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Repositioning Austrian Theory Part Deux
It seems that with the amount of Austrian/Libertarian extremists here at zerohedge that anything that remotely appears as a criticism to their orthodoxy is immediately tarred and feathered. For instance, my last post went vastly misunderstood.
The reason that I (and most "establishment" economists) invoke rational expectations is not out of shear ignorance of Austrian praxeology and the belief that all human action is legitimate notwithstanding human error. No, I am simply trying to prove that, in a world where all agents are rational (in the sense that they are capable of maximizing the present value of their individual utility), the Austrian monetary business cycle theory is over-zealous in its conclusions.
Of course monetary policy and QE shifts wealth from savers and capital preservers to banks, the government and, to a lesser extent, large corporations and other debtors (which of course boosts wealth inequality, investment in non-productive government services and moral hazard, given future expectations of loose policy). And to the extent that this wealth shift results in ineffective investment and monopoly power, monetary policy is harmful to the economy. But monetary policy, in and of itself, can not cause bubbles in asset markets in a rational world that adapts to historical market observances. When the government/Fed complex subsidizes banks and investment through monetary policy, this is nothing more than a forced increase in savings. Some Austrians like to claim that interest rate manipulation somehow dislodges the structure of production from equilibrium, but when the Fed manipulates interest rates they are simply acting as a valid economic agent and effectively stealing the nation's savings and presenting it, on a platter, to banks, corporations and the government. This may be wrong for many reasons, but this process is not, in and of itself, unsustainable into perpetuity. However, once you combine monetary policy (i.e., de facto subsidization of investor speculation) with a large enough group of euphoric economic agents, monetary policy can exacerbate exogenous bubble-producing behavior that would have generated independently, even without central bank intervention.
This is an important distinction to make since it allows us to see that not all money creation is intrinsically disruptive to market mechanics. Similar to monetary policy, when a company issues new equity (creates new shares) and re-invests the money inappropriately and irrationally, this is bad. However, when that same company issues new equity and invests it appropriately, no wealth is destroyed. If Fed-based monetary expansion/creation is used to expand inefficient government processes or corporations, wealth is destroyed, but there is no immediate link between money creation and asset bubbles.
Of course, the more astute among you will realize that no where in the preceeding paragraph did I argue in favour of the actions of the Fed to date. As the Fed is a small group of (ridiculously clueless) individual mortals, they will never be able to understand the functioning of markets to the extent necessary to control and/or smooth out business cycles. But it does not follow that the Fed absolutely has no role to play in the world and that all money creation should be abolished. In times of extreme wealth and power concentration, the Fed can conceivably level the playing field (even if to a small extent) by creating money that directly goes into the hands of the middle/lower class that is not dependent on past or future behavior. In other words, if the Fed set aside all its goals of economic kingdom-making, halted all free-market manipulation, and focussed on ensuring at least a semblance of economic equality among all citizens, it could really do some good for America. The staunch Austrian/Libertarian would claim that stealing money is never good, but this ignores all of the real-world and dastardly means by which the rich became rich and the poor became poor. Like all things in life, the "tolerable" level of a nation's wealth inequality is grey and cannot be computed, but it does not follow that we should not make our "best guess" as to what it should be.
Austrians must not forget that money creation can, in rare and exigent circumstances such as those before us today, function as a tool for "social good" (even if not in the absolutist libertarian sense). Case and point: If 1 person managed to accumulate all the wealth of the nation (whether by government decree, cunning or even productivity), some level of money produced by a central bank and distributed directly to the nation's people is probably not only the "right thing to do", but is simply the only practical thing to do for any democratically governed nation. Similarly, in a world where banks, government and citizens co-operated in a credit-spurred orgy for 20 years which culminated in a tapped out US middle class on the cusp of indentured servitude to the all-powerful banks, some level of money creation distributed directly to the "masses" could be a real force for good. Sure, austerity will provide the maximal economic "growth", but wealth redistribution (or some form of jubilee) is clearly needed as the US descends into a state of near-feudalism and extreme concentration of corporate and government power. Of course, excessive money printing could lead to hyperinflation and so the Fed must tread carefully and exercise restraint when attempting to at least partially reduce the wealth inequality plaguing America.
