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The Austrians Were Right, Yet Again
Thursday, August 04, 2011 by Jeffrey A. Tucker
----- After three-plus years of floundering around, a consensus has finally arrived that we are back in recession. Growth is not happening. The meager statistical growth of the past few years ? no one dared claim it amounted to full recovery ? was probably illusory. There is real growth, and there are government statistics. The statistics have misled every gullible person, but now the truth is obvious to everyone. Not only that: we face an impossible debt calamity, the banking industry is zombied, labor markets are static, the system is flooded with mispriced resources, housing is still a mess, and there is nowhere to go but down, down, down. QE1 and QE2, plus incredible efforts at regulatory stimulus, plus oceans of fake money created by Ben Bernanke, plus sea-level interest rates haven't done anything but damage. Economic opportunities are being shut down for an entire generation. Free enterprise ? and therefore all prosperity ? is struggling for its very life. This is all due to the one thing that Bush, Obama, the Republicans, the Democrats, and every existing major media mogul agrees was the right thing to do: correct market trends, stabilize and then stimulate the macroeconomy. One word: fail. Surprised? You shouldn't be. The Austrians had it right all along. This was no magic trick. The Austrians knew that all these efforts were dangerous and destructive. After all, this Keynesian nonsense has had many trial runs, and it has failed every single time. And there are specific reasons: government spending drains reserve capital, nationalizations prop up inefficiencies, and money creation distorts reality and forestalls recovery. It doesn't take a fortune-teller to discern that this hokum will not work to accomplish its stated aims. All it does is prop up the state and its friends at our expense. I mean, I want to be sympathetic to those who were deceived ? and grant the best of intentions to those who favor stupid policy ? but it is really hard. Maybe it was possible to be fooled in 1932, but, really, most every attentive observer should have wised up by 1936. But to then go through round after round after round of failed stimulus and still not get it? Incredible. As Bob Higgs has demonstrated, we didn't get out of the Great Depression until the government stopped trying to stimulate the economy. Now we have yet another opportunity to say it. Listen and learn: the Austrians were the only people who seem to have anticipated not only the bust but also the failure of the stimulus. I can only give a small sampling from the first five months of the crisis in 2008. There is Frank Shostak's "Is Deleveraging Bad for the Economy?" from August 20, 2008: Quote:
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Llewellyn H. Rockwell's "Don't Bail Them Out" from September 10, 2008:
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And so here we are all this time later, poorer than we were, with no hope in sight for the real-world economy. Why does anyone continue to take Krugman and company seriously? In fact, why does anyone take seriously those who warned that unless we tried the Keynesian plan, the world would end and we would miss an opportunity for a glorious recovery? It's not just the New York Times; it's also the Wall Street Journal and the entire financial press that continues to be enthralled with the absurdities of Keynesian theory. Let's rub it in a bit more: The Austrians were also correct that the boom before 2008 was unsustainable. See "The Bailout Reader." There is no joy in being right here. It is pathetic really that any informed observer of events would not be correct in light of experience and the common-sense observation that government can't make prosperity appear no matter how many kabuki dances Treasury officials do. On the winning team are those who understand sound economics. On the losing team are those who keep thinking that poison can cure the patient. So we say again: the stasis and depression will continue until the system is allowed to correct itself. |
People seem to think that this is something that is easy to fix. It's not. It's a ten year problem.
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It's like a little boy wanting to be taller so he doesn't get teased.
He puts on a pair of shoes with thick soles and raises two inches. He gets to brag to his buddies that he is taller than them. At the end of the day he slips off his shoes and loses the recently gained two inches. He was taller for a bit, but only due to artificial measures. For the little boy to truly grow, he needs to eat well, be patient, and ignore his friends teasing him for being short. |
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It doesn't work like that. If you want something you have to work for it. If you want to make money you have to sell products or services other people value and are willing to pay for. But no, we've got an ever growing part of the population that thinks they don't have to work for things and that instead the government should steal from those who are productive and distribute the loot amongst those who don't produce anything. There's those who think they're not personally responsible for their own actions (including their mistakes) and expect the government to bail them out with other people's money when things go wrong. |
Personally I'm a big Mises fan. You and I completely agree on this issue. It's always been bizarre to me when people say that government spending "puts money into the economy" When I explain to them that the government doesn't create any wealth, it simply takes if from people that do, (in the form of taxes, or devaluation of the currency by printing more), or borrowing it by selling bonds, which it must pay interest on, people STILL don't seem to get it. It's along the same lines of saying that tax cuts "cost the government", as if the wealth was created by the government, and it was giving it out to someone....
