Should Austrians Cool It With the Hyperinflation Forecasts?

Of course, they should.

The possibility  of price inflation accelerating significantly in 2016 is very strong in my view, But that could mean inflation of "only" 5% to 7%. That's not hyperinflation.

When you have a system whereby a central bank can print money at will, the technical apparatus to create hyperinflation does exist, but it doesn't mean a central bank will go to that extreme. It depends upon who is in charge of the money printing and the economic environment at a given time. Matt McCaffrey gets this. A more regular threat to the economy is the central bank created boom-bust business cycle (Which is not always in bust mode!).

Austrians really need to get their act together in understanding the very complex nature of the economy and the many phases that an economy can go through, and not always forecasting imminent doom.

I expect things to be much worse on the price inflation front next year, but this doesn't mean I expect the world to end next year.-RW


There’s More to Money than Hyperinflation
By Matt McCaffrey

Critics of Austrian macroeconomics often resort to strawmen when trying to challenge arguments against central banking, fiat money, and expansionary monetary policy. For example, it’s common to paint Austrians as doom-and-gloom prophets of economic collapse, with little to offer besides paranoid predictions of hyperinflations and monetary collapses lurking around every corner.

Unfortunately, even readers of Austrian economics fall into the trap of believing that the central problem with government money monopolies is that they’re always on the slippery slope to immediate catastrophe. This kind of thinking can be harmful because it encourages us to think only about obvious and extreme consequences of public policy, while ignoring more urgent, underlying issues.

The fear of hyperinflation is a good example. Hyperinflations do occur, and when they do, they give us a good look at the ultimate consequences of monetary central planning. However, hyperinflation is only one possible outcome of bad macroeconomic policy, and a rare one at that. Poor monetary institutions produce many other subtler and more pressing problems worthy of our attention.

For instance, the destruction wrought by monetary expansion is great even when inflation is slow, consistent, or numerically small. We should therefore be careful to see the damage caused by expansion for what it is: an ongoing and systemic problem that consistently produces distortions in the economy. However, as bad as it might be, it won’t necessarily result in complete economic collapse tomorrow.

As always, it’s vital to focus on the unseen effects of monetary policy, and that means considering how monetary expansion influences the price system and the behavior of entrepreneurs. The thing is, we don’t need Weimar-style money printing to redistribute wealth and encourage bubbles: even small credit expansions produce inequalities and malinvestments, whether hyperinflation eventually happens or not. Mises and other Austrians have been arguing this point for decades.

The problems run deeper than the threat of total disaster. In fact, that’s the whole point: if bad monetary policies always produced immediate catastrophe, people would long ago have seen the failings of central banks and done something to replace them. But because the distortions caused by monetary expansion seep slowly and discontinuously through the economy, their true origins remain unseen, even when the bubbles they create become obvious to the world.

Austrians are not in the business of predicting inflation, and constant warnings of impending disaster run contrary to both good theory and effective strategy. That is, economics teaches us to be humble when making predictions, if we make any at all. And strategically, we undermine the reputations of economists like Mises when we invoke them to predict disasters that never materialize. We’re better off carefully studying their ideas and using them to think about the very real problems that already lie beneath the surface of our economy and its institutions. The end of the world can wait.

The above originally appeared at Mises.org.

How to Lie with Statistics and Graphs

Correlation does not mean causality. Here's proof, unless you think Staten Island Cakes is behind Michelle Bachmann's decline in the polls and that Facebook is driving the Greek debt.

Writes Vali Chandrasekaran of Businessweek:

Need to prove something you already believe? Statistics are easy: All you need are two graphs and a leading question.

Click on chart for larger view.

It should be noted that Austrian economists have always been solidly in the camp of understanding that economics is a deductive science and that econometricains, who use complex equations to "prove" correlations, can be way off.

Wrote Ludwig von Mises:

There are, in the field of economics, no constant relations, and consequently no measurement is possible. If a statistician determines that a rise of 10 percent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 percent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or in another time. He has not "measured" the "elasticity of demand" of potatoes. He has established a unique individual historical fact. No intelligent man can doubt that the behavior of men with regard to potatoes and every other commodity is variable. Different individuals value the same things in a different way, and valuations change with the same individuals with changing conditions. . . .

The impracticability of measurement is not due to the lack of technical methods for the establishment of measure. It is due to the absence of constant relations. . . . Economics is not, as . . . positivists repeat again and again, backward because it is not "quantitative." It is not quantitative and does not measure because there are no constants. Statistical figures referring to economic events are historical data. They tell us what happened in a nonrepeatable historical case. Physical events can be interpreted on the ground of our knowledge concerning constant relations established by experiments. Historical events are not open to such an interpretation. . . .

Experience of economic history is always experience of complex phenomena. It can never convey knowledge of the kind the experimenter abstracts from a laboratory experiment. Statistics is a method for the presentation of historical facts. . . . The statistics of prices is economic history. The insight that, ceteris paribus, an increase in demand must result in an increase in prices is not derived from experience. Nobody ever was or ever will be in a position to observe a change in one of the market data ceteris paribus. There is no such thing as quantitative economics. All economic quantities we know about are data of economic history. . . . Nobody is so bold as to maintain that a rise of A percent in the supply of any commodity must always – in every country and at any time – result in a fall of B percent in price. But as no quantitative economist ever ventured to define precisely on the ground of statistical experience the special conditions producing a definite deviation from the ratio A:B, the futility of his endeavors is manifest.

Should a Libertarian Work for a Union?

An EPJ reader sent an email to both Bob Murphy and me, with his permission after removing his name an identifying details I reproduce his email here, along with a response:

I am emailing the both of you because...you are both similarly aligned with the beliefs that I also hold. However, there is something that I must tell you guys-- I am a union-member.

I know that this makes me seem a hypocrite due to my also being an Austrian (of the Rothbardian persuasion) and that I portray myself as such. In all honesty, I do consider myself a true Austrian.

Before I left XXX to move back home to ZZZ, I talked to my father to align a job for myself. He, having retired as a union Ironworker...had many connections in the heavy industrial/construction industry. The thing is that in ZZZ and these industries are entirely unionized and require all contractors to be union, as well. When I arrived in ZZZ, I was hired by two of the subsidiaries of the 'Company Y' to work in their office/shop to learn the ropes, but I had to get a union card before being allowed on any of the job sites.