What Would It Look Like If the System Failed?
Tyler Cowen praises Daniel Drezner’s book The System Worked: The the World Stopped Another Great Depression. An excerpt Tyler gives from the book:
A closer look at the global response to the financial crisis reveals a more optimistic assessment. Despite initial shocks that were more severe than the 1929 financial crisis, global economic governance responded in a nimble and robust fashion. Whether one looks at economic outcomes, policy outputs, or institutional operations, these governance structures either reinforced or improved upon the pre-crisis status quo. The global economy bounced back from the 2008 financial crisis with relative alacrity.
Without having his book in front of me, I can only wonder what Drezner means by arguing that today’s “economic outcomes” are “either reinforced or improved upon the pre-crisis status quo.” Does he just mean, back in 2007 we were on the verge of a global catastrophe, but now we’re six years into it?
I suppose Drezner’s argument sorta makes sense if you think these “shocks” that hit the financial system are completely exogeneous, like earthquakes. But one of the arguments for the massive interventions in the economy in the 1930s and beyond was (we were told) that this new “system” would mean we wouldn’t suffer through something like the Great Depression again. Yes, it would be an even more demonstrable failure of such a system if we had an outcome that was clearly worse than the Great Depression, but the actual reality is still pretty bad. To have a set of “shocks” that cripple the global financial sector and leaves people still hurting six years later is an odd way to demonstrate that the system “worked.”
Careful, he might go all David Graeber on you.
(1) “But one of the arguments for the massive interventions in the economy in the 1930s and beyond was (we were told) that this new “system” would mean we wouldn’t suffer through something like the Great Depression again.”
Except those post-1945 safeguards — such as effective financial regulation — were significantly altered and rendered ineffective in the neoliberal era after 1980. It’s not remotely surprising that financial instability reappeared in the 1990s and 200s.
(2) “Yes, it would be an even more demonstrable failure of such a system if we had an outcome that was clearly worse than the Great Depression, but the actual reality is still pretty bad. “
As opposed to the Austrian Rothbardian liquidationist solution? In which you would have let the financial system collapse, allowed millions to lose their deposits, caused massive demand shocks and unemployment to soar to a level far worse than anything actually experienced.
And all for deluded belief that prices and wages will just adjust to clear markets — despite the fact that debt will remain largely fixed in nominal terms and simply exacerbate the problems, and the shock to expectations would devastate the confidence of businesses.
“In which you would have let the financial system collapse, allowed millions to lose their deposits, caused massive demand shocks and unemployment to soar to a level far worse than anything actually experienced.”
Prove it.
“Except those post-1945 safeguards — such as effective financial regulation — were significantly altered and rendered ineffective in the neoliberal era after 1980. It’s not remotely surprising that financial instability reappeared in the 1990s and 200s.”
You mean when money was partially tied to gold? What are you, a gold bug?
“As opposed to the Austrian Rothbardian liquidationist solution? In which you would have let the financial system collapse, allowed millions to lose their deposits, caused massive demand shocks and unemployment to soar to a level far worse than anything actually experienced.”
One should not be compelled to live with failed bankers by force.
“And all for deluded belief that prices and wages will just adjust to clear markets…”
You’ve already conceded that takes place when you admitted that changed demand affects investment and hence costs and hence mark up prices.
Just because it takes longer than you personally prefer, it doesn’t mean it isn’t taking place.
“— despite the fact that debt will remain largely fixed in nominal terms and simply exacerbate the problems”
Debt can be defaulted on and renoegotiated.
“and the shock to expectations would devastate the confidence of businesses.”
It would devastate the confidence in bad businesses, yes. As it should.
Still no justification for pointing guns at innocent people in anything you said.
Crocodile tears and guns. That’s your ideology in a nutshell.
(1) gold was tied to US dollars from 1945-1971 only in the international payments system and even then most central banks never demanded gold for US $. In domestic money systems, fiat money was the norm. It wasn’t gold which put the lid on financial instability and asset bubbles but financial regulation (checks on the flows of credit).
(2) You’ve already conceded…
I conceded no such thing. You’re engaged in shameless lying,
(3)“— despite the fact that debt will remain largely fixed in nominal terms and simply exacerbate the problems”
Debt can be defaulted on
Exactly: wage and price flexibility will exacerbate the economic problems of a market system. Good to see you don’t dispute that!
Bzzzt. You generally argue wage and price INflexibility are the problem. Now flexibility is? This looks like majormurphology.
If you read Keynes GT you will see that according to him wage rigidity IS the problem, but wage flexibility would be THE PROBLEM..
😉
The solution: Of course centrally planned aggregate demand and interest rate management.
Apologies, but that doesn’t make the slightest bit of sense.
I think there’s a deep confusion between the concept of “Economcs as a social science” where the emphasis is on impartial observation, model building, scientific method, and so on… vs “Economcs as social engineering” where there is no pretense of impartiality and a target or final goal is the dominant factor.
The physical sciences very carefully split science away from engineering because you can’t do both at the same time.
Look at this post by Krugman:
krugman.blogs.nytimes.com/2012/07/22/sticky-wages-and-the-macro-story
He concludes by saying “So when I emphasize nominal wage rigidity, I am defending an analysis of how the economy works, which is not at all the same thing as saying that this rigidity is the problem.”
Interesting.
Krugman is a decent economist under normal conditions, but we are in a liquidity trap…
““So when I emphasize nominal wage rigidity, I am defending an analysis of how the economy works, which is not at all the same thing as saying that this rigidity is the problem.””
He is entirely right: the empirical reality of relative wage rigidity is a severe problem for any theory that says that
(1) this is the natural and default state of modern market economies, and
(2) that wage and price flexibility is the solution to economic problems.
Keynesian theory of the type really following Keynes denies both those
propositions: the major problem of modern market economies is demand failure, not wage and price inflexibility.
There is no contradiction here.
Wage rigidity is not a problem that justifies initiating violence against innocent people.
And yet inflation is the “solution” to this problem that might not really be a problem, except when it is a problem.
“You generally argue wage and price INflexibility are the problem. “
I argue that relative wage and price Inflexibility is a severe problem **for** neoclassical and Austrian theory that posits that this is an efficient solution to market discoordination. For even if wages and prices were highly flexible generally fixed nominal contracts, above all debt contracts, would utterly exacerbate the economic problems.
But the empirical reality of relative wage and price Inflexibility is **no problem** for Keynes’s theory or Post Keynesian theory because
(1) Post Keynesianism rightly points out that, given the prevalence of mark-up pricing markets, supply and demand tend to be equated by direct changes in production and employment, via quantity (demand) signals, not price flexibility.
Therefore the fundamental economic problem is NOT relative wage and price Inflexibility, but demand failures.
(2) following from (1) Post Keynesianism does not prescribe wage and price flexibility as a solution to economic problems in the first place.
Then print money.
Better yet don’t go too far down an unsustainable money and credit path.
I don’t get the problem here.
Deflation? Reflate.
Money and credit are a job government chose to .monopolize. so, do it.
It’s not that much of a problem for Austrians. They foresaw this more than mainstream economists.
Austrians have also evolved since the 30s. It is just that a lot if people are doing it for real, not in academia.
Debt is a government enforced contract in government issued money in a world of implicit yet incredible government bailout commitments.
How liquidity preference magically fluctuates with no need for explanation (unsustsinsble money and credit path for example) and neutrality of fiscal policy not to mention debt deflation and I rarely hear them calling for surpluses needs some explaining from Keynesians.
Has fiscal response ever worked? We’ve been stimulating since 2000.
“How liquidity preference magically fluctuates with no need for explanation “
lol.. no explanation? The explanation is straightforward: demand for money, under the transactions, precautionary, and speculative motives, all given an uncertain future.
Since liquidity preference means changing demand for money (either high power money or credit money) as opposed to decreasingly liquid forms of financial and real assets (stocks, bonds, etc.), your bizarre statement reduces to saying that you do not know why demand for money fluctuates.
That must be news to most Austrian economists, who also uphold some form of the transactions and precautionary motives to explain money demand changes:
“To summarize: Mises explained the individual’s demand for real cash balances in terms of both the transactions and precautionary motives, motives that depend on “the organization of the whole social apparatus of production and exchange” and not on either the interest rate or the individual’s own wealth position.”
http://www.econlib.org/library/NPDBooks/Moss/mslLvM3.html
Oh.
The liquidity preference is explained by the demand for money.
You are starting to sound like a Market Monetarist.
“I argue that relative wage and price Inflexibility is a severe problem **for** neoclassical and Austrian theory”
In other words, you concede it poses no problem for free market theory, which holds that mark up prices adjust to changes in demand by way of its affect on costs of production.
In an inflationary economy, goods with mark up prices rise because costs of producing those rise.
In a free market economy where goods production exceeds money production, goods with mark up prices fall because costs of producing those goods fall.
Just because we live in an inflationary economy and can’t directly observe a free market in money and pricing, it doesn’t mean the theory is false.
If we lived in a world of free market money and pricing, and mark up prices gradually fell over time, then I would not claim to you that the hypothetical of us living in an inflationary economy, where mark up prices rise due to costs of production rising, is totally without merit. I would grant that argument as true, using economic theory.
I don’t have to observe a world with 100,000% money supply increase per second, before I can know that if output is less than 100,000% increase per second, that prices would rise.
Your positivist approach is a flawed epistemology. Not only that, but is self-contradictory, because it requires anti-positivist convictions for it to even “work.”
Ken B. wrote:
Bzzzt. You generally argue wage and price INflexibility are the problem. Now flexibility is? This looks like majormurphology.
Actually this is something Krugman has been pushing for years, Ken B. (Really.) The hallmark of why the Keynesians are right–and guys like Casey Mulligan are wrong–is that empirically, wages are inflexible. Then Krugman goes on to assure his reader that if wages were flexible, it would be even worse.
(Not making this up, that’s really Krugman’s position which he has stated several times.)
“The hallmark of why the Keynesians are right–and guys like Casey Mulligan are wrong–is that empirically, wages are inflexible. Then Krugman goes on to assure his reader that if wages were flexible, it would be even worse.
And there is no contradiction in such a position.
Do you even dispute the empirical evidence that wages are highly inflexible downwards?
If not, then explain how it isn’t a severe problem with your theory, juts as Krugman says.
Secondly, even if — by some miracle -=- you get highly flexible wages and prices, there are clear reasons why even then it would not necessarily lead to smooth, rapid and reliable economic coordination in the way your theory requires.
E.g., explain how wage deflation in an environment of high generally fixed nominal private debt would not severely exacerbate economic problems, and lead to further economic dislocation, just as in debt deflationary depressions like 1930s.
Lk,
Re: flexibility vs. inflexibility; where did Bob say it was a contradiction?
E.g., explain how wage deflation … just as in debt deflationary depressions like 1930s.
You didn’t think it would be a problem (i.e. during 1920-21) if people expected prices to fall (which flies in the face of why actual price flexibility would be worse);
http://consultingbyrpm.com/blog/2012/10/krugman-on-the-1920s-a-one-act-play.html#comment-46330
(1) Re: flexibility vs. inflexibility; where did Bob say it was a contradiction?
That is exactly what he implies here:
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-290156
If not, then what point is he even making?
(2) Regarding 1920-1921, (i) the WWI inflation and 1919 inflation greatly reduced the value of private debts, and (ii) the levels of private debt were much lower than in 1929 (and its composition rather different):
http://socialdemocracy21stcentury.blogspot.com/2014/02/debt-deflation-19201921-versus-19291933.html
http://socialdemocracy21stcentury.blogspot.com/2014/02/steve-keen-on-tapering-of-quantitative.html
So, yes, people were expecting deflation, but (i) and (ii) look much more important to me.
LK:
” even if — by some miracle -=- you get highly flexible wages and prices, there are clear reasons why even then it would not necessarily lead to smooth, rapid and reliable economic coordination in the way your theory requires.”
Gee wizz LK, like can you add any more straw men adjectives? You can’t blame the free market for going through a painful adjustment process due to previous undue credit expansion caused by centralization of money.
Massive and sudden price declines are almost always caused by previous state intervention. During normal free market conditions, which is NOT the early 1930s by the way, there is little to no reason why such sudden price deflation would take place.
Moreover, Austrian theory does not claim nor “require” that all price adjustments in every concievable world are “smooth, rapid, and reliable.” It only holds that it is individual action that is the cause for why prices adjust towards clearing the way they in fact do. Austrian theory does not predict exactly how fast prices will adjust, nor how much temporary employment will arise during such adjustments.
And, what’s more, even if this process can occasionally be painful to more than a threshold percentage of the population, since these events are not caused by initiations of force, but rather changed voluntary spending patterns, and voluntary abstentions from spending, it is not morally justified to point guns at innocent people so that everyone is mislead into making decisions not conatrained by sovereign consumer preferences.
If I choose not to spend my earnings in a free market of money, it is not morally justified for you or anyone else to point your guns at me so that I am coerced into using a monopolist’s money that can be inflated at will by that monopoly.
Bob, what’s the contradiction in saying that sticky wages is an important reason why deflation is unlikely to help us, but it’s not the only reason, because there’s also sticky debt?
By the way, have you seen this post by Krugman, where he says that wage cuts could help us if they forced all the debtors to declare bankruptcy, so that the sticky debt problem would go away?
http://krugman.blogs.nytimes.com/2011/01/16/wages-and-employment-again-wonkish/
“So does this mean that wage stickiness is irrelevant to the situation, that we’d be experiencing the same slump if wages were perfectly flexible? Not quite.
[Gives an analogy about currency devaluation.]
Similarly, you could argue that a sufficiently large fall in wages could restore full employment now — but it would have to be a very large wage decline, and the positive effects would kick in only after deflation had first driven just about every debtor in the economy into bankruptcy.
The point is that making wages somewhat more flexible, as opposed to perfectly flexible, is not a good thing. And this in turn means that people arguing that what we need right now is more wage flexibility are actually pushing for a policy that would make things worse.”
If deflation is bad because it would screw borrowers, why isn’t inflation bad because it would screw lenders?
I’m not saying I support Bob’s approach. But I find LK and PK cavalier about this question, and their heads I win tails you lose a bit … Convenient.
Because low but steady inflation has advantages over deflation. It the least bad option:
(1) we avoid debt deflationary effects
(2) low inflation incentivises investment since you get no guaranteed reward for holding money idle, as in continuous deflation.
(3) many of the poor are generally debtors – they benefit from mild inflation – so do productive businesses who take on debt for investment in capital goods.
(4) it is higher income earners and the very rich who are mainly creditors – not debtors – and who are in fact the ones who largely pay the cost of mild inflation: they earn their income through lending money or speculating on financial asset markets, and so the money repaid to them is of lower purchasing power.
Keynes,
I take issue with your point # 3. The poor have only expenses and low end wages do not keep pace with inflation. Witness the current call for increasing the minimum wage. The poor don’t hold debt because they can’t qualify for credit. The middle class are supposed to benefit from inflation because they are net debtors from home mortgages and debt held indirectly via ownership of stock sitting in 401ks. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.147.9635&rep=rep1&type=pdf
Honestly Ken B, do you think LKs answer is satisfying?
I can retort to LK that:
1: That is not true; you avoid that only to the degree that you keep increasing the rate of money-inflation until you… you know what I mean. To avoid that outcome you will have to suffer repeatedly debt deflation, and more than otherwise. Or what do you call all the deleveraging that happened (Shadow economy) over the last years? Secondly by creating an environment in which everybody assumes the FED and government got their back covered you are facilitating the creation of a huge (bad) debt structure (Due to overconfidence! See link below!) that otherwise would have not been created. So you are creating the potential for huge debt deflation by mild inflation and your policies to “fight” recessions!
2: See above under “secondly”. You are just incentivizing to waste. Proof the opposite!
3: A pure assertion.
4: Wrong because: Inflation (and deflation) is taken into account when creating debt contracts. Also to the degree that it was not, and the rich would go bust, they are quite often bailed out (see link below). Additionally and possible most important it is the rich who have their wealth mostly in real assets like stocks etc and not in money, but it is the poor who have it mostly in money. It is not real assets that get inflated away. BTW if it really would punish lenders on net then we would definitely see a reduction in lending as soon as lenders realize this and your mild inflation then starts actually to be the opposite and does not stimulate investment (Less lending = less investment). That is actually what we see now, and why there are excess reserves. What you want to do is to fool potential lenders to engage in reckless lending again. So the only way your nice story would work is if the rich are actually too dumb to realize being ripped off by inflation but still smart enough to stay rich.. However that should work…
http://www.zerohedge.com/news/2014-03-04/bernanke-finally-reveals-one-word-why-financial-system-crashed
I want to clarify that what we see now is caused by a blown up bad debt structure and not because the rich are hurt by inflation on net. But it would cause quite the same thing if that were true, except of course as I said if the rich were specifically smart and dumb at the same time..
LK:
Regarding gradual price deflation being allegedly inferior to gradual price inflation, due to “avoiding debt deflationary effects”, that claim is flawed.
Prices fallijg due to increased productivity does NOT make debt harder to pay back. You are conflating falling prices with falling nominal incomes. But if prices half because production doubles, people would still be earning the same nominal incomes and would not have difficulty in paying back debt for reasons of falling prices.
Moreover, if wage rates gradually fell due to an increasing population, then this will also not put any unsolvable problem on debt repayment. What would happen here is just that the interest payments would be lower than they otherwise would be with undue monetary inflation.
If my wage rate declines by say 1% per year, this doesn’t mean I can’t borrow or lend money.
Low price inflation does not incentive investment. It may incentivize certain investments over other investments, but it doesn’t cause new investment. Interest rates are the RESULT of investment to consumption ratio decisions.
Poor people are not benefited by inflation. They are in fact hurt by it, directly by the fact that they typically recieve the new money last, and indirectly because of the fact that inflation caused business cycles bring about unemployment which the poor have the most difficulty with.
Inflation is a system by the wealthy and for the wealthy.
1) the world was an international market 1945-1971. If you’re going to talk about how “the economy” was, you can’t consider only the US or UK and ignore the rest of the world. The fact that money was tied to gold internationally prevented the kinds of malinvestment that took place post 1971, and as a result, the world market, and hence the US market, especially the financial sector, was more stable and better run than it is today without any market driven regulating mechanism in money production.
2) Yes, you did concede. You admitted that mark up prices are affected by the change demand has on costs.
3) It is a good thing for investment and labor allocation errors to be corrected.
What EXACTLY is meant by the term “liquidationist”?
“Thou art content with more voluntary demand driven bankruptcies than I.”
What EXACTLY is meant by “bankruptcies”?
“When more business failures take place per time period than thouest are tolerable of.”
“Thou art to ignore bankruptcies during booms.”
the shock to expectations would devastate the confidence of businesses
Au contraire. Business people would be euphoric and would anxiously anticipate the wondrous Keynes-frei future.
Just remember, upon reification, wages and consumer prices have barnacles which stick to things and which only government bureaucrats can fix. However, asset prices don’t have any barnacles and can easily collapse requiring government bureaucrats to impede their flexibility. We know this scientifically by examining reified prices under a microscope.
“As opposed to the Austrian Rothbardian liquidationist solution? In which you would have let the financial system collapse, allowed millions to lose their deposits, caused massive demand shocks and unemployment to soar to a level far worse than anything actually experienced.”
If you ever read Rothbard’s book, you would know that he forsees the short term consequences of liquidation. You merely ignore that this would lead to the most long-term prosperity.
“And all for deluded belief that prices and wages will just adjust to clear markets — despite the fact that debt will remain largely fixed in nominal terms and simply exacerbate the problems, and the shock to expectations would devastate the confidence of businesses.”
Of course, those of who believe in the validity of economic laws are deluded. Can you remind me why you call yourself and economist again? By the way, this prediction is unverified and also unverifiable for reasons that are probably beyond your understanding.
(1) so you do not dispute that the “liquidationist solution” would have caused economic crisis and suffering far worse than what did in fact happen?
