3) If privatization and deregulation is so beneficial why was Naomi Klein (in the 'Shock Doctrine' ) able to find so many (well-researched) examples, in a variety of countries, where such programs resulted in impoverishment for the majority of the population and only benefited small business elites? Why was it necessary for many of the countries who pushed such programs to kidnap and torture trade unionists and others who opposed such measures and why were the measures often introduced in very undemocratic ways (ie in Chile after a military coup)?
I'm sorry. I was reading your questions and took them seriously until I read this. I'll engage in ad hominem here and just say that Naomi Klein is the most BS leftist w*o*e (fill in the blanks) on the face of the earth. Her backtalking Milton Friedman is one of the most disgusting things I've come across in my entire life.
To answer your questions I'll just take a shortcut and claim that free market reforms have been successfull where they have been applied. This includes Sweden, USA, India, China, Hong Kong, Japan, South Korea and so on.
I don't get how you can't see that some of your examples are just kind of... irrelevant. If a nation has a state controlled railway infrastructure and then sell it to a company, there's no guarantee whatsoever that the company will perform good.
That said, I don't think there is any one perfect system. And I really don't think there are that many people who believe in total deregulation and laissez-faire. What most people should be able to agree on is that concentration of power is bad.
Besides, the finance industry was already regulated. There were already thousands of regulators on Wall Street and yet they couldn't see it coming. So what makes you think that further regulation would do any good? It might seem the most easiest solution; but does it actually work?
3) If privatization and deregulation is so beneficial why was Naomi Klein (in the 'Shock Doctrine' ) able to find so many (well-researched) examples, in a variety of countries, where such programs resulted in impoverishment for the majority of the population and only benefited small business elites? Why was it necessary for many of the countries who pushed such programs to kidnap and torture trade unionists and others who opposed such measures and why were the measures often introduced in very undemocratic ways (ie in Chile after a military coup)?
I'm sorry. I was reading your questions and took them seriously until I read this. I'll engage in ad hominem here and just say that Naomi Klein is the most BS leftist w*o*e (fill in the blanks) on the face of the earth. Her backtalking Milton Friedman is one of the most disgusting things I've come across in my entire life.
To answer your questions I'll just take a shortcut and claim that free market reforms have been successfull where they have been applied. This includes Sweden, USA, India, China, Hong Kong, Japan, South Korea and so on.
I don't get how you can't see that some of your examples are just kind of... irrelevant. If a nation has a state controlled railway infrastructure and then sell it to a company, there's no guarantee whatsoever that the company will perform good.
That said, I don't think there is any one perfect system. And I really don't think there are that many people who believe in total deregulation and laissez-faire. What most people should be able to agree on is that concentration of power is bad.
Besides, the finance industry was already regulated. There were already thousands of regulators on Wall Street and yet they couldn't see it coming. So what makes you think that further regulation would do any good? It might seem the most easiest solution; but does it actually work?
Lol nice post. I mean it's total crap, but nice in the sense that it shows you to be an ignorant idiot.
How's that for an ad hominem?
Let's keep this civil, please. We've been doing well so far. Just because someone doesn't agree doesn't make them stupid.
3) If privatization and deregulation is so beneficial why was Naomi Klein (in the 'Shock Doctrine' ) able to find so many (well-researched) examples, in a variety of countries, where such programs resulted in impoverishment for the majority of the population and only benefited small business elites? Why was it necessary for many of the countries who pushed such programs to kidnap and torture trade unionists and others who opposed such measures and why were the measures often introduced in very undemocratic ways (ie in Chile after a military coup)?
I'm sorry. I was reading your questions and took them seriously until I read this. I'll engage in ad hominem here and just say that Naomi Klein is the most BS leftist w*o*e (fill in the blanks) on the face of the earth. Her backtalking Milton Friedman is one of the most disgusting things I've come across in my entire life.
To answer your questions I'll just take a shortcut and claim that free market reforms have been successfull where they have been applied. This includes Sweden, USA, India, China, Hong Kong, Japan, South Korea and so on.
I don't get how you can't see that some of your examples are just kind of... irrelevant. If a nation has a state controlled railway infrastructure and then sell it to a company, there's no guarantee whatsoever that the company will perform good.
That said, I don't think there is any one perfect system. And I really don't think there are that many people who believe in total deregulation and laissez-faire. What most people should be able to agree on is that concentration of power is bad.
Besides, the finance industry was already regulated. There were already thousands of regulators on Wall Street and yet they couldn't see it coming. So what makes you think that further regulation would do any good? It might seem the most easiest solution; but does it actually work?
Lol nice post. I mean it's total crap, but nice in the sense that it shows you to be an ignorant idiot.
How's that for an ad hominem?
Let's keep this civil, please. We've been doing well so far. Just because someone doesn't agree doesn't make them stupid.
I apologise. His response of "Naomi Klein is a BS leftist whore, and thats all I'll say about that" made me see red.
On January 30 2010 00:39 SWPIGWANG wrote: While there are certainly problems with market economies involving abuse of market power, I can not agree with what the author is talking about.
Are you telling me that you'd return to a protectionist, non-trading world because AMERICANS don't get paid absurd amount of money for blue collar work anymore? (eg. car production)
The world is a big place, and you'd rather wipe out the economic growth of China and India, which had its income more than double in the past two decades? You'd rather leave them unemployed subsistence farmers that can't afford anything better than a hand built hut? I guess they don't matter because they aren't 1st world persons and thus of no concern. (are the yellow man even human?) Now you could take a leaf out of some radical left's play book and say that yes, they'd be better off being subsistence farmers over the dirty and hard work in a sweatshop. However, the workers inside obviously disagree and have shown their disagreement with direct action.
Arguments that automatically define Americans as more worthy of high wages that is not earned by merit compare to the rest of the world is not one I or any reasonable person can support.
If you want to make more money, simply be better and produce more and better shit. Blaming other people for working harder while demanding less is just plain simply absurd.
How can such racist and nationalist views be moral?
-------------------- I'm not going to talk about monopolies and such since it is a recognized and worked upon problem. The whole thing about investment is based on appeal to emotions too, since companies do invest in new technology and products despite how much the top of their management gets paid sometimes.
I'm sensing a lot of angry Asian man syndrome here. Would it make you feel better if I told you I'm Chinese?
And there's nothing wrong with wanting to keep jobs in the country. How many people would be happy about losing their job just because it let someone else feed their family? I don't think you understand the role of government here. It's not to make Chinese and Indian nationals better off. It's to make Americans better off. Why the hell would I want my tax dollars and my patronage to pay for jobs overseas?
All in all, your accusation of racism is pretty ridiculous.
I took quotes from many different posts this time: Having spent more time reading about the Austrian school of Economics, Austrian Business Cycle Theory and watching the embedded videos, I have to agree with:
And this is one of Austrian Economics great failings. It´s closed logical system where everything fits, very much like Marxism. And, like Marxism, it has very little to do with reality.
This criticism of Austrian comes up again and again from mainstream economists. There is no empirical evidence, let alone any solid empirical work (no, articles in the Journal of Austrian Economics don’t count as solid empirical work) to support ABCT.
Go on Youtube and type in: Peter Schiff was Right I liked how so much of his rhetoric is belief based instead of evidence based
.
Peter Schiff to me is very representative of the argument style put forth by the proponents of Austrian theory here on TL. He makes a lot of statements that sound good (and say many things I agree with), but does not back them up with solid evidence. Its one thing to say: “The recession is the central bank’s fault for holding interest rates artificially low”, and quite another to prove it.
