Two Good Economics Books: Spin-Free Economics, Animal Spirits

Prompted by Greg Mankiw's reading list, which I blogged about earlier this week, I did some serious browsing through two of the books.

Nariman Behravesh's Spin-Free Economics is THE book I'll recommend when I'm asked to recommend a book for the layman. It's not too technical, but it covers all the key elements involved in modern discussions of economics. In contrast to many other books I've browsed, this book is written in clear English. If you wonder how a Ph.D. can do that, there's a simple explanation: Behravesh has been working outside academia for decades.

The book's title makes it sound like a Fox News product, but that's terribly misleading. It's broadly mainstream. I agree with almost all of it. Where I disagree, Behravesh is presenting a more mainstream view than I take. But about 95 percent of his content is I heartily endorse. Who said we economists never agree? (In fact, Behravesh has a chapter about what we economists agree on--it's surprisingly more than you might think.)

An interesting book--which I recommend only for people who have fully internalized Behravesh's book--is George Akerloff and Robert Shiller's Animal Spirits. They look at how we humans are fallible and prone to errors, a topic in which both authors have contributed academic research. They are challenging the mainstream view described by Behravesh--but only around the edges. Unfortunately, they emphasize those edges, rather than the core of economics which works tremendously well.

For instance, back in the late 1960s, two economists (Milton Friedman and Edmund Phelps) figured out that there is no long-term tradeoff between inflation and unemployment. Bringing inflation down permanently requires only a temporary price in higher unemployment. Later research found that low inflation tends to be steady inflation, which is very favorable to long-term economic growth. The conclusion: keep inflation low, and don't try to fight unemployment with higher inflation.

Akerloff and Shiller challenge the basis for this conclusion when the inflation rate is in the neighborhood of zero. And they are probably right. However, huge economic damage has come from policymakers who tried to use inflation to reduce unemployment, triggering the boom-bust cycles of the 1970s. Akerloff and Shiller say that Canada's effort to bring inflation from two percent to zero percent may have caused unemployment to be 1.5 percentage points higher than it otherwise would be. However, they don't mention that when the basic lesson was ignored in the U.S., we had unemployment rise to nine percent in 1975 and well over ten percent in 1982. I would prefer that the general public around the world learn the basic lesson, even if that means occassional errors through lack of understanding the advanced lesson.

If you're headed to a Ph.D. program in economics, read this book. If you just want to understand general economics, which works almost all of the time, stick with Behravesh.

Comments

[AuGod!:]

Thanks but I'm Austrian School. Notwithstanding and in fact mostly because "mainstream" economists reject it, bless their little hearts..

EG: see criticisms: en.wikipedia.org/wiki/...

Sep 05 12:02 PM

[Machiavelli999:]

Ahh..yes, Austrian School

Where evidence doesn't matter and 2+2=5.

Why is it still around? Because its a nice moral story and people want to believe in it. Why is religion still around? Because we humans are a sad species.

Sep 05 12:58 PM

[Wisdom vs. ...:]

fighting deflation prevents prices from falling to where they should be (note, WMT not lowering prices), which hurts the group even more important than bankers: consumers. thus, a bad recession was turned into the great depression, and japan's recession that has never ended. since shiller is smart enough to know he is wrong, we just have to assume he is a cloistered academic with his own goals. i find it disturbing that history has proven keynes wrong conclusively, but people choose to embrace his idealistic theories anyway

Sep 05 01:04 PM

[Machiavelli999:]

"Wisdom"

What is your explanation on why we emerged from the Great Depression?

The government controls never really went away during the war. In fact, they increased. Wage and price controls were intensified during the war and yet the economic recovery began during the war. What is your explanation for this?

Sep 05 02:06 PM

[AuGod!:]

Mr. Machiavelli, Thank you for your Keynesian comment.

2+2=5

2+2 = 2+2+0

correct? right.

