A friend of mine sent me the wiki "Critiques" of Austrian Business Cycle Theory.
The red flag I noted was the line Nobel laureate Paul Krugman
I was wondering if anyone had any thoughts on these points.
I haven't read up on the crashes that they speak of - any thoughts on these "Critiques"?
The Austrian theory of the business cycle is now rarely discussed by mainstream economists, but was more actively debated in the mid-20th century.[41] Nobel laureate Hayek's formulation of the theory in the 1930s was harshly criticized by John Maynard Keynes, Piero Sraffa and Nicholas Kaldor. In 1932, Piero Sraffa argued that Hayek's formulation of the business cycle required a kind of money that was entirely neutral, and was in effect a simple commodity, unable to act as a store of value or be loaned at interest.[42] Hayek reformulated his theory in response to those objections, but his reformulation was then criticised by Nicholas Kaldor in 1939 [43] and again in 1942.
More recently, mainstream economists like Nobel laureate Milton Friedman,[6][7] Gordon Tullock,[8] Bryan Caplan,[9] and Paul Krugman[10] have stated that they regard the theory as incorrect. David Laidler views the theory as motivated by the political leanings of its major proponents, as Austrian economists are known for their strong opposition to government involvement in the economy, and argues that the theory was discredited because of its association with "nihilistic policy prescriptions" for the Great Depression. On the other hand, Laidler also stated that its core insights were materially worthwhile, especially as related to the work of Dennis Robertson.[44]
In 1988 Gordon Tullock explained his disagreement with the theory.[8] His main point is that "if the process that Rothbard describes did occur, there would be many corporate bankruptcies and business people jumping out of the windows of office buildings, but there would be only minor transitional unemployment. In fact, measured GNP would be higher as a result." This is because the Austrian theory implies fluctuations in investment, but not in the production decisions of firms. Nobel laureate Paul Krugman also made a similar argument when he stated that the theory implies that consumption would increase during downturns and cannot explain the empirical observation that spending in all sectors of the economy falls during a recession,[10].
Mainstream economists argue that the theory requires bankers and investors to exhibit a kind of irrationality – that they be regularly fooled into making unprofitable investments by temporarily low interest rates.[8][9][45] Critics have also argued that, as the theory points to the actions of fractional-reserve banks and central banks to explain business cycles, it fails to explain the existence of business cycles before the establishment of Federal Reserve in 1913. For example, the Panic of 1873 would initiate the Long Depression in US and much of Europe. Additionally, there were also severe market crashes in the United States of the magnitude of the 1929 crash in 1869, 1882, 1884, 1896, 1901, and 1907; there was no central bank or national monetary policy in the US during these crises. In fact, the movement to establish central banking in the United States was in part a response to the business cycle, particularly the Panic of 1907.[46][47]
Mainstream economists believe that economies have experienced less severe boom-bust cycles after World War II, since central banks have started using monetary policy to stabilize economies[48][49][50] – see especially The Great Moderation.
Mainstream economists believe that economies have experienced less severe boom-bust cycles after World War II, since central banks have started using monetary policy to stabilize economies
It was none other than Christina Romer who disproved the notion that the post-World War II economy was any more stable than the era prior to the Federal Reserve. She concludes,
The fact that the prewar industrial production, unemployment, and GNP data are all excessively volatile casts serious doubt on the usual belief that the prewar economy was substantially more volatile than the postwar economy. Indeed, it does appear that the relative stabilization of the postwar economy is a figment of the data. It is important to be very precise about the extent of this conclusion. All three of these studies only examine the data before the Great Depression. As a result, this work in no way challenges the severity of the economic decline of the 1930's. Rather, what this study and its two companions suggest is that the severity of economic fluctuations on both sides of the Great Depression are roughly equal. In fact, one implication of this work may be to emphasize the degree to which the Great Depression is an anomaly in the history of American business cycles.
I would argue that the Great Depression was not an anamoly, and similar to our current recession, it was a product of an extended boom made possible largely due to the existence of a central bank.
On Krugman, if you're interested: Krugman contra Hayek.
In 1932, Piero Sraffa argued that Hayek's formulation of the business cycle required a kind of money that was entirely neutral, and was in effect a simple commodity, unable to act as a store of value or be loaned at interest.
Umm, everything can act as a store of value and be loaned at interest.
David Laidler views the theory as motivated by the political leanings of its major proponents, as Austrian economists are known for their strong opposition to government involvement in the economy, and argues that the theory was discredited because of its association with "nihilistic policy prescriptions" for the Great Depression.
Wonderful academic procedure.
His main point is that "if the process that Rothbard describes did occur, there would be many corporate bankruptcies and business people jumping out of the windows of office buildings, but there would be only minor transitional unemployment. In fact, measured GNP would be higher as a result." This is because the Austrian theory implies fluctuations in investment, but not in the production decisions of firms.
Since when are production decisions not investments?
