Finally, some invective!
global warming.
Strawman for externalities. Your trillion dollar case would be, uhh.. a class action, then, right?
Must be all that keynesian indoctrination in the school system, amirite?
So you have been there.
Anyway, I think I need to lay off from posting here. If people want to remain in their own circularly reasoned praxeological space, I'm cool with that. I just expected a lot more, uh, econometrics, and I came to the wrong place.
Yeah, I don't why you would expect econometrics here...It is almost as if you are lying... Also, why do you not post responses to the actual theorists? Or just tell me where you went to school? I just want to look up the curriculum there and compare it to some other schools.
We give you examples (you cite papers, we respond in kind) but the difference is that we read and critique your papers, you don't even read ours. Then, you come out with with propositions like "ABCT doesn't account for x..." But, you won't read our responses. So, that circular logic thing, well ironically the concept of "mirror" comes to mind.
Oh, by the way, a prediction is an expectation of a specific outcome, while a forecast is an expectation of a range of outcomes. I learned that at Storyland Preschool, my alma mater.
Did you go to meteorology school, then? Are you a meteorologist? It would be more accurate to say that predictions simply aren't forward looking in every instance...
Again, you are pussy for not responding to our theory (theories)...and merely positing (worn out) assumptions about it (them).
"Cite our papers for your reasoning. If they challenge one of our foundational assumptions and ask you to acknowledge that point, say that their 'papers are too long'. Then tell them you are 'open to questions'."
To be fair, Mustang is getting zerged. It's difficult to respond to several people at once.
mustang19:We're not talking about empirical validity. It is possible for one to conceive of a system where the expected utility of secondhand smoke is strongly negative!
Yes, same for extreme farting or waving your arms excessively as you walk down a crowded street. Conflicts are natural. Even your very existence may be conflicting with my ability to walk in a straight line right through you, but I always have a choice between a realm #1 (peaceful) or realm #2 (aggressive) interaction with such a predicament.
Nevermind transaction costs then, I'll try building up a legal case for suing General Motors and the major car companies $50 trillion for causing global warming.
By all means you could do that, except in the current legal monopolistic system the same entity that allows polluters to pollute (government through regulation) would be the one which decides that your aggressor has done nothing illegal ("Look, they followed the regulations which their lobby pushed to be made into law! Sorry, its the law.")
Every action (choice) carries opportunity costs. Every transaction comes with costs. How, pray tell, did you conclude that a monopolistic coercive parasite would lower your costs of transacting with others? How much does your freedom cost?
Yes.
It's alright, this debate has made as much progress as it can anyway. If the Austrian response to a recession is that full employment is not defineable, or even desireable, then we're going to have two very entrenched positions. They've managed to prove that the proper response to the situation we're in now is "it's cool" and "8% unemployment is fine if that's the market's outcome". Sure, it is internally consistent. But I'll be danged if it's going to convince anyone outside Mises.org that your theory is a good idea.
Can you point me to who said this? Seems like you're just strawmanning.
The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger
In his eory of Idle Resources, Hutt deconstructs even the initial premise of Keynes’s thinking, that we should want a permanent condition of full employment. Not only is full employment not definable; it is not even desirable. A moment’s thought will show this to be true. To grow, an economy must change. To change, assets and workers must be shied from where they are less needed (less productive) to where they are more needed (more productive). ese shis will inevitably produce temporary unemployment. If there had never been unemployment, and thus no economic change, we would all still be living in caves, and there would be far fewer of us, because hunting and gathering would only support a small fraction of the present population.
Full employment = bad.
Actually, not just bad. It's also undefineable, except when we're creating a proof to show that it's bad.
Keynes' position = there should be no unemployment at all ever.
Preface (not Hutt writing) to Hutt's Theory of Idle Resources linked by Aristophanes.
mustang19:They've managed to prove that the proper response to the situation we're in now is "it's cool" and "8% unemployment is fine if that's the market's outcome". Sure, it is internally consistent. But I'll be danged if it's going to convince anyone outside Mises.org that your theory is a good idea.
Keynesian central planing and central banking have accumulated massive malinvestments over (at least) the last few decades. You can't indefinitely escape the consequences from these malinvestments by kicking the can down the road and by even more intrusive central planning/banking. The best, healthiest, and QUICKEST way to get out of this mess is to FINALLY let the market decide where prices of EVERYTHING (interest rates, houses, stocks, treasury bonds, wages, etc.) should be.
The problem with democracy is that even if whoever is in power knows about this solution (which is a stretch) he has no incentive to implement it on his watch because (1) he would be the one to blame for the inevitable pain that comes with it, and (2) his rich buddies (current asset holders) would lose a ton of wealth hence would never let him do it.
The combination of central banking + democracy is praxeologically and logically unsustainable. Throw in Keynes into he mix and you got yourself a doozy. The ONLY possible outcomes going forward are: (1) Ron Paul wins, and he slowly and carefully allows the markets to eradicate the malinvestments , (2) total and utter collapse of society as we know it.
You have no idea how deep the crap around you really is. You will wish 8% unemployment was your biggest problem.
The combination of central banking + democracy is praxeologically and logically unsustainable. The ONLY possible outcomes following the decades of Keynesian idiocy going forward: (1) Ron Paul wins, and he slowly and carefully allows the markets to eradicate the malinvestments , (2) total and utter collapse of society as we know it.
Those are some very, very strong empirical hypothesis. Especially the "Ron Paul winning the election" one. Did you know that he lost to Fred Karger in the Puerto Rico primary? By the way, total and utter collapse wouldn't be such a bad thing for you if it produced anarco-capitalism. But sounds like you're taking an upside down page out of Marx's book. Now act like I spelled hypotheses wrong and that means you win.
To a lot of unemployed people, it probably is a really big problem. If you think that society is going to collapse in ten years (or some unspecified length of time?), though, you should be stocking up on basic necessities rather than spending money on internet subscriptions.
mustang19:By the way, total and utter collapse wouldn't be such a bad thing for you if it produced anarco-capitalism.
An utter collapse wouldn't produce anything desirable, for anyone.
But sounds like you're taking an upside down page out of Marx's book.
How about you suggest your solution or prognosis? Giving central bankers and central planners MORE power -- this time with smarter planners offering better solutions? Let Krugman straighten everything out?
