ron paul austrian economics is wrong

[ronwrong]

Ron paul is biggest proponent of balancing budgets, sound money and follower of austrian economics. I think he is wrong and would like to have respectful and meaningful discussion abt it.

[fisharmor]

Quod gratis asseritur, gratis negatur.

Translation: any gratuitous assertion can be equally gratuitously denied.

[Unregistered]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise. Austrian economics argues that govt cannot provide additional capital by means of central bank and QE. Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return. In this fashion bernanke and janet yellen are real saviours of middle class compared to austrian economics followers like ron paul and peter schiff.

[Ronin Truth]

Not anywhere near as wrong as the Keynsians. :p

[fisharmor]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise. Austrian economics argues that govt cannot provide additional capital by means of central bank and QE. Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return. In this fashion bernanke and janet yellen are real saviours of middle class compared to austrian economics followers like ron paul and peter schiff.

Did I stutter?

[jmdrake]

Quod gratis asseritur, gratis negatur.

Translation: any gratuitous assertion can be equally gratuitously denied.

You must spread some Reputation around before giving it to fisharmor again.

[jmdrake]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise. Austrian economics argues that govt cannot provide additional capital by means of central bank and QE. Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return. In this fashion bernanke and janet yellen are real saviours of middle class compared to austrian economics followers like ron paul and peter schiff.

I asked one liberal accountant the following question. What would you say to someone who was wallowing in debt who told you "I've found the solution to all of my problems! I got an offer in the mail for a new credit card with a $10,000 line of credit! I can pay off all my bills!" He said, of course, that this person should cut up the credit card. I asked him why he thought the federal government should be different. He didn't have an answer. Certainly QE and deficit spending makes you feel more financially sound for the moment by transferring debt to future generations. But at some point there is a piper to be paid. In the short term such unfound spending causes mal investment (bad investment) which wipes out middle class investment accounts when the bubbles burst. (Thanks "saviors".) In the long term we are headed to a tipping point we will not be able to recover from.

And who benefits from the Yellen/Bernanke fraud the most? Why the very people who earn the "majority of wealth" that you hate so much. Why do you think Obama got more money from Wallstreet than any other candidate? It's so that he could give bailouts, not to the middle class but to the fat cat bankers you are complaining about! And what did these fat cat bankers do after they were saved from their own greed? Why they started stealing more wealth from the middle class. Chase is one of the worst offenders and that got some of the most bailout money. This is Robin Hood in reverse. Your "saviors" steal from the middle class and give to the super rich. They give a little to the poor to make idiots like you feel better about it.

[specsaregood]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise.

You are blinded by your beliefs. Just because some rich people hold onto their wealth wouldn't cause the world to stop. The value of the money in circulation would go up or people would start using other assets for trade. This rewards savers, not spenders. Remember when you could earn interest on your savings? I find that idea more likeable than a world where everybody is in debt and spending their money to just get rid of it before it goes down in value.

[Sola_Fide]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise. Austrian economics argues that govt cannot provide additional capital by means of central bank and QE. Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return. In this fashion bernanke and janet yellen are real saviours of middle class compared to austrian economics followers like ron paul and peter schiff.


And stealing wealth from future generations to give to big government-endorsed corporations was the answer? I have no idea sometimes why liberals condemn the wealthy on the one hand, and on the other hand defend the government programs that steal from poor people in order to keep the wealthy rich.

[erowe1]

To the OP, what do you mean by "Austrian economics"?

[Chester Copperpot]

Ron paul is biggest proponent of balancing budgets, sound money and follower of austrian economics. I think he is wrong and would like to have respectful and meaningful discussion abt it.

ok im ready.. why do you feel its wrong?

[Ronin Truth]

To the OP, what do you mean by "Austrian economics"?


Until he decides to answer, this may tide you over:

austrian economics

https://www.google.com/search?q=austrian+economics&hl=en&biw=&bih=&gbv=2&oq=austrian+economics&gs_l=heirloom-serp.12...0.0.0.7375.0.0.0.0.0.0.0.0..0.0....0...1 ac..34.heirloom-serp..0.0.0.Mc36MgGxLRo

[timosman]

Certainly QE and deficit spending makes you feel more financially sound for the moment by transferring debt to future generations.


Can we stop with this nonsense about future generations? This weakens the argument as nobody is willing to do anything unless when affected directly. The robbery is taking place now. Every printed dollar makes the dollars you own worth less, makes saving impossible and encourages risky investments by institutions who should be playing safe like your city or county.

[Rothbardian Girl]

Until he decides to answer, this may tide you over:

austrian economics

https://www.google.com/search?q=austrian+economics&hl=en&biw=&bih=&gbv=2&oq=austrian+economics&gs_l=heirloom-serp.12...0.0.0.7375.0.0.0.0.0.0.0.0..0.0....0...1 ac..34.heirloom-serp..0.0.0.Mc36MgGxLRo

http://i.imgur.com/tyTc1Nl.jpg

[Ronin Truth]

Can we stop with this nonsense about future generations? This weakens the argument as nobody is willing to do anything unless when affected directly. The robbery is taking place now. Every printed dollar makes the dollars you own worth less, makes saving impossible and encourages risky investments by institutions who should be playing safe like your city or county.

