This idiot still doesn't know what he's talking about. It's not about the fiat (money, unit of account, etc) it's about having the labor and resources to produce the real assets (goods and services). That is the only true constraint to ever increasing, uninterrupted prosperity for all.
Schiff has no argument, so he goes with the, "If it were that easy there'd be no poverty, hunger."
Exactly. It is that easy. Just moronic ideology from people like Schiff keeping it from happening.
He's a total retard.
Yes, Peter, there SHOULD be no poverty… and we can use the power of the currency issuer toward that end.
ReplyDeleteIn his world, there SHOULD be poverty?
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ReplyDeletepeter schiff says having too many educated people hurts your country:
ReplyDeletehttp://www.youtube.com/watch?v=OaqBf7IQnhU
angry white republican peter schiff says voters are idiots:
http://www.youtube.com/watch?v=b6SqsYEi1ek
peter schiff says raising taxes on middle class and cutting taxes for wealthy would grow economy:
http://www.youtube.com/watch?v=urg6cps5PuM
peter schiff says we need a much bigger fiscal cliff:
http://www.youtube.com/watch?v=iPt7WeFbPac
despite re-education efforts, peter schiff still ignorantly believes banks require savings for loans:
http://www.youtube.com/watch?v=quBRD8c38So
peter schiff in 100% support of mitt romney's 47% insult on fox business:
http://www.youtube.com/watch?v=RlP6A0RwEBc
ryan clayton chastises peter schiff - 'stealing money from pension funds is how you create jobs?':
http://www.youtube.com/watch?v=8HgYMFhm0hw
peter schiff wants to make sure your party is over by cutting your social benefits:
http://www.youtube.com/watch?v=d4z-vEQ-AbI
erica payne calls peter schiff a moron for saying US should not try to avoid fiscal cliff:
http://www.youtube.com/watch?v=JHOKg0gFMgQ
So... he's a complete retard and the markets crashed. :D Now, just before the second wave, you needed to share his retard pinpointing your own "wisdom" as can be seen in the the video.
ReplyDeleteYour "easy" way means "uninterrupted prosperity for" those who deal directly with... QEs.
"Disclaimer:" I'be been following your blog since 2009. I had no idea about this video. Now, I've got one. :)
Glad you are aligning with Ann Coulter on the "R" word. Nice job. Just not necessary from someone like you that I respect.
ReplyDelete"The stuff you guys delete because you have no response to it is amazing. Good thing I save it before you delete it."
ReplyDeleteI can't imagine it could be any less content-free than the crap that gets through.
Do something constructive...define economic calculation please...in as few words as possible.
Economic calculation:
ReplyDeletePeople cannot read other people's minds. The only way to know what the great mass of strangers want to purchase are the terms of their trades, the prices that they actually pay for goods and services. A relatively fixed supply of money induces prices that reflect the actual wants (demand) and supply of the mass of strangers unimpaired by artificial changes in the money supply. Further, knowledge in society is dispersed in the minds of the populace and does not exist in one place for bureaucrats to use. Bureaucrats are people too even with SWAT teams to enforce their will.
Artificial changes in the money supply create prices that are not reflective of actual supply and demand. As Steve Keen correctly points out, private money creation by private banks fuels asset speculation. For example, the prices of homes were artificially bid-up by money creation in the form of loans by banks. Those prices were not sustainable, and as Peter Schiff predicted, they eventually collapsed. Those artificial prices impaired economic calculation because people could not determine if the housing prices reflected reality (they didn't) or were induced almost solely by private money creation via bank loans.
Artificial money creation by the government or private banks will impair the essential information creating nature of relative prices and thus draw investment into lines of investment that are not sustainable. That is the immediate problem with fiat money, not a general increase in the CPI. MMT is oblivious to that central economic concept and process.
The solution is land value taxation, to reduce (land) property bubbles. You should look up Georgist MMT.
DeleteLand value taxation:
1. Fair - payment for services given (title deeds, right to exclude others from land)
Land values are created by the community - govt protection of private property (try buying land in Somalia) better location, schools/hospitals, etc and are a government monopoly. Fixed supply of land and landowners do not produce land (see 4.)
2. Impossible to avoid
3. Reduce housing bubbles and acts as quasi- Bank Regulation
4. No dead weight loss compare this to taxes on buildings/improvements, income, capital, etc
5. A vacant lot in a city is seen as a liability and not a asset that passively rises in value. Land cannot be hoarded.
Many other reasons to support Land Value Tax!
Bob, we know that in Bobworld people would choose to only use gold as money and there would be permanent deflation and there would never be any economic problems ever. But Bobworld doesn't really exist Bob, just like Never Never Land doesn't really exist.
ReplyDeleteYou can't criticise the real world for not being like Never Never Land. That's just dumb.
You have to criticise the real world in real terms and offer real solutions, Bob. Saying that the real world is evil because it's not like Never Never Land, therefore the solution is to turn the real world into Never Never Land, is just dumb.
We know there are real problems in the real world. We know that bidding up house prices with unsustainable levels of private debt is a real problem. But the solution is not to go and live in Never Never Land, Bob. That's your solution, and it's really really stupid.
"Artificial changes in the money supply create prices that are not reflective of actual supply and demand."
ReplyDeleteIs there such a thing a non-artificial changes in the money supply? What would that be called, real changes? And what exactly does that look like?
Is the world you envision basically barter, with individuals freely choosing their own forms of money? This sounds incredibily inefficient. Maybe it could work on a really small scale like a village, but really… how could this work for long distance trade?
It seems to me State-backed currencies are far more efficient for 'economic calculation' and coordination between millions and billions of market participants. I really don't understand what money "is" in the world you envision. Please elaborate.
What is being suggested is basically a laissez-faire faire market economy with 100% reserved gold banking of the currency and full reserve banking so that only savings are lent out. This would provide a closed system in which economic calculation would resemble a physical system. This aslo presumes perfect markets and rational agents with perfect knowledge. There are no externalities and no transaction costs.
