Sunday, July 17, 2011

America's Bourbons: Krugman and Reich

A video by former Clinton administration Secretary of Labor Robert Reich has been making the rounds, as Reich (who now is teaching at the University of California-Berkeley) claims to have “solved” our economic problems. What is the problem, according to Reich? Marginal taxes are not high enough.

Indeed, as we shall see, Reich represents a class of people who yearn for the 1950s, when a third of the workforce was unionized, people “believed in government,” tax rates were high, industries such as banking, railroads, airlines, and trucking were tightly regulated, and Americans were fed the kind of news via Progressive newspapers and a regulated broadcast media that the “Reich Class” believed they should have. If one can liken this group to any in history, it would be the Bourbon Dynasty, of which Tallyrand once said, “They learned nothing and they forgot nothing.”

The video, which lasts slightly longer than two minutes and is on the website of the George Soros-funded Moveon.org, features Reich drawing little pictures and numbers that “prove” that most Americans are worse off today than they were in 1980. The problem, he claims, is that by lowering the top tax rates from 70 percent to about 35 percent is the source of nearly all of our woes. (Keeping the 90+ rates that existed before 1964 even would have been better.)

(Robert Murphy has a counter video here that deals in depth with Reich’s arguments, and I won’t repeat what he has said except to say that he is a better economist than Reich.)

Reich says that a strong economy needs a “strong middle class,” and from where does that middle class appear? From the government, of course. His argument goes as follows: we need to confiscate huge amounts of money from rich people (who get rich through nefarious schemes of making and selling goods to others, thereby robbing other people of their wealth). That money then goes to middle class people through government jobs or a private transmission mechanism in which workers are unionized.

Because middle-class people supposedly are more likely to spend a larger share of their incomes than wealthy people (who get their money dishonestly, anyway), the economy is lubricated through middle-class spending. Wealthy people, on the other hand, have the temerity to save some of their money, which drags down the economy.

Furthermore, according to Reich, private enterprise left not controlled by the state concentrates wealth, as income flows from middle-class and poor people to wealthy people through the transmission mechanism of the market. The explanation is easy: businesses make profits, and profits are little more than a scheme by wealthy people to confiscate money from the less fortunate, and profits serve no purpose other than to enrich undeserving people.

Unless taxes are raised to high levels for wealthy people, this process will continue unabated – as it has since 1981 – until Wise People from Washington, Cal, Princeton University, and the New York Times step in and convince recalcitrant lawmakers to understand the Great Wisdom contained in their analysis.

(You see, from 1981 until 2009, all of Washington was under the thrall of Free Market Economics in which no one regulated anything, taxes were almost zero, and rich people ran wild until they ran the whole thing into the ground. There was a brief renaissance under the Great Wisdom of Bill Clinton, who raised the top rate to 39.6, thus setting off an economic boom, but George W. Bush and the hyper-free-market libertarians took over in 2001 and lowered the top rate to 35 percent, which is why the economy ultimately crashed. Paul Krugman already has explained everything in his columns.)

The amazing thing is that even though the “commanding heights” of our society from the media to academe to the leaders of Washington, D.C., believed that this strategy was wrong for America, their wisdom was ignored, as shysters like F.A. Hayek mesmerized Americans with their rhetoric and sweet talk about the wonders of free markets, even though the Really Wise People knew better. Somehow, despite the fact that the Austrians were not given any academic economics positions at any “elite” university, and despite the fact that all the media outlets were utterly hostile to them, they still managed to hypnotize nearly all of America.

The Reich Class claims that these shysters even managed to hypnotize Ted Kennedy, Jimmy Carter, and an overwhelmingly Democratic Congress in the late 1970s and in 1980 to change the regulatory structure of banking and transportation! If Paul Krugman’s many missives are true – and they have to be, since he is on the Princeton economics faculty – then Kennedy and Carter must have been closet Republicans and Reaganites, since Krugman insists that it was Reagan who did all of the “deregulation.”

