15 May 2014

Potpourri

Climate Change, Potpourri, Shameless Self-Promotion 87 Comments

==> Dan Sanchez talks about inflation and milkshakes.

==> In this older interview with Russ Roberts, Pete Boettke lays out a neat analogy for Austrian vs. neoclassical capital theory: Legos vs. Play-Doh.

==> An interesting analysis of government vs. market failure in leading textbooks. Krugman is the Team Leader.

==> Reconciling Hayek and Keynes.

==> David Friedman recommends a method for boarding airplanes, but isn’t that how they do it with “zones”?

==> Alchian had a pretty sweet idea to find out classified information. Go market!

==> Science doesn’t support the National Climate Assessment’s scare tactics. I explain at IER.

87 Responses to “Potpourri”

  1. yeh ok says:

    you’re not a scientist. do you even recognize that the Earth is 4.5 billion years old?

      • Harold says:

        From my post on May 5th:
        “Oh dear oh dear oh dear. This old chestnut. William Connelly surveyed the climate papers from 1965 to 1975. Seven predicted cooling, 42 predicted warming and 20 were neutral. What cooling consensus? Does this look like the position today?
        “the world had been cooling for a few years. This makes the majority of warming predictions somewhat surprising unless you have a rudimentary understanding.”
        We now know the cooling was due to aerosols.

        “if this teaches anything it is not to believe everything the media tells you. The majority view of the science was for warming, but the media choose to hype up a “cooling scare”. Go figure.”

        • guest says:

          So … aerosols = good?

          Also:

          Schneider vs. Schneider

          [Description:]

          The Late Dr. Steven Schneider compared;

          1978 Global Cooling Alarmism vs. 2008 Global Warming Alarmism

          The goal of this global weather/climate stuff was always the global redistribution of wealth. It’s a scam.

          • Harold says:

            “So…aerosols = good?” Try to do a little background before commenting. Sulphates produce acid rain and also produce aerosols. We could have left sulphate emissions where they were to counteract warming, but lost all our forests to acid rain. So, no, aerosols are not good. Yes, aerosols have a short term contribution to global cooling.

            • guest says:

              Seems to me that Global Warming would be the bigger threat to those who believe in it, than would be a loss of forests (for those who believe in THAT).

              I mean, it’s not like Global Warming worriers aren’t willing to economically cripple people, and to reduce population, in pursuit of “saving the planet”, so what would be the purpose of saving “our trees” if Global Warming is the bigger threat, in your view?

              I will not do some background when I don’t believe it’s necessary. I was told aerosols were bad, so when told that warming was stalled because of them, I noticed that I could make the case that even if you believed in Global Warming, you should still leave us all alone.

              I take a kind of Occam’s Razor approach; Global Warming doesn’t pass the logic test, so I see no need to delve into the particulars.

              Besides, the goal of the Global Warming hoax is the global redistribution of wealth, not saving the planet:

              U.N. Official Admits: We Redistribute World’s Wealth by Climate Policy

              First of all, developed countries have basically expropriated the atmosphere of the world community. But one must say clearly that we redistribute de facto the world’s wealth by climate policy. Obviously, the owners of coal and oil will not be enthusiastic about this. One has to free oneself from the illusion that international climate policy is environmental policy. This has almost nothing to do with environmental policy anymore, with problems such as deforestation or the ozone hole.

  2. DesolationJones says:

    Dan Sanchez’s article is terrible. Apparently in his version of real life, bankers don’t sell treasuries. They’re given free money. Would his group of students have been as easily convinced if he told them that?

    • Dan Sanchez says:

      I considered mentioning the Fed’s bond purchases in my presentation, but high school kids don’t know what bonds are, and it would have been too much of a digression to explain it. I didn’t mean to imply that they were getting the money for free, just that they *somehow* got *newly created* money they couldn’t have otherwise received had there not been inflation. The subsequent analysis of winners and losers fully follows from that.

      • DesolationJones says:

        Sometimes the internet makes me a jerk for I apologize for sounding harsh.

        Still, skipping over this very crucial step is highly misleading. In your version of the real world where banks simply get 0s added to their bank balance, statements like this:

        “But are the people at the “privileged banker” table wealthier because of the new money? There’s no denying it.”

        makes sense. In the actual real world, it’s absolutely deniable. If a bank sells a million dollars worth of bonds in exchange for a million dollars, the banker’s wealth has not increased. It stays the same. Who gets the money first makes virtually makes no difference

        • DesolationJones says:

          a jerk so* I apologize

        • skylien says:

          DJ,

          If it sells to the FED, by the definition the FED overpays, if the FED wouldn’t overpay no one would sell to the FED.

        • skylien says:

          Or put differently, without the FED buying those bonds the value of the bonds would not be 1 million, whatever the value of them would be in that hypothetical case.

        • guest says:

          The Fed pays for bonds with IOUs created out of thin air.

          The first users of counterfeit money are essentially stealing from those they “buy” from with it.

          If I write some numbers on a piece of paper and hand it to you in payment, you’re giving me something for nothing.

          That’s what the Fed is doing.

        • Tel says:

          Still, skipping over this very crucial step is highly misleading. In your version of the real world where banks simply get 0s added to their bank balance, statements like this:

          I wish someone would add a couple of zeros to the end of my bank balance.