Austrian Economics is Praxeological. We do not derive our theories from statistics, but from logic and reason. Value is subjective. Man acts on his evaluations. GDP and other aggregate measures of economy do not account as to what is happening to each men. You cannot aggregate happiness after all, as you said.
Maybe I am missing something big. But to me, praxeology seems essentially identical to what is assumed in mainstream economics (Rationality).
Furthermore, saying statistics is neither logic nor reason is ridiculous. The careless way you dismiss econometric work makes me wonder how much, if any, experience you have with it.
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
Then why are you yourself apparently so dismissive of mainstream economic thought? I also wonder how much experience you have with this too. This may seem like an attack, but I assure you, it isn't. You seem very well read, and to have an inquiring mind (and you post sources for me to look at!). It just that I, having had a education firmly grounded in mainstream economics, cannot so readily dismiss it. Did you receive an economics degree based in mainstream economics? Did you later shift to the Austrian school? Or is the study of economic theory something you pursue in your own time? I would be interested to learn how your beliefs on this came to be.
(To preempt your inevitable follow up question, I have a B.A. in Economics from a top, private, liberal arts school. (Doesn't everyone on the internet? Take it or leave it I guess...) My primary course of study focused on international trade and international macroeconomics. The views espoused in these courses were consistent with current mainstream thought. I took many classes in mathematics, statistics, and econometrics, to ensure that a graduate program in economics remained an option. Since graduating, I have instead decided to pursue law instead of economics)
Oh, let me hit on your interest rate fallacy. Again I must point out your inflation fallacies I will quickly quip though, that you still do not understand the foundational basis for interest rates, and how they are calculated. The easiest thing to know about interest rates, is that it is both an incentivization tool, and a coordination tool for entreprenuers
My “fallacy” is to view interest rates and inflation rates in the same manner as the majority of other economists in the world?
Your fallacy is not understanding the Cantillon Effect. I have put the links in my post there for you, from both Cantillon and Mises.
As for the Cantillon Effect(s), there are many instances in mainstream economic thought where government intervention is seen as a bad thing. I think the reason Cantillon Effects aren’t taught as “Cantillon Effects” is that he argues any government intervention in interest rates is bad. (whereas mainstream economic thought argues only using the type of policy is bad).
Econometrics which is all statistics, cannot be a basis for a theory. You cannot explain an event using statistics. I think everyone knows the quip about statistics. In the general sense, statistics cannot tell you what caused the statistics, in that, you cannot derive for example, the subjective marginal utility of one person from another on a simple formula.
What is your background in statistics? Statistics can be used as the basis for a theory. You can very easily explain events using statistics. To say otherwise is patently absurd. Running the simplest economic regressions provides proof that statistical analysis has a great deal of value. Without statistics and modeling, there is no way to determine whether a given theory has merit in the real world. (Many economic theories have merit theoretically, but fail miserably at producing an accurate portrayal of the world)
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.
This argument strikes me as similar to the way Peter Schiff speaks. That is, with making use of any empirical evidence. It isn’t just me that is rejecting your theories, but the collective body of mainstream economic thought. I think the most convincing argument against the Austrian School is that it is NOT part of mainstream economics. The leading economists in the US are extraordinarily brilliant people. Almost certainly more intelligent than either you or I. That they don't believe in the Austrian School suggests strongly to me that it is fundamentally unsound. If the Austrian School were as correct as you make it out to be, don’t you think its ideas would have been accepted by the best economists?
Also, you fail to realize that many other economists, outside of the Austrian School, have also predicted these events. It appears to me that you are engaging in selective sampling (but, of course, statistics aren’t logical).
Finally, you seem to have ignored my links to articles criticizing the Austrian school of thought.
So, perhaps instead of reading them you could answer the following: (it would help if you could provide a clear explanation for each, rather than one or two sentences)
1. How does the Austrian school explain the co-movements of investment and consumption? To me it appears as though ABCT implies changing levels of investment, but not changes in production decisions.
2. It seems to me that investors in ABCT must necessarily be irrational. To invest in the manner suggested by ABCT they must necessarily ignore expectations about the future, and invest solely based off of CURRENT interest rate signals. Do you agree or disagree?
3. How do you explain empirical results suggesting that no tendency for entrepreneurs to respond to lower interest rates by reallocating resources between orders of goods need exist? (The paper is in the SSRN, so I don't know that you will have access, but see: "Some Capital-Theoretic Fallacies of Austrian Economics" by Vienneau.
4. What is the Austrian response to Friedman’s empirical work testing the validity of ABCT? He finds, once in 1969, and again in 1993, that the ABCT is false.
5. What is the Austrian explanation for business cycles before the creation of the central bank?
6. What about the belief that, since the use of modern Monetary Policy, the business cycle has become less severe in its ups and downs? The historical graphs showing this has indeed occurred?
7. Lastly, I would be interested to hear what the Austrian School’s response to empirical evidence regarding the welfare of nations. More specifically, that those countries with interventionist central banks, high taxation, and large welfare states have historically outperformed those countries without them.
8. I am still uncertain as to the current Austrian view of money. It seems like some Austrian economists view money as neutral, while others do not. Could you tell me what the current Austrian view on money is?
9. Austrian theory hinges on the presence of a reserve fractional banking system. Can you say, in all honesty, that this system is bad? Consider how excruciatingly difficult it would be for any person or company to receive a loan. In particular, how would large projects ever receive funding?
You also didn’t reply to my criticisms of the gold standard:
10. There is much less gold than currency today. If you eliminate fractional reserve banking, and tie money to a gold standard (or any other commodity) the value of gold will necessarily skyrocket. This would limit its use in current applications and goods. Do you not see that as a problem?
11. I understand that Austrians wouldn’t bemoan a central bank deprived of its ability to conduct Monetary Policy, but what do you say to claims that the gold standard exacerbated the Great Depression by limiting the ability of the bank to expand credit? Please respond with something more than “the Great Depression occurred because the Central bank kept interest rates too low in the 20’s” (that is my problem with Peter’s arguments...)
12. The Austrian school would prefer to have monetary policy determined by the rate of gold production? A rate that is so unpredictable? (consider that gold production is dependent on finding sites to mine it, and the discovery of a new mining site would constitute a large shock).
13. To end with a question more oriented toward you: Why do you think Austrian Economic thought is not mainstream? Why do so many economists reject it? If it really explained things well, don’t you think it would have been accepted?
I know that's a lot of questions, and perhaps some of them may seem obvious or dumb, but I would appreciate it if you could answer them.
In short: I agree with a great deal of the things I have read and seen so far regarding the desired end results. I think Peter is correct that we need to stop spending and increase the savings rate. I agree that more legislation is usually the wrong course of action to take. I agree that competition and failure are necessary and beneficial to the system.
What I disagree with is the method for getting there. I don’t believe ABCT provides a credible solution.
On January 29 2010 20:47 The Storyteller wrote: While I don't think all of OP's arguments are wrong per se, I think the majority of them are simplistic.
Some of them, like the issue of dumping and monopolies having unfair advantage, are already recognised by pragmatic governments which have anti trust laws and anti dumping laws in place. I don't think there's a whole lot of argument there.
Others are superficially correct, but ignore the other side of the argument. For instance, this whole argument that a good company will become a monopoly and then have inefficiencies. That is a fact. But what he doesn't say is that when the inefficiencies get bad enough, other (smaller!) companies find an opening to compete. Some industries are seen as harder to compete in than others because of the high barrier to entry (railroads, telecoms etc.). However, technology is helping that case.
