Here.

Below I’ve included some references for my post “Austrian Facts Bring the Death of ‘Normal Science’ in Macroeconomics”. All of them are excellent and most all of them advance essential insights from Austrian economics and/or the work of Friedrich Hayek.

I’ll be adding additional detailed discussions of individual aspects of the ongoing collapse of ‘normal science’ in macroeconomics at my Taking Hayek Seriously blog.

The DSGE framework which evolved out the Real Business Cycle model was racked by intractable empirical anomaly right out the barn door. The macroeconomics profession attempted to “fix” the framework with all sorts of ad hoc formal epicycles hung on it like a Christmas tree — ad hoc additions which mostly had one thing in common, they were inspired by the legacy of Marshall, Pigou & Keynes; “sticky prices” and all that — ideas dating from the 1880s and before.

But as monetary economics and trade cycle economics, the DSGE framework — whether “New Keynesian” or “New Monetarist” — still produces intractable and insuperable empirical and formal anomaly, as the macroeconomists listed below attest in the articles listed.

As the great David Laidler explains, DSGE framework models suffer from core — and intractable — anomaly, including failure to handle core aspects of macroeconomic phenomena previously adressed by pre-war macroeconomists. As Thomas Kuhn points out, transitions from one ‘normal science’ explanatory framework to another nearly always involve the loss of some explanatory capacity — and frequently later involve the recovery of lost explanatory or theoretical capacities from the past. This looks to be exactly were we are in the state of the game today — a reconfiguration of macroeconomics to regain significant explanatory achievements lost in transition to the dominant failed ‘normal science’ framework of today.

The monetary economy has properties that cannot be analyzed using the tools of today’s dynamic general equilibrium analysis. Keynes’s economics, far from being an aberration in the otherwise orderly evolution of modern macroeconomics from Adam Smith’s ideas about the “invisible hand”, was a major contribution to an ongoing tradition in monetary theory in whose creation Smith himself had played a part. Retrospective consideration of this tradition suggests that the property of the monetary economy critical to the generation of economic crises and the stagnation that follows them is its capacity to permit trading at “false” prices, a phenomenon ruled out by assumption in dynamic general equilibrium models. Not only Keynes’s explanation of depression but also Hayek and Robertson’s analysis of the role of unsustainable forced saving in the boom can be thought of as relying on this factor.

In the comments section I’d appreciate help from Mises Blog readers in extending this list of references.

References:

Der Speigel, “The Man Nobody Wanted to Here”.

W. White, “Procyclicality in the financial system: do we need a new macrofinancial stabilisation framework?”

W. White, “Modern Macroeconomics is On the Wrong Track”.

W. White, “Is Price Stability Enough?”.

W. White, “Globalization and the Determinants of Domestic Inflation”.

R. Frydman & M.Goldberg, “An Economics of Magical Thinking”.

R. Frydman & M. Goldberg, “The Imperfect Knowledge Imperative in Modern Macroeconomics and Finance Theory”.

R. Caballero, “Macroeconomics after the Crisis: Time to Deal with the Pretense-of-Knowledge Syndrome”.

D. Laidler, “The Monetary Economy and the Economic Crisis”.

O. Blanchard, “The Future of Macroeconomic Policy”.

J. Stiglitz, “A Balanced Debate about Reforming Macroeconomics”.

R. Reis & M. Woodford, “Conference on Heterogeneous Expectations and Economic Stability”.

R. Frydman & M. Goldberg, Beyond Mechanical Markets.

R. Frydman & M. Goldberg, “Financial Markets and the State”.

R. Frydman & M. Goldberg, “Epilogue”.

O. Blanchard, “Rewriting the Macroeconomists ‘Playbook’ in Light of the Crisis”.

W. White, “Comments”.

(Updated, revised, and extended)

A brief period of Kuhnian “normal science” is now over in macroeconomics — the news comes directly from the top guns in the field (see also here, here, here, and here.) What killed it? A series of empirical and conceptual anomalies — Austrian facts — facts too immense to ignore. Austrian facts like the reality of genuine uncertainty, heterogeneous and non-commensurable expectations, money and credit generated malinvestment bubbles, and post-bubble malinvestment and labor discoordinations. Facts that were looming and poised to crack open and remake the science of macroeconomics into something sturdier, something sounder.

For some, none of this comes as a surprise. If you had been paying attention to research scientists like former BIS chief economist William White you were well aware of what was about to unfold.

