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bigfoot66
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November 12th, 2012 at 11:49:51 AM permalink
The High Cost of Artificially Low Prices

Prices serve a very important function, they communicate information to all actors in society. Anyone see those long lines of people waiting for gas in northeast last week? What caused those lines? If you said the hurricane caused the shortage I encourage you to rethink your position. The lines were caused by the government people threatening to prosecute producers for raising their prices after the hurricane, just like the mayor of Fernley in my example. Imagine what would have happened if the politicians had not threatened criminal action against the gas sellers for raising their prices after the hurricane. Noticing that a lot of the supply was knocked out for various reasons, the gas station owner, looking out only for his own best interest, starts raising his price up, hoping to make a pile of money in time for Christmas. This has a number of positive effects. 1) The high price communicates to drivers that the supply is limited and this scarce resource should only be used for the most important tasks right now. This is not the time to fuel up the ATV or lawnmower. Consider driving more efficiently, carpooling, taking your bike when possible, driving the smaller car instead of your motor home, etc. 2) It also communicates that gas is scarce HERE in particular. If you have reservations at the Borgata in Atlantic City tonight and your tank is empty, only buy a quarter of a tank here and then fuel up again in the next town where they were not affected by the storm. 3) The lure of the high price leads to an increased supply. If a gas station’s power is out, perhaps it makes sense for the owner to rent generators to get his gas station open and sell gas for $12 a gallon but he would lose money to rent those generators at $4.50 a gallon. The high price would also encourage people who live in unaffected areas to bring in supplies of gas to the affected area and try to sell it on the street corner and make a huge profit for themselves while benefiting their neighbors in need(This is logistically tough to do with gas, but with other impacted goods like ice or food we can imagine it happening.). In other words, high prices for a good tell consumers to treat the product dearly and tell producers that more should be brought to market in order to satisfy demand. The price system creates valuable information that is critical for all parties to the market so that they can know what to produce and consume.

When the government enforces a price cap on a resource, the market process for ensuring the resource is consumed by the people who need it most is interrupted. When the government puts a minimum price on something, the opposite happens, too much of the good is created and goes to waste. For example, we can imagine that if the government set the minimum wage at $350,000 a year, a lot of people would be looking for jobs and unable to find work (perhaps including the author).
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bigfoot66
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November 12th, 2012 at 11:50:27 AM permalink
Stages of Production

The Austrian business cycle theory asserts that there are various levels or stages of production. Lower stages are closer to the end product. Very low stages of production would be something that is very close to the end user like a grocery store, a clothing maker, a haircutter, etc. A higher stage of production would be a factory that produces computer components, for example, or a machine shop that produces parts for robots that assemble cars. Higher still is the college professor who is training people who will not be productive for several years. The highest stages of production include things like research and development, such as the scientist who is working on finding a molecule to cure AIDS that couldn’t possibly hit the market for 20 years. The higher stage of production is farther from the consumer but not necessarily more complicated or prestigious work.

The higher levels of production are things that are done today that often will not show any kind of return for a long time, maybe even a decade or more. Because of the power of compound interest, these activities are very sensitive to the interest rate, and a small change in the interest rate can mean the difference between a project being profitable or not.
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bigfoot66
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November 12th, 2012 at 11:51:03 AM permalink
The Interest Rate