And, of course, the intellectual-media-political Ruling Class fought against this foolishness but somehow the Misesians and the Hayekians and Rothbardians prevailed, and now we see the results: real income has fallen consistently since 1981 for the middle class and risen for the rich, and now we are in depression. (The Clinton years, thanks to higher taxes, were golden years, but, then, Reich was part of that government and any government that includes him must be Very Wise.)

There are some problems with the macro-oriented view that real income fell for most Americans as a result of lower tax rates: it rests on the premise that the economy is exactly the same in every respect today as it was 30 years ago. Cars are exactly the same, communications are the same, clothing is the same, everything. There has been no entrepreneurship that has made life any better for most people, as entrepreneurship, according to the Reich Class, does nothing but make a few people wealthy – at the expense of everyone else.

According to the Reich Class, an economy is nothing more than a transmission mechanism of money; the electronic goods we purchase, if one reads Reich Classers like Robert Kuttner, are there only because of government agencies like NASA. If we are not starving, it is because of the Great Wisdom of the U.S. Department of Agriculture. As long as enough tax dollars flow to Washington, government scientists will continue to invent and create new products that falsely are attributed to entrepreneurs like Steven Jobs, who are nothing more than worthless rentiers whose very presence creates poverty and should be eliminated from our body politic.

As for finance, the Reich Class holds that the Foundation of Wealth in the world is the U.S. Treasury Bond, and that any attempt to stop the Holy Event of Raising the Debt Ceiling will cause financial “shock waves” throughout the world. Now, I am sure that the Reich Classers really believe that U.S. Government paper is sacrosanct, but anyone who knows about the basics of finance can see that U.S. Government bonds are fraudulent.

First, keep in mind that no other entity in this country, from municipalities to states to corporations, are permitted to sell bonds in order to pay for previously issued bonds. That is known as fraud, and the reason that the U.S. Government needs to debt ceiling raised is so that it can have funds to pay back what it owes on previously-issued bonds. This hardly is the stuff of sound finance.

Second, unlike municipal bonds (which have to go for specific capital projects like sewer repair) and corporate bonds, which also are issued for explicit things, U.S. Government bonds are spent on just keeping the government running, including paying for employees who play solitaire on their computers all day and for destructive wars abroad. In other words, the U.S. bonds are issued simply to continue the charade that the government has enough money to run its operations.

Now, an official “default” no doubt will bring headlines and a chorus of angst from the Usual Suspects, but it won’t change the underlying reality about the economy, something that the Reich Class Bourbons simply cannot understand. Few, if any, of them are entrepreneurs or know anything about what entrepreneurs do. For that matter, they know nothing about running a business (even though they believe they know EVERYTHING about such things).

What they do know, however, is how to draw a government paycheck and how to live off the wealth of people like George Soros. And they know they are always right, even when they are not.

34 comments:

zackA89 said...

But prof Anderson don’t you understand monetary operations? We have a printing press! didn’t you know that? And printing money absolves anyone and everyone from the capability of default. Not only that, but it can solve any economic problem. Its a free lunch.

Especially if your debt is denominated in currency that you can print out of thin air or electronically. Default is never an issue if you can print money! And heck, if inflation picks up, just raise taxes to stop it. Because that works every time right? Raising taxes stops your currency form losing its value. You should know this, you know, about “unprinting money.”

We have a printing press guys, calm down. The coast is clear. Don’t worry. If only we can convince our unwise rulers to use it properly we will be fine. Let’s just hope the great Warren Mosler writes congress more letters about how "monetary operations", and that our leaders read them and take heed of his brilliant advice. That should do the trick.

You can’t make this stuff up.
I guess I’ve had a few drinks tonight. 

LK said...

"The amazing thing is that even though the “commanding heights” of our society from the media to academe to the leaders of Washington, D.C., believed that this strategy was wrong for America, their wisdom was ignored, as shysters like F.A. Hayek mesmerized Americans with their rhetoric and sweet talk about the wonders of free markets, even though the Really Wise People knew better. Somehow, despite the fact that the Austrians were not given any academic economics positions at any “elite” university, and despite the fact that all the media outlets were utterly hostile to them, they still managed to hypnotize nearly all of America.

