Tuesday, December 11, 2012

Back to the Socialist Calculation Debates

This week, Paul Krugman has been arguing that in some circumstances, the mysterious path of at least some capital investment can lead to lower wages, unemployment, and general misery. Furthermore, if the economy is not in "perfect competition," then a lot of the advantages of capital development are lost.

Likewise, he is arguing, at least some capital development can lead to monopoly in which capital is receiving large rents at the expense of workers and everyone else. There are a few things to remember as one goes through these two Krugman posts that he is not pointing out, yet do have significance.

These are interesting arguments, and they bring us back to the Socialist Calculation Debates that took place in the 1930s and 40s between socialists like Oskar Lange and Ludwig von Mises and Friedrich A. Hayek.

The first is that there is no such thing as an "aggregate production function." I remember several years ago attending a Paul Craig Roberts lecture in which he was arguing that if capital could move beyond national borders, then factors would revert to "absolute advantage," and one country would produce everything and make everyone else poorer. The disappearance of comparative advantage, of course, would mean that the Law of Opportunity Cost would also disappear, since comparative advantage is built upon the idea that there always is opportunity cost in producing anything.

He "proved" his point by using aggregate production functions, i.e. "Britain has this production function" and "China has THIS production function," and so on. That is nonsense. An attempt to aggregate something like numerous productions functions within an economy into One Big Function truly has no meaning; it is a fictitious concept like "aggregate demand" or "aggregate supply." In reality, one cannot reproduce any of these things. (Yeah, I know. This last statement will send the Keynesians into a frenzy.)

The second thing is Krugman's idea of "perfect competition" being some sort of Holy Condition. Remember that the assumptions necessary for "perfect competition" include perfect homogeneity of goods produced within an industry and small-scale capital, not to mention all firms being tiny and having no effect upon the overall supply of goods within a particular market.

Even the idea of homogeneity being the necessary ingredient for "competition" is laughable on its face. This kind of perfect homogeneity is not a basis for competition at all, but rather a basis for no competition, for if every good is exactly the same, an important mechanism for choice disappears and an economy then simply becomes little more than an exercise in randomness.

More important, socialists have argued that heterogeneity of goods then leads to inefficiency and "spatial monopolies" (to quote Joan Robinson). However, the concept of "efficiency" that Robinson and others were promoting (and I suppose Krugman believes it, too) is mathematical, not economic. The entire platform upon which these ideas are built is that everything discussed follows functions that are smooth, continuous, and twice-differentiable. While I have no problem with creating mathematical functions to use in parallel models to explain some aspects of an economy, the idea that an economy MUST follow exactly the constructs of mathematical models or it is creating great harm and must be smashed by the state is ludicrous.

It is obvious, then, that the entrepreneur in this whole Brave New Economy is a parasite, someone who disturbs the Holy Production Function, and creates heterogeneity, which then takes the economy down the Path of Perdition. There is a problem here that Krugman and others cannot answer: Why were the socialist economies of the U.S.S.R. and its satellites much more primitive than the economies of the "monopolistic" capitalists when the Soviet Union collapsed in 1991?

After all, the aggregate planning mechanism of the socialist world followed what Robinson, Lange, and others claimed would create "efficiency." Lange argued that if planners had access to (1) production functions and (2) prices of goods (which could be found on financial pages in western newspapers), then planning an economy was as easy as solving a whole slew of simultaneous equations.

In fact, the Soviets were very good at solving these equations. As my math econ professor in grad school put it, the Soviets created a number of advancements in using matrices to solve these equations. However, he added, "It didn't do the economies any good."

Krugman, in trying to explain why corporate profits might be high at a time of high unemployment, simply reverts to the arguments used by Lange and Robinson and others: the U.S. economy is not in "perfect competition," monopolies abound everywhere, and the capitalists have managed to create aggregate production functions that don't benefit the workers, only the capitalists.

Salvation, in this view, lies in the omniscience of the monopolistic state. Yes, that huge monopoly known as government also contains the Very Secrets of how to create the perfectly-competitive economy that always operates at the point of efficiency. Bureaucrats and elite academic economists can collaborate to impose efficiency because they know exactly where the points of efficiency exist and they have the wisdom and foresight to move us to that point of Nirvana.

Krugman always is lambasting "faith-based" economics. I would contend that the economics of Paul Krugman requires the kind of religious faith that is not found in even the most fundamentalistic aspects of any religion. In the end, we get Faith-Based Keynesianism.