Let me see if I correctly describe how this circus really works: The people demand stuff (jobs, roasted chickens falling from the sky, etc.). They democratically elect central planners who promise to give them what they want. Then the central planners ask the central bankers to create the money with which to buy the stuff the people need. Then they give the stuff to the people. No?
How could a normal (i.e. not crazy) person think something like this could EVER work over any significant period of time?
Is 79 years a significant enough period of time?
Anyway, Paul should have brought this up during the Krugman debate. Would have made him sound a lot less crazy.
mustang19: They've managed to prove that the proper response to the situation we're in now is "it's cool" and "8% unemployment is fine if that's the market's outcome". Sure, it is internally consistent. But I'll be danged if it's going to convince anyone outside Mises.org that your theory is a good idea.
They've managed to prove that the proper response to the situation we're in now is "it's cool" and "8% unemployment is fine if that's the market's outcome". Sure, it is internally consistent. But I'll be danged if it's going to convince anyone outside Mises.org that your theory is a good idea.
Again, I'll ask you to substantiate these quotes. No one has said this.
Hutt has a point, for if there were to never be unemployment there could be no reallocation of resources towards more efficient ends as is desirable in a world of perpetual disequilibrium. Labor could not transition from one project to another because such a transition would require a degree of unemployment. Clearly such a statement is against your dogma and you are incapable of processing it without reacting emotionally. That, or you're a troll which I'm believing more and more.
Nobody ever argued that there should be no unemployment. The definition of full employment used by enconomists doesn't mean that. Anyway, if the citation I provided isn't sufficient, you're free to provide your own position.
How exactly is RP going to singlehandedly bring about a massive reallocation?
Executive orders? Retroactive vetoes?
Retroactive vetos? Is that a thing?
If he gets elected (and there's 0% chance he will, with cardiac arrest a few years down the road and Romney already securing the nomination), all he can do is obstruction. He can only win the budget he wants if congress is on his side.
Ron Paul becoming president would be a total freak occurence and once elected all he could do is use his veto to help out the most conservative 1/3rd of Congress.
Well he could essentially instruct the justice department to not enforce certain Congressionally approved statutes.
Obama apparently did it in 2011 with the Defense of Marriage Act.
I dunno how far down that road RP would want to go.
And even if we (republicans) managed to get a majority in the Senate and keep our majority in the House, there's no guarantee that the Congress would pass legislation that RP would be favorable to. Sure he can veto (and pocket veto) bills but vetoes can be overriden with a 2/3 vote in the House and Senate.
Ultimately I have to agree with you, RP would basically be an obstruction.
mustang19: In his eory of Idle Resources, Hutt deconstructs even the initial premise of Keynes’s thinking, that we should want a permanent condition of full employment. Not only is full employment not definable; it is not even desirable. A moment’s thought will show this to be true. To grow, an economy must change. To change, assets and workers must be shied from where they are less needed (less productive) to where they are more needed (more productive). ese shis will inevitably produce temporary unemployment. If there had never been unemployment, and thus no economic change, we would all still be living in caves, and there would be far fewer of us, because hunting and gathering would only support a small fraction of the present population. Full employment = bad. Actually, not just bad. It's also undefineable, except when we're creating a proof to show that it's bad. Keynes' position = there should be no unemployment at all ever. Preface (not Hutt writing) to Hutt's Theory of Idle Resources linked by Aristophanes.
Hutt didn't actually say these things. The reviewer did, in a casual non-academic review summarizing the book's contents. Not an appropriate basis for criticism since you haven't even read it and likely won't. Replace "full employment" with a usable definition and then we'll talk. Hutt's point is that 0% unemployment is harmful for the economy because it freezes the mobility of labor. Do you agree or disagree?
Anyway, if the citation I provided isn't sufficient, you're free to provide your own position.
As in, no one in the thread actually said that?
I have to say, I was surprised by the amount of ad hominem being slung your way but I'm understanding more since, to my knowledge, you don't place much priority on intellectually honest arguments.
Bingo
Do you agree or disagree?
That 0% unemployment is bad? Sure. That's not exactly what's meant by "full employment".
Full employment is the state where no cyclical unemployment exists. It's debateable what exactly constitutes cyclical unemployment versus structural unemployment, but the level of unemployment we have now is certainly not all structural if the business cycle has any meaning.
IS/LM presents an internally consistent model of liquidity trap, and shows how it can create prolonged cyclical unemployment. It's possible to argue the normative differences between AE and other schools, and defend AE on those grounds. But the IS/LM model is internally consistent too. If one wants to argue that recessions endure because of time preferences, that's semantically workable. It's just not going to do anything for the people out of work.
mustang19: That 0% unemployment is bad? Sure. That's not exactly what's meant by "full employment". Full employment is the state where no cyclical unemployment exists. It's debateable what exactly constitutes cyclical unemployment versus structural unemployment, but the level of unemployment we have now is certainly not all structural if the business cycle has any meaning.
Keynes defines full employment as a state wherein only voluntary employment exists.
I believe the Austrian position on 'cyclical employment' refers to price-floors on labor and the expansion of credit and the subsequent boom and bust. Technically it is impossible for there to be involuntary employment if there were no artificially imposed price floors.
IS/LM presents an internally consistent model of liquidity trap,
Except for where it's inconsistent with microeconomic law.
and shows how it can create prolonged cyclical unemployment. It's possible to argue the normative differences between AE and other schools, and defend AE on those grounds.
You should know that Austrian Economics does not 'recommend' outcomes, it only tells the consequences of certain actions.
But the IS/LM model is internally consistent too. If one wants to argue that recessions endure because of time preferences, that's semantically workable. It's just not going to do anything for the people out of work.
What? Who says that recessions endure because of time preferences?
I see. I'm discussing IS/LM, and I'm going to use Keynesian terms and defintions, if it's not a problem.
Where, exactly? The IS/LM does not explicity model household income or savings, only investment, (aggregate) savings, liquidity preference, and money supply.
If you're interested in a microeconomic extension of IS/LM, I could probably find a few.
"Normative" was the wrong word, I guess. But, for one thing, describing the liquidity trap described in IS/LM as a change in time preferences sets one well apart from other economists. Which you bring up next.
Some libertarians. Hopefully not you, or any Austrian.
