My comment on Matt Zwolinski's blog entry Libertarianism, Political Action, and Cultural Change...
Here's my criticism of the Austrian Econ approach...but let me first begin with a defense of the approach. Let's start off taking a look at Adam's definition of economics..."When I use the word "economics" I am referring to the academic discipline of "economics" which you will find in "economics departments" at many universities."
Economics is simply the study of scarcity..."don't you know matches is scarce on this island" (Rabbitson Crusoe). If all our resources were unlimited then the field of economics wouldn't exist. The most important economic question is...how can we guarantee the best possible use of limited resources? Well...Matt's article in question offers a perfect example of the solution.
"Libertarians, like everyone else, have limited time, money and other resources. And if we want to advance the cause of liberty, we should use those resources in the way that has the highest expected return. The Paul campaign is not it."
The economic term for this concept is "opportunity cost". Matt wants all Ron Paul supporters to consider the opportunity costs of the time/money that they spend on Paul's campaign. In order to maximize the return on your investment you should consider what you are going to forego/sacrifice as a result of your spending decisions. In other words...a dollar that you spend on Paul's campaign can't also be spent supporting the IHS.
What the Austrian Econ approach has completely correct is that you can't efficiently allocate resources by proxy. Why is that? Because there's no way of truly knowing whether Matt is correct that the Paul campaign does not offer the highest return on our investment. In other words...it's entirely possible that Matt might be wrong. Of course, it's entirely possible that Paul's supporters might be wrong as well.
Now, what many of the academic disciplines at the "economic departments" are trying to do is to create models that can accurately predict whether Matt is right or wrong. Is it possible to create a model that accurately computes the myriad of possible factors? Sure. Are we even vaguely close to being able to create such models? Obviously not.
Matt can't truly know whether Paul's campaign does not offer the highest expected return because he, like the rest of us, only has partial knowledge...
"The problem is thus in no way solved if we can show that all the facts, if they were known to a single mind (as we hypothetically assume them to be given to the observing economist), would uniquely determine the solution; instead we must show how a solution is produced by the interactions of people each of whom possesses only partial knowledge. To assume all the knowledge to be given to a single mind in the same manner in which we assume it to be given to us as the explaining economists is to assume the problem away and to disregard everything that is important and significant in the real world." - Friedrich Hayek, The Use of Knowledge in Society
That's my defense of the Austrian approach. Here's my criticism...
What the Austrian Econ approach has completely wrong is the belief that there is no third solution. Just because we can't efficiently allocate resources by proxy does not automatically imply that we should reduce the scope of government. It just implies that we should have the option to directly, rather than indirectly, allocate our taxes.
Just like it's a good thing for people to consider the opportunity costs of donating to the Ron Paul campaign...it would also be a good thing for people to consider the opportunity costs of their tax allocation decisions. We would benefit as a country if each and every taxpayer was given the freedom to try and maximize the return on their tax investment.
This invisible hand approach to the scope of government...aka pragmatarianism...would allow us to hedge our bets.