Nobel laureate Paul Krugman also made a similar argument when he stated that the theory implies that consumption would increase during downturns and cannot explain the empirical observation that spending in all sectors of the economy falls during a recession
Where'd he pull that one from? Don't tell me they're seriously calling Krugman's "Hangover Theory" a legitimate criticism.
Mainstream economists argue that the theory requires bankers and investors to exhibit a kind of irrationality – that they be regularly fooled into making unprofitable investments by temporarily low interest rates.
It's not at all irrational behavior from the perspective of those who are taking out the loans. Is the standard of rationality a clairvoyant understanding of the state of real savings?
Critics have also argued that, as the theory points to the actions of fractional-reserve banks and central banks to explain business cycles, it fails to explain the existence of business cycles before the establishment of Federal Reserve in 1913.
ABCT does not rely on the existence of fractional reserve banking or on central banks.
Additionally, there were also severe market crashes in the United States of the magnitude of the 1929 crash in 1869, 1882, 1884, 1896, 1901, and 1907; there was no central bank or national monetary policy in the US during these crises.
Pure lies. I'm sure suspension of specie payments is just revisionist nonsense, amirite?
Thanks for the replies guys - I figured as much.
I wonder who wrote this crap.
Krugman is a douche.
All you need to do is look at what wiki has to say about global warming...
Although she's not an Austrian, Amity Shlaes is a decent economist and is useful for countering the historical claims made by the ABCT critics.
“Socialism is a fraud, a comedy, a phantom, a blackmail.” - Benito Mussolini"Toute nation a le gouvernemente qu'il mérite." - Joseph de Maistre
Wikipedia articles have to be written objectively, and this includes listing criticism. While the article may not be that great, a good Wikipedia article would not only argue in favor of the ABCT knowing that there is criticism of it. I have wanted to re-write the ABCT article for quite some time, but as an experienced Wikipedia editor I know that it would have to include criticism (criticism without obvious rebuttal, at that).
Wikipedia articles have to be written objectively
Is that why every political argue on Progressivism, Social Democracy and 9/10ths of history are written with a hardcore Progressive slant and loaded terminology?
Wikipedia gets worse every day.
I guess that objectivity is subjective.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
No, it is because the editors are in large part slanted towards those views. But, I didn't claim otherwise. I only argued that any article on ABCT should include opposing viewpoints, whether we agree with them or not. Please stop trying to put words in my mouth (I never claimed all of Wikipedia is perfect; but writing an article on ABCT without criticism would be just as bad).
It's actually ironic you say this, because recently there has been a lot of problems with Austrian editors flooding econ-related articles and awkwardly inserting the Austrian point of view. So, in terms of economic articles, the problem seems to be the opposite (and this naturally has brought about a "progressive" response).
Daniel,
Objectivity, in this case, means an article where neither one or the other is really supported. A good way of providing a better balance would be to outline the criticisms, and then say that it was responded to and link to the response through a footnote.
In fact...
I only argued that any article on ABCT should include opposing viewpoints
Oh, sure, I'm not complaining about that. I'm just complaining about the site content in general.
Please tell me you have good articles on this: Wikipedia has been on my shitlist for the past few months. I always thought "the lean" was more or less because it appeals to the same crowd as Cracked Magazine (also on my shitlist); IT dudes and hipsters with that "snarky dude humor" Progressive bend.
That said is kind of funny to see how much bizzare crap you can throw on the She-Hulk page and get away with.
I don't have good articles, BUT if you combine http://www.metapedia.org/ with Wikipedia the fascisti and Progressive elements almost balance out into something resembling reality.
Oh dear 1st sentence on Barack Obama:
"It is claimed Barack Obama was born in Honolulu, Hawaii to a Muslim, black African father from Kenya, Barack Hussein Obama, Sr., and a white American mother, Stanley Ann Dunham. According to divorce records they were married on February 2, 1961 in Maui. However, no guests attended the "ceremony" and there were no witnesses to the alleged marriage."
This is a winner. I don't think we are equiped to handel the internet. The temptation of getting bite sized information in order to confirm one's biases to state one's opinion as quickly as possible can not end well.
That's hilarious, Don, but totally off topic.
Edit: NVM, I had my threads confused :)
Wikipedia articles have to be written objectively, and this includes listing criticism.
Ha - well tell that to the guy who rewrote pretty much every article related to global warming.
Connolley took control of all things climate in the most used information source the world has ever known – Wikipedia. Starting in February 2003, just when opposition to the claims of the band members were beginning to gel, Connolley set to work on the Wikipedia site. He rewrote Wikipedia’s articles on global warming, on the greenhouse effect, on the instrumental temperature record, on the urban heat island, on climate models, on global cooling. On Feb. 14, he began to erase the Little Ice Age; on Aug.11, the Medieval Warm Period. In October, he turned his attention to the hockey stick graph. He rewrote articles on the politics of global warming and on the scientists who were skeptical of the band. Richard Lindzen and Fred Singer, two of the world’s most distinguished climate scientists, were among his early targets, followed by others that the band especially hated, such as Willie Soon and Sallie Baliunas of the Harvard-Smithsonian Center for Astrophysics, authorities on the Medieval Warm Period.
