However, I am more interested in his recent blog post, "Money Madness," in which he once again explains his belief that a system of fiat money is just fine with him, and if it is fine with Krugman, then it is the Way, the Truth, and the Life. He writes:
The whole tone of this discussion is reminiscent of the way people talked about the gold standard back when it was widely thought that any meddling with the sacred role of a metal with precisely 79 protons would mean the demise of civilization. But it has been 80 years since Britain went off gold, and last I noticed, William and Kate weren’t getting married in a desolate wasteland. We’ve had freely floating exchange rates for almost 40 years....There you have it. Since we have been outright printing money for nearly a century, everything is just great, right? Furthermore, what Krugman really is saying is that we would not have had prosperity at all. We would be stuck in depression with high unemployment and a very uncertain future.
Oh, wait! After massive new spending, QE2 (which, contra Krugman, turned out to be a big deal), we have high unemployment and a very uncertain future. Krugman's reply? Print more money.
Are food and energy prices rising? Why, that is due to speculators and demand from elsewhere. It couldn't have anything to do with Ben Bernanke's showering of the world with dollars. Why? If it did, then Krugman would have to admit that maybe inflation was not a good thing.
But, Krugman does not stop there. No, he gives us his monetary philosophy of life:
Anyway, money and monetary policy are basically technical issues, albeit important ones. The fate of Western society is not at stake, nor is there a deep moral issue in allowing the purchasing power of the medium of exchange to depreciate modestly over time. Calm down, everyone.I would beg to differ. If I were to enter your household and take your property, albeit slowly, you would still call it theft.
However, when the government says that you have to use its money for exchanges, and then purposely depreciates that money, leaving you poorer in the process, that is a moral issue. Krugman would counter, of course, that it is the very inflation that makes the economy grow, but he gives no methodology of this "technical" claim.
By the way, when Krugman claimed last year that those who opposed QE2 did so because they wanted people to suffer and be out of work, was he not making a "moral claim"? When he claims that opposition to Keynesian policies is done out of racism, is that not a "moral claim"?
So, I guess that when Krugman attacks people who disagree with him and calls them racists, he is making a "technical" statement. Anyone who points out that deliberate government depreciation of money just might have a moral connotation is engaging in metaphysics.
In the end, with Krugman it is "heads I win, tails your lose."
I do think some of the rising energy costs is related to speculators. But these are the speculators given special privileges by the government that know one else is able to get.
J. Aron \ Goldman comes to mind. OF course here they don't admit it is them:
And the letter:
Another aspect of Krugman’s relentless duplicity is that, like all Keynesians of whatever breed, he meticulously refuses to ever directly confront and/or address basic Austrian concepts like acting man, subjective value, the pricing process and the distortion of the capital structure. Further, any Keynesian reference to “the gold standard” in the context of the Great Depression is phony because what had existed prior thereto was a fractional reserve gold exchange standard which, as we have said 8,000 times, is a catastrophe in the making.
Bob Murphy refers to Krugman’s flip-flopping as “Krugman Kontradictions”.
Professor Anderson, the burden of proof is on you to demonstrate that QE2 has led to rising food and oil prices.
Paul Krugman has already explained that there was a fall in food production and a spike in prices due to food being price inelastic in demand.
How would you support your conclusion and undermine his?
The burden is on the inflationists to demonstrate where exactly their inflationary injections of diluted funny money have gone and what good those episodes of dilution have allegedly done.
I’ve decided that the inflationists do not and will not understand the concept of Cantillon Effects. I’m getting sick of “arguing” with cement-heads who refuse to even make an attempt at understanding what we are saying.
Actually Bob the "inflationists" have provided lots of evidence about the relative efficacy of QE (http://www.imf.org/external/pubs/ft/spn/2009/spn0927.pdf)
It is the cult of Austria (with their own secret language) that have yet to explain why the implications of their "theory" have not panned out - only inflation in highly volatile and inelastic commodities (and don't tell me Cantillion Effects, because the implication is that eventually inflation spreads to other sectors of the economy besides the low hanging fruit), and why interest rates on US debt have not risen.
Its not that we "cement heads," "statists" or "totalitarians" don't try to understand what you are saying, we just don't buy it. It is arcane and unsubstantiated as praxeology itself.
As someone who is trying to understand both sides of the arguments, conservatives seem to have no voice that can communicate as clearly as Krugman's.
But they do seem to have a number of people willing to try to debase him, while not effectively voicing their own compelling arguments. And worse, writing about him with a bitterness that distracts from any economic message they would try to deliver.
That would be my take on this site, so I won't be spending any more time reading than the few entries I read today.
That would be my take on this site, so I won't be spending any more time reading than the few entries I read today.
So, you completely understand the non-aggression principle and praxeology , eh?
arcane and unsubstantiated as praxeology itself
Praxeology isn't arcane. People act. We don't really know why they act. They buy stuff. They trade stuff. Value is subjective. We don't really know why someone traded one thing for another and all we can conclude is that they must have thought they wanted what they got more than the thing they traded away.
