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ABCT in a few minutes

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Peter Sidor posted on Sun, Sep 26 2010 10:54 AM

A friend of mine asked me about the following simple scenario - a guy on a party approaches you, and asks about that Austrian Business Cycle Theory he heard of somewhere. How do you explain its basics within a few minutes, to somebody who may not be steeped in economic theory and doesn't want too much involved talk.

Your ideas are welcome. :)

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z1235 replied on Fri, Nov 25 2011 11:56 AM

Peter Sidor:

A friend of mine asked me about the following simple scenario - a guy on a party approaches you, and asks about that Austrian Business Cycle Theory he heard of somewhere. How do you explain its basics within a few minutes, to somebody who may not be steeped in economic theory and doesn't want too much involved talk.

Your ideas are welcome. :)

This is my "elevator pitch" with which I've had relatively good success with the economically challenged :

Money (especially the currrent fiat, created out of thin air type) is not capital. Capital is created by postponing consumption. It is defined as postponed consumption (saving). The more current consumption is being postponed, the more capital is being saved which is available to be invested into projects which would satisfy said postponed consumption in the future. The larger the savings, the larger the supply of loanable funds demanded by the entrepreneurs seeking to satisfy said future consumption, hence the lower the price to acquire access to said savings (interest rates). The smaller the savings (the smaller the amount of postponed consumption), the smaller the supply of loanable funds, hence the higher the interest rates which discourages entrepreneurs from investing. Through this mechanism, the price of money (the interest rate) is the most important signal entrepreneurs have for arranging the structure of production (through time) in order to predict and satisfy consumption. 

Central banks (governments, politicians) -- through their monopoly power to create money with a click of a mouse -- typically manipulate this price (the interest rate) downwards in order to create the illusion of more savings (postponed consumption) available, sending a signal to entrepreneurs to invest into projects which would satisfy such impending future consumption. But, in reality, no consumption has been postponed, no capital has been saved, and there is no future consumption pending. When this is being revealed in a bust, more money (fake "capital") is being created out of thin air to perpetuate the illusion. Ever larger busts are being papered over by ever larger booms which cause even larger busts until we arrive at the situation today when the mega-illusion finally bursts and all the fake "capital" (non existent postponed consumption) is being brought to light by the market forces. 

 

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Neodoxy replied on Fri, Nov 25 2011 12:06 PM

 

"'Dude', why should I?"

 

Because people are more likely to actually take you seriously if you use a calm and fairly friendly tone rather than sounding challenging and insulting which makes people less likely to respond to you or to consider you as a reasonable person.

 

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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Only two words: Capital structure!

-- --- English I not so well sorry I will. I'm not native speaker.
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Neodoxy:
Because people are more likely to actually take you seriously if you use a calm and fairly friendly tone rather than sounding challenging and insulting which makes people less likely to respond to you or to consider you as a reasonable person.

Shouldn't you be saying that to Marginal Interest?

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Jargon replied on Fri, Nov 25 2011 5:29 PM

I'm becoming convinced that Marginal Interest is a plant.

Land & Liberty

The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger

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"Shouldn't you be saying that to Marginal Interest?"

Marginal Interest told a joke. Wasn't trying to start anything and he wasn't attempting to be confrontational. Nothing I said applies to him.

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I'm not so quick to assume that such statements are jokes. Even if it was a joke (and not a potshot at Austrian-School Economics), why derail the thread like that?

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"I'm not so quick to assume that such statements are jokes."

But you are so quick to assume that they're slights that deserves insults? Marginal Interest isn't and if people would look at the conversations he's had that he's pretty laid back. I have no reason to believe that that wasn't a joke bounced right off the OP.

"why derail the thread like that?"

The year old thread wasn't in any way derailed by his single one line post.

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Neodoxy:
But you are so quick to assume that they're slights that deserves insults?

Apparently so.

Neodoxy:
Marginal Interest isn't and if people would look at the conversations he's had that he's pretty laid back. I have no reason to believe that that wasn't a joke bounced right off the OP.

I disagree.

Neodoxy:
The year old thread wasn't in any way derailed by his single one line post.

I disagree.

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"Apparently so."

Well that's a magnificent attitude. It's nice to see people around here promoting open discussion and a reasonable tone :)

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Based on what I've seen of Marginal Interest around here, I don't exactly think he's promoting open discussion and a reasonable tone. So why should I give him any quarter? Especially when he apparently came in to snark a year-old thread?

Furthermore, I'm surprised that you would accuse me of not promoting open discussion and a reasonable tone in general. I feel that I typically do promote these things. But if a person indicates to me that he's not taking the discussion seriously - either any longer or from the get-go - I feel justified in expressing my disapproval.

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Well, last attempt at a joke I ever make. Levity has no place on this forum!

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...

Why would you make a joke like that (assuming it's really just a joke) in an otherwise serious discussion thread?

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The easiest way to recover a thread is to return to the original topic.

And since we're at it, nice summary, z1235! So what are your guy's ideas as to how to explain ABCT quickly and succintly?

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Neodoxy replied on Sat, Nov 26 2011 11:18 AM

"Based on what I've seen of Marginal Interest around here, I don't exactly think he's promoting open discussion and a reasonable tone. So why should I give him any quarter?"

Can you give me any evidence that he's not promoting discussion? I've seen some really good discussion on the basis of Austrian Economics itself since he's come here and he's always had a reasonable tone despite some people not being so open to him. So what has he done to in any way harm discussion or in what instances has he done anything to warrant that response? I sometimes pop jokes like that but it would seem that no one has a problem with that because I'm pro Austrian. Maybe you should consider "giving him quarter" when it should be nice to think that you were trying to be the bigger man and give him better treatment and at very least the benefit of the doubt! He told a joke. 

"Especially when he apparently came in to snark a year-old thread?"

There was nothing apparently snarky about it. And the fct that it was a year old thread and no one was waiting on the answer seems to make it less of a crime.

"But if a person indicates to me that he's not taking the discussion seriously - either any longer or from the get-go - I feel justified in expressing my disapproval."

Then you could try being polite first rather than being rude when you 'express your disaproval.'

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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