It’s Apparently Opposite Day at Krugman’s Blog
For our first ever live audience taping of a Contra Krugman episode on Saturday, Tom and I tackled this op ed from Krugman on inequality.
Naturally we were skeptical of Krugman’s claims, particularly his glowing references to Denmark. But I had no idea just how duplicitous Krugman’s argument was. But Glen Raphael, a commenter on David R. Henderson’s post at EconLog, caught the following:
Later in the article, Krugman writes:
“How does Denmark do it? Partly with higher taxes and bigger social programs, but it starts with lower inequality in market incomes, thanks in large part to high minimum wages and a labor movement representing two-thirds of workers.
“If you follow the link to “high minimum wages”, the first sentence of non-title content is “There is no legally stipulated minimum wage in Denmark.”
Now if you go and look at the link, and then circle back and see that Krugman put a plural on “minimum wageS,” you understand what he must have meant. Namely, there are collective bargaining agreements that ensure “minimum wages” for various types of workers. (Though even on his own terms, it seems Krugman would have to admit that 1/3 of the workers in Denmark are not explicitly covered in this way?)
But boy oh boy, would anybody have thought that from Krugman’s own wording? It sure sounds like he thinks U.S. politicians should raise the minimum wage to be more like Denmark, don’t you think? (As opposed to: Abolish the federal minimum wage.)
Krugman is appealing to an audience that is fact-free and reality-free. Nothing he says or does should be surprising.
One other interesting twist from the link:
“The Danish “minimum wage” of $20 or $21 is actually an average of all minimum wages across a variety of sectors.”
I don’t think that’s how most people in the US think about minimum wage. That might explain why it looks so high, if you average in minima from high income sectors.
“Denmark has no statutory minimum wage. This means that there is no law implemented by the government in determining the minimum wage. The minimum wage is determined, in Denmark, by collective agreements, creating a heavy reliance on unions. In fact, 65% of Danish employees are members of a trade union (this can be up to 70-85% in other European CME’s). This means that the wage will be settled through the social partners. In the private sector, the wage will be determined by the competitive nature of the industry while in the public sector, this wage is mirrored by the wage agreed upon in the private sector.
So how has this industry-wide collective bargaining wage setting faired for the Danish people? Interestingly, Demark has a “minimum wage” of $20 (110 Kroner) which has been calculated as an average of all minimum wages across a variety of sectors.”
http://blogs.uwa.edu.au/mon3ier/2015/08/13/denmarks-minimum-wage/
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In other words, high minimum wage by heavy trade unionism and collective bargaining agreements. The subtle (or perhaps not so subtle) ways in which the Western Europeans do things seem to elude you.
LK, did you see the part where I wrote:
“Namely, there are collective bargaining agreements that ensure “minimum wages” for various types of workers.” ?
Yes, and it makes your post an exercise in disingenuous and phoney criticism. In any other circumstances, you’d be ranting about evil European collectivist trade unions driving up wages above market clearing levels and distorting free markets.
That is a hypocritical response, because if Murphy’s criticism is “phony” then so is yours for the exact same reason. Murphy clearly wrote “there are collective bargaining agreements that ensure “minimum wages””.
The phrase “minimum wage” is almost universally defined as a legally stipulated wage.
To use that phrase to describe Denmark is what is “phony”. Your criticism is phony.
I don’t think he would, unless the union agreements were backed by government power, such as laws or regulations. I think he would say that if workers can voluntarily co-ordinate a wage demand that that is part of the free markets.
Correct. That was Rothbard’s assessment in the following article:
The Failure of Wage and Price Control in the Massachusetts Theocracy
http://archive.lewrockwell.com/rothbard/rothbard288.html
“From the first, the Massachusetts oligarchy, seeing that in the New World land was peculiarly abundant in relation to labor, tried by law to push down the wage rates that they had to pay as merchants or landowners. Maximum-wage controls were persistently imposed. …”
“… Maximum-wage control always aggravates a shortage of labor, as employers will not be able to obtain needed workers at the statutory price. In trying to force labor to be cheaper than its price on the free market, the gentry only made it more difficult for employers to obtain that labor. …”
“… Of course, one method of alleviating this induced shortage was by using the forced labor of slavery, servitude, and compulsory harvest service.”
LK bewilders me even more than Krugman in this situation.
I’m amazed at how much traction this has gotten. There are lots of labor policies in continental Europe that are orchestrated by bargaining between unions and employer associations that get the imprimatur of the government, and these are rightly treated as actual policies in the literature (often you’ll see references to “statutory minimum wages” if they’re talking about the American approach of legislating it directly).
What’s interesting is that a lot of libertarian types have no problem at all associating these with the state when they tag the whole system as “corporatist” (which every one is then quick to follow up and tell you is the preferred economic system of fascism). But in the service of knocking a Krugman post that approaches things in the standard way, that goes out the window.
PS – minimum wage in the U.S. should be plural too since different workers are covered by different minimums.
PPs – I think the coverage rate is much higher, like 85% back when Denmark was talking about a statutory minimum wage. Two thirds belong to unions, but more are covered by the agreements (just like in the U.S.).
“But in the service of knocking a Krugman post that approaches things in the standard way.”
But that is not the “standard” definition of minimum wages, DK.
Even if that was the standard way then it just means the standard way is to be misleading to the average person who reads articles like that. It just makes economists like Krugman and those who defend this type of stuff look like snake oil salesmen.
But there’s nothing misleading about it. Denmark’s got a high minimum wage.
Daniel, is it illegal to work for less than $20 per hour in Denmark? If not, then it’s not true to say to an American audience that Denmark has a $20 (or whatever) minimum wage.
What fraction of the above-18-year old work force is not covered by those collective bargaining agreements?
How about this Daniel? The least-skilled 15% of the US labor force has no minimum wage, and the top-85% skilled of the labor force has a $15 minimum wage? I think a lot of Cato people would support that. Would Hillary Clinton (or Paul Krugman)?
I don’t know all the vagaries of continental European industrial relations, but yes it’s illegal to work in specified trades for below the minimum wage as I understand it. That’s why everyone calls it a minimum wage.
I don’t know what the situation is like in Denmark, but in Germany you could (we have a Federal mandated min. wage now) work for less than the “Tariflohn” of your industry.
And taking the average of all sectors won’t change the fact that there were hair dressers who were making less than 5 Euro per hour.
Btw I would translate Tariflohn as Union wage not as min wage as you seem to do. But maybe Denmark is different.
Well it’s not me doing the translating, there are German labor economists writing on this that refer to the “minimum wage” as well as OECD stats on cross national minimum wages.
