Keynesians like Paul Krugman claim that Laws of Economics hold only under certain conditions, and then it is time for people to reject them and turn to the equivalent of Economic Voodoo. In my Krugman-in-Wonderland post today, I take on his latest praise of Congress trying to channel its inner Smoot-Hawley.
I also feature Prof. Murray Sabrin’s excellent piece that appeared today on Lew Rockwell’s page in which he takes on Krugman’s economic logic.
{ 54 comments }
For exactly the same reason that voodoo priests and shamans reject the theory that rainfall, fertilizer and crop selection are the most important factors in harvest success. Job security.
Once the complex veneer of yuan-devaluation and other such blathering is stripped away, the entire essence of our recent congressional freaking-out over China is revealed to be nothing more (from the American side of the issue) than the complaint that Chinese businesspeople are selling their products at a lower price than American businesspeople. Somehow, despite the fact that the actions of the American common man demonstrate the superiority of more affordable goods, there is still a lot of anger over the perception that somehow China is fleecing us by selling cheap stuff. It’s the classic example of the strange bias that Frederic Bastiat pointed out in his satirical “Petition”: that political feeling tends to prefer the producers of a particular good (a tiny minority) over the consumers (a much larger group). Economic Voodoo is alive and well not because the potions and incantations actually solve problems, but because the manipulative witch-doctors mystify and deceive for personal gain.
If we operated under a market free of gov’t subsidies how would our domestic producers be able to compete globally when the competition still receives subsidies from their gov’ts?
Perhaps we shouldn’t produce goods that we can buy cheaper elsewhere (assuming equal quality). If China is willing to give us steel at half the price that it takes us to produce it, why would we produce it ourselves? If someone is going to pay you $50 to take their bicycle, will you reject that offer because you want to build the bicycle yourself?
Ok so is the answer to this problem that we must reduce our standard of living to that of our global competitors? Playing a game of chicken in regards to how low will you go.
Your claim’s underthought – if the Chinese government subsidizes steel production so that the American customer is paying less than he would otherwise, the government is effectively subsidizing the foreign purchaser; the only ones who truly suffer are those being hit up for money by the Chinese state.
Agreed, but there are political motivations which have to be overcome no?
If for example China decided to overtly subsidize every thing they exported to the US and say we lifted all of our subsidies. From a political perspective you’d have a lot of unemployed and angry Americans. At what point (ie. months, years) would our subsidy free economy be able to compete on the world market? This has always been my biggest question. How does a free market economy initially compete against ones which are not?
Subsidies don’t come out of thin air. If China is subsidizing certain industries, they must be harming other industries and making them less competitive. It’s impossible for China to subsidize “everything”.
“From a political perspective you’d have a lot of unemployed and angry Americans”
Nope. Chinese raw materials can be used to make higher order goods.
This is absurd. Jobs aren’t an end in itself.
Besides, you might have to employ a lot of people if you want to give shit away for free but that still means that you’re giving away shit for free
standard of living is what you have, not how much work you performed getting it.
if someone gives you a gift you are richer not poorer.
if you build pianos and someone can give you one for less than you can build it the answer is to take the piano build by someone else for less, stop building pianos, take your now spare time and build or make something. now you are richer and your standard of living has gone up. You now have the piano and the other thing that you made, instead of just the piano.
if you think that standard of living depends on how you work. go in your backyard and start digging holes, you will be rich in no time.
Of course the caveat is that you end up finding something else to do profitably.
an individual wants to satisfy all their needs and wants. one of the wants being to satisfy all the other needs and wants with the least amount of work. this general rule does not change when there are two individuals , 10 individuals, or a whole country of individuals. one of the ways to satisfy the most wants is to use my freedom to buy cheap stuff. other people satisfy more wants by using the government to take my freedom and force me to pay their inflated prices.
the freedom path allows all to win, while the other way only the people who use force win and all of their customers lose.
The answer to that riddle is that if the currency of the exporter is undervalued relative to equilibrium levels, it will produce a surplus which generally winds up funding the deficit created in import/export imbalance. The money has to come from somewhere right? In the end, the government must pay and that means the taxpayer pays through things like lower capital investments, higher unemployment, higher inflation and lower GNP. This is not the way to create wealth, and not the way to trade. The government might be subsidizing exports, however, in a case like China there are ominous repercussions in building an economy based on preying on a neighboring state (like us).
We produce things that would make sense for us to produce. It’s called comparative advantage. If they give us cheap steel we make cars. If they give us cars we make airplanes. If they give us everything we could ever want so there would be no reason to work we go on vacation.
Nelson – thanks, I’m glad someone brought that up.
Christopher – I’ve always enjoyed Art Carden’s explanations of comparative advantage.
http://blog.mises.org/13753/gains-from-trade-with-extreme-differences/
http://blog.mises.org/13752/gains-from-trade-an-example/
http://mises.org/daily/3744
THANKS!
Thank you for the refresher on comparative advantage. Question: How long would it take to realize this advantage when one party (ie China) can produce almost everything we would need more cheaply? How long would it take to use up the excess capacity in the US, and what would that do to our economy in the near/medium term?
China can’t produce everything they want or need. It’s an impossible task.
Trade deficit doesn’t mean the United States isn’t selling to China but that the USA is buying more from China than we’re selling. The issue IS easily solved by removing trade barriers and eliminating regulatory burden.
As it stands, the USA exports 1/4 of the value of the imports back to China. Tax and regulatory burden accounts for nearly 50% of the operating cost of American companies. This is an average as smaller companies have an even larger burden than that.
Here are a list of items that America exports to China in large numbers:
Finished computers – China may produce intermediary parts, but the United States produces most of the key components (processors for example) and provides the final good. There is a trade surplus in computer technology to the tune of $14 billion. Imagine how much would be exported if we could cut the cost of computer production in the United States in half simply by eliminating regulatory agencies and the income tax.
Medical products – The United States is the world’s leading exporter of medical products (the USA is almost the ONLY producer of these products as universal health care hasn’t destroyed the industry like in other nations…yet). This ranges from medicines, machinery, and technology. The elimination of regulatory requirements and elimination of production taxes would place hundreds of millions of Chinese in reach of vastly improved medical technology that only America can provide, dramatically boosting exports.
Heavy machinery – China lacks the capability to produce large equipment such as tractors, dredgers, excavators, and other heavy equipment for construction or earth moving. Again, with the elimination of the regulatory burden and tax structure, China would be able to purchase more equipment for their projects. Imagine how much money Caterpillar would have made if their equipment wasn’t burdened with taxes and regulations. China is currently hand-skimming Chaohu Lake to get rid of algae and built the Three Gorges Dam, which when completed in 2011, will have taken 17 years, much of it built without heavy equipment. For comparison, the Hoover Dam, which while smaller was just as difficult to build based on its location, took only 5 years from start to finish. Imagine how much more Caterpillar and other major manufacturers could build and export for these projects without the existence of regulatory or tax burdens.
In addition to these key areas, the number of industries and products that we are currently importing from China that would become cheaper with the removal of the tax and regulatory structure is nearly impossible to determine. There are inevitably a large number of items that we would cease importing and start exporting simply because its now cheaper to produce here. The United States has a gigantic lead on China in overall productivity. America’s economy of scale dwarfs China’s and we could outcompete them by simply being able to produce more with a single highly paid individual than they could with an army of poorly trained individuals assembling in less advanced factories.