ReplyDeleteThose proposing this system know that this is an unrealizable ideal but they assume it can be approximated closely enough as not to matter significantly. Those opposing this system argue that the deviations from the ideal would be significant enough to be socially disruptive enough to require intervention to correct. e.g., through laws and enforcement.
This is the point at which the controversy begins. Political economy is about the divergence of views.
I recommend reading Robert Solow's article on Hayek and Friedman that I posted today. It examines these issues.
Is the world you envision basically barter, with individuals freely choosing their own forms of money? This sounds incredibily inefficient. Maybe it could work on a really small scale like a village, but really… how could this work for long distance trade?
ReplyDeleteYou guys take both sides of any argument. The MMTers are constantly whining that gold and silver WOULD maintain their value over time and thus WOULD result in becoming more valuable, meaning prices stated in those commidities would be going down over time. And that's supposed to be HORRIBLE.
As the brilliant Lauren Lyster pointed out, mother nature and good old supply and demand do a much better job at maintaining monetary value over time than central planners.
A sound, consistent and valuable supply of money with the same consistant value around the world produces prices that in turn reflect the true state of supply and demand OVER TIME and promote economic calculation across the planet and across time.
Multiple (or singular) issuances of fiat funny money is a Rube Goldberg mess where everyone must constantly worry about the actual value of their funny money while the elite engages in complex trades and thus loots the less sophisticated of the monetary value as average people tend to receive the new funny money last after it has been diluted.
This also presumes perfect markets and rational agents with perfect knowledge. There are no externalities and no transaction costs.
ReplyDeleteThat's an absolute lie. Why must you lie?
There is NO assumption of "rationality". What is "rational" about waiting in line at the mall for a TV? The first assumption is that action is purposeful, not necessarily "rational". The further assumption is that knowledge is limited and knowledge is dispersed. (I call it "ignorant acting man"). Therefore, the only source of knowledge are prices because even (and especially) because the fiat funny money bureaucrats and their SWAT teams truly lack the knowledge necessary to make informed decisions. Fiat funny money distorts the only source of information, the prices.
The MMTers are constantly whining that gold and silver WOULD maintain their value over time and thus WOULD result in becoming more valuable, meaning prices stated in those commidities would be going down over time.
ReplyDeleteWhatever the numeraire is, is the criterion of value. Everything else changes, but it does not. If there is a fixed amount of the numeraire, say gold, then if gold is saved, that either constitutes demand leakage, unless the saving are lent (at interest). Then the interest compounds making the numeraire more in demand and the price of goods and assets fall in relation to it. That's deflationary, not price stability. It is a a prince instability that favors creditors and in the end results in debt-deflationary depression.
Solow clearly knows nothing of Austrian School theory [surprise!]. The fact is, regardless of Hayek's loopy social democracy writings, he proposed a free market in money while Friedman insisted upon a system of state enforced funny money. Naturally, that central difference is not expressed in the Solow piece.
ReplyDeleteFurther, the "Tea Party" types are mostly oblivious to the expense of our bloated military and/or to the deprivations of the surveillance police state relying upon Neo-con jerks like Limbaugh and O'Reilly.
It seems to me that the Road to Serfdom is right on schedule: A massive Keynesian state, a massive Keynesian debt and an onrushing police state. They go together like a horse and carriage.
There is NO assumption of "rationality"
ReplyDeleteHow can you have correct economic calculation without rationality? That's the whole point of it. Why bother with economic calculation if buyers and sellers are irrational?
As paul has been saying, this is simple closed system dynamics.
That's deflationary, not price stability. It is a a prince [price?] instability that favors creditors and in the end results in debt-deflationary depression.
ReplyDeletePeople's long term contracts can be written to reflect the increase in value of the money. That's not a big deal whatsoever. That's a topic-changing bogus strawman.
"Demand leakage". What a garbage term. People won't buy stuff that becomes cheaper over time? Right. If you don't save your wood to build your house and instead burn it all up in the fireplace, you can't build your house. Contrary to MMT myth, resources can't be in two places at the same time. You cannot simultaneously consume resources while at the same time forego comsumption of the same resource.
EVEN IF THE GOVERNMENT CAN NEVER RUN OUT OF DOLLARS!
Bob, you don't seem to get the effect of debt and interest on the economy. Unless in your world, not one borrows or compound interest doesn't exist.
ReplyDeleteHow can you have correct economic calculation without rationality? That's the whole point of it. Why bother with economic calculation if buyers and sellers are irrational?
ReplyDeleteYou don't understand praxeology. Nobody said that humans are necessarily irrational. For purposes of economics, we know only that humans are purposeful and that we cannot read each others minds. The knowledge of supply and demand in is each person's unique brain and only expresses itself through purchases which produce prices.
The guy who waited in line to get the TV apparently thought it was worth it for him. It's none of my business as to whether he was acting "rationally" or not and such a determination is not necessary to understanding economics.
My point was that economics does not depend upon "perfectly" rational actors or "perfect" knowledge, neither of which can or does exist.
People's long term contracts can be written to reflect the increase in value of the money.
ReplyDeleteAnd in an inflation-biased system, contracts can also be written based on the real (inflation-adjusted) value rather than the nominal value. E.g. TIPS securities and COLAs.
Bob, you don't seem to get the effect of debt and interest on the economy. Unless in your world, not one borrows or compound interest doesn't exist.
ReplyDeleteMore of your nonsense. Who is going to stop someone from borrowing at terms offered by a lender? The borrower determines that he is better off borrowing the money and the lender determines that he is better off lending the money. The terms will reflect price reality or else the deal won't go down or if it blows up, people will learn a lesson and employ better contract terms the next time.
All you have is nonsense.
People's long term contracts can be written to reflect the increase in value of the money.
ReplyDeleteNo, you don't seem to understand how a closed system with a fixed money supply actually works. As paul has been pointing out, MMT models this perfectly.
