Can Science Explain Tea Partiers’ Rage? (via Moyers & Company)
A growing body of research suggests that we are a nation divided not only by partisanship or how we view various issues, but also by dramatically different cognitive styles. Sociologists and psychologists are getting a better understanding about the…
46 comments:
?? Of course it can! Can't get 'em to listen, though.
Cool. And all this from the cognitively challenged horde of
"progressives" who are congenitally unable to comprehend relatively simple Austrian concepts such as voluntary exchange, economic calculation and the knowledge problem.
There's a reason that there are different approaches to economics and it is based on differences in value systems. Libertarians have one set of values, the religious right another, fiscally conservative business people another, liberals another, progressives another, and that's just the major factions in the US. There are more.
Psychologists are trying to establish why this is instead of there being a universal and homogenous human nature. Those who hold the human nature assumption conclude that those not sharing their viewpoint are abnormal. That's just begging the question.
The so-called moral compass is posited rather than given. This has been debated in ethics, which comprises value theory and action theory, for millennia — inconclusively. It is also at the foundation of religious codes. Now psychologists and cognitive scientists are wading in.
In the absence of a universally accepted definitive solution, the challenge in a pluralistic society and democratic republic is to come up with something that works for the society. But seldom is everyone happy with the outcome, since compromises are necessary.
Since these issues are decided by majority vote, some people are not going to be pleased with the outcome and will work hard to counter it in future elections. Outcomes are always in contention as different factions vie for power, so the pendulum swings across the political spectrum over time. Until there is a uniform global culture, this will be the case, and even then there will no doubt still be some differences wrt the overarching view.
Following the statement of Socrates that the unexamined life, or the life not reflected upon, is not worth living, the Western philosophical tradition has assumed that a reasoned approach can arrive at truth about reality and also discover universally applicable criteria, i.e., norms and values.
But history and the current research seem to indicate that feeling runs deeper than thought and values and norms are based more in felling.
Different people feel differently about basic issues. So it's not just a matter of changing minds but of changing guts.
Guillermo Calvo of Columbia University and the National Bureau of Economic Research talks with EconTalk host Russ Roberts about the nature of macroeconomic crises and what we have learned or should have learned in the aftermath of the most recent one. Calvo explains that he just never got around to reading Mises or Hayek, which is the norm at Keynesian schools.
Guest: First of all, why I ignore Hayek and Mises. And the reason is that you don't see their names mentioned in standard economics courses in the best universities in the United States. There are exceptions, of course. But the most, those authors are not read. So that's not an excuse for being ignorant about it, but I declared myself ignorant before I started to think about these things, about these factors, these observations of the Austrian school. Now, this paper, which, as you mentioned the title of the paper is puzzling on this crisis, on the anatomy of this crisis, I am still puzzling. In the process of puzzling about it I went back and read these guys. And I was impressed by the fact that these guys were very well aware that these, for example, credit booms could foster a credit bust, and so on. And these two authors in particular, they were very forceful about making those cases. And I think Hayek makes it the most subtle of the two, for my taste. So, we having known them, partly I think also--I mean I am declaring myself at fault. But on the other hand they were not easy to read. But the way that the theory has been, we have inherited, they have very good insights which are very relevant from an empirical point of view. But on the other hand they say[?] to develop a theory that is comparable to the other theories that have been developed in the 20th century. So it seems more like a statement than an elaboration where you can from assumptions into theory. They didn't write that way. We have become much more mathematical in the economics profession. Which is good on the one hand, but on the other hand it is bad because you miss from very deep insights from people like Hayek and from von Mises. So that's my explanation. ****
Russ: Instead of saying, well, the sickness was in the financial sector so we have to fix the financial sector, they say, well, when the financial sector gets sick--or whatever caused the problem, we don't have to worry about that. We just have to increase Aggregate Demand. So, spending does that. Monetary policy can do it. So we have this sort of magic cure that works for all diseases. But it sort of comes on the scene after the fact. It doesn't say--and no good economic model right now I think is very good at diagnosis ex ante--it's an ex post story. It says, okay, things went wrong but we can fix it; we have this magic pill, it's called Aggregate Demand.
