# Think Tank > Austrian Economics / Economic Theory >  [Youtube] Austrian vs. Keynesian Economists

## LeifEiriksson

Ron Paul and Peter Schiff mop up on Bernanke and Krugman.  Enjoy!

YouTube - Austrian vs. Keynesian Economists on 2008 Economic Crisis

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## ababba

I think even a permabear is right once a recession and three times in a crisis. Ron has been predicting a complete collapse of the system for many years and it still hasn't collapsed. He has been predicting a major depression for years and we haven't had one yet. This recession was bad, but it was not nearly as bad as the two predicted it would be. 

The hyperinflation Ron and Peter predicted hasn't happened yet. The ultimate test of Austrian versus Keynesian economists this recession will be whether this hyperinflation actually does happen. Everyone on this board seems to think it will but I'm not so sure. 

The reason why this is a key test of Keynesian economics is that a central feature of Keynesian economics is the phillips curve, the positive correlation between output growth and inflation in the short run. They think inflation is extremely unlikely in a depressed economy.

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## hugolp

> I think even a permabear is right once a recession and three times in a crisis. Ron has been predicting a complete collapse of the system for many years and it still hasn't collapsed. He has been predicting a major depression for years and we haven't had one yet. This recession was bad, but it was not nearly as bad as the two predicted it would be. 
> 
> The hyperinflation Ron and Peter predicted hasn't happened yet. The ultimate test of Austrian versus Keynesian economists this recession will be whether this hyperinflation actually does happen. Everyone on this board seems to think it will but I'm not so sure. 
> 
> The reason why this is a key test of Keynesian economics is that a central feature of Keynesian economics is the phillips curve, the positive correlation between output growth and inflation in the short run. They think inflation is extremely unlikely in a depressed economy.


Bla, bla, bla, bla...

Can you say something that makes some sense? A lot of austrians are predicting stagflation instead of hiper-inflation. Ron Paul has not been predicting a crisis forever, just warning of this one, etc...

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## ababba

> A lot of austrians are predicting stagflation instead of hiper-inflation. .


2008 video, two years ago Schiff predicts hyperinflation and complete crash of the dollar is imminent. Anyone who has their wealth in dollars will be completely destroyed. The dollar will drop 5% a week. Completely blown prediction. A year from now the dollar will drop 5% a day. That year already passed. No change in policy, no hyperinflation. 

YouTube - Peter Schiff 171208 - Hyperinflation

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## ababba

> Ron Paul has not been predicting a crisis forever, just warning of this one, etc...


YouTube - RON PAUL IN 1988 TALKING ABOUT OUR CURRENT CRISIS (PART 3 OF 5)

Ron Paul predicting a depression in the late 80's and early 90s. The next president will be blamed for the depression, saying this in 1988.

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## hugolp

I demand better quality trolls.




> 2008 video, two years ago Schiff predicts hyperinflation and complete crash of the dollar is imminent. Anyone who has their wealth in dollars will be completely destroyed. The dollar will drop 5% a week. Completely blown prediction. A year from now the dollar will drop 5% a day. That year already passed. No change in policy, no hyperinflation. 
> 
> YouTube - Peter Schiff 171208 - Hyperinflation


Hyperinflation is still a posibility. The fact that it has not happen does not show anything.

Also, Peter Schiff is not the only austrian economist. Lame try.




> YouTube - RON PAUL IN 1988 TALKING ABOUT OUR CURRENT CRISIS (PART 3 OF 5)
> 
> Ron Paul predicting a depression in the late 80's and early 90s. The next president will be blamed for the depression, saying this in 1988.


Ron Paul explicitly says that he does not know when the depression will come. He is explaining the boom and bust cicle. You are lame.

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## newbitech

> I think even a permabear is right once a recession and three times in a crisis. Ron has been predicting a complete collapse of the system for many years and it still hasn't collapsed. He has been predicting a major depression for years and we haven't had one yet. This recession was bad, but it was not nearly as bad as the two predicted it would be. 
> 
> The hyperinflation Ron and Peter predicted hasn't happened yet. The ultimate test of Austrian versus Keynesian economists this recession will be whether this hyperinflation actually does happen. Everyone on this board seems to think it will but I'm not so sure. 
> 
> The reason why this is a key test of Keynesian economics is that a central feature of Keynesian economics is the phillips curve, the positive correlation between output growth and inflation in the short run. They think inflation is extremely unlikely in a depressed economy.



Yeah I am so glad that Ron Paul and Peter Schiff were proven wrong by the massive amounts of fraud, currency debasement, and quantitative easing that has been propping up the economy the last 2 years.  I mean could you imagine the looks on their faces when they realized that their little theories about sound money, stable prices, and organic vs fake job growth were so easily blown out of the water?

If you are anything like me, you look forward to the continued debasement of the currency, the unmitigated fraud, corruption, and waste, and the ever increasing debt hole we are digging.  Why?  because ultimately, the end result will be the same.  Our economy will recover one way or the other.  I have given up on good theories like Austrian Economics ever working out.  Instead, I just rely on the inevitable end of the ultimate cycle that is Keynesian economics.  Once the economy goes through its final cycle, and the country can no longer sustain the manipulation that has been propping it up, we may see a recovery.  Until then, glad its being propped up by fraud, lawlessness, and ponzi schemes.  

These crazy people like Ron Paul and Peter Schiff who have figured out how to be successful and stand up to the scam artist without ripping me off in the process need to just shut up about it, keep their insights to themselves and let the economy crash on its own.  It doesn't need help from the real industrialist like RP and PS who are going to survive off of sheer brilliance.

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## ababba

> Also, Peter Schiff is not the only austrian economist. Lame try.
> 
> .


This thread was started by taking one quote from Ben Bernanke and one from Paul Krugman and implying all Keynesian economics is wrong because those quotes were wrong. I demonstrated the same thing for Peter Schiff. Its called a proof by contradiction. If your method, applied to your own economist, doesn't yield the desired result, then there is something wrong with the method. 

THERE ARE ALSO OTHER KEYNESIAN ECONOMISTS. Apply the same standard to everyone.

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## ababba

> Ron Paul explicitly says that he does not know when the depression will come. He is explaining the boom and bust cicle. You are lame.


In the video, he says that there will be a depression and it will be blamed on the next president. Thats a 4-8 year time horizon. The boom and bust cycle is a series of recessions, which represent movement in GDP of a few percent, not a full depression which is a much larger decline in GDP which still hasn't happened 22 years later.

Its not a matter of being proven wrong my QE etc., its a matter of so far being wrong about doom and gloom predictions of an imminent hyperinflation and a depression. The Keynesian economists are also wrong on many things, both have made bad predictions in the past. Neither theory is perfect.

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## newbitech

> This thread was started by taking one quote from Ben Bernanke and one from Paul Krugman and implying all Keynesian economics is wrong because those quotes were wrong. I demonstrated the same thing for Peter Schiff. Its called a proof by contradiction. If your method, applied to your own economist, doesn't yield the desired result, then there is something wrong with the method. 
> 
> THERE ARE ALSO OTHER KEYNESIAN ECONOMISTS. Apply the same standard to everyone.



There is a reason that the Keynesians are and were wrong about the last 10 years and there is a reason the Austrians are and were right about the last 10 years.

When you figure that out, come back and look at how ridiculous your logic arguments seem.

Peter Schiff describes the nature of hyper-inflation.  By the time you realize its happening, its already over.  Listen to Krugman calling for another bubble to invest in!  Listen to Bernanke justifying another pump job designed to inflate that bubble.

Trouble is, the theory has reached its limits.  You can't quantitative ease forever.  It only works when their is excess "credit" in the market.  Once that credit is gone, the bubble system fails.  That credit expired decades ago, the only thing that gave us the illusion of credit being available it the economic slight of hand that the Fed was designed to perpetuate.  They dumped off the bad debt on the taxpayers.

The only thing left now is debt, all the money printing QE in the world is not going to change the fact that people cannot borrow past their means to produce.  They can when their is fake credit, but now that party is coming to an end.  Its last call and unless and until the system goes belly up on its own, or until people wise up and reign in debt spending, we'll just have to keep pretending that Keynesians and people like leading keynesians Bernake and Krugman know what the hell they are talking about.

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## ClayTrainor

newbitech FTW

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## ababba

> There is a reason that the Keynesians are and were wrong about the last 10 years and there is a reason the Austrians are and were right about the last 10 years.
> 
> When you figure that out, come back and look at how ridiculous your logic arguments seem.
> 
> Peter Schiff describes the nature of hyper-inflation.  By the time you realize its happening, its already over.  Listen to Krugman calling for another bubble to invest in!  Listen to Bernanke justifying another pump job designed to inflate that bubble.
> 
> Trouble is, the theory has reached its limits.  You can't quantitative ease forever.  It only works when their is excess "credit" in the market.  Once that credit is gone, the bubble system fails.  That credit expired decades ago, the only thing that gave us the illusion of credit being available it the economic slight of hand that the Fed was designed to perpetuate.  They dumped off the bad debt on the taxpayers.
> 
> The only thing left now is debt, all the money printing QE in the world is not going to change the fact that people cannot borrow past their means to produce.  They can when their is fake credit, but now that party is coming to an end.  Its last call and unless and until the system goes belly up on its own, or until people wise up and reign in debt spending, we'll just have to keep pretending that Keynesians and people like leading keynesians Bernake and Krugman know what the hell they are talking about.


I think thats the problem I was trying to get at. Neither Keynesians nor Austrians have been right about the past 10 years. Both have made good and bad predictions. You can make videos by choosing either side's good predictions and the other side's bad predictions. The point is that this isn't a good way of determining which theory is true unless one side gets the overwhelming number of predictions right.

I think Keynesian and Austrian economists would agree that hyperinflations have always been a monetary phenomena. We will have a hyperinflation if the Federal Reserve chooses to monetize a large portion of the debt. If they only monetize a small portion of the debt, it should lead to a little bit higher inflation but not a hyperinflation. In the short run, inflation doesn't have to be linked to monetary growth if prices are sticky, but in the long run it does. 

Keynesian economists would agree with you that monetary policy has no long run effect on the level of output. It seems like you would agree with Keynesian economists that monetary policy can have a short run effect on output as implied by your post above. So far, its not clear where you disagree with Keynesian economics as a positive theory of the economy. 

Its a different matter entirely to disagree with the normative policy implications of some Keynesian economists.  The consensus of mainstream economists is that monetary policy has a role in stabilizing the economy. Even if it can't affect output in the long run, monetary policy can lower the peaks and raise the troughs of a business cycle. They do not believe that monetary policy should be used to permanently prop up an economy forever. The consensus is that the stagflation of the 70's proved that expectations matter, and even if a phillips curve exists in the short run, it can't be used to permanently raise output with higher inflation. This is the type of economics which Ben Bernanke subscribes to. 

Because your portrayal of Keynesian economics is not this mainstream idea of it, I think you are attacking a straw man.

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## hugolp

> This thread was started by taking one quote from Ben Bernanke and one from Paul Krugman and implying all Keynesian economics is wrong because those quotes were wrong. I demonstrated the same thing for Peter Schiff. Its called a proof by contradiction. If your method, applied to your own economist, doesn't yield the desired result, then there is something wrong with the method. 
> 
> THERE ARE ALSO OTHER KEYNESIAN ECONOMISTS. Apply the same standard to everyone.


You have demonstrated nothing about Peter Schiff as I already pointed out. Peter Schiff never predicted that in 2010 there would be hyper-inflation.




> In the video, he says that there will be a depression and it will be blamed on the next president. Thats a 4-8 year time horizon. The boom and bust cycle is a series of recessions, which represent movement in GDP of a few percent, not a full depression which is a much larger decline in GDP which still hasn't happened 22 years later.
> 
> Its not a matter of being proven wrong my QE etc., its a matter of so far being wrong about doom and gloom predictions of an imminent hyperinflation and a depression. The Keynesian economists are also wrong on many things, both have made bad predictions in the past. Neither theory is perfect.


In the next president as in when the crisis comes, not literally the next president. I think you dont understand Ron Paul words because you dont understand the  Austrian Theory of the Business Cycle. If you did you would understand the assumptions Ron Paul is making and would make the right interpretation of his words.

Just some seconds after he says that he does not know when exactly the crisis will come. If he knew it makes no sense saying when he does not know...

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## hugolp

> Keynesian economists would agree with you that monetary policy has no long run effect on the level of output


Austrians believe that money is not neutral and thus monetary policy has an effect in production short AND long term.

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## ababba

> Austrians believe that money is not neutral and thus monetary policy has an effect in production short AND long term.


So what about the old thought experiment that we double prices and double money overnight. What impact would that have on output?

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## hugolp

> So what about the old thought experiment that we double prices and double money overnight. What impact would that have on output?


Depending in the way you inject that money in the economy and how the market reacts.

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## ababba

> Depending in the way you inject that money in the economy and how the market reacts.


I'm just asking about the pure thought experiment. Every wage is doubled, every bank account, every asset is doubled in price. All currency is worth twice as much. All prices are twice as high.

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## ababba

I think if I rephrase my earlier statement to be that Keynesians and Austrians agree that monetary policy cannot raise the level of output indefinitely, then we can continue the discussion as it was going before. Is that an accurate portrayal of the Austrian view of monetary policy?

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## hugolp

> I think if I rephrase my earlier statement to be that Keynesians and Austrians agree that monetary policy cannot raise the level of output indefinitely, then we can continue the discussion as it was going before. Is that an accurate portrayal of the Austrian view of monetary policy?


Yes. Also note that austrians dont see the increase of GDP (what keynesians call growth) as the objective of the economy.

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## ababba

> Yes. Also note that austrians dont see the increase of GDP (what keynesians call growth) as the objective of the economy.


The same thing is true for Keynesians, they do not see the increase in GDP as the objective of the economy. They see it as maximizing welfare, generally thought as the discounted value of all future consumption and leisure.

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## Jordan

> Peter Schiff never predicted that in 2010 there would be hyper-inflation.


Not incredibly important, but he did say the dollar would collapse by the end of 2010 during his Senate campaign.

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## mtj458

If you guys are so thickheaded that you can't even debate the possibility of Austrians being wrong about something and Keynesians being right, then you're just as bad as the other side.  Yes, Schiff predicted the recession, he also predicted a ton of crap that hasn't happened and says plenty of things that flat out don't make sense.

And short run money neutrality really isn't even part of the Austrian theory.  If money was neutral in the short run, then how did low interest rates bid up housing prices or internet stocks, just as ABCT predicted it would?  The whole point is that it's neutral in the long run and the short run effects are not desirable.

Regardless, hyperinflation is pretty unlikely.  An increase in the monetary base will only cause hyperinflation if banks lend it out.  The difference between our situation and Zimbabwe or Germany's is that private institutions are still buying our debt, we're not just flooding the market with new money in the same way that those countries did.  Maybe my statements are wrong or flawed, but the unwillingness to even consider that they may be on the right track, and the accusation that anyone who dares to disagree with Austrian economics is a troll, turns most of the posters here into a bunch of idiots preparing for an apocalypse that's never going to come.

