Economics Questions

2 issues/questions on Free Trade vs Protectionism

LandJ — Mon, 13 Mar 2017 00:38:41 GMT

Hello everyone. I have two questions on economics and especially on International Trade: Free trade vs Protectionism. I would appreciate it if you could help me understand. (they are beginner's questions) - Subject A Suppose there are two countries, USA and Japan who produce the same cars at market price 10,000$. US government impose a 10% tariff on Japanese cars to protect US car industry and now Japanese cars cost 11,000$. Now Americans buy american cars because they are cheaper. Market law says, that when supply decreases the price increases. So, US producers will increase their prices up to 11,000$ for more profit. Thus, US consumers are harmed by this tariff. My Question: Why US producers (after the decrease of competition) will increase the price of their cars? If they rise the price of their cars from 10,000$ to 11,000$ they will immediatelly put again in the game of competition the Japanese car producers (although their cars have been imposed with tariffs). And the market share will be shared among US and Japan car producers again. So, how we are sure that the market law (price increases when supply decreases and demand remain stable or increases), will work in this case? - Subject B I watched a video of Milton Friedman who said that it is good for USA to import Japanese products, because Japanese who now will have in their hands american dollars, will use them to buy/import US products. In other words, imports of Japanese products to USA, in the long run create/fund the exports of US products to Japan. My question: Why the Japanese producer who exported his products to USA, having american dollars will use them to buy/import US products? He can go to a bank in his place, exchange the american dollars with Yen and buy Japanese products. So, how Friedman is so sure that the Japanese exporter later will buy/import US products, and thus stimulate US exports? Thank you all.

Praxeological Science — Group (Mises Forum of Old)

Conza88 — Wed, 30 Nov 2016 19:27:35 GMT

Hi team, Everyone is welcome to join the discussion here:

https://www.facebook.com/groups/286974241416271/

A liberty minded group created to foster discussions about praxeology—the science of human action. All interested parties are welcome. No special education is required to participate though it is hoped that members of this group are familiar with the writings of Ludwig von Mises, Murray Rothbard, and Hans-Hermann Hoppe.

— Housekeeping —

There is a plethora of pages, websites, and blogs that cater to general libertarian and Austrian Economics content. Whilst incredibly valuable they have their place elsewhere. This group aims to specialise in discussions specifically related to praxeology—the science of human action...

What have Austrians been wrong about?

Austen — Wed, 08 May 2013 03:36:55 GMT

1. What have Austrians been wrong about in general?

2. What have Austrians wrongly predicted?

3. What have Austrians wrongly predicted that Keynesians have correctly predicted?

Response to "Being Classically Liberal"

Willink — Wed, 13 Aug 2014 18:50:30 GMT

Response to a post accessable here:

https://www.facebook.com/permalink.php?story_fbid=849511998416557&id=592589870775439

Now, a couple of Anarcho-capitalists wrote some angry responses saying I was utilizing a straw-man argument or that all my concerns have been adequately addressed. These claims are simply false.

Accusing individuals arguing against you as being motivated out of anger, quite the feat of logic. The latter half of this portion (“claims are simply false”) is an assertion, not an argument.

I have [read] books, essays, journal articles, etc on anarcho-capitalism and how it would work from authors like Thomas E. Woods (whom I respect highly), Murray Rothbard (For a New liberty), Lew Rockwell, David Friedman (Machinery of Freedom), Bryan Caplan, etc. To say that I was utilizing straw-man arguments, or to say that I don't understand the arguments for anarcho-capitalism is plain ignorant.

This is both an appeal to authority fallacy (look who I've read!) and red herring seeing as it simply reasserts the initial argument (I do in fact understand anarcho-capitalism) without materially addressing any of the criticisms entered previously toward his position.

I have had a completely open mind about anarcho-capitalism, otherwise I wouldn't have bothered reading a vast amount of literature on it.

Irrelevant

Furthermore, not a single comment actually addressed any one of my concerns.

Materially false. See PDF links to Block's obligations toward children, or criticisms toward substance of natural law entered by multiple posters. Hand-waving is not a substitute for sound reason.

