So, Are Summers and Krugman Now Confirming That The Austrians Have Been Right About Bubbles?
This week I’m going to talk in-depth about this with Tom Woods–and you really should be listening to all of his shows, they’re great–but let me give just a quick taste.
For people who have been following the blogosphere wonk econ debate since 2008, I think you will agree that the following is an accurate summary of part of the exchange:
KRUGMAN, DELONG, et al.: Sure the Fed’s asset purchases are a move in the right direction, but it’s not enough.
SCHIFF, MURPHY, et al.: This is insane. This is the same thing that caused the current crisis. Get ready for big price inflation. The dollar itself is at risk.
KRUGMAN, DELONG et al.: You guys are nutjobs. Deflation is the threat, not inflation. Japan here we come.
SCHIFF, MURPHY, et al.: Prices are indeed rising, just not at the grocery store (yet, and as much as we have been warning). Look at asset prices, there is a huge bubble in Treasuries and the dollar. This is setting the economy up for a huge fall, just like Greenspan did with the housing bubble.
KRUGMAN, DELONG et al.: Way to move the goalposts, liars. Monetary policy can’t be too loose, because otherwise we’d see rising consumer prices. We would actually be seeing core deflation right now, except for the fact that empirically we are not seeing it–just as our models predicted.
Long-time readers of this blog know exactly what I am talking about. Clearly when Austrians and other hard-money types argued that Bernanke was going to cause a bubble with his loose monetary policy, Krugman et al. came back and said no, this was crazy, because core CPI was modest.
Well, in that context, here’s the latest from Krugman regarding Larry Summers’ talk at the IMF meetings:
How do you know that monetary policy is too loose? The textbook answer is that excessively expansionary monetary policy shows up in rising inflation; stable inflation means money is neither too loose nor too tight. This answer has, however, come under challenge from both sides. One side — the side I’m on…says that at low inflation rates this rule breaks down: the Phillips curve isn’t vertical, even in the long run, at low inflation (perhaps thanks to downward nominal wage rigidity), so stable inflation at a low level is consistent with an economy operating well below potential.
But there’s a critique from the other side…namely, the notion that if asset prices are rising, and that this might signal a bubble, it’s time to tighten, even if inflation is low or falling.
As Simon Wren-Lewis points out, the Swedish Riksbank has gone all in on this doctrine…
The Riksbank raised rates sharply even though inflation was below target and falling, and has only partially reversed the move even though the country is now flirting with Japanese-style deflation. Why? Because it fears a housing bubble.
This kind of fits the H.L. Mencken definition of Puritanism: “The haunting fear that someone, somewhere, may be happy.” But here’s the thing: if we really are in the Summers/Krugman/Hansen world of secular stagnation, things like this are going to happen all the time. The underlying deficiency of demand will call for pedal-to-the-medal monetary policy as a norm. But bubbles will happen — and central bankers, always looking for reasons to snatch away punch bowls, will use them as excuses to tighten. [Bold added.]
I’m being dead serious: Hasn’t Krugman just confirmed what the Austrians and other “goldbugs” have been saying for the last five years? We now all agree that if we continue to use “textbook” monetary policy to fight recessions, we will simply give the US a string of never-ending bubbles.
The only disagreement we now have, is the best way to get out of this cycle. Krugman and Summers think it’s a combination of raising the average (price) inflation rate, boosting government spending, and lowering the national savings rate, whereas Austrians and other hard-money types think it involves smaller government and in particular a return of money and banking back to the private sector.
But make no mistake: Krugman’s admission above is a humongous concession, even though he doesn’t realize it. This is even more monumental than when he accidentally threw in the towel on the “potential GDP” discussion. I wonder if Christina Romer will pull him aside on this “secular stagnation” stuff too?
Krugman clearly thinks the “other side” is wrong and that central bankers are just “looking for an excuse” to tighten. He thinks bubbles will happen regardless of monetary policy.
No I don’t think that’s his position, Wonks Anonymous. He didn’t say it in this particular post, but in an earlier one he said something like:
“Look, it’s not that Summers is ‘for’ a string of bubbles, or that I’m ‘for’ a fake alien invasion, or that Keynes was ‘for’ burying bottles of money. Our point is that absent true reform, these are better than nothing.”
That’s not a quote, that’s a paraphrase, but he really did say something like that very recently.
Then link it and post it verbatim.
He was clearly saying that the bubbles that come about during the regular conduct of markets will be exploited to introduce unnecessarily harsh monetary policy.
Stop lying, I don’t care to whom.
“He was clearly saying that the bubbles that come about during the regular conduct of markets will be exploited to introduce unnecessarily harsh monetary policy.”
Krugman was saying exactly that. Yet look how many screens full of obscurantism Bob and a few others throw up trying to pretend that in fact he said “I was just so so wrong.”
But I don’t think Bob is lying. He is often very damn sloppy about accuracy, and he bends like a pretzel to make Krugman look bad, but I think he means what he says; he’s not lying.
Bob pretends I just like to contradict him. But I’ve disagreed with just about every poster on this blog in the past 3 days (except oddly enough Dan), including you on another comment critical of him. Occam’s razor suggests I like disagreeing with people I think are wrong, and Bob is a guy I disagree with on just a boatload of stuff.
You and Valerie are out to lunch. You’re trying to attribute YOUR beliefs about “natural”, market driven bubbles, to Krugman. Whether that is the case or not, you can’t fault anyone who attributes to Krugman the notion that he believes the Fed causes bubbles and busts.
Valarie, you want “verbatim”? We’ve already done that many times, but the problem is that you are seemingly intellectually incapable of accepting it.
I mean, Krugman said:
“After all, the Fed’s ability to manage the economy mainly comes from its ability to create booms and busts in the housing market. If housing enters a post-bubble slump, what’s left?”
“Low interest rates, which promote spending on housing and other durable goods, are the main answer.”
“To fight this recession the Fed … needs soaring household spending to offset moribund business investment. And to do that … Alan Greenspan needs to create a housing bubble to replace the NASDAQ bubble.”
How blatantly dishonest can you two get? At this point I am going to assume that you are mentally defective.
MF let’s try to be more civil, please. We can’t cast Keynesians as being rude if you call them mentally defective.
Valerie wanted a verbatim quote about the second-best stuff, not the general principle.
But to agree with him, you have to accept that the economy has now changed so that AD is naturally below potential, and, therefore, that AD can be below potential. Are you now claiming that AD can fluctuate, and that not every problem in the economy is structural?
About the potential GDP thing: As it happens, Krugman already addressed that point. http://krugman.blogs.nytimes.com/2013/11/10/a-note-on-hysteresis-and-monetary-policy/
Funny imaginary argument however consumer prices have risen. I have the same, yet updated financial software and I shop at the same Wal-Mart since it opened 15 years ago. My food bill and toiletry bills have risen substantial. So has my gasoline/diesel bill, my household electricity bill, my water bill, my sewer bill, my health insurance bill, auto repair bill, auto tires, so on and so forth.
The real admission Krugman makes is that when central banks tighten they take away the punch bowl from the drunks. Otherwise he’s doubling down on “markets demand negative interest rates”
return of money and banking back to the private sector?
Gary North claims the Federal Reserve is a private bank.
“You know the regional banks are privately owned when you receive mail from them. They do not have the “franking privilege” — free mail, which is allowed only for government agencies. The Board of Governors does have this privilege.”
http://www.garynorth.com/public/512.cfm
People who claim the fed is private are unwilling to admit their beloved government has enslaved them.
Who confirms the Federal Reserve Board of Directors?
Gamble, if you really want to drive the point home to joe, ask him who would bash his door down with holstered guns and handcuffs, who would preside over his trial, and whose laws are being enforced, if one day he decides to stop dealing with the Fed in any way, such as refusing to accept dollars in ANY respect for ANY purpose, in his exchanges.
” Hasn’t Krugman just confirmed what the Austrians and other “goldbugs” have been saying for the last five years?”
It takes colossal ignorance and arrogance to think that Austrians are the only economists in the universe concerned by asset bubbles and their deleterious effects.
Irving Fisher (1933), Keynes (1936) and heterodox (non-neoclassical) Keynesians were concerned about asset bubbles well before Austrians suddenly discovered that they can cause macroeconomic problems.
Show me where in the classic Misesian or Hayekian versions of the ABCT asset bubbles are described as a fundamental factor in business cycles.
Keynes:
“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise become the bubble on a whirlwind of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.”
The General Theory of Employment, Interest and Money (1936).
The solution, as Keynes knew, is financial regulation and cutting off the flow of credit to asset speculators.
I never thought of that. No Austrian has ever mentioned the 1929 stock market bubble before. Such an oversight.
What would we ever do without Lord Keynes?
LK:
The bubble being referred to by Murphy are not the non-existent bubbles brought about by “irrational exhubarance” or “animal spirits”. He, and Austrians in general, are referring specifically to credit circulation theory of bubbles brought about by loose monetary policy from central banks.
These bubbles are what Keynes himself very much wanted:
“Thus the remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.” – Keynes, The General Theory, Ch 22., III.
Keynes was certainly not “concerned” with bubbles, provided they are created, and supposedly managed and controlled, by the government.
Also, Keynes’ “solution” to bubbles and financial crises in general was not regulation and cutting off the flow to investors (who by the way are ALL “speculators”, since they “speculate” about the value of goods/securities in the future when investing, in order to earn profits!).
