Bitcoin Forum

"Congressman Ron Paul, in a rare head-to-head broadcast confrontation, went up against the Nobel laureate in economics Paul Krugman in an open debate over monetary policy. It was broadcast on the Bloomberg Television, moderated by Trish Regan. Not to put too fine a point on it, Ron Paul won the exchange, so much so that the cameras and moderators just drifted away from Mr. Krugman without so much as a fare-thee-well and left the field to the hero of the campaign for honest money."

http://www.nysun.com/editorials/ron-pauls-clash-with-paul-krugman-displays-power/87810/ (http://www.nysun.com/editorials/ron-pauls-clash-with-paul-krugman-displays-power/87810/)

followup by Michael Suede mentioning Bitcoin:

http://www.policymic.com/articles/7811/ron-paul-won-the-paul-krugman-economic-debate-and-here-s-why

afai remember bitcoin was not mentioned in the original paul/krugman debate.

i don't understand why Ron Paul or any defender of a fixed monetary supply like gold or Bitcoin never say that money printing is inherently unfair.  it would be easy to make the argument that inflation or money printing favors the bankers who get first crack at money at 0% and turn around and lend to shleps like us for 4-5%.  how is that fair?

they also turn around and use that free money to drive up their toys like stock and commodity prices to bubble highs before pulling the plug on retail investors who are tempted to get into those same manipulated markets.  this is exactly what we've seen from the bottom 3/09 to now.

a simple argument to someone like Krugman would go like this, "hey, why don't they give everyone free money at 0%", not just the cronies?

He isn't talking about Bitcoin, but he is for allowing people to use private money.

When I make the argument I always ask the question, "Why can't I print up my own Federal Reserve Notes? Why is that punished as counterfeiting? Aren't we all equal?"

From there I just demolish any of their potential responses which are all on very shaky logical foundation.

I love this.  Krugman obliterates this dunce.

So wait.  You agree with Krugman's theories of economics, but support bitcoin?  Seems to me it should be one or the other.

its "inherent" in the way the system is structured.  why should banks be able to borrow from the Fed discount window at 0% and then turn around and lend that same money to you or i at 4%?  they also create speculative bubbles which blow up and cause all sorts of financial losses for those that get sucked in.

perhaps a different way to say it is why can't i have my own printing press in my garage?  when i screw up with my investments i can just print up some FRN's to bail myself out.  no harm done.   ;)

If you assume that counterfeiting is not a crime (essentially a free market in patterned print production), then the only concern one should have when dealing with "money stock" is whether the person your contracting with, promises not to inflate nor create/destroy credit in a manner disagreeable to you.

To wit, you either accept the terms regarding the money type, defined by contract (i.e. letters of credit, bills of lading, receipts or equivalents etc.), or you don't. But when things "go south", then you refer to the contract you signed with the person or persons you bargained with, and determine if a fraud was perpetrated (breach of contract).

All things considered, I think most people won't go to such lengths to protect themselves thru contract from unscrupulous "invisible" banking techniques (inflation, credit expansion and contraction issues, fractional banking, etc.), mainly because it's so hard to follow to begin with. And besides, it's also too tempting to want to try to game the system, since you can point the proverbial "finger" at everybody else when it fails.

They will likely just use a form of money like gold and silver bullion, and perhaps bailment thereof, because of the universal difficulty in ability to cheat the system. There is some inflation and accounting problems, but it isn't too bad, which is why gold and silver eventually became the standard in the first place.

Ron Paul didn't actually mention the 0% loan thing (unless I missed it in the crosstalk,) but he kinda did come close. He talked about how the Fed bailed out a bunch of rich people regarding the mortgage crisis, then asked why wasn't the money just given to the mortgage holders (average Joe and Jane) as that would have been far more fair.

One can't 'obliterate' a monkey in verbal argument.

But he does. I remember seeing a video of RP saying something as "you're stealing from the poor and the middle class".

Just one thing though: money printing is not "inherently" unfair. It's not unfair if it's voluntary, like gold and bitcoin mining. The actual unfairness is money monopoly.

Krugman must be the bitch of the FED.

+1

Bitcoin is the anti-Krugman.

I love how Krugman hates Bitcoin, but there's nothing he can do to stop it.

