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What’s wrong with Austrian Economics

March 8th, 2010

In my email today I got an invitation to a conference on Austrian Economics in the 21st century, to be held in Argentina. Details here for those interested. What struck me was the list of topics, namely

- Economics
- Epistemology
- Methodoly (sic)
- Political Philosophy
- Readings on the Austrian School of Economics

That is, 80 per cent of the conference is to be devoted to meta-economic issues of one kind or another, and only 20 per cent to the entire field of economics (much of which will probably also be taken up with meta-discussion). A focus on meta-issues is a characteristic problem for heterodox schools of all kinds, but Austrian economics takes it to an absurd extreme. At some point, surely, they need to stop worrying about methodology and history of thought and start actually doing some economics.

Leaving aside the obvious silliness of worrying about epistemology in the context of a massive financial crisis, there’s the irony of holding the conference in Argentina, something of a poster child for failed free-market policies (admittedly, before that it was a poster child for failed protectionist policies). Surely the conference could manage a theme on what went wrong in Argentina and how Austrians would do things better next time.

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  1. PeterS
    March 8th, 2010 at 10:26 | #1

    Are we to assume you are not going?
    Or does it sound like an unmissable opportunity for some stirring?

  2. Zardoz
    March 8th, 2010 at 11:54 | #2

    I’m still cacking myself thanks to Brad DeLong’s latest takedown of this stuff:

    ‘Is it your view’, he asked Hayek, ‘that if I went out tomorrow and bought a new overcoat, that would increase unemployment?’ ‘Yes,’ replied Hayek, turning to a blackboard full of triangles, ‘but it would take a very long mathematical argument to explain why.

    Priceless…

  3. March 8th, 2010 at 12:21 | #3

    Sad

  4. Grim
    March 8th, 2010 at 13:32 | #4

    Zardoz, I’m just impressed that DeLong quoted Joan Robinson. I have her delightful little primer ‘Economic Philosophy’ (Pelican reprint edition, 1974). Her first chapter heading is ‘Metaphysics, Morals and Science’. Beat that in an economics text.

    So surely, ProfQ, since one can simply never have too much epistemology and methodology, should we not cheer their earnest effort to raise our sights from daily subsistence to higher themes and memes ?

    Maybe, if we’d had more epistemology, methodology and history of thought, we’d have had fewer Chicago Schools.

  5. Graeme Bird
    March 8th, 2010 at 14:42 | #5

    But thats what is good about this school of thought. The problem with the other schools of thought are that they don’t see knowledge as holistic and methodology as important. Without getting the methodology right its just prejudice and flying blind.

    Zardoz. Thats not a takedown. Its not even an argument. What do you possibly imagine Brads argument to be?

  6. Damian
    March 8th, 2010 at 15:53 | #6

    “something of a poster child for failed free-market policies”

    Argentina? Are you absolutely serious that Argentina had ‘free-market policies’? This is truly a bizarre statement.

    If as you see it ‘free-market policies’ (whatever you actually mean by this I can’t understand) are historically/empirically a recipe for ‘failure’ what about Singapore, early America, Hong Kong Vs Mainland China, East Vs West Germany, North Vs South Korea?

    I think free market means: Smaller state, lower state taxes/borrowings/fiat money printing/expenditure, rule of contract law and non violation of individual property rights, less intervention into economic affairs over riding principals of property rights/contract by state decree.

  7. jquiggin
    March 8th, 2010 at 16:36 | #7

    Damian, are you claiming West Germany and South Korea as examples of free market economies. If so, it appears you include social democracies and dirigiste states in your classification, which makes it less than useful.

    As regards your initial rhetorical question, here’s the WTO in 1998. They certainly seemed to think that Argentina had followed the path you describe, with great success.

    http://www.wto.org/english/tratop_E/tpr_e/tp100_e.htm

  8. March 8th, 2010 at 16:38 | #8

    Pr Q said:

    A focus on meta-issues is a characteristic problem for heterodox schools of all kinds, but Austrian economics takes it to an absurd extreme. At some point, surely, they need to stop worrying about methodology and history of thought and start actually doing some economics.

    The Austrian “focus on meta-issues” seems to have paid off scientifically for them, at least judged by recent predictive results. They have the best record of any economic school in predicting both the US housing bubble, the GFC and the recession. They beat the Marxists and Keysnians and Monetarists. Steve Keen, impossible to classify.

    Shorter Strocchi on theoretical treatments of the GFC: Austrian’s were best in predicting the causes, Keynsians were best in prescribing the cure.

    The Austrians have been totally ignored by the economic establishment, apart from Pr Q who at least has the decency to acknowledge their efforts. Ron Paul, the politician whose economic philosophy is largely Austrian, called the housing bubble in 2002. This is when US house price rises were relatively moderate compared with overseas markets. Paul is a little bit cranky on small government.

    He is obviously a decent man in himself and his intellectual performances deserve more respect. Here he is in 2009 discussing Austrian v Keynsian economics getting a well-deserved pat on the back for his predictive triumph.

    The real Austrian star is Peter Schiff who was calling the housing bubble way back in 2003. This clip (dated late 2006) titled “Peter Schiff was right” was exactly on the money. He correctly pointed to the Fed’s debt-fuelled asset-inflating credit expansion and federal agencies allowing a “collapse in lending standards” as the cause of the perfect financial storm. He also predicted the end of the bubble, “an enormous credit crunch” and the coming recession.

    Its really shameful that this guy has not got more credit for his prescience. And by implication the Austrians should share that credit because their theories were the basis for his predictions. I can dimly remember reading Hayek on the business cycle arguing that bubbles in commercial real estate were the most likely cause of overall business flunctuations. Since all residential real estate is now securitised and rent-imputed it is more or less commercialised anyway.

    Abstract theory will never be a perfect crystal ball. One always needs to know who owes favours to whom and where the bodies are buried. The best work done on the GFC has been done by historical journalista, rather than theoretical economists, whether Austrian or Keynsian. In no particular order of merit, Michael Lewis, Matt Taibbi and Steve Sailer, who have all followed the money trail from Washington to Wall Street.

    Maybe it would be a good idea if Pr Q for a change tried to find out what was right on the Right rather than hunting down every last erroneous talking point on the internet.

  9. March 8th, 2010 at 16:59 | #9

    Pr Q said:

    there’s the irony of holding the conference in Argentina, something of a poster child for failed free-market policies (admittedly, before that it was a poster child for failed protectionist policies). Surely the conference could manage a theme on what went wrong in Argentina and how Austrians would do things better next time.

    I have trouble with visualising Argentina as a free-market paragon. We are talking about the legatees of Peronism here. Its main problem came from pegging its currency to the USD which is more an technical, rather than ideological, issue.

    No doubt there is much to be learned from the various ebbs and flows in the tide of ideological sentiment. But these run across vast floors of anthropological sediment which are much harder to shift.

    In my final year of economics I decided to study a history subject focusing on North East Asian economic development. It was a real eye opener since it showed that Japan and Asian Tigers industrial performance seemed to defy ideological classification according to orthodox political economy. They had relatively low rates of taxation and government ownership. But high levels of regulation and intervention. Classification? Too hard basket.

    And the case of PRC only re-inforces my skepticism about unduly ideological approaches to different economies. For sure it has enjoyed immense economic progress since embracing market capitalism – the “enterprise zones” of southern China more nearly resemble Austrian free-market paragons than any where else.

    But huge swathes of the economy come under the control of State Owned Enterprises. And they are doing pretty well in commercial and industrial markets. So how does that fit into the old state-market dichotomy?

    The older I get the more weight I give to the quality of the individuals rather than the quantity of regulations as a decisive factor in economic success. That means looking at anthropological indices, particularly things like IQ. But we are advised “dont go there” by political correctors so the boring old debate goes round and round inconclusively.

  10. Damian
    March 8th, 2010 at 18:27 | #10

    @jquiggin
    No, just clear examples of same people/culture adopting more free Vs less free. I can’t point to a model free market economy, just varying degrees of state activism.

    Argentina had a currency printing/government spending/debt meltdown. Argentina made some changes in trade policy, each of which have to be examined as to how ‘free market’ they are, so what. That doesn’t equal: Argentina became a ‘free market’ economy in the late 90s and therefore that is why they had an economic collapse.

    The whole picture (tax, money printing, regulations, industry policy, debt issuance etc) does not support your ‘free market created a collapse’ ideas.

  11. March 8th, 2010 at 18:37 | #11

    Jack,
    A quote from a recent “Daily Kos” piece sums up Austrian (Hayekian, not the Rothbardian) monetary policy quite well, I think: “Trying to cure a recession with more cheap credit is like trying to cure chemotherapy with more cancer.”

  12. sdfc
    March 8th, 2010 at 18:40 | #12

    Jack

    Keynes wrote extensively about financial market instability in the GT, in other words the GFC was a text book Keynesian financial crisis. That you say the Austrians beat the so-called Keynesians in predicting the credit crisis says more about the latter’s misunderstanding of what Keynes wrote than the man himself.

  13. March 8th, 2010 at 18:49 | #13

    Andrew Reynolds@#10 said:

    Jack, A quote from a recent “Daily Kos” piece sums up Austrian (Hayekian, not the Rothbardian) monetary policy quite well, I think: “Trying to cure a recession with more cheap credit is like trying to cure chemotherapy with more cancer.”

    Well if you overdose on stimulants and your heart stops then you might appreciate it if the doctor administers a stimulant to get your heart started again. Just so long as he does not prolong and increase the dose.

    Like I said, the Austrians had a reasonably good understanding of the (financial) cases of the crisis, the Keynsians were better at the (fiscal) cures.

    Having said that I would largely agree with the spirit of Pr Q’s post, which is that ideological economists such as Austrians and Marxists are not real strong on either building rigorous theoretical models or subjecting hypotheses to econometric testing. I would defer to Chicago or Cambridge for that kind of action.

  14. Damian
    March 8th, 2010 at 19:09 | #14

    @sdfc
    Read Peter Schiff’s (an Austrian) Crash Proof (penned 06) and all his articles
    + CNN, FOX, CNBC clips on YouTube. Compare this to a Keynesian like Krugman or Reich or monetarist like Friedman or Bernanke. Schiff and other Austrians give details and lay out how the GFC is going to go down.

