Monday, February 20, 2012

Ramesh Ponnuru Responds to My Post

In the comments to my post, National Review Goes on a Crazed Attack of Ron Paul Monetary Economics, , Ramesh Ponnuru has responded. My replies are in italics.

1) I've read America's Great Depression.

So I gave you the benefit of the doubt that you didn't read AGD and instead it you read it and didn't understand it, that is, you have a reading comprehension problem. As I pointed out in my column Rothbard in AGD anticipated most of your objections to Austrian business cycle theory. Do you have a problem with any of Rothbard's argument?

2) Whether or not monetary expansion to produce a steady 2 percent inflation rate can introduce distortions into the economy--something, by the way, I never deny--has nothing to do with whether Paul is correct to make the specific claims that I dispute (that even such a steady rate would amount to stealing from savers, etc.)

Again, you don't understand the first thing about Austrian Business Cycle Theory. During a period of high productivity HUGE amounts of money would have to be printed to maintain a 2% price inflation rate. If you don't think this would amount to major stealing from savers, I would really like to sell you one of my fog machines I store in San Francisco. I'll even give you my normal Keynesian-believer discount.

3) Your graph doesn't, and can't, prove anything about the relation between monetary policy and government debt.

Oh puhleeze. Are you saying the wars haven't had anything to do with the expansion of debt and the Fed's buying of debt?

4) Almost none of the quotation from Hazlitt on Keynes is on point. It is true that I believe the empirical evidence suggests that wages are sticky downward, and that Keynesians also believe this.

Duh, this is what Hazlitt is discussing:
Take this strange sentence from page 14: "Any individual or group of individuals, who consent to a reduction of money-wages relatively to others, will suffer a relative reduction in real wages, which is a sufficient justification fort hem to resist it." (His italics.)To see how bad this argument is...
Again, your reading comprehension problem surfaces.

5) Someone who calls people whose views he dislikes "crazed," questions their intellectual abilities, swears at them, etc., is probably not the best situated to describe his target's words as "vicious."

Oh, so you can give, but can't take.

Well, I happen to think guys like you, Krugman and Bernanke are crazed. In fact, I think Bernanke is certifiable. Keep in mind that Bernanke brought us the Great Recession (Which I warned about in real time,(see hereherehereherehereherehere and here , Krugman missed the eurozone bailout, the turnaround in the economy and will look like a total goof when the price inflation comes. That you guys stick to your absurd theories suggests you are all crazed, even if you are doing it as evil bastard apologists/operatives for the state.


  1. See, Ramesh is really a secret lover of the ownership society.

    Proof? Bob just pwned him.

  2. 1. What is the purpose of government money dilution in the first place? The Fabian Socialist Keynesians say it’s because the market fails and produces permanent structural unemployment which needs to be corrected by economic overseers with better knowledge. Do the NRs believe that? Are they Fabian Socialists? Where does that special knowledge come from? Does the market really fail? See Daniel Kuehn on WWI.

    2. If wages are sticky downward, isn’t the purpose of money dilution then to trick people into accepting lower real wages? How constitutional is that? How moral is that? If people are so dumb, how can they smart enough to know which economic overseers they elect are smart enough to trick them into accepting lower real wages without recognizing what hit them?

    3. Any artificial money creation will induce Cantillon Effects. Someone getting the new money first is always getting purchasing power to which they are not entitled and are stealing from those holding the existing money whether it shows up in statistics or not.

    4. Any artificial money creation will distort economic calculation, if only because the person spending the new money first is making a purchase to which he is not entitled. Distortion of economic calculation is the core principle of Austrian Economics and Ponurru appears oblivious to it. Peter Klein refers to Rothbard in MES where the suggestion is made that problems of economic calculation can even affect firms that get too large due to a lack of real prices for various factors. From “Economic Calculation and the Limits of Organization” by Peter Klein @ p. 13:

    Rothbard’s main contribution to the theory of the firm was to generalize Mises’s analysis of the problem of resource allocation under socialism to the context of vertical integration and the size of the organization. Rothbard writes in Man, Economy, and State that up to a point, the size of the firm is determined by costs, as in the textbook model. But “the ultimate limits are set on the relative size of the firm by the necessity for markets to exist in every factor, in order to make it possible for the firm to calculate its profits and losses” (Rothbard, 1962, p. 599).

