Who Said It?
Look at this guy talking about China:
China is in big trouble. We’re not talking about some minor setback along the way, but something more fundamental. The country’s whole way of doing business, the economic system that has driven three decades of incredible growth, has reached its limits. You could say that the Chinese model is about to hit its Great Wall, and the only question now is just how bad the crash will be.
Start with the data, unreliable as they may be. What immediately jumps out at you when you compare China with almost any other economy, aside from its rapid growth, is the lopsided balance between consumption and investment….
But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.
And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit….These measures postponed the day of reckoning, but also ensured that this day would be even harder when it finally came. And now it has arrived.
Sounds almost like Peter Schiff, doesn’t it?
Actually it was You Know Who.
(Also, I’m just being cute here, following Alex Tabarrok’s lead on Twitter when he said Krugman is using Austrian business cycle theory. Especially if you read the stuff I cut out with ellipses, it’s not totally ABCT, but it’s a kissing cousin.)
Post Keynesians are saying that Krugman is finally sounding like one of them with this post.
I find this interesting, because I wouldn’t have thought “China’s got a growth policy lop-sided towards investment and it can’t last forever” had any particular theoretical pedigree.
Out of interest, which Post Keynesians, Daniel?
Some guy on Angry Bear I think – forgot who I can track it down. He was making a point about the labor share of income.
Granted the Ricardo effect is like half of the old school ABCT so I understand why you say this, but the process is consistent with… well… most people’s thinking since Ricardo!
DK, Krugman is sounding more like an Austrian than a Post Keynesian with that comment.
Post Keynesians put emphasis on “unproductive” expansions of financial instruments, such as debt, a la Mynsky, whereas Krugman here seems to be talking about undue expansions in real capital investment, i.e. productive capacity.
Yes, Krugman’s analysis is rather crude and superficial, by lumping all investment together, as is typical of Keynesians, but Murphy is right about it sounding very Austrian.
—————-
This post from Krugman should be interesting to blogger Lord Eugenics, excuse me, Lord Keynes. I’d like to take some credit in helping him realize that he himself is a practical anarcho-capitalist, that is, the way he lives, how he acts, is according to anarcho-capitalist ethics, despite his rhetoric. Now we have Krugman’s rhetoric starting to sound Austrian.
Of course, neither are intellectually honest enough to admit what is plainly obvious to those who understand the subject matter and can see what’s going on, but I will take this post from Krugman, and LK’s behavior, and heck, we can add in DK too, as he too acts according to anarcho-capitalist principles, as the REAL measure of success.
Take a spoiled child for example. If you can convince him or her to do something good for them but something they hate, and won’t stop complaining about, then you’ve won. The chirping is overruled by their actions.
Keynesians, and the now defunct Chicago School, are all reluctantly coming to understand reality a little better, despite kicking and screaming along the way.
A bit condescending of You to use such an analogy, but I bet You have Your reasons and Your post is sort of taken out of context of daily battles against True believers, no?
http://www.youtube.com/watch?v=MrKpyhrZWXk
Explain to me how this more Austrian than plain vanilla marginalism, MF.
You want me to explain how the idea of easy credit leading to undue capital expansion, and required rebalancing, has more to do with a generic concept called marginalism, than Austrianism which spells this process out in detail?
Seriously? Come on DK, I know you like to play coy a lot, but this is ridiculous.
Krugman’s talking about state led investment running into diminishing returns (but being tremendously successful in earlier years) and a massive reserve of surplus labourers allowing cheap labour costs drying up, not about credit expansion leading to (allegedly) unsustainable investments.
Also,China’s lop-side investment has to do with high foreign direct investment.
“Krugman’s talking about state led investment running into diminishing returns (but being tremendously successful in earlier years) and a massive reserve of surplus labourers allowing cheap labour costs drying up, not about credit expansion leading to (allegedly) unsustainable investments.”
I had a sneaking suspicion you too, like DK, would go nuts from this article by Krugman, and try to square the circle and desperately try to pretend that it says something different than what it actually says.
Krugman wrote:
“And the answer, increasingly, seems to be no. The need for rebalancing has been obvious for years, but China just kept putting off the necessary changes, instead boosting the economy by keeping the currency undervalued and flooding it with cheap credit”
Cheap credit right there in black and white.