          Oh, wait a moment, I’m in debt so scratch that.

    • guest says:

      The Fed as Giant Counterfeiter

      At this point let’s review exactly what happens when the Federal Reserve buys Treasuries from private dealers. Let’s say the Fed wants to buy $1 million worth of T-bills from Joe Smith. So it writes Joe a check for $1 million, drawn on the Fed itself. Joe hands the T-bills over to the Fed, where they end up on the asset side of its balance sheet. Joe then deposits the check in his personal checking account, which goes up by $1 million.

      So at this point the Fed has increased the money supply by $1 million.

  3. Bob Murphy says:

    OK guys but if you had to choose, is my anti-scientific article better or worse than Danny’s anti-economic article?

    • guest says:

      Nobody seems content to make the simple logical argument that it’s impossible for Climate Change to cause “extreme” weather events, even if Climate Change were man-made.

      The reason is that climate is an interpretation of aggregated weather data. More crudely: Weather causes climate – not the other way around.

      Weather can affect weather in other areas, but weather is always a regional phenomenon, not a global phenomenon.

      This is also why Global Warming made no sense; If every region on the planet wasn’t warming at the same time, then it’s not a global phenomenon; And the weather in one region would “regulate” the weather in another.

      • Tel says:

        Nobody seems content to make the simple logical argument that it’s impossible for Climate Change to cause “extreme” weather events, even if Climate Change were man-made.

        The definition of “extreme weather events” has been highly variable depending on who you talk to and when.

        In principle, more energy flux implies more water movement (since water is the main carrier of energy from he equator to the poles, and from the surface to the tropopause) and thus the Carnot heat engine cranks harder (i.e. converting heat energy into mechanical energy).

        In practice, the Obama presidency has been one of the lowest hurricane counts on record (Abraham Lincoln was also rather low if that’s significant). One explanation for this is that the “Carnot heat engine” theory is crap… another explanation for this is that the world is not significantly warming.

        • Harold says:

          Another is that warming will not affect frequency of hurricanes, whilst the carnot heat engine is not crap. Warmer water should lead to more hurricanes, but it also leads to increased vertical wind shear, which inhibits hurricane formation. Which effect will be larger is not yet known, and so far it seems to roughly balance out. What is known is that warmer waters add more energy, and so those that do form will be stronger. The evidence is that the strongest storms are getting stronger. Recent events in The Phillipines are consistent with this.

          Whilst this does not prove global warming, if events fit with predictions, it does add credibility.

          As to the assertion by Guest, it is frankly rubbish. If we define weather as aggregated weather, then we must define climate change as change in aggregated weather. Change in aggregated weather may clearly include more or less extreme weather events.

          • Cosmo Kramer says:

            What would the Philippine hurricane’s intensity have been if we never populated the planet?

          • Tel says:

            The evidence is that the strongest storms are getting stronger.

            Errrr, no actually. Accumulated Cyclone Energy is also trending downward, and has been for the past few decades.

          • guest says:

            What is known is that warmer waters add more energy, and so those that do form will be stronger. The evidence is that the strongest storms are getting stronger.

            Storms/clouds = cooler weather. Ergo, “extreme” storms DISprove the global warming theory.

            Like when Climategate broke and fairly soon after 48 of the United States had greater snow fall.

            If we define weather as aggregated weather, then we must define climate change as change in aggregated weather. Change in aggregated weather may clearly include more or less extreme weather events.

            Climate is defined as aggregated weather data.

            A change in aggregated weather is only relevant at the regional level because that’s what comprises “climate” – that’s the point.

            Therefore “climate” can not logically be a global issue unless ALL regions warm at the same time.

            • guest says:

              According to Wikipedia, the Climategate hacking took place in November of 2009.

              The following article is from February of 2010:

              49 states dusted with snow; Hawaii’s the holdout

            • Harold says:

              “Therefore “climate” can not logically be a global issue unless ALL regions warm at the same time.” Perhaps this is why it is called “global” warming?

              Flippancy aside, I really don’t get your point. Say for example the north hemisphere heated by 5°C and the south hemisphere cooled by 5°C. Overall there would be no heating, but it would have a very significant effect on the weather everyhwere, and would surely be a global issue.

  4. Matt M (Dude Where's My Freedom)) says:

    It’s hard enough for SouthWest to get people to line up in the proper fashion when the only qualifier is Zone A, Zone B, or Zone C.

    Trying to get 100 passengers to line up *perfectly* to correspond with the location of their seat would be virtually impossible.

    Semi-related anecdote: When I was in basic training for the Navy, whenever we had to march from place to place we had to get in a “height line,” essentially lining up from tallest to shortest, single file. Despite the fact that we had the same group of 80 guys who were together for a couple months and members of a “highly disciplined team” with speed being greatly emphasized by screaming drill sergeants, and it STILL would usually take about a minute to get everyone properly lined up.

    Doing it with strangers who have every incentive to cheat and no enforcement mechanism would be a nightmare.

    • Bob Murphy says:

      Not sure what you mean Matt M. Right now Delta calls you to board in zones. They scan your ticket as you pass the counter. People don’t have to line up in a particular order.