Now according to Robins Lemma proof
Let x be a non-zero number, and set y=x. Thus:


x = y
x^2 = xy
x^2-y^2 = xy-y^2
(x+y)(x-y) = y(x-y)
x+y = y
2y = y
2 = 1
1 = 0

Now since 2+2 = 2+2+0 and we apply the lemma proof so that 0 = 1, 2+2+0 = 2+2+1 =5

THEREFORE
2+2 = 5

SO .. do I get the job as the nation's banker? By the way, I plagiarized the above equation from an internet source so am not "responsible" if it is proven incorrect. I promise to buy pencils with very large erasers attached if I get the job and will adopt "neo-Keynesianisms" in all of my economic decision-making because I can't think for myself..

Sep 05 02:22 PM

[Machiavelli999:]

Well, yes sorry we Keynesians do like to use math. I know how numbers and equations scare you guys.

All you really need is "common sense" right? Free markets are always right. The earth is flat. The sun revolves around the earth. All obviously common sense things.

You don't need formulas and models to tell you how the world works you just intuitively know from your vast collection of moral stories.

Sep 05 02:32 PM

[Machiavelli999:]

Its actually kinda sad. Our economic knowledge has progressed, but our economic debates have regressed. There is an actual sensible argument that people can propose against Keynesian ism. Its called Friedmanism. Friedman and Keynes both acknowledged that recessions must be fought against. Friedman just thought it should be fight through monetary stimulus, while Keynes believed in fiscal stimulus. And there is a serious debate that we can have about the best way to fight recessions.

But this is not the argument that I often have with people on blogs. They don't fire back at me with arguments about the ineffectiveness of fiscal stimulus and the virtues of monetary stimulus. No, we are having a discussion that has been essentially settled a century ago. Whether or not recessions should be fought or not.

Sep 05 02:37 PM

[AuGod!:]

Since edification is suggested, I think it might be a good idea for all who do not presently know to learn something on the subject. To that end I offer this link to a short and simple blurb with invitations to interested parties to comment freely and without fear of serious mockery, on its contents.

www.econlib.org/librar...

Since I placed a Wiki link to criticisms of the so called "Austrian School" in my first post, this is added for balance. Here also is a good article from just before Obama's inauguration, on the Chicago School, Milton and a bunch of other economic noteworthies.

www.bloomberg.com/apps...

Have a nice weekend.

Sep 05 03:21 PM

[User 473917:]

"(x+y)(x-y) = y(x-y)
x+y = y"

Nice division by 0. I remember the teacher presenting something like this back in high school.

:)


On Sep 05 02:22 PM AuGod! wrote:

> Mr. Machiavelli, Thank you for your Keynesian comment.
>
> 2+2=5
>
> 2+2 = 2+2+0
>
> correct? right.
>
> Now according to Robins Lemma proof
> Let x be a non-zero number, and set y=x. Thus:
>
>
> x = y
> x^2 = xy
> x^2-y^2 = xy-y^2
> (x+y)(x-y) = y(x-y)
> x+y = y
> 2y = y
> 2 = 1
> 1 = 0
>
> Now since 2+2 = 2+2+0 and we apply the lemma proof so that 0 = 1,
> 2+2+0 = 2+2+1 =5
>
> THEREFORE
> 2+2 = 5
>
> SO .. do I get the job as the nation's banker? By the way, I plagiarized
> the above equation from an internet source so am not "responsible"
> if it is proven incorrect. I promise to buy pencils with very large
> erasers attached if I get the job and will adopt "neo-Keynesianisms"
> in all of my economic decision-making because I can't think for myself..

Sep 05 04:10 PM

[AuGod!:]

Now we're getting somewhere. Maybe someone should write an article entitled: "AMERICA: Zero, Infinity and Applied Keynesian Economics".

And what about zero = 0 anyway? Imagine, an infinite number system predicated on "nothing".

In a final word I will thank those who engaged me here by citing the logician John Myhill, who was inspired by Gödel to declare, "No non-poetic account of reality can be complete."

