The Economist: " Why Is The Austrian School Explanation For The Crisis So Little Discussed?"

[Dave Spart]

I think that he would be bringing defamation of character suits.

My tailor made a defamation of character suit for me once.

It was a pink tuxedo.

[Dave Spart]

This debate is fake; its a smoke screen to keep wide-eyed half-wits in thrall.

None of these economic theories are the problem, it's the squabbling between the various schools and the historical right versus left, conservative versus socialist tribalist dogma that is.

Peddlars of this pseudo-intellectual debate like to give the impression that one school or other is exclusively right but you have to guess which one. It's the academic's version of the street hustler's "Guess which cup the pea is under."

There is a correct time and place for all these theories be implemented; the problem is that governments arise from political parties - vested interests led by sociopaths and, by their very nature, are confrontational, self-righteous and willing fight to the death to save face.

Only when governments learn to swallow their pride and accept a pragmatic approach will the world's economy function more efficiently allowing we The People all to enjoy happier lives. Yeah, like that's gonna happen in my lifetime.

Watching this topic debated is a bit like watching brain surgeons bicker over which one surgical implement to use exclusively to remove a brain tumour (scalpel only or saw only or drill only)* - while the patient lies dying on the operating table. Next time you get in your car try driving it using just the steering wheel or just the accelerator or just the brake. Folks, we're all going on a journey together, we gotta use all three if (1) we wanna start moving (2) we wanna go in the right direction and (3) we wanna slow down.

Is the refusal to take the pragmatic view is a conspiracy to ensure routine crashes happen from which the banksters can profit?

Which ever way, we pay a heavy toll for preserving the pride of economists. Can someone put a economic value on that please? Trillions, quadrillions?

*Hint : the patient needs all three and a damn site more besides. Mind you, what do you expect when governments are elected using the form of democracy we currrently have, a tool so blunt it makes a policeman's truncheon look razor sharp, so much so even our moronic bickering surgeons would recognise how lacking in incision it is.

Edited December 5, 2010 by Dave Spart

[Tired of Waiting]

This debate is fake; its a smoke screen to keep wide-eyed half-wits in thrall.

None of these economic theories are the problem, it's the squabbling between the various schools and the historical right versus left, conservative versus socialist tribalist dogma that is.

Peddlars of this pseudo-intellectual debate like to give the impression that one school or other is exclusively right but you have to guess which one. It's the academic's version of the street hustler's "Guess which cup the pea is under."

There is a correct time and place for all these theories be implemented; the problem is that governments arise from political parties - vested interests led by sociopaths and, by their very nature, are confrontational, self-righteous and willing fight to the death to save face.

Only when governments learn to swallow their pride and accept a pragmatic approach will the world's economy function more efficiently allowing we The People all to enjoy happier lives. Yeah, like that's gonna happen in my lifetime.

Watching this topic debated is a bit like watching brain surgeons bicker over which one surgical implement to use exclusively to remove a brain tumour (scalpel only or saw only or drill only)* - while the patient lies dying on the operating table. Next time you get in your car try driving it using just the steering wheel or just the accelerator or just the brake. Folks, we're all going on a journey together, we gotta use all three if (1) we wanna start moving (2) we wanna go in the right direction and (3) we wanna slow down.

Is the refusal to take the pragmatic view is a conspiracy to ensure routine crashes happen from which the banksters can profit?

Which ever way, we pay a heavy toll for preserving the pride of economists. Can someone put a economic value on that please? Trillions, quadrillions?

*Hint : the patient needs all three and a damn site more besides. Mind you, what do you expect when governments are elected using the form of democracy we currrently have, a tool so blunt it makes a policeman's truncheon look razor sharp, so much so even our moronic bickering surgeons would recognise how lacking in incision it is.

Broadly i agree with you, and wrote in similar lines in my post #73, above: http://www.housepricecrash.co.uk/forum/index.php?showtopic=155538&view=findpost&p=2810423

And the solution for the political-economic problem has been known and implemented for a long time in many countries, post #32 http://www.housepricecrash.co.uk/forum/index.php?showtopic=155538&view=findpost&p=2808881

[Bloo Loo]

wow...just look at the currency debauchment that took place to show a mathematical lessening of the definition of recession.

