A Question for Austrian Economists

[jryan54]

Okay, so I have a little bit of an economic background from having studied micro and macro and econometrics at Uni many moons ago. So a mate recently gave me a copy of Ron Paul's End The Fed book...and its pretty interesting.

Paul certainly makes some very valid points with the expansion of the money supply and the significant inflation that we have all experienced...theres no doubt that certainly after the QE1 & 2 that there is definitely and asset bubble that has to pop at some stage.

So my question is...the Austrians advocate moving back to a gold standard as a legitimate check/balance to ensure that the money supply doesnt get horribly expanded through things like fractional banking etc..so in that case...how do we manage the business cycle?

If the government is unable to expand the currency supply at will and retract it at will doesnt that remove some of the major fiscal tools that they have available to try and cushion/manage the economic cycle? Or do Austrians suggest that these peaks and troughs will smooth out with less government intervention.

I must admit it takes some serious getting your head around this after having come at the problem from a Keynesian point of view. Lots of things lately are making me wonder about the validity of research that has been done into the overall business cycle.

 

[productionhead]

but bitcoins bro

 

[BlokBlok]

The market dictates itself under Austrian Economics, there is no managing it.

 

[scottspfd82]

Chapters 9 & 10 cover it pretty well.

http://www.adamsmith.org/sites/default/files/resources/austrian-primer-text_2.pdf

In short, regarding the business cycle, the boom/busts they're "managing" are caused by the fact that they're manipulating the economy in the first place.

If you're talking booms and busts that would occur in a truly free market economy, they would work themselves out naturally, and much more efficiently, without government manipulation.

 

[guerilla]

Okay, so I have a little bit of an economic background from having studied micro and macro and econometrics at Uni many moons ago. So a mate recently gave me a copy of Ron Paul's End The Fed book...and its pretty interesting.

Paul certainly makes some very valid points with the expansion of the money supply and the significant inflation that we have all experienced...theres no doubt that certainly after the QE1 & 2 that there is definitely and asset bubble that has to pop at some stage.

Ok, I gotta address this first. I am 95% certain Tom Woods has been ghost-writing Ron Paul's books since The Revolution Manifesto. So you're reading a book by AE's best historian since Rothbard, but it's not Ron Paul. And I have no doubt Woods dumbs a lot of stuff down for the RP audience.

Ok, now...

I am not sure about the asset bubble per se. We're in a period of intense deflation, and yet general price inflation is continuing.

Imagine we're in a period of prices falling @ 2% per year. But we're experiencing net CPI inflation of 3%. That may mean the net impact of monetary inflation is 5% inflation, which is partially offset by 2% deflation.

Or looked at another way, the deflation is hidden behind moderate inflation. While moderate inflation doesn't sound so bad, if real prices should be deflating 2% that's actually a significant swing.

So my question is...the Austrians advocate moving back to a gold standard as a legitimate check/balance to ensure that the money supply doesnt get horribly expanded through things like fractional banking etc..so in that case...how do we manage the business cycle?

Austrians may advocate a gold standard, but AE does not. AE is value free. It doesn't say choose gold, or choose silver or choose Bitcoin. It says, if you do X, then you will get Y. Whether X is possible or Y is desirable is left to the individual. AE only helps you understand cause and effect.

The "business cycle" to Austrians, is a product of monetary inflation. There is a natural cycle of inflation and deflation, one correcting the other, then reversing back because the economy is imperfect (it's not evenly rotating).

Tom Woods explains this from an Austrian perspective pretty well, here

[ame=http://www.youtube.com/watch?v=541bajR4k8g]Meltdown | Thomas E Woods, Jr. - YouTube[/ame]

If the government is unable to expand the currency supply at will and retract it at will doesnt that remove some of the major fiscal tools that they have available to try and cushion/manage the economic cycle?

This presumes that a politically motivated government is wiser than markets. It's actually the basis for (economic) communism. That we can plan the economy and can ignore the sum of individual value and choice.

Or do Austrians suggest that these peaks and troughs will smooth out with less government intervention.

I just want to stress again, Austrian opinions != Austrian economics.

I would hope an honest Austrian would say that it's better to have free market peaks and troughs than government created peaks and troughs.

