nvm

[sophie]

Hilarious video! 5/5

 

[lovett]

No they are not. Probably much in the same way as the Critical School does not consist of plain old orthodox Marxists.

For example, John Rawls follows in the liberal tradition and is firmly a liberal. But I can't even imagine neo-liberals agreeing with him. They're more likely to brand him a fascist (or Communist) for being egalitarian. Clearly, one can be a liberal without necessarily being a neo-liberal, whatever the merit of the latter term.

Sure, there are subdivisions within liberalism. But all share a fundamentally similar view of human nature, history and ideal society.

You've identified Hayek as a 'neoliberal' and Rawls as a classical liberal. One assumes that Mills is also a classical liberal. I think one can find as many points of congruence between between the ideas of Mills and Hayek as those of Rawls and Mills. Why then the distinction?

 

[Cutlass]

Why not? The ups and downs of trade are historical events that have causes, i.e. war, drought, sovereign default, monetary policy, etc. The weight attributable to any one cause is always a matter of debate, but causes can be removed.
I have yet to see a plausible case for a naturally occuring trade cycle.

Financial markets unregulated always and everywhere cause business cycles. The cycle of boom and bust do to bubbles has been going steady for 800 years. With only a partial hiatus between 1945 and 2008 due to Keynesian policies. Once a generation an unregulated market will cause a collapse.

In the laissez-faire scenario, there is at least a possibility to use a (nearly) noninflationary commodity as money, to avoid the troubles of monetary recklessness.

No, there isn't. Because there is no such thing as a commodity whose quantity expands and contracts i concert with the expansion and contraction of the demand for money. Therefor any and all commodity moneys will distort prices and markets. The demand for money changes constantly. The supply must also to avoid market disruptions.

And that would mean the possibility of opting out, as a commodity money couldnt have artificially low interest rates so savings would be profitable even during global inflationary economic booms.

I'm not really sure what you mean. The irregularities in the demand for money mean that the 'cost' of money (interest rates) is also irregular.

In the current world, there is no such possibility. Operating an alternate currency sends you to the jailhouse(like the liberty dollar case), so youre stuck with the inflationary maniacs.

But, as has been point out to you before, there is Less inflation over time with an independent central bank! Of course there's pretty close to no deflation. And some people look at the long term where inflation and deflation offset each other over the course of centuries. But deflation is far more destructive than inflation, so the trade-off makes everyone better off in the long run.

 

[lovett]

I have yet to see a plausible case for a naturally occuring trade cycle.

Bounded rationality?

After exceeding a certain level of complexity risk cannot be assessed by fundamental analysis; there's intractable uncertainty in the system. Consequently economics decisions are taken on the basis of others economic decisions; people buy stocks that other people are buying. Hence 'irrational exuberance', market panic, herd behaviour et al. The upshot is that bubbles are formed. Assets whose price is only tangentially related to there earning potential or 'worth'. This is because when buying decisions are made on the basis of other's previous buying decisions a small uptick in the latter can lead to an exponential increase in the former. Of course, the same thing happens when bubbles burst, just in reverse.

Thus one observes systematic mis-allocation of resources alternating between overcapacity and under capacity. Also known as a business cycle.

 

[aelf]

Sure, there are subdivisions within liberalism. But all share a fundamentally similar view of human nature, history and ideal society.

You've identified Hayek as a 'neoliberal' and Rawls as a classical liberal. One assumes that Mills is also a classical liberal. I think one can find as many points of congruence between between the ideas of Mills and Hayek as those of Rawls and Mills. Why then the distinction?

Why not the distinction?

Again let's look at Rawls. Rawls has the clear distinction of being liberal and egalitarian, something neo-liberals clearly are not. Is this not a significant distinction? I suspect it might be the most important distinction in that it is what neo-liberals seem to disavow as the worst mistake in modern political philosophy.

