Let me first put some things out there. I have read two of Ron Paul's books. I have read a lot of Austrian literature and I am not ignorant to the points made in it. Let me also say that I respect Ron Paul. I do not think he is a racist, bigot, or anything some in the media have said. He is an honorable man that has stuck to his guns his entire life/career. That is honorable. He seems to be a good honest family man that has a great life.
However on economics he and his entire wing are wrong. Let me first sum up the two major points of Austrian economics and then I will begin with the rebuttal.
1. Math and statistics are useless in economics. According the Austrians we are all irrational creatures. We do not follow patterns. It is impossible to say what we are going to do and anyone who tries to predict human behaviors will fail. If bubbles do happen they are impossible to predict and if an economist gets this one right he might not get the next one right.
2. The government is the root of all evil in economics. When the government lowers interest rates, creates a stimulus, or really does anything it creates a bubble by raising investment.
Ok, now for the critiques:
1. These two views are hypocritical.
To accept that nobody else can make predictions using math and real world statistics, but you can say things using logic flies in the face of logic itself. Economic discoveries such as the Phillips Curve or recently the Leverage Cycle allow us to understand the underlying currents of economic activity and operate on the same principles as your logic, but unlike your logic it is based from trial in the real world and real markets.
2. The facts don't support the conclusions.
1. Math and statistics are useless in economics. According the Austrians we are all irrational creatures. We do not follow patterns. It is impossible to say what we are going to do and anyone who tries to predict human behaviors will fail. If bubbles do happen they are impossible to predict and if an economist gets this one right he might not get the next one right.
2. The government is the root of all evil in economics. When the government lowers interest rates, creates a stimulus, or really does anything it creates a bubble by raising investment.
Ok, now for the critiques:
1. These two views are hypocritical.
To accept that nobody else can make predictions using math and real world statistics, but you can say things using logic flies in the face of logic itself. Economic discoveries such as the Phillips Curve or recently the Leverage Cycle allow us to understand the underlying currents of economic activity and operate on the same principles as your logic, but unlike your logic it is based from trial in the real world and real markets.
2. The facts don't support the conclusions.
Now, if the data supported the conclusion that whenever interest rates are lowered a bubble is caused in a cyclical motion the Austrians would have something to brag about. Unfortunately, when we look at the data which to an Austrian is like light to a vampire we find something different. Milton Friedman, by far the biggest economist of the 20th century published a report that soundly showed the Austrian Business Cycle to be in correct. Crashes don't happen in a cyclical nature when the federal government eases up on the credit, but rather happens when a perfect storm of events produce the right atmosphere for a recession or a depression. During the recovery we've seen a tripling of the monetary base, but tiny inflation and a steady recovery.
3. Austrian Economics doesn't explain the fall off of demand during a recession. Krugman has a good article on this.
4. The government can act as a helping hand to the economy. Let me give you a metaphor for this one. Stimulus is like surgery. It can hurt to help create a crisis. I'm sure if you were healthy and were popped up on the table for a kidney transplant for no reason it would be no fun and could actually cause some major problems. In that way when Greenspan lowered the interest rate before the crash began the US economy underwent surgery when we were healthy which helped bring about the crisis. The Austrians are like skeptics who say that since medicine can hurt when used poorly it shouldn't be used at all. Today, Austrians have about as many real economists in their numbers in Universities as Marxists. I hope that proves a point.
5. One Neoclassical argument that I find tough to chew and can't really accept is their reason for why stimulus doesn't work. The Neoclassicals say that investors are rational and if they are given money by the government today they'll save it for when government takes it away tomorrow. I don't buy it, but I thought I'd mention it.
3. Austrian Economics doesn't explain the fall off of demand during a recession. Krugman has a good article on this.
4. The government can act as a helping hand to the economy. Let me give you a metaphor for this one. Stimulus is like surgery. It can hurt to help create a crisis. I'm sure if you were healthy and were popped up on the table for a kidney transplant for no reason it would be no fun and could actually cause some major problems. In that way when Greenspan lowered the interest rate before the crash began the US economy underwent surgery when we were healthy which helped bring about the crisis. The Austrians are like skeptics who say that since medicine can hurt when used poorly it shouldn't be used at all. Today, Austrians have about as many real economists in their numbers in Universities as Marxists. I hope that proves a point.
5. One Neoclassical argument that I find tough to chew and can't really accept is their reason for why stimulus doesn't work. The Neoclassicals say that investors are rational and if they are given money by the government today they'll save it for when government takes it away tomorrow. I don't buy it, but I thought I'd mention it.