Why stop at national borders? Why not state borders? Why not local borders? Why not residential borders? Everyone should produce everything he needs by himself without trading with anyone else. If you trade with your neighbor, you’re costing yourself a job of producing the thing he’s giving you, and the neighbor is costing himself a job of producing the thing you’re giving him. Therefore all trade should be outlawed.
The first problem is not competition but diversification.
Firstly, if everybody produce the samething, there will be no competition at all: not even a single exchange !
Secondly, if we cannot diversifie enough, then we will have to compete i.e. we are starting with an handicap.
So, if we have to compete, we already are a loser.
The apodictically certain “laws” and inferences produced from Mises’ praxeology collapse under closer scrutiny:
http://socialdemocracy21stcentury.blogspot.com/2010/10/mises-praxeology-critique.html
Mises’ reasoning involves unproven hypotheses about expectations and information which cannot be derived deductively from the axiom of human action. Subsidiary hypotheses that do not apply to real world invalidate praxeological reasoning.
The laws of praxeology describe a world as fictional as the land of Oz.
It is no wonder that Rizzo and O’Driscoll do not use pure Misesian methodology.
Lord Keynes (the second? or third?) The original Lord John Maynard Keynes was a fraud. He claimed in his GENERAL THEORY to have refuted Say’s law. Are you aware, Lord Keynes the Second, how he did so? You must read two books by Henry Hazlitt that are available here at Misis.org. to find out. In “The Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies,” 1959, Hazlitt refutes Keynes “General Theory of Employment, Interest and Money chapter by chapter and page by page. When he was finished, only a fool would ever take anything Keynes said or did seriously. In it Hazlitt wrote this profound summation of Keynes magnum opus: “In spite of the incredible reputation of the General Theory, I could not find in it a single important doctrine that was both true and original. What is original in the book is not true, and what is true is not original. In fact, even most of the major errors in the book are not original, but can be found in a score of previous writers.” He then proceeded to prove that charge explicitly.
The following year Hazlitt edited and published an anthology of articles by 19 of the world’s leading economist, each debunking in whole or in part the economic drivel Keynes wrote in his GT or elsewhere. One of those authors was Ludwig von Mises who pointed out that, “For what many people have admiringly called Keynes’ “brilliance of style” and “mastery of language” were, in fact, cheap rhetorical tricks.” Mises also dealt with Keynes preposterous claim to have refuted Say’s law. In summation, Mises said, “The exuberant epithets which these admirers have bestowed upon his work cannot obscure the fact that Keynes did not refute Say’s Law. He rejected it emotionally, but he did not advance a single tenable argument to invalidate its rationale.” Btw, Lord Keynes II, if you can think you can refute Say’s law, I invite you to give it a try here. If you can’t, perhaps you’ll realize that government can’t create prosperity by spending, as Keynes once believed. (Rumor has it that on his death bed he recanted his inane economic theories and accepted Jesus as his Savior.)
Lord Keynes II, I see you have resorted to the tactics of your name sake, which is to say, cheap rhetorical tricks. As one of Keynes’ epigones, it is no more than I would expect. In your silly article entilted “Mises’ Praxeology: A Critique,” you have set up a straw man to flail away at without even beginning to understand, let alone critique, Mises’ real praxeology. Don’t feel too bad though, employing logical, deductive, discursive reasoning is not easy. The methodology of praxeology has escaped or befuddled many others before you. Certainly Keynes never got it.
Lork Keynes II, one of your straw men from his silly critique is this: You say, “Even when the real world provides significant countervailing empirical evidence contradicting an inference in Mises’ system, it is irrelevant and can be explained away.” You blame this statement on N.P. Barry. Whether you are quoting Barry correctly or whether he actually wrote this, in either case the statement demonstrates a profound confusion of the methodology of praxeology. But I dare you: Give me just one example of countervailing empirical evidence contradicting an inference in Mises system. Unless you can, your whole critique is shot to pieces and you ought to burn it rather than burn with the appropriate embarrassment one must feel when sounding absurd.
Or take these two paragraph from your so-called critique of Mises:
“M. Blaug has criticised Mises’ system in this way: ‘[sc. there is a] the fundamental flaw in Ludwig von Mises’ ‘praxeology’: [sc. it is] the notion that purposive choice as a Kantian ‘a priori synthetic proposition’ is more than sufficient to account for negatively inclined demand curves. This ignores the fact that a number of a posteriori auxiliary propositions are also required, such as transitivity or consistency of choices … To this day, this failure to recognize the limited power of a priori synthetic propositions to generate substantive implications for economic behaviour characterises neo-Austrian writings in defence of Mises.” (Blaug 1994: 132–133, n. 14).”
This paragraph is almost as distorted and undecipherable as anything Keynes wrote in his GT. But here’s the challenge: explain what Blaug was saying in plain English. If not, scratch it from your critique.
And then there is this:
W. Meyer has also shown how Mises does not even follow his own methodology consistently, and how Mises assumed various unproven hypotheses about expectations and information in free market economies, hypotheses which cannot be derived deductively from the axiom of human action (Meyer 1987; see also Albert 1999: 133 and Meyer 1980: 82–91; Albert 1980, which offers a critique of Mises, appears to be unpublished). In addition, Meyer argues that Mises’ theory of money is devoid of informational content and cannot explain anything (Meyer 1987; Albert 1999: 132). Meyer proposes a completely reformed Austrian methodology that uses Popperian falsificationism (Meyer 2002: 278).
There is not one substantive criticism in that paragraph. It is composed entirely of dishwater hyperbole and unsubstantiated ad hominem. This kind of b.s. may play well on a Progressive or Socialist website, but It won’t work on this site. Read Hazllitt, and then come back and well talk about Mises and Keynes.
“Meyer proposes a completely reformed Austrian methodology that uses Popperian falsificationism”
LOL. Physics envy much?
Physics envy much?
Nope. Just a recognition that praxeology is invalid, and Popperian faslificationism can be applied to both natural sciences AND social sciences.
Care to show me one modern social science (apart from Misesian economics) that has used aprioristic praxeology?
Any takers?
You say:
You must read two books by Henry Hazlitt that are available here at Misis.org. to find out. In “The Failure of the ‘New Economics’: An Analysis of the Keynesian Fallacies,” 1959, Hazlitt refutes Keynes “General Theory of Employment, Interest and Money chapter by chapter and page by page
I know all about Hazlitt. Henry Hazlitt did not even understand Keynes properly, let alone refute him:
http://robertvienneau.blogspot.com/2006/07/can-one-respect-henry-hazlitt.html
You say:
Give me just one example of countervailing empirical evidence contradicting an inference in Mises system. Unless you can, your whole critique is shot to pieces and you ought to burn it rather than burn with the appropriate embarrassment one must feel when sounding absurd
There are plenty. Most recently we have empirical evidence for the success of Keynesian stimulus in Australia, New Zealand, China, South Korea, Taiwan, Sweden, and Germany. To take just one example, Germany is proof of the success of both its domestic stimulus and global Keynesianism:
http://socialdemocracy21stcentury.blogspot.com/2010/09/germany-success-of-keynesianism-and.html
And unfortunately, your comments above show you just don’t understand Mises’ praxeology. Here is Mises in his own words:
“Praxeology is a theoretical and systematic, not a historical, science. Its scope is human action as such, irrespective of all environmental, accidental, and individual circumstances of the concrete acts. Its cognition is purely formal and general without reference to the material content and the particular features of the actual case. It aims at knowledge valid for all instances in which the conditions exactly correspond to those implied in its assumptions and inferences. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts. They are both logically and temporally antecedent to any comprehension of historical facts” (Mises 1949: 32).
