Sure I can, and I have in a distant past, but the point is that in todays world buying the market is praxeologically instable (because some major actors in the economy can distort incentives with other people's money and against their will).
Edit: I'm currently in gold and silver indeed, and if Belgian farm land law wasn't so corrupted in favor of the farmers, I'd buy some farm land too. My general strategy nowadays is "keep counterparty risk as low as possible".
Smiling Dave:I disagree with your Keynesian twist: "animal spirits" overtake investors leading to irrationally optimistic "malinvestments" in particular sectors. I think that states my position very well. Not everyone here agrees with it. I just want to make sure one qualification is clearly understood: The animal spirits start frisking about only after there is a flood of cheap money.
I disagree with your Keynesian twist: "animal spirits" overtake investors leading to irrationally optimistic "malinvestments" in particular sectors.
I think that states my position very well. Not everyone here agrees with it. I just want to make sure one qualification is clearly understood: The animal spirits start frisking about only after there is a flood of cheap money.
Exactly! This is exactly where our two perspectives differ: I don't believe investors can be irrationally and repeatedly mistaken if the same trick is being used to interfere in the marketplace.
Let me quote from my insentient god, Wikipedia, Beyond the normal utility maximizing agents, the efficient-market hypothesis requires that agents have rational expectations; that on average the population is correct (even if no one person is) and whenever new relevant information appears, the agents update their expectations appropriately. Note that it is not required that the agents be rational. EMH allows that when faced with new information, some investors may overreact and some may underreact. All that is required by the EMH is that investors' reactions be random and follow a normal distribution pattern so that the net effect on market prices cannot be reliably exploited to make an abnormal profit, especially when considering transaction costs (including commissions and spreads). Thus, any one person can be wrong about the market—indeed, everyone can be—but the market as a whole is always right.
"I'm not a fan of Murray Rothbard." -- David D. Friedman
Neoclassical, yes that qoute makes sense, but even so the market will react to market distortions again and again as a portion of the capital has a lower time horizon than the expected period of distortion. So even neoclassicals, based on RE based on an unsound methodology, should come to the conclusion that ABCT is right and that the structure of production is key in economic theory.
Smiling Dave:I'm getting mixed messages here. 1. On the one hand you say that people know what they are doing and will use the info at their disposal to make a profit. 2. On the other hand, people succeed pretty much randomly at this. They get things right about half the time.
1. On the one hand you say that people know what they are doing and will use the info at their disposal to make a profit.
2. On the other hand, people succeed pretty much randomly at this. They get things right about half the time.
There's an old economics joke, perhaps you've heard it, about an economist strolling down the street with a companion when they come upon a $100 bill lying on the ground. As the companion reaches down to pick it up, the economist says "Don’t bother — if it were a real $100 bill, someone would have already picked it up."
I believe that all exploitable opportunities for profit will be exploited. Thus, I believe in the random walk hypothesis.
Neoclassical: If we believe Hayek that none of us know what a price ought to be apart from what market processes determine, then how can you know when a bubble has emerged? Now there is a really good question. It is indeed an art, and requires a great gift to know something like that, IMHO. I also think that the basic clue is this: If a huge amount of people are buying something, a house or a stock or a commodity, not because they intend to keep it, but rather with the anticipation of selling it soon at a profit, that means the price is going to fall steeply before too long. To clarify, I don't know how much a loaf of bread should cost; I bet, on average, more people will complain "that costs too much" than "that costs too little," though, regardless of the product. That's not the same kind of "too high" as we are talking about here. People complaining that a loaf of bread costs too much does not mean that they anticipate that the price will be going down. Which is what we mean by "too high" in the context of this discussion of bubbles.
If we believe Hayek that none of us know what a price ought to be apart from what market processes determine, then how can you know when a bubble has emerged?
Now there is a really good question.
It is indeed an art, and requires a great gift to know something like that, IMHO.
I also think that the basic clue is this: If a huge amount of people are buying something, a house or a stock or a commodity, not because they intend to keep it, but rather with the anticipation of selling it soon at a profit, that means the price is going to fall steeply before too long.
To clarify, I don't know how much a loaf of bread should cost; I bet, on average, more people will complain "that costs too much" than "that costs too little," though, regardless of the product.
That's not the same kind of "too high" as we are talking about here. People complaining that a loaf of bread costs too much does not mean that they anticipate that the price will be going down. Which is what we mean by "too high" in the context of this discussion of bubbles.
BTW, why do you laugh at the advice to buy gold?
