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Like many libertarian leaning people I used to be a fan of "Austrian" type economics. In the past few years as a result of watching both the recovery and the cr

by api 8y ago

Like many libertarian leaning people I used to be a fan of "Austrian" type economics. In the past few years as a result of watching both the recovery and the cryptocurrency experiment I've changed my mind. I now think that Keynes was at least largely correct in the essentials. I think two things trip people up. One is blind extrapolation of good personal and business financial advice onto macroeconomics. It's clear to me that macroeconomic systems seem to have their own rules. Secondly I think some of the disdain for Keynesian ideas comes from dislike of the power concentration inherent in central banks. The latter is still IMHO a valid criticism. There might be different more transparent or decentralized ways of achieving what central banks achieve. But the overall history of macroeconomics seems to fall on the side of Keynes and his successors.

afterburner 8y ago
The shitty metaphor of tightening your belt at home extended to government has done a lot of damage, and that metaphor is used by politicians to look "responsible" to people who don't understand. Unless you really go whole-hog on the metaphor: if the son sells apples to the dad to make a living, and the dad decides to cut back on apple buying, then the son loses his income. Then the son can't buy the cucumbers the dad was selling him, and the dad is even worse off. There is no-one outside the house.
- api 8y ago
  There seem to be many politicians including the US Republican Party that just lie. They implement aggressively Keynesian or heavily deficit spending based policies while toting a "fiscal responsibility" line and sounding like advocates of austerity.
  - afterburner 8y ago
    Republicans are not Keynesian; they push for tax cuts on the rich at all times, no matter the economic conditions. They also do not support investment that would seriously help unemployment in dire times (eg. Great Recession).
  - zanny 8y ago
    If there are no consequences to lying and lying gets you power and influence you are at a disadvantage to not lie.
    - api 8y ago
      I think there are consequences, but unfortunately they are more subtile, long term, and society wide rather than immediate and felt directly by the liars. Lies told by politicians erode the overall trust basis of society over time, leading in the end to major social breakdowns or even civilizational collapse.
    - bobthechef 8y ago
      Wrong. Lying is always and everywhere immoral (yes, even when it is understandable and forgivable such as the classic Nazi thought experiment). Not only is it intrinsically immoral as it perverts the functions of speech and communication, but it has long term consequences like the undermining of trust and social relations and the further corruption of the liar's character and the scandalous contribution to a degenerate ethos in society where truth is treated as selectively important. Our present day culture of sophistry and bullshit with its cavalier attitude toward the truth is what you can expect. Mental reservation, on the other hand, is sometimes justified.
      - api 8y ago
        > Our present day culture of sophistry and bullshit with its cavalier attitude toward the truth is what you can expect. It's too bad religion is so obsessed with not being gay as the most important of all moral issues. Our culture of lying is a real moral crisis with real consequences. I have never once heard any religious figure take a strong public stand against it. If anything most seem willing to lie in service of their own causes.
ScottBurson 8y ago
I think the Austrians have a fair point that overexpansion of credit during booms is a key cause of recessions. However, the medicine they prescribe once a recession occurs, namely allowing the money supply to contract and letting many businesses fail, is not only inhumane but less effective at encouraging recovery than the Keynesian approach. I lean toward the view, espoused by modern liberal economists like Paul Krugman, that goverments should tighten spending and run surpluses during booms, so they have some cushion to increase spending during downturns. This tends to run counter to human psychology, as during a boom, people have trouble imagining it coming to an end. And politics tends to interfere with good economics; thus we have the spectacle of the Republican Congress passing a major tax cut when the economy was already heating up. (I'm actually sympathetic to the argument that the corporate income tax rate was too high and needed to be cut, but other taxes should have been enacted to make the whole package revenue-neutral.)
- splintercell 8y ago
  > However, the medicine they prescribe once a recession occurs, namely allowing the money supply to contract and letting many businesses fail, is not only inhumane but less effective at encouraging recovery than the Keynesian approach. I think this is a pretty fair criticism of Austrian solutions. But like telling a drug addict that he must get clean, there is no way out of it other than to get clean. Some drug addicts can quit cold turkey (which is what Austrians recommend), others need to switch to a different less addictive drug (like Methadone etc) until they get completely clean. I believe (and has been my belief for past few years) that Cryptocurrencies will play a major role this recession, acting as 'methadone'. How? I will explain it from two different point of views: - Krugman-Keynesians: Recessions are caused by liquidity crunch and liquidity must be pumped into the market by the fed and the govt in order to clear the market. Govt should also absorb excess unemployment by hiring people and shut down those programs when the market recovers and private sector can absorb the labor. These Keynesians are also great fan of artificially created liquidity (to get out of the liquidity trap) by Capitol Hill Babysitting Co-op [1], Alternative currencies issued by various cities during the Great Depression [2]. My claim is that in the next recession in the 'liquidity crunch', people will find it easier to switch to Cryptocurrencies and tokens, perhaps even issuing it themselves on local level. Bitcoin has a problem with having a fixed money supply, but at least the first switch from Fiat to crypto would happen without issues, but for the next to next recession, bitcoin would represent the same liquidity trap