Now, while Krugman has not called for states and local governments to raise taxes per se, he sees the Sugar Daddy role being filled by the federal government, which should incur even more debt and borrow into near-oblivion, apparently. He writes:
That is, we’re sacrificing the future as well as the present. Oh, and the cuts that aren’t falling on investment in physical capital are largely falling on human capital, that is, education.The comments raise two questions in my mind. The first is the issue of idle resources versus malinvestments. To the Keynesian, all it takes to employ all "idle" or unemployed resources is more spending and, if needed, outright bailouts. (Bailouts always are good if they divert resources to politically-powerful labor unions.)
It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.
What an utter disaster.
To Krugman and other Keynesians, the cause of the downturn is simple: spending slowed down and government must take up the slack or we will go down the economic drain. Austrians see things differently, believing that government policies, both monetary and fiscal, directed resources toward unsustainable ends, namely housing. Furthermore, Austrians believe that by continuing to direct massive amounts of spending toward unsustainable projects like "green energy," the government and the Obama administration simply and surely are blocking the recovery.
The second issue is that of what Krugman calls "investments." All of this reminds me of Bill Clinton's throwaway campaign line, "We're going to invest in education and the environment," thus creating a new term for what government always has done: spend. All of the rhetoric and all of the spending in the world will not make government schools more effective, as study after study has demonstrated that per pupil spending does not equate to good education results, as there are so many other factors that contribute to educational success.
As for government "investment" in "green energy" products, we are seeing Obama-funded firms go belly-up as though they were on a failure assembly line. Furthermore, even with all sorts of "green" mandates, this business still sucks in resources and spits out unemployment.
Take the Obama administration's continued obsession with high-speed rail, an obsession that Gov. Jerry Brown in California seems to share. It doesn't matter to Krugman or Brown or anyone else that the numbers that the government uses for high-speed rail are utter fiction, nor does it matter that financially high-speed rail would be a black hole.
No, the California high-speed rail project that Obama and Brown want is yet another example of "investment" by government that really is nothing more than a vast welfare scheme for the politically-connected -- with everyone else being saddled with the bill. Furthermore, Krugman assumes that political issues don't factor into "government investment," as though politicians cared only about financial success. As I see it, the vast amount of "government investment" is pure spending. (Yes, yes, we have roads, but roads are a tiny, tiny portion of overall government spending. And Keynesians assume that if government funds something, then it never ever could exist outside of government funding.)
In the end, Krugman is left to claim that that when state and local spending fall, that means that resources actually are disappearing, as the only way to make things appear is via government spending. In reality, the government spending, the bailouts, and the vast increase in the burden of government has assured us that this depression will last a long, long time, and Krugman will continue to call for even more destruction all the while claiming he just wants us to have a recovery.
60 comments:
Rubbish. Straw man. Ad hominem.
Government spending good, free market bad.
Derp herp derp.
Where did Krugman say that? Oh that's right, he said something else so he looks better.
"The second issue is that of what Krugman calls "investments." All of this reminds me of Bill Clinton's throwaway campaign line, "We're going to invest in education and the environment," thus creating a new term for what government always has done: spend. All of the rhetoric and all of the spending in the world will not make government schools more effective, as study after study has demonstrated that per pupil spending does not equate to good education results, as there are so many other factors that contribute to educational success."
It goes even deeper than that. Government spending cannot be called investment merely due to the results being perpetual losses.
Government spending is not investment because their activity is not self-sustaining. Their spending is not designed to bring in subsequent sales revenues. Only business activity is meant to be self-sustaining. All other activity, no matter how complex the projects, no matter how large or sophisticated they may be, are not designed to recoup expenditures. Hence, they are all consumption activity.
In order for the government to continue their activities then, they have to find an external source of funds, which is the taxpayers and the printing press.
Government spending is a continuous drain on economic production and output.
LOL at Lord Keynes...
LK, your responses are getting weaker by the week.
Likes of you and Krugman are devoid of any common sense. No wonder why academic economists are the socialist ones whereas business economists are overwhelmingly free market oriented.
Try to get this through your thick skull:
Government produces next to nothing therefore most spending on its part represents malinvestment and discourages private investment.
It really is a simple concept that anoyone with two working brain cells to rub together should be able to comprehend. Ooops, I am sorry, for a brief moment I forgot that you are a Keynesian progressive.
Excellent post Professor Anderson; thank you!
I have a feeling that was not LK, but someone impersonating him. LK usually signs in on his Google account.
Krugman wrote that there capital lying around in which government could invest at a near-zero interest rate, so I have not made up anything regarding what Krugman is claiming.
