[Youtube] Austrian vs. Keynesian Economists

[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.

 

[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.

 

[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.

 

[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.

?????

 

[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.

 

[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 shit 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 shit, 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.

 

[Rancher]

Do the Keynesian economists recognize a bond problem?

 

[ababba]

I think this thread is more about how people like Ron Paul and Peter Schiff get treated like shit 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 shit, 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.

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.

 

[ababba]

Do the Keynesian economists recognize a bond problem?

What bond problem are you referring to?

 

[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?

 

[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.

 

[Rancher]

Do the Austrian economists recognize a bond problem?

 

[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.

 

[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.

 

[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.

 

[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.

 

[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 bullshit. 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 bullshit 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 bullshit. 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.

 

[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.

 

[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.