Idiot Economists

Off Topic Politics and World Issues
21

The dollar goes up, and the dollar goes down. As is true of many currencies. (Some just go down.)

The Fed tries to manipulate this to attempt to maintain control over the economy. To combat a slowing economy, they increase the supply of money, and reduce interest rates. But this can have the effect of increasing inflation.

They attempt to control inflation by decreasing the money supply.

When the dollar is weak, as it is now, people flood into commodities like gold and oil. This is part of the reason for the run up.

It is not the only reason for inflation, obviously.

But we are now seeing inflation, and during a slowing economy. (Not yet proven to be a recession, and with growth last quarter, there was no recession then.)

The question becomes how do they respond?

22

[quote]vroom wrote:
LIFTICVSMAXIMVS wrote:
So let me get this straight, a weak dollar causes inflation? No sir! A weak dollar is the result of inflation which is caused by continually expanding credit and not allowing for market corrections.

You guys do understand that in a global economy prices can rise and fall due to relative valuations between currencies?
[/quote]
which is due to currency devaluation.

[quote]
I’d suggest that there is not just one singular cause to be blamed for price inflation.[/quote]

Prices don’t inflate. The amount of currency in circulation does.

23

[quote]LIFTICVSMAXIMVS wrote:
which is due to currency devaluation.
[/quote]

You seem to talk about this like there is only one currency… how about a currency drop compared to another country due to the currency of that other country appreciating?

Inflation commonly refers to the rise in prices. However, you can certainly refer to monetary inflation if you want. There are various competing views as to what generally causes inflation.

I’ll agree that the old concept of “printing money” was a certain way to devalue currency and cause inflation (rising prices), but at the same time I’ll maintain that not all price inflation is directly the result of monetary expansion.

Generally, most people understand that prices rise and fall based on the supply and demand for a product. So, for example, if China and India are demanding more and more oil, and our own demands are not declining, there would be upward pressure on the price of oil.

Strangely, this upward pressure need not have anything to do with monetary factors within any one country, such as the US. Now, it is certainly possible that inflation caused by supply and demand factors could be exacerbated within the US due to simultaneous monetary policies…

Some reading:

24

LIFTICVSMAXIMVS. although I agree with nearly everything you say, I don’t think you have the expertise to be calling mainstream economists idiots. You come across as someone who recently picked up Austrian economics from the Ron Paul campaign, read a few books on it, and declared yourself an expert. Again, I agree with your school of thought, but I think you ought to be a little more careful because you do come across as at least mildly pretentious.

Bernanke is no idiot. He is, in fact, extremely intelligent. You can be certain that he is fully aware of the effects of credit expansion (as was Alan Greenspan), but you have to appreciate that he operates under the pressure of the Federal Reserve board. He may be evil, but he is no idiot.

25

[quote]belligerent wrote:
LIFTICVSMAXIMVS. although I agree with nearly everything you say, I don’t think you have the expertise to be calling mainstream economists idiots. You come across as someone who recently picked up Austrian economics from the Ron Paul campaign, read a few books on it, and declared yourself an expert. Again, I agree with your school of thought, but I think you ought to be a little more careful because you do come across as at least mildly pretentious.

Bernanke is no idiot. He is, in fact, extremely intelligent. You can be certain that he is fully aware of the effects of credit expansion (as was Alan Greenspan), but you have to appreciate that he operates under the pressure of the Federal Reserve board. He may be evil, but he is no idiot.
[/quote]

Since I have no way of knowing what Bernenke’s intentions or knowledge is I THINK he is an idiot. I think anyone who knowingly or unknowingly destroys the wealth of a nation qualifies as an idiot. Ignorance is no excuse. Peer pressure is no excuse.

The ideas of the Austrians have been around for a good hundred years or more and have been ignored because modern man in his infinite arrogance thinks he can control complex systems with scientific precision using mathematical models and historical data. It is just pure idiocy.