Money is power and the middle/lower classes of America are seeing their power and their money ebb away each and every day. To make matters worse, Fed policy is currently focussed on propping up inefficient/ineffective government processes, banksters and putting creditor/corporation interests ahead of a severely ailing American citizenship whose status as a 'going concern' becomes increasingly uncertain with each new economic release. 20 years of "trickle-down monetary economics" (the era of low interest rates) is enough. The American middle/lower classes need and deserve some form of equalization and retribution payment. After that, the markets should return to some level of freedom and government should be drastically reduced. Capitalism would, in essence, be given a "fresh start."
For those of you still not convinced of the social perogative that central banks should have to engage in a one-off distribution of wealth, go read a Steinbeck novel. Start with Grapes of Wrath.
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Anytime the government does anything to affect the market, it is manipulation. When the economy is fairly healthy and manipulations are small, it can be beneficial. However, just like changing the direction of a river can help irrigate land, when that river swells and floods there is not much one can do other than sandbag the shorline and pray. If the rains slow and the flood subsides, everyone survives to another day. The problem is the government has turned on the 'rain' spigot with their spending and while we're packing sandbags, we don't have enough...it's only a matter of time before the problem can no longer be contained...it doesn't matter whose economic theory you subscribe too...
Yes sir I'm an extremist. Extremely pissed off and extremely sure people like you are why we are in this predicament.
I'm floored ZH keeps posting you nonsense.
Before you tell people why AE is wrong, maybe you should at least familiarize yourself with some intro to AE concepts.
Your ignorance is stunning, matched perhaps only by your arrogance.
I'm floored you can write stuff like "For instance, my last post went vastly misunderstood."
What is misunderstood is the most funamental and basic cocnept of AE, by you. Which is why your post is drivel.
What a pile of crap.
Do you think the Government may be spending a little too much money very inefficiently?
Do you think foreign interest payment on our every increasing massive Government debt may be a slight drain on the economy?
Does it bother you I don't know one serious person who thinks the U.S. can ever repay our debt, which could only have gotten to current levels with a Central Bank?
And what does the Grapes of Wrath have to do with anything? Few people are against a social safety net and fair labor practices. I think it is the buying of votes with every increasing massive entitlement promises that can never be honored that angers us a little bit.
You want to print money, aka tax savers and further bankrupt the county in order to redistribute to a Government identified special class of people? That’s how we got in this mess buddy.
You can take your faith in Central Banks and keep it to yourself because I’m all full of crazy today…
"but wealth redistribution (or some form of jubilee) is clearly needed as the US descends into a state of near-feudalism and extreme concentration of corporate and government power."
Government is the problem, so we need more government as the solution? Almost all of government is bought and paid for by special interests, including the fed. so your plan is to somehow wrestle the power of the state from the "bad side" to your "good side" that will help the "public good" or whatever you choose to call it, and then we can achieve good things. Sounds like every other dreamer out there. On top of it almost historicallynever actually working, it still IS MORALLY WRONG to steal and point guns at people that have not initiated force against you.
Harry Browne put it well "The problem is not the abuse of power. It is the POWER TO ABUSE that is the problem." In other words, politics is the problem, and never the solution.
To Pragmatic Idealist:
You begin by slandering Austrian economics (and "libertarians"), with the words "extremist", "orthodoxy", etc.
This is argumentum ad hominem, whereby you dismiss their views as being "extreme", without having to identify what kind of views they are. Extreme of what? Are they extremely true? Extremely hurtful to your favorite race/ethnic-group/politically-correct-cause? Extremely good at understanding how markets work?
You don't say, only that whatever kind of views they are, they sure are "extremely" of that kind.
This is not a serious argument. If people don't take you seriously, you have only yourself to blame. "Extreme", in this context, is a rationally unusable term and its only purpose is to allow you to get away with intellectual dishonesty.
I see that others have addressed some of your other errors, so I will end this post here.
Mises:
If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world.
Austrians must not forget that money creation can, in rare and exigent circumstances such as those before us today, function as a tool for "social good"
You forward a unvalid premise. http://mises.org/daily/4637
"The historical school are certainly right in holding that our theories should be supported by as abundant empirical material as possible; but they are wrong in giving to the work of collection an abnormal preference, and in wishing either entirely to dispense with, or at least to push into the background, the use of abstract generalization. Without such generalization there can be no science at all."
"The idea of final utility is to the expert the "open sesame," as it were, by which he unlocks the most complicated phenomena of economic life and solves the hardest problems of the science. In this art of explication lies, as it seems to me, the peculiar strength and the characteristic significance of the Austrian school."
