teh feds iz printing moneys!!1

Economics Economics Questions
1

Isn’t it a bit misleading to make this claim? You seem to benefit from people’s ignorance because I regularly come across people that buy into the conspiracy theory that the Fed prints money for personal gain, simply because they’re confused by how the monetary system works.

Thorsten or whoever wrote this article actually took the time and effort to dig up a video clip of money being printed, to include it as part of the article:

When the Fed expands the money supply, it’s done digitally. No new money is necessarily created and nobody has yet to even explain to me how Bernanke or any banker benefits from it. I don’t really understand why people are so ignorantly paranoid of the Federal Reserve for “printing money,” when it’s the U.S. mint under the treasury department that’s responsible for the physical issuing of currency.

Even if the Fed were abolished and we were on a gold standard, there’s nothing stopping the government from devaluing the currency by reducing its convertibility or issuing counterfeit banknotes. But, just as under fiat, they probably wouldn’t do so, because it’s idiotic for them to de-value their own currency when their wealth is denominated in that currency. It would be like trying to get healthcare by shooting yourself in the foot.

As for Rothbard’s analysis – according to Rothbard, we should’ve never recovered from the Great Depression, we should never have stable prices, and we should inevitably face another Great Depression. The past 70 years have proven such theories wrong. Not just empirically, but blatantly factually. If Austrian predictions have not held historically true, then they do not hold presently true. Simply put, if you’re wrong time and again (though you seem to revise history to show how your predictions have been correct), then any analysis put forth know has to be taken with a massive grain of salt.

During the money problems and stagflation of the 1980’s, which were a great deal worse than what we face today, the Austrians were likely beating the drums of financial panic, but we recovered.

I would say, “We recovered then and we’ll recover now,” but it isn’t even 100% certain if we’re heading for recession yet.

A few days ago, someone here acknowledged that “the sky is falling” is a silly economic claim to make. If I remember correctly, it was Inquisitor. Will you stand by that claim, now that it’s one of your own engaging in this silliness?

2

I can’t recall that Rothbard anywhere said that the recovery from the Depression isn’t possible. Moreover, what he did was he pointed out that Depression can’t be encountered with the same measures that introduced it. Allthough the government in the U.S. tried to do it, they finally had to give in to the market forces and let the economy ‘fall back’ to a more sustainable level. In my opinion “Americas Great Depression” gives a pretty good picture of this situation.

Also after the Depression there certainly have been other ‘fall backs’ but perhaps just not as strong. Of course the government has gotten better and possibly more skilled in the meddling as well. Yet there have been several credit crises and the approach to the monetary system has been changed couple of times. All that Austrians are saying that inflation is inevitably followed by deflation and inflationary growth is followed with depression as soon as the boom stops. To say that recovery, i.e. new economic growth, after the boom has crashed would be like condemning mankind to stoneage for ever.

3

The Fed buys treasury bills on the open market, and it pays for them with newly-created (or newly instantiated) money.

The housing bubble is a textbook example of ABCT. I’m sure if you haven’t pissed off Inquisitor enough yet, he’ll post a link to a paper detailing the empirical evidence for ABCT.

4

In reaction to the deflation-driven problems of the Depression, the government established fiat, abolished the gold standard, and vastly increased government spending that never went down. If inflation is caused by government borrowing and expansion of the money supply, and expansion can only be corrected by a reduction in the money supply, then, how has America had steady, usually relatively low inflation, over the past century, without any deflationary recession correcting it?

During the World War II era, America had huge amounts of debt, but they ended up with substantial economic growth and the debt went down. This doesn’t make any sense from an Austrian perspective.

5

Banks can borrow money, newly printed, just for them, from the Fed’s “discount window” at the Fed’s set discount window rate.

6

But new physical money doesn’t necessarily need to be created in the process.

Why do Austrians so frequently use empiricism if they reject it?

7

They very rarely do that, though, because the discount rate is higher than the market rate.

