A few thoughts and links on libertarian economics:
von Mises was certainly groundbreaking and is definitely worth studying, though he hurt his credibility with the failed prediction that the pound would collapse. Schiff hasn't exactly covered the Austrians with glory either, repeatedly predicting the collapse of the dollar. Hayek and Friedman tended to be both more moderate and more professorial in tone, which is probably why they've been better received (there's a great Facebook page that regularly publishes Friedman's videos).
Still, the Austrian notion that economics is ordinal rather than cardinal is strongly appealing. Utility is a concept that lies somewhere in the 120 trillion synapses of the human mind. The notion econometric equations, especially those utilizing macroeconomic aggregations like aggregate demand, can be reliably predictive seems deeply flawed. We don't buy globs of GDP, we buy specific things that we, as individuals, want.
That's why the nonsense peddled by Krugman and the other neoKeynesians is so scary -- they make the same mistakes the Communists made, just on a less totalitarian scale. You cannot get away from the marginal propensity to produce, nor you can substitute the production of things people don't choose to buy (via gov't spending) for production of the things they do choose to buy (private sector spending); only one of those is truly, efficiently productive (roads and regulation may be efficiently productive, up to a point, but when gov't spending is already at 45% of GDP the large majority is certainly going to be less productive than if spent in the private sector). Conflating the two and increasing gov't spending on that basis during a recession just results in further misallocating resources. The recession happened because we produced too much stuff (esp. housing) that people didn't actually want, mostly because the government inflated the bubble with easy credit for reasons of social policy, and it's going to take time and pain to redirect resources into producing things people do want.
If there's one point libertarians could best serve society by promulgating and proselytizing, it's that virtually every reason that people's lives aren't a short, brutal experience of miserably cold, sick, and hungry competition for scarce resources is the result of a productivity improvement that resulted in either a new product or a cheaper, better version of an existing one -- and 99% of such attempts at inventing new or better products fail, which is why it's vitally important not to overly hinder the process if we want the improvement in the human condition to continue.
From the gist of your post you obviously have a handle on economic theory. Things like "econometric equations" and "macroeconomic aggregations" however, leave the novice free market types like me bewildered.
I've read Human Action and Socialism by von Mises, Economics and the Public Welfare by Anderson, Free to Choose by Friedman, a number of books by Hazlitt, and Oscar Wilde's The Soul of Man Under Socialism.
Of all these, Oscar nailed it.
But, you seem to be an advocate of Milton Friedman. I despise the man. I can see little difference between his monetarist theories and Keynes. So Friedman wants to limit monetary expansion to a set percentage, say 5%. It's just a matter of degree. And it's all subjective. In my humble, economically ignorant opinion, Friedman for all his popular advocacy of free markets never understood that wealth is a creation separate from money. He seemed to think that not only did money facilitate wealth creation, but that production could actually be enhanced by monetary expansion.
BFD that he wanted a central bank to limit the money supply. Any idiot who looks at the 2,000 year history of western civilization knows that governments will never limit fiat money creation. In fact, were Friedman alive today, how could he criticize Bernanke, since QE2 is only supposed to create 2% inflation?
In the final analysis, I believe that people like Milton Friedman are worse than useless. Production and wealth creation are NOT contingent on a means of exchange. Money and credit may grease the flow of goods and services, but money is basically just like grease, a slippery ointment that when supplied in excess only gums up the transaction. Money never created a damn thing, only the human mind is capable of that.
Frank · November 20, 2010 12:37 AM
Frank,
Aggregate demand is the total demand for final goods and services in the economy.
The problem with this notion is that it lumps together billions of decisions as though they were fungible, all the same interchangeable things, when they actually represent a billion different individual notions of utility at time of purchase. Such aggregations may be a useful shorthand here and there, but their shortcomings are too often overlooked.
On Friedman -- the argument of the monetarist school isn't that monetary expansion creates wealth, but that (contra Keynes) money supply does matter in terms of inflation. Indeed, the most famous statement of monetarism is that inflation is always a monetary phenomenon.
Would Friedman support QE2? Sort of. It seems most likely Friedman would have argued
1) banks that bet wrong should not be bailed out
2) too big to fail is too big to exist in a free market
3) the housing market must equilibrate after decades of gov't distortion
Unfortunately, none of those things have really been fixed. So I think MF would be agnostic on QE2: it might be appropriate given the falling velocity of money and low inflation, but it doesn't address the structural problems.
Exactly. But monetary expansion without an increase in production is inflationary. Where's production increasing in this country?
What we have now in our fiat system are nothing more than poker chips. In and of themselves they have no value. Their is no silver, gold, oil, or any other commodity backing them, only the good faith word of our government and central bank. So Bernanke decides to create almost a tillion more of them without any corresponding increase in economic activity. If this isn't the definition of inflation, I don't know what is. And they are being added to the pile of other worthless chits waiting to be redeemed by foolish creditors.
Do you actually believe that this country will produce the wealth necessary to pay off its national debt, let alone all the state and municipal debt? No, what we will do, and with these recent QE actions have started doing, is monetize the debt. Either that, or outright default on it.
