08
Aug
2012
Tom Woods Gives Friendly Advice to Paul Krugman
Remember kids, it’s KrugmanDebate.com. From there you can go directly to the pledge page. I have plenty of fun ideas to promote this in the coming months, but I can’t do too much if the pledge total peaks. But if it keeps rising, then it’s still a “story” and I can work with it.
Bob, it looks like the discussion section of your Pledge page has been flooded with spam for the past month. Is there something you can do about it?
Keshav, no, the only thing is I can occasionally ask a person at The Point to go through and clean out the spam. They have no infrastructure in place so that the person who sets up a campaign can do it. (Crazy, I know.)
I’m not happy with The Point either. Deciding to have a bit of fun I went there a month ago to set up “The Murphy – B Debate” where Robert P Murphy and Ken B debate the Pericope Adulterae to raise money for the Hillsdale foodbank (a nice touch I thought). But I never got a confirming email.
Except, I would have debated you if you’d raised $500 or more. So the analogy would’ve broken down pretty quickly.
Actually I think you would have. But I still think it’s mildly amusing.
Just buy some ad space in the NYT; the closer to Krugman’s column the better. I doubt his followers
could ignore the hypocrisy – a “champion of the poor” who laments the rich not paying their “fair share” can’t donate an hour of his time to provide $75k of food to the homeless? He’d be almost forced to make a move, or at the very least acknowledge your existence in some way. Either way it’s a step in the right direction.
For a man whose PhD was
(1) an attack on the pure time preference theory of interest, the view of the interest rate held by all Austrians I know, and
(2) a defense of a monetary theory of interest
Add to that his attack on the notion of a Wicksellian unique natural rate of interest, Murphy hardly even seems to be a good representative of the Austrian school.
LK, after all these many months (years), you are still misunderstanding the meaning of natural rate of interest, even after being repeatedly corrected about it.
You do realize that the more you repeat the same errors over and over again, the more others will learn what your opponents already know, don’t you?
Once again, for the millionth time:
Austrians don’t hold that there can actually exist a single natural rate of interest in a monetary economy.
“In plain saving and in the capitalist saving of isolated economic actors the difference in the valuation of want-satisfaction in various periods of the future manifests itself in the extent to which people provide in a more ample way for nearer than for remoter periods of the future. Under the conditions of a market economy the rate of originary interest is, provided the assumptions involved in the imaginary construction of the evenly rotating economy are present, equal to the ratio of a definite amount of money available today and the amount available at a later date which is considered as its equivalent.” – Human Action, pg 532
and
“Originary interest can therefore in the changing economy never appear in a pure unalloyed form. It is only in the imaginary construction of the evenly rotating economy that the mere passing of time matures originary interest; in the passage of time and with the progress of the process of production more and more value accrues, as it were, to the complementary factors of production; with the termination of the process of production the lapse of time has generated in the price of the product the full quota of originary interest. In the changing economy during the period of production there also arise synchronously other changes in valuations. Some goods are valued higher than previously, some lower. These alterations are the source from which entrepreneurial profits and losses stem.” idim, pg 534
In other words, the fictitious, non-existent, pure thought natural rate of interest mental tool of cognition relates to the fictitious, non-existent, pure thought “evenly rotating economy” mental tool of cognition. Mises and every single Austrians knows very well that in a world of action, there will never arise a single natural rate of interest, and so we will always observes rates of interest, rates of profit, etc.
No Austrian is gasping at the fact that some entrepreneurs earn 8.5% profit while another earns 12%, nor are there any Austrians shaking in their little gold boots when one borrower takes out a mortgage at 3.354% while another borrows at 4.125%. In the real world of action, the evenly rotating economy never holds, and hence single natural interest rate will never hold.
In Austrian theory, the natural rate of interest does not exist in the real world!
But don’t let all these FACTS stand in your way of trying desperately to refute that which you don’t understand but nevertheless “feels” wrong in your Keynesian cultist mind.
(1) The Wicksellian unique natural rate of interest was a real thing to Hayek in his early ABCT work. Denying this is just absurd.
(2) that some Austrians reject it is true, and is not disputed by me.