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## Jordan

> If you guys are so thickheaded that you can't even debate the possibility of Austrians being wrong about something and Keynesians being right, then you're just as bad as the other side.  Yes, Schiff predicted the recession, he also predicted a ton of crap that hasn't happened and says plenty of things that flat out don't make sense.
> 
> And short run money neutrality really isn't even part of the Austrian theory.  If money was neutral in the short run, then how did low interest rates bid up housing prices or internet stocks, just as ABCT predicted it would?  The whole point is that it's neutral in the long run and the short run effects are not desirable.
> 
> Regardless, hyperinflation is pretty unlikely.  An increase in the monetary base will only cause hyperinflation if banks lend it out.  The difference between our situation and Zimbabwe or Germany's is that private institutions are still buying our debt, we're not just flooding the market with new money in the same way that those countries did.  Maybe my statements are wrong or flawed, but the unwillingness to even consider that they may be on the right track, and the accusation that anyone who dares to disagree with Austrian economics is a troll, turns most of the posters here into a bunch of idiots preparing for an apocalypse that's never going to come.


RPF has been, and will forever be an economics echo chamber.  

You should come here more often.

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## hugolp

> If you guys are so thickheaded that you can't even debate the possibility of Austrians being wrong about something and Keynesians being right, then you're just as bad as the other side.  Yes, Schiff predicted the recession, he also predicted a ton of crap that hasn't happened and says plenty of things that flat out don't make sense.


Austrians disagree with themselves, so there is obviously room for discussion. The problem is stupid arguments.




> And short run money neutrality really isn't even part of the Austrian theory.  If money was neutral in the short run, then how did low interest rates bid up housing prices or internet stocks, just as ABCT predicted it would?  The whole point is that it's neutral in the long run and the short run effects are not desirable.


As I said before, money is NOT neutral in the long run, nor in the short run. Basically, money is not neutral.




> Regardless, hyperinflation is pretty unlikely.


I agree.




> An increase in the monetary base will only cause hyperinflation if banks lend it out.  The difference between our situation and Zimbabwe or Germany's is that private institutions are still buying our debt, we're not just flooding the market with new money in the same way that those countries did.  Maybe my statements are wrong or flawed, but the unwillingness to even consider that they may be on the right track, and the accusation that anyone who dares to disagree with Austrian economics is a troll,


Disagreeing with austrian theory does not make you a troll. Being a troll makes you a troll.




> turns most of the posters here into a bunch of idiots preparing for an apocalypse that's never going to come.


?????

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## Lord Xar

I think this is an erroneous observation as the ones controlling, to a great extent, the system are infact keynesians. So, even as a layperson I would think they will rig the game as long as possible. If you remove those influences, perhaps the dollar would have already collapsed. I can't imagine one can properly forecast this wild ride when it is being manipulated to such a degree, and then assume the assumptions thereof are invalid, or infact, valid.

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## newbitech

> I think thats the problem I was trying to get at. Neither Keynesians nor Austrians have been right about the past 10 years. Both have made good and bad predictions. You can make videos by choosing either side's good predictions and the other side's bad predictions. The point is that this isn't a good way of determining which theory is true unless one side gets the overwhelming number of predictions right.
> 
> I think Keynesian and Austrian economists would agree that hyperinflations have always been a monetary phenomena. We will have a hyperinflation if the Federal Reserve chooses to monetize a large portion of the debt. If they only monetize a small portion of the debt, it should lead to a little bit higher inflation but not a hyperinflation. In the short run, inflation doesn't have to be linked to monetary growth if prices are sticky, but in the long run it does. 
> 
> Keynesian economists would agree with you that monetary policy has no long run effect on the level of output. It seems like you would agree with Keynesian economists that monetary policy can have a short run effect on output as implied by your post above. So far, its not clear where you disagree with Keynesian economics as a positive theory of the economy. 
> 
> Its a different matter entirely to disagree with the normative policy implications of some Keynesian economists.  The consensus of mainstream economists is that monetary policy has a role in stabilizing the economy. Even if it can't affect output in the long run, monetary policy can lower the peaks and raise the troughs of a business cycle. They do not believe that monetary policy should be used to permanently prop up an economy forever. The consensus is that the stagflation of the 70's proved that expectations matter, and even if a phillips curve exists in the short run, it can't be used to permanently raise output with higher inflation. This is the type of economics which Ben Bernanke subscribes to. 
> 
> Because your portrayal of Keynesian economics is not this mainstream idea of it, I think you are attacking a straw man.


I think this thread is more about how people like Ron Paul and Peter Schiff get treated like $#@! by the media because their views are not mainstream and do not fall in line with the establishment power structure in this country.  Yet when they're views are proven to be right, instead of showing them respect and apologizing for treating them like $#@!, people start attacking the timing of their predictions.  

As if it takes a genius to figure out you can't spend more money than you make.  That is really what any of these views boil down to.

Keynesians = we can spend more than we produce
Austrians = you have to produce it before you can spend it

What has been going on the last 10 years or more?  Keynesians view of the USA spending more than it can produce.  Well, it just doesn't work that way does it?  It doesn't even make sense, and if not for the LIES being told by the "authorities", the fraud being committed by the financial institutes including the FED, and the willful ignorance of an entire country, the economy in the USA has barreled headlong into crisis after crisis for the last 30+ years.  Now its at a breaking point.  So instead of admitting that the likes of Ron Paul and Peter Schiff have the correct diagnosis and prescription for this disease, some very powerful people would rather have us all believe that those blind squirrels  got there nut.

That's fine if people want to think that way.  It's easy to spot someone who is living off of other people's backs, or who have yet to hit their heads on the wall that is the USA Federal Government.  These are the people who think what the USA is going through is some kind of normal economic process.  

Well it is normal for empires to collapse internally under the weight of a corrupt ruling class who do not lack imagination for all the ways to rape the honest hardworking people who just want to be left alone and keep what they earn.  

Luckily for us folks who understand that this game is going to end soon, and end badly, we have some beacons in the pitch black to guide us down the safe path towards economic freedom and liberty.  They will be laughed at until the people laughing have their mouths stuffed so full of toes and ankles that their eye balls pop out from suffocation.  And you know what?  They will keep laughing until people stop paying them attention and they realize the joke is really on them.  

I am sure you are well intentioned in wanting to talk economics, but you missed wide the mark in your attack on Austrian's for their inability to predict the timing.  

Look at it this way, the Keynesians can't even bring themselves to admit what was going on while it was going on, and when it was their policies that created it in the first place.  They had no idea and still have no idea what they are doing.  Meanwhile, at least the Austrians got it right, and their predictions have met out perfectly in tune with the theory of economics they preach and study and develop.  So the timing may not be perfect, but in the end, we all have to act to avert crisis well before any of us knows the exact timing.  That is the difference in my opinion between the two schools of thought.

One allows us the time to evaluate and make corrections, while the other waits until the country is on its knees before even opening up a basic econ book to understand how their actions might hurt people, and even then, their best solution is do repeat the same mistakes.  Take a guess on which line of thinking has gotten us to where we are.  

And really that is the bottom line, Keynesians have just absolutely failed to provide long term solutions to anything other than their own interests, also predicted by Austrian economist.  No straw man if the target of the attacks position is not misrepresented.  If Keynesians misrepresent themselves through lying, fraud, and economic scams including pushing the belief that a nation can spend beyond what it produces into infinity, then really, logical people like yourself should have no problem at all dissecting views of Ron Paul and Peter Schiff and finding nothing but absolute truth.

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## Rancher

Do the Keynesian economists recognize a bond problem?

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## ababba

> I think this thread is more about how people like Ron Paul and Peter Schiff get treated like $#@! by the media because their views are not mainstream and do not fall in line with the establishment power structure in this country.  Yet when they're views are proven to be right, instead of showing them respect and apologizing for treating them like $#@!, people start attacking the timing of their predictions.  
> 
> As if it takes a genius to figure out you can't spend more money than you make.  That is really what any of these views boil down to.
> 
> Keynesians = we can spend more than we produce
> Austrians = you have to produce it before you can spend it
> 
> What has been going on the last 10 years or more?  Keynesians view of the USA spending more than it can produce.  Well, it just doesn't work that way does it?  It doesn't even make sense, and if not for the LIES being told by the "authorities", the fraud being committed by the financial institutes including the FED, and the willful ignorance of an entire country, the economy in the USA has barreled headlong into crisis after crisis for the last 30+ years.  Now its at a breaking point.  So instead of admitting that the likes of Ron Paul and Peter Schiff have the correct diagnosis and prescription for this disease, some very powerful people would rather have us all believe that those blind squirrels  got there nut.
> 
> ...


I think the issue with your analysis is the difference between fiscal and monetary policy. A lot of the evils that you rightly criticize are the result of government borrowing and the extensive borrowing by people outside the government. 

Most mainstream economists think that monetary policy is generally conducted well while fiscal policy is pretty bad. Fiscal policy is subject to the political process, so its much harder to cut spending and politicians have an incentive to borrow more. 

Monetary and fiscal policy become intertwined only if monetization of the debt is inevitable. Some economists argue that the long-run budget constraint of the government makes this monetization inevitable while others disagree. I personally don't think Bernanke wants to monetize. QE is designed mostly to stimulate the economy by lowering interest rates, even though it also represents some degree of monetization. 

I disagree with your characterization of Keynesians. They all recognize the long-run budget constraint. Most would say the high level of borrowing today will have to correspond to much lower spending or higher taxes in the future. Others think the borrowing just occurs because investment in the US is more productive (I think this has been mostly discredited by the crisis). Regardless, they recognize the budget constraint. I think one advantage of the mainstream approach is that all of our models have explicit budget constraints built into the math of the model. This is an advantage of the formal mathematical modelling that the Austrians don't like as much.

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## ababba

> Do the Keynesian economists recognize a bond problem?


What bond problem are you referring to?

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## Rancher

> What bond problem are you referring to?


I don't know much about it. I just heard that municipal bonds are in a bubble, and I was wondering if Keynesians agree, or is it not true?

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## hugolp

> Monetary and fiscal policy become intertwined only if monetization of the debt is inevitable. Some economists argue that the long-run budget constraint of the government makes this monetization inevitable while others disagree. I personally don't think Bernanke wants to monetize.


Even the Dallas Fed president has admited that QE is monetizing the debt.




> QE is designed mostly to stimulate the economy by lowering interest rates, even though it also represents some degree of monetization.


Lowering the interest rates distorts the market and leads to wrong investment (malinvestments). It hurts the economy, which is the contrary to stimulation.

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## Rancher

Do the Austrian economists recognize a bond problem?

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## ababba

> I don't know much about it. I just heard that municipal bonds are in a bubble, and I was wondering if Keynesians agree, or is it not true?


I think they are only in a bubble if some states are likely to default. This is a realistic possibility, but I'm not sure if the interest rates are high enough to compensate for the correct probability of default.

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## ababba

> Even the Dallas Fed president has admited that QE is monetizing the debt.
> 
> 
> 
> Lowering the interest rates distorts the market and leads to wrong investment (malinvestments). It hurts the economy, which is the contrary to stimulation.


QE is monetizing debt, it will likely increase inflation. Its not monetizing the whole debt, the effect will be modest. 

Remember of course that market interest rates are not constant. They should move around with the productivity of investment and future expected growth among other things. If the fed kept a constant real interest rate, that would be more distortionary than what they currently do. 

Modern New Keynesian monetary policy is basically the idea that the Fed should move the interest rate around to the natural rate of interest, which is defined as that rate of interest which would occur at the free market outcome. Saying that any movement in interest rates distorts the outcome is therefore clearly wrong. 

For example, say the marginal product of capital in the economy decreases. The market outcome would imply a lower real interest rate. If the interest rate is kept constant for some reason, that will move us away from the optimal outcome.

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## Travlyr

> Modern New Keynesian monetary policy is basically the idea that the Fed should move the interest rate around to the natural rate of interest, which is defined as that rate of interest which would occur at the free market outcome.


If this is in fact true, then the next obvious step is to eliminate the Fed and let the free-market do its job.

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## ababba

> If this is in fact true, then the next obvious step is to eliminate the Fed and let the free-market do its job.


Yes that point is well taken. Some old-time Keynesians disagree with this, but this is more of the cutting edge approach to policy. 

There is still the issue of the zero nominal lower bound, which makes the average rate of inflation relevant. You can never have a negative nominal interest rate, which puts a lower bound on the real interest rate. This makes the average level of inflation something to consider from a policy perspective. The downside of inflation is the tax on currency aspect, but higher average inflation gives more flexibility for real interest rates to move around.

In addition, some people think nominal wage cuts are virtually impossible for firms, so if there is zero inflation it creates real wage rigidity which moves employment away from the optimal level. If there is a moderate level of inflation, you can keep wages constant and that decreases the real wage for less productive workers.

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## hugolp

> QE is monetizing debt, it will likely increase inflation. Its not monetizing the whole debt, the effect will be modest. 
> 
> Remember of course that market interest rates are not constant. They should move around with the productivity of investment and future expected growth among other things. If the fed kept a constant real interest rate, that would be more distortionary than what they currently do.


Please be serious. And dont re-write what I said.

So you admit now QE is monetizing debt. Good.

About the interest rates, yes they have to change. The interest rates are a price, and like any price it changes following the actions of the market actors.

What I said is that artificially lowering the interest rates distorts the market and leads to bad outcome.




> Modern New Keynesian monetary policy is basically the idea that *the Fed should move the interest rate around to the natural rate of interest, which is defined as that rate of interest which would occur at the free market outcome*. Saying that any movement in interest rates distorts the outcome is therefore clearly wrong. 
> 
> For example, say the marginal product of capital in the economy decreases. The market outcome would imply a lower real interest rate. If the interest rate is kept constant for some reason, that will move us away from the optimal outcome.


Dont take this offensively, but this is the typical keynesian bull$#@!. The Fed has no way to know what would be the free market interest rate. The Fed exists to protect the banks from bankruptcy and that distorts their behavior. So the Fed has no way of knowing the free market interest rates, how is it supposed to follow them? And if it really wants to just set the free market rates why have the Fed at all? I dont understand how supposedly intelligent and educated people accepts this type of reasonings, without the bull$#@! detector jumping all over.

This kind of stuff shows that keynesianism can not be taken seriously.

----------


## ababba

> Dont take this offensively, but this is the typical keynesian bull$#@!. The Fed has no way to know what would be the free market interest rate.


This is where actually writing down realistic models of the economy using equations will help you realize some of these things, instead of just assuming you are correct. The standard New Keynesian model tells us that inflation targeting is an optimal way of setting market interest rates. If inflation is higher than your target, you should raise interest rates and if inflation is lower than your target you should lower interest rates to get closer to the natural rate of interest. 

This is another example of attacking a straw man. Your critiques of Keynesian economics are critiques of something that you made up and has very little to do with what people that study Keynesian economics actually think about.

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## ababba

> This kind of stuff shows that keynesianism can not be taken seriously.


I think the fact that Austrians are not willing to write down and calibrate a model of the economy shows that you can't take Austrian economics seriously. There have been many instances where I thought I clearly understand the intuition for something, but then when you actually write down a model, you get the opposite result. Math constrains the ability of people to just make stuff up. The fact that Austrians are not willing to put these constraints on themselves means that they are probably making mistakes like this all the time.

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## newbitech

> This is where actually writing down realistic models of the economy using equations will help you realize some of these things, instead of just assuming you are correct. The standard New Keynesian model tells us that inflation targeting is an optimal way of setting market interest rates. If inflation is higher than your target, you should raise interest rates and if inflation is lower than your target you should lower interest rates to get closer to the natural rate of interest. 
> 
> This is another example of attacking a straw man. Your critiques of Keynesian economics are critiques of something that you made up and has very little to do with what people that study Keynesian economics actually think about.