Printed dollars are mere chicken feed.

The real bucks are in currency from bank loans and fresh air fabricated debt.

[Ronin Truth]

http://i.imgur.com/tyTc1Nl.jpg

It happens. <shrug>

[Sola_Fide]

Can we stop with this nonsense about future generations? This weakens the argument as nobody is willing to do anything unless when affected directly. The robbery is taking place now. Every printed dollar makes the dollars you own worth less, makes saving impossible and encourages risky investments by institutions who should be playing safe like your city or county.

You're right, but as much as liberals talk about saving the middle class, you'd think they would respond to the idea that the FED is destroying it.

[dannno]

Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return.

Wealthy people can do two things with their money - as was already said they can hold onto it, in which case the rest of the currency is more scarce, becomes more valuable and people with low wages suddenly see their wages as more valuable and can trade it for more goods and services - which non-coincidently are available because the wealthy person decided not to consume.

Option 2 is the rich people spend their money, and make the producers more wealthy.

One thing that Austrians "get" that others just don't is that our prosperity is linked to production, not demand.

Austrian economics allows for the greatest mobility of the poor, who are always going to be able to produce as long as they are truly free. Maybe you can explain to me why you think poor people would just stop producing things? What is stopping them from bettering themselves in a free market and using that production to obtain wealth from those who are wealthy and/or also producing?

[Unregistered]

Thanks for all the comments. I will respond to all of them. I used to be die hard fan of austrian economics but as i thought abt it more deeply i realized it doesnot make sense. The big lie that austrian economists propagate is gov is printing money. It is not it is increasing reserves of banks so that they can further invest. The govt does it since the wealthy wouldnt want to invest in low rate of return activities like agriculture etc which is still important for middle class.

[Unregistered]

Hi Danno, Thanks for interesting points. In the situation that you mentioned, if the wealth inequality is great to begin with, the increase in value of money would not compensate for the lack of jobs and to earn wages to begin with. So any increase in value of money does not matter if you do not have money to begin with.

Second, yes, the poor can produce the good themselves and become producers and wealthy. However this requires investment and there is not much investment since the wealthy do not want to invest.

Prosperity lies in production and not demand as you correctly point. But Production can happen when there is investment. Keynesians support intervention from govt to stimulate investments thro QE when the wealthy pull back on investment. Austrian economics does not support that.
So if I and poor and want to attempt producing cancer drug with 20% probability of success, I will not be able find investment in austrian economics model and would have to resort to coming up with ideas of efficiently cleaning golf balls which would attract investment from wealthy. However in keynesian model, the NIH funding agencies or banks are willing to take that risk since if the cancer drug works, it will be a huge payoff.

If austrian economics are truly implemented in its ideal form, the whole world, I think, will be like shark tank. New entrepreneurs would only come up with stupid pointless ideas like oil for mustache etc but no ideas will be proposed/funded that can transform the world although with a lesser probability of success.

When it comes to bubbles, I do not think low interest rates and QE create bubbles. The bubbles are formed since there is an avenue for financial institutions to offload "risk" after an investment. Investment and risk should go hand in hand and there should not be avenue to offload risk. For example during housing boom, the banks sold off their mortgages to FMs and there was an implicit guarantee by govt. This created bubble.

[Unregistered]

QE is not printing money nor borrowing money from future generations. QE means increasing bank reserves and these can be increased indefinitely as long as the inflation is low or acceptable. As you keep increasing reserves, if the inflation is low, that means either the banks are sitting on the reserves or investing in production. QE is not borrowing from future generations because it need not be paid back. The govt is increasing reserves and asking bankers to find suitable avenues for investment. As long as inflation is low, in this scenario, the only people who lose are the wealthy and savers since they obtain low return and the winners are majority of the population since the productive wheels of economy keep turning with investment, jobs, production and consumption.

[erowe1]

Unregistered, what you say is not printing money still is printing money. Fractional reserve banking increases the money supply.
http://www.econlib.org/library/Enc/MoneySupply.html
https://en.wikipedia.org/wiki/Fractional-reserve_banking

[Sola_Fide]

QE is not printing money nor borrowing money from future generations. QE means increasing bank reserves and these can be increased indefinitely as long as the inflation is low or acceptable. As you keep increasing reserves, if the inflation is low, that means either the banks are sitting on the reserves or investing in production. QE is not borrowing from future generations because it need not be paid back. The govt is increasing reserves and asking bankers to find suitable avenues for investment. As long as inflation is low, in this scenario, the only people who lose are the wealthy and savers since they obtain low return and the winners are majority of the population since the productive wheels of economy keep turning with investment, jobs, production and consumption.

That's the entire problem. We have a culture of debt and what you are proposing is to spend your way out of debt, which is completely insane. We don't need more debt and spending, we need saving.

[Unregistered]

QE is not debt. It need not be paid back. QE will not encourage people to take on more debt.

