Well, they come up witha few new ideas from time to time in Chicago. Especially with respect to the application ofeconmic theory to law.
First of all let me say that I understand the Hayekian argument about the price mechanism as a co-ordinating mechanism. It is quite an illuminating argument argument but it operates at way too high a level of abstraction to be of much use when conducting policy. I know that Hayek supported some government intervention but he had no coherent argument about how to decide whether a particular intervention was justified or not.
By contrast mainstream economics does possess concrete tools which can help us make those decisions; for example cost-benefit analysis to analyse the impact of government regulation. In recent years randomized trials have become popular as way of evaluating government policies and a French economist called Esther Duflo who recently won the Clarke medal is well known for her work in this area. Even without randomized trials, it is possible to evaluate the impact of policies through regression analysis which does allow us to control for the effect of different variables. None of these tools are perfect but together they allow us to get a better grip of what is going on than vague generalizations about the price mechanism.
Secondly you are underestimating the impact of market failure on the price mechanism. Remember that everything is interconnected. So even if you have an industry which looks reasonably competitive it may be affected by a price which is distorted. In particular the financial sector affects everything. It is like the central nervous system of a capitalist economy which allocates capital, sets interest rates, rewards efficient companies, punishes inefficient companies and also ensures there is enough demand in the economy. If the financial sector is messed up every industry will be affected and the entire structure of production will be distorted. I believe both history and theory demonstrate that a purely market-driven financial sector can be quite fragile and a fair degree of government intervention is needed to keep it healthy.
Once an economic crisis has occurred it’s important to note that the price mechanism is already distorted. For example inadequate demand means that the unemployment rate is much higher than it would normally be. Lower demand will directly impact every market as well. It doesn’t make sense complaining that expansionary policy is distorting the price mechanism because in a recession it is already thoroughly distorted. If anything fiscal and monetary expansion push the economy roughly in the direction of what it would be under normal conditions.
Between agriculture and industry I would say mankind has had a considerable impact on the environment. And sure there are unintended consequences but I assume that you agree that we should continue shaping the environment to our benefit. The Austrian argument reminds of extreme greens who argue that Nature is too complex for us to interfere with and we should retreat to a pre-industrial lifestyle with the lowest possible impact on the environment. Mainstream economics is much more pragmatic and says: sure be aware of the complexities of the market and the limits of our understanding but if the evidence strongly suggests that a particular intervention is likely to improve the market outcome, adopt it. Continue to evaluate the policy and if it doesn’t work, modify or drop the policy. This strikes me as a far more sensible approach and I think it’s worked pretty well in the last 80 years.
Chicago economics is very different from Austrian economics. And yes it’s had a much bigger impact on the mainstream not least because they do a lot more empirical work than the Austrians.
Sam Stone,
It’s a huge stretch calling Ostrom an Austrian. To the extent that she belongs to a schools of economics, it would probably be the New Institutional Economics. The only Austrian to have won the Nobel Prize was Hayek mainly for his work in the 30’s.
As for new Austrian research, you tell me. What are the big ideas that have come out in say the last 20 years. For the most part I just see them re-hashing the same stuff but I could be wrong.
The “efficiency-enhancing” signal is the fact that there is a high price. The high price tells others (potential new competitors) that there is money to be made by offering that product — or offering an alternative to that product.
Likewise, if the price drops too low, it is a signal to get out of that market.
I’d agree with this if government intervened by spurring innovation. As it stands, every brilliantly conceived “intervention” results in debt – $13 trillion in debt. Corporations like IBM, Chrysler, Boeing, etc didn’t make that $13 trillion debt. The government did. What’s the next smart intervention? $100 trillion in debt? Will China and Japan let us go that far? I’m not so sure about that.
Totally incorrect. Unemployment is high because their’s an imbalance between producers (workers) ability to product desirable products matching the preferences of consumers. Money does not fix that fundamental issue. For example, if a larger and larger segment of American population is not creating goods and services that the world economy wants, unemployment will go up and no amount of “monetary expansion” will fix it. You just end up with more debt. The world is constantly changing and some industries previously needed a higher # of employees are gone or restructured. Hopefully, new industries are in the pipeline to replace the older industries to offer new employment opportunities. This is the aspect that’s not modeled by Keynesian models (such as Paul Krugman). If enough people find new employment making desirable products (manufacture computers instead of typewriters), the economy fixes itself. No monetary intervention required (actually it would make it worse). The recession is temporary. Having said that, while America may bounce out of this temporary recession, it’s still in an overall long-term downward trend because…
The real issue is overconsumption. Families spent much less in previous generations. They entertained themselves singing to each other or playing board games. Mothers used to sew their own clothes. Families had one car. Now they have 3. Yes, standard-of-living has gone up, but American productivity in relation to the rest of the world has not kept up to pay for all that consumption. This is the true underlying issue that is ignored.
Lantern: I’ll get back to you on Austrian research. I want to go look up some things.
And I did say that Ostrom was not an Austrian, but that her research could easily fall into the category of empirical research that informs Austrian theory. Specifically, the work that won the Nobel was a study of how people create organizations and implicit rules to manage the commons in the absence of government. One mainstream view is that this kind of coordination doesn’t take place, resulting in a tragedy of the commons, and it requires government intervention to prevent it. Another view is that the only way to get coordination is to explicitly grant property rights over the commons to individuals who will then have an incentive to maintain it.
Ostrom found that in many cases there are underlying structures and conventions that are created which do a remarkably good job of causing people to care for the commons. Coordination takes place with the ‘currency’ being tradition, reputation, social cues, information passed down through tradition or experience, etc. In short, it shows that local knowledge is both important and hard or impossible to transmit to higher level governing authorities. Regulations and impositions such as federal land management programs lose this nuance and fail to take into account local knowledge. Moreover, if the regulations conflict with the local knowledge, they will be ignored or abused.
But as a wider point, it suggests that local knowledge and custom are more important to economic regulation than the simple aggregate models would suggest, and also why central planning is inferior to a system of bottom-up development where local knowledge informs decisions.
Here’s another example of how the reality of markets differs from the aggregate. There’s been much recent debate about why companies are seeing higher profitability, holding onto huge cash reserves, and yet not hiring people. The classical model says that in a recession worker productivity declines due to lack of demand for products. Workers are laid off. The existing workers have to work harder. Then when the economy recovers, worker productivity rises, and with it corporate profits. Then new hiring occurs.