No, based on his ignorance concerning whether the rate of profit continually falls in a context of capital accumulation, his solution was an Utopian echoing Marx, in abolishing laissez-faire capitalism in its supposedly mature phase:
“I feel sure that the demand for capital is strictly limited in the sense that it would not be difficult to increase the stock of capital up to a point where its marginal efficiency had fallen to a very low figure. This would not mean that the use of capital instruments would cost almost nothing, but only that the return from them would have to cover little more than their exhaustion by wastage and obsolescence together with some margin to cover risk and the exercise of skill and judgment. In short, the aggregate return from durable goods in the course of their life would, as in the case of short-lived goods, just cover their labour costs of production plus an allowance for risk and the costs of skill and supervision.
“Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run, except in the event of the individual propensity to consume proving to be of such a character that net saving in conditions of full employment comes to an end before capital has become sufficiently abundant. But even so, it will still be possible for communal saving through the agency of the State to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce.
“I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution.” – Keynes, The General Theory, Ch. 24, II.
(1) “The bubble being referred to by Murphy are not the non-existent bubbles brought about by “irrational exhubarance” or “animal spirits”
Is Murphy referring to asset bubbles (i.e, stock market and housing) or not?
But no doubt you’re too dishonest to give a straight answer to that question. Instead we’ll hear torrents of rubbish avoiding the question.
(2) “These bubbles are what Keynes himself very much wanted:”
If you’re talking about asset bubbles, that is wrong.
It’s just another stupid fallacy of equivocation again. Keynes is referring to “booms” in the sense of strong capital investment, not asset bubbles in the quote you cite.
(3) Keynes’s concern to minimise and remove rentiers from the economy — right or wrong — does not change the fact that he also wished to see financial regulation.
does not change the fact that he also wished to see financial regulation.
Thus we have another example of the full a priori nature of Keynesianism which posits the wise regulator (yet unnamed) vs. the foolish property owner (yet unnamed) who actually has skin in the game.
LK:
“Is Murphy referring to asset bubbles (i.e, stock market and housing) or not?”
He is referring to what I said he is referring. Which specific assets in which specific markets experience the brunt of the boom is an empirical question, since every boom is slightly different in terms of which particular assets are affected, due to the fact that humans learn new things over time and thus whose action is not constant over time.
What matters is the cause for why housing booms, or why the stock market booms. He is referring to those booms caused by loose money and artificially low interest rates from central banks. You don’t have to personally agree with this theory for you to know what Murphy is talking about when he says “bubbles”.
“If you’re talking about asset bubbles…”
I am talking about bubbles brought about by loose money an artificially low interest rates from central banks. That is what Keynes was referring to when he called for interest rates to be lowered even further to bring about a permanent “quasi-boom.”
“It’s just another stupid fallacy of equivocation again.”
No it isn’t. You’re just confused about Murphy (and Keynes for that matter) are referring to.
“”booms” in the sense of strong capital investment, not asset bubbles in the quote you cite.”
No, booms in the sense as per Murphy (and Keynes): Artificially lowering interest rates via central bank activity.
“(3) Keynes’s concern to minimise and remove rentiers from the economy — right or wrong — does not change the fact that he also wished to see financial regulation.”
The state can’t regulate what doesn’t exist LK, LOL. If the rentier is extinguished, there is no rentier to regulate.
(1) my point proven. Your level of dishonesty and evasion is so severe, we can never expect a straight answer from you. Ever.
(2) ““If you’re talking about asset bubbles…”
I am talking about bubbles brought about by loose money an artificially low interest rates from central banks.”
lol.. So you exclude asset bubbles from your reference to bubbles?
(3) is just another evasion and did not refute what I said.
(1) Your point is refuted.
(2) That isn’t what is implied in what I said.
(3) Nope.
LK’s differentiation of asset bubbles from the ABCT is yat another attempt to insist that the writings of the Austrian masters are set in concrete and that no one is allowed to simply apply the basic Austrian concepts (especially economic calculation which he does not understand) to different scenarios and factual situations. The socialist calculation debate, the “classic” ABCT and asset bubbles are all somewhat different but are easily explained with application of Austrian concepts. LK will not allow that. That’s his game. That’s basically his whole game.
So you’re saying that the “the writings of the Austrian masters” are deficient in the failure to consider asset bubbles?
Suppose Hayek didn’t cover them in detail. Rothbard did. So freakin’ what?
A factory is a LARGE asset. That was sure covered.
More hair splitting B.S. from a Central Planner who does not understand basic Austrian concepts such as the importance and nature of prices.
Where does Rothbard discuss the economic effects of asset bubbles in secondary financial and real asset markets?
Care to give me some references?
LK, again you disappoint. If Rothbard didn’t answer ii it’s not worth knowing.
“Where does Rothbard discuss the economic effects of asset bubbles in secondary financial and real asset markets?”
Where did Max Planck discuss the quantum effects of neutrinos on table salt chemistry? He didn’t? Guess quantum mechanics isn’t really science, then.
Such an absurdly narrow view. It’s like a doctor looking at the effects of the measles on your left pinkie toe. The points that were made were that asset bubbles are the same as any other – caused by credit inflation and the result of malinvestment. Of course, if one is erroneously investing in housing (say), this will coincide with other malinvestment. But the exact particulars of the “fallout” CANNOT BE KNOWN IN ADVANCE.
Where does Rothbard discuss the economic effects of asset bubbles in secondary financial and real asset markets?
What’s the relevance? If you understood Austrian concepts, even you could apply them to analyzing the economic effects of asset bubbles “in secondary financial and real asset markets”.
Since you do not understand Austrian concepts, you can’t do the analysis.
Which can only mean Rothbard did not directly discuss it.
And as for basic Austrian concepts and theories, you’ve shown us time and again you’re ignorant of those very things — such as the concept of the market clearing price and Austrian price theory.
E..g,
“If one says that prices tend toward a point at which total demand is equal to total supply, one resorts to another mode of expressing the same concatenation of phenomena. Demand and supply are the outcome of the conduct of those buying and selling. If, other things being equal, supply increases, prices must drop. At the previous price all those ready to pay this price could buy the quantity they wanted to buy. If the supply increases, they must buy larger quantities or other people who did not buy before must become interested in buying. This can only be attained at a lower price.
It is possible to visualize this interaction by drawing two curves, the demand curve and the supply curve, whose intersection shows the price.”
Tell us said that and what is the intersection “point” he is referring to?
LK:
Rothbard did discuss asset prices increasing by more than other prices in a typical ABCT boom. In many of his writings, he refers directly and indirectly to Fed induced booms in capital goods (which are assets), stocks (which are assets), commodities (which are assets), and durable goods (which are assets).
Nowhere did Rothbard state that asset prices in particular are excluded from the effects of artificially low interest rates and loose money.
LK:
So you’re saying you actually understand those Austrian writings?
Clearly not, since you insist that those concepts are not all grounded on the same Austrian argued foundation of price and interest rate distortions.
Well, his prediction for controlling other people isn’t going to work here, no matter how upset that makes him.
I look beyond his whining and foaming at the mouth.
How do you tell stocks to be just representing a strong boom from a stock market bubble? What do we have now? Stocks in a bubble now or not?
And if they are in a bubble now shouldn’t they be allowed to correct? (Taper??)
That is directed at LK if he ever answers me again..
The first question is so poorly written I don’t know what you mean.
Yes, US stocks are in a bubble..
You can allow stocks to correct without imploding the economy.
Sorry: How do you tell the difference between a booming stock market, that is just representing a strongly booming economy, and an actual stock market bubble?
What would be your policy recommendation now in light of this stock market bubble, slight taper although there is no big CPI inflation?
(1) when the indices show very large deviations upwards from historical trends particularly with strong evidence it is caused by debt financed speculation.
Of course, you can get bubbles from large capital inflows as well.
(2) end QE.
Clean up bank balance sheets and restructure banking sector with a new system of financial regulation.
Large fiscal stimulus with public works/infrastructure and social spending to end high unemployment and insufficient demand for output across the economy.
“when the indices show very large deviations upwards from historical trends ”
And if the indices are only a little more than 20 years old and full of new companies making new technologies that have no historical trends? Like in, say, the late 90s?
What are talking about?
US stock market indices go back a long way, at least to the 1920s. Longer, I think.
(1) In short you don’t know it, you speculate, right? So to be a Central banker means, apart from being an economist with good connections who can watch CPI and, in case of the US, unemployment numbers, you must be a great investor as well like e.g. Warren Buffet?
(2) Wouldn’t have expected that answer. Thanks. Though I guess ZIRP should remain, and government deficits should increase to 2T or whatever it takes to get rid of unemployment right? However if you stop QE and increase the deficit to 2T plus, wouldn’t that mean the private market was supposed to buy lots of government bonds? You would not fear a huge pressure on interest rates for bonds?
*Buffett*
QE is different from normal Fed operations to control yields.
I don’t understand what you mean, how does that answer my question?
LK:
QE is just asset purchases on a larger scale than before. No fundamental difference.
That sounds familiar, doesn’t it?
What we have with Trotsky and his comrades in the Great October Revolution is the spectacle of a few literary-philosophical intellectuals seizing power in a great country with the aim of overturning the whole economic system — but without the slightest idea of how an economic system works. In State and Revolution, written just before he took power, Lenin wrote,
The accounting and control necessary [for the operation of a national economy] have been simplified by capitalism to the utmost, till they have become the extraordinarily simple operations of watching, recording and issuing receipts, within the reach of anybody who can read and write and knows the first four rules of arithmetic.
