Cafe Hayek - Latest Comments in More on Aggregate Demand and Micro-level Coordination

Re: More on Aggregate Demand and Micro-level Coordination

John V — Mon, 16 Mar 2009 15:39:43 -0000

Muirgeo,

Yet every one of those pre-1929 recessions, depressions and panics was resolved by the (mostly) free market that existed at that time -- and usually resolved within a year or two.

Posted by: Michael Smith

Michael,

How about we look at some facts?

From 1854-1933 there were 20 downturns lasting on average

22 months with the length of expansion between cycles lasting on average only 25 months.

Muirgeo

Didn't your "fact-finding" more or less substantiate exactly what Michael said??

What's your "a-HA!" claim there?

Re: More on Aggregate Demand and Micro-level Coordination

michaelsmith — Mon, 16 Mar 2009 04:47:08 -0000

Continuing from my last post, I thought it would be useful to post a partial list of the legislation pushed through by âdo nothingâ Hoover:

Hoover hit businessmen, farmers and investors with a array of interventionist agencies and acts, including the Federal Reserve (whom Hoover refused to restrain even as it was disastrously contracting the money supply), the Agricultural Marketing Act, the Federal Farm Board, the disastrous Smoot/Hawley tariff, the Norris-La Guardia Anti-Injunction Act, the Timber Conservation Board, the Federal Oil Conservation Board, the Reconstruction Finance Corporation, the National Credit Corporation, the Reconstruction Finance Corporation, the Federal Employment Stabilization Boar, the Emergency and Relief Construction Act and the Glass-Steagall Act.

Only the sort of mind that sees any economy less controlled than Stalin's communist U.S.S.R. as "laissez faire capitalism" can see Hoover as a "do nothing" president.

Re: More on Aggregate Demand and Micro-level Coordination

michaelsmith — Mon, 16 Mar 2009 04:27:58 -0000

Regarding Hoover, Murigeo claimed:

I can go back and read the old papers and the sentiment was that Hoover was doing nothing. And indeed he did nothing your historical rewriting aside.

Since you are impervious to reason and evidence, I won't waste much time responding to you. But for those interested, here is an article from the December, 1929 issue of Time magazine describing a series of meetings Hoover held at the White House with business and government leaders to outline what would be done in response to the deepening economic contraction.

It's a five page article detailing increased public spending by federal and state governments, increased private spending by businesses, pledges to maintain wages, etc. -- all done in an effort to end the economic crises. Read this (remember to go through all 5 pages) and decide for yourself if Murigeo is right that "Hoover did nothing".

Here is the link to the article:

LINK

These White House meetings, of course, were only the beginning -- not the end -- of Hoover's interventions.

Re: More on Aggregate Demand and Micro-level Coordination

michaelsmith — Mon, 16 Mar 2009 04:11:17 -0000

Muirgeo wrote:

No, no , no.. how about YOU GUYS supply the data/ evidence for YOUR initial claim that, "every one of those pre-1929 recessions, depressions and panics was resolved by the (mostly) free market that existed at that time -- and usually resolved within a year or two."

Since it is self-evident that we DID, in fact, recover from those recessions, depressions and panics, what are you actually questioning here?

Absent a central bank and a fiat money supply that it can control -- and absent the vast Federal regulatory apparatus constructed since 1929 -- the government's ability to intervene and manipulate the economy was only a shadow of what it became after those things were created. So it is also self-evident, then, that the government's influence in ending those economic crises that occurred before fiat money, the central bank and federal regulatory apparatus was constructed was substantially less -- if it had any at all.

What other data or evidence do you want?

Re: More on Aggregate Demand and Micro-level Coordination

brotio — Sun, 15 Mar 2009 23:14:18 -0000

Mierduck,

YOU telling me to look through the archives for evidence that YOU allege is cheerleading, is not YOU producing evidence. YOU made the allegation, YOU back it up! Vidyohs always has his list of Muirpidities handy. He never asks you to go to the archives for muirpidity - he always provides it for you, instantaneously. TRY to be at least half as efficient as Vidyohs?

To prevent you from supplying more crap, I'll remind you that there's a difference between a tax cut and a tax-rate cut, and that tax rates were cut. Provide evidence that revenue to the government dropped after rates were cut? Also, show me where the data is in error that concludes that the wealthiest ten percent of the population account for 65% of income taxes paid.

