How Liberals Distort Austrian Economics

The lame campaign to discredit the Austrian school

When a presidential candidate declares, as Ron Paul has, “We’re all Austrians now,”  it’s inevitable that his critics would try to discredit him—whether they understand what he’s talking about or not. That’s what Matthew Yglesias does in his Slate piece “What Is ‘Austrian Economics’?”

I recommend the piece because it’s highly informative—about what Austrian economics is not.

We’re off to a rocky start with this: “The Austrian school originally referred to a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire.”

The earliest Austrian economists did not make their mark by advocating free markets and other classical-liberal ideas. They did so by proffering a revolutionary positive (not normative) theoretical approach to understanding how markets work, focusing on value, price, and capital, theory. What Wikipedia says is consistent with my understanding of the matter: “When Carl Menger, Eugen von Böhm-Bawerk, and [Friedrich von] Wieser began their careers in science, they were not focused on economic policy issues, much less in the rejection of intervention promoted by classical liberalism. Their common vocation was to develop an economic theory on a firm basis.”

Economics vs. Politics

Yglesias thus conflates Austrian economic theory with libertarian political theory. In fairness, he is not alone in committing this error. Many libertarians do the same, which is unfortunate. Austrian economic theory describes how purposive action by fallible human beings unintentionally generates a grand, complex, and orderly market process. An additional ethical step is required to pronounce the market process good. Economic theory per se cannot recommend but only explain markets. This is what Ludwig von Mises meant when he insisted that Austrian economics is value-free. Anyone of any persuasion ought to be able to acknowledge that economic logic indicates that imposing a price ceiling on milk will, other things equal, create a shortage of milk. But that in itself is not an argument against the policy. Mises assumed the policymaker would have thought that result bad, but the economist qua economist cannot declare it such. As Israel Kirzner likes to say, the economist’s job in the policy realm is merely to point out that you cannot catch a northbound train from the southbound platform.

Yglesias writes: “Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.” It’s odd to say this without also pointing out that Austrians believe that government causes the instability of inflationary booms, recessions, and depressions. In light of that point, the suggestion that government is capable of stabilizing the economy may be seen in its proper light.

That said, Yglesias’s statement is not quite right. Some prominent Austrian macroeconomists think that in a second-best world, the central bank (which of course wouldn’t exist in a first-best world) should counteract a sudden and substantial monetary contraction. In other words, deflation is not necessarily a cure for inflation. Mises made the point metaphorically in 1938: “If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the [opposite] direction.” (See Steven Horwitz’s “Deflation: The Good, the Bad, and the Ugly.” )

Distorts Markets

“In the view of the Austrians,” Yglesias goes on, “practically every economic policy pursued by the federal government and Federal Reserve is a mistake that distorts markets. Rather than curing recessions, claim Austrians, stimulative policies cause them by producing unsustainable bubbles.” Well, yeah, and it’s amply demonstrated by George Selgin, William D. Lastrapes, and Lawrence H. White in “Has the Fed Been a Failure?” (See my summary, “‘F’ as in Fed.” ) As they put it:

Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

Yglesias understands that the Austrian theory of the business cycle has something to do with artificially low interest rates breeding malinvestment, but he thinks it can’t be right because “it’s hard to understand why business people would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”

Gerald P. O’Driscoll and Mario Rizzo addressed this long ago in The Economics of Time and Ignorance:

[T]here are profits to be made from exploiting temporary situations. . . . Though entrepreneurs understand [the macro-aspects of a cycle] they cannot predict the exact features of the next cyclical expansion and contraction. . . . They lack the ability to make micro-predictions, even though they can predict the general sequence of events that will occur. These entrepreneurs have no reason to foreswear the temporary profits to be garnered in an inflationary episode. . . . From an individual perspective, then, an entrepreneur fully informed of the Austrian theory of economic cycles will face essentially the same uncertain world he always faced. Not theoretical or abstract knowledge, but knowledge of the circumstances of time and place is the source of profits.

Spending Shifts

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  • tarran||

    If you don't respect people's desire to pursue a wide diversity of aims by purposeful action, it's very hard to take Austrian Economics seriously.

    Yglessias strikes me as someone who thinks that there is one enlightened way to go about life, and that people who don't share those goals or methods must be erring due to ignorance or malevolence. He appears to filter what he hears or reads through this mindset, discarding any idea or fact that contradicts it. His filter is so strong it's a reality distortion field.

  • ||

    That's how most smart people are.

  • Loki||

    Surely you're not implying that Yglessias is smart.

  • El Duderino||

    What he meant to say was, thats how most "smart" people are.

  • Vake||

    I've had a mild obsession with Yglesias for years now. He strikes me as that typical "I'm so smart, I or someone of my same level of intelligence knows what's best for you" liberal.

  • JB||

    Substitute 'close-minded' and the line works.

  • ||

    Yglessias strikes me as someone who thinks that there is one enlightened way to go about life,

    Really? He just seems like a self-absorbed prick to me.

    -jcr

  • dennis||

    Roderick Long once made Yglesias look like such an idiot that I'm surprised he tried to wade into waters too deep for him again.

  • Trespassers W||

    Link, please? That sounds tasty.

  • Martin Silenus||

  • ||

    And how many of Yglesias' readers double-check with Roderick Long?

  • El Duderino||

    Why bother? Long heald beliefs confirmed. Why risk possible cognitive dissonance.

  • EDG reppin' LBC||

    Roderick Long once made ...

    Awesome porno name.

  • wareagle||

    Yglessias actually cited Wiki as a source for his piece? Come on. Even college kids are told that's a no-go. You can't debate with people who think every situation demands a govt answer.

  • GrizzlyAdam||

    I've recently had conversations on Facebook with folks in the "government is the only answer" crowd. It's utterly mind numbing. A few have gone as far to claim that force against one group or individual (the rich!) is justified, so long as it enforces the greater good. The immorality of force never seems to occur to them. Nor does the possibility that they themselves (given an all powerful state) will probably be at the wrong end of it someday.

    Violent redistribution is OK, so long as it's directed at people I don't like!

    Oh, and not all of these folks are lefties. Plenty of righties make the same argument in defense of the "moral fabric of society."

  • ||

    Immorality is pandemic.

  • killazontherun||

    Nor does the possibility that they themselves (given an all powerful state) will probably be at the wrong end of it someday.

    Unless they are at top of the crony heap, corner office at Goldman Sachs or a political appointee at an alphabet agency, for instance, they are on the wrong end of it this day.

  • killazontherun||

    Good article, Mr. Sheldon.

    For those who can't get enough take downs of Yghead here is another:

    http://hanseconomics.com/2012/.....-on-slate/

  • Rick||

    That Hans Economics piece is great. Definitely worth reading...even better than the above Reason article!

  • Pudgeboy||

    What part of the moral fabric, or what threat would justify the use of force in defense of the moral fabric to the right wing people you were talking to?

  • ||

    "Oh, and not all of these folks are lefties. Plenty of righties make the same argument in defense of the "moral fabric of society.""

    Agreed, I think it's because Progressivism lives in both parties now.

  • Pudgeboy||

    I honestly don't understand what that means if it's coming from someone on the right. Do they mean at abortion clinics or to stop gay marriages?

  • Maxxx||

    Santorum embodies what he's talking about.

    Big government subsidies to help families and government snoops to keep people from hurting themselves. It mirrors progressive's socialist policies almost perfectly. The only difference is the theory driving it and the beneficiaries.

  • Pudgeboy||

    Thanks. I guess I'm just not seeing where the force or violence comes into it.

  • Maxxx||

    Drug wars, expelling gays from the military and trying to make their life miserable in general, Taxing peter to pay paul, foreign intervention to save the darkies.

  • GrizzlyAdam||

    Santorum is the perfect example. He believes the role of government is to enforce his religious and moral opinions. This is common on the right. "I believe X is immoral, so X should be against the law, even if X doesn't infringe on my liberty" The left isn't really any different, except that generally speaking, they want certain behaviors enacted, instead of prevented. "I believe person A should do X, therefore X should be required by law."

    Coming from the right, realizing that this authoritarianism was bipartisan was my libertarian eureka moment. That and getting my first property tax bill...

  • mad libertarian guy||

    That and getting my first property tax bill...

    Property taxes are, by far, the most vile form of taxes yet conceived.

  • robc||

    Not even remotely true.

    Income tax, VAT tax, tariff, sales tax are all worse. The Death Tax may be the worst of them all, actually (although that is a form of property tax).

  • mad libertarian guy||

    None of those are even close to being worse than knowing that you simply lease your property from the government.

  • robc||

    Income tax means you lease your life from the government. That is worse.

  • Monty||

    Stop it guys. That’s depressing. Is death the only way to liberty?

  • robc||

    Is death the only way to liberty?

    Yes.

  • some random jerk||

    Counterargument: property taxes are the least intrusive form of tax to implement. Property deeds are already publicly recorded. A property tax sends a bill to a known owner, for an amount calculated from only two or three items of data (assessed value, tax rate / "millage", agricultural/residential/commercial use). Each of these can be subject to dispute, but the areas of dispute (and the games that can be played) are limited. Regulatory capture can be identified relatively easily.

    There is no need for proctological accounting of "income", no theological distinctions between income, capital gains, depreciation, royalties, depletion allowances, retirement savings, et cetera ad nauseum, and much reduced opportunity to hide from the tax collectors.

    If you believe in any government functions at all (courts, police, common defense), taxation is almost certainly required. And (I claim) property (land) tax is the form of taxation most compatible with liberty.

  • ||

    Most people know their property tax bill with a high degree of accuracy. Few people know what they pay in state and federal income taxes. Therefore the latter are more dangerous.

  • ||

    Government entails use or threat of force. The monopoly of violence.

  • Jason||

    What do you mean, now? The first two progressive presidents were republicans. Abraham Lincoln and Teddy Roosevelt.

  • ||

    The worst are the people who are convinced that it's in every profit making businesses interest to rip off consumers and jack up prices as high as possible. Then the other half of the time, they think they are evil for selling stuff to cheaply and putting mom-and-pop stores out of businesses by stealing all their consumors. The logical inconsistency is maddening.

  • GrizzlyAdam||

    "When Ron Paul is president, our meat will be rotten, our water poisoned, our schools bankrupt, and a pair of shoes will cost $1000!"

  • ||

    And yet WalMart will run the world.

  • Stephen Pasquale||

    Brilliant observation!

    RonPaulFlix.com

  • ||

    Meh, I'm not so sure the entire libertarian "the left wants to dominate your wallet and the right wants to dominate your social life" thing works anymore. When you look at a Rick Santorum, you'll see he's more than happy to have the government intervene in the free market with subsidies and trade restrictions. Similarly, you don't really have to look too hard to see the left trying to impose their values on gun control or diet or hate crimes or speech codes.

  • J||

    Exactly. Ten years ago I was libertarian because I thought "well at least the right is for lower taxes and smaller government; and the left is good about civil liberties and freedom of speech." I've recently realized both parties are terrible about all of the above.

  • Teaching Student||

    Substitute Jews for the "Rich" and what do you get?

    It just amazes me that these educated people don't see these connections. The PC crowd use the Holocaust as their prime example for creating a "tolerant" society, except when it comes to their "bogeyman."

  • El Duderino||

    Doesnt it seem a bit ironic that people go to wikipedia to confirm their prediliction for government solutions? I mean, wikipedia, as a source of reliable information leaves much to be desired, but the very concept of wikipedia is so fundamentally contradictory to central planning that its almost a parody example.

