As I previously indicated, I am trying to establish an economic mindset. The political inclinations of the material I’ve read so far: Spin Free Economics (Center-Right), Economics (economist magazine guide- Center-Right), Basic Economics (Center-Right). As of right now, I have been brainwashed by these Economists towards the Right. Anyway, I checked out this book (published 2009) about the current financial crisis. It’s, naturally, a severely biased libertarian analysis sponsored by Ron Paul that favors the removal of the federal reserve. http://www.amazon.com/Meltdown-Free-Market-Collapsed-Government-Bailouts/dp/1596985879/ref=sr_1_1?ie=UTF8&s=books&qid=1241827522&sr=8-1 Did anyone read this? For those of you operating in financial markets, what are your opinions about this ideology? Is it too extreme?
I’m not sure how you would say it is sponsored by Ron Paul, Tom Woods started the Politically Incorrect Series. I’m pretty sure he has quite a few readers out there who don’t need to be told by Ron Paul what to read. I’m also not sure what you mean by biased libertarian analysis. I generally consider analysis biased when the facts are twisted to fit a particular ideology. Obviously the author is libertarian, but if you could point to where he twists facts to fit his worldview, it might make your point more clear. That being said, I haven’t read the book, but I consider myself libertarian. Woods is pretty libertarian, if you have a compendium ranging from Bill Maher (not really libertarian but refers to himself that way), Cato/Reason (libertarian, but with an eye towards mass appeal), Mises Institute (strict libertarian), then Woods identifies most with the Mises Institute. That being said, just because he identifies with the Mises Institute has nothing to do with him being extreme or his opinions being invalid in any way. I suggest learning more about what he believes and more about economics. If you find you disagree with their arguments (rather than whether or not they are extreme), then ignore it. I think there are some truths in Austrian Economics that aren’t clear in mainstream economics, but there’s still good work done from the mainstream that shouldn’t be ignored. If you want to learn more about libertarianism, read For a New Liberty by Rothbard. If you want something like Basic Economics by Sowell, then you should check out Gene Callahan’s Economics for Real People or Henry Hazlitt’s Economics in One Lesson. Beyond that you’ll have to start getting into more technical (though not really mathemetical) texts.
The book by Tom Woods has a consistent and sometimes distracting fevor against the Fed (it makes me want to stop and think whether or not I want to accept his judgement), just like how “Greenspan’s Bubbles” is a long, extremely negative rant against Greenspan. Thank you for the recommendations. But how are those two “basic” type texts politically inclined? I felt that Sowell’s Basic Economics was long and probably the best “basic” type book out there. I’ve seen Economics in one lesson and it is very short, and I’m not sure if it is worth reading.
removal of the federal reserve? the correct actions of the federal reserve since the great depression is the reason why our expansions are so much longer and higher in amplitude than our recessions. without the federal reserve, there would be chronic bank runs and inflation or deflation. this is like pretty basic macroeconomics found in intro textbooks. I sympathize with libertarians but they r living in a parrellel dimension.
markbot Wrote: ------------------------------------------------------- > removal of the federal reserve? the correct > actions of the federal reserve since the great > depression is the reason why our expansions are so > much longer and higher in amplitude than our > recessions. without the federal reserve, there > would be chronic bank runs and inflation or > deflation. this is like pretty basic > macroeconomics found in intro textbooks. The dollar has lost over 95% of its value since the fed began. This is not what you would describe as chronic inflation?
A gold standard can be implemented in many ways. A strict gold standard would probably not work these days, but backing the dollar in some capacity with a hard asset would be a good without a doubt.
Hank Scorpio Wrote: ------------------------------------------------------- > markbot Wrote: > -------------------------------------------------- > ----- > > removal of the federal reserve? the correct > > actions of the federal reserve since the great > > depression is the reason why our expansions are > so > > much longer and higher in amplitude than our > > recessions. without the federal reserve, there > > would be chronic bank runs and inflation or > > deflation. this is like pretty basic > > macroeconomics found in intro textbooks. > > The dollar has lost over 95% of its value since > the fed began. This is not what you would > describe as chronic inflation? Agreed. Out of curiosity, Mr. Scorpio, are you still running Globex?