Read more about it here...
For a very long time the only thing I have gone to wiki for is names, places, and dates - it is particularly good for pop culture.
Posts about tomatos, animals, that sort of stuff can be somewhat trusted as well.
Nothing political though...
My point may have been posited unclearly. A good Wikipedia article has to be written objectively.
Notice how every entry on fascism, nationalism or Nazis has nothing but laundry lists of crimes with loaded terms and tries to transfer all war-guilt onto a bunch of poor countries in central Europe rather than the world empires that attacked them? And nothing about their actual beliefs.
I'm not saying fascism isn't retarded, but you'd think content as to the beliefs of fascists and Nazis might be germaine to their wikipedia entries (aside from, "They hated jews" every four lines). But then, if that were there, someone might find out that the Fascisti and NaziSozi's copied their programs from Democratic Progressive America! Couldn't have that!
Politics is religion. If I didn't have to live on the same planet as them I'd say I hope they all slaughter eachother.
Wiki has such potential and with it creates a huge risk of confirmation bias (for the reader, not specifically the editor). In fact, I am constantly trying to remind myself that simply reading opinions here does not make my intuition (that usually agrees with those opinions) automatically correct.
A larger problem with wikipedia is that for subjects that require (or maybe better said: prompt) some method of interpretation rather than simple presentation easily leads to influence by those "experts" or sources that the editors put the most trust in. In most cases this has a positive influence lest we have an over abundance of "experts" that happen to be complete crackpots. Unfortunately, as this thread illustrates, that's almost precisely what has been claimed when it comes to certain aspects of progressivism. Suffice to say that I often avoid taking the political sections at face value, though I can't claim the same for the average wikipedia reader. Sometimes I prefer to jump straight to the discussion page as that can often be much more indicative of the conflict over any particular subject rather than what can often read assertive in the main page.
the Fascisti and NaziSozi's copied their programs from Democratic Progressive America!
Such as?
I don't have any references on hand, but many Nazis and Fascisti openly admitted that their program of the 'total state' was based on Woodrow Wilson's (by far the most totalitarian state in the first world war).
Also...left-wing nationalist, the institutionalized eugenics laws, marriage controls, 'public health' obsessions, the disarming of the populace, the use of the State to organize cartels of business to serve the 'public'. These are all American innovations.
y, ok. I see where you're coming from. I just take offence at the suggestion Hitlerism is akin to social democracy. Along with the things you give as similarities there's also major differences which WW2 ultimately attests to. There's also the fact of Nazi hostility to socialism, the attack on German unions, reductions in wages, conquest, slave labour, dictatorship, militarism......
Your position seems to mirror that of Stalin and the Comintern that social democracy was social fascism. It proved to be a big mistake, right?
1. Hitler wasn't fascist. 2. Hitler was socialist. 3. Social Democracy isn't Fascism. 4. Social Democracy is very similar to Fascism. 5. The Democratic countries made the war a world war, and are more responsible for the overall carnage than Hitler.
Vichy Army: I don't have any references on hand, but many Nazis and Fascisti openly admitted that their program of the 'total state' was based on Woodrow Wilson's (by far the most totalitarian state in the first world war). Also...left-wing nationalist, the institutionalized eugenics laws, marriage controls, 'public health' obsessions, the disarming of the populace, the use of the State to organize cartels of business to serve the 'public'. These are all American innovations.
I could be wrong but I thought that the German model originated largely with Bismark, not Wilson, and that Hitlers plans for Germany were therefor the direct result of plans initiated by Bismark, and not Wilson.
Perhaps Wilson copied Bismark's model or one of his pre-Hitler successors?[Don't know, have not checked]
Also, I am pretty certain that the US interstate road system was originally copied directly from the German model, although I am not sure who in Germany originated that plan, Bismark, Hitler, or someone between the two, time wise.
Regards, onebornfree
For more information about onebornfree, please see profile.[ i.e. click on forum name "onebornfree"].
Social Security and certain welfarist measures have their Germanic origin in Bismarck; but the plan of the total state and specifically centralized 'planned' corporatism was a Wilsonian thing. Of course it wasn't all American, but the ideological superstructure of Progressive Nationalism was much more pronounced in the American system than in the more conservative (in the European sense) brand of nationalism found in Bismarck and Hindenburg.
>>5. The Democratic countries made the war a world war, and are more responsible for the overall carnage than Hitler.
I don't know how to calculate the marginal evilosity of a Hitler or Churchill....
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
I wasn't commenting on them morally, just that there is no way the conflict could have been expanded to the same scope if it wasn't for the foreign adventurism of England and the US.
5. The Democratic countries made the war a world war, and are more responsible for the overall carnage than Hitler.
This is an "if X than Y statement" that works within a specific and measurable context, it is not a moral statement.
my bad, I meant carnagosity