1. As expected, you did not address the quotes I cited from Mises, who was Hayek’s mentor and originator of the Austrian theory of the business cycle. You claimed that Murphy cannot consider himself an Austrian because he doesn’t hold that the Wicksellian natural interest rate is attainable in the real world market. But neither Hayek nor Mises held that it was attainable either. Does that mean they’re not Austrians to you? Oh that’s right, they’re not the STRAW MAN Austrians you have caricatured.
2. Hayek did not believe that Wicksellian equilibrium is actually attainable in the real world market. Hayek also used “the equilibrium rate” as a mental tool of cognition to explain the real world of change.
“…it is my conviction that if we want to explain economic phenomena at all, we have no means available but to build on the foundations given by the concept of a tendency towards an equilibrium. For it is this concept alone which permits us to explain fundamental phenomena like the determination of prices or incomes, an understanding of which is essential to any explanation of fluctuation of production. If we are to proceed systematically, therefore, we must start with a situation which is already sufficiently explained by the general body of economic theory. And the only situation which satisfies this criterion is the situation in which all available resources are employed. The existence of unused resources must be one of the main objects of our explanation.” – Prices and Production, pg 34
In other words, Hayek only used the concept of equilibrium as a mental tool, to explain why in the real world market there are fluctuations of production, unused resources, and so on.
“To start from the assumption of equilibrium has a further advantage. For in this way we are compelled to pay more attention to causes of changes in the industrial output whose importance might otherwise be underestimated. I refer to changes in the methods of using the existing resources. Changes in the direction given to the existing productive forces are not only the main cause of fluctuations of the output of individual industries ; the output of industry as a whole may also be increased or decreased to an enormous extent by changes in the use made of existing resources. Here we ave the third of the contemporary explanations of fluctuations which I referred to at the beginning of the lecture. What I have here in mind are not changes in the methods of production made possible by the progress of technical knowledge, but the increase of output made possible by a transition to more capitalistic methods of production, or, what is the same thing, by organising production so that, at any given, moment, the available resources are employed for the satisfaction of the needs of a future more distant than before. It is to this effect of a transition to more or less ” roundabout ” methods of production that I wish particularly to direct your attention. For, in my opinion, it is only by an analysis of this phenomenon that in the end we can show how a situation can be created in which it is temporarily impossible to employ all available resources.” – ibid, pg 36.
In other words, Hayek wanted to explain why the real world market contains idle resources (and unemployment), and he thought that the best way to do this is to start with the mental conceptualization of equilibrium. In this way, he can isolate real world changes that would otherwise be overlooked.
and
“We must therefore be content to accept it as one of the definite conclusions of this theory that—other things remaining the same—these margins must grow smaller as the roundabout processes of production increase in length and vice versa. There is one point, however, which we cannot take for granted. The fact that in a state of equilibrium those price margins and the amounts paid as interest coincide does not prove that the same will also be true in a period of transition from one state of equilibrium to another. On the contrary, the relation between these two magnitudes must form one of the main objects of our further investigations.” – ibid, pg 74
In other words, in the real world that, in Hayek’s own words, never reaches equilibrium, and is always in what Hayek conceptually understood as a transition between equilibriums, actual real world profits will never match the mental concept of the natural (equilibrium) rate of interest.
and
“It is not intended here to go further into the extremely difficult theoretical problems which this concept raises. There is, however, one respect in which recent discussions devoted to it have shown a certain ambiguity of the concept, which it seems desirable to clear up. It is frequently assumed that the concept of neutrality provides a maxim which is immediately applicable to the practical problems of monetary policy.”
“But this need by no means be the case, and the concept was certainly not primarily intended for that purpose. It was destined in the first instance to provide an instrument for theoretical analysis, and to help us to isolate the active influences, which money exercised on the course of economic life. It refers to the set of conditions, under which it would be conceivable that events in a monetary economy would take place, and particularly under which, in such an economy, relative prices would be formed, as if they were influenced only by the ” real ” factors which are taken into account in equilibrium economics. In this sense the term points, of course, only to a problem, and does not represent a solution. It is evident that such a solution would be of great importance for the questions of monetary policy. But it is not impossible that it represents only one ideal, which in practice competes with other important aims of monetary policy.”