Increasing money supply does not automatically increase inflation unless there are no avenues to invest with positive rate of return. The fallacy is if you give $100 to a person, then he will consume it and increase inflation. If you give $100 to a bank, then the bank will invest to increase production for any positive rate of return.

[dannno]

QE is not debt. It need not be paid back. QE will not encourage people to take on more debt.

Increasing money supply does not automatically increase inflation unless there are no avenues to invest with positive rate of return. The fallacy is if you give $100 to a person, then he will consume it and increase inflation. If you give $100 to a bank, then the bank will invest to increase production for any positive rate of return.

The market should be determining interest rates - the amount people save is what can then be invested back into the economy. For example, if you have a small tribe and you save up 10 days worth of coconuts, they can invest up to 10 days into creating fishing nets to catch more fish. If they only save up 7 days worth of coconuts and spend 10 days on fishing nets, some people will inevitably starve to death. This is what happens with malinvestment -- lowering interest rates is the same as telling the tribe that they have 10 days worth of coconuts when they only have 7. They will then try to make too big of a fishing net, a fishing net bubble if you will, and there will be shortages of what people need.

By stimulating more investment, by decreasing the interest rate, you create MORE investment than what people have saved. This pushes in more investments that may create a profit in a free market, but some would not create a positive return on the amount of interest that is demanded by the investors. These are the businesses that you see fail when we have market corrections - the thing is, most of these businesses never would have existed if the excess investment hadn't been there in the first place.

[Zippyjuan]

Are interest rates today too low? Should they be higher? Why?

Lenders- are the rates to low for them? Is too much money being borrowed- using up all their reserves? (low interest rates encourage more borrowing). On the borrowing side- have they taken on too much debt? Are companies borrowing to invest too much in expanding their output? Are people buying too many houses or cars? Are people taking out too many student loans?

Deposit side. Are banks having troubles acquiring enough deposits to be able to make the loans they want to? Do they need to raise rates to attract more capital in the form of deposits? If they pay more interest, they can attract more funds but do they need to? Banks have over $2 trillion in excess reserves (over and above their required reserves). That suggests that a) they have plenty of capital (deposits) and b) are not overwhelmed by demands for loans. Sure depositors would like to get more money in interest on their deposits but they are not removing all of their money from the banks depriving them of capital so it seems that rates on deposits are not really too low for the market.

If rates today are wrong, there must be correct rates. What should those rates be?

Mortgage and car loan rates (and student loan rates) are based on US Treasury interest rates. Those are determined by the market- the notes are auctioned off and their selling price determines the rates they pay. It is true that QE involved the purchase of Treasuries which drove rates down but the Fed quit buying them over a year ago so we should be back to market supply/ demand setting prices and interest rates on them.

[dannno]

Are interest rates today too low? Should they be higher? Why?

Lenders- are the rates to low for them? Is too much money being borrowed- using up all their reserves? (low interest rates encourage more borrowing). On the borrowing side- have they taken on too much debt? Are companies borrowing to invest too much in expanding their output? Are people buying too many houses or cars? Are people taking out too many student loans?

Deposit side. Are banks having troubles acquiring enough deposits to be able to make the loans they want to? Do they need to raise rates to attract more capital in the form of deposits? If they pay more interest, they can attract more funds but do they need to? Banks have over $2 trillion in excess reserves (over and above their required reserves). That suggests that a) they have plenty of capital (deposits) and b) are not overwhelmed by demands for loans. Sure depositors would like to get more money in interest on their deposits but they are not removing all of their money from the banks depriving them of capital so it seems that rates on deposits are not really too low for the market.

If rates today are wrong, there must be correct rates. What should those rates be?

Mortgage and car loan rates (and student loan rates) are based on US Treasury interest rates. Those are determined by the market- the notes are auctioned off and their selling price determines the rates they pay. It is true that QE involved the purchase of Treasuries which drove rates down but the Fed quit buying them over a year ago so we should be back to market supply/ demand setting prices and interest rates on them.

All of these answers have been given to you before by us thousands of times.

Maybe you can recite them for us since you have heard them so many times before?

[erowe1]

Are interest rates today too low? Should they be higher? Why?


Like all other prices this is not to be decided by any individual or organization. No one has any way to come up with the right answer.

[Krugminator2]

It depends on what you mean by Austrian economics. Our current budget deficits are a complete non-issue. I have no idea why Rand and Ron obsess over them. I don't think they are stupid, I think they do it purely to work people up for political reasons. I don't think Austrian economics implies anything about budget deficits though.

Sound money is important because entrepreneurs have to have a predictable currency to make forecasts about the future. It is impossible to have a properly functioning economy with high inflation.

I don't agree with not using empirical testing of ideas. That is the worst part of Austrian economics. Making logical deductions and then creating a hypothesis is fine, but if the hypothesis is refuted you need to adjust it. Austrian Business Cycle Theory isn't useless, but it fails as a predictive way of viewing the world. Obviously if it were predictive, then it would stop being predictive because people would just adjust their behavior. I think the real world is probably somewhere between Austrian Business Cycle and Real Business Cycle.