Bob,
ReplyDeleteMaybe I'm missing something elementary here, but it seems like you are….
If people can borrow + interest, and there is a fixed money supply, then won't there be claims for money that the fixed money supply can not provide? Just multiply the borrowing millions of time (plus interest) and where is the money going to come from to account for it for all the interest?
I'm very confused about what money "is" in the world you envision.
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ReplyDeleteNo, you don't seem to understand how a closed system with a fixed money supply actually works.
ReplyDeleteSo how is it again that people who have really smart lawyers who can write massive merger and other contracts somehow cannot write a long term contract that takes into account the gradual increase in the value of money? Go real slow. Don't leave out a step.
Bob, here is someone with a good understanding of AE to argue with and maybe even convert. Prof. Caplan understands AE much better than any of us, so you won't have be bothered saying that your opponent doesn't understand AE all the time.
ReplyDeleteWhy I Am Not an Austrian Economist by Bryan Caplan, Department of Economics , George Mason University
So how is it again that people who have really smart lawyers who can write massive merger and other contracts somehow cannot write a long term contract that takes into account the gradual increase in the value of money? Go real slow. Don't leave out a step.
ReplyDeleteOf course, they could but would they? They can do this now in terms of adjusting nominal debt for inflation but they don't, and here it would be in the interest of the lender to do so. Why would lenders write contracts that do not benefit them in a deflationary environment when they don't demand this in an inflationary environment?
Of course, they could but would they? They can do this now in terms of adjusting nominal debt for inflation but they don't, and here it would be in the interest of the lender to do so.
ReplyDeleteIf they do it right, they get rich. If they do it wrong, they go bust. People will imitate those who do it right.
I see nothing of interest from Caplan. What's your point there? If you believe Caplan that people are somehow too smart to get misled by fiat money speculation, then why are there allegedly "Minsky moments"? It's either one or the other. Like always, you guys take both sides of the same issue.
If they do it right, they get rich. If they do it wrong, they go bust. People will imitate those who do it right.
ReplyDeleteLike now? Why don't people do it now, then?
Like now? Why don't people do it now, then?
ReplyDeleteMany sophisticated people do get rich off the current convoluted system. Get rid of the convoluted kleptocratic fiat money system, and more people can get rich just worrying about providing goods and services and not the artificial price system and kleptocracy that MMT worships.
Smart people and sharp people will always do well regardless of the system. The challenge is creating a socio-economic system that results in prosperity for all. That's more possible with greater policy space.
ReplyDeleteQuote: "You don't understand praxeology."
ReplyDeletePraxeology is apriori system of positivist beliefs that are claimed to predefine the whole of possible humans actions. It is a slave ideology that says humans behavior is without evolution or change and thus subject to apriori characterstics.
Bob then amusing claims "People cannot read other people's minds" except that people's reading minds doesn't matter because Bob knows that people will always acts in accordance to the predefined praxeology cause's it's praxeological science that is totally like mind reading when Bob wants to it to be thus Bob can says "the problem is always blah blab government doing X" and the solution " is always free trade and gold standard Y as Bob defines it" cause when Bob thinks that humans to be doing X and not Y he's being totally using his praxeology and not evil central planning cause that would be socialist when someone other than Bob says people should be doing X and not Y. Hail King Bob!
So you better do as Bob says cause what Bob believes is totally based on apriori science like physics.
All Peter Schiff and everybody else need to understand about MMT is that it simply tells you that you can drive a car (~economy) efficiently not by looking at the relative amount off pressing on the gas versus pressing on the brake (~deficit) but by looking at the road conditions. When going uphill (~recessions, output gap) - don't worry about pressing on the gas. When needing to stop (~overheating economy, demand pull inflation) - don't be afraid to take your foot of the gas and press the break.
ReplyDeleteThere is no "magic" behind MMT - simply realizing that our economy is a very efficient car that can e driven efficiently and not pretending that it is still a horse-driven cart.
And, please, just because some people crash their cars (~Weinmar/Zimbabwe references) it doesn't mean that we should stop driving our cars as efficiently as we could.
@ Peter Drubetskoy
ReplyDeleteNIcely put. This is really, really simple stuff.
The whole kerfuffle comes from the false presumption that increasing the monetary base will increase the money supply and that increasing the money supply will result in inflation. Overlooks that supply increases to meet increasing demand as long as there is room to expand, which there always is with an output gap and elevated unemployment. It's elementary.
Schiff completely misrepresents MMT. Wray writes about the real constraints in the economy.
ReplyDeleteThe whole kerfuffle comes from the false presumption that increasing the monetary base will increase the money supply and that increasing the money supply will result in inflation.
ReplyDeleteThat's an absolute lie. As I repeat ad nauseum, the problem with increasing the fiat money supply whether via private bank loans or government spending, is the distortion of relative prices and a fatal distortion of the price, investment and capital structure. General price inflation is a secondary concern. This is a subject that MMTers cannot wrap their tiny brains around so it constantly gets purposely ignored.
Nevertheless, we've still had general price inflation over the past half decade of at least 8% using 2007 (as opposed to 1970) as the base year during a period of a simultaneous price collapse in housing and other speculative markets. So, from fiat money we get the distortion of the price, investment and capital structure plus price inflation, plus the theft of purchasing power from the powerless all to "solve" a problem that does not even exist.
http://www.westegg.com/inflation/
Bob, this is not a "lie". I've been to enough Austrian and other discussions to see that most people there are not as - should I say "refined" - as you are and mostly talk about inflation and currency devaluation (quite often not even seeing a difference between the two) when confronted with MMT ideas.
ReplyDeleteAs to your point - all right, there might be a price distortion but nobody showed that anybody is worse off for that in our Second Best world or for that matter that it couldn't be correcting an even bigger price distortion that is inherent in the Second Best World. Since First Best is not realistic, all your talk about distortions is moot.
Marvelous. You refute Austrian theory by hanging out with naive Austrians who don't really understand Austrian theory or MMT.
