Monday, December 19, 2011

This is the sort of post that could use a few comments

Cafe Hayek commenters can be really bad, so part of me understands Don and Russ's recent decision.

But a post like this really deserves comment. Wow. I suppose other blogs can point out the problems with all this, but commenters are good for that too.

I'm also putting Elizabeth and Harry Johnson the list of people who seem to have nothing or value to say about Keynes and who are probably not worth reading. Between that post and this one, it seems the Johnsons are really in the dark.


  1. On the other hand Daniel Kuehn, Harry G. Johnson is arguably responsible for exposing the "MacBethian character of Joan Robinson", as Dr. Brady puts it.

  2. That is pretty bad. I'm a non-specialist and even I can see that letter suggests nothing fruitful and considers all the advantages of Keynesian policies to be disadvantageous, while still still counting them as advantages for an opposing side.

    Blue Aurora, thanks are in order for the many helpful links you have posted to the Doctor's reviews.

    OK, how about this?

    Further from sanity lies this complaint (is it Austerian? Conservative, or simply me-and-mine jealous?), as written by Bob Roddis in a comment to the "Economic Policy Journal" article "Understanding Why Ron Paul Knows More About Inflation Than Does Paul Krugman" (phew):

    "[...] When money is created ex nihilo, the persons receiving this new money are in effect stealing the purchasing power of those holding the old money."

    I can see the underlying principle, but it remains completely indefensible. (Krugman, I believe, would refer Bob again to his micro-economic situation of the babysitting cooperative to point out that it is indeed possible to create money without rampant inflation, and it is indeed possible to effectively devalue money by creating conditions in which it will not be invested, or even used. We also don't see Krugman arguing that funny money and rampant inflation is a good thing, do we?)

  3. I was going to link to CH to supply my own inimitable comments for google to remember forever, but everyone is welcome to comment at reddit as well.">

    I expect comments to be back after the holidays.

    I expect to never hear about Russ's "challenge" again.


  4. Daniel

    You need to learn a little history. There are times in the affairs of man, and we are now in those times, where the world must become one of "intolerance for intolerance."

    This particular formulation of the concept was how those around Elizabeth came to realize and act, taking off Mary's head and giving us the modern world.

    There have been other moments like this. Caesar faced such a world when he crossed the Rubican.

    Cafe Hayek had to be shut down for both Don and Russ are intolerant. You have said such yourself about Russ.

    I saw a fascinating and powerful program on TV last night about a photo album of the Nazis in 1944. Looking into the faces you could not see the evil, only 30 miles away.

    Evil is afoot in this Country. You aid and abet by attempting to bridge and compromise with it.

    You need to get out more, visit the foodbanks, the families living in tents, cars, and boxes.

    The American Dream is Gone With The Wind. Your brother is studying how to pray. It is a skill you will both need, more than any other

  5. Strangely, one of the few times that I have ever commented on Cafe Hayek was to defend Daniel.

  6. @Blue Aurora: Do you mean the person I'm quoting? I have no idea. The idea that they could be sarcastic is interesting...

    It's true, I've been following the links you've posted to the Amazon reviews for a while now (unless I'm mistaken and it's actually your evil twin's doing, or something, but then I would thank him as well).

  7. @Edwin Herdman: Really? You weren’t being sarcastic? And yes, the links to Michael Emmett Brady’s reviews on were of my doing, not some evil twin’s. So you really find Michael Emmett Brady’s reviews helpful and informative? You’re welcome then. Have you ever checked out any of his documents on the SSRN? They’re worth taking a look at.

  8. Edwin Herdman -
    Actually on this point Bob isn't being entirely crazy. This is referred to as a "Cantillon effect". Money gets injected into the system by the Fed in certain places, so even aside from any inflation concerns (which I agree are misplaced at this time), there's a concern about that flow of new money distorting markets by entering the system through a few hands. I wouldn't call it "stealing" the way Bob does, and I don't even know if empirically it's an effect that's large enough to even worry about - but it is real.

