Can Austrian economics predict hyperinflation?

[pa33]

I've heard Ron Paul say a few times that this particular bubble is so big that the dollar will be destroyed if they print money to "fix" it. Is this statement actually backed up by sound Austrian theories? Do we know for sure that they can't just make another bubble which will last another 10 years and then burst?

I was also surprised to hear Peter Schiff the other day (I believe on WSU) say that he mostly uses his "gut" feelings when making predictions. I was under the impression he was a legit economist who analyzes data, crunches numbers, uses economic equations etc... but it appears not.

Do Austrian economists actually do any scientific or mathematical calculations to back up their predictions?

[JRegs85]

Austrian theory is more historical and theoretical than mathmatical.

Schiff and Austrian economists can tell you the government is printing too many dollars, that they are currently overvalued, and that when the proper valuation comes there will be serious inflation.

They can't tell you if the inflation is going to be 10%, 100%, or 1000%.

If you don't like the theory, Keynesian economists are much more math-based.

[rockandrollsouls]

Austrian theory is more historical and theoretical than mathmatical.

Schiff and Austrian economists can tell you the government is printing too many dollars, that they are currently overvalued, and that when the proper valuation comes there will be serious inflation.

They can't tell you if the inflation is going to be 10%, 100%, or 1000%.

If you don't like the theory, Keynesian economists are much more math-based.

agreed. the principles behind the austrian theory are %100 sound and accurate. However, it's difficult to put a time on things. Personally, I like to compare it to the kondrateiff cycle or martin armstrong's model of economic confidence. It kind of bridges the gap between the theory and math, and I happen to think it's fairly accurate....but I wouldn't rely on it heavily. It's more like another resource that's worth looking at. I've found the two resources complement each other nicely.

[pa33]

Yes but Paul and Schiff are predicting hyperinflation. How can they be so sure that the Fed can't create yet another bubble which will last another decade?

[idiom]

Hyperinflation is based on the theory that the FED and Congress don't have any balls whatsoever and will choose hyper-inflation as the path of least resistance.

Hyper-inflation can be avoided at any point, but it takes serious political will power.

Nothing ever *has* to happen. That is the problem with the IOUSA film. The country doesn't owe $400 trillion yet, but it is on course to. It is however more likely that social security will just get the axe at some point like it did the last time it got to expensive.

Hyper-Inflation only happens when you want to default on a bunch of obligations, or you don't have the balls to manage your economy.

[tmosley]

Austrian explanation: You print more dollars, the value goes down by the same amount, as they go into circulation.

Keynesian explanation: A bunch of math outputs whatever the people in charge want. Their theory is exactly the opposite of what happens in reality.

[sam9657]

I agree you cannot really mathematically model humans emotional/behavior. Economic is much too complicated.

[hugolp]

I was also surprised to hear Peter Schiff the other day (I believe on WSU) say that he mostly uses his "gut" feelings when making predictions. I was under the impression he was a legit economist who analyzes data, crunches numbers, uses economic equations etc... but it appears not.

Do Austrian economists actually do any scientific or mathematical calculations to back up their predictions?

Nobody has an accurate mathematical model that predicts the future of economy. Otherwise they would be rich, very rich. Let me repeat that: Nobody has an accurate mathematical model that is able to predict the future of the economy. Nobody. If anyone tells you they have, they are lying.There are more or less accurate mathematical models for some situations and general issues, but nothing that can really predict the future. Specially because the future depends on human decisions (millions of human decisions) and nobody can predict that. Thats why the "gut" of an economist is important. And thats why you should do your own research. You will see that some economist tend to choose the posibility that makes their investment company more attractive, even when its a very unprobable outcome.

At the end the posible outcomes are not that hard to figure it out, but the final outcome depends on human decisions, and only your intuition can tell you wich one will happen.

Hugo

[emazur]

Hyperinflation is based on the theory that the FED and Congress don't have any balls whatsoever and will choose hyper-inflation as the path of least resistance.

Hyper-inflation can be avoided at any point, but it takes serious political will power.

Nothing ever *has* to happen. That is the problem with the IOUSA film. The country doesn't owe $400 trillion yet, but it is on course to. It is however more likely that social security will just get the axe at some point like it did the last time it got to expensive.

Hyper-Inflation only happens when you want to default on a bunch of obligations, or you don't have the balls to manage your economy.

