Krugman: U.S. Needs Death Panels, Sales Taxes.

[stripes]

Ah, now I see where you're coming from. Steven Horwitz writes on two blogs that I read...

Fuck it, why don't I just debunk the whole damn piece?





Firstly, economics is all about conducting experiments. In macroeconomics creating laboratory conditions is extremely difficult, but in some cases it is possible (like when comparing Jamaica and Barbados), and in others we settle for the next best thing: comparing and analyzing all types of empirical evidence.

Secondly, macroeconomic debates are settled based on facts: the models and ways of thinking that give us useful information and useful predictions are kept, and those that do not are discarded. This is of course a long and dirty process, and those who want to nitpick about some element of it can readily do so.

Thirdly, the Austrian business cycle model -- the one Steven bases most of his writings on -- was discarded for this very reason somewhere around the 1920s. Today, only a very small group of people (mostly outside of academia) continue to be interested in talking about it.

Here is a link to a thread from last year where I went through several ways in which uneducated people who follow these people tend to be misguided.



Yes, the crisis was worse than everyone expected. Let's not pretend that if the prediction in that graph had held up, it would've changed Steven's worldview. Why? Because his worldview (or at least one formulation of it, which he pulls out whenever it's convenient) is explicit about rejecting the use of empirical evidence altogether (in other words it conveniently shuns every attempt to reject it based on empirical evidence, even though 99.9999% of educated people consider this type of falsifiability an important criterion for a theory to be considered scientific).




After this paragraph he starts making wild assertions about the effects of various events and policies during the Great Depression, based on the aforementioned theory that was discarded in the 1920s.

Considering the level of understanding I invented that has demonstrated throughout our discussion, I don't think he will benefit much from a technical point-to-point rebuttal. Therefore, I'll just cut to the chase:

The crux of Horwitz's argument is this thing called "malinvestment".

Firstly, while this concept is central to everything he talks about, he refuses to define it in any way that would allow us to measure it, or to make predictions about how much of it might occur under different types of policy regimes.

(This is of course problematic for all kinds of reasons, which you can surely imagine.)

Secondly, behind a veil of fancy-sounding technobabble, he is making a very simple assertion: Fed and government action produce these "malinvestments", and that's the end of the story.

(Nothing we can do about it, except get rid of the Fed and the government.)

Here's an example from his article:



As you can see, he's just asserting this stuff. No proof, no evidence. Just the implications of a few simplistic theories from a hundred years ago.

And all this happens inevitably. Unquantifiably, but inevitably.

What does a malinvestment look like? No one really knows.

But easy money supposedly creates it...

This of course raises a myriad of questions -- none of which Horwitz can answer properly.

Would Amazon (a company created under easy money) have been considered a malinvestment if tight money had caused its investors to pull out before it became profitable? Presumably.

But wait a minute -- that means 1) tight money would have been the culprit, and 2) there was a way for Amazon to avoid becoming a malinvestment. In other words, it was not inevitable!

Maybe the economy's a bit too complex for us to be basing our analyses on the simplistic and fatalistic assumption that "malinvestments just happen"? Especially when we are not allowed to measure their scale or scope.

no offense, i dont come here to scour thro some e-assholes shit charts so i dont read your boring shit, again, no offense on this stern board. but i'm a fan of talking blowhard monetary heads 24/7 cnbc & bloomberg & i take it all with a grain of salt because they've all been more wrong than right at any given time with their half baked ideas, but you seem to be under the misguided impression that your economic theory is more than theory? anyone can produce charts & history up the ass to prove whatever economic theory that suits their politics, as evidenced by the shows i mentioned...its how economists justify their exisitence, but you really seem to think you've got it right is the gist of all your boring ass posts no one is reading, lighten up dude, you're half as brilliant as you think you are. go teach a night school class, i have, they're usually ripe for the pickin & you could be their hero.

[Goo For You]

Look dude, it's hard to write about this stuff without seeming like a nutcase to some people. Can't please everyone.

[Goo For You]

I know this is already too much, but just to piss off that guy, here's one more thing about "malinvestments".

So when firms go bust, they count as malinvestment? Nope.

That would be way too reasonable.

When entrepreneurs get money at the "real market interest rate", they do not produce malinvestments -- they produce good types of bad investments! Malinvestments occur only from money that entrepreneurs get cheaper than the "real market interest rate". (To give an example, the first $10K some guy borrows at 5% real market rate produces good and productive libertarian capitalism [even when his investments go bust], and every dollar he borrows the next day after government intervention at 4% produces bad destructive capitalism, the business cycle, depressions, etc.)

Does this sound convoluted enough? What about the "real market interest rate"? Can we see an example of it in the real world? Oh no -- it doesn't emerge until we get rid of the Fed and the government!

(...and right-wingers who diss mainstream economics as unscientific think THIS is the way to go!)

(...and this borderline psychotic monologue is what you get when you get me going on about this stuff.)

[Avery]

When entrepreneurs get money at the "real market interest rate", they do not produce malinvestments -- they produce good types of bad investments! Malinvestments occur only from money that entrepreneurs get cheaper than the "real market interest rate". (To give an example, the first $10K some guy borrows at 5% real market rate produces good and productive libertarian capitalism [even when his investments go bust], and every dollar he borrows the next day after government intervention at 4% produces bad destructive capitalism, the business cycle, depressions, etc.)

