Pessimism
I think it’s safe to say that if the stock market crashes within the next 2 years or so, that both Austrians and Keynesians (as well as MMTers) are going to say, “We told you so.”
Now I know very well the reasons I think that may happen. Look at the chart of the S&P 500–to me it looks like we are in the midst of our third bubble in 12 years. Especially this time around, the resurgence in the stock market is clearly due to the Fed’s extraordinary interventions. So if you’re like me and think creating $1.6 trillion in new base money doesn’t really “help,” then it won’t be a surprise at all if things come crashing down. (I’ve written elsewhere that if just emerge slowly out of this without any major hiccups, it would make me re-think my worldview.)
It’s certainly true that Krugman and some other prominent Keynesians have personally been predicting bad times. But my question is: Does that actually follow from standard Keynesian models? I mean, is it the stimulus ending that is supposed to cause a double dip?
To take another example, what about the quasi-monetarists? If the problem is that there was a sudden surge in the demand to hold money, and wages are locked in to a certain growth rate, then that problem should ease over time, right?
Although presumably one’s macroeconomic theory need not do double-duty as an asset bubble theory. Keynesians, unlike Austrians, don’t always feel compelled to explain the housing bubble for example. We’re happy to speculate, but the point is bubble psychology happens and if it unfolds in certain ways (impacting the demand for safe, liquid assets) it can have certain macroeconomic consequences. I wouldn’t necessarily expect a macroeconomic theory to explain asset bubbles, even if Austrians claim to offer a one-stop-shopping opportunity.
Bubbles mainly have economic consequences to “bystanders” because inflation forces people to couple their savings to the banking system.
Thanks, btw.
Why are we invoking psychology in explaining catallactic phenomena?
Indeed! Since when is human action affected by psychology?
HA!
Be careful – they don’t like it when you don’t use their lingo.
LOL!!!!
“ECONOMICS Is the youngest of all sciences. In the last two hundred years,
it is true, many new sciences have emerged from the disciplines
familiar to the ancient Greeks. However, what happened here was merely
that parts of knowledge which had already found their place in the complex
of the old system of learning now became autonomous. The field of study
was more nicely subdivided and treated with new methods; hitherto unnoticed
provinces were discovered in it, and people began to see things from
aspects different from those of their precursors. The field itself was not
expanded. But economics opened to human science a domain previously
inaccessible and never thought of. The discovery of a regularity in the
sequence and interdependence of market phenomena went beyond the limits
of the traditional system of learning. It conveyed knowledge which could
be regarded neither as logic, mathematics, psychology, physics, nor biology.”
“The field of our science is human action, not the psychological events which result in an action. It is precisely this which distinguishes the general
theory of human action, praxeology, from psychology. The theme of psychology
is the internal events that result or can result in a definite action.
The theme of praxeology is action as such. This also settles the relation of
praxeology to the psychoanalytical concept of the subconscious. Psychoanalysis
too is psychology and does not investigate action but the forces and
factors that impel a man toward a definite action. The psychoanalytical
subconscious is a psychological and not a praxeological category. Whether
an action stems from clear deliberation, or from forgotten memories and
suppressed desires which from submerged regions, as it were, direct the will,
does not influence the nature of the action.”
“The aim of behaviorism to study human action from without with the methods
of animal psychology is illusory. As far as animal behavior goes beyond mere
physiological processes like breathing and metabolism, it can only be investigated
with the aid of the meaning-concepts developed by praxeology. The behaviorist approaches the object of his investigations with the human notions of purpose and
success. He unwittingly applies to the subject matter of his studies the human
concepts of serviceableness and perniciousness. He deceives himself in excluding
all verbal reference to consciousness and aiming at ends. In fact his mind searches
everywhere for ends and measures every attitude with the yardstick of a garbled
notion of serviceableness. The science of human behavior—as far as it is not
physiology—cannot abandon reference to meaning and purpose. It cannot learn
anything from animal psychology and the observation of the unconscious reactions
of newborn infants. It is, on the contrary, animal psychology and infant psychology
which cannot renounce the aid afforded by the science of human action. Without
praxeological categories we would be at a loss to conceive and to understand the
behavior both of animals and of infants.”
“The endeavors of psychology to dissolve the Ego and to unmask it as an
illusion are idle. The praxeological Ego is beyond any doubts. No matter
what a man was and what he may become later, in the very act of choosing
and acting he is an Ego.”
“Physiology and psychology have developed various methods by means
of which they pretend to have attained a substitute for the unfeasible
measurement of intensive magnitudes. There is no need for economics to
enter into an examination of these rather questionable makeshifts. Their
supporters themselves realize that they are not applicable to value judgments.
But even if they were, they would not have any bearing on economic
problems. For economics deals with action as such, and not with the
psychical facts that result in definite actions.”
Keynesians, unlike Austrians, don’t always feel compelled to explain the housing bubble for example.
That’s due to the fact that Keynesianism doesn’t have an (adequate) explanation for economic bubbles. Bubbles “just happen,” and it presumes that only the good government doctor can cure the after affects.
