Saturday, June 1, 2013

Austrian School - Misunderstood and Misrepresented

Another example of Keynesian-Austrian tension in the market today is demonstrated by two articles respectively written early this year. Matthew Yglesias wrote the January 6 article,  What is “Austrian Economics”? And Why is Ron Paul Obsessed with it? and Sheldon Richman wrote  the January 13 article, Austrian Economics Hits the Headlines: Critics Ought to Understand it First.
Reading the above two articles is like watching an online debate between a misinformed critic and a well-grounded defender of the Austrian school. The first article is an example of a prevailing misconception and misrepresentation of Austrian economics. Richman recommends it as   “highly informative – about what Austrian economics is not.”
My intention in this article is not to repeat Richman’s refutation, but to limit myself in an overview of just three discrepancies of ideas between a Keynesian and an Austrian when it comes to economic issues.
First, Yglesias describes Austrian economics as Ron Paul’s “idiosyncratic passion” and “set of beliefs that put him at odds with the vast majority of well-known economists of all ideological inclinations.” Well, that is true, but this lone politician at least knew long beforehand and anticipated the 2008 crisis that those “well-known economists” caught unprepared and at a lost to provide clear and believable answers to the American public and the world.
The critic portrays the Austrian school next as “a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire.” Sheldon Richman replied that such piece of history is inaccurate. Instead, the Austrian pioneers are actually neither interested with politics nor in government economic policies. Their common goal was to provide a sound theoretical basis of market operation: good, value, exchange, price, commodity, and money.
And finally, Yglesias argues, “…along with rejecting the legitimacy of any intervention to protect the poor or regulate anything… Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.” There is an omission here. We are not sure if it is deliberate or the writer really does not know anything about the Austrian idea identifying the government itself as the primary source of economic crisis. Of course, the government can do something to address the situation; Austrian just do not believe that the government’s action could “stabilize macroeconomic fluctuations.” At best, what the government can do is to stop stimulating the money supply and reduce spending.
Richman identifies other misconceptions in Yglesias’ article. His refutation is really and highly informative of what true Austrian economics is. Those who want to know Richman’s informed refutation can personally read the article here.
Note: Posted last July 23, 2012