Replace “need for rebalancing” with malinvestment, and it basically is a one sentence statement of the ABCT…
” I’d like to take some credit in helping him realize that he himself is a practical anarcho-capitalist, that is, the way he lives, how he acts, is according to anarcho-capitalist ethics, despite his rhetoric”
But this he means that anyone who thinks that some degree of property rights must exist allegedly makes one an anarcho-capitalist, when of course one can just as easily say (on MF’s level of bizarre non-logic) that the same belief he also holds makes MF a “practical” Classical economist, or Walrasian, or New Classical or monetarist, or New Keynesian or Post Keynesian.
This is a lesson in how MF is a shining example of someone who serially commits the inductive fallacy of hasty generalization.
“But this he means that anyone who thinks that some degree of property rights must exist allegedly makes one an anarcho-capitalist,”
I’m not just talking about “some” degree, LK. I am talking about the whole degree. You do not go out and threaten capital goods owners to give up ownership of their wealth, so that these goods can be collectivized in some sense.
You act as an anarcho-capitalist, not a “consumer goods can be privately owned, but capital goods cannot” socialist.
“when of course one can just as easily say (on MF’s level of bizarre non-logic) that the same belief he also holds makes MF a “practical” Classical economist, or Walrasian, or New Classical or monetarist, or New Keynesian or Post Keynesian.”
I’ve already shown you that this is false the first time you tried to convince yourself, me, and everyone else on this blog, a few months ago.
Once again, no, I am not a practising Keynesian, because I do not engage in monetary policy, fiscal policy, that would have me as a monopolist on final jurisdiction and legal authority. I do not borrow money and then tax other people to pay it back, the way a person would have to do in order to act like a Keynesian. I do not spend other people’s money against their will, the way a person would have to do in order to act like a Keynesian.
I do not foist my own central banking monopoly on other private property owners, so that of course contradicts your claim that I can be viewed as acting in accordance with monetarist principles.
This is not any “fallacy of hasty generalization.” This is me showing you the principles that apply to your chosen actions. They are NOT Keynesian, because you do not act to bring about fiscal policy and monetary policy and other STATE level power activity.
You act in accordance with anarcho-capitalist principles, whereas I do not act in accordance with Keynesian principles, and neither do you for that matter.
Now, does this mean that I am saying that I do not act in any way other than in accordance with anarcho-capitalism? Not at all. I could very well be acting in accordance with other ethical principles, but the only way you can show that this is the case (since I don’t actually think of them, since anarcho-capitalism is sufficient), would be if you can identify such a set of ethical principles that apply to my actions, and I will be honest if they do or do not, that at the very least do not contradict anarcho-capitalist principles.
Since Keynesian principles contradict anarcho-capitalist principles, your claim that “one can just as easily say…that the same belief he also holds makes MF a…monetarist, or New Keynesian or Post Keynesian” is not only flat wrong, but obviously so. I mean, how unthinking can one be to assert that anarcho-capitalism is consistent with statism, which is required to bring about Keynesian policies in the first place? I can assure you that I am not the state, I do not weild a state power, so it is impossible for me to act like a Keynesian would act. Without a state, there can be no Keynesian policy activity.
LK, the quality of your posts is very rapidly deteriorating. Maybe you should just admit you’re a practising anarcho-capitalist, and then go from there, rather than trying to divert attention away from that by accusing me of being the government who acts to bring about Keynesian policies in the world, in the desperate hopes of making it appear that my point is not devestating to you, by saying everyone can be identified as acting in accordance with any ethical principle whatever.
“Since Keynesian principles contradict anarcho-capitalist principles, your claim that “one can just as easily say…that the same belief he also holds makes MF a…monetarist, or New Keynesian or Post Keynesian” is not only flat wrong, but obviously so”
Bingo. The lightbulb flashes in MF’s stone age brain, or a mouse wheel starts working.
I know that argument does not work against you because it is illustration by me of the *same* fallacious logic of your own argument against me.Thus:
“Since anarcho-capitalist principles contradict Post Keynesian principles, your claim that in the way LK lives, how he acts, is according to anarcho-capitalist ethics is not only flat wrong, but obviously so”
“Since anarcho-capitalist principles contradict Post Keynesian principles, your claim that in the way LK lives, how he acts, is according to anarcho-capitalist ethics is not only flat wrong, but obviously so”
So you tax people?
