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« My "Capitalism and the Family" talk from Bratislava | Main | "QE1" and Monetary Disequilibrium »

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I hope that the debate gets better defenders from outside Austrian camps than this early assessment from the "playground":

http://historyofeconomics.wordpress.com/2011/01/19/zombies/

Oh, so basically, Murphy deserves credit for getting Krugman's attention with all the goofy videos and all, but if he's actually going to address the issue face on, he should address the real experts on the matter. I see.

One thing is for sure. He will find more common ground with your selected group of experts who mainly object to QE2 on such grounds that the timings for it are inappropriate. see: http://www.coordinationproblem.org/2011/01/krugman-issues-a-counter-challenge-to-austrians.html#comments

Prof. Boettke, there is a minor problem with what your saying:

Krugman's qustions have theoretical answers, not empirical ones. He has once again mischaracterized the Austrian theory; but he is also engaging in a clever rhetorical trick.

Clever, because if Austrians answer his challenge with numbers, they endorse his wrong description of the theory; whereas, if they counter him with theory, he can proclaim, "See? They couldn't produce any empirical evidence of their claims."

In short, Krugman's challenge is a ruse.

Dan,

You are reading my post most uncharitably. I first congratulated Bob for getting Krugman's attention, then I was glad that Krugman concentrated on a substantive post by Bob, and then I said Bob's point about capital theory was extremely important.

No disrespect whatsoever to Bob and his great work, only respect.

There aren't always slights where you think they are.

Finally, on the QE position, you will note that I have been against from the beginning and in all editions.

Pete

RPLong,

I understand what you are saying, but you have to find some common ground for argumentative engagement and assessment otherwise you never talk to each other, but only past each other.

Pete

Pete,

Why did you say that PK has to deal with the non-neutrality of money? Pretty clearly he thinks it is non-neutral. How else is one to interpret his comment that when the Fed says it wants to slow the economy, the economy slows?

Pete, haven't you published empirical articles addressing some of these issues?

I seem to recall reading them and citing them.

More, certainly would be welcome.

"As Deirdre McCloskey often stresses, empirical questions demand empirical answers, and cannot be answered philosophically."

There's the problem. As you write, empirical data doesn't interpret itself. It requires a theoretical framework. So if you provide data, Krugman will simply respond that you're interpreting it wrong.

The real debate has to be about theory first, which Krugman refuses to do. He insists that Austrians debate him using his assumptions.

Of course, it's trivial that the person who sets the parameters of what is acceptable and defines the terms will always win the argument.

I have watched a lot of debate involving empirical evidence and never found that data solved any dispute.

Here are some empirical facts.

The production structure is made up out of non-homogeneous, inter-related and variable productive time dimensions.

Entrepreneurial learning is imperfect and powers the coordination of economic plans.

These aren't "philosophical" facts. These are empirical facts.

And these facts alone are near enough to allow a refutation of Krugman.

McCloskey is a weak authority on the logical status and explanatory strategy of economic explanation -- much less epistemology and the philosophy of science and language.

@Pete
@Roger McKinney

Yes, empircal evidences would not solve the dispute. You can't find the smoking gun using just statistics and data. But this is not a good reason to not deal with them.

I agree completely with Austrian epistemology, but often austrians remind me strongly unionized high school teachers on Italy (my country). They say: government should pay worthiness, merit and devotion. Surely, it's unfair that hard worder and lazy receive the same salary. But... since discretion means autocracy and... it's impossible to have "truly objective" measurements, fixed and homogeneous wages are better. Nice :)

Ok, it's impossible to make "objective" assessments based on data. But it's not a good reason to do nothing.

In order to make an historical study based on austrian theory you have almost to recreate your own metric or accept and elaborate the best of what mainstram offers. We can't ask others to start always "ab ovo".

Greg,

Why do think this: "McCloskey is a weak authority on the logical status and explanatory strategy of economic explanation -- much less epistemology and the philosophy of science and language?"

