02
Sep
2011
Post-Game Show
Well Karl Smith and I entered the Econ Cage Match of DEATH (his term), and I’m here to tell about it, so…
In all seriousness, if you had meant to watch the debate live and just forgot about it (or if you actually have responsibilities or something), you can still register and watch the recording.
Karl was a good sport. My one major regret is that we were actually in agreement on a lot of issues, so I had to dig deep to find an argument. In any event, Karl was very brave for entering the Rothbardian Thunderdome. At the beginning of the debate, the poll showed something like 5 people agreed with his side, and 135 with mine.
we were actually in agreement on a lot of issues
So, are we all Keynesians now? or Austrians?
All of you obviously have to change your position to stay in touch with reality since 2008. All of you apart from MMT, which never had anything to do with reality to begin with.
We agreed MMTers were nuts. (Zing!)
The coconut calling the hazelnut nut. How appropriate.
I have to admit, I’m an Austrian but I voted yes on the pre-debate poll. Mainly cause I felt facetious AND because the question was worded as “Government spending can play an important role in boosting economic growth”. Government spending can play an important role IN boosting economic growth because government spending is a huge factor in economic growth not being boosted. So it does have an important role, just a very negative one.
As I recall, Prof. Smith said that the government only needed to do its funny stuff during real bad times. When times are good, the government messes things up.
Yeah that was a little surprising. I didn’t expect him to concede government spending being bad except when we hit the zero lower bound. Of course, he still believes that a boom induced by the Fed can go on forever with the right monetary policy. Good luck explaining to people that the tech and housing bubbles could’ve gone on forever given the correct moves by the Fed.
Lets not equate bubbles with booms here. The housing bubble had already started deflating in 2006 without any serious macroeconomic consequences until the 2008 NGDP crash. The “boom” kept on going without having the housing bubble go on forever. Another example is the 1987 stock market crash that didn’t lead to a recession because monetary policy was good. And of course, there’s the post WW2 boom that wasn’t even associated with any significant bubbles
If Scott Sumner jumped off a bridge, would you?
I would because I know Krugman would be there to save me with his safety net.
+1
At the beginning of the debate, the poll showed something like 5 people agreed with his side, and 135 with mine.
What about after the debate?
I was trying to be nice.
It’s a serious question. The before-debate vote tells you something about the audience, but not so much about the debate itself. I’m sure both you and Karl did a good job, but it would be interesting to know if anyone changed their mind, and if so in which direction.
Unofficially, it was 2 with Smith, and 13 with Murphy.
A truncated distribution like that could probably only really tell you if Karl did a comparatively better job – I’m not sure what information it could provide you on Bob.
At the end, there was 1 person on Karl’s side. But, not many people voted the 2nd time. (I.e. I “lost” a bunch of people too.) However, Karl said he looked and found that in fact the people he lost had switched to my side at the end. I didn’t confirm this myself, so I don’t know if Karl was being accurate (as opposed to, say, him seeing two of the names and then not checking anymore).
If one gets a funny money loan to purchase a house, the price paid is necessarily higher than would have been the case without the funny money loan. Keynesians must concede that or otherwise there would be no basis for their claim of “stimulus”. Smith simply denies that this new structure of prices and production is unsustainable because the bond market can figure things out. I don’t think it can because no one can now know what the actual supplies and demands really are so mistakes will be made.
Like every other non-Austrian, I don’t think Prof. Smith gets the concept of economic calculation or the concept of the equilibrium price structure that does not exist.
Hayek:
“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.
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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.”
If one gets a funny money loan to purchase a house, the price paid is necessarily higher than would have been the case without the funny money loan.
Wrong.
Keynesians must concede that or otherwise there would be no basis for their claim of “stimulus”.
Nonsense.
Without the loan, said person would have had less money to spend on whatever has been purchased with the new funny money. That’s the entire basis of the KEYNESIANS’ own argument of increasing aggregate demand with funny money. An actual sale by definition must be at a higher price than a non-sale ($0). I realize that Keynesians, being dishonest liars, won’t agree to call that “inflation”. Whatever you call it, it must happen.
I was originally going to say that I can’t believe that you would dispute something like this, but then we are talking about Mam-mouth here.
Now you are comparing a sale with a non sale?
Give me a break.
MMT hack Tom Hickey demonstrates his complete unfamiliarity with all things Austrian and shows MMT as just another statist totalitarian ruse for the weak-minded:
Capitalism is about using capital as a scarce resource efficiently with a view toward risk and anticipated return on investment. It is based on risk-weighted investment in expectation of a return commensurate with the risk involved. ROI that exceeds return on its productive contribution is economic rent that is extracted from someone else’s productive contribution.
The problem is not “capitalism” per se. It is actually the most efficient way to allocate capital that has been devised. The problem is rent-seeking, which, according to UMKC professor Michael Hudson, all the classical economists recognized.