as fiat does, in fact worse. Due to this, many people will dump the dollar, but it also would ease up the liquidity crunch of the dollar economy. Therefore bitcoin and fiat economies being headlocked in a duel, until people decide to come back to the dollar again. - Austrians: The single most important thing which needs to happen (and generally does not happen in recessions) is that the real wages must move downwards (fast enough). Govts try to solve a recession by pumping more credit and money into the markets, esp to keep people employed and wages up, but it doesn't really happen. Eventually some real wages move down enough and some inflation of the assets which starts a new bubble causes the market to 'recover'. My claim is that in the next recession people will switch to more inflation-proof cryptocurrencies for salary but for a 'lower real wage' (potentially because they will either perceive crypto to be better medium or it would be the only expanding economy or/because dollar is losing value compared to crypto). This allows markets to get cleared faster and recovery to happen. But more of this effect results in an avalanche effect with people fleeing from dollar jobs to bitcoin based jobs and faster clearing of the markets. 1. https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op 2. https://www.armstrongeconomics.com/history/europes-economic-history/alternative-currencies-of-the-great-depression/ https://www.armstrongeconomics.com/history/europes-economic-...
Nokinside 8y ago
> One is blind extrapolation of good personal and business financial advice onto macroeconomics. This is the main misconception that people have. Microeconomics deals with open systems, macroeconomics deals with closed (or mostly closed system). In personal economics, penny saved can be penny earned. In macroeconomics penny saved is penny that someone else does not earn. Fiscal multipliers affect how government spending or saving actually affects the government debt. Sometimes spending may actually increase tax returns. https://en.wikipedia.org/wiki/Fiscal_multiplier https://en.wikipedia.org/wiki/Fiscal_multiplier Another issue is that while creative destruction is good thing in business, people are not very elastic. They, their families will be permanently damaged if they are long without jobs.
nikanj 8y ago
The biggest problem with Keynes is a psychological one. It makes sense to spend more during tough times, but it's a career suicide for a politician to suggest tightening the purse strings when the times are good. In essence, modern Keynesian politics oscillate between "The times are bad, we have to spend more", and "The times are good, what do you mean we can't afford to spend more".
- ScottBurson 8y ago
  > it's a career suicide for a politician to suggest tightening the purse strings when the times are good Not necessarily. In 2014, California Proposition 2 (originally 44) passed with over a 2-to-1 margin [0], reforming and expanding the "rainy day fund" created by 2004's Proposition 58. California now has almost $30B in surplus [1]. [0] https://ballotpedia.org/California_Proposition_2,_Rainy_Day_Budget_Stabilization_Fund_Act_(2014) https://ballotpedia.org/California_Proposition_2,_Rainy_Day_... [1] https://www.politifact.com/california/statements/2018/dec/18/jerry-brown/does-california-have-budget-surplus-nearly-30-bill/ https://www.politifact.com/california/statements/2018/dec/18...
- crdoconnor 8y ago
  Still beats tightening the purse strings during recession.
ScottBurson 8y ago
Interesting that this comment is downvoted even though none of the posted replies disagree with it very much. Would some devotee of the Austrian school care to post a rebuttal?
zozbot123 8y ago
Power concentration is not inherent to central banks; it's inherent to government-provided money of any sort. (And as David Graeber's work on "Debt" suggests, government money is in turn fundamental and closely related to other basic functions of government, including dispute resolution! The sorts of exchanges for which you need money the most are also the exchanges where the dispute-resolution function provided by government courts is important.) Even gold/silver currency never actually solved this, because people never really used well-defined amounts of pure gold/silver as money; they use either paper currency or coinage, either of which were quite frequently debased. And because the supply of gold and silver is only weakly correlated with what the economy needs to keep nominal incomes on a predictable path (which mitigates market frictions and delivers a smoother-functioning economy, for standard "Keynesian" reasons), there is no well-established solution to this issue; in practice, we've settled on having centralized issuance of money, and having it managed by an independent authority, with strong, constitutional-level guarantees to that effect. For essentially historical reasons, we like to call that authority a "central bank".
- api 8y ago
  I don't even think cryptocurrency can solve this. It's easier to store a key than a ton of gold, but without the dispute resolution and policing functions of government you are still utterly screwed if your coin is stolen or if you fall for a scam. People also still tend to use banks (e.g. coinbase) due to the convenience, security, and value adds they provide.
jayalpha 8y ago
"Like many libertarian leaning people I used to be a fan of "Austrian" type economics. ...I now think that Keynes was at least largely correct in the essentials." Welcome in the club. Mises is great. Everything sounds very logical, written from a guy who never worked one day in a free market enterprise. Mises never understood a capitalist market economy and the money and debt that drives it. He basically describes a middle-ages, barter free market economy.
- RobertoG 8y ago
  >>"He basically describes a middle-ages, barter free market economy." That never existed in reality.
  - jayalpha 8y ago
    Well, it was heavily regulated but compared to other cultures, free market.
bogomipz 8y ago
>"Like many libertarian leaning people I used to be a fan of "Austrian" type economics." Can you elaborate? What exactly are "Austrian" type economics? I'm not familiar with this distinction.
- tomjakubowski 8y ago
  https://www.britannica.com/topic/Austrian-school-of-economics https://www.britannica.com/topic/Austrian-school-of-economic...
  - bogomipz 8y ago
    Thanks, I was familiar with "marginal utility" theory. How or why does that align itself with Libertarian views though? That wasn't clear to me. Cheers.