  • This Dave||

    Excellent point. There ought to be a Federal Office Of Fact Distribution that all web searches are forced to link to exclusively.

  • El Duderino||

    We already have it. Its called the Department of Education.

  • Stephen Pasquale||

    Don't give them any ideas!

    With SOPA on the rise, there's no telling what they'll try.

  • Jason||

    SOPA might be a good thing… just post a few copyrighted items to a website and file a complaint… website will be taken down.

  • ||

    There's Snopes.com. It's not federal per se, but it's run out of the White House.

  • ||

    I bet Yglesias has a tatoo of FDR on his left buttock.

  • Gojira||

    Nope...it's on the small of his back, right above the crack of his ass. When he does pilates, it appears FDR is winking.

  • ||

    Heh. Win.

  • Loki||

    Keynes is on his left buttock

  • Libertarian2||

    Yep, Keynes on the left, Galbraith on the right. Hey, wait a minute..........isn't that Robert Reich in the middle!?

  • Maxxx||

    +1

  • Bakunin||

    Imho, that's a thread winner!

  • ||

    Che is on the front... when he shaves his pubes it just looks like Jason Schwartzman in Rushmore

  • Nah,||

    Taint!

  • EDG reppin' LBC||

    Robert Reich has one brown eye.

  • ||

    George W Bush is on his taint,

  • ||

    He's half asshole and half dick.

  • B Crystal||

    Print|Email|Single Page
    How Liberals Distort Austrian Economics
    The lame campaign to discredit the Austrian schoolSheldon Richman

    A Sheldon can do your income taxes, if you need a root canal, Sheldon's your man... but humpin' and pumpin' is not Sheldon's strong suit. It's the name. 'Do it to me Sheldon, you're an animal Sheldon, ride me big Shel-don.' Doesn't work.

  • look over there!||

    IOW

  • ||

    One of the biggest Lotharios I've ever known was a guy named Frederick. It's not exactly out of the realm of possibility.

  • Ska||

    I saw that episode of the Flinstones!

  • ||

    Lol

  • k2000k||

    There's the word dick somewhere in his name...my theory anyways.

  • Bakunin||

    Cue a regressives snarky comment that his last name is 'Richman' afterall and..."see, see, the bias inherent in the system."

  • mr simple||

    Very clever, Harry.

  • El Duderino||

    What if his last name were Longfellow? Or If his Indian name were Big Throbbing Cock?

  • Liberal||

    As Israel Kirzner likes to say, the economist’s job in the policy realm is merely to point out that you cannot catch a northbound train from the southbound platform.

    But you can on High Speed Rail!

  • ||

    Rofl. Here, have an Internet.

  • Bakunin||

    "Considering that Herbert Hoover's and Franklin Roosevelt’s New Deal impeded the market’s correction process, one wonders how the 1930s could possibly have discredited the Austrian theory of the origin of recessions"

    Because the idea that Hoover was the Ron Paul of the day and then Roosevelt rode in and ended the Depression has been so successfully sold to the general public that to question it is similar to suggesting the Earth is flat or that aliens can read our thoughts so we must all wear tin foil hats. Thousands of readers will read that piece by Y, confirming their ignorance of history, put it down and assert they need not read any further about Austrian economics as it runs counter to what they firmly know about the Great Depression.

    It's actually a wonder Paul is getting the support he's getting in the face of all the myths or just ignorance out there on economic history and economic theory. Any challenge to these is met with charges of bias, ignorance (despite what the facts say) and/or insanity

  • dont'cha know||

    That it was all the Bush era deregulation and tax cuts for rich people that caused the current depression. All the smart set who attend Aspen Institute conferences could tell you that.

  • ||

    Hahvahd Pruh-fessuhs cood tell yuh exactly the same!

  • ||

    Exporting tanks, hummers, planes, bombs and troops for no recompense had nothing to do with it.

  • DonM||

    Most of us know that the market crash was because of bad real estate loans. Providing free Freddie Mac money to the 'not rich' was due to government intervention in the markets, not to lack of regulation. If anything it was excess regulation of the wrong sort.

  • This Dave||

    "Because the idea that Hoover was the Ron Paul of the day and then Roosevelt rode in and ended the Depression has been so successfully sold to the general public"

    EASILY the biggest lie taught to school kids. By a million miles.

  • mad libertarian guy||

    D.A.R.E. is easily the biggest lie taught to school kids these days.

    Though ignorant, teaching bad economics history never landed anyone in jail. DARE does all the time.

  • ||

    Since it explains that busts are central-bank-caused and hence avoidable through market-based money and banking, its implicit message is one of hope and optimism.

    Except for the pre-central bank busts of 1873-77, 1882-85, 1887-88, 1890-91, Panic of 1893, Panic of 1896, Panic of 1907, Panic of 1909-10 in the USA.

    Market-based money was shit.

  • Paul||

    And the post-central bank busts... but they would have been so much worse.

  • ||

    The Fed inexplicably raised the Fed funds rate to 5% during the Great Depression and Bernanke said this in 2002 "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Schwartz, Friedman's coauthor]: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."

  • ||

    That *might* explain the "Depression Within A Depression" of 1937. Assuming you don't lay it at the feet of the profligate spending of FDR and Hoover. It doesn't explain the previous 8 years of the depression.

    Also doesn't explain the recessions of 1949, 1953, 1958, 1960-61, 1969-70, 1980, 1981-82, 1990-91, 2001, and the current one.

  • Paul||

    I'm also a little confused about "pre-central bank" vs "post-central bank".

    For instance, the panic of 1819 was, by many an historical account, set off by the Second Bank of the United States.

    The Second Bank of the United States or (BUS) was chartered by congress wanting to finance the war of 1812.

    The charter of the Second Bank of the United States (B.U.S.) was for 20 years and therefore up for renewal in 1836. "The Second Bank functioned as a clearinghouse; it held large quantities of other banks' notes in reserve and could discipline banks that it was concerned were over-issuing notes with the threat of redeeming those notes. In this way, it functioned as an early bank regulator, a crucial function of the modern Fed."

    Further:


    The Panic of 1819 was the first major economic crisis in U.S. history. It resulted in widespread bank failures, mortgage foreclosures, unemployment and price drops. There were many reasons for the crisis, but the primary cause was irresponsible banking practices, led by the Second Bank of the United States. Consequently this panic bred a suspicion of nationalized banking and set the trend for future economic downturns.

    This hardly seems like pure market-based cycles. I mean, yes, they were market-based in that when the government creates an entity to provide loose, easy credit to finance a war which creates a massive bubble, the market will eventually contract, as one would expect a market to do.

    Northbound trains/southbound platforms, etc.

  • Paul||

    To correct, the bank was chartered by congress as an answer to the heavy borrowing that had occured due to the war of 1812- where banks had issued their own paper money- not backed by silver or gold (specie).

    Now that the Fed does this as policy, I guess it's ok.

  • ||

    There was a free banking period after the end of the Second Bank and the beginning of the Federal Reserve as the country struggled to find some sort of banking stability.

  • .||

    I don't suppose the civil war figured in at all, either. Nor the state of technology in general, at that epoch. State currency did serve a purpose, but its time is long past, imho.

  • Bakunin||

    Linky, please. Sounds like an interesting article.

  • WarrenT||

    Actually government regulated banking is shit, jizznugget.

    Total currency issuance restrictions, unit banking, requiring government bonds that would later default as backing, allowing the banks to suspend redemption when it all went south all lead to your alleged free-market caused panics.

    Canada, with a much less regulated system and private currencies didn't have the problems the US did.

  • ||

    Canada's banking system is more regulated than in the US. And what private currency is permissible in Canada?

    And whose government bonds defaulted?

    Your depiction of the free/state/national banking period in the US leaves a lot of questions.

  • ||

    Spoof. Nobody is this retarded.

  • WarrenT||

    Damn. Have I fallen into a spoof-pile?

  • Chupacabra||

    Your lack of faith is disturbing.

    shrike actually is this retarded.

  • sarcasmic||

    That degree of idiocy cannot be faked.

  • ||

    I welcome the ignorant comments from the peanut gallery.

    Like you fuckers knew about 19th century Canadian banking compared to US banking at the same time.

  • sarcasmic||

    It is your lack of deductive reasoning skills that makes you an idiot.
    You can regurgitate things very well.
    But unless you were first given instructions you couldn't reason your way out of a wet paper bag.

  • ||

    No, the game is over for you 19th century private bank scrip idiots. We'll never return to that archaic bullshit. You may as well believe in alchemy - which you might well do.

  • Bernanke||

    It's okay, Shrike. No one believes I'm real but you. So long as you believe that is all that matters.

  • El Duderino||

    Santa?

  • ||

    No, idiot. Skittle Pooping Unicorn.

  • WarrenT||

    We're talking about the 19th century and Canada's system wasn't as regulated then.

    Canada had multiple private currencies. In 1944 private issuance was outlawed.

    Here's a list
    http://en.wikipedia.org/wiki/C.....bank_notes

    Of course Scotland had a long and successful, mostly unregulated private issuance of notes and 3 or 4 survive today. Northern Ireland and Hong Kong also have banks issuing notes today.

    As for the bond defaults some states would require their bonds as backing to get permission to charter a bank and when bad times hit and the bonds defaulted there were no real assets to pay off depositors.

    Article on defaults, no free-banking info though.
    http://online.wsj.com/article/.....15716.html

  • Old Mexican||

    Re: Shrike,

    Canada's banking system is more regulated than in the US.


    This is false. I don't know what you think regulation entails, but the banking system in Canada has never ever been as heavily regulated and intervened as the US's. Just for starters, there was nothing like Glass-Steagal in Canada, ever. There were no regulations in Canada against branch banking while there were in the US which led to so many bank failings in the US during the Depression. No such problem haunted the banking system in Canada.

    Sure, the government may be socialist-light and the people have to live with many little regulations and zoning laws and their bankrupt healthcare system, but the banking has NEVER BEEN AS REGULATED AS THE U.S. Banking system.

  • ||

    Its my understanding Canadian banks could not write mortgages greater than 80% LTV and fixed rate mortgages are not permitted. Those were big reasons Canada missed the mortgage disaster (along with recourse and not allowing mortgage interest deductions.

    Maybe its their version of a conforming loan - I am not sure.

  • Tncm||

    So you're saying that restrictions on the BoC's ability to expand credit and distort markets limited the effects of the economic downturn? Crazy!

  • ||

    Where in the hell did I mention the Bank of Canada?

    Maybe I am supposed to deduce some 4th cousin of a relationship to my prior post though?

  • Emperor Wears No Clothes||

    shreek,
    Quit while you're behind.
    Canada's chartered banks routinely write mortgages that are - though only nominally allowed to be for 95% of the value of the home - with "cash back" nonsense practically 100%+ LTV.

    Fixed-rate mortgages are very much a part of our system.

  • KPres||

    Uh, Canada is smack in the middle of a housing bubble that just hasn't crashed (yet).

    Ask yourself, where have you seen this picture before?

    http://www.canadabubble.com/

    Don't you know anything, shrike?

  • ||

    And whose government bonds defaulted?

    The United States defaulted when FDR decided to renege on redeeming dollars for gold. Nixon completed the crime when he quit paying foreign governments in gold.

    -jcr

  • derek||

    Regulated differently. US banking regulations have directly caused most banking crises in the US, including the depression and the savings and loans in the early 80's.