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Borrowing to fund annual budget is not. |
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Austrians as in economists of the Austrian School. In the field of economics there are 4 major schools of thought: - The Marxists. (100% gov intervention) - The Keynesians (and neo-Keynesians and New Keynesians) ( a lot of gov intervention) - The Chicago School (friedmanites, monetarists,...) (pseudo-free-market types. just a little bit of gov intervention) - The Austrian School (the real free market. no gov intervention. 100% voluntary association) |
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When the earthquake hit Japan, those Keynesians said that that was actually a good thing because now there would be a demand for workers to build new houses. In other words: they claimed that the eartquake was actually good for the economy. :1orglaugh and :( and :disgust at the same time. You could hear Bastiat, Say, Mises, Rothbard, Menger etc role over in their graves. All this talk about jobs for example is just absurd. Jobs are a means to an end, not an end in itself. People don't get a job just to have a job. People get a job to earn money. Money they can use to buy a house, buy food, buy clothes, buy products and services they personally value, to save money for a rainy day etc. People work to acquire wealth. Government intervention actually destroys wealth and prevents people from getting productive jobs. When the government taxes a business owner and gives the money (minus a handling fee that goes to the government) to unemployed people, they reduce his capital and reduce his ability to improve his business, they reduce his ability to hire people, they reduce his ability to adapt to changing customer preferences, they increase the chance that he will go bankrupt. When the government passes minimum wage laws they actually prevent people from hiring people without experience. When the government uses money (taxes) it took from productive companies and uses it to subsidize or bailout failing businesses, it actually destroys wealth and creates a lot of waste. When the government requires licenses for just about anything it actually prevents people from taking initiative and becoming their own boss. When the government prevents employers from easily firing employees when things get though, they actually cost the company money and they make employers more reluctant to hire new workers when things get better. In a pure free market people can only make money if they produce products or services other people actually want. In a pure free market, irresponsible behavior gets punished, not rewarded. In a pure free market those who come up with new products or services that better serve the needs and wants of the public make more money. In a pure free market, those that sell crappy products lose clients. |
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+1 QFT :thumbsup:thumbsup The thing that's funny is that this is not just a "school of thought". It is the way that human interactions actually work in a free society. When you interfere with it, through the use of force (government), things invariably do not go as well. The problem is that the people who get into positions of power always want more. Their motivation is more about power than money, (although the two often go together), and so they always seek to expand that power, to the detriment of the proper smooth functioning of the free interactions and co-operation of human beings. It's a shame, really. . |
I'm not surprised at all, everyone knew the bailouts in 2008 were bad, would bust, and would cause a problem, hell kids even knew it, every economist under the sun knew it, the only ones saying otherwise were paid by the people that took the money.
Now it is funny that these Austrian folks think they predicted this, just like it's funny they ignore history on gov intervention-investments that have worked, which isn't really doing them any good on getting out the theory books. |
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+1 for the Austrian School of Economics. I'm a big proponent of the fact that the market is too random and large to try and control. You have to let the market decide on prices. This whole government controlled boom and bust cycle is complete crap. All it does is ensure Keynesian economists keep their jobs...
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this wasn't a secret at all, everybody with a brain knew it, and most economists knew it as well, but, the only ways to get out of the situation require some kind of hope or light at the end of the tunnel. It would be very irresponsible to tell the truth to everybody, quite honestly I think everybody would be 10x worse.
But the real problem is (and it was detected at beginning of the 80s) that THE WHOLE VALUE of every single asset that exists is now around 1/8 to 1/12 (depending on measuring system you use) of the circulating money in the world. In other words: If you have a 10 dollars bill, its real MAXIMUM value is $2. This situation could be supported by accounting tricks as it was until now, but sooner or later governments would need to pay its obligations, and... oh surprise, now that the time has came, there's no money in the world that can pay that. btw, most mid 80s and earlier 90s Nobel prizes referred to this situation, so it's not that those Austrians were THAT clever, as long as you read a book and avoid FOX and CNN you would knew that :2 cents: |
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sorry about your small penis and the teasing in the shower at school... i like how you interchanged height with penis size.. it makes for a much better read.. i was truly engaged and could feel your inner pains in your carefully crafted words.. have you tried extenze? . |
everyone's right... until they're wrong. its all about the timing ;)