[erowe1]

I don't agree with not using empirical testing of ideas. That is the worst part of Austrian economics. Making logical deductions and then creating a hypothesis is fine, but if the hypothesis is refuted you need to adjust it.

But it's impossible to refute economic laws by the scientific method. For example, if you raise the minimum wage and unemployment goes down, that doesn't disprove the undeniable fact that raising the minimum wage adversely affects employment; it only means that the unemployment rate would have gone down even more if the minimum wage weren't raised. But there never exists a control group like that for real comparisons.

[dannno]

It depends on what you mean by Austrian economics. Our current budget deficits are a complete non-issue. I have no idea why Rand and Ron obsess over them. I don't think they are stupid, I think they do it purely to work people up for political reasons. I don't think Austrian economics implies anything about budget deficits though.

Sound money is important because entrepreneurs have to have a predictable currency to make forecasts about the future. It is impossible to have a properly functioning economy with high inflation.

Budget deficits might be less of an issue in a free market, but with such artificially low interest we have taken on a monstrous amount of debt that cannot be serviced at market interest rates. That makes it is HUGE issue.




I don't agree with not using empirical testing of ideas. That is the worst part of Austrian economics. Making logical deductions and then creating a hypothesis is fine, but if the hypothesis is refuted you need to adjust it. Austrian Business Cycle Theory isn't useless, but it fails as a predictive way of viewing the world. Obviously if it were predictive, then it would stop being predictive because people would just adjust their behavior. I think the real world is probably somewhere between Austrian Business Cycle and Real Business Cycle.

Why would people who don't believe in Austrian economics adjust their behavior based on what Austrian economics says?

The economy will never increase on a smooth linear path, but the fact is that artificially low interest rates drive bubbles, they burst, then they loosen monetary policy even more which drives us into an even deeper hole.

We don't see a lot of the effects of our monetary policy because our inflation is exported, but some day when there is a currency crisis that will all come back in the form of inflation.

[dannno]

Hi Danno, Thanks for interesting points. In the situation that you mentioned, if the wealth inequality is great to begin with, the increase in value of money would not compensate for the lack of jobs and to earn wages to begin with. So any increase in value of money does not matter if you do not have money to begin with.


What is this "lack of jobs" you speak of? What is stopping people from working and producing in a free market? Today we have all this BS with licensing, regulations, taxes, zoning and all sorts of other things that are not apart of a free market, and these create huge barriers of entry for poor people to go out and produce.

In a free market, people would be able to produce, buy and sell freely. If there are a lot of poor people, then that just means prices will be low. In a free market production will increase, standard of living will increase and it won't matter if there is a big disparity between rich and poor because poor people will be producing for each other and charging each other whatever the market can bare.. so prices will just be low. But as the poor produce more and make more things, they will all become wealthy. The wealthy will either have to produce - which is a good thing because it will provide more goods and services for the poor - and if they are poor then they will have to charge very low prices for what they produce.

[Krugminator2]

Budget deficits might be less of an issue in a free market, but with such artificially low interest we have taken on a monstrous amount of debt that cannot be serviced at market interest rates. That makes it is HUGE issue.

Why would people who don't believe in Austrian economics adjust their behavior based on what Austrian economics says?

The economy will never increase on a smooth linear path, but the fact is that artificially low interest rates drive bubbles, they burst, then they loosen monetary policy even more which drives us into an even deeper hole.

We don't see a lot of the effects of our monetary policy because our inflation is exported, but some day when there is a currency crisis that will all come back in the form of inflation.

We don't have a monsterous amount of on balance sheet debt. Markets aren't worried at all and they are the best predictor of the future. But even if this debt Holocaust were upon us, what would happen? It only affects the government. People act like the country would turn into a lawless looting dystopia. In a worst case scenario, it would just make it harder to finance the public sector so people would have to switch back to working in the private sector.

BTW, it is not clear that rates are artificially low. Ultra low interest rates are actually a market signal that money is too tight, not too easy. I do agree the market should determine money and credit. But even then there are a still a lot of different ways for money and credit to be determined by the market.

Market participants care about making money. If ABCT were predictive, people would use it to make money (in the market, not by selling doom porn.) Bubbles do not happen from money printing alone.


But it's impossible to refute economic laws by the scientific method. For example, if you raise the minimum wage and unemployment goes down, that doesn't disprove the undeniable fact that raising the minimum wage adversely affects employment; it only means that the unemployment rate would have gone down even more if the minimum wage weren't raised. But there never exists a control group like that for real comparisons.

Take the quantity theory of money. A lot Austrians would say increasing the stock of money is inflation. And rising prices are a consequence of inflation. That is true as a general statement. Experience shows, it actually isn't true when rates bump up against a zero lower bound. Japan has increased their money supply by quadrillions of dollars, yet they are still experiencing price deflation. Likewise the Fed has grown the monetary base but we have certainly not experienced other than the imaginary inflation Yet, many Austrians still take money printing and resulting price inflation as Gospel.

[erowe1]

Japan has increased their money supply by quadrillions of dollars, yet they are still experiencing price deflation.