Just b/c Econ in One Lesson is short, but that doesn’t mean that it should be avoided. I would say that it has no ideology and is really just sound economics in an easily accessible form. It’s most similar to Economic Sophisms by Bastiat which you could also read. I haven’t read Callahan’s book (just referring it based on others’ reviews), but I imagine it could be viewed as more biased. In my view, Woods is applying principles of Austrian Economics (though haven’t read the book) to the crisis and coming to the conclusion implied by the Austrian view. You could say his methodology is wrong or his conclusions don’t follow his premises, but that doesn’t imply he is biased. Many economists out there fault the Fed for keeping interest rates too low, most prominent that I can think of would be John Taylor and Anna Schwartz. They wouldn’t then argue that the Fed should be disbanded like Woods, but they definitely agree rates were set too low for too long and that helped (as a major casual factor among several other factors) to create the housing bubble. I guess the problem is that it is a popular book and not economic theory and probably not the best “technical” Austrian analysis of this crisis. To me it’s not about accepting his judgment, per se. It’s a question of logic and reason, more than judgment. His view is that activist central bank monetary policy is the main driver of the boom/bust cycle. From that perspective, it would make sense to replace a central bank with something else, or at least not allow them to be discretionary (like John Taylor would argue).
Hank Scorpio Wrote: ------------------------------------------------------- > markbot Wrote: > -------------------------------------------------- > ----- > > removal of the federal reserve? the correct > > actions of the federal reserve since the great > > depression is the reason why our expansions are > so > > much longer and higher in amplitude than our > > recessions. without the federal reserve, there > > would be chronic bank runs and inflation or > > deflation. this is like pretty basic > > macroeconomics found in intro textbooks. > > The dollar has lost over 95% of its value since > the fed began. This is not what you would > describe as chronic inflation? So what? You act like this is a one-sided equation. The dollar doesn’t have to stay at par with itself provided it stays at par with all other world currencies, maintaining PPP and internal purchasing power. How much have personal incomes increased? Last time I checked, long-term wages have more or less kept up with long-term inflation.
T2 Wrote: ------------------------------------------------------- > A gold standard can be implemented in many ways. A > strict gold standard would probably not work these > days, but backing the dollar in some capacity with > a hard asset would be a good without a doubt. Why? So we have more bank runs, less predictability in the economy, and less economic freedom? Sounds great, sign me up!
The overall problem with Libertarian beliefs is that they depend on an inherent “goodness” of people, much like Adam Smith’s invisible hand, in that businesses would be self-serving to the extent it doesn’t hurt them in the long-run. However, as we see with all accounting scandals, humans aren’t fearful of the consequences of their actions. Madoff, despite being in a nearly unregulated environment, wasn’t afraid of screwing his investors out of billions of dollars. His investors, investing in a nearly unregulated industry, trusted his “goodness” and reputation. One has to care about reputation to put it on the line. This is akin to many situations in the past. Look at pollution. Companies polluted with impunity when they could. They sh!t where they ate because they could. This type of short-term thinking didn’t just go-away. Child labor, accounting scandals, ponzi schemes, it’s all the same. Libertopianism removes basic human greed and self-centeredness in their equation to a perfect world. This vacuum-think is their major downfall.
+1 Libertarianism doesn’t lead to a long term steady state. It can’t when there are new stupid as well as new dishonest people born every day.
DanLieb Wrote: ------------------------------------------------------- > +1 > > Libertarianism doesn’t lead to a long term steady > state. It can’t when there are new stupid as well > as new dishonest people born every day. It’s not “new”, “old”, or “stupid” people that screw with their equation. It is people that are anything but purely egalitarian. In otherwords, it’s people being people that ruin their nice perfect world. Once humans change, let me know, because then Libertopianism may work. Otherwise, it is purely fantasy.
“The overall problem with Libertarian beliefs is that they depend on an inherent “goodness” of people, much like Adam Smith’s invisible hand, in that businesses would be self-serving to the extent it doesn’t hurt them in the long-run.” Have you even read Wealth of Nations? “Libertarianism doesn’t lead to a long term steady state. It can’t when there are new stupid as well as new dishonest people born every day.” Breaks down to: A: People are stupid and dishonest B: Stupid and dishonest people are born every day C: Therefore, libertarianism doesn’t lead to a long term steady state My Reply: 1) This is a non sequitar. Your logic is as baffling as your argument is incomplete. 2) What is a long-term steady state to you (I’m an Economist. I understand the Solow growth model, but I’m asking you to explain what you mean) and why is it good for libertarianism to have it.
jmh530 Wrote: ------------------------------------------------------- > “The overall problem with Libertarian beliefs is > that they depend on an inherent “goodness” of > people, much like Adam Smith’s invisible hand, in > that businesses would be self-serving to the > extent it doesn’t hurt them in the long-run.” > > Have you even read Wealth of Nations? > > “Libertarianism doesn’t lead to a long term steady > state. It can’t when there are new stupid as well > as new dishonest people born every day.” > Breaks down to: > A: People are stupid and dishonest > B: Stupid and dishonest people are born every day > C: Therefore, libertarianism doesn’t lead to a > long term steady state > > My Reply: > 1) This is a non sequitar. Your logic is as > baffling as your argument is incomplete. > 2) What is a long-term steady state to you (I’m an > Economist. I understand the Solow growth model, > but I’m asking you to explain what you mean) and > why is it good for libertarianism to have it. Yes, I have, thank you. I also see what was being driven at, even if you don’t. I guess I have a different perspective since I also have a a BS in psychology.