To assume that I haven't already looked these things up doesn't make sense to me.

Of course it doesn't, but it sure does seem that way to a number of posters who seem doubtful of your grasp of the aforementioned topics.

For example, Austrian economist Thomas DiLorenzo provides a convincing critique of the belief that telephone, cable, and electric utilities are natural monopolies. [1] However, it is also well documented that natural monopolies in general do exist.

DiLorenzo argues that monopolies more generally are a creation of government privilege rather than creation of the free market. Clearly, the oil industry and pipelines more generally are largely state-cultivated creatures of regulatory privilege; according to FERC info being cited by Saidu the only requirement necessary for establishing a “natural monopoly” is control of a single pipeline. This market concentration IO theory of monopoly has been subject to intellectual criticism by myriad of economists since the mid 1970s; (see. Harold Demsetz, “Industry Structure, Market Rivalry, and Public Policy”, 1973). Either way, linking a PDF is not a refutation of an argument, and OP fails to elucidate on how Saidu's position answers to criticisms entered by DiLorenzo.

Lastly, I can find no evidence whatsoever that anarchy leads to better economic or social outcomes (such as rising incomes and life expectancy)

Seeing as there are no anarchic nations, I'm not sure why there would be this sort of empirical evidence in the first place.

For example, research finds that for developed nations, a government size of less than 25% of GDP maximizes economic growth.

It's not clear how linking studies which detail how reducing government expenditures increase economic growth is an argument against reducing expenditures further still. The second linked PDF deals almost wholly with size of govt as measured by means of GDP growth, a methodological observation already subject to criticism by other posters in recent posts by OP which were magically brushed aside as “not addressing any one of my concerns”.

There's plenty of evidence that government boosts growth up to a certain point.

Unfounded assertion with no forwarded evidence.

IP debate - please help!

statelessrich — Sat, 21 Sep 2013 17:19:34 GMT

So I got into a Facebook IP debate. My opponent brought up some points that I want to address in the best way possible; please help me :)

This is his post:

As someone who's built a career in patent law. I've been doing this since 1995. I don't think that's a justifiable position.

I work in a big pharmaceutical company, and I see innovation every day because this company or that doesn't want to have to pay a nickel for a licensing fee off someone else's patent. It's called "designing around" and is a prime mover for innovation.

Patent law is sometimes (sort of correctly, sort of not) compared to land property rights. Imagine there is a huge gold field and Bob finds gold in sector A17. He buys the deeds to all sectors from A1 to B20. Tim sees Bob's success and whines and bitches that Bob owns all this land. But he is forced to - unless he wants to pay Bob a nickel - to go explore sectors C and D, and there he finds platinum and Element Zero, too.

In a similar way, on a daily basis, we are keenly aware of what our competitors are doing - so that we can do something different in our never-ending quest to find better medicines to cure cancer and other diseases. Because... why would we want to re-invent the wheel (copy someone else's drug) and get sued for patent infringement when we can make our own and own the patent on that? (Of course, this is all expensive.)

I find that many who decry IP laws are not creators; they are copiers, who people who want things for free or who are intellectually lazy or not curious. They are not makers. Suppose there were a world with no intellectual property laws, and let's return to the land property metaphor. So... why would it not then be ok for me to go over to your house, rummage through all your stuff and take whatever I want?

I don't like that he compares IP to property rights in land, since land is scarce and ideas are not.

Demand creates Supply or Supply creates Demand?

LandJ — Sun, 06 Oct 2013 19:29:40 GMT

Since I am new in free market economics, I do not understand something. Others claim that Demand creates Supply (Keynsians or am I wrong?), while Austrian economics say that Supply creates Demand*.

Can someone explain this to me, please?

If Demand creates Supply is wrong? If so, why? Let's say for example, there is an entrepreneur who understood that increasing muslim population lead to increasing demand for burgas. Then, he opens a small factory to produce and sell burgas. This is a scenario that could happen in real world. Isn't this a proof that indeed Demand creates Supply?