The Austrian theory of the business cycle is more accurately a theory of an unsustainable boom than a theory of a depression (Garrison 2001, p. 120). Japan’s experience in the late 1980s is what Austrian theory describes as an unsustainable boom that must collapse. The recession or depression that follows an artificial boom is not something to avoid but is essential to the alignment of consumer time preferences and the structure of production.
So, in their words, the recession "is not something to avoid".
mustang19: Where, exactly? The IS/LM does not explicity model household income or savings, only investment, savings, liquidity preference, and money supply.
Where, exactly? The IS/LM does not explicity model household income or savings, only investment, savings, liquidity preference, and money supply.
Most significantly in its assumption of inherent price inflexibility and some sort of unemployment equilibrium.
I don't think he described the 'liquidity trap' as a change in time preferences. I think he described it to the effect of an artificial miscoordination of time preferences between producers and consumers.
Some libertarians.
K, well there's a lie.
The Austrian theory of the business cycle is more accurately a theory of an unsustainable boom than a theory of a depression (Garrison 2001, p. 120). Japan’s experience in the late 1980s is what Austrian theory describes as an unsustainable boom that must collapse. The recession or depression that follows an artificial boom is not something to avoid but is essential to the alignment of consumer time preferences and the structure of production. So, in their words, the recession "is not something to avoid".
Correct. It is a readjustment of capital towards representing the consumer's time preferences as manifested in their savings patterns. In order for 'business to go back to business as usual', non-performing debts must be cleared. That which is unprofitable sold off. You can't have your cake and eat it too basically. What mainstream economists fail to notice is that the height of the bubble is not something to be re-emulated. It crashed because the inflationary pressure of credit expansion was halted before a crack-up boom. Returning the price level to boom levels does nothing to solve the actual problem: insufficient supply of capital goods for the projects currently in operation.
Notice how in our 'liquidity trap' we just pumped stock prices and mortgages back up, but unemployment is still high (don't bother sending me the BLS headline number as their seasonal adjusments are more active now than ever before in their history). Number of americans on foodstamps is at a record high and the standard of living is sinking from rising prices on essentials. But where's the recovery? It's nominal. A situation similar to the Japanese'.
Those are axioms of the model; my claim was that IS/LM is internally consistent, and under those axioms, it is. Whether or not those axioms hold in a particular case is a different issue.
Correct. It is a readjustment of capital towards representing the consumer's time preferences as manifested in their savings patterns.
That works semantically. The problem some people have is that they consider uninvested savings during a recession to result from adverse macroeconomic expectations. It's a little harder to convince these people that you have ideas to end the recession after you tell them that the recession itself to be desireable due to changes in time preference. It is true, but it doesn't stop people from desiring output growth and low unemployment.
No one (Krugman excepted) desires to recreate a bubble. Countercyclical policy aims at reducing output and employment losses.
Returning the price level to boom levels does nothing to solve the actual problem: insufficient supply of capital goods for the projects currently in operation.
Which projects? The ones started during the boom labeled malinvestment? In that case, provisioning them with capital would emulate the the bubble. Otherwise, although price level adjustment does not affect capital shortages, the point of IS/LM is that increases in the money supply do not increase supply or demand in a liquidity trap. Only fiscal policy does.
Notice how in our 'liquidity trap' we just pumped stock prices and mortgages back up, but unemployment is still high (don't bother sending me the BLS headline number as their seasonal adjusments are more active now than ever before in their history).
That is actually what occurs during a liquidity trap- injections of cash into the banking system will not raise output. A liquidity trap is, according to Wikipedia,
a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence to stimulate economic growth.
The reason why Keynes bothered with IS/LM is to show that fiscal policy is necessary in this instance.
The situations under which monetary policy can raise output are a hot topic in monetarism, if you'd like to go there.
ed:
In order for 'business to go back to business as usual', non-performing debts must be cleared. That which is unprofitable sold off.
I don't think you've established that this is necessarily the case. In fact, one argument for countercyclical policy is the depressed restructuring observed during recessions.
mustang19: Those are axioms of the model; my claim was that IS/LM is internally consistent, and under those axioms, it is. Whether or not those axioms hold in a particular case is a different issue.
Ok well the whole point is to have the system be internally consistent and based on true premises. Logical. What do you mean particular case?
That works semantically. The problem some people have is that they consider uninvested savings during a recession to result from adverse macroeconomic expectations.
Ha, semantically? How so. If in your first sentence you are saying that demand for cash rises after burst bubbles I agree. This is conducive to a monetary deflation which clears unsustainable debts. Soon a 'price-level floor' is hit and there is no longer uncertainty about falling prices. This is how cycles used to be handled in 1945, 1920, and 1907. None of these are historical examples of drawn out depressions but spritely recoveries.
Recessions aren't desirable. On this any economist can agree. We're in one even despite the massive monetary stimulus. The idea is how best to leave the recession, or even how to avoid them in the first place.
It's a little harder to convince these people that you have ideas to end the recession after you tell them that the recession itself to be desireable due to changes in liquidity preference.
Ok, hard maybe? So what? Wrong? No. Does Iodine disinfect wounds any less by nature of its stinging? Also the recession is not desireable because of changes in liquidity preference, changes in demand for cash happen because of the recession.
Which projects? The ones started during the boom labeled malinvestment?
Yes and correctly so :)
In that case, provisioning them with capital would emulate the the bubble. Otherwise, although price level adjustment does not affect capital shortages, the point of IS/LM is that increases in the money supply do not increase supply or demand in a liquidity trap. Only fiscal policy does.
Not unless the rate of monetary expansion at the point in which they were in the bubble were also repeated, which is hardly expedient as it guarantees another crash (with a dip in the rate, more common) or hyperinflation (without a dip in the rate, less common). Again, this rise in prices during the bubble stems from the expansion of money supply. Entrepeneurs begin projects under this credit expansion. Should the credit be reduced they will acknowledge the non-profitability of such projects. Should the credit not be reduced, as happens very often, more and more of their operations are funded on credit until monetary expansion slows and the slowing rise in value of capital goods no longer justifies the borrowing.
That is actually what occurs during a liquidity trap- injections of cash into the banking system will not raise output. A liquidity trap is, according to Wikipedia, a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence to stimulate economic growth. The reason why Keynes bothered with IS/LM is to show that fiscal policy is necessary in this instance. The situations under which monetary policy can raise output are a hot topic in monetarism, if you'd like to go there.