I have a Ph.D. in behavioral economics, so I think I know enough about the topic, especially in behavioral game theory which is most applicable here. I think of this as a one period prisoners dilema vs a multi period prisoners delima. In the multi period game we do not snitch because of fear of retaliation from the other party. (Kind of a like a long run trust game.) Therefore, it is in my OWN interest to promote the good of the society. Thus smart businesses (acting in the rational self interest) do not need to be regulated because they will act in ways that promote the long term interests of society. The Ayn Rand Libertain fantasy is born from this premise where then everyone can prosper according to their efforts/talents (whatever, it doesn’t matter). Wonderful. The problem is that this is a nice prescriptive model. It works extremely well and is efficient in its mathematics. However, there basic assumptions about utility maxing behavior are always viloated when you either a) test behavioral game theory experiments in the lab or b) try to model the real world. For your model to work, stupid and dishonest people have to be marginalized, as they are in the trust game and in the multi period prisoners delima. My point (not a non-seq) is that real life can not be broken down into a game theoritic situation since the agents change constantly and thus the system does not provide such easy feedback.
DanLieb Wrote: ------------------------------------------------------- > I have a Ph.D. in behavioral economics, so I think > I know enough about the topic, especially in > behavioral game theory which is most applicable > here. > > I think of this as a one period prisoners dilema > vs a multi period prisoners delima. In the multi > period game we do not snitch because of fear of > retaliation from the other party. (Kind of a like > a long run trust game.) Therefore, it is in my OWN > interest to promote the good of the society. Thus > smart businesses (acting in the rational self > interest) do not need to be regulated because they > will act in ways that promote the long term > interests of society. The Ayn Rand Libertain > fantasy is born from this premise where then > everyone can prosper according to their > efforts/talents (whatever, it doesn’t matter). > > Wonderful. The problem is that this is a nice > prescriptive model. It works extremely well and is > efficient in its mathematics. > > However, there basic assumptions about utility > maxing behavior are always viloated when you > either a) test behavioral game theory experiments > in the lab or b) try to model the real world. > > For your model to work, stupid and dishonest > people have to be marginalized, as they are in the > trust game and in the multi period prisoners > delima. My point (not a non-seq) is that real > life can not be broken down into a game theoritic > situation since the agents change constantly and > thus the system does not provide such easy > feedback. Very good description, I obviously haven’t studied this as in-depth as you, so you are much better at summarizing and putting it into more technical speech.
spierce Wrote: ------------------------------------------------------- >> Very good description, I obviously haven’t studied > this as in-depth as you, so you are much better at > summarizing and putting it into more technical > speech. Nah, I am half asleep and NEED TO STUDY FOR L2
Spierce, my point is that Adam Smith’s invisible hand argument depends on people being self interested, not “goodness.” Though based on Dan Lieb’s post, maybe you meant “goodness” in a different context than I had thought. Whatever your point was, it was lost to obfuscation. I also wouldn’t presume to say that the U.K. in the 19th century (pollution) was a libertarian society. Nevertheless, the end of child labor is if anything a story about the success of the market economy: as people got richer during the industrial revolution, parents could afford to put their kids in school. Dan Lieb I didn’t present a model here, but most libertarian authors don’t use game theory to make their points, though you can probably think of the invisible hand as a multi-period game. I’m also not an objectivist, but that’s really neither here or there. I agree with you that the assumptions of utility maximizing behavior are often violated, but that is an argument against the method of neo-classical economics and game theory and not necessarily an argument against libertarianism. So I’ll be upfront, I don’t think that real life can be broken down into a game theoretic situation either and my arguments in defense of libertarianism are dependent on that. To be more specific, libertarianism is a political philosophy based on the non-aggression principle. Basically the idea is that private property rights are good and violation of property rights are bad. That idea is applied consistently to a range of topics. That being said, I think the best defenses of libertarianism are from a natural rights perspective or something called the argumentational ethics. Wikipedia describes argumentation ethics somewhat ell saying, “no one can argumentatively deny libertarian rights (ie. property rights/homesteading) without self-contradiction.” You might read that entry for more details, if curious. Your game theoretic point is really a utilitarian, efficiency form of argument. I think libertarianism will produce better results than other systems, but I don’t believe that is why I am a libertarian. On the other hand, Austrian Economics is a methodology of economics that emphasizes individual decision-making and the complexity of the market