Just want to take a step back for a second.  You are talking about people studying and thinking about this Keynesian economic model that you have in mind.  Are you telling us that if this model you have in mind was actually applied that we'd have different results than we having using the current model that is being applied?

I don't understand the point of digging in to this model if it falls flat on its face right out of the gate.

That is, why even bother using a model that starts off saying that we have to manipulate free market rates, rather than let the market set the rates?  Do the people who study and apply the Keynesian economic model think about the consequences of manipulating the free market interest rates rather than allowing the free market to set those rates?

It seems like the Keynesian economic model goes out of its way to try and put shackles around the free market via price manipulation.  If we accept that the Keynesian model is the best we have, must we also accept that the model does not allow for prices to be set organically and naturally?  

I'd rather have the next best thing if it means we will actually have free markets that function the way they are supposed to.  Wouldn't you?  If you are telling me that the two are not mutually exclusive, I'd like to know how this new Keynesian model plans on dealing with the free market revolt against price fixing that will come one way or another.

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## ababba

> Just want to take a step back for a second.  You are talking about people studying and thinking about this Keynesian economic model that you have in mind.  Are you telling us that if this model you have in mind was actually applied that we'd have different results than we having using the current model that is being applied?
> 
> I don't understand the point of digging in to this model if it falls flat on its face right out of the gate.
> 
> That is, why even bother using a model that starts off saying that we have to manipulate free market rates, rather than let the market set the rates?  Do the people who study and apply the Keynesian economic model think about the consequences of manipulating the free market interest rates rather than allowing the free market to set those rates?
> 
> It seems like the Keynesian economic model goes out of its way to try and put shackles around the free market via price manipulation.  If we accept that the Keynesian model is the best we have, must we also accept that the model does not allow for prices to be set organically and naturally?  
> 
> I'd rather have the next best thing if it means we will actually have free markets that function the way they are supposed to.  Wouldn't you?  If you are telling me that the two are not mutually exclusive, I'd like to know how this new Keynesian model plans on dealing with the free market revolt against price fixing that will come one way or another.


I think this is a pretty good argument for why the basic keynesian model isn't the whole story, but that isn't a reason to dismiss the whole model as a positive description of how economies work. It has several basic predictions. On the monetary side, increasing interest rates tends to reduce output and there is a positive correlation in the short run between inflation and output. These are two of the strongest empirical facts about Macroeconomic data in the last several hundred years. 

Of course, everyone in academia realizes that these models aren't enough to model the crisis. I think an honest economist may tell you that the problem with the models is that they assume people are too smart and predict the future too well. But the solution to that is not to throw everything out the window, but model beliefs and preferences of consumers better. A lot of the more promising work is about the idea of a leverage cycle and the corresponding asset booms. But of course you need stupid consumers to get a leverage cycle. 

My bet is if the Austrians actually wrote down their models, they would find the same type of irrationality underlying a lot of the results. 

Another approach economists are taking in response to the crisis is to more explicitly model the financial sector of the economy and what we call financial frictions that prevent economies from achieving optimal outcomes.

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## Travlyr

These two economic models can be viewed as:

Keynesian: Privileged class controlling the money supply and interest rates while manipulating society.Austrian: Laissez-faire free-market capitalism allowed to operate in a liberated world.

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## ababba

> These two economic models can be viewed as:
> 
> Keynesian: Privileged class controlling the money supply and interest rates while manipulating society.Austrian: Laissez-faire free-market capitalism allowed to operate in a liberated world.


No thats not true at all. You can be a Keynesian and support free markets. Keynesian economics is a positive description of how economies work. It is not a normative policy recommendation. Keynesian economists disagree about policy.

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## Travlyr

> No thats not true at all. You can be a Keynesian and support free markets. Keynesian economics is a positive description of how economies work. It is not a normative policy recommendation. Keynesian economists disagree about policy.


Sure, Keynesians always argue about policy. They have all been wrong since the 30's.

Laissez-faire free-market capitalism is self-regulating and cannot operate efficiently when policies are forced on it. True capitalism operates on a contractual basis ... rule of law - "Sound" monetary systems.

Policies are only necessary when markets are manipulated - Counterfeiting "Fiat" monetary systems.

Policy: a high-level overall plan embracing the general goals and acceptable procedures especially of a governmental body.

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## ababba

> Sure, Keynesians always argue about policy. They have all been wrong since the 30's.
> 
> Laissez-faire free-market capitalism is self-regulating and cannot operate efficiently when policies are forced on it. True capitalism operates on a contractual basis ... rule of law - "Sound" monetary systems.
> 
> Policies are only necessary when markets are manipulated - Counterfeiting "Fiat" monetary systems.
> 
> Policy: a high-level overall plan embracing the general goals and acceptable procedures especially of a governmental body.


This is just clearly not true. First you are saying all Keynesians have always been wrong even though they disagree, which is just a fundamental internal contradiction. The first sentence is not logically consistent with the second sentence. 

The notion that government can never improve on the free market outcome is also just clearly wrong. Think about a simple case of an externality or a public good. 

Say everyone in society values a park at 5 dollars and the total cost to society is 50 dollars and there are 20 people. Then the total benefit is 100 dollars but the park will not be supplied in a free market because the private benefit of each person is 5 dollars, less than the 50 needed to build it. 

You could say, why don't they all get together and agree to build the park together. The problem with this is that every individual will want to deviate from that agreement and get the benefits of the park without paying their share of the cost. 

You could say, why can't people that don't contribute be excluded from using it. There are clearly public goods that once they are produced, its very expensive to prevent other people from using them, thats half the point of a public good. 

We can go on to disagree about whether a situation with a tax and government is better or worse than the market outcome of no park, but the notion that it is impossible for policy to improve market outcomes is clearly wrong.

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## Travlyr

> This is just clearly not true. First you are saying all Keynesians have always been wrong even though they disagree, which is just a fundamental internal contradiction. The first sentence is not logically consistent with the second sentence.


Keynesians promote criminal activity which is always wrong. Central banks creating money out-of-nothing and government protection of fractional reserve banking is fraud. It is clearly fraud. It was designed as a criminal transfer of wealth, and it worked well for 97 years, so far. The elite own 1/3 of the world's wealth. Keynesians are accomplices.



> The notion that government can never improve on the free market outcome is also just clearly wrong.


Government has limited legitimate functions. Manipulating markets (giving advantage to one person while denying opportunity to another) is not one of them.



> Think about a simple case of an externality or a public good.


~ I'm thinking ~ the free market of ideas ... the Internet. Works excellent. 



> Say everyone in society values a park at 5 dollars and the total cost to society is 50 dollars and there are 20 people. Then the total benefit is 100 dollars but the park will not be supplied in a free market because the private benefit of each person is 5 dollars, less than the 50 needed to build it. 
> 
> You could say, why don't they all get together and agree to build the park together. The problem with this is that every individual will want to deviate from that agreement and get the benefits of the park without paying their share of the cost. 
> 
> You could say, why can't people that don't contribute be excluded from using it. There are clearly public goods that once they are produced, its very expensive to prevent other people from using them, thats half the point of a public good.


Government has no business in market policy, but public policy is different.   	
Alexis de Tocqueville writes,_"A nation may establish a free government, but without municipal institutions it cannot have the spirit of liberty."_ Local governments can work with public policy.



> We can go on to disagree about whether a situation with a tax and government is better or worse than the market outcome of no park, but the notion that it is impossible for policy to improve market outcomes is clearly wrong.


Government involvement in market policy is counterproductive to prosperity and clearly no friend of liberty.

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## WilliamShrugged

@ Ababba although i disagree with most of what you say i have to thank you for being very respectful. Most times i see a pro-Keynesian debate they are dicks, you have been far from that. Its good to have a calm debate.

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## ababba

I thought of an interesting hypothetical situation. Lets say the economy is on a commodity standard and lets say the value of the commodity backed currency is expected to grow at -2% next year, so the dollar is expected to increase in value. Further lets say the optimal market real rate of interest is 1%. Now the question is how does a free market get us to the correct nominal interest rate (which is -1%)? The nominal interest rate can't be lower than zero because you can always earn zero by just holding currency. A fiat currency can obviously solve this problem, but how does a commodity currency solve it?

I think the reason this debate can remain respectful is that I don't think monetary policy can do a lot of good, even if I agree with the Keynesian model to some extent, the impact of even the best monetary policy is a slight positive benefit. In the 70s and earlier monetary policy was much more harmful and definitely did more harm than good.

----------


## ababba

> Keynesians promote criminal activity which is always wrong. Central banks creating money out-of-nothing and government protection of fractional reserve banking is fraud. It is clearly fraud. It was designed as a criminal transfer of wealth, and it worked well for 97 years, so far. The elite own 1/3 of the world's wealth. Keynesians are accomplices..


This is similar to saying that Libertarians are crazy radical cop killers because of Richard Poplawski. Clearly although he did bad things and agrees with libertarians on some issues, whether the libertarian philosophy is correct has nothing to do with his actions. Even if some Keynesians are criminals, it really doesn't say much about whether Keynesian economics describes the economy better than another economic system. 

It seems too much like Keynesian is just the word for whatever bad you see in the world of economic policy rather than a more accurate description of what a Keynesian is. 

That being said, inflation that is fully expected to ocurr by itself is not a transfer of wealth, it is a tax on currency but it is not a tax on savings because nominal interest rates are higher when there is higher inflation. Currency is such a small fraction of savings that this is very small. A surprise inflation is a different story.

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## farrar

> I think thats the problem I was trying to get at. Neither Keynesians nor Austrians have been right about the past 10 years. Both have made good and bad predictions. You can make videos by choosing either side's good predictions and the other side's bad predictions. The point is that this isn't a good way of determining which theory is true unless one side gets the overwhelming number of predictions right.
> 
> I think Keynesian and Austrian economists would agree that hyperinflations have always been a monetary phenomena. We will have a hyperinflation if the Federal Reserve chooses to monetize a large portion of the debt. If they only monetize a small portion of the debt, it should lead to a little bit higher inflation but not a hyperinflation. In the short run, inflation doesn't have to be linked to monetary growth if prices are sticky, but in the long run it does. 
> 
> Keynesian economists would agree with you that monetary policy has no long run effect on the level of output. It seems like you would agree with Keynesian economists that monetary policy can have a short run effect on output as implied by your post above. So far, its not clear where you disagree with Keynesian economics as a positive theory of the economy. 
> 
> Its a different matter entirely to disagree with the normative policy implications of some Keynesian economists.  The consensus of mainstream economists is that monetary policy has a role in stabilizing the economy. Even if it can't affect output in the long run, monetary policy can lower the peaks and raise the troughs of a business cycle. They do not believe that monetary policy should be used to permanently prop up an economy forever. The consensus is that the stagflation of the 70's proved that expectations matter, and even if a phillips curve exists in the short run, it can't be used to permanently raise output with higher inflation. This is the type of economics which Ben Bernanke subscribes to. 
> 
> Because your portrayal of Keynesian economics is not this mainstream idea of it, I think you are attacking a straw man.


You are saying something here i agree with. 

1) mainstream does not equal Keynesian economics... (common misconception)
2) Mainstreams have similar concerns as Austrians do regard hyper-inflation. We have much more in common than we like to admit. (at least at the core of the logic)
3) Keynesian economists are not what will create hyper-inflation (my opinion: Politics in the FED will. If the FED doesn't tell the government it is on its own when those unfunded liabilities hit 'em hard... hello Zimbabwe. If it is free enough from political influence... the government is forced to cut spending or default... and that doesn't necessarily have to happen in the next few years)
4) mainstream economists do not believe in creating capital in the long run by printing money (again, they are not that stupid)
5) If we can say all Keynesians represent mainstream economists and Paul krugman represents  all mainstream economists... then we need to accept that all classical economists are Austrians, and Peter schiff represents all Austrians.... I happen to think that kind of thinking is misplaced. This video is not an attack on keynsian economists. It an attack on Paul Krugman followers. It is important to make that distinction.

Regarding the above, why do I still like the Austrian economists?

I detest utilitarianism. Whether Austrian economics is the most effective or not (though i think it is), for me is not the true concern. I am concerned with the morality of economic theory. Austrian economists are the only ones who make that accommodation for me. 

If everything Austrians have predicted in the last 100 years is proven wrong, I would still be an Austrian Economic mind.

Do I like the FED?
of course not... deliberate inflation, and a standing incentive for government to ban competing currency... forcing inflation down their throats? That is immoral in my opinion... and only the surface of it. The FED is a monument to utilitarianism, assuming some selective elite can determine the fate of everyone elses finances in the name of a greater good. The ends don't justify the means... especially if they happen to be wrong (and even if they are right).

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## farrar

> I thought of an interesting hypothetical situation. Lets say the economy is on a commodity standard and lets say the value of the commodity backed currency is expected to grow at -2% next year, so the dollar is expected to increase in value. Further lets say the optimal market real rate of interest is 1%. Now the question is how does a free market get us to the correct nominal interest rate (which is -1%)? The nominal interest rate can't be lower than zero because you can always earn zero by just holding currency. A fiat currency can obviously solve this problem, but how does a commodity currency solve it?
> 
> I think the reason this debate can remain respectful is that I don't think monetary policy can do a lot of good, even if I agree with the Keynesian model to some extent, the impact of even the best monetary policy is a slight positive benefit. In the 70s and earlier monetary policy was much more harmful and definitely did more harm than good.


Forgive me if i mis understand you...

but you are asking how does the market correct interest rates if there is 2% deflation and a free market interest rate of 1%? Well, a correction here, would simply be for banks to raise interest rates unless savings permits such a low interest rate. hence, there is not correction because it is already correct. If there isn't enough savings to create incentive to risk funds for a 1% rate when simply holding it would create a 2% yield then rates will simply rise. the result of this would be a decrease in consumption and an increased incentive to save as the interest rate payout rises. Eventually savings would build up enough to lower interest rates back down. Whatever the interest rate is, is the correct rate...

As far as interest rates go... in the free market savings and investment are hand in hand. They are self correcting. As you probably know this isn't refuted by Keynesians even. The dispute here is, how long will self-correction take.

I feel like I misunderstood your question... I may be back to edit this later

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## hugolp

You are jumping all over and contradicting yourself.




> This is where actually writing down realistic models of the economy using equations will help you realize some of these things, instead of just assuming you are correct. The standard New Keynesian model tells us that inflation targeting is an optimal way of setting market interest rates. If inflation is higher than your target, you should raise interest rates and if inflation is lower than your target you should lower interest rates to get closer to the natural rate of interest.


Why would I want to target a CPI rate (which is what you mean by inflation targeting)? And I dont care that a model incapable of predicting and modeling reality says that it makes some variable optimal.




> This is another example of attacking a straw man. Your critiques of Keynesian economics are critiques of something that you made up and has very little to do with what people that study Keynesian economics actually think about.


This are your own words:




> Modern New Keynesian monetary policy is basically the idea that the Fed should move the interest rate around to the natural rate of interest, which is defined as that rate of interest which would occur at the free market outcome.





> I think the fact that Austrians are not willing to write down and calibrate a model of the economy shows that you can't take Austrian economics seriously. There have been many instances where I thought I clearly understand the intuition for something, but then when you actually write down a model, you get the opposite result. Math constrains the ability of people to just make stuff up. The fact that Austrians are not willing to put these constraints on themselves means that they are probably making mistakes like this all the time.


