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  1. #51
    Senior Member matmos's Avatar
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    Quote Originally Posted by ajblaise View Post
    To understand the debate it helps to know the two main schools of economic thought people are coming from. Here is a short outline of Keynesian economics and the Austrian School:

    Keynesian economics: Followers tend to be liberals and Democrats. Got popular after WWII. Based on macroeconomics. Criticism from the Austrian School is that it leans too close to collectivism and central planning. Favors mixed markets that allow for some government oversight, intervention, and regulation. Keynesian economics - Wikipedia, the free encyclopedia

    Austrian School: Followers tend to be conservative, libertarians, and Republicans. It rejects empirical observation and mathematical/statistical methods and for that reason critics say it lacks scientific legitimacy. It follows "verbal Logic". Fell out of some favor after WWII. Free-market. Laissez-faire. Austrian School - Wikipedia, the free encyclopedia
    Quite right. Well said.

    What we have here is everyone concentrating on the guys that messed up and ignoring anyone that seemed remotely in the right ball park. Reminds me of this:

    SIR I was surprised that you did not mention the Austrian school of thought. Economists trained in the Austrian framework recognised early on that the recent boom was induced by rampant credit and money creation rather than sustainable economic growth, and correctly predicted the inevitable bust. Why spend so much time focusing on the economists who got it wrong while ignoring those who got it right?

    Rich Toscano
    San Diego

    : On economics, gambling, Ecuador and Colombia, American politics | The Economist

  2. #52

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    Quote Originally Posted by reason View Post
    In a nutshell: the Great Depression was a "perfect storm" of political errors.

    While the Austrian school is right about the cause of the recession, the Chicago school is right about what turned the recession into a depression. Meanwhile, the Keynesians aren't right about anything (though they get close in a couple of places).
    First of all, the Chicago School didn't exist during the depression. The only school of economic thought that predicted the Depression was Keynes himself. Are you saying you would prescribe monetarist solutions to our CURRENT economic crisis? Do you know what I mean, when I say monetarists are the inheritors of the neo-classicals?

    Do you study economics at all, do you even understand the basic math in econ equations?

    Most undergraduate depts can't even teach it (monetarism) ; because most students don't understand regression analysis or multi-variable calculus.

  3. #53

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    Quote Originally Posted by meanlittlechimp View Post
    Most libertarians eschew monetarist solutions, because of the notion of less government interference. You're going to interfere either way, whether through fiscal stimulus or increased money supply, it's just which poison (I also agree you shouldn't interfere unless you have too, but when monetarists interfere, the general public doesn't notice).
    .
    I meant to say evangelize, not eschew.

    Just reread it and realized it made no sense. That's what I get, for posting tipsy.

  4. #54
    Senior Member lowtech redneck's Avatar
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    Quote Originally Posted by meanlittlechimp View Post
    The only school of economic thought that predicted the Depression was Keynes himself.
    I'm fairly sure that F. A. Hayek predicted it, though I suppose there is some controversy as to whether or not he qualifies as "Austrian."

  5. #55
    Order Now! pure_mercury's Avatar
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    Quote Originally Posted by lowtech redneck View Post
    I'm fairly sure that F. A. Hayek predicted it, though I suppose there is some controversy as to whether or not he qualifies as "Austrian."

    Hayek was more accomplished as a sociopolitical theorist than a straight economist, IMHO. He certainly wasn't a Misesian/Rothbardian anarchocapitalist Austrian economist.
    Who wants to try a bottle of merc's "Extroversion Olive Oil?"

  6. #56

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    Quote Originally Posted by lowtech redneck View Post
    I'm fairly sure that F. A. Hayek predicted it, though I suppose there is some controversy as to whether or not he qualifies as "Austrian."
    Hayek, did not, none of the neo-classicals did.

    Trust me.

    No neo-classicals or monetarists even attempt to claim he did. I personally think all econ majors should read economic history BEFORE getting caught up in the math.

    Though you eventually should, you just shouldn't start with it. Seeing the trends in context gives one a much better lens to see these supposedly new theories, which aren't really new.

    I highly recommend this book Amazon.com: A History of Economic Thought (9780819569387): William J. Barber: Books; though his more recent work gets more popular appeal with laymen.

    Don't get me wrong, I still have the utmost respect for Hayek, as an innovative economist. Aristotle was mostly wrong with his wacky scientific notions; but he helped lay the groundwork for future debate, and obviously was a great mind.

  7. #57
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    Quote Originally Posted by reason View Post
    In a nutshell: the Great Depression was a "perfect storm" of political errors.

    1. Inflation during the "roaring twenties" set the economy upon an unsustainable growth path.
    2. When inflation ended widespread malinvestment was discovered.
    3. A Financial panic produced a "rush to liquidity."
    4. The Federal Reserve should have increased the money supply, but it did not, and a steep deflation started to clear the market.
    5. A "delfationary spiral" set in, and was exacerbated by calamitous legislation from both the Hoover and Roosevelt administrations.
    6. The end of World War II saw a return to normalcy -- prices and money supply had (finally) adjusted, and much of the deleterious legislation of the thirties came to an end.
    The root of the problem was the Federal Reserve: it set the economy on a collision course in the twenties with inflation, and when the economy crashed it made matters even worse by throwing away all the fire extinguishers. Although the Hoover and Roosevelt administrations -- in their seemingly infinite conceit -- poured gasoline onto the inferno, they were more like malicious bystanders than incompetent drivers.

