It was nice of Noah Smith to mention the Austrian school in his recent Atlantic column on the poverty of mainstream macroeconomics. It would have been even better, however, if he had the slightest understanding of what Austrian economists do.
Smith rightly points out that mainstream economists are increasingly regarded as little better than witch doctors. “Surveys have shown that the public has very little confidence in their predictions. They argue bitterly on op-ed pages and can’t seem to agree on the most basic issues.” True enough. Most of contemporary macroeconomics is worthless. For Austrians, this is the predictable (pun intended) result of a slavish devotion to crude positivism. Smith, being unfamiliar with any other approach, thinks this is simply the nature of the beast:
Essentially, [economic theorists] make models, which are mathematical tools that are supposed to describe how the economy functions. The problem is that economists haven’t really built a model of the whole economy that works. A lot of smart people have spent a lot of time creating tools with names like “dynamic stochastic general equilibrium.” But as of this moment, those models can’t really forecast the economy like our meteorologists can forecast the weather.
Exactly. But instead of recognizing that human beings aren’t molecules and social systems aren’t like meteorological ones — which even Donald Kagan recognizes — Smith concludes that the best economists are those who admit they don’t really know anything. “[W]hen an economist tells you something that is based on a theory or a model, you should be very, very skeptical.” Well, I’m OK with that.
But Smith reserves special contempt for economists, like the Austrians, who think their theories are actually true. “[T]hough mainstream economists may not have it all figured out, they are far better than most of the groups who lurk outside the mainstream. For example, spend an afternoon reading the ideas of so-called ‘Austrian’economists, who believe that we only need logic to understand how the economy works, and that data and evidence are useless.” Smith links to a brief article on Mises’s apriorism, but is blithely ignorant of the context, which has to do with general statements about human action. Certainly no Austrian economists has ever maintained that one can provide a detailed analysis of actual business cycles, or monetary policy, or any aspect of applied economics without careful, detailed, empirical study. It might surprise Smith to know that Mises wrote detailed empirical studies of prewar business cycles and European monetary policy, that Rothbard produced a 368-page treatise on the Great Depression, and that contemporary Austrians have written about the credit collapse, quantitative easing, and just about anything else in recent economic policy. Noah, use the Google!