There’s of course some variability in US minimum wages too – across states, cities, tipped/non-tipped and other sub-minimum wages. Just not the industrial and occupational variability as in countries where this is set by collective bargaining.
Germany has a min wage now.
But a couple of years ago people who worked in the car industry could be paid less than what you would Call the minimum wage for the car industry.
Which to me makes the term minimum wage meaningless.
It’s misleading because the average person would have no idea about the major differences between what they call “minimum wages” and what the people calling for a raise to $15 minimum wage are talking about. It’s like me telling all my friends to come over and watch the football games this weekend and then they get there and I have on the Premier League.
Dan – I agree that the average person would have no idea about the major differences. But that’s not the standard for it to be misleading. For it to be misleading then *given* the state of ignorance a statement shouldn’t give people the wrong impression. And this doesn’t.
Daniel wrote:
Dan – I agree that the average person would have no idea about the major differences. But that’s not the standard for it to be misleading. For it to be misleading then *given* the state of ignorance a statement shouldn’t give people the wrong impression. And this doesn’t.
Daniel, please explain these 3 sentences from you. It sounds like you’re saying (my paraphrase of course), “I agree that the average reader of Krugman’s column wouldn’t realize that Denmark doesn’t have a minimum wage like we do. But so long as the average reader of Krugman’s column didn’t walk away with the wrong notion about Denmark’s minimum wage, it’s not misleading.”
Bob – I’ll say it again differently. The average person doesn’t have a good understanding of the variance of labor market institutions internationally. I only have a very foggy sense, and it’s better than most. Making a statement that fails to articulate all those differences is not misleading. What would be misleading is if in the statements you do make you’re giving people the wrong impression about a fact. Since Denmark has a high minimum wage (albeit via different institutional frameworks), Krugman isn’t misleading anyone.
“Since Denmark has a high minimum wage (albeit via different institutional frameworks), Krugman isn’t misleading anyone.”
It’s not a “minimum wage” unless it’s forced on someone.
We’re not saying higher rates of wealth accumulation are bad.
What we’re saying is that forcefully redistributing goods from producers to laborers disincentivizes production, making consumers (to include laborers when they go to spend their wages on consumption) poorer.
It’s also theft, so there’s that.
To the extent that Denmark’s collective barganing arrangements are voluntary, it is not comparable to government-enforced minimum wages in the U.S., or elsewhere.
Denmark does not have a minimum wage, DK.
To say that a large portion of Denmark’s working population have negotiated via collective bargaining a particular set of wages, does not constitute an argument that Denmark has a “high minimum wage”.
You are being highly misleading for the sake of defending PK.
It’s like me telling all my friends to come over and watch the football games this weekend and then they get there and I have on the Premier League.
I don’t know whether this is analogous or not but it’s funny.
Denmark does not have a [minimum wage](https://en.wikipedia.org/wiki/Minimum_wage), DK.
Are you honestly claiming that there is NO worker in Denmark that is making less than the legal minimum wage in the US?
That the lowest wage any worker is making in Denmark is “high”?
You people are twisting the meaning of wods to salvage what is obviously a “highly” misleading treatment of wages.
“It’s like me telling all my friends to come over and watch the football games this weekend and then they get there and I have on the Premier League.”
Add in to the analogy that both you and your friends live in Green Bay [U.S.], are Packers [statutory minimum wage] fans, and the Packers play this weekend [minimum wage has been proposed].
Anyone who doesn’t think this it’s misleading to call soccer “football” in that context is either lying or has never been to Wisconsin.
The words are English. But I fed it to Google translate and it gave up.
Try typing in “minimum wage” into Google, Craw.
You’ll find it goes to legally stipulated minimum wage, not what so happens to be the statistically minimum market wage rate.
You people are hilarious. You actually believe you’re BS is going to work. Hahahaha!
Kuehn, Keynes, you guys are being obtuse.
Just say you disagree and tell me why
Bob, do you think Neumark and Wascher are “duplicitous” in the abstract to his highly regarded paper? (Half the minimum wages they study here are non-statutory):
“The authors estimate the employment effects of changes in national minimum wages using a pooled cross-section time-series data set comprising 17 OECD countries for the period 1975–2000. The average effects they find are consistent with the view that minimum wages cause employment losses among youths. However, the evidence also shows considerable variation across countries. In particular, disemployment effects of minimum wages appear to be smaller in countries that have subminimum wage provisions for youths. Regarding other labor market policies and institutions, the authors find that more restrictive labor standards and higher union coverage strengthen the disemployment effects of minimum wages, while employment protection laws and active labor market policies designed to bring unemployed individuals into the work force help to offset these effects. Overall, the disemployment effects of minimum wages are strongest in the countries with the least regulated labor markets.”
http://ilr.sagepub.com/content/57/2/223.short
Denmark’s one of them, fwiw
Are you unaware of the difference between an academic paper and a blog post directed at the average person? The academic audience may infer that a “minimum wage” may not be statutory. The average American is not going to get that from a pluralization. At best, they’d assume a system similar to America, where states and cities can increase the required minimum wage in their jurisdictions. Krugman is being disingenuous – what he means and what most people will think he means are two totally different things.
And this is particularly obvious given that he does not advocate repealing the statutory minimum wage in favor of a collective bargaining system…
It is more misleading to have two systems where you can’t work for less than X and say that one of them is not a minimum wage because it wasn’t passed through the same mechanisms that we do here.
The average American (and the scholarly literature) is focused on whether it’s allowable to work for less than X.
Coverage isn’t 100% but it isn’t in the US either.
But you CAN work for less than whatever “minimum” you think exists in Denmark.
In Denmark you are legally allowed to agree to a contract with someone else whereby you pay them the equivalent of $5.00 USD an hour.
Whether or not anyone actually agrees to this, does not establish a comparable “method” of “establishing” a minimum wage in an economy with government imposed price controls.
Unbelievably misleading is the position you are defending.
It’s hard to classify someone as duplicitous if the argument hurts their preferred policy position, Daniel. In this post, Krugman is quite clearly saying, “The US ought to follow Denmark’s lead by raising its federal statutory minimum wage to higher levels, just like pro-labor politicians like Obama and Clinton support and those nasty Republicans would oppose.” If it turns out that the actual Denmark situation is not obviously comparable to the US situation, then that is misleading.
In contrast, if authors want to run a regression on Denmark to watch employment growth when the “minimum wage” is tweaked, I think that’s much more acceptable. But if the coverage were changed significantly then it could be misleading, esp. if they don’t mention what changed and use it to support their policy position.
re: “If it turns out that the actual Denmark situation is not obviously comparable to the US situation, then that is misleading.”
Agreed which is why it’s not misleading.
So what you’re saying is, it is comparable, because freely negotiated labor contracts are the same thing as price controls.
