The Lie of Capitalism and Globalization - Page 10

On January 29 2010 09:54 meegrean wrote:
Ceteris Paribus. Obviously the real world operates differently from the economic theories which operate in a vacuum. It is up to each country to adjust their economic models depending on the numerous factors they face (such as cultural issues, political situation, technological development, international relations, etc) to guide their development. Just because the US fucked up its economic development doesn't mean that other countries will inevitably fuck up theirs. Policies are going to be adjusted to make sure what happened in the US doesn't happen again in other countries. The world is ever-changing but economic theories stay the same.

I disagree that globalization and free market proponents are wrong (it's way better than communism if you ask me), but I do believe that it should be regulated by forces (government, moral, etc) to prevent the rich from exploiting the lower classes and getting too much money out of it.

On January 29 2010 08:19 ZeroJumps wrote:


A few things to start: First, while the Austrian approach has contributed significantly to economic thought, particularly in the first 30 years of the twentieth century, it is no longer viewed by economists as being significant. The major problem with the Austrian approach is its belief that it is a fallacy to apply mathematical models to Economics. They believe economic interactions are too complex to model statistically. As someone who has run a great deal of economic regressions, and used those responses to predict or prove things accurately, I can firmly say such beliefs are downright absurd. Most economists criticize the Austrian approach as relying to heavily on verbal arguments, and failing to recognize its own weak points.

Perhaps one reason you don’t believe you can have a Free-Market system without a “Sound-Commodity” currency is because you are looking at the US. The US doesn’t even make the Heritage Foundations’ top ten list of freest economies. Hong Kong is the freest economy in the world, and does not have such a currency.

For several unanswered criticisms of the Austrian approach, see: Krugman’s “the Hangover Theory” and Friedman’s “Monetary Studies of the National Bureau” and “The Plucking Model of Business Fluctuations Revisted”.




US monetary policy today is nothing like the policies of the 20’s, 30’s, and 40’s. Economics is a relatively new field, and has only recently (in the last 20-50 years) really began to make significant progress towards understanding human economic behavior. Also, your history needs a little work. The Great Depression effected the entire world, not just the US. Economists still debate the cause of the Depression. One argument is indeed that it was triggered by poor use of monetary and fiscal policy. But again, such thinking does not reflect modern economic theory. (In fact, and I find this a little humorous, it seems likely that, given how influential the Austrian approach was at the time, that it was the Austrian approach that led to the Depression). Since the Depression, the US has experienced high levels of long-term, steady growth. See: Historical National and per capita GDP.

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Interest rates are used to coordinate resources. But as for your discussion that follows? Low interest rates represent increased borrowing, or investment in physical capital, as the real cost of borrowing money has gone down (a company will build a new plant, because its cheaper, as you later state). I don’t know how this would free up capital though. It will create new physical capital though. It has nothing to do with “how far it is from the consumer”. How do you arrive at that? All business will respond to the lower interest rates, not just mining and steel companies. Wal-Mart will build more stores because interest rates are lower, car lots will buy more cars.
Higher interest rates represent MORE saving, not less. If your bank was offering 10% annual return on your money, would you save more? Of course you would. Similarly, if the interest rate is higher, you are much less likely to borrow money.
The market coordinates this allocation of capital via Interest rates as we have seen. What happens with the Federal Reserve and any Central Bank however, is that they artificially lower or raise interest rates. Justification for these lowering and raising of rates in most cases has to deal with the political ramifications.

The Federal Reserve is independent of politicians. More often than not, politicians are upset at the Federal reserve because it will not pursue the types of policies they want.



You write a lot of things here, and draw many conclusions. However, I don’t see a logical foundation or support for any of them. Statements like “can only be achieved by” are not supported in any way. And what scarce resources are you referring to? Money available for loans? I don't mean this as an attack, and I would appreciate it if you would re-write this so I could answer it more easily.

Also, there are many branches of the Federal Reserve, spread out across the country.

Finally, (again I apologize if you see this as a personal attack) you seem to be confused about the nature of a “sound-commodity currency”. I assume you mean a currency that is backed by a commodity, such that the currency has intrinsic value? Gold and silver have often been used as such commodities. However, you say such a currency cannot be inflated “at the politicians whim”. Ignoring my earlier comment about the independence of the Fed, I will instead say: Yes, it can.

When a currency is back by a commodity, the amount of money in circulation is limited by the amount of that commodity in reserve. If the government wants to increase the money supply, they simply store more gold. (its ability to do so will, of course, be limited by gold production) If it wants to contract the money supply, it sells gold. The reason such currencies don’t work is that you are essentially maintaining a fixed exchange rate with every other country that is on that standard. In addition, there simply isn’t enough of any commodity to go around. The total value of all gold EVER mined is close to $4.5 trillion. There is currently about $8.3 trillion in circulation.


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There are too many problems with this analysis to list them all. A few: You don’t have to print money to keep interest rates at 1%. Look at Japan. You don’t offer any evidence as to how sound-currency would prevent a boom-bust cycle. (The Austrian school has particular problems explaining the business cycle, read the articles I listed). Bubbles don’t arise from being “forced to speculate to recoup your loss of purchasing power”. That doesn’t make any sense at all. Bubbles occur because people historically invest at the wrong time. People see a commodity or stock rising, and invest in it, causing it to rise further than growth which caused the original rise to occur. This further growth and investment cycle continues ad nauseam until investors begin to get worried. When investors get worried, they pull their money. This is the point where the bubble breaks, as people try and retrieve their money as quickly as possible before their investment loses its value. If everyone had kept their money in, however, the bubble would not have broken. There is absolutely nothing about purchasing power, allocation of scarce resources, or any of your other statements involved in the process of bubbles.




See my earlier post. This is an extraordinarily common populist complaint, and has no merit what-so-ever. As noted earlier, inflation harms the wealthy more than other groups because of the interaction between inflation and capital gains taxes. There is no one “at the very forefront” of receiving this new money.

I read your last post before posting this, this is a response to what you wrote in that:
First, the annual inflation rate in the US has averaged about 3%.
Second, newly printed money and money put into the system from buying bonds is not localized. The person who sells the bond is receiving the money. Newly printed money is distributed to pay for any of the millions of things the government spends money on. Furthermore, inflation is not a “Oh no, they just doubled the money supply today” thing in the US. An annual rate of three percent is about a quarter of one percent per month.

The situations you describe where people are actually hurt by inflation are those of hyperinflation, where inflation can reach 300 or 3,000,000 percent per year.

Finally, you are forgetting that inflation, in the US, is not unexpected. People have already discounted the $10,000 by the expected inflation rate in your example.



I agree. But taxation is the only method of funding the government sufficiently. And, because people will free-load as often as they can, a funded government is necessary for the creation of public goods such as roads and parks.



Economists do this. Austrian economists do not. Why? Because economists use mathematical modeling techniques known as multi-variable regressions. Austrian economists eschew mathematical approaches.



This is mostly true. I will only note that calculating who bears any particular tax burden is quite difficult, as every person and every industry has every incentive to push the tax burden onto other people.



So, so true.



Again, this is mostly true. Most international economists are against the direct taxation of capital. Income tax is, as you say, an indirect tax on capital formation. But it is also necessary if you want to have a funded government.




I’m all for less regulation. But making the claim that America is a centrally planned economy? That’s plain silly.



If you examine international trade theorists (which I forgot you mostly did in the next paragraph), you would see that many economists are frustrated with the lack of progress towards free trade that is being made. There are two camps: One argues that these incremental steps are helpful, and will eventually result in true freedom of trade. The second argues such steps are detrimental, as true free-trade will be replaced entirely with these kinds of agreements (NAFTA).



In short, I agree with the idea of trying to move towards a free market economy, and I agree that it doesn’t seem like there is much progress. However, I think your belief that this results from our currency system is entirely wrong.

Thanks for reading! If you have any rebuttals or questions I would be happy to read and answer them!

On January 28 2010 04:32 StorkHwaiting wrote:
It's because morons run around trying to claim that the free market leads to increased efficiency and prosperity for all as long as everyone just makes decisions in a totally selfish manner. It doesn't. It doesn't work. The past 30 years have shown it doesn't work. It's led to disaster. The globalization and free market proponents were wrong. They did nothing but justify selfishness as a good thing.

On January 29 2010 10:51 Yurebis wrote:
Rothbardian you the man.

I think all of this stupid discussion could have been avoided if people weren't so indoctrinated to a statist paradigm where we got to rely on the elitists to tie our shoelaces, to give us food, make the grass grow, etc.

Capitalism, free market isn't a nasty monster that's going to come out from under your bed and eat you, damnit. Capitalism = free people working voluntarily. Anything other than capitalism has to be forced intervention. Be it a democratic government, a dictatorship, communism, whatever it is, if it's not voluntary, guess what, it's central planners telling you what you can or cannot do.

Shit guys, I got the perfect economy solution right here. I do whatever the fuck I want with my money, you do whatever you want with yours, and no one forces the other one to do anything, ok? Can we settle on that or do we have to be perpetually arguing over who has the better plan for everyone else?!? Fuck.

On January 29 2010 10:55 StorkHwaiting wrote:


What if I want to use my money to buy a bomb to blow up your business so that my business next door is more profitable?

On January 29 2010 10:56 Undisputed- wrote:


How anyone can take you seriously is a mystery, you are such a troll and this whole thread is nothing but flame bait.

On January 29 2010 10:55 StorkHwaiting wrote:


What if I want to use my money to buy a bomb to blow up your business so that my business next door is more profitable?