The turn to revived neoclassical economics from the 1970s onwards was the result of Milton Friedman's monetarism and the New Classical macroeconomics: Austrian economics was - and remains - a fringe movement.

And Reich says not one word about Austrian economics in that video.

David B said...

Lord "Auto Troll" Keynes,

I don't have a lot of time today, since I'm not an auto-troll blogger, however, I want to remind you that during our conversations last week you admitted:

1. That the total amount of regulations grew over the past 20 years, and that a smaller government from the previous generation produced more effective regulations.

2. That the excessive lending you cite as the primary cause of the bubble came from money created out of thin air.

3. That several government interventions, which you listed, exacerbated the crisis.

I just want to remind our audience of that since it's been a few days.

Have a great day.

Bob Roddis said...

1. Wasn't there a kinda-sorta gold exchange standard prior to 1971?

2. Eliot Spitzer has a new "book" claiming that we just came through a terrible period of "libertarian" rule. If that is true, how come Spitzer was arrested?

http://www.economicpolicyjournal.com/2011/07/eliot-spitzers-outrageous-attack-on.html#comment-form

I think we are causing a stir.

3. LK still doesn't understand economic calculation which is nice as he leads with his chin. No other anti-Austrian understands economic calculation either.

4. Warren "Hut Tax" Mosler is BAAACK:

MMT to President Obama and Members of Congress:

Deficit Reduction Takes Away Our Savings

SO PLEASE DON’T TAKE AWAY OUR SAVINGS!

Yes, it’s called the national debt, but US Treasury securities are nothing more than savings accounts at the Federal Reserve Bank.
The Federal debt IS the world’s dollars savings- to the penny!
The US deficit clock is also the world dollar savings clock- to the penny!
And therefore, deficit reduction takes away our savings.

SO PLEASE DON’T TAKE AWAY OUR SAVINGS!


http://moslereconomics.com/2011/07/17/mmt-to-president-obama-and-members-of-congress/

You might think it's THE ONION, but it's really real.

Mike M said...

LK said: “Austrian economics was - and remains - a fringe movement.”

Hey LK throughout most of human history liberty for the individual was a fringe movement as well.

William L. Anderson said...

Bob, I think you must mean Client #9! I love your comment.

William L. Anderson said...

For a lot of people, the fact that the mainstream economists, and especially the Keynesians, don't accept the Austrian paradigm is "proof" that the rejection is valid. (The Chicago people call it "failing the market test.")

Yet, I never have read an actual criticism of the Austrian view that somehow proves the validity of the "market test." Is it the Austrian's view of marginal utility? Is it the point that Austrians make that the world does not operate according to a smooth, continuous, and twice-differentiable set of mathematical functions?

Is it the fact that Austrians apply marginal utility to money, as opposed to the Keynesian Quantity Theory of Money? Can Keynesians and Monetarists prove that an increase in the stock of money immediately raises ALL prices (if velocity is constant) all at the same time, and in equal proportions to one another?

Are Austrians wrong when they claim that increases in the supply of money will follow a discernible pattern in which the people first receiving the new money pay the old prices with new incomes, while those at the back barely get any new income and also have the privilege of paying the new prices? If we are wrong, prove it. Don't keep claiming that "Austrians don't understand money" when the alternative explanation is the Quantity Theory.

Instead, it is "Brad Delong and Paul Krugman say you are wrong, so you must be wrong." Look up the category of imformal fallacies of logic, and you will see how the above statement finds its place there.

Bob Roddis said...

I know I'm beating a dead horse here, but our opponents have no clue regarding the basic concepts of economic calculation and "the problems of knowledge in society" or the essential nature of the non-aggression principle.

Since they meticulously refuse to comprehend these basic concepts, how can they possibly run our arguments through in their minds even prior to examining "the data" in support or opposition to our positions?

Since they refuse to even see the theory, how can they begin to apply it to "the data".

From a Rothbardian standpoint, the basic "data" consist of ignorant acting man and the results of the pricing process. Thus, our opponents consistently ignore "the data".

