[Youtube] Austrian vs. Keynesian Economists

[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.

 

[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?



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



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.

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 bullshit 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.
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

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.