My friend and I were discussing free market principles vs. Keynsianism and he raised a good question.
Speaking strictly in economic terms, if Keynsianism is as bad as Austrians say and hyperinflation is its result, why haven’t we seen hyperinflation in the US or any western European country in the last 50 years?
Another way of stating this is to ask how long before we can expect to see an episode of hyperinflation in any of these countries?
Does he understand what elements are required in order to produce an atmosphere of hyper-inflation? Without the default, there is no hyper-inflation. The US is heavily leveraged and in massive debt, but the default has not occurred because (until recently) the rest of the world was willing to underwrite it’s military adventurism and endless consumerism. Until that changes, the US will be able to trundle on.
You assume that it is a foregone conclusion, that it is inevitable. It is not. Oh, the default is coming but when is not a part of the predictive thrust of Austrian economics.
http://mwhodges.home.att.net/inflation.htm
here is some data. No hyperinflation but what would you call it???
I don’t believe Austrians believe keynesianism must lead to hyperinflation.
Mises wrote, however, that all roads of government intervention can only rest in totalitarian socialism. Any intervention of the state must eventually end in crisis.
As far as Keynesianism goes, look at how far we’ve come from it. True Keynesiansism requires raising surplus government revenue during prosperity to pay down debt undertaken during crisis to pump-prime the economy. Well, do we pay it down? No. We have simply moved into military-keynesianism, ever-expanding debts and imperialism.
Even Clinton, hailed as a peaceful liberal, increased the debt ever year of his presidency, despite claims of surpluses for a few years.
Should our debt stop expanding because foreigners are no longer willing to force it, hyperinflation won’t be far away.
Neither of us does - we’re relative noobs. But your reply is informative. Thanks.
Cesar,
Yea, that data looks like a sure symptom of the disease Austrians speak of.
Unfortunately, I think “folks” (ironic hat tip to Michelle Obama - she uses this word constantly) accept the disease because (a) it spreads incrementally and (b) they don’t even recognize inflation as a disease but something that is fundamental to every economy and therefore natural.
A mountain of mainstream ignorance for Austrians to scale.
Does Mises speak of how to combat the interventionist mentality, once it has taken root?
Aren’t we paying it down by way of the printing press?
No problem. We were all noobs at one time, and some of us persist in our noobishness.
Hyper inflation is a possible outcome, but not an absolute. It’s very important to understand the political and philosophical understanding supporting the Austrian monetary and economic theories. There are much worse things than hyperinflation. Like death camps and genocide.
Education. Tireless, relentless education. Hans Hoppe has spoken and written about developing a class consciousness, of the intervened vs. the interventionists. Or in other terms, the looted vs. the looters. This is not a Marxian class theory. A rich man can be the looted and a poor man the looter in Hoppe’s ideas on class consciousness.
No, because every intervention leads to crisis. lol [:)]
Ask youself, can you dilute something into nothing, and still have it as a store of value?
If other countries massively decide to hold their reserves in other currencies (euro, pound, franc, yen, australian dollars, etc) because of a worldwide fear of U.S. economic management, this massive devaluation could well be followed, maybe not by hyper-inflation, but definitely by inflation to levels more like those encountered in many third world countries.
Ironically, because it’s a Keynsian world it looks like the US - both despite and perhaps BECAUSE it has also drank the Keynsian Kool-Aid - will remain the relatively most attractive economy for the foreseeable future, no?
Yes, indeed, these are far worse than hyperinflation. Do you really think the current and progressing “lurch toward socialism” necessarily leads to these outcomes?
This part of the discussion is above my pay grade. I don’t understand the mechanics of paying down debt.
That is what history shows us. Like hyper inflation, it can be stopped. But I am beginning to think that the social planners are pretty smart when they can brainwash millions of people.
How many historical examples do we actually have of this? Too small a sample to be of a high degree of predictive use?
The normal way to pay down debt is to earn the currency you will use to pay down your debt from the market, and transfer it to your creditor. This means producing more than you consume.
Trying to use a printing press to pay off debt can easily lead to hyperinflation like Germany did post WWI. No one wants to hold onto a currency as a store of value when its supply is rapidly expanding and its market value is consistently declining. The money will end up in the only place where it is valuable - the source country, who makes it valuable artificially by making it legal tender, or the sole tender for tax collection. In other words, those who are paid back with inflated paper money will quickly cash out their money for real goods of that country. Creditors will refuse to make loans denominated in that currency.
Trying to “cheat” a loan by expanding the money supply can cause a new crisis with runaway inflation.
This is similar to balances of trade among nations on the gold standard. If there is a balance of trade favoring one nation (greater exports than imports), it will accumulate a larger and larger money supply (more gold entering the nation than leaving). This causes prices in that nation to rise, while prices in other nations decrease. The nation’s exports will become too expensive for the rest of the world to buy, while imports may become cheaper than domestic goods. Thus, the balance of exports over imports reverses and there are more imports than exports.
The above situation applies equally to floating exchange rates between numerous fiat currencies, only it will require more labor to accurately find prices. No nation can avoid the requirement of increasing production while decreasing consumption to pay back debt without suffering a subsequent crisis, all of which are the result of attempting to “bend” the laws of economics.
A better question to ask is, how many examples of socialism do we have that have not turned oppressive and violent?
To state the obvious, it depends on how one defines “socialism”. I would venture to guess that many European countries would qualify as socialist under some definitions, indeed the US as well.
If you define “socialism” more strictly, as something akin to Soviet or Maoist or Nazi totalitarianism, then the answer to your “better question” is NONE.
But if you define “socialism” more broadly the question remains…How likely is it that Europe and the US are fated for the totalitarian outcome (were current trends to continue) ?
Sweet. Thanks for the info.
What about paying back debt with further debt, i.e. borrowing from A to pay back B? Isn’t this what the US is doing?
I’ll have to get back to you on that. I’m currently trying to figure out who wins Super Bowl XLV.