What was the real shock in 2007?
So? If an entrepreneur knows that not all the projects can be completed because of extra easy credit, he can still take the credit and hope that his venture won’t fail right? To stop this kind of behaviour would require some sort of organization of entrepreneurs whereby they all agree to ignore the new credit so that resources don’t get bid away to unprofitable projects. But this kind of union would be inherently unstable on the market because there’s free entry into entrepreneurship. Alternatively they could just switch off of fiat money, but as long as the government doesn’t get too cheeky the costs of doing so will be too high. The government can also offer them sweetheart deals…
And I would argue that the status quo is consistent with the market improving over time. Previous inflationary measures by the fed pale in comparison to their current course of action. One interpretation of the status quo is that the market has gotten so good at fighting these inflationary bubbles that the fed has to take more and more drastic measures each time to get the results they want.
Then there was also my point about Greenspan Puts that make otherwise unprofitable investments profitable… so you can’t short these overinflated markets if the government won’t let them fail. This is not explicilty part of ABCT but it explains why the current market couldn’t use the knowledge of Austrian Economics to correct the bubble.
Of course the root of the problem is still interest rates. How the bubble gets corrected is up to the market.
You’re not really criticizing ABCT in itself then are you. You just think that its unlikely for ABCT to continue indefinitely on the market, which makes the Austrian kneejerk responce to blame interest rates null (eventually). So then would you agree with a formulation of ABCT that said artificial manipulation of interest rates causes problems, which may or may not result in a bust? I think this would actually be more consistent with Austrianism, since we let go of our vague claim to some future bust. Conceivably the bust could be averted by some actions taken by entrepreneurs but the market fundementals are still problemmatic.
“all information publicly available is eventually acted upon by self-interested persons seeking profitable opportunities, thereby correcting markets.”
Well, that’s a big retreat from the rational expectations stuff you were quoting in earlier posts. So we are getting closer.
But even to this latest seemingly modest assertion I have to ask “Huh?”
First of all, Austriam economics is publicly available, and nobody acts on it. Put another way, there are various economic schools right now as we speak, with large followings, that reach totally different conclusions. So that lareg chunks of mankind have the info, but misinterpret it, and thus won’t correct the market.
Not to mention for most of the twentieth century, when the world was evenly divided between Marxists and capitalists, each side having the same info, and each side thinking his way will bring maximum profits. But one of them must be wrong, since they belive opposite things, and thus won’t correct the markets.
As another more recent example: The European nations at the last G-20 meeting beleived they will be best served by cutting govt spending, and yet Obama thought the opposite. Somebody has it wrong, despite having all the publicly available info.
Yet another example. As we speak, many people insist we are headed for intense deflation [due to credit contaction], others equally certain we are headed for very high inflation [due to money printing]. Naturally, they advise people to do opposite things. One says dump the dollar, the other says dump everything else and buy dollars.
“There can be no systematic mistakes that are repeated over and over again, such as being ignorant of government interference as explained by the ABCT.”
I gave a systematic mistake made in huge numbers over the course of close to a hundred years. That mistake is either Marxism or Capitaslism. Whichever it is, hundreds of millions made that mistake, and still do.
As for the superneutrality of money which you mentioned in another post, what evidence have you to offer for it? Wikipedia says there is none.
Neo-classical, I’ll ask the billion dollar question. How much AE have you read? I mean things written about AE by AE economists, not Chicago economists. I suspect there is nobody that does not know neo-classical posting on neo-classical community boards.
“People say, “nobody foresaw saw the market crash.” Well, that’s exactly what an efficient market is—it’s one in which nobody can tell you where it’s going to go.”
Plenty of Austrians saw the Crash of 1929 coming, and this one as well. Look up 'Peter Schiff was right" on Google. He explained very clearly, before any Presidents said anything bad about financial markets, exactly what would happen, and why.
It occured to me that perhaps you should google “site:mises.org mises business cycle” and read the many articles addressing your very objection, that surely the suckers will wise up.
BTW, how did you come to believe what you believe?
Here is John Cochran (different guy, similar name) on the subject of real business cycles.
Austrian Business Cycles, Plucking Models, and Real Business Cycles
Ignoring the flame/ego of a poster feeds it? Even if it increases, why do I care if I’m ignoring it anyway?
No, defences of his behaviour as against the “hubris” of others, when he deliberately refuses to address points raised against him. That is what I mean.
-
What Austrians believe this? You are not articulating ABCT.
-
When will you address the affect central bank policy has on the time structure of production? (see above posts, many of them)
-
When will you accept Grayson’s challenge for a debate on methodological dualism? (different thread, but I think it would clarify things)
all information publicly available is eventually acted upon by self-interested persons seeking profitable opportunities, thereby correcting markets.