(To further demonstrate the whole idiocy of the Soviet economy, here is the link to a video on some of the automotive masterpieces produced by the Soviets back in the days when Paradise ruled.)

60 comments:

Anonymous said...

From Bogart:

Krugman is nowhere near Economic Calculation. He has not gotten by the concept of "Creative Destruction".

Of course in a world where the future is not know and consumers are extremely fickle then there will be entrepreneurs who bypass labor to satisfy these consumers. And there will be other entrepreneurs who take advantage of other needs based on the original entrepreneur.

Is this good for everyone? Of course not, there are 310million people in the USA and the IPAD was not good for everyone of them just as the Apple II was not good for the TRS 80 and Commodore 64 manufacturers.

And as usual to these aggregators I ask:
Which workers? which production functions? which economy? which consumers?

Anonymous said...

Do you ever get tired debating yourself?

Bala said...

Anonymous just gave a good demo of how easy it is to be a troll.

Mike said...

Bala,
Following up on Anderson’s previous post, what happens with Trolls are completely replaced with technology? :-)

Lord Keynes said...

"it is a fictitious concept like "aggregate demand" or "aggregate supply." In reality, one cannot reproduce any of these things. (Yeah, I know. This last statement will send the Keynesians into a frenzy.)".

No, in fact it is the Austrian advocate of Say's law who ought to be very worried when reading such nonsense.

If there is no such thing as "aggregate demand" or "aggregate supply" - if these are not meaningful concepts - then there can be no such thing as Say's law, for Say's law is dependent on the existence of those very concepts, e.g., total factor payments (itself an aggregate) derived from aggregate supply will be necessary to purchase the aggregate of output by those receiving the total factor payments (total demand for that output being as aggregate demand). In the short or long run (depending on what version of Say's law) those two aggregates are supposed to be equal.

Gene Callahan also points put that if aggregates aren't meaningful or exist, then the Austrian business cycle theory must go out the window too:

"Often in blog discussion threads, one sees amateur Austrians popping up and saying things like, "Oh, your theory relies on aggregates, and those have no causal power!" or "No real economic actor ever acts based on aggregates!" or something of the sort. (I doubt you'd see Steve Horwitz or Roger Garrison or George Selgin saying anything like this.) Have they ever stopped to consider the fact that "credit expansion" is itself an aggregate concept, and their dictum has just shot down the Austrian theory of the business cycle along with their target?

http://gene-callahan.blogspot.com/2011/09/vulgar-austrians-and-aggregates.html

Anonymous said...

Your points are insightful as always, professor Anderson, but regarding corporate profits, what we have is crony capitalism with private profits and socialized losses. Interventionism has made it hard to unentangle the causes of the distribution of relative wealth and poverty. All we can say is that the powerful are using the state as well as economics to further their position.

Bob Roddis said...

Lord "Rain Man" Keynes still has no clue about the problem of economic miscalculation induced by Keynesian money dilution and debt and spending policies. He does not understand the problem of knowledge in society which requires an understanding that the information necessary for an advance civilization is disbursed and contained in the minds of the population and can never be contained in the minds of his beloved Kleptocratic Keynesian Autocrats. Unadulterated prices are the mechanism to spread this essential data far and wide. Keynesian policies distort this information feedback loop. This results in the very problem that the Keynesian say they are trying to solve. There is no problem to solve but for the Keynesians.

And then there is the PARADOX OF LORD KEYNES:

http://consultingbyrpm.com/blog/2012/12/the-paradox-of-thrift.html#comment-53012

William L. Anderson said...

The gist of Say's Law is not aggregate demand or aggregate supply. It is the larger point that there cannot be a "general glut" of goods on the market or, to be more specific, we cannot have general overproduction of goods.

(Socialists always rely on that belief. I remember reading a column years ago by the late Molly Ivins, who complained that the greatest threat to the world economy was, and I quote, "capacity.")

The kinds of aggregates used in Keynesian analysis are useless in examining overall policy. As for Gene Callahan's claim that the Fed's pushing down rates of interest through its policies of expanded credit is "aggregate" analysis, I'm not sure how that somehow "proves" that we can have government "manipulate aggregate demand and aggregate supply." Gene is talking about apples and oranges.

Bob Roddis said...

I don't think Gene Callahan likes me much. Do you have a tissue?

http://consultingbyrpm.com/blog/2012/11/the-system-is-rigged-the-futility-of-politics.html#comment-48700

William L. Anderson said...