Hayek: http://mises.org/journals/jls/5_4/5_4_3.pdf
What is at issue is the volunlariness of the transfer, not its public-good aspects, which are subject to interpersonal utility calculation problems. Thus, while an individual might be said to have a moral or ethical obligation to help others, the state has no right to enforce such an obligation, unless voluntarily entered into."
Hayek emphasized the usefulness of the rule of law and freedom in the hope that this will stimulate public support for a constitutional government.
However, the recognizes that a proper understanding of his utilitarian justification for freedom requires a sound knowledge of economic principles.
The consumer decides unless the Empire decides. I have learned that justice has nothing to do with the legal system. The Fed has destoyed the dollar for a purpose.
The first great depression was caused by excessive credit and money creation by banks, just like this one. Fractional reserve on a gold standard works exactly the same way as fractional reserve without a gold standard. The obvious points you are missing are what money is and where it comes from. Our money is debt. To create more of it, you have to create more debt. If you create more of our money without adding debt, you are turning all the existing money into worthless paper. So if you are in a debt crisis that has gone beyond the point of no return, printing more money does not fix anything.
The printing solution has a limit defined by the economic activity of the nation doing the printing. It won't work here anymore without causing massive destruction.
Call me uneducated in "economics". I do not have a PhD. However, being so uneducated, I have the freedom not to deal with labels such as Keynsian or Austrian.
It seems to me that money meets the need of a nation when it is simply a method of exchange for things that cannot easily be exchanged. Where economics goes wrong is when money ceases to be the media for exchange and is sold the public as value itself. When that point is reached, we are past where we can turn back because all power shifts from those who create value to those who create money. There is no balance. Money creators can create infinte amounts of money, but value creators cannot create infinite value.
IMO, there is no solution when there is no relationship between the amount of money created and the amount of value created. Not only is there the potential for infinite inflation, but also the potential for infinite corruption and embezzlement as well. Those with money subvert the rule of law to make themselves "elite".
By making the statements that he does, the author seemingly misunderstands what money should be, instead asssuming that its current role is as it should be. He also assumes an elite are necesary or omnipresent, being created by money. In my world an omnipotent money creation authority cannot by definition be the answer. Money creation without value creation creates instability. But also, in my world, gold is not the answer either. Neither money nor gold is value. Money is a media for exchange and gold is a metal that has little practical application (maybe another world).
"But also, in my world, gold is not the answer either. Neither money nor gold is value. Money is a media for exchange and gold is a metal that has little practical application (maybe another world)."
sorry man, gold has many uses(see link below). most importantly, as a medium of exchange. It is Durable, Divisible, Convenient and Consistent, and it has some practical values beyond medium of exchange as listed below. Its got thousands of years of uses as a medium of exchange that you cant create out of thin air, and thats most important. This is the reason government has maligned it for so long.
http://geology.com/minerals/gold/uses-of-gold.shtml
We have a democratically governed nation. Did I just wake up. Even Cramer says he like nothing more than a American economy for and by the corporations of America. Problem is: Now it will be by corporations of foreign powers. That is what our supreme court did this year. Opened our elections to foreign powers too.
A little fact I came across one day recently is how our wealth is distrubuted. We make billionaires out of millionaires.
The Share of USA Income gains Going to the Top 1 Percent at Highest Level Since 1920.
1923 to 1929 was 70% to the Richest
1960 to 1969 was 11% to the Richest
1976 to 1979 was 33% to the Richest
1982 to 1989 was 41% to the Richest
1992 to 2000 was 42% to the Richest
2002 to 2007 was 62% to the Richest
…………………………………………………
The Share of USA Income gains Going to the Bottom 90 Percent at the Lowest Level Since 1920.
1923 to 1929 was 18% to the Poorest
1960 to 1969 was 62% to the Poorest
1976 to 1979 was 43% to the Poorest
1982 to 1989 was 22% to the Poorest
1992 to 2000 was 29% to the Poorest
2002 to 2007 was 12% to the Poorest
If the State confiscated all the wealth of the top ten percent how long could it pay it's bills?
You must come to grips with the scale your trying to discuss my leftwing friend. The appetite of the State is much larger than the appetite of the rich.
You do realize rich has been dumbed down to 250K don't you?
Otherwise, a meaningless post.
Living in once means. The short pain is to cut down.
Only a idiot doesn't see this.
