Monday, February 6, 2012

Russ Roberts on "Postwar Austerity"

I know, I know, Keynesians never are wrong. Only government spending can give us prosperity, and that certainly is what the greatest of the Keynesians were saying as the end of World War II approached.

Russ Roberts of George Mason University has this wonderful post that I am sure never will make it to Paul Krugman's articles or blog. (HT, Christopher Westley)

Here is a great quote from...Paul Samuelson, Mr. Keynesian himself:
When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable–were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties–then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced.

(From Paul Samuelson, “Full Employment after the War,” in S.E. Harris, ed., Postwar Economic Problems, 1943.)

224 comments:

1 – 200 of 224   Newer›   Newest»
morse79 said...

"I know, I know, Keynesians never are wrong. Only government spending can give us prosperity, "

Ha ha ha! You criticize Krugman without even reading him!

From yesterday's blog -
"Just a brief further thought on the anti-Keynesian flip-out. Consider three propositions:

1. Deficit spending is expansionary, other things equal.

2. Deficit spending is always expansionary.

3. Only deficit spending is expansionary.

Keynesian economics basically asserts proposition 1. Testing that proposition is tricky, but that’s always the case in economics; you have to look for natural experiments, or be very careful about controls. Christy Romer talks about this in her excellent speech (pdf) on the topic. But when you do it right, the evidence strongly supports proposition #1.

Proposition #2 is, well, stupid. It’s what you see in bad comment threads, where people rant about how if Keynesian economics was right, Greece would be a miracle economy.

And proposition #3 is worse. Which is why I am boggled to see professional economists apparently believing that this is the proposition to focus on."

Major_Freedom said...

morse79:

"Ha ha ha! You criticize Krugman without even reading him!"

No, that's what Krugman says.

"Consider three propositions:"

"1. Deficit spending is expansionary, other things equal."

"2. Deficit spending is always expansionary."

"3. Only deficit spending is expansionary."

Krugman always writes 3.

"Keynesian economics basically asserts proposition 1."

And is wrong.

"Testing that proposition is tricky, but that’s always the case in economics; you have to look for natural experiments, or be very careful about controls."

We don't need to "test" the proposition that government steals money, allocates money according to political and not economic goals, and reduces the standard of living of private property owners.

"Christy Romer talks about this in her excellent speech (pdf) on the topic."

Romer? You mean the economist who said tax cuts are expansionary? She should call Krugman.

"But when you do it right, the evidence strongly supports proposition #1."

You can't observe the counter-factual world that would have existed had deficit spending not taken place. There is no "empirical evidence" of such a thing to compare.

"Proposition #2 is, well, stupid. It’s what you see in bad comment threads, where people rant about how if Keynesian economics was right, Greece would be a miracle economy."

It's what Krugman always writes.

"And proposition #3 is worse. Which is why I am boggled to see professional economists apparently believing that this is the proposition to focus on."

Email Krugman.

Lord Keynes said...

"Only government spending can give us prosperity, ..."

Yet another contemptible caricature.

GDP = C + I G + (E - M)

In the absence of adequate levels of C, I or E, G will be required to restore prosperity in a recession. That does not deny that, in some circumstances, in fact C, I, or/and E could surge and provide the necessary demand. Keynesianism has never denied, for example, that export-led growth might provide a stimulus to an economy shocked by recession, if the export surge was large enough (though in practice one rarely finds it, witness Latvia or Estonia, Ireland).

"and that certainly is what the greatest of the Keynesians were saying as the end of World War II approached."

Ggreatest of the Keynesians??
False:

“Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.”
D. C. Colander and H. Landreth (eds), The Coming of Keynesianism to America, E. Elgar, Cheltenham. 1996. p. 202.

What we have above in your post is a risible, ignorant analysis, one which ignores what Keynes — the founder of Keynesian economics — thought about this question.

Samuelson was simply wrong; Keynes was right. Simple as that.

http://socialdemocracy21stcentury.blogspot.com.au/2011/07/post-1945-boom-in-america.html

Americans had accumulated vast savings during the war: some $100 billion by 1944 including $43 billion in savings and money.

American consumers could not spend the money on consumption during the war, owing to shortages, rationing and the fall in production of consumer goods. Unless you seriously believe that the desire to consume — to satisfy your subjective utility preferences by buying commodities — does not rise with income, then the post war boom was the result of the liberation of pent up demand for consumer goods and above all housing.

When the first normal post-WWII recession came in November 1948 to October 1949. Truman’s budget surplus of 4.6% of GDP in fiscal year 1948 fell to 0.2% in fiscal year 1949, as spending went from $29.8 billion in 1948 to $38.8 billion in 1949, as automatic stabilizers kicked in. In fiscal year 1950 (July 1, 1949 to June 30 1950), the budget went into an actual deficit of 1.1% of GDP. Moreover, Congress had pushed through a tax cut in 1948, which boosted private spending in 1949. What we have here is classic Keynesian countercyclical fiscal policy.

http://socialdemocracy21stcentury.blogspot.com.au/2011/01/keynesianism-in-america-in-1940s-and.html

Bob Roddis said...

Jonathan F. Catalan notes that LK still does not understand the concept of "economic calculation".

http://www.economicthought.net/blog/?p=570

Frankly, I know of no non-Austrian or anti-Austrian that understands it. That is why they focus on peripheral inconsistencies and CPI predictions. Am I wrong?

Further, the only way that one could possibly be a Keynesian is through purposeful failure to understand basic Austrian concepts.

Tel said...

morse79,

I half agree. It is important to distinguish between Keynesian theory and Keynesian practice. Often Prof Anderson gets a bit lazy on that fine point.

Krugman is careful to advocate Keynesian theory, which requires that government save up money when times are good, in order to splurge when times are bad. However, this also requires that government can accurately predict that the economy will get better or worse in the future. If we know the economy is going to get worse, then we should save now, but if we know the economy is going to get better then we should spend now. Sadly, we don't know either. And government knows a bit less than that.

For example, around 2000 the US slid into a minor recession and George Bush used Keynesian deficit spending to pull out of that small recession -- thus creating additional debt to kick on down the line to Obama. This seemed reasonable until a much bigger downturn hit in 2008, at which point we discovered that actually back in 2000 we should have been saving for that eventuality.

In turn, Obama applied Keynesian deficit spending to pull out of the 2008 recession and kick the can just a little further with an even bigger debt that Bush. Whoever comes next (probably Mitt Romney) will very likely argue the same, but everything will need to be 3 times bigger than before. Around we go.

As I'm sure I've said before, this is known amongst gamblers as playing a Martingale. It was a popular strategy for a while, until people saw what happened at the end.

Major_Freedom said...

LK:

"Only government spending can give us prosperity, ..."

"Yet another contemptible caricature."

It's accurate. You're a caricature.

"GDP = C + I G + (E - M)"

To Keynes, C + I and (X - M) would eventually hit 0 if it weren't for government spending. Without government spending, specifically in the form of deficits, there would allegedly be too much savings out of the C+I+(X-M) incomes in a free market, and that will allegedly reduce the rates of profit and generate unemployment, which will then reduce spending and the rate of profit even further until a liquidity trap ensues, at which time the economy will go down a deflationary death spiral and fire and brimstone will be unleashed on Earth.

Government spending magically cures this alleged self-destructive tendency of free trade.

"In the absence of adequate levels of C, I or E, G will be required to restore prosperity in a recession."

Adequate levels? What you claim to know is "adequate" is in fact based entirely on arbitrary assumptions. Your last pathetic attempt to "explain" the 4 steps of how the state applies Keynesian dogma was thoroughly demolished, and you didn't respond to any of the refutations, and you just cowered back under your rock as if those refutations don't even exist.

"That does not deny that, in some circumstances, in fact C, I, or/and E could surge and provide the necessary demand."

Not denying is not the same thing as accepting. "Not denying" is a no man's land of uncommitted unstated position.

And you are totally up the creek when you talk about "necessary demand". Aggregate demand DOES NOT drive the economy. You know why people keep identifying you as someone who has no clue about the concept of economic calculation? It's because you keep making the Keynesian mistake of treating aggregate demand as the primary force in driving investment, employment and output.

Every time you say "adequate aggregate demand", you are displaying utter ignorance of economic calculation.

"Keynesianism has never denied, for example, that export-led growth might provide a stimulus to an economy shocked by recession, if the export surge was large enough (though in practice one rarely finds it, witness Latvia or Estonia, Ireland)."

"Never denied" and "might" is yet more uncommitted non-acceptance passive sophistry. Your statements here would be treated as honest if you actually ever called for lower government spending, EVER.

"and that certainly is what the greatest of the Keynesians were saying as the end of World War II approached."

There is no such thing as "export led growth." That is just ancient mercantilist fallacies based on distorted gold standard thinking rearing its head. The belief is that the more an economy exports, the more money and therefore the more "spending" comes back in. The error in that view is the same Keynesian dogma of believing that money and spending are what drives an economy. The more money that comes in, the more prosperous that economy will become because there's more "spending". Again you show your utter ignorance of economic calculation.

Major_Freedom said...

LK:

"Greatest of the Keynesians??"

"False:"

"Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem."

"D. C. Colander and H. Landreth (eds), The Coming of Keynesianism to America, E. Elgar, Cheltenham. 1996. p. 202."

The ACTUAL quote from that book:

"As I recall, Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem."

Note how LK conveniently left out the crucial words that cast doubt on whether Keynes ever did say what he said. Note how LK didn't provide an actual quote from Keynes, even though Keynes had MANY opportunities to say what he expected will happen after the war ended and government spending came back down.

Just more risible sophistry from the idiot LK.

"What we have above in your post is a risible, ignorant analysis, one which ignores what Keynes — the founder of Keynesian economics — thought about this question."

What we ACTUALLY have is you LK, a sophistic blogging pedant who is providing Austrians with endless enjoyment of watching you cherry pick data until the cows come home, and in debunking your rambling nonsense.

"Samuelson was simply wrong; Keynes was right. Simple as that."

No, it's not as simple as that. You have absolutely no credible source for Keynes ever saying what you quoted him as saying. If I showed you a source that shows somebody saying "As I recall, Hayek did predict what will happen exactly as it happened, notwithstanding what he actually published", you'd write 14 blog posts yammering on about how your opponents are not presenting credible evidence.

"Americans had accumulated vast savings during the war: some $100 billion by 1944 including $43 billion in savings and money."

Do you have any clue why that occurred? It was because of price controls and rationing, in combination with inflation.

"American consumers could not spend the money on consumption during the war, owing to shortages, rationing and the fall in production of consumer goods."

American consumers could not buy products right after the war ended until there was prior saving and investment in the production of those consumer goods. Consumer spending doesn't drive the economy. Without saving and investment, more consumer spending will just increase consumer goods prices.

Major_Freedom said...

LK:


"Unless you seriously believe that the desire to consume — to satisfy your subjective utility preferences by buying commodities — does not rise with income, then the post war boom was the result of the liberation of pent up demand for consumer goods and above all housing."

The concept of "pent-up demand" is absurd. It rests on the fallacious belief that humans have only a limited desire for wealth, such that if they have too much, there is less "room" in the economy to produce and consume more, whereas if wealth is destroyed, if wealth is absent, then there is allegedly more "room" available in the economy for people to produce and consume more.

Your worldview actually places a value on the absence of wealth, rather than wealth.

In contrast to that absurdity, economists know that the last thing thing that is needed is to increase the need for wealth by destroying wealth. It is wealth, and not the need for wealth, that should be produced.

After the war ended and people went back to civilian production, the replacement of wealth that was diverted to the war effort is gone forever. What was lost came at the expense of new and additional civilian goods that otherwise could have been produced, and at the expense of the leisure that people could have had. Had there been no delay in the production of civilian goods, then not only would those civilian goods could have been produced, but other goods in addition could also have been produced.

"When the first normal post-WWII recession came in November 1948 to October 1949. Truman’s budget surplus of 4.6% of GDP in fiscal year 1948 fell to 0.2% in fiscal year 1949, as spending went from $29.8 billion in 1948 to $38.8 billion in 1949, as automatic stabilizers kicked in. In fiscal year 1950 (July 1, 1949 to June 30 1950), the budget went into an actual deficit of 1.1% of GDP. Moreover, Congress had pushed through a tax cut in 1948, which boosted private spending in 1949. What we have here is classic Keynesian countercyclical fiscal policy."

And then we had a recession soon after, exactly caused by Keynesian policies. And not because aggregate spending fell at the time, since that was a symptom of the problem, but because of prior government meddling.

macroman said...

One of the things the government did out of the fear of unemployment at the end of WWii was the GI bill. By paying for GIs to go to college it was hoped to keep them out the work force for a while and it probably did in fact lower the unemployment relative to what might have happenedvwithout it.

But, of more interest is A side effect. It produced a better educated US workforce, probably helping post war prosperity in the long run. This system-wide effect of education is one of the reasons that governments fund education for everyone up to a certain level, and may be the reason the state of Maryland has a state university system, which I guess but don,t know, is subsidized to some extent by all the citizens of MD.

macroman said...

Bob roddis. You are constantly claiming your critics don't understand Austrain economics. I came thru the Ayn Rand, rothbard, Henry Hazlitt, Hayek, mises route (also knut wicksell whom Hayek said some interesting things about) i have changed my mind, first to friedman and monetarism and now have consider Keynes more seriously. I think all of these, well ... except Rand and rothbard, have interesting things to say andcondone reject everything hey say. You can say I didnt properly understand. But how about Bryan Caplin, economist of George mason university - I think he has an article entitled "why I am no longer an Austrian economist" and you can see him debating an Austrain economist on YouTube. One can understand AE and think it has flaws.

Lord Keynes said...

"The ACTUAL quote from that book:

"As I recall, Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem" .... Note how LK conveniently left out the crucial words that cast doubt on whether Keynes ever did say what he said


LOL... The words "as I recall" do not cast doubt on Keynes's statement. No one has ever charged that Musgrave was mistaken or "made it up." Quite the contrary: in Keynes's pamphlet "How to pay for the War", he said much the same thing: that savings during the war, released afterwards, would avert a post war slump.

"American consumers could not buy products right after the war ended until there was prior saving and investment in the production of those consumer goods."

Of course there was investment, consumption and investment being both important parts of GDP.

And corporate dissavings were used to finance investment too: the massive pent-up housing demand driving investment in housing.

This doesn't refute anything I said.

Major_Freedom said...

LK:

"The ACTUAL quote from that book:

"As I recall, Keynes harshly rejected the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem" .... Note how LK conveniently left out the crucial words that cast doubt on whether Keynes ever did say what he said"

LOL... The words "as I recall" do not cast doubt on Keynes's statement.

No you putz, it casts doubt on the man who claimed to have heard it said by Keynes. That isn't Keynes' writing. That is someone saying "they recall" Keynes having said it.

The fact that you purposefully omitted "As I recall", even though it is crucial to providing context, only shows the risible extent to which you will be intellectually dishonest in advancing your stupid assertions.

"American consumers could not buy products right after the war ended until there was prior saving and investment in the production of those consumer goods."

"Of course there was investment, consumption and investment being both important parts of GDP."

No, you misunderstand. An increase in consumption in a division of labor society is IMPOSSIBLE without saving and investment. It's not just that investment and consumption are on equal conceptual footing because they both count towards aggregate spending statistics like GDP, which the state has an interest in maximizing for the purposes of taxing the transactions that make up aggregate spending.

There could not be a post war boom unless there was a post war saving and investment boom. The "pent up consumer demand" story is fallacious. A rise in consumer demand without a rise in saving and investment will just raise consumer prices and both real production and real consumption will be unchanged.

The real reason 1946 boomed was because of a huge increase in saving and investment that was made possible due to the massive collapse in government spending money that originally diverted savings from private investment, to the war effort instead.

"And corporate dissavings were used to finance investment too: the massive pent-up housing demand driving investment in housing."

False. You are again making the fallacious assertion that "pent up consumer demand", and hence consumption, drives investment. No, consumer demand only REDIRECTS where capital spending goes. It doesn't CREATE capital spending, it doesn't DRIVE capital spending. It tells producers what to invest in among competing alternatives. Consumer spending and investment spending are actually in competition with each other. There cannot be a boom in housing unless there is a boom in saving and investment in housing. This money doesn't come from the consumers, it comes from investors. Consumers who have money doesn't ensure that investors have money to invest to earn a profit off consumer money.

"This doesn't refute anything I said."

Oh yes it does. You're just unable to think outside the irrational consumptionist box.

Mike Cheel said...

What is the Keynesian explanation for severing the tie between gold in 1971?

Major_Freedom said...

Mike Cheel:

"What is the Keynesian explanation for severing the tie between gold in 1971?"

On the record: "Gold is deflationary and can set economies down a deflationary spiral, causing unemployment, drops in output, and economic stagnation."

Off the record: "Gold prevents the state from spending more, and we want the state to spend more because we would rather not understand how the market works. It's too scary and when we're scared, we want mommy and daddy to take care of us."

Tel said...

