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Source link: http://archive.mises.org/10240/genius/


July 7, 2009 by

Economist Robert Frank has discovered a Ph.D powered economic perpetual motion machine that lifts itself by its own bootstraps, as explained by Mark Steyn:

The stimulus will work because enough economists are saying it will work that their prestigious postnominal credentials will impress enough of the masses into thinking it will work, which in turn will make it work.

And for those who enjoy the engineering details of levitation devices, here’ Frank’s technical description of his Rube Goldberg self-bootstrapping perpetual motion machine:

The argument of stimulus opponents hinges on their belief that consumers and businesses will predict that stimulus won’t work. The fact that stimulus opponents are far less numerous, have less distinguished academic credentials, on average, and are far less ideologically diverse than their counterparts does not guarantee they’re wrong. But these factors should make rational consumers and investors less likely to side with them. And since this is really an argument about expectations, that’s probably enough [to win the argument claiming that stimulus spending will reduce the government's long-run debt burden by shortening the downturn, and thus stimulus spending will not making matters worse.]


Thinker July 8, 2009 at 12:11 am

This sounds a lot like the socialists’ “rebuttal” of Mises’ Economic Calculation in the Socialist Commonwealth-just brainwash the ignorant populace!

PJ July 8, 2009 at 1:41 am

If it’s all about expectations, why not take a cheaper action to boost expectations on?

End the Fed July 8, 2009 at 2:35 am

Well, that depends on your expectation of the boost. Why not boost the expectation of the boost? But that depends on your expectation of the boost of the expectation of the boost. Why not boost THAT? Etc. See how easy it is to come up with a $1 quadrillion mortgage derivatives market?

化工设备 July 8, 2009 at 2:58 am

so nice!

Artisan July 8, 2009 at 5:30 am

ROFL … I’m heading to my trader right away doing some more short selling !

DJF July 8, 2009 at 5:46 am

Faith based economics. That worked so well with the Dot-Com and Housing bubbles where people had faith that prices would keep on going up.

Why not go all out and mail to every ones home little statues of Tim Geithner and Ben Bernanke so we can all burn incense and pray to them.

On a more serious note, my thinking that the stimulus won’t work is not based on the idea that people won’t believe, its based on the idea that the problem we have is that many people borrowed large sums of money and invested in the wrong things and that having the government borrow even more money and invest in more wrong things is not going to fix anything

Stephen W. Carson July 8, 2009 at 6:38 am

It is remarkable how, when they get desparate, these great, academically respectable economists fall back on “There’s a sucker born every minute” psychology. I’m reminded of Keynes’ “animal spirits”. All the fancy equations and mathonomics and degrees come down to this: “We can use our establishment respectability to fool people.” Pathetic.

JP July 8, 2009 at 7:44 am

Wow, I thought this was a joke.

fundamentalist July 8, 2009 at 7:46 am

Maybe we should all sit around in the lotus position and meditate the recession away.

Horst Muhlmann July 8, 2009 at 9:19 am

Oh my God!

From reading the summary, I thought this Frank character was writing satire. He was actually being serious in the article.

Magnus July 8, 2009 at 9:59 am

This guy’s economic methodology is eerily similar to the way that mystics and fortune tellers operate — they say that their magic doesn’t work when there are non-believers present.

Conveniently, this “argument” insulates such mysticism from any challenges based on empirical testing or verification.

In other words, it only works if you believe it works.

I am reminded of the Quotable Mises:

Governments, political parties, pressure groups, and the bureaucrats of the educational hierarchy think they can avoid the inevitable consequences of unsuitable measures by boycotting and silencing the independent economists. But truth persists and works, even if nobody is left to utter it.

Rajesh Dhawan July 8, 2009 at 11:54 am

Will ignoring reality, change it?

Having lived in the land of perpetual stimulus (India) and seen it’s devastating effects, it won’t be long before the U.S. economy is stimulated to death.

