Mondays with Murray: The Problem with Empirical StudiesSubmitted by Marc Clair on Mon, 04/29/2013 - 12:16
Last week I discussed the fallacies with the analysis of one of the chief propagandists for Keynesian economic policies, Paul Krugman, as he joyously celebrated possible errors in an empirical study that attempted to prove that government “austerity” programs helped the economies of countries that undertook them. Krugman and others believe that these errors disprove the worth of austerity programs (which in their minds relates to cutting government spending, though “austerity” in this sense has largely been a myth), and thereby prove the worth of the government deficit spending that Keynesians advocate.
In that piece I wrote:
The problem lies in methodology. Keynesians believe that their economic policies can be proven and that others can be debunked simply be performing empirical studies. ”Country A had massive deficit spending. The economy of Country A improved. This proves deficit spending is good.”
Students of the Austrian school know that the ideas of economics are derived from logical deductions based on the axiom of human action. All humans act, and act according to a set of preferences they hold. Everything we know about economics can be logically deduced from this fact. No studies are needed, nor are they relevant.
Rothbard describes this well in an Appendix to Chapter 1 of his economic treatise Man, Economy, and State, where he discusses the Austrian method of economic analysis, known as praxeological analysis:
This analysis takes as its fundamental premise the existence of human action. Once it is demonstrated that human action is a necessary attribute of the existence of human beings, the rest of praxeology (and its subdivision, economic theory) consists of the elaboration of the logical implications of the concept of action. Economic analysis is of the form:
1. Assert A- action axiom
2. If A, then B, then C; if C then D, etc. – by rules of logic
3. Therefore, we assert the truth of B,C,D, etc.
This is an important distinction to make between the Austrian school of economics and the more “mainstream” Keynesian view, which emphasizes models and formulas of all kinds for determining the “proper” level of government intervention in the economy. This ignores individual human action entirely, tossing logic out the window along with it.