And guys, when the debate begins, please provide a link or something so we can follow it.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Neoclassical: Smiling Dave:I'm getting mixed messages here. 1. On the one hand you say that people know what they are doing and will use the info at their disposal to make a profit. 2. On the other hand, people succeed pretty much randomly at this. They get things right about half the time. There's an old economics joke, perhaps you've heard it, about an economist strolling down the street with a companion when they come upon a $100 bill lying on the ground. As the companion reaches down to pick it up, the economist says "Don’t bother — if it were a real $100 bill, someone would have already picked it up." I believe that all exploitable opportunities for profit will be exploited. Thus, I believe in the random walk hypothesis.
The state is not the enemy. The idea of the state is.
Smiling Dave:BTW, why do you laugh at the advice to buy gold?
I don't really. I wish I had more money to buy bullions!
P.S. The fact that the price of gold rises as the money supply is debauched is a strong defense that even Austrianism is already well-reflected in the market!
Neoclassical:If we believe Hayek that none of us know what a price ought to be apart from what market processes determine, then how can you know when a bubble has emerged?
And why is it important to know when a bubble has emerged?
Do you assert that central bank policy has no affect on the structure of production (the essence of ABCT)?
"The market is a process." - Ludwig von Mises, as related by Israel Kirzner. "Capital formation is a beautiful thing" - Chloe732.
Yes neoclassical, please respond Chloe's question, it's the essence of it all. See my post a bit higher on this page for the reasoning why even RE should lead one to conclude structure of production is key.
chloe732:Here is John Cochran (different guy, similar name) on the subject of real business cycles. Austrian Business Cycles, Plucking Models, and Real Business Cycles
Austrian Business Cycles, Plucking Models, and Real Business Cycles
Thanks! Good read!
Real business cycle theorists see the pattern of expansion and contraction present in economic data as the economy’s response to exogenous productivity shocks.16 These “modern theories of business cycles attribute cyclical fluctuations to cumulative shocks and disturbances that continuously buffet the economy. In other words, without shocks there are no cycles” (Chatterjee 2000, 1). Money and central bank policy is largely irrelevant with respect to economic expansions and downturns. But, while policy errors do not cause downturns, counter-cyclical policies are counterproductive, they entail costs in excess of benefits (Prescott 1986, 21 and Chatterjee 1999, 18).
Austrian business cycle theory and real business cycle theory may be somewhat complementary.
Neoclassical,
Um...you took the quote from John Cochran's paper out of context. What about the rest of it?
Consultant:Yes neoclassical, please respond Chloe's question, it's the essence of it all.
@Neoclassical,
Your reading list is extensive. Why do avoid our questions directed toward the structure of production?
Clearly, you could say "the structure of production is a fiction that does not assist in understanding economic phenomenon. Therefore, describing how central bank policy affects the structure of production is irrelevant".
That would be an answer and we could move on. But you are silent. Why?
chloe732: Neoclassical:If we believe Hayek that none of us know what a price ought to be apart from what market processes determine, then how can you know when a bubble has emerged? And why is it important to know when a bubble has emerged?
You people sure do seem to praise those with such prophetic powers (e.g., Peter Schiff). Once again, I claim that this requires an omniscience that Hayek explicitly denies. People are right, sure, in hindsight--but a regular doomsayer like Schiff is bound to be right from time to time.
chloe732:Do you assert that central bank policy has no affect on the structure of production (the essence of ABCT)?
The structure of production? That's make-believe.
chloe732:Neoclassical, Um...you took the quote from John Cochran's paper out of context. What about the rest of it?
Any quote is out of context. I do not find the quote to have a misleading message. Ultimately, I simply wanted to present a concise definition of RBCT.
Of course external shocks can lead to local and temporary "bubbles". This does not logically exclude ABCT nor did you explain how you can believe RE and NOT admit structure of production is key.
The structure of production? That's make-belief
Ok, than show me the logical inconsistency in my reasoning from a few posts earlier:
Neoclassical, yes that (RE) qoute makes sense, but even so the market will react to market distortions again and again as a portion of the capital has a lower time horizon than the expected period of distortion. So even neoclassicals, based on RE based on an unsound methodology, should come to the conclusion that ABCT is right and that the structure of production is key in economic theory.
Neoclassical:The structure of production? That's make-believe.
NOW WE ARE GETTING SOMEWHERE! Thank you.
Your replies now make perfect sense given that you reject the reality of the structure of production. We contend the essence of ABCT is the distortion of the structure of production, but you deny the existence of said structure.