To be honest, I have not had contact with Gene in years and have not kept up with him. I do note, however, that Keynes himself wrote that inflation would serve as a way to cut real wages without the workers really noticing. So, no, your statement was neither ignorant nor arrogant.

JG said...

"Why were the socialist economies of the U.S.S.R. and its satellites much more primitive than the economies of the "monopolistic" capitalists when the Soviet Union collapsed in 1991?"

I love how the only alternative to unbridled capitalism that Anderson ever mentions is the Soviet Union. And every time I remind him that Sweden is a socialist country that is also immensely prosperous and successful he goes silent.

William L. Anderson said...

I had no idea that Sweden had government ownership of all the factors of production, and that it engages in five-year plans. It always is great to be enlightened.

Sweden has a heavy government presence in taxation and welfare, but the firms there are privately-owned, at least the last time I checked. And, if you go there, you better bring bagfuls of money because it is very, very expensive.

JG said...

Sweden is a socialist country...it's not communist or authoritarian, but it's absolutely socialist and it rejects the laissez-faire, small-government, low-tax model that every Austrian/Libertarian holds up as the model for prosperity and freedom.

And yes, it's expensive to live there, just like it's expensive to live in the more desirable parts of this country.

Tel said...

Say's Law works at the micro level -- so if one individual works hard and earns some cash, and they hoard their cash for the rest of their life, never spending it, then in effect this individual would have given away their labour for free.

Since the vast majority of people understand that they work for money and then spend the money (i.e. they ultimately work in return for material goods and services) any "hoarding of money" we see is only temporary. Of course temporary hoarding can still be a problem, if many people are doing it simultaneously, but in that case we must presume that those people are not stupid, and the so called "hoarding" is a symptom of some deeper problem.

Pulverized Concepts said...

Even the idea of homogeneity being the necessary ingredient for "competition" is laughable on its face. This kind of perfect homogeneity is not a basis for competition at all, but rather a basis for no competition, for if every good is exactly the same, an important mechanism for choice disappears and an economy then simply becomes little more than an exercise in randomness.

Further more, there isn't even homogeneity in many products defined as commodities that are lumped into grades, like lumber and grain.

A South Dakota dry land farmer once explained to me that "anybody can grow wheat, but it takes skill and attention to store it. I can hold wheat until the prices are best and it always grades good because I know how to take care of it." There's an assumed homogeneity in commodities that is used to make transactions easier but everybody knows that there are big differences within a grade. The current "Black Angus" beef marketing program is an attempt to differentiate a commodity.

Bob Roddis said...

The "socialist calculation debate" also is at the center of the Austrian critique of Keynesian money dilution, and Keynesian and debt. The Austrian Business Cycle Theory is based upon price distortions induced by the artificial creation of credit.

It's obviously too much to ask for Austrian critics to familiarize themselves with basic Austrian concepts.

Tel said...

Sweeden has been covered so many times... they already figured out they had a problem, and moved away from their welfare state.

http://www.lewrockwell.com/orig6/sanandaji1.html

Tel said...

We also investigated the claim that Sweden is proof that big government does not harm the economy. While Sweden has done very well compared to other developed countries in the last 15 years, it has also implemented sweeping pro-market reforms. Examples include a national system of free school choice based on vouchers up through senior year of high school, a financially stable public pension system that can adjust payouts if contributions to the system fall for some reason, and comprehensive tax reform that has lowered marginal tax rates tremendously.

Even if Sweden's government still spends some 20% of GDP more than the U.S. on average, the Swedish economy is now much more market oriented and government spending is down by almost 10% of GDP since the early 1990s.

Sweden's recent growth is thus the result of opting for free-market solutions instead of growing government. By comparison, the U.S. already has a relatively free economy, and therefore does not have as much potential for further market-based reform in order to offset the negative growth effects of a larger government.


http://online.wsj.com/article/SB10001424052748704535004575348641192320912.html

Bala said...

LK is (as always) mind-blowingly hilarious. Just witness the apoplectic fits he gets into when anyone damns the concepts of "aggregate demand" and "aggregate supply". Even funnier is his failure to understand the difference between meaningful aggregates and meaningless aggregates.

LK, you genius! Total factor payments is a meaningful aggregate. I can add money paid by A, B, C, etc., and come up with a meaningful total payment by all parties together. What makes this possible is that the units of all these payments are the same. Similarly, credit expansion is a meaningful aggregate.Credit expanded by A, B, C, etc., can be aggregated into a meaningful aggregate simply because the units of all these individual components are the same. The other important reason they are meaningful aggregates is that they are explained from the individual level and then aggregated without loss of meaning. One can talk of the drivers of each of these aggregates without talking gibberish.

