Sunday, February 13, 2011

My Moral Argument Part III

The people who seem to have the most opposition to the MMT school of thought are the Austrians. It really strikes at the core of all they are opposed to............... on MORAL grounds, of course. I find myself attracted to arguing the merits of my views with Austrians more than any other group and its usually because they make such strong moral claims about their arguments. I cant say I've ever felt I've argued an Austrian out of their view (about as likely as arguing a fundamentalist Baptist out of his view) but I have been able to crystallize I think what it is that they see morally wrong with my view of the economy and money. As I see it the Austrians have the largest problems with the following ideas; 1) A "state" issued money, especially if its not backed by gold 2) A central bank which is there as lender of last resort 3) Efforts to "stimulate" the economy 4) State provided employment or pensions 5) Inflation, which is really a result of the previous 4 in their view 6) States regulating business activity, which should be left to the court system (presumably a creation of the state)

I see #1 as falling under the "Money is the root of all evil" (MIROAE) type moral framework. The state takes over our money system and cannot be trusted with this responsibility and always ends up debasing our currency as they pursue frivolous wars, handouts to cronies etc etc. #2 falls into this category as well but also into the "Two wrongs dont make a right" (TWDMAR) framework I described in part I. Backstopping unproductive behavior is always and everywhere simply rewarding failure and cannot have a redeeming value in this view. #3 I would put into the "Invisible hand"(IH) framework. The economy is seeking a right equilibrium and we only delay, for a period, that effort. Stimulus never works we only think it works. #4 Is in the MIROAE because by giving people money for unproductive (anything outside private sector is simply exploiting private sector production) activity we are making them lazy, dependent and worthless. #5 I see as a falling into all three categories, which is due to the nebulous nature of inflation. To the Austrian inflation occurs because a state spends new money into an economy, the central bank monetizes debt and state employees have guaranteed raises and generous pensions which cause wage price spirals. Money is evil when spent by a state and guaranteed employment contracts go against the invisible hand regulating labor supply an demand through wage adjustments. #6 definitely falls into the IH framework as businesses are viewed as being sensitive to price fluctuations as their signals. Regulations, by affecting the costs, end up distorting price signals and increase uncertainty, leading businesses to functionless then optimally. Left alone businesses will always get it right because prices will reflect all real information out there. If their product is dangerous, we'll find out and punish them by not buying it. If their product is of poor quality, we'll price it lower then the higher quality competitor. Attempts by outside agents to rectify these issues will only end up hurting consumers, it is postulated.

The common theme in these critiques is the negative aspect of "The State" and the perfect condition of "markets". States always morph towards an immoral polluter of human quests to be economically free. While markets express and satisfy human whims and desires when allowed to operate uninhibited. This brings forth two questions (just to start) for me; So what makes a state different than a market? Is not the state a market response to the human question of "How best to organize and protect our collective interests"?

I can already see this exploration taking a lot of tangents but I want to try and focus my efforts on the six forementioned ideas and I hope to use the answers to my 2 questions to begin to show that the Austrians are creating a false dichotomy.


  1. Greg,
    I know you didn't miss this, from the back-and-forth at macromania:
    Throughout the hearing the Austrian economists (DeLorenzo and Vedder) portrayed lenders (savers) as if they were on higher moral ground and more responsible than lenders. People who save are consistently described as "careful savers" and the transfer of wealth from savers to borrowers is characterized as a form of welfare.

    Anonymous describes the sort of "moral" argument that you've been writing about, I think. Such arguments really are frustrating even to deal with. Hazlitt takes the same approach in "Economics in One Lesson" right from the start:
    "There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale..."
    He rejects "squandering" without ever looking at how spending fits into the pattern of forces and flows. The argument is so totally wrong that it is almost impossible to argue against.

    I hope in your work on moral argument that you can show how to recognize it more easily, and how to deal with it better.

  2. A nice characterization of Austrian philosophy has been given here:

    the problem with the Austrian School is that it is fundamentally flawed on a philosophical level. We don't even have to get into economic theory at all to debate the validity of the Austrians. The short of it is, where praxeology isn't dead wrong, it's not even wrong. And that is death to any idea trying to claim scientific legitimacy.

    The fundamental axiom of action is mere wordplay. Individual human beings act, therefore "we can know a priori that they act with purpose." This can be applied to just about anything -- a dog acts, therefore we can know a priori that it acts with purpose; a tornado acts, therefore we can know a priori that it acts with purpose. This is, of course, absurd prima facie (I don't expect to find economic analyses of tornado decision-making anytime soon).

    Because, overall, Austrian economics rejects empiricism as the basis (note I did not say rejects empiricism entirely, but it might as well have FWIW) of its thought, it runs counter to not only all other economic schools, but science itself. This is because its basic philosophy shows a complete misunderstanding of empiricism, the scientific process, and statistics. For example, the rejection of using an empirical model because macroeconomics lacks a means of using a control group means that, if Austrian economics is correct, all historical sciences are wrong including paleontology, cosmology, archaeology, etc. The rejection of empiricism because "humans are not electrons" means, if Austrian economics is correct, all other social sciences are wrong. We must throw psychology, sociology, statistics, anthropology, etc. into the dustbin along with paleontology et al. These are the heights of absurdity to which Austrian economics reaches if we are to consider the implications of its basic assumptions. It is a self-contained logical system using unquestionable assumptions that amounts to an economic version of theology.

  3. I read the thread I but I missed that particular comment.

    There is a lot of meat in that comment though. Pretty much sums up the problems with Austrian economics, in my view. It is so laced with Calvinist thinking it becomes a pseudo religion.

    The problem I think is in how we see "Period Zero", the time before any money transactions are occurring. How does one evaluate qualitatively the state of affairs at that time. The Austrians see some people as good and others as barbarians. "Good" people are thrifty and hard working. Barbarians squander their resources and live undesirable decadent lives. This all becomes reflected in how the good and the barbarians treat money, since money is just a sideshow, a neutral veil.

    People who deprive themselves (and others.... for their own good dont you know!) of present consumption are seen as virtuous, enlightened...... closer to......God.

    This is what makes these arguments so hard to argue against, they are so ingrained into our Christian ethics culture that they just sound true on a certain level to so many people.

  4. Hey, Greg, I posted a comment here 3 or 4 days ago but it doesn't show up. Can you check?

  5. Found it!

    Didnt even know about that spam filter.

  6. Couldnt agree more with your comment.

    I really liked the link to "Not even wrong". I hadnt heard that before but I'm gonna use it.