Make no mistake, the collapse of “normal science” is taking place on multiple levels. The profession is catching on to the fact of the general bewitchment of the macroeconomics profession by a series of non-explanatory, causally empty math constructs. And the fashion for sterile, non-explanatory math constructs is now being challenged by a whole host of rival conception in finance, macroeconomics, and behavioral economics. What we now have are the necessary conditions for a period of re-assessment, novel thought, hard work — i.e. a period of what Kuhn called “revolutionary science” where genuine scientific advance is possible — where scientific progress can take place beyond the old conceptual cul de sac of the failed macroeconomics of the past. (For more on Kuhn and scientific advance, see my paper “Thomas Kuhn and the Differential Selection of Desiderata for Theory Choice Through the Differential Selection of Community Members Acting Upon Alternative Implicit Criteria for Theory Choice.”)

The blogosphere wants to know: during the artificial boom, how can both investment and consumption grow at the same time?

There are multiple answers. But one aspect of the answer has not gotten the attention it deserves.

Douglass North has some wonderful books showing how social stability and secure property rights fuel the growth of wealth via the expansion of the division of labor and the ever increasing incorporation of once marginal non-economic goods into the division of production. North not only documents how productive inputs like land have gone into and out of production, and also explains the how and why of it — and the consequences for social wealth — using not much more than freshman-style marginalist analysis applied to labor and production.

Largely un-noted, Friedrich Hayek has an equally powerful discussion on the same topic, explaining the economics of the existence of non-demanded (hence non-scarce and non-economic) but latently valuable resources, currently unused but potentially exploitable — potentially productive goods exploitable once the time-depth and complexity of the capital structure is extended beyond it current dimension. Imagine some currently unused rare earth material exploitable in the production tools dedicated to the production of nuclear electric plants. (See Hayek’s discussion, The Pure Theory of Capital, pp. 59-63, [Collected Works Ed., pp. 80-83] )

In simple words, during the artificial boom, the depth of the time and complexity dimensions of the capital structure are extended beyond the point where they can be sustained, temporarily adding to output — and temporarily giving value to — previously latent inputs which will lose their value when the time and complexity dimensions of the economy retract. Things which were temporarily counted as economic goods suddenly lose their economic status — they are no longer in the chain of production, they are no longer demanded, and they are no longer counted as scarce for the purposes of economization. They are simply no longer economic goods, and are no longer counted in GDP. And they are no longer contributing to output.

These same considerations should apply to highly specialized labor skills — non-economic but latently valuable prior to the artificial boom, valuable and contributing to output during the artificial boom, and once again non-economic and not contributing to output after the boom.

Drug addled mass murderer Jared Loughner was under the spell of monetary and financial conspiracies interlaced with anti-Christian and anti-American calumnies spun out by cynical leftists wishing to advance the socialist idea of a money-less, resource-based economic system, and other leftist fallacies as old as Marx and Owen. Stacy McCain reports here and here and here.

UPDATE: New information here.

National Interest “senior editor” Jacob Heilbrunn gets out the clown makeup to paint Ron Paul as a whacko and Federal Reserve criticism as a PR ploy to stir up the sheep and goats, in the LA Times.

Don’t you just love how this game is played. No arguments are offered, hardly the smallest understanding of the topic at hand is even suggested. The whole “intellectual” argument is carried by the random pitching of smear labels, and other refuse from the kitchen garbage can.

This style of “argument” is a rising trend among “intellectuals”, sadly.

And just for the record — countering merely one of Heilbrunn’s unending arguments from “authority” — Irving Kristol confessed late in life that he’d actually never read Hayek’s The Road to Serfdom (despite having attacked the book repeatedly) — which makes it a bit embarrassing that Heilbrunn provides Kristol’s “expertise” on this topic as proof of the whacko character of the ideas Hayek is supposed to have passed on to the “cultist” Ron Paul.

Our understanding is enriched when theoretical principles are illustrated via concrete examples.

Take a look at these aerial photos over South Florida and the concept of economically uncompletable capital projects becomes as plain as a picture.

Since WWII perhaps the most potent strain of anti-capitalist, anti-Western ideology has been powered by the conceptions of Hobson and Lenin as much as by those of Marx and the Webbs. On this view, capitalism and its need for markets and profits drives the violent and unjust economic exploitation of non-Western nations and peoples.

Through this ideological filter the dream of socialism became fused to the moral causes of anti-colonialism, and — ironically — both ethnic nationalism and anti-Western internationalism.

When I originally exposed the socialism of Obama’s father — and proposed this revelation as the “Rosebud” which made sense of the puzzle at the heart of Obama’s Dreams From My Father — I mostly ignored the potent legacy of Kenyan anti-colonialism, a central life experience of Obama’s Kenyan father and grandfather.

Well, where angels fear to tread, Dinesh D’Souza has rushed in to fill the void, taking my “Rosebud” thesis and research into Barack Obama, Sr.’s socialism (without acknowledgment), and running with it as far as one could possible go in the anti-colonialist, anti-Western direction — and beyond.