(2) if you can explain how, when wages are severely cut, fixed nominal debt contracts would not cause debtors to experience serious debt servicing problems and much higher levels of bankruptcy (which in turn means insolvency for creditors) then do so.
1) Far worse for whom? Some benefited at the expense of others. On average, the country was made poorer.
2) I don’t think I claimed otherwise.
“One big Detroit” is the vision most people are discussing.
Can’t entirely blame the Fed though, to some extent they have managed to use QE money printing as a compensation for debt deflation and the massive collapse in the housing bubble. Not the perfect answer, but kept the banks in business which is about the best the Fed can achieve.
People often try to suggest they somehow “know” that it this recent downturn “would”
have been like the Great Depression, so the fact that it wasn’t somehow proves that the reaction prevented it from being one.
But they don’t know that. It’s just a statement of faith.
Is this a rhetorical question? A complete breakdown leading to roving bands of thugs for hire selling extortion services under the fig leaf of mystical talk about “homesteading” and “the Old South will rise again.”
Opinions vary.
I thought you wanted government. Now you’re criticizing it?
Huh, imagine that.
Silly Cowen. Of course the system did not “work.” If it had we would have 9% inflation now and all those nasty problems of downward nominal wage rigidity and debt overhang would simply vanish. That Fed, can’t trust it to be responsible, can’t trust it to be responsibly irresponsible.
The credit expansion and inflationary system is working because wages are downward rigid and because of debt overhang.
Or that less was more this time around. Or that it’s not over yet.
Bankruptcy is a government function. When you revile liquidationism, you probably don’t know what you are saying.
Firms can’t anticipate when the fed is going to rope a dope them. Although we can pretty much plan on the treasury always being irresponsible, so there is that. Point being, austrianism can evolve because what Keynesian critics are criticising is a gov boom a gov bust and a gov FUBAR liquidation of gov too big to fail and gov money supply and give credit enforcement.
Lords Keynes,
Have you embraced debt deflation?
Have you won the award for random, incoherent comments?
Lord Keynes
Have you embraced debt deflation.
It may seem random to you only because you haven’t answered the last 3 times I’ve asked.
It’s okay, It’s not an attack. I’m just interested in an answer.
But if you want to go at it we can do that too.
This non-response and your above non-response are the first times you’ve replied to me.
Feel free to keep not replying to me. Or just answer the question.
Or be a douche and I’ll ad you to my list of douches.
It’s fine.
I have no idea what you even mean by “Have you embraced debt deflation”. Explain.
Debt deflation theory is of course accepted by Post Keynesianians.
Yeah, is that you?
You sort of say it here and there.
Then there is mention of the importance of wage rigidity.
Has your interpretation of Keynesianism…your handle is Lord Keynes…evolved to increase the importance of one over the other?
Want to give percentages of wage versus debt rigidity importance? I promise I won’t hold you to it.
Andrew’ is a cat walking across the keyboard most days.
Kinda like your attempts at humor.
LK,
Once again, are wages sticky downward or do you need minimum wages to hold them up? Just asking…..
Since many people’s wages are well above minimum wage levels, and their wages are indeed relatively inflexible downward, I see no great contradiction on that point.
In certain low paid, low skill jobs with great competition, there is some downward pressure on wages, yes, but that hardly refutes the mountains of empirical evidence that shows strong relative downward nominal wage rigidity in many, many other wages and that absolute cuts in wage rates are quite rare even during recessions:
Lebow, David E., Saks, Raven E. and Beth A. Wilson. 2003. “Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index,” Advances in Macroeconomics 3.1: 1–28.
Hanes, Christopher. 2013. “Business Cycles,” in Robert Whaples and Randall E. Parker (eds.), Routledge Handbook of Modern Economic History. Routledge, Abingdon, Oxon and New York. p. 118.
Bewley, T. F. 1999. Why Wages Don’t Fall During a Recession. Harvard University Press, Cambridge, MA.
http://robertnielsen21.wordpress.com/2013/12/23/why-wages-dont-fall-during-a-recession/
“absolute cuts in wage rates are quite rare even during recessions”
Wow, that means I have lived through such a rare occurance, I feel honered.
This is begging the question.
Why do you think we think wage rigidity is a problem?
Wage rigidity is there to make Keynesianism work.
As in, for people who can’t keep up:
Neoclassical: “Well, then why don’t prices adjust to the new steady-state/equilibrium and then the economy can start to return to trend?”
Keynesian: “Nominal rigidities.”
“Begging the question” is a form of logical fallacy in which a statement or claim is assumed to be true without evidence other than the statement or claim itself.
There is no begging the question fallacy above (a term which I doubt you even properly understand).
I backed my statement up with empirical evidence, and did not simply assume it was true.
Your interpretation of the empirical evidence is flawed, because you are using a flawed theory to understand the empirical evidence.
Empirical evidence does not speak for itself. It is meaningless without an addition of theory to make sense of it.
The empirical evidence is fully consistent with the theory that wages are made more rigid with inflation, due to inflation’s influence on people’s expectations.
Wages are not so rigid that people would choose starvation and death over a lower asking price of their labor.
None of the “problems” you perceive in the market justify pointing guns at innocent people, Mr. Unwitting anarcho-captialist.
” Mr. Unwitting anarcho-captialist.”
This is why I have started popping that question alone to LK at every juncture.
Relative to what? Other wages?
You have discovered that some wages are more volatile than others?
No, I think he means what he said, nominal. That’s a number. That’s kinda the new keynesian point. To make wages less costly relative to nonlabor, given that the nominal wage does not decline, you need to inflate and thus devalue that nominal amount.
To make wages less costly relative to nonlabor, given that the nominal wage does not decline, you need to inflate and thus devalue that nominal amount.
So, Keynesianism is just a ruse to trick the rabble into accepting lower real wages than they otherwise would if they only knew they were being tricked. What an arrogant thing to say.
http://consultingbyrpm.com/blog/2012/11/the-system-is-rigged-the-futility-of-politics.html#comment-48700
Of course, the rabble have exquisite and perfect insight into electing the proper overseers who are to trick them about a topic they do not know exists..
Statists only use democratic principles when it suits them.
When they want to get their own, the rabble majority are to be coerced.
LK – Correlation is not and does not imply causation. Empirical evidence provides correlation. Theory provides the explanation of causation. Do you want to provide the theoretical explanation or do you want to hide behind the skirts of correlation?
That and the government’s.
He won’t act Keynesian. He acts anarcho-capitalist.
If you follow the links to LK’s evidence, it is not empirical evidence. What he provides is survey results where some manager is asked, “Do you push your workers for the lowest wage you can get away with?”
The manager delivers the company line, “No, that would be bad for morale, we are exceptionally generous to all our employees.”
I leave the rest as an exercise for the reader.
If you follow the links to LK’s evidence, it is not empirical evidence. What he provides is survey results where some manager is asked, “Do you push your workers for the lowest wage you can get away with?”
The manager delivers the company line, “No, that would be bad for morale,
That a well sampled survey of 235 businesses in which mangers were asked hundreds of questions on wages, morale, productivity etc. and the people involved mostly gave the same responses and reasons doesn’t count as empirical evidence for you speaks volumes about the level of your irrationality.
Not to mention that Bewley’s findings are confirmed again and again in independent surveys:
(1) “This paper uses evidence from a firm survey conducted in a number of EU countries to investigate a range of different theories as to why firms appear reluctant to lower wages. The sample covers 14,975 firms from 14 European countries, representing around 47.3 million employees. …. Across all countries and sectors, the two most important causes for avoiding base wage cuts are the belief that this would result in a reduction in morale or effort and the danger that the most productive workers would leave as a consequence.”
Babecký, J., P. Du Caju, T. Kosma, M. Lawless, J. Messina et T. Rõõm. 2010. “Why Firms Avoid Cutting Wages: Survey Evidence from European Firms,” Central Bank of Ireland, Research Technical Papers 03/RT/13
http://www.centralbank.ie/publications/Documents/03RT13.pdf
(2) “We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20%.”
Kube, Sebastian, Maréchal, Michel André, and Clemens Puppe. 2013. “Do Wage Cuts Damage Work Morale? Evidence from a Natural Field Experiment,” Journal of the European Economic Association 11.4: 853–870.
(3) “A survey of 184 firms was conducted to investigate the reasons for wage rigidity. The strongest support was found for explanations based on adverse selection in quits and on the effect of wages on effort. In addition, survey respondents indicated that reducing turnover is an important explanation of wage rigidity for white-collar workers, and that implicit contracts are an important explanation for other workers.”
Campbell, Carl M. and Kunal S. Kamlani. 1997. “The Reasons for Wage Rigidity: Evidence From a Survey of Firms,” The Quarterly Journal of Economics 112.3: 759–789.
(4) “We document the results of a repeat survey, which updates Agell and Lundborg (1995), on wage rigidity in a sample of 159 Swedish manufacturing firms, conducted during the severe Swedish recession of the 1990s. It is found that not even a prolonged period of very high unemployment and quite low inflation softened workers’ resistance to wage cuts.”
Agell, Jonas and Per Lundborg. 2003. “Survey Evidence on Wage Rigidity: Sweden in the 1990s,” Scandinavian Journal of Economics 105.1: 15–29.
LK – Correlation is still not and still does not imply causation. Empirical evidence provides correlation. Theory provides the explanation of causation. Do you want to provide the theoretical explanation or do you want to hide behind the skirts of correlation?
“Correlation is still not and still does not imply causation”
You mean that correlation does not imply causation in the sense that correlation between two variables does not necessarily prove that one causes the other.
True, but in this instance the burden of proof is on YOU to explain why:
(1) there is overwhelming evidence that nominal wages cuts are relatively infrequent in modern market economies, and
(2) when asked why they do not normally cut nominal wages via many independent well sampled surveys, business managers mostly report that they do not do so because they fear that it will adversely affect morale and productivity.
——————
Your only real responses might be the bizarre ideas that
(1) such managers in (2) are all lying, or
(2) it is all some vast conspiracy theory by researchers who have invented this myth.
——-
And then you would have to adduce strong evidence for either claim.
Good luck with that…
No. LK. You are making the claim that wages are sticky. The onus is on you to explain why they are so. You are the one who needs to present his theory.
I am not one to fall for your tricks.
The main reason as discovered by empirical research has already been presented to you: it is a conscious decision by managers because they think it will cause morale and productivity problems.
Their belief is borne out by the experience of limited instances in which nominal wages cuts are implemented and they fear happens.
Oh, but wait, for intellectually bankrupt people like you “empirical evidence never proves anything.”
LK,
I am still awaiting your exposition of the underlying theory behind the claim of sticky wages. Empirical evidence and vague claims of statements made by some people does not constitute a theory. So may I take it that you have absolutely no theoretical basis for your claim that wages are sticky?
lol.. in your view theories are not based on empirically observed things that need to be explained?
Any theory of sticky wages must first show that relative downward wage rigidity is a reality, so empirical evidence to prove this is the stating point, e.g.,
Lebow, David E., Saks, Raven E. and Beth A. Wilson. 2003. “Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index,” Advances in Macroeconomics 3.1: 1–28.
From this observed instance, economists do in fact posit all sorts of hypothesis to explain the fact of relative downward wage rigidity is a reality: e.g., Bewley runs through the postulated hypotheses by economists in his book:
Bewley, T. F. 1999. Why Wages Don’t Fall During a Recession. Harvard University Press, Cambridge, MA. pp 398-429.
He then reviews his survey results and shows how nearly of them are contradicted by the evidence, except the “morale hypothesis” as developed by Solow and Akerlof.
Bewley then shows that this has a very degree of evidence in its favour and should be regarded as the major cause of relative downward wage rigidity.
Of course this will not satisfy you because you’re committed to an absurd apriorist method that says “empirical evidence never proves anything”.
If empirical evidence contradicts you, then your theology tells you it is irrelevant.
That is fine if you’re engaged in religious fundamentalism, and of course you are.
LK,
Empirical data is about the past. When you use that data to make a claim that wages are sticky, you are making a claim about the future and the general nature of wages. The explanation for that can never come from the data. It has to come from the theory.
If you want to make hypotheses and test them, the hypotheses should be testable based on empirical method. However, in the social sciences, empirical methods fail because of the inability to make the claim of repeatability which is the very foundation of the empirical method of validation of hypothesis.
So, the method of gathering empirical data, coming up with hypothesis and then validating these hypothesis through more empirical data is inapplicable to wages which are an economic phenomenon, i.e., a result of human action or purposeful behaviour by a rational being with a volitional consciousness.
So, either give the theory or accept the truth that you do not have a theory.
Why can’t the employer’s terminate the employment of those employees who decrease their productivity in response to a wage cut? Why wouldn’t threatening to lay them off increase their productivity? Is it a given that ALL employees will respond negatively to a decrease in wages? Why do employees have so much bargaining power that they can simply decrease productivity and morale without having negative employment consequences? Is labor that scarce?
I work for a company that recently merged with another company. Because of the merger we have seen positions eliminated as well as wages cut. While morale may have indeed decreased (“I think it’s terrible that I’m getting paid less now.”), from what I have observed people have actually increased their productivity because the remaining positions have become more competitive.
“Empirical data is about the past. When you use that data to make a claim that wages are sticky, you are making a claim about the future and the general nature of wages. The explanation for that can never come from the data.”
Rubbish. The assertion that it is probable that managers will generally continue to avoid nominal pays cuts in the future is a sound inductive inference from past data.
If you really believe that “claims about the future” can never be defended from past data, then any claim that the theories of praxeology have any relevance for the future would totally collapse.
E.g., the axiom of the disutility of labor is empirical says Mises:
“The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. ” (Mises 1949: 65).
Explain how you defend that idea that the disutility of labor will be true in the future without empirical evidence.
Do you just believe it as matter of theological faith, perhaps?
With the appropriate changes:
“However, in the social sciences, empirical methods fail because of the inability to make the claim of repeatability which is the very foundation of the empirical method of validation of hypothesis.
So, the method of gathering empirical data, coming up with hypothesis and then validating these hypothesis through more empirical data is inapplicable to the disutility of labour axiom which describes an economic phenomenon, i.e., a result of human action or purposeful behaviour by a rational being with a volitional consciousness.
So, either give the theory or accept the truth that you do not have a theory.”
haha. Bala’s just hoist himself on his own petard.
“I work for a company that recently merged with another company. Because of the merger we have seen positions eliminated as well as wages cut”
And has it ever occurred to you that your limited personal experience may not be typical of what happens, generally speaking, throughout the whole economy?
And nobody denies that nominal wage cuts do happen exceptionally, but what is asserted — on the basis of vast evidence — that it is not a general phenomenon.
No, it hasn’t. It never occurred to me that what specifically happens to me does not necessarily mean that this is true for ALL people.
But it has occurred to me that we don’t have a union.
LK,
“Explain how you defend that idea that the disutility of labor will be true in the future without empirical evidence.”
No empirical data is required to talk of disutility of labour. Labour => Loss of the consumers’ good, leisure. I hope you learn this some day.
“a sound inductive inference from past data.”
Inductive inferences assume repeatability.
LK,
If anyone is hoisted on a petard, it’s you. You are yet to present the theory behind the claim that wages are sticky.
“No empirical data is required to talk of disutility of labour. Labour => Loss of the consumers’ good, leisure. I hope you learn this some day.”
No, that is false. How do you know that leisure will be valued more highly than work in the future?
:Mises:
“The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. ” (Mises 1949: 65).
Your babbling nonsense is now so plain that you are not even defending real Austrian economics at all, but some imaginary economics you just invented where empirical proposition become transformed into a priori ones by magic.
LK,
“No, that is false.”
The very act of labour involves the foregoing of leisure which is a consumers’ good. Which part of this are you claiming is false?
Is it that a unit of labour can be exerted without the loss of a unit of leisure? Is leisure not a consumers good? Which part is false?
That apart, the theory has still not come from your side.
LK,
Here is Rothbard on page 43 of MESPM…
“And, finally, there is a third limitation on the supply of labor: whether or not the work is directly satisfying in itself, labor always involves the forgoing of leisure, a desirable good.”
I am citing this only to show you that my statement is not a figment of my imagination.
“Is it that a unit of labour can be exerted without the loss of a unit of leisure?”
How do you know that any particular person x regards not working as a good called leisure while at the same time thinking the good called working has disutility?
You CANNOT without empirical evidence: that is why Mises and other Austrian economists admit it is an empirical proposition:
“Rothbardian economics sets out from a simple and undeniable fact and experience (a single indisputable axiom): that man acts, that humans always and invariably pursue their most highly valued ends (goals) with scarce means (goods). Combined with a few empirical assumptions (such as that labor implies disutility), all of economic theory can be deduced from this incontestable starting point”
Hoppe, Introduction to Murray Newton Rothbard, Ethics of Liberty, p. xi.
Now you’re reduced to plain lying about basic Austrian economics. Pathetic.
“I am citing this only to show you that my statement is not a figment of my imagination.”
Haha. Evidently you forgot to read Rothbard properly:
“Economic theory as has been developed is a component part of praxeology. It is deduced from the apodictic axiom of action, and most of economic theory, including the laws and implications of Uncertainty, Time Preference, the Law of Returns, the Law of Utility, etc. can be deduced with no further assumptions. With the help of a small number of subsidiary axioms which are rather more “empirical” in nature – such as the disutility of labor – the rest of economic theory can be deduced.”
Rothbard, Murray N., Economic Controversies, p. 117.
LK,
Please explain how the Hoppe citation refutes the statement I took directly out of Rothbard’s mouth. Here it is again….
“And, finally, there is a third limitation on the supply of labor: whether or not the work is directly satisfying in itself, labor always involves the forgoing of leisure, a desirable good.”
I am sorry I could not place an extra emphasis on the word always right there in the quote, but here it is.
Bala, can you give a theoretical reason why leisure is always a desirable good, rather than labor being a desirable good?
“And, finally, there is a third limitation on the supply of labor: whether or not the work is directly satisfying in itself, labor always involves the forgoing of leisure, a desirable good.””
Rothbard has already admitted that the disutility of labour axiom is empirical.
Therefore he has committed himself to defending the axiom with empirical evidence.
His assertion that “labor always involves the forgoing of leisure” could only be proved empirically, and since anything know a posteriori is only ever extremely probable not certain, this just shows what a third rate hack of a philosopher and logician Rothbard was to use the word “always” here.
In any case, this debate was about whether the actual disutility of labor axiom is empirical.
Mises, Rothbard and Hoppe all say it is empirical, but you with utter ignorance — or maybe just outright lies — keep saying they think it is a priori, when that is a clear falsehood.
Leisure is the consumption of the scarce means, time. Labour is the application of human effort to transform other scarce means into consumers’ goods that satisfy other ends. It is the output of labour and not the labour itself that satisfies ends.
All this apart, LK is still to give the theoretical justification for the claim that wages are sticky.
LK, I confess to a certain pleasure in watching you dismember Bala, and god knows you have chopped him fine enough to flow throug a kitchen sieve, but I want to pile on. Bala, thinking he has scored a pint quotes Rothbard:
“And, finally, there is a third limitation on the supply of labor: whether or not the work is directly satisfying in itself, labor always involves the forgoing of leisure, a desirable good.”
Of course labor involves forgoing a good. So does leisure, which involves forgoing what might be satisfying or healthy labor, or sex, which foregoes time spent bowling, or time spent bowling which foregoes time spent reading refutations of Bala. Has Rothbard proven the disutility of bowling?
“In any case, this debate was about whether the actual disutility of labor axiom is empirical.”
False. There is no debate going on here. I have been asking you repeatedly for the theoretical justification for your repeated claim that wages are sticky. You are stubbornly refusing to give it and are trying desperately to divert attention by opening fresh lines of “debate”. I was just humouring you by answering those.
Now, will you please address the request for the theoretical justification for the claim that wages are sticky?
“Mises, Rothbard and Hoppe all say it is empirical, but you with utter ignorance — or maybe just outright lies — keep saying they think it is a priori, when that is a clear falsehood.”