8

All this new money is coming from somewhere.

http://en.wikipedia.org/wiki/Money_supply#United_States

(Does anyone know why the Fed doesn’t release M0 ? Where can I find data for M0 ? )

9

Point to me where I made such a claim, please?

More appropriately, why do people with scant methodological understanding make such statements? Rejection of empiricism-positivism =/= entail rejection of empirical facts qua economic history or demonstrations of theory or components of certain theories or their use in the natural sciences. Get it through your skull already.

There is a third paper, to which I do not have access though.

10

It’s coming from the growth of the demand and supply of money, stemming from real GDP growth. Take that above graph and correlate it with real GDP.

They don’t release M0 for the same reason they don’t release M3 anymore. It’s a useless statistic.

11

It must not’ve been you, then. It was somebody here, though. I’ll dig it up, later. It was in my thread on the Economist, essentially implying Americans are going to starve.

It doesn’t make sense to use past observations to justify present theories, but to object to using present observations to validate or invalidate present theories.

Hayek’s “vector error-correction model estimated with U.S. macroeconomic data” seems wholly inconsistent with praxeology, probably one of many reasons Caplan doesn’t consider him an Austrian economist.

12

How does real GDP growth cause the money supply to increase?

13

Austrians use empirical studies usually to demonstrate a theory by way of concrete example, as these are easier to grasp mentally than theorems in their purer forms (and also to refute theorems that were in fact generated via empirical data.). Empiricism-positivism is far more than merely the use of empirical data; it is an entire epistemological theory that makes certain strong claims regarding knowledge, some of which are in fact self-refuting. Additionally, as I’ve mentioned before, a shift to Aristoteleanism as Rothbard envisioned would require certain methodological shifts in how Austrians proceed; Aristoteleanism does not even recognize the positivist-rationalist dichotomy.

Quantitative methods are perfectly fine in the domain of economic history, just so long as it is realized that for the data to be apprehended at all as economic, and not some other data, theorems are necessary to even begin to interpret it.

I’m not going to discuss this any further in this thread. As I said elsewhere, I am going to compile a large list of links on Austrian economics and political economy, which will contain material on these matters.

14

The business cycle doesn’t tell you when the crash is going to happen, it just says that it’s inevitable. It doesn’t also say that small amounts of inflation aren’t controllable to some point. But what this finally leads to is that more and more control is required to sustain the inflationary growth and at some point it won’t be possible any more since one can’t control the publics preferations, at least without a gun.

Since I’m not familiar with the detailed actions of the government during that time I’d rather not comment on it. You can’t prove a theory with some isolated aspects of the complete complicated and mixed situation. It’s like calling the problems of Depression to be deflation-driven although their roots were already in the earlier policy of the government.

15

perhaps you could actually substantiate these claims with specific rothbard quotes on these three distinct points. otherwise you’ll forgive us a little scepticism after your memory lapse re:inquisitor.

and are you seriously arguing that prices have been stable over the long haul? plot ppi, cpi, stock indices, land prices, wages, etc. going back to the federal reserve system inception. the gradient is positive. i think you miss one of the points of the austrian school - that the money created by the central bank, as it flows through the economy, has differing and unpredictable effects on prices. in the seventies, stagflation saw flat bourses but rampant commodity prices. the eighties and nineties saw flat/declining commodities but roaring financial asset prices. the current decade, roaring financial assets and commodities.

finally, i can’t think of any austrian who predicts a return of the great depression, in the sense of a deflationary crisis. any possible contraction in money supply would be met be central bank intervention. the austrians point out the unsustainability of the current system, but are at pains to show that intervention can delay the onset of recession only at the cost of making the bang worse when it arrives. name one austrian who doesn’t think the present system doesn’t end in hyperinflation. to freeze monetary supply growth and provoke a deflationary crisis would seem out of character with bernanke’s statements and actions so far. as for timing the next recession…guesses anyone?

16

It doesn’t. It increases the demand for money. As more wealth is produced, more money is necessary to keep prices stable.

It’s the Fed’s job, along with the treasury, to increase the money supply at least on par with economic growth.

That seems rather silly to me, if you don’t believe in the methodology.