by api 8y ago

afterburner 8y ago

The shitty metaphor of tightening your belt at home extended to government has done a lot of damage, and that metaphor is used by politicians to look "responsible" to people who don't understand. Unless you really go whole-hog on the metaphor: if the son sells apples to the dad to make a living, and the dad decides to cut back on apple buying, then the son loses his income. Then the son can't buy the cucumbers the dad was selling him, and the dad is even worse off. There is no-one outside the house.

api 8y ago
There seem to be many politicians including the US Republican Party that just lie. They implement aggressively Keynesian or heavily deficit spending based policies while toting a "fiscal responsibility" line and sounding like advocates of austerity.
- afterburner 8y ago
  Republicans are not Keynesian; they push for tax cuts on the rich at all times, no matter the economic conditions. They also do not support investment that would seriously help unemployment in dire times (eg. Great Recession).
- zanny 8y ago
  If there are no consequences to lying and lying gets you power and influence you are at a disadvantage to not lie.
  - api 8y ago
    I think there are consequences, but unfortunately they are more subtile, long term, and society wide rather than immediate and felt directly by the liars. Lies told by politicians erode the overall trust basis of society over time, leading in the end to major social breakdowns or even civilizational collapse.
  - bobthechef 8y ago
    Wrong. Lying is always and everywhere immoral (yes, even when it is understandable and forgivable such as the classic Nazi thought experiment). Not only is it intrinsically immoral as it perverts the functions of speech and communication, but it has long term consequences like the undermining of trust and social relations and the further corruption of the liar's character and the scandalous contribution to a degenerate ethos in society where truth is treated as selectively important. Our present day culture of sophistry and bullshit with its cavalier attitude toward the truth is what you can expect. Mental reservation, on the other hand, is sometimes justified.
    - api 8y ago
      > Our present day culture of sophistry and bullshit with its cavalier attitude toward the truth is what you can expect. It's too bad religion is so obsessed with not being gay as the most important of all moral issues. Our culture of lying is a real moral crisis with real consequences. I have never once heard any religious figure take a strong public stand against it. If anything most seem willing to lie in service of their own causes.