Sep 05 06:47 PM

[highmax:]

Austrian school..interesting that Drucker lived and taught and wrote the latter part of his life in California, but his lessons arguably were ignored there more than anywhere.

Sep 05 07:18 PM

[bob adamson:]

A good analysis by Dr Conerly but I suggest it underestimates the divergence of Akerloff and Shiller (A&S) from the mainstream as characterized by Behravesh’s account. Like Minsky in the 1970s and 80s, A&S focus on Keynes’ observation that perhaps the most significant factors driving direction of the economy are uncertainty about the future and waves of optimism or pessimism in response to day to day changes in perception of this uncertainty. From this flows the observation that, given the ever-changing manic/depressive swings in mood underlying economic choices, equilibrium at full employment is a rare and even random occurrence; a radically different analysis from the aforesaid mainstream. Thus, while Keynes, Minsky and A&S would largely agree with this mainstream on questions of microeconomics and even how the economy generally functions at full employment equilibrium, they and many others who follow broadly in the Keynesian tradition would hold that the proper focus of analysis and public policy is not full employment equilibrium but rather counterbalancing through government action the propensity for and effects of the manic/depressive swings of the private sector market as these (the propensity and effects) are inherent and not aberrations.

I appreciate that many readers will not welcome the A&S analysis as described above as it implies the need for constraints on laissez-faire capitalism. I, for one, think the A&S analysis and that of Minsky are sound and that the real challenge is to devise reasonable and intelligent constraints (these will continue to change as the economy and markets evolve) to preserve the benefits of an free and active private sector but avoid undue instability and chaos.

Sep 05 07:44 PM

[Rohit Krishnan:]

No, because you cannot cancel (x-y) from both sides since it equals zero. Perhaps that's why you can't seem to understand the maths based economics.


On Sep 05 02:22 PM AuGod! wrote:

> Mr. Machiavelli, Thank you for your Keynesian comment.
>
> 2+2=5
>
> 2+2 = 2+2+0
>
> correct? right.
>
> Now according to Robins Lemma proof
> Let x be a non-zero number, and set y=x. Thus:
>
>
> x = y
> x^2 = xy
> x^2-y^2 = xy-y^2
> (x+y)(x-y) = y(x-y)
> x+y = y
> 2y = y
> 2 = 1
> 1 = 0
>
> Now since 2+2 = 2+2+0 and we apply the lemma proof so that 0 = 1,
> 2+2+0 = 2+2+1 =5
>
> THEREFORE
> 2+2 = 5
>
> SO .. do I get the job as the nation's banker? By the way, I plagiarized
> the above equation from an internet source so am not "responsible"
> if it is proven incorrect. I promise to buy pencils with very large
> erasers attached if I get the job and will adopt "neo-Keynesianisms"
> in all of my economic decision-making because I can't think for myself..

Sep 06 12:31 AM

[Dirtnap:]

I think most of us would agree it makes sense to fight recessions during the bad times. The key problem is the failure to slow the inflation of bubbles during boom times.

Instead, we INFLATE bubbles and FIGHT recessions, in this crisis with BOTH monetary and fiscal stimuli. This will lead to a destruction of our fiat currency, and eventually our economy.

Prepare to see the American standard of living creep back about 40 years.


On Sep 05 02:37 PM Machiavelli999 wrote:

> Its actually kinda sad. Our economic knowledge has progressed, but
> our economic debates have regressed. There is an actual sensible
> argument that people can propose against Keynesian ism. Its called
> Friedmanism. Friedman and Keynes both acknowledged that recessions
> must be fought against. Friedman just thought it should be fight
> through monetary stimulus, while Keynes believed in fiscal stimulus.
> And there is a serious debate that we can have about the best way
> to fight recessions.
>
> But this is not the argument that I often have with people on blogs.
> They don't fire back at me with arguments about the ineffectiveness
> of fiscal stimulus and the virtues of monetary stimulus. No, we are
> having a discussion that has been essentially settled a century ago.
> Whether or not recessions should be fought or not.

