Not Even Harry Browne Thought It Was Going To Be This Bad

[Pointedstick]

Austrian economics is immensely intellectually appealing. 

The problem is that Austrian economics doesn't provide a complete or satisfactory explanation for the way things work in the real world (though I wish it did).

I agree.

Austrian economics says, "well, X is true (and it is) therefore Y (which is logically consistent), and in the end Z (which makes perfect sense)... and then the real world proceeds to do the opposite thing. Personally I think the problem is that us puny humans aren't good enough to live up to Austrian economics.

[Gumby]

None of this demonstrates that Austrian economics is based on a political agenda. Rather, those who understand Austrian economic know that government's interference in the economy is always destructive. So the causality runs the other way, from Austrian economics to libertarianism.

I never said that Austrian economics was based on a political agenda (although, let's be honest, it probably was). I just said that the Austrian school has a political agenda — as clearly stated by their leading institute's own mission statement.

So what's wrong with that?

Good question.

My overall point, Libertarian666, is that you have allowed your political biases to drive your investment decisions, which is rarely a good idea.

[doodle]

This made me stop in my tracks.  What a thought-provoking sentence!  Somebody could write a whole book about this one concept.

Xtal,

Is that sarcasm? 

If not, the first time I heard that, my mind was blown.  Of course, there's more to a currency holding its value than holding a gun to someone's head and requesting a piece if paper.  However, I always wondered what it was, fundamentally, that made us value holding a US dollar when it has no intrinsic value.

This is the model of "chartalism," which isn't our system, but it's not too far off in some important ways. Any fiat currency has to develop its value. Part of that is stimulating demand for the currency.  Other things are important in maintaining it.  But we kind of tripped into a quasi-chartalist system after ending the gold standard without really realizing it.


I don't have a link, but the British used this in Africa to get the people to start to demand currency. The Africans didn't value it, so the British taxed it and something clicked with all the people to demand it, and it became money for that society where it would have previously been confetti.

Definitely not sarcasm!  I've also come across this idea before, in David Graeber's book Debt: The First 5000 Years (which is an excellent read, btw), but not in a pithy one-sentence form like this.  It's just really thought-provoking.

It really annoys me how governments claim an effective monopoly on currency.  Currency, taxation, and power all go hand in hand.

How does government maintain a monopoly on currency? There are plenty of alternatives. Barter, Bitcoins, IOU's, Linden Dollars, Foreign Currency, Gold, Silver...heck, many small towns in the United States print their own: http://www.telegraph.co.uk/news/worldne ... rency.html

[Gumby]

Or, put more succinctly:

Austrians are speaking politics. It is a school of thought intended to always push govt away. There is nothing rational about it. For instance, they claim that inflation is always a rise in the amount of money over some output. And they go into these elaborate arguments about how this is always bad and its an extension of big govt largesse and they show us charts that claim the dollar has fallen 90% over the last 100 years. Well, that’s just flat out dead wrong. The US money supply has increased enormously since 1913. If you’d told an Austrian that the money supply would explode the way it has over the next 100 years they would have told you the world was totally screwed and that govt was about to ruin everything. Instead, the 1900's were characterized by the single greatest period of wealth creation and prosperity that any society in the history of man has ever undergone. And the USA and its big govt led that charge. Now, the austrians would claim that it could have been even better. Well yeah, that’s like marrying Heidi Klum and then complaining about her not being more beautiful.

The very existence of this school of thought seeks to destroy or minimize the greatest construct of the last 300 years. They want us all to believe that the USA is this horrible place where everyone is getting screwed over. Well news flash. We are the richest most prosperous nation in the world. Are there big problems? Yes. And I discuss them routinely. But we don’t need to destroy the govt to achieve prosperity.

And while their rhetoric might sound great in theory it is nonsense in reality. So, while the public eats up this nonsense, people like Peter Schiff and Jim Rogers and Bob Murphy are selling you products, sailing around the world, paying their taxes in USD and generally benefiting from this great system that they love to hate. And you’re worse off for it….

Please. It’s a political school of thought cloaked as a economic theory.

Source: http://pragcap.com/final-thoughts-on-th ... ment-55860

He wrote that during an argument, so he was being overly harsh, but he raises some good points. Austrian economics is a political school of thought cloaked as an economic theory.

And yes, Liberals have their economic schools too.

The point is to recognize when your investments are being led astray by political biases versus when your investments are politically agnostic. The Permanent Portfolio is an agnostic investment strategy. It neither favors prosperity nor government collapse, but it strives to cover you for all outcomes.

The fact that Harry Browne — a Libertarian politician, mind you — was able to separate his investments from his political biases was an incredible achievement.

[Libertarian666]

[quote author=Gumby link=topic=4852.msg71286#msg71286
My overall point, Libertarian666, is that you have allowed your political biases to drive your investment decisions, which is rarely a good idea.
[/quote]

And my overall point is that you are wrong.

You can believe whatever you want, of course, but I am much more knowledgeable about the basis of my investment decisions than you are.