It's like downpaying your credit card with another credit card. What kind of moron would do that and call it the right move?
Spend what you make. Otherwise you'll end up on the streets.
Epiphany Time! Try: "Make What you Spend"
Keynesians have never understood the concept that "rational" people basically want to be left alone in their affairs.
I don't believe they can stand the thought of it. They have to meddle. Something must be done!...they say.
In layman's terms, it's like the retired next door neighbor who has nothing to do but landscape his yard all day as he waves to you as you come and go to work. Grumbling to himself when your out of sight about the length of your grass. One weekend you miss cutting your grass because of an event, any event, graduation, birthday, whatever.
Well, something simply must be done about this, say's the retired busy body with too much time on his hands. He calls Code Enforcement.
Unseen by you, he has used the police power of the State to impose his will on you at no increased cost to him at all, but at an increased cost to you (your time/labor/money in resolving any paperwork or fines in dealing with the State.)
Maybe the analogy doesn't work for some...but it does for me. There are always increased rational and irrational costs with a system associated with a percieved societal outcome.
The retired gentleman had to replace quite a bit of sod when the next door neighbor moved away. Somewhere, in a new home, the neighbor no doubt thought about the loss vs. gain of the affair and smiled at the good fortune of the new tenant moving next door to such a respectful retired gentleman who kept to himself and mostly tended to his landscaping ;-)
Yet Keynesian theory is still untouchable after destroying the world. Jeebus.
Why is it that anytime there is a disagreement, it must equal misunderstanding? Reading your posts and the accompanying comments, I didn’t see a lot of misunderstanding- just a lot disagreement.
From your first post:
“Recent Austrian economics studies ...have tried to use game theory and other mechanisms to prove that interest rate policy can, in and of itself, cause financial bubbles and excessive malinvestment, but the fact remains that agents in a perfectly rational environment (i.e., represented by systems of equations) could never cause such disequilibria.”
Never? Could never happen? Isn’t at least one intended consequence of tinkering with the interest rate to stoke “exuberance?”
“the point that government tampering only reinforces existing irrational practices must become a central tenet in any Austrian position on monetary policy.”
Okay, I’ll concede people are mostly irrational, but why reinforce it? I know, I know; you’re not arguing that it should be reinforced. You seem to be getting at, we’re irrational, and our behavior is magnified by monetary policy- or at least, that’s the way I read it, and I would agree with that. But why argue over the magnitude such an action has? It seems to me that the bubble doesn’t have to be as big as it is every time around- we don’t need help being irrational.
Okay; we mostly agree: you would probably assess the blame fairly evenly (if not siding with irrationality), but I would tend to put a premium on monetary policy putting most of the air into the bubble.
What most “orthodox Austrian/Zero Hedge extremists” in your last post seem to be taking issue with you over is the moral stand you’ve taken on redistribution of property and labor, and “leveling the playing field” economically.
Coercion and force are never okay. I’ve argued that in these threads from time to time since it’s been here, and will continue to until it’s gone. It always amazes me how people can make a clear distinction between taking from some to give to others- by force of law- and someone walking up to them in the street, sticking a gun in their face, and demanding their wallet by force of force.
Is the difference that one method is sanctioned by “the people” (or at least the politicians...), and the other isn’t?
From this post:
“The other subject that Austrian economists need to become more lenient about is welfare economics. It is undoubtedly true that some level of transfer of wealth from the rich to the poor is not only the right thing to do...”
The only “right” thing to do is leave people and their lawfully acquired property unmolested. The only other “right” things to do or not are entirely subjective in this life. There seems to be a fear by interventionist-type people that, if there were poor starving people in a free market society, we would all be stepping over our fellow man in the street, to leave them to die. Somehow, we all magically become savages. Laissez Faire systems don’t mean Social Darwinism. This is a distinction that “must become a central tenant among” mainstream economists.
If the Austrians need to concede a point- so do you.
It should be noted that Austrian economics is not a political philosophy. Hayek supported social security.
Your whole argument is based on paragraph 3.
Money is the intermediary good used to acquire other goods and services in the economy. The money accumulation is a claim to future good and services and otherwise known as the capital stock. The only way to create capital is through productive means. When the Fed or any other central bank prints money, they are counterfeiting the medium of exchange and thereby fooling people into believing that their exists greater excess production (savings) than actually exists. The supposed increased capital leads to a decrease in the inter-temporal purchasing power of the money over time (a decrease in the interest rate). Without an actual increase in production and in turn available capital stock of real savings to draw from, investments made to take advantage of that excess savings falter.