Then what? Will Obama and his cronies stimulate the zombie back to life?

Brent July 8, 2009 at 12:34 pm

So when the ignorant masses (and economists) finally come to the consensus that the stimulus failed, I suppose they’ll blame its failure on us “haters”. To the Gulag!

Andrew_M_Garland July 8, 2009 at 1:37 pm

Obama’s economic team says that if you give people $1,000 they will spend it and “create” $1,500, a multiplier of 1.5 on real wealth. I say, just give me the thousand or million, and I don’t care what other people do with it. Isn’t that closer to the spending (I mean fiscal) policies of the government?

Unfortunately, economics is confused by what I call the “color TV” effect. People couldn’t adjust their color TV’s in the beginning, because each adjustment of color, brightness, and contrast affected the other two. The industry was saved by the automatic adjustment circuit.

In economics, there are usually a few parameters, like a color TV, and people can’t wrap their minds around the problem. They may be suspicious of a claim, but they are not sure, and it would certainly be GREAT if the claim were true.

So here is my argument that I hope will convince more people that the Obama administration and all Keynesians are harming us.

When an idea leads directly to a crazy result, what should we think about that idea? Maybe laugh at it until the proponent explains in detail how it works. If Obama, Keynes, and their proclaimed wealth multiplier of 1.5 on government spending are correct, then it would be valuable to counterfeit as much money as possible, of course under government regulation. You don’t have to borrow counterfeit money, or pay it back. It is ideal for Keynesian government projects.

Let’s Counterfeit Our Way to Wealth

Mark Ennis July 8, 2009 at 2:41 pm

All of these economists were universally preaching that the bubble would not burst in the first place. And the un-diverse crowd (us) that ensured them that it most certainly would, were right. Their unanimity prevented nothing.

But now speaking with one voice against the doubting thomas critics is going to be enough to make the economy recover?

CraigC July 8, 2009 at 4:01 pm

For non CPAs – A Stimulus Explanation

It is the month of August, on the shores of the Black Sea. It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

A rich tourist comes to town.

He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher.

The Butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel.

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town’s prostitute that in these hard times, gave her “services” on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the rich tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.

And that, ladies and gentlemen, is how the United States Government’s Stimulus Plan works.

Sean July 8, 2009 at 4:16 pm

If it’s all about expectations, how then do the Obamanites defend him talking down the economy, warning of a potential doomsday scenario in order to pass his stimulus plan. Certainly encouraging words from the face of the stimulus plan that will work (according to this) by boosting expectations.Oh but then he passed the stimulus package which in turn eliminated any of his predicted doom. The blind herds will see everything as ok, and so shall be. I never knew economics was this simple, maybe i will get my PhD. Or become a politician, take as much money from people as I can while still convincing them it will help the economy; pocket the bulk of the money while creating symbolic institutions that look like they’re doing something. The economy will be good so long as i can convince people that things are going according to plan, and i will be a wealthy politician (as if it exists any other way).

Deefburger July 8, 2009 at 5:12 pm

So, the conclusion is that having an asshat and a PHD makes you capable of magic…Wow! Move over Jesus, there’s a new miracle man in town!

@Fundamentalist: That would have been prefferable to “Stimulus”!

@CraigC : Beautiful!

Rah! Rah! Hiss-Boom-bah! Go Economy GO! Woo Hoo!

There, that oughta stimulate some economies. Excuse me now while I go to the bank and explain to the manager how he’s supposed to believe in the larger amount I claim is “really” in my account and to just do his part to stimulate the economy by adjusting the numbers up to where they “ought” to be for the continued prosperity of the world and me specifically. I’ll use this guy’s “economic credentials” to make my case SOLID man S O L I D! He can re-reimburse his loss with the help of the FDIC, TARP etc. Who wil know?

Deefburger July 8, 2009 at 5:23 pm

What would BRAD DELONG say about this?