No empirical evidence can either provide “verification or falsification” of Mises’ praxeological statements and propositions, so the premise of your comment (that empirical evidence “proves” Mises) is totally false.
By the way, you should know that even within Austrian economics Mises’ praxeology has been abandoned by many recent Austrians scholars. Gerald P. O’Driscoll and Mario J. Rizzo have offered a reconstructed Austrian methodology in their book The Economics of Time and Ignorance (1985; rev. edn 1996).
Even historically, praxeology was not accepted by all Austrians. It appears Hayek never really accepted Mises’ apriorism, and Schumpeter used a positivist methodology for Austrian economics.
Hayek even said: “I had never accepted Mises’ a priorism …. Certainly 1936 was the time when I first saw my distinctive approach in full clarity – but at the time I felt it that I was merely at last able to say clearly what I had always believed – and to explain gently to Mises why I could not ACCEPT HIS A PRIORISM (quoted in Caldwell 2009: 323–324 in my post).
Far from spurning Keynes, the Austrian economists Gerald P. O’Driscoll and Mario J. Rizzo have made favourable comments about some of Keynes’ ideas and Post Keynesian economics:
“It is evident that there is much more common ground between post-Keynesian subjectivism and Austrian subjectivism …. the possibilities for mutually advantageous interchange seem significant” (The Economics of Time and Ignorance, B. Blackwell, Oxford, UK, 1985, p. 9:)
It’s a pity the Misesians can’t learn from O’Driscoll and Rizzo.
Come, come, Lord K II, disprove Say’s law or reject Keynes’ poppycock, for his GT is entirely dependent upon his imaginary rebuttal. Say, of course, arrived at his law by the a priori method, which didn’t originate with Mises but was employed by all of the classical economists. Indeed it may truly be said that without the a priori method there would be no such thing as economics.
And let me repeat what I said in my earlier post: “Give me just one example of countervailing empirical evidence contradicting an inference in Mises system. Unless you can, your whole critique is shot to pieces and you ought to burn it rather than burn with the appropriate embarrassment one must feel when sounding absurd.” Your response above is unadulterated b.s. Using the same methodology you just used, I can prove that both you and the original Keynes had it wrong and Mises was right by citing the economic condition in Zimbabwe, where Keynesian monetary policy was embraced by Mugabe to the starvation and even death of the majority of its citizenry, while an understanding and embrace of Mises anti-inflationary monetary theory and policies would have prevented Mugabe’s crimes. Come, come, Lord K II, do not evade. Give me but one example.
K, dear fellow, your objections to Mises’ a priori method, which, though he did not invent it, he was the first to clearly describe and elaborate its epistomolgy, were anticipated and adroitly dispatched by Mises himself back in 1962 in a very short work of his, “The Ultimate Foundation of Economic Science.” Of course he had already dealt decisively with empiricism in economics years earlier in Human Action and some of its German-language predecessors. More recently, Hans-Herman Hoppe took up Mises cudgel to beat the empirical methodology of inventing economic theorytales to a pulp. You really should read it, although you may not understand it. Here is what he Hoppe had to say about Blaug, upon whom your silly critique depends so heavily: “Blaug does not provide one argument to substantiate his outrage [at Mises' writings on the foundations of economic science] His chapter on Austrianism simply ends with that statement [of outrage]. Could it be that Blaug’s and others’ rejection of Mises’s’ apriorism may have more to do with the fact that the demanding standards of argumentative rigor, which an aprioristic methodology implies, prove too much for them” I think Hoppe’s comment about Blaug and others includes you, dear lord K.
lord Keynes II, do you ever read what you write? Listen to yourself (from your critique of Mises): “There is, then, no reason in principle why an apriorism system must be considered true: many such systems have turned out to be false.” How about math and logic? They are both systems dependent upon the apriori. Do you consider them false? The mathematical economics of schools other than Misian (viz., Austrian), including of course Keynesianism, would be at somewhat of a loss without mathematics, would they not?
K, dear fellow, you go on to say, “Mises’ praxeology is a system that is a perfect example of apriorism. There is no reason to believe that apriorism provides a consistent and reliable method for obtaining true theories about the real world.” Does math not so contribute?
I shall let Hoppe respond more fully:
“Praxeology says that all economic propositions which claim to be true must be shown to be deducible by means of formal logic from the incontestably true material knowledge regarding the meaning of action. Specifically, all economic reasoning consists of the following:
(1) an understanding of the categories of action and the meaning of a change occurring in such things as values, preferences, knowledge, means, costs, etc;
(2) a description of a world in which the categories of action assume concrete meaning, where definite people are identified as actors with definite objects specified as their means of action, with some definite goals identified as values and definite things specified as costs. Such description could be one of a Robinson Crusoe world, or a world with more than one actor in which interpersonal relationships are possible; of a world of barter exchange or of money and exchanges that make use of money as a common medium of exchange; of a world of only land, labor, and time as factors of production, or a world with capital products; of a world with perfectly divisible or indivisible, specific or unspecific factors of production; or of a world with diverse social institutions, treating diverse actions as aggression and threatening them with physical punishment, etc; and
(3) a logical deduction of the consequences which result from the performance of some specified action within this world, or of the consequences which result for a specific actor if this situation is changed in a specified way.
Provided there is no flaw in the process of deduction, the conclusions that such reasoning yield must be valid a priori because their validity would ultimately go back to nothing but the indisputable axiom of action. If the situation and the changes introduced into it are fictional or assumptional (a Robinson Crusoe world, or a world with only indivisible or only completely specific factors of production), then the conclusions are, of course, a priori true only of such a “possible world.” If, on the other hand, the situation and changes can be identified as real, perceived and conceptualized as such by real actors, then the conclusions are a priori true propositions about the world as it really is.”(Ecoonomic Science and the Austrian Method)
Hoppe also wrote in the same work: “I must again begin with a description of empiricism, the philosophy which thinks of economics and the social sciences in general as following the same logic of research as that, for instance, of physics. I will explain why. According to empiricism—today’s most widely held view of economics—there is no categorical difference between theoretical and historical research. And I will explain what this implies for the idea of social forecasting. The very different Austrian view will then be developed out of a critique and refutation of the empiricist position.” And then he proceeded to do so. If you read this book, you may understand why your argument in your critique of Mises sounds so silly to me.
K., you are asserting empiricism as appropriate to economics as opposed to Mises a priori basis. Here’s what Hoppe says:
“I would like to challenge the very starting point of the empiricists’ philosophy. There are several conclusive refutations of empiricism. I will show the empiricist distinction between empirical and analytical knowledge to be plainly false and self-contradictory. [23] That will then lead us to developing the Austrian position on theory, history, and forecasting.
