Ian Crosby offers up some interesting questions:
Paul Krugman maintains that Austrian business cycle theory is "as worthy of serious study as the phlogiston theory of fire." Milton Friedman claimed, less colorfully but no less categorically: "The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false."
Am I right to interpret this concurrence of opinion by two Nobelists from opposite ends of the political spectrum as a strong evidence that the Austrian critique is misguided? Are latter-day Austrians the economic equivalent of creation scientists and climate-change deniers? Or are there mainstream economists who take them seriously? And if they do, what does it say about macro as science that there should be basic disagreements about a fundamental object of study in the discipline?
After talking to a few working economists, he concludes:
The real lack of consensus in macro, it seems, is not how to respond to a downturn in the business cycle, but what causes the business cycle in the first place. And if mainstream macroeconomists agree that the Austrian explanation of this phenomenon is demonstrably lacking, it is not because they have a well-supported alternative or viable research program of their own.
Today’s Austrians may be a small and dubious minority. But they have hardly opposed themselves to the edifice of a successful science.
Does that conclusion seem right to you guys?
And why is Austrianism appealing, anyway? Krugman argues that Austrianism appeals to people because it offers easy, clear-cut rules about cause and effect, and because it appeals to individuals' moral sense.*
But I think part of the reason people are attracted to the Austrian school is that more mainstream economists don't seem as interested in gaining public (i.e., nonacademic) acceptance of their ideas as the Austrians are. Whether or not they're "serious," the Austrians are definitely serious about promoting their theories. The Austrians have the Mises Institute, dedicated to spreading their ideas. They have the legions of Ron Paul supporters, most of whom lean towards Austrianism and are eager to tell you about it. And various Austrians and Austrian-leaning folks are responsible for clever things like the Keynes vs. Hayek rap video and Peter Schiff's series of YouTube videos. Russ Roberts, a professor at George Mason University who is behind the rap video, has written about the peculiarity of GMU's "Austrian-flavored" economics department:
We don’t just speak to the academy. We blog. We write novels. We write letters to the editor. Op-ed columns. We write books for a general audience. This isn’t an aberration. It isn’t just tolerated. It’s honored.
The point is that while it's easy to find someone ready to convert you to Austrianism, you just don't see "mainstream" economists out there trying to explain the basics of their theories to the masses. The closest you get to a public evangelist for Keynesian economics, for example, is Krugman, who generally focuses his New York Times column on the political and policy implications of economics—not the underlying theory. And yet when he has tried to explain the counterintuitive parts of Keynesianism, Krugman's actually been fairly effective. Witness this Slate article from 1998, in which Krugman talks about a microeconomy in order to explain his theories about the larger economy. More of that, please!
Kevin is traveling today.
*I edited several sentences in the middle of this post for clarity.