Did you know that an ordinary dictionary knows more about the economy than Paul Krugman? Check it out:
economy
noun, plural -mies, adjective, adverb
1. thrifty management; frugality in the expenditure or consumption of money, materials, etc.
2. an act or means of thrifty saving; a saving: He achieved a small economy by walking to work instead of taking a bus.
3. the management of the resources of a community, country, etc., especially with a view to its productivity.
4. the prosperity or earnings of a place: Further inflation would endanger the national economy seriously.
5. the disposition or regulation of the parts or functions of any organic whole; an organized system or method.
How does anyone come to the conclusion that if you take people's money by violence or the threat of violence and use it to fund something that they would not have, that it not only is just as good as what they would have done with it, but that it can create an even better outcome and thats why the violence is justified in the first place?
Anderson, I wonder what you would have said about building the golden gate bridge if Yiu were around at the time. Pretty much what you say about the rail project? Six counties of the bay area decide by ballot to go ahead with what had been in planning since 1922. The no campaign said exactly what you would expect , can't afford it, now (in a recession) not the time for government to go into debt. You can claim there was a better use for the resources, and you don't have to know what it was. But seriously, is the result so bad? It was finally paid off in the late 60s I think. Is the interstate freeway system really so bad - I would claim the interstates had a massive external positive effect on prosperity for the US. Maybe things could have been better, but most people are reluctant to experiment with removing government from the road business. Just caution and prudence, conservative rather than radical.
Ekeyra, the answer to your question, is "externalities" and "market fallure" in certain areas of the economy, And certain times. Did you know Hayek called Keynes theory a "tract for the times", which looks like a very sensible admission that depressions do call for unusual measures.
I like how someone else is now using the handle "JG" and posting as me. Very funny.
Staying with the golden gate bridge example. In 1932, were there idle resources lying around? Could the six counties borrow at a very low rAte? I think so. Is Anderson saying there are not idle resources and interest rates are not now low?
As for government investment Is a drain on the economy: the interstate freeways have no tolls, but generate wealth spread over the entire economy which could well exceed the cost of the capital - i would say obviously so,, but what is surely obvious is that they do not generate zero return, even tho there are no tolls. You can claim there were better uses for the capital. We can experiment with toll roads here and there, but the external effects of roads are probably large enough to justify government building roads, as people have always thought. gradual change, not revolutionary change please - try opyour ideas here and there bit by bit and see how they work out.
And i believe citizens should do jury duty and stop at traffic lights and I claim to believe in freedom!!!
It may be relevant that one of the claims of the yes ballot for the CA train was that it will save the government spending on airports and roads. Add in the air quality effects (clean air is a good in itself, subjective theory of value you know, and might reduce everyone's health costs as well, and cleaning costs) and it is not obvious that the investment must be recouped by tolls alone. Wasn't there a cost benefit analysis looking at all costs and benefits?
So, macroman endorses numbers that are fudged. The promoters have overestimated the number of riders and underestimated what it will cost.
Was the Golden Gate Bridge built with huge cost overruns? Did the planners overestimate the numbers that would use it? Probably not. Of course, Keynesians like cost overruns because they mean more spending.
Anderson, my claim is simple. I claim You would have said exactly the same things about the golden gate bridge at the time. You have one set of figures for the train,s costs. I suggest there might be others, which consider the costs of externalities. I suspect your figures are produced by pessimists like you.. I suspect it will be not as bad as you think. And you do sound exactly like Bala, are you also posting under Bala,s name?
And, Anderson, while I tried to address the issues Yiu raise, I notice Yiu avoid addressing what I say. Doesn't,t sound very academic to me.
"And you do sound exactly like Bala, are you also posting under Bala,s name?"
Get over this silly notion, strawman. AE is a coherent body of thought and different people who each understand it well will definitely offer very similar (or even identical) arguments. That is something whatever-Keynesian and Statist buffoons may not be accustomed to because their "arguments" are always special pleading for particular interest groups and can only be based on whatever strikes the speaker as the most important at that instant.
" Wasn't there a cost benefit analysis looking at all costs and benefits?"
How do you evaluate "costs" and "benefits" without market prices which in turn have to come from voluntary exchange? What are "costs"? How do you compare the "benefits" with the "costs" when the "benefits" are received by some people while the "costs" are borne by some other people? How do you think this is different from the "It's alright to kill this 1 person because in doing so a million people will, in my opinion, benefit in this manner" argument (if ever you have the nerve to call this an argument with a straight face)?