I.E., let’s say that you don’t believe divination is a valid form of investigation, as some primitive cultures and hippies believe.

It would be absurd for me to try and explain Austrian economics using tarot cards or the I Ching.

I suspect it’s a form of capitulating to the mainstream, being that the earliest of Austrians didn’t seem to use it at all, but now it’s used extensively.

Yes, but obviously, there’s some kind of practical limitation. You can’t honestly suggest that the Austrian business cycle can take 70 years to begin correcting itself.

There’s no upward trend in inflation, in countries with fiat.

It’e the basis for military Keynesianism:

I disagree with it, but the fact remains that we borrowed heavily during WW2, but had pretty decent economic growth.

I don’t have any specific quotes, just a generic assumption based on what I know of the man, kind of like how I think Marx would support the Democrats over the Republicans. He never said it himself, but you know if he was alive today, he’d be like Noam Chomsky.

17

This is exactly the place where the mistake is made. Why would one need stable prices? Besides it’s an impossible cause anyway since prices reflect consumerpreferences and in the long run it isn’t possible to stabilize them due to the uncertainty of the future.

18

Well, to clarify: Stable prices aren’t necessary. A stable price-mechanism is.

If prices could instantaneously change to account for inflation & deflation as Austrians claim, no, they wouldn’t be a problem. But they can’t and this is empirically observable whenever the Fed makes a decision, there’s some lag between how long it takes for that decision to have an effect.

Prices and wages are “sticky” and can’t react quickly, if at all in some cases, to deflationary and inflationary pressures. As a result, deflation and high inflation, especially unexpected, causes disruptions in the productivity of markets.

In the long run, it’s easy to have stable prices. Since in the long run, monetarist ideas about the quantity of money apply, if you just increase the money supply on par with economic growth, average inflation should be zero.

That won’t happen in the long run, though, because if you keep inflation too low, you run the risk of deflation and small, steady inflation has the benefit of helping negotiate wages to a lower level.

19

Only because you’re ignorant of what rationalism consists in. Rationalism does not insist that all a priori truths are analytic; positivism does, thus it cannot account for the synthetic a priori. Rationalism in fact provides a better basis for inductive methods than does positivism.

Given that Mises stated from the beginning that such empirical studies are valid in certain areas, I don’t see how that is so. The only disagreement in the school is whether a Kantian (Mises’ influence) or an Aristotelean basis (which Menger first furnished it with) better serves its purposes, with all the attendant consequences.

20

Again, you’re mistaking “logical positivism” for “positivism.” It’s the former that’s concerned with the analytic-synthetic distinction. Most modern philosophers of science think no such distinction exists.

Both are pretty poor justifications. Aristotle’s scientific theory was ripped to shreds by Galileo’s gravity experiment. In the case of Kant, the ridiculous metaphysical theories of existentialism, like what Heidegger believed, were the result of Kantian influence. Such a basis for science was discredited when a lot of philosophers denied that what Einstein and Heisenberg had discovered were true, based on believing in the validity of their internally consistent metaphysical theories. The logical positivists attacked rightly ridiculing it and the atom bomb gave them credibility, being that they’d managed to have such a massive breakthrough but, like Austrian economists, all that metaphysicians had achieved was rhetoric.

Later, Popper and others criticized the analytic-synthetic distinction, proposing alternative theories of science to logical positivism that are more influential today.

As for what those theories are and which one is correct, I don’t know – like I said, I only got about halfway through Professor Jeffrey Kasser’s lectures on it, with the Teaching Company.

Generally, from what I understand, aside from logical consistency, key concepts that give creedence to a scientific theory are:

  • Falsfiability
  • Demonstratability
  • Replicability
  • Generalizability
  • Predictability
  • Simplicity
  • Boldness
  • Adherence to a strict scientific method
  • An acknowledgement that metaphysics is “beyond science” (being unfalsifiable)
  • Relying on peer-review

It’s hard to come up with a solid “theory of all knowledge,” but including all the factors above give a pretty good basis for whether one scientific theory is good or not.