And I'm sure if we look at classical liberals like Mill we can find a number of significant distinctions between what he held and what neo-liberals hold. Indeed, Mill's utilitarian philosophy would bind him (even if you argue that he was rule-utilitarian) to placing the good prior to the right, such that he would embrace economic planning or egalitarian ideas if they maximised the good. Conversely, can neo-liberals be egalitarian or support a planned economy? I think it's safe to say that neo-liberals prioritise the right over the good (as Rawls does, but under different premises and leading to different conclusions). And that is a significant difference.

I'd say that there is no one school of classical liberalism and that neo-liberalism cannot hence be anything other than one extension of classical liberalism that might differ significantly with other liberal schools.

 

[MagisterCultuum]

Neoclassical liberals generally reject the Labor Theory of Value, instead emphasizing subjective value. This could be in part because the Labor Theory was so important to Marxism, although Classical Liberals invented it.



Henry George is generally considered the founder of Geo-Classical Liberalism (a.k.a Georgism, or Geoism), and but many of his ideas can be found in the works of most of the great Classical Liberals going back to Locke. George's system was probably better reasoned and slightly "left" of his predecessors though, and is quite egalitarian. (Most other classical liberals probably wouldn't advocate government control of all natural monopolies or paying citizen dividends, for example, although a couple others did.)

Classical liberals taught that a valid claim to property cannot come from force or government grants (no matter how old the land title), but from the use of the land. Land ownership comes from "maxing one's sweat with the land," that is, from individual labor. The homesteading principle is quite important. What most economic libertarians like to ignore is that men like Locke clarified their statements to say that a man's labor does not actually give him an absolute right to the land, but only to the improvements he made to the land. When the land was without owner it already possessed some worth, which was available to all. They claimed that homesteading is admirable when land (in economic terms, that can mean any and all natural resources) of equal quality is plentiful, but that when it becomes scarce a man is responsible for compensating society for the privilege of monopolizing the resource. In primitive societies that would mean making deals with each of one's neighbors (for example, sharing some food with the poor to convince them to stay off your land), but when there are more people it is more prudent to have a legal authority that can enforce property rights. However, the right to own land is not absolute, so property owners have a duty to pay taxes to support the courts. Classical liberals were minarchists but frequently advocated significant increases in property taxes, especially on the largest estates. (Thomas Jefferson and Thomas Paine both thought that states should have a high land value tax that exempted small, single family farms.) As the main purpose of government was protecting property, those who own the most property get the greatest benefit from the state and thus should be expected to pay more.



Neoclassical liberals tend to dislike taxes of all kinds, and usually won't recognize that some types of taxes offset negative externalities and so not only generate revenue without creating any dead weight but can make the market more efficient. As property taxes are among the more visible taxes, Neoclassical liberals have done much to reduce them whereas Geoclassicals would increase them (or rather increase the tax on the land itself while charging nothing for what is built there).


The Progressives and Socialists thought that taxation should be based on need, Classical Liberals thought it should be based on service rendered. The Geo-Classical Liberal system would still end up taxing the wealthy much more than the poor, but the nature of the taxes they advocate would actually stimulate the economy rather than burdening it; people would keep all of their income and have no perverse incentive to work less, but would pay a premium for hoarding wealth or speculating instead of investing. Some geoclassical liberals argue that high enough land value taxes can eliminate business cycles by eliminating the incentive to speculate. Many believe that the government should provide virtually no services, but should provide a Guaranteed Minimum Income. (Martin Luthor King drew on Henry George when he advocated Basic Income.) It has also been demonstrated that land value taxes do not increase the rent people have to pay, only changes who gets the rent, so most of the lower economic classes get buy without paying anything.


Hayek himself has spoke admirably about George at times, but he rejected those ideas of George which he had first heard borrowed by socialists. (In the late 19th century Georgism was quite popular among workers, so socialists coopted just enough of his ideas to draw them into their fold. Marx despised George though)

 

[Naskra]

@lovett:
I don't buy this. From your comment, I take it that you think the business cycle is a result of some psychological "irrational exuberance" cycle. I find this less than adequate.
Yes, there are bubbles in investment. But how to explain why everyone becomes foolish in the same way at the same time?
Why, for example, are there not recurrent tulip bubbles?

