Austrian Economics

[reverendjeremiah]

When I refer to the predictive power of the Austrian model I refer to the effectiveness of the model to predict the boom/bust cycles, such as the NASDAQ and Housing bubbles, predictions the likes of which were ....

Oh, I am sure he has made fools of some people, especially that jackass Ben Stein. I read his prediction of the houseing market made Ben look even more the fool. I dont question his intelligence. I dont question that the man is better at economics than I am. I question his ethics.

Amongst other plainly superior predictions are the ones of the dollar index, commodities, inflation etc, for instance the Austrian economists predicted the current petrol price situation long before the "Middle East uprising" that the Keynesians like to blame (at least as a substantial factor) for the higher prices, that is because in the Austrian model Inflation is defined as an expansion of the money supply and the price of goods is relative to the supply of money, so when you have more money the currency looses value and the prices of goods and services rises - As soon as the Fed announced their 'Quantitative Easing' policies the Austrians were predicting raising stock and commodity prices as well as the decline of the dollar index to the peak levels in the recession (and even beyond it).

Do you think maybe it has to do with the 1930's signing of the oil concession between the Kingdom of Saudi Arabia and Standard Oil of California. If you want to follow what makes or breaks an economy, and can even bring countries as great as America to its knees, then you follow the oil. What is the biggest oil company in the world? Saudi Arabian oil co. (Saudi Aramco). What company produces the most oil in the world? Saudi Aramco. What is the most profitable company in the world? Saudi Aramco. What is the most valuable company in the world? Saudi Aramco. What oil company is sitting on the largest proven crude oil reserves in the world? Saudi Aramco. What company has the worlds largest hydrocarbon network? Saudi Aramco.
What does "Aramco" mean? Well that was its name back in the day it was formed as a joint venture between "Arabia" and "America". The American dollar is very much connected to Saudi Arabia. If you watch what this company does, then you will see a world wide reaction. Currently the company is planning on expanding to meet demand. This means gas prices will go up. Once demand is met, price will settle. Middle east uprisings do add to the specualtion, but not nearly enough as the CEO's decisions of this company. One need not be an Austrian economist to figure this out.

Extremists? His opinions are based on the efficacy of a particular model of economics and his radio show is about economics, it does sometimes touch on Politics and Libertarianism but that is tail of the dog so to speak, a tiny part of the purpose of the show.

Yes, he is an extremist from my veiw point. He is way to economically far to the right for my taste. I personally do not think a Government should have a permanently fixed economy, wether it be strictly protectionist, strictly socialist, or strictly Laissez-faire. I feel that a governments economy should be liquid of a sorts. That it should be able to shift with the zeitgeist. That is should NOT be written in stone and left to decide by the changing generations. This is what I mean by "Mixed Economy". You can blame it on my base philosophy and world view of Absurdism. As far as my opinion goes, there is no inherent economic system that will make everyone happy, but that doesnt mean we should "commit economic suicide" and quit trying. Maybe we will find an economic utopia, but I greatly doubt that will ever happen. Until then I say we should embrace the absurdity, try to be civil about it, and allow things to bend and shift. I see good things and bad things in strick Austrian schools the same as I see good and bad in Keynesian. I have no problem picking the good from every economic model on the table and tossing it into a "mixed economy" and letting some of the cards fall as they may.

And I don't see how you can possibly consider it a "waste of time" when the Austrian school has been able to predict economic activity far better than the Keynesian school, to the extent where people following the Austrian models have undoubtedly secured more of their wealth from losses, and in some cases even profited, from the economic turmoil - That is in dire contrast to the alternative.

Well, if he follows that "superior predictive power" school of thought, then he didnt use it for his clients:

Schiff's current investment advice is the same as it has been for years: Get your money out of the U.S. dollar and into more fundamentally sound currencies like the Swiss franc or the Singapore dollar; buy some precious metals; and buy foreign, dividend-paying stocks, with an emphasis on natural-resources companies.
Ironically, though, the year that Schiff became a star prognosticator on TV was also one of the worst periods ever for his clients. In most cases the foreign markets he likes got hit even harder than the U.S. in 2008 (Australia's ASX 200, for instance, fell 41.3%, vs. 38.5% for the S&P 500), and even more surprising to Schiff, the U.S. dollar rallied strongly as investors rushed to the perceived safety of Treasuries.
It would be wrong to think that Schiff is doubting himself or his advice, however. "None of this shocks me," he (Schiff) says. "Oftentimes in the short run markets are irrational. And my problem has always been that I see things too clearly and too far in advance. Other people don't understand what I do, so the markets might not validate what I'm saying right away. But they will eventually. In the end the fundamentals are going to prevail, just as they did in the housing market." Spoken like a true prophet of doom.

So apparently his advice is good for long term markets, but short term markets are "irrational" to him. Thats a bit anticlimactic for a superior school of thought, wouldnt you agree?
To a mixed economist such as myself, I would flat out agree "of course short term markets can be irrational." Long term markets can be irrational as well. People who have economic views written in stone , in my opinion fail to grasp this basic reality of human wants and needs. I sometimes think people like Schiff and other "prognosticators of the almighty hidden hand" of ALL political/economic leanings actually do more harm than good to the publics trust in themselves and those they do business with. How much capital was lost because people were shored up with a false sense of security in this man and "bet it all" (or bet large sums) because he got most (and Im being generous here) of his predictions right? How many jobs and businesses went belly up because of his poor advice? Thats why I consider people like Schiff to be a waste of time.