Macroman, if you are coming to Keynesian economics from an Austrian viewpoint, then how do you reconcile this:

"In dealing with the theory of employment I propose, therefore, to make use of only two fundamental units of quantity, namely, quantities of money-value and quantities of employment. The first of these is strictly homogeneous, and the second can be made so. For, in so far as different grades and kinds of labour and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined for our purpose by taking an hour’s employment of ordinary labour as our unit and weighting an hour’s employment of special labour in proportion to its remuneration; i.e. an hour of special labour remunerated at double ordinary rates will count as two units. We shall call the unit in which the quantity of employment is measured the labour-unit; and the money-wage of a labour-unit we shall call the wage-unit.[5] Thus, if E is the wages (and salaries) bill, W the wage-unit, and N the quantity of employment, E = N.W."

From the General Theory, Ch 4, explaining how the aggregates are created, emphasis added by me.

The problem with this should be obvious -- it assumes that the labour market has no dynamic price setting mechanism. That is to say, one plumber is always worth a fixed number of electricians, and so on right through the market. Once you assume that, you have removed the entire concept of a market.

However, if those relative adjustment factors in the aggregate function are left free to float... what does the aggregate mean anymore?

I get stuck at that point every time, it's just not a viable approach as far as I can see.

Bob Roddis said...

I still see no evidence that Macroman understands the concept of EXCHANGE or economic calculation. In every exchange, there is demand and supply on each side. We’ve again determined that LK surely does not understand these concepts.

http://www.economicthought.net/blog/?p=594

Further, there is no reason in fact, logic or history to believe that the free market requires “stimulus”, either “fiscal” or “monetary”. The free market does not suffer from structural unemployment and an “economy” does not have or lack “traction”.

There is no antecedent basis to employ money dilution or spending to “cure” price dis-coordination which was caused in the first instance by various statist interventions. One can only be a Keynesian by purposefully ignoring the basic attributes of human existence which are exchange and economic calculation.

Bob Roddis said...

The MMTers originally started out as a really bad joke. But now, in their stupidity and deep deep ignorance, they have gone too far.

Sounds like the FBI may be concerned about Ron Paul's campaign supporters [ ;) ] or perhaps more generally they are concerned about extreme Libertarians of the Right from a law enforcement perspective.

This is where ignorance about our modern monetary systems can lead: extremism, threats of violence, and accordingly, surveillance. I'm sure many (but probably not all the "hard cases") of these people would not be driven to this form of anti-social behavior and rebellion if they could see their way into the MMT paradigm and truly reach an understanding of how our monetary system operates.

It's really a shame, and many so-called "experts" that these people listen to are very much to blame for provoking these heavy handed policies.


http://mikenormaneconomics.blogspot.com/2012/02/fbi-warns-of-threat-from-anti.html

macroman said...

RODDIS, I am not sure what I have said that makes you think I don't understand exchange, especially that there is supply and demand. I thought I knew that when someone buys a good he expresses a demand for that good and a supply of money, and that the seller expresses a demand for money and a supply of hat good. I also know that both sides benefit. So I don't understand what I am missing.

macroman said...

Tel, you asked me to reconcile something Keynes wrote (not sure with what must I reconcile it, but)
1 your quote showed he made an approximation. I have no problem with that. You seem to imply the assumption might be true if wages were rigid, and perhaps it is reasonably true if wages are sticky.

2 there are many things about Keynes I am still struggling to understand, but I don't treat him as holy writ, never to be questioned. I dont assume there has been no advance in econmics since the 1930s or even earlier. The reason I make the effort with keynes is the prediction I see Krugman made that there would be no massive increase in prices after qe1 and 2, while every vestigial Austrian instinct and monetarist instinct made me think otherwise. I am impressed by results.

macroman said...

Roddis, I wonder what you think of Bryan Caplan's basic objection to ABCT. He asks why is business fooled by the Artificial lowering of interest rates into making bad investments? Business knows by now that interest rates rise and fall and that fed has something to do with this. Why make an investment that relies on interest rates always being as low as they are at the moment? Caplan thinks his is not rational behavior especially since it ignores long term interest rates which are a prediction by the maret that rates are going to change. Why not make investments that account for rates possibly changing? What do you think?

Bob Roddis said...

To the extent that someone disputes that low interest rates are the sole cause of miscalculation, I agree with that. Our fiat money loan system not only distorts interest rates (the most important price(s)), but all prices of all factors. Further, fiat money loans create Cantillon Effects such that persons getting the new money first are in effect stealing purchasing power from those holding existing money. Prices are the method by which economic calculation functions and distorted prices will distort economic calculation even among people who know what is actually happening. The real question is how are people expected to engage in informed economic calculation in the face of prices distorted by Keynesian or monetarist policies?

The most obvious example of mass obliviousness to price miscalculation was in the recent housing bubble and bust. It was clear early on that the prices being paid for houses were based upon what one hoped the house might sell for in the near future as purchased with new funny money loans. People did not bid up the price of houses with equivalently valued goods and services but with continuous streams of new loans created out of nothing. So, while interest rates were important, probably more important to the hysteria were the climbing prices and the tendency of banks to create these loans out of thin air. Further, for whatever reason, people refuse to understand the cause and nature of inflation and insist upon seeing it as an inevitable and inexplicable force of nature. Don’t ask me why that is. They’re idiots, I suppose. If there is no inflation, there is no need for an inflation hedge. Duh.

When the question is asked why businesses are fooled into making bad investments, I have no idea. Further, a business may need to ride the boom wave simply to survive. Why was the entire world bamboozled by Keynesian theory before the housing bubble? More importantly, why, after the fact, is the obvious cause not understood but is rejected without the slightest understanding of the analysis? Probably at the core is the phony idea that the free market requires “stimulus” and “lacks traction”. Since that is totally absurd and baseless, the proposed Keynesian (or monetarist or other interventionist) “solutions” to the non-existent problems become the problems themselves.

The bigger question is why can’t interventionists understand the concept of economic calculation.

Major_Freedom said...

Bob:

"When the question is asked why businesses are fooled into making bad investments, I have no idea."

It's because they can't observe the real free market undistorted prices. They can only observe the nominal non-market distorted prices.

Some Austrians use the analogy of a jammed radio signal. If a message is sent through a radio frequency that has been jammed, then while the real message is still in the radio signal, the jamming prevents one from discerning the real message.

One can guess what the real message is, but one does not have a clear signal from which to make plans.

Mike Cheel said...

@Major_Freedom

I was hoping to hear one of the 'Keynesian's' in this forum space answer that.

They are unsurprisingly quiet.

I know I will never hear it because the government was printing tons of money more than gold was worth and by 1971 people were starting to prefer the gold to the paper.

I believe the only reason this ploy has worked for so long is because at the same time the US made the deal with Saudi Arabia to only do business in US dollars when it comes to oil. 2 years later all of the OPEC was on board for this. If it were not for this dollar hegemony (which I also believe is losing its luster) things would be much different now.

Bob Roddis said...

MF and Mike Cheel:

I’ve been an Austrian now for 39 years. It still amazes me that peoples’ eyes always glaze over whenever our insights are spoken or explained. One either becomes an Austrian or else one’s eyes glaze over and the brain goes dead. There is apparently no in between.

That’s the endless mystery and it still holds even with Ron Paul getting 15-20% of support.

FYI, we’ve been “debating” LK about economic calculation over at Jonathan F. Catalan’s blog:

http://www.economicthought.net/blog/?p=594

JG said...

Anderson,

Sorry to take this string off topic but I found a good interview you'd like to watch. Your boy Jonathan Macey went on the Daily Show "to school" Jon Stewart. About 12 minutes into the interview he changes his tune and ends up agreeing with everything Stewart says. Check out the link:

http://www.thedailyshow.com/watch/tue-january-31-2012/exclusive---jonathan-macey-extended-interview-pt--3

I give Macey credit for: (a) showing up on a show where he knew his views would be challenged instead of seeking softball interviews on Fox News, and (b) having the integrity to actually change his tune when someone confronts him with facts that contradict his position. You should take a page from his playbook and try broadcasting your views on a more challenging forum rather than getting reach-arounds from your fan-boys on this blog.

Bala said...

" rather than getting reach-arounds from your fan-boys on this blog."

How do you insult people in this manner and then expect them to be nice to you? There is only one response I can think of giving you. And that's the way Persephone describes the Merovingian.

"pompous p&@*k"

JG said...

I call it like I see it. And I see a lot of verbal reach-arounds from guys like you.

Nice Matrix Reloaded reference, by the way.

macroman said...

Re, The distorted signal analogy and confused businesses. If a private very rich individual saves up lots and lots of money in the form of cash over say 5 years, then spends it in one year, he will cause deflation for 5 years and inflation for 1 year, roughly speaking. Will the market be able to handle this, or will it cause a boom then bust? If it does cause a boom bust, then is the business cycle endogenous than economy that uses money?

macroman said...

One of the comments on Russ Roberts blog makes a good point, which I will steal. WWII was a period of massive malinvestment from an Austrian point of view, wasn't it? The government forced production into a form not freely chosen by the market. Wouldn't a good AE economist predict doom and gloom, a recession to get rid of the malinvestment once the artificial demand was over and the government switched into paying for the war, repaying debt? What specifically did Mises or some other certified AE predict about the post war period?

Bala said...

"I call it like I see it."

What IS real? How do you DEFINE real? If you are talking about what you can feel, what you can smell and taste and see, then realis simply electrical signals interpreted by your brain.

macroman said...
This comment has been removed by the author.
macroman said...

The Millenium Bug Effect. Remember the millenium bug: lots of people saying it would be no big deal and lots of over people saying it was or could be a big deal. It rurned out not to be a big deal, but part of the reason is surely that all the warnings got everyone prepared for it; a lot of effort did go in to making it not a problem maybe too much). Were the doom-sayers totally wrong? Probably not, they motived policies to avod the problem.

Maybe there was such an effect with warnings about a post war depression. Things were done about it (like the GI Bill) and I assume other things? All of the doom saying may have had some effect in avoiding the worst possible effects - in the political arena the US introduced the Marshall plan to avoid what was seen as a mistake afre WWI, the harsh demand for reprerations. I am wondering if some econimic lessons were also learned from the post WWI experince and put into practice (like avoiding a return to the gold standrd at prewar parity, see The econimic effects of Mr Churchil by your favorite hate figure. Hayek agree the return to parity was a mistake, he was not a big fan of deflation). Any history buffs out there?

Tel said...

"You seem to imply the assumption might be true if wages were rigid, and perhaps it is reasonably true if wages are sticky."

Sure, so we accept that Keynesian theory is based on a presumption of sticky wages, but at the same time they also claim that they offer the cure to sticky wages, by using inflation to re-jig the overall economic valuations. Imagine you are driving and you keep seeing this smudge on the windshield so you wipe it with your hanky, you give the squirter a go, run the windshield wipers and can't seem to make it go away. Finally you realize that the spot is on your glasses. Get the picture?

Juggling around with those aggregates will never result in an answer that compensates for sticky prices, because the aggregates themselves build-in the assumption that they thing you are compensating must always remain there.

"The reason I make the effort with keynes is the prediction I see Krugman made that there would be no massive increase in prices after qe1 and 2, while every vestigial Austrian instinct and monetarist instinct made me think otherwise. I am impressed by results."

Firstly, there were price increases on the commodity side and most of the material production input costs of in the USA have gone up. The only thing that hasn't gone up is labour costs, and consumer prices, but those are being held down by massive unemployment (and don't even get me started on the official 9% unemployment stats, try finding actual numbers of people who are working).

Secondly, don't get too carried away with short term thinking. Greece managed to carry on pretending all was well for a whole decade before the rug came unravelled. Austrians tend to get a bit sucked into too much focus on inflation and not enough focus on debt-deflation but IMHO the core of Austrian theory predicts that both should happen in turn.

The thing is, a debt-deflation spiral represents the entry of new knowledge into the marketplace. In the Greek case, the new knowledge was a realization that Greeks had been fudging the figures for years and the productivity that supposedly had been calculated actually didn't exist.

Let's suppose you have a favourite cafe and you have been eating there for a year or more and one day you think you are walking out to visit the toilet but you step into the kitchen by mistake. So you see the place is disguising, and there are rats and roaches and half a dead dog is cut up on the bench.

You still have a half eaten meal out there on the table, and for argument's sake let's suppose you already paid for it. It is exactly the same meal you were eating just five minutes ago. See that? But you don't want to eat it now right?

Later your friends ask you why you are bummed out, and you tell them what happened and they tell their friends and suddenly lots of people don't want to go eating out any more. Since they don't trust the health inspectors they play it safe by not eating at any restaurant.

The Keynesian solution is to print lots of restaurant vouchers and then demand that people show they are good citizens by using them. A few years down the track they might raise taxes to pay back those vouchers (so they say anyhow). That's not exactly addressing the problem though is it? Wiping at the spot in the wrong place, there's always going to be a spot there.

Zachriel said...

Tel: Sure, so we accept that Keynesian theory is based on a presumption of sticky wages, ...

Thought that was an observation.

Tel: ... but at the same time they also claim that they offer the cure to sticky wages, by using inflation to re-jig the overall economic valuations.

You mean mitigate the effects of sticky wages, because they don't immediately reflect the expectation of a perfectly frictionless market?

Bala said...

"Thought that was an observation."

Wages are/were $xxx - That's an observation. The reason it is an observation is that it is a descriptive statement that identifies the particular number that represents the magnitude of the subject, "wages".

Wages are sticky - This is not an observation but a proposition that identifies "sticky" as an attribute of the subject, "wages". Observations can be made only about specific. When you are dealing with concepts, you cannot make observations. Any statement made about a concept is necessarily an affirmation or the negation of something about the concept, i.e., of some attribute of the subject.

What is apparent here is your already (many times over) identified deficiency - the inability to distinguish between concepts and concretes and hence to keep mixing them up in your statements. What you think is profound is just a reflection of your complete intellectual incompetence.

Bala said...

Ooops....

"Observations can be made only about specific" to be read as

"Observations can be made only about specific entities"

Zachriel said...

Bala: Wages are sticky - This is not an observation but a proposition that identifies "sticky" as an attribute of the subject, "wages".

Management: Due to a drop in profits, we're going to reduce your wages.
Workers: No way!
Management: Way.
Workers: Strike!!

Workers resist drops in their wages. That is a plain observation. It takes significant time for the labor economy to adjust to lower wages. Often it requires restructuring the workforce (e.g. layoffs, outsourcing).

Bala said...

Ha! Ha! Ha! There you go again revealing your perpetual confusion between concepts and concretes. Your observation can only be used to make a specific comment about the particular workers you observed. So, the only statement you can make is

"The workers I referred to in my cute little story resisted a drop in their wages"

You need to take note of something here. There are 2 (not 1) particular observations. The first is the "particular set of workers". The second is the "particular drop in wages". What you have seen is only a particular set of workers who did resist a particular drop in wages. That leaves you in no position to make a generalised observation about the concept "workers" in relation to the other concept "drops in wages".

So, your claim that "wages are sticky" is an observation still rings hollow.

Bala said...

In fact, all it takes to dispute the truth of the proposition "Wages are sticky" is one example of workers being ready to accept a lower wage. I wonder how you Keynesians demonstrate that it is impossible for such a situation to occur before you claim that the statement "Wages are sticky" is a profound statement on the nature of wages.

Zachriel said...

Boss: Move that heavy box.
Workers push on box, but it doesn't move.
Workers: It's stuck.
Boss: What do you mean it's stuck.
Workers: We push on it and it doesn't move.
Boss: Get more workers!
Workers: Heave-ho!
Box moves.

--
Big Boss: We'll just lower the workers wages.
Economist 2nd Class: In a frictionless economy, that may reduce the number or quality of available workers. There should be some slack, though, as there are still more applicants than job openings.
Boss: Then just lower wages a small amount.
Economist 2nd Class: That should work perfectly!

Management: To increase profits, we're going to reduce your wages.
Workers: No way!
Management: Way.
Workers: Strike!!

Result is disruption of the labor force, loss of clients, loss of sales, loss of profits, not to mention the bad publicity about Big Boss.

Bala said...

Hey insane legion,

While the length of your fairy tale has increased, it still does not address my objection to your claim that the statement "wages are sticky" is an observation. Stop rambling and address the objection instead.

Zachriel said...

Bala: The workers I referred to in my cute little story resisted a drop in their wages

That's right. We can *observe* that wages are sticky in many circumstances. And we can repeat this observation a number of ways. Most every employer knows this. It is much harder to lower wages than to increase them. There is resistance to lower wages.

Bala: In fact, all it takes to dispute the truth of the proposition "Wages are sticky" is one example of workers being ready to accept a lower wage.

No, because we *observe* wages are sticky at least some of the time (indeed much of the time). It also means that, on average, they are stickier than would be predicted by a perfectly frictionless labor market.

Bala said...

Ha! Ha! Ha! All these tall tales still do not address the point that the statement "Wages are sticky" is an observation. It is by nature a proposition that identifies an attribute of the concept "wages". Stop making a fool of yourself.

"No, because we *observe* wages are sticky at least some of the time "

This still does not address my point that all it takes to rubbish the claim that "wages are sticky" is one.... just one.... example of non-sticky wages. So, it is incumbent upon you who makes the assertion to demonstrate that such is indeed the case. You need to either demonstrate through logical argument that "wages" are BY NATURE sticky or accept defeat.

Bala said...

Oops...

"All these tall tales still do not address the point that the statement "Wages are sticky" is an observation."

to be read as

"All these tall tales still do not address the point that the statement "Wages are sticky" is not an observation."