Aggregate Demand and Aggregate Supply, however, have precious little meaning except as broad conceptual aggregates that have little economic significance.

And incidentally, that was a good example of Callahan making a fool of himself.

JG said...

Not surprisingly, the Wall Street Journal spins the story in a way to supports its editorial board's leanings.

The market reforms that they speak of are mostly in the form of selling off state-owned assets for the sake of debt reduction. The welfare state has not been reduced, the nordic model of high taxes and high public spending has not changed. Also, the economic success enjoyed by Sweden predated these reforms by many decades. It also helps that they avoided joining the Euro, and benefited (until very recently) from the export advantage of a weak Krona relative to the strong Euro.

JG said...

One more thing, Tel.

Lew Rockwell's blog isn't exactly the authoritatve source on economic knowledge that fans of this blog seem to think it is. I trust his opinion on economic matters about as much as I trust Dan Senor's expert opinion on foreign policy.

Lord Keynes said...

"The gist of Say's Law is not aggregate demand or aggregate supply. It is the larger point that there cannot be a "general glut" of goods on the market or, to be more specific, we cannot have general overproduction of goods. "

So you are actually saying that Say's law does not use or rely on aggregates, including:

(1) aggregate factor payments,
(2) aggregate output (which when considered simply in the context of production before sale is aggregate supply), and
(3) aggregate demand (considered as demand for the output in (2) by means of the aggregate factor payments in (1)?
(4) that the two aggregates (1) and (3) are equal over the short or long period?

Is this what you're really telling us? That none of these aggregates have anything to do with Say's law?

If so, Gene Callahan really does have your number.

Lord Keynes said...

Bala@December 11, 2012 11:47 PM

Aggregate Demand and Aggregate Supply, however, have precious little meaning except as broad conceptual aggregates that have little economic significance.

So AD and AS are broad conceptual aggregates? Yet Anderson asserts they don't exist.

Presumably Austrians can wave their magic wands and resolve this most mysterious paradox!

Lord Keynes said...

... still has no clue about the problem of economic miscalculation induced by Keynesian money dilution and debt and spending policies.

Oh, I thought we resolved this broken record player nonsense.

Is it your view that factors (1) to (4) below cause economic miscalculation problems in a modern economy like the US?:

(1) the alleged miscalculation problems caused in the Austrian business cycle theory (ABCT).

(2) government spending, deficit spending, central bank fiat money creation, price controls, subsidies etc.

(3) government spending allegedly leading to Cantillon effects

(4) obstructions to flexible wages and prices and therefore to a price vector that will clear all markets (with flexible wages clearing the labour market), as in this quotation of Hayek:

"The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept.”

Bala said...

LK, you genius!

Here's what Prof. Anderson said.

"An attempt to aggregate something like numerous productions functions within an economy into One Big Function truly has no meaning; it is a fictitious concept like "aggregate demand" or "aggregate supply." In reality, one cannot reproduce any of these things. "

Here's what I said and you quoted.

"Aggregate Demand and Aggregate Supply, however, have precious little meaning except as broad conceptual aggregates that have little economic significance."

Please explain how this combination justifies your empty claim below

"Yet Anderson asserts they don't exist."

As far as I can see, Prof. Anderson is saying that they are concepts that are devoid of meaning. That's something similar to what I said.

As I have always maintained, you are an expert at engaging in the fallacy of conceptual realism.

Incidentally, I see you evading the point I made about Callahan making a fool of himself by claiming that since credit expansion is an aggregate, consistent Austrians should not use it and hence not talk of ABCT. I am specifically talking about the point I made about meaningful vs meaningless aggregates.

Max.Hy said...

@JG

Well, the taxes in the last 7 years have been reduced in Sweden, we have had pro-market reforms that did work, trust me I live there. I can recommend a paper written by Nima Sanandaji "The surprising ingredients of
Swedish success – free markets and
social cohesion" It was eye-opening for me as a Swede.

Lord Keynes said...

"As far as I can see, Prof. Anderson is saying that they are concepts that are devoid of meaning. That's something similar to what I said."

No, he's not. From his own mouth:

'When Krugman uses "demand," he means "aggregate demand," which economically speaking is a nonsensical term. There is no such thing as "aggregate demand;'

http://krugman-in-wonderland.blogspot.com/2010/06/krugman-in-long-run-we-screw-future.html

'"For all of his "credentials," let us not forget that Krugman is a Keynesian who has no clue whatsoever what happens in a real economy. His world is the imaginary world of aggregates, GDP numbers, crude graphs, and no real people and certainly no real production.'

http://krugman-in-wonderland.blogspot.com/2010/03/jeremy-warner-gets-it-right-on-krugman.html

Bala said...