With this piece of cretinism Trotsky doubtless agreed. And why wouldn’t he? Lenin, Trotsky, and the rest had all their lives been professional revolutionaries, with no connection at all to the process of production and, except for Bukharin, little interest in the real workings of an economic system. Their concerns had been the strategy and tactics of revolution and the perpetual, monkish exegesis of the holy books of Marxism.
The nitty-gritty of how an economic system functions — how, in our world, men and women work, produce, exchange, and survive — was something from which they prudishly averted their eyes, as pertaining to the nether-regions. These “materialists” and “scientific socialists” lived in a mental world where understanding Hegel, Feuerbach, and the hideousness of Eugen Duehring’s philosophical errors was infinitely more important than understanding what might be the meaning of a price.
http://mises.org/daily/4515
Birds of a feather.
LK,
Here is the full quote from Bob;
Hasn’t Krugman just confirmed what the Austrians and other “goldbugs” have been saying for the last five years? We now all agree that if we continue to use “textbook” monetary policy to fight recessions, we will simply give the US a string of never-ending bubbles.
Can you please explain how this is the same as saying “…Austrians are the only economists in the universe concerned by asset bubbles and their deleterious effects.”?
It is doing it by implication. I suspect that may be too subtle a concept for some to understand.
If Bob Murphy suddenly appeared here and said: “oh, I give full credit to non-Austrians for their correct concern with the bad economic effects of asset bubbles, but I forgot to mention it,” then you can say my interpretation was wrong.
LK,
Not sure why Bob would have to do that.
I still don’t understand how saying Krugman here seems to agree with Austrians how asset bubbles are formed is the same thing as saying only Austrians care about bubble and their effects.
I think the implication really is that all “textbook” economists lacked the requisite concern. That I take to mean Keynesians, neo-classicals, and probably a few more I don’t know. The great bulk, the standard bearers of conventional wisdom, but not (for intance) the Austrians.
And of course there ARE New Keynesians who are concerned about bubbles: Stiglitz, Schiller etc.
This is very much a debate within New Keynesianism. But Bob Murphy seem blissfully unaware of any of this.
LK,
Given his blissful ignorance, can you tell me where Bob goes wrong, in writing the following;
Clearly when Austrians and other hard-money types argued that Bernanke was going to cause a bubble with his loose monetary policy, Krugman et al. came back and said no, this was crazy, because core CPI was modest.
Can you tell us which NK’s have been pounding the table saying the bubbles are a concern despite modest inflation?
Yes Ken B. – if by requisite concern one means over the current policies causing a bubble. But LK’s charge was far broader – that only Austrians care about bubbles in general.
Bob was only pointing out the Krugman seemed to be now sharing the Austrian concern that current policies would lead to bubbles – whereas before he had stated that concerns loose monetary policy were unfounded given modest inflation. (Which in my view implies that Bob does recognize that Keynesians do have concerns about the effects of a loose monetary policy – but under different circumstances).
There is no empirical proof for the ABCT so we can safely reject it as just some crazy idea that sounds good to people who want to here it.
Murphy, take some consolation in knowing that the reason there has been a shift in the rhetoric of anti-capitalists concerning central bank created bubbles, is because of the Austrians providing such strong arguments that anti-Austrians are trying to convince themselves they knew about it all along.
I have always emphasized that it is ideas that should be the top priority. It’s one reason why I keep myself anonymous. I don’t want personal rewards. My reward is living in a better world, and we live in a better world when more people, especially anti-capitalists such as Krugman, learn economics.
If the ideas get out there, that’s a win for us. We have already won the philosophical battle, because the internet has allowed ideas to not be stopped by special interests who have an incentive for others to remain uninformed. Now it’s about the intellectual battle. Now it’s about allowing these ideas to flourish among the intelligenstia, either welcomed with open arms among true intellectuals or reluctantly accepted among the pundits.
Intellectual battles are the longest battles. They can sometimes take centuries, and more.
Sorry VP, my mistake, my comment should not have been under yours.
Valuprax,
Often I am not sure where you coming from? What part of the Nolan chart you sit, etc. I know labels are just that , labels but your comments are sometimes incomprehensible to me because I don’t know when you are being sarcastic, statist or free.
I will say this. Keynesian economics, MMT, Communist, Socialist, Marxist, et all, have empirically been proven NOT to work. Why are we still using them? Why are you unwilling to give Austrian economics a chance? Assuming ABCT has not been proven 1 way or the other, it still has a chance of working. This is more than I can say for all the other systems.
Who is being stubborn, petulant, scared and down right childish now?
I recently noted that my 1974 LP bumper sticker contained a Nolan Chart.
http://www.flickr.com/photos/bob_roddis/4293746310/in/set-72157600948973980
I’m not a fan of the Chart because “how much freedom” one might support should/would be based upon one’s private community bylaws which would surely ban Meth Cookers in most cases. Thus, the question: “Do you support the ‘legalization’ of meth cooking” is misplaced. The Chart is threfore much more confusing than helpful.
Just trying to stir shit up by parrotting nonsensical bullshit people have said to me. Sorry to confuse you.
I thought it was on point though given the subject at hand. Mainly, why are Krugman and Co. conceding to a line of reasoning that has no empirical evidence in its favor (as the story goes)?
Not only are they changing their tune, they’re changing their methodology/epistemology.
I think we can see some empirical evidence. I would not say proof because empirical measurements never constitute proof in any sphere of science. Take a look at the way tertiary education prices in the USA rose with the government pushing student loans. This looks like a Cantillon effect, it could be just coincidence, but education prices are not rising the same way in other countries (they are rising, not as much).
If those tertiary students don’t get sufficiently high paying jobs to pay back those loans, it would fit the ABCT of malinvestment followed by correction and some sort of cleanup of bad loans. Those bad loans may collapse into debt deflation, or some sort of additional government intervention might be involved (like what happened in the housing market).
M_F,
Freudian slip?
Nice to know you were thinking of me at least.
Johnathan Swift nicely explained Krugman and Sumner, (and Keynes) 200 years ago:
Money, the life-blood of the nation,
Corrupts and stagnates in the veins,
Unless a proper circulation
Its motion and its heat maintains.
I’m not clear on what a bubble involves and have a few questions.
1. Would the stock market crash of 1987 be considered a bubble bursting, or does it need to be followed by a recession?
2. If the Fed tightens to bring down inflation like in 1983 and that causes a recession and asset markets to lose value, are they bursting a bubble?
3. Since asset market fluctuations are unpredictable, wouldn’t we expect to see big declines?
4. Couldn’t a “bursting bubble” simply be the markets responding to new information about a bad government policy? Here’s an interesting talk where Rustici (of George Mason) blames the stock market crash of 1929 on it becoming evident that Smoot-Hawley would pass. Wouldn’t we expect all the same after-effects of a bubble if the government suddenly decided to implement a terrible new policy: asset price crash, recession, reallocation of production, unemployment, etc?
http://www.econtalk.org/archives/2010/01/rustici_on_smoo.html
LK and his Minsky-ites are also allegedly “concerned” about “bubbles”. However, they purposefully ignore the self evident fact that bubbles are induced by false price signals caused by the very funny money system which they cherish. They claim bubbles happen because there is not enough “regulation” by the omniscient and benevolent unidentified a priori Central Planning Regulator.
“The Financial Instability Hypothesis” by Hyman P. Minsky
The financial instability hypothesis has both empirical and theoretical aspects. The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system’s reactions to a movement of the economy amplify the movement–inflation feeds upon inflation and debt-deflation feeds upon debt-deflation. Government interventions aimed to contain the deterioration seem to have been inept in some of the historical crises. These historical episodes are evidence supporting the view that the economy does not always conform to the classic precepts of Smith and Walras: they implied that the economy can best be understood by assuming that it is constantly an equilibrium seeking and sustaining system.
http://www.levyinstitute.org/pubs/wp74.pdf
It’s the same old same old same old. Believe it or not, I’m getting bored with it.
“bubbles are induced by false price signals caused by the very funny money system which they cherish”
Surely investors take all sorts of information into account, not just the current Fed Funds rate or QE or whatever. For example, if you see a low borrowing rate on offer, you don’t just mindlessly respond by immediately borrowing as much as you can to invest in the first silly thing that catches your eye. That would be very reckless. Instead you try to work out whether your planned investment is likely to be profitable, whether the cost of borrowing may rise in the future, etc. Your statement seems to assume that investors are all stupid and incapable of thinking for themselves.
If there are prices distorted by the funny money system, no one can know what the undistorted prices should be.
