ABCT seems so obvious to me that I don't understand why it hasn't become mainstream. What arguments would mainstream economists use to refute it?
What Went Wrong with Economics
mickanomics:FRIEDMAN That is a very general statement that has very little content. I think the Austrian business-cycle theory has done the world a great deal of harm.
Because Friedman didn't properly understand Capital Theory, which is why he made serious errors in how he tried to evaluate its validity.
Both Jesus Huerta de Soto in " Money, Banking, and Credit Cycles", and Roger Garrison, in "Time and Money", address these errors and show that on the contrary, Friedman's data is consistent with Austrian Business Cycle theory.
here is the relevant footnote with respect to Roger Garrison's response to Milton Friedman:
103. In an article in which he examines data from the crises between 1961
and 1987, Milton Friedman states that he sees no correlation between
the amount of expansion and the subsequent contraction and concludes
that these results “would cast grave doubt on those theories that see as
the source of a deep depression the excesses of the prior expansion (the
Mises cycle theory is a clear example).” See Milton Friedman, “The
‘Plucking Model’ of Business Fluctuations Revisited,” Economic Inquiry
31 (April 1993): 171–77 (the above excerpt appears on p. 172). Nevertheless
Friedman’s interpretation of the facts and their relationship to
the Austrian theory is incorrect for the following reasons: (a) As an
indicator of the cycle’s evolution, Friedman uses GDP magnitudes,
which as we know conceal nearly half of the total gross national output,
which includes the value of intermediate products and is the measure
which most varies throughout the cycle; (b) The Austrian theory of the
cycle establishes a correlation between credit expansion, microeconomic
malinvestment and recession, not between economic expansion
and recession, both of which are measured by an aggregate (GDP) that
conceals what is really happening; (c) Friedman considers a very brief
time period (1961–1987), during which any sign of recession was met
with energetic expansionary policies which made subsequent recessions
short, except in the two cases mentioned in the text (the crisis of the late
seventies and early nineties), in which the economy entered the trap of
stagflation. Thanks to Mark Skousen for supplying his interesting private
correspondence with Milton Friedman on this topic. See also the demonstration
of the perfect compatibility between Friedman’s aggregate data
and the Austrian theory of business cycles, in Garrison, Time and Money,
pp. 222–35.
I can answer this:
mickanomics:ABCT seems so obvious to me that I don't understand why it hasn't become mainstream.
Though I think someone already did...
It is the marriage of the intelligentsia and the state. The State likes to intervene in the market for whatever myriad of excuses, these are justified by the intelligentsia, which are by and far the opinion makers for the "masses". It is a symbiotic relationship, the state prospers by gaining a citizenry that is idiotically following their demands because the intelligentsia "suggests" it is right, in turn the opinion makers become part of the state infrastructure, left independent to keep an illusion of lacking bias.
mickanomics:What arguments would mainstream economists use to refute it?
Mainstream economists are not the ones arguing it, if they asserted that spending gets out of debt and "animal spirits" keep people from doing the spending they need to do for a healthy economy (Keynes' Theory) they would be laughed out of existence by the common man. In the end it is the movie actors that assert the state is the answer, from the Great Depression forward, then the economists come in with supporting statements, while you are staring at so and so's breasts, you are mesmerized to believe anything she claims is true...
It sounds like the ocean, smells like fresh mountain air, and tastes like the union of peanut butter and chocolate. ~Liberty Student
The hangover theory, then, turns out to be intellectually incoherent; nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present.
My god, it's true. Keynesians truly CAN'T visualize more than two margins at once.
Mr. Krugman needs to check himself before he wrecks....everybody else's shit...
The main reason has already been said, the symbiotic relationship between intellectuals and the government. (Roth Bard, Anatomy of the State explains it all).
The other relevant reason, is the same why people believe and support this non-sense decisions from governments (like monetary expansian as a I mean to economy growth). People perpetuate the behavior to accept what the authority person says (essentially because it works for them).
So, I think this will happen no matter what the mainstream theory is Kensyan or ABCT. If you get what you want and need, you will not waste time trying to find if authority speaks the truth.
Open problems and question like these.
scineram: Open problems and question like these.