And apart from the above, in a free market consumers are the "kings". They decide what will be produced, when, how, in what quality and quantity etc. Doesn't this illustrate the "Demand creates Supply" viewpoint?

*If I am wrong about the Austrian position in this, please inform me.

A Critique of Mises's Praxeology (Part 1?)

Fool on the Hill — Sun, 29 Jul 2012 01:12:20 GMT

It’s been over a year since I joined this site. I have to admit that I’ve learned a lot from Mises and these boards. I never expected that I would spend this much time here. However, I think my knowledge of Austrian economics is now almost sufficient for my purposes, and it’s nearing time to move on and explore other schools of economic thought. But before I do, I would like to take all that I’ve learned and develop it into a thorough critique of what I think is wrong with the fundamentals of Austrian economics. Many have tried to critique Austrian economics before, but so many of these critiques seem peripheral and miss what is at the core of the school—its praxeology. While praxeology is invaluable when correctly understood, I think that Mises’s conception of human action is fundamentally flawed right from the first chapter of his magnum opus.

This thread will seek to explain Mises’s misconception and how it applies to several basic concepts. I would also like to explore how it relates to other concepts (e.g. value, money, economic calculation, division of labor), but those critiques will have to wait until later. This thread will contain the following sections:

I. The Category of Human Action

II. Means and Ends

III. Exchange

IV. Profit

V. Time Preference

There are several posters here who I have a good deal of respect for. I hope to hear from them. Any honest feedback will be useful, as I plan to eventually revise and complete this critique to publish elsewhere.

Illegal Drugs and China

LandJ — Sun, 06 Oct 2013 19:32:45 GMT

Hi.
I would like your opinion about war on drugs, and especially in China. A friend of mine told me that although in China laws about production, distribution and use of drugs are extremelly strict, China achieved to vanish or keep those activities in very low percentages. I don't know where did he read that, but what's your opinion about China and illegal drugs? Do you have information that and in China illegal drugs exist?

Quick Question

Gavin23 — Thu, 09 May 2013 19:25:58 GMT

Hello all got a really quick question hope you can help me out with.

As I understand it many Anarcho Capitalists and even many Minarchists do not support the concept of Intellectual Property. I tend to agree with that.

What is there view then on other intangible forms of property such as various finacial instruments and securities like stocks etc? Would this not count as real property under this line of thinking?

Thanks!

Mises and Rorty quote, Aristotle tidbit, AE confession

vive la insurrection — Wed, 24 Apr 2013 18:35:24 GMT

I was looking through my old laptop and I found these three scraps of thoughts that were by themselves and saved:

‘The endeavors of psychology to dissolve the Ego and to unmask it as an illusion are idle"

-Mises

"hermeneutics, ‘as a polemical term in contemporary philosophy’, is a name for the attempt to set aside epistemologically centred philosophy."

-Richard Rorty

Aristotle in Nicomachean Ethics said that every science should adapt its method to its object, that the object under study should determine the method of studying it.

- Source unkown (maybe my own)

I have no clue where these thoughts and quote came from, but they are almost undoubtably from the same source (be it a book, article, or interview). What they do is show an "ontological irreducability" that tends to get ignored in the onslaught of formalism and positivsm that people seem to take a sadistic pleasure in applying where it need not be applied.

There is no need to study Human Action (or history or psychology) as "man-apes": the category of "human" , "conscience", economic transaction, or "I" are irreducible unique human entities and self-justifing - and are (like it or not) based off of intersubjective relations of intelligibility and understanding - not formalistic causal approaches. This may sound like a crazy-ass Stirnerite / Husserl / Scholastic type of ontology, and it is, but the fact that it gets ignored or written off baffles the shit out of me.

In the sense that the words "objective", "naturalistic", or if they are really stupid "mechanistic" are used (there are obviously many ways to use the words) by "scientism" type of people in the social science - they are merely flavors, and appeals to no authority greater than themsleves and the institutions that support them. Of course, that they have such an appeal: that is, that they are so popular is their biggest strength - but that is the only point they have (and it is a legit and strong point).

