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Presenting Capital-Based Macroeconomics, An Overview Of The Austrian School And The Business Cycle
The recent surge in the prominence of Austrian economics is no surprise: with Hayek's Road to Serfdom recently becoming Amazon's most popular book, it is more than evident that more and more Americans are, if not converting away from Keynesianism (because it truly is far more a religion, and a flawed one at that, than an economic theory - after all any 'theory' that has been disproved as many times as John M. Keynes' mutated Frankenstein monster would have long been set to rest on the trash heap of failed social inventions) then certainly looking at far more plausible alternatives. Of which the Austrian school of economics is certainly one. For all those who are still confused about the far more rational and sensible approach of Austrian theory and Capital-based macroeconomics, the attached 50 minute presentation by Robert Garrison is a must watch.
And for those who wish to read more, courtesy of Mises, here is a detailed explanatory primer on Austrian Business Cycle Theory.
Austrian Business Cycle Theory: A Brief Explanation
Mises Daily: Monday, May 07, 2001 by Dan Mahoney
The media’s favorite phony solution to the economic downturn is for
the Fed to drop interest rates lower and lower until the economy
registers an upturn. What is wrong with this approach? Printing
money—which is what reducing interest rates below the market rate
amounts to—is an artificial means of recovering from the very real
effects of an artificial boom. This point, however, is completely lost
on most commentators, because they haven’t the slightest understanding
of the Austrian theory of the business cycle.
This article gives a brief overview of the theory, which provides an
explanation of the recurrent periods of prosperity and recession that
seem to plague capitalist societies. As Salerno (1996) has argued, the
Austrian business cycle theory is in many ways the quintessence of
Austrian economics, as it integrates so many ideas that are unique to
that school of thought, such as capital structure, monetary theory,
economic calculation, and entrepreneurship. As such, it would be
impossible to adequately explain so rich a theory in a short note. (See
Rothbard [1983] for greater details.) However, an attempt will be made
here to indicate how those relevant ideas come together in a unified
framework.
Man is confronted with a world of physical scarcity. That is, not all
of our wants and needs, which are practically limitless, can be met.
Outside of the Garden of Eden, we must produce in order to consume, and
this means that we must combine our labor with whatever nature-given
resources are available to us. As inherently rational beings, men have
come to recognize many ways of solving this problem, such as peaceful
cooperation under the division of labor leading to enhanced
productivity, and private property rights permitting economic
calculation so that different courses of action can be meaningfully
compared.
(This is not to say that man has perfect foresight and always
correctly anticipates the outcome, good or bad, of his actions; only
that man acts purposefully—and so always judges ex ante a course of
action to lead to a preferred state of affairs—and is capable of
distinguishing success from failure and acting accordingly.)
However, it would help to consider the course of economic development
from a simplified example, that of an isolated “Robinson Crusoe”
situation. The circumstance faced here is that one must somehow combine
one’s labor with available resources to produce goods for consumption
(e.g., food, shelter, etc.). For example, I can pick berries by hand,
and this will produce a certain level of consumption. However, if I wish
to have a greater level of consumption, I must create some means of
increasing my berry collecting—for example, by building a rod to knock
berries from bushes and a net to collect them as they fall to the
ground.
Unless these means are nature-given, however, I must build them
myself, and this will take time—time during which I cannot pick and
consume berries with my old method. Thus, during the time I am making my
new, presumably more efficient, method, I must have some way of
sustaining myself. This can only come about if I have saved (i.e.,
abstained from consuming) a sufficient amount of berries in the past, so
that I may work on other approaches now. (For more on this process, see
Rothbard [1993], ch. 1.)
Let us be clear about what is happening here: One is not simply
switching from consumption to production; rather, one is switching from
one form of production to another. One cannot consume something until it
has been produced, so all production processes involve foregoing
consumption. The question, though, is what must be done to switch to a
supposedly more effective means of production.
Obviously, if the rod-and-net system, presumably more productive, had
required the same amount of time to construct as the hand-picking
method, I would have engaged in this approach to begin with. Since
acquiring the increased productivity comes with a cost—namely, time
spent away from using the old method to facilitate production and, thus,
consumption—there must be some means of paying that cost.
Of course, not all lengthier production processes are more
productive. But at any given time, man always chooses those production
processes that can produce a given amount of output for
consumption in the shortest amount of time. A process that takes longer
to arrive at the final stage of output will only be adopted if it is
correspondingly more productive. In the Austrian conception, greater
savings permit the creation of more “roundabout” production
processes—that is, production processes increasingly far-removed from
the finished product. This is the role of savings, and we can ask what
determines a particular level of savings.
Time preference is the extent to which people value current
consumption over future consumption. The key point of the Austrian
business cycle theory is that interventions in the monetary system—and
there is some debate over what form those interventions must take to set
in motion the boom-bust process—create a mismatch between consumer time
preferences and entrepreneurial judgments regarding those time
preferences.
Let us return to the Crusoe example above, and consider attempts to
construct more productive means of berry extraction. What constrains me
in this endeavor is my level of time preference. If I so enjoy current
consumption that the thought of increased future consumption cannot sway
me from foregoing sufficient berry-eating now, my rod-and-net system
will not be built. In the context of fractional reserve banking,
printing up berry-tickets cannot change this fact.
As a numerical example, consider the case where hand-picking yields
twelve berries a day, and I am simply unwilling to go without less than
ten berries per day. Suppose further that my time preference falls so
that I am willing to save two berries a day for seven days (leaving
aside issues such as perishability, which obviously do not apply to a
monetary economy). I will then have a reserve of fourteen berries.
Assume I work one-fourth of a day on my new method of berry production
and spend the remaining three-fourths of the day on producing berries
with the old technique. The old method will give me nine berries a day,
and I can use one berry from my savings to meet my current consumption
needs.
If I can finish the rod-and-net system in fourteen days (the extent
of my reserve), then everything is fine, and I can go on to enjoy the
fruits of my labor (no pun intended). If I misjudge however, and the
process takes longer than fourteen days, I must temporarily suspend
production (or at least delay it) to fund my current consumption, as, by
assumption, I value a certain level of current consumption over
increased future consumption (the essence of time preference). The point
is, sufficient property must exist for me to lengthen the structure of
production, and this property can only come from (past) savings. If my
time preference does not enable sufficient property to become available
for creating this production process, my efforts will end in failure.
Lest it be thought this example is artificial, consider the situation
where my needs are nine berries a day. It would appear that I can still
work one-fourth of a day on the new technique without having a previous
cache of savings, since the remaining three-fourths day of labor with
the old method will meet those needs. Two things should be noted,
however. First, my time preference must first fall from a daily
consumption of twelve berries to nine berries. Second, and this is the
key point, had I saved previously, then I could spend that much more
time on building the new method, thus bringing it into increased
production of berries that much sooner. Savings remain key to this
process of capital construction, and savings are driven by time
preference. Indeed, time preference manifests itself in savings.
This same process of using savings to fund current production for
future consumption goes on in more complex economies. (Of course, with
the introduction of more than one individual, recognition of increased
productivity under the division of labor becomes possible, thus raising
man above the subsistence level and making possible a pool of savings.)
At any given time, the individuals in society are engaged in production
to meet some “level” of consumption needs. In order for more
lengthy—and, hence, if they are to be maintained, more
productive—processes to be entered into, it is necessary that some
individuals have refrained from consumption in the past so that other
individuals may be sustained and facilitated in assembling this new
structure, during which they cannot produce—and thus, not
consume—consumption goods with the methods of the old structure.
The thrust of the Austrian theory of the business cycle is that credit inflation distorts this process, by making it appear
that more means exist for current production than are actually
sustainable (at least in some renditions; see Hülsmann [1998] for a
“non-standard” exposition of ABCT). Since this is in fact an illusion
(printing claims to property ["inflation"] is not the same thing as
actually having property; see Hoppe et al. [1998]), the endeavors of
entrepreneurs to create a structure of production not reflecting actual
consumer time preferences (as manifested in available savings for the
purchase of producer goods) must end in failure.
Any kind of economy above the most primitive does not, of course,
engage in barter, but rather uses money as a medium of exchange to
overcome the problem of the absence of a double coincidence of wants. It
must be stressed, though, that apart from this unique role, money is
itself a good, the most marketable good. To be sure, money is valuable
to the extent that others are willing to accept it in exchange. However,
money itself must first have originated as a directly serviceable good
before it could become an indirectly serviceable good (i.e., money).