I'd also like to remind you that the economy was humming along pretty smoothly until the Democrats took control of the legislative branch of the federal government. Look at what they've wrought in only two years!

Re: More on Aggregate Demand and Micro-level Coordination

muirgeo — Sun, 15 Mar 2009 22:10:50 -0000

How about YOU supply the evidence to back up your claim that our hosts "cheered on" President Bush's economic policies?

Remember, you supplied an allegation... let's see you back it up.

Posted by: brotio

Brotio,

Al you have to do is go back through the archives. Look under the subjects inequality, economy, standard of living and you'll see the host constantly rebutting the data and telling us the middle class is fine, standard of living is fine, the economy is fine, inequality is a mirage, wages aren't really stagnant on and on. They scoffed at the doubters who pointed out the economies underlying weakness in spite of good numbers.

They cheer-lead all the way denying that anything was wrong. How could it be as they are big supporters of trickle down economics and they just saw some of the biggest tax cuts ever. So they were obliged and indeed DID deny the facts and like the media people at CNBC they cheered us off a cliff.

Re: More on Aggregate Demand and Micro-level Coordination

muirgeo — Sun, 15 Mar 2009 22:02:47 -0000

"Muir, since you are a "lies, damn lies and statistics" man, admit that the last 30 years were a period of less volatility than the 50 years that preceded it."

Oil Shock

Do I really need to answer this?

Sure you ARE right the last 30 years were less volatile. If government borrows like $10 trillion more then it takes in, accrues a HUGE trade deficit (borrows from other countries) and has a Fed chairmen who lowers and lowers and lowers interest rates you can do pretty good for a while... then things like the subprime crisis occurs as an end result and here we are in 2009 with the worst economy in 75 years.

So of course now it's the era of Barrack so based on your guys accounting methods this tragedy gets credited to him.

Re: More on Aggregate Demand and Micro-level Coordination

Oil Shock — Sun, 15 Mar 2009 21:14:08 -0000

How about this Muir. One of my comments you conveniently avoided.

Muir, since you are a "lies, damn lies and statistics" man, admit that the last 30 years were a period of less volatility than the 50 years that preceded it. THere were few recessions and the recessions were shallow.

Re: More on Aggregate Demand and Micro-level Coordination

muirgeo — Sun, 15 Mar 2009 21:13:58 -0000

Numerous times at this website you've been shown that Hoover was every bit the interventionist Roosevelt was and that many of the programs of the "New Deal" were actually started by Hoover. But you dishonestly continue to pretend otherwise.

Posted by: Michael Smith

That doesn't make it true. I pointed out that 3 of the 4 big interventions of Hoovers didn't get enacted until 1932.

I can go back and read the old papers and the sentiment was that Hoover was doing nothing. And indeed he did nothing your historical rewriting aside.

Re: More on Aggregate Demand and Micro-level Coordination

Oil Shock — Sun, 15 Mar 2009 21:13:10 -0000

No, no , no.. how about YOU GUYS supply the data/ evidence for YOUR initial claim that, "every one of those pre-1929 recessions, depressions and panics was resolved by the (mostly) free market that existed at that time -- and usually resolved within a year or two."

Since you put YOUR in block letters, I would like you to point out where I made that claim.

Re: More on Aggregate Demand and Micro-level Coordination

brotio — Sun, 15 Mar 2009 18:18:37 -0000

"No, no , no.. how about YOU GUYS supply the data/ evidence for YOUR initial claim..." - VI Mierduck

How about YOU supply the evidence to back up your claim that our hosts "cheered on" President Bush's economic policies?

Remember, you supplied an allegation... let's see you back it up.

Re: More on Aggregate Demand and Micro-level Coordination

muirgeo — Sun, 15 Mar 2009 16:57:43 -0000

Explain how the data is collected and calculated and tell us why this data is valid and relevant. Yes, I am asking you to look beneath the surface of your "favorite lies, damn lies and statistics". Explain why GDP is a relevant number.

Posted by: Oil Shock

Remember I supplied a source... let's see yours.

Re: More on Aggregate Demand and Micro-level Coordination

michaelsmith — Sun, 15 Mar 2009 13:37:03 -0000

Oil Shock is right.