Their incurable obtuseness is a BIG PLUS for our side and we should always rub it in their faces. I do.

Anonymous said...

You got it Bob - a deadhorse.

Why is it so difficult for you to accept that the premise of economic calculation and the knowledge problem ignores these points - 1) That government intervention does not aim to PERFECT an economy; 2) That there are other standards for determining investment besides pricing(especially in a democracy); 3) That millions of micro decisions can have devastating macro consequences, or, that the pricing mechanism is not always the best solution for dealing with the knowledge problem.

zackA89 said...

Anon I would like you to give us proof or evidence of your claims instead of just asserting them as fact. You have not demonstrated any familiarity with basic Austrian concepts. I think that further proves Bob’s point.

When I read that Bob, I figured I was reading the onion. In fact, anything I read any MMT “literature” I feel like I’m reading the onion.

Anonymous said...

FAIL! Give me proof of ignorant acting man. All theories rest on premises and assumptions. Change those assumptions and the implications of your theory change. What Bob sees as a failure of others to understand Austrian concepts is really no more than an ontological disagreement (and an epistemological disagreement because of Austiran's focus on praexology).

Change your assumption from government action can never be equivalent to ignorant man acting and a whole new world opens up.

I happen to think that the premises (or what Austrians would call axioms) of Austrianism are misspelled and grossly inadequate for the real world.

So deal with that rather than beating that dead horse.

American Patriot said...

My only question to Reich and Krugman types would be 'why didn't the federal revenue rise sharply in the 1950s'?

We know that the top marginal rates alternated between 91 and 92% between 1950 and 1963. GDP growth was on the most part steady around 5.9% - the average for that period. YET, the federal tax revenues never exceeded 19% of the GDP - and averaged 17.4%. How does that compare to the "low" rates of the 1980s to present day? The average tax revenues as % of GDP for 1983-2008 is 18.2%: HIGHER than the period Reich touts.

The inescapable fact is this: when marginal tax rates are that high, tax payers simply do not pay that amount. Otherwise, with healthy GDP growth and rates in the low 90s, the U.S. Treasury should have been raking in multiples of what they actually recieved.

Hence the foolishness and pointlessness of the Reich argument.
And to think that he teaches at Berkeley! What a travesty!

zackA89 said...

Again, nothing you said disproves anything related to the Austrian school whatsoever. You still have not proved any of your claims. You just don’t agree with the premises that it is based on. Fine. But that doesn’t negate basic Austrian concepts.

No one said government action can “never” be equivalent to ignorant acting man but rather government has no way of rationally making decisions because they do not receive any information about consumer desires through the price system. At least ignorant men are subject to market forces. Government is not. It is not that complicated. This allows acting man to deal with the information and make the best use of it albeit not perfectly every time.

Just because the price system is not "pefect" does not mean government knows better. It does not mean government is even capable of mitigating whatever problem there is. Nothing is perfect, however, governent intervenion does not make things less imperfect or more perfect, it just exacerbates prolbems by intervening.

I think anyone who thinks that government bureaucrats and planners can somehow posses the relevant information to play other people’s lives and be a substitute for the price system is grossly inadequate for the real world and has been proven wrong and outright eviscerated throughout history. There is no logical or factual evidence to support that a bunch of all knowing benevolent overlords can either plan, manipulate, and steer an economy into prosperity and/or solving alleged market “failures” which in all likelihood are the result of prior government meddling.

You still have nothing. You just like the other statists. No surprise.

Anonymous said...

Geez your obtuse. What do you want a mathematical proof ontological concepts. Premises can be evaluated according to their internal logic, relevance to the real world, and empirical testing of their implications (of course Austrians have this nice defense mechanism of praexology that prevents any empirical rejection of their principles).

But how do you not see the problem with your premises in this statement -

"No one said government action can “never” be equivalent to ignorant acting man but rather government has no way of rationally making decisions because they do not receive any information about consumer desires through the price system. At least ignorant men are subject to market forces. Government is not. It is not that complicated. This allows acting man to deal with the information and make the best use of it albeit not perfectly every time. "

First, you have now accepted that government in fact CAN be equivalent, but they get their signals from sources other than prices. Second, you have admitted that millions of ignorant acting people do not always make the best use of the pricing system.