Guest: That's a very good point. Let me emphasize something. Keynes's theory applies to issues that you have to face after a crisis. Keynes does not have a good theory--in fact, his theory is very, very poor--about how the crisis comes about. The only thing he mentions in the book is animal spirits.
Russ: Which is a euphemism for 'I don't know.'
Guest: Exactly.
http://www.econtalk.org/archives/2013/10/calvo_on_the_cr.html
The Austrian dispute with the Keynesians is characterized by the purposeful ignorance of Keynesians regarding Austrian concepts and analysis.
How many Austrian economists read either Keynes or Post-Keynesians? What passes for Keynesianism today is Samuelson's neoclassical synthesis or some version of New Keynesianism like Mankiw that has little if anything to do with Keynes.
It's not like Keynes was ignorant of ABCT. He (and many others) were aware of it and rejected it.
Anyway, the go-to Post Keynesian on financial instability is Hyman Minsky. How many Austrians have read Minsky? Minsky's teacher was Schumpter, an Austrian, so there is an Austrian influence there. However, Minsky was more interested in what actually happens in financial markets empirically rather than theoretical approaches. Even former Austrian economists like Brian Caplan have rejected ABCT as non-empirical, and Hayek differed with MIses over the role of the central bank.
According to Mises, central banks enable the commercial banks to fund loans at artificially low interest rates, thereby inducing an unsustainable expansion of bank credit and impeding any subsequent contraction.[43][45][citation needed] [43][46] Friedrich Hayek disagreed. Hayek did not favor laissez-faire in banking and said that a freely competitive banking industry tends to be endogenously destabilizing and pro-cyclical, mimicking the effects which Rothbard attributed to central bank policy. Hayek stated that the need for central banking control was inescapable.[47] Wikipedia
This is the full quote from Lawrence White on pages 763-764 where he claims Hayek supported central banking to counteract the instability of “laissez faire” fractional reserve banking. White then points out that Hayek altered his views in the 1970s:
In his political writings after 1940 Hayek reaffirmed the usefulness of central banking as a means to counteract the supposed inherent instability of laissez faire fractional-reserve banking. In The Road to Serfdom Hayek (1944, 18-19) placed money and banking among the proper exceptions to the doctrine of laissez faire,'3 In The Constitution of Liberty Hayek (1960, 324) directly posed the question, "Should we not rely on the spontaneous forces of the market to supply whatever is needed for a satisfactory medium of exchange as we do in most other respects?" and answered that this would be desirable only if fractional reserve bank-issued money had never developed. New in this answer was the suggestion that bank-issued money might never have gained such extensive use without government interference.''' Hayek went on to argue that, the monetary system having in fact developed as it did, the need for central banking was now inescapable.
Hayek's proposal for The Denationalisation of Money ([1976] 1978) was a radical policy departure from his earlier mixed support for central banking. The proposal grew (via the 1976 pamphlet Choice in Currency) from two footnotes in The Constitution of Liberty arguing that free choice among government fiat currencies—the freedom of citizens to substitute from an inflated domestic currency to a sounder foreign currency—would provide a salutary check on the inflationary propensities of central banks. The first of these two footnotes reiterated Hayek's (1960, 520-21 n. 2) view that "modem credit banking as it has developed requires some public institutions such as the central banks," but he added that "there seems to be no reason whatever why the state should ever prohibit the use of other kinds of media of exchange, be it some commodity or money issued by another agency, domestic or foreign. One of the most effective measures for protecting the freedom of the individual might indeed be to have constitutions prohibiting all peacetime restrictions on transactions in any kind of money or the precious metals,"
http://cameroneconomics.com/white-hayek-hope.pdf
In “A Discussion With FRIEDRICH A. VON HAYEK - Held at the American Enterprise Institute on April 9, 1975, Hayek stated:
Is there any possibility of preventing the government, even if it should wish to act more sensibly, from being forced by public opinion into repeating its mistakes and being driven to more and more-inflation? This leads me to a point where I am afraid I have persistently disagreed with many of my closest friends and associates. I believe that if we want to prevent the government from giving in to public pressure for quick and rapidly effective measures, we must put fetters on what the government can do and restore several institutions which were designed to prevent the government from abusing its powers, and particularly its powers to inflate.
In fact, the long period of accelerating inflation we have behind us has been very largely the effect of the removal, one-by-one, of those checks on undue credit expansion which the practical wisdom of the past had erected to prevent governments and monetary authorities from inflating. The abandonment of the gold standard was largely motivated by the wish to give governments greater powers of expansion.
I've never seen any evidence that Keynes understood the basic concepts of economic calculation and miscalculation. Minsky's "theory" purposefully avoids the obvious problem with funny money which is price distortions which are the cause of the boom/bust. Thus, Minsky is completely worthless.
First, we know that Austrians are chiefly concerned with inflation and not with unemployment, while Keynesians are chiefly concerned with unemployment rather than inflation.
MMT has the only policy proposal on the table that reconciles optimal output, full employment and price stability. Warren's proposal would further consolidated central bank and treasury functions, set the overnight rate to zero, and end issuance of Treasury securities longer than 3 mo, making tsys effectively "cash."
According to Minsky's analysis the problem that results in financial crises arises from imprudent private lending rather than the central banking setting interest rates too low. Warren recommends addressing it with tighter regulation, especially from the asset side,
MMT agrees with Hayek that the difference between convertible, fixed rate currency and non-convertible floating rate currency is the degree of policy space. It's a trade-off. MMT economists argue that reducing policy space to prevent inflation has a higher cost economically and socially than the supposed benefits.
Austrian Nonsense About Economic Calculation
Bob Roddis said...
I've never seen any evidence that Keynes understood the basic concepts of economic calculation and miscalculation.
Yes, readers of this blog are being treated to the sight of the internet's prize Austrian buffoon lecturing us about Keynes and Minsky.
The notion that Keynes was unaware of "basic concepts" of economic calculation (like "money prices" or "market clearing prices") is the lastest of Roddis's idiocy -- especially since it was right here on this blog that Roddis declared proudly that he does not understand the concept of a market clearing price.
"Minsky's "theory" purposefully avoids the obvious problem with funny money which is price distortions which are the cause of the boom/bust. Thus, Minsky is completely worthless."
No, roddis, the Minsky does not need to ape crazy Austrian theories about "funny money", because private sector money creation is a standard part of real world capitalism that is neither immoral nor illegitimate; nor is public creation of base money in central banks illegitimate.
And asset price distortions are perfectly well understood in both debt deflation theory and Minsky's FIH.
And administered prices in most real world capitalist economies mean goods price "distortions" generally do not even happen when extra money is created.
Even when flexprices are affected, it is not goods' prices that are the cause of macroeconomic problems, but the dynamics of debt deflation and aggregate demand shocks.
"congenitally unable to comprehend relatively simple Austrian concepts such as voluntary exchange, economic calculation and the knowledge problem."
Says a fool who understands neither market clearing prices nor Austrian price theory.
Roddis recently demonstrated his ignorance by declaring this of Austrian price theory:
"Austrian theory states ONLY that people will determine the terms of their exchanges based upon their subjective values."
http://socialdemocracy21stcentury.blogspot.com/2013/10/when-austrians-throw-reality-to-wind.html?showComment=1381496393328#c7763535340346301935
Roddis is so wrong, it is clear that nobody should pay the slightest attention to his incoherent, unhinged ramblings.
Bob Murphy:
Heh this is actually funny. I had always assumed Roddis was being unfair when accusing LK–who has read a ton of Hayek–of not knowing the Austrian concept of economic calculation. But, based on LK’s angry retort, turns out Roddis was right.
http://consultingbyrpm.com/blog/2012/09/tom-woods-keeps-krugmans-feet-to-the-fire.html#comment-45198
LK, go hide under your bridge and wait for Little Billy Goats Gruff.
First, Murphy is wrong on that score.
And secondly, if we're expected to believe that appeal to Bob Murphy settles anything (it doesn't), then Murphy's comment here is most illuminating:
Bob I still think you should talk to a therapist about your need to argue with LK on a daily basis, but that’s not really my business.
http://consultingbyrpm.com/blog/2013/06/mosler-debate.html#comment-66392
I.e., Murphy is implying you're a headcase, roddis. He got your number too.
And, incidentally, the way Murphy publicly said that is telling.
Not often that your fellow Austrians openly signal to others that they think you're a nutter!