Honestly I don't currently care to if you don't care to learn Capital-Oriented Business Cycle Theory.
I understand the idea is to "jump in" because business isn't running anymore, but it only responds to symptoms and not their causes. Sure it's easily observable in a recession that business activity has declined, but all too rarely do governments seek to know the causes, thinking instead that it's better to please the masses with a big NowCake. The reality is that those pre-crash activities were initiated under an action which perpetuated indefinitely would result in the end of the currency. So the crash must always occur as long as money supply expansion does not increase exponentially indefinitely. Secondly, the factors of production are scarce so fiscal intervention will ultimately mean that the private sector is less able to continue operations as long as the state spending occurs. Which means that recessions may carry on for much longer than they have to as private employment of capital is not permitted to come back into formation.
Permitting monetary deflation until demand for cash lessens has worked in all cases that I know of them.
Ok well the whole point is to have the system be internally consistent and based on true premises. Logical.
There are many instances where sticky prices do hold.
What do you mean particular case?
Particular present or historical instances, like the examples we're discussing.
Killing aggregate demand to bring prices down, rather than just halting the fall, is the hard way to go about things. And only considering those examples out of all the severely deflationary contractions is selective.
If we're going to start using empirical evidence, we can look back price behavior during the Great Depression, when Hoover wanted to keep output falling until it hit a floor. It may have strengthened the recovery by some definitions, but it took a long time and a lot of output loss to get there.
The point of IS/LM is to raise output until we're no longer in a recession by taking advantage of low sovereign debt borrowing rates- that's my idea. There is no fiscal rationale for not passing a payroll tax stimulus at the present time, for instance. The debt you incur from the tax cut can be repaid in a few years with negative real interest.
Not unless the rate of monetary expansion at the point in which they were in the bubble were also repeated, which is hardly expedient as it guarantees another crash (with a dip in the rate, more common) or hyperinflation (without a dip in the rate, less common).
I'm not sure what you mean. A liquidity trap does not occur during a bubble. It occurs afterwards, and is a situation where changes in the money supply do not increase demand.
Again, this rise in prices during the bubble stems from the expansion of money supply. Entrepeneurs begin projects under this credit expansion. Should the credit be reduced they will acknowledge the non-profitability of such projects. Should the credit not be reduced, as happens very often, more and more of their operations are funded on credit until monetary expansion slows and the slowing rise in value of capital goods no longer justifies the borrowing.
A liquidity trap is a justification for fiscal policy. Money supply is irrelevant to the liquidity trap model besides pointing out that MS doesn't affect demand. If you argue that credit should be contracted during a boom, I agree, and this is why monetary policy aims to be countercyclical rather than procyclical.
I also edited my last post, somewhat regarding this:
So the crash must always occur as long as money supply expansion does not increase exponentially indefinitely.
I don't think you've adequately established that this must be true. Malinvestment is possible regardless of growth rate of the money supply, and entrepreneurs can consider factors other than interest rates and credit when deciding on the merits of long term investments.
Secondly, the factors of production are scarce so fiscal intervention will ultimately mean that the private sector is less able to continue operations as long as the state spending occurs. Which means that recessions may carry on for much longer than they have to as private employment of capital is not permitted to come back into formation.
How, in the present context, is public spending supposed to crowd out private investment in any significant way? Interest rates on virtually anything have been near historical lows, and aren't anything consistent with what one would expect from a 10% GDP deficit if crowding out was a factor.
If you can provide me an explanation or a link that isn't five or 500 pages long, I will look into it.
That's only if the Long Depression, the Great Depression, the Australian land price crash, and any number of sustained deflationary recessions don't count.
mustang19: There are many instances where sticky prices do hold.
I agree. In places where Labor Unionism is made law (minimum wage legislation and other similar acts). That is no reason to capitulate to economic ignorance.
So this is an assertion...
Are you expecting me to defend hoover? Who started a trade war with Europe while simultaneously disallowing the prices of labor and food to drop? I'd really love to see your sources for "Hoover wanting to keep output falling". Which output? Hoover strictly IGNORED Andrew Mellon who BEGGED him to allow things to liquidate. So I'll not entertain for a moment that Hoover somehow was a deflationist. You should read this:
http://www.scribd.com/doc/22791706/Robert-P-Murphy-The-Politically-Incorrect-Guide-to-the-Great-Depression-and-the-New-Deal
The point of IS/LM is to raise output
....Back to credit-bubble output wherein the insufficiency of capital goods is masked and capital is consumed....
I'm saying you can not recreate the business activities of during their bubble without the necessary accompanying credit expansion which caused them to behave how they did.
A liquidity trap is a justification for fiscal policy.
Well I'm convinced...
Money supply is irrelevant to the liquidity trap model besides pointing out that MS doesn't affect demand. If you argue that credit should be contracted during a boom, I agree, and this is why monetary policy aims to be countercyclical rather than procyclical.
I'm saying that booms do not exist without credit expansion so you saying "credit should be contracted during a boom" is nonsense. The credit expansion is the boom.
Given the dominance of contra-cyclical politics, I'd ask you to point me to the last liquidationist recession in a dominantly market economy wherein there was depressed restructuring
This is true on an individual scale, but not on a systemic scale. Sure entrepeneurs are fallible, but all of them committing the same fallacy at once makes no sense to me if credit expansion is not the culprit.
Easy, labor and capital are scarce. That which is spent on one thing is not spent on another.
Interest rates are low as deflation is not being permitted anywhere.
Look into it? Or read it? I sincerely hope that it's the latter:
http://mises.org/daily/3127
or
http://wiki.mises.org/wiki/Austrian_Business_Cycle_Theory
http://www.youtube.com/watch?v=5K4Os5eXPw4
Take your pick
That's a HOWLER!
I'm glad you brought up the "Long Depression" I assume you refer to the one from 1873-1889? The one where there was significant price deflation, highest expansion of production of goods and highest climb in real wages in the economic history of the US? That one? Oh wait it's a depression because money was gaining value...
http://mises.org/books/historyofmoney.pdf
read this.
Nope! You've got it the other way around. Supply was simply increasing to such an extent that monetary fiddling could not discourage prices dropping. And it was all coordinated without disaster because of a lack of significant credit expansion.