    The problems with the US banking system can be directly linked to the political interference in the system.

  • ||

    Actually, surprisingly, shrike raises a good point here. What is the Austrian explanation for those earlier busts and panics?

  • WarrenT||

    If you look at the history it's government fuckery all the way down.

  • Paul||

    See Tulpa's and my response above.

  • ||

    You only accounted for a few dates, though, and Tulpa didn't address the issue directly.

  • Tncm||

    The Austrian business cycle theory recognizes the economic boom/bust phenomena as a result of an expansion of credit in an of itself; it is a misunderstanding of the theory to say, as some of its critics have, that it only applies to central banks. For example, during the supposedly "free banking" period states would charter their own banks and suspend payments in specie which allowed for credit expansion (Mises would call this an increases in "fiduciary media", i.e. paper money not covered by the medium it supposedly represents, though this term is obviously redundant in a world of fiat currencies). Austrians also recognize that recessions can be caused by dramatic government interventions in the economy (e.g. massive tax hikes, war, anything that increases regime uncertainty) or acts of God (e.g. a flood that wipes out a country's capital stock).

  • Sevo||

    It doesn't take a central bank for the government to distort markets.
    See, oh, the Continental:
    http://en.wikipedia.org/wiki/E.....n_currency
    It's pretty much a given that there are business cycles; new tech brings in competitors, some of whom are incompetent, and others just bent. They attract capital, make a bubble and it pops.
    Most of the serious problems mentioned in "Monetary History..." (Friedman/Schwartz) are the result of government attempts at 'fixing' not-so-serious problems.
    Pretty much the 'knowledge problem' inherent in all central planning.

  • Tncm||

    Sevo,

    While I certainly don't deny that there can be malinvestments in specific industries (though I think we disagree on what constitutes a "bubble") a general malinvestment is typified by an expansion of credit which unsoundly lengthens the structure of production. In short, Joseph Schumpeter's "creative destruction" argument may explain "recessions" insofar as, say, the automobile industry drives the horse-and-buggy industry out of business, it is an inadequate explanation for why the boom-bust cycle effects every capital goods or capital-intensive industry.

  • sarcasmic||

    it is an inadequate explanation for why the boom-bust cycle effects every capital goods or capital-intensive industry

    When there is malinvestment is a specific industry, it still affects total capital. Supply and demand. As a result everything that involves capital is effected.

  • Tncm||

    When there is malinvestment is a specific industry, it still affects total capital.

    If you commit the gross fallacy of conceiving of capital as a perfectly nonspecific homogenous aggregate like the paleo-Keynesians and neo-Keynesians do, then yes, it would effect the "total capital stock".

    Supply and demand.

    I am aware of demand and supply analysis, yes. /saracasm

    As a result everything that involves capital is effected.

    If you mean that it would change the composition of the structure of production then yes, I would agree.

  • sarcasmic||

    Many sectors of the economy do well in a recession.

    IMO the main reason the rest of the economy is sucking right now is because the government and central banking system is trying desperately to stop the housing market from reaching its floor, and it's taking everything else down with it.

    But that's just my intoxicated armchair economist ass talking.

    Time to fill the pitcher with homebrew and visit the neighbor.
    God he hates it when I show up with a pitcher of handcrafted ale. He hates me so much.

  • Tncm||

    Many sectors of the economy do well in a recession.

    Indeed. One of Hayek's critiques of Keynes was his characterization of recessions as a general glut (i.e., effected each and every part of the economy).

    IMO the main reason the rest of the economy is sucking right now is because the government and central banking system is trying desperately to stop the housing market from reaching its floor, and it's taking everything else down with it.

    That no doubt has something to do with it. I could try and find the article again, but I remember reading that quantitative easing had begun to spur increases in prices and job growth in some sectors of the economy which the author (he was an Austrian) believed to be signs of the Federal Reserve successfully inflating another bubble to try and offset the current economic morass.

    But that's just my intoxicated armchair economist ass talking.

    I'm also just an exhausted (possibly as damaging to my cognitive functions as being inebriated) armchair economist sitting on his ass and talking.

    Time to fill the pitcher with homebrew and visit the neighbor.
    God he hates it when I show up with a pitcher of handcrafted ale. He hates me so much.

    Is the hatred warranted?

  • Pencil neck Pedant||

    You guys are very smart, but it's 'affect' for verbs and 'effect' for nouns.

  • Sevo||

    Except when a noun is used as a verb or vice-versa.

  • oh?||

    Would your self esteem be adversely affected if I superfluously affected whilst attempting to effect changes in your understanding of the words affect and effect?

  • oh?||

    (that was, by the way, Sevo, in response to the pencil-necked pendant)

  • ||

    Depends on what it is he calls "homebrew"

  • ||

    And that's at least part of the problem. The government gets involved because "markets aren't clearing on their own". And then, once they're involved, they act to prevent market clearing because "it would be just too painful for too many people".

  • Sevo||

    "(though I think we disagree on what constitutes a "bubble")"
    Mine:
    When the market price of a good or asset becomes defined by those who ignore the marginal utility of that good or asset and hope merely that a price 'momentum' will pay profits.

    "In short, Joseph Schumpeter's "creative destruction" argument may explain "recessions" insofar as, say, the automobile industry drives the horse-and-buggy industry out of business, it is an inadequate explanation for why the boom-bust cycle effects every capital goods or capital-intensive industry."
    Disagreed. Capital is both fungible and scarce while demand for capital is infinite.
    And:
    "If you commit the gross fallacy of conceiving of capital as a perfectly nonspecific homogenous aggregate..."
    Are you saying capital is not fungible?

  • Tncm||

    When the market price of a good or asset becomes defined by those who ignore the marginal utility of that good or asset and hope merely that a price 'momentum' will pay profits.

    I'm confused by this sentence; are you saying that marginal utility can somehow be quantified and that a "correct" price can be derived from it? Also, every businessman hopes that a "price momentum" will lead to a higher market price for his outputs relative to his inputs (i.e, a higher price spread).

    Disagreed. Capital is both fungible and scarce

    I think you're talking about "money capital" whereas I'm talking about "productive capital" or "capital goods".

    while demand for capital is infinite.

    When economists speak of demand they're talking about "effective demand", which is the willingness to exchange one good or service for another. Thus, demand cannot be unlimited if only because our productive capacity as individuals and as a society is finite. Wants and desires, however, are infinite and unending.

    Are you saying capital is not fungible?

    I guess you'd have to define for me what you mean by "fungible".

  • Sweating Bourbon||

    http://mises.org/books/historyofmoney.pdf

    History of Money and Banking in the US, Colonial to World War II covers it nicely, as well as the founding of the Federal Reserve, a bit.

  • derek||

    Booms and busts are inherent in a human system. The genius of a free market is failure. Bad ideas are rooted out. If by unusual market conditions, ie. natural monopolies, or government intrusion, ie. subsidy or regulation, or by easy money policies that subsidize bad ideas, they are prevented from being rooted out and grow larger than otherwise would be. When they fail inevitably, they are bad ideas, the fall is more disruptive and destructive than otherwise.

    The attempt to smooth out the business cycle is utter foolishness. You can't have free markets without failure.

  • Sheldon Richman||

    Read a little banking history. That was not free banking.

  • HermanLame||

    Actually, that isn't really true. At no point in American history did banks issue currency simply at their own whim and operate at their own whim. Even during the 'free banking' era, there were reserve requirements and branching regulations. Also, banks were often forced to buy government bonds when issuing currency. George Selgin and Steve Horwitz have some great papers on the subject.

  • ||

    “it’s hard to understand why business people would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”

    Holy, moly.

    If I read this correctly, Yglesias is saying that the most competent business people will recognize the too low interest rates, and therefore won't invest.

    ...leaving of course the incompetent business people to take advantage of the cheap money.

    Talk about a recipe for malinvestment!

    Does he even read what he writes?

  • Hillary||

    He also ignores the fact that investors are more than happy to arbitrage a temporary distortion.

  • ||

    Indeed. But even his own story guarantees more malinvestment than the Austrian story.

    If your argument against malinvestment is that intelligent investors won't line up at the trough, there is nothing this independent clause can hold that expresses how bad your argument is.

  • ||

    If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors?

    THEY DO KNOW! That's why they're all in such a rush to get theirs while the money is cheap!

    A competent businessman knows that a boom won't last forever. But he also knows that it's the best time to get a loan. "Expand my business now when interest rates are low" he ponders, "or wait until after the bust when interest rates are high?" He also knows that his competitors are out there expanding in the boom as well, and if he wants to stick around he needs to do the same.

  • ||

    Not to mention that the biggest malinvestors get bailed out...

  • Paul||

    When you owe someone $100, they own you. When you owe someone $1,000,000 bucks, you own them.

  • Torontonian||

    What if you owe, say... $15 trillion bucks?

  • Franco||

    C'mon now, is your hypothetical a science fiction scenario or something?

  • Juice||

    Holy crap! Because of his mortgage, Joe Blow owns Bank of America.

  • Stickler||

    whether they understand what he’s talking about or not

    The "or not" is superfluous.
    Carry on.

  • sarcasmic||

    Finally, Yglesias contends that “the Austrian school . . . preaches despair and demands no action at all.”

    If "action" means "central planning" then yes.

    If "action" means "people doing things without being told by a central authority" then no.

    Of course someone like Yglesias I'm sure, like our leftist trolls, simply cannot comprehend anyone doing anything without being guided by a central authority.

    Government is god to them.

  • ||

    If "action" means "people doing things without being told by a central authority" then no.

    It's not just that government is god.

    It's also that people in the economy, from consumers to lenders to employers, making decisions during a downturn--amounts to "doing nothing" unless the government was somehow involved.

    When I raise money from investors to go after distressed properties and reposition them, that's not taking bad assets off a stressed bank's balance sheet--that's "doing nothing" because the government wasn't involved.

  • sarcasmic||

    If all you understand is force, then anything that does not involve force is impossible to comprehend.

    That's why these people don't understand free market economics.

    Who runs it? Nobody.
    Who is the central authority? Nobody.
    Where is the guiding hand of authority? Nowhere.

    It's like when I have a conversation with my dear mother about religion. She's a fundy and I'm an atheist.
    It's only recently that she has accepted that I do not worship anyone or anything. For the longest time she called me a humanist, or something like that, insisting that I worshiped something, because a lack of worship was something she could not comprehend.

    Same deal with authority worshipers.

    They simply cannot comprehend a system of emergent order without some authority guiding everything.

    Does not compute.

  • ||

    Who runs it? Nobody.
    Who is the central authority? Nobody.
    Where is the guiding hand of authority? Nowhere.

    I think we should try to put it some other way. 'cause people don't grasp that for the reasons you mentioned.

    Instead of saying nobody runs it, why not say that rather than the government, we all do? When they ask who the central authority is, let's just say it's all of us! The guiding hand of authority should be consumers, lenders, entrepreneurs, and people who decide to sit on their asses and do nothing, too!

    It's not that there's no one should be in charge. It's that we all should be in charge of ourselves--rather than the government being in charge of the economy.

  • sarcasmic||

    These people do not understand the distinction between government and society.

    They fail set theory. Give them a Venn diagram and they'll sputter in confusion.

    If government is made up from members of society, then isn't government society?
    Er, no. Government is a subset of society with the monopoly on force.
    But don't you vote? Doesn't that make you government?
    Er, no. If the mob let you choose from a list of their favorite thugs who was to be their leader, would that make you a "made man"?
    But, but, but....