“This is empiricism’s central claim: Empirical knowledge must be verifiable or falsifiable by experience; and analytical knowledge, which is not so verifiable or falsifiable, thus cannot contain any empirical knowledge. If this is true, then it is fair to ask: What then is the status of this fundamental statement of empiricism? Evidently it must be either analytical or empirical.
Let us first assume it is analytical. According to the empiricist doctrine, however, an analytical proposition is nothing but scribbles on paper, hot air, entirely void of any meaningful content. It says nothing about anything real. And hence one would have to conclude that empiricism could not even say and mean what it seems to say and mean. Yet if, on the other hand, it says and means what we thought it did all along, then it does inform us about something real. As a matter of fact, it informs us about the fundamental structure of reality. It says that there is nothing in reality that can be known to be one way or another prior to future experiences which may confirm or disconfirm our hypothesis.
“And if this meaningful proposition is taken to be analytical, that is, as a statement that does not allow any falsification and whose truth can be established by an analysis of its terms alone, one has no less than a glaring contradiction at hand. Empiricism itself would prove to be nothing but self-defeating nonsense.
“So perhaps we should choose the other available option and declare the fundamental empiricist distinction between empirical and analytical knowledge an empirical statement. But then the empiricist position would no longer carry any weight whatsoever. For if this were done, it would have to be admitted that the proposition—as an empirical one—might well be wrong and that one would be entitled to hear on the basis of what criterion one would have to decide whether or not it was. More decisively, as an empirical proposition, right or wrong, it could only state a historical fact, something like “all heretofore scrutinized propositions fall indeed into the two categories analytical and empirical.” The statement would be entirely irrelevant for determining whether it would be possible to produce propositions that are true a priori and are still empirical ones. Indeed, if empiricism’s central claim were declared an empirical proposition, empiricism would cease altogether to be an epistemology, a logic of science, and would be no more than a completely arbitrary verbal convention of calling certain arbitrary ways of dealing with certain statements certain arbitrary names. Empiricism would be a position void of any justification.
What does this first step in our criticism of empiricism prove? It proves evidently that the empiricist idea of knowledge is wrong, and it proves this by means of a meaningful a priori argument. And in doing this, it shows that the Kantian and Misesian idea of true a priori synthetic propositions is correct. More specifically, it proves that the relationship between theory and history cannot be as depicted by empiricism. There must also be a realm of theory—theory that is empirically meaningful—which is categorically different from the only idea of theory empiricism admits to having existence. There must also be a priori theories, and the relationship between theory and history then must be different and more complicated than empiricism would have us believe. How different indeed will become apparent when I present another argument against empiricism, another a priori argument, and an a priori argument against the thesis implied in empiricism that the relation between theory and empirical research is the same in every field of knowledge.”
But enough of this Hoppe genius. Just give me your refutation of Say’s law, or give me just one example of “countervailing empirical evidence contradicting an inference in Mises system.” Just one! Please! Otherwise, give it up. In a word of Leo’s, “Foggetaboutit.”
Germany…2.2% growth…that’s your proof of Keynesian stimulus?
Germany’s recovery in Q2 2009 was due to its stimulus and low unemployment also due to a radical anti-market government intervention. The record growth in Q2 2010 was also a function of Keynesian stimulus in China.
There are plenty of other examples of the success of Keynesian stimulus: Australia, New Zealand, China, South Korea, Taiwan, Sweden etc
Like most people here you appear to be incapable of reading or understanding arguments in full.
Not! (Using your method of arguing. Or in otherwords: nanananananana.
A closer look at Germany reveals that we should accept the exact opposite of everything you say!
“As the International Monetary Fund (IMF) explains in its 2010 review of the German economy, “Germany’s strong export orientation stems from the openness of its economy, its long-standing manufacturing traditions and its competitiveness in global markets.” After enduring nearly a decade of slow growth and low inflation, Germany has disinflated its way to an extremely competitive position thanks to painful labor market reforms. The cost of one hour of labor in Germany is now extremely low relative to the economic value added in that hour. Better coordination of public expenditures is not going to erase Germany’s huge competitive advantage in high-end manufacturing.
The German emphasis on competitiveness and the Obama Administration’s obsession with demand management captures well why these economies are moving at such discrepant speeds. The Obama Administration proposes significant tax increases on consumers and small business owners (most small business income is reported by taxpayers in the top two personal income tax brackets that are set to rise substantially in 2011), but is willing to spare no expense to prevent any contraction of state and local payrolls. Rather than focusing on public support for consumption expenditure, the Obama Administration should be more concerned about U.S. competitiveness and productivity. As former IMF Chief Economist Ken Rogoff recently wrote, the Obama Administration’s preferred narrative of the Great Depression – where premature end to stimulus resulted in the 1937 double-dip – totally ignores how the increase in the “role of the state in an often chaotic and unpredictable fashion” suppressed private sector spending and investment. The monomaniacal focus on demand stimulation inures Administration officials to policies that sow uncertainty and slow the private sector’s recovery.
How is the German economy benefiting from the expansionary effects of fiscal consolidation? For more than thirty years, economists have pointed to the “fiscal illusion” on which stimulus depends. Going back to John Cochrane’s formulation, fiscal stimulus depends on households and business being ignorant to, or ignoring the fact that, debt-financed government expenditure eventually requires higher taxes to pay back the borrowing. If businesses and households recognize this and adjust their investment and consumption accordingly, a dollar of stimulus spending could contribute less than a dollar to GDP after accounting for the reduction in private sector consumption and investment. Research has found that as public debt levels increase, the private sector response to additional stimulus is more pronounced. Eventually, the decline in investment and consumption could exceed the positive economic contribution of the stimulus. In these cases, the government can actually increase output by reducing public spending and cutting its budget deficit (see the cases of Denmark, Ireland, Sweden, Canada, and Norway, among others).
****(This the best part, read carefully Lord K)****
In June, the German government announced an austerity package that provided the private sector with a clear and unambiguous message that public debt levels would not grow unsustainably. This likely instilled confidence in the private sector by reducing households and businesses’ estimates of the burden of government, which leads to an increase in consumption and investment.
Ironically, the recent enactment of the $26 billion bill to increase aid to states in the U.S. likely help back private sector growth rather substantially in many states. Empirical work from the IMF has found nonlinear responses from households as budget situations deteriorate. Simply put, the private sector responds to an additional dollar of debt much differently depending on the perceived sustainability of public finances. In states like California, where the deficit is exceedingly large and of a structural nature, federal funds allow state officials to delay the day of reckoning. This may allow more state workers to remain employed, but does nothing to attenuate the uncertainty facing businesses concerned about how tax rates will be adjusted to close the deficit. While the reduction in public sector payrolls absent stimulus would undoubtedly crimp demand. This is likely more than offset by the private sector investment and consumption lost from a continuation of the unsustainable status quo. In these situations, large spending cuts can offer the most reliable stimulus because of the signal to the private sector that less of its future earnings will be needed to finance government.