To create the wealth necessary to pull us out of this mess, there would have to be a wholesale reversal of government constraints placed on commerce over the last 30 to 50 years. Instead, we are seeing an expansion of government with cap and trade, shutting down the coal industry, expansion of government ownership through regulation of timber harvest, mining, and agriculture, the takeover of health care through regulation and partnership with insurance, EPA expansion, and on and on.
The monetary maneuvers of the FED are just moving the deck chairs around on The Titanic.
Frank · November 20, 2010 11:41 AM
Oscar Wilde: what a sickening loser. I stand second to no man in my general and well-deserved disdain for the political and economic opinions of poets, novelists, musicians and other such riff-raff, but Oscar stands in a pit deeper, for his own digging, than others.
He deliberately launched upon a self-destructive course with his lawsuit against Queensberry, then had the gall to reject the advice of friends to flee. His wife, a monumentally good soul, was prepared to forgive and follow him, and might have been waiting for his release from jail had she not died, guaranteeing his children would be raised by people who hated everything he had managed to accomplish before he left the rails.
He had neither the strength to avoid premature fatherhood nor the self-command to act like one; may he rot in hell.
Oh, yes, the delicious comments about the Fed; honestly: to continue the otherwise silly metaphor, it's like blaming the Titanic on the Carpathia.
Fannie and Freddie were entirely independent of the Fed, under neither their jurisdiction nor their watch. The Democrats of the U.S. Congress made sure Fannie and Freddie got their own head, so long as home ownership grew and morphed into a cargo cult.
There was no way the Fed could rein in the money supply of the inflationary twins without destroying manufacturing and retail. One might blanch at that, and not be a coward.
And had the Fed pushed the prime rate to 10% in 2004-5? No one would have believed the threat of Fannie and Freddie, all the Newsweeks and Times and NY Times would have ridden to their defense and the Democrats would have a majority in the Congress anyway in time for the collapse, *anyway*.
Yet people still talk about the Fed. "The fault, dear Brutus, lies not in our stars, but in ourselves..."
The thing about Austrian predictions is that one must take note of their "if-then" structure, i.e, they have a lot of conditions. Critics simply ignore the conditions, not out of malice, but because macroeconomists don't make those kinds of predictions. They run some numbers through their model, tell you what GDP or unemployment should be, and state as though it's a fact.
For example, Schiff was right about the 2008 rally being a bear market rally. His predictions of dollar collapse were largely contingent on China and other foreign banks dumping dollars. But what happened is that the Eurozone had its own sovereign debt crisis, making the dollar look like a relatively safe haven by comparison. This, and China's policy of gradually easing out of dollars instead of dumping them, prevented any kind of flash crash in the dollar. So he was "wrong" in that a number of the prerequisites for his prediction didn't come true. I suspect Mises' predictions of a collapse in the pound had similar qualifications.
But also, the dollar *has* resumed its slide. It hasn't been an instantaneous collapse, but its purchasing power is indeed eroding, perhaps more quickly than most people realize.
I never judge a person by the personal mistakes in their lives, but rather by their achievements. In the case of Wilde, his essay on Socialism was brilliant. He focused on the contradictions inherent in trying to make capitalism into charity, and laid out the true end result of such nonsense by constructing an anarchist/socialist ideal. And isn't that exactly what we are now heading for in this country? Health insurance, retirement income, schools, all government funded charity.
If you cast aside every creative genius who doesn't live up to some ideal moral standard, then we can disregard such greats as Wilde and Noel Coward for their homosexuality, Hemingway and Jack London for their alcoholism, Ayn Rand for her adultery...oh, that's right novelists shouldn't have economic or political opinions, let alone expound a philosophy. Losers all.
And Peter Buxton, Oscar Wilde didn't have to die to suffer hell - he lived it in Reading Goal, and died a broken and broke man.
The Anti-Idiotarian Rottweiler
Don?t bang your head!
From the gist of your post you obviously have a handle on economic theory. Things like "econometric equations" and "macroeconomic aggregations" however, leave the novice free market types like me bewildered.
I've read Human Action and Socialism by von Mises, Economics and the Public Welfare by Anderson, Free to Choose by Friedman, a number of books by Hazlitt, and Oscar Wilde's The Soul of Man Under Socialism.
Of all these, Oscar nailed it.
But, you seem to be an advocate of Milton Friedman. I despise the man. I can see little difference between his monetarist theories and Keynes. So Friedman wants to limit monetary expansion to a set percentage, say 5%. It's just a matter of degree. And it's all subjective. In my humble, economically ignorant opinion, Friedman for all his popular advocacy of free markets never understood that wealth is a creation separate from money. He seemed to think that not only did money facilitate wealth creation, but that production could actually be enhanced by monetary expansion.
BFD that he wanted a central bank to limit the money supply. Any idiot who looks at the 2,000 year history of western civilization knows that governments will never limit fiat money creation. In fact, were Friedman alive today, how could he criticize Bernanke, since QE2 is only supposed to create 2% inflation?
In the final analysis, I believe that people like Milton Friedman are worse than useless. Production and wealth creation are NOT contingent on a means of exchange. Money and credit may grease the flow of goods and services, but money is basically just like grease, a slippery ointment that when supplied in excess only gums up the transaction. Money never created a damn thing, only the human mind is capable of that.