Zachriel said...

To break it down to its components, which is probably only for your benefit, as the previous commentary was quite clear:

Observation 1, decreasing wages causes walkout.
Observation 2, workers are offended, stay on the job, but morale is affected.
Observation 3, workers are just glad they have a job and there is no repercussions.
Observation 4, some workers are disgrunted, but they are replaced in an orderly fashion.

So we observe that wages are often sticky (1&2), and that this diverges from what would be expected based on a model of a perfectly frictionless labor market. The labor market as a whole is not frictionless, but sticky.

Bala said...

"So we observe that wages are often sticky"

This still does not allow you to make the statement "Wages are sticky" which deals with the concept "wages" and not particular wages (which is what all your examples are about).

Bala said...

"The labor market as a whole is not frictionless, but sticky."

Once again mixing up concepts with concretes. In this proposition, the subject is the concept "The labour market as a whole" and it identifies an attribute of the concept. Either that or it refers to the the labour market as a whole at some point in time, in which case it becomes a statement about a particular entity and not a generalised statement about the concept "the labour market as a whole".

Either way, you would have blabbered.

Zachriel said...

So to return to the actual point, absent the diversion.

Tel: Sure, so we accept that Keynesian theory is based on a presumption of sticky wages, ...

Zachriel: Thought that was an observation.

We observe that wages do not always conform to what would be expected by a frictionless labor market, just as we observe that boxes do not always slide across the floor as would be expected by a frictionless physical environment. We *say* that we observe boxes exhibit friction when sliding across the floor (even though in some cases, there may be no friction). We *say* that we observe wages have stickiness (even though in some cases, there may be no stickiness).

The only real question is the degree of stickiness overall when compared to a model frictionless economy, and how significant this is as a factor. There's also a lower bound on wages, as a worker has to earn enough to be sustained, but that can be set fairly low in an industrial economy.

Bala said...

"So to return to the actual point, absent the diversion."

Hello!! That was not a diversion but a takedown of your foolish claim. Is it a general Keynesian trait to shamelessly return to the same nonsense even though it has been demonstrated to be nonsense?

Scott D said...

@JG: "I call it like I see it. And I see a lot of verbal reach-arounds from guys like you."

That's odd. Wasn't this the guy that a few weeks ago told me that libertarians were big into racism? I guess when the hate speech is merely homophobic it is above reproach?

Zachriel said...

Off-topic

JG: http://www.thedailyshow.com/watch/tue-january-31-2012/exclusive---jonathan-macey-extended-interview-pt--3
...
You should take a page from his playbook and try broadcasting your views on a more challenging forum rather than getting reach-arounds from your fan-boys on this blog.


Bala: How do you insult people in this manner and then expect them to be nice to you?

It was a Jon Stewartism, per the citation.

Bala said...

Hey insane legion,

Do I take your avoidance of my objection as an implicit (though obvious) acceptance of defeat in (at least) this argument?

Zachriel said...

Bala: Do I take your avoidance of my objection as an implicit (though obvious) acceptance of defeat in (at least) this argument?

Perhaps English is not your first language?

In English, we *say* that we observe boxes exhibiting friction when sliding across the floor (even though in some cases, there may be no friction). This means that there are specific and particular observations of this phenomena, even if there are some counterexamples.

For most people who wish to communicate, it usually entails asking a few questions to determine the intended meaning— presuming your intent is to communicate rather than obfuscate.

Bala said...

Ha! Ha! Ha!! Still no answer and only evasion. Hilarious. Carry on making a fool of yourself. My job of demonstrating your foolishness is done.

p.s. Just warning you not to comment on my competence in English.

Major_Freedom said...

Zachriel:

Consumers: Produce for us!
Boss: Move that heavy box.
Workers push on box, but it doesn't move.
Workers: It's stuck.
Boss: What do you mean it's stuck.
Workers: We push on it and it doesn't move.
Boss: Get more workers!
Workers: Heave-ho!
Box moves.
Consumers: Yay!

---

Consumers: We demand lower prices!
Big Boss: We'll just lower the workers wages.
Economist 2nd Class: In a frictionless economy, that may reduce the number or quality of available workers. There should be some slack, though, as there are still more applicants than job openings.
Boss: Then just lower wages a small amount.
Economist 2nd Class: That should work perfectly!
Consumers: Yay!

---

Consumers: Produce what we want and not what we don't want, and we'll provide you with enough revenues to cover your costs!
Management: To increase profits, we're going to reduce your wages.
Workers: No way!
Management: Way.
Workers: Strike!!
Consumers: Hire replacement workers or we won't give you our money!
Management: I can't, because the state is forcing me to deal with these lazy assholes rather than those other workers who are willing to work for less!
Consumers: Sorry, we don't care! See ya!
Company goes broke, everyone loses their jobs, unions with state backing become even more negatively viewed.

See, the problem with you conceptual Marxists is that you always always always always ignore the fact that the consumers are the boss. Consumption is the end goal of production. Ends and means. Consumption is the ends, and production is the means. If the ends change, then so must the means. If the consumers demand X, then producers must capitulate and adopt rational planning or else they wan't succeed. This is true for the individual and whole division of labor economies.

If consumers want lower prices, then producers must lower their prices. You conceptual Marxists just view management and "big boss" as autocrats, when in reality they are servants of the consumers, who are the actual management and big bosses in division of labor, capitalist societies.

Major_Freedom said...

Zachriel:

"We observe that wages do not always conform to what would be expected by a frictionless labor market"

We don't have a free labor market that minimizes labor market rigidity, let alone a frictionless labor market that doesn't and can't ever exist.

A frictionless world is a chimera.

The state makes the labor market more rigid by enforcing anti-market laws like minimum wage, licensing, and all the red tape induced higher costs associated with hiring people.

morse79 said...

I know non-military Major! Because life was so much better before those silly laws. It's like people invented them out of thin air! All people were prosperous and happy before 1912 (when MA passes the first minimum wage law).

I guess we should also get rid of voluntary contracts while we are at it too. If I sign a 5 year contract with a business an am expected to be paid $X over that period, but the companies cost structure has changed during that period - well my wage is sticky and is hurting the ever efficient free market! So, let's do away with law and contracts, since clearly it too impedes economic calculation and free exchange.

Major_Freedom said...

morse79:

"I know non-military Major! Because life was so much better before those silly laws."

The ability of people to improve their lives is what was better.

But nice deft switch to the straw man that I am allegedly calling for a return to the absolute standards of living at the time.

You just fallaciously insinuated that the relatively lower standard of living they had was due to the absence of minimum wage laws. What nonsense. They had a lower standard of living because of the lower productivity of labor, which was due to them inheriting a poor agrarian economy.

"It's like people invented them out of thin air!"

Oh I get it, you want to believe in the silly just world fallacy where every law had a good reason for passing and made everyone's lives better off. LOL

They must have made people's lives better off! They passed the laws! All laws are beneficial!

"All people were prosperous and happy before 1912 (when MA passes the first minimum wage law)."

Their ability to improve themselves was greater than it is today.

The last time I checked, the US went from an agrarian society to the world's most prosperous economy the world had ever seen by the late 19th century, and yet, with all our awesome new laws, for some inexplicable reason other countries are now gaining on us and will eventually overtake us. Yeah, just a coincidence.

Your conception of history is a joke.

"I guess we should also get rid of voluntary contracts while we are at it too."

Yeah, why not be an slippery slope idiot for effect?

"If I sign a 5 year contract with a business an am expected to be paid $X over that period, but the companies cost structure has changed during that period - well my wage is sticky and is hurting the ever efficient free market!"

LOL, you let me know the percentage of wage contracts that are fixed for 5 years via contract and then we'll talk. Until then, you're just talking out of your ass.

"So, let's do away with law and contracts, since clearly it too impedes economic calculation and free exchange."

Yes, let's make up crap to use against one's opponents, that way, you don't actually have to address the actual labor market rigidity caused by state intervention. After all, as soon as one addresses state intervention that makes the labor market more rigid, then the context is deftly switched to a morality play, where you commit the fallacy of appealing to emotions, thus totally ignoring the context of economics.

You're so transparent you're like an empty fish bowl.

Zachriel said...

Major_Freedom: Consumers: Yay!

Major_Freedom: Consumers: Hire replacement workers or we won't give you our money!

Not always so easy in the short term. People have to be trained. Some professions require years of training. Another is the cost and risk of moving to new locations. It takes time for workers to be found, relocated and trained. That's the whole point of the scenario and why wages are sticky.

Major_Freedom: The state makes the labor market more rigid by enforcing anti-market laws like minimum wage, licensing, and all the red tape induced higher costs associated with hiring people.

That can also be a factor, as can unions, but the labor market is sticky regardless.

morse79 said...

Oh non-military Major you are really grasping at straws now! Fallacy, I say. Fallacy! Straw man! Straw man!

WRONG. In order for something to be a strawman or fallacy you need to show it. For instance, when prof. Anderson writes that Krugman thinks only deficit spending is expansionary I call it a straw man because Krugman has explicitly written that he does not think this.

Take for instance the claim that laws are not invented out of thin air, but often come to solve a pressing issue. Like sweatshops leading to social protest and...minimum wage laws (among other things). There is a causal link there. Your argument is an untenable counterfactual - that if only people were prescient at the turn of the century, all of that would have worked itself out just fine. And if Cleopatra's nose was smaller the whole of history would have been different.

It is not a slippery slope if you are an Austrian or an anarcho-capitalist who still clings to this belief that if only markets were free of government intervention they would run smoothly. And, in fact several people have 5 years contracts but if that is the sticking point for you lets change it 1 year. Wouldn't it be great if businesses could fire everyone quickly!

Also ironic that it is a slippery slope, but claiming that people who believe in mixed economies and democratic consensus are on the road to totalitarianism and SWAT teams stealing your money.

As far as your "history" lesson goes, you are right that social mobility was probably high in the 19th century. Much of this was brought about by significant technological advances (industrialization) and political change (the conquering of the West). But, then it stopped and backslid - income gaps increased, urban working conditions deteriorated, social mobility stalled, and the US underwent three major depressions (1893, 1907, 1929). The next big expansion in social mobility? 1945-1980 and a brief period in the 1990s during the tech boom.

Not as clear cut as "people could improve themselves more before minimum wage" is it?

Bala said...

"That's the whole point of the scenario and why wages are sticky."

This only says that they are sticky in the short-run. In the long-run, people have to learn or become/stay unemployed. So do you acknowledge that your entire "theory" works ONLY in the short run and hence cannot claim to explain the long-run and hence should not lay claim to the title "General theory"? Do you acknowledge that your "theory"

In any case, your blatant evasion is enough admission of defeat. Thanks for making it this obvious.

Bala said...

"because Krugman has explicitly written that he does not think this."

A man is to be judged by his actions and not by his words. If his writings indicate that he believes in A but he claims to believe in some non-A, what am I to conclude about the person's beliefs and his honesty? You whatever-Keynesians are hilarious. You still do not understand the concept of demonstrated preferences.

Zachriel said...

Bala: This only says that they are sticky in the short-run.

That's right.

"Nominal wages are often said to be sticky in the short run... However, in the long run it will drop to equilibrium level."
http://en.wikipedia.org/wiki/Sticky_(economics)

Zachriel said...

Bala: So do you acknowledge that your entire "theory" works ONLY in the short run and hence cannot claim to explain the long-run and hence should not lay claim to the title "General theory"?

That's just silly. All we've done is note that wages tend to be sticky. That means there is a lag between the price signal and the response. Frictionless models do not accurately represent this aspect of the economy.

Bala said...

" That means there is a lag between the price signal and the response."

Thanks for agreeing with me.

"That's just silly. All we've done is note that wages tend to be sticky."

You are the one being extremely silly. Wages are sticky ONLY in the short-run. That says nothing about the behaviour of wages in the long-term. You have in effect agreed with me when I say that the statement "Wages are sticky" refers ONLY to particular instances of particular workers not agreeing to particular wages that are lower than their previous particular level.

Economics is about the long-term. So, you have added nothing to economic discourse by insisting that wages are sticky in the short-run. The same is to be said of John Maynard Keynes and his General Nonsense.

Tel said...

Here's the sort of problem I'm talking about (note the graph):

http://krugman.blogs.nytimes.com/2011/01/19/the-output-gap/

So we have an aggregate value (GDP) being projected from 2007 into 2011 along some guesstimate curve to make a "Potential GDP" and thus an "output gap" to the real GDP. This presumes that projecting GDP from 2007 into 2011 is a meaningful thing to do.

The problem is that the GDP aggregate is made of a mix of all sorts of economic transactions, and that mix is not constant. Thus, the process of economic restructuring also is a process that changes the very meaning of aggregates such as GDP (and others).

Sure, all human plans and behaviour are "sticky" to the extent that people don't generally just completely reinvent themselves in an afternoon. However, when the economy is in a process of restructuring (and this is pretty much a continual process, with stops and starts included) people change their plans, they change their goals, and their methods. The economy of 2007 is only numerically comparable to the economy of 2011 to the extent that restructuring has NOT HAPPENED. If we understand that some sort of restructuring is necessary, then how will a concept such as "output gap" be of assistance in the process? IMHO not at all.

I accept that we can find some fundamental human commonality -- we all need to eat, we need food and shelter, etc. These things do not change. But the way we achieve those things does change. My grandfather had a coal fire, I have a reverse cycle airconditioner. My great grandfather grew a lot of his own food. In a modern highly-specialized economy this problem is much more significant.

Zachriel said...

Bala: Economics is about the long-term.

Economics is about both the short and long terms, and in this case, how the short term can effect long term trends. Because wages are sticky, it means the economy is not always in equilibrium.

Bala said...

" Because wages are sticky, it means the economy is not always in equilibrium."

Who made the claim that the economy is in equilibrium? And once again, "wages are sticky" is only a description of particular workers refusing to accept a particular lowering of their wages at a a particular instant. To claim that it is in the nature of wages to be sticky is typical, dishonest, Keynesian nonsense.

"Economics is about both the short and long terms,"

Economic theory is concerned only with the long term. The short-run is a fallacious concept with little economic significance.

Zachriel said...

Tel: The problem is that the GDP aggregate is made of a mix of all sorts of economic transactions, and that mix is not constant. Thus, the process of economic restructuring also is a process that changes the very meaning of aggregates such as GDP (and others).

Most economists believe that the economy should be able to grow while making orderly structural changes. That's why, for instance, there is a natural unemployment rate. There are always going to be people in-between.

It's reasonable to say that the current downturn is beyond a normal downturn. The basic idea is to maintain some equilibrium, with downturns offset by upturns, and these fluctuations being moderated
by countercyclical policy. That means applying sufficient stimulus to close the gap.

The problem with Krugman's suggestion of a larger stimulus is that a huge stimulus is sticky too. It's hard for the government to effectively bring that much economic force to bear. There is simply too much inertia in the system. The U.S. may be close to the best trajectory, considering the depth of the downturn.

It would have been better to have followed the Clinton Administration's plan of structural cash surpluses during the expansion. That would have tempered the run-up to the financial meltdown, and left the U.S. in a much stronger financial position to respond to any crisis. The U.S. chose a difference course.

Zachriel said...

Tel: Sure, all human plans and behaviour are "sticky" to the extent that people don't generally just completely reinvent themselves in an afternoon.

...

Bala: And once again, "wages are sticky" is only a description of particular workers refusing to accept a particular lowering of their wages at a a particular instant. To claim that it is in the nature of wages to be sticky is typical, dishonest, Keynesian nonsense.

It's a widespread and well-known phenomena that workers resist wages being lowered, but welcome wages being increased; that finding, training and relocating for jobs take time and money; and that people become comfortable in their current environments.

Bala said...

"It's a widespread and well-known phenomena that workers resist wages being lowered, but welcome wages being increased; that finding, training and relocating for jobs take time and money; and that people become comfortable in their current environments."

More nonsense that fails to recognise that every one of these instances is an example of particular workers resisting particular drops in their wages at particular points in time in particular circumstances. None of these reflects on the nature of wages and says anything at all about the behaviour of wages in the long run. It fails to recognise the fundamental point that labour is a factor of production and in the long run, every factor of production earns its DMVP.

Bala said...

"It's a widespread and well-known phenomena that workers resist wages being lowered, but welcome wages being increased"

This is ridiculously obvious stuff that you are attempting to peddle as profundity. The owner of any good or factor would always like more for his good/factor rather than accept less. It is a fundamental consequence of the fact of human action, i.e., of the fact that man, by nature, engages in purposeful behaviour and the fact that we live in a world of scarcity that man would prefer more of the means to the attainment of his ends to less of them. What you are missing out is that merely wanting more and being stubborn about it does not get people what they want. At the end of the day, the customer decides who gets what and how much by their choices of what to spend their money, time and energy on.

So, this statement is meaningless except in a trivial sort of way.

Zachriel said...

Two responses to the same comment.

Bala #1: More nonsense ...

Bala #2: This is ridiculously obvious stuff ...

Heh. You're funny.

Bala said...

"Heh. You're funny."

You are ridiculous, especially when you respond like this to someone who has demolished your claims and positions and shown you to be a peddler of nonsense. You are well and truly insane.

morse79 said...

Give it up Zachriel. Haven't you realized that bala is really just a huge Matrix fan? Remember, there is no spoon...

