“The only way I can think to show such a thing would be to show some kind of a large-scale market failure in a completely laissez-faire economy. But I’m not enough of a historian to know of any such economies. Do you know of any? Can you point to an economy with less government intervention that is or was more stable? I’m interested, and one of these days I want to read about Scottish free banking. If all we had to do to stabilize the economy was get rid of the Fed, I’d be all for it.”

If you’re worried about errors, contemplate the effect an agency subject to calculational chaos due to lack of requisite data that arrogates itself a monopoly over certain industries and tries to regulate others (as if it knows better) will have…

Settle down. Aggregate analysis is not specific to Keynesian economics. And yes, there ARE aggregates. Aggregate spending, aggregate savings, aggregate wages, etc. Have you not heard of the quantity theory of money?

>It doesn’t force wages down, it only displaces the marginally unproductive.

Wrong. It does not only displace the marginally productive. Employers do not strictly abstain from hiring workers whose market rate is just below the minimum wage. In many cases employers hire these workers at the minimum wage, and pay other workers less. They can do this because other companies are also bidding for the same supply of labor, and they too pay submarginal workers at minimum wage, which means they too have less funds available to pay other workers.

This holds true for the entire economy.

>If you’re generating $100,000 worth of value for a company, you’ll be compensated $100,000.

No, that is not how wage rates are formed. Workers do not “generate” value. Capitalists generate value because they are making the decisions. Wage rates are formed on the basis of supply and demand for the relevant labor type.

>Raising the minimum wage doesn’t impact the salaries of those above the new level.

Yes, it does. If employers pay submarginal workers more than their market rate, that is, if they pay them minimum wage, then employers have less money available to pay those workers who make more than minimum wage.

The only way I can think to show such a thing would be to show some kind of a large-scale market failure in a completely laissez-faire economy. But I’m not enough of a historian to know of any such economies. Do you know of any? Can you point to an economy with less government intervention that is or was more stable? I’m interested, and one of these days I want to read about Scottish free banking. If all we had to do to stabilize the economy was get rid of the Fed, I’d be all for it.

“I am unaware of a systematic problem inherent in the market system that is entirely uncorrectable without government-style intervention.”

The question is, is unsustainable growth more likely to occur in an economy that has government interventions like a central bank? To be honest, I don’t know. I don’t think the answer is obvious. Beyond that, I’m not prepared to defend a position, but it’s been fun talking to you guys

Certainly businesses affected by replacement technologies can contract due to those technologies. Certainly business can be affected by natural disasters or accidents. But both of these issues can be dealt with by the market system and are going to occur even with government involvement.

I am unaware of a systematic problem inherent in the market system that is entirely uncorrectable without government-style intervention.

The first keynesian slleight of hand lies in assuming Y to be equivalent to GDP by definition. It isnt for a number of reasons, th emost obvious being that it does not feature production that remains in the hands of , or is consumed by, the producer himself.

The second Keynesian sleight of hand lies in th emasking of how the G component is funded – those who spend C and invest I must have produced more than C+I if any G at all is to be possible ( assuming no government borrowing) . SO G is in fact T.

But wait, theres more, whhich gives the lie to the identity itself: G in the hands of those paid by government is ITSELF spent and invested (and in turn taxed in their hands but Ill ignore th epotential infinite recursion therefrom here), so some portion of both C and I in any accounting period is double counted as expenditure on th eleft side of th eidentity. This overstates Y by th eamount of G exactly, but it overstates GDP by an even greater margin, to th eextent of the destruction of value inherent in th enegative-sum game of tax ( to wit, the value of G in the hands of its recipients is always smaller than when it was T. Still, ignoring this little subtlety, the proper accounting identity is in fact……

(C+I)-G=GDP.

which I htink reflects the central Austrian take on the effect of government quite succinctly.

A school of thought that allowed you to deal with large-scale errors certainly can. (Error is the wrong word. It implies that human beings can forecast correctly but get it wrong. In reality, uncertainty and our finite intelligence make forecasting impossible.) In my opinion, large-scale errors are the result of coordination failures and can only be resolved by cooperation.

“Economics at its root attempts to understand the systems that result in correct decisions and to avoid those that result in errors.”

That’s not my understanding of economics. And it’s not my understanding of reality, regardless of how you define economics.

“I would simply say, if humanity is in fact biased towards error, it’s hard to believe we would have made it as far and for as long as we have.”

Why? Didn’t the Great Depression happen? What about the Panic of 1873? There were other crises going back to Tulip Mania and doubtless before that. Regardless of how you think they happened, they happened, along with wars, plagues, and famine. We’re still here, even though we’re not perfect! (And “error” in this context comes pretty close to meaning “imperfection.”)

Why?

“Some entrepreneurs make errors and go bankrupt, others do not, we don’t expect any systematic bias”

I expect systemic bias.

@Matthew Swarignen: You understand exactly what I’m trying to say! You’ve raised the important issues, I think. Without a central bank, would business errors be large enough to build up over many years and result in unemployment over a long period of time while the economy restructured? I think so, you think no.