But what if the downturn changes the structure of employment? What if L isn’t just a number on a chart, but a complex function? What if the new mix of labor required in the recovering economy is different than the old mix? Read this New York Times article. Part of the problem now is that firms are re-hiring, or trying to, but they can find the kinds of workers they are looking for. My own company has ten positions open for engineers in three different cities, and after a month of looking we’ve only filled two of those positions.
Now, this isn’t radical theory, and orthodox economics takes into account things like labor and wage stickiness and other complex factors. But I don’t see a lot of attention being paid to these issues by the Keynesians who are advocating more stimulus. I’ve never read Paul Krugman opine that pumping a trillion dollars into specific industries might just cause labor distortions that increase ‘crowding out’ effects, and if the labor market adapts it will be out of balance when the stimulus ends and more unemployment will occur because the training of the labor force no longer matches the mix of skills needed in the economy. He treats labor as ‘L’, and believes it can be manipulated by clever guys like him - guys who have never set foot in a factory in their lives, or sat in a business meeting trying to figure out who has to be laid off and who has to hired. He thinks this doesn’t matter, because given a big enough sample size the aggregate becomes a smooth function. Reality doesn’t seem to agree with him.
Let me elaborate on some of the reasons why I think the Austrians are marginalized within the discipline, IMO with good reason. You mentioned their lack of use of statistical models but this is hardly a virtue. Economists don’t use statistical models to show off but to test different theories. Few economists believe that theory alone can tell you what’s going on. There are always competing explanations which are internally consistent and you need a way of sorting them out. One way of doing this is to figure out testable implications of the different models and then compare them to the data. This is done in pretty much all the social sciences but it makes the most sense in economics where lots of quantitative data is available.Austrians seem to believe that their theories can be validated purely on abstract grounds without empirical testing and this is what mainstream economists reject about their approach.
In addition their approach to theorizing itself is vague and unconvincing. It’s not just that they don’t they use mathematics but that it’s simply not clear how their conclusions necessarily follow from their assumptions which are often not explicitly stated. They will often make sweeping statements about say the co-ordinating power of markets without spelling out exactly what they mean by that. In mainstream economics when you say that markets are efficient, this is precisely defined and you can understand the exact assumptions needed to determine whether this is true or not.
Furthermore there is the issue of political bias. Like I said mainstream economists come from a very wide range of political perspectives from left and right and often don’t fit in neat pigeonholes. Take for example Mankiw and Bernanke who are Republican economists and fairly right-wing in their views but whose academic work in the 80’s is considered an important part of the New Keynsian macroeconomics. Many economists are simply not very political at all and don’t come at issues from a pre-determined perpsective. By contrasts Austrians are almost always intensely political and their economics is often just an extension of their ideology. They approach all issues from the perspective that markets are superior and their economics tells them exactly what they want to hear. Not suprisingly however, this doesn’t persuade people who don’t already share their ideology.
Mainstream economists also continuously borrow tools and ideas from each other and adjust their views as the evidence evolves. They often learn from other economists with very different political views. For example Friedman’s empirical work on monetary policy had a huge impact on the profession including Keynesian economists who were forced to adjust their theories. Even economists like Krugman with very different political views have an enormous respect for his professional work. You don’t see this kind of thing among Austrians who are usually dogmatic and often quite nasty about economists with different perspectives. Not surprisingly this has also helped to marginalize them.
There was a recent thread posted by an advocate of Austrian economics who had apparently studied the matter intensely. Perhaps Sam Stone can find support for his arguments here.
Although that thread might support Lantern more:
No, the post hinges on nothing of the sort. That is unfortunately the same fundamental misunderstanding. Money does not “drive” the economy.
Rather, steady growth of nominal NGDP (or slightly less ideal, to my mind, a steady price level) creates the underlying conditions where producers can best utilize available resources to create real production. It’s not that money “drives” growth all on its lonesome. It’s that deflationary pressure acts as a dam to future growth.
There are a couple relatively simple examples that can demonstrate how this works.
The Fed has lowered the (nominal) interest rate of short-term government bonds to 0%. That’s effectively as low as it can go. But prices can go negative into deflationary territory. So what happens? If I borrow 100 bucks and pay back 100 bucks one year later, it looks like I got free money for a year. But that’s not true. If deflation is 5%, then the dollars I paid back are worth significantly more than the dollars I borrowed. That is to say (using round numbers for convenience) that real interest rate is 5%.
Even if nominal rates go 0%, real interest rates will still rise as deflation deepens. And that’s the case right now as we type. Using a form of the Fed’s normal “rule” for determining the optimum interest rate, they should have short-term bonds at negative five percent. Impossible. That’s why we’ve reached the end of conventional monetary policy. Please note, again, that there’s nothing in here about money “driving” the economy. The problem is that people who are borrowing money at 0% (in nominal terms) are actually borrowing money at >0% (in real terms) whenever we have expectations of future deflation.
That is the deleterious effect caused by nominal conditions, where insufficient money is damming up real production. “The real problem is a nominal problem.” A similar sort of problem happens in the labor markets with their relatively fixed nominal wages. (Let’s keep in mind: wages don’t have to be fixed in every industry, just some of them, for this to work out badly). Wages are sticky. So when deflation happens, real wages increase. Higher real wages mean that firms are paying more. When this happens in a deflationary environment, firms pay more for their workers. But at exactly the same time, they’re receiving less money for their produced goods. Again, nothing in there about money “driving” the economy. Rather, bad monetary policy creates conditions where the capacity of real factors of production gets dammed up by a sticky price level.
We don’t actually need technocrats deciding monetary policy from day-to-day. We can have a stable monetary policy like the libertarian Friedman wanted, without need of a committee of crusty old central banker types to enforce it.
If this weren’t a thread on Austrianism, I’d be citing Keynes and Krugman more than I already have. But since this is ultimately about Austrians, I feel it’s appropriate to stick with people like Friedman and Sumner and the GMU folks, who are the most ideologically resonant with the OP. So I’m going to again use an example from Sumner to explain how we don’t need a committee.
This is based on GMU professor Robin Hanson’s idea of “Futarchy”: Government by Futures Market. It goes like this:
We want a fixed rule. But, of course, a human committee has to determine which day-to-day policy would best meet that fixed rule. How do we know that they will honestly do their best to follow the guideline instead of their own intuition? They have power. Power can be abused. Well, we could provide an incentive by paying them more for success. This is very market based stuff, incentives and whatnot. I like markets. Let’s go down this path.
The next realization is that, if we’re paying people to make the right decision, we maybe oughta find the people who know the most about the situation, and pay them. So how about letting everybody in the country have a chance to get paid for making a right decision here?
