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jmherbener
ParticipantKeynes argued for running budget deficits in recessions so that government expenditures, by making up for sagging private expenditures, restore aggregate demand to a level that renders full employment. He did not favor running permanent budget deficits, but only as long as and as large as needed to restore full-employment aggregate demand.
He also argued that to prevent depressions, the government should socialize investment. In that way, it couldn’t collapse from private investor pessimism.
ParticipantI, too, disagree with the analyses given by Summers and Bernanke. The links to their articles were to provide background about what the Great Moderation was. Unfortunately, there isn’t much literature on the Great Moderation from Austrians. Joe Salerno made a few comments in his Congressional testimony. But they are disputing the claim that the GM was moderate.
http://financialservices.house.gov/media/pdf/031711salerno.pdf
ParticipantDr. Huelsmann answers this point in the articles above.
Here are a few comments. First, there is some amount of consumption that must be done and people will not wait for prices to fall tomorrow before they buy food, clothing, fuel, etc. So price spirals, if they exist, have a termination point. Second, speculation cuts the spiral short. If entrepreneurs realize the extent to which prices will fall in the future, they will lower prices today. Third, lower prices for outputs reduce revenue for entrepreneurs who must, then, lower their demands for inputs which reduces prices for inputs. There is no need for production to be curtailed if input and output prices fall proportionately. The problem of the bust is not falling aggregate demand, but a mismatch of productive capacity built up during the boom with preferences that emerge in the bust. Layoffs occur during the bust in areas of malinvestment that occurred during the boom. The solution, then, is liquidation of the malinvestments and reallocation of resources into lines that satisfy consumer preferences as they will be in the near future.
ParticipantLook at page 369 in MES. The trapezoid is the shaded area of the rectangle.
ParticipantTo what theory of deflationary spirals are you referring? Here are few good articles on the theory of deflation.
http://mises.org/journals/qjae/pdf/qjae6_4_8.pdf
http://mises.org/journals/qjae/pdf/qjae6_4_4.pdf
http://library.mises.org/books/Jorg%20Guido%20Hulsmann/Deflation%20and%20Liberty.pdf
ParticipantThe so-called Great Moderation occurred in the industrialized world, not just the U.S. Here is the evidence:
http://www.kansascityfed.org/publicat/econrev/pdf/3q05summ.pdf
As Ben Bernanke has pointed out, the volatility of real GDP was lower before the 1970s and after the 1970s. Here is Bernanke’s article:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2004/20040220/default.htm
So the explanation for the Great Moderation has to do with the breakup of Bretton-Woods. Before 1971, there was an international monetary system that to a certain degree coordinated world-wide inflation with the dollar. When the Fed inflated if gave other countries room to inflate their currencies as dollars wound up in those countries through foreign exchange. Part of the impact of Fed monetary inflation was felt overseas and, if coordinated with other countries, resulted in less dramatic booms and busts.
Bretton-Woods began to unravel in the late 1960s. When it collapsed in 1971, countries allowed their currencies to float (albeit a managed float). When the Fed inflated, the full impact was felt in the U.S. and thus, more volatility in the economy.
In the 1980s, the U.S. put a dollar reserve standard, with pegged exchange rates, back in place. When the Fed inflated the dollar, more dollars were held overseas through foreign exchange and became reserve for the expansion of domestic currencies. This smoothed out the business cycle in industrialized world, but made it more volatile in the less industrialized world. Places like southeast Asia, in particular. After the collapse in southeast Asia beginning in 1997, the effect of Fed inflation was felt more in the U.S. and we had the DotCom bubble followed by the housing bubble.
ParticipantHazlitt’s point is that one cannot justify government expenditures by pointing to the benefit they do, a bridge is built, 100 people are employed, etc. One use of resources can only be justified by showing that it is more valuable to people than their best alternative use. This is precisely what entrepreneur demonstrate each time their production earns profit. Government cannot do this because it raises revenue through coercion, i.e., taxation.
It follows that the direct burden of government on society is the extent to which it diverts resources from private hands into its own. If government expenditures for wars and other programs that control the use of resources were slashed and the resources returned to private hands, then society would be better off. If the reduced expenditures were matched by reduced taxes, it wouldn’t affect the expenditures made to service the debt. (Expenditures to service the debt are those made to pay interest on the debt. There is neither a “sinking” fund to pay off the principle nor any proposals to pay down the debt by running surpluses. If there were, then total expenditures and taxes would not necessarily fall.)