  15. March 8th, 2010 at 19:35 | #15

    A big problem with Austrians is that they tend to discuss contemporary economic activity in terms of vague abstract generalities which are hard to concretise as institutional operations. Which in turn makes them hard to empirically test.

    But they are on the right track when they go the Fed for its loose money policies. And they are rightly suspicious of highly-leveraged firms.

  16. sdfc
    March 8th, 2010 at 19:36 | #16

    Damien

    The Austrians didn’t have a mortgage (ha ha) on forecasting the financial crisis. Anyone familiar with financial market instability, the dangers of inappropriate interest rate settings and high private debt levels would have been uneasy about the growing threat. Unfortunately the mainstream basically ignored the danger signals, because after all this time was different.

    While I have a lot of sympathy with Austrian concerns of the dangers of credit booms, their prescription once the bubble burst is a recipe for disaster, deflation is a killer in economies with sophisticated financial markets and high levels of private debt.

  17. Graeme Bird
    March 8th, 2010 at 20:00 | #17

    “Jack,
    A quote from a recent “Daily Kos” piece sums up Austrian (Hayekian, not the Rothbardian) monetary policy quite well, I think…”

    Why this nonsense about “Hayekian not Rothbardian? Andrew? The comment applies to both.

  18. Alice
    March 8th, 2010 at 21:34 | #18

    @Jack Strocchi
    For once I agree with Jack
    “But they are on the right track when they go the Fed for its loose money policies. And they are rightly suspicious of highly-leveraged firms.”

    I am deeply suspicious of the feds loose monetary policy in the build up to the GFC and the emphasis on keeping interest rates artificially low as well. Greenspans crime – overemphasis on artificial monetary values as policy.

  19. March 9th, 2010 at 00:34 | #19

    “Steve Keen, impossible to classify.”

    He is a very vocal post-Keynesian. He discusses “Austrian” economics in Debunking Economics and, rightly, rejects it in favour of, you guessed it, post-Keynesianism…

    As Steve Keen notes, “Austrian” economics is “an alternative way to ideologically support a capitalist economy . . . If neoclassical economics becomes untenable for any reason, the Austrians are well placed to provide an alternative religion for believers in the primacy of the market over all other forms of social organisation.” (Debunking Economics, p. 304)

  20. March 9th, 2010 at 00:51 | #20

    I think the best comment on “Austrian” economics has to be post-Keynesian Paul Davidson’s article “THE ECONOMICS OF IGNORANCE OR IGNORANCE OF ECONOMICS?”

    http://archives.econ.utah.edu/archives/pkt/2001m02/msg00014.htm

    Also, as another post-Keynesian economist notes, this, the “Austrian” theory of the business cycle, “not only proved to be vulnerable to the Cambridge capital critique . . . , but also appeared to reply upon concepts of equilibrium (the ‘natural rate of interest’, for example) that were inconsistent with the broader principles of Austrian economic theory.” (J.E. King, A history of post Keynesian economics since 1936, p. 230)

    And that is very true, given that on-one forces banks to create credit! So the “Austrian” theory of crisis amounts to suggesting that everything would be fine if capitalist banks did not act like, well, capitalists! As if…

    Interestingly, von Hayek admitted in response to Sraffa that his theory was based on equilibrium analysis (the “natural rate” of interest and all that). Sraffa replied:

    “only under conditions of equilibrium would there be a single rate, and that when saving was in progress there would be at any one moment be many ‘natural’ rates, possibly as many as there are commodities; so that it would be not merely difficult in practice, but altogether inconceivable, that the money rate would be equal to ‘the’ natural rate . . . Dr. Hayek now acknowledges the multiplicity of the ‘natural’ rates, but he has nothing more to say on this specific point than that they ‘all would be equilibrium rates.’ The only meaning (if it be a meaning) I can attach to this is that his maxim of policy now requires that the money rate should be equal to all these divergent natural rates.” (“A Rejoinder,” pp. 249-251, Op. Cit., Vol. 42, No. 166, p. 251)

    Now-a-days, “Austrians” like to present themselves as rejecting “equilibrium” as a meaningless concept — shame their business cycle theory is rooted in it! Nor do you see “Austrians” mention that von Hayek lost the debates of the 1930s, rarely mentioning how Sraffa and Kaldor (an ex-student) refuted his arguments (Kaldor did so twice, making von Hayek rewrite his theory twice as a result).

    All in all, I would recommend post-Keynesian thought — much superior to “Austrian” pro-capitalist ideology and apologetics masquerading as economics.

  21. rog
    March 9th, 2010 at 06:23 | #21

    Austrians dont hold exclusivity over suspicion of high leverage – it’s just common sense

  22. Freelander
    March 9th, 2010 at 06:37 | #22

    “Trying to cure chemotherapy with more cancer.” Does this have any meaning?

  23. gerard
    March 9th, 2010 at 07:26 | #23

    The older I get the more weight I give to the quality of the individuals rather than the quantity of regulations as a decisive factor in economic success. That means looking at anthropological indices, particularly things like IQ. But we are advised “dont go there” by political correctors so the boring old debate goes round and round inconclusively.

    The subtleties of East Asian economic policies are too much to fathom… low taxes and extensive intervention? How to deal with such a perplexing contradiction?? Time to reach for the Too Hard Basket? But Lo! the Pioneer Fund to the rescue. Now I understand, the policies don’t actually matter, it’s the racial superiority that explains it all! With a population full of wily orientals, how could any country fail to succeed? Armed with this discovery we can jettison development economics as an exercise in politically-correct futility. Obviously Africa’s wasting its time with a population full of low-IQ blacks and should just give up now.

  24. Jason
    March 9th, 2010 at 07:27 | #24

    So, here is the problem with judging a school of thought based on one conference. It clearly leads you to make hollow snap judgement that both miss the point, and attract the piling on of even greater fools. So, just to take one example: our friend who snickers at overcoats, would you please google “broken window fallacy” before you post elsewhere?

    As for yourself, John, consider that those Keynsians who have been “do[ing] some real economics are fully convinced that what is common sense at the individual economic level must be totally inverted at the macro level. If a friend came to you with too much credit card debt and lousy assets, would you encourage him to go borrow and consume some more so that his flow (read GDP) metrics would perk up? Of course not. Yet thus is the very basis of Keynsianism.

    To be frank, all Keynesianism has going for it is that it recommends to those who commandeer the whole economy from their lofty post in the halls of government that this approach is actually the best for all their subjects. A comfy, if self-serving, fantasy. And look where it has got us.

  25. jquiggin
    March 9th, 2010 at 08:16 | #25

    Grim :

    So surely, ProfQ, since one can simply never have too much epistemology and methodology …

    But one can. It’s no good having the best possible theory of knowledge if you don’t actually know anything.

  26. Graeme Bird
    March 9th, 2010 at 08:58 | #26

    But have you seen Steve Keens essays. I was reading one yesterday. Excellent epistemology, despite his anti-Austrian starting point. I think its pertinent to mention this essay because of the topic of epistemology. To me this essay is the scientific method at work. So I can let the leftist and anti-Austrian background slide. Because this is just great stuff.

    http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/

    “sad”

    I think its very doubtful that I could get Nick to expand on this. But Keen is unorthodox enough to be comfortable arguing his case I would suspect.

  27. gerard
    March 9th, 2010 at 09:22 | #27

    “Austrian economics” will naturally be preoccupied with epistemology and methodology; it got its name during the “methodenstreit” of the late 19th century when Schmoller wanted to insult Menger by comparing him to the backwardness of Hapsburg Austria. Interestingly, at that time Menger’s “Austrian school” was notable for its insistence that economics could only be done by building mathematical theories based on a priori axioms. Today it has morphed away from its earlier preoccupation, replacing mathematical axioms with moralistic (“Natural Liberty”) axioms. it has basically transitioned from a semi-serious approach to social science to a quasi-religious approach to social ethics (Thou Shalt Not Payeth Taxes Without Whining Like a Baby), and has been taken over by political ideologues of the teabagging variety – to the consternation of the few remaining serious self-identifying Austrian economists.

  28. Jim Birch
    March 9th, 2010 at 10:12 | #28

    Doesn’t Austrian economics suffer from the stopped clock syndrome: right twice a day but not much practical use at other times? Austrian predictions of financial crisis would need to reliably alternate with predictions of good economic conditions to mean a lot.

  29. Graeme Bird
    March 9th, 2010 at 10:42 | #29

    Goodness those are great posts Gerard. I disagree entirely. But there is no denying your posting quality.

    Where do I disagree? Well I don’t know if there is anyone championing “natural liberty”. I think you would be after “natural law” and “natural justice”. Both of which I think are valid pre-occupations. In order to undermine them one has to throw a Hume-nuke at them. That is to say, lift the proof-bar beyond what anyone could plausibly jump over.

    The problem with being flippant about epistemology and methodology is that what happens if there is a disagreement. Me and Nick disagree on just about everything? How do we sort it out what is right and what is wrong? I’m right and Nick is wrong, and I know why. But what about Nick? How does he sort it out?

    Well it all comes down to epistemology/methodology. One cannot rely on resumes, qualifications, high-IQ and personal sharpness alone. Because when it comes down to it, without good methodology the smarter man is also smarter at stooging himself.

  30. Grim
    March 9th, 2010 at 12:18 | #30

    ProfQ,

    Ah, my partner frequently tells me that I am misunderstood because people think I’m saying the opposite of what I mean. So I’ll just go a little feral and recall the definition of ‘expertise’: “knowing more and more about less and less until one knows everything about nothing”.

    Indeed, perhaps if one does have just enough epistemology and methodology, one might come to the frightening conclusion that, in fact, one knows nothing at all. Is economics in any better epistemological state than string theory ?

    However, I am unfazed, I know that if all else fails, I can go out and buy a new overcoat to replace the one that has worn out, and thereby ruin the world economy. Just don’t mention the new car that I may also have to purchase. But rest assured that I will never, ever replace my broken window.