And that’s where you introduce a new futures market of nominal GDP expectations (or less ideally, future price level). The idea is to have a market consolidating all of the available information in society, in a useful form. And why not? I like markets, at least, when they work without externalities and other problems. And a market-based information source is an idea that comes straight from Hayek. You see, all of this is very Austrian in sympathy, if not in conclusion.
So we have the rule decided in advance, and we let the futures market decide the best policy to get to the rule. The technocrats don’t decide day-to-day policy. The market does. If the futures market indicates that expanding the Fed balance sheet by a couple trillion dollars is the best way to return to our long-term NGDP growth rate, then that’s what we do. If the futures market decides its time to contract, then it’s time to contract.
Of course, the market might make the wrong decision. It might decide on expansion when it’s time for contraction. But that’s why we have the market: the people who decided incorrectly will lose all their money. It’s a self-correcting mechanism. When the ignorant lose their cash, the knowledgable will gain control. That way, you won’t have a committee that’s totally committed to making the same mistake for 20 years, as the Japanese central bankers have happily done. The market will incorporate all of the available information about future expectations, and policy will be decided from that.
Maybe that idea is a little far out there, but still, it is market based to the core.
Have there been any instances where Austrian rubber met the road? Is the experiment in Chile considered Austrian economics?
You say, “the real problem is a nominal problem” and yet at the same time you’re not saying money is driving the economy? Sounds circular and inconsistent to me.
Perhaps it’s splitting hairs on semantics. In any case, you believe that money and the manipulation of its quantity can “fix” the economy. Isn’t that right?
It’s not true that you need steady growth of NGDP for the motivation of business production and investment. Where do you get that idea?
Again, your whole analysis is based on prices and quantity of money. I believe your are deceived because prices happen to be denominated in “money” therefore more money “fixes” the prices and therefore the economy.
None of the paragraphs you wrote account for shifting preferences. Prices may be lower because workers (especially unemployed ones) don’t know what to produce that’s desirable or they don’t have the skills to create value in today’s climate. Also, consumers (and business and banks) change their priorities on what they value and what % of their income they will exchange to buy it. Where are these factors considered in your analysis? This aspect is more fundamental than quantity of money!
You repeatedly say “wages are sticky.” Yes, they are for psychological reasons. However, this factor is offset because commitments for employers to keep paying employees is not sticky. You fire them. You lay them off. You close the factory. There is no oath in blood to keep paying employees the “sticky” wage. Also, unemployed workers who have the “sticky” wage in their head will eventually give up that criteria and take work that pays half their old salary.
Prices can and do go down for reasons unrelated to the money supply.
You did not leave business-cycle theory out of the discussion. You started with a reference to it, how it didn’t explain the Depression. Unfortunately, that colored my interpretation of your whole post.
You admit straight up that there was an Austrian Business Cycle Theory, and that it did not explain the Depression at the time. Past tense. That led me to point out, correctly, that ABCT still does not explain the Depression, present tense, to this day, because ABCT hasn’t really changed in a human lifetime.
My inference, false as it seems to have been, was that you were defending some new form of it. Okay. I think that was a reasonable step on my part, but apparently I misread you there.
I want stable money.
I want stable money.
That’s the entire purpose of everything I’ve written here. History has demonstrated, countless times, that there can be shocks to the price level, shocks that markets can’t account for. The entire problem is that certain situations interfere with the very information you and I value so highly. I’ve been using a lot examples, both theoretical and practical to get this across. Deflation is a harmful, destructive, information damaging process. Lend at a dollar, and receive a dollar back? Why, no, that’s not what happens. People stop lending at all. They hang on to their dollar, because the dollar itself is getting more valuable without their doing anything. That very process undermines the whole system, destroying all the information that you want to preserve.
I did it to make an analogy with ABCT, because they’re both wrong and ridiculous, and the overlap of people who believe in both ABCT and goldbuggery is quite large. At times, the two groups seem to be one and the same.
But you were apparently not talking about ABCT. Okay.
I’m not trying to muck with the species. This isn’t about playing with the individual members, like introducing rabbits to Australia, telling the Koalas to be cuter for the tourists, getting the crazy kangaroos to… well… keep doing that crazy kangaroo thing they’re doing. You’re seeing a “planned economy” here, in the Hayek sense, when I’m advocating something entirely different.
But you want to use the ecology analogy? Well… Okay, I guess. We can talk about a rain forest. Lots of species there. Unique species, that don’t live anywhere else. Lots of churn and variety and life, so much so that you can’t possibly understand the all the little interactions that are going on.
But.
A rain forest lives from the rain. And what if we knew for certain that we’d have a twenty year drought? What if we knew that after the drought, the rain would return as normal, which could support the exact same ecosystem that the rain is supporting now. I don’t need to understand every detail of the ecology, I don’t need knowledge of every wonderful species of butterfly and snake and fern, to know such a drought is going to kill a lot of beautiful animals, many of which would survive just fine as soon as the rain returns. It’s going to cause some extinctions, even though the ecology of the forest will be able to support them after the drought, just as it did before the drought.
I am saying that we can make it rain.
I’m not advocating changing the ecosystem. I’m advocating keeping the background conditions in the ecosystem the same. I’m advocating maintaining the environmental prerequisites for a rain forest, rather than a desert. I don’t want the extinctions. Yes, life will return after the drought is over in twenty years, but all of that damage, all of those extinctions, all of that suffering–all of it can be mitigated. The damage can’t be stopped, but healing can begin more quickly.
I don’t need to micromanage evolutionary changes among the animals, just as we don’t have to plan for the innovations in the business community. That will take care of itself, if they’re given an environment conducive to life and growth.
The “unseen” costs only exist when they want them to exist. They only exist when it’s ideologically convenient for them. They claim we’re ignorant only when it benefits their view.
The worm can turn. I ask you: What about the unseen benefits?
Everyone will feel super if the Federal Reserve implements a higher inflation target. More money will make all of the concerns of the economy fade away, and things will be happy and good again. People will sleep easier at night knowing that the economy is getting better, and this confidence will make them more productive at work, too, because they’ll know that they will be well compensated for their labors. Real wages will go up, too. There will be more inventions and more innovations than we would have otherwise had.
And all of these extra psychological benefits will be on top of, in addition to, the measured increase in real GDP. They’ll improve long-run growth in ways that can’t be measured. They are unseen benefits in that way. They do exist, but I want you to take me at my word that they exist.
I’m sure you’ll find that argument very convincing. It is, after all, identical in structure to your own.
