“The most common word we hear and read concerning the economy in the United States and globally is ‘unexpectedly,’” writes Jeff Scott.
This word is usually accompanied somewhere by a term which is just as common; ‘mainstream economists’. Have you ever asked yourself who these mainstream economists are and why are they consistently wrong? …
The fact is, there were plenty of people who did predict our current problems years in advance.…
The fundamental difference between those who could see and those who could not is found in their basis for economic thought – Keynesian or Austrian. People like Jim Rogers, Frank Shostak, Peter Schiff, Robert Murphy, and Ron Paul, people who warned us and continue to warn us today, are considered students of the Austrian school of economics, while the others follow the Keynesian school of economics.
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Robert Murphy has admitted he did not predict the current problems.
Henry Hazlitt had the catalyst of the housing bubble nailed 33 years ago in the later edition of his famous Economics in One Lesson:
“The case against government-guaranteed loans and mortgages to private businesses and persons is almost as strong as, though less obvious than, the case against direct government loans and mortgages. The advocates of government-guaranteed mortgages also forget that what is being lent is ultimately real capital, which is limited in supply,and that they are helping identified B at the expense of some unidentified A.
Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to ‘‘buy’’houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion.
In brief in the long run they do not increase overall national production but encourage malinvestment.”
Mark Thornton, too.
An article from 2004…
http://mises.org/daily/1533
The reason it was unexpected to them is because so many “mainstream economists” know absolutely nothing about economics.
Let’s make another prediction.
Pension funding is based on the actuarial assumption of an 8% ROI. The Fed is keeping interest rates close to zero. This will create a financial disaster for pension funds, particularly those who are required by law to maintain 40-60% of their assets in Government Paper.
My prediction – mainstream economists will be shocked when this “unpredictable” event occurs.
LOL. I’m sure that’s one prediction we can Bank on.
Austrian economics is no doubt better at spotting “unpredictable” events like the housing bubble bust and the fact that pensions based on 8% ROI are not going to deliver. What the Austrians miss is the link between the human economy and the natural economy. The natural economy operates on a strict energy budget and favours resilience over efficiency. In contrast energy “is just another commodity” according to Austrian economists (and Keynesians). My point being that economic inputs include capital and labour AND natural resources, especially energy. If energy production isn’t growing then you have no economic growth (other than through efficiency). And the most important energy production of all, oil, isn’t growing; and in fact hasn’t done so since 2004. Coincidence? I don’t think so.
Seems to me that natural resources are the root of capital. Capital is created from natural resources using the labor of mind and body.
“If energy production isn’t growing then you have no economic growth (other than through efficiency).”
This is muddled thinking. It expresses confusion and it is illogical.
The claim is that if energy production isn’t growing then the result is no “economic growth”. In the same breath is the admission that efficiency gains allow “economic growth” (hence in the absence of the growth of energy production there can be “economic growth”). Either one of these ideas is wrong or both are wrong.
Oh dear!
One can’t (and shouldn’t) take this sort of non-sense seriously. It’s all arbitrary claim and astonishingly limited understanding of economics, of causality, of fact…
Sione
In conventional economics, oil consumption is a leading economic indicator. However, it is the economic activity that produces the increase in the demand for oil, rather than an increase in the supply of oil triggering economic growth.
Many Austrian economists have also made HORRIBLY wrong predictions. Like we’d have double-digit inflation this year.
11.5 % inflation qualifies as double-digit.
Yes – you are right. Even if you accept the mainstream definition of inflation as rising prices, Austrians do things that make them different from mainstream economists – they eat food, they drive cars and use electricity. The do not believe that their phone bill has gone down because they traded in their IPhone for the latest model, or that they are better off because there new laptop has supercomputer capabilities.
Also, Austrians have this ridiculous notion of defining inflation in terms of an increase in the supply of money. So when the FED prints money out of thin air this actual is inflation, rather than causes inflation.
Yes, if you accept Keynesian economic as “the truth”, Austrian Economics will be perceived as wrong.
As Ayn Rand once said: You can ignore reality. But you cannot ignore the consequences of ignoring reality.
closely related to the question of ‘unexpectedness’ is the hindsighted excuse used by policymakers everywhere: ‘Unintended consequences’.
Unforeseen unintended consequences of a failed policy may perhaps be excusable. But when they were foreseen and supported by cogent reasoning ( as Austrian thinking generally is) , and the foreseers’ concerns and arguments are ignored or dismissed, the moral culpability should be multiplied by at least a factor of ten. Therein lies the difference between benign but misguided intent, and wilful malignancy.
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