Hey forum people,
some dude’s criticism of austrian economics, I am not learned on the technicalities of austriansim so its hard for me to discern right and wrong. eat this shit alive.
http://www.reddit.com/r/Economics/comments/i2y8f/debunking_austrian_economics/
haha they don’t criticize it they ignore it. The only arguments i hear is that low interest rates don’t create inflation. It’s when they go up that people notice it.
and to kenyesians there is no such thing as bank fraud or fractional reserve. They use terminology to undermine legitimate criticism like (excess reserves) and demend deficiency (which isn’t a real thing) They obfuscate what money and credit are too. “Money isn’t real” hahaha
economic schools of thought are like religions.
The articles are from a Post-Keynesian perspective not a Keynesian one. Just out of interest, did you read any of the pieces linked to?
I am not learned on the technicalities of austriansim so its hard for me to discern right and wrong. eat this shit alive.
If you are not sure of the technicalities of austrian economics then why are you so keen to see any opposing view ‘eaten alive’? It seems you have made your mind up before actually looking at the evidence.
i glanced at a few, but they weren’t really refutations as much as they were excerpts where the author claimed “not true!”
Unfortunately Rothbard (on deflation) falls under the same circumstance as Marx when asked how to fix the economy: there are two actions (Marx knows he must use what is leftover from the capitalist system and Rothbard realized that his point was only valid if we started from what he calls “Point Zero.”
as far as the author goes to make it seem like Rothbard is in contradiction by seemingly using Bagus (an austrain neconomist) to refute it, but he is merely pointing out that Rothbard doesn’t have a good answer for where we are today and how to fix it. It is the same coin, but the opposite side of Marx when Marx was attempting to to rationalize the practicality of his system and not the principles involved. Rothbard is only focusing on the principle because he knows that practically he cannot say “Force redistribution” even though he is trying to fix a corrupt system.
The article i read through wasn’t a refutation, but a misleading interpretation of growth deflation vs. excessive credit demand restriction. Yes deflation is harmful if credit has been expanded and people are comfortable (the market is smoothly functioning) thne the credit supply is cut dramatically. It doesn’t take a genius to figure that out. And Bagus criticism of Rothbard is actually unfair towards the end. He says that Rothbard violates his own ethics by not applying it to monetary issues. This itself is misleading as i explained above there is a difference in analysis from practicality and principle. Can you not violate ethics when you are supposedly trying to dismantle a very unfair system. Is it wrong to disenfranchise the bankers and credit hogs if they are the problem? Maybe, maybe not. I’d have no issue with hanging (through criminal justice of course!) some of the bankers around the world. They know what they are doing.
OK, it’m glad that you took a read of the links; i was under the impression that you just dismissed them out of hand. I agree that the guy writing these articles falls short of a decent critique. It was just your comment about Keynesians ignoring the Austrian school and assuming that low interest rates never cause inflation. From the first link entitles ‘The Austrian Theory of Inflation’;
He (Shostak) is right that the inflation rate (the rate of increase in a price index like the CPI) and changes in the level of prices also depend very much on real factors, as well as monetary ones. For example, the following factors could tend to decrease the level of prices:
1. the falling prices of specific goods through increasing productivity or output;
2. an appreciating exchange rate;
3. a rise in cheaper imports into a country;
4. falls in the prices of imported basic commodities that are factor inputs;
5. changes in the velocity of circulation of money;
6. higher unemployment (= less demand for goods and services), and
7. a fall in extension of bank credit.
Point number seven seems imply that this guy sees low interest rates as possibly inflationary source, for if a fall in credit extension suppresses inflation then a rise in credit extension (which low interest rates would bring about) would promote it. Admitedly he does not explicitly state it this way, it does appear that he would concede this point.
point 7 i would also take as the main one. (i like rothbard)
point 1 is not a bad thing
point 2 is possibly good or bad policy from foreigners or from a decline in domestic currency. PrinMonetizing debt, anyone?
point 3 could be productive incresases in that exporting country
point 4 is a fall in raw materials costs which is an extension of a few other possible factors
point 5 - im not sure i buy velocity as a measurable thing in normal terms, it certainly is if the banks are increasing credit haha
point 6 duh
yea. people who have blogs dedicated to this sort of thing…i don’t know. It’s a logical fallacy to think that by refuting others you can prove your point. and while it seems i may be doing that now; at least i am stating it. POSSIBLE CONFIRMATION BIAS! haha
26 links. Would take a book to deal with all of them.
Here’s a reply to a link about Say’s Law.
http://smilingdavesblog.blogspot.com/2011/06/reddit-buries-austrian-economics-in.html
The more I get Say’s Law the more I understand that disagreeing with it is just the kind of nightmare Orwell described, on a par with his famous trio,
“War is Peace, Freedom is Slavery, and Ignorance is Strength.”
I stopped reading after this (this is the very first thing he says btw):
There literally isn’t a single economist in the world that holds this position. The very first sentence is a ridiculous straw man.
I actually think Malthus has a lot to offer economics, but Kenyes convinced people to focus on the bad things. Say’s Law(s) is a general common sense thing. When i first heard the term “demand deficiency” i thought to myself…“I always want things. A new car, new computer, new guitar, etc. I can’t have them because i need to produce them. There is never and can never be a deficiency of demand. There is only a lack of supply which means prices are higher which means i can’t just have things.”
