The times they are a-changing

Over at what was the Austrian economists blog, Peter Boettke announces a change of name, saying

As an experiment, over the past six months we have been tracking the use of the term Austrian economics in the news and in the blogosphere. Less systematically, we have also been listening carefully to the use of the term among fellow professional economists and what they think the label means. The results do not fit our intention. Google alert, for example, inevitably points to financial advice or libertarian politics, rarely to the research paradigm of F. A. Hayek, never to the scholarship of Israel Kirzner. Mises is often mentioned, but Mises the ideological symbol, not Mises the analytical economist. The “Austrian” theory of the business cycle is mentioned, but only in relationship to anti-fed politics and hard money advocacy, and never as an ongoing research program among professional economists.

These trends are not recent, but have been constant throughout our respective careers. We have always been among those who attempted to offer resistance to this use of the term. It has become evident to us that our efforts have been futile. Rather than resist the pure ideological identification, we are choosing to devote our efforts elsewhere. The name Austrian economics has been lost as a focal point for a tradition of economic scholarship, and is now a focal point for something else. We have to let it go.

This is pretty much the view I expressed here

although the Austrian School was at the forefront of business cycle theory in the 1920s, it hasn’t developed in any positive way since then. The central idea of the credit cycle is an important one, particularly as it applies to the business cycle in the presence of a largely unregulated financial system. But the Austrians balked at the interventionist implications of their own position, and failed to engage seriously with Keynesian ideas.

The result (like orthodox Marxism) is a research program that was active and progressive a century or so ago but has now become an ossified dogma. Like all such dogmatic orthodoxies, it provides believers with the illusion of a complete explanation but cease to respond in a progressive way to empirical violations of its predictions or to theoretical objections.

Meanwhile, Rafe Champion points to this post suggesting that market liberals (the author prefers “classical liberals”) should abandon the use of the term “capitalism”.

It seems pretty clear that these developments are related to the global financial crisis. The adoption as a badge of pride by Forbes magazine and others of the previously pejorative term “capitalism” was one of the most extreme manifestations of market liberal triumphalism in the 1990s. But, in the wake of the crisis, “capitalism” is a much more problematic term. It works well enough as a generic term covering all advanced economies in which private capital plays a leading role, but one that is, as we have seen, ultimately dependent on government action for sustainability. We can then say that the relatively unregulated, finance-dominated form of capitalism that has held sway for the last 30 years is being supplanted by a different form in which the role of government as ultimate risk manager is more direct and obvious. But this has little rhetorical value for market liberals.

The story with Austrian economics is more complex. On the one hand, the crisis has increased the appeal of Austrian views of the business cycle, relative to other rightwing views like New Classical macro and Real Business Cycle theory. On the other hand, the label has been increasingly associated with gold bugs, critics of fractional reserve banking, neo-Confederates and general fringeness.

59 thoughts on “The times they are a-changing

  1. @Graeme Bird
    No Graeme – I am not in favour of banks cash pyramiding. Thats half the problem.

    Terje…you should take note of what Graeme is saying. As usual you have honed in on one word “mandating” because that means, to you, government intervention which is, yet again your only objection.

  2. @Alice
    But Terje – Ill concede you a point here ” The government should choose wisely. The government does not need to be the issuer of notes or the enforcer of tender to have this role.”

    Im not that fond of the central banks interventions in interest rates myself having never been truly convinced of the wisdom of either monetary policy or other central bank interventions such as the strangely one sided and huge bailouts that recently occurred with taxpayer funds. I will however qualify that by also saying I am not averse to the government issuing bonds if it gives people a safer place to save their honest pennies Terje. I think many might actually like it as they once did in history. Low return but safe…perhaps safer than the sharemarkets we have no control over in regard to our super savings.

  3. Alice – I’m not overly opposed to government bonds if they fund productive infrastructure or tax cuts (an investment in the size of the future tax base).

  4. @TerjeP (say Tay-a)
    Id prefer govt bonds to fund productive infrastructure right now Terje rather than (yet more) tax cuts … we are rather short on adequate supplies of the former, and even maintenance of existing infrastructure.

  5. The neoclassicals have this reversalist trick. Where they suddenly put on their faux-libertarian hat to justify selling off strategic resources to foreign communists, running a system that armtwists people into the slavery-lite of appalling private debt, and where they justify tolerating behaviour from banks that ought to come under the fraud and racketeering statutes.