 

[aelf]

@MagisterCultuum

I see. Interesting stuff.

 

[Cutlass]

@lovett:
I don't buy this. From your comment, I take it that you think the business cycle is a result of some psychological "irrational exuberance" cycle. I find this less than adequate.
Yes, there are bubbles in investment. But how to explain why everyone becomes foolish in the same way at the same time?
Why, for example, are there not recurrent tulip bubbles?

There are. Dotcom bubble. Housing bubble. Bubbles have been happening for the past 800 years. It just moves from one thing to another.

 

[Naskra]

@Cutlass:
Are you saying that the trade the trade cycle is a result of investment bubbles?
No one denies these things exist, but I can't see how that can account for much.
The dot.com bubble was indeed mass foolishness on the part of people with money to burn. And no real harm was done by it directly. The Fed's riposte to it was another matter.
The housing bubble, on the other hand, had deeper roots, and can be traced to policies forcing it, not bubble-mania on the the part of the public.

 

[Masada]

In that case can I have a short explanation of what you'd say neo-liberalism is about?

I usually associate it with the rise of neo-classical economics. At best, all you say that Hayek managed to achieve was to inject a healthy dose of skepticism into the public arena on the role and abilities of government. So, while Hayek was part of a wave of reformers including Friedman etc. wasn't himself all together that successful in influencing the reforms that did eventuate. Hayek called himself a liberal but he simply doesn't fit into the neo-liberal paradigm.

 

[Cutlass]

@Cutlass:
Are you saying that the trade the trade cycle is a result of investment bubbles?

Of course they are. Now I'm not going to claim that other factors, government missteps, wars, natural disasters, don't also do so. But financial bubbles and bursts are an inherent part of capitalism. You can't have one without the other. You can only attempt to reign them in and mitigate the damage.

No one denies these things exist, but I can't see how that can account for much.

They cause depression after depression. That qualifies as "much".

The dot.com bubble was indeed mass foolishness on the part of people with money to burn. And no real harm was done by it directly. The Fed's riposte to it was another matter.
The housing bubble, on the other hand, had deeper roots, and can be traced to policies forcing it, not bubble-mania on the the part of the public.

If you are going to blame the housing bubble on government sponsoring of mortgages. And more importantly, if you are going to blame the financial crisis as a whole on the housing bubble and/or government sponsoring of mortgages, then you have fundamentally missed the point.

The housing bubble is no more than the tip of the iceberg of the financial crisis. And the government sponsoring of mortgages is no more than the tip of the iceberg of the housing bubble. So you have a tithe of a tithe of a problem and you're thinking it's the whole mess. The market did 99% of it by avoiding and breaking regulations. So it truly is a classic financial bubble.

This is not a crime of commission by government: It is a crime of omission. The government did not regulate, therefor the financial markets kicked off a crises. That has always been the pattern, and it will always be the pattern in the future. Just like death and taxes.

 

[Naskra]

Cutlass, the housing bubble has some rather clear causes: the Community Reinvestment Act, which drove lenders towards into bad mortgages, low interest rates (thank the Fed), Fmae & fmac which mission appropriately sucked them up, the officially sanctioned ratings agencies which (quite fraudulently) rated MBSs as AAA, the Basel accords which induced banks banks to stock up on said securities as high yield Tier I capital, etc.
It could be all be called a regulatory bubble as much as a natural bubble of capitalism.

 

[Cutlass]

Cutlass, the housing bubble has some rather clear causes: the Community Reinvestment Act, which drove lenders towards into bad mortgages, low interest rates (thank the Fed), Fmae & fmac which mission appropriately sucked them up, the officially sanctioned ratings agencies which (quite fraudulently) rated MBSs as AAA, the Basel accords which induced banks banks to stock up on said securities as high yield Tier I capital, etc.
It could be all be called a regulatory bubble as much as a natural bubble of capitalism.