  31. James Farrell
    March 9th, 2010 at 12:19 | #31

    Keynes hit the nail on head in saying that the master economist must touch the abstract and concrete in the same flight of thought. Theorising and meta-theorising are indiespensible, but pointless unless they have implications for some concrete diagnostic or policy problem. There’s nothing more tedious than a ‘methodology’ seminar where the speaker doesn’t trouble to give even one example of how we would ask or answer a concrete economic question differently on the basis of his elegantly defended methodological position.

  32. Peter T
    March 9th, 2010 at 13:03 | #32

    Over-theorising is the curse of the “social sciences”. I think part of the cure is to recognise that we are dealing with things too complex and varying to be encompassed in any formal models we can yet build, and that therefore explanations have to well-grounded in particular circumstances – to do history rather than abstract science. There is no good reason to believe that this GFC necessarily had the same origins as previous GFCs. Or that the next will have the same origins. That some marxists predicted the GFC no more validates their general framework than similar predications validate their general framework.

  33. sdfc
    March 9th, 2010 at 18:52 | #33

    Peter T

    Financial crises across time are almost entirely due to the same underlying reasons. Easy money, sense of euphoria, facilitated by a profit seeking financial sector. This process pumps private sector debt to extreme levels.

    Once the bubble ihas popped all these problems come home to roost, leaving financial sector balance sheets choked with bad debts. If there has been a financial crisis that has followed a different path I would be very interested to know when.

  34. March 9th, 2010 at 19:07 | #34

    Freelander,
    You seem to have a problem with similes. Perhaps some thought and checking a dictionary would assist.

  35. Alice
    March 9th, 2010 at 19:07 | #35

    @Graeme Bird
    You need bybrids like me Birdie and Austrianism needs to be taken somewhat more seriously than it is for its focus on credit markets that are maladjusted….and the role of the central bank in that maladjustment…ask Greenspan who fuelled the GFC.

    No he was not the cause…poor regulation and mad beliefs was the cause (where the hell were the revisionist economists in treasuries – it would really help if they actually employed people who could analyse the past and see where they went wrong – rather than zombies who follow their own current fad outlooks)

    …but Greenspan had way too much power to add to the fire….and in this the Austrians are worth lisetning too.

    And Greenspan exercised that power because he thought low interest rates was another word for god. He was wrong and he couldnt read the market (not really that good for an economist). Im sure he is feeling it now.

    No-one wants to interview Greenspan. Not even Murdoch. Its as if he has disappeared.

  36. Peter T
    March 9th, 2010 at 19:52 | #36

    sdfc
    Only if you look at closely-defined bubbles (eg tulips, Law’s venture, the South Sea Company). There are other sorts of financial crisis.

    Have a look at 13th and 17th century financial crises (resulting in state bankruptcies in England, France, Spain and elsewhere), which seem to have been driven by a mismatch between social expectations and administrative powers – I don’t think private sector debt was an issue, but public sector debt was.

    I also don’t think the financial sector played as large a role in 19th century crises as in 20th/21st century ones.

    Finally, does your paradigm apply to the Asian banking crisis? Or to the US S&L debacle?

  37. March 9th, 2010 at 20:33 | #37

    sdfc,
    That sounds like a doctrinaire Austrian explanation – add in that the “easy money” is government produced money and you are with Hayek. If you say it is bank-credit money you are there with Rothbard.
    .
    To be a little more helpful to Freelander above – that is why “curing” a bust with easy credit is like curing chemotherapy with more cancer – the bust is the natural cure for the easy money induced boom. The solution is not to stop the bust, but instead not to have the boom (financed by such things as government (fn1) produced money) in the first place.
    .
    (or, for the Rothbardians, bank-produced money)

  38. Ernestine Gross
    March 9th, 2010 at 21:33 | #38

    What’s wrong with Austrian Economics?

    Has morphed into a quasi-religious sect with one commandment:

    “Thou Shalt Not Payeth Taxes Without Whining Like a Baby”
    Gerard, March 2010,

    Good one.

  39. Freelander
    March 9th, 2010 at 23:22 | #39

    @Andrew Reynolds

    “curing chemotherapy” Isn’t this meaningless? Isn’t chemotherapy something not in need of a cure and not capable of being ‘cured’ anyway?

    “Trying to cure a recession with more cheap credit”
    First, not all recessions are the result of cheap credit. Even when they are, the reversal and change in optimism (the bust following a cheap credit induced boom) reduces the willingness to lend and borrow. One way to counteract this is to respond with a loosening of monetary policy. [By analogy, while putting the brakes on when the vehicle is going too fast, putting the brakes on when the vehicle is going to slowly is not to be recommended.] Personally, I think monetary policy is overused as an instrument, and loosening (and tightening) can be over done. However, not having the responsibility of making those decisions that is easy to say. And staring at the downside of not loosening enough, deciding what is best can not be an easy task for those who do decide. (Except for someone like Greenspan who was a total looney who benefited from the peace of mind that comprehensive delusion provides.) The RBA does a very good job, when compared with the Reserve Bank of the miracle economy across the Tasman and the Fed Reserve in the USA.

    Re: Austrian Economics. I’m afraid I have to agree with Ernestine and Gerard, and JQ.

  40. Graeme Bird
    March 9th, 2010 at 23:30 | #40

    We would have to know what you mean by “monetary policy”. This is what good methodology is about. Defining things really well. Myself I never use the phrase “monetary policy” to mean subsidies to the banks. To me monetary policy consists of new cash creation via debt retirement, and the use of an increasing reserve asset ratio. Its a fact that this is the quickest, easiest, and really the only effective way to boost business spending. Its not as if you have the choice of this or should you go fiscal. No evidence exists that deficit spending increases business-to-business spending, independent of monetary easing.

    If anyone has a belief that fiscal splurging can increase business-to-business spending just keep repeating to yourself “Where is the money coming from?” until such time as this belief goes away.

  41. Graeme Bird
    March 10th, 2010 at 05:05 | #41

    “sdfc,
    That sounds like a doctrinaire Austrian explanation – add in that the “easy money” is government produced money and you are with Hayek. If you say it is bank-credit money you are there with Rothbard.”

    Completely erroneous distinction. Even if you were right in their original characterisation, the fact that these days reserves can get as low as 3% of M1, proves that the private banks are in the drivers seat. But the fact is that central bankers are themselves creatures of the banking industry. So this public private distinction has little validity now if it ever did have some.

  42. Alice
    March 10th, 2010 at 05:52 | #42

    @Ernestine Gross
    Good one Ernestine (Gerard March 2010).

  43. Alice
    March 10th, 2010 at 06:01 | #43

    Perhaps the question should be “whats wrong with economics in private universities?”

    The Department of Economics and Policy Studies at the University of Notre Dame has been officially dissolved.

    So much for academic freedom in the modern private university. JQ – better start taking enrolments for Policy101 here. The future of economics and government policy may depend on it.

  44. Andre
    March 10th, 2010 at 08:39 | #44

    I find it hard to believe that most economists just didn’t see the GFC coming. It wouldn’t have been unreasonable to expect that they would have been aware that the financial system was on an unsustainable path leading to the GFC. Of course there are few exceptions including JQ, Roubini and just about the whole Austrian economic fraternity. I make this point not to claim the high ground but to point out that there are some positive aspects to the methodological and epistemological approach of the Austrians

    So why did most of these economist not ring the alarm bells ? Perhaps the economists found it more beneficial financially and personally to encourage the boom rather than send out messages of economic doom.

    This leads me to the view that all the financial geniuses, bankers, brokers etc. wanted to do all the deals and make a lot of money. They didn’t want governments and regulators to change “favorable regulations” that allowed them to do deals. So they spent a lot of money lobbying governments, being charitable and paying generous consultancy fees. The people were told everything was great and felt secure that the economist and government had achieved consensus. Life was good and big business was happy. The EMH had prevailed.

    The economist had consulted their “mathematical” side and the EMH was the holy grail. The economist were seduced by the purity of the mathematical model and forgot to measure it against reality. Austrians (and perhaps a few others) are good at envisaging reality and realised the unrealistic assumptions made the maths work, but not the real world.

    So, I am not saying that mathematics is not useful in economics. In fact mathematics in economics has a lot to do with internal competition amongst economists. It also is used IMHO to convert the ideology into “science” on occasion. The latter point is bought out in The General Theory, by Keynes. Keynes was a government man. His theory advocated more spending, inflation and deficits which was already being practiced by governments around the world to this day. Mr Keynes was human and had aspiration of his own self importance. His model was based on big government centered policy. The government is implicit in this models success. Keynes won the day…. sadly. He tapped into the needs of the government.

    Perhaps the Austrians have failed to keep up with mainstream economics in regards to mathematics, but we shouldn’t forget that mathematical economics came to the defence of “Laissez faire” in the most un-Austrian sense of the word. It looks to me like the role mathematics in economics is poorly understood. The Austrians understand this. They may not have all the answers but should be given more credit for their meta-economics.

    One further point; The Austrians don’t like big government. Given that in the case of the GFC the government had always had responsibility for regulation of the financail industry and failed in its duty of care to the people, to protect their money, the government should take responsibility for the GFC. Yes the “bad bankers” did it, but so did the huge army of crony/gullible politicians and under the watch of our great big bureaucracy . The Austrians understand the nature of big government and its faults thus advocating lesser government. Mathematics can never contribute to this idea. That of course is difficult to comprehend for those who see big goverment as the driver of our economy and central to the citizens life.

  45. Graeme Bird
    March 10th, 2010 at 10:49 | #45

    I was on Catallaxy pointing out as often as I could that our financial system resembled an elephant balancing on its trunk. Even after the fact the neoclassicals could not bring themselves to believe that there was something fundamentally wrong with our banking system and our capital markets. They seemed to want to put it all down to the banks being armtwisted into loaning poor people money.

    But a thousand years of fractional reserve is just an endless catalogue of banking crises. And banking crisis induced recessions. The specifics of the regulations of the day don’t mean that much in the face of a monetary system set up for free-fall. The one regulation that matters more than all the others put together is the reserve asset ratio. Once we lose that we have a banking system totally different than what had been before. We have a different relationship between the finance sector and the public.