Objection. Assumes facts not in evidence. We have seen nothing to show defendant knows the difference.
Sustained.
Ken B,
I am still awaiting the theoretical justification for the claim that wages are sticky. That was all this thread was about. And have you untangled demand from quantity demanded?
Ken B,
“..or sex, which foregoes time spent bowling, or time spent bowling which foregoes time spent reading refutations of Bala.”
These would all be considered leisure by the individual. At this point he is only considering what he should do with his leisure.
LK and Ken B,
Labour and leisure are mutually exclusive and collectively exhaustive. Which part of this are you refuting? That apart, this discussion is not the theoretical justification for wages being sticky. That bit is yet to come from LK who shoulders the responsibility of giving it.
The theoretical basis is already given here:
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-293260
(1) start with the observed well confirmed datum: nominal wages are generally sticky.
(2) look through the hypotheses economists have formulated to explain this datum. Their initial proposed hypotheses might be based on a mixture of limited and insufficient empirical evidence, arm chair thinking, thought experiments, clues from human psychology, and some degree of speculation. So:
(3) look at some well sampled surveys of firm behaviour and ask the managers directly why they do not normally cut nominal wages.
(4) from (3) Bewley concludes that the morale hypothesis is the best explanation supported by the evidence: it then should be a major theory of nominal wage rigidity.
LK,
That is not the theoretical justification given that repeatability cannot be assumed but you are assuming it. So your justification stands rejected. Do come back with a proper theoretical justification.
Just gave you the theory and process of theory formation, Bala.
Now: How do you know that any particular person x regards working as a disutility?
How do you know?
LK,
You have given no theory. Please give it.
And I am not going to get side-tracked into discussions on disutility of labour. I have already said that labour and leisure are mutually exclusive and collectively exhaustive and asked you which bit of that you care to refute. That, according to me, is more than enough.
Now, the theory please…. You need to explain why wages ARE sticky. That means why they are by nature sticky, not in some past instances.
“That is not the theoretical justification given that repeatability cannot be assumed but you are assuming it”
haha. Of course we can repeat the survey like Bewley’s.
Proposition (1):
in 2015 firms will generally not engage in nominal wage cuts and when surveyed most managers will say that they do not do so because they fear its effects in morale and productivity .
2015: perform properly sampled study of nominal wage movements and survey of mangers to test (1) above.
Look at results: if (1) is supported by evidence it has been empirically verified
2016
repeat all steps above
2017
repeat all steps above
2018
repeat all steps above
etc.
“You need to explain why wages ARE sticky. ” Bala, didn’t Lord Keynes already give an answer to this? He said wages are sticky because wage cuts hurt employee morale.
“Of course we can repeat the survey like Bewley’s.”
I meant repeatability of the behaviour and the economic phenomena, not the surveys. In other words, how do you move from the observation that people have done something in the past to the statement that they will always do the same?
More surveys do not answer the question. You have given no theoretical justification.
if you think that is insufficient to test propositions asserting things about the future, then explain how you think that you can prove that entrepreneurs will continue to chase profits in 2015?
lol…
“didn’t Lord Keynes already give an answer to this?”
Well, no.
“He said wages are sticky because wage cuts hurt employee morale.”
You call this the theoretical justification that explains why wages are by nature sticky? Amazing!
LK,
No new diversionary tactics please. Just the theoretical justification.
Bob,
In case you are getting cheesed off, please tell me and I will stop persisting. I just want the answer and he is refusing to give it. That’s all.
But Bala, Lord Keynes isn’t making a claim that wages must by their very nature be sticky. He’s just saying that as a matter of contingent fact, wages ARE sticky. I don’t think he’s saying that wages would be sticky in any possible world.
“Lord Keynes isn’t making a claim that wages must by their very nature be sticky.”
No. He is when he says wages are sticky. That’s the way the English language works, no matter how badly you want it to work otherwise.
“I meant repeatability of the behaviour and the economic phenomena, not the surveys. In other words, how do you move from the observation that people have done something in the past to the statement that they will always do the same?”
Look at how ignorant and stupid you are: no empirically confirmed theory states that it can prove with absolute and necessary truth that some phenomenon x will continue to occur in the future always.
All it asserts is: on the basis of empirical evidence this is the best and well confirmed theory now and it is highly probable that it will continue to be the right theory in the future, given these factors that explain employer behaviour.
We are rationally justified in believing it until we get strong evidence in the future that contradicts it.
“He’s just saying that as a matter of contingent fact, wages ARE sticky.”
When he plugs sticky wages into the theory, he is taking the position that they are by nature sticky.
LK,
But the claim that wages are sticky is indeed a claim that they ALWAYS are and WILL BE. So you still need to justify the claim that wages are sticky.
Keshav:
LKs solution is only “point guns at people who do not initiate force against others”
If wage stickiness is an issue of “worker morale”, then we are talking about ideas and philosophy. These can change. Workers can be taught that the Marxian exploitation theory is false.
LK hasn’t shown why it is right to point guns at people because of this.
MF,
I think it’s not about the solution. It is rather about the very lack of a theoretical justification which you can deduce from LK’s stubborn resistance to providing one.
Let’s not give him another escape hatch. I made the mistake of answering the first few queries on disutility of labour. Let’s learn from our own mistakes.
“But the claim that wages are sticky is indeed a claim that they ALWAYS are and WILL BE.”
It is no such thing.
Proposition (1):
nominal wages in the US in 2013 were relatively inflexible downwards.
———-
is a contingent synthetic a posteriori statement whose negation is certainly possible.
You clearly do not even understand basic concepts in logic and epistemology.
LK,
The 2 statements “Wages are sticky” and “Wages were sticky” are different. It appears you are mixing up the two. In any case, the theoretical explanation for why wages are sticky is still awaited.
Bala in typical fashion wrote this :
“Ken B,
I am still awaiting the theoretical justification for the claim that wages are sticky. That was all this thread was about. And have you untangled demand from quantity demanded?”
As anyone can see he does not get word one of what LK is saying. The same is true of his prattle about demand aimed at me which is based on his complete and blithely deliberate misunderstanding of whatever never-quotes-thing he imagines I once said that he can distort. Just as he is distorting here.
Bala lacks in a fundamental way either the intellectual honesty or capacity to try to understand what people say to him, and no matter how often you correct him it will never make any difference.
In case anyone thopught I was esaggerating, look at Bala’s latest on this subthread:
“The 2 statements “Wages are sticky” and “Wages were sticky” are different. It appears you are mixing up the two. In any case, the theoretical explanation for why wages are sticky is still awaited.”
This is just dishonest but LK you can expect him to traipse around forever more spouting about LK and wages being sticky as a logical necessity.
Ken B,
I am saying nothing. So I cannot be distorting. I am just repeatedly asking for a proper theoretical justification and not getting one.
And on demand vs quantity demanded, you really got it mixed up in that discussion we had on inflation, remember? I don’t have the links at hand, but all the same, it did happen. You didn’t even realise that a change in demand meant that quantity demanded should be greater at various hypothetical prices.
In the meantime, I am still awaiting LK’s grand theoretical justification for why wages ARE sticky.
And Ken B,
Don’t forget that it all started with a question about whether wages are sticky downward or minimum wages are required to hold them up.
oops…
*You didn’t even realise that an increase in demand …..
The 2 statements “Wages are sticky” and “Wages were sticky” are different.
Indeed they are:
Proposition (2):
nominal wages in the US in 2014 are relatively inflexible downwards.
is a contingent synthetic a posteriori statement whose negation is certainly possible.
We could prove it by conducting a survey in 2014 of Bewley’s type. And in fact studies of this type are done regularly throughout the developed world on a continuing basis, e.g., one in the Eurozone in 2010:
“This paper uses evidence from a firm survey conducted in a number of EU countries to investigate a range of different theories as to why firms appear reluctant to lower wages. The sample covers 14,975 firms from 14 European countries, representing around 47.3 million employees. …. Across all countries and sectors, the two most important causes for avoiding base wage cuts are the belief that this would result in a reduction in morale or effort and the danger that the most productive workers would leave as a consequence.”
Babecký, J., P. Du Caju, T. Kosma, M. Lawless, J. Messina et T. Rõõm. 2010. “Why Firms Avoid Cutting Wages: Survey Evidence from European Firms,” Central Bank of Ireland, Research Technical Papers 03/RT/13
http://www.centralbank.ie/publications/Documents/03RT13.pdf
“We conducted a field experiment to test whether workers reciprocate wage cuts and raises with low or high work productivity. Wage cuts had a detrimental and persistent impact on productivity, reducing average output by more than 20%.”
Kube, Sebastian, Maréchal, Michel André, and Clemens Puppe. 2013. “Do Wage Cuts Damage Work Morale? Evidence from a Natural Field Experiment,” Journal of the European Economic Association 11.4: 853–870.
————–
We are, however, also justified in the inductive inference that (2) above is probably true on the basis of the evidence for (1) and in other past years, and on the clear lack of evidence that employers have any reason to change their belief that nominal cuts generally cause morale and productivity problems.
If there was clear empirical evidence in future studies that things have changed radically, then we would be justified in changing the theory,
Bala
No, you falsely claimed I was confused. I’ll let readers of this subthread decide for themselves just how to value your judgment on such things.
As for the topic of this thread, I assert you are a mendacious fool misrepresenting what LK said. I have no theoretical basis for that claim, not wider theory of your mendacity, folly or misrpresentations. I have only the evidence of the comments here. It’s enough.
Ken B,
Go back to the start of this subthread and see whether I asked the question first and what the question was.
“As for the topic of this thread, I assert you are a mendacious fool misrepresenting what LK said. ”
If I am not making assertions but only asking the same question repeatedly while refusing to accept non-theoretical explanations, I cannot be misrepresenting. So I don’t think one has to wonder who the mendacious fool is out here.
“Lord Keynes isn’t making a claim that wages must by their very nature be sticky.”
” He is when he says wages are sticky. ” Bala, I don’t understand. Why does saying that wages are sticky amount to the claim that wages must by their very nature be sticky?
Does saying “Americans drive on the right side of the road” amount to the claim that Americans must by their very nature drive on the right side of the road? When I say that Americans drive on the right side of the road, I’m not merely making a statement about the past, and I’m not stating some ironclad law that must necessarily hold in all possible words. I’m making a statement of contingent fact. I’m saying that the cars that I’ve observed in America in the past have gone on the right side of the road, so it is likely that they will continue to do so in the future, so if I want to safely drive on American roads, my best bet would be to drive on the right side of the road as well. If you ask me why Americans drive on the right side of the road, I would say “tradition”, but if you ask me what is the theoretical reason why Americans must always drive on the right side of the road, I’d be hard pressed to answer that, because I’m not making that claim.
Similarly, if you’re a government policymaker who’s trying to design the best economic policy to enact, and you find that wages were sticky in the past, then your best bet would be to design a policy based on the assumption that they’re likely to be sticky in the future. If you’re asked why they are sticky as a matter of contingent fact, you can answer “morale”, but if you’re asked why they must by their very nature be sticky, you can’t really answer that, because you’re not committed to that claim.
Keshav Srinivasan,
Precisely: Bala is either
(1) hopelessly confused on basic epistemology or
(2) simply inventing straw man arguments.
If, say, Austrians assert that in 2014 the disutility of labour is true, they are committed to an empirical justification of that claim.
The only argument for why it is rational to believe that the disutility of labour axiom will be true in 2015 and 2016 and 2017 is an inductive argument that it is probable on the basis of
past evidence.
But, no, says Bala: we can’t possibly use that argument!
But at that point the foundation of Austrian praxeology comes crashing down and there is no reason to believe any praxeological theory based on disutility of labour will be true in future either.
I give up. None of you seems to bother with the simple point that this entire sub-thread started with a question I had raised, not with something LK said. I asked a simple question. The wording of that question was simple – Are wages sticky downward or do we need minimum wages to hold them up?
That was a question in generality, not about whether it was ever so in the past. All I said is that empirical evidence does not constitute a demonstration of causality and that a theoretical explanation is required. How anyone can construe LK’s response to that straight question as honest is something that boggles the mind.
Bala, the thing is, Lord Keynes disagrees with you as to whether a “theoretical” explanation is required for why wages are sticky. Do you need a theoretical explanation for why Americans drive on the right side of the road?
“..or sex, which foregoes time spent bowling, or time spent bowling which foregoes time spent reading refutations of Bala.”
You forget that I’m in the pay of Big Oil and Big Tobacco, and Koch Industries. At least I will be, when the market finally clears and the postage gets through. Mind you, if that cheque never turns up, the past will have to be rewritten. That would be weird huh?
Keshav,
This is hilarious. The statement “Americans drive on the right side of the road” is a statement about Americans in general within America. It expresses the idea that that is the normal driving behaviour and that other behaviour such as driving on the left side of the road (as we do in India) is abnormal and an aberration.
The justification for that is that you are talking of Americans in America and the knowledge that that’s how the road system is organised. It had to be left or right (unless you think another side is possible) and right has been chosen.
It would be very interesting to see how this makes a good parallel to wages (in general). Do try. I am sure it can be enlightening..
“the thing is, Lord Keynes disagrees with you as to whether a “theoretical” explanation is required for why wages are sticky.”
Oh! I know that game. I just wanted to bring that out. Thanks for helping that along. Now if LK would acknowledge this, we may close this and move on. The next time any of you guys bring up sticky wages, I’ll just say “unjustified assumption” and move on.
Proposition (1): Americans in 2014 normally drive on the right side of the road
Proposition (2): nominal wages are normally inflexible downwards.
——————-
They are both contingent synthetic a posteriori statements.
Does Bala even acknowledge this?
Let him explain how he can know that (1) is true without empirical evidence.
Let him also explain how he would defend the proposition:
(1) in 2015 Americans will normally drive on the right side of the road.
———-
And note how you cannot just appeal to the law: because many nations have laws on the book that nobody follows any more.
No, LK.
All that remains is for you to confirm this statement that Keshav made on your behalf.
“the thing is, Lord Keynes disagrees with you as to whether a “theoretical” explanation is required for why wages are sticky.”
Just do it and we would be done.
The explanation of the theory and how it is formed was given to you a long time ago.
That you run in terror like a coward from straight questions only proves your utter defeat and humiliation above.
“The explanation of the theory and how it is formed was given to you a long time ago.”
And I dismissed it as a non-theory shortly thereafter. So where do we stand?
Your dismissal is worthless because it has the consequence that you have no reason to think Austrian economic theories will even be true tomorrow.
If you want to press Hume’s problem of induction, you have no rational reason to think that gravity will even operate tomorrow or that earth will continue to orbit the sun.
Your position reduces to utter epistemological nihilism.
Lord Keynes, I think you’re somewhat distorting Bala’s position. Bala believes that induction is valid when humans are not involved, but invalid when humans are involved because they have free will.
Even if that is his position (let him say so), his argument still collapses: for then he has no rational reason to think the disutility of labour axiom will hold tomorrow, or that entrepreneurs will continue to produce goods tomorrow, or chase profits tomorrow, and so on.
His position destroys Austrian economics.
If entrepreneurs stop chasing profits and producing goods tommorow, then by definition they are no longer entrepreneurs. Why would this need empirical verification?
The empirical questions is, do humans exist? If they exist, then they must act. All action is aimed at exchanging a lesser valued set of circumstances for a greater valued set of circumstances. Action is aimed at profit. If humans want to survive, then they will always produce goods and strive for profits.
Humans will be entrepreneurs in so far as they recognize the benefits of the division of labor and social cooperation as a means to these ends.
Thanks, Keshav and Ben B. So, LK. That’s the idea. As long as humans exist and remain humans (purposeful beings)……
The charge of epistemological nihilism is just throwing words around.
Saying what you would do in a particular situation is not empirical evidence of you acting in a particular manner.
Ted Bundy saying that he would never murder anybody is not evidence of Ted Bundy not murdering anybody.
“…and the people involved mostly gave the same responses and reasons doesn’t count for empirical evidence speaks volumes for you and your level of irrationality.”
Every president and congressman had sworn an oath to defend the constitution. How many of these members have actually acted in this way?
The managers have no clear reason to lie in an anonymous survey where their identities remain secret.
It’s irrelevant whether or not they are lying or whether or not they have an incentive to lie. It may even be true that each and every congressman really meant to defend the US constitution, but what they say about specific actions in the future is not empirical evidence of those future actions.
If the survey doesn’t include questions about what firms will do if they recieve offers from workers to work for lower wage rates, then that survey is necessarily an incomplete picture of what firms do.
US and UK firms are, for example, hiring cheaper Chinese labor. When lower wage rates are offered, firms have an incentive to hire those workers instead.
But if those workers can live on the dole instead, then they have less of an incentive to offer a lower wage rate.
All your arguments against the market are derived from an inability to psychologically handle rejection or economic competition from others. You’re scared, and that’s why Austrian theory is wrong.
“…uses evidence from a firm survey conducted in a number of EU countries …”
“…on wage rigidity in a sample of 159 Swedish manufacturing firms…”
EU, Swedish, got it, a real free labor market study.
Wage rigidity is dependent on only one factor, and that is how free the labor market is. And the rigidity works both ways, not just downwards. Real middle class incomes haven’t budged in 30+ years.
Unions, minimum wage laws, etc. are all forms of government force in the labor markets.
The business get around this rigidity (at least in my case) is to make incentive compensation (i.e. bonuses) an ever increasing part of total compensation. In my case, I started with 5%, and now I’m at 30%..
Why can’t wage rigidity exist in an anarcho-capitalist society?
Wage rigidities are imperfections, which by assumption, cannot exist in a perfect market, or perfect society.
If wage rigidity is caused by central bank manipulation of prices, as well as laws that create artificially scarce labor, and since neither of these exist in an anarcho-capitalist society, then no, wage rigidity can’t exist in an anarcho-capitalist society.
If you want to use LK’s theory that wage rigidity is caused by employers being afraid of employees, then technically it could exist in an anarcho-capitalist society; however, this is highly unlikely considering that an anarcho-capitalist society would most likely be filled with Austrians and not Keynesians.
Furthermore, wage rigidity would never be seen as a problem, since it is only a problem in general recessions. But if general recessions are caused by a credit boom, then massive malinvestments of labor will not appear and need to be liquidated with flexible wages.
BTW, I don’t mean “liquidated” in the way Statists use the term. Malinvested workers will be allowed to live.
I claim vindication Keshav.
Replace “empirical evidence” with “an opinion with which I agree” and this will make sense people.
Hi lK,
What is demand failure, what causes it, and how is demand failure solved? Your earlier post did mention demand failure as being the Achilles’s heel of market economies. Also, what role do tax rates play in the phycology of demand, if any?
Demand drops because of animal spirits. Expectations drop because of changes of expectations, and liquidity preference increases due to demand for money.
It’s elementary!
lK likes to pretend I am beneath him therefore he does not need to reply, but really if he just answered this question, truth would come to the surface.
Some days I think Bob Murphy is a genius entrepreneur capitalist who plays both sides of the coin. When Bob is not here, he is blogging at his other site, social democracy for the 21st century…
Maybe he’s just really busy.
But, I long for the day when I have to go past Wikipedia to confirm my own feelings that some people are making inaccurate claims:
“In a talk in 1975, Hayek admitted the mistake he made over forty years earlier in not opposing the Central Bank’s deflationary policy and stated the reason why he had been ambivalent: “At that time I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy.”[16] Three years later, Hayek strongly criticized the Fed’s sudden contraction of money early in the Depression and its failure to offer banks liquidity:
“ “I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.”[1″”
Now, Hayek is not Mises or Rothbard by a long-shot, but still…
These quotes may make superficial sense to someone living in the U.S. but try telling that to someone living in Greece or Spain. Over there, they are all saying that the Great Depression IS happening again. Maybe worse this time.
Obviously because those places listened to the evil Austerians and not Krugman, who would have correctly advised them to engage in more stimulus!