    Neoclassicals never seem to see a bigshot insider that they don’t take a shine to. Some of the worst of consequences of all this is happening right now. Where financial idiots and proven failures are in the process of advising the Queensland government to ruin the prospect of expanded rail in that state this century. Apparently the Premier has two finacial firm advisors. One of them a welfare recipient organisation that manifestly failed. Another one of the most mysterious names in financial history. Both these clowns telling her to do exactly the wrong thing. Any responsible advisor would have stopped that privatisation going down the literal train-wreck path it is going.

    Meanwhile the ring-leader of the massive financial failures of last year is the designated advisor to our Feds when it comes to the national broadband network. Here we see these people, all of whom ought to be unemployed, if not up on formal criminal charges, advising our politicians to do the wrong thing. They labour party comes up with the pretty sound idea of separating the underground and trans-spatial assets from the operating companies for telecommunications. But they are going to wreck it all by listening to these financial charlatans.

    Now my point is, surely there is room for alliance between the hard right like myself, and some of you leftists, who are likewise appalled by the mess that the financial ignorance of the neoclassical right is dealing out to us. I listen to Professor Keen. And I say to myself: “This fellow. I am with him.”

  6. JQ you have your “Black hat” on, Boettke has his “Yellow hat” on….
    and you are talking past each other.
    The central principles of libertarianism are non aggression and voluntary action which fit in well with the ideas of the Austrian economists you have mentioned despite some differences amongst them. I know most here can’t stomach the thought of voluntary action, such as those on the “(religious) right (and include the Cato,Reason mob) as well as those on the left. Both the left and right are authoritarian statist. A libertarian is neither, but statist will label them Austrians with “right” thrown in for good measure. Boettke motives are positive for libertarianism and the economics behind it because it tracks away from perjorative “Austrian” label thanks to those on the left and right

  7. Alice – if the infastructure is productive then it can be funded using bonds with no implications either way as to whether we also have tax rate reductions.

  8. “Alice – if the infastructure is productive then it can be funded using bonds with no implications either way as to whether we also have tax rate reductions.”

    Why Terje why? Why give the banks a cut? Lets pay for it out of the surplus. Then the voter feels the pinch up front and the tendency is to demand more economy in government. You never seem to want to fire anyone Terje. But we have dozens of government departments wherein if we closed their doors and gave everyone massive tax exemption vouchers no-one would die. Yes I suppose we might miss these departments. But this willingness to go into hock is what prevents serious financial triage.

    Reconsider. Our population pyramid is overturning. Our most important ally has been scuttled and bankrupted. We don’t need any moral or financial obligations to foreigners. We can wean of the social security by raising the age limit one day every two. We can have 200% deductions for the businesses who employ the older guys. We can have the infrastructure, the wharves, rail and canals, that would put the Singaporeans to shame. We are Australians and we can look after our mates. But we have to exercise ruthless financial discipline here. If not financial triage. And this means we can have not time for bringing the finance world in to peddle obligations to people wherein it is unwise to be in their debt.

    I would also question your supply-sider view from a technical point of view. In my world it is business spending that fuels things. Not tax cuts to high-flying executives making more than 200, 000 a year. I think we move forward on retained earnings. So I’m quite happy to get rid of any taxes on retained earnings and then bring the tax free threshold straight up from the ground. I think the supply-sider moment has passed.

  9. “Im not that fond of the central banks interventions in interest rates myself having never been truly convinced of the wisdom of either monetary policy or other central bank interventions such as the strangely one sided and huge bailouts that recently occurred with taxpayer funds.”

    We have to change our definitions so we don’t wind up calling flagrant bank subsidies “monetary policy.” Alice how would you feel having a low interest loan from the Reserve Bank? Particularly after the stock market had crashed? Would be good wouldn’t it? Why give the banks this massive subsidy? Why not give it to me. I’d refinance my house, my credit cards, buy undervalued shares. I’d promise not to recycle the money into debt-addiction and asset bubbles. So I’d use the funds more wisely than our banks. And naturally within a few decades I’d be a billionaire.

    This is not monetary policy. Funneling resources to the banks is not monetary policy. Or we ought to have the discipline to cease to call such an outrageous violation of any sane notion of social justice “monetary policy.” A lot of the ambiguity and argument between which is more effective in which contexts, between monetary and fiscal policy, comes from us showering the banks with loot and calling it monetary policy.

    If monetary policy means debt reduction through new cash creation (to stimulate demand) that may be bailing out the banks in an indirect way. Monetary policy to stop demand overshooting ought not be about us selling more bonds and retiring the cash? Why obligate ourselves and drum up yet more business for the financial institutions and traders? Monetary policy to dampen demand is simply nudging the reserve asset ratio up.

    Not only is this sort of monetary policy more morally sound. Its far more powerfully effective and predictable as to its results.

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