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  1. #1
    Member Valis's Avatar
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    Default Austrian Economics

    After recently studying an MBA, I have become more and more interested in the subject of economics. I enjoyed the simplicity of the basic concepts, its logic and that it just 'made sense'. At the same time I also began listening to some of the alternative viewpoints over the banking crisis from people like Robert Higgs of the Independent Institute.

    I have a very basic understanding but for me, the teachings of Austrian Economics are clear and explain a lot of the problems we are now experiencing in the west. However, it seems completely at odds with mainstream economics, governmental policy and popular opinion which seems to support the idea that government should spend more to stimulate the economy.

    Is it just me that thinks this is crazy, or is there something I am missing?

  2. #2
    Dreaming the life onemoretime's Avatar
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    Quote Originally Posted by Valis View Post
    After recently studying an MBA, I have become more and more interested in the subject of economics. I enjoyed the simplicity of the basic concepts, its logic and that it just 'made sense'. At the same time I also began listening to some of the alternative viewpoints over the banking crisis from people like Robert Higgs of the Independent Institute.

    I have a very basic understanding but for me, the teachings of Austrian Economics are clear and explain a lot of the problems we are now experiencing in the west. However, it seems completely at odds with mainstream economics, governmental policy and popular opinion which seems to support the idea that government should spend more to stimulate the economy.

    Is it just me that thinks this is crazy, or is there something I am missing?
    It's best to be wary when something offers clear and simple explanations for a unfathomably muddled and chaotic system. For one, Austrian Economics only makes sense when you first accept their a priori premises. It also blurs the line of the is-ought problem.

  3. #3
    Member Valis's Avatar
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    You are right that international economics is complex, but it seems so counter-intuitive that governments should borrow yet more money in order to generate growth that will ultimately reduce debt? It seems rather like gambling with other people's money. In my opinion we are lurching towards the real crisis which will be the devaluation of western currencies and the food shortages etc that go with it.

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    Dreaming the life onemoretime's Avatar
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    Quote Originally Posted by Valis View Post
    You are right that international economics is complex, but it seems so counter-intuitive that governments should borrow yet more money in order to generate growth that will ultimately reduce debt? It seems rather like gambling with other people's money. In my opinion we are lurching towards the real crisis which will be the devaluation of western currencies and the food shortages etc that go with it.
    That's if you see money as primarily a store of wealth, rather than a means of exchange. This also diminishes the effect of demand upon the entire system.

    The biggest issue with high inflation is that creditors get soaked, while debtors get to pay off their loans for less in real terms than they borrowed. Also, if there is a labor glut like there currently is, wages will not rise commensurate with prices in the short run, as companies increase their profit margins. However, this has a self-limiting effect - the subsequent decrease in aggregate demand, as people reduce expenditures, leads to price wars and other disinflationary spirals. That's why money as a means of exchange is so important - it's not important how many dollars are out there in real terms, but how many are circulating relative to the demand for dollars.

    Many dollars that are out there are simply debt instruments, and are obliterated upon repayment of debts. With the high rates of leverage the banks have embraced, there are innumerable electronic or balance-sheet dollars out there that simply don't exist, and would evaporate from the money supply upon repayment with actual dollars. I'm not concerned about high levels of inflation because they have already happened over the last 30 years. I remain concerned that demand-side shocks will lead to a resumption of widespread defaults, the effects of which are to obliterate those debt-dollars as well. That would lead into a potentially hazardous disinflationary or deflationary scenario.

    The US government can spend because it is beholden to no one in regard to its debts (because of the enormous Dept. of Defense), and there is still demand for dollars worldwide to buy petroleum. The government might have to as well, because automation and globalization have possibly reduced the pool of available jobs in the US permanently.

  5. #5
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    Why would you ever bet against the USA?

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    FRACTALICIOUS phobik's Avatar
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    Quote Originally Posted by jontherobot View Post
    Why would you ever bet against the USA?
    http://en.wikipedia.org/wiki/Scalping_(trading)
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  7. #7
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    good one.

  8. #8
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    I would say that economics is almost entirely bullshit. Some of the theories may be relevant in extremely simple situations, or in a world with perfect information or (actually) rational actors, but by and large it just plain doesn't predict, explain, or proscribe solutions for legitimate and important economic problems. There are too many actors and many variables that we're trying too hard to fit into a simple curve, and everyone's pretending that the outliers are not also the important events.

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    Sweet Ocean Cloud SD45T-2's Avatar
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    Quote Originally Posted by dala View Post
    I would say that economics is almost entirely bullshit. Some of the theories may be relevant in extremely simple situations, or in a world with perfect information or (actually) rational actors, but by and large it just plain doesn't predict, explain, or proscribe solutions for legitimate and important economic problems.
    It's not supposed to. The classical definition of economics is the study of scarce resources that have alternative uses.

    "Virtually everyone agrees on the importance of economics, but there is far less agreement on just what economics is. Among the many misconceptions of economics is that it is something that tells you how to make money or run a business or predict the ups and downs of the stock market. But economics is not personal finance or business administration, and predicting the ups and downs of the stock market has yet to be reduced to a set of dependable principles." - Thomas Sowell in Basic Economics (third edition)
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    "I took one those personality tests. It came back negative." - Dan Mintz

  10. #10
    WALMART
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    Quote Originally Posted by dala View Post
    I would say that economics is almost entirely bullshit. Some of the theories may be relevant in extremely simple situations, or in a world with perfect information or (actually) rational actors, but by and large it just plain doesn't predict, explain, or proscribe solutions for legitimate and important economic problems. There are too many actors and many variables that we're trying too hard to fit into a simple curve, and everyone's pretending that the outliers are not also the important events.

    I feel your assessment of the situation is poor. If what you state were true, psychology would be invaluable because you cant see the mind.

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