Sep 06 01:50 AM

[Jan Paul:]

The main problem is that we try to correct downturns instead of prevent them with stable monetary, economic, trade and tax policies.

We are constantly changing the rules, the interest rates (not letting the market do it), the tax code to provide incentives or to take away incentives, and economic or trade policies that make the U.S. less competitive in the world market we live in.

We often use policies that might work in a "closed loop" but don't work in a globalized economy.

We have used flawed monetary policies for 96 years that create the bubble that lead to the busts that lead to the stimulus and debt and instability.

All of the economic theories have some validity and all have some problems because no one theory will fit a society as large and diversified as a republic where the members have different demographics, economic bases, resources, and problems. The cause of high unemployment may be totally different in one state than in another.

Right now we have 48 states in deep unemployment trouble and two that aren't. Should the two that aren't do the same things as those in trouble? Should the 48 do what those two are doing? Of course not since the two states not in trouble have a totally different set of circumstance that drive what is going on in those two states.

California has 57% of the Option ARMs and Alt A's. Should they do what a state with virtually none, does? Of course not. Yet, when you centralize decision making and apply it to the nation you get more trouble than you clear up in way too many cases.

For 96 years we have been moving toward centralized decision making and that has resulted in a dozen recessions, 3 banking crisis, our 2nd depression and devaluation of the dollar by 96% and we want to give the FED and Treasury and Congress more centralized power over the monetary and economic policy.

Good luck. I hope after the coming collapse of the dollar we change our mind about that.

Sep 06 03:10 AM

[GotLife:]

The early framers of America wanted just such a system. If you wanted a high service, high tax environment, locate there. If you wanted the opposite, choose such a state. Your comment is very insightful but not revolutionary, pun intended.

One of the true advantages of the US is shared culture with great adaptive flexibility. It has led to booming settlement in desert climates, with businesses focused on technology, to vast agriculture development in temperate climates. We share common language and contract but uncommon resource allocation. Those desiring Federal government solutions to all problems don't fully comprehend the diversity and complexity of the US, viewing it more as a closed loop system rather than the series of simultaneous chaos mathematic equations it presents.

And why must all problems be solved and issues reconciled before the US can move forward? Jungian psychology indicates 70% of the population believes this is to be an absolute, in fact, can literally see no alternative. While desire for such certainty is a successful adaptive survival trait, entrepreneurs feel no such compelling motivations. They move forward in just such high risk, open loop environments. Did Gates or Jobs need the PC market specifications defined by the Feds before moving towards a future? No, they found technology and sciences they adapted, creating their, and our, futures in the process.

Enter capitalism. The 70%, driven by the desire to face the future with certainty, save, creating the capital to finance those with vision and dreams. This pattern can't be replicated by legislation or mandated by central planning and policy, merely facilitated. But it has been nurtured and harvested in America in the modern era like nowhere else in the world.

Will it continue? Only if the 70% will allow. However, danger lurks. The desire for certainty, especially during calamitous upheavals, can cause the 70% majority to follow leadership with the exact wrong prescription.


On Sep 06 03:10 AM Jan Paul wrote:

