24 May 2014

Potpourri

Potpourri, Shameless Self-Promotion 157 Comments

==> I tackle some objections to anarcho-capitalism in this “Lions of Liberty” podcast.

==> Peter Klein provides a lengthy quotation from Rothbard on Gabriel Kolko (who recently died).

==> Hilarious Bryan Caplan response to the “world’s first and only stand-up economist” Yoram Bauman. (Bauman’s statements about climate change are as accurate as his self-billing.)

==> I respond to Kevin Drum on the VA hospital scandal.

==> An oldie but goodie (at least in my eyes): A reader asked me for articles explaining subjective value theory, so I sent him this as a warm-up.

157 Responses to “Potpourri”

  1. Keshav Srinivasan says:

    Bob, you omitted what to my mind was the most compelling bullet point in Kevin Drum’s piece, which was that satisfaction rates for VA healthcare is higher than satisfaction rates for private hospitals.

    By the way, you make it sound as if Drum attributes the entirety of the Va’s problems during the Bush administration to Kizer leaving, but he also cites lack of presidential attention.

    • Keshav Srinivasan says:

      I should mention I posted this earlier on the LibertyChat post, because the blog seemed to be down.

    • Richie says:

      Satisfaction with what? The fact that they don’t have to pay, or with better outcomes? Please make a distinction.

      • Keshav Srinivasan says:

        The ratings were for “customer service, physical comfort of facilities and quality”:
        http://www.militarytimes.com/article/20140416/BENEFITS04/304160035/Patients-rate-VA-medical-centers-high-satisfaction

        • Ben B says:

          I know these surveys are probably anonymous, but aren’t you considered to be a “sissy” if you are a member of the military and you complain about anything? (Unless you are complaining about terrorists or ungrateful civilians, of course). So perhaps the pride of former military personnel leads them to psychologically discount the level of service they receive.

          Or, perhaps the level of service they received was much better at the VA than while deployed; maybe, they are relatively satisfied.

          • Ben B says:

            The article also mentions that VA scores were relatively higher than civilian hospitals. But maybe these civilian hospitals should be psychologically discounted in the opposite direction: there are a lot of people who think they are entitled to a certain level of service. I mean, many people think healthcare is a right; might they not place a higher standard on healthcare services?

  2. Tel says:

    Yoram Bauman is obviously a deeply sincere Christian. I know this because Yoram is completely convinced by the argument known as “Pascal’s Wager” and therefore has chosen to believe in God, regardless of the uncertainty, just to be on the safe side. After all, it just does not get more serious than [with power voice] your immortal soul burning in hellfire for eternity. [looks at the camera with deadpan expression, softer voice] Kids, that’s a lot of hurty, for a long long time.

    The good news is that with Yoram’s commitment to Christianity, he no longer needs to worry about Global Warming… have faith Yoram, the world is in good hands.

    • Gamble says:

      Hi Tel,

      Some Christians, maybe the majority? believe God controls the very core of all existence.

      Then there are weirdo’s like me who believe free will. For there to be human free will, God had to lay of some things.

      So global warming or any other potential problems could be resultant mankind’s free will.

      So I guess I do think God controls everything but chooses not to;)

      • Tel says:

        Don’t worry Gamble, you are forgiven.

    • Bob Murphy says:

      Tel sorry I’m not following you. (It’s been a few days since I read the Caplan response.)

      • Tel says:

        I just find it interesting that people like Yoram Bauman are happy to be skeptical about someone else’s religion but get tetchy when someone is skeptical about the great Green religion.

        Environmentalists regularly invoke “The Precautionary Principle” which claims the need to take action when in a position of being uncertain about both the nature of the problem, and also uncertain about the effect of your actions.

        However, Pascal’s Wager already beat them to the punch, so given that they fully accept this line of argument, they must all be Christians, and therefore should have faith in God.

      • Dan says:

        I think he is referring to statements like this one, “3) “Insurance is NOT a no-brainer.” You’re absolutely right that buying an extended warranty for a toaster is a bad idea, but the cartoon book repeatedly emphasizes low probability outcomes that are catastrophic, which is a pretty good focal point for insurance.”

        • Tel says:

          Pascal’s Wager also emphasizes a low probability outcome with a catastrophic result (i.e. eternal hellfire without hope of redemption), and he came up with the idea first. Actually, it isn’t even a low probability outcome, it’s an unknown and unknowable probability outcome (we cannot prove or disprove the existence of God, and even if God did exist, we cant’ be sure what to do to avoid damnation).

          This is unrelated to insurance by the way. I’m fully in support of insurance contracts regarding Global Warming, sea level rise, etc. The insurance contract involves someone who thinks the catastrophe unlikely making a bet with someone who thinks the catastrophe is likely, and the bet being decided by a tangible event they both agree on. For example, I might bet you then in the next 50 years your seaside condo in Miami will not be flooded by sea level rise, then we haggle over the odds. With a suitable marketplace we could all haggle, and thus get the best odds going. That’s an insurance contract, all fine and dandy, all voluntary, everyone goes home a winner.

          Global warming agitators won’t settle for that though, they want action by force… a different matter entirely. They may happen to call it “insurance” if that seems to get people’s attention.

          • Harold says:

            As you say, we cannot know for certain how to avoid damnation. Pascals wager neglects the existence of alternative Gods to worship. No good avoiding the Christian Hell if you end up missing out on Valhalla.

  3. Bob Roddis says:

    The subjectivist, marginalist approach to price theory is superior to the older cost theory. The modern approach can truly explain market prices in terms of more fundamental building blocks. The subjectivist theory can explain anything the cost theory can, as well as a whole host of other scenarios.

    Yes, indeed.

    • guest says:

      Great article on subjective value theory.

      Notice that Rothbard’s example was able to explain the price of a horse (in fish) without any reference to other prices in the economy. This was one of the major drawbacks of the cost theory of value. By saying (for example) that the price of a car “had to” be $10,000 because of the costs of the steel, rubber, glass, and labor that went into its construction, the cost theory of value was merely explaining one price (of a car) in relation to other prices (of steel, rubber, glass, etc.). The cost theory didn’t actually explain market prices in terms of more fundamental building blocks. But Rothbard achieves precisely this with his example of the fish-and-horse market.

      This is why real money cannot be anything but a commodity. Otherwise, you’re merely attempting to explain one price in relation to another price; Whereas you can explain commodity money’s price in relation to the subjective utility of those goods for which the money exchanges.

      Here’s another great treatment of subjective value theory, but in video form:

      The Birth of the Austrian School | Joseph T. Salerno

  4. Silas Barta says:

    Was I ever as snarky and vindictive as Bauman?

    • Bob Murphy says:

      Silas, you could be as snarky, but it was obviously coming from passion and sincerity. I have seen Bauman interact with critics in other forums, and I think it’s mostly a big game for him. (I’m not saying he doesn’t really believe in the dangers of manmade climate change.)

  5. LK says:

    “Notice that Rothbard’s example was able to explain the price of a horse (in fish) without any reference to other prices in the economy. This was one of the major drawbacks of the cost theory of value.”

    Robert Murphy, the “cost theory of value” you are thinking of is not the modern cost-plus/mark-up/administered theory of some prices.

    You’re attacking a Marxist or quasi-Marxist theory and you do not refute the modern Post Keynesian / non-neoclassical institutionalist mark-up pricing theory:

    http://socialdemocracy21stcentury.blogspot.com/2014/05/why-most-austrians-do-not-understand.html

    • Bob Murphy says:

      LK, hang on a second. When I’m explaining how the subjective value theory that Menger et al. introduced in the 1870s was superior to the cost theory, you are chiding me for referring to the old cost theory that was in place in the 1870s, instead of one developed in the 1940s?

      • LK says:

        If the aim is solely to refute the Classical/Marxist labour theory of value or some quasi-Marxist “cost theory of value”, fine. All well and good.

        But I am just telling you how the modern cost-plus/mark-up/administered theory is different from this, and how you haven’t refuted the latter just because you’ve refuted the former.

        Also, you can bet your commentators here will jump all over this and assume (incorrectly) that you have refuted modern cost-plus/mark-up/administered theory.

        • Bob Murphy says:

          LK wrote:

          Also, you can bet your commentators here will jump all over this and assume (incorrectly) that you have refuted modern cost-plus/mark-up/administered theory.

          No way. I have been advised not to make any more wagers involving economics in any way.

        • Tel says:

          There’s no need for Murphy to come up with theoretical refutations for your “fix price” theory. Just a regular trip to the supermarket once a week is sufficient refutation.

            • Tel says:

              Yeah, there’s that too, price inflation is observable over the medium term.

              However, if all you want to do is demonstrate that prices are not fixed, it’s easy because supermarket shelf prices regularly fluctuate. There are often items on special “marked to clear” as they say.

              • LK says:

                Nobody ever claimed that all prices are fixed.

                Nobody ever claimed that mark-up prices are eternally fixed either. You know nothing.

              • Major-Freedom says:

                LK:

                Glad that you once again admit that prices tend towards clearing even in a hampered market and even for cost plus markup pricing.

              • Scott D says:

                Cost-plus is merely a strategy. It does not constitute some great truth about the market.

              • LK says:

                “Glad that you once again admit that prices tend towards clearing “

                As usual, that is a laughable lie.

                If mark-up prices — the majority of prices in most economies — were really market-clearing prices, then we would expect to see deflation in every recession since WWII, as prices are adjusted downwards to clear markets.

                Except that is blatantly contradicted by the empirical evidence: it shows that in nearly every recession since WWII the price level has continued to rise: inflation continues in recession, not deflation.

              • Hank says:

                I don’t understand what you are getting at LK.

                If market clearing prices are only theoretical constructs that don’t necessarily exist in reality, why do you insist its a strike against Austrians when you say that the prices you point out are not exactly at market clearing rates?

              • guest says:

                Except that is blatantly contradicted by the empirical evidence: it shows that in nearly every recession since WWII the price level has continued to rise: inflation continues in recession, not deflation.

                You mean the price level in terms of inflated paper money?

                What about the price level in terms of gold and silver?

              • Major-Freedom says:

                LK:

                “If mark-up prices — the majority of prices in most economies — were really market-clearing prices, then we would expect to see deflation in every recession since WWII, as prices are adjusted downwards to clear markets.”

