Austrian Economics - PhD student

[Danan]

What perplexes me about all this economic theory is this.

Isn't the necessity and/or usefulness of economic theory directly proportional to the opaqueness of market and monetary data?

Given any economic scenario if we have access to all the knowledge about the resources involved, the "means" and we know what problem we are trying to solve why do we even need economic theory?

Isn't what you just described economic theory? Studying the means to obtain objectives with given original conditions.

 

[dannno]

Your own "dude" already has provided arguments against it

http://econfaculty.gmu.edu/bcaplan/whyaust.htm

Uhh ya, his entire argument here hinges on this statement, which is his opinion, and I believe it is wrong on multiple levels:

What I deny is that the artificially stimulated investments have any tendency to become malinvestments.

That's bullshit.

Artificially stimulated investments are investments that come from money that was stolen from people who are productive and given to people who are politically connected instead.

That is what happens in the real world, I don't care what they write in your mainstream economics textbooks.

Why would you assume that taking money from productive people, which could be re-invested and create more productivity, is going to do any better in the hands of people who are merely politically well connected?

If you can create a logical argument against what I just stated, then I'll be pretty, fuckin, surprised.. because of all the economics arguments I've had I have yet to hear one.

 

[trey4sports]

Nevermind the moral arguments against inflating the money supply....

 

[Jovan Galtic]

Nevermind the moral arguments against inflating the money supply....

Right. Who cares if it's immoral if it increases capacity utilization...

 

[trey4sports]

Right. Who cares if it's immoral if it increases capacity utilization...

yeah and who benefits from the increased enomic capacity that the capitol provides? It's sure as hell not the working man. It's big business. You're devaluing my dollar so GE can keep on rollin'.

 

[Danan]

Low interest rates were caused by savings, external savings. And btw, you continue to model behavior, going against your own theory "interest rates creates business cycle - people undertake longer term projects"

Oh, and that video doesn't impress anyone. A broken clock is right two times a day. These guys have been predicting doom for 30 years, eventually you are going to be right.. but what about the other 25 years you were wrong? And anyone who followed his instructions to short on the dollar in 2008 lost a lot of money, not to mentiion the hyperinflation stand-up comedy.

Peter is by not an economist. He gets stuff wrong from time to time when talking about economic theory (not that economists wouldn't). I don't really care for his financial advice.

Low interest rates were caused by the Fed. There is no doubt about the fact that the FedFunds rate is responsible for short term market interest rates and also very little doubt about the fact that it severly influences long term interest rates too (until they fore corrections).

Of course in the long term the Fed can't keep interest rates too far away from it's natural rate. Neo-classicals and Austrians agree on that. The biggest difference is that neo-classicals seem to believe that the structure of production can never change because of artificially low or high interest rates. Well, with one homogeneous capital good K I guess that's true.

Ironically, trying to prevent asset bubbles with central bank intervention in the future is now the new focus of modern macro-economists. Many are even blaming the Fed (at least partially) for the last two booms because they kept interest rates too low for too long. Of course they would never admit that this seems very much in line with the ABCT.

 

[wizardwatson]

Isn't what you just described economic theory? Studying the means to obtain objectives with given original conditions.

Well that's kind of my point. I would just say its problem solving. When I try to understand the way they define "methodological individualism" and "praxeology" it just seems like thinking. It's like instead of saying we're "cleaning" we say we're "practicing the custodial arts".

I'm not knocking all the observations made I just feel like some of the terminology is unnecessarily obscure.

 

[kozel]

Peter is by not an economist. He gets stuff wrong from time to time when talking about economic theory (not that economists wouldn't). I don't really care for his financial advice.

Low interest rates were caused by the Fed. There is no doubt about the fact that the FedFunds rate is responsible for short term market interest rates and also very little doubt about the fact that it severly influences long term interest rates too (until they fore corrections).

Of course in the long term the Fed can't keep interest rates too far away from it's natural rate. Neo-classicals and Austrians agree on that. The biggest difference is that neo-classicals seem to believe that the structure of production can never change because of artificially low or high interest rates. Well, with one homogeneous capital good K I guess that's true.

Ironically, trying to prevent asset bubbles with central bank intervention in the future is now the new focus of modern macro-economists. Many are even blaming the Fed (at least partially) for the last two booms because they kept interest rates too low for too long. Of course they would never admit that this seems very much in line with the ABCT.

Hmm, you still ignore the point that the ABCT models behavior (very poorly), so you can't criticize modern economics for doing so too.

"Low interest rates were caused by the Fed" Duh? You talk like it doesn't have a targetting policy. The evidence that interest rates were low because of movements of savings and investment (asian's, oil producers' and germany's savings) is blatantly obvious.