This is the thrust of Mises’s regression theorem (Mises [1981]; Rothbard
[1993], ch. 4).
Like any other exchange, one may find after the fact that it was not
to one’s liking; for example, one may find that the money good is no
longer accepted by “society.” There is nothing unique about money in
these respects. What is unique about money is its use in economic
calculation. Since all exchanges are, ultimately, exchanges involving
property, a common unit for comparing such exchanges is indispensable.
In particular, the amount of money as savings represents a “measure” of
the amount of property available for production processes. (Indeed, to
even maintain a given structure of production requires some abstinence
from consumption, so that production dedicated to maintenance instead of
consumption may be undertaken.)
Holding cash (in your wallet, in a tin can in the backyard, etc.) is
not a form of saving. Cash balances can increase without time
preferences decreasing, as they do when one saves. (In fact, one saves
because one’s time preference falls.) One can increase one’s cash
balances by decreasing one’s spending on consumer AND producer goods. To
save is to decrease one’s spending on consumer goods and increase one’s spending on producer goods.
The fact that saving usually involves an intermediary (i.e., a bank)
to permit someone else to spend on producer goods does not change this
fact. Money is inherently a present good; holding it “buys” alleviation
from a currently felt uneasiness about an uncertain future. (See Hoppe
[1994] and Hoppe et al. [1998] for a discussion of the nature of money.)
Lending out demand deposits, or claims to current goods, cannot
facilitate the purchase of producer goods (for the creation of future
goods at the expense of current goods), apart from the juridical issues
involved.
The crucial thing about money is that it permits economic
calculation, the comparison of anticipated revenues from an action with
potential costs in a common unit. That is, one acquires property based
on a judgment of the future by exchanging other property, and this is
impossible—or, rather, meaningless—to do without a common unit for
comparing alternatives. Money isproperty, and under a monetary
system which makes it appear that more property exists for production
than actually exists, failure is inevitable.
One need not focus on whether entrepreneurs correctly “read” interest
rates or not. Entrepreneurs make judgments about the future and, of
course, can always potentially be in error; success cannot be known now.
However, judgments will be in error when one is confronted with the
illusion of a greater pool of savings than actual consumer time
preferences would justify. This is precisely the situation established
by the banking system—as intermediaries between savers and producers, or
“investors”—as currently exists in the Western world. The system
ensures error, though of course it does not preclude success; thus, the
existence of genuine economic growth alongside malinvestments.
This analysis is not a moralistic insistence that an economy be
ultimately founded on something “real.” It is a recognition that mere
subjective wants cannot will more property into existence than actually
exists. Should a monetary system give the illusion that the time
preferences of consumers, as providers of property for production
purposes, is smaller than it actually is, then the structure of
production thus assembled in such a system is inherently in
error. Whatever plans appear to be feasible during the early phase of a
boom will, of necessity, eventually be revealed to be in error due to a
lack of sufficient property. This is the crux of the Austrian business
cycle theory.
h/t Fascist Soup and Michael
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"cannot will more property into existence than actually exists"
"cannot will more property of others into existence than actually exists"
The main theme I've seen is that long-term interest rates need to increase - which shows to corporations that demand is ramping up again so they can hire, produce and re-industrialize the USA once again.
Various ways have been suggested to achieve that - dropping the federal funds rate below zero was distinctly not amongst those suggestions ;-)
So ... this is a thesis from Austrian economists against an economic argument that few if any have made. How is that supposed to work?
Furthermore:
No, purely printing money in a ZIRP environment, as has been shown by the '08 crisis, has little to no effect on inflation.
As per Austrian theory economics (as it existed in 2008), printing money means rising inflation. The opposite happened: we are experiencing disinflation - which is a fatal flaw in Austrian economics IMHO and contradicts what actually happened in the last ~2 years.
Money printing will only raise inflation if it's combined with appropriately sized, actual real spending. (And yes, excessive printing of money can trigger hyper-inflation. We are far from that threshold.)
And, that, despite being counter-intuitive, is a good thing as it nudges the economy out of a deflationary trajectory.
It has been done before (the New Deal, China, Germany, etc.), and the first few quarters of stimulus spending have shown that it's effective in the US too - but the rest of the stimulus was under-sized and it did not manage to close the output gap and did not manage to kick-start a reduction of unemployment - which is essential to getting out of deflationary traps.
This is all well-settled economics and not rocket science at all. It has been predicted in early 2009, it has been warned about - and reality played roughly along the lines of those predictions. So if Austrian economists want to re-gain credibility they need to come clean why their model failed so monumentally in 2008.
Way to distort the theory.
Inflation is not a product of demand in the Austrian theory.
Inflation is a product of excessive fake money printing.
When the fed artificially drives down rates, any idiot can grasp the fact that this will expand the amount of money in circulation. We ALREADY EXPERIENCED the inflationary boom predicted by the Austrians. What we are experiencing now is the correction.
If you bothered to watch the video, you would understand this. Of course, you didn't, so you don't.
Next time actually watch the material before commenting. It will save you from looking like an idiot later.
That prediction by Austrians, had you followed it in mid 2009, would have costed you a wad of money on the US 10-year bond market:
http://finance.yahoo.com/q?s=%5ETNX
http://www.bloomberg.com/apps/quote?ticker=USGG10YR:IND
As expected inflation dropped from 3.9% to 2.8% while "massive printing of money" was well underway.
In other words: no, we are not inflating, we are disinflating. See the various ZH articles about this topic.
Austrians don't predict WHEN the correction will happen, only that it will eventually have to occur. They also can't predict what the fed or other foreign banks will do. When foreign central banks act COUNTER to their countries best interests, it obviously negates any theory that says they will, in general, do what is in their best interest. However, this does not prove the underlying fundamentals of the theory wrong.
The Austrian predictions of massive inflation ALREADY TOOK PLACE before the period of 2009 - yet you keep claiming they were wrong. This is utter nonsense. We are undergoing the contraction that was WELL PREDICTED by Austrians wayyyy back while the housing boom was underway.
Mark Thorton did an entire paper on the accuracy of Austrian predictions, which you can read for free here:
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.130.5792&rep=re...
Very convenient ;-)
Imagine young Einstein claiming: "e=mc^3. I have no proof for that, and current experiments seem to show the opposite, but you will see it sometime in the future. Trust me."
When it comes to economics I prefer models that are reliable both short-term and long-term. If an economic model can not properly predict the effects of ZIRP then that's a massive fail to me - ZIRP will dominate various advanced economis years to come ...
YMMV - by all means use what works best for you.
Who was right, the Keynsians or the Austrians?
Ron Paul is certainly a consistent austerian - so he'd by default predict any boom that is somehow connected to the government. (For the same reason he'd also blindly push the economy into deflation - good he wasn't the President during the Big Depression.)
I dont think I can generally trust Ron Paul though:
https://www.nytimes.com/2005/04/17/business/yourmoney/17sox.html
And what was "Section 404" that Ron Paul opposed? Anti-fraud provisions:
....
"Master of the Universe"...scared by fraud controls, like an elephant running from a mouse?
Blaming widespread malinvestment on an incremental charge-off like S.O. audits is flat-out retarded.
Uhm, right - and the solution to "too broadly defined fraud provisions" in SO is to ... oppose the section, as Ron Paul did, right? ;-)
I also find it funny how Ron Paul refers to "financial analysts" in his argument. As ZH has demonstrated it numerous times, "financial analysts" are hardly the kind of independent advice one should be taking if he seeks to eliminate fraud in the ... financial industry, agreed? ;-)
I think it would be far more trustworthy if Ron Paul came out square and fair and admitted the obvious: "Ok, I'm a politician, and I kind of served special interests here. It was a mistake, I'm sorry about it and it wont happen again."
Call my cynical, but I'm not holding my breath ...
He'd never stand for a dent in that shiny "man from outside the beltway" mystique. ;)
If Ron Paul wasn't an effective voice for smaller government you wouldn't expend so much energy trying to discredit him.
I guess we are now entering the "if you cannot deny the message, attack the messenger!" phase of the discussion? :-)
For the record, I'm for a smaller, more efficient government. I also think it should be there to kick-start the economy after a major crisis like the financial meltdown was. It's not a contradiction at all - it's a necessary component of an efficient government. (Note, I personally prefer automatic stabilizers even more - but they are clearly not a political option in the USA)
What I dont like at all are hypocrites like Ron Paul: preaching for smaller government, but blatantly serving special interests when it suits them.
