tag:blogger.com,1999:blog-1740670447258719504.post4668897012072127968..comments2024-03-27T03:00:27.024-04:00Comments on Facts & other stubborn things: Boudreaux 25% right, DeLong 75% right, Garrison 100% right on HayekEvanhttp://www.blogger.com/profile/12259004160963531720noreply@blogger.comBlogger54125tag:blogger.com,1999:blog-1740670447258719504.post-76997997953668284372011-12-21T14:06:11.691-05:002011-12-21T14:06:11.691-05:00John when did he ever say the government would kno...John when did he ever say the government would know how to repurpose or the government should repurpose factories?<br /><br />re: <i>"A Hayekian macro policy would stabilize NGDP and let the factory re-tooling be left to the people with the knowledge and incentives to discover how said factory can generate sustainable economic value."</i><br /><br />The discussion has been over Hayek's contribution to macroeconomics. Hayek's contribution to macroeconomics is precisely what Brad describes - this is what he spent the 1930s working on - this is the position he put forward. If you don't believe me, then read Hayek. Later in his life, Hayek made some concessions to the opposition in terms of income stabilization. He hardly contributed to macroeconomic science on this point. It's not even a view that Hayekians universally agree with him on.<br /><br />Do you agree that there should be NGDP stabilization?<br /><br />If you do, can I take this to mean that you are now a supporter of monetary and fiscal policy?<br /><br />If not, could you explain?Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-16371160377387543562011-12-21T10:48:58.971-05:002011-12-21T10:48:58.971-05:00I suppose ensuring the monetary policy maintains t...I suppose ensuring the monetary policy maintains the "spending flow" (or stabilizes NGDP) is just like actively shuttering factories and sending people home to eat cherrios and watch the boob tube.<br /><br />Sheesh.<br /><br />The over-investment vs. mal-investment component of this is a side note. Hayek's policy norm is NOT what Delong is claiming here. And, more importantly, why the heck does he think politicians will know how to repurpose factories? His faith in politicians to know what to do and be incentivized to do the right thing isn't supported by reality.<br /><br />A Hayekian macro policy would stabilize NGDP and let the factory re-tooling be left to the people with the knowledge and incentives to discover how said factory can generate sustainable economic value.John Papolahttp://johnpapola.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-61337207443670358952011-12-14T05:42:59.929-05:002011-12-14T05:42:59.929-05:00I really can't take this criticism of DeLong s...I really can't take this criticism of DeLong seriously. I don't think the understanding of Hayek turns on whether we say "factories are shuttered" or "particular activities within firms are affected".<br /><br />What would you think if some Austrian said <i>"Keynesians think that when effective demand is weak businesses close down factories, and unemployment goes up"</i> and I complained that that guy is either lying or has no idea what he's talking about because Keynesians have NEVER said that whole factories have to shut down.<br /><br />This is dumb - DeLong explained it just fine.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-87369397835555527192011-12-13T20:06:44.690-05:002011-12-13T20:06:44.690-05:00I think Troy is right that Delong doesn't unde...I think Troy is right that Delong doesn't understand the situation. It's not necessarily about businesses closing down whole factories. It's not about businesses as a whole being affected by roundaboutness, it's more about particular activities within them.<br /><br />It's also worth noting that it's not strictly necessary to cite the frictional cost of redeploying fixed capital. All that's needed is for some capital, be it "fixed" or "circulating" cannot be re-purposed at all.Currenthttps://www.blogger.com/profile/08645195276844244481noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-61065820865759598062011-12-13T17:27:57.321-05:002011-12-13T17:27:57.321-05:00DeLong says Hayek says companies' only choice ...DeLong says Hayek says companies' only choice is to shut down. This is patently untrue. He is thus either wrong about Hayek, or lying. There are many other options, and Hayek knows that. Hayek just does not think that following the policies of people like DeLong, which got us in the mess in the first place, is the best way to get out of the mess. Hayek is far more complex an economist than DeLong believes or understands him to be.Troy Camplinhttps://www.blogger.com/profile/16515578686042143845noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-69601592827821718782011-12-12T16:02:11.331-05:002011-12-12T16:02:11.331-05:00My general opinion is that if I'm not agreeing...My general opinion is that if I'm not agreeing with Garrison and Horwitz I've probably made a mistake.<br /><br />The whole S=I think depends on how you define the terms. Remember I was talking to more mainstream folks here. In mainstream econ stocks of goods that have been produced but not used are considered "investment in inventory" not "plain saving". Now, if we have plain saving then I have to say "...all production that is not immediately used for consumption is investment or plain saving." Though I don't think that today there would be much difference between the two.<br /><br />Regarding the burger bun.... Until it is consumed the burger bun is circulating capital. If we were to define output components such as consumption and investment per day then on the day the bun is baked there is an investment made. Later on when the bun is sold and eaten there is consumption. My point is that there is no hard line between investment and consumption. It depends on the time periods picked. In any problem we have to pick time periods and be rigourous about them. But, that process means that some of what is thought of a "circulating capital" becomes investment. Trees grown for wood, for example, are investment even though they will physically be consumed.<br /><br />I don't think what I'm saying is in conflict with Garrison's article on Strigl (which I've read but not recently).Currenthttps://www.blogger.com/profile/08645195276844244481noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-51025378254817183472011-12-12T10:34:04.702-05:002011-12-12T10:34:04.702-05:00This article by Roger Garrison is also helpful.