ParticipantEvan, I think the best strategy for having a fruitful discussion with one of your professors is to know her positions well enough to ask her provocative questions. If she struggles with an answer, then point her to the relevant literature. With a political science professor, listen to what she says about economics and economists. In private conversations, ask her what literature she has read on economic topics or by economists. Bring up some arguments by economists who write about politics, like Mancur Olson.
ParticipantInterest rates on Treasuries follow market interest rates up and down. There is usually a spread between Treasuries of a given maturity and the same maturity private debt because investors perceive lower default risk on Treasuries. However, Treasuries move up and down with market interest rates. Here is the 3-month Treasury Bill rate:
http://research.stlouisfed.org/fred2/series/TB3MS?cid=116
So the capital value of Treasuries moves inversely with interest rates, just like the capital value of other assets. If market interest rates rise, then the capital value (i.e., the market price) of Treasuries will fall. One factor that makes market interest rates rise is unanticipated price inflation.So if price inflation picks up and investors haven’t built it into interest rates already, then the prices of existing securities, including Treasuries, will fall.
ParticipantThat’s the reason the politically connected bankers and politicians will never adopt such a policy. The entire point of monetary inflation from their perspective is to enrich themselves at the expense of the rest of us.
Guido Huelsmann explains it in his book, The Ethics of Money Production.
http://library.mises.org/books/Jorg%20Guido%20Hulsmann/The%20Ethics%20of%20Money%20Production.pdf
ParticipantIf you want something by Mises, maybe Liberalism or Planning for Freedom.
ParticipantWhy not ask the questions that the insiders will ask themselves?
http://www.economicpolicyjournal.com/2012/10/the-agenda-for-major-bankster-insider.html
ParticipantThe Hayekian triangle is a pedagogical devise used to illustrate certain features of an economy’s capital structure. It’s pictured as a right triangle with an acute angle on the far left of its base and the right angle on the far right of its base. Its height is the value of consumer goods produced in the economy. As production moves through each stage, one moves from the left to the right accumulating value. The first stage of production is extracting raw materials, the second stage is producing primitive capital goods, the later stages are producing sophisticated capital goods. For example, iron is mined, refined, made into steel, the steel is formed into fenders for a car, then the car is assembled. At each stage value is being added and the extra value (i.e., the difference between buying prices of inputs and selling prices of outputs) is the interest rate when the economy is in equilibrium. So the “slope” of the hypotenuse is the rate of interest.
Rothbard improved on the triangle with the trapezoids he uses the depict the capital structure of the economy in his book, Man, Economy, and State. These devises are useful in analyzing the dynamics of a market economy. For example, how do production processes change through the capital structure if people’s time preferences decline (the slope of the hypotenuse flattens) or if the state generates monetary inflation and credit expansion.
Check out Chs. 5 and 6 of Rothbard’s book:
I think your suggestion about studying Hayek is wise. Learn about Austrian economics from Rothbard and Mises and then tackle Hayek.
To get an idea of Hayek’s contributions to Austrian economics as such, you might take a look at Joe Salerno’s introduction to Prices and Production and Other Essays.
ParticipantThis is why the state hates gold. It provides an (imperfect) escape from being victimized by its policies. If we don’t behave the way they want us to their schemes won’t work. States also crack down on the use of other escape hatches from their inflation, like foreign currencies and commodities. Of course, states don’t have to escalate their interventions just because they don’t work. But they have a tendency to do so.
ParticipantCritics of the ABCT tend not to describe it accurately. Here is Bob Murphy on Cowen’s view of ABCT.
On monetary contractions, Cowen is saying that the ABCT postulates an inflationary boom before the monetary contraction of the bust. So, he says, what about historical episodes in which there is a monetary contraction without a previous boom? Surely, the ABCT cannot explain them.
It’s an open question as to whether or not there are historical cases of such monetary contractions. We would have to look at the evidence to see. If there are, then the ABCT would not explain them. We would need to construct a theoretical explanation that takes account of the features of the actual case. What is causing the money supply to contract? Are financial markets affected and, if so, how? How does the monetary contraction affect banks and money substitutes, etc.?
Here is Roger Garrison’s article on Milton Friedman’s “plucking” model of recessions.
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