For instance, India's fixed line telecommunications market is pretty much monopolised by a state run enterprise. That monopoly leads to inefficiency, as OP pointed out. However, India's mobile phone market is one of the cheapest and fastest growing in the world, because small private companies saw a way to exploit the inefficiencies of the fixed line monopoly. It was made possible through technological developments, which in a way are also spurred by inefficiencies in the capitalist economy.
Another example of a simplistic argument is that American workers have to compete with low paid Chinese workers, while ignoring the fact that the vast majority of Americans are very happy to buy cheap made in China products. Nobody's forcing them to do it. They do it because they like it. I don't think banning Chinese imports would make a lot of Americans very happy. I could just as well say, what's the use of having a job when you can't afford to buy anything?
Besides, you're pretty much saying, "these guy want to work in comfortable conditions, want short working hours and want a lot of money. And I don't want you to employ that other guy who's willing to bend over backwards to make you happy" Forget about the average American, Goldman Sachs wouldn't employ someone who said that! Heck, you wouldn't even get married to someone who said, "I'm fat because I don't want to work out, I'm poor because I don't want to work and I want you to support me. Don't go for that other girl who's rich and'll give you a blow job every other day."!
OP also ignores the fact that America has benefitted greatly from globalisation in the export department. It's exported its entertainment, its manpower, its technology, its weapons, its aeroplanes and a whole bunch of other stuff that require highly skilled American labour that other countries just can't compete with. However, the fact that the whole world buys certain products from America provides more employment for American workers. And these are blue collar workers, mind you, working to put together Boeings.
There are many more simplistic arguments, I won't go through all of them because I don't have time. However, for a more balanced view I would suggest the OP read "Economics - Making Sense of the Modern Economy", edited by Simon Cox and published under the Economist label. For an easier read I would suggest "The Undercover Economist" by Tim Harford.
Ultimately, nobody denies that pure capitalism does not work. As many have pointed out, you can have state intervention to curb the worst excesses and still have a well functioning state. You need, for example, the state to set aside money for things that benefit the entire population, but which most are too short sighted to support (roads, telephone networks). You also need the state to set aside money to pay for things that don't generate income per se, but which are necessary for a state to function (police force, army, education).
However, the reasons for pure capitalism not working are not many of those OP lists, and his vague notion that "we need change" is no solution either.
Thanks for taking the time, Storyteller. I'd agree with your analysis that my OP was simplistic.
On monopolies, I wanted to illustrate how the rhetoric of free market was inherently wrong. Like you said, a pragmatic gov't knows these things are a danger and takes regulatory steps to stop it. BUT, as this thread has already shown, there are a lot of people out there who don't think there's anything wrong with monopoly or think that no monopoly could ever exist for long.
Also, when you look at the banking industry now, you see a trending towards monopoly. If it weren't for this crisis, people would still be clamoring for more deregulation, more free market principles etc. It's only now with the populist outcry that Obama is making noises about breaking up banks so that they can't be "too big to fail." That's why I think the rhetoric of deregulation and free market are very dangerous. Hence, why my OP highlighted monopolies as a very real danger. The Libertarians obviously completely disagree with my views.
On, smaller companies entering the market to compete, the problem I see with that is the monopolizing entity can create huge barriers to entry. So, even if they're inefficient, they can just kill the competition from ever entering. This doesn't happen on it's own of course. There is a relationship here between the monopolizing entity and the government. With the recent strike down of the McCain-Feingold law, this opens the doors to corporations interfering in government. Therefore, the monopolizing entity can use the government as a tool to increase barriers to entry for competitors. So, while they will be inefficient, this does not mean they are inefficient to the point of being dysfunctional. They still generate a profit--a massive one due to monopoly--and can then utilize some of these resources to keep the industry closed to competition.
An easy example to use would be your India example. Cell phones broke up that monopoly, but that didn't occur by better efficiency, it was caused by technological progress. What if the monopolizing company had instead caught on to the possibility of cell phone technology and used their money to bribe the government into awarding them sole rights to cellular tech within their borders? They would then make it impossible to break the monopoly. While one can say "that wouldn't happen though," I have seen it happen several times exactly that way. A monopoly, which uses its money to garner government support to maintain their monopoly.
In the end, I think you misinterpreted the point of my OP. It was not to say that capitalism is evil. It was to say the political rhetoric of deregulation = efficiency is bad. AKA The Republican crap being espoused currently in mainstream America. Government = inefficient and terrible. Private sector = best.
The problem is the Republican rhetoric is so screwed up because they don't believe in Austrian economics like Rothbardian is espousing, instead they want the current mixed economy just with no taxes on the rich and no regulation of what private corporations do, while keeping all kinds of government subsidies and incentives for themselves. Which is, in essence, nothing but the complete rape of the middle and lower classes.
On January 30 2010 05:15 ZeroJumps wrote: I took quotes from many different posts this time: Having spent more time reading about the Austrian school of Economics, Austrian Business Cycle Theory and watching the embedded videos, I have to agree with:
And this is one of Austrian Economics great failings. It´s closed logical system where everything fits, very much like Marxism. And, like Marxism, it has very little to do with reality.
This criticism of Austrian comes up again and again from mainstream economists. There is no empirical evidence, let alone any solid empirical work (no, articles in the Journal of Austrian Economics don’t count as solid empirical work) to support ABCT.
Go on Youtube and type in: Peter Schiff was Right I liked how so much of his rhetoric is belief based instead of evidence based
.
Peter Schiff to me is very representative of the argument style put forth by the proponents of Austrian theory here on TL. He makes a lot of statements that sound good (and say many things I agree with), but does not back them up with solid evidence. Its one thing to say: “The recession is the central bank’s fault for holding interest rates artificially low”, and quite another to prove it.
Austrian Economics is Praxeological. We do not derive our theories from statistics, but from logic and reason. Value is subjective. Man acts on his evaluations. GDP and other aggregate measures of economy do not account as to what is happening to each men. You cannot aggregate happiness after all, as you said.
Maybe I am missing something big. But to me, praxeology seems essentially identical to what is assumed in mainstream economics (Rationality).
Furthermore, saying statistics is neither logic nor reason is ridiculous. The careless way you dismiss econometric work makes me wonder how much, if any, experience you have with it.
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
Then why are you yourself apparently so dismissive of mainstream economic thought? I also wonder how much experience you have with this too. This may seem like an attack, but I assure you, it isn't. You seem very well read, and to have an inquiring mind (and you post sources for me to look at!). It just that I, having had a education firmly grounded in mainstream economics, cannot so readily dismiss it. Did you receive an economics degree based in mainstream economics? Did you later shift to the Austrian school? Or is the study of economic theory something you pursue in your own time? I would be interested to learn how your beliefs on this came to be.
(To preempt your inevitable follow up question, I have a B.A. in Economics from a top, private, liberal arts school. (Doesn't everyone on the internet? Take it or leave it I guess...) My primary course of study focused on international trade and international macroeconomics. The views espoused in these courses were consistent with current mainstream thought. I took many classes in mathematics, statistics, and econometrics, to ensure that a graduate program in economics remained an option. Since graduating, I have instead decided to pursue law instead of economics)
Oh, let me hit on your interest rate fallacy. Again I must point out your inflation fallacies I will quickly quip though, that you still do not understand the foundational basis for interest rates, and how they are calculated. The easiest thing to know about interest rates, is that it is both an incentivization tool, and a coordination tool for entreprenuers
My “fallacy” is to view interest rates and inflation rates in the same manner as the majority of other economists in the world?
Your fallacy is not understanding the Cantillon Effect. I have put the links in my post there for you, from both Cantillon and Mises.