Hayek uses the term “equilibrium structure” to refer to the price structure that would have existed but for GOVERNMENT intervention, especially granting banks the right to create fiat funny money loans out of thin air, thereby distorting the price, investment and capital structure. Hayek stated:
These discrepancies of demand and supply in different industries, discrepancies between the distribution of demand and the allocation of the factors of production, are in the last analysis due to some distortion in the price system that has directed resources to false uses. It can be corrected only by making sure, first, that prices achieve what, somewhat misleadingly, we call an equilibrium structure, and second, that labor is reallocated according to these new prices. ****
The primary cause of the appearance of extensive unemployment, however, is a deviation of the actual structure of prices and wages from its equilibrium structure. Remember, please: that is the crucial concept. The point I want to make is that this equilibrium structure of prices is something which we cannot know beforehand because the only way to discover it is to give the market free play; by definition, therefore, the divergence of actual prices from the equilibrium structure is something that can never be statistically measured. ****
In contrast, the modern fashion demands that a theoretical assertion which cannot be statistically tested must not be taken seriously and has to be discarded. As a result of this belief, a theory which, in my opinion, is the true explanation has been discarded as not adequately confirmed, and a false theory has been generally accepted merely because it happens to be the only one for which statistical evidence, even though very inadequate evidence, is available.”
http://www.flickr.com/photos/bob_roddis/7534880182/in/set-72157630494776170
“Hayek uses the term “equilibrium structure” to refer to the price structure that would have existed but for GOVERNMENT intervention”
And to a market clearing price: the price where quantity demanded by buyers will equal quantity offered for sale by sellers.
Hayek is simply revisiting one of Mises’ explanations of the Great Depression, as caused by trade unions stopping wages from reaching market clearing levels:
“The main cause of unemployment was clear: government-supported labor unions. On the unhampered market, he argued, unemployment could only be a temporary phenomenon …. Except for this natural residue, however, the market cleared at a wage rate resulting from a competitive demand by entrepreneurs and a competitive supply of workers.
Hülsmann, J. G. 2007. Mises: The Last Knight of Liberalism. Ludwig von Mises Institute, Auburn, Ala.
pp. 619-620.
You don’t understand basic Austrian concepts, fool.
I purposefully left off the last sentence of this previous post:
This analysis has nothing to do with “market-clearing Walrasian price vectors”.
to avoid another one of LK’s pathetic attempts to change the subject. I failed.
For those with insomnia, you can play it again.
http://consultingbyrpm.com/blog/2012/09/tom-woods-keeps-krugmans-feet-to-the-fire.html#comment-45198
“If there are prices distorted by the funny money system, no one can know what the undistorted prices should be”
Well if you believe that gold is the only proper measure of prices then you can check what goods/assets are worth in terms of gold. Or you could work out what they are worth in terms of euros or hotdogs. If there are discrepancies then you can make a profit through arbitrage.
You might believe that gold is the only proper measure, but other investors might be more advanced and look at a range of different measures. The one who gets it right will make money. A rational investor will not just look at the current borrowing rate in dollars and mindlessly invest on that basis alone – they will look at a range of factors and try to work out whether they can profit by borrowing a certain amount at that rate or not.
“Well if you believe that gold is the only proper measure of prices then you can check what goods/assets are worth in terms of gold.”
Doesn’t work, because the entire production structure is a result of fiat dollar being money, not gold. You can’t know the proper exchange prices of gold as money against goods until you observe gold as money being exchanged for goods.
“You might believe that gold is the only proper measure, but other investors might be more advanced and look at a range of different measures. The one who gets it right will make money.”
That would only apply in a free, competitive monetary system. Given that the dollar system is a coercion based monopoly, people can’t get out of dollars to make money, because the government forces people to pay them in dollars.
“You can’t know the proper exchange prices of gold as money against goods until you observe gold as money being exchanged for goods.”
If an object has a dollar price it also has a price in terms of gold or euros or hotdogs or whatever.
“people can’t get out of dollars to make money, because the government forces people to pay them in dollars.”
People buy and sell gold all the time for profit, so I’m not sure what you’re on about. Yes you have to pay taxes etc in dollars, because the government exists and taxes are levied in dollars. This is a fact that has to be taken into consideration, just like other facts, such as the fact that much of the world has to buy it’s oil from the Saudi royal family for example.
What you are missing out is the difference between use value and exchange value and the virtuous cycle that would lift the exchange value of a medium exchange as it makes the transition to money.
No. I don’t believe in this and I don’t think other Austrians out here believe that either. So you can’t check it out the way you are suggesting. The only way you can know it is by freeing the market in money and observing what the free market throws up.
“If an object has a dollar price it also has a price in terms of gold or euros or hotdogs or whatever.”
That’s an imputed price, not an actual price. Useful for calculations, but no substitute for actual prices.
The only prices that exist are exchange ratios in two party exchanges.
“People buy and sell gold all the time for profit, so I’m not sure what you’re on about. Yes you have to pay taxes etc in dollars, because the government exists and taxes are levied in dollars. This is a fact that has to be taken into consideration…”
What I am “on about” is precisely the fact that because you cannot not accept dollars, you can’t speak of paper prices of gold to be a based measure of “proper prices”
“Useful for calculations, but no substitute for actual prices”
if there’s some discrepancy in prices then you can arbitrage and profit. Traders do this all the time. Because of this, there isn’t some ‘paper dollar price’ which is somehow disconnected from and unrelated to prices in terms of other things. If there was, people would quickly trade on the difference to make a profit.
“if there’s some discrepancy in prices then you can arbitrage and profit.”
The fact that profits continue to exist proves that price discrepencies continue to exist.
Thanks for proving it to yourself I guess?
“Traders do this all the time. Because of this, there isn’t some ‘paper dollar price’ which is somehow disconnected from and unrelated to prices in terms of other things. If there was, people would quickly trade on the difference to make a profit.”
But profits aren’t going away, so your point is moot.
(1) Roddis is still so dense he still denies Hayek was talking about market clearing prices.
(2) the price “disortions” Mises and Hayek are thinking of are “distortions” away from market clearing values.
However the majority of business in most countries do not set prices in this way, so they are NOT distorted away from something that they were never converging to in the first place.
Roddis has no idea what he’s talking about.
And even in flexprice markets his whole argument is simply begging the question by assuming that increasing the money supply is immoral.
Roddis is therefore logically committed to an anti-capitalist policy by which he would have to ban all private sector money creation.
(1) Hayek was talking about equilibrium in the sense of market activity and pricing in the absence of government intervention.
(2) No, they’re distortions of prices away from TENDING towards market clearing. Lack of tending to clear persists when the central bank keeps inflating to stop corrections.
“However the majority of business in most countries do not set prices in this way”
Mark-up pricing is not incompatible with priced tending towards clearing. Costs can fall.
“so they are NOT distorted away from something that they were never converging to in the first place.”
Yes, they are. You are just confused because you believe prices based on costs can’t change. But they can and they do. The reason they do change is because of the very tending towards clearing mechanism being spoken of by Austrians.
“Roddis has no idea what he’s talking about.”
No, YOU don’t know what you’re talking about. You’re utterly clueless because you don’t know how to read Austrian arguments.”
“And even in flexprice markets his whole argument is simply begging the question by assuming that increasing the money supply is immoral.”
That isn’t what begging the question means, and no, it is not immoral for the money supply to increase. It is immoral for force to be initiated in the market of money production. The immorality of inflation has to do with the coercion. More paper money means more coercion based wealth transfers.
“Roddis is therefore logically committed to an anti-capitalist policy by which he would have to ban all private sector money creation.”
Non sequitur.
I do not think this is quite right.
Anytime prices vary from what would be the market clearing level, there are pressures to move the price.
People adjust prices as a result of this pressure.
The Overall effect is the market is solving a series of differential equations. Does not do so instantaneously. It does so by continuously adjusting to signals.
Sigh, Siri posted automatically again. The argument is that continued pumping of money distorts signal because effects that are due to the amount of specie in circulation are difficult if not impossible to tell apart from other signals having an effect on the price. Unless the rate of monetary creation is uniform and predictable, or at least known and Predictable, there will be a con founding of the signal due to this effect.
This argument maybe correct or incorrect, but it does not explicitly depend upon the idea that investors are too stupid. It only requires that their task be too difficult.
That’s a fairly good summary, but it’s important to delineate the “amount of specie in circulation” into relative spending and relative prices. It’s not the amount of money in circulation per se that causes distortions, it’s the transmission mechanism of inflation being necessarily micro-economic in form, that is, inflation of the money supply doesn’t raise every single individual’s bank accounts and spending streams equally. If that took place, then the price distortions in question would be virtually absent.
It’s because inflation increases some people’s bank accounts first, whereby those individuals are constrained to their specific production lines in the division of labor, that puts the whole production of the economy out of whack.
With this understanding, then it becomes clear why prices are distorted. If a home seller or stock seller asks a price increase of $X, and receives that price increase of $X, it is impossible for that seller to know exactly how much of that increase was due to an actual change in marginal utility of what he is selling, versus how much of it was due to purely monetary influences from the central bank inflation transmission.
Imagine I offered you $100 for your wife. Would you know whether I came into ownership of that $100 because I am more productive than others and so justifies my “place” in the division of labor, or if I just so happened to have received an increase in income because of my place in line to the Fed’s money spigots?
Which wife? We might be able talk turkey here.
The one you call Bonobo.
Yes it’s the changing amount rather than the total amount. Here’s an analogy. Imagine that we have an elastic band stretched across the top of a rubber balloon. The rubber balloon is assumed to be almost frictionless. The rubber band will achieve the shape of a geodesic. (we gradually reduce friction to dampen oscillation, so this is in the limit argument). How does the rubber band know what is a geodesic? It does not know it globally but each section DX of the band is subjected to local pressures which cause it to move towards the geodesic. Now imagine that there is a steady uniform breeze blowing across the balloon. The band will not achieve a geodesic shape even though the breeze is perfectly uniform and predictable. This is because the breeze disrupts the local signal.