Or like a child discovering the obvious. That is why he has to yell, scream, and call people names.

Bala said...

"Or like a child discovering the obvious. That is why he has to yell, scream, and call people names."

While you go around blabbering and spraying long-since-discredited-and-intellectually-demolished Keynesian nonsense. Orwell came up with the term "blackwhite" especially for you whatever-Keynesian tyrants.

Incidentally, I did demolish Zachriel's nonsense and showed him to be a fool. If you can't demonstrate that I am wrong in saying so, at least have the grace to spare me the nonsense.

Bala said...

"Remember, there is no spoon..."

Yes, Agent Jones.

Bala said...

morse79,

Here's Morpheus describing the Keynesian.

"The Matrix is a system, Neo. That system is our enemy. When you’re inside, you look around, what do you see? Businessmen, teachers, lawyers, carpenters – the very minds of the people we are trying to save. But until we do, these people are still a part of that system and that makes them our enemy. You have to understand. Most of these people are not ready to be unplugged. And many of them are so inert, so hopelessly dependent on the system, they will fight to protect it."

I look around me and I see Keynesian tyrants all over the place.

morse79 said...

Right....A little too much time in your mom's basement bala.

Meanwhile I'll be here in reality, and actually working for a living (in a real economy, where wages are in fact sticky), instead of incessantly posting insults and amateurish philosophical nonsense you grabbed from Ayn Rand and the Matrix (which clearly only you understand since the rest of us are idiots.) on blogs and thinking that somehow you are Neo fighting the machine.

Bala said...

"where wages are in fact sticky"

It's amazing how every Keynesian idiot (pardon the redundancy) keeps parroting this nonsense even after it has been shown over and over again that it is nonsense.

"which clearly only you understand since the rest of us are idiots."

You ARE an idiot. You prove it again and again. Just see the previous para of mine.

Bala said...

"thinking that somehow you are Neo fighting the machine"

I don't know if I am Neo, but you definitely are as close to an agent as they get. We (thinking humans) are the virus and you are the cure, right?

Mike Cheel said...

I'll just leave this right here...

http://www.tampabay.com/features/food/restaurants/food-prices-in-2012-may-be-hard-to-stomach/1210880

Tel said...

Zachriel: "It would have been better to have followed the Clinton Administration's plan of structural cash surpluses during the expansion. That would have tempered the run-up to the financial meltdown, and left the U.S. in a much stronger financial position to respond to any crisis. The U.S. chose a difference course."

Keynesian practice can be reduced to this simple mnemonic:

Saving yesterday,
Saving tomorrow,
But always spending today.


So if Keynesian economists could see the future and rewrite the past they would know exactly why they should be spending other peoples money right now. There's two small problems though: Keynesian economists can't see the future, nor can they rewrite the past. But they can spend money, that bit always works.

When it comes to the Clinton surplus, take a look at a chart of US treasury debt and the US debt ceiling -- neither of these figures ever goes backwards. If there was any genuine "saving for a rainy day" happening in the Clinton government, then at least you would expect the actual treasury debt to have gone down -- but it never did. The best you can say for Clinton is that he stopped things from getting worse.

Everyone else apart from Clinton, didn't even make an effort to keep the debt under control. Suppose I went to my boss for a pay rise and he says, "Sure you can get a 10% pay rise but I have to take out a loan to pay for that so I want you to pay the interest on that loan."

Thus, if GDP grows by 10% and total debt also grown by 10% then actually, nothing has grown at all.

Going back to Krugman's "output gap" and the meaningless Keynesian aggregate comparison. A fair chunk of the 2007 GDP was created by the US financial industry. An industry that has been steadily occupying a larger and larger fraction of GDP as other US industries (factories, etc) are being closed down. Part of the 2008 crash was the realization that the financial industry was not sustainable. The restructuring is far from complete, but when you look at that "output gap" is just blindly presumes that everything could have continued exactly as before. Newsflash: there's a real world out there and watching GDP bob up and down tells you nothing about that world.

Tel said...

Mike Cheel, hasn't anyone explained to you that food prices are irrelevant when it comes to calculating inflation?

What you have to understand is that when people can't get jobs that's involuntary. But when people buy food to eat, that's voluntary.

Bala said...

"Meanwhile I'll be here in reality, and actually working for a living (in a real economy, where wages are in fact sticky)"

This part is absolutely priceless and reflects the insanity of the whatever-Keynesian tyrant. You say "Wages are in fact sticky" ignoring the role of the consumer in deciding which products sell, which firms thrive and who retains employment and where and YOU live in the real world while he who recognises the supreme role of the consumer in this entire process and says that workers who stubbornly resist consumers preferences will eventually be forced to stop whim-worshipping and face reality lives in his mom's basement? WOW! You whim-worshipping whatever-Keynesian idiots are truly beyond redemption.

Your claim to "live in reality" is truly hilarious. The inside of your backside is not reality. Take your head out and see the real real world.

Zachriel said...

Tel: Keynesian practice can be reduced to this simple mnemonic:

Saving yesterday,
Saving tomorrow,
But always spending today.


That's a tendency of governments, a ratchet effect, but not an inevitability. As we pointed out, the U.S. had structural cash surpluses not so long ago. Many democratic countries have less debt problems than the U.S. Some have more. It's a choice people make to vote for politicians who sell easy answers to difficult problems.

Tel: When it comes to the Clinton surplus, take a look at a chart of US treasury debt and the US debt ceiling -- neither of these figures ever goes backwards. If there was any genuine "saving for a rainy day" happening in the Clinton government, then at least you would expect the actual treasury debt to have gone down -- but it never did.

Having a cash surplus is a definite plus. Debt owed to the public decreased, while total debt, which includes the trust funds, was in balance—a far better course than the one America chose after Clinton left office.

Tel: Mike Cheel, hasn't anyone explained to you that food prices are irrelevant when it comes to calculating inflation?

Of course, food is relevant, and constitute a significant portion of the typical market basket used to calculate inflation. Economists will look at inflation with and without the volatility of food and energy. Here's a typical report:

"The all items index has risen 3.0 percent over the last 12 months, a decline from last month's 3.4 percent figure. Recent declines in the energy index have brought its 12-month change down to 6.6 percent from 19.3 percent in September. The 12-month change in the index for all items less food and energy held at 2.2 percent, while the 12- month change in the food index edged up from 4.6 percent to 4.7 percent."
http://www.bls.gov/news.release/cpi.nr0.htm

Bala: You say "Wages are in fact sticky" ignoring the role of the consumer in deciding which products sell,

No one is ignoring the role of the consumer. Rather, you are creating some sort of strawman because stickiness was mentioned, which is just one of many factors in the market economy.

Bala said...

"No one is ignoring the role of the consumer."

Utter, unadulterated nonsense and a lie as brazen as brazen can be. Anyone who talks of "sticky wages" is necessarily ignoring the point that in the long-term, short-term stickiness is eliminated by consumers' choices of spending their money. You whatever-Keynesian whim-worshippers ARE ignoring the centrality of the consumer.

"Rather, you are creating some sort of strawman"

YOU are creating false gods like "sticky prices" and are worshipping the whim that by reciting that nonsense ad nauseum, the supremacy of the consumer can somehow be eliminated from the discussion and, maybe, even the real world.

"because stickiness was mentioned, which is just one of many factors in the market economy."

Once again, utter unadulterated nonsense. In the long-run, stickiness of wages is totally irrelevant and Economics IS about the long-term and NOT the short-term. And.... very importantly, you CANNOT talk only of the short-term and claim that your "theory" is "General". Keynesian gobbledygook is priceless. Keynesian buffoons are hilarious. You and your fellow trolls out here prove that over and over again.

Bala said...

To all Keynesian trolls on this comment board,

See what nonsense you have bought into. Here is Keynes stating the "classical position" on unemployment.

"The utility of the wage when a given volume of labour is employed is equal to the marginal disutility of that amount of employment."

This is straight out of "The General blah blah blah". Can you see the utter idiocy behind this statement? No? OK. Here it is.

First, "utility" is the subjective appraisement of the usefulness of a means towards satisfaction of ends. It is subjective and ordinal. You cannot technically equate the utility of different economic goods because......that's what makes them "different" economic goods in the first place. You definitely cannot equate the utility of the wage of a given volume of labour (assuming that we are still talking of 1 individual because it makes no sense otherwise) to the marginal disutility of that amount of employment. To speak thus is the first aspect of the idiocy of this statement.

Second, the "utility of the wages of a certain volume of labour" is the subjective appraisement of the usefulness of the wage income in enabling the procurement of the desired consumers' goods. The "marginal disutility of that volume of employment" is the opportunity cost of the marginal unit of employment. It is the utility of the wages that could be obtained in any other employment or the sheer leisure (consumers' good) that could be enjoyed. The very fact that the individual worker chooses the apply the marginal unit of labour implies (by the theory of Subjective Value) that the "utility of the wages of a certain volume of labour" is LOGICALLY NECESSARILY GREATER THAN (i.e., of higher rank than) "marginal disutility of that volume of employment".

THIS is the basis of "The General blah blah blah". That you swallow this nonsense shows that every one of you whatever-Keynesians is an economic ignoramus. And then you make it worse with nonsense like "sticky wages". Bastiat must be rolling in his grave laughing at you dolts.

Tel said...

Bala, allow me to have a shot at explaining it.

Suppose there is one strawberry farmer, and person A is willing to buy a box of strawberries each day for $1, person B is willing to buy the same for $2, person C has a good job and will pay up to $5 per box. It always costs 90 cents a box to produce strawberries.

Year 1: the farmer sells for $1 per box, sells 3 boxes a day, and makes 30 cents profit each day. GDP is $3 per day. Everyone eats strawberries.

Year 2: the farmer decides to push up his price to $2 per box, sells 2 boxes a day, and makes $2.20 profit each day. GDP is $4 per day. Person A misses out on strawberries.

Year 3: the farmer decides to push up his price to $5 per box, sells 1 box a day, and makes $4.10 profit each day. GDP is $5 per day. Person B misses out on strawberries. Person A spends the year studying the fundamentals of strawberry farming.

Paul Krugman comes along and draws a chart:

--------------------
Year 1, GDP is $3
Year 2, GDP is $4
Year 3, GDP is $5
--------------------

Easy! Krugman predicts that Year 4 must show a GDP of $6 because it's a obvious conclusion based on the chart. Such a simple pattern... how could it be otherwise?

Year 4: person A has started selling strawberries for $2 per box. The original farmer must compete and also sells for $2 per box, they each sell one box per day, each makes a profit of $1.10 per day and GDP is now back to $4 per day. Everyone gets to eat strawberries.

Krugman goes WTF?!? GDP is only $4 per day but the laws of mathematics say it should be $6 per day. We have an "output gap" on our hands, hit the red panic button because the free market has failed us!

Can I make this any simpler?

Zachriel said...

Bala: YOU are creating false gods like "sticky prices" and are worshipping the whim that by reciting that nonsense ad nauseum, the supremacy of the consumer can somehow be eliminated from the discussion and, maybe, even the real world.

Sorry, but that a silly misrepresentation of our position. Consumer demand is essential to the functioning of markets. Try to read more carefully.

Tel: Easy! Krugman predicts that Year 4 must show a GDP of $6 because it's a obvious conclusion based on the chart. Such a simple pattern... how could it be otherwise?

It is not such a simple extrapolation. There are many reasons for an increase in GDP, including population growth and technological innovation. Obviously, an economy in recession is producing below expectations, as it was producing more with the same capacity before.

Also, you are not calculating GDP, but the size of a single sector. Even the dustiest of classical economists recognize that people buying strawberries have to bring something else of value to market. Furthermore, in each of the cases, if a person doesn't spend their money on strawberries, they will likely spend it on grapes instead.

Zachriel said...

Bala: THIS is the basis of "The General blah blah blah".

Um, Keynes rejected the second postulate pointing to involuntary unemployment as a prima facie falsification of the classical theory. Again, you need to read more carefully, or at least try to read to understand what someone is trying to say, rather than trying to make it fit your preconceptions.

Bala said...

"Sorry, but that a silly misrepresentation of our position."

Nonsense. The simple fact that consumer chooses where to spend his money and acts to satisfy his ends makes the concept of sticky wages nothing but unadulterated nonsense to anyone except whatever-Keynesian zombies.

"Um, Keynes rejected the second postulate pointing to involuntary unemployment as a prima facie falsification of the classical theory. "

Ha! Ha! Ha!! Looks like you are really, really dumb. I was pointing to the utterly idiotic way in which he formulated the Classical position. I was pointing out the fact that Keynes never understood the concept of the subjective and ordinal nature of the concept of utility and has hence mischaracterised the Classical position. I was pointing out the the fact that all Keynes did was to create straw-men, shoot them down (using equally idiotic rambling that only whatever-Keynesian zombies will call arguments) and claim victory over the actual (unstated) position. I am in effect saying that Keynes wasn't even writing a book on Economics. It (The General blah blah blah) was (and still is) just utter tripe.

You are the one who needs to think for a change. But then how is a zombie to think? So forget it and just keep parroting the lines you have memorised.

Zachriel said...

Bala: I was pointing out the fact that Keynes never understood the concept of the subjective and ordinal nature of the concept of utility and has hence mischaracterised the Classical position.

You didn't say it was the basis of his argument against classical theory, but the basis of the general theory.

Adam Smith: The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people.

Bala said...

"Adam Smith: ......other people."

Yeah!! And the Subjective Theory of Value was not really "Classical" was it? Idiot. Menger never existed. The Subjective Theory of Value is a figment of the Austrian crazies' imagination and had not been proposed before Keynes blabbered "The General blah blah blah". What a zombie!!!

Zachriel said...

Bala: Adam Smith

Yes. Adam Smith was certainly one of the most important contributors to classical economics.

Bala: The Subjective Theory of Value is a figment of the Austrian crazies' imagination and had not been proposed before Keynes blabbered "The General blah blah blah".

This was your objection:

Bala: I was pointing to the utterly idiotic way in which he formulated the Classical position.

In fact, Keynes properly represented a primary strain of classical economic thought, as exemplified in Wealth of Nations.

Bala said...

"In fact, Keynes properly represented a primary strain of classical economic thought, as exemplified in Wealth of Nations."

Yeah! And Classical theory never developed beyond Adam Smith. What an idiot (that's for you and your precious Keynes)!!!

Zachriel said...

Bala: And Classical theory never developed beyond Adam Smith.

Of course it did, but there is a distinction to be made between classical (such as Smith) and neoclassical (such as Menger) thought. You complain because Keynes explicitly means to discuss standard classical theory, which was still predominant at the time. In a later chapter, he discusses the subjective nature of consumption.

Bala said...

Hey insane legion,

What you, like every other whatever-Keynesian idiot like you, are missing is that Keynes launched an attack against THIS formulation of the classical position to justify his claim that involuntary employment can exist and thus to claim that an economy CAN get stuck in an underemployment equilibrium. Unfortunately for you (and for Keynes), Menger had, long before Keynes blabbered his way through "The General blah blah blah", demolished THAT Classical position. The Subjective Theory of Value thus completely destroys Keynes' claim that the economy could be in an underemployment equilibrium. The concept of underemployment equilibrium being critical to Keynes' arguments, it shows that Keynesian "Economics" is utter nonsense.

What Menger also did, quite unintentionally though, was to show why Keynes was either an economic ignoramus or plain intellectually dishonest. Given that Menger had disposed of the Classical position that Keynes attacked to "establish" the possibility of underemployment equilibrium, Keynes must have either been unaware of Menger's Subjective Theory of Value (in which case he must have been an economic ignoramus) or ignored it so that he could claim that the Classical position as stated by Adam Smith to be the still-held-to-be-valid position in economic theory so that he, by giving equally idiotic arguments (which once again ignore the Subjective Value Theory), could claim it to be false and achieve his objective (in which case he would be intellectually dishonest). Either way, Menger accidentally shows us that Keynes was a pathetic and/or dishonest economist.

Zachriel said...

Bala: What you, like every other whatever-Keynesian idiot like you, are missing is that Keynes launched an attack against THIS formulation of the classical position to justify his claim that involuntary employment can exist ...

Um, it's justified because it is observed. There really is such a thing as involuntary unemployment.

Bala: Either way, Menger accidentally shows us that Keynes was a pathetic and/or dishonest economist.

That's why you'll never be able to persuade anyone who is not already convinced. Everyone who disagrees with you or your position, including the most influential economist of the past century, is "pathetic and/or dishonest".

Bala said...

"Um, it's justified because it is observed."

Nonsense.

"Everyone who disagrees with you or your position, including the most influential economist of the past century, is "pathetic and/or dishonest"."

Idiot. I explained why he must be either an economic ignoramus or intellectually dishonest. Not knowing one of the most important developments in economic theory is the hallmark of an economic ignoramus. Ignoring one of the most important developments in economic theory and choosing a previously formulated but long-since-demolished position to "prove" your unjustified conclusion is the hallmark of intellectual dishonesty. Open your eyes and read.

And "influential" means nothing for his competence.

Bala said...

"There really is such a thing as involuntary unemployment."

For whatever-Keynesians, the fictional world that exists in their warped minds is very real. What's even more real is the insanity of the Keynesian.

Zachriel said...

Zachriel: Um, it's justified because it is observed. There really is such a thing as involuntary unemployment.

Bala: Nonsense.