What are you basing that on? I just checked and Japan's M2 money supply is about 1 quadrillion Yen right now, or about 9 trillion Dollars, and it's increased about 25% over the past 10 years. I think their CPI stayed pretty flat through the early 2000's and shown positive inflation lately. Did Japan ever really have much deflation? Or was it just a little deflation that got exaggerated by Keynesians who think deflation is a big deal?

[Zippyjuan]

What are you basing that on? I just checked and Japan's M2 money supply is about 1 quadrillion Yen right now, or about 9 trillion Dollars, and it's increased about 25% over the past 10 years. I think their CPI stayed pretty flat through the early 2000's and shown positive inflation lately. Did Japan ever really have much deflation? Or was it just a little deflation that got exaggerated by Keynesians who think deflation is a big deal?

http://inflationdata.com/articles/wp-content/uploads/2014/06/US-vs-Japan-inflation.jpg
http://inflationdata.com/articles/historical-inflation-rates-japan-1971-2014/

However, it does fit the claim that inflating their money supply has not led to soaring prices.

[VIDEODROME]

I asked one liberal accountant the following question. What would you say to someone who was wallowing in debt who told you "I've found the solution to all of my problems! I got an offer in the mail for a new credit card with a $10,000 line of credit! I can pay off all my bills!" He said, of course, that this person should cut up the credit card. I asked him why he thought the federal government should be different. He didn't have an answer. Certainly QE and deficit spending makes you feel more financially sound for the moment by transferring debt to future generations. But at some point there is a piper to be paid. In the short term such unfound spending causes mal investment (bad investment) which wipes out middle class investment accounts when the bubbles burst. (Thanks "saviors".) In the long term we are headed to a tipping point we will not be able to recover from.

And who benefits from the Yellen/Bernanke fraud the most? Why the very people who earn the "majority of wealth" that you hate so much. Why do you think Obama got more money from Wallstreet than any other candidate? It's so that he could give bailouts, not to the middle class but to the fat cat bankers you are complaining about! And what did these fat cat bankers do after they were saved from their own greed? Why they started stealing more wealth from the middle class. Chase is one of the worst offenders and that got some of the most bailout money. This is Robin Hood in reverse. Your "saviors" steal from the middle class and give to the super rich. They give a little to the poor to make idiots like you feel better about it.

I think the OP has a valid complaint, yet I'm not sure the Fed has been such a great solution. I'm also not sure the Fed is even doing the job it was created for to keep the money supply in line with the size of the economy.

[VIDEODROME]

But it's impossible to refute economic laws by the scientific method. For example, if you raise the minimum wage and unemployment goes down, that doesn't disprove the undeniable fact that raising the minimum wage adversely affects employment; it only means that the unemployment rate would have gone down even more if the minimum wage weren't raised. But there never exists a control group like that for real comparisons.

Erowe1, I often wonder about this. Or if there is anyway to explore this in a Simulator?

Strangely, many of the large online roleplaying games are kind of like self contained economies. I've also wondered if players find some of them to be better or worse economic models to participate in.

[Krugminator2]

What are you basing that on? I just checked and Japan's M2 money supply is about 1 quadrillion Yen right now, or about 9 trillion Dollars, and it's increased about 25% over the past 10 years. I think their CPI stayed pretty flat through the early 2000's and shown positive inflation lately. Did Japan ever really have much deflation? Or was it just a little deflation that got exaggerated by Keynesians who think deflation is a big deal?

I was saying quadrillions to make the point that it was a big number. I had not idea what the specific number was. Japan is experiencing deflation. http://johnhcochrane.blogspot.com/2015/09/japan-deflation.html


Deflation is a problem when you have a lot debt, particularly when it isn't coming from productivity gains. It has nothing to do with me being a Keynesian. You service debt in nominal dollars (or nominal yen). When you have lots of debt and deflation, it becomes much more difficult to service. It ends up becoming a deflationary spiral like happened in the Great Depression. Bankruptcies are time consuming and wages don't easily adjust. So these spirals can take time. This is a perfect example where Murray Rothbard is wrong. I am pretty sure most Austrians don't think debt deflation is some virtuous process.

[erowe1]

I was saying quadrillions to make the point that it was a big number.
But it hasn't been a big number as far as I can tell.

[Krugminator2]

But it hasn't been a big number as far as I can tell.


I don't see how that can be right, considering I have seen headlines like this for last 15 years. http://www.theguardian.com/business/2013/apr/04/japan-bank-money-supply-inflation-deflation

"Japanese central bank doubles money supply in fresh bid to spur inflation"

[erowe1]

I don't see how that can be right, considering I have seen headlines like this for last 15 years. http://www.theguardian.com/business/2013/apr/04/japan-bank-money-supply-inflation-deflation

"Japanese central bank doubles money supply in fresh bid to spur inflation"

That article is saying what the Bank of Japan hopes to accomplish over the coming years with its policy. It doesn't say that it has already succeeded at doing that.