It is the same old story. An inability to distinguish between non-aggression and aggression.
If real wages in more liberal economies are higher, then the government can raise real wages by law.
It is the myth of government. Bastiat spoke about this a long time ago.
Right.
And in case it isn’t clear, yet, what we’re saying is that it makes all the difference whether or not the high wage is voluntary on the part of both the employer and the employee.
The reason is because only voluntary wage rates can sustain a given industry.
Wage controls are, by nature, against voluntary agreements, and are therefore naturally resisted.
So wage controls fight the reality of consumer demand (in that wages are sought for the purpose of consumption some time in the future).
A $15/hr voluntary wage agreement is different from a $15/hr legal Minimum Wage.
Bingo.
I will add that contrary to the backwards logic of the Keynesians, high real wages is an outcome, an effect, of healthy economic growth not a cause of it. And, economic inequality does not at all stand in the way to economic growth. What does stand in the way are the anti-market causes of the inequality on the one hand, and bad philosophy on the other, which of course is fueled and encouraged by the very same anti-market activity and ideological foundation.
I can’t get to the podcast of the last Contra-Krugman. Do you have a link so I can figure out what you are talking about. Sorry, I am not very computer savvy BC.
It’s not posted yet BC.
1. I suspect that since Denmark consists mostly of a single ethnic group and a small population that the labor agreements reflect a pre-existing mutual understanding and shared values.
2. How many people subject to these agreements are actually getting paid more than they would be without the agreements?
3. What is the unemployment rate among foreign non-Danish immigrants? Are they included in these agreement?
If someone were to mistakenly cite Denmark as a reason for a higher government-mandated minimum wage in the US because of Krugman, could we then expect them to get excoriated as stupid and/or ignorant by Krugman followers who got the right impression? I’m not saying that should be the ultimate standard of what constitutes “misleading”, but it seems unlikely that such a person would receive the LK treatment from Krugman folks (even supposing it just took place in the mind of the criticizer), yet simultaneously it seems like the attitude is “well if you can’t follow Krugman that’s on you”.
So, what, unless Denmark goes after its unions using anti-trust laws, then freely entered contracts that merely codify the effect their monopoly power has on the price of their labor is an affirmative price control by the government?
Huh?
I must say as a Krugman gotcha this is weak. What is Krugman talking about? Income inequality, or its lack. He attributes this Dansih lack “iin large part to high minimum wages .” There seem to be two ways to get low income inequality: lower maximum wages or higher minimum wages. (Is there a third way I have missed? )Talking about minimum wages seems perfectly sensible, almost de riguer, in discussing low income inequality. Krugman does just that.
And what’s Murphy’s complaint? “See kids, he’s talking about the ‘minimum wage’ but he is so slick he actually says ‘wages’. For deniability.”
Life imitates Beavis & Butthead.
Mr. Van Driessen: “You know this can be a really positive experience for you guys. There’s a wonderful and exciting world out there where we discover that we don’t need TV to entertain us.”
Butt-head: (to Beavis) “He said anus.”
Another person who doesn’t know the difference between a price control and a labor contract.
Is this where market monetarism comes from?
*applause*
This has got to be the most pro-union Free Advice comment section on record.
There is nothing inherently unacceptable in a free society to suppliers of labor coordinating with each other peacefully to gain leverage in peaceful negotiations with those who have demand for labor services to write up voluntary contracts more favorable to them in terms of their wages.
Being opposed to union violence or state violence on behalf of union interests is not the same thing as being anti-union.
A: “Union contracts w/ the force of gov’t privilege are better than price controls.”
B: “Wow, you must be a fan of FDR!”
… ?
Apparently Kuehn, Craw, Krugman et al. think that “minimum wage” means “lowest wage anyone happens to be paid” not “state mandate price floor on wages”
Which explains a lot actually, if they think the former can be raised by fiat.
Hard to see this as an honest comment, sinceI have been excruciatingly explicit about the difference between the minimum wages paid ad a minimum wage law. It is Murph and the commenter from Henderson ‘s who are trying to conflate talk of one with talk of the other.
Above, Keuhn said:
“Since Denmark has a high minimum wage (albeit via different institutional frameworks), Krugman isn’t misleading anyone.”
But since the “different institutional frameworks” of which Bob speaks are of a generally voluntary nature, Keuhn is doing the conflating:
“Now if you go and look at the link, and then circle back and see that Krugman put a plural on “minimum wageS,” you understand what he must have meant. Namely, there are collective bargaining agreements that ensure “minimum wages” for various types of workers.”
(I say “generally” because I’m under the impression from discussions I’ve had that collective bargaining in Sweden [at least, if not also Denmark], itself, is mandated as a “right”)
You’ve been excruciating alright, in justifying using the term for one to mean the other. But being explicit about the difference requires using, you know, different words.
Even on your own terms your stance is inaccurate, Craw.
Denmark does have individual laborers who make less than the $20-$21 average wage in Denmark. The minimum wgae in Denmark is actually $0. There are people who work for nothing. There are bound adults who work for very little.
What Krugman is trying to do, obviously, is to make his gullible readers believe that the US can replicate, by government fiat, what Denmark’s collective bargaining in an absence of minimum wage laws has done.
What is hilarious is watching his acolytes fallover backwards trying to justify his word choice.
It is almost as if you people are only trying to pat yourselves on the shoulder by emphasizing you know the difference. You are completely glossing over Murphy’s point, which is that his casual readers will be encouraged to agitprop for higher ACTUAL minimum wages, by government fiat, in the US, on the basis of being mislead.
“…young adults…”
Grammar is apparently alien to you people. I have repeatedly distingushed the “minimum wages [paid]” from the “minimum wage [allowed]”. Wages and wage are not the same word and they do not refer to the same thing.
Keep digging that hole, Craw. It is quite awe inspiring.
I want to see more of those square brackets things that you added in there, and all these “excruciating” posts where you are on Krugman’s blog making sure that every reader understands that PK was not talking about minimum wage. Sorry, I mean minimum wage [[[[[[[[[[[laws]]]]]]]]]]].
How in the world did Krugman think he would get away with it? Why would he he post a link with a comprehensive faq on how minimum wages works in Denmark? Does he not know anyone can just click on the link and and inform himself? It’s almost as if he wanted to get caught!
As Krugman has said in the past, links aren’t just for decoration.
http://krugman.blogs.nytimes.com/2010/07/20/notes-for-readers/
How in the world did Krugman think he would get away with it? Why would he he post a link with a comprehensive faq on how minimum wages works in Denmark? Does he not know anyone can just click on the link and and inform himself? It’s almost as if he wanted to get caught!