This is just… absurd. Maybe that’s your point. Probably that’s your point. But I’ll try to treat it as seriously as possible.
That means I need to make a fantastic number of assumptions here, because you’re not providing enough info about the scenario. First, I’m assuming that when you say we’re inflating the money supply by X, you mean some X that is bigger than the usual stable increases that we normally experience. Let’s say, increasing the money supply by 50 percent. Next, I’m assuming you mean the broader money supply, something like the M2 or the M3, and not the base. (The difficulty in measuring the broader money supply is yet another reason why M*V is a much better policy tool). So I’m assuming that we inflate the M2 or M3 or another such broad measure by a huge amount like 50%, and then we keep it absolutely stable there for a time. So I am, even further, assuming that we do this quite quickly, but still in a way that’s intended to hit our money supply target, when in reality it is private banks that expand the monetary base into the broader money supply. This is already a mess. So I’m assuming you think the central bank has some power to jack up the money supply by 50 percent, and then keep it there, even though the CB doesn’t even control the broader money supply. In order to keep the broader money supply stable, the CB would have to engage in constant manipulations of the base and interest rates in ways that no one knows how to do. That means I need the further assumption that the CB is credible, that everyone believes it when it says its about to pump up the money supply by 50% and then suddenly stop, which no one in their right mind would believe. This means velocity is a huge concern. There’s no way to control velocity directly.
It’s already gotten otherworldly ridiculous, and I’d like to stop with this nonsense, but you seemed to be sincere in your request, so I’ll play out the rest as best as I can.
The CB starts churning out cash, that cash is pumped into the economy very quickly, it’s distributed, somehow the central bank times the moment when it cuts off the monetary base at just the right moment to keep the growth of M at 50%. What happens?
How about disastrous, regime-toppling recession?
The politics should be clear, even though the economics is in who-the-fuck-knows territory. I’ll give my best econ guess: prices increase with the money supply, but by more than 50% because of the increase in velocity. You have the beginnings of hyperinflation here. The real value of debt drops to practically nothing, interest rates go through the roof, at which point the CB puts on the breaks too much in the opposite direction–this is to try to maintain exactly 50% money supply growth, when it has in fact already lost control of the situation. This is exactly the wrong thing to do when they’ve already debauched their currency, so at this point recession turns into depression. The people revolt, the central bankers are hanged, that’s the end of it.
If we assume the regime manages to survive the upheavals, it’s only because it has become a brutal machine.
I’m not going to bother with the next step of money contraction. Even if I did, I would need to make even more assumptions, because I need to know what technique we’re using to drop the money supply again. The central bank can’t just make dollars disappear. It can only make dollars that it personally owns disappear. They’d have to take the dollars out of the economy, through taxation or guns or some combination of the two.
I don’t know what you wanted that for. It was, to my mind, a completely absurd exercise. But you asked, and I tried to be as economic as I could to give you what is actually a very simple answer of: Total disaster. I should not need to explain that “total disaster” is a very visible cost. It can actually be seen quite well.
Now I need a drink.
This is not a point of confusion on my part.
I don’t need to control the underlying system. That’s you and your predisposition of seeing a “planned economy” every time someone suggests anything you remotely disagree with. That’s not what this is. All I need to do is maintain underlying monetary conditions which can facilitate activity from real factors of production. I don’t need to make 300,000,000 decisions for every person in the US. I just need to make one decision about the monetary environment where those people live. I need to destroy what’s damming up real growth right now.
You like to accuse the other side of wishful thinking. That’s no so. Sometimes, in some situations, fixing the problem is completely impossible. If we’ve got an aggregate supply shock, we’re basically screwed. There’s not really anything we can do except try to ameliorate suffering. But in a deflationary situation, such as the one that we are in, we have a very real, very simple, very straightforward, very obvious option in front of us. We can fight the damn deflation. Every percentage point of expected deflation is an additional percentage point split between nominal and real interest rates. That’s the money illusion. That’s where the market information you value is being destroyed.
I am not advocating control of market information.
I am advocating liberation of this information.
No, you’re simply not understanding them. Maybe I have been explaining poorly.
I am going to use one more. This will be the last. I will explain very carefully.
In a closed tube of gas, there are countless independently acting molecules bouncing around. Each one of them operates on its own. They’re not connected to each other. Each one of them is bouncing around on its own “volition”, so to speak. The numbers here demand scientific notation, like Avogadro’s Number (6.02*10[sup]23[/sup]). And yet that number is only to get us started on the proper scale. A really big tube filled with hydrogen is going to have a lot more molecules than that.
Now let’s be clear about this: The underlying behavior is impossible to model for. We can’t write out 6.02*10[sup]23[/sup] different equations (or more) and solve for that, to figure out the behavior of every single individual molecule that is bouncing around randomly in the tube. It is utterly, completely impossible to understand the actions of all the individuals molecules. Can’t be done. This system in its micro state is beyond us, just as the economy is beyond us.
And yet, despite our ignorance of the countless little molecules bouncing around, the behavior of the system as a whole can be accounted for with two numbers: 1) pressure, and 2) temperature (with the system taking on the ambient air temp).
Your constantly harp on the underlying complexity of a system. That is completely irrelevant, if the aggregates are statistically predictable. I can make this tube of gas pretty damn big before gravitic effects take over and muck things up. This is to say that I can make the underlying complexity of this system as impossible to comprehend as I like. I can put so god damn many molecules into this thing that it beggars belief. Understanding the effects of all the impossible-to-count molecules, on their own, is totally, unequivocally, indisputably beyond us. Nevertheless, it will all come down to pressure and temperature, and nothing else. Double the molecules, double the pressure.
The aggregate information is the same, no matter how complex the underlying system is.
This is a sophisticated scientific concept, but it is not a controversial scientific concept. Physicists are well acquainted with the idea. The only question left here is a matter of math. Either you understand the statistics, or you don’t. I can’t teach it to you. It’s counter-intuitive to many people, but you can’t argue the math. Once you have the aggregate information, it’s either statistically significant, or it is not.
This question is settled.
I’ve already cited relevant macroeconomic data, multiple times. I am not doing it again. If you refuse to read it, that is your choice. Now obviously, the precision is not as high as the chamber of gas. Double the molecules, double the pressure–that is precision that’s impossible to beat. But that is still mathematically irrelevant. People have discovered staggeringly astonishingly undeniably strong relationships with respect to the economy as a whole. We have more than enough for the statistical significance to be noted and recorded and understood and appreciated. And then applied.
