Once again, Paul Krugman deliberately distorts the Austrian Theory of the Business Cycle, this time in a recent blog post. I have answered his latest missive, quoting Murray Rothbard, and linking to articles on the subject from Robert Murphy and David Gordon.
Even when Austrians clearly point out Krugman’s errors in describing the ATBC, he continues to make them. I doubt it is because he has not read the alternative explanations or even because they just are not strong enough to deal with his attacks. No, these are well-detailed and accurate, but as long as Krugman can continue to dismiss the ATBC “straw man” caricature he has created, he does not have to deal with the real arguments or the real implications of Keynesian policies.
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Is it even worth bothering to continue to refute this guy? He’s too far along in his career that changing anything that goes against his conventional wisdom now, would probably mean changes in his life as well, so we can reasonably conclude that Krugman prefers his life just the way it is: sitting atop the standard economics profession with his Nobel trophy and explain away from on high.
It’s not about changing his mind.
Yep.
He’s been anointed chief court economist, so it’s about calling him out on the economic fallacies/propaganda that he spreads.
Don’t be fooled, Krugman knows better that he lets on, but as the shill he is he’ll never let that get in the way of his narrative.
Which is another way to say he does not care he’s wrong.
Getting paid $600k + (?) a year, makes it easy to not care.
I can’t believe this man is a practicing economist, much less a touted one. Does he not grasp the idea that an economy is an integrated dynamic SYSTEM? That the various factors of production and consumption are ALL CONNECTED to each other?
Money circulates throughout the economy. It goes round and round. Production, consumption, capital investment, round and round, forever.
You can’t make any sort of useful insight into the nature of a system if you limit yourself to looking at the mechanics of it from the perspective of only one of its components. This is true whether you’re talking about an economic system, a biological system, the weather, etc. Every cause has an effect, and every effect has a cause, and eventually, they all relate to each other.
In this case, Krugman (like Keynes before him) looks at an economic slump and sees that people aren’t buying as much as they used to, because they are making less money.
Then, relying on this simplistic, childish observation, fools like Krugman then conclude, “Hey, people just need more money to buy stuff! Problem solved!”
It’s as though they never ask themselves WHY people have less money in the first place. They never trace the causes back another step or two. If they did, they’d end up back where they started.
Maybe then, they’d realize that an ECONOMIST ought to try to explain an economy in terms of a SYSTEMIC approach. What is happening in a depression OVERALL? What is happening, not only from the perspective of one type of economic actor (manufacturers, factory employees, coffee consumers, etc.), but in terms of the system as a whole?
It should be perfectly obvious that in a depression, the economy has become dis-organized. It’s loses a degree of cohesion. It has become relatively DISCOORDINATED. Production is not matching consumption to the degree it once did, and vice versa.
Malinvestment is one feature of the discoordination of all the various factors of an economy. It is discoordination, as practiced by entrepreneurs — a failure in the decision-making mechanism of business-owners, who are making decisions daily about whether to start, expand or reduce or eliminate some form of production.
From the perspective of the employee, discoordination is expressed as unemployment.
A smart person would then ask, “What causes such widespread, pervasive, system-wide discoordination in the first place?”
But not Krugman. No, he doesn’t ask that question. He doesn’t even seem to understand it.
Phinn, you make several comments that invite us to stop and ponder. Here are two:
“Money circulates throughout the economy. It goes round and round. Production, consumption, capital investment, round and round, forever.” And
“..people aren’t buying as much as they used to, because they are making less money.”
Putting them together, we can see that while money may circulate hither and yon throughout ‘the economy’, it does so preferentially; that is, it tends to accumulate on one end of the economy while draining away from another end.
One obvious way this occurs is with taxation. Money paid as taxes tend to be diverted from potential consumer purchases and to constitute a ‘lost opportunity cost’… or so it would seem. However nearly all federal spending ends up in someone’s pocket, where it is again available to make purchases. It’s just not the same pocket it once was in.
So my take on this is that it does not truly represent a lost opportunity cost. The money ultimately still gets spent on things not too dissimilar to the things the original possessor of the money might have spent them on. Only instead of his doing the spending it might be some military contractor, or rice grower; the beneficiary of his compelled largesse.
More significant to the preferential flow of money is the steady removal of certain sorts of money from the buying-and-selling sphere into the financial sphere. Such payments include all sorts of net profits that remain after taxes and wages have been paid. After dividends have been paid there still exists a remainder; and these remainders accumulate steadily until they mount into the trillions of dollars.
Such money resides in places like the derivatives markets, and grows to the point where it far surpasses the amount of ordinary M1 in circulation. And it steadily migrates from M1 into the upper spheres by predictable processes.
It tends to remain up there because it inhabits a realm largely immune from costs like payroll, plant maintenance, taxation or other compensating recirculatory mechanisms. And the steady drain of all this money upward results in a progressing and pernicious anemia at the bottom.
The process is exacerbated by federal redistributive policies that tend to pay out benefits to those already rich, and toward the enhancement of corporate profit, in preference to those smaller payments made to people in need (food stamp recipients and the like). A significant exception is the structure of the payroll tax, from which the rich are largely exempt. Here the money does recirculate from wage and salary earners to other wage and salary earners. You can look at the structure of the federal budget if you don’t believe me.
The upshot of all this is that all the money accumulating at the top of the economy becomes top heavy, and in time creates a price bubble in some overinflated sector of the financial world. It may variously be the stock market, hedge funds and derivatives, bonds or whatever is popular at the moment. But the sector becomes so popular it topples– much like those Asian ferries that capsize and sink because someone sees a dolphin, and 700 passengers all rush to that side of the boat. There is an excess of capital in some area, an indication that the circulation has not been employed in the best manner.
Meanwhile, at the bottom, such business recessions generate millions of families bereft of incomes or the means of gaining incomes. The slump in their purchasing power saps profits based on sales volume, and the markets contract still further… taking more jobs with them.
“What causes such widespread, pervasive, system-wide discoordination in the first place?”
One could plot the point at which we change from boom times to recession by tabulating the amount of cash left in reserves. When business (and most especially finance) gets cautious it stops spending, and shuts off what is nearly the only access ordinary families have to working income: spending and lending on the part of capital accumulators. So I would say the proximal cause of business cycle upticks and downturns would be psychological in nature: the tendency of capital accumulators to either plunge into the game or pull into their shells.
However nearly all federal spending ends up in someone’s pocket, where it is again available to make purchases. It’s just not the same pocket it once was in. So my take on this is that it does not truly represent a lost opportunity cost. The money ultimately still gets spent on things not too dissimilar to the things the original possessor of the money might have spent them on.
In a loose sense, government spending (and the resources it drains from productive people in the process) constitutes a kind of diversion of the flow of money, away from the pathways it would have followed if people were buying and selling things voluntarily, and into pathways dictated by the state at the point of a gun.
However, I can think of four reasons off the top of my head why this diversion of money from free-pathways to forcible-pathways can never be neutral, and always constitutes a major loss of overall wealth. No sane person could possibly say in good faith that the net result of taxing-and-spending is somehow economically neutral compared to private expenditure —
1. Allowing money to follow its free, private, voluntary pathways is what allows people to buy the things they truly prefer, and thus induces producers to produce the things that consumers truly prefer. In contrast, the forcible diversion of money means that you end up with the things the State wants: missiles instead of stay-at-home mothers, the Big Dig instead of a house with a nice yard, a couple of aircraft carriers instead of a more reliable car, a bailout for mega-corporations and foreign banks instead of braces for your kids’ teeth. Even if the overall rate of monetary circulation were neutral (which it could never be), the tangible results of this forcible diversion of currency, in terms of real, material wealth, are vastly different than what voluntary expenditure would have produced, to put it mildly. These forced end-products of the forced-diversion of currency are by definition less preferred (by the people paying for them) than the things they really wanted, which they would have otherwise bought with that money.
2. Processing these diversions of currency requires administration. A few hundred thousand bureaucrats later, and you’re talking about real money. Seen the price of a house in Washington, D.C. lately? These non-productive, undesired government-salary-receivers must be paid pretty well!
3. The prices of every form of economic good are altered when the government steps into the market as a consumer, using other people’s money. This is distortion of critical price signals, regardless of whether those distortions are altered up or down. Take a look at flu vaccines. The government’s share of the total market for flu vaccines grew over the course of many decades (due to Medicare) to become the largest buyer in the vaccine market. It kept underbidding, thus driving down the price, which sounds like a great idea to the people involuntarily paying for other people’s flu vaccines. But the result was that it drove all of the smaller manufacturers out of business until there were only two left. One had a contaminated batch, and suddenly there was no flu vaccines that year to be found. The government’s de facto take-over of the flu-buying market interfered with the private production of flu vaccines, causing a gradual consolidation of production into fewer and fewer hands. The same thing is happening in a lot of other industries right now.
