Monday, January 30, 2012

Don Boudreaux's latest take on Krugman's "austerity" claims

I'm letting Don Boudreaux provide the answer today to Paul Krugman's claim that Great Britain's government is following a policy of "austerity." (By the way, "austerity" is nothing more than government not engaging in reckless borrowing and spending. I guess if I am not trying to get as many credit cards and maxing out of them, then my household is in an "austerity" pattern, and all of us know about the dastardly Paradox of Thrift of which Krugman warns.)

Take it away, Don.

358 comments:

1 – 200 of 358   Newer›   Newest»
RSS Ronald Reagan said...

I'm offended at the way "austerity" is discussed as if it were somehow a moral evil to have to discipline oneself and do with less. It reminds me of the way that Krugman and others speak of "the poor" when it seems that a more accurate description would be "the less affluent"

Daniel Hewitt said...

In 2009, Krugman was not claiming that the British implemented an austerity program. He was claiming the opposite.

"British economic policies in this crisis have been more aggressive than those of the rest of Europe — and the fall in the pound has given Britain a serious competitive boost. And all of that seems to be having an effect. The chart above shows diffusion indexes for the five big European economies, from Markit. Britain is above 50 (barely), which means actual expansion, as opposed to things getting worse more slowly. It’s not far-fetched to imagine that Britain will soon be experiencing at least a modest recovery, even as its neighbors languish."
http://krugman.blogs.nytimes.com/2009/06/09/a-british-bounce/

"Two months ago I wrote that there were hints of a relatively quick economic turnaround in Britain. Now those hints have gotten much stronger. Basically, aggressive monetary policy and the depreciation of the pound are giving Britain a boost relative to other advanced countries.

Oh, and markets don’t seem to think Britain is insolvent, either. The CDS spread, which I noted was not too bad a month ago at 71, is now down to 50.
"
http://krugman.blogs.nytimes.com/2009/08/05/bouncing-britain/

JG said...

I like how Boudreaux references his source data not from official budget data from the UK government but from some blog hosted by a guy with a G-Mail account who doesn't bother to reference his tables back to any supporting data. I'm sure that info has been diligently fact checked.

In any case, while Boudreaux is citing random bloggers Krugman was citing IMF research that supports his position that austerity is actually harmful to economic growth.

So Anderson, instead of your usual jealous sniping at Krugman why don't you bother to address the issue of austerity causing economic contraction.

Anonymous said...

2009 was pre-Cameron. He rolled into office in 2010, raised taxes and cut spending. If the complaint was that Cameron's austerity hurt Britain than how they were doing in 2009 is only relevant if it was better than in 2010-2011. By all objective measures, Britain was doing better in 2009.

Bala said...

"So Anderson, instead of your usual jealous sniping at Krugman why don't you bother to address the issue of austerity causing economic contraction."

And why don't you address the fundamental Austrian point that economic contraction caused by the revelation of massive malinvestment is not a problem in the first place, especially not using tools that caused the previous massive malinvestment whose effects you are trying to address?

JG said...

"And why don't you address the fundamental Austrian point that economic contraction caused by the revelation of massive malinvestment is not a problem in the first place..."

I'll gladly address that issue after you address mine. Explain to me why anyone should embrace austerity when the economy is already in a weakened state.

Bala said...

"I'll gladly address that issue after you address mine. Explain to me why anyone should embrace austerity when the economy is already in a weakened state."

Your question has too many weasel words. First, define the term "austerity" clearly. Second, what is the meaning of "weakened state". Also explain why it is in a so-called "weakened state". What is the connection of "austerity" as you define it to the state of the economy? Why will the non-practise of "austerity" bring the economy to a "less weakened state"?

macroman said...

Anderson, if you are going to use the household analogy, I think Krugman,s position is something like this: I lose my job and can,t afford many payments now due. It also happens in these strange times that many people are willing to lend to me at zero interest rate (true for the government, so lets assume it is true for us, since you think the household is a good analogy for the government). I can refuse the loans, sell my car and my clothes, skip haircuts etc so I have little chance of finding a new job and sink deeper in the spiraling mess. Or I can take the easy money, look decent, drive some distance to find job, or maybe, even more risky on the surface, take a year off training for a new job, while living on borrowed money. Krugman I think is advocating the second choice. He thinks the austerity measures actually decrease GDP, because resources are left idle. So I think you char activation of his argument via your household analogy is flawed.

Joseph Fetz said...

Macroman,

Does this borrowing of new money have any positive impact upon real balances in the aggregate?

Tel said...

The word "austerity" means exactly nothing unless you can explain who exactly is undergoing "austerity". However, on the basis that we are talking about government spending, here is UK government spending as percent of GDP:

2007 38.9%
2008 39.7%
2009 44.5%
2010 45.4%
2011 44.8%
2012 43.9% (est)
2013 42.6% (est)

So clearly government spending is trending UP, not DOWN (both in absolute numbers and as a percent of GDP). Needless to say, someone in the UK (possibly someone yet to be born) must suffer "austerity" to repay this excessive government spending. I don't know exactly who this might be.

http://www.ukpublicspending.co.uk

macroman said...

Tel, Taxes may be paying for this spending now. I think you have to look at debt, not spending, when you think of the repayments in the future.

Every generation in my lifetime seems to be richer than the past generation, wonder of capitalism. If this continues won,t the future even richer generation find this debt rather easy to pay off, just as the US rather easily paid off a post war debt of 120% of GDP? I seem to recall seeing David Hume writings about the unpayabilty of government debt, and he wrote before the napoleonic wars (and of course he never imagined such a thing as an income tax)

macroman said...

Tel, is spending as percentage of GDP increasing because GDP is falling? Maybe the Keynesian "automatic stabilizers" will do some small something to arrest the downward spiral, because the government will find it hard to weasel out of paying the unemployment benefits it promised (an implicit contract) But isnt it at least possible that setting the unemployed to work on public projects is a better option.

Tel said...

If you follow the link I provided, you pretty quickly see that GDP has been hovering around 1.5 trillion pounds, perhaps creeping up a fraction (although it is PREDICTED to go up a lot, if you believe the estimates).

Total UK govt debt is going up steadily (they have run a deficit almost every year for decades), and total deficit is also going up in absolute terms (thus government debt is actually accelerating). The site shows charts going back before 1700, and some notes on the various wars that helped waste the money. The peak UK government debt was 237% of GDP at the Battle of Waterloo. Then again, they had an empire to sustain it back then.

Tel said...

"It also happens in these strange times that many people are willing to lend to me at zero interest rate (true for the government, so lets assume it is true for us, since you think the household is a good analogy for the government)."

It's not true for government, and never has been. If you are talking about the Fed, then strictly speaking the Fed is an arm of the US federal government, so all that happens is government borrows from itself and owes to itself (and goes through the charade of paying interest to itself). Those interest rates are completely manipulated, they mean nothing.

The USA has been borrowing against it's position as a worldwide "reserve" currency, thus driving the US dollar down w.r.t. all resource based currencies (hence higher resource prices in the USA). To some extent the USA has also been borrowing against the Chinese currency peg... as the US prints money, China slurps up the inflation by pegging itself to the sinking ship. This cannot continue.

macroman said...

I thought the interest rate on treasury bonds indicated the rate at which the government could borrow. It sells the bonds on the open market doesn't it? I thought that meant it is borrowing at a very cheap rate.

Re the FED, are there no private holders of treasury bonds? The FED has all of most of the outstanding bonds? How are bonds issued by ford motor corporation or other private borrowers going? What percentage of borrowing is by the US treasury, and what percebpntage is private borrowing, like by FMC or whatever?

macroman said...

TEl uk debt. Thanks for the link to UK debt as Percentage of GDP. Very reassuring that it is so low compared to debts in the past. I think the advance of wealth thru the capitalist miracle may see the the Brits thru the present minor crisis (minor according to these charts). Rather Panglossian of me I suppose, but I have some confidence in the economic system.

Joseph Fetz said...

Macroman,

Since you ignored my first question, I'll ask another. Has there ever been an instance where this "downward spiral" has ensued without a preceding expansion of money and credit? And, what were the results when such "downward spiral" was allowed to play itself out as opposed to a substantially increased expansion of money and credit (aka stimulus)?

Joseph Fetz said...

BTW, I am familiar with Daniel Kuehn's paper in the CJE on the 1920-1921 depression, as well as the faults and inconsistencies in his paper (HT Bob Murphy).

macroman said...

Joseph fez: I think you may find answers to your questions on Krugman,s blogs. Krugman can argue his position for himself. I was only interested in what seemed to me a misrepresentation of Krugman,s argument by Anderson,s household analogy.

Joseph Fetz said...

I was specifically asking you, not Krugman. You mentioned a deflationary "downward spiral", I am asking you to back it up with some substance. If you can't, say so. If you can, do so.

I certainly don't speak for Bill or anybody else, I speak for myself and defend my positions. If you want to bring up particular issues, then back them up-- defend your position.

Joseph Fetz said...

Otherwise, you're just pissing into the wind and wasting everybody's time with your commentary.

Joseph Fetz said...

Once again I will ask, in response to your comment on Jan. 31st @ 0210,

Does this borrowing of new money have any positive impact upon real balances in the aggregate?

If you cannot answer this most elementary of questions, then it is clear that you're not in a position to make proclamations regarding economics.

macroman said...

I hear your lecture and instructions but i think I have made my position clear and have no comment. If you want to tell me why Krugman is wrong or my characterization of his argument is not a good characterization of his argument, feel free.

Joseph Fetz said...

So, you readily admit that you're a puppet and cannot form an opinion of your own. Instead of answering direct questions regarding words that you indeed said, you say (paraphrase) "I've stated my case and I will refer you to my hero Krugman".

That's essentially all that I needed to hear. You're a fanboy, nothing else.

I've certainly wasted more than enough time speaking to an empty shell, it seems.

macroman said...

So I take it my characteristaion of Krugman,s argument is correct according to you, since you didn,t tell me different. And if so I think it shows why Anderson,s characteristaion was wrong. I came hear to learn why Krugman is wrong in what he says, not what Anderson imagines he said. You may well know more than me and know exactly why Krugman is wrong, so let,s hear it. I am actually open minded about it.

I guess I can say i also came because I found it very strange that a entire site was devoted to critisizing a single academic economist, especially when the owner Anderson was an academic of sorts and seems to willfully misrepresent his target,s arguments. Wasn't,t what I expected of academia.

William L. Anderson said...

The point the Keynesians make is this: economic contractions are endogenous to a market economy, and government action is exogenous. In this view, government rides in to the rescue when capitalism implodes due to its "internal contradictions."

However, what if government through its policies of easy money, promotion of malinvestments, and its policies of diverting resources from ends that are economically feasible to those ends that are politically driven? If that is the case, then government is a cause, not a solution.

The dissenters on this board simply cannot conceive of government being anything but the Great Wise Eye In The Sky that knows all and immediately can direct resources to where they are needed. So, given that point, there is nothing to argue. It is not as though they can see government as being any cause of the trouble at all. Government only can be a solution, as long as it spends.

That such a view requires that the Law of Scarcity and the Law of Opportunity Cost be suspended does not faze them in the least. So, in the end, they are not arguing economics, but rather metaphysics.

Lord Keynes said...

"The dissenters on this board simply cannot conceive of government being anything but the Great Wise Eye In The Sky that knows all and immediately can direct resources to where they are needed."

That is straw man rubbish.

It would be like me saying: "Austrians on this board simply cannot conceive of private enterprise being anything but the Great Wise Eye In The Sky that knows all and immediately can direct resources to where they are needed."

Government does not know everything, nor does it need to.

Take take one example: A government can merely cut taxes, run a deficit, and stimulate the economy back into growth during a recession. The extra money is spent in whatever way the people who have got the tax cuts wish: they purchase whatever commodities they like. The capitalists can engage in whatever investment spending they like. The government does not need any “superior knowledge” of consumer preferences or what are future profitable investments, because it is not telling what to consume or capitalists what to invest in.

The only objection Austrians would have to this is to scream "taxes are theft!" or appeal to an idiotic business cycle theory that was discredited back in the 1930s.

Bala said...

"an idiotic business cycle theory that was discredited back in the 1930s."

I have done enough to show that the only idiots are you and Sraffa.

"The only objection Austrians would have to this is to scream "taxes are theft!" "

No. Austrians also say that government spending is fundamentally a bad idea because all government spending is politically driven and not economically driven.

Bala said...

"A government can merely cut taxes, run a deficit, and stimulate the economy back into growth during a recession."

And what, may I ask, is the theoretical backing for such an expansive (and obviously stupid) claim?

macroman said...

I thought it was a axiom on his page that tax is money badly spent, wastefully spent. Does it not follow that cutting taxes, leaving more in the hands of consumers makes everything better, an increase in GDP? Now Bala seems to disputing this, so "taxes bad" may be in dispute?

Bala said...

Hey strawman,

Like every other Statist buffoon, you too have shown that you cannot read. A, B and C means that all 3 of them are true. Try being something other than an empty shell.

macroman said...

I keep hearing about government being responsible for malinvestment and the business cycle. I think you will find in Hayek,s PricEs and production, that he regards the business cycle as endogenous a monetary effect, brought about by banks expanding the money supply - there was nothing about the central bank doing it, as I remember, it was consider a natural thing for banks to do. Banks were an invention of the free market, weren't,t they?

Sauros said...

While there are other connotations to "austerity," surely the most tangible meaning is found in a return to crushing Dickensian poverty for the imbecilic masses, who squandered whatever prosperity and upward mobility they ever had in pursuit of gadgetry and other forms of escapism-as-self-medication. Considering how miserably meaningless their workaday lives are, one can scarcely blame the blighters.

Bala said...

" Banks were an invention of the free market, weren't,t they?"

Fractional reserve banking wouldn't have survived without governmental intervention, would it? And central banks, while not mentioned in Price & Production, are the heart of the credit money machine called the banking system, aren't they? Try this

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

It is possible the even your eyes might open.

macroman said...