For the record, I'm for a smaller, more efficient government. I also think it should be there to kick-start the economy after a major crisis like the financial meltdown was. It's not a contradiction at all
Saying that you want smaller government and a bailout package twice the size of the one that's already been foisted on the taxpayer is a contradiction plain and simple. Government can not be smaller and twice as big at the same time. It's fairly straightforward and understood by the special interest group known as people with eyes in their heads.
Dude, keep talking.
Anyone that isn't a drone can see through your crap.
It's so beautiful really. The statist agitation and propaganda has been revealed for what it is, and its proponents are left with nothing but vacuous and fallacious arguments that even the layman can see through.
The end of the looting is coming buddy.
No economic model can predict anything when the entire banking system, interest rates, money supply, stock and bond markets, and econommic statistics are totally under artificial control. Theories can tell you what's going to happen if the system is allowed to proceed naturally. These markets are complete interventions. They are being prevented from reacting naturally, because that reaction, were it alowed to occur, would be a devastating collapse.
Your contentions in this thread are crap.
When it comes to economics I prefer models that are reliable both short-term and long-term.
Good luck with the search. Keep us posted.
:^J
I began following Austrian predictions in 2005 and I managed to increase my own wealth and preserve much of the wealth of some family members as well. Keynesian predictions about the housing boom cost those who believed in them plenty. The costs continue to mount to this day.
The inflation rate is of course dependant upon what is included in the basket of goods and services used to track prices. I have been paying more for most of the things which I need or want.
All you really need to know about Austrian predictions vs. Keynesian prediction is this: Keynesians believe that we must spend our way out of debt while Austrians believe that we must save our way out of debt. Any lipstick you'd care to smear on the Keynesian pig isn't going to change reality.
You make me so happy.
Praise Mao, and may Bernanke grant your investments the blessings of 50 quadrillion fake dollars.
I don't follow that at all.
Sir, it's called sarcasm.
Yes, that's a fair summary of Austrian economics - but no, Keynesian economics is not what you claim - instead it can be summed up as: "save in good times, spend in bad times".
It's a pretty common-sense stance. Right now we are in pretty bad times.
Keynesian economics is not what you claim - instead it can be summed up as: "save in good times, spend in bad times".
Roosevelt brought the Democrats under the Keynesian spell and Nixon did the same for the Republicans when he proclaimed "We are all Keynesians now."
So, if Keynesians where just socking away savings during the good times, where did it all go? If you answer that US politicians are only psuedo-Keynesians and therefore they failed to save in good times, you still lose the argument. Keynesianism demands strict government regulation of the economy and if the government can not be counted on to regulate wisely then the entire Keynesian premise fails.
Austrian premises are based on Human Action. In an Austrian system one can benefit from the security of self reliance rather than succumb to the folly of illusory government regulation and safety nets.
You have to admit that it worked remarkedly well with the Big Depression though - which depression was brought to us by a stock bubble popping followed by years of 'save, save, save' austerian policies.
If you mean that both Nixon, Raegan, Bush I, Bush II ran government and spending-expansion policies then yes.
It went into lower real-debt ratios during boom years in the Clinton years. He was one of the few presidents who managed to reach a positive surplus.
Was it applied consistently? Not at all - they are politicians after all, not economists. Bush-II ran a massive deficit during the housing boom years - the rest is history.
Also, does Obama follow a keynesian policy? Nope - a straightforward keynesian analysis showed that we needed a stimulus twice the size of what was done. And yes, this was predicted not in hindsight but right during the big stimulus debate:
https://www.nytimes.com/2009/01/09/opinion/09krugman.html
Also, does Obama follow a keynesian policy? Nope - a straightforward keynesian analysis showed that we needed a stimulus twice the size of what was done.
That pretty much sums up your position, Mr. Krugman. What is the point of debating with someone who believes that the government is not spending enough borrowed money on useless crap already.
I gotta go bake a ham. Hungry.
That is a fair argument to make if your position is that all economic sectors in the US are producing "useless crap" and are not worth any help and should be replaced by their Chinese and German counterparts. (who, I'm afraid, produce similar crap)
Right. The $800,000 in stimulus money spent on the African Genital Washing program is a big help for American business.
How about the $2.4T flushed away in the sand?
Do you think Jane Harmon and Darrell Issa might miss their checks too?
I've been going out in the streets to protest wars since 1970. So what exactly was your point?
Oh, yeah, you just dropped by to say that when Obama murders innocent people, it's a good thing and only a racist Tea Partier would say otherwise. Go get 'em, killer.
Do you know the yearly budget spent on condom vending machines by various branches of the US Military?
Do you know the yearly budget spent on amphetamines by various branches of the US Military?
In any sufficiently large budget, public or private, you will find embarrasing items. You will also find waste. But it does not discredit the original argument at all, unless you claim that an economically relevant portion of that budget was wasted, to the effect of rendering it inefficient.
If so then you have a point. Otherwise you are just employing demagogy. So please clarify your point.
Snowball asked if I opposed spending on the wars in the Middle East. I indicated that I have protested those and other wars.
Not sure what condoms have to do with it. Oh, wait -- they have nothing to do with it.
Are we clear?
You have to admit that it worked remarkedly well with the Big Depression though -
Um, no you don't.
We were in a depression from 1929 - 1942 and only in the U.S. is it referred to as the 'Great' Depression. Let's see the Keynesians try and sell the story that we're three years into a 13 year miracle cure this November.
Interesting - does this mean that you oppose all forms of government regulation?
Do you oppose the government spending money on the military and protecting the country against enemies?
Do you oppose mandatory airbags in cars?
Do you oppose mandatory safety belts?
Do you oppose the government protecting you from crime and enforcing laws?
Do you oppose the government enforcing contracts?
Do you oppose the government running a huge and expensive agency that tries to find terrorists and other types of criminals?
Do you oppose the government running an emergency service that will ship you to a hospital should you suffer an accident?
Do you oppose the Coast Guard saving sailors in distress?
If not, where do you draw the line between "government regulation" and free-for-all anarchy? Since you answered 'no' to at least one of these questions you must be drawing some sort of line.
I'm really curious.
Hans Hoppe did an excellent presentation on private enforcement of contracts and a private law society.
Of course, I expect you to shit bricks over this presentation since it totally negates the need for a coercive State that loots the public while providing nothing of benefit.
http://www.youtube.com/watch?v=pzglDS88u50
Here's an in-print version of Hans-Hermann Hoppe's thoughts as well:
http://mises.org/daily/2265
At the danger of over-simplifying his views, it can be summed as "security in a private law society will be offered by private companies who compete with each other". As he himself says:
Two comments:
Firstly, I'd certainly prefer to see at least a single working historical precedent before embarking on a social experiment of such a massive scale.
Secondly, we do have historical precedence of 'private security' concepts not working: 'private law' is how human history began. Tribal law was fundamentally private and the tribes competed against each other. Later on in medeival times landlords had their own private laws and enforcement as well.
It can be observed that throughout human history the centralization of security coincided with more security to the individual. I claim it's causation - as 'competition' between security companies is really just a fancy word for conflict and war.
We also have several modern history precedents of countries with multiple, competing security agencies - none of which are particularly fond memories.
So, and please help me understand Hans-Hermann's argument - how does a 'private law society' eliminate violence between security companies?
If you would like to see a working historical precedent, go to any upscale night club.
Then ask yourself why those night club owners hate having cops in their bar, yet have boatloads of private security.
Because cops sometimes get upset when they see people putting blow up their nose. Private security not so much. Surely this can't be your point?
*shock*
You mean private security doesn't care about victimless crime?
You don't say.
Wow. Guess it is your point. Pardon, but selective application of law is seldom a good idea.
If there were no victimless laws, there wouldn't be selective application of the law.
What an exciting and different world you live in!!
http://www.youtube.com/watch?v=QP_rIAkb_v8
And what a mundane and simple-minded one you inhabit.
Cocaine addiction is hardly a victimless act. Here are the victims, in no particular order:
There is a shared interest of all free men to not see harm done to the free (and innocent) people above. (Even if you dont give a squat about the fact that it's a self-destructive habit to the cocaine abuser too.)