4. Empowered with the unique ability to divert the flow of money by force, a power no private business could possibly have, the State becomes corrupt. It favors itself, first and foremost, for example by creating schools that train good State-worshipers rather than free thinkers, or by fostering a lapdog, sycophantic media that is dependent on the good favor of regulators for the privilege of maintaining its all-important licenses. And, naturally, you end up with the cozy, symbiotic relationships with the mega-corporations, who enlist government’s help to erect barriers to entry to lock out potential competitors, or even establish things like statutory cartels, like the banks.
So, your suggestion that the forcible diversion of money somehow has no opportunity cost is either meant to be a joke, a troll-attempt, or is just irretrievably stupid. Either way, I can’t really take you seriously when you say things like this.
As for your summary of how money accumulates at “the top” in financial circles, I see it as an effect of Point No. 4 — the corruption that comes with a government that has the power to dictate the flow of money. Again, you seem to be missing the big picture — what prompts these insider-corporate-banker types to change their lending behavior? They don’t act randomly. Saying their lending and borrowing decisions are somehow the root cause of global financial ups and downs is not an answer. It’s an anti-answer masquerading as an answer. What causes them to make these decisions in the first place?
The use of government-sponsored financial manipulations to make money in stock markets is nothing new. England did it to build an empire, up to the point they lost it. Post-revolutionary France did it with its criminal experiment with paper money (See Andrew Dickson White’s 1896 book on Fiat Money Inflation, and see how many parallels to today you can spot, e.g., the part where fiat money caused the stock market to be turned into a casino.)
The current collapsing empire is nothing new. It’s going the same way as all the others, and for exactly the same reasons.
“In a loose sense, government spending (and the resources it drains from productive people in the process) constitutes a kind of diversion of the flow of money, away from the pathways it would have followed if people were buying and selling things voluntarily, and into pathways dictated by the state at the point of a gun.”
Not at the point of a gun, Phinn. By the consent of the governed. In fact, at the command of the governed.
Every large corporation, every labor union, every professional association and every less formal grouping of individuals exerts lobbying pressure on our federal government. Those with the deepest pockets and most generous spirits contribute funds that allow some of this disbursement stream to be diverted their way.
Those with the least clout get the least amount of flow. That would be the ones among us with the least money. And even they get a pittance. Our society is a compassionate one.
Were I in your position I would assess my chances of ever changing this arrangement. And I expect it wouldn’t take long before I concluded that I was unlikely to be able to alter tradition. Most of us have long since concluded that; so what we do instead is to get on the gravy train and divert some of the flow our own way.
If you don’t choose to do that, I applaud your high principles; but I’m perplexed as to why you’d continue living in a situation that wasn’t giving you what you wanted from it.
Full speed ahead. “However, I can think of four reasons off the top of my head why this diversion of money from free-pathways to forcible-pathways can never be neutral, and always constitutes a major loss of overall wealth. No sane person could possibly say in good faith that the net result of taxing-and-spending is somehow economically neutral compared to private expenditure —”
No one is averring that it’s neutral. There are always winners and losers. But taxation distributes money every bit as efficiently as does any other variation on how to arrange the economy. Every dollar the government spends ends up in someone’s pocket. And that person is then as free to spend the money IN ANY WAY they choose. Just like the original taxpayer might have. Every dollar ends up being privately spent, save only those moneys the Fed may choose to retire from circulation.
Plus, taxation provides valuable employment to accountants and IRS personnel, and even to offshore banking facilities.
So you’ll have to explain to me in a fuller fashion just how any overall wealth gets “lost”. I don’t see that it does. No more than did those $13 trillion get lost when the securities market imploded recently. All the money’s still there… it’s just that now it resides in different pockets than it did before the Crash.
To address your specifics, (1) “Allowing money to follow its free, private, voluntary pathways is what allows people to buy the things they truly prefer..”
Every recipient of a federal dollar used it to buy those things he or she truly preferred. They were not coerced into spending those dollars by any conditional grant from the government. They were GIVEN those dollars unconditionally, in exchange for some service, some good or some intangible that the government wanted.
(2) “Processing these diversions of currency requires administration. A few hundred thousand bureaucrats later, and you’re talking about real money.”
Yes, processing all that paperwork has provided many thousands of valuable jobs. Without such a large federal labor force our many community college and university graduates would have no work; they might well then become Marxist, and rise in revolt. Instead, they’ve become valuable members of the consuming society.
(3) “The prices of every form of economic good are altered when the government steps into the market as a consumer, using other people’s money. This is distortion of critical price signals..”
According to the great law of supply and demand, every time one makes a purchase, his action alters the pricing structure. If we’re talking about the recipient of a federal dollar, there is no distortion of crucial price signals; his purchases are in themselves price signals, akin to all the other signals.
And (4) “Empowered with the unique ability to divert the flow of money by force, a power no private business could possibly have, the State becomes corrupt.”
I spent thirty years on Capitol Hill, and in that time observed how the machine operates in some very close detail. It’s not so much that the state corrupts; it’s that outside influences constantly corrupt the state. And in that pursuit they have been extremely successful at getting what they want. So that those with substantial money to deploy in the corrupting process make much better gains vis-a-vis federal policy than do those who do not.
Try to bring down the government and you will have all these profitable corrupters of government on your neck. They’re doing fine, just the way things are. Get them angry enough and they’ll turn on you in some ugly ways.
Note that I’m making no value judgments, but rather am just describing the way things are under our way of life. If you think you can fight the system, make very certain that you do so successfully. Failure to dislodge a standing government is normally punished with some degree of severity. Otherwise, as has often been advised, it’s best just to sit back and enjoy the sensation.
“sit back and enjoy [it]”
You “are” about as repulsive as Clayton Williams.
“By the consent of the governed.”
That’s right, and that’s why you and Krugman make so much noise in the hopes that they don’t become educated.
Holy cow, I’ve been had, he’s a prankster. I didn’t see this one:
“Yes, processing all that paperwork has provided many thousands of valuable jobs. Without such a large federal labor force our many community college and university graduates would have no work; they might well then become Marxist, and rise in revolt. Instead, they’ve become valuable members of the consuming society.”
Good on ya, ya wacky guy, you really had me going.
“Yes, processing all that paperwork has provided many thousands of valuable jobs. Without such a large federal labor force our many community college and university graduates would have no work; they might well then become Marxist, and rise in revolt. Instead, they’ve become valuable members of the consuming society.”
You can’t really believe this bullshit can you? Do you? Really? I mean, really?
So I ask, michael the douchbag, if everyone’s car was fitted with parts that lasted 1/50th the time they do now – so there were loads more garages to refit new parts and part makers making lots more parts etc. – this would be better yes? this would provide lots more jobs than before? Are you advocating this?
Yes? then you are a moron (actually, you are a moron anyway regardless, but this would mean that you are truly galactically stupid).
No? Why? What is the difference between creating paperwork and what I said?
“..if everyone’s car was fitted with parts that lasted 1/50th the time they do now – so there were loads more garages to refit new parts and part makers making lots more parts etc. – this would be better yes? this would provide lots more jobs than before? Are you advocating this?”
All your study has left you without a functioning funny bone, Salami. Do I really have to type out ‘irony alert’?
However there is actually a very sensible reason to employ large numbers of college grads in bureaucratic redundancy, Bastiat notwithstanding. And that is because unemployed, such people constitute a drain on society in disproportionate sums to what we pay them to produce paperwork– even when it’s largely redundant. With income from government employ, they become productive citizens and help stimulate the economy. Without such income they exist entirely in the ‘costs’ category: welfare, food stamps, emergency housing, court and incarceration costs… the list goes on.
In India they didn’t bloat the government at first. And they bred a generation of what they called the Hungries: university grads with no possibility for employment. They went communist and took over several states before the riots were quelled.
Then they decided that a socialist-style bloated government would be easier and cheaper. So they employed them– and the furor died down.
It just goes to show… there’s no elegant theory that can’t be undermined by an interesting fact.
>>Not at the point of a gun, Phinn. By the consent of the governed. In fact, at the command of the governed.
How wrong can you be? Do you not see the guns that government is organized for the purpose of using??? If you refuse government’s commands, they declare that you owe them money. If you refuse to pay, they grab you. If you resist being grabbed, they shoot you. If you fire back, they kill you, on the grounds that you are a threat to THEIR safety. My God! You are not even on the same planet as the rest of humanity if you do not see the basic fact that government = force.
Spare me the “consent of the governed” crap. I do not consent. And yet, I am instructed to obey the commands of this organization that claims to do the bidding of some other random group of people I never met, and to whom I never granted the power to decide these matters for me.
>>so what we do instead is to get on the gravy train and divert some of the flow our own way. If you don’t choose to do that, I applaud your high principles
You make me want to vomit.