No wonder we are talking past each other.
Neoclassical: chloe732:And why is it important to know when a bubble has emerged? You people sure do seem to praise those with such prophetic powers (e.g., Peter Schiff). Once again, I claim that this requires an omniscience that Hayek explicitly denies. People are right, sure, in hindsight--but a regular doomsayer like Schiff is bound to be right from time to time.
chloe732:And why is it important to know when a bubble has emerged?
That's a less than artful dodge amigo. People like Schiff are not right because they are prophetic, but because they understand the structure of production (which you call make believe) and they understand business cycle theory.
When one denies the foundation of another's understanding, then of course it will all seem like prophecy. It's your lack of understanding that elevates Schiff to the supernatural.
Only in hindsight can we spot bubbles. That doesn't make them any less real. Analysis is not contingent on prescience.
Neoclassical, it's indeed true that RE says that all info will be taken into account (efficient market hypothesis).
It comes in degrees of strength. Weaker forms include publicly known information whereas the strongest will require insider information to be accounted for as well.
How so?
Freedom of markets is positively correlated with the degree of evolution in any society...
yessir: What was the real shock in 2007?
What was the real shock in 2007?
@yessir,
I see you've asked the question twice. I can't answer for the OP, but this is what I think real business cycle theorists would say:
They would provide a litany of "external shocks"; the market for sub-prime mortgages dried up suddenly, Fannie Mae collapsed, fraud, lack of regulation, the President of the U.S. made a negative speech in Sept. 08 that scared every one, etc.
They will come up with a variety of external shocks that fit their theory.
They won't tell you that the Fed tightened the money supply between June '04 (1%) and June '06 (5.25%), the growth momentum of the money supply slowed, malinvestment was exposed (because malinvestment requires an ever increasing growth momentum of money supply to sustain it), and the bust began.
Indeed, and the reason they call these things external shocks is because they don't allow the structure of production into their models.
chloe732:@yessir, I see you've asked the question twice. I can't answer for the OP, but this is what I think real business cycle theorists would say: They would provide a litany of "external shocks"; the market for sub-prime mortgages dried up suddenly, Fannie Mae collapsed, fraud, lack of regulation, the President of the U.S. made a negative speech in Sept. 08 that scared every one, etc. They will come up with a variety of external shocks that fit their theory. They won't tell you that the Fed tightened the money supply between June '04 (1%) and June '06 (5.25%), the growth momentum of the money supply slowed, malinvestment was exposed (because malinvestment requires an ever increasing growth momentum of money supply to sustain it), and the bust began. Maybe you shouldn't speak on theories you're not familiar with? "Malinvestment"? Seriously? Did you read this thread? "I'm not a fan of Murray Rothbard." -- David D. Friedman | Post Points: 35
Maybe you shouldn't speak on theories you're not familiar with?
"Malinvestment"? Seriously? Did you read this thread?
chloe732:@yessir, I see you've asked the question twice. I can't answer for the OP, but this is what I think real business cycle theorists would say: They would provide a litany of "external shocks"; the market for sub-prime mortgages dried up suddenly, Fannie Mae collapsed, fraud, lack of regulation, the President of the U.S. made a negative speech in Sept. 08 that scared every one, etc. They will come up with a variety of external shocks that fit their theory. They won't tell you that the Fed tightened the money supply between June '04 (1%) and June '06 (5.25%), the growth momentum of the money supply slowed, malinvestment was exposed (because malinvestment requires an ever increasing growth momentum of money supply to sustain it), and the bust began. Maybe you shouldn't speak on theories you're not familiar with? "Malinvestment"? Seriously? Did you read this thread? "I'm not a fan of Murray Rothbard." -- David D. Friedman | Post Points: 5
Neoclassical, malinvestments are indeed a crucial part of the Austrian explanation of the business cycle. She did not say you claim malinvestments, she said "they won't tell you that... (Austrian point of view)".
Now please tell me what theories you use to advise ancap and how those theories don't make the fallacy of using a cardinal interpretation of ordinal utility. (Or if they do, why it would somehow be acceptable, ignoring what even mainstream micro-economists can tell you.)
Consultant:Now please tell me what theories you use to advise ancap and how those theories don't make the fallacy of using a cardinal interpretation of ordinal utility. (Or if they do, why it would somehow be acceptable, ignoring what even mainstream micro-economists can tell you.)