“The necessary starting point for any attempt to answer the theoretical problem seems to me to be the recognition of the fact that the identity of demand and supply, which must necessarily exist in the case of barter, ceases to exist as soon as money becomes the intermediary of the exchange transactions. The problem then becomes one of isolating the one-sided effects of money—to repeat an expression which on an earlier occasion I had unconsciously borrowed from von Wieser,—which will appear when, after the division of the barter transaction into two separate transactions, one of these takes place without the other complementary transaction.” – ibid, pg 129-130.
In other words, Hayek makes it clear that the concept of equilibrium is not intended as a maxim, i.e. as an actual real world code of conduct, but rather as a theoretical instrument only.
Finally, and most clearly for exposing you as an intellectual fraud:
“The “natural” or equilibrium rate of interest which would exclude all demands for capital which exceed the real supply capital, is incapable of ascertainment, and, even if it were not, it would not be possible, in times of optimism, to prevent the growth of circulatory credit outside the banks.” – ibid, pg 125
Got that? INCAPABLE OF ASCERTAINMENT. Repeat that in your Keynesian cult mind until it sinks in.
————————
Your risible and contemptible ignorance of Austrian economics is only matched by your deplorable reading comprehension of those you choose to spew your vomit over.
Nice to see everyone calmed down.
But I am having fun!
Would you say “calm down!” at a party?
Quit being a Debbie Downer.
Actually Down boy! is the phrase that springs to mind here.
I enjoyed it. Party on.
Ken B:
Actually Down boy! is the phrase that springs to mind here.
But you’re my pet. I tell you “down boy.” You don’t tell me “down boy.”
I buy you out, you don’t buy me out.
——————–
Uncle Sam:
I enjoyed it. Party on.
Party on, Wayne.
And what is so significant about “Hayek’s early work” anyway? You’re obviously just cherry picking and pretending that Austrians have to believe that Wicksellian equilibrium takes place in the real world.
Keynes, 10 days before he died, made this confession:
“I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”
But do you see Austrian critics of Keynes cherry picking that view Keynes had late in his life, and holding that over the heads of those who consider themselves Keynesians? No, you don’t. Why? Because we aren’t afraid of having our views smashed along with the abolition of the state.
Unlike Keynesianism, Austrian economics doesn’t need a state to be relevant. Keynesianism needs a state to be relevant, and that is the ONLY reason why you waste so much time trying, but failing, to refute anarchist Austrians such as Rothbard.
You FEAR having your entire intellectual investment exposed as completely worthless in a world without states. Without states, there can be no “Keynesian stimulus”, and thus you’re going to have to find something else to do than waste your life on a crap blog spewing crap Keynesian dogma.
Austrians aren’t afraid because praxeology is a science of human action. It applies no matter what laws are enforced, no matter what political structure is in place, no matter what anyone ever does.
Keynes once said:
“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” – JM Keynes, The Economic Consequences of the Peace, pgs 235-236.
Austrians don’t cherry pick this and say things like “Keynes in his early work was against inflation, so if you’re going to call yourself a Keynesian today, you’re going to have to be against inflation too.”
We don’t say that because we Austrians focus on IDEAS, not political hackery like you do.
Did you read Hayek’s response to Sraffa?
To the extent Hayek argued that there is truly a single natural rate of interest somewhere out there in the real world, he was wrong. Bob Murphy is right.
http://consultingbyrpm.com/uploads/Multiple%20Interest%20Rates%20and%20ABCT.pdf
“Lord Keynes” continues his silly, pathetic and purposeful misreading of all things Austrian by his insistence that the ABCT is dependent upon the notion of a SINGLE natural rate of interest. “Lord Keynes” will not or cannot comprehend the concept of economic calculation, which is the central Austrian concept. Through economic calculation, people will discover whether there are multiple rates or a single rate. Keynesian-style policies will invariably distort and impair this discovery process. The fact that an Austrian writer fails to properly predict the precise nature of a particular Keynesian-induced distortion at a particular time and place is not an indictment of the central concept of economic calculation which, from my experience, is the concept from which all anti-Austrian writers will run, hide, ignore or change the subject. Always.