>>No one is averring that it’s neutral. There are always winners and losers. But taxation distributes money every bit as efficiently as does any other variation on how to arrange the economy. Every dollar the government spends ends up in someone’s pocket. And that person is then as free to spend the money IN ANY WAY they choose.
You are averring that it’s neutral overall. Not neutral as to who specifically gets the money, of course. But overall, yes, that’s what you’re saying. And it’s simply wrong. By getting paid to do things that the State has arranged payment for, by diverting money away from private, voluntary pathways to forced ones, all of the people who get government money are also diverted from engaging in private productivity.
That’s the opportunity cost that you said did not exist — the loss of every form of private productivity that government beneficiaries are NOT doing because they are busy engaging in the State’s idea of economic activity instead. Think of the massive, incalculable waste of time and energy resulting from people choosing to produce things that no one would have voluntarily paid for, and not producing all the truly valuable things they could have been making instead.
>>Without such a large federal labor force our many community college and university graduates would have no work; they might well then become Marxist, and rise in revolt. Instead, they’ve become valuable members of the consuming society.
This is a joke, right? No one is this dumb. Why not have them dig holes and re-fill them?
>>I spent thirty years on Capitol Hill …
A-ha. Now it’s starting to make sense why you are so wrong on so many fundamental points.
Yes, I think it must be a joke, Phinn. An elaborate joke, the kind this guy is running:
http://www.youtube.com/user/TheHomelandDefender
“You make me want to vomit.”
That’s merely due to your visceral attachment to your austro-libertarian tenets. Your psyche is so invested in your philosophic position that contrarian thought makes you retch. You should read Eric Hoffer’s portrait of the True Believer.
“How wrong can you be? Do you not see the guns that government is organized for the purpose of using??? If you refuse government’s commands, they declare that you owe them money. If you refuse to pay, they grab you. If you resist being grabbed, they shoot you. If you fire back, they kill you, on the grounds that you are a threat to THEIR safety. My God! You are not even on the same planet as the rest of humanity if you do not see the basic fact that government = force.”
This is a romantic delusion, probably spurred by a vivid adolescent fantasy life. In reality our government, urged on by the attentions of the NRA, urges us all to own and operate personal caches of guns. Our police forces only occasionally gun down the odd deaf-mute who does not respond to their call to “Freeze, Mudda Fubba!”
“Spare me the “consent of the governed” crap. I do not consent.”
We live in a consensual society. If you don’t like it here, fine. There are plenty of options available to you. And you’ll find it much easier to exercise your own free will than to change the minds of 200 million consenting adults who DO enjoy the benefits of the current oppressive system.
Our way of life is very far from perfect, and I do in fact have my own serious set of objections to how it operates. But it is an established fact. And as we are possessed of free will (or, as it is phrased here, “man acts”), I understand that should it ever get so bad that I’d be happier somewhere else, I can merely leave and re-establish myself elsewhere.
You should keep this option open. Because I can see that just remaining here and complaining loudly about it is not making you happy. I have offered before that there are no fewer than two nations on earth with no income tax requirement. You might consider either Brunei or Macau as your next base of operation.
“That’s the opportunity cost that you said did not exist — the loss of every form of private productivity that government beneficiaries are NOT doing because they are busy engaging in the State’s idea of economic activity instead. Think of the massive, incalculable waste of time and energy resulting from people choosing to produce things that no one would have voluntarily paid for, and not producing all the truly valuable things they could have been making instead.”
There IS no lost opportunity cost. There’s simply an extra kink in the eternal flow of money (as it flows through the hands of some government employee or contractor and then still gets exchanged for desirable goods). If the government takes their tithe from the salary you think you’ve earned you can easily go out and earn more money. In other places maybe you can evade taxation… but earning money is in itself a far more challenging task than it is here. We (the American people) prefer it here because earning more money is easier than it is in other places. And because even after paying off Uncle for running the craps table, we take away more cash than we could playing in any other table in town– even one that had no cover charge.
So, speaking from the POV of the American taxpayer, you always have the opportunity to earn more with great facility. I would call that an enhanced opportunity occasion, not a lost cost… and I would not waste my own time regretting the grounds fee I paid to get into the game.
And all those desirable goods still get made and sold, made and sold, every time money circulates through any set of hands and spent in the real marketplace. The money doesn’t just ‘end up’ in the coffers of Washington. (In fact lots of you wish that it would; there’s quite a lot of austrian thought that’s gone into the desire to drive most of that fiat money into retirement.)
So I find your POV topsy turvy. You think all your money ends up back in Washington when in reality it doesn’t, it goes back on the street for a fresh round of economic activity. And you wish (if you’re in lockstep with the other austrians) the money supply would shrink– in which case the money would HAVE to end up back in Washington… where it was invented.
Finally, I think this is the most telling exchange of all:
(Me):>>I spent thirty years on Capitol Hill …
(You): “A-ha. Now it’s starting to make sense why you are so wrong on so many fundamental points.”
This kind of comment betrays a systemic distrust of experiential knowledge. I know what I’m talking about, because I’ve studied the beast up close for a very long time. I know its habits. And that makes any conclusions I’ve reached wrong on their face. Because they don’t match up with your theoretical assumptions about how things work in your mind.
Have you never for a moment questioned any of your cherished “fundamental points”? Do you never feel the need to test your hypotheses against material reality? Or is it sufficient that they make so much sense they MUST be right?
The question was first tentatively posed 26 centuries ago by a fellow named Democritus. Many of us follow his advice and submit our most cherished assumptions to testing in real-world conditions. Whereas for centuries, physiologists were taught that a horse had 44 teeth… because the great teacher Aristotle once wrote that as being fact. No one ever thought to open a horse’s mouth to check his addition.
michael, I’m going to continue my current form of not insulting you, but this is just the most hypocritical pile you’ve posted yet.
You are a bigot. You of course deny it but you are the most close minded contradiction I’ve come across. Now I don’t mean that with malice, you’re clearly a man of intelligence and experience, but you’re so breathtakingly contradictory. Wow. You have no insight into yourself whatsover. None. You’re surely one of the most peculiar personalities I’ve ever come across. And your disclosure of a 30 year career in the Federal government brings into suspicion your previous claims to a business career. I really don’t know what to make of you at all.
>>That’s merely due to your visceral attachment to your austro-libertarian tenets. Your psyche is so invested in your philosophic position that contrarian thought makes you retch.
No, it’s my visceral reaction to your suggestion that I stop identifying the aggressive violence that is at the core of all of the State’s activities (which is patently immoral, but is ignored by Statist apologists, government insiders, cronies and beneficiaries of its theft and slavery) and start trying to profit from it. Your position is no different than someone saying, “Slavery is wrong, but hey, it can’t be changed, so what you really need to do is stop complaining and start trying to find a way to make a buck off it!”
>>This is a romantic delusion, probably spurred by a vivid adolescent fantasy life. In reality our government, urged on by the attentions of the NRA, urges us all to own and operate personal caches of guns. Our police forces only occasionally gun down the odd deaf-mute who does not respond to their call to “Freeze, Mudda Fubba!”
The guns used by the State to enforce its economic dictates are very real. Try selling sugar or corn at something other than the government-mandated price, and see how long it takes before armed men show up to chat with you about it.
The State does not need to actually shoot its guns in response every single act of defiance, obviously. This is because its mafia system of violence is so advanced and ingrained into the thinking of weak-minded people that (a) they no longer even see it, and (b) they comply reflexively like domesticated farm animals, in response to a mere threat, which is much less expensive than firing bullets all the time. They save the jails and gunfire for the hard cases that they want to make an example out of, to frighten the other cattle into submission.
>>We live in a consensual society.
No, we do not. I do not consent. I do not harm anyone, yet I am forced to comply with the mafia’s dictates about the prices I can charge or pay for stuff, the businesses I can and can’t go into, what I can and can’t use for money, the associations I want and don’t want, the “services” I choose not to pay for on command. That’s not consensual. Perhaps your definition of “consensual” is as perverted as your morals.
>>[Various "love it or leave it" garbage, blah blah blah ...]
No, thanks for the tip, but I choose to stay here and destroy the Statist system on which you parasites thrive.
>>There IS no lost opportunity cost. There’s simply an extra kink in the eternal flow of money (as it flows through the hands of some government employee or contractor and then still gets exchanged for desirable goods). … And all those desirable goods still get made and sold, made and sold, every time money circulates through any set of hands and spent in the real marketplace.
The “extra kink” you mention is millions of people engaged in “productivity” that would not exist but for the State’s diversion of money to them, by force. They are therefore NOT engaged in productive work that people would pay for voluntarily. That un-done productive work must be accounted for as a loss. How many times do I have to explain this?
>>This kind of comment betrays a systemic distrust of experiential knowledge. I know what I’m talking about, because I’ve studied the beast up close for a very long time.
No, it betrays a distrust of you, which was confirmed when you insisted on telling me to participate in the mafia violence rather than tell the truth about the economic harm it causes and the aggressive violence on which it depends.