ReplyDeleteI guess you told me. (I understand that most Austrians are unfamiliar with MMT. I'm not one those people.)
By the way, the government's promises of its unfunded liabilities (present value $200 trillion) is what will lead to hyper-inflation or default in the longer run (as opposed to the present official "debt") because the goodies simply will not be there for the looting and the government will not be able politically to just "default". Therefore, it will keep creating money by spending while probably imposing draconian wage and price controls leading to massive shortages and rationing (which amount to default under a different name).
Funny money creation does not solve the problem of scarcity, it only adds to it and temporarily disguises it by distorting the pricing process.
"Funny money" is not solving the problem of scarcity - just like a modern car, it solves the problem of getting from one place to another faster. And all the doom and gloom is just a knee-jerk.
ReplyDelete"Funny money" is not solving the problem of scarcity
ReplyDeleteThen what is behind the relentless Norman argument that the unpayable government promises behind medicare and social security are all easily and painlessly payable because the government can never run out of "dollars"?
naive Austrians who don't really understand Austrian theory
ReplyDeleteOh, you mean those proponents of AE that are not in the Mises-Rothbard-Rockwell-Gary North camp?
Like the one's that follow, say, Hayek, who rejected the apriorism on which Mises's praxelogy is based.
By the way, the government's promises of its unfunded liabilities (present value $200 trillion) is what will lead to hyper-inflation or default in the longer run (as opposed to the present official "debt") because the goodies simply will not be there for the looting and the government will not be able politically to just "default". Therefore, it will keep creating money by spending while probably imposing draconian wage and price controls leading to massive shortages and rationing (which amount to default under a different name).
ReplyDeleteBoth MMT economists and Alan Greenspan have rebutted this. It's not the 'unfunded liabilities" that is a problem. The only problem is availability of real resources in the future, which won't be a problem if the economy grows with population and there are productivity increases that allow fewer workers to supply greater numbers. You know, like has happened historically. The danger is getting in the way of that through unnecessary and ill-advised austerity that seeks to save future needs rather than invest.
Funny money won't solve the problem of skyrocketing costs of health in the US (these will be solved like in the rest of the normal world, by some approximation of single payer insurance, but that's a different topic), nor the non-existent problem of the "unfunded Social Security liabilities" just because there is no problem to solve to begin with (as been shown by people having nothing to do with MMT many times.) What you need to solve is how to grow your economy and standard of living for everybody. Of how to get form point A to point B. MMT says: "get in the car and drive for crissake" everything else is a sideshow.
ReplyDeleteIf and when time comes and you can only meet government obligations with hyperinflation (or voluntarily default) that would mean that America siezed to be a productive nation with 1/4 of the world's output as we know it. That would be the problem, not the default or the hyperinflation, which are the symptoms. The deficit hawks have it backwards in that they think the deficit would be the cause of the problem when it is almost always and everywhere the symptom. The deficits shrink automatically when economies perform.
"The long-term problem is about productivity, real resource availability and productive capacity."
ReplyDeleteProf. Bill Mitchell
Basically, the deficit hawk argument is that to get anywhere you emphatically cannot "just press on the gas and drive as the road conditions allow" because, "you know, driving fast is so very scary and see that guy the other day got into crash because he was driving too fast? So, slow and steady, drive 15 mph on a highway and uphill because this is the only safe way to drive."
ReplyDeleteNevermind that the guy who crashed his car was drunk or did a number of other stupid and unsafe things or maybe indeed drove too fast for the road conditions which has nothing to do with your current road conditions or the fact that you are a good driver etc.
And nevermind that driving your 15 mph you maybe will get there, but only after the rest of the world has already left long ago...
Deficit hawks have everything backwards, everything...
"The long-term problem is about productivity, real resource availability and productive capacity."
ReplyDeleteWhich, of course, is fatally impaired by the relative price distortions of the funny money regime. Austrians do not deny that funny money "stimulates" production and sales. What it stimulates is an unsustainable structures of prices and production. MMT tries to solve a problem that does not exist while its funny money "solution" is the problem.
A single payer health system will totally destroy prices in the medical field and you will have a system based upon a pure Soviet style command economy where everyone is operating blind. Keynesianism impairs prices, but does not eliminate them. MMT is not a "monetary theory". It is an assumption that all of the proofs that socialism and command economies fail can be ignored and that society can actually be centrally planned and successfully manipulated via squirts here, there and yonder of fiat funny money.
ReplyDeleteYour arguments always end up as an argument for Leninist abolition of the market.
"Which, of course, is fatally impaired by the relative price distortions of the funny money regime"
ReplyDeleteUnproven. Nothing "of course" about it. How about I said: "the human body knows best how to cope with an illness and any medical intervention, of course, distorts the bio-signals and fatally impairs the inherent body functionality". You Austrians never proved your point.
"A single payer health system will totally destroy prices in the medical field and you will have a system based upon a pure Soviet style command economy where everyone is operating blind."
ReplyDeleteWhich must be why it - or approximations to it - work so well in the rest of the normal , uh, "Soviet style" world. Puleeze
You Austrians never proved your point.
ReplyDeleteEven "Lord Keynes" admits that Mises was right in the "socialist calculation debate". He just won't admit that the same analysis has always been applied successfully to Keynesian "stimulus".
http://socialdemocracy21stcentury.blogspot.com/2012/10/austrians-rewrite-history-of-socialist.html
If you are going to try and reopen the "socialist calculation debate", go for it. You lost that debate and I have no interest in wasting my time on it. MMTers are obviously oblivious to the entire subject matter.
BTW, how does one generally know when and at what price to sell one's house? Or any good for that matter? (Hint...you try to learn what other people are getting for the stuff they are selling).
Bob, you are hung up on capitalism (laissez-faire, 100% gold reserve) and socialism (def = govt ownership or production) as the only two alternatives. This is just not the case. There is a vast mid-ground of mixed economies. For the umpteenth time, it's a fallacy of the excluded middle, aka false dilemma.