To paraphrase John Galt, "The Keynesians say the resources are idle. How did they get idle? Somehow."
(1) The infantile person who posted under Lord Keynes@February 2, 2012 2:25 PM is not me.
(2) "Austrians see things differently, believing that government policies, both monetary and fiscal, directed resources toward unsustainable ends, namely housing."
That is not what happened in 2001-2009: credit flows to consumers with poor credit history and no job or income (NINJA or liar’s loans) produced massive asset price speculation on secondary housing markets and excessive private debt. The crisis of defaulting mortgages was a result of massive credit flows to unworthy borrowers.
When financial institutions invented exotic financial instruments (CDO’s such as mortgage backed securities) and loaded up on them, the collapse in their value caused a financial crisis and knock on effects on the real economy.
This isn't explained by ABCT. A crisis of “higher order capital goods investments” didn’t produce the financial crisis and anyone who thinks so is deluded.
Many of these subprime mortgages that went bad were refinancing and home equity loans, and the money obtained from the debt not used for new housing construction at all, but to pay credit card debt down or purchase more consumer goods.
Yes, LK. Interest rate depression has no effect on prices of durable goods. Monetary inflation has no effect on rental prices of durable goods. That explains why credit expansion through interest rate depression and backed by monetary inflation had no role to play in creating the housing bubble. And then houses just grow out of plain ground. There is no home building industry that is the actual recipient of the funds injected into the economy through credit expansion. Finally, it is OK to contradict yourself within a space of 50 or 60 words. People were speculating on home prices AND they were not using houses as higher order producers' goods. I guess we are all dead and alive at the same time.
LK,
I forgot to mention 1 more point. Let's also forget about the point that when a bank lends money to a person against mortgage of the house, the bank is the owner of the house and not the borrower. Therefore, this argument to say that he banker, as the true owner of the house is treating it as a producers' good is utterly stupid. Silly me! I thought all your nonsense had been refuted here and on your own blog ages ago by yours truly.
Macro,
"Ekeyra, the answer to your question, is "externalities" and "market fallure" in certain areas of the economy, And certain times."
o.0
How can the market fail, if by your own admission it never existed?
Some AE with an analytical bent should redo Hayek'S business cycle theory to take account of the existence of consumer credit, which LK allude to above. Hayek assumes that credit expansion always goes to entrepreneurs bent on investment. Is that realistic nowadays????
LK:
"That is not what happened in 2001-2009: credit flows to consumers with poor credit history and no job or income (NINJA or liar’s loans) produced massive asset price speculation on secondary housing markets and excessive private debt."
That is a consequence of loose monetary policy by the Fed. Massive credit expansion 2001-2007 was a result of artificially low interest rates and Fed inflation. The credit expansion based on loose monetary policy then went to financing mortgages, driving the prices of houses up. Once the Fed tightened up in 2005 to counteract overheating consumer price inflation, the fuel was removed, and the housing bubble later popped.
The housing market wasn't secondary, it was primary. The large rise in home prices allowed homeowners to go on consumption binges.
You make it sound like the over $2 trillion created by the Fed System from 2001-2006 was money lent to borrowers who went directly to consumer goods stores. You have the horse before the cart.
macroman:
"Some AE with an analytical bent should redo Hayek'S business cycle theory to take account of the existence of consumer credit, which LK allude to above. Hayek assumes that credit expansion always goes to entrepreneurs bent on investment. Is that realistic nowadays????"
No, Hayek did not assume that all credit expansion goes into investment. He said the (traditional) cyclical effects are produced to the extent that loans go into investment.
Where did Krugman say that? Oh that's right, he said something else so he looks better.
Yeah, because when Krugman says:
It’s hard to overstate just how wrong all this is. We have a situation in which resources are sitting idle looking for uses — massive unemployment of workers, especially construction workers, capital so bereft of good investment opportunities that it’s available to the federal government at negative real interest rates. Never mind multipliers and all that (although they exist too); this is a time when government investment should be pushed very hard. Instead, it’s being slashed.
He's actually saying that government investment must come from the money given by dust fairies and magical unicorns. After all, governments have this portal to other dimensions, that will generate free wealth and distribute it thorough the country!
"No, Hayek did not assume that all credit expansion goes into investment. He said the (traditional) cyclical effects are produced to the extent that loans go into investment. "
Correct:
http://socialdemocracy21stcentury.blogspot.com.au/2011/06/hayek-on-flaws-and-irrelevance-of-his.html
Exactly why standard ABCT doesn't explain the 2001-2009 bubble and crash.