How do you know if frb would have survived without central banks or not? And whether if they did not survive wether economic growth, prosperity would have been greater or less? I will read your thing on the mises institute when you show some evidence of reading popper. I stopped reading mises when I got to his ideas about empiricism, but I suppose I could try again if I must.

macroman said...

Peels banking act of 1844 tried to prevent FRB in effect, but the market switched fom loans in the form of notes which by law required backing by gold, to loans in the form of cheque accounts. This suggests at least that the market does want this, and does keep reinventing it, regardless of whether it is stable in the long run or not.

Bala said...

Because fractional reserve banks would have been run down by bank runs but for innumerable government promulgated suspensions of their obligations to redeem notes and deposits in specie since 1815. If they would have survived, why governmental intervention in the free market through a refusal to legitimately force frb's to meet contractual obligations to redeem notes and deposits in specie?

You asked a question and I told you where the detailed answer can be found. Read if you wish to know. And Popper's writing is pretty funny. He has the same concept-concrete confusion that you have.

Lord Keynes said...

"Fractional reserve banking wouldn't have survived without governmental intervention,"

That is nonsense.

(1) If you mean governments allowed suspension of specie sometimes, while that is true, many times governments have legislated to stop banks from inserting "option clauses" in their demand deposit contracts allowing them suspend specie payments for a temporary period.

(2) The so-called “option clause” (to suspend specie payments temporarily) was used freely in private FR banking contacts in Scotland from 1730-1765; Sweden from 1864-1903 and Canada during the 19th century (Selgin, Bank Deregulation and Monetary order, p. 247). The banks required no government support or intervention to allow them to suspend specie payment in liquidity crises, to stop runs and bank collapses.

The option and discretion in a bank's FR contract, that in some circumstances they will exercise their right to suspend payments temporarily until they can obtain the liquidity they need for meeting their obligations is perfectly possible and a successful example of free contact: you don’t need the “wicked” or “evil” government to enforce temporary suspensions of specie payment in such a case:

“Historically, bankers have developed innovative contracts to attenuate the likelihood of panic runs. One example is the ‘option clause’ that came to be a standard provision in private bank notes circulating in Scotland during its 18th ‘free banking’ era ...

The option clause gave the bank directors the right to suspend specie payment for up to six months, but the bank then promised to pay a high rate of interest on the notes during the period of suspension. This clause allowed the banks to stop "panic" runs and to have more time to adjust to negative-liquidity shocks ...”


http://books.google.com.au/books?id=mAHsmzdUbsIC&pg=PA30&dq=%22Historically+bankers+have+developed+innovative+contracts+to+%22&hl=en&ei=hR-GToGVPJOeiQeK5bG1Dw&sa=X&oi=book_result&ct=result&resnum=1&ved=0CC0Q6AEwAA#v=onepage&q=%22Historically%20bankers%20have%20developed%20innovative%20contracts%20to%20%22&f=false

If that “option clause” was in your contract and the bank decides to suspend for a temporary period, that isn't fraud - it is free contract.

JG said...

Bala,

"Your question has too many weasel words. First, define the term "austerity" clearly..."

Stop evading my question. I asked you how austerity during an economic contraction could be seen as anything but a catastrophe. Are you going to answer this question or not?

Lord Keynes said...

"Because fractional reserve banks would have been run down by bank runs but for innumerable government promulgated suspensions of their obligations to redeem notes and deposits in specie since 1815. "

Just another example of gross Rothbardian ignorance and rewriting of history:

http://socialdemocracy21stcentury.blogspot.com.au/2012/01/fractional-reserve-banking-option.html

Bala said...

"Stop evading my question. I asked you how austerity during an economic contraction could be seen as anything but a catastrophe. Are you going to answer this question or not?"

This is hilarious. You refuse to define "austerity" clearly and want me to give an entire explanation of the effects of austerity. It is impossible to discuss unless the terms of reference are clearly specified.

In any case, the answer is simple. The economic contraction is not a problem in the first place and is not THE problem in this instance. So, if austerity (whatever you mean by that) causes an economic contraction, It cannot be considered a disaster since only what is primarily a problem can be considered a disaster.

macroman said...

Rina, how do you account for banks in the US before 1913? Isn't that an example of FRB without a central bank?

Bala said...

Yeah! Bankers could have done it, but then why the suspensions?

Bala said...

"Rina, how do you account for banks in the US before 1913? Isn't that an example of FRB without a central bank?"

Hey strawman - Who said FRB is impossible without a central bank? More strawmen, I guess.

macroman said...

I thought you said FRB is impossible without a central bank. My mistake I guess. My point is that the market keeps inventing it, even if it is unstable, it is an invention of the market. Governments try to control or moderate it. You might say it is useful despite its instability, probably schumpeter thinks something like that.

Bala said...

"I thought you said FRB is impossible without a central bank. My mistake I guess."

Your mistake as usual. Trying to create strawmen by mixing my words from different sentences together to mean what you want my words to mean.

" it is an invention of the market"

Nourished and brought to its present state with governmental support.

Bala said...

"that in some circumstances"

And what were those circumstances permitted by the option clauses?

JG said...

Bala,

a) You're a big boy, I'm sure you know what "austerity" means. And if you don't then pick up a dictionary and look it up.

b) I didn't ask you if austerity causes economic conractions. I asked you why should an economy that is already contracting embrace austerity. This is relevant because it goes to the heart of Krugman's column from the other day, the column that Anderson is attacking without bothering to explain why.

So I'll ask you a third time, should a contracting economy (like Europe) or one that is barely avoiding recession (like the US) embrace a government spending agenda of austerity?

macroman said...

Has anyone read the contract, conditions, one accepts when opening a bank account? I haven,t, but I guess the banks cover themselves about suspending payment in certain circumstances. The common law legal position, established by court cases in the 1800s i think, is that when you deposit in a bank you make a loan to the bank. The bank promises to repay the loan under certain conditions, what exactly are those conditions and should the state have any say in what conditions the banks can set?

Bala said...

"should a contracting economy (like Europe) or one that is barely avoiding recession (like the US) embrace a government spending agenda of austerity?"

I have already answered this. Maybe you should read before you shoot. I said this

"In any case, the answer is simple. The economic contraction is not a problem in the first place and is not THE problem in this instance. So, if austerity (whatever you mean by that) causes an economic contraction, It cannot be considered a disaster since only what is primarily a problem can be considered a disaster."

This also means that if "austerity" is the way to solving real economic problems, then "austerity" must be employed. I mean REAL "austerity" or living within your means. And for government, that means NOT SPENDING AT ALL. Money obtained by coercion does not count among "your means".

Bala said...

"So I'll ask you a third time, should a contracting economy (like Europe) or one that is barely avoiding recession (like the US) embrace a government spending agenda of austerity?"

Yes, because a contracting economy is not a problem for government to solve by spending and spending more.

macroman said...

Bala, you may not believe this, but I am not trying to win in a game with you. I am interested in finding out various ideas about the banking system and what would happen and what did happen. So try to advance the discussion please, instead of keeping score.

Bala said...

" in certain circumstances"

What circumstances? I am talking of banking in the early 1800's.

Bala said...

"You're a big boy, I'm sure you know what "austerity" means."

Oh!!! I do know that. It means living well below your means. In the case of government, that should mean not spending at all since government has no means that it does not obtain through voluntary exchange (and cannot hence be considered means) on the free market.

The problem is that you are misusing and bastardising the concept "austerity" by using it to refer to overspending less than one used to. That's exactly what I am objecting to.

Bala said...

"Bala, you may not believe this, but I am not trying to win in a game with you.

Hey strawman! You may not believe this, but I am not trying to win in a game with you. I am just trying to be certain what you are talking of. As of now, it is completely unclear. All I can see is a dull haze.

Bala said...

"has no means that it does not obtain through voluntary exchange (and cannot hence be considered means) on the free market."

Oops. Should read as

"has no means that it obtains through voluntary exchange (what it spends cannot hence be considered means) on the free market.

JG said...

"Yes, because a contracting economy is not a problem for government to solve by spending and spending more."

Nobody is asking the government to solve anything. We're only asking that you don't make things worse by choosing a moment of economic vulnerability to be the time when you insist on balancing budgets. There is a time a place for everything and the time for austerity was when unemployment was at 4%, not when it's at 9%.

Keynes knew that the time for government fiscal restraint and austerity was when the private sector was strong and could absorb a cut to aggregate demand without demobilizing millions of workers and impairing the human capital they represent. Fools like Treasury Secretary Mellon embraced foolish ideas like choosing a Depression as the moment to balance the budget and the result of his sanctimonious idiocy was to aggravate and extend the Depression. So why are you and Anderson recycling the same bad ideas that Mellon was acting on 80 years ago?

Bala said...

"Nobody is asking the government to solve anything. We're only asking that you don't make things worse by choosing a moment of economic vulnerability to be the time when you insist on balancing budgets."

For things to become "worse", the present situation should be bad, i.e., undesirable and the hypothetical potential situation even more undesirable. However, as I said, an economic contraction can by no means be considered undesirable, especially since it is a reflection of the desires of the very people who demonstrate their desires by their spending decisions.

"There is a time a place for everything and the time for austerity was when unemployment was at 4%, not when it's at 9%. "

Nonsense. The right time for "austerity", i.e., zero government spending, is ALL THE TIME. Any government spending at any point in time is violent intervention in the economy or made possible by violent intervention in the economy. In either case, there is a certain loss of utility for the victims and an uncertain gain in utility to the recipients of the government's actions, a gain that cannot be compared with the loss of the losers because utility is ordinal and subjective, i.e., not amenable to interpersonal comparison.

"So why are you and Anderson recycling the same bad ideas that Mellon was acting on 80 years ago?"

Nonsense. We are just reminding the fools that constitute the establishment and all those like you who have been fooled by them that Keynes spewed garbage in the name of economic theory and that a return to sound economic theory is all the more critical today. We are just saying that the fundamental point that government spending is necessarily economically detrimental has not changed the least bit and that Keynes has done and said nothing to refute this.

Bala said...

"We are just reminding......nothing to refute this."

We are also pointing out that Krugman is just repackaging all of Keynes' fallacious notions for consumption by the present generation. We are doing the service of preserving the voice of sanity in the midst of the dominant whatever-Keynesian insanity.

Bala said...

Once again..... Economic contraction is not undesirable. What is undesirable is the meddling by government in an attempt to fight the contraction, meddling that is certain to create the next and bigger phase of the boom-bust cycle which in turn is sure to heap even more misery on people.

Bala said...

"Nobody is asking the government to solve anything."

That's a lie as blatant as blatant can be. Anyone who is calling the present situation as a problem and is calling for the abandonment of austerity is calling for government action aimed at solving the problem that the present situation is.

"We're only asking that you don't make things worse by choosing a moment of economic vulnerability to be the time when you insist on balancing budgets."

And we're only asking you not to make things worse (meaning "Do not prevent the market from cleaning up the past malinvestments") by meddling through government spending.

Bala said...

Prof. Anderson,

This is to express a grouse I have with the entire community of Austrian economists. In many a situation, I think Austrian economists allow Krugman and his whatever-Keynesian ilk to get away with the mauling of words in the English language, thus allowing them to peddle their anti-concepts to a gullible lay-public. This issue of "austerity" is a prime example. Why are leading Austrian economists not calling the whatever-Keynesian bluff and coming out in the open to say that real "austerity" is ZERO government spending and that what is happening today is profligacy, not "austerity"?. I am afraid this soft-pedalling is allowing the smuggling into economics of anti-concepts that will eventually destroy important economic concepts.

There are others, such as any talk of "measuring" economic "growth", but I'll take that up on another day. I believe that the right approach is to take them head-on and make people aware of the utter dishonesty of the whatever-Keynesian.

Tel said...

"Has anyone read the contract, conditions, one accepts when opening a bank account? I haven,t, but I guess the banks cover themselves about suspending payment in certain circumstances."

I dunno about the USA but in Australia the terms are three days. This is set by the central bank and is part of the government domination of the banking industry. However, the central bank can bend these rules if it sees a need, so if a bank can't pay you your savings then in three days it MIGHT be declared insolvent if the central bank feels like it, or something else might happen.

I believe there are some elements that still sit outside the central banking system such as Jewish private banking, and also Islamic banking... but these are "invite only" arrangements, and I can't provide details of what the terms are. Someone explained Islamic banking to me once and how they don't charge interest (but they do make money with fees and stuff). Since religion and community are part of those systems, I'd argue that properly understanding the terms requires a suitable background.

Anyhow, there's nothing wrong with multiple banking systems existing in parallel, fulfilling niche markets. I'd argue that's a more natural outcome. Sure, some people are willing to take on more risk than others. The "one size fits all" approach that government finds attractive is the primary reason it fails so often.

macroman said...

Tel, I think LK has given important info concerning this (I should have read it before I a my question). He says and it sounds plausible that banks have indeed written contrActs to allow redemption suspension, but governments have disallowed them.

macroman said...

Why are austrian economists not saying that the real austerity is zero government spending?

Probably because they want to retain some element of academic credibility

Bala said...

"Probably because they want to retain some element of academic credibility"

Ha! Ha! Ha! Fool yourself all you want. Actually, sometimes it takes the innocent courage of a child to say that the emperor has no clothes.

Major_Freedom said...

LK:

"Take take one example: A government can merely cut taxes, run a deficit, and stimulate the economy back into growth during a recession. The extra money is spent in whatever way the people who have got the tax cuts wish: they purchase whatever commodities they like. The capitalists can engage in whatever investment spending they like. The government does not need any “superior knowledge” of consumer preferences or what are future profitable investments, because it is not telling what to consume or capitalists what to invest in."

That is managing the economy's spending. Capitalists cannot engage in whatever investment spending they like, because they are taxed in order for the government to spend what they spend.

Also, the Keynesians also advocate for central banks to lower the rate of interest and expand credit. That is managing the economy's interest rates and the loan market.

