I put Austrian in brackets because it is arguably racist to suggest that an entire nation believes this naive, ideological, illogical fringe theory.

By and large, economics is not a science because most economic assertions are impossible to test in a proper scientific controlled experiment.

But some economic theories CAN be tested. In particular, theories about what the buying-and-selling behaviour of people regarding prices. You can often just gather people in a room, set up a particular situation, and observe how they behave in relation to this situation.

This is known as the practice of behavioural economics. It is one of the very few areas of economics where guesswork and speculation take a back seat to hard and fast experimentally verifiable and falsifiable facts. Dan Ariely is currently the king of behavioural economics, he is the Keynes, Smith, Friedman, Marx and Galbraith all rolled into one of the scientific economics field.

How does this relate to von Mises, his acolytes and their theories? I shall explain.

Austrian economics (and conservative free-market economics in general) boils down to this: everything will be wonderful provided all economic actors are sufficiently flexible in price. Sellers mst react to price signals by lowering prices until a market-clearing event occurs. Workers must lower their wage requirements. Banks must call in their loans. Everyone, regardless of their economic situation must settle for whatever can be achieved in the present moment.

The problem is that the behavioural economists have demonstrated beyond any doubt: this is utterly contrary to human nature. Human beings are extremely inflexible regarding prices. We are, in fact, utterly irrational when it comes to making price decisions.

There are two particularly relevant economic phenomena to this: Price stickiness (people refusing to accept reality and demanding an inappropriate price, and obstinately refusing to concede to the new price) and Money illusion (people mistaking inflation for a real increase in wealth, and spending as if their wealth had really increased). You need to look them up, if you are interested in economics, because they change the game.

This seems a little bit unclear, e.g.:

By and large, economics is not a science because most economic assertions are impossible to test in a proper scientific controlled experiment.

That depends if you think that the only valid forms of science are those involving real-life experiments which control for all extraneous variables. If you think that maths is scientific, then a logical, deductive approach to economics can also be considered scientific.

But some economic theories CAN be tested. In particular, theories about what the buying-and-selling behaviour of people regarding prices.

There aren't very many economic theories which don't concern "the buying-and-selling behaviour of people regarding prices", surely.

Austrian economics (and conservative free-market economics in general) boils down to this: everything will be wonderful provided all economic actors are sufficiently flexible in price. Sellers mst react to price signals by lowering prices until a market-clearing event occurs...

It's not a question of "must", it's a question of "is". The claim is not that markets must clear, but that they do clear, in accordance with the subjective preferences of each actor - preferences which may be emotional, "irrational", etc.

The problem is that the behavioural economists have demonstrated beyond any doubt: this is utterly contrary to human nature. Human beings are extremely inflexible regarding prices. We are, in fact, utterly irrational when it comes to making price decisions.

Which is hardly an argument for government by humans.

feargach

I think people try to maximise prices in all situations but if you are unwilling to drop to meet reality then you will be left with what you are trying to sell.

On the price of a house I'm trying to sell but I had to drop the asking price by 50K. And I'll have to go lower I'm sure. It doesn't mean I like it.

Originally Posted by TradCat

feargach

I think people try to maximise prices in all situations but if you are unwilling to drop to meet reality then you will be left with what you are trying to sell.

On the price of a house I'm trying to sell but I had to drop the asking price by 50K. And I'll have to go lower I'm sure. It doesn't mean I like it.

What has been proven is that people simply will not go lower. They will refuse, dig in their heels and deny reality up to and far beyond the point of disaster. You can lecture them about prudence until you' re blue in the face, but behaviour will not change.

We are not talking about some marginal group of people, we are talking about everyone.

The only group of humans who show some signs in experiments of reacting correctly to price signals are brain-damaged people, and severely autistic people.

This is why Austrian economics works in computer models, where the actors are all logical and behave rationally. But when humans get involved, it all falls apart.

Originally Posted by feargach

What has been proven is that people simply will not go lower. They will refuse, dig in their heels and deny reality up to and far beyond the point of disaster. You can lecture them about prudence until you' re blue in the face, but behaviour will not change.

TradCat has just proven that that's not the case.

Originally Posted by feargach

What has been proven is that people simply will not go lower. They will refuse, dig in their heels and deny reality up to and far beyond the point of disaster. You can lecture them about prudence until you' re blue in the face, but behaviour will not change.

That seems to be a fairly radical misinterpretation of the available results.

Originally Posted by feargach

What has been proven is that people simply will not go lower. They will refuse, dig in their heels and deny reality up to and far beyond the point of disaster. You can lecture them about prudence until you' re blue in the face, but behaviour will not change.

We are not talking about some marginal group of people, we are talking about everyone.

The only group of humans who show some signs in experiments of reacting correctly to price signals are brain-damaged people, and severely autistic people.

This is why Austrian economics works in computer models, where the actors are all logical and behave rationally. But when humans get involved, it all falls apart.

1. Austrians don't use computer models, mainstreamers do. Austrians use verbal reasoning and deductive logic.

2. Austrians don't claim that actors are logical or behave rationally (although you have to be careful about how you define "rational"). It's mainstreamers who do that.

Originally Posted by CookieMonster

TradCat has just proven that that's not the case.

Not quite. He is a statistical outlier. Now I have absolutely no reason to think he is autistic or anything like that, but he is not statistically significant.

Proof requires a statistically significant crowd of people behaving like TradCat.

I know lots of people who need to sell up quickly to avoid disaster, and we all know that they are being obstinate and telling themselves that prices will go back to 2006 levels some time soon.

feargach, these links might help:

An Introduction to Austrian Economics
Economic Science and the Austrian Method by Hans Hoppe

Originally Posted by stringjack

That seems to be a fairly radical misinterpretation of the available results.

I'd like to hear your interpretation of the available results, if you can spare the time.

ILF, I already know not only what Austrian economics is about, I also know why they are wrong.