But what are those “certain things,” JAlanKatz?
liberty student, if you can, please take an opportunity to enlighten me. That way, you get to actually show how smart you are.
Unless I am given reliable criteria on how to distinguish malinvestments from bad investments, I remain unconvinced that such phenomena even exist.
Now, if we bite the bullet as Jonathan did, then all bad investments are malinvestments, but I’m not sure that’s what Austrians typically mean.
Jonathan asserted that all bad investments were “malinvestments,” but I thought Austrians used the term in a stricter sense (i.e., if interest rates weren’t artificially lowed, malinvestments would cease to exist).
Austrians use the term “malinvestment” to distinguish from “overinvestment”. Ultimately, all investments are rated either through profit or loss, and bad investments (or malinvestments) are investments which resulted in a net loss (generally speaking).
I’m sorry, I assumed some familiarity with ABCT. Those certain things are investments that would not have been made at the market interest rate, but seem profitable at the interest rate available after Fed operations.
Yup, you’re right, Jonathan.
I guess the point I am addressing is a bit narrower: during a recession, how do we spot which errors were the result of “artificially low interest rates,” or is that an infeasible goal?
Austrian’s can’t say that King and Delong don’t understand the ABCT, but Caplan can say that Rothbard didn’t understand monotonic transformations. Just saying..
It’s weak reasoning when either side does it.
Claiming that someone “doesn’t understand” an argument is simply unproductive; it doesn’t add to the defense and it’s not a sensible criticism.
Because it’s not guaranteed that all investments made during the period of a credit boom will be malinvestments? How many times do we have to revisit this topic?
Right, consider for example that Amazon and Ebay are products of the ‘dot com’ boom just as much as products of the ‘dot com’ boom as Webvan and Salon.com.
#1 - ABCT doesn’t preach this.
#2 - ABCT doesn’t assume entrepreneurs are abnormally stupid about low interest rates.
But we’ve been through this with you before. Here we go again?
Not really. It’s pretty safe to say when you post things about AE which are strawmen, you don’t understand AE.
You’re right it’s unproductive, but then if you wanted to be productive when discussing AE, you would probably pick up a couple books and catch up on the topic.
The initial criticisms by people like you and Kling are not sensible. The burden of proof is on you guys when you critique Austrianism, to actually know what you’re talking about.
Not really. It’s pretty safe to say when you post things about AE which are strawmen, you don’t understand AE.
People in glass houses… Seriously, given some of the patently absurd crap I read about “mainstream economics” here I don’t think this sort of attitude will get us anywhere. Look, I’ve heard things such as “only Austrians believe in incentives”, “mainstream models assume perfect information” and “indifference curves explicitly require cardinal utility” and a whole lot more that could be avoided if they’d read an intro to micro textbook. So let’s stop accusing one another of strawmen, ignorance and dishonest at the slightest sign of disagreement.
Would you prefer I did not keep the Austrians here informed of critiques from economists?
My intro micro economics class today used cardinal utility to explain indifference curves. So unless you are sort of denying reality; I’m thinking you should recheck your statements.
Oh; and the perfect competition model does assume perfect information. So does the concept ‘bounded rationality’, by the way. Bounded rationality, as explained to me, assumes perfect information on the distribution of possibilities in the future. So if you are indifferent between x and y, but x has a higher chance of happening, you should chose that option. Obviously; mistakes happen, but it would still be the ‘rational’ thing to do. Although this is an improvement over the perfect information idea - of which I honestly can’t believe you are denying the fact that economics 101 still teaches that idea - it still misses a more subtle point.
Apparently; it’s also true that the wikipedia definition of bounded rationality is slightly different as explained to me.
You are confusing what ‘you’ consider to be ‘neo-classical and what not’ with what some economists do in the mainstream.
It’s like the Caplan-Boettke debate. Caplan makes a reasonable argument, but Boettke was right on target: what Caplan says is ‘the mainstream’, just isn’t ‘the mainstream’.
“So let’s stop accusing one another of strawmen, ignorance and dishonest at the slightest sign of disagreement.” <= So this really does apply to you to.
