Gyroscopic Investing

Kshartle wrote:BTW evidence from the current economy is always extremely shaky because economic truths are distorted by misallocations that would not occur absent force.

I hope we can discuss civilly, (I'm genuinely quite curious), why is that evidence "shaky" if that is our reality? I'm genuinely trying to learn your point of view. To my mind, the evidence from the economy is reality (albeit distorted). When these "economic truths" are distorted, they are no longer "true," by definition.

So, why should we believe in economic truths that are obviously distorted by governments?

(And let's be civil!)

Consider the principle that humans work for their benefit and not the benefit of others (unless benefiting others is what makes them happy which is turn their benefit).

Then consider the slave in the field picking cotton. Massa gets the lion's share of the benefit of the labor. We could point to this activity and say "Ah-hah! that economic principle is false! Look at the evidence of the slave picking cotton! He's doing it for massa and not himself! Proof positive that the economic truth is false"

Hardly. The gun that massa points at him has disstored this. The gun provides the additional benefit to the slave. The benefit of not being shot. If you ignore the gun you can't understand why the slave is acting this way.

It's no different if massa has the gun or the government. If you can't see the gun in the room you mistakenly think the principle is faulty.

Does this make sense? I can expound more clearly if this is insufficient.

This is why economic examples from the present and history are difficult to tie to economic truths. You have to be aware of the gun in the room and it's effects.

I will work to provide a more clear explanation if it's requested.

It does make sense, but...

I don't quite understand how that's useful for us. I mean, say it's 1980. Reagan takes office and we start to see the massive government spending that is distorting these economic principles. My sense is you would be worrying about hyperinflation and putting all your money into gold. Just curious, but how would you react in that situation?

Gumby wrote: It does make sense, but...

I don't quite understand how that's useful for us. I mean, say it's 1980. Reagan takes office and we start to see the massive government spending that is distorting these economic principles. My sense is you would be worrying about hyperinflation and putting all your money into gold. Just curious, but how would you react in that situation?

In 1980 the government deficits and debt were a tiny fraction of what they are now. Interest rates were in the high teens. P/Es were very low and everyone was fleeing to gold.

I can't say for certain what I would do but hopefully I would be smart enough to pile into LTBs and stocks.

When everyone is sure hyperinflation is inevitable and the government is finished I hope I'm smart enough to sell my gold for paper promises.

TennPaGa wrote: But you seem to be saying here that the distortion is part of the economic truth. 

Isn't this the same thing Gumby has been saying?

I will be more clear. The distortion is part of the truth. However, if you don't see the distortion or understand it's effect you draw the wrong conclusion about either present day or past events.

To an alien who just observed the slave and didn't understand the full relationship it would appear that many humans really enjoy working exclusively for the benefit of others. They would not understand the economic principles at work on the planet.

The force of the government is omnipresent in your life. You can't escape it when you turn on the TV they control through censorship laws or open your fridge and see only FDA approved foodstuffs.

If you don't see the gun in the room and it's effects you can't understand (correctly) what is going on.

Kshartle wrote:In 1980 the government deficits and debt were a tiny fraction of what they are now. Interest rates were in the high teens. P/Es were very low and everyone was fleeing to gold.

I can't say for certain what I would do but hopefully I would be smart enough to pile into LTBs and stocks.

When everyone is sure hyperinflation is inevitable and the government is finished I hope I'm smart enough to sell my gold for paper promises.

Okay but, I just don't see how these economic truths/principles would lead you to that conclusion when they are constantly being distorted.

If I told you, in 1980, that the government deficits and debt were a tiny fraction of what they would be in 2013, your head would explode (mine would too!). We would not be able to conceive of the government being able to function and people wanting to buy their bonds for the next 30+ years. But that's what happened.

My guess is that these economic principles would steer you in the wrong direction from an investment standpoint. I mean, in 1980 the Monetarists were all predicting that the growing deficit would bankrupt the country and cause massive inflation... and 10 years later the opposite happened and people realized their economic truths were all distorted by the very distortions they were worrying about! People lost a lot of money by following Monetarist teachings.

Gumby wrote: Okay but, I just don't see how these economic truths/principles would lead you to that conclusion when they are constantly being distorted.

My guess is that these economic principles would steer you in the wrong direction from and investment standpoint.

Time will tell. Heck, gold has been getting pummled and bonds are up today. Alas I am not investing for today though.......

Kshartle wrote:

Gumby wrote: Okay but, I just don't see how these economic truths/principles would lead you to that conclusion when they are constantly being distorted.

My guess is that these economic principles would steer you in the wrong direction from and investment standpoint.