[Bloo Loo]

I suppose the fundamental question is "what are we trying to achieve?".

absolutely...the system should serve the participants...we are currently being forced to "invest" our savings...just to maintain spending power...note that the S+P in the first 50 years of that chart is more or less...flat. real returns were from dividends...not the price of the stock itself.

[R K]

I suppose the fundamental question is "what are we trying to achieve?".

I suppose the even more fundy mental question is who's "we"?

Philip Green's "we" may differ to yours.

[wonderpup]

Anyone who thinks human beings are driven by rational self interest need only acquaint themselves with world war two- a massively expensive undertaking with little direct prospect of real return for most participants and a very high likelyhood of painful and premature death as a result of getting involved.

[LJAR]

Anyone who thinks human beings are driven by rational self interest need only acquaint themselves with world war two- a massively expensive undertaking with little direct prospect of real return for most participants and a very high likelyhood of painful and premature death as a result of getting involved.

that does not mean participation was not rational.

Self interest doe not necessarily mean selfish interest. For example it is in my own self interest to do things for other people, for my wife or for the benefit of mine or other people's future unborn children.

That is not to say that people are always rational, they are not, but we don't all operate using the same value system of what is good and worthwhile.

[mirage]

Its a theory.

it fits.

better, far better than climate models.

A theory?

Pure guesswork, don't you mean?

[scepticus]

I suppose the fundamental question is "what are we trying to achieve?".

What 'we' are presumably trying to achieve is a system that actually works. Of course what works now is not what worked a hundred years ago.

A system which :

- keeps people trading and working according to their preferences, without imposing a dictat of what constitutes working and what does not.

- has minimal upkeep costs

- is stable

- does not cause the accumulation of imbalances over time

That system cannot be achieved in the information age by the notion of money, it can only be achieved through the exchange of inherently valueless information. The information age demands an essentially valueless messenger particle to pass between assets and consumption goods *today* and thus maintain an allocation of resources via the price level. This can only work with genuinely neutral money. Neither the arbitrary scarcity of gold or a fiat money made scarce to emulate gold can be neutral since both will attract a yield and result in a failure on all four points above

Of course the messenger particle cannot be a store of value and neither can it say anything about value over time. That torch must pass to the various other assets actually capable of physically persisting over time in the real physical world, and by definition none of these assets could achieve pre-eminent status to act as a single reference store of value.

The lack of a single reference point, or reference asset, might be taken to indicate that the resulting system is not stable. Of course it would be volatile, and people will read the above and note with indignation that there cannot be a 'price level' unless there is a reference asset. But we can make whatever references we like from baskets, which is of course what we already do.

Our civilisation and economy is now a network, not a pyramid, and I suggest it has sufficient interconnectedness and bandwidth that a single reference point is redundant, since the network continuously produces and refines a multitude of reference points, and the loops inherent in the network provide their own measure of reflexive stability.

As for banksters running off with profits, I think people are making the mistake of looking at the past transition from a low leverage, low connectedness world, to a connected, peak debt world, a transition from which bankers happened to be in the right place at the right time to profit, and extrapolating this behaviour into the future. I suggest that on the reflexive plateau I have described, such opportunities will no longer exist in such abundance, and the bankers will have to work as hard as the rest of us. The easy banking profits will decline with each new round of QE as more risk free nominal returns are eliminated. This is already happening but attention is focused for now on profits obtaining from the distortions and volatility arising from the final extinguishing of financial rents rather than focussing on the endpoint.

[Edit to say - I now look forwards to a rude expletive ridden post from Mirage]

Edited December 5, 2010 by scepticus

[enrieb]

It's also about power too; if one is a Keynesian then one must have a central bank, but if Keynesian theory becomes discredited, perhaps in an Austrian school way, then there is no need for a central bank. That is the fundamental dynamic; power revolves around it.

imo this is why big money has pushed Keynesian theory as the foundation of all economics at all major Universities world wide. It's like the Tobacco industry funding all lung cancer research. Same dynamic.