It has been distressing to watch analysts blame the lackluster recovery in the U.S. on an insufficiently large stimulus. Both historical and contemporaneous data suggest that the problem may just be the broader concept of a debt-financed stimulus. The German GDP growth rate is an important reminder to U.S. policymakers that a dynamic system as complex as the U.S. economy cannot be reduced to simple algebraic equations that suggest the road to economic growth is paved through increasing amounts of public expenditure.”
http://economics21.org/commentary/lessons-german-economic-recovery
You comment here:
And let me repeat what I said in my earlier post: “Give me just one example of countervailing empirical evidence contradicting an inference in Mises system. Unless you can, your whole critique is shot to pieces and you ought to burn it rather than burn with the appropriate embarrassment one must feel when sounding absurd.”
shows that you continue to misunderstand your own theory.
As Rothbard said, “Mises indeed held not only that economic theory does not need to be ‘tested’ by historical fact but also that it cannot be so tested” (Rothbard 1997: 72). Precisely as Mises says:
Praxeology is a theoretical and systematic, not a historical, science …. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts (Mises 1949: 32).
You just don’t understand that even if you find empirical evidence that is consistent with praxeology, it can NEVER prove or verify it, just as Mises said.
My comment about aprioristic systems is entirely correct. I said there is no reason in principle why an aprioristic system must be considered true. Just because maths works, it does not mean that praxeology is necessarily true. Other systems based on the same type of aprioristic reasoning have turned out to be false (e..g, Leibniz’s monadology).
Your long quotation from Hoppe is pointless. I have already read Hoppe’s work (and it’s in my bibliography). Nothing he says there answers the internal criticisms of praxeology.
If you bothered to read my post properly, you would know it’s based mainly on Caldwell’s internal attack on praxeology (Caldwell 1984 and 1985). This refutes praxeology precisely as Mises said it could be refuted: by questioning its internal verbal chain of logic.
There is also plenty of other work showing how flawed praxeology is:
Albert, H. 1999. Between Social Science, Religion and Politics: Essays in Critical Rationalism, Rodopi, Amsterdam. p. 130ff.
K: “shows that you continue to misunderstand your own theory.”
N: Sez who? Sez you! Not!
K: “My comment about aprioristic systems is entirely correct. I said there is no reason in principle why an aprioristic system must be considered true.”
N: No, your comments are entirely wrong. You only think it is right because you fail to understand Mises praxeology. The reason in principle why an apriori system must be considered true is logic, or the human ability to reason. It is quite the same with the laws of economics. They become laws because someone theorizes, presents his or her theory to the world at large in general and other economists in particular for one and all to concur or disprove by means of logical, discursive reasoning. If the theory stands up to all such efforts to refute it, eventually it is accepted as true and it becomes known an economic law forever, or until someone shows it to be illogical. Say’s law is of that sort and has met that test. Keynes tried but failed to refute it. You are invited to do the same here–for the third time.
Note that Say didn’t invent Say’s law, he was just the first to understand it and elaborate it. The world was operating according to Say’s law all along, but it wasn’t understood with the clarity Say gave it. Say’s analysis has stood the test of time and innumerable, failed attempts to disprove it so it is now held to be an economic law. And law is a good name for it because failing to heed the law’s economic implications can have negative consequences. Say’s law was true before Say or anyone else understood it, but not until it was understood could people willfully take advantage of its implications by conforming economic policies to obtain the advantages of its implications.
It is somewhat the same with Mises’ praxeology. Say derived his understanding of the relationship between production and consumption by the method of praxeology (careful ratiocination) and praxeology’s basic tenet, the reality of human action based on human choice. Mises did not invent praxeology, he was merely the first person to fully understand it and explain it to the rest of us. One may not like praxeology nor the understanding of the real world to be derived therefrom, because that understanding confutes one’s strongly helds convictions, but praxeology will live on as it did before Mises elaborated its operation. It is something like America before Columbus: the New World was there and the people who lived there were fully aware of it, but in the mind of Europeans it did not exist, although perhaps a few may have guessed that something was out there.
K: “You just don’t understand that even if you find empirical evidence that is consistent with praxeology, it can NEVER prove or verify it, just as Mises said.”
N: I certainly understand, but the important fact you evidently do not understand is that empirical evidence, at least in economics, is inconclusive and proves nothing. However, that which is logically irrefutable is manifestly true. (Please don’t mimic Pilate who asked Jesus, “What is truth?”) Let me demonstrate: In your post you argue that something about current state of the economy in Germany proves Keynesian stimulus works. And I said that by the same analysis, the current state of the economy in Zimbabwe proves Keynesian monetary policies (and I could have and will now say Keynesian fiscal, stimulus policies as well) not only don’t work, but are so destructive that it may be said they are responsible for starvation and death of the many Zimbabweans.
You say I don’t understand, as Mises said, to quote your quote of him, that Praxeology is a theoretical and systematic, not a historical, science …. Its statements and propositions are not derived from experience. They are, like those of logic and mathematics, a priori. They are not subject to verification or falsification on the ground of experience and facts,” because I asked you to “Give me just one example of countervailing empirical evidence contradicting an inference in Mises system.” I am fully aware that praxeological propositions are not subject to verification or falsification by empirical methods, but here is what you said in your blog post. to which I was responding:
“Even when the real world provides significant countervailing empirical evidence contradicting an inference in Mises’ system, it is irrelevant and can be explained away.”
You said “even when” as though there have been instances, and I said, show me one instance, and you said I don’t understand that by Mises terms it can’t be done, but I am saying to you, show me even one instance where significant countervailing empirical evidence contradicts an inference in Mises’ system.” It is not that I don’t understand that it can’t be done by Mises terms, it is rather that I don’t believe that you can’t site such an instance occurring in the real world, to which I suspect you believe only empirical methodology applies. Actually, I was hoping that you would cite something so that I could pillory your empirical evidence, which would undoubtedly be as inconsequential and unsubstantial and subject to ridicule as the evidence you cited above to prove that Keynesian stimulus works. The point is: you may cite Mises and Hayek, but you evidently do not understand Misesian praxeology. But that doesn’t impair its reality in the least. Praxeology, an a priori system, is was, and will be, and nothing you can say or do will change that, any more than a European’s denial of America’s existence can wipe Canada off the map. If Keynes had the advantage of understanding Mises’ praxeology, and if he was honest, he would never have written his convoluted GT. And you would scrub your blog clean of criticism of Mises praxeology if you understood it.
K: “By the way, you should know that even within Austrian economics Mises’ praxeology has been abandoned by many recent Austrians scholars. Gerald P. O’Driscoll and Mario J. Rizzo have offered a reconstructed Austrian methodology in their book The Economics of Time and Ignorance (1985; rev. edn 1996).”
N: My friend, here is the link to the Mises.org library: http://mises.org/literature.aspx There you will find, as the web page says, “The most complete online offering of the literature of the Austrian School and libertarian ideas, including books, journal articles, and other writings, sorted by any method you choose.” Among the thousands of articles, books and authors you will be able to find far, far more evidence of eminent economists concurring with Miseian, apriori praxeolgy than the few, mostly obscure detractors you have quoted or cited to in your blog. Was Mises perfect? No, and there are legitimate criticisms of his work, but yours is not one of them and you haven’t even nicked his intellectual armor.