I am not claiming that Austrian economics is like geodesic finding rubber band, I’m really trying to illustrate the structure of the argument, local forces can be disrupted even by predictable distortions. You don’t have to assume that the rubber band was previously genius able to detect geodesics from a global perspective and has now become an idiot all you have to see is that the local forces have been disrupted.
Mises defined inflation as “an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur”. By this definition, you can only know whether inflation has occurred if the exchange-value of money falls, i.e. if prices rise.
No, that isn’t what Mises meant, and that doesn’t follow. You’re trying to impute a definition of inflation to Mises that he didn’t hold.
A fall in the objective exchange value of money may not necessarily raise prices in Mises’ framework. It is contingent on productivity not rising sufficiently.
If production rises sufficiently, then inflation of the money supply, which causes a fall in objective exchange value, would not raise prices over time.
When Mises spoke of a “fall” in exchange value, he was talking about more dollars being given away through exchanges than what otherwise would have been the case.
For example, if prices remained stable over time, then this could represent the outcome of a fall in exchange value, if the alternative would have been less inflation and falling prices. The stable price outcome would be the outcome of A. inflation, which makes exchange value of money fall, and B. a sufficient rise in productivity, which makes the objective exchange value of goods fall in like fashion.
Mises and Hayek both held that the 1920s for example was a time of too high of inflation, despite the fact that they both recognized that consumer prices remained on a long run gradual upward trend.
But if your dollar still buys the same amount of goods, then how has its exchange value fallen?
It’s fallen because you otherwise would have been able to buy more goods with a given dollar.
if you could buy more goods with your dollar than before then it’s exchange value would have risen.
You are missing the ceteris paribus argument.
Let me illustrate this with numbers.
1. Price last year was 100.
2. Productivity has improved in the last 1 year leading to greater supply with unchanged demand.
3. So, other things remaining the same, the price should have been, say, 80.
4. But other things did not remain the same – money supply was goosed up.
5. So price was 90.
In this case, prices are lower than they were last year but higher than they would have been without the increase in money supply.
I hope this makes (what I presume is) MF’s point clear.
The mistake you are making is that you are taking the words risen and fallen to mean compared to what it was in the past. The correct way to look at it is compared to what it would have been now absent just the policy being assessed.
so the exchange value of your dollar goes up in your example.
No. It has fallen. I now have to offer 90 units of money for what I could have obtained with 80 units of money. The cause of this fall in the price of money is the goosing up of the money supply.
You are getting misled once again by comparing 90 with 100.
I your dollar buys 1 hotdog yesterday, and 2 hotdogs today, then the exchange value of your dollar has gone up. It doesn’t matter whether in imaginary land it might have bought 4 hotdogs.
If your dollar buys 1 hotdog yesterday, and 2 hotdogs today, then the exchange value of your dollar has gone up. It doesn’t matter whether in imaginary land it might have bought 4 hotdogs.
First, it not an imaginary world. It is what the world would have been absent the policy being evaluated. That’s how economic reasoning works. Second, you are not making a ceteris paribus argument. Sound economic arguments are ceteris paribus.
The past is imaginary, with respect to the now, just like an alternative now is imaginary with respect to the now.
You’re trying to convince yourself that what otherwise would have occurred today is not as valid as what occurred yesterday. But that’s foolish thinking, because counter-factual reasoning is a backbone of everyday human life. We consider what would happen if we do this, but then decide to do that instead because we don’t like the prospects of doing this.
Then when what we did turns out well, we think about a good job we did because of what otherwise could have happened which is considered as worse.
And, similarly, if what we did turns our badly, then we think about the better job we could have done had we done things differently instead.
Yes, it’s a mental category, yes, it’s not empirical in the sense of existing in the here in now, but that doesn’t mean it’s useless, or an illusion.
I’m just saying that 1+1=2, and 2 is greater than 1.
You’re saying that 1+3=4 therefore 2 is not greater than 1.
Your argument is illogical, mine isn’t.
Third (adding a point out here), economic reasoning only comes up with propositions that necessitate dealing with counterfactuals. Specifically since you picked up a Mises quote, you need to understand what that quote meant in the first place and realise that you are interpreting it wrong. So when Mises talks of a fall in the objective exchange value of money, it is not in comparison to the exchange value in the past but in comparison to the exchange value in the counterfactual universe where the money supply wasn’t goosed up. So, by pointing to past prices, you are just making the most fundamental of errors.
The point was never whether 2 is greater than 1. It was about 4 rather than 1 being the correct thing to compare 2 with.
Philippe:
Why should today’s events be compared only to what happened in the past?
You haven’t shown any “illogical” thinking, BTW.
no, you are literally arguing that if the number of bananas increases from 1 to 2, there has been no increase in the number of bananas because in an alternative world the number of bananas might have increased to 4 instead.
That’s because that is the correct way to argue. If the consequence of an increase in money supply is what you are evaluating, then it is important that you remove the effects of all other factors that would have influenced the phenomenon you are measuring, i.e., price. Since in the real world where you are measuring price, the price is influenced by many variables in addition to the change in money supply, comparing present prices to past prices tells you nothing about the effect of the change in the money supply. The only way to isolate that effect is to understand what the world would have looking like if every other factor had remained the same as in the real world while money supply alone were unchanged. So you have no option but to deal with the counterfactual world.
Your comparison of 1 with 2 is utterly meaningless. It tells us nothing about the effect of the increase in money supply.
No, he didn’t argue that if banana supply goes from 1 to 2, that there was no increase in bananas.
He argued that if hotdogs go from 1 to 2, then all else equal, the price of hotdogs should fall by half.
But if there is an increase in the quantity of money, such that the prices of hotdogs remains flat, then these facts do not lead to the conclusion that there was no inflation, or decrease in the purchasing power of money.
A small correction. My argument is not that there has been no increase in the number of bananas. My argument is that the actual increase in the number of bananas is a meaningless figure to look at. What is important is that but for the meddling, it would have been 4. It is actually 2. So the meddling caused it to be lower than it would have been. Thus, the meddling has made us worse off.
Thanks, MF. I realised my error just as I was reading my own comment and I guess we posted more or less simultaneously.
if the exchange value of money increases, but not by as much as it might have increased absent something else, then the exchange value of money has still increased.
Yes. But that is not a consequence of the policy. The policy in question is clearly and correctly being assessed as being responsible for a fall in the objective exchange value of money. That something else cause the exchange value to be higher than what it was in the past tells you nothing about how to judge the policy being evaluated.
It’s the difference between saying “A happened because of B” and saying “A happened in spite of B”. When I say the latter, I am saying B is a problem that would have prevented A from happening.
You mean the former, not the latter.
No, MF. It’s the latter.
bala, you’re arguing that if the price of a good rises it has actually fallen because in an alternative world the supply of the good could have been smaller.
Bala:
If B causes A, then I am not sure how saying A occurs despite B is an example of B being a problem the absence of which would have prevented A. If an absence of B prevents A, then doesn’t B stand as a cause of A?
Philippe:
No, that isn’t what is being argued. Nobody is arguing that the temporal change in supply or prices did not take place.
What is being argued is that IF an event out of all events did not occur, THEN a different outcome would have been had.
Why is that so difficult to grasp? Seems pretty straightforward.
“Nobody is arguing that the temporal change in supply or prices did not take place”
No, bala was arguing that if the exchange value of money goes up it actually goes down because of parallel universes theory.
“IF an event out of all events did not occur, THEN a different outcome would have been had.”
No, you argued that the exchange value of money falls if it stays the same.
Wrong. From my very first exchange with you, I have been saying only one thing – Comparing present exchange value with past exchange value is meaningless. The only meaningful comparison when you want to evaluate a policy such as increasing money supply is to compare what would have been with what is. My point has always been that what would have been is far more important and meaningful than what was. I have also been saying that your comparison with what was is economically meaningless.
Here’s Mises’ definition of inflation again:
“an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur”.
Do you see that? An increase in the quantity of money *that is not offset* by an increase in the demand for money.
Your parallel universes bullshitting has nothing to do with Mises’ definition.
Fall compared to what? That is the question you are evading. In Mises’ statement, there is only an increase in the supply of money. So, Mises is talking ceteris paribus. If you have witnessed an increase in the exchange value, then it is clearly not ceterus paribus. Other factors have been involved. I wonder why this is so difficult to grasp.
“Fall compared to what?”
When I fall, I fall compared to where I am.
I’m not saying Philippeis right here. I am not convinced Bala is wrong on this, but I suspect (Bob and valueprax alert!) that you both are. Anyway Bala, you do your argument no good with that question. Falling is a temporal process.
Ken B,
I presume (maybe incorrectly) that ceteris paribus explains it all and supports my argument completely. I fail to understand what ceteris paribus can mean other than other things remaining the same. Once someone gets that, he can surely see that that fall, temporal though it may be, would be between the 2 states before and after the increase in the quantity of money, everything else being unchanged. Our friend Philippe cannot introduce anything else that causes the exchange value to rise.
Sorry about the goof up over the emphasis….
“In Mises’ statement, there is only an increase in the supply of money.”
No, there is also a potential increase in the demand for money. Can’t you read?
“So, Mises is talking ceteris paribus.
No, he has two variables, supply and demand for money – not just supply.
Where you are is quantity of money =Q1
Where you are after the “fall” is quantity of money = Q1+∂Q1.
Ceteris paribus means nothing else changes. Why is this not clear? What about this is not clear.
Did you see this? Maybe I am not the one who does not know how to read.
Mises uses ‘need’ and ‘demand’ interchangeably. As I said there are two variables, not one, in Mises’ definition of inflation. Yet for some reason you keep asserting that there is only one variable. Clearly you are lacking reading comprehension skills.
For the last time, did you see that Mises worded it as “that is not offset by an increase in the need for money? So, by dragging in the possibility of change in demand for money, you are exposing your poor comprehension skills.
So if an increase in the quantity of money is “offset by an increase in the need for money” then there is no fall in the exchange value of money and thus no inflation, according to Mises.
Mises did not define the fall in the objective exchange value of money or in other words price rise as inflation. That you say this reflects your poor comprehension skills. To Mises, increase in the quantity of money was the inflation. Price rise was a consequence seen under ceteris paribus conditions.
“To Mises, increase in the quantity of money was the inflation”
Mises:
“In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money, that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur.”
Do you understand that?
All you have to do is read what he wrote to see that you are wrong.
Read my reply below to see how wrong you are.
Philippe:
“Nobody is arguing that the temporal change in supply or prices did not take place”
“No, bala was arguing that if the exchange value of money goes up it actually goes down because of parallel universes theory.”
No, that isn’t what he claimed. YOU are claiming that if the exchange value of money goes up, then it must have gone down because prices rose. But prices are not the criteria. You are introducing it yourself and are seemingly unable to shake it, so much so that you are even attributing that belief to others.
“No, you argued that the exchange value of money falls if it stays the same.”
No, I argued that the objective exchange value is lower than it otherwise would have been.
“Here’s Mises’ definition of inflation again:”
“an increase in the quantity of money (in the broader sense of the term, so as to include fiduciary media as well), that is not offset by a corresponding increase in the need for money (again in the broader sense of the term), so that a fall in the objective exchange-value of money must occur”.
Notice how Mises said nothing about prices in that comment. He only said more money is in circulation, because its exchange value has fallen. There is no necessary implication to prices.
“Do you see that? An increase in the quantity of money *that is not offset* by an increase in the demand for money.”
That just means more money spending.
“Your parallel universes bullshitting has nothing to do with Mises’ definition.”
It’s not bullshit to reason from counter-factuals. You yourself do it all the time. You’re just too dimwitted to notice it.
“In Mises’ statement, there is only an increase in the supply of money.”
“No, there is also a potential increase in the demand for money. Can’t you read?”
He meant there is only an increase in the supply of money, not an increase in the supply of money and increase in the supply of goods as well. Can’t you grasp the context?
“So, Mises is talking ceteris paribus.”
“No, he has two variables, supply and demand for money – not just supply.”
He isn’t talking supply, so he isn’t talking prices.
“Mises uses ‘need’ and ‘demand’ interchangeably. As I said there are two variables, not one, in Mises’ definition of inflation. Yet for some reason you keep asserting that there is only one variable. Clearly you are lacking reading comprehension skills.”
No, he is saying that the one variable is monetary. A single monetary variable can be broken down into more than one sub-variable, such as spending and cash holding.
Where you are confused is that this whole debate was about you claiming that exchange value falling occurs when PRICES fall OVER TIME.
Supply and demand are the two variables that explain prices. Mises was only referring to the one.
“So if an increase in the quantity of money is “offset by an increase in the need for money” then there is no fall in the exchange value of money and thus no inflation, according to Mises.”
Correct.
Are you using the term need for money in the sense of need (or demand) for cash balances?
Philippe here’s the problem. Mises said the objective exchange value. He couldn’t possibly have meant that. Because we all know that if it’s an objective exchange value that you can actually tell if it went up or down. The Austrians pride themselves on never making any statements that can be right or wrong. So this quote of yours is like Paul Krugman’s blog; no matter how clearly expressed it can’t actually mean what it says.
Nice try, but no.
The argument that given the demand for money is held constant, that a rise in the quantity of money will mean a fall in purchasing power, is an objective statement.
But this doesn’t mean that prices have to rise or fall over time. For we haven’t said anything about supply changes yet.
Objective exchange value rising or falling, in Misesian economics, is not meant to refer to temporal price changes.
You can quibble over whether this is a reasonable use of the terms “fall” and “rise”, but all of Mises’ economics are analytical/tautological/deductive/overyourhead
“Objective exchange value rising or falling, in Misesian economics, is not meant to refer to temporal price changes.”
You mean all his statement refer to a purely atemporal fairy tale land?
That’s why he said objective. To fool the unwary.
Objective = That which is empirically observed. Good translation. You really are very observant and perspicacious. There cannot be an objective exchange value in the counterfactual universe. To make matters worse, rise and fall can only refer to temporal price changes. It does not and cannot, as Misesians stupidly keep parroting, refer to a rise or a fall with reference to the corresponding values in the counterfactual universe.
Why is the counterfactual universe that would have been reality in the absence of the particular policy being studied a fairy tale land? So are you saying that counterfactual based theorising is all bunkum? Very interesting!!
Mises’ definition of inflation:
“an increase in the quantity of money, that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur”.
No counterfactual “what ifs” here.
His definition of inflation is not “what would have been” if there had been no increase in the demand for money.
You are just making stuff up and this is painfully obvious.
It is called ceteris paribus. Did I create that concept? Maybe you are giving me too much credit.
Did you by any chance notice the point that Mises defines inflation as the increase in the quantity of money? Do you notice the point that he sees the fall in the exchange value as the consequence of inflation? No? Why am I not surprised!
“Mises defines inflation as the increase in the quantity of money?”
No, he defines it as:
“an increase in the quantity of money, that is not offset by a corresponding increase in the need for money”
Can’t you read?
Oh! I can read very well. You seem to be unable to read what you cite.
Incidentally, the part where he says
is part of the ceteris paribus.
“is part of the ceteris paribus”
there are two variables, not one, in Mises’ definition.
According to Mises, if an increase in the quantity of money is “offset by a corresponding increase in the need for money”, there is no fall in the exchange value of money and thus no inflation.
Once again, you are demonstrating how poor your comprehension skills are when you say
When Mises says
he is not identifying 2 “variables”. Rather, he is identifying the demand for money as another thing that has to be held constant or part of the ceteris paribus condition.
Your failure to comprehend becomes painfully obvious when you say this.
Per Mises, the very increase in the quantity of money is inflation. You are making the common mistake of treating price rise as inflation and, worse, claiming that Mises understood price increase as inflation.
“Per Mises, the very increase in the quantity of money is inflation”
Mises:
“In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money, that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur.”
Do you understand that?
Inflation, according to Mises’ definition, is an increase in the quantity of money not offset by “an increase in the need for money”.
Do you understand?
“Per Mises, the very increase in the quantity of money is inflation”
Mises:
“In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money, that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur.”
Do you understand that?
According to Mises’ definition, inflation is an increase in the quantity of money not offset by “an increase in the need for money”.
Do you understand?
“Rather, he is identifying the demand for money as another thing that has to be held constant”
No he isn’t. He very specifically says that inflation is “an increase in the quantity of money, that is not offset by a corresponding increase in the need for money”.
All you have to do is read what he wrote to see that you are wrong.
Let me lay it out for you then.
There is always a demand for money. This demand is the demand for cash balances. It is possible for people’s demand for money as part of their cash balances can go up. First, let’s get it straight as to what this demand for cash balances is.
There is such a thing as the price of money, which is nothing but the reciprocal of the prices of the goods for which money is exchanged. At every hypothetical price of money, there exists a quantity that people as a whole prefer to hold in their cash balance for various reasons (that are economically not relevant). This array of quantities that people as a whole prefer to hold in their cash balances at various hypothetical prices is what is understood as the demand for money (as against the quantity demanded).
It is possible that peoples preferences change resulting in their preferring to hold a greater amount of money in their cash balance at every hypothetical price of money. In such a case, an increase in the quantity of money that matches this increase in quantity demand at the prevailing price of money goes straight into the cash balances of people because all money always exists in someone’s cash balance.
Sitting in a cash balance, the increased quantity of money does not influence the objective exchange value of money because people have as much cash as they wish to hold in their balances.
When the increase in the quantity exceeds the increased quantity demanded at the prevailing price of money, however, people possess more money than they wish to hold (at the prevailing price of money). This induces them to reduce their holding of money by offering more of it for goods, in the process raising the prices of those goods and bringing down the objective exchange value of the money.
So do you think I do not understand this? I do get it very well. The point still remains that inflation is that portion of the increase in the quantity of money that is in excess of the increased quantity demanded at the prevailing price of money. With all these qualifications, inflation in the Misesian sense is still the increase in the quantity of money (or a part thereof).
What it is not is the price increase.
So, coming back to the original point, we do not need to see an increase in prices across time to know that the objective exchange value of the money has been lowered by inflation. In fact, inflation can even be followed by falling prices where the lowered prices are still higher than what they would have been absent the inflation.
So, your attempt at comparing past and present prices to make claims about inflation remains silly as ever. The only way to interpret it is by comparing prices in the real world with inflation with the counterfactual world without inflation.
Is this what you are still denying?
Philippe
I went around this tree with Bala too. He simply does not understand that there are two variables. Mises used the contrapositive and Bala is stuck there” give it up.
Philippe:
“Rather, he is identifying the demand for money as another thing that has to be held constant”
“No he isn’t. He very specifically says that inflation is “an increase in the quantity of money, that is not offset by a corresponding increase in the need for money”.