What you call “psychology,” Austrians just call “the Federal Reserve System inflated too many newly created dollars into the market.”
Well there’s no real Keynesian growth theory either. That doesn’t mean Keynesians think growth “just happens” – it just means that the theoretical inheritance from John Maynard Keynes and his circle didn’t address these questions, so we look elsewhere. There are lots of people working on that question, after all – and there are lots of decent answers.
The same goes with bubbles. You’re right – Keynesians don’t have an adequate theory of bubbles because there was never an attempt. You are absolutely wrong when you say “Bubbles “just happen,” and it presumes that only the good government doctor can cure the after affects.”. Who says this? Nobody. I prefer to leave the explanation of bubbles to behavioralists and finance people, and the explanation of recessions to Keynesian macroeconomists.
You ought to be more suspicious of people that claim they’ve explained everything and yet haven’t managed to convince very many people that their ideas carry weight.
Daniel, you said “you ought to be more suspicious of people that claim they’ve explained everything and yet haven’t managed to convince very many people that their ideas carry weight.”
I can see by the way you talk that you are a very honest man and have a lot of faith in the integrity of the academic system. However you must understand that many libertarians do not see things this way, and view their own ideas as persecuted and unfairly dismissed by snobby academics. For the most part they are correct. Furthermore, while this may or may not be true, some libertarians believe that most academics think the way they do because they would be out of a job if they didn’t, and most of the jobs that macroeconomists can get at the end of their career is related to public policy so in many ways this view point is justified.
Now you might think that is all a bunch of non-sense, but I am just pointing out why a libertarian could care less if his ideas are accepted by mainstream academia, and even think the less accepted they are the more likely they are to be right!
some libertarians believe that most academics think the way they do because they would be out of a job if they didn’t
There are lots of libertarians do hold academic posts and haven’t lost their jobs. So clearly that can’t be right.
Not lots. Come on.
They are a small percentage of the total, but compared to their proportion in society at large they are if anything overrepresented.
If folks like Walter Block and Tom DiLorenzo hold academic posts, how plausible is it that many academics would espouse libertarian views but for the belief it would get them fired?
Well there’s no real Keynesian growth theory either.
You’re right. Keynesian economics is economics for rulers, not “the economy.”
That doesn’t mean Keynesians think growth “just happens” – it just means that the theoretical inheritance from John Maynard Keynes and his circle didn’t address these questions, so we look elsewhere. There are lots of people working on that question, after all – and there are lots of decent answers.
Keynesians versus Keynesian economics.
While you say that Keynesian economics does not address these questions, I say that Keynesian economics presumes that growth “just happens.” Tomato, tomahto. I think that’s why Keynesian economics per se has no issue with government policies that lead to increased consumption at the expense of saving and capital accumulation, as long as “aggregate demand” and “nominal income” move in a way that avoids “wage-price spiral.” Income through consumption and income through investment are interchangeable. It just assumes that capital will always be there, to always be sufficient to enable economic growth. Yes, it’s why we have to turn elsewhere if we want to know what makes economies grow and what makes them shrink.
The same goes with bubbles. You’re right – Keynesians don’t have an adequate theory of bubbles because there was never an attempt. You are absolutely wrong when you say “Bubbles “just happen,” and it presumes that only the good government doctor can cure the after affects.”. Who says this? Nobody.
Keynesian economics says so. It says that government deficits are the only way to get a depressed economy that is in a so-called “liquidity trap” out of the doldrums.
You are absolutely without a doubt unequivocally wrong when you say that Keynesian economics does not presume that bubbles just happen and that only the government can fix the after effects. It’s precisely why Keynesian economics does not call for no government action post bubble crash.
I prefer to leave the explanation of bubbles to behavioralists and finance people, and the explanation of recessions to Keynesian macroeconomists.
In other words, bubbles have no economic, catallactic explanation, and they just happen. We’ll just label the cause as psychological and behavioral, “animal spirits” if you will, so that we don’t have to look deeper into Keynesian economics and then suicidally realize that the Keynesian policies of inflation and lower than market interest rates might have something to do with bubbles and busts.
You ought to be more suspicious of people that claim they’ve explained everything and yet haven’t managed to convince very many people that their ideas carry weight.
You ought to be more suspicious of the ad populum fallacy, and that Austrian economics goes directly against the state, not purposefully in the normative sense of course, but economically, and in a world of states, in a world where free market capitalism is treated by most intellectuals like the plague, it should not be surprising that Austrians, who are right about the business cycle, and about capital theory, and about entrepreneurship, and about the proper methodology for approaching economics, are “fringe.” Rational scientists during the thousand year dark ages were fringe as well, but does that mean they were wrong while the majority demagogues were right? No.
“I prefer to leave the explanation of bubbles to behavioralists and finance people, and the explanation of recessions to Keynesian macroeconomists.”
How can you possibly understand effects if you don’t even attempt to understand the causes?
Who said I didn’t attempt to understand the causes, Jeremy?
All I’m saying is that I don’t demand that my business cycle theory moonlight as a growth theory or a finance theory. Geez!
