Economics Questions

Re: Why I Object to Austrian Economics

davver — Tue, 29 Jan 2008 05:45:33 GMT

Lack of regard for scientific method (using Praxeology as a theoretical framework and objecting to Positivism, while using the empirical method in practice, misunderstanding the distinction between mainstream science and logical positivism)
In particular, Praxeology rejects the social sciences, it ignores psychological and sociological impacts on human behavior with poor justification, and relies on far more assumptions than merely "Humans act."

I won't touch these, I'm no expert.

In practice, Praxeology tends to be used to ignore blatant physical evidence, not merely as an objection to abstract empirical proofs, like statistical analysis of economic behavior

In looking at history I find that Austrian economics tends to get proven right in the long run. Even decades of data points seems insufficient to accurately model something as complicated as an economy.

A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife

When you don't have an answer to the message, attack the messenger.

Skewing economic history so as to give Austrian economics more credit than it deserves (diminishing the role of Neoclassical economics, misinterpreting Neoclassical concepts to conflate the contributions of Austrian economics

I don't care about economic history or who takes credit for what. I care about understanding the economy. I'll take your word on this.

Spreading their ideas through the use of propaganda to non-economists rather than attempting to get published in academic journals

When you don't have an answer to the message, attack the messenger.

Generally poor scholarship, since much of their papers are redundantly critical of Keynesianism, redundantly self-congratulatory (hubristic), and sloppy usage of citations

When you don't have an answer to the message, attack the messenger.

A misunderstanding of and general unwillingness to investigate mainstream concepts

When you don't have an answer to the message, attack the messenger. I don't watch American Idol. It's more mainstream then a lot of economic theory. There was an old book in my college from the late 19th century that talked about how ether was inbetween all particles and controled the whole universe. That was the mainstream believe at one point, and thats in a discipline where they can actually do experiments and test hypothesis. Being mainsteam is nothing, only truth matters.

In particular -- and Friedman would agree with me on this -- its monetary theory should be regarded as crankery and seems to be supported by conspiracy theorism (the Jewish Bankers, the Illuminati Bankers, and the New World Order)

When you don't have an answer to the message, attack the messenger.

The above, all seemingly intended to support Market Anarchism, which Austrians accept based on axiom. While Austrian economics is strictly a school of economics, it is used to support an entire worldview.

Keynsian is meant to support massive government interventionism. What is your point?

Much of this has been covered by Bryan Caplan, Justin Raimondo, Milton Friedman, David Friedman, Robert Nozick and others who are Libertarians themselves and don't have a particularly pro-government bias.

It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy. It was this reason that Greenspan said in the 50's we should have a gold standard but acknowledges the benefits of fiat today.
The failure of the predictions of Austrian economics to materialize -- like the failure of Marx's predictions about Capitalism to materialize -- have driven them out of the mainstream and towards political extremism, even though in their roots, the historical Austrian school contributed substantially to economic theory.

Huh. It's been proven right for decades. It was right about the depression. It was right about the 70s. It was right about dot com. It was right about the housing bubble. While the Keynsians and the interventionists where proven dead wrong. Your boy Greenspan thought ARMs were awesome and that credit derivatives are super duper. Why should we listen to him?

Back in the real world the market is punishing the dollar for our excesses. The great moderation you speak of was bought by surrendering our place as world reserve currency. The market is punishing us for it and smart traders like George Soros and Jim Rogers know the gig is up.

Re: Why I Object to Austrian Economics

Kirznerian — Mon, 28 Jan 2008 05:35:49 GMT

Nathyn:
Another one to toss in the list: The claim that economies should be modeled based on "human action" is particularly presumptuous, since it seems to totally ignore the impact ecology has on human action and thus, while assuming scarcity to be true, implicitly rejects it by suggesting human beings all seeking their own utility can't lead to a reduction in overall resources, which diminishes future potential for utility.

Time is a part of human action, humans take time into account when they act. This means that your argument is logically invalid.

Re: Why I Object to Austrian Economics

Kirznerian — Mon, 28 Jan 2008 05:29:33 GMT

Nathyn:
It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy. It was this reason that Greenspan said in the 50's we should have a gold standard but acknowledges the benefits of fiat today.

The rate of economic progress during the 65 year period after the Civil War and before the Great Depression and the New Deal was much faster than after it. Try to look at the statistics for the consumption of energy and raw materials, such as steel, to see that.

Continuos expansion of the agregate money supply is better than an erratic agregate money supply, because it enables agents to ajust their actions to a predictable monetary rate of expansion. But any variation (expansion and contraction) of the agregate monetary mass has negative effecs on the allocation of resources because of the cantillon effect (distortion of relative prices).

