"You should ask them? They are very helpful when it comes to explaining their views on how the economy really works."
mises.org "
If they post on this thread, porc will probably ask them a question or two. But, as it stands, porx interest is in exchanging ideas with the interesting people on this thread.
One of the more curious notions that porc ran across while perusing one of the AS articles posted here was that it seems that if you combine von Mises with Hayek, you arrive at the prescription that everyone and everyone should be allowed to issue any currency of their choosing (presumably, leaving it up to Mr. Market to make the ultimate arbiter of its value), except the government. This notion strikes porc as, at the least, extreme.
"I can't speak for them but from my understanding they would
say two things.
1. The amount of money in the economy has nothing to do
with level of "sustainable" economic growth. Money is just
the medium of exchange."
Then why not get rid of money entirely, and go back to barter, thus eliminating the business cycle, unemployment, and any and all "monetary" problems.
"The Fed can only create a malinvestment credit boom."
porc has questioned this before. He agrees that lots of money sloshing around will lead to the launch of unprofitable projects that would otherwise have not been launched. But, he continues to think that the important consideration is whether or not the Market is given the final verdict on their survival, not whether or not they were allowed to be born in the first place.
Under "crony capitalism" (which porc thinks should be called "crony socialism"), the government makes financial intermediaries lend to customers that they would otherwise pull the plug on. (LTCM is a recent example.) That's different from using easy money to allow everyone to get into the race, but allowing Mr. Market to decide who gets to stay in the race.
"We could grow like crazy without ever changing the money
supply. Prices would just be different."
The conventional wisdom about the historical record (about which there are honest differences of opinion, as in everything else) is that when the US was as close to a gold standard as it has ever been (late 19th century to early 20th century), those with the coziest old-boy relationships with financial institutions (i.e., big industry) did "grow like crazy". And, prices were different -- they kept falling. This was not only due to real increases in productivity. In porx understanding, if you increase output while holding the base money supply constant, and assume a constant transaction velocity of money (granted, a major assumption, but regardless of how elastic it is, there must be some upper limit to the transaction velocity if output is growing at 4% to 6% annually, and the stock of gold is growing at a slower rate), then prices, not only of goods and services, but also of labor, must fall. Thus, wages were falling as output per worker was going up, a very perverse situation, both economically and politically.
In a country with an almost insatiable demand for newly invented consumer goods, industry could keep increasing output to increase gross revenues. But, half or more of the US economy was still based upon agriculture at that time. Though the population was growing, food consumption per person, unlike consumer goods, also had upper limits (even for hungry porcupines). Thus, even if the farm sector only produced as much food as the population wanted to eat (another big assumption, not always warranted), the fixed supply of money in the face of growing output meant that farmers constantly saw food prices fall below the cost of the seed, fertilizer, equipment, and labor used to produce the food. They could also ramp up output, but in the face of relatively constant per capita demand for food, this only increased their losses.
The one great economic advantage of owning a farm is that, no matter how bad everything else gets, you're the closest to the food supply. But, once the bank that takes your deposits and lends them to industrialists has foreclosed on your mortgage, you don't even have the food. This is not some hypothetical horror story -- this is what actually happened for the better part of the last half century of the gold standard. It went right on happening throughout the 1920's, while industrial output was growing like crazy, and farmers were using shotguns in a last ditch effort to keep banks from foreclosing on their farms.
Given the laws of supply and demand, tight money, tight credit, tight underwear, tight whatever must work to the advantage of the supplier vis-a-vis the user. Gold standard maven TG Donlan of Barron's editorial page makes no apologies for the fact that the harder the currency, the more it favors net creditors over net borrowers.
"2. They would not have been unemployed in the last
recession to begin with ..."
Many of them didn't have jobs at all during the 1980's. The labor force participation rates have soared in the 1990's. I'm sure you already know (given how much publicity it got) that last December the Salvation Army had great difficulty finding enough bell ringers to watch the donation buckets, even at a dollar per hour more than the minimum wage.
".... because there wouldn't have been a
commercial real estate bust, an LBO bust, a junk bond
collapse, a savings and loan debacle, a downturn in financial
services related to all the above, a Wall St. hangover from the
liquidity driven crash of 87, and all the indirect economic
downturns related to the above."
The "shopping centers in the desert", empty office towers, etc., were, for the most part, not torn down for scrap. Instead, they were sold (at a loss to borrowers and lenders alike) to the highest bidder. These, in turn, having purchased the assets at a price that made economic sense, were able to run them profitably, and in many cases have since sold them at a profit.
S&L's were over built in the first place. Admittedly, easy money got them into deeper trouble. Last I read (in the WSJ), it cost the taxpayers $150 billion to shut them down and sell off their portfolios (nothing like the original estimate of one half trillion dollars). Would that a comparable number of military bases in the middle of nowhere could be shut down for $150 billion.
Those who scooped up junk bonds have made a killing. Junk bonds are now a permanent, and much more rationalized, feature of the credit markets. Who, but Mr. Market, is to say that all of the projects so financed are, in the net, "malinvestment".
The economic downturn was one of the briefest and shallowest on record. It resulted in massive corporate restructuring, including massive white collar layoffs, in spite of the Fed's turning on the monetary spigot, because profitability, not easy credit availability or government bureaucrats, is the more important driver in who gets fired and who gets hired in the US.
Last, and most importantly, the people who entered the job force for the first time in the 1990's will not have their skills and exposure to work habits wiped clean, come the next recession. They will have a much easier time returning to the work force during the subsequent recovery.
"Again, I suggest you talk to them about it because they are
the economists. I'm only giving my understanding of it. It may
be incorrect or incomplete."
porx ideas on investing are not significantly influenced by the AS; if they are too extreme for Milton Friedamn, then they are much too extreme for porc. Therefore, he has no reason to get a correct and complete explanation of their ideas from them. porx more interested in how their ideas, as *you* understand them, affect *your* thinking on investing, rather than whether it is a complete and accurate description of *their* thinking. porx guess is that you have a much better investment record than most "economists".
Btw, as you know, in last week's Barron's AS devotee Gene Epstein argued that signs of malinvestment are not yet showing up in the macro economy. What is your reaction? |