Quoting Caplan, According to Rothbard, the mainstream approach credulously accepted the use of cardinal utility, when only the use of ordinal utility is defensible. As Rothbard insists, "Value scales of each individual are purely ordinal, and there is no way whatever of measuring the distance between the rankings; indeed, any concept of such distance is a fallacious one."[3]
At first, Rothbard appears to limit his criticism solely to "Those writers who have vainly attempted to measure psychic gains from exchange" by their consumer's surplus.[4] But it soon becomes clear that Rothbard rejects the entire utility-function approach as incoherent: "The chief errors here consist in conceiving utility as a certain quantity, a definite function of an increment of the commodity... Utilities are not quantities, but ranks..."[5] As if to emphasize the strength of his disagreement with the mainstream approach to utility, Rothbard goes on to dismiss the standard intermediate micro theorem "that in equilibrium the ratio of the marginal utilities of the various goods equals the ratio of their prices. Without entering in detail into the manner by which these writers arrive at this conclusion, we can see its absurdity clearly, since utilities are not quantities and therefore cannot be divided."[6] What initially appeared to be a slight difference in nomenclature yields serious disagreement about some fairly basic issues.
As plausible as Rothbard sounds on this issue, he simply does not understand the position he is attacking. The utility function approach is based as squarely on ordinal utility as Rothbard's is. The modern neoclassical theorists - such as Arrow and Debreau - who developed the utility function approach went out of their way to avoid the use of cardinal utility.[7] Let a neoclassical theorist say "bundle one offers utility of 8, while bundle two offers utility of 7," and Rothbard concludes that he believes in cardinal utility. But the language here is technical; to parse it, you must return to the underlying definitions. Upon doing so, you will find that the meaning of "bundle one offers utility of 8, while bundle two offers utility of 7" is nothing more or less than "bundle one is preferred to bundle two." A utility function is just a short-hand summary about an agent's ordinal preferences, not a claim about "utils."[8] This is why neoclassicals say that the utility function is uniquely defined up to a monotonic transformation. You can rescale any utility function however you like, so long as you re-scale it monotonically.[9]
What about the theorem - that Rothbard dismissed - which claims that utility-maximizing individuals equalize the marginal utilities of goods consumed divided by their prices? Doesn't this show that neoclassicals believe in cardinal utility? No, it does not; statements made in technical jargon often sound absurd if you forget the underlying definitions. A utility function just uses numbers to summarize ordinal rankings; it doesn't commit us to belief in cardinal utility. Deriving the marginal utility of individual goods from this function commits us to nothing extra.[10]
liberty student:People like Schiff are not right because they are prophetic, but because they understand the structure of production (which you call make believe) and they understand business cycle theory. When one denies the foundation of another's understanding, then of course it will all seem like prophecy. It's your lack of understanding that elevates Schiff to the supernatural.
WTF? I specifically pointed out that I did not believe Schiff made correct predictions; I specifically denied him prophetic abilities, let alone any "supernatural" attribute.
I said that Schiff, popular as an economic doomsayer, was bound to be right from time to time.
Can someone relabel this video "Peter Schiff was VERY wrong": http://www.youtube.com/watch?v=8Cz-6tYHK8I. Below 2000?
Peter Schiff has been critical of the U.S. economy for a reason, not because of a natural pessimism. He responded to criticisms of his views earlier: First of all, the hyper inflation issue is a straw man at best. While I often talk about the possibility of hyper inflation, I have always said that it would be a worse-case scenario that would play out over many years. The fact that it did not appear in the first year of the economic crash (2008) does not invalidate my position. I have always maintained that this worst-case scenario will likely be avoided by what will ultimately be a dramatic shift in policy once our leaders come to their senses. However, until then the dollar will likely lose a substantial portion of its value. Second, I never said that the dollar would go to zero, either in 2008 or any year thereafter. I have said that in the event of hyper inflation the dollar's value would approach zero. My actual forecast in my book "Crash Proof" was that the Dollar Index would fall to 40 (currently about 85), with a realistic worst case scenario, assuming very high but not hyper inflation, of 20 or lower. Third, the blogger points out that because the decoupling theory (foreign economies improving while the U.S. falters) that I wrote about in "Crash Proof" has yet to occur, that the theory itself was ridiculous. In my book I wrote that this process would not occur overnight, that initially our creditors would come to our aid, and in so doing our problems would become manifest abroad. I wrote that it would take time for the world to realize that what had been decoupled from the economic train was not the engine but the caboose. In fact, that is precisely the way it is playing out. Chapter Ten of "Crash Proof" is specifically focused on the need to keep funds liquid to take advantage of the buying opportunity that would initially develop once our stock market began its collapse. I specifically mentioned that when U.S. stocks began to fall, we could expect sympathetic declines overseas. While I did not know the precise timing of those events, I advised readers to prepare. I did not expect the huge dollar rally of 2008. But to discredit my long-term view of the dollar based on an eight month move is absurd. So while I believed that a weak dollar would cushion the temporary decline I expected in foreign stocks, a strong dollar ended up exacerbating it. In the meantime, I believed that the high dividends these stocks were paying would make it easier to ride out any correction. The problem was that the dollar fell so far leading up to the crisis (in 2005-2007) that by the time the crisis finally erupted the dollar was poised for a bounce. Central to the argument that my investment thesis is wrong is the belief that the crisis is over or that the recent trends will continue until it is. But the crisis is just beginning and the movements thus far in the dollar, commodities, and foreign stocks, are mere head fakes. Once the speculators have been flushed from the markets, the underlying long-term trends I have been following should return in earnest.