If the electronic run on the banks as described in this video:
http://www.youtube.com/watch?v=_NMu1mFao3w
had gone on for a few more hours without intervention, would that not have resulted in worldwide hyperinflation?

[Paulitician]

Yes, Austrian economics can "predict" hyperinflation... whether austrian economists can accurately predict reality is a different matter.

Austrian economics is purely theoritical/logical. It does not use empirics or mathematical models to arrive at theory, for various philosophical reasons. However, austrian economists do use empiricism or math to explain the theory.

I think they should use more empiricism to help scrutinize their theories, but that's just my opinion.

The reason why we haven't had hyperinflation is because current reality isn't as simple as printing notes and you get high inflation. The mechanisms for money creation are for more complex today, and if you don't account for the various factors, predictions of deflation or inflation may turn out to be wrong. It's not that if we don't have hyperinflation, Austrian economists or austrian economics would be discredited. There are Austrian economists who had a different view coming into this crisis that the Fed wouldn't be able to push inflation from the start, such as Frank Shostak.



Do Austrian economists actually do any scientific or mathematical calculations to back up their predictions?
If you go to mises.org, there are many empirical and mathematical reasons they give to back up their conclusions/predictions in their more technical articles, but they most rely on theory.

[danberkeley]

... Do we know for sure that they can't just make another bubble which will last another 10 years and then burst?

They are expanding the dollar bubble, so yes. Btw, tell me a buble that lasted mroe than 10 years.


I was also surprised to hear Peter Schiff the other day (I believe on WSU) say that he mostly uses his "gut" feelings when making predictions. I was under the impression he was a legit economist who analyzes data, crunches numbers, uses economic equations etc... but it appears not.

Why would you need an equation and actual data to know that the more dollars are created, the less valuable they become? Btw, what makes a legit economist?


Do Austrian economists actually do any scientific or mathematical calculations to back up their predictions?

Why would they need mathematical calculations to back up their predictions? Do you need a mathematical calculation to know that if you drive towards a cliff, then you might fall off it?

[hugolp]

I think they should use more empiricism to help scrutinize their theories, but that's just my opinion.

+1

Hugo

[idiom]

If the electronic run on the banks as described in this video:
http://www.youtube.com/watch?v=_NMu1mFao3w
had gone on for a few more hours without intervention, would that not have resulted in worldwide hyperinflation?

Possibly. More likely it would have resulted in about two years worth of command economy to get basics done and food to people.

Action was taken, which is a good sign, but hey waited till the brink of disaster, which is bad.

[pa33]

Why would you need an equation and actual data to know that the more dollars are created, the less valuable they become? Btw, what makes a legit economist?



Why would they need mathematical calculations to back up their predictions? Do you need a mathematical calculation to know that if you drive towards a cliff, then you might fall off it?

Why? Because if you're going around telling people hyperinflation is coming I think you should be able to back that up with some calculations or some kind of argument other than "my gut tells me so". Most people get scared when they hear doomsday predictions like that, and I can't tell if there are legitimate theories behind it or not.

It seems to me that an Austrian economist calling for hyperinflation should be able to say something like: "Our current money supply is X and if we print Y then history/mathematics/statistics tells me there is a 95% probabilty of hyperinflation in the next Z years"

[hugolp]

Why? Because if you're going around telling people hyperinflation is coming I think you should be able to back that up with some calculations or some kind of argument other than "my gut tells me so". Most people get scared when they hear doomsday predictions like that, and I can't tell if there are legitimate theories behind it or not.

It seems to me that an Austrian economist calling for hyperinflation should be able to say something like: "Our current money supply is X and if we print Y then history/mathematics/statistics tells me there is a 95% probabilty of hyperinflation in the next Z years"

That does not exist in any kind of economic theory. Nobody is able to tell you that. The problem with economics is that they depend on human interaction. Nobody is able to model that, so nobody can mathematically predict this thngs. If any economist is tellin gyou the contrary is lying to you.

Hugo

[danberkeley]

Why? Because if you're going around telling people hyperinflation is coming I think you should be able to back that up with some calculations or some kind of argument other than "my gut tells me so".

You are wrong. You do not need "mathematical calculations". If his gut feelings arnt enough for you, then dont listen to him. No one is forcing you to listen to him nor to believe what he says.