I haven’t read D’Souza’s book or his Forbes article. But I have watched his discussion with Glenn Beck on Fox.

As far as it goes, as a basic presentation of the facts about Obama’s father and upbringing, and what Obama has written in his own memoir, I think it is an essentially factual and useful recounting of important truths about the biography of the President which most of the popular media have willfully withheld from their customers.

As an interpretation of what motivates the President today — family history and university training in left wing anti-colonial theory may well explain why President Obama returned the White House bust of Winston Churchill to the British. But I’m not a fan of connect-the-dots speculative explanation that are far more complicated and far less direct than is the simple and fundamental fact of Obama’s very general, well documented, and life-long interest in the dream and ideology of “social justice”, race-based Marxism, and the post-60s American left.

Of course, one does have to wonder what the alternative history of Barack Obama, Jr. might have turned out to be if Barack Obama, Sr. had studied Mises and Rothbard on imperialism and colonialism while studying economics at Harvard and the U. of Hawaii, rather than “scientific Marxism”, mainstream 1960′s development economics, and other such things.

“Having a rational discussion with these guys is something like having afternoon tea with a couple of hyperactive ferrets.”

— Stephen Williamson

Actually, something fun — and remarkable — is happening. Macroeconomists are doing some hard thinking about how a math construct might differ from an actual money-using market process. Or at least, they are trying to do such thinking. No surprise, they aren’t very good at it.

But it’s entertaining, none the less. Catch the action and follow the links here. The whole thing was basically set in motion by this and this.

But that’s not all! (as they say on TV) . It’s also Back to Wicksell week. (Just don’t be so gauche as to mention disaggregated and changing production processes or the influence of changing money supplies and interest rates on any of that … ).

“We can not run trillion dollar deficits year after year. That is just an impossible one for the market to absorb. The second thing would be, how would we service that debt down the road? Are we increasing of our productive capacity enough that we can pay it off? If we just are borrowing money to do consumption we will never be able to pay it off.

And guess what, Roosevelt’s debt got paid off by WWII. WWII was the biggest destruction of capital, and human beings too. So the debt got paid off. We had to build new stuff, and we had an income generation again, and we paid it off. So, destruction of old capital is the solution to building new capital.”

– Rajeev Dhawan, Director of the Economic Forecasting Center at Georgia State University, explaining the economics of paying off massive Keynesian debt, on the Bill Handel Show, KFI 640, Jan. 25, 2010.

[UPDATE: Welcome Instapundit readers. Check out the comments section below for additional eyewitness accounts of mile after mile after mile of mothballed rail transport cars in Eastern Colorado, outside of Bakersfield, south of Olympia, Washington, south of Corvallis, Oregon, and southwest of Phoenix, etc., rail cars used to transport lumber, cars, construction supplies and industrial equipment. Feel free to crowd source your own eyewitness account of malinvested resources from the artificial boom of the 2000s now left idle during the inevitable bust phase of the business cycle -- now tragically deepened by the pathological policies of Obama, George Bush, and the U.S. Congress. For a basic account of the Hayekian malinvestment boom and bust cycle see this article by Tom Woods, this YouTube Hayek vs. Keynes Rap Anthem produced by John Papola and Russ Roberts, or any one of these essays by Roger Garrison.]

Malinvestment. Picture it in your mind. Or take a look out the window. Below right is a photo taken of unused lumber hauling rail cars now parked on a closed railroad spur in Eastern Oregon, part of 20 miles* of empty rail cars dedicated to hauling lumber to market. Most of these lumber hauling rail cars have been in mothballs since 2008 ….

Empty rail cars mothballed in Eastern Oregon

Like a maid who doesn’t do windows, most economists are “scientists” who don’t do field research. The situation is rather different in other sciences. They do field research in the sciences of Zoology, Botany, Geology, Entomology, Oceanography, and Astronomy (in fact, try getting an advanced degree without some field research). They even do it in “Nursing Science”, and “Agricultural Science”, and “Public Health Science”. But don’t ask a computer jockey “Economic Scientist” to leave his office and learn empirically — “test” his understanding — from anything other than his Internet stream of “Official Government Data”.

Twenty-five percent of unemployed workers in America are construction workers. (I personally counted over 100 day laborers seeking work outside of a Home Depot in Glendale, CA last year — before I stopped counting.) The artificial malinvestment and overconsumption boom played out in part through the housing market and associated industries (identified by F. A. Hayek as a classic long-period production good — see The Pure Theory of Capital).

If only 1/10th of 1 percent of the “economic scientists” employed by the taxpayer went to work doing field research on the housing / mortgage bubble we could know EVERY empirical detailed involved in EVERY housing loan and housing exchange across the course of the artificial malinvestment and overconsumption boom. They could do the same in any number of associated industries.