      • Dan says:

        Friedman was suggesting airlines have people line up in a very specific order, not just by zones.

        • Bob Murphy says:

          Dan, but I think that’s what makes Zone 1 Zone 1, etc. I think Zone 1 are the people in the back, etc. It doesn’t line up perfectly with what Friedman suggests but that’s probably because there’s some reason his plan isn’t optimal.

          • Dan says:

            Yeah, so I think Matt was saying that the zone system is hard enough, and if they did it the way Friedman suggested it would be even harder.

            I, for one, line up with the first zone called and just let people in that zone go ahead of me if I’m supposed to be in a later zone. That way I’m always first in my zone.

      • Matt M (Dude Where's My Freedom)) says:

        Bob,

        I was talking about SouthWest, where (although you can select your own seat once you get on the plane) they still have zones, and they tell you to (although there’s no real enforcement on this) line up according to what zone you’re in.

        I figure (but I have no way of knowing for sure) that even in this system there is some cheating going on. Everyone wants to be on the plane first, regardless of where you’re sitting. When they scan your ticket, I don’t think they chastise you and send you to the back of the line if you lined up too early.

        Trying to get everyone to line up in the *exact* order of seating would be a nightmare. What about people who are running late? How do you prevent people from cheating? How do you get this accomplished in a manner of minutes?

    • Harold says:

      I suspect the key here is that only one “defaulter” makes a huge difference to the overall efficiency. If one person from the front gets on too early then they hold up everybody whilst they stand in the aisle putting their bag up. I can believe the window / rear first would be the theoretical optimum. Others have pointed out that this is not acceptable to passengers because they wish to remain in groups during boarding. Next best theoretically is probably boarding in row order from the back. Since this too is not possible in practice, the best practical option is probably in zones from the rear. I understand that not allocating seating leaving it to a free for all is the fastest in practice, but again many passengers prefer allocated seating. In this method the order of boarding is irrelevant, so you don’t need to line people up in any pre-determined order. The airline may wish to do so to encourage people to check in or arrive at the gate early.

  5. Keshav Srinivasan says:

    Bob, you didn’t link to a specific interview, just a page with all the Pete Boettke interviews.

    • Bob Murphy says:

      Oh whoops. That’s weird. I think it’s this one.

      • Keshav Srinivasan says:

        Yes, it is that one. The playdoh and legos analogy starts at the 13:40 mark.

  6. Bob Roddis says:

    1. I don’t see any coverage of economic calculation/mis-calculation in those textbooks. I guess people aren’t yet sick enough of me mentioning the topic to engage it.

    2. Is economic miscalculation induced by government a market failure or government failure?

    3. Does anyone else see a pattern regarding the failure to mention economic calculation in textbooks, the failure to mention important facts from the latest IPCC report and the hostility of “progressives” to well funded independent political advertisements?

  7. Harold says:

    You accuse the NCA of giving a false impression of the science but is this a case of the pot and the kettle? Even if the NCA indulges in mis-information, is that any reason for you to do the same?

    The NCA says: “hurricane associated storm intensity and rainfall rates are expected to increase”. In order to balance this ”scary claim” you quote the IPCC saying there are no reliable trends on tropical storm frequency over the last 100 years. If you look closely, you will see that there is no contradiction since the NCA says “intensity” and you quote “frequency”, whilst the NCA is about the future and your quote is about the past. The IPCC does not predict increased frequency, but it does predict increased intensity. The NCA also says that the frequency of hurricanes has increased, which is true, but not necessarily due to warming and not necessarily as part of a long term trend. A casual reader of your column might erroneously think the IPCC had predicted no increase in intensity of hurricanes. So whilst the NCA may be over egging their pudding, so are you.

    You then list several quotes from the IPCC all of which are intended to give an unbalanced view of the IPCC report.

    You could have said:
    “Averaged over the mid-latitude land areas of the Northern Hemisphere, precipitation has increased since 1901 (high confidence after 1951)” or
    “It is likely that the frequency of heat waves has increased in large parts of Europe, Asia and Australia. There are likely more land regions where the number of heavy precipitation events has increased than where it has decreased. The frequency or intensity of heavy precipitation events has likely increased in North America and Europe.”

    Or ” It is very likely that the number of cold days and nights has decreased and the number of warm days and nights has increased on the global scale”

    All of which support the NCA view that “we know with increasing certainty that climate change is happening now.”

    The NCA may have been selective in their reporting, but your criticisms are just as guilty if not more so. Do you believe that the quotes you selected (or picked from another blog) represent the IPCC position?

    • Bob Murphy says:

      Harold wrote:

      Do you believe that the quotes you selected (or picked from another blog) represent the IPCC position?

      Are you asking me if I believe that quotes taken from the IPCC AR5 represent the IPCC AR5? I should hope they do.

      • Keshav Srinivasan says:

        Bob, surely you believe that some quotes from a document are more representative of a document than other quotes, don’t you?

    • Bob Murphy says:

      You know, this is really funny, Harold. Whenever someone like Rush Limbaugh says something about climate change not being a catastrophe, people like you bash him over the head and say, “There’s a scientific consensus! What a neanderthal!”