Even still, and this is something I realized quite early in my life, whatever statistics or graph a social scientist uses to call a fact - is not a fact: it is a specific orientation with an interpretation of facts that is presented: this leads to the obvious question: why is it done in such a way, and why is it supposed to be my concern?

What I realize:

I am almost certainly not a "Rothbardian-Misean" in the way people of Mises.org are, and I think this post just declared that fact. While I obviously started with Mises.org type of reading for heterodox economics, even early on I noticed certain tensions in my thought (chiefly on the nature of applications of subjectivity, determinism, equilibrium, institutions: basically my inherent Aristotelianism and Lachmannia). EIther way, in total sum over the past 2 - 3 years, I have read "Mises.org" types less than other Austrians, Lachmannites, Post-Keynesians. Not that that means much, because I'm not a professional social scientist or philosopher - and I am still prone to forgetting and even misreading basic basic concepts some times (as I am not utilizing this info for anything other than long term personal amusment).

Other than Lachmann and Weber: in so much as I can gauge and grasp things I have an underdeveloped appreciation for: aspects of the "historical school, Keynes (gasp!), Hayek, Institutional Economics, Post Keynesianism, and certainly George Shackle.

Some rambling thoughts on Keynesian Concepts.

Smiling Dave — Wed, 08 May 2013 12:43:51 GMT

In Skousen's Dissent on Keynes, Chapter 2, John Egger writes:

A five-percent reduction in workers' wage demands
would not stimulate employment, he [=Keynes] argued, because employers would anticipate
a resulting five-percent reduction in the demands for their products and would
simultaneously reduce their demand for labor. As Peter Clarke puts it, "If prices
and wages simply chased each other down a spiral—since 'one man's expenditure
is another man's income'—then in theory there was no means of effecting the
necessary cut in real wages".

Sounds convincing. Is there a response? I think Egger hints at one in the next paragraph, where he writes:

The claim that the market is incapable of achieving a pattern of prices consistent
with demands is Keynes's rejection of Say's law.

In other words, if we accept Say's Law, that products are what pay for other products, then even if wages go down, there is no reason for employers to anticipate a resulting five-percent reduction in the demands for their products, since lower wages does not mean less production. The apples to pay for the oranges Mr X is making are still out there, even if Mr X and everyone else pays lower wages.

Egger later writes:

General economic malaise results from inappropriate patterns of money prices,
which reduce incomes and production and produce unemployment. The total
amount of money that people want to, or actually do, spend is completely
irrelevant. Aggregate demand is an unintended result of individuals' actions and
has no causal role in determining them. But if aggregate demand is irrelevant
to action and has no meaning in an analysis of the functioning of a market
system, there can be no standard for determining that it falls short of some ideal,
and there can be no such thing as unemployment caused specifically by this
shortfall. All unemployment is caused by mispricing, and none by insufficient
aggregate demand. This, in turn, implies that a policy designed to reduce un-
employment by bringing aggregate demand closer to its ideal is fundamentally
misconceived from the start. The result is typical of well-intentioned efforts to
solve problems that do not exist: the problems that do exist are made worse.

I was blown away by this paragraph. He's saying that AD is like the spent shells after a gun fight. The amount of spent shells is never a cause for gunfights one way or another, it is an irrelevant variable, a meaningless byproduct, and should be ignored when we study gunfights. Similarly, AD is irrelevent to economic actions.

And why is AD irrelevant? Because what counts is whether prices match what the market [=supply and demand] would like them to be. The prices are what determine economic action. If they are aligned with supply and demand, the economy will thrive. If not, it will stagnate. What effect has AD on prices? It certainly did not determine past prices, because on the contrary, they determined it. As for future prices, AD might determine what the market would like them to be, but it has no say in whether prices will actually match what the market wants them to be. That happens by itself in a free market, or is hampered by govt interventions in an unfree market. But AD is indeed irrelevant.

If we assume Say's law is false, how does that change the picture? Because then we can claim that it's not supply that gives one ability to demand, but demand that magically determines supply. This makes AD very inportant indeed. Reduce it and you magically reduce production, which means poverty.

Now a Keynesian might argue like this: Forget about prices. They are fixed. Set in stone, they cannot ever change. [Ridiculous as it sounds, there are actually people who claim this]. So if prices do not match what they should be, given the current supply and demand, we have to increase demand. Doing so will raise what the laws of supply and demand indicate the price should be to equate with what they are fixed at.

Stated so baldly, we see some problems.

First, there is not one price for everything. The market, if left to itself, will adjust every single price of every single item. But how can a politician take an action that will set every last price to what will clear every last market? It's like throwing a bottle of ink on a canvas and hoping that out comes the Mona Lisa. You can't possibly fine tune your toss to do that.

Second, there is a morality argument here. If peope have chosen not to buy, what right have we to force them to buy, or what is worse, pay for what the govt buys for itself and its pals?

Ramble is long already. Would be glad to see comments.

Mathematical expectation and rational decision taking [split from "Defense in anarchy" thread]

ToxicAssets — Mon, 06 May 2013 10:05:38 GMT

malachi:
do you even know what mathematical expectation is?

Haha.. cute.

The problem though is that I'm not a chick and I'm no homo. So you should save your "negs" and cute little lines for someone else…

Anyways, I was trying to show you that even though the concept of mathematical expectation is at the heart of every decision under uncertainty, things are little bit more complicated than that.

It is not the mathematical expectation of the monetary return of a gamble that determines whether that gamble is worthwhile or not.

It is the mathematical expectation of the UTILITY FUNCTION of the returns.

Under normal conditions, we assume that people have concave utility functions, which can be interpreted as "risk-aversion".

It means that facing the alternatives of a gamble and an opportunity to get the average return of that gamble, they will generally choose the sure thing.

But on occasion the utility function of a certain individual might get convex, meaning that he's a "risk-taker".

Given a certain gamble, he'll prefer the small probability of earning a larger sum (and the risk of losing) than the sure thing of getting the average.

A reason why someone would have such a convex utility function with respect to a given gamble is that he's facing convex (non-diminishing) opportunities of investment for the returns he'll extract from that particular gamble.

Things like owing mobsters money and or facing some unique investment opportunity that will shut down soon may "convexify" your otherwise concave utility function, so the roulette game might be a rational decision for people in such a situation.

Individuals take decisions based on private and public information, and the shape of their utility functions takes both in considerartion.

Since most individuals face diminishing returns for their investments, we generally observe concave profiles for their utility functions.

That's why I was talking about pot-odds and implied pot-odds, assuming perhaps that you understood the fundamentals about poker.

You calculate your pot-odds by comparing how much you need to bet to take part in a given pot, but that's what everybody else knows. What other people don't know is what cards you have in the hole and how things are likely to turn out in your advantage (or against you) if certain scenarios unfold. And you use this information to estimate your implied pot-odds, which is going to serve as the basis of your decision.

The mathematical expectation of a gamble is the public information everybody has, but it is not enough to corroborate a fully informed decision about taking or not taking the gamble.

Does immigration explain most of the inequality in the OECD states?

Asgeir Ingvarsson — Mon, 06 May 2013 14:56:27 GMT

Hi all. This is my first post in the Mises community.

I am fishing for resources and leads (and thoughts) for my Masters dissertation at the LSE.

I will be exploring a theory I have about how immigration might be the main factor in explaining differing levels of inequality in the OECD states.

As it turns out immigrants tend to mostly enter the workforce from the bottom (unskilled labor) and the top (specialists, investors, billionaires) and would therefore tend to pull at the income distribution curve at both ends.

I produced a scatter chart of the OECD states comparing Gini-scores and migration levels and found a somewhat obvious correlation. There are a few outliers, but those appear to be countries that have a different composition of immigrants than the other OECD states.

To my surprise it seems that the immigration variable has not been properly studied before and it is proving to be quite a challenge to find material to support or refute my theory.

Thus far one of the best hints I've gotten ponted me towards german journalist Olaf Gerseman who wrote about the subject in a book of his and apparently proved that if you factor in immigration it turns out that inequality becomes the same among developed nations.

If it turns out my theory is correct I'm hoping that would be important news for libertarians, as it would serve to prove that the "problem" with inequality has nothing (or very little) to do with e.g. whether a country has a strong or weak welfare system.

Also, it appears that over time immigrants tend to slowly move closer to locals in wages and education, so the individuals move up the inome ladder, effectively lifting themselves up from the bottom of the inequality curve. I've found data from the US that shows that by the second generation immigrants have become completely normalized with regards to education. So looking at the progression of the individual inequality starts to not seem like such a big problem.

Here's a link to an image of the scatter chart showing how inequality tends to rise as the inflow of migrants rises. http://imgur.com/0h8iX1A

I would really appreciate any comments, suggestions or reccomended readings.

Fiscal Multipliers Debunked?

ITGF — Thu, 07 Jul 2011 15:31:14 GMT

I recently encountered a series of youtube videos which claimed to find errors in the logic and algebra underpinning Keynesian economics.

Excuse me for being sceptical, but I think its strange that it has taken 75 yrs to find these flaws. Surely if they existed, it would be well known by now? Below is a link to one of these videos. Has the author found a previously unknown flaw? Or is this well-known? Or has the author, in fact, got it completely wrong?

Pt. 2: Fiscal Multiplier Destroyed: Keynes' Deception
http://www.youtube.com/watch?v=encPMexUm8w

If you are interested, here is the full list of videos:

The Maynard Keynes
http://www.youtube.com/watch?v=pA67E8jMq84&NR=1

Pt. 1: Fiscal Multiplier Debunked and Destroyed
http://www.youtube.com/watch?v=4Vnus-Kw5Is&NR=1

Pt. 3: Fiscal Multiplier Destroyed: The Other Multiplier
http://www.youtube.com/watch?v=sZDIZ1U7gEk

Pt. 4: Fiscal Multiplier Destroyed: The Chain Reaction
http://www.youtube.com/watch?v=y1AVThNZuR4

Pt. 5: Consumption Function & Keynesian Cross Destroyed
http://www.youtube.com/watch?v=2bmsYNnS2MA

Pt. 6: Government Spending Multiplier Destroyed
http://www.youtube.com/watch?v=hHa-HE7Olq0

Pt 7: Tax Cut Multiplier Destroyed
http://www.youtube.com/watch?v=1oUMjJKQkkQ

Pt 8: Balanced Budget Multiplier Swindle - Keynesian Asymmetries
http://www.youtube.com/watch?v=VZL_1L9r-T4

Pt 9: Keynesian Logic - Apples, Oranges, Asses
http://www.youtube.com/watch?v=XErrpJHaExA

Pt 10: Keynesian Asymmetry and "Other Multiplier" Revisited
http://www.youtube.com/watch?v=684WIoQP6XQ

Did people borrow less from 1873 to 1896?

No2statism — Mon, 06 May 2013 00:57:39 GMT

If the deflation didn't deter people from borrowing, then why didn't it?

What are the main Austrian criticisms of government regulation?

WallStreetAce — Sat, 12 Mar 2011 08:08:16 GMT

Hi all,

I'm relatively new to Austrian economics, but truly believe in all of its principles and have come to love it. Most of the time, I am able to state the reasons why government shouldn't set price controls, minimum wages, inflate the money supply etc. However, as of late I've been at a loss as to how to explain from an Austrian POV why government regulations aren't needed and cause more harm to the economy than good.

With that said, I was recently debating a friend of mine who was vehemently in favor of nearly all government regulations. He said that without them businesses would create shoddy products to cut costs, causing death and injury to their customers in the process. He went on to say that without government regulations there would be no industry standards, and that nothing would be uniform across certain sectors and lines of business, again causing injury and chaos. After he said these things, I used Rothbard's argument that regulations impose a cost on a producer that has yet to do anything wrong, and as a result are illegitimate. I also told him that in a completely free society without government controls, the market would regulate itself and those companies with shoddy products killing people would be weeded out because consumers would shift to the ones who don't create such products. He told me that such a world view is a fantasy, and that firms can't be trusted to make good products if all they're relying on is cutting costs to make a profit, and that you can't wait for people to die in order to do something. He ended by saying: "If you can save people's lives with a simple safety standard why wouldn't you be in favor of that? What, you don't want to save people's lives? What's wrong with you?". I then just lost it and threw up my arms in disgust.

So, with that said, can someone please educate me further on the Austrian criticisms of government regulations, why they are not needed in a free market and why they cause more harm than good? Because every time I tell people that I'm against regulation of any kind, they look at me like I need to be put into a mental institution. Like the guy I just quoted, they then say how bad things were before the regulatory state we now live in and give the usual stupid arguments in favor of them. Any links to works by either Mises, Rothbard or Hayek on the subject would be great. I could really use some study materials.

Thanks a lot!

Homosexual Marriage

Thomas — Sat, 04 May 2013 17:42:17 GMT

What is the Austrian economic thought on changing marriage laws to include homosexual marriaga?

Higher Order Goods and Interest Rate Sensitivity

Jargon — Mon, 08 Apr 2013 17:21:40 GMT

I'm having trouble with the notion of the higher order capital goods being more interest rate sensitive. For instance, it makes sense that a segment of production which is capital intensive is sensitive to interest rates. If the rate of interest is too high in the perspective of an entrepeneur he will not invest in the needed capital. And it seems intuitive that higher order processes are more capital intensive just from observation of an economy. Burger flippers basically just need a grill and a restaurant, more of the costs are in labor, whereas griddle/frier producers require a complex array of machinery and tools for the fixing thereof. But what is the reason that the segment of production furthest from the final good is necessarily the most interest rate sensitive?

For example, if we're producing HomeDepot miniShacks, the entire process might go like this: logging->cutting->treating->assembling->transporting->selling. How is it necessarily the case that logging is more capital intensive and thus interest rate sensitive than treating wood with chemicals?

The standard explanation is that higher order goods are furthest from the final good and so there is a longer period between the initial investment and the "payoff" - that period in which revenue starts coming in and interest can start to be paid off. But the producer of higher order goods does not have to wait for the demand from the final good producer; due to the forward-looking nature of entrepeneurship, a producer of a good "one level" beneath him will buy that highest order good to satisfy his own business plan. This is ultimately dependent on how much of the final good is bought from what is produced, but the point is that the producer of the highest order good is not deprived of revenue for a greater period of time (or at least not the period of time it takes for one "round" of production to occur). He can sell his good to the next producer down the line. So what in Bohm-Bawerk's laws makes it completely implausible/impossible that the segment of production "beneath" him is less capital intensive? Or am I not conceiving of this issue correctly?

It occurred to me that producers in those segments furthest from the final good will be more subject to both time lag and more layers of entrepeneurial failure/success. Mises might call this the higgling of the market. But it doesn't seem a compelling reason that, granting abstention from consumption and reallocation of said absentions into the loan market, process N's frontier of production will necessarily expand greater than N-1's (N here being a 'stage' of production).

How do people/businesses get affected by the interest rate?

fakename — Fri, 03 May 2013 00:40:18 GMT

Abstract theory tells us that interest rates affect people and institutions but in my experience, (which is admittedly limited) I can't see how they do this.

Obviously the rate of interest encourages people to leave more money in the bank rather than less, however I'm not sure how that fact concretely translates into employment/unemployment or depressions/booms? For instance, the construction industry is greatly influenced by interest rates but I don't see lots of hard-hatted construction workers in banks taking out loans so I have no concrete mechanism for how this happens.

Also, how does the FED enforce its decrees on what number the interest rate should be?

Who is your dream team ?

jakgaph — Mon, 15 Dec 2008 22:06:29 GMT

What if President Elect Obama selected you as his economic adviser, you have complete control of the economy, he will OK any suggestion you make, your decisions are final, your job starts tomorrow.

