Austrian economics = faulty due to paradox

Quote from buzzy2:

Krugman is a Keynesian-Socialist fool.

Bad investments turn out to be bad companies, companies that should not exist. When these companies go broke, a lot of people go out of work hence the increase in unemployment. Anyone remember all those bullshit internet companies from the 90's? They went broke because they had to. They were "bad investments".
Krugman is just applying his Keynesian Income identity, which is (simplest case): Y=C+I+G. So according to "genious" Krugman if I=Investment goes down then C=consumption goes up, assuming Y is constant. But that's wrong because malinvestments are "I" from previous periods not the current period, and the current effect of the "bust" is a crash in "Y".

Krugman admirers are pitiful.
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Sure increase the G (government spending), lower rates and try to get C and I back up in an attempt to keep Y from crashing.

First time this will work like a charm, the next slump might also be avoided but if a bust never happens more risk will be taken and a big crash will sooner or later be inevitable, rates cannot be lowered enough, government spending cannot be increased enough.
 
Quote from Voodoo-king:

Sure increase the G (government spending), lower rates and try to get C and I back up in an attempt to keep Y from crashing.

First time this will work like a charm, the next slump might also be avoided but if a bust never happens more risk will be taken and a big crash will sooner or later be inevitable, rates cannot be lowered enough, government spending cannot be increased enough.
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Hey genious, if you apply Krugman's reasoning then if you increase G then either C, I or both have to go down then there is no effect on Y so you're wrong.
 
Quote from buzzy2:

Hey genious, if you apply Krugman's reasoning then if you increase G then either C, I or both have to go down then there is no effect on Y so you're wrong.
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Seems like he wrote what he wrote in a nonsensical way to provoke a response in a given direction..

anyway when a recession hits Y=GDP goes down the whole point of keynesian interventions is to offset this.

My point is simply this works until it doesnt.
 
regarding all this talk of gold.

Austrian economists don't even support a government forced gold currency, they instead promote a market currency. That is whatever currency the unfettered market prefers. This would likely result in electronic/paper gold or commodity baskets.

The arguments regarding there not being enough gold to go around are pretty dumb. When you think about what makes a price in the real world say $10, it is actually a ratio, like a currency pair

Only the dumbest people hold hard dollars as an investment. Arguments like "what if everyone hoards gold" assumes that people are stupid and value physical money more than real investments and consumptionables. Shit, everyone could be hoarding dollars now. If gold is a good investment, then people will bid up gold. If oil is a good investment, then people will bid up oil. It doesn't matter if it is deamed "currency." The usage of currency is basically a reference point. A loaf of bread is $2 and a car is $20,000, so a car is worth $10,000 loaves of bread. This relationship maintains regardless of the currency.

The real question is if deflation is a problem under a gold currency. For arguments sake, lets assume that the supply of gold is fixed and the population is growing. Will the number of loaves of bread for the car change? Will there be a market clearing price for a loaf of bread? How would human behaviors differ?

Over say ten years, an ounce of gold will likely buy more goods than on year one. Then people would hold gold as an investment instead of say shoes. People in essence invest according to what they believe would occur in the future.

Scenario 1: We have a fiat USD currency. You think gold will outperform the USD currency because the USD has inflation. This results in you saving your excess profits in gold. (assuming only two choices gold or USD)

Scenario 2: We have a gold backed currency. You think gold will outperform a foreign fiat currency because the currency has inflation. This results in you saving your excess profits in gold.

In both situations , the human actions are the same, hoard gold. It would not matter what the actual "currency" is because it is only a number- the denominator in a transaction. Now assume that there is an investment like a fish farm that has an internal growth rate of 15%, than it would out compete both typres of currency. In the real world-now and a hypothetical gold world- there is an equilibrium price where all asset classes theoretically will return the same amount in the future or arbitrages will take place.
 
scriabinop23 said ...
*** = my comment, not the be-all end-all


Austrians don't like government intervention, banking multipliers (leverage).
***mainly true, leverage through debt is OK if done without gov backing***
They like pure and free markets.
***true as long as nobody's rights are infringed***
Austrian school don't believe money supply should be ever -not- backed by some precious metal commodity.
***Wrong, they generally support gold, but don't view it as the inevitable currency***

They like completely free and unfettered markets.
***Not really sure what you mean, but they are against barriers to trade***
Social consequences don't matter to the Austrians.
***obviously false***

no trampoline or safety net.
***generally true, but there may be an exception with geolibertarians***
Money for investment is harder to come by
***not sure where this idea comes from, investment comes from savings regardless of currency or leverage in the long run. People would likely hold more physical or tradeable assets instead of dollar gauranteed ones***

inherent incompatibility with socialist society
***yes, and I'd say that's a good thing***

Austrian economics want pure capitalism (self interest), yet they want to purposefully exclude self interest motivated capitalistic behavior in the government and beholden sectors (banking) from acting capitalistic. In truth, what is happening today is a perfect example of the banking cartel having their way, continuing a transfer of wealth from the populous to themselves through their connections. But by definition, this is free market behavior, just as monopolies and oligopolies occur in free market.
***Lets get away from using the word capitalism as it was defined by marx as something like a system of government that uses capital. This could include anything and is a largely hijacked word that serves no real purpose. Austrians support free markets. A free market is a market without governmental inteference. Self interest is irrelevent, as people will act according to their own self-interest under every economic system. Austrians are not reflexively defenders of "self-interest." For eample Billy steals four apples from Emily because he benefitted. Austrians would be against this because of the non-aggression principle and propertyrights.***