  9. I understand this can happen - hopefully, anybody who took Econ 101 can chart it out in their mind. (I hovered on the edge of erasing "completely" from indefensible, and adding more commentary or stripping it all away - I assumed that the selection was obviously overemphasizing a minor point and making it seem to be the guiding principle.) Given the context (I had the thing <a href=">hyperlinked</a> earlier - sorry for that), it strikes me as taking this effect and using it to justify a bad monetary policy in a very untimely fashion. Here is the full paragraph, so you can judge it (and my reaction) without any prejudgements or distortions on my part:

    "Austrian critics [critics of Austrian economics - Ed] need to understand the difference between the basic qualitative Austrian analysis and any subsequent quantitative statistical/evidentiary analysis. When money is created ex nihilo, the persons receiving this new money are in effect stealing the purchasing power of those holding the old money. They are acquiring goods and services to which they are not entitled and making the supply of those same goods and services smaller for everyone else. This will distort the pricing process because people will not know if prices reflect actual time preferences and wants of purchasers or were merely the result of new funny money bidding up prices. This distortion of the pricing process in interest rates and all other prices results in malinvestments."

    I see now, actually, the sentence following my original quote is even worse. "Goods and services they are not entitled to?" As I see it, in the current situation the problem isn't so much protecting the value of money through inflation, but protecting the power of money to elicit the preferred economic activities to spend on.

    It seems obvious to me that a liquidity trap also describes a system that distorts the market's ability to reflect "time preferences and wants of purchasers," as people may actually want to spend their time and money in an alternative fashion, but liquidity worries lead them not to spend their money.

    That said, it seems to me that high technology companies have not been decreasing R&D in technology, but rather scaling back production (it's hard to tell, though, as many of the industries I follow, i.e. Nikon and Canon, have been hit by multiple disasters this year - most recently the flooding in Thailand, where many factories are located; in practice there has been a scramble to site alternative production, and even then the reports are that billions of dollars were lost to Nikon in terms of sales that cannot happen). Perhaps, in other markets, the glut of unbought resources means that any individual or company can buy all they want - but their confidence in the future (not to mention their immediate situation) would restrict that purchase.

    This has been, for me, one of the ongoing mysteries of this time - is it a good time to buy things in lieu of investments, or not, and in which categories?

  10. Edwin,

    I think there has been an unfortunate tendency to mix value with economics. If inflation is robbing in the sense that it reduces purchasing power, then any upward fluctuation in price necessarily robs from people's purchasing power. In order to have a completely ethical system, according to these Austrians, we'd have to have perfect price stability amongst all economic goods. Of course, when you put it in this perspective the same Austrians will declare this absurd.

  11. Jonathan,

    On that subject, have you thought any more about my reply to you on ABCT & Cantillon effects on the Cobden Centre site:

  12. I haven't read it. I'll respond to it after the holidays most likely.

  13. @ Jonathan M.F. Catalan:

    That's a helpful and concise way of putting the problem. Thanks! (Coincidental captcha: "butered")

    It leads to a question, though - what place does value (or time preferences, for that matter) have in economics, then?

  14. Jonathan Catalan is discussing a criticism I commonly give to supporters of 100% reserves. If producing fractional reserve notes robs people of purchasing power then why aren't other activities that rob people of purchasing power also made illegal. Why isn't the improvement of technology made illegal for example? The answer 100% reservists give is to move to a different explanation. They then say that they aren't opposed to competition causing price reductions if it is legitimate competition. They label FRB illegitimate competition because they believe that people would not accept FRB balances if they really understood fractional reserve banking. This moves us from macroeconomic claims about values to microeconomic claims about them. I don't agree with the 100% reservists second answer, but it's certainly better than their first.

    Bob Murphy made the same complaint about "time-preference" in his PhD. I don't really agree. I think that practically speaking there is a "price level" that applies to buying consumer goods. And as a result comparing "future goods" and "present goods" isn't ridiculous.

    I don't think the "pure time-preference" theory of interest is totally correct, but that's a bit of a different topic.

  15. Edwin,

    We're discussing two different approaches to value. One is incorporating the subjective value and expectations of the individual, which has to do with the market process. The other is incorporating your own values into whether this or that aspect of the market process is right or wrong.


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