Keynesianism is hardly a victimless act. Here are the victims, in no particular order:
There is a shared interest of all free men to not see harm done to the free (and innocent) people above. (Even if you don't give a squat about the fact that it's a self-destructive habit to the Keynesian too.)
Ah, thanks for the coming out, that was really brave from you!
So you are a keynesian cocaine user? Wow!
"It can be observed that throughout human history the centralization of security coincided with more security to the individual." If you mean: being safely put into the ground with plenty of company or secured in a large oven, then I agree.
"as 'competition' between security companies is really just a fancy word for conflict and war." Yes, and competition between centralized security companies is fancy for Global Conflict and World War.
You might want to blow the dust of your history books.
The rate of conflicts decreased, their magnitude and brutality indeed increased. Finally the 'centralized security companies' (the US Military, etc.) reached a global scale to make Word War III infeasible. We haven't had a world war for 60+ years. Honestly, where you live, do you personally feel the danger right now of being safely put into the ground with plenty of company?
In comparison, medeival security was truly awful. People were scared and stressed all the time and most of them couldn't leave their place of birth as their 'private security' arrangements were only of local nature. The pace of economic advance was awfully slow due to the never ending insecurities and due to local conflict after local conflict.
Where I live there was a particularly brutal 200 years period of history when local conflicts destroyed 90% of all dwellings. People lived in perpetual fear, and the life expentancy of males was 25 years. The cemetaries have 80% males in them - most of whom died from local conflict - and most of the male bones are showing griveous injuries - most of them healed, the last one not. The lack of females in the graves was partly caused by rampant slavery: local conflicts often had a wife-hunting angle as well.
You sure cannot mean that we should go back to that standard of living?
If not, how does 'private laws' and 'private security' as you envision guarantee a different result from what we got in the medeival period?
Where I live there was a particularly brutal 200 years period of history when local conflicts destroyed 90% of all dwellings.
And there were no governments or other collectivist authoritarians running the show? The people went insane one by one and each independently chose to kill his neighbor?
I find that impossible to believe.
Welcome to the concept of religious and ethnic conflicts ...
Really, please explain it to me, in your world of private law and private security, what keeps private people from ganging up on each other, in times of resource shortage? Or in times of religious conflict? Or just because they dont like the face or the actions of their neighbors?
It never needed a government for people to attack each other. Government was just a more efficient method of ganging up common interest - but the core instinct was and is there in humans.
In fact 'Government' was destroyed periodically in human history (including most everyone who represented it) - and it all started again, from pristine anarchy - again clustering more and more and forming higher and higher levels of government - to the next cycle of violence. It's all natural human instinct to gang up into larger and larger groups, along common lines of interest. (which groups then conflict with each other)
If you dont like that then I'm afraid you need to switch species :-/
It never needed a government for people to attack each other. Government was just a more efficient method of ganging up common interest - but the core instinct was and is there in humans
You admit that government exacerbates ethnic and economic tensions and yet you still insist that it's a good thing? Freakin' brilliant.
"It's all natural human instinct to gang up into larger and larger groups, along common lines of interest. (which groups then conflict with each other)"
I will concede the point with one caveat...after many iterations throughout time, mankind recognized this behavior as unproductive and uncivilized. There was always a bigger, badder gang waiting around the next corner of history. This realization was the wellspring of individualism and gave birth to private law and private contract.
>>often had a wife-hunting angle as well.
You sure cannot mean that we should go back to that standard of living?<<
Can we just go back to the wife-hunting angle part?
Interesting - does this mean that you oppose all forms of government regulation?
Yes.
1 I oppose what is happening now with military spending. Murder of Afgani and Iraq civilians is not why I pay taxes.
2. I oppose mandatory airbags in cars. If I want to die driving it should be MY problem and not governments.
3. I oppose mandatory sealt belts. Again, should be MY choice and should not be forced onto me.
4. I do not oppose government fighting crime - but that crime has to be with victims (not like smoking marijuana etc).
5. I do not oppose government enforcing contracts. However, now they are enforced rather selectively.
6. I oppose government running large and expensive agency that tries to find terrorists. Government creates terrorists under #1. Cancel it - and no need for the expensive agency!!! Partially cancel #4 (no prosecution for victimless crimes) and agency is smaller and cheaper!!!
7. Local governments can run the emergency service and that I am fine with. Should be decided by locals.
8. Coast guard is OK.
Everyone please take note of the following argument - it is a classic:
>>
Interesting - does this mean that you oppose all forms of government regulation?
Do you oppose the government spending money on the military and protecting the country against enemies?
Do you oppose mandatory airbags in cars?
Do you oppose mandatory safety belts?
Do you oppose the government protecting you from crime and enforcing laws?
Do you oppose the government enforcing contracts?
Do you oppose the government running a huge and expensive agency that tries to find terrorists and other types of criminals?
Do you oppose the government running an emergency service that will ship you to a hospital should you suffer an accident?
Do you oppose the Coast Guard saving sailors in distress?
<<
Apologists for big goverment always come up with a list like this when assailed by the facts concerning government waste and Constitutionally unmandated functions driven by vote buying schemes. Ironically, this list is ALWAYS composed of the exact type of core functions that those arguing against them see goverment should be limited to.
Whenever confronted with the argument of wasteful and intrusive government, they always pull the "do you not want police, fireman" argument out of their asses - never fails.
The answer to them is - "Yes, we want your list exactly - how did you know exactly what functions government should be limited to? Why are we even arguing?
I was asking because I'm curious about your opinion and because I think the answer is non-trivial.
So far I got 3 different types of answers from you guys:
I find it interesting. I personally prefer the middle ground: let there by a dynamic mechanism to decide what is centralized and what is not. We dont want a fascist nanny state, but we also dont want a totally decentralized anarchy either. (At a minimum we need law enforcement to enforce private contracts - there's no commerce, no trade and no civilisation without that.)
Assuming I add "Medicare for the elderly" to the list (is it a fair addition?), most of the US government expenditures (about 80% of them) comes from precisely these categories.
I.e. the opinions arent all that far off economically (except the gentleman who opposed all), and there isn't any fundamental, philosophical difference - just different judgements and weightings.
And that is what human society is about: it is an always imperfect compromise of millions of conflicting opinions and preferences. If you expect more, if you expect radical changes, you'll probably be disappointed.
(At a minimum we need law enforcement to enforce private contracts - there's no commerce, no trade and no civilisation without that.)
If that's what you think, fine. Go live your life that way. But why do you statists always insist that everyone else must be forced into your "safety net" at the point of a gun?
>>And that is what human society is about: it is an always imperfect compromise of millions of conflicting opinions and preferences.<<
Agreed.
However, your list was typical of a close-to-core function list that is typically presented as argument for government regulation. These lists never include the multitude of absurdities government is involved in.
Similarly, when politicians plead for more taxes or when faced with making cuts, the first thing they blurt out is threats to cut essential services - police and fire, not the absurdities and vote-buying schemes.
Certainly, I wanted to probe whether anyone felt ready to abolish all functions of government.
As for the rest, we probably agree on some and we don't agree on some others. That's what politics is about: compromises and we can have the worst of both worlds.
But the thing is, I strongly suspect that your opinion about Medicaid would change if you were unlucky enough to be born into a poor family and if you had some birth defect that is expensive to handle. Or if you had such a child. Completely not your fault - you just were unlucky to be born in the wrong place at the wrong time.
Likewise, your opinion would probably differ about government priorities if your kid was stupid enough to go to the Bermudas in a sail-boat in the hurricane season, and would now drift in the Atlantic with barely a ship left and with private rescue costing something north of $100K. You'd be happy for the Coast Guard to help you out. (for free in most cases)
Protection against common human stupidities and common unluck that can happen to any of us isn't an intrinsically bad thing to do or to desire. Think of it as some sort of global insurance infrastructure - which you get as a birth-right, and which is expensive, mis-managed, bloated, politicised, corrupt - but still there's not a single commercial entity who would be willing to perform the same global, unconditional, non-rescinded, non-litigated function to you as a birth-right.
>>Certainly, I wanted to probe whether anyone felt ready to abolish all functions of government.<<
Certainly you did, because that's an easy argument to win - the old straw man.
I certainly do not want to abolish all functions of government and I think you would very, very rarely find anyone who does - you are guilty of the very lame straw man argument that I have been indicating in my previous posts.
You also assume much about my opinions and spirit.
Politicians do these same things also.