Only about a year later did i actually give a look into Say’s writings. He has a quote: “The needs of man are unlimited.” It really is common sense. These arrogant “economists” invent problems so they can feel smarter than others and get their way in terms of policy. (and by extension society).
Smiling Dave!!
great post. i have myself flipped through a few pages of that nonsense. They try and paint Rothbard as logically inconsistent. Logical consistency was like a pet peave of his.
Al(l)most all of their criticism is born of misunderstanding. Austrianism is a little more complicated than “AD=AS and the world goes 'round.”
http://eatingpropaganda.blogspot.com/
i tried posting this as a comment on the latest post about reddit and austrian economics, but it wouldn’t take. Just ran me to log in over and over
Thanks Jacob.
I don’t know what’s with the comments there. Had the same problem myself.
I stopped reading after this (this is the very first thing he says btw)…
There literally isn’t a single economist in the world that holds this position. The very first sentence is a ridiculous straw man.
To be fair, I think that sentence is aimed at supporters of the Austrian school who are not up on the subtleties of the theory and not economists. Something you would have realised if you had read on. Jacob is right in his observation that economics attracts religious thinking and a willingness to ignore the other side.
Everyone goes into any debate with a subjective point of reference from which they can draw conclusions. i happen to think that for the most part Austrians have it right. I am no expert. i just wanted to see what people who have to say about this. I have seen some evidence. i could never have the time to look at it all so i must refer to experts to help me. I apologize if you think I am close minded, im only limted by the scarcity of time.
I have a question regarding the linked article. In the comments Lord Keynes, in his first reply to a comment by Major Freedom says “ABCT as a serious explanation to 2001-2009 cycle is a total joke.” Followed by quoting Rothbard in Man,Economy, and State where he says “To the extent that the new money is loaned to consumers rather than businesses, the cycle effects that are discussed in this section do not occur.” Lord Keynes then continues by saying it was consumer loans that caused the crisis, and consumer loans have nothing to do with ABCT. Where is he wrong on this?
Rothbard meant that if the new money is loaned to consumers to consume, then of course more money won’t be spent by businesses to build factories and long range heavy industry projects. They didn’t get the money, the consumer did.
However, the housing bubble that started our millenium is a hybrid. The consumers got the money lent to them primarily to buy houses, not to spend on pizzas. So the money will be channeled not to heavy industry, and not to consumer goods of all kinds, but to houses.
Other than that, if we replace heavy industry with houses, the classical features of the ABCT apply. Low interest rates, malinvestments in housing, the whole shebang.
EDIT: Of course, this particular train wreck had unique features that would have caused Mises and even Keynes to turn over in their graves. Mises and Rothbard were writing under normal circs, where the bankers won’t lend the money to someone they are pretty sure won’t pay back. But a combination of ingredients [=govt meddling in various ways] all directed to get the common man a house to live in no matter what, created a situation where the banks were happily lending money to people who they knew were never able to repay it in the first place. They then sold those loans to suckers all over the world, after the rating agencies assured the suckers that those loans were solid gold. At some point, many of the banks found themselves buying back some of those same loans without realizing it, because the whole thing was such a mess of paperwork and confusion.
But fear not, there was plenty of money involved, enough for everyone to lose.
I think it’s pretty obvious that such a scheme is a formula for disaster in and of itself, and sure enough, the disaster happened.
Interesting. This was kinda my hunch. Since the demand for housing was created under “artificial” circumstances, resources were directed into building homes that under free market conditions would not have been built, since not nearly as many individuals would have been able to get loans to buy them. But since the government stimulated this housing spree through loose money the demand was there which translated into contracters building homes, using up resources, and all the while malinvesting, because people were dupped into thinking they could afford a home. Does this sound remotely right 
@Smiling Dave
you say in your post that the money was channelled to houses not to heavy industry(capital goods?) in this case would there be an over extention of consumption(buying houses) beyond the available capital? essentially there was not enough capital created to allow for such consumption?
Anarcho,
We have millions of houses just lying there uninhabited with no one to buy them, and I imagine quite a few unfinished ones, don’t know exact statistics. So yes, plenty of wasted resources malinvested in houses there was no true demand [=ability to pay] for.
Bill,
Was more built than the available capital? Sure, all those unfinished houses. But I think the way to look at is if the demand is really there, meaning enough people want and can afford something, someone will cough up the capital for it. In an ABCT, as well as in this bubble, there is not enough capital because there was no true demand for what the money was being used for. The entrepeneur thought he wanted factories high up on the scale of production because people want him to build them so he can sell them frisbees or whatever. Same with houses. But in reality there was no demand, so the capital is not forthcoming.
With houses, the capital did come forth in many cases, because the builder thought he would get paid for the house, i.e there was true demand, but there wasn’t. This would correspond to the entrepeneur finishing his factory and churning out tractors or whatever that nobody wants. Apparently this is not common in a classical business cycle, because the money is malinvested in things that take a long time to finish, and the money runs out first. But in the 2000’s the story was slightly different, as I mentioned in the first post.