And then you check reality and you get the opposite result that in the model. What does that tell you about the model?

Until you discover a way to mathematically model human action your economic models are just vague aproximations, in some cases with some pedagogical value and thats all, and in most cases they are just useless.

I am an engineer, so I know the advantages of mathematics, but I also understand its limitations, which is something that most economists prefer to ignore.

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## ababba

> Forgive me if i mis understand you...
> 
> but you are asking how does the market correct interest rates if there is 2% deflation and a free market interest rate of 1%? Well, a correction here, would simply be for banks to raise interest rates unless savings permits such a low interest rate. hence, there is not correction because it is already correct. If there isn't enough savings to create incentive to risk funds for a 1% rate when simply holding it would create a 2% yield then rates will simply rise. the result of this would be a decrease in consumption and an increased incentive to save as the interest rate payout rises. Eventually savings would build up enough to lower interest rates back down. Whatever the interest rate is, is the correct rate...
> 
> As far as interest rates go... in the free market savings and investment are hand in hand. They are self correcting. As you probably know this isn't refuted by Keynesians even. The dispute here is, how long will self-correction take.
> 
> I feel like I misunderstood your question... I may be back to edit this later


I was just wondering how a commodity standard would deal with the zero nominal lower bound. Nominal interest rates cannot be negative because you can just hold currency. Under a commodity standard, there are cases where you would need a negative nominal rate to get the optimal level of the real interest rate. Therefore, it seems impossible for a commodity standard+free markets to always get the real interest rate correct.

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## ababba

> And then you check reality and you get the opposite result that in the model. What does that tell you about the model?
> 
> Until you discover a way to mathematically model human action your economic models are just vague aproximations, in some cases with some pedagogical value and thats all, and in most cases they are just useless.
> 
> I am an engineer, so I know the advantages of mathematics, but I also understand its limitations, which is something that most economists prefer to ignore.



This is obviously hard, I realize that. That doesn't mean we should give up. It also doesn't mean the alternative of zero math zero empirical work is better. I think its clearly not. Both data and math are ways of putting constraints on models so we can't just say anything. 

When the model doesn't match reality you seek to improve the model. You hope that the model can forecast out of sample. This would be the ultimate judge of success for a model.

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## Austrian Econ Disciple

> This is obviously hard, I realize that. That doesn't mean we should give up. It also doesn't mean the alternative of zero math zero empirical work is better. I think its clearly not. Both data and math are ways of putting constraints on models so we can't just say anything. 
> 
> When the model doesn't match reality you seek to improve the model. You hope that the model can forecast out of sample. This would be the ultimate judge of success for a model.


How exactly can you use math and empiricism to predict human behavior? Pyschology, sociology, incentivizations, reason, & logic are imminently superior in every aspect concerning human behavior, insight, and preferences than trying to plug in useless models which spew out wrong information after wrong information. 

You would call me $#@!ing stupid if I tried to use a regression model for a psychologist. That is how stupid math is for economics.

Besides if you want to use empiricism, the facts are on the laissez-faire side. The more interference between human interactions the worse off the economy will be. You get progressively worse the farther down the Statist slide you get.

Economics needs to seriously get back in-tune with their roots in philosophy & logic. Habermas, Hoppe & Nozick are far better than Samuelson, Krugman, and Schwartz.

-- I always love the quip by Murray concerning ordinal and cardinal preferences. I can say for certain I favor wonder bread over non-wonder bread, but I can't say I favor wonder bread 3.8 more times than I do non-wonder bread. _No one thinks like that in the real world. No one._  Just test it out for yourself one day. Without even thinking about you will come to an epiphany. You will see how screwed up orthodox economics is.

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## ababba

> You are saying something here i agree with. 
> 
> 1) mainstream does not equal Keynesian economics... (common misconception)
> 2) Mainstreams have similar concerns as Austrians do regard hyper-inflation. We have much more in common than we like to admit. (at least at the core of the logic)
> 3) Keynesian economists are not what will create hyper-inflation (my opinion: Politics in the FED will. If the FED doesn't tell the government it is on its own when those unfunded liabilities hit 'em hard... hello Zimbabwe. If it is free enough from political influence... the government is forced to cut spending or default... and that doesn't necessarily have to happen in the next few years)
> 4) mainstream economists do not believe in creating capital in the long run by printing money (again, they are not that stupid)
> 5) If we can say all Keynesians represent mainstream economists and Paul krugman represents  all mainstream economists... then we need to accept that all classical economists are Austrians, and Peter schiff represents all Austrians.... I happen to think that kind of thinking is misplaced. This video is not an attack on keynsian economists. It an attack on Paul Krugman followers. It is important to make that distinction.
> 
> Regarding the above, why do I still like the Austrian economists?
> ...


This is a really good analysis of the discussion so far. I think most mainstream economists are utilitarians generally when they have to make policy judgement. As far as policy analysis goes, I think the utilitarian approach is the best standard. I don't think the utilitarian approach has to imply large government.

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## Travlyr

> This is similar to saying that Libertarians are crazy radical cop killers because of Richard Poplawski. Clearly although he did bad things and agrees with libertarians on some issues, whether the libertarian philosophy is correct has nothing to do with his actions. Even if some Keynesians are criminals, it really doesn't say much about whether Keynesian economics describes the economy better than another economic system. 
> 
> It seems too much like Keynesian is just the word for whatever bad you see in the world of economic policy rather than a more accurate description of what a Keynesian is. 
> 
> That being said, inflation that is fully expected to ocurr by itself is not a transfer of wealth, it is a tax on currency but it is not a tax on savings because nominal interest rates are higher when there is higher inflation. Currency is such a small fraction of savings that this is very small. A surprise inflation is a different story.


Point taken. Not all Keynesians are accomplices. 

However, Keynesian economics does not describe an honest system of economics. Keynesianism is obfuscation for a failed conniving money game specifically designed to manipulate markets and transfer wealth from the people to the privileged elite. Keynesian leadership knows that central banks are nothing but centers of fraud. Anyone who understands this principle and continues to promote the schemes is an accomplice.

There is only one truly legitimate honest economic system and that is the natural law of laissez-faire free-market capitalism.

Nonetheless, inflation is a transfer of wealth, plain and simple. Inflation in a commodity monetary system makes producers wealthy. Inflation in a fiat system makes counterfeiters wealthy, but it is deceitful criminal theft.

Ron Paul talks about inflation in this interview.YouTube - Ron Paul: Bernanke and Krugman are Destroying the Dollar

Watch these videos and read "The Secrets of the Federal Reserve" by Eustace Mullins if you are truly interested in the truth.

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## ababba

> How exactly can you use math and empiricism to predict human behavior? Pyschology, sociology, incentivizations, reason, & logic are imminently superior in every aspect concerning human behavior, insight, and preferences than trying to plug in useless models which spew out wrong information after wrong information. 
> 
> You would call me $#@!ing stupid if I tried to use a regression model for a psychologist. That is how stupid math is for economics.
> 
> Besides if you want to use empiricism, the facts are on the laissez-faire side. The more interference between human interactions the worse off the economy will be. You get progressively worse the farther down the Statist slide you get.


Everything, psychology, sociology, incentivizations, reason and logic is all exactly equivalent to math. Anything you can say logically, you should be able to write down as an equation. Whenever you discuss something in these other terms, its like there is a puppet master behind the curtain of equations moving. We choose to write those equations down explicitly, because sometimes we find that what we thought was obvious was actually impossible.

----------


## farrar

> I think the fact that Austrians are not willing to write down and calibrate a model of the economy shows that you can't take Austrian economics seriously. There have been many instances where I thought I clearly understand the intuition for something, but then when you actually write down a model, you get the opposite result. Math constrains the ability of people to just make stuff up. The fact that Austrians are not willing to put these constraints on themselves means that they are probably making mistakes like this all the time.


I will say here, that I think the Austrian's rejection of empirical formula is a strength. No school of economic thought tries to claim that their formulas comprise the entirety of all the factors of an economy. Another way to look at this, is that every single model is inherently wrong, and we all know it (and know attempts to deny it... that would be idiotic). The assertion is, that hopefully we have isolated enough of the most important factors that any model will be close enough. 
Austrians often look to praxeology. This asserts certain axioms as being fundamental truths. 

Both sides have pros and cons.

Empirical formula will get you an answer that is in some shape or form, close to the true answer. It is probably close much of the time. The problem is by what margin is it wrong? And how devastating is that margin? Are current factors permitting the model to appear correct... when in reality it is much diffrent... and will become apparent in the future?

Praxeology doesn't have the liberty of being in a grey area. You can't be almost right. You are either completely wrong or completely right... as far as each individual axiom goes. If your theory is wrong then either you were irrational or completely wrong. the nice thing about it is, you can be completely right. The bad thing is... if not obvious already... you can be completely wrong.

I would argue that, being almost right is being wrong... but I understand not everyone is as black and white as I am.


Interestingly Chicago school economists a very similar to Austrian economists, but they use empirical formula. The two do not agree on everything, but I know many libertarians (maybe even a couple here) subscribe to it.

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## Austrian Econ Disciple

> Everything, psychology, sociology, incentivizations, reason and logic is all exactly equivalent to math. Anything you can say logically, you should be able to write down as an equation. Whenever you discuss something in these other terms, its like there is a puppet master behind the curtain of equations moving. We choose to write those equations down explicitly, because sometimes we find that what we thought was obvious was actually impossible.


What exactly is the equation which tells you _all unmarried men are bachelors_? What is the equation which tells you _all humans have goals and purposes_?

You cannot quantify human action. It is impossible. You also cannot quantify deductive reasoning. It is impossible. Seriously, eschew the math. You cannot use math to try and determine or predict human behavior. It's silly. Just as silly as the above scenario where you go into your psychologist and instead of talking he or she plops down a regression model and says that in five days you will do such and such, and if I do this or say this to you, you will do x. The world doesn't work like that.

Just take a look at cardinal and ordinal preferences to see how silly orthodox economics is. No one goes shopping and says I would rather have 4.2 loafs of wonder bread, than 6.2 loafs of Food Lion brand bread. No one says I would rather have .4 of a house, instead of 2 xbox 360s. You can however say, I prefer wonder bread to non-wonder bread, and I prefer a house to an xbox 360, or I prefer roast beef than a steak.

----------


## ababba

> -- I always love the quip by Murray concerning ordinal and cardinal preferences. I can say for certain I favor wonder bread over non-wonder bread, but I can't say I favor wonder bread 3.8 more times than I do non-wonder bread. _No one thinks like that in the real world. No one._  Just test it out for yourself one day. Without even thinking about you will come to an epiphany. You will see how screwed up orthodox economics is.


First thing we learn in graduate Microeconomics- Utility is just a representation of ordinal preferences. Any positive monotonic transformation of utility represents the same preferences. The numbers are irrelevant as long as you understand which bundles consumers prefer to others. I don't know where he got the idea that we care about cardinal preferences.

----------


## Austrian Econ Disciple

> First thing we learn in graduate Microeconomics- Utility is just a representation of ordinal preferences. Any positive monotonic transformation of utility represents the same preferences. The numbers are irrelevant as long as you understand which bundles consumers prefer to others. I don't know where he got the idea that we care about cardinal preferences.


If it is irrelevant why the $#@! do you even have it? That should tell you something is off right there. That was the whole point to the diatribe Murray went on. Was quite hilarious to say the least

----------


## ababba

> Just take a look at cardinal and ordinal preferences to see how silly orthodox economics is. No one goes shopping and says I would rather have 4.2 loafs of wonder bread, than 6.2 loafs of Food Lion brand bread. No one says I would rather have .4 of a house, instead of 2 xbox 360s. You can however say, I prefer wonder bread to non-wonder bread, and I prefer a house to an xbox 360, or I prefer roast beef than a steak.


So by your logic no one can say they prefer Coke at 80 cents versus Pepsi at 60 cents?

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## ababba

> If it is irrelevant why the $#@! do you even have it? That should tell you something is off right there. That was the whole point to the diatribe Murray went on. Was quite hilarious to say the least


Have what? A utility function? We have those so that we can solve the consumers problem when there are many goods and prices.

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## Austrian Econ Disciple

> So by your logic no one can say they prefer Coke at 80 cents versus Pepsi at 60 cents?


Of course they can, however not everyone does. Some people might have a ban on Pepsi products, or just don't like the taste, or whatever million reasons they might have. However, that is nothing like cardinal preferences, which attempts to quantify a persons wants through the use of mathemathical models. 

It is like Paul Samuelson trying to use utils to predict and analyze a persons preferences. Samuelson when modeling these preferences and attempting to weight them in utils, has so many ridiculous underlying assumptions (just like Global Warming models), that it throws off the whole thing. That is the whole point. You can never have perfect knowledge, therefore your models will always be wrong. You are trying to know everything. You don't need to know everything to understand economics or human behaviors. Fundamental praxeological axioms are deductive truths. I am still waiting on the model of _all unmarried men are bachelors and all humans have purposes and goals_.

I can say that humans have and rank preferences, but I cannot know what someones preferences are. That is what orthodox economics tries to do. It is completely insane. 

The difference between Austrian Economics and the rest of the discipline is one actually explains how humans interact, make choices, assign preferences, and conduct economic calculations, whereas the other rests on faulty assumptions (E.g. perfect knowledge, perfect competition, etc.), wrong modeling, and bluntly, an entirely wrong methodology.

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## farrar

> This is a really good analysis of the discussion so far. I think most mainstream economists are utilitarians generally when they have to make policy judgement. As far as policy analysis goes, I think the utilitarian approach is the best standard. I don't think the utilitarian approach has to imply large government.


Glad you liked what I had to say.

I will say of utilitarianism, I don't mind people making utilitarian decisions with their own things. With their life or their money. But when the decision begins to apply to others outside the decision maker, that is where i draw a moral distinction.

Interestingly enough, as you noted, many economists are utilitarian in thought. In fact Hayek was rather utilitarian, and he is an Austrian economist. Many libertarians are often utilitarian. In fact, Ron Paul's decision not to self limit his terms was rather utilitarian.

Utilitarianism I don't mind (personally):

Cutting off my arm if it is trapped under a rock, saving myself from starvation. Normally mutilation is a bad thing, but here the ends justified the means in my personal perspective. Its my arm and my life, and I can make that decision

Utilitarianism I think is immoral:

The Federal Reserves deliberate inflation even if to achieve macroeconomic goals

Truman's decision to drop the atomic bombs, deciding for 150,000 people that they should be sacrificed to save others whom he hopes would have been more than 150,000. 

(fictional reference for fun) Adrian's decision to avert nuclear war by killing millions in NY and Moscow (watchmen).

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## Austrian Econ Disciple

> Have what? A utility function? We have those so that we can solve the consumers problem when there are many goods and prices.





> We have those so that we can solve the consumers problem when there are many goods and prices.


How do you think the consumer solves that? Do you think the consumer (or the producer for that matter), uses any of the things you learn? Of course not.

Have you ever had to make a budget? Have you had to ration your choices? Do you use utils to make your choices, or do you use ordinal preferences? How do people actually decide between one good and another? Do they use complex mathematical formulas? Of course not.

