Any economic theory that ignores this type of spending and its sector of the economy (i.e., the secondary financial asset markets) is deeply flawed and liable to be missing something fundamental about modern market economies....
This type of spending is also a fundamental reason why Say’s law is one of the most ridiculous ideas ever formulated by economists.Social Democracy for the 21st Century
World GDP versus Total Value of Financial Asset Market Exchanges
Lord Keynes
9 comments:
Austrian analysis is concerned with all underlying factors in the economy especially with those more complex underlying factors whose prices are distorted by funny money and credit created out of thin air. It is the GDP obsessives like "Lord Keynes" whose analysis "is deeply flawed and liable to be missing something fundamental about modern market economies...."
Then why does the classical ABCT essentially ignore the destablising influence of financial asset markets, bob?
Even economists sympathetic to Austrian economics freely acknowledge this, e.g., Karen I. Vaughn:
“Mises never discusses the possibility of systematic speculative error except in the context of his trade cycle theory, in which speculators-investors are misled by improper monetary signals emanating from a fractional reserve banking. Yet if the future cannot be predicted, or as Shackle would say, if the future is created out of the actions of the past, why is it not least conceivably possible for speculative activity to be on net incorrect at least some of the time? Certainly, we have the empirical evidence of speculative bubbles that are endogenous to markets as an example of market instability. One would think that the extent and potential limiting factors that affect such endogenous instabilities would be of great importance for fully understanding market orders, yet it is an issue surprisingly missing in the Austrian literature. Hence, although, we can appreciate the force of Mises’ argument as far as it goes, it seems that a crucial part of the case for the effective functioning of a market economy.”
Vaughn, K. I. 1994. Austrian Economics in America: The Migration of a Tradition, pp. 87–88.
Looks like a pretty big hole in your "Austrian analysis ... concerned with all underlying factors"!
Correction:
Hence, although, we can appreciate the force of Mises’ argument as far as it goes, it seems that a crucial part of the case for the effective functioning of a market economy is missing.”
I frankly do not care about the economic history of these ideas. If Mises or Hayek missed applying these basic Austrian concepts to financial asset markets, I haven't made the same mistake. It's quite easy to apply the basic Austrian concepts to new situations and events. That's why I used the term "Austrian analysis" which, as I have proved 151 times, you do not understand.
Taking your criticism to heart, I will change my above post:
"Austrian analysis is generally concerned with all underlying factors in the economy especially with those more complex underlying factors whose prices are distorted by funny money and credit created out of thin air. To the extent that Austrian analysis has not been applied to the destablising influence of funny money on financial asset markets, such an analysis is quite simple to make and such analysis can definitively demonstrate that funny money and Keynesian policy is the cause of the serious problems in those markets."
"those more complex underlying factors whose prices are distorted by funny money and credit created out of thin air"
Yeah "complex".
"and such analysis can definitively demonstrate that funny money and Keynesian policy is the cause of the serious problems in those markets."
Then why in the classic era of Keyensianism, when financial markets were effectively regulated, did destabilizing asset bubbles virtually disappear?
Certainly the type of business cycles based on the bursting of debt-fulled asset bubbles effectively ended in that era. When effective financial regulation was dismantled, that type of business cycle reappeared.
The empirical evidence doesn't support your interpretation, bob.
But, then, when you're an Austrian, empirical evidence never proves anything, don't you know!
Then why in the classic era of Keyensianism, when financial markets were effectively regulated, did destabilizing asset bubbles virtually disappear?
During your glorious Keynesian glory days (1945-1970), there was still a gold exchange standard in effect, correct? Under such a regime, there will not be as much funny money credit creation and less of a necessity to protect oneself against money dilution by purchasing wealth-preserving assets. In the present total fiat money era, one needs to be a foreign exchange trading expert like Mike Norman to preserve one's wealth (no cynicism intended). The result of such a regime is precisely the mess about which that Steve Keen complains.
Just heard that Stephanie Kelton is going to be on the Thom Hartmann radio show on Monday. Thought I'd pass that along.
"During your glorious Keynesian glory days (1945-1970), there was still a gold exchange standard in effect, correct? "
Not at all, gold was restricted to the US providing it in return for US dollars when foreign central banks wanted gold (if in fact they did want gold). That isn't a "gold exchange standard" by any means. Domestic money supply growth was freed from the gold standard in that era.
Again: the empirical evidence doesn't support your interpretation.
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