Why would such an incredibly incomplete theory be so popular? Call me strange but I think economics should be able to explain market phenomena.
I mean, is it the stimulus ending that is supposed to cause a double dip?
If “stimulus” doesn’t end in about 3 years, why call it a stimulus? permanent socialization of investment would be a better term.
LOL! Precisely…
Government central-planning is like Quixtar (Amway), you are sold the bill of goods to prosperity, then you realize that your prosperity is contingent upon the full faith of the “planners” at the top, as well as your ability to convince others of just how good this “deal” really is. In the end, you end up being a slave to the process, getting all of your friends/family on the platform, but even though you may have excelled and risen in relativity, no progress is made in the aggregate. Rather, those at the top of the pyramid have siphoned your wealth away by the very process of your involvement- they are the beneficiaries.
The only difference is that Quixtar (Amway) is voluntary, government central-planning is not… Not by a long shot.
Which stimulus? QE? That’s an asset swap, not a stimulus.
The real question is why should it matter if the stock market collapses; after all it’s just gambling, dollars changing hands, some will win, some will lose, so be it.
Then why was QE necessary at all? If it is merely an asset swap, then surely it should have zero implications upon the prices of goods, right? I mean, it is just the swapping of credited currency for debt, so there cannot be any “spending” involved after this transaction…. And, surely if the government received money for debt (of which it has no REAL obligations), then the price structure would not be influenced at all by the diminished marginal utility, the decreased demand to hold (money), the increased propensity to spend revenues, or the demand for units of goods that the government employs… Right?
After all, it is just an asset swap….
Clearly, Bernanke does not understand the wisdom of MMT.
If only the Fed’s economists had access to google – and weren’t part of a vast “neo-liberal” conspiracy – they could figure this all out.
We can only hope that Bernanke see’s the light (and the frantic emails explaing all this.) If not the price of gas might actually go down and all will be lost!
All tongue in cheek… Of course, we cannot have prices go down, because that would mean losses for those that bid up the prices in the first place. Better to just socialize the means of production, that way we have complete control of ALL the prices… Or, then again, maybe not… After all, prices (even those of money itself) are dependent upon subjective valuation and exchange. We can’t have that, otherwise we lose control of the entire empire… LOL
MMTers are quickly reminding me of the pamphleteers during the age of mercantilism.
Clearly, Bernanke does not understand MMT.
If people don’t understand it’s just an asset swap and get all frightened about hyperinflation being around the corner (and believe me, some people have been, others still are!!! LOL), then surely it will have implications upon the prices of goods.
It is that thing called psychology that affects human action.
It’s not an asset swap. The outstanding debt securities are assets of sorts but have no value unless and until someone else actually buys them from the holder. When the Fed creates new funny money to buy them, the new funny money goes into the banking system and can be used as reserves to pyramid new loans out of thin air.
Let us say the Fed buys $10 billion of existing bonds in a POMO (permanent market operation) from a primary dealer that is a non-bank. Now the primary dealer will have a demand deposit of $10 billion, assets on the Fed’s balance sheet will increase by $10 billion, and so will bank reserves after the Fed’s check is deposited by the commercial bank where the bond dealer has his account. This increase in reserves by $10 billion will enable the banking system (via the previously mentioned multiplier function) to buy an additional $90 billion worth (with an assumed 10% reserve requirement) of new treasury bonds by creating demand deposits in favor of the treasury.
************
A final remark: we have read elsewhere that there is allegedly ‘no economic difference between money and t-bills or t-notes, as all are liabilities of the US government’. This is incorrect from a theoretical as well as a practical standpoint. Money is the medium of exchange – a present good, that is immediately exchangeable for other goods and services. T-bills, t-notes and so forth are debt securities, i.e. they represent credit transactions that are not equivalent to money – in order to obtain money, one must first sell them to someone holding money (or creating it from thin air, whichever the case may be…).
http://www.acting-man.com/?p=5546
Bank lending is not reserve constrained, it is capital constrained.
Banks issue loans to any creditworthy customer and look for reserves later if necessary.
That is why understanding the operational aspects of the monetary system so important. Because otherwise you keep repeating nonsense.
Which stimulus? QE? That’s an asset swap, not a stimulus.
QE was not an asset swap. QE saw the Fed buying Treasury debt with newly created money. That’s straight up inflation.
US dollars are not assets, in the common meaning of the term.
The real question is why should it matter if the stock market collapses; after all it’s just gambling
I didn’t know MMT was totally ignorant of the benefits of each role in the division of labor, beyond manual labor. I bet you consider wholesalers as “middlemen.”
dollars changing hands, some will win, some will lose, so be it.
It’s not that simple. A decline in the value of accumulated savings hurts productivity.
Common people consider their savings financial assets. QE was an asset swap between US$ at 0% and interest bearing US$. IT has no other effect than play mind games with the psychological aspect of human action.
The stock market, like most financial markets, is a casino. Unless the amount of US$ increase, something austrians strongly oppose, it is a zero-sum game.
>Common people consider their savings financial assets.
