What do you think of this critique?
http://economics.gmu.edu/bcaplan/whyaust.htm
I've posted my response to Caplan a number of times here.
Enjoy: Further Considerations of the Austrian Business Cycle Theory: A Response To Caplan (PDF).
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David Z
"The issue is always the same, the government or the market. There is no third solution."
Well, about ABCT:
"Why does Rothbard think businessmen are so incompetent at forecasting government policy? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation. Even if simple businessmen just use current market interest rates in a completely robotic way, why doesn't arbitrage by the credit-market insiders make long-term interest rates a reasonable prediction of actual policies?"
Because:
a) is so prfitable
b) people are constantly assured that liquidity will never end (that's the official policy)
c) if you have ever traded anything in your life, you know the fealing...
d) you can empiracally observe it holds, just by looking a year or two backwards
e) savers are, as we all know, the root of all economics downturns and nobady is saving
Ben Bernanke did not see it coming. Krugman neither. Roubini did see it, but nobody listened. Lehman brothers? Was caught levereged 40:1 in borrow short/lend long tactics (yield curve arbitrage). Peter Schiff did see it, but was ridiculed.
The problem is that market can stay irattional longer than you can stay solvent. Especially with wind in the back from CB
I saw it also.
But nobody listened.
Anyway, I believe business cycle can be explained in a simpler way, by observing that some industries receive subvention based on lowering short term borrowing costs. First industry that receives subventions is of cours banking. By borrowing below real interest rate, you are given a big profit oportunity. Later, the yield curve arbitrage usually moves that subventions towards consumer durables, capital goods as banks are beginnig to arbitrage longer maturities. The last industry that receives subventions is of course housing (as it's linked to much longer maturities than other) and the government.
It's inevitable that inflation will kick in, as keeping interest rates low requires ever increasing amounts of liquidity. In that sense, the theory of rational expectation is correct: once we see the trick, the game is over.
The industries mention, however, slowly reduces/damages capacity of other industries required by the customers.
*rollseyes* This has been refuted over an over again. And, no, I will not link to an article refuting Caplan. Go find it yourself.
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."
Daniel: *rollseyes* This has been refuted over an over again. And, no, I will not link to an article refuting Caplan. Go find it yourself.
Post it.
If I wrote it more than a few weeks ago, I probably hate it by now.
I. Ryan: Daniel: *rollseyes* This has been refuted over an over again. And, no, I will not link to an article refuting Caplan. Go find it yourself. Post it.
Find it.
Daniel: Find it.
Are you trying to be annoying?
It's certainly an interesting critique of Austrian Economics. It's an article I've read in its entirety before, but I do not remember the whole of the arguments presented within it.You can find several responses by Austrians from here: Caplan and Responses
Let's take a look at one of his opening claims:
The utility function approach is based as squarely on ordinal utility as Rothbard's is. The modern neoclassical theorists - such as Arrow and Debreau - who developed the utility function approach went out of their way to avoid the use of cardinal utility.[7] Let a neoclassical theorist say "bundle one offers utility of 8, while bundle two offers utility of 7," and Rothbard concludes that he believes in cardinal utility. But the language here is technical; to parse it, you must return to the underlying definitions. Upon doing so, you will find that the meaning of "bundle one offers utility of 8, while bundle two offers utility of 7" is nothing more or less than "bundle one is preferred to bundle two." A utility function is just a short-hand summary about an agent's ordinal preferences, not a claim about "utils."
If utility in the neo-classical sense is completely ordinal, why, then, are there functions that add, subtract, multiply and divide these things as if they were ordinal numbers? They cannot be both ordinal and cardinal at the same time. The current setup allows for me to say, "The utility of chair A is 8; the utility of chair B is 4. Not only do I prefer chair A first, I also value it to be twice as fulfilling as of chair B." If this distinction is not valid in the neo-classical framework (which I am woefully ignorant of), what is the purpose of saying that the utility of one item is X, and that of the other item is Y. Why not just rank them, so as to avoid meaningless jargon that serves only to, as Caplan would see it, cause economists of other schools to be misled and make attacks against positions neo-classicals do not hold?
Thanks a lot, Zach. I clicked on Economic Science and Neoclassism to see a rebutal. At first I was put off, as the first few pages felt like academic double-speak. Paragraphs like this...
The answer is that, strictly speaking, Austrian economists do not explain human action at all. They do not relate human action to other facts of which it would be sequel or corollary. What they do is to analyze what human action is..." and "When I read a book, the other things that I could have done, and the purpose that I pursue in reading the book, are parts of my action. They are not existentially independent. They are not even real. The only reason to deal with them at all is that they are part of my action, which manifests itself in my behavior and in my thoughts, and that they therefore can be used to explain this behavior and these thoughts." This felt like a philosophy exercise to me, and it was a hard slog to get through the first few pages. [excuse this big font. I can't seem to type in the same smaller font that was being used in the beginning of the post since I pasted that quote in the body of post.] But it did get better, even though I had to look up more words than I care to admit. And it gave me a deeper insight into the Austrian method, which is its own reward. I wonder if Caplan has a rebuttal? I think I'll send him an email asking if he has one. It can be fun to see academics do battle. Anyway, thanks for the link. The other guy who was too bored to give a link to that thread but evidently not to bored to make a post telling me he could provide one if he wanted but wouldn't (the grade school equivalent of 'I have a secret but I'm not telling') will probably send you hate mail. So thanks again. I hope everyone that has read Caplan's critique finds that thread.
The answer is that, strictly speaking, Austrian economists do not explain human action at all. They do not relate human action to other facts of which it would be sequel or corollary. What they do is to analyze what human action is..." and "When I read a book, the other things that I could have done, and the purpose that I pursue in reading the book, are parts of my action. They are not existentially independent. They are not even real. The only reason to deal with them at all is that they are part of my action, which manifests itself in my behavior and in my thoughts, and that they therefore can be used to explain this behavior and these thoughts."
This felt like a philosophy exercise to me, and it was a hard slog to get through the first few pages. [excuse this big font. I can't seem to type in the same smaller font that was being used in the beginning of the post since I pasted that quote in the body of post.] But it did get better, even though I had to look up more words than I care to admit. And it gave me a deeper insight into the Austrian method, which is its own reward. I wonder if Caplan has a rebuttal? I think I'll send him an email asking if he has one. It can be fun to see academics do battle.
Anyway, thanks for the link. The other guy who was too bored to give a link to that thread but evidently not to bored to make a post telling me he could provide one if he wanted but wouldn't (the grade school equivalent of 'I have a secret but I'm not telling') will probably send you hate mail.
So thanks again. I hope everyone that has read Caplan's critique finds that thread.
. They point out that each human action
They point out that each human action
contains
relationships between realized
I. Ryan: Daniel: Find it. Are you trying to be annoying?
No. Are you trying to be lazy and not look for a response to Caplan's article?
Daniel: No. Are you trying to be lazy and not look for a response to Caplan's article?
. . . yes . . .
I. Ryan:Are you trying to be annoying?
It's bad netiquette (read: annoying) to demand someone post an answer you can Google for.
You might have had a shot if you had bothered to be polite and say please, instead of issuing a command no one will take seriously.
liberty student: It's bad netiquette (read: annoying) to demand someone post an answer you can Google for. You might have had a shot if you had bothered to be polite and say please, instead of issuing a command no one will take seriously.
Are you also trying to be annoying?