You are really claiming that there is never anyone out of work who wants to work?

Bala said...

"You are really claiming that there is never anyone out of work who wants to work?"

No. I am claiming that merely being out of work and wanting to work does not constitute unemployment. If he insists on a wage higher than what the market is ready to offer him because that's higher than the MVP of his labour, he exists in voluntary employment. All I am saying is involuntary unemployment is impossible except for a short period (which is what frictional unemployment is all about).

Bala said...

"he exists in voluntary employment."

Oops... Read as

"he exists in voluntary unemployment."

Zachriel said...

Bala: I am claiming that merely being out of work and wanting to work does not constitute unemployment.

http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Bala said...

Hey insane legion,

Good to see that you are down to hand-waving now. It's also good to see that you have no valid defence of your economically ignorant/dishonest Lord and Master.

Zachriel said...

Bala: Good to see that you are down to hand-waving now.

Not handwaving. If you were correct, the sign would have said, "Jobs for those who are willing to work cheap".

Bala: All I am saying is involuntary unemployment is impossible except for a short period (which is what frictional unemployment is all about).

"Short period" is relative. Consider the housing industry, and a downturn such that a million people are laid off, professional carpenters, plumbers, electricians. How long before there are sufficient jobs in other fields, and the desire in the workers to take large cuts in pay? And the resistance by people in those other fields who are seeing their own wages under pressure because of the entrance of new workers. What about their mortgages and other debts made based on higher income?

Bala said...

"Consider the housing industry, and a downturn such that a million people are laid off, professional carpenters, plumbers, electricians."

Frictional unemployment.

Bala said...

""Short period" is relative."

How Keynesian to ignore what I said within the parenthesis? You have definitely learnt from your Lord and Master.

Zachriel said...

Bala: All I am saying is involuntary unemployment is impossible except for a short period (which is what frictional unemployment is all about).

We provided a contemporary example. How long is a "short period"?

Bala said...

"How long is a "short period""

The time it takes for people to reskill themselves. Until then, their MPV is zero. That they are not willing to work for their MPV is their fault. To claim that this is "involuntary" unemployment is idiotic (typical Keynesian nonsense).

Bala said...

Oops... MVP, not MPV. Typing with a bad cold is not easy.

Zachriel said...

Bala: The time it takes for people to reskill themselves.

People have to decide if their jobs are coming back, so not everyone will immediately begin retraining. Training for a new field is risky as it is a guess what jobs will be available when the training period is over. Some jobs require years of training or experience. A new job may require moving, but people often have long term commitments, financial and family. In other words, a "short term" could be years.

Why didn't the sign say "Jobs for those who are willing to work cheap"?
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Bala said...

"People have to decide if their jobs are coming back, so not everyone will immediately begin retraining. Training for a new field is risky as it is a guess what jobs will be available when the training period is over. Some jobs require years of training or experience. A new job may require moving, but people often have long term commitments, financial and family. In other words, a "short term" could be years."

All frictional unemployment.

Bala said...

Still no defence of Keynes. I can see that you have given up because you know I am right.

Zachriel said...

Zachriel: In other words, a "short term" could be years.

Bala: All frictional unemployment.

Apparently, despite your handwaving above, you now acknowledge that frictional unemployment can cause significant economic dislocations.

Why didn't the sign say "Jobs for those who are willing to work cheap"?
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Zachriel said...

Bala: Still no defence of Keynes.

We weren't defending Keynes's theory, only pointing out your misrepresentations.

Bala said...

"pparently, despite your handwaving above, you now acknowledge that frictional unemployment can cause significant economic dislocations."

No

Bala said...

"We weren't defending Keynes's theory, only pointing out your misrepresentations."

And I showed that it was not a misrepresentation and that Keynes was a pathetic/dishonest economist.

Zachriel said...

Bala: And I showed that it was not a misrepresentation and that Keynes was a pathetic/dishonest economist.

That's what you keep saying, but never do.

Why didn't the sign say "Jobs for those who are willing to work cheap"?
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Bala said...

"That's what you keep saying, but never do. "

You are a good disciple of Keynes. You have learnt dishonesty well from him. Here's what I said above

"Idiot. I explained why he must be either an economic ignoramus or intellectually dishonest. Not knowing one of the most important developments in economic theory is the hallmark of an economic ignoramus. Ignoring one of the most important developments in economic theory and choosing a previously formulated but long-since-demolished position to "prove" your unjustified conclusion is the hallmark of intellectual dishonesty. Open your eyes and read."

Once again, open your eyes and read.

"Why didn't the sign say "Jobs for those who are willing to work cheap"? "

Because the person who wrote the sign wasn't an economist. What you are missing out is that the unemployed person is looking out not for a job but for a job at a particular wage for if a job was all he wanted, he could get it by working for free or paying his employer to let him work. So, you are just one more idiotic Keynesian who forgets this fundamental point while talking of unemployment.

All the same, it's hilarious to see you clutching to this silly poster when I am raising far more serious issues like the fact that Keynes was a pathetic/an intellectually dishonest economist.

morse79 said...

Imagine that perfect economy with college educated engineers working for free! O it sounds absolutely utopian!

Of course, what does it say about your qualifications if you are willing to work for free...I guess there will be plenty of jobs at McDonalds for us to be corvees for.

Good job Matrix boy!

Bala said...

morse79,

All I was doing was pointing out that what you call "not getting a job" is "not getting a job at a pay you want". I am just pointing to the fundamental Keynesian dishonesty in ignoring this simple point.

And while you are about it, why not address the point I made about Keynes being a pathetic and/or an intellectually dishonest economist? I mean how can a person write in 1936, frame a proposition that the Subjective Theory of Value would demonstrate to be reflective of total economic ignorance and use it as the basis of your theory? A person who does that must be an economic ignoramus or an intellectually dishonest person, mustn't he?

Bala said...

"Imagine that perfect economy with college educated engineers working for free! O it sounds absolutely utopian!"

Genius!! If a college educated engineer has to work for free, it only reflects the market's assessment of his MPVP as being zero now. It ties in perfectly with the fact that he is not getting a job at the prevailing market price of labour of his type. It is up to the person currently working for free to change that perception, get himself to be ascribed a higher MVP and thus get a paid job. Merely having a degree doesn't make you employable. Potential employers need to think of you as "being valuable", i.e., having an MVP > 0.

"Of course, what does it say about your qualifications if you are willing to work for free"

It actually says nothing about the qualifications and more about the market's perception of the qualifications. In fact, it is more about the market's perception of the particular individuals rather than about the qualifications per se. The market does not care for qualifications but for what value the particular individual can add.

It is interesting to note that Keynesian dolts cannot get this difference between what a thing is and people's opinion of it.

".I guess there will be plenty of jobs at McDonalds for us to be corvees for."

If you want a job better than what you could get at McDonalds, show potential employers that you deserve it. Stop thinking that your qualifications entitle you to the kind of job you wish to get.

Bala said...

Oops again.... MVP and not MPVP

Bala said...

"It follows from this definition that the equality of the real wage to the marginal disutility of employment presupposed by the second postulate, realistically interpreted, corresponds to the absence of 'involuntary' unemployment. This state of affairs we shall describe as 'full' employment, both 'frictional' and 'voluntary' unemployment being consistent with 'full' employment thus defined."

So THIS is "full employment"? So "full employment" is a concept based on equality of the real wage to the marginal disutility of employment? Only an economic ignoramus who is unaware of the prior establishment of the Subjective Theory of Value or an intellectually disonest person who wilfully ignores the prior establishment of the Subjective Theory of Value can make this statement.

So, all ye whatever-Keynesians - Which of these do you think Keynes was? Pathetic economist or intellectually dishonest economist?

p.s. Now I understand much better why Keynesian Economics is utter nonsense.

Bala said...

I forgot to mention a basic point. The text I highlighted and commented on is straight from "The General blah blah blah".

Bala said...

More nonsense from "The General blah blah blah".....

"They are fallaciously supposing that there is a nexus which unites decisions to abstain from present consumption with decisions to provide for future consumption; whereas the motives which determine the latter are not linked in any simple way with the motives which determine the former."

Omigosh!!!!! How do I classify this? Consider this simple point. I have a unit of a good. It is a "good" because it is one unit of an interchangeable supply of a means and as a means, it is something I may act on to satisfy an end. I could either act on it now or in the future. If I act now, I cannot do so in the future. If I choose not to act now, I am necessarily choosing to do so in the future for there is no other option other than to say that it is not a good and hence that I never plan to act on it to satisfy my end. What is that third category other than present consumption and future consumption? Why are "present consumption" and "future consumption" not mutually exclusive and collectively exhaustive?

The level of goop in that book is unbelievable!!

Calgacus said...

Bala: All I am saying is involuntary unemployment is impossible.

Is there any point in arguing? To me & to almost everyone on Earth, this sounds like "the sun rising in the east every day is impossible" or "People have four fingers on their left hand & six on their right hand." or "You can fly if you flap your arms hard enough and JUST BELIEVE." Ordinary people have always understood perfectly well that involuntary unemployment is possible & common & can happen to them.

If only one could explain to everyone that that this is the dominant Austrian-Neoclassical-Mainstream-pseudoKeynesian position. If only people really understood what the Austrians (honestly) & the moronic mainstream (covertly) are saying. I wish Austrians would say INVOLUNTARY UNEMPLOYMENT IS IMPOSSIBLE louder and more often. Then everyone would use their votes to eliminate politicians and economists from public life & academia who hold this position they rightly think is utterly, batshit, padded-cell, straitjacket, electroshock, thorazine insane.

To the tiny minority, this would be a catastrophe that would cause economic collapse. Those who understand the confusions & flaws of Austrian etc economics, know it would be the beginning of the greatest prosperity ever seen. That's what happened when half-way correct, half-way sensible econmics was used in the evil Keynesian full employment postwar golden trente glorieuses age. When people, even academics, did understand that involuntary unemployment is possible and real and common, as everyone knows. That money is not a commodity, is nothing like a commodity, that thinking of it as a thing, a commodity, the most tradeable commodity, is a category mistake. And that it is the responsibility of the state to eliminate unemployment, because unemployment is caused by the state, which is the ultimate cause & creator of money and ("free") market economies. All heresy to Austrian true believers, of course.

Bala said...

"To me & to almost everyone on Earth, this sounds like "the sun rising in the east every day is impossible" or "People have four fingers on their left hand & six on their right hand." or "You can fly if you flap your arms hard enough and JUST BELIEVE.""

Nonsense. First, you can only talk for yourself. Speaking for the rest of the population reflects extreme intellectual arrogance that only whatever-Keynesians who have wallowed in Keynesian pigswill all their life are capable of displaying.

"Ordinary people have always understood perfectly well that involuntary unemployment is possible & common & can happen to them."

Second, see how intellectually dishonest you whatever-Keynesians are. The statement was "involuntary unemployment is impossible except for a very short period". This means that in the long-run, it is impossible for persistent unemployment to exist at the market wage because the process of equilibriation would equate the demand for and the supply of labour at the market equilibrium price (like it does for any consumers' good or factor of production).

"Those who understand the confusions & flaws of Austrian etc economics"

Third, how about addressing the fundamental point I raised about Keynes' being either an economic ignoramus or an intellectually dishonest economist? Can you see the huge gaping holes I have torn in "The General blah blah blah"? If you can't, at least shut your trap and acknowledge that Keynesian Economics is one of the best examples of the term "oxymoron".

What a moron!!!

Bala said...

"That's what happened when half-way correct, half-way sensible econmics was used in the evil Keynesian full employment"

ROFLMFAO. Here comes the "full employment" nonsense again. So, dear whatever-Keynesian troll, will you now show why the concept of full-employment is a meaningful concept given that I have shown above that the basis of the very concept is utter idiocy? Or are you just another whatever-Keynesian idiot who will run away from the challenge?

Bala said...

" That money is not a commodity, is nothing like a commodity, that thinking of it as a thing, a commodity, the most tradeable commodity, is a category mistake."

And this is utter idiocy that, as in everything else, only the most supremely arrogant-inspite-of-being-an-economic-ignoramus whatever-Keynesian can come up with. Idiot!! No one is saying that "money" is a commodity. The concept "money" stands for a generally accepted medium of exchange. What we say is that one of the ATTRIBUTES of the thing that becomes money is that it should be a commodity that was already widely desired by people in the society in which it became money for its use in satisfying ends. Further, the term "money commodity" consists of 2 words, the first of which is the adjective and the second is the noun. The term essentially stands for "the commodity that has attained the status of being treated as "money". This is no different from the term "blue sky" which is essentially about the concept sky with the word "blue" identifying an attribute of the sky and in fact stands for "the sky which is blue in colour"). Looks like you too (like the other troll, the insane legion) need a lesson in basic English.

The only category mistake is probably your error of categorising yourself as a human being capable of reasoning.

Bala said...

"And that it is the responsibility of the state to eliminate unemployment, because unemployment is caused by the state,"

Nonsense, as usual. Unemployment can also be eliminated by eliminating the cause of the unemployment. If the State causes unemployment, eliminating the State should eliminate unemployment.

" which is the ultimate cause & creator of money and ("free") market economies"

Yeah!!! There was no exchange or money before the great State came up. Try a better joke next time.

Zachriel said...

Bala: Not knowing one of the most important developments in economic theory is the hallmark of an economic ignoramus.

Keynes explicitly discussing classical economics does not mean he is ignorant of neoclassical or other economic theories.

Bala: Because the person who wrote the sign wasn't an economist.

But the economy is not primarily composed of economists. It was a local town reacting to their own perceived self-interest. According to your position, it should say "Jobs for those who are willing to work cheap." It's an opportunity for the town and for the workers!

Bala: If a college educated engineer has to work for free ...

Which brings up another point. There is a lower bound below which wages can't fall, which is at least "Will Work for Food".

Calgacus: To me & to almost everyone on Earth, this sounds like "the sun rising in the east every day is impossible" or "People have four fingers on their left hand & six on their right hand." or "You can fly if you flap your arms hard enough and JUST BELIEVE." Ordinary people have always understood perfectly well that involuntary unemployment is possible & common & can happen to them.

Well said.

Bala: The statement was "involuntary unemployment is impossible except for a very short period".

Except we pointed out, and you didn't bother to refute, that there are reasons why involuntary unemployment can be long lasting. Regarding structural unemployment:

People have to decide if their jobs are coming back, so not everyone will immediately begin retraining. Training for a new field is risky as it is a guess what jobs will be available when the training period is over. People will often train for the wrong jobs, then have to retrain again. Some jobs require years of training or experience. A new job may require moving, but people often have long term commitments, financial and family. In other words, a "short term" could be years.

Of note, structural unemployment and cyclical unemployment often coincide.

Bala said...

"People have to decide if their jobs are coming back, so not everyone will immediately begin retraining. Training for a new field is risky as it is a guess what jobs will be available when the training period is over. People will often train for the wrong jobs, then have to retrain again. Some jobs require years of training or experience. A new job may require moving, but people often have long term commitments, financial and family. In other words, a "short term" could be years."

All voluntary unemployment.

Bala said...

"Keynes explicitly discussing classical economics does not mean he is ignorant of neoclassical or other economic theories."

So Keynes ignoring Subjective Theory of Value many decades after it has been propounded and accepted is deliberate omission of an important theory. Further, Objective Theory of Value is necessary for the conclusions Keynes has drawn in "The General blah blah blah" (for how else can he talk of equality of utilities). Hence, Subjective Theory of Value demonstrates that Keynes was talking rot. And if Keynes was not ignorant, he was deliberately ignoring it and coming up with conclusions that the Subjective Theory of Value would not have permitted him to. Thus, I am forced to draw the conclusion that Keynes was fundamentally intellectually dishonest.

JG said...

Bala,

"This means that in the long-run, it is impossible for persistent unemployment to exist at the market wage because the process of equilibriation would equate the demand for and the supply of labour at the market equilibrium price"

The "long-run" can indeed be a very long time. It could take decades for this equilibrium to recalibrate itself. And in the interim you have a lost generation of unemployed, impoverished citizens. The standard Austrian response to this is "who cares, let the market sort them out".

Zachriel said...

Bala: All voluntary unemployment.

The sign doesn't say "Jobs for those who are willing to work cheap".
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Bala said...

"The sign doesn't say "Jobs for those who are willing to work cheap". "

More hand-waving. That's just an error made by an ignorant person.

"The "long-run" can indeed be a very long time. It could take decades for this equilibrium to recalibrate itself."

Nonsense. When the unemployment is voluntary, it does not matter for how long it is. It is up to each individual to decide how long he would rather be unemployed than accept what is being offered.

" And in the interim you have a lost generation of unemployed, impoverished citizens."

Nonsense again. These are citizens unemployed by CHOICE. They preferred to be unemployed. So, your pity-seeking it looking fairly silly.

" The standard Austrian response to this is "who cares, let the market sort them out". "

False. The Austrian response is "They chose to remain unemployed rather than accept a lower wage. Let them act as they choose and face the consequences."

Bala said...

Insane legion and JG,

How about addressing the deep-rooted idiocy of (the oxymoron called) Keynesian economics? I mean the one I have identified above where the concept of "full employment" which is critical to Keynesian theory was shown to depend on an objective theory of value for it to have any meaning at all. What you need to show is "Why is Keynesian Economics not a retrogression in economic thought?".