LOL yeah they were fiscally prudent and acted exactly how Austrians would have wanted them to act by keeping the most rigid labor market in Europe and continuing wasteful spending projects while trying to squeeze the tax payer. There’s some insulting jack ass on the money illusion who has been calling me an Austro-obscurantist moron because I said that even if the ECB had been more expansionary, there’s no way that would make much difference for Greece. He thinks that Greece would have stayed out of the recession altogether if the ECB had been looser. That’s crazy talk. Greece was a mess borrowing at the same cost as Gernamy. Inflation, unless it is enough to make their debts worthless doesn’t solve their problems or rotten economic structure.
I googled Rothbardian Liquidationist and the first 10 or so links are a blog by some dude calling himself the LIbertarian Liquidationist.
The 11th or so is a link back to this blog where someone claims Bob is misrepresenting Friedman and libertarians as liquidationists.
Keep in mind, what I’m not saying is that no libertarians or Rothbard are liquidationists. But one is LYING if they characterize the aftermath of liquidation and pain in a depression as those people’s full program.. They all people have other parts of their program which are intended to prevent the deep depression to begin with.
ONE OF THOSE WOULD BE TO LET THE PRIOR DOWNTURN GO FORTH WITHOUT CREATING A HOUSING BUBBLE AS STIMULUS!!!
Just for example
Or a stock market bubble, or a Treasury bubble…
In other words, stay tuned…
And guys like me don’t take any pleasure in a forced liquidation by getting the money supply wrong during the depression either. If that is not Austrian, then I’m not an Austrian. But I think it is well within how Austrianism can have evolved since nearly 100 years ago.
LOL at these shortsighted fools. Only a little more than five years after the most aggressive inflationary monetary policy in U.S. history was implemented, and continuously sustained, and these guys want to act like the day was saved by the policy makers and everything is back to normal. I mean, come on, they could have at least given it ten years before they started gloating about the success of their oh-so-very novel and ingenious money printing/low interest rate idea. For crying out loud, didn’t Mises say that choosing the credit expansion road will buy you more time? That is what he wrote, wasn’t it? That the crisis will come later as a result of further credit expansion, and that the crisis that results from such is the destruction of the currency system involved? OK, so who knows how long “later” is? I don’t know, and I’m sure Mises didn’t know either. But I’m sure it was more than a mere five or six years, otherwise the perceived benefits of credit expansion would not be quite so tempting to pursue. Hyperinflation is coming, brothers and sisters, just like Mises said it would. But it’s going to take a while for that to happen. Give it at least ten years before you start gloating. Wait until the end of 2018. That’ll be ten years from the time of the greatest monetary experiment in U.S. history was enacted. We will all know why the inflation is happening, but by that time the policy makers will have dreamed up another excuse as to why the prices are rising. It’s always the same culprits. When prices are rising, it’s the evil speculators driving them up. And when they implement price controls, it’s the evil retailers that aren’t keeping the shelves stocked. Economic law takes a while to come full circle and bit you in the tail. But, as with all laws, it never fails.
Yes but did Mises understand the full ramifications of digital?
There is nothing stopping the numbers from getting bigger and worth less.
Producers and organizers are the only thing that keep it all going and the only thing that can stop it. So in they year 2018, maybe man will have lost his inherent will to produce and provide for his family?
To Googol and beyond!
10 to the 100
10,000,000,000,000,000,000,000,000,000,000,
000,000,000,000,000,000,000,000,000,000,000,
000,000,000,000,000,000,000,000,000,000,000,000
And then we have Googolplex
10 to the Googol
I am not even going to paste those zeros!
Do you tell the folks in Japan to wait 4 more years, too?
I don’t tell anybody to wait for anything. If you want to stop playing the game now, by all means, stop!
What do you mean? Are you trying to compare the Japanese with the U.S.?
Speaking of system failure, fascinating newsweek ( yea I know) article regarding bityoucoin inventor. Entire thing seems like the government had its dirty paws all over it since the beginning!
http://mag.newsweek.com/2014/03/14/bitcoin-satoshi-nakamoto.html#
the major problem of modern market economies is demand failure, not wage and price inflexibility.
There is no contradiction here.
These alleged “demand failures” are nothing more than the self evident fizzling out of temporary and unsustainable funny money injections which have induced a) false and unsustainable prices and/or wages that result therefrom and b) transactions where the consideration was something other than the actual wealth or real savings of the participants. The L-Keynesian “response” to the concept of false prices is to suggest that we believe in a quasi religious vision of a PRESENTLY EXISTING universal set of market-clearing values for prices and wages just waiting to be discovered floating somewhere out there:
the whole notion that there exists a universal set of market-clearing values for prices and wages just waiting to be discovered by adjusting prices or Walrasian tâtonnement is itself little more than a quasi-theological superstition of modern neoclassical and Austrian economics, because no economist can prove that the law of demand is universally true.
http://socialdemocracy21stcentury.blogspot.com/2013/05/misesian-economic-calculation-and.html
This is nothing more than a continuum of obfuscation concerning the essential difference between voluntary non-fraudulent transactions and transactions that are the subject of fraud and/or violent interventions and which is central to all statist “analysis” of Austrian and even libertarian concepts (see the recent treatment of Walter Block).
Finally, since the Keynesian Hoax is based upon demonstrably false assumptions, one need not prove any “contradictions” within its logical structure to demonstrate its total falsehood.
The Austrian theory is exactly that market agents — who are not omniscient — nevertheless drive prices **towards** a set of market clearing prices, even if they never reach a strict equilibrium state such as Mises’s final state of rest:
“The entrepreneurial forces acting on the market for any one commodity are thus continually pushing that market toward the market-clearing point—that is, to where (a) the quantity produced is such that (only) all units ‘worth producing’ are indeed produced, and (b) the market price for this commodity is just high enough to make it, as a practical matter, worthwhile for producers to produce this quantity, and is just low enough to make it worthwhile for consumers to buy it.
Clearly, these forces would, were all other dynamic changes in market conditions to be suspended, tend to achieve exactly those outcomes identified, in more conventional mainstream formulations of the law of supply and demand, by the intersection of the supply curve and the demand curve. It is for this reason that we have described Austrian economics as basically in agreement with mainstream economics in its emphasis on the centrality of the law of supply and demand….
The market process is one in which, driven by the entrepreneurial sense for grasping at pure profit opportunities (and for avoiding entrepreneurial losses), market participants, learning more accurate assessments of the attitudes of other market participants, tend toward the market-clearing price-quantity combination.”
Kirzner, Israel M. 2000. “Entrepreneurial Discovery and the Law of Supply and Demand,” February 1
http://www.fee.org/the_freeman/detail/entrepreneurial-discovery-and-the-law-of-supply-and-demand#axzz2rJCWXRKy
You do not now and have never understood Austrian economics, roddis.
The market process is one in which, driven by the entrepreneurial sense for grasping at pure profit opportunities (and for avoiding entrepreneurial losses), market participants, learning more accurate assessments of the attitudes of other market participants, tend toward the market-clearing price-quantity combination.”
a) The market process is an ONGOING learning process.
b) Under a statist interventionist regime, the undistorted price/supply/demand information which would obtain without such intervention does not yet exist.
c) Under a statist interventionist regime, the price/supply/demand information is distorted leading to malinvestments and “demand failures”.
I fail to see how this quote helps you at all.
Tom Woods interviewed Robert Blumen today on his show and discussed how goods and services are the “demand” for the supply provided by others. Tom talks to Robert Blumen about his article “Say’s Law and the Permanent Recession.”
http://www.schiffradio.com/pg/jsp/verticals/archive.jsp
“c) Under a statist interventionist regime, the price/supply/demand information is distorted leading to malinvestments and “demand failures”. “
No, it is isn’t. because
(1) the ABCT is rubbish
(2) most businesses already shun flexible prices and use mark-up pricing, so that they generally do not even change when demand changes. They are not distorted away from market clearing prices, because they were never set to find such market clearing prices at all.
Since prices are not distorted by funny money loans, there are never bubbles and never the need for “regulation” by the omniscient regulator, right?
Notice how you don’t dispute (1) and (2), which implode your original statement.
On asset bubbles, of course that is an instance of price inflation that can be financed by credit money and that can be destabilizing, but while Keynesian theory explains asset bubbles and debt deflation, Austrian theory does not.
Keynesian theory deals with this problem by financial regulation.
It’s also nice to have a present day example of how social democracy in multi-liguistic/ethnic/religious Ukraine results in multi-liguistic/ethnic/religious strife.
The politics of post-independence Ukraine clearly demonstrates that the root of the problem lies in efforts by Ukrainian politicians to impose their will on recalcitrant parts of the country, first by one faction, then by the other. That is the essence of the conflict between Viktor Yanukovych and his principal political rival, Yulia Tymoshenko.
http://www.washingtonpost.com/opinions/henry-kissinger-to-settle-the-ukraine-crisis-start-at-the-end/2014/03/05/46dad868-a496-11e3-8466-d34c451760b9_story.html
Who knew?
(1) You haven’t shown ABCT to be “rubbish”.
(2) Mark up pricing responds to changes in demand by way of the effects it has on costs of production.
Reading these threads makes me wish I had taken a lot more economics courses (or maybe any). Who knew it was a field so filled with passion? There have been a number of references to “pointing guns at innocent people.” Is this a reference to taxes, or to government regulation of business or banking, or to something else?
It is a reference to LKs “solution” to a non-violence derived problem of market prices not doing what he prefers them to do. He masks this hatred by pretending he’s only arguing against a theoretical argument, which of course he isn’t even doing anyway.
Pointing guns at people is how some here refer to taxing. But it is sometimes used as a way of trying to dismiss those who would arrest rapists. MF objects to the police arresting rapists.
See what I did there? I portrayed in amped up fashion. MF objects to the state and any state police, so I phrased that tendentiously. Same with the way people using pointing guns and taxes.
“Pointing guns at people is how some here refer to taxing. But it is sometimes used as a way of trying to dismiss those who would arrest rapists. MF objects to the police arresting rapists.”
No, I object to Peter stealing from Paul so as to pay Mary to stop the rape.
“See what I did there? I portrayed in amped up fashion. MF objects to the state and any state police, so I phrased that tendentiously. Same with the way people using pointing guns and taxes.”
It’s not the same event that you’re referring to though.
I am not arguing against using defensive force to stop rape. I am arguing against some people raping others as a means to stop someone else from raping people…so to speak.
In other words, if we want as a goal to stop rape or theft, then the means to do so are just as important as the goal itself. It would not make sense to use initiations of violence as a means to stop initiations of violence as a goal.
No, the Austrian theory is that markets always clear by definition, because when transactions stop happening that market has reached a plain state of rest.
However, other people have interpreted Austrian theory as implying that prices move towards some longer term equilibrium (which may in principle be a strange attractor, and never converge at all, but most theorists just ignore that possibility).
Like roddis, Tel, you are ignorant of Austrian economics.
A tendency towards supply and demand equilibrium via flexible prices is a fundamental element of Austrian economics.
WTF do you think Murphy was talking about in these videos when he refers to intersection of supply and demand curves?
video 4
http://consultingbyrpm.com/blog/2014/02/supply-demand.html
He was taking about a simplified theoretical model where only one parameter can change, and where the supply and demand curves are both known and stable. It’s a good place to start your understanding, not a complete description of all economic processes.
He was talking about a belief in real world tendencies **towards** market clearing at the heart of Austrian economics:
http://socialdemocracy21stcentury.blogspot.com/2013/11/vulgar-austrians-do-not-understand.html
Too bad you are ignorant of the theory you claim to support,
I just don’t understand how you think mark up prices are not actually market clearing prices? IF people don’t want it or cannot afford it, they wont buy it. If they buy it in spite of the two aforementioned barriers than a law must of forced consumer to purchase or a loan based on too lenient credit must have funded their purchase.
Mark up prices ARE market clearing prices.
Additionally, if consumer does not purchase mark up pricing, then producer will go out of business absent government and or investor intervention. Ultimately after enough intervention, government and investor will become bankrupt and liquidation will occur, absent further intervention.
Now you see why Federal Reserve action has short circuited normal market functions, essentially short circuiting Austrian economics, economics and common sense.
I know you will not acknowledge my words, because you would have to close your blog and get a real job.
“Mark up prices ARE market clearing prices.”
Explain how a price that is generally inflexible with respect to demand can be a market clearing price.
If what you say is true, that all mark-up prices are market clearing prices, these markets would never have any supply and demand discrepancies — a rather bizarre belief given that they clearly do.
They would always clear!
lol..
Markets are considered “clear” by Austrians when a plain state of rest is achieved. That is to say, no buyer and sell can be found who are interested in making a voluntary exchange.
The use of the phrase “market clearing” is therefore not well defined in the broader sense of other schools of economics. Austrians avoid the phrase and prefer to specify exactly what they are talking about, such as “plain state of rest”.
“Markets are considered “clear” by Austrians when a plain state of rest is achieved. T”
**And** when the supply and demand curves intersect.
You’re just trying to restrict the term “market clearing” to a trivial sense as used by Mises and others when there is a non-trivial sense ALSO fundamental important in Austrian theory.
Unfortunately, you’re exactly the type of “vulgar” Austrian described here:
http://socialdemocracy21stcentury.blogspot.com/2013/11/vulgar-austrians-do-not-understand.html
LK:
“Explain how a price that is generally inflexible with respect to demand can be a market clearing price.”
You’ve already conceded how.
Mark up prices are not inflexible with respect to demand. They are responsive to demand by way of the changed demand’s affect on investment and hence costs of production and hence mark up pricing.
It is not necessary for demand to directly affect all prices, for prices to tend towards clearing. It is sufficient for prices to be affected both directly and indirectly via costs.
As I’ve pointed out many times, Mises used the term “Plain state of rest” and avoided the term “market clearing” precisely because of the confusion.
An no, using one particular phrase (particularly an ill defined and misleading phrase) is not fundamental to Austrian theory.
And also also the input commodities to the production process.
I might point out you have very selectivly quoted Kirzner. In the latter half of the article he explains that the perfect “market clearing” (his description, not Mises nor Hayek) is constantly disrupted by the practical problem of limited information, and new circumstance unfolding.
Kirzner merely holds up what he describes as “market clearing” as a partial explanation of how market works, but then describes the limitations of this after he has described the basics.
And I did not say that Austrians think markets reach perfect equilibrium: only — as Kirzner says — that they think that real world markets have strong tendencies **towards** supply and demand equilibrium via flexible prices that **tend** towards clearing of markets and elimination of economic problems.
That is, when discoordinating forces drive prices and wages away from market clearing levels, human action on markets rapidly brings them back **towards** those values.
But perhaps in the depths of your wretched ignorance you need more evidence for what Austrians plainly say??
No problems:
http://socialdemocracy21stcentury.blogspot.com/2013/11/vulgar-austrians-do-not-understand.html
If you read the full series by ISRAEL M. KIRZNER that you linked to already you would see how wrong you are:
In other words the equilibrium point where a supply curve meets a demand curve is a conceptual model, useful for explanation but never intended to capture disruption caused by new technology, new business practice, changes in consumer awareness, fashion, education, changing work practices, international treaties, scientific discoveries, political movements, or any other shifting development… all of which have perfectly sensible causes (not to be waved away as “animal spirits”).
In many cases the market can move away from an equilibrium between supply and demand, and from an Austrian perspective this can never the less still be a “plain state of rest”.
Who said “rapidly”? Not Kirzner, not Murphy, you just stuck that in yourself for goo measure. What is “rapidly” anyhow? A year, two years? Ten years? Faster than Global Warming?
Who said “rapidly”? Not Kirzner, not Murphy, you just stuck that in yourself for good measure. What is “rapidly” anyhow? A year, two years? Ten years?
You should have actually read Murphy or other Austrian economists first before running your ignorant mouth off and embarrassing yourself, Tel:
“Generally speaking, most depressions (or “recessions” as they came to be redefined after the New Deal) in U.S. history were over within two years, and all of them within five …. Krugman’s “explanation” for the stagnant investment of the 1930s can’t explain why the U.S. economy managed to quickly recover from all of the earlier depression in its history”
Robert Murphy, The Politically Incorrect Guide to the Great Depression and the New Deal, pp. 112–113.
(Except Murphy is wrong there: the 1870s and 1890s saw economic crises that lasted more than 5 years.)
“The market is always tending quickly toward its equilibrium position, and the wider the market is, and the better the communication among its participants, the more quickly will this position be established for any set of schedules. Furthermore, a growth of specialized speculation will tend to improve the forecasts of the equilibrium point and hasten the arrival at equilibrium.”
(Rothbard. M. 2009. Man, Economy, and State: A Treatise on Economic Principles. Scholar’s Edition (2nd edn.). p. 143).
“Rothbard presumed that in individual markets, the law of one price dominated, and that market clearing happened rapidly and smoothly … . Just as in conventional neoclassical economics, general equilibrium, the evenly rotating economy (ERE), was the direction in which the economy was headed.” (Vaughn, K. I. 1994. Austrian Economics in America: The Migration of a Tradition. p. 97).
“As we have indicated, because of uncertainty and ignorance, firms will experience shortages and surpluses about as often as market-clearing. In a free market, such disequilibrium outcomes would tend to be shortlived or temporary.”
(Shapiro, Milton M. 1985. Foundations of the Market Price System. p. 209).
“The price structure of the market decides what will be produced, how, and in what quantity. Through the structure of prices, wages, and interest rates the market brings supply and demand into balance and sees to it that each branch of production will be as fully occupied as corresponds to the volume and intensity of the effective demand. Thus capitalist production derives its meaning from the market. Of course, a temporary imbalance between production and demand can occur, but the structure of market prices makes sure that the balance is reestablished in a short time.”
Mises, Ludwig von. 2002a [1931]. “The Economic Crisis and Capitalism,” in Richard M. Ebeling (ed.). 2002. Selected Writings of Ludwig von Mises: Between the Two World Wars: Monetary Disorder, Interventionism, Socialism, and the Great Depression (vol. 2). Liberty Fund, Indianapolis, Ind. p. 170).
Now you are bringing Rothbard into it… Rothbard was a bit extreme, he does not represent all of Austrian economics by any means. In many cases you can find Hayek offering a completely different opinion to Rothbard, which does not make the whole of Austrian economics wrong.
The ideas of Mises have been developed in various directions, just the same as not all Keynesians agree in lockstep with one another.
There’s a good discussion on Mises and equilibrium here (I added emphasis):
http://mises.org/journals/scholar/mackenzie12.pdf
DW MacKenzie covers the Mises quotes about equilibrium and different types of states of rest. In most cases, Mises was attempting to explain the effect of government price controls and other interference, for which purpose a basic supply and demand equilibrium analysis is sufficient. This cannot be taken as evidence that Mises believed such an analysis represented the complete entirety of Austrian models.
Getting back to the question of prices and equilibrium, you quote Murphy’s example giving a typical time frame of two years. Well, let’s go with that… what percentage of prices would change at least once every two years? Nearly all of them I would have thought. Thus, almost every price could be considered “flexible” by the criteria of whether it can change within two years. Furthermore, Murphy was talking about the recession as a whole and the restructuring that ends the recession might be only part of the whole economy. We don’t know exactly how much restructuring is necessary in any given situation. If we knew that, we would all be successful central planners.
Even in the cases of supposedly sticky wages, two years can be a long time in terms of people being hired and fired, and there can be incentive bonuses during that time which vary with market conditions, as well as non-financial rewards such as working conditions, workload, etc.
“Now you are bringing Rothbard into it… Rothbard was a bit extreme, he does not represent all of Austrian economics by any means.”
Mises believed the same thing as Rothbard:
“Entrepreneurs, capitalists, landowners, and workers are participants in the market, and they demand prices for their services. The consumers answer these price demands through their buying or abstention from buying on the market. From this interaction there results the market, on the basis of which supply and demand are brought into balance. .” (Mises 2002d [1932]: 201).
“The market operates by shifting the height of prices so that again and again demand and supply will tend to coincide.” (Mises 2006 [1931]: 156–157).