    They think government leads society. They don't get that society leads itself and government is given the power to do violence in response to violence so we don't have vigilantism and chaos, aka Somalia. But that's it. That's all government is: violence. They don't get it and I don't think they ever will.

  • Sevo||

    "They think government leads society."
    In a book which has been flogged around here, Gillespie and Welch make a point which they don't emphasize enough:
    Civilized governments are *trailing* indicators; they respond with a bludgeon only after society has decided some change is in order.
    No government "leads", except for dictatorships. They all weather-vane into line with what the supposed civil desires are.

  • Tncm||

    I'm not sure which is worse; government by a plurality or government by a singularity.

  • ||

    Right, and if all they can imagine when they hear about libertarianism is that no one's in charge--and that's terrible to them. Then let's start feeding them another idea instead--that there is somebody in charge. It's just that we're in charge rather than the government being in charge of us.

    There are millions of things we're all doing every day that's digging us out of that recession. If we can get it through people's heads that all of us would be doing millions of things to dig us out of the hole--even if the government really were doing nothing--then maybe we have a fighting chance.

  • sarcasmic||

    It's just that we're in charge rather than the government being in charge of us.

    Authority, dammit! Where's the authority?

    Who is the one person with the guiding hand?

    Who is king?

    Who is god?

    Who do you worship?

  • Sevo||

    "Then let's start feeding them another idea instead--that there is somebody in charge. It's just that we're in charge rather than the government being in charge of us."

    But that means there's no *individual* in charge, and that is frightening to most people.
    Probably because of the statement that Darwin never made ('survival of the fittest'), the left easily accepts the concept of self-organizing systems in the form of biologic evolution, yet totally rejects it in the form of social evolution in the form of markets.
    Shermer has been flogging the concept for years, and admits that those on the left are more hostile to social evolution than the hostility from the right to biologic evolution.

  • ||

    But that means there's no *individual* in charge, and that is frightening to most people.

    But we shouldn't let them off the hook so easy. We shouldn't let them get away with saying that according to libertarians, nobody should be in charge.

    If they don't like the idea of making their own choices for themselves--and they want somebody else to make their choices for them--then we should make them say that.

    It's not that nobody's in charge in Libertopia--it's that you are in charge of yourself. If they don't want to be in charge of making their own choices, then we should make them say that! Don't let 'em off easy.

    When we hear them say that libertarians would have no one in charge, we should make them say that they don't want to be in charge of themselves--they want someone else making their choices for them. We should make them listen to themselves say that and make them think about what it means.

    We should rub their faces in it like a dog that's crapped on the rug. Do it to them once, and I bet they'll hesitate before saying that libertarians don't want anyone in charge again.

  • Sevo||

    Ken Shultz|1.13.12 @ 9:59PM|#
    "...If they don't like the idea of making their own choices for themselves--and they want somebody else to make their choices for them--then we should make them say that..."

    I couldn't agree more, but have you looked at shithead's posts?
    Shithead (and 'they', largely) dodge, wiggle, weasel, duck, lie and do whatever else is required to *avoid* admitting they want others to make their choices for them.
    See shithead, 9:09, below:
    "In other words, there's always gonna be a government around to blame for all the bad stuff, and we get to take credit for all the theoretical good stuff in a utopian world we are imagining."
    Can you imagine shithead *ever* admitting his worship of the god of government?

  • ||

    Can you imagine shithead *ever* admitting his worship of the god of government?

    Eventually? Some politician is gonna break his heart. Maybe that'll shock him out of his Moonie mindset, and maybe it won't. Maybe he's a lost cause, and will never want to make his own choices.

    But there are other people out there who we can reach, and it's hard to tell them apart--the ones we can reach and the ones we can't.

    They all believe the same stupid shit; it's just that some of them learn to be honest with themselves. And how can you really believe that the people in Washington are really looking out for your--forever? Making the choices for you that you would make for yourself if only you knew what they knew?!

    It takes some people a long time to learn to stand up for themselves, but a lot of them eventually do.

    It helps that we have the facts on our side. It helps that our politicians really aren't doing better for us than we could do for ourselves. Every person that got laid off, and then turned around and found another job, has done something to help the economy recover, more than any of our politicians have. We're not gonna reach everybody, but having the facts on our side has gotta help.

    Karl Marx got started with less than what we've got, and we have the advantage of being right on the facts. I'm still optimistic.

  • Sevo||

    "Karl Marx got started with less than what we've got, and we have the advantage of being right on the facts. I'm still optimistic."

    Thank you. I'm an optimist also, and you've just added some reason to be so.

  • ||

    this is an AWESOME, well stated set of posts.

    i don't think i've read anything in a while that explains libertarianism so clearly and convincingly.

    good job

  • sarcasmic||

    Fuck you pig.
    I mean, well, how can one be an enforcer of laws they know to be bullshit?
    The law is the law is the law, right?

  • ||

    I once talked with a socialist (a student working for the Meg Whitman campaign) who seriously believed that nothing in the economy would happen without the direction of government. He literally believed that government directed the delivery of groceries to grocery stores. He demanded that I provide evidence to my "assertion" that individuals operating in a market system could manage on-time food delivery.

    These ideas didn't just randomly coalesce onto his tabula rasa, he was taught this in college.

  • wulfy||

    The Govt Worshippers would rather everyone be forced to live in squalor than one person live better than another, no matter how hard they work.

    Glory Be to the Government, to Mother Gaia, and Forced Equality.
    As it was in the beginning, we hope it again shall be, a world without greedy polluting humans, Amen.

  • sarcasmic||

    Not everyone. Authority does not live in squalor.

    How can Authority guide everyone if they too live in squalor?

    No. Authority lives in deserved luxury because they are Authority.

  • Sevo||

    sarcasmic|1.13.12 @ 8:26PM|#
    "Not everyone. Authority does not live in squalor."

    Old joke:
    Brezhnev's Mom: "But, Leonid, what happens if the communists return to power?"

  • ||

    "You will respect my authoritah!!!"
    - Matthew Yglesias

  • wulfy||

    It's funny to watch Keynesians like Yglesias do contortions trying to economically justify Big Taxing/Borrowing/Printing/Spending.

    Basically they use the kindergarten econ tenet of Equal Redistribution = Fairness to sell it to the voters. Most voters think that if someone is unemployed that is because some rich guy is hogging the money the jobless guy "deserves".

    Fortunately, economic literacy is slowly rising in the working class.

    Although few understand the Austrian principle of Marginal Utility, I too, am optimistic that the Obama-style class warfare crowd is now becoming a permanent minority in the US, despite the Occupy Douchebags' claim of having 99% solidarity for the Redistribution for Fairness cause.

  • Old Mexican||

    Re: wulfy,

    Fortunately, economic literacy is slowly rising in the working class.


    Very slowly, but yes. The last people to get it, ironically, will be the conservatives, as most will feel they possess the economic understanding that the left does not, despite the fact that they are even more clueless than the left. The left just talks about redistribution to right perceived wrongs. The RIGHT (conservatives) see economic interventionism as a way to reign in people's passions, to avoid what they believe is chaos, license, debauchery. Both are wrong, but the right is worse: Their disdain for liberty is not limited to economic matters, it encompasses everything. This is why it is easier for a lefty to become a libertarian than a righty.

  • Maxxx||

    Bullshit.

  • Franco||

    Sounds good in theory, but why is it most of us were conservatives as youngsters? Every libertarian i know was somewhere between apathetic to hardcore conservative originally.

  • EDG reppin' LBC||

    Yup. Reformed Republican here.

  • Britt||

    Same here.

    Although, I will say I think it would be easier to talk a socially liberal, Stuff White People Like type into being a libertarian then it would be to talk a real Bible thumper Republican. But that's because very religious folk often have beliefs better described as Christian Socialist then as conservative.

    But easier doesn't mean easy. The added thing where leftwingers style themselves as a libertarian Democrat because they aren't all that awful on gun rights complicates the issue even more.

  • Tony||

    I understand marginal utility, how does an entire political system flow from it?

    You don't know what you're complaining about, and what you're selling to "the working class" is fringe stuff that won't help them, and is designed to punish them in fact. Even if this system produced benefits in the long-term, you can't guarantee it will ever be implemented perfectly (it is so delicate after all, becoming completely useless in practice with every government intervention).

    In your vulgar understanding of an economics school all you're advocating selling to working people is a set of policies tailor-made to funnel money out of their pockets and into those of their betters. That's what the slimy Republican code words "class warfare" mean--any talk whatsoever about a tax hike on wealthy people. How come it's never possible for the warfare to go the other way? The poor and working class have so much more influence on policy than the rich?

  • Sevo||

    Tony|1.13.12 @ 9:27PM|#
    "I understand marginal utility, how does an entire political system flow from it?....
    In your vulgar understanding of an economics school all you're advocating selling to working people is a set of policies tailor-made to funnel money out of their pockets and into those of their betters."

    No, shithead, you just demonstrated that you don't understand marginal utility, shithead.

  • The Ingenious Hidalgo||

    I understand marginal utility, how does an entire political system flow from it?

    It doesn't. That was part of the point of the article. Austrianism!=libertarianism.

    You don't know what you're complaining about,

    Says the man who has never demonstrated any knowledge of anything.

    and what you're selling to "the working class" is fringe stuff that won't help them, and is designed to punish them in fact.

    What a surprise - no evidence or argument to back up that assertion, but I do see an ad hominem nestling in there.

    Even if this system produced benefits in the long-term, you can't guarantee it will ever be implemented perfectly (it is so delicate after all, becoming completely useless in practice with every government intervention).

    It's rendered less effective with every government intervention, yes - and some government interventions are of a magnitude such as to undermine the whole thing. The solution is for the government not to intervene. If your problem with that is "we can't do what you say while simultaneously doing the opposite"... yes, I agree.

    In your vulgar understanding of an economics school

    Rinse, repeat.

    all you're advocating selling to working people is a set of policies tailor-made to funnel money out of their pockets and into those of their betters.

    No evidence, no argument, ad hominem.

    That's what the slimy Republican code words "class warfare" mean

    Oh, so now you're arguing with Republicans?

    any talk whatsoever about a tax hike on wealthy people.

    I don't think that's true - usually the "class warfare" jive is a response to the "fat cats" jive.

    How come it's never possible for the warfare to go the other way?

    It is.

    The poor and working class have so much more influence on policy than the rich?

    And we finish with a fabulous straw man! Thank you, Tony, for your contribution.

  • The Ingenious Hidalgo||

    I understand marginal utility, how does an entire political system flow from it?

    It doesn't. That was part of the point of the article. Austrianism!=libertarianism.

    You don't know what you're complaining about,

    Says the man who has never demonstrated any knowledge of anything.

    and what you're selling to "the working class" is fringe stuff that won't help them, and is designed to punish them in fact.

    What a surprise - no evidence or argument to back up that assertion, but I do see an ad hominem nestling in there.

    Even if this system produced benefits in the long-term, you can't guarantee it will ever be implemented perfectly (it is so delicate after all, becoming completely useless in practice with every government intervention).

    It's rendered less effective with every government intervention, yes - and some government interventions are of a magnitude such as to undermine the whole thing. The solution is for the government not to intervene. If your problem with that is "we can't do what you say while simultaneously doing the opposite"... yes, I agree.

    In your vulgar understanding of an economics school

    Rinse, repeat.

    all you're advocating selling to working people is a set of policies tailor-made to funnel money out of their pockets and into those of their betters.