  46. March 10th, 2010 at 12:58 | #46

    Ernestine,
    That really is beneath you. To voice an opinion that too much of our spending is State directed and not enough is determined by the individual should not be something that attracts such an unreasoned response from someone with pretensions to being a serious economist – that should be left to the polemicists on this forum.
    If there are people here who “whine like a baby” perhaps you can look at those who constantly carp about how generous they can be – as long as they use other people’s wealth to be generous with.
    .
    Freelander,
    Perhaps you also need to acquire a sense of humour – it makes the meaning a lot clearer. To put it rhetorically – why would you “cure” chemotherapy? The answer is plain – you would not. As you seem determined not to even try to understand I will try to make it clearer for you, using the same analogy.
    As an aside, perhaps you should work out that reading on this topic (Austrian Economics and the ABCT) may actually increase your understanding. Even if you do not agree with it, your arguments may actually then make some sense. At the moment, they do not.
    .
    In this analogy, the “disease” is the boom, not the bust. The cause of that disease is overly cheap money, driving over-spending in goods and investments that, but for the cheap money, would not have attracted funds. Poor long-term decisions are made by people because the “signals” being fed to the people making the decisions on expediture are that money is cheap and so spending and investment decsions can be made on poor bases – that money is going to continue to be cheap.
    The bad investment decisions and over-purchasing that result diminish wealth – to the point where, once the easy money conditions revert to a more normal situation (or even past that, to make up for the previously easy money) a recession results. This exposes the poor decisions for what they were, sending people and businesses bankrupt, meaning those resources get re-allocated.
    To try to “cure” this with easy money makes no sense – all it does is delay the “cure”, which is the re-allocation of those resources into actual productive purposes, delaying the recovery.
    I hope that was plain enough for you, but if you need it in words of one syllable I might have time to do it one day.

  47. Michael
    March 10th, 2010 at 14:11 | #47

    @Andrew Reynolds
    I’m new to Austrian economics. Has it been tried anywhere of note? Have it’s assumptions about “over-spending” been tested? I’m genuinely curious to know. It sounds logical that if money is too cheap then there could be wasteful spending, but the destruction that would ensue with the “cure” and resulting re-allocation is going to be painful for a lot of people who didn’t have any role in making these decisions. There seems to be a touch of sadistic puritanism in this idea.

  48. Alice
    March 10th, 2010 at 16:39 | #48

    @Andre
    Andre

    You say “I find it hard to believe that most economists just didn’t see the GFC coming. ”

    You have not researched hard enough. It may not have been printed in Murdoch news but beleive me – quite a few saw it coming. But this is old ground and I dont want to revisit it – because they were howled down by the people who didnt want to see it coming and who were apparently eminently more newsworthy.

    Just like 1929.

    You try and caution a stampeding herd Andre and see how far you get. Its not the good economists at fault but the self interested groups and individuals for obscuring (quite deliberately) the cautions.

  49. March 10th, 2010 at 17:04 | #49

    Michael,
    I am not at PhD level on this school – I have an extensive background in banking and risk, not economics. I can only comment on what I have seen and, in recent years, read on this.
    What is now called Austrian economics is, in many ways, a development of the “old” (pre_Keynes) classical school so to answer your question on whether it has been used, the answer is yes – extensively.
    As for “sadistic puritanism” to me the sadism comes from ideas that perpetuate the idea that you can have people doing non-productive (i.e. useless) stuff when they would prefer to be doing something useful. The faster they can find useful employment the better. If a government is over-taxing productive activities to fund useless ones, then jobs will follow the money – meaning useful employment is hurt to fund useless stuff. Surely that is the real “sadistic puritanism” here.
    If people choose to do whatever they want using their own funds and chasing their own dreams then I have no problem with that at all and would encourage them to do so. As soon as a government starts spending wealth that they have acquired on a compulsory basis then I expect that this should be spent for mutual benefit. I do not count digging a hole to fill it back in again as of any benefit whatsoever.

  50. Freelander
    March 10th, 2010 at 17:23 | #50

    Andrew Reynolds :Freelander,You seem to have a problem with similes.

    This is a simile: “He was like an accountant who couldn’t do basic arithmetic.”
    This is not a simile: “Trying to cure chemotherapy with more cancer.” Nothing is being compared. “Cure chemotherapy” is simply an error; probably it was a selection error. Perhaps the person who wrote it was trying to be clever or profound (or you suggest trying to be funny)? Maybe all of these? When groping for a medically related word denoting something capable of being cured, they came up short.

    When so frequently in error, I am amused by your propensity to ‘correct’ imagined mistakes of others.

    Austrian economics, nowadays, whatever its origins, seems to be a refuge for those who wish to replace evidence and crisp argument with woolly platitudes and hand waving, and, apparently, meaningless strings of words.

  51. Freelander
    March 10th, 2010 at 17:28 | #51

    “I do not count digging a hole to fill it back in again as of any benefit whatsoever.”
    But people have been doing this for millennia. All depends on what you put at the bottom of the hole or what you fill the hole with.

  52. Alice
    March 10th, 2010 at 18:00 | #52

    @Andrew Reynolds

    Andrew – you say
    “I do not count digging a hole to fill it back in again as of any benefit whatsoever.”

    To makea statement like this means you dont understand

    a) the effect of income in the economy. No matter what the usefulness of the task (and ideally it should be more useful than digging holes and filling them in eg a dam, road, school building). Please – Andy – dont show your ignorance or your willingness to misinform others.

    No- one ever, including Keynes, ever suggested digging holes and filling them in but this would work just as well if there was nothing else more productive or socially beneficial to accomplish.

    b) the effect of multiplied income in the economy no matter what the initial task

    c) confidence of income in the hands of income earners, the effect on their willingness to consume and the effect of this on the economy.

    You really are missing something very basic here which most econ110 students would well understand.

  53. March 10th, 2010 at 18:35 | #53

    Sorry, Freelander – but the sentence I quoted (of which you have just taken a little chunk and insisted that chunk is not a similie) is a similie. The full sentence I put in was

    “Trying to cure a recession with more cheap credit is like trying to cure chemotherapy with more cancer.”

    That is most emphatically a similie. Deal with it – you have selectively quoted and then claimed that selective quote is not a similie. The “meaningless string of words” was your selection – not my quote.
    .
    Alice,
    Your seeming devotion to Lord Keynes is admirable, but there have been many respected economists (including Keynes in the General Theory itself – Book 4, Chapter 16, Section 3, pg.220 – and please read the acknowledgement in the next paragraph before responding) that have advocated paying people to do pointless work just so they can be paid for it. Perhaps I should have said “digging a hole just to fill it back in again” to make my point more explicit and to avoid the pointless handwaving from Freelander. His capacity to misread seems boundless.
    As for your second recent comment, I meant no misinformation. I simply disagree with Keynes on this. He seems to imagine that government spending (G) is exogenous to the economy but no matter how it is funded (even by printing money) it is effectively taking from others to direct spending. I acknowledge that he did say that he would prefer building schools to digging holes (a point Rudd seems to have picked up on) but I see this as wasteful and believe that it should not happen to the extent that the spending does not actually benefit society by more than spending elsewhere would have produced long term benefits. To put it another way – Keynes, AFAICS, regarded the spending as of some benefit in and of itself. I fundamentally disagree with this. Spending money to build huge school buldings (for example) for a small outback school is never sensible unless those buildings are going to be of some real, long term benefit.
    The cost of those buildings is either being met through current borrowings (in other words future taxation and current re-distribution), current taxation or through printing money (i.e. taxing savers). If that expenditure produces negative, no, or negligible net benefits then there is (IMHO) never any justification for doing it. If you want to reduce the business cycle and increase net wealth in an economy (as well as allowing people to have more control over their own lives) then do not get into a cycle of wasteful spending in the first place. Either spend it on useful things or not take it in the first place.

  54. Alice
    March 10th, 2010 at 19:03 | #54

    @Andrew Reynolds
    You have entireky misinterpreted Keynes Andy

    in this comment

    “including Keynes in the General Theory itself – Book 4, Chapter 16, Section 3, pg.220 – and please read the acknowledgement in the next paragraph before responding) that have advocated paying people to do pointless work just so they can be paid for it. ”

    Let me quote you exactly Andy (and its edition 6 not 4)

    ” In so far as millionaires find their satisfaction in building mighty mansions to contain their bodies when alive and pyramids to shelter them after death, or, repenting of their sins, erect cathedrals and endow monasteries or foreign missions, the day when abundance of capital will interfere with abindance output may be postponed. ‘To dig holes in the ground’, paid for out of savings, will increase, not only employment, but the real national dividendb of useful goods and services. It is not unreasonable, however, that a sensible community should be content to remain dependent on such fotuitous and often wasteful mitigations when once we understand the influences upon which effective demand depends.”

    Dont misquote Keynes again Andy. Go back to ECON110 and start again. I would fail you you for such ignorant misquoting and such negligent misinterpretation of the original Keynes. That is half the problem with the lazy and the young who come to economics already decided what views they shall champion, mostly acquired superficially from the economically illiterate but politically astute.

  55. sdfc
    March 10th, 2010 at 19:09 | #55

    Peter T

    I was going to get back to you last night, unfortunately I got into an argument with a know it all teenager about his belligerent attitude at school and after that time got away.

    Maybe I should have been more precise. You can’t compare Italian bankers’ problems with the pope and a warmonger English king with a modern sophisticated financial system. Similarly with Spain with the Spanish defaulting despite the huge influx of money simply because they were in a struggle for the mastery of Europe. Similarly with the Sun King’s problems. These crises come from a time when the crown was the major debtor of the banking system so a default by a sovereign was the major risk to the banking system. Times have moved on.