Economics considers money as money, and financial assets as things like bonds, stocks, and derivatives.
QE was an asset swap between US$ at 0% and interest bearing US$.
QE was straight up inflation. The Fed bought bonds with newly created funds. It’s what most economists call monetizing debt.
IT has no other effect than play mind games with the psychological aspect of human action.
Then MMTers should go contrary to those who are victimized by such “mind games” and make zillions.
Oh that’s right.
The stock market, like most financial markets, is a casino.
No, it is not a casino. The thought that it is a casino is based on the crude and simplistic premise that only manual labor really “counts” as valid economic behavior. But in a rationalist worldview, in a worldview where the division of labor is not just a phrase, but means something, the stock market is clearly an extremely important function, for it facilitates a productive connection between savers and those who make investments.
Primitive minds instead see it as a casino, because they can only see pure chance where in reality it is not pure chance, but purposeful action guided by purposeful beings.
Unless the amount of US$ increase, something austrians strongly oppose, it is a zero-sum game.
No, it is a zero sum game to increase the number of US$. When new money is created, the initial receivers of that money who did not earn it, but who just happened to be first in line, have their purchasing power increased such that they can buy wealth for themselves without creating real wealth to earn that money. It means someone has to lose to the extent that people gain.
The stock market is NOT a zero sum game. If trade is voluntary, then BOTH sides expect to benefit. One person gets a stock, the other gets money. If they did not expect to find value, they would not trade. If the market price of the stock goes down after the trade, then it may or may not be a realized loss to the investor, because he might not want to sell, but hold. If the stock price increases, same thing.
You’re so ignorant of basic economics, it is literally breathtaking.
QE is just an asset swap of government liabilities. That’s all there is to it. If people don’t understand it, and behave accordingly, so be it.
The stock market is gambling as much as it is betting on who will win the superbowl.
With the same amount of US$ and stocks, no matter at what price level stocks change, there is always the same amount of US$ and stocks. In that sense, it is a zero-sum game. Until the day you start trading stocks for coconuts.
QE is straight up inflation, that is all there is to it.
Those who act knowing this, will on average fair better than those who treat it like you are treating it, which is nothing but a sterilized swap.
The stock market is gambling as much as it is betting on who will win the superbowl.
No, the stock market is not gambling. It is not based on chance. It is based on purposeful behavior. Do you not know the difference between a random event and a purposeful event that you cannot predict ex ante?
With the same amount of US$ and stocks, no matter at what price level stocks change, there is always the same amount of US$ and stocks.
Not true. If the stock market rises or falls, then more or less money is being used to demand listed stocks. This has affects on not only the number of stocks issued by listed companies, but it also affects the stocks of non-listed companies. It all goes back to action being a series of inevitable choices that make other choices impossible, and choices that are causes which have effects like stock prices and numbers and from which companies.
It is not a zero sum game, because with a low enough stock price, some stocks become delisted and the companies go kaputz. With a high enough stock price, sometimes there are splits, and further stock issuances to take advantage of the high market price.
You’re confused.
The superbowl is not based on chance. The stock market is the same as betting on who will win it. You can neither predict nor control the outcome. That’s gambling.
And with a constant amount of US$ and stocks it’s just a zero-sum game by definition.
Of course funny dilution of money or stocks makes it a non zero-sum game.
Just when I think the MMTers couldn’t epitomize any better the claim that they literally just think about green pieces of paper, instead of real goods and services, Mammoth comes along and says:
The stock market, like most financial markets, is a casino. Unless the amount of US$ increase, something austrians strongly oppose, it is a zero-sum game.
I will say this Mammoth, you are consistent. I hope you can at least appreciate my worldview too. I’m taking the whole “I’d rather eat coconuts than pictures of Franklin” thing and running with it.
“Just when I think the MMTers couldn’t epitomize any better the claim that they literally just think about green pieces of paper, instead of real goods and services,”
Sorry Mr. Murphy, but if after your minimum readings of Mosler and other MMT material, you drew the conclusion MMTer’s ‘just think about green pieces of paper, instead of real goods and services,’ than I’m afraid you have wasted not only your time, but every one elses in trying to refute MMT. I’m not surprised, since you went into this trying to disprove a topic you had not bothered to understand, but I am a bit disappointed.
AP Lerner,
OK you’re right, I was too sweeping in my statement. I know that Mosler for example thinks that his views have serious implications for real GDP etc. But c’mon, I am talking about some of the stuff MaMoTh (note what the caps spell) has been saying.
Sorry, as I told you time and time again, unless I explicitly say that something I say comes from my understanding of MMT, it is just my opinion, like in this case. At some point you should also get tired of building strawmen arguments against MMT. Unless that’s all you’ve got.
MamMoTh, I don’t know why you are apologizing. I think your statement on the stock market comes directly from the emphasis on “net financial assets” etc. which is clearly straight from Mosler et al.
What I mean MamMoTh is that you are distilling what I think is the logical conclusion of the MMT worldview, even though others might reject that interpretation.