Most people get scared when they hear doomsday predictions like that, and I can't tell if there are legitimate theories behind it or not.

There are legitimate theories behind it. But theories do not require mathematical calculations.


It seems to me that an Austrian economist calling for hyperinflation should be able to say something like: "Our current money supply is X and if we print Y then history/mathematics/statistics tells me there is a 95% probabilty of hyperinflation in the next Z years".

For one, we do not know what the money supply is because our benevolent government is hiding that figure from us. Hyperinflation is based on human action. Do you make any mathematical calculations to know if you are hungry or thirsty or scared or frightened? There is no set tipping point to know at what number of money supply there will hyperinflation.

This is like asking how fast is fast or how high is high.

[Imperial]

I follow economics based on theory, whether monetarist or Austrian(I generally like things from both areas). However, I think the higher level economists do actually use a certain level of math. Even lower levels you can look at Ron Paul's The Case for Gold, and see math involved. Milton Friedman used some theory.

It is also important to note that conclusions can come without math. FA Hayek predicted the month and year of the stock market bust I think. Mises also predicted the Depression. However, even those figures probably used some math.

Note, Schiff isn't an economist in the technical sense like Hayek was. He runs a company, and general economic knowledge is needed, but the overriding goal is profit.


There is no set tipping point to know at what number of money supply there will hyperinflation.

This is like asking how fast is fast or how high is high.

No, but there are various degrees, resulting in various degrees of financial panic or collapse. A small inflation can have a minuscule correction, while Weimar Germany printed up a hyperinflation.

[bander87]

That does not exist in any kind of economic theory. Nobody is able to tell you that. The problem with economics is that they depend on human interaction. Nobody is able to model that, so nobody can mathematically predict this thngs. If any economist is tellin gyou the contrary is lying to you.

Hugo

I agree that we cannot predict hyperinflation mathematically, but, there is a degree to which we can assume human behavior. For example, people will most likely buy a certain type of car if it were cheaper. We cannot calculate mathematically that people will buy the car, because it's human behavior, we can only assume.

[danberkeley]

[QUOTE=bander87;1979538].. because it's human behavior... [QUOTE]

Exactly. This is the same reason for which MIT graduates' stock-trading algorythms always fail. They cannot mathematically calculate human behavior.

[bander87]

[QUOTE=bander87;1979538].. because it's human behavior... [QUOTE]

Exactly. This is the same reason for which MIT graduates' stock-trading algorythms always fail. They cannot mathematically calculate human behavior.


I wonder, inside a fixed system, if we could control everything that influenced human behavior to such a degree, we could predict it fairly accurately. Not feasible, but something to think about.

[idiom]

Chaos theory would say no. Is human behaviour sufficiently complex to call it chaotic? I think so.

You would be able to predict bounds of behaviour however.

[hugolp]

Chaos theory would say no. Is human behaviour sufficiently complex to call it chaotic? I think so.

You would be able to predict bounds of behaviour however.

Yes, thats true, but you could still not predict "black swans".

Hugo

[theoakman]

I've heard Ron Paul say a few times that this particular bubble is so big that the dollar will be destroyed if they print money to "fix" it. Is this statement actually backed up by sound Austrian theories? Do we know for sure that they can't just make another bubble which will last another 10 years and then burst?

I was also surprised to hear Peter Schiff the other day (I believe on WSU) say that he mostly uses his "gut" feelings when making predictions. I was under the impression he was a legit economist who analyzes data, crunches numbers, uses economic equations etc... but it appears not.

Do Austrian economists actually do any scientific or mathematical calculations to back up their predictions?

they can make up another bubble. It doesn't solve the underlying problem. It just delays it and makes it bigger. This is exactly what we did. We avoided the dot com bubble fallout by blowing up the housing bubble. Now we are left with a much bigger problem. You don't even need a complicated mathematical model to figure this one out. 9 trillion dollar trade deficit vs. a 12 trillion dollar GDP. But it gets better, the GDP is reliant upon borrowing and spending from foreigners. So, real GDP is probably less than 9 trillion and the only way the American economy has been able to increase GDP is by borrowing more. There's no way to pay off the trade deficit through productive means anymore. They keep trying to by borrowing money but it gets blown on consumption which expands the money owed. The only way to pay back the borrowed money is either with all of our land and corporations, or with paper. Which do you think is going to happen?