Koch-funded George Mason University, points today to comments he wrote in 2010 that include this:
[E]xcessively tight money has never done market-oriented economics any favors.  Think of QEII as a make-up for some earlier monetary policy mistakes.
And this:

I've thought through "trigger models" of rapidly escalating inflation, but they don't scare me much. 
I just started a Cowen file, for future reference, and put it next to the Paul Krugman file.



  1. I have noticed that ALL anti-Austrians fail to address the simple concepts of economic calculation/miscalculation or the idea of funny money creation inducing "false" and unsustainable prices. Cowen probably knows this, so does that make him a liar?

    Also, where is their evidence that the market requires an external and artificial source of "momentum" or that a lack of "momentum" can be properly cured by new funny money?

    1. The problem stems from the idea that full employment is the goal. In that context, anything that reduces employment is detrimental. Restoring full employment is a policy without any consideration of opportunity costs or alternatives. Ultimately, they insist that the prior (at full employment) economy was correctly allocating goods and services or that make-work schemes will produce the same economic quality.

    2. Yes Bob, that has been my experience as well. The concept of "false" or "artificial" prices, interest rates, etc. is simply not addressed by anti-Austrian economists.

      I have a hard time thinking that most of them do this out of ignorance-

      But you've been conversing with said people far longer than me, so you probably understand their motives better.

      About the only conclusion I can draw on the more intelligent opponents is that it is too hard emotionally for them to consider the notion that all of their hard work in the area of math surrounding monetary policy might be for nothing, or that their working premises are so flawed they'd have to throw a substantial amount of their work out the window.

      There's always the chance they don't want to postulate on bubbles, interest rates/pricing because they don't like the conclusion it might draw as well...meaning they would lose the "authority" to direct monetary policy/gov't force as they see fit, or even perhaps because their personal enrichment from the status quo in economic theory benefits them financially.

      Regardless of the variety of reasons that may be out there for economists to ignore Austrian concepts, it's a sad statement on economic study in general. Three cheers for Mises University.

    3. My battles with the Keynesians started with this Yglesias attack on Tom Woods (using Cowen as a source!):

      There used to be about 400 comments to that post, many of which I instigated. I had always wanted to know what the left actually believed about Austrian theory. I quickly realized that they knew absolutely nothing about it (other than predictions of imminent hyper-inflation) and had no interest in understanding it. I think libertarians and Austrians should pound that rock over and over. No non-Austrian has the slightest familiarity with basic Austrian concepts or analysis. (FYI, I don’t consider the ABCT to be a basic concept. It is a derivative of the basic concepts).

      I now firmly believe that the non-Austrians suspect that if they were to ever allow the basic concepts of price distortion and funny money wealth shifting to be understood by the general public, they would be exposed once and for all. Thus, they will never allow it to be clearly stated. Further, I do not think they can bear the notion that they are the cause of most of our problems and not the cure. To think that would be emotional suicide for them. I think both the Democrat voter base and Republican voter base suffer from similar afflictions because their religion consists primarily of believing that the U.S. government has magical powers to fix the world. The relentless evidence that such an idea is absurd and that the U.S. government is the cause of mass murder, slaughter, destruction and poverty simply will not compute in their little minds. The evidence of that is all around. That either means the end of things as we know them, or perhaps that we will prevail because our opponents are completely afraid to engage or debate us on the merits.

      However, we need to at least grasp that they will not engage or debate us on the merits

  2. Bob, great questions. The funny money question resonates in particular. Canadian province of Alberta, whose economy has crashed recently because of low oil prices, elected a funny-money government at the outset of the Great Depression. The government was based on the economic principles of "Social Credit", which were, if not exactly popular, at least fairly well known at the time across the British Empire, being championed by a Britisher, Maj. C. H. Douglas. The inaugural Social Credit government in Alberta was led by an evangelical radio preacher, "Bible Bill" Aberhart. Bible Bill tried to make good on his election promise of providing all Albertans with scrip that could be redeemed for goods and services and thus "stimulate aggregate demand", but the federal government in Ottawa was able to stop the province from creating an alternative to legal tender, since currency creation was a federal prerogative. My point for going down memory lane like this was that the proposed Social Credit scrip was popularly derided as "funny money", and Aberhart was ridiculed by the power elites as ignorant hay-seed "money crank". At the time, of course, the elites were right to call Aberhart a money crank, but how the elites have since changed! Although the Nobel laureates are still calling their benighted opponents cranks, THEY themselves have now become the money cranks and funny money proponents. They should be denounced from the roof tops for this idiocy.

  3. David Gordon write about Cowen:

    .....Tyler Cowen, a brilliant student who had been interested in Austrian economics since his high school days. Cowen enrolled in an Austrian economics program at Rutgers, where he impressed both Joe Salerno and Richard Fink with his extraordinary erudition. When Fink moved to George Mason University, Cowen moved with him; and he completed his undergraduate degree there in 1983. Grinder considered him the next Hayek, the hope of Austrian economics.

    In accord with the elite universities policy, Cowen went to Harvard for his graduate degree. There he came under the influence of Thomas Schelling and gave up his belief in Austrian economics.

    Read on:

    Cowen is obviously a "thoughtful, mainstream libertarian" unlike us fringe cranks.

  4. Frankly, anyone who thought Cowan was an Austrian economist is just badly informed. Reading his posts at Marginal Revolution should have disabused anyone of such a notion. Cowan seems more interested in being a raconteur, bon vivant and highly paid Koch Bros. functionary than using his mighty intellect to take down statist frauds like Krugman, Stiglitz or Larry Summers.

    David Stockman does more good for real economics in one day than Cowan will accomplish in a lifetime and he isn't even an economist.

  5. Is there anyone on your list of modern day Austrian school economists who has not been wrong about everything since the Fed cut rates in Sept 2007? 8 years of being wrong about everything is a long time.

    1. This is either humor or incredible stupidity. One or the other.

    2. Anonymous must believe what Krugman tells him Austrians predict.

      So, let me help him. Austrians, as economists, do not make predictions, because praxeology is the study of human action, and humans are not programmed robots.

      Austrian monetary theory does not say that monetary inflation necessarily increases prices. What it says is that monetary inflation raises prices over what they would be without it. Since there are many variables which are, you know, variable, you cannot pretend all others remain constant.

      Now, he can never say nobody explained this to him.

  6. Hi Robert if you haven't read this post -- you should -- one of Tyler's commenters has lately give him a hard time regarding Austrian Business Cycle theory -- it's relevant and you may get a kick out of it.

  7. Tyler Cowen -- hilarious