Pacifist Christian Bob Murphy is very uncomfortable with nasty interpersonal disputes and is constantly scolding commenters for nasty rhetoric. He made his point that you don't understand economic calculation in September 2012. As such, he probably thinks that there is no point in making it again.
I understand that people get sick of me saying every day that no anti-Austrian anywhere understands economic calculation. I don't care and I still don't think Austrians say it enough since the public is completely oblivious to the essence of both Austrian and Keynesian concepts.
The crucial essence of Misesian "economic calculation" is the existence of money prices for factor inputs so that monetary profit and loss can be calculated.
Not only do all modern capitalist economies -- even though they have central banks and Keynesian policies -- quite obviously have "economic calculation" in this sense, but you'd be hard pressed to find a modern economist of any school who is unaware of the concepts in question.
Various others of Mises's claims about "economic calculation" -- that endogenous money supplies cripple the ability of businesses to engage in investment planning or economic coordination -- are utterly untrue and totally discredited by the empirical evidence.
And the other claim of Misesian "economic coordination" theory -- that flexible prices and wages are needed to perform an indispensable role in clearing markets -- is also totally discredited by the widespread private sector use of administered prices, and the empirical fact that modern capitalism still achieves strong growth, capital accumulation and rising living standards WITH endogenous money, central banks, administered prices, and Keynesian policies.
"Economic calculation" is not crippled or even impaired by any of these things.
Your problem, roddis, is precisely that you are a headcase who cannot understand that economists know the Austrian theories, but reject them because they are UNCONVINCING.
You have never refuted the counterarguments against Austrian theories, and you yourself are
quite clearly only vaguely aware of what those Austrian theories even are (such as your crazy statements about market clearing prices).
You wouldn't understand "basic Austrian concepts" even if Mises himself beat you over the head with Human Action.
The empirical evidence is that funny money distorts real prices thereby creating "nominal" prices which are unsustainable and do not reflect reality:
The financial instability hypothesis has both empirical and theoretical aspects. The readily observed empirical aspect is that, from time to time, capitalist economies exhibit inflations and debt deflations which seem to have the potential to spin out of control. In such processes the economic system's reactions to a movement of the economy amplify the movement--inflation feeds upon inflation and debt-deflation feeds upon debt-deflation.
http://www.levyinstitute.org/pubs/wp74.pdf
The evidence is there. Austrians understand and explain the CAUSE of the phenomenon. Minsky-ites hide from it.
lol... now we have the sight of roddis citing Minksky's FIH as if it supports Austrian theories, when it does no such thing.
Minksky's FIH does not support ABCT, nor Austrian ranting about "funny money" or Misesian theories about "economic calculation".
The existence of asset bubbles and debt deflation in no sense refute anything I have said. Asset prices are DIFFERENT from goods prices. Roddis is so stupid he apparently cannot understand this.
Macroeconomic problems stemming from disruptions described by the FIH involve debt deflation and aggregate demand shocks. The classic Austrian ABCT does not invoke or involve asset bubbles or debt deflation.
Asset prices are DIFFERENT from goods prices.
No they are not. Prices of either that are artificially bid-up by a funny money injection/subsidy do not reflect the assets and skills available for voluntary trade of the participants in transactions. They are thus unsustainable. The whole point of the Keynesian "cure" is to induce those false and unsustainable prices. Keynesians are then SHOCKED when those prices turn out to be unsustainable and blame it all on "capitalism".
Re: LK and his nonsense about "market clearing prices":
To describe the price emerging from those exchange transactions as a ‘‘market-clearing price’’ (Salerno 1993: 121) is therefore misleading.
http://consultingbyrpm.com/blog/2013/10/explaining-the-success-of-the-keynesian-revolution.html#comment-76820
To describe the price emerging from those exchange transactions as a ‘‘market-clearing price’’ (Salerno 1993: 121) is therefore misleading. Certainly the price permits all those who stand to gain by exchanging at that price—and who are aware of it—to exchange to the point where no known remaining mutually gainful opportunities exist. But the term ‘‘market-clearing price’’ (a term not used by Mises) is used in standard economics to refer to the exhaustion of all mutually gainful exchange opportunities under the hypothetical conditions of (relevant) omniscience. Standard economics indeed notoriously proceeds, in applying supply and demand theory to the real world, to operate as if conditions of relevant omniscience can be taken as given. Mises is certainly not making any such assumption of omniscience. His market prices are certainly not ‘‘market-clearing prices’’ (in the usual sense of that term). There is, one is able to reassure the puzzled reader, therefore no contradiction in his exposition. Real-world market prices are not the equilibrium prices of standard economic theory. (Real-world prices relate to equilibrium only in a very narrow sense, a sense to which no attention at all is given in standard theory.)