    The S&L crisis is an event closer to home. I’m no expert on the crisis to the best of my knowledge the crisis had its genesis in the 1970s when the S&L loan assets rose sharply during a real estate boom, a period of time when the fed funds was kept at an inappropriately low level. The S&L’s balance sheets were then savaged by the sharp increase in short-term interest rates. From then on the crisis seems to have been a slow train wreck with changes to the regulatory and accounting environment s allowed them to mask their losses and take on riskier loans in an effort to trade their way to profitability. All this of course fell on its head and while it was no doubt serious and while it required a massive bailout it didn’t quite pose the same systemic risk that nearly brought down the banking system as it did with the GFC.

    for the Asian crisis the symptoms appear very similar, huge capital inflows (easy money), speculation and a massive increase in private sector debt in the preceding years.
    You mention the 19th century but forget Australia suffered its own Great Depression in the 1890’s as a result of huge speculation in the real estate market as a result of huge capital inflows and a resulting build up in private sector debt. This event saw widespread financial collapse from which the economy took a decade to recover. The 1930’s depression in Australia did not involve a financial sector collapse, private sector debt to GDP was only as little over half what it was in the 1890’s adn the economy recovered relatively quickly.
    Andrew

    It probably does sound like an Austrian explanation, however I have said on a number of occasions that I have some sympathy with their concern over the danger of credit booms. Where I differ in this point is the prescription once the bubble has burst. The Austrians don’t appear to have any idea of the damage deflation can cause in an economy with a sophisticated financial system and high private debt levels.

    As I have said in a previous comment the Austrians don’t have a mortgage on concerns over the destabilising effects of a credit crisis. Keynes dealt with financial market instability at length in the GT. I would also not call economists such as Minsky, Kindleberger or Steve Keen for that matter as Austrians.

  56. March 10th, 2010 at 19:25 | #56

    Alice,
    Perhaps English comprehension 101 would be a suitable starting point for you. To point out specifically where I disagree with him

    It is not unreasonable, however, that a sensible community should be content to remain dependent on such fotuitous [sic] and often wasteful mitigations

    (empasis mine)
    I expected you to argue this, as it is the standard defence against this from those calling themselves Keynesians. The point I am making is in the emphasised bit – he was clearly calling for this expendidture as a temporary expedient (but not a permanent one) just to get over the perceived current shortfall in aggregate demand. I disagree that this is appropriate even as a temporary measure. To me, the longer you are wasting wealth in this way the longer you are making the downturn and the harder the recovery will be. The answer (IMHO) is simple – all wasteful expenditure, when funded via compulsion, is wrong. If I choose to waste my own wealth then it is my own problem. If I force you to pay for my wasteful expenditure (through taxation or printing) then that is a wrong to society that should not happen.
    I have (IMHO) not misrepresented him. Indeed, I think you have in implying (if I have understood you correctly) that he said that such expenditure was never justified. He clearly (by omission here and more explicitly elsewhere) said that, at least on a temporary basis, such expenditure could be justified.
    If I got the quote location wrong, then apologies. I copied the location information (and the quote itself) from Wikiquote, as that was a convenient electronic source. BTW – I notice I have gone from Econ 101 to 110. Does that mean I am getting better?

  57. Freelander
    March 10th, 2010 at 19:42 | #57

    @Andrew Reynolds

    How amusing. Now you are giving Alice English lessons. Oh to be so talented.

    I am amused by your continuing sad denigration of others, and sad delusions of achievements and importance. You have already been diagnosed with a treatment resistant affliction, and shown no interest in treatment. Your narcissistic supply will not be found here. But you continue to amuse so please post away.

    Self-aggrandisement: “I am not at PhD level on this school [as if you are at PhD level in anything]” Denigrating your betters to make yourself feel more important: “pretensions to being a serious economist” Of course, Ernestine has no ‘pretensions’; she can leave those to you. She is; you are not, in economics or anything.

    I have yet to say what your avatar reveals.

  58. Graeme Bird
    March 10th, 2010 at 19:45 | #58

    “Austrian economics, nowadays, whatever its origins, seems to be a refuge for those who wish to replace evidence and crisp argument with woolly platitudes and hand waving, and, apparently, meaningless strings of words.”

    I have no idea where this is coming from. This is inaccurate. There is no reason to buy into this since the Mises.org site is accessible and these are in no way an evasive bunch. If I ask a neoclassical economist to justify the Keynesian multiplier they are just as likely to turn silent on me. Its like they won’t resolve the matter and take a position either way.

  59. gerard
    March 10th, 2010 at 20:20 | #59

    Andrew’s post is an example of what I mean by moral axioms: “all wasteful expenditure, when funded via compulsion, is wrong”.

    Morally wrong.

    We can disagree about what “wasteful” means, and of course the idea that government stimulus will prolong a deflationary downturn flies quite squarely in the face of both logic as well as all historical evidence (time to cue Andrew’s contrarian, alternative-reality version of what happened in the 1930s… or the past couple of years for that matter…)

    However that whole discussion is really beside the point.

    The operative fact is that whether or not it works, this type of public spending is funded using money derived from taxation, that is, compulsion, brute animal force, the threat of prison-time, violation of the God-given natural right to one’s own property.

    As clearly as A=A, this form of compulsion is quite absolutely evil. This single, simple notion is the better part of what is known (today) as the “Austrian” approach to economics, an approach not based around facts or evidence, but around the moral principle that I should be able to do what I choose with what I own!

  60. Michael
    March 10th, 2010 at 20:51 | #60

    @Andrew Reynolds
    Thanks for your reply. So I can take it that it isn’t being put into practise in the present anywhere. I stumbled upon this parable
    “The owner of a ship noticed that his ship was filling with water. Being an educated man (if not nautically trained) he knew there were many possible causes for water in a ship: leaks in the hull, the bilge pump being broken, waves washing over, condensation, and even the crew urinating in the hold. He heard the bilge pump running, he saw water from waves pouring in the open hatches, but worst of all he smelled urine in the hold! Being sensible, he ordered the crew to shut the hatches and then gave them a lengthy, stern harangue on hygienic use of the head. While he was lecturing the crew, his ship sank due to a combination of causes: large, unobserved leaks in the hull, a bilge pump that was running but not pumping correctly, and condensation that had shorted out warning circuitry.”

    it might not be a fair and accurate parable of Austrian economics, but this should at least test whether you do have a sense of hunour ;-)

  61. sdfc
    March 10th, 2010 at 21:07 | #61

    Alice

    I wouldn’t be concerned with Andrew’s cherry-picking of quotes from the GT, anyone familiar with
    the book would be aware that such thought experiments are part and parcel of building a theory from the ground up. To suggest Keynes was advocating digging holes as a policy prescription he must also be of the view that he favours pyramid building.

    Keynes concern was the role of investment as the major driver of employment growth, the marginal propensity to consume assumed to be constant. His thought experiment was inspired by the situation of the return on investment (for simplicity) for whatever reason being lower than the market rate of interest, the Austrians would probably class this situation as a case of over-investment. Their solution as far as I know is to do nothing and allow the financial system to collapse and unemployment to rise.

    Keynes postulated that in such circumstances even wasteful expenditure can for a time support consumption and employment.

  62. sdfc
    March 10th, 2010 at 21:37 | #62

    I might add the policy of doing perhaps not nothing but very little proved to be an abject failure in hte 1930s.

    Before anyone starts casting Hoover as an arch inteventionist it should be remembered that Reagan ran a series of deficits in the 1980s that were in a number of years greater than those run by Hoover at the height of the 1930s crisis.

  63. Freelander
    March 10th, 2010 at 22:53 | #63

    @Michael

    Very good! Well done.

    Gerald, re: the Austrian moral approach. In the absence of government, and even the presence, whose property is whose, remains a matter of opinion (often backed by compelling force), as do fine distinctions between obligation and compulsion.

  64. March 11th, 2010 at 00:49 | #64

    Freelander,
    I take it you at least have now read enough to acknowledge (at least to yourself) that you were wrong on the simile question. Congratulations. Pity that you still need to get a life. Even finding some ability to comprehend your opponent’s arguments would be a start.
    .
    Michael,
    I would say it is an accurate parable – of Keynesianism as it is commonly practised. “Spending pennies” as your ship sinks looks about right – although Keynes may have been encouraging them to keep pissing.
    .
    sdfc,
    Just a small correction – although your remarks were pointed at Alice I feel I must correct you on one thing. You seem to believe that the “Austrian” solution to financial system instability would be to let it collapse. As I understand it most economists that self-identify as Austrian School would not respond in that way – that would be a band-aid over a gaping wound. I would think they would look at it and point out that it should not have been in that condition in the first place.

  65. Freelander
    March 11th, 2010 at 05:09 | #65

    @Andrew Reynolds

    The cure from the Austrian ‘doctor’ – “it should not have been in that condition in the first place”. Maybe a cure difficult to operationalise. Is that the sum total contribution of Austrian economics to policy?

    Andrew, Andrew, Andrew. Another post sad and deluded. Correcting imaginary errors in others, failing to identify any fault in self, and denigrating everyone. So revealing.

    Finding deep meaning and humour in some Austrian idiot’s selection error “curing chemotherapy”. Continuing your banalothon. Are you purposely banal simply to disguise your cleverness? Hiding your linguistic talents under the proverbial bushel? Maybe not.

    Self-aggrandisement: “I have an extensive background in banking and risk” Extensive, indeed. Wow, I am impressed. But: “I am not at PhD level on this school ” How modest. Talented and modest. Would it not be great to be you? Sure would be. Who could possibly suggest you are dripping with narcissism? Like FoxNews, what you have to say about yourself is ‘Fair and Balanced’.

    How about this for a simile: “Trying to cure a boom with a bust is like trying to cure cancer with death”.

    Your avatar really should be the Monty Python Black Knight, dismembered yet unwilling to admit defeat. Fascinating your remarkable lack of self awareness.

    Are you not curious about what your choice of ‘south park’ avatar reveals?

  66. Gerard
    March 11th, 2010 at 05:39 | #66

    Freelander obviously I don’t share this peculiar version of morality, just pointing out that for someone who does, the facts and evidence regarding policy are irrelevant. That’s why I said it is more of a religion than anything else

  67. Alice
    March 11th, 2010 at 05:51 | #67

    @Andrew Reynolds
    Andy – unlike yourself, there is nothing wrong my my comprehension. It would have been more appropriate to recommend I attend typing 101, which of course I have never studied. Lets get back to your wilful misquoting of Keynes.

    “The point I am making is in the emphasised bit – he was clearly calling for this expendidture as a temporary expedient (but not a permanent one) just to get over the perceived current shortfall in aggregate demand. I disagree that this is appropriate even as a temporary measure.”