Re: Why I Object to Austrian Economics

Ghost_of_Brutus — Sun, 27 Jan 2008 08:36:59 GMT

CurtHowland:
The failure of the predictions of Austrian economics to materialize...
Excepting that everything that has happened has been predicted by Austrian economics, especially the supposedly impossible "stagflation" of the 70's, after the fake gold standard was dropped.

We can add to this some even more significant examples. Have you read Mises' Economic Calculation in the Socialist Commonwealth? It was written in 1920, but could have been written as a post-mortem of any and every socialist state that has risen and fallen to date. The fall of the Eastern Block happened just as Mises explained it would. Neo-classicists would do well to read Mises' explaination of the subjective nature of value - then they can stop trying to reduce human economic behavior to a set of equations.

And what of The Middle-of-the-Road Policy Leads to Socialism? Is our society not following the exact path that Mises predicted in 1950? The state has in fact usurped more power in its quest to undo the harm it has already done by usurping power over our economic lives in the first place. Very closely related to this is the fact (which Mises doesn't mention) that the Neo-classisists have to keep changing their theories and equations every time a turn of events causes the data not to fit their theories and equations. A good example of this is when the Keynesians invented the AS-AD model to explain the stagflation that had disproven the Phillips curve. Another is the fact that many monetarists still believe that monetary aggregates can still be used as a reliable tool for monetary policy, if they just "tweak" the equations whenever the data doesn't fit the model.

In short, the Austrian school has not waivered from its central tennants over time, whereas the Neo-classicists have been forced to rethink theirs many times.

Re: Why I Object to Austrian Economics

goodAsGold — Thu, 24 Jan 2008 02:03:35 GMT

Mark B.:
I would disagree with the previous poster.
In a commodity monetary system, with 100% reserve banking, that would not happen. Only money that was deposited in a TIMED savings account would be eligible to be borrowed by others.
So all borrowed money would just be the saved money of others, there would be NO increase in the monetary supply. That can only happen in a fractional reserve system. A 100% reserve system makes inflation impossible.
With the sole exception being if more of the monetary commodity is actually coined and put into circulation and that would only happen if it was more profitable to coin new money rather than using the commodity in a non monetary usage.

My apologies about the point suggesting lending causes money stock expansion in general - full reserves are an exception.

It was meant for the status quo.

Re: Why I Object to Austrian Economics

Hard_Money — Wed, 23 Jan 2008 23:25:22 GMT

"A cult-like worship of Mises and Rothbard, much like what Rothbard accused Ayn Rand of over the "Rand Collective" but running the "Mises Institute" along with Mises' late wife" - Nathyn

The Mises Institute and its followers certainly do not worship Mises. Austrian anarcho-capitalists explicitly reject Mises's minarchism, especially his support for conscription in certain situations and his advocacy of some taxation. We, especially Rothbard, also reject Mises's Kantian epistemological influences in his praxeology. Rothbard successfully Aristotelianized and rationalized praxeology in Man, Economy, and State.

Re: Why I Object to Austrian Economics

CurtHowland — Wed, 23 Jan 2008 21:25:37 GMT

recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy.

Hahahahahaha!!!!

In the century since the Federal Reserve was founded, the economy has fallen hard half a dozen times, the currency has lost 98% of its buying power, monetary policy has been directly responsible for every economic downturn from the Great Depression to "stagflation", double-digit inflation and the sub-prime lender crash.

It is educational to note that the "Great Depression" only occurred after the establishment of the Fed, a fact which itself demolishes everything Nathyn presents.

The failure of the predictions of Austrian economics to materialize...

Excepting that everything that has happened has been predicted by Austrian economics, especially the supposedly impossible "stagflation" of the 70's, after the fake gold standard was dropped.

Re: Why I Object to Austrian Economics

Deist — Wed, 23 Jan 2008 19:08:49 GMT

Well I was just refering to the term deflation of the prices that Hernado De Soto talks about. He meant the overall prices of goods (in terms of purchasing power required) falling in the long run in a capitalist system. For instance stuff like computers, washing machines, etc etc.

Re: Why I Object to Austrian Economics

Inquisitor — Wed, 23 Jan 2008 16:30:07 GMT

I've been reflecting on the term 'inflation' and the more I do so, the more ridiculous it seems when applied to prices. The supply of something (i.e. money) can inflate. Prices? Not really. They can rise or fall, but not 'inflate'.

Re: Why I Object to Austrian Economics

Deist — Wed, 23 Jan 2008 16:20:58 GMT

I totaly agree with Mark B. I also think it is worth pointing out that there would be no deflation (of the money supply, not prices) under his scenario. Overall the money supply would not radically fluctuate as it does today.

Re: Why I Object to Austrian Economics

Mark B. — Wed, 23 Jan 2008 02:09:31 GMT

I would disagree with the previous poster.