                False. We should expect to see prices fall if the Fed doesn’t inflate to target rising prices.

                The fact that the Fed steps in and inflates to reverse what would have been falling prices, is proof that prices would fall in the absence of Fed intervention, which is to say that yes, prices do indeed tend to fall when supply outstrips prevailing nominal demand.

                “Except that is blatantly contradicted by the empirical evidence: it shows that in nearly every recession since WWII the price level has continued to rise: inflation continues in recession, not deflation”

                You know what’s funny? You’re not only wrong in theory, as the theory you are assuming is “the data I am observing is the result of free market pricing”, but EVEN IF we falsely stipulate that empirical price movements are free market price movements without any Fed intervention, but you are also wrong on the empirical movements of price levels during recessions in history, that is, price levels WITH a central bank that supposedly targets a rising price level!

                For if you actually observe the PPI, and the CPI, post 2008 for example, then you will notice a distinct fall. This occurred because of the market forces you claim don’t exist. Also if you notice, the decline was short lived, because the Fed stepped in with massive inflation to reverse the price declines.

                If the Fed did not massively reinflate, then both the CPI and the PPI would have fell even further in accordance with the market forces that you claim do not exist.

                Furthermore, and this is perhaps the most important point that continually goes over your historicist head, is that the argument prices tend towards clearing IS NOT AN ARGUMENT ABOUT WHAT HISTORICAL PRICE TRENDS SHOULD LOOK LIKE. In other words, it is not a theory that prices should decline x% over time or rise y% over time. It is not a theory of what predicts what central banks will or will not do. EVEN IF you observe prices rising over time, due to central banking, this is not a refutation of the theory that prices are having downward pressure being put on them by market forces GIVEN the quantity of money and volume of spending the Fed engineers, and GIVEN the supply of goods that sellers compete for the buyer’s dollars.

                You are utterly, massively, totally and without question completely confused about the Austrian theory. You think you know it, but you absolutelu without a doubt do not. And I know why. It is because you don’t understand the difference between economic theory and economic history. You believe that should market prices tend towards clearing, that somehow implies that you should see a temporal rise or temporal fall in prices.

                But that isn’t necessarily so. While market forces do put upward pressure on prices when nominal demand rises, and while market forces do put downward pressure on prices when nominal demand falls, these facts do not necessitate a temporal rise or fall in price levels from one period to the next. It depends strongly on inflation expectations, and when you have a Fed that flat out promises a dual mandate, one component of which includes “PCE will rise at 2% annually on average”, then it is absurd to claim that because prices did not temporally fall during a particular recession, that this means the market would not have made those prices fall.

                The most ludicrous thing about your whole intellectually bankrupt theory is that you Keynesians advocate for central banks to step in and prevent prices from falling. And yet here you are saying that markets don’t make price levels fall.

                So which is it? We should have central banking to make price levels rise over time instead of the alternative, in which case you tacitly admit that prices do fall in a free market unhampered by central banks, or do price levels rise in a free market, in which case your claim that central banks must step in to make price levels rise instead of fall, make absolutely no sense whatsoever?

                The fundamental contradiction in your worldview is laid bare for all to see. Wallow in it.

        • Major-Freedom says:

          LK:

          By the same token, to refute or reject either Marx’s absolutist labor theory of value, or orthodox Austrian subjectivist pricing theory, as universal explanations of prices, does not imply that one has to accept the equally flawed “administered pricing” theory that you propound.

    • guest says:

      Whoa, you just wrote that, today!

      Cool.

    • guest says:

      From LK’s article:

      Mark-up/cost-plus pricing theory does not dispute or deny the existence of flex-price markets in modern economies [, …] and that when these markets involve goods with well-behaved demand curves and prices really are flexible, the prices can be explained, more or less, by conventional supply and demand dynamics. Mark-up/cost-plus pricing theory does not claim to be a universal theory of price formation, but merely an important theory that does explain many prices.

      What’s there to dispute?

      • guest says:

        It doesn’t seem to me that a theory which doesn’t claim to be universal would be capable of disproving one that does – even in theory.

        I’ll continue reading.

    • guest says:

      When demand slumps, for example, firms will fire workers, cut production, and cut costs, and generally leave prices unchanged. When demand surges, firms will expand production, increase overtime and hire workers, and generally leave prices unchanged too.

      When these firms fire skilled workers, why aren’t other firms snatching them up?

      I suspect that what you’re looking at is a situation that takes place when governments protect some businesses from competition through anti-trust laws.

      • guest says:

        Also, the Austrians’ subjective value theory can explain stable prices in a case where some lucky business happens to be the only one capable of providing a good at that particular time: Cost – like value – is subjective, too.

    • Andrew' says:

      “You’re attacking a Marxist or quasi-Marxist theory and you do not refute the modern Post Keynesian / non-neoclassical institutionalist mark-up pricing theory:”

      This is why I keep asking if you have embraced such theories! Why waste our time attacking something our “enemies” haven’t even stopped hedging their bets on?!

      • Andrew' says:

        It is nice to see someone else make the accusation that someone is attacking century old versions of a theory…

        • Andrew' says:

          BTW, Bob will understand this:

          There is nothing wrong with attacking Marxist or quasi-Marxist theory.

          Bob is dealing with ideas and is not constrained by the two-party paradigm.

          In other words, he is not equating Post-Keynesianism with Marxism.

          I’d bet Bob knows better than Krugman does when Krugman is drifting into theoretical territory that Krugman hasn’t even understood well enough to disavow.

          We can do Us vs. Them, but that isn’t all we do.

  6. Keshav Srinivasan says:

    Bob, in your system people would go to private prisons due to shunning. But why should we expect that people’s decisions about who to shun or not shun would be exactly determined by which way a reputable judge rules? Can’t you imagine a situation where people just watch news reports before a trial even starts and they come to the conclusion that he’s guilty, and then they shun the defendant even if it turns out that the judge happens to rule that he’s innocent? Or what about a situation where the judge says the defendant has to pay a certain amount in restitution, the defendant pays the restitution, but the people to shun him anyway? Or a situation where the defendant refuses to pay the restitution, but people are feeling sorry for him or they believe that he’s not likely to do anything bad in the future so people don’t shun him?

    My fundamental question is this: you’ve at least made an argument for you think that a judge’s incentives will be set up in such a way that he will tend to make rulings that are “good” from your perspective. But what makes you think that the incentives of the people are similarly set up so as to make shunning decisions that are similarly “good”?

    • Keshav Srinivasan says:

      Two typos: “but the people to shun him anyway” should be “but the people decide to shun him anyway”
      “for you think” should be “for why you think”

    • Ben B says:

      Maybe this is a question for “thick” libertarianism. Ignorant or “bad” shunning isn’t a problem for “thin” libertarianism.

      • Keshav Srinivasan says:

        Well, Bob was making a defense of his private prison idea on pragmatic grounds, not on philosophical grounds. No shunning at all would be perfectly fine from a libertarian perspective, but that’s clearly not how Bob intends the system to work.

    • Ben B says:

      So if the incentives for the judge are in line for them to make “good” decisions, and if in Bob’s system the Judge’s standing is determined directly by market participants who embrace the basics of libertarian law, then can’t we assume that the actual shunning and non-shunning will be more or less in-line with judicial rulings? I mean, we have to assume that libertarian law is first established, and then particular judges become reputable because of their correct application of the law to certain situations.

  7. Ben B says:

    Can you give an example of what the shunners reasoning might be? Is it because they believe the judge made an error in jurisprudence, or do they just not like the accused? If it is the latter, then it has nothing to do with libertarian law. If it’s the former, then they can certainly make their case for why the judge was wrong, and even appeal it to another judge.

    And if they don’t want to shun someone even though a judge has ruled that person guilty, then those non-shunners are in fact setting up their own private prison. They are in fact saying that all those who agree with the judge’s ruling will exclude the accused, and all those who will not shun the convicted will now become the “prison guards” since they will include the convicted onto their property based on their terms.

    • Ben B says:

      Sorry, that was for Keshav.

    • Ben B says:

      Sorry Keshav,

      Ignore the first two questions. I misread what you were saying.

  8. Hank says:

    The thing about your subjective value theory article is that value scales don’t actually exist. You may have written it for the sake of simplicity, or you may disagree with me. No person has a scale of value in their head at any time. Rather, these scales are the just deductions from actions. In fact we can never construct them in their totality. We can only now the marginal tails of the scales which are implied through the actions. e.g. in a trade, the thing traded for is higher on your ‘scale’ than the thing being traded. That is all we can know, or ever hope to know. The rest of the scale does not exist.

    • Keshav Srinivasan says:

      Even if that’s all we can know, how does that imply that the rest of the scale doesn’t exist? And in any case, what makes you think psychology (using a disembodied-mind paradigm) won’t one day advance to a point where it can reveal preferences that weren’t acted upon?

      • Hank says:

        I think praxeology gives this insight. When I perform an action, there is no scale of value present. This is because there are no thoughts inherent in an action. Of course, people often think and plan, but this is not part of the action undertaken. Both thinking and planning by themselves are actions. If you were to make a scale of value, this could be considered an action in itself.

        Furthermore, it would lead to absurd conclusions. There is no theoretical limit to how large such a scale could be. A very stupid person, who can’t memorize a list of 5 things, still performs an action. Saying this list exists means the list would have to be inside the head of someone whenever they engage in anything. Therefore, you could ask someone what their scale was, and they could tell you right off hand. Of course, this is not the case. I don’t have a list of 10 things in my head right now.

        • Hank says:

          Of course, they COULD have a scale in their head. The point is that its not necessary following from praxeology.

    • guest says:

      OTHER people can’t know, because it’s a subjective scale. The individuals, themselves, can know of their own scale.

      And while you’re right that we can never construct our own scales in their totality, the reason is – and here’s the real kicker -:

      Subjective preference scales change CONSTANTLY.
      😀

      (Which is why you can’t do math on them.)

      • guest says:

        I made a mistake.

        The reason subjective preference scales can’t have math done on them isn’t because they change, but because preferences aren’t quantitative.

        Praxeology fail on my part.
        🙁

        • Keshav Srinivasan says:

          What about von Neumann-Morgenstern utility functions?