MISES AND HIS UNDERSTANDING OF THE
CAPITALIST SYSTEM, Israel M. Kirzner 1999
The Kirzner quote firmly knocks out at least two of LK's most dishonest statements about Austrian analysis. Salerno's statement about "market clearing prices" is clearly suspect, as I have repeatedly stated. Further,
Real-world market prices are not the equilibrium prices of standard economic theory. (Real-world prices relate to equilibrium only in a very narrow sense, a sense to which no attention at all is given in standard theory.)
"But the term ‘‘market-clearing price’’ (a term not used by Mises) is used in standard economics to refer to the exhaustion of all mutually gainful exchange opportunities under the hypothetical conditions of (relevant) omniscience. Standard economics indeed notoriously proceeds, in applying supply and demand theory to the real world, to operate as if conditions of relevant omniscience can be taken as given. Mises is certainly not making any such assumption of omniscience."
Right. For Mises, prices are not the Walrasian market clearing prices where all traders have "omniscience".
But I have never claimed that or any such thing, so the whole quote from Kirzner refutes nothing whatsoever.
If roddis thinks that flexible wages and prices converging towards their market clearing levels was NEVER held by Mises, Hayek, Rothbard or in Austrian theory, he has now become totally unhinged.
Here is Mises:
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.”
(Mises, L. von. 2008. Human Action: A Treatise on Economics. The Scholar’s Edition. Mises Institute, Auburn, Ala. pp. 756–757).
"Self-liquidating" means clearing markets by equating demand and supply.
I expect Roddis will now scream that Mises wasn't really an Austrian, or some such garbage.
Or take Rothbard:
"Rothbard presumed that in individual markets, the law of one price dominated, and that market clearing happened rapidly and smoothly (124). Just as in conventional neoclassical economics, general equilibrium, the evenly rotating economy (ERE), was the direction in which the economy was headed."
Karen I. Vaughn, Austrian Economics in America: The Migration of a Tradition p. 97.
Sure, Rothbard would also have said -- like Mises -- that of course market agents and traders do not have "omniscience", but still Rothbard thought that flexible prices in the real world will converge towards their market clearing levels.
I expect we'll soon see Roddis's tortuous attempts to explain this away.
Or take this:
"A worse problem is that, since the 1930s, government and its privileged unions have intervened massively in the labor market to keep wage rates above the market-clearing wage, thereby insuring ever higher unemployment"
Murray N. Rothbard, Making Economic Sense, p. 45.
So market clearing prices and wages have no role in Austrian economics!
Apparently Rothbard had no idea what he was talking about -- so bob roddis has overturned 50 years of Austrian economics! lol.
And, finally, Kirzner's point here is very much the same thing he says in Israel M. Kirzner, 1985. “Prices, the Communication of Knowledge, and the Discovery Process,” in Kurt R. Leube and Albert H. Zlabinger (eds.), The Political Economy of Freedom: Essays in Honor of F.A. Hayek. Philosophia Verlag, Munich. 193–206.
Kirzner is saying that
(1) market agents do not have omniscience in knowing the plans of other agents or knowing the values of all market clearing prices *beforehand.* In that sense, of course Austrians differ from Walrasians.
(2) the world is never in Walrasian general equilibrium, which means most prices are not literally market clearing prices. Nevertheless, the crucial element of Misesian and Hayekian coordination is that prices and wages are flexible and can converge in trades *towards* their market clearing levels.
The price system provides a mechanism to progressively improve information and coordination in relation to the past by prices moving towards equilibrium values. This permits a “discovery” process by market participants to generate greater economic coordination.
But I've already discussed this ages ago here and was perfectly well aware of it:
http://socialdemocracy21stcentury.blogspot.com/2013/05/kirzner-on-hayek-on-prices.html
"The whole point of the Keynesian "cure" is to induce those false and unsustainable prices."