I don't find that arcane or unsubstantiated. I fail to see how that is so unfathomable to statists and inflationists. It has always seemed simple and self-evident to me for almost 40 years. Which is why it is never directly addressed, confronted or refuted.
@Statist, Ks, MMTs, et. al.:
I'm still waiting to hear why its okay to destroy savings.
New York Magazine explains the essence of the lonely little dweeb:
“Krugman had begun the work that would eventually win him the Nobel Prize—an aggressive revision of international trade theory—by the time he was in his mid-twenties, and so for nearly all of his adult life he has had good evidence for the proposition that he is smarter than just about everyone else around him, and capable of seeing things more clearly. Krugman is gleeful about being right, joyous in the revelation of his correctness”
“On the right, there’s something of a cultural underlay to the worldview: We are the real Americans, and they are not. Liberals want to say, We are correct on the evidence, and they are not.”
And it’s because he is always right and because the liberals always have the evidence that they run and hide under the bed at the first glimpse of Austrian Theory and are congenitally unable and unwilling to confront or address it directly.
I'm still waiting to hear why its okay to destroy savings.
I'm still waiting to hear why it's necessary to destroy savings.
Don't hold your breath.
@Bob 'Don't hold your breath.'
I have asked this a bunch of times in this comment space. If was holding my breath I would be dead.
My thing though is that this should be an easy question to answer. Or your variant. I won't mind hearing the answer to that one as well.
We ask the same 5 or 6 questions over and over. They don't answer because they can't answer. One would think they'd be embarrassed.
How many hundreds of times have I gone on “progressive” blogs and announced: "You guys don’t know the first thing about Austrian economics and you can’t address, confront or refute it.” In the very least, you’d think people would say, “Oh yes we do, yes we have, for these reasons ABCDEFG” even if they were wrong. You don’t even get that out them. I can only get out of them this bizarre avoidance thing they do.
From the New York Magazine article:
“One colleague at Princeton, where Krugman has taught since 2000, says the economist will avert his eyes when circumstance places the two of them alone in an elevator, his nose stuck in the corner, so as to avoid conversation.”
Perhaps that explains their reaction. We’re the greasers in Corridor E of the high school and they are afraid to pass through it on their way to gym for fear of having to face us man to man. Just a bunch of hapless geeks.
We could get into the nitty gritty of praxeology if you want, but any social science endeavor that claims to have found deductive, a priori, indisputable rules of human behavior fundamentally does not understand what it means to be human or what the goals of social inquiry should be.
The whole Action Axiom is completely tautological, completely vacuous, and cannot form the basis for any theory of economics without resorting to assumptions that require empirical evidence.
Well lets see so far all I have seen are unsubstantiated claims about Krugman thinking hes better than everyone else from an anonymous source in a conservative magazine and Anderson confusing correlation with causation.
The whole Action Axiom is completely tautological, completely vacuous
Oh really? People don't act? You just did.
The "progressives" clearly believe in the a priori wisdom of the magic regulatory bureaucrat to set interest rates. Most of the a priori claims of the Austrians are claims about what people do not and CANNOT know.
The ball is in the court of the statists to prove that people can indeed know what the Austrians say people cannot know and to prove that the Magic Bureaucrat has the a priori knowledge sufficient to set interest rates.
assumptions that require empirical evidence
Other than as a highly suspect statistical category consisting of a bunch of prices added up, where's your empirical evidence that there is such a THING as aggregate demand? Indeed, all transactions are exchanges, each side "demanding" what the other possesses and "supplying" what the other side desires.
AG is nothing but a garbage "concept" meant to confuse the feeble minded.
unsubstantiated claims about Krugman thinking hes better than everyone else from an anonymous source in a conservative magazine
Krugman announced the article on his blog with a post entitled:
A profile in New York Magazine.
By the way, does anyone want to lay bets on how soon it will be before Krugman claims that the high gas prices are the work of those dastardly "speculators"?
"Oh, wait! After massive new spending, QE2 (which, contra Krugman, turned out to be a big deal), we have high unemployment and a very uncertain future. Krugman's reply? "
Yeah, no surprises there.
QE has severe limits and Keynesians have always pointed to the essential weakness of monetary policy to stimulate aggregate demand in times like this.
QE is essentially monetarist solution, not a Keynesian one.
A Keynesian solution to the current high unemployment in the US would involve large fiscal stimulus and jobs programs, not QE.
Also, the inability to understand the true nature of QE - that building up excess reserves at the central bank will not necessarily cause more private bank lending - has led hordes of Austrians into their stupid and failed predictions of hyperinflation:
Japan had QE and ZIRP for ages and ages and still deflation is a reality there.
Let's see the Austrians explain that.
Japan had QE and ZIRP for ages and ages and still deflation is a reality there. Let's see the Austrians explain that.
Stuff sells for what stuff sells for. People have subjective values and are unpredictable. If prices have been artificially bid up via funny money dilution, it is ALWAYS painful to accept reality that the stuff you bought or invested in is worth a whole lot less than you were led to believe. But reality will always reassert itself.