Time will tell. Heck, gold has been getting pummled and bonds are up today. Alas I am not investing for today though.......

I know... but I'm talking about 1980. After 30 years, your principles wouldn't have come to the correct 1980 investment allocation, if you believed that government spending was going to increase by so much over the next 30-year time frame.

If the principles are constantly being distorted, then they can't very well be used for investment purposes.

Gumby wrote:

Kshartle wrote:

Gumby wrote: Okay but, I just don't see how these economic truths/principles would lead you to that conclusion when they are constantly being distorted.

My guess is that these economic principles would steer you in the wrong direction from and investment standpoint.

Time will tell. Heck, gold has been getting pummled and bonds are up today. Alas I am not investing for today though.......

I know... but I'm talking about 1980. After 30 years, your principles wouldn't have come to the correct 1980 investment allocation, if you believed that government spending was going to increase by so much over the next 30-year time frame.

If the principles are constantly being distorted, then they can't very well be used for investment purposes.

Lot of guessing going on here that is not supported.

How do you know my principles wouldn't have come to the correct 1980 investment allocation? That statement is as accurate as me saying "I'm certain I would have come the right...blah blah based on my prnciples"

Kshartle wrote: How do you know my principles wouldn't have come to the correct 1980 investment allocation? That statement is as accurate as me saying "I'm certain I would have come the right...blah blah based on my prnciples"

I'm only guessing because you've never explained how your principles would have steered you in the right direction — and because the Monetarists got it totally wrong in 1980 too.

I'm really curious to hear how they could have steered you in the right direction. I mean that's the whole point of this conversation. How are the principles useful if you can't explain how they would help us (investmentwise).

Or maybe they don't help you investmentwise. Maybe they just help you in other ways — and that's ok. I'm just curious.

And to give you an example...

Based on my understanding of how government spending appears to drive corporate profits, if I had known that the government was going to spend a lot of money from 1980-1998 — and then try to build up a government surplus after 1998 —  I would have done my best to invest in stocks from 1980 to 1998 and then switch into bonds, because I believed the government spending was ultimately driving those profits.

Now, my theory could certainly be wrong according to classical economics, but nevertheless, it would have steered me in the right direction.

But, I probably wouldn't have considered gold worth owning after 2003, so it wouldn't have helped me all that much in that allocation.

Maybe a better example would be Japan in late '90s and US or Britain in 1945.

How would your logic have had you investing in those times?

It seems that a debt-doomsdayer would have been dead wrong.

Or the US in 1819 or 1836 or 1855 or 1870 or 1890 or 1930 or 1950 or 1980 or 1990. 1980 was probably the simplest example of those, but the question remains... How are the economic truths useful if we can't even demonstrate how they would help us allocate properly in those situations?

This thread is taking a turn down a road we've travelled many times. It leads nowhere good.

I can only guess at what I would have done at any point in history.

It would all be a guess.

You are free to guess also.

We'd all be wrong about what I would do.

That's why I try to stick to what I consider logical provable principles or what I'm doing exactly now and why.

Kshartle wrote: This thread is taking a turn down a road we've travelled many times. It leads nowhere good.

If you simply tried to answer the question... even hypothetically — it wouldn't take that turn.

Seriously, and I'm not trying to be rude, but I still don't see how these principles are of any use if you can't even describe a hypothetical situation where they might help us with our investment allocations.

There's no need for any fights. If you can't answer the question, civilly, just say so! It's ok.

What I have decided is that Austrian moral principles are of great use in helping me to determine my ideal approach to government, but of little help in determining my practical, real-world reactions to the government we have, nor do I find Austrian economic principles very helpful in steering my investment choices.

For example, I was pulled over by a cop the other day for speeding, totally my fault. I did not react like noted Austrian author Jeffrey Tucker did when he was once pulled over by a cop, which, by his own account got him arrested due to his belligerence and outrage.

Rather, I behaved like a slave. I was polite, deferential, and submissive.

Instead of being arrested, I got a small ticket which the cop even gave me a break on, and I was able to move on with my life.

Thank you Harry Browne.

Gumby wrote: There's no need for any fights. If you can't answer the question, civilly, just say so! It's ok.

What is the question exactly?

I'll do my best to answer it but I am very dumb and inarticulate so I can't promise it will be satisfying.

Kshartle wrote:What is the question exactly?

I'll do my best to answer it but I am very dumb and inarticulate so I can't promise it will be satisfying.

That's cool.

How are textbook "Economic Truths" useful for determining investment allocations when you have an idea of how much the government is going to spend into the private sector  — and the government spending will therefore distort those truths?