False. The Keynesian cure for asset bubbles is financial regulation to stop asset bubbles in the first place and cut off the flow of credit to asset speculators.
Ending endogenous money systems would only cripple the flow of credit to capital goods investments and require a massive amount of coercion of the private sector.
But I expect roddis the monetary authoritarian would impose massive coercion on private freedom happily, since people are too stupid to know that ivory tower Austrian economics is what they need! lol..
This is the point where Bob Murphy comes in and asks why I need to "debate" LK.
I've said it over and over that I do not like the term "market clearing prices" and I still don't like it even when Rothbard uses it. As I've said over and over, unsustainable funny money prices can be "market clearing prices" right up until the very moment that the bust and the debt deflation begin. It's a confusing term and ripe for LK's M.O. which is nothing but taking poorly worded statements and blowing them all out of context.
"I've said it over and over that I do not like the term "market clearing prices" and I still don't like it even when Rothbard uses it. "
lol! So you just re-invent Austrian economics at will?
Flexible prices that converge towards their market clearing values are a FUNDAMENTAL element in Austrian price theory.
Do you agree or not? Yes or no?
Do you agree with Mises here:
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.”
Yes or no?
Of course, roddis will not give us a straight answer.
He will evade the question -- or run away and hide like the coward he is.
LK Asset prices are DIFFERENT from goods prices.
BR: No they are not.
There goes Bob's Cantillon effects issue, where asset price increases precedes goods price increases, which in turn precedes wage increases, leaving workers holding the short end of the stick.
Anyway, asset price are chiefly flexprice, goods markets fixprice, and wages are "sticky" because employers would rather lay off the least productive workers to cut costs. Pricing of these is not remotely the same.
Pricing of these is not remotely the same.
Gosh, you are so right. Factories cost hundred of millions of dollars and hamburger costs $2.99 a pound. Those prices are sure different.
"Gosh, you are so right. Factories cost hundred of millions of dollars and hamburger costs $2.99 a pound. Those prices are sure different. "
Tom Hickey is talking about the differences between (1) flexprice markets (as in stock markets) and (2) fixprice administered price markets (as in many industrial goods).
He is rightly indicating that your stupid attempt to say that asset prices (mainly flexprices) are not different at all from goods prices
(mainly fixprices) fails spectacularly after 10 seconds of scrutiny.
Flexible prices that converge towards their market clearing values are a FUNDAMENTAL element in Austrian price theory.
Prices do not act and prices do not have volition. The "market" is not mechanical. People will tend to make fewer mistakes in bringing goods and services to market in the short and long run if prices are not distorted with funny money. Observing what other people are charging and paying for stuff provides an excellent clue as what prices one might expect to obtain from similar lines of goods and services.
In the context of your statement,I do not believe that flexible prices that converge towards their market clearing values are a FUNDAMENTAL element in Austrian price theory. However, your statement is an often true corollary of basic Austrian concepts for the reasons I have explained above and in that context only. Further, nothing derived from basic Austrian concepts implies exactly HOW individuals will or should "set" their prices.
We've been over this again and again and people are sick of it. Your game is to take very specific (and often poorly worded) Austrian statements out of all context and attempt to fix them in cement instead of intelligently and fairly applying them to the inherent complexity of human existence.
Roddis's statement 1:
"In the context of your statement, I do not believe that flexible prices that converge towards their market clearing values are a FUNDAMENTAL element in Austrian price theory.
Roddis's statement 2:
However, your statement is an often true corollary of basic Austrian concepts for the reasons I have explained above and in that context only."
-----
So Bob roddis has just asserted that "Flexible prices that converge towards their market clearing values are a FUNDAMENTAL element in Austrian price theory" is both true and not true at the same time!
Roddis has violated the law of non contradiction: you cannot assert the proposition p and then not p as true at the same time.
For those who know their propositional calculus, he is actually asserting p ∧ ¬p as true.
Roddis, your stupidity, your ignorance, and your idiocy are here for all to see.