Investors are not able to know what the true rates of time preferences prevail in the economy when that happens, and they become misled.

You're up the creek without a paddle.

Major_Freedom said...

JG:

"Nobody is asking the government to solve anything."

You are lying.

Major_Freedom said...

LK:

"Because fractional reserve banks would have been run down by bank runs but for innumerable government promulgated suspensions of their obligations to redeem notes and deposits in specie since 1815."

"Just another example of gross Rothbardian ignorance and rewriting of history:"

"http://socialdemocracy21stcentury.blogspot.com.au/2012/01/fractional-reserve-banking-option.html"

That blog post is full of ignorance and rewriting of history.

Major_Freedom said...

LK:

Anderson: "The dissenters on this board simply cannot conceive of government being anything but the Great Wise Eye In The Sky that knows all and immediately can direct resources to where they are needed."

"That is straw man rubbish."

No, it is exactly accurate. No other conclusion can possibly come from the Keynesian position that markets are inherently unstable and that governments are solvers of stability.

"It would be like me saying: "Austrians on this board simply cannot conceive of private enterprise being anything but the Great Wise Eye In The Sky that knows all and immediately can direct resources to where they are needed."

LOL, no, because we aren't saying the market process is infallible. You are saying (a Keynesian) government is infallible.

"Government does not know everything, nor does it need to."

The point is that the government knows LESS than people in the market, when it comes to the values, abilities, knowledge, and preferences of those in the market. The only way the government can help those in the market is by letting them solve their own problems utilizing their own private property, and not be hampered by government taxation, spending, and other things designed to "stimulate."

Only individuals can "stimulate" their economic situation. Taxing and borrowing and spending can only divert resources from economic ends, to political ends.

"The only objection Austrians would have to this is to scream "taxes are theft!"

No, that would be the libertarian answer, and is justified, because taxes are theft since they are acquired at the threat of violence.

"or appeal to an idiotic business cycle theory that was discredited back in the 1930s."

LOL, "discredited" by those whose criticisms were weak, or completely fallacious. ABCT wasn't refuted in the 1930s, and it hasn't been refuted since then either.

It is precisely Keynesianism that has been thoroughly refuted. See Henry Hazlitt's "The Failure of the New Economics", Rothbard's "Man, Economy and State", and Reisman's "Capitalism".

Major_Freedom said...

macroman:

"Why are austrian economists not saying that the real austerity is zero government spending?"

They are. See 99% of the scholars at the Mises Institute, the many more who are employed in universities and think tanks across the country, who are anarchists.

"Probably because they want to retain some element of academic credibility."

I think you've conflated political credibility with academic credibility.

ekeyra said...

I would think most austrians scholars retain more academic credibility than a guy who randomly capitalizes letters in the middle of a word.

Bob Roddis said...

LK still doesn't get the concept of economic calculation or the fact the best economic information available comes from unadulterated prices. Or that his schemes distort those prices and economic calculation. Or that the economic actors themselves have the best knowledge. His entire scam is based upon some nonsense that free societies MUST and ALWAYS DO run off the track JUST CUZ* and that this can all be fixed with funny money and unpayable debt JUST CUZ, since he admits that government does not have superior knowledge AND DOES NOT NEED IT.

I think we are approaching the burned out core of the Keynesian "thought process".

*The so-called nonergodic stochastic system

Eric said...

Its probably too late to mention this after the huge wank fest laid out above, but I wanted to point out Don Bordeux's critique of Krugman's post is terrible. He basically says that Britain has not enacted austerity measures because their deficit has continued to increase, which is just lying with numbers. The deficit increased in the UK in 2011 for 2 reasons. First, the high unemployment rate lead to a drop in tax receipts. You can see this in their.3% GDP growth this past year. Secondly, the high unemployment rate kicked off a lot of automatic spending in unemployment insurance. In terms of discretionary spending, the UK has pursued a contractionary policy. If you want to critique Krugman, using budgetary numbers in a deceptive manner to question Krugman's basic points without touching his larger argument is not the way to do it. If you want to farm out this blog to others, you should at least use people who have some level of competence.

Bob Roddis said...

Eric:

A vibrant intellectual environment requires forceful argument, but also making a proper effort to understand your opponent’s position, to not mischaracterise their views or deliberately present a weakened version of their argument – and to lay off ad hominem attacks. I’d submit that it is pretty much the definition of an honest argument that you provide your opponent’s best case and clearly show why you think it is wrong.

http://shewingthefly.com/2012/01/19/on-civility-and-the-purpose-of-the-blogosphere/

1. There simply is no example of any non-Austrian ever on this blog presenting the Austrian best case and then clearly showing why it is wrong. There is never any evidence that any anti-Austrians understand even the most basic Austrian concepts.

2. We understand "the gap". The entire Keynesian case is a crock and hoax. Government spending is bad economics.

http://mises.org/daily/5123/Government-Spending-Is-Bad-Economics

3. We've been over this 1,001 times before. We've simply come to the point of our jaws dropping [again] when Keynesians describe these huge deficits (which would only make matters even worse if they were as big as their proponents wish they were) as "austerity".

4. Definition of "austere"

1. Severe or stern in disposition or appearance; somber and grave: the austere figure of a Puritan minister.

2. Strict or severe in discipline; ascetic: a desert nomad's austere life. See Synonyms at severe.

3. Having no adornment or ornamentation; bare: an austere style.

There is nothing "austere" about these budgets where the technocratic overseers continue to blow money out their respective asses.

Bala said...

Eric,

The Austrian position as I understand it is simple. "austerity" for government means ZERO spending. As long as there is a deficit, there is spending and hence no justified claim may be made about "austerity" being practised. Hope this makes the point of this blog post clear. Pointing to declining taxes and "falling" expenditure does not address this fundamental point.

Bob Roddis said...

I don't like any use of the term "austerity" in the context of slashing government spending. Government spending causes poverty which then imposes an austere lifestyle (Greeks dumping their babies on the corner). 100% specie reserve banking, private property, low taxes and low spending will bring prosperity which will not require or impose an austere lifestyle.

The use of the term "austerity" is simply more Keynesian dissembling intended to confuse and obfuscate the truth and horror that is Keynesianism in practice.

Bala said...

Bob Roddis,

"Austerity" as used by the mainstream is the perfect example of Ayn Rand's concept of the "anti-concept". Its purpose - to destroy concepts.

JG said...

"...as I said, an economic contraction can by no means be considered undesirable..."

So, economic contractions (i.e. recessions/depressions) aren't necessarily undesireable things, eh? I suppose this makes sense, in a nihilistic, spiteful, Ayn Rand sort of way. Better to let the world burn then to allow the world to tax even one penny of what belongs to me.

Well, for those of us commoners who aren't living off trust funds and who are subject to the whims of the labor market, recessions and depressions are very undesireable and we won't be joining you in your support for austerity measures that will lead to more of them. We hope that you and John Galt understand our position and that you won't mind too much.

JG said...

Roddis,

"I don't like any use of the term "austerity" in the context of slashing government spending"

Why not? That's exactly what it is. Why do you need a euphemism for a concept that you cleary approve of?

JG said...

Bala,

"The right time for 'austerity', i.e., zero government spending, is ALL THE TIME."

Only if you want the future to look like the paradase that was the U.S. during the 1930's. Because that's exactly what you're proposing, a return to 1930's fiscal policy. It didn't work well for us then, it won't work today. But go ahead, keep lecturing me about how government spending is the worst form of injustice.

JG said...

Major Freedom,

"See 99% of the scholars at the Mises Institute, the many more who are employed in universities and think tanks across the country, who are anarchists."

Speaking of anarchists who work at universities, am I the only one who sees the irony in Anderson, the host of an Austrian blog, being employed by a state university? The man who gets his paycheck from the state runs a blog about how the government doesn't create jobs. The hypocricy is delightful.

JG said...

Damn my fat finger, I meant to type "hypocrisy".

Bala said...

Aahhhhhh! There you go conflating as per your whims and momentary convenience. I said "economic contractions are not undesirable". I also explained that they reflect people's voluntary decisions to spend less and hence are a reflection of the desires of the very people who constitute the market. To call them undesirable is a contradiction. Something can't be an expression of the desire of a person and undesirable to him at the same time.

Rather than understand this simple point, what do you do? Add a paranthesis that says (recessions and depressions). How much more shameless can whatever-Keynesian meddlers get? The problem is not the economic contraction per se but the prior economic boom. That boom is CAUSED by prior intervention. If you really want to "solve" the problem, stop meddling in the economy. Allow the free market to operate. Bring about REAL austerity. Stop the intervention in the market for money. That's how you go about abolishing the recessions and depressions you find so undesirable.

And what do you think caused the "paradise of the 1930's"? No prizes for guessing. Prior meddling with the system of money and non-stop meddling with the market's healing process. So, if you do not want a repeat of the 1930's, you should be calling for the austerity I am talking of - REAL austerity.

Bob Roddis said...

JG,

a. Since it's your Keynesianism that causes the boom/bust and poverty, you're the nihilist. Keynesianism’s purpose was and is the insidious destruction of private property, savings and sound money so that purchasing power might be stolen without due process of law and without the victims knowing what hit them. It leads to poverty, the destruction of society and chaos. As Daniel Kuehn’s recent paper on 1920 pointed out (inadvertently), the first world slaughterfest was funded by our new central bank, which caused the inflation which caused the depression of 1920.

ni·hil·ism
   
noun

1. total rejection of established laws and institutions.

b. Since we’re all stuck paying taxes up the wazoo, there’s nothing wrong with a citizen going to a state school or working for a state school.

c. I'm still holding my breath waiting for that anti-Austrian who is going to present the best Austrian case and then tell us what's wrong with it.

macroman said...

Roddis, what,s your view on what caused the business cycle in 19th C, USA?

Bob Roddis said...

Fractional reserve banking

http://mises.org/daily/3687

http://mises.org/resources/695

macroman said...

Ok, sounds plausible. 1 is FRB an invention of the free market? 2 What should be done bout it?

Bala said...

Let the market deal with it as it did in the 18th and 19th centuries - by having different banks' notes trading at different rates of discount, thus mitigating the distorting effect of FRB. More important than the banking system is a free market in money. The market can take care of FRB. It is intervention in the market for money that is at the heart of the problem. Let the market decide what will be money.

Bala said...

FRB cannot be considered a product of the free market because it is based on embezzlement. Embezzlement, being a form of fraud, has no place in the free market. It is a form of violent private intervention in the free market. Hence, FRB cannot be considered a product of the free market.

JG said...

Bala,

"Rather than understand this simple point, what do you do? Add a paranthesis that says (recessions and depressions). How much more shameless can whatever-Keynesian meddlers get?"

I love the way you hide behind semantics. Contraction, recession, depression, are you going to split hairs with me over what name we call the current economic slump that we've been in the past 4 years? The point is that when you take an economy that is suffering from too much capacity and too little demand and then you slash demand even more through austerity you actualy make things worse. Your argument appears to be "who cares, you shouldn't have gotten into the contraction/recession/whatever in the first place so now you can call go to hell". My position is that your position is insane and destructive and should avoided at any cost.

We tried it your way back in the 1930's and it was a horrible mistake then. Let's not let your pet ideology be the excuse that leads us down that goat path to misery again.

JG said...

Roddis,

"Since it's your Keynesianism that causes the boom/bust and poverty, you're the nihilist."

Ummmmm, no. Considering that Keynesian stimulus did not precede either the Great Depression or the Great Recession I don't see how that could possibly be true. Nice bit of fiction on your part but try again.

"Keynesianism’s purpose was and is the insidious destruction of private property, savings and sound money so that purchasing power might be stolen without due process of law..."

Only in the fevered imaginations of paranoid Libertarians and other economic Luddites.

Bala said...

"We tried it your way back in the 1930's and it was a horrible mistake then."

The Statist's favourite lie. In which period preceding or during the GD was government spending in any calendar zero? I would be very keen to know. And where do you Statists learn to lie so well through your teeth?

JG said...

Bala,

"More important than the banking system is a free market in money. The market can take care of FRB."

Right, just like the market handled the 2008 collapse of Lehman Brothers in such stride. The "free market in money" was so efficient in its allocation of resources that every large bank found itself either in near insolvency or with huge exposure to counterparties who were. Had it not been for the actions of the Fed/Treasury in 2008 there wouldn't any "free market in money" because there would be no suriving banks today.

macroman said...

JG, you must know by now it is pointless arguing with him. His system has never been tried in practice so you can never criticise how it worked in practice. An interesting question might be why has it never been tried in practice, except perhaps to be immediately modified. One runs into the same problem arguing with old style Marxists - any historic example is declared to be not true Marxism. Often "by definition" is thrown in somewhere.

JG said...

Bala,

"And what do you think caused the "paradise of the 1930's"? No prizes for guessing. Prior meddling with the system of money and non-stop meddling with the market's healing process"

So now your're a revisionist historian as well as an Ayn Rand disciple, eh? Why don't you tell me what meddling in the "market's healig process" caused the Depression? The guy who presided over the start of the Depression was Hoover, another austerity chamption who followed your script of balancing budgets in the face of a slump...and look how well that worked.

Bala said...

"The point is that when you take an economy that is suffering from too much capacity and too little demand"

I first ask the questions "Why is there so much excess capacity? Why is it that the entire class of entrepreneurs has made an erroneous estimation of demand simultaneously? I can understand it if some entrepreneurs
make erroneous forecasts, but all of them? What caused it?"

Then, economic theory tells me that prior intervention in the system of money and banking led to credit expansion beyond the available pool of real savings through suppression of the interest rate below what it would have been on an unhampered free market which in turn leads to inter-temporal discoordination that we call the depression.

Then I ask myself the question "Should all these businesses based on erroneous estimation of demand be allowed to fail or should demand be propped up through government spending money obtained by taking it away by force from some people?"

Economic theory tells me that the way of the free market is to punish poor entrepreneurship through the route of losses and that preventing this process from working by propping up demand will lead to further misallocation of scarce resources. Government spending being an example of the latter, economic theory tells me that it should not be pursued.