In reference to the Great Depression, I SINCERELY hope you are not referring to that as though prices were allowed to fall. Again I encourage you to read Murphy's Guide to the Great Depression.
I'm not familiar with the Australian land price crash so I can't comment right now. What are they other sustained deflationary recessions? It is a contradiction in terms. Monetary deflation does not occur for extended periods of time, it is the correction to a bubble and is reactionary and swift in character unless prevented from functioning.
EDIT:
That's not the only instance. In fact, assuming market prices adjust immediately to every change in condition is absurd.
Which output? Hoover strictly IGNORED Andrew Mellon who BEGGED him to allow things to liquidate. So I'll not entertain for a moment that Hoover somehow was a deflationist. You should read this:
I'm a little backlogged, but I'll think about reading the Murphy book. I appreciate having the link.
In any case, the only really inflationary thing Hoover accomplished was not cutting the budget fast enough to bring it into surplus in the face of huge revenue falls. He increased tax rates during a recession, which is the opposite of countercyclical policy. There were some minor wage and labor regulations he supported, but nothing amounting to fiscal stimulus.
No. Under IS/LM, increases in IS are increases in both investment and output. Net capital formation increases.
ed: I still don't feel I have much of an idea what ABCT predicts, so I'm not ready to say much more it, but we can look at the predictions (like net capital formation) using the data.
And no one is trying to recreate a bubble, only to lower unemployment to the point where liquidity preferences allow lending to continue. A normal, steady state economy is the goal. Allowing the economy to be perpetually depressed to prevent bubbles is conterproductive in the first place.
Which is why credit growth should be slowed to reduce the boom during this part of the business cycle.
I expect you to explain how the Great Depression did not occur in a market economy.
As a consequence of the First World War, M&A activity remained at a modest level until the late 1910s. The second takeover wave emerged in the late 1910s and continued through the 1920s. Stigler (1950) considers the second wave as a move towards oligopolies because, by the end of the wave, industries were no longer dominated by one giant firm but by two or more corporations. Most of the mergers of the 1920s were between small companies left outside the monopolies created during the previous wave. By merging, these companies intended to achieve economies of scale and build strength to compete with the dominant firm in their industries. Stigler (1950) shows that the monopoly mergers of the beginning of the 20th century did not attempt to regain power through new mergers in the 1920s. As possible reasons, he suggests the lack of sufficient capital to afford further expansion and a better enforcement of antimonopoly law following the Northern Securities decision in 1904. The stock market crash and the ensuing economic depression in 1929 initiated the collapse of the second merger wave.
Well, sometimes a lot of people get really stupid about the same thing all at the same time. The unrealistic profit expectations from every bubble from the 1929 crash to the dotcom bubble had a lot to do with fantastically unrealistic expectations of what startups were able to accomplish, and not just what interest rates were at the time. You'd be hard pressed to find many talking heads or salesmen telling people to buy dotcom stocks or subprimes back then solely because interest rates were low at the time.
I don't think we're on the same page. If borrowing is going to affect the economy at all, it's going to be through interest rates. Borrowing is only going to crowd out other borrowing by raising interest rates to discourage leverage. How high do deficits have to get before it finally shows up in interest rates?
Thanks for the links. There is a discussion on time preferences again, but that's really not a good reason why the economy ought to remain depressed if one cares about lowering unemployment.
I'm glad you brought up the "Long Depression" I assume you refer to the one from 1873-1889? The one where there was significant price deflation, highest expansion of production of goods and highest climb in real wages in the economic history of the US? That one?
No, the one from 1873-79, where unemployment reached 14%.
Deflation was 6% annually from 1929 to 1933. I really can't see how you can take that as prices not being allowed to fall. It was just about the sharpest depression in history, even before Smoot-Hawley.
I'm not familiar with the Australian land price crash so I can't comment right now. What are they other sustained deflationary recessions? It is a contradiction in terms. Monetary deflation does not occur for extended periods of time,
That is incorrect. You mentioned yourself that prolonged deflation occured in parts of the 19th century. This doesn't mean deflation is always disastrous, but during a recession it can adversely affect expected real returns on investment.
Here is some information on the Australian land price crash, which involved eight years of deflation.
mustang19: That's not the only instance. In fact, assuming market prices adjust immediately to every change in condition is absurd.
Stop strawmanning me broseidon. Never said that market prices adjust immediately, just that they adjust. Which should be obvious but somehow Keynes managed to distill in the minds of many economists the idea that prices are inflexible. This would be true upon only the most cursory examination of economic history. For often prices are inflexible because of the ceiling and floors in place.
Sure thing.
He increased tax rates during a recession, which is the opposite of countercyclical policy.
He increased taxes at the end of his term in office. Before then it was all deficit spending, and it was
deficit spendinghere were some minor wage and labor regulations he supported, but nothing amounting to fiscal stimulus.
Nope. Read the book. Ever heard of the Hoover Dam?
See: Emergency Relief and Reconstruction Act and the Reconstruction Financing Corporation. The figures on public spending in Murphy's book should do the rest.
And please don't try to belittle the price regulations he enacted as minor, it's an affront to those who suffered from them.
? What. The point is that the bubble is a period of capital consumption because it's being employed unprofitably and doomed to liquidation.
Keynes defines savings as identical to investment in General Theory anyways so I'm not sure how to answer this. Perhaps phrase it without the macroeconomic entities and I'll understand it better?
It's been said many time but here it is again. A governmental policy of expanding credit at an accelerating rate brings about an unsustainable period of malinvestments which will be revealed upon the deceleration of credit expansion or will result in a hyperinflationary crack-up-boom as Mises calls it.
That's what you were saying in your previous posts and you don't seem to understand that the business activity during bubbles is neither desirable nor feasible without the conditions of credit expansion, as it is ultimately destructive of wealth.
Please don't post powerpoints. And did you even click your first link? What does it have to do with the Great Depression? And how do you define market economy? I'm honestly baffled by this comment. It wasn't a freemarket economy, but neither has the US ever been, which has historically been the closest to a free-market.
Monopoly mergers in the 20's? Sounds like he's a little late. The significant mergers occured from 1890-1905. And the "takeovers" had long since occurred before the market crash. I still don't see what any of that has to do with the crash.
Well, sometimes a lot of people get really stupid about the same thing all at the same time.
Dooooohoohoho. OK!