I think you may have reached a point which renders you undeserving of a debate with anybody concerned with the broad topic of economics in the same way that it would be shameful for a geographer to get into a discussion with a flat-earther on the shape of the planet (Dawkins’ example, not mine). I certainly hope that readers of this blog will realize it and simply ignore you as that is the only remedy for an obvious troll.
The above was meant to be a reply to MamMoTh.
Agreed. Don’t feed the trolls!
I’m not a fan of the term “troll”. It has been thrown at me along with vicious name-calling about 87x worse than anything dished out by the mild-mannered MamMoTh. The challenges of the MMTers and Keynesians force us to reexamine our premises and prepare short, clear-stated replies that average people might understand..
At the same time, it is unfathomable to me that our opponents fail and/or refuse to comprehend even the most basic Austrian and libertarian concepts and boldly brag to us that the government is “unconstrained”. No sh**, Sherlock.
http://original.antiwar.com/justin/2011/05/31/the-japanese-internment-and-the-betrayal-of-the-progressives/
“I certainly hope that readers of this blog will realize it and simply ignore you as that is the only remedy for an obvious troll.”
I would hope the same, but it is quite difficult to hold one’s own thoughts to the background when such a “troll” declares such obscenities for the public forum. I would be remiss in my in my own logic and understanding of economics to not point out to the world, for all to see, the flaws in the logical constructs of those who wish to oppose reasoned thought, or that of the market cooperation of peoples in the elevating of our current concerns.
Well… That, and his particular idolatry of statism in all of its forms.
I tell you something about my idolatry of statism.
I left my birth country because I didn’t want to live anymore under such a statist regime. You know why? Because I didn’t want to turn 60 and realize I’ve become a grumpy old man who spent all his life bitching about the state but doing nothing about it other than complain on the internet and find solace to my misery driving around and squandering stolen gas on public roads.
You see, we are different.
Yeah, you’re different. You jumped ship. Joseph is, in his way, trying to repair the ship before it sinks like your former ship sank.
If you think driving my 30 mpg Buick Century is wasteful, there’s my 2 mpg boat. Nothing grumpy about that.
http://www.flickr.com/photos/bob_roddis/4016754291/in/set-72157605866047732/
There’s nothing like public roads and public lakes as antidote to libertarian grumpiness!
Yes, nothing cheers me up like the well-paved public roads. And especially when I’m in a big city driving around, it always puts a smile on my face!
That’s it my boy!
Smile!
You are being filmed.
There’s nothing like a government-built St. Lawrence Seaway to subsidize and make possible ocean ships coming into the marvelous fresh water of the Great Lakes to spawn deadly exotic species. And with governmental immunity, there’s no one to sue for damages.
http://www.cleveland.com/news/plaindealer/index.ssf?/base/news/1238574850198780.xml&coll=2
There’s nothing like polluted [Canadian] public rivers dumping prodigious amounts of mud, chemicals and fertilizer into usually pristine lakes.
http://www.flickr.com/photos/bob_roddis/5787772060/in/photostream/
Those dam gubmint crooks, dumpin’ chemichamuls in da water.
Could you stop this “statism” crap?
Some of us actually come here to read and agree or disagree with Bob’s thoughts – not to see you insult people.
Actually, Mr. Kuehn, I think you’re the bully here. The use of the terms “statist” and “statism” are substantive criticisms and are derived from “etatism” as used by Mises:
The most important event in the history of the last hundred years is the displacement of liberalism by etatism.
Etatism appears in two forms: socialism and interventionism. Both have in common the goal of subordinating the individual unconditionally to the state, the social apparatus of compulsion and coercion.******
Etatism assigns to the state the task of guiding the citizens and of holding them in tutelage. It aims at restricting the individual’s freedom to act. It seeks to mold his destiny and to vest all initiative in the government alone.*******
The state is a human institution, not a superhuman being. He who says “state” means coercion and compulsion. ******
The thesis of etatism that the members of the government and its assistants are more intelligent than the people, and that they know better what is good for the individual than he himself knows, is pure nonsense.******
http://mises.org/etexts/mises/og/chap3a.asp
What is the nature of the theory of “sticky wages” other than a ruse aimed at average people who are considered too stupid to demand reasonable wages and would rather starve to death than work for a market wage? The enlightened central bank must dilute the money supply so that real wages might be lowered to more reasonable rates while those earning those wages are to be left oblivious so that they don‘t object.
THAT IS THE SUBSTATIVE CRITIQUE OF THE KEYNESIAN PROGRAM. IT IS NOT “NAME-CALLING” per se.
Bob Roddis,
Is it fair to say that you believe money illusion exists only when it is the result of government “diluting the money supply” and not in other cases (e.g. when there is a monetary contraction)?
I think that calling mammoth a statist is pretty accurate, and I don’t see the insult in stating it. Sure, he may be an individualist or laissez faire in some respects (I haven’t seen them), but they aren’t prominent in his discourse. Considering the REAL insults that he has flown in the direction of others (calling them thieves in the collectivist sense, wishing death upon others, etc), I would say that I have been more than reserved. OK, I did call him a “cutesy, cuddly little dictator”, but he understood it correctly as a joke. His response was “little?”.