    No evidence, no argument, ad hominem.

    That's what the slimy Republican code words "class warfare" mean

    Oh, so now you're arguing with Republicans?

    any talk whatsoever about a tax hike on wealthy people.

    I don't think that's true - usually the "class warfare" jive is a response to the "fat cats" jive.

    How come it's never possible for the warfare to go the other way?

    It is.

    The poor and working class have so much more influence on policy than the rich?

    And we finish with a fabulous straw man! Thank you, Tony, for your contribution.

  • The Ingenious Hidalgo||

    Oops.

  • Sevo||

    It was 'way more concise than shithead deserved, and repeating it caused no harm, but there isn't a chance in hell that shithead will learn a single thing from it.
    Shithead is a religious fundy worshiping the god of government, and every bit as open to argument as are other fundies.

  • ||

    what is funny is that he thinks the free market is delicate, when in fact it is the most robust of human institutions.

  • ||

    I really don't see how free market "funnel" money out of the pockets of the working class.

    Objectively speaking, the only people forcibly taking cash and distributing it to other people are governments.

    Where is it written that markets always consolidate wealth in the hands of a few? Oh, I forgot Marx. With his stupid surplus value theory.

  • ||

    I really don't see how free market "funnel" money out of the pockets of the working class.

    No of course not. The free market distributes wealth more than any other system.

    The whole purpose of the progressive era was to remedy the abject failure of capitalists to create monopolies in a free market. They concluded the only way to do it was the age old way: government help.

    They got in bed with the 'do-gooder' protestant political reformers who both needed to destroy the Constitution to bring about their respective goals. A Constitutionally constrained government can do little to enforce monopolies or moral rectitude. So the Constitution had to go.

  • El Duderino||

    The free market is not "implemented" it just exists. Its only when assholes like you try to force your desired outcome that it turns tragic.

  • Jason||

    In your vulgar understanding of an economics school all you're advocating selling to working people is a set of policies tailor-made to funnel money out of their pockets and into those of their betters.

    You mean tax and subsidize?

  • Jason||

    In your vulgar understanding of an economics school all you're advocating selling to working people is a set of policies tailor-made to funnel money out of their pockets and into those of their betters.

    You mean tax and subsidize?

  • ||

    it is so delicate after all, becoming completely useless in practice with every government intervention

    Hardly. It is quite resilient, and works around interventions with the inevitability of gravity requiring ever more intrusive interventions with ever decreasing efficacy.

    Unfortunately the new equilibrium is only metastable so long as policy exists, and of course policy itself is inherently unstable, subject to human whim.

    The resulting chaos is however comprehensible (unless you're a Keynesian) and game-able.

    There is a reason that as government becomes larger incomes become more diverse. Government's function is to shift wealth from poor to rich. A free market makes it impossible to maintain aggregated capital indefinitely. Policy however can do so, so long as they can convince the rubes to support the policy. Eventually they won't be able to. We may be seeing that 'eventually' right now, in the US.

    If you really loved equality you would embrace freedom. Instead, as you increase government power you are merely creating the power, which you know is always going to be controlled by capital for that capital to use.

    Progressives deserve the whirlwind they have reaped. Alas, the rest of us also suffer.

    Time to end the cancer of progressivism/fascism/statism.

    Time to remember Lord Acton's maxim: "Power corrupts, absolute power corrupts absolutely." and accept the import of that.

  • ||

    Although few understand the Austrian principle of Marginal Utility...


    Marginal Utility is not limited to the Austrian School. It was "discovered" independently by Jevins, Walras, and Menger, only one of whom was an Austrian. In fact, "Marginal Utility" wasn't even an Austrian term.

    Everyone who has studied economics formally knows and holds to marginal utility. It is the single most important cornerstone in the field of economics. Supply and demand simply cannot exist without it.

  • cathrine||

    Are you a bi? Are you bisexual? Do you enjoy this lifestyle? "Datebi.com" is the right site for you to find the people who have the same sexual orientation.

  • Old Mexican||

    Does the person have to be a bi to sign up and how can you tell?

  • sarcasmic||

    The tattoo. All bi people have a tat on their ass that says "ENTER".

  • sarcasmic||

    Mine says "EXIT ONLY".

  • Old Mexican||

    You convey way too much information in a fashion that makes me wonder...

  • sarcasmic||

    that makes me wonder... if I am being sarcastic...

  • Old Mexican||

    It makes me wonder... If I am being, too...

    ;-)

  • sarcasmic||

    I only figured that out after my post OM.

  • sarcasmic||

    winky winky, and not with the brown eye

  • El Duderino||

    Mine says "this place is a shit hole".

  • cathrine||

    Bi-sexual information?Seeking for the people have the same sexual orientation. please consult the site "Datebi.com", you will find the likeminded people!

  • .||

    Your name evokes both catheter and urine, simultaneously.

  • rather||

    Funny, yours makes me think of my period

  • Old Mexican||

  • ||

    Let me guess, is this the guy who goes around trying to pick a fight over medical marijuana?

  • ||

    Wow, good guess by me. I haven't seen any of his videos stalking Obama like he stalks the rest of the candidates...you know, the guy who's actually shutting dispensaries.

  • mad libertarian guy||

    Everything is the fault of those obstructionist Republicans you know.

    If only they would get out of Dear Leader's way, he'd have legalized marijuana for all by now.

  • Tony||

    In other words, there's always gonna be a government around to blame for all the bad stuff, and we get to take credit for all the theoretical good stuff in a utopian world we are imagining.

  • Tony (Abridged)||

    Ad hominems, straw man, cherry-pick statistics, lazy argumentation......

  • Sevo||

    Standard shithead dishonesty. Predictable, tired.

  • ||

    What I'm gonna do when I'm all washed up and that bitch I'm with won't cum?

    I could try my luck with a penis pump!

    Or I could me myself some intravenous love!

  • ||

    What I'm gonna do when I'm all washed up and that bitch I'm with won't cum?

    I could try my luck with a penis pump!

    Or I could me myself some intravenous love!

  • .||

    Stiglitz writes today, in the Guardian, predictions of '12 doom, gloom, etc, along with the predictable boilerplate denouncements of EU 'austerity' measures. A commenter comments:

    "It is long overdue to consider using quantitative easing to directly fund increased government expenditure rather than 'wasting' it buying in government debt to provide liquidity to the banks."

    Forget Stiglitz; at what point did people - average people - begin actually thinking in terms of this particular lexicon. There is a book in the answer to that question.

  • whole lot of stupid||

    On Bill Maher tonight. herman cain, david frum, wasserman shultz, rob reiner.

  • Sevo||

    Sorry. Some paint is drying and watching that sounds 'way more preferable.

  • .||

    Well, Maher is the event horizon of stupid, so...

  • l0b0t||

    I've had several friends forward this to me today; I leave it here for your enjoyment. Google employee urges people to dress as Klansmen and publicly endorse Ron Paul.
    http://www.lacrossewatchdog.or.....-flag.html

  • np||

    What a fucking asshole. I swear, what's wrong with people? Cain's not even running anymore.

  • Max||

    Go to Noam Chomsky for clarity:

    http://www.tvclip.biz/video/Rx.....alism.html

  • l0b0t||

    Why would one go to a semi-competent linguist for information on politics, philosophy, or governance?

  • Sevo||

    Chomsky:
    "The consistent anarchist, then, should be a socialist"
    Yes, since socialism, well, sort of comes about when there's no government.
    Or something.
    Max, I got a hint. Chomsky is a whacko who runs at the mouth.

  • AlmightyJB||

    Chomsky is a self-important idiot. If you want to understand why the left has such a fucked up viewpoint about this country read some Chomsky. It's also a great insight about their brainwashing tactics as well.

  • Sevo||

    True enough, but his gripes are random to the extent that he's right about half the time.
    He's sorta that broken clock,

  • AlmightyJB||

    I agree he does get it right sometimes, he just doesn't understand why he's right:)

  • Neu Mejican||

    Sevo|1.13.12 @ 10:44PM|#
    Chomsky:
    "The consistent anarchist, then, should be a socialist"
    Yes, since socialism, well, sort of comes about when there's no government.
    Or something.

    Sevo demonstrates his ignorance of the intellectual underpinnings of anarchy. Chomsky is an anarcho-syndacalist, which espouses a vision of voluntary collectives working together through a system similar to federalism. The term libertarian anarchy is often used as an alternative label for the concept. While the vision is one that is in direct conflict with anarcho-capitalism in regards to the concepts around property rights (e.g., social ownership, rather than private ownership) in all other aspects it is a very similar conception of how a anarchic society would work.

    And just as unlikely to emerge in the real world in a workable fashion.

  • ||

    Actually, anarcho-capitalism would have no problem with anarcho-syndicalism, if the syndics would arise voluntarily without coercion. Rothbard would be spinning in his grave, but there's would be nothing his ghost could do about it as long as it was voluntary.

    Of course, in practice the syndics would have stolen their factories by force...

  • HermanLame||

    It strikes me that anarcho-capitalism would permit anarcho-syndicalism, but AS would not permit AC. AC allows free organization of individuals at the individual level and private property. Doesn't AS discount the existence of private property? You could be in a union in ancap, but you couldn't be ancap if property is 100% communally owned. Ultimately AS is forcing you to submit to some kind of authority, it's governance under a different name. Unless AS doesn't prohibit private property, then otherwise I can see no difference. Syndicates would exist in an stateless society, sure. But if they existed in the broader framework of a laissez-faire market, then you have Ancap as well.

  • ||

    What you gonna do when you get too faded and the date you with wanna get X-rated?

    Famous for being opiated!

  • ||

    Life is short,We always need passions!
    SeekCasual*COM, a place for people who wanna start a short-term relationship.And also for finding soul mates.Over 160000 honest members with real photos and detailed profiles.Sign up free and have a try!Nothing to lose!

  • The Ingenious Hidalgo||

    But how many dishonest members are there? We must know!

  • ||

    What do you say when you're too fucked up?

    And what your girlfriend say when I smack that butt?

    What do you say when you run out of drugs?

    And, baby, what do you say when you bust a nut?

  • AlmightyJB||

    Bored or drunk or both RPA?

  • ||

    It was a little bit of both.

  • AlmightyJB||

    "it reveals just how little Yglesias and other left-wing critics actually know about economic theory and history"

    The left doesn't need to know anything about a subject to discredit it. In fact, they don't really care to know since they're just going to lie about it anyways. Austrian economics? Yeah that's just where rich people steal your childrens blood to keep themselves looking young. Get a bunch of talking heads and celebraties to repeat it over and over and over and viola, everyone knows that's what it means. It's a lot simpler that way.

  • ||

    There's another problem with Yglesias's argument:
    It presumes that the government will act rationally and competently where investors do not.

    That notion that the state in a democratic society is even capable of responding to a bubble by tightening credit, is at least as great an idiocy as the notion that investors make rational choices. At least private investors self-interest lies in maing rational choices. The way our political system works makes the idea laughable. It is never in a politician's self-interest to throw cold water on a bubble. It is rarely, if ever, in the self interest of a politcian to move against the herd. Their interests are almost universally aligned with short term political opportunism, to a far greater degree than the short-term profit-seeking interests of investors. Nobody in Washington is thinking about the long-term fiscal health of the country. They are thinking about how best to please the swing voters in Ohio, and where they are going to get campaign contributions.