    Rothbard was discussing this topic 50 years ago.

  3. This comment has been removed by the author.

  4. I thought the original article packed a punch; the rebuttal to the reply is nothing short of pulverizing!! I will concede this to Keynesians: debating Keynesians for Austrians is like fishing with dynamite for no reason other than logic is on Austrian's side.

  5. To paraphrase v Mises, the idea that government has resources not raised from the citizens is a Santa Claus fable raised by Keynes to the dignity of an economic doctrine and endorsed by all those expecting a personal benefit. (Human Action)

    Governments can only spend what they take away from their citizens, and the replacement of entrepreneurial effort with bureaucratic direction simply ends in tears. That is why government planning and intervention can never work.

  6. I think it's great that you can refute these pieces of propaganda on a item-by-item basis.

    However, when "non believers" (in ABCT), come across these things, they are turned off by some of "colloquial and agressive" response.

    I've been promoting your site to many friends and other business professionals in an attempt to spread ABCT, but this single piece has done damage. I've had quite a few people who were really just starting to be interested now come back and say that they can't take your blog seriously because of the aggressive and non professional content.

    Look, I love it when you go overboard. But I'm just saying, when you post correspondence with someone you don't agree with, a bit of professionalism can go a long way. I think you've turned off a lot of potential converts with this piece.

    1. Well, you're going to lose the emotional ones but it's a net gain in the long run. Let Wenzel do his thing.

    2. Start your own blog...Wenzel doesn't own Austrian economics. Besides, your idiot friends can go back to bootlicking the money printers...see where that gets them this time next year.

      If your friends think a business like attitude is more important that the truthiness of an idea then they will enjoy them some Obama/Romney.

    3. I couldn't disagree with you more. You should correspond accordingly is my own philosophy. If anything I think Robert Wenzel was being too charitable. The things that NR writers just like Ramesh and his cohorts like Kevin Williamson spew forth on the pages of their rag at Paul and his supporters warrants an appropriate response.

      Ramesh acts like hes got a grasp on things until someone comes along to give him a vicious head wound on paper. Then he reacts with "Oh your not acting nice to me because you called me crazy". Its called tit for tat but like I said Robert acted professionally and charitably.

    4. I agree. The insults are extremely counter productive.

    5. Agree, once you respond with emotion you lose many who might otherwise listen. It may feel good to poke your opponents in the eye, but you lose in the long run. You are not battling for Krugman, you are battling for those who listen to Krugman. Insult his followers and they turn you off.

    6. Hurling invective in furtherance of one's devotion to the state is an act of emotional and spiritual immaturity. It is a tell-tale sign of a stunted intellect.

      Those who would criticize Bob for forcefully, but accurately, responding to the totalitarian claptrap offered by a factotum of fascism should be dismissed with disdain.

    7. libertymike,

      having awareness for ones audience and forcefully and accurately responding to totalitarian claptrap are not mutually exclusive ...

      Believe it or not, it is possible to logically refute something, even in a strong way that pokes fun at the other side AND yet still leave all your readers with the feeling of "hey, that was funny and I get it" rather than "not reading that guy's column again".

      In the end, it's Robert's blog. He can write in whatever style he wants. That's what's great about America.

    8. Scum rises to the top but it only rises to the top in still waters. Sometimes you need to mix shit up to let the light shine through.

  7. You took him down like the straw man he is.

  8. "Someone who calls people whose views he dislikes 'crazed,' questions their intellectual abilities..."

    Well, that is 100 times more pertinent to the criticisms leveled at Dr. Paul, than it ever would be to Robert Wenzel who, unlike Dr. Paul's critics, lays out evidence and reasoned argument over and over again before justifiably concluding those who are oblivious to reality are truly crazy.

