Saturday, January 7, 2017

An Austrian-Lite Responds

James Knight emails in response to my recent post,  PRICE INFLATION WARNING Wages Increase at the Highest Rate Since 2009, where I taunted Austrian-lites. His email:

Hey (insert ad hominem word here),

This is not what a recovery looks like:

Have you ever actually read anything by Ludwig Von Mises?  I know it takes effort, but I'm sure there's a version with pictures that you can even colour with Crayons.

I can't wait until the Fed does QE4, and you're left drooling on your shirt, scratching your head.  But what will you say then about how "this is not what a recession looks like"?

You are truly clueless
The link leads to a chart showing percentage real GDP growth from various prior peaks, which is kind of cute observation but utterly worthless. GDP is my least favorite indicator, a point I have made for years in the EPJ Daily Alert. It is an aggregated mess.

 EPJ Daily Alert subscribers often send me different collections of data and my reply is always the same: Don't send me such data unless you can explain how the data is calculated and what exactly the mechanism is that caused the data that you have sent to do what it is doing.

I think real GDP is a horrific aggregate but here is real GDP, the data point he wants to use to make his point "This is not what a recovery looks lie." Bizarre. It clearly shows the opposite that we are well into a recovery phase.

Meanwhile, in the real world, unemployment is way off its Great Recession highs (regardless of how you measure it) and the stock market is at record highs. The stock market being the measure of market prices of capital, precisely the type of data you would expect to be climbing during the bull phase of the Fed manipulated Fed boom-bust cycle.

And do I really have to point out once again that last year Austrian-lites said the December 2015 Fed interest rate hike wouldn't hold? That the Fed would have to reverse it, that the Fed might have to go to negative interest rates? Never happened. In the real world, the stock market boomed and the Fed hiked rates again--with more to come. This is not what a recession looks like.

Oh, btw, if you really want to learn about GDP you wouldn't necessarily read Mises but his student Israel Kirzner and in particular his essay On the Premises of Growth Economics (New Individualist Review: Volume 3, Number 1; Summer 1963).



  1. Sounds like the Austrian-lites keep getting served and are in shock/denial.

  2. I'm currently taking my first course in Austrian economics, Professor Jeff Herbener's "Austrian Economics, Step by Step" at Some of this blog's readers could surely benefit from this introduction to Austrian economics. I am frankly amazed by the number of times something I have read here (written by Mr. Wenzel) jives exactly with what I've heard in this course. What I have gleaned so far from my lessons tells me that Mr. Wenzel knows his business.