How in the world would Murphy leave himself open to such an easy refutation! Normally it takes 5 sarcastic sentences to demonstrate his Krugman Derangement Syndrome, but lately he’s slipping and it’s down to a mere three!!
Again we see grammar is alien to you people.
” how minimum wages works”
Google “minimum wage”, Craw.
Apparently common definitions are alien to you.
Krugman’s readership is largely uninterested in actually reading his citations, which is precisely why he used the words “minimum wage”.
You give his readers way too much credit.
It is almost as if you’re defending yourselves…
Murphy, to his credit, would NOT use misleading, almost deceitful word choices, to push his agenda. Disagree with him if you want, what you cannot accuse him of is insulting his readers’ intelligence by preying on their ignorance in order to encourage them to agitprop for anarchy under false pretenses on the basis of misleading word choices.
This blog post has revealed the utter intellectual bankruptcy of the Krugman camp.
Enjoy:
http://socialdemocracy21stcentury.blogspot.com/2016/05/debunking-austrian-economics-101-updated.html
These “debunks” were all already debunked.
Not just from without, but by the fact that every singke one of them were actions, that incurred costs, in which you expected to gain from the actions.
Thanks for perfectly validating praxeology.
lol… but will praxeology be valid tomorrow or the day after that?
““All predictions of what humans will do in the future are ass pulls”” –Major_Crackpot
Again, LK, you lack reading comprehension skills.
The word “predict” can have slightly different meanings depending on how it’s used.
Math doesn’t predict anything, but we use the word “predict” when describing it’s value for deduction.
That’s the sense in which Praxeology uses the word “predict”, in that deliberate human acts *logically* imply preference ranks, costs, marginal utility, the demand curve, etc.
Another definition of “predict” is clairvoyance. That is not the sense in which Praxeology uses the word.
So, yes, it *logically* follows – assuming humans exist tomorrow, and that people want to alleviate some felt unease and believe that they can – that praxeology will be valid tomorrow.
No clairvoyance is required for that claim to be true.
Clairvoyant predictions of what humans will do in the future are ass pulls.
Logically deduced human actions – *of a ceteris paribus nature* – are not ass pulls; They are logic.
Major_Freedom statement 1:
“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
————–
This is very clear: there are no predictions of any kind.
Once again, Guest, you should have taken your time to read M_F’s statements.
The study of human action is a priori like mathematics and formal logic. It does not predict whether there will be apples to count tomorrow or whether there will be action tomorrow.
You STILL have not defined “speculative asset bubble” without tautologies.
Are there any predictions in Austrian economics, Major_Loony?
Also:
“The “bubble” is called a bubble because of the deviation away from what otherwise would have prevailed in a laissez faire market.”
So is that a tautology or an empirical statement?
I’ve already answered that questiom. Praxeology is a priori. It does NOT predict that there will be human action tomorrow. It DEA!s with the logical categories of action as such.
You STILL have-not defined “speculative asset bubble” without tautology.
Praxeology is one gigantic tautology, in a similar way that the Pythagorean theorem is already implied by positing a right angle triangle in Euclidean 2-space.
I never said all tautologies are a problem. They are a problem when defining words. “Speculative asset bubbles are when speculators speculate about asset prices” is a tautological definition. It does not add to our knowledge. The Pythagoream Theorem does add to our knowledge about triangles.
Try to define “speculative asset bubbles” without tautology. You never have, and the way you are going about it now, you never will.
It is not a matter of definition; it is a matter of giving a name to an empirical phenomenon and describing what that empirical phenomenon involves, just as when you see water boiling you can give an explanation scientifically and empirically and call it “evaporation of water.”
As usual, you as dumb as can be.
“So is that a tautology or an empirical statement?”
If you understand what’s being said, a charitable interpretation will not read as a tautology, even though yes, *as written* in that particular instance, it happens to be a tautology.
But all that’s trying to be said is that economics is about satisfying consumer preferences.
And when you produce more than what consumers are willing to buy with their scarce resources, that’s a bubble.
And when central planners steal from one group of people to give to another group, via the redistributional effects of “stimulus”, it’s still a bubble because producers are being supplied the wrong signals about actual consumer preferences.
Which is why “stimulus” is unsustainable and *must* result in a bust.
You’re causing producers to produce for consumer demand that doesn’t exist, won’t exist, or only exists when the government steals from others to give to them.
Obviously, if one group of people – even if they don’t realize they’re being stolen from – have less than they otherwise would have, they’re going to compensate for that loss by substitution or saving.
“Stimulus” necessarily fights the reality of actual consumer demand; If consumers wanted, or could afford, Product A, they’d already be buying it and there’d be no need for “stimulus”.
(That’s why “stimulus”, itself, is evidence of a bubble in the “stimulated” sectors of the economy.)
“It is not a matter of definition; it is a matter of giving a name to an empirical phenomenon and describing what that empirical phenomenon involves, just as when you see water boiling you can give an explanation scientifically and empirically and call it “evaporation of water.”
Lol! Of course it is a matter of meaning!
The word “evaporation” has a meaning commonly understood in the scientific community, as well as in the public. It means a change of state of matter from liquid to gaseous form caused by the temperature of the liquid going up. Each element and compound if capable of turning into a liquid, has a boiling point.
There is also a word for when solids change state to gas (sublimation).
What scientists do not do is when asked “What does boiling mean?” to answer “It is when boiling occurs” which is how you answered the definition of speculative asset bubbles.
You did not provide a meaning nor a definition for what a speculative asset bubble is without effectively saying “Boiling is defined as when boiling occurs”.
Lol!
The “meaning” is derived from empirical investigation of states or phenomena in the real world, and NOT from mere tautological definition.
Once again, you reveal your harebrained inability to understand basic concepts in philosophy.
Then why don’t you explain it rather then eliciting the tautology you already posted above?
You can keep claiming it is empirical all you want, there is still only the tautology there.
LK you are after all these years not only ignorant of Austrian economics in general, but you are still unable to distinguish between a priori arguments and a posteriori arguments.
The statement “2+2=4” is not a prediction. Yet the way you are confused about praxeology would have you believe that it is a prediction, on the dubious basis that one can imagine “tomorrow” there being 2 apples and another 2 apples, and that “if” that were the case, “then” there would be 4 apples. In other words, should someone say 2+2=4, they are making the prediction that tomorrow should there be 2 apples and another 2 apples, that they are saying, today, that there “will be” 4 apples.
And, that if for whatever reason, for argument’s sake, someone said scientific predictions are not possible for counting apples, then you would believe they are not entitled to argue that 2+2=4, because then they would be making a prediction tomorrow about the relationship between 2 apples and another 2 apples. That they are somehow making a hypothetical, falsifiable proposition that requires empirical testing, because it is possible that tomorrow 2 apples and another 2 apples might add up to 5 apples, or 3 apples.