Once prices have been artificially bid up and the reassertion of their true value is impeded by further money dilution, the price drop to reality may take many many years. (ZIRP is positively insane since interest rates MUST be set by free actors in the market so we might know what those rates should be.) Further, there is no a priori rule that says that all prices must rise due to money dilution (Vanilla Ice Cds still go for 30 cents.)
What's so hard to understand about that?
LK, you seem to have no clue that the essence of Austrian theory is ECONOMIC CALCULATION or how Keynesian policy impairs economic calculation (and how Keynesians are oblivious to the concept).
Jonathan Finegold Catalan explains why government spending impairs prosperity by impairing economic calculation here:
"Once prices have been artificially bid up and the reassertion of their true value is impeded by further money dilution, the price drop to reality may take many many years."
You say money dilution causes inflation, but then QE and ZIRP in Japan is suddenly consistent with deflation?
So neither QE and ZIRP necassarily causes price inflation?
If so, you had better break the sad news to Anderson.
Isn't the apparent empirical fact that QE-5000 and ZIRP may not always reflate an economy a knock against either the Keynesians or their ideological cousins, the monetarists?
Why do we have to explain this? Why do we have to explain statist failures to cure problems caused by statists?
"DEFLATION AND JAPAN REVISITED"
by RICHARD C.B. JOHNSSON from THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS:
“Most of the official measures taken have been aimed at keeping up the growth in money supply, in aggregate demand, and the level of price inflation. The result? It appears the official measures have been quite successful in their mistaken attempt to improve the economic situation. Indeed, more money has been spent and things have generally become more expensive. But if there were one thing most economists would agree on it would probably be that Japan’s economic malaise is not over. There seems to be an important lesson for the future: Preventing a free-market adjustment to changing circumstances, including deflation, can prevent or prolong a recovery.”
"Isn't the apparent empirical fact that QE-5000 and ZIRP may not always reflate an economy a knock against either the Keynesians or their ideological cousins, the monetarists? "
It is a blow to the monetarists, but is a massive and impressive confirmation of Keynesian theory. Bad luck.
As for Jonathan Finegold Catalan's rubbish:
How would he know that a democratically-elected government’s spending program does not reflect the important, preferred goals and wants of the community? If the majority of people have voted for such a program, then clearly these are ends that command wide support.
We know because if people really really really wanted to meet those goals, they would just do so voluntarily. They wouldn't need the Einsatzgruppen to stick guns in their back to make them do it. Further, the non-aggression principle precludes such aggression.
You missed the point of the article, just like you completely miss the essence of Austrian Theory, which is the impairment of economic calculation by Keynesian-style and all interventionist policies.
"We know because if people really really really wanted to meet those goals, they would just do so voluntarily."
Voting in an election and implementing fiscal policy IS a way of doing it voluntarily for many people. That some don't agree just takes us back to the moral arguments justifying government intervention in these circumstances.
Good article about Keynes and his antipode, Henry Hazlitt.
"Why do we have to explain statist failures to cure problems caused by statists? "
Because you want to unleash the horrendous austrian tyranny that everyone should be responsible for their own actions bob. Before you can do that you have to explain why it didnt work when we werent doing that.
I usually consider it a dick move when someone just declares themselves the winner of an argument, but i have to agree with you that, yes, the opposition hasnt even fielded a competitive team and is just hurling insults from the stands.
For heaven's sake, Professor Anderson, I grow tired of defending you.
Krugman has CRITICISED those who think speculation is causing high gas prices.
I have been a lifelong free marketer since I read Hazlitt's work when I was 14. I am inclined to agree with you in many situations.
But sometimes you have absolutely no commitment to the truth. Krugman criticises frequently the idea that speculators are responsible for rise in prices, and I say this as someone who reads his stuff less often than you do. You should have known this better.
Can someone remark on the J. Aron letter and related I listed at the beginning of these comments?
Or when you say speculator do you mean the average ones (instead of the government granted monopoly ones)?
@Bob Roddis - "Oh really? People don't act? You just did."
Great insight Bob. Really not tautological, vacuous, and completely redundant like I said.
Honestly, I am beginning to think that Austrian economics is basically people who did not make it in real social science and have taken some bizarre post-modern twist against empiricism or any notion of a testable and cumulative social science.
And then as much as Austrian's deny the utility of empiricism (and I don't mean simple Popperian falsification), they resort to it themselves and it just fall short.
You should know this is not a debate between Keynes and Austrians but between deductive praxeologists and theoro-empiricists. One is social science, the other rejects the term. I have never taken a class with Anderson, but I wonder what he teaches.
1. Since acting is tautological, there's no dispute that people act, right? The concept is not "arcane" but self-evident and obvious to EVERYBODY. Right? You statists are now officially accepting it and not fighting it any longer? Right?
2. Austrians are not looking for brownie points for having "discovered" acting man. We all know it and we all knew it. That's the point. It's universal and undeniable.
3. The most important idea to take away from "acting man" is THAT IS ALL WE KNOW. We don't know exactly why anyone does anything. All we know are the terms of an an economic exchange after the fact. The essential insights of Austrian theory are WHAT IS NOT KNOWN AND WHAT CANNOT BE KNOWN.
4. Whether these insights are tautological, vacuous or redundant is beside the point if they are universally true and irrefutable. If that is so, you must deal with them in every case of human action including economic action.
In Hayek’s discussions of statistical data in “The Use of Knowledge in Society,” he points out that the knowledge that generates spontaneous order in a market economy cannot be known by a single mind, cannot manifest itself as statistical information INDEPENDENT OF MARKET EXCHANGE, and therefore cannot confront central planners as data.
Thus, the only "data" we have are after-the-fact prices from market exchanges.
Read Mr. Catalan's outstanding but alleged "rubbish" article again and note the emphasis on economic calculation and how that is impaired by government spending. Note that LK has [again, invariably] failed to comprehend that essential concept.
For what it’s worth (to “progressives“, nothing), this past February, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow*) named its top 20 articles of the last 100 years. Included therein was:
Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
Back in 1974, Friedrich Hayek won the same Nobel Prize that Krugman recently won. Hayek won it for his work on Austrian theory which basically holds that the boom/bust cycle is caused by Krugmanite policies. In the Austrian system, economics is basically a KNOWLEDGE problem, or a LACK OF KNOWLEDGE problem (you know, problems concerning the use of knowledge in society, to coin a phrase).
Of course, those of us who have some familiarity with these concepts obviously know nothing about social science despite the apparent importance of Hayek's article.
*basically people who did not make it in real social science
"However, when the government says that you have to use its money for exchanges, and then purposely depreciates that money, leaving you poorer in the process, that is a moral issue. Krugman would counter, of course, that it is the very inflation that makes the economy grow, but he gives no methodology of this "technical" claim."
Interesting, but to look at it from another point of view, let's flip this around. Let's say the libertarians did get their way and they decided to implement a free banking system. Everything sounds good, right?
Well, except there's one problem. The free market back then did not use gold nuggets as only the medium of exchange until the Federal Reserve came along. Many private banks used their own system of fractional banking because it was the only way to stay competitive. A 100% reserve system is not going to get you very far. Thus, the free market basically inherited all of the problems that the libertarians thought it was going to prevent.
"But wait!", you say. "The free market will simply weed out those banks that are irresponsible." That also sounds nice on paper, except when the word got around that the bank was about to fail, everyone attempted to withdraw at once. Obviously if there's no backup to flush in extra supply, then a few people may get their money, but most will end up losing everything.
So to use the context of "morality", the free market banking system is much more evil because it holds a much greater threat that all of my systems will be lost. Under the Federal Reserve system, there's at least an FDIC to insure that I don't lose everything. The "theft" from inflation looks relatively timid compared to the failure from a bank run.
"By the way, does anyone want to lay bets on how soon it will be before Krugman claims that the high gas prices are the work of those dastardly "speculators"
What has given you the impression that he would think that? He has various posts saying that he never bought any of the speculator arguments. Even back in 2008 at the peak of the high commodity prices, he went through a lot of trouble to try to debunk the speculator stuff.
Wow where to start with this one.
"Let's say the libertarians did get their way and they decided to implement a free banking system.
The free market back then did not use gold nuggets as only the medium of exchange until the Federal Reserve came along."
Your already tripping over your own feet. First you say lets pretend theres a free banking system, then you say oh wait there was a free banking system. If there was a free banking system in the past you could simply use that as an example and forgo your hypothetical "libertarian win scenario". You cannot start with a hypothetical situation and then analyze a historical anecdote, it either occured or it didnt. Not a good start for you.
"Many private banks used their own system of fractional banking because it was the only way to stay competitive. A 100% reserve system is not going to get you very far."
Besides this being complete speculation on your part considering your still fuzzy on whether or not there ever was a free banking system, this is definately the case under a central banking system so im not sure why you would even bring it up if you believe it is a design flaw. Your saying that central banking, which definately operates with the flaws you bring up is preferable to free banking which may give rise to the flaws you discuss.
""But wait!", you say. "The free market will simply weed out those banks that are irresponsible." That also sounds nice on paper, except when the word got around that the bank was about to fail, everyone attempted to withdraw at once. "
Right.... which is how the free market weeds out the irresponsible banks. When the fraudulent fractional reserve banks implode, the 100 percent reserve banks will be left standing and absorb the customers left in their wake. Im not sure you have a grasp on how any of this works.
"Obviously if there's no backup to flush in extra supply, then a few people may get their money, but most will end up losing everything. "
You mean like the people who sold their houses before the housing bubble collapsed, which was inflated by central bank credit expansion, were able to recoup their money but other peoples mortgages went underwater? You dont say.
"So to use the context of "morality", the free market banking system is much more evil because it holds a much greater threat that all of my systems will be lost."
As long as banks are upfront and not engaging in fraud, morality has nothing to do with profits and losses. If you invested in a fractional reserve bank with full knowledge of its operations its your responsibility what happens to your money.