ETA:
Here. I can't figure out how to link you to a chart with settings other than the default. But you can fiddle with them to see that over the past ten years Japan's M2 has increased from a little over 700 trillion to a little over 900 trillion Yen.
http://ieconomics.com/japan-money-supply-m2

[TheTexan]

http://inflationdata.com/articles/wp-content/uploads/2014/06/US-vs-Japan-inflation.jpg
http://inflationdata.com/articles/historical-inflation-rates-japan-1971-2014/

However, it does fit the claim that inflating their money supply has not led to soaring prices.

That chart looks good to me. Just the right amount of inflation.

Great job, Federal Reserve.

[Krugminator2]

That article is saying what the Bank of Japan hopes to accomplish over the coming years with its policy. It doesn't say that it has already succeeded at doing that.

ETA:
Here. I can't figure out how to link you to a chart with settings other than the default. But you can fiddle with them to see that over the past ten years Japan's M2 has increased from a little over 700 trillion to a little over 900 trillion Yen.
http://ieconomics.com/japan-money-supply-m2

It looks like you are right. I was basing it on my intuitions given how large their deficits are and how many times I have heard quantitative easing associated with Japan.

Japan is a bad example. It doesn't change my point at all. Just replace Japan with the United States.

[Ender]

The problem is that no one really understands economics in this crazy world we live in. There is is no "money". It is nothing but keystrokes on the computer. These keystrokes have no real value because there is nothing to back up the dollar.

Add to that, fractionalized banking and the problem becomes virtually (no pun intended) out of control.

In a free market with no fractionalized money, a real standard backing up the dollar, and gov out of the business of business, people can begin to experience REAL capitalism and gain the ability to control their own lives, and succeed.

If John makes something that becomes popular and many people buy it, then the price goes down and the employment in John's company goes up. If Sam makes a product that no one really wants, the Sam will go back to the drawing board and come up with something better. THIS is capitalism. What we have presently is mercantilism and is the main reason for the Revolutionary War

[dannno]

Deflation is a problem when you have a lot debt, particularly when it isn't coming from productivity gains. It has nothing to do with me being a Keynesian. You service debt in nominal dollars (or nominal yen). When you have lots of debt and deflation, it becomes much more difficult to service. It ends up becoming a deflationary spiral like happened in the Great Depression. Bankruptcies are time consuming and wages don't easily adjust. So these spirals can take time. This is a perfect example where Murray Rothbard is wrong. I am pretty sure most Austrians don't think debt deflation is some virtuous process.

The bad debt needs to be liquidated, that is what the market demands. The bad debt came from inflation of the money supply. The faster this all happens, the sooner people can begin saving and making investments that the market can handle in the longterm that will increase prosperity. Holding off is what hurts people the most and lacks virtue. Rothbard is right, you're wrong. Ron Paul explains this all the time to the media as well. Do you not listen to his interviews?

I really question people who say that understand Austrian economics but then come up with these horrible arguments against it which Austrian economics as a theory is specifically designed to handle.. it's literally like a fundamental part of the theory, Ron Paul and Peter Schiff talk about it and make the arguments constantly so it kinda amazes me seeing it from a longtime member.

[jmdrake]

The big lie that austrian economists propagate is gov is printing money.

LOL. This must be photoshop then.

http://www.newcivilisation.com/home/wp-content/uploads/2013/10/money-printing-press.jpg

:rolleyes:

[jmdrake]

I think the OP has a valid complaint, yet I'm not sure the Fed has been such a great solution. I'm also not sure the Fed is even doing the job it was created for to keep the money supply in line with the size of the economy.

The problem is the Fed gives more money to the very people he's complaining about. His "solution" is to make the problem worse. It's like trying to treat a gunshot wound with a machine gun. We propped up the very banks that caused the housing bubble, like Chase, and now they are busy going around stealing peoples homes. I know because I've been on ground zero of that fight against Chase lawyers. They are some very good vampires.

[Krugminator2]

The bad debt needs to be liquidated, that is what the market demands. The bad debt came from inflation of the money supply. The faster this all happens, the sooner people can begin saving and making investments that the market can handle in the longterm that will increase prosperity. Holding off is what hurts people the most and lacks virtue. Rothbard is right, you're wrong. Ron Paul explains this all the time to the media as well. Do you not listen to his interviews?

I really question people who say that understand Austrian economics but then come up with these horrible arguments against it which Austrian economics as a theory is specifically designed to handle.. it's literally like a fundamental part of the theory, Ron Paul and Peter Schiff talk about it and make the arguments constantly so it kinda amazes me seeing it from a longtime member.




“I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy. I am not only against inflation but I am also against deflation. So, once again, a badly programmed monetary policy prolonged the depression.”


“The moment there is any sign that the total income stream may actually shrink [during a post-bust deflationary crash], I should certainly not only try everything in my power to prevent it from dwindling, but I should announce beforehand that I would do so in the event the problem arose.”


“If I were responsible for the monetary policy of a country I would certainly try to prevent a threatening deflation, that is, an absolute decrease in the stream of incomes, by all suitable means, and would announce that I intended to do so. This alone would probably be sufficient to prevent a degeneration of the recession into a long-lasting depression.”