----------


## ababba

> Of course they can, however not everyone does. Some people might have a ban on Pepsi products, or just don't like the taste, or whatever million reasons they might have. However, that is nothing like cardinal preferences, which attempts to quantify a persons wants through the use of mathemathical models. 
> 
> It is like Paul Samuelson trying to use utils to predict and analyze a persons preferences. Samuelson when modeling these preferences and attempting to weight them in utils, has so many ridiculous underlying assumptions (just like Global Warming models), that it throws off the whole thing. That is the whole point. You can never have perfect knowledge, therefore your models will always be wrong. You are trying to know everything. You don't need to know everything to understand economics or human behaviors. Fundamental praxeological axioms are deductive truths. I am still waiting on the model of _all unmarried men are bachelors and all humans have purposes and goals_.
> 
> I can say that humans have and rank preferences, but I cannot know what someones preferences are. That is what orthodox economics tries to do. It is completely insane. 
> 
> The difference between Austrian Economics and the rest of the discipline is one actually explains how humans interact, make choices, assign preferences, and conduct economic calculations, whereas the other rests on faulty assumptions (E.g. perfect knowledge, perfect competition, etc.), wrong modeling, and bluntly, an entirely wrong methodology.


I can assure you that if you know some price at which you will prefer pepsi over coke, that is exactly equivalent to being able to say whether you prefer 4.2 pepsis or 2.4 cokes. These are two ways of discussing the same problem. It seems to me that people make decisions like this all the time. 

That's not a difference between Austrian Economics and other economics. We both TRY to explain everything you claim Austrian Economics explains. 

The perfect competition, perfect knowledge model is not the end of economics, its the start. Its the benchmark, and then we add imperfections. Start with monopoly, and oligopoly for the competition side, then game theory and information economics. To the perfect knowledge assumption we have behavioral economics and of course again information economics to model these imperfections.

----------


## Austrian Econ Disciple

> I can assure you that if you know some price at which you will prefer pepsi over coke, that is exactly equivalent to being able to say whether you prefer 4.2 pepsis or 2.4 cokes. These are two ways of discussing the same problem. It seems to me that people make decisions like this all the time. 
> 
> That's not a difference between Austrian Economics and other economics. We both TRY to explain everything you claim Austrian Economics explains. 
> 
> The perfect competition, perfect knowledge model is not the end of economics, its the start. Its the benchmark, and then we add imperfections. Start with monopoly, and oligopoly for the competition side, then game theory and information economics. To the perfect knowledge assumption we have behavioral economics and of course again information economics to model these imperfections.


Well I am out for the night. Tired, and have to work in the morning. Anyhow, I will get back to you in the morning. I will just say you would make a fine worker in the Gosplan.

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## ababba

> How do you think the consumer solves that? Do you think the consumer (or the producer for that matter), uses any of the things you learn? Of course not.
> 
> Have you ever had to make a budget? Have you had to ration your choices? Do you use utils to make your choices, or do you use ordinal preferences? How do people actually decide between one good and another? Do they use complex mathematical formulas? Of course not.


So people make mistakes, that is your point I think. We can model those mistakes or at least try to. What impact do these mistakes have on Austrian economics? If you specify what the mistakes are, I can use a model to explain what impact they have on prices and allocations. 

Its not clear you are attacking the approach as a positive description of how consumers should behave though.

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## hugolp

> This is obviously hard, I realize that. That doesn't mean we should give up. It also doesn't mean the alternative of zero math zero empirical work is better. I think its clearly not. Both data and math are ways of putting constraints on models so we can't just say anything. 
> 
> When the model doesn't match reality you seek to improve the model. You hope that the model can forecast out of sample. This would be the ultimate judge of success for a model.


So why not wait until you have a functioning mathematical model that is cabable of predicting human behavior before trying to use it? What you are suggesting is the equivalent that I, as an engineer, build a device based on some mathematical model that I have created but does not work. Its crazy. And when you use it to justify policy it becomes criminal.

Btw, you have not answer why you want to target a specific CPI rate. I am curious.

----------


## ababba

> Btw, you have not answer why you want to target a specific CPI rate. I am curious.


Its based on the idea of a phillips curve, that at least in the short run there is a positive correlation between output and inflation. In the more common versions of the phillips curve, if you stabilize inflation at its target, you also stabilize the output gap (the deviation of output from the flexible price equilibrium).

----------


## ababba

> So why not wait until you have a functioning mathematical model that is cabable of predicting human behavior before trying to use it? What you are suggesting is the equivalent that I, as an engineer, build a device based on some mathematical model that I have created but does not work. Its crazy. And when you use it to justify policy it becomes criminal.


I think the point I was trying to make is that the Austrian approach has mathematical assumptions behind it that just aren't explicitly modeled. For any theory, there is always a way to represent it mathematically. The more general the math, the less specific are the possible conclusions that you can draw from it. 

I think mathematically at a micro level, there is a lot of good research where the math can reasonably accurately predict individual choices. Some of the most recent macro research demonstrates out of sample predictive ability of the more advanced Keynesian models. The standard for the macro models should really be whether they predict market outcomes, output, inflation, prices etc.

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## hugolp

> Its based on the idea of a phillips curve, that at least in the short run there is a positive correlation between output and inflation. In the more common versions of the phillips curve, if you stabilize inflation at its target, you also stabilize the output gap (the deviation of output from the flexible price equilibrium).


The output gap is the imaginary gap between the gdp the government is reporting and what each keynesian model (that is imcapable of predicting reality and usually uses subjective parameters) says, right? So basically the output gap is nothing.

And the philips curve is this short term correlation that ignores any long term reality. I though it was completely discredited in the 70's. Its totally anti-scientific.

I am not impressed. The more and more I learn about keynesianism the more I realize is totally anti-scientific.

----------


## hugolp

> I think the point I was trying to make is that the Austrian approach has mathematical assumptions behind it that just aren't explicitly modeled. For any theory, there is always a way to represent it mathematically. The more general the math, the less specific are the possible conclusions that you can draw from it. 
> 
> I think mathematically at a micro level, there is a lot of good research where the math can reasonably accurately predict individual choices. Some of the most recent macro research demonstrates out of sample predictive ability of the more advanced Keynesian models. The standard for the macro models should really be whether they predict market outcomes, output, inflation, prices etc.


I agree with this. But one of the most important points of being a scientific is saying "I dont know".

And in front of things that they dont know, keynesian keeps saying I will just approximate in a very gross way and I will tell everybody its science. Sorry, that behavior and its consequences should have criminal consequences.

Until you have a model that can really predict human behavior you should stay away from politics and stay in your desk researching. Otherwise you are just lying to people.


On a more technical note, you are confused about the validity of mathematics. Mathematics is just a set of logic relations. Darwin's theory of evolution was developed without maths, and I dont think you want to suggest that makes it less scientific. It discovers reality, therefore is useful, and the fact that it uses math or not its irrelevant. Same is true with economics. Maths dont always makes things more clear. Maths can be and are used for offuscation. I really think this arrogance and supperiority of keynesians because they use mathematics shows how little respect for science they have.

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## Austrian Econ Disciple

> I can assure you that if you know some price at which you will prefer pepsi over coke, that is exactly equivalent to being able to say whether you prefer 4.2 pepsis or 2.4 cokes. These are two ways of discussing the same problem. It seems to me that people make decisions like this all the time. 
> 
> That's not a difference between Austrian Economics and other economics. We both TRY to explain everything you claim Austrian Economics explains. 
> 
> The perfect competition, perfect knowledge model is not the end of economics, its the start. Its the benchmark, and then we add imperfections. Start with monopoly, and oligopoly for the competition side, then game theory and information economics. To the perfect knowledge assumption we have behavioral economics and of course again information economics to model these imperfections.


The reason why mathematics is useful in the physical sciences is because there are constants. Light always moves at a certain speed. Mass always stays the same unless external forces changes its makeup. Distance always remains the same. There are objective measurements we can make in the physical sciences, which are true. One foot, will always be one foot and so on. 

Now imagine for a second that light decided it was going to change its subjective valuations on how fast it wants to go. (E.g. that light ceased to move at a constant rate and fluctuated based on its subjective preference or value-scale) Mathematics at that point would be rendered null and useless. It couldn't tell us anything significant, and it couldn't discern truth. Once you enter subjectiveness into the 'equation', math ceases to be useful. 

Now, even if you could imagine a working model and formula, you would still lag behind which makes your model outdated and useless. _It would for all intents and purposes model the past._ That is useless when you are trying to plan out an economy. That is what orthodox economics tries to do. It tries to use complex mathematical formulas and models to try and tweak, nudge, predict, plan, and otherwise run the economy. Ben & Krugman really are no different than your average schmoe working in the CCCP Gosplan. Ben & Krugman do not try to discern any truth, they are social engineers plain and simple. Anyways, the point is since a person can change his valuations and preferences on a whim, at any time, and for any reason only the individual knows what his present and future values, wants, and preferences are. You the outside individual will always be looking at past preferences. 

The reason why math is useful in the hard sciences is because you can objectively test outcomes, futures, etc. because of constants. We know if we throw a ball at 80MPH, that it will reach 240 miles in 3 hours. Now, if those distances, speeds, and masses changed fluidly you couldn't use math whatsoever. That is the point I am trying to make. Using math in the social sciences is anti-scientific. It is, downright absurd on a fundamental level. _You still haven't been able to give me an equation for all unmarried men are bachelors_. The simple fact is while math is a logical system, it cannot explain by itself deductive reasoning, and other forms of logic & reason. It can't tell us anything about logical fallacies, reductio ad absurdums, and other logical thoughts. You know what made Hazlitt great. He was wonderful at thought experiments. How on earth can you model and use equations for thought experiments? You simply cannot. 

Only the market is the best facilitator of present wants and needs, and future wants and needs (speculators, etc.). Why? It is because the market is the sum of all individual subjective wants, needs, and preferences. You simply cannot model that. It is impossible. The more you try, the more you fail. You will always fail because math is inimical in the social sciences.

(While I necessarily do not like Hayek much post his Misesian years (mid-late 50s), this is still a prescient read)

http://nobelprize.org/nobel_prizes/e...k-lecture.html

*The Pretence of Knowledge*




> The particular occasion of this lecture, combined with the chief practical problem which economists have to face today, have made the choice of its topic almost inevitable. On the one hand the still recent establishment of the Nobel Memorial Prize in Economic Science marks a significant step in the process by which, in the opinion of the general public, economics has been conceded some of the dignity and prestige of the physical sciences. On the other hand, the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.
> 
> It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude - an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed." I want today to begin by explaining how some of the gravest errors of recent economic policy are a direct consequence of this scientistic error.


This is a time to reflect on why certain things are being taught. If you ever wonder why most economists aren't Austrians, well look no further than they want to keep their job. If us Austrians get our way, none of you guys would have a job -- you have no value to anything. You are like the voodoo priest in a microchip lab. Completely useless to anyone.

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## Travlyr

> This is a time to reflect on why certain things are being taught. If you ever wonder why most economists aren't Austrians, well look no further than they want to keep their job. If us Austrians get our way, none of you guys would have a job -- you have no value to anything. You are like the voodoo priest in a microchip lab. Completely useless to anyone.


Excellent analogy! 

It IS time to reflect on why certain things are being taught. Keynesianism, in my view, is to complicate understanding of economics to provide cover for criminal behavior. Keynesian economics has absolutely no value in an honest world.

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## ababba

> The output gap is the imaginary gap between the gdp the government is reporting and what each keynesian model (that is imcapable of predicting reality and usually uses subjective parameters) says, right? So basically the output gap is nothing.
> 
> And the philips curve is this short term correlation that ignores any long term reality. I though it was completely discredited in the 70's. Its totally anti-scientific.
> 
> I am not impressed. The more and more I learn about keynesianism the more I realize is totally anti-scientific.


The output gap is the difference between the current level of output and the output if prices were completely flexible. Measuring the output gap is a difficult part of policy. 

The phillips curve is actually a very accurate description of the economy in the short run. The 70s demonstrated that expectations matter. As Milton Friedman argued, only surprise inflation increases output in a world with sticky prices. A fully anticipated inflation will have no effect on output. A phillips curve modified to take into account expectations, is very accurate. It has to be true in a world where prices are not completely flexible, which they aren't.

----------


## ababba

> I agree with this. But one of the most important points of being a scientific is saying "I dont know".
> 
> And in front of things that they dont know, keynesian keeps saying I will just approximate in a very gross way and I will tell everybody its science. Sorry, that behavior and its consequences should have criminal consequences.
> 
> Until you have a model that can really predict human behavior you should stay away from politics and stay in your desk researching. Otherwise you are just lying to people.
> 
> 
> On a more technical note, you are confused about the validity of mathematics. Mathematics is just a set of logic relations. Darwin's theory of evolution was developed without maths, and I dont think you want to suggest that makes it less scientific. It discovers reality, therefore is useful, and the fact that it uses math or not its irrelevant. Same is true with economics. Maths dont always makes things more clear. Maths can be and are used for offuscation. I really think this arrogance and supperiority of keynesians because they use mathematics shows how little respect for science they have.



So I guess here is the important issue. Say I am predicting the outcome of a future event that has a 50% probability of being true. I have a mathematical model that says when the probability of truth is actually 51%. Is this model valuable? Of course, people make billions of dollars in financial markets with models with less precision than this. 

Does this model know with certainty what will happen? No. But should we dismiss it? of course not. Should we say it solves all the worlds problems? No. But should we throw it in the garbage? Obviously not. 

Your contention that approximate models are never useful would never say this model is valuable unless it knows with certainty what will happen.

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## Travlyr

> The output gap is the difference between the current level of output and the output if prices were completely flexible. Measuring the output gap is a difficult part of policy. 
> 
> The phillips curve is actually a very accurate description of the economy in the short run. The 70s demonstrated that expectations matter. As Milton Friedman argued, only surprise inflation increases output in a world with sticky prices. A fully anticipated inflation will have no effect on output. A phillips curve modified to take into account expectations, is very accurate. It has to be true in a world where prices are not completely flexible, which they aren't.


Inflation is an increase in the money supply and very much controlled by central banks. From where would _"surprise"_ inflation come?

----------


## ababba

> The reason why mathematics is useful in the physical sciences is because there are constants. Light always moves at a certain speed. Mass always stays the same unless external forces changes its makeup. Distance always remains the same. There are objective measurements we can make in the physical sciences, which are true. One foot, will always be one foot and so on. 
> 
> Now imagine for a second that light decided it was going to change its subjective valuations on how fast it wants to go. (E.g. that light ceased to move at a constant rate and fluctuated based on its subjective preference or value-scale) Mathematics at that point would be rendered null and useless. It couldn't tell us anything significant, and it couldn't discern truth. Once you enter subjectiveness into the 'equation', math ceases to be useful.


This is a fundamental mistake. Even if the speed of light can take on any possible value, I still know exactly what the probability of light reaching me from any point is in X amount of time. Math is still 100% useful even though the problem is infinitely more complex. Math still tells you everything you can know about the world.

----------


## ababba

> Inflation is an increase in the money supply and very much controlled by central banks. From where would _"surprise"_ inflation come?


Well if I take your definition of inflation, it would be a surprisingly high increase in the money supply. 

If I take the more common definition of inflation, rising prices, then it would be when prices are higher than people anticipated.

----------


## Austrian Econ Disciple

> The output gap is the difference between the current level of output and the output if prices were completely flexible. Measuring the output gap is a difficult part of policy. 
> 
> The phillips curve is actually a very accurate description of the economy in the short run. The 70s demonstrated that expectations matter. As Milton Friedman argued, only surprise inflation increases output in a world with sticky prices. A fully anticipated inflation will have no effect on output. A phillips curve modified to take into account expectations, is very accurate. It has to be true in a world where prices are not completely flexible, which they aren't.