Let’s examine the role of interest rates in the economy, and first I want to make a few counterfactual assumptions about the loan market. Let’s assume that there is zero risk of default on loans. For this first example, assume that banks operate at a 100% reserve requirement, meaning that the only deposit they accept is a CD that cannot be withdrawn during the term, and that they only use this CD money to make loans. We can also ignore the banks costs and assume that the deposits pay the same rate as the loans, and assume further that we are talking about a one branch bank in a small town. The interest rate in this senario would function just like any other price and what we are left with is essentially a bond market. As the interest rate goes up, the bank will have more deposits and fewer borrowers, and as interest rates go down the deposits would decrease and demand for loans would increase. Now consider how the interest rate would be affected by various events in the town. If 4 young couples get married and want to borrow $50,000 each to buy homes, then the interest rate would likely have to rise, encouraging the neighbors to spend less and save money to fund these loans. The money moves from the savers to the young couples and allows them to buy the homes, but something else also happens. Because of the attractiveness of the high interest rate, a 35 year old high earning single guy decides to save his $30,000 bonus instead of using it to buy a boat. Its not just the money that changes hands, but the labor, metal, plastic, etc that would have been used to build the boat is now available to build the houses. So it is not just the money that is changing hands, but some people are consuming less which frees up resources to be used by the borrower. If a lot of people decide to start saving and defer consumption, the interest rate will be driven down, and when the rates are low long term projects become more attractive. Perhaps an entrepreneur in the town will see that this is a great opportunity to take out a loan to build a factory. At a 10% interest rate he is happy to leave his money in the bank and earn interest, but at a 4% interest rate he believes the factory is a better investment. In our example here we can see how the interest rate is agile and responds to the consumption and savings choices in the society.
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bigfoot66
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November 12th, 2012 at 11:53:01 AM permalink
The Effect of Coercive Regulation of the Interest Rate

In our small town bank above, a government rules imposing an effective interest rate cap would lead to a shortage of loanable funds just like the gas price cap lead to gas lines and the ham sandwich price cap lead to hungry people. Less money will be saved and borrowers will demand more loans.

In the real world the Federal Reserve pushes down interest rates and loans are still easy to get (or at least were during the boom). What is going on here? In other areas of economics, artificially low prices cause shortages, but in our banking system it seems to lead to more loans. Through the federal reserve activities and the process of fractional reserve banking, the banks are able to create money out of thin air by making loans. I am not a good enough teacher to explain it here and it is beyond the scope of this presentation, but suffice to say that new money is created by the banks to make these loans rather the money coming from depositors savings. (Economists talk about M1, M2, etc, because the supply of money can be measured many different ways, but the process banks use to make loans is inflationary as they make money literally out of thin air). This process creates the potential for malinvestment and unbalanced growth in the economy like we saw in the last decade, when places like Phoenix and Vegas boomed.

Examine the resort market in Las Vegas 2012. There are a number of new beautiful casinos like the Cosmopolitan, CityCenter, The M. These multi billion dollar resorts are hemorrhaging money and many have had to had their debts or ownership reorganized. More depressing are the half completed projects like Fontainebleau ($3 Billion), Echelon Place ($4 Billion), St. Regis, and Las Vegas Plaza (constrcution never started but it was slated to be $5-$8 Billion and on the site of the New Frontier). Think of the hotel towers that have been mothballed in the last 5 years like Binions, Lady Luck, Augustus tower at Caesars, etc. Consider the time share and condo towers that have been canceled or unsuccessful. Look at CET, who lost $687 million in 2011 and owns half the strip.

It is not unusual for even a smart entrepreneur to make a bad investment, but what we have here is a lot of smart people here who usually make very prudent business forecasts and investments all making terrible investments at the same place at the same time. This occurred because of the actions of the Federal Reserve. In the 2000’s the Federal Reserve took the advice of Nobel winning economist, NYT columnist, and noted neokeynesian Paul Krugman, who wrote, ”…as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.” Recall that the .com bubble had just popped. (http://articles.businessinsider.com/2009-06-17/wall_street/30100530_1_housing-bubble-slump-fed) The lower cost of a mortgage made houses more affordable and drove up the price of houses. This bubble fed on itself and drove up demand for housing which lead to artificially higher prices for houses, which made existing homeowners feel wealthier (My house went up in value 14% again this year!). This paper wealth lead people to save less and consume more. One of the main beneficiaries of this was Las Vegas, traffic and spending on the strip skyrocketed. Several years of higher bubble demand for hotel rooms in Vegas made business forecasters project continued high demand, which, coupled with the low interest rates, made projects like Echelon look like a profitable investment. So the effect of the artificially low interest rates are 1) people feel wealthier during the boom and their savings earn less, therefore they save less and consume more, and 2) Overinvestment in higher order production projects like Echelon that take decades to come to fruition. In our small town example, 1) and 2) cannot happen at the same time, one party must save so another can borrow. If people are not saving, then interest rates will go up and unsustainable projects like Echelon Place never appear profitable.

