I AM AN AUSTRIAN

Is it so wrong? Really? Just humour me, dudes and dudettes.

I am an Austrian. I am a Libertarian. I am an Austro-Libertarian. I'm evidently also a hypocrite, as I've used most of these words without capitals in past posts. Oops.

I've made Austrian economics my home because it accords better with certain concerns of mine; why have a subjective theory of value and then lump desires and capacities into aggregates? Why declare that economic facts can be gleaned from the movements of particular markets at particular times in the past?

Rothbard sums up the problem with both phenomena in a way that no mainstream economist ever would, since to do so would be to admit that there are entire fields of modern economics that are, at best, pointless, and at worst, harmful.

NOT MAINSTREAM?

Why is Austrian economics not mainstream? It rejects the efficacy of aggregates and mathematical formulae to arrive at economic truths. According to the Austrian worldview, any data showing one result to one market change actually proves nothing outside of that one case. Woohoo, that event happened, and you can show why!

But mainstream economics does not grant the inside scoop on what does and doesn't make sense now and into the future. How do I, a novice, know this? Oh, you know, just vague murmurings here and there. If all the best mathematicians and statisticians and econometricians and software and computing power all put together failed to undertake a sustainable path, well forgive me for being sceptical.

Now I'll grant you I'm not strictly blaming the economics profession for the Global Financial Crisis and the following Great Recession. Economics is part of Academia, and Academia is patronised to a large extent by the government. On top of that, a large share of jobs in economics are in the state sector. So there's little incentive to push ideas that posit the pointlessness, ineptitude, or evil of the state.

The crisis was the culmination of a business cycle, a process which, according to the Austrian School, only exists because of the state. This will be explained later, as I intend to write a series of blog posts about the Austrian School. Other schools; Monetarism and Keynesianism in particular, posit that the state is the saviour of capitalism through that same central bank.

The important thing to take away from all this is that the economic models in the textbooks and espoused by the Federal Reserve, Bank of England, and governments and think tanks everywhere, actually contributed to, if not caused, the crisis.

HARMFUL?

The mere existence of central banking and fractional reserve lending can be said to be one of the two biggest reasons we had such a bad crisis, and also why it originated in the Unites States, as the Federal Reserve lowered its lending rate after 9/11, making credit cheaper than it had been before the atrocity in New York.

The other factor was the government guarantee regarding Fannie Mae and Freddie Mac, which stipulated that the US government would help them financially if they ever got into trouble. When you're aware of these two factors the crash doesn't seem so impossible to predict after all.

Austrian economics is outside of the mainstream because it roundly rejects the use of mathematics and statistics in the search for economic facts, instead treating anything arrived at mathematically or statistically as historical facts.

Praxeology is where it's at for the budding Austrian, which I'll describe further in a future post. Basically it means "action studies" and assumes that humans act - that is, we do things in pursuit of goals. From there though all kinds of cool stuff emerges. And if you want to know... well you'll have to tune in again soon!