I must admit it takes some serious getting your head around this after having come at the problem from a Keynesian point of view. Lots of things lately are making me wonder about the validity of research that has been done into the overall business cycle.

Mises was the boss of the business cycle, and Hayek followed up on his work to win the Nobel. AE is radically different from Chicago, Keynesian, and Neoclassical economics because it is completely different methodologically. It is based in praxeology and is derived a priori from axioms.

hth

 

[guerilla]

I wanted to clarify the end of my last post.

AE is about methodology. It's not a set of "beliefs".

So there is no, if you're an Austrian you must be pro-Gold, pro-libertarian, pro-anarchist, pro-Ron Paul, pro-conservative, pro-pot etc.

 

[pinchyfingers]

What BlokBlok said.

Thinking we can manage the business cycle is pure arrogance.

I'll let Thomas Sowell expand on that:

[ame="http://www.youtube.com/watch?v=Wln6lNTxVpY"]Uncommon Knowledge: Thomas Sowell on the Vulgar Pride of Intellectuals - YouTube[/ame]

 

[charlesmartel]

Read this it's by Rothbard:

How the Business Cycle Happens - Mises Institute

 

[jryan54]

Thanks everyone...in particular Guerilla. Now I have to ask the question....considering that university (and I went to a good one) is all about learning and contrasting different views....WTF did they not at least touch on some of the dissenting views on the business cycle and economics in general whether they agree with them or not.

Seems VERY short sighted to have a graduate of a business degree with a major in economics without even discussing some of the alternative options to keynes. grrrrrr

 

[Kiopa_Matt]

^^^ Ohhh, George Carlin can answer that one!

[ame=http://www.youtube.com/watch?v=acLW1vFO-2Q]George Carlin ~ The American Dream - YouTube[/ame]

 

[drave]

Thanks everyone...in particular Guerilla. Now I have to ask the question....considering that university (and I went to a good one) is all about learning and contrasting different views....WTF did they not at least touch on some of the dissenting views on the business cycle and economics in general whether they agree with them or not.

Seems VERY short sighted to have a graduate of a business degree with a major in economics without even discussing some of the alternative options to keynes. grrrrrr

i have a finance & international business double major from a very well-regarded university, and after spending 15 years in the real world, i can say that 95% of what they "taught" was garbage. they were obsessed with the net present value of "X". i spent 4 years calculating the NPV of everything, i guess because it was testable. i've used NPV here & there in my career but its basic shit. nothing on how to be a good analyst, how to evaluate businesses, etc... all the useful shit i had to figure out on my own.

in the online world, i'd equate it to spending 4 years & $60k learning how to buy a domain.

 

[drave]

my brother was recently complaining about his 16 y/o son's bad grades and the college implications & i told him he ought to try to turn his son onto the internet economy rather than the old guard. he asked me for links i could pass along. i thought about wickedfire, but knew in about 2 seconds my nephew would be staring at a cock rotating to the beat of a popular 90s tune, and thought "maybe college is best".

 

[scottspfd82]

Thanks everyone...in particular Guerilla. Now I have to ask the question....considering that university (and I went to a good one) is all about learning and contrasting different views....WTF did they not at least touch on some of the dissenting views on the business cycle and economics in general whether they agree with them or not.

Seems VERY short sighted to have a graduate of a business degree with a major in economics without even discussing some of the alternative options to keynes. grrrrrr

In my opinion Keynesian economics is designed to maximize the amount of wealth a state can exploit from it's population.

AE is designed to maximize the value that individuals can gain from voluntary transactions between free individuals. This is detrimental to the state.

Who owns your university?

Now imagine that you went to a university owned by Budweiser. Do you think the curriculum would talk about the history of beer, the innovation of micro-breweries and tell you about the latest craft beer that you should try?

Or would they teach you about the amazing history of Budweiser? How they've perfected the brewing process. How they, against all odds, overcame constant attacks against them from evil competitors to end up on top...

...About all of the great things they do for the country. Sponsoring sporting events. Stimulating the economy. Blah blah..

The beer analogy isn't the best, it's late. But I hope that gets the point across.