She seems to have done a great deal more work in this area than most contemporary economists.

Dear prof Beottke,

you might have been against the QE from the beginning, and I can only salute that. But the problem is that the "experts" you advertised as arguably the better debating partners for Krugman than Murphy (Horwitz, Selgin, White etc) were not against it. Au contraire. They were the staunch supporters of QE1, and objected to QE2 only on a very narrow, tactical ground. Yesterday, over at Mises blog, George Selgin said that although he was not for QE2, that position was much more reasonable in his opinion than the mantra "let the markets take care of the problem". It is not clear what really Selgin and Krugman would debate, since they pretty much agree.

Nikolaj how can you possibly type that last sentence and then claim on this blog that you are not a troll?

"I know that Austrians take refuge in cosmic talk about the complexity of production and how measured investment may not show what’s really happening, etc., but where’s the positive evidence of what they’re claiming?"

Mr Krugman, we live in the real world, not on AS/AD curve world... That's what Murphy should say at beggining...

Nikolaj,

Because I couldn't believe what you said about George Selgin (i.e. that the QE2 position much more reasonable than "let markets take care of the problem) I went and dug up his comment myself.

What he seems to be saying is that adjusting the money supply is better than spouting "let markets decide" because that option is simply not on the table.

Prof. Selgin is not, to my view, saying that central banking is better than a free market based money. He is talking about the most reasonable approach given really existing alternatives for right now.

There's a big difference between where we should be headed in the long-run, and what are the least bad of the feasible alternatives now.

"As Deirdre McCloskey often stresses, empirical questions demand empirical answers, and cannot be answered philosophically."

What was it that Gödel said? And Hayek in "The Sensory Order". I do not claim to understand. But I am prepared to argue that every fact has fuzzy edges, fuzz in the ambiguity of the language of the beholder.

J Oxman: our friend Nikolaj cares not about the actual words people say. He suffers from a very severe case of confirmation bias, in which he's quite adept at interpreting the views of others in the way most convenient to his own worldview, sparing him the need to confront critics in a serious way. Good luck getting him to see the error of his ways.

Steve,

I see. Thanks for clarifying. I prefer not to waste my words.

Thanks to J. Oxman for bothering to check Nikolaj's claims--always a wise move, by the way.

To be still clearer about my meaning in that Mises institute post: like it or not, a fiat standard is in place, and the whole thing depends on the existence of base "dollars" that are scarce only thanks to the Fed's success, however tenuous, in keeping them so. To "let the market decide" what the money stock should be is a meaningless prescription under these circumstances. That's not to say that particular proposals for privatizing money or restoring a commodity standard are also meaningless--they aren't. But to reject arguments for or against any particular Fed policy merely on the grounds that such arguments imply an endorsement of state-managed money, as if there were any other sort of money out there, is irresponsible. We must be allowed to criticize the fed, not merely for existing in the first place, but also for making a bigger botch job than is absolutely necessary with the (faulty) means at their disposal.

Does Krugman believe that all the recent "investment" in housing was harmless? Or does he suppose for some reason that this isn't the sort of [mal]"investment" the Austrian theory refers to?

Here is what George Selgin wrote exactly:

"Personally I don’t think QE2 was necessary or desirable, because I believe that by the time it was undertaken the economy had largely already adapted to the spending slow-down Beckworth describes, and would moreover continue to adapt further before the expansion began to have its full consequences. However desirable timely M adjustment might be in response to a change in V (yeah, I know–V is endogenous. So what? ” E pur si muove,” exogenously or otherwise), belated adjustment is just more of the same mucking up. But while I don’t agree with his position, I think it is far from unreasonable–and far better than merely saying “let the free market decide,” as if that alternative were on the table in our present fiat-money bound arrangement."