There is nothing more to discuss on this. Given your apparent background, this shouldn’t even be an issue. Either you accept the mathematics, or you don’t.
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Great economist, Krugman. You didn’t seem to intend it as a compliment, but I can’t help but be somewhat flattered.
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Not an angry comment. You wouldn’t like me when I’m angry. I have to buy stretchy underpants to avoid public indecency charges. Very unfashionable.
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I’m not certain about the activity of all the googols and googols and googols of molecules that are bouncing around. I’m certain of the behavior of the aggregate, when such certainty is demanded by the evidence.
You proceed from there into some ad hominems, questioning the background of economists instead of engaging the facts. It’s always the same. Attack the qualifications of the messenger if you don’t like the message. You complained about economists scoffing at anyone who doesn’t have a degree. I’m sure that happens. But it’s something that I have never done, and further, you complained about this despicable ad hominem behavior exactly one paragraph after you did the very same thing yourself.
You often like to make noises about how other people should assume “good faith” on your part. Here’s some news for you: Good faith must be demonstrated, not simply asserted.
It is not demonstrated when you engage in blatant double-standards from one paragraph to the next. I hope the reasons for this are obvious.
For the record, I don’t demand that people have any sort of degree. I do demand that they educate themselves on what they’re talking about, and I am somewhat abrupt in response when they demonstrate their ignorance.
Guess what’s coming.
Those topics absolutely are related. It would be difficult for them to be more strongly related than they are, given the title of this thread. Those three are like a little triumvirate of traditional Austrian delusion.
Murray Rothbard was an Austrian economist, an advocate of ABCT, and the heir to von Mises. He was almost an intellectual clone of the old man in some ways, which is why ABCT didn’t change over the years. His attitude toward the decaying corpse of the theory was to believe it was still alive. He put some strings on the body to create the illusion of animation, like a smelly puppet, instead of accepting it had passed on. He was also an avowed gold money man and “full-reserve” banking nutter. And following Rothbard’s version of the Austrian tradition, there are all manner of silly people out there who advocate ABCT, “full-reserve” banking, and goldbuggery like it’s a three-in-one package. In fact, I can’t think offhand of a single self-proclaimed Austrian I’ve ever met or read about in recent times, before you, who was an exception.
Rothbard was as Austrian as they come, and he believed some crazy shit.
I have no idea how a self-proclaimed Austrian can possibly be as unaware as you seem to be of the man, his beliefs, and his influence on the sadly decayed Austrian tradition today. So let’s be clear here: my examples were not chosen at random for the sake of a “smear tactic”, as anyone who’s well familiar with Austrian economic history should know quite well.
Sam Stone,
I get your point about the State showing favor (intended or not) towards some economic activities at the expense of others and how this is wasteful because of the economic calculation problem.
But you mentioned that the State “can improve the economy by loosening the money supply through lower interest rates. But if interest rates are zero, you’ve got nowhere to go.”
Couldn’t you increase the quantity of money by just printing more of it until inflation is a few percentage points? Perhaps I’m wrong, but increasing the quantity of money by printing it and then transferring it equally to all consumers would take care of liquidity traps while having a minimal bias towards particular goods. It’s impossible to tell precisely, but whatever negative effects accrue would seem to be a lot less worse than a recession and its attendant idle labor and uncertainty. That uncertainty makes people refrain from taking part in mutually beneficial transactions.
Isn’t a stable inflation rate very useful (by facilitating planning) and something which only the State can effectively assure in a large economy?
Sam, you may find this article by Daniel Hannan of interest.
Any article that rests on the assumption that a discipline needs to align to common sense to be valid is stupid.
The article claims that Schiff “accurately and exactly” predicted the crash which is highly misleading at best. Schiff did predict the market crash but he also predicteda whole bunch of other stuff which was completely wrong and ended up losing money
Check this postas well which links to a Youtube video of Schiff predicting a crash in …2002. A stopped clock comes to mind.
Now I should add that it’s really hard to predict markets but still, hailing Schiff as some kind of oracle is pretty absurd. And Schiff and other Austrian-inspired writers have been consistently wrong about their predictions of rampant inflation which suggests a serious flaw in their approach.
BTW, terrific post, Hellestal. Always good to see you in form.
Well, my only mention of it was to point out that it was a problem for Austrians and that it didn’t work in the case of the Depression. I’m not sure how you assumed from there that I was defending business cycle theory. In fact, I mentioned more than once that I was mostly interested in the subset of Austrian theory that had to do with complexity and information, and that I thought there were some key insights there that are being overlooked by other models.
Okay, great. On that we agree. I’m not sure where this comes from, though. I didn’t even realize we were debating your point of view, or even debating whether we should stabilize the money supply. I don’t disagree with that. I said earlier that I supported TARP, and I’ve written stuff in support of Bernanke’s Quantitative Easing. My main references to the Fed were to point out that Greenspan held interest rates artificially low for a long time to ‘stimulate’ the economy, and in my opinion that contributed to the housing bubble. We haven’t really discussed the role of the fed in keeping the money supply stable.
The Austrian economists I pay attention to are generally professors at universities, and I can’t think of any of them who are gold bugs. But I agree with you that there’s a lot of gold buggery out there, and it’s nutty. But I’m not sure it’s particularly associated with Austrian economics. I think it’s just one of those bugaboos that is a unique failing of the far right/libertarian axis, just like the far left has its nutters who believe in collectives as a great way to organize economic activity, and they span multiple disciplines on the far left.
People who do not like government intervention are predisposed to liking the gold standard, because it smacks of something ‘real’ instead of something artificially controlled by central authorities. On the face of it, fractional reserve banking and a Fed that holds the levers of the money supply seems like big government intrusion. I understand why that system exists, and I agree with the need for it. Others don’t.
A less nutty position, which is closer to the Austrian position, is that the Fed is a good thing in theory, but in practice it has the failing of being influenced by politics or the whims of the regulators, and as a result causes a lot of problems, including contributing to booms and busts. I tend to agree with that, but since I don’t think the gold standard would work in a modern economy, I would suggest focusing on reforms that improve central banking.
We’ve apparently been talking past each other to some degree. My focus really hasn’t been on the money supply, but on other ways governments interfere with the economy. I just went back and re-read my messages, and I can see where you got that impression - because we do discuss monetary policy a bit, then I go off on a tangent and start talking about complexity and information, and I can see why you thought I was relating it all together. My little question about raising prices and lowering them didn’t help (more about that in a minute). So my apologies.