ht...This article by Roger Garrison is also helpful.<br />http://www.auburn.edu/~garriro/strigl.htmAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-55115113204909159192011-12-12T10:21:09.212-05:002011-12-12T10:21:09.212-05:00Check out pages 8 and 9 here to get a better idea ...Check out pages 8 and 9 here to get a better idea of why I said the above.<br />http://books.google.com/books?id=Z0hCJRTx6JAC&printsec=frontcover#v=onepage&q&f=falseAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-15586044463785423392011-12-12T09:55:40.273-05:002011-12-12T09:55:40.273-05:00Yes, maybe assumption wasn't the best word in ...Yes, maybe assumption wasn't the best word in this case.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-5281171929491582212011-12-12T09:53:37.391-05:002011-12-12T09:53:37.391-05:00Whether other Austrians agree or not is why I said...Whether other Austrians agree or not is why I said, "at least not that I am aware of". It certainly was not the impression that I got from the bigger names in the school of thought. Granted, economics isn't my primary focus of study, so I could be wrong.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-22005961407886547902011-12-12T09:38:51.408-05:002011-12-12T09:38:51.408-05:00I'm not sure I'd call S=I an "assumpt...I'm not sure I'd call S=I an "assumption"... and I'm not sure all Austrians are going to agree with you on this one, Joseph (at least that first sentence).Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-76019327135585284722011-12-12T09:34:58.630-05:002011-12-12T09:34:58.630-05:00Current,
Your example assumes that S=I. Austrians...Current,<br />Your example assumes that S=I. Austrians do not make this assumption, at least not that I am aware of. Savings is merely the deferment of consumption, whereas investment is the transfer of land and labor to the formation of capital. Obviously, you need savings in order to invest, but it should also be clear that they are not the same thing (in the Austrian perspective). <br /><br />Further, the bun in you example wouldn't be savings or investment, because its entire purpose is to be consumed.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-69715381219324652052011-12-10T11:37:53.606-05:002011-12-10T11:37:53.606-05:00On "overinvestment" the whole problem is...On "overinvestment" the whole problem is what it meant by overinvestment.<br /><br />Above I asked "Is it production of investment goods in excess of what would occur if the interest rate were the neutral rate? Or, is it production of such an excess of investment goods that it isn't possible to pay workers to use them all later? Or is it something else."<br /><br />If you read through Gene Callahan's discussion of Say's law he is concerned about the latter. See:-<br />http://gene-callahan.blogspot.com/2010/11/accepting-idea-of-general-glut-heresy.html<br />(Incidentally, I pointed this out to Gene in a blog comment on one of his earlier posts on the Say/Malthus controversy before he wrote this). What most people mean by an overinvestment theory is something like this.<br /><br />The other sort of "overinvestment" is investment which isn't consistent with the neutral rate of interest. Now, to most Austrian all production that is not immediately used for consumption is investment. The bun your burger comes in (and the burger) is investment until it is served to you. Now, some people like to describe the situation where too much is invested in long run projects are "overinvestment" to many of us Austrians at least it isn't it's malinvestment because those long run projects are being invested in *instead off* shorter run projects.<br /><br />Perhaps it would be useful to have a set of more precise words for this sort of thing.Currenthttps://www.blogger.com/profile/08645195276844244481noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-53736235587421810252011-12-10T11:23:39.825-05:002011-12-10T11:23:39.825-05:00liquidationist,
That's Larry Sechrest's n...liquidationist,<br /><br />That's Larry Sechrest's net present value interpretation of ABCT. I think that's a very useful way to look at things.Currenthttps://www.blogger.com/profile/08645195276844244481noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-53839589605302087582011-12-09T16:57:50.644-05:002011-12-09T16:57:50.644-05:00"higher % of interest payments in their selli..."higher % of interest payments in their selling price"<br /><br />should have been<br /><br />"higher % of interest payments in their cost of production"liquidationisthttp://liquidationist.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-844944557739566072011-12-09T16:48:53.615-05:002011-12-09T16:48:53.615-05:00I think there is tendency amongst both Austrians a...I think there is tendency amongst both Austrians and non-Austrians to overcomplicate the ABCT.<br /><br />Its really very simple.<br /><br />The central bank creates money which then gets lent out through the banking system. <br /><br />This new money will eventually lead to a new equilibrium of prices and interest rates.