On January 28 2010 06:34 Jazriel wrote:


This is wrong. Please choose the correct definition of Capitalism if you're going to discuss it.

On January 29 2010 10:55 StorkHwaiting wrote:


What if I want to use my money to buy a bomb to blow up your business so that my business next door is more profitable?

On January 29 2010 10:55 StorkHwaiting wrote:


What if I want to use my money to buy a bomb to blow up your business so that my business next door is more profitable?

On January 29 2010 11:09 Rothbardian wrote:


That would be punished via you paying for the damage you did to anothers property. Not only that, but people would be disinclined to shop at your business. Advocates of Market-Anarchy, or Laissez-Faire radicalism, advocate for this, in the general broadest sense:

On January 29 2010 08:16 WWJDD wrote:
Globalism and Capitalism with no regulations will give you price fixing, sweatshops, child labor, environmental damage (causing cancer on a massive scale (lookup asbestos, or the lawsuit against Exxon Mobil by indigenous people in Ecuador) or coal sludge or nuclear waste), prostitution, human trafficking, dumping, organ trade (lookup organ trade and India), war (the most profitable business known to mankind), terrorism (in response to exploitation), disease (massive amounts of movement of people and food products will always give you more disease) and the rise of robber barons who will siphon money into corporate tax havens like mailboxes in the Caymans or Swiss bank accounts to evade taxes. The only tool the little man has to stop theft on such a large scale is a strong regulatory authority in the form of a government regulatory body that is accountable to it's people. Sadly, corporations the world over have bought large parts of the governments everywhere and we are all screwed.

First and foremost let me say, that to throw away the wealth of knowledge of the ages is such a travesty and arrogance of the first order I cannot comprehend the mindset one must be in to tell 500 years worth of Economic history and theory that they were all wrong, too stupid, all because you believe Economics is rooted in the minutia of math (Now, I'm not saying this as a personal attack on you, but your actual School of Thought)

When talking Economics you cannot use any model to correctly predict human behavior. It is impossible. IS-LM is a farce of the highest order

I would really enjoy it if you could read this book and post your critique. I will let this book do my talking as it is one of the best Austrian demolitions of Keynesianism and the rest of the interventionist Schools of Thought (Monetarists et. al).

let me hit on your interest rate fallacy.

The point of the interest rate is to incentivize savings and to discourage loans (Who would take out a loan at 12% for instance?). Why do they do this? Because the banks do not have the funds to loan at 1, or 3, or 7% interest rates. Lower interest rates tells the market that there is more savings because there is more capital freed up. As a rule, resources are scarce. Interest rates are there to coordinate markets. They specifically tell entreprenuers when to invest in capital projects and when not to. Again, I don't want to get into the cycle again. but interest rates are paramount!

Any artificial intervention in the interest rate is necessarily the largest market intervention because interest rates are the key to the whole market.

Again I must point out your inflation fallacies.

And let us go one step further, since you believe that hyper-inflation is bad (It's correct definition being 50% or more annual inflation), what is the difference between 50% inflation and 12% inflation?

I also must ask how do you explain Stagflation? How do you explain 19th Century deflation correlating to the largest growth ever in Human history? How do you explain the 1921 recovery? How come Bernanke, Samuelson, and Krugman pointed to sound fundamentals in 2007 and how come your models could not account for human behavior even a few months before the crash? How come the Austrians did, and have done so in the past? How many times do you have to get it wrong, and Austrians get it right before you start to accept our theories?

On January 29 2010 11:33 ghrur wrote:


This is under the assumption they have such knowledge.
Most cases, we, as a population, do not have such knowledge. =/
Problem with Capitalism, we don't have perfect information.

Let us look at a scenario between a doctor and a patient. The patient needs a treatment, and while it may not necessarily be now, it must be sometime. The patient doesn't know how much a surgery will cost, it could cost $10, it could cost $1,000,000, they simply do not know. After all, how could they? Also, they do not necessarily know the quality of such a product. Could this doctor be a good surgeon, or does his patients usually suffer unusually long times of pain? You say the patient might know from the amount of customers, but how would they find out? Do they stand outside the door all day long? Either way, the opportunity cost of searching up such information could be higher than the gain from knowing it, and furthermore, such information might only be attainable under the loss of a substantial amount of money. So, how would the patient decide whether or not to get this surgery? They could move on, but do they know anymore? This lack of perfect information skews the results of the market, and gives much more than "equal" power between consumer and supplier.

On January 29 2010 11:42 Yurebis wrote:


The state doesn't have perfect information either... in fact they have a lesser incentive to, because the business to which they attend are not their own, but of others they may never meet or come face to face with.

May I propose that the question should be not "whether you can make the right choices?" but "who has the best incentives to make the right choices?" plus "right choices for who?"