You yourself engage in governmental fiscal policy?
“Since Keynesian principles contradict anarcho-capitalist principles, your claim that “one can just as easily say…that the same belief he also holds makes MF a…monetarist, or New Keynesian or Post Keynesian” is not only flat wrong, but obviously so”
Bingo. The lightbulb flashes in MF’s stone age brain, or a mouse wheel starts working.
I know that argument does not work against you because it is illustration by me of the *same* fallacious logic of your own argument against me.Thus:
“Since anarcho-capitalist principles contradict Post Keynesian principles, your claim that in the way LK lives, how he acts, is according to anarcho-capitalist ethics is not only flat wrong, but obviously so”
This sounds like straightforward John Maynard to me.
Jonathan:
When Keynes makes these claims, are his claims based upon:
a) Empirical evidence;
b) Supposition; and/or
c) Axioms followed by logical conclusions?
http://www.economicthought.net/blog/?p=4749
It’s deductive, starting from certain assumptions.
So, unlike the empirically-based Austrian axioms, Keynesianism is based upon deductions derived from flights of fancy.
“So, unlike the empirically-based Austrian axioms,”
Empirically-based Austrian axioms?!? lol:
“What made Mises’ approach distinctive, and also suspect to the overwhelming majority of the economics profession, was his claim that the axioms of praxeology were a priori true and were not subject to refutation by empirical test.“
Karen I. Vaughn, Austrian Economics in America: The Migration of a Tradition, p. 71.
———
It’s almost like Rothbard — in rejecting that view — realised Mises’s ideas was unsustainable, and converted to empiricism.
Rothbard argues that Mises’ axioms are empirically grounded. And, I think Vaughn, at least in that excerpt, doesn’t provide the whole story. Mises didn’t believe that theory can be empirically refuted, but he would have never denied that we need to establish relevance through the application of theory and history (implying, for instance, that we can’t a priori argue that the ABCT explains all real world business cycles –unless we knew with absolute certainty that there is no alternative explanation). In any case, Bob is right that at least Mises believed that his a priori theory had a strong likelihood of being empirically relevant, since he believed his axioms to be empirically relevant (that all humans act purposefully).
Mises thought the human action was “synthetic a priori” and a necessarily true proposition. That means not falsifiable by empirical evidence.
That he thought it was “empirically relevant ” — by which I suppose you mean describing reality — is true but does not refute what I have said about it being non falsifiable.
Actually LK be careful about the synthetic a priori stuff. Hoppe says that’s what praxeology is, and I agree with him, but technically in Human Action I don’t think Mises says it’s synthetic, he just says a priori. If you can show me otherwise, that would be great, but I don’t think you will find it.
Bob Murphy,
Are you saying that both you and Hoppe think that the human action axiom’s truth is synthetic a priori?
Regarding Mises’s views, it appears this is controversial:
“When one turns to the third great figure of the Austrian School, Ludwig von Mises, Aristotle seems absent from the scene. Instead, Mises resorts to a distinctively neo-Kantian terminology: in particular, he regards the propositions of Austrian economics as synthetic a priori truths. The action axiom assumes free choice, but this to Mises is but a postulate. …. Although Mises does indeed resort to Kantian language, nothing in his argument depends on Kant’s system. As Mises employs the phrase “synthetic a priori proposition,” for example, it simply designates a proposition that is necessarily true and not a tautology.”
Gordon, D. 1996. “The Philosophical Origins of Austrian Economics,” Ludwig von Mises Institute, mises.org/pdf/philorig.pdf
But since a proposition that is “necessarily true and not a tautology” is rather close to what is called synthetic a priori, it looks like a distinction without a difference
LK I just emailed David Gordon about that passage and he said to me (giving permission to quote):
I think that the quotation you cite from me is mistaken and I now longer hold this view. Contrary to what I say there, Mises does not say that the truths of econ are synthetic a priori. Also, there are necessary truths that aren’t tautologies but are not a priori, e.g., “The Evening Star is the Morning Star.” ( Both refer to the planet Venus, but this can only be discovered by observation.) What Mises would have said about necessary a posteriori truths I don’t know.
Vaughn is off in that statement Lord Keynes. It’s the theorems of praxeology that are a priori true, not the axioms. Kirzner says he once asked Mises how we know that people act, and (according to Kirzner) Mises responded, “By observation.”