Major_Freedom@February 3, 2012 9:30 AM
"That is a consequence of loose monetary policy by the Fed. Massive credit expansion 2001-2007 was a result of artificially low interest rates and Fed inflation. ... etc."
(1) The role of the Fed in providing cheap money in a environment of ineffective financial regulation is undoubtedly a factor.
(2) Your comments above concede my points, and require that ABCT doesn't explain the 2001-2009 bubble and crash.
Game, set and match.
The role of the Fed in providing cheap money in a environment of ineffective financial regulation is undoubtedly a factor.
Where do the government overseers get this special knowledge not available to the mundanes so that they might make the more informed decisions? How do we select these geniuses in advance if we're all so dumb we can't borrow intelligently? I thought you said the government didn't have to have any special knowledge when imposing its special wisdom by force.
Also, your relentless attempts to put the results of money dilution into a inflexible straight-jacket fail. New credit can go anywhere it can go and distort prices along the way. The distortions will TEND to be greater in longer term and more complex investments. You still don't understand or refuse to understand economic calculation.
Game, set and match.
Most of LK's arguments are based upon a completely fallacious and artificial differentiation regarding the effects caused by the impairment of economic calculation in a market economy. He insists that the "socialist calculation debate" is completely distinct from the idea of fiat money distorting economic calculation. In fact, he insists that the concept ONLY applies to a socialist system which has no prices at all.
Thus, since he refuses to comprehend economic calculation in any other context, he refuses to understand how fiat money would impair calculation in capital goods industries, the housing industry, consumer purchases and/or in the taking on of excessive debt in general. He constantly insists that the ABCT can only apply to capital goods because he cannot comprehend that distortion of economic calculation is at the core all Austrian analysis and that it is his beloved Keynesian programs that are at the root of this distortion in a market economy.
He's lost the argument and he's just flailing about.
If you really want to curtail public costs, close down the state universities. Maybe Anderson could get a post a Princeton.
Off topic, but I have noticed people using my name, as well. Why anybody would do such a thing is beyond me, it isn't like I am some well-known person, nor do I have a necessarily popular point of view.
If ever you see a comment by "Joseph Fetz" that doesn't seem consistent with my past comments, then it is either an impostor or I am really drunk (hey, it happens).
LK:
"No, Hayek did not assume that all credit expansion goes into investment. He said the (traditional) cyclical effects are produced to the extent that loans go into investment."
"Correct:"
"http://socialdemocracy21stcentury.blogspot.com.au/2011/06/hayek-on-flaws-and-irrelevance-of-his.html"
What does a error riddled blog post have to do with the traditional ABCT considering the effects of monetary manipulation leading to manlinvestment?
"Exactly why standard ABCT doesn't explain the 2001-2009 bubble and crash."
Standard ABCT completely explains the 2001-2009 bubble and crash. Housing is a durable consumer good that Austrians know are affected similarly as capital goods.
""That is a consequence of loose monetary policy by the Fed. Massive credit expansion 2001-2007 was a result of artificially low interest rates and Fed inflation. ... etc."
"(1) The role of the Fed in providing cheap money in a environment of ineffective financial regulation is undoubtedly a factor."
It was not just "a" factor. It was THE MAIN factor.
"(2) Your comments above concede my points, and require that ABCT doesn't explain the 2001-2009 bubble and crash."
False. Capital goods and durable consumer goods, as well as consumption spending, were boosted.
The fact that some of the credit expansion went to durable consumer goods in addition to capital goods and housing doesn't mean that ABCT is refuted, and it certainly does not mean that the economy cannot be distorted through credit expansion.
This pathetic defense is worse than your insistence that the existence of two or more artificially low NINJA mortgage interest rates somehow refutes ABCT.
You don't understand the concept of economic calculation which ABCT is based on. The economy can be distorted through credit expansion going to consumer goods and stretching the economy in that respect, no less than capital goods.
I find it highly amusing how desperate LK really is to be the person who finally refutes Austrian economics. He burns with desire to refute it so bad that he wastes weeks, if not years, remaining ignorant of basic Austrian concepts and yet blathering on as if his arguments are in any way significant. He'll remain irrelevant until he becomes personally negatively affected by the crap he's peddling.
"Thus, since he refuses to comprehend economic calculation in any other context, he refuses to understand how fiat money would impair calculation in capital goods industries" ...
That is just another lie.