Sorry, I havn’t invoked the wrath of BRAD DELONG by using his lord’s name in vain in quite awhile.

Here my song
Turn the crank
Bake the bread
Shovel the clams
And bow your head
There’s wealth to be had
If you just believe
That money really grows
On theives!

Blessed are the cheesmakers, for they shall inherit the curd.

Yancey Ward July 8, 2009 at 8:01 pm

What’s the matter with Thomas Franks?

Where did he publish that if it wasn’t The Onion?

Yancey Ward July 8, 2009 at 8:33 pm

Oops, my mistake. Robert Frank, not Thomas Franks.

Andrew_M_Garland July 8, 2009 at 8:43 pm

To CraigC:

I always like that story, because it sets up a beautiful situation, just so. The tourist provides the catalyst, the money flows around, and everyone is happy. I like the bad-check version even better. The hotelier writes a bad check, the check goes around the town, and comes back to the hotelier, who tears it up. That version supports counterfeiting as a good thing, as at the link I gave above.

The less interesting, realistic version of the story goes like this.

The hotelier, unlucky and desperate, finds himself with no acceptable rooms to let. He owes everyone in town, who have supported him by extending credit. He spent his last Euro rather than sell the hotel to someone who could run it at a profit. The hotelier can only wait behind the desk for his creditors to call.

Meanwhile, the Butcher takes €100 out of his bank account, and the story proceeds as you have told it, with the Hotelier ending up with €100 owed and paid to him by the Hooker. He decides to rent rooms to other hookers in the future, but those that will pay him immediately rather than wait for €100 to fall into their laps (so to speak).

In reality, life is not caught in a trap of having no cash to exchange, and people have trading relationships with everyone. If they owe money to people, it is to everyone, not just the one person in a particular, circular chain.

In life, the Hotelier gets his €100 stimulus check, and he buys a few meals before going bankrupt.

The story as you told it depends on a group of people all doing useful work for each other. They have already produced things, already traded, and only need to collect their bills. They are all productive, just waiting for a stray €100 to allow them to settle up. The flurry of payments settles €500 in traded production, which makes it seem like the €100 has “multiplied” 5 times. Actually, it seems to multiply infinitely, because it was left over at the end.

The true value of a €100 “stimulus” is just €100. It transfers €100 in value to Frank, the person receiving it. Frank benefits, not when he gets the money, but when he spends it on €100 in goods produced by others. Those others, altogether, give him €100 in value, and altogether they work to produce that value.

It is true that €100 in production has been “stimulated” to give Frank his value. But, how will those people be paid; what value will they receive? For every Frank who receives his gift, there is a John who had the cash taken from him in taxes. That isn’t so stimulating. Or, the government merely prints the money and seemingly takes value from no one. In that case, the currency inflates, stealing a little bit of value from everyone holding cash in their wallets or in a bank.

newson July 8, 2009 at 10:14 pm

here in australia, our federal government has been sensible enough to spend $3.7m (us $2.9m) on signage to advertise its various “stimuli”.
it’s not enough to act to shore up the economy, accruing billions in debt, you’ve got to shout it from the rooftops, too.

confidence is delicate flower, and requires a deft gardener. (full bloom should coincide with federal elections in 18-24 months).

Jesse July 8, 2009 at 11:59 pm

Wow, that totally stinks.

I’m reading, and enjoying, Frank’s book, The Economic Naturalist… and I don’t see how he could write this book (the first half I’ve read so far has been really good), and then turn around and write that Forbes article that should really be published in the Onion.

Can someone please tell me that this is just some intricate joke?

Martin OB July 9, 2009 at 5:15 am


NIce summary of the absurd Keynesian worldview. When debtor-creditor relations go full-circle, the problem is trivially solved, without the need of a rich tourist. An IOU issued by the Hotel owner would also do the trick (he ends up accepting his own IOU), or a one-dollar bill cycled again and again until the full amount is paid. In real life, though, most people are either net debtors or net creditors.

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