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Who here has heard of the Depression of 1920? I bet almost no one. Why? Because the government did almost nothing at the time so that Depression (that was btw caused by the government intervention in the economy during the first world war) ended in about 18 months. Who here has heard of the Depression of 1929, everyone. Why? Because government intervention turned it into the Great Depression. To help the farmers the government wanted to raise the price of pork. So their solution was to lower the supply of pork so the price would go up and farmers would get more money for their pork. How did they accomplish that? They paid farmers to kill and destroy thousands of young piglets. While people were starving the government was using tax dollars to pay farmers to destroy food. To help the farmers the government wanted to raise the price of wheat. So their solution was again to lower the supply. They actually paid farmers to not grow wheat. Some farmers and even some corporations ended up buying more land so they could get tax dollars for every acre they hadn't worked. Then they would use the money to buy more land and then get even more tax dollars for every acre they hadn't worked, for every bushels they hadn't produced. There's tons of examples like this. FDR (and his advisors) believed that the Depression was caused by low prices, so high prices (enforced by threats of violence, coercion...) would be the "solution". (btw: it is hardly a secret that if less production takes place, fewer workers will be needed by employers and unemployment will be higher.) FDR increased taxes and regulated every type of business imaginable. The NIRA codes established minimum wages. Employers were told that they must bargain collectively with unions, which were given advantages in the bargaining process. All of these policies made labor more expensive. The inevitable result was: less employment. During a period of weak or declining derived demand for labor, government policy pushed up the price of labor very significantly, causing employers to purchase less and less of it. The New deal didn't end the Great depression, it made it worse. It was the (relative) 'neutering' of New Deal rules, regulations, policies and the reduction of the Federal budget in 1945 that allowed the economy to recover. In 1946 alone, private sector production went up with 1/3. It was a (more) free market that ended the Great depression, not FDR's cartelization, unionization, price-increasing, wage-increasing, wealth-destructing, welfare state expanding policies. |
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It's a bit limited to look at the time 'after' a depression started, as a problem, rather than the problem that caused the depression or the other recurring cycles of depression years, such as: 1819, 1837, 1857, 1873, 1893, and 1907, 1920 and even 1929. Those are patterns of depressions BEFORE intervention was put into place. Saying some ended quickly because they didn't have intervention is silly, when they were a repeating problem, killing jobs, the economy, etc, over and over again. Intervention is what stopped this repeating pattern. What followed the great depression, with all that intervention you're against? Well, 50+ years of major economic growth.... and not another repeating cycle of depressions. It's all in how you look at the history... |
The Government isn't the solution. Want proof? Look at the Philippines. People here think the Government is an institutional wet dream come true promising all sorts of sh!t cradle to grave. Results? There are none. Monopolized industries that suck out jobs. Very uncompetitive business environment. Corrupt bureaucracy ready to ding foreign companies for regulations they don't enforce on locals, etc etc. Tons of fake nationalists that just end up being unwitting tools of rent seekers. We could use more Von Mises here. :)
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An entrepreneur who is in the widget selling business can't predict with a 100% certainty and accuracy how much widgets he'll be able to sell next week or next month or next year... If he doesn't have enough widgets in store, he won't be able to make as much money as he would have been if he had enough in store. If he has too many widgets in store, he'll have a surplus that he wasted money on and that is now just sitting there gathering dust. Entrepreneurial error is just a fact of life. It is possible that an employer hires new people and later finds out that the extra capacity isn't needed and needs to fire people. *) Customer preferences change. Widget X, that used to be popular 2 years ago, is almost impossible to sell these days. People used to buy horse carts, these days they buy cars... *) People are creative and come up with new ways to solve problems. New production methods and processes get developed and people are able to produce more widgets using less resources or using other resources. *) Time. Different widgets take different amounts of time to produce. When a certain type of car becomes popular, it is not possible for the manufacturer to instantly produce more cars. Those things take time. Especially if for example a new factory has to be built first to expand capacity. The market constantly changes. The market is organic. And yes, mistakes happen. Unhindered recessions are the market process which corrects these mistakes. When you start building 10 new factories because you expect a huge rise in demand of the widget that you produce and your 'guess' turns out to be wrong then you'll have to sell those wasted resources. Liquidation is necessary to correct your mistake. The real problems start when governments start intervening. When governments start using tax payer money (money they took from people who produced something other people wanted and paid for) to bail out or subsidize failing businesses. When governments start using tax payer money to buy up excess widgets that would otherwise never have been produced because there was no demand for them. When government prevent employers from firing people they can no longer afford to employ. When governments start forcing people to sell goods below market prices (resulting in a lack of supply) or above market prices (resulting in an increase of unnecessary supply). When governments prevent employers from hiring people for a wage that employees agree to and allows employers to make a profit. .... So, small adjustments happen all the time in a free market. It's government intervention that turns small adjustments into major depressions. It's the wartime measures and forced cartelization that caused the 1920 depression. It's the easy money policies of the mid 1920s that caused the 1929 depression. It's the New Deal and related measures that made the 1929 depression 'Great'. It's the inflationary policies of the Republican party in 1890 that caused the panic and the resulting 2 year crisis and 6 year depression. The crisis of 1873 was also a result of credit expansion. The schemes to pay the rising cost of the civil war initiated it. Jay Cook's (who had a government granted monopoly on underwriting the US gov bonds) unsustainable phantom growth eventually burst and that was 'the first domino'. btw: France was one of the few countries that escaped the crisis and the depression because it hadn't taken part in the credit expansion. etc So yes there's a pattern BEFORE intervention: government intervention. Quote:
Government advisors have already gone all Zimbabwe style and started contemplating the coinage of trillion-dollar coins. if that isn't a huge red flag, i don't know what is. |
is the austrian school of thought completely laissez-faire or do they embrace some gov intervention?