I actually don’t think you and I are very far apart at all when it comes to monetary policy. However, to point out Krugman again, he doesn’t feel the same way. Krugman has no problem explicitly using monetary policy to jazz up the economy even in times when prices are stable. He was in favor of Greenspan’s loose money policy in the last decade, and thought that it should have been even looser. What do you think about that?
To refer back to Austrian Business Cycle theory for a second, I do believe that they were right that holding interest rates below natural levels will cause major systemic imbalances in the economy, specifically biasing industrial investment towards longer-term, interest sensitive projects and causing capital to find better returns, perhaps through moving into more risky types of investments.
Austrians would say that if interest rates truly reflect the current demand for money relative to its supply, than a low rate is a good signal that it’s time to use up that capital in longer-term projects now that they are affordable. But if the interest rate is held low by a central authority, the market gets the same signal but the underlying real economy doesn’t match, and these longer-term investments crowd out out shorter-term needs. Eventually, the real economy asserts itself and something has to break.
This aspect of Austrian business cycle theory seems at least intuitively plausible.
But getting away from that, I’d like to say that most of my focus is on other ways in which central authorities manipulate the economy. Keynesian fiscal stimulus, for example. Especially as applied by real world politicians, and not in perfect theory.
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What if rain forests need occasional droughts to clear away imbalances that occur from time to time? What if during the ‘good’ times of normal rains, the underbrush below the canopy grows so fast that eventually it starts choking out the ecosystem, and droughts restore balance?
I actually have a real-world example of this - forest fires. For a long time, land management sought to prevent all forest fires, thinking that they were a bad thing. It turns out, forest fires are necessary for the healthy long-term stability of forests. Who knew? Forests have evolved in an environment where there is lightning, and lightning causes fires. So fires and lightning became part of the background environment that forests developed around. Then we came along and tried to stop them, and forests suffered for it.
To further torture the analogy - the result of fire prevention strategies has been for the dead material to build up to the point where eventually you get a mega-fire which really destroys the land.
Unless of course the drought isn’t ‘damage’, but temporary pain necessary to restore balance. Or even if it’s damage, it could be a form of damage that the ecosystem has evolved around, expects to find periodically, and will suffer if it doesn’t happen on occasion.
Getting back to economics - what if a recession is necessary from time to time? What if it’s the process by which we clear away the dead wood of the economy, reset assumptions, move labor that is otherwise sticky, etc? Are we really smart enough to avoid these? If we are, should we?
As an example, when recessions strike, the first companies to fail are the ones that are the weakest. The first employees to be laid off are the ones most ill-suited to their current jobs. When the economy recovers a lot of freed resources are now available to take on other things that are more productive. Very much like how forest fires clear away underbrush and create nutrients that allow the next phase of the forest to grow better.
It seems to me that the results of inflationary policy would be two-fold. At First you might have the effect you mention. But then eventually the constant inflation would be discovered for what it is and be part of natural expectations, and the irrational exuberance would fade.
And you seem to think that this exuberance would be good. Hey, it stimulates production, people spend more, all is good. I would argue otherwise. I would say that since these behaviors are based on a mistaken impression about real wealth and the real state of the economy, money will be misallocated. People will save less. They’ll make riskier investments. Capital will flow places it really shouldn’t go. Certain types of investments that benefit from inflation will do better than other types.
This really gets to the crux of what I think the important Austrian insight is. There isn’t just ‘production’ to be ramped up and down. There are not just ‘savings rates’. There are many kinds of production. There are many ways to save. The kind of production you’d want in an economy that is truly growing at a rate that sees everyone’s income going up 5% a year is very different from the kind of production you’d want if the economy isn’t growing but people’s incomes are going up 5% a year due to inflationary monetary policy. In your scenario, the added exuberance happens because people don’t distinguish the difference. If they don’t, then your policy is misleading them and causing malinvestments.
Check me if I’m wrong, but Monetarists like Friedman believed in an expansionary monetary policy, but only to the degree that represented the expansion in the real economy, so that prices remained stable. You want me to take your word that an intentionally inflationary monetary policy is a good thing, regardless of what the underlying economy is doing?
And now we get to that question I asked about raising and then lowering prices. Let me just say right off that it was a bad question, because I obviously didn’t get across the crux of what I was trying to illustrate. My bad. I understand the way you read it, and I sent you down a bunny hole that I shouldn’t have. My apologies. So I’m not going to discuss your long answer, though I do appreciate the effort. But it’s really irrelevant.
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And I’d buy you one, for putting you through that.
Where’s where I was going with that question: If you treat the economy as a series of aggregates, each one representing the sum of all the underlying contributors and reduced to a single number, then it stands to reason that you can manipulate one side of the equation, change the value of the other numbers, then reverse the process and get the original number back.
I’m glad you brought up the analogy to a test tube full of material. Yes, the temperature is the aggregate result of all those little kinetic collisions giving off heat in unpredictable ways, but which behave entirely predictably at the macro level. Add more flame, get more heat. The heat appears to be uniform. Reduce the heat, the temperate returns back to the original value. You can predict this and control it, even though you can never predict the positions of the individual atoms contributing to this.
That’s one possible analogy. But here’s another, which gets to where I was going:
Find a window in your house in wintertime that has frost on the inside. Take a picture of the frost. Now apply heat to your window, melting the frost. Then take the heat away, and come back a while later. The frost will be back. Now take a picture of that, and compare it to the first one. Yes, the frost is back, and in roughly the same quantity as before. But if you look at the pictures, you’ll find that the structure of the frost is completely different. That’s because the exact structure builds up incrementally in chaotic ways. It’s not recoverable. It’s always different.
And to get more to the point: Let’s say there is 25 pounds of ice in a container. Apply heat, and it melts to water. Let it freeze again, and you again have 25 pounds of ice. However, if that ice was originally carved into a beautiful ice sculpture, that’s gone, and it’s never coming back.
This is the core of the debate. Is the economy like air? Or is it like an ice sculpture? If it’s like air, then you can increase the money supply or throw a trillion dollars at it in the form of stimulus, and later when that wears off, no harm done. If it’s like an ice sculpture, then every time you modify it you destroy something important.
I believe an economy is more like the ice sculpture. Not only is it unpredictable and chaotic, but as it grows structures form that are critical to its functioning. These structures are mutable. They change when economic conditions change. They are controlled my simply market forces which result in tremendous complexity, just as the mandelbrot set is controlled by simple equations or our ecosystem is controlled by relatively simple DNA and simple rules of survival that have driven amazing complexity.