    At least in this comment you are being honest and have now qualified your earlier comment, even if it reflects badly on your ability to learn from experience. By that I mean direct immediate past experience of the effect of fiscal stimulus packages around the globe in response to the GFC.

    I presume you are still in your banking job.

  68. Alice
    March 11th, 2010 at 06:02 | #68

    @sdfc
    Agree sdfc on the Austrian remedy as far as I can ascertain to a financial crisis, involves a “do nothing but sit back and watch” a large large deflationary crisis ensue. The 1930s had its share of Dr Doolittles as well, who argued that intervention of a Keynesian nature by way of eg fiscal stimulus would only delay recovery and postpone the markets ability to find its long run equilibrium again.

    It took world war two to demonstrate this advice to be inherently flawed. Stimulus will not delay the attainment of the perfect long run at all and will assist faster recovery.

  69. Graeme Bird
    March 11th, 2010 at 08:56 | #69

    “I might add the policy of doing perhaps not nothing but very little proved to be an abject failure in hte 1930s.”

    Thats just you not getting your history right sdfc.

    Most Austrians however, and this may now be on the mend, seem to have been against quantitative easing. Now on the face of it this is lunacy. I think it comes from two sources. A misreading of the Misean diagnosis of what should have been done during the great depression …. taking his statements on that matter too literally, and trying vainly to apply them to the current situation.

    Which obviously is insane since before the crash monetary base was only around 3% of M1.

    Do not laugh. But I consider Ron Paul a serious monetary authority. But it looks like he would have also got this matter wrong. Misapplied what Mises said to the modern situation.

    This misunderstanding and therefore aversion to quantitative easing was also likely reinforced by Murray Rothbards visceral love of deflation, and vengeful attitude towards the banks. Which I consider legitimate. But not for the modern purposes of dealing with a crisis. Our system is was too leveraged not to go in for quantitative easing, and we ought to have gone for it in a big way. Because this is the only way to restore business spending in a hurry.

    But you see it must be combined with the reversal of one vital aspect of the deregulation of the early 80′s. Massive quantitative easing must go hand in hand with the restoration of the reserve asset ratio, so as immediate relief, doesn’t lead to bubbles and galloping inflation down the track.

    I really think the Austrians are beginning to amend their wrong position in this regard. It was quite perverse however I will grant you that. Austrians getting uptight about Bernanke’s quantitative easing. When out of all the poxy things that Bernanke did, the quantitative easing was the one thing he got right.

    The thing is the Austrian system is very open, logical and non-evasive. That leaves one with the ability to see clearly where the system is unrealistic and to work around it.

    I must say I’m quite impressed with Alice, a hard lefty, taking the Austrians seriously. And I would think social democrats more generally ought to take them seriously. Since I think you can achieve your goals and do less harm achieving your goals if you at least understand their system.

  70. March 11th, 2010 at 09:11 | #70

    Deleted – absolutely nothing more along these lines, please, Jack. I may have let some slip through above, but please don’t take that as a license to derail threads with your pet topics. To be absolutely clear, I want nothing further from you that mentions IQ, racial or cultural differences or (unless the post is explicitly on this topic) migration. Any breach of this policy will result in a ban.

  71. Graeme Bird
    March 11th, 2010 at 09:13 | #71

    “Freelander obviously I don’t share this peculiar version of morality, just pointing out that for someone who does, the facts and evidence regarding policy are irrelevant. That’s why I said it is more of a religion than anything else”

    I think they are loosening up and losing their dogmatism. I’m not sure this statement is fair in 2010. Or at least its a lot less fair then it would have been in lets say 2003.

    After all. They did send out an invitation to Professor Quiggin did they not? Is that not a sign, that they will embrace ideologically different contributers?

    For example not long back they got a fellow called Selgin to make a presentation. Professor Selgin is highly critical of the Mises and Rothbard aversion to fractional reserve. Well anyway he made this magnificent presentation on private coinage. And he’s thrown a spanner in the works, because it is indeed hard to see how you can have private coinage without some level of fractional reserve.

    For me this is no problem. Because I’d set up some sort of regulatory system where the small-time, localised coiners, got to have a reserve asset ratio of 66.6% and not 100%.

    Since one third would be in the coins, one third in reserve, and the coiner could lend out one third to finance his operation.

    But then that would be regulation and something of a heresy.

    But my point is that they aren’t quite the angry hyper-ideological types they used to be. If they can see quality, they will bring you into the fold for a specific purpose. They brought the magnificent George Reisman back into the team, though he is not really an Austrian. They venerate Hutt who is no strict Austrian. They even give partial credit to Henry George though they oppose the land tax.

    So for Professor Quiggin to get an invite like this, well they must have seen something they liked at the very least.

    Lets not be bigoted here. To my mind they are still the soundest team in operation no matter what their faults. If you are running a tight ship, but your mistakes are so huge that you can drive a Kenworth through them, then this is a good thing. Because people can take your good works and avoid your mistakes.

  72. Graeme Bird
    March 11th, 2010 at 09:19 | #72

    By the way. Encouraged by the Austrians inviting Professor Quiggin to a conference I am “that far’ I said “that far” from emailing Jeffrey Tucker and some of the others and making a case that they ought invite Steven Keen to make a presentation when the theme of the conference is right for it.

  73. Andre
    March 11th, 2010 at 11:20 | #73

    Gerard #9

    you said

    “This single, simple notion is the better part of what is known (today) as the “Austrian” approach to economics, an approach not based around facts or evidence, but around the moral principle that I should be able to do what I choose with what I own!”

    Have you every come across the following book:

    “The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson,”

    ‘The book challenged accepted wisdom in Olson’s day that:

    1. if everyone in a group has interests in common, then they will act collectively to achieve them; and
    2. in a democracy, the greatest concern is that the majority will tyrannize and exploit the minority.

    “The book also noted that large groups will face relatively high costs when attempting to organize for collective action while small groups will face relatively low costs. Furthermore, individuals in large groups will gain less per capita of successful collective action; individuals in small groups will gain more per capita through successful collective action. Hence, in the absence of collective incentives, the incentive for group action diminishes as group size increases, so that large groups are less able to act in their common interest than small ones.”

    “The book concludes that, not only will collective action by large groups be difficult to achieve even when they have interests in common, but situations could also occur where the minority (bound together by concentrated selective incentives) can dominate the majority.”

    http://en.wikipedia.org/wiki/The_Logic_of_Collective_Action

    The book uses reasoning and logic not theological undertones to argue that smaller groups are more efficient. You don’t have to agree with the conclusion. However this is closer to what Austrains think as opposed to your derogatory uninformed quote above.

  74. March 11th, 2010 at 12:03 | #74

    Alice,
    If you read it carefully you would see that I have been (at least as far as I know) all along. Nowhere did I say that he advocated that as a permanent policy, but merely as a “solution” to a temporary crisis and I have pointed out that I do not agree with it even as a temporary measure. Please – you have accused me of dishonesty before and have been wrong on every occasion. Can you please stop hurling such epithets? If you keep up with it you may catch Freelander as a false accuser.
    .
    On the “Austrian” solution – the usual thing to do when you are in a hole is to stop digging. I would suggest that a better way is not to start digging in the first place. To say “Once you are in a massive systemic crisis caused by the current monetary, fiscal and regulatory policies what would an Austrian economist advocate?” is IMHO to miss the point. The trick is not to get there in the first place.
    Just to put it another way, Alice – if you stepped off a cliff and were in the process of falling, what would you do? Surely it would be better to have not stepped off the cliff in the first place.
    .
    Freelander,
    If you put up anything worth responding to – and that amounts to more than naked abuse I may answer.

  75. Ernestine Gross
    March 11th, 2010 at 13:56 | #75

    gerard :“Austrian economics” will naturally be preoccupied with epistemology and methodology; it got its name during the “methodenstreit” of the late 19th century when Schmoller wanted to insult Menger by comparing him to the backwardness of Hapsburg Austria. Interestingly, at that time Menger’s “Austrian school” was notable for its insistence that economics could only be done by building mathematical theories based on a priori axioms. Today it has morphed away from its earlier preoccupation, replacing mathematical axioms with moralistic (“Natural Liberty”) axioms. it has basically transitioned from a semi-serious approach to social science to a quasi-religious approach to social ethics (Thou Shalt Not Payeth Taxes Without Whining Like a Baby), and has been taken over by political ideologues of the teabagging variety – to the consternation of the few remaining serious self-identifying Austrian economists.

    I like most of gerard’s comment because it captures, in a succinct way, the main problem with ‘schools of thought’ in economics (and possibly elsewhere). There is a distinction between scholarship and apostolic efforts in spreading the word. There is a distinction between acknowledging intellectual influences and tribalism. The former requires individual thought and intellectual honesty. The latter requires a godfather (no mothers as far as I know) – a guru – and a genealogy of herdsmen (and women?), who desperately strive to gain status in the tribe by spreading the word. The verbal tribes do what tribes do – they fight with each other using whatever means they have; words in this case.

    Has anybody else noticed that many if not most of the godfathers of contemporary ‘Austrians’ (not to be confused with people living in Austria) started their education in Law?

  76. Freelander
    March 11th, 2010 at 14:59 | #76

    @Andrew Reynolds

    Nevertheless you found it worth responding to. Naked abuse? Your abuse is clothed? Unclad or not I notice you are resisting your curiosity about what your choice of ’south park’ avatar reveals.

    For someone who condescendingly denigrates everyone else, like others of your ilk, you have a low tolerance for what you eagerly supply others. Oh, the whinnying about me, about Alice, about the cruel world. Poor you, like the child, having murdered both parents, begging for leniency on account of recently being orphaned. Oh, the bliss and moral righteousness the deluded.

    But I come here to praise you, in your own words: “I have an extensive background in banking and risk” Talented! “I am not at PhD level on this school” And modest! Talented and modest, and ‘Fair and balanced’.

    Austrian policy prescription: “The trick is not to get there in the first place.” But is this a prescription worth filling? Even with a time machine this Austrian policy prescription provides little guidance. If it solves any problem it solves them all. Empty Austrian words to evade the hard work, evidence gathering and thought involved in a serious attempt at grappling with the problem.