People can in fact be wrong. And even in the entrepreneurial sense, mistakes are made. But it is when the market prices are influenced by a positive action taken by central bankers the world over that a real explanation for a cluster of errors in judgement becomes apparent.
Money creation when it is a function of actual increases in productive capacity is a wonderful thing. Everyone benefits from either the increased efficiency in the productive process by either the increase in supply of available goods, increased quality of the goods, or the freeing up resources used in a productive process to be deployed in other productive processed. OR hell, just freeing up time to relax and enjoy life if that be the next optimal choice in the value scale for individuals making the decision. It is the subversive method of implying that increase in productive capacity via an increase in the medium of exchange that is the destructive force.
prag - I appreciate your comments, do not agree with them all but I think most discussion of economics and monetary policy is too limited and at least you saying somethign beyond all fiat money is bad, all problems are govt or Krugman, there are reasonable alternatives beyond these to.
I think the whole point of a democratic government (with necessary republic type checks and balances (courts, executive branch etc)) is in a society/political system/economy, someone will take power so it might as well be the people, the voters, that have most power. If the peoples government is weak or corrupted (not repsonsive to people but rather special elite groups) then some bully, or wealthy elites will be in power instead. So we need a stong, and clean government. I do not think financial anarchy is a good alternative.
I also think there are plently of examples of no monetary system beyond gold/silver that have lead to tough times, tough economies, while there are other examples of fiat monetary systems from broken sticks in middle ages, to US 1700s colonial script money, to Guersney fiat money, to Hitler's pre-WW2 economically bustling, fiat money system to build autobahn etc...that show fiat money can do good for whole population.
Our nation was founded on the idea of "common wealth". We left behind the British tyranny and concentration of wealth in royalty and govt "blessed" big businesses and gained a country where regular folks could live decent, what we would call, middle class lives. Any country without goverment "meddling" ends up with few rich and many poor, and the socio-economics are not great for rich or poor, nor is it recipe for much economic innovation.
Any country with big stron middle class (usually a country with a meddling govt) seems like a very nice place to live, has less crime, has nice public spaces, has less ghettos...in short, is good for common wealth.
While I don't think anybody has much clue what all the results would be from different monetary policies, I do think our thinking on this has been very limited.
I agree the FED could, in theory, do good with its money creation ability but how for a democracy to give this power to cartel of private banks is really stupid and I think its reaching to expect the FED to do something much good for commonwealth.
So you're suggesting that those who took on too much debt should now be provided with some form of monetary compensation for their burden? How would you explain that to those who were smart enough to see the problem forming back in the 90's and didn't encumber themselves in the same way? How would it be equitable for those who didn't act foolishly? Does this not smell like moral hazard?
You would really have to do better at proving to me that below market rates of interest do not cause mal-investment. I don't believe we need to have eurphoric investors in order to have mal-investment from sub-market rates of interest, it is after all the cost of money that we're talking about.
And then there are the consequences of the actions that you propose. For instance, no one wants to talk about the future consequences of the zirp policy we have now. What will the consequence of that action be? Just because at present we have slack in the economy, does that justify or nullify the effects of zirp? I think not. But because it isn't apparent immediately there are those who would say that it seems to be acceptable. I think in the end we will regret zirp, it is just another interference in the marketplace that will have a negative consequence.
The simplist solution to the problem is the best, defining the problem is the hard part, are we not again here dealing with the symptoms rather than the problem itself?
Cite, cite, cite.
Why are you making these claims about the beliefs of Austrian economists without using a single citation? It's ridiculous.
This is a strawman of the ACBT. I have no idea what "valid economic agent" means.
And no, it's not unsustainable in and of itself. That's not the point. People respond to the incentives created by price signals. That's also almost never the way it actually works. Government policy also juices incentives into particular sectors to herd the bubble behavior.
Correct, but that boom/bust would be contained within the equity of that particular company. When you mess with the money supply, the entire economy is affected.
My goodness. So the cure for theft and depredation is to base the entire monetary system on stealing? Give me a break. And who might these angels be that would rule over this benevolent institution? Neutral academics? Oh, wait, we already have that.
Yes. Grapes of Wrath. Set briefly after the catastrophe of a series of major central bank and governmental planning initiatives. Which destroyed the wealth of the existing middle class and kept hordes in poverty. Not to mention that the characters spend some time in a euphemistically-titled concentration camp.