Hence, when you call for government spending to prop up demand in the middle of a recession, economic theory says you are calling for misery to be heaped on people.

Bala said...

"The guy who presided over the start of the Depression was Hoover, another austerity chamption who followed your script of balancing budgets in the face of a slump"

Was government spending in Hoover's period zero? Because if it wasn't, he couldn't have been practising th austerity I am talking of. Chalk up one more lie from the Statist buffoons.

Bala said...

"Right, just like the market handled the 2008 collapse of Lehman Brothers in such stride. The "free market in money" was so efficient in its allocation of resources that every large bank found itself either in near insolvency or with huge exposure to counterparties who were"

One more lie!!! A free market in money neither existed in 2008 nor caused the collapse of Lehman Brothers. You Statist buffoons just can't stop lying, can you?

JG said...

Macroman,

"JG, you must know by now it is pointless arguing with him."

Quite right. I have a sneaking feeling that Bala, American Patriot and probably a few other of the recurring regulars here are just aliases for Anderson. I suspect that he likes to play the role of the detached moderator and then he posts inflammatory language under these alter egos. All of his possible alter-egos seem to use the same rhetorical tactics and have identical talking points...very suspicious indeed.

JG said...

Bala,

"One more lie!!!..... You Statist buffoons just can't stop lying, can you?"

I must have hit a nerve with that one...lol. Settle down Anderson, er, I mean "Bala".

Bala said...

Once more all ye Statist buffoons - Balancing the government budget is NOT austerity. Any amount of government spending is profligacy. ZERO government spending is REAL austerity.

JG said...

Bala,

"Was government spending in Hoover's period zero? Because if it wasn't, he couldn't have been practising th austerity I am talking of. Chalk up one more lie from the Statist buffoons."

Austerity means slashing spending. Reducing to zero is when there is no more government, and if you want to see what that is like pay a visit to Somalia. I hear it's a wonderful place where there is no coercive government to demand taxes from you. It must be the paradise that you've been describing all along.

Bala said...

"Quite right. I have a sneaking feeling that Bala, American Patriot and probably a few other of the recurring regulars here are just aliases for Anderson."

The standard tactic of the Statist buffoon - When you sense that you are losing the argument, smear the opponent.

JG said...

Bala,

"ZERO government spending is REAL austerity."

Yeah! No government, no taxes, no regulation! That's the best possible way to live. Somalia is sounding more and more like John Galt's idea of heaven.

macroman said...

I was reading recently about something that might provide some sort of analogy with early development of governments in primitive conditions - The building of the Thai-Burma rAilway during the war. It turns out that many many more nominally free Malay laborers died that allied POWs, and amongst POW camps there seems a fair strong correlation between a high death rate and weak british army discipline in the camp. The Malay laborers were dumped in the middle of the jungle, basically to fend for themselves, build shelter, cook for themselves, as we're the POWs. The POWs already had in place a system of government, which organized the building of shelter, latrines and hospitals, taxes were imposed (POWS were paid a pittance by the Japanese, and some things could be brought from the Thai population) taxes support the hospitals and public works. I am not suggesting living under military discipline is ideal, but in those circumstances I would take it over anarchy.

JG said...

"When you sense that you are losing the argument, smear the opponent."

I'm hardly losing any argument. And as far as smearing Anderson goes, it's a valid suspicion based on patterns I've noticed in your dialogue. I see A LOT of similarities between you, Major Freedom and Anderson in the way you argue and in your talking points. Just sayin'....

Bala said...

"Austerity means slashing spending."

To ordinary people like me, austerity means living way below my means. You are bastardising and bowdlerising the English language when you say reducing spending is austerity. And government's real means are zero unless you count the coercive expropriation called tax in government's means. Since it is erroneous to do that, I see no logical option except to say that Zero spending is real austerity coming from government. And if that means no government, so be it. So who's scared at the very thought of no government? No prizes for guessing - the Statist buffoon.

JG said...

Macroman,

You're wasting your time. You're not arguing with someone who is dealing in good faith. You're arguing with an ideologue who will never change his beliefs no matter how many facts or logical arguments you present him with.

Bala said...

"I'm hardly losing any argument."

I wouldn't have guessed that going by how much you are lying. And this is not smear. I have clearly identified your lies and explained why they are lies.

JG said...

Good night Bala. I have to get some sleep so I can go to my private sector job tomorrow. Not all of us can land cushy teaching gigs at state funded universities.

Good night.

Bala said...

" You're arguing with an ideologue who will never change his beliefs no matter how many facts or logical arguments you present him with."

Show 1, just 1 logical argument you presented. All there is in this thread is a mass of fallacies and lies.

Bala said...

"Yeah! No government, no taxes, no regulation! That's the best possible way to live."

So far so good. But how did you come from there to this?

"Somalia is sounding more and more like John Galt's idea of heaven."

Typical Statist buffoonery.

macroman said...

JG, yes I don't argue with Bala, that is pointless. (define "pointless"). Was trying to discuss something with Roddis, who may be more sensible, but we will see.

Bala said...

Yes strawman. You can only talk to people who are ready to accept your ill-defined and erroneously defined terms. That's why you manage to confuse them and create the illusion of having won the argument.

So what's the definition of the concept "metre" now? Is it the same as it was a day ago or has it changed because it is now better for you that it be half of what it was yesterday?

Bala said...

"sensible"

Yes. Define "sensible". I guess it means "ready to use ill-defined terms in a discussion so that at any moment of my choosing, I can define it as I wish and claim victory". Good approach and good definition.

Lord Keynes said...

"Since it's your Keynesianism that causes the boom/bust and poverty, you're the nihilist."

LOL.. Whereas the insanity of Hayekian liquidationism is ... constructive and non-nihilist?

Tell us another fable.

Bala said...

"LOL.. Whereas the insanity of Hayekian liquidationism is ... constructive and non-nihilist?"

Yes. It is the way of the free market. The punishment of "loss" to poor entrepreneurship is the way the free market culls out bad decision makers.

"Tell us another fable."

You tell us the story of Keynesianism. That would be the real fairy tale.

macroman said...

It is difficult to untangle when arguments on his blog are about facts, or about morals. Maybe this question would clarify. Suppose, that's IF, it were known Keynesian economics or neo-classical economics was correct wherever it contradicted Austrian economics would the moral argument trump that? If Austrians had to choose between their version of freedom and greater prosperity for everyone, and greater prosperity required some non-austrian policies, which would the austrians choose?

macroman said...

And special prize to the first one to say "false" dichotomy.

Bala said...

"If Austrians had to choose between their version of freedom and greater prosperity for everyone, and greater prosperity required some non-austrian policies, which would the austrians choose?"

Meaningless hypothetical because it is already known that the term "Keynesian economics" is an oxymoron and "Neo-classical economics" is fundamentally, fatally flawed. It would be wise to stop fooling around with silly hypotheticals. Further, you need to understand that the arguments are not about morals but about theory based on solid axioms and equally solid reasoning. That you do not understand them is only a reflection of your failing. Correcting it is entirely in your hands.

The correctness of Austrian Economics is only further demonstration of one of Ayn Rand's most fundamental observations - If one carefully defines what is moral, one will find that the moral is the practical and vice versa. To claim otherwise requires one to distort the meaning of at least one of the two concepts, morality and practicality.

macroman said...

Since nobody answered my moral/fact clarifying question, perhaps I can make it simpler. Suppose it were a fact that having a government supply fresh water and the sewage system in your average city reduced the death rate, compared to keeping the government out of the water supply and sewage services business. Just suppose a government monopoly or a government regulated private monopoly was actually more efficient and saved more lives than a pure free market system, and that 99% of the populace prefered this. Which would the commuted Austrian Economist choose?

Bala said...

"Just suppose a government monopoly or a government regulated private monopoly was actually more efficient and saved more lives than a pure free market system,"

Idiotic hypothetical that flies in the face of basic economic reasoning. First demonstrate how a government monopoly or a government regulated monopoly can be more efficient. Define "efficiency" first and then "monopoly". Explain the reasoning you would use to demonstrate "efficiency" of the "monopoly". If by that time you realise that since government is not subject to the profit-loss mechanism of the market and hence that only a certified fool would claim that a government monopoly or a government regulated "monopoly" is more "efficient" , good for you.

macroman said...

Commited, obviously, not commuted.

macroman said...

Still no answer, I guess everyone is asleep. Just in case the question is too difficult to understand, change it to -

Is there ANY conceivable set of facts that could change the mind of the committed Austrain economists on this page?

This is a commonly asked question in science, to check if we are dealing with empirical science or metaphysics. I guess from my reading of Von mises (and the discussions on this page), that no conceivable set of facts can refute Austrian economics, but I may have misunderstood.

Bala said...

"Is there ANY conceivable set of facts that could change the mind of the committed Austrain economists on this page?"

Since Austrian economic theory uses deductive reasoning starting from axiomatic premises to identify the laws of economics, all you have to do is to demonstrate either the premises to be false or the reasoning to be flawed. Give it a shot.

ekeyra said...

JG, Macro,

You two are the best comedians yet. Lets go to tape:

"Right, just like the market handled the 2008 collapse of Lehman Brothers in such stride. The "free market in money" was so efficient in its allocation of resources that every large bank found itself either in near insolvency or with huge exposure to counterparties who were."

Hmmmm there must be an austrian handy to tell you that there was no such "free market in money" during the 2008 crash.

Macro what do you think?

"JG, you must know by now it is pointless arguing with him. His system has never been tried in practice so you can never criticise how it worked in practice."

Hmmmmm I dont know if I agree with never been tried (I havent done my history homework. I hear things about iceland, and english common law), but id certainly agree it was not in practice in america in 2008.

Well, since we've identified that the free market was framed since it had an alibi via not existing, well then whodunnit?

"An interesting question might be why has it never been tried in practice, except perhaps to be immediately modified."

An even better one would be why are you convinced government intervention in the free market is desperately needed to ward off a threat you admit the free market had no part in creating?

An even better one is why are you patting someone on the back who is fundamentally at odds with your assertions? He believes the free market is to blame and must be restrained or resuscitated as needed,and you believe the free market was never there to cause the undesireable "economic contractions" that JG would lay at its feet. It would seem you contradict each other even while attempting to epouse the same doctrine.

"I see A LOT of similarities between you, Major Freedom and Anderson in the way you argue and in your talking points. Just sayin'...."

That trend would probably be consistent principles and coherent concepts. I could see why these would be foreign to you.

ekeyra said...

"If Austrians had to choose between their version of freedom and greater prosperity for everyone, and greater prosperity required some non-austrian policies, which would the austrians choose?"

Are you asking if it would be better to be a rat in a cage as long as we all got more cheese?

What if I offered you a mansion where you were given any worldly possession you desired at any time, but at random intervals a large group of people would taser and beat you with truncheons until you shit yourself. Would you live there?

macroman said...

I thought my question, which you quote, was easy to understand and not much like your apparent translation into a question about cheese and rats. But I think you mean to suggest that giving up any Austrian principle is to live like a rat in a cage? The Austrian principles over-ride everything? No need to get angry about it, is there? I am trying to understand if I should discuss facts or principles.

In answer to your question about tasers I think my answer would be no. Oh, and thanks for answering.

macroman said...

Eke yea, on second thoughts, any worldly possessions I wanted could include a security force, a jet plane a runway and a private island in the aegean sea so maybe I should reconsider your offer.

Bob Roddis said...

"Is there ANY conceivable set of facts that could change the mind of the committed Austrian economists on this page?"

It would have to start with someone who understood the basic Austrian concepts and propositions, like the centrality and nature of exchange, ignorant acting man, economic calculation, the distortion of the price, investment and capital structure, subjective value, Cantillon Effects, a meticulous differentiation of power vs. market in analysis etc. (these ideas have been explained on this blog dozens of times, but I’m not doing it again). Further, there is no evidence in logic or fact that the free market is not self correcting or that the problems of unemployment are caused by anything other that government intervention. I’ve NEVER seen a set of facts regarding human behavior that was at odds with our analysis. And in 39 years, I’ve never seen an anti-Austrian who understood the basic concepts but I’ve met hundreds of dimwits who called me a cultist, wacko or “radical” about 85 seconds into my explanation.

There is no book that is going to refute these ideas. It does not and has never existed. Keynes never attempted any sort of refutation. This type of behavior by Austrian critics further convinces me that our analysis is irrefutable.

WHY DON’T YOU PEOPLE MAKE AN EFFORT TO UNDERSTAND AUSTRIAN CONCEPTS BEFORE COMING ONTO THIS BLOG AND EMBARASSING YOURSELVES?

JG said...

Ekeyra,

"Hmmmm there must be an austrian handy to tell you that there was no such "free market in money" during the 2008 crash."

Oh, that's right. Since the federal government still existed in 2008 that will become your default scapegoat for every private bank that collapsed or nearly collapsed. Sorry, I forgot I was dealing with people who see the mere existence of the government as a destablizing force that pollutes free markets, and therefore is a convenient scapegoat for every time those markets implode from their own ineffeiciencies.

Bala said...

"Since the federal government still existed in 2008 that will become your default scapegoat for every private bank that collapsed or nearly collapsed"

Nonsense. A free market in money means that anyone is free to produce and circulate money. When government has a monopoly over the issue of its fiat money, it takes a Statist buffoon to consider it as a free market in money.

macroman said...

Roddis, I making an effort to understand. I am trying to find if AE is metaphysics or empirical science. I think you have misunderstood the question. The question is not "do you know of any facts that contradict AE".

The question is: Is it conceivable that any facts could prove the theory wrong. What could happen in the world to show it is wrong? It is one of the hallmarks of an empirical science that it is refutable, repeat refutable, it excludes certain things, and if those things happen the theory as it stands is wrong.