Zachriel said...

Bala: That's just an error made by an ignorant person.

It was a common response to the Great Depression. There were millions of people who were involuntarily unemployed during the Great Depression.

Bala: It is up to each individual to decide how long he would rather be unemployed than accept what is being offered.

But we know that people willing to work were turned away.
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Bala said...

"It was a common response to the Great Depression. There were millions of people who were involuntarily unemployed during the Great Depression."

False. They were unemployed. Involuntary is your claim.

"But we know that people willing to work were turned away."

Merely willing to work but turned away does not constitute "unemployment", at least not in an economic sense. So stop talking like a lay person or stop wasting my time.

Lord Keynes said...

"These are citizens unemployed by CHOICE. They preferred to be unemployed. "

Words of pure idiocy.

Zachriel, do not waste your time.

Bala said...

"Words of pure idiocy."

I was wondering how long it would take for the biggest troll of them all to land up. Would you at least care to address the huge hole I have blown in your beloved "theory"? None of the whatever-Keynesian trolls out here even tried explaining why Keynesian Economics (pardon me for the oxymoron) makes any sense given that the concept of "full employment" which is central to that "theory" is dependent for its very meaning on an objective theory of value. Will you at least attempt to explain why it is not so and why "The General blah blah blah" does not represent a giant leap backwards for economic theory?

Zachriel said...

Bala: Merely willing to work but turned away does not constitute "unemployment", at least not in an economic sense.

Investopedia: Unemployment occurs when a person who is actively searching for employment is unable to find work.

Lord Keynes: Words of pure idiocy.

Self-refuting, to say the least.

mosre79 said...

@Zachriel and LK

You see bala has thought deeply about this a priori and deduced (through his special insights because he is not in the Matrix anymore) that you are unemployed because a) you are unwilling to work for free and b) eventually (eventually) you will find work (perhaps for free!) through magical equilibriating mechanisms.

If you disagree you do not understand the true (or bala's) definition of "temporary" or "voluntary." If you further disagree, you need to have a whole amateurish dialogue about the nature of "definitions" in the social world. If you still do not agree you are obviously a "troll" or "insane."

Bala said...

Trolls of the world unite!!! For you have nothing to lose but your absolute economic ignorance and your non-existent sanity!!!!!!!!!

The economic concept of "unemployment" stands for a condition where the supply of labour exceeds the demand for labour at the prevailing market price. On the free market, such a situation cannot persist because, like it would happen for every other consumers' and producers' good, owners of the excess supply of the labour factor would have to bid their price down in order to find a buyer for their labour factor. At the same time, as the price falls, more buyers for the services of the labour factor enter the market. This process stops when the quantity supplied equals the quantity demanded of the labour factor and the price at which that happens is the equilibrium price of the services of labour.

As in the case of any other good, anyone who has a certain potential supply of the services of labour prefers leisure to labour at that price and can hence not be considered to be unemployed, except in a metaphysical sense. In an economic sense, this person is not to be considered "unemployed" because he is not a seeker of employment at that price. This is also the simple reason why unemployment is impossible in the long run on the unhampered market.

I do understand that it is difficult to understand for some people, especially for whatever-Keynesians who has swallowed the pig-swill called "full employment" even though that silly concept requires, for it to have any meaning at all, an acceptance of an objective theory of value and that utility be treated as a cardinal number (for how else can you equate the utilities of wages and the marginal unit of labour!!!). It's no wonder that people whose brains have been scrambled by Keynes' nonsense cannot understand the basic working of the pricing process of the free market of voluntary exchange.

Will any whatever-Keynesian troll man-up and explain why the goop called Keynesian Economics makes any sense at all given that a concept that is critical to its entire structure, i.e., full employment, depends on an Objective Theory of Value? Or is every troll just going to be a troll, dodge this question and evade realising that he/she has been swallowing the intellectual equivalent of pig-swill all these years?

Bala said...

"As in the case of any other good, anyone who has a certain potential supply of the services of labour"

add

"which he chooses not to offer"

Bala said...

"You see bala has thought deeply about this a priori"

ROFLMFAO. Real economics IS an a priori science. I do understand that whatever-Keynesianism makes the brain rot so badly that you can't get this simple point.

morse79 said...

"For you have nothing to lose but your absolute economic ignorance and your non-existent sanity!!!!!!!!!"

Your making way to much of this fun game we have on this blog. If you really think this you have a very sad life indeed. All part of a healthy fantasy life I guess...

Your argument is standard neo-classical with no attention given to the mechanisms by which labor markets equilibriate, long-term consequences for general welfare, the problem of imperfect information, the role of societal values, or the inevitable role of politics (among others!).

Quite simply, a sudden shock to labor demand (i.e. a depression) can lead to an oversupply of labor, even at the lowest of wages without new firms entering the marketplace to pick up this cheap labor. There are other factors at play that will delay or inhibit a new equilibrium - perhaps most importantly lack of information regarding what future economic contexts will look like (which is impacted by global demand as well as domestic factors).

In the meanwhile, even "temporary" involuntary unemployment can have long-lasting devastating effects on future economic growth - a decline in the skills necessary for employment, greater poverty, social upheaval, etc, etc, etc....

This all also ignores the fact that our preferences are not just materially driven, but value-driven. We as a society (which you might reject) have agreed that there is a fundamental bottom below which you cannot drop your price. We also live in a political society where people do not just offer wages freely, but negotiate for wages - that is a political process and not an economic one. Power matters in that process.

All of that was pretty well summed up in "The Grapes of Wrath."

This would be obvious to you if you realized that purely deductive-nomological models have little relevance for the social world, and growing lesser value even for explaining naturally occurring phenomenon. I thought this debate was dead long ago, but you still seem to have some skin in that game. Most working social scientists are much more preoccupied these days with natural experiments and causal mechanisms than anything else. I mean, if these "laws" of yours are so solid why keep on studying economics at all?

Bala said...

"Quite simply, a sudden shock to labor demand (i.e. a depression) can lead to an oversupply of labor"

Depressions do not happen on the unhampered free market, my genius. They are the effect of intervention. So there goes your "argument".

Bala said...

"even "temporary" involuntary unemployment"

Assumes that "involuntary" unemployment is a non-self-contradictory concept in the first place.

Bala said...

"even "temporary" involuntary unemployment"

Assumes that "involuntary" unemployment is a non-self-contradictory concept in the first place.

Bala said...

morse79,

How about addressing the fundamental point I made about why Keynesian economics is utter nonsense?

Bala said...

"This all also ignores the fact that our preferences are not just materially driven, but value-driven."

Who said anything about being "materially-driven"? Not me. YOU.

Bala said...

"I mean, if these "laws" of yours are so solid why keep on studying economics at all?"

To understand them better, genius, and to know how to spot nonsense when you come across it, the way I started reading "The General blah blah blah" and realised straightaway that it is utter tripe.

morse79 said...

"Depressions do not happen on the unhampered free market, my genius. They are the effect of intervention. So there goes your "argument"."

Well, its debatable whether conditions that ever satisfy your criteria for free market have or will ever exist! Regardless, it does not address the consequence of a depression - which might in fact be involuntary unemployment (how about a terrorist attack on the oil fields of Saudi Arabia?). You have merely sidestepped the real question.

"How about addressing the fundamental point I made about why Keynesian economics is utter nonsense?"

Sounds like you are in a corner and just lashing out now. I explicitly stated my opinion. I really don't care whether it is "Keyensian" or not.

"Who said anything about being "materially-driven"? Not me. YOU."

Your assumption is that people looking for work will automatically be willing to work for lower wages, and there are only voluntarily unemployed. This assumes pure material rationality. In the real world people have pride and standards that impede this process. Does this make their unemployment voluntary? In some twisted sense perhaps, but as far as the actors are concerned they are looking for work that is just not there.

"To understand them better, genius, and to know how to spot nonsense when you come across it, the way I started reading "The General blah blah blah" and realised straightaway that it is utter tripe."

If they are iron laws of reason, what more could we possibly know? OH! Maybe that they don't always apply in all contexts? That there are mechanisms that link proposition A to proposition B? That they rely on other assumptions? That perhaps they are not as "iron" as you thought?

Nice to see you at a loss for words.

Major_Freedom said...

morse79:

Your assumption is that people looking for work will automatically be willing to work for lower wages, and there are only voluntarily unemployed. This assumes pure material rationality. In the real world people have pride and standards that impede this process.

That is voluntary unemployment.

Bala was obviously referring to involuntary employment, specifically that involuntary employment cannot persist in a free market.

You might not like it, but at some point, those who are serious about looking for work, WILL accept lower wages if there are no better alternatives.

Major_Freedom said...

morse79:

If they are iron laws of reason, what more could we possibly know?

LOL, you're assuming enough people actually know them.

And there is far more to know, after people know them. The problem is not enough people know them to enable the human race to move on more rapidly. It's being held up.

"OH! Maybe that they don't always apply in all contexts? That there are mechanisms that link proposition A to proposition B? That they rely on other assumptions? That perhaps they are not as "iron" as you thought?"

Maybe with enough unanswered rhetorical questions, you can make everyone start questioning everything except what you're saying?

Nice to see you at a loss for words.

LOL, you say that as if you're having a real time conversation. You have to wait until your post is read, and not only that, but KNOW it's been read but not answered, before you can claim someone is at a loss for words.

Are you talking to Bala or the voices in your head?

morse79 said...

"Bala was obviously referring to involuntary employment, specifically that involuntary employment cannot persist in a free market."

I think you need to reread your sentence. Then think about what you really wanted to say. Then actually address the points made instead of just sticking your fingers in your ear and going "bla bla bla bla!"

Your not quite ready for prime time non-military major.

Bala said...

"Well, its debatable whether conditions that ever satisfy your criteria for free market have or will ever exist!"

Irrelevant as ever.

"Regardless, it does not address the consequence of a depression - which might in fact be involuntary unemployment (how about a terrorist attack on the oil fields of Saudi Arabia?). You have merely sidestepped the real question."

No! I was pointing out that YOU are not getting the fundamental point and are barking up the wrong tree. I was just saying that the cause of persistent unemployment is intervention. Eliminating the intervention will eliminate persistent unemployment. But then how is someone who is wedded to intervention to ever understand this?

"Sounds like you are in a corner and just lashing out now. I explicitly stated my opinion. I really don't care whether it is "Keyensian" or not."

Ha! Ha! Ha!! First, I am NOT in a corner. YOU are. I have said enough to show that every Keynesian out here is an idiot. And that includes YOU.

"Your assumption is that people looking for work will automatically be willing to work for lower wages, and there are only voluntarily unemployed. This assumes pure material rationality."

Utter nonsense that is typical of the whatever-Keynesian. Any exchange has a certain ratio in which the two goods are exchanged. So, if a certain ratio is not accepted by A because he finds it too high, B has to settle for a lower one if he wishes to exchange. It is a LOGICAL NECESSITY. There is NO ASSUMPTION. The alternative, of course is not to exchange, but in EITHER CASE, he would have exercised his volition. When you are studying "voluntary exchange" (under which category the exchange of the services of labour for wages would fall), the exchange as well as the withholding of labour are voluntary. The existence of "minimum standards" is only a form of "minimum selling price" that any seller would have. The seller is just expressing the preference for leisure over that particular exchange of the services of his labour. To call it involuntary unemployment reflects complete economic ignorance.

"If they are iron laws of reason, what more could we possibly know?"

What makes you think the entire complex train of reasoning is easy to grasp? It takes time to think through and make the connections. It takes a fair bit of thinking for one to even understand the laws themselves. It's not like whatever-Keynesianism that requires you to blank-out your mind and swallow intellectual pig-swill.

"Nice to see you at a loss for words."

Nice to see every whatever-Keynesian troll evading giving a response to my point that all of Keynesian Economics is utter nonsense. It is nice to note that you, like every whatever-Keynesian, do not want to acknowledge that you have been wallowing in and swallowing intellectual pigswill all these years.

Major_Freedom said...

morse79:

"Bala was obviously referring to involuntary employment, specifically that involuntary employment cannot persist in a free market."

I think you need to reread your sentence. Then think about what you really wanted to say. Then actually address the points made instead of just sticking your fingers in your ear and going "bla bla bla bla!

I think you need to reread your sentence. Then think about what you really wanted to say. Then actually address the points made instead of just sticking your fingers in your ear and going "bla bla bla bla!

Your not quite ready for prime time non-military major.

Aww, the economically illiterate buffoon actually believes he is contributing, instead of getting constantly schooled time and time again. You're funny.

Zachriel said...

Bala: The economic concept of "unemployment" stands for a condition where the supply of labour exceeds the demand for labour at the prevailing market price. On the free market, such a situation cannot persist because, like it would happen for every other consumers' and producers' good, owners of the excess supply of the labour factor would have to bid their price down in order to find a buyer for their labour factor.

Yes, that's a simple theory. Yet, everyone knows that involuntary unemployment can occur, so the theory must bend to the facts.

Why didn't the sign say "Jobs for those who are willing to work cheap"?
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

The classical theory is a first-order model, but the problem, as we have pointed out above, is that there are reasons why wages won't always fall immediately, or won't fall below a floor. You simply pretend these reasons don't exist, or redefine them as voluntary unemployment.

People have to decide if their jobs are coming back, so not everyone will immediately begin retraining. Training for a new field is risky as it is a guess what jobs will be available when the training period is over. People will often train for the wrong jobs, then have to retrain again. Some jobs require years of training or experience. A new job may require moving, but people often have long term commitments, financial and family.

And there is a floor to wages below which they can't fall, the price of food and shelter. In other words, a "short term" could be years.

Of note, structural unemployment and cyclical unemployment often coincide.

Furthermore, employers won't necessarily hire people, even for very low wages. That's because there is a fixed cost in hiring; training, overhead, and all the problems that people bring to the job with them. Hiring a hundred to do the job of one, because you can pay them a percent of the wage of the one isn't as straightforward as you pretend it would be. A hundred people doing arithmetic does not a bookkeeper make.

People are not machines. They bring assets and liabilities with them. People may become disgrunted or demoralized. You need security. People don't easily fit into a linear equation. It just doesn't work that way.

morse79 said...

@ Major -

bala was writing about "voluntary unemployment" not "involuntary employment." I think that is slavery.

Again, not quite ready for prime time non-militant major.

Major_Freedom said...

morse79:

bala was writing about "voluntary unemployment" not "involuntary employment." I think that is slavery.

Oops, typo. You're right. I meant voluntary unemployment.

Bala said...

"Yet, everyone knows that involuntary unemployment can occur, so the theory must bend to the facts."

No. Every who can think KNOWS that all unemployment is voluntary unemployment that can last for as long as the unemployed individuals prefer staying unemployed to exerting their labour at the price they can get for it in the market or frictional that happens to people who quit or are laid off from one job and are in the process of identifying another job. So, what is required is not theory "bending" to the facts but about understanding the facts properly. You see a person without a job, desirous of getting one, not finding one and are concluding that he is involuntarily unemployed. I am saying that that is an extremely shallow claim. I am saying that whenever there is an excess of supply over demand, those sellers that refuse to lower their price in the absence of demand for their good are valuing their good lower than the current price but higher than the lowered price. This is the preference as demonstrated through the action of not engaging in exchange at the lowered price while being ready to do so at the current price. This "demonstration through action" is the ONLY way you can know the preferences and thus the value scales of any individual. What they say is irrelevant. What they do is.

"is that there are reasons why wages won't always fall immediately, or won't fall below a floor."

EVERY such reason is a reason for the acting individual, in this case the supplier of the labour factor, to withhold a unit of supply of the services of his labour factor from the market at a particular price. It is the reason man acts and, while important for psychology, has no bearing for economic theory. Economic theory just takes note of the point that by acting as he has, that man has demonstrated his valuation of his labour unit higher than the lowered money wage he could get for it. Hence, it is still voluntary.

"You simply pretend these reasons don't exist, or redefine them as voluntary unemployment."

I DO NOT pretend that the reasons do not exist. I merely say that they are not relevant to economic theory. Further, I am redefining nothing. I am just saying that action in the absence of violence is voluntary exchange and to attempt to classify it as involuntary because there are reasons is the real attempt to redefine the concept. So, you are the one guilty of attempting to redefine voluntary unemployment as involuntary unemployment.

"And there is a floor to wages below which they can't fall, the price of food and shelter."

Nonsense. At a very basic level, there are questions like "How much food?". "What food?". "What kind of shelter?". People do manage to live in the open and live on a very frugal diet for years on end if that's what their labour can get them. And every bit of this is an individual decision that cannot be generalised to labour as a whole. Doing so is one of the many idiocies of whatever-Keynesianism.

Further, there is something called reality. If your labour is worth less to others than what you need to eat, refusal to accept it is not sufficient reason to say that your unemployment is involuntary. You are still free to value the wage that you get above the leisure that you get or the possibility of getting another job that pays more were you to use the time you would have allocated to this job to look for another one. Once again, every bit of this is voluntary and not something that is forced on the individual by another.

Bala said...

"Furthermore, employers won't necessarily hire people, even for very low wages. That's because there is a fixed cost in hiring; training, overhead, and all the problems that people bring to the job with them. Hiring a hundred to do the job of one, because you can pay them a percent of the wage of the one isn't as straightforward as you pretend it would be. A hundred people doing arithmetic does not a bookkeeper make. "

Utter nonsense completely unrelated to the idea of voluntary vs involuntary unemployment. Just more vacuous hand-waving that refuses to address a logical point.

