Thursday, January 31, 2013

Clueless 'MarketWatch' Columnist Disses Austrian Economics

Darrell Delamaide in a very goofy column writes:
[...] there is no fiscal crisis. The only real problem is the totally artificial one imposed by the “fiscal cliff” legislation passed by Congress last year when its forlorn attempt at a “super-committee” on the deficit failed to reach any agreement.
Oh yeah. Interest rates are starting to head up, which means the fiscal crisis is going to expand by a multiple of its current self, as the Treasury will be forced to pay  higher rates on the money it borrows. Far from not being a crisis, it is about to become a crisis squared.

He then mentions "Nobel Prize-winning economist Paul Krugman,"  to support his case. A major problem with this is that Krugman pretty much received his award for geography, or as the Nobel committee put it, ""for his analysis of trade patterns and location of economic activity".  No one considers Krugman an expert on the deficit and what's more, his entire understanding of the structure of the economy and business downturns is based on a misinterpretation of the historical account of the goings on at a babysitting co-op.

Thus, Delamaide displaying no understanding of the economic world in his first few paragraphs  goes for the biggie by sealing his position as completely economic ignorant with this doozie:
The U.S. economy has fared somewhat better than Europe precisely because Obama in his first term was able to get some stimulus spending passed, while Europe remains mired in the obsolete and discredited policies of the “Austrian” school of economics, which sees austerity as the answer to everything — much as medieval doctors saw leeching as the cure for all illness.

First, an Austrian economist did get a Nobel Prize for business cycle theory, not geography. The committee wrote the prize was awarded to Austrian economist Friedrich Hayek for:
pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena.

Second, as Hayek and other Austrians would be able to explain, the developing recovery is a manipulated recovery. The result of Bernanke money printing rather than government spending, which is simply a transfer payment.

But finally, Europe is not applying the policies of the Austrian school of economics. An Austrian school policy, if increasing the standard of living were the goal, would call for an elimination of all regulations on the economy, the reduction of taxes to zero or near zero, elimination of unemployment payments and a return to gold as the monetary standard. None of these policies are being implemented anywhere in the eurozone.

Delamaide confuses Austrian policy, with current "austerity" programs, which everyone from the geographer Krugman to Bob Murphy promote as nearly the same thing. Causing the clueless like  Delamaide to fall completely into the trap, while Krugman and Murphy both understand the difference but confuse the issue. "Austerity" in the eurozone is about raising taxes, central bank monetary control (the ECB) and micro-economic management for the benefit of banksters and cronies---far from anything an Austrian school economist would propose in order to get an economy out of its decline.

Top to bottom, Delamaide is clueless on facts and theory about deficits, business cycle theory and basic economics.

(ht Anthony Trevisan)

21 comments:

  1. Roddis's Law strikes again.

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  2. Bob Murphy was mentioned as an Austrian supporting austerity. Are there any others of note?

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  3. The EZ periphery were a pack of notorious economic basket cases before they joined the euro, cheap credit due to the convergence of interest rates to German levels just allowed them to paper over this fact.

    "Austerity" today is about politicians and bankster cronies raping their people to prop up insolvent banks and sovereigns. True austerity would be those governments defaulting on their debts and slashing taxes and regulations to promote growth.

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  4. "The U.S. economy has fared somewhat better than Europe precisely because Obama in his first term was able to get some stimulus spending passed, while Europe remains mired in the obsolete and discredited policies of the “Austrian” school of economics .."

    Eh? European governments have been "stimulating" all over the place. Cameron's government is supposed to be hot on the austrity thing. The reality is that it's taxing, borrowing and spending at record levels. "Austerity" is the idea that the Tories will increase spending ever so slightly slower than Labour would.

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  5. And to the list of Austrian prescriptions, add debt repudiation: austerity for banksters and the lazy.

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  6. Bob,

    Why in the world are you lumping Murphy in with Krugman's version of austerity? C'mon now. I recall your earlier post that linked to Murphy's epic smackdown of Krugman and DeLong but had a gripe with what you thought was his identification with "austerians." That's not the case and you know better. Even from Murphy's blog post where he first addressed "austerians," he begins by saying:

    'Well, the answer is that David is an “austerian” (in Krugman’s terminology) too"


    He's framing the argument from the perspective of his opponents. He's not "promoting" the idea as Krugman and other Keynesians would define it. That's absurd. Even you admitted he's not in favor of higher taxes.