When you change the inputs to an economy, the structure starts to mutate just like the creeping hoarfrost on a glass. Restore the inputs back to their initial condition, and you don’t get the same economy back. You get something different. That was what I was getting at with my badly worded question.
Now, if the change is just random, then who cares? So what if the frost has a different pattern? It’s the same amount of frost, it looks the same from a distance, so does it matter? But this is where an economy is different. The structure of an economy may be chaotic to an outside observer, but those structures reflect the intelligence, wisdom, and experience of the people who built them. They are the underlying, real economy of which the models of economists are just a rough approximation.
Let me give you a real example. I work on a project that employs hundreds of people. We have a multi-generational project plan stretching out five years. We have a sales force trained in certain vertical markets, and we targeted our product at those markets. Our sales force spent years learning those markets, making connections, collecting data about what that market needs. This information came back and informed our MGPP, telling us what features to build in the short, medium, and long term. That in turn influenced our hiring decisions.
Spidering out from there, these decisions also affected other companies. We buy other products to support this project. We hire consultants. Our demand for these things has affected the choices these other companies make.
Recently, our focus changed. A number of factors, including the availability of stimulus money, caused management to decide to change our product’s focus to a new vertical. There was promise of big, easy money by positioning ourselves to take advantage of this sudden flood of money. The result is that our sales force is left hanging. All their training and years of focus in the other vertical are lost. Our MGPP has to be changed. The new vertical requires a different feature set. Our employee mix is no longer optimal. The other companies that based their own decisions on our demand are now left hanging.
There’s a huge cost to this, and the path is a one-way street. Once our sales force is laid off, or retrained, or quits to take jobs in the other vertical, we won’t easily get that back. We had a fine sculpture, and we melted it down so we could use the water to make a different one.
Now, if the underlying change we followed was driven by real market pressures resulting from real-world changes in supply of materials or as a result of new inventions that changed the marketplace for good, then this cost is worth it. It’s part of the creative destruction of capitalism - in the long run, a good thing.
But if this change is the result of a government intervention to ‘stimulate’ the economy, then once that stimulus runs out, we’re going to find ourselves wishing we had the old structure back as the real economy asserts itself again. But there’s no going back. The people are gone, the knowledge lost, the employee mix changed. Our structure is now optimized for a product that was a chimera, and we’re less efficient than we used to be.
My company’s management should know better, but they’re rent-seekers of the highest order. We spend a lot of money on lobbying. They’re part of the problem. But the guys who sold us the parts and then got caught napping when we changed? They have no idea that our change was due to a temporary stimulus. They just know that demand has fallen for their product. How do they make good decisions? How do they know if that demand is coming back in the next fiscal year when the stimulus is gone? They don’t. So they make decisions based on faulty information.
This is the unseen cost of government intervention. This is why it’s not appropriate to consider the macro economy only in terms of aggregates.
This isn’t an argument against all government intervention. I could have told you the same story, only I could have used deflation as an example of a signal that distorts markets. Government intervention to prevent that kind of distortion when it’s not the result of an underlying real-world change but a collapse in the financial system, is a good thing. Or maybe the distortion came because one company controlled the entire supply of some intermediate chemical to a process and was manipulating prices. Government intervention to stop that is a good thing. Or maybe the distortion came because our opportunity relied on passing externality costs off onto a third party. Government intervention to prevent that is a good thing.
There’s a fundamental difference between the latter kinds of interventions, which are intended to help information flow and to keep prices stable, and the kind of interventions which seek to ‘improve’ the economy through temporary or permanent top down interventions in specific industries, or through artificially boosting money supplies in order to make the economy perform even ‘better’.
So long as the dam is identifiably artificial, I would agree. The credit crisis was clearly such a case.
But if the ‘dam’ is a recession caused by systemic imbalances which need to be corrected, then I disagree. I question the whole assumption that recessions are something the government should try to stop. It seems to me that normal business-cycle recessions are part of the healthy functioning of an economy. Counter-cyclical policy might be best limited to trying to prevent overshoots and crashes, rather than trying to fine-tune the economy through manipulation of the money supply.
On the flipside, we could consider removing government interventions that may make the business cycle more severe. For example, in good times when wages are rising we tend to increase the minimum wage. The last time the minimum wage was increased to $7.25, it appeared to be a lagging change - the prevailing wage was already higher in most areas. My comment at the time was, “the only problem I see here is what might happen in a recession. If productivity drops below the level that justifies $7.25 an hour, such a policy could increase job losses and make it hard for the unemployed to find jobs. This would especially apply to young people and new workers without skills.” Well, unemployment among young people is now almost 25%. I wonder how much there would be if the minimum wage was $5.15 again?
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I accept that this is potentially the case. Let me ask you, is there ever a time when you might accept deflation as the natural response to real world conditions? For example, if Japan’s population crashes to 70 million, that should cause deflationary pressure on Japanese real-estate and other things. Should that be allowed to happen? Or should the money supply be modified to keep prices stable?
Isn’t that what you’d be doing by manipulating the money supply to prevent deflation, if that deflation was a real response to market conditions?
It appears that you feel this way in terms of macro monetary theory. How about the stimulus? Were you in favor of that? How about federal ‘green’ jobs programs? Subsidizing purchase of ‘green’ products? The bailout of GM and Chysler? The Obama administration’s attempts to force banks to write down underwater mortgages? How about the home buyer’s tax credit? The Cash for Clunkers program?
And getting back to monetary policy - how do you know when you’ve reached the right level of growth? What’s the target? Whether the central bank targets inflation, or growth, or aggregate money supply, how does it know what the right target is? And what if it’s wrong?
But are they? I was not of the impression that Keynesian stimulus was a precise science. As I said, it’s one thing to observe that a system has aggregate values that seem to be in fixed relationship to one another, and quite another thing to think that therefore you can forcibly manipulate one of them and cause the other to change following the same relationship. This is one of the insights of chaos theory. There are all kinds of patterns that can assert themselves in consistent ways (the mandelbrot set is remarkably consistent in the relationships that are created), and quite another to know exactly which initial conditions will lead to which output.
There is still significant debate about multipliers, for example. I’ve seen estimates from real economists ranging from 4-5 all the way down to 0. Economists still argue about what caused the great depression, and what caused the recovery. It’s impossible to do controlled experiments, and there are millions of confounding factors in a real economy. I don’t think these relationships are on quite as solid a foundation as you say they are, or if they are, it’s within a very narrow band of understanding that is not universally applicable.
Again, I have to point out that the best model Christina Romer and her team came up with for what would happen under the stimulus was not just wrong, but wildly wrong. The difference between 7% unemployment and 9.5% is a huge difference.