This is hilarious.
See below, Major_Moondance
You have not addressed anything in my post there, LK. See below is referencing a red herring that has already been addressed a million times.
“Once again, Guest, you should have taken your time to read M_F’s statements.”
Umm …:
M_F said: “The study of human action is a priori like mathematics and formal logic.”
I win.
“but will praxeology be valid tomorrow or the day after that?”
You’ve already been educated on this point a million times. Praxeology is the science of human action. It does not predict humans will exist tomorrow.
Praxeology is a priori. It deals with action as such, not whether there will or will not be action tomorrow.
So in other words, you have NO justification for holding Austrian economics will in any way be valid tomorrow, because of your bizarre personal ramblings that have very little to do with actual Austrian economics.
E.g.,:
Major_Freedom statement 1:
“Back in 2009 I predicted high inflation, but Krugman’s treatment of Krugman would suggest that I need not abandon my theory,”
Major_Freedom in a comment on “My Final (We Hope!) Word on Paul Krugman and Inflation Predictions,” 25 September, 2013
Major_Freedom statement 2:
““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.”
“So in other words, you have NO justification for holding Austrian economics will in any way be valid tomorrow”
There is no justification within praxeology to predict that there will be human action tomorrow.
Very little to to do with Austrian economics? You don’t even understand it, you’re in no position to even recognize how close or far my ideas are from it. But that doesn’t even concern me. You are not even challenging the validity of what I say by telling me how close it is to your (MIS)-understanding of it.
Unlike you I am not a cultist who calls himself a Lord after another person who is dead, nor do I merely parrot what others have written. What you post can be replaced by a robot who does Google searches.
How do you know the axiom of disutility will be true tomorrow? lol
“How do you know the axiom of disutility will be true tomorrow? lol”
Because labor is a cost of satisfying an end.
If the end were attainable without labor, that would be preferred.
Er go, the axiom of the disutility of labor holds, logically; I.e., always, for all time, in every circumstance (sorry, Bob, it’s true) – so long as labor is required to achieve an end.
I did not claim disutility is a priori.
Nor did I claim to “know” people’s feelings or thoughts towards labor tomorrow.
You can consider me to be a “Post” Austrian. Lol!
Statements by Austrian economists:
“One of the reasons for the swift diffusion of Misesian views in England in the 1930s was that Mises had predicted the Great Depression, and that his business cycle theory provided an explanation for that harrowing event of the 1930s.”
Rothbard, Murray N. 2006. Making Economic Sense (2nd edn.). Ludwig von Mises Institute, Auburn, Ala. p. 447.
“On the basis of his business-cycle theory, Mises had predicted a depression at a time when, in the ‘New Era’ of the 1920s most economists, including Irving Fisher, were proclaiming a future of indefinite prosperity …”
Murray Newton Rothbard. 2009. The Essential von Mises. Ludwig von Mises Institute, Auburn, Ala. p. 38.
“Mises’s book of 1928, Geldwerstabilisierung und Konjunkturpolitik, which predicted the Great Depression on the basis of his developed business cycle theory … .”
Rothbard, M. N. 2011. Economic Controversies. Ludwig von Mises Institute, Auburn, Ala. p. 231.
Major_Freedom statement 1
“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.”
—————–
End game for Major_Crackpot.
People making better predictions than others because their ability to use logic at a superior level than others, which is what enabled Hayek and Mises to anticipate better what others could not, does not constitute in any way proof that praxeology is a predictive science.
End game? You are still wrong. You have been lapped a dozen times over and you can’t tell the difference between whether or not people have lapped you or have done as many laps as you.
An entrepreneur who is proficient at logic and mathematics will tend on average to outperform other entrepreneurs who are not, ceteris paribus. This does not imply these people are “representing mathematics” when they make better investment decisions, i.e. better anticipate future demsnd, than others.
What you are doing is conflating the PERSON with the SCIENCE.
You view all others as “representing” one school or another in everything they say and so, because you yourself are such a cultist.
“People making better predictions than others because their ability to use logic at a superior level than others,”
So, wait!, Austrian economists can make predictions now? Make up your mind.
Still conflating PEOPLE with THEORY I see.
The question is not whether “Austrians” can make predictions. The question is whether praxeology is spredictive science. It is not.
Whether or not people who understand praxeology make predictions is a different question that you are asking. The answer is yes of course “Austrians” make predictions. But they do not do so “representing” Austrian theory.
If tomorrow you learned underwater basket weaving, then the day after you made a prediction of stock prices at the end of this year, you would not be showing or representing of revealing the fact that underwater basket weaving is a predictive science, even though you are now an “underwater basket Weaver”. It would be as silly to believe “Haha! Underwater basket WeaverS make predictions! Anyone who claims underwater basket weaving does not make predictions is wrong!”
“But they do not do so “representing” Austrian theory.”
hahaha… so when Robert Murphy predicts an asset price bubble from QE, he is not using, drawing on or representing the theories from Austrian theory in any way? Is he using Post Keynesianism?
Thanks for that piece of lunacy, Major_Moondance.
Lol!
This question proves you did not understand the argument.
I never said Austrian theory is not “used” when making predictions. Of course it can be “used”, similar to how the English language can be “used”, and to how basic logic is “used”, and to how basic arithmetic can be “used”, and on and on.
To “use” something when making a prediction does not prove that that something is a predictive science.
Your ability to grasp nuance is as poor as your understanding of basic Austrian concepts.
So what did you mean by “represent”?
Did you mean that the abstract theory itself doesn’t make predictions, but only people do?
lol.. No sh*t, sherlock. Nobody ever denied it.
The original question was: can *Austrian economists* using *Austrian theory* make valid predictions?
I’ll bet we’ll now see that you actually agreed with me all along that, yes, Austrian economists can make predictions using Austrian theory and this whole debate was another example of laughable dishonesty.
Enjoy your humiliation, Major_Crackpot.
“So what did you mean by “represent”?”
I meant what you keep insinuating every time you insist that Austrian economics makes predictions on the basis that Austeian economists make predictions.
People who use the English language make predictions. “English speakers” make predictions. But this does not mean that English is a predictive science.
“Did you mean that the abstract theory itself doesn’t make predictions, but only people do?”
No. I meant the theory is not composed of predictive, if-then propositions, which are structured on the assumption of constancies in relations, and require observations to become known.
Austrian theory is composed of logical statements. It is composed of what is true for ALL actions as such, regardless of what they happen to be. The knowledge that all actions incur costs, and are goal seeking, whereby the individual experiences a gain or loss, is not testable (as all tests are themselves actions and cannot conceivably be understood as something other than actions).