Your last article was totally confused, and this one is only a minor improvement, in that you're at least getting somewhat close to the fundamentals. I'm not seeing a single argument in your article beyond vague appeals to emotion.
If you want to clear up your misunderstandings about Austrian economics, just e-mail one of the professors at the Mises institute. Or ask questions on their forums. Or ask questions here. I'm sure that if you're sufficiently polite, people will be willing to lead you away from your ignorance, even if you maintain different sets of beliefs.
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"When the government/Fed complex subsidizes banks and investment through monetary policy, this is nothing more than a forced increase in savings."
The Fed subsidizes banks through the manipulation of interest rates. Excessively low interest rates destroy capital. Capitol is savings and no one saves when they are not paid for the use of their money.
Then he says "monetary policy does not create bubbles." Then could you kindly explain the result of Alan Greenspan's policy? Money is created by the issuance of credit; an increase in money supply dillutes the value of existing money at the point where the additional amount of money exceeds the total value of all goods and services. Adding more always dilutes the value of the existing supply whether its apples or dollars.
Pragmatic Idealist has no clue as to the premisis of Austrian theory. The first clue is where he opens by calling us "extremists."
And not a single mention of the Gross Market Rate of Interest!
Pragmatic Idealist, your assertion that interest rate manipulation does not alter the structure of production is absolutely false. Example: Company X discovers it could embark on a project that would yield 2% of the initial investment but the interest rate on the loan available to them is 5%. Assuming they require a significant amount of financing to get the project off the ground, it is thus not rational to start this endeavour. But then Ben Bernanke steps in and lowers the interest rate to .025%, suddenly the project just became MUCH more profitable and Company X begins work immediately.
The second the decision is made, the structure of production changes; other facilities may be scaled down, dividends may be trimmed affecting the decisions of thousands of investors (aka: capital allocators). Furthermore, once actual, physical capital has been committed you are dealing with a capital landscape the differs from its previous orientation. In all likelihood, production has expanded and more staff is hired to administer the new facilities. Everything is going swimmingly but remember, this arrangement suits the current regime, not the past one.
Now imagine this happening on an economy-wide scale, then ask yourself this: What happens when the interest rate goes back up?
"But monetary policy, in and of itself, can not cause bubbles in asset markets in a rational world that adapts to historical market observances. ... However, once you combine monetary policy (i.e., de facto subsidization of investor speculation) with a large enough group of euphoric economic agents, monetary policy can exacerbate exogenous bubble-producing behavior that would have generated independently, even without central bank intervention."
Thou makest no sense.
Boiling down the comprehensible portion of your thesis, you're saying that the components of a bubble are expansive monetary policy and bubble-producing behavior. Nothing new there.
Your proposal that bubble-producing behavior is somehow "exogenous" to the "rational world" is bizarre. What does it mean? That people are inherently rational but vulnerable to some exogenous factor (fairy dust?) that causes them to engage in bubble-producing behavior?
From PI's previous post:
Fair enough. Nevertheless, the teachings of the Austrian School fulfill a role in economic theory not unlike that of Socrates' The City in Speech in Plato's Republic; not necessarily something than can be achieved, or is even meant to be achieved, but something that lends a strong guiding hand that points in the right direction.
No, not fair enough.
The Austrian school has a response to this commonly-used argument for central planning: How do you define "rationality"?
"The assertion that there is irrational action is always rooted in an evaluation of a scale of values different from our own. Whoever says that irrationality plays a role in human action is merely saying that his fellow men behave in a way that he does not consider correct." ~Mises
So the economic definition of rationality is FAR different from the common definition, which is what Keynesians use to trick people into thinking Austrian economics has some underlying weakness. It doesn't. Economies simply function to fulfill human desires, whatever they may be.
Here, I'll define social good: That which sustains the lives of your fellow human beings.
We don't want people in poverty and destitute. They tend to start smelling funny without a place to wash their ass on a regular basis. Fighting poverty like a war with secret detentions, low-level torture by beaurocratic paper pushers, all with fat pensions and administrators out to spend every mother-loving last penny before it ever gets anywhere it is needed. Buy all the damn programs off and replace them with something for everyone, that everyone can find a life sustaining and enhancing value to: Cold, Hard, Cash.