Schiff also said: My central investing premise, a weakening dollar and safety in gold, commodities and foreign stocks, didn't materialize in 2008. But all the ingredients were (and remain) present for those movements to occur. Over the past year, market reactions that I didn't foresee -- massive global deleveraging, a knee-jerk "flight to quality" into U.S. Treasurys and a sharp countertrend rally in the U.S. dollar -- have kept the scenario from playing out. Throughout my career, I have never claimed great ability to time markets. I was against tech stocks in 1998, and homebuilders and financials in 2004. These stands cost me (and my clients) short-term profits. In contrast, my record of long-term forecasts is well above par and has produced solid long-term results. My clients understand this and, backing their belief with their dollars, have largely remained invested.
Neoclassical, thanks for answering my question, and it's true that you can simply read one person's utility curve ordinally, even if they use numbers.
However, this does not answer my question how these people would give policy advise. The way I see it, it is impossible to ordinally compare utility across persons and make policy recommendations (for society, with n>1 persons) other than "allow free trade".
For example, happiness research has done surveys and concludes people (from the survey, but let's generalize) feel better off living in a neighboorhood where they are the richest, but feel worse when their neighbours are richer.
You can write these findings down in a utility curve and say "but we interpret ordinally", but than how will you make the egalitarian policy recommendations (as happiness researchers do) if you can not know how much better, or how much worse, these rich vs poor people feel because of neighboorhood effects? All happiness research can do without using cardinal utility is reporting these facts and stressing they are not good reason for any policy.
The only way you can be sure ordinally both people are better off is if person A prefers good 1 but has good 2 and person B prefers good 2 but has good 1. However, in this case the market will do the trade, and if the market doesn't, it means there are other preferences preventing the trade from happening. (Unless you can ordinally argue market failures, but you can't.)
Do you get what I'm saying? I can rephrase if it's unclear.
Also, could you give me an example of an actual policy recommendation that is based on ordinal interpretation of utility curves?
Neoclassical: Once again, Smiling Dave, I am not claiming that market participants have perfect forecasting. I am simply saying that all information publicly available is eventually acted upon by self-interested persons seeking profitable opportunities, thereby correcting markets. There can be no systematic mistakes that are repeated over and over again, such as being ignorant of government interference as explained by the ABCT.
Once again, Smiling Dave, I am not claiming that market participants have perfect forecasting. I am simply saying that all information publicly available is eventually acted upon by self-interested persons seeking profitable opportunities, thereby correcting markets. There can be no systematic mistakes that are repeated over and over again, such as being ignorant of government interference as explained by the ABCT.
You misunderstand the entrepreneurial mind-set, which is what makes you echo again and again the same old rational expectation criticism of the business cycle, which has been already adequately addressed by numerous Austrians in the past.
The entrepreneur is always looking for profit opportunities, that is buy low and sell high at some point in the future. That is all. It makes absolutely no difference if the entrepreneurs understand ABCT or not. The manipulation of credit will always induce some entrepreneurs to capitalize on this policy in the hope that they will be the ones with the foresight to "exit" or properly maneuver in time to profit. That the going interest rate in the loans market does not tank to zero is proof that there is a demand for this new credit. Most people will want to take advantage of the lower interest regardless if they think that it is artificially low or not.
Here is another way of thinking about it. According to your objection based on rational expectations, home buyers looking to mortgage a new home or refinance should do what exactly? Not take advantage of a lower interest rate and wait for the interest rate to rise? Are you serious???
