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Originally Posted by u-Bob
Human are what they are. You can't change that.
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Exactly... which is why we will always have various types of intervention.
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Originally Posted by u-Bob
And as I've tried to point out several times: Gov is made up out of humans, not all knowing angels. Governments are made up out of humans who make mistakes just alike any other human. Governments are made up out of humans who are greedy just like any other human.
The difference between gov intervention and the free market is that, in the case of gov intervention, the mistakes made by the people who make up the gov affect the whole population.
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That works the same way when entire industries push the market how they want. Intervention happens, no matter what. A fact Austrian Economists can't seem to grasp.
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Originally Posted by u-Bob
Here we've arrived at an essential difference between the Austrian school and 'mainstream' economics. Most interventionists base their theories on empiric research. They consider economics to be an empirical science.
........cut out........
The Austrian school totally rejects this method. Why?
- It is possible to know something. If I state that all objects that are completely blue can't at the same time be completely yellow then you know this to be true. It's simple logic.
- When dealing with the economy, you are dealing with human individuals who are all different.
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They reject proven theories because they aren't able to prove their own theories, and when you ignore greed, you ignore logic, because greed will make that object yellow, every time.
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Originally Posted by u-Bob
The empirical scientific method is useful when applied to the natural sciences like physics or chemistry. It is perfectly possible to isolate a chemical element and then for example heat up a certain amount of that element and measure at what temperature it burns or melts or vaporizes... You can conduct controlled experiments because you can conduct your test on a certain amount of that element and then compare your results to another amount of that same element.
You can't do this with the economy. You can't just put a 1000 people in a box and tell them "go play free market" and then put the same 1000 people in another box and say "go play central planned economy" and then compare the results. You are dealing here with individuals who are all different, who all respond to their environment differently. The mere act of observing them will already alter their behavior.
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Economics uses math... every economic system is setup on our math systems, the same exact rules, it is impossible to make up your own rules, or will fail... every system is connected together, trying to separate them, is not logical.
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Originally Posted by u-Bob
(btw: Funny thing is that events in history that could be considered as coming even close to a controlled experiment (for example: North vs South Korea. Similar genetic background, similar geography, different amounts of gov intervention.) never favor central planning)
According to the Austrian School you can't use historical events to prove your theories or hypotheses are correct. You can merely analyze events and use them to illustrate certain principles.
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As I've said, some intervention is bad... such as N. Korea, but it's not like S. Korea has had zero intervention, actually they had shit tons..
I didn't say use history to prove a theory. But ignoring history is a bad when it can be looked at and seen that when no regulation/intervention happened, the problems did not go away, they grew.
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Originally Posted by u-Bob
Then how does the Austrian School approach economics?
The Austrian school uses an axiomatic-deductive method. This means that you start with an axiom, something that you know to be true and you use a known method (logic) to deduct things from that axiom.
If your starting point is true and you didn't make any logical errors deducting then what you deducted from that axiom is also true.
Mises used the axiom of human action as his starting point.
All humans act. ------- cut out ------- etc etc
Using pure logic the Austrian economists are able to deduct and prove pricing theories, the law of supply and demand, the law of comparative advantage etc. and the fact that a pure free market is the most optimal system.
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The entire system itself, the system that manages it all... is also responsible for intervention, from functions conflicting to human error, another factor they ignore.
And this is why they aren't accepted.... a free market is NOT POSSIBLE without STRONG regulations, fraud protection, and intervention to keep it clean of greed & fraud. It is impossible to have a free market, unless all greed is gone, and as you said, that wont happen, so it is impossible to have a true free market, thus the Austrian theory is flawed.
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Originally Posted by u-Bob
It is an example of how gov intervention prevents a problem from occurring (a couple of irresponsible banks going bankrupt) by doing something that causes bigger problems down the road. They keep repeating that same process and thus increase the severity of the problem.
That is essentially what the gov has been doing. Ignoring the fact that some corporations, banks etc actually did things that undermined their stability. In a free market the irresponsible go bankrupt. Thanks to gov intervention the irresponsible get bailed out at the expense of those who acted responsibly.
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And 100's did go bankrupt... and on that, intervention is what made it safe for them to go bankrupt, meaning peoples money was safe, investments safe, etc... because of gov regulations.
What they did was stop from having to cover every deposit the major banks had.... which would have cost us all a shit ton more than the bailout did. While I still don't agree with the bailouts... BoA failing alone would have cost us more in tax dollars than the bailout for them did, they had like 10x the amount to cover, let alone the other big boys.
Logic is not always the correct path...
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Originally Posted by u-Bob
Smith used his invisible hand' as a metaphor. He said that if no one intervenes you get the best possible outcome, as if some all knowing entity intervened..
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Someone, a gov, a corp, etc... always, 100% always, intervenes.
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Originally Posted by u-Bob
Why have those corps been able to do what they do? Because of gov intervention. Big corporation hate the free market. John D Rockefeller considered "competition a sin". that's why he liked gov intervention because that way they were able to block small competitors that produced better products at lower prices.
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That's a corporation, ie: greed, doing the intervention, not the Gov. Gov was the weapon, the person pulling the trigger is the guilty party.
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Originally Posted by u-Bob
So do you really expect those greedy experts who a couple of minutes ago still used to work for a big corp and who will most likely be going back to working for big corps in the same industry to do a good job at protecting the public against the greed of those big corps?
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Nope... but that's exactly why I think ignoring them and waiting for it to work out, totally fails... and has, many times over.
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Originally Posted by u-Bob
The difference between an Austrian and a monetarist/Keynesian/neoliberal/interventionist is that the Austrian accepts that it is impossible to know everything about the economy. You can know certain things, you can deduct certain laws. Those laws can help you understand things, but you'll never be able to understand the whole economy. The economy is organic. It constantly grows, changes, moves,... The interventionist thinks he can "master economics in college". The interventionists thinks he can create neat models and predict the outcome of his actions.
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I don't think I've ever seen anyone or anything, ever claim they can or it can, know everything about the economy.
Just like your body, if you totally ignore it, it will fail - but before then the ride will be hell - it will be crazy for decades without any regulation. But if you maintain it, you intervene, you may make some mistakes along the way, but overall you'll improve yourself by maintaining yourself, thus you may still screw up and even fail, but the ride along the way wont be as bad , as it could have been.
If the economy is organic then it falls under the same rules as every organic thing on this planet... which means, no single path is the correct answer and it must be maintained or it will fail.
Fail here doesn't mean go out of business... it means the entire system fails, everything.