"Under the Federal Reserve system, there's at least an FDIC to insure that I don't lose everything. The "theft" from inflation looks relatively timid compared to the failure from a bank run. "
Im not sure if you are aware the FDIC was created in reaction to bank runs which occurred at the tail end of the 1920s, almost two decades after the federal reserve was established. So not only were central banking and deposit insurance not conceived or implemented at the same time, deposit insurance was a solution to a problem created by the federal reserve, not a simultaneous system to bail out fractional banks.
Regardless of all that, for the federal reserve to "insure" payments that the bank does not have, it must inflate the currency to cover the gap in actual bank reserves vs bank liabilities. It cannot operate any other way. So suppose you had 10 thousand dollars you wanted to withdraw. If the bank, which has lets say 10 percent of its deposits actually available must create 9000 new dollars to cover your withdrawl. You have your 10 thousand dollars but after the money supply was expanded by 10 times, that 10 grand which could have bought you a car can now barely purchase you a loaf of bread. So you can take the quotation marks off of the "theft" of inflation because you have the same numerical amount of dollars but its purchasing power has been crippled.
Coming full circle back to morality, you are perfectly within your rights to subject yourself and your property to this absurb rube goldberg banking mechanism. What you dont have is the right to bind everyone else to this insane system.
You fail sir.
Really weak stuff Bob.
I also like how if Hayek won a Nobel Prize he was obviously prestigious and correct but Krugman - who also won a Nobel Prize and is also mentioned in the AER special issue - is apparently full of crap.
The correct response to Austrians making idiotic claims about the human action axiom is this: you tell us what you can deduce from only one axiom. Do tell us - we’re fascinated...
The essence of the theory is the undisputed profound IGNORANCE and LACK OF KNOWLEDGE of acting man. What this means is that (as Hayek discussed in “The Use of Knowledge in Society”) the knowledge of the values of economic factors in any economy cannot be known by a single mind, cannot manifest itself as statistical information INDEPENDENT OF MARKET EXCHANGE, and therefore cannot confront central planners as data.
Krugman hasn’t a clue about the nature of Hayek’s theory and neither does LK.
The meaning of Hayek winning the Nobel Prize is that to maintain even the slightest degree of intellectual integrity, "progressives" need to actually make an attempt at understanding his theory. No “progressive” has demonstrated familiarity with even the TOPIC of the theory.
Please design an experiment to empirically (dis)prove the Theory of Gravity.
Then, develop a model that will predict all of the products I will buy this year and the price I will pay.
Bonus points if you can extrapolate you model to predict every single persons purchases for the rest of time.
I also like how if Hayek won a Nobel Prize he was obviously prestigious and correct but Krugman - who also won a Nobel Prize and is also mentioned in the AER special issue - is apparently full of crap.
No, we simply ask if you are going to Appeal to Authority...you should at least recognize, your Nobel prize winners area of expertise.
"for his analysis of trade patterns and location of economic activity"
awarded jointly to Gunnar Myrdal and Friedrich August von Hayek "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena"
Hmm, is fiat money related to trade patterns or economic, social and institutional phenomena, furthermore, is the boom/bust cycle classified under the location of economic activity or the theory of money and economic fluctuations.
"What this means is that (as Hayek discussed in “The Use of Knowledge in Society”) the knowledge of the values of economic factors in any economy cannot be known by a single mind, cannot manifest itself as statistical information INDEPENDENT OF MARKET EXCHANGE, and therefore cannot confront central planners as data."
That is a problem for communist command economies, where ALL production is done and planned by the state.
We live in a mixed economy, one where there is a VAST space for private production of commodities.
Try and understand the difference.
Try and understand the difference.
We do understand the difference. While a communist country operates totally blind due to a total lack of economic calculation, money dilution and government spending impair and distort economic calculation especially over time for large projects.
Your interventionist schemes are trying to solve problems that don't exist and your "cures" are the cause of our problems.
once again the point sails over your head. Ignorance of economic data is not inherent only when the state has total control of an economy, it is inherent when it makes ANY economic interventions. It doesnt matter if they possess every last factor of production or just want to setup some "common sense regulation" or "stimulate the economy", the information to make those decisions is decentralized and cannot be known to any single person. Any action the government takes in interfering in the economy is the equivalent of throwing darts blindfolded and insisting you hit the bullseye without ever taking the blindfold off.
Now that thats out of the way id like to take issue with this idea of a "mixed economy". Its absurd on its face, either we are free or not free, there are no degrees of a free market. Its like being a little bit pregnant.
@Roddis, Jason and ekeyra,
Its hard to know where to even start with all that so we'll take it one by one.
Bob - I am guessing you did not even read Lord Keynes' blog post and his articulate take down of Austrian economics and praxeology.
"the undisputed profound IGNORANCE and LACK OF KNOWLEDGE of acting man."
It is not undisputed. That man acts is axiomatic, but that he acts rationally is not. Or that aggregation of individual rationalities is that simple. Mises' definition of rationality is so vacuous as to make it empty of any meaning, and therefore denies the possibility of any cumulative social science. Ironically, he claims that there is no basis for empirical social science because there is no universal social knowledge, but uses a "universal" premise (that man acts purposefully) that cannot be disputed. Besides Austrian economists want to have it both ways because they do use empirics and test derivations of their premise of rationality. But when the evidence does not correspond to their deductive logic they claim it does nothing to undermine their basic approach.