LK:
Mark up prices tend towards clearing by way of supply and demand operating on costs of production. And, if there are costs of production that are also based on mark up pricing, then the changed demand operates to affect the supply and demand of those factors that are not mark up pricing, which then changes the first level of factor mark up prices.
Supply and demand ultimately drive all prices. They don’t have to directly drive all prices.
“Mark up prices tend towards clearing by way of supply and demand operating on costs of production.
No, they don’t, because
(1) reductions in prices based on average unit cost falls does not imply businesses are changing prices to clear markets.
(2) we live in a world where there is a pronounced upwards bias to mark-up price changes: frequently businesses prefer not to reduce prices when cost fall.so that their profit margins will rise.
This is seen clearly in the fact that virtually all recessions since 1945 have been INFLATIONARY, not deflationary.
That was a policy decision. The powers that be decided that inflation was easier to deal with than deflation so they opted for that. It just happened to also be of material advantage to the people printing money but I suppose that must be irrelevant.
(1)
No one would change their prices in order to counter a general economic statistic. People perform actions for the satisfaction of their ends, most likely in this case to attain profits. Although their end could be to counter an economic statistic, this is probably not the case.
(2)
On the contrary, they will receive a competitive advantage if they lower their prices before others in the marketplace.
Nothing was ‘fixed’. The problems were just papered over to give the illusion of solvency of the banks and increase their power not derived from the market, but from the government.
Sadly people now are willing to just hand over their liberties so they can get the illusion of ‘security’ and bread and circuses. Eventually this will usher in the Antichrist who will promise all things to all people and he will deceive all but those who have trusted in the Lord Jesus Christ.
Of course, there has never been any evidence of unsustainable and distorted prices under a funny money regime.
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.
http://www.levyinstitute.org/pubs/wp74.pdf
So what happens if the housing bubble bursts? It will be the same thing all over again, unless the Fed can find something to take its place. And it’s hard to imagine what that might be. 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?
http://www.nytimes.com/2005/05/27/opinion/27krugman.html?_r=0
It’s just RUBBISH to suggest that funny money creates distorted and unsustainable prices.
Lord Keynes…
Would love to hear your response to Bob Roddis’ last post quoting Krugman.
I imagine considering your previous comments you would disagree with Krugman that any central bank can cause price distortions?
Asset bubbles can happen in any monetary system you care to name, e.g.,
(1) tulip mania — under a Dutch silver standard
(2) US and Australian stock market bubbles in the 1880s and 1890s — under gold standard with no central bank in either nation.
(3) 1920s US stock market bubble — gold exchange standard
(4) 1990s and 2000s bubbles — fiat money standard with central banks.
—————-
However, there is an easy way to stop asset bubbles: effective financial regulation, as it existed from late 1930s to 1970s in most nations until it was rendered ineffective neoliberal legislation.
I have a very good source who explains that The Classical Gold Standard Era was a Myth:
http://socialdemocracy21stcentury.blogspot.com/2013/03/the-classical-gold-standard-era-was-myth.html
In reality, credit money (mostly unbacked by metal) was the predominant form of money through the entire period of the Classical Gold Standard.
Correct: it is a myth that gold constituted 50% or more of the broad money supply.
It is not a myth that gold was made a fundamental kind of base money and its production was relatively inelastic and dependent on gold discoveries..
What about a 100 percent reserve monetary system?
You could get a bubble when (1) very large domestic gold discoveries occur or (2) foreign gold pours in through the capital account.
Why wouldn’t entrepreneurs be able to accurately reflect the future value of gold and/or those factors used in gold mining in their present value after the discovery of a large domestic gold supply?
Some would, and some wouldn’t, but those who got it wrong end up getting themselves into trouble when the flow of gold dries up. That’s what happened in Australia at the end of the gold rush, and those who got it wrong were chased down and made to pay their debts.
All part of the risk of a free market, and life in general. What matters is that those who were sensible were not asked to pay for other people’s risk.
“Asset bubbles can happen in any monetary system”
I’ll take that as a “Yes, central banks cause asset bubbles.”
No, ineffective financial regulation causes asset bubbles.
Regulators don’t know the correct quantity of credit expansion, inflation, nor the relative expansions of various industries, all of which are the determinants of bubbles.
Regulations are nothing but uses of force. Bubbles on the other hand are not caused by a lack of force, but signal distortions.
My bad; I forgot to put one of these 😉
But a succinct explanation, nonetheless.
Ineffective at curbing fiat money printing? I can see that would be a problem.
Ineffective at getting government to live within their available budget, hmmm, sounds serious.
Effective at curbing the flow of credit for speculative purposes, and since demand for credit is the major driver of money supply growth in an endogenous money system (like ours) that puts a brake on money supply growth.
A fundamental cause of asset bubbles is demand for credit to use to pump up asset prices and its use in that way: restrict lending for such speculative practices and you have a major way to curb bubbles.
Without easy money it would be hard to pump up asset prices, no?
“restrict lending for such speculative practices and you have a major way to curb bubbles.”
The only method to restrict lending is to make sure lender is lending his own wealth and it is at risk of 100% loss. Banks know they have zero liability and the wealthy they are lending is 90% fiat fractional. Modern investors and hedge managers are no better. Most market money is nothing but money that would have otherwise went to the taxman or was created from the 10/90 frac system.
lk you are chasing your tail.
Your voice may be strong and loud, never the less, wrong.
Yes, and who will regulate the regulators?
“Ben B
Yes, and who will regulate the regulators?”
Personal wealth loss is the only regulation needed.
Instead we have guns of government guaranteeing there is no personal wealth loss, hence creating moral hazard and every other perversion imaginable.
Gamble,
I asked the question, sardonically. LK thinks that regulation will prevent lenders from lending for speculative reasons. But this assumes that the regulators themselves won’t be bought off to allow speculation. Hence, who will regulate the regulators?
When buying and selling are regulated, the first thing to be bought and sold are the regulators.
Would Credit Mobilier or the Panama Canal count too?
I hate how tax rates are ignored here.
Might as well make them 100%.
Surely 100% tax rates would rectify any and all demand failure…
The thing to keep in mind here is that even the Great Depression was, in world-historical terms, not so terrible. The major depression of the nineteenth century lasted for twenty-three years; the Great Famine in the early fourteenth century sparked a depression that arguably lasted for two centuries. Part of the reason the Great Depression stands out so much in the popular mind is that events like it are so much rarer in modern times than they used to be, because we have become much better at managing the economy.
“events like it are so much rarer in modern times than they used to be, because we have become much better at managing the economy.”
LOL.
Things are better because technology provides more, people work are smarter and produce more. Capital is better allocated.
The tyrants are trying their hardest to redirect and or confiscate all gains…
You LOL yet cite facts to bolster his case. Odd.
To say capital is better allocated is not to say ” We better managed the economy.”
Capitalism is the part of the economy that is not managed. The good part.
When a statist says, “We” the meaning is not “citizens in general” but “just me and my fellow elite all knowing statists”.
It’s not like an economy can manage itself you know.
Bala,
Just because you appeal to my cruel side let’s take one of the things you said but deny saying.
“Labour and leisure are mutually exclusive and collectively exhaustive.”
First, you deny doing anything but asking a question, which this is not. But to move on.
That’s not how most people use the terms, but let’s accept this definition. It does not establish that labour cannot be more nejoyable than leisure. If labor is what I enjoy most then, since everything else is leisure, I must enjoy labor more than leisure. So you have not given any justification for the disutlilty of labour. As Keshav and I noted.
What you do do is try to trick people by relying on the common meaning of leisure, like hiking or boating or playing canasta, to get them to think “of course I prefer leisure.” And of course they do, if that’s what leisure is. (And of course the knowledge is empirical.) Leisure in your terms includes getting a root canal, being mugged or raped, being falsely imprisoned, being chased by bears. And people rarely prefer those things.
Ken B,
The “debate” over disutility of labour was initiated by LK in response to my persistent questioning. I did not start it. After responding a coupe of times, I realised that it was a standard LK diversionary tactic and refused to engage in that discussion. I know you are too weak in comprehension to grasp that.
Coming to labour vs leisure, I know that you do not get most things in economics, but this is shocking even by your standards. Labour is the application of human effort as a means in the eventual production of consumers’ goods that satisfy ends directly. Leisure is the consumption of the means time. A unit of time may be applied either of these but never to both. Like any factor of production, the valuation of labour is imputed backwards from the contribution of the marginal unit towards output of consumers’ goods. To claim that labour can be valued for its own sake even when its contribution to the production of consumers’ goods is zero is stuff and nonsense that only economic chroniclers like LK and you can come up with. In case you think I am pulling this out of you know where, here is Rothbard on page 46 of MESPM.
And on your silly attempt at claiming that labour per se can be more enjoyable than leisure, here is more from Rothbard (page 45 of MESPM)…
I can see that you have a lot that you need to learn as far as elementary economics goes. Not that I am the least bit surprised, but I just thought I’ll mention it.
Ken B,
The “debate” over disutility of labour was initiated by LK in response to my persistent questioning. I did not start it. After responding a coupe of times, I realised that it was a standard LK diversionary tactic and refused to engage in that discussion. I know you are too weak in comprehension to grasp that.
Coming to labour vs leisure, I know that you do not get most things in economics, but this is shocking even by your standards. Labour is the application of human effort as a means in the eventual production of consumers’ goods that satisfy ends directly. Leisure is the consumption of the means time. A unit of time may be applied either of these but never to both. Like any factor of production, the valuation of labour is imputed backwards from the contribution of the marginal unit towards output of consumers’ goods. To claim that labour can be valued for its own sake even when its contribution to the production of consumers’ goods is zero is stuff and nonsense that only economic chroniclers like LK and you can come up with. In case you think I am pulling this out of you know where, here is Rothbard on page 46 of MESPM.
And on your silly attempt at claiming that labour per se can be more enjoyable than leisure, here is more from Rothbard (page 45 of MESPM)…
I can see that you have a lot that you need to learn as far as elementary economics goes. Not that I am the least bit surprised, but I just thought I’ll mention it.
“To claim that labour can be valued for its own sake even when its contribution to the production of consumers’ goods is zero is stuff and nonsense that only economic chroniclers like LK and you can come up with”
Nobody made the claim you make with those words in bold: you’re engaged in shameless lying, Bala.
The questions that people asked were these:
(1) Mises and Rothbard state that the disutility of labour axiom is known empirically.
Do you agree with them?
(2) tell us how you know that any particular person x regards labour as a disutility and how you know that people in general regard labour as a disutility
If you agree with Mises and Rothbard, you can only know it empirically. Do you agree?
(3) If you disagree with Mises and Rothbard, provide an a priori argument that the disutility of labour axiom is true.
————————————-
The fact that you will not give straight answers to these questions proves how intellectually bankrupt you are – and how you lost this debate a long time ago.
And quoting Rothbard underscores how stupid you are because Rothbard admits that the disutility of labour axiom is ultimately known only empirically:
“Economic theory as has been developed is a component part of praxeology. It is deduced from the apodictic axiom of action, and most of economic theory, including the laws and implications of Uncertainty, Time Preference, the Law of Returns, the Law of Utility, etc. can be deduced with no further assumptions. With the help of a small number of subsidiary axioms which are rather more “empirical” in nature – such as the disutility of labor – the rest of economic theory can be deduced.”
Rothbard, Murray N., Economic Controversies, p. 117.
Just as confirmed by Hoppe:
“Rothbardian economics sets out from a simple and undeniable fact and experience (a single indisputable axiom): that man acts, that humans always and invariably pursue their most highly valued ends (goals) with scarce means (goods). Combined with a few empirical assumptions (such as that labor implies disutility), all of economic theory can be deduced from this incontestable starting point”
Hoppe, Introduction to Murray Newton Rothbard, Ethics of Liberty, p. xi.
“The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. ” (Mises 1949: 65).
“The questions that people asked were these:”
I wonder why was ever obliged to answer them when you were refusing to answer the question I had posed to you.
I noticed something interesting in the Rothbard quote you pulled up.
Would you care to explain why Rothbard has put empirical in quotes? I somehow get the feeling that he does not mean empirical in the way you mean in. I get the feeling he means that the fact that labour involves a tradeoff is known from the empirical observation that we live in the real world of scarcity and not in paradise. In this real world, labour implies the loss of leisure and hence holds disutility. The definition of labour in this real world of scarcity is inextricably tied to the loss of leisure. No one can exert a single unit of labour without the loss of a corresponding unit of leisure. And no one ever went about conducting surveys on whether people experienced a disutility with labour and then came to the conclusion that labour has disutility. They normally start off with what labour and leisure mean in the real world and derive the rest as self-evident truths (axioms) from those concepts.
“Would you care to explain why Rothbard has put empirical in quotes?”
Answer: because Rothbard — like you — is an intellectual fraud relying on bankrupt apriorist epistemology.
He is putting the word “empirical” in quotes because he wants to dishonestly distance himself from empiricism, when he is of course utterly reliant on it here.
At least Mises was straightforwardly honest on this point:
“The disutility of labor is not of a categorial and aprioristic character. We can without contradiction think of a world in which labor does not cause uneasiness, and we can depict the state of affairs prevailing in such a world …. Experience teaches that there is disutility of labor. ” (Mises 1949: 65).
Even Hoppe says the same thing.
” I get the feeling he means that the fact that labour involves a tradeoff is known from the empirical observation that we live in the real world of scarcity and not in paradise.”
And even on that point alone, you concede my point: you can only know this axiom empirically.
So tell us now: how do you know it will continue to hold next year?
The “experience” is that we live in a world of scarcity. In that world, labour => loss of leisure. In paradise, this may not be applicable.
“how do you know it will continue to hold next year?”
I am quite certain that the world is not going to magically transform into paradise by next year. Scarcity, I am sure, will remain a feature of the real world and hence labour will continue to necessitate the loss of leisure.
“The “experience” is that we live in a world of scarcity. “
Your position just totally imploded.
So now you agree that the disutility of labour axiom is **only known empirically.**
I am quite certain that the world is not going to magically transform into paradise by next year.
You’ve already committed yourself to epistemological nihilism by using Hume’s problem of induction to argue against me above above.
Therefore you CAN’T even be certain that the laws of nature will continue operating tomorrow, let alone that humans will not suddenly regard labour as a utility tomorrow.
Under your crazy type of
epistemological nihilism, you cannot be certain of anything, except perhaps some analytical a priori truths true by definition.
No. I said that it is known “empirically” as Rothbard indicated. What is known empirically is that the real world is one of scarcity. From this, given what labour and leisure are, I deduce the necessity of a tradeoff between labour and leisure. This necessary trade-off is what may be understood as the disutility of labour.
“You’ve already committed yourself to epistemological nihilism by using Hume’s problem of induction to argue against me above above.”
And pray where have I used Hume’s problem of induction? I only said that I make the empirical observation of scarcity. I also said that were the world to be one not characterised by scarcity, things would indeed be different. There would be no trade-off between labour and leisure. You may indeed be able to have your cake and eat it as well.
“Therefore you CAN’T even be certain that the laws of nature will continue operating tomorrow,”
OMG! The dreaded demon of uncertainty!!! Who knows what the world would be like in the future?????? Horror of horrors that no one knows and can ever know it…….
“let alone that humans will not suddenly regard labour as a utility tomorrow.”
As long as the world in the future is one of scarcity, I will continue to hold the position that labour necessitates the loss of leisure. When, or rather, if facts change, I change my mind. What about you, Sir?
“Under your crazy type of
epistemological nihilism”
It is not epistemological nihilism. Your empty assertion does not make it so.
“you cannot be certain of anything”
Yeah!! How can I be certain about the future? How cruel this world is!!!
“except perhaps some analytical a priori truths true by definition”
OMG! You are actually making sense out here. All the more so if they are derived from empirical observations like scarcity….
> So now you agree that
> the disutility of labour
> axiom is **only known
> empirically.**
No. I said that it is known “empirically” as Rothbard indicated.
lol… Which entails that any deduction used after the first need for empirical evidence cannot even happen without that first empirical evidence.
Therefore it is quite clear that you can only know it ultimately a posteriori, which the point being made above.
Thanks for conceding that – and proving your prior position has collapsed.
LK,
The concept “man” comes from experience or sensory perception interpreted by the human mind. “Reflection” can only happen when there is something to reflect on. Ever heard of the savage of Aveyron?
That, however, is not the same as saying anything that comes from empirical data is valid knowledge. You are entering the territory of voodoo when you say that any random hypothesis is to be considered valid as long as there is more empirical data to validate it… With due credit to Stephen Grossman, we may call it the “virgins in the volcano” method.
Here is Rothbard on this matter, which I quote because Lord Keynes says he is so familiar with Austrian economic literature, yet he sincerely believes that all Austrians must also be Kantians. His most recent blog post shows this great ignorance.
“The action axiom, in particular, should be, according to Aristotelian philosophy, unchallengeable and self-evident since the critic who attempts to refute it finds that he must use it in the process of alleged refutation. Thus, the axiom of the existence of human consciousness is demonstrated as being self-evident by the fact that the very act of denying the existence of consciousness must itself be performed by a conscious being. The philosopher R.P. Phillips called this attribute of a self-evident axiom a “boomerang principle,” since “even though we cast it away from us, it returns to us again.” [24] A similar self-contradiction faces the man who attempts to refute the axiom of human action. For in doing so, he is ipso facto a person making a conscious choice of means in attempting to arrive at an adopted end: in this case the end, or goal, of trying to refute the axiom of action. He employs action in trying to refute the notion of action.”
Heck I’ll go on even further and give Lord Keynes a person not affiliated with the Austrian school on this matter. Maybe he will grasp the concept but I doubt it. Here is Joseph Wood Krutch:
“This permitted the chemists to say, “I cannot find the soul in my test tube,” without exposing clearly the fallacy of his argument. If he had been compelled to say, instead, “I cannot find consciousness in my test tube,” the reply would be simple: “I don’t care whether you can find it there or not. I can find it in my head. Chemistry, by failing to find it, demonstrates nothing except the limitations of its methods. I am conscious, and until you show me a machine which is also conscious I shall continue to believe that the difference between me and a mechanism is probably very significant; even perhaps that what I find in that consciousness is better evidence concerning things to which consciousness is relevant than the things which you find in a test tube. . . .”;
Actually, of course, consciousness is the only thing of which we have direct evidence, and to say “I think therefore I am” is a statement which rests more firmly on direct evidence than the behaviorists’ formula “I act therefore I am.” After all, it is only because man is conscious that he can know or think he knows that he acts. What he minimizes really comes first and on it everything else rests. What the mechanist disparagingly calls “the subjective” is not that of which we are least, but rather that of which we are most certain. . . .
The problem of the apparent discontinuity between the two realms still remains. How a material body can be aware of sensations is perhaps the thorniest of all metaphysical problems. It is as hard to imagine how we get from one realm to the other, what is the connection between the world of things and that of thoughts and emotions—as it is to imagine how one might manage to enter the mathematician’s world of the fourth dimension. But . . . the physical body does think and feel. Much as the physical scientist may hate to admit what he cannot account for, this fact he can hardly deny. The seemingly impossible is the most indisputably true.”
Pulling out to the left.
Keshav:
I can answer this. It depends on what the meaning of is is. Bala is playing a game where he pretends using any present tense conjugated form of ‘to be’ is not a statement of fact (because he will patiently explain facts can only be about the past) but an assertion of logical necessity. So when LK says “Wages ARE sticky” Bala pretends LK is saying “Wages as a matter of logical necessity behave stickily.”
I think it may be a she, not a he.
You could be right. Any particular reason or just an intuition?
Bala’s an Indian girl’s name.
http://babynamesworld.parentsconnect.com/meaning_of_Bala.html
Exactly, and apart from which, since he knows I am an empiricist, the idea that I would think that the statement that “nominal wages are generally sticky downwards” is a priori is totally bizarre.
Of course it is a contingent synthetic a posteriori statement.