"His world is the imaginary world of aggregates,"

Of course Prof. Anderson is right in saying that aggregates are imaginary. They do not exist. They are a conceptual tool we use to comprehend the world around us. The key issue is whether they are meaningful or devoid of meaning. GDP, for instance, is a an aggregate devoid of any meaning and is in fact a misleading indicator.

"GDP numbers, crude graphs, and no real people and certainly no real production"

Nothing wrong in this either. So unless you are claiming that aggregates exist and have an argument to demonstrate the same, I do not understand what you are up to.

Bob Roddis said...

Oh, I thought we resolved this broken record player nonsense.

We did resolve it. It was apparent to everyone that you not only did not comprehend economic [mis]calculation but that you insisted for years that the concepts applicable to the "socialist calculation debate" had nothing whatsoever to do with the ABCT when, in fact, those same ideas are central to the ABCT. Further, it was clear to everyone that Hayek's discussion of the "equilibrium" structure of prices was not at all the same thing as Walrasian GE structure of prices. By repeating the same nonsense that they are the same over and over, you continue to demonstrate to the world that you don't know what you are talking about.

You were totally humiliated. You lost. It's over. Go back under your bridge.

http://consultingbyrpm.com/blog/2012/11/econ-101-works-price-controls-cause-gas-lines.html#comment-49192

William L. Anderson said...

Things like aggregate demand and aggregate supply are conceptual but cannot be measured in any economically meaningful way. At its heart, economics deals with scarcity, human action in the face of scarcity, and the nature and consequences of human choices that are tied to scarcity.

AD and AS are large numbers created to aid in the activity known as "national income accounting," which is a data-gathering exercise. They are part of statistics, not economics, or economics in any meaningful sense.

Furthermore, when we are dealing with ASAD graphs, we are dealing with highly-stylized creations that are biased toward promoting inflation. The idea is that we cannot have real economic growth without inflation.

I have read Say's Chapter XV in Book I many times and have not found any references to what LK has been claiming. Yes, Say does indicate that overall, there cannot be general gluts, nor is there such a thing as "national underconsumption." That is my larger point.

As for the actual GDP and AD and AS numbers, there is no way that anyone can accurately measure them, and economically-speaking, they are meaningless anyway. They are imaginary in that there is no way to accurately compile those numbers, and there is no way to make them economically meaningful.

Keynesians hold that these numbers are the very heart of economic analysis, which means that Keynesianism isn't about economics at all. And if Gene Callahan disagrees, so be it. I'm not sure why I am supposed to tremble in fear at the prospect of being in disagreement with him.

Lord Keynes said...

William L. Anderson@December 12, 2012 7:58 AM

(1) Notice how you have evaded my questions.

I repeat:
So Are you actually saying that Say's law does not use or rely on aggregates, including:

(1) aggregate factor payments,
(2) aggregate output (which when considered simply in the context of production before sale is aggregate supply), and
(3) aggregate demand (considered as demand for the output in (2) by means of the aggregate factor payments in (1)?
(4) that the two aggregates (1) and (3) are equal over the short or long period?

(2) "I have read Say's Chapter XV in Book I many times and have not found any references to what LK has been claiming."

That's because everyone knows Jean-Baptiste Say's role in formulating Say's law is exaggerated. What you read in Says' Trait√© d’√©conomie politique and Catechism of Political Economy is a simple and underdeveloped form of the law.

As Thweatt (“Early Formulators of Say’s Law,” Quarterly Review of Economics and Business 19 [1979]: 79–96 at pp. 92–93) and Baumol (“Retrospectives: Say’s Law,” in S. Kates (ed.), Two Hundred Years of Say’s Law: Essays on Economic Theory’s Most Controversial Principle, Northampton, Mass. 2003, 39–49 at p. 46) point out, Adam Smith was arguably the father of what is recognizably Say’s law in Classical economics, with the major work in developing the idea conducted by James Mill and later British Classical economists.

My definition above is taken straight from T. Sowell's extensive analysis and definition in Classical Economics Reconsidered (Princeton, N.J. 1994).

But then perhaps Sowell has no idea what he's talking, huh?