This stems from the line of thinking that recessions (contractions in the economy) are necessary to restore the imbalances in activity that accumulate over time, especially after stimulus efforts. When the economy contracts all prices should go down (ie Deflation) and one component of that is falling wages, that sounds bad and it is, it's part of correcting the flaws in the economy, but the falling wages should be in line with falling prices, the purchasing power (how much they can buy with their dollars) should stay the same roughly - The way your government is trying to remedy this short term pain is by appropriating from social security, quantitative easing and borrowing money - You may think that the Austrian solution sees people worse of, and that may be true in the short term (though by no means necessarily so because of falling prices) but in the long term a recession and some deflation is going to be much better for all people than the debt fueled stimulus effort (Deflation is actually very good for consumers).

Sometimes prices go down in a recession. Sometimes they go up..especially if monopolies are in place. This man is advocating that we push the reset button. No. Worse. This man is advocating that the whole mess should be left alone so it will work itself out. Well what does that mean exactly? Does he really want it to works itself out? If so then the citizens will be right back to where they left off. Lets be realistic here. If he was given the controls, and he wiped out everything he wanted to wipe out, do you REALLY think that these corporations would allow their meal tickets to fade away? No, let me be more specific. Do you think Peter Schiff would allow the "invisible hand of the market" take his business and lively hood away if he could control it? Let me answer that with a resounding "FUCK NO HE WOULDNT!". This man instructed firms in hostile takeovers. You think this man gives a shit about the "Austrian school" when it comes to his bread and butter? If he got everything he wanted economically, and that isnt going to happen anytime soon, then he would be in a superb and socially popular platform to move up the market ladder. What do you think he will do with the gobs of money he gets from so much love, attention and power? He will ensure the "invisible hand" doesnt affect him through back door legislations, earmarks, no bid contracts, etc..etc... some of his followers would be like "He is such a hypocrite. He told us he was for a free market and now he is paying off politicians." and they will sulk, they will fret, and they will find someone else who will tell them what they want to hear. Peter, on the other hand, is set for life.

Your purchasing power is really what matters, not the wage values themselves, and purchasing power is falling regardless, just as fast if not faster than a deflation taking down wage prices, but instead of seeing it in dollars paid you are seeing it in rising prices now and you'll see it in interest payments in the future - The difference being (and where unions come into it) is that by going for the later "solution" the government can appease unions in the short term, as well as pass blame for rising prices onto the producers rather than the inflation that they are causing. Also, when people hear "falling wages" they react negatively to it much more so than "rising prices" even in cases when the purchasing power remains the same - This can certainly product political motivations for the former option.

What really matters is food on the table, a roof over your head, and healthy survival...and it is absurd to say otherwise. It isnt purchasing power, or wage values. It isnt about gold, or printed money. Austrian schools advocate the strict enforcement of voluntary contractual agreements between economic agents, and hold that commercial transactions should be subject to the smallest possible imposition of coercive forces. Peter had no problem with booting the unions out like that without mentioning that GM and the unions went into a binding contract with each other. And NO, when people hear falling wages they do not always react negatively to it. In fact I personally opposed our latest pay raise negotiation. Also, I have yet to see you say one bad thing about companies and corporations in this discussion. I have seen you blaming government. Why so quiet about the companies? Last I checked they have TREMENDOUS spending power to influence the economy and the government. Union workers are 10% of the American workforce. What do you think will happen if a CEO hears the words "falling profits"? Well, I guess if the Austrian school method was in effect then they wouldnt be able to buy off politicians. Wait. Its a free market system. So companies can do with their money what they want, right? Very little government oversight. Austrian school sound like a nightmare hiding in wait. Does the Austrian school allow the electorate to vote themselves protection from hostile and very rich corporate team ups, or are their hands tied?

What I am trying to ask is since Austrian school SPECIFICALLY intends to have very little regulation on businesses, then how does it seek to ensure that? I predict more laws forbidding the freedoms of the electorate to vote what it wants economically, than laws regulating the business from influencing the government if Austrian school was FORCED onto the population. You would have a fascist, corporate controlled state within decades if not less.

Do you support forcing the Austrian school of economics onto the population of America, or do you want it to go through the proper channel of the electorate? I would VERY MUCH like for you to give me an answer on this one.

How so? To say that a person who can operate a bulldozer is worth a higher wage than a person with a shovel (which I believe was the point he was trying to make) is perfectly legitimate.

You know if somebody is digging a ditch, if somebody has a bulldozer, they are a lot more productive than somebody with a shovel. And so you can pay the person in the bulldozer a lot more money, but only becuase he's got the bulldozer. Thats what makes him more productive, its not the labor, its the capitol. But where does capital come from? It comes from savings, we dont have that in this country. We need to rebuild that.

You want to know why? Because you dont dig a ditch with a bulldozer. unless you plan on making a BIG fucking ditch that looks more like a river than a ditch. LOL. You use backhoes and ditchwitches for ditches. My wife works construction as well. I asked her if she ever saw a ditch dug with a bulldozer. She gave me the ugliest fucking look and said "Why would you dig a ditch with a bulldozer?"
Small short ditches are best dug by hand, and you save money on gas, "bulldozer" rental, and all...LOL