I ask this because my memory of Mises theories in economics and history seemed to suggest the theory is in principle unfalisifiable - and mises had a certain disdain for measurement, economic statistics. Also it has been said on this page that AE starts from a set of axioms. Assumptions are things that might be wrong, axioms are usually irrefutable propositions, they can't be challenged by facts or measurements, so it is sounding like irrefutable metaphysics rather than refutable empirical science.

If this can be confirmed I will know better how to think about it. For example I have been invited to prove various things. I don't know if I can prove those things, but whAt is certain is that if having proved them would make no difference to anyone's opinion there is no point even thinking about possible proofs.

Bala said...

"Assumptions are things that might be wrong, axioms are usually irrefutable propositions, they can't be challenged by facts or measurements, so it is sounding like irrefutable metaphysics rather than refutable empirical science."

Yeah!! It is not refutable empirical science, but then why should everything be refutable empirical science? Is Mathematics refutable empirical science? Do you reject Mathematics because it is not refutable empirical science? Are you a scientist or a scientologist? It looks like the latter though you will claim to be the former.

Bala said...

strawman,

Mises has also given fairly comprehensive explanations for why empirical methods are unsuited to the study of the social sciences. Did those escape your attention?

Bala said...

"Roddis, I making an effort to understand. I am trying to find if AE is metaphysics or empirical science"

AE is logical science. Economics is a social science and studies the consequences of the fact that man acts. This makes empirical methods unsuited to the proper study of economics. Austrian Economic Theory is an elaborate exercise in identifying what else must necessarily be true given the fact that man acts. In this sense, it is similar to Geometry in its approach. So, if you understand the method of Geometry and what gives its theorems their universal validity, you will understand the method of AE and what gives the economic laws it identifies universal validity. Just as the theorems of Geometry are not refuted by empirical evidence, so too the laws identified by Austrian Economic Theory are not refuted by evidence.

macroman said...

And Rodis, i don't think you told what should be done about FRB. Is it all bad? Should it be banned, and if so how?

Or

Maybe its benefits are greater than its negative effects of the business cycle. I think schumpeter held a view something like that.

Zachriel said...

Bala: Economics is a social science and studies the consequences of the fact that man acts. This makes empirical methods unsuited to the proper study of economics.

Now that's funny.

Without any sense of irony, you start with an empirical fact, "man acts". So do ants, but people aren't ants. You have to study humans to understand the wherefores of their actions.

Bala said...

"Man acts" is not an empirical fact. You have this wrong like you have everything else wrong.

Joseph Fetz said...

"...metaphysics or empirical science?"

So those are the only two choices? The only science that exists is to be found in the world of empiricism? Maybe somebody should have told this to Einstein, who's general theory of relativity was indeed not empirical, but who's predictions were later confirmed by observation and testing. That's the same process that Austrian's use, they form deductive theories and then confirm them in the real world. In the world of social sciences it makes sense to use this approach, because there are no known and measurable constants in human choice and actions, which is why the empiricists have such little luck explaining economic phenomena. They've been applying their empirical theories to the economy for the past 3 years (well, much longer), yet things haven't gone their way. This alone should be proof that their empirical method of economics is bankrupt, especially since the explanations for why their policies haven't worked are deductive in nature.

macroman said...

You are wrong if you think Einstein,s theories are not empirical science. They are refutable, just as Newton's physics was. I never said there was anything necessarily wrong with things other than empirical science, and you are right that there is more than one alternative to empirical science, like pure logic, pure Maths, jurisprudence and so on (but Einstein is not one of those alternatives).

It just helps me to know what you guys think you are discussing. It helps me to know if gathering or quoting statistics would be any use. I think Friedman,s "essays in positive economics" are a strong example of why mises ideas on measurement in economics are hardly the last word on the subject. The empirical research by the Romer's on "the multiplier" Is quite clever, in my view, but probably futile mentioning here.

macroman said...

But you could hear Ms Romer discussing her work with Russ Roberts over at econtalk.

Bala said...

strawman,

How can you make predictions in an area where there are no quantitative constants and where repeatability and repetitiveness are not features? Does it even make sense to search for a predictive theory? How can that theory have any connection to the world that is characterised by the absence of quantitative constants?

Zachriel said...

Joseph Fetz: Maybe somebody should have told this to Einstein, who's general theory of relativity was indeed not empirical, but who's predictions were later confirmed by observation and testing.

Einstein's scribblings are only scientific theories in that they explain and predict empirical phenomena.

Joseph Fetz: In the world of social sciences it makes sense to use this approach, because there are no known and measurable constants in human choice and actions, which is why the empiricists have such little luck explaining economic phenomena.

There are many regularities in human choice and actions. For instance, on average, humans sleep, they wake, they seek and consume food, they seek mates and reproduce. You really should observe these bipedal apes. Quite fascinating.

Zachriel said...
This comment has been removed by the author.
JG said...

Bala,

"Nonsense. A free market in money means that anyone is free to produce and circulate money. When government has a monopoly over the issue of its fiat money, it takes a Statist buffoon to consider it as a free market in money."

So if Bank of America and Citibank issued their own currency that would be a free market in money? Tell me again how this would have made any difference at all in the events of 2008? Even if those banks dealt exlusively in gold coins how would that have made any difference? A bank run is a bank run no matter what the medium of exchange is.

Despite the endless complaining about fiat money it wasn't currency soundness that triggered the crash of 2008 or the recession that followed it. So this free market of money, whatever that means, is another Austrian red herring.

Major_Freedom said...

Zachriel:

We can't know that ants act. We can know that humans act.

And human action is not an empirically derived proposition. It is derived from self-reflection, which of course begins with experience, but does not itself arise from experience.

Scott D said...

macroman

"Suppose it were a fact that having a government supply fresh water and the sewage system in your average city reduced the death rate, compared to keeping the government out of the water supply and sewage services business..."

I think the reason that your little thought experiment has been ignored is that it would reveal no useful information other than to identify each person as a consequentalist or a deontologist. In laymen's terms, whether you judge the ethics of an act based upon the end result of that act or the act itself. It leads to all kinds of nasty little questions, such as, if you could prevent 100 murders by murdering a single innocent person, is it justified to do so? I think that most libertarians come down on the side of deontology, but that is basically irrelevant to the discussion and to Austrian econ in general. Hence, it is ignored.

Beyond that, your example suffers from a very large problem: the presumption of knowledge. How do you acquire this fact that "a government supply fresh water and the sewage system in your average city reduced the death rate"? I'll try to model the methodology that you would most likely use.

You look at the demographics of various cities until you find two that are as alike in every way that you can think of to compare, except in two respects. In the first, the water and sewer are provided by the city government. In the second, private firms provide those services. You see that the first city has fewer deaths reported annually than the second. Happily, you conclude that the cause of this is the government-run water and sewer systems.

However, is that conclusion a "fact" or merely a piece of evidence that does not serve to contradict your pet theory of government efficiency? Could you put any faith at all behind that cause-effect "fact" you have discovered considering the awe-inspiring lack of knowledge that you would possess about the city and its inhabitants?

That is the inherent difference between deductive and inductive inferences. Empirical evidence does have its place, certainly. The problem is a human one, in that people will use incomplete knowledge to draw inferences that suit their own beliefs and desires, rather than tentatively sketching a possible hypothesis that is congruent with known, logically-deduced knowledge and then devising new tests to strengthen that evidence.

With Austrian economics, you are essentially arguing against a set of premises relating to government inefficiency, one very crucial one being the lack of knowledge. By presuming that knowledge, you presume a piece of the argument out of existence. It is simply not logical to accept such a premise as valid in the argument.

Or maybe you just want to call us all deontologists. That's cool with me.

Zachriel said...

Major_Freedom: We can't know that ants act. We can know that humans act.

Bala clarified that he was referring to volitional action.

Major_Freedom: And human action is not an empirically derived proposition. It is derived from self-reflection, which of course begins with experience, but does not itself arise from experience.

No, you only know yourself. You infer that other people have volition from observing their behavior and their similarity to your own physical form.

Joseph Fetz said...

"There are many regularities in human choice and actions. For instance, on average, humans sleep, they wake, they seek and consume food, they seek mates and reproduce. You really should observe these bipedal apes. Quite fascinating."

What has that to do with what I said, which is that there aren't measurable constants to explain human choice and actions? In fact, most of what you just listed can be deduced without observation by the mere fact that the contemplator is human.

The only way that you could conceivably counter what I said is if you began to show something along the lines of how many "rest units" were accumulated by such and such hours of sleep, or how many "utils" were realized by the suppressing of hunger by eating food, or other equally absurd empirical illustrations of such processes.

Since it is economics that is the subject of debate, it should be quite obvious that what I was speaking of is the satisfaction that humans receive by an action as opposed to the other (action), both ex ante and ex post, which is most assuredly not an objectively measurable phenomenon, yet is the basis of all economic actions (i.e. utility).

Joseph Fetz said...

"Einstein's scribblings are only scientific theories in that they explain and predict empirical phenomena."

Scribblings? Boy aren't you arrogant?

The fact is is that Austrians use a deductive method to form theories to explain empirical phenomena. People who don't understand this method often confuse it with a dislike for and a complete rejection of empirical data, which is not the case. The difference lies in that while Austrians form their theories deductively to explain empirical phenomena, they do not think that such empirical data represents anything but a snapshot of those theories in action.

For instance, we can say that an increase in the calculating unit will result in an increase in prices all other things being equal, but we do not presuppose that we can know which prices will rise or to what extent. The empiricists essentially draw their theories from the observable data, thus they would say something like, "the price level has fallen by x, so in order to stabilize prices, we must increase the calculating unit by y". Yet, you cannot measure what prices will rise or fall, nor can you assume that such actions will increase the "price level" by a predetermined amount.

Zachriel said...

Zachriel: There are many regularities in human choice and actions.

Joseph Fetz: What has that to do with what I said, which is that there aren't measurable constants to explain human choice and actions?

Because there are measurable constants.

Joseph Fetz: In fact, most of what you just listed can be deduced without observation by the mere fact that the contemplator is human.

You don't deduce human behavior from first principles. You observe it. You can deduce some by comparative anatomy, though, but that's also empirical.

Joseph Fetz: Since it is economics that is the subject of debate, it should be quite obvious that what I was speaking of is the satisfaction that humans receive by an action as opposed to the other (action),

Sure, and there are many regularities in human market interactions. For instance, when given a choice between paying less rather than more for a given produce, they will generally prefer to pay less. It's rather easy to test empirically.

Joseph Fetz said...

Further, if empiricists could determine the "price level" after a particular policy procedure, then they certainly wouldn't be currently debating which targets are to be used for such policy.

Zachriel said...

Joseph Fetz: Scribblings?

Try to read for context. What provided meaning to what Einstein wrote was the empirical predictions that were entailed in his model.

Joseph Fetz: The fact is is that Austrians use a deductive method to form theories to explain empirical phenomena.

Yes, you can develop theories by starting with certain axioms, then developing those axiom to make a testable model. Any scientific validity is determined by the fit to the data. Even then, the choice of axioms could be problematic.

For instance, Einstein *assumed* that the speed of light was constant in all inertial frames of reference. He based this axiom on the strong empirical support for Maxwell's equations. However, if this axiom had turned out to be wrong, then the theory would have lost its foundation.

The key is that Einstein chose axioms with an empirical basis, reasoned from there, then derived new and testable empirical predictions.

Joseph Fetz said...

"You don't deduce human behavior from first principles. You observe it."

We're talking here specifically about your statement regarding hunger and sleep. If you explanation holds, then surely the human race must have never been able to survive, let alone even get a start, if both hunger and sleep could only be reduced by observation. The very first human obviously didn't observe somebody eating to quench their hunger, nor did they observe somebody sleeping to alleviate their sleepiness. That's just an absurd proposition.


"For instance, when given a choice between paying less rather than more for a given produce, they will generally prefer to pay less. It's rather easy to test empirically."

This can also be deduced from the action axiom and the explanation of why humans act (i.e. to increase satisfaction). That is the whole point! Yes, we can observe this empirically, but to explain this phenomenon we need to form a theory. We can observe that that humans generally wish to pay less for goods, but then what of those who wish to pay more (for whatever reason)? This cannot be explained by mere observation nor can we reliably reproduce such empirical results, rather we need a theory that explains the satisfaction of wants, which in the Austrian construct is derived deductively from the action axiom.

Major_Freedom said...

Zachriel:

"Major_Freedom: We can't know that ants act. We can know that humans act."

"Bala clarified that he was referring to volitional action."

He should have had to clarify it because you should have already known that. You are choosing to criticize it, so that obligates you to know the source material.

"Major_Freedom: And human action is not an empirically derived proposition. It is derived from self-reflection, which of course begins with experience, but does not itself arise from experience."

"No, you only know yourself. You infer that other people have volition from observing their behavior and their similarity to your own physical form."

That doesn't contradict what I just said such that it deserves a preface of "No".

Major_Freedom said...

Zachriel:

"Joseph Fetz: What has that to do with what I said, which is that there aren't measurable constants to explain human choice and actions?"

"Because there are measurable constants."

No, there is not. With entities that learn over time, and act in accordance with what they know, it is impossible to have constancy in relations. It logically requires no constancy for an entity to be receptive of constancy in the physical world.

"Joseph Fetz: The fact is is that Austrians use a deductive method to form theories to explain empirical phenomena."

"Yes, you can develop theories by starting with certain axioms, then developing those axiom to make a testable model. Any scientific validity is determined by the fit to the data. Even then, the choice of axioms could be problematic."

This is positivism and works for physical matter that does not act. It does not work for humans.

Joseph Fetz said...

In response to the debate between Bala and JG on money:

First of all, I think that the regression theorem is very important here. The reason being is that you're both assuming a money rather than a medium of exchange and/or cases of direct exchange.

A money isn't just something that an actor in the economy or a series of actors in the economy use for exchange, it is the general medium of exchange used by all actors in an economy (i.e. it is generally accepted by everybody in exchange). The case of bank notes, that is nothing more than a medium of exchange (it is not money).