Gero, did you even bother to watch the YouTube video I posted?
Consultant, I believe voluntary exchange demonstrably increases ex ante expecations of utility from persons most informed about the choices and outcomes, and that is my "policy" recommendation.
Of course, I believe all public policy is coercive policy; I advocate a free market in law-making, which I believe will tend toward efficient outcomes.
I did watch it. The only claim he made that seemed obviously wrong was the Dow not falling below 500. He did not know Federal Reserve Chairman Alan Greenspan would lower interest rates for a prolonged period inflating a housing bubble in response to the bursting dot-com bubble.
DD5, why would low short-term interest rates lead to inefficient, irrational decision-making?
Let me pose a similar situation.
Most libertarians believe Herbert Hoover was proto-New Deal, not a laissez-faire President. In fact, one measure he took was to ask industry leaders to stabilize nominal wages even though there was rampant deflation. By making wages sticky, these businessmen were clearly going against rational decision-making: leaving wages high would increase unemployment, for instance.
Why would people, en masse, make a mistake like this?
They actually didn't make a mistake; imposing wage rigidity was rational, as Bryan Caplan makes clear.
The marketplace simply can't be fooled like you claim it can. That's my general point. If people are that irrational in "speculative booms," then they are that irrational all the time. They are "habitually on the edge of disaster," as Caplan states elsewhere.
Why is it mutually incompatible for there to be an increasing money supply and rational decision-making? (And don't any of you say they are being rational! Most people didn't rationally choose bankruptcy, foreclosure, lost jobs, etc.)
Neoclassical:Why is it mutually incompatible for there to be an increasing money supply and rational decision-making? (And don't any of you say they are being rational! Most people didn't rationally choose bankruptcy, foreclosure, lost jobs, etc.)
I am just one man! I am being argued with by numerous people, as you cite, and in many different threads!
I checked, and I found that I did not ignore most of them, and the rest I didn't ignore intentionally.
What question did you want me to answer?
neoclassical: I checked, and I found that I did not ignore most of them, and the rest I didn't ignore intentionally. What question did you want me to answer?
Sieben:So? If an entrepreneur knows that not all the projects can be completed because of extra easy credit, he can still take the credit and hope that his venture won't fail right? To stop this kind of behaviour would require some sort of organization of entrepreneurs whereby they all agree to ignore the new credit so that resources don't get bid away to unprofitable projects. But this kind of union would be inherently unstable on the market because there's free entry into entrepreneurship. Alternatively they could just switch off of fiat money, but as long as the government doesn't get too cheeky the costs of doing so will be too high. The government can also offer them sweetheart deals...
Sieben:And I would argue that the status quo is consistent with the market improving over time. Previous inflationary measures by the fed pale in comparison to their current course of action. One interpretation of the status quo is that the market has gotten so good at fighting these inflationary bubbles that the fed has to take more and more drastic measures each time to get the results they want.
Sieben: Then there was also my point about Greenspan Puts that make otherwise unprofitable investments profitable... so you can't short these overinflated markets if the government won't let them fail. This is not explicilty part of ABCT but it explains why the current market couldn't use the knowledge of Austrian Economics to correct the bubble. Of course the root of the problem is *still* interest rates. How the bubble gets corrected is up to the market.
Then there was also my point about Greenspan Puts that make otherwise unprofitable investments profitable... so you can't short these overinflated markets if the government won't let them fail. This is not explicilty part of ABCT but it explains why the current market couldn't use the knowledge of Austrian Economics to correct the bubble.
Of course the root of the problem is *still* interest rates. How the bubble gets corrected is up to the market.
Furthermore, I agree that if we had a purely free market and a banking system starting inflating the money supply, the market would own it in about 10 seconds. So why doesn't it? Because there are all these other rules that create a market failure.
Sieben:You're not really criticizing ABCT in itself then are you. You just think that its unlikely for ABCT to continue indefinitely on the market, which makes the Austrian kneejerk responce to blame interest rates null (eventually). So then would you agree with a formulation of ABCT that said artificial manipulation of interest rates causes *problems*, which may or may not result in a bust? I think this would actually be more consistent with Austrianism, since we let go of our vague claim to some future bust. Conceivably the bust could be averted by some actions taken by entrepreneurs but the market fundementals are still problemmatic.
>>In fact, one measure he took was to ask industry leaders to stabilize nominal wages even though there was rampant deflation
are you arguing that Hoover did no more than merely suggest business strategies to business leaders for them to consider; he was purely rhetorical?
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring