Economics Questions

Re: "Fatal flaw" in ABCT?

Marked — Tue, 20 Jul 2010 13:16:06 GMT

Well, you seemed to at first be at a loss as to what they were at all, and a few of the original posts here, possibly through miscommunication (or a different, possibly better understanding than me!), gave answers that seemed to suggest no concept existed, when that isn't true.

Thank you. Indeed, I must admit that I wasn't clear at first myself, and apologize for any misunderstandings or inconsistencies I appeared to exhibit regarding middle-stage goods.

Re: "Fatal flaw" in ABCT?

OpTimus — Mon, 19 Jul 2010 15:12:48 GMT

Well, you seemed to at first be at a loss as to what they were at all, and a few of the original posts here, possibly through miscommunication (or a different, possibly better understanding than me!), gave answers that seemed to suggest no concept existed, when that isn't true.

Anyhow, when interest rates are lowered artificially, our consumer is actually motivated to spend even more than before and to save even less, which ends up with him buying more goods than before. Since the higher orders of production are malinvested in other, faulty ventures, the producers of 'middle goods' do not gain enough access to resources to increase their supplies to keep pace with increased demand. As a result, prices rise, savings are forced and the bust begins

Re: "Fatal flaw" in ABCT?

Marked — Mon, 19 Jul 2010 13:15:02 GMT

Believe me, I'm not the one hung up on this. As I mentioned, someone I've been debating with continually refers to middle-stage goods as his "critique" of the ABCT.

Re: "Fatal flaw" in ABCT?

OpTimus — Sat, 17 Jul 2010 17:11:33 GMT

All goods get 'pulled' in some way or another, but the reason for the bust is the inherent tension between the lack of savings and the malinvested funds.

I'm not sure why you've been hung up on this for so long. Middle stage goods is an acceptable term. I've heard it used before and it's not even a big deal. The answer to the question is extremely simple, and I've never even heard a statist/Keynesian counter with anything effective

Re: "Fatal flaw" in ABCT?

Marked — Sat, 17 Jul 2010 13:20:16 GMT

what is the definition of 'middle stage good' ? higher stage and lower stage are categories to which any good can be related to any other good.

https://mises.org/journals/qjae/pdf/qjae9_2_4.pdf

Makes a reference to middle-stage goods in the ABCT. Then again, it's an empirical examination of the theory, so...

Re: "Fatal flaw" in ABCT?

Sieben — Sat, 17 Jul 2010 02:13:34 GMT

Don't all goods get pulled depending on how new money is injected to the economy? If below market interest rate loans were offered exclusively to poor consumers, capital structures would shift as if consumers had expressed a higher time preference, leading to fewer long term investments and an eventual general shortage.

Same central bank... same theory about the function of interest rates. Just all depends *how* the credit is injected into the market.

Re: "Fatal flaw" in ABCT?

OpTimus — Sat, 17 Jul 2010 01:29:30 GMT

As I said before, it's just a different way of framing the problem. 'Middle stage goods' refers to that area between the highest and lowest. It's the area that is pulled at by both sides during the boom. Some Austrians prefer to stick with higher v lower, whereas others use the 'middle' terminology. Different names for the same thing.

Re: "Fatal flaw" in ABCT?

nirgrahamUK — Fri, 16 Jul 2010 17:01:49 GMT

what is the definition of 'middle stage good' ? higher stage and lower stage are categories to which any good can be related to any other good.

this tree is higher than that log

this log is higher than those cut blocks

those blocks are higher than those carved ornaments.

and the otherway...

These cut blocks are lower than this tree.

This ornament is lower than that log.

how does this work with middle order? does he just mean that the cut blocks are between ornaments and logs.

which is another way to say that its a higher order good than an ornament and a lower order good than a log ?

Re: "Fatal flaw" in ABCT?

Marked — Fri, 16 Jul 2010 13:20:20 GMT

He's still whining about the "fatal flaw" of ABCT not properly taking into account middle-stage goods. He pointed out that article about empirically examining the ABCT as proof of middle-stage goods being a key component of the theory. Now he's accusing me of being naive because he's given me a headache from trying to reason with him over his stubborn position. Help?

Re: "Fatal flaw" in ABCT?

OpTimus — Wed, 14 Jul 2010 03:11:56 GMT

Well it seems like that was the purpose of the analogy. It was just a crude analogy, but I got the point of it.

Re: "Fatal flaw" in ABCT?

nirgrahamUK — Wed, 14 Jul 2010 02:33:28 GMT

I agree that a fisherman could be misled into a malinvestment ( and more easily if his government issues fake-inedible fish into existence in his stock, they ain't helpin' even if it 'feels good' to wake up to more things that look like fish in your store than you had put there the night before)

Re: "Fatal flaw" in ABCT?

OpTimus — Wed, 14 Jul 2010 02:27:03 GMT

Which then would make the analogy appropriate, because Robinson misallocated his resources by investing in a faulty venture based on bad information.

Re: "Fatal flaw" in ABCT?

nirgrahamUK — Wed, 14 Jul 2010 02:05:52 GMT

Right..... ABCT is not an overinvestment theory, its a malinvestment theory. its only overinvestment in the rather redundant sense that investing more than nothing in something thats a malinvestment is an 'overinvestment'

Re: "Fatal flaw" in ABCT?

OpTimus — Wed, 14 Jul 2010 02:01:37 GMT

Another word for such a thing is malinvestment, which is a key component of the ABCT.

Re: "Fatal flaw" in ABCT?

nirgrahamUK — Wed, 14 Jul 2010 01:11:43 GMT

Mises:

The whole entrepreneurial class is, as it were, in the position of a master-builder whose task it is to erect a building out of a limited supply of building materials. If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient. He oversizcs the groundwork and the foundations and only discovers later in the progress of the construction that he lacks the material needed for the completion of the structure. It is obvious that our master-builder's fault was not overinvestment, but an inappropriate employment of the means at his disposal.