A free market money means nothing other than a generally accepted medium of exchange that was chosen by the market, not by monopoly force. So, paper money could conceivably emerge from a free market, but it is doubtful. Historically, paper money has only arrived in the market as a medium of exchange, it has not become money without government decree.

Now, in the case of the 2008 crash, there were many things that contributed to this event. However, one must realize that the events that took place could not have done so without the inflating of home prices, which requires the free-flow of credit, as well as the increasing of the supply of money. If new money was not created, then the bubble itself could not have grown to its massive size because the availability of real savings would have been entirely depleted (esp. considering the savings rates of the time).

Further, due to how value is imputed, the market prices for derivatives could not have grown to its massive state without home prices already showing vast increases (in order to substantiate such vehicles of investment), thus initiating further investment into both housing and assets based upon the price of housing.

As for other areas of the higher-order capital structure, much of this activity was fueled not only by the availability of credit, but also because the distortion to the time-structure between the higher-order stages and the lower-order stages of production due to the lowering of the interest rate. Housing too was stimulated by the interest rate, as well as consumption drawn from home equity.

If the interest rate were allowed to be reflective of the real stock of savings and the time-preference of market actors, none of this would have been possible (because there simply weren't enough real savings to have allowed it). The availability of new money and credit allowed us to think that we saved more than we truly had, thus making us feel wealthier than we truly were-- it was bound to come crashing down.

Joseph Fetz said...

I should clarify something that I said. When I said that paper money has historically only arrived on the market as a medium of exchange, it must also be said that such paper money was a claim to some asset (a receipt).

Zachriel said...

Joseph Fetz: We're talking here specifically about your statement regarding hunger and sleep.

We're talking about your claim that "there were no measurable constants to explain human choice and actions". But there certainly are observable constants of human behavior.

Joseph Fetz: The very first human obviously didn't observe somebody eating to quench their hunger, nor did they observe somebody sleeping to alleviate their sleepiness.

You seem to be confusing your own sensation of sleepiness with drawing a generality about all humans. (By the way, all natural humans must be nursed and nurtured, so they do have experience of human nature.)

Joseph Fetz: This can also be deduced from the action axiom and the explanation of why humans act (i.e. to increase satisfaction).

Yes, you can make up any number of axioms based upon your understanding of human nature. They are only valid insofar as they reflect observation.

Joseph Fetz: This can also be deduced from the action axiom and the explanation of why humans act (i.e. to increase satisfaction).

Saying that individuals act to increase their satisfaction is a trivial claim that could be made within most any philosophy or about any creature, including rabbits.

Zachriel said...

You may want to make a simple statement of the "action axiom", and what you think can be derived from this single axiom.

Zachriel said...

Zachriel: No, you only know yourself. You infer that other people have volition from observing their behavior and their similarity to your own physical form.

Major_Freedom: That doesn't contradict what I just said such that it deserves a preface of "No".

So you agree that we *infer* volition in others from observations of their behaviors.

Major_Freedom: This is positivism and works for physical matter that does not act.

So deriving things from the "action axiom" doesn't tell us anything that can be reflected in observation? Of what use is it then?

Joseph Fetz said...

Zachriel,

First, when you mention that there are certain constants, yes, this is true. I don't think that anybody denies that at all. In fact, that is part of the basis of any theory that attempts to explain anything-- the 'why?' is the cornerstone of theory. This is a question of methodology in theory; not just of constants but also of differences.

Now, I do have some other things to attend to at the moment, so we'll have to pick this up tomorrow. However, I must emphasize that I was not referring to mere constants, I was referring to "measurable constants" in human behavior (i.e. being able to be reduced to units of measurement).

Talk to you tomorrow (or, later tonight).

Major_Freedom said...

"Major_Freedom: That doesn't contradict what I just said such that it deserves a preface of "No"."

"So you agree that we *infer* volition in others from observations of their behaviors."

So you agree that what you said didn't contradict what I said, such that it doesn't deserve a "No".

"Major_Freedom: This is positivism and works for physical matter that does not act."

"So deriving things from the "action axiom" doesn't tell us anything that can be reflected in observation?"

It tells us more than what can just be learned through observation alone.

"Of what use is it then?"

It's what economic science is based on.

Yes, it's not about the "science" of government initiating violence to exploit the productive masses, so you probably don't find it "useful". Kind of like how rapists don't find being cordial with and respectful of other people "useful", only with less integrity and more cowardice.

Zachriel said...

Major_Freedom: So you agree that what you said didn't contradict what I said, such that it doesn't deserve a "No".

Is there a reason why you avoid clarifying your views?

Major_Freedom: It's what economic science is based on.

Most economics is empirical.

ekeyra said...

Macro,

"I thought my question, which you quote, was easy to understand and not much like your apparent translation into a question about cheese and rats."

It was very easy to understand. You even stated it yourself. Would you give up freedom for "prosperity"?

That makes you nothing more than a rat who get a bigger slice of cheese.

Its also revealing that you would submit to being randomly beaten if you get your own island out of the deal.

Jg,

It appears you missed the entire point. Even the person who claims to agree with you, contradicts you. You say the free market is to blame and he says it never existed. You two hash it out and get back to me.

macroman said...

Joseph Fetz, I apologize for my crack about Einstein, it was a silly quibble about the word empirical by me. If AE makes predictions that can be verified, or refuted, predictions that might turn out to right or wrong, like einstein'S theory then it is indeed science. but I am not sure this what all here agree with you on that.

Now can we find such a prediction. does AE make any prediction about the multiplier, for example? That it should be negative, or less than some number?

macroman said...

Scott D, thanks for you thoughtful answer. I regret mentioning death rate, i was thinking about primitive conditions, cities without sewage systems. I don't have a pet theory of government efficiency. Your answer tells me that regardless of the evidence one advanced we could never decide if government was better at supplying water and sewage that an unregulated free market. Which suggests AE or maybe all economics what I call irrefutable. Others on this page also suggest that, while at least one other has said AE makes verifiable predictions.

Re my views that seem to disagree with AE. I think there are externalities, and hence market failures are possible. I think the market is usually the best way to solve problems and hence i generally favor taking care of externalities by the price system: pollution pricing for example, with tradeable permits rather than taxes, but it's not something I would go to the barricades about. London's air pollution problems of the late 19th C were solved by laws and restrictions and that seems the best way to have done it then. I am not convinced the market system is stable, and hayek'S analysis suggests to me that it isn't, and that it needs some set of rules to improve it. I have changed my views about Keynes in the last few years, and now think he had more to him than Henry Hazlitt led me to believe.

macroman said...

Ekey you didn't get the joke? I claimed to have found a way in your offer to avoid the beatings. If you look at my first answer I said no I would not accept the offer. The second answer was meant to be a joke, but I'm not too good at telling jokes.

macroman said...

Ekey, what I meant was that Austrians seem always fall back on the claim that the market wasn't free enough to explain market failures. Hence I suggested that arguing with some people is pointless, like arguing about the existence of God - it goes on forever.

macroman said...

And what,s with the various demands to know why I came here without knowing anything about AE. I came to see what people were saying against Krugman. Should I have guessed it was the AE, mutual admiration club?

Bala said...

"Should I have guessed it was the AE, mutual admiration club?"

I guess some people are just too dense to get the obvious. Krugman is wrong because AE is right.

JG said...

Joseph Fetz,

You bring up something I'd like to discuss regarding the housing bubble:

"...one must realize that the events that took place could not have done so without the inflating of home prices, which requires the free-flow of credit, as well as the increasing of the supply of money."

When you look at interest rates in the US over the past 10 years and compare them to Canadian interest rates during the same time period they look very similar. Yet Canada did not suffer the same housing bubble and bust that the US did. Similar monetary conditions did not result in similar outcomes of boom and bust. This seems to contradict the Austrian premise that low interest rates and loose money are the cause of the housing boom and subsequent bust.

I suspect that structural and regulatory differences between the US and Canadian banking systems allowed Canada to escape the boom/bust cycle despite low interest rates and a flood of easy money. Canada has strict rules regarding securitization. Canadian banks tend to hold the loans they originate, giving them an incentive to maintain better lendinng standards. The US indulged in a securitization boom over the past 15 years, which created problems of agency and moral hazard that the Canadian system avoided.

Easy monetary policy certainly was a factor in the US housing boom but the Canadian example paints a very different picture than the one the Austrians put forward. What are your thoughts on this?

Bala said...

"Most economics is empirical."

"Most of what passes for economics these days is empirical" is what you ought to say. To say what you have, you need to define economics and show that what passes for economics these days is indeed economics. For instance, you could claim that empirical studies constitute economics but they do not. Empirical studies are by nature ex-post while economic analysis is by nature ex-ante. So first clarify some important points like what economics is, what it's proper method is and why. Once you establish these, feel free to make your claims.

Bala said...

"When you look at interest rates in the US over the past 10 years and compare them to Canadian interest rates during the same time period they look very similar."

Similarity of interest rates says nothing. That you say this shows that you just do not understand the theory behind Joseph's point. It is the depression of interest rates below what it would have been were it to reflect the real savings in the economy and not the absolute level of interest that matters. Interest rate depression makes injection of credit into the structure of production possible beyond the available pool of gross savings. In simple terms, the injection of credit through credit expansion makes possible investments that would not have been possible if only the real pool of gross savings were to be invested. Thus, it is the depression of interest rates that creates the malinvestments of the boom.

ekeyra said...

Macro,

"Ekey, what I meant was that Austrians seem always fall back on the claim that the market wasn't free enough to explain market failures. Hence I suggested that arguing with some people is pointless, like arguing about the existence of God - it goes on forever."

What you meant is hardly as relevant as what you actually said.

macroman said...

Ekeyra, it will please you, assume I Made a mistake, and have now withdrawn what I said because of your brilliant exposé which opened my mind to the fact that markets exist, something that had somehow escaped my attention. Thanks for the lesson.

Major_Freedom said...

Zachriel:

"Major_Freedom: So you agree that what you said didn't contradict what I said, such that it doesn't deserve a "No"."

"Is there a reason why you avoid clarifying your views?"

Is there a reason why you avoid clarifying your views?

I will restate:

So you agree that what you said didn't contradict what I said, such that it doesn't deserve a "No"?

"Major_Freedom: It's what economic science is based on."

"Most economics is empirical."

No, history is empirical. ALL of economics is an a priori logical science that utilizes empirical history to explain economic phenomena.

What positivists in state propaganda departments are doing is not economics, its history based on prejudice with a tinge of astrology.

Zachriel said...

Major_Freedom: So you agree that what you said didn't contradict what I said, such that it doesn't deserve a "No"?

This is your original claim.

Major_Freedom: And human action is not an empirically derived proposition. It is derived from self-reflection, which of course begins with experience, but does not itself arise from experience.

We pointed out that we *infer* volition in humans. That's why we said "No."

Major_Freedom: No, history is empirical. ALL of economics is an a priori logical science that utilizes empirical history to explain economic phenomena.

That statement could be applied just as easily to physics, but it would be just as misleading. We observe. We form or refine generalizations. We deduce from these generalizations new observations. We observe. It's called hypothetico-deduction, the heart of the scientific method.

Zachriel said...

We pointed out that we *infer* volition in humans ...

by observing their behavior.

Joseph Fetz said...

JG,

While I am not as well versed in Canada's economy, Bala is exactly correct in that I was speaking of the interest rate deviating from the natural time-preference of the market through monetary policy. While one can never know what this time-preference is in an arena of interventions, one can take a look at some clues.

In the period from 2002-2006 household savings rates of both countries were pretty much even at around 2%-3%, however the national savings rate of America was about 2% for the entire period, with the exception of the last year where it peaked at 3% in mid-2006 and then went negative thereafter.

Canada's national savings rate began at around 8.5% in 2002 and increased to a peak of almost 14% in mid-2006, then stayed around 12% thereafter. From this we can assume that even though Canada's central bank was essentially coordinating with the Fed, there was still ample savings, thus the lowering of the interest rate had a much less pronounced effect on their economy.

Another major difference between the two has to do with government financing and trade balances. Canada's balance of trade was positive from the period of 2002 to just after the first quarter of 2008, so they were primarily a net producer. Whereas, the US's trade balance has been negative for so many years that it isn't worth mentioning a date-range, however this shows that the US is a net consumer. There is nothing inherently wrong with an economy wishing to consume more than it produces because this tendency would eventually come to an end due to lack of productivity and the balance of trade would tend toward the other direction. The only thing that allows us to continually consume more than we produce is the ability to create more of the world's reserve currency, which will come to bite us in the butt anytime those dollars come back to our economy (inflation) or if people decide they aren't going to take our paper anymore.

Also, government finance between the two nations was quite different in the period of 2002-2008. During this entire period Canada was a net lender while the US was a net borrower (and has been for many years). Of course, Austrians see all governmental spending as inefficient, but borrowing in order to spend is even worse. While Canada did take on a deficit after 2008, it was nowhere close to the US.

Canada did have a recession, but by looking at the above it is pretty easy to see why it was nowhere as steep as that in the US. Canada simply had an economy that better reflected reality, whereas we were living in fantasy land and still are. Yes, their central bank created distortions, but nowhere near as removed from reality as the actions of the Fed. Also, they didn't create giant moral hazards in Fannie and Freddie or the FHA that would back all of the debts and allow loan issuers to not worry about ability to pay (because the GSE's would buy them off of your books).

Essentially, Canada was far more conservative in its policies than the US and the monetary policy didn't deviate from reality as much as that in the US. Their monetary interventions did still cause a recession, however; they also allowed some of the US contagion into their own economy.

Major_Freedom said...

Zachriel:

"Major_Freedom: So you agree that what you said didn't contradict what I said, such that it doesn't deserve a "No"?"

"This is your original claim."

And yet you avoided addressing it.

"Major_Freedom: And human action is not an empirically derived proposition. It is derived from self-reflection, which of course begins with experience, but does not itself arise from experience."

"We pointed out that we *infer* volition in humans. That's why we said "No.""

"We"? Who else is there besides you?