As for the Cantillon Effect(s), there are many instances in mainstream economic thought where government intervention is seen as a bad thing. I think the reason Cantillon Effects aren’t taught as “Cantillon Effects” is that he argues any government intervention in interest rates is bad. (whereas mainstream economic thought argues only using the type of policy is bad).
Econometrics which is all statistics, cannot be a basis for a theory. You cannot explain an event using statistics. I think everyone knows the quip about statistics. In the general sense, statistics cannot tell you what caused the statistics, in that, you cannot derive for example, the subjective marginal utility of one person from another on a simple formula.
What is your background in statistics? Statistics can be used as the basis for a theory. You can very easily explain events using statistics. To say otherwise is patently absurd. Running the simplest economic regressions provides proof that statistical analysis has a great deal of value. Without statistics and modeling, there is no way to determine whether a given theory has merit in the real world. (Many economic theories have merit theoretically, but fail miserably at producing an accurate portrayal of the world)
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.
This argument strikes me as similar to the way Peter Schiff speaks. That is, with making use of any empirical evidence. It isn’t just me that is rejecting your theories, but the collective body of mainstream economic thought. I think the most convincing argument against the Austrian School is that it is NOT part of mainstream economics. The leading economists in the US are extraordinarily brilliant people. Almost certainly more intelligent than either you or I. That they don't believe in the Austrian School suggests strongly to me that it is fundamentally unsound. If the Austrian School were as correct as you make it out to be, don’t you think its ideas would have been accepted by the best economists?
Also, you fail to realize that many other economists, outside of the Austrian School, have also predicted these events. It appears to me that you are engaging in selective sampling (but, of course, statistics aren’t logical).
Finally, you seem to have ignored my links to articles criticizing the Austrian school of thought.
So, perhaps instead of reading them you could answer the following: (it would help if you could provide a clear explanation for each, rather than one or two sentences)
1. How does the Austrian school explain the co-movements of investment and consumption? To me it appears as though ABCT implies changing levels of investment, but not changes in production decisions.
2. It seems to me that investors in ABCT must necessarily be irrational. To invest in the manner suggested by ABCT they must necessarily ignore expectations about the future, and invest solely based off of CURRENT interest rate signals. Do you agree or disagree?
3. How do you explain empirical results suggesting that no tendency for entrepreneurs to respond to lower interest rates by reallocating resources between orders of goods need exist? (The paper is in the SSRN, so I don't know that you will have access, but see: "Some Capital-Theoretic Fallacies of Austrian Economics" by Vienneau.
4. What is the Austrian response to Friedman’s empirical work testing the validity of ABCT? He finds, once in 1969, and again in 1993, that the ABCT is false.
5. What is the Austrian explanation for business cycles before the creation of the central bank?
6. What about the belief that, since the use of modern Monetary Policy, the business cycle has become less severe in its ups and downs? The historical graphs showing this has indeed occurred?
7. Lastly, I would be interested to hear what the Austrian School’s response to empirical evidence regarding the welfare of nations. More specifically, that those countries with interventionist central banks, high taxation, and large welfare states have historically outperformed those countries without them.
8. I am still uncertain as to the current Austrian view of money. It seems like some Austrian economists view money as neutral, while others do not. Could you tell me what the current Austrian view on money is?
9. Austrian theory hinges on the presence of a reserve fractional banking system. Can you say, in all honesty, that this system is bad? Consider how excruciatingly difficult it would be for any person or company to receive a loan. In particular, how would large projects ever receive funding?
You also didn’t reply to my criticisms of the gold standard:
10. There is much less gold than currency today. If you eliminate fractional reserve banking, and tie money to a gold standard (or any other commodity) the value of gold will necessarily skyrocket. This would limit its use in current applications and goods. Do you not see that as a problem?
11. I understand that Austrians wouldn’t bemoan a central bank deprived of its ability to conduct Monetary Policy, but what do you say to claims that the gold standard exacerbated the Great Depression by limiting the ability of the bank to expand credit? Please respond with something more than “the Great Depression occurred because the Central bank kept interest rates too low in the 20’s” (that is my problem with Peter’s arguments...)
12. The Austrian school would prefer to have monetary policy determined by the rate of gold production? A rate that is so unpredictable? (consider that gold production is dependent on finding sites to mine it, and the discovery of a new mining site would constitute a large shock).
13. To end with a question more oriented toward you: Why do you think Austrian Economic thought is not mainstream? Why do so many economists reject it? If it really explained things well, don’t you think it would have been accepted?
I know that's a lot of questions, and perhaps some of them may seem obvious or dumb, but I would appreciate it if you could answer them.
In short: I agree with a great deal of the things I have read and seen so far regarding the desired end results. I think Peter is correct that we need to stop spending and increase the savings rate. I agree that more legislation is usually the wrong course of action to take. I agree that competition and failure are necessary and beneficial to the system.
What I disagree with is the method for getting there. I don’t believe ABCT provides a credible solution.
Thanks for the reply. I will try and get back to you as soon as I can.
PS: I'm currently about halfway through my B.S double major in Economics and Philosophy and minor in Finance.
I've never been a Neo-Classicist, Monetarist, or Keynesian because I have always been a strict logical type. To me, their arguements are so fallacious, to be laughable. Such was Keynes to say that his theory about market ups and downs and growth was due to animal spirits, and that savings didn't matter because we are all dead in the long run. This is who the current Orthodoxy follows! Secondly, I will make a quick point that mainstream Economists don't support Austrian Economics because if they did they would be out of a job. Most work at places like Goldman Sachs, JP Morgan, the Federal Reserve, etc. So, of course they are not going to follow Austrian Economics and nor will the Government because the Government likes to have a monopoly! They feed off each other. Besides, since when did consensus become the measuring stick of what is right or wrong?
Mind you Keynes also contradicted his Interest rates theory between Treatise on Money and General Theory. Interest rates are if not the most important part of an Economy, are second only to the type of currency.
On January 28 2010 04:32 StorkHwaiting wrote: It's a provocative title I know. But it's exactly what I want to debate. FIERCELY.
I consider myself very well learned in economics theory, and I think I can address all of the concerns you raise in your post.
Before I do that, though, I want to ask you a question, OP:
Why did you start this thread? Is it because you want to prove to the ignorant masses why capitalism and globalization are wrong? Or is it because you want to have an actual discussion on this topic?
In other words- were I to make a post that addressed your concerns decently, would you read it with an open mind? Writing a proper reply to this would take a considerable amount of time, and it's a spectacular waste of time to argue with someone who's not willing to listen.
On January 28 2010 04:32 StorkHwaiting wrote: It's a provocative title I know. But it's exactly what I want to debate. FIERCELY.
I consider myself very well learned in economics theory, and I think I can address all of the concerns you raise in your post.
Before I do that, though, I want to ask you a question, OP:
Why did you start this thread? Is it because you want to prove to the ignorant masses why capitalism and globalization are wrong? Or is it because you want to have an actual discussion on this topic?
In other words- were I to make a post that addressed your concerns decently, would you read it with an open mind? Writing a proper reply to this would take a considerable amount of time, and it's a spectacular waste of time to argue with someone who's not willing to listen.
Hi Zato, I'd love to hear your opinions on the matter. I definitely am open to listen. I said some provocative things, more to air my views atm, not that they were any inherent "truth." As you'll see throughout the thread, I've accepted I'm wrong on certain points multiple times and am open to any philosophy other than: "Capitalism made the modern world. So if you don't like it, go back to Medieval times," which is an answer that lacks a certain nuance.
But yes, if you wrote something I think everyone would be interested in reading it, me being one of them.