The effect of 1) and 2) together is that the society is misinvesting its resources and would be savers are consuming their future. The low interest rates signals to businessmen that people are saving, therefore resources are available for investment today, and these people will have lots of saved money to spend down the road. But people are not increasing their saving, they are in fact borrowing money and discounted rates against the artificially raised value of their assets. This is clearly an unsustainable pattern, and lead to the bust that we are experiencing now. In a free market and absent fractional reserve banking,
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bigfoot66
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November 12th, 2012 at 11:53:43 AM permalink
The Proper Response to an Economic Bust

How many of us know people now who retired in 2006 and plan to live on the value of assets like their house and 401(k), but now find themselves in a very different position than they anticipated? Artificially low interest rates sends the wrong signals to people about the economy and causes them to make poor decisions. Malinvestment is bad enough because it causes resources to be invested incorrectly. The steel and glass, and man hours wasted half constructing Echelon Place and Fountainebleau could have been used for much better purposes, but that is not the cause of our current economic hangover. The issues that we are dealing with now is that the malinvested economy drove people to make a number of long term plans that now have to be altered in order for the economy to get back to healthy growth. How many of us know someone who, out of college, went into the mortgage industry and now can’t find work? How many young men were working on the big casinos as an ironworker or carpenter that have become unemployment 99ers blogging about Funemployment? These people thought that they were learning skills that they could use to support themselves for the rest of their time in the work force based on what appeared to be real estate work as far into the future as the eye can see. The unfortunate truth is that the economy needs to retract in some areas where it grew too big a while back.

The boom period is when the economy is being warped and thrown out of balance. The bust period, though painful, is when the economy heals. Once the unsustainable boom period comes to an end, it becomes clear that the resources and demand do not exist to support all of the half completed big buildings. Construction is suspended people are laid off. They will try to find new jobs in construction, but pretty soon it becomes evident that the construction jobs just aren’t coming back. These people then have to start the arduous process of starting a new career, which can require education, training, and time, but eventually the excess construction labor finds work in another sector. The Keynesian sees the bust as a period of simply inadequate demand and prescribes stimulus spending to reinflate the bubble. This provides temporary relief to affected workers but ultimately delays the process of moving them to a part of the economy where they are needed.

What should the government do to fix a recession? Nothing. The free market will organize itself close to optimally. It might sound like I am advocating higher interest rates but the real problem is that the information needed to set the interest rate optimally is simply not available for a central planner. There is a lot of dispersed information about people’s plans and preferences and the only way to assemble that information is through the market place.
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bigfoot66
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November 12th, 2012 at 11:54:58 AM permalink
Thanks for taking the time to read my work here. I ended up spending a great deal of time on it. I appreciate your feedback. Take your time responding Mission146, I ain't writing any more for a while :)
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Mission146
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November 21st, 2012 at 8:15:16 PM permalink
I am about to post my response, but before I do, I should like to remind the Judges of the following rule:

Quote: Mission146

2nd Post-Argument

-The purpose of the second post is to argue the Introduction. The second person to post argument shall not Rebut the first person's Argument post and must focus any direct argument on the first poster's introduction.



I wanted to briefly reiterate this Rule because, pursuant to the Rule, I may only address BigFoot66's shorter introduction, but not his most recent series of posts. Therefore, I wanted to let the Judges know that I am not deliberately ignoring the recent series and will address same in my conclusion.
https://wizardofvegas.com/forum/off-topic/gripes/11182-pet-peeves/120/#post815219
Mission146
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November 21st, 2012 at 9:18:49 PM permalink
I would first like to congratulate BigFoot66 on an excellent introduction, however, it is not an introduction that is without a few erroneous assumptions and definitions.