  • Sevo||

    Hazel Meade|1.13.12 @ 11:26PM|#
    "There's another problem with Yglesias's argument:
    It presumes that the government will act rationally and competently where investors do not."

    And that's a BIG problem.
    He presumes there is no 'knowledge problem' with central planning, while every bit of history says there is.

  • ||

    It's not just the knowledge problem. Politicians in a democracy have little to no incentive to make rational economic policy choices.

    Even if they had perfect knowledge of what the right economic policy was, it would still be in their interest to give everyone a pony.

  • 0x90||

    Yes, but it is not so much that it is in their interests to do so; it is rather that if they do not, someone else will, in which case you will never have heard of them in the first place. Which is to say: it is not so much that power corrupts authority, but that uncorrupted authority cannot occur.

  • ||

    Becoming corrupt is a matter of survival. Basically it is always going to be in their interest to give out special favors, rather than to make globally optimal economic policy choices, because the effects of globally optimal choices are dispersed and therefore more difficult to trace, while the effects of special favors are focused on a few narrow constitutencies who know exactly who they have to thank.
    Add to that that human measure themselves by comparison to others, so getting a special favor from the government makes voters happier than everyone being generally more well off.

  • Dan||

    I don't think he understands Yglesias's criticisms well.

    Richman says that Yglesias does a few things wrong:
    1. The Austrians are not liberal (false, they are).
    2. Profits can be made from temporary booms (true. I disagree with Neoclassicals on this one and he puts it well).
    3. He says that not only can the government not help, but it does the smashing in the first place.
    4. The Great Depression proves Austrians economics right instead of wrong.

    1. The Austrians are super liberal. Classic liberalism refers to a Adam Smith concept that government should not interfere in economic activity. I don't care what Wikipedia says. Austrians rank very high on any scale of liberalism.
    2. True. I'm a Behavioralist on this one. However, the difference that we find is that bubbles happen doubtless of whether there is government policy in play. Read that stuff from Richard Thaler I sent you a while back.
    3. That's what most of his stuff is about. This gets only a paragraph in his paper and addresses none of the major points.
    4. The Great Depression did not prove the Liquidationists right. Mellon did nothing and things just got worse and worse as the credit market bust clear open. Liberals always forget that it was WW2, that massive massive stimulus that saved the economy. Is that possible today? No, and that should be where the critics go.

  • Scruffy Nerfherder||

    Really, WW2? How many times has this been discredited?

    The economy recovered when the US was the last man standing after the war in the global economy with an established industrial capacity put in place for the war.

    Even as it was, they still had to inflate the currency to pay off the debts incurred during the war and prior. Consider how good it would have been for US savers if there had been no currency inflation.

  • Sheldon Richman||

    Look at Hoover's record closely. He started the New Deal.

  • ||

    First off, we're clearly dealing with different definitions of "liberal" and "conservative".

    Secondly, check these out if you want to _learn_ something about economics. You could use it.

    Fear the Boom and Bust: a Hayek vs. Keynes rap

    Keynes vs. Hayek: Round Two

    Note the Hayek comment in Round Two re: WW2 - "Wow. One data point..."

  • Sailor on the China Sea||

    Just sitting here for months at a time playing cards with my shipmates for those few hours of intense battle where I help make the economy boom.

  • Fidel Castro's baratone voice||

    Art is alive and well on the Orient. The rest of the world has gone to hades.

  • ||

    The fact that you think it was government spending on WW2 that brought us out of the depression tells me everything I need to know about you.

  • HermanLame||

    Austrians being liberal != Austrian economics being liberal. As he said, Austrianism is value free. It prescribes what you can do for maximum economic efficiency. It does not say this is a moral good. It does not say liberty is a moral good, it says that it is conducive to prosperity, which it also does not say is a moral good. Maybe you think poverty and militarism are moral goods because of X philosophy, and therefore find Austrian economics as a justification for not doing free markets? Just because it doesn't happen doesn't mean it can't, but nothing in Austrian economics necessitates liberalism.

  • Shit Kicker, Pabst Drinker||

    Suppose the gobbley-gook ya'll is sayin' is true If it's true we're smarter than the media, why do they live in chateaus and fuck beautiful prostitutes why we live in cardboard boxes and the scraps of government largess? Price signals doom!

  • Talk him down||

    Price signals doom? What the hell is wrong with you?

  • My Koozie can beat up yours||

    The media are rich because they prey on the stupidity and other associated vices of the masses. There's no money in truth, Socrates.

  • Mr. Belvedere||

    Price signals cannot be trusted because people are emotional (Shiller) and irrational (Nietche) and therefore market prices tend to exhibit irrational exuberance (Greenspan) or panic (Lehman) and therefore we should all just surrender our freewill to the government (Obama).

  • Punky Brewster||

    So sayeth a giant English douche bag (Mr. Belvedere)...

  • High Country Theologian ||

    Socialization of risk (i.e. TOO BIG TO FAIL) is a necessary evil if society is to keep on with the incestuous dalliances between PACs, lobbyists, lawyers, and lying politicians. Let the Sherman Anti-trust act wither and die and hello to the googlization of our lives by benevolent, omnipotent corporations. Tyranny never felt so good!

  • Friendly Pirate||

    Take it easy, bro. No need to get all Fonda-Lina over this. Pull your bosoms from the windowsill.

  • Paul Krugman||

    *holding up a kitten*

    Say hello to the nice people MattY. tee hee hee

  • Hack stringer for some rag||

    I made a career out of typing the name "Krugman" in my headlines and penning enfeebled take down attempts that speak to my own profound economic illiteracy, but I just wanted to thank you Paul.

  • Paul Krugman||

    Do you like cats? Because I do. tee hee hee

  • JB||

    Liberals don't know shit about anything.

    They are dumb, ignorant hicks that make rednecks look smart in comparison.

  • ||

    Matthew Yglesias is so dumb that calling him a retard is considered a compliment.

  • MNG||

    Er, this article doesn't seem to link to the Slate article it criticizes...What's up with that? Here's the link if anyone is actually interesting in, I dunno, reading the article your savaging:

    http://www.slate.com/articles/.....h_it_.html

    Within that article is another piece critical of Austrian economics by the noted libertarian, and frequent Reason contributor, Bryan Caplan, which can be found here:

    http://econfaculty.gmu.edu/bcaplan/whyaust.htm

    For whatever reason Austrian economics, far from being obviously correct, is rejected not only by most economists with far more training and experience than most folks here, but even by a great deal, if not a majority, of libertarian economists. That's of course not conclusive of its correctness, but it does suggest some powerful evidence against it, especially for a layperson.

  • Louis Nardozi||

    Gee, you don't suppose that maybe those economists, over 90% of which are employed by the FED might somehow have determined that espousing Keynesian economics would somehow have resulted in their getting lucrative jobs? Nah... I mean it's not like they're economists or something.

    What you SAY you believe at your job does not necessarily match what you ACTUALLY believe.

  • MNG||

    " 90% of which are employed by the FED"

    citation needed

  • ||

    yep, the more i read the Kaplan piece, the clearer it is becoming to me that he is just trying to rationalize his intellectual dishonesty, rather than just admitting that being a Keynesian pays better.

  • MNG||

    What in the world makes you think Caplan is a "Keynesian?" He's a prominent libertarian economist. Is every non-Austrian a "Keynesian?"

  • ||

    Sorry, perhaps I was a bit sloppy with my language, but yes, I pretty much see it as a debate between those who think economics can be treated as a math-based science, who I lump together as "Keynesians," and those of the Austrian school who disagree.

  • MNG||

    Thanks for the clarification, but isn't that a debate mostly on method, not on what policies they might recommend? Bryan Caplan and Milton Friedman would use numbers like Keynes, but the former would have pretty different policy recommendations from the latter.

  • Christina||

    I took intermediate macro from Bryan Caplan when he was brand new to GMU. He is not a Keynesian.

  • ||

    maybe.

    but those who reject "using numbers like Keynes" will not have different policy recommendations. Austrian analysis leads to one universal recommendation: don't tamper with a system you can never fully understand.

  • soonerliberty||

    Kaplan is an anarcho-capitalist, but I wouldn't say the majority of libertarians reject Austrianism. However, I don't see a reason to pick and choose. Both Kaplan (whom I know personally) and the Austrians have lots to add to the discussion.

  • The Ingenious Hidalgo||

    Caplan is closest to the neo-classical school. He is in no way a Keynesian.

  • ||

    well whatever he is, i expect that he would not have been hired by GMU had he continued to espouse Austrian theory.

  • ||

    Austrian economics, far from being obviously correct, is rejected not only by most economists with far more training and experience than most folks here

    How surprising that people who have been heavily trained in Keynesian economics reject other systems!

    If someone was trained to do math in terms of complex numbers they would probably consider doing everything in terms of real numbers to be daft. That doesn't mean real analysis is wrong.

  • MNG||

    You think most economists have been "heavily trained in Keynesian economics" (whatever that means)? Do you have any evidence for that?

  • Johnny Clamboat||

    So you didn't go to college?

  • ||

    did someone ask for evidence?

    http://www.huffingtonpost.com/.....78805.html

  • MNG||

    Can you point to what in that article is the evidence that "most economists have been "heavily trained in Keynesian economics"?

  • ||

    your attempt to deny the obvious by debating over semantics is a fail.

  • ||

    Do you have evidence that physicists have been heavily trained in Newtonian mechanics?

  • Accreditation Auditor||

    Mr. Nanny Goat, it has come to our attention that you have no idea what constitutes evidence in an argument. We have little choice but to strip you of your degrees. You are allowed to keep your High School diploma. You may also continue your educational advancement at any of our three lovely BCCC campuses.

  • MNG||

    Do you dispute that the majority of economists are not of the Austrian school?

  • ||

    which is evidence of what? that the Austrian approach to economics is not valid? or that it pays better to pimp for the state?

  • MNG||

    I think when most people who have more experience and education in a particular field reject something in that field a layperson without that background can properly assume those people are probably right to reject it, nothing more or less.

    Additionally, I've yet to see evidence that economists are "pimping for the state." In fact, here's some poll results of the % of professional economists that agree with the stated position; interesting how despite the fact they are all "pimping for the state" they take the positions here they do.

    1.A ceiling on rents reduces the quantity and quality of housing available. (93%)
    2.Tariffs and import quotas usually reduce general economic welfare. (93%)
    3.Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
    4.Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
    5.The United States should not restrict employers from outsourcing work to foreign countries. (90%)
    6.The United States should eliminate agricultural subsidies. (85%)
    7.Local and state governments should eliminate subsidies to professional sports franchises. (85%)
    8.If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
    9.The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
    10.Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
    11.A large federal budget deficit has an adverse effect on the economy. (83%)
    12.A minimum wage increases unemployment among young and unskilled workers. (79%)
    13.The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
    14.Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)

    http://gregmankiw.blogspot.com.....agree.html

  • ||

    other than the obvious Keynesian fallacy that government spending can improve the economy (#4), i see nothing on this list that i would consider pimping for the state.

    but what about what's not on this list? what about the interest rate price fixing done by the Federal Reserve? what about bailing out the TBTF's? what about inflationary fiat currency? what about the true causes of the Great Depression? what about the moral hazard of our fractional reserve banking system? where is the criticism of our debt based money system and warnings of its impending collapse?

    when the "experts" avoid asking themselves embarrassing questions that would expose the damage that political intervention does to the economy, it's pretty much just another way to "pimp for the State."

  • MNG||

    " i see nothing on this list that i would consider pimping for the state."