Zachriel said...

Bala: You see a person without a job, desirous of getting one, not finding one and are concluding that he is involuntarily unemployed.

Yes, by definition. Wants job + Can't find job = Involuntary unemployment.

Bala: I am saying that whenever there is an excess of supply over demand, those sellers that refuse to lower their price in the absence of demand for their good are valuing their good lower than the current price but higher than the lowered price.

He may very well have lowered his price; he may be holding a sign that says "Will Work for Food", but there aren't any jobs. Employers experience a cost in hiring, so even free labor isn't free.

Remember, the sign doesn't say "Jobs for those who are willing to work cheap."
http://wonkette.com/wp-content/uploads/2008/06/great-depression.jpg

Bala: I DO NOT pretend that the reasons do not exist.

He says as he ignores them again. Read the sign again. Why doesn't it say "Jobs for those who are willing to work cheap."

Bala: If your labour is worth less to others than what you need to eat, refusal to accept it is not sufficient reason to say that your unemployment is involuntary.

Just listen to yourself.

Bala said...

"Yes, by definition. Wants job + Can't find job = Involuntary unemployment."

No. By definition, quantity supplied of labour factor > quantity demanded of labour factor at a given price = unemployment. It is interesting to see you corrupt the terms supply of and demand for labour factor units by substituting them with the uneconomic word "job". A job is an arrangement by which one individual offers his labour factor and another accepts it in exchange for wages. The only sensible meaning of "Wants job + Can't find job" is "Is ready to offer labour factor at the prevailing price but is unable to find a buyer". This situation is necessarily temporary unless distorting factors like a price floor prevent adjustment of the market price of labour towards its equilibrium level.

"Remember, the sign doesn't say "Jobs for those who are willing to work cheap." "

Remember, the sign was put up by a layperson.

"He says as he ignores them again. Read the sign again. Why doesn't it say "Jobs for those who are willing to work cheap.""

Remember, the sign was put up by a layperson.

"He may very well have lowered his price;"

Maybe he needs to lower it further or reskill himself till he is worth as much as he wants.

Zachriel said...

Bala: No. By definition, quantity supplied of labour factor > quantity demanded of labour factor at a given price = unemployment.

Merriam-Webster
unemployed, not engaged in a gainful occupation

BLS
People who are jobless, looking for jobs, and available for work are unemployed.

Investopedia
when a person who is actively searching for employment is unable to find work.

Economic Glossary
Unemployment, the number of people without jobs who are actively seeking work.

morse79 said...

@bala

Once again you show the incredible deficiencies of Austrian economics with this post.

First, despite all the huff and puff about praxeology, it is still just neo-classical in other clothing. You fail to show how this process of new labor market equilibrium comes about. The reason Zachriel keeps on posting that photo is not because it was made by a lay person, but because it reflected an actual reality that you fail to capture. It is very plausible that you can have less job vacancies at the cheapest possible price than there is demand for those vacancies.

You might call this "temporary," but that opens up a debate as to how long temporary is and still is a case of INVOLUNTARY UNEMPLOYMENT.

The labor market in fact might never reach a new equilibrium for the reasons you so easily brushed aside. This has nothing to do with state intervention impeding economic calculation, but is inherent to economic interaction. People who hire have no way of knowing with certainty that there will be future demand for their products. Therefore, they might not hire even "free" labor. In fact, they might be worried about global demand and not hire. Moreover, in a context of employees rapidly dropping their price for labor, doesn't that signal to business that no one will buy their product at a profitable price? Does that not signal perpetual or long-lasting depression and economic devastation?

Second, your analysis fails to address any long term consequences for general economic welfare by allowing wages to fall to nearly zilch. There are extreme long-term consequences (that most business cannot anticipate or plan for) with regard to the populations' skill set or the future socio-political context (imagine an economy run by millions of people working for bread and water).

Finally, your analysis has no relevance for anybody in the real world. So your solution is to tell millions of unemployed people (who might have put time and money into developing their skills) - tough luck, go work at McDonalds? As usual, the Austrian prognosis and prescription leads not to prosperity but an utter economic wasteland.

Zachriel said...

Bala: Remember, the sign was put up by a layperson.

Who do you think constitutes markets? Many communities were being inundated by people looking for work. According to your simplistic theory, this should be an opportunity for business to hire very cheaply. But, business don't necessarily want to hire untrained workers. There's a cost involved, and there may be no market for their goods anyway.

Bala: Maybe he needs to lower it further or reskill himself till he is worth as much as he wants.

Lower than the price of food? Retraining takes time and money. That's the whole point. There is a lag between the market signal and the adjustments to the labor market, and this lag can be significant.

JG said...

Morse,

There was an article in Slate magazine about Austrian economic thought and although the overall article was just ho-hum it did have one sentence that captures everthing that guys like Bala believe:

"Most notably, it seeks to build a strong ethical case for strict libertarianism without admitting that this would lead to any practical problems whatsoever."


Sound familiar?

Bala said...

morse79,

"Once again you show the incredible deficiencies of Austrian economics with this post."

Once again you reveal how retarded a person becomes on account of wallowing in whatever-Keynesian pigswill for years on end. You said

"The reason Zachriel keeps on posting that photo is not because it was made by a lay person, but because it reflected an actual reality that you fail to capture."

Can you see how stupid all you whatever-Keynesian economic-ignoramuses-pretending-like-you-are-geniuses are? That sign was put up in the middle of the Great Depression, one of the biggest economic calamities that occurred, NOT ON THE FREE MARKET OF VOLUNTARY EXCHANGE, but in an economy hampered by massive government intervention. That is why sustained unemployment, impossible though it is on the free market of voluntary exchange.

"It is very plausible that you can have less job vacancies at the cheapest possible price than there is demand for those vacancies."

There comes the fallacy of the "cheapest possible price" again. You guys are really stubborn, I should say.

"You might call this "temporary," but that opens up a debate as to how long temporary is and still is a case of INVOLUNTARY UNEMPLOYMENT."

Nonsense. As in the case of every other good, it requires both parties to agree to have a voluntary exchange. That the seller of labour is willing to take on the job while the seller is not does not make it "involuntary". Non-exchange is as voluntary as exchange. I wonder why it is difficult to understand this once you remain steeped in whatever-Keynesian pig-swill for many years.

"The labor market in fact might never reach a new equilibrium for the reasons you so easily brushed aside."

Ha! Ha! Ha! No market may reach that equilibrium in the real world because in the real world, values, resources and technology do not remain constant and the real world is a world of uncertainty. Quite a strawman you have there!!

"This has nothing to do with state intervention impeding economic calculation, but is inherent to economic interaction"

Yeah!! But the important point to note is that it is fallacious to call joblessness due to lack of readiness on both sides (labour and employer) to exchange at the prevailing market price as "involuntary unemployment". For instance, if there are huge unsold stocks of a good lying on shelves, there is nothing involuntary about it though it is a clear example of a entrepreneurial mistake, the only correction for which is to let the entrepreneur in error to take it on his chin and move on. Similarly, the term "involuntary unemployment" is utter nonsense because we are talking of excess supply of the factor of production "labour" lying unsold. Those who made the erroneous decision to supply labour need to take it on their chin.

"Second, your analysis fails to address any long term consequences for general economic welfare by allowing wages to fall to nearly zilch."

What is general economic welfare? A point to ponder, I am sure. How do you measure general economic welfare?

That apart, do you realise how you switch the terms of reference? I said that the individual who is out of a job can do so by accepting a wage of zero because, unfortunately for him, the market is not ready to value his labour at anything above that. The market is still ready to value the labour of others as per their DMVP. So your claim of wages as a whole going to zilch is yet another strawman version of what I said.

Bala said...

"Moreover, in a context of employees rapidly dropping their price for labor, doesn't that signal to business that no one will buy their product at a profitable price?"

No. It signals the possibility that there are other lines of production where the DMVP of labour is lower than this business is ready to pay its labour. It is also a signal that the supply of the labour factor is such that there is enough of it for the lowest DMVP application as well. It is a signal that he may apply more of the labour factor at the lowered market price and gain from the additional output produced by the additional labour (the marginal value product of the additional labour).

"Finally, your analysis has no relevance for anybody in the real world."

Wrong. My analysis identifies what distortions in the real world cause the persistent unemployment seen in the real world.

"So your solution is to tell millions of unemployed people (who might have put time and money into developing their skills) - tough luck, go work at McDonalds?"

No. My solution is to eliminate ALL distorting interventions in the market and let every price - goods, land and labour - adjust to the level corresponding to the level dictated by an unhampered market.

Zachriel said...

Bala: That sign was put up in the middle of the Great Depression, one of the biggest economic calamities that occurred, NOT ON THE FREE MARKET OF VOLUNTARY EXCHANGE, but in an economy hampered by massive government intervention.

Many of the migrants were fleeing the Dust Bowl. Even if the legions of unemployed were originally due to government action, when given the opportunity to hire desperate people for minimal wages, people often didn't. Many businesses had armed guards to drive away immigrants. The migrants weren't seen as an economic opportunity, but as pests.

Bala: There comes the fallacy of the "cheapest possible price" again.

You have to provide at least as many calories as are required to do the job. It's a thermodynamic thing.

Bala: That the seller of labour is willing to take on the job while the seller is not does not make it "involuntary".

If a worker is willing, but there are no jobs, then that is called unemployment. We provided multiple citations above. It's involuntary from the point of view of the worker. He wants a job, but can't find one.

Bala: My solution is to eliminate ALL distorting interventions in the market and let every price - goods, land and labour - adjust to the level corresponding to the level dictated by an unhampered market.

If there were any doubt about anarcho-capitalism, you have certainly resolved it for our readers through your comments above. You have clearly shown why one should be very cautious about your prescription.

morse79 said...

@bala

Getting defensive now are we?

Interesting how you keep on changing your terms and avoiding the real issues.

Now you are saying the sign is wrong not because it was put up by a lay person but because it was put up at the height of the great depression and is due to government intervention? Yet, we provided numerous examples of how labor markets will not self equilibriate despite government intervention. Do businessmen have crystal balls? Are low wage jobs (or corvee labor) just there for the taking?

If you want to argue semantics and assume that people do not need to eat, how about I change my statement to "the cheapest price" PERIOD. Does that change the argument? NO.

So now voluntary unemployment is defined as a worker who is willing to work for nothing but and employer who voluntarily does not employ them? That is ridiculous and a complete departure from what you argued before. The fact remains that you can have prolonged VOLUNTARY UNEMPLOYMENT - someone looking for work, willing to work for bread and water, and still no one willing to hire them. You are talking about voluntary NON-HIRING.

The fact that a labor market might not reach new equilibrium at lower prices is not a straw man but still the fundamental flaw in yours and Austrian analysis that you fail to address. Again, all those factors can lead to VOLUNTARY UNEMPLOYMENT.

Do I really need to define general economic welfare? Do you really not understand that by allowing Austrian principles to play themselves out we can easily end up in a situation where we are less educated, less productive, and less prosperous? You have actually been pretty clear about it since in your world your solution to depression is for people to suck it up and work for free.

morse79 said...

"My solution is to eliminate ALL distorting interventions in the market and let every price - goods, land and labour - adjust to the level corresponding to the level dictated by an unhampered market."

Even if that means $0 and immense inequality. In other words, bring on the economic wasteland.

Major_Freedom said...

morse79:

"My solution is to eliminate ALL distorting interventions in the market and let every price - goods, land and labour - adjust to the level corresponding to the level dictated by an unhampered market."

"Even if that means $0 and immense inequality."

If it's $0 it means nobody values it. It means it shouldn't get produced. That is a GOOD thing.

And increased inequality doesn't mean the poorest are absolutely poorer. Inequality in a free market will not be exploitation based. It will be based on productivity and competition for the consumer's money. That increases overall wealth and lowers prices, which benefits the poor as more and more goods and services become affordable and decrease in price to where they can afford it in addition to what they can already afford.

"In other words, bring on the economic wasteland."

From people being free to value things such that some potential things will have no price at all because resources are more valued elsewhere in production, and the poorest having 2 yachts while the richest having 20 yachts, you get "economic wasteland"?

You're dumber than a bag of hammers. Pure fear mongering. You have no argument.

Major_Freedom said...

morse79:

"Now you are saying the sign is wrong not because it was put up by a lay person but because it was put up at the height of the great depression and is due to government intervention?"

Government intervention is introducing violence into what would otherwise be peaceful productive activity. You must learn this fact.

"Yet, we provided numerous examples of how labor markets will not self equilibriate despite government intervention."

The market is never in equilibrium. It tends toward it but never reaches it.

Your examples are all based on a total ignorance of economic principles and what actually happens in the market. Workers cannot keep going without work and will settle for a lower price. Lower prices do not immediately imply lower standard of living, because lower wages means lower business costs, and lower business costs means lower prices.

You haven't provided any examples of the free market having perpetual involuntary unemployment.

"Do businessmen have crystal balls?"

Businessmen are the most knowledgeable when it comes the affairs concerning their own markets. It's not about having "crystal balls."

"Are low wage jobs (or corvee labor) just there for the taking?"

In a free market, the most fundamental and most scarce resource there is, will be labor. "There for the taking"? They won't be given to you, you have to go out and find them.

"If you want to argue semantics and assume that people do not need to eat, how about I change my statement to "the cheapest price" PERIOD. Does that change the argument? NO."

Yes it does, because you're ignoring the effects that wage costs have on output prices.

"So now voluntary unemployment is defined as a worker who is willing to work for nothing but and employer who voluntarily does not employ them?"

That isn't even proper English.

Major_Freedom said...

morse79:


"That is ridiculous and a complete departure from what you argued before."

No, voluntary unemployment is refusing to work for a wage that is being offered.

"The fact remains that you can have prolonged VOLUNTARY UNEMPLOYMENT - someone looking for work, willing to work for bread and water, and still no one willing to hire them."

In a government hampered market, most certainly.

"The fact that a labor market might not reach new equilibrium at lower prices is not a straw man but still the fundamental flaw in yours and Austrian analysis that you fail to address."

It is a straw man because no Austrians hold that the market ever actually reaches equilibrium. All the argument is, is that if there is a labor surplus, a lower price can eliminate the surplus.

"Again, all those factors can lead to VOLUNTARY UNEMPLOYMENT."

There is nothing wrong with voluntary unemployment.

"Do I really need to define general economic welfare?"

It doesn't include theft of property, ergo it does not include government intervention. The general welfare is not had with the existence of a systematic violator of property rights.

"Do you really not understand that by allowing Austrian principles to play themselves out we can easily end up in a situation where we are less educated, less productive, and less prosperous?"

You really don't understand that allowing Austrians principles to be acted upon freely and without coercion, can only improve education if people want to improve education, it can only increase productivity if people want to increase productivity, and can only increase prosperity if people want to increase their prosperity. The Austrian principles allow people the economic freedom to achieve their goals in peace and without being stopped by aggressive force.

"You have actually been pretty clear about it since in your world your solution to depression is for people to suck it up and work for free."

That is not Bala's solution. Pay attention.

And you underestimate the value of people being able to work for free. If people WANT to work for free, like interns, volunteers, etc, that can provide the springboard for the less skilled to acquire on the job training, and improve their value in the labor market, such that they can move on to employment that pays an income. If people want to volunteer or be an intern, who the hell are you to say they can't do that?

morse79 said...

"If it's $0 it means nobody values it. It means it shouldn't get produced. That is a GOOD thing."

You mean massive unemployment is a good thing? I never knew that...

" Inequality in a free market will not be exploitation based."

Naive at best. Says who? Oh yeah, everyone is just going to get along in this utopia. Money does not equal power. That's never happened before!

"You're dumber than a bag of hammers."

Your persistent need to insult just masks your intellectual insecurity. I've said it before, if your goal it to educate you utterly fail. If your goal is to stroke your own ego, you've done a fantastic job.

morse79 said...

"Government intervention is introducing violence into what would otherwise be peaceful productive activity. You must learn this fact.
"

Late to the conversation as usual non-militant major. That is an argument about the nature of government, not about whether unemployment can be INVOLUNTARY.

"It is a straw man because no Austrians hold that the market ever actually reaches equilibrium. All the argument is, is that if there is a labor surplus, a lower price can eliminate the surplus."

So then there can be INVOLUNTARY UNEMPLOYMENT? By what mechanism? How does this happen? Magically? Those "straw men" you so easily brush aside are actual arguments about why even long-term results.

"The Austrian principles allow people the economic freedom to achieve their goals in peace and without being stopped by aggressive force."

Except when it all falls apart and even in the free market you can lose entire generations to depression.

"That isn't even proper English."

Get your head out of the sand and go back and actually read the discussion. Bala first said that there is no such thing as INVOLUNTARY UNEMPLOYMENT because in reality people just are not willing to work for less. We showed how that there might not be work even for people willing to work for free. Then Bala said that it is still INVOLUNTARY UNEMPLOYMENT because people are voluntarily not hiring. Ridiculous.

morse79 said...

"Businessmen are the most knowledgeable when it comes the affairs concerning their own markets. It's not about having "crystal balls."