      Then, when the Obama Administration puts out a document that has over-the-top claims, and I go to the “consensus” document to show that it contradicts some of them, you accuse me of cherry picking and misrepresenting the consensus.

      So we’re only allowed to quote from the IPCC if we do so in a way designed to scare the public and make them support more government interventions, right?

      • Major-Freedom says:

        You don’t want socialism to be imposed sneaky and underhanded like Harold, and so your equally logical argument about juxtaposing wild claims against consensus from the other direction must also sneaky and underhanded way of pushing back against socialism.

        If you want to interrupt the progress towards socialism and dare participate in the discourse in a challenging manner, then Harold has graciously provided you with pre-approved statements that you must abide by. Don’t you dare mess with the hearts and passions of his fellow troops. That’s his job.

      • Harold says:

        I am not sure who you mean by “people like me”. I don’t think I have ever said climate change will definitely be a catastrophe. I believe it is most useful to try to represent the information we have as well as possible. I believe you should quote the IPCC in such a way as to reflect the IPCC position.

        Perhaps in a piece that criticises the NCA for misrepresenting the data it would be good not to do the same. The hurricane part I believe you have misrepresented the view of the IPCC in a misleading way. You did choose to put that bit in bold, when it doesn’t necessarily say anything about the damage caused by tropical storms. I think the casual reader would find that misleading.

        In a document of this size you can pick quotes to support a range of interpretations. I understand the motivation to use tactics to put forward one misleading view over another to try and persuade people to your view – the NCA may have done this. You criticise them for it. However, I think you have done the same thing, particularly in the quotes about hurricane frequency.

  8. Josiah says:

    Here’s a question I have about Austrian capital theory. As I understand it, the Austrian view is that capital is heterogeneous, such that if it’s misallocated it can’t be quickly or easily reallocated for a different purpose.

    Now, consider the United States during the early 1940s. The U.S. started with an economy mainly geared around private consumption (building cars, radios, refrigerators, etc.) when it was decided that what we really needed to do was be building tanks and bombs to fight the Nazis. And very quickly capital was reallocated to those purposes.

    Now, Bob is a pacifist, so I understand that he wouldn’t approve of the goal of this reallocation. What the example does show, though, is that capital clearly can be rapidly reallocated from one use to another, which would seem to be a problem for the Austrian theory of capital.

    • Matt M (Dude Where's My Freedom)) says:

      I don’t think the Austrian position is that it’s *impossible* to quickly re-allocate capital, just that it’s incredibly inefficient to do so. The example you give included a ton of freedom-crushing central planning, wartime rationing, etc.

      In a free market, it isn’t very likely that someone will undergo a very costly and inefficient conversion process unless the overall economics of the situation have changed dramatically. But when a government goon is pointing a gun at you and barking at you to convert your car factory into a tank factory, your choices are to do it, or to be shot. You don’t really care how wasteful or inefficient the process is at that point…

      • Josiah says:

        I don’t think the Austrian position is that it’s *impossible* to quickly re-allocate capital, just that it’s incredibly inefficient to do so.

        The inefficiency is supposed to come from the fact that you can’t easily switch from producing one thing to another. So if people mis-allocate capital (due to bad money policy or whatever) this is a very costly mistake. That’s the point of Boettke’s Legos vs. Play-dough analogy.

        It could be that the state can reallocate capital more easily than the free market, but I don’t think that’s the kind of response an Austrian would want to give.

        • Matt M (Dude Where's My Freedom)) says:

          It’s not that the state can do it “more easily.” It’s that the state can force you to do it when it otherwise wouldn’t be worthwhile.

          It’s not as if, in 1938, GM was technically incapable of converting their factories to produce a bunch of tanks. They just saw no reason to do so. Then the government came along and forced them to, so they did.

          There’s no reason to believe the switch was “easy,” just that it beat the alternative of being imprisoned or forced out of business or whatever. The point is that the state can compel you to act in ways that would otherwise be irrational from an economic standpoint. And that is what happened in WWII.

          • Josiah says:

            Here’s is the EconTalk summary of the argument about the importance of capital heterogeneity:

            If you screw around with money, you screw around with goods because you get relative price effects. Why is that such a big deal? Combine with the next aspect: capital structure. Not just K, aggregate capital, but goods combined together. Multiply specific. Can’t turn a beer-barrel plant into a soccer ball plant overnight. Amount of capital in the economy; enhances labor. At any point in time we have a certain amount of capital, which we aggregate through prices. Capital flows in response to return. Austrian critique: At a point in time: if you have a car factory, shut down, goes out of business, capital goes to next best use. Claim is that the assembly line for a car company is not very liquid. Money is liquid, but not the assembly line, which is only good for cars or close substitutes. Can’t be tranformed to make bubble gum or windmills. If the signals that led to that production, then the investments are particularly costly. Parent with little kids go through a dinosaur phase: make with play-dough or with legos. With play-dough, easy to modify. With legos, have to follow instructions or start over. Capital structure in capitalist economy is more like legos than like play-dough, but mathematically treated like play-dough. Matters because costliness of mistake means rip apart, build back up, and no production or entertainment taking place.

            My critique of this argument is that, as the run up to WWII shows, you can actually switch car factories to make something else fairly quickly. So the heterogeneity of capital doesn’t seem to be that important.

            It is no response to this critique to say ‘car companies can switch to make other stuff but maybe they don’t wanna,’ since car companies not being able to make this switch is a premise in the Austrian argument.

            • Matt M (Dude Where's My Freedom)) says:

              I really think you’re missing the point here. Or being entirely too literal.

              It’s not *impossible* to convert a car factory into a gumball factory, it’s just so ridiculously costly and inconvenient as to be economically unfeasible.

              Now if FDR rolls up and says “Hey if you keep making cars we’re gonna throw you all in jail, but we’re willing to pay above-market rates for the gumballs we’re ordering you to make now” then all of a sudden, the equation changes dramatically.

              Even if the only way to “convert” your factory is to melt down all the machinery and re-cast it from scratch, you’ll still do that, because it beats being broke and/or imprisoned. There would be a massive deadweight loss from the costs of converting car machines into gumball machines, which is why you’d never see anyone do that absent government interference.

              And historically, it wasn’t a “cars to gumballs” transition, but a “cars to tanks” transition. There’s a reason GM made the tanks. They didn’t go around to shoe factories and start ordering them to make jet engines. They just ordered them to make military boots instead of ladies’ heels. Converting your shoe factory to make boots instead of heels is probably costly and inefficient, but it’s not impossible. Neither is cars –> tanks.

    • Major-Freedom says:

      So if you assert that capital during a period of time was reallocated in a way quick enough for your tastes, or more accurately, quick enough for you claim it was quick against some unstated standard, that this somehow makes it an objective argument against Austrian theory that doesn’t even make predictions for how long it would take for capital to be reallocated in whatever arbitrary way you would define such a thing?

      Your argument boils down to “capital takes time to be reallocated, and the reallocation during the war effort was quick enough for my tastes, so Austrian theory is wrong.”

      How can ANY theory of human action argue against your subjective preferences, when Austrian capital theory is GROUNDED on subjective preferences?

      You are just arrogating your own subjective preferences concerning capital allocation and reallocation, and pretending it’s an objective standard.

      You’re not even arguing against Austrian theory with your comment. You are just communicating your value judgment about the length of time it took for capital to be reallocated. What does your value judgment have to do with the logical presuppositions and mplications of value judgments, which is what Austrian theory is actually about?

      • Lord Keynes says:

        Josiah,

        In M_F’s world, if markets cleared after 1,000 years, this could be defined as “immediately” for him, since he has the magical power to define words in whatever way he likes:

        “Other than the misleading word “immediately”, which can be taken to mean any time at all, since the standard for “short” and “long” periods of time is not objective but subjective, how is that statement idiotic?”
        http://socialdemocracy21stcentury.blogspot.com/2011/12/say-repudiated-says-law.html?showComment=1322756770135#c6195980368215469925

        • Major-Freedom says:

          LK

          I never claimed markets ever cleared.

          Are you still having trouble with this basic point in Austrian theory??

          General equilibrium is not actually ever reached in Austrianism. It is a mental tool, not a real world goal.

          Repeat after me: the market will never actually clear. The market will never actually clear.

          Clear as mud? Good. Now stop making these ridiculous sophisms.

          • Lord Keynes says:

            When I wrote “markets” I did not mean all markets as GE, just a few markets.

            And that is a perfect summary of your opinion.

            So are you now saying no single market or few markets ever clear even for a brief period?

            • Major-Freedom says:

              Gobbledygook. Nice try, LK. Your whole tilting at windmills crusade was against the MISESIAN notion of market clearing, and in Misesianism the contexy is the whole economy tending to clearing, not whether a thrift store in Des Moines can sell out over one weekend in late July.

              You’re being obtuse and dishonest.

              For the record, no, not even “a few markets” do I imply or directly argue that clearing is actually reached.

              We once had a similar discussion before, and you offered the example of a single store capable of experiencing clearing, and even there, if you can remember, I disputed that, on the basis that even then, demand doesn’t stop and supply doesn’t stop. There is no precise moment in time where an individual store owner and the customer base are at perfect rest with respect to what they demand and what they supply.

              And what’s this? You write “So you are now saying”? As if your muddled straw men were accurate characterizations of what I argued and now I suddenly have changed by merely correcting you on what was actually said?

              You owe an apology LK.

          • Bob Roddis says:

            If prices are undistorted, people will tend to make more accurate plans concerning what other people are ready, willing and able to purchase. Prices that are distorted via Keynesian and other forms of violent intervention will interfere with that process.

            • Lord Keynes says:

              Do prices move toward market clearing values as agents negotiate them in Austrian theory or not?

              • Matt M (Dude Where's My Freedom)) says:

                They “move towards” but they never arrive. Because overall market conditions are always changing, so the agents are always trying to “catch up” to an idealized market clearing situation that itself is also constantly moving.

                Picture someone running a race, but the people holding the finish line tape are also running at the same speed. The first runner is “moving towards” the finish line, but so long as the finish line moves at the same speed (or faster) than he does, he will never arrive there.

    • Bob Roddis says:

      This analysis fails to comprehend economic calculation in the context of voluntary and involuntary transactions. “Capital” is going to consist of a myriad of components each with their own price. A prior episode of funny money loans, emissions and other violent interventions will distort the price structure of the entire society away from the price structure that would have existed but for the prior violent intervention. This distorted price structure is unsustainable because (among other reasons) the Cantillon Effects upon which it is based are necessarily a temporary theft and a shifting of purchasing power. Once the artificial boom ends as the subsidy ends, it is essential that an undistorted price structure be allowed to transpire ASAP. If the government interferes with this process, the longer it will take to appear.

      Regarding WWII, the government simply ordered military equipment and was willing to pay enough with tax money to make it profitable for the firms involved. Thus, there was no need for the firms to discover what the rest of society was ready, willing and able to pay for whatever based upon a new, undistorted price structure. The equipment was built and the rest of society lost the benefity of consumer goods at the point of a gun.

      Finally, don’t forget that the these problems are always caused by either pre-existing Keynesian policies or FRB practices where newly created money is indistinguishable from existing real money. The market does not fail and that part of the story is always omitted by the Keynesians.

      • Philippe says:

        are you aware that your argument is circular, or not?

        • Bob Roddis says:

          I have no idea what you mean and I’ve never seen evidence that you even understand the argument.

        • Lord Keynes says:

          “will distort the price structure of the entire society away from the price structure that would have existed but for the prior violent intervention.”

          What price structure? A structure where prices move towards market clearing values?

          Watch Roddis collapse into incoherence when asked to explain this point.

          • Bob Roddis says:

            The prices that people will seek will tend to move more towards “market clearing values” when undistorted as opposed to when they are distorted.

            Asked and answered 1 million times before.

            Let’s move on. It’s not that complicated. You know what we are saying and you are simply trying to obfuscate.

            • Lord Keynes says:

              “The prices that people will seek will tend to move more towards “market clearing values… “

              Yes, that is what Austrian economists think, correct.

              Finally, the admission that destroys all your years of nonsense.

              The truth is that most firms and prices do not tend toward market clearing levels, as most prices are mark-up prices.

              And, yes, in your Hayek quote, Hayek is certainly thinking of a tendency towards market clearing wages and prices, despite what you’ve have said in the past.

              • Major-Freedom says:

                LK

                You’ve already been corrected on this point.

                Mark up prices ALSO adjust towards clearing by way of cost prices adjusting towards clearing induced by demand for output.

                You continue to be oblivious to the fact that factor prices adjust to demand changes as well, and so any prices predicated on those factor prices would have to adjust as well, or else they are not predicated on those factor prices and thus not markup prices.

          • Bob Roddis says:

            However, during an artificial boom, prices will also tend towards “market clearing values” during the period of the artificial boom. Further, if mistakes are made, nothing in Austrian theory suggests that an entrepreneur must slash prices of unsold goods as opposed to storing them and waiting for the market to repair itself.

            Again, we’ve been over that 1 million times before. The issue really concerns undistorted vs distorted prices, a subject you desperately need to avoid.

    • K.P. says:

      “Now, consider the United States during the early 1940s. The U.S. started with an economy mainly geared around private consumption (building cars, radios, refrigerators, etc.) when it was decided that what we really needed to do was be building tanks and bombs to fight the Nazis. And very quickly capital was reallocated to those purposes.”

      Is there anyway to prove that the reallocation was quick and/or easy?

      • Josiah says:

        Is there anyway to prove that the reallocation was quick and/or easy?

        Sure. Within a couple of years, the U.S. went from having a tiny army to having one of the world’s largest.

        • K.P. says:

          So the size of the army verifies that capital reallocation was quick and/or easy?

          I’m not sure if you’re being completely serious here but I have to ask, how exactly?

          • Josiah says:

            I’m not sure if you’re being completely serious here but I have to ask, how exactly?

            Because is means that the heterogeneity of capital doesn’t prevent a society from rapidly switching from making one set of products to making another quite different set of products.

            • K.P. says:

              You’re pulling my leg or missing something here (possibly my fault)

              If you (say, the Emperor) decree all able bodies men to now be apart of the army, the size certainly has increased (that’s probably pretty quick too). That really says nothing about the ease of converting capital goods, now does it?

              Now you’ve introduced the term “rapidly” is there a way to prove that that it in fact was “rapid”?

              Or is this all just “well, it sure looks ‘fast’, ‘easy’, ‘rapid’ to me?”

              (This is ignoring just how different many of these products were, as producing vehicles for consumers really doesn’t seem like a big difference to producing vehicles for the military, at least, it doesn’t to me)

            • Bob Murphy says:

              Josiah wrote:

              Because is means that the heterogeneity of capital doesn’t prevent a society from rapidly switching from making one set of products to making another quite different set of products.

              But you thought Mises and Hayek were saying at best the US could produce 13 battleships per month in 1943, whereas in reality it turned out to be 18? Ergo we can safely use the Solow growth model?

              Josiah, what would have happened if the Austrians had been right? Would there have been horrible waste in the military budget–with outrageous prices paid for military hardware compared to private sector analogs–while private consumption during the peak war years fell below the worst levels of the Great Depression?

              Because that happened too.

  9. Philippe says:

    Bob,

    Matias Vernengo has responded to your post regarding the capital debates and Piketty:

    http://nakedkeynesianism.blogspot.co.uk/2014/05/robert-murphy-austrian-theory-of-rate.html

    • Major-Freedom says:

      You are ignoring, as Keynes did, that a fall in wage rates leads to a fall in the costs of production, including the costs of capital goods. Any stipulation of a fall in output prices by virtue of a fall in nominal demand, should be accompanied by recognition of a fall in unit costs, thus rendering the deflationary death spiral doctrine a flawed one.

      With respect to the Keynesian multiplier doctrine, it should be understood that Keynes’ multiplier doctrine contradicts Keynes’s marginal efficiency of capital doctrine. The multiplier doctrine suggests that any autonomous productive expenditure will lead to a sequence of subsequent series of (declining) expenditures. Now surely this would increase profitability. And yet the marginal efficiency of capital doctrine on the other hand suggests the opposite takes place, that an incremental increase in productive expenditures will lead to a reduced profitability.

      It should also be noted that contrary to what his followers believe, Keynes did not actually address the argument from the classicals that a fall in wage rates and prices cures depressions. In The General Theory, Keynes not only did not critique whether a fall in prices can cure unemployment, but he astonishingly dropped that context altogether assumed that prices are increasing! If this sounds too incredible to be true, just read page 136 of the GT.

      Now with regards to this particular debate on capital, you make a number of errors. No, it is not true that a natural rate of interest can be wedged into a context of real, heterogenous goods. For if 10 present t-shirts are traded against 12 future t-shirts, and 20 present apples are traded against 25 future apples, and we assume these are the only goods produced and sold, then what is “the” natural interest rate?

      Of course, the Austrian theory of natural interest is NOT predicated on heterogeneous real goods, but on the difference in valuation between present and future goods as such. This is a very general conception that requires careful usage and consideration. In a monetary economy, the natural rate of interest is best understood as the average rate of nominal profits that would prevail in a free market, and this average rate of profit is the regulating mechanism that constrains interest rates. In a central bank hampered economy, interest rates are no longer constrained by free market forces, but become affected by non-market money manipulation. This sets off malinvestment.

      Your post is in general replete with the usual unnecessary partisan attacks and confusions typical from Keynesians. No is not true that economists need to “measure” disaggregated heterogeneous capital. Only states and those who try to control oir lives would find any use for such a measure. A healthy economy needs nobody to measure total capital. Self-interested profit seeking and loss avoidance, subject to private property rights, is necessary and sufficient for allowing maximum economic coordination. Nobody has to measure aggregate capital, and nobody has to measure the rate of interest that would equilibriate investment and saving, in order to the economy to grow and for full employment to be constantly tended towards.

      Your claim that Murphy “seems to think” this, and “seems to think” that, are hallmarks of straw men tactics. Murphy did not, contrary to your claim, utilize Piketty’s flaws on capital to make a case for laissez faire. Murphy was laissez faire and has been making laissez faire arguments for years, since before Piketty wrote this book.

      • Lord Keynes says:

        (1) “You are ignoring, as Keynes did, that a fall in wage rates leads to a fall in the costs of production, including the costs of capital goods. Any stipulation of a fall in output prices by virtue of a fall in nominal demand, should be accompanied by recognition of a fall in unit costs, thus rendering the deflationary death spiral doctrine a flawed one.”

        So says a man ignorant of real world wage and price rigidities.

        Not to mention the severe economic problems that would be caused by fixed nominal debt contracts, if in those rare cases economic problems became so severe as to lead to significant nominal wage cuts.

        (2) “Keynes did not actually address the argument from the classicals that a fall in wage rates and prices cures depressions. In The General Theory, Keynes not only did not critique whether a fall in prices can cure unemployment, but he astonishingly dropped that context altogether assumed that prices are increasing!”

        That is rubbish. It is given in Chapter 19 of the General Theory, for one.

        (3) ” In a monetary economy, the natural rate of interest is best understood as the average rate of nominal profits that would prevail in a free market, and this average rate of profit is the regulating mechanism that constrains interest rates.”

        What Austrian economist has ever defined the “natural rate of interest” in that sense? Or have you just decided to redefine the natural rate of interest in any way you want?

        (4) ” In a central bank hampered economy, interest rates are no longer constrained by free market forces, but become affected by non-market money manipulation. This sets off malinvestment.”

        So is this a prediction?

        Funny, did you not say:

        “There are no predictions in Austrian economics. None. Zero. Nada. …. Austrian theory makes no predictions of what humans will learn and do in the future. In fact, it is precisely Austrianism that argues it is impossible.”
        http://consultingbyrpm.com/blog/2014/03/potpourri-188.html#comment-301632

        “All predictions of what humans will do in the future are ass pulls”
        http://consultingbyrpm.com/blog/2014/03/potpourri-188.html#comment-301508
        ——————-
        Of course, if it is not a prediction about what happens in the real world, then obviously nobody need worry about it.

        • guest says:

          Given that interest rates are a manifestation of time preferences for the goods that are sold and bought, if the value of those goods are misrepresented by the supply of money substitutes, then why wouldn’t that result in malinvestments?

          The paper doesn’t mean what it is purported to mean, so what is it that people are supposed to be calculating with it?

          I think what Major_Freedom means by Austrians not making predictions is that there are unknowable possible extenuating circumstances that accompany artificial credit creation.

          If a bunch of printed money catches fire, then no harm comes from it, for example.

          You can’t know how or when people are going to react to the reduction of wealth caused by money printing, so you can’t time crashes.

          But given that trade happens due to a desire to reduce the cost of acquiring wealth, when prices rise due to phony money working its way through the economy, then of course people are going to cut back their spending on those artificially propped up sectors of the economy.

          That’s the effect of the portion of a crash that is caused by artificial credit creation. But a natural disaster or lucky discovery may accompany the boom-bust cycle, so the actual result of all the many factors involved can’t be known.

          All you can say with certainty is that without the artificial credit creation, whatever else occurs will be otherwise optimal from an individual rights perspective – because it follows logically.

        • Major-Freedom says:

          LK

          1. I do not deny that people require time to act in adjusting prices to be theoretically optimal, given various quantities of relative demands and supplies. Also, the economic problems you speak of are cured by subjective pricing that just so happens to result in market induced falling ( or rising) prices. Those who are indebted ought not be catered to at the expense of those who are not. You are verbally advocating class interests, not individual interests.

          2. It is not rubbish. The source I posted is page 136. There, Keynes sets up his analysis by assuming a RISE in capital goods prices as net investment increases (which was argued by the side he is attacking as actually due to a fall in capital goods prices).

          3. Why does everything I say have to be a parroting of others?

          4. No, it is not a prediction, because I do not predict central banking, nor do I predict what they will do. The quote you are analyzing there is not a prediction, it is an explanation of historical events, if certain events took place. I cannot say those same events will again take place, scientifically.

      • Philippe says:

        I’m not Matias Vernengo. You should probably post your comment over on his blog, given that it is addressed to him.

        • Major-Freedom says:

          Sorry for the confusion. I know you’re not Matias. I should have included a preface noting as much. Ya, it totally looks like I replied to you. My bad.

        • Major-Freedom says:

          Wasn’t sure of it would be approved…

    • Bob Murphy says:

      Philippe,

      Thanks for that link, but it’s kind of pointless for me to respond to that guy. His paraphrasing of my confusion about the CCC is so off-base that it’s not worth me trying to correct it. If DeLong or Krugman had written his post, I would go through it point by point, but I don’t know who this guy is so it’s not really worth it.

      Anyway, I walk through Samuelson on reswitching here, and Sraffa’s approach here. This guy is acting like I am ignorant of all these subtleties.

      • Bob Roddis says:

        What could we possibly teach Prof. Vernengo that he does not already know?

        In my intermediate macroeconomic classes at the University of Utah I always start by asking students what do they think is a more socially relevant problem an increase in inflation of 1% or the same 1% rise in the unemployment rate. Although the answers vary somewhat according to the macroeconomic circumstances, it is almost always true that the vast majority of my students think that inflation is the real problem.

        When pressed on why do they think inflation is worse than unemployment they rarely suggest that inflation may hurt the poor more than the affluent, which would show a concern with income distribution, or seem to understand that moderate inflation might be good. Further, they have no idea that deflation is considerably worse than inflation, and that the reason for that is that deflation causes severe unemployment.

        http://nakedkeynesianism.blogspot.com/2012/08/full-employment-why-it-is-important.html

        Ya gotta straighten out those dumb students, right?

  10. Bob Murphy says:

    Harold, just for the heck of it I went back and reviewed my IER post. What the hell are you talking about? The NCA quite clearly tells the reader that the frequency of hurricanes, heat waves, severe storms, and “extreme weather events” has increased. It certainly leads you to believe that these increases in frequency are at least partially due to human greenhouse gas emissions.

    And so you accuse me of misrepresenting the science when I quote the IPCC saying the frequency of tropical cyclones and hurricanes hasn’t increased in 100 years in the North Atlantic basin?

  11. Keshav Srinivasan says:

    Bob, I’ve seen a lot of claims that neoclassical economics addressed the aggregation of capital and reswitching issues of the Cambridge Capital Controversy using the Arrow-Debreu general equilibrium model. Is there any truth to that? Does marginal productivity theory hold up in that model?

    • Bob Murphy says:

      Keshav,

      Yes. Incidentally, I don’t have a problem with marginal productivity theory. If people were running around saying, “Population growth is equal to the marginal productivity of labor,” I would flip out, but not because I deny that wages are set by the MPL.

      By the same token, if people are saying, “The rate at which the total market value of capital grows is determined by the MPK,” I would flip out, but not because I deny that the rental price of a machine is set by the MPK.

  12. Ken P says:

    “==> David Friedman recommends a method for boarding airplanes, but isn’t that how they do it with “zones”?”

    Dosen’t the “zone” approach load the front zone first and work towards the back? That is what is backwards. If you are in the back, you always have to wait because people are still getting situated in the front.

    If they let the back load first they are giving privilege to those who likely bought their tickets last and also giving them first dibs on overhead storage.

Leave a Reply to Lord Keynes

Cancel Reply