  77. Freelander
    March 11th, 2010 at 15:02 | #77

    @Ernestine Gross

    Well done. I have to agree. “There is a distinction between scholarship and apostolic efforts in spreading the word.”

  78. March 11th, 2010 at 15:08 | #78

    Freelander,
    More blather. Do you have anything else?

  79. Freelander
    March 11th, 2010 at 15:34 | #79

    @Andrew Reynolds

    Still. You couldn’t resist responding to it. Curious?

  80. March 11th, 2010 at 16:11 | #80

    I am just genuinely interested in discussing it – you seem content to insult rather than advance. It disappoints me as it always does when someone just wants to fight rather than understand.

  81. AustriansWereRight
    March 11th, 2010 at 18:31 | #81

    I doubt this will get through, but for what it’s worth, the world is filled with Keynesians and now JQ attacks the 5 Austrians in the world as somehow pushing the world into the free market mess that it is now in?

    First, we are not in a free market – not in money.

    Second, AR is right – the trick is not to ahve a systemic crisis in the first place. The way to do that is have free banking and a metallic money standard.

    Third, JQ’s solutions are worse than doing nothing – something even Alice doesn’t seem to understand.

  82. Freelander
    March 11th, 2010 at 18:41 | #82

    @Andrew Reynolds

    Alice is correct when noting your dishonesty. You misquote and distort texts and the words of those you respond to on this blog. Unable to debate others here, you find it necessary to debate spectres of your own imagining.

    As Ernestine noted “There is a distinction between scholarship and apostolic efforts in spreading the word.” Trite repetitions of the pre-digested are no substitute for thought, do not advance, and do not constitute contributions or participation in any discussion.

    I think you are well described as simply involved in apostolic efforts. Condescension and denigration your currency. These and other compulsions sourced in your affliction.

    Rather than discuss you ignore what others say and instead engage in a running commentary on their imagined faults and failings. Delusional and all rather revealing, like your avatar. You make an interesting specimen.

    Regurgitation of the trite is neither discussion or a means of advance. Although trite and tired from frequent mouthing, the banality “the usual thing to do when you are in a hole is to stop digging” was neither well thought out when first said, nor more so when the umpteenth person repeated it for the mega-umpteenth time. A modest amount of thought suggests that frequently the escape for someone trapped in a hole is through digging – digging themselves out or being dug out. Your experience seems to be to simply dig yourself deeper.

    Your banalothon continues.

  83. sdfc
    March 11th, 2010 at 19:12 | #83

    Andrew if I am right as to your thinking we are in agreement as to the root causes of the crisis, that being loose money and for this I sheet the blame to central banks running asymetric policy. That being lowering rates at the first sign of a slowdown in the real economy yet on the other side being slow to rein in excesses when growth is strong.

    However for all this I am of the opinion that cash rate targeting is a good system in that it provides an anchor for the yield curve. Credible and transparent policy has in my opinion contributed in no small part to flattening of the yield curve over the last decade and a half. The problem to my mind has been one of execution.

  84. sdfc
    March 11th, 2010 at 19:15 | #84

    @Andrew Reynolds

    Sorry I should have referenced back to your comment above.

  85. Alice
    March 11th, 2010 at 20:11 | #85

    @AustriansWereRight
    You say

    “Third, JQ’s solutions are worse than doing nothing – something even Alice doesn’t seem to understand.”

    Oh I understand alright “Austrians were right”…as if doing nothing hasnt proved itself at all …to be an abject failure…whereas doing “something” clearly mitigated many a crisis.

    The 1929 crisis ..mitigated by world war two warv expenditures…another word for a massive fiscal stimulus. The GFC mitigated once more by a large fiscal stimulus (deficit budgets globally).

    Yes…what do you people… the Dr Doolittle’s of this world…who somehow have somehow persisted through decades since 1929, without any evidence whatsover that “doing nothing” solves an economic crisis, have to add to the debate?

    Show me your evidence that “doing nothing” hastened a recovery from an economic crisis ” Austrians???

    Insufficient posturing is all you can offer.

    The mere vacuousness of your comment with no history astounds me but we expect thus here…most of us just consign you to the dustbin of the delusionati.

  86. Alice
    March 11th, 2010 at 20:23 | #86

    @Andrew Reynolds
    Andrew

    You said “I do not count digging a hole to fill it back in again as of any benefit whatsoever.”

    Just tell me exactly where…in this comment…you stated that

    “If you read it carefully you would see that I have been (at least as far as I know) all along. Nowhere did I say that he advocated that as a permanent policy, but merely as a “solution” to a temporary crisis and I have pointed out that I do not agree with it even as a temporary measure. Please – you have accused me of dishonesty before and have been wrong on every occasion. Can you please stop hurling such epithets? If you keep up with it you may catch Freelander as a false accuser.”

    Dont lie to me Andy – this was All you said.

    You can fool some of the people some of the time Andy but you dont fool me. You didnt even suggest that Keynes advocated this as a temporary policy intervention.

    You wouldnt even make an ECON110 students bootlace Andy.

  87. Peter T
    March 11th, 2010 at 20:26 | #87

    I’m finding this getting a bit tedious, but I still have two cents.

    AustriansWe (can’t read the rest) and Andrew – a glance at history shows that metallic standards and free banking did not prevent booms and busts – quite the reverse. So the proposed remedy to falling does not seem to keep people away from the cliff.

    sdfc – thanks for your reply. Your point is mine – it all depends on whether you are in an economy with limited monetisation and urgent public sector wants/needs (Edwards and 3), or one with a large patronage sector and a small tax base (Louis XIV), or a rapidly expanding agricultural/mining/industrial base (US, Australia 1800s, maybe Asia 1990s) fed by overseas capital, or. In other words, it ALL depends. There is no single cause, and there is no magic garden where we can all be happy if we behave right.

    More generally, and on the original topic of the thread, continual argument over methodology and epistemology is the mark of an area of knowledge going nowhere. Scientists don’t generally do this – they practice science according to the evolving standards of the disciplines they engage in. Nor do historians – they just do history. Both areas of knowledge continue to advance – that is, we know more about say, biochemistry or the contributing factors to World War I than we knew 20 years ago. If economics is still arguing over what is the correct basic approach, it is not going to be able to offer solutions grounded in where we actually are.

  88. Alice
    March 11th, 2010 at 20:44 | #88

    @Peter T
    The difference between science and economics ande science and accounting for that matter Peter is that both economics and accounting count money.

    That is why we both as professions (accounting and economics) encounter considerably more obstacles and obstructionists than does ordinary science..you dont have to wonder why climate scientists face considerably more opposition than other scientists do you?

    Money and to whom it goes. It is not the field of knowledge that is backward Peter T….it is the opposition and whom we must fight to get advance.

  89. sdfc
    March 11th, 2010 at 20:47 | #89

    Peter T

    You’re right there is no magic garden however loose money is a sure way of promoting imbalances in an economy. Loose money inevitably leads to huge increases in private debt and then your pretty much on the road to hell.

  90. Michael
    March 11th, 2010 at 20:51 | #90

    Could it be that part of the attraction of Austrian economic (for those who aren’t responsible for running anything) is that it offers a neat refuge in theory from which to take pot shots at people who are actually running things. After all it works perfectly as long as it’s never put into practise – no booms, no busts and no compromise. I’m suprised Barnaby hasn’t got into it more.

  91. March 11th, 2010 at 21:41 | #91

    Alice,
    Before you have another brain explosion, actually go back and read what I said – not what you seem to think I said. Actually read it. Then think about what Keynes said on the subject and then try to advance the argument. I made a point and then expanded on that. I never tried to argue that Keynes said that digging holes was a long term thing. This is a blog – not a thesis. I have been consistent – even if not every comment I make has been a full and complete analysis of the General Theory.
    .
    sdfc,
    I partially agree with you. To me the hardest thing in this whole thing is to come up with a workable monetary aggregate to track under a fiat system. In the absence of that then tracking a measure of inflation might be the next best thing – but the question is what measure? To me this is the weakness of this analysis of the economy once you are in a fiat environment.
    Some would have us move back to a gold (or some other commodity) standard. I can understand the attraction of that, but to me the costs of doing so would be pretty high. If we accept the Austrian viewpoint, though, the costs of fiat (like the GFC) may be higher. I disagree – but we clearly need a better measure of inflation if targeting can lead to huge blowouts in the money supply and the sorts of imbalances we have seen recently.
    .
    Michael,
    The same could be said of any economic theory – none of them have really been used in their purest form. Perhaps rather than taking potshots at others you may want to actually make a point.

  92. Alice
    March 11th, 2010 at 21:47 | #92

    @Andrew Reynolds
    Andrew…let me assure you in case your memory is deficient.

    You said nothing whatsoever except ““I do not count digging a hole to fill it back in again as of any benefit whatsoever.”

    If you would care to post your exact quote where you specified that Keynes advocated this as temporary intervention…I would be only to happy to have you post it.

    Except that you never once specified what you argued ie in your wn words “Nowhere did I say that he advocated that as a permanent policy, but merely as a “solution” to a temporary crisis “.

    The only word that is real here is “nowhere.” It appears you have had the brain explosion Andy and it has entirely short circuited your memory. Kindly keep your throw away lines to yourself unless you can demonstrate greater clarity in your expression.

  93. Alice
    March 11th, 2010 at 21:57 | #93

    @Andrew Reynolds
    Andy

    “even if not every comment I make has been a full and complete analysis of the General Theory.”

    Your comment wasnt even a reasonable interpretation of Keynes’ General theory.

    It was woefully lacking in understanding (and comprehension) and as I mentioned before if you passed by my desk with a comment like you made I would fail you outright. It was simply a clumsy comment. You demonstrated no understanding before commenting and it was a naive comment. No-one expects, from you, a thesis on Keynes but you could have done better even if you didnt agree.

  94. Michael
    March 11th, 2010 at 22:38 | #94

    Andrew Reynolds :

    Michael,
    The same could be said of any economic theory – none of them have really been used in their purest form. Perhaps rather than taking potshots at others you may want to actually make a point.