<br /><br />However as the banks will need to lower IRs immediately to clear the new funds but other prices will take varying lengths of time to reach their new levels there will be a period of disequilibrium.<br /><br />During this period of disequilibrium there will be overinvestment as the lower interest rates will allow investments to give bigger profits than would be the case at equilibrium.<br /><br />There will also be malinvestment as the low interest rates will make products that have a higher % of interest payments in their selling price cheaper to produce than at equilibrium and again allow profits to be bigger than at equilebrium<br /><br />When prices eventually approach their new equilibrium these marginal investments and malinvestments are no longer profitable and resources devoted to them need to be reallocated, which can cause an economic bust. <br /><br />Of course things gets a bit more complicated when one considers that the injections of money are normally continued over some period of time and are not one-time events as described here, but the principal remains the same.liquidationisthttp://liquidationist.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-80569895309578272492011-12-09T16:20:42.967-05:002011-12-09T16:20:42.967-05:00BTW, don't let my ramblings pull you away from...BTW, don't let my ramblings pull you away from spending time with Kate. First thing is first, second thing is second, as Gene would say. ;)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-67293637322286062102011-12-09T16:16:26.587-05:002011-12-09T16:16:26.587-05:00Daniel,
This has much to do with time, valuation,...Daniel,<br /><br />This has much to do with time, valuation, and the extent of the capital structure. <br /><br />The structure of capital doesn't necessarily change on a dime, only prices do that. Since prices are the only real objective figure of economic reckoning, it makes great sense to understand the causes of changes in prices, as well as what stages of production in which these changes are taking place. <br /><br />When I speak of price, I am not limiting it to merely the price of a specific good (as is done in a supply/demand analysis), I am speaking of all market prices (goods, services, labor, capital, interest, as well as time-discount prices such as rent and lease). Merely changing the supply of money will have profound effects on all of these, thus leading to ends that are entirely abstracted from the actual nature of the structure itself-- this is malinvestment.<br /><br />No matter what good you use as a money, if you can arbitrarily change its supply without any cost or any reflection of market realities, then this change will cause radical changes in the price structure of goods all along the production structure. This is what Mises (Hayek) are talking about with regard to "malinvestment". <br /><br />The concept of "over-investment" is an entirely subjective consideration, one that is made after the malinvestment has been shown to be a mistake.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-58198069777941094162011-12-09T15:42:27.119-05:002011-12-09T15:42:27.119-05:00My wife is now home and so I am going to stop plow...My wife is now home and so I am going to stop plowing through Human Action (I don't have Karl Smith's staying power). But... is it just me or does Mises seem to suggest a highly inelastic supply of capital here when he talks about employing "r+p1+p2 as if it were r+p1+p2+p3+p4".<br /><br />If people embark on r+p1+p2+p3+p4 and capital goods aren't restrictively inelastic there's going to be an overinvestment response (perhaps an actualization of r+p1+p2+p3 before a crisis). I want to finish reading it, but that's clearly what the more reasonable modern expositors like Garrison have included.<br /><br />And yes I know the whole motivating problem is the malinvestment element of it (that's what I've been trying to get across to Troy), but that doesn't mean it is in the broad class of business cycle theories that is an overinvestment theory.<br /><br />When I finish reading this, maybe I'll recant on Mises. But I usually don't have Mises in mind when I'm talking about ABCT (and I usually mention I'm thinking of Hayek/Garrison). So "Mises read sensibly" is overinvestment and malinvestment, or Hayek and Garrison is overinvestment and malinvestment. Take whichever option you want. But the only sensible thing to do in taxonomizing these theories is to class ABCT with overinvestment theories.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-84416031281059400362011-12-09T15:25:17.772-05:002011-12-09T15:25:17.772-05:00DK reads Mises in terms of the "effect",...DK reads Mises in terms of the "effect", whereas Mises was speaking in terms of the "cause" (as was Hayek). Mises went to great lengths to distinguish between over-investment and malinvestment. He specifically states that it isn't over-investment that causes the boom, rather it is investment in the "wrong lines" (i.e. malinvestment). <br /><br />This can be found on page 547-563 in 'Human Action'.