    Then it is pretty odd isn't it, to find such positions by most members of a field that you (and others here) seem to be claiming are "pimping for the state", "Keynesians", etc. Contrary to these assertions most economists seem to accept non-statist positions. Yet few also embrace the Austrian School...

  • ||

    you ignored the point i made. what about the issues that are not on the list?

  • Tncm||

    The number one employer of economists in the world is government. Governments will, by necessity, hire economists who validate their fiscal and monetary policies. Keynesian economics, in essence, provides a blank check to politicians when it comes to deficits, inflation, and regulation. So, therefor, governments will tend to hire economists who are outright Keynesian or are of a Keynesian bent. I have no idea why this is so hard for you to understand.

    Oh, by the way, appeal to majority is a sorry substitute for actual argumentation. If you have a legitimate criticism of the Austrian School then feel free to make it known, but if all you have to bring to the table is this pseudo-intellectual nonsense then do us all a favor and abstain from posting on this site.

  • MNG||

    "The number one employer of economists in the world is government."

    Is that true? And if it is, how do you square that with the fact that a majority of economists are quite opposed to socialism (it's probably the most libertarian friendly field in academe)?

  • ||

    they may be opposed to outright socialism, given that in theory and in practice it's an obvious disaster; but they certainly are not opposed to its more subtle cousin, government intervention, and in fact support a fallacious economic theory created to justify government intervention.

  • MNG||

    As I give evidence above economists are, probably more than any other field I can think of, remarkably supportive of libertarian stances on issues. That's certainly an odd outcome to expect if they are out en masse to "support a fallacious economic theory created to justify government intervention."

  • puck||

    Thanks for the link to Caplan, MNG. I'm surprised by the hostile reactions. I think it's important for libertarians to assess economics, or any other field or issues on a rational basis, so I welcome Caplan's criticisms, which doesn't deny that Austrian economics has made important contributions. Responding only emotionally to arguments with the use of labels is something we should avoid and makes us look too much like leftwing luddites and anti-consumers or rightwing Bible thumpers.

  • Tony||

    If government intervention is inherently inefficient or counterproductive, why do you entrust what you consider people's most fundamental rights (like contract and property) to it? Why do we let it fight wars?

  • MNG||

    Ouch.

  • puck||

    It's no accident that libertarians are the staunchest critics of military intervetnion out there, precisely because we do not trust that that power will be rightly and morally used. Suspicion of the abuses of government power is a part of the libertarian foundation.

  • puck||

    The difference between contract/property rights enforced by law and governmental interference in the economy through legislative tweaking I think boils down to Certainty and Uncertainty. Where there are simple ascertainable rules to follow with fairly clear outcomes then government enforcement is sensible. When there are events that contain a great deal of uncertainty - trying to get into the heads of millions of actors making decisions about their personal preferences and trade-off decisions - then governmental interference is bound to be inefficient as that information is largely unobtainable and thus uncertain.
    Otoh, there are some libertarians - the anarcho-capitalists - who would suggest the functions of the courts and the military could also be private.

  • soonerliberty||

    If monopolies are inherently bad and humans greedy, why would you entrust so much power in the biggest monopoly on the planet: the government?

  • MNG||

    "If monopolies are inherently bad and humans greedy, why would you entrust so much power in the biggest monopoly on the planet: the government?"

    The leftist has an easy answer to this one: because we can control the latter via our votes while the former are only controlled by their owners.

  • ||

    The leftist has an easy answer to this one: because we can control the latter via our votes while the former are only controlled by their owners.

    Show me someone who really, sincerely believes that the government is more accountable to voters than a corporation is to shareholders, and I'll show you someone who is too stupid to be trusted with grown-up scissors.

  • ||

    If government intervention is inherently inefficient or counterproductive, why do you entrust what you consider people's most fundamental rights (like contract and property) to it? Why do we let it fight wars?

    Both of those functions require coercion, and the free market doesn't deal very well with coercion. Government is pretty inefficient in both those areas (really? a diehard liberal claiming the govt's warmaking is efficient?) but there's no alternative.

  • killazontherun||

    why do you entrust what you consider people's most fundamental rights (like contract and property) to it?

    You are moving the goalpost and confusing your subject matter. Efficiency is a matter of economy, and thus value neutral. It doesn't pertain to social structure or political organization.

  • MNG||

    "Both of those functions require coercion, and the free market doesn't deal very well with coercion."

    Isn't there a fair amount of question begging in this answer?

  • Tncm||

    Is that true?

    "However, universities and research groups remain the largest employers of economists, followed by the government."- Princeton Review

    I'm sure you don't need me to tell you where the majority of research funding for said universities comes from.

    And if it is, how do you square that with the fact that a majority of economists are quite opposed to socialism (it's probably the most libertarian friendly field in academe)?

    For a while it wasn't, if it even is now; it was only after the socialist calculation debate in the '20s and '30s that socialists lost their hold on the economics profession. Ludwig von Mises once quipped that the question asked of every economist was, "Are you a democratic socialist or are you a Soviet communist?"; capitalism wasn't considered viable in a great deal of the economics profession during the early 20th century, especially after the Great Depression, and any recent embrace of the free market (a phenomena present only in the minor resurgence of Austrianism and monetarism in academia) is ahistorical of where that academic field has been trending. I would remind you that Milton Friedman's supposed "sweeping" of the profession was only in the area of monetary economics, a field where he used models that were even more highly aggregated and statistically-dependent than Keynes' own theories on the subject; Friedman's laissez-faire microeconomic policies and criticisms of the highly flawed neoclassical theory of the firm were generally ignored. Keynesianism is by far the dominant school of economic thought, and any critic of this belief can be silenced by having him or her open up any given macroeconomics textbook at any given college in this country.

  • chris||

    Murphy explains why it is difficult for those who derive their understanding of economy from Keynes to understand Austrian Business Cycle Theory.

    http://mises.org/daily/5626

    To illustrate what's wrong with the typical Keynesian view of the economy, in the debate I told the spectators to imagine that one night, mischievous gnomes decided to rearrange all of the capital goods and skilled laborers in the country. The next morning, brain surgeons who were supposed to report to a hospital in Albuquerque would wake up in Miami. Factory owners in Trenton would open their doors and see that their assembly lines were gone, replaced by defecating cows. Farmers in Iowa, for their part, would be baffled to see drill presses and computer servers sitting in their empty fields.

    Suppose the Keynesian statisticians in this absurd thought experiment could make perfectly accurate measurements of their standard variables. What would they say? In the first place, they would be horrified to report that "real GDP" — the flow of newly created goods and services — suffered the worst collapse in world history. The annualized rate of real output in one day would have fallen perhaps 99 percent. Factories would be idle, and workers would be wandering the streets in a daze. Official unemployment statistics would be 90 percent or higher in the days immediately following the gnomes' evil prank.

    The government and the public would demand that the elite economists explain this calamity. The Keynesians would check the various aggregates and consult their models. Was it a "supply-side" disturbance? It wouldn't appear to be so: the total stock of capital goods was the same as it had been the week before, and the same would be true of the supplies of various types of labor. It wasn't as if the economy had been struck by an earthquake or a plague; the same "productive capacity" was still there. Furthermore, there wasn't any negative "technology shock," as far as the Keynesians could ascertain. The recipes for turning inputs into outputs would all still work, just as they did the week before.[1]

    Depending on the specifics, the Keynesians might conclude that the tremendous fall in output was the result of flight to safety combined with "sticky prices" and nominal debt contracts. After all, when people awoke to find themselves plunged into near autarky overnight, they panicked and began to hoard their cash balances. Even though the output of goods and services plunged, it's conceivable that their unit prices quoted in dollars would fall too.

    All in all, it would not be surprising in this fanciful thought experiment if most of the Keynesian economists concluded that the problem originated on the demand side. There was no physical reason for a bottleneck in production. For some inexplicable reason, workers and capital goods weren't getting together to crank out consumer goods and services desired by the public. This was clearly a gigantic market failure, demanding a massive burst of monetary inflation and large deficit spending to rescue the economy.
  • chris||

    Part II

    Go back to the silly gnome story for a moment. If the government and Fed sat back and let nature take its course, what would happen? It's true, the poor people in our story would suffer a dramatic collapse in their standard of living. Entrepreneurs would rush into the chaos, and try to salvage the situation by finding suitable matches between idle capital goods and unemployed workers.

    The reader might at first think that it would simply take a month or so for all of the workers and capital goods to undo the damage of the gnomes, by moving back to their starting points. Yet this isn't correct. Remember that some very heavy pieces of equipment would have been moved thousands of miles; it might not make sense to ship everything back to where it started.

    What's more, the transportation system itself would be paralyzed because of the gnomes' prank. Even if all the workers tried to make their way back home, for some of them it might take as much as half a year. After all, the airports, buses, and trains would all be inoperable at first, because the required spare parts, gasoline supplies, and trained personnel would have been dispersed across the country as well.

    As Mises pointed out, the existence of malinvestments requires the entrepreneurs to do their best, letting bygones be bygones. In our hypothetical gnome scenario, it would be tragically incorrect for people to try to resume the pattern of production reigning on the eve of the collapse. If they did so, most people would starve to death before food output could be restored.

    Instead, people would need to improvise. Brain surgeons might temporarily become manual laborers, and backhoes originally from Houston might be used to plow snow in Detroit.

    $25 $22

    The crucial point is that even the owners of "idle" capital goods and "unemployed" workers would be actively seeking out their new roles in the horrible adjustment period. Any attempt to short-circuit this process with a wave of fiat inflation or deficit spending would simply screw up price signals and make the adjustment process that much longer.
  • Tncm||

    This, in essence, is the Lucas critique; Keyensianism is so highly aggregated in its approach to economics that it misses the fundamental components of the very system it purports to translate into neat formulas and equations.

  • ||

    It's possible that many libertarians accept *elements* of Austrian economics, although the field has evolved beyond it.

    It is after all over 100 years old.

    After all, biology has evolved well beyond pure Darwinism, with the introduction of mendelian genetics and the discovery of DNA. That doesn't mean biologists outright reject Darwin, they're just operating from a theory that has grown greatly in complexity beyond it.

  • Tncm||

    Well, no one's getting all of their economics from just Menger, Hazel Meade; modern-day Austrians like Robert Murphy, George Stigler, and Roger Garrison have advanced Austrian theory far beyond such primitive levels and have incorporated neoclassical (and even Keynesian) insights where applicable.

  • W.C. Varones||

    A peek at the morons behind the curtain at the Fed.

  • Louis Nardozi||

    Brilliant refutation!

  • Jim Treacher||

    You had me at "Yglesias."

  • Rick||

    Here's another great piece from Hans Economics on Yglesias' failed attack on Austrian theory:

    http://hanseconomics.com/2012/.....-big-time/

  • Tom Insko||

    I don't believe Yglesias has a clue about Austrian School. His article looked like he glanced at the Wikipedia article on Austrian Economics, then he did a lazy hit piece, just like his old boss Soros would want him to.

  • Milton Friedman||

    The Hayek-Mises explanation of the business cycle is contradicted by the evidence. It is, I believe, false.

  • Tncm||

    Sorry, Friedman; Roger Garrison showed how your plucking model of the business cycle was totally consistent with the "Hayek-Mises explanation". You're still badass on just about everything besides monetary policy, though.