I'll probably be back later to make fun of this. But in the mean time, please post your empirical evidence that cheap money doesn't produce an exhorbitant amount of malinvestment as opposed to tighter controls.

My back teeth are floating in Japanese data, if you so do chose to make this *ahem* "point" that I think you're trying to make.

Nothing more fleeting than history to the rat progressive.

[Avery]

Cheap capital. Housing bubble. LoLwut malinvestment.

[Avery]

Check mate.

Lol. Just read back. How about you label your graphs.


Sad that Riotgrip has to cuddle your balls, pretending he knows what he's talking about, without labels.

We all agree, graphs deserve labels!

[BeetTheBoxer]

[Goo For You]

Just a hint to all you Ron Paul fans out there, I'm not going to spend the whole day digging up data to address every claim and concern of yours so don't even bother. Hardliners should stop pretending like data ever convince you of anything. (Your shtick is transparent and unseemly.) Others know how to look for data in the numerous databases online. (Do your own homework.)

please post your empirical evidence that cheap money doesn't produce an exhorbitant amount of malinvestment as opposed to tighter controls.

"Prove that a concept I made up and refuse to define and measure doesn't exist"

My back teeth are floating in Japanese data

How do your data differentiate between "good busts" and "malinvestment busts"?

[I invented that]

I can see why liberals embrace keynes, the government can fix everything and more government spending more gooder. So you don't believe in economic and business cycles or you don't believe in hayek's underlying causes?

[RiotGrip]

I can see why liberals embrace keynes, the government can fix everything and more government spending more gooder. So you don't believe in economic and business cycles or you don't believe in hayek's underlying causes?

Well Hayek's economics are theory just like anything else. I feel there is great flaw in the thought that a free market devoid of any govt. intervention/regulation can regulate itself.

These firms on wallstreet had some of the lowest regulations in decades, and no pesky glass-steagall restrictions(still don't really). Sure they did OK at first, but their greed got the best of them and we had a huge economic crisis. And who had to bail them out to prevent a nationwide economic collapse?--The government, funny how none of those firms said "deregulate us less and we'll fix this" back in september 2008(I know that is before you cared about politics) they lined up for the dough.

[I invented that]

Well Hayek's economics are theory just like anything else. I feel there is great flaw in the thought that a free market devoid of any govt. intervention/regulation can regulate itself.

These firms on wallstreet had some of the lowest regulations in decades, and no pesky glass-steagall restrictions(still don't really). Sure they did OK at first, but their greed got the best of them and we had a huge economic crisis. And who had to bail them out to prevent a nationwide economic collapse?--The government, funny how none of those firms said "deregulate us less and we'll fix this" back in september 2008(I know that is before you cared about politics) they lined up for the dough.

One of the basic assumptions of economics is people or businesses will base decisions on their own best interests. The problem with the government being involved is who's best interest are they acting on, the governments or the people they're supposed to be representing?

[SiriusDawg]

the government can fix everything and more government spending more gooder.

Where do people say the government can fix "everything"?

[I invented that]

Where do people say the government can fix "everything"?

Keynesian's feel the government can and should control the economy.

[SiriusDawg]

Keynesian's feel the government can and should control the economy.

I thought that Keyn's believed that government intervention was a plus but not something that should be controlling at all times.

I am actually asking....

[I invented that]

Ask goo for you, he's paul krugman jr.. I hope he's alright, he had a bit of a meltdown.

[MatthewT]

Ask goo for you, he's paul krugman jr.. I hope he's alright, he had a bit of a meltdown.

and nothing of value was lost

[RiotGrip]

One of the basic assumptions of economics is people or businesses will base decisions on their own best interests. The problem with the government being involved is who's best interest are they acting on, the governments or the people they're supposed to be representing?

That is obviously a false assumption, and it was made clear in 2008. That is like assuming that athletes would opt not take performance enhancing drugs because of long term effects. We are an immediate gratification nation now and that goes for the financial sector too.

Since I know you weren't caring in 2008, look up derivatives and credit default swaps. Look up how much supposed money is still in the derivative market. I don't fully understand derivatives, and most here probably don't-they are basically bets or bets on a bet. Needless to say the derivative market is supposedly 10 to 20 times world GDP. The financial markets had far to little govt. intervention that allowed a nonsensical amount of BS investments. They did not act in their own self interest(save an immediate reward), and entire economy almost collapsed.

[MatthewT]

Where do people say the government can fix "everything"?

goo for you

[MatthewT]

That is obviously a false assumption, and it was made clear in 2008. That is like assuming that athletes would opt not take performance enhancing drugs because of long term effects. We are an immediate gratification nation now and that goes for the financial sector too.

Since I know you weren't caring in 2008, look up derivatives and credit default swaps. Look up how much supposed money is still in the derivative market. I don't fully understand derivatives, and most here probably don't-they are basically bets or bets on a bet. Needless to say the derivative market is supposedly 10 to 20 times world GDP. The financial markets had far to little govt. intervention that allowed a nonsensical amount of BS investments. They did not act in their own self interest(save an immediate reward), and entire economy almost collapsed.

uh, i believe the quote of the collapse was "everyone knew it was a house of cards, but while the music was still playing, you gotta dance"

[MatthewT]

oh, and they're definitely headed for a federal VAT

bank on that