Well, the prediction for aggregate unemployment was way off. The prediction for growth this year was way off. The prediction of a ‘V’ shaped recovery, which the Obama administration’s economists said was most likely, was way off.
And even if the relationships are fixed, there may be other ways that the economy rejects attempts to manipulate the macro numbers. The first Bush tax cut in 2001 was a demand-side stimulus. It got swallowed up with no change in output, probably because of the Permanent Income Hypothesis. It turns out people don’t spend windfall money, as they base their behaviour more on their estimate of permanent income. A lot of Quantitative Easing money wound up being sat on by banks. Increases in the aggregate supply of money can be offset by decreases in velocity. And so it goes.
This is is the classical approach. This works for the gas law and other simple relationships. But a lot of the interesting work in science and math in the last few decades has been carried out to explain the myriad of cases where these simple truths do not hold. Discontinuous functions, one-way transfer functions, spontaneous order, chaos… Once you get away from simple behaviors and start looking at complex systems, a lot of things that seem intuitive really are not. Things that should be amenable to statistical analysis are not.
What actually got me thinking about Austrian economics back in the day was when I read that Hayek had known Claude Shannon, who’s kind of hero of mine. Shannon was the father of modern information theory, and he’s one of the giants of the information revolution. I hadn’t heard too many other economists talk about these issues at a macro level, because when you deal in aggregates, it doesn’t matter. But I think it matters quite a lot. I think the economy is largely about transmission of information, and that there are significant limits on how it can be transmitted and received, and that government and central planners
In engineering, we also worry about systems that seem to be transitive, but which have hysteresis which causes lag between inputs and outputs, and how noise affects communications channels, and how seemingly smooth functions can have sudden discontinuities that are unpredictable. I’m skeptical of simple formulas and models, because in the real world they usually don’t hold. There are no massless, frictionless bearings. There are no instant responses. There are almost always unintended consequences when dealing with complex systems.
I accept the math as far as it goes, which is to describe observed aggregate relationships. I am not convinced that these relationships provide enough information to conclude that you can reasonably manipulate the economy to get the outputs you’re looking for.
Where did I do that? All I said is that some economists seem to be dismissive of the opinions of people who are not professional economists. That’s an ad-hominem attack? And I certainly didn’t question their backgrounds.
First of all, I didn’t accuse you. Second, I wasn’t attacking anyone. I was trying to say that I believe economists are missing important details by treating the economy as if it can be reduced to a set of macro equations and manipulated according to them. It one thing to describe a complex system in terms of statistically-valid output aggregates, and quite another to think that you can then control that system.
I do? I think I would say something more like everyone in a debate should assume that everyone else is operating on good faith. Otherwise it just breaks down into personal acrimony and accusation.
You’re going to have to explain this to me. If we’re talking about the same paragraph, I was saying that macroeconomists should listen more to what business people are saying. If you mean my statement about you making angry comments, well, I’ll apologize for that. It really had no place in the discussion. If you meant something else, let me know.
Fair enough.
Confession: I’ve never read Rothbard. I think the reason for that is that the earliest references I saw to him were always about how he and Ayn Rand were at each other’s throats or something, and how he was in favor of the gold standard. I didn’t even realize for a long time that he was an actual economist. I came to my libertarian leanings mostly because of Milton Friedman’s writing, and from reading “The Road To Serfdom” when I was young and later “Human Action” by Von Mises. Ayn Rand was too dogmatic for me, and her personal behavior put me off her and her disciples. I kind of lumped Rothbard into that fringe wing and ignored him. Later I started reading more about public choice economics and behavioral economics, and it moderated my libertarianism to some degree.
But when I went into the sciences, I kept stumbling across Hayek and information theory. There was a computing science experiment in using market principles to allocate bandwidth in a network which caught my attention and got my thinking about the Austrians again and how their insights seemed to be applicable. Let me tell you about it:
This group was trying to solve the problem of resource allocation in complex systems - in this case a network of thousands of nodes, each one of which had demands for bandwidth which changed in importance and size due to local conditions. These guys had tried centralized controllers, spent a whole bunch of time working out predictive algorithms and other ways of centrally managing the bandwidth. They could not come up with an efficient way of doing this. Along the way, one of them noticed the similarities between this system and a market. So they decided to re-engineer it so that decision-making remained local. They gave each node ‘money’, and had them bid for bandwidth based on simple formulas for each node to help it determine how much it was willing to pay for bandwidth based on its needs.
To summarize, they wound up being led down a path that recreated a lot of elements of a modern economy. They had to provide income to the nodes. They had broker objects to manage transactions. Nodes could have savings or borrow with interest. And so on. The result was a pattern of transactions that was spontaneously generated. Simple rules, complex result. And bandwidth allocation was pretty darned efficient.
I wish I could find that paper. I’ve googled for it, and can’t find it. I read it probably twenty years ago. I think it would be fun to rebuilt that, and play around with the inputs and throtte bandwidth up and down and observe changes in the system.
Well, as I said, I was originally more influenced by Friedman, and by Hayek specifically and not the broader Austrian movement. When I did delve into Austrian economics, I was more interested in the complexity/information aspects of it. I didn’t say that I was specifically an Austrian. Hell, I’m not even an economist. I did say that I thought Austrians were “mostly” right, but it was in the context of the need to consider micro effects instead of just aggregates. I started off my OP by admitting that Austrian business cycle theory had failed in the Great Depression, and that Keynesians had a reasonable argument against the Austrians in that the Austrians couldn’t back up their assertions with math (and indeed kind of rejected it).
As I said in the OP, I wonder if advances in mathematics in the areas I’ve talked about could be applied to Austrian theory and if we could gain more insight from doing that.
Finally, if you thought I was injected ad-hominem arguments against you or anyone else, I want to apologize again. This has been a very good, very calm discussion, and I’d hate to be the one to derail it with poor manners.
And I really don’t want to see your ‘angry pants’.
Lots of economists think they should do exactly that - and some of that was already done. “Quantitative Easing” is the direct injection of cash into the money supply, and Bernanke did that last year.
An inflation rate which represents the real demand for money in the underlying economy seems to me to be what you want. If there’s to be inflation, it should inform me of something real. But that really only applies to specific markets and relative prices. For example, if real estate deflates because of an oversupply, it should be allowed to do so. I think there’s a good case to be made that systemic inflation should be fixed and low (and positive). And that’s what monetary policy seeks to influence. I’ve got no problem with that.