(3) "Things like aggregate demand and aggregate supply are conceptual but cannot be measured in any economically meaningful way. "

If that were true - if aggregate demand and supply are conceptual but cannot be measured in any economically meaningful way - then Say's cannot be economically meaningful either!

And now you say that "aggregate demand and supply" are "conceptual"!

This can only mean that they are meaningful, despite the extremism of the statements cited above.

That marks a fascinating retreat from the idea that "aggregate demand and aggregate supply" either "do not exist" or are "imaginary."

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

William L. Anderson: As for the actual GDP and AD and AS numbers, there is no way that anyone can accurately measure them, and economically-speaking, they are meaningless anyway.

So you're saying that the statement "The GDP of the U.S. is higher than the GDP of Russia" and "The GDP per capita of the U.S. is higher than the GDP per capita of India" are meaningless statements.

William L. Anderson said...

In a crude form, no. They do have some meaning, but you have to be careful in determining what we mean by GDP. During WWII, for example, U.S. per capita GDP was at record levels, but the numbers were meaningless regarding actual welfare of the consumers.

War goods are not consumption goods and they did not make people materially better off. (They did make others worse off, I suppose, but that hardly falls into a category of "welfare enhancement."

Yes, the USA produces more goods per capita and GDP numbers do express that in a manner of speaking. However, if one looks at the USSR during the communist years, the country also had officially high GDP numbers and economists such as Paul Samuelson and JK Galbreath were claiming that the Soviet Union soon would catch and pass the USA in economic output.

Yet, the output of that country consisted of a lot of war goods and crappy consumer goods. Yet, the GDP did not make any distinctions.

Furthermore, GDP numbers are data, not a form of economic analysis. One cannot do meaningful ECONOMIC ANALYSIS with these numbers.

Yes, I have read Sowell's books both on Classical Economics and Say's Law, along with Marxism, and have published a paper on Say's Law. In the larger sense, I agree with Sowell's interpretation. However, the original writing in Chapter XV deals with the simple fact that one cannot consume what is not produced, and that there could not be a "general glut" of goods due to "underconsumption." I will continue to make that point.

Dinero said...

Only completed transactions can be recorded , demand and supply cannot be recorded

Lord Keynes said...

Bob Roddis@December 12, 2012 7:51 AM

>Oh, I thought we resolved this broken record player nonsense.

We did resolve it.


Yes, indeed, but not in the way you think:

http://socialdemocracy21stcentury.blogspot.com/2012/12/vulgar-austrians-economic-calculation.html

Above all, your idea that Hayek’s equilibrium structure of wages and prices “has nothing to do with ‘market-clearing Walrasian price vectors’” (a statement that you have actually made here) is truly one of the bizarre and ignorant things you have ever said.

Pulverized Concepts said...

There are casinos in Las Vegas that will take a bet on almost any outcome but I'll make you a bet that they won't take a bet on the future figure of aggregate consumption, aggregate supply, US GDP or any similar statistic.

Mike said...

LK

Enough already! Stop hiding behind your pseudo intellectual academic persona and just admit you are a progressive socialist that believes the chosen elite should organize peoples’ lives and society rather than the individual themselves. Come on out of the closet and take ownership of being a collectivist. Be proud of who you are and what you believe. Even those that completely disagree with you would at least have a incrementally more respect for you.

Bob Roddis said...

Reading LK's screed on his blog again demonstrates that he either does not understand economic calculation or else he is purposefully and fraudulently limiting its application.

The lack of prices in the USSR is one form of economic miscalculation. Prices for houses, capital goods or consumers goods distorted by funny money dilution or government spending are additional and important forms of economic miscalculation.

The general principle is the lack of knowledge in society about economic supply and demand (and whims and taste etc...) and how that information can only be transmitted through unadulterated prices as the result of voluntary exchange. Communism and Keynesianism both distort that information feedback loop.

LK is a clueless liar.

Zachriel said...

William L. Anderson: Yes, the USA produces more goods per capita and GDP numbers do express that in a manner of speaking.

So GDP isn't economically "meaningless", as you said.

Zachriel said...

Pulverized Concepts: There are casinos in Las Vegas that will take a bet on almost any outcome but I'll make you a bet that they won't take a bet on the future figure of aggregate consumption, aggregate supply, US GDP or any similar statistic.

http://www.betting-directory.com/specials/29072011/betting-on-uks-3rd-quarter-gdp-bookies-favour-0-to-1-growth.php

William L. Anderson said...

GDP is a number, not economic concept. There are no economic laws regarding GDP. It is meaningful in the sense that the number of people living in the USA is meaningful.