ReplyDeleteit's a fallacy of the excluded middle
ReplyDeleteIn any specific instance as to a set of people and transactions, there is only freedom or coercion and there is no third alternative whether or not the entire society is totally free or not. Keynesianism is a failed attempt to imply that there is a third way middle alternative. All forms of coercion impair prices which is the problem that Keynesians love to ignore.
I really cannot understand people who concede that socialism cannot work due to the obliteration of economic calculation, but that Keynesianism can somehow work when it is subject to precisely the same flaws.
Bob, you agree that medical interventions can be beneficial and can be detrimental? That there could be a middle way of medical treatment in some cases in not in the others?
ReplyDelete"I really cannot understand people who concede that socialism cannot work due to the obliteration of economic calculation, but that Keynesianism can somehow work when it is subject to precisely the same flaws."
Maybe because historically it has been shown to work well? Maybe because you can have successful neither fully Socialist nor fully laissez-faire states? Maybe because it has been proven that additional price distortions in the Second Best reality of already distorted prices do not imply suboptimality?
In any specific instance as to a set of people and transactions, there is only freedom or coercion and there is no third alternative whether or not the entire society is totally free or not.
ReplyDeleteAbsurd. The state of total freedom is the state of nature in which natural selection operates and there is no positive law. As soon as there is positive law, there is government and absolute freedom ceases to exists. Then all the human problems begin to surface. Over a long period of time, it is now recognized that the trilemma is reconciling individual freedom, egality, and community, in which individuals give up absolute freedom to submit themselves voluntarily to the rule of law. Then the type of laws becomes a political issue to be decided by the people democratically. No democratic people have ever elected to try to live under the law that Mises-Rothbard-Rockwell Libertarians propose and they are unlikely to in the future, fir reasons that have already been set forth here previously. So good luck with that.
To claim there is price distortion assumes a "correct " price, But according to AE value = price is subjective. There are no subjective criteria. That's an oxymoron.
ReplyDeleteThe fact is that Mises based AE is apriori-based, which means that the axioms produce theorems that are correct by definition and empirics don't count against it, so whatever happens there is an explanation forthcoming. Even Hayek could see through that, and he broke with Mises over it.
If you concede that Mises was right on the socialist calculation debate, you understand that no one could decide under pure socialism how many shoes (or anything else) to make because prices (the information necessary for you to know the answer) did not exist.
ReplyDeleteThe point of having a relatively fixed supply of money is to make money as neutral as possible in exchanges so that it functionally facilitates barter while being a medium of exchange but does not impair the pricing process. Those prices reflect the information as to the demand or supply of everything. That information is dispersed around society inside everyones' heads and cannot be accessed any other way other than by way of prices. Those prices tell you how many heart surgeries can be traded for automobiles because there is no other way to know (unless, of course, you want to insist that calculation can occur successfully under socialism - at which point arguing with you becomes pointless).
Prices of homes (for example) that have been bid up by private funny money creation in the form of bank loans do not accurately reflect the exchange ratios that would exist but for the funny money distortions. Thus, because the pricing process has been impaired, no one really knows how many houses really exchange for a car, or a year's labor by an attorney, or for a handful of diamonds. The problem faced under funny money price distortion is but a variation on the problem faced by the Soviet central planners. So, even though we do not live in a totalitarian society, the economic calculation problems caused by Keynesianism are basically the same as those faced by Soviet central planners.
And, BTW, a centrally planned medical regime is PRECISELY subject to the same calculation impairments as a Soviet planned economy.
And most assuredly, satisfying the $220 trillion unfunded promises of the US government are certainly subject to the problems of economic calculation, a problem completely ignored by MMT because MMTers are pseudo-socialists.
The fact is that Mises based AE is apriori-based, which means that the axioms produce theorems that are correct by definition and empirics don't count against it.
ReplyDeleteThat's not true. The use of the term "a priori" comes from Mises' Kantian system. Rothbard calls the action axiom empirical.
Whether we consider the Action Axiom “a priori” or “empirical” depends on our ultimate philosophical position. Professor Mises, in the neoKantian tradition, considers this axiom a law of thought and therefore a categorical truth a priori to all experience. My own epistemological position rests on Aristotle and St. Thomas rather than Kant, and hence I would interpret the proposition differently. I would consider the axiom a law of reality rather than a law of thought, and hence “empirical” rather than “a priori.”
http://mises.org/document/139/Defense-of-Extreme-Apriorism-In
In any event, the mystery of what is going on in people's heads is expressed OBJECTIVELY as prices. Mises said this over and over again way back in 1912. PRICES ARE OBJECTIVE AND EMPIRICAL. Hayek does not dispute this.
the economic calculation problems caused by Keynesianism are basically the same as those faced by Soviet central planners.
ReplyDeleteBasically the same? No way. Another of the excluded middle fallacies.
Here's a pretty good summary of Mises, Rothbard and Rand with emphasis on Rothbard.
ReplyDeleteMurray Rothbard's Randian Austrianism by Edward W. Younkins
Basically, Mises adopted a Neo-Kantian epistemology with Aristotelian overtones and Rothbard a Neo-Aristotelian one. Scientific research rejects these as introspective and subjectively arrived at rather than empirical. Rand's approach was also Neo-Aristotelian but somewhat different from Rothbard's and their conclusions differed.
Rothbard's "empiricism"? From the above:
Rothbard, working within an Aristotelian, Thomistic, or Mengerian tradition, justified the praxeological action axiom as a law of reality that is empirical rather than a priori. Of course, this is not the empiricism embraced by positivists. This kind of empirical knowledge rests on universal inner or reflective experience in addition to external physical experience. This type of empirical knowledge consists of a general knowledge of human action that would be considered to be antecedent to the complex historical events that mainstream economists to try to explain. The action axiom is empirical in the sense that it is self-evidently true once stated. It is not empirically falsifiable in the positivist sense. It is empirical but it is not based on empiricism as practiced by today's economics profession. Praxeological statements cannot be subjected to any empirical assessment whether it is falsificationist or verificationist.