Interesting - does this mean that you oppose all forms of government regulation?
no, there are some legitimate roles for govt.
Do you oppose the government spending money on the military and protecting the country against enemies?
of course not, this is one of the primary roles of govt.
Do you oppose mandatory airbags in cars?
yes, not a role of govt. it is up to the consumer to decide if he wants to pay for safety equipment and up to the manufacturer to decide if they want to provide it.
Do you oppose mandatory safety belts?
absolutely. the car company that does not provide them will only have as customers those who do not value their own lives (an extant minority) and those consumers who do value their lives will shop elsewhere. the govt has no authority to tell either manufacturer or consumer what must be provided or utilized.
Do you oppose the government protecting you from crime and enforcing laws?
of course not. the primary role of govt is to protect rights. there must absolutely be a system of police and courts to prevent or arrest crime and prosecute it.
Do you oppose the government enforcing contracts?
no, it is an essential role of the courts. sanctity of contract is of utmost importance in a free society.
Do you oppose the government running a huge and expensive agency that tries to find terrorists and other types of criminals?
yes. while foreign intervention is as old as this country itself, a quick read of THE CONSTITUTION will quickly disabuse anyone of the notion that we are some 'world cop' that should be globaly vigilant against anyone we don't like. please keep in mind that 'terrorists' don't 'just happen', but are created by our govt's bad behavior.
Do you oppose the government running an emergency service that will ship you to a hospital should you suffer an accident?
yes. this is nothing that cannot be (and i believe in many places currently is) better provided by a freely competitive market environment.
Do you oppose the Coast Guard saving sailors in distress?
the market can provide this service. it is not a proper role of govt to save your ass when you get in trouble on the high seas, or anywhere else.
If not, where do you draw the line between "government regulation" and free-for-all anarchy? Since you answered 'no' to at least one of these questions you must be drawing some sort of line.
no libertarian or constitutionalist advocates 'free-for-all anarchy'. as briefly mentioned above, there are proper roles for govt where the market is not the best tool for optimising outcomes. environmental protection is a prime example. re the BP oil leak, since the ocean is a commons, (in part) because access cannot be denied to those who do not 'pay', the govt absolutely has a proper role in protecting it. i would argue that if the govt's attention was not diverted to all the improper roles that it is currently diverted to, that it would necessarily be much more vigilant and effective in its proper roles.
for example, if the FDA is going to allow (as of late 1990s or early 2000s i think) direct-to-consumer drug advertising, and if the SEC and Federal Reserve are going to permit very high bank leverage ratios (circa 2003-2004), what 'protective' role are they playing? at this point, what is the difference between those decisions and these agencies not existing at all? to me there is very little if any difference. they provide you with a false sense of security, an empty feeling that someone is looking over your shoulder protecting you from 'the market'. they serve to distort or destroy market mechanisms that would otherwise 'check' drug makers or financial market participants from ripping you off. but you demand their existence, and, lo and behold, you get ripped off. they play you.
I'm really curious.
The thing is, not wearing a seat-belt or not having an air-bag is not a victim-less crime at all.
Imagine you are in the car with your family, and you have a head-on collision. You die or pass out due to a lack of a seat-belt, and your kids are stuck in the car, and the car catches fire - they are burnt alive. With you alive you could have saved them - and could have continued to be their loving father.
Does not the government have the duty to protect a free individual (your kids) from harm (their father's lapse of judgement)? Just like it has the duty to protect them from other forms of physical harm, such as a military invasion? (Which invasion, at least in the US, has not happened for more than a hundred years - the lack of seat belts and the lack of airbags is a far bigger practical risk of harm to them)
Or you could have caused a head-on collision - and you could have helped the innocent party in avoiding further harm. Instead you lie there dead or unconscious in your car, due to a missing seat-belt - unable to help others. Is there not an overriding public interest of free individuals to maximize road safety? (Which is, after all, killing more than thirty thousand americans every year - ten times the human cost of 9/11. Every single year. Again and again.)
I mean, it's certainly intellectually consistent to argue for zero government regulation - but I dont see how one can be se confident to draw a clear line into the sand for some government regulation.
I.e. I dont see how one can argue against seat belts and air bags coherently - while accepting that the government should protect against other - and distinctly less likely - forms of harm, such as military aggression.
We are a society of interconnected people, and as such we can easily create harm towards others - and someone has to have the role of managing that harm. And as you said (I hope I'm not putting words in your mouth), protecting against harm is one of the primary functions of government, right?
It would seem to me that before any and all other government regulations that you would be in favor of, the reinstatement of Prohibition would be a top priority, no?
After all, there cannot be any argument that there are more innocent victims of any other product in the world than consumable alcohol.
I oppose ALL forms of government regulation. Every single one. Further, this would not be free for all anarchy. It would result in a true free market in goods, services and laws that protect private property.
It would be administered by people willing to pay for it. There would be no loss through inefficient government administration of resources. There would be no legalized theft(tax). There would be no legalized fraud (Federal Reserve Banks) and my money would be actual money. There would be no government enforced and favored monopolies.
My children and yours would not die fighting in wars to promote the interests of a few multinational corporations. There would be less pollution and waste. We could accurately determine potential profits and losses. There would be no protection for those that can afford to BUY influence.
There would not be satellites spying on my movements and conversations. There would not be so many in prisons or jails. Police would be minimized and the brutality rare.
Would it be perfect? NO. Would it problem and crime free? NO. Would it take care of everyone's needs? NO. You would be responsible to make good decisions or pay for them. You would be responsible to work and pay for yourself. You would be responsible to not get taken and perform due diligence. You would be RESPONSIBLE for your life.
You would also be FREE with all the liberty that allows a person to reach their full potential or not.
Only the severely brainwashed believe we need a government. Conveniently, the government has endevoured to do that through the education system and media system it has created. It has worked wonders in your case.
Just to clarify, do you oppose regulation that mandates parents to install a child seat for young babies? Do you think a parent should be free to endanger the life of a baby by not using a baby seat?
Do you oppose laws against slavery? History is aflush with examples of stable societies where for hundreds of years 'private law' allowed slavery and where 'private security' made sure those slaves remained put.
Natural love prescribes that parents protect their children. Natural law precludes the practice of slavery. Slavery was practiced as a government institution and the state has killed far more babies than parents have.
I'm looking forward to the inevitable post in which you'll insist that putting too much salt on one's scrambled eggs in not a victimless crime.
1 in every 17 children is left fatherless by Haagen Daz.
Still only a fraction of parents have put their kids into baby seats - up to the point where government regulation made it mandatory.
The sad truth is that natural love is often preempted by natural stupidity.
Should an innocent child die just because the parent is stupid and society does not want to 'force' the stupid (but 'free') parent to be more reasonable?
I.e. are parents free to harm their children, even unintentionally?
I simply dont see the intellectual consistency in your arguments yet. Please explain them to me.
Thanks.
Government itself kills far more children than car accidents do. One example out of many:
In the 1990s UN sanctions led to the death of over a half a million Iraqi children under age five. That is what you, as a statist, support. Please explain that to me, killer.
I think you are both consistent in your arguments, you just simply have a different view of the role and extent of government regulation.
>>are parents free to harm their children, even unintentionally?<<
The answer is 'Yes'.
Where you draw the line is the problem. For you, child car restraints is an easy example. Do you suggest that the same stupid people not be allowed to buy over-the-counter medications that they might stupidly allow their children to overdose on? Should they be allowed to store gasoline in their dwellings?
Etc., etc, etc, etc, etc, ??
If you want to extend protection by government in consistency with your position, do you propose the creation of a multitude of Protect-The-Stupid government agencies?
it sounds like you care too concerned over everyone else but you and your own family. if someone else's baby dies because they are a terrible parent, then is that your fault? is it anyone's fault? NO, death is a part of life and the truth is there is nothing you can do to prevent it from happening. government passes laws that say if you murder you will serve life behind bars but does not deter murder? No, it doesn't. humans will be humans regardless of what government does. it is a harsh world out there, death, pain suffering will come to those who make bad decisions. call it evolution if you will, survival of the fittest. we don't need government commanding our lives to the degree it has become. ill give you an example. i have family that visited from south america and the first thing they noticed was how much control there was here in the US. they could not stand all the regulations for everything. they found it absurd that you needed a license to go fishing, they couldn't even believe it. in other countries, if you want to start a business..say a hot dog stand..you buy yourself the stand and you go on the street and sell your dogs. if they make someone shit themselves then you won't have business anymore, but if you take the time to make a good product you will have a strong client base. no need for bullshit applications, exams, certifications, taxes, street rental fees, etc. government is there just to milk the people of their wealth and use them to build themselves up and provide jobs for themselves. you think cops hate drugs? hell no, they love it, it keeps them in business. if people want to do drugs, so be it..let them die, they were a waste of life to the society anyway. why should care about drug abusers as long as i am not one of them. if my kids are getting into it then the only person i can blame is myself. government does nothing to help the problems. its all business to them. if this sounds harsh, it is but if you take care of your own then you should be fine.