I may have just recently been exposed to the Austrian School (about 18 months ago – thanks to the good Orion) but I can tell you with all honesty that it has helped me see through the mainstream media and political fog machine.

26

Hmm, there is no reason to expect the Austrian’s have discovered the holy grail of economics either.

What I mean is, there are many ways of looking at issues, and each way of looking works well under various conditions and situations.

Just as with politics, taking the best ideas from each camp is often better than basing all policies on one specific ideology.

27

This is a great thread! I regret not reading until now.

I will never forget Dr. Paul Samuelson, a world famous economist, predicting that the USSR would eclipse the USA in the year 2000 economically (my hs text).

Most economists are statists. They are in bed with political scientists, trying to manage our economy.

Most people wonder why economists are so often wrong. The problem is that they use mathematical econometric models. Those models ignore chaos theory, and the impact that one person or event can have on a system. Someone comes along and invents the internet, or a new vaccine, and all the models become applesauce. Oil doubles in price and all their planning is worthless.

Only laissez faire capitalism is fluid enough to deal with chaos, because it is ‘unmoddeled’. The plan can’t be fucked up if there is no plan. And all plans get fucked up.

28

[quote]vroom wrote:
LIFTICVSMAXIMVS wrote:
which is due to currency devaluation.

You seem to talk about this like there is only one currency… how about a currency drop compared to another country due to the currency of that other country appreciating?
[/quote]
Whether the exchange value of a currency rises or falls in relation to an other currency is irrelevant to inflation. How a currency is valued is dependent on the productive and consumptive capacities of that nation and the amount of the currency in circulation. If a trading nation has a currency that goes up in value (for whatever reason) the subsequent rise in prices in terms of our own currency is not called inflation.

Inflation has only to do with the amount of money in circulation (MZM). It is impossible to measure inflation in terms of the relative prices of goods – which goods do we measure? During a monetary expansion not all goods and services rise in price proportionately. We see these things as bubbles because typically there is a misdirection of capital in one or more particular markets. Inflation has only to do with the money supply.

It is quite simple to illustrate if we replace money as the exchange commodity with something like grain, for example. If all the farmers in a producing nation were able to double their supply from one season to the next it would theoretically carry half the value the following season. The price of a horse in terms of a grain commodity may double in price when the signals are noticed (for example, the demand for horses rises due to increased grain stocks). The prices may double in terms of grain, assuming the supply of horses doesn’t change, but maybe there is some other exchange commodity that hasn’t been devalued due to an inflated supply. The price for a horse in terms of gold may not change much because the gold supply is hard to mess with.

I think in order to get a better grasp of monetary inflation we must not think in terms of prices but rather how much of it is in circulation. Prices rise or fall because of supply and demand (which includes the the supply and demand for money) and for that reason they are too arbitrary to give a proper measurement of inflation.

29

This is nice, but like I said, it is not the holy grail of economic theory.

[quote]LIFTICVSMAXIMVS wrote:
Whether the exchange value of a currency rises or falls in relation to an other currency is irrelevant to inflation. How a currency is valued is dependent on the productive and consumptive capacities of that nation and the amount of the currency in circulation.

If a trading nation has a currency that goes up in value (for whatever reason) the subsequent rise in prices in terms of our own currency is not called inflation.
[/quote]

If people wish to define inflation in a certain way for the purpose of discussion, that is fine, but that does not change the way the world (especially the consumer) views inflation.

[quote]Inflation has only to do with the amount of money in circulation (MZM). It is impossible to measure inflation in terms of the relative prices of goods – which goods do we measure? During a monetary expansion not all goods and services rise in price proportionately.

We see these things as bubbles because typically there is a misdirection of capital in one or more particular markets. Inflation has only to do with the money supply.[/quote]

So, without monetary expansion, during a rise in prices, such as during a shortage, do people who pay more for the products that are in short supply not deal with rising prices? Or, is it supposedly meaningless because of a lack of monetary expansion?

The effects of price changes on the populace, and hence the economy, are very real. Price changes are not ONLY caused by monetary expansion, but yes, it is certainly one way of creating price changes.