I did mention it was a game didn’t I? It is a game. Bala does this all the time. (I know this from empirical observation and induction, not a prioristic reasoning.) The next stage of the game is “LK have you proven wages can never drop yet?” or something like that.
The name of the game is “épater les non-autrichiens.”
Actually, Ken B, the game is simpler than that. I ask a basic question many times and when I don’t get a straight answer and a lot of name-calling and ridicule, I take it that the other guy is a charlatan. Simple, isn’t it?
Basic question, like “Bala, when will you start telling the truth?”
Ohh, i LIKE this game.
Ken B,
Just going up this comment thread and reading what started this exchange with LK will tell anyone who is falsifying.
“since he knows I am an empiricist”
Except you’re not, because the foundation of empiricism is non-empirical.
LK has a lot of empirical evidence about people filling in surveys… from this information he builds theories about how people will fill surveys next year.
(1) There’s a lot of empirical evidence nominal wages in developed nations are generally inflexible.
Let tel disprove this or tell us why it happens.
(2) in well sampled survey after survey thousands of managers of businesses make it clear that the major reason why they tend not to cut nominal wages is fear of reducing morale and productivity.
Tel claims that the surveys in question are worthless. He is implying
(1) by some miracle the managers all independently manage to get their story straight when they lie and keep their lies consistent over many years. (If people were all independently lying you would of course expect there to be serious inconsistencies in the story they tell, But, no, there is a long consistency), or
(2) it is all some massive conspiracy theory
———————–
(1) and (2) is fine for feeble minded or irrational people like Tel.
LK’s anthropomorphic description of prices, a phenomenon which in reality is nothing more than ignorant and hysterical mob behavior, is intentionally more confusing than enlightening.
“LK’s anthropomorphic description of prices”
You mean you invent some bizarre lie that I think prices move by themselves without human behaviour?
That you are reduced to lying on such a breathtaking scale is impressive, roddis.
LK,
That is in effect what you are doing when you make statements such as “This price is sticky” or “That price is flexible”. The truth is that prices are neither flexible nor sticky. It is people who retain or change their valuations. Prices may remain the same or change as people retain or change their valuations.
Human beings through their behaviour set prices and wages, yes.
That is exactly why you need to ask managers and workers — and above all managers — why nominal wages tend to be relatively inflexible downwards.
“That is in effect what you are doing when you make statements such as “This price is sticky” or “That price is flexible”.”
No, that is only your pathetic and stupid lie: a straw man.
I have NEVER stated nor implied that prices move by themselves or independently of human behavior that influences them.
That is why empirical studies of the relevant people whose behaviour sets prices and wages are required to learn about how prices and wage change and why nominal wages do not often fall.
And it is precisely because human beings set prices that no statement such as “This orice is flexible” or “That price is sticky” can be made.
“And it is precisely because human beings set prices that no statement such as “This orice is flexible” or “That price is sticky” can be made.”
hahaha!
So now it is all down to demands that language which is interpreted by any reasonable person in the sense I intend must be re-stated in exactly that sense to indulge Bala’s complaint that idiots like him might interpret the statement to mean that “wages magically move by themselves”?
lol:
(1)
Proposition (1):
Nominal wages that are set and caused by human behaviour tend to be relatively inflexible downwards.
Evidence: many empirical studies, e.g., Lebow, David E., Saks, Raven E. and Beth A. Wilson. 2003. “Downward Nominal Wage Rigidity: Evidence from the Employment Cost Index,” Advances in Macroeconomics 3.1: 1–28.
Hanes, Christopher. 2013. “Business Cycles,” in Robert Whaples and Randall E. Parker (eds.), Routledge Handbook of Modern Economic History. Routledge, Abingdon, Oxon and New York. p. 118.
(2) from datum (1): in order to discover why human beings are engaging in behaviour that tends to result in wages being relatively inflexible downwards, we need good well-sampled empirical surveys of the relevant people involved: e.g.,
Bewley, T. F. 1999. Why Wages Don’t Fall During a Recession. Harvard University Press, Cambridge, MA.
Babecký, J., P. Du Caju, T. Kosma, M. Lawless, J. Messina et T. Rõõm. 2010. “Why Firms Avoid Cutting Wages: Survey Evidence from European Firms,” Central Bank of Ireland, Research Technical Papers 03/RT/13
http://www.centralbank.ie/publications/Documents/03RT13.pdf
(3) from surveys in (2) — and very many others — the main reason that managers give is that they fear that cutting nominal wages will cause morale and productivity problems.
———————
Bala’s idiot objection is answered.
LK,
The surveys cannot lead us to the conclusion that these people will not change their valuations in the future and hence that the prices will remain unchanged.
Let me take the specific statement you have made.
“Nominal wages that are set and caused by human behaviour tend to be relatively inflexible downwards.”
You cannot make this statement from the data. What you can make is this –
“Nominal wages that are set and caused by human behaviour have tended to be relatively unchanged in the past.”
You need to follow this up with the statement
“This, however, tells us nothing about how the prices will move in the future”
That you do not and instead imply that
“These prices will tend to remain inflexible in the future too”
is the problem.
You also said
“in order to discover why human beings are engaging in behaviour that tends to result in wages being relatively inflexible downwards, we need good well-sampled empirical surveys of the relevant people involved”
The surveys only tell you what these people thought in the past. It does not tell you that the same will repeat in the future. You are implicitly smuggling in the concept of repeatability. That is what your use of the verb “are engaging” implies.
(1) “The surveys cannot lead us to the conclusion that these people will not change their valuations in the future and hence that the prices will remain unchanged.”
The surveys are not even intended to prove absolutely or with apodictic truth that people’s behavior will remain the same forever in the future.
A reasonable inductive inference, however, is that it is probable they will, given no foreseeable institutional or psychological reason why managers’ beliefs would suddenly radically change tomorrow or next year.
(2) you’re invoking Hume’s problem of induction, but if you really think inductive arguments about the future are impossible you have destroyed the whole basis for thinking that Austrian economics has any reason to be true in the future.
E.g., if you dispute that inductive arguments can NEVER even be used to make synthetic a posteriori statements about some specific future time, then explain to us how you defend the idea that the disutility of labor axiom will still be true tomorrow.
You say reasonable says you. I say nonsensical.
“
No. I am not. I am just saying that you are talking about people who are capable of changing their mind. Therefore, I say, that you are in no position to claim that they are likely to continue to behave the same way.
“I am just saying that you are talking about people who are capable of changing their mind. Therefore, I say, that you are in no position to claim that they are likely to continue to behave the same way.”
(1) Which implies epistemological nihilism: under such a position you have no reason to even think that:
(1) labor will continue to be a disutility tomorrow;
(2) entrepreneurs will continue to seek profits tomorrow;
(3) entrepreneurs will continue to engage in economic calculation tomorrow.;
(4) entrepreneurs will continue to engage in production tomorrow.
(5) workers will not all quit their jobs tomorrow and seek leisure.
—————-
In short, you just proved that you have no possible reasonable basis to think Austrian economics will continue to be valid in any way tomorrow.
Good work, Bala: you refuted Austrian theory better than any critic could.
(2) and arguing that past evidence can provide no basis for future inference — whether humans are involved or not — is exactly Hume’s problem of induction: you’re just too ignorant to know basic philosophy.
Keshav and Ben B have elsewhere in this discussion put my position very well and explained why this is wrong and represents complete failure to comprehend my position.
As long as people exist and remain people (purposeful beings) and the world remains one of scarcity (not paradise), every bit of knowledge I possess today would rermain valid. Of course, no one can remain certain what the future would look like. All “knowledge” is only about the present and the past. The future is always uncertain and any statement about it hinges on the assumption that the world would, broadly and at a fundamental level, remain as hitherto known and expected to be.
This is not epistemological nihilism because I am not saying knowledge is impossible. I am only saying certain knowledge of the future is impossible. That is just acknowledging the truth – that you don’t and probably will never “know” the least frigging bit about the future. You just have estimates and are acting in the hope that you would be right. That’s life….
LK,
If the world were to magically transform into one not characterised by scarcity, I cannot assert that
(1) labor will continue to be a disutility tomorrow;
(2) entrepreneurs will continue to seek profits tomorrow;
(3) entrepreneurs will continue to engage in economic calculation tomorrow.;
(4) entrepreneurs will continue to engage in production tomorrow;
(5) workers will not all quit their jobs tomorrow and seek leisure.
To this extent, you are right. Where you are wrong is the place where you say
“you refuted Austrian theory better than any critic could”
No. I have explained how amazingly valid it is as long as people remain purposeful beings and the world remains one of scarcity.
“arguing that past evidence can provide no basis for future inference”
See how you are distorting my position? I am saying that if the universe were to go through some magical transformation, everything you “know” about it today can become completely useless and inapplicable. Further, I am saying that as long as the universe remains broadly as known today, induction is a valid route to knowledge when the subject is inanimate and without volition. When the subject had volition, induction does not inform you of its future behaviour because it cannot. Now I really wonder why this is so difficult to wrap your head round.
I would also like to point out that Mises never attempted to engage on the debate on philosophical skepticism. Praxeology accepts the action axiom and does not give the metaphysical basis for accepting this axiom. This like how natural science accepts the law of causality, even though you may question this as well.
LK,
Here’s something Mises said that can help you sort things out inside your head.
Page 101, HA
“This is not epistemological nihilism because I am not saying knowledge is impossible. I am only saying certain knowledge of the future is impossible.”
And I do not assert that my statement: “wages in 2014 will remain generally inflexible downwards” is certain, only probable.
That you cannot and will not understand that is testimony to your continuing dishonesty.
Your whole rubbish reduces to a deliberate lie and misrepresentation.
“Further, I am saying that as long as the universe remains broadly as known today, induction is a valid route to knowledge when the subject is inanimate and without volition. When the subject had volition, induction does not inform you of its future behaviour because it cannot.”
Lol.. that means: I am just assuming that the universe will remain the same to get out the trap I have fallen into. You say that induction cannot be used to make probable inferences about human behaviour in the future, but that implies literally that human behaviour is so changeable that there is no consistent behavior at all even visible: a clearly ridiculous notion and totally refuted by the real world.
Furthermore, the nonsensical position you take it NOT even the Austrian position. The Austrian position is that there are no universe timeless quantitative constants in human behvaioru like the speed of light:
“In fact, one lesson above all should be kept in mind when considering the claims of the various groups of mathematical economists: in human action there are no quantitative constants. As a necessary corollary, all praxeological-economic laws are qualitative, not quantitative.”
Rothbard, M. N. 2009. Man, Economy, and State, The Scholar’s Edition (2nd edn.). Ludwig von Mises Institute, Auburn, Ala.
But what I am positing is the probability of a continuing qualitative trend (which might change if conditions were to change radically), not a some universal quantitative constant.
It is quite clear you do not understand Austrian economics.
As long as people exist and remain people (purposeful beings) and the world remains one of scarcity (not paradise), every bit of knowledge I possess today would rermain valid. Of course, no one can remain certain what the future would look like. All “knowledge” is only about the present and the past. The future is always uncertain and any statement about it hinges on the assumption that the world would, broadly and at a fundamental level, remain as hitherto known and expected to be.”
which destroys your own position too.
Suddenly you are subject to the same uncertainty and you have no reason to think that people will continue to behave in the same way as required by Austrians economics.
“When the subject had volition, induction does not inform you of its future behaviour because it cannot. Now I really wonder why this is so difficult to wrap your head round.”
That position entails that there are no medium term or reasonably long or consistent patterns or regularities in human behavior at all: a position incompatible with reality and the belief that the disutility of labor axiom will even hold tomorrow, because — as Mises and Rothbard note — you need empirical evidence to prove even that people regard labour as a disutility.
Your position certainly results in epistemological nihilism about the belief that any human behavior required in Austrian economics will continue tomorrow.
As I said: you destroyed Austrian theory.
And I am just saying that your brilliantly formed probabilistic statements are little more than pathetic attempts at crystal ball gazing and not knowledge.
What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative? All we can say is that acting man will choose the more valued over the less valued. It is folly to make any assumptions on the content of those value scales and therefore claim that any qualitative or quantitative patterns can be gauged.
I also wonder when you will ever comprehend what you read. That humans can change their mind has nothing to do with the position on disutility of labour, because the latter stems from the fact of scarcity in the real world and the meanings of the concepts “labour” and “leisure”.
As I have explained, one has to be completely ignorant and refuse to comprehend anything that is said to them to say what you have after the explanation I gave above for the word “empirical” in the Rothbard quote you pulled out. You do not need empirical evidence. You need an empirical foundation which is the observation that we live in a world of scarcity.
It takes a very special person to say that Austrian theory requires any “belief” about any human behaviour continuing tomorrow. Thanks for demonstrating how ignorant you are about Austrian foundations. All you can do is throw intellectual sounding words without understanding their meaning or relevance.
And all you know to do is to spout a lot of meaningless stuff and then make this statement.
“What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?” … What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?
That is the most stupid thing you’ve written on this thread, and there are a lot of those.
Prediction: human beings in the UK will continue to name their babies “John” in 2015.
That prediction can be verified and falsified by the empirical evidence available in 2015.
Moreover, you are still pathetically ignorant of the Austrian position:
“In fact, one lesson above all should be kept in mind when considering the claims of the various groups of mathematical economists: in human action there are no quantitative constants. As a necessary corollary, all praxeological-economic laws are qualitative, not quantitative.” (Rothbard 2009: 845).
Since Austrian laws are alleged to be “quantitative” laws about human behaviour that are necessarily true, Bala just denied Austrian economics can have any universally true “praxeological-economic laws” in all places and times.
Way to keep refuting Austrian theory, Bala!
“That humans can change their mind has nothing to do with the position on disutility of labour,
Yes, it does: your stupid position has just destroyed your own arguments because disutility of labour does not simply logically follow from “fact of scarcity in the real world and the meanings of the concepts “labour” and “leisure”.”
You are so ignorant that you do not know that merely defining words in certain ways makes them analytic a priori and tautologies.
“You do not need empirical evidence. You need an empirical foundation which is the observation that we live in a world of scarcity.”
And that, ladies and gentlemen, is called violation of the law of non-contradiction, a basic law of logic.
E.g.,
Bala 1: “You do not need empirical evidence.”
Bala 2: You need an empirical foundation which is the observation that we live in a world of scarcity.” (empirical foundation = a type of empirical evidence)
(2) reduces to the negation of (1), so Bala is asserting a proposition p and ~p at the same time. Proof he knows no basic logic. But we already knew that.
“It takes a very special person to say that Austrian theory requires any “belief” about any human behaviour continuing tomorrow.”
Austrian praxeological laws assert universally true types of human behaviour in all places and times and need to be true tomorrow for Austrian theories to be true.
But, no, says Bala the fool: So if disutility of labour and stopped being true tomorrow, then Austrian economics would still be valid! Priceless.
LK
It is interesting to note that you dug out an example that has not a shade of economic theory attached to it when you pulled this out
This is all the more interesting because you know perfectly well that you have taken my statement out of context, where the context is explained very well shortly after the statement you pulled (out of context). Here it is.
You were not talking of economic laws, were you, when you were talking of wages being sticky? (Now that I have placed my statement back in context, you should be able to give me a better reply)
This is priceless. I have explained how it follows logically. And what is your refutation? An empty assertion. That’s all you have given.
The phrases empirical foundation and empirical evidence mean different things. The former is what the line of reasoning takes as a given. The latter is the data to be collected to validate the conclusions. That you make a claim that I am violating the law of non-contradiction without even realising the difference between these two is simply mind-blowing.
This is downright hilarious. I have explained over and over again that as long as humans are purposeful beings and live in a world of scarcity, the laws are valid explanations of phenomena that are a result of human action. Austrian theory does not make any claim to knowledge of what the universe would be like tomorrow and how things would be explained in a different universe. It only explains economic phenomena and their drivers in the real world of scarcity.
This one absolutely takes the cake. I have explained many a time that disutility of labour is a logical corollary of human action in a world of scarcity and that in the event of the world transforming into one not characterised by scarcity, there would be no more disutility of labour simply because there would be no trade-off between labour and leisure.
It would be all the more interesting to study the very relevance of economics as a field of study in a world not characterised by scarcity. Until we find ourselves in that world, however, we have Austrian School economic theory.
“Austrian theory does not make any claim to knowledge of what the universe would be like tomorrow”
Including all human behaviour? If so, you just destroyed Austrian economics again: for now it can only be about the past and be a kind of historical interpretation only: the very thing that Mises denies it is.
Keep talking, Bala, every word digs you deeper into your hole.
”I have explained many a time that disutility of labour is a logical corollary of human action in a world of scarcity and that in the event of the world transforming into one not characterised by scarcity,”
False: you’ve admitted above that it is ultimately known empirically.
“The phrases empirical foundation and empirical evidence mean different things.”
Let anyone who has done logic evaluate that for themselves in all its breathing stupidity.
This is exasperating. I said that what we know empirically is that we live in a world of scarcity. From this given, we understand that there is a trade-off between labour and leisure. My position was that this necessary trade-off is what the disutility of labour is fundamentally about. It is not disutility that is “known” empirically but scarcity.
More context dropping.
That’s not what the BLS says, presuming you regard the USA as a developed nation.
http://www.bls.gov/ncs/ect/sp/ececqrtn.txt
Every category, every year is changing, generally by a few percent. The changes tend to be upward which is hardly surprising when inflation is government policy. If you search hard, a few of the series have some downward movements in them, so it isn’t impossible for prices to go nominally down either.
BTW: I’m pretty sure these are nominal figures, but the header doesn’t spell that out. I think they would say if it was adjusted.
“Every category, every year is changing, generally by a few percent. The changes tend to be upward which is hardly surprising when inflation is government policy”
lol: you just proved my point.
You’re simply so stupid you did not bother to read my statements:
“Do you even dispute the empirical evidence that wages are highly inflexible downwards?”
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-290193
“nominal wages in the US in 2013 were relatively inflexible downwards.”
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-293668
“Proposition (2): nominal wages are normally inflexible downwards.”
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-295922
“That is exactly why you need to ask managers and workers — and above all managers — why nominal wages tend to be relatively inflexible downwards.
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-296610
It looks like you have trouble even reading, anonymous,
But thanks for providing us with more empirical evidence that destroys Bala.
“the changes tend to be upward”
My point is totally proven: I’ve said again and again above and below that nominal wages are relatively inflexible downwards.
Try reading my comments next time, anonymous
Well LK, you do tend to change position. You sometimes say that prices are fixed and sometimes that they are “relatively” inflexible, or highly inflexible, or as you say above “generally” inflexible.
Sometimes you bother to mention that this only applies in one direction, and only with regard to nominal prices not real prices, sometimes you skip over this bit.
Let’s run with the latest: that nominal wages are flexible in one direction but not the other. OK, so government has beneficently offered to maintain a target of 2% inflation. In this case we must conclude that real wages are flexible. But if real wages are flexible, then by gum Austrian economics can work as advertised. Prices can adjust in response to market forces.
Look, I’m happy with the government maintaining a constant 2% inflation. If that was the one and only job for government I think we would be doing pretty well. Let’s make it a deal. Government can stay out of my life, and I won’t bitch about 2% inflation.
Everyone can be happy!
We even get to keep being Austrian economists, we just need to apply a suitable inflation adjustment… which I think can be arranged.
“In this case we must conclude that real wages are flexible. But if real wages are flexible, then by gum Austrian economics can work as advertised.“
You have no idea what you’re talking about, Tel
Austrian economics does not say that wages and prices clear or should clear by real price movements: it is primarily by nominal price movements that markets clear.
In fact the notion that inflation might have some positive impact on reducing
high real wages — which Keynes pointed out in the GT wrokers are more likely to accept than nominal wage cuts (which people generally strongly oppose) — has been hysterically denounced by Austrians as an evil idea contrary to market freedom and their own Austrian economic theory.
Your sheer ignorance of
the Austrian economics you support speaks volumes.