Those mean the same thing.
Mises could also have said:
“Inflation is, ceteris paribus, an increase in the quantity of money”
You and Ken B are missing the crux of the argument.
Bala says:
““Rather, he [Mises] is identifying the demand for money as another thing that has to be held constant””
No, he isn’t.
You actually think Mises thought that demand for money has to be held constant? That shows beyond any doubt Bala does not even understand Mises.
LK, scroll down to my comment addressing you. It’s not just Bala … Since you want Bob on the record, I’d ask him about that.
No, in economics land of counter-factuals.
It’s derived from the fact that humans have alternative courses of action, and reason from them when deciding what to do.
In your world, humans are automatons who mindlessly do what they are preprogrammed to do.
The past is just as imaginary as counter-factuals relating to the present. Both are IN YOUR MIND, as of this moment, the only “real” there is.
Philippe, I have an Oxford English Dictionary (Second Edition reprinted 1993) which gives the relevant definition of Inflation as:
That is to say, this is unrelated to Mises in particular, it was just a widely understood concept that expanding the money supply caused inflation. However, these days the “price rise” definition has become the mainstream professional economic definition and money supply is ignored.
This makes sense when you see inflation as tax by stealth. There’s no value being stealthy when everyone can see what you are doing, fog is a requirement, so shifting goalposts is fully expected.
My Oxford English Dictionary (second edition reprinted 2003) gives the relevant definition of inflation as:
2. (economics) a general increase in prices and a fall in the purchasing power of money.
Your OED definition:
“An undue increase in the quantity of money in relation to the goods available for purchase”
this doesn’t actually say that a rise in the quantity of money necessarily causes rising prices.
Maybe because that’s the job of an economics textbook and not a dictionary?
Tel thought his dictionary supported his assertions. I was pointing out that it doesn’t.
Oh boy, looks like another 200+ comment blog post. Rinse and repeat.
Just don’t ask LK to explain market clearing prices and everything will be fine.
I bored and have leaves to rake.
[…] the comments of my recent post, in which I said Krugman was significantly retreating from his earlier stance about Fed policy […]
He’s saying that bubbles will be used as a bad excuse to tighten central bank policy, because bubbles are inherent to financial markets. He is not saying low interest rates create bubbles.
You can’t be this stupid, so you must be disingenuous.
Not quite but almost. Actually what Krugman is not saying tis that hey MUST INELUCTABLY cause bubbles. Which is what Bob is claiming. He’s even saying the chances are low that the fed will cause bubbles, very far indeed from what Bob claims.
Valerie Keefe wrote:
He’s saying that bubbles will be used as a bad excuse to tighten central bank policy, because bubbles are inherent to financial markets. He is not saying low interest rates create bubbles.
You can’t be this stupid, so you must be disingenuous.
Thanks for the compliment Valerie. Well, here’s Krugman back in 2005 saying the central bank caused a housing bubble by lowering interest rates, and says the central bank can look for other bubbles to create. i’m not inventing stuff here, this is Krugman’s framework for analyzing monetary policy.
I’m glad we have yet another Krugman drone contradicting Krugman in order to defend Krugman.
Dime a dozen.
Nevermind, I just perused her website.
She’s a sexist. Not even worth responding to. Carry on.
Bala and Philippe are arguing over this from Mise, regarding what inflation is:
“an increase in the quantity of money […] that is not offset by a corresponding increase in the need for money […] so that a fall in the objective exchange-value of money must occur”.
This is not the slma dunk Philippe thinks it is. Consider this hypothetical. I am suddenly cloned, and simultaneously the amount of money I demand is created. The demand for money has gone up by my demand for money, as has the supply of money. Mises contends this would not lead to an objective cange in exchange values. Bala contends that this is what Mises meant.
Bala has a case. It is true there is temporal language in the quote, but only as verbs not as specified points in time. This sort of usage is common in expressing counterfactuals or displacements in configuration space for example.
There are however three problems with Bala’s argument. While as I noted I do not think Mises precluded counterfactuals by his wording he certainly did not preclude temporal comparisons by it. Second Bala maintains the Fed causes inflation, and causality is certainly temporal. If Bala relies on Mises to argue the Fed causes inflation he seems to rely on a temporal reading. And lastly Mises is wrong in the counterfactual I gave, since I have not also increased the supply of real goods. That ignores a small amount. You can see this by imagining we are all thus cloned, and in the inital state were on the brink of famine. What happens to the objective exchange value of a peach?
Wrong. It is not ceteris paribus when you add clones with purchasing power.
Wrong again. It is not ceteris paribus when you add clones with purchasing power.
Mises envisions two changes: the supply changes and the demand changes. Those are what changes in my thought experiment. Ceteris paribus means keeping OTHER things the same not the things you are varying.
“that is not offset by an increase in the need for money” identifies the increase in quantity that is not accompanied by a change in demand for money. So demand for money is not one of the variables in Mises’ definition.
Contrapositive.
Maybe you need to understand how the money relation is explained.
I’m pointing out you messed up the basic laws of logic. That’s the same no matter what the topic.
Could you please explain how saying that it is a qualifier that limits how much of the increase in the quantity of money qualifies to be called inflation contradicts the point that it is not a variable, especially when the context of the discussion is that the effect of inflation on prices is properly understood by looking at prices with and without the inflation and is hence poorly answered by looking at past and present prices?
@valueprax: Not contraposto, which is kind of how you’re standing in your photo you dashing southern gentleman.
If Bala says that, Bala means to use inflation as Mises defined it, not as increase in prices. Hope that clarifies.
Your counterfactual is not ceteris paribus. You have increased demand for other goods by adding the clones with purchasing power.
LK, are you out there? I know what you should be thankful for this Thanksgiving day. This comment: http://consultingbyrpm.com/blog/2013/11/so-are-summers-and-krugman-now-confirming-that-they-austrians-have-been-right-about-bubbles.html#comment-88118
I’ve not followed this debate in full, but Bala seems to be saying that Mises wanted to hold money demand constant. MF seems to be saying that endorsing that?
Yes, which is more than a twofer.
1. They have what Mises said wrong despite having the Mises quote before them.
2. Bala denies there are two variables in Mises formulation.
3. MF says it means the same thing with one variable or two.
If you say the increase in the average number of per game is equal to the increase in attendees not offset by a comensurate number of games, he says that’s the same thing as the increase in the number of attendees. So if the number of attendees triples and the number of games triples you say there is no change in average attendance, and MF says thete is no change in the average even if the nimber of games is the same.
Sorry about messing up the block quote.
Ken B
You said
What is more interesting is that you do not even get the simple point that what Mises is actually doing is to state the proper definition of inflation. I am taking just what Philippe cited.
I am going to do it the way I think it makes sense.
Inflation – Subject
is – Verb
an increase in the quantity of money – Object
that – Relative Pronoun
that is not offset by a corresponding increase in the need for money – Qualifier that describes the object and tells us that it is not the entire increase in the quantity of money but a part of it.
Now, let me move on to the economics which neither you nor Philippe seem to get.
The price of money or the objective exchange value of money is determined by the supply of and demand for money. Using the total demand-stock analysis (a legitimate economic tool and one that is suited to the explanation of the price of money), the stock of money is simply the money supply while the total demand for money is simply the demand for cash balances because money is held in cash balances. The price or the objective exchange value of money is determined, like the price of amy other good, by the interplay of this stock and total demand.
Clearly, changes in both influence the objective exchange value of money. An increase in the quantity of money will, demand for money being unchanged, lead to a fall in the objective exchange value of money. So, while defining inflation as the increase in quantity of money, it is important to understand that an increase in the supply of money, if offset by a suitable increase in the demand for money, may have no effect other than an increase in cash balances simply because it would be in line with people’s preference for holding cash balances. In any case, that is the only job the increase in the quantity of money does – result in higher cash balances.
In a free-market in money, forces exist to force producers of money to produce it in sync with the need for money. However, on a hampered market in money, it is possible for the quantity of money to increase (on a sustained basis) beyond the increase in the demand for holding money. This increase beyond that offset by the increased demand is economically significant as it produces other effects that would not be seen in a free-market. It is a real world phenomenon that needs to be understood if we are to comprehend the working of the real world economy. Mises is therefore identifying it as a key concept to be defined and understood, and whose consequences are to be identified and explained.
The reason Mises offers this qualification of the increase in the quantity of money is that increases in the quantity of money that are matched by an offsetting increase in the demand to hold money would happen even on a free market. It is the excess that would be unsustainable on a free market and could only be sustained (for any reasonably long period) in a hampered market in money that is economically significant and needs to be defined as an economic concept.
The other important point to understand is that while an increase in the demand for money is a changed set of consumer preferences, the same is not true of the increase in the quantity of money held in stock. It is the result of conscious action by the producers of money. To the extent that the producers of money operate outside the free-market in money, it becomes a distortionary increase that does not correspond with consumer preferences.
Thus we arrive at the definition of inflation as Mises provided and Philippe cited. The important point, however, is that inflation as defined by Mises is the increase in the quantity of money or that part thereof that is not offset by an increase in demand. It is this “net” increase in the quantity of money that results in the phenomenon that we see manifested as a fall in the objective exchange value of money.