And don't try to speak for the whole profession regarding the crisis cause. Most sane ones blame deregulation, I believe only butthurt John Taylor was talking about "too low rates of interest"

 

[dannno]

To: [email protected]

Subject: Austrian Economics


Hi Brian,

I was reading your paper that you posted about Austrian Economics here:

http://econfaculty.gmu.edu/bcaplan/whyaust.htm


I have an issue with one of the statements you made that seems to be the hinge of your entire argument against the Austrian Business Cycle Theory.

"What I deny is that the artificially stimulated investments have any tendency to become malinvestments."

Not only do I find that statement to be demonstrably incorrect, the main purpose and basis of pretty much anything you read about in Austrian Economics proves that to be wrong. So to make that statement without backing it up to a follower of Austrian Economics is like saying you watched Star Wars and are unsure of whether Darth Vader is on the light side or the dark side. It's like making cupcakes without sugar (or some sort of alternative sweetener..)

So let me get this straight, you want to tell me that taking money from the most productive individuals and businesses who aren't well connected with government (if they were, they would probably be receiving subsidies and tax breaks up the a_), and giving them to companies solely on the basis that they are well connected with government and may only exist because they are receiving these benefits, that they are going to some how provide greater productivity? Do you think that consumer preferences will be better satisfied after the market has already made the determination, and now you have politically connected individuals mucking up and redistributing everything? That sounds completely absurd to me, and paying attention to our government, which any good economist should do, I can't see how anybody in their right mind is going to trust these corrupt individuals with redistributing resources.

See, Austrian Economics actually takes into account human motivations and actions involved in politics and government where your mainstream version of economics seems to see government as this benevolent computer program that is able to give everybody what they want or need. Totally unrealistic.

Not only that, you don't even address the MORAL arguments regarding taking away ones own honest production and giving it to another through the use of force.

I have no idea if Rothbard was right or if mainstream economics was right regarding the measurement of perceived value and individual preferences and such, but if you want to disprove Austrian Economics as a valid economic theory I would focus on what I have addressed above because that is the cornerstone of Austrian Economic theory and I have yet to see any valid arguments against it, because, well, in all likelihood they don't exist.

If you can't find any, I recommend updating your article and proclaim that once against you have decided to become an Austrian Economist. I will be the first to welcome you back if you decide to do so.


Sincerely,

dannno

 

[dannno]

Hmm, you still ignore the point that the ABCT models behavior (very poorly), so you can't criticize modern economics for doing so too.

Such utter bullshit.

Peter Schiff said years ago that our government's reaction to the 2008 crisis would create hyperinflation because they would bail out the banks. That process is ongoing and currently happening. The hyperinflation isn't here yet, but real inflation is clearly much higher than the CPI and you have YET to address a post on page 1 by green73(+rep) regarding existing inflation.

http://mises.org/daily/6340/Where-Is-the-Inflation

 

[kozel]

Such utter bullshit.

Peter Schiff said years ago that our government's reaction to the 2008 crisis would create hyperinflation because they would bail out the banks. That process is ongoing and currently happening. The hyperinflation isn't here yet, but real inflation is clearly much higher than the CPI and you have YET to address a post on page 1 by green73(+rep) regarding existing inflation.

http://mises.org/daily/6340/Where-Is-the-Inflation

What a dumb post. First of all, hyperinflation predictions were based on the current rules (CPI measurement, etc). Not "there will be hyperinflation, but only on non-CPI goods, watch out!!" Besides, since wage negotiation is based upon CPI inflation, if there was a parallel hyperinflation, wouldn't standards of living have dropped absurdly (to Congo-esque levels?) yeah...

 

[Henry Rogue]

There are other problematic things with austrian economics (especially with more hardcore part of it, e.g. Mises Institute), like a crazy methodology which refuses empirical testing of theories,

What empirical testing did Keynes perform on his premise of "animal spirits"?

 

[dannno]

What a dumb post. First of all, hyperinflation predictions were based on the current rules (CPI measurement, etc). Not "there will be hyperinflation, but only on non-CPI goods, watch out!!" Besides, since wage negotiation is based upon CPI inflation, if there was a parallel hyperinflation, wouldn't standards of living have dropped absurdly (to Congo-esque levels?) yeah...

I didn't say hyperinflation has occurred yet, I said current inflation numbers are completely inaccurate, inflation is in fact happening and hyperinflation has yet to occur. Nobody said hyperinflation would occur by 2013, just that it WILL occur at some point after the '08 crash if the government continued to prop up failing financial institutions. Just because you are ADD doesn't mean Austrian Economics is wrong.

 

[Jovan Galtic]

I lived through a hyperinflation and it is not fun...

It happens only when a government completely runs out of other options. So far, the US is strong enough to keep it contained into isolated "bubbles", but it can't last forever.