. First, they prolonged the boom and caused a worse depression, and then they allowed a deflation to go on and prolonged the Depression.”

http://austrianeconomists.typepad.com/weblog/2009/10/hayek-on-deflation-and-the-great-depression.html
http://hayekcenter.org/?p=5401

I guess FA Hayek, you know the guy with the Nobel Prize for coming up with Austrian Business Cycle Theory, is just some ignorant boobus. Too bad Ron Paul wasn't able to teach Hayek about Austrian economics and wake him and cure his apathy.


http://www.cnbc.com/id/45223999 Quote from an Austrian economist named Larry White. Apparently Hayek was for nominal GDP targeting too.
"The Hayek-Robbins (“Austrian”) theory of the business cycle did not in fact prescribe a monetary policy of “liquidationism” in the sense of doing nothing to prevent a sharp deflation. "

[Weston White]

You cannot justify incidents of fraud to disprove theories in economics. The Great Depression was an orchestrated swindle (that is still ongoing this very day), to wit, the phrase "Ponzi scheme" emanated.

http://www.washingtonsblog.com/2010/10/fraud-caused-great-depression-and-this.html

[LibertyEagle]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise. Austrian economics argues that govt cannot provide additional capital by means of central bank and QE. Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return. In this fashion bernanke and janet yellen are real saviours of middle class compared to austrian economics followers like ron paul and peter schiff.

So, you think the "wealthy" will stop wanting to grow their wealth, in addition to not eating, not wearing clothes, not buying or maintaining any electronics, or watching any telecommunications, drive, repair their cars, and on and on? Really?

[Ronin Truth]

If certain set of people earn majority of wealth and they decide not to invest further or invest only at high interest rate then the economy grinds to halt. Others cannot sustain businesses without capital, unemployment would rise. Austrian economics argues that govt cannot provide additional capital by means of central bank and QE. Businesses close since they cannot produce enough return demanded by the wealthy. Without jobs and food the people need to become slaves to the wealthy for very low wages. In current conditions fed provides additional capital to banks to invest which forces wealthy to invest as well at low rates of return. In this fashion bernanke and janet yellen are real saviours of middle class compared to austrian economics followers like ron paul and peter schiff.

Hypotheticals are just about 3 cents per truckload. Stick to reality.

[Unregistered]

What you are proposing is stealing from the rich (because they hold all the money) through inflation. If Keynes had instead argued in such a situation that you should kick the rich man's door down and rob him of his wealth at gunpoint, would you still support him? Because that is just a matter of semantics.

[Unregistered]

I think you guys are getting caught up in intellectual minutiae. In a free economy, should the richest decide to hold their wealth or lend it out at high rates the "wealth" they possess would cease to be an efficient facillitator of indirect exchange and a new medium would arise to, if not take the old "wealths" place, at least function as money beside it. Op, you would do well to flip through man economy and state by murray rothbard. Sorry for grammar, but im on a phone.

[Iowa]

I used to be die hard fan of austrian economics....

That's what all the trolls say. Bet you were a gun owner before you saw that error of that too, huh?

[Chester Copperpot]

if we could all start our own banks and make the federal reserve give us 'deposits' then we could all be rich and all the problems would be solved.

[Sola_Fide]

It depends on what you mean by Austrian economics. Our current budget deficits are a complete non-issue. I have no idea why Rand and Ron obsess over them. I don't think they are stupid, I think they do it purely to work people up for political reasons. I don't think Austrian economics implies anything about budget deficits though.

Sound money is important because entrepreneurs have to have a predictable currency to make forecasts about the future. It is impossible to have a properly functioning economy with high inflation.

I don't agree with not using empirical testing of ideas. That is the worst part of Austrian economics. Making logical deductions and then creating a hypothesis is fine, but if the hypothesis is refuted you need to adjust it. Austrian Business Cycle Theory isn't useless, but it fails as a predictive way of viewing the world. Obviously if it were predictive, then it would stop being predictive because people would just adjust their behavior. I think the real world is probably somewhere between Austrian Business Cycle and Real Business Cycle.


But it's impossible to refute economic laws by the scientific method. For example, if you raise the minimum wage and unemployment goes down, that doesn't disprove the undeniable fact that raising the minimum wage adversely affects employment; it only means that the unemployment rate would have gone down even more if the minimum wage weren't raised. But there never exists a control group like that for real comparisons.

Erowe is exactly right. The scientific method can never yield a statement of truth because it commits the fallacy of asserting the consequent.

If P, then Q
Q, therefore P

is fallacious. It could be X, Y, or Z that brings down the conclusion that P is true. Empirical science can never give you truth, including empirical arguments in economics. The strength of Austrian economics is that it works from axioms whereby statements of truth can be validly obtained.

[Rothbardian Girl]

Erowe is exactly right. The scientific method can never yield a statement of truth because it commits the fallacy of asserting the consequent.

If P, then Q
Q, therefore P

is fallacious. It could be X, Y, or Z that brings down the conclusion that P is true. Empirical science can never give you truth, including empirical arguments in economics. The strength of Austrian economics is that it works from axioms whereby statements of truth can be validly obtained.