You could understand it visually as a rightward shift of the stock curve accompanied by a rightward shift of the demand curve. However, the demand curve shifts rightward but not enough to maintain the equilibrium price of money at the same level. As a result, the price of money seeks a new lowered equilibrium which we see manifested as the lowered exchange value of money or, its mirror image, increased prices of the goods for which money exchanges. This is what, as I understand it, Austrians call the money relation.
Increase in the demand for money, therefore, has no direct role to play except that to the extent that it happens, the distortionary effect of the increase in the quantity of money will be diminished.
So, your claim that there are 2 variables still rings rather hollow. Increase in the demand for money is relevant, but only through its ability to offset the effect of the prior increase in the quantity of money.
To take this further, when an Austrian is talking of inflation, he has already factored in the offsetting increase in the demand for money. So, anyone who tries to drag this offsetting increase in demand into the discussion as a “second variable” has no clue what he is talking about and is just exposing his complete ignorance of Austrian concepts.
In simple language, Ken B, you are engaging in double counting.
I am pleased that you have changed what you were saying. However I’m going to point out what you said and what Philippe and I are reacting to.
“Did you by any chance notice the point that Mises defines inflation as the increase in the quantity of money? Do you notice the point that he sees the fall in the exchange value as the consequence of inflation? ”
In your Long screed above you finally acknowledge what you’ve described as the qualifier and you have at long last done that part correctly. But in the quote I give above your quite unambiguously referring to the total amount of money not the amount surplus to the increase in demand. If you want to make the amount of extra money in circulation is a variable can you also need to specify the variable to indicate the increase in demand. Them according to fund nieces if I is the increase in the amount of money and D is the increase in the amount of demand then to specify the surplus you need to use both I and D. That is what Philippe and I have maintained from the beginning which you and major freedom have both denied.
Mises: x equals y minus z
Bala: mises says x equals y
MF:yeah, x minus y and x are the same thing.
Bala and MF in unison: Those guys are dopes to think z matters!
Ken B,
Don’t try to be too intelligent. I was clearly being loose with words. The reason was this – The core of the discussion was NOT Inflation or quantity. It was the correct comparison to make. It was
“Is past vs present better or present seen vs present unseen?”
Since that was the focus, I did not expend energy on being this precise. The money relation is something I always knew. So, your attempt at pretending as though this is why you guys have won the argument and that I was making a mistake is really hilarious.
Just try addressing this core question, will you?
You were not just being loose with language. Elaborate statements like below intended as clarifications are not simply “loose”.
“anyone who tries to drag this offsetting increase in demand into the discussion as a “second variable” has no clue what he is talking about and is just exposing his complete ignorance of Austrian concepts.”
Right or wrong it’s not loose.
That statement that you dragged now has this
as the preceding sentence? Missed it out? Why am I not surprised?
Let’s try a high school word problem!
“In theoretical investigation there is only one meaning that can rationally be attached to the expression Inflation: an increase in the quantity of money, that is not offset by a corresponding increase in the need for money, so that a fall in the objective exchange-value of money must occur.”
Let I equals M minus D. This is a definition.
P decrease monotonically as I increases. This is a conclusion.
By I Mises means inflation. By M he means the increase in the amount of money. By D means the increase in the amount of demand for money. By P he means the change in the exchange value of money.
Bala identifed I with M. He has now correctly recanted, but denies he ever said it in the first place. Read his exchanges with Philippe and see.
I am impressed, Ken B. You’ve made progress — even if your opponents deny it.
Umm, I was actually pretty good at high school word problems a long time ago. However I take it you mean in expressing an understanding of Mises better than some of his supposedacolytes here.
Who am I to shrug off even faint praise?
🙂
That you accept praise from LK is revealing. In any case, let me show how poorly you have understood even my original argument.
Here was my first reply to Philippe.
In point 4, I mention other things did not remain the same and then say money supply was goosed up. The rest of the exchange was a follow-up on this point and that is when you intervened with all your wisdom.
Now, judge your own wisdom.
I also mention other things remaining the same in 3.
Now, go figure.
Whoops. I misspoke. P is exchange value not the change inexchange value.
“Bala identifed I with M.”
Where exactly do you believe he did this?
Please see my point below to understand how idiotic these guys are. They are really desperate to deflect the discussion from the core of their idiocy.
More important is how relevant was all this to the core of the discussion with Philippe. When these guys know they are blabbering, they deflect the discussion.
Ken B,
You guys are hilariously idiotic. The core of the discussion which every one of you is furiously deflecting from is this.
Is the correct way to understand whether objective exchange value of money has fallen to compare price of yesterday with price of today or to compare price of today after inflation with what price today would have been without inflation?
So, your attempts at trying to make this silly bit about quantity vs inflation is the most silly strawman creation and argument deflection ever seen.
So now, will you guys come back to the core point?
Your comment is bizarre Balla, since I posted a comment indicating that it is perfectly consistent believe that Mises meant atemporal and that Philippe in assuming that it must be temporal was wrong.
It’s not bizarre because that is all my discussion with Philippe was about. So please do not try pretending to be holier than thou and address this key question.
Is the correct way to judge the consequence of inflation on the objective exchange value of money to compare present seen with past seen or to compare present seen with present unseen?
In fact, it has been the focus of almost every discussion I have had with you. You have even complained about this on LK’s blog. So, do stop pretending and answer this straight – Was Philippe right or wrong in claiming that comparing past seen and present seen prices is a proper way to track the objective exchange value of money.
The rest is theatrics.
The objective exchange values? That can only be done by empirical measures. That can only be done intertemporally. You cannot measure empirically something in an atemporal counterfactual. If your question is is that how you compare objective exchange values the answer is yes. If your question is how do you measure the effect of what Misys calls inflation, then that is a different question entirely. Not one that I have addressed.
Let’s put this another way. Is the best way to measure the temperature today versus the temperature tomorrow to measure the temperature today and measure the temperature tomorrow. That is the question you asked when you ask about comparing different empirical values of the same variable. Different empirical values of the same empirical variable can only be measured at different points in time.
Your scientism is showing big time when you use temperature as a parallel to exchange value of money.
Since when were observations, and not understanding, the sole environment for economic science?
Are we obligated to observe worldwide socialism before we can know that there won’t be a price system for the means of production?
Are we obligated to observe the government raising the minimum wage to $10 million per minute tomorrow before we can know that, if there is no change in the rate of inflation, unemployment would result?
Are we obligated to observe people choosing X as a course of action, before we can know that there will be costs incurred in choosing X?
Ken B, economic science is not physics. It is more akin to mathematics and formal logic.
He asked what is the right way to compare to objective variable measurements. Objective variable measurements cannot be made in counterfactual’s. If you want to ask how to compare to objective values ,objective meaning empirically measurable, you can only do it on empirically measurable things. You cannot compare to objective values when one of them is not an objective value. By insisting otherwise Bala is essentially asking what flavor is blue.
Matt you really should be able to understand this. Bella asked what’s the best way to compare to objective measures of the same value. Objective measures empirical measures. Can that be done a temporally no you cannot measure and empirical value in the counterfactual. The only way to measure to compare to empirical values is at different times. Has nothing to do with economics. You cannot measure empirically the pressure in your tire and the pressure that would be in your tire if it were 10° colder at the same moment. One of those cases is a counterfactual. You can compare the pressure in your tire now and three minutes later. And tire pressure is not economics.
Ken B,
The error in your response is very obvious.
Objective != Empirical.
Period.
Very interesting example. So if I have to answer the question
I need to measure temperature before I placed it in in the sun and after it has been in the sun, do I? I do not have to ask myself the question
I should ignore the flame on which I have placed the saucepan, should I?
What if this is not the question asked? What if it was a comparison of what it is given what it has been influenced by with what it would have been had it been differently influenced? I look for the empirically observable values do I?
On the same lines, if I lose my keys in the deep, dark forest on a dark night, I should look for a lamp-post in whose light I should look for my lost keys, should I?
And you talk of logic. Hilarious…..
Last response. I answered what you asked. Not what you wanted to hayve asked.
My last response too.
False again. You did not answer what was asked. You answered the question you wanted to answer. Pretending otherwise doesn’t help except to delude oneself.
There you are! I have you nailed. You do not understand Economics at all. Your scientism makes you incapable of ever understanding economics.
Since I am not discussing economics this is a rather foolish comment of yours. You asked about the comparison of empirically observable measurements. You can only empirically measure the same value at different times. You cannot make an empirical measurement in a counterfactual. I can count the number of wasted words you typed today, which is all of them, but I cannot count the number of wasted words you would have typed have you been arrested by the logic police. That didn’t happen so there is no objective value to measure empirically. Get it? You are the one who asked about comparing empirical values.
No. This is falsehood. My question was NOT about comparing empirical values. You can lie all you want but that wouldn’t make it true.
Further, the question was solely about economics, that too in a specific context – that of whether the effect of inflation on the objective exchange value of money is best identified by comparing past and present prices or present unseen and present seen prices.
Once you decide to drop that context, I guess anything goes. And it does seem to have gone, at least with you.
Ken B,
This is the best opportunity for you to demonstrate that you indeed know when and how to use counterfactuals. You can go beyond complaining on LK’s blog. So go on and do it.
Ken B/LK/Philippe,
How about making real progress and discussing your idiocy – comparing past and present prices to check out what has happened to the objective exchange value of money?
It’s official now. Ken B does not get economics. His biggest handicap in understanding economics is his scientism.
My comments are disappearing.