Yes I agree its all about power, I think its correct to say that government is the shadow cast by big business on society, and attenuation of the shadow will not alter the substance. Those with power (financial, land, resources, media, industrial etc..) want to keep things the way they are, they need political-stability. The Austrian school would rectify the mal-investment of the boom, but at the price of sever short term pain. Political extremists on the left and the right would exploit the pain caused by the bust, and that would lead to political instability and a lurch to the left or the right. I think a dictatorship/monarchy would have the best chance of implementing the austrian solution, but even then the political instability could lead to a coup or revolution.

For a guesstimate I would say that using the Austrian solution you have a 50% chance of things getting back to normal without political instability, and a 50% chance of a revolution with either Communists, Fascists or Anarchists gaining power.

Edited December 5, 2010 by enrieb

[scepticus]

One more thing.

There is no 'we' any more in the same sense there is no reference asset.

The 'we' is now the globally linked network of individuals and collectives (such as corps and governments and nations and languages and various markets). That network does not have any easily discernible boundaries. The old boundaries are being dissolved and the new boundaries that arise are fuzzy and don't persist.

That network will define its own reflexive solution and there is no we on earth that can determine the outcome.

Reflexivity:

http://en.wikipedia.org/wiki/Reflexivity_(social_theory)

[scepticus]

Yes I agree its all about power, I think its correct to say that government is the shadow cast by big business on society, and attenuation of the shadow will not alter the substance. Those with power (financial, land, resources, media, industrial etc..) want to keep things the way they are, they need political-stability. The Austrian school would rectify the mal-investment of the boom, but at the price of sever short term pain. Political extremists on the left and the right would exploit the pain caused by the bust, and that would lead to political instability and a lurch to the left or the right. I think a dictatorship/monarchy would have the best chance of implementing the austrian solution, but even then the political instability could lead to a coup or revolution.

reflexivity.

[Bloo Loo]

Yes I agree its all about power, I think its correct to say that government is the shadow cast by big business on society, and attenuation of the shadow will not alter the substance. Those with power (financial, land, resources, media, industrial etc..) want to keep things the way they are, they need political-stability. The Austrian school would rectify the mal-investment of the boom, but at the price of sever short term pain. Political extremists on the left and the right would exploit the pain caused by the bust, and that would lead to political instability and a lurch to the left or the right. I think a dictatorship/monarchy would have the best chance of implementing the austrian solution, but even then the political instability could lead to a coup or revolution.

For a guesstimate I would say that using the Austrian solution you have a 50% chance of things getting back to normal without political instability, and a 50% chance of a revolution with either Communists, Fascists or Anarchists gaining power.

thats the EXACT argument used by bankers when one of their ilk WASNT going to get a bailout.

Lehmans didnt get their bail out.

the Tanks werent needed on the street and the system DIDNT collapse.

and why should it? chaos while they contra their assets and liabilities, some closures, but there is enough wealth in the system to keep it going. the leverage IS based on reality....that REALITY hasnt vaporised.

[Stars]

Of course what is needed is a revised Maslow's hierarchy that removes the material wants and feeds into the pm's Happiness Index and the steps to reach that happiness...education/self actualisation etc. Then we can re-draw the trading, rate setting and taxation/fiscal environment to fit the purpose.

What we need to do is find is the fundamental quanta of happiness, so that all assets can be measured against it

total b0ollocks

Quite

Edited December 6, 2010 by Stars

[babesagainstmachines]

I find it rather amusing that the preeminent international economics publication ask this question.

More appropriate would be "Why did The Economist ignore the Austrian School explanation".

[Dorkins]

I find it rather amusing that the preeminent international economics publication ask this question.

More appropriate would be "Why did The Economist ignore the Austrian School explanation".

In fairness, the Economist has been predicting a HPC since 2004 or 2005. They may not be dyed-in-the-wool Austrians but at least they believe in bubbles. When was the last time you heard any other mainstream publication saying something might be in a bubble?

[Tired of Waiting]

In fairness, the Economist has been predicting a HPC since 2004 or 2005. They may not be dyed-in-the-wool Austrians but at least they believe in bubbles. When was the last time you heard any other mainstream publication saying something might be in a bubble?

Actually 2003! A 10 pages special!

Thanks to TMT for the reminder :

I still have the 10 page global housing bubble Economist article from 2003.

Brilliant article explaining why global house prices were in a massive bubble and were soon to collapse.