All of your posts here on this blog, are actions. You incurred opportunity costs. You either gained or lost from it. You did what you did because it was the most highly valued goal for you at the time.
What praxeology tells us about actions is akin to what geometry tells us about shapes.
“The original question was: can *Austrian economists* using *Austrian theory* make valid predictions?”
Using ONLY Austrian theory? No. Austrian theory is a tool, like formal logic. It is not a predictive science.
In fact, Austrian theory allows us to know that positivistic predictions of human action are an impossibility, since the assumptions of positivism do not and cannot apply to knowledge and actions. Indeed, positivism only works when the assumptions it makes about matter, are dropped and abandoned for the researchers themselves. They must violate the assumptions of positivism with respect to their own knowledge and actions, if positivism is to be regarded as true for the matter they study.
“I’ll bet we’ll now see that you actually agreed with me all along that, yes, Austrian economists can make predictions using Austrian theory and this whole debate was another example of laughable dishonesty.”
You are not credible enough to stand by any bet like this.
So can Austrian economists make qualitative predictions using Austrian theory?
Yes or no?
Robert Murphy:
“Praxeology can make certain predictions about the future, but they are necessarily qualitative. For example, it can tell us that (other things equal) a fall in the demand for apples will lead to a lower price of apples.” (Murphy and Gabriel 2008: 47–48).
Do you agree with Murphy? yes no no?
We’ve gone over this LK. Yes, I disagree with anyone who says Austrian theory is a predictive science. Including “qualitative” predictions.
What Austrian theory does, and what I suspect Murphy is inadvertantly alluding to, is that Austrian theory constrains the range of possible outcomes by way of filtering out praxeologically impossible theories.
For example, if the quantity of money doubles, and the future is such that the demand for money does not concomitantly increase, then the theory that says ceteris paribus the purchasing power of money will rise substantially, is a theory that can be rejected as praxeologically impossible. It is impossible for logical reasons. We do not need to test this.
Similarly, the theory that in worldwide communism there would be a price system for the means of production, is also a theory that can be rejected a priori as praxeologically impossible.
If there are two predictors, similsr in intelligence, but one of them has an understanding of praxeology while the other does not, the one with the understsnding should on average make better predictions. Not because Austrian theory predicts, but because the use of better logic makes for more successful predictions.
This constraining of possible outcomes is what i think is really going on when the argument is made that Austrian theory can make “qualitative predictions”. I do not call them predictions at all, because we cannot predict for example to what extent the demand for money holding will change given a change in the money supply. Nor can we predict whether the additional money supply if it was accompanied by additional spending, will be concentrated in higher order capital goods, consumer goods, or some other combination of goods.
But once the future comes to pass, and the future becomes past, and we can learn what happened, Austrian theory can explain in part why there was a boom and bust in housing. To do so does not constitute a prediction that every time the Federal Reserve System artificially lowers interest rates and expands credit, that housing will always be the biggest boom. Each boom is unique.
That LK can continue to emphasize the word “predict” in such references as above and claim that Austrians make predictions of a clairvoyant nature is starting to convince me of Bob Roddis’ claim that LK knows we’re right and, in fact, have won.
We’d still need to educate others so they can recognize when people like LK are playing word games, otherwise they’ll be persuaded that *we’re* the ones who don’t know what we’re talking about.
LK: There are two senses in which “predict” is being used. Do you have a response to this?
As Rothbard said:
Whether we consider the Action Axiom “a priori” or “empirical” depends on our ultimate philosophical position. Professor Mises, in the neo- Kantian tradition, considers this axiom a law of thought and therefore a categorical truth a priori to all experience. My own epistemological position rests on Aristotle and St. Thomas rather than Kant, and hence I would interpret the proposition differently. I would consider the axiom a law of reality rather than a law of thought, and hence “empirical” rather than “a priori.” But it should be obvious that this type of “empiricism” is so out of step with modern empiricism that I may just as well continue to call it a priori for present purposes. For (1) it is a law of reality that is not conceivably falsifiable, and yet is empirically meaningful and true; (2) it rests on universal inner experience, and not simply on external experience, that is, its evidence is reflective rather than physical7; and (3) it is clearly a priori to complex historical events. p. 6
http://mises.org/document/139/Defense-of-Extreme-Apriorism-In
Human action, including and especially economic calculation, precedes all “economic” (or catallactic) activity. Economic calculation is distorted by fiat money expansion and fiat money credit expansion by distorting prices. That is the fundamental basis for the ABCT. In 1936, the US and the UK were suffering from artificially distorted prices, not from any defect or problem that can be predicated upon a failure of the free market. Keynes certainly completely ignored the analysis as does every Keynesian ever since.
I see no evidence that LK or DK understand these basic concepts or ever address or apply them.
Without understanding these concepts, you do not understand how the world works, how to analyze economic problems or how to address the future.
Great quote there Bob. Indeed this is what I see, as Rothbard is famous for creating the Rothbard Money Supply which is today called the True Money Supply. What Rothbard did was take Mises’ methodological dualism and further describe the business cycle through what Mises pointed out as the common denominator. Rothbard also made clear that mathematics with human action is unrealistic and gives no pretext to try to predict the future. Basically what Rothbard did is demonstrate to people the limits of mathematics, not just in the field of economics, but in all fields of the sciences as well. Listening to Michel Accad, I am coming to realize even the sciences get carried away with Mathematics.
More hot air from a loud-mouth who doesn’t even understand basic Austrian theories or concepts.
For Mises, economic calculation means:
(1) an economy has money prices for capital goods and consumer goods, and
(2) businesses calculate profits and losses with money prices and the economy has a relatively stable purchasing power for money, so these calculations can be meaningful: as Mises says, “For the sake of economic calculation ALL that is needed is to avoid great and abrupt fluctuations in the supply of money” and in turn the purchasing power of money.
———
This is well understood by all economists. Keynes understood this as can be seen from his comments in Chapter 19 of The General Theory; he also pointed out that severe general price and wage deflation also wrecks havoc in market economies, causing “a great instability of prices, so violent perhaps as to make business calculations futile in an economic society functioning after the manner of that in which we live.”
Fiat money is quite capable providing price stability and avoiding large fluctuations in the money supply growth rates. Once we understand that the quantity theory is B.S. and the private sector provides a large degree of price stability anyway by mark-up pricing, the Austrian theories fall apart.
“he also pointed out that severe general price and wage deflation also wrecks havoc in market economies”
Oh no! Producing more and more goods for lower and lower prices, which does not reduce nominal profitability, “wreaks havoc” on market economies!
No wonder the electronics industry has been the least innovative industry!
Keynes was not an economist. He was a moralist.
Fiat money is not capable of providing price stability, because the money printers are not subject to market forces and not subject to the price system, of profit and loss.
No, not price falls in individual goods, but **general* price deflation caused by depression, debt deflation and demand deficiency. Idiot.
So not falling prices, but a drop in the money supply and volume of spending.
And you wonder why we keep saying to you Keynesians that you are unable to distinguish between symptoms and causes? That’s why.
How long is LK going to be allowed to come on this site and constantly insult people, calling them “dumb”, “idiot”, etc?
I hope this site doesn’t turn into an echo chamber, so I want LK, et al, to stay, insults and all.
Yeah part of it is that he usually doesn’t start doing that until 8 comments in, when I have stopped reading carefully.
Also I think it helps to have a Keynesian constantly being a jerk.
“Debt deflation” aka “the Austrian bust”. Price inflation is caused by artificial credit creation. You know, loans and DEBT. Prices are artificially bid up with the new money and are thus unsustainable. At some point, they collapse and the loans can’t be paid back. You know, debt deflation.
All should recall that Lord Keynes consistently denies that “debt deflation” has always been central to Austrian analysis. In fact, he denies that Austrians deal with the process or concept at all.
It’s not clear to me why we need Keynesianism and funny money creation to solve a problem caused by Keynesianism and funny money creation. Especially since there is no historical basic for claiming the market has failed. Smart guy.
Typo: “there is no historical BASIS for claiming the market has failed”
“Price inflation is caused by artificial credit creation. You know, loans and DEBT. “
There is nothing “artificial” or “fraudulent” about credit creation and credit money then used as a means of payment which increases the broad money supply. It has always been a fundamental part of capitalism, whether with regard to (1) bills of exchange, (2) promissory notes, (3) cheques, or (4) fractional reserve book money or bank notes.
http://socialdemocracy21stcentury.blogspot.com/2012/05/funny-money-loaded-phrase.html
“There is nothing “artificial” or “fraudulent” about credit creation and credit money then used as a means of payment which increases the broad money supply.”
Understanding the function of money would disabuse you of that fallacy.
Nobody wants money, per se; They want what money can be exchanged for.
Which means that there must be some kind of a correlation between money and the goods that are sold and bought for and with it, other than arbitrary assignments of value.
Otherwise, why would you need money at all, since you can just arbitrarily assign any barter good the value of “preference satisfaction”. No medium of exchange required.
So, when the supply of money substitutes are artificially increased (only money substitutes can be artificially increased; not money, itself), the link between the money substitute and the use-value of the commodity money it represents is being misrepresented.
Er go, fraud.
“It has always been a fundamental part of capitalism”
By that logic so has everything that occurred.
The fact that something takes place, does not prove that it is a “fundamental” part of capitalism.
Fractional reserve banking, HISTORICALLY, has been plagued with actual fraud and deceit.
And, apart from this, even today most people today believe their demand deposits are their own money. So there is at least widespread ignorance in addition to the outright fraud.
“… as Mises says, “For the sake of economic calculation ALL that is needed is to avoid great and abrupt fluctuations in the supply of money” …”
If Mises said this, then he’s wrong.
It’s not *economic* calculation to the extent that a money’s value is not derived from its use-value.
Mises is simply not being consistent with the Action Axiom, if he means what you think he means.
Austrians cannot consistently believe that the supply of money, strictly speaking, doesn’t matter AND that economic calculation is only possible without abrupt fluctuations in the supply of money.
That would be a contradiction.
If prices in terms of commodity money were to fluctuate greatly and abruptly due to great and abrupt fluctuations in consumer demand for the goods priced in commodity money, people would just automatically use some other commodity as the money.
Stability of prices doesn’t matter if the prices aren’t linked to use-value. Choosing a different commodity money that doesn’t fluctuate in prices makes calculations easier without sacrificing the economic nature of those calculations.
Here you go, LK; Two helpful qualifications rom the same source:
The Sphere of Economic Calculation
https://mises.org/library/sphere-economic-calculation
1)
“It is vain to sever valuation and action from man’s unsteadiness and the changeability of his conduct and to argue as if there were in the universe eternal values independent of human value judgments and suitable to serve as a yardstick for the appraisal of real action.2
“All methods suggested for a measurement of the changes in the monetary unit’s purchasing power are more or less unwittingly founded on the illusory image of an eternal and immutable being who determines by the application of an immutable standard the quantity of satisfaction which a unit of money conveys to him. It is a poor justification of this ill-thought idea that what is wanted is merely to measure changes in the purchasing power of money.”
2)
“The layman is prone to consider the preservation of yesterday’s price structure both as normal and fair, and to condemn changes in the exchange ratios as a violation of the rules of nature and of justice.
“It would be a mistake to explain these popular beliefs as a precipitate of old opinions conceived in earlier ages of more stable conditions of production and marketing. It is questionable whether or not prices were less changeable in those older days. On the contrary, it could rather be asserted that the merger of local markets into larger national markets, the final emergence of a world-embracing world market, and the evolution of commerce aiming at continuously supplying the consumers have made price changes less frequent and less sharp.”
Price stability is an *effect* of economizing, not its cause.
Wild fluctuations in prices negatively affect man’s ability to plan for the future, so he *naturally* pursues stability in terms of actual wealth accumulation.
LK, I think all Austrians are quite aware of what you described, and no Keynes wanted government intervention into the economy which Austrians make clear creates malinvestments and without a doubt price distortions. It’s important to keep reading into the Austrian theories if you feel you know so much about them. Keynes was all about trying to calculate the economy and setting these prices through force wrought by monopolies. On the other hand Austrians want the free-market to dictate the appropriate price level.
Furthermore, if you read Hayek you’d see that he did support fiat currencies and even pointed out that competing fiat currencies and free banking would control inflation and monetary distortions. Rothbard furthered this analysis by pointing out that Gold is the soundest of all monies in that it controls the business cycle.
[H]e also pointed out that severe general price and wage deflation also wrecks havoc in market economies, causing “a great instability of prices, so violent perhaps as to make business calculations futile in an economic society functioning after the manner of that in which we live.”
Note the endless evasions here. Where’s that magic period of pure clean water, I mean the free market for the period 1913 to 1936 where we can test these “theories”? Daniel Kuehn’s paper explains how the 1920 depression was the aftermath of WWI funny money shenanigans: Kuehn first demonstrates that it was the Fed’s funding of WWI that caused an artificial boom and inflation. The problem was not caused by any failure of “the free market”.
2. The austerity depression of 1920–21
During WorldWar I federal expenditures ballooned and although the new income tax was able to partially finance the war effort, most of the financing was done through federal borrowing and by the highly accommodating monetary policy of the Federal Reserve. The role of the Federal Reserve at this time was expressed unambiguously by the New York Federal Reserve Bank Governor Benjamin Strong, who told a Congressional committee in 1921 that ‘I feel that I, or the bank at least, was their [the Treasury’s] agent and servant in those matters’ and further added that the wartime inflation caused by the low interest rates maintained by the bank were ‘inevitable, unescapable, and necessary’ for prosecuting the war (Strong, 1930) [emphasis added}
After the war, such policy was “sharply curtailed” as was government spending leading to the predictable bust:
However, after the war ended the deficit spending of the Wilson administration and the expansionary policy of the Federal Reserve were sharply curtailed to bring a halt to the inflation. By November 1919 the Wilson administration balanced the federal budget, slashing monthly expenditures by almost 75% in a matter of months.4 The New York Federal Reserve Bank raised the discount rate by 244 basis points over the course of eight months, with other Reserve System banks following suit. Shortly after these austerity measures were taken, the 1920–21 depression was under way. Postwar industrial production in the USA peaked in January 1920 as the economy moved into a major depression, with production levels dropping by 32.5% by March 1921.5 This loss in output is second only to the Great Depression in American economic history (Romer, 1999), although its duration was considerably shorter. Declines in output were matched by precipitous drops in employment and the price level. The proximate cause of the 1920–21 depression was a deliberate fiscal and monetary retrenchment following World War I.
These central bank money interventions led to the Great Depression and the political problem that Keynes was attempting to solve:
Mr. Buckley: Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects? Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?
Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.
http://bobroddis.blogspot.com/2014/02/being-polite-to-keynesians.html
There is no evidence (and none put forward) that these problems were caused by the free market and not central bank interventions.
The imaginary “free market” in your mind has NEVER existed. Severe recessions existed in the 19th century too even when there was no central banks in countries like the US or Australia.
You can certainly point to poor central bank policies at some times in the presence of poorly or loosely regulated financial sectors, e.g., US in the 1920s; you can also point to highly effective central bank policies from many other periods, as in the post WWII era. Central banks with effective financial regulation are justified and necessary.
If the free market does not exist, and has not existed, what is the empirical justification for government intervention in the free market?
“Severe recessions existed in the 19th century too even when there was no central banks in countries like the US or Australia.”
Already been dealt with:
Monetary Lessons from America’s Past | Thomas E. Woods, Jr.
[www]https://www.youtube.com/watch?v=91OIBnrjzLU
[Duration 40:07]
Economic Cycles Before the Fed | Thomas E Woods, Jr.
[www]https://www.youtube.com/watch?v=TxcjT8T3EGU
[Duration 57:42]
That’s Fractional Reserve Banking. You think the interest rate derives from the loan market, Keynes didn’t realize it came from somewhere else, from the marginal efficiency of capital. Indeed one would have to believe in the silliness of central banks and consumption to think this is how markets functioned.
On the contrary, Keynes believed the supply and demand curves in the loan market moved together and the rate of interest was entirely arbitrary.
Moreover the theory of interest you cite here is not the Austrian one, and more importantly, I think, not the correct one.
Interesting notion. I always believed that Keynes felt the rate of interest derived from the producers’ loan market, and that indeed the rate of interest was arbitrary and thus needed a central bank or government to dictate it’s appropriate level.
The theory of interest I cite is directly from the Austrian perspective of being the natural rate of interest derived from the various price spreads of the various factors of production in the production process. This is directly from Rothbard’s MES. See page 371 footnote 5.
“But boy oh boy, would anybody have thought that from Krugman’s own wording?”
Yes, and the link also helps explain it. Thats why the link is there. Its quite clear.
Stupid question: what’s the *economic* difference between a true state minimum wage vs Denmark’s system? What does it do differently in terms of the supply/demand curves?
If people are allowed to work for cheaper than standard wages, then there exists some lower rungs on the ladder to get started with. Doesn’t matter if in any given snapshot this is only a small percentage of people using this; because you probably would find it’s a large percentage of people who have worked cheaply at least once in their lives.
Also, it’s fair to point out that in the USA you have heaps of people working below the minimum wage, just happens they work illegally. Economically, the illegal workers are still contributing, but not such an easy path of advancement there either. So kind of choosing between an honest system where negotiation happens out in the open, and a dishonest system where we have rules that apply to some people, some of the time.
Does the Danish system allow for these lower rungs, or are they ruled out by the same Union agreements.
Approx one third of the workforce are not in unions at all (that seems to be growing in recent years), although you might find for certain industries you can’t get work unless you join the union… but clearly the non-unionized people still get *some* work.
Also, taking an average of a bunch of minimums is mathematically speaking a load of crap. What you end up with is neither a minimum nor an average, it’s Sociology statistics. Thus, if you actually go looking for a real minimum you would find it lower than the stated $20 per hour.
Then in Denmark cost of living is higher, and tax is higher than the USA so those people on low wages don’t get to buy as much as you might expect.
I did a search around on internships in Denmark and there’s some prices advertised around $800 per month (translated to USD ignoring tax and cost of living) which is roughly $5 per hour. In other words, Krugman, Sanders, etc are being quite misleading as usual.
I would be confident to guess that quite a large percentage of Danish workers have done an internship, or maybe two in some cases.
I don’t know about Denmark, specifically, but I’ve heard that Sweden’s businessmen actually don’t mind their workers collectively bargaining, even though it is mandated (odd that you would need a mandate if it were that voluntary).
At any rate, the economic difference is that workers that would otherwise be willing to work for wages below the legal minimum are priced out of that source of income.
Also, the minimum wage protects skilled workers from competition from unskilled workers, so it’s also cronyism.
On the producers’ end, companies that would otherwise be able to compete due to having lower labor costs are artificially prevented from doing so.
Would you explain monopoly pricing of labor the same way to economics students as you would a price floor? Would you draw the diagram the same way?
Does anyone know what the min wage in the US would be if you calculate it the same way it is done in Denmark? It must be higher than the official number(s), but by how much? Maybe we can tell those who are fighting for 15 that they have already won.
AUSTRALIA! John Quiggin
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
The reference to Dowd is worth reading on this:
“The bottom line, then, is that the bank ‘failures’ were caused primarily by a combination of ‘real’ factors and misguided government intervention, and the ‘failures’ were not what they might appear to be anyway. It is ironic that a crisis in which inept government intervention played such a major part should have become so widely regarded as a failure of ‘free banking’.”
Dowd, Kevin. “3 Free banking in Australia.” Experience of Free Banking (2002): 48.
Interesting find, Roddis.