So if I am seeing it correctly, the Austrians want their cake (a government and banking cartel not involved in the capitalistic pursuit) and at the same time unfettered capitalism.
***they want free-market banks not gov backed banks***

But by definition, the behavior of those in power to continue the perpetuate their power is the hallmark of unfettered and unregulated capitalism.
***The very moment a bank or other economic actor successfully utilizes the power of the government to gain an avantage, it would be just like stealing property, against the non-aggression principle. Government rent seeking is obviously frowned upon by libertarians. I elieve your confusion revolves around the concept of self-interest and its non-central role in libertarianism. Self-interest is assumed. Self-interest is not promoted when it conflicts with other's rights.***
 
Quote from scriabinop23:


So the flaw I see besides an inherent incompatibility with socialist society: A paradox. Austrian economics want pure capitalism (self interest), yet they want to purposefully exclude self interest motivated capitalistic behavior in the government and beholden sectors (banking) from acting capitalistic. In truth, what is happening today is a perfect example of the banking cartel having their way, continuing a transfer of wealth from the populous to themselves through their connections. But by definition, this is free market behavior, just as monopolies and oligopolies occur in free market.
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I agree with your initial post. After realizing this point, it becomes much easier to live with our imperfect world :) The Austrian system cannot be implemented on a large scale nor for long periods of time because of the paradox you pointed out. Regardless of money being sound or funny, helicopter central bank or none, rampant gov corruption or not, you can always get ahead by working with the system, whatever mess it is.
 
Quote from scriabinop23:


Austrians want government regulation to protect all industry from monopoly (which is a natural consequence of Darwinistic achievement at the top within capitalism) or unruly militaristic perpetuation of that power yet want markets that are free. Austrians want a very specific capitalism with a low barrier of entry to take place, viewing that as best. Besides that, they want government out.

I'm reading about anarcho-capitalism and see a blaring question unanswered: how the hell does a completely privately regulated system address the very natural human formation of monopoly? By default, those that attain monopoly power would perpetuate their own power by privately outfunding everyone else. We see an analog in lobbyist corruption in government.
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AFAIK Austrians in general oppose anti-monopoly laws, with the possible exception of true necessities such as food, water, emergency medical treatment etc.

I totally disagree with you that monopolies are "natural", or anywhere near as common as you suggest. Can you name any "monopoly" that has no substitute at any price? Apart from the State, of course ;)

Competition, substitution effects, high prices, and the huge pot of profits that temporary monopolies achieve are all incredibly strong forces that serve to limit any tendency to monopoly in a free market system. Many if not most true monopolies in history have in fact been the result of government charter or restraint on trade & competition. I would genuinely be interested if you could list say 5 currently existing monopolies operateing in free markets that have no substitutes at any price. If they have any competition, then they aren't a monopoly, by definition.

Regarding money supply, Austrians seem to support a gold standard. Libertarians support free banking.
 
Quote from Daal:

One of the main theories of austrians is that the gold standard is better because government doesn't intervene in the money supply and that will prevent bad things. Well in the great depression the Fed hoarded gold instead of allowing it to flow to the banking system and increase the money supply, that lead to massive bank failures, a severe contraction and a multi-decade bull market in the wellfare state.

fiat system of printing 3% more dollars a year has no disvantages to gold, either way you need the government behave to prevent harm from being done(Then Roosevelt devalued the dollar against gold, so the government can intervene just as often)
a Gold standard would work in a world where government is small and debt levels are low, but thats not the world anymore
but the Austrians are too damn frekking biased to admit that, 'rothbard could be wrong?no way'
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A 3% money supply growth has the disadvantage of reducing purchasing power of money to 25% of its initial value over 45 years - the typical length of a working person's career. That means they have to make a 4-fold *after tax* return on investment just to break even. Stealing from people at 3% per annum is immoral, even though it is a lesser amount than say 10% per annum.

Why not have a fixed money supply? Productivity-led deflation, such as we see year after year in the high-tech and personal computing sector (as opposed to deflation caused by credit destruction), is extremely beneficial for all involved. Why not just abolish legal tender laws and allow free banking? That way the market should provide the most efficient and useful form of money.

I agree with you about gold - it can be made illegal by decree so if the government is too corrupt not to inflate the money supply, they will also be too corrupt not to make gold illegal and devalue. Gold also costs far more to store and transport - totally wasted frictional costs.
 
Quote from buzzy2:

So according to you, Keynesianism and Monetarism have "certain weaknesses and failures" but they are not enough to discredit them.
But Austrians; "logical weaknesses" (not real, actually made up by yourself) are enough to "bring it down".

Thanks for showing us your bias. You pretend to be rational and open to discussion, but you are the real ideological zealot.

The Scientific Method says that theories must be tested by their predictions: did textbook Keynesianism predict the current crisis? No. Did textbook monetarism? No. Did textbook Austrians? YES!!!

You are just bullshitting us.
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I disagree. Non-austrians also predicted the current crisis (examples - Soros, Taleb, Robertson, Roubini).
 
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