My statement, the one you responded "No" to, was this one:

"Major_Freedom: And human action is not an empirically derived proposition. It is derived from self-reflection, which of course begins with experience, but does not itself arise from experience."

You responded:

"No, you only know yourself. You infer that other people have volition from observing their behavior and their similarity to your own physical form."

You have yet to explain how what you said contradicts what I said.

"Major_Freedom: No, history is empirical. ALL of economics is an a priori logical science that utilizes empirical history to explain economic phenomena."

"That statement could be applied just as easily to physics, but it would be just as misleading."

No, it does not apply to physics because it is not true that ALL of physics is an a priori logical science that utilizes empirical history to explain physical phenomena.

Some physics knowledge is derived from empirical history.

ALL of Economics knowledge is DERIVED from a priori deduction, and uses history to explain specific economic principles in action.

"We observe. We form or refine generalizations. We deduce from these generalizations new observations. We observe. It's called hypothetico-deduction, the heart of the scientific method."

It's the heart of the positivist method. Positivism does not have a monopoly on the scientific method. In economics, it gained popularity in the 1950s. Before that, economics was primarily treated as an a priori science like logic and mathematics.

"We pointed out that we *infer* volition in humans..."

"by observing their behavior."

No, volition cannot be observed. It must be inferred. You looking at another human is already implied in the question of what "humans" are. The real question is whether they have volition or not. You can't know this just by looking at them, the way you can know an apple is red just by looking at it. You have to infer volition by reflecting on yourself.

JG said...

Joseph Fetz,

I have a few questions about your last response:

1) Regarding comparable savings rates between the US and Canada, how exactly does this explain the lack of a housing boom in Canada? If anything, the greater supply of funds available for lending at low interest rates would only encourage a chase for yield and a flow of credit into what Bala would call "malinvestment" in housing.

2) Regarding your comment about Canada's trade surplus, how does this explain the lack of a housing bubble? Surplus funds from trade would need to be deployed somehow, and depositing them in bank at low interest rates just provides more fuel for the fire of malinvestment in housing.

3) Regardng your comment about Fannie and Freddie, this indeed created an incentive for malinvestment. However, that malinvestment was done through the conduit of securitization, which Canadian banks had strict regulatory limits on. This relates to my earlier point about the regulatory differences between the two countries.

JG said...

Bala,

I'm not responding to you anymore. I've found somehow who can actually converse like a normal person.

Bala said...

" If anything, the greater supply of funds available for lending at low interest rates would only encourage a chase for yield and a flow of credit into what Bala would call "malinvestment" in housing."

When real saving are invested, there is no intertemporal discoordination. It is only credit expansion beyond the available pool of real savings that causes malinvestment.

"I'm not responding to you anymore. I've found somehow who can actually converse like a normal person."

Good for you. Let's hope that at least he can educate you.

Zachriel said...

Major_Freedom: You have yet to explain how what you said contradicts what I said.

Your statement is that human action is not an empirically derived proposition, but, in fact, we infer volition from observation of human behavior. When you questioned this, we asked for clarification, but you rebuffed that attempt.

Major_Freedom: No, it does not apply to physics because it is not true that ALL of physics is an a priori logical science that utilizes empirical history to explain physical phenomena.

All physics—and economics— is the history of observations and using generalizations of these observations in an attempt to understand and predict the future.

Major_Freedom: Some physics knowledge is derived from empirical history.

You make the observation, you write them down. It's history.

Major_Freedom: ALL of Economics knowledge is DERIVED from a priori deduction, and uses history to explain specific economic principles in action.

Economists observe economic activity, form generalizations, then use these generalizations in an attempt to understand and predict future economic activity.

Zachriel: We observe. We form or refine generalizations. We deduce from these generalizations new observations. We observe. It's called hypothetico-deduction, the heart of the scientific method.

Major_Freedom: It's the heart of the positivist method.

Positivism doesn't define the scientific method: Positivism is a philosophical view of the scientific method and of knowledge. While there is no single scientific method, the scientific method is characterized by matching evidence (data) to theory (models).

Major_Freedom: Before that, economics was primarily treated as an a priori science like logic and mathematics.

You'd never know that by reading Smith or Say or Mills. They all make constant reference to their observations of how human interact with one another.

Major_Freedom: volition cannot be observed. It must be inferred.

That is correct.

Major_Freedom: You have to infer volition by reflecting on yourself.

Volition tends to be a squishy word. If we use it in the sense of conscious experience, we still have to observe humans to make the inference that they share the same sort of conscious experience as the observer. While, the observer can't know for certain, the fact that humans have similar bodies, make conversation about their plans, and so on, gives ample reason to conclude that they have an internal experience similar to the observer.

However, volition sufficient to "man acts" does not require this leap, and can be defined strictly in terms of goal-seeking behavior.

In any case, "man acts" is a pretty trivial axiom, and one that is easy to accept for the purposes of discussion. What can you deduce from this single axiom?

Major_Freedom said...

Zachriel:

"Major_Freedom: You have yet to explain how what you said contradicts what I said."

"Your statement is that human action is not an empirically derived proposition, but, in fact, we infer volition from observation of human behavior."

That means human action is not empirically derived. The word "infer" means you are self-reflecting, not merely looking at a red apple and seeing that it is red. You are looking at other humans and you are not merely seeing them have 4 limbs, two eyes, moving about, etc, you are self-reflecting and inferring that they are acting, just just moving.

You are confused. You believe that self-reflective inference means that one is able to know that a human actor is around the corner without even looking there first. No, that's not what "non-empirical derived knowledge" means. It means that when you observe something take place, through the senses, you make propositions that explain what it is you are sensing that are not solely a product of the senses. You are utilizing understanding. So if you sense a human moving about, the proposition that they are acting is not derived from those observations. The proposition they are acting is derived from your self-reflection. You know you act, so you infer they act. Of course you need to observe a human before you can say there is a human there, but you need self-reflection in order to say they are acting.

"When you questioned this, we asked for clarification, but you rebuffed that attempt."

I didn't question that, I asked what it is about what I said that deserved a "No", and your attempt above to explain it shows that you don't know what it is you are even trying to critique.

Major_Freedom said...

Zachriel:


"Major_Freedom: No, it does not apply to physics because it is not true that ALL of physics is an a priori logical science that utilizes empirical history to explain physical phenomena."

"All physics—and economics— is the history of observations and using generalizations of these observations in an attempt to understand and predict the future."

False. Economic science deals with subject matter that learns and acts. It is not a science of non-learning entities that behave according to constant causal relations over time as in the world of physics. Entities that learn in unpredictable ways will act in unpredictable ways.

Human action has no constancy relations. You can observe me paying $5.00 for a sandwich every day in the past for 100 days or 500 days in a row, but there is no objective link between those past choices that compel me to doing the same thing tomorrow such that you can predict my actions based on those past events assuming a constancy relation, the way you can predict how much energy is released if you convert a certain mass into electromagnetic energy tomorrow.

A learning subject cannot even predict what the subject itself will learn in the future, let alone anyone else. Because of that, not only is the human subject not able to predict what it will do based on the knowledge it hasn't even learned yet, the human subject is of course unable to do that for everyone else as well.

Economics is not a historical science. Positivists conflate theory with history. They treat them as the same. In economic science, theory is different from history. History is composed of the choices people made based on their knowledge at the time and their actions at the time. There is no choices and knowledge and action in the past that has a constant causal link to future choices and future knowledge and future action.

The world of economics is a world of teleology, not causality. Human actors must presume causality around them, but they can't coherently regard themselves as past causally determined. Maybe a superhuman can do it, but we will never be able to do it.

"Major_Freedom: Some physics knowledge is derived from empirical history."

"You make the observation, you write them down. It's history."

Maxwell's equations were not derived from making empirical observations. They were derived from first principles. They were deduced.

Quantum mechanics was derived from making empirical observations. It is not derived from first principles. It was observed.

Not all physics is empirically derived.

"Major_Freedom: ALL of Economics knowledge is DERIVED from a priori deduction, and uses history to explain specific economic principles in action."

"Economists observe economic activity, form generalizations, then use these generalizations in an attempt to understand and predict future economic activity."

Wrong. Economists observe past history, and then they MUST interpret that history using a theory. Theories are not derived from past history, they are used to understand past history. An economists who looked at past historical economic data and didn't have any theory to explain it, would not be able to "allow the data to speak for itself" such that the data tells a story of its own.

What you are talking about are not economists, but data collecting mathematicians and historians who never learned economic science.

Major_Freedom said...

Zachriel:


"Major_Freedom: It's the heart of the positivist method."

"Positivism doesn't define the scientific method: Positivism is a philosophical view of the scientific method and of knowledge."

You said what you described above is "the heart of the scientific method", and I said no, it's not the heart of the scientific method, it's the heart of the positivist method. You confused them. I didn't say positivism defines the scientific method. I said the exact opposite, because you just insinuated it did.

"While there is no single scientific method, the scientific method is characterized by matching evidence (data) to theory (models)."

That's better. Above you conflated "evidence" with "empirical observations." Now you are saying evidence matches theory. Yet there is more evidence than the subject observing objects outside itself. There is self-reflective evidence.

"Major_Freedom: Before that, economics was primarily treated as an a priori science like logic and mathematics."

"You'd never know that by reading Smith or Say or Mills. They all make constant reference to their observations of how human interact with one another."

So do Austrians! Austrian economics is not JUST a priori deduction. Praxeology without thymology is empty, and thymology without praxeology is blind.

Austrians use deduction to explain the world that they observe. Without observations, praxeology is like a toolbox that is never opened. But praxeological toolbox is necessary if something is going to be fixed.

"Major_Freedom: volition cannot be observed. It must be inferred."

"That is correct."

You don't have to tell me something that I have known for many years, and that you have only just learned.

Major_Freedom said...

Zachriel:


"Major_Freedom: You have to infer volition by reflecting on yourself."

"Volition tends to be a squishy word. If we use it in the sense of conscious experience, we still have to observe humans to make the inference that they share the same sort of conscious experience as the observer."

Again you're confused. Inferring volition in other human actors already presupposes you are observing them using your senses. The question is whether their volition is derived from you looking at them, or if it's inferred.

Inferring volition in other humans of course means you are observing other humans already.

"While, the observer can't know for certain, the fact that humans have similar bodies, make conversation about their plans, and so on, gives ample reason to conclude that they have an internal experience similar to the observer."

You can know for certain. Logical inference is objective. If I say I know for sure you have volition, then any attempt by you to argue otherwise to refute me, would be a contradiction, because my making that argument to me, you are already inferring I am an entity that shares the common grounds of understanding as you. You won't be arguing this to a rock, you'd be arguing it to the person who says they can know. But as soon as you approach them and start explaining to them that they are wrong, you have already conceded that they are right.

"However, volition sufficient to "man acts" does not require this leap, and can be defined strictly in terms of goal-seeking behavior."

Action is purposeful goal seeking behavior. Any attempt to deny this would have to be characterized as a purposeful goal seeking behavior. Your counter-argument, if it is to make sense to me, must be considered a purposeful goal. I have to treat as you purposefully attempting to refute my argument, and not just making noises.

"In any case, "man acts" is a pretty trivial axiom, and one that is easy to accept for the purposes of discussion."

It's seemingly trivial, but if you actually knew the literature, you'd know it has far reaching implications, including understanding how today's mainstream economists are both in passive denial (of humans action not behaving according to constant causal factors), and arrogant blindness (they believe they can predict what humans will value in the future).

"What can you deduce from this single axiom?"

This single axiom, in combination with thymology, explains the entire structure of economic phenomena.

Zachriel said...

Zachriel: All physics—and economics— is the history of observations and using generalizations of these observations in an attempt to understand and predict the future.

Major_Freedom: False. Economic science deals with subject matter that learns and acts. It is not a science of non-learning entities that behave according to constant causal relations over time as in the world of physics. Entities that learn in unpredictable ways will act in unpredictable ways.

The behavior of humans is difficult, but not impossible to predict. In any case, that remains the basis of economics. Study the past, form generalizations, deduce predictions about future behavior, then test those predictions against new observations. The usual.

Major_Freedom: Human action has no constancy relations.

Usually, we are interested in the behavior of humans in the aggregate, and in statistical terms, not absolutes.

Major_Freedom: The world of economics is a world of teleology, not causality.

And yet, *predictably*, every day people go about acquiring food for their meals.

Major_Freedom: Maxwell's equations were not derived from making empirical observations.

Maxwell just dreamed up these equations without knowing anything about anything? In fact, Maxwell relied upon the experimental work of Weber and Kohlrausch. Even then, Maxwell's equations only have scientific validity if they can predict phenomena.

Zachriel: We observe. We form or refine generalizations. We deduce from these generalizations new observations. We observe. It's called hypothetico-deduction, the heart of the scientific method.

Major_Freedom: You said what you described above is "the heart of the scientific method", and I said no, it's not the heart of the scientific method, it's the heart of the positivist method.

And you are still wrong. The scientific method is just that, a method, and is independent of any philosophical position, such as positivism.

Major_Freedom: Above you conflated "evidence" with "empirical observations."

In science, evidence is empirical. Your introspection isn't scientific evidence, though perhaps it can lead you to a valid scientific hypothesis.

Major_Freedom: You can know for certain. Logical inference is objective. If I say I know for sure you have volition, then any attempt by you to argue otherwise to refute me, would be a contradiction,

You may just be talking to a zombie. There's no way to tell logically. However, empirically, you can reach a reasonable conclusion that other people are volitional.

Major_Freedom: Action is purposeful goal seeking behavior.

Yes, but it is quite possible for something to be goal-seeking, but not be conscious.

Zachriel: What can you deduce from this single axiom?

Major_Freedom: This single axiom, in combination with thymology, explains the entire structure of economic phenomena.

In other words, you brag you can deduce everything, but can't seem to deduce a single thing.

Major_Freedom said...

Zachriel:

"Major_Freedom: False. Economic science deals with subject matter that learns and acts. It is not a science of non-learning entities that behave according to constant causal relations over time as in the world of physics. Entities that learn in unpredictable ways will act in unpredictable ways."