Kusimuumi If any of you is actually interested about the subject, and wishes to devote a few weeks reading and doing the neccessary fact checking, I wholeheartedly suggest you to read "The Web Of Debt" by Ellen Hodginson Brown. (revised and expanded with 2008 update)..... This is important enough to mandate its own thread, but I don't want to be too pushy.
I very much like the civility of your tone, so I apologize in advance if the following comes off too harshly:
Ad hominem attacks are generally a poor way to begin a debate, but in this particular case, I think one bears stating. Ellen Hodgson Brown’s credentials (from her own site) are: using “her research skills developed as an attorney practicing civil litigation”. She does not have a background in Economics. Furthermore, she states that she was “asked to join the legal team of a popular Tijuana healer”. That experience prompted her to trace the “suppression of natural health treatments”. She has written 11 books on alternative medicine.
I think, on the basis of such facts alone, that anything she has to say about US monetary policy can be summarily discounted.
Nevertheless, I read several of the excerpts from her book just to make sure. One particular gem:
Except for coins, all of our money is now created as loans advanced by private banking institutions — including the private Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.
This statement is indicative of the thoughts contained within the rest of the excerpts. If she had any economic background in Monetary Policy, or even Macroeconomics, she would realize how foolish statements like these sound.
Except for coins, all of our money is now created as loans advanced by private banking institutions –
Money is not created by the Federal Reserve. Money is created by the United States Mint. One of the ways many governments actually service debt is by printing money. (which is the opposite of creating money as a loan...) In fact, many unstable governments (and even some stable ones) have printed too much money too pay for their debts, devaluing there currency entirely. This is known as hyperinflation.
What the Federal Reserve deals in is US debt. The Federal Reserve either buys or sells government bonds (debt) to pursue expansionary or contractionary monetary policy. When the Federal Reserve sells a bond, it is issuing debt. When it buys a bond, it is reducing debt. These vehicles effect the money supply as follows: when the Reserve buys a bond with hard currency, that money is injected into the economy (expansionary). When the Reserve sells a bond for hard currency, money is taken out of the economy (contractionary).
The Federal Reserve displays aspects of both a public and private nature. It is public in the sense that it is within the government, and its members are appointed by other branches of the government. I tend to think of it much like the Supreme Court. It is private in the sense that it is not responsible to any branch of the Federal Government.
It should be extremely intuitive to see why this must necessarily be so. If politicians could order the Reserve to pursue the monetary policy they wanted, the result would be disastrous. You needn’t look beyond this forum board to see just how poor most people’s grasp of economic theory is (I don’t intend that to be a personal attack).
Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices —
This part is just silly. Banks create the principal for their loans? Principal is the value of a loan minus the accrued interest (or the original balance of a loan. It doesn’t make any sense to say banks create the principal for their loans. That’s like saying you create the principal for your car loan because you took out a loan for your car.
As for not creating the interest: How would one even do that? What does that even mean? Why would anyone take out a loan if they could “create the principal” and could “create the interest”.
I think this part is a very poor (read unintelligent) take on the service of National Debt. The US issues more debt to finance its current debt (sort of like paying one credit card off with another).
While it is correct to say that if one does this, new loans must continually be taken out, the idea that it is “expanding the money supply, inflating prices” is just plain incorrect. When the Federal Reserve issues debt (Sells bonds), money is TAKEN OUT of circulation. This contracts the money supply (which is the opposite of “expanding the money supply). This raises the value of your currency, deflating prices.
This is another extremely common populist outcry that is the bane of many an economist’s existence. Inflation does not “rob” people. It is not evil. Unpredictable high levels of inflation may sometimes be problematic, but the inflation rate in the US is very stable.
Your money is indeed worth less every year in the US as a result of inflation. But so is everyone else’s. Periods of unexpectedly high inflation hurt lenders, because it reduces the effective real interest rate (the total amount of debt is lower in real terms). Similarly, such periods help borrowers (like every American family, ever) because now their effective real debt burden is lower. When inflation is unexpectedly low, the reverse is true. To combat this, most loans are indexed to inflation. One final note: Inflation actually harms the wealthy most of all, because of the poor interaction between US capital gains tax laws with inflation (look at IRS capital gains tax law relating to inflation).
To conclude: Every single paragraph in the excerpts I read is exactly like this. Every sentence is simply not true, or contentious. If you want to choose a book to learn more about Monetary Policy, I would suggest getting an actual textbook. Romer or Mankiw are traditional favorites.
The problem with books like this is that the writers begin writing with an agenda. They start with an idea, and then set out to prove it. This leads to biased, inaccurate writing. What you will find in textbooks is simply an accounting of how economic policy works. Not politics, not an agenda.
If you have any questions about this, I would be happy to answer them.
1. Judging a book by its cover, or an investigative author by her degree, is not a good idea to start an argument. I frequently discuss complex concepts with researchers without having a formal degree in their field, and can hold short lectures in fields which I have no formal education in. You just need to have the right people to work with whom you can ask about the hard parts, and the rest will follow. The President of a country, for example, can't know everything. That's why he has a board of advisors to help him/her. The same naturally goes for investigative journalists and authors alike. The fact that you judged the subject based on this shows inherent bias. Since you have an education in economics, the knowledge that Milton Friedman openly supported the views of the person who wrote the foreword might soften your landing a bit.
2. the "Federal Reserve", indeed is private. See Lewis v. United States, 680 F.2d 1239 (9th Cir. 1982). It is there in clear text. The largest owner (53%) is the Federal Reserve Bank of New York. Whose largest shareholders, in turn, are the big banks you hear about in news all the time, with ownership largely concentrated to the few behemoths.
3. Most of the money is not created by the US mint, vast majority of it is purely in digital form.
4. The paragraph means that banks create the loan by a bookkeeping entry. They don't actually use deposited money to cover this. However, this new money doesn't cover the interest which is tied with the loan. Thus new loans must be taken in order to generate the money to pay back the loan. (Modern Money Mechanics; basis of fractional reserve banking)
5. You seem to have no idea how money is created; the US government issues interest bearing bonds, which are bought by the fed and used as the reserve to create money to the system through fractional reserve banking. Thus, the US government ends up in debt for the money created, and needs to pay insurance. This is why the US national debt and M3 (no longer published since 2006) have increased hand to hand, when all this could be debt free if it was government in control of the money instead of _Private_ Fed whose altruism might be more questionable than that of the Government to its people.
While im sure you have a sound base knowledge in economics, especially in the theory, you should be careful not to push down other people purely based on the assumption that you are correct, but instead you should do some research.
The way you word your arguments sounds plausible (because your fundamental theory is solid), and people who follow the conversation might think you are right in _all_ your arguments regarding the subject. This, sadly, is not the case here, and because of that you have merely added to the already thick layer of disinformation hovering around the subject. If you do not think more carefully about what you say, and which opinions you bash down, you risk planting a cancerous seed of misinformation in the community's pool of knowledge.
While im sure (atleast hope so, your account was afterall created the same day of the reply) you don't do this on purpose, I hope you revise your behaviour in the future in order to be of more assistance to your community and the people around you. Nobody wants to be fed information that turns out to be wrong later on. Unlearning is a difficult process, and having a seed of disinformation planted in you can cause an otherwise sound logic reach the wrong conclusions.
Instead of giving answers to issues you are unfamiliar with, or which seem ridiculous in the first glance, you should be asking questions. Be open to new ideas (remember, nobody knows everything, and everyone has corrupt information in their head) and show respect to others, especially when you're new in the community. You'd be surprised how swallowing one's pride and forgoing the effort to 'seem smart to others' enhances the capability to learn. If you wish to learn, spend more time asking questions and be open to new information.