    I’m still trying to find a way into understanding Austrian economics. There doesn’t appear to be much written about it from mainstream economists so it’s hard to get an objective perspective on it. Since it doesn’t seem to be responsible for running anything and having it’s prescriptions tested (correct me if I’m wrong), it’s also hard to make judgements about the effects on the present day economy. That’s a point. I’m still searching, so I might come up with more.

  95. Freelander
    March 12th, 2010 at 00:29 | #95

    @Alice

    Its futile expecting to get sense from Andrew. As evidenced in his last post, he posts simply as a vehicle to condescend and to denigrate his betters to feed his impoverished ego rather than to say anything original or interesting. Don’t expect him to ever admit error. He’s never done so so far. Simply enjoy that someone can be so totally unaware of how pompous, overblown and narcissistic they are, can think themselves so amazingly talented and knowledgeable, yet be so banal, boring and limited. The poor soul is sadly afflicted. Its difficult to believe any of his claims about himself. If he is so successful in finance why is he also claiming to be a lecturer? Maybe he is neither? Maybe he isn’t even employed or even an adult? Certainly would be more credible.

    One thing he is good at is generating nonsense. I like that now, the Austrian scientist is claiming that the reasons why Austrian science isn’t able to do anything or say anything of any importance are all the fault of the modern economy.

    ” To me the hardest thing in this whole thing is to come up with a workable monetary aggregate to track under a fiat system. In the absence of that then tracking a measure of inflation might be the next best thing – but the question is what measure? To me this is the weakness of this analysis of the economy once you are in a fiat environment. ”

    ” we clearly need a better measure of inflation if targeting can lead to huge blowouts in the money supply and the sorts of imbalances we have seen recently ”

    In short, the claim is that there is nothing wrong with Austrian economics, the fault is in the reality that we are expecting it to say something about. Naturally, Andrew will not own this clear summary of his bizarre post.

    Andrew doesn’t recognise the problem in both claiming that something can’t be measured and also claiming that it is suffering from huge blowouts and imbalances – “huge blowouts in the money supply and the sorts of imbalances we have seen recently”. Also noteworthy and sadly risible, the pomposity of his talking about his ‘coming up with a workable monetary aggregate’ for money or inflation given his serial inability to provide coherent posts. But, of course, he did modestly tell us that he is “not at PhD level on this school” despite his “extensive background”.

  96. March 12th, 2010 at 01:19 | #96

    Michael,
    As I said, what we currently call “Austrian” economics is not that much different from the classical tradition from which it springs. If you want a good primer, try Smith and Ricardo. Then move on to Hayek or Mises. The essentials of what we now call “Austrian” were really in use for a long period.
    .
    Alice,
    Keynes clearly advocated paying people to dig holes as a temporary expedient even in the quote used and you expanded on from the “General Theory”. He said it should not be used as a permanent solution, ergo he was arguing it made sense as a temporary one. If he had wanted to say that it should never be done he would have said that.
    You really need to read it a little bit closer if you seek to actually use it in any way.
    .
    Freelander,
    If you want to behave like a child, at least come up with an original critique. I acknowledged the difficulty – one that no-one here has even brought up. That is called being honest – you should try it sometime.
    You seem to think that indicates an inherent contradiction – I disagree. By almost any measure of the money supply there is a lot more money out there now than there has ever been before. To see that is just a matter of fact. To say that none of the aggregates currently measured seems to provide a workable instrument of policy is a matter of opinion – an argument I have made here and elsewhere before. I fail to see any inherent contradiction in that. Sorry – but wrong again.
    Have you sorted out your similes yet?

  97. Freelander
    March 12th, 2010 at 05:54 | #97

    @Andrew Reynolds

    You seem intent on saying foolish things: “Keynes clearly advocated paying people to dig holes” Of course, Keynes did not.

    You don’t see the problem in on the one hand claiming that none of the aggregates provide information to guide policy decisions and yet talk about “huge blowouts in the money supply and the sorts of imbalances we have seen recently”. You might think you can but you can’t have it both ways. If you can’t measure the phenomenon you can’t make bold claims about it. You can’t both have that every measure is no good and then base your claims on the validity of those same measures.

    Like other pseudo science advocates, Austrian proselytisers try to tie their cranks in as part of a natural progression grounded in the mainstream – Smith and Ricardo. Poor Smith and Ricardo, being dead, are denied the chance of loudly disowning Saint Hayek and Saint Mises. Real science does not require these strong frequent appeals to heritage.

    Your Austrian economics and free market deities remain well protected from refutation because your ilk claims we will never have free markets or the chance to see Austrian policies fail until after your utopian revolution happens. Of course, in the meantime (which will be eternity) it would be nice to know what an Austrian policy is. But, naturally even if you did reveal them they are protected from being falsified, because those policies are not for this world, they are for the utopian free market we will enjoy come a revolution which will never happen.

    I note that no one appears to support your running commentary on the many failings of others.

    Indeed, your endless stream of items of gratuitous advice for me and others on this blog has not once been worth its price. Maybe in your distribution of the worthless you are trying to prove that there is no such thing as a free lunch?

    Have you sorted out your NPD yet? Although the affliction is treatment resistant, you ought to at least try.

    Despite your ‘extensive background’ and your implied claim of diverse and enormous talents, your not quite PhD level knowledge in all areas, your banalothon continues.

    Yet you must be curious to know what your choice of ‘south park’ avatar reveals. However, you are wise not to ask, as you show such a low tolerance for being provided some insight about yourself.

    I think smiths has characterised Libertarians about right, you being an egregious example: “libertarianism is an adolescent fantasy theory, that then appeals to men who are trapped in a pre-adult mental state”, “the rallying cries are not dissimilar to those of small children, “i want, i want, i want” and “no, it’s mine” ” and “are they also quite keen to play with poo i wonder?”.

  98. Freelander
    March 12th, 2010 at 05:56 | #98

    The links between narcissism and libertarianism (and the modern approach to business, particularly in banking and finance) are interesting and pronounced. Here are Hotchkiss’s seven deadly sins of narcissism:

    Shamelessness – Shame is the feeling that lurks beneath all unhealthy narcissism, and the inability to process shame in healthy ways.

    Magical thinking – Narcissists see themselves as perfect using distortion and illusion known as magical thinking. They also use projection to dump shame onto others.

    Arrogance – A narcissist who is feeling deflated may reinflate by diminishing, debasing, or degrading somebody else.

    Envy – A narcissist may secure a sense of superiority in the face of another person’s ability by using contempt to minimize the other person.

    Entitlement – Narcissists hold unreasonable expectations of particularly favourable treatment and automatic compliance because they consider themselves uniquely special. Any failure to comply will be considered an attack on their superiority and the perpetrator is considered to be an “awkward” or “difficult” person. Defiance of their will is a narcissistic injury that can trigger narcissistic rage.

    Exploitation – can take many forms but always involves the using of others without regards for their feelings or interests. Often the other is in a subservient position where resistance would be difficult or even impossible. Sometimes the subservience is not so much real as assumed.

    Bad Boundaries – narcissists do not recognize that they have boundaries and that others are separate and are not extensions of themselves. Others either exist to meet their needs or may as well not exist at all. Those who provide narcissistic supply to the narcissist will be treated as if they are part of the narcissist and be expected to live up to those expectations. In the mind of a narcissist, there is no boundary between self and other.

  99. Graeme Bird
    March 12th, 2010 at 06:22 | #99

    But Freelander. No-one more viscerally hates modern banking and the bailout then the Austrians. Look you might not like these people. But don’t be bigoted about them. You are blaming the wrong crowd. Its the neoclassical right who are sticking up for the bailout and for Goldman Sachs. Not the Austrians. Lets get some precision here.

    If there is a heresy you want to accuse them of, you can accuse them of taking the side of the Southern States in what they would call the “War Of Northern Aggression.” This is the tendency yes. Certainly they are pro-secessionist. If you don’t like these people and you want to run them down, no doubt you will find more than enough real things to be dirty on them about. But you ought to retract your implication that the Austrians have any sympathy for these bankers.

    You want sympathy for Goldman Sachs gang, the Lehman boys, the Morgan Crew, Bernanke, Geithner et al, go to Catallaxy and talk to the faux-libertarian neoclassical types there. I’m Austrian-Classical British school and I was just blue in the face at these Catallaxians soft-pedaling, if not supporting, the bailout, in the form it took.

    You could have had a bailout that explicitly favoured the non-financial sector. Trucks of cash moving out, at loan shark interest rates. And then their books opened up and prosecutions for all the short-selling laws they’ve been breaking for years. Wrenching those salaries off them in fines and putting them out on the street. Because what needed to happen wasn’t retrenchment for the rest of the economy. The US definitely needed a lot more cash in the system. But the financial sector had to retrench. It was 20% of GDP and manufacturing down at maybe 11. If the nature of the bailout was such that it retrenched specifically the financial sector, and brought it maybe down to 5% of GDP, but with enough monetary expansion to make the system reasonably buoyant, then they could have got growth elsewhere in the economy.

    I’ve gotten a bit off-track. The Austrians are mostly in the US. But the neoclassicals who never saw private debt that they didn’t like, they are here in Australia. If you want to accuse someone of being weak on bank parasitism, those are your rightful targets.

  100. Alice
    March 12th, 2010 at 07:15 | #100

    @Freelander
    Interestingly Freelander, this morning Joe Hockey was on the news claiming the anti terrorism laws put in place by John Howard, prior leader of the liberals were an infringement of civil liberties that he was deeply concerned about.

    Well – a lot of us were concerned all along about the anti terrorism laws from day one but Hockey has obviously switched his views somewhere along the road. I was dumbfounded. I thought surely it couldnt be happening at last…the liberals getting back to a more mnoderate and less right wing base

    but no…;.Hockey then went on to say businesses didnt need regulation and we dont need as many police and we dont need the government telling us what to do and schools dont need to take responsibility for children in their care and its up to the “individual” parents…and we dont need to change liquor licensing laws or hours because its up to the “individual” to decide how much he drinks and so forth

    So he really doesnt give a damn about the anti terrorism laws at all.

    Its any laws and any regulation. In fact Id suggest its anything at all the government does that Joe Hockey doesnt like.

    Another narcissistic libertarian posing as a concerned citizen.

    Scary isnt it?

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