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Controlled experiment to show resource misallocation?

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Wheylous posted on Sat, Apr 7 2012 11:26 PM

(Could someone create)/(have there been) controlled experiments to show the distortion of the production structure due to interference with the money supply?

It could either be a real-world example or even resources in some game world (which would make the process faster, though less life-like, as there aren't the same incentives in-game as in real life; rage-quitting comes to mind).

It would be quite interesting to try this out.

Also, does anyone have any links to explain where the new money the Fed makes comes up first? (Banks, something, idk).

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GooPC replied on Mon, Apr 9 2012 11:16 AM

It would have to be a large experiment (an entire nation), since the problems of calculation and information are manageable on a small scale but become completely destructive for large economies.

The big question I have is why is this even necessary? We know, apriority, what will happen when you manipulate the money supply. Hoppe explains this well. Experimentation is not necessary for these economic theories, they are known simply by understanding the logic of human action.

http://mises.org/esandtam.asp

http://www.youtube.com/watch?v=hiXcO3pcR8I
 

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"The big question I have is why is this even necessary?" Maybe the quick reply would be that people just wouldn't buy your argument then. Economics is not math where you can build rigorous proofs about certain causes and effects. It has to be tested and confirmed, because otherwise everyone has his own truth. In fact, if math research results could highly influence political debate and economic policy, people would find a proof or an explanation for anything you want, like in economics. That's the problem with ABCT: that it might be logically invincible, but cannot be established in reality or empirically defended in front of economists, which makes it a sect, and not a science.
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z1235 replied on Wed, Apr 11 2012 7:00 AM

Dzmitry Kniahin:
It has to be tested and confirmed, because otherwise everyone has his own truth. In fact, if math research results could highly influence political debate and economic policy, people would find a proof or an explanation for anything you want, like in economics. That's the problem with ABCT: that it might be logically invincible, but cannot be established in reality or empirically defended in front of economists, which makes it a sect, and not a science.

I nominate this for the prestigious: Most Contradictions Per Written Line Award

 

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I don't think you understand the point of a proof in mathematics. It's either correct or incorrect, not "Oh I like this."
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This is the whole point of the praxeological method: controlled experiment is not just hard but impossible. Look at the "Soviet experiment', the closest thing history has ever witnessed to precisely what you're talking about. What lessons were learned from it? What disputes settled? None. The communists and socialists confidently march onwards, glibly dismissing the "empirical evidence" that they don't like by waving their hands and saying "it wasn't done right" - in other words, they can always say "the variables were not sufficiently controlled."

But how can this not be the case?? Humans act! The leader of the Aryan Brotherhood (an "elite" prison gang) is imprisoned in a Supermax facility - he got messages in and out to his lieutenants in other prisons through slips of paper hidden in the anuses of his gang members as they transferred in and out of the Supermax. When the guards discovered that, they switched to using plainly readable letters that used an encryption system invented by Francis Bacon centuries ago! So, someone please explain to me how you're ever going to arrest human action to a sufficient degree to satisfy the "humans = moldable clay" socialists - no matter how violently you enforce order and no matter how dystopian the measures you are willing to resort to in order to control people, there will always be those crazy enough to still act! Oops, there goes your whole experiment. I guess we slaughtered and enslaved hundreds of millions of people over the span of decades to no avail.

And that's leaving aside the fact that whoever is running the show (the Politburo, the Commisar or whoever) is acting (by design) - someone has to act. And those at the top of the Party apparatus whose "job" it is to act are still subject to the laws of praxeology. They each act to attain their own ends. And this is precisely what you see in Soviet Russia. Sure, the common man was left to scrap in the street, worried about being hammered to powder for the crime of exchanging rations on the black market. But the Party leaders engaged in all kinds of exchange with each other and their underlings in order to increase their power and wealth. Remember that property is not the physical objects themselves - it is the rightful decision-making power over physical objects. Somebody had to decide who got to go to the few beach vacation resorts (I work with a guy who grew up in Soviet Russia and he explained to me the art of "being nominated" for such favors which were supposed to be handed out by lottery). Whoever decides who gets to go to the resorts effectively owns them.