Yes, I oppose it. We cannot protect and guarantee anyone's life- including our children. If the seat has value, people will purchase it.
Slavery is a violation of private property rights. Slavery is an institution of government and always has been. To enforce an owner's rights to the property, the state had to enforce it through police powers- otherwise, the slave would run away. As for history being aflush-cite examples please. By the way, being a debt slave-how is that working out for you? This would be one of those examples you could cite(FED), except it requires the police power of the state, as in, IRS, Justice dept, etc.
You attempt to frame all your arguments in "accepted" norms, as if this gives it an unassailable logic. This is only true for those that fail to take the next logical step and examine the foundation of your argument- it's assumptions. Your assumptions are without reason. You must first establish the correctness of these ideas if you wish to persuade effectively.
Lastly, no matter which example you choose, I will always reject the argument in favor of government. Government is the enemy of liberty and I will always value liberty over all of the asserted benefits of government. Liberty>control.
lol, I guess you thought real estate was a steal in 2006, too. I mean, "massive printing of houses" didn't seem to cause the prices to fall, until they did. They never looked back.
Just because an "asset" is in a bubble does not mean that it should not correct/collapse. Austrian theory does not attempt to predict when a bubble will collapse, only that there is one. Those who are educated in Austrian economics made a bundle, not by shorting treasuries, but by going long gold. I've certainly made a bundle.
Congratulations!
Just curious, what is your advice to those investors who in the inflation scare of the 1980s went long gold and bought gold at a real-CPI-adjusted price of above $5000 in today's dollars (which was predicted to go up according to Austrian economics)?
http://seekingalpha.com/article/167512-gold-s-real-inflation-adjusted-hi...
~30 years going and they are still waiting to be break-even, and they are suffering a brutal 75% draw-down even today. (If they were really unlucky they might have bought at the top of $7150.)
If they were young enough back then then they might see a small profit by the time they retire, if there's some massive crash. If they were older - well, tough luck then I guess - sometimes Austrian predictions take decades to play out, and you have to have the nerve to stomach the massive drawdown up to that point, right?
Even if you dispute real-CPI and go for the government's CPI, it's a $2200 top for long golds - so today's price is still a massive 40% draw-down. From a 30 years investment!
What do you suggest to them - should they still hold their positions?
I for one prefer more ... deterministic forms of investment.
The same advice I give to all investors- don't buy at the top of the market. Second- there is no such thing as real CPI. It is a government created figure and has no basis in real economics.
More importantly, we are in a different world today. The state of the economy is different. The amount of money in the system is different. The wealth creation capacity of the country is different and the amount of credit is different.
The reference to the 80"s is a red herring. Austrians do not advocate the buying of gold. They do advocate the establishment of a 100% gold backed dollar in a free banking system as part of a minimum government or no government free market based society. The same rules apply to gold as to any commodity and it's level of scarcity.
Additionally, you continue to speak as if dollars have value. They do not. They are a means of completing an exchange- this is all. Faith in these dollars is what you are giving false value to. Further, as a reserve currency, it has international complications and as the currency oil is denominated in- not by chance- it has a guaranteed demand regardless of need or want.
One last point, you don't have to require people to accept good money (legal tender laws). You don't have to place capital controls on wealth movements when your currency is solid.
But Austrian economics did not call gold in 1980 a top of the market at all. Raegan announced and executed a massive government spending programme (read: a stimulus) and started printing money en masse:
http://upload.wikimedia.org/wikipedia/commons/d/d5/US_Federal_Debt.png
(Federal debt as percent of inflation-adjusted GDP)
By 1990 the GDP ratio of the federal debt almost doubled. Raegan and Bush-I went on a big government spending spree.
By all means the Austrian answer to that increase in debt was that gold would go up even more - and many followed that ill conceived advice.
Interesting, so how do you normalize the real value of your investments, to determine their level of success? Do you have your own private metric of resource price inflation/deflation? (if you do then would you mind sharing it with us?)
Also, just for future reference, do you call the current price of gold the top of the market?
Thanks.
Interesting you should say that. The development and industrialization of third world economies coincided with the inflation effect. The US managed to export its inflation for that long period of time you described and money went overseas into production while the US continued borrowing and consuming - Globalization - it took time to fill that newly created vacuum. "Time" is one of the hallmarks of the Austrian theory, I believe. Now the roosters are coming home to roost - USD and Gold are moving to a new equilibrium. It took much longer than it would have if China, India, Brazil, etc. did not undergo industrialization during that time.
If you were paying attention as an investor you would have recognized this phenomena as it was unfolding and moved away from gold and into emerging economies. Now as the roosters are singing out "the shit is hitting the fan, y'all" it is time to restructure your investments.
In 1980, Austrians didn't call gold anything but a commodity to be traded in the market. You are ascribing an opinion to a group when it had none. Second, the advice would be that gold would become more valuable in comparison to dollars. This is not a day to day measurement. In a free market, yes, but in an economy of intervention- the effects can be distorted and delayed...as they continue to be. The effects of these problems do come home to roost-the time it takes is a reflection of the degree of intervention.
But then, I think you are well aware of this.
CPI is an invention of statistical genius. Just as GDP is. Neither is useful in measuring the value of your investments or wealth. The only measure I use is market value. An item, whether stock, bond or gold bar is worth what the market will pay on the day I choose to sell. It will depend on which currency or instrument I choose to trade in. Mathematics is a trap- in economics, it exists in a perfect equilibrium. That is to say, it exists in another world that is separate from this one. Therefore, it is useless.
The top of the market is unknown. It is unimportant. The choice of the consumer to hold dollars, silver, gold, equities or bonds reflect time preferences and future buying needs. The choice between savings instruments reflect risk and profit. Consequently, each person will determine their own risk profile and choose the best components to maximize value and wealth. However, you want to a number on gold-
As long as the CB's of the world create money out of thin air, in complete disregard for the creation of goods and services as a reflection of the value of their fiat currency, while risk continues to erode confidence in the various countries around the globe- gold will rise. The only possible scenario where this changes is if a currency or two emerge that maintain stability and real wealth generation. This change will not be because gold loses value, but because the currency will hold more opportunity for profit. Gold maintains wealth- it doesn't increase it. Therefore, if investors see an opportunity for profit, they will trade their gold for that investment and you will see the market top.
Who was talking about that? There was a way out back then, which any folower of Austrian economics could have seen. Not so today. Try raising interest rates even to 5% and see what that gets you.
But sure, people lost out one time in the history of gold, therefore never invest in gold. Great thesis there, Einstein.
Two things:
1. It's doesn't cost you anything to not own something. That's just logic. Look that up on Yahoo! finance.
2. The Fed is printing money to purchase Treasury bonds. That tends to send the price up. There are many articles on this at ZH and even at the Fed. This was the plan all along when the FFR is close to 0%.
1. You've never rented or leased? Never paid more for it later?
2. The outflows from equity to bonds aren't being caused by Ben's monetization arrangements with the TBTF. Think redemptions and an investor strike.
Everyone knows that raising taxes increases prosperity. Does anyone remember the boom years of the clinton administration? If that isn't proof enough what on earth could possibly be?
LOL
You are my new hero.
Reducing income taxes while increasing cap gains, hedgie compensation, and corporate taxes could lead to a large increase in the relative prosperity of 97% of the US.
Call it the OPM premium.
Time for Buffet and Soros to ante up.
Corporate tax increases inevitably lead to a rise in consumer prices. Tax is just another expense for business and they will factor it into the price they charge little old ladies and starving orphans.
Why do you hate poor people?
Here, let me fix that for you:
...Does anyone remember the boom years of the Gingrich House of Representatives and the Contract with America?
