Guys
This is me and Anatole Kaletsky and one of his eceonomists discussing an Austrian response to the currency environment. If anyone can help me in the dabate is would be great.
http://gavekal.com/dforum/default.aspx?f=2&m=4703
Getting a login is free and I think you can post anonymously with no login anyway.
Rob
I thought I was being informal and 'cute' with my penetrating one-liner barbs of wisdom.
my bad. :-p
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
Keynesians want to lower interest rates when times are good so that they become great! But when times are bad, interest rates will rise, putting additional pressure on the economy, when they should be falling.
"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."
Okay, NOW he posted. But he didn't deign to respond to me. However, he essentially ceded to my first two points, because in his response to his "colleague" (see below), he completely changes his story about what Austrians think economic busts do and the alleged Austrian theory of "natural business cycles" (I bolded the relevant bits). Of course he doesn't acknowledge the corrections, or admit that he was wrong. And of course he proceeds to replace his corrected falsehoods with a swath of new ones. Oh well, at least he probably won't be spreading those two particular lies about AE in the future.
Dear Will
Thank you for this very well-reasoned response.
I didn't mean to suggest that Austrian economists want to create deep depressions just for the sake of it, or out of a sadiistic desire to inflict pain. But eocnomists of the Austrian school do tend to suggest that severe recessions are necessary to eliminate and deter boomtime excesses of investment and financial speculation (as well as for the micro-economic reasons discussed by Schumpterer, with which I have a lot
more sympathy). In fact, you make this point yourself in your very clear summary of the Austrian theory below. I think this is wrong for the three reasons I detailed in my earlier email:
(i) The economic costs of serious busts are too high in comparison with this alleged disciplining effect.
(ii) There is no empirical evidence that the disciplinig effect actually makes an eocnomy more effciient - on the contrary, economies in which demand management has continuously prevented severe recessions occurring
have had the highest productivitry growth
(iii) Even if punitive busts of the Austrian kind were economically desirable, it is hard to imagine the political circusmastance in which they would be allowed to happen, whether in a democracy or in a dictatorship.
I also disagree with the Austrian idea that business cycles are created entirely - or mostly - by central bank "mistakes" and could therefore be avoided in a gold-based monetary system. Again, this goes against the empirical evidence, which shows that business cycles in monetary systems based on gold have been more frequent and more severe. I think that even from the Austrian point of view that focuses narrowly on investment
excesses and errors in price formation, there is much more plausibility in Wicksell's idea that business cycles are caused by inherent fluctuations in market interest rates above and below the natural rate. Wicksell , like Fisher, Keynes and Frank Knight,. recognised that such fluctuations are driven by inherent uncertainty about the future, as well as by trend-following behaviour, which are intrinsic features of any capitalist system. It is, in my view, both naive and dishonest to blame all such errors of judgement and the cyclical patterns they follow, on interfering governments and incompetent central banks.
Having said all this, I agree with many of your thoughts about the intrinsic inefficiency of government and especially about the difficulty of reversing "temporary" programmes once they get built into bureaucratic structures. But I think that the time politicians should focus on eliminating waste fraud and abuse in government is during the boom phase of the cycle not the bust. In this respect, Bill Clinton and Larry Summers had a much better record of cutting back the size of government than did George W.Bush.
Anatole
Lilburne: (i) The economic costs of serious busts are too high in comparison with this alleged disciplining effect.
What 'economic costs' is he referring to? And from the 'disciplining effect' part, I get the impression he still thinks of Austrians as evil bad guys who want to make people suffer for no good reason as 'punishment' for the boom, completely ignoring any necessary reallocation of resources such as capital, labour etc.
Lilburne:(ii) There is no empirical evidence that the disciplinig effect actually makes an eocnomy more effciient - on the contrary, economies in which demand management has continuously prevented severe recessions occurring have had the highest productivitry growth
Empiricism doesn't prove or disprove anything in economics, especially without a solid theoretical backing with which to understand empirical data, which is the very thing he is avoiding using with his appeals to empirical evidence.
Lilburne:(iii) Even if punitive busts of the Austrian kind were economically desirable, it is hard to imagine the political circusmastance in which they would be allowed to happen, whether in a democracy or in a dictatorship.
What's his point? I don't think any Austrians are arguing that not doing anything will be a good move politically, but good politics =/= good economics.
Lilburne:I also disagree with the Austrian idea that business cycles are created entirely - or mostly - by central bank "mistakes" and could therefore be avoided in a gold-based monetary system. Again, this goes against the empirical evidence, which shows that business cycles in monetary systems based on gold have been more frequent and more severe.
Again with the appeal to empiricism. Same responce applies.
Lilburne:I think that even from the Austrian point of view that focuses narrowly on investment excesses and errors in price formation, there is much more plausibility in Wicksell's idea that business cycles are caused by inherent fluctuations in market interest rates above and below the natural rate.
Which sounds a lot like what Austrians are saying, only Austrians aren't picking some arbitrary level as 'natural' beyond what would naturally occur in a free market, and have a better explanation based around central banks and FRB as opposed to vague refferences to 'inherent uncertainty about the future, as well as by trend-following behaviour'.
guys what is a good introductory book about Austrian economics? Thanks
What I find really difficult in these kind of discussions is getting good historical data, particularly going back further than the 1950's and especially prior to the 1920's.
If anyone knows of any good statistical sources, I would appreciate knowing about them.