You just reposted the same nonsense mickamonics posted before only from a different source (this one being a comment on a blog). These are open problems and questions only to those who are ignorant of Austrian theory.
Nobody is denying that for Keynesians, there are indeed a lot of open problems and questions. Like the more general problem of economics.
What did he post?
mickanomics: I thought that ABCT states that an increasing money supply inflates asset prices - which stimulates more people to jump on the rising-asset price investment bandwagon, borrowing to invest, which creates more money in a feedback loop. Can anyone find any mainstream economist that has written anything disputing this phenomenon? (nothing mentioned so far disputes it).
I thought that ABCT states that an increasing money supply inflates asset prices - which stimulates more people to jump on the rising-asset price investment bandwagon, borrowing to invest, which creates more money in a feedback loop. Can anyone find any mainstream economist that has written anything disputing this phenomenon? (nothing mentioned so far disputes it).
I think the keynesians dont agree with this, or at least not all. I think they dont believe the interest rates have a direct impact in the entrepeneurs.
Besides other factors such as the state preferring interventionist economics to Austrian prescriptions, the biggest problem is 1) ABCT/Austrian economics are relatively unknown and 2) ABCT/Austrian economics uses a completely different methodology than neoclassical economics. Mainstream theories rest on a number of mathematical assumptions,functions, aggregates, and other shortsighted empirical analysis that portray the economy much differently than what Austrians envision. The two schools of thought are vastly different when one recommends taking high level calculus classes and even majoring in economics while the other heavily shuns calculus and portraying humans as mathematical functions. Neoclassicism validating the ABCT just wouldn't damage their business cycle theories, it would tear down their whole corpus of economic thought. They would have to take into account the production structure, savings, interest rates, 100% reserve banking, a multidimensional economy, among other factors just to validate the ABCT. Its not just breaking a window, its more like tearing down a wall.
Because the ABCT condemns government interventionism.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
Esuric: Because the ABCT condemns government interventionism.
here we go again... everybody is conflating two issues.
Issue 1. ABCT - i.e. the theory that expansion of the money supply causes asset bubbles.
Issue 2. The propensity for Austrian economists to prescribe "do nothing" as the solutions to all economic problems.
My question is about "issue 1" and issue 1 only... but everybody keeps discussing issue 2. Issue 2 may be very interesting, but it is off-topic as far as this thread goes.
mickanomics: Esuric: Because the ABCT condemns government interventionism. here we go again... everybody is conflating two issues. Issue 1. ABCT - i.e. the theory that expansion of the money supply causes asset bubbles. Issue 2. The propesity for Austrian economists to prescribe "do nothing" as the solutions to all economic problems. My question is about "issue 1" and issue 1 only... but everybody keeps discussing issue 2
Issue 2. The propesity for Austrian economists to prescribe "do nothing" as the solutions to all economic problems.
My question is about "issue 1" and issue 1 only... but everybody keeps discussing issue 2
Nobody is conflating anything. That remark about government interventionism pertains to issue 1 just as much as it does to issue 2. And by the way, the theory in issue 1 is not the Austrian theory
mickanomics: Esuric: Because the ABCT condemns government interventionism. here we go again... everybody is conflating two issues. Issue 1. ABCT - i.e. the theory that expansion of the money supply causes asset bubbles. Issue 2. The propesity for Austrian economists to prescribe "do nothing" as the solutions to all economic problems. My question is about "issue 1" and issue 1 only... but everybody keeps discussing issue 2. Issue 2 may be very interesting, but it is off-topic as far as this thread goes.
I don't think you're respecting how frequently people's beliefs "just happen" to coincide with their wishes.
DD5:And by the way, the theory in issue 1 is not the Austrian theory
Really? I thought it was. If I'm mistaken, then my apologies... can you clarify...
mickanomics: DD5:And by the way, the theory in issue 1 is not the Austrian theory Really? I thought it was. If I'm mistaken, then my apologies... can you clarify...
ABCT is not a theory of intratemporal distortions but of intertermporal distortions. There is a huge difference. The former can be more easily understood by most economists while the latter cannot. The criticism you point to tries to understand the problem by the former and not the latter. They are not familiar with the latter because sequential time is absent from their theories. They lack a capital theory.