K: “If you bothered to read my post properly, you would know it’s based mainly on Caldwell’s internal attack on praxeology (Caldwell 1984 and 1985). This refutes praxeology precisely as Mises said it could be refuted: by questioning its internal verbal chain of logic. There is also plenty of other work showing how flawed praxeology is: Albert, H. 1999. Between Social Science, Religion and Politics: Essays in Critical Rationalism, Rodopi, Amsterdam. p. 130ff.”
N: As I said, go to the Mises library and you will find exponentially more sound intellectual support and reliance on Mises work than your paltry list of objectors and objections. I’m sorry to say I haven’t read Caldwell, but I am confident he did not discredit Mises internal, verbal chain of logic. If you think he did, why do you not present here his or your own logical rebuttal of Mises’ reasoning or show the flaws in his praxelogy here. I suggest you cannot do so.
And while your at it, I renew my challenge–which you have studiously ignored–to refute Say’s law, which refutes Keynes’ GT and the inane idea that government can, as Keynes himself put it, turn a stone into bread. http://mises.org/daily/1840
You only think it is right because you fail to understand Mises praxeology. The reason in principle why an apriori system must be considered true is logic, or the human ability to reason.
I understand Mises’ praxeology perfectly well. Just because someone says they are using an aprioristic system derived from a priori true axioms, it does NOT mean that the inferences and theories derived in such a system will be always and incontrovertibly true. Leibnitz had such a system: but it was utterly false. Mises’ system fails because of severe internal flaws in it, such as unverified hidden assumptions and synthetic auxiliary propositions which are highly questionable.
Among the thousands of articles, books and authors you will be able to find far, far more evidence of eminent economists concurring with Miseian, apriori praxeolgy than the few, mostly obscure detractors you have quoted or cited to in your blog.
Your appeal to (alleged) authority is a logical fallacy. Just because a number of Austrians who are “eminent economists” endorse praxeology does not provide good evidence for the soundness of praxeology. A vast number of “eminent economists” endorse Keyensianism. Does this PROVE that Keynesianism is correct? No, as you need independent arguments for its soundness, not a lazy appeal to authority.
Also, the rejection of praxeology by other Austrians also does not “prove” that the inferences of praxeology are false either: the falseness of such inferences can be demonstrated by showing flaws in the deductive reasoning of Mises.
The statement that many Austrians don’t even follow praxeology is entirely correct, and it is just an observation – nothing more. Schumpeter never adopted praxeology. Hayek never accepted Mises’ apriorism. Both admitted the need for empirical evidence.
Is your “obscure detractors” reference is supposed to refer to Gerald P. O’Driscoll and Mario J. Rizzo?
Germany’s export-led growth model is not in doubt. Unfortunately, the recovery that begin in June 2009 was mainly DOMESTIC growth, so the point against wage restraint is a red herring argument. Yes, that was good for exports, but that doesn’t explain the recovery in Q2 2009.
How is the German economy benefiting from the expansionary effects of fiscal consolidation? For more than thirty years, economists have pointed to the “fiscal illusion” on which stimulus depends. Going back to John Cochrane’s formulation,
All this and what follows are utterly discredited ideas derived from rational expectations.
As is well known, in a world of fundamental uncertainty rational expectations just don’t work.
In June, the German government announced an austerity package that provided the private sector with a clear and unambiguous message that public debt levels would not grow unsustainably. This likely instilled confidence in the private sector by reducing households and businesses’ estimates of the burden of government, which leads to an increase in consumption and investment.
This claim is utterly laughable. The German recovery began nearly a year ago BEFORE Merkel’s announcement of cuts to begin in 2011!!:
http://www.tradingeconomics.com/Economics/GDP-Growth.aspx?Symbol=DEM
2.2% growth in Germany in Q2 2010 was mainly driven by Keynesian stimulus in ChIna too, so the announcement of cuts in 2011 was irrelevant here too.
Is it just my perception, or is krugman increasingly becoming an object of mockery as people become alarmed at US debt–people all over the world. Can’t decide if he is a marxist seeking the destruction of western governments, or simply an egotist who can’t let go of his lifelong theory.
US government debt to GDP is not high by OECD standards:
http://en.wikipedia.org/wiki/List_of_sovereign_states_by_public_debt
Germany has a higher debt level, as does Canada.
As for Krugman, he has plenty of supporters and admirers overseas.
What you Keynes-O-philes always ignore is the consequences of having and maintaining debt. Do you remember how we got our of debt after WWII? Yes, we did grow out of it, but only becuase every other industrial country was in ruins and we were in a position to loan them money to buy our stuff. Plus, we had our own pent up demand and high savings after decades of austerity. None of these things is true today. Not one. In fact, it is the exact opposite that rings true. Also, after the war, there were massive cuts (because military spending was no longer needed) in your holy “government spending”. So, if we continue the level of massive gov. spending you all recommend how could we possibly ever pay off or get out from under that debt? Even faux economists like you have to ackowledge the least useful way to spend money is on interest payments. Eventhough your Daddy probably paid off your own credit card debt, as a country we don’t have that advantage.
One final question, if keynesian really does work, how come we didn’t spiral back into a depression when Truman slashed government spending despite the warnings of the keynesians?
yes, we did grow out of it, but only because every other industrial country was in ruins and we were in a position to loan them money to buy our stuff.
The US had major internal domestic growth even in the 1945-1955 period. Post war reconstruction ended by about 1955 worldwide, but the US economy STILL powered along under Keynesian macroeconomic management. So this argument just don’t work.
In fact, it is the exact opposite that rings true. Also, after the war, there were massive cuts (because military spending was no longer needed) in your holy “government spending”.
Of course there were massive cuts in government spending: the US moved from a command economy at war to a consumer economy. I know.
Plus, we had our own pent up demand and high savings after decades of austerity.
Due to massive savings caused by a full employment in the war-time command economy and the restriction in the production of consumer goods?? There is nothing contradicting Keynesianism here.
One final question, if keynesian really does work, how come we didn’t spiral back into a depression when Truman slashed government spending despite the warnings of the keynesians?
Sadly, you have been misled by Bob Higgs’ errors. You don’t realise that the post-war boom due to pent up demand is explained PRECISELY in Keynesianism terms.
Keynes himself knew precisely what would happen:
“Keynes harshly REJECTED the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.”
The Coming of Keynesianism to America, p. 202
Just because Samuelson thought the economy would slide back into recession shows nothing more than that he was wrong. He should have listened to Keynes.
“Due to massive savings caused by a full employment in the war-time command economy and the restriction in the production of consumer goods?? There is nothing contradicting Keynesianism here.”
So, let me get this straight, you are saying that the spending of borrowed money on the production of war materials that were to be destroyed in battle and produced no value at all was a good investment because it allowed men and women in combat and on the production line to earn a salary? By your own reasoning, we could have just pretended to have a war on 2007 (for about 7-10 years), paid all men and women of working age what we would have in a war economy and let everyone stay home. Then, in 10 years the economy will be fine and we can then simply sit back and grow our way out of massive debt. Actually, it would be even better because its like we gain but without the loss in life. You batter Mises for his lack of empirical evidence and then claim that a war which only destroyed wealth helped our economy recover from a depression. Wow. Bastiat is rolling in his grave.
So, let me get this straight, you are saying that the spending of borrowed money on the production of war materials that were to be destroyed in battle and produced no value at all was a good investment because it allowed men and women in combat and on the production line to earn a salary?
LOL.
No, there is NOTHING in my remarks that implies or leads to any such nonsense.
The statement that the immediate post-war boom in the 1940s was due to “massive savings caused by a full employment in the war-time command economy and the restriction in the production of consumer goods” is correct.
That statement tells you nothing whatsoever about my personal opinion of war or war-time command economies. Of course the US wartime economy was wasteful military spending.
But you could have given a huge Keynesian boost to the economy by large infrastructure spending, social spending, education spending, giving all Americans a national health care system, Keynesian tax cuts etc, with the SAME functional effect but with useful things to show for it.
And don’t tell me that Roosevelt “tried stimulus and it failed” etc. and all that nonsense, because, as is well known, US GDP recovered rapidly under Roosevelt and unemployment came down from 24.9% to 14.3% before Roosevelt balanced the budget in 1937 with disastrous effects. The real trouble with Roosevelt was that he was just too timid:
Brown, E. Cary. “Fiscal Policy in the Thirties: A Reappraisal.” American Economic Review 46 (December 1956): 857-879.
The contractionary effects of state and local government cuts reduced the stimulus effect of discretionary deficit spending.
“Keynes harshly REJECTED the risk of post-war stagnation, holding that because of Social security there would be a large reduction in private saving and so that would be no problem.”
The Coming of Keynesianism to America, p. 202
Just because Samuelson thought the economy would slide back into recession shows nothing more than that he was wrong. He should have listened to Keynes.”
I concede that all Keynesians do not think alike, so maybe Keynes himself didn’t predict this. I’ll check this out. I am not that familiar with Keynes’ own feelings on this matter and I do know that as time went on he began to disagree with the implementation (or misrepresentation) of some of his ideas by Roosevelt and the US.
yes, we did grow out of it, but only because every other industrial country was in ruins and we were in a position to loan them money to buy our stuff.
“The US had major internal domestic growth even in the 1945-1955 period. Post war reconstruction ended by about 1955 worldwide, but the US economy STILL powered along under Keynesian macroeconomic management. So this argument just don’t work.”
Yes, it surely does. If the rest of the industrialized world fell off because of infrastructure damage, depopulation, focus on rebuilding efforts, etc the US manufacturing industry would grow not just from exports bust also from domestic sales due a lack of international competition. The key is, we didn’t pass the world by, we just didn’t have our house burn down. So, our capital investments and labor were used in production rather than rebuilding. That didn’t make our prodcuts better or our production more efficient.
If the rest of the industrialized world fell off because of infrastructure damage, depopulation, focus on rebuilding efforts, etc the US manufacturing industry would grow not just from exports bust also from domestic sales due a lack of international competition.
International competition was restored in the 50s yet the US still grew. Moreover, you completely ignore the non-tradable goods/services sector, which also saw massive growth.
LK: “I understand Mises’ praxeology perfectly well
N: The evidence of your blog criticizing Mises and your comments here indicate that you do not understand Mises praxeology.
LK: “Mises’ system fails because of severe internal flaws in it, such as unverified hidden assumptions and synthetic auxiliary propositions which are highly questionable.
N: Prove it! Name the unverified assumptions, or even one of them. Name the questionable, synthetic auxiliary propositions that hare highly questionable, or even one of them.
N: I doubt that you will even try to prove it because you have already failed the litmus test by failing to substantiate this statement you made in your blog, which I have repeatedly asked you to do. LK, you said in your blog critique of Mises, “Even when the real world provides significant countervailing empirical evidence contradicting an inference in Mises’ system, it is irrelevant and can be explained away.” You know, my friend, you can run, but you can’t hide from your own statements. As I’ve asked you before, show me even one instance where the real world provides significant countervailing…etc.” Mind you, I’m not saying Mises was never wrong, I am merely suggesting that you cannot point to even one instance where a preponderance or even a significant amount of empirical countervailing evidence contradicts an inference in Mises (seamless) system.
Finally, LK, I invite you for the third time to try to refute Say’s law. I ask you this because you have chosen “Lord Keynes” as your pen name on this sight, and the original Lord Keynes, whom you seem to admire, claimed to have refuted Say’s law in the opening pages of his convoluted GT. Mises later showed how very wrong Keynes was in his claim, and vindicated Say and his law admirably in this article: http://mises.org/daily/1803 It might be said that Keynes the original was quite as confused about Say’s law as some of Keynes’ epigones are confused by Mises” praxeology. However, Hazlitt showed that Keynes claimed refutation was not the result of Keynes confusion but rather was dishonest because the description of Say’s law Keynes attacked was a description lifted out of context from a work by JS Mill, which, in context, remains standing and entirely irrefutable against Keynes’ illogical attack. Or perhaps you would care to dispute Mises’ evisceration of Keynes so-called refutation of Say. Here are just a few of the accomplishments of the man you will be up against, which are an a sidebar of the web page containing the article debunking Keynes.
Ludwig von Mises was the acknowledged leader of the Austrian School of economic thought, a prodigious originator in economic theory, and a prolific author. Mises’s writings and lectures encompassed economic theory, history, epistemology, government, and political philosophy. His contributions to economic theory include important clarifications on the quantity theory of money, the theory of the trade cycle, the integration of monetary theory with economic theory in general, and a demonstration that socialism must fail because it cannot solve the problem of economic calculation. Mises was the first scholar to recognize that economics is part of a larger science in human action, a science that Mises called “praxeology.”
I am merely suggesting that you cannot point to even one instance where a preponderance or even a significant amount of empirical countervailing evidence contradicts an inference in Mises (seamless) system.
There are plenty of instances of real world conditions that do not conform to Mises’ praxeological laws. Years ago, George J. Schuller showed many of them:
Schuller, G. J. 1950. Review of Human Action: A Treatise on Economics by Ludwig von Mises, American Economic Review 40.3: 418–422.
Schuller, G. J. 1951. “Mises’ ‘Human Action’: Rejoinder,” American Economic Review 41.1: 185–190.
Mises’ states that government intervention will always be inefficient and contrary to economic law, and will be unstable and will lead to chaos.
As G. J. Schuller shows, Mises’ view is TOTALLY contradicted by reality:
What does “interventionist measures logically lead to” mean? Either Mises believes that interventionism is cumulative and necessarily leads toward socialism and into “chaos” (another undefined term), or he does not. If he does, can he explain how western nations reversed mercantilist intervention and established partially free markets in the 18th and 19th centuries, or how they accomplished partial decontrol after World Wars I and II? Can he explain how the purely free market is ever to be attained? On the other hand, if interventionism need not be cumulative (and Rothbard says it logically leads to the free market as well as to socialism) then is it necessarily incoherent, unstable, and transitory? If interventionism logically points in two opposite directions (toward zero and infinity), does it have to continue in either until it reaches respectively Elysium or chaos? (Schuller 1950: 190).
There was massive mercantilist intervention in the early modern period. This didn’t end in “chaos.” There was orderly reform of economic systems. Mises’ theory is discredited.
