Saturday, December 22, 2012

An Austrian, Post-Keynesian Economics?

After a brief hiatus from blogging due to final exams and mental recuperation, I’m ready to get back into the swing of things. While I have a ton of reading to catch up, there is one post in particular that I want to share with my readers. During the break, Mike Sax put forth the question, What School of Economics is Woj From?
Speaking of Woj, on a few occasions Nanute has asked me what Woj is-economically speaking. I always answer that he's an MMTer-or Post Keynesian-but Nanute has the impression that he's an Austrian.
  Just reading some posts there recently tells me that it's actually a bit of both. Which is interesting-you normally think of MMTers and Austrians to be diametrically opposed antipodes.
This question is personally relevant given my selection of PhD programs and the direction of this blog. Many readers are likely aware of my decision to attend the PhD in Economics program at George Mason University, a school known primarily for promoting Austrian economics. However, readers are also presumably aware that a majority of my blog posts focus on monetary and fiscal policy from a typical Post-Keynesian vantage point. Mike points out something that several colleagues have also picked up on this semester about the Austrian - Post Keynesian dichotomy:
It's a very interesting amalgamation: but I'm not sure how you practically can choose between policy prescriptions if you are both skeptical about government spending for malinvestment reasons and yet agree that fiscal deficits are necessary at least countercylically.
Are these two schools of economics mutually incompatible or are there sufficient overlapping ideas to create a unique vision? Which of the schools do you associate this blog with? Mike does an excellent job laying out some of my views on the topic and hopefully others will chime in here as well. After a few days, I will try to shed some light on Mike and Nanute’s debate with a more comprehensive take on the question from my own perspective.

Related posts:
Finding Common Ground
Hayekian Limits of Knowledge in a Post-Keynesian World
Are Theories of Modern Money and Heterogeneous Capital Compatible?
Post Keynesian and Austrian Perspectives on Heterogeneous Capital and the Capital Debates

7 comments:

  1. I think there are some compatibilities, but I think the Austrian school is closer to orthodox neoclassicism. There are some things which aren't compatible at all, as well: for one, post Keynesians who don't accept the subjective theory of value. Most similarities, I think, are fairly superficial; I think what attracted economists like Lachmann was the focus on expectations and theory on a non-ergodic world (of course, Lachmann went on to adopt, to one extent or another, Hicksian "fix" price theory).

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    1. Jonathan,

      I completely agree with you that the Austrian school is closer to orthodox neoclassicism. A couple classmates have been surprised to recognize that aspect during our first semester. Although I think you are probably correct that most similarities are superficial, my interest lies in whether the two disciplines can find common ground. The basic outline would be a Post-Keynesian view of modern money operations with an Austrian approach to policy.

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  2. As a lay person I see you like as I see Edward Harrison, having Austrian leanings but without the dogma. I also get the impression you think structure is just as important as are aggregates. In reality I'm not sure belonging to a school is a good thing less you get boxed in to a certain way of thinking.

    Fundamentally, with respect to macroeconomics, whatever school you belong to, a clear understanding of the monetary system seems crucial.

    In fact it's my firm belief that without the regulatory capture that occurred around credit creation the real economy would have bumbled along quite happily while the members of the whogivesadam-water schools traded insults and furthered their careers.

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    1. When I think of combining the two disciplines, Edward Harrison is the first name that comes to mind as well. On the Austrian side, I think much of the dogma stems from accepting the neoclassical principles, which includes ignoring private credit, interest expenses and capital gains. I was initially inspired by the political economy aspect of the Austrian school, which often seems lost today.

      I agree with your wisdom that belonging to a school of thought can limit one's thinking. Unfortunately the academic field appears to reward choosing a specific side (within the mainstream disciplines). For the time being, at least, I hope to remain unburdened by a specific dogma.

      As for the regulatory capture, I agree that is a defining feature of the past few decades...maybe longer. I'm currently reading The Bubble and Beyond, by Michael Hudson, which discusses how that regulatory capture has pushed economics to assume away the negative consequences of credit creation. I plan to blog a bit about the book as I get further along.

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    2. I suspect in a similar vein I've just finished "Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards" - http://www.amazon.co.uk/Economists-Powerful-Convenient-Theories-Distorted/dp/0857284592 - which I would highly recommend.

      Michael Hudson gives a review here http://www.internationalpolicydigest.org/2012/12/20/reality-economics-review-of-the-economists-and-the-powerful/

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  3. Exactly,

    "In reality I'm not sure belonging to a school is a good thing less you get boxed in to a certain way of thinking."

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