Calculation, Complexity And Planning:
ReplyDeleteThe Socialist Calculation Debate Once Again
Allin Cottrell and W. Paul Cockshott (July, 1993)
Abstract
This paper offers a reassessment of the socialist calculation debate, and examines the extent to which the conclusions of that debate must be modified in the light of the subsequent development of the theory and technology of computation. Following an introduction to the two main perspectives on the debate which have been offered to date, we examine the classic case mounted by von Mises against the possibility of rational economic calculation under socialism. We discuss the response given by Oskar Lange, along with the counter-arguments to Lange from the Austrian point of view. Finally we present what we call the 'absent response', namely a re-assertion of the classic Marxian argument for economic calculation in terms of labour time. We argue that labour-time calculation is defensible as a rational procedure, when supplemented by algorithms which allow consumer choice to guide the allocation of resources, and that such calculation is now technically feasible with the type of computing machinery currently available in the West and with a careful choice of efficient algorithms. Our argument cuts against recent discussions of economic planning which continue to assert that the task is of hopeless complexity
I even made a picture which I expect to be posted on the main page.
ReplyDeletehttp://www.flickr.com/photos/90510624@N03/8222583190/in/photostream
Thanks, y. I'm going to print it and send it along with all my Christmas cards.
ReplyDeleteIsn't the internet awesome?
Why does anyone bother debating with Bob?
ReplyDeleteI'm a hopeless philosopher. This is just what philosophers do.
The action axiom is empirical in the sense that it is self-evidently true once stated.
ReplyDeleteThe "action principle" is really a disguised version of the principle of sufficient reason. It states that "rational action" always has a sufficient reason, and, of course, some reason can always be put forward.
Calculation, Complexity And Planning etc...
ReplyDeleteIt does not hurt my feelings if that is the direction you MMTers want to go. Why not put up a banner announcing that MMTers think informed economic calculation can occur under socialism?
Tom, (and/or Bob), or whoever…
ReplyDeleteBob always talks about price distortions, and I keep getting this feeling that his framework is based on some of the faulty (not-real) neoclassical assumptions like 'perfect competition' and 'perfect knowledge' etc… whereby when those (not-real) assumptions are made, there are smooth outcomes. (bob's dream world)
But in the real world, there are all sorts of price distortions. Some of them caused by natural events (e.g. drought), some of them caused by imperfect competition (e.g. collusion), and so on.
How are price distortions from money supply fluctuations soooo much worse than any other kind of price distortion?
How are price distortions from money supply fluctuations soooo much worse than any other kind of price distortion?
ReplyDeleteBecause the Great Depression and the Great Recession are objectively worse and all-encompassing than the temporary and localized impact of a drought. Further, in a drought, the price of scarce items goes up and people will rush in to supply them.
What is worse, a drought or excess private debt induced by private fiat money loans? Be serious.
The price distortions caused by fiat funny money dilution COMPLETELY explain the problem of excess private debt and Minsky moments.
ReplyDeletePeople took out too much debt because the distorted prices and interest rates made it appear that those loans would be a profitable long term adventure. But reality struck and exposed the investments as failures and the investments only appeared profitable because calculation (especially long term calculation) had been impaired.
You guys always want to argue both sides of the same argument against me.
Reality: Too many houses were built and sold last decade.
ReplyDeleteKeynesian response: We needed MORE REGULATION.
Reality: Regulators have no more insight into how many houses should be built and at what price than Soviet commissars. Hell, most of the regulation encouraged too much housing. Absent price manipulations, people would have had a much better grasp of reality and would have acted accordingly. No need for regulation of asset speculation that would not occur but for the funny money supply manipulation that spawned the speculation.
I'm still not getting through. The entire problem of an alleged "lack of aggregate demand" to buy up all the stuff that was made is CAUSED by the phony price signals of fiat money and/or fractional reserve banking that resulted in prices which suggested that certain types and amounts of investments were profitable (and that the final goods could be profitably sold). At some point, it becomes apparent that there has been malinvestment and the populace does not possess either the means or will to purchase the final products at the anticipated profitable price.
ReplyDeleteAs I've said about 5,000 times, the cause of mass unemployment is you guys and your funny money regime.
That should answer the question:
How are price distortions from money supply fluctuations soooo much worse than any other kind of price distortion?
And that analysis is called the Austrian Business Cycle Theory and that is what Hayek won the Nobel Prize for.
The Austrian economic calculation problem wrt to socialism was not about sound v. unsound money, but rather no money, no prices, no markets, therefore no calculation and all central planning of production and distribution.See Wikipedia on economic calculation problem. The Wikipedia article also has criticism of the argument.
ReplyDeleteThat's the AE view. Most economists including MMT economists think that it was more complicated than your simplistic explanation. The problem was not with the money or the calculation, it was about a criminogenic environment that was permitted and wholesale abandonment of best practice is the financial industry. If existing rules had been followed, it would not have happened. since there has been little accountability or reform, it will happen again, unless we take steps to prevent it, and we don't have to change the monetary system to do that.
ReplyDeleteBob, look at this graph:
ReplyDeletehttp://nakedkeynesianism.blogspot.co.uk/2012/10/graph-of-day-frequency-of-banking-crises.html
How do you explain reality, when it completely destroys your theories?
No need to go back to pure gold specie and the dark ages Bob.
ReplyDeleteMost economists including MMT economists think that it was more complicated than your simplistic explanation.
ReplyDeleteAll Keynesians without exception ignore my "simplistic" explanation. Like the Minsky-ites who declare it just inexplicably happens. Why else do people borrow money to buy quickly-appreciating houses than to hold them as a store of increasing value or to sell them soon and make a profit? What allowed and induced the prices to rise to such unsustainable levels? What induced businesses to make more final goods than can be profitably purchased? Where do your precious government bureaucrats/commissars obtain better information about those problems than the actors themselves?