If something is not FUNDAMENTAL, it can still be a corollary of another FUNDAMENTAL concept or a frequently occurring result. Nevertheless, an entrepreneur may decide to slash production and not prices when faced with unexpected bad times. These are nothing but business decisions. Your claims to the contrary are pathetic lies and people who understand Austrian analysis can see that.
Again, this is why people question my sanity for "debating" LK.
(1) you still violate the law of non contradiction.
Even if it were "an often true *corollary* of basic Austrian concepts" you are asserting it as true, contrary to statement (1).
But:
(2) If something is not FUNDAMENTAL, it can still be a corollary of another FUNDAMENTAL concept.
corollary
1. a proposition that follows from (and is often appended to) one already proved.
In point of fact, the statement "Flexible prices that converge towards their market clearing values are a FUNDAMENTAL element in Austrian price theory" is not a *corollary* at all.
It is direct statement of Austrians, as in the Mises quotation, but just expressed in different words:
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.”
Thanks for confirming your idiocy.
Or here:
“Despite the economy’s disequilibrium character, however, the market-clearing process has an important function to perform in the pricing and allocation of scarce resources, a function that Hutt felicitously described as ‘the dynamic coordinative consequences of price adjustment.’ According to Mises, the coordinative social appraisement process of the market insures that the current price of every scarce resource is equal to its expected marginal revenue product (discounted by the interest rate), and thus that all existing productive resources are always fully employed in those uses that entrepreneurs consider to be most valuable in light of their knowledge of the technological possibilities and their forecasts of future market conditions, including their appraisements of prospective output prices.
As I have argued elsewhere, a Misesian conceives the market’s coordinative process as extremely hardy and no more liable to be disrupted by market-produced changes in the money-spending stream, such as hoarding, dishoarding, and changes in the production costs of mining gold, than by changes in the ‘real’ data of the economic system. As Mises argued, however, the process can be hampered and distorted by external intervention that undermines or nullifies its market-clearing property in resource markets, a property that may be crudely and temporarily restored by an episode of unanticipated inflation which lowers the real prices of labor and other resources toward equilibrium levels.” (Salerno, Joseph T. 2010. Money, Sound and Unsound. Ludwig von Mises Institute, Auburn, Ala. 2010: 210–211).
“There is no reason why prices cannot fall low enough, in a free market, to clear the market and sell all the goods available.” (Rothbard, Murray Newton. 2008. America’s Great Depression (5th edn.). Ludwig von Mises Institute, Auburn, Ala. p. 56).
“Mises conceives the market process as coordinative, ‘the essence of coordination of all elements of supply and demand.’ This means that the structure of realized (disequilibrium) prices, which continually emerges in the course of the market process and whose elements are employed for monetary calculation, performs the indispensable function of clearing all markets and, in the process, coordinating the productive employments and combinations of all resources with one another and with the anticipated preferences of consumers.” (Salerno 1993: 124).
According to roddis the idiot, none of this "fundamental" Austrian theory.
Walras created a general equilibrium model to understand now price affects supply and demand iaw the so-called law. Neither he nor any neoclassical economist asserted that the model was faithfully representational, which is patently not the case.
They hold instead that there is a "long-run tendency" for markets to clear. That is the basis of "economic calculation" through "free markets" as the cornerstone of capitalism. Austrian economic calculation is a variety of this argument. Both neoclassical and Austrian economics in general assume (nearly) flexprice in all markets at all times for this to work (over time).
Keynesians claim that there is no long-run tendency for markets to clear at "general equilibrium," e.g., owing to the role of saving affecting demand, there can be persistent gluts, ie., unplanned and unwanted inventory.
Firms don't actually attempt market clearing by adjusting prices and wages. Rather, as unplanned inventories (glut) increase, firms cut back production and lay off workers without reducing substantially reducing goods prices or wages.
In practice, firms regularly reduce unwanted inventory that is expensive to carry and depreciates rather quickly by holding promotions and sales, and then factor the excess to liquidators or give it to charity where they can write it off.
This is completely unlike what happens in financial markets, which do clear moment to moment through the activity of "specialists" who expand and contract inventory to make a market.
Without this intervention, markets would otherwise be very volatile at times and some items would not clear. Thin markets would not attract a bid at any price, resulting in a free fall in marginal price. Modern markets work assiduously to prevent that from happening owing to contagion.