The first of these definitions is the apparent definition used for saving, as stated by my opponent, "When a person produces more than they consume, it is called saving." The example used in this definition was of a pig farmer, and in that limited context, the definition is exactly right. However, saving is generally unrelated to production and pertains only to consumption vs. what is accrued. For example, a thief inherently produces nothing, however, the thief is still capable of saving despite this lack of production. The thief may rob one bank for $10,000, use $5,000 of that money on consumables, and then go to a different bank (or even the same bank, if he is both foolish and appreciative of irony) and open up a savings account and deposit the other $5,000. It is undeniably so that the thief has, in this case, saved $5,000, so we can see why the definition limiting savings only to production is inherently flawed.

Secondly, one can produce more of a certain item than one consumes, but then uses the unconsumed portion of the item to acquire other items that he will consume, either that, or he really just loves eating nothing but pork. In this case, the intention of the over-production of the first item is not to save, but rather, to be able to consume other items.

It has already been discussed that the Keynesian is not opposed to saving, provided the ultimate goal of the saving is to eventually take that which has been saved and put it back into the Economy. However, the Keynesian recognizes that saving for the purpose of saving (see: tomatoes/money going bad from Intro) ultimately is unbeneficial to the Economy because it accomplishes only removal of value from the Economy. It is money that is being held back doing nothing, producing nothing, and not designed to eventually produce anything.

The difference between Macroeconomics and Microeconomics has been discussed, to an extent, and the diametric opposition that occasionally exists between the two has also been discussed. Saving will also occasionally fall into this category. It is undoubtedly so that saving can often be a strong Microeconomic (read: individual) decision in the event that the source of one's income eventually fails, then the inidividual will have money to fall back upon. The Keynesian does not dispute the individual utility of saving, but questions whether or not saving is the best Macroeconomic course of action. To state why saving is not the best Macroeconomic course of action would be to restate the introduction, so that is to be avoided.

The Keynesian finds agreement with the Austrian School with respect to investment. It should be noted that the Austrian refers to investment as, "More important," than saving for its own sake. The Keynesian would not argue that investment is a negative thing either Microeconomically or Macroeconomically, in fact, the Keynesian School argues that future and planned investment is the only Macroeconomically sound reason for saving to occur. The Keynesian recognizes that saving for the purpose of investment is merely collecting money in order to start a new company, conduct research and development, or to try to build machinery by which work can be done more efficiently. In these cases, buildings are built, people are employed, scientists are contracted, infrastructure goes up, and more goods are ultimately produced (via efficiency) with less resources ultimately expended in the process.

These are all positive Macroeconomic events which tend to lead to even more goods and money circulating throughout an economy thereby reducing prices (ultimately) and giving more people access to resources.

The only problem with this section is the nearly unsupported assertion that, "Saving is good for its own sake."

Saving temporarily removes either money or product from an economy. The example presented is stockpiling grain, but the example does not capture things in terms of today's economy which is money-driven. The opponent argues with respect to investment that, "He misses out on some early on," and this is because he is temporarily producing less. Saving does the same thing. You take money out of an economy early on in the hopes that you will be able to invest the money in a more efficient means of production, or to start a new business, that will grow money more rapidly in the future.

Saving for its own sake is entirely different. The most readily apparent example is the cost of goods and services continuously rising due to inflation. If an individual were to take half of all of his assets, liquidate them, and stick them under a mattress in the form of cash, he has saved that money. However, if he pulls that money out thirty years later, then it will have much less relative value (what can be bought with it) due to inflation. Given that this is the case, how can saving, "Be good for its own sake?"

This is where my opponent will argue that he was not advocating sticking money under a mattress. My opponent will state that he was speaking in terms of investments in bonds, CD's, the stock market, or what have you. It is at this point that there will be revealed another difference between the Keynesian and Austrian schools of thought, and this difference has to do with tangible v. intangible investing.

The Keynesian principle is that tangible saving and investment is a Macroeconomic positive. The meaning of tangible saving is money that is being saved and earning money with the intention of eventually being put back into the economy in a tangible way, such as a new business. Intangible saving, on the other hand, deals in abstractions. The stock market, for example, is nothing more than an abstraction based on subjective investor confidence. The monetary value of a stock v. the actual tangible liquid value of a company often have almost nothing to do with one another, though theoretically, stocks were designed to replace, "Owner's Equity," in a traditional Partnership or Sole-Proprietorship.