Hey Bala, this further shows Lord Keynes incapacity to grasp very simple concepts. Out of all his numbered propositions, I would like to point out that not one of them was an economic proposition.
“In short, you just proved that you have no possible reasonable basis to think Austrian economics will continue to be valid in any way tomorrow.”
Austrian economics is always valid whether or not the events it analyzes happen in reality. We may analyze the events that take place in the Land of Oz and any valid economic propositions would still be valid even though Oz does not exist.
When I read his recent post on marginal utility I think I threw up a little.
Oh! I threw up in the very first line. Thankfully, that also meant that there was no need to read further.
“Austrian economics is always valid whether or not the events it analyzes happen in reality. “
You mean if you devise an analytical a priori system inapplicable to reality but internally valid in the formal sense of logic, it remains true only in your fantasy world but is false with respect to the real world?
lol… you should stop talking now Hank: you’re statements just destroy Austrian economics as brilliantly as Bala’s did above.
LK,
Given that the empirical foundations pertain to reality, the logical system cannot, as you ridiculously and repeatedly claim, apply to a fantasy world.
No LK, they do apply to the real world since the real world is composed of actors. As long as we conceive actors in the reality in which we live, praxeological laws (economic laws) must apply.
If I were to imagine any fantasy world, as long as this world has actors, all praxeological laws must automatically follow merely by considering them as actors.
The reason we pick real world events to analyze is because they are relevant and useful to us.
Hold on guys! I think Lord Keynes may have implied that Austrian economics is “internally valid”. We are making headway! Now all we have to do is convince him that the humans act and he will concede everything else!
Wrong. I make the claim that they are quite valuable as empirical indication of how future surveys will be filled out.
To make any claim beyond that would require some a-priori knowledge, but I know you don’t believe in that shit, because you are an empiricist.
I would like to refute the status of LK being an empiricist since he is inept at doing any empiricism.
So, what, now there has been a massive volte face in your position?
Suddenly these surveys **are** good evidence of why managers do not normally cut nominal wages?
If not, you are still positing that there is some massive conspiracy theory — which is fine for tinfoil hat wearing conspiracy theory fantacists like you.
Please try to read.
I repeat for the third time, they are evidence of how future surveys would be filled out. That how empiricism works.
So they are NOT evidence that managers generally do not cut nominal wages because they fear negative effects on morale and productivity?
Answer a straight question .
No. Not if you want to stick with empiricism. Measuring surveys gives you information about surveys, while measuring wages gives you information about wages. That’s empiricism.
If you want to introduce an a-priori claim that all managers are honest, and further that such people reliably keep their promises even when they can’t be held to it, then this would not be an empirical claim, it would be your belief.
For what it’s worth, it isn’t my belief.
At any rate, as I mentioned above… we know that inflation is real (both price inflation and monetary inflation) so we know nominal prices tend to drift upward on just about everything. This upward drift on prices is easily observable… just look at CPI over a few decades.
There’s nothing in the Austrian economic principle of economic calculation that requires nominal prices to adjust, is it quite sufficient that real prices adjust instead. Thus, we still have flexibility in the marketplace, and we still have price signals and all that other good stuff.
“If you want to introduce an a-priori claim that all managers are honest..,”
No **a priori assumption** is made or assumed or introduced.
You’re pulling it right out of your a**, Tel.
All one needs to infer **inductively** is given the evidence that:
(1) the survey is anonymous and they have no clear reason to lie, and
(2) there is remarkable consistency in the results of these surveys in different nations at different times, which is an astonishing outcome if they were lying.
——
therefore it is probable that most of these managers are telling the truth and the results are sound.
To assume otherwise requires:
(1) that the managers were all or mostly lying (highly improbable given the degree of consistency), or
(2) it is all some vast conspiracy theory by researchers who have invented this myth.
——-
Either way you are a tinfoil hat wearing conspiracy theorist, Tel.
Admit the truth and move on.
“There’s nothing in the Austrian economic principle of economic calculation that requires nominal prices to adjust, is it quite sufficient that real prices adjust instead. “
What utter and contemptible ignorance.
Rothbard:
“There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available. If businessmen choose to keep prices up, they are simply speculating on an imminent rise in market prices; they are, in short, voluntarily investing in inventory. If they wish to sell their ‘surplus’ stock, they need only cut their prices low enough to sell all of their product.” (Rothbard 2008: 56).
He is talking about nominal price cuts, not real prices,Tel.
At least I understand how empiricism works and can identify a leap of faith requiring an additional assumption.
You on the other hand claim that you make no additional assumptions, while also claiming that all managers being surveyed can be trusted to be completely honest, but this somehow is not an assumption ?!?
Here are the BLS figures for Service occupations, Cost per hour worked (June):
2004 $26.31
2005 $27.36
2006 $28.71
2007 $30.05
2008 $28.23
2009 $29.31
2010 $29.97
2011 $30.58
2012 $31.23
2013 $31.77
Well, look at that, 2008, 2009, and 2010 are all lower than 2007. Maybe a few of those managers forgot to check the survey results?
Professional and related occupations, Cost per hour worked (June):
2004 $41.27
2005 $42.99
2006 $45.04
2007 $47.01
2008 $46.35
2009 $47.97
2010 $47.36
2011 $48.09
2012 $48.76
2013 $50.25
Hmmm, seems to have happened again, almost like some important event happened in 2008. I wonder if those surveys were asking the right questions?
Junior colleges, colleges, and universities, Cost per hour worked (June)
2004 $39.69
2005 $40.96
2006 $43.20
2007 $45.29
2008 $43.94
2009 $46.06
2010 $44.50
2011 $45.23
2012 $45.87
2013 $47.16
Oh man, these prices are flexing up, and down, and up again, and down again, and up. Like they must be doing Yoga or something.
Health care and social assistance, Cost per hour worked (June)
2004 $31.80
2005 $33.14
2006 $35.70
2007 $37.00
2008 $38.94
2009 $39.96
2010 $34.99
2011 $35.71
2012 $35.88
2013 $39.79
Peak in 2009 instead of 2008, almost like different sectors of the economy adjust against each other in some cosmic dance.
By the way, I was cleaning out the back shed and I found a bunch of old survey results. Dunno if they are useful for anything. Maybe mulch the garden with them or something.
“You on the other hand claim that ****all managers being surveyed can be trusted to be completely honest****, but this somehow is not an assumption ?!?”
I made no such claim, idiot.
I said the evidence strongly **suggests** that it is **probable that most of them were telling the truth**: by contrast, your explanation is highly improbable and requires conspiracy theories — which you do not even seem to be disputing. Funny, isn’t it?
Really, such plain and obvious lying by you suggests to me you know you just got your a** handed to you, tel.
Oh, and all your hourly nominal wage rate figures just prove my point: nominal wages tend to be inflexible downwards.
The few movements downward from 2008-2009 occurred in the anomalous shock of the worst recession seen since the 1930s — a clear exception to the general trend.
Thanks for giving even more evidence to prove my case.
“Oh, and all your hourly nominal wage rate figures just prove my point: nominal wages tend to be inflexible downwards.”
This has no bearing on future wage rates.
You said it yourself when you confidently asserted that the past is not a reliable guide to the future when it comes to things like the economy, and that the problem of induction is “particularly acute.”
Now you’re suggesting wages will always be sticky by reasoning from the very past that you claimed is not reliable.
Or are you positing wage rigidity based on a priori grounds of a logical category of worker thought?
This is what it would look like if the system failed (hypothetically speaking, should that ever happen):
https://twitter.com/ChrisZFitness/status/438830671252176896/photo/1
LK claiming that “free banking” in Australia in the 1800s disproves Austrian analysis is like saying that a society of cannibals that had no government disproves the efficacy of broad agreement on enforcement of the NAP as a deterrent to violations of the NAP. “Social democrat” John Quiggin on the mess that was Australian “free banking”:
Here’s a quote from a paper with a relatively positive view of the free banking era, which nonetheless notes the systemic collapse of 1893
Australia provides a textbook example of free banking in practice. One writer on the subject commented that in Australia “the legal framework with which banks operated was perhaps the least restrictive of any on
record” (Dowd 1992).Butlin (1953),commented that “there was no tender law, no central bank, no legal control over the total volume of bank loans, and only a very primitive control by the banks themselves through a loosely applied rule of thumb (cash reserves should be to one-third the sum of deposits and notes) concerning reserves against all liabilities”.
the 1840 Colonial Bank Regulations issued by British Treasury governed colonial banking. The requirements included that: capital should be a determinant amount and must be fully subscribed; total debts must not exceed three times the paid up capital and that all notes were to be payable on demand in specie at the place of issue. Failure to pay on demand for a total of 60 days in any year entailed forfeiture of incorporation. Personal liability for bank shareholders was capped at an amount equal to twice capital and loans against real estate, shops or merchandise were to be prohibited. Amendments to the regulations in 1846 limited the note issue to the amount of paid up capital.
Banking was not substantially affected by the regulations, however. For example, the restrictions on total debt and note issue were largely ignored (Butlin 1986). Likewise, banks found loopholes around the prohibition on lending for land (Pope 1989). In practice, Australian colonial banks were allowed to raise the limits on note issue by including coin and bullion in paid-up capital. Over time, even this stricture was relaxed; by 1856 the Bank of Australasia secured a licence to print private notes up to the value of three times its specie and bullion holdings. Reserve requirements were easily met as “double counting” was permitted: reserves used to back the note issue were simultaneously used to provide liquidity in the event of a deposit withdrawal. Rules limiting total indebtedness were also no threat because deposits were excluded.
This freedom of note issue was, however, accompanied by strong liability provisions. In most colonies by the late 1860s, shareholders had unlimited liability for their note issue (Pope 1989).
Source is OPTIMAL REGULATION OF ELECTRONIC MONEV: LESSONS FROM THE “FREE BANKING” ERA IN AUSTRALIA by THOMAS A. ROHLING AND MARK W. TAPLEY*
Economic Papers: A journal of applied economics and policy
Volume 17, Issue 4, pages 7–29, December 1998
http://critiquesofcollectivism.blogspot.com/2011/02/john-quiggin-on-abct.html?showComment=1298001476947#c6188943951814638041
I fail to see how this system explicitly differentiates between real savings and “credit money” for purposes of pricing and it is precisely a system that all Austrians would predict would collapse precisely as it did. Of course, LK in his “analysis” finds it necessary to obliterate, distort and obfuscate the function and nature of pricing as providing essential information (as opposed to the idiotic notion that Austrians predict price changes instead of production changes or some such nonsense).
It’s outrageous and dishonest for the statists to still be attempting to hang a system like Australian “free banking” on us.
“LK claiming that “free banking” in Australia in the 1800s disproves Austrian analysis “ … It’s outrageous and dishonest for the statists to still be attempting to hang a system like Australian “free banking” on us.
Except nobody “hanged” the Australian “free banking” system on Rothbardians you, idiot.
I do not say that it refutes Rothbardian 100% reserve bankers: **but that the episode refutes the free bankers’ theory.**
The Rothbardian 100% reserve bankers are wrong for other reasons:
(1) credit money is neither inherently fraudulent nor immoral;
(2) the claim that new credit money has no benefits and only economically
bad effects is rubbish: new credit money creation is a vital part of any modern capitalist economy.
(3) following from (1) to stop private sector creation of credit money would require massive coercion and force: proving only that the Rotbardians — by their own standards — are anti-capitalist, collectivist, anti-liberty thugs.
——————–
So yet again we have the plain case of Roddis the shameless liar simply inventing nonsense.
Rothbardians **or ** you,
“3) following from (1) to stop private sector creation of credit money would require massive coercion and force: proving only that the Rotbardians — by their own standards — are anti-capitalist, collectivist, anti-liberty thugs.”
NO. Just stop doing the things you are currently doing that require force. Such as FDIC taxpayer funded insurance.
We don’t need to implement new coercion, you need to stop yours.
119. Where does the FDIC get its money?
From assessments on insured banks, and interest on U.S. Government securities it holds.
120. Where did the FDIC get money to start operations?
The Treasury purchased $150 million of stock in the FDIC, and the Federal Reserve, on instructions of Congress bought $139 million of stock. This stock was repaid by the FDIC in 1947 at 2 percent interest.
121. How much do the insured banks pay the FDIC?
Insured banks pay annually a gross assessment of one-twelfth of 1 percent of their total deposits.
122. Is the FDIC subsidized by the Federal Government?
Yes. Although it paid back the original $289 million of stock several subsidies remain. The fact that the FDIC gets half its total income from Government securities itself represents a sizable subsidy.
123. What direct commitment does the Treasury have to the FDIC?
The 1947 amendments to the Federal Deposit Insurance Corporation Act provide that the FDIC can borrow up to $3 billion from the U.S. Treasury at its discretion. The law directs the Secretary of the Treasury to put up this $3 billion any time the FDIC wants it.
Oh LK, you maker of statements meant to deceive or give a wrong impression….
No Rothbardian has anything against “credit money” per se, only when it is indistinguishable from money which represents true savings. From an empirical standpoint, if, at a particular historical moment, prices stated in terms of money representing true savings are not being differentiated from prices stated in terms of “credit money”, then there was and will be a problem of economic calculation.
And don’t go run off saying that everyone already thoroughly understood and understands this difference. If this difference was understood, then there wouldn’t have been unsustainable asset bubbles. If this difference was understood, there wouldn’t be an alleged need for your a priori omniscient and benevolent loan regulator to stop people from being fools.
During the housing bubble, there was no real savings at the end of the rainbow with which to exchange for the $150,000 house how going for $800,000, only (the buyer hopes) a further emission of funny money loans to future buyers. And the process only occurs due to general obliviousness concerning the differences between real savings and “credit money’” masquerading as real savings.
Further, due a total lack of concerns about perpetual inflation, under a Rothbardian system, there would be no need to invest in inflation hedges, a main driver of asset bubbles.
Finally, as always, the core concept of “prices as information” disappears from the L-Keynesian “analysis”, as it must.
IF you work backwards from the information below, it all makes more sense what lk is trying to accomplish, even if lK des not understand what he is advocating.
I. Nothing in society will belong to anyone, either as a personal possession or as capital goods, except the things for which the person has immediate use, for either his needs, his pleasures, or his daily work.
II. Every citizen will be a public man, sustained by, supported by, and occupied at the public expense.
III. Every citizen will make his particular contribution to the activities of the community according to his capacity, his talent and his age; it is on this basis that his duties will be determined, in conformity with the distributive laws
I agree, but the funny money process effectuates the perpetual theft and transfer of purchasing power without the victims understanding what is happening all the while believing that they live in a society that actually protects private property.
“No Rothbardian has anything against “credit money” per se, only when it is indistinguishable from money which represents true savings. “
Anyone can write a negotiable IOU with the promise to pay at some point in the future without having the necessary money at the time he writes it but which is accepted by others because he has theii trust: the whole history of credit money has included merchants and other using such instruments such as bills of exchange, promissory notes, etc.
But according to you, such private free capitalist practices are all evil! You vicious, anti-freedom thug, you.
Again, you’ve distorted my point. There’s nothing wrong with credit per se, only when credit money is indistinguishable from true savings. I’ll take your distortion as a win.
“There’s nothing wrong with credit per se, only when credit money is indistinguishable from true savings. “
which entails that you demand that all credit money not backed by “real savings” is immoral and you wish to abolish it by imposing your vicious, collectivist will on unwilling capitalists.
Perhaps it is because you have a deep and pathological hatred of true capitalism!
I think credit money here is a misnomer. “Credit money” is a debt claim to future goods. Money is a present good that satisfies an actor’s present uncertainty about the future.
“Ben B
I think credit money here is a misnomer. “Credit money” is a debt claim to future goods. Money is a present good that satisfies an actor’s present uncertainty about the future.”
Ben serious question. If future goods fail to materialize, then where do these debt claims land?
On the holder of the claim.
I don’t think debt claims are money; debt claims may be claims to money in the future, but I don’t think they are money.
It seems what LK and Roddis are talking about is fiat money (money substitutes not backed by money). When I think of credit, I think of debt claims. Can people trade debt claims? Yeah, why not?
What I mean to say, is that I think LK thinks Roddis is talking about debt claims when Roddis is referring to fiat money.
“Ben B
What I mean to say, is that I think LK thinks Roddis is talking about debt claims when Roddis is referring to fiat money”
Banks only have 10% of what they loan, so they can only be loaning fiat debt claims.
Then follow that up with QE3, to the tune of 85B per month. This is when we buy back the junk assets(liquidate!). Collective economics.
Just imagine the most moronic perverse system possible and you have nailed it.
The future is uncertain, money does not change that. Some specific actor may be satisfied by some specific promise though. In which case the evaluation is subjective.
That might be your subjective evaluation, but you also accept that other actors may evaluate differently, depending on how confident they are in future payment.
Take a look at how large the student loan system is, and how much of the US banking industry is depending on those loans getting paid back.
Tel,
People hold money because they are uncertain about their future demands for specific goods. Yes, the amount of money they hold depends on their subjective evaluations of the future. To be clear, holding money doesn’t solve uncertainty; but it satisfies the psychic value one attaches to uncertainy and it’s effects on their overall wellbeing; it satisfies their demand for liquidity. If somebody is particularly worried or unsure about their future purchases, then they will want to increase their cash balances.
A debt claim is a future good; money is a present good. Money attempts to address one’s demand to better alleviate economic uncertainty.
A debt claim isn’t liquid. Or, at least it’s less liquid than money. Why would anyone want to hold this over money for for the purpose of purchasing some yet unknown goods in the future?
People who are uncertain about inflation coming up might well avoid holding cash. It really depends on what sort of uncertainty they are facing.
“There’s nothing wrong with credit per se,”
Don’t forget about tax payer bailouts and other tricks.
Credit is okay , why issuer assumes all risk.
Credit is okay when issuer assumes all risk.
I like to think Lord Keyne’s senility is getting worse and worse. I would like to point out a few things for those who actually care about sound analysis.
1) This is not an economic analysis. You can’t show economic analysis as false on any moral grounds. It’s simply irrelevant.
2) Austrians never make the claim that new credit money has NO benefits. It obviously has many benefits for people at the cost of others.
3) Lord Keynes doesn’t understand the concept of tort law and burden of proof. A person would have to make the case that a bank violated the terms of their contract. It would not be some dystopia where the government monitored all banking activities. And yes, if a person proved the bank violated the terms of their contract, force would be permitted.
(1) Rothbard’s arguments on FR banking — whether moral or economic — simply fail:
http://socialdemocracy21stcentury.blogspot.com/p/blog-page.html
(2) ” Austrians never make the claim that new credit money has NO benefits.”
Does that include FR banking credit money?
(3) the very argument that FR is immoral fails, so it does not matter that only private law suits would involved in anarcho-capitalist paradise. You are restricting the freedom of bankers on spurious grounds:
“In a free market, FRB would be illegal because of its fraudulent nature.”
Murphy, Robert P. Study Guide to Man, Economy, and State with Power and Market, p. 142.
———–
Except Austrians are wrong: it is not inherently fraudulent at all, since they confuse a (1) bailment with a (2) mutuum contract.
So I can only assume you have absolutely no problem with anybody and every body practicing FR banking?
I have 100K, I am going to print, in my basement, 900K in the form of 100 dollar bills, and loan it.
Okay by you?
Credit is a claim to future goods. If these claims are exchanged, then they become credit money.
FR banking does not involve credit money. Money substitues not backed by money are used in fractional reserve-banking; they are fiat money.
Money substitutes represent claims to present goods; money. Credit is a claim on future goods. They are not the same thing.
And in a regime of fiat money, fractional reserve banking involves creating claims to present goods (money) without having enough reserves to back up those claims.
1) I get it, you don’t like Austrians. If Rothbard said “the sky is blue,” Rothbard would be wrong.
2) If it didn’t benefit anyone, no one would engage in it.
3) A person obviously could enter a contract with a bank with the understanding that the bank reserved the right to inflate.