Hudson observes that Classical economists — Smith, Ricardo and Marx — distinguished price and value. Price is excess of value is economic rent. Value is determined by the cost of bringing an item into production. Price is set [by] the market. To the degree that monopoly rent is operative, price may exceed value as determined by all the factors of production.
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The distinction was obliterated in the transition to New Classical economics, which conflated price and value. Alfred Marshal established the familiar supply/demand curve as the market determinant of price and therefore value in this model. This blurred the distinction between ROI and rent. This shift cemented capitalist control, and capitalists joined the landowners in enjoying distribution far beyond their contribution to production.
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This arises from the presumption that economic behavior is based on utility maximization, i.e., self-interest. The problem is that if everyone pursues self-interest without restriction, then problems develop at the macro level affecting the economic system because not all can succeed anywhere near equally. For example, inequality introduces inefficiency owing to wealth accumulating at the top. Then the economy underperforms owing to demand deficiency in the rest of society, e.g, resulting in boom-bust cycles. Moreover, those at the top become net savers accumulating rent and those at lower levels become net debtors paying rent.
Utility maximization involves a fallacy of composition. Individuals pursuing self-interest does not lead to prosperity in aggregate, especially where economic rent and political influence are involved. Parasitism weakens and eventually kills the host. When economic distortions become great enough, these imbalances lead to social and political problems that further complicate the economic issues.
The mistake involves methodological individualism, which entails numerous composition fallacies when macroeconomics is reduced to microeconomics scaled up. Methodological individualism is often justified on the basis of ontological individualism, the notion of “individual sovereignty” in the extreme, the idea being that “the invisible hand” invariably works to produce the most efficient economic outcome in aggregate.
One of the problems of methodological individualism is that it excludes government from macroeconomics, or even denies macroeconomics altogether. Accepting Hayek’s claim that “socialism” is the road to serfdom, i.e., statism, Margaret Thatcher and Ronald Reagan proclaimed that “government is the problem.” What they overlooked, according to Michael Hudson, is that laissez-faire capitalism is the road to debt peonage due to the extraction of economic rent and consequent dominance of the political process by the ownership class to the disadvantage of workers. The result is a return to a double-standard of justice and re-establishment of privilege, which is precisely what the revolutions that established liberal democracy sought to reverse.
The antidote to methodological individualism is recognition that society is a system of relationships among individuals and groups, and that leaving out the relationships distorts the reality. All the life and social sciences, as well as millennia of philosophy, assert this this view, and scientific research backs holism up with evidence.
Thus, any view of economics that assumes methodological individualism runs into the difficulty of being in denial of reality. The answer is either methodological collectivism, which involves the reification of society, or methodological holism, which correctly views society as a system whose elements are individuals in relation to each other, to groups and institutions, and to society as a whole system. Like methodological individualism, methodological holism requires that explanation be traced to causal mechanisms grounded individual behavior, albeit in relation to others, which methodological individualism ignores.
Libertarians and other proponents of laissez-faire make the mistake of thinking that the only alternative to methodological individualism is methodological collectivism, which they claim has lead to socialism and totalitarian statism historically and will inevitably do so in the future based on its principles. However, this view ignores methodological holism, which views society as a social system in which individual behavior in aggregate produces an outcome difference from individual behavior considered singly, e.g., as a representative agent. Holism does not reify the state, and it is fundamentally different from historical and philosophical collectivism, since it does not elevate collectivity above individuals.
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For this reason, MMT is institutional. It focuses on describing actual operations of key institutions of government such as the Treasury and central bank, as well as their relations to each other, the commercial banking system, the financial sector and the non-financial economy. Failure to do this adequately results in failure to create an adequate macroeconomic theory capable of explaining and predicting through models that are reality-based instead of assumption-based, or that elevate analytical rigor over operational description and evidence.
MMT is also Minskyian in the sense that it is acutely aware of financial instability and the role of rent-seeking in producing financial instability. Thus, MMT recalls the distinction between price and value that New Classicism brushed aside. As a result most mainstream economists did not see the global financial crisis developing and still cannot explain it even after the fact, although MMT economists did identify the causes mounting and warned about the danger based on private debt accumulation and Ponzi finance.
It is also necessary to recognize that no modern developed society has a purely capitalistic economy, or even could have a purely capitalistic one, despite the rhetoric. All modern economies are mixed economies in which government plays a significant role. No serious person thinks that government can be eliminated. The controversy is over the size and role of government. Therefore, government must be considered as an economic factor also, and this must be included in any viable theory.
Failure to identify the factors and appreciation how they actually function results in failed economic theory and failed policy based on it. MMT provides an antidote that saves capitalism in the sense of taking advantage of it advantages as an efficient means of allocating capital, while showing how to reduce its disadvantages, for example, through institutional reform.
http://mikenormaneconomics.blogspot.com/2011/09/capitalism-and-mmt.html