11 Nov 2014

Martin Wolf, Closet Austrian?

Federal Reserve, Shameless Self-Promotion 51 Comments

Is this from the FT or the Peter Schiff show?

Huge expansions in credit followed by crises and attempts to manage the aftermath have become a feature of the world economy. Today the US and UK may be escaping from the crises that hit seven years ago. But the eurozone is mired in post-crisis stagnation and China is struggling with the debt it built up in its attempt to offset the loss of export earnings after the crisis hit in 2008…

These credit booms did not come out of nowhere. They are the outcome of the policies adopted to sustain demand as previous bubbles collapsed, usually elsewhere in the world economy. That is what has happened to China. We need to escape from this grim and apparently relentless cycle. But for now, we have made a Faustian bargain with private sector-driven credit booms. A great deal more trouble surely lies ahead.

Find out here!

51 Responses to “Martin Wolf, Closet Austrian?”

  1. Major.Freedom says:

    Yup, Martin Wolf’s diagnosis is indistinguishable from the Austrian diagnosis.

    Good catch Murphy.

  2. LK says:

    Robert Murphy,

    You are doing nothing here but desperately reading into Wolf’s remarks the idea that it’s Austrian analysis, when It is not.

    As for Wolf himself, he has clearly committed himself to Keynesian economics, as even your fellow libertarians frankly acknowledge:

    “Since the financial crisis broke in 2008, the Financial Times’ resident economic expert and leading commentator, Martin Wolf, has decidedly veered to the left. Having rediscovered the Keynesian faith and having apparently terminated his long public love affair with “free market economics” loosely defined, he has become a reliable cheerleader for fiscal and monetary ‘stimulus’ of all kind. His disdain for those still attached to free market principles and fearful of the consequences of endless debt accumulation, interest rate repression, and “quantitative easing”, is increasingly palpable in his writings.
    http://detlevschlichter.com/2014/04/martin-wolf-only-the-ignorant-live-in-fear-of-hyperinflation/

    Some neoclassical Keynesians and certainly Post Keynesian/heterodox Keynesians are very well aware that credit and credit cycles have a fundamental role in business cycles, especially when debt is used to fuel asset bubbles. Wolf agrees with this.

    That is NOT an endorsement of the ABCT by Wolf. Wolf is NOT saying banks or a central bank are driving a money rate below the natural rate of interest and inducing an unsustainable lengthening of the capital structure.

    Wolf is pointing to asset bubbles as a driving destabilising force, which they NEVER are in the classic ABCT writings of Mises, Hayek or Rothbard.

    Wolf’s solution to excessive credit creation and debt-fuelled asset bubbles is: effective financial regulation, as previously argued by Hyman Minsky.

    Robert Murphy, you could actually have done your homework on Martin Wolf, and explained why his maverick Keynesian analysis looks **superficially** like Austrianism, but how on closer inspection it is not.

    Instead you want to engage in a ridiculous fantasy that Wolf ‘s analysis is somehow grounded in or the same as Austrian economics, when it is not.

    • Bob Murphy says:

      LK wrote:

      As for Wolf himself, he has clearly committed himself to Keynesian economics, as even your fellow libertarians frankly acknowledge…

      Or, as even I myself acknowledge, in the very post you are criticizing.

      Sometimes LK you really are a bit much…

      • LK says:

        See below please.

      • LK says:

        And I should add: yes, I was wrong to imply or accuse you of not understanding that Wolf self-identifies as a Keynesian. I fully retract that and apologise.

        However, the fundamental points remain:

        (1) no, Wolf’s analysis of what caused the crisis is NOT “thoroughly Austrian”

        (2) you seem ignorant of how heterodox Keynesians/ Post Keynesians also focus on credit cycles, but how their analysis is very different from Austrian economics and the ABCT

        (3) I suspect you haven’t actually read enough of Wolf’s writing to see how he himself has noted some similarities between Austrian and Post Keynesian analyses, but profound differences in how they explain both the causes of and solutions to the crisis.

        • LK says:

          Finally:
          (4) You say:

          “At this point, more and more economists and analysts agree on the causes of our problems. Now we’re just disagreeing on the solutions.

          No, that is just awful wishful thinking.

          You are desperately trying to claim that Post Keynesians and their sympathizers in the media like Wolf have somehow “converted” to Austrian theory and that Austrian economics has somehow been spectacularly vindicated. As I said above, this is just a silly fantasy.

          Why not actually seriously engage with Post Keynesian theories and read their writings?

          • Major.Freedom says:

            LK,

            What you believe to be the cause of the cause of undue credit expansion, is really your perceived ideal cure stated indirectly by what happens when the cure is lacking.

    • Tel says:

      Under a Keynesian system there isn’t a bubble, right? I mean prices are fixed for starters, but when they aren’t fixed they are sticky, and if prices go up, that’s healthy inflation caused by wonderfully boosted aggregate demand.

      If prices don’t go up, that’s dreadful lowflation and a sure sign of not enough stimulus. We all know bubbles are therefore impossible.

      Wolf must be talking about something else.

      • LK says:

        It’s pretty much the case that every time you open your mouth you show little you know about Keynesian economics, tel.

        (1) Post Keynesians and even a number of New Keynesians recognise the existence of asset bubbles and their destabilising macroeconomic role.

        (2) that many newly produced **goods** have mark-up prices that tend to be inflexible with respect to demand doesn’t contradict (1).

        • Innocent says:

          LK

          How do asset bubbles form? Does what is invested in matter? COULD Government spending to ‘stimulate’ the economy cause mal-investment and the formation of a new bubble?

          Why pay people for ‘labor’ when it is obviously not needed, why pay someone to dig a ditch and then fill it up again as any stimulus would ‘work’ in getting an economy going again? Is it not due to the very fact that if you simply ‘hand’ money out it would be a form of mal-investment?

          Could you not simply stimulate an economy by removing taxation and having the government shuffle money to and from itself?

          I love reading Keynes, however I have to say that few people who are ‘Keynesian’ seem to actually follow what he said. For instance the need to NOT have trade deficits as it defeats the purpose of stimulus etc.

          Regardless I think Bob was simply attempting to point out that there was a commonality between beliefs. That bubbles can be formed due to asset allocation and mal-investment in the next cycle. Rather than using funds as a stop gap in ‘Keynes’ and create a STABLE public sector, it instead primes the pump for the next bubble.

          Finally I would suggest that Keynes was of course correct that if you create demand supply will follow. But the problem is WHAT kind of demand are you going to make?

        • Tel says:

          Does “Aggregate Demand” measure demand for assets or demand for goods?

          Suppose asset prices are going into a bubble (increasing) and assets are changing hands at an increasing rate (in a “flip that house” kind of style), what happens to “Aggregate Demand” ?

          How does this “bubble” effect reconcile with an AD–AS model that always shows the aggregate demand curve sloping downward (higher price means less demand) ?

  3. LK says:

    “Now to be sure, Wolf is still a Keynesian in his prescriptions: he wants more monetary and fiscal stimulus. But my point with this post is to show that his diagnosis is thoroughly Austrian.”

    No, you couldn’t be more wrong about Wolf’s “diagnosis” being “thoroughly Austrian.”

    You don’t even understand that Wolf thinks the “causes” of the asset bubbles, excessive private debt and business cycles over the past 20 years are:

    (1) dismantling of effective financial regulation
    (2) the giving up of government fiscal stimulus as a way to maintain high employment, and
    (3) the inherently destabilising effect of poorly regulated financial markets — as in Hyman Minsky’s theories.
    —————————–
    It is because you are apparently to lazy to read heterodox Keynesian writings — or probably many of Wolf’s own Keynesian writings and analysis — that you mistakenly think that his analysis is “thoroughly Austrian”.

    Have you even read Martin Wolf’s The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis? Right in the preface Wolf commits himself to a Post Keynesian analysis, and explicitly endorses Hyman Minsky’s theories.

    Right in the preface, Wolf notes that there is a superficial similarity between Austrian and Post Keynesian analyses, but profound differences in the explaining both the causes of and solutions to the crisis:

    “Naive economics helps cause unstable economies. Meanwhile, less conventional analysts would argue that crises are inevitable in our present economie system. Despite their huge differences, the ‘post-Keynesian’ school, with its suspicion of free markets, and the ‘Austrian’ school, with its fervent belief in them, would agree on that last point, though they would disagree on what causes crises and what to do about them when they happen”
    Martin Wolf, The Shifts and the Shocks: What We’ve Learned—and Have Still to Learn—from the Financial Crisis , p. xvii.

    • guest says:

      “… Wolf thinks the “causes” of the asset bubbles, excessive private debt and business cycles over the past 20 years are:

      “(1) dismantling of effective financial regulation …

      “… (3) the inherently destabilising effect of poorly regulated financial markets …”

      Banks are only willing to make such risky loans because they know that the government will bail them out.

      A free market would threaten such risky loans through bank runs, absenst government-granted privleges such as bank holidays.

      There’s nothing inherently wrong with making risky loans.

      The government is to blame, not the banks, per se.

      • LK says:

        “Banks are only willing to make such risky loans because they know that the government will bail them out.”

        The Australian banking crisis of the 1880s and 1890s says otherwise.

      • LK says:

        So do most of the American banking crises of the 19th century

    • Bob Roddis says:

      Australia provides insight into the insanity of fractional reserve banking employing specie in the late 1800s. It is precisely the mess that Austrian analysis would predict. Naturally, that means LK blames it all on us.

      Australia provides a textbook example of free banking in practice. One writer on the subject commented that in Australia “the legal framework with which banks operated was perhaps the least restrictive of any on
      record” (Dowd 1992).Butlin (1953),commented that “there was no tender law, no central bank, no legal control over the total volume of bank loans, and only a very primitive control by the banks themselves through a loosely applied rule of thumb (cash reserves should be to one-third the sum of deposits and notes) concerning reserves against all liabilities”.

      The 1840 Colonial Bank Regulations issued by British Treasury governed colonial banking. The requirements included that: capital should be a determinant amount and must be fully subscribed; total debts must not exceed three times the paid up capital and that all notes were to be payable on demand in specie at the place of issue. Failure to pay on demand for a total of 60 days in any year entailed forfeiture of incorporation. Personal liability for bank shareholders was capped at an amount equal to twice capital and loans against real estate, shops or merchandise were to be prohibited. Amendments to the regulations in 1846 limited the note issue to the amount of paid up capital.

      Banking was not substantially affected by the regulations, however. For example, the restrictions on total debt and note issue were largely ignored (Butlin 1986). Likewise, banks found loopholes around the prohibition on lending for land (Pope 1989). In practice, Australian colonial banks were allowed to raise the limits on note issue by including coin and bullion in paid-up capital. Over time, even this stricture was relaxed; by 1856 the Bank of Australasia secured a licence to print private notes up to the value of three times its specie and bullion holdings. Reserve requirements were easily met as “double counting” was permitted: reserves used to back the note issue were simultaneously used to provide liquidity in the event of a deposit withdrawal. Rules limiting total indebtedness were also no threat because deposits were excluded.

      This freedom of note issue was, however, accompanied by strong liability provisions. In most colonies by the late 1860s, shareholders had unlimited liability for their note issue (Pope 1989).

      Source is OPTIMAL REGULATION OF ELECTRONIC MONEV: LESSONS FROM THE “FREE BANKING” ERA IN AUSTRALIA by THOMAS A. ROHLING AND MARK W. TAPLEY*
      Economic Papers: A journal of applied economics and policy

      Volume 17, Issue 4, pages 7–29, December 1998

      http://critiquesofcollectivism.blogspot.com/2011/02/john-quiggin-on-abct.html?showComment=1298001476947#c6188943951814638041

  4. Major.Freedom says:

    LK,

    Murphy’s only argument, which is valid and you have not at all refuted or even challenged in your accusations, retractions and rescues, is that the section Murphy quoted, which is a largely self-contained argument, is indistinguishable from textbook, traditional ABCT.

    Remember, ABCT is a theory of booms. It attributes causes of cycles to deliberate government policy of credit expansion. Mises called it the credit circulation theory.

    You talk about “profound differences”. That is clearly inaccurate, because they are two theories of cycles both based on credit expansion as the cause. Any differences must necessarily be minor, such as precisely how the credit expansion brings about the boom, and totally apart from ABCT, what people “ought” to do to eliminate/reduce it.

    What you are talking about is the cause of the cause. Namely, the cause of the credit expansion. Wolf would argue that the cause of the cause is the free market, whereas Austrians would argue that the cause of the cause is government. This does not make the theories profoundly different. The theories remain profoundly similar.

    By attributing the cause of the cause to the free market, Wolf is indirectly suggesting a solution, which Murphy understands. By arguing that the cause of the cause is the free market, Wolf is suggesting the solution is using force of government to maintain the abolition of the free market and continually replacing it with “better” control by men with badges and guns who have problems respecting other people’s property rights. Or what you call “regulation”.

    By attributing the cause of the cause to government, Austrians are indirectly suggesting a solution, which Wolf understands. By arguing that the cause of the cause is government, Austrians are suggesting the solution is eliminating/reducing force of government and allow individuals to engage in the free market process. Or what you call ” the land of unicorns and faeries.”

    Murphy is right. He is just a step ahead of you as usual. He understands that the “profound differences” you and Wolf believe exist in Wolf’s diagnosis, are really an indirect communication of the preferred solution. For Wolf, it is more pipe dreams that has never worked and never will work, because statesmen lack the necessary knowledge to do what he believes they must do, and for Austrians it is more pipe dreams that has not been tried but can work and will work, because individuals controlling their own property is the best way for scarce resources to be allocated in accordance with real world individual preferences.

    Murphy is not claiming Wolf is Austrian. He is not claiming that Wolf is knowingly advancing Austrian theory. What he is saying is that the section he quoted from Would is indistinguishable from Austrian theory. And he is right. I read that passage, and it is one I can totally see myself saying. There is nothing in that passage that contradicts Austrian theory.

    It is time to put up or shut up LK. I challenge you to clearly make a case for which part of that passage Murphy quoted, is either inconsistent with Austrian theory, or flatly contradicts it. And the rule is that you are not permitted to include ANY additional beliefs or arguments from Wolf that are not in that quote itself, to “color” your interpretation of the words. Remember, Murphy’s argument has always been about that one single quote as it is written. He has made no other claim.

    Or, imagine an Austrian saying those words. Are you suggesting that your response would be anything other than “yeah yeah yeah, I’ve heard this a million times from you Austrians. Save it. What you argue might very well occur in your ideal ancap society, so don’t blame government as the cause of the cause for the cycles.”

    • Bob Murphy says:

      You’re right MF, my point was that Wolf was indistinguishable from Austrians in his diagnosis, in that column. I didn’t mean that if you read everything Wolf has ever written, he’d pass a Mises Turing test.

      But for what it’s worth, this is from Krugman’s review of Wolf’s book:

      “Low interest rates, in turn, helped inflate an enormous housing bubble.”

      (Talking about Spain after adopting euro.)

      Man that is the furthest thing from ABCT isn’t it.

      (I know I know LK, he’s not saying the low interest rates were caused by the issuance of fiduciary media and the sinful deviation from 100% reserve banking.)

      • LK says:

        “You’re right MF, my point was that Wolf was indistinguishable from Austrians in his diagnosis, in that column. I didn’t mean that if you read everything Wolf has ever written”

        Oh god!! I actually did not think you sink so low as to invoke this justification!

        So you are telling me that when you said “thoroughly Austrian” you meant that **only** by taking a selective quote from Wolf taken out of context and by ignoring everything else Wolf says can we say that his analysis is “thoroughly Austrian”??

        hahahahahaha

        • Major.Freedom says:

          Finally! LK gets it!

          Hahahahahaha

          And all it took was…repeating the same argument over and over umpteen different ways until he got it.

          And you wonder, LK, why Austrians keep saying the same things in general to you over and over again umpteen different ways!?

    • LK says:

      “Wolf would argue that the cause of the cause is the free market, whereas Austrians would argue that the cause of the cause is government. This does not make the theories profoundly different. “

      A perfect example of incoherence, plain contradiction and desperation.

      “Murphy is right. He is just a step ahead of you as usual. He understands that the “profound differences” “

      If Murphy understood the “profound differences”, he would never have said that Wolf’s analysis is “thoroughly Austrian.”

      Are we now to understand that when Murphy said “thoroughly Austrian” he meant that only by taking a selective quote from Wolf taken out of context and by ignoring everything else Wolf says can we say that his analysis is “thoroughly Austrian”?? hahaha.

      You’re not doing Bob Murphy any favours here, M_F. You are making it worse.

      • Major.Freedom says:

        Blah blah blah, you’re just thumbing your nose with that post. You did not refute any of the passages you quoted. You essentially just quoted and said “nyahh”.

        Yes, that selected quote. Selecting quotes is necessary whenever we want to write something that someone else wrote, if we want to avoid writing Wolf’s complete works on this one thread.

        • LK says:

          I repeat: so you think selective quotation of your opponents out of context and ignoring what they actually believe can “prove” that your opponents have a “thoroughly Austrian” view of the causes of business cycles?

          • Major.Freedom says:

            It can do what Murphy only set out to do, which is realize that the quote posted is a thoroughly Austrian argument on business cycles.

            Murphy never said, and he clarified this in the comments, that Wolf’s entire body of work is Austrian.

            How can Murphy have quoted Wolf out of context when Murphy never suggested the context was anything? All he did was post an argument, and say wow, an Austrian could have said that.

            You still have not refuted this.

            • LK says:

              On the contrary, Murphy says:

              “Now to be sure, Wolf is still a Keynesian in his prescriptions: he wants more monetary and fiscal stimulus. But my point with this post is to show that his diagnosis is thoroughly Austrian.”

              If Murphy meant that Wolf’s “diagnosis is thoroughly Austrian” **only** in the sense of ignoring what he actually believes and only by selecting quoting him out of context, then Murphy is being deliberatively misleading.

              • Major.Freedom says:

                Yes, his diagnosis….AS WRITTEN IN THE QUOTE.

                That quote is a diagnosis.

                Murphy is not misleading anyone. He made explicit that Wolf is a Keynesian, that if you read all of Wolf’s works that he isn’t Austrian.

                Do you know who is misleading? You are. You are mischaracterizing Murphy’s argument.

              • LK says:

                “Yes, his diagnosis….AS WRITTEN IN THE QUOTE.”

                You mean: as dishonestly interpreted in the quote by deliberately ignoring what Wolf actually thinks

              • Major.Freedom says:

                No, I mean his diagnosis as written in the quote, with Murphy’s deliberate consideration of what Wolf actually thinks and presenting his position honestly.

      • Major.Freedom says:

        Put it this way LK, how easy do you think it would be for someone to “quote you out of context” such that the paragraph they quote from you is something they would say that is derived from Austrian theory?

        Have you written anything as close to Austrian theory, as what Murphy quoted from Wolf, that a random reader might think an Austrian wrote and not you?

        If you find that question difficult to answer, then you should be able to get Murphy’s point.

    • LK says:

      “Remember, Murphy’s argument has always been about that one single quote as it is written. He has made no other claim. “

      Murphy made no such “claim”. He simply cited a passage from Wolf and then claimed that Wolf’s “diagnosis is thoroughly Austrian” — a statement which strongly implies that this is REALLY a correct statement of what Wolf’s thinks about the causes of the crisis, not just in a short quote taken out of context.

      • Major.Freedom says:

        No, it “implies” no such thing. The diagnosis as written in the quote is thoroughly Austrian.

        Disagreements over cause of the cause does not refute this.

        The quote was not taken out of context because Murphy never attributed any context to it that would even make such a context or differ from the original.

  5. Bob Roddis says:

    Wolf and LK are Minsky-ites. Their theory is essentially the Austrian explanation with the self-evident economic calculation/prices-as-information analysis excised and replaced by the profoundly anti-empirical pseudo-religious “animal spirits” explanation. As I explained here on April 5, 2012:

    http://consultingbyrpm.com/blog/2012/04/more-krugman-mayhem-regarding-the-hoover-record.html#comment-35883

    • LK says:

      “Their theory is essentially the Austrian explanation …”

      If this tired nonsense were true, you could cite me passages in the classic ABCT writings of Mises, Hayek or Rothbard mentioning how debt deflation thwarts recoveries if prices and wages fall, or how destabilising poorly regulated financial systems can be, or how asset price inflation can be a driving force of business cycles.

      • Bob Roddis says:

        Debt deflation is important for both theories. Again, the Keynesians, being anti-empirical and authoritarian, excise from their analysis how distorted prices need to adjust to reality during the bust. The Keynesians, being so authoritarian, need an explanation the calls for them to keep sticking their fingers in everyone else’s soup.

        Austrian explanation: The boom and bust is caused by Keynesian interventionist policies creating false and distorted prices.

        Keynesian explanation: The boom and bust is caused by completely irrational free market actors and can only fixed (and prevented) by us much much wiser Keynesian overseers.

        • LK says:

          “Debt deflation is important for both theories.”

          False. It is not important for the classic ABCT. And there are no references to it in any of the classic ABCT writings of Mises, Hayek or Rothbard.

          • Major.Freedom says:

            We’re POST Austrians, LK.

            Lol

            • Major.Freedom says:

              Unlike the New Austrians, and the NeoAustrians, we Post Austrians believe we capture THE TRUE ESSENCE of Austrian theory.

              Checkmate

          • Major.Freedom says:

            LK, show me where in classic ABCT did Mises or Hayek include flying time travelling cars.

            If you can’t, then you have proved that Mises and Hayek deliberately left it out because they believed there is no way for central banks to cause malinvestment in flying time traveling cars.

            Good catch!

            So if they did not include debt, it means they believed debt is immune from malinvestment as well, and that investors can never be misled in pricing debt due to central bank intervention.

            Hahaha

          • Major.Freedom says:

            LK,

            ABCT is a theory of booms predicated on credit expansion.

            Credit is debt.

            Wake up

          • Bob Roddis says:

            False. It [debt deflation] is not important for the classic ABCT. And there are no references to it in any of the classic ABCT writings of Mises, Hayek or Rothbard.

            Right. Because when unsustainably high (and profitable) prices collapse and neither sales nor debt payments can be made, there is no deflation.

            And when debts can’t be paid and Austrians call for “liquidation”, there is no debt and no deflated prices.

            Sigh.

            • LK says:

              “Because when unsustainably high (and profitable) prices collapse and neither sales nor debt payments can be made, there is no deflation.”

              Uh huh…. When prices fall, there is no deflation? This is like saying “when it rains, there is no rain.”

              Whatever you say, bob… Clearly we’re in the presence of genius here.

              • Bob Roddis says:

                I was being facetious. Unsustainable levels of private debt induced and facilitated by Keynesian policy followed by deflation and business failures is central to Austrian analysis.

              • Major.Freedom says:

                Come on LK, that could not have been more sarcastic.

      • Major.Freedom says:

        LK is right. Minskyites also add their pseudo-religious “some individuals imposing coercive and harmful power against other individuals who have violated nobody’s property rights, improves everyone’s life” explanation.

        At any rate,

        1. Debt deflation HELPS when prices and wage rates fall, and prices and wage rates falling HELPS when debt deflates.

        2. State regulation is inherently destabilizing, because it is inherently a property rights violator, and it is property rights violations that is the root cause of destabilization. The world market portfolio is the portfolio with least systemic risk precisely because the world market portfolio most resembles and is closest to private property anarchy.

        3. Asset prices don’t just rise for no reason. Either there was an actual increase in saving and investment, which is not a driving force of business cycles at all, or there was inflation/credit expansion, which Minskyites agree is the proximate cause.

  6. Bob Roddis says:

    Philip Pilkington November 12, 2014 at 6:36 AM

    Wolf also uses the sectoral financial balances as his favourite macro tool. I’m pretty sure he picked this up at the Levy conferences.

    http://www.concertedaction.com/2012/07/19/martin-wolf-on-wynne-godleys-sectoral-financial-balances-approach/

    Unfortunately Wolf has recently jumped on the 100% reserves train. He still doesn’t quite get modern money creation.

    Another leading figure in the UK who has come to support PK ideas is Adair Turner. He has put a lot of effort into criticising the natural rate of interest theory and putting Minsky explanations front-and-center.

    http://ineteconomics.org/sites/inet.civicactions.net/files/Frankfurt%20Escaping%20the%20debt%20addiction%2010%20FEB.pdf

    We had a discussion a few weeks ago and he has since changed his speech to be even more critical of the natural rate theory. In a speech a few weeks back at Chicago (!) he said:

    “In an advanced economy where existing real estate accounts for the majority of
    all assets, and real estate lending the majority of all credit supply, there is no one natural
    rate of interest rooted in the physical reality of investment returns, but several different and
    potentially unstable expected rates of return.”

    I also sent Turner your posts on the history of the natural rate concept, LK. But yes, the Austrians will latch onto people like Wolf and Turner and say that they are Austrian. This is because the Austrians think that they are the only ones with a credit cycle theory. Of course, if they knew their history they would know that Keynes began work on credit cycles in his Treatise on Money and Hayek wrote a critical review of it.

    http://socialdemocracy21stcentury.blogspot.com/2014/11/watch-as-robert-murphys-analysis-of.html?showComment=1415803007516#c696705790533270746

  7. Bob Roddis says:

    Martin Wolf, closet MMTer.

    Martin Wolf proposes MMT-like policy course for UK:

    ..The pity is that the Bank’s new money is going to buy long-dated government debt. That will not achieve much, given how low yields already are. As the prime minister might say, policymakers need a bigger “bazooka”. It would be more effective if newly created money paid directly for government spending. The government could send £1,250 to each citizen resident in the UK. It could also use new money to purchase private debt, including loans to small businesses. This is off-balance sheet public spending. If the chancellor decides to call it “credit easing”, that is absolutely fine….

    Read the full post at The Financial Times, Time has come for some intelligent policymaking.

    http://mikenormaneconomics.blogspot.com/2011/10/martin-wolf-proposes-mmt-like-policy.html

    • Tel says:

      This is off-balance sheet public spending.

      How to hide your junk with dodgy accounting. Also, how to destroy any last vestige of faith anyone might still have for civil institutions.

  8. Ag Economist says:

    Nicholas Cachanowsky posted a link to an article by Rognlie, Shleifer, and Simsek that drew heavily from the Austrian view, specifically citing Hayek. I’ve seen a few other “mainstream” articles talking about ABCT, but several of them get key theoretical components wrong, like failing to make the distinction between over-investment and mal-investment… obviously their models rely too heavily on overly-aggregated variables.

  9. Bob Murphy says:

    If only the labor theory of value were true, this thread would be golden…

    • Andrew_FL says:

      Ah that’s the last thing we need, to bring the neo-Ricardians into the mix.

  10. Tel says:

    AEP is an intelligent guy, but sadly blighted by a Keynesian belief system.

    http://www.telegraph.co.uk/finance/economics/11226558/Spreading-deflation-across-East-Asia-threatens-fresh-debt-crisis.html

    Factory gate prices are falling in China, Korea, Thailand, the Philippines, Taiwan and Singapore. Some 82pc of the items in the producer price basket are deflating in China. The figures is 90pc in Thailand, and 97pc in Singapore. These include machinery, telecommunications, and electrical equipment, as well as commodities.

    How much have technology items “deflated” in the past 50 years? How much did a computer system cost in 1964? Has this resulted in worldwide economic disaster?

    I would say that commodity prices bounce around on a normal day, but the big recent shift has been oil prices, mostly driven down from the supply side (shale) and somewhat driven down because nations like Japan that printed money can no long afford to buy commodities (or at least, not like they used to).

    At least the article does admit that getting too far into debt was a bad idea in the first place, but he keeps sticking to the nonsense that getting further into debt will get them out of debt.

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