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Saturday, October 27, 2012

Why It Is Hard to Use History to Prove Economic Theory

In short: History is concrete and complex, while economic theory is abstract and simple.

Case in point: I am reading Hyman Minsky's Stabilizing an Unstable Economy at present. I have often seen the contention that events of the 1970s disproved Keynesian economic theory, since we witnessed high inflation and high unemployment at the same time. Minsky thinks these same events, especially the rapid recovery from the downturn in 1974-75, prove Keynes was right.

Well, it keeps me employed, anyway!

4 comments:

  1. It is my opinion that the things in the human sphere that we call complex really aren't that complex at all when broken down to their components. Kind of like when you're confronted with a "complex" math problem, often once you dig into it you find that it is really just a series of many simple problems.

    The problem that I see in the social sciences is that perception can often get in the way of what is real, so even the simple can become complex.

    In terms of the concreteness of history, I don't necessarily subscribe to that, because once the event has already occurred, it is no longer concrete and only exists within the minds of those who witnessed/experienced it. Perception once again comes to the fore.

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  2. That insight is what gives in my point of view the Austrians the 1:0 in this ideological battle, since they at least admit this, whereas the others don't. On the contrary they often even think it makes them pathetic religious fanatics who are just in denial about the "real" empirical facts..

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    1. "That insight is what gives in my point of view the Austrians the 1:0 in this ideological battle, since they at least admit this, whereas the others don't."

      Some people don't, but many, many non-Austrians understand this.

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    2. Of course I don't want to project this view generally unfairly onto the leading non-Austrian economists. I am quite sure this impression is amplified due to internet discussions in which lots of amateurs (like me) participate...

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