process. The conclusions of Austrian Economics usually lead most of its adherents to libertarianism, but libertarians do not necessarily follow Austrian Economics. The economist qua economist would merely point out the flaws of different government interventions. (There is also little math in Austrian Economics, so no euler equations or checking second-order conditions.) Getting back to your example, I do think that firms need to be regulated, but I think the regulation should come from the market. If firms pollute on other privately owned land, those firms should be harshly punished in (private) courts according to libertarian legal theory (read David Friedman’s Machinery of Freedom for more detail). If firms commit fraud by selling products that are not as advertised, they should also be punished. I can’t tell you how private courts would actually work, but it would likely be harsher than what we have now (see Friedman above or Rothbard’s For a New Liberty). Firms that do these thing will exist, in a free society, or otherwise. The point is how to craft a system where there are incentives so that this kind of behavior is minimized. In your language you want the stupid and dishonest people to be marginalized. Well, how does a market do this. If a businessman is stupid and misjudges the needs of his customers (through price or changing preferences), then his business could fail or he could be removed by his shareholders. This is fairly textbook way in which the market regulates firms. I still really don’t think you’re being clear with your point though. Let’s say the consumer is stupid and the businessman is dishonest. The businessman charges too high a price for a good and the consumer is stupid and buys it (let’s say the price is the interest rate on payday loans). The consumer is a hyperbolic discounter if he’s stupid, or maybe he just doesn’t want to be screwed on credit card fees and would rather see it up front. Well, in this case, another person who isn’t dishonest (or maybe is dishonest, but a little less dishonest), starts up a payday lending shop down the street and puts up a sign that says cheaper than the other guy. Now the stupid person may be stupid, but if people can figure out buying gas at the cheapest place, they can figure this out. Now if the businessman defrauds the consumer, he should be taken to court. The victim may not necessarily know that he was defrauded, but I don’t see why victims rights groups would go away and they could still sue the firm on behalf of the victim and advertise that they can get their money back by signing up. If he fails to sign up (b/c he’s stupid), it’s no different than the current situation if he failed to sign up, so I’m not losing sleep over it. The idea is that there are incentives so that dishonest firms fail or change their ways and don’t take advantage of the stupid people. Nevertheless, I come back to how puzzling your claim is. In a market economy there will be some stupid consumers and dishonest business men. Not everyone will be that way, but there are going to be some. But why are these people changing constantly. I mean fine, people are born everyday, but things don’t change that quickly. And why can’t businesses try to signal that they are honest and willing to stay honest. I mean Sam Walton was pretty old when he died and he emphasized “always low prices.” But still, long-run steady state is usually referring to some kind of growth model. I don’t have any clue how you take this argument and plug it into a Solow-type growth model. Libertarianism isn’t dependent on a long-term steady state of growth. It’s useful to think about equilibrium, but the interesting parts of the markets are the process of moving from disequilibrium to the equilibrium (that will never actually be reached). I would go so far as to say so what if a libertarian society doesn’t have a steady state growth path. Why should I care? Your point is now: A) Due to behavioral problems, game theory doesn’t justify libertarianism. B) Therefore, libertarianism doesn’t lead to steady state growth path. I agree with the premise, but I don’t see how you get to the conclusion (hence the non-sequiter comment). Even granting your conclusion, I don’t see the impact of your point. What matters is the compounded growth of the economy, not the standard deviation.
jmh: I would love to continue the discussion, but I REALLY have to focus on studying for L2. If you are still around in the summer, I can comment further. Just a short added note, think of the fact that we all share the commons (i.e. roads, rivers, the air, etc.). It is in all of our interest to maintain the commons in a way that allows business to prosper and us to maintian our liberty. Now let’s pretend we are down the road in rural NC. The factory pig farm, thinking in the short term (what I call stupid or dishonest, take your pick) decides not to fully clean up after the pigs. While this doesn’t cause the farm harm, it pollutes the river and causing harm to the textile farm down the river. The libertarian argument, traditionally, is that it is better to allow the free market to punish this firm by consumers not buying their pork. then to regulate how the river is used. However a) consumers enter/leave the market every day, hence the agents chagne b) consumers do not always have access to this information. (Think of the dual role of being a citizen and a consumer in today’s society… How can we do both efficiently here?) c) As you say, people and firms are terrible at making trade-offs (hyperbolic discounting, or for any reason). This is exactly why regulation can lead to better outcomes.