>>Have you never for a moment questioned any of your cherished “fundamental points”? Do you never feel the need to test your hypotheses against material reality? Or is it sufficient that they make so much sense they MUST be right?
It’s taken me a lifetime to arrive at these conclusions. They are the only ones that agree with reality, and explain the otherwise incomprehensible. I am open to any insight that explains reality better, but I have not found it, and you have certainly not provided it.
Erroneous conclusions and methodologies, like yours, can only be maintained with tremendous mental strain — they require constant obfuscation, lies, indoctrination, exceptions, distortions, blame-shifting, excuses, rationalizations, denial, projection, and ultimately, avoidance (when all else fails, people like you resort to telling people who disagree to stop talking and move away).
You have now done all of these things. You are not coming here to learn anything. You are coming here to quell your anxiety about how wrong you have been, how much harm you have caused, how much crime you have committed, how much you have stolen, how much fraud, waste and abuse you have not only failed to impede, but actively supported.
The system is coming down. The Austrian economists have explained why. On some level, you know this, but it annoys you because of the lifetime of mental detritus you have built up to keep you from acknowledging the truth, and to justify yourself. No one can simultaneously think of himself as a bad person and continue engaging in some immoral behavior. They ALWAYS excuse it in some way, even if it is to finally ditch the idea of morality altogether (i.e., sociopaths).
I predict that when you are proven wrong, and you finally realize that you can’t get us to agree with your attempt to excuse the inexcusable, you will disappear.
Phinn: All I can say is a hearty “bravo!” to your spirited defense of insurrection. If I may suggest, what you should do now is to buy a place up in Montana and announce to the world that you’ll shoot any GOVAG (government agent) who presumes to come around and try to arrest you.
That’ll teach ‘em. (I’ll confess this idea is not an original one. I got it from Randy Weaver.)
Whoa. That was awesome, Phinn.
Tiny quibbles: For all intents and purposes, the system is consensual, it’s just that the masses are so incredibly mislead. And that’s what this reprehensible person is here for (if he’s a spoofer on our side, he’s really misguided, I feel), to make a giant racket in the hopes of keeping them off his class’ scent.
And he’s not going anywhere, I don’t know where the examples of it are on other forums, but he is also trying to find ways to blame the coming total collapse on *us*! He has acted as if we actually *want* our terrible predictions to come true instead of the truth: that we are shouting them in a frenzied effort to wake people up. Oh, he’s a piece of work.
Jon: Please excuse this belated reply. I don’t know how I overlooked your comment:
“You are a bigot. You of course deny it but you are the most close minded contradiction I’ve come across.”
This calls for some sort of expansion upon the theme. I don’t see how I am bigoted, a term that would imply unreasoning prejudice toward a religious or ethnic group. Please go into some detail.
I also don’t see “close minded”, nor feel any of my comments are contradictory. I’m open enough to all POVs to have come here to see what you all have to say. And I’m disappointed, not because I find your opinions inflammatory, but because they have so little foundation in fact.
“You have no insight into yourself whatsover. None.”
Please go on. I believe I know myself pretty well.
“You’re surely one of the most peculiar personalities I’ve ever come across.”
Perhaps.
“And your disclosure of a 30 year career in the Federal government brings into suspicion your previous claims to a business career. I really don’t know what to make of you at all.”
First, you need to brush up on your reading comprehension skills. I never said I had any sort of career in the federal government. In fact, other than a year and a half with the PO in my youth, I’ve never worked for them at all. I have, it’s true, had a handful of contracts with them over the years in Section 8 housing programs. But that’s a drop in the bucket, and certainly peripheral to my main real estate activities.
Here’s what I actually said:
“I spent thirty years on Capitol Hill, and in that time observed how the machine operates in some very close detail.”
Meaning, I lived six blocks from the US Capitol and knew on a social basis several people elected to Congress, a number of their aides, a great many diplomats, a few politicos, a couple of spooks and bureaucrats too numerous to mention. I did find out quite a bit about how government runs, in the process of selling them houses and performing management tasks for them… and confirmed what they told me through extensive reading since my having retired.
You might make of me a person in a position to become widely experienced in how things actually are, as opposed to how someone thinks they should be. I got a close up look into goings on under the Dome over the entire period from Johnson through Clinton.
Yes, so very peculiar, Jon. Perhaps he isn’t lying in this case and perhaps pity is the appropriate response to the sort of degenerate by nature or very deep and early training that can stay in D.C. for 30 years.
michael, I’m calling you a bigot as the Shorter Oxford English Dictionary defines it:
Bigot/noun: 1. A hypocritical or superstitous adherent of religiion. 2. An obstinate and unreasonable adherent of a religious or other opinion; an intolerant and narrow-minded person.
Bigotry/noun: obstinate and unreasonable adherence to a religious or other opinion; narrow minded intolerance; an instance of this.
You would fall into the “or other opinion”, just to be clear, in this case your demand side big government neo-Keynesianism. Nothing to do with race or ethnicity, which is racism. And I’m happy to be corrected on your Capitol Hill experience, although I think your use of the phrase “on Capitol Hill” remains fairly comprehensible as referring to a career in the public sector. You should be more careful with your expression, as there is little wrong in this instance with my comprehension.
michael, why do you come here?
Most of you have to admit, he *is* interesting. The way his ego just soldiers on in the face of all the stingingly accurate dismissals and well-deserved loathing. Phinn just destroyed him, exposed him as the sad shell of a human being he is: Michael pathetically comes back from left field with an oh-so-lame attempt to portray Phinn as a Randy Weaver. And *literally* 10 minutes later he is back to chattering about himself to those who clearly despise him, complete with vomit inducing attempts at folksiness (“Noff Calina”….god, he’s repulsive).
BTW, Randy Weaver is certainly a dubious character, not nearly as rotten as the scheming murderers of half his family though, as can be gleaned from this documentary:
http://www.youtube.com/watch?v=JulmKGl5NlE
Jon, ‘Capitol Hill’ is a noun with more than one meaning. It can either be a euphemism for the United States Government or it can refer to a neighborhood– one in which I lived and conducted business for thirty years.
It’s much like ‘Hollywood’ in that regard. Or ‘Wall Street’.
I would absolutely refute your definition of me as being obstinate and immovable. I’m quite open to intelligent debate. But I’m getting little of that here. You haven’t noticed how extravagantly I praise the least little bit of sensible argument I receive from someone? I’m trying to find something I like here.
And I do find some things to recommend in Hayek. He’s much more well reasoned than the people here in the forum.
But mostly I’m doing anthropological fieldwork. The subject is belief systems.
Jon, if he’s not a prankster, he’s just incredibly stupid:
Parasite (or caricature of a parasite): “get on the gravy train and divert some of the flow our own way. If you don’t choose to do that, I applaud your high principles”
Phinn: “You make me want to vomit”
Parasite: “That’s merely due to your visceral attachment to your austro-libertarian tenets. Your psyche is so invested in your philosophic position that contrarian thought makes you retch. You should read Eric Hoffer’s portrait of the True Believer.”
No, the nausea is due to Phinn’s high principles, ones like, “Thou shalt not steal”, as the parasite *just freaking* suggested. The nausea is also brought on by the smirk we imagine comes over this dirtbag’s face when he hears the word “principles”.
Mpolzkill, there’s certainly something strange going on with this cat. michael runs the company line, or rather, the Capitol Hill line so perfectly, he’s got the “answers” at his fingertips. It’s hard to believe a person of his clear intelligence and seeming goodwill finds the dominant approach to economics and government so satisfactory, that in an imperfect world, the current situation is the best we can do. He’s so complacent, the blinkers must be fitted well and truly.
And michael, as you read this, please PLEASE reengage with Hayek. I beg of you. If you’re interested in opening your mind and examining your own assumptions (which are so evident to so many on this website but absolutely invisible to your own shallow self-scrutiny) do press on. Donkeys love oatmeal, right?
Jon, I’m a realist. All I’m giving you is accurate information on how the place runs. My comments are no more an endorsement of the syndrome than are an oncologist’s description of cancer a recommendation for the disease. I only offer an outsider’s view of the inside I used to live next door to for lo, those many years.
If you think you can change it, give it a try by all means. For myself, I know how powerful those forces are which you oppose. I’ll take a pass. If the place ever gets so onerous I’m uncomfortable with it I have a half dozen locations i can remove to. And in each one, the Mighty Dollar goes a lot further than it does down here in Noff Calina.
Maybe you find it harder to float above the grid because you’re too invested in the system yourself. I used to be sessile myself, back when I was working. Fortunately I was able to work myself free with some investments intact. You might want to cut the mooring lines on your own balloon and float high above the crowd. Just a thought.
Michael,
Keep up the good work.