Bob is usually pretty good about hinting when people cross over the line, and I am sure that he would tell me if I did so.
What I don’t comprehend is why the non-Austrians absolutely refuse to make the slightest attempt at understanding any part of the Austrian School paradigm. I suppose that after someone has twisted their brain into believing the transparently absurd Keynesian Hoax, people aren’t inclined to admit they have fallen for a ruse. And they sure don’t want to admit that what they have been long advocating is really the cause of the problem.
1. Many of us do. I do.
2. Intellectual and temporal resources are limited and people that spend less time on the Austrian school are often making a pretty reasonable cost-benefit analysis. People learn from others. There was a time when the Austrians did merit more attention and people did read them. If more Austrians are more successful in convincing their peers and publishing in flagship journals I think you’ll see more people paying attention to them. The trend is already in that direction.
3. When you turn around and call other theories “transparently absurd hoaxes” it’s incredibly hard to take you seriously or to believe that you’re genuinely interested in having a dialogue with people and having them understand your ideas. You sound like a bully and nobody is going to listen to the ideas of a bully.
You know what really grinds my gears?
Observing people who advocate for coercion based control of other people call libertarians, whose only sin is “speaking strongly,” bullies, as if someone who points guns at people for the sake of helping them is not a bully, but the person who says stop, is a bully.
I take Roddis’ argument MUCH more seriously than I take yours, because deep down your arguments are in fact absurd, and they are hoax-like.
You know what also grinds my gears? Seeing opportunists believe in fallacies if it means getting published in “prestigious journals”, and then presume such an act is more intellectually ideal and representative of what it means to be an intellectual, rather than refusing to adopt what one sees as incredibly fallacious, even if that means one forsakes a cushy job in some statist (yeah, you love that word) oriented posting.
When I see what you write, I see a non-serious, intellectually capitulative, self-declared bridger of contradictory ideas, who has for some reason become convinced that adopting what the mainstream has adopted, is somehow the path for a true intellectual.
In a world where economic fallacies and statism abounds, I’d rather be right and be rejected by the mainstream, then wrong and accepted by the mainstream, if those where my choices. At least I would not be contributing intellectually to the harm imposed on innocent people.
When I say “people learn from others” I mean “people look at what their scientific peers are reading and promoting, and they read that”
This Krugman column from last year does a good job of laying out his basis for pessimism. Basically Krugman thinks policymakers will get spooked by (in his view, unrealistic) fears of inflation and will stamp out any nascent recovery.
In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise.******
But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.
In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.
Since keeping rates artificially low and government spending are recipes for disaster, what else could one expect other than more misery? I certainly would and did expect someone like PK who won the Nobel Prize in economics to have at least a slight understanding of the Austrian theory about which he constantly complains. But I was wrong.
In one of his latest columns, Krugman used the word “misalignment” when referring to the housing bubble. It could be his subconscious that has now accepted the Austrian theory, or it could be just a coincidence.
Blackadder, great, this is exactly the kind of thing I mean. Krugman wrote:
As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.
So unless the Fed actually starts raising interest rates (or at least contracting its balance sheet), and total government spending goes down, then I don’t see how Krugman could explain a return of deflation. Do you agree with me?
And yet, even if total government spending goes up the next two years, and the Fed just treads water, if there is a crash I am quite sure Krugman will say, “Man it’s getting boring being so right all the time.”
Shoot, I can only get from a keynesian or MMTer that we need more government spending. Never an answer on how much, just more. If they increase spending and it doesn’t work, well we just need more. What will annoy me is if we end up in stagflation or the dollar collapses they will still claim victory. You at least spell out what it would take for you to be proven wrong and would have to question ABCT. I won’t hold my breath waiting for Krugman or Mosler to do the same. Heck, I’d be happy with DK or Mammoth spelling out what would make them question their beliefs.
I find the emphasis upon SPENDING per se to be totally bizarre and creepy. The Jack Sparrow article I’ve cited in the past says:
Consider the (true) assertion that the U.S. government could fund itself without taxes or bonds. This highlights that the government’s spending choices are unlimited. But will all choices on the roster have the same impact on the economy?
Imagine a “wise government” scenario in which $100 billion is spent on the new century equivalent of Eisenhower’s highway system.
Imagine that this new system contributes dynamically to the healthy growth of the economy in the years moving forward [or maybe it’s also waste – B.R.]
Now imagine an “idiot government” scenario in which $100 billion is spent on the economic equivalent of hookers and cocaine.
Can we really say that the downstream economic impact of those two scenarios is the same? Of course not. When the government chooses to spend money – be it borrowed, extracted via taxation or created directly – it still matters HOW that money spent.
http://seekingalpha.com/article/242669-the-trouble-with-modern-monetary-theory
And government spending will be without true free market prices and will be operating blindly. But spending it on dope and whores is not the same as spending it on an actual cure for cancer and heart disease.
I am so thankful that I had a foundation in Austrian theory before encountering this Keynesian nonsense. My first reaction was “You’re sh**ing me!” Same as today.