As I've point to you before here:
http://unlearningeconomics.wordpress.com/2012/01/27/some-scattered-thoughts-on-austrian-economics/#comment-774
the *strict* economic calculation debate applies to communist command economies with no price system or private ownership of capital goods, so any Austrian charge of economic calculation problems in a economy where the vast majority of all commodities are produced privately refers to the alleged “economic calculation” problems associated with the Austrian trade cycle theory in a modern capitalist economy with large private ownership of capital.
I understand the alleged “economic calculation” problems and alleged distortions of the capital structure postulated by the ABCT perfectly well, and you just make a fool of yourself by repeating this tired nonsense.
LK:
"Thus, since he refuses to comprehend economic calculation in any other context, he refuses to understand how fiat money would impair calculation in capital goods industries"
"That is just another lie."
"As I've point to you before here:"
"http://unlearningeconomics.wordpress.com/2012/01/27/some-scattered-thoughts-on-austrian-economics/#comment-774"
"the *strict* economic calculation debate applies to communist command economies with no price system or private ownership of capital goods, so any Austrian charge of economic calculation problems in a economy where the vast majority of all commodities are produced privately refers to the alleged “economic calculation” problems associated with the Austrian trade cycle theory in a modern capitalist economy with large private ownership of capital."
LK, you are failing to grasp the nature of economic calculation time and time and time again. It is NOT straightjacketed to the socialist calculation debate in a binary way such that only Soviet Style Communism doesn't work.
The the critique that economic calculation brings extends into ANY fiscal and monetary policy intervention in the economy that isn't an unadulterated, unhampered price system, meaning zero government spending and inflation.
Even in a world with no state, if there are private counterfeiters and thieves running around spending money, economic calculation would STILL be able to explain that their actions would ALSO hamper economic coordination.
Your problem is that you have the religious belief that if the state does it, it can't hamper economic coordination.
"I understand the alleged “economic calculation” problems and alleged distortions of the capital structure postulated by the ABCT perfectly well"
YOU KNOW NOTHING, ABSOLUTELY ZIPPO ZILCH NADA about economic calculation. You constantly make yourself a fool by pretending to know it.
"the critique that economic calculation brings extends into ANY fiscal and monetary policy intervention in the economy that isn't an unadulterated, unhampered price system, meaning zero government spending and inflation."
Correct: and, for a non-command economy where most capital goods are privately owned, it is provided by the ABCT, in works like Mises, Human Action, pp. 568–583 or Hayek’s Prices and Production (London, 1931), not in Mises's Economic Calculation in The Socialist Commonwealth (1920).
Often I see a claim of distortion by new money created by credit, see Roddis et al. this blog, and of course Hayek says this a lot as well. Can someone clarify exactly with respect to what it is a distortion? People freely borrow money for consumer spending and for investment, and are prepared to pay the interest rate. They spend the money and the market reacts, the wonders of the market, it delivers what is a demanded. Everything keeps changing, peoples preferences change all the time and their inclination to borrow or not changes. So what is the standard, the undisturbed condition, from which the economy has deviated?
An a supplementary question: suppose a gold standard economy, in which there is a new discovery of a massive amount of gold by relatively few people (the Spanish discover the New World for example). The new money changes the economy, and when the new mines are exhausted and the new money source runs out, say after 10 years, we have a recession, a crisis? That is what the theory predicts? And the longer these mines are producing new money, say 20 years compared with 10, the greater the boom and the worse the recession? That is also part of the theory?
Anonymous said "[Krugman is] actually saying that government investment must come from the money given by dust fairies and magical unicorns."
I read your quote of Krugman and the original column by Krugman, and he doesn't mention dust fairies and unicorns. He specifically says, in your what you quote that there idle resources, and people willing to lend to the government at close to zero interest rates. So it is clear where he thinks the money will come from, people willing to lend to the US treasury at very low rates.
And thou you didn't mention the resources (to be purchased with this borrowed money), he also says where they will come from - presently idle resources?
So what information is your sarcasm supposed to add?
"So what is the standard, the undisturbed condition, from which the economy has deviated? "
In Hayek's ABCT, a stationary general equilibrium state - a fictitious, non-existent state where there are no idle resources and no unemployment:
http://socialdemocracy21stcentury.blogspot.com.au/2012/01/hayeks-trade-cycle-theory-equilibrium.html
"In Hayek's ABCT, a stationary general equilibrium state - a fictitious, non-existent state where there are no idle resources and no unemployment:"
Here's a good sample of what MF said of how well you understand the Austrian position and AE in general. Let me also answer strawman's question.
