So the issue is - is it possible to produce a valid measurement? In scientific method, part of an experiment involves a control. There's no way to produce one in economics - the systems are too complicated. You can't know whether measurements you take are the result of your change directly, or caused by network effects of the change as part of other things going on, or just weather from unrelated things happening in the economic system.
Austrian instincts are partly about building a defense against corruption and tyranny. If you let politicians spend money or introduce mechanisms that are difficult to measure, or which can be easily hand-waved away ("we did what we thought was right based on the information at the time"), then they are incentivised to spend. Instead, they form a line in the sand and say that you're not allowed to do anything which can't be clearly justified from a set of first principles. The back-story is not so much a faith in the inherent goodness of markets as in the inherent evilness of governments.
Am I the only one who finds the word "instincts" used in this context deeply disturbing? We've got many well-intentioned people in history who acted according to their instincts and beliefs. Some of these invented and practiced eugenics, others tried to create an "agrarian communist society" while killing off some 2 million people in 4 years (I read about Khmer Rouge regime recently) and there are many, many more examples.
My question is: what is the difference between modern economics and, for example, eugenics? What protective mechanism have we created to make sure no economist attempts to make as all into farmers, killing off all the people who can read and write? Isn't "democracy" alone a bit weak as a guarantee here?
Modern economics isn't Austrian. The Austrian School are heterodox, and have largely only become popular among laypeople thanks to political lobbying by, for instance, the Koch Brothers.
What makes you think that "modern economists" are more likely than the average person to (i) want to make us all into farmers and kill off intellectuals and (ii) have any chance of succeeding? All the available evidence would suggest that economists are disproportionately unlikely to favour agrarian dictatorship and no better placed than the average person to succeed.
In fact "unlikely to favour large scale social engineering backed by force" is about the only thing Austrian economics has in common with mainstream modern economics...
In fact "unlikely to favour large scale social engineering backed by force" is about the only thing Austrian economics has in common with mainstream modern economics...
That's flat out wrong, I'm afraid. Proponents of modern economics are very, very willing to perform social engineering backed by force.
Depends on what you consider "social engineering" really. Even Hayek didn't think that a developed market economy providing a social safety net (and levying taxes to pay for it) counted.
Khmer-Rouge style social engineering involved concluding the problem with modern economies is that people are choosing to work in industries not in the national interest, and a practical solution is to abolish all markets and use the military to relocate people and assign them new roles. Name one modern economist who has reached remotely similar conclusions.
Are you saying that I'm wrong because no modern economists have advocated policies similar to the Khmer Rouge? We're talking about a spectrum of evil here, with Pot and his cronies a way down one end.
I'm not sure if the response to difficulties in measurement is to build a system out of faith and assumptions.
We can analyze different policy decisions, either by modeling human behavior (based on experiments which can be controlled and analyzed), or through natural experiments (e.g., What happens when a bunch of states and municipalities alter their minimum wage policies?)
> What happens when a bunch of states and
> municipalities alter their minimum wage policies
What kind of sizes to you need to be statistically significant?
How can you be confident that there are not network effects in play that you don't know about. Immigration patterns, organised crime networks, political corruption, the subtleties of quality in supply chain companies, measurement variation, the culture of particular trade unions. What if someone else is running other economic experiments in parallel to you?
What if there's network effects created by the contrast between the areas you're changing? In municipality A you raise wages and not in muni B. Labour will feel pull to flow from one to the other while you're running the experiment.
You'll never come close to modeling all this.
Worse yet - these are fundamentally political issues that relate to practice of power and allocation of resources. Everyone has an agenda in how they play out, and this further muddies the water of the experiment and the analysis.
> I'm not sure if the response to difficulties in
> measurement is to build a system out of faith and
> assumptions.
I have these concern also. As I look at it - everyone is operating on faith and assumptions. The Austrian position is strange in that it's honest about it.
I disagree with this argument. You are posing two extremes: One where everything can be known with certainty, and one where everything is purely based on faith, and dismissing the potential of there being something in the middle.
You are right, economics can't model every potential variable that influences outcomes. Large scale studies of minimum wage admit that policy and economic differences between local municipalities can cause the effect of a minimum wage change to vary. But you can model for most major differences, such as "Did adjacent municipalities adjust their wages at the same time? Did this have an impact on employment".
Ultimately you can get much closer to an understanding of how minimum wage impacts an economy than you would from a purely faith based approach, and you can land at a recommendation like "In general small increases in the minimum wage do not raise prices or hurt employment, given the following conditions".
That's much more valuable than the Austrian position that purely bases itself on faith.
"You are posing two extremes: One where everything can be known with certainty, and one where everything is purely based on faith, and dismissing the potential of there being something in the middle."
That's not what I'm posing. My claim is that both positions involve faith, but the Austrians are conservative in their assumptions and systematic in how they build from it. To me that is more trustworthy than non-systematic and statistically insignificant approaches.
Your minimum wage paragraph doesn't bring me closer. I think we've reached agree-to-disagree. Fortunately, this is only the internet. What we say doesn't matter, my opinions are of no consequence.
Austrian instincts are partly about building a defense against corruption and tyranny. If you let politicians spend money or introduce mechanisms that are difficult to measure, or which can be easily hand-waved away ("we did what we thought was right based on the information at the time"), then they are incentivised to spend. Instead, they form a line in the sand and say that you're not allowed to do anything which can't be clearly justified from a set of first principles. The back-story is not so much a faith in the inherent goodness of markets as in the inherent evilness of governments.