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By the same token, the myriad of factors influencing the economics of human interaction are so complex and ever-changing, that some committee of politicians somewhere, no matter how well intentioned, has NO HOPE of successfully intervening to "fix" things. All that happens is that they create unintended consequences that they then have to interfere more, in order to try and repair, and so on... This, without even considering the fact that power tends to corrupt, and that the more power you give a government over your lives and basic interactions with others, the more that government will take it. . |
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- The free market is the whole of all voluntary transactions that take place. - People act. - People act because they want to accomplish certain goals. - These goals are different for every individual (some people prefer wine, other prefer beer, other prefer water. Some like to travel, others like to stay at home. Some like to watch reality shows, others like to watch sports...) - To accomplish those goals, people use scarce resources (there isn't an infinite supply of gold, iron, oil, wood etc). - All people are different so everyone is good at different things. - People can increase the amount of goals they are able to reach by 'working together' instead of doing everything themselves. - 'working together' = the free market. People specialize in what they do best or like doing most and then trade with each other. This allows for a much higher output then when everyone would do everything themselves. (Law of comparative advantage) - Money is just an intermediary medium of exchange. - The process that coordinates the market is the price mechanism. The price people are willing to pay for a product or service gives you information about how badly people want that product and about how scarce that product is. - The factor that drives the market is entrepreneurship. Entrepreneurship = "finding 'new combinations' of labor, natural resources or capital goods for the purpose of making a profit." The entrepreneur is able to make a profit by finding out what people want (for example: if the price of widgets goes up because more people are now willing to pay a higher price for those widgets, that tells the entrepreneur that there are people who want widgets) and by offering people what they want or by finding a new product that performs the same function (or more) than the product people originally wanted. What causes problems: Aggression. When some entity (like the government) forces people to buy products at a price they are not willing to pay for it. Or when that entity forces people to sell products at a price that they don't want to sell their products. Or when that entity forces people to buy products they don't want to buy. etc |
thats too much to read
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I have much love for the Austrian School.
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in a related story, it is proven that hindsight is in fact 20/20
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appreciated. |
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Intervention hasn't decreased...it has gone up every year, non stop... the 40's and 50's are loaded with business regs, we've been doing bailouts for almost 40 years. You would be hard pressed to find a single year over the last 100 that didn't have gov intervention in some way, economically. Again though, we don't need any Austrian eco guys to tell us trillion dollar bailouts are bad... but at the same time, ignoring that gov intervention hasn't helped grow us in many ways, then you're hate for the gov blinds you so much that you ignore the facts around you.... as you type on the Internet, the gov paid for, funded, and forced to expand..... Dirty ass intervention. I know you guys put full faith in the free market, but fact is, the free market is limited more by greed than any gov in the world, greed is why gov's play the game, greed is why regulations are here, greed... driven by people, not governments. |
how does the austrian school account for china?
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Yes, the economy is unpredictable. That is because the economy exists out of individuals with different 'wants', goals, desires. Individuals with different abilities. Individuals that change their minds. "The Economy" is not some engine you can tinker with. It is not some mechanical thing you can alter to make it run smooth. The economy is organic. The economy constantly changes as the individual transactions that make up the economy are completed, as individuals reach certain goals and set out to reach others, as people come up with new ideas and techniques, as the available resources change, as problems occur and people find ways to solve those problems... Government intervention never solved anything. It only hides problems and causes others. It is government intervention that causes the bubble and the depression. It is government intervention that reward irresponsible behavior (for example: banks giving out loans to people that won't be able to pay them back). Quote:
You can only keep sweeping stuff under the carpet for so long. Eventually people are going to notice. This time, they'll probably come up with another crazy scheme to hide the mess under the carpet, but sooner or later they'll run out of carpet. Quote:
If you look at the last 200 years as a whole, you see a steady increase in intervention and it has all culminated to our current situation. Quote:
Gov built a network using resources it took from others. The free market turned the internet into what it is today. Quote:
The free market: everyone has the right to plan for himself while respecting other people's property rights. everyone is free to voluntarily trade with others, to help others,... Your mistakes affect your bottom line. Government intervention: a small group of people planning for all others. Their mistakes affect everyone. |
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.:winkwink::1orglaugh . |
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