          • guest says:

            And in case the “class” issue comes up, again:

            The Class Struggle

            In the unhampered market economy there are no privileges, no protection of vested interests, no barriers preventing anybody from striving after any prize. Access to any of the Marxian classes is free to everybody. The members of each class compete with one another; they are not united by a common class interest and not opposed to the members of other classes by being allied either in the defense of a common privilege which those wronged by it want to see abolished or in the attempt to abolish an institutional disability which those deriving advantage from it want to preserve.

            The laissez-faire liberals asserted: If the old laws establishing status privileges and disabilities are repealed and no new practices of the same character — such as tariffs, subsidies, discriminatory taxation, indulgence granted for nongovernmental agencies like churches, unions, and so on to use coercion and intimidation — are introduced, there is equality of all citizens before the law. Nobody is hampered in his aspirations and ambitions by any legal obstacles. Everybody is free to compete for any social position or function for which his personal abilities qualify him.

      • Hank says:

        See my reply to Keshav.

      • Hank says:

        By the way, the fact the scale changes is not why math cannot be done. Differential equations describe many systems that change. Value cannot be quantified in any fundamental meaningful way simply because the technology doesn’t exist. It may never exist.

        • Harold says:

          From Guest: “The reason subjective preference scales can’t have math done on them isn’t because they change, but because preferences aren’t quantitative.”
          From Hank: “Value cannot be quantified in any fundamental meaningful way simply because the technology doesn’t exist.”

          Hank suggests that the underlying value does have a quantity, just that we cannot measure it. This is a very different claim from Guests that the underlying value does not exist. If there is a possible (but as yet unrealised) technology to measure it, then we are entitled to treat the values as real, but unknown. If they do not exists, then we cannot do this.

          Can someone put me straight on this?

          • guest says:

            It’s not that the value doesn’t exist, but that the value can’t be quantified.

            Basically: Value being subjective, it is possible for a preference’s rank position to change at any moment.

            Also, people having differing preference scales, preferences among people cannot be compared, quantitatively.

            Further, even a revealed preference cannot tell you *how much* someone values this or that; And if someone expresses a limit to what he will pay for something, it is possible that the limit can change in the next moment.

            These can help:

            The Birth of the Austrian School | Joseph T. Salerno
            [www]http://www.youtube.com/watch?v=dZRZKX5zAD4

            Toward a Reconstruction of Utility and Welfare Economics – The Neo-Cardinalists: the von Neumann-Morgenstern Approach
            [www]http://www.mises.org/daily/2205#2d

            Measurement, on any sensible definition, implies the possibility of a unique assignment of numbers which can be meaningfully subjected to all the operations of arithmetic. To accomplish this, it is necessary to define a fixed unit. In order to define such a unit, the property to be measured must be extensive in space, so that the unit can be objectively agreed upon by all. Therefore, subjective states, being intensive rather than objectively extensive, cannot be measured and subjected to arithmetical operations. And utility refers to intensive states.

    • Bob Roddis says:

      Bob Murphy constructed this handy chart for one of his online classes derived from “Theory of Money and Banking”. The importance of undistorted prices is that they are the best (and pretty much only) OBJECTIVE guide to the mysterious subjective values of others. The more the Keynesians argue about an uncertain and complicated future, the more essential it is to have undistorted prices as a guide in the face of such uncertainty.

      https://www.flickr.com/photos/bob_roddis/9646722001/

      • Hank says:

        Why is this relevant to my post?

  9. Bob Roddis says:

    Arguing with LK is like opening 57 Matryoshka dolls and ultimately finding a dead mouse at the end of your journey……

    I thought this was an interesting L-Keyensian twist on reality:

    [A] fundamental distinction must be made between (i) value and (ii) price. Mark-up/cost-plus pricing theory is explaining price of some commodities, not their value;

    http://socialdemocracy21stcentury.blogspot.com/2014/05/why-most-austrians-do-not-understand.html

    I finally get it! The prices people pay DO NOT REFLECT their subjective valuation of the purchased items! Are we slow, or what?

    • Major-Freedom says:

      Check out LK’s silly response to my post above.

      It is astonishing how he can’t even notice the blatant contradiction in his view. He believes both of these statements at the same time:

      1. “Central banks must step into the market and inflate during recessions so that price levels rise over time so that it can reverse price deflation.”

      2. “Markets do not make prices fall during recessions.”

      I mean come on.

    • Bob Murphy says:

      Arguing with LK is like opening 57 Matryoshka dolls and ultimately finding a dead mouse at the end of your journey……

      Hey everyone, you got to give it to Roddis, that’s pretty funny.

    • guest says:

      I finally get it! The prices people pay DO NOT REFLECT their subjective valuation of the purchased items!

      How on earth could we deduce that malinvestments logically follow from that?

  10. Bob Roddis says:

    All humans engage in “mark up pricing” every minute of everyday. They must maintain proper body temperature and get enough to eat and drink. In their quest to satisty these needs, they must make constant evaluations of gains vs. cost. Without being able to evaluate the cost of an action, they are not in a position to determine its benefits.

    In modern commerical activities, it is essential to know the true cost of an action as well as its potential and actual financial benefit. Keynesian policies distort prices (among other things) and thereby distort that essential process and induce serious mistakes.

  11. Bob Roddis says:

    I stopped the long debates with LK more than a year ago when he said stuff like this:

    It is direct changes to supply that equate supply and demand, not flexible prices.

    This was his preposterous claim that Austrian insist that changes in the market will be met with price changes as opposed to supply changes, production changes etc.. .

    Further, he demonstrated that he really really really does not get the minute-by-minute discovery process inherent in the pricing process and economic calculation when he announced this as the core of Austrian theory:

    the whole notion that there exists [present tense] a universal set of market-clearing values for prices and wages just waiting to be discovered by adjusting prices [as opposed to adjusting and/or anticipating different supplies, styles, locations etc…..].

    The subjectivist theory can explain anything the cost theory can, as well as a whole host of other scenarios.

    • Tel says:

      Further, he demonstrated that he really really really does not get the minute-by-minute discovery process inherent in the pricing process and economic calculation…

      I suspect that applies to a lot of people. Just recently someone tried to tell me that Capitalism is simply about making as much money as possible and that’s all there is to it. I think that we as Austrian economists have a lot of explaining to do. Admittedly some people try hard not to get it but I think if more people pick up the basics it would make life easier.

      What’s more, the process does not need to be minute-by-minute. It happens at whatever rate the participants are comfortable with. It might be day by day, or week by week. Restaurants may quite reasonably decide not to reprint their menu more often than once every three months (they probably still have a chalk board with specials) but this does not prevent economic calculation, it merely delays the response. Even deciding how often to print the menu implies economic calculation.

      • Bob Roddis says:

        I agree that we have to figure out a way to explain basic stuff to average people. At the same time, there is an army of folks out there who just don’t want it to be true and seem to have a deep emotional investment in their position that I cannot explain (or is it just shallow peer pressure that could flip in an instant?). . It seems to me that LK and DK are the only opponents in the galaxy who make at least a serious attempt to understand what we are saying. I am flabbergasted at the incuriosity of the rest of them, to put it mildly. And I constantly repeat that observation because it is simultaneously very good news and shockingly bad news.

        Also, once Ron Paul’s presidential campaign ended, so did our presence on American TV. I don’t think we will make much headway without some significant presence on TV.

        • guest says:

          As a former Neocon, I can say that you guys had a HUGE opportunity to win them over – if you could but distinguish yourselves, in our minds, from the Leftists who held superficially similar positions.

          For example, there were Occupy Wall Street protesters representing Ron Paul, while Ron Paul was failing to make a distinction between that Marxist initiated movement (like the Arab Spring was).

          Also, you had Ron Paul supporters calling into the Glenn Beck radio program saying stuff like this:

          Another Ron Paul caller he’d like to forget

          Among the great things the caller claimed Paul was going to do? Legalize marijuana, end the Fed, and stop our Zionist-occupied government.

          Yeah, he’s serious.

          “If you want to know what’s going on in America today, you need to read the Protocols of the Learned Elders of Zion,” he told Pat and Stu.

          The Marxists are anti-semitic and anti-US-military (as if there are no threats against our liberties to defend against), so the Conservatives can’t help but conclude that Ron Paul must secretly hate the free market – no matter what he says to the contrary.

          The radical Leftists were responsible for the anti-free-market “Days of Rage” in the ’60s, as well as the similar “Day of Rage” that kicked off the Occupy Wall Street movement – SAME PEOPLE, some of them.

          You’re not going to reach us by poo-poo’ing the concept of self-defense, which is what we believe the US military stands for.

          The way in is through our firm (though not always consistent) belief in free markets. We understand that what America’s Founders were at least CLAIMING about the Constitution was that it would protect individual liberty.

          Convince us first that the Leftists have no clue when it comes to economics, THEN convince us that the Republicans hold the SAME views …

          … THEN you’re in a position to explain how, just like in economic matters, well-meaning Republicans can support Leftist-inspired foreign policies:

          John Stossel – Progressives And War
          [www]http://www.youtube.com/watch?v=TYLftg-tIlE

          I didn’t understand Austrian Economics at the time, but I knew that the Constitution DID mention gold and silver; I figured that Ron Paul’s position on the Fed had to be somewhat related to our Founders’ position on money, so I decided to see to what extent he believed in that position.

          I found out that Ron Paul predicted the current crisis, noticed he was blaming it on the same things he talked about 30 years ago, and came across videos like this:

          Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
          [www]http://www.youtube.com/watch?v=HAzExlEsIKk

          So much explanatory power.

          Ron Paul couldn’t be much of a kook if he understood this stuff, so I wanted to see what kind of nuanced beliefs he held about America’s foreign policy.

          Austrian Economics is the way in for us.

          • Bob Roddis says:

            I’m very much against this “thick” libertarian thing. I think that calling for drug legalization without pointing out at the same time the opportunity for druggie exclusion and drug testing is silly and “thick”. I think that celebrating guns without pointing out at the same time the opportunity for voluntary neighborhood gun prohibition is silly and “thick”.

            Regarding reaching the neo-cons, I would pound these points:

            1. The US government did not magically rebuild Germany and Japan after WWII. The Germans and Japanese did.

            2. The US military has been on a course to impose “progressive” Clintonista policies, if not crony capitalist policies, for the past 35 years with expected results. These are not “conservative” free market policies. The US military has no more magical powers than does the US Department of Liberal Education.