For an interesting perspective on education, and the motives of those that write the curriculum this is a good read, fairly short too.

http://media.freedomainradio.com/fe...hip/FDR_Book_the_handbook_human_ownership.pdf

 

[drave]

In my opinion Keynesian economics is designed to maximize the amount of wealth a state can exploit from it's population.

AE is designed to maximize the value that individuals can gain from voluntary transactions between free individuals. This is detrimental to the state.

Who owns your university?

Now imagine that you went to a university owned by Budweiser. Do you think the curriculum would talk about the history of beer, the innovation of micro-breweries and tell you about the latest craft beer that you should try?

Or would they teach you about the amazing history of Budweiser? How they've perfected the brewing process. How they, against all odds, overcame constant attacks against them from evil competitors to end up on top...

...About all of the great things they do for the country. Sponsoring sporting events. Stimulating the economy. Blah blah..

The beer analogy isn't the best, it's late. But I hope that gets the point across.

For an interesting perspective on education, and the motives of those that write the curriculum this is a good read, fairly short too.

http://media.freedomainradio.com/fe...hip/FDR_Book_the_handbook_human_ownership.pdf

well done, superclear. but is it based in praxeology and derived a priori from axioms?

 

[cpauser]

^^^ Ohhh, George Carlin can answer that one!

George Carlin ~ The American Dream - YouTube

does anyone else get the irony that Carlin did achieve the america dream through his stand-up career?

I think most of us can agree that unless someone finds a way to power cars and treat disease with clothes & electronics, the CPI is worthless

But the monetarists won, sorry guys. Boom and busts are here to stay (but with longer booms and very brief busts). The last bull market lasted 5 years and the present is over 4 (with no signs of slowing. The system, for all its flags, rewards investors who ride though the bubbles and busts. The goal of policy is to keep busts as brief possible, not prevent them entirely.

 

[guerilla]

Thanks everyone...in particular Guerilla. Now I have to ask the question....considering that university (and I went to a good one) is all about learning and contrasting different views....WTF did they not at least touch on some of the dissenting views on the business cycle and economics in general whether they agree with them or not.

Well, the Austrian school almost went extinct. In the 1970s, all of the Austrians in America basically new each other on a first name basis. I think there were less than 20.

It's only in the last 10 years the school has had a huge resurgence. People are rediscovering Mises, Rothbard, Menger, Bohm-Baewerk. There are Mises Institutes in like 25 countries now, annual awards and conferences, lots of publishing and a new generation of Austrian economists coming up through undergrad programs (although anyone can learn AE, it is quite simple once you understand it's a method not a series of opinions).

It's quite likely your professors didn't even know the Austrian school existed, as the Chicago school sort of co-opted Hayek, the most mainstream of the Austrians.

 

[scottspfd82]

well done, superclear. but is it based in praxeology and derived a priori from axioms?

does anyone else get the irony that Carlin did achieve the america dream through his stand-up career?

No. He provided scalable value to millions of people. Anyone who delivers that much value to that many people is going to be successful. Most people will never do that. So I'd agree with him on the "It's all a lie" thing.

I think most of us can agree that unless someone finds a way to power cars and treat disease with clothes & electronics, the CPI is worthless

But the monetarists won, sorry guys. Boom and busts are here to stay (but with longer booms and very brief busts). The last bull market lasted 5 years and the present is over 4 (with no signs of slowing. The system, for all its flags, rewards investors who ride though the bubbles and busts. The goal of policy is to keep busts as brief possible, not prevent them entirely.

Booms and busts happen in free markets too.

The goal of the system is to keep the herd productive in the short-term regardless of long-term consequences. The house of cards will collapse soon.

 

[drave]

 

[guerilla]

In my opinion Keynesian economics is designed to maximize the amount of wealth a state can exploit from it's population.

AE is designed to maximize the value that individuals can gain from voluntary transactions between free individuals.

I think a better way to express this dichotomy is that AE is about markets, and Keynesian economics is about central planning.

AE doesn't have values. It doesn't care about voluntarism or freedom or liberty. It will however help people understand what economic conditions leads to those things, and which do not.

Keynesian economics on the other hand is a set of beliefs or opinions, that are somewhat congruent, but if you accept some of it, you basically have to accept it all. It's less a framework for analysis, and more like a recipe for macroeconomics.

 

[Grindstone]

I could fap to this thread.