You just long for a totalitarian society so any answer that does not include commissars with SWAT teams is ignored.
Look at the graph Bob and stop talking gibberish.
ReplyDeleteAnd once reality has slapped you in the face please explain how 2% CPI inflation "fatally impairs economic calculation".
ReplyDeleteDuring the 19th century's Long Depression, triggered by a massive financial crisis, US unemployment peaked at 14%. No central bank.
ReplyDeleteWhy else do people borrow money to buy quickly-appreciating houses than to hold them as a store of increasing value or to sell them soon and make a profit?
ReplyDeleteLenders were extending loans on dodgy collateral with interest only loans for two years. Many people thought it was foolish not to join the party. Several of my friends did and got out before the crash, booking big profits.
Why are people buying gold on margin now when it is very likely in a bubble?
This is how markets work. See Charles Kindleberger, Manias, Panics and Crashes: A History of Financial Crises
Manias, Panics and Crashes: A History of Financial Crises
What allowed and induced the prices to rise to such unsustainable levels?
Criminogenic environment, documented by Bill Black, Janet Tavakoli, etc.
What allowed and induced the prices to rise to such unsustainable levels?
Financial crisis reduced effective demand.
Where do your precious government bureaucrats/commissars obtain better information about those problems than the actors themselves?
Government was compromised by neoliberal ideology, crony capitalism and corruption.
I fail to see the relevance of the "graph". Throughout, there was either fractional reserve lending in excess of real savings and deposits or private fiat funny money loans. They both cause trouble.
ReplyDeleteAs we know from Mike Norman, a 2% increase in the money supply may or may not result in CPI inflation of 2%. Are you talking about a 2% increase in the funny money supply or a 2% increase in the CPI? If the latter, what caused the increase in the CPI? A drought? If there was a 2% increase in the funny money supply, into what line[s] of production, investment and/or speculation did it go into?
Further, since it causes nothing but trouble, why bother purposefully having 2% inflation, whatever it might be you mean by that.
Lenders were extending loans on dodgy collateral with interest only loans for two years. Many people thought it was foolish not to join the party. Several of my friends did and got out before the crash, booking big profits.
ReplyDeleteThank you for proving my point. The funny money loans induce even people who know better to take silly risks because there really are profits to be made from the price distortions but most likely, people will get burned.
As I recall, it was mostly Austrians (and a few Keynesians here and there) who were warning about the bubble. In the video above, one such person was Peter Schiff who was mocked by Mike Norman.
How can one know in advance who a wise regulator might be in such an environment? Regulation does not help. The entire crew of the anti-Schiff "experts" on the above video failed to predict the housing crash.
"there was either fractional reserve lending in excess of real savings and deposits or private fiat funny money loans. They both cause trouble."
ReplyDeleteYes but that is capitalism in action.
You say the that the way to stop capitalism being capitalism is to impose a fixed money supply, pure gold specie system. And yes, you would have to impose it because 'the market' demonstrably doesn't settle on that spontaneously.
But imposing a fixed gold specie system would force the economy into permanent deflation, which means permanent depression. Deflation is only tolerable for very brief periods - history shows that yet again - it is not the 'natural' state of a capitalist economy.
Deflation brought about by a contraction in the money supply always has bad consequences, as Hayek acknowledged:
"It is agreed that hording money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable."
http://butnowyouknow.net/those-who-fail-to-learn-from-history/hayeks-1932-letter-on-the-great-depression/
Throughout, there was either fractional reserve lending in excess of real savings and deposits or private fiat funny money loans. They both cause trouble.
ReplyDeleteChanging the monetary system now amounts to changing the global monetary system and global finance. The trend is now already away from national currencies to digital currency and there is push for an internationally administered reserve currency for the global economy.
Given the current trends, the world is not going to adopt real numeraire like gold or sliver in the foreseeable future. The disadvantages outweigh the advantages in that this process is controlled by the world's bankers and their business is rent-seeking rather than sound finance. It is probably not even possible to reduce the cronyism and corruption very much, let alone eliminate it.
For example, the UK runs on finance and it really has no choice but to give the City a free rein or the business will move elsewhere, which would be disastrous for the British economy.
The bankers know they have the leverage over govt.
I doubt there will be much impetus for reform until the next crisis hits, let alone a drastic change like resetting the monetary system.
MMT presents a practical alternative to the present neoliberal policy that could be implemented without rocking the boat too much. It is doable.
And as Vernego says:
ReplyDelete"As you can see in between the Great Depression in the 1930s and the 1980s, with the begining of financial deregulation there are NO banking crisis. As Taylor (p. 2) notes: "none [banking crises] at all occurred from World War 2 until the 1970s." That's how effective the regulation of the 1930s and the capital controls of the Bretton Woods era were.
PS: Any similarity with the graph on income inequality, that decreases after the Great Depression and grows after Reagan too, is NOT a coincidence."
http://nakedkeynesianism.blogspot.co.uk/2012/10/graph-of-day-frequency-of-banking-crises.html
We have two options being discussed here. Your idea is that we should impose a fixed gold specie money supply and thereby permanently crush the economy.
The other option is to go back to the banking and capital controls that demonstrably eliminated ALL financial crises whilst they were in place.
How can one know in advance who a wise regulator might be in such an environment? Regulation does not help.
ReplyDeleteThe FBI warned of massive mortgage fraud in 2005. Chief regulator Greenspan blew it off due to his Randian ideology. He "knew" the market knew best.