Dan,
I’m neither a Keynesian nor an MMT guy, but if you haven’t found answers to your questions that may just mean you haven’t been looking too hard.
For example, I went to Warren Mosler’s website and found a speech of his at some Tea Party rally where he says (starting around 4:40) that what the government needs to do is not increase spending but rather have a payroll tax holiday.
Similarly, if you go back to the debates surrounding the 2009 stimulus, you can find Keynesians like Krugman saying at the time that the proposed stimulus was too small and needed to be (as I recall) around $1.5 trillion.
I can’t find a post of Krugman spelling out how a $1.5 trillion stimulus would’ve got us out of this mess during 2009. I can find plenty where he said it was too small and then the forecasts he gave were off on what the actual stimulus plan that went through would do. Maybe I’m missing something but even his followers haven’t been able to spell out how big of a stimulus we need and how exactly that would solve the problem. Maybe there are answers out there but you wouldn’t think it would be so hard to find. I could spell out what the Austrians would do and how that would help matters. Plus my biggest complaint is that other than Austrians like Dr. Murphy I have yet to see any keynesian or MMTer or you spell out what would make you wrong. You even said a week or so ago that no matter what we would say we were right but obviously that is not the case as Dr. Murphy spelled out what would make him question ABCT. So I leave it to you, DK, And Mammoth to lay out what would make you question your views or you are the one doing what you accused Austrians of doing.
On Krugman, see here.
As for what would prove me wrong, as I said before, you can’t be wrong about a claim you don’t make. Since I don’t claim to be able to deduce what must happen to the economy, it makes no sense to ask me what would prove me wrong on that score.
To illustrate the point, I’ve written a little dialog (which is a work of fiction; the resemblance to any person, living or dead, being purely coincidental, etc.)
Me: I wonder what Bob had for breakfast this morning.
Dan: Using my knowledge of dietary law, I can logically deduce that Bob must have had blue jello for breakfast this morning.
Me: That seems . . . unlikely. And anyway, didn’t you say yesterday that Bob must have had blue jello for breakfast, and it turned out he had eggs?
Dan: My prediction was premature. But surely he will have blue jello for breakfast soon. That much is certain.
Me: Well, look, why should anyone give credence to your claims now when you have been so wrong in the past?
Dan: Hey, if you’re so smart, what do YOU think Bob had for breakfast?
Me: I don’t really know. He usually has eggs, but sometimes he’ll treat himself to some waffles.
Dan: If Bob does not eat blue jello for breakfast before he dies I will be proven wrong. Yet you are unwilling or unable to say what will prove you wrong. For shame!
I had read that Krugman article earlier and his projections were wrong on the impact of the stimulus we got. Not only that but he doesn’t say if we had X size stimulus this would be the results. He also doesn’t say what would prove himself wrong when he clearly thinks his brand of economics has the ability to project the future of the economy.
As far as your non predictions, that’s fine if your theory doesn’t have any predictive power but why make a statement like this,
“If you press a committed Austrian to tell you what would have to happen for his theory to be proved false, he will tell you that there are no such circumstances. Austrian economics is supposed to be a purely deductive theory, meaning that it is consistent with any future course of events. If Bernanke doubled the money supply month after month and there was not only no inflation but no recession for the next 100 years, this would not serve to refute the theory. If country after country enacted Rothbard’s proposed banking reforms, only to be reduced to the standard of living of North Korea, this would not serve to refute the theory.”?
Not only is that not true but you are the one who is saying you can’t be proven wrong. So even if what you said was true, at best it is a case of the pot calling the kettle black.
As far as your non predictions, that’s fine if your theory doesn’t have any predictive power
How many times do I have to repeat myself? I don’t have a theory that allows me to logically deduce what is going to happen macroeconomically. The fact that a non-existent theory has no predictive power it hardly shocking. Nor should it be surprising that a non-existent theory can’t be proven wrong (since before it could be proven wrong it would have to exist!)
On the other hand, if someone does claim to have a theory that tells them what must happen of economic necessity, then it is a problem if this theory can’t be proven wrong and/or has no predictive power.
Look, if Bob Murphy just said “I don’t really know what’s going to happen with the economy. I think there there probably will be lots of inflation, but it’s possible Bernanke could pulls things off” then it wouldn’t be a big deal inflation never materialized. Bob could just say “I never said inflation was a certainly; Bernanke just got lucky.” The problem only arises because he claims inflation *must* happen.
Ok, if your thoughts on the economy based on whatever you base it on doesn’t have any predictive capabilities then that’s fine. I was dropping my request for you to explain what would make you wrong. Although not having a theory makes your argument carry a lot less weight that Dr. Murphy is wrong because he jumped the gun on his inflation call. I claim that he will be still be right and only off on the timing. Dr. Murphy also spelled out what would make him wrong overall. If we continue down this path and it works then you will be able to say Austrians are wrong and I’ll be agreeing with you. What bothers me is that it seems you have already decided we are wrong and no matter what happens we can’t be proven right.
MMT will be proved wrong when Murphy can pay his taxes with coconuts.