"the knowledge of the values of economic factors in any economy cannot be known by a single mind, cannot manifest itself as statistical information INDEPENDENT OF MARKET EXCHANGE, and therefore cannot confront central planners as data."
We can sometimes know the value of economic factors when certain conditions of market exchange are held. Again, the action axiom sounds good in principle, but when you try to apply to the real world you realize that information, transaction, power, institutions etc etc get in the way. So much of non-Austrian economics is to find ways to address the REALITY that truly free markets are very difficult to sustain and that repeatedly fail. The Austrian principle is simply utopian.
Hayek also repeatedly ignored the role of democracy in determining value and undermining the threat of complete social planning. Again, if you strive for perfection I will admit that democracy does not always reflect social value well etc etc. But you also have to realize that a system of prices is also flawed for the reasons I listed. I tend to believe that democratic practice mixed with price signals works the best.
" No “progressive” has demonstrated familiarity with even the TOPIC of the theory."
Again, just because I see it differently does not mean I am not familiar. That is your assumption.
You mistakingly think that scientific discovery is always determinative and posits universal laws (Hempelian standard). I would never dispute that social science "knowledge" is never as solid as say gravity. But that does not mean there are no significant insights or guiding theories that can provide probalistic claims.
In fact much of political sciences for eg. eschews such universalism to find much more contextual and mid-range insights to guide policy.
And what is the alternative - no guiding or a religious belief in the power of human action without constraint to obtain the most efficient and valued social outcome?
It is a common argument - because we cannot reach perfection we should not try. For Mises and Hayek the threat of trying too much was very evident in Europe. But that should not invalidate the entire endeavor nor does it incorporate the role of democracy.
@Anonymous 8:47 AM
Please give some examples where a free market has been difficult to sustain or that has repeatedly failed.
Please give some examples where a free market has been difficult to sustain or that has repeatedly failed.
From the usual "progressive" bag of tricks:
1. The creation of the Federal Reserve.
2. WWI and price controls.
3. Britian's return to the gold standard at the pre-war parity in 1925 (£1=$4.86).
4. WWII price controls and rations.
5. Nixon's economic and monetary policies.
6. Greenspan's low rates and money dilution of the 2000s decade.
Any economic problem induced by any of the above can be clearly blamed on the free market. Right? Am I close?
Also, note that our in-house "progressives" still haven't shown the slightest familiarity with Austrian insights or shown an understanding of how Austrians analyze the impact of statist interventions upon society. It is the a priori lack of knowledge in EVERYBODY that makes their schemes fail. Meanwhile, they presume an a priori god-like insight, fairness and omniscience on the part of their SWAT-team supported generic magic bureaucrats to manage everyone's affairs while they presume a priori complete incompetence on the part of everybody involved in voluntary, non-aggressive affairs.
But these incompetent average folks are still a priori smart to enough to be allowed to vote for their brilliant commissars.
So, who is actually suffering from a “religion”?
The thing I don't get is everything the precious government has done has failed yet they keep on defending them and their policies.
You don't have to follow any economics to realize that something is terribly wrong.
Just wow. A poster on a board I like suggested that if I continue reading Krugman that I should check out Anderson. What a disappointment.
Aside from the fact that you can still purchase your asset of choice with FRNs if you don't like your FRNs (which helps the economy, BTW) the monetarists regularly fail at explaining why the bigger money supply only raises prices that have always been volatile. Not to mention if you don't like the data source Krugman uses he provides it so you can always look for yourself and make your own judgment.
For those not already following Krugman I suggest you check out "Thinking About Macroeconomics"; one of his blog posts. The Austrians/monetarists can't explain why the continuing increase in the money supply hasn't raised prices even when all items (not just CPI) are taken into account.
The rest of this tripe is more rhetorical than helpful. I feel sorry for anyone paying for an economics education from this man's university. -- JLM
"Aside from the fact that you can still purchase your asset of choice with FRNs if you don't like your FRNs"
You do know they had to pass legal tender laws to force people to accept them as payment right? Meaning left to their own devices people would most likely value them at zero or else why enact legislation to this effect? That being said how does shuffling around continually depreciating fiat paper help the economy?
Also austrian/monetarist shows how little you know about austrian theory. Maybe he should have suggested a book or two?
Im also waiting patiently for the other anonymous who addressed bob, and jason to get to me. oh what fun. I cant wait for more logic like "well free markets are unsustainable, so we shouldnt allow them at all".
The Austrians/monetarists can't explain why the continuing increase in the money supply hasn't raised prices even when all items (not just CPI) are taken into account.
Don't confuse monetarists (Keynesians in drag) with Austrians.
Further, you don't know what you are talking about.
"Actually, bank credit expansion creates its mischievous effects by distorting price relations and by raising and altering prices compared to what they would have been without the expansion. Statistically, therefore, we can only identify the increase in money supply, a simple fact. We cannot prove inflation by pointing to price increases. We can only approximate explanations of complex price movements by engaging in a comprehensive economic history of an era—a task which is beyond the scope of this study. Suffice it to say here that the stability of wholesale prices in the 1920s was the result of monetary inflation offset by increased productivity, which lowered costs of production and increased the supply of goods. But this "offset" was only statistical; it did not eliminate the boom-bust cycle, it only obscured it."