It another 5 years for the US to begin, 6 for Spain and Eire and ours?

Thread: http://www.housepricecrash.co.uk/forum/index.php?showtopic=149260&view=findpost&p=2670329

It was a 10 pages special, with many articles. I'll paste the link to 1 article here, below. There are links to the other articles there:

http://www.economist.com/node/1794873?story_id=1794873

And so many kept saying "nobody saw it coming"!!! Brown included!!!

Edited December 6, 2010 by Tired of Waiting

[Tired of Waiting]

I find it rather amusing that the preeminent international economics publication ask this question.

More appropriate would be "Why did The Economist ignore the Austrian School explanation".

Please see my post #99, above.

[James Wyatt]

I believe The Economist had actually warned about asset price bubbles in the 1990s (pin pricking a bubble in about 1997-1998). Pam Woodall, the economics editor at the time, continued to argue for asset prices to be monitored and remedial action to be taken. Unfortunately, she moved on and the current economics editor seems to have little understanding of this neglected school.

In actual fact many hard monetarists share similar views and have even supported the abolition of fractional reserve banking. If you want to read more there are several very good books (stocking fillers).

Austrian Economics a Primer by Eammonn Butler

Austrian Economics by Jesus Huerta de Soto

Vienna and Chicago: Friends or Foes by Mark Skousen

Money, Bank, Credit and Economic Cycles by Jesus Huerta de Soto

Websites to check out are the Cobden Centre (UK), Foundation for Economic Education and the Mises Institute. For a libertarian perspective combining Austrian and Monetarism try the Institute of Economic Affairs (very cheap to join), The Adam Smith Institute and The Economic Research Council.

Unfortunately many schools and universities only teach neo classical economics and advanced maths. It would be more use to society if they taught economic history.

James Wyatt FRICS

[scepticus]

We could get into an argument about the order of goods here. You could clearly argue that you are trying to build a system that allows ALL INDIVIDUALs to climb Maslow's hierarchy of needs. As part of that system in order to avoid moral hazard, you need to condemn certain humans to a basic lower level of needs that incorporates shelter, warmth and healthcare without condemning them to remian there forever by providing education and opportunity.

well this system allows all humans to climb, and in fact the competition during the climbing is as great as it ever was. However, the mere possession of money alone will not keep one at a given level without a constant expenditure of effort - and exposure to risk.

The means by which each of us climbs that pyramid is by necessity 'trade' in order to acquire money - but that by necessity brings about the very imbalances that you refer to in your post. How can people acquire money and material assets without creating debt and imbalances further down as trade is imbalanced between individuals just as we see it between countries.

climbing does not create imbalances as long as when the pyramid is shaken, the position of each climber adjusts according to his current grip and not his grip-history, for want of a better term. Another way of saying the same thins is that imbalances are continuously dissipated.

Of course what is needed is a revised Maslow's hierarchy that removes the material wants and feeds into the pm's Happiness Index and the steps to reach that happiness...education/self actualisation etc. Then we can re-draw the trading, rate setting and taxation/fiscal environment to fit the purpose.

once above the security level, the rest of the upper layers of the pyramid are normally defined by reference to peers.

FWIW this is not a system which I mean to design but the system which is see is starting to take hold. Currently the rentiers with the weakest grip (pensioners and small time STRs) are the ones currently under adjustment and because the shaking has yet to reach a level at which the real monsters are dislodged we get the appearance of unfairness.

[Stars]

climbing does not create imbalances as long as when the pyramid is shaken, the position of each climber adjusts according to his current grip and not his grip-history, for want of a better term. Another way of saying the same thins is that imbalances are continuously dissipated.

The imballances come from collected advanatges which remove options for others. All that is needed is that each foothold in the climb is not another climber's head; that the advantages collected don't come at the expense of others

[scepticus]

The imballances come from collected advanatges which remove options for others. All that is needed is that each foothold in the climb is not another climber's head; that the advantages collected don't come at the expense of others

can one have an advantage that is not at another's expense?

[Stars]

can one have an advantage that is not at another's expense?

Have three

hammer

saw

pair of shoes

[Dorkins]

hammer - increased supply of hammers reduces the price of all of the others

saw - same

pair of shoes - lower income for bus drivers as people can walk further/faster on their own