Clinton got walloped in 1994 because what he was up to was repugnant and unworkable. But he was a far more intelligent sociopath than Obama is, and put his often wet finger in the air, figured which way the wind was blowing, and cooperated with the Republican led Congress. Things went relatively well, as you have remarked.
"cannot will more property into existence than actually exists"
"cannot will more property of others into existence than actually exists"
These guys can make UnCola. Surely they can make UnProperty for an Unproper world.
I love austrian economics and I've been trying to listen to at least 2 lectures a day...preferrably out of the history section at this time and the only thing that scares me is the ignorant masses who will not let the markets fall in fear of losing all the monopolies we have now because...lets face it if we were going to go the hard road....interest rates wouldn't be 1%....and that means no 1% financing for the gubmint OR corporations....thats going to be a hard bullet for alot to swallow...but they will have to....and the prosperity we would see in the years to come would be unimaginable...bring back the 19th century peddlars the guys who sold good out of there wagons (cars now) so cheap that the monopolies couldn't compete.
those boys at the fed will have their day soon...
RELEASE THE MONSTER!
http://williambanzai7.blogspot.com/2010/09/release-monster.html
+1
Get some Mises in your Face.
So who wants to exchange a religion for a cult? Raise your hand
Sorry, Chuck. I always thought they were the same. There is no exchange needed.
I spend my nights dreaming of an administration who would actually implement the Austrian policy prescription...perhaps Sarah Palin and Jim Demint?
Paul/Napolitano 2012
That would be Andrew, not Janet.
Plus for those who haven't seen it, a great video Keynes vs. Hayek:
http://www.youtube.com/watch?v=d0nERTFo-Sk
I have my doubts that Palin is able to say where Austria is. I dont even want to think what she can think if someone ask her about austrian economics.
I'm sick and tired of all the Palin bashing. She knows perfectly well that Austria is in S.E. Asia.
Don't tell her they have WMD.
Even Obama doesn't know what Austrian is... a language?
http://www.youtube.com/watch?v=Tr7zhnctF4c&list=QL
Bring on Blunder Woman, who knew that the only way not to fail as governor was to quit.
At least I wouldn't miss those two morons when the pitchforks came out.
It's about time common sense rose to the surface of the scummy pond.
I subscribe to the definition of common sense this way:
Common sense is not what everyone knows, it's what anyone can understand if it is explained to them.
That's NOT what the current economic matrix is like -- hardly anyone understands it, even when explained. Giving up control of ones money to another in the form of an "investment" means that there is a possibility of not getting the money back in its entirety. Wealth can be held without having to relinquish control by holding precious metals. There is no appreciable return on money now that warrants giving up control. If one will accept a fraction of a percent of "interest" per year then times are indeed dire. Even putting money into a passbook savings account is relinquishment since the financial institution loans out many multiples of your deposit. For me the lack of "profit" is acceptable knowing that all my principle is safe. The United States can be a wealthy nation with no GDP at all. Wealth does not have to be exchanged, and its exchange measured, in order to exist. What in our economic system demands "growth" at all costs? The feeding of a credit system of money. The amount of interest due on current debt exceeds the amount of money available -- unless you print more. Currency is not wealth. And that is a whole 'nother topic.
"I am more concerned about the return of my money than the return on my money"-- Mark Twain
Quite true in this day and age. But it is also true that there can be no progress unless savings are invested in producer goods. That's why the current TBTF monopolies must be allowed to fail, legal tender laws must be repealed and competing currencies must be allowed to come into play.
At that point, the playing field will be leveled to some degree, government spending will be curtailed and those who compete for investment funds will toe more closely to the line. Progress will once again be possible.
It's a great vision and I applaud any move in that direction. It is pretty obvious that the current system will have to collapse painfully for the economically uneducated to accept another system. Let 'er fail I say.
If the Austrians are right, it's happening.
Garrison video is absolutely brilliant.
It is one of the most epic, logical, and irrefutable presentations on the cycle of production ever created in the history of man.
Ever.
This Rap Anthem version of the debate between Hayek and Keynes is pretty good too.
http://www.youtube.com/watch?v=d0nERTFo-Sk&list=QL
Keynes: Hey listen Freddy, party at the Fed. 20 minutes, lobby. (---)
...C, I G altogether gets to Y, Keep that total growing, watching the economy fly....
...deficits could be the cure, you've been looking for...
Hayek: ...that simple equation, too much aggregation, Ignores human action and motivation....
..so sorry there buddy, if that sounds like invective, prepare to get schooled in my Austrian perspective....
Great presentation ZH. Unfortunately, Africa is the next globalisation plan. TV sock puppets have already told us to invest. Meanwhile, fat countries who are funding undeveloped nations are experiencing wealth transfer setbacks. Selling widgets is all about the keynesian model, debt saturation is focal point. Who should care if money is created out of thin air?
Control is primary issue in the eyes of central bankers.
If someone rocks the boat, TV drama will ensue the minds of J6P.
A Perfect Circle - Counting Bodies Like Sheep
http://www.youtube.com/watch?v=g9AxVoG04ng&feature=related
Rinse wash repeat. More magician tricks to advance the global agenda.
BTW: Not to confuse you. Think Sudan and Darfur. New companies are ready to expand. Sad huh?
to paraphrase Mao "all great theories start with a single data point." interesting history lesson but don't let it prevent you from building your own "Austrian theory" either right here in the good old USA and with your name on it.
I agree wholeheartedly with this much: "credit inflation distorts this process, by making it appear that more means exist for current production than are actually sustainable"
But I can't follow all the stuff about consumer time preference versus lengthening of the production cycle. It doesn't match primitive economic conditions, and it doesn't match modern economic conditions. I suppose one could consider the dot.com bubble as a case of excessive investment in overly protracted production methods (really, really protracted, as in nobody cares if the companies they're investing in will ever make a profit). But what could the 2004-2008 housing bubble possibly have had to do with the length of the production cycle?
Tom, some things are explained with simple greed and runaway markets without proper regulation. (The housing market regulation was extant, just not enforced by the Fed.) Profits derived from organized and sanctioned greed can trump any economic theory.
That is a Keynesian rather than Austrian response.
I guess that would be true enough. Didn't want to go too far afield and wander off into the Austrian weeds.
How would you present and answer that question to a random person at the mall? I'm sure Tom is trying to get this thing mentally settled and I applaud him for that. I should have been more patient. You did a splendid job in your answer to Tom.
In the past I have given folks a print out of Ron Paul's 2002 speech here:
Government Mortgage Schemes Distort the Housing Market
Congressman Ron Paul U.S. House of Representatives July 16, 2002
http://paul.house.gov/index.php?option=com_content&task=view&id=323&Itemid=60
So do the mortgage interest deduction, ARM loans, and securitization.
So anything that takes a pragmatic approach to including data from the real world isn't Austrian?
No, anything that takes a pragmatic approach to including data from the real world isn't Keynesian. You don't think that the Keynes plan to stimulate the economy by burying freshly printed paper dollars in bottles under garbage deep inside a coal mine is pragmatic do you?
Rocky: heh. I have never heard of profits derived from altruism, and only small profits are derived on one's own--the large profits are only possible from large organizations (i.e. enterprises).
I don't require "large profits". Any more than a regular fella needs is excess and leads to some pretty strange results -- like a drug addict needing more. A tolerance is built up and even more is needed. But that's just me. You go right ahead.
I gave my neighbor some Mahi and Cobia I caught recently, a week later he gave me a bottle of wine he picked up on a Cali trip. Don't know who "profited" in the exchange...small but tasty.
RE: the 2004-2008 housing bubble
As the author says above: However, judgments will be in error when one is confronted with the illusion of a greater pool of savings than actual consumer time preferences would justify.
The illusion of a pool of savings which was actually cheap credit lead to the building of more and bigger houses than anyone would be willing to pay for once the cheap credit cycle ended.
Yes, but what you're describing is Minsky's Ponzi finance. It has nothing to do with the length of the production cycle, or with the early and late stages of production being pitted against each other.
Just so we are clear, please cite the specific portion of the article above with which you are having problems and I'll see what I can do for you.
Problem with economics is they assume everyone is rational and make calculated choices on things. Not to mention the insane notion of equilibrium.
I subscribe to the not so well known Santa Cruz school of economics:
The majority of people are driven by fear, greed and envy.
The best innovators create because they are crazy sprinkled with vanity.