My investment decisions are based on my own analysis of the risks and rewards of various investment classes.

In the past, I have invested in common stocks and in Treasurys. I no longer do so because I believe that the risk/reward ratios in those investment classes are unfavorable.

[Gumby]

In the past, I have invested in common stocks and in Treasurys. I no longer do so because I believe that the risk/reward ratios in those investment classes are unfavorable.

Why? Can you explain the logic behind your "risk/reward ratios" that led you to this decision?

If you are using Austrian economics to guide that logic, you are incorporating a political bias into your investment strategy whether you know it or not.

[Libertarian666]

In the past, I have invested in common stocks and in Treasurys. I no longer do so because I believe that the risk/reward ratios in those investment classes are unfavorable.

Why? Can you explain the logic behind your "risk/reward ratios" that led you to this decision?

Not in any reasonable amount of time.

If you are using Austrian economics to guide that logic, you are incorporating a political bias into your investment strategy whether you know it or not.

That is your opinion. It is not mine.

[MediumTex]

Libertarian666,

Did the 29% return on long term treasuries in 2011 surprise you?

I'm trying to understand your basis for concluding that the Permanent Portfolio is not appropriate for you.

Is it just because you don't like the treasury holdings in the portfolio?

[Gumby]

That is your opinion. It is not mine.

It's not just my opinion. Wikipedia literally classifies Austrian economics as a "Libertarian" and "conservative" economic theory. And as I keep telling you, the very institute keeping the Austrian school framework alive has a political agenda stated right in its own mission statement!

[Libertarian666]

Libertarian666,

Did the 29% return on long term treasuries in 2011 surprise you?

I'm trying to understand your basis for concluding that the Permanent Portfolio is not appropriate for you.

Is it just because you don't like the treasury holdings in the portfolio?

I don't like anything that I consider subject to great risk at the hands of obvious lunatics such as the Federal Reserve. That eliminates all US-based securities.

[Xtal]

How does government maintain a monopoly on currency? There are plenty of alternatives. Barter, Bitcoins, IOU's, Linden Dollars, Foreign Currency, Gold, Silver...heck, many small towns in the United States print their own: http://www.telegraph.co.uk/news/worldne ... rency.html

An effective monopoly -- not an absolute monopoly.  And even barter is subject, by law, to taxation (not that most normal people would take the trouble to observe this law).

[doodle]

Libertarian666,

Did the 29% return on long term treasuries in 2011 surprise you?

I'm trying to understand your basis for concluding that the Permanent Portfolio is not appropriate for you.

Is it just because you don't like the treasury holdings in the portfolio?

I don't like anything that I consider subject to great risk at the hands of obvious lunatics such as the Federal Reserve. That eliminates all US-based securities.

Short of an underground bunker in the middle of nowhere, Im not sure what investment vehicle you would advocate placing ones savings into. As I understand it, money itself is a social construct and no matter what form it takes it is subject to the lunacy and whims of the human species.

Maybe the best thing for you is to convert money into tangible assets. While the value of land, food, water, and diesel fuel might rise and fall its life sustaining properties will remain constant. Those things after all are true wealth, money (even gold and silver) are merely representations  or symbols of that real wealth.

[MediumTex]

Libertarian666,

Did the 29% return on long term treasuries in 2011 surprise you?

I'm trying to understand your basis for concluding that the Permanent Portfolio is not appropriate for you.

Is it just because you don't like the treasury holdings in the portfolio?

I don't like anything that I consider subject to great risk at the hands of obvious lunatics such as the Federal Reserve. That eliminates all US-based securities.

Although I don't like admitting this, Bernanke has actually done a pretty good job of getting the economy back on track after the 2008 financial crisis, especially considering that he has had very little help from Congress.

What has Bernanke done over the last five years that you would classify as the actions of a lunatic?

Bernanke has done some unprecedented things, but so far it has only resulted in modest inflation (contrary to what many predicted), interest rates haven't risen (as many predicted they would) and the psychology of the markets seems much more favorable than it might have been five years out from a financial crisis under many other scenarios, including the one in which the Austrian formula was followed of letting the economy fully crater with no governmental or central bank intervention, which would lead to huge increases in unemployment, defaults on most debts, and liquidation of many assets across the whole economy for pennies on the dollar as a new set of entrepreneurs took over most industries.

If you look at other historical financial crises, it normally takes 5-20 years for an economy to fully recover.  If we are on the mend after five years, I think you have to give SOME credit to the central bank, even if you mostly consider the central bank to have a negative effect on the overall economy over longer periods.

I always thought of Greenspan as a "useful idiot" (though not a lunatic), but Bernanke seems to be a genuinely competent person when it comes to monetary policy.  He has also acted with boldness in the face of very intense criticism.  Under the circumstances, I don't know what I would have done differently if I had been in Bernanke's position.  When you have money being destroyed on a massive scale through defaults and general credit contraction, extraordinary liquidity steps and efforts to push down interest rates are not irrational.