You are allowed to hire 5 people to your team who would they be and why ?

Bonus question: What would be your first 5 decisions in this role, and how would you implement them ?

Huerta de Soto and secondary deposit

Zordon — Mon, 01 Apr 2013 00:07:52 GMT

In his book "Money, Bank Credit and Economic Cycles' in chapter 4 subchapter 5 he writes on page 223 (second english edition, .pdf version - http://mises.org/books/desoto.pdf) that: "ds1 represents Bank A’s secondary deposits and equals 1,219,512 m.u", while (if I correctly understand the definition) I would argue that Bank A's secondary deposits equal 1 097 560 money units and 121 952 of primary deposits (pp 218-219). Do I err or he errs?

Is the Austrian School the Creationism of Economics?

Austen — Thu, 02 May 2013 06:54:47 GMT

This guy thinks so. http://www.debate.org/forums/economics/topic/30571

What about the employees rights?

DunklenWurzeln — Wed, 01 May 2013 19:58:23 GMT

Hi everyone, this is my first thread here, and I created this account to ask the libertarian position about the employees rights. I've been reading and watching a lot of online libertarian content, I've read some Walter Block's books but still I can't seem to discover what would happen if there was no such things as the mininum wage, maximum working period, and many other benefits that workers have.

I know that the minimum wage generates unemployment, because many aren't able or don't want to pay the minimum wage for some of their employees, but the big question is, wouldn't employers abuse the lacking rights? Wouldn't we go back to the times of the first Industrial Revolution where labor conditions were precarious and inhuman? 0,5 a dollar for 18 hour shifts. Would people rather just be unemployed and not eat than work in those conditions? How would that work?

ABCT and a-priorism

Prashanth Perumal — Thu, 02 May 2013 06:52:04 GMT

I have been studying the ABCT for the past two months, and while most of the theory makes sense to me, there is one that puts me in doubt.

As argued in the ABCT, an increase in the proportion of savings against consumption leads to the addition of new stages to the production structure. What I'm skeptical about is: when we assume increase in savings would necessarily cause more roundabout methods of production to be adopted, aren't we assuming that there are more roundabout techniques of production available?

If so, shouldn't the validity of the ABCT be tested empirically rather than being asserted as an a-priori conclusion?

Consumer theory proves that P=NP?

Wheylous — Wed, 01 May 2013 18:13:09 GMT

We were learning about P and NP in computer science today. All that is relevant to the conversation is that a certain set of problems P is a subset of another set NP.

A big question is whether P=NP.

Now, it has been proved that there are certain problems in NP called NP-complete. If these NP-complete problems can be shown to be part of the set P, then all NP problems are in P.

(To those interested, P is the set of problems that can be solved in polynomial time, while NP is the set of problems that can have their solutions verified in polynomial time. Showing that P=NP proves that if you can check the solution in polynomial time, you can also solve it from scratch in polynomial time).

One of the NP-complete problems is the knapsack problem:

You have a certain number of items. You also have a knapsack. The knapsack can only carry some limited amount of weight. The different items have a certain value. The knapsack problem is to maximize the total value of the items you put in the knapsack, constrained by the maximum weight the knapsack can carry.

If this problem can be shown to be P, then all NP problems are P.

My idea is as follows:

In consumer theory in economics, we know that people solve constrained optimization problems when buying things. That is, they maximize the utility they gain from the stuff they buy, constrained by the budgets they have. This problem is equivalent to the knapsack problem. Since the human brain is just a computer, then it seems that people solve the knapsack problem quickly, which shows P=NP.

If, on the other hand, the human brain cannot solve the knapsack problem, then the field of consumer theory in economics is wrong.

The assumption of economics that must be true is that of completeness. That is, given any two bundles of goods, a person may choose between them or be indifferent.

My intuition is that people do not in fact satisfy completeness, and instead think of only a limited number of bundles that they rank.

But if people's valuation is indeed complete, then I've just proved that P=NP and should win a million dollars.