Shocking! no attempt at a genuine answer to a perfectly reasonable question from Mammoth. I may disagree with Blackadder on inflation and other economic problems (I tend to agree with him on most other matters) but he at least will defend his positions. I get silence or nonsense when MMTers or Keynesians are posed with this question. Why can’t you give an answer? Do you not know the answer, not want to go out on a limb and give a falsifiable position, or is there nothing that would prove you wrong?
That was a genuine answer. If Murphy can pay his taxes with coconuts that will certainly invalidate the foundations of MMT.
My take is that if government cuts spending and GDP doesn’t tank then they will be in trouble.
All economic theories are vague enough to get away with bad predictions anyway,
Blackadder wrote:
Look, if Bob Murphy just said “I don’t really know what’s going to happen with the economy. I think there there probably will be lots of inflation, but it’s possible Bernanke could pulls things off” then it wouldn’t be a big deal inflation never materialized. Bob could just say “I never said inflation was a certainly; Bernanke just got lucky.” The problem only arises because he claims inflation *must* happen.
Does it matter that I never said that? I think I get what you meant by that statement in the context of your argument with Dan, but let’s be clear for innocent bystanders: I have never said anything like that. I have said, “I think we are in store for serious stagflation.” I’m pretty sure several times I have even said, “Of course, nobody knows the future for certain, but I think…”
I mean look Blackadder, the Star Trek replicator device could have been perfected two weeks after I started firing off my predictions. So even if I were way more confident in my understanding of QE1 etc. than I was, I wouldn’t have said, “I guarantee you CPI will have to do xyz.” It could have been offset by something else.
I think you are confusing me with other Austrians on this one.
Bob,
That’s a good question. I’m not sure what Krugman would say in that situation (I mean, I’m sure he would say he’d been proved right yet again, but I’m not sure what his explanation of how he’d been right would be).
Ron Paul is getting pessimistic:
http://lewrockwell.com/eddlem/eddlem48.1.html
The American public is brain dead. Crisis? What crisis? And don’t you dare cut my benefits!!!
The whole “keep your Socialist hands off of my Medicare” crowd. You know, I often wonder what goes swirling about in those people’s heads, but I am also grateful that I have some minimal “say” in the direction and command of my own cognitive functions.
Too bad logic is no longer regularly required in the American coursework of study.
You act like shitting out 18 year olds that cant read, much less comprehend or analyze abstract mental exercises, is a failure of the american public school system and not exactly what it is intended to produce.
?
Public skewls dont want kids to think too good.
To be honest, I wasn’t even talking about American public “skewls”, I was speaking of schooling in general. However, I think that Austro-Libertarian was more confused by your sentence structure and grammar; I too was confused.
AP “Catallactics Doesn’t Matter” Lerner still won’t explain why catallactics doesn’t matter anymore and he still won’t explain where all the stuff is going to come from to satisfy all of the government’s unpayable debt.
http://krugman-in-wonderland.blogspot.com/2011/05/against-learned-economic-laws.html
I for one would be EXTREMELY PLEASED to learn that the law of scarcity has been abolished by the MMTers. I would personally pay to erect a statue of Rumpelstiltskin. Life would be paradise.
When I get into power that is the first law I will abolish. Not only to please you, but also because I think our Founding Fathers didn’t intend us to be ruled by such a silly law. This is the land of the free and of prosperity!
There goes my cutesy, cuddly little dictator again. Oops, sorry. I meant BIG. LOL
Wow!! In one sentence, I think you have captured the true dilemma that keeps Krugman up at night. The Keynsesians either have to double down and claim the stimulus wasn’t big enough, or admit it is wrong. In the former case, they are trapped by the fact that the US government has run 10+% of GDP deficits for 3 years running and still failed to get a self-sustaining economic recovery. And with the monetarist, you could basically say the same thing with regards to Fed actions over the last 3 years, but using different terms. At this point, it seems to be, “Be proven correct, or be proven wrong.” I think this goes a long way to explaining almost every Krugman column of the last 2 years.
I am late to the party but…
The only way Keynesians can say “we told you so” about a stock market crash in the next two years is if governments institute austerity measures during that time. My understanding is that Keynesians will feel that output could be better. They will feel that we could accelerate our recovery. However, that doesn’t mean the situation will worsen without increased government spending. Status quo = recovery for Keynesians. Krugman’s issue is that this slow recovery is inhumane for those that are out of work or under-employed, not because we will head back down the drain.
My take.
Scott, I agree with you 100%. However, I also stand by my original post, where I said that if there is a double-dip, that Krugman will say he warned of it. I even think he wrote a blog post called “Double Dip” or something recently.
Incidentally, I’m not even accusing him of mendacity. Perhaps he is really a good forecaster despite his official Keynesian model. I.e. maybe he senses the economy is headed off a cliff, but he doesn’t realize that that is hard to square with his official theory of recessions.
No offense Bob but I encounter a ton of market forecasts and PhD economists(Krugman included) are by far the worst forecasters; all the nebulosity, none of the nuance.