Hmm. It seems that the position with which prof Selgin "does not agree", but which is in his opinion nevertheless "better" than "let market decide" is that of Mr Beckworth, who advocates QE2. Which means that prof Selgin thinks that QE2 is "better", i.e. "more reasonable" (as my understatement asserted) than "let market decide".

Q.E.D.

Because that is true. Letting the market decide is insane. Legalizing private counterfeiting would lead to hyperinflation.

Nikolaj obviously thinks the way to evaluate someone as a theorist is, 'Does he reach the same policy conclusions I do?' Yes: good theorist. No: bad theorist.

"There's the problem. As you write, empirical data doesn't interpret itself. It requires a theoretical framework."

Roger, Roger... so, the data gives us no way to decide between Ptolemy and Kepler? Whatever framework floats your boat, hey?

Here's the one by Krugman that caught my eye -- as something even I could answer: "If inflation is a case of too much money chasing too few goods, why aren’t slumps associated with accelerating rather than decelerating inflation, as the supply of goods falls?"

Krugman clearly does not take into consideration the fact that what we have in a recession is a bursting bubble. The prices are higher than they should be had they been following the historical trends pre-bubble. The bubble is sending false signals to the market, telling people that there is a demand for something when there really isn't. As stocks increase in companies' warehouses (loosely speaking, since houses don't exactly sit in warehouses), eventually someone is going to realize something is terribly wrong, and try to eliminate his stock by putting it on sale. As people go after the lower-priced good, others put their on sale, and there is a race to the bottom. Prices drop because people are trying to get rid of their excess stock. Some companies are going to be undercut and go out of business. Others are going to lay people off because they don't need to produce at the same high rates as they were before. They will cut back to below-normal levels because they have excess stock to get rid of, and they don't want to keep adding to the stock. Once prices normalize, the companies are in a position to hire people back to produce at a normal level.

One part of empirical evidence: did everyone see all the Sale signs in all the stores as the economy was tanking?

"Roger, Roger... so, the data gives us no way to decide between Ptolemy and Kepler? Whatever framework floats your boat, hey?"

Actually...yes. Ptolemy's system (rather, the descendants of his system that took into account new data as it became available, epicycles and all) WORKED. Kepler's was superior according to a theoretical criteria, namely, it's simplicity.

Data being meaningless without an interpretive framework is pretty basic stuff, these days. Basic Kant, actually. The preconditions of conscious experience and all. Raw data is meaningless. It's jumbles of numbers. You need some way to assemble those numbers into a picture that our minds can grapple with.

Austrian Business Cycle was visible in the data. In 2007 and early 2008, when problems with housing malinvestment were revealed, inflation accelerated.

For some reason many Austrian economists think that government is capable of creating artificial economic booms, but all busts are natural. But in fact sometimes a reverse Austrian Business Cycle occurs - a manipulation of monetary and credit policy by Ben Bernanke and Hank Paulson has created an artificial bust in late 2008 and early 2009. Level of investment was artificially depressed in every sector of the economy, structure of production was distorted in the direction opposite to the regular Austrian Business Cycle. Disinflationary pressures Krugman mentions are a direct result of this artificial bust.

"Hmm. It seems that the position with which prof Selgin "does not agree", but which is in his opinion nevertheless "better" than "let market decide" is that of Mr Beckworth, who advocates QE2. Which means that prof Selgin thinks that QE2 is "better", i.e. "more reasonable" (as my understatement asserted) than "let market decide".

Nikolaj continues to dissemble. The simple answer is that I rank things this way:

1) No QE2 (taking existing Fed arrangement for granted)--note that this isn't "letting the market decide" because it assumes an alternative M-course still set by the Fed;
2) QE2. But only because:
3) "Let the market decide" is completely meaningless!

Economics can't progress where people go out of their way to dissemble and distort the views of others. Nikolaj has made it evident time and time again that he's all about distorting people's views. I believe that blogs are private, not public, property, and I therefore make a plea to the owners of this one: kick out this dishonest person! Let him go spoil Krugman's blog!

