Economics 101

[hoost]

I recently listened to a series of lectures called Economics 101 by Murray Rothbard.  I thought it was a great course on basic economics and found it far more enlightening than my college econ courses.

• I. Demand and Supply, Consumer Goods, Prices and Exchange
• II. Money and Prices
• III. Capital, Interest, and Profit
• IV. Labor
• V. Labor and Unions
• VI. Conservation and Property Rights
• VII. Banking and the Business Cycle
• VIII. Mises in One Lesson
• IX. The Future of Austrian Economics

It's also available on iTunesU.  Go into the iTunes store and search "economics 101".  It was the first link that popped up for me.  It's put out by the Mises Institute.  I just synced those with my iPod and listened to them in the car.

[Gumby]

I'll virtually fast-forward this thread a few pages by using the following fictional discussion between an Austrian Economist and a Modern Monetary Theorist...

Modern Monetary Theorist: Hey, my friend. Why do you look so glum?

Austrian Economist: I'm worried about the inevitable boom-bust cycle that will result from these artificially low interest rates.

MMT: I'm a bit confused about why you think that would happen.

AE: It's pretty simple, really.

In a market economy based on gold and 100 percent reserves at banks, low interest rates signal present savings are available for future consumption. Businesses expand in longer-term, more capital-intensive ways because they anticipate the demand created by the extra savings.

MMT: Right. I've got that. But you do realize that we're not on the gold standard and haven't had that kind of banking system in generations, right?

AE: Sure. That's the problem. You see, when interest rates are artificially lowered by a central bank or fractional reserve credit expansion, the interest rates are a false signal about present savings. Business expand but the future demand doesn't develop because the savings weren't there. The low interest rates created the illusion of savings.

MMT: I can totally see how this would be a problem if we had your free-market system in place and then a central bank intervened.

AE: So we agree. Do you want to borrow my copy of "Man, Economy and State?"

MMT: Thanks. I will. But I do not quite agree. I don't think you actually understand how far central bank intervention has gone.

AE: That seems implausible. I worry about central bank intervention almost every day, from dawn 'till lights-out.

MMT: Here's the thing. In our system — non-redeemable money, floating exchange rates, central bank — short-term interest rates don't reflect savings at all. Interest rates just do not reflect or signal real savings in the economy.

AE: That's what I was saying!

MMT: Take it a step further, though. Interest rates are now policy-based rates, not savings-based rates. The Fed targets rates and meets its target, when necessary, by paying interest on reserves, supplying new reserves or draining reserves. It's completely irrational to do any business planning that attempts to read savings from interest rates.

AE: It sure sounds like you are agreeing with me.

MMT: I am agreeing with you. But I don't think you have understood the full scope of our departure from the gold standard. In our current system, banks do not lend out deposits.

AE: It's a giant illusion.

MMT: Sure. But it's not an illusion of savings, in particular. It's a credit system built on central banking plus banks which are semi-public institutions that are licensed by the government, to create new deposits by making loans "out of thin" air and backed by the government in the form of the central bank's role as a lender of last resort.

AE: Holy crap! This is the unlimited credit expansion that Murray Rothbard was warning about in "The Mystery of Banking."

MMT: Even Rothbard didn't quite understand that things were much "worse" than he thought. Banks are even less constrained than he believed.

AE: This is going to lead to disaster. Bubbles, unsustainable expansions, banks lending willy-nilly.

MMT: Yes. We've been warning that this financial system leads to fragility for a long time.

AE: We're screwed.

MMT: Well, we're screwed unless we put in place prudential regulations and have bank regulators that can shut down banks that exceed prudent limits.

AE: What guarantee do we have that regulators can effectively set prudential limits? Weren't Lehman Brothers and AIG within the limits set by regulators when they blew up?

MMT: But that was because of irresponsible deregulation.

AE: What makes you think that regulators can get it right? Won't the powerful businesses and banks dominate the regulators?

MMT: This is a policy question, not an economic question. We think that well-meaning, informed regulators can set the right rules of the road.

AE: The last decade doesn't shake your confidence in this proposition?

MMT: The last decade teaches us the need for more regulatory vigilance.

AE: You seem to have a double-standard here. You think that financial markets are prone to instability but that regulators can escape this tendency and stick to policies that embrace stability.

MMT: That's the policy we're urging.