But you are trying to claim that GDP is something special and economically meaningful, and I say it has some statistical meaning, but little else.

Anonymous said...

So is this correct, Bobbo:

"But the most bizarre thing is that the same vulgar Austrian thinks that Hayek’s equilibrium structure of wages and prices “has nothing to do with ‘market-clearing Walrasian price vectors!’” We have here ignorance of the highest order at work."?

Nothing to do with Walrasian price vectors?

Bob Roddis said...

Nothing to do with Walrasian price vectors?

Hayek's equilibrium structure of wages and prices are those unadulterated prices that would obtain without government interference or artificial credit creation. It is a completely different concept than "market-clearing Walrasian price vectors". I still say Hayek's equilibrium structure has absolutely nothing to do with "market-clearing Walrasian price vectors". Major_Freedom wrote that such is a slight overstatement because at least the terminology is related. I disagree.

http://consultingbyrpm.com/blog/2012/11/econ-101-works-price-controls-cause-gas-lines.html#comment-49192

Jonathan Finegold Catalan has been all over LK's permanent brain freeze on this topic long ago and in much more detail.

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

BTW, I'm identified in LK's new piece specifically as the "vulgar internet Austrian" and those vile MMT cement-heads have picked up on it. They are even worse than LK because Tom Hickey still believes economic calculation is no problem under socialism. Mike Norman is so ignorant that he has never heard of the topic and his brain would not process it if he does.

http://mikenormaneconomics.blogspot.com/2012/12/lord-keynes-vulgar-austrians-economic.html

Lord Keynes said...

"I still say Hayek's equilibrium structure has absolutely nothing to do with "market-clearing Walrasian price vectors"."

Breathtaking.

Apparently Hayek did not began his career as a neoclassical and never used Walrasian neoclassical GE theory, nor did he take over the idea of a set of equilibrium prices from mainstream neoclassical theory!

Dinero said...

Demand is an abstract concept. In actual human action there is only completed transactions. And something only qualifies as having the characteristic of a supply if there is a demand for it which cannot be known as it has not happened yet.
When the Keynsian thinks about idle resources and idle labor it is circular reasoning as the he has in mind a mysterious demand that if it were real would turn that idle labor into a supply.

Zachriel said...

William L. Anderson: GDP is a number, not economic concept.

It's an economic quantity cited by virtually every economist. You can find the term in nearly all economics encyclopedias or dictionaries.

William L. Anderson: There are no economic laws regarding GDP.

Okun and Hauser come to mind.

William L. Anderson: It is meaningful in the sense that the number of people living in the USA is meaningful.

Yes, that's rather meaningful then.

Dinero: Demand is an abstract concept.

So is gravity.

Dinero: In actual human action there is only completed transactions.

There are only objects that fall. Science IS abstraction based on observation.

If we take demand to be that willingness of buyers to complete a purchase at various prices, this is easy enough to test.

Dinero said...

But in this context that test, with unknown cosequnces, requires the machinery of government intervening and effecting the lives of people.
The keynsian position is that the aggregates are known, not proposed experiments.

Mike said...

Zac said:
“Dinero: Demand is an abstract concept.

So is gravity.

Dinero: In actual human action there is only completed transactions.

There are only objects that fall. Science IS abstraction based on observation.”

I guess if I punch you in the face, the pain you will feel is not real, only an abstraction.

Mike said...

LK @ 12:41
It is clear you have the inability to discern the differences Bob is trying to articulate in his 12:15

Are you intentionally being obtuse or is it natural.

Bob Roddis said...

When you expose LK's nonsense, he just doubles down. I'm the source of the Hayek booklet and the quote that he keeps citing while distorting the full context. I guess we should call that the "natural rate of Keynesian debate".

http://mikenormaneconomics.blogspot.com/2012/12/lord-keynes-vulgar-austrians-economic.html?showComment=1355411799617#c646893853600449439

Zachriel said...

Dinero: But in this context that test, with unknown cosequnces, requires the machinery of government intervening and effecting the lives of people.

You had suggested that demand was not a valid concept, and that Keynesian thought was circular reasoning (rather than, say, an attempt to manipulate a complex dynamical system with uncertain results).

Tel said...

Zac: You had suggested that demand was not a valid concept

No Dinero never suggested that, what he pointed out was that we have no actual measurements of demand beyond the transactions that really happen. Anyone drawing demand as a curve on a graph is basically extrapolating based on theory (a.k.a. making stuff up).