I can't wait for the likes of him to destroy the USD so the world will suddenly wake up and realize the value of ( and point of ) BTC...

or both be bitches to the same master

Paul Krugman used real facts from post-WW2, Ron Paul used spurious historical facts dating from the Romans (!).

Krugman came across as the more rational and calm one.

Well, how each person looked is probably quite subjective.

To me, Krugman certainly seemed more assertive, but in the somewhat frustrated, hint-of-barely-restrained-anger tone that many intellectually dishonest academics seem to use when their most central beliefs (especially the ones regarding Their Area of Expertise (TM)) are challenged.

Also... "real facts from post-WW2" vs. "spurious historical facts"?... ok....

And why is that?
You could argue the exact opposite, if you support bitcoin now (and not just in 30 or whatever years), clearly you are in favor of inflation and printing of money.

When I think of bitcoin, I think deflationary even though it is inflationary at the beginning.  I'm thinking long term.  Are you going to abandon bitcoin once the block reward is close to 0 since it seems you prefer inflation?

Ill probably be dead by then. And I guess bitcoin will be too.
But the eventual lack of inflation is not what I see as its strength, I see it as a (long term) problem. Id have preferred a small but predictable inflation rate, but as it is, its not exactly useless, I see bitcoins biggest appeal as a transaction facilitator, to replace or complement paypal, western union etc, but not a store of wealth that will replace fiat currency. Or gold for that matter.

Anyway, thats another topic, just wanted to refute the idea that "supporters of bitcoin" could not possibly share Krugmans idea's.  Economically Im much closer to Krugman than Ron Paul.

A class based society survives on ignorance and complacency of the bottom rungs.  People on the low end becoming enlightened would cause chaos.

Agree with this. This is much more realistic and reasonable.

Idiot

Im not complaining, am I?  I said "eventual lack of inflation" and  "long term" problem.

I humbly disagree. Keynesians and their more modern derivatives (e.g. New Keynesians) do not fancy the idea of people having a choice of their own money. In their economic theories, money is forced upon the populace whether they want it or not. Their aggregate-based economic models require an assumption of a monopoly money.

I like Krugman, but he's inconsistent. He knows no more than any other economist that has failed to prevent the global economic crisis. I think he will be one of the first major economists to reverse his opinion about Bitcoin.

If by money you mean legal tender, I dont fancy that idea either. If anything can be legal tender, someone may want to pay off his debt to you by paying in metric tons of pidgin shit and you would have to accept it as debt settlement if he delivers enough of it.

Of course there other ways to see bitcoin than legal tender. I see it as barter, and Im not aware of Keynesians having problems with barter.

Sometimes it seems authoritarian people just don't want to think for a few seconds...
How about specifying the means of payment in the contract? Didn't cross your mind?

Sure, whats the problem with that? What prevents you today from making a contract that you will trade, say, a computer for bitcoins, gold or pidgin shit? If you want to call pidgin shit money because of that, be my guest. Then we already have competing currencies.

No, we don't. If in the debt contract it is written that only bitcoins are accepted as payment, that clause is legally void: the debtor may still pay with legal tender if so he wishes.
And US legal tender laws are less authoritarian than many others, if that's the only thing they force. In many countries, if you're selling anything, it must be against the official currency. In Brazil for instance, not only you cannot refuse the official currency if you're selling something, but you're also forced to provide change to the buyer if he throws a large denomination bill at you. Not to mention all banking rules.

Instead of making a fool out of yourself, reread what I wrote. If the word legal tender confuses you, look it up.

I stand corrected on the spelling though. English is my third language.

Im not a lawyer, that may or may not be true, its the first time I hear it. You are essentially saying barter contracts are null and void? that would surprise me. What I can see is if only one part of the barter is or can be executed, that the resulting debt could be settled with legal tender; that is, well, the whole point of legal tender. If we agree to trade a laptop for gold and your laptop gets stolen after you got my gold, you will owe me the gold, or absent that, legal tender to compensate the breach of contract.

But that  wont prevent two parties from bartering if they so wish, and its not something Ive heard Keynesian rage against.

That's how legal tender works. If someone delivers on their half of a contract, the other party can legally get away with paying in or with exchanging legal tender instead, even if the contract specified an exchange in gold, bitcoin, chocolate chips, or even another nation's currency.