You have just made the case for government intervention and are no longer an Austrian but a neo-classicist.


"Just because the price system is not "pefect" does not mean government knows better." - it depends on the circumstance, and you have already opened up to that possibility.

"I think anyone who thinks that government bureaucrats and planners can somehow posses the relevant information to play other people’s lives and be a substitute for the price system" - why does government have to be a substitute instead of a correction or insurance policy? And what role does expertise play? I think LK example of the theater manager is relevant - he is the bureaucrat, but is necessary during a panic if there is a fire in the theater.

Now you have already stepped off your absolutism. BUT, then you engage in an empirical argument - that government has historically failed to serve this regulatory, correctional, substitute, or complimentary role to the pricing system. Now THAT is an assertion not backed up by fact.

Mike M said...

Anonymous said... “You have just made the case for government intervention …”

Wow! That was a giant leap into the deep pool of stupidity. So because the masses can be inefficient at times in the aggregate (being human beings) that is the proof case for government intervention? Substituting occasional dysfunction of the masses exercising their free will for a government autocrat(s) systemic inefficiency motivated by political interests? Brilliant!

Anonymous said... “I think LK example of the theater manager is relevant - he is the bureaucrat, but is necessary during a panic if there is a fire in the theater.”

OK now you are just trying to be funny quoting LK. Necessary? Yeah right. How many panicked crowds have you seen take direction from an “authority”?


Animal House Character Chip Diller: Remain calm. All is well!

Sam said...

There is a crowded theatre with a bomb in the back that managers are ignorant of. If the crowd panics, 50% survive. But management thinks the panic is unnecessary, and keeps the crowd in the theatre resulting in only 5% survive.

Why are panics always bad? And why is the government always omniscient during a panic?

zackA89 said...

No I did not. You misunderstood completely. Government can appear to be equivalent but in reality it can’t be. It can appear equivalent in some ways but there is always an opportunity cost to what government does because it must divert resources out of the private sector that could have been put to use more productively.

Since it is not subject to market forces, there is no way government can rationally determine if anything it does satisfies consumer demand and makes anyone better off. THERE IS NO SUBSTITUE FOR THE PRICE SYSTEM. Elections, accountability offices, and other government agencies can’t provide the type of vital information that market forces like profit and loss and the price system provide for entrepreneurs. These forces allow them to channel resources to their most profitable ends. Government cant do this.

Of course people can make mistakes and the price system is not perfect but it’s the best we got. However government can’t solve, mitigate, or “fix” any alleged shortcoming in the price system if it were to occur. You still have not proved why government is a superior alternative or why or how it could make any rational decision. Please, don’t give me “democratic elections” or anything like that.

You have only made assertions not supported by facts. I have explained why government can’t make rational decisions about the economization of scare resources and that there is no substitute for market forces like profit and loss and the price system. Almost any problem can be traced back to some intervention on the behalf of government or central banks. Government does not mitigate or correct the market in any way shape or form and any attempt to do so will just result in even more problems. The market HAS and CAN fix itself without the help of magical bureaucrats.

Rothbard has your number:

http://mises.org/daily/1471/The-Myth-of-Efficient-Government-Service

Your arguments are futile, childish and weak.

FdaPopo said...

>> that government has historically failed to serve this regulatory, correctional, substitute, or complimentary role to the pricing system. Now THAT is an assertion not backed up by fact.

This always makes me curious, that a person believes government to be efficient, or even effective. My question is, what experience do you have with the process of government? Do you happen to work for the government either directly or indirectly (such as banks, military subcontractors, etc). What is your opinion of the police force? In short, what direct experiences have you had with government that lead you to believe that government is capable of accomplishing anything that benefits society in general? Personally, all my experiences have proven exactly the opposite.

Anonymous said...

