Austrian Thymologists Who Predicted the Housing Bubble by Walter Block http://archive.lewrockwell.com/block/block168.html Home | Blog | Subscribe | Podcasts | Donate Austrian Thymologists Who Predicted the Housing Bubble by Walter Block Recently by Walter Block: Rejoinder on the BP Oil Spill I think it is very important that we keep track of, and thank, the Austrians who predicted the housing bubble. Let this signal contribution of the praxeological school never fall down that proverbial memory hole. Why do I say this? For one thing, to give credit where credit is due. All too often, mainstream economists take credit for all and sundry; it is time, it is long past time, that some credit be publicly accorded to Austrian economics and its practitioners, and predicting the housing bubble will do quite well as one small part of these accomplishments. For another, I focus on these predictions in order to promote this school of economics, the last best hope for humanity. Were the school of thought of Menger, Böhm-Bawerk, Mises and Rothbard more widely known, and public policy more heavily based upon it, we would not be suffering from the economic quandary that now envelopes us. Previously, I blogged on this subject, mentioning that I was trying to put together a list of citations of Austrians who had predicted the housing bubble. I offered there the beginnings of this list, and asked people to help me make it more complete. I now thank the following scholars for helping me add to this bibliography: Rick Burner, Matt Dioguardi, Mike Finger, Kevinz Kevz, Julio Linares, Mickey Propadovich, John Spiers, Scott Sutton, Scott Weisman. As you will see below from the TBA’s, this bibliography is not yet in its final stage. So, gentle reader, please correct any of my remaining errors of omission or commission. I am determined to put together as complete and accurate a bibliography of this signal contribution of Austrian economics as possible. Before giving you this list, which I hope and trust you will cite in anything you write about this sorry episode of American economic history, allow me a few methodological, philosophical words. Austrian economists, qua Austrian economists, or praxeologists, do not predict. Period. In what sense, then, am I putting together this list of Austrians who have predicted the housing bubble? It is in the sense that they predicted this phenomenon not as formal economists, or praxeologists, but, rather, in their role as thymologists, or economic historians; see on this here. A metaphor that may clarify this distinction is that between a musician playing scales, and then rendering the music of Mozart. In a basic sense, the two are very different. Yet, surely, facility with the former renders the latter ability more sophisticated and knowledgeable. So is it with praxeology and thymology. Knowledge of the former offers no guarantee of the latter; but, it surely helps. Praxeology is the science of (Austrian) economics. It gives us apodictically certain laws, or basic axioms, or synthetic a priori truths that need not be, indeed, cannot be, tested; they can only be (empirically) illustrated. For example, here are a few axioms provided by perhaps the world’s presently active leading praxeologist, Hans Hoppe: "Whenever two people A and B engage in a voluntary exchange, they must both expect to profit from it. And they must have reverse preference orders for the goods and services exchanged so that A values what he receives from B more highly than what he gives to him, and B must evaluate the same things the other way around. "Or consider this: Whenever an exchange is not voluntary but coerced, one party profits atServer not the expense of the other. "Or the law of marginal utility: Whenever the supply of a good increases by one additionalfound unit, provided each unit is regarded as of equal serviceability by a person, the value attached to this unit must decrease. For this additional unit can only be employed as a means for the Firefox can’t find the server attainment of a goal that is considered less valuable than the least valued goal satisfied by a at widgetserver.amazon.com. unit of such good if the supply were one unit shorter. "Or take the Ricardian law of association: Of two producers, if A is more productive in the production of two types of goods than is B, they can still engage in a mutually beneficial division of labor. This is because overall physical productivity is higher if A specializes in producing one good which he can produce most efficiently, rather than both A and B producing both goods separately and autonomously. "Or as another example: Whenever minimum wage laws are enforced that require wages to be higher than existing market wages, involuntary unemployment will result. "Or as a final example: Whenever the quantity of money