"The behavior of humans is difficult, but not impossible to predict."

No, it is impossible to predict according to constant causal factors.

Entrepreneurs are society's individuals who have the best ability to anticipate future human values and choices, but they cannot predict this by learning equations out of a textbook. It's why the world's wealthiest entrepreneurs aren't PhD econometricians, and why the world's PhD econometricians are sitting in sterile offices doing nonsense.

"In any case, that remains the basis of economics."

No, it doesn't. It remains the basis of historical research, not economics.

"Study the past, form generalizations, deduce predictions about future behavior, then test those predictions against new observations. The usual."

No, that has already been refuted using economic science. Merely repeating it over and over won't make it true.

The past cannot show constant relations in human action. You seriously need to "study the past" discoveries in economics.

"Major_Freedom: Human action has no constancy relations."

"Usually, we are interested in the behavior of humans in the aggregate, and in statistical terms, not absolutes."

"We"? Who else is there besides you?

And the fact that non-economic historical researchers of past data must resort to statistics, is a signal it is untenable.

Major_Freedom said...

Zachriel:


"Major_Freedom: The world of economics is a world of teleology, not causality."

"And yet, *predictably*, every day people go about acquiring food for their meals."

There is nothing that occurred in the past that caused people to choose food today for their meal. You aren't making any prediction based on some constancy relation, you're just noticing the same events occur over and over for most people. This doesn't mean however that you have uncovered a constant causal connection that enables you to predict whether or not people will choose to eat tomorrow, regardless of their choices.

"Major_Freedom: Maxwell's equations were not derived from making empirical observations."

"Maxwell just dreamed up these equations without knowing anything about anything?"

It is absolutely crystal clear at this point that you have zero understanding of what deduction and a priori reasoning entails. it doesn't mean knowledge is automatic, it doesn't mean putting a newborn into a black box and having them eat out of feeding tube and drinking out of a water tube until they reach adulthood, and they will be able to derive Maxwell's equations one day.

Knowledge derived from a priori deduction is still knowledge that begins with experience. All knowledge begins with experience. A priori deduction is knowledge that does not ARISE out of experience.

For example, the propositions "There cannot be a world price system for the means of production if there is world government ownership of the means of production", or "An additional unit of a homogeneous good will satisfy the least important goal after the more important goals are satisfied", or "prices are determined according to supply and demand", these are propositions that begin with experience, but they do not arise from experience. They don't need future "testing" once they are known.

Even if there has never been a world communist system, I still know that there won't be a price system for the means of production if people tried it. Now how do you explain this knowledge, if like you said all knowledge requires observation? You must say we can only know for sure if we actually go out and try it so that we can observe it.

Or how about the minimum age laws. Suppose I told you "If the minimum wage were raised to $100,000 per minute tomorrow, then all else equal, unemployment will go up", would you say that I am not entitled to claim to knowing it, until it is actually tried? Yes, all the concepts "wage", "minimum", "raised", "$100,000", "minute", "tomorrow" begin with experience, and cannot be known without observation, but the proposition itself, I am saying that it doesn't arise from experience. It arises from understanding.

"In fact, Maxwell relied upon the experimental work of Weber and Kohlrausch."

Maxwell derived his theory a priori by in part drawing on the experimental work of Weber and Kohlrausch. It isn't entirely based on experimental work.

If any physicist claims to have violated Maxwell's a priori equations through experiment, then almost every physicist will "side" with the a priori equations and question the experiment. That's how certain they are of them. They are that intuitive.

All a priori derived propositions begin with experience. But they don't arise from experience. They are not established as knowledge from experience. There is a difference that you need to understand.

Major_Freedom said...

Zachriel:


"Even then, Maxwell's equations only have scientific validity if they can predict phenomena."

A priori deductive propositions are not established as knowledge through experience, and no experience can ever falsify them. Maxwell's equations weren't established as knowledge only after experience was found not to violate them. That they weren't violated is a predictable consequence of them already being true.

"Major_Freedom: You said what you described above is "the heart of the scientific method", and I said no, it's not the heart of the scientific method, it's the heart of the positivist method."

"And you are still wrong. The scientific method is just that, a method, and is independent of any philosophical position, such as positivism."

No, you are the one who is wrong. It is WRONG to claim that "the" scientific method is the positivist method. That is what you claimed and that is wrong.

You claimed:

"We observe. We form or refine generalizations. We deduce from these generalizations new observations. We observe. It's called hypothetico-deduction, the heart of the scientific method."

That claim is false. The hypothetico-deduction model is NOT "the heart" of the "the" scientific method. It is ONE method of science, it is the heart of ONE scientific methodology.

And you are making yet a further error in your latest response. You fallaciously asserted that the scientific method is "independent of any philosophical position." That is absolutely false. ALL scientific methods depend on epistemological and ontological philosophical pronouncements.

The modern scientific movement began because of a profound shift in the philosophical zeitgeist, especially in epistemology.

Philosophy underlies all science. Science is built on philosophy. The fact that you believe science is "independent of any philosophical position" only shows more evidence of your utter ignorance.

"Major_Freedom: Above you conflated "evidence" with "empirical observations."

"In science, evidence is empirical."

False. In POSITIVISM, evidence is empirical. You are again conflating science with positivism.

"Your introspection isn't scientific evidence, though perhaps it can lead you to a valid scientific hypothesis."

False. Introspection is also scientific evidence. It's not observed, but that doesn't mean it is not evidence.

Again you are fallaciously asserting that science is only positivism, where ideas are just verbal terms and all statements about reality are merely hypothetical and must be tested.

Major_Freedom said...

Zachriel:


"Major_Freedom: You can know for certain. Logical inference is objective. If I say I know for sure you have volition, then any attempt by you to argue otherwise to refute me, would be a contradiction,"

"You may just be talking to a zombie."

Zombies? How how delightful. Notice how your asinine worldview compels you introduce horror story characters who just so happen to not be acting with a purpose, but just going through the physical motions?

If a person is observed to be saying something that appears to be an attempt at a refutation, but then you say they are a zombie, then I can't even consider their words as an attempt to refute my argument, and therefore my argument remains unchallenged. If I said aloud "I act", and then some dog barks at me that sounds like "No", then that won't count as a refutation.

Any ATTEMPT at a REFUTATION of what I said MUST be treated as purposeful behavior, or else it cannot even be classified as a refutation. Since you seem to agree that the argument cannot be refuted, and can only ever been spoken to in the contrary by some mechanistic motions of zombies that resemble but is not an attempt at a refutation, only shows you have no argument against mine.

"There's no way to tell logically."

I am not making any proposition regarding what it is I am talking to. I am not trying to tell you that I am talking to a human as opposed to a zombie. I am saying that the attempt to refute my argument must logically be considered a purposeful behavior for it to even qualify as a valid refutation, rather than mere sounds, as from a zombie or dogs or whatever.

If a zombie uttered the sound "humans act", then that can't be logically considered an argument, so if you are going to treat my argument is a purposeful behavior, then you can't just drop the context of that when you consider a possible response.

Dogs can't refute humans. Zombies can't refute humans. Only entities that act can logically be considered as actually refuting my argument.

"However, empirically, you can reach a reasonable conclusion that other people are volitional."

Reasonable based on what?

"Major_Freedom: Action is purposeful goal seeking behavior."

"Yes, but it is quite possible for something to be goal-seeking, but not be conscious."

I said PURPOSEFUL goal seeking. Not just looking like goal seeking.

"Major_Freedom: This single axiom, in combination with thymology, explains the entire structure of economic phenomena."

"In other words, you brag you can deduce everything, but can't seem to deduce a single thing."

How is that "in other words"? Sounds like you just wanted to inject a silly antagonism because you have no idea what's going on.

I don't brag I can deduce everything you silly monkey. I am just saying that economic science is a deductive science like logic and mathematics, not an empirical science like chemistry and physics.

For you to behave all passive and resentful that I am allegedly "bragging", can only mean you are seriously intimidated at the prospect of economics being a science that requires more intelligence than you can muster at this time.

Zachriel said...

Major_Freedom: No, it is impossible to predict according to constant causal factors.

And yet it is predictable that people will go about acquiring food.

Major_Freedom: The past cannot show constant relations in human action.

And yet every day, people go about acquiring food.

Major_Freedom: And the fact that non-economic historical researchers of past data must resort to statistics, is a signal it is untenable.

Statistics is a well-founded field. And probabilistic predictions can be used to turn a consistent profit.

Major_Freedom: There is nothing that occurred in the past that caused people to choose food today for their meal.

Of course there is.

Simple Induction: People acquired food yesterday and the day before and the day before that. We can extrapolate that they will do so tomorrow.

Comparative Anatomy: Humans are animals, which means they ingest food for energy and protein. Like all animals, they will seek food.

Major_Freedom: This doesn't mean however that you have uncovered a constant causal connection that enables you to predict whether or not people will choose to eat tomorrow, regardless of their choices.

And yet we keep predicting it, and it keeps coming true.

Major_Freedom: A priori deduction is knowledge that does not ARISE out of experience.

In the case of Maxwell, he started with a few empirical discoveries. From there, he made a series of generalizations encapsulated in his equations. These equations then resulted in predictions that were subject to further testing. That's called the scientific method, just as we described above.

Major_Freedom: "prices are determined according to supply and demand", these are propositions that begin with experience, but they do not arise from experience. They don't need future "testing" once they are known.

Sure they do if they are to have scientific validity, and as there are a number of parameters that can affect the relationship, including the knowledge and the relationship of market participants, it is constantly being subject to testing.

Major_Freedom: Or how about the minimum age laws. Suppose I told you "If the minimum wage were raised to $100,000 per minute tomorrow, then all else equal, unemployment will go up", would you say that I am not entitled to claim to knowing it, until it is actually tried?

You are very confused about the scientific method. For example, Newton proposed laws of motion. These laws were tested in a wide variety of different circumstances. From these laws we can predict the weight due to gravity someone would experience on the Moon. It didn't require going to the Moon to have a great deal of confidence in this prediction, so much so that it was considered a fact long before humans went to the Moon.

Similarly, the laws of supply and demand have been confirmed in a wide variety of different circumstances. We can then predict with confidence what would happen in your scenario.

That's the whole point of the scientific method, to be able to make reasonable generalizations from limited information.

Zachriel said...

Major_Freedom: It arises from understanding.

Yes, but an understanding that is ultimately grounded in experience. Look at the scientific method again:

1. observation
2. generalization
3. prediction
1. observation

The process of generalization can come from any number of sources, from deep-thought or vast experience in a field of study, but also from a hunch, a dream (Kekulé), serendipity, an inspiration, from fanciful thought-experiments (Einstein), a lucky guess, or even while playing cards (Mendeleev). But the end result is a hypothesis of some sort that can lead to new predictions, which must be entailed in (a logical consequence of) the hypothesis, and should be specific and distinctive to the hypothesis.
http://zachriel.blogspot.com/2005/08/scientific-method.html

Major_Freedom: Maxwell derived his theory a priori by in part drawing on the experimental work of Weber and Kohlrausch. It isn't entirely based on experimental work.

Scientists, such as Maxwell and Einstein, worked on the process of generalization, what we call theory. But the theory has to be reasonably consistent with existing empirical knowledge, that is, with observation, and be able to make new empirical predictions that can confirm and possibly expand the theory.

Major_Freedom: If any physicist claims to have violated Maxwell's a priori equations through experiment, then almost every physicist will "side" with the a priori equations and question the experiment.

Again, Maxwell based his equations on experimentally derived axioms. The equations follow from the axioms, but if the axioms were wrong, if the original experiments that formed the basis for the axioms had been in error, then the equations would have no scientific validity.

Major_Freedom: The hypothetico-deduction model is NOT "the heart" of the "the" scientific method. It is ONE method of science, it is the heart of ONE scientific methodology.

Can you point to a major scientific journal and published research that doesn't work with hypothesis testing?

Major_Freedom: Zombies? How how delightful.

Zombies are a standard in philosophy.
http://plato.stanford.edu/entries/zombies/

Major_Freedom: If a zombie uttered the sound "humans act", then that can't be logically considered an argument, ...

The whole point is you can't tell if the utterance is made by a zombie or not.

Major_Freedom: Reasonable based on what?

It depends on the definition of volition we are using. Sufficient for "man acts" just means you can determine that they have a goal, perhaps they state it aloud, they formulate a plan, maybe they write it down, then they act on that plan to achieve the stated goal.

Major_Freedom: I said PURPOSEFUL goal seeking. Not just looking like goal seeking.

Purpose just means having a goal. Perhaps you are referring to consciousness.

Major_Freedom: How is that "in other words"?

In that you just posted three more paragraphs without deducing a single thing from your single axiom. Perhaps it's like fairies, they disappear when you turn to look at them.

macroman said...

'MF Claims if any physicist claims to have violated Maxwell's premises scientist will side with Maxwell.

In fact, physicists will repeat the supposed violating experiment. They will puzzle about the contradiction. They may leave it unresolved for sometime. They may continue to use maxwells equations were they work. If there is enough conflicting evidence physicists will knowthere is something wrong with maxwells theory and treat it with caution. Eventually a NEW theory will be accepted, physicists assume. They are waiting for a good quantum theory of gravity for example.

The question for AE is can it be updated, or has the final word been spoken? It looks to me that AE is stuck in an ossified state, in conflict with the evidence of the great depression and the current problem, despite the ad hoc claim that the gummermint or Alfa Romeo currency (sorry, I mean fiat currency) is responsible for everything bad.

Bala said...

"It looks to me that AE is stuck in an ossified state, in conflict with the evidence of the great depression and the current problem,"

Nonsense. ABCT perfectly explains the GD and the current economic situation.

"despite the ad hoc claim that the gummermint or Alfa Romeo currency (sorry, I mean fiat currency)"

That you say ad hoc only shows how vacuous you are. There is an entire body of theory that explains the connection.

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