AE: Good luck with that. I'm going to buy some gold.

Source: http://www.cnbc.com/id/46720765/MMT_and ... y_Dialogue

And...scene!

[Ad Orientem]

Murray was a class act and very sharp. I didn't always agree with him (he tended a bit too much towards economic anarchism for my comfort level), but I would have taken a very deep breath before challenging him to a debate. One of my fantasies has been being a fly on the wall while Murray Rothbard and Paul Krugman sat down together over beer in the local pub.

[Pointedstick]

Gumby's dialogue is hilarious and totally on-point, but as a former Austrian myself, I don't think we need to throw it all out. Austrian economics still has a number of very important observations, such as the importance of real production and the destabilizing effects of excessive debt. It also makes very incisive arguments against democracy and shows pretty conclusive why democracy and capitalism are actually enemies, not allies. But I agree that a lot of the stuff about central and private banking haven't aged well in an era of floating fiat currencies.

Finally, the dialogue's conclusion echos a worry I have myself; that the current system requires prudent regulations, but that such things are impossible in the real world due to the nature of politicians. I sometimes feel like MMR is a bit naive in its call for "good government". The cynic in me doesn't believe that such a thing is possible.

[Tortoise]

Finally, the dialogue's conclusion echos a worry I have myself; that the current system requires prudent regulations, but that such things are impossible in the real world due to the nature of politicians. I sometimes feel like MMR is a bit naive in its call for "good government". The cynic in me doesn't believe that such a thing is possible.

I feel the same way.

The leaders in government and the private sector are all drawn from the same population. So if you have a corrupt private sector, you're likely also to have a corrupt government--in which case the government doesn't improve things. But if you have good, ethical government, you're also likely to have a good, ethical private sector--in which case there's little for the government to improve in the first place.

[MachineGhost]

Finally, the dialogue's conclusion echos a worry I have myself; that the current system requires prudent regulations, but that such things are impossible in the real world due to the nature of politicians. I sometimes feel like MMR is a bit naive in its call for "good government". The cynic in me doesn't believe that such a thing is possible.

It's possible.  But it will require a twilight of the plutocrats and an ascendency of AI.

In the meantime, take the middle ground.  Hold some gold and fund/advocate reform.  It is the only sensible thing to do.

[Pointedstick]

Finally, the dialogue's conclusion echos a worry I have myself; that the current system requires prudent regulations, but that such things are impossible in the real world due to the nature of politicians. I sometimes feel like MMR is a bit naive in its call for "good government". The cynic in me doesn't believe that such a thing is possible.

It's possible.  But it will require a twilight of the plutocrats and an ascendency of AI.

Let me guess: you chose to merge with Helios, right? 

In the meantime, take the middle ground.  Hold some gold and fund/advocate reform.  It is the only sensible thing to do.

I think HB's advice seems more sensible to me, to be honest. I prefer to simply try to not let it affect me because as an individual, there's so little I can do. Better to bypass it rather than try to change it.

[MachineGhost]

I think HB's advice seems more sensible to me, to be honest. I prefer to simply try to not let it affect me because as an individual, there's so little I can do. Better to bypass it rather than try to change it.

I used to think that way, but now I strongly disgree.  Far too much intellectual theory evaporates in practical reality.

HB was admitted lazy and he lived in a lax era much different from today's encroaching Orwellian survelliance society where escape into unfettered unmolestation is increasingly no longer a realistic option.  History has amply demonstrated that it just takes one person with the drive and passion to make a wide-ranging difference (I loathe to mention it, but Zuckerberg is an example).  I figure that is because inertia and apathy in society are so rampant, and combined along with a generally low level of thinking skills, doesn't amount to a hill o' beans in people (no matter how rich they are) knowing how or why to best effectively utilize or direct scarce resources.  I sense a higher level of intelligence in people in this forum, or perhaps PPers in general, yet they seem to consistently underestimate themselves.  It is not that hard to outcompete the plutocrats and bureaucrats** of the world, but one needs to recognize their own potential and take action, instead of being apathetic.  Here's a good place to get inspiration: http://www.radicalsocialentreps.org/

** Do these people even exist?  It just occured to me that in all my years of a variety of online discussions, I have never consciously seen these people own up and defend themselves, their livelihoods, their worldview, or even acknowledge that they do indeed exist as a socio-economic subclass.  What am I missing?