In a commodity monetary system, with 100% reserve banking, that would not happen. Only money that was deposited in a TIMED savings account would be eligible to be borrowed by others. So all borrowed money would just be the saved money of others, there would be NO increase in the monetary supply. That can only happen in a fractional reserve system. A 100% reserve system makes inflation impossible. With the sole exception being if more of the monetary commodity is actually coined and put into circulation and that would only happen if it was more profitable to coin new money rather than using the commodity in a non monetary usage.

Re: Why I Object to Austrian Economics

goodAsGold — Wed, 23 Jan 2008 01:26:00 GMT

I wish to add one more point - the public themselves are one of the root causes of inflation.

They choose to borrow now, instead of save patiently. Borrowing swells the money supply, because that's the way bank balance sheets work.

If people collectively never borrowed, there would be no peaks and troughs in the credit cycle.

Depressions happen when saving is in vogue, inflation goes with borrowing or leverage.

Please have no bad feelings for banks or bankers. They are people, just like us.

Re: Why I Object to Austrian Economics

goodAsGold — Sun, 20 Jan 2008 11:07:04 GMT

Hi.

Nathyn:
We haven't had another Depression.

It could be argued that the banks and the central bank created circumstances for the depression.

The boom leading to the Great Depression was falsely stimulated by loose economic policy and lax lending standards. Borrowed money fueled speculation.

The crash and following depression were a natural effect of this.

If the powers that be get it wrong, we may see one soon, with the credit crunch and all that.

On average, we've had rates of inflation of just a few percent a year.

Government statistics can't be taken on face value. The have been altered since the 90s by hedonics.

Please look at the shadowstats website ( http://www.shadowstats.com ) for more realistic statistics.

That's "stable," certainly better than the banking crises we faced before fiat.

The crises served a good purpose. They kept the banks honest.

Over a thousand years of history has shown that no fiat issue has stood the test of time.

On the other hand, gold gave price stability for over 200 years in Great Britan, since the time of Isaac Newton.

There is no need for central banks to manage economies with gold coin as money and banks only lending whats in the vault.

The truth is, the root of instability in our economy is that the system is largely based on debt.

Over 90% of our money supply today was created by banks lending money into existance and fractional reserve banking.

Because of interest being charged on debt, there is never enough money in the system. It needs to be created at increasing rates.

At some point, the debt mountain colapses (a depression) or the debt is inflated away, destroying the currency as a store of value.

Not exactly stable

It helps to understand banking as well as the economy.

Re: Why I Object to Austrian Economics

newson — Sun, 20 Jan 2008 07:00:07 GMT

Nathyn:
It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy. It was this reason that Greenspan said in the 50's we should have a gold standard but acknowledges the benefits of fiat today.

as i pointed out above, the seventies crisis was as bad as the thirties in terms of stock market losses. the money supply dropped by around one third from 1929-32, so the nominal loss of 90% on both the djia and sp500 would translate to approximately a 60% loss in real terms. this figure is the same as the loss sustained by the indices over the 1968-1982 bear market, adjusted for inflation.

Re: Why I Object to Austrian Economics

pairunoyd — Fri, 18 Jan 2008 20:10:49 GMT

Nathyn:
It's been over a century since it was first said that expanding the money supply would cause widespread depression and monetary collapse. On the contrary, recessions have been regular, not particularly tied to monetary decisions, prices have been stable, the economy prosperous, and the Federal Reserve trustworthy.

Yes, the robber spent the victim's money well, no? Why is it that it just so happens that robbers are better stewards of the victims property than the victims? It's kinda weird that when a robber robs there is a net gain in prosperity. Maybe I'm being myopic. Maybe I'm only seeing a robber as a robber. Afterall, he's not robbing 24-7, right? I mean, there are other qualities he possesses.

Maybe I'm just too fixated on the robbing and not on the charity work he does. We must consider ALL of a persons actions. Hey, if I were dying in a hospital bed, I'd embrace a robber that gets the goods to have me treated. He would be my hero. It would then be hypocritical for me to only want him to rob for me. I should be robbed as well. Ah, it's the golden rule: Rob others only as you'd have them rob you! Also, I wouldn't mind a little killing if it made me more prosperous. But I don't know if I can abstain from hypocrisy and live to tell about it...

This paradox(?) reminds me of another. It is said that even evil works for the good of God. So evil is good? So robbery is good?

Romans 3:5-7 http://www.biblegateway.com/passage/?book_id=52&chapter=3&version=31&context=chapter

5 But if our unrighteousness brings out God's righteousness more clearly, what shall we say? That God is unjust in bringing his wrath on us? (I am using a human argument.)

6 Certainly not! If that were so, how could God judge the world?

7 Someone might argue, "If my falsehood enhances God's truthfulness and so increases his glory, why am I still condemned as a sinner?"