And by "how" I mean, give me a hypothetical example, by analyzing a historical time period.

Btw, the reason I like MR is because it does a good job of explaining how the government's distortions affect our investment portfolios. I'm personally less interested in the government's political effect on society, so that's where I'm coming from when I ask the question, above.

Gumby wrote:

Kshartle wrote:What is the question exactly?

I'll do my best to answer it but I am very dumb and inarticulate so I can't promise it will be satisfying.

That's cool.

How are your "Economic Truths" useful for determining investment allocations when you have an idea of how much the government is going to spend into the private sector  — and the government spending will therefore distort those truths?

(And by "how" I mean, give me a hypothetical example, perhaps by analyzing a historical time period)

Ok that's a lot of work and I'm headed into a work meeting. I might not get to this today.

In the meantime I think I have done some excellent anlaysis on the current goverment postion and investment options available to us. Those threads are now locked of course but the analysis is still there. I think I explain why I'm avoiding LTBs right now and cash (though that is definately not the correct option for everyone I freely admit).

I think it's excellent, it might be garbage.

Kshartle wrote:I might not get to this today.

That's fine. Take a few days if you want to. I could use a break!

Kshartle wrote:In the meantime I think I have done some excellent anlaysis on the current goverment position...I think it's excellent, it might be garbage.

This is what I'm talking about. I'm sure your analysis is excellent in the context of a textbook of "economic truths". But, if those economic truths are distorted by government (your words, not mine) then we can't very well tell if your excellent current analysis will follow the economic truths or not (unless we wait a really long time and see).

So, that's why it would be better if you could analyze a part of actual history to see if the government's distortions make these textbook economic truths fairly worthless for choosing investment allocations.

All you need to do is give me a simple hypothetical, like this...

Gumby wrote: And to give you an example...

Based on my understanding of how government spending appears to drive corporate profits, if I had known that the government was going to spend a lot of money from 1980-1998 — and then try to build up a government surplus after 1998 —  I would have done my best to invest in stocks from 1980 to 1998 and then switch into bonds, because I believed the government spending was ultimately driving those profits.

Now, my theory could certainly be wrong according to classical economics, but nevertheless, it would have steered me in the right direction.

But, I probably wouldn't have considered gold worth owning after 2003, so it wouldn't have helped me all that much in that allocation.

My understanding of the monetary system would have had me in stocks and bonds at the right time, but not gold.

Just keep it simple, like that!

Gumby wrote: Btw, the reason I like MR is because it does a good job of explaining how the government's distortions affect our investment portfolios. I'm personally less interested in the government's political effect on society, so that's where I'm coming from when I ask the question, above.

Exactly... it's not only descriptive, but aids in our ability to protect our wealth and sleep at night because it makes our economic risks and indicators so much more clear, as

And the fact that it fits so well in with HB's thinking around the PP (though he was a pretty vocal spending hawk) makes even all that much more reassuring.

In fact, it was HB's assertion that short-term treasuries were as good as cash that got my monetary curiosity finally to the point to google "how does the fed print money" and "how does the treasury and fed work" and "how does government print money" until something struck gold and brought up a Warren Mosler article.

Now Mosler over-simplified some things, but I think if I had first happened upon the complex ramblings of MR (even though I think they are "more correct") my head would've exploded.

I don't know if I'd ever have fully tried to seek out knowledge on our monetary system but for my wanting to make sure I wasn't completely screwing myself on 50% of my portfolio.  Had HB said "hold physical cash," or "FDIC accounts are fine," I wonder if I ever would have.  I wasn't trying to re-write the socialist monetary manifesto and trying to get fuel for my fire.  I was taking HB's advice and acting in my own interests to try my best to understand how to live as financially free as possible.

I noticed this comment from MT in our original MMT thread (http://gyroscopicinvesting.com/forum/ot ... 2/#msg6772).

"I'm going to merge some of the other MMT discussion into this thread, but let's try to keep these MMT-related posts in one place if we can.

Thanks."

Bahahahaha.

Nice try, MT.

moda0306 wrote:Now Mosler over-simplified some things, but I think if I had first happened upon the complex ramblings of MR (even though I think they are "more correct") my head would've exploded.

Agreed. Mosler was also trying to convince us of a specific set of political prescriptions, and those of us who chose to branch off and follow MR were less interested in those theoretical solutions and more interested in just describing the mechanical distortions/policies of the government and banks. So, MR is where we went.

TennPaGa wrote:Have any of you read any MR/MMT books?

I haven't. Sounds interesting though. I imagine Melvyr will be directing our monetary policy one day (or at least I hope he will) so I suspect he'll get more mileage out of those books than I will.