The "deviation" is the deviation of the rate of interest from what it would have been in an economy without any intervention in the system of money. Depression of the rate of interest through a combination of credit expansion beyond the available pool of savings and conjuring up the money required to do so from thin air causes the malinvestment of the boom. While these distortions do not necessarily involve intervention, the free market has the ability and the mechanisms to handle them and keep the business cycle in check. Intervention in the system of money and banking makes these mechanisms weaker and diminishes the ability of the market to keep the business cycle in check.
I think of few people on this blog (including Anderson, I seem to recall) have ridiculed Krugman because Krugman says the US should take advantage of the low rate at which it can borrow (at the moment). The hazy un-expressed idea has perhaps been that the US government cannot borrow cheaply, despite the record low interest rates, and I was wondering if the critics were thinking "sure the FED will lend them funny money" or the "FED will artificially keep inters rates low" but the market won't. I am just wondering how this fits in: the FED currently holds (is owed) 1.6trillion of the total $15 trillion of US debt. The market, I assume, holds about $13trillion of this debt,treasury securities (is not selling those securities).
Does that mean Krugman is factually correct to say that at the moment the US can borrow (sell Treasury securities) easily, and for a high price?
Does anyone have a comment on the gold discovery example in a full gold system, with no central bank, conditions like those when David Hume (ca 1750) was discussing money. Does the ABCT predict it will cause exactly the same distortion, boom then bust? Seems to me the theory must predict this, which is not to say anything bad about the theory. I like a theory that makes predictions in more than one case.
For people who have no familiarity with Austrian School concepts, a good and easy-to-digest introduction is “The Essential Von Mises” by Murray Rothbard. And it’s free! So there is no excuse for a Keynesian not to understand this stuff BEFORE throwing a hissy fit about. But I’m sure that won’t stop you.
http://mises.org/resources/3081
LK:
"In Hayek's ABCT, a stationary general equilibrium state - a fictitious, non-existent state where there are no idle resources and no unemployment"
You're so ignorant. The mental tool of an economy in equilibrium that is used so as to isolate the effects that artificial low interest rates and credit expansion have on the economy is not a pronouncement that the free unhampered market economy will necessarily be in such an equilibrium in the absence of artificial low interest rates and credit expansion.
If a free market economy has a supply of idle resources and a supply of unemployed workers, then this doesn't mean that because equilibrium doesn't exist, that introducing artificial low interest rates and credit expansion won't have the effects that Hayek spoke about when he used equilibrium as a mental tool.
You statists are just so bloodthirsty and so eager to violate individual property rights using state power that you will plunge at whatever excuse serves the day. You are like rapists who believe rape is OK as long as there are idle condoms not being used and idle partners not having sex, and then you excuse your behavior by telling your victims "Oh, but you said that rape has harmful effects only by assuming that silly unrealistic "equilibrium" of there being no idle condoms and no idle sexual partners. Clearly in the real world there are idle condoms and idle sexual partners, so that means rape makes things better, for it helps minimize idle condoms and idle sexual partners and raise condom GDP and sexual employment."
The mental tool of equilibrium is not a proxy for the free market economy you dolt. It is used to understand how low interest rates and credit expansion affect the economy. It doesn't mean that in the absence of equilibrium, it all of a sudden means artificial low interest rates and credit expansion no longer have the effects that were derived from utilizing the mental tool of equilibrium, any more than utilizing the mental tool of full condom resource use and full sexual behavior doesn't mean that the detrimental effects of rape suddenly disappear.
You are seriously dumber than a bag of hammers.
In your rabid quest of getting the state to interfere by any means possible, your misrepresenting Austrian concepts, your misunderstanding of economic calculation, your believing that accumulating ammunition that consist of your ridiculously uninformed blog posts that you fire across the blogopshere as if they constitute sound arguments, has got to be the most hilarious popcorn munching tool that Austrians could ever have in showing just how ignorant and immoral those who choose to oppose us really are.
That you actually seem to believe you are coming even within a light year of Austrian economics, only adds a cherry on top.
You lost the battle ages ago, LK. For the past I don't even know how long, you have only provided Austrians with incredible amusement when you aren't serving yourself up as weak fodder.
My head is still spinning about the bizarre "blood thirsty" and condom rape idle resources analogy. How does it work? Unemployed workers are the rapists or the condoms? Or are the unemployed to be raped by Keynesian policies and low interest rates are unused condoms? Is any Austrian fan going to disown that bizarre rant, or if not at least explain the analogy? And what about the group-think in the vaguely ominous "those who choose to oppose us". Wonderland, indeed!
"My head is still spinning about the bizarre "blood thirsty" and condom rape idle resources analogy. How does it work?"
