Some problems with modern economic methodology
by Sam Selikoff July 20, 2010
I dissect some of the problems with empiricism in this letter to a professor:
I’ve read a bit more about the Austrian method, and have a slightly better grasp on the differences. It’s true that its claims are not falsifiable via empirical testing; but that is simply due to the nature of economic claims, none of which are quantitative. For example, the claim that human beings employ means to achieve ends (i.e. act purposefully) is not falsifiable, but it is nevertheless true. The rest of economic law is logically deduced from this main axiom of action.
The merit that I see in this method of apriorism is that it logically limits our interpretation of historical events. Empiricism’s claims, on the other hand, can never be ultimately proven or unproven, verified or rejected. And since there are no a priori statements about the nature of human action, a Keynesian can look at data from the 1930’s and say we didn’t have enough deficit spending, and that once we ran up the deficits we got out of the Depression, while a non-Keynesian can look at the exact same data and say that the Hoover deficits were the highest peacetime deficits in our country’s history, and that after the war we went from a massive deficit to a small surplus, yet growth remained strong.
It just seems to me that without a theoretical understanding of the nature of market events grounded in statements that are necessarily true, this type of back-and-forth can never be satisfactorily resolved. Even the macro professor at the UVA open house said something to the effect of, “We are re-writing our macro books and they should be ready by the time you guys start choosing field specialities.” I think statistical testing has its place, but only as a tool to gauge whether or not certain causal events transpired in the past. The effects of these events, I think, must be deduced logically from the action axiom.
If you’d like to learn more about this, I highly recommend Hans Hoppe’s Economic Science and the Austrian Method.