    While the Austrian school is right about the cause of the recession, the Chicago school is right about what turned the recession into a depression. Meanwhile, the Keynesians aren't right about anything (though they get close in a couple of places).

    The underlying structural problem in the economy is the absence of a free market in banking and money, because that is the only way we'll get good monetary policy. For more, check out two economists: Lawrence H. white and George Selgin. Although both are associated with the Austrian school, they are somewhat detached from that community and look more favourablly upon the Chicago school.

    And, ygolo, I'll post a more indepth analysis about free banking soon. Once you understand free banking, you'll understand the effects of central banking much better.
    Another ideologue. Keynes was one of the few who got it right. It's market fundamentalist ideologues who got it wrong. No one held a gun to the bankers' heads and said, "you must allocate resources into housing beyond people's ability to pay and into the securitization of bogus debts." No, there were more productive areas to concentrate resources, but then again banks are not by definition efficient nor can they be. It is a known fact among economists that markets are inefficient. For one, there are inevitably asymmetries of information as Joseph Stiglitz points out. And, moreover, certain costs are externalized. As Chomsky put it, if I sell a car to you, we're not taking into account the cost it has on others, such as pollution, which has health costs in the billions and is often incurred by taxpayers who end up paying that cost. It is only a pseudoeconomists who dismisses these realities. The real economist understands that there is no such thing as a free lunch. There is always a cost, and often many.

    Unfortunately, market fundamentalism has been the dominant ideology for the last 30 years since the breakdown of the Bretton Woods system in the 70s and rise of neoliberalism spearheaded by Thatcher and Reagan in the 80s. Thus, it's not surprising that people still hold these beliefs dear, and rewrite history in a way that conduces to market fundamentalism, despite empirical evidence that contradicts the dogmatic assumptions of the theory.

    I will be writing a long and thoroughgoing answer to this thread that starts from Smith's publication of The Wealth of Nations of 1776, through John Maynard Keynes' General Theory of Employment, Interest, and Money (1936), to the resurgence of market fundamentalism embodied in the Chicago boys, Friedman, and so forth. I will also be debunking this person's post point by point.

    In the meantime, there are basically two main theories of depression economics. One stems from the market fundamentalist camp and was pursued in the recession of the 80s under Reagan. This camp holds that you get out of a depression by draning money out of the economy and balancing the budgets. We saw interest rates soar, as did unemployment (which is an underutilization of human resources). The Keynesian way out of a depression is that a state can spend their way out of a depression. How? By adopting a macroeconomic policy in the form of a stimulus package designed to stimulate aggregate demand. It is typically in infrastructure because (1) it's generally good for society (2) people who work in infrastructure are likely to consume most--if not all--of their income. As jobs are created, these people will be able to spend more, go out to dinner more often, and buy more things. Because of this, supply is stimulated, which can now hire more people to meet the increased aggregate demand, and essentially the Keynesian policy has a multiplier effect. Then, when times are better the government can balance the budgets, raise the interest rate to refill the government's coffers. This is what Obama, China, Britain, France, Germany, and others are trying to do right now. And so far it has been relatively effective, and in many cases the packages haven't yet been fully implemented, not to mention the multiplier effect. The question many investors have, then, is since these governments are spending money they don't have eventually, so it's thought, it will have to be paid back. This will require a source of revenue, either in taxes and/or foreign aid. It will mean raising taxes. If taxes are raised economic logic will drive international investors to take their money abroad, which will cause the particular state's currency to collapse--and by extension its real economy. This is why while some, including myself, acknowledge that in the short-run the macroeconomy will continue to grow, these policies could just be prolonging another economic contraction (and for other reasons as well). Yet, it's impossible to talk about this without discussing the politics and history of it. Many forget that Stalin and Hitler grew out of the depression. In fact, in 1933 the Nazis were democratically elected. The point is that if the people are unemployed, miserable, and resentful, these forces bring rough pitbulls to power who have historically been despotic. In the Great Depression we saw unemployment get as high as 25 percent in the US. How bad does it have to get before people say it's time to step in and stimulate the economy before rough beasts come to power that most these days can't--and don't want to--imagine? Some people think Obama is that beast. He isn't. Don't step in with a policy and let unemployment go to 25 or 30 percent and you will see the sleeping beast rise. People love democracy until they can't feed their kids, at which point they will opt for a strong-arm solution if they believe it will put more food on the table. This is a historic fact.

  8. #58
    Senior Member reason's Avatar
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    Provoker,

    If you want to write about economics, then do so, but don't pretend to "debunk" my post "point by point," because judging from the above, you don't even understand my position, (which, I assure you, does not fit into any of the pidgeon holes you imagine to be the only choices).

    Regards,
    Lee
    A criticism that can be brought against everything ought not to be brought against anything.

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