The Phillips Curve is total trash and was finally debunked by Hazlitt in _The Inflation Crisis & How to Resolve It_ ( http://mises.org/books/inflationcrisis.pdf), in the 60s no less. In any event we do not even need that as stagflation proved what an abject failure the Phillip's Curve was/is. I still can't believe people believe this junk.

Pages 92 - 101.

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## hugolp

> The output gap is the difference between the current level of output and the output if prices were completely flexible. Measuring the output gap is a difficult part of policy.


This kind of assessments shows why keynesianism is not a science.




> The phillips curve is actually a very accurate description of the economy in the short run. The 70s demonstrated that expectations matter. As Milton Friedman argued, only surprise inflation increases output in a world with sticky prices. A fully anticipated inflation will have no effect on output. A phillips curve modified to take into account expectations, is very accurate. It has to be true in a world where prices are not completely flexible, which they aren't.


Are you familiar with the Austrian Theory of the Business Cycle?

Do you realize that increasing output because of bad signals is actually bad even when the GDP is growing because you will not be producing what consumers want?




> So I guess here is the important issue. Say I am predicting the outcome of a future event that has a 50% probability of being true. I have a mathematical model that says when the probability of truth is actually 51%. Is this model valuable? Of course, people make billions of dollars in financial markets with models with less precision than this. 
> 
> Does this model know with certainty what will happen? No. But should we dismiss it? of course not. Should we say it solves all the worlds problems? No. But should we throw it in the garbage? Obviously not. 
> 
> Your contention that approximate models are never useful would never say this model is valuable unless it knows with certainty what will happen.


You mean the guys that got the Bank of Sweden economic prize in honor of Nobel because of their theories and then went bankrupt?




> This is a fundamental mistake. Even if the speed of light can take on any possible value, I still know exactly what the probability of light reaching me from any point is in X amount of time. Math is still 100% useful even though the problem is infinitely more complex. Math still tells you everything you can know about the world.


Math tells you absolutely nothing about the world. Physics and chemistry tells you things about the world.

A very complex mathematical model will be as accurate as the initial assumptions you make and the luck you have. Nothing more.

Mathematics are just a set of logical relation coming from a set of axioms. Your lack of understanding of what mathematics are and how the scientific method works is amazing. And I am sure you go around claiming that Austrian economics does not work because its not "science" without really even knowing what science is. I am sure you think that using mathematics or empirical evidence is science.

----------


## Travlyr

> Well if I take your definition of inflation, it would be a surprisingly high increase in the money supply. 
> 
> If I take the more common definition of inflation, rising prices, then it would be when prices are higher than people anticipated.


It is not MY definition of inflation, it is THE definition. I have not been graced with the ability to define words.

Understanding the meaning of words is very important. Inflation means to expand or  increase. For example, inflate a basketball ... increase the amount of air. Increasing the amount of  money in circulation is inflation. Inflation CAUSES a rise in prices. This distinction is critically important.

Here is how inflation transfers wealth:
In an asset based currency system, precious metal miners and producers increase the money supply by increasing production. i.e. finding more gold, silver, growing food, building cars, etc. Those actions inflate the money supply. It is these miners and producers that get rich because they can spend their hard earned dollars before the inflation causes rising prices.In a debt based system (fiat money) it works very similar. Whoever gets to inflate (print money) gets to spend their money before the prices rise. The inflater always wins. Wealth is always transferred from the people to the inflater. For example, a successful counterfeiter steals wealth from everyone else because he increases the money supply (inflates) and the rest of us pay higher prices.
This is why central banks keep standing armies to protect their ability to print money (inflate)... wealth transfer from the taxpayer to the elite. Counterfeiting pays big $$$.

Now, back to my question. Central banks control fiat money inflation. What event(s) would cause _"surprise"_ inflation?

----------


## ababba

> The Phillips Curve is total trash and was finally debunked by Hazlitt in _The Inflation Crisis & How to Resolve It_ ( http://mises.org/books/inflationcrisis.pdf), in the 60s no less. In any event we do not even need that as stagflation proved what an abject failure the Phillip's Curve was/is. I still can't believe people believe this junk.
> 
> Pages 92 - 101.


I am failing to see how this debunks the idea that surprisingly high inflation is associated with surprisingly high output, which is the current understanding of the phillips curve. It is, I thought what we agreed to earlier in the thread. That monetary policy can increase the level of output in the short run.

----------


## ababba

> It is not MY definition of inflation, it is THE definition. I have not been graced with the ability to define words.
> 
> Understanding the meaning of words is very important. Inflation means to expand or  increase. For example, inflate a basketball ... increase the amount of air. Increasing the amount of  money in circulation is inflation. Inflation CAUSES a rise in prices. This distinction is critically important.
> 
> Here is how inflation transfers wealth:
> In an asset based currency system, precious metal miners and producers increase the money supply by increasing production. i.e. finding more gold, silver, growing food, building cars, etc. Those actions inflate the money supply. It is these miners and producers that get rich because they can spend their hard earned dollars before the inflation causes rising prices.In a debt based system (fiat money) it works very similar. Whoever gets to inflate (print money) gets to spend their money before the prices rise. The inflater always wins. Wealth is always transferred from the people to the inflater. For example, a successful counterfeiter steals wealth from everyone else because he increases the money supply (inflates) and the rest of us pay higher prices.
> This is why central banks keep standing armies to protect their ability to print money (inflate)... wealth transfer from the taxpayer to the elite. Counterfeiting pays big $$$.
> 
> Now, back to my question. Central banks control fiat money inflation. What event(s) would cause _"surprise"_ inflation?


Its the Austrian definition, its not the dictionary definition which is an increase in the level of prices. 

Yes the revenue raised from printing money is called seigniorage. Its an extremely small amount of wealth generated because currency is such a small fraction of savings.

----------


## ababba

> This kind of assessments shows why keynesianism is not a science.
> 
> 
> 
> Are you familiar with the Austrian Theory of the Business Cycle?
> 
> Do you realize that increasing output because of bad signals is actually bad even when the GDP is growing because you will not be producing what consumers want?
> 
> 
> ...


One question: Can a model add value if it isn't perfect?

----------


## hugolp

> One question: Can a model add value if it isn't perfect?


Value is subjective. My subjective opinion that should not be imposed among others is yes, some models even if not perfect can help. But I dont wish someone subjective opinion imposing some models on me. I can choose which imperfect models I trust or use.

Seriously though you should learn about what science and mathematics are (or hopefully you know, you are just being sloppy here).

----------


## Austrian Econ Disciple

> Its the Austrian definition, its not the dictionary definition which is an increase in the level of prices. 
> 
> Yes the revenue raised from printing money is called seigniorage. Its an extremely small amount of wealth generated because currency is such a small fraction of savings.


What? The historical definition (from the founding of the economic sciences), has always been constant - inflation is an increase in the money stock. Some people qualify this with - greater than the rise in the level of production of goods and services. Either way, a rise in prices has never meant inflation, nor can it make any sense as a definition of inflation. Prices are subjective, and distinctly different for each individual. There are no objective prices. How can you measure inflation when all prices are merely subjective valuations? Makes no sense whatsoever.

----------


## ababba

> Value is subjective. My subjective opinion that should not be imposed among others is yes, some models even if not perfect can help. But I dont wish someone subjective opinion imposing some models on me. I can choose which imperfect models I trust or use.
> 
> Seriously though you should learn about what science and mathematics are (or hopefully you know, you are just being sloppy here).


Your standard is: are the models perfect, do they explain all human behavior? My standard is: do the models improve our understanding of the economy? Do they explain the past and predict the future?

----------


## Travlyr

> Its the Austrian definition, its not the dictionary definition which is an increase in the level of prices. 
> 
> Yes the revenue raised from printing money is called seigniorage. Its an extremely small amount of wealth generated because currency is such a small fraction of savings.


Like I said, understanding the definition of words is critically important.

Money inflation *causes* an increase in prices.
Definition of INFLATE
1: to swell or distend with air or gas
2: to puff up : elate <inflate one's ego>
3: to expand or increase abnormally or imprudently 

Seigniorage is not from printing of money.
Definition of SEIGNIORAGE
: a government revenue from the manufacture of coins calculated as the difference between the face value and the metal value of the coins

----------


## ababba

> What? The historical definition (from the founding of the economic sciences), has always been constant - inflation is an increase in the money stock. Some people qualify this with - greater than the rise in the level of production of goods and services. Either way, a rise in prices has never meant inflation, nor can it make any sense as a definition of inflation. Prices are subjective, and distinctly different for each individual. There are no objective prices. How can you measure inflation when all prices are merely subjective valuations? Makes no sense whatsoever.


Prices for traded goods are not subjective, they are observed.

----------


## Austrian Econ Disciple

> Prices for traded goods are not subjective, they are observed.


All prices are subjective. Holy moly. We have de-evolved over 200 years worth of knowledge. What the hell is going on in the B&M Universities?

----------


## hugolp

> All prices are subjective. Holy moly. We have de-evolved over 200 years worth of knowledge. What the hell is going on in the B&M Universities?


Formation of prices comes from subjective choice, but prices are observable.

The problem is that he is really not talking about prices, but about CPI, that is just an index.

----------


## Travlyr

ababba - either you are being disingenuous in this discussion, or you need to study more. _"Baffling with bull$#@! went out with the 90's."_

----------


## ababba

> Like I said, understanding the definition of words is critically important.
> 
> Money inflation *causes* an increase in prices.
> Definition of INFLATE
> 1: to swell or distend with air or gas
> 2: to puff up : elate <inflate one's ego>
> 3: to expand or increase abnormally or imprudently 
> 
> Seigniorage is not from printing of money.
> ...


Yes it is, its also important to understand when there are multiple different concepts referred to by the same word. Seignorage is usually defined in economic applications as the revenue the government earns from printing money. 

Inflation, in mainstream economic models is an increase in prices which may or may not be the direct result of an increase in the money supply. 

And who really cares? We all know that we can talk about two things, money growth and price growth. Does it really matter which one has which label? As long as we agree on a label, I could care less.

----------


## ababba

> All prices are subjective. Holy moly. We have de-evolved over 200 years worth of knowledge. What the hell is going on in the B&M Universities?


Prices do not depend on the observer, which is what subjective means to me. A number that we can read off the shelf is not a subjective thing, its objective.

----------


## Austrian Econ Disciple

> Formation of prices comes from subjective choice, but prices are observable.
> 
> The problem is that he is really not talking about prices, but about CPI, that is just an index.


Of course a price is observable, it doesn't make it objective. I attacked the position where he stated traded goods are not bound to subjective mores. I am though eagerly awaiting the objective price for these goods/services.

Do they even teach price formation mechanisms in mainstream curriculum?

----------


## Travlyr

> Yes it is, its also important to understand when there are multiple different concepts referred to by the same word. Seignorage is usually defined in economic applications as the revenue the government earns from printing money. 
> 
> Inflation, in mainstream economic models is an increase in prices which may or may not be the direct result of an increase in the money supply. 
> 
> And who really cares? We all know that we can talk about two things, money growth and price growth. Does it really matter which one has which label? As long as we agree on a label, I could care less.


I care. Re-definition of words is a clever distortion which causes intentional misunderstandings. It doesn't work for me. 

Richard N. Haass, President, Council on Foreign Relations - *Sovereignty and Globalisation* calls for re-defining sovereignty. 

Re-definition of words is simply obfuscation to distort the truth.

----------


## live liberty

Austrians for the win!

----------


## ababba

No one has taken up the zero lower bound. How does a free market commodity standard deal with the zero nominal lower bound?

Also, I wonder how without math an Austrian economist can say anything about the magnitude of things they discuss. Even if logic without math can tell you something about what will happen in an economy, it can never tell you what the magnitude of this effect will be. You could be exactly right about the logic for something but it still could have no noticeable impact on the economy because the effect is so small. You need some sort of a model to calibrate the magnitude of the effects you discuss.

----------


## ababba

> Austrians for the win!


Is there really a single logical argument that the Austrians made in this thread that somehow makes Austrian economics win? I am seeing this thread primarily about people's perceptions of what Keynesian economics is. I'm sure you know that we don't live in a binary world when it comes to economic ideas.

----------


## Travlyr

> No one has taken up the zero lower bound. How does a free market commodity standard deal with the zero nominal lower bound?
> 
> Also, I wonder how without math an Austrian economist can say anything about the magnitude of things they discuss. Even if logic without math can tell you something about what will happen in an economy, it can never tell you what the magnitude of this effect will be. You could be exactly right about the logic for something but it still could have no noticeable impact on the economy because the effect is so small. You need some sort of a model to calibrate the magnitude of the effects you discuss.


I'm no expert, but I would think that since commodity money has no need for central banks, zero nominal lower bound becomes irrelevant.

----------


## ababba

> I'm no expert, but I would think that since commodity money has no need for central banks, zero nominal lower bound becomes irrelevant.


It is relevant as long as you can have deflation in a commodity standard.

----------


## Travlyr

> It is relevant as long as you can have deflation in a commodity standard.


Deflation would be a non-issue in a commodity standard. Where would the money go? Sinking ship? Hording? 

I would think that inflation and deflation are virtually nonexistent when using assets as money.

----------


## ababba

> Deflation would be a non-issue in a commodity standard. Where would the money go? Sinking ship? Hording? 
> 
> I would think that inflation and deflation are virtually nonexistent when using assets as money.


There was an almost 40% deflation from 1871-1900 in the US.

----------


## Travlyr

> There was an almost 40% deflation from 1871-1900 in the US.


Link?

----------


## ababba

> Link?


http://en.wikipedia.org/wiki/File:US...on_Ancient.svg

There are of course data quality issues going back this far, but it seems like deflation and inflation both happen with a commodity standard.

This period at the end of the 19th century is sometimes called the great deflation.

----------


## low preference guy

> http://en.wikipedia.org/wiki/File:US...on_Ancient.svg
> 
> There are of course data quality issues going back this far, but it seems like deflation and inflation both happen with a commodity standard.
> 
> This period at the end of the 19th century is sometimes called the great deflation.


we are talking about deflation defined as decrease of the money supply, right?

----------


## Travlyr

> http://en.wikipedia.org/wiki/File:US...on_Ancient.svg
> 
> There are of course data quality issues going back this far, but it seems like deflation and inflation both happen with a commodity standard.
> 
> This period at the end of the 19th century is sometimes called the great deflation.


Yeah... I need something a little more specific and detailed. That chart does not specify whither that was a reduction in money supply, or a reduction of prices.

What I am learning is that the gold standard that was embraced worldwide from 1871 - 1932 was essentially price fixing. 

Can you explain in layman's terms what you mean by zero nominal lower bound?

----------


## low preference guy

> Can you explain in layman's terms what you mean by zero nominal lower bound?


and how it happens under a market-based monetary system?

----------


## ababba

> and how it happens under a market-based monetary system?


I'm not 100% sure it does, there might be a solution. 

The zero lower nominal bound is the idea that market interest rates cannot be negative. You would never save a dollar if you were promised to receive 95 cents back from the bank next year because you could always just keep a dollar in your pocket. 

If the optimal real interest rate is 1%, and we have an expected deflation of 3%, the optimal market based nominal interest rate would be -2% if we had no zero nominal bound issues. Then the real interest rate would be -2-(-3)=1. 