Our opponents are hopeless.
"For those not already following Krugman I suggest you check out "Thinking About Macroeconomics"; one of his blog posts. The Austrians/monetarists can't explain why the continuing increase in the money supply hasn't raised prices even when all items (not just CPI) are taken into account."
That's because Austrian economists assume everything acts in a very simple linear relationship (perhaps another reason why they reject math and statistics in their studies). Basically they say is if the government interacts in the economy, it's always bad and will always result in the US turning into Zimbabwe. Nevermind the events of the 1930s and the actions of the Bank of Japan in the 1990s that basically disproved Austrian monetary theory (and validated the existence of liquidity traps). For those that don't want to do a google search, the central banks literally doubled the monetary base in those times, but it did not create any inflation. There was a joke then that the consumer product that sold well in Japan in the 90s were safes.
But as LK pointed out, Keynes regarded long-term monetary policy as ineffective. QE is much closer to the free market, monetarist side of policy making than it is to old-style Keynesianism.
At 5:50 p.m., I quoted Rothbard to the effect that increases in the supply of money may not necessarily be expressed as increases in the general price level. (FYI, for 38 years, this is how I have ALWAYS heard it explained by Austrians and how I have understood it.)
12 minutes later, at 6:02 p.m. Anonymous writes:
“The Austrians/monetarists can't explain why the continuing increase in the money supply hasn't raised prices even when all items (not just CPI) are taken into account."
That's because Austrian economists assume everything acts in a very simple linear relationship (perhaps another reason why they reject math and statistics in their studies).
Nobody can possibly be that stupid. He and the other trolls are just trying to make us all go insane.
You do know they had to pass legal tender laws to force people to accept them as payment right?Don't know this, because it is not true. Legal tender laws are now and always have been economically meaningless. Repeal them tomorrow, won't do anything. The Euro is not a legal tender I believe - but nobody cares. Legal tender laws don't actually say what you seem to think they say. Nobody is forced to accept payment in FRNs - we already have a free market in moneys.
Meaning left to their own devices people would most likely value them at zero or else why enact legislation to this effect?
There's a lot of meaningless legislation and stupid government tricks based on stupid economic theories. People value money because it is demanded in taxation. Period.
Without a (capital T) THEORY that explains the mechanism that drives a phenomenon, epirical results are little more than trivia. Aggregates and accounting are meaningless to the study of human action.
human action without constraint to obtain the most efficient and valued social outcome?
Absolutely. The most efficient way to allocate resources is to allow individuals to freely engage in commerce without coercive interference.
The coercive nature of the state guarantees resources will be allocate to lower valued outcomes, because if 'society' truly valued these coerced outcomes higher than alternatives individuals would engage in them voluntarily.
"Nobody is forced to accept payment in FRNs - we already have a free market in moneys."
huh. seems the feds disagree with you on whether or not they will allow a currency to compete with theirs. It seems if you try to do it they label you a terrorist.
"People value money because it is demanded in taxation. Period."
So people dont value money because they can trade it for food, clothing, housing, fuel. They value it so they can pay their taxes? You cant tell me you typed that without laughing.
Its also amusing to no end that bob has tried to explain to you multiple times that the economy and human interactions are too complex to calculate and predict, yet you turn around and accuse austrians of having a simplistic view of economic interactions. Hilarious stuff. Keep it coming.
Also what happened to about 10 posts I read as emails? I dont see any of them here?
Bala posted something defining "acting man" and I was going to tell him that I never bothered to explain that to people who insist over and over and over to be very familiar with austrian perspectives.
Also bob asked something and got a reply that basically went "I dont know but noone teaches austrian theories in colleges so who cares"
I wasnt able to reply to them when I read the emails and now the posts dont seem to be here?
"Your already tripping over your own feet. First you say lets pretend theres a free banking system, then you say oh wait there was a free banking system. If there was a free banking system in the past you could simply use that as an example and forgo your hypothetical "libertarian win scenario". You cannot start with a hypothetical situation and then analyze a historical anecdote, it either occured or it didnt. Not a good start for you."
Whoa, easy there partner! I know your prime objective is to make yourself out to be the best armchair internet economist, but let's not be putting words into people's mouths. :-) All I stated was if we could implement a free banking system today and then drew on analogies in the past.
"Besides this being complete speculation on your part considering your still fuzzy on whether or not there ever was a free banking system, this is definately the case under a central banking system so im not sure why you would even bring it up if you believe it is a design flaw. Your saying that central banking, which definately operates with the flaws you bring up is preferable to free banking which may give rise to the flaws you discuss."
Again, nothing fuzzy at all. I don't quite understand why you have to belittle your debaters to prove a point.