The Keynesian agrees with what has been stated on Formation of Capital pursuant to Formation of Capital being one of the only, if not the only reason, the Keynesian would advocate for saving.

My opponent states after formation of capital, "He can keep the surplus as either stored goods for later consumption, or he can instead invest his savings and turn it into capital which will make future production more efficient." This is where we arrive at another disagreement. The tomato farmer (see: introduction) is an example of when holding on to surplus goods is a negative. The tomatoes eventually go bad when they could have been brought to market and traded for other desired goods. Furthermore, without the person with whom to trade the tomatoes, individual producers of other goods will often find themselves in a position in which they are faced with surplus goods that they cannot get rid of, and which, in some cases, also go bad.

The answer is simple. Saving is not good for its own sake. Saving often results in waste and economic inefficiency. There is a limit to which saving is beneficial and that limit, Macroeconomically, is simply not to save more than one intends to put back into an economy, otherwise there is waste and money doing nothing.

In other words, saving must have a purpose.

The POW Camp example is dangerously close to irrelevant to the discussion as it accomplishes nothing except illustrating why humans eventually moved to a currency based system. Effectively, those in the POW camp were forced to live as though no currency based system existed and were reduced to bartering. The example, however, will be addressed.

It is a fascinating case study, but wholly irrelevant to today's currency based system because the Priest, as such, would not last in business for very long if $0.25 bought either a tin of beef or one cigarette, people had access to currency, and he was trying to sell either for $1.25 apiece. We can agree that the Priest enriched himself while adding value to the others simply by virtue of taking from them something that, to them, was subjectively valueless and replacing it with any amount of something with value. Something is always more than nothing.

However, if we look at this example from a currency standpoint, then the Priest would be nothing more than an individual that has a captive market, such as an electricity company, and charges everyone obscene prices for his goods simply because the people have nowhere else to get them.

Fortunately, unless one lives in an extremely rural area, we do not see too many captive markets these days. In the case of an extremely rural area, the general store owner will usually price his items just reasonably enough that people do not want to expend the fuel and effort to drive 75 miles to the nearest major retailer. The general store owner is obviously making a good Microeconomic decision, which is simply to charge for his wares as much as he can possibly get away with without being murdered, but at the same time, the excess paid for his goods would be better spent being distributed elsewhere in the economy and being used to purchase more goods.

The free trade that was later discussed represents the system that we have now. It is the very reason that currency exists, that way, when we look at a tin of beef, the fact that there are Hindus that have no interest whatsoever in the tin of beef brings the price down via less demand for the supply of beef. Supply and demand will result in fairer trading and more reasonable prices all around, especially when you add competition, which is more than one merchant trying to sell what is essentially the same item.

The implication being rejected at this time is that the Keynesian does not value free trading or see the value of free trading, of course the Keynesian recognizes this value. The necessary reduction in the price of a specific good or service results in more money that one is able to spend on other goods and services, thus moving the Economy.

That's basically what the Keynesian is about, Economic movement. Excess saving without the intention of investment back into the economy causes stagnating money and restricts Economic movement. Whether or not saving is good in and of itself seems to be the main area of contention between the Keynesian and the Austrian.

I open the floor to the Austrian to defend this assertion.
https://wizardofvegas.com/forum/off-topic/gripes/11182-pet-peeves/120/#post815219
AceCrAAckers
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November 21st, 2012 at 9:31:00 PM permalink
Keynesian view are idiototic. Their policy will always fail. I did not read the post of people defending the Keynesian views but it will go something like this.

1. Bigger governement that spends money.
2. Create more money out of nothing and spend it. Look at point 1.
3. More money equal more wealth hence you need to spend, spend spend. You do this by, look at point 1.

http://www.youtube.com/watch?v=GTQnarzmTOc
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Mission146
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November 21st, 2012 at 9:44:47 PM permalink
Quote: AceCrAAckers

Keynesian view are idiototic. Their policy will always fail. I did not read the post of people defending the Keynesian views but it will go something like this.

