What does “worship” mean? I am a believer of the Austrian theory of economics. Are Keynesian / Monetarists also “worshippers” of a theory? Modern economics is not that old. I fundamentally believe printing as much money as we are across the rich world is going to lead to disaster, just as it has time and again in the developing world (see Venezuela, Zimbabwe, Argentina, Brazil, etc.).
If anything, Austrian economics is a reversion to the standard theory of economics for thousands of years. The “innovation” of Keynesian economics is one of the greatest evils ever perpetuated on society. But again - what do I know - I don’t have a PhD from an Ivy. I just protect my assets in a zero-interest world by avoiding government threat.
Listen man, you’re obviously a very smart guy (I’m assuming your gender), but it seems that you haven’t been exposed much to the “Austrian School” of economics.
Keynesian theory is the orthodox economic religion, which you have fully subscribed to. Austrians are heretics and we are burned at the stake for our beliefs.
I’ve read both sides. The Austrian school is far more compelling and rational. It cuts through the obscurantist bullshit with precision.
To me, Keynesian theory with its justification for continued economic chaos, is for those suffering from “battered wife syndrome”. To accept the Keynesian excuses, is akin to a wife getting brutally raped and beaten by her husband every day, while telling everyone “It’s OK, I deserve it, he knows what’s best for me”.
If you haven’t seriously examined the Austrian side of the debate, have a look at this:
EDIT:
In the first link, read the paragraph that begins with "In the face of overwhelming arguments against inflationary expansion ..." . The entire article is good but that really gets to the point of inflation.
Keynesians think money grows on tree. It is true in some senses. Apples grow on tree. At the extreme, they think money is imaginary. They can print as much as they want.
Austrians think money grows from hard money. It is also true in some senses. Money is made from money. It's circular and Ponzi-like. It requires you to believe in what hard money is. Austrian thinking leads to some cult-like behaviors. At the extreme, they'd be rent-seeking their precious Store of Value. It's just as evil as the Keynesians.
Money is data (Keynesian) with some kind of illusions (Austrian). The money that we need is between the Keynesians and Austrians.
I don't hold that view. Keynesian economics doesn't make much sense to me, as a change in the value of our medium of exchange is not what creates prosperity.
Its investment in technology that makes things cheap and makes a country prosperous. Not manipulating the medium of exchange.
Austrian economics makes a lot more sense to me, although not everything they say does.
Keynesians believe that stimulating the right part of the economy will increase the speedup of recovery. When you fail to stimulate the right part of the economy that's not Keynesian economics. Most proponents of Keynesian politics are in favor of fiscal stimulus. Namely infrastructure investments and jobs programs. Where do you see this happening?
Meanwhile Austrian economics is just some meme that is anti Keynesian and doesn't even attempt to solve any problem other than get rid of Keynesian economics. This is especially telling when they are extra loud when no Keynesian economics are being done so they feel justified in their criticism.
What we have right now is closer to trickle down economics. Douse the rich in money with the hope that some drops reach the poor.
Keynesianism and Neo-Keynesianism (assuming this includes Friedman/Monetarism) dominate because their theories/proposals are, usually, based in the world and institutions that exist. Austrian economics is mostly the economics of utopia, masked by an inexplicably pessimistic tone.
The newest keynesian variant, modern monetary theory, isn't a "modern" theory of money... it's a theory of modern money systems. These aren't based on gold coinage.
Austrian macro is centred around the idea that interest rates are prices. Some people have a desire to consume now. Others have a desire to consume later, interest rates are the price they negotiate. No second order effects. No money supply. No interest in where money comes from. No money, in fact. Money is just a trade good.
There were two must-do-somethings" that "killed" Austrian economics, outside of dissident goldbug circles: the great depression & WW2. Their answer to "how do we win the war?" was "we can't, not enough money." The same applied to "how do we rebuild europe & japan?"
Meanwhile, post war economists were aware of these theories. Yet, they often observed "non clearing markets" in the form of unemployment in places where Austrian economics reckons there shouldn't exist.