> The main problem is that we try to correct downturns instead of prevent
> them with stable monetary, economic, trade and tax policies.
>
> We are constantly changing the rules, the interest rates (not letting
> the market do it), the tax code to provide incentives or to take
> away incentives, and economic or trade policies that make the U.S.
> less competitive in the world market we live in.
>
> We often use policies that might work in a "closed loop" but don't
> work in a globalized economy.
>
> We have used flawed monetary policies for 96 years that create the
> bubble that lead to the busts that lead to the stimulus and debt
> and instability.
>
> All of the economic theories have some validity and all have some
> problems because no one theory will fit a society as large and diversified
> as a republic where the members have different demographics, economic
> bases, resources, and problems. The cause of high unemployment may
> be totally different in one state than in another.
>
> Right now we have 48 states in deep unemployment trouble and two
> that aren't. Should the two that aren't do the same things as those
> in trouble? Should the 48 do what those two are doing? Of course
> not since the two states not in trouble have a totally different
> set of circumstance that drive what is going on in those two states.
>
>
> California has 57% of the Option ARMs and Alt A's. Should they do
> what a state with virtually none, does? Of course not. Yet, when
> you centralize decision making and apply it to the nation you get
> more trouble than you clear up in way too many cases.
>
> For 96 years we have been moving toward centralized decision making
> and that has resulted in a dozen recessions, 3 banking crisis, our
> 2nd depression and devaluation of the dollar by 96% and we want to
> give the FED and Treasury and Congress more centralized power over
> the monetary and economic policy.
>
> Good luck. I hope after the coming collapse of the dollar we change
> our mind about that.

Sep 06 10:56 AM

[Jan Paul:]

On Sep 06 10:56 AM GotLife wrote:

One of the true advantages of the US is shared culture with great adaptive flexibility. It has led to booming settlement in desert climates, with businesses focused on technology, to vast agriculture development in temperate climates. We share common language and contract but uncommon resource allocation. Those desiring Federal government solutions to all problems don't fully comprehend the diversity and complexity of the US, viewing it more as a closed loop system rather than the series of simultaneous chaos mathematic equations it presents.
======

Great additional insight. You are correct about our founders too.

Our founders feared centralization of power. They saw what the Bank of England had done to the United Kingdom and how that influenced their government's attempts to wrest tax revenues from us when their burden of debt grew too high, thanks to the Bank of England (Rothschild). They saw the other governments of the nations Americans had come from and their problems.

The knew that without adequate checks and balances from the members of a republic type system, no government that kept centralizing power could be trusted. They realized that centralization can create "efficiencies" not practical in a "republic" but, the risk of centralization outweighed the disadvantages of a diverse republic where members competed with each other in some things.

Sep 06 11:46 AM

[Dr. Bill Co...:]

This has been an exceptionally good discussion (aside from the algebra). Here are my thoughts on the Keynsian, Austrian, monetarist controversy.

Keynes's work led to a mechanistic, mathematical approach in the hands of Sir John Hicks and others, exemplified by the IS-LM model. Yet Keynes's actual words sound--Austrian! He writes at length about decision-making under uncertainty. That business executives making capital investment decisions don't know what the price of their output will be in the future, but they must make decisions now. He channels (without crediting him) Frank Knight's distinction between risk (a game where we know the relevant probabilities) and uncertainty (a game where we don't know the probabilities). Keynes writes about what people do when they don't know the probabilities, which sounds a lot like modern behavioral finance: people do what seemed to work in the past and what others are doing now. I have no doubt that we live in a world with this uncertainty, which sounds Austrian.

(In the 1968 Axel Leijonhufvud wrote an insightful book called On Keynesian Economics and the Economics of Keynes which highlights the differences between the mechanistic view and the "true" economics of Keynes.)

What does this non-mechanistic, uncertainty-filled view mean for the macroeconomy? The economy will not be perfectly, smoothly functioning, even in the absence of government policy mistakes. That sounds pretty Keynesian.

However, this conclusion says nothing about the magnitude of the market failures. Will they be little missteps of neglible consequence, or massive depressions? To answer that question I like Milton Friedman's Monetary History of the United States, 1867-1960. I'm convinced that the greatest macroeconomic problems have been the result of policy errors, although I'll concede that private sector errors in decision-making have contributed to instability.

Finally, pointing at least some of the blame at the private sector does not prove that the public sector can save us. In the real world we have a Federal Reserve chairman who is tremendously afraid that we'll enter a depression on his watch. (I suspect, without any evidence whatsoever, that his advice to someone else would have been different than what he actually did as chairman.) We have a Congress that is totally focused on their own political power and the next election. We have a President who is also focused on political power and the next election. (And I could have written that at about Mr. Bush as well as Mr. Obama.) Can this political decision-making process give us policy action of the right timing and magnitude to stabilize the economy? How about to simply do more good than harm? I am not at all convinced of that.