If Krugman wants a NY charity to have $75k or whatever, surely the most economical way to arrange that is for him to write a cheque? It’s not like he has trouble earning that kind of money. Considered as a business enterprise, Krugman Inc. is doing pretty well.
Krugman on Austrians:
“My view is that the fatal flaw in Austrian economics is that it can’t explain unemployment — or, worse, that it thinks that it can explain unemployment, but is deluding itself. The Austrian view is that unemployment in a slump results from the difficulty of “adaptation of the structure of production” — workers are unemployed as resources are painfully transferred out of an overblown investment-goods sector back into production of consumption goods.
“But this immediately raises the question, why isn’t there similar unemployment during the boom, as workers are transferred into investment goods production?
“I’ve asked this question repeatedly over the years, and all I get is one of two things: gobbledygook, or “but during the phase of rising investment, the economy is booming!”, which is of course circular. In practice, Austrians seem to be Keynesians during booms without knowing it; they realize that high demand produces a boom, but don’t realize that this contradicts their own theory of slumps.
“And the key to all this, I believe, is that the Austrian abhorrence of explicit models, even for the purposes of clarifying thought, leaves them unaware of the holes in their account.”
Regardless of how much money Krugman donates to the NY food bank himself, there will always be $75k more waiting there that could be donated. I agree though the more he donates, the less the $75k Murphy has raised will motivate him to debate.
Karlsson on Krugman:
http://stefanmikarlsson.blogspot.ca/2010/04/krugman-on-abct.html
It’s only the most economical if he makes $75k or more an hour.
Careful Uncle Sam, Kevin Donoghue has some issues with analyzing marginal productivity.
“It’s only the most economical if he makes $75k or more an hour.”
In 2009 somebody was daft enough to cough up that amount for a Tom Friedman speech; see link below. Wouldn’t a JB Clark-and-Swedish-gong winner rate a bit more? I doubt whether you could even get Sarah Palin for $75k. Mind you I’d pay good money to see Bob Murphy and Sara Palin debating the finer points of calculus.
http://articles.latimes.com/2009/may/13/entertainment/et-onthemedia13
It’s funny Kevin, originally I was just joking about you not understanding marginal analysis, but here you really don’t. (That is, if we took your remarks at face value, and not simply as a knee-jerk attack against Austrians in defense of Krugman.) Krugman might have a few outlets that would pay him $75k+ for an hour of his time, but he couldn’t do that for 40 hrs/week, 50 weeks / year. At some point, he is choosing an hour of his leisure over debating me, despite the money that would go to the blah blah blah.
Exactly Bob, it’s the value of the marginal hour that is at issue. I can hardly be offended that you think I don’t understand marginal analysis, since, according to you, Paul Krugman doesn’t either.
Didn’t you hear? Krugman said economics is much too serious to be smeared with a debate that will only be a talking point media circus of “gotcha” type arguments. He said economics deserves to be more painstakingly thought out and detail oriented…you know, through NYT blog posts.
In other news, he’s scared of you.
This is just another example of the shameful Austrians and their disregard of the circumstances of poor people. Now they have the actual temerity (word-of-the-day for Daniel Kuehn) to hold $75k hostage , demanding that Krugman debate Murphy before they give the money to the NY Food Bank. Appalling, really.
I know it’s a bit late in the game for this suggestion, but why not give the money to some charity fat farm or obesity activist group, since too much eating is really the problem in this country, not starvation?
America: Even the poor people are fat!
It perhaps could be said that the people the food bank service are in more dire need of help than the obese.
Obesity is exacerbated by cheaper foods. That’s why poor people can get fat.
Healthy foods are more expensive.
I recognize that, but I’m pretty sure its an anomaly in history that the poor have enough means and access to food in order for obesity to be a problem.
Ben Bernanke is becoming a philosopher:
http://www.businessweek.com/articles/2012-08-06/bernanke-to-economists-more-philosphy-please
Maybe he’s being influenced by Austrians?