"Yet what sort of 'depression' is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3 percent per annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita."
-Murray Rothbard in HIstory of Money and Banking.
Also I'd be curious to see the geographic divisions of unemployment since this was after the Civil War and the South was devastated and many people probably had to move north to find work.
Apparently not enough.
That is incorrect. You mentioned yourself that prolonged deflation occured in parts of the 19th century.
You fail to note the difference between monetary deflation and price deflation.
I'll read up when you do.
I wouldn't say it's identical to investment, but that's a workable simplification we can roll with. The micro and macro definitions of savings and investment do not differ, only the scales at which they are examined. Actually, they're probably pretty similar concepts vis a vis AE.
Take a firm or household earning some revenue or income. The fraction of revenue which is not consumed over a given period is savings. The amount of capital goods purchased over a given period of time is investment. Not all the income in the economy that goes into savings will necessarily end up as investment, but besides these exceptional circumstances (like a liquidity trap), there is an identity relationship between savings and investment: savings = investment. It's possible for savings to exceed or fall below investment, and Keynes' definition is a little more involved than what I'm saying, but that's the gist. Investment saving is just saving that becomes investment.
Note that if investment saving increases income, then it's possible to increase savings, investment and income all at the same time.
I haven't read the book yet, but I still don't think Hoover was much of a big government Keynesian. Government spending as a fraction of GDP under his presidency wasn't much changed, but in absolute terms he cut overall spending a lot.
Hyperinflation has a pretty specific meaning. 100% or even 500% inflation isn't hyperinflation. Hyperinflation is usually treated as something like monthly inflation over 50%. A 130,000% annual rate. Saying that hyperinflation is a regular occurence in the business cycle is an exaggeration. But then again you're using a different definition of inflation than I am, so that's that.
Whether or not malinvestment occurs during the trough of the business cycle really depends on how much firms depend on interest rates in making their decisions and where exactly this point is where interest rates start causing this malinvestment. Looking at history, I don't think there was much going in in tech stocks in 1994 or subprimes in 2002, like would be expected if easing during recessions immediately changed financial behavior. Usually, when bubbles occur, they take off pretty rapidly, but a while after the previous recession.
Don't hold your breath, I got another 800 pages of Human Action to go. So far I'm enjoying it, but it reads like another immense masturbatory tome. I'm waiting for the legit stuff besides how empirical evidence is unsuitable for economics *but is okay to use in any other scientific field*.
I'm not sure what your alternative is. You don't seem to have said anything to disagree with monetary countercyclicality in principle. I just don't think terminating all credit expansion would be a good alternative, or that some alternative system like free banking would be less subject to interest rate swings or periods of malinvestment.
The 1873-79 recession (which Murray isn't mentioning or specifically talking about) was a global downturn that affected England, the US, and Germany. I don't have any idea where to find such a breakdown, but I don't think it would present a much different picture. All regions of the economy were hit, with industrial production falling and the price of cotton decreasing. But I'm just making stuff up here so we'll move on.
You asked for a source on depressed restructuring- there it is. M&A is cyclical.
If you're pointing to the recession of 1920, that wasn't accompanied by anywhere near the debt loads and bank failures seen in a financial crisis. It was something other than deflationary destruction of malinvestment and the financial system that ended the recession. If anything it was a result of the readoption of the gold standard in an already healthy economy.
But, I'll go read more stuff.
Hey guys, keep in mind that Mustang19 already admitted that he came here only so he could troll us.
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
I've suddenly started following this thread with great interest. I hope the discussion remains at least this honest.
I got another 800 pages of Human Action to go. So far I'm enjoying it, but it reads like another immense masturbatory tome. I'm waiting for the legit stuff besides how empirical evidence is unsuitable for economics *but is okay to use in any other scientific field*.
I think you have to understand that social sciences aren't real sciences--anyone except for maybe sociologists (and some economists, and even some historians, believe it or not) will likely tell you that. But even these holdout social scientists will characterize their field as being a "soft" science if you push them, even if only implicitly when they refer to the "hard" sciences. So Mises' arguments are generally implicitly understood, if not ignored regardless when he writes as you have cited.
IMO this is largely what divides mainstream economists from AE: the Austrian Economist sees the market economy as an ecosystem worthy of intense study/understanding with the economist serving little more of a role than to analyze/educate, whereas the Econometrician of whatever stripe tends to see it all at once as an ecosystem/laboratory/test subject with the economist serving as the scientist conducting the experiments, et al.
I'm waiting for the legit stuff besides how empirical evidence is unsuitable for economics *but is okay to use in any other scientific field*.
There is plenty of legit stuff in there, but you'll need to read more carefully if you want to get anything out of it. Mises never claims that empirical evidence is unsuitable for economics, only that it is unsuitable for the development of economic theory. Empirical evidence is extremely valuable for the elucidation of an already deduced, praxeological theory. It is economic theory that allows us to interpret the empirical evidence, as opposed to "the" scientific method of using the data to develop a theory.
Also, I don't see why social sciences aren't "real" sciences at root. If science is the pursuit of truth by means of reason and evidence, why do we place such a premium on empiricism? Is mathematical science not a real science either just because it relies on deductive reasoning instead of "testing" hypotheses?
mustang19: I wouldn't say it's identical to investment, but that's a workable simplification we can roll with.
I wouldn't say it's identical to investment, but that's a workable simplification we can roll with.
Neither would I. But he does.
The micro and macro definitions of savings and investment do not differ, only the scales at which they are examined.
Do they differ or don't they?
Take a firm or household earning some revenue or income. The fraction of revenue which is not consumed over a given period is savings. The amount of capital goods purchased over a given period of time is investment.
Sounds good.
Not all the income in the economy that goes into savings will necessarily end up as investment,
Sure. Cash holdings.
savings = investment. It's possible for savings to exceed or fall below investment, and Keynes' definition is a little more involved than what I'm saying,
Def: Doublethink - The acceptance of or mental capacity to accept contrary opinions or beliefs at the same time.
I have to ask you to either stop lying or stop talking about that which you are ignorant. Refer to page 48 of Murphy's text. It is very clear. I don't know where you learned this but it's an absolute lie.