I see this comment as being very interesting:
“As for your summary of how money accumulates at “the top” in financial circles, I see it as an effect of Point No. 4 — the corruption that comes with a government that has the power to dictate the flow of money. Again, you seem to be missing the big picture — what prompts these insider-corporate-banker types to change their lending behavior? They don’t act randomly.”
You are saying, then, that absent a corrupting government, bankers would just normally distribute money evenly, dispersing it in such a manner as to make it not collect at the top? I find that highly improbable.
During periods of lax or missing regulation, banks have been every bit as avaricious as they are during highly regulated periods. It’s just that when they are being closely regulated they find it harder to glean profit from their customers. I think you have an overly rosy view of the characters of bankers, and an overly generous view of how pernicious government is.
Everyone possessed of power colludes to accumulate money. The most successful ones do so on either side of the public-private divide. There is no difference between them; they’re all in the same game.
“Saying their lending and borrowing decisions are somehow the root cause of global financial ups and downs is not an answer. It’s an anti-answer masquerading as an answer. What causes them to make these decisions in the first place?”
In my observation it is a sufficient answer; money itself is nothing but an agreement among us that certain substances may serve as a store of value. It’s a confidence game. And anything that can shake confidence has a corrosive effect on the conduct of business. People lend less. They borrow less. And they spend less.
What causes them to make the decisions they make? Their emotional makeup. Less so, the facts of the matter.
Michael = troll with too much time on his hands and not enough intellect.
Don’t feed this troll. He had a lobotomy and is just repeating nonsense spewed by his controllers Krugman. No matter how simply you explain to this numbskull that individual choices are the ones that matter, not some collective (that’s being generous for parasites such as unions, cops, etc.) will of the people who vote to have one set of people steal things that belong to someone else.
If you wanted to actually address the issue under discussion, and not just hurl feeble jibes, you might explain how we are better off when there is no countervailing force to individual greed. Because it is the untrammeled greed, combined with their position of advantage, that tilts the playing field inexorably into their laps.
Obviously we must have some force capable of keeping our money in general circulation. Otherwise, as a tiny number of people end up with every dollar we spend, in time they will obviously end up with all the cash in circulation.
So how about offering an intelligent response?
Michael,
I thought we had established a long time ago that the wealthy know not to keep their wealth in their mattresses. People invest their money, at least in banks, if not in some other investment. That is the force that keeps “our” money in circulation.
Besides, of course, my money is not “our” money, and if I don’t want it in circulation, I have every right to keep it in a hole in the back yard. So does everybody else.
“you might explain how we are better off when there is no countervailing force to individual greed. ”
So your answer is government, as if the people in it are going to be those who aren’t motivated by individual greed at all? That institution works via forcing other people to do what it wants. Institutionalized violence is hardly the answer that I think is the most beneficial to solving problems.
Individual greed itself is just the nature of humankind. Provided that we do not coerce or force others to do what we want both parties can benefit by looking out for their own interests.
Government doesn’t change the nature of humans, it just puts some in power to make gains by violence at the request of the special interests that support them.
I agree with you Troy. Michael is a liar and a fraud who I believe is a Brad DeLong protege. Why in god’s name people still engage this fool I’ll never understand. He’s like a cat; you feed him, and he’ll never go away.
I see the the old habits are hard to kick. The countervailing force to individual greed is called the market. Market makes sure that the only way to satisfy one’s greed is to provide others with things they want. It is not called “the government”.
“He’s like a cat; you feed him, and he’ll never go away.”
I agree wholeheartily.
I stopped “feeding” him once it was clear that he completely ignores the counterarguments to his assertions.
Russ, you say “I thought we had established a long time ago that the wealthy know not to keep their wealth in their mattresses. People invest their money, at least in banks, if not in some other investment. That is the force that keeps “our” money in circulation.”
I see you haven’t been reading my comments. There are more people in this country than “the wealthy” The majority of us, in fact, are dependent on wages, salaries and tips for our sustenance. And our bucket, meaning these wage-dependent people, definitely has a hole in it.
Whenever we earn a dollar we tend to spend it. And it goes upward throughout the system, where a portion is held back at the top in the form of profit. These profits get reinvested, and only a portion of them ever reappear back at the bottom as wages. We have described a flow pattern where a portion of the stream is constantly leaving the bottom, accumulating at the top and failing to reappear at the bottom. Therefore, over time, the cash in our economy collects at the top.
The remedies being promulgated here all tend to exacerbate that flow, making it more efficient. And people are particularly exercised over the thought that society might require some counterflow, to reintroduce money at the bottom where it is most needed. That, in fact, is the reason for this philosophy’s popularity. It congratulates greed and tells it this is the natural order of things: to take but never to give back.
Matthew, you have accepted human nature as being incapable of improvement. I hope at some point you will see the shortcoming in this view, that we have never been able to cure the problems stemming from greed and malice, and we should just accept and embrace them.
“So your answer is government, as if the people in it are going to be those who aren’t motivated by individual greed at all? That institution works via forcing other people to do what it wants. Institutionalized violence is hardly the answer that I think is the most beneficial to solving problems.”
My answer is not necessarily a government. But I do understand that we must come up with some effective answer, if the species is ever to develop into a moral society. America’s Founding Fathers came up with a fairly good fail-safe system, with checks and balances to correct for the shortcomings of individuals and groups wanting to come to power. And they created what is probably the world’s first stable multi-party system– an excellent advance over the previous single-party systems.
But they still understood that any system, no matter how good, is susceptible to subversion by predators and opportunists. So they advised us that it was a good system, but only if we could keep it.
And it is now in shabby repair, needing much work before it can again be made to serve the public well.
“Individual greed itself is just the nature of humankind. Provided that we do not coerce or force others to do what we want both parties can benefit by looking out for their own interests.”
And your mechanism for preventing malicious others from performing acts of coercion is what again? All you’ve described is the jungle, where everyone must look out for himself and screw the next guy.
I don’t know why I feed the troll either, character flaw I guess, sorry guys:
For lawyers who claim a monopoly on violent coercion in the territory Michael happens to have been born in, there is an infinite capacity to do better in their Holy work. Other gangsters throughout the world and private individuals trying to provide goods and services in exchange for money? Thieving monsters who will send us all back to the jungle, they have even today nearly ruined Michael’s incredible super heroes…for now. More faith is required on we sinners’ part. Yep, Jon, you got that bigot thing right, and this is why he is here, to tend to wayward members of his Democratic flock.
“Therefore, over time, the cash in our economy collects at the top.”
…That, in fact, is the reason for this philosophy’s popularity. It congratulates greed and tells it this is the natural order of things: to take but never to give back.”
As I’ve just said in the post you are responding to, the money that supposedly “collects at the top”, doesn’t. It is invested, and recirculates. This employs people, and grows real wealth. Your “trickle-up economics” is just a rehashing of the old zero-sum game fallacy. It’s patent nonsense.
The reason “this philosophy” (I assume you mean libertarianism?) is popular is that it focuses on the idea that people should be able to actually keep the property and money that they have earned. In other words, it focuses on justice (real justice, not “social” justice). It’s not popular because of greed. Greed is the desire for what one doesn’t deserve. If one has earned something, then that person deserves it, and desiring to keep what they have earned is not greed.
And libertarianism in no way says that people should never give back. It merely says that peoples’ private property should not be forcibly “given” by other people. Voluntary charity is allowed, although since libertarianism is a political theory, and not a theory of ethics, it does not require this. On the other hand, in libertarianism, “involuntary charity” (forced wealth redistribution) is rightly considered what it is; a form of fascism. (In fact, I like to call involuntary charity “compassion fascism”.) Monetary inflation that does not track increases in real wealth in society, being a particularly insidious means of stealing money from some to give to others, is rightly considered a form of compassion fascism.
Given Mr. Krugman’s actions as summarized by Mr. Anderson, e.g., his continuing use of an ABCT “straw man”, I am led to conclude that Krugman is most interested in advancing an ever increasing size of government and his own career and fortune. Krugman evidently places little emphasis on reason and integrity in his economic analysis and policy recommendations.
Unfortunately, the world is filled with individuals like Krugman.
It’s evidence since Mr. Krugman’s #1 method of debate is arguing from a position of authority. All he does is wave that Central Bank granted “Nobel Prize” and claims he is right because of it.
It’s a good sign Krugman is mentioning AE so often. He sees it as a threat or else he’d just ignore it.
It’s possible he’s engaging in the fabrication of what Ayn Rand would call an anti-concept. Trying to substitute his strawman for the real deal, thinking people won’t pay much heed to corrections of his mindless blabbering.
Plus it’s also suspect that he goes to great length to avoid the words “austrian” or “austrian business cycle theory”… It’s always “liquidationist”, “hangover theorists” or even, lately, “austerians”.
There is a reason Krugman quit his blog at NYT where he tried to defend his views. The great Nobelist got shredded so often and completely even his acolytes began wondering aloud what he was using for brains. Finally, the Great Man couldn’t stand it anymore, and quit the blog.