In 1944, Paul Samuelson published an article in "The New Republic" titled, "Unemployment Ahead: The Coming Economic Crisis". In this he wrote:

This means we must embark upon a substantial program of income maintenance via welfare payments, social security, etc. We must exercise the greatest ingenuity in overcoming the technical delays to reconversion along with effective prosecution of the war. We must be planning more on a state and national scale for a vast expansion of useful public construction, for its own sake, and for maintenance of income and employment.

Fortunately, the unemployment crises did not occur, despite huge decreases in federal spending after the war.

Re: More on Aggregate Demand and Micro-level Coordination

Oil Shock — Sun, 15 Mar 2009 12:47:47 -0000

Don't forget that the Keynesians at the end of WWII were "worrying" that when the destruction of life, property and environment comes to an end, the world will continue to be in a permanent depression.

Re: More on Aggregate Demand and Micro-level Coordination

Martin Brock — Sun, 15 Mar 2009 12:22:27 -0000

Here is Don Boudreaux, in Nov. '08, citing a "very useful discussion" by Price Fishback "on the extent to which Keynesian stimulus played a role in helping the economy during the 1930s and during World War II."

Here is what Fishback says in the cited article.

"Federal spending rose from 4 percent to 8 percent of G.D.P. during the New Deal in the largest peacetime expansion in federal outlays in U.S. history. Yet this was not an example of Keynesian stimulus to the economy. Economists and economic historians have known this for the past 70 years, yet the myth lives on."

and

"... the New Deal cannot be described< as a Keynesian stimulus program. We can only hope that the word will finally spread widely enough now to correct the myth."

This article does not say that "Keynesian stimulus" failed to lift the U.S. economy out of a depression in the thirties. It says that the New Deal was not a "Keynesian stimulus". Something called "the New Deal" failed to lift the U.S. out of the depression, but it wasn't a "Keynesian stimulus".

So is the Obamatronic boondoggle a "Keynesian stimulus" now? I don't know, and Keynes is dead, so we can't ask him. I only know that even the nominal "Keynesians" these days, like Krugman, aren't betting their reputations on it.

Re: More on Aggregate Demand and Micro-level Coordination

michaelsmith — Sun, 15 Mar 2009 12:19:05 -0000

Muirgeo wrote:

From 1854-1933 there were 20 downturns lasting on average

22 months with the length of expansion between cycles lasting on average only 25 months. From 1933-2001 there were 12 downturns lasting on average 10 months with the length of expansion between cycles lasting on average 64 months.

In the first place, you are counting the 1929 - 1933 "downturn" as if it occurred under the "laissez-faire", non-Keynesian approach of earler times. This is false -- and you know it.

The full period from 1929 - 1945 was one long period of decreased economic activity and high unemployment. Industrial production of consumer useable goods and services -- and civilian employment -- didn't return to 1928 levels until after WWII was over. The entire miserable period belongs strictly on the interventionist, Keynesian side of the ledger.

Counting that period the proper way would change the numbers considerably.

However, those numbers are really beside the point, because this fact remains: if Keynes were right we should never have gotten out of any of those pre-1929 "downturns". Yet we did.

Re: More on Aggregate Demand and Micro-level Coordination

Oil Shock — Sun, 15 Mar 2009 12:01:58 -0000

Re: More on Aggregate Demand and Micro-level Coordination

Oil Shock — Sun, 15 Mar 2009 11:59:20 -0000

Re: More on Aggregate Demand and Micro-level Coordination

Martin Brock — Sun, 15 Mar 2009 11:32:08 -0000

Any deficiency in aggregate demand is more a statistical consequence of failed economic coordination (at the micro level) than it is a foundational cause of economic malaise.

But "this failed economic coordination" is a matter of contractual obligations and other obligations, often obligations simply delivering rents to rentiers. The rentiers expect their rents. They're entitled to the rents.

But the obligation of producers to supply these rents leaves them ill-equipped to reorganize idle factors productively. The producers just don't have enough spare resources for this reorganization after paying all of their rents, to feed, clothe, house and entertain the rentiers in the style to which they're entitled.

In reality, these rentiers and their entitlements are not simply "statistical". They exist. I can introduce to some of them. You may live next door to one. Some of them post here.

Regardless of how you busy yourself, some part of your own income is almost certainly attributable to unproductive rents. Because you consume real goods thereby, fewer resources are available to organize idle labor, experimentally, to seek profit.

Certainly, statutory authorities can promise state employees and pensioners, to name only a portion of the rentier class, as many benefits as they like. Right?