"You have only made assertions not supported by facts"

How is the assertion - there is no substitute for the pricing process backed by fact? And great dismissal of democratic discourse, but then I have heard that from Austrians before, many of whom are closeted anti-democratic.

"These forces allow them to channel resources to their most profitable ends. Government cant do this."

Again, you just don't get it. Government intervention is not designed to channel resources to their most profitable ends, because the most profitable end might not always be the most socially optimal outcome.

"Of course people can make mistakes and the price system is not perfect but it’s the best we got."

Of course you realize that a real pricing system cannot exist without the government to provide an institutional underpinning, unless you want us to return to an agrarian or bazaar-based economy.

All you do Zacc is create straw men, but then you also back off of the hardcore libertarian principles when you make statements like "the pricing mechanism can fail." But see, you assert (with no "facts." In fact I can't recall you ever mentioning one "fact," only Austrian gospel) that government intervention cannot possibly help. So what is your solution? Allow everyone to burn in the theater?

Referring me back to the same Rothbard piece is not an argument either. I don't agree with Rothbard, as do many many many other people.

Really amateurish stuff Zack.

Tel said...

Of course you realize that a real pricing system cannot exist without the government to provide an institutional underpinning, unless you want us to return to an agrarian or bazaar-based economy.

In principle of operation, what exactly makes a bazaar different to a shopping mall?

zackA89 said...

Again, you have not shown why “democratic discourse” would somehow constitute a substitute for the pricing system and the profit and loss mechanism. The democratic system does not convey the necessary information that government planners would need in order to satisfy individual wants and needs, nor determine what the “socially optimal outcome” is.

This information can only be conveyed in the marketplace. Might does not make right, and voting does not make government action somehow efficient if “51 %” of the people voted for it.
The Rothbard piece blows up your worldview completely. Read it instead of disregard it. If you had any intellectual courage at all you would read it.

The price system can and HAS existed without this “institutional underpinning.” The market does not need the government to inject force into the equation to make the price system “work.” The price system works best when government does not intervene.

There is no way to determine what the most “socially optimal” outcome is because there is no rational criterion one could use to determine what is socially optimal and what is not. The market conveys what is optimal and what is not through the price system. Entrepreneurs use this information to channel resources into sectors that are consistent satisfy consumer demand. You just don’t get that government can’t do this nor is there any substitute for market forces.

The idea is that nothing is perfect but the market system and the price mechanism are the best ways to cope with the imperfection and with ignorant acting man. Imperfection is reality, and there is absolutely, and I mean absolutely no way government can mitigate this problem through intervention. The information necessary to do so CANNOT be possessed by government officials. Government intervention does not make the market more perfect or less imperfect; it merely distorts the market place even further causing even greater problems.

These statists are really starting to amuse me. One silly argument after another.

zackA89 said...

Read very carefully:

"On the free market, consumers can dictate the pricing and thereby assure the best allocation of productive resources to supply their wants. In a government enterprise, this cannot be done. Let us take again the case of the free service. Since there is no pricing, and therefore no exclusion of submarginal uses, there is no way that government, even if it wanted to, could allocate its services to the most important uses and to the most eager buyers. All buyers, all uses, are artificially kept on the same plane. As a result, the most important uses will be slighted, and the government is faced with insuperable allocation problems, which it cannot solve even to its own satisfaction. Thus, the government will be confronted with the problem: Should we build a road in place A or place B? There is no rational way by which it can make this decision. It cannot aid the private consumers of the road in the best way. It can decide only according to the whim of the ruling government official, i.e., only if the government official, not the public, does the "consuming." If the government wishes to do what is best for the public, it is faced with an impossible task."


Rothbard has blown up you foolish statists once again. Our work has already been done. I think I have heard Bob say this before.

"aruging with these people is like arguing with you poodle."

Ahmen.

Bob Roddis said...

How is the assertion - there is no substitute for the pricing process backed by fact?