He now spews the same stuff, but hides from criticism to preserve what is left of his ego. He lost on the facts, so he will take no more questions. Sort of like a President I know of.
A very little man, with only one drum to beat, with one cadence. Loser.
Quit? He’s still there posting his gibberish. Today he tried to blame Germany’s slower GDP growth on an austerity movement that doesn’t exist. I replied that it’s more likely to be werewolves causing the problem than an austerity movement. I wish he would quit.
The solution is obvious: The silver in the hands of all “commodity hoarders” in the EU shall be confiscated to make silver bullets to deal with Germany’s horrible Werewolf problem!
“Hair of the dog that bit you!”. Surprise, surprise – Krugman’s cure for a hangover – have another drink. If that does not work, have another drink and make it a double.:-)
Krugman is just trying to bring back the vulgar Keynesianism of the 70s. If someone disagrees with you, just caricature, straw man, and insult them.
Mises wanted to be right, Keynes just wanted to be famous.
Both have succeded in their endevour.
But as truth only gets you so far – Mises is much less known in the world than Keynes.
As Mark Twain said (I quote approx.) – truth is feeble and very easy to kill, while a good lie is imortal.
I’m afraid Keynes is going to stay with us for a very long time, as Marx, for that mater.
Like Keynes before him, Krugman’s objective is “full employment,” (an elusive concept defined quite differently by Keynes at two different places in his GT. One of those definitions is quite humorous:
“We have full employment when outup has risen to a level at which the marginal return from a representative unit of the factors of production has fallen to the minimum figure at which a quantity of the factors sufficient to produce this output is available.” To which Henry Hazlitt quipped, “I confess I find it difficult to follow this jabberwocky…One is tempted to ask irreverently: Does that mean Uncle Oscar has a job?” (THE FAILURE OF THE NEW ECONOMICS, in which Hazllitt debunked everything of consequence Keynes wrote in his magnum opus.)
Yesterday VP Joe Biden said, “In the first seven months of this year, we created 630,000 private sector jobs. We’re turning this around. Now, it’s not happening as fast as any of us would like, and certainly not fast enough for the millions of folks who are still out of work. But there isn’t any doubt – we’re moving in the right direction.” Back in April Biden predicted that the U.S. economy would be adding up to 500,000 jobs each month “some time in the next couple of months.” Is that the right direction? Does that mean my Uncle Oscar will finally find job?
Here is my concern: When this administration finally throws in the towel on creating jobs through illogical Keynesian monetary and fiscal policies, as Roosevelt had to do after eight years of the New Deal without reducing unprecedented unemployment nor abating the Great Depression, will Obama follow Roosevelt’s example and lead the nation into a really big war? (See Percy Graeves, PEARL HARBOR, THE SEEDS AND FRUITS OF INFAMY.) Rest assured that if Obama does involve the nation in a really big war to achieve Keynes’ discombobulated vision of “full employment,” Krugman will be there to congratulate and urge him on. Anyone who doubts that Krugman could be so immoral must read his NY Times column of November 10, 2008 entitled “Franklin Delano Obama.” http://www.nytimes.com/2008/11/10/opinion/10krugman.html
“After winning a smashing election victory in 1936,” Krugman wrote, “the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections. What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.”
Keep in mind that Roosevelt is the president Krugman most admires, and never forget that this Nobel-laureate-Keynesian economist referred to World War II as a “public works project” and a “fiscal stimulus adequate to the economy’s needs.” And if you are a Keynesian, repent or hang your head in shame. See: http://jesus-on-taxes.com/ON_PAUL_KRUGMAN.html
Anyone who doubts that Krugman could be so immoral …
I don’t doubt ANY leftist could sink to ANY level of immorality.
They are the ones who invented the concentration camp and the gulag, after all.
It sounds like Krugman is getting desperate. Thanks for the consistent rebuttals.
If the problem is the Fed, why the crisis in 1874, 1884, 1893, 1892, 1907, previously Fed?
If only stimulus can get us out of recession. How did those end without the Fed?
(also.. read up on Fractional Resereve Banking… a central bank just allows the bubbles to last longer, be larger, but it’s the mechanism of FRB that creates the boom-bust cycle.. as classical economists discovered a long, long time ago… check out Peel’s Bank act of 1844)
But if the problem are the fractional reserves, why the crisis in 1847? The Bank Charter Act 1844 had restricted issue new banknotes only if they were 100% backed by gold.
All of them were precursed by government action. 1874 was due to the failing of the Civil War era fiat money, banning of silver in currency, and the failing of a government backed bank. 1884 wasn’t a crisis (it’s hard to call a 7% GDP growth and even faster wage growth a crisis). 1893 was due to excessive government subsidy in railroads. 1907 was due to the legal permission to engage in fractional reserve banking without consent of banking customers.
It’s incredible, every time a blog post comes out hammering on the Fed, I end up answering the same exact questions. Are people really that dense?
Don’t despair! It’s great that you do answer the question. Even if 1/100 of those that ask the question is sufficiently challenged by your response to give Austrian Economics a second look, you’ve made a difference.
Yes, be patient, keep up the good work.
Bear in mind that the austrian school is still news to most people, even those who’ve studied economics. It’s easy for newcomers at mises.org to be clueless, but at least they’re curious enough to come and look.
Yea, in 1884 had crisis. The GDP fell 1,6% compared at 1883. In 1885 yet was smaller compared at 1883, single recovered in 1886.
Excessive government subsidy in 1893? The government in age was very liberal that had vetoed help to ruined farmers by drought.
Railroads were nearly nationalized in 1893, how is that liberal (in the 19th century sense of the word)? Further, the US Government overextended US Notes beyond the available stock of gold, primarily because of the Sherman Silver Purchase Act that placed a hard trade value between silver and gold. This drove the value of silver so low that it was no longer worth mining it, dramatically increasing unemployment as the entire silver industry collapsed. Further, this imbalance between silver and gold prices, and the bimetallic backing of US dollars, drove a run on gold as now gold was worth far more than the dollars that backed them, which caused some 500 banks to fold.
Additionally, the impacts can be tied back to the McKinley Tariff, a government intervention that attempted to block foreign competition of US made goods. As typical with tariffs, foreign nations retaliated in-kind and assisted in bankrupting a few thousand companies.
Where was this liberal government you claim existed back then?
What railroad companies were nationalized in 1893? I already said that the government in this age was extremely liberal.
“If the problem is the Fed, why the crisis in 1874, 1884, 1893, 1892, 1907, previously Fed?”
The question goes deeper than that. Andrew Jackson, our quintessential austro-libertarian president, so despised banks and lending that he forced the Second Bank of the United States (our central bank) into bankruptcy back in 1836, undoing the banking system and throwing our entire credit structure into disarray. We plunged into deep depression, from which we did not emerge until 1843. Credit, predictably, had frozen solid, debts were universally defaulted on and banks failed by the hundred, taking deposits with them.
(See John Steele Gordon’s An Empire of Wealth, or any other volume describing the period.)
Andy Jackson was a gold bug, distrustful of fiat money and banking generally. And cyclical depressions occurred without shock absorbers from that point through 1907, when people again began to think a regulatory mechanism (a central bank) governing banking and credit might not be a bad idea.
There’s no reason to suppose such a plan to undermine our system of managed currency would be any different next time. History ought to be good for something.
And yet the shocks got progressively bigger and longer after the so-called absorber was installed. Yes, we should learn from history, and history says we’re better off without the central bank in play.
“And yet the shocks got progressively bigger and longer after the so-called absorber [the Federal Reserve] was installed.”
Maybe you could back that up with something. The 1837 Depression lasted a full five years and destroyed Philadelphia as our center of banking. 90% of our factories had to close their doors. It was a bad one.
“Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of State banks received a shock from which it never fully recovered.” You might want to read more about it here:
http://www.publicbookshelf.com/public_html/The_Great_Republic_By_the_Master_Historians_Vol_III/thepanic_ce.html
Compare our more recent Great Depression, the only real depression we’ve suffered in the past century. Far fewer businesses closed, and far fewer banks. 1934, 35 and 36 were all recovery years. We didn’t slide back into depression until Congress’ ill-conceived plan to balance the budget prematurely, in 1937.
support you
Krugman is a paid shill for the Central Banks. His so-called “Nobel” prize (actually not related to the will of A. Nobel) was funded by the central bank of Sweden, the FEDs little cousin in the land of Mother Svea whose recent motto was “Duty above everything else”.
If the Sveriges Riksbank likes him, what else needs to be said.
MICHAEL :”The question goes deeper than that. Andrew Jackson, our quintessential austro-libertarian president, so despised banks and lending that he forced the Second Bank of the United States (our central bank) into bankruptcy back in 1836, undoing the banking system and throwing our entire credit structure into disarray.”