            3. Libertarians are not necessarily “socially liberal”. If you like your lifestyle, you can keep your lifestyle, even if you are “socially conservative”. Apparently, most libertarians hate “socially conservative” people so much that they refuse to make this appeal to them.

    • LK says:

      “This was his preposterous claim that Austrians insist that changes in the market will be met with price changes as opposed to supply changes, production changes etc..”

      That is exactly what Austrian economists must think — and do think — normally happens to clear markets both in their ideal free market and to a great extent in the real world (though it is untrue).

      The essence of Misesian economic coordination is precisely a tendency to supply and demand in product markets by flexible prices, but you are simply too ignorant to understand this:

      “There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available. If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their “surplus” stock, they need only cut their prices low enough to sell all of their product. But won’t they then suffer losses? Of course, but now the discussion has shifted to a different plane. We find no overproduction, we find now that the selling prices of products are below their cost of production. But since costs are determined by expected future selling prices, this means that costs were previously bid too high by entrepreneurs.”
      Murray Newton Rothbard, America’s Great Depression (5th edn, 2008), pp. 56-57.

      “It is important to realize that this process of overbidding of buyers and underbidding of sellers always takes place in the market, even if the surface aspects of the specific case make it appear that only the sellers (or buyers) are setting the price. Thus, a good might be sold in retail shops, with prices simply ‘quoted’ by the individual seller. But the same process of bidding goes on in such a market as in any other. If the sellers set their prices below the equilibrium price, buyers will rush to make their purchases, and the sellers will find that shortages develop, accompanied by queues of buyers eager to purchase goods that are unavailable. Realizing that they could obtain higher prices for their goods, the sellers raise their quoted prices accordingly. On the other hand, if they set their prices above the equilibrium price, surpluses of unsold stocks will appear, and they will have to lower their prices in order to ‘move’ their accumulation of unwanted stocks and to clear the market.”
      Rothbard, M. N. 2009. Man, Economy, and State with Power and Market: The Scholar’s Edition (2nd edn.). Ludwig von Mises Institute, Auburn, Ala. p. 119.

      • guest says:

        If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their “surplus” stock, they need only cut their prices low enough to sell all of their product. But won’t they then suffer losses? Of course, but now the discussion has shifted to a different plane. We find no overproduction, we find now that the selling prices of products are below their cost of production.

        The seller has become the highest bidder: Market cleared.

      • Bob Roddis says:

        You stick with that argument, LK. I’m sticking with the more general idea that freedom allows for more optimal “plan adjustment”, whatever that might entail in life and in commercial activity.

        • LK says:

          So Misesian economic coordination is not a realistic model of why real world markets adjust? lol

          • Bob Roddis says:

            No, it’s completely realistic, And simple. And self-evident. You just can’t seem to understand it. Or don’t want to.

            We’ve reach an impasse here.

            • LK says:

              No, roddis, you are the one who can’t understand it.

              It is dependent on the notion of a real world tendency to supply and demand equilibrium via flexible prices.

              • Major-Freedom says:

                LK:

                The very fact that you believe the myth that statesmen can be educated into knowing how to improve supply and demand tending towards equilibriating, is you tacitly admitting that such knowledge exists and can be learned by more than just those with badges and guns.

                Violence isn’t needed to educate people on the knowledge of how to improve their own situation by adjusting their asking prices from less optimal, to more optimal. You can just educate them to reduce or increase their prices, assuming of course you know more about their situation and life than they themselves do, which of course you don’t, so the only way is by respecting the individual’s property rights, so that they themselves can learn and adapt on their own.

              • LK says:

                Red herring waffling only proves you have lost the argument.

              • LK says:

                The question of whether Rothbard’s ethics is correct (it’s not) is a different issue from whether real world economies — with their large mark-up sectors — have any strong tendency to supply and demand equilibrium by flexible prices.

                Keep throwing up red herring evasions. It is just an admission of defeat

              • Major-Freedom says:

                LK

                It isn’t a red herring.

              • Major-Freedom says:

                LK

                “The question of whether Rothbard’s ethics is correct (it’s not)”

                Ethics are neither “correct” nor “incorrect.” Ethics are not factual claims of what is. They are principles of what we ought to do and ought not do.

                Since you act in accordance with Rothbardian ethics, you accept that it is what you personally ought to do.

                “is a different issue from whether real world economies — with their large mark-up sectors — have any strong tendency to supply and demand equilibrium by flexible prices.”

                The argument is about real world MARKETS LK. Not economies with central banks that mandate a rising proce level by way of inflation.

                You are utterly confused.

                “Keep throwing up red herring evasions. It is just an admission of defeat”

                You are admitting defeat by not even engaging the argument being made.

              • LK says:

                And finally the point where you shoot yourself in the foot:

                “The argument is about real world MARKETS LK. Not economies with central banks that mandate a rising proce level by way of inflation.”

                Ahh!! I see: so now a real world market can only be a fantasy world that only exists in your head? lol..

                So, strictly speaking, to fools like you, there are NO real markets of any kind in the world today?? Because no markets can live up to the Rothbardian fantasy world standard?

                Thank you, M-F, my work is done here.

              • Major-Freedom says:

                LK

                “Ahh!! I see: so now a real world market can only be a fantasy world that only exists in your head?”

                If it only existed inside my head, why do you Keynesians advocate for the central bank to ease the money supply during recessions to prevent price deflation?

                “So, strictly speaking, to fools like you, there are NO real markets of any kind in the world today??”

                You again contradict yourself. First you straw man me and claim I am making predictions of what central banks will do, then you claim I am talking about a free market.

                So which is it?

                “Because no markets can live up to the Rothbardian fantasy world standard?”

                You’re not talking about markets LK. You are talking about what central bankers are doing.

                All you arw claiming ia that prices rise in economies with central banka targeting a rising price level.

                “Thank you, M-F, my work is done her.”

                And yet the laughs continue…

              • LK says:

                “You’re not talking about markets LK. You are talking about what central bankers are doing. “

                So are there any real markets in existence today or not?

              • LK says:

                And “real”, I should say, only according to your Rothbardian definition of them.

              • Major-Freedom says:

                LK

                Are you able to grasp the simple point that if you want a central bank to intervene during recessions, if you want it to inflate the money supply and volume of spending so that prices do not fall, i.e. to avoid the Keynesian doctrine of a “deflationary death spiral”, that you are at the same time implying that prices would otherwise fall in the absence of said central bank intervention?

                Also, do you accept as true the statement that both the consumer price level and producer price index, fell in absolute terms post-2008, because the market’s deflationary force was so great that the Fed’s response of inflation was not great enough to make the price level rise as in past recessions?

                Do you accept the quantity theory of money, that is, the theory that the cause of a general, sustained increase in prices over time, is an increase in the quantity of money and volume of spending?

          • Major-Freedom says:

            LK whatever you claim that only initiating violence through the state can solve, peaceful scientific and philosophical inquiry can do better.

            It is impossible for someone brainwashed like you into believing that initiations from the state is good, that peace works better than violence, as you are unable to even recognize the state as inherently an iniator of violence, and so I am not expecting you to understand this.

            Misesian coordination can and does take place. I myself am sufficient proof. If I can recognize that it would be to my own interests to lower my selling prices from one period to the next, then so can everyone else.

            It is not impossible to know how to benefit oneself by taking those actions that you claim cannot take place, or cannot take place on a sufficiently high enough degree, on flawed inductions from non-ergodic systems like the whole economy, such that you falsely reason from history that because X% of past generations of people chose to do something else instead by virtue of their ideas at the time, that this means the same X% of humans trillions of years and forever more will choose the exact same actions.

            Your. Ancient. Worldview. Is. Intellectually. Bankrupt.

            • LK says:

              (1) This specific issue isn’t about state intervention or its morality, your red herring rambling notwithstanding.

              You have long since been defeated on the absurd claim that mark-up prices are market clearing prices.

              As I said, if mark-up prices were really market-clearing prices, then we would expect to see deflation in every recession since WWII, as prices are adjusted downwards to clear markets.

              This is blatantly untrue, and you’re clearly running away from any further discussion of the topic because you know you have been refuted and humiliated.

              (2) “Misesian coordination can and does take place. I myself am sufficient proof. If I can recognize that it would be to my own interests to lower my selling prices from one period to the next, then so can everyone else. “

              lol.. You are yourself are an example of many things, but not any economic insights.

              Again, the issue is what people do in the real world, not in your imaginary fantasy, fairy tale world.

              • Major-Freedom says:

                LK

                “(1) This specific issue isn’t about state intervention or its morality, your red herring rambling notwithstanding.”

                If it isn’t about state intervention, then you wouldn’t be yammering for state intervention as a solution to the alleged problem of individuals incapable of using the market process to adjust prices towards, but never reaching, clearing. But because you are so yammering, you are very much making the issue about state intervention. All we’re saying is that a. It isn’t necessary, and b. It makes it more difficult for individuals to coordinate their division of labor activities since relative and absolute prices and spending are being influenced by more than just market preferences.

                “You have long since been defeated on the absurd claim that mark-up prices are market clearing prices.”

                I never claimed that any prices are actual market ckearing prices, so you “long since defeating” has been a defeat of a straw man.

                Furthermore, you have long since been defeated on the fact that mark up clearing prices TEND towards clearing, by way of FACTOR PRICES and hence costs tending towards clearing in response to, and in anticipation of, nominal demand for those goods priced by markup.

                Factor prices can and do adjust DOWNWARD when there is a decline in nominal demand for output.

                “As I said, if mark-up prices were really market-clearing prices, then we would expect to see deflation in every recession since WWII, as prices are adjusted downwards to clear markets.”

                As I said, that is FALSE. The argument that mark up prices tend towards clearing is NOT a prediction of what central banks do. Central banks, especially since WW2, have inflated the money supply during recessions with the expressed intention to PREVENT price levels from falling. The very fact that they have this expressed mandate is precisely because prices, including markup prices, are reduced by actors in a laissez-faire framework, which is the ACTUAL argument we are making about MARKETS tending towards clearing.

                “This is blatantly untrue”

                It is a blatant straw man.

                “and you’re clearly running away from any further discussion of the topic”

                Hahahahahahahaha

                Hahahahahahahahaha

                How in the world can I be the one “running away” when I already responded to this false claim you made previously, where you did not respond to it?

                “because you know you have been refuted and humiliated.”

                Hahahahahahaha

                “(2) “Misesian coordination can and does take place. I myself am sufficient proof. If I can recognize that it would be to my own interests to lower my selling prices from one period to the next, then so can everyone else. “

                ” lol.. You are yourself are an example of many things, but not any economic insights.”

                Not a response to the argument.

                “Again, the issue is what people do in the real world, not in your imaginary fantasy, fairy tale world.”

                People do reduce prices in the real world marlet, which is precisely why you Keynesians advocate for central banks to step in during recessions to prevent price deflation.

                Your claim is again utterly refuted.

              • LK says:

                (1) “Furthermore, you have long since been defeated on the fact that mark up clearing prices TEND towards clearing, by way of FACTOR PRICES and hence costs tending towards clearing in response to, and in anticipation of, nominal demand for those goods priced by markup.”

                That is precisely what I meant when I said you think “that mark-up prices are market clearing prices”.

                But you are too dishonest to do anything but distort what I meant.

                And if your absurd view were were true, then in recessions we would see deflation.

                We don’t.

                Also, it is overwhelmingly observed that mark-up prices have a very strong price asymmetry: most mark-up prices tend to rise over time, not fall, because often firms simply prefer to leave prices unchanged if costs fall, so that their total average unit costs fall and profits rise.

                E.g.:

                ““Recent empirical evidence reports that price increases occur more frequently than price decreases. For the euro area countries, as well as for Luxembourg, this asymmetry is about
                60:40 for unprocessed food, processed, energy and non-energy industrial goods, while it is more pronounced and closer to 80:20 for services”
                (Dhyne et al. 2005; Lünnemann & Mathä, 2005a,b). “
                Lünnemann, P. and T. Y. Mathä. 2006. “New Survey Evidence on the Pricing Behaviour of Luxembourg Firms,” ECB Working Paper Series No 617
                https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp617.pdf

                (2) “The argument that mark up prices tend towards clearing is NOT a prediction of what central banks do

                So they “tend” toward clearing in the real world? But it doesn’t **actually** happen in the real world?

                Thanks for this admission of total incoherence.

                If they do not “tend” toward clearing in the real world, then you have been totally refuted.

                If you are saying they do “tend” toward clearing in the real world, you have just contradicted yourself hopelessly.

              • LK says:

                “The very fact that they have this expressed mandate is precisely because prices, including markup prices, are reduced by actors in a laissez-faire framework”

                Only in some totally imaginary laissez faire framework in your mind — effectively all you are saying is: businesses would not tend to keep mark-up prices stable in my imaginary, fantasy world.

                From the very beginning, the debate is about what happens in the real world, not the fantasy world inside your brain.

              • LK says:

                “Factor prices can and do adjust DOWNWARD when there is a decline in nominal demand for output.” … “The very fact that they have this expressed mandate is precisely because prices, including markup prices, are reduced by actors in a laissez-faire framework”

                Really? And are these predictions of what would happen on a free market in the real world?

                And yet:

                “There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
                http://consultingbyrpm.com/blog/2014/03/potpourri-188.html#comment-301632

                So in other words, you have absolutely no idea what would happen in the future in any real world economy (whether interventionist or not).

                The only intellectually honest thing for a person like you to do is to shut your mouth and admit you have no idea what would happen tomorrow in any real world economy or any time in the future.

              • Major-Freedom says:

                LK:

                “That is precisely what I meant when I said you think “that mark-up prices are market clearing prices”.”

                Lol, but that isn’t what you said. To attribute to me the belief that prices ARE market clearing prices, is to attribute to me a belief I do not have. Yes, you straw manned me and I called you out on it, and you just made a terrible attempt to claim that my correction is what you “meant”. If that is what you meant, then you would have said so.

                “But you are too dishonest to do anything but distort what I meant.”

                I didn’t “distort” anything. YOU distorted what I said, and I called you out on it. And now YOU are too dishonest to admit it, and not only that, but you try to fault me for reading what you said IN ACCORDANCE with what you said, instead of a totally different statement of what you allegedly “meant”?

                Hahahahahahahaha, you are collapsing so hard so fast you’re going around the universe of wrong.

                ” And if your absurd view”

                You haven’t shown how anything I said is “absurd”

                ” were were true, then in recessions we would see deflation.”

                Again, FALSE. Again, the argument that MARKET prices tend towards clearing is not refuted by the existence of a central bank that TARGETS a rising price level.

                In fact, it is precisely the fact that central banks have to step in and inflate the money supply during recessions to reverse proce deflation, is sufficient proof that yes, market determined prices would indeed fall otherwise.

                The argument we are making is that MARKETS tend to adjust prices towards clearing.

                Again, the argument is NOT a prediction of what central banks will and will not do during recessions in order to change prices from what they otherwise woild have been.

                “We don’t.”

                You keep contradicting yourself. First you straw man me and accuse me of making a prediction of what prices in a central bank economy will do over time.

                Then when I correct you on that, and say no, the argument I am making is about what MARKET prices tend to do, that is, prices in a laissez faire economy, you then throw your hands up in the air and claim that because we don’t have a laissez faire markeypt with no central bank intervention, it somehow means the argument is invalid.

                It is as if you refuse to accept that absence of slavery would make people’s lives better off, if we just so happen to live in a world with total slavery. That because we cannot observe no slavery, we therefore cannot argue that absence of slavery would make people’s loves better off. That an emancipated world is “not the real world”.

                We don’t need to observe a worldwide system of Marxist-Leninist Communism before we can know that there would not be a price system for the means of production.

                We don’t need to observe the government raising the minimum wage to $1 million per minute tomorrow, before we can know that ceteris paribus, unemployment just might experience an upward blip.

                We don’t need to observe a free market in pricing before we can know that free market prices will tend towards clearing. The fact that there is a central bank that repeatedly steps in by design, to repeatedly inflate by design, to repeatedly prevent price deflation by design, means that it is not just Austrians who are making claims about what free market prices WOULD do if there were no central banks inflating the money supply and targeting a rising price level.

                “Also, it is overwhelmingly observed that mark-up prices have a very strong price asymmetry: most mark-up prices tend to rise over time, not fall, because often firms simply prefer to leave prices unchanged if costs fall, so that their total average unit costs fall and profits rise.”

                False. Most prices rise over time because of the existence of a central bank inflating the money supply to TARGET rising pice levels.

                You do know that price levels rise over time because of central banks, right? Please tell me you are not totally clueless.

                ““Recent empirical evidence reports that price increases occur more frequently than price decreases. For the euro area countries, as well as for Luxembourg, this asymmetry is about
                60:40 for unprocessed food, processed, energy and non-energy industrial goods, while it is more pronounced and closer to 80:20 for services” (Dhyne et al. 2005; Lünnemann & Mathä, 2005a,b). “

                You mean prices rise when there are non-market central banks increase the money supply and volume of spending over time?

                OMG

                Everyone, LK can’t understand why prices are rising due to inflation.

                Dude, you are so incredibly lost.

                “(2) “The argument that mark up prices tend towards clearing is NOT a prediction of what central banks do
                So they “tend” toward clearing in the real world? But it doesn’t **actually** happen in the real world?”

                NO! Prices in a MARKET tend towards clearing, including tending downwards when supply grows faster than money and spending, but that when there is a central bank intervening in the market, inflating the money supply and volume of spending such that money and spending grow faster than real supply, then prices tend to rise over time.

                “Thanks for this admission of total incoherence.”

                Hahahahaha, LK, you are so utterly confused you don’t even know the argument you’ve been trying to address for years.

                “If they do not “tend” toward clearing in the real world, then you have been totally refuted.”

                Again, I AM NOT MAKING A PREDICTION OF WHAT CENTRAL BANKS WILL DO.

                If I said “Prices tend to fall in central bank economies that target a rising price level”, then you can claim that this claim is refuted by the evidence.

                But I am not claiming that prices fall in an economy with a central bank that targets a rising price level. I am claiming that prices tend towards clearing in a free market, that is, an economy with at least no central bank that targets a rising price level.

                Real world markets tend to have falling prices, which is precisely why central banks have to inflate to make prices rise over time.

                Central banks are not free market institutions.

                ” If you are saying they do “tend” toward clearing in the real world, you have just contradicted yourself hopelessly.”

                I AM NOT MAKING A PREDICTION OF WHAT CENTEAL BANKS WILL DO TO PRICES.

                “The very fact that they have this expressed mandate is precisely because prices, including markup prices, are reduced by actors in a laissez-faire framework”

                “Only in some totally imaginary laissez faire framework in your mind”

                HAHAHAHAHAHA

                If it is only imaginary, then why do Keynesians advocate for central banks to atep in and prevent price deflation during recessions?

                It is not imaginary. It is what otherwise would take place in the absence of central banks.

                And you have oncw again contradicted yourself. First you straw man me and accuse me of making a prediction of what central banks will do to prices. Then when you are corrected on this, you then say that because we don’t live in a free market, my argument is invalid.

                So which is it? You can’t hold both of them at the same time.

                ” effectively all you are saying is…”

                …what I have been saying all along: Prides tend towards clearing in a free market.

                “From the very beginning, the debate is about what happens in the real world, not the fantasy world inside your brain.”

                No, this debate is about what happens in real world markets, not your straw man claims of non-existent predictions of what central bankers will do to prices because of their inflation.

                What you are calling “the real world” is an economy with a central bank that targets a rising price level. Well duh of course prices tend to rise in such economies. But we don’t have to live in such a world, and the fact that central banks inflate to target a rising price level, is proof that prices tend to fall in a laissez faire market.

                Your post is entirely refuted top to bottom. Again.

              • Major-Freedom says:

                LK

                “Really? And are these predictions of what would happen on a free market in the real world?”

                It is the same statement you yourself accept. That prices tend to fall in the absence of central banks, which is precisely why you Keynesians advocate for central banks to ease the money supply during recessions to prevent price deflation, i.e. “deflationary spiral.”

                Surely if you did not believe that prices would fall, then you would not cling to such a doctrine in the first place, lol!

                “The only intellectually honest thing for a person like you to do is to shut your mouth”

                Make me.

                “and admit you have no idea what would happen tomorrow in any real world economy or any time in the future.”

                I know what is true as long as there is human action.

              • LK says:

                “Again, the argument that MARKET prices tend towards clearing is not refuted by the existence of a central bank that TARGETS a rising price level.”

                Even that is not true: in 1929-1933, the Fed let the money supply collapse by a third and yet administered prices were still relatively inflexible: Gardiner Means found that the administered pricing sector of the US economy had price declines of only about 10% during the depression, whereas the more competitive or flexprice sectors had seen price falls of about 40 to 60% (Means, Gardiner C. 1975. “Simultaneous Inflation and Unemployment: A Challenge to Theory and Policy,” in Gardiner C. Means et al., The Roots of Inflation: The International Crisis. Wilton House Publications, London) — already a clear disparity that strongly thwarted the alleged market clearing tendency from price flexibility that you are positing.

              • LK says:

                “But I am not claiming that prices fall in an economy with a central bank that targets a rising price level. I am claiming that prices tend towards clearing in a free market, that is, an economy with at least no central bank that targets a rising price level. … What you are calling “the real world” is an economy with a central bank that targets a rising price level. Well duh of course prices tend to rise in such economies.”

                You have confirmed everything I said: **in the real world** we observe today, mark-up prices – the majority of prices – are relatively inflexible and are not normally adjusted downwards to clear markets.

                Therefore real world modern economies simply do not have this price flexibility that creates supply and demand equilibrium in mark-up pricing markets

                These latest comments of yours just concede my earlier points.

              • LK says:

                “It is the same statement you yourself accept. That prices tend to fall in the absence of central banks,”

                I do not accept that statement. You are simply lying.

                Mark-up pricing **in and of itself** is a strong source of price rigidity, and so are explicit nominal contracts, and so are “implicit” contracts — the feeling of many business people that they should keep prices reasonably stable for their customers, instead of adjusting them repeatedly when demand changes.

              • Observer says:

                “Gardiner Means found that the administered pricing sector of the US economy had price declines of only about 10% during the depression, ”

                So “administered prices” did actually fall? What is your explanation for these price falls in “fix-price” markets. Would it perchance have something to do with supply and demand? Give it up, LK, your argument is incoherent. There is nothing in market pricing theory that says that prices for different goods have to display similar levels of volatility. One can explain this phenomenon without in any way abandoning the standard supply/demand explanation of market pricing.

              • Major-Freedom says:

                LK

                “Even that is not true: in 1929-1933, the Fed let the money supply collapse by a third and yet administered prices were still relatively inflexible: Gardiner Means found that the administered pricing sector of the US economy had price declines of only about 10% during the depression, whereas the more competitive or flexprice sectors had seen price falls of about 40 to 60%”

                Glad you admit that yes, even in a hampered market with an inflationary government counterfeiter, that if nominal demand falls, then prices, including markup prices, tend to fall.

                If the deflation persisted even longer than it did, then both consumer prices and producer prices would have kept tending to fall towards clearing.

                I never claimed that markets ever actuallu clear, even during boom times.

                “But I am not claiming that prices fall in an economy with a central bank that targets a rising price level. I am claiming that prices tend towards clearing in a free market, that is, an economy with at least no central bank that targets a rising price level. … What you are calling “the real world” is an economy with a central bank that targets a rising price level. Well duh of course prices tend to rise in such economies.”

                “You have confirmed…”

                …that you are straw manning me about prices tending towards clearing prices in a hampered economy with a central bank preventing prices from falling.

                “**in the real world** we observe today, mark-up prices – the majority of prices – are relatively inflexible and are not normally adjusted downwards to clear markets.”

                No, it is the central bank that is inflexible. They are normally rigid in preventing falling prices.

                It is absurd to claim that we need a central bank to prevent deflationary death spirals AND claim that deflation won’t otherwise take place in the absence of said prevention.

                “Therefore real world modern economies simply do not have this price flexibility that creates supply and demand equilibrium in mark-up pricing markets”

                Yes, it does. Prices do tend to adjust in a free market towards clearing.

                “It is the same statement you yourself accept. That prices tend to fall in the absence of central banks,”

                “I do not accept that statement.”

                Yes, you do. Deflationary death spirals is a Keynesian doctrine.

                “Mark-up pricing **in and of itself** is a strong source of price rigidity, and so are explicit nominal contracts, and so are “implicit” contracts — the feeling of many business people that they should keep prices reasonably stable for their customers, instead of adjusting them repeatedly when demand changes.”

                Then explain why mark up prices still fall when there is a large decline in aggregate spending, as what occurred post 2008.

              • Observer says:

                “Price stickiness” has been explained as a price-smoothing policy adopted by firms in certain industries to maximise the discounted value of their future profits.
                Smoothed prices are not fixed prices – they are market prices which respond more gradually to changes in supply and demand.

                PRICE DYNAMICS AND COMPETITION
                IN FIVE OECD COUNTRIES David Encaoua and
                PaulGeroski

                http://www.oecd.org/eco/reform/35558500.pdf

              • Major-Freedom says:

                LK:

                “Mark-up pricing **in and of itself** is a strong source of price rigidity, and so are explicit nominal contracts, and so are “implicit” contracts — the feeling of many business people that they should keep prices reasonably stable for their customers, instead of adjusting them repeatedly when demand changes.”

                Bwahahahahaha, so who is reasoning from his imagination now? Who is talking about an imaginary world where there is no central bank targeting a price increase such that mark up pricing trends can be observed “in and of itself”, that is, independent of central banks preventing price deflation?

                Hahahahahahahahaha

  12. Bob Roddis says:

    This the link to LK’s blog where he made the above claims:

    http://socialdemocracy21stcentury.blogspot.com/2013/05/misesian-economic-calculation-and.html

  13. Andrew' says:

    Since everyone has their own favorite Obama Administration scandal, that must mean there are really no scandals.

  14. Kay says:

    Not sure if this posted at all at LibertyChat… After seeing the C-SPAN VA hearings, it seems obvious that the American Legion is leading the charge of attack on this. Not that the VA doesn’t have major problems (and presumeably always will), but The Veterans of Foreign War and the Disabled American Vets (in particular) took a decidedly different tack during the hearings.

    Shinseki had found himself on the wrong side of Rumsfeld and others of the War Party during the estimates of troops for the runup to the Iraq invasion. He had been an insider for years, when Obama plucked him out of the discarded insiders pile.

  15. Matt M (Dude Where's My Freedom) says:

    “Imagine that your food or shelter were dependent on Democrats being in the White House.”

    If campaign commercials (and Krugman blog posts) are any indication, there already are a ton of people out there for whom this is the case!

    In all seriousness though, I know a ton of people who would love that scenario, because a. They’re confident (not without reason) that current Republicans are too incompetent to ever win another national election, and b It would give them more opportunities to moralize about the obvious superiority of Democrats.

  16. John says:

    So this debate is about whether prices will fall during a recession or depression in the absence of the central bank taking action to stabilize them by increasing the money supply–have I got that right? (Why do I feel I probably don’t?). MF says that because central banks always do intervene to stabilize prices in a depression, that suggests that those who run the central banks believe prices will fall absent intervention. This makes sense to me. One usually wouldn’t take a step to stop something from happening if one didn’t think it would happen. I’m not sure I’m following LK’s response. Why do we think prices would not fall, I.e, we’d have deflation, in a depression/recession? Or have I just totally missed the point?

    Also, you guys are so tough on each other. I mean, geez, I had no idea economics was so, well … exciting.

    • Major-Freedom says:

      You’re getting the main point.

      LK is trying to convince others (himself?) that counterfactual reasoning is an invalid approach to understanding the world, despite the fact that he uses it.

      He is only doing this because he is unable to engage the Austrian arguments. So he falls back on extreme positivism in order to pretend in his mind that the Austrian arguments are flawed. Austrians are apparently only allowed to claim knowledge of factuals, not counterfactuals.

      I can only imagine him trying the same nonsense elsewhere, for example that we can’t claim knowledge of anyone murdering anyone else, because we can’t argue that the victim would have otherwise lived, since after all such reasoning would be “imaginary” and “not the real world”.

      • LK says:

        The issue is not counterfactual reasoning per se at all:

        (1) The first issue is that in modern economies mark-up prices — the majority of prices — have a high degree of relative downwards rigidity.

        You are so irrational and extreme that you are still refusing to accept this plain fact, as your bizarre ramblings here show us perfectly well.

        (2) M_F claimed that most real world mark-up prices are really adjusted downwards to clear markets during recessions, supposedly because money prices of some factor inputs in flexprice markets fall.

        This is utterly wrong, and the data proves it. But at one point, M_F demonstrated that he was so stupid that he could not even read a price index graph:

        BTW, your nonsense that prices rise during recessions is contradicted by the evidence:

        http://research.stlouisfed.org/fredgraph.png?g=p0B

        Every single recession since 1970 has been accompanied by a falling CPI.
        http://consultingbyrpm.com/blog/2013/11/chinese-officials-are-backing-off-dollar-purchases.html#comment-89059

        Given the high degree of relative downwards rigidity in mark-up prices — demonstrated perfectly clearly in the fact that in virtually all recessions since the 1940s inflation continues — such mark-up prices cannot be being adjusted downwards to clear markets in recessions, because otherwise we would see deflation in every recession since 1945.

        M_F has been totally refuted on these points, and his only response is to say that in a purely imaginary, hypothetical world where prices fall, then by definition prices would fall.

        (3) M_F also totally refutes himself every time he says what would or would not happen in the future.

        He has said:

        “There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
        http://consultingbyrpm.com/blog/2014/03/potpourri-188.html#comment-301632

        So in other words, he has absolutely no idea what would happen in the future in any real world economy (whether interventionist or not).

        If one asked him:

        “if central banks and governments were abolished tomorrow, would prices adjust sufficiently to clear markets?”

        his only intellectually honest response would be:

        “I have no idea at all. I could not say: Austrian economics makes no predictions of any kind”.

        • Major-Freedom says:

          LK:

          “The issue is not counterfactual reasoning per se at all”

          I am talking about what you specifically wrote LK, not necessarily “the issue” that you want me to be distracted towards.

          You have claimed that my arguments about free market prices tending towards clearing are invalid because we don’t live in a free market. That the argument, which is based on counterfactual reasoning, is “imaginary” and “not the real world”. That we can only know anything about the world if it is directly observable. That we cannot know what otherwise would have happened if certain actions, which by the way are designed to move the world from X to Y, were not taken, that we can’t know that world X would have transpired.

          You are totally contradicting yourself on this, because your advocacy of Keynesian responses to recessions is itself predicated on counterfactual reasoning. You are believing the idea that if Keynesian policies are not taken for the next recession, that the world would be Y, instead of X. And yet only one world can be directly observable, which means that to be consistent you would NOT be able to claim, as you have been, that the US economy post 2008 would have been even worse than it was had Obama’s ARRA not been taken. Your reasoning there is what you are telling me is “imaginary” and “not the real world.” The world without ARRA post 2008 is not directly observable, and yet you are claiming to have knowledge that that world would have taken place had ARRA not been taken.

          Well LK, that counterfactual reasoning you are using is the same counterfactual reasoning I am using. I am arguing that in the absence of central banks, the world we would see would be one where prices would, if there is a change in nominal demand for goods, result in a larger degree of price changes. That because there is no central bank targeting a rising price level of inflation, the counterfactual world would be one with more price flexibility. That additional price flexibility would be more pronounced the more rigid the supply of money.

          Prices, including markup prices, did indeed fall during both post-1929, and post-2008. I am not making any prediction on how far prices must fall, because that would imply an argument of an equilibrium, and I reject the possibility of equilibriums actually being reached in a world of human action. The argument is that there is only a tendency towards clearing. And that argument does fit the facts of every recession in recorded history. The key difference between each one, is just how much monetary deflation the central banks will allow. The more deflation they allow, the more prices tend to fall, as 1929 and 2008 bear witness. In fact, you can include 1921 there as well, since prices and wage rates also fell during that recession.

          “(1) The first issue is that in modern economies mark-up prices — the majority of prices — have a high degree of relative downwards rigidity.”

          Again, you are talking about prices that are purposefully being targeted by central banks to increase over time.

          Just like you are including in your advocacy of Keynesianism counterfactual reasoning what otherwise would happen if Keynesian actions are not taken, so too am I including in my reasoning in my advocacy of laissez-faire what would have happened if central banks weren’t habitually inflating the money supply and/or targeting a price level increase of 2% annually.

          Prices did not fall in recessions where the central bank inflated sufficiently to prevent prices from falling. Prices fell during those recessions (1929, 2008, etc) where central banks did not inflate sufficiently to reverse the market forces of deflation.

          We know markup prices rise and fall with sufficient changes in demand. What you don’t grasp is that those changes are explained by the very market forces you claim do not exist. Sellers do in fact reduce markup prices when there is a sufficient decline in nominal demand for their goods, and that degree of sufficient decline is unique to each seller.

          Because you interject your twisted and violence advocating morality that individuals must set prices not for their own benefit, but for the undefined “public good”, you find yourself habitually attacking the price system. If it is not attacking price setters who bring about a Keynesian “deflationary death spiral”, it is attacking price setters for bringing about an absence of “deflationary death spirals.”

          You are so irrational and extreme that you are still refusing to accept this plain fact, as your bizarre ramblings here show us perfectly well.

          Look in the mirror Mr. Self-contradicting, inconsistent argument eliciting, I’m not a moralizer moralizer.

          “(2) M_F claimed that most real world mark-up prices are really adjusted downwards to clear markets during recessions, supposedly because money prices of some factor inputs in flexprice markets fall.”

          Already shown as a straw man. No, I never claimed or predicted what central banks will and will not do to prices. I never claimed that prices fall in the presence of central banks targeting a price increase.

          “This is utterly wrong”

          IT IS AN UTTER STRAW MAN.

          “BTW, your nonsense that prices rise during recessions is contradicted by the evidence:
          http://research.stlouisfed.org/fredgraph.png?g=p0B
          Every single recession since 1970 has been accompanied by a falling CPI.”

          …..

          …..

          I don’t even…

          LK, that has got to be THE single most blatant contradiction I have ever seen you make in my entire life. I am serious.

          “Given the high degree of relative downwards rigidity in mark-up prices — demonstrated perfectly clearly in the fact that in virtually all recessions since the 1940s inflation continues — such mark-up prices cannot be being adjusted downwards to clear markets in recessions, because otherwise we would see deflation in every recession since 1945.”

          Hahahahahahahahahahaha

          Hahahahahahahahahahahaha

          Hahahahahahahahahahahahaha

          Hahahahahahahahah

          I….I think I am talking to a man with a brain injury.

          “M_F has been totally refuted on these points, and his only response is to say that in a purely imaginary, hypothetical world where prices fall, then by definition prices would fall.”

          Hahahahahahahaha

          ” So in other words, he has absolutely no idea what would happen in the future in any real world economy (whether interventionist or not).”

          Those two statements do not contradict each other.

          While I cannot know for certain whether or not central banks will inflate this much or that much, that doesn’t mean I cannot know that a higher supply of money will be associated with a lower purchasing power, ceteris paribus.

          The argument being made is not accurately described by your caricaturization of it.

          “if central banks and governments were abolished tomorrow, would prices adjust sufficiently to clear markets?”

          his only intellectually honest response would be:

          “I have no idea at all. I could not say: Austrian economics makes no predictions of any kind”.

          No, I would honestly, and acxurately, say that prices tend towards clearing in a free market.

          • LK says:

            (1) “The first issue is that in modern economies mark-up prices — the majority of prices — have a high degree of relative downwards rigidity.”

            Notice how you cannot give a straight answer on this: you are so fanatical you cannot admit basic facts about reality. Instead you turn to red herrings or evasions.

            (2) “you are talking about prices that are purposefully being targeted by central banks to increase over time.”

            Price aren’t “purposefully being targeted by central banks”. That is rubbish, and even suggests you follow monetarist inflation targeting nonsense.

            If central banks could really “target” prices, QE 1, QE 2, and QE 3 would have caused huge commodity inflation.

            (3) “Sellers do in fact reduce markup prices when there is a sufficient decline in nominal demand for their goods, and that degree of sufficient decline is unique to each seller. “

            Nah, M_F: if in the **worst depression** over the past 120 years, mark-up prices only fell by about 10%, when other prices fell by about 40 to 60%, then you are dealing with serious and clear price rigidity here, which simply thwarts your absurd notions of tendencies to market clearing.

            (4) Your comment:

            “BTW, your nonsense that prices rise during recessions is contradicted by the evidence:

            http://research.stlouisfed.org/fredgraph.png?g=p0B

            Every single recession since 1970 has been accompanied by a falling CPI.”
            http://consultingbyrpm.com/blog/2013/11/chinese-officials-are-backing-off-dollar-purchases.html#comment-89059

            Yes, M_F, we know this shows how incredibly ignorant you are — and for all to see.

            I suppose you were foaming at the mouth when you were confronted with that terrible and embarrassing error: one that shows you cannot read graphs properly.

          • LK says:

            “While I cannot know for certain whether or not central banks will inflate this much or that much, that doesn’t mean I cannot know that a higher supply of money will be associated with a lower purchasing power, ceteris paribus.”

            You cannot make any prediction about what will happen in the real world — by your own admission.

            All your statements are limited to imaginary worlds where all your theories hold only because you think prices clear by definition.

            • Keshav Srinivasan says:

              Lord Keynes, I think there’s a semantic issue going on here. If Major_Freedom or other Austrians have told you they can’t make predictions about what will happen in the real world, what they mean is that any predictions that they can make are couched in “ceteris paribus” terms, comparing the real world with a counterfactual world rather than just making a statement about the real world in isolation. For instance, they might say that praxeology predicts that binding minimum wage laws will increase unemployment, but what they actually mean is that unemployment is higher than what it would have been in the counterfactual world where the minimum wage law had not been passed. Apparently Austrians think that we can’t observe what would have happened in the counterfactual world, and that the results of praxeology are therefore empirically unfalsifiable.

              • LK says:

                No, keshav, M_F is making a far more extreme statement than that.

                See here:

                “There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
                http://consultingbyrpm.com/blog/2014/03/potpourri-188.html#comment-301632

              • guest says:

                You have it right, Keshav Srinivasan.

              • Major-Freedom says:

                No LK,

                Keshav is accurately describing what Austrians think on this issue.

              • Keshav Srinivasan says:

                Lord Keynes, I think what Major_Freedom was trying to say is that he believes that you can’t make any predictions about what will or won’t happen in the real world as such. For instance, to take the minimum wage example I mentioned before, Austrians would say nothing about whether the unemployment rate will go up, down, or stay the same in the aftermath of a minimum wage law being passed. So in that sense there are no predictions about what’s going to happen. The statements that they make are only about comparisons relative to counterfactual worlds.

              • Major-Freedom says:

                Keshav,

                Right. I would only qualify your post by reiterating that the inability to predict is meant to refer to human action, and what we know as economic data. It is not meant to be a universal claim about every phenomena.

              • Tel says:

                Apparently Austrians think that we can’t observe what would have happened in the counterfactual world, and that the results of praxeology are therefore empirically unfalsifiable

                This is a universal problem with all attempts to apply empiricism to macro economics — no control experiment. Austrian economists are more open about the problem, other economists tend to just ignore it.

                Keynesian stimulus is equally empirically unfalsifiable. If the stimulus fails, we just say it wasn’t big enough.

            • guest says:

              Prices do clear, by definition:

              The item sells; or the item is voluntarily held / taken off the market (the seller is the highest bidder).

              The market clears in each case.

              When sellers take items off the market, this is revealing the market’s tendency to arrange production processes in a way that satisfies consumer preferences. (In other words, you shouldn’t expect to make a profit off of making things that people don’t want.)

        • Major-Freedom says:

          For the record, in case anyone wants an HONEST description if what I said about falling prices since 1970, specifically included “falling TREND”. The trend did indeed fall in every recession. Out right price decreases would have been observed in every recession like 2008 if the central bank allowed sufficient monetary contraction and spending declines.

          LK doesn’t grasp the quantity theory of money.

          • LK says:

            No, M_F: you said “falling TREND” in the next comment when you’d realized you had made a bad mistake.