    Otherwise, another great post and love the blog. Good stuff.

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    Replies
    1. economics is only one component of social sciences. You have to study other social sciences too in order to understand why we are in so much trouble.

      Including group psychology. How people actually behave. Instead of constantly submerging yourself in economic terminologies.

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    2. Patriot,

      I agree economic discipline begins with the deductive study of human behavior. I disagree with your comment regarding submersion in "economic terminologies." Ideas are compromised by miscommunication and incorrect interpretation. And when one critizes another's views, it's their obligation to not mischaracterize their actual position.

      My main point is that all the Austrians that I'm aware of (including Murphy) do not support and/or promote austerity programs as defined by mainstream economists. Wenzel is saying in this post that Murphy "promotes" austerity, with the insinuation that it applies to a definition that he does not hold as his own (Murphy was merely borrowing the term as others have defined it and was critical for his argument exposing the absurdity of Krugman and DeLong, in their own terms). This is significant because it mischaracterizes Murphy's actual position and conflates two very different ideas (unless Wenzel just feels like Murphy should have been more clear about distinguishing between Austrian and austerity policy).

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    3. again, you missed the point. instead of endlessly complaining about "what" he said and "what" his positions are, first you should ask, why he said it?

      when you read an author's article, lets say Krugman, always ask,

      who is he?

      why he said it, what were his motivations?

      before jumping on "what" and "how" and "when"

      Unless you study group psychology its foolish to talk economics.

      Economics involves the exchange of goods, service, capital, ideas between people, but unless you understand how ethnic groups and people behave and what motivates them, how can you understand economics?

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    4. Patriot,

      Are you honestly suggesting that instead of debating the substance of one's argument, we must instead become mind readers by trying to determine their psychological motivations? Even if that were possible, it would be pointless.

      "but unless you understand how ethnic groups and people behave and what motivates them, how can you understand economics?"
      >> I'm not so presumptuous as to assume I know what "motivates" individuals. And that is *not* something that is required to understand economics.

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    5. if you dont even know "why" the "substance" was created, what is the merit of "debating the substance"?

      There are billions of people on planet making an argument, but unless you know their cultural/ethnic/historical background, you wont be able to figure out what the agenda behind the "substance" is.

      mind reading argument is irrelevant. you should first understand group psychology, group strategy, before you jump into economics.

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    6. "if you dont even know "why" the "substance" was created, what is the merit of "debating the substance"?"

      The reason why you are writing these comments is to be a nuisance.

      Delete
  7. From webster- http://tinyurl.com/y9c2ndy

    Definition of AUSTERITY
    1: the quality or state of being austere
    2a : an austere act, manner, or attitude
    b : an ascetic practice
    3 : enforced or extreme economy
    ________

    If you cannot even agree to the terms how can two people discuss discuss anything?

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    1. Bingo.

      Why accept Krugman's new words all the time? If you hand your opponent the language weapon, you're a guaranteed loser. And people watching the debate will be confused as hell and tune you out.

      Why we ever let them screw up the word "liberal" I'll never know.

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  8. Wenzel confuses Austrian economics w/ a specific political policy recommendation. Austrians don't give "policy"-- they only suggest that "policy" is ineffectual at all levels and the market as a whole would function more efficiently without it.

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    1. Wenzel doesn't confuse anything. If you read carefully, Wenzel writes:"if increasing the standard of living were the goal."

      Wenzel doesn't imply that Austrian economists, as economists, must call for this policy.

      Please focus on what you are reading.

      Further, it is wrong to say that a laissez-faire "policy" would be ineffectual, if one is thinking in terms of a climbing standard of living.

