MAGIC SOOUULLLSSSS Libertarian

[name_here]

Did you somehow miss that the world's most stable economy does all of its trading in worthless slips of cotton?

Did you somehow miss that printing more paper money is tightly controlled, it's highly controversial when the total supply is increased or decreased, and counterfeiting is treated as a major crime?

Do you have any idea what happens when the symbolic markers for value are created at will? Bad things.

Uh, they totally are created at will by the government. It just chooses how many symbolic markers it creates at will.

[Occluded Sun]

No, not at will. If you just start making more markers, the total amount of value symbolized remains constant, but gets effectively diluted among all of the markers. Which means that the markers that people already have lose some of their power. Which tends to destabilize things to the point of economic collapse.

Value is partly subjective, and partly objective. In the context of an economy, it can't be arbitrarily created, and it's not so easily destroyed.

[Mistborn]

No, not at will. If you just start making more markers, the total amount of value symbolized remains constant, but gets effectively diluted among all of the markers.

You do realize that they printed trillions of dollars from 2009-2012 and the inflation rate didn't correspondingly rise. You're directly contradicting observed reality here.

[Ancient History]

https://en.wikipedia.org/wiki/Quantitative_easing

[Maxus]

No, not at will. If you just start making more markers, the total amount of value symbolized remains constant, but gets effectively diluted among all of the markers.

You do realize that they printed trillions of dollars from 2009-2012 and the inflation rate didn't correspondingly rise. You're directly contradicting observed reality here.

Raggedy dollar bills have to be replaced somehow, after all.

[Occluded Sun]

If you print money at will, and you don't grasp how money works, you end up with massive inflation. As has happened many times in history. There have been times where people burned their worthless paper money as fuel because it was more efficient than buying wood with it.

Value can be created and destroyed, but not merely by creating or destroying the items used to symbolize it.

[Mistborn]

If you print money at will, and you don't grasp how money works, you end up with massive inflation.

Did you not read the posts where both myself and AH gave examples of printing money not leading to inflation.

[nockermensch]

If you print money at will, and you don't grasp how money works, you end up with massive inflation.

So... good thing that the people printing money at will grasp how money works, right?

[Lago PARANOIA]

You do realize that they printed trillions of dollars from 2009-2012 and the inflation rate didn't correspondingly rise. You're directly contradicting observed reality here.

Not according to Shadowstats and Zero Hedge Fund!

[DSMatticus]

Value is a loose and bloated word (<your mom joke goes here>), and not really useful for distinguishing what's going on in this conversation.

The cost in resources to produce capital is not arbitrary, it's a very real thing. Realistically speaking, it's also insignificant next to the resources we throw into capital in order to produce shit. It's not where the value of capital is coming from.

The price people will pay for capital* is what it is because our society has declared that capital owners are the only Real People(tm) and everyone else can shut up and take the shaft and also there aren't going to be strong enough incentives to prevent scarcity/encourage competition because capital owners don't want to do either of those things. At the micro level, the actions of individuals in this context are 'rational,' in that because capital is so awesome and hard to acquire its price should be considerably higher than its cost in resources. But on the macro level, there's no reason for it. It is that way is because that's the way we've made it, and we could just as easily make it some other way and the price people would pay for capital would change. If we wanted fair markets, we could do that, and the price of capital would go down.

(*We're actually talking less about the price people pay for capital and more about the profits people can make off of capital they own, but the two are obviously related enough that talking about one is talking about the other.)

[fectin]

It's disingenuous to gig him for talking about "printing money" instead of "net increase to currency supply."
I really wish he would stop helping though.

[Winnah]

Question: What is the epistemological starting point of economics?

After following the discussion here, I am compelled to ask: What exactly is the point of economic study? Is it rational and scientific; does it yield repeatable real-world results? Or is it merely normative with a veneer of self-referential logic and arcane operations. When faced with the difficulties of modelling actual economic behavior and cycles we find economists assuming for example, equilibrium, where none seems to actually exist; ignoring for example the true functions of banks; or failing for example to even acknowledge that fundamental physical laws such as those that describe thermodynamics even exist.

Far too much of what passes for “scientific” economic theory is nothing more than scholasticism, finding truth in the definitions of words and the way things ought to be, without being honest enough to study things as they are, and to admit that much of what is claimed to be understood may in fact be chaotic, and as far as the fine grain is concerned, unknowable, immeasurable.

Economists would do well to start with a serious and fearless look at their chosen blind spots and unexamined assumptions, they will likely find that much of what they now accept as economic truth is empty.

It is a common misconception to look at the laws of physics as existing in a different category from other sciences; mechanistic, non-organic. However all science, including biology, views these laws as fundamental. Everything in the universe, all life, and all economic activity is fundamentally subject to these laws. The science of ecology views entropy as fundamental and also uses many terms identical to those used by economists to describe the flow of energy and resources through natural systems. Are we to suppose that the human economy with all of its abstractions is somehow not an ecology also subject to these same laws? This is not a trivial point.