Michael, soldier on, my friend, and make sure you never let historical facts interfere with your deeply held beliefs. Like, say, these: Carl Menger, founder of the Austrian school of economics, born 1840, published PRINCIPLES OF ECONOMICS in 1871, died 1921. Andrew Jackson, born 1787, died 1845, almost 30 years before PRINCIPLES, which can be said to have inaugurated the Austrian school of economics. So Andy Jackson obviously was not an “austro.”
And “-libertarian?” OMG! No! His support of slavery and his treatment of the Indians (re, The Trail of Tears), disqualify him from being called a libertarian regardless of the fact that he put an end to an ignoble national bank. Ask any members of the Choctaw, Seminole, Creek, Chickasaw or Cherokee tribes if they think Andy was a libertarian. The people he chased from their ancestral homes were far more worthy of the libertarian designation. Upon his removal, one of the Choctaws wrote this to the American people: “It is with considerable diffidence that I attempt to address the American people, knowing and feeling sensibly my incompetency; and believing that your highly and well improved minds would not be well entertained by the address of a Choctaw. But having determined to emigrate west of the Mississippi river this fall, I have thought proper in bidding you farewell to make a few remarks expressive of my views, and the feelings that actuate me on the subject of our removal … We as Choctaws rather chose to suffer and be free, than live under the degrading influence of laws, which our voice could not be heard in their formation.”
Michael, you earn no credence for your views by engaging in hyperbole.
Ned: You could not have failed to notice the context in which I labeled AJ as an austro-libertarian. The discussion had to do with the monetary solution to the business cycle. And Jackson’s approach seemed to me much the same as the one championed here under the label austro-libertarian. To wit:
1) He despised central banks and the running of national debts. In fact his main objective while president was to eliminate the debt so he could get the country back to running a balanced budget. And in this he was spectacularly successful. He sold off huge expanses of federal land for specie, refusing to take any sort of banknote in payment. And as a result the federal budget showed a considerable positive balance, in fact ran huge fiscal surpluses… for the only time in US history.
But the impact of his Specie Circular was to vacuum all the silver and gold out of the western territories. So they in turn drained the eastern banks of specie… spawning a resulting credit crisis in our previously most stable banks. Consequently a great many banks failed, unable to feed the panicky beast at their doors. And once he refused to deposit federal revenues in the Second Bank of the US, that failed as well. Draconian… but I guess that was the point. The country languished in 72 months of serious depression… a depression that conveniently didn’t become fully entrenched until Martin Van Buren took the oath of office. So the colorless Mr Van B took much of the hit.
Was it bad? By the fall of 1837, 90% of America’s factories had closed their doors. They don’t make depressions like that any more– today we have institutions like the Fed and FDIC, and massive deficit spending to temper the blows.
Note how similar this is to our own day, with Obama catching all the flak for not instantly curing a crisis initiated during the eight years of Bush’s reign.
2) He made drastic cuts in federal spending. Akin to today’s austro-libertarians, he didn’t like the idea of federal money going toward road projects, so he stopped building roads west. Business expansion in that direction was, to say the least, held up for the next few years.
So the thrust of my comment was that Mr Jackson’s prescriptions were identical to those being proferred now in venues like Mises.org. I was not literally saying that he went around 180 years ago calling himself an austro-libertarian.
i hope you get paid per word.
Way to address the issue, newson.
Speaking of Krugman, and having also read that the FTC wants to go after bloggers who misrepresent or neglect to mention their affiliations … I will say nothing about this, except to mention (again) the very bizarre and unprompted defense that Krugman made of a fellow NYT, err, journalist, of whom accusations were made that he accepted payments from interested parties without disclosing them to his readers. But obviously the FTC has no intention of shutting down the NYT – the main purpose of their new policy (other than as a make-work project for themselves) is to shut down the NYT’s competitors.
Krugman is a joke. He won’t even use the term “Austrian” in his articles, because he’s afraid of giving people something to google. The coward is trying to prevent anyone from getting the real facts for themselves, so that he remain ensconced at the NYT as the gatekeeper of truth. At the very end of his little essay Krugman gives himself an excuse for not actually citing any scholarship or giving any concrete examples to illustrate what may be very loosely termed his logic … “we’re not having an academic discussion here” … in other words … “no time to explain – shut up and inflate!”
Major LOL in the comments added to Krugman’s article.
Somebody here is trying to trick the Krugmeister into an open battle, which is of course futile:
I think that the Prof is too clever to take this particular bait. Better to noisily thrash straw men in a protected enclave at the NYT than to enter the field of battle and risk losing all.
But there are many great comments taking Krugman to task. One can only hope that for the rest of the Keynes-eating inflation-sucking masses, some of these comments will impress with their clarity and logic, and sink in. But of course that won’t happen til it’s too late …
Michael, and then there are alternative views, such as this one from Wiki:
“Some causes include the economic policies of President Andrew Jackson who created the Specie Circular by executive order and also refused to renew the charter of Second Bank of the United States, resulting in the withdrawal of government funds from that bank. Martin Van Buren, who became president in March 1837, five weeks before the Panic engulfed the young republic’s economy, was blamed for the Panic. His refusal to involve the government in the economy was said by some to have contributed to the damages and duration of the Panic. Jacksonian Democrats blamed the banks’ irresponsibility, both in funding rampant speculation and by introducing paper money inflation. This was caused by banks issuing excessive paper money (unbacked by bullion reserves), leading to inflation.
“Others take a different view, blaming a combination of the Second Bank of the United States, Mexican bimetallism (which drove Mexican silver out of Mexican circulation according to Gresham’s Law, and into America where it was legal tender), legal tender law, fractional reserve banking, and state government deficit spending, which dramatically increased the money and credit supply, decreased interest rates, and led to erroneous investment decisions before and up to 1837, according to the Austrian Theory of the Business Cycle.”
Evidently the depression never would have occurred had there been no central bank or other forms of government intervention in financial markets in the first place.
As for Obama being blamed for Bush’s economic policies, I think most people at this site are inclined to leave that meaningless debate to the talking heads on Fox and MSNBC “news” shows and the silly folks who take them seriously.
Finally, Michael, Austrian economics is embraced by libertarians because it demonstrates conclusively that the primary tenet of the other schools of economics is a dangerous fiction. That tenet holds that when a small cadre of human beings acquires sufficient power by hook or by crook to rule the other people within a nation’s borders, those who make up the cadre upon entry into their government capacities become blessed with divine-like wisdom that allows them to know better than all of those other people what is good for those others, thereby enabling the elite cadre to micro-manage markets, which would otherwise by controlled by the decisions to buy or refrain from buying of all of those others. Of course such “benevolent” rule by the elite restricts the freedom of the others, earning it and the other schools the derision of libertarians. Central banks are a product of that silly fiction of the almighty wisdom of those who govern that underpins those other economic schools, which fiction Mises so lucidly debunked and dubbed Statolatry.
Michael, I do appreciate your admission, so to speak, of the fact that Jackson was neither libertarian nor Austrian.
Ned, I’m afraid we’re muddying the waters in trying to distinguish Jacksonian policies from those of the austrians. He championed a small government with its hands off of the economy; a low-spending (and presumably low-revenue) government that was wholly against deficit spending and the issuing of banknotes, i.e. fiat money. Is this not an Austrian approach, under any other name?
“Martin Van Buren, who became president in March 1837, five weeks before the Panic engulfed the young republic’s economy, was blamed for the Panic. His refusal to involve the government in the economy was said by some to have contributed to the damages and duration of the Panic.”
I see. So his insistence that the government not intervene contributed to the damages and duration of the depression.
“Jacksonian Democrats blamed the banks’ irresponsibility, both in funding rampant speculation and by introducing paper money inflation. This was caused by banks issuing excessive paper money (unbacked by bullion reserves), leading to inflation.”
Would it not occur to us that a regulatory mechanism that punished unsound banking practises might be a very good idea? And that the legislative branch of our young government would be the perfect place from which to issue such regulations? Bankers should be jailed for floating unbacked currency. How else would one prevent such a condition?
“Others take a different view, blaming a combination of the Second Bank of the United States, Mexican bimetallism (which drove Mexican silver out of Mexican circulation according to Gresham’s Law, and into America where it was legal tender), legal tender law, fractional reserve banking, and state government deficit spending, which dramatically increased the money and credit supply, decreased interest rates, and led to erroneous investment decisions before and up to 1837, according to the Austrian Theory of the Business Cycle.” (from Wikipedia)
On which you comment: “Evidently the depression never would have occurred had there been no central bank or other forms of government intervention in financial markets in the first place.”
That simply does not follow. Money issues were backed by bimetallic reserves. These reserves were increasing. Therefore the solid, austrian-recommended money supply was expanding. What were banks supposed to do, devalue precious metal?