The Caplan-Boettke debate is one of my favorite discussions ever. Thank goodness for YouTube. But, I think Boettke suffers a problem that is made frequently here, as well (and that EconomistInTraining is addressing): when mainstream neoclassical thinking is proven to be much more reasonable than Austrians had believed, then the charge becomes, “That’s not how neoclassical economics really think!”
I think Caplan dominated the debate (of course, that simply confirms my bias). But even David Gordon (in An Introduction to Economic Reasoning) pokes fun at fellow Austrians who believe themselves to be “radical subjectivists,”
Well; Strangeloop, admittedly; the critique of Kling really is just an old critique in a new formulation.
I totally agree with that.
“The Caplan-Boettke debate is one of my favorite discussions ever. Thank goodness for YouTube. But, I think Boettke suffers a problem that is made frequently here, as well (and that EconomistInTraining is addressing): when mainstream neoclassical thinking is proven to be much more reasonable than Austrians had believed, then the charge becomes, “That’s not how neoclassical economics really think!”” <=
It’s not just a ‘charge’. Given the knowledge, readings and teachings I get from ‘the mainstream’ - which included my own economics courses - it’s quite clear that what Bryan gives us, isn’t ‘the mainstream’. It doesn’t follow that what Bryan gives us couldn’t be a part of it; but I haven’t seen solid proof that that’s the mainstream. If I compare Bryan’s lecture notes/presentation in that debate/academic articles with Mankiw’s principles of economics, I would say I don’t see the A = A relationship. Obivously this is a complicated issue, especially because ‘neo-classical’ is a little bit more heterodox than ‘the Austrian School’. (Oke; we have the whole (completely irrelevant) ‘Hayek versus Mises’ line debate; but that’s really not that much of a difference, compared to everything being said and done in the mainstream.)
Bryan makes an argument for Bayesian knowledge; never ever ever have I encountered something like that in any of my mainstream readings. Admittedly; I’ve read them whole, but would you say that the major economics textbooks incorporate thinking like that?
What we are saying is that just because you can point to examples of self-described neo-classicals, who consider themselves to be working in the mainstream, that defend reasonable positions from an Austrian perspective - like Caplan - it doesn’t follow that that guy = the mainstream. I’ll give you another example; Caplan follows the a priori logic that socialism can’t calculate. He, however, says that this wasn’t the main reason why the USSR collapsed (incentives were), and it’s perfectly reasonable to say that. (The USSR is better described as a way worse regulatory welfare state than as pure socialism anyway.) It doesn’t follow that ‘the mainstream’ holds Caplan’s opinion. (Austrians are right on economic calculation, just the USSR didn’t collapse because of it!)
I don’t see that debate as being ‘dominated’ by Caplan. Caplan made a a reasonable argument - although he was slightly off on the concept of ‘sheer ignorance’. There are things one doesn’t know one doesn’t know. But that’s not that relevant for the concept of the entrepreneur anyway, so I didn’t get why he focused so hard on that. Entrepreneurial action is action that bears risks - this is an idea that can be fully incorporated by the mainstream.
But wait a few weeks and I will have drawn cost curves, production curves, etc. to match ‘MC = MB’ and what not. Maybe God knows what ‘that’ has to do with economics but I sure as hell don’t.
I would love to see ‘the mainstream’ to be much more reasonable than I consider it to be. But the fact is; exceptions like Caplan do not proof this. Pointing to ‘some’ mainstream guy who defends ‘a position’ that can be easily accepted by Austrians doesn’t proof that the whole of the mainstream work from this kind of perspective. The whole basic training that ‘the mainstream’ gets in intro to micro and macro is way of. And I don’t see any proof of the contrary.
Tu quoque.
I’m an individualist. I’m responsible for what I say, and Kling and strangeloop are responsible for what they say. Period.
“I’ve seen Austrians make this point before, and I still believe the analogy is faulty; this isn’t just a simple price control.”
I agree; I realize the Fed doesn’t just set interest rates in the same way the government imposes price controls. I think I was trying to show more how each scenario presented a prisoner’s dilemma type situation. I was going to get back to you earlier, but I was reading the rest of the thread and it kind of slipped my mind haha.
No problem, and I agree that the most plausible form of ABCT is essentially what you are proposing.