The way it works is that resources that are idle are idle for a reason. That reason is usually the reason the owner of that resource (or "factor" as it should be called) prefers it to be idle rather than "be employed" at the going price. "Putting those resources to work" requires violence against someone or the other. That is the point MF is making. I know you Statists are too dense to understand something as simple as this, but thanks for the demonstration.
I guess Bala didn't read the analogy as laid out. Condoms were idle, sex partners were idle, and the idle sex partners we're raped and told that idleness justified the rape - one idle resource was raped by someone unspecified who used otherwise idle condoms..
Here's how the analogy should go to make the Austrian libertarian point. There are idle sex perverts, there are idle condoms. The government pays the idle sex perverts to rape innocent taxpayers. I could understand the analogy if it were written coherently like that (ludicrous tho it is). I don't have the mindset to accept any illogical rubbish as a valid argument or analogy.
Macro,
The point he was making was that "idle resources" especially in the form of genitals, would easily be reasoned to be the preferred state the owners wish it to be in. Violating the owners choice in the matter and "stimulating" them against someone's wishes would seem to be an easily grasped comparison.
Ekeyra,I think we can all agree that forcing someone to have sex is wrong. But what relation does that have to government stimulus spending? Government spending doesn 't force idle resources (unemployed workers for example) to start working. It will be very odd if an AE takes the view that when the owner of an idle resource freely sells it in return for money, this is coercion by whoever offered the money. Sounds like a Marxist view.
Ekerya: "violating owners choice" for resources to remain idle??? This is the unemployed-are-choosing-leisure, the vacation theory of unemployment? Or perhaps you are thinking of all those people with idle money and nowhere to invest it, somehow forced them to buy treasuries? How weird that I have to remind you all of what your beef is - the government is taking money from taxpayers, not coercing owners of idle resources.
You won’t want to miss a truly amazing Lord Keynes post on his blog.
Austrian Nonsense About Economic Calculation
There is a tired and ridiculous tactic I notice from internet adherents of Austrian economics. Confronted with the myriad problems [there aren’t any] with the Austrian business cycle theory (ABCT), their response is to shout the words: “you don’t understand economic calculation!”
http://tinyurl.com/7hhz5jp
Read the post and the comments. They still have no conception of “economic calculation” as impacted by funny money or government spending. It’s truly amazing. We all need to take this as a big win for the good guys on a continuing basis.
In case anyone doubted that the MMTers are a bunch of commies, here's Mike Norman blogger Tom Hickey informing us of the wonders of Marx (I just listened to Tom Woods interview Soviet defector Yuri Maltsev, so I’m REALLY in the mood for someone who likes Marx).:
Moreover, as long as labor is commodified, the Hegelian master-slave relationship persists, with in Hegel's words, "only one free." And, of course, masters do what it takes to keep it that way by keeping the slaves in line with carrots and sticks. Commodified labor is just an variation on this relationship, as Marx explained in criticism of the classical economics of Smith and Ricardo.
Then, Mike Norman blogger Matt Franko chimes in:
It's like these Rockwell types don’t understand these processes so they make regulation of them "taboo", and instead advocate for "freedom" because they cannot understand the processes and systems that others advocate for the regulation of.
Its like he's a "witch doctor" or something if you can see what I mean; a primitive leader of primitives who cannot begin to understand something so they make it "taboo".
Education may be the best way to counter this but the Rockwells of the world have to be willing to really bear down intellectually and learn something new…
http://tinyurl.com/7uy47p2
This is a marvelous demonstration of our opponents’ brain power.
"Does the ABCT predict it will cause exactly the same distortion, boom then bust? Seems to me the theory must predict this, which is not to say anything bad about the theory."
In the case of the Australian 19th century banking (which was mostly based on gold), yes there was a boom during the gold rush (but during the boom, lots of gold was going offshore so really it was not an economic boom, just a purchasing bonanza) and then there was a bust when the gold ran out (because the banks wrote more paper promises than they had backing for).
The owners of the banks were held liable by the way. There was no central bank bailout.
Late 1800s Australia sounds like a nightmare waiting to happen.