I really don't get why people who call themselves 'mainstream' economists can't see or choose not to acknowledge the issues the Austrians bring up. It strikes me as quite odd. Not everything the Austrian school preaches is correct, but they do have some valid points that I would expect most smart people to understand.
To bring up just a few big ones:
Printing money and low interest rate policy of the Fed influences many things other than the simplistic lower interest rate=more spending=more growth formula commonly preached.
1) it hurts people with savings. A good example is all the retirees who have saved their whole life and now can't survive on the 1% returns their savings are generating. The Fed is supposedly helping people and business who want to borrow and can do so at low interest rates.. but that does not trickle back to pensioners who should be earning more on their capital if they were not competing with the Fed.
2) monetary expansion stimulates the economy unequally across industries and geographic regions. In the models of the academic economic departments, monetary expansion may apply equally to an economy as a whole.. In the real world short run it is a transfer of wealth from one group (wage earners, people who hold cash or low yield bonds) to another group (banks, government contractors, rich people with lots of land and stocks). Some people benefit from low interest rates and new money, but many people are hurt by those same policies.
There are quite a few other issues that Austrians seems to be correct on, but these seem to be two of the most obvious to me.
2/3rds of that article, including everything under "Deep Dive Austrian Economic School Principles", could equally describe Keynesian economics.
Economic laws are the same no matter your ideology and aren't disputable. But there's a whole universe of dynamics that are poorly understood. I think what distinguishes the Austrian school is an ideology that considers state intervention invariably negative; and separately that we should all use a gold standard. (I'm not sure how they square the passive, descriptivist perspective wrt market volatility on the one hand, with the prescriptivist preference for a gold standard.) But the arguments behind these policy preferences aren't falsifiable.
The basic argument for Keynsian interventions is reflected in Keynes' famous line, "In the long run we are all dead."[1] From a policy perspective, it doesn't matter that a free market will eventually return to equilibrium (or is by definition in a stable cycle regardless of volatility) if in the short term people are starving and will never live long enough to see better days. Keynes was railing against the gold standard and effectively deflationary monetary policy which manifestly was causing severe deprivations in Britain.
The Austrians counter that volatility is induced by interventionism. No doubt that can be true and has been true, but it's also true that intervention can reduce volatility; indeed, all forms of human organization have sought and ultimately succeeded in reducing extreme volatility. Austrian vs Keynesian seems more like a debate about normative social policies than concrete economics.
[1] Longer quote: "The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."
I greatly doubt "dozens of books", but I wouldn't be surprised if you've read a couple books and some articles that generally all agree with your preconceived ideas and your austrian leanings.
That is false. I read books from all sides, and the results of my reading greatly changed my views.
After all, you're clearly a person who think that he can point to the sky and understand economics, which is typical for armchair austrians... whereas actual economists and intelligent people generally prefer econometric data.
I have no problem with data. Because I respect data and math, I care a lot about when it is used properly and when it is not. In particular, regressions are almost always abused in econometrics, because there are far too many variables to control for, all the variables are imprecisely defined, and there is no easy to way to check the author's assumptions for a sensitivity analysis.
The federal reserve failed to be an effective arbiter of systemic risk. (something which was not even remotely in its mission statement.)
- "supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and financial system and to protect the credit rights of consumers"
- "maintaining the stability of the financial system and containing systemic risk that may arise in financial markets"
That's just nonsense. Most economists have nothing to do with the economy.
A great number of prominent economists work in official positions ( CEA, FED, the various agencies and bureaus). These economists play very major roles in regulating the economy.
Non-hedonically adjusted metrics have been studied at length and are generally be be more flawed than the hedonically adjusted metrics.
I never said straight up hedonically adjusted numbers are better. You have to use the right number for the job. For the purposes of monetary policy or investing, I would look mainly at national income statistics, asset prices, credit growth, and broad money supply growth. Maybe the Fed wasn't watching these, or maybe were and just ignored them. But all four measures were showing huge warnings as early as 2004, and had they been paid attention to, a lot of bad things could have been avoided.