The problem this leads to is that it effectively eliminates those types of non-legal-tender-accepting contracts from the market. People can sign on the dotted line saying they'll pay in gold, or that they'll barter toothpaste for the product, but they can be fully intending from the start to ignore that and pay you in paper. And legally there would be nothing the seller could do about it. That's the problem with specifying a method of payment in the contract. It's unenforceable, and typically meaningless. Even though the occasional participant will honor it, there's no (legal) obligation to do so, and over time fewer will.

And Krugman, and economists with similar beliefs (Keynesians,) believe in legal tender. In fact, they assume it, and much of their theories revolve around the presumption that the government will force a specific monetary system onto the people, especially through forcing people to accept that government money even if it's not in their contracts. They don't rage against barter because (1) their theories already presume an environment in which barter will realistically be unenforceable, and (2) they don't actually want to come out and plainly say that they dislike barter, and want it to be unenforceable because they know how something so intrusive will sound.

My point was slightly different. While it is true that we have legal tender laws, that's not what I was talking about. I was talking about propping up spending through money injections. This only has this effect to the extent that you can mislead people into thinking that the purchasing power is higher than it really is. If the misdirection didn't work, people would switch to other liquid assets. Even if we disregard legal tender laws, there is still the network effect which increases the threshold for the transaction cost difference required for the switch. If there was no network effect and no legal tender laws, people would switch to a more stable money as soon as they got the impression that there's something fishy going on with the printing press. That is why, if the inflation starts going more rampant, states increase the penalties for using other money. The network effect is in those cases too weak to compensate for the dramatic increase of transaction costs involved in using a currency with a rapidly decreasing purchasing power. The network effect normally compensates against a mild inflation even without excessive legal restrictions, which allows the people connected to the printing press to reap the benefits.

It's a type of externality: if money already exists and the producers of money can produce new money below their market price, they reap the difference. Once people lose confidence in the stability of value, the demand shrinks and with it also the price.

I was also attempting to explain that economic models using aggregates such as GDP only work if there is single money. There is no "Bitcoin country". And if you use Bitcoin as infrastructure for fiat money payments (such as Bit-Pay is offering), the whole concept of the quantity theory of money loses meaning.

Well, nowadays this is more an exception than the rule. My research shows that there are precedents where courts upheld the currency specified in the contract even though it was foreign money (I don't have the link but there was at least one case in the UK). Last year, there were unhappy Hungarians who took out mortgages in Swiss Francs before the Forint depreciated. They lobbied to the state and the state allowed them to redenominate the contracts, but this was not automatic and required executive action.

As I said in the post just above this, it looks like the restrictions on the use of foreign moneys are inversely proportional to the desire of the people of a country. If the financial system and value are stable, and hence everyone is happy using it, there are less restrictions. As it begins to fail, more and more restrictions are imposed, until you have a situation like Zimbabwe where the use of other currencies was punishable by death. The USA introduced restrictions on the holdings of gold during the recession in the 1930s.

I presume you meant that NOT being able to force legal tender onto someone is the exception? I'm pretty sure that despite the few cases to the contrary, it's routine in most countries that acceptance of the nation's money is legally mandatory to some degree or another.

Still, the exceptions are somewhat interesting. Clearly the ideal is for the populace to demand monetary freedom.

No, I would say that in most "normal" countries typically you do not need to accept the "national" currency if you don't want to (there are some exceptions which have separate regulations, e.g. banks). First of all, if it was enforceable, there would by definition be no foreign trade, as in those cases at least one of the parties needs to use a different currency than their national one. Furthermore, if someone started enforcing it, all foreign investment would cease (e.g. the Swiss weren't very happy about the Hungarian "trick" performed on them from my previous example).

Typically the harsh restrictions are associated with closed economies, e.g. Cuba.

Gold is still being mined from the ground. If you support gold now, clearly you are in favor of inflation. ::)

Ah. Well, I see where you're coming from, but please keep in mind I'm just presenting how legal tender works. By definition, if a nation has legal tender laws, those laws to some degree or another mandate acceptance of the national money.