Please link the 2nd BUS’s policies to the collapse of credit. Jackson’s expressed aim was to kill the Bank, by withdrawing its federal deposits precipitously… and when he had successfully done so, the depression was a consequence. The crisis was precipitated by him alone.
The nation was experiencing boom times in two very basic ways. First, more silver coming into play. Second, an apparently infinite expanse of new lands to the west to be bought and sold with easily accessible credit. It was only natural for every bank in the country to loosen credit, to take advantage of the boom, and of the speculative rise in prices. Those who abandoned fiscal prudence in their haste to grow rich should have been punished by well crafted legislation. But the destruction of the banking system was just not an appropriate remedy. Not in my opinion.
I won’t reply to your final paragraph. It’s ideological cant, and not appropriate to a discussion of actual causes and effects. It is the one size that supposedly fits all situations. Limit your discussion to the events of the 1830s and 40s and we can explore the full dimension of what went wrong then. My own observation is that banks were running too fast and loose, and that we’d have benefitted from closer regulation of their liberties in regard to fractional reserve creation of negotiable notes. A central bank freshly dedicated to that task would have been a good tool for the job.
Michael said: “Limit your discussion to the events of the 1830s and 40s and we can explore the full dimension of what went wrong then.”
Michael, I’m sorry, but I’m a rabid Voluntaryist. I try my best not to be limited by the state’s regulatory tentacles, so it is unlikely I’ll be able to confine myself to the arbitrary confines you would establish. Besides, events of the 1930s and 40s are not the subject of this thread. And I do mean to elaborate a tad on my “cant,” which you can either respond to or ignore. But first I’ll address some of your remarks.
You argue that the depression following the elimination of central banking back in 1837 was worse than the Great Depression. That is ludicrous. That nineteenth-century depression lasted 5 years, which is a mere fraction (less than 1/3 the duration) of the Great Depression under the ministrations of the Federal Reserve and FDR’s New Deal. And since the Great Depression, rightly understood, included Roosevelt’s WWII, it thus included such ancillary miseries as involuntary conscription, ubiquitous rationing and the many violent deaths and maiming of those unfortunate souls who directly participated in the war, which did not inflict the victims of the earlier depression.
Michael, You also posit that there has only been one depression in the last century. Where have you been for the past few years?
You say, “My own observation is that banks were running too fast and loose, and that we’d have benefited from closer regulation of their liberties in regard to fractional reserve creation of negotiable notes. A central bank freshly dedicated to that task would have been a good tool for the job.”
Yes, a tool, but more like using a ten-pound sledge hammer to drive a picture-hanging nail into a plasterboard wall. A tool to cause more harm than good.
But lets get back to my “cant.” You are defending the concept of a monopoly central bank. Libertarians oppose government-created monopolies such as central banks because they restrict individual liberty. Let me offer an anecdote that may illustrate my point.
In the early 1980′s I operated a resume-writing service. One of my customers was a very dispirited gentleman in his fifties who had been a successful mortgage broker for about 15 years, but demand for his services dried up completely when Paul Volker’s Federal Reserve Bank pushed interest rates through the roof. And today, with Bernanke’s Fed holding interest rates near zero, many elderly people who rely on interest from savings accounts have had their incomes reduced to a fraction of what they were before Bernanke tried to rescue the economy. No person nor group of persons should hold such arbitrary power over the lives and fortunes of millions.
You offer a lot of bon bons to pick through, Ned. WW Two was Roosevelt’s idea? I suppose we could have stood around reading the papers while Tojo, Stalin and Hitler divvied up the world. But I doubt that’s a world we’d have wanted to come about through our failure to become involved.
And your problem with the Fed is that they hold a monopoly power? Okay, let’s have as many Feds as one would like. Its function, ideally, is to act as lender of last resort during a crisis of confidence in the banking system. So we could have Fed A, Fed B and Fed C. Failing banks could ask for a lifeline from any of these.
Parenthetically, we likely would have had no Great Depression had the 1929 Fed done its job. Instead, it inexplicably just stood by while our banks fell like dominos, failing to send out any lifelines. So it was their austrian-like response that actually transformed what would have been merely a major banking crisis into an intractable and severe business depression.
I would also maintain that the only crisis in the past hundred years severe enough to be called a depression was the event of 1929-1942. The 1907 crash, certainly a depression, was just beyond that time period; and the event of 1921-22 was short and shallow. Are there others in your opinion?
Next, “Libertarians oppose government-created monopolies such as central banks because they restrict individual liberty.”
Obviously the armed forces would fit this description, being the government monopoly par excellence. Had we not had any, we’d have lost our country back to the Brits back in 1814. And I suppose all subsequent talk about freedom would be moot.
As for your friend the mortgage banker, I feel his pain. But he had no obligation to raise his rates just because Fed rates had risen. He could have told his investors they should just accept a lesser return on their investment.
The year was probably 1980 when he left the business. There was in fact a serious residential RE slowdown due to high rates, which were scraping the ceiling at fourteen percent. That meant, at current prices, that people with good incomes wanting a substantial home could barely qualify for a modest little bungalow. So sales were almost dead in the water.
The inflation rate in 1980 was 13.58%, per CPI figures. That meant that investors lending at fourteen were only getting a return on investment of one-half of one percent. THAT is why your friend quit the business.
BTW, that was the same year I got out of real estate sales. He and I both had other career choices available to us.
Michael, you MUST read Percy Graeves just published, PEARL HARBOR, THE SEEDS AND FRUITS OF INFAMY, available through this website. It is about as well documented an account of the events leading up to Pearl Harbor as one may find and it includes a lot of material that had previously not been published. It leaves little or no doubt that Roosevelt wanted the US to come to the aid of England as early as 1939, made personal (and at the time secret) promises to Churchill that the US would do so, and manipulated many events and conditions to facilitate the US’s entry into the war, while at the same time during his campaign for reelection in 1940 publicly pledging to keep American troops out of any wars on foreign shores.
Rest assured that long before Peal Harbor, Roosevelt was not confining himself to reading newspapers. After all, he had to do something to relieve the Depression since all of his Keynesian New Deal fiscal and FRB monetary and banking policies and practices had failed.Why would Roosevelt lust for war? It promised to deliver relief from deep-Depression unemployment, which the New Deal had failed so miserably to relieve. The war was a perfect Keyensian-economic remedy for unemployment. As Keynesian-economist Paul Krugman–the same who is the subject of Professor Anderson’s blog, which you really should read–wrote in a 2008 NYT column entitled “Frankliin Delano Obama, “What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.” Imagine that, a Nobel laureate Keynesian economists referring to the most deadly war of all time as “an enormous public works (sic) project,” and “a fiscal stimulus!”
Of course the war time draft, the permanent reduction in the workforce through military casualties, and productions of lots of stuff to be immediately blown up can in fact bring about the Keynesian nirvana of (undefined) full employment in the short run (even before we’re all dead in the long run). Hitler himself had shown the value of such Keynesian policies to reduce unemployment when he began implementing policies prescribed by Keynes in his GENERAL THEORY, which Keynes endorsed as most amenable to authoritarian regimes, such as Hitler’s, in his personal preface to the German edition of that tomb.
Crises in confidence in banking systems in almost invariable caused by government action, often by the government’s central bank. You pointed out that such was the case for the 1937 crisis. Read Mary Ruwart’s comparison of banking in Scotland where there was no central bank between 1793 and 1845, and neighboring England where there was. In 1841 Scottish depositors lost 32,000 pounds to bank failures in the previous 48 years, whereas the public’s losses in England were twice that amount for the 1 preceding year only. (HEALING THE WORLD, CHAPTER 9, on the web in pdf).I’ll have more for you later but I got to catch a ferry from Dublin to London. Today’s headline in the Irish papers: Bank (Anglo-Irish) to cost taxpayers 210,000,000 euros per week for the balance of the year. Forecast losses 30 billion euros. an all time record for Ireland, all to be paid by the taxpayers through the government and its central banking facilities. Bernanke, can you beat that?
“Read Mary Ruwart’s comparison of banking in Scotland where there was no central bank between 1793 and 1845″
where can i find this looks like a great read
from a post at RonPaulForums.com:
http://freekeene.com/files/Healing_Our_World.pdf
Michael, your defense of central banking is difficult for me to understand. Interest rates of 13.8 percent in 1980! Is that what the Fed is supposed to do? And your assertion that the Fed could have saved the economy from the Great Depression if it had bailed out all those banks that failed in 1929 just proves my point: who but a demented soul would want want a bunch of fallible and corruptible political appointees with so much power over the economy and the lives of Americans?
As I read your postings I am forced to conclude that you believe that government can accomplish virtually anything by creating more money. Wherein does that divine-like power and wisdom arise? If the Fed acted stupidly back in 1929, what makes you so confident that it will act wisely today? Is Ben Bernanke that smart? Smarter even than Greenspan? Do you also believe in the tooth fairy?
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