Austrian & Keynesian Theories Vs. Mathematical Facts

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  • Mon, Apr 19, 2010 - 06:38pm

    #61
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=ashvinp]

My support of federal intervention is healthcare, energy and environmental policies is mostly a recognition of the precarious situation we are in now. States have either been unwilling or unable to tackle these issues up until this point, and now we are at the tipping point where every institution and every person needs to work together and fast!

With regards to healthcare, I predict massive amounts of wealth will continue to be destroyed and I don’t think anyone should die because of this when they have a treatable illness in a country with plenty of doctors and advanced medical technology. We also need the equivalent of a Manhattan Project for alternative energy development while also disincentivizing fossil fuels, and I don’t think this can be accomplished solely on a local level. I have similar thoughts when it comes to climate change and resource depletion.

Since we already have a large central government in place, I think we should use it to help mitigate the fallout from the upcoming collapse. Of course this can’t really be done without a complete change in attitudes of people and politics. Also we must take the money out of politics, but after the supreme court decision earlier in the year this isn’t going to happen.

[/quote]

There seem to be a lot of “we should do X” in your statements above.  The problem is which ones of us “WE” should get to pick and choose the prioritization of your many ideas?  It sounds a lot like a command and control, top-down, economy.  Would would favor such a system if the person(s) at the top did not have the same priorities as you?

I also find it ironic that the people that want to give the government the most control often are the most vocal advocates of “taking the money out of politics”.  It seems to me that the only way to take money out of politics, is to limit governmental control over us all.  The less the government gets into the business of deciding winers and losers in the economy, the less the need for members of the system to lobby for beneficial treatment.  Would Monsanto spend millions of dollars lobbying a government that could not give them beneficial treatment?  I don’t think so.

To me this requires the same cognitive dissonance as people that claim to be for a small limited government, but at the same are willing to give up civil liberties and advocate an aggressive foreign policy.

  • Mon, Apr 19, 2010 - 07:33pm

    #62
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=goes211]

There seem to be a lot of “we should do X” in your statements above.  The problem is which ones of us “WE” should get to pick and choose the prioritization of your many ideas?  It sounds a lot like a command and control, top-down, economy.  Would would favor such a system if the person(s) at the top did not have the same priorities as you?

I also find it ironic that the people that want to give the government the most control often are the most vocal advocates of “taking the money out of politics”.  It seems to me that the only way to take money out of politics, is to limit governmental control over us all.  The less the government gets into the business of deciding winers and losers in the economy, the less the need for members of the system to lobby for beneficial treatment.  Would Monsanto spend millions of dollars lobbying a government that could not give them beneficial treatment?  I don’t think so.

To me this requires the same cognitive dissonance as people that claim to be for a small limited government, but at the same are willing to give up civil liberties and advocate an aggressive foreign policy.

[/quote]

You’re right, I think certain policies must take priority and central authorities must coordinate the process. We see this in China where they are making bilateral agreements to secure natural resources (instead of going to war like the US), investing a lot of capital into wind/solar and generally directing their banks and businesses to go along with the program. The stakes are high and they know it. Of course they may end up blowing up like the rest of us, but at least they are trying. If the person directing the policies did not agree with my priorities, then I would have to live with that and I would do everything in my power to personally prepare (which I will do anyway), but I don’t think there are too many people out there who would allow their country to implode when they are aware of the threats facing it.

Your argument about money in politics assumes that the lobbying occurs for special treatment. There are a lot of cases where the lobbying occurs in order to prevent any new regulations from going on the books, such as in the financial and energy sector. I think the special treatment lobbying is usually an industry’s next best solution when they can’t get rid of regulations all together. If the federal government didn’t regulate the agricultural industry at all, I’m sure Montsanto would be just fine with.

I dont think there is any cognitive dissonance when a person takes a balanced approach towards the role of government. In fact, I think there is dissonance when people think either a very small or very large government is the answer to all problems.

  • Tue, Apr 20, 2010 - 02:46am

    #63
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

 

The concept of centralized validation (not control) over the rules and operating principles of a successful economy is sound, I believe. The knee jerk reaction to denying that some type of significant, centralized oversight will be needed to establish and administer these working rules is fundamentally flawed.

Perhaps an analog to science would be helpful.

Imagine if scientists rejected that there were core, and mathematically verifiable first principles that governed, say physics. Imagine if the pursuit of physics followed one of two models:

–   Centralization of a misinformed and inaccurate belief system, e.g. propping up laws of physics that were totally incorrect, unsustainable, and destructive.