Even in the case of international trade, if a business is exporting goods in exchange for foreign currency, and the other company violates their contract by refusing to send the foreign currency but instead offers local currency, generally speaking that local currency will have to be accepted (although I would imagine in most cases the exporting business would be pleased, not upset at the development.) The fact that foreign businesses don't typically do this has more to do with the convenience for them (since they have their own legal tender money) rather than with their lack of ability to do so due to legal tender laws.

Legal tender laws and the requirement that taxes be paid only in the national currency are the two key ways a government ensures that there will be widespread circulation of their money in the national economy. This is something Keynesians take as a given, and most seem as if they would be very much against actual abolition of legal tender law (when they actually want to speak directly to the question.) From what I can see, Keynesians are against monetary freedom.

It is true that taxation is typically associated with legal tender, but that's not the only "hard" restriction. You're also required to conduct your accounting in legal tender, which influences the amount of tax owed.

You are not technically required to 'conduct your accounting in legal tender'. Can you cite the code? The Kahre case was about this but never addressed the issues raised by the unintelligible definition of a 'dollar' under 31 US 5112.

Thank you for your reply sunnankar,

This is actually a very interesting point. I was originally under the impression that you are required to conduct your accounting in the legal tender. I had heard about the Kahre case, but if I understand correctly, it was about underreporting of value rather than use of a different currency for accounting, in other words, it does not have anything to do with the choice of currency as such.

I found this link (http://www.hmrc.gov.uk/manuals/cfmmanual/CFM10513.htm) which suggests that UK companies must conduct their accounting in pounds.

I was also under the impression that the choice of currency for accounting influences your tax liabilities. Then I ran a couple of simulations and it's not that simple. If the gain/loss is to be calculated based on the total balances, then the choice of accounting currency is irrelevant and leads to the same result (but because exchanges have fees, you'll end up with a lower profit). If however the gain/loss is only realised when you sell the foreign currency against legal tender (which, based on my research, seems to be the case), then the result is only the same if you sell all your balances of the foreign currency. If you conduct your business exclusively in foreign currency (say, Bitcoin) that appreciates against legal tender, and only sell your Bitcoins in order to have enough legal tender to pay taxes, you'll actually end up with a lower tax due!

It turns out that my original assumption that the choice of currency for accounting influences tax liabilities is erronous, irrespective of whether the choice is allowed or not. It's other accounting rules that influence tax liabilities, and it looks like paradoxically, they currently favour Bitcoin.

hehe, nice.

Krugman about Estonia: http://krugman.blogs.nytimes.com/2012/06/06/estonian-rhapsdoy/

Estonia president going on a pretty rant as a reaction: https://twitter.com/#!/IlvesToomas

Let me set the record straight about my opinions - I think bitcoin is an excellent proof of concept, but definitely too unrefined and flawed for mainstream acceptance in and of itself.

I also don't have any interest in debating the established fact that Ron Paul demonstrates incredible economic ineptitude.  It's just fun rubbing it in on a forum populated by a lot of people with kindergarten-level understanding of macroeconomics.

just so people can value your honored opinions, I dug out an old post of yours from November last year:


yesyes, and tulips only flower once.

if you have "no interest in debating" and are apparently the ultimate holder of "established knowledge" then why are you here? Just for having some "fun rubbing it in on a forum populated by a lot of people" you seem to have no appreciation or respect towards? Seriously? Back to kindergarten, HappyFunFoo!

I am no economist, but I appreciate what you are saying here for the most part. Personally, I really get sick of hearing austrian this, austrian that. Correct me if I am wrong here, but I tend to lump it in with the likes of psychoanalysis and chiropractic. I tend to view it as psuedoscience, for lack of a better word.That said, I think bitcoin has a very bright future. And I wish Ron Paul were not the face of libertarianism in America.

Just MHO.

lol, how is people simply bartering with whatever they see fit pseudoscience? Keynesianism is pseudoscience.

austrian economics is aging as well though, the old paradigms must go. We need appropriate money for the information age. Bitcoin with P2P credit systems like Ripple (to provide ad-hoc liquidity) or a similar dualistic approach will be the future.

Maybe keynesianism is pseudoscience too.

I would consider this psuedoscience, however: http://en.wikipedia.org/wiki/Austrian_School#Methodology

Fixed rate currencies, barter systems, thats all cool with me. And again, I am not well versed in economics. I am not necessarily talