“Lord Keynes” Calls My Raise on Krugman Kontradiction
In my recent post on Krugman’s Kontradiction regarding “contractionary policy is contractionary,” I wrote this:
More generally, Paul Krugman (as well as a gaggle of lesser Keynesian analysts) simultaneously believe the following:
==> The sales tax hike in Japan was obviously a stupid thing to do in a weak economy; of course if you make retail items artificially more expensive, people will buy fewer of them. In any event, there was no need to bring in new revenue this year; any need for budget reform could have been postponed until the recovery had gotten more strength; a few years of additional government debt would be a drop in the bucket.
…
==> A sharp increase in income tax rates on the top earners is a good thing to do, even in the midst of a depressed economy. Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.
(Note that for brevity’s sake I omitted the middle two examples in the quotation of myself, above. I just wanted to give a flavor of the rhetorical point I was making.)
So “Lord Keynes” (who often goes by “LK” here in the comments) called foul on that last bit. He wrote:
“Nice straw man. Where did Krugman say this? It might be that rich people might work less if the income is taxed at a higher rate, or maybe they won’t. You could hardly predict it with certainty. If they do, then most likely other people will do the work, possibly unemployed people.”
I stuck to my guns, asking if LK would apologize were I to produce a Krugman quote to that effect. LK came back with this:
And before you answer you might like to read this explicit evidence that Krugman doesn’t believe the straw man idea you ascribed to him:
“A note on taxes, benefits, and incentives … . There is no question that incentives matter, that other things equal, someone facing a high marginal tax rate will work less than he or she would otherwise. How much they matter is another issue; in fact, careful empirical study suggests that they matter far less than right-wing mythology would have it.”
Paul Krugman, “Whose Incentives?,” Conscience of a Liberal blog, July 10, 2012.http://krugman.blogs.nytimes.com/2012/07/10/whose-incentives/?_r=0
——————-
So, clearly, Krugman:
(1) thinks “incentives matter”,(2) thinks ceteris paribus “someone facing a high marginal tax rate will work less than he or she would otherwise,” but
(3) disputes that the effect on the rich is economically significant and in fact thinks much more attention should be given to lower and middle income earners.
Now a serious question: are you going to admit that Krugman has repudiated the view you ascribe to him? And apologise for using a straw man argument?
Yikes! It looks like LK caught me being sloppy, doesn’t it? LK has produced a quotation from Krugman that sure seems to be the exact opposite of what I said. It doesn’t look good for our karaoke’ing hero, does it?
Well, in this post from 2010 Krugman wrote:
So the way I see it, even quite high marginal tax rates on high earners — even rates in, say, the 70 percent range that prevailed pre-Reagan — are unlikely to put us on the wrong side of the Laffer curve by discouraging effort. High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.
That doesn’t mean, however, that it’s OK to go back to Eisenhower-era 91 percent top marginal rates. The problem with super-high rates isn’t so much that they reduce incentives to work; it’s that they create huge incentives to avoid or evade.
OK so we’ve got Krugman saying that even 70 percent top income tax rates might yield more work from rich people. Krugman goes so far as to say that even 91 percent top rates aren’t bad because they reduce work incentives.
So at this point, I’ve got Krugman calmly stating the position that I attributed to him. But wait, technically I also said that he makes fun of people who disagree with Krugman on this, and think (say) that 91 percent top tax rates would reduce work incentives. Can I produce a quotation from Krugman where he goes so far as to mock people who think a 91 percent income tax rate might reduce work effort?
Yep, I sure can. In 2012 Krugman wrote:
Consider the question of tax rates on the wealthy. The modern American right, and much of the alleged center, is obsessed with the notion that low tax rates at the top are essential to growth. Remember that Erskine Bowles and Alan Simpson, charged with producing a plan to curb deficits, nonetheless somehow ended up listing “lower tax rates” as a “guiding principle.”
Yet in the 1950s incomes in the top bracket faced a marginal tax rate of 91, that’s right, 91 percent, while taxes on corporate profits were twice as large, relative to national income, as in recent years. The best estimates suggest that circa 1960 the top 0.01 percent of Americans paid an effective federal tax rate of more than 70 percent, twice what they pay today.
…
Today, of course, the mansions, armies of servants and yachts are back, bigger than ever — and any hint of policies that might crimp plutocrats’ style is met with cries of “socialism.” Indeed, the whole Romney campaign was based on the premise that President Obama’s threat to modestly raise taxes on top incomes, plus his temerity in suggesting that some bankers had behaved badly, were crippling the economy. Surely, then, the far less plutocrat-friendly environment of the 1950s must have been an economic disaster, right?
Actually, some people thought so at the time. Paul Ryan and many other modern conservatives are devotees of Ayn Rand. Well, the collapsing, moocher-infested nation she portrayed in “Atlas Shrugged,” published in 1957, was basically Dwight Eisenhower’s America.
Strange to say, however, the oppressed executives Fortune portrayed in 1955 didn’t go Galt and deprive the nation of their talents. On the contrary, if Fortune is to be believed, they were working harder than ever. And the high-tax, strong-union decades after World War II were in fact marked by spectacular, widely shared economic growth: nothing before or since has matched the doubling of median family income between 1947 and 1973. [Bold added.]
Granted, I’m biased, but I’m going to award victory to myself on this one. A regular Krugman reader would feel perfectly justified in laughing at someone who thought that high income tax rates would discourage high-income earners from generating income on the margin.
Last point: Strictly speaking, there is no contradiction in any of the above, including LK’s quotation. In fact, it wouldn’t surprise me if LK responds in the comments here, claiming that he obviously won, and demanding that I apologize for my scurrilous remarks.
Specifically, Krugman can simultaneously say that rich people respond to the incentives of the tax code, and that a 91 percent marginal tax rate will make them earn more income, because of the distinction between the income and substitution effects.
Even so, my original point remains: In any given case, Krugman carefully picks his assumptions and emphases to trumpet the policy that progressives like for other reasons.
Let us not forget that Krugman’s idea of “Austerity” is higher income taxes on the people and more spending by their governments.
American under Eisenhower was hardly the Randian nightmare or the Keynesian paradise Krugman wants to paint it as.
Much as the Road to Serfdom was a warning about the *direction* society was headed in, as much as a commentary about it’s present state, the same is true of Atlas Shrugged. The difference was emphasis, Rand more on the commentary, Hayek more on the warning.
How many “rich people” were even paying the 91% top rate and on how much of their income, anyway? Can’t have been very many. The threshold for that rate was roughly 2 mil in current dollars. As opposed to it’s nominal value at $200,000. One wonders where one would need to put the bracket threshold today to impact a similar number of people. Probably more than $2 million.
“So at this point, I’ve got Krugman calmly stating the position that I attributed to him.”
The first quote you supply does not vindicate your original statement.
You said:
” A sharp increase in income tax rates on the top earners is a good thing to do, even in the midst of a depressed economy. Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.”
Krugman does not accuse people of being liars or ignorant for saying that “rich people will work less if you reduce their compensation”. This is your main claim. Krugman does not say that here.
And what he says there is perfectly compatible with his recent statement that “there is no question that incentives matter, that other things equal, someone facing a high marginal tax rate will work less than he or she would otherwise.”
You say:
“OK so we’ve got Krugman saying that even 70 percent top income tax rates might yield more work from rich people.”
Krugman says:
“… to high earners, for whom welfare-state benefits are inevitably small compared with their overall incomes.
So the way I see it, even quite high marginal tax rates on high earners — even rates in, say, the 70 percent range that prevailed pre-Reagan — are unlikely to put us on the wrong side of the Laffer curve by discouraging effort. High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.
That doesn’t mean, however, that it’s OK to go back to Eisenhower-era 91 percent top marginal rates. The problem with super-high rates isn’t so much that they reduce incentives to work; it’s that they create huge incentives to avoid or evade.”
You have him admitting right there:
(1) that higher taxes can reduce incentives to work
(2) that “High earners won’t work much less” — implying he accepts that they *might* work less to some smaller extent too, but it will be economically insignificant.
(3) suggesting that they *might* work harder.
You take (3) and ignore everything he says. Krugman’s saying that the rich “might” possibly work harder hardly proves, as you imply, that he thinks everyone definitively would or that he denies that some might work less. What’s more, the ceteris paribus clause does not hold in the real world and it is well known that many people do wish to maintain their level of income, so that higher taxes might in fact , as Krugman says, drive some rich people to work more in an attempt to maintain income. Do you deny this?
All in all, citation (1) does not vindicate you.
The second quote with its obvious rhetorical style does not contradict Krugman’s earlier statements. It does not show him saying that “Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.”
Krugman has stated clearly that
(1) he thinks “incentives matter”,
(2) he thinks ceteris paribus “someone facing a high marginal tax rate will work less than he or she would otherwise,” but
(3) he disputes that the real world effect on the rich will be economically significant.
———————-
Krugman says “On the contrary, if Fortune is to be believed, they were working harder than ever.” That does not deny (1) and (2) above, since only a fool would think ceteris paribus holds in the real world.
Last point: Strictly speaking, there is no contradiction in any of the above, including LK’s quotation.
Funny how you acknowledge that, but still think you won.
I’m glad to see I can pass the LK Turing Test.
Oh I can’t resist:
==> On the substantive claim, I’ve clearly won LK. You want to transform it to “ceteris paribus, incentives matter.” But that’s not what I said. Rather, I had Krugman asserting that increasing tax rates on the rich won’t make them work less. Krugman is clearly saying that in the above quotes; he’s saying theoretically he thinks they might even work more, and empirically he thinks they did in fact work more.
==> You’re right, I don’t have him saying “liar,” rather I just have him mocking the people who think otherwise.
“Rather, I had Krugman asserting that increasing tax rates on the rich won’t make them work less. Krugman is clearly saying that in the above quotes; he’s saying theoretically he thinks they might even work more, and empirically he thinks they did in fact work more.”
We are not disputing that Krugman thinks that there might be cases in the real world where “theoretically … [the rich] might even work more” and good evidence for a real world case when “empirically .. they did in fact work more” on average when marginal tax rates were high in the 1940s- to the early 1970s.
Yet you said:
Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.
You have not adduced any evidence that Krugman has said this or words to this effect.
On the contrary, Krugman agrees that, theoretically speaking, under ceteris paribus conditions, increasing tax rates on the rich will make them work less.
Also, in the first passage you cite Krugman does say that even in the real world “High earners won’t work much less” — implying he accepts that they may well work less to some smaller extent too, but it will be economically insignificant.
Yet your straw man charge is that Krugman thinks that:
Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.
but he himself admits that theoretically under ceteris paribus it is true and and empirically it might well be true to some extent, but leaves it as an empirical question whether and how much it is true, and even whether it is possible that under some conditions (as in 1945-early 1970s) they might on average have been working harder.
LK,
In those quotes Krugman is clearly saying that raising taxes on the rich will likely not reduce their productivity, and would likely even raise it.
That is not compatible with “Ceteris paribus, incentives matter, and it is an empirical question whether productivity will decline.’
Furthermore, when Murphy said “liar or ignorant” he was quite obviously paraphrasing Krugman attacking those who have the belief you are trying to attribute to Krugman here. He didn’t put “liar and ignorant” in quotes. In the past Murphy has paraphrased Krugman similarly, by saying “And Krugman thinks we’re a bunch of morons because wnbelieve X”, etc. Murphy isn’t saying that is literally what Krugman said. He is summarizing Krugman’s ” I disagree” with some humor/rhetoric. He doesn’t need to post a quote of those exact words. That isn’t the issue. The issue is the substantive point about taxes on the wealthy and productivity. On that point Murphy is right.
The problem of course is as always with Krugman. He contradicts himself very often.
Overall, the belief that raising taxes will likely not reduce, and would likely increase, productivity, is consistent with the typical anticapitalist prattle that constitutes his blog.
“In those quotes Krugman is clearly saying that raising taxes on the rich will likely not reduce their productivity, and would likely even raise it.
That is not compatible with “Ceteris paribus, incentives matter, and it is an empirical question whether productivity will decline.’”
On the contrary, it is compatible with the idea that “ceteris paribus someone facing a high marginal tax rate will work less than he or she would otherwise.”
Only a fool thinks that the ceteris paribus condition ever happens in the real world.
LK wrote:
Only a fool thinks that the ceteris paribus condition ever happens in the real world.
Except when it comes to carbon taxes and sales taxes. Then we can be quite sure the substitution effect will hold, so that anybody who ignores Krugman on these matters is knave or fool.
LK:
You’re still not seeing the contradiction.
Look again at what Krugman wrote:
“High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.”
That is not consistent with the argument that ceteris paribus, higher taxes reduces productivity. That is a claim that higher taxes, ceteris paribus increases productivity.
But that isn’t even the reason Krugman believes the Paul Ryans and the “Randians” of the world are wrong about wealthy people productivity declining due to higher taxes. It isn’t because he beoieves they are right about taxes reducing productivity but failed to take into account subtleties of ceteris paribus reasoning. After all, the Randian argument about higher taxes and productivity is ALSO a ceteris paribus argument.
It would be absurd for you to believe that Krugman is not off side to attack an argument that you are attributing to him right now.
What you are doing now is abstracting from what Krugman said, and trying to find consistencies between arguments that do not accurately reflect what he wrote.
Progressives are always dreaming of the perfect slave, the one who works even harder, and pays even more taxes, the more they take from him.
Consider that the progressive excuse for soaking the rich is that they are idle, layabouts whose income is inherited or by luck. Then, they dream of the rich working even harder when they raise taxes on the rich. Which is it: lucky income or working hard?
One thing missing in nearly every discussion of the incentives or disincentives of high marginal taxes on high income earners is that the earner in question could be one person or a couple, and it is the decision of the second person to work or not that is most affected by the level of tax rates.
Let’s use a classic heterosexual 1950s couple as an example, where the husband is a high earning doctor, and the wife someone he met in college, with an education and background that in more recent decades would commonly lead to a high paid career in one of the professions. Would the 70+% marginal tax rate cause the doctor to work more, or take more time off? Who knows, it could go either way, perhaps depending on how much that hypothetical fourth vacation home costs, although one would think anyone with more than say, two or three vacation homes, takes a lot of vacations and probably does work less because of the high tax rates.
The high marginal tax rate, however, would definitely have an impact on whether or not it made sense for the wife to work. Given that her husband’s income has already placed them in the top bracket, even if the wife took a minimum wage job, starting with her very first dollar of income the government would take 70+%. If the couple has kids at home, and the wife took a job, only if she started out at a very high income would there be enough money left over after taxes to cover the cost of child care, plus paying for cleaning and any other household tasks the wife did while not out in the workforce.
Given that very few people start a career at a high income, a 1950s wife deciding to work would actually reduce the couple’s disposable income, because they would have to pay for services that the wife was doing for free, and that would cost more than she could bring in after taxes.
That is the main reason why intelligent, educated married women were very rare in the workforce – until after the Reagan tax cuts when a wife could work and increase her family’s disposable income rather than reduce it.
Let a populist, soak-the-rich government sharply raise marginal tax rates, and watch for mass resignations and retirements from the workforce of anyone married to a high income person, and layoffs of maids from cleaning services and most of the childcare industry. The lesser earning spouse not working would cut the family’s expenses more than the second paycheck could add to after-tax income.
If we assume that national income depends partially on how many people are working, and how much value added they provide, it doesn’t strike me as wise to turn millions of educated professionals back into household servants, which is what a return to very high marginal rates would do.
High marginal tax generally kicks in before you get to really wealthy people, because otherwise there’s little revenue to gain. In effect the government is paying such people to not partake in division of labour.
Good point above: part of this is wealthy couples will spend more time with their own kids, but there’s a bunch of other things. If there’s an event they are more likely to serve home cooking not buy catering, more likely to personally maintain their vehicles rather than just get the garage to do it, more likely to organize their own investment strategies, rather than just dumping their spare savings in a fund. Don’t hire a tradesman, take a week off unpaid and paint the house. If your clothing rips a bit, the wife can spend some time fixing it, while busier couples might take it to a tailor or just buy something new.
All of this unwinding division of labour also results in other parts of the economy slowing down… giving the State more dependent people to worry about.
Bob,
Have you read Pascal Salin’s article “The Myth of the Income Effect?”
No
I’d recommend it. It reminds me of your article on the dangers of the one-good model.
http://mises.org/sites/default/files/rae9_1_4_2.pdf
For what it’s worth
http://www.policonomics.com/slutskys-equation/
Tel,
Thanks for sharing. I understand the Slutsky equation very well having studied it in my master’s and PhD level micro courses. However, I think Salin’s article deals very well with the problem.
If you have a few minutes, I’d suggest giving Salin’s article a read. It’s pretty short, though it is involved.
debunked here:
http://www.econjobrumors.com/topic/austrians-dont-understand-basic-micro-part-431
Reading the quotes my interpretation is that Krugman accepts that more taxes may reduce amount of work, but does not think that it will happen, or has happened, to an economically significant amount. From this bit “The problem with super-high rates isn’t so much that they reduce incentives to work; ” I infer that he believes reduced incentives may be real, but they are not the problem.
One could say “Anybody who tells you that the economic effects of rich people working less if you reduce their compensation is a liar or ignorant.”
Well I would call this a tie.
I see no evidence presented here that Krugman thinks that ” A sharp increase in income tax rates on the top earners is a good thing to do, even in the midst of a depressed economy.”. At best he says that in some circumstances higher taxes on the rich may cause them to work harder which is some way short from offering this up a a good policy in a recession.
But I think the quote on the 50s is sufficient to justify “Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant”. He does clearly imply that.
I see no evidence presented here that Krugman thinks that ” A sharp increase in income tax rates on the top earners is a good thing to do, even in the midst of a depressed economy.”.
!?!?!!? That’s easy, Transformer. He explicitly said that in the first post, the one with the CBO graph. Look underneath the graph; Krugman says he wishes Obama had raised rates more on the top 1%.
Transformer there are easily three, and I’d guess more like 6, posts of Krugman from 2009 to today, saying the top income tax rate should be at least 70%. Here’s an example of what I mean (you’d have to follow the links in it to get the exact number range).
I defy you to find a single time when Krugman says, “Of course, I’m talking long run here, after we get out of the liquidity trap. As we all know, contractionary policy is contractionary, so we wouldn’t want to raise income tax rates on the top bracket during the next few years; I’m recommending whoever the president is, pushes for this in 2017.”
If you find me a single time of him saying that, I will PayPal you $5 if you want.
Last thing: If you take LK’s route and try to argue that US was out of recession in summer of 2009, OK fine, but then by the same token Japan was out of recession and so was Europe before its “double dip.” Krugman still maintains we’re in a liquidity trap. E.g. if Republicans wanted to cut spending $100 billion next year, Krugman would flip out and say that was contractionary.
Should have gone deeper into the links before commenting, sorry.
He clearly does supports higher taxes on the rich, and doesn’t explicitly say that this would be a bad idea in a recession. And some of the posts were written in a recession (anyone who thinks we were not in a recession in 2009 is playing with words) clearly appear to support higher taxes on the rich with immediate effect.
So win to Murphy on both cases.
Transformer,
The issue here was not whether Krugman thinks tax hikes on the wealthy top income group are a good thing, because he clearly does think this.
The issue was Murphy’s claim that Krugman thinks:
“Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant.”
In fact, Krugman accepts that higher tax rates can induce less work both in theory (ceteris paribus conditions) and as probable in some cases in the real world.
However, if it happens in the case of the ultra-rich, he disputes that the effect is economically significant, and also argues that there are instances (1940s to early 1970s) where it **might** even have been untrue.
Its obviously a question of interpretation but I think someone who read the quote about the fifties could quite reasonably conclude that Krugman thinks that “Anybody who tells you that rich people will work less if you reduce their compensation is a liar or ignorant”. Bob states it bit starkly but isn’t that what Krugman’s post is driving at ?
LK:
No, that is not correct. Krugman also wrote:
“High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.”
This is not compatible with “higher taxes reduces productivity ceteris paribus.”
You are not grasping the contradiction.
I just like how he talks down about rich people like he isn’t one of them. The way he talks you’d think he was making 50k a year.
http://www.celebritynetworth.com/richest-businessmen/wall-street/paul-krugman-net-worth/
MF I agree with you that LK is standing on thin ice, but I don’t think you’re quite getting it right. Depending on what the “other things” are that we’re holding equal, it isn’t necessarily a contradiction to say that high taxes, other things equal, discourage work effort, and that high taxes will in fact lead to more work.
For example, watch this: Other things equal, the more workers earn per hour, the more hours per week they will want to work. And, historically, workers earn a lot more per hour today than in 1800, and workers today choose to work far fewer hours per week.
Well if you want to split “productivity” into two concepts, labor effort and labor hours, then sure, I will agree that it is not a contradiction to say higher taxes will ceteris paribus reduce labor effort and that higher taxes will ceteris paribus increase labor hours.
But have we been talking about higher taxes increasing labor hours the whole time? If so, my bad. I thought we were talking about labor effort only across the board.
I don’t think Krugman had in mind labor hours, because in that quote he spoke of “working harder”, not “working longer”. Maybe I have that wrong.
Hang on MF I think you are getting mixed up. I’m not talking about the time spent on a job being more comfortable now than in 1800. You can hold the onerousness of the job itself constant. The point is, if your wage rate suddenly goes up 1000%, you may end up consuming more leisure, even though leisure is now more expensive per hour (in terms of opportunity cost).
Oh I wasn’t talking about your analogy in my last comment. I get your analogy, it makes sense.
I was talking about whether or not we’re on the same page when it comes to Krugman’s statements. I think you exposed an actual contradiction because I think Krugman, in the quotes provided, spoke about labor effort.
You and LK have posted quotes of Krugman that contains the following…
You posted:
““High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.”
Here Krugman is talking about labor effort. He is saying labor effort increases when taxes increase.
LK posted this quote:
“There is no question that incentives matter, that other things equal, someone facing a high marginal tax rate will work less than he or she would otherwise.”
Those two comments don’t gel.
The quotes you have posted prove your original post correct.
The quotes LK posted does not disprove what you wrote. What it did was expose a contradiction with a “c”.
At least that is how I see it.
The problem is, Bob, there isn’t an “income effect.” That’s a feature of two-good mathematical models, but not a feature of logical economics. All responses to changes in prices (or taxes) are substitutions.
Or maybe “work less” does mean labor hours, not effort.
Meh.
One should not forget, that just comparing top marginal tax brackets is not very sensible. One would have to compare effective tax rates..
As Mr Schiff seems to have done here:
http://online.wsj.com/articles/SB10001424127887324705104578151601554982808
His analysis suggests that effective tax rates were not higher on the rich in the 50s despite the ridiculous top rate of 91%.
Right. The thresholds for those high rates were very high and people in general had lower money incomes, including the “rich.”
“So the way I see it, even quite high marginal tax rates on high earners — even rates in, say, the 70 percent range that prevailed pre-Reagan — are unlikely to put us on the wrong side of the Laffer curve by discouraging effort.”
Does Krugman even know what the Laffer curve is? A Laffer curve refers to tax revenue, not to work effort. Not a very precise reference.
Krugman cares more about the Government’s income than anyone else’s. Save his own, that is.
That is the problem when one tries to defend Krugman- the best quotes taking a Krugman essay down often comes from Krugman himself. I am often amazed at the shamelessness of his defenders- I wish it were possible for me to not feel shame.
Bob, I already gave you a point in the previous comment section. You can’t get more Krugman points for an ancillary argument with LK.
Krugman was right and we followed his recommendations more closely than a lot of other countries. This made all of us better off, but it seems to enrage you. I get the feeling that you would rather him have been wrong and the U.S. worse off, which is weird.
Krugman was right because there is a homogeneous blob/glob of private sector “spending” which is affixed by nature to a “trend line”, right? If the glob/blob of private sector “spending” falls below the “trend line”, the government must engage in “spending” to fill “the gap”, right? Because “spending” is a homogeneous blob/glob, as demonstrated by science and nature.
Unless, of course, you are joking (as I often do).
None of this. This is a facepalm worthy post. You should quit while you’re less far behind.
All of it. He should keep going.
Your posts here are facedesk worthy posts.
KS,
I suggest you go cuddle with your buddies back on Krugman’s blog. We’re discussing actual economics here, not progressive tail-wagging.
Hey Scott D, I understand your rejection of KS’s position, but let’s try to be civil please.
Sorry, Bob. I’ve been dealing with this kind of thing all week on other media (non-substantive, trolling commentary), and I let it get the best of me.
Check your timeline. While we were following Krugman’s recommendations (reckless disregard for any kind of budget discipline) we were mired in a recession.
When congress mercifully shut down (because one of the houses of congress refused to even pretend to pass a budget or otherwise act like it had any responsibility to help run the country) the economy began to rebuild.
It is, of course, a joke for the executive branch or the Senate to take any credit for the economy improving and an even bigger joke for the Keynesian economics to claim any credit for it (see Abenomics).
What Bob failed to explicitly spell out (for LK’s benefit) and LK seems totally clueless about is that in basic economics the upper marginal tax payer, because of Comparative Advantage, should be working on what he is best at, not, courtesy of the government, in trying to avoid being in the upper marginal tax bracket..
Wouldn’t high tax rates make some forms of enterprise go from being money makers to money losers? Of course, that wouldn’t have the slightest impact upon people pursuing such lines of enterprise, with the human race being afflicted with the sticky price disease and all. There is a plethora of empirical studies that prove people will literally starve themselves, their families and their pets to death rather that adjust their prices or wage demands.
The dishonesty or perhaps ignorance in the tax debate that is going on today is the complete misrepresentation of the pre-TRA86 [Tax Reform Act of 1986] higher marginal rates in the old ’53 code. Sure the marginal rates were insane, but the underlying tax code was rife with loopholes that a good tax planner (I was one) could exploit to get a person’s effective tax rate as low or lower then it is today. Those loopholes are no longer part of the tax code which is a good thing as they encouraged investors to invest in projects that had no economic viability other then the income sheltering effect they created.
What else is ignored in the conversation is the fact that there was a massive amount of tax fraud at all income levels under the old code. It was so bad and so common that most people took pride in telling others how they cheated on their taxes. When I was practicing it was quite common for us to pick up clients that had owned businesses that had grown into large enterprises that cheated extensively on their income taxes sometimes for decades. Usually the only reason this ever got exposed was due to the owners wanting to sell or go public.
Today it would be very hard to get away with significant tax fraud for very long and the current code does not offer very many ways to legally shelter income, so a marginal tax rate of 70% would probably produce an effective tax rate on the top 5% of at least 45-50% which would be more then double double what the effective rate was under the old tax code. Thus, if we were to go back to those insane marginal tax rates, we would be crossing into a level of taxation never seen in this country.
http://tomwoods.com/blog/didnt-we-used-to-have-high-taxes-and-prosperity/
Looks like Japan got some bad advice from deficit hawks and decided to raise a regressive sales tax before their recovery has been established.
Krugman’s often not as precise as one would wish, FWIW, I understand him to be arguing that the disincentive effects of higher taxes on high earners and of the minimum wage proposals on the table are almost certainly very small at most, and that people who disagree with him are fools or knaves.
(LK, he doesn’t literally say that, but at this point, I understand that to be implied whenever PK doesn’t express humility or doubt in his beliefs, and I’m only talking about my understanding as a reader.)
No idea whether that’s a Kontradiction.
Krugman is right. If you have too much demand and not enough supply we don’t run out of things to consume, we get inflation. Too many consumers chasing too few goods. Likewise when you have too much production for the demand you get deflation.
It isn’t this bizarre question as to whether we want more consumption or more production, as either one alone is pointless. It is a question of what drives our economy to grow. Apparently Austrians think that when people produce more everyone suddenly decides they want whatever was produced, Steve Jobs style. I would say that most often there is a demand for a product and therefore someone invests in a factory or whatever to make it, but regardless it is the interplay of the two that matters.
Currently, as shown by inflation statistics, we have too little aggregate demand!
Apparently Keynesians think that when the government “produces” more everyone suddenly decides they want whatever was produced.
If the government has to “produce” via coercion, then wouldn’t this necessarily lead to “too little aggregate demand”?
Also, I don’t understand your reference to Steve Jobs. If he hadn’t been so successful, then your statement might be a better zinger. As far as I know, Steve Jobs just didn’t start mass producing iPhones with the expectation that it would be logically impossible for consumers not to buy them, as if it were a law of nature. It’s like you’re saying that consumers have to “demand” products that they don’t even know exists before someone will produce them; is that right?
Sorry, ….before someone *should* produce them….
The Austrian model starts from the premise that people have wants and needs that are unmet. If you are lying in bed, eventually you are going to get thirsty. If you don’t act on that need, you will soon begin to feel discomfort, and that discomfort will motivate you into action.Once your basic needs are met, you will move on to satisfying less immediate needs, like paying your mortgage and saving for your kid’s college fund.
These needs and wants should not be mistaken for demand, as it exists in economics. How you choose to satisfy your needs determines what your demand is. If you are thirsty, you might just get a glass of water, or you might head down to a pub for a beer. If you are lonely, you might see someone in person, or you might go on Facebook. Walking out to visit a friend doesn’t show up in aggregate demand statistics, even if that perfectly satisfies your need for companionship. If, on the other hand, you browse Facebook and play a few games, ad revenue is being generated, and this economists can measure.
It’s silly to think that, before MySpace and Facebook appeared, there existed a consumer demand for websites that let people post pictures of their pets and describe what they are doing at that moment. It’s just that the founders of Facebook found some human wants to satisfy, and came up with a way to monetize on their ideas. Orkut, Google’s social network that appeared in the same year as Facebook, did not thrive, and eventually shut down. Presumably, this service might have satisfied consumer wants, but Facebook offered a superior service, or marketed itself better, or both.
This is all nearly totally irrelevant to the discussion. Austrians seem to claim that consumption is a negative thing and that if people consumed too much the economy would shrink. That is insane and has literally zero basis in any economic theory I’m aware of, much less any application to reality.
This is only one of a number of deeply wrong, fundamental misconceptions.
KS, I think you need to take some of your own advice and “read some of the Austrian academic literature”.
Yes, if individuals decrease gross investment by increasing consumption, then the economy will shrink. Why is that insane? Aren’t Keynesians always blabbering on about “infrastructure”? What happens to productivity if you don’t maintain that “infrastructure”? The “application to reality” is that you “can’t have your cake and eat it too”.
Also, just because you aren’t aware of a concept within economic theory, doesn’t meant that it isn’t correct.
Austrians do not claim consumption is a negative thing. Knowing and stating that consumption shrinks economies is not a pejorative or negative comment about consumption. You are conflating facts with value judgments.
Consumption is necessary for human life and happiness. But that does not imply that consumption does not shrink economies.
That consumption shrinks economies, contrary to your claim, is based on economic theory. Just because you are not aware of it, it doesn’t mean it doesn’t exist. You don’t have enough knowledge to use your own knowledge as a proxy for what knowledge exists out there. You are using a very poor judgment. If you hear something that you haven’t heard before, and you are really interested in how those claims are coming about, then instead of hand waving and dismissing them, then either ask, or if you know the sources, then read them. Do you honestly believe that coming here and taking a big dump on the board, is going to get you what you want? Or is just doing what you are doing all you want?
“That consumption shrinks economies, contrary to your claim, is based on economic theory.”
So just like any theory, it cannot be proved or disproved. It can be supported but not proved. Otherwise, it would be a law.
(just pointing that out and in no way do I know enough to agree or disagree with any of it).
Jay,
Is it possible to simultaneously consume and invest (save) the same thing? If this is a law, then any sound deduction following this law is also a law.
If I reduce the supply of any stock, then it’s necessarily true that I can now engage in less economic activity than I could before.
An increase in consumption at the expense of current gross investment shrinks the economy; this means that the total amount of final consumer goods necessary to sustain the owners of the factors of production in all current production processes has decreased, and hence, some production processes will have to be abandoned resulting in a reduction of total output, or a shrinking of the economy. And, an increase in consumption at the expense of gross investment leads to the actual physical deterioration of the capital goods stock, which means there will be a lower future output of final consumer goods as well, or a shrinking of the economy.
Krugman can say tax increases sometimes, other times airs of irresponsibility are needed (as with Japan currently.)
You can encourage investment in housing without advocating or endorsing for destroying the whole regulatory apparatus and creating a shadow banking system.
You have to understand the problem you need to solve, as well as what actions the levers you pull will do.
This has been the whole fight between Keynesian economics and the austarian Austrians. Growth vs debt.
Deflation is catastrophic because it incentivizes not engaging in commerce. If I can buy ten widgets today for $10 and buy 12 widgets for $10 in a little while, it makes sense to wait. The thing is that it then starts making sense for everyone to wait before engaging in commerce. Since your spending is my income and vice versa, now we’re both going broke because nobody is buying anything… so we cut prices further, causing even more deflation.
By the same logic, I can claim that inflation, and the anticipation of more inflation in the future, is catastrophic because it incentivizes over-consumption and drives up the cost of goods in the present. If I can buy twelve widgets now for $10, but only ten in a little while, I’m more likely to buy more. In the aggregate, the demand for widgets increases, as people increase their present consumption. The price of widgets climbs, giving the impression of ever higher inflation. We have shortages and chaos.
Doesn’t sound right, does it?
Back in reality, we realize that people’s time preference limits how far out they will plan for the future, and that neither inflation nor deflation is necessarily bad. What is bad is when the inflation or deflation is very large, or when it is not driven by market forces, but by government intervention.
I would strongly suggest you read the academic literature on the difference between modest, sustained inflation and modest, sustained deflation. They are not remotely similar.
And no, it’s pretty much universally agreed that deflation is bad. The only people who even try to dispute that are Austrian economics, but that’s not a school of economics that’s taken seriously. (it being scared of math and all) Additionally, whether a period of inflation or deflation is good or bad is not dependent on whether or not it is market driven. What matters is its effects on the economy. ie: it’s the outcome that matters, not the source.
I would strongly suggest that you familiarize yourself with basic Austrian concepts such as economic calculation and miscalculation, “the pricing process”, prices as essential information, heterogeneous capital (and goods and services), voluntary exchange, violent intervention and the Great Depression as the result of a hangover from central bank shenanigans in WWI. We’ve eviscerated your main points so many times on this blog that people are sick of it.
http://consultingbyrpm.com/blog/2014/11/more-commentary-on-gruber.html#comment-1293844
Nope, they sure haven’t. I’ve got a perfectly good handle on basic economics. Certainly one good enough that I would never try to say something like ‘consumption makes the economy shrink’ like others here have said (Major Freedom). That statement alone tells me that you guys understanding of basic economics.
So can I ask where you got these ideas from? My guess is no economics program taught in the United States.
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html
KS:
If you understood basic economics, then you would not have said what you said above, and you would have understood that consumption shrinks economies.
Where do we get our ideas from? From centuries of economic thought. We understand the patterns and threads of economic thought over very long periods of time, so we have a heightened ability to identify flawed arguments when they are made. I am not exaggerating when I say that most of what people like you and other noobs “contribute” to economic discourse, is regurgitated fallacies that people many many years ago have also believed.
You may not get this yet, but your core beliefs about yourself, about human life, about the universe, are ideas you have adopted without rational criticism, but rather accepted it because you believe you had to believe it. These are the core fundamentals of thought that can often lead people astray, until they get to false conclusions like consumption grows economies. I bet you have no idea of the history behind that thought, how it came about, what and who were the main influences of the people who developed that doctrine, and how the influential people came to believe in the principles that were then adopted by others.
You clearly don’t respect human thought enough to give it the attention it requires in order to make much better arguments than what you are making.
You have not even explained exactly how gradually falling prices is necessarily bad. You just said people delay their spending. That is it. You have a one liner and you seriously believe you have what it takes to stand tow to toe with us? You will continually get creamed that way. We are your intellectual superiors. At least until you read the literature on that which you are criticizing here. You sound like you want to prove to yourself you didn’t waste all that money on a useless education.
Ranting about economic,calculation does not refute KS’s point about deflation, roddis.
KS,
I would strongly suggest you familiarize yourself with the argumentative fallacy called fallacy of authority and fallacy of ad populum. You cannot prove an argument correct with the premise that most people believe in it, nor can you do so by the fact that most schools of economic thought believe it.
I would also strongly suggest you read market monetarist literature, because market monetarists recognize that modest gradual price deflation founded on modest gradual productivity growth is not a bad thing, and that fears over price deflation regardless of the causes, is an unfounded irrational fear. Most schools of economic thought are actually wrong about price deflation. Most have come to believe that because falling prices has been temporally correlated with depressions and recessions, that all price declines are bad. Economists who understand ecomomics better have explained in great detail that productivity based price deflation does not increase unemployment nor does it put any downward pressure on profitability.
To your point about gradually falling prices leading to “delays in consuming”…
Yes, a gradual price deflation of say 2% might very well lead to consumers “delaying” their consumer spending. But you have to expand your range of cognition. Things don’t stop there. You have to keep asking and probing. Suppose people did delay their consumer spending. Can they keep delaying and delaying forever? Clearly not. But because people don’t all have same frequency of making consumer expenditures all on the same days and weeks, it is not like there will be a period of no spending at all anywhere, and then spending, leading to bankruptcies in the interim.
No, what happens when there is gradual price deflation is that people might end up holding a slightly higher cash balance, say 10% more, relative to the value of their accumulated assets. Once that new cash preference tendency levels out (ceteris paribus), then there is no more reason or need or incentive to keep increasing cash balances ad infinitum.
To Scott’s point, just like gradual price inflation does not lead to continually falling cash balances as infinitum, neither would gradual price deflation lead to continually rising cash balances.
There is no destructive effects on economic activity when prices fall because of productivity growth. We see this in electronics. Prices gradually fall over time, because the rate of productivity growth is so high that not even central banks targeting price level inflation of 2% can overcome that productivity growth. So we see prices falling. But are people forever “delaying” their electronics purchases? Certainly not! In fact, have you seen the lineups for new electronic gizmos like iPhones and such? Prices keep falling for all kinds of electronics, and yet people bite the bullet and would rather have the goods NOW at the higher price relative to LATER when the prices are even lower.
Scott D went put of his way to explain to you the concept of time preference, which is the main principle underlying why people spend in the present even if they believe prices will fall next year. Yet you scoffed at it very pretentiously. You clearly don’t have a very sophisticated understanding of economics. You falsely believe that to become enlightened in economics is to merely follow the crowds, the mainstream. That is what makes us more intelligent than you. We don’t conflate following the crowds with the pinnicle of economic knowledge. We know that the mainstream fears price deflation because the theory is incapable of distinguishing between good price deflation caused by productivity growth, which does not occur in the aggregate in our inflationary society, with bad price deflation caused by monetary deflation which has historically, empirically, visually been correlated with depressions in our central banking society.
The mainstream tries to copy physicists, and because of that, lacks sufficient means to use counterfactual analysis.
I won’t bother recommending any literature to you, because you appear to not be the type that “wastes his time” spending valuable brain cells on anything but how to stay with the popular beliefs of the time, in order to gain the approval he was taught can only be had by believing what is popular.
Gradually falling prices suggest that everything is becoming less expensive across society and that society is getting ever wealthier. That fact will probably be noted by most people and deemed a good thing. Isn’t it strange that Keynesians (who, by definition, do not understand economics) project their inability to understand economics onto the rest of society?
Keynesians believe in sticky prices, which is why they advocate for a central bank to continually inflate the money supply or else prices will keep falling in a free market.
Prices, particularly wages, are sticky. it’s not a belief, it’s observation of reality.
Wage rates and prices are not RIGID.
The fact they don’t fall within a day or week in response to a fall in nominal demand, is in large part because of inflation, labor market intervention by government that prevents wage rates from falling as fast.
Electronics prices fall gradually over time, even with all the government forces acting to raise them. They are not rigid. Productivity based price deflation really does take place. That is an observable fact.
“Electronics prices fall gradually over time, even with all the government forces acting to raise them”
Price falls in one particular good does not constitute general price deflation, M_F, and the assumption that just because price falls in one or a few goods is good it does not follow general deflation is.
Also, economically significant wage rigidity existed long before central banks. You of course are too dishonest and too much of troll to admit basic facts.
LK,
Yes, but KS originally made a claim that falling prices in the widget industry is bad, and then he went on to claim that this would cause general price deflation, which is also bad.
Is KS not claiming that general price deflation is bad because price deflation in a single industry is bad, and that price deflation is a single industry would lead to price deflation in the entire economy?
http://consultingbyrpm.com/blog/2014/11/lord-keynes-calls-my-raise-on-krugman-kontradiction.html#comment-1309134
Then, Mike T, MF, and others, used specific examples about falling prices in the electronics industry (widgets?) to show KS that what he is saying isn’t empirically true.
The core Keynesian Koncepts of sticky prices, sticky wages and a populace traumatized by falling prices are based upon a theory that most people are just too dumb to understand economics.
Nevertheless, Keynesians then obsessively engage in suppressing clear expressions of economic principles while vigorously obscuring and distorting those clear expressions that manage to permeate their active suppression. How odd.
Oh jesus, not this crap again. Of course you can’t prove an economic theory right based on who believes it. Considering that this isn’t an academic economics journal, however, people generally tend to use the findings and opinions of recognized experts in the field as evidence for their position.
You’ve said a number of things so far that are unsupportable either theoretically or in the evidence. ie: they have failed really basic elements of a coherent argument. This made me think it was highly likely that you’ve never taken an economics class in your life, otherwise you wouldn’t be saying such silly things. Hence, my question about where you got these ideas in your head.
Actually almost no economist believes that all price declines are bad, and productivity based deflations are an example of that. If you had a better understanding of economics and the literature you would know that and wouldn’t be trying to create a straw man here either intentionally or unintentionally.
This is the mix between a straw man and simply another non-sequitur. Nobody says that deflation leads to nobody buying anything. That in no way changes the fact that deflation is in most cases really, really bad.
Another strawman. Nobody thinks that deflation means that eventually everyone just sits on a pile of their own money and never buys anything. Why do you keep doing this?
You’re taking one specific sector of the economy and trying to generalize it. That’s a big no-no.
Yes, I’m sure when you say things like ‘consumption shrinks the economy’ it’s not that you don’t know what you’re talking about, it’s that you have special, secret knowledge that all the sheeple like me just don’t understand because they’re too dumb.
KS,
You have said:
“Deflation is catastrophic because it incentivizes not engaging in commerce” and “And no, it’s pretty much universally agreed that deflation is bad”
and then you claim:
“Actually almost no economist believes that all price declines are bad, and productivity based deflations are an example of that.”
Your last quote and first couple quotes don’t reconcile. If your position is the latter, then perhaps you should simply clarify what economic activity causing falling prices is a problem. The argument that falling prices is good or bad, in general, is misguided, in that price movements are mere signals. Falling prices due to a fire sale of assets out of necessity to raise cash due to poor investment decisions toward products that consumers do not want is not desirable. Falling prices due to technological advancement lowering the production costs of goods in a competitive environment is quite desirable.
I think people on here are not necessarily making broad generalizations about price deflation. They, as well as I, are simply pointing to examples of desirable scenarios that lead to price deflation as a counter argument to your general claims you made in the first two quotes I provided above.
KS:
I have said a number of things that are in fact supported theoretically, and it is fully consistent empirically as well.
I have a doctorate in finance, and a masters in both finance and physics. So you can dispense with your fumbling about my education.
Most economists do consider price deflation as bad. Very few understand and accept productivity based price deflation. It is a major reason why central banks around the world won’t allow productivity bases price deflation. It is because of the blanket fear of it.
If you had a better understanding of the economic literature you would know this.
I never claimed that you said price deflation leads to people “ceasing to buy anything.” You said they “delay”. I quoted you as saying as much. You need to improve your comprehension.
I am not taking one industry and ” generalizing it.”. I am taking a general truth about productivity based price deflation, and merely using electronics as an example of this. It can occur in ALL industries as production expands.
Prices do not need to keep rising. If you had read the literature, you would have known that price deflation bases on productivity can occur in all industries without any drop in profits or employment.
Consumption does shrink economies. This is a universal truth. You don’t understand basic economics.
LOL. If you have a doctorate in finance and think consumption shrinks economies you got it from a a very poor college.
Your YouTube doctorate aside, you’re clueless.
MF,
You have no shown or explained how “consumption shrinks economies”
KS,
How does consumption grow an economy? Is this a “post-scarcity” thing?
Seriously though, an increase in consumption at the expense of the previous level of gross investment leads to the “consumption” of capital goods. Hence, there will be less capital goods resulting in a smaller output of future consumption goods, which is the same as saying that the economy is shrinking.
“I have a doctorate in finance, and a masters in both finance and physics.”
lol… only 3 degrees? Have you got a nobel prize as well?
Unfortunately, nobody believes a word you say, M_F.
On reddit you claimed that you were over 50 years old:
“Wrong. I am a retired investor. I made lots of money taking risks. Now I am living comfortably. I did it for 50 years.” — Waaah
http://www.reddit.com/r/TrollAlert/comments/dsy9z/waaah_was_a_successful_investor_for_50_years_was/
KS:
If you don’t understand that consumption shrinks economies then you don’t understand basic economics and the school you went to is a poor one.
I can explain how consumption shrinks economies, but I am convinced you would not understand it at this time in your present level of economics knowledge. You don’t have the tools needed to understand it.
LK
4 actually. I needed an undergrad degree to get into the masters program.
I don’t know what Waaah is all about. I go by Major.Freedom
This is not about me. This is about my economics arguments.
If someone being an anti-semite, who exploited young boys in third world countries, and who was very mean spirited to his newer colleagues isn’t going to make you give yourself an irrational excuse to reject that person’s arguments on economics, then surely you would not give yourself an excuse to reject my economics arguments.
I don’t know what Waaah is all about. I go by Major.Freedom”
Don’t forget Captain_Freedom, Sage_Advice, George, Pete, David, Christof, Pete PetePete, or Private_Freedom …
Do your life stories and educational background change under each of the pseudonyms too?? Sort of like a multiple personality disorder manifesting online?? lol
Haha, ok Major Freedom. I’ll go grab a ph.d at the university of Phoenix like you did. I’m sure it is covered somewhere in there right after they go over which end of the pencil to write with.
The rest of us who are dealing with real economics will continue to laugh at you.
KS:
You aren’t dealing with “real” economics. That is one of the reasons you lack the intellectual tools to be able to meet my arguments head on. It is why you devolve to childish insults that really only display your own self-image.
You tell me people are laughing at me only because that is your own fear of people laughing at you. It I’d why you follow and believe whatever you think the most popular beliefs are at any given time. If you think the consensus moves towards a different belief, then you’ll just follow that without question.
You are economically illiterate at this moment in time, but with enough reading and studying, you just might be able to stand toe to toe with us on this board.
Please don’t believe that you devolving to insults isn’t just a case of you covering up your lack of knowledge and inability to disprove what I said wrong. You said I have not fully explained how or why consumption shrinks economies, and you’re right about that, I did not, here, again. But you immediately knees jerked against it, couldn’t believe it, and that is when you showed you could not actually prove your claim of the opposite. You showed it is a belief of yours that you just adopted without question. You never bothered to actually take the time to learn how your belief even came about. It is not your novel idea.
Once you accept the truth that you need to learn more, after laughing awkwardly to deal with your inferiority complex or whatever psychological baggage you need to dump on this blog, then you’ll be able to avoid making arguments that we know have already been debunked every which way from sideways.
LK:
Says formerly Lord Keynes, now LK.
Hahaha, you’re almost at a point where you’re no longer a devotee of a personality cult.
Maybe someday you’ll be able to give yourself an online name that isn’t a name of someone who has already existed.
Do you hate yourself that much that you envision yourself as someone else? Lol!
Major Freedom,
I have no need to disprove you, as you’ve provided no evidence for a single thing you have said. You think I’m making fun of you because I’m scared inside? Lol. I’m making fun of you because you’re acting like an idiot.
If you understood basic economics you would never have tried to make a number of the arguments you made. If you want to continue making a fool of yourself please feel free. I will continue to stick with real economics.
I gave some advice before that you might want to quit while you were less far behind.
And sometime back I accused MF of being the off-the-wall provocateur Tex Avery. The lamentable Ken B was convinced. Major, if I was mistaken in that case, I sincerely apologize. I have the unfortunate tendency to judge others by my own low standards. (I must be developing a conscience in my dotage — now that it doesn’t cost me anything.) My read is that you keep your civilian identity under the rose for professional reasons. Perhaps someday you can come out for the accolades you richly deserve. Excelsior!
KS:
As I said above, you lack the required intellectual tools to be able to understand it.
“I have no need to disprove you, as you’ve provided no evidence for a single thing you have said.”
“You think I’m making fun of you because I’m scared inside?”
Absolutely.
“I’m making fun of you because you’re acting like an idiot.”
There are lots of idiots in the world and there are lots of idiotic things said.
Why go out of your way to call me an idiot on this particular issue? It is because you’re scared out of your mind about this particular issue, that’s why. It is not my fault you are acting the way you do, so don’t pin it on me.
If you understood basic economics then you would not have claimed that the statement “consumption shrinks economies” is false. You would have claimed that it is correct.
You WANT to believe that your spending money on consumption is what makes the economy go round. It is to distract yourself from the uncomfortable truth that when you spend money on your own consumption, that it is the producer of the good that made the economy grow, not you.
In your economic life of working, earning money and consuming, you have not yet intellectually matured enough to learn how productive activity works. You see yourself spending money, and then the world is essentially opaque beyond that.
The spending that grows economies is spending money on capital goods and labor, and other expenditures made for the purpose of making subsequent sales, which is composed of either more capital goods sales, or consumer goods sales.
If you decide to spend money on your own consumption, then you did NOT invest that money in labor or capital goods. I am going to assume you are not so oblivious as to not grasp that triviality.
Now, it is also trivial that it would be impossible if money were ONLY spent on labor and capital. At some point, in order to make such productive expenditures worthwhile, consumer spending MUST occur. But, and this is an important but, just because consumer spending is needed to ultimately make even capital goods sellers earn profits, it does not in any way imply or require that consumer spending grows economies. Consumption always shrinks economies. But, and this is also another important but, shrinking an economy via consumption is NECESSARY for human life and well being to exist. So contrary to your childish interpretation of what I wrote, that this somehow means consumption is an evil, or a bad thing, what it actually the case is that while consumption does shrink economies, it does not mean consumption is an evil. Consumption is necessary for human life and happiness.
You don’t understand basic economics. I am more intelligent than you in this subject, because no only do I understand the basics, and teach the basics, but I read the history of economic thought. That is what makes myself and many other “Austrians” intellectually superior to you. We don’t even need university or college education to be more knowledgeable in economics than you. You clearly wasted your money.
If you understood basic economics you would never have tried to make a number of the arguments you made. If you want to continue making a fool of yourself please feel free. I will continue to stick with real economics.
I gave some advice before that you might want to quit while you were less far behind.
It is a personal opinion, what is “worthwhile”. Some may consider capital growth to be worthwhile as an end in itself. Build another bridge parallel to the first, regardless of whether anyone will use the bridge.
You are of course entitled to your opinion, but there’s nothing absolute about it.
Flashman:
I wasn’t Tex Avery, and no need to apologize.
I’ll publicize who I am on my deathbed, which I am going to assume will have WiFi.
Until then, my arguments will have to be addressed in their merits, and not by who said them. This is incidentally why people are believing me to be other monickers online. My arguments have acquired a name.
I can understand people with extreme views changing their name frequently. I myself have been the receiver of online written abuse and hatred. It distracts from the initial arguments themselves, and that is a pet peeve of mine. But if someone wants to make the subject of the conversation a personal one, like this creep “KS”, then I’ll gladly play the role of his boogeyman so as to get his baggage off his chest. Usually I assume such behavior is temporary, but there are some weirdos online, and so you never know.
Tel,
You’re right if the context is action in general.
My argument is constrained to business activity, I.e. money profit making activity.
Major Freedom
Economies are measured by their output. Consuming things does not lessen our output. You are now arguing that consumption makes the economy grow less than it would if every dollar were invested. Growing less than it could is not the same thing as shrinking. You also noted that consumption is necessary for investments to have purpose and value. Investment in additional production would not occur if there was no consumption. If consumption is a necessary condition for growth, then it does not definitionally shrink the economy.
Period.
So not only did you not understand that “not grow” does not equal “shrink”, but you missed the fundamental point that consumption is necessary for investment and growth. This isn’t complicated stuff, you’re getting the really basic stuff wrong.
I find it highly unlikely that you have a doctorate in economics at all, much less are teaching anyone. (Particularly at a reputable university) You’re right that I’m scared about one thing, and that’s that you might have duped some unsuspecting students into paying money to you.
Call me unsurprised that you consider yourself an Austrian, haha.
Major Freedom
If consumption dropped by 20%, how much bigger would our economy be?
(serious question)
MF,
“I can understand people with extreme views changing their name frequently.”
That’s funny; the more KS posted, and the more his personality started to come through, I started to wonder if KS was really ‘Phillipe’.
“I would strongly suggest you familiarize yourself with the argumentative fallacy called fallacy of authority “
So should bob roddis — whenever he cites Hayek and thinks this settled some point!
It settles the point about what Hayek believed, which is one of the handful of points you usually bang on about.
If I can buy ten widgets today for $10 and buy 12 widgets for $10 in a little while, it makes sense to wait. The thing is that it then starts making sense for everyone to wait before engaging in commerce
So why are the consumer electronics and computer industries not complete basket cases?
Yeah, and good thing food prices aren’t falling. Otherwise, we’d all starve to death as we all refuse to consume.
Good thing home prices are rising, or else we would all delay buying houses until we died from the elements.
Good thing clothing prices are rising, or else we would all be walking around in the nude.
Good thing medicine prices are rising, or else we would all choose having horrible symptoms and pain.
Good thing energy prices are rising, or else we would all be using Flintstone cars.
People like KS are amusing to have around. He provides fodder for entertainment.
This is pathetic. Deflation doesn’t mean people never buy anything ever, it means there is a disincentive, which is a bad thing. It also increases the real value of debt and discourages investment.
This is basic macroeconomics. It is amusing to hear someone who thinks that consumption shrinks the economy try to attack others for their lack of knowledge though.
Why waste your time here if you have such little respect for Austrian economics? I mean, we are aware that other schools of thought have differing views. Your comments are not revelations for anyone here, we just think you’re wrong. Still, You’ll never see me wasting my time going to Krugman’s blog saying, “Austrians disagree with you dummies”. What would be the point?
KS,
Where ya going with those goalposts?
You do not understand what ‘moving the goalposts’ is.
I stand by exactly what I stated. I was unaware that providing an incentive (or disincentive) for some economic activity would mean that such an activity must either ramp to infinity or stop altogether.
Productivity related deflation was already covered and is not generally applicable to entire economies for reasons that should be obvious.
You have changed your story KS. First you said price deflation is bad without any caveats.
Now you are admitting not all price deflation is bad.
You are not an honest interlocutor
“I stand by exactly what I stated. I was unaware that providing an incentive (or disincentive) for some economic activity would mean that such an activity must either ramp to infinity or stop altogether.”
Here, let me help:
“Since your spending is my income and vice versa, now we’re both going broke because nobody is buying anything… so we cut prices further, causing even more deflation.”
What you described was a deflationary spiral, which is a continuous and perpetual deflation. So yes, by changing from a deflation spiral to mere disincentive to consume, you moved the goalposts. It suggests that you might not understand all of the conditions contingent in the Keynsian framework for a deflationary spiral to occur, but just any old deflation, and that now you realize your mistake and so have retracted that claim.
In any case I would respond differently to an argument that is different.
KS,
What are the obvious reasons that productivity related deflation is not applicable to entire economies?
Above, you asserted that MF hadn’t explained or shown how consumption shrinks economies. This is another case where you should take your own advice, and explain or show how productivity related deflation is not applicable to entire economies.
KS,
M_F is using the fallacy of composition: assuming that just because deflation is good in one goods market, it must be good in all markets.
He’s an ignoramus.
No LK, I am not using the fallacy of composition. I am not claiming that because price deflation is good in one industry that therefore it must be good in all industries.
I used electronics as an illustration of what is already argued as universally true.
See my comments below.
“Deflation is catastrophic because it incentivizes not engaging in commerce”
If not incentives, then by what miracle do you suggest people have succumbed to the act of consuming products and services produced from the technology sector that have gradually decreased in price over time?
The No True Scotsman miracle I imagine.
The only one guilty of a logical fallacy here and you are Mike T: you use the fallacy of composition.
Not to mention either an ignorant or outright dishonest attempt to define “deflation” as just price falls in some individual markets when it means general price falls.
LK,
The point Mike T is trying to make is that falling prices in the electronics industry doesn’t seem to disincentivize the engagement in commerce.
Why would the incentives of a market participant change from a specific price fall to a general price fall? People don’t make general purchases; they make specific purchases; it’s irrelevant to them whether or not general prices are falling.
No LK, I am not claiming that the reason productivity based price deflation in the economy as a whole is innocuous to be the fallacy of composition argument that it works in a specific industry such as electronics. That is not how economists come to know it.
I used electronics as an illustration of an already universal truth regarding falling prices based on production.
When one or more than one, or ten or twenty or one hundred or the great bulk of firms taken together, when technological progress and capital accumulation takes place throughout the economy, prices of goods can gradually fall as the same nominal demands for both capital and consumer goods get sliced into thinner and thinner pieces, or prices. The same money revenues and the same money costs lead to the same profitability, but the dollar flows are able to buy more and more goods.
You don’t seem to understand how productivity can increase without additional money costs spent in the aggregate. You don’t get it because your Keynesian theory blinds you to it. You think more physical capital in existence requires higher money spending on capital goods. Keynes made that same mistake in the GT.
You don’t understand the process of how capital costs can fall with more capital goods being produced as caused by “real” side factors.
You also do not understand how more capital produced and used is itself a basis for further real economic growth totally apart from changes in nominal demand. That producers with more capital can increase their output without having to increase their selling prices since the same nominal costs have been allocated to more and more physical capital goods.
The argument about price deflation is this:
General productivity growth based price deflation can occur for the same reason, but is not made true because of, a specific firm level productivity based price deflation.
Keynesians should watch daytime TV for the ladies. It’s been non-stop obsessiveness about where and how to find the lowest of the low prices next Friday. That appears to be “incentivizing engaging in commerce”.
Deflation is NOT prices falls in some individual goods markets, but general price falls. Learn the difference Mike T and learn about the fallacy of composition.
It is not a fallacy of composition to argue that it is a universal truth that productivity based on ce deflation does not reduce profitability or employment on any scale, at the firm or the economy as a whole level.
The argument is not “Since falling prices exists in electronics without self-destruction, that therefore it must also apply to the whole economy.”
Learn the argument LK and learn what the fallacy of composition is really about. Hint: the fallacy of composition is what you use when you argue that because at the firm level producers depend on consumers in order to be sustained, that it must also apply to the economy as a whole, I.e. all producers as such depend on consumers as such to be sustained. And the further fallacy based on this one, that consumer spending decreases shrink economies and consumer spending increases grow economies.
“It is not a fallacy of composition to argue that it is a universal truth that productivity based on ce deflation does not reduce profitability or employment on any scale, at the firm or the economy as a whole level.”
Another Austrian who cannot understand the issue of debt deflation — or more likely just a troll who uses pathological lies whenever confronted with start empirical evidence that reality does not conform to his world view
LK:
Settle down, you’re letting your emotions get to you again.
To address what in effect is you only saying “Debt deflation!”…
Debt is not at all harder to pay back when sellers sell say twice the number of goods at half the prices, due to productivity having physically doubled.
The same money revenues are being earned. The same money costs are being incurred. With unchanged money revenues and unchanged money costs, real productivity can be ANYTHING, and debt, which is nominal based, will be no more difficult to pay back.
The theory of debt deflation as per Minsky presumes that the fall in prices can only be monetary deflation induced, that is, a system-wide reduction in revenues.
That is not productivity based price deflation. You can’t refute an argument by pretending the premises weren’t even made.
So your argument isn’t even designed to refute the case that in a general price and wage deflation, with generally fixed nominal debts, this will cause further economic problems, as many debtors and creditors are driven into bankruptcy.
Thanks for confirming your arguments were irrelevant.
LK:
Hahahaha
OK..
“Hey LK, nothing you wrote was with the intention of refuting some random thing I said late into this debate, so that means everything you said is irrelevant.”
Hahahaha
But guess what? If general prices fall because of productivity growth, then as I stated earlier, debt is no harder to pay back. So productivity growth based price deflation does indeed refute your Miskyian nonsense that price deflation is always and everywhere a problem for paying back debt.
Your theory has been refuted. All I need is one counter-example to your very much universal rejection/antagonism towards falling prices.
You don’t seem to even understand your own theory is not one of falling prices at all, but falling revenues and incomes.
Falling prices does NOT necessarily imply falling revenues and incomes.
Come on LK, this is basic economics. If I sell say 5% more of my labor HOURS, for a lower wage RATE that leaves my INCOME unchanged, then I have no more difficulty paying back debt should I owe debt.
Now think of me selling 5% more goods with the same nominal costs and lower selling prices that leaves my product sales revenues unchanged. That would also not make it any harder for me to pay back debt.
Debt is not made more expensive based on my selling PRICES. Debt is made more expensive for me based on my INCOME.
You should know this.
LK,
The point I’m making is that all price declines, general or specific, are not the same, and certainly, are not all “catastrophic” as KS claimed.
Tax also discourages people from engaging in commerce.
Unless they are incentivized to purchase health insurance.
Engaging in “commerce”.
How do you go from stating that you have lower time preferences for widgets to “the thing is” that everyone will develop lower time preferences for widgets?
How do “we cut prices further” if prices are sticky and rigid? If prices are sticky and rigid, then isn’t being afraid of deflation like being afraid of the boogie man?
KS,
In regards to my first question above, where you take a specific action and jump to a prediction about all possible future actions of different individuals, i.e. a generalization. Again, this is at least a third instance of where you should take your own advice, such as when you suggested in the second to last paragraph of the following linked post:
http://consultingbyrpm.com/blog/2014/11/lord-keynes-calls-my-raise-on-krugman-kontradiction.html#comment-1309849
In February, 2011, the very establishment American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:
Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review, 35(4): 519–30.
http://pubs.aeaweb.org/doi/pdfplus/10.1257/aer.101.1.1
I would expect a self-identified economics expert to have a working familiarity with the theme of that article.
And yet you think that no non-Austrian in human history has ever understood the arguments of Hayek or properly read the article? Is that right? lol…
Your habit of ending sentences with “lol” says far more about you than you know.
We’ve gone over this already. Naming a paper “important” does not mean really understanding it.
Despite the fact that neoclassicals do accurately summarise the paper and praise it, and the whole disciple of “information economics” – by people like Joseph Stiglitz, George Akerlof, and Michael Spence – takes Hayek’s articles on information and prices as one of its foundations, and even a New Keynesian like Stiglitz can say “Hayek was correct in arguing that the central problem of economics was a problem of knowledge or information: ‘the utilization of knowledge not given to anyone in its totality’ ….” (Stiglitz 2000: 1468–1469).
Thanks for that M_F, you laughable troll.
LK:
What I said, and what you said, does not warrant a “despite the fact”. You did not refute what I wrote.
Stiglitz only praised Hayek for bringing the issue of information to the forefront. He didn’t praise Hayek’s actual theory of dispersed information.
Given what Stiglitz wrote about information, he doesn’t understand Hayek. If he did, he would have applied it to the very solution Stiglitz advocated for a problem that Hayek did not even present. Hayek’s theory properly understood applies to ALL human institutions. Scarcity, which Stiglitz claimed is insufficient for us to know efficient allocations of resources, applies also to protection and security. Such services are also scarce. Information dispersion applies to it no less than iPods and houses. Stiglitz does not understand information dispersion because he took it to be a flaw of markets, when Hayek’s theory was in fact a theory of the flaw of centralization.
“He didn’t praise Hayek’s actual theory of dispersed information. “
…says the fool who just read Stiglitz praising Hayek’s actual theory of dispersed information.
Also, Hayek never used his theory of prices as information and information dispersion to argue that it should be applied “also to protection and security” nor did he advocate anarcho-capitalism, so presumably Hayek himself never understood his own theory, and therefore Stiglitz can hardly be accused of not understanding it.
LK:
No, Stiglitz criticized Hayek’s theory. He didn’t praise his theory.
He only praised Hayek for making information important in economic analysis.
I realize Hayek never applied his theory to protection and security. But that often happens. You call yourselves “Post Keynesians” and you believe you are the proper “heirs” of Keynes’ work. You have not merely parroted what Keynes wrote. You took his principles and expanded upon them.
But does that imply you believe Keynes didn’t understand his own theory? Maybe, maybe not. It does not matter.
The same thing is the case for Hayek’s theory. A consistent application of it would include scarcity and knowledge concerning protection and security. Hayek himself need not have written about it.
In any case, the point is that Stiglitz did not understand Hayek’s theory at all. What he did was take the fact of information dispersion, as a weapon against capitalism. He did not understand that “information asymmetry” applies also to protection and security, and with a monopoly, the incentive is to reduce transparency and increase the asymmetry.
But ultimately, the argument of the failure of socialism is not one about “information.”. It is about property. It is about prices. Even a supercomputer that could track everyone’s every move, and thus provide a socialist power with all such information, could not provide the socialist with the information needed that only buying and selling private property can provide. Without prices, no amount of non-price information can reveal subjective preferences.
“But ultimately, the argument of the failure of socialism is not one about “information.”
Yes, it is — in Hayek’s theory: information and prices as information, and the failure of central planners to have this information, and as Stiglitz himself says citing Hayek on p. 198 of “Whither Socialism”.
Thanks for showing us you just make things up.
You and Stiglitz are wrong. No, socialism is not a failure because of lack of information. It is the lack of private property. Information is subsidiary to this. Without private property, prices cannot exist, and it is prices that are needed. The information is subsidiary to the existence of property.
If one paraphrased Stiglitz’ reaction to Hayek’s theory, it could be this:
“Thank you thank you thank you Hayek, for giving us socialists a new ideological weapon against capitalism after all previous ideological weapons have failed.”
Ah, so you don’t deny Stiglitz praised Hayek’s actual theory of dispersed information, nor that your stupid claim that Stiglitz didn’t properly understand it because it didn’t apply it “also to protection and security” makes no sense?
No, he praised Hayek for popularizing information.
He did not praise Hayek’s theory. Hayek’s theory was not just a factual statement that the total knowledge in society is dispersed among individuals. Hayek’s theory was what that implied for socialist chaos.
“He did not praise Hayek’s theory. “
If one bald faced lie doesn’t succeed just repeat it again and again, huh?
Impressive.
You are just mistaken. You should read the paper on information you yourself cited a few weeks back. Read it closely. You’ll see that Stiglitz rejected Hayek’s theory for being narrowly focused on scarcity, but praised it for making information as such a new and important concept in studying economics.
It is not a lie. It is a correct reading.
Can any Austrian here challenge this?
I assert that Austrian economics is not economics at all. it’s reasoning from unquestioned assumptions about how the world works.
Well, what are those unquestioned assumptions?
Perhaps, you’re making unquestioned assumptions about what Austrian economics is.
Also, when you say ‘unquestioned’ do you mean that no Austrian economist has ever theorized about the basic axioms that their reasoning rests upon? Even if this is the case, it wouldn’t mean that the assumptions are wrong. Actually, I’ve seen much more Austrian literature out there that addresses epistemology than I have from the mainstream. Of course, this doesn’t mean that there isn’t any rigorous mainstream literature on epistemology and economics; what would you recommend?
From my limited reading, the epistemology of economics is one of Austrianism’s greatest strengths and weapons against positivism.
Until neoclassical economists can demonstrate that there is some means of establishing a scientific means of comparing interpersonal subjective utility–best of luck with that one–all of their work rests on a foundation of sand. And since they obviously cannot offer such a demonstration, they just ignore it and soldier on.
We’ve known this to be a fundamental problem since Bentham was running around slinging utils, but it has, to the best of my knowledge, not been taken seriously anywhere outside of Austrianism since the 1930s, when Robbins cut short his investigation into the epistemological problem after realizing he was wandering through a minefield that threatened all of applied economics.
“Until neoclassical economists can demonstrate that there is some means of establishing a scientific means of comparing interpersonal subjective utility–best of luck with that one–all of their work rests on a foundation of sand.”
You have no idea what you are talking about, anon:
http://factsandotherstubbornthings.blogspot.com/2012/09/three-things-to-remember-about.html
In that case, how do they come up with things like “Aggregate Demand” which require the summation of these supposed “ordinal preference relations”.
Can you publish the algorithm used for summing ordinal preferences? I’d like to study that.
You clearly do not even understand what “aggregate demand” even is. If you did you would not make such a stupid comment.
So you are saying that aggregate functions have nothing whatsoever to so with summation.
Is that it?
http://www.businessdictionary.com/definition/aggregate-demand.html
Gosh LK, you better tell these guys how stupid they are, with a mistake like that.
They think “Aggregate Demand” involved summation. How ignorant!
http://en.wikipedia.org/wiki/Aggregate_demand
Oh no, Wikipedia got it wrong too. They keep thinking that aggregates have something to do with summation. They even use those wrong-headed plus signs in their equations. What a bunch of spoons.
False. The assumptions are in fact questioned. They are not confirmed by observation. They are proved bases on self-reflection, which very few economists even know how to do.
The way “the world works”, if we consider the ” world of human action”, it works according to how our minds are logically structured. The world of economics is the world of human action, and human action is not like the natural sciences. The natural sciences are subsidiary to human action.
Your “assertion” that Auatrian economics is not economics, is based on a false assumption about what sciences are. Science is not positivism. Positivism is but one form of science, proper to the non-acting phenomena of the universe. It is not appropriate for human action. The tacit premises of positivism leads to self-contradictions when applied to human actions.
A point from above that probably needs it’s own discussion space:
OK, let’s look at an example. They are gradually introducing driverless electric trains, fully operated by computers. Let’s ignore any arguments on safety and presume these devices work as advertised. So you have an older technology (train with a driver) and you can put additional capital investment into that to get a newer technology (train without driver) which is cheaper to operate, etc. Thus, higher productivity.
Well, the train driver has spent 15 years going up the ranks, doing his time as station cleaner, then as guard, and that’s all personal capital investment, trying to get the fairly well paid and low hours job as a train driver. For this guy it’s a disaster! He’s got a mortgage and was planning on being able to use his decent salary to pay it back, now he is out of work.
For the passengers on the train, it is a minor boon, because their ticket prices are a little bit lower, and they have more money available for other things. So we have a disastrous loss for a small group of people, who now have great difficulty paying debts, and a minor gain for a much larger group of people, who can all pay back their debts slightly faster.
There’s no objective viewpoint to judge the loss against the gain. From a CPI perspective the cost of living has gone down, but that isn’t much comfort to the guy who is now out of work and who have invested great personal cost gaining skills that are now useless. He can start from scratch at some other job, but he is still much worse off. From a political standpoint the unions immediately jump to the defense of minority groups like this, hard-done-by workers, etc. The change to train fares is small and does not attract much political attention.
From the point of view of aggregate debt, some of the out of work train drivers will default, so their debts end up written off. The other people will able to pay back debts faster, but they might choose to use the money for something else. It could potentially bring down debts, but they could also go up, depending on preference.
Tel,
Even the former train driver is better off, because he also benefits from the lower priced goods. The great bulk of society benefiting from lower prices includes those who used to produce candlesticks and horse carriages.
If we take your argument to its logical conclusions, we should think that because each new innovation may put a group of workers out of work, and because innovations occur in almost all industries, and thus any industry’s workers can go out of work, it means workers as such are made worse off because of technological progress as such.
And, if we assume the money lent to the borrower is not credit expansion, it means that defaulting on that debt does not mean incomes or spending falls. The money the borrower borrowed was spent, natch, and so that money is now in other people’s pockets, as it were. So like you said, they can pay back their debts more easily.
But where is the workers thinking and acting kind of like entrepreneurs and forecasters in your analysis? If I am a wage earner, that does not mean that I am oblivious to trends and expectations of what the future might hold.
If you and I are willing to “tsk tsk” investors and entreprneurs for making bad judgment calls, bad forecasts, then why not wage earners as well?
Would you think it is the fault of others if a person spent years training to be an underwater basket weaver, only to find that there are so few wage earning opportunities for that skill? Why feel especially sorry for workers who fail to even research what investors and technology gurus believe the future might be? Shouldn’t we ask for the same basic responsibilities from people regardless of their economic role? We are easy to say ya, that bad forecasting investor should go bankrupt. Why not bad forecasting wage earners as well?
I notice that many people view workers as helpless children. I blame Marx. His poison infests even non-Marxist schools of thought.
In my city, any railway employee gets free travel as a fringe benefit, so they don’t even benefit from the lower priced tickets. However, it isn’t hard to see why losing your job will (on an individual basis) be far more significant than a small price shift.
That’s not what I said. Murphy goes on about inter-personal value being subjective. This means we cannot determine whether we are collectively better off or worse off. Yes, that must apply at every incremental technological advance, which does tend to lead to the logical conclusion that no one can tell whether technology in the big picture is making us better off as a community or worse off.
To say otherwise would require an objective valuation taken from a third party perspective outside the system, or else some self-consistent way to aggregate gains and losses over many people.
Obviously wage earners will do their best to get into a good career. Engine driving has been stable and well respected for a century, now it may be coming to an end, or it may go on a while longer. The thing is that wage earners have been sold a sense of security (possibly wrongly) and in turn have accepted that more security implies lower wages and reduced self determination.
Entrepreneurs are regarded as a “risk taking” class in society, and you regularly hear this justification: “I take big risks, I deserve big rewards.” This has been the Wall Street catch cry, and still gets trotted out on a regular basis. Thing is, by your analysis, everyone is taking risks, so no one gets to claim a special deserving status when it comes to rewards. The march of technology can be quite brutal if you happen to be in the wrong place when it hits you.
Maybe yes, but if you think that division of labour is a good idea, then why not also extend this and have some people who’s speciality is engine driving, while other people specialise in taking risks? Information is a commodity, knowledge is a commodity and risk is a commodity… these things are tradeable, and people can and do trade them.
You might say, “Oh well, those engine drivers just got Grubered, this shit happens.”
The engine union might say, “Oh well, a bunch of those robot trains just got derailed, this shit happens.”
What I’m saying here, I don’t think you can consistently support non-violence while shrugging off situations where individuals get shafted by the system. You can support the idea of “violence as a commodity like any other” which makes economic sense… then whoever wins by cunning, stealth, trickery, intimidation or outright brute force is just as legitimate as any other. This is kind of where we are at right now, but it isn’t quite the libertarian ideal is it?
“Entrepreneurs are regarded as a “risk taking” class in society, and you regularly hear this justification: “I take big risks, I deserve big rewards.” This has been the Wall Street catch cry, and still gets trotted out on a regular basis. Thing is, by your analysis, everyone is taking risks, so no one gets to claim a special deserving status when it comes to rewards. The march of technology can be quite brutal if you happen to be in the wrong place when it hits you.”
To me, I don’t care what reasons Wall Street “fat cats” give to justify their relatively higher earnings. I don’t attack an argument based on who makes it. That is ad hominem.
I agree with you that entrepreneurs are not the only ones taking risks. But they are not the only ones making an income. Wage earners take risks, and they make an income. Wage income is less. The risks of wage labor is less. Remember survivorship bias. We hear a lot about entrepreneurs who make it. It is hard to easily know the many who fail. We have to go into the deep records and databases for a list of startups that failed. As you know, the failure rate of new startups is very high. Many wage earners are failed entrepreneurs. Many billions of entrepreneur capital is lost every year. Don’t let the fat cat Wall Streeters distract you from that fact.
“I Don’t think you can consistently support non-violence while shrugging off situations where individuals get shafted by the system.”
Well that is likely because you are in some way apologetic towards the Marxian/Proudhonian/Bakhunian notion that the division of labor is a form of “structural” oppression/coercion/violence.
That me having the choice of agreeing to a contract with someone else whereby I pay them a fixed income in exchange for their labor, until one of us wants out when we want out, that the fixed income earning individual is in some respects “exploited” by either me, or a prevalence of respect/protection of individual property rights, if I am the one who chooses to opt out.
What you call someone “getting shafted by the system” is what I call the counter-party no longer wanting to trade in the exact same pattern they have traded with others in the past. Indeed, I would regard the counter-party being either forced by a third party he never contracted to be involved in the first place so as to remain stuck in a contract he no longer wants to be involved in, or being robbed so that the counter-party can continue recieving an income for doing nothing, as an actual example of someone “getting shafted”.
Freedom may appear and may seem like coercion, Tel, but what those feelings are in actuality are the sensual perceptions (I mean that in the direct sense, not in the imaginary sense) we experience when other people are free to manifest their preferences for their own persons and their own property in ways that are in the short term against our interests or expectations.
Yes, that can hurt sometimes. I would feel terrible if the consumers of my business stopped paying us, or paid us less enough that I can no longer continue that business. I’d have to find something else to do. That is hard to deal with. I’ve been through it.
But I stay strong and don’t let those events make me a worse thinker.
I will challenge your argument that for me to be consistent in anti-violence, I must regard individuals choosing to leave a historical exchange relationship as an act of violence against the other party. Would you continue with that logic and say that a spouse who wants out of a marriage is committing violence against the other spouse by virtue of divorcing them? If I have your argument wrong, please correct me.
I don’t really like to talk in terms of “the system” when I want to be detailed and thorough. I use methodological individualism when I want to be as clear as possible. Is “the system” of individuals respecting each other property rights which may have short term pain but long term gain, be regarded as oppressive? Would threatening individuals with violence if they don’t pony up enough money to maintain historical income patterns of random strangers be a solution to this alleged “oppression”?
Tel, maybe you’re just getting tired of fighting for liberty. I get it. It sucks for people to lose their jobs, especially when it is so often the case that they lose their jobs for actually violent reasons. But stay strong. Libertarianism is, for better or worse, dependent on the self-reflection of each and every individual. I must depend on you and everyone else to be self-motivated. Libertarianism comes from within. I can’t make you a prosperous libertarian. If self-motivation deteriorates, freedom and prosperity does as well. I think that is why libertarianism seems to be cold-shouldered and aloof. It is because it is an ethic that calls upon individuals to act, rather than be passive and await a promise of prosperity being given to them.
Walter Block gave some very helpful perspective with regard to laborers who lose their jobs, in
“.. it should be understood that the skilled worker is an investor, just as the Capitalist. The Capitalist invests in material things, and the worker invests in his skills.
“All investors have one thing in common. And that is that the returns on their investment are uncertain. In fact, the greater the risk involved, the more the investor may gain.”
You can find this quote at about the 14:30 mark in the following video, but I recommend the whole thing:
Defending the Undefendable (Chapter 23: The Importer) by Walter Block
http://www.youtube.com/watch?v=PTT_WHyzZ54
Nobody deserves employment.
Having said that, consider just how much the government prevents your finding work and places to live: the Minimum Wage, zoning laws, license, registration, and insurance costs for driving your own car, anti-trust laws pricing out competitors for utilities services and thereby keeping prices high, the prohibition of slum dwelling (listen to Block’s chapter on The Slumlord).
You are assaulted by the government in far more instances than by greedy businessmen, whose “assaults” mostly consist of “price gouging”, which wouldn’t even be possible if the government wasn’t prohibiting competition through their misguided attempts to help the poor.
In the first paragraph above, the last part should have read something like: “… in his book, Defending the Undefendable:”
“… or else some self-consistent way to aggregate gains and losses over many people.”
It is logically impossible to aggregate gains and losses of subjective values, since “gains and losses” are always subjectively determined by the individual.
There’s no such thing as a “collective gain.”
There can be gains for many individuals at once, but this is not “collective” in nature. At least not in the sense collectivists would need it to be.