I don't think this is a particularly strong criticism of the scientific method. While it certainly sounds bad to be guilty of a logical fallacy, committing this fallacy is actually just common sense. We do it all the time. Suppose you're on a long vacation and you get an automated text saying that the burglar alarm at your house has been triggered. (Say that burglary implies that the alarm will be triggered.) But also suppose that you live in an area known for earthquakes once in a blue moon; earthquakes' vibrations also have a chance of triggering the alarm. Calling the cops in this case would technically be a logical fallacy, because the earthquake could have tripped the alarm.

You're absolutely right that the scientific method can never allow us to know anything with certainty. Given finite data and imperfect measuring instruments, of course we can never conclusively prove anything's existence. However, science still "makes progress" in spite of these limitations.

Back to the burglar alarm scenario... I think most of us would agree that the common sense option is to call the cops (except AF :p ). By making the decision to call the cops, we are implicitly weighing probabilities - "rounding the probability of an earthquake down to zero," allowing us to use the rules of deductive reasoning as an approximation. When we do this, we are actually reasoning about degrees of belief in the two hypotheses - burglary vs. earthquake (Bayesian inference). Bayes' Theorem (https://en.wikipedia.org/wiki/Bayes'_theorem) allows us to take the a priori plausibility of each hypothesis into account, as well as its power to explain the "alarm" going off, in order to quantify the evidence in favor of one hypothesis over the other. Thus Bayesian inference does not prove anything, but it thankfully does not need to. Instead, it justifies increasing the degree of our belief in one plausible hypothesis over another. Strict deductive reasoning loses this "common sense" approach.

This is the theory at work behind most scientific reasoning, even though poetic license in published papers sometimes obscures this fact. Accusing something of "affirming the consequent" is a very specific criticism, but one being leveled due to a misunderstanding of the probability/philosophy underpinning modern scientific inquiry.

[Occam's Banana]

I don't agree with not using empirical testing of ideas. That is the worst part of Austrian economics. Making logical deductions and then creating a hypothesis is fine, but if the hypothesis is refuted you need to adjust it.

The laws of economics are not empirical - thus, the lack of empiricism in the methodology of Austrian economics is its greatest strength.

If you put one penny down on an empty table and then put two more pennies on the table, and then you count the total pennies on the table and get a result of "four," you might propose any number of explanations for this. You may have miscounted the pennies on the table when you totalled them. Or you may have miscounted the pennies as you laid them out. Or perhaps one of the pennies you put down was actually two pennies stuck together. Or maybe someone put an extra penny on the table while you weren't looking. Or it might have been that the tabletop was not actually empty of pennies before you started putting pennies down. Or any of various other things.

But the one thing you would NOT do is conclude that the "hypothesis" that there should be three pennies on the table had been "refuted" and that you therefore "need to adjust" the laws of arithmetic in order to bring arithmetic theory in line with your empirical obeservations. IOW: The one thing that you would NOT do is declare that you had discovered an instance in which 1 + 2 = 4. You would not do this because the laws of arithmetic are apodictically certain and are not subject to empirical testing, verification or refutation.

The laws of economics, properly understood, are likewise apodictically certain and are not subject to empirical testing, verification or refutation.

If, for example, the minimum wage is increased and employment subsequently increases, this would not constitute a "refutation" of the Law of Demand. The Law of Demand cannot be empirically refuted, any more than the laws of arithmetic can be. Instead, the proper response to such a situation is the same as in the "four pennies" scenario described above - you should, for instance, recheck to see that you have not miscounted the number of employed people, or that you have not otherwise failed to account for any extraneous "pennies on the table." We know that there must necessarily be some such as-yet-unaccounted-for factor in play, because the Law of Demand is apodictically certain. (Economists frequently invoke the condition of ceteris paribus - "other things equal" - precisely for the purpose of assuming the absence of such factors.) No emprical observations can ever refute (or establish or verify) the Law of Demand (or any other of the laws of economics), any more than any empirical evidence can ever refute (or establish or verify) that 1 + 2 = 3.

[Ronin Truth]

They check in, but they don't check out? LMAO!

[Yieu]

Strict deductive reasoning loses this "common sense" approach.

That's where the beauty of inductive reasoning fits in, which includes Bayesian inference. Interestingly, inductive reasoning is also used to understand scripture. We accept scriptural injunctions a priori as an axoimatic truth, and any reasoning is based on those accepted truths.

[Sola_Fide]

That's where the beauty of inductive reasoning fits in, which includes Bayesian inference. Interestingly, inductive reasoning is also used to understand scripture. We accept scriptural injunctions a priori as an axoimatic truth, and any reasoning is based on those accepted truths.

No, a priori is deductive.

[Yieu]

No, a priori is deductive.

I'll modify it to say what I was trying to say.


That's where the beauty of inductive reasoning fits in, which includes Bayesian inference. Interestingly, inductive reasoning is also used to understand scripture. We accept scriptural injunctions without needing external verification, study, or observation as an axoimatic truth, and any reasoning, commentary, or study is based on those accepted truths using inductive reasoning.