Gene: "the data gives us no way to decide between Ptolemy and Kepler?"

Well now you're getting into the differences between the natural sciences and economics. I should have qualified my comment. I meant it to apply strictly to economic matters. Yes, in the natural sciences data does solve most disputes because the natural sciences are not complex. But I have never seen data solve a dispute in economics, except over very trivial matters.

Give Troy the Nobel Prize in economics and take Paul's away ...

Obviously, Gene has never read Kuhn ...

"Roger, Roger... so, the data gives us no way to decide between Ptolemy and Kepler?"

Krugman's post is full of bad economics.

At some point it all becomes an embarrassment to the professional status of those economists who tell us that Krugman is a good economists ....

A small little book taking apart the economic fallacies of Paul Krugman would teach a lot of economics -- and would easily make the author a little chunk of change.

Odd that this $50 bill just sits there on the sidewalk ...

"Obviously, Gene has never read Kuhn ..."

Ha, very funny, Greg. I've read Structure several times and many of Kuhn's other papers as well.

And I would wager a lot of dough Kuhn would be with me on this one. It's true that for Copernicus, and for Galileo and Kepler when they committed to heliocentrism, the data could not decide. But when Kepler hit upon elliptical orbits, then the data WAS decisive... and everyone converted very rapidly after that.

I guess Greg has never read any history of science except Kuhn.

Below is what Krugman said as a challenge is expressed in quotes with my comments as dot points:

“If inflation is a case of too much money chasing too few goods, why aren’t slumps associated with accelerating rather than decelerating inflation, as the supply of goods falls? Why is there such a strong correlation between nominal and real GDP?”

• Rothbard as early as the 1958 recession was making points about stagflation and only Austrian business cycle theory could explain them. Caplan chastised these claims by Rothbard in For a New Liberty, 2nd edition because by the mid-1970s Friedman and Phelps had also developed rival explanations.

“Why is there overwhelming evidence that when central banks decide to slow the economy, the economy does indeed slow? And on and on."

• Does Austrian business cycle theory dispute the ability of central banks to cause a recession?

"Oh, and what evidence is there that the economy’s capacity is damaged during booms? Investment rises, not falls, during booms; yes, I know that Austrians take refuge in cosmic talk about the complexity of production and how measured investment may not show what’s really happening, etc., but where’s the positive evidence of what they’re claiming?”

• Total factor productivity falls in recessions because of labour hoarding, resource unemployment and spare capital capacity. These are some of the welfare costs of the business cycle.
• Rothbard and Mises wrote of mal-invested capital having to be written-off. Rothbard even mentioned the ghost towns after the Panic of 1819!
• Is not there a lot of spare and abandoned capacity in the residential housing industry in the USA and abroad these days?
• Are not a lot of unemployed workers having to switch occupations and industries and move location to find new jobs and thereby write-off industry and occupation-specific human capital?

What I'm asking, Gene, is if you have read _The Copernican Revolution_ by Thomas Kuhn.

Kuhn presents the case in that book that in terms of data, there really wasn't much "to decide between Ptolemy and Kepler"

Scott Sumner believes it was "good sense" to invest in all that housing, and he doesn't believe it was malinvestment:

http://www.themoneyillusion.com/?p=8493

To be frank, Sumner seems incapable of the economic way of thinking. It's economic aggregates unrelated to underlying market processes and price relations all of the time.


George:

"Does Krugman believe that all the recent "investment" in housing was harmless? Or does he suppose for some reason that this isn't the sort of [mal]"investment" the Austrian theory refers to?"

Why don't you get an actual job instead of one where you spend your whole day theorizing about outmoded economic ideas.

"Why don't you get an actual job instead of one where you spend your whole day theorizing about outmoded economic ideas."

Is that directed at Krugman?

I done very fine work on Housing to Hit underlying in Mid-2011 Say Economists, visit it.
http://authorshive.com/2011/01/29/housing-to-hit…say-economists/

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