Or,

–  Decentralization of scientific responsibility to the individual practitioners, allowing what amounts to an ad hoc practicing of physics, with some practitioners more enlightened than others, and others firmly embracing poorly formed theories.

While it  might be argued that the second, decentralized model is (slightly)  more desirable than the first, the truth is that neither is productive or efficient, or even terribly useful.

A better solution might have a process wherein someone might independently forward a theorem for peer review, and if verified and proven successful through rigorous scientific methods, might be elevated to a central “knowledge base” wherein first principles could be ledgered and built upon to advance knowledge. Out of these would emerge certain “laws of physics” which can be used to guide and direct a very large community of decentralized individuals towards productive and efficient discovery.

This centralization would allow a much more uniform efficiency among individual practitioners, who could leverage past knowledge and “bank” (pardon the pun) on the information being vetted and accurate.

Another, and arguably more important result would be the ability to overlay any new ideas or schemes against irrefutable rules and to disallow things that are clearly destructive or merely confidence games from advancing to a point where society could be damaged. No perpetual motion machines, cold fusion in a drinking glass, or Ponzi schemes, no matter how elegantly packaged.

It would seem that our current financial system is constructed on such types of flawed first principles.

The solution is not anarchy or indiscriminate decentralization to states or the community level, it is the compilation of a centralized knowledge base with the authority to stop bad ideas, profiteering and greed, and to halt forward motion on a debt based economic model that cannot be sustained.


  • Tue, Apr 20, 2010 - 03:16am

    #64
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Rhare,

So that dollar is permanently in circulation. 🙂

There is no such thing as permanant money in this system.  That ‘permant’ dollar gets extuiguished as soon as someone, somwhere in the economy uses it to pay down the principle balance of a loan.

If your a commercial bank, then that dollar had to be deposited into your bank first before you could lend it.

Banks do not lend their depositors money.

Since I’m the only other person in this scenario, you will pay me for my labor, then I give you back the money you gave me as payment toward the loan and interest.  This goes round-n-round until the loan is paid off and this represents the extra labor I have put in as interest.

If that is true, then why has the debt constantly grown for the last 250 years and now has grown to 59 trillion?  It clearly does not work that way.  Its impossible to borrow ourselves out of debt.

  • Tue, Apr 20, 2010 - 03:37am

    #65
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=rhare]

Since I’m the only other person in this scenario, you will pay me for my labor, then I give you back the money you gave me as payment toward the loan and interest.  This goes round-n-round until the loan is paid off and this represents the extra labor I have put in as interest.

[/quote]

[quote=Thomas Hedin]

If that is true, then why has the debt constantly grown for the last 250 years and now has grown to 59 trillion?  It clearly does not work that way.  Its impossible to borrow ourselves out of debt.

[/quote]

The reason is simple – the value of labor is limited by the productive capacity of the economy, while the capacity to create new debt is unlimited in our debt-based monetary system. This is why aggredate demand = (GDP + the change in debt) and why we have massive asset price inflation which creates bubbles.

  • Tue, Apr 20, 2010 - 03:42am

    #66
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Ashvinp,

Rhare misses the whole point that nobody is actually paid for their labor, we are only loaned our paychecks.  There is no final payment within a debt money system because there is no such thing as permanant money.

If final payment exsisted, then we would be able to pay away this debt, and be without debt, and become prosperous beyond precident.

  • Tue, Apr 20, 2010 - 04:59am

    #67
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=Thomas Hedin]Banks do not lend their depositors money.[/quote]

You are absolutely confused.  Despite the rhetoric that banks make up money to lend, that is not accurate.  The Federal Reserve and other central banks create money out of thin air, but commercial banks do not.  They must take in a deposit and have it on their balance sheet before they can lend it out. Reserves (which are essentially 0 now) meant that they could only lend a certain portion of the deposit – thus insuring only some multiplier of debt could be created with any given amount of base money from the Federal Reserve.

Note, this does not stop that money from being re-deposited in another bank or even the same bank and having it lent out again, but banks do not lend what they have not taken in in the form of a deposit.  But it absolutely is permanently in the system until removed by the Fed.  It also can circulate many many times, be relent over and over, but does not get extinguished when paid back to the bank. 

People say on these forums alot that “banks create money”, while somewhat true due to FRB, it is far too simplistic a statement.