ScottBurson 8y ago

I think the Austrians have a fair point that overexpansion of credit during booms is a key cause of recessions. However, the medicine they prescribe once a recession occurs, namely allowing the money supply to contract and letting many businesses fail, is not only inhumane but less effective at encouraging recovery than the Keynesian approach. I lean toward the view, espoused by modern liberal economists like Paul Krugman, that goverments should tighten spending and run surpluses during booms, so they have some cushion to increase spending during downturns. This tends to run counter to human psychology, as during a boom, people have trouble imagining it coming to an end. And politics tends to interfere with good economics; thus we have the spectacle of the Republican Congress passing a major tax cut when the economy was already heating up. (I'm actually sympathetic to the argument that the corporate income tax rate was too high and needed to be cut, but other taxes should have been enacted to make the whole package revenue-neutral.)

splintercell 8y ago
> However, the medicine they prescribe once a recession occurs, namely allowing the money supply to contract and letting many businesses fail, is not only inhumane but less effective at encouraging recovery than the Keynesian approach. I think this is a pretty fair criticism of Austrian solutions. But like telling a drug addict that he must get clean, there is no way out of it other than to get clean. Some drug addicts can quit cold turkey (which is what Austrians recommend), others need to switch to a different less addictive drug (like Methadone etc) until they get completely clean. I believe (and has been my belief for past few years) that Cryptocurrencies will play a major role this recession, acting as 'methadone'. How? I will explain it from two different point of views: - Krugman-Keynesians: Recessions are caused by liquidity crunch and liquidity must be pumped into the market by the fed and the govt in order to clear the market. Govt should also absorb excess unemployment by hiring people and shut down those programs when the market recovers and private sector can absorb the labor. These Keynesians are also great fan of artificially created liquidity (to get out of the liquidity trap) by Capitol Hill Babysitting Co-op [1], Alternative currencies issued by various cities during the Great Depression [2]. My claim is that in the next recession in the 'liquidity crunch', people will find it easier to switch to Cryptocurrencies and tokens, perhaps even issuing it themselves on local level. Bitcoin has a problem with having a fixed money supply, but at least the first switch from Fiat to crypto would happen without issues, but for the next to next recession, bitcoin would represent the same liquidity trap as fiat does, in fact worse. Due to this, many people will dump the dollar, but it also would ease up the liquidity crunch of the dollar economy. Therefore bitcoin and fiat economies being headlocked in a duel, until people decide to come back to the dollar again. - Austrians: The single most important thing which needs to happen (and generally does not happen in recessions) is that the real wages must move downwards (fast enough). Govts try to solve a recession by pumping more credit and money into the markets, esp to keep people employed and wages up, but it doesn't really happen. Eventually some real wages move down enough and some inflation of the assets which starts a new bubble causes the market to 'recover'. My claim is that in the next recession people will switch to more inflation-proof cryptocurrencies for salary but for a 'lower real wage' (potentially because they will either perceive crypto to be better medium or it would be the only expanding economy or/because dollar is losing value compared to crypto). This allows markets to get cleared faster and recovery to happen. But more of this effect results in an avalanche effect with people fleeing from dollar jobs to bitcoin based jobs and faster clearing of the markets. 1. https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op https://en.wikipedia.org/wiki/Capitol_Hill_Babysitting_Co-op 2. https://www.armstrongeconomics.com/history/europes-economic-history/alternative-currencies-of-the-great-depression/ https://www.armstrongeconomics.com/history/europes-economic-...

