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.
bump
as I was hoping anybody in general could reject or validate what I said here so I know if I have even the slightest hunch of what I'm talking about
i was looking for guidance from one of the learned of economics on this thank you
wilderness:Isn't a difference between producer and economist also implied in the amount of information necessary to perform the job thus a producer will have managerial while an economist does the same in a way (peer review)? Also the producer is working within a system that fails in real-time at times as consumers may reject the product. The producer doesn't always get it. And in a way, same for the economist. Which goes back to economic subjectivism to help further explain why there are these limitations. Which actually then goes to what you said about an economist, "tries to show how inefficient the market is", whereas the producer could put the blame on the consumer not buying the products, but it could stand to reason that it's a terrible product and the economist has terrible theories or simply replace the word "terrible" with "limited"?
Yes, but the producer lives in the real world with real ramifications and a different incentive structure. He must produce what society wants, and when he fails to do so, his livelihood is put in jeopardy. The market doesn't care about his excuses and BS. Furthermore, the facts come to him in the form of market signals, which he has to interpret. The economist, on the other hand, chooses a large sum of previous facts, and tries to induce/deduce other "facts" (assumptions). But because the economists incentive structure is entirely different (PhD's in ivory towers and secured tenured positions) they get to create their own world with their own "facts." Let me give you an example which may better explain what I'm trying to say.
When the would-be entrepreneur borrows capital and employs labor he takes a risk, in fact, the risk is usually quite large. If he fails to produce commodities which are desired by society, or if he can't produce it as efficiently as his competitors (who use less resources for production), then he will go out of business and take an economic loss. He may also lose his wife, and the respect of his family members (the shame of being a failure). It doesn't matter how nice this would-be entrepreneur is, or where he got his MBA from--the real world chooses his outcome. But, for example, when an economist like Samuelson, who is considered a God by the mainstream, says that there will be a great depression after WW2, or that the USSR will overtake the U.S as the worlds economic super-power by 1990, or that there is a real causal relationship between the level of employment and inflation, he is excused (they make excuses for him). He keeps his Nobel prize, and people thank him for his "revolutionary insights." Now if a large segment of society was into economics, and if they read all of the literature and followed who said what, then the situation would be entirely different. Samuelson wouldn't just face his Keynesian buddies, but the masses as well. Those who listened to him, and made financial decisions based on his theories (the shame alone would make him think twice), wouldn't care about his excuses and apologies.
The systems/institutions are intrinsically (entirely) different.
(I suggested as answer by mistake).
"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."
thank you Esuric. That's exactly what I was thinking, but you can elaborate the details much better than I. I may have left out the differences, which you contrasted here well, and I began to say it but went off-track when I mentioned the producer works in "real-time". I go on to say an economist does as well, but how I shaped it in the end was the concept of economic subjectivism could be missing in the producer or economist when both blame the consumer. Whereas when it comes to working within the real world, as you put it, or "real-time" as I said, the producer upon reflection could realize the product is terrible and not the consumers tastes, so, blame the product not the consumer for not buying the product. As you say, the incentive system is totally different as the producer would necessarily need to be insightful enough to realize, 'better change the product or else bad things will happen, ie. business failure, etc...'. Whereas an economist in the ivory tower can have terrible theories, and sometimes these theories act upon society in which society becomes simply a guinea pig, a lab to test theories, but what is missing again is the concept of economic subjectivism in which the economist can't have the knowledge to know each and every choice of every consumer. But the economist isn't working in the real world where his or her product can fail and have instant market signals point this out. It can drag on, mistakes can be made, and as you point out even get pats on the back for "revolutionary insights" that chase a fantasy that can't be realized due to economic subjectivism (and probably due to other reasons as well but I'm not as knowledgeable about this but I think I realize at least that tid-bit).
thanks for getting back to me, that helped. I do think I have a grasp of what's up, but I definitely don't know the details and don't know lots of the in's and out's - yet.
wilderness: thank you Esuric. That's exactly what I was thinking, but you can elaborate the details much better than I. I may have left out the differences, which you contrasted here well, and I began to say it but went off-track when I mentioned the producer works in "real-time". I go on to say an economist does as well, but how I shaped it in the end was the concept of economic subjectivism could be missing in the producer or economist when both blame the consumer. Whereas when it comes to working within the real world, as you put it, or "real-time" as I said, the producer upon reflection could realize the product is terrible and not the consumers tastes, so, blame the product not the consumer for not buying the product. As you say, the incentive system is totally different as the producer would necessarily need to be insightful enough to realize, 'better change the product or else bad things will happen, ie. business failure, etc...'. Whereas an economist in the ivory tower can have terrible theories, and sometimes these theories act upon society in which society becomes simply a guinea pig, a lab to test theories, but what is missing again is the concept of economic subjectivism in which the economist can't have the knowledge to know each and every choice of every consumer.
thank you Esuric. That's exactly what I was thinking, but you can elaborate the details much better than I. I may have left out the differences, which you contrasted here well, and I began to say it but went off-track when I mentioned the producer works in "real-time". I go on to say an economist does as well, but how I shaped it in the end was the concept of economic subjectivism could be missing in the producer or economist when both blame the consumer. Whereas when it comes to working within the real world, as you put it, or "real-time" as I said, the producer upon reflection could realize the product is terrible and not the consumers tastes, so, blame the product not the consumer for not buying the product. As you say, the incentive system is totally different as the producer would necessarily need to be insightful enough to realize, 'better change the product or else bad things will happen, ie. business failure, etc...'. Whereas an economist in the ivory tower can have terrible theories, and sometimes these theories act upon society in which society becomes simply a guinea pig, a lab to test theories, but what is missing again is the concept of economic subjectivism in which the economist can't have the knowledge to know each and every choice of every consumer.
Yeah, the term "real world" is quite vague. But we're on the same page.