I suggest you read the book from front to back. It has notes to cover the controversial issues, and you've got a basin of information in your usage to see whether or not they hold true. It is ideal for a person like you, who has acquired vast knowledge on the Theory of Economics.
I hope you take a moment to chew this and then find an appropriate reply whose tone is hopefully away from the belligerence seen in the quoted material.
Splendid. I'll do my best to lay all your concerns in the OP to rest, then:
On January 28 2010 04:32 StorkHwaiting wrote: Now, the way I see it, what's currently taught in economics and finance classes in America is this concept of globalization, free market, capitalism, and less taxes/regulation = increased economic prosperity.
I want to go ahead and say that's crap.
First, one of the central tenets of modern capitalism is this concept that the "free" market leads to benefit for everyone. They think that things naturally move to an equilibrium in demand/supply/price if left alone. The rationale for this is that people, with enough info, are perfectly rational beings that make the best choices.
The problem with this theory is it doesn't account for the destructiveness of monopolies. In business, anytime a group has either grown or merged into a large enough economic body, they can start to implement destructive strategies like dumping a ton of their products at a very cheap price onto a foreign market and wrecking the local competition. This is validated by capitalism and the free market because this is merely a strategy to increase market share, and if they have the resources to engage in such an act, then they have every right to.
Over the span of a few years, this group demolishes the local competition and creates a monopoly. Then they jack up the prices a ton and win back all the profits they gave up with this strategy. Except once they've recouped their investment, they continue to do it perpetually. This is a win-lose scenario. Yet, it's an example of what happens on the "free" market. This doesn't lead to constant competition and cheaper prices/higher quality for everyone. This leads to a stagnant market where one giant is in control and sells at exorbitant prices because they are the controllers of all supply.
Alright, first to straighten some things out. You say capitalists claim that the free market leads to benefit for everyone. This is actually not true. If you define well-being according to Pareto efficiency (a Pareto efficient allocation is a situation in which no one can be made better off without at least someone else ending up worse off), Capitalism and the free market will often not be able to provide a Pareto improvement, at least in the short run. Capitalism has never been about getting something for nothing- you win some, you lose some. Ideally, you win more than you lose. How can you measure this?
The graph above characterizes a market with 1 producer, and any number of consumers. The producer is the only one around because there is a law that prohibits others from competing with him. The Supply curve (the producer's marginal cost) and the Demand curve (The consumer's willingness to pay for an item) will determine the price level and the quantity of units sold in this market.
One of the great things about the market (indeed, THE great benefit of the market), is that with specialization, other people can produce some goods more efficiently than you. Instead of having to make everything yourself, there is specialization and division of labor, which means everyone produces that which they're more efficient at producing, and there's more of everything for everyone. So while in the graph you can see that for a quantity of 1 unit, the producer is willing to sell this unit for $10, that unit is worth $34 to the consumer- if this exchange is made, there will be a net gain of $24 between them. As more units are sold, this net gain increases, but it increases more slowly with each marginal unit, until the market arrives at the equilibrium (in this case, a quantity of 7 and a price of $22). This net gain can be visualized here:
Where the green area represents the net gain for consumers (willingness to pay - price, for each unit) and the yellow area represents the net gain for the producer (price - marginal cost, for each unit). What does the free market say? The free market says, why have one producer, when you can have two? Let's see what happens if we strike down this law that limits the market to one producer, assuming both producers have the same marginal costs:
The marginal cost rises more slowly, you get a lower equilibrium price ($18) and a higher equilibrium quantity (9). The Consumer net gain rises from $42, in the case of 1 producer, to $72 in the case of 2 producers; the Producer net gain falls from $42 to $36, however. Not only that; since there are 2 producers now, that net gain is split in half between them. Clearly, the first producer does NOT benefit from capitalism and a free market in this case. The economy as a whole, however, does benefit.
Through a better allocation of resources and competition, the free market will create more wealth for the system as a whole. It never has, and never will, offer the most wealth and benefits to everyone individually.
Moving on, capitalism does NOT assume that everyone is perfectly rational. What it assumes is that, as far as the market is concerned, people will act as though they were perfectly rational, profit-maximizing individuals. In other words, that when offered two products of the same quality, they will choose the cheaper one; that if they prefer A to B and B to C, they will therefore prefer A to C; that generally, having more is better for them. As far as the predictive capabilities of the model are concerned, if people do in fact behave as though they were profit-maximizing agents (and they usually do), then that's good enough.
As to monopolies, what we have here is a semantics problem. Look up what Free market means; in that definition, the following is contained: "Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase". Competition is actually central to the concept of free market. You say a company from country A will devastate the local industry of country B with its flood of cheap imports. Well, if the cost of buying stuff from country A is cheaper than that of producing it in country B, then that's all the better.
Ah, but once country A has all the market, they will charge monopolistic prices, you say. So, what's to prevent cheaper competition from country A, B, C or D taking a swipe at that market and plunging it right back into competition? Nothing. This will be the natural state of things. In fact, if you look at examples of monopolies, you'll find that they are almost always either:
a) Monopolies created by law. The legislation prevents others from competing with you, or b) Natural monopolies.
If a monopoly has been created by regulation, you can hardly blame capitalism and the free market for it. If it's a natural monopoly, things get trickier, because the standard set rules of capitalism simply do not apply (much as they don't apply for other industries, such as providing national security or providing intellectual property goods- I can analyze these further on another post if someone would like). Economics makes some basic assumptions about free markets, and one of these assumptions doesn't hold in the case of natural monopolies.
The assumption that doesn't hold, is that competition will drive prices down if the current supplier is charging significantly more for the good than it would charge under competition. The reason why it doesn't hold are entry costs. Let's say, for instance, that you're an electrical company, and you own all of the energy production facilities in the US, all of the electric posts in the US, and all of the wiring on said posts. Producing energy costs $10 a kilowatt, and you charge $15 for each. (disclaimer: as far as I know, those prices are grossly unreasonable, but that shouldn't matter for this example)
Another company realizes that you're charging too much. They think that if they entered the competition, they could take fully half of the market share. However, since there are economies of scale in the production of energy, producing half as much energy would cost $12 a kilowatt, instead of $10. Due to these decreasing costs, there'll be a brutal fight for market share- the bigger the market share, the lower the costs, the bigger the profit. Both of them will lower prices as much as possible, and will end up charging the same $12 per kilowatt that it costs to produce one. They're making practically no money. And here's the kicker: The new company would also have to produce a huge number of energy production facilities, electric posts and wiring, just to be able to compete. The other company realizes that, fuck this, it's not worth it. You can read more on Natural Monopolies, but the bottom line is: the basic free market theory makes a set of assumptions. Sometimes these assumptions don't hold, such as in the case of Natural Monopolies. In these cases, the only thing you can do is take these limitations into account, and tweak the system in order to compensate for them as well as you can. Economics has several second-best type solutions for Natural Monopolies.
On January 28 2010 04:32 StorkHwaiting wrote:
In capitalism, it's theorized that the only way to combat this is for another giant group to emerge. Yet, this sort of competition doesn't help at all. While the two giants are growing, they experience economies of scale and their efficiency increases. Yet, once they reach a certain size, they start to experience the DISeconomies of scale from being too bloated. But they have to continue this arms race, because if they try to scale back, the other one will have the advantage in buying power for that short window of time and can steal more market share, thus perpetuating an advantage until the guy who stepped back first is destroyed.
This creates an effect where giants are constantly forced to grow bigger to compete, even though in the long run it leads to a net loss in efficiency. This is what the free market creates.
As you said, there's an issue of economies of scale and diseconomies of scale at stake. But really, unless you get a particularly dramatic case (those of natural monopolies, which usually involve water and electricity supply), the market equilibrium is not a monopoly, but rather competition. You can see that in consumer goods all around you.