That said, it's ludicrously arrogant and nonsensical to simply claim it's pure fabrications,
Calling it a "pure fabrication" is inaccurate, and a word I did not use. The CPI is the result of lots of honest hard working people, who long hours trying to boil down the economy into one number using the most accurate methodology they can. But the economists calculating the CPI do exist in a political world, and there is a selection effect for a methodology that has more generous assumptions.
But when you pile a ton of subjective assumptions together and then apply a bunch of math, the result is subjective. There are multiple semi-plausible ways to do hedonics and there is no right answer. How can you objectively measure how much percent better a 2004 Toyota is than a 1998 Toyota? The CPI does indeed have a consistent, thought out methodology. Unfortunately, it's actually in part measuring the Toyota new model roll out strategy. The Toyota model roll out strategy has nothing to do with monetary economics or investment strategy.
To you, economics is a religion, and as such there is no point in arguing with you... you point at the sky, not at the ground.
Well, I have changed my mind on many issues. I am very responsive to good arguments. In fact, I used to have exactly your position on CPI, with exactly the arguments you made. But I studied the issue further and was convinced otherwise.
I truly and honestly hope that at some point in time you'll pull your head out of your ass for long enough to realize the difference in the level of effort required to become a true expert in a field, and the level of effort required to simply become dangerous.
So what would you advocate I do if I wanted to become an expert? What defines an expert?
Keynesianism says that spending money on anything is good, no matter what. War is good, make work projects that do nothing are good, spending money on frivolous consumer goods is good, etc.
Austrian school recognizes that investing in productive capital that lowers the cost of production and resources consumed in production is actual real economic progress. For example, let's say you have an island with coconuts. If you pay everybody $100 to go out and buy coconuts, the price is going to just go up. If you pay them $100 to plant more coconut trees or make tools to harvest them more efficiently, there are going to be more coconuts and the price is going to go down. Keynesianism would say the two are equivalent economically because AD = C + I + G + (X-M) and in this equation C and I are perfectly interchangeable.
This stuff really should be called anti-Keynesianism. It's obsession with scarcity and presumption of the probabilities being well-defined (or even decidable) is completely the opposite.
> On the contrary, for economics in the context of academia (i.e. economists, rather than politicians) Keynesianism is the consensus view.
Wikipedia claims that it's been consensus among academics only since 2008, and before 2008 the consensus was the exact opposite: New Classicism and friends.
But anyway, the Economist is not aimed solely at academics and my memory of the Keynesianism there goes back further than 2008. Plus I don't know that I'd call monetarists Keynesians, per se.
Now if I understand you right. You're saying that US and worldwide financial markets have been ran by Keynesians for the last 30 years, leading to massive explosion and refutation of all Keynesian theories?
Let me guess - you also believe that Fascism and Nazism are right-wing ideologies?
EDIT: I'm no economist (barely an amateur wiki-economist): but as far as I know (read, heard) Keynes actually argued that money supply management should be "mechanically" managed - without central banks and officials who are corruptible and fallible.
For me this is economics propaganda from a mainstream economics info company, as biased as you could be.
Keynesianism is simply the idea that the people in power could avert crisis doing terrible things like printing money, which is what QE (quantitaive easing) and negative interest rates is.
Of course the people in power love to have all the power. Those people love taking automatically economic resources from you(and billions of other people) and doing things like traveling the world in their private jets fighting "climate change".
I personally know those guys. They believe you should not overpopulate the world having kids, and that you should always use public transport, while they use multiple mansions and private jets consuming more energy and generating more contaminating in a single move than thousands of families do in an entire year.
But they believe they are special and they could do it. Because they are luminaries.
Keynesianism is the dogma based in Keynes that justify, the 0.1 percent automatically taking 3 or 4 percent of the wealth of the world every single year in order to "save the world".
We have not lived yet the consequences of printing that much money. Debt has grown exponentially and this can't be sustained and it will stop.
This is propaganda for us letting them double down.
If anything, Austrian economics is a reversion to the standard theory of economics for thousands of years. The “innovation” of Keynesian economics is one of the greatest evils ever perpetuated on society. But again - what do I know - I don’t have a PhD from an Ivy. I just protect my assets in a zero-interest world by avoiding government threat.
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