I think expected price changes are the relevant thing to consider. The reason why the nominal interest rate is higher than the real interest rate under inflation is because you have to be compensated in terms of purchasing power.

----------


## VBRonPaulFan

> I'm not 100% sure it does, there might be a solution. 
> 
> The zero lower nominal bound is the idea that market interest rates cannot be negative. You would never save a dollar if you were promised to receive 95 cents back from the bank next year because you could always just keep a dollar in your pocket. 
> 
> If the optimal real interest rate is 1%, and we have an expected deflation of 3%, the optimal market based nominal interest rate would be -2% if we had no zero nominal bound issues. Then the real interest rate would be -2-(-3)=1. 
> 
> I think expected price changes are the relevant thing to consider. The reason why the nominal interest rate is higher than the real interest rate under inflation is because you have to be compensated in terms of purchasing power.


if you were in that scenario, wouldn't a consumer be more prone to spending money on things they needed because they would be getting it cheaper now, rather than later? that effect on the economy in and of itself should be stimulative and drive interest rates up, since businesses would need capital to deal with increased production?

----------


## ababba

> if you were in that scenario, wouldn't a consumer be more prone to spending money on things they needed because they would be getting it cheaper now, rather than later? that effect on the economy in and of itself should be stimulative and drive interest rates up, since businesses would need capital to deal with increased production?


I think its the opposite. Things are getting cheaper in the future, thats the nature of deflation. A dollar or a piece of gold today will buy more goods in future periods, so there is an incentive to wait for your consumption. 

The point is that the real interest rate has to be greater than the rate of deflation. This can lead to inefficiently low investment today if there is deflation. There are projects that it would be optimal for the economy to carry out today that don't get undertaken. Then we have an inefficiently low capital stock. 

In a fiat currency, you can pretty much eliminate deflation by printing money.

----------


## Travlyr

> In a fiat currency, you can pretty much eliminate deflation by printing money.


No doubt! Where do you get those money printing machines? I would eliminate my deflation AND I would buy a nice home in "The Hamptons."

----------


## ababba

> No doubt! Where do you get those money printing machines? I would eliminate my deflation AND I would buy a nice home in "The Hamptons."


So in your opinion, can printing money in a fiat currency ever be a good thing? If you don't think so, you have to address the lower bound issue.

----------


## Travlyr

> So in your opinion, can printing money in a fiat currency ever be a good thing? If you don't think so, you have to address the lower bound issue.


Well ... IMHO, Yes, it would be a good thing if I was the one allowed to print money. Yes, definitely.   Like I said, _"I would buy a nice home in 'The Hamptons'."_  
*Yes, $$$ That would be a good thing! $$$* 

*Printing fiat money is counterfeit theft, plain and simple.* If I do it, or if central planners do it. It is all the same. Counterfeiting benefits the counterfeiter at the expense of everyone else.

There is no excuse for this fraud to continue even one more day! I posted a link to *Eustace Mullins* who's diligent research explains this concept in both video and in his book, "The Secret of the Federal Reserve." Whoever honestly wants to know the truth and reads, studies, learns, or has their ears perked up to listen, KNOWS that central banking was, and still is, designed to transfer wealth from the taxpayer to the privileged elite, and control society with an power elite oligarchy. It is a proven fact! And it has worked well for 97 years, so far. 1/3 of the worlds wealth is concentrated in the hands of a few elite, and the people are living under tyrannical conditions. It should end tomorrow!

Anyone who continues to support printing fiat money is either:
Directly benefiting from the counterfeit money.A puppet shill for the people benefiting from the counterfeit money.Not taken the time to learn why, and how, central banks were formed.Don't know ... Don't care.
This "zero lower nominal bound" issue of which you speak is ONLY an issue with central bank printing of money out of nothing. 
Like I said, with honest sound commodity money created from natural laws of production the "zero lower nominal bound" becomes a contractual issue. The creditor would write into the promissory note, _"If deflation occurs which reduces the creditor's nominal interest yield, then the borrower agrees to compensate the creditor for the difference."_ ie. variable rate interest pegged to inflation/deflation.
*Zero lower nominal bound issue solved!*

Murray N. Rothbard teaches honest sound money principles in his book, "*The Mystery of Banking*."Ron Paul teaches honest sound money principles in his book, "*End the Fed*."Ludwig von Mises teaches honest sound money principles in his book, "*Human Action*."If you still don't understand after reading those books and watching *Eustace Mullins' videos*, there are plenty more scholars on the *Internet*.

----------


## Jordan

> This "zero lower nominal bound" issue of which you speak is ONLY an issue with central bank printing of money out of nothing. 
> Like I said, with honest sound commodity money created from natural laws of production the "zero lower nominal bound" becomes a contractual issue. The creditor would write into the promissory note, _"If deflation occurs which reduces the creditor's nominal interest yield, then the borrower agrees to compensate the creditor for the difference."_ ie. variable rate interest pegged to inflation/deflation.
> *Zero lower nominal bound issue solved!*


It's not really that simple.

The simple fact that commodity money, or whatever the free market solution may be, exposes lenders and borrowers both to unforeseen increases or reductions in the inflation or deflation rate will only increase the spreads between the optimal rate of interest and the market rate of interest.  The result is a reduction in the total amount of credit available.  This can be demonstrated pretty easily with simply supply/demand.  

Even still, if I can earn a guaranteed return of X due only to deflation, it would take quite a spectacular return to get me to risk this guaranteed return for anything else.  

We should at least be willing to have a discussion about the merits of persistent inflation or persistent deflation and which is better.

----------


## ababba

> *Zero lower nominal bound issue solved!*
> 
> ]


I am guessing you still don't understand the issue. The issue is expected deflation not surprise deflation.

----------


## ababba

> Well ... IMHO, Yes, it would be a good thing if I was the one allowed to print money. Yes, definitely.   Like I said, _"I would buy a nice home in 'The Hamptons'."_  
> *Yes, $$$ That would be a good thing! $$$* 
> 
> *Printing fiat money is counterfeit theft, plain and simple.* If I do it, or if central planners do it. It is all the same. Counterfeiting benefits the counterfeiter at the expense of everyone else.
> 
> There is no excuse for this fraud to continue even one more day! I posted a link to *Eustace Mullins* who's diligent research explains this concept in both video and in his book, "The Secret of the Federal Reserve." Whoever honestly wants to know the truth and reads, studies, learns, or has their ears perked up to listen, KNOWS that central banking was, and still is, designed to transfer wealth from the taxpayer to the privileged elite, and control society with an power elite oligarchy. It is a proven fact! And it has worked well for 97 years, so far. 1/3 of the worlds wealth is concentrated in the hands of a few elite, and the people are living under tyrannical conditions. It should end tomorrow!
> 
> Anyone who continues to support printing fiat money is either:
> Directly benefiting from the counterfeit money.A puppet shill for the people benefiting from the counterfeit money.Not taken the time to learn why, and how, central banks were formed.Don't know ... Don't care.
> ...


I am wondering if your arguments are really about how we distribute the printed money rather than about whether money should be printed. Would you be OK with printing money if it was distributed to everyone in the economy equally, helicopter Ben style?

----------


## Travlyr

> I am wondering if your arguments are really about how we distribute the printed money rather than about whether money should be printed. Would you be OK with printing money if it was distributed to everyone in the economy equally, helicopter Ben style?


No, the only way I would be OK with printing money is if I got to do it and nobody else could. I would buy the best military the world has ever known. Then I would live like a king and control the world. 

I would make sure my friends and family enjoyed the good life, and I would make sure that producers/slaves had just enough that they did not revolt. I would make sure that my maid, gardener, body guard, chef, driver and mistress did not complain too much, and I would not really give a $#@! about anyone else.

Give me the printing press, and I'll live the good life ... and throw you a few crumbs.

If it was distributed to everyone equally, then nobody would produce anything, and food would taste like crap. No, that's not a good idea.

----------


## Jordan

> No, the only way I would be OK with printing money is if I got to do it and nobody else could. I would buy the best military the world has ever known. Then I would live like a king and control the world. 
> 
> I would make sure my friends and family enjoyed the good life, and I would make sure that producers/slaves had just enough that they did not revolt. I would make sure that my maid, gardener, body guard, chef, driver and mistress did not complain too much, and I would not really give a $#@! about anyone else.
> 
> Give me the printing press, and I'll live the good life ... and throw you a few crumbs.
> 
> If it was distributed to everyone equally, then nobody would produce anything, and food would taste like crap. No, that's not a good idea.


Why don't you answer him seriously?

----------


## Travlyr

> Why don't you answer him seriously?


I am serious. That is what the power elite oligarchy is doing. I would do the same.

----------


## Travlyr

> The Fed, contrary to popular RPF thought, has actually done a decent job of regulating prices after the Great Depression.


Since the inception of the Fed, the world has had two world wars, and virtual perpetual wars. The first World War was the year following the creation of the Fed with Paul Warburg (Federal Reserve Board) and his brother Max Warburg (Head of German Secret Service) financing both sides of World War I. They continue to control the world. 

The Fed has done a pretty decent job of taking the world's wealth and concentrating it into the hands a few elite, controlling people, and destroying anyone, and everyone, who disagrees with them. The printing press is a pretty powerful machine.

Explain how the shrinking value of the dollar has been good for savers, people on fixed income, wage earners, or producers.

Self-Government - aka: It's not who you know, but what you know - Liberty, Sovereign Property Rights, Sound Money, Laissez-Faire Free-Market CapitalismElite Oligarchy - aka: It's not what you know, but who you know - Tyranny, Property Taxation, Fiat Money, Socialistic Central Planning Control of the Markets

----------


## Tal

> I'm not 100% sure it does, there might be a solution. 
> 
> The zero lower nominal bound is the idea that market interest rates cannot be negative. You would never save a dollar if you were promised to receive 95 cents back from the bank next year because you could always just keep a dollar in your pocket. 
> 
> If the optimal real interest rate is 1%, and we have an expected deflation of 3%, the optimal market based nominal interest rate would be -2% if we had no zero nominal bound issues. Then the real interest rate would be -2-(-3)=1. 
> 
> I think expected price changes are the relevant thing to consider. The reason why the nominal interest rate is higher than the real interest rate under inflation is because you have to be compensated in terms of purchasing power.


What is the problem here? if there is deflation then banks just need to raise interest rates to counteract the deflation in order to attract savings.




> It's not really that simple.
> 
> The simple fact that commodity money, or whatever the free market solution may be, exposes lenders and borrowers both to unforeseen increases or reductions in the inflation or deflation rate will only increase the spreads between the optimal rate of interest and the market rate of interest. The result is a reduction in the total amount of credit available. This can be demonstrated pretty easily with simply supply/demand.
> 
> Even still, if I can earn a guaranteed return of X due only to deflation, it would take quite a spectacular return to get me to risk this guaranteed return for anything else.


Comeon what is the real danger of sudden massive deflation under a gold or silver standard? people dont throw out their gold/silver that often. 

Its not like this phenomenon doesnt exist under the current fiat monetary system anyway, lenders often get screwed by inflation created by central banks these days.

----------


## ababba

> If it was distributed to everyone equally, then nobody would produce anything, and food would taste like crap. No, that's not a good idea.


So if everyone was given 1000 dollars of printed money every year, how exactly would people stop all economic activity?

----------


## ababba

> What is the problem here? if there is deflation then banks just need to raise interest rates to counteract the deflation in order to attract savings.


The minimum possible real interest rate is bounded below by the rate of deflation. 

The problem is that a bank can never say give me a dollar today and I'll give you 95 cents back next year. I'm not sure why raising interest rates would get us closer to the lower interest rate that we should have.

----------


## Tal

> So if everyone was given 1000 dollars of printed money every year, how exactly would people stop all economic activity?


It wouldnt, since as far as inflation and the inflation tax goes that is still pretty modest, if you however raise that number to 100.000 dollars then you will destroy the incentives for anyone to save money the honest way (by abstaining from consuming goods) and this will cause a shortage of real resources for the investment projects that are started.
Inflation on that scale is also a huge wealth transfer from average americans to the government and investment banks that are in bed with the government, there is a high probability that these funds approbriated by the state via the inflation tax will be spent on projects that do not meet the real needs and wants of the general population. 

These 2 factors (lack of real savings and a misallocation of resources) are key to forming the ingredients for the inevitable bust that such policies lead to.




> The minimum possible real interest rate is bounded below by the rate of deflation.


I honestly dont understand what your talking about here, the real interest rate is what? ''bounded below by the rate of deflation'' ??? 




> The problem is that a bank can never say give me a dollar today and I'll give you 95 cents back next year.


I fully understand the concept that people wont invest money with a bank if they are gonna get more income by simply keeping their money under their matress or in a savings bank, but as I said that can be countered by the investment banks by offering a higher interest rate on savings.

----------


## ababba

> I fully understand the concept that people wont invest money with a bank if they are gonna get more income by simply keeping their money under their matress or in a savings bank, but as I said that can be countered by the investment banks by offering a higher interest rate on savings.


But what if the rate of return on physical capital is less than the rate of deflation?

----------


## Travlyr

> So if everyone was given 1000 dollars of printed money every year, how exactly would people stop all economic activity?


All economic activity would not stop if everyone was given $1000/year. Creeping inflation would cause a gradual rise in prices. It would hardly be noticeable to the naked eye. That is what we have today, with the exception that, instead of everybody getting $1000, all the new money goes through the hands of the politically connected first. And therein lies the problem.

Imagine that tomorrow morning, Ben Bernanke deposited $1,000,000 into everyone's bank account, and whoever did not have a bank account received it in cash. Nobody is any wealthier, the only thing that has changed is everyone has a million more dollars today than they had yesterday.

What to do? Spend it! The sooner the better because by the time all these millions and millions flood the market, prices of everything rises dramatically by $1,000,000 for each person. Wealth transfers to the smart people who spend first, the people who wait pay more. That's how hyperinflation works. 
Now, instead of the above scenario, imagine that tomorrow morning Ben Bernanke deposited $1,000,000,000 to 600 of his close friends. The only thing that changes is 600 of Ben Bernanke's close friends each have an additional $Billion.

What to do? What to do? I mean what do you do? You can't spend it because you don't have it unless you are one of Ben Bernanke's close friends, I don't know what you do. You know that prices are going to rise dramatically. You know that you are not politically connected enough to get your share of the $billion. You can bitch, moan, kiss up to Ben, wish it wasn't like that, post on RPF's ... not much you can do except support Ron Paul for President 2012 and End The Fed, ASAP.

----------


## ababba

> Imagine that tomorrow morning, Ben Bernanke deposited $1,000,000 into everyone's bank account, and whoever did not have a bank account received it in cash. Nobody is any wealthier, the only thing that has changed is everyone has a million more dollars today than they had yesterday.
> 
> What to do? Spend it! The sooner the better because by the time all these millions and millions flood the market, prices of everything rises dramatically by $1,000,000 for each person. Wealth transfers to the smart people who spend first, the people who wait pay more. That's how hyperinflation works.



Prices would rise before anyone spent the money so they wouldn't all want to spend it quickly. If you were a firm, you would raise your price before a single dollar is spent.

----------


## Travlyr

> Prices would rise before anyone spent the money so they wouldn't all want to spend it quickly. If you were a firm, you would raise your price before a single dollar is spent.