On January 28 2010 04:32 StorkHwaiting wrote: The problems with this are obvious. This is why countries have effected protectionist policies to defend against these sorts of aggressive economic strategies. Then you no longer have a free market. It becomes mixed. Our world is full of mixed economies.
The last 30 years of economics in the USA and the world, is a constant attempt to try to bring down these protectionist strategies on the belief that free market was more efficient and beneficial for all. Peep the giant economic collapse we just had. It's pretty obvious to everyone now that this free market liberalization was a horrible idea. It destroyed local industries, it gutted nations, it destroyed whole swathes of industry in nations, and all it really did was lower the retail prices of goods.
Protectionist policies are usually motivated by something else. Remember, at the start, when I mentioned that the free market won't give the highest possible benefit to everyone? That's the central issue at stake here. Country A is a developed nation; they're more efficient at making cars and computers. Country B is a developing nation; they're more efficient at making food. Country A's farmers happen to be politically powerful, and demand protectionism from the 'ravages of the free market'. Country A's politicians cave in, and grant the protectionism; Country A's farmers are better off. Country A's politicians are better off. Everyone else is worse off. The economy, as a whole, is worse off. That's protectionism, in a nutshell. When politicians tell you otherwise, they either don't know what they're talking about (most likely), or they're lying through their teeth.
On January 28 2010 04:32 StorkHwaiting wrote: What use are lower prices when you don't have a job?
That's the problem with the concept of free market. It's too focused on price of goods as a barometer for efficiency. It fails to address the issues of labor and wages. Now if you try to approach the labor market using capitalist and free market principles, you end up with sweatshops in China and India.
Does anyone honestly think it is a good thing to compete with sweatshop workers in terms of pay/productivity?
Of course not. Let them work their workshops, we'll do something else. Let them make your sneakers and T-shirts, we'll give them financial services and computers. That's the whole point of division of labor and international trade; we save money on things that others can produce more cheaply. If an American isn't willing to work for $5/hour working a sweatshop, let him work on an alternative. If you give me the unemployment argument- "But he can't find a job!"-, then realize that while we are, in fact, not employing some people when we import goods, we are employing more people when we export goods. Exporting means that we're selling our leftovers overseas- and producing those leftovers (which may very well be the bulk of the production) required a large number of workers that wouldn't have been needed if those extra goods weren't going to be exported. If you give in to the protectionist fear of losing jobs, then other countries will likely reciprocate this protectionism, and people will lose their jobs in industries your country is more efficient at, while others gain jobs in industries your country is less efficient at. Maybe you'll even gain more jobs than those you lost. But economics can usually give far cheaper alternatives for reducing the unemployment rate in a country.
On January 28 2010 04:32 StorkHwaiting wrote: There is only one real way to improve labor's market value, which is training that improves their productivity. Yet, the sad truth of the matter is that even with a great education, a large proportion of the population is not that clever. They can't really be trained that far past the level of a sweatshop worker. This is what's traditionally known as "retail sector" or "blue collar."
This makes up a pretty large percentage of the world population. Yet, the blue collar workers in America don't want to work in sweat shop conditions. Capitalism and the free market tells us that the smart thing to do is just tell those blue collar workers to fuck off and move the factories to China.
This is not true. How are you going to get a chinese worker to cut your hair in America, or take your order in McDonald's? Some tasks simply cannot be outsourced, it's like feeling your bladder about to burst and asking your cousin to take a leak for you.
Next point. If we give in to protectionism, most of these basic goods get more expensive. Drastically more expensive. For poor people, it isn't the same if they have to pay $10 for a shirt or $30. It isn't the same if they have to pay $5000 for a car or $15000. It isn't the same if they have to pay $2 for a meal or $5. Yes, people need jobs to buy these in the first place. But if the private sector in America can make 100m. jobs, why can't it make 110m.? Why not 130m.? There's no reason, really, other than we're currently in a pretty bad crisis. Unemployment was actually at a pretty good place before it. And protectionism won't help a whole lot in this respect.
On January 28 2010 04:32 StorkHwaiting wrote: This is why you see an increasing wealth disparity between the rich and poor in America. The poor have lost their jobs to the increasingly "free" labor market, whereas the rich and intelligent Americans have increased their value because they have some of the world's best education, coupled with some of the world's best tools of production.
AKA, the American factory worker must compete with the Chinese sweat shop worker.
Not true. While capitalism will increase the wealth disparity between the wealthiest and the poorest of a country, all of them will become wealthier over time. Compare Bolivia, Chile, and the US. Inequality is highest in the US, and lowest in Bolivia. Now, compare the living standards of the poorest in the US, to the living standards of the poorest in Bolivia, and you'll realize that the poor in the US are far, far better off than poor people in other countries. So is the problem inequality? Or is the problem the standard of living of the poor? Because Capitalism will improve the standard of living of everyone over time, the poor included- but it will never fix inequality.
On January 28 2010 04:32 StorkHwaiting wrote: The American Harvard graduate competes with the Chinese Beijing University graduate. Except the Harvard graduate gets to enter an organization like Goldman Sachs, with some of the world's best financial algorithms and the best financing and the best connections.
Therefore, while the free market has allowed the Harvard graduate to reach greater and greater heights by reaching the pinnacle of the financial world and reaping the benefits of competing vs the world due to massive, built-in advantages, the American factory worker has been laid off and can't find another job because he/she is now competing versus the 5 billion people of the developing world.
Do you guys see now why the free market is not helping the vast majority of America?
There's another, significant difference here. Capital to Personnel ratio. Since people in China are so damn cheap to hire, you're likely to have 10 dudes sharing a wrench doing a job that 1 dude in the US can do with a sophisticated piece of equipment. Case in point: Cars are produced both in the US and in China. The US has been an open economy for decades, and the unemployment went up just recently, coincidentally at the same time as the financial global crisis. There's just no way you're going to end up with half the blue collar worker population unemployed in the US; there's no international evidence suggesting this would happen.
On January 28 2010 04:32 StorkHwaiting wrote: And if you look at the labor markets, the greatest shift has been away from manufacturing and towards retail. Yet it's a nonsensical shift. How does it make any sense when the retail industry is driven by consumption, and the consumption is paid for by wages from the retail industry?
This is like saying, I get a job at Gamestop. Then I buy a ton of games from Gamestop. Eventually, Gamestop will expand because I'm buying so many games with my wages from them, that Gamestop's sales will be enough to expand.
It makes no sense. Money is constantly being pulled OUT of the economy this way. Every time you put $50 through the system, you end up with less. First, I get the job at Gamestop. They pay me $50. Yet, I pay income tax on that $50. It then becomes $42.
This $42 is then spent to buy a game. Yet I need to supplement it with another $8 from somewhere. So, already I'm at -$8. Okay, $50 + tax = $53. Now I'm at -$11.
Then Gamestop gets their $50 and has to pay corporate tax on it. So they're down to what? $40? A net of $-21 for a single transaction between retail to employee and back to retail.
So, in every transaction of $50 of wages going out of the system, we end up with only $29 of it going back in. It's rather obvious that the US labor/wage market can not be sustained by this type of relationship.
Um... yeah, because it's silly. You're ignoring the fact that the dude working at Gamestop is producing VALUE. Why? Well, game developers made a game. They have this awesome game! It's actually Starcraft 2. People want it. But the game developers have to sell it, they need a distribution network. They're willing to pay a fee for this distribution. If this person was hired by Gamestop for $50, then chances are his work has a value of at least $50. He's actually producing value, to the video game industry and to consumers.