$4Q in shuffled dollar-denominated whatever, yielding a miserable .3% that we count as GDP, from where all wages and taxes alike are derived. If that system isn't rigged, I don't know what is.
Don't torture unemployeds because the economy doesn't happen to need them at the moment. Sustain this ever-growing force with a poverty-level income, so they can buy soap, and maybe rent a place to use it, and a gallon or two of unfilthy water.
We pay taxes when we buy milk by the gallon, or cab-fare by distance. Why can't we tax the use of money by the dollar? Ummm. Duh?
But I don't have to drink milk. I don't have to take a cab. I can drink water, walk, ride a bike, and so on.
What options are there to using dollars? A monopoly on the means of exchange has been created and then you are punished for 'resorting' to it (and criminalized if you don't).
That analogy doesn't hold up. Not sure where you were going with the rest of that post.
If it really is a casino, a ponzi, or whatever, why leave judging whether some particular use of money is any better or worse than any other?
Instead, couldn't we simply charge a small fee to support the infrastructure that allows the economy to operate to begin with?
I would prefer anonymous pay-to-play over a tyrannical, social engineering tax regime any day.
God? Is that you?
Define "Social Good". I'm guessing your definition is different than mine. So who decides what is "social good" and who shall we entrust with deploying this "good"? Sorry but this is no better than every other populist, centrally controlled, always corrupt "solution".
Freedom and accountability (rule of law) - no matter how blemished and painful - is the only way. Stealing from one group to give to another always fails.
I agree with you 100% WouldaCoulda. That phrase "social good" or public interest really is just a tool for those in power who say they speak for the public or the "masses". I was surprised that PragmaticIdealist actually used that term (Did I just go back in time to 1933?).
In a nutshell, I have four serious criticisms of the article:
1. When the Fed subsidizes banks, that is not a forced increase in savings. To save you first have to create wealth and pay your expenses; the leftover can be saved. Wealth is not created by assuming a bad investment and then issuing more legal tender to the risk taker. This actually destroys wealth by continuing to employ people who are bad at capital allocation.
2. If the Fed were to print money for use by honest and intelligent businesspeople, it would still be wrong. That action would actually make a small business a knowing accomplice to passing counterfeit money. However, I don't mean to condemn those people trying to work and survive. My objection is that corruption is spread wider through society by government sponsored giveaways - even if the intent is noble (which I doubt).
3. The author seems to recognize that printing money is stealing, but then he rationalizes it. Well, it's a tool for social good. How is this? If you're aware of the recent inflation in Zimbabwe, you see what hardship it inflicts on the common man. Hunger, more unemployment, and lack of medical care are just a few side effects. A lesser amount of inflation produces a more moderate amount of hardship as in Argentina right now. Not to see this is willful ignorance.
4. I paraphrase: "Capitalism can get a fresh start after we fix this crisis." I also would like to see that happen along with a reduction in government controls. That's not going to happen if these controls are successful in the short run. It will seem to prove the Krugman case, and if anything you will get more intervention after the self-congratulations are over. Capitalism, to be successful, needs honest and good people. Can you lead people to a better future by showing them how to steal?
Thanks for reading a few thoughts from the tar and feather brigade.
item #1, the 'forced savings' was the first flaw I saw in the article. If bailing out bankrupt banks with future tax revenues from the populace and that is 'forced savings', that'd be a definition of savings I've never heard of, but I don't have a phd so I wouldn't possibly know. Contraction of credit by the bankers may be forced savings but its only because they are trying to save themselves from lending to a populace they've impoverished and are trying to pay off their debts. But it is only from the massive distortions in the 'markets', the debt hasn't been purged.
You guys nailed it. The socialists can't allow free markets to operate because they are sometimes flawed and cause too much pain. Of course, they know how to do better and are demonstrating that now. Yep, zero savings, capital export and monopolies will work out just fine.
Thanks for the post.
One comment: fresh start of capitalism: great!
But only after the revolution and the fuckers in jail.
Never mind jail, the Guillotine is required now.
Exactly! Clearly for the "pragmatic idealist" - social good - what "we" should do with what is yours is defined by HIM. Let's pursue his thought experiment however - one person through hook or crook owns all the wealth... ok put aside the impossibility of that scenario... what is to prevent other people from competing with this one person? Is he omniscient? If not, then some people will discover more advantageous ways to compete with him.
Oh, you say, but he'll FORCE them not to compete! Ok, well, the Austrians would be against that too!