It should also be noted, that you can still have banking without FRB.  It just means that when you deposit money into a bank, you have to make a choice, is it simply stored – no interest and you pay a fee for storage, or do you allow it to be leant out and unable to withdraw the money on demand.  With many depositors you could aggregate loans in such a way to still have more liquidity, but much less than with FRB.

I also believe you can have a FRB system and still have it work.  Just if you have too many people try to withdraw their money, beyond what the reserves that bank is holding, you have to say sorry, not at this time, you will have to wait until loans are repayed or more money is deposited. Nothing inherrently wrong with FRB as long as everyone is aware that their money is not 100% safe, but in return they get interest.  However, this is yet another one of those central planner distortions (FDIC) where we lull people into believing their money is safe and not to worry or question how the bank is behaving!

 

  • Tue, Apr 20, 2010 - 05:05am

    #68
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

Thomas       “Banks do not lend their depositor’s money”    http://en.wikipedia.org/wiki/Fractional-reserve_banking

                       And if banks do not lend their depositors money (plus the multiplier r factor) , how do you explain bank runs?   

                       Shortage of reserves?      

                         http://www.investopedia.com/terms/b/bankrun.asp 

 

The national debt are  the outstanding US Treasury bond issues  owed to whoever holds those bonds (mostly foreigners)      

http://www.usatoday.com/news/washington/2007-05-28-federal-budge

Outstanding bank loans are owed to the banks via their counterfeit franchise gifted to them by the government.     T bonds have a unique feature in that it is used by the FR as a tool of monetary policy         

http://en.wikipedia.org/wiki/Open_market_operations

Your conclusion that we are slaves of this debt based money system is right on,   though some of your analysis and definitions . . . . . . . .

  • Tue, Apr 20, 2010 - 05:11am

    #69
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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=Thomas Hedin]Rhare misses the whole point that nobody is actually paid for their labor, we are only loaned our paychecks.[/quote]

This statement makes absolutely no sense.  When you get a paycheck do you pay it back to someone?  No – you can buy food, shelter, playstations, etc.  You are clearly being paid for your labor.  Also, you can deposit that money or just take it as cash and stuff it in a materess and it will still exist for many many years, but because it and all the newly injected money are also permananently in the system, it will become worth less and less due to the ever inflating money supply.

You seem to be really confused about banking and are drinking too much of the anti-Fed kool-aid. Don’t get me wrong I’m against having a central bank because it is too easy to manipulate monetary systems with one.

  • Tue, Apr 20, 2010 - 07:26am

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    Re: Austrian & Keynesian Theories Vs. Mathematical Facts

[quote=rhare]

[quote=Thomas Hedin]Rhare misses the whole point that nobody is actually paid for their labor, we are only loaned our paychecks.[/quote]

This statement makes absolutely no sense.  When you get a paycheck do you pay it back to someone?  No – you can buy food, shelter, playstations, etc.  You are clearly being paid for your labor.  Also, you can deposit that money or just take it as cash and stuff it in a materess and it will still exist for many many years, but because it and all the newly injected money are also permananently in the system, it will become worth less and less due to the ever inflating money supply.

You seem to be really confused about banking and are drinking too much of the anti-Fed kool-aid. Don’t get me wrong I’m against having a central bank because it is too easy to manipulate monetary systems with one.

[/quote]

rhare,

I am not 100% certain of this but I think in this case Thomas might be right.  My curent understanding is that commercial banks are the creators of almost all of the money in the system through loans.  They are not directly constrained by only loaning out deposits.  There is even a recent study ( I might have read about it on Steve Keen’s website but I am sure others can point you to it ) that showed that banks first create loans and then the required deposts follow some months later. 

Google “Modern Money Mechanics” to find a PDF that used to be put out by the Chicago FED.

Who Creates Money?

Changes in the quantity of money may originate with actions of the Federal Reserve System (the central bank), depository institutions (principally commercial banks), or the public. The major control, however, rests with the central bank.

The actual process of money creation takes place primarily in banks. As noted earlier, checkable liabilities of banks are money. These liabilities are customers’ accounts. They increase when customers deposit currency and checks and when the proceeds of loans made by the banks are credited to borrowers’ accounts.

In the absence of legal reserve requirements, banks can build up deposits by increasing loans and investments so long as they keep enough currency on hand to redeem whatever amounts the holders of deposits want to convert into currency. This unique attribute of the banking business was discovered many centuries ago.

If this is true, and all money is loaned into existence, it becomes a little easier to see how Thomas goes off on these tangents.  I am still not saying I agree with his solutions, but at least I think I somewhat understand where some of his ideas are coming from.

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