My interest is mostly in how business leaders should adjust their plans to account for changes in the economy. One theme I'm emphasizing is that companies should dial up their economic contingency planning, because we'll continue to a more cyclical economy in the coming years.

Sep 06 02:50 PM

[GotLife:]

During the 90's, technology industry management was obsessed with the concept of stochastic shock caused by the arrival of the internet and PC. Oddly, it appears the industry was suddenly aware they were in the midst of stochastic change, even though they had been the instigator of change across business, communications and culture for many years.

" He channels (without crediting him) Frank Knight's distinction between risk (a game where we know the relevant probabilities) and uncertainty (a game where we don't know the probabilities). Keynes writes about what people do when they don't know the probabilities, which sounds a lot like modern behavioral finance: people do what seemed to work in the past and what others are doing now. I have no doubt that we live in a world with this uncertainty, which sounds Austrian."

I enjoyed this perspective. Much has changed since Keynes originally penned his thoughts. The challenge lies in finding the truths in his works given the culture and technologies of the modern global era. In some respect, all forecasts that draw comparisons between 2007-2009 and tulip bulbs or Depression era results should be viewed with great skepticism, perhaps even incredulity.

The global economy is in the midst of stochastic shock. However, could businesses develop decision trees with probability outcome 'ranges' as a method to factor in uncertainty? Without such a first step, how would you cost justify or prioritize the contingency plans? Could the process itself reveal the probabilities involved?

Personally, even though I was part of a very flexible, adaptive technology company, strategy was too often the result of politics or intuition rather then the result of a rational planning process. Therefore, when competitive crisis arose, a bucket brigade formation was used as a response with a predictable outcome.

Sep 06 05:12 PM

[bob adamson:]

Doesn’t sound very promising does it? The private sector, left strictly to its own devices, gyrating in ever wider manic/depressive cycles at ever shorter intervals while the customary fiscal and monetary tools of the state are blunt instruments wielded by politicians and officials of clouded judgment. Let’s therefore consider other options.

While a Libertarian version of the Austrian model has appeal because it promises a certain moral clarity, there are very real reasons to doubt that a modern global economy could function adequately under its auspices and one would need creditable assurance that the transition to such a system would not be marked by deflationary chaos. The converse, planned but democratic directed national economies guided by governments co-operating through international agencies, presents an analogous promise and the similar practical concerns.

If we can accept the trade-off of higher taxes, increased regulation of the financial sector and an enlarged public sector as the price for keeping the business cycle within reasonable bounds and the society in better balance, what might this entail if the problems of the 30 years after 1945 are to be avoided? A return to Basil I limits, greater operational transparency and further limitation of the size and scope of the ‘near banks’ would go some way to address the financial sector need. The key to enhancing the public sector is not to resurrect aspects of the command economy model that marked the post WW II period. Rather, insofar as possible, compliment rather than compete with the private sector. For example, too many corporations are burdened with the care and feeding of training, pension, medical and other elaborate employee benefit plans. The management of these responsibilities diverts valuable management and financial resources that would be better spent on the core business, often with near fatal results for the companies concerned. Labour mobility, coverage for many employees and those without or between employment, the efficiency and effectiveness of many benefit schemes are compromised. What if the public sector assumed a greatly enlarged role for providing these benefits to the general population? While government must create, fund through levies and taxes and be publically accountable for the framework of this public sector role, there is no reason that co-operative and for-profit enterprises couldn’t continue to operate within this public sector framework.

The details described above are illustrative of the direction we should consider and shouldn't be judged as concrete proposals.