  9. Get 'em!

  10. Neo-Con Review Online was owned again. Someone who understands as little about econ as Ramesh really does not need to be picking online fights with those who do.

  11. I briefly glanced at the comments at NRO, and several of the readers are really letting Ramesh have it.

    1. I read the comments at NRO in their entirety late last night ..... and found it highly entertaining ..... to the point of hilarity ....

      I'd have thought that after reviewing those, Ramesh would have learned a thing or two and just avoided further self-immolation by not addressing Bob's piece directly .....

      But ..... apparently not ....

  12. **"I think it's great that you can refute these pieces of propaganda on a item-by-item basis. However, when "non believers" (in ABCT), come across these things, they are turned off by some of "colloquial and agressive" response. I've been promoting your site to many friends and other business professionals in an attempt to spread ABCT, but this single piece has done damage. I've had quite a few people who were really just starting to be interested now come back and say that they can't take your blog seriously because of the aggressive and non professional content."**

    LOL!! Honest to goodness, if your prissy colleagues aren't already pissed off about what's happening to our country and ready to fight the perpetrators, who gives a crap about what they think?

    Oh dear!! RW was rude to some statist ignoramus!! Our feelings are hurt! We'll show him by voting for Obama...again!

    1. Dude, what a pathetic response filled with zero insight and complete misrepresentation.

      Nobody's feelings were hurt, they just don't give a shit about Austrian Economics anymore.

      Are you saying it's a bad thing to try and spread ABCT?

      Are you hear to just reinforce your own point of view to make yourself feel good?

  13. Appreciate the effort and accuracy of the information, but wish it was presented a little more seriously so that we might be taken more seriously.

    1. No amount of civility will convince the Keynesian worshipers that theirs is not the one true religion. People seem to think that people are won over by politeness and acquiescence yet we know from history when it comes to important ideas all out war is whats used to win the debate.

  14. With surgical precision you tore Ponnuru limb for limb. He wasn't expecting someone like you to humiliate him. Good job & please keep it up, we laymen need scholars like yourself to help us to defend sound economic theory from frauds like Ponnuru.

    BTW he is full of dung. He has made horrible remarks about Paul so to cry foul about being called crazed, which he may very well be is asinine and childish. He should take up knitting, its safer.


  15. I think the Austrians' (esp. Ron Paul's) warnings about the housing bubble - which began years ahead of anyone else's - are more important than people seem to realize. The Austrians' epistemological arguments are so important because no one else in the field understands how fundamentally flawed their whole practice is; these problems are assumed away in "mainstream" economics, and they continue laboring away at impossible tasks. When Watson & Crick put forth the double helix DNA model, the question was settled, and scientists set about building on this idea because it sufficiently explained DNA's structure. When's the last time any issue was "settled" in econ? The answer, for non-Austrians, is never. Theories and models in science have to do 2 things: explain past observed data, and make accurate predictions about the future. Since any idiot could piece together the housing bubble in foresight, the idea of explaining past events in econ becomes a useless signal of validity. So we have to judge these ideas on their ability to see things coming, to identify the relevant dangers before they actually happen. Any framework that fails to do this is not deserving of credibility, and yet Paul Krugman still has a job because he meets the ridiculously inadequate standards. When Doctors of Economics are trotted out on NPR, their opinions are given an air of authority, like that of an MD diagnosing a disease, because the average listener buys into their pseudo-scientific window-dressing, and since that quant stuff sounds so opaque, the Doctor must be right. Economics is so debased as a field that the only framework capable of passing the most basic test of scientific validity is the one that gets marginalized, while the quacks are lauded for their intricate but inherently useless little tricks.

  16. Wonderful demolition. Of course if the money supply remains stable , which it should under commodity-based system, prices will tend to drop along with increasing productivity. This is what is generally referred to as progress. "Price stability" in that environment is inflation. If central bank driven inflation doesn't facilitate war, why do belligerent governments routinely go off the gold standard? Is that just a coincidence?

  17. The first exposure I had to the Austrian Business Cycle theory was in Paul Johnson's "Modern Times." Johnson's analysis of 1920's credit driven boom and subsequent bust was borrowed from Mises and Rothbard. Johnson is a British conservative, a darling of the NR crowd and he has written for the magazine often.