To requote myself, the idea that many Austrians seem to think is that if we implemented a free banking system, all forms of fractional-reserve banking would disappear and people would resort to using gold, silver, or whatever else is particularly shiny that day. My argument is that fractional-reserve banking was not a direct creation from central banking, but from the free market itself. Bank runs that occurred during the 19th Century did not occur then because of a central bank, but simply because the banks in their own self-interest over-leveraged themselves and failed, leading to the loss of personal savings and in most cases, caused economic recessions. After the Great Depression, we really didn't see these common bank failures anymore until the current crisis.
"Right.... which is how the free market weeds out the irresponsible banks. When the fraudulent fractional reserve banks implode, the 100 percent reserve banks will be left standing and absorb the customers left in their wake. Im not sure you have a grasp on how any of this works."
Allow me to use your own words. You start off by saying that the bad banks will simply fail and cause no major repercussions all the while leading to a 100% reserve system. I'd say you don't understand how that works simply because there is no recorded example of a full-reserve system in place. The amount of fees you would have to charge would cause you to lose out to your competitors. Therefore, if you loaned out paper money or certificates, you have essentially created a fractional-reserve system. It conflicts with the Austrian school because they say fractional-reserve is deeply flawed, yet seem to accept it if the free market does. That to me makes no sense.
Just as a follow up, I would like to point out Australia's depression during the 1890s:
Like in other bubbles, Australia experienced a massive buildup of speculative investment. Except back then, there was no central bank. This was a failure of their free market banking system.
Chris, a few points on your comment about the Australian banking system. The Bank of New South Wales was a private bank, but right from the get-go it operated with some advantages granted to it by the New South Wales Government. Thus the paying field in Australia was never really level.
What's more, the banks that crashed in 1890 were NOT pty/ltd companies. The shareholders were forced to pay back the deposits, or else they personally went bankrupt.
Also, between 1850 and 1880 were the goldrush years, which had a dramatic effect on the whole society and finance in particular. No one knew when the gold would run out, nor how sharply it would come to an end. In other words, the depression was primarily driven by a commodity shock (massive supply-side changes).
Compare with the 1930 depression you had the Government Savings Bank closing it's doors (even though it was fully backed by taxpayers and did eventually pay back the deposits sometime later). Thus government run banks are really no guarantee of security.
Compare with the famous Savings and loan crisis in the USA around 1980 and you have a big central bank, plenty of regulation, deposit insurance, and every imaginable form of government interference and it still fell down in a heap (no doubt a bigger, uglier heap than the post-goldrush crash in Australia). What's more the S&L crash cannot even be attributed to any commodity shock!
Interesting points. My main concern though in dealing with the Austrian school is that they seem rather silent in dealing with 19th century economic problems, where it seemed a lot of the panics caused by bad banking turned into recessions. Also, wouldn't the concept of limited liability be an anti-libertarian idea? I don't know, point some links in my direction if it'll help.
I've seen the S&L crisis argued both ways. It can be seen as a failure in a regulated environment, but I've also heard that the deregulation during the 80s allowed it to act like a bank without any responsibility of a bank. When it failed, the FDIC was able to hold up and starve off a major problem.
The fundamental problem that the S&L system faced was they had been loaning out money during the 70's on long-term fixed-interest mortgages, all of which was highly regulated, supported by central government, insured, approved and documented.
Sadly, rising interest rates in the late 70's and early 80's squeezed the S&L banks against their existing mortgage assets. They were under contract and could not charge additional interest to their debtors, but the cost of borrowing forced them to pay additional interest to their creditors. They were doomed!
The deregulation during the 80's was a deliberate attempt by government to encourage S&L banks to take greater risks in the vain hope that they might somehow become profitable again. Really, the only thing government could have done is bring interest rates down.
Fundamentally, the thing that killed the S&L's was lack of sound currency and 80's inflation in particular -- government spending was what drove up interest rates.
This is the deep problem with regulation, rather than trust the banks, you have to trust the government and the regulators, who are less trustworthy than the banks. At least when you need to trust a bank you can shop around and select a good one, when you have to trust the government you only get a choice of one, and the government knows this fact, so they inevitably take advantage.
Libertarians differ in opinion over lots of things, including limited liability and corporate personhood.
The traditionalist Libertarians are against it from a number of perspectives. Consider personal responsibility: a corporate person with limited liability can take action without that action being clearly linked to any physical human. Imagine a ghost person came magically into being, then committed a crime then dissolved away into the mist. It's the perfect crime... you are either facing a master Ninja or you are facing a limited liability corporation (and the difference is small).
Another reason to dislike limited liability is the fact that it creates a privilege normal individuals are not entitled to. If a bunch of guys polluted a river they would be liable for the damage, but if they form a corporation which pollutes a river the same guys get special privilege.
If you search around you can find the various debates that bring up some more nuanced arguments suggesting other conclusions.
In my personal opinion, I do see places for corporate personhood and limited liability, but it should not be easily available! It is a very powerful privilege so it should be only awarded in special highly limited circumstance. Corporations should have specific and tightly controlled charters -- absolutely not the present day "we make money for shareholders" style charter which means nothing.
Arguably, modern corporations actually now have more rights than normal humans, which makes you wonder where we are going in this world.
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