On Sep 06 02:50 PM Dr. Bill Conerly wrote:

> This has been an exceptionally good discussion (aside from the algebra).
> Here are my thoughts on the Keynsian, Austrian, monetarist controversy.
>
>
> Keynes's work led to a mechanistic, mathematical approach in the
> hands of Sir John Hicks and others, exemplified by the IS-LM model.
> Yet Keynes's actual words sound--Austrian! He writes at length about
> decision-making under uncertainty. That business executives making
> capital investment decisions don't know what the price of their output
> will be in the future, but they must make decisions now. He channels
> (without crediting him) Frank Knight's distinction between risk (a
> game where we know the relevant probabilities) and uncertainty (a
> game where we don't know the probabilities). Keynes writes about
> what people do when they don't know the probabilities, which sounds
> a lot like modern behavioral finance: people do what seemed to work
> in the past and what others are doing now. I have no doubt that we
> live in a world with this uncertainty, which sounds Austrian.
>
> (In the 1968 Axel Leijonhufvud wrote an insightful book called On
> Keynesian Economics and the Economics of Keynes which highlights
> the differences between the mechanistic view and the "true" economics
> of Keynes.)
>
> What does this non-mechanistic, uncertainty-filled view mean for
> the macroeconomy? The economy will not be perfectly, smoothly functioning,
> even in the absence of government policy mistakes. That sounds pretty
> Keynesian.
>
> However, this conclusion says nothing about the magnitude of the
> market failures. Will they be little missteps of neglible consequence,
> or massive depressions? To answer that question I like Milton Friedman's
> Monetary History of the United States, 1867-1960. I'm convinced that
> the greatest macroeconomic problems have been the result of policy
> errors, although I'll concede that private sector errors in decision-making
> have contributed to instability.
>
> Finally, pointing at least some of the blame at the private sector
> does not prove that the public sector can save us. In the real world
> we have a Federal Reserve chairman who is tremendously afraid that
> we'll enter a depression on his watch. (I suspect, without any evidence
> whatsoever, that his advice to someone else would have been different
> than what he actually did as chairman.) We have a Congress that is
> totally focused on their own political power and the next election.
> We have a President who is also focused on political power and the
> next election. (And I could have written that at about Mr. Bush as
> well as Mr. Obama.) Can this political decision-making process give
> us policy action of the right timing and magnitude to stabilize the
> economy? How about to simply do more good than harm? I am not at
> all convinced of that.
>
> My interest is mostly in how business leaders should adjust their
> plans to account for changes in the economy. One theme I'm emphasizing
> is that companies should dial up their economic contingency planning,
> because we'll continue to a more cyclical economy in the coming years.

Sep 07 03:16 AM

[Laurence Hunt:]

Re: The Austrian School.

I'm a psychologist. What I notice is that the Austrian School is distinguished from the mainstream by not telling listeners what they want to hear. Psychologically, that is usually a positive, if contrary indicator. In brief, the Austrians leave interest rates to the free markets and oppose all central banking. The upside, in my view: central banks consistently punish savers, and saving is the source of capital investment. So in the present environment, malinvestment continues to abound. Consider John Mauldin's recent discussion of the only booming sector in the present US economy: Federal jobs! In an Austrian world, the only booms would be in sectors favoured by the investments of savers.

www.safehaven.com/arti...

Sep 07 12:06 PM

[E Nuff Sed:]

I am no economist or psychologist but here is my take:

The Austrian school will forever remain a theory because it is politically impossible in the real world. The real world is run by politicians who have to get re-elected or by central bankers who have to get re-appointed. Suffering among the electorate is bad for getting re-elected or re-appointed.

Sep 07 07:49 PM

[Paul H. M.:]

"japan's recession that has never ended"

I guess it's all relative. You can say Japan has been in a recession, most nations would consider themselves in the middle of a great economic boom if they reached Japan's status (a nation that small being the world's 2nd largest economy is not exactly what I would call "recession").

The same thing goes for the U.S.: we feel like it's doom and gloom. But compared to most nations, we are still living a life of luxury, and we're still the world largest economy even though our population is not the world's largest.