Nokinside 8y ago

> One is blind extrapolation of good personal and business financial advice onto macroeconomics. This is the main misconception that people have. Microeconomics deals with open systems, macroeconomics deals with closed (or mostly closed system). In personal economics, penny saved can be penny earned. In macroeconomics penny saved is penny that someone else does not earn. Fiscal multipliers affect how government spending or saving actually affects the government debt. Sometimes spending may actually increase tax returns. https://en.wikipedia.org/wiki/Fiscal_multiplier https://en.wikipedia.org/wiki/Fiscal_multiplier Another issue is that while creative destruction is good thing in business, people are not very elastic. They, their families will be permanently damaged if they are long without jobs.

nikanj 8y ago

The biggest problem with Keynes is a psychological one. It makes sense to spend more during tough times, but it's a career suicide for a politician to suggest tightening the purse strings when the times are good. In essence, modern Keynesian politics oscillate between "The times are bad, we have to spend more", and "The times are good, what do you mean we can't afford to spend more".

ScottBurson 8y ago
> it's a career suicide for a politician to suggest tightening the purse strings when the times are good Not necessarily. In 2014, California Proposition 2 (originally 44) passed with over a 2-to-1 margin [0], reforming and expanding the "rainy day fund" created by 2004's Proposition 58. California now has almost $30B in surplus [1]. [0] https://ballotpedia.org/California_Proposition_2,_Rainy_Day_Budget_Stabilization_Fund_Act_(2014) https://ballotpedia.org/California_Proposition_2,_Rainy_Day_... [1] https://www.politifact.com/california/statements/2018/dec/18/jerry-brown/does-california-have-budget-surplus-nearly-30-bill/ https://www.politifact.com/california/statements/2018/dec/18...
crdoconnor 8y ago
Still beats tightening the purse strings during recession.

ScottBurson 8y ago

Interesting that this comment is downvoted even though none of the posted replies disagree with it very much. Would some devotee of the Austrian school care to post a rebuttal?

zozbot123 8y ago

Power concentration is not inherent to central banks; it's inherent to government-provided money of any sort. (And as David Graeber's work on "Debt" suggests, government money is in turn fundamental and closely related to other basic functions of government, including dispute resolution! The sorts of exchanges for which you need money the most are also the exchanges where the dispute-resolution function provided by government courts is important.) Even gold/silver currency never actually solved this, because people never really used well-defined amounts of pure gold/silver as money; they use either paper currency or coinage, either of which were quite frequently debased. And because the supply of gold and silver is only weakly correlated with what the economy needs to keep nominal incomes on a predictable path (which mitigates market frictions and delivers a smoother-functioning economy, for standard "Keynesian" reasons), there is no well-established solution to this issue; in practice, we've settled on having centralized issuance of money, and having it managed by an independent authority, with strong, constitutional-level guarantees to that effect. For essentially historical reasons, we like to call that authority a "central bank".

api 8y ago
I don't even think cryptocurrency can solve this. It's easier to store a key than a ton of gold, but without the dispute resolution and policing functions of government you are still utterly screwed if your coin is stolen or if you fall for a scam. People also still tend to use banks (e.g. coinbase) due to the convenience, security, and value adds they provide.

jayalpha 8y ago

"Like many libertarian leaning people I used to be a fan of "Austrian" type economics. ...I now think that Keynes was at least largely correct in the essentials." Welcome in the club. Mises is great. Everything sounds very logical, written from a guy who never worked one day in a free market enterprise. Mises never understood a capitalist market economy and the money and debt that drives it. He basically describes a middle-ages, barter free market economy.

RobertoG 8y ago
>>"He basically describes a middle-ages, barter free market economy." That never existed in reality.
- jayalpha 8y ago
  Well, it was heavily regulated but compared to other cultures, free market.

bogomipz 8y ago

>"Like many libertarian leaning people I used to be a fan of "Austrian" type economics." Can you elaborate? What exactly are "Austrian" type economics? I'm not familiar with this distinction.

tomjakubowski 8y ago
https://www.britannica.com/topic/Austrian-school-of-economics https://www.britannica.com/topic/Austrian-school-of-economic...
- bogomipz 8y ago
  Thanks, I was familiar with "marginal utility" theory. How or why does that align itself with Libertarian views though? That wasn't clear to me. Cheers.