By Inflation I'll take the Misesian definition which is admittedly not perfect but defined as a significant increase in the suppy of money in the broader sense. Now I don't think you're taking away the point, which is that in a bubble, the money monopolist may continue the acceleration of credit expansion until the dollar becomes worthless or he may decelerate which then triggers a crash. The deceleration of credit expansion forces the malinvestors to take costs on without ever cheaper credit and the unprofitability of the situation becomes apparent.
Whether or not malinvestment occurs during the trough of the business cycle really depends on how much firms depend on interest rates in making their decisions and where exactly this point is where interest rates start causing this malinvestment.
There is no 'set point' in the interest rates which is too much or too little, because every instance of market occurrence is unique. As such, the interest rate when determined freely by supply and demand may fluctuate. A 7% rate could be just right as could a 4% rate because it accurately conveys to borrowers the real state of savings. Concordantly, a 4% rate may be too high and an 8% rate may be too low. Here the central planner is helpless. On this I'll ask you to refer to Hayek, but I'll give it a shot as well:
http://mises.org/document/681
The end of the entrepeneur is profit, which is obtained by organizing production such it sufficiently pleases the customer. Now, realize the heterogeneity of his costs. His task is to organize out of an unholy jumble of choices of labor, capital goods, and land a line of production. Consider that on top of the complexity of arranging these materials, he is doing so for a future which is unknowable and is at best estimated. Consider now also that it is unlikely in the extreme that entrepeneurs take under these undertakings out of the cash in their pocket. They take out loans to begin their projects. When the market rate of loans is low, the societal time preference is also low, the nearer on satisfactions are valued relatively less than the further off ones. This would be in contrast to a situation wherein the market rate of loans were high. Low time preference reflects high savings which indicates that the resources required for production exist and are more or less 'waiting' to be employed.
Since any entrepeneurial undertaking is the arrangement of materials based on an estimation of the future, entrepeneurs do not take on costlier loans for longer-term projects. The further into the future the project will take before its fruits ripen, the more sensitive that project is to the cost of loans. A one year project at a high loan rate is no big deal because the future is easier to ascertain and the structure of production is more straightforward, thus there is a lower risk. A longer project in contrast is more sensitive to the loan rate. The failed entrepeneur will be heavily penalized on a high rate with an unsuccessful long term endeavor.
So when rates are lowered, entrepeneurs are signalled that it is 'safer' to initiate projects. The rate of interest on a loan reflects the amount of societal savings as mentioned before. High savings indicate to entrepeneurs that the resources to purchase and fund their projects exist and that they will ultimately be profitable.
State campaigns of credit expansion create the illusion of real savings. The supply of capital goods is not at all more increased than before the campaign of credit expansion. Consider: if the campaign of credit expansion were not undertaken, the entrepeneur would not make those investments. See here after the rate cut in 2001, where clearly investments were undertaken:
Don't hold your breath, I got another 800 pages of Human Action to go. So far I'm enjoying it, but it reads like another immense masturbatory tome.
I can understand thinking it's masturbatory. Mises is intelligent and aware of it.
In any other 'scientific field'. I hope by that you mean you are exlcuding sociology and political science. Those are not sciences as such. The scientific method is perfectly appropriate for the natural sciences wherein variables can be controlled and causality can be established. For those fields wherein those conditions can not be met, the application of the methodology of natural sciences is nothing better than farcical.
Don't you? I have disagreed with monetary countercyclicality because it ignores the truth of the depression, that the boom itself was the problem and those malinvestments of the boom must be cleared, as I've stated previously. Getting rid of the FED for one would be a great start. Ultimately the goal is having banks issue their own currencies. In the chapter on indirect exchange Mises will explain how credit expansion is checked in such a system. Realize that these booms and busts are capital consumptive and it immediately becomes clear that a slower rate of 'growth' is desirable, because capital is actually accumulated.
Are you actually? I can't tell if you're being snarky or what. No offense meant here, I'm genuinely baffled by this response.
Um, what? How are M&A's cyclical?
If you're pointing to the recession of 1920
I wasn't, I was referring to the chart of monetary base around 1929. But yeah go read Murphy's book. It's quick. Or even better Rothbard's (longer).
, that wasn't accompanied by anywhere near the debt loads and bank failures seen in a financial crisis. It was something other than deflationary destruction of malinvestment and the financial system that ended the recession. If anything it was a result of the readoption of the gold standard in an already healthy economy.
Y'got sources for those claims? Because me and my stupid numbers indicate that M2 Money supply increased from 16 Billion in 1913 to 35 Billion in 1920 and national debt from 3 bil to 26 bil, and that indicates differently. Oh and unemployment spiked to 12%. I can't right now find out the bank failure figures for 1920 so I'm curious as to what they are.
Please do trollmeister.
I think that your definition of science may be a bit fast-and-loose, because by that premise Law is also a science, as is history. If that's fine by you then that's alright, but I think that it's worthwhile to avoid sociological-style definitions that encompass so much that they become all but meaningless.
That doesn't mean, however, that I think that a discpline that doesn't claim the mantle of "science" makes it any less important as a Discipline, by any means.
NEPHiLiX: I think that it's worthwhile to avoid sociological-style definitions that encompass so much that they become all but meaningless.
My point is that I don't see how making a distinction between natural..."disciplines" and deductive "disiciplines", and only granting the former the coveted title of "science", furthers our knowledge in any way. To say that there are many important disciplines, but only a certain percentage get to be identified as science, implies an obvious bias toward empiricism/positivism, since that is the primary distinguishing factor between so-called "hard" and "soft" sciences. I don't see how bringing other systematic, reason/evidence based fields under the umbrella of science reduces in any way the meaning of the word, nor do I think the term science has more meaning for excluding non-empirical fields. If anything, such arbitrariness makes the concept more confusing.
They do. But they're similar. Round and round we go.
Let's ask Marxists.org, which contains a copy of Keynes' book.
We come next to the divergences between Saving and Investment which are due to a special definition of income and hence of the excess of income over consumption. My own use of terms in my Treatise on Money is an example of this. For, as I have explained in Chapter 6 above, the definition of income, which I there employed, differed from my present definition by reckoning as the income of entrepreneurs not their actually realised profits but (in some sense) their “normal profit”. Thus by an excess of saving over investment I meant that the scale of output was such that entrepreneurs were earning a less than normal profit from their ownership of the capital equipment; and by an increased excess of saving over investment I meant that a decline was taking place in the actual profits, so that they would be under a motive to contract output... But the exposition in my Treatise on Money is, of course, very confusing and incomplete in the light of the further developments here set forth.