We know that people act but we really don't know what they are thinking or why they act the way they do and/or buy the stuff they do. We can guess, but we don't really know. Thus, the only economic facts from the real world are:

1. People acting; and
2. The prices people have paid for stuff [including all terms of each exchange].

The only possible dispute with 1 and 2 would be an assertion that we actually know more than 1 and 2. The basis of Austrian theory is the LACK OF KNOWLEDGE aka "problems of knowledge in society". It's a negative assertion.

OK, you statists. You prove that people know more than 1 and 2.

Go for it.

Bob Roddis said...

I suppose the following will only confuse and confound the statists who should not lose sight of my points 1 and 2 above.....but

In a 1975 speech, Hayek stated:

“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. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured.

****

In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”

Bob Roddis said...

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.

http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1

This lack of knowledge problem is recognized by the mainstream as an essential and important concept. LK ignores it because he doesn't understand it (see his silly "multiple natural interest rate" nonsense.) Anyone who understood it could not be a Keynesian.

LK said...

"This lack of knowledge problem is recognized by the mainstream as an essential and important concept. LK ignores it because he doesn't understand it "

LOL... only in your broken record world.

I repeat: There is NO reason whatsoever why decentralised decision-making by millions of agents under uncertainty and shifting and potentially diverging subjective expectations or utilities will necessarily overcome the knowledge problem.

"Government intervention is not designed to channel resources to their most profitable ends, because the most profitable end might not always be the most socially optimal outcome."

Well said, anonymous.

Just as Mises himself admitted:

“Economics neither approves nor disapproves of government measures restricting production and output. It merely considers it its duty to clarify the consequences of such measures. The choice of policies to be adopted devolves upon the people. But in choosing they must not disregard the teachings of economics if they want to attain the ends sought. There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule”

L. Mises, 1998 [1949]. Human Action: A Treatise on Economics, Ludwig von Mises Institute, Auburn, Ala. p. 741.

LK said...

And don't miss this excellent paper from Robert Murphy:

"Multiple Interest Rates and
Austrian Business Cycle Theory"

http://consultingbyrpm.com/uploads/Multiple%20Interest%20Rates%20and%20ABCT.pdf

A sample:

I also conclude that the canonical ABCT does need to be updated, in light of a crippling
objection raised early on by Pierro Sraffa
(1932a, 1932b).


"If they insist on defining “the” natural rate of interest with reference to the ERE, Austrians will have very
little to contribute to modern discussions of financial markets.

Bob Roddis said...

I think time is up for the statists to provide evidence of something in addition to my points 1 and 2 above.

Again, more proof that the statists have no conception whatsoever of the concept of economic calculation and why LK's silly attacks on the ABCT completely miss the point.

Mike M said...

LK said: ‘I repeat: There is NO reason whatsoever why decentralised decision-making by millions of agents under uncertainty and shifting and potentially diverging subjective expectations or utilities will necessarily overcome the knowledge problem.”

So what? We don’t live in a test tube academic world. It’s still morally superior to a central planning authority.

LK cited and complimented Anonymous on: "Government intervention is not designed to channel resources to their most profitable ends, because the most profitable end might not always be the most socially optimal outcome."

And???? Follow through on the point! Government intervention serves political purposes not economic purposes regardless of alleged profitable ends.

LK said...

"why LK's silly attacks on the ABCT completely miss the point."

LOL.. You just have plain evidence that even Murphy thinks that Hayek's version of ABCT was subject to a "crippling objection raised early on by Pierro Sraffa", and suddenly this is transformed into "LK's silly attacks."

Keep it up, Bob Roddis!

LK said...

"Follow through on the point! Government intervention serves political purposes not economic purposes regardless of alleged profitable ends."

Wrong:
"There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule” - Mises.

Apparently the hordes of Rothbartians fail even Mises's standard for "reasonable men".

Mike Cheel said...

@LK From the Mises quote:

"The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained."

Do you truly believe the government does this?

Mike M said...

LK do you possess even basic critical thinking skills or are you capable of only citation regurgitation? It’s a rhetorical question of course.

My comment was addressing any services beyond the basic necessity. I.e. public safety, defense, court system etc. Even those get politicized in today’s society which was the point Cheel was making I believe.

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