1. Bigger governement that spends money.
2. Create more money out of nothing and spend it. Look at point 1.
3. More money equal more wealth hence you need to spend, spend spend. You do this by, look at point 1.

http://www.youtube.com/watch?v=GTQnarzmTOc



With all due respect, nothing that you just said has anything at all to do with my argument.
https://wizardofvegas.com/forum/off-topic/gripes/11182-pet-peeves/120/#post815219
AceCrAAckers
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November 21st, 2012 at 9:51:33 PM permalink
Quote: Mission146

With all due respect, nothing that you just said has anything at all to do with my argument.



The heart of Keynesian arguement is that the government must do "something" to stimulate, steer, guide the economy. Austrian economy says to leave the free market alone and things will take care of itself.

Like I said, I have not read your arguement but this Keynesian view.

Another thing to look at. http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=relmfu

I owe Mission a reply to his question about savings.

A baker has his window broken. He spends money to get his window replaced. The window maker now has money and he now spends money to go out for a dinner. The restaurant owner now has money to go spend it at the theater. The theater owner now has money to go buy bread from the baker.

From the Keynesian point of view, the broken glass is a good thing because it stimulated the economy. Without the broken glass, no one would have had the extra money to do everything. This is ridiculous. What has happened is the town is poorer one window for the broken glass.

The world has finite resources but infinite fiat money. Savings represent future claims on goods and services. When Keynesians tells the government to spend money now, they are robbing the savers. The result is inflation.

As for the tomato farmers selling his product now rather than saving it because it will rot. Austrian economist will tell the farmer to grow only as much as he can use and he can sell. The free market will determine how much he should grow, not a plan policy or a quota by the government. The plan policy is the Keynesian view.
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bigfoot66
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November 22nd, 2012 at 10:28:39 PM permalink
Quote: AceCrAAckers

The heart of Keynesian arguement is that the government must do "something" to stimulate, steer, guide the economy. Austrian economy says to leave the free market alone and things will take care of itself.

Like I said, I have not read your arguement but this Keynesian view.

Another thing to look at. http://www.youtube.com/watch?v=d0nERTFo-Sk&feature=relmfu

I owe Mission a reply to his question about savings.

A baker has his window broken. He spends money to get his window replaced. The window maker now has money and he now spends money to go out for a dinner. The restaurant owner now has money to go spend it at the theater. The theater owner now has money to go buy bread from the baker.

From the Keynesian point of view, the broken glass is a good thing because it stimulated the economy. Without the broken glass, no one would have had the extra money to do everything. This is ridiculous. What has happened is the town is poorer one window for the broken glass.

The world has finite resources but infinite fiat money. Savings represent future claims on goods and services. When Keynesians tells the government to spend money now, they are robbing the savers. The result is inflation.

As for the tomato farmers selling his product now rather than saving it because it will rot. Austrian economist will tell the farmer to grow only as much as he can use and he can sell. The free market will determine how much he should grow, not a plan policy or a quota by the government. The plan policy is the Keynesian view.



I appreciate the post, I almost linked to the Hayek rap myself but I did not think it was appropriate in the context of the debate. I addressed most of these arguments in my 2nd argument, I discussed Animal Spirits, the way that artifiicially low interest rates confuse the economy in terms of savings, etc. I also appreciate your reference to Bastiat's broken window. Do you listen to Econtalk, is that how you found the Hayek Rap?

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." F A Hayek
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Mission146
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November 23rd, 2012 at 4:17:15 AM permalink
Bastiat's broken window is a strawman, the example makes the Keynesian position seem ridiculous on its face for ever, "Suggesting," that a broken window is a positive thing. Bastiat states in the parable himself, "It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another," but of course the Keynesian sees that and that is the point of the Keynesian position. It's not about whether or not the shopkeeper spends the money on a broken window, going out to dinner, going to the casino, or whatever he spends it on...the point is that he is spending the money, that's the good thing, not the broken window.
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AceCrAAckers
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November 23rd, 2012 at 10:08:10 AM permalink
Quote: Mission146

the point is that he is spending the money, that's the good thing, not the broken window.