So while we may feel depressed about our current positions, just thank god we're not England, Germany, Spain, or pretty much every other nation on earth that is doing worse than us.


On Sep 05 01:04 PM Wisdom vs. Information wrote:

> fighting deflation prevents prices from falling to where they should
> be (note, WMT not lowering prices), which hurts the group even more
> important than bankers: consumers. thus, a bad recession was turned
> into the great depression, and japan's recession that has never ended.
> since shiller is smart enough to know he is wrong, we just have to
> assume he is a cloistered academic with his own goals. i find it
> disturbing that history has proven keynes wrong conclusively, but
> people choose to embrace his idealistic theories anyway

Sep 07 10:14 PM

[Paul H. M.:]

It's always easy to claim that system that has NEVER BEEN TRIED would save our economy.

But if we switched to an Austrian system, a whole new set of problems would arise, that nobody would foresee, since the system has never been successfully adopted.

It's just like GOP-folk who think that we would all be saved if we just did-away with taxes and privatized everything. But every nation with no taxes and no government is a complete shithole. The top three economies (U.S, Japan, China) all have strong government regulation of the markets. And the worst economies (Somalia, Zimbabwee, etc) all have no regulation and small governments.

No matter what system we have, the will always be somebody claiming that their system, which is completely unproven, would make us better.


On Sep 07 12:06 PM Laurence Hunt wrote:

> Re: The Austrian School.
>
> I'm a psychologist. What I notice is that the Austrian School is
> distinguished from the mainstream by not telling listeners what they
> want to hear. Psychologically, that is usually a positive, if contrary
> indicator. In brief, the Austrians leave interest rates to the free
> markets and oppose all central banking. The upside, in my view: central
> banks consistently punish savers, and saving is the source of capital
> investment. So in the present environment, malinvestment continues
> to abound. Consider John Mauldin's recent discussion of the only
> booming sector in the present US economy: Federal jobs! In an Austrian
> world, the only booms would be in sectors favoured by the investments
> of savers.
>
> www.safehaven.com/arti...

Sep 07 10:21 PM

[bob adamson:]

There is nothing like the purity of a high minded but untried economic or political system to give the disaffected a sense of unqualified hope and moral superiority. Libertarianism and the Austrian School currently provide such a vehicle for dreams by those of a conservative turn of mind in the UK and North America. An earlier generation of conservatives had Corporatism and Social Darwinism to fill this role. Clearly the political left has had its own utopian schools of thought to fill a similar role. This is not to suggest that such utopian schools at the fringes of the mainstream do not serve a valuable role. They give form and voice to valid criticisms of the inadequacies and failings in thought and deed of current mainstream systems and are significant forces promoting the evolution of mainstream thinking and practice. That said, there is little to recommend the total adoption of the Austrian School model itself in the real world

On Sep 07 10:21 PM Paul H. M. wrote:

> It's always easy to claim that system that has NEVER BEEN TRIED would
> save our economy.
>
> But if we switched to an Austrian system, a whole new set of problems
> would arise, that nobody would foresee, since the system has never
> been successfully adopted.
>
> It's just like GOP-folk who think that we would all be saved if we
> just did-away with taxes and privatized everything. But every nation
> with no taxes and no government is a complete shithole. The top three
> economies (U.S, Japan, China) all have strong government regulation
> of the markets. And the worst economies (Somalia, Zimbabwee, etc)
> all have no regulation and small governments.
>
> No matter what system we have, the will always be somebody claiming
> that their system, which is completely unproven, would make us better.
>

Sep 07 11:29 PM

[bricki:]

The problem with the Austrian view is that they deny the possibility that science will ever bear fruit in the study of economics. To me this is the wrong attitude; if people applied this universally we would still be living in caves dependent on chance lightning as our source of fire.

Is it an easy problem? No, it isn't. But walking on the moon or mapping the human genome isn't an easy thing either.

In all of history the statement "it can't be done" hasn't held up very well.

I don't think it will be the final answer with economics.

Sep 08 10:50 AM