            Look at your comment:

            “BTW, your nonsense that prices rise during recessions is contradicted by the evidence:

            http://research.stlouisfed.org/fredgraph.png?g=p0B

            Every single recession since 1970 has been accompanied by a falling CPI.
            http://consultingbyrpm.com/blog/2013/11/chinese-officials-are-backing-off-dollar-purchases.html#comment-89059

            You thought that it is “nonsense that prices rise during recessions” — contrary to reality. You could not read that graph properly.

            • Major-Freedom says:

              LK

              No, I typed in falling trend after I realized I had made a minor typo.

            • Major-Freedom says:

              The point is that the reason why prices can increase at a lower rate with modest monetary contraction, or a lower rate of monetary expansion, is the same reason why prices can outright fall with even greater monetary contractions, as what occurred post 1929 amd post 2008.

              The reason sellers can decrease the rate of price increase from 3% to 1%, is the same reason why they can decrease the rate of price increase to -2% or whatever, according to what they expect to maximize their profit, or minimize losses.

              If they are wrong, then they have an incentive to adapt and change, and people respond to incentives.

              You have not refuted that this.

    • guest says:

      Also, you guys are so tough on each other. I mean, geez, I had no idea economics was so, well … exciting.

      LOL

      And fun, too:

      “Fear the Boom and Bust” a Hayek vs. Keynes Rap Anthem
      [www]http://www.youtube.com/watch?v=d0nERTFo-Sk

      Everyone here has been awesome and top notch; Lord Keynes, included.

      I have learned so much from these guys.

      If you feel that you need to understand why Austrian Economists are so passionate about economics, I recommend this video:

      Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr.
      [www]http://www.youtube.com/watch?v=HAzExlEsIKk

  17. Bob Roddis says:

    It’s important to note that all economic laws can and must be discerned from superficial, incomplete, broad and purely anecdotal historical analysis of aggregate statistics:

    First, some miscellaneous facts. The US became part of the international gold standard in 1879, though it had no central bank until 1913. The US went off the gold exchange standard in 1933, and from the late 1930s/1940s shifted to a fundamentally different monetary and fiscal system.

    One of these changes was that the government started to collect detailed economic data, whereas we lack such high quality data for the period before the 1940s.

    Estimates for many pre-1914 economic variables are hardly definitive.

    Hanes notes that we should sometimes be careful about making strict comparisons between estimates of some economic variables before the 1930s with the post-1945 data, because the two sets of data are often uneven and difficult to compare properly.

    Take inflation rates. Historical price indices before the 1930s include a higher degree of “less-processed goods” or flexprice goods rather than manufactured goods (which tend to be fixprice), so that the volatility of pre-1945 inflation rates is higher than post-1945 rates, and that pre-war volatility may be a result more of the data used (Hanes 1999).

    http://socialdemocracy21stcentury.blogspot.com/p/hanes-2013-provides-highly-useful.html

    • guest says:

      … rather than manufactured goods (which tend to be fixprice) …

      Is that a prediction? …

    • LK says:

      “purely **anecdotal** historical analysis “

      lol… You are ignorant of what the word “anecdotal” even means.

      Public facts attested by vast empirical evidence do not constitute anecdotes.

      If I said that Neil Armstrong walked on the moon in July 1969, you’d scream it is just an anecdote.

      • Observer says:

        Economic data are useless without a theory that explains them. Stating that the markets for certain goods are “fix-price” and that certain prices exhibit “downward rigidity” makes no contribution to the understanding of economics. You have provided no explanation of why the prices of certain goods are less flexible than others. You have provided no explanation of why so-called “fix prices” do actually change, albeit more gradually than other prices. Understanding such phenomena requires economic theory, not data.

          • Major-Freedom says:

            That data requires a proper theory to correctly interpret.

          • Observer says:

            I looked at your link. Just a list of surveys and not even surveys of actual prices – just how how business managers say they set prices.

            It’s no surprise at all that most producers price their products by applying a mark-up to their costs – they do that because they need to make a profit to stay in business. The point is that both their costs and the size of the mark-up varies. To explain why, you need economic theory, not just data.

            Any business would prefer not to reduce the price of its goods if demand falls. What stops them from doing so is competition. The downward “price rigidity” observed happens because some markets are less competitive than others, particularly when goodwill and brand loyalty play a big part in consumer choice. But dividing markets up into “fix-price” and “flex-price” is facile and obfuscates a proper understanding of what is going on. Economics without economic theory is not economics.

            • LK says:

              (1) “Just a list of surveys and not even surveys of actual prices “

              There are plenty of econometric studies and price index data showing the relative downwards rigidity of many modern prices.

              Any informed person who knows about economics would already be aware of such data — but clearly you are not.

              (2) That you think there is no economic theory involved in that post only shows how ignorant you are.

              • Observer says:

                I’m not denying the existence of “relative downward rigidity” in prices, you ass. I’m pointing out that all it proves is that some prices are less volatile than others, not the existence of your mythical “fix-price” markets. You have cited no economic theory whatever to explain differences in price volatility, other than to state that the the world is mysteriously divided into “fix-price” and “flex-price” markets. The existence of such a mystery is clearly of no interest to a pseudo-economist such as yourself.

  18. Bob Roddis says:

    1. Query: Has LK ever identified an actual firm and/or product and/or time and/or location for any of his “fixprice” anecdotes?

    2. We’ve long since learned that the basis of LK’s “analysis” ultimately amounts to nothing but “fixprice” and Hyman Minsky. There’s really nothing new to draw out from LK so that we might to be alerted to some unfamiliar “analysis”. (If other people learn from debating him at this point, that’s fine.) Minksy propounded a completely superficial analysis which embarrassingly and purposefully ignores the price distortions induced by funny money emissions and loans. I submit that such purposeful avoidance of Austrian analysis is academic fraud. According to Minsky, the boom and bust all happen “just cuz” and/or because engaging in the boom makes sense in the short run while ignoring even mentioning the actual cause. Listen to this frightening BBC broadcast (if you have 30 minutes of your life to waste) where the speakers are uniformly oblivious to the idea that funny money loans created out of thin air induce false and unsustainable prices (and who are oblivious to the concept of violent intervention vs non-intervention):

    http://socialdemocracy21stcentury.blogspot.com/2014/05/bbc-radio-interview-on-minsky.html

    Some of the “analysis”:

    Minksy would also would have approved of the policy response to the 2008 crisis: Using government spending to stimulate demand and the central bank to provide support for the financial system. ******

    We really have to get a grip on why the system generates these periods of instability and that’s Minsky greatest legacy.

    We have a response to the crisis that might please Minsky: Governments and central banks combining to have more control over the financial system. To lean against the wind of cyclical instability that Minsky identified.

    There’s nothing new for any of us here. It’s just all the same-old same-old phenomenon of them hiding from us under the bed. We need to call them out.

    • LK says:

      “Query: Has LK ever identified an actual firm and/or product and/or time and/or location for any of his “fixprice” anecdotes?”

      Again, you haven’t the slightest understanding of the meaning of the word “anecdote”.

      As for evidence, you see over 21 surveys from 21 different nations right here, showing how mark up prices are the majority of prices in nearly all nations.

      • Bob Roddis says:

        I’ll take that as a “no”.

        • LK says:

          lol.. you can easily find vast numbers of individual cases just by googling the relevant words (“prices, cost-based, mark-up, etc”).

          E.g, pharmaceuticals companies:

          “Covering costs is a central objective of pricing strategies, and is established by product specifications. Cost pricing provides the benefits of achieving return on investment, but needs to be set with a determined recovery period. For instance, GlaxoSmithKline’s pharmaceuticals command high premiums so that they might recoup development costs before the drugs become commoditised.
          https://henleybusinessreview.wordpress.com/tag/management-2/

          • Major-Freedom says:

            None of your anecdotes or surveys prove that factor prices and thus costs cannot decrease or increase in expectation of, or in response to, decreases or increases in nominal demand.

            As a result, none of your anecdotes or surveys refutes the theory that prices, including markup prices, tend towards clearing in a free market.

            • LK says:

              Thanks for proving you do not know the meaning of the word “anecdote.”

              • Tel says:

                Is that a flexible market price, or a fixed market price?

          • Tel says:

            The next bit from the link you quoted above LK:

            Market

            Geocentric strategies have been developed to balance local conditions with the risk of pricing arbitrage. They consider the different levels of wealth and development across global markets. Correspondingly, prices vary even within clustered economies. In terms of consumer prices, Demark is 42% higher than the average EU state, whereas Bulgaria is 49% below the average.

            Market pricing relies on market forces to set price levels. This enables companies to maintain their positions through fluctuations in demand, but can result in a lack of differentiation between market offers. Due to this pricing method, the competition between Swedish food retailers was unresolved through the 2000s.

            Clearly they recognise that adaptation to local demand is an absolutely unavoidable part of sales strategy. No one in business can afford to ignore the effects of demand, and of market forces.

            I presume you are just checking to see who is lazy and who can be bothered following up your links? Anyhow, I’m jammed on a commuter train here and sober too, so reading your links is as good as it gets for me right now.

            • LK says:

              And since I never said that market pricing does not exist, that section does not contradict anything I said.

              You’re a joke, tel.

              • Tel says:

                Oppse, I responded above.

                Never mind, you are correct that I don’t take this discussion too seriously any more, but then again, I long ago lost track of what you actually were claiming.

                Something about fixed prices. Which means sort of fixed, not actually fixed. Administered, yet marketty at the same time. Real, but also unreal, verging on surreal, almost poetry.

          • Observer says:

            “Covering costs is a central objective of pricing strategies”

            A banal statement which applies to any business. It does not mean prices don’t change in response to market forces. It does not stop the structure of relative prices adapting to changes in scarcities and preferences.

      • Bob Roddis says:

        “Mark up pricing” and “fixprice” is already subsumed by basic analysis of human action. This entire line of “debate” is silly and preposterous.

        • LK says:

          So you agree it exists and on a large scale too? Or are you — like M_F — a clownish reality denier?

          • Bob Roddis says:

            I’m not clear on what “it” actually is divorced from generic human action. In everything people do, they take into account the cost of an action before doing it or they wouldn’t do it.

            If you have evidence that people cut production and not prices in bad times, I would think that is normal and subsumed by human action. It does not justify or validate your constant calls for violent intervention nor does it in any manner explain the problems of business cycles and/or wealth and poverty. Take your “argument” to the public and I’ll take mine.

          • Major-Freedom says:

            I never denied the existence of cost plus markup pricing.

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