More fantasy land garbage. It is exactly about the problem of perfect information even in a completely free economy. Economic shocks, which can induced randomly and without government intervention (e.g. a giant hurricane) can leave such economic devastation that business can take part in a viscous cycle of non-hiring even at the lowest possible wage because of complete uncertainty regarding what the future may hold. If businesses were so good at planning for the future no one would go bankrupt, and there would be no depletion of resources.

Calgacus said...

Bala:Yeah!!! There was no exchange or money before the great State came up.

Of course there were exchanges. But there was no money before the state. That's what anthropologists, archaeologists, historians and sociologists unanimously say. The commodity theory of money a la Menger is a tale about something that never happened.

Money is not a thing but a relationship recognized & exchangeable in some community. There were no markets, "free" (whatever that means) or not, before money, and no money before states. State --> Money --> Market was the historical sequence. Not the reversed sequence in bad modern economics textbooks & in Menger & Austrian thought.

the thing that becomes money is that it should be a commodity that was already widely desired To all intents & purposes, the rest is just verbiage. The category mistake is that money is not & never was a "thing", a commodity, widely desired or not. Saying a commodity became money is like saying a horse turned into a poem. You can write poems on top of a horse, or about a horse. You can trade poems for horses, but there is no way for a horse to become a poem or vice versa.

Major_Freedom said...

morse79:

"Major_Freedom: If it's $0 it means nobody values it. It means it shouldn't get produced. That is a GOOD thing."

"You mean massive unemployment is a good thing? I never knew that..."

No, I don't mean massive unemployment. Labor is valued above $0. It's why roughly 95% of the workforce is paid MORE than the legal minimum.

"Inequality in a free market will not be exploitation based."

"Naive at best."

True at best, because it is.

"Says who?"

It's not says who. It's says what. The what is that I am not exploited just because others make more money than I do. I am only exploited if people initiate force against my person or property.

"Oh yeah, everyone is just going to get along in this utopia. Money does not equal power. That's never happened before!"

Oh yeah, everyone is just going to get along in this statist Utopia. Violence does not equal power. That's never happened before!

"You're dumber than a bag of hammers."

"Your persistent need to insult just masks your intellectual insecurity."

Not in the slightest. Your intellectual bankruptcy, your advocacy of violence, your inability to use logic when you argue, and your inability to correctly understand that arguments that are made, just makes it pleasurable for me to insult you in addition to refuting your arguments.

"I've said it before, if your goal it to educate you utterly fail."

If your goal is to learn, then you have utterly failed.

"If your goal is to stroke your own ego, you've done a fantastic job."

Says the involuntary egoist.

"Major_Freedom: Government intervention is introducing violence into what would otherwise be peaceful productive activity. You must learn this fact."

"That is an argument about the nature of government, not about whether unemployment can be INVOLUNTARY."

Nonsense. You keep calling for government intervention as a "solution" to the problem of unemployment, not realizing that violence always makes peaceful problems worse, not better.

"Major_Freedom: It is a straw man because no Austrians hold that the market ever actually reaches equilibrium. All the argument is, is that if there is a labor surplus, a lower price can eliminate the surplus."

"So then there can be INVOLUNTARY UNEMPLOYMENT?"

I see you're not keeping up. The argument is that involuntary unemployment cannot PERSIST in an unhampered labor market. Yes, people can get fired when consumers change their preferences, or when technological improvements are made that reduce the quantity of labor required. But in a free market, labor always remains the most scarce resource we have to produce goods. The desire for more wealth is practically infinite. No amount of labor can ever satisfy all desires.

Nobody here is claiming that involuntary unemployment will be zero in a free labor market. It will however be MINIMIZED, because the freedom to find jobs is maximized because the freedom to hire people is maximized.

Freedom is what maximizes people's ability to improve their well-being, not violence.

Major_Freedom said...

morse79:


"a worker who is willing to work for nothing but and employer" is not proper English. But and employer? Seriously? You sound like you were dropped as a baby.

How can you expect to be taken seriously when you don't even make sense?

"Bala first said that there is no such thing as INVOLUNTARY UNEMPLOYMENT because in reality people just are not willing to work for less."

FALSE. Bala said that there is no such thing as involuntary unemployment that persists in a free labor market.

"We showed how that there might not be work even for people willing to work for free."

"We"? Oh good lord, are you as insane as that other yahoo who frequents this board too?

Oh and what's this? You "showed" that there might not be work even for people willing to work for free? Did you refer perchance to historical data that is not a free labor market? Or did you actually show how someone can go without work persistently in a free labor market using economic principles?

You didn't show what you believe you showed. But you did show that you are clueless.

"Then Bala said that it is still INVOLUNTARY UNEMPLOYMENT because people are voluntarily not hiring."

It is involuntary unemployment for the potential worker if people choose not to voluntarily hire them!

"Businessmen are the most knowledgeable when it comes the affairs concerning their own markets. It's not about having "crystal balls."

"More fantasy land garbage."

That isn't fantasyland garbage. What is fantasyland garbage is the notion that people elected by majority vote by the masses all of a sudden develop more knowledge about every sector and technology in the market, than the market participants themselves.

Major_Freedom said...

Calgacus:

Of course there were exchanges. But there was no money before the state. That's what anthropologists, archaeologists, historians and sociologists unanimously say.

Absolutely, unequivocally, utterly false.

Money arises out of barter, either spot or credit. Money arises prior to states, because new states are initially financed by money and states begin the process of taxation. They can't tax unless there is already something to tax. In the US for example, the new states taxed in silver and gold, which were circulating as money prior already.

Archaeologists, historians, and sociologists are certainly NOT unanimous on the issue of money. David Graeber for example has argued that sometimes money has been found to originate with state decree, but what he doesn't seem to realize is that the state cannot decree a commodity to be money unless it was already valued prior, which means it was already valued as a barter commodity.

NeoMarxists of today who want a moneyless economy, and blame the state for capitalism and money, are just LOOKING for excuses to believe that money is an artificial creation of state decree, but as Mises proved, money MUST arise out of barter exchanges. And as many anarchist societies have already empirically shown, money does circulate even when no state exists.

Money is not a thing but a relationship recognized & exchangeable in some community.

Communities does not mean governments.

Money is just the most marketable out of all commodities such that it becomes generally accepted. This doesn't require a state.

morse79 said...

Just so utterly inadequate MF. Really, just a bunch of "I know you are but what am I?" type of arguments! So the state can employ violence therefore a world without states will not have violence?

Hide behind that all you want, but my possible failure to address the inadequacy of states and their inability to direct markets is not an argument in response to the fact that economic calculation can be impeded by the simple fact that human beings are human beings. You can have massive inefficiencies and traumatic outcomes in your supposed free market. Deal with the argument.

But really, it comes down to this comment -

"Nobody here is claiming that involuntary unemployment will be zero in a free labor market."

Actually, that is exactly what Bala was stating and if you had actually been a part of a conversation instead of just insulting, and ranting endlessly about how your life under this oppressive state is so horrible (and yet it you are not militant!), you would have much more to contribute.

Major_Freedom said...

morse79:

"Just so utterly inadequate MF."

Empty and vacuous platitude.

"Really, just a bunch of "I know you are but what am I?" type of arguments!"

What is this childishness? I didn't say that.

"So the state can employ violence therefore a world without states will not have violence?"

No, I never said there will be zero violence.

"Hide behind that all you want, but my possible failure to address the inadequacy of states and their inability to direct markets is not an argument in response to the fact that economic calculation can be impeded by the simple fact that human beings are human beings."

I didn't say it was.

"You can have massive inefficiencies and traumatic outcomes in your supposed free market."

Like what?

"Deal with the argument."

I was.

"But really, it comes down to this comment -"

"Nobody here is claiming that involuntary unemployment will be zero in a free labor market."

"Actually, that is exactly what Bala was stating"

No, it wasn't. He quite clearly said involuntary unemployment cannot PERSIST.

"and if you had actually been a part of a conversation instead of just insulting, and ranting endlessly about how your life under this oppressive state is so horrible (and yet it you are not militant!),"

I have been a part of the conversation, and my insults are in addition to my arguments that refute yours. Rants? Look in the mirror oh statist ranter.

"you would have much more to contribute."

You're not a judge of what I contribute, I am.

Bala said...

"Actually, that is exactly what Bala was stating"

That's a lie as brazen as can be. Right from the beginning, I maintained that it is impossible except for a brief period on the I hampered labour market. That you have to lie to prop up your "argument" says it all.

Bala said...

This is a general point that I am making because it struck me in a moment of contemplation. I would be happy if MF responded to this.

I think the entire discussion on unemployment is nothing more than what Ayn Rand called the reification of the zero. Let me explain what I mean. The term "unemployment" is fundamentally defined as the absence of employment. The term "employment" in turn refers to a state where individual A offers the services of his labour factor to individual B who offers something else in exchange. What B offers in exchange usually turns out to be money but that need not necessarily be the case.

Now, employment is clearly a case of exchange and is a subject for study under the broader study of economics which is nothing but "the science of exchange". This concept "employment", as a kind of exchange, has characteristics. It may be a voluntary exchange or it may be a violent exchange. Even here, the term "involuntary" may only be applied in the sense of a type of violent exchange where either A or B uses violence to coerce the other into the exchange. In either case, the victim is made worse off.

"Unemployment", on the other hand, can be defined ONLY as the absence of employment. It is thus the non-existence of a particular type of exchange. To talk about "unemployment" as voluntary and involuntary is as silly as talking about the characteristics of that which does not exist. I mean, how can a thing that does not exist have characteristics? Is this not an example of the reification of the zero? Should we not be dismissing all such talk of the types of unemployment (and with it all of Keynesian "Economics" as utter nonsense BECAUSE they depend on reification of the zero?

Bala said...

" That's what anthropologists, archaeologists, historians and sociologists unanimously say."

Nonsense uttered with unanimity is still nonsense. You could say it is nonsense on stilts. What all this fails to explain is how a myriad of exchange ratios came to be if money was imposed by the State. Please do explain that without gaping holes in your explanation and we will then take it forward.

"The commodity theory of money a la Menger is a tale about something that never happened."

Do you realise how idiotic this statement of yours make you look? How do you even say "never happened"? Everything that you cite is a story woven around a smattering of facts. None of them represents what "happened". On the contrary, each of them represents what the writer of that fable thinks "must have happened" given every fact he has seen.

"Money is not a thing but a relationship recognized & exchangeable in some community."

Here comes the nonsense on stilts. How is money a "relationship"? What is money in the first place? What is a "relationship"? How can "money" be a "relationship"? How does a "relationship" become "exchangeable"? What do you mean by an "exchange" of a "relationship"? How can a "relationship" be "exchanged"? Mind-boggling nonsense. It's no wonder that a Statist buffoon comes up with such unadulterated nonsense and, to top to all, claims that others are making "category mistakes". As I said, the only category mistake out here is your categorisation of yourself as a sane human being.

"There were no markets, "free" "

Yeah!! There was no set of all exchanges happening before the Great State came up. Incidentally, don't you think you are revealing your utter idiocy by demonstrating that you consider the market to be something that "exists" physically? As long as people existed and these people had exchanges among themselves, there was a market. To speak otherwise is total nonsense and revealing of how idiotic you are.

" no money before states"

How do you even manage to make a statement like this with a straight face? Are you saying that no generally accepted medium of exchange ever existed until The Great State came along and instituted something as "money"? How do you manage to come up with crap this pure?

"Saying a commodity became money is like saying a horse turned into a poem."

And saying "money is a relationship" is like saying that the horse is a poem. Idiot. First address all the points I raised which show you for the first class idiot you are and then pretend to be wise.

macroman said...

Trying to define "involuntary unemployment out of existence" is an excellent example of Karl Popper's observation that "every discipline, as long as it used the Aristotelian method of definition, has remained arrested in a state of empty verbiage and barren scholasticism", from "The Open Society and its enemies" Routledge, 1945.

Zachriel said...

Bala: To talk about "unemployment" as voluntary and involuntary is as silly as talking about the characteristics of that which does not exist.

And yet everybody talks about it. Defining something out of existence, doesn't make it go away.

Bala said...

"Trying to define "involuntary unemployment out of existence" is an excellent example of ......"

Trying to twist definitions to bring involuntary unemployment into existence is an excellent example of what Ayn Rand called the "anti-concept". Like every other anti concept, its objective is to destroy concepts and make concept formation impossible to man. Ultimately, it's purpose is to destroy all knowledge and even the possibility of knowledge. That's precisely what Keynes has done to Economics with his nonsense about "involuntary unemployment".

So, strawman, feel free to engage in reification of the zero. Just don't expect me to fail to see through it.

Bala said...

"Defining something out of existence, doesn't make it go away."

Defining an anti-concept into existence does not make it a meaningful concept.

Major_Freedom said...

Bala:

I think the entire discussion on unemployment is nothing more than what Ayn Rand called the reification of the zero. Let me explain what I mean. The term "unemployment" is fundamentally defined as the absence of employment. The term "employment" in turn refers to a state where individual A offers the services of his labour factor to individual B who offers something else in exchange. What B offers in exchange usually turns out to be money but that need not necessarily be the case.

Now, employment is clearly a case of exchange and is a subject for study under the broader study of economics which is nothing but "the science of exchange". This concept "employment", as a kind of exchange, has characteristics. It may be a voluntary exchange or it may be a violent exchange. Even here, the term "involuntary" may only be applied in the sense of a type of violent exchange where either A or B uses violence to coerce the other into the exchange. In either case, the victim is made worse off.

"Unemployment", on the other hand, can be defined ONLY as the absence of employment. It is thus the non-existence of a particular type of exchange. To talk about "unemployment" as voluntary and involuntary is as silly as talking about the characteristics of that which does not exist. I mean, how can a thing that does not exist have characteristics? Is this not an example of the reification of the zero? Should we not be dismissing all such talk of the types of unemployment (and with it all of Keynesian "Economics" as utter nonsense BECAUSE they depend on reification of the zero?

Bala, I almost always agree with you, but here I must dissent.

If the concept "unemployment" is stripped away from intentions, then yes, you're right. But if we define "unemployment" as the PRESENCE of someone looking for a job, but unable to find a job, then I will argue it is not a reification of the zero. It is a reference to people who exist, who want a job, but can't find any for some reason (they haven't looked hard enough, they refuse to accept lower wages, they are being supported by taxpayer, they are prevented from getting a job because of price floors pricing them out of the market, etc).

Economists typically do not include people who aren't looking for work in the heading "unemployment." But, at the same time, we can say that economists would be wrong to exclude them if there are people in that group who have stopped looking for work because the economy is so bad, and who would otherwise have looked for work. If we include these people, unemployment in the US is severely underreported.

Bala said...

MF,

Thanks at the outset for responding. However, I still have the following observations.

"If the concept "unemployment" is stripped away from intentions, then yes, you're right."

It would be erroneous to say this, IMO. My point is that units of the labour factor are the "good" in question. Like any other good, these units of the labour factor have an owner who values them. As a human owner, the person definitely has intentions which are revealed in his action of offering or not offering the factor unit at a particular price. So, it is impossible to strip away from intentions. However, the correctness of my point does not depend on stripping away from intentions but in fact derives its correctness by sticking with intentions. It is the fact that the owner values the factor unit in a particular manner vis-a-vis what he gets in exchange that results in employment or non-employment of the labour factor in the particular process of production.

My point is that while talking of intentions, it is important to talk of the intentions of the buyer AND the seller. Each is a human being with a value scale deciding if he should engage in the particular exchange. Your statement

"But if we define "unemployment" as the PRESENCE of someone looking for a job, but unable to find a job"

actually strips away the buyer of the factor unit under discussion and you cannot be talking of an exchange any more. Where is the intent of the buyer of the unit of the labour factor when you say "the PRESENCE of someone looking for a job, but unable to find a job"? My point is that the concept "unemployment" as you are defining it, therefore, ceases to be a legitimate concept for the science of exchange or economics to deal with.

To have any economic meaning for this term, one would be forced to define the term "job" as a relationship between two individuals where one is the seller of the services of his labour factor while the other is the buyer of those services of the labour factor. "Unemployment", then, would stand for the condition of a person who exists without such a relationship to any other person.

Thus, unemployment is still identified as the absence of employment where employment is the status of the seller in the buyer-seller relationship where units of the labour factor are the good in question. Thus, it still appears to me to be a concept that is without meaning unless seen as the absence of the concept of a particular relationship between the subject and any other individual.

This is like saying "non-existence" is defined as the absence of "existence" (both terms taken in the noun form). It is entirely meaningful here to talk of the characteristics of existence (that which exists) but what of the characteristics of non-existence? Isn't taking of the characteristics of non-existence reification of the zero? Therefore, isn't talk of the characteristics of "unemployment" which is nothing more than the absence of the relationship of "employment" also an instance of reification of the zero?

I am sorry if I sound obstainate, but then I wouldn't be "me" if I weren't. :)

Bala said...

MF,

I am just adding to what I said. You said

"Economists typically do not include people who aren't looking for work in the heading "unemployment.""

The language in this sentence is plain topsy turvy. These are not "people looking for work" but "people looking for a buyer for the units of the labour factor that they intend to supply if the price is acceptable". It in fact highlights the conceptual confusion that can be created by accepting the concept of "unemployment" as a legitimate concept. This is one more example of the mental disintegration that anti-concepts can wreak.

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