I do wonder what this means. Is it based on the definition of an EM as one where all publicly known information is accurately reflected in prices?
It’s not a retreat! It’s exactly what I’ve been saying this whole time. This is my problem: no one even gets what I’m saying!
People will give you different forecasts, that’s for sure. Ever watch Mad Money? It’s insanity. The point is mistakes will be random, at best.
chloe731, I accepted the challenge roughly 2 hours before you wrote that.
Yes. That information, once again, isn’t clairvoyant; but, if you believe you have information that will generate profits, then there is an incentive to act upon it, right?
Really, efficient-markets hypothesis seems to be a reformulation of Hayek’s assertion that prices can be trusted as more reasonable than anything an individual or committee can centrally plan.
I’ve seen Peter Schiff on YouTube, including his Google Authors appearance.
To quote Eugene Fama once again, I think most bubbles are twenty-twenty hindsight. Now after the fact you always find people who said before the fact that prices are too high. People are always saying that prices are too high. When they turn out to be right, we anoint them. When they turn out to be wrong, we ignore them. They are typically right and wrong about half the time.
Excellent!
Looking forward to following the debate. Should be educational for all of us. The subject matter is the foundational difference between the mainstream and Austrian approach to economics.
You might want to watch this as part of your preparation Praxeology: The Austrian Method - H. Hoppe
Well, I have two editions of Mises’s Human Action! (One from Liberty Fund, and The Scholar’s Edition from LvMI.)
Here’s a copy-and-paste just from my LvMI account (I order much more from Amazon, such as Hoppe’s Economic Science and the Austrian Method):
- Chaos Theory
- Control or Economic Law
- Human Action, The Scholar’s Edition
- Income Tax: The Root of All Evil
- Economics of Liberty, The
- Introduction to Austrian Economics, An
- Man vs. The Welfare State
- Not a Zero Sum Game
- Natural Elites, Intellectuals, and the State
- Efficiency and Externalities in an Open-Ended Universe
- Praxeology and Understanding
- Market Theory and the Price System
- Roots of the Social Security Myth, The
- Economic Calculation in the Socialist Society
- Power and Market
- Property, Freedom and Society
- Our Enemy, the State
- Privatization of Roads and Highways
- Boundaries of Order
- Market for Liberty
I used to believe the ABCT, so let’s not mince words about my ignorance on the subject. In fact, I remember Thomas E. Woods (I think it was him) recently talking about how Austrian economics was posed for even greater popularity; why? Because it’s so easy to understand!
Ultimately, I haven’t disputed that lowered interest rates create more credit and more investments. This is essentially the ABCT; I won’t get into Menger’s differentation of goods. I disagree with your Keynesian twist: “animal spirits” overtake investors leading to irrationally optimistic “malinvestments” in particular sectors.
I’m getting mixed messages here.
-
On the one hand you say that people know what they are doing and will use the info at their disposal to make a profit.
-
On the other hand, people succeed pretty much randomly at this. They get things right about half the time.
What gives?
Also, let’s not forget that if we accept assumption 2, then in the long run nobody will make any money in business, because half their decisions will be wrong.
Could you provide any links to research and evidence that 1. and 2. are true? Of course, we both know that appeals to authority don’t count, right? By which I mean just because Eugene Fama “thinks” something, that doesn’t count at all.
Neoclassical, it’s indeed true that RE says that all info will be taken into account (efficient market hypothesis).
In a sense this attitude of “people will interpret info available to them” comes close(r) to the subjectivism of AE. (Although AE does not claim all changes in preference come from outside info per se, or at least does not need this assumption.)
What RE fails to see, however, is how markets are manipulated by agents who can socialize their losses: government, corporatists, socialists. It is because AE has an holistic, praxeological methodology that it can predict the crises, or at least tell where bubbles are most likely occuring. I’m looking forward to your debate on neoclassical methodology.
In a voluntary world, I’d buy index funds. In todays world, AE is the only school of economics that will save you from ruin.
If we believe Hayek that none of us know what a price ought to be apart from what market processes determine, then how can you know when a bubble has emerged?
To clarify, I don’t know how much a loaf of bread should cost; I bet, on average, more people will complain “that costs too much” than “that costs too little,” though, regardless of the product.
Likewise, I don’t believe I have the omniscience to know when housing prices are “too high.” Although, I will say that government subsidies distort demand, and thus price.
I think that states my position very well. Not everyone here agrees with it. I just want to make sure one qualification is clearly understood: The animal spirits start frisking about only after there is a flood of cheap money.
You can still buy index funds!
But, I guess, you’re recommending commodities such as gold?