Mike: I guess if I punch you in the face, the pain you will feel is not real, only an abstraction.

Is that an "internet macho-man" punch? Those usually land pretty softly IMHO, but there's a big gap between the theory and the practice... kind of the whole point really.

Tel said...

Dinero: Demand is an abstract concept.

Zac: So is gravity.

The general understanding of gravity in science at the moment is that it is a homogeneous field. You don't have flavours of gravity, nor different types of gravity, you just have gravity. Of course you have frame of reference, but for a given frame of reference a measurement of gravity at a point just is what it is, you can't subdivide that into pieces.

However, GDP doesn't work like that. GDP is an aggregate of a structured economy. That is to say, you have manufacturing in there, you have services, government activity, private activity, insurance pay-outs from disasters, financial industry, and a whole bunch of stuff. Not even conceptually similar to gravity.

If you take two measures of GDP in two different years, there is absolutely no reason to believe that the underlying structure is even remotely similar for the two measurements. Strictly speaking the two measures are not really comparable at all, but we just presume the structure of the economy does not change all that much. Keynes depends on the exact same presumption for his "General Theory", a presumption of fixed structure. This is known to be wrong, but might be a good enough approximation for some purposes -- just don't be surprised when it isn't.

Mike said...

Tel
“Is that an "internet macho-man" punch?”

LOL! No it was just sarcasm to demonstrate the absurdity of Zac’s “abstraction” nonsense citing gravity.. Didn’t translate via a blog post.

Dinero said...

- Tel 6.46 pm

yes that is what I had in mind. partiicularly that the notion that there is any demand ,at all, beyond the demand allready satisfied by completed transactions must be a suposition to start with. Leading the Keynsian to try and satisfy or stimulate a demand that is obsolete.

Zachriel said...

Zachriel: {Dinero} had suggested that demand was not a valid concept

Tel: No Dinero never suggested that ...

Dinero: When the Keynsian thinks about idle resources and idle labor it is circular reasoning as the he has in mind a mysterious demand that if it were real would turn that idle labor into a supply.

"If it were real" suggests that the economic concept of demand is not real. He does indicate that it is an abstraction, which he apparently takes to be "not real". Then again, gravity is also an abstraction. Furthermore, his claim of circular reasoning is muddled, as noted above.

Tel: Anyone drawing demand as a curve on a graph is basically extrapolating based on theory (a.k.a. making stuff up).

Like drawing an elliptical planetary orbit. Does the Moon follow an elliptical orbit about the Moon?

Tel: The general understanding of gravity in science at the moment is that it is a homogeneous field.

Not that it's important, but a homogeneous field generally implies having the same strength at every point. In any case, a field is an abstraction, which replaced the previous Newtonian abstraction.

Tel: However, GDP doesn't work like that. GDP is an aggregate of a structured economy. That is to say, you have manufacturing in there, you have services, government activity, private activity, insurance pay-outs from disasters, financial industry, and a whole bunch of stuff. Not even conceptually similar to gravity.

They are both abstractions, which answered Dinero's point.

Tel: If you take two measures of GDP in two different years, there is absolutely no reason to believe that the underlying structure is even remotely similar for the two measurements.

There will tend to be similarities between successive years. We can study GDP and its components, which generally trend by percentages, and don't just bounce from one disconnected value to another.

Tel: Strictly speaking the two measures are not really comparable at all, but we just presume the structure of the economy does not change all that much.

Don't presume. You can observe the various components of the economy.

Tel: This is known to be wrong, but might be a good enough approximation for some purposes -- just don't be surprised when it isn't.

That's a much better argument than saying the concept is meaningless or not real. It may be hard to measure GDP, and the measure may not precisely capture what it intends to capture. We had suggested this as a reasonable position, but this is quite different that the points raised above.

Mike: No it was just sarcasm ...

Because ineffective sarcasm is apparently easier than addressing the point.

Dinero said...

7.01 AM continued

particularly, as Keynsianism is not mainly concerned with providing products that people actually want, it does not have this motive to act as a stimulus to correctly identify demand.

Mike said...

Zac

I've already demonstrated you're a fraud not worthy of serious consideration. Go crawl back under your bridge.
I'm not being sarcastic this time.

Zachriel said...

Sorry for the typo. Try,

Tel: Anyone drawing demand as a curve on a graph is basically extrapolating based on theory (a.k.a. making stuff up).

Zachriel: Like drawing an elliptical planetary orbit. Does the Earth follow an elliptical orbit about the Sun?