  18. All of the Keynesians will be proven wrong once the collapse happens. Until then, we might as well be having a debate about the origins of the universe. There is such a long time lag between the implementation of economic policy and the consequences of that policy manifesting, that it is difficult for the layman to link the two.

    Economic predictions must be made long term and they must be grand in scope. And our prediction is that the U.S. dollar, in its current form, will be utterly worthless in the future; probably within the next decade. There is no other alternative if Mises was right about the effects of continued credit expansion. We are already nearing the endgame. The U.S. has been stuck at a zero percent fed funds rate for three years now, and there is no end to it in sight. The U.S. government is postponing the ultimate crisis as long as it can by expanding credit. Therefore, instead of seeing the U.S. banking system collapse, you will see its currency die.

    One day in the not too distant future, Ponnuru will be scrambling to buy gold and silver and telling others to do so as well. When that happens, you will know that the currency is in its death throes. You and your family will be thankful that you bought your precious metals years before Ponnuru and the Keynesians did.

  19. lol, Thank you Mr Wenzel.
    I feel exactly the same way about those clowns.

  20. I have some questions about the original post. I hope its ok that I post them here since this is now where the action is. Please note that the only Rothbard I have ever read is his defense of the South's right to its property. I genuinely do not understand much of what's in the post, and I would like to.

    Isn't the definition of inflation given in the post consistent with Ponnuru's but not with Paul's? It suggests that inflation is only inflation if it "result[s] in a relatively sharp and sudden fall in it’s value and a rise in prices." So an increase in the amount of currency that does not produce this outcome is not inflation. It "may be caused by an increase" in the money supply, but that is neither necessary nor sufficient for "inflation." That is, as I understand, the standard definition and at odds with what the post implies, no?

    If the supply of base money is doubled this week, but the central bank promises to halve it next week, is inflation 100% this weak and -100% next week, even though it's pretty likely that that base money will spend the interim sitting around and will have no other effects at all on the economy?

    "if the Ponnuru desire to achieve a steady 2% price level is to be achieved during a period of high productivity, it would require huge amounts of money printing and result in  massive capital-consumption structure distortions."

    What is the link between money printing and capital-consumption distortions? If the cash holdings of consumers and capitalists are increased tenfold, what has changed besides a zero? How does money printing in and of itself lead to distortions? All else equal, why does it matter if enough money is printed to generate 0% or 2% or 5% inflation? Basically, where does your non-neutrality come from?

    " 'The federal government uses its monopoly over the currency to finance very little of its spending.'

    Ponnuru writes this, apparently with a straight face, as US debt soars, as it does during most war periods:"

    Why does a large increase in Federal debt necessarily mean that the debt is money-financed? Is it not possible for the government to borrow more or less from the public with the money supply held constant?

    I think Hazlitt misinterprets much of what Keynes says about labor and capital. I understood Keynes to mean that a relative reduction real wages is the reason workers have an incentive to resists nominal wage cuts, not that we should praise them for it. But whatever. I don't understand this:

    "if wheat fell in price relatively to corn, the wheat farmers would be "justified" in combining to refuse to accept the lower price. If they did so, of course, they would simply leave part of their wheat unsold on the market. The result of this would be to hurt both wheat farmers and wheat consumers"

    This sounds to me like he's saying monopolists are hurt by their monopolies. If supply is restricted so that the price rises in greater proportion than quantity sold falls, doesn't that benefit the wheat farmers? Isn't that standard? What am I missing here?

    "Keynes remained blind to the most glaring fact in real economic life—that prices and wages never (except perhaps in a totalitarian state) change uniformly or as a unit,but always"relatively.""

    Isn't that one of Keynes' main points in the General Theory? That because wages cannot be made to fall uniformly, workers resist any wage reduction since it almost surely means a relative wage reduction?

    More generally, what does the discussion of relative prices have to do with Keynes? Can't the average price level rise while relative price adjustments still take place as before?