The Many Errors of His Ways … An editorial by well-known leftist economist Joseph Stiglitz has recently been published in the Guardian, entitled’Austerity has been an utter disaster for the euro zone’.
Before we are taking a closer look at it, we want to stress that we also believe that the EU’s approach to economic policy is worth criticizing in many respects. Just because we believe that Mr. Stiglitz is essentially an economic crank doesn’t mean that we disagree with every criticism of the so-called ‘austerity’ policy as pursued by the EU. Below are several excerpts from his article with our comments interspersed.
‘If the facts don’t fit the theory, change the theory,’ goes the old adage. But too often it is easier to keep the theory and change the facts – or so German chancellor Angela Merkel and other pro-austerity European leaders appear to believe. Though facts keep staring them in the face, they continue to deny reality.’
The ‘old adage’ is actually a well-known bonmot by J. M. Keynes – curiously, Stiglitz doesn’t mention that. Although it has merit with respect to the natural sciences, it does not apply to economic theory, which is a science of human action and not a study of inanimate objects without volition. Theorems of economics cannot be proved or disproved with ‘empirical data’. We do e.g. not need empirical data to prove the truth of the theorem of marginal utility, or to create a price or value theory, or to prove the truth of the law of association, etc., etc..
All of these economic laws have been discovered by inner reflection and the process of logical deduction. They are only ‘empirical’ in a Thomist or Aristotelian sense (for a detailed explanation of this point of view, we refer readers to Rothbard’s monograph In Defense of Extreme Apriorism -pdf).
To put it differently: one can use economic theory to explain the facts of economic history, but one cannot use economic history to argue for or against points of economic theory. If we look at economic statistics, we see that every slice of history is slightly different, as the contingent data, which are always extremely complex and varied, are different in every case. And yet, the same economic laws have time and place-invariantly operated in every instance and will continue to do so for all eternity, or at least as long as there are human beings who can act with purpose. Stiglitz continues:
This post was published at Acting-Man on October 2, 2014.