What if you find that global beef supplies have been falling for decades, because all productive land has been retasked to grow corn for ethanol. Do those people that consume beef and pay higher prices every year not deal with rising prices?

I’m not arguing that manipulation of the money supply won’t have an effect on prices – just that it is not the only influence that needs to be considered.

[quote]It is quite simple to illustrate if we replace money as the exchange commodity with something like grain, for example. If all the farmers in a producing nation were able to double their supply from one season to the next it would theoretically carry half the value the following season.

The price of a horse in terms of a grain commodity may double in price when the signals are noticed (for example, the demand for horses rises due to increased grain stocks).

The prices may double in terms of grain, assuming the supply of horses doesn’t change, but maybe there is some other exchange commodity that hasn’t been devalued due to an inflated supply. The price for a horse in terms of gold may not change much because the gold supply is hard to mess with.[/quote]

Again, you see the concept of supply and demand hidden in this, but they hold them constant in order to talk about the effect of “printing money”. Once again, price changes occur outside of money supply changes.

I know these folks argue that the world should return to a gold standard – but they are doing a poor job of it.

30

[quote]vroom wrote:
Hmm, there is no reason to expect the Austrian’s have discovered the holy grail of economics either.
[/quote]

IF there were a Holy Grail of Economics it would be its method of inquiry. The Austrians developed a method to explain the phenomena of individuals making choices in a world fraught with scarcity and uncertainty. No other school has been able to properly describe the phenomena of interest rates or the business cycle, for example.

All other schools of economics rely on historical data and mathematical modeling whereas the Austrians rely on methodological individualism. Austrians reject mathematics as a tool for predicting the actions of man.

We can only be certain that man acts in whatever way best suits his desire at any given moment. We can never know from one moment to the next where those actions will fall on his scale of values, therefore, history has no meaning in terms of economic analysis.

All that can be predicted is that man will act and those actions will have consequences – what the Austrians attempt to explain is what comes about because of those consequences – for example, exchange, money, prices, interest, profit, inflation, etc.

31

[quote]LIFTICVSMAXIMVS wrote:
IF there were a Holy Grail of Economics it would be its method of inquiry. The Austrians developed a method to explain the phenomena of individuals making choices in a world fraught with scarcity and uncertainty. No other school has been able to properly describe the phenomena of interest rates or the business cycle, for example.

All other schools of economics rely on historical data and mathematical modeling whereas the Austrians rely on methodological individualism. Austrians reject mathematics as a tool for predicting the actions of man.

We can only be certain that man acts in whatever way best suits his desire at any given moment. We can never know from one moment to the next where those actions will fall on his scale of values, therefore, history has no meaning in terms of economic analysis.

All that can be predicted is that man will act and those actions will have consequences – what the Austrians attempt to explain is what comes about because of those consequences – for example, exchange, money, prices, interest, profit, inflation, etc.[/quote]

Great, they rediscovered the concept of microeconomics and then extended that into macroeconomics. Maybe soon they’ll discover they have their heads up their asses with respect to a tangible currency as well.

32

[quote]vroom wrote:
So, without monetary expansion, during a rise in prices, such as during a shortage, do people who pay more for the products that are in short supply not deal with rising prices? Or, is it supposedly meaningless because of a lack of monetary expansion?
[/quote]

What you are describing here is essentially a question of productivity. Would a corresponding drop in prices due to increased productivity be considered deflation?

Yes, but again decreased productivity has nothing to do with the money supply in this example. We cannot measure inflation in terms of prices. What is seen here is the price of beef rising but what you are leaving out is the corresponding decrease in price of corn and ethanol due to expanded productivity.

The only way to properly describe certain phenomena are by making assumptions about what would happen under certain conditions and analyzing it to its final logical conclusions.

It should be very plain that under a non-changing money supply when all other goods are free to fluctuate prices will rise or fall. It is impossible to analyze complex systems without holding one constant fixed – thus, the Austrian method.