That's really not true. Because for 30 years the CRA did not cause any problems. And even in the end, the CRA loans were safer than the non-CRA loans. So the bad mortgages were overwhelmingly not CRA mortgages. That's a strawman. About the Fed interest rates, there is a variety of criticism about them. But again, they aren't the whole problem. The rates may have encouraged more borrowers than otherwise would have been true, however he money did not come from the Fed. It came from private investors. And there was no inflation, which is one indicator of whether or not the Fed should raise rates (there are more sophisticated indicators, but not universal agreement on them). So it is debatable whether rate increases were called for. Raising rates as a response to a bubble is a bad move in any case. The main mistake was its refusal to regulate. Once the Fed and the other regulators allowed adjustable rate and balloon payment mortgages to be made by the banks, raising rates becomes A Very Bad Idea. Freddie and Fannie helped fuel the flames. But they were private sector. And most of the money did not come through them. The ratings agencies are also private sector, and all the pressure on them to commit fraud came exclusively from the private sector.

Understand that no mortgage originator was ever forced to make an unsafe loan. Every unsafe loan made was a loan that the private sector choose to make. The government may have prodded too hard, but they never compelled. All of the key decisions were private sector decisions.

 

[Naskra]

Ok, then, we agree, within limits. The world is more complex then just saying that "bubbles are inherent to capitalism".
Just how many bad mortgages were CRA inspired is impossible to say. Your 30 yr timeline is misleading because the pressures were successively increased from its inception.
Also, I would not call the ratings agencies private sector - they have a licensed monopoly.
Bear in mind that the Fed can never raise interest rates, it can only suppress them less. And there was ample inflation at the time.
The question remains: how is it that bubbles are inherent to capitalism? I can think of many communist economy bubbles.

 

[Cutlass]

Ok, then, we agree, within limits. The world is more complex then just saying that "bubbles are inherent to capitalism".
Just how many bad mortgages were CRA inspired is impossible to say. Your 30 yr timeline is misleading because the pressures were successively increased from its inception.
Also, I would not call the ratings agencies private sector - they have a licensed monopoly.

But the fact remains that no one in government did anything to force them to miss rate bonds. They were paid to do so by investment banks.

Bear in mind that the Fed can never raise interest rates, it can only suppress them less. And there was ample inflation at the time.

Neither point makes sense. The Fed raises interest rates all the time. It sets the floor of them. But where was the inflation? 1 or 2% is inevitable. It's not like 0% is actually possible. Not for any extended period of time.

The question remains: how is it that bubbles are inherent to capitalism? I can think of many communist economy bubbles.

Just because they can happen outside of capitalism does not mean that they aren't a part of capitalism. It's not like capitalism doesn't constantly go from one bubble to another. There's always a bubble someplace. People are irrational. People act irrationally. And one thing they always do is jump on the bandwagon and throw money at it.

 

[Integral]

Ooh, we're talking about the Fed and interest rates.

1) The Fed can indeed raise and lower the nominal interest rate. It does so by using its immense market power in the bond markets. Through this it can also affect the real interest rate. The Fed's control of the real rate depends on people's expectations of inflation; thus, the hold on the real rate is tenuous at best. Basic monetary theory. So Cutlass is right here.

2) It is possible to have 0% inflation (price level targeting) for an extended period of time: the BOJ set a level target and hit it for ten years running. But in doing so they drove inflation expectations to zero and have had a tough time in spurring investment or growth.

3) I'd *love* to get into the bubble discussion - in that I'm not sure if the concept of price bubbles is even useful for policy analysis - but I'll wait on that front.

(Teaser: You can cry 'bubble' all you want, but if you can't distinguish price bubbles prior to their bursting, your theory of bubbles isn't going to help for policymaking. And I"m not sure if anyone has a good theory of bubbles right now.)

4) It's going to be immensely useful to distinguish between the housing recession of 2007-2008 and the nominal GDP/expectations shock of October 2008 - present. The two are quite different in origin and severity.