The real estate market is somewhat different since until recently there has been no concerted activity on the part of the financial sector to buy up inventory, e.g., from foreclosures. As a result in the past the commercial and residential RE markets can be depressed for years waiting for the inventory glut to clear as more people enter the market and demand increases.
The notion of a general equilibrium across all markets is just not borne out by facts. Keynesians explain this wrt to demand, with increased saving desire, which includes deleveraging, reducing demand.
Since everyone's income is someone's spending, if one sector is spending less than its income, then another sector is spending more than its income. If that offset is insufficient, then economic contraction results. A government with policy space can offset the increase saving desire of other sectors by running a deficit.
That which reduces policy space, such as austerity and imposed "sound finance," does nothing to increase demand and likely reduces demand. The result is liquidation that results in eventual market clearing at huge social and economic cost that could have been avoided by increasing demand through government policy.
The characteristic feature of the market price is that it equalizes supply and demand.
Duh. How else would the sale have occurred at all? An after-the-fact observation is not a before-the-fact prediction of what MUST come true in the future.
>The characteristic feature of
>the market price is that it
>equalizes supply and demand.
Duh. How else would the sale have occurred at all?
Don't take one sentence out of context, idiot. Read the whole quote:
“The characteristic feature of the market price is that it equalizes supply and demand. The size of the demand coincides with the size of supply not only in the imaginary construction of the evenly rotating economy. The notion of the plain state of rest as developed by the elementary theory of prices is a faithful description of what comes to pass in the market at every instant. Any deviation of a market price from the height at which supply and demand are equal is – in the unhampered market – self-liquidating.”
The final sentence refers to flexible prices that are adjusted in trades towards market clearing levels so that demand is equated with supply in a product market: market clearing.
The fact that you're now reduced to desperately distorting even Mises shows how inept, incompetent and intellectually bankrupt you really are.
Don't take one sentence out of context, idiot. Read the whole quote
The whole quote changes nothing. There's a difference between realized prices, offered prices, distorted prices and predicting how human beings will or will not behave in a marketplace. All of which is different than the concept of realized prices (distorted and undistorted), as an essential source of knowledge in society. Your M.O. is to confuse these differences.
A person must be nuts to "debate" someone like you.
The question is market clearing, that is, no shortages and no gluts at least 'in the long run," due to prices flexibly adjusting to changes in supply and demand across markets.
That just doesn't happen in many markets even 'in the long run" for a variety of reasons, many of which have nothing to do with governments but rather voluntary choice by the private sector, financial traders and investors, firms, households and workers.
Take the present situation. The cb is at the zero bound and conducting QE to lower long terms rates to encourage investment in the real estate market and capex.
Gluts, excess inventory in housing and historically high unemployment, are happening owing to lack of demand, which is traceable to increased saving desire, reluctance to borrow, including continued delevering, and stagnant incomes for most workers, exacerbated by fiscal austerity. Nevertheless, goods prices are not falling overall, the CPI remaining above zero, nor are wages for those already employed, or hires that are desirable to employers.
Explaining this glut, i.e., lack of market clearing on a vast scale, as the result of insufficiently sound finance is absurd when it is clear how it is demand-related.
BTW, Britain ran on economic liberalism and sound finance in the 18th century, now known as "Dickensian times." See a historical description by an eyewitness:
Friedrich Engels, The Condition of the Working Class in England
The social dystopia that resulted led to the development of social liberalism and social reform.
Similarly, Keynes developed the General Theory to obviate a socialist upsurge during the Great Depression as a compromise that capitalists must make to make the system socially functional.
The other thing on economic calculation, which LK has pointed out before, is that in an integrated industrial society, firms prefer administered prices to flexible prices precisely for economic calculation, that is, confidence about future prices affecting income and costs. Then then adjust quantity (production, inventory) to demand rather than price. Administered price is a purposeful feature of planning rather than being a market bug.
Not to mention that there is reason for administered prices from the demand side, too. Most customers prefer it to bargaining.
Moreover, customers welcome price declines but resist price rises, and firms know this, so they are reluctant to change prices too often.
Wages function conversely. Employees welcome wage increases and resist wage decline. Employers know that a decline in wage can be accompanied by a decline in worker productivity and company loyalty.
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