A "controlled economic experiment" isn't just hard, it's impossible because humans act. Humans act or they die. If humans are alive, it is because they are acting. Any experiment with living human beings will, by definition, fail to satisfy the conditions of a controlled experiment.

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I still think the question stays unanswered in a sense of how do we obtain stylized facts to test the Austrian business cycles theory? We would have to measure the production structure shortening (Hayekian triangle), the natural interest rate in the economy, the inflation (which is not really seen right now, despite austrians say it is there), the forced savings, the production possibilities frontier, etc.

 And Hayek acknowledged these problems in his Nobel Prize lecture. However, still if you want policymakers to take ABCT seriously, you have to obtain all the data and make a usual statistical analysis, make some forecasts and then discuss. Of course, relying solely on logic of human action wins respect and human action axiom is indisputable, however they kind of make think of a brain with only one convolution.

 

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I have never seen anyone want proof of PPFs or the like.

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I still think the question stays unanswered in a sense of how do we obtain stylized facts to test the Austrian business cycles theory?

You don't because it's impossible. It's like saying "let's test Euclid's construction of the bisection of an angle... does it really bisect the angle?" Of course it really bisects the angle because it was proven that that's what it does. And "tests" can neither confirm nor deny the theorem because they are not operating with the a priori elements of the geometric theory (its axioms), they are simply drawing lines on paper and forming estimates of their relative distances and angles.

We would have to measure the production structure shortening (Hayekian triangle), the natural interest rate in the economy, the inflation (which is not really seen right now, despite austrians say it is there), the forced savings, the production possibilities frontier, etc.

No. Praxeological theory can only be applied to real data as a matter of interpretation of historical data.

And Hayek acknowledged these problems in his Nobel Prize lecture. However, still if you want policymakers to take ABCT seriously, you have to obtain all the data and make a usual statistical analysis, make some forecasts and then discuss. Of course, relying solely on logic of human action wins respect and human action axiom is indisputable, however they kind of make think of a brain with only one convolution.

ABCT will never be taken seriously by policymakers. The fact that they don't take it seriously is not the result of a failure to find "empirical confirmation" of the theory - rather, it is the result of motivated belief. They don't want to accept ABCT because they're making too much money in the status quo system where they get to print up money any time one of their buddies needs to be bailed out.

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Everyone that says AE is not scientific is playing eternal skeptic.  That's all.  There are experimental facts behind ABCT, but they are all more general rather than more specific.  Eternal skeptics always want more specific facts.  "Policy makers" will never use ABCT because they are incurably biased.  Even the Baltic states, which attended Rothbard's seminar after 1990, opted for the Keynesian system.  It's not like Keynes (or Marx) conducted experiments.  Being in Russia, where there was a long and systematic attempt to kill everyone that disagreed with communism, you will have to fight the most uphill battle.  You won't win over many people regardless of what you say.  You know the expression, "You can't save 'em all."

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Clayton:
ABCT will never be taken seriously by policymakers. The fact that they don't take it seriously is not the result of a failure to find "empirical confirmation" of the theory - rather, it is the result of motivated belief. They don't want to accept ABCT because they're making too much money in the status quo system where they get to print up money any time one of their buddies needs to be bailed out.

 So you think there is some secret conspiracy against ABCT among economists? And recent developments in economic theory in the last and this centuries had one goal of distructing people's attention from ABCT?

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Dzmitry Kniahin:

So you think there is some secret conspiracy against ABCT among economists? And recent developments in economic theory in the last and this centuries had one goal of distructing people's attention from ABCT?

From this post here in the WTF Rockefeller Funded Mises? thread:

Clayton:

The rank-and-file economists and mid-level managers who comprise the intellectual bodyguard of the Fed are Keynesian true believers. But the folks at the top understand exactly what it's all about.

I suggest you read that thread.  It's very likely that The Powers That Be know exactly what's going on.  They wish to maintain the status quo, which is to say, to maintain and increase their wealth and power.  Even if they don't think of it as the ABCT, they know exactly what they are doing with the Fed.

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So you think there is some secret conspiracy against ABCT among economists? And recent developments in economic theory in the last and this centuries had one goal of distructing people's attention from ABCT?

Um, since when does economists = policymakers??

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