Certainly, authorities can promise so many of these benefits to so many people busying themselves so unproductively that real producers can't produce enough to feed, clothe and house everyone else. Right?

What libertarian denies this possibility?

So if authorities behave this way, they arrange "aggregate demand" so that people who will only work for sufficient food, clothing and shelter, at least, are not employable. Right?

Why would anyone want to pretend that this organization of resources and entitlements is fundamentally impossible?

Re: More on Aggregate Demand and Micro-level Coordination

muirgeo — Sun, 15 Mar 2009 11:08:07 -0000

Yet every one of those pre-1929 recessions, depressions and panics was resolved by the (mostly) free market that existed at that time -- and usually resolved within a year or two.

Posted by: Michael Smith

Michael,

How about we look at some facts?

Re: More on Aggregate Demand and Micro-level Coordination

vidyohs — Sun, 15 Mar 2009 09:51:53 -0000

S.O.,

Thanks very much for the explanation. I have to tell you I had no clue. For a beginning the paragraph was clumsily written. In such a sentence we should be able to just take out the words enclosed by the commas and the flow of the idea should be there and make sense. That sentence did not.

I have to tell you honestly though, sir, that your explanation only opened up more questions.

And trust me, sir, I am not trying to pick an argument here, I am trying to understand.

Are the words "boom phase" a description of pre-bailout or of post-bailout?

If pre-bailout, then I would wonder about the idea that consumers didn't want or use the credit. They were buying houses they couldn't afford, refinancing and buying toys and upgrades they also could not afford.

If post-bailout, then to whom was the credit made available in such a way that it would affect the market(s)? It seems to me that credit made available to certain lenders would not affect consumer demands since the credit didn't extend down to the consumer(s).

See why I am confused?

I don't even feel I have enough of the right kind of education to ask good questions.

However, I do find that if I am patient and there are some good people like yourself who will take the time to explain in more clear ways, that sooner or later I find my answer, if not in the current thread or blog then down the road. Having the question means my little brain begins to note everything looking for the answer, sooner or later it finds the data and matches it to the question.

Thanks again.

BTW, thanks for tip on which book to avoid, Ha Ha.

Re: More on Aggregate Demand and Micro-level Coordination

michaelsmith — Sun, 15 Mar 2009 05:48:42 -0000

Here's a fact I never hear discussed by the Keynesians.

Prior to Hoover's and Roosevelt's economic interventions beginning in 1929, the government's policy during recessions, depressions and "panics" (and there were a number) was pretty much laissez-faire -- not completely and purely, to be sure, but in general, the federal government prior to 1929 made little effort during economic crises to "stimulate" economic activity, little effort to "bail-out" banks or other private institutions and little effort to âsave jobsâ, keep wages up, etc.

Yet every one of those pre-1929 recessions, depressions and panics was resolved by the (mostly) free market that existed at that time -- and usually resolved within a year or two. Certainly none of them (AFAIK) turned into a depression that featured double digit unemployment for over a decade. And none of them turned into years of âstagflationâ or a âlost decadeâ like the Japanese have experienced.

If Keynes was right, and capitalism is not capable of curing high unemployment on its own, how is it possible that those recessions, depressions and panics were resolved without massive Keynesian interventions? I think the question answers itself.

Re: More on Aggregate Demand and Micro-level Coordination

aceboo — Sun, 15 Mar 2009 04:15:17 -0000

I wouldn't use the word bubblicious in this context.

Re: More on Aggregate Demand and Micro-level Coordination

SaulOhio — Sun, 15 Mar 2009 03:15:47 -0000

vidyohs: It means that all the additional credit pumped into the economy during the boom phase was misinvested in all sorts of things that the consumers didn't want enough to pay for, so the consumers aren't buying them. And since they aren't buying enough of those things, the businesses making them are closing or laying people off, so there are now fewer people to buy other things they do want.

I just finished reading "The Austrian Theory of the Trade Cycle and other essays". The last summary is even more jargon-dense than the sentance you asked to be translated into street language. Austrian economists really need to learn to communicate with the average man.

Re: More on Aggregate Demand and Micro-level Coordination

brotio — Sat, 14 Mar 2009 20:07:26 -0000

TL,

There doesn't need to be quotes around the word, stimulus. It WILL stimulate something.

I'm sure Barney Frank is more stimulated by the thought of getting to spend nearly a trillion dollars of other people's money than he was by the clients his prostitute boyfriend used to bring to their home.