Unfortunately, as I said, I've put a lot of serious thought into these matters, not silly thought. That means this post is probably going to be boring. And so is the next one, because I am going to make two posts, because there are two types of skeptics I've been thinking about. One criticism comes from the Austrian School of economists, who are outside the mainstream. The other is more mainstream. Today, I'm going to talk about the Austrian school.
The essence of what I am going to say has already been said by George Mason economist Bryan Caplan in Why I Am Not An Austrian Economist. But that piece of writing is like 30 times as long as and even more boring than what I'm going to write. Also, I read it at least twice back, during a time when I thought the Austrians were right, and it failed to convince me. I am going to try and put the argument in terms that would have gotten through to former Richard.
First, let me summarize the the argument in question
Typical Austrian economist argument:
- You can learn universal, a priori economic truths just by reasoning about action.
- Mathematical economic models make completely bizarre assumptions---e.g. that everybody has twice-differentiable, convex utility functions. These assumptions aren't true of reality.
- Therefore, if the predictions of a mathematical model ever contradict the conclusions of an argument derived from reasoning about action (like any of the propositions of Ludwig von Mises in his Human Action), don't trust the model.
Economics is an empirical science, and we verify our models with evidence.
Typical Austrian rejoinder:
Economic evidence is prone to error and can be interpreted in multiple ways. You'd never reject the Pythagorean theorem based on geometrical measurements you knew to be imperfect. So unless you find an inconsistency with Mises's argument, your model loses.
For a long time, the Austrians had me convinced. I never found any objection to their argument which satisfied me. I still haven't---to this day, I don't think there is anything strictly invalid about the Austrian argument. Austrian economics isn't wrong, per se--it is insufficient.
Suppose the Austrians are right. You can learn about universal economic forces purely by reasoning about action. But what if those forces are not the only relevant ones? What if there are other, non-universal forces that arise not from the concept of action, but instead from the presence of certain patterns in people's preferences and behavior? These "secondary forces," let's call them, might be important, and they might even sometimes counteract the universal forces emphasized by the Austrians. If you are actually interested in analyzing something like the effect of a government policy, it will not do to ignore these other forces.
Mathematical models aren't meant to reveal universal economic truths. They are meant to tell stories about how economic truths play out. It's useful, sometimes, to construct a group of imaginary people, and specify completely hypothetical preferences, and rules according to which they conceivably might act, and then analyze how their actions would then change under a certain government policy, for instance. Mathematical models make this sort of thought experiment feasible.
All this might seem obvious to many economic enthusiasts--but it wasn't to me. I needed to think about it a long time, and formulate it in those terms.