Here's a quote from a paper with a relatively positive view of the free banking era, which nonetheless notes the systemic collapse of 1893
Australia provides a textbook example of free banking in practice. One writer on the subject commented that in Australia “the legal framework with which banks operated was perhaps the least restrictive of any on record” (Dowd 1992).Butlin (1953),commented that "there was no tender law, no central bank, no legal control over the total volume of bank loans, and only a very primitive control by the banks themselves through a loosely applied rule of thumb (cash reserves should be to one-third the sum of deposits and notes) concerning reserves against all liabilities”.
the 1840 Colonial Bank Regulations issued by British Treasury governed colonial banking. The requirements included that: capital should be a determinant amount and must be fully subscribed; total debts must not exceed three times the paid up capital and that all notes were to be payable on demand in specie at the place of issue. Failure to pay on demand for a total of 60 days in any year entailed forfeiture of incorporation. Personal liability for bank shareholders was capped at an amount equal to twice capital and loans against real estate, shops or merchandise were to be prohibited. Amendments to the regulations in 1846 limited the note issue to the amount of paid up capital.
Banking was not substantially affected by the regulations, however. For example, the restrictions on total debt and note issue were largely ignored (Butlin 1986). Likewise, banks found loopholes around the prohibition on lending for land (Pope 1989). In practice, Australian colonial banks were allowed to raise the limits on note issue by including coin and bullion in paid-up capital. Over time, even this stricture was relaxed; by 1856 the Bank of Australasia secured a licence to print private notes up to the value of three times its specie and bullion holdings. Reserve requirements were easily met as “double counting” was permitted: reserves used to back the note issue were simultaneously used to provide liquidity in the event of a deposit withdrawal. Rules limiting total indebtedness were also no threat because deposits were excluded.
This freedom of note issue was, however, accompanied by strong liability provisions. In most colonies by the late 1860s, shareholders had unlimited liability for their note issue (Pope 1989).
Source is OPTIMAL REGULATION OF ELECTRONIC MONEV: LESSONS FROM THE “FREE BANKING” ERA IN AUSTRALIA
by
THOMAS A. ROHLING AND MARK W. TAPLEY*
Economic Papers: A journal of applied economics and policy
Volume 17, Issue 4, pages 7–29, December 1998
http://tinyurl.com/3lw67uw
Macro,
"idle resources" like say money in a savings account, are "idle" because their owners wish them to be so. Manipulating interest rates along with credit expansion "stimulates" that money by siphoning its purchasing power and handing it to people who will spend it now instead of "keeping it idle" or saving it.
Even if you could make the case that this is economically good for everyone, it would still be morally objectionable to disincentivize savings through artificially low interest rates, and to steal purchasing power through inflation.
Ekeyra, and if say half those people with voluntary idle money resources suddenly freely chose to spend it, put the money back into circulation, would that not cause inflation and steal purchasing power from the remaining hoarders (uncle Scrooge mcduck, if you are old enough to get the reference, could freely chose to steal purchasing power this way from everybody by running down his money bin) What,s the morality view on that?
Why would having less resoources available make the remaining resources worth less? None of what you said makes any sense. Exchanging value and printing fiat currency are two different things. One is subject to numerous economic laws and one is not.
If there is a pool of 10,000 dollars in savings and 5K belongs to one guy and 5K belongs to another, the guy who spends his money first is doing the one who did not a favor. Why? Because that 5K that is still available can earn a higher interest rate due to the decreased availability of loanable funds.
Wouldnt basic supply and demand tell you that or am I missing something?
On the other hand, if there is a pool of 10,000 dollars and we cranked up the printers and made 90,000 more (bringing us to a grand total of 100K), our two original savers are left with a fraction of what they accumulated, even less if they dont spend it before prices adjust higher when the same pool of goods and services is bid on with a larger pool of dollars. This would be the "stimulating" that is quite objectionable and not very far from rape, especially in the sinister manner in which it is done.
Whats the moral view of someone exercising their property rights and peacefully, voluntarily exchanging with others? I dont know... Ill go out on a limb and say its probably alright.
macroman:
"Ekeyra, and if say half those people with voluntary idle money resources suddenly freely chose to spend it, put the money back into circulation, would that not cause inflation and steal purchasing power from the remaining hoarders (uncle Scrooge mcduck, if you are old enough to get the reference, could freely chose to steal purchasing power this way from everybody by running down his money bin) What,s the morality view on that?"
The difference is that acquiring money in the free market is done so by providing goods and services to others. The money the central bank or government spends is not money that was earned prior. Spending unearned money means that others are supporting the spender through their productivity and effort, without having gotten any goods or services in return.
Producers (meaning everyone who earns money) earn money so that they can buy goods and services from others. If producers receive unearned money, then they are being exploited because they give away real goods and services without having the benefit of being given goods and services by the spenders.
Only those who earn money are benefiting each other. Outside sources of money spenders who do not earn their money are exploiting those who do earn money.
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