[Pointedstick]

Maybe the best thing for you is to convert money into tangible assets. While the value of land, food, water, and diesel fuel might rise and fall its life sustaining properties will remain constant. Those things after all are true wealth, money (even gold and silver) are merely representations  or symbols of that real wealth.

A very sane and strong suggestion. It's interesting how paralyzed we can become in trying to preserve the value of our money. One solution is to convert it into what we really want, since nobody just wants money in and of itself.

[Tortoise]

When you have money being destroyed on a massive scale through defaults and general credit contraction, extraordinary liquidity steps and efforts to push down interest rates are not irrational.

Not irrational, but immoral (as in moral hazard).

[MediumTex]

When you have money being destroyed on a massive scale through defaults and general credit contraction, extraordinary liquidity steps and efforts to push down interest rates are not irrational.

Not irrational, but immoral (as in moral hazard).

Yes, but disagreeing with a policy doesn't mean that the policymaker is a lunatic.  That's all I'm saying.

[Gumby]

I don't like anything that I consider subject to great risk at the hands of obvious lunatics such as the Federal Reserve. That eliminates all US-based securities.

Sounds like a political statement if I ever heard one.

Either that, or you've misunderstood how the Fed works, since it really only has the power to swap assets with the private sector — hardly a power to create any meaningful inflation (beyond artificially crowding out select assets with those swaps).

Perhaps you meant to say, "lunatics such as Congress," — since only Congress (via the Treasury) can directly influence the private sector's surplus/deficit. Ah, but that would make your investment decision highly political, so I guess you can't admit that.

[doodle]

When you have money being destroyed on a massive scale through defaults and general credit contraction, extraordinary liquidity steps and efforts to push down interest rates are not irrational.

Not irrational, but immoral (as in moral hazard).

I find breadlines, rampant unemployment, and desperation more immoral. Not having anything to lose creates its own conditions for moral hazard. When you have nothing left to lose, social revolution seems like a pretty risk free undertaking.

[Tortoise]

When you have money being destroyed on a massive scale through defaults and general credit contraction, extraordinary liquidity steps and efforts to push down interest rates are not irrational.

Not irrational, but immoral (as in moral hazard).

I find breadlines, rampant unemployment, and desperation more immoral.

No, those things would be unfortunate but not immoral. They would be the unfortunate consequences of the immoral actions taken by the reckless big banks, government entities, and irresponsible individuals prior to the crash. There is nothing immoral about letting the consequences of an immoral action run their course.

Not having anything to lose creates its own conditions for moral hazard. When you have nothing left to lose, social revolution seems like a pretty risk free undertaking.

You say that like it's a bad thing. Maybe a social revolution is precisely what we need in this country that now finds itself practically ruled by reckless "too big to fail" banks, financial criminals who get off scot-free for their crimes, and a government that has vastly overstepped its original bounds.

[Libertarian666]

Ok, let me restate that a bit. I don't wish to invest in any assets whose value can be seriously reduced by the arbitrary acts of one person or organization whose track record I consider unappetizing.

[Gumby]

whose track record I consider unappetizing.

That's still a political statement. You disagree with the policy. That's not an agnostic viewpoint on what the future may hold.

It is very possible to have extreme prosperity with "unappetizing" policy being implemented. The last 100 years prove that!

[frommi]

Ok, let me restate that a bit. I don't wish to invest in any assets whose value can be seriously reduced by the arbitrary acts of one person or organization whose track record I consider unappetizing.

Hm that leaves 0 assets to invest in?

[Libertarian666]

whose track record I consider unappetizing.

That's still a political statement. You disagree with the policy. That's not an agnostic viewpoint on what the future may hold.

It is very possible to have extreme prosperity with "unappetizing" policy being implemented. The last 100 years prove that!

Obviously I'm never going to convince you that my position is not based on political considerations.

So believe whatever you want; I'm done discussing it with you.

[Gumby]

Obviously I'm never going to convince you that my position is not based on political considerations.

It would be easier to believe you if you could provide maybe a single shred of evidence that your decision is based on some kind of impending threat to our economy.

But, all you've done is told us that, as an Austrian, you don't like US monetary policy — which is just a political statement that has no bearing on the real economy or actual inflation. Having a big government that spends money — no matter how distasteful — does not automatically result in an impending monetary collapse.

If things are so dire for our future, why not at least explain what you think the risk actually is?

[Libertarian666]

Obviously I'm never going to convince you that my position is not based on political considerations.

It would be easier to believe you if you could provide maybe a single shred of evidence that your decision is based on some kind of impending threat to our economy.

But, all you've done is told us that, as an Austrian, you don't like US monetary policy — which is just a political statement that has no bearing on the real economy or actual inflation. Having a big government that spends money — no matter how distasteful — does not automatically result in an impending monetary collapse.

If things are so dire for our future, why not at least explain what you think the risk is?

As far as I know, I'm not obligated to explain anything to you, and given your attitude that you know more about me than I do, I see no incentive to do so.