 LOL... I wouldn't hold my breath or make any business policy changes yet. Let's see if Ben goes for the plan first.

----------


## ababba

> [*]Now, instead of the above scenario, imagine that tomorrow morning Ben Bernanke deposited $1,000,000,000 to 600 of his close friends. The only thing that changes is 600 of Ben Bernanke's close friends each have an additional $Billion.
> 
> What to do? What to do? I mean what do you do? You can't spend it because you don't have it unless you are one of Ben Bernanke's close friends, I don't know what you do. You know that prices are going to rise dramatically. You know that you are not politically connected enough to get your share of the $billion. You can bitch, moan, kiss up to Ben, wish it wasn't like that, post on RPF's ... not much you can do except support Ron Paul for President 2012 and End The Fed, ASAP.[/LIST]


I think the current Qauntitative easing is about exchanging printed money for bonds, which is completely different than the scenario you set up. In this case the beneficiary is the government not Ben's friends. The people that sell bonds should get close to the market price for their bond.

I was under the impression that exchanging money for bonds is a common way to implement printing money. I'm not sure where you get the idea that it all goes to Bernanke's friends.

----------


## ababba

> LOL... I wouldn't hold my breath or make any business policy changes yet. Let's see if Ben goes for the plan first.


I was just pointing out your economic logic is wrong. Business don't sit around waiting with fixed prices until consumers start buying more. Businesses would react immediately to the change in the money supply. This implies that your assumptions about what consumers do are fundamentally wrong.

----------


## Travlyr

> I think the current Qauntitative easing is about exchanging printed money for bonds, which is completely different than the scenario you set up. In this case the beneficiary is the government not Ben's friends. The people that sell bonds should get close to the market price for their bond.
> 
> I was under the impression that exchanging money for bonds is a common way to implement printing money. I'm not sure where you get the idea that it all goes to Bernanke's friends.


Don't miss the point. It is very important. When I said "_imagine_", I meant it. This is how inflation works on an exaggerated level. I was merely pointing out a fatal flaw in fiat money. 

While the real world does work like that imagined scenario, I embellished it a lot for effect.   

I certainly recommend Murray N. Rothbard's "The Mystery of Banking" if you are serious in learning. He is a much better storyteller than I.

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## Travlyr

> I was just pointing out your economic logic is wrong. Business don't sit around waiting with fixed prices until consumers start buying more. Businesses would react immediately to the change in the money supply. This implies that your assumptions about what consumers do are fundamentally wrong.


Okay.

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## ababba

> Don't miss the point. It is very important. When I said "_imagine_", I meant it. This is how inflation works on an exaggerated level. I was merely pointing out a fatal flaw in fiat money.


I'm not really following, I think the Fed prints a lot of money through open market operations. The benefit here goes to the government. How does the money go to Ben's friends first at all?

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## Travlyr

> I'm not really following, I think the Fed prints a lot of money through open market operations. The benefit here goes to the government. How does the money go to Ben's friends first at all?


I don't know anything about you, but I am not well connected politically. As a matter of fact, I will be one of the last in line to benefit from this newly created $600 billion. Some people are well connected politically (bond holders/buyers, etc.) and they will benefit directly. Those are his "friends" in my hypothetical scenario.  

I was simply storytelling to demonstrate a couple of things. First, Ben Bernanke is a very power person. He has the ability to create money out of nothing. I only dream of that power. Other than that, my story was exaggerated to point out that if you are well connected, you'll benefit from the new money. But if you are one of the wage earning subjects, you'll pay higher prices later on when the money finally trickles down and  saturates the market.

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## Travlyr

> I am guessing you still don't understand the issue. The issue is expected deflation not surprise deflation.


Maybe I don't, maybe I do. It is difficult to determine exactly how laissez-faire free-market capitalism works because there is always somebody screwing with it wanting to control others and steal their production without working for it while claiming a higher road. This regulation problem is as old as time itself.

Nonetheless, it is my best guess that _"deflation and surprise deflation"_ are virtual non existent terms in truly free markets just like "_zero nominal lower bound_." Otherwise known as bull$#@!.

Think about it in terms of the laissez-faire free-market of ideas - The Internet. 

When you go onto someone's website and they tell you something that isn't true, do you keep going back? I don't.  When you get good information from someone's website, or simply enjoy the website, _"get value"_, do you keep going back? I do.

It's the free market in action. It's the way life's interactions are supposed to be from natural laws.

The economy can work exactly the same way. Get government clear out of the money printing business and let people interact in whatever way they choose.

So, No. Unless you can demonstrate differently, the best I can surmise is that _"zero nominal lower bound"_ makes no sense in a laissez-faire free-market capitalism economy. 

Austrians analyze value - Keynesians analyze bull$#@!. In laissez-faire free-market capitalism Keynesianism central planning controls over people's lives - dies a wonderful death.

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## ababba

> Maybe I don't, maybe I do. It is difficult to determine exactly how laissez-faire free-market capitalism works because there is always somebody screwing with it wanting to control others and steal their production without working for it while claiming a higher road. This regulation problem is as old as time itself.
> 
> Nonetheless, it is my best guess that _"deflation and surprise deflation"_ are virtual non existent terms in truly free markets just like "_zero nominal lower bound_." Otherwise known as bull$#@!.
> 
> Think about it in terms of the laissez-faire free-market of ideas - The Internet. 
> 
> When you go onto someone's website and they tell you something that isn't true, do you keep going back? I don't.  When you get good information from someone's website, or simply enjoy the website, _"get value"_, do you keep going back? I do.
> 
> It's the free market in action. It's the way life's interactions are supposed to be from natural laws.
> ...


Just assume the problem away. Is that really your solution? You are guessing?

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## Travlyr

> Just assume the problem away. Is that really your solution? You are guessing?


No not at all. I surmised. Again word definitions are important. Definition of SURMISE : a thought or idea based on scanty evidence 

Where is the evidence? I challenged you to demonstrate how _"zero nominal lower bound"_ would have any effect whatsoever in laissez-faire free-market capitalism. 

Here is your chance! Can you show this?

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## ababba

> No not at all. I surmised. Again word definitions are important. Definition of SURMISE : a thought or idea based on scanty evidence 
> 
> Where is the evidence? I challenged you to demonstrate how _"zero nominal lower bound"_ would have any effect whatsoever in laissez-faire free-market capitalism. 
> 
> Here is your chance! Can you show this?


I already did, if there is expected deflation, the real interest is bounded below by the rate of expected deflation. This can reduce investment below the optimal level. Thats what I've been saying the whole time.

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## Travlyr

> I already did, if there is expected deflation, the real interest is bounded below by the rate of expected deflation. This can reduce investment below the optimal level. Thats what I've been saying the whole time.


Explain how deflation is possible? Sinking ship with tons of gold? How is deflation possible in an asset based monetary system?

Additionally, interest from whom to whom? There is no central bank.

Optimal level of investment would be decided by market producers.

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## ababba

> Explain how deflation is possible? Sinking ship with tons of gold? How is deflation possible in an asset based monetary system?
> 
> Additionally, interest from whom to whom? There is no central bank.
> 
> Optimal level of investment would be decided by market producers.


Next year gold is expected to buy 5% more goods than it does today. How can the real interest rate be less than 5%?

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## Travlyr

> Next year gold is expected to buy 5% more goods than it does today. How can the real interest rate be less than 5%?


That is more Keynesian bull$#@!. Anybody can expect/predict whatever they want it is meaningless to the laissez-faire free-market.

In a laissez-faire free-market capitalist economy using commodity money, farmer Joe/manufacturer Sally/industrialist J.P. would negotiate with his/her bank for a loan and the interest rate would be determined between the borrower and the lender. It could be variable if they agreed to it.

There is no such thing as a _"real interest rate"_ because interest rates are determined by competition in the market... not some Ben Schmoe.

Now, next year's gold price would be important to farmer Joe/manufacturer Sally and industrialist J.P. but that is their business and is meaningless to the market in general.

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## Travlyr

It would be helpful if you would answer these questions:

Explain how deflation is possible. Sinking ship with tons of gold? How is deflation possible in an asset based monetary system?

Interest from whom to whom?

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## ababba

> It would be helpful if you would answer these questions:
> 
> Explain how deflation is possible. Sinking ship with tons of gold? How is deflation possible in an asset based monetary system?
> 
> Interest from whom to whom?


A real interest rate is paid to compensate someone for capital in terms of goods. Price deflation is the relevant consideration. We have had many years of price deflation under the gold standard. 

The value of gold relative to other goods can fluctuate around all the time. How is that impossible?

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## ababba

> That is more Keynesian bull$#@!. Anybody can expect/predict whatever they want it is meaningless to the laissez-faire free-market.
> 
> In a laissez-faire free-market capitalist economy using commodity money, farmer Joe/manufacturer Sally/industrialist J.P. would negotiate with his/her bank for a loan and the interest rate would be determined between the borrower and the lender. It could be variable if they agreed to it.
> 
> There is no such thing as a _"real interest rate"_ because interest rates are determined by competition in the market... not some Ben Schmoe.
> 
> Now, next year's gold price would be important to farmer Joe/manufacturer Sally and industrialist J.P. but that is their business and is meaningless to the market in general.


So then if there are multiple interest rates, the real interest rate on any given project is bounded below by the rate of deflation.

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## ababba

> That is more Keynesian bull$#@!. .


Stop using this phrase to refer to anything about economics you don't understand. We aren't even talking about Keynesian economics here. This is just classical economics.

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## Travlyr

> Stop using this phrase to refer to anything about economics you don't understand. We aren't even talking about Keynesian economics here. This is just classical economics.


It's not that I don't understand. Austrians are real world economists vs. Keynesians are fake world economists. Commodities are real. Fiat is not real it is "something" out-of-nothing.
Keynes economic philosophy describes fiat monetary policy - Forcibly controlled manipulated markets.Austrian economic philosophy describes sound monetary policy - Free markets.

Laissez-faire free-market capitalism is sound monetary economics. Keynesianism is totally irrelevant. None, absolutely none, of your Keynesian education has any value in laissez-faire free-market capitalism. The projections, the supply/demand, interest rates, inflation/deflation everything is determined by market exchanges between producers and consumers. None of it is controlled by central planners.

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## Travlyr

> I'm not really following, I think the Fed prints a lot of money through open market operations. The benefit here goes to the government. How does the money go to Ben's friends first at all?


I don't know, maybe like this...
 _"Wink" - "Wink" - "Nudge" - "Nudge"_
YouTube - MSNBC w/ Cenk: Matt Taibi - Magic Money Printing Machine at The Fed

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## ababba

> [*]Keynes economic philosophy describes fiat monetary policy - Forcibly controlled manipulated markets.
> .


NO. Keynesian economic philosophy is a model which describes the fact that prices are not perfectly flexible. This implies monetary policy has an effect on output in the short run. 

Again, the label "Keynesian" is to you everything that is bad about the world. My label Keynesian is someone that believes prices are not perfectly flexible because thats what Keynesians actually are.

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## ababba

> I don't know, maybe like this...
>  _"Wink" - "Wink" - "Nudge" - "Nudge"_
> YouTube - MSNBC w/ Cenk: Matt Taibi - Magic Money Printing Machine at The Fed


This is only a transfer to the owners of the bonds if they buy them at above market prices. Even if that's true, the markup on the bonds over market prices is probably very small. Its like 98 cents of the printed money goes to the government and 2 cents to the bond owners through higher prices. Relative to other forms of taxation, this is a relatively efficient way to raise revenue for the government. 

There is a greater deadweight loss from income taxation and especially taxation of capital.

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## Travlyr

> Keynesian is someone that believes prices are not perfectly flexible.


Elaborate on this concept.

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## Travlyr

> This is only a transfer to the owners of the bonds if they buy them at above market prices. Even if that's true, the markup on the bonds over market prices is probably very small. Its like 98 cents of the printed money goes to the government and 2 cents to the bond owners through higher prices.


2% eh? How do I go about getting a piece of that pie?



> Relative to other forms of taxation, this is a relatively efficient way to raise revenue for the government.


Why would I want the government to have more revenue?

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## Travlyr

> This is only a transfer to the owners of the bonds if they buy them at above market prices. Even if that's true, the markup on the bonds over market prices is probably very small. Its like 98 cents of the printed money goes to the government and 2 cents to the bond owners through higher prices. Relative to other forms of taxation, this is a relatively efficient way to raise revenue for the government. 
> 
> There is a greater deadweight loss from income taxation and especially taxation of capital.


2% of $600 billion = $12 billion.

If ababba is correct and the Fed follows through on QE2, bond owners will gross $12 billion. Again, how do I get my slice of that pie? That would buy a nice home in The Hamptons.

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## ababba

> Elaborate on this concept.


Money creation does not affect output if prices are perfectly flexible, that is if firms adjust their price immediately in response to the printing of money. Empirically, monetary policy does have some affect on output, so Keynesian economists model this as the result of "sticky prices". 

Sticky prices do not mean the firm is behaving irrationally. The most common reason for sticky prices is called "menu costs", that is firms have a fixed cost they have to pay whenever they change their prices. There is another strand of the literature which argues that its not sticky prices but sticky information. A firm sees higher demand at the current price, and they don't know fully whether this is an idiosyncratic demand shock for their firm or an increase in the money supply. A surprisingly high increase in money creation implies that prices of firms don't go up as much as they would need to to make the money creation neutral. You can model the sticky information by appealing to the idea that firms have to pay a cost analyze the economy and readjust their prices.

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## ababba

> 2% of $600 billion = $12 billion.
> 
> If ababba is correct and the Fed follows through on QE2, bond owners will gross $12 billion. Again, how do I get my slice of that pie? That would buy a nice home in The Hamptons.


I think all the companies are publicly traded, you could buy a share.

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## Tal

> NO. Keynesian economic philosophy is a model which describes the fact that prices are not perfectly flexible. This implies monetary policy has an effect on output in the short run. 
> 
> Again, the label "Keynesian" is to you everything that is bad about the world. My label Keynesian is someone that believes prices are not perfectly flexible because thats what Keynesians actually are.


Who actually believes that markets instantly adjust their prices if someone prints money? that strikes me as something most people would agree with that it takes time for newly printed money to move through the price structure and change prices.

There is a bit more to Keynesianism than you say here also, the main point of it is the idea that government has the skill and information needed to correct and fix the economy when it experiences a slump by creating money and controlling investment patterns.

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## ababba

> Who actually believes that markets instantly adjust their prices if someone prints money? that strikes me as something most people would agree with that it takes time for newly printed money to move through the price structure and change prices.
> .


Its actually a very good assumption in regimes with very high inflation. Then firms lose a lot if they don't adjust prices very quickly. Economists before the great depression used to believe that prices were very close to perfectly flexible. 

This was my point near the beginning of the thread, that the academic meaning of the word Keynesian isn't anywhere close to what people are saying it is.

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## Travlyr

> This was my point near the beginning of the thread, that the academic meaning of the word Keynesian isn't anywhere close to what people are saying it is.


This is the meaning of Keynesian straight from the horses mouth:
_By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft._  John Maynard Keynes

So, are you one of the million? Or, do you now detect the theft?

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## ababba

> This is the meaning of Keynesian straight from the horses mouth:
> _By this means government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft._  John Maynard Keynes
> 
> So, are you one of the million? Or, do you now detect the theft?


LOL at thinking that everything Keynes ever said is dogma to Keynesians. I don't think he's right on this one.

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