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  9. Dept. of Keeping up with the MMTers:

    Last week, I decided to listen to a podcast by a certain Phillip Pilkington of London, England on "Neoliberalism and Hayek's Delusion".

    http://fromalpha2omega.podomatic.com/

    This article gives you a sense of the "insight" of Mr. Pilkington:

    In the 1920s Hayek was still within the fold of pure economics, publishing papers and works that were taken seriously by the discipline. However, by the 1930s Hayek’s theories had started to come apart at the seams. Exchanges between Hayek and John Maynard Keynes and Piero Sraffa show Hayek as confused and even somewhat desperate. It was around this time that Hayek discontinued making any substantial contributions to economics. Not coincidentally this overlapped with the time when most economies, mired as in Great Depression, demonstrated that Hayek’s theories were at best impractical, at worst a complete perversion of facts.

    So, Hayek turned instead to constructing political philosophies and honing a metaphysics rather than engaging in any substantial way with the new economics that was emerging. When pure logic and empirical reality ceased to support Hayek’s emotionally charged ideology he turned, to the more malleable sphere of meaning and metaphysics. He became concerned with watery terms like “freedom” and “liberty”, which he then set out to impregnate with a meaning that would support his dreams. The most famous result of this period of conversion, which resembled less St. Paul on the road to Damascus and more so an alcoholic who had hit rock bottom, was Hayek’s 1944 work The Road to Serfdom. In a very real way it was this book that marked the close of Hayek’s career as a serious economic thinker and set him on the path of the political propagandist, agitator and organiser.


    http://www.nakedcapitalism.com/2013/01/philip-pilkington-the-origins-of-neoliberalism-part-i-hayeks-delusion.html#YHrmqSJUxUqkqYSD.99

    It was so embarrassing, I assumed no one in the USA would mention it. Wrong again. The great "Lord Keynes" is today promoting it:

    http://socialdemocracy21stcentury.blogspot.com/2013/02/philip-pilkington-on-hayek-and-origins.html

    "Lord Keynes" writes:

    Notice how Hayek never even seriously bothered to refute the General Theory.

    By the time of Road to Serfdom he was endorsing Keynesian stimulus in a depression (whether honestly or tactically to avoid looking like a lunatic, as he had in the early '30s), and even his realisation that Walrasian GE theory was flawed was essentially moving him in the direction of Keynes's ideas, though Hayek persisted in dogmatic worship of extreme free market theology despite this.


    I could be wrong, but I think it is good news for our side that, without exception, our opponents are notorious liars and fools.

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  10. Mr. Pilkington politely responded to me at the Mike Norman Magic Money Tree site. Pilkington wrote:

    Two comments. One particular, one general.

    (1) All that stuff that Hayek wrote after the final failure of his attempts to cobble together a coherent economic doctrine were about the philosophy of knowledge. Like all his stuff on "freedom" and "tyranny" and all that other metaphysical nonsense, these were philosophical doctrines with which Hayek threw up a smokescreen around himself (because these issues, having been debated for millenia, will never be truly resolved).

    The reason I never mentioned this aspect of Hayek's work is because it had no widespread influence. It was marginal and had little to do with the spread of neoliberalism. To understand the latter we have to understand Hayek's delusion -- that is, his assertions about economic planning and social organisation. Which leads me to my more general point.

    (2) I've got a lot of flak over both the series and the interview from the Austrians, but none of them have actually said that I was wrong about Hayek's delusion.... which is what the whole thing is really about. None of them are willing to seriously engage with my contention that Hayek was deluded when he asserted that economic planning led to totalitarian political organisations. Interesting, no? It's as if I've touched on a strongly mythic component of their entire belief system. A fantasy that has been handed down from generation to generation. So, in a way the responses I've got so far have sort of confirmed my overarching thesis.


    Pilkington clearly has no familiarity with the topics he's discussing. Then I was set upon by the usual orcs.

    http://mikenormaneconomics.blogspot.com/2013/02/lord-keynes-philip-pilkington-on-hayek.html

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    1. "Hayek was deluded when he asserted that economic planning led to totalitarian political organisations."

      I don't understand how the notion of central planning leading to totalitarian organization can be controversial....

      Is it no wonder that no one, especially Hayek-has bothered to "argue" such an axiomatic thing?

      Loquitur pro se ipsa.

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