For example: It is an unexamined assumption of mainstream economics that resource depletion is not a problem, because the market, prompted by pricing mechanism will always find new sources or produce substitutes. In mathematical terms, this assumes both nulls and infinities where no evidence is offered that they actually exist.

This sort of thinking is simply shallow, a matter of faith, and is certainly not scientific, which brings me back to my original question: In economic theory, what is the epistemological starting point?

Years ago, my high-school physics teacher described the Second Law of Thermodynamics, the entropy law as, “There is no such thing as a free lunch.” An economic statement. I suspect that one reason mainstream economics chooses to ignore fundamental science is the huge problem it creates for theory. When one removes the nulls and infinities or tries to insert new terms, equilibrium disappears and the foundations crumble.

There is a solipsistic quality to much of what passes for economic proof. Economics is crawling with reductionists and cranks, including the famous and powerful. Ideology creeps in and it is easy to be seduced by the beauty of reductionist math.

If you are out to describe the truth, leave elegance to the tailor.

Economics, if it wants to grow up and become real science, must include fundamental scientific ideas in its theories and models, and until it does so, politicians and economists alike, must admit what the study of economics actually is, and what it is used for.

tl/dr? Bayes FTW you unclefucking bonobos! Go back to fapping over your perpetual motion machine.

[Username17]

Win ah, your tirade is both right and wrong for a whole lot of reasons. It's sort of rantish, but I will try to address what I see as your main points.

First off: Science! There is indeed much that calls itself economics that is unscientific or even anti-scientific. The Austrians for example, literally refuse to consider evidence when evaluating their theories and claim to have a different way of knowing things called Praxeology. Lots of people don't consider them economists at all, they are really more of a cult. But their anti-science crazy talk supplies a lot of the buzzwords shouted by ISP and occluded sun. Also on the right, but less far out into crazy town are the RBC people. Their theory of recession was falsified in the late eighties, but they keep plugging away with epicycles and shit because they still get funding because they still tell rich people what they want to hear. But there's plenty of economics which is empirical and well justified by evidence. New Keynesian and New Marxist work has an enormous amount of data behind it, and has made some pretty bold predictions.

There are ways to test markets with and without asymmetric information and a lot of simplified assumptionsthat are made on the left and the right look pretty good. Price convergences and demand aggregate models predict the way markets behave pretty darn well. Fluctuations in the central bank's interest rate simply are well correlated with the unemployment rate (over short time periods). Inflationary experience does seem to create inflationary pressures. And so on.

As for things like resource depletion, you are just fucking wrong. Short term models almost never bother with resource depletion because the short term is virtually defined by the amount of time over which resource depletion doesn't matter. But long term and development models put that sort of thing front and center. The whole reason that unit production costs are a variable is because there are bulk discounts and mass production on the one side, and capital limits and, yes, resource depletion on the other.

-Username17

[Laertes]

Economists have a useful concept; they call it r. r is the difference between what theory predicts and what empirical data shows. To quote Levitt, if you are a good and virtuous economist then over the course of your life r will decrease and you will be rewarded by being reincarnated as a physicist. If you are a bad, wicked, sinful economist then over the course of your life r will increase and you will be condemned to being reborn as a sociologist.

Less facetiously, economists have probably the hardest job in science. They study an immensely complicated system which we cannot measure from outside, only have one example of and changes as we measure it. The system actively profits from people not being able to understand it* and reacts chaotically to outside influences. You thought humans were complex? We can compare them to one another and study them when they die. We can't do that with economics.

I did astrophysics. I can study stars and supernovae and black holes and stuff. But economics? I would laugh that gig right out of town. I can see why they find it hard, and can see why the Austrians and Libertarians back away from actual data and find comfort in the warm recital of meaningless catechisms. Being a good economist must be a really gruelling task.

-----

*Or rather, individuals within the system profit by restricting information, and thus will act to prevent the dissemination of that information.

[fectin]

Less so than you think. "Praxeology" is just a fancy name for the theory that "people do stuff." Which you might recognize as an assumption from every economics (or psych) experiment ever.
I mean, it's entirely possible that's not true, but you kind of have to assume it to have anything to study.

[Maj]

The problem with praxeology is that it's a thought exercise. We think that people will do this stuff. But it's not based on empirical evidence, and often it's refuted by it.

[fectin]

It's more like an ontology. Some variants seem to come with axioms as well, but those tend to be obvious and empirical or definitional (like leisure - there's no practical difference between saying "observation: people prefer leisure activities" and saying "definition: leisure activities are the set of things people prefer doing").

The anti-empiricism thing usually cites back to Rothbard (IIRC, also spelling?), who wrote in opposition to casting everything as equations. His point (again, assuming I remember the author right) was that it was less informative, because it masked information and inherited artifacts (example on that last: you can talk about marginal demand all day long, but if you say &#948;/&#948;$(demand), you suddenly imply that there are no discontinuous demands). I can certainly understand that point, having watched people torture math in ways that English isn't subject to, but it's hardly an assault on empiricism.