33

[quote]LIFTICVSMAXIMVS wrote:
It is impossible to analyze complex systems without holding one constant fixed – thus, the Austrian method.[/quote]

Dude. Economics has been following these principles for ages… it isn’t something that has been recently cooked up. Any method that has to “sell itself” is suspect to me.

Edit: Again, if you wish to DEFINE inflation as monetary supply expansion, then that will have consequences with respect to discussion – but that does not change the commonly accepted usage of the term inflation.

34

[quote]vroom wrote:
Great, they rediscovered the concept of microeconomics and then extended that into macroeconomics. Maybe soon they’ll discover they have their heads up their asses with respect to a tangible currency as well.[/quote]

They did not discover these concepts. They explained them. To an Austrian there is no macro or micro economic theory.

How do we talk about unemployment without talking about prices, for example? Everything is related to everything else.

35

[quote]vroom wrote:
LIFTICVSMAXIMVS wrote:
It is impossible to analyze complex systems without holding one constant fixed – thus, the Austrian method.

Dude. Economics has been following these principles for ages… it isn’t something that has been recently cooked up. Any method that has to “sell itself” is suspect to me.
[/quote]

Yet you gladly accept the “accepted” theory that was decided for you.

[quote]
Edit: Again, if you wish to DEFINE inflation as monetary supply expansion, then that will have consequences with respect to discussion – but that does not change the commonly accepted usage of the term inflation.[/quote]

I am not defining inflation any other way than the most logical one. It must be defined this way because prices don’t, in and of themselves, mean anything. Why does the price of ethanol drop but the price of diesel rise? Is that inflation or deflation.

If you call an increase in prices inflation then logically you must call its opposite deflation.

36

[quote]LIFTICVSMAXIMVS wrote:
Yet you gladly accept the “accepted” theory that was decided for you.[/quote]

The Austrians appear to be reinventing things that are already known, slapping on their own terminology. Congrats to them…

It all seems “directed” towards the notion that we need gold as the basis for money. This smacks of a desired outcome searching for a good reason.

[quote]I am not defining inflation any other way than the most logical one. It must be defined this way because prices don’t, in and of themselves, mean anything. Why does the price of ethanol drop but the price of diesel rise? Is that inflation or deflation.

If you call an increase in prices inflation then logically you must call its opposite deflation.[/quote]

It is certainly a logical definition – that isn’t my quibble.

37

[quote]vroom wrote:
LIFTICVSMAXIMVS wrote:
It is impossible to analyze complex systems without holding one constant fixed – thus, the Austrian method.

Dude. Economics has been following these principles for ages… it isn’t something that has been recently cooked up. Any method that has to “sell itself” is suspect to me.

Edit: Again, if you wish to DEFINE inflation as monetary supply expansion, then that will have consequences with respect to discussion – but that does not change the commonly accepted usage of the term inflation.[/quote]

Monetary supply expansion is the commonly accepted use of the term inflation.

If you want to call rising prices inflation you can do so, but then you

a) redefine the word, and

b) you are simply calling a consequence of inflated money supply inflation which does not really help you in explaining the phenomena.

Then, if only price would rise all others would correspondingly drop if the money supply were held constant, hence no inflation.

Your scenario is either cost push or demand pull inflation and wikipedia even has the Austrian response to this ideas-

No inflated money supply, no inflation.

End of story.

38

[quote]orion wrote:
Your scenario is either cost push or demand pull inflation and wikipedia even has the Austrian response to this ideas-

No inflated money supply, no inflation.

End of story.
[/quote]

Oooh, a circular reference… that must make it right! :wink:

39

[quote]vroom wrote:

The Austrians appear to be reinventing things that are already known, slapping on their own terminology. Congrats to them…

[/quote]

No, they actually invented them. Or to be more precise, first described them.

Or to be even more precise they re-discovered and refined the ideas of scholastic philosophers and laid the foundation for modern economics.

40

I wonder… what would increasing world population do to total demand?