  • ||

    You expect a "liberal" (i.e., State-humping)journalist to actually know something about economics? Surely you jest

  • pyroseed13||

    Like most libertarians, I do not deny that Austrians have provided valuable insights about markets. However, I think the Austrian Business Cycle Theory is an inelegant and incomplete explanation of recessions. Austrians seem to focus too much on what caused the boom rather than explaining a bust. The malinvestment narrative, if you accept it, only explains why the housing marketing collapsed, but it does explain why this collapse causes the entire economy to slump. At the end of the dot-com boom, we had just as much so called “malinvestment”, yet there was no recession. As much as I hate to admit it this, it seems that Keynesians are the only school that provide an accurate explanation of recessions.

    If we assume that individuals act rationally, as economists define it, in every other market transaction, why do Austrians assume entrepreneurs are tricked into making unprofitable investments by an artificially low interest rate, and will be continually tricked into doing so? I understand that this criticism has been leveled against the Austrians hundreds of times, including by Yglesias, but I have yet to hear a convincing response to it. I have heard Austrian economists argue that businesses that fail to borrow regularly at that low interest rate will lose market share, but this seems more consistent with a Keynesian “irrational exuberance” explanation than anything related to the Austrian School. It also seems to ignore that businesses will often compete through differentiation, not merely by following the market.

    Moreover, the ABC theory only seems applicable to today’s crisis if you view housing as a capital good, because Austrians argue that’s where the newly printed money flows. But housing is clearly a consumer good, not a capital investment.

  • ^Talking Out Of My Ass 101^||

  • pyroseed13||

    Thanks for not actually responding to any of my criticisms.

  • ^Talking Out Of My Ass 101^||

    You're welcome, but you really should be thanking all the posts that you ignored before posting your sweet droppings given your odd idea of whom one should be indebted too.

  • soonerliberty||

    There have already been thousands of responses to your criticisms. Even when investors know there is a bubble, they can still believe that short-term profit is possible.

    The house itself may be a consumer good, but you forget the capital necessary to build the house. This is where Austrians would argue their point, not at the final point in the process.

    Like I said, there are many refutations of your points (not necessarily convincing) but a quick search online would reveal them to you (see Roderick Long, Robert Murphy).

    I'm not convinced the Austrians are correct, but I am convinced that animal spirits do not accurately describe booms and busts. The Keynesians have the problem of explaining how markets survived till Keynes if markets cannot correct themselves.

  • pyroseed13||

    I agree with your last point. I don't think that we will never have growth in the markets unless government solves this "aggregate demand problem." But we also had recessions before we had a central bank. Therefore, something is missing from their explanation of business cycles.

    Your first point still sounds like irrational exuberance to me, but I'll have to explore that claim more fully. As for your second point, the argument from Austrians is that when the interest rate is artificially lowered, they expand capital goods production, rather than consumer goods production. Since housing is a consumer good, I do not see how this is consistent with their explanation.

  • soonerliberty||

    Austrians explain the booms and busts before the central bank very well. There was still credit expansion, etc.

    I'm not sure why you don't get the housing example. You're thinking only of the final product: the house. Think about the goods necessary to build the house. That is what the Austrians concentrate on.

    Read up online. This is more than explained. Hell, Hayek won a Nobel Prize for his explanations. Perhaps you should start with him.

  • pyroseed13||

    But here is my problem. A capital good would be a factory or an assembly line. Yes, I recognize that hammers and wood are capital that are necessary to build a house. So my question is that why are we assuming that artificially low interest would lead businesses to build houses and not some other consumer good? Why would a business base its demand for houses on interest rates?

  • ||

    Mortgages are the longest-term category of loans and thus the most sensitive to interest rates. There's also the fact that mortgage interest is tax deductible.

  • DK||

    Not to mention explicit and implicit governmental rewards for homeowners. Tax credits, secured credit (see Fannie Mae bailout), etc. It's hard to ignore that the federal government has massively intervened in the housing market in order to produce more homeowners. People like government handouts.

  • ||

    At the end of the dot-com bubble, we had 9/11. Which was followed by an expansionist policy at the Fed, exhortations to shop, and the intentional inflation of the housing bubble. In a sense, the Fed policy "successfully" averted a recession, in precisely the way that monetarists prescribe, but the long-term result is that the very policies which sucessfully averted a recession in 2000-2002, set us up for a deeper longer recession later.

    My personal belief is that recessions are necessary. Recessions squeeze waste out of the economy. If the economy grows at a constant slow steady paceit creates a certain kind of economic inertia. New, more efficient methods of doing things are not as rapidly adopted because peole are comfortable and are not paying attention to costs. Recessions cause people to periodically focus on cost and efficiency, and to switch to better technologies and methods in response.

    Sure, they should be focused on those things all the time, but the intensity of the cost-pressure matters. It's sort of like squeezing out a towel. If you just apply uniform pressure you're not going to get as much water out as if you periodically give it a twist and squeeze harder. Variations in the rate of economic growth actually makes the system more robust by subjecting companies to varying market conditions.

  • ||

    We should be careful to add that we think recessions should be as short as possible.

  • ||

    At the end of the dot-com boom, we had just as much so called “malinvestment”, yet there was no recession.

    There wasn't?

  • pyroseed13||

    Well technically it wasn't. The economy was sluggish no doubt, but we didn't have two consecutive quarters of negative GDP and the economy recovered quickly. Not so with our current recession.

  • ||

    Are you sure there wasn't a recession after that? I could have sworn I heard just about every talking head mention it.

  • Kloveniersburgwal||

    That Yglesias clown had an article last week in Slate about how the government should end all printing of bills so that every single transaction could be tracked by the man.

  • ||

    SRSLY?

  • ||

    He also has an article up today titled Obama Administration Comes Out Against SOPA And Protect IP in reaction to the administration issuing a tepid statement about the need to balance IP enforcement with internet freedom, which incidentally didn't mention either of those legislative excretions.

  • ||

    Just found it. It was actually from Dec 12, 2011.

    If the rates were driven below zero—in effect a tax on holding cash in the bank—people would just withdraw money and store it in shoeboxes instead. But what if you couldn’t withdraw cash? What if all transactions were electronic, so the only way to avoid keeping money in a negative-rate account was to go out and buy something with the money? Well, then, we would have solved our depression problem. Too much unemployment? Lower interest rates below zero, Americans will start spending and investing again, the economic will grow, and unemployment will go back down to its “natural rate.”

    It's like someone taught the retarded kid down the street to type and made them an "economics correspondent". Good God.

  • ||

    Austria is about 1/2 the size of Washington State and has about the same number of people.

    So how do THEORIES from a small country (equal to 1/2 of 1 state) matter for the entire USA?

    Please make me understand why this "fringe" theory is so UN-POPULAR

  • The Ingenious Hidalgo||

    Austria is about 1/2 the size of Washington State and has about the same number of people.

    So how do THEORIES from a small country (equal to 1/2 of 1 state) matter for the entire USA?

    ...joke?

  • ||

    No. I'm serious.
    How do ecomonic THEORIES from a very small European country (equal to 1/2 of 1 state) matter for the entire USA?

  • ||

    Even assuming arguendo that the size of the country correlates to the validity of economic theories coming from its citizens, let's not forget that the Austrian School started in the Austro-Hungarian Empire, which was one of the Great Powers before WWI.

  • DK||

    Jews win 22% of all Nobel Prizes but only represent 0.2% of the world's population. How can such a small population have such a large contribution?

  • ||

    They weren't just basing their economic theory on what happened in Austria. And it's not a "fringe" theory.

  • ||

    Matthew Yglesias is Slate's business and economics correspondent.

    WTF? They might as well hire me as their fashion correspondent.

  • ||

    Why this Austrian Economic "fringe" theory is so UN-POPULAR?

    If its "so great" then why is only a very small portion of the USA endorsing Austrian Economics?

  • ||

    Since when is the popularity of a socio-economic theory correlates to its validity or success? If that were the case, Marxism was the greatest theory, at least until 1989.

  • ||

    OK then PROVE its success.

    To succeed economically in an area 1/2 the size of the state I live in doesn't seem like to big of an accomplishment. I mean even Washington state has its good years economically.

    8 years ago Building Construction in this area was going wild. Freeways, Bridges, new Gov Buildings, Hospital Remodels are I make a living. How will "Austrian Economics" help Union Craftsmen in this state? Aren't we (Union workers) your target to eliminate?

    I make 35 dollars an hour (when employed) aren't you Austrian-ists trying to eliminate the taxes that pay my salary?

    Why should I vote for people who want to destroy me?

  • killazontherun||

    Don't be so down on yourself. Why do you feel you are worth less than 35 dollars an hour? After all, would someone who is really worth 35 dollars an hour be at the mercy of politicians who promise them things beyond their capacity for achievement?

  • The Ingenious Hidalgo||

    This is a really amazing level of ignorance - wikipedia is your friend, man. Austrian economics isn't the study of economics in Austria - it's just that the guys who started the school happened to be Austrian. It's a general economic theory.

    I make 35 dollars an hour (when employed) aren't you Austrian-ists trying to eliminate the taxes that pay my salary?

    Why should I vote for people who want to destroy me?

    Well, there are two reasons:

    1) It's wrong to steal. Stop it.
    2) Your job could be done more efficiently by the private sector - if people value the service you provide they'll pay you to do it. If they don't, they should have to pay.

  • ||

    ya see I was right.

    AND THIS IS WHY LIBERTARIANISM
    IS SO UNPOPULAR

  • killazontherun||

    You can't poll truth, bro. Just opinions.

  • The Ingenious Hidalgo||

    What am I wrong about and why am I wrong?

  • ||

    Science damnit you are a fucking moron.

    And thank you for being part of the reason construction costs are so high. Douchebag.

  • ||

    QUICK, THE PUBLIC UNION WORKER'S PANTS-SHITTING IS UNACCEPTABLE! We must help this poor soul leech continuously! Workers of the world, unite!

  • ||

    Why should I vote for people who want to destroy me?

    You shouldn't; you should vote for those people who collect all those taxes from which you get paid $35/hour... when you work. See if they can keep up the game continuously (apparently not, as you aren't employed continuously).

  • ||

    Those gys really do dseem to know what the deal is lol.

    www.anon-vpn.tk

  • ||

    Keynesian bots suck.

  • killazontherun||

    On the order of envirobots in suckage:

    http://www.quickmeme.com/meme/35oycz/

    Likely the same people.

  • wandtattoo||

    Nice and informative Article.
    Very good.

    Best regards

  • Sober adult||

    Hey, look at me!

  • NotSure||

    Check out the jobs section in the The Economist and many other supposedly free market media, you will find at least 50% of the job offers being government positions. It is no secret then why those there are so many pro state outlets and why the Austrian school is attacked so much, it is not some ideological leaning its simple economics of supply and demand.

  • Isaac Bartram||

    Its my understanding Canadian banks could not write mortgages greater than 80% LTV and fixed rate mortgages are not permitted.


    Your understanding is wrong. Canadian banks do not as a rule write mortgages greater than 80% LTV but they can and will for certain customers under the right circumstances. Likewise for fixed rate mortgages.

    You have mistaken what Canadian banks do a policy with something they are forced to do.

    In the face of US banks acting with fiducuary care like that the Franks and the Dodds would do what exactly what they essentially did; ie force them to make bad loans.

    It''s worthwhile to recall that their central bank also didn't hold interest rates at absurd low levels to create the illusion of a boom.

  • Samson Corwell||

    There's something about Austrian economics—indeed, all schools of economic thought—that feels like it ends up obliterating the concept of liberty by reducing humans to components of theory.

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