 

[awake]

Last time I checked the debate was hyperinflation vs. straight up default. And the goons in government decide which. As long as there are fools lending money to the US government by the Chinese freighter load, default or hyperinflation can be mitigated to some degree.

At this point Bernie Madoff is a perfect analogy...most people believed in him right up until the very last minute. When it broke it was swift and brutal. The American dollar is as good as a Madoff promise.

 

[Danan]

Hmm, you still ignore the point that the ABCT models behavior (very poorly), so you can't criticize modern economics for doing so too.

"Low interest rates were caused by the Fed" Duh? You talk like it doesn't have a targetting policy. The evidence that interest rates were low because of movements of savings and investment (asian's, oil producers' and germany's savings) is blatantly obvious.

And don't try to speak for the whole profession regarding the crisis cause. Most sane ones blame deregulation, I believe only butthurt John Taylor was talking about "too low rates of interest"

Well that's interesting. How did deregulation lead to a financial crisis if rational business men are supposedely perfectly able to forecast the future (or at least can not be fooled systematically)? You yourself dismissed ABCT on the basis of rational expectations theory. But now blaming the crisis on deregulation is somehow okay?

http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/fm.pdf

Mishkin's paper is hardly outside of the mainstream. In fact, I can't imagine any view that would encompass the mainstream more than his. He talks about deflating credit-driven asset bubbles with raising interest rates (while Greenspan always was opposed to it). Of course he doesn't agree (yet) that the initial inflation of this credit-driven boom can be because of artificially low interest rates created by central banks. Go figure out yourself why that might be the case.

With high-powered money the Fed can set nominal interest rates anywhere it wants, from 0-1000% (although they might have to confiscate cash to do the latter), by increasing or decreasing bank reserves. Being a PhD student you should know that already. The equilibrating forces on the foreign exchange market as well as on the goods market (interest rate parity or respectively purchasing power parity) will eventually change real values accordingly. However, especially purchasing power parity does not work instantaneously. That time lag, which Friedman has never been able to fully explain, is responsible for the misallocation of resources in the meantime.

Also, I've never claimed that ABCT doesn't model behavior and neither have I criticized any other economic school of thought because of it. "Modern" economics is a misnomer, btw. There is nothing more modern than my current view.

 

[Wesker1982]

I realize OP is trolling, but for anyone interested in understanding why Austrian economics is more scientific than the mainstream, these are must reads:

The Mantle of Science by Murray N. Rothbard

What Is the Proper Way to Study Man? by Murray N. Rothbard

Praxeology: The Methodology of Austrian Economics by Murray N. Rothbard

In Defense of “Extreme Apriorism” by Murray N. Rothbard

Praxeology: Reply to Mr. Schuller by Murray N. Rothbard

 

[kozel]

With high-powered money the Fed can set nominal interest rates anywhere it wants, from 0-1000% (although they might have to confiscate cash to do the latter), by increasing or decreasing bank reserves. Being a PhD student you should know that already. The equilibrating forces on the foreign exchange market as well as on the goods market (interest rate parity or respectively purchasing power parity) will eventually change real values accordingly. However, especially purchasing power parity does not work instantaneously. That time lag, which Friedman has never been able to fully explain, is responsible for the misallocation of resources in the meantime.

Also, I've never claimed that ABCT doesn't model behavior and neither have I criticized any other economic school of thought because of it. "Modern" economics is a misnomer, btw. There is nothing more modern than my current view.

Are you always this ignorant? Fed follows a POLICY RULE, it cannot set interest rates where it wants randomly, it sets it according to price level movements. If external savings weren't so high, and fiscal policy wasn't as restrictive in the 90's and 2000's, the rates of interest would have been higher.

ABCT models behavior, so why do they criticize agent modelling by other schools? I was probably referring to an other poster

 

[Keith and stuff]

Hello, I'm a grad student at a top20 in economics... When I was 17 or so, I used to watch Ron Paul videos, etc.. I was one of you guys

But, after being exposed to real economics, I must say. Austrian economics is marginalized, and even made fun of, not because there is a conspiracy going on, but because its un-scientifical, and downright funny.

So. Stop trolling "keynesian" videos. Stop harassing good researchers. Study "mainstream" before attacking it blindly. Thank you

Some interesting points. If you want to see several of the top Austrian economists in the world... If you want to see an Austrian vs. Chicago debate... I recommend Porcfest 2013.

 

[KingNothing]

Hello, I'm a grad student at a top20 in economics... When I was 17 or so, I used to watch Ron Paul videos, etc.. I was one of you guys

But, after being exposed to real economics, I must say. Austrian economics is marginalized, and even made fun of, not because there is a conspiracy going on, but because its un-scientifical, and downright funny.

So. Stop trolling "keynesian" videos. Stop harassing good researchers. Study "mainstream" before attacking it blindly. Thank you

You're going to catch hell for this, but you're absolutely right.