Bob Murphy,
(1) I agree with you that Vaughn has oversimplified Mises’s praxeology. in that quotation.
(2) Nevertheless, Mises thought that the human action axiom was “synthetic a priori” : a statement which
is knowledge that is necessarily true, and which *cannot* be falsified or verified by experience.
This is a grossly implausible and obsolete relic of Kantian philosophy, and, if Mises said what Kirzner reported, it demonstrates that either
(1) Mises did not understand the definition of synthetic a priori or
(2) he changed his mind on how the human action axiom is known as true.
Either way, this is a poor reflection on Mises the epistemologist and Mises the philosopher.
LK you seem to have misunderstood my request. I didn’t ask you to reaffirm that you believed Mises said praxeology was “synthetic a priori.” I asked you to show me where he said that. Pull out the PDF of Human Action and search it for the word “analytic.” You will see parts where Mises strongly seems to be saying that praxeology is analytic a priori.
Huh?
Your statement Bob implies that there can be models in which the theorems are true and the axioms false. So you need to reword this at least.
“You will see parts where Mises strongly seems to be saying that praxeology is analytic a priori.”
Are you saying that Mises regarded
(1) the axioms of praxeology as “analytic a priori” or
(2) its inferences or theorems as “analytic a priori”?
If (1), you are saying that Mises thought the axioms were epistemologically the same as the proposition “all bachelors are unmarried”: vacuous or noninformative statements!!
That cannot be true because he held that the human action axiom gives us real informative knowledge, not vacuity.
LK,
Mises held the view that because thinking is also an action in the real world, the a priori categories of thinking are also a priori categories of action in the real world.
The link between theory and empiricism is action.
Mises agreed with Kant that if something is true for thinking, and thinking is an action, then it is saying something true of reality itself. But this aspect of reality is not observable, it can only be understood.
That is why empiricism cannot prove or disprove these propositions.
So while praxeology is a priori, it is synthetic because it is saying something true about the empirical world. Hence it is not analytic a la “Bachelors are unmarried men.”
” it’s not totally ABCT, but it’s a kissing cousin”
It doesn’t even sound like a kissing cousin.
The key point of Krugman’s post is that China has had massive state-led investment and industrial growth with an undervalued currency, and massive surplus of labourers from the countryside and government checks on wage growth. That model has been extremely successful in industrializing China and making it an export powerhouse and export-led economy.
But now wages are rising as labour has dried up, and impetus for investment must be shifted to the domestic demand, not just demand from the external sector.
“The key point of Krugman’s post is that China has had massive state-led investment and industrial growth with an undervalued currency, and massive surplus of labourers from the countryside and government checks on wage growth. That model has been extremely successful in industrializing China and making it an export powerhouse and export-led economy.”
Krugman specifically mentioned cheap credit.
As with everything “progressive” whether Keynesianism or Global Warming or gun control or whatever, the “policy” begins with the assumption that average people are idiots and cannot manage their own affairs which must be guided by the much smarter and enlightened “progressive” nannies. Whereas Austrians think depressions can only be cured by average people re-pricing things, Keynesians insist that the exogenous government nanny must surreptitiously shift some purchasing power to the bumbling masses to create more “effective demand”.
With Global Warming and/or guns, the “solution” is that the rabble must be stripped of their tacky and dangerous toys and games.
“…begins with the assumption that average people are idiots and cannot manage their own affairs which must be guided by the much smarter and enlightened…”
Fascists and Communists agree with each other on that assumption.
Conservatives and Liberals agree with each other on that asumption.
Monetarists and Keynesians agree with each other on that assumption.
Isn’t it great how people can become more “cohesive”, more “cooperative”, more “social”, when they can all agree on the ethical legitimacy of initiating violence against others, thus fulfilling their own prophecy through creating victims, the helpless, the impoverished, and thus justifying in their own minds continued “help”, i.e. violence?
That should be a good thing. Wages are rising; finally, ordinary Chinese are starting to share in the fruits of growth. But it also means that the Chinese economy is suddenly faced with the need for drastic “rebalancing” — the jargon phrase of the moment. Investment is now running into sharply diminishing returns and is going to drop drastically no matter what the government does; consumer spending must rise dramatically to take its place. The question is whether this can happen fast enough to avoid a nasty slump.