I am merely an incidental economist. In my education and career as an antitrust and patent lawyer, I have been formally trained in and had occasion to apply as much microeconomics and econometrics as is required to understand applied theory of competition and property. But in macroeconomics, I am as susceptible to enthusiasm and blindness as any autodidact.
Knowing this, I tend to seek and and rely on the consensus of experts. But unlike, say, in evolutionary biology and climatology, the fundamental controversies in macro do not seem to be largely manufactured by interests and cranks. The efficient-markets hypothesis, for example, appears to be genuinely and increasingly contested among serious scholars. Yet should not the recent success of monetary and fiscal intervention in staving off another Great Depression have cemented the Keynesian portion of the neoclassical synthesis?
Lately, I’ve become aware of a number of self-styled “Austrians” who claim that Keynesian policies not only fail to ameliorate business cycles, but in fact, produce them. It’s an audacious assertion, and one I might trouble myself to investigate if I were convinced that it reflected a serious vein of dissent among professional economists.
Paul Krugman maintains that Austrian business cycle theory is “as worthy of serious study as the phlogiston theory of fire.” Milton Friedman claimed, less colorfully but no less categorically: “The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false.”
Am I right to interpret this concurrence of opinion by two Nobelists from opposite ends of the political spectrum as a strong evidence that the Austrian critique is misguided? Are latter-day Austrians the economic equivalent of creation scientists and climate-change deniers? Or are there mainstream economists who take them seriously? And if they do, what does it say about macro as science that there should be basic disagreements about a fundamental object of study in the discipline?
I ran these questions by three professional economists – two university professors and one at the Fed. As to how many working economists take Austrians seriously, the answers were, respectively, “don’t know,” “don’t know,” and “maybe one percent.” The one-percenter compared the stature of Austrians in the discipline to that of Marxists. While the respected Austrian may not be a unicorn, he or she is definitely a snow leopard.
But that doesn’t make the neo-Austrian a crank. And in point of fact, one of my economists assured me that at least those few self-identified Austrians of whom he knew with jobs in their field accepted (if not loudly) the need for fiscal and monetary stimulus to spur aggregate demand in times of economic crisis. The real lack of consensus in macro, it seems, is not how to respond to a downturn in the business cycle, but what causes the business cycle in the first place. And if mainstream macroeconomists agree that the Austrian explanation of this phenomenon is demonstrably lacking, it is not because they have a well-supported alternative or viable research program of their own.
Today’s Austrians may be a small and dubious minority. But they have hardly opposed themselves to the edifice of a successful science.