There is no equilibrium, just the pendulum swinging back and forth. If you are on the pendulum you never know when you are at the mid point. If you are super observant and lucky, you might feel it when it starts going the other way.
When the surf is up, ride it, it may last all winter but, it may be gone tomorrow!
"Problem with economics is they assume everyone is rational and make calculated choices on things. Not to mention the insane notion of equilibrium."
You just described the problems of Keynesian economics.
This is NOT a problem in Austrian economics.
In fact you can find entire lectures by Austrians that focus specifically on this problem of Keynesianism.
Really, fucktard?
There is, first of all, the distinction between that part of our belief which is rational and that part which is not. If a man believes something for a reason which is preposterous or for no reason at all, and what he believes turns out to be true for some reason not known to him, he cannot be said to believe it rationally, although he believes it and it is in fact true. On the other hand, a man may rationally believe a proposition to be probable, when it is in fact false. -from Chapter II: Probability in Relation to the Theory of Knowledge"
Really, fucktard?
That's the most compelling argument you've presented so far. Still not buying it, though.
Problem with economics is they assume everyone is rational and make calculated choices on things.
Things are never cut and dried, but it behooves one to recognize trends in human behavior where they do exist. If one did not look upon the world with an educated and prejudicial eye then one could not perform even the most basic functions.
It is reasonable to believe that McDonald's will sell you a McMuffin in the morning because they know you get hungry, they want to make money and you have purchased McMuffins in the past. If one is not willing to believe in that level of rationality then one will end up wondering from door to door looking for a tasty breakfast and finding none. Rationality prescribes that one seek the Golden Arches if one desires a McMuffin, that much is certain.
Is it rationality or brand frequency? If you see the golden arches on your TV, when you drive to work, on your workmates coffee cup. You start to feel comfortable with the brand. Maybe it is that emotional aspect which drives your choice, not a trade off calculation.
People do not calculate that it will cost you $3 more if you prepared it yourself based on a cost of time tradeoff.
Careful, I did not say everyone made irrational decisions, but assuming everyone makes rational decisions is a fallacy.
Austrian Economic Theory ='s Shrinking the Money Supply.
Now it has been a lil while I understand... but who here can explain why it is bad for everyone if the money supply shrinks?
There is LOTS! of money sitting around doing NOTHING! cash is not the problem.
JW: in our system, the monetary system is based on debt. Money is debt.
Let me concretize this. If you take some cash to the bank, you think you have "money" that is "in" the bank. The bank lends the money to someone else. So from the bank's perspective, it has an asset (the loan it just lent out) and a liability (your deposit).
If the borrower defaults, this is the "shrinking of the money supply" problem. The bank's asset just got wiped out. But its debt to you remains.
Given that banks do this with a high amount of leverage, it doesn't take much "shrinkage" to force them into bankruptcy.
Here's a clip from the Seinfeld "shrinkage" episode, auf Deutsche, for the viewing pleasure of our Austrian friends:
http://www.youtube.com/watch?v=oZTfaI_va-c
This is false. I dont understand why people that have no idea about the Austrian theory, feel entitled to criticize it from their ignorance. Seriously, if you are not interested in the theory, its your option and your loss, but dont make you look stupid by showing that you like to talk about things you have no idea about.
This is false. I will not offer a proof or correction, but will spend a great deal of time admonishing you about what you do or don't know rather than present evidence as this misdirection has worked well for me with weak-minded simps in the past.
Economics would be better served IMHO by more reading of folks like Jane Goodall and David Buss, maybe some Machiavelli, and less by professional "economists". Homo saps are not and will never be the rational, optimizing saving and consuming units required by most economic theories. Time for economics to take it's rightful place as a minor branch of Psychology or maybe Anthropology and quit trying to be a "hard science", which it ain't. The only reason we care about it at all is that economic theories are used as narrative fronts by various kinds of looting, self-serving thugs and sociopaths (aka the alpha males or apex predators).
You should like the Austrians. Mises ground breaking work is entitled "Human Action." And the Austrian school does not employ questionable mathematical equations in analysis.
PLEASE, America, WAKE UP! We can not defy the laws of sound economics forever!
It was okay when our guy did it, but this isn't funny anymore.
But those of us who are not collectivists don't have any "our guys." So what exactly was your point?
"Flipacondo.com" I think was the peak of the demand-driven component of the inflationary experience. Hyperinflation is a different phenomenon that arises when faith in the currency is lost (ie. when all the current contortions fail to yield the magical recovery promised). We still have that to look forward to.
You also assume that the last two years are evidence of a failed theses when really all they reflect are the spasms of a state apparatus that knows it is facing collapse (and in fact came within moments of it already) and MUST counter the appearance of the Austrians' forecast symptoms.
Even still, your view finds pervasive disinflation, when really the only things disinflating (or outright deflating) are those whose value was driven up during the cheap credit phase - housing, primarily, but also cars, boats, jets, etc. - to the point where perceived demand prompted (monstrous) malinvestment in supply. However, I haven't noticed a downtick in most of the things we need to survive and prosper - education, healthcare, agricultural goods, copper... If you're experiencing disinflation in those items, you are living in a much different economy than I am. As the state's (and Fed's) misconceived and misapplied efforts fail, that will lead to the currency run. This is already happening. Don't think so? Seen the price of gold lately?
Lastly, don't mistake today's bid for bonds as anything but a Defcon 1 panic bid for (ill-) presumed stability combined with a bid from Bottomless Ben, a bid people are only too happy to frontrun (see B. Gross). If you look to bond yields as a harbinger of inflationary or deflationary pressures you ignore the counterparties who are setting price at the margin.
oops. that belonged under More Critical Thinking's comment above... apologies.
Well, I'm not sure I can agree with that. I use economic models that work with data, and the data is a function of the mostly transparent actions of economic actors.
The Fed can set short-term rates, can buy bonds, can intervene in the FX market, can 'promise' future action with a carefully managed value of probability, etc. - but all those actions are measurable and are being measured by multiple competing entities whose main livelyhood is to provide data to those who make money off that data.
So I could accept your point only if there existed a massive, global conspiracy that acts via hidden channels, fakes transactions, fakes basic economic data. That needs hundreds if not thousands of conspirators and a phenomenal effort to keep it all secret.
And what's the motivation? If you are smart you can make money regardless of where the economy is heading. Do you think Bernanke gives a squat about whether Austrian economics is correct or not?
Without seeing a fair amount of concrete supporting evidence I dont find such a conspiracy plausible.
Instead what I see is that Austrian economics simply does not give the right predictions to the parameters that other models handle better. You say it's because a huge global conspiracy to make Austrian economics look bad. I say it's giving incorrect predictions because it's a bad model for some economic situations (and it certainly works well in others) - one of hundreds of partly buggy economic macro-models that exist. Few macro-models handle the ZIRP environment robustly. ZIRP used to be that weird Japanese case nobody fully understood and nobody (in the US) truly cared about.
I dont use economic models because I 'believe' in them in some ideological sense. I use them because I feed them data and I want them to give me results, so that I can have an edge in the markets. When they show problems [read: I lose money] I look for a better one. I don't need to 'believe' in them - data in, data out, and I can see it black and white how good they are in a given economic scenario.
It's really that simple IMHO. The scientific method, Occam's razor, and such.
"How to Profit from a Monetary Crisis" written by Harry Browne. Very easy read. Published in the 70's. Timeless Austrian concepts...
I've been reading over some of these comments and I think the best thing to say is.
All the airline industry is an operating bankrupt entity.
All the auto industry will soon be an operating bankrupt entity.
All states are operating bankrupt entities.
The federal government has always been an operating bankrupt entity.
Do you all not see the pattern here and where this is going. How much fun was it riding on a plane in the last 8 years. If fucking sucked for me.
How enjoyable are your auto purchases going to be in 3 more years of this crap. You can see where this is going. A system designed to indebt that is mathematically incapable of doing anything else. Is a system designed to constrict and control and manipulate. They want your phone number, your address, your attention, to follow rules and more rules and more restrictions or else they'll throw you to the worst predators. The loan sharks, the abusive used car salesmen, the IMF if your a country.
This system has two tiers. Bad and worse. The stick is there to make the carrot look good which is really just smaller stick.
Mornin', Sunshine!
Thanks for posting this, ZH.
DOW weekly chart shows key resistance around 10,700
http://stockmarket618.wordpress.com
The name is ROGER Garrison