I think Rothbard argues that if people do not have this understanding, then the bank is breaking the terms of its contract.
I very much disagree, and your own quote points this out:
And there is the nub of it, strong liability on a personal basis. The rule of law was in operation, it was no society of cannibals and both property rights and contract rights were enforced.
The fact that some (not all) banks failed, and those shareholders had to pay for their mistakes, was evidence of a working system.
There’s never been a system on Earth where every business is guaranteed a success, nor will there be, nor can there be. Some business will fail. If anyone proposes a system were banks cannot fail they are a scam artist. Simple as that.
This link is to a 1964 banking report created by subcommittee on domestic finance. It is 169 questions and answers and can be easily read by anybody, even Ken B.;), in less than 30 minutes.
There are objections and suggestions in this report that I disagree with but never the less, a good read.
I think todays Fed, especially Ben Bernanke may have used this little book as his guiding light.
I especially like chapter 8. It explains some of the taxpayer giveaway functions inherent Federal Reserve.
This book report is form 1964, it is incredibly fascinating to compare there paradigm then, to how things have changed during 40 years since this report.
Enjoy.
http://dewoody.net/money/index.html
With a bit of luck it will stop snowing in Canada soon and he can get out of the house for a spell.
If the education system failed all blog discussions would look like this one.
LK, the claque here disagree with your economics. To them this is a matter of self-worth. (Austrian economics is a wertfrei science all decent people accept.) Thus they will gainsay anything you say on any topic.
I think you are taking these comments too seriously.
So says a man who can’t comprehend what he reads. Very interesting.
A tip Bala, because you could use the help. To be effective an insult must be colorable. So when Bob wants to insult me he alleges I’m arrogant or snide. If I want to insult you I might remark you mistyped and told the truth, but I wouldn’t call you ungrammatical. See the point?
When I want help, I’ll ask. I prefer my way to yours. If Bob wants to delete the comment, let him. That’s his call. And I am not a “nice guy”. See the point?
I’m sorry, I used the term colorable, which is evidently not part of your vocabulary. I would explain it has nothing to do with comity or manners, but then I’d probably just be repeating the error. So, dictionary.com
What makes you think I care a rodent’s posterior for your opinion?
Sorry. I keep making comments with the (in your case misplaced) expectation that the recipient would comprehend it. I’ll watch it next time.
I just noticed something that I thought I should bring to your notice. Let’s see if you can comprehend this. There is something very interesting that must be happening when a man who cannot comprehend what he reads reads someone’s comments and says this
about that person. What a breathtaking combination!!
Weren’t you the one who was proclaiming that LK had chopped someone to pieces? Would you now like to gather the fine pieces into which LK has been chopped?
Ken B,
Just check out how Bala’s statements are becoming more extreme by the moment.
He says above:
“What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?” … What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?
This is not even the Austrian position, which says only that there are no universal human quantitative constants akin to the speed of light:
“In fact, one lesson above all should be kept in mind when considering the claims of the various groups of mathematical economists: in human action there are no quantitative constants. As a necessary corollary, all praxeological-economic laws are qualitative, not quantitative.” (Rothbard 2009: 845).
Bala is now effectively denying that there can be any praxeological laws!!
LK,
Taking statements out of context is a strategy usually adopted by losers in an argument. That you are choosing that approach is very revealing. For the rest of my reply, go to the other subthread.
There is nothing taken out of context: that is the Austrian view and you are so ignorant you do not even know this fact.
LK,
Stop prevaricating. Here is the statement you chose to take.
And here are the statements that were right after that one and which you replaced with ….
So, you are indeed guilty of taking my statement out of context and fitting the out-of-context statement to suit your agenda. I always knew you were mendacious, but this is just too blatant even by your standards.
I said no predictions can be made based on assumptions about the content of people’s value scales, which is what you were trying to do when you were claiming continuity in trends in wage-related behaviour of employers. Once you drop context, just about anything can be said and you just demonstrated that.
No, you denied that any predictions of either a quantitative or qualitative kind can be made:
What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?
Don’t lie, bala.
Now Mises’s view:
“Over 40 years ago, Mises (1966) taught us that economics is about human action, unforecastable and untranslatable into mathematical models; economics, he said, can only provide qualitative predictions about particular polices.”
http://mises.org/daily/4886
“Mises distinguished between the role of ‘quantitative predictions’ within the natural sciences and ‘qualitative predictions’ in sociology and economics. He argued that it is impossible to predict specific outcomes in social science with any degree of accuracy and that, instead, social science should concern itself only with the prediction of patterns” [i.e, qualitative predictions]
Mark J. Smith, Social Science in Question: Towards a Postdisciplinary Framework, p. 155.
In other words, your view requires rejecting Austrian economics because it claims to be able to do the impossible: make qualitative predictions.
Well done, bala.
LK,
The mendacity is all yours as I have shown in the subthread just above.
Show me how I am mistaken that Austrian economists say they can make valid qualitative predictions about the future?
In fact their view is even more extreme than mine, because I only claim I have make valid probabilistic predictions about the future, not certain ones.
7. PRAXEOLOGICAL PREDICTION
Praxeology can make certain predictions about the future, but they are necessarily qualitative.
Murphy, Robert P. and Amadeus Gabriel. 2008. Study Guide to Human Action. A Treatise on Economics: Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala. p. 47.
More mendacity…
The mendacity is spoke of was claiming I said what I did not by dropping the key part of my set of related statements. I fail to see how it could be accidental. That’s why I decided to call you out for prevarication.
(1) Bala:
“What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?”
(2) Meanwhile, Robert P. Murphy:
7. PRAXEOLOGICAL PREDICTION
Praxeology can make certain predictions about the future, but they are necessarily qualitative.
Murphy, Robert P. and Amadeus Gabriel. 2008. Study Guide to Human Action. A Treatise on Economics: Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala. p. 47.
——————-
Bala totally destroys the basis of Austrian economics, and both he and his beloved cult economic “science” disappear in a puff of smoke and with the stink of sulfur.
My work here is done.
Context dropping….
hahaha… you mean you just realised the game is up and you are probably going run off in terror now?
Since Austrian economists assert the opposite of what you say?
No. I said you are taking my statement out of context. I have explained how with proof that includes my complete statement.
I showed that you are engaging in falsehood. That’s not running away.
Here
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-300515
is where
No, bala you are a miserable liar:
“7. PRAXEOLOGICAL PREDICTION
Praxeology can make certain predictions about the future, but they are necessarily qualitative.
Murphy, Robert P. and Amadeus Gabriel. 2008. Study Guide to Human Action. A Treatise on Economics: Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala. p. 47.
Nothing is taken out of context: it is very clear and explicit statement.
So tell us do you agree that Austrian economics can “make certain predictions about the future, but they are necessarily qualitative.”?
Yes or no?
You are quite clearly wrong to assert this:
What will it take for you understand that saying humans can change their minds only means that no predictions can be made, quantitative or qualitative?
Do you now withdraw that comment?
Don’
LK,
Once again, here is the replxy you are refusing to read and where I have shown that you are dropping the context from my statement.
http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-300515
The context was already understood by me from the beginning: but your comment is STILL refuted by Austrian economists.
Bala:
“All we can say is that acting man will choose the more valued over the less valued. It is folly to make any assumptions on the content of those value scales and therefore claim that any qualitative or quantitative patterns can be gauged.
Mises’s view:
“Mises distinguished between the role of ‘quantitative predictions’ within the natural sciences and ‘qualitative predictions’ in sociology and economics. He argued that it is impossible to predict specific outcomes in social science with any degree of accuracy and that, instead, social science should concern itself only with the prediction of patterns” [i.e, that means qualitative predictions]
Mark J. Smith, Social Science in Question: Towards a Postdisciplinary Framework, p. 155.
“7. PRAXEOLOGICAL PREDICTION
Praxeology can make certain predictions about the future, but they are necessarily qualitative.
Murphy, Robert P. and Amadeus Gabriel. 2008. Study Guide to Human Action. A Treatise on Economics: Scholar’s Edition. Ludwig von Mises Institute, Auburn, Ala. p. 47.
Let me highlight the correct portions in my own statement.
“It is folly to make any assumptions on the content of those value scales and therefore claim that any qualitative or quantitative patterns can be gauged.”
So, if you read carefully, you will see that I am saying that only idiots make assumptions about the contents of other people’s value scales in the future and then claim that since he sees no reason for the contents to be different from those in his assumptions, the patterns he claims will be seen will necessarily be seen.
Yes, bala, your defeat has now reduced you to inability to answer any questions posed to you at all.
More proof of your defeat above.
7. PRAXEOLOGICAL PREDICTION
Praxeology can make certain predictions about the future, but they are necessarily qualitative.
Do you agree or not?
LK,
If you read my previous reply, even you can realise that this question/challenge is quite irrelevant. Keshav has stated my position very well. Maybe you could just read it and cut this wasteful back and forth short.
Lord Keynes, regardless of whether Bala accidentally said that predictions of any kind are impossible, I think what Bala actually believes is that predictions involving humans are impossible if based on empiricism and assumptions about what people’s preference orderings are going to be, but that they’re possible if they’re instead based on derivations from the action axiom.
Thank you, Keshav.
Wait a moment. Bala did not say we could make predictions based on prax. He said, all we can say is people will choose the most preferred. But he denies we can ever know that in advance. So it is an ex post explanation not the basis of a prediction. We cannot predict if Keshav will choose the stawberry or the chocolate, not even on the basis of his lifelong expressed disgust for chocolate, but we can say whatever he chooses will be what he preferred at that moment.
The issue isn’t making predictions. We can in fact always do that. Keshav will chose strawberry. Done! The issue is interpreting what the success or failure of a prediction means for the underlying theory or models. LK thinks statistical success and failure are meaningful. Bala denies this.
I think by “impossibility to make predictions”, Bala means “impossibility to make valid predictions”. Of course you can always make a baseless prediction (which may turn out to be right or wrong by coincidence), but the question is what is a justifiable basis for making a prediction. Lord Keynes thinks that empirical observation suffices to make valid predictions, and Bala thinks that in situations where humans are concerned only praxeology suffices to make valid predictions.
And yes, I agree with you that it seems unlikely that praxeology could ever generate a prediction much more complex than “If John prefers X to Y, then John will choose choose X rather than Y.” It seems implausible, for instance, that Cordoba would be able to derive any significant or nontrivial propositions in the system described in the paper I linked to in an earlier thread.
Here’s the paper I’m referring to: http://www.philosophie.uni-hamburg.de/Team/Cordoba/Materials/oc_Foundations-PraxEcon-05-final_2013-05-28.pdf
Keshav, one problem is this http://consultingbyrpm.com/blog/2014/03/what-would-it-look-like-if-the-system-failed.html#comment-300436
That seems to rule out your X Y as a predictive matter. Talk about me prefering X to Y before I act is the crux of what Bala denies can be done. It can only be an ex post conclusion.
Yes, Bala is saying that past preferences say nothing about action in he present. But you can still make a (trivial) conditional statement concerning preferences in the present and action in the present.
Ken B,
This comment is where context matters. LK is claiming based on the survey results that he sees no reasons for the managers to change their valuations. Hence he is making predictions (that he considers valid) that wages would remain sticky and therefore that he can make a generalised statement that wages are sticky.
There is a world of difference between knowing a single person for a lifetime and guessing how that person’s value scales are organised and “knowing” someone only through a survey and claiming to make valid guesses about the contents of their value scales, so valid that one could transform it into the general proposition “wages are sticky”.
Present?
What observable thing is Bala saying can be predicted? NOne. You cannot in his scheme observe your preference for chocolate, only infer it from your choice after you have chosen.
That’s not present.
I happily stipulate surveys are of little worth. That is irrelevant to the point under discussion.
Ken B,
It may help if one understands that the Austrian approach adheres to the concept of demonstrated preferences under which, theoretically speaking, a person’s preferences may be known only ex-post, not ex-ante. That’s why making such predictions is not the job of the economic theorist.
“I happily stipulate surveys are of little worth. That is irrelevant to the point under discussion.”
It may be irrelevant to the point under discussion now but not to the point I was arguing with LK. His point was that his surveys permit us to make valid predictions about the future path of wages.
Keshav. Thanks once again.
(1) “Lord Keynes, regardless of whether Bala accidentally said that predictions of any kind are impossible,”
First notice how he has not even the basic intellectual honesty to say “Oh, yes, I made a mistake in saying that no qualitative or quantitative prediction can be made”.
That correction alone concedes massive points to me.
My prediction on wage setting in the immediate future is nothing but a probabilistic qualitative prediction.
(2) Secondly, we have already seen that the disutility of labor axiom can only be known ultimately in an empirical way.
His incoherent attempts to explain how knows it just show how he will not even accept what all other Austrians tell him: it is known by experience.
If it is known by experience, then it follows any person x has preference orderings in which work and leisure are present.
Bala says that “predictions involving humans are impossible if based on empiricism and assumptions about what people’s preference orderings are going to be”, so how does he know that any random person I pick regards labour as disutiltiy now and will do so tomorrow?
Since this is a point of confusion for Lord Keynes, Ken B, and perhaps Bala, among others, I think some relevant literature will give light to this. Here is Lionel Robbins:
“Economic laws describe inevitable implications. If the data they postulate are given, then the consequences they predict necessarily follow. “The analytic method is simply a way of discovering the necessary consequences of complex collocations of facts—consequences whose counterpart in reality is not so immediately discernible as the counterpart of the original postulates.””
Karl Menger:
“The types and typical relationships (the laws) of the world of phenomena are not equally strict in all cases. A glance at the theoretical sciences teaches us rather that the regularities in the coexistence and in the succession of phenomena are in part without exception; indeed they are such that the possibility of an exception seems quite out of the question. However, some are such that they do indeed exhibit exceptions, or that in their case exceptions seem possible. The first are called laws of nature, the latter empirical laws.”
I would like to note that Karl Menger uses the term “exact laws” for laws of nature, which Mises labels praxeological laws.
I have not commented on this, only on what Bala says about it.
I do think the proposition:
“predictions involving humans are impossible if based on empiricism”
Is false. An entrepreneurs job is to make correct predictions of human actions so that they can make a profit.
I think the real point to drive home is that praxeological laws are necessary propositions (to use a Kantian phrase “apodictic”), while empirical laws are only possible propositions.
All examples of alleged Kantian necessary synthetic a priori propositions fail.
It is a bankrupt epistemology.
I think I agree with you about Kant, but I don’t think this invalidates statements following the “boomerang principle” as RP Phillips called them. This includes the action axiom.
You see, I believe you fall into the error that just because you think Kant was wrong about synthetic a proiri propositions, that this automatically invalidates the propositions that Kant was referring to.
LK:
“All examples of alleged Kantian necessary synthetic a priori propositions fail.”
No, they don’t.
For example, the law of marginal utility as grounded in action hasn’t “failed”.
“It is a bankrupt epistemology.”
All epistemologies would have to be bankrupt according to your irrational approach which denies any possibility that laws of thought are indicative of laws of reality constrained to action.
Its falsity is demonstrated with each movement of a couple in coitus, else each thrust or grind risks a rape charge. It’s falsity is demonstrated with each beat of a conductor’s baton, each pitch of a baseball game, each time a letter is posted. It is absurd.
I seriously don’t follow. Are you denying the action axiom? To do so would be to engage in a radical skepticism in which no one takes seriously.
?
I am denying that it’s impossible to make predictions about people based on experience.
Sorry, MY BAD 🙂
Hank. I would disagree. Entrepreneurs make estimates. If reality turns as per their estimates,good for them.
When I said predictions, I meant valid predictions because the context was LK’s repeated claim that wages will remain sticky in the future too. This was the context of the discussion because of which I used the word “prediction” loosely. This is why I kept saying “context dropping”.
“First notice how he has not even the basic intellectual honesty to say “Oh, yes, I made a mistake in saying that no qualitative or quantitative prediction can be made”.”
LK – I said repeatedly that that statement should be seen along with the remaining statements, implying that it was made specifically referring to those statements in the context of what we were discussing – the answer to the question “Are wages sticky?” and “How do you KNOW the answer to that question?”.
If this
“My prediction on wage setting in the immediate future is nothing but a probabilistic qualitative prediction.”
is true, you cannot make the statement “Wages are sticky”. You can only say “Wages have been sticky in the past. Based on that, I expect that wages would be sticky in the future.”
That’s all I kept asking you right from the beginning of this thread. If in doubt, go back to the first question.
“To them this is a matter of self-worth. (Austrian economics is a wertfrei science all decent people accept.) “
Furthermore, they do NOT even know much Austrian economics.
Just look at how people are denying that a real world tendency to supply and demand equilibrium via flexible prices is even a part of Austrian economics (such as Tel and Roddis in other threads).
And just look at bala saying no qualitative predictions can even be made.
But that is what Austrians laws are:
Value theory applies to human action at all times and places,
Hulsmann’s Introduction, in Ludwig Von Mises, Epistemological Problems of Economics, p. x.
Wait a moment, you are just making that up.
It was you going around claiming that prices were fixed, and every time someone found examples demonstrating prices changing you would change your tune and say, “Oh not those prices, some other prices are relatively fixed, because of the survey where we asked someone about what might happen to prices, instead of looking at the prices themselves.”
And suddenly I’m the one claiming that flexible prices are not part of Austrian economics? Excuse me?
The one and only thing that Roddis was asking you was to avoid the phrase “market clearing”. That’s his request, just please avoid one confusing phrase, which is not used consistently. A trivial thing to ask.
(1) My position has not changed: mark-up prices which constitute a very large % of prices in market economies are generally inflexible with respect to demand.
(2) regarding roddis, you are just lying or ignorant.
He has repeatedly claimed that tendencies to market clearing by flexible prices have no important place in Austrian price theory.
(3) as for you, you have been trying to reduce “market clearing” to the trivial idea of the plain state of rest equilibrium for ages now, and at the same time you deny that Austrian theory says demand tends to be equated with supply via flexible nominal prices. Just look at your latest comments above.
(1) You’ve already conceded that mark up prices do in fact adapt by way of demand’s change on costs of production. If you are saying anything different to that, you’ve contradicted yourself.
(2) Whether price adjustments are “fundamental” or “non-fundamental” to Austrian theory has no bearing on whether it is true or false.
And my position is that you are wrong on this, both from direct observation that prices do change (certainly in real terms, but usually in nominal terms as well, just visit the supermarket) and from the logical consequence that if rising demand results in increasing production quantity (by whatever means) the input supply quantity of any business will also have to increase, which typically ends up increasing costs, thus also rising prices for the final product.
It does not have to result in rising costs, and there’s probably some cases of economy of scale where it actually has the reverse effect, but those prices are not held fixed (even in the markup situation).
At any rate, your assertion, as quoted above, was quite different:
I never denied any such thing, flexible prices in the real world are perfectly compatible with Austrian economics, and perfectly compatible with what we see around us as well.
There’s nothing in Austrian economics that guarantees an equilibrium will ever be attained, nor do we have a quantitative time scale for deciding how rapidly prices change. A key feature of Austrian economics is that people will react to price signals, as well as other information such as quality, convenience, peer pressure, etc.
I don’t believe there’s any theorem of Austrian economics saying people must only react to price and nothing else.
No I’ve been pointing out that it does get used in that context, and in various other contexts as well. It’s an ill defined term, because it is not used consistently.
Rubbish: just because the term can have different senses, it does not follow that it is “ill defined”. For there are clear and precise definitions for each sense.
And it is usually easy to see in what sense the term is being used by Austrians in their writings.
On second thoughts, I think I am in rare agreement with Ken B on this
After all, an education system that seeks to leave no child’s behind left and transform everyone into worshippers of the State’s infinite powers must fail if even a minuscule fraction of the population are to be free thinkers.
No one who replied to your comments is a “worshipper of the State’s infinite powers”. You are very childish.
You missed out LK and Ken B.
Observer, he believes he has refuted and confounded you.
No. I just cited 2 instances of people replying to me who, as per my assessment, fit the bill.