On January 28 2010 04:32 StorkHwaiting wrote: The middle and lower classes cannot live much longer with these types of conditions. This is why there is a constant drain of money OUT of the middle and lower classes and INTO the upper classes.
The reason is because the tax dollars are being siphoned off. That $21 that was taken out is given to the government. Yet, the government we have today is increasingly controlled by corporations. According to current moral and economic philosophy, like that espoused by Jibba and others on TL, it's perfectly okay and constitutional for a corporation to get involved with government. On top of that, morals have no place in economic decisions. Therefore, it is completely okay for a corporation to try to pay to get laws passed that benefit the corporation.
What this means is that those $21 instead of going back into an industry that benefits the lower classes could be funneled into an industry that doesn't support hardly any of the middle-lower classes. Such as the banking industry! So, not only is the middle class losing jobs, competing with a vast number of foreign competitors, but they lose nearly half of every dollar to that mfing Harvard graduate. Because he/she is busy wheeling and dealing, screwed a bunch of people over with greedy "capitalist" ploys, and then needed a bailout.
This is how Main Street gets shafted.
Now, you're mixing up economics with politics. Is government funneling money to corporations bad politics? Yes. Is it bad economics? Er... no. It has nothing at all to do with economics. But believe me, protectionism won't fix this problem; good politics will.
On January 28 2010 04:32 StorkHwaiting wrote: On top of that, to the people who claim that of course the solution to all this is just get rid of taxes, I ask the question, ok, then where is the growth?
Sure, without taxes the $50 between me and Gamestop is cycled back and forth. Yet, that $50 will never grow. It remains $50. Therefore, even in the most ideal of circumstances, the money is not lost, it only remains the SAME. ZERO growth.
Growth isn't in wages. Growth is in production. If the same dude in Gamestop works harder, or with a better sales process in which he takes less time to attend each customer, or with a more efficient computer software, or whatever that allows him to do more of what he does in the same amount of time, then you're seeing growth. You're producing more value for the same cost.
On January 28 2010 04:32 StorkHwaiting wrote: In fact, accounting for inflation, you'd still see a loss of $1-2 each year. The industry continues to lose in a perfectly ideal situation. This is why the concept of consumer-based society leading to growth is total bullshit. You cannot grow an economy by spending money. That doesn't work.
Of course not. Consumption is merely a needed catalyst- growth is in production, but someone needs to consume those things that are being produced for production to make any sense.
On January 28 2010 04:32 StorkHwaiting wrote: The only way to grow the economic pie is technological innovation which decreases the cost of production. This way, I spend $50, Gamestop gets their $50 back. Yet, they have factories/studios that can produce the game for only $5. Therefore, they pay me $50, I buy from them for $50, they get back $45. They can then afford to make 9 more games. With 9 more games, they can make enough money back to hire 8 more workers. This way the loop continues.
Except somewhere in the loop, the business decides that instead, they're just going to pay all those profits to the CEO. We don't need to increase that many jobs. We'll just give it to the top guys. Therefore, once again the middle and lower classes are powerless to stop the flight of money from the consumer-supplier loop.
That's not how it works. The company cuts costs as much as it reasonably can- that way it can keep prices down and compete with everyone else. Leftover money goes to the owners, which can be a rich guy as much as a poor guy- the stockholders. Nothing prevents poor people from buying stocks as their savings. Why the hell would the company give the remaining money to the CEO? He's just another employee.
On January 28 2010 04:32 StorkHwaiting wrote: In pretty much every way, using capitalist and free market principles leads to a loss for the middle and lower classes. This is why Sarkozy says capitalism needs to be refounded to be more moral. That finance, free trade, and competition are a MEANS not an end. And it needs to be redefined and reinvented.
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.
Yeah yeah, political bullshit will always blame capitalism every now and then. I ask this of you, again: Do you care about the poorer people? Do you want them to have a better lifestyle? Now, look around the world. Look to the countries where the poorest people have it best. I assure you, its economic system will be capitalism, and that country will have significantly more inequality than poorer countries.
Your argument is correct in that capitalism creates inequality. This does not, however, mean the poor people are getting screwed over.
the fed may be privately owned but they're state-enabled. A private monetary institution issuing random pieces of paper would have no power if they weren't enforced as legal tender by the courts.
I got no problems with IOUs but the problem is not that they're debt-based but that they're monopolistic. The last guy who made the liberty dollars or whatever it was called got raided on that basis. The problem with the banking and monetary system is that there is no alternative but to join the cartel, so obviously they're going to be more laid back and irresponsible than if it was a free market to enter...
On January 30 2010 05:05 Rothbardian wrote: As long as we're going to have this discussion about the recent world mess, let's clear up some things. This will do the typing for me:
On January 30 2010 05:15 StorkHwaiting wrote: An easy example to use would be your India example. Cell phones broke up that monopoly, but that didn't occur by better efficiency, it was caused by technological progress. What if the monopolizing company had instead caught on to the possibility of cell phone technology and used their money to bribe the government into awarding them sole rights to cellular tech within their borders? They would then make it impossible to break the monopoly. While one can say "that wouldn't happen though," I have seen it happen several times exactly that way. A monopoly, which uses its money to garner government support to maintain their monopoly.
There are three things that usually prevent that from happening.
First off, bribery is illegal. That's why I think we need to draw distinction between deregulation, which makes it easier for everyone to do business, and anarchy, which makes it easier for the strongest to do business. If you run a business like the mafia, killing your enemies and bribing officials, then that's bad for competition. But it's not part of deregulation, that's anarchy, people breaking basic laws. While a monopoly bribing the government to keep in power does happen, we shouldn't forget that this is illegal, and isn't a failing of capitalism. It's more a failing of the government and legal system.
The second thing is that, the bigger a monopoly, the more incentive there is to break it. However, going head to head with it is usually a bad idea. Often, that spurs technological innovation to compete with a monopoly in a different way.
The third thing is, monopolies tend to be blind AND inefficient. In the Indian example, because it was a monopoly, the telecommunications firm didn't know and didn't care about mobile phones. Very often, while they're busily bribing... oops... lobbying officials to pass laws which they think will keep them where they are, someone else attacks them from a totally different angle.
There are quite a lot of big companies that have fallen that way. IBM vs. Microsoft, for example, Yahoo vs. Google, budget airlines vs. traditional carriers (the airline industry is one of the most sickeningly regulated, protected industries), railway companies vs. budget airlines...
With regards to the banks and all that, I'd say that comes under one of those things like the army or the environment. It's one of those things that need extra regulation because the state needs it to function well so in that case I agree with you.
On January 30 2010 05:15 StorkHwaiting wrote: In the end, I think you misinterpreted the point of my OP. It was not to say that capitalism is evil. It was to say the political rhetoric of deregulation = efficiency is bad. AKA The Republican crap being espoused currently in mainstream America. Government = inefficient and terrible. Private sector = best.
The problem is the Republican rhetoric is so screwed up because they don't believe in Austrian economics like Rothbardian is espousing, instead they want the current mixed economy just with no taxes on the rich and no regulation of what private corporations do, while keeping all kinds of government subsidies and incentives for themselves. Which is, in essence, nothing but the complete rape of the middle and lower classes.
Mmm... might need to make that a bit clearer. Definitions might be in order.
But at the end of the day, the debate is understandable because Economics is a very young, still evolving subject. As human societies change, the rules of Economics start bending. New situations arise which nobody has seen before. The rise of China and the sudden drop in inflation is one example. The banking crisis is another. So I do understand it when there is fierce debate about what should be done. Even economists can't agree what should be done, let alone politicians.
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