is increased while the demand for money to be held as cash reserve on hand is unchanged, the purchasing power of money will fall." 1 of 5 11/7/2016 3:11 PM Austrian Thymologists Who Predicted the Housing Bubble by Walter Block http://archive.lewrockwell.com/block/block168.html Another way of putting the matter is that praxeology is concerned with contrary-to-fact conditional statements that are incapable of being refuted (on this see Hülsmann). For example, a minimum wage law will raise unemployment higher than it otherwise would have been, had there been no such law; a rent control ordinance will reduce the quality and quantity of rental housing below the level that otherwise would have obtained. But will a minimum wage law necessarily result in more unemployment, or rent control in poorer housing? No: other things might have changed, to render these predictions incorrect. For example, Bill Gates might hire low skilled workers, in order to refute our analysis, or, wealth might increase, improving housing. Why are praxeologists so tentative in their statements about real world conditions? It is because economic laws are predicated upon ceteris paribus conditions; A causes B, other things remaining the same. But, in the real world, other things cannot be relied upon to always remain constant. Therefore, predictions of the "A will necessarily lead to B" type are strictly prohibited. Instead, praxeologists, but not thymologists, must limit themselves to statements of the if-A then-B variety. In sharp contrast, the thymologist or Austrian influenced economic historian labors under no such restrictions. He can go out on a limb, and make predictions about the future, which are of course subject to refutation. The scholars soon to be mentioned (I sure know how to keep you on the edge of your seats, don’t I?) laid it all on the line in the sense that their economic understanding (verstehen) could be exposed as hopelessly out of step with reality. But, in the case of the housing bubble for these economists, this was not at all true. Rather, their economic understanding was dead on. The reason I went into this long song and dance about Austrian methodology and prediction is because of this letter I recently received in my quest for housing bubble predictions on the part of Austrian economists; its author shall remain anonymous: "This exercise reminds me of the Yogi Berra quote, ‘prediction is very hard, especially when it is about the future.’ I also recall Burt Blumert saying, ‘It’s ok to forecast the end of the Server not world, but don’t ever give a date." "I discovered Austrian economics and LvMI in 1989. Here my impressions of the found forecasting record of the Austro-Misesian camp since: "Late 1980s – Japan’s property and equity bubbles were classic ABCT, yet Austrians wereFirefox can’t find the server notably silent. Some of this can be attributed to the small number of Austrians at the time.at widgetserver.amazon.com. Joe Salerno gave a speech about the Japan bubble at a LvMI conference in Toronto in 1999 (see here). Unfortunately this was well after the fact. "Late 1990s, early 2000s – Austrians were mostly quiet about the tech/dot-com bubble. There were exceptions among academics (Christopher Mayer, George Reisman, Guido Hulsmann, Sean Corrigan) as well as practitioners (Jim Grant, Tony Deden). I remember discussions with David Tice during the early 2000s about how Austrians were missing a golden opportunity to stick their necks out on the forecasting block regarding the tech bubble. "2002–2007 – Austrians hit a monster home run with regard to the Greenspan response to the tech bust, the GSEs, housing bubble, credit bubble, and gold. This is when LRC took off, amplifying any credibility by getting it right. Btw, the Fed-lite GMU/Koch/Cato camp largely missed these bubbles, a major forecasting black eye. "Today – We have more "Austrian" forecasters than ever. Is China a bubble? The supposedly Austrian-leaning Jim Rogers, Peter Schiff, Jim Puplava, and Adrian Day say "no." Left-leaning Jim Chanos says "yes." I tend to agree with Chanos. So what happens to the credibility of Austrian economics if the China bubble bursts? Will the fault lie in the theory or those applying it? "10–20 years ago, most Austrians were highly skeptical of making economic predictions. Now, after one good call, the Austrian brand is attracting a number of self-promoters who have no such qualms. They lack humility and consistency, and ultimately could discredit the brand. Perhaps this is simply the downside of gaining in popularity." Without any further ado, here is the bibliography. Ordinarily, I would use hyperlink for the URLs that follow. In this case, I will not do so, in order to make it easier for scholars who want to cite (hint, hint) this material in their future publications.