2. quiet guy said...

"How curious it is that the guy who wrote the script depicting our never ending story of government-induced credit expansion, inflation and collapse has remained so persistently forgotten. Must we sit through yet another performance of this tragic tale?"

Yes.

4. This comment has been removed as it was found to be in breach of our Blog Policies.

6. greenmind said...

von Mises had it right of that there can be little doubt. But I'm uneasy with the libertarian small government philosophy because when put in place it leads to a gaping gap between the haves and have nots opening up - all rights belong to those with the dosh and the rest get screwed. The rhetoric of rewarding the "deserving entrepreneurs" is just a smokescreen. Take Milton Friedmanm, the Chicago school and the Washington Consensus as a case in point - untold damage has been done to societies in all corners of the globe starting in South America in the 1970s (Pinochet's Chile, Bolivia, Argentina) right up to Iraq since the overthrow of Saddam. Read Niaomi Klein's "Shock Doctrine" for the full picture. She writes that claiming what we have had since Regan and Thatcher wasnt true free marketism is akin to Trotskyists bleating that Stalinism wasnt true Commuinism.

The message is therefore beware of "pure" fundamentaist ideologies. Surely there must be a middle way which recognises the perils of state caused boom and bust while avoiding the blind alley of hands-off free marketeerism.

8. flashman said...

Laissez faire economics played a large part in creating the mindset that deregulated the banks. If Ludwig were in charge today, there would be no unions and no minimum wage. Landlords and entrepreneurs would pay little tax and would be unfettered by rules and regulations. Environmental controls would be banished and high unemployment would be considered a beneficial part of economic adjustment. Benefits would be considered to be an unnecessary drag on the activities of entrepreneurs and kept to the absolute minimum. Ludwig realised that his abhorrence of socialism or welfare might be counted against him so he developed 'value free' laissez faire. He basically dehumanised economics (he reworked Praxeology) by refusing to observe or take into account human behaviour. This allowed him to maintain the purity of his concepts without considering pesky human beings (he thought that observing human beings would alter their behaviour. so there was no point in doing it)

Ludwig was a small, dark haired Austrian with a narrow moustache. I'm sure he meant well but our concepts of fairness and morality have moved on since his day.

10. Ian said...

Flashman. Excellent comment and historically accurate as perceptions of what constitutes justice and acceptable policy have changed considerably since Ludwig was assessing the economic situation.

What is your outlook for the housing market early in 2010? Will prices be sustained at their current levels or are we facing house price deflation as well as more general asset price deflation?

12. greenmind said...

I read the Third Way wiki article. It describes Keynsianism as an example of the 3rd way. I think the middle needs to be non-Keynsian, to avoid speculative boom and bust.

14. paranoia blue said...

Perhaps, if the attempt had been “the right” moving towards “the left” - rather than vice versa - there may have been a chance of a more successful outcome?

16. stillthinking said...

Chinese policy created the environment for artificially low western rates, and still does.

18. cynicalsoothsayer said...

The Chinese government don't care as much about getting their money back as holding off a mass peasant revolt by maintaining jobs making trinkets for the west at artificially low prices. We get to be the beneficiaries of this policy; effectively we have slaves in China. They can't see a way out of this that won't destroy them more than us.

20. icarus said...

flashman @4 - globalisation, courtesy of big governments, has produced many of the bad things you attribute to von Mises, including the greatest ever polarisation of wealth.

Deregulation of the banks was the result of the influence of big banks on big government, not of a sudden conversion to Misian economics. And 'too big to fail' would not have been possible in his world.

22. flashman said...

icarus: It doesn't really matter who is responsible for these 'bad things'. They are still bad things. Misses advocated these 'bad things' and he is influential, so it is surely reasonable to apportion him, some blame? I certainly wouldn't argue with you that the banks had a hand in it but many politicians and sections of society share libertarian ideals. I agree that Misses would definitely have let the bad banks fail but his complete lack of regulation would have sown the seeds of their failure ihn the first place. Unfortunately banks are run by individuals who want to maximise their personal gain. These people would always hope to retire before their bank goes tits-up (this is why the moral hazard argument is no substitute for regulation)

As you know, I am all for letting bad banks fail ( I am also in favour of regulation). An extreme of any ideology always leaves me feeling queasy

24. Dunkindogdo said...

Sorry all, but I largely disagree,

Laissez Faire economics, and small government, does not mean "no laws or regulation" at all, it is rather an argument against central planning and top down government management of the economy.

Government is primarily a law making body, and should be largely restricted to this capacity (this is one of the central arguments of the Austrian Economists, see "The Road to Serfdom" by Von Hayek).

To allow an institution to have both economic and law making powers, is to leave an open door to corruption, and totalitarianism, and I believe history firmly backs me up on this point.

Further, I'm not sure it is possible to regulate against the business cycle, for the same reason that command/centrally planned economies inevitably fail, and that, is that a large economy is in essence a chaotic system, which will always defy even the most sophisticated paradigms and models.

26. flashman said...

icarus: Mises is an icon of the 'neoliberal' movement (particularly in the US). The classical economists were a very different animal.

28. flashman said...

icarus: The 'exploitation theory' is central to Classical economics. The Austrian school refutes this theory by saying that commodities have a subjective, rather than objective value. It is quite literally the difference between Marx and capitalism

30. icarus said...

flashman - we may agree on my main point - the difference between the two kinds of free markets.

You can't blame von Mises for the way anybody uses his work. Nietzsche wouldn't have cared for National Socialism but that didn't stop that particular gang from using his work. The imposition of 'free' markets at gunpoint in Latin America in the '70s and '80s wasn't inspired by von Mises and the Austrian School. The latter tried to explain booms and busts in terms of the distortions caused by artificial credit creation and the problems caused when governments in the bust period try to prop up economic activities or asset prices above an unsubsidised 'natural' level - and there is nothing fair or democratic about the way governments have set about doing this. Their main concern is to inflate asset prices and to effect a 'recovery' even if it's a mirage, jobless one

32. icarus said...

flashman - I'm with the classical economists and American Progressives in the early 20th century. They looked for ways to free markets from land rent, rentier overheads, monopoly pricing, credit paid to financiers and taxes to support landed/military oligarchies. Many of the arguments between them were simply about the best way to free markets from debt and rent and ensure that the bulk of rewards went to businesses and workers. There is some convergence between Marx's labour theory of value and the ending of economic rent - the excess of market price above the price that would be paid in non-monopolistic conditions. Both looked to bring prices down to the cost of production and the end free lunches. Differences were about the means - some thought the shrinking of the state would shrink the power of the landed oligarchs, others thought that only by taking state power could they end the power of those living off economic rent. Again, I wouldn't blame Marx for what was later done in his name.

34. the number cruncher said...

icraus & flashman - excellent posts - I concur - respect to you both for such an interesting debate.

36. icarus said...

flashy - a pleasure for me too. We could go on, and I'd like to answer your points, but maybe another time. Thanks number cruncher

38. 51ck-6-51x said...

Further to the above, by existence of state regulation there is an allowance ( and indeed tendency ) of the powerful to create monopolies or effective monopolies. This can be seen in finance, for example, where regulatory bodies are made of those who are or were in the industry themselves ( since you need experts who understand the industry ) - just look at the barriers to entry as a bank and you will realise that the market place is controlled to the point that the consumer choice is actually severely limited and the market has far fewer than optimal entities.

40. rumble said...

6s, "if prices are dictated by a monopoly" - prices are dictated by the market.