 

[Cutlass]

Positivism in the science of human action is far beyond the reach of modern science to simulate. The brain is far too complex and the society has far too many intertwined causal relations to make a scientific judgement based on a few perceived correlations. History is necessarily a subjective interpretation of events. As Mises said,

That does not address my point. Business cycles are real. They are caused by the private sector. We can reduce the severity and mitigate the effects. We have the right to do so. There for it would be wrong to not do so.

This is impossible to say. Same issue as with externalities. It is impossible to say whether monetary policy causes pareto improvement or not, as the subject of the policy does not act in the process of being administered it.

It's not "impossible to say". It's said all the time. You just refuse to admit it because you don't want to deal with the consequences of your actions.

see first points. Also you might want to take a look at the gold supply. Growth averages ~1% per year, compare that to whatever fiat money.

And the economy always wants to grow faster than that. Meaning gold causes deflation, which causes depression, which results in vast underutilized resources to the point where there is too much gold which causes inflation. Look at years, not centuries.

 

[Integral]

Comments time! Feel free to mock or ignore.

That does not address my point. Business cycles are real. They are caused by the private sector. We can reduce the severity and mitigate the effects. We have the right to do so. There for it would be wrong to not do so.

Though I'll note that we should be modest about our claims to the effectiveness of monetary/fiscal/regulatory interventions in the economy. There's only one method to even remotely manage an economy technocratically - monetary policy - and even that eventually can only steer nominal variables (the money supply, prices, inflation, nominal spending, etc), not real ones (specifically, real spending). Fiscal and regulatory policy are only modestly able to tame real business cycles, and the timing is usually hard to get right.

Further, regulatory and fiscal policy can themselves create business cycles, but that's a discussion for another day.

It's not "impossible to say". It's said all the time. You just refuse to admit it because you don't want to deal with the consequences of your actions.

A decent reference here might be Friedman's "The Methodology of Positive Economics", which isn't the best defense of economics but is good enough for this discussion.

And the economy always wants to grow faster than that. Meaning gold causes deflation, which causes depression, which results in vast underutilized resources to the point where there is too much gold which causes inflation. Look at years, not centuries.

I'm not sure you can make the causal claim that deflation -> depression under a gold standard, but I'm having trouble raising a counterexample. Consider this an "I'll get back to this, if you'd like" marker.

 

[lovett]

Again let's look at Rawls. Rawls has the clear distinction of being liberal and egalitarian, something neo-liberals clearly are not. Is this not a significant distinction? I suspect it might be the most important distinction in that it is what neo-liberals seem to disavow as the worst mistake in modern political philosophy.

Classical liberalism doesn't put all too much emphasis on equality if I remember. Sure, equality is preferable to inequality but only insofar as equality doesn't infringe on liberty. That's pretty much Hayek's line too.

And I'm sure if we look at classical liberals like Mill we can find a number of significant distinctions between what he held and what neo-liberals hold. Indeed, Mill's utilitarian philosophy would bind him (even if you argue that he was rule-utilitarian) to placing the good prior to the right, such that he would embrace economic planning or egalitarian ideas if they maximised the good. Conversely, can neo-liberals be egalitarian or support a planned economy? I think it's safe to say that neo-liberals prioritise the right over the good (as Rawls does, but under different premises and leading to different conclusions). And that is a significant difference.

If we take Hayek as a neo-liberal, you'd be wrong. Hayek's liberalism is explicitly utilitarian. He spends half The Constitution of Liberty making utilitarian arguments for liberalism; That free civilizations are more creative, more productive and more progressive than unfree civilizations.

As you say, this idea certainly underpins Mill's liberalism. It does not underpin Rawls. How then can we call Rawls 'firmly liberal' whilst calling Hayek 'neoliberal'?

@lovett:But how to explain why everyone becomes foolish in the same way at the same time?

This exactly explains this. Peoples 'foolishness' is based on other peoples 'foolishness'. Hence one would expect to see lots of foolishness coming at once, in the same place.