But the exposition in my Treatise on Money is, of course, very confusing and incomplete in the light of the further developments here set forth.
Confusing and incomplete? You're not the only one to say that.
But I'm not going to defend the parts of Keynes' theory that don't make sense. Only the ones that do.
My bad. You're right there. I probably got it from some half-remembered krugmanite post.
They're cyclical insofar as restructuring is depressed during recessions.
In section 2 we examine the basis for the common notion that an aggregate recession increases overall factor reallocation in the economy. This conclusion is inferred from the rise of liquidations during recessions – as documented, for example, in the gross job flow series of Davis and Haltiwanger (1992). However, this inference is only warranted if the increase in liquidations during the recession is followed by an abnormally high level of creation during the cyclical recovery phase. But, in an economy that undergoes continuous restructuring, this is not the only form a recovery can take place. If, for example, the recovery materializes instead through an abnormally low destruction rate, the recession will not result in increased restructuring. To examine this question empirically, we explore the cumulative business cycle response of US manufacturing job flows. Although limited in several respects, the evidence is consistent with the notion that, contrary to the prevailing views, recessions result in a reduction in cumulative reallocation.
http://www.northernfinance.org/2010/NFAPapers2010/papers/123.pdf
At the aggregate level, M&A activities are often pro-cyclical, peaking during aggregate expansions and dipping during aggregate downturns (See, Figure 1).4 On the other hand, rm exits tend to be counter-cyclical. The aggregate evidence, by itself, can be explained by a business cycle driven argument.
For those fields wherein those conditions can not be met, the application of the methodology of natural sciences is nothing better than farcical.
Bear in mind that their are other fields based on complicated interactions, such as climate science and evolutionary biology. That doesn't mean we should share time between evolution and creationism in schools just because the empirical evidence can't conclusively demonstrate how apes evolved into man. The quality of evidence in many natural sciences is almost as bad/good as in economics in terms of making predictions or even constructing theories that aren't overturned every five years.
Don't you? I have disagreed with monetary countercyclicality because it ignores the truth of the depression, that the boom itself was the problem and those malinvestments of the boom must be cleared, as I've stated previously.
The problem is that whenever I point out a prolonged deflationary slump, you can always explain how it's due to 19th century economies or 1920s America being too statist, not because liquidationism doesn't work.
Realize that these booms and busts are capital consumptive and it immediately becomes clear that a slower rate of 'growth' is desirable, because capital is actually accumulated.
Net capital formation? We can look at when, during the Great Depression, NCF resumed- it was under FDR's inflationary policies.
I can't right now find out the bank failure figures for 1920 so I'm curious as to what they are.
Well, here, at least, is data on commericial bank suspensions starting in 1921.
http://econproph.com/2009/10/26/fdic-managing-the-crisis-the-fdic-and-rtc-experience/
Actually, if entrepreneurs invest this credit in capital goods, the supply of capital goods will probably increase. In fact, capital formation does often increase during the boom and fall during recessions. As to whether or not the business cycle is net capital consumptive, it depends on what you mean - relative to what? - or, if you literally mean that the business cycle is net capital consumptive, whether you think history since the creation of the Fed has been net capital consumptive, ie, we have less capital now than in 1913.
But that aside, even if an increase in capital isn't expected, I still don't think you've established that interest rates are that decisive in investment decisions in a way that entrepreneurs can't compensate for- there have been recessions in all sorts of real interest rate conditions- or that there is some point where low interest rates become unsustainable and hyperinflationary.
My point is that I don't see how making a distinction between natural..."disciplines" and deductive "disiciplines", and only granting the former the coveted title of "science", furthers our knowledge in any way.
That's not an accurate definition of the distinction: history, for example, is both inductive and deductive, uses empirical evidence and meshes easily with economics (econometric or otherwise). History, however, is a member of the Humanities class of Disciplines. And I don't see how that detracts from our knowledge whatsoever or libels the discipline in any way.
Why is the title "science" coveted by all, do you think? I don't subscribe to that theory, btw. "Even if economics needs to be drastically reformed someday it cannot take the direction proposed by those who use the model of the natural sciences. This idea has been thoroughly refuted forever", --LvM. Rothbard has written and lectured much regarding the evolution of the social sciences in this regard too--how and why they clamored for the "science" mantle. History fell into this trap as well, then wised up (mostly). However, History is not less important of a Discipline because it isn't a science.
It seems that you've already accepted the bias full-on: "the coveted title of science"..."only a certain percentage get to be identified as science" etc [edit: unless you were using these terms sarcastically...I couldn't tell]. I haven't: I don't believe that History is taken any less seriously because it belongs to the humanities and not to the social sciences or natural sciences.
I don't see how bringing other systematic, reason/evidence based fields under the [science] umbrella...
There are no Disciplines that exist by virtue of their employment of asystematic fantasy and contradictions, thus, arguing that being a science requires only the systematic use of reason/evidence means the automatic qualification of all academic disciplines as science. To me, that's highly problematic and not helpful.
Mustang, capital is nothing but postponed consumption. More capital is saved when more consumption is postponed (for the future). When there is a lot of consumption postponed then there's a lot of capital saved to be invested toward satisfying the impending future consumption. When there is a lot of capital saved (available) then overall interest rates go down which entice entrepreneurs to undertake the investments needed to satisfy the future consumption. Then Bernank -- central planner par excellence -- barges in like a drunk Santa and declares "Interest rates must be SO! And here in my bag I have enough 'capital' for both current consumption AND investments (future consumption)". What say you?
I say that free banking's record of moderating the credit cycle has been even worse.
The central bank claims to provide enough capital for both consumption and investment insofar that the economy requires a certain amount of both. The problem occurs during a recession when interest rates don't reach the point where entrepreneurs can utilize the available capital, perhaps becauses it's being hoarded.
I'm not seeing people disagree with each other here, mustang19. Basically they all disagree with you. I'm curious as to what made you think you'd be able to achieve such an objective in a forum that is hosted on site that promotes a specific methodology and framework to analyze and interpret the world.
I didn't come here expecting to be agreed with. And I didn't come here (mostly) to troll. I'm interested in seeing how people defend their positions.