See also Janet Tavakoli's Collateralized Debt Obligations and Structured Finance : New Developments in Cash and Synthetic Securitization (2003)
The most cutting-edge read on CDO and credit market structures
Collateralized Debt Obligations and Structured Finance provides a state-of-the-art look at the exploding CDO and structured credit products market. Financial expert Janet Tavakoli examines securitization topics never before seen in print, including the huge increase in the CDO arbitrage created by synthetics; the tranches most at risk from this new technology; dumping securitizations on bank balance sheets; the abuse of offshore vehicles by companies such as Enron; and securitizations made possible by new securitization techniques and the introduction of the Euro. This valuable guide comprehensively covers one of the fastest growing markets on Wall Street, predicting where new bank regulations and other developments may lead to product growth or product extinction. While providing an overview of the market and its dynamic growth, Collateralized Debt Obligations and Structured Finance explores the types of products offered, hedging techniques, and valuation and risk/return issues associated with investment in CDOs and synthetic CDOs.
Janet M. Tavakoli, MBA (Chicago, IL), has over eighteen years of experience trading, structuring, and marketing derivatives and structured products with major financial institutions in New York and London. She is also the author of Credit Derivatives and Synthetic Structures
This was well-known among professionals pretty early on.
Changing the current system is a different issue than what causes the problems. Austrians know that stopping the increase in the money supply and/or cutting spending is going to cause serious dislocations in the short run. And it's probably totally impossible to explain this to the voters who would vote out anyone who tried to bring the thing to a halt.
ReplyDeleteAll we are saying is that at some point in the not too distant future, the government is going to run out of stuff it has promised to give to the masses as entitlements and the sh*t will hit the fan.
The fact that the government can never run out of "dollars" will not fix that.
As you can see in between the Great Depression in the 1930s and the 1980s, with the begining of financial deregulation there are NO banking crisis.
ReplyDeleteBetween the depression and 1971, there was still a gold exchange standard which acted as a limit on the amount of loans that could be made because the paper money was still convertible into gold. It was cutting off that final link that unleashed unlimited funny money loans. You have things ass-backwards.
The idea that there exists a "free market" that will "regulate" a fiat funny money boom is preposterous and it's your typical destruction of the English language to blame such on Ayn Rand who opposed fiat money.
There really are monetarists like Scott Sumner who think the funny money system is the "free market", but that's nuts and that's not me or the Austrian School.
I've run into Vernengo before, He's clueless.
ReplyDeletehttp://bobroddis.blogspot.com/2012/08/as-ive-said-for-forty-years-people-do.html
"the voters who would vote out anyone who tried to bring the thing to a halt."
ReplyDeleteWell that's another thing. No one actually wants your capitalism-in-a-golden-straitjacket. They want a growing economy and rising wages - without financial crises.
In your utopia workers constantly have to accept lower nominal wages in the hope that they might keep some of the real gain they created through their higher productivity.
Not only does Austrian economics ignore history and the reality of capitalism (capitalism doesn't like a fixed money supply), it also completely ignores political reality.
A gold standard system works ok when shitloads of the stuff are being pulled out of the ground every day. Except that getting your hands on it has historically involved eliminating any natives that get in the way, of course.
All we are saying is that at some point in the not too distant future, the government is going to run out of stuff it has promised to give to the masses as entitlements and the sh*t will hit the fan.
ReplyDeleteAnd that will be a failure of capitalism for preferring rent seeking over investing in capital. As Marx observed, capital deteriorates over time and must be replaced. Failure to do this reduces the rate of profit and those businesses become less profitable or even unprofitable and they do not attract investment. Then funds that would otherwise be available for capex are diverted to rent-seeking. This is a problem for the US economy now, as FIRE eats up a growing % of GDP.
"Between the depression and 1971, there was still a gold exchange standard which acted as a limit on the amount of loans that could be made because the paper money was still convertible into gold"
ReplyDeleteHo ho ho. Look at the money supply during that time. Or read Rothbard who complained about the endless "pyramiding" of paper dollars. The gold exchange system also only applied to governments and central banks.
There were no financial crises in that time because people used their brains and created a system of rules which eliminated them, without having to fix the money supply arbitrarily.
Except that getting your hands on it has historically involved eliminating any natives that get in the way, of course.
ReplyDeleteMurray Rothbard's basic idea is absolute freedom of the state of nature along with the other animals, which he calls "liberty," and a couple of rules to distinguish it. These rues are 1) private property (finder's keepers), 2) non-coercion, but violence is OK in defense of private property. There is no government. This is anarcho-capitalism where "merit" rules.
The only place this is likely to ever happen in the foreseeable future is through the Peter Theil inspired Seasteading Institute. It's billed as an "experiment."
If that project gets seriously off the ground, we'll get to see how it goes. I wish them well, and I say that in all honesty. I am a libertarian, of the left. As libertarian, I appreciate where they are coming from, but coming from the left, I think that they are on the wrong track, essentially looking backward rather than forward.
My own view is that humanity is not yet at the stage in the development of collective consciousness where anarchism can be scaled. The genus homo has been around for several million years and has gone through profound changes.
With luck and exertion of intelligence, it will be around for several million more years at least. Homo sapiens sapientis, the only extant species, is still in its early stages evolutionarily. "They originated in Africa, where they reached anatomical modernity about 200,000 years ago and began to exhibit full behavioral modernity around 50,000 years ago." So humans likely have not yet even reached adolescence as a species.
So libertarian experiments will necessarily remain on a small scale. I have never lived among Libertarians so I don't know how successful they have been in creating this so far. I have lived in left libertarian communities and have been generally pleased with the result. It's doable on a small scale, and it is scaling though open source and networking. But that is another story.
A 'Seastead' is basically just a crap tax haven, isn't it?
ReplyDeleteA 'Seastead' is basically just a crap tax haven, isn't it?
ReplyDeleteAnarchism is basically utopian and idealistic. These are social experiments that I think need to be encouraged. Having participated in a few, I can report that it is very difficult to keep them pure as they become "successful" and scale up. So we'll have to wait and see how this works out.
Wow, Mike Norman must still be felling butthurt after being made a fool by Peter Schiff on national television.
ReplyDeleteOn the myth of Austrian predictions of the bubble/GFC, including Schiff's, see here:
ReplyDeletehttp://socialdemocracy21stcentury.blogspot.com/2011/12/austrians-predicted-housing-bubble-but.html