Furthermore, in fact Mises blatantly contradicts himself too:
http://socialdemocracy21stcentury.blogspot.com/2010/10/was-mises-socialist-why-mises-refutes.html
In Human Action (p. 741) he argues that government intervention to create fire regulations CAN be justified:
“There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule” (Mises 1998 [1949]: 741).
So there you have it: your beloved hero Mises actually believed in government intervention to create fire regulation that violated private property rights and involved violent coercion of individuals by government, a complete contradiction of his idea that intervention inevitably leads to chaos.
Mises left the backdoor of praxeology open to socialism.
Some other unfortunate countervailing empirical evidence that conflicts with Mises’ praxeological theories:
The arbitrariness of Mises’ catallactic principles in application to historical reality may be illustrated briefly.
(a) He reduces pricing under monopolistic competition to that of either competition or monopoly
(b) His theory of business cycles assumes that interventionary credit expansion is made in an otherwise free market economy, with full employment. He is not concerned with the effectiveness of the same policy under large-scale unemployment (however caused).
(c) He does not explain how (non-Crusoe) economic systems other than the pure market have managed to survive and replace one another throughout all known history.
(d) He provides no empirical support for his “stagnation” thesis against the empirical defenders of present-day capitalism who have attacked such a thesis.
(Schuller 1950: 420-1)
I invite you for the third time to try to refute Say’s law.
As for Say’s law, it is easily refuted:
http://socialdemocracy21stcentury.blogspot.com/2010/10/myth-of-says-law.html
“Mises’ system fails because of severe internal flaws in it, such as unverified hidden assumptions and synthetic auxiliary propositions which are highly questionable.
N: Prove it!
The most obvious internal flaw is the blatant contradiction Mises makes in his view of intervention, which even Rothbard criticised:
http://socialdemocracy21stcentury.blogspot.com/2010/10/rothbard-on-mises-utilitarianism-why.html
You basically say that Mises was a minarchist. I’m sure that must come as a big surprise to everyone reading this. Then, you go on to quote Rothbard criticising utilitarianism. Again, a big surprise to people familiar with his work. Then you go on about mixing normative and positive economics (i.e. doing the same thing Rothbard accused Mises of just a couple of paragraphs earlier), and somehow from that conclude that Rothbard was wrong.
I fail to see the point of your article.
You basically say that Mises was a minarchist
Nope. I say that Mises’ Human Action contains a devastating inconsistency and contradiction, which Rothbard saw.
Mises makes this concession on p. 741 of Human Action:
“Economics neither approves nor disapproves of government measures restricting production and output. It merely considers it its duty to clarify the consequences of such measures. The choice of policies to be adopted devolves upon the people.…. There are certainly cases in which people may consider definite restrictive measures as justified. Regulations concerning fire prevention are restrictive and raise the cost of production. But the curtailment of total output they bring about is the price to be paid for avoidance of greater disaster. The decision about each restrictive measure is to be made on the ground of a meticulous weighing of the costs to be incurred and the prize to be obtained. No reasonable man could possibly question this rule (Mises, 1998 [1949]. Human Action: A Treatise on Economics, Ludwig von Mises Institute, Auburn, Ala, p. 741).
See also:
http://socialdemocracy21stcentury.blogspot.com/2010/10/was-mises-socialist-why-mises-refutes.html
Rothbard saw that in leaving the back door open for “reasonable” intervention, Mises has contradicted himself on the view that intervention leads logically to socialism or chaos, and also that Mises’ utilitarian justification for libertarian economics as public policy is untenable.
Rothbard’s solution was to claim that there is moral/ethical justification for libertarianism as public policy based on natural right/natural law.
Regrettably, natural right/natural law is deeply flawed and untenable. Rothbard’s ethical argument is unconvincing and that just leaves Mises’ inconsistent system.Thanks.
Rothbard isn’t seen as perfect on everything because people don’t 100% agree with anyone else.
If I recall correctly, Peter’s falsificationist philosophy doesn’t rely at all on natural law. Personally, I find it’s notions appealing (for the same reason I suppose you might be saying “regrettably” here) but ultimately the simplest refutation to it is not to agree. It’s requirements seem circular. You can define existence based on a prior logic easily enough, but moving on to the prospect of self ownership even based on methodological dualism isn’t fully convincing (though I still find it a more useful starting point than pure utilitarianism).
I think proceeding with the idea of the non-aggression principle as a central tenant of society is far more advantageous to individuals and in the aggregate than the current state paradigm. While one might say it is not a necessity that all states devolve into totalitarianism the historical record doesn’t show a great deal of hope for eternally beneficial governments, particularly those which cover massive areas of land and/or have a large population of non-homogeneous cultures.
Certainly one can look to some parts of Europe to view better and more efficient versions of democratic systems than we have here in some respects, but those systems are not workable here. Not only are they not workable, they aren’t even desirable by the standards of many people here. Europe is also not a great paradise, it’s got all kinds of problems of it’s own in various places not the least of which is immigration from Islamic countries and lack of sustainable birth rates to keep up with their debt obligations.
Well, that is another typical (although maybe not a necessary one) attribute of minarchism (logical inconsistency). Mises did not argue correctly. Rothbard correctly pointed it out. Then you just repeat what you already said, without explaining why you disagree.
Since you referred to Popper’s falsificationism in the past, how about you apply it to the stuff you are producing? How about the inapplicability of falsification to other economic economic theories?
How about the inapplicability of falsification to other economic economic theories?
Which theories? It has in fact been Mises’ praxeology and Marxism that rejected empirical evidence and claimed that they were not falsifiable:
Popper and economic methodology: contemporary challenges , p. 7.
For example, mainstream Marshallian equilibrium theory is subject to falsificationism. Of course, I should have made it clear that, as with most scholars who study economic methodology like Blaug, my view is that you have to make some changes for social sciences, but that doesn’t get you out of empirical testing.
Indeed, and that is my objection to it as well, see this post of mine. However, so far it’s better than the others.
No, it is not. It is impossible to eliminate the influence of other goods, as well as it is impossible to determine the intentions of the actors. You can make educated guesses, but that’s far from being falsifiable. Also, the market is an open ended process (see Roy Cordato: Efficiency and Externalities in an OpenEnded Universe) rather than a static system. Even Mises recognised this and used the concept of “evenly rotating economy” as a mental construct to explain his positions.
I think there is a lot of research left to be done in the Austrian School, as well as errors to be fixed. But that does not mean that what mainstream produces is better, on the contrary, it’s much worse. They make significantly more assumptions, but they are not even aware of them sufficiently to phrase them out explicitly.
Oh and to save time, economic theories typically go like this:
1. Based on empirical evidence, the outcome of free market interaction causes a deficiency according to some normative scale
2. By changing some aspect of the activities taking place on the free market, a better outcome (again based on the same normative scale) can be achieved
3. Therefore, government should intervene in accordance to (2)
4. ????
5. Profit (just kidding)
I’ll leave it to you to address the logical fallacies in the sequence above, or explain to me why keynesianism does not match it. I have my own issues with the apriorism of praxeology, but let’s see how other theories hold up.
Comments on this entry are closed.