Don’t hold your breath.

Economists don’t do empirical research.

They don’t even use a camera.

Related:

Video of uncompleted homes being bull-dozed in San Bernardino County, Northeast of Los Angeles.

A photo of the mothballed Echelon casino project in Las Vegas.

The Wallowa County Chieftain — UP stores 563 more cars.

*I marked 22 miles of steady empty rail cars on dad’s truck odometer as we drove along the rail line, and I subtracted 2 miles for short breaks here or there where the road crossed or farm houses were allowed a unobstructed view. The Wallowa County Chieftain reports however that up to 30 miles of rail line have been leased for the purpose of mothballed lumber car storage.

Below is a close up of the empty lumber transport cars now mothballed in Eastern Oregon:

Empty Lumber Transport Cars

If meaning is use, then President Obama is a socialist, and there can’t be any argument about it — if the American people are allowed a vote in the matter.

But leftist in the media and academia believe the language is theirs to manipulate and control, as it has been since the 1930s. Well, it isn’t 1936 any longer.

We live in an age when the word gets out no matter how much camouflage has been used to hide who you are and how you became infused with your deepest ideals and understandings.

At bottom what animates the unfolding of the socialist project and the agenda of the Obama regime is the rejection of common principles developed across the ages for whatever “pragmatic” and changing expediency is required to achieve particular immediate ends, especially for particular favored groups. Under Obama we have seen more and more of the economy falling under the direction of arbitrary bureaucratic control outside of the bounds of the rule of law. And there is no end in sight.

The road to serfdom requires little more than that.

Steve Wynn is mad as hell about Obama and the American political elite:

“Macau has been steady. The shocking, unexpected government is the one in Washington. That’s where we get surprises every day. That’s were taxes are changed every five minutes. That’s were you don’t know what to expect tomorrow. To compare political stability and predictability in China to Washington is like comparing Mt. Everest to an ant hill. Macau and China is stable. Washington is not. Is there a businessman or a media person in America who isn’t frightened by the next crazy idea that’s coming from Washington? The financial institutions, the cars, the businessmen, the taxes, the health care, everything is coo coo and God knows what’s next.”

Watch the whole thing.

The existential question of our time. Salma Hayek with a snake or Friedrich Hayek with Glenn Beck?

Glenn Beck’s show on Hayek’s The Road to Serfdom featuring Mises Institute Senior Fellows Yuri Maltsev and Tom Woods:

— crashed Hayek’s Wikipedia entry.

— sent the GOOGLE search phrase “The Road to Serfdom” to “volcanic” status and #1 on Google Trends.

— rocketed the audio version of The Road to Serfdom to #2 on iTunes.

— launched The Road to Serfdom to #1 on Amazon, where it still stands. (Buy it from the Mises store here.)

— pulled all sorts of Hayek books and Hayek-related books into the Amazon bestseller lists, including Ludwig von Mises’ Socialism, #2 in the “political doctrines/socialism” category. (Buy it from the Mises store here.)

Just a guess, but I’ll wager there was a spike in the sale of some of these as well.

Here’s Beck’s opening monologue and his discussion with Tom Woods from yesterdays “The Road to Serfdom” show:

UPDATE: Something I just noticed. You can now purchase the full Mises Store collection of Hayek books at a 15% discount.

Friedrich Hayek’s The Road to Serfdom is a bestseller again, thanks to today’s Glenn Beck Show on Friedrich Hayek’s The Road to Serfdom.

Mises Institute Senior Fellow Yuri Maltsev was one of Glenn’s guests:

]]> http://blog.mises.org/12918/1-among-all-books-sold-at-amazon/feed/ 41 http://blog.mises.org/12687/elena-kagan-sonia-sotomayer/ http://blog.mises.org/12687/elena-kagan-sonia-sotomayer/#comments Tue, 11 May 2010 19:26:49 +0000 Greg Ransom http://blog.mises.org/?p=12687

Who knew that the express way to the Supreme Court would be through the left wing Princeton history department?

More on Kagan’s early career as a young leftist scholar here and here.

Barack Obama and the new age of “diversity” has given us two left wing Ivy League females — identically unmarried and childless — not simply from the same city and same state, and not simply from the same undergraduate college, but from the very same undergraduate degree program ..

Paul Krugman on “epistemic closure”.

Only the President knows why, but Obama seems most comfortable speaking about how he’s going to run the commanding heights of the economy at the place he knew well from his annual participation in the Socialist Scholars Conference.

I’m working on a list of the books that influenced F. A. Hayek — read my list here.

I’d like to ask readers here for suggested additions to the list and comments or criticisms of the rank ordering. If I can work the thing up into something a bit more substantial, I’ll offer it to Jeff Tucker as a submission here on the Mises site.