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-7675290683572553992011-12-09T13:49:43.522-05:002011-12-09T13:49:43.522-05:00Daniel, I don't get why you think that Mises q...Daniel, I don't get why you think that Mises quote is a smoking gun piece of evidence in favor of the "overinvestment" interpretation. You aren't quoting him saying anything about overinvestment.<br /><br />Are you saying that his words are basically implying that too many resources are going into producers' goods, rather than consumers' goods?Bob Murphyhttps://www.blogger.com/profile/04001108408649311528noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-19205356540534267562011-12-09T12:24:35.169-05:002011-12-09T12:24:35.169-05:00At first I thought you just misunderstood Keynes -...At first I thought you just misunderstood Keynes - perhaps unknowingly. Now you're missing the primary point of including the capital structure in ABCT models!<br /><br />- Capital structure responds to interest rates because it's an organization of the productive process over time.<br /><br />- Capital structures can't be reformed instantaneously or costlessly, so when they are revealed to be problematic economic activity declines and people are laid off.<br /><br />- If repurposing were possible you wouldn't have to lay people off. The whole point of ABCT is recognizing that the capital structure doesn't turn on a dime. That's the <i>whole point</i> Troy.<br /><br />There's a lot of material out there to read up on this if you need to, and the original rendition by Hayek which everybody thinks of is relatively short and easy to read.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-52235608786736928932011-12-09T12:20:51.458-05:002011-12-09T12:20:51.458-05:00Troy you're acting as if DeLong has said Hayek...Troy you're acting as if DeLong has said Hayek loves laying people off.<br /><br />DeLong is right about Hayek. The whole point of ABCT is that repurposing capital is not costless - the natural and necessary thing to do is lay people off in that case.<br /><br />re: <i>"We have DeLong's exact words here."</i><br /><br />Yes, we do - so why are you still pushing this?Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-14060685466672536482011-12-09T12:08:16.653-05:002011-12-09T12:08:16.653-05:00That's not what DeLong said. He said that Haye...That's not what DeLong said. He said that Hayek<br /><br />"spent a lot of time figuring out why it might be that when you learned that you had overinvested and overborrowed, the natural and necessary thing to do was to shutter (rather than repurpose) factories and send your workers home to eat Cheetos and watch “The Real Housewives of Galt’s Gulch”."<br /><br />Hayek says nothing of the sort. So DeLong is either wrong about what Hayek says needs to take place after we have followed the recommended policies of hacks like DeLong, or DeLong is lying about Hayek's position. We have DeLong's exact words here. If Hayek never said what DeLong says he said, then DeLong is either wrong, or lying. Those are the only two choices when you say that someone said something they did not.Troy Camplinhttps://www.blogger.com/profile/16515578686042143845noreply@blogger.comtag:blogger.com,1999:blog-1740670447258719504.post-3009118734592621072011-12-09T06:37:13.566-05:002011-12-09T06:37:13.566-05:00I read the Ebeling article. It was interesting. Eb...I read the Ebeling article. It was interesting. Ebeling is a funny guy - he's very intelligent but he has some big blind spots that make him sound very naive when it comes to Keynesianism. I did not like the beginning at all for that reason, although it was interesting to note how well regarded Hayek was in the 1930s. I knew he was regarded as a major player, but I did not know (if Eveling's implication is accurate) that he was considered more prominent than other business cycle theorists. I'm not sure how this helps his case, of course. That means it's not as if Hayek didn't get a fair hearing (as a lot of people will contend). In fact, he had command of the stage and lost it - and he even lost some people that had previously agreed with him.<br /><br />I read it closely, skimmed the RBC section, and then read the part you suggested. One thing that's curious that Ebeling doesn't speak to is why he thinks the production structure is consistent with time preferences in the slack economy. This is something I've been raising for a while. I don't think the idea that the structure of production responds to the interest rate should be all that controversial. As I try to point out over and over again, Keynes said it was - crediting Bohm-Bawerk - in chapter 16 of the GT. It's a fairly straightforward observation. But it seems it's precisely in a slack economy that the capital structure would be the most inconsistent with time preferences, and yet Ebeling's assumption here (and Garrison's too) is always for some reason that it is most inconsistent during periods of full employment. I still don't really have an answer to why someone would think that.Daniel Kuehnhttp://www.factsandotherstubbornthings.blogspot.comnoreply@blogger.com