[Username17]

No. Praxeology is just bullshit. It's 'deductive' in nature, which means you just get out what you put in. Nothing more, nothing less. It's a giant circle jerk of reasoning in an actual circle. It's not even confirmation bias, because evidence isn't collected at all. There is no part of praxeology where anything is learned or observed or tested. Every conclusion is derived wholly from the assumptions, and if that ends up predicting the wrong number of teeth in a horse's mouth, there are no checks on that.

If anyone tells you they practice praxeology, you should ignore every single thing they ever say.

-Username17

[DSMatticus]

With sufficient information about the internal workings of a complicated system and sufficient information about its inputs, you can predict that system's outputs in a wholly deductive manner. As you already know, humans beings are not in the category of things for which we have sufficient information to do that today, let alone a hundred years ago (which is likely about the last time the Austrian School changed its mind or updated its theory on anything). This means any honest attempt at a praxeological understanding of human behavior would have spent the past hundred years (and the next hundred years, at least) being continually updated, torn down, and rebuilt as our understanding of human behavior improved and despite all of that it would still be completely fucking useless today because we're very much not there yet.

In practice, praxeology is the bold declaration that your theory is so clever it doesn't need facts. Do you know what that is? It's a trick con artists use to swindle people - substituting facts and analysis for clever-sounding bullshit. And praxeology is the attempt to legitimize that particular form of con artistry as a valid epistemology.

[Occluded Sun]

If you print money at will, and you don't grasp how money works, you end up with massive inflation.

Did you not read the posts where both myself and AH gave examples of printing money not leading to inflation.

No one has argued that printing money leads to inflation.

[infected slut princess]

You guys are all idiots.

The financial crisis caused the Federal Reserve to expand the monetary base. Quite a bit!



Now normally this would result in major price inflation. And this chart, I think, is the reason a lot of ignorant and dramatic people say "the US will have hyperinflation waghhh!!"

But what happened instead? Commercial banks have largely kept this money on deposit with the Federal Reserve where they get a tiny bit of interest paid on it.

This money is basically inert. It does not get lent, so it does not become part of the fractional reserve process. You can see the correspondence between the different rounds of "QE" and the rise in excess reserves:



This reduces the money multiplier, which offsets the massive increase in the Fed's balance sheet:



The Fed could impose negative rates on excess reserves, and this would cause much of this money to be released. For obvious reasons, they don't want to do this.

I hope that clears things up for the idiots who don't understand what the hell is going on.

Have a nice weekend losers!

[DSMatticus]

ISP, I... am kind of fucking baffled. You are explaining what Keynesian models predicted (expansionary monetary policy would not lead to inflation) and explaining why they were correct (we hit the zero lower bound and are now in a liquidity trap). Do you realize that dirty heathen Keynesian words are coming out of your mouth right now and that you have damned yourself to an eternity in a liberal hell of furry hats and Stalin-fappery?

Though, you did kind of fuck up one bit:

The Fed could impose negative rates on excess reserves, and this would cause much of this money to be released. For obvious reasons, they don't want to do this.

This is not actually true. Banks are hoarding that cash because their expected returns on hoarding it are greater than their expected returns on loaning it. There's no magical tipping point at zero where the floodgates open - if the expected return on hoarding is to lose 1% value and the expected return on loaning is to lose 2% value, the answer is hoard. And if you want to make those loans happen, you have to make hoarding lose 3% value.

But actually, there's no magical tipping point anywhere. Pushing down interest rates such that loaning becomes more attractive than hoarding will cause banks to loan more funds, but loaning more funds also drives down the expected returns on every subsequent loan. Simple example: would you rather give a business loan to open a third firm in a particular market, or open a fourth firm in that same market, assuming all else remains equal? Whether you hit the cap from the demand side or supply side (hint: it's never the supply side, we take great care of those who need it least), you always run out of opportunities with sufficiently high expected returns.

Negative interest rates are "bad" because wealthy assholes say so, and the wealthy assholes say so because they are currently holding onto piles of cash that they don't want to get smaller (or be forced to invest in an unfavorable investment environment, which is something of a catch-22 because it will remain unfavorable until they invest in it and that employs people).

[Username17]

ISP is parroting the latest right wing apologia for why their predicted hyper inflation has failed to occur. That somehow trillions of dollars were printed and inflation is still near zero because the federal reserve now pays one quarter of a percent on deposits. This claim is fundamentally absurd. If five billion dollars in payments can more than offset the inflationary pressures of two trillion dollars of printed money, then the entire quantity theory of inflation is bunk. Bring on the printing presses, because the specter of inflation can be burned away with less than a hundredths part of what comes hot from the mint!

But more importantly, it's just factually wrong. Japan had the same experience with printing money in a depression and a lack of resultant inflation. And their central bank didn't pay interest at all. To seriously advance the 'federal reserve deposit interest' theory of disinflation, you have to be completely ignorant of recent Japanese history.

-Username17

[Winnah]

...when your feet start tappin' and you can't seem to find how you got theeeeere,
do you believe in magic?



Scooby dooby do wop, scoo-scooby dooby, dooby dooby dop wop, yeah magiiiiic!

[Red_Rob]

Cults of Praxeology, the sequel to the hit adventure Temple of the Fiscally Irresponsible Elves.