This is the fallacy of Keynesian view. Spending for spending sake will solve all problems. For the Keynesian, let the government create and give everyone a million dollars. Then everyone will be millionaire. These people will spend money and it will stimulate the economy. What is wrong with this?

Money only has value because it represent claim on labor and products. By artificially creating a stimulus, you are robbing the savers. You are also creating a bubble.
Money has to be backed by something. Although the dollar is fiat, it is backed by labor for most of us. We are converting labor into products and services. It must be productive, not like the broken window or spending on war or even on wages for most people in government.
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bigfoot66
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November 23rd, 2012 at 11:43:21 AM permalink
Quote: Mission146

Bastiat's broken window is a strawman, the example makes the Keynesian position seem ridiculous on its face for ever, "Suggesting," that a broken window is a positive thing. Bastiat states in the parable himself, "It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another," but of course the Keynesian sees that and that is the point of the Keynesian position. It's not about whether or not the shopkeeper spends the money on a broken window, going out to dinner, going to the casino, or whatever he spends it on...the point is that he is spending the money, that's the good thing, not the broken window.



I am glad that you believe this more sane version of the story, but every time some major disaster hits an area there are all kinds of economists and articles saying something like "It sure is a terrible disaster, but it may be a blessing in disgusie!" I just found this article by searing Yahoo news for "Sandy Economic Boost"

http://www.cnbc.com/id/49617715?__source=yahoonews&par=yahoonews

Quote: CNBC ARTICLE

The positive multiplier effect of reconstruction after Sandy could be as much as five times, according to Frank Holmes, CEO and CIO of money manager U.S. Global Investors. If the cost of the damages comes up to $20 billion, the economic boost in terms of spending and activity could be $100 billion, he said.

“America is great at rebounding and it will reinvigorate the economy. When you have committed infrastructure projects by governments, you get this automatic multiplying effect …every dollar is worth $4 to $6, so I think the positive part is going into 2013,” Holmes told CNBC Asia’s “Squawk Box” on Wednesday. “We’re going to get a lot of infrastructure spending.”

A boost from reconstruction spending in the months ahead would help the U.S. economy, where a recovery has been slow



This is the first article that I clicked on, and they are saying the exact narrative I laid out! $20 billion in storm damage will boost the economy by $100 billion. Again, you say that you do not believe this stuff, but the article is pretty clear that the storm has lead to a stronger economy in affected areas.
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bigfoot66
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November 23rd, 2012 at 11:45:37 AM permalink
Quote: AceCrAAckers

This is the fallacy of Keynesian view. Spending for spending sake will solve all problems. For the Keynesian, let the government create and give everyone a million dollars. Then everyone will be millionaire. These people will spend money and it will stimulate the economy. What is wrong with this?



In fairness, they claim that, when the economy is at full output, stimulus spending is inflationary.
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bigfoot66
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November 30th, 2012 at 6:17:06 PM permalink
Still working on a response here. I apologize that this is taking so long, but I spent about 12 hours on each of the first two posts and still wish I had done more editing.
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Buzzard
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November 30th, 2012 at 7:54:14 PM permalink
" This is the first article that I clicked on, and they are saying the exact narrative I laid out! $20 billion in storm damage will boost the economy by $100 billion. Again, you say that you do not believe this stuff, but the article is pretty clear that the storm has lead to a stronger economy in affected areas. "

Then Hatti's economy should be booming after their disasters. WTF !
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bigfoot66
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December 7th, 2012 at 4:42:55 PM permalink
Sorry again for the delay here guys and thanks for your patience. I will be working on this over the next few nights after work and I hope to have my final post up no later than Tuesday.
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Scotty71
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December 15th, 2012 at 8:08:44 AM permalink
Big foot- are you US Senator or Rep... I only ask because you are taking your sweet ass time with this!
Just busting balls. Will you or Mission PM me when the next arguments start. I havent been logging in much and dont want to slack as a judge and keep anyone waiting. Hope you are just busy making grips of ca$h!
when man determined to destroy himself he picked the was of shall and finding only why smashed it into because." — E.E. Cummings
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