by Jonathan Newman
Noah Smith has acknowledged the failings of mainstream macroeconomics, but he says that none of the “outside ideas” offer a better replacement. He failed to mention the Austrian school, but we can still show how the Austrian tradition parries his criticisms with ease.
1. Quantitative Models Totally Miss the Nature of Human Action
Smith dismisses all outside approaches that do not produce quantitative forecasts, even though the best, newest, and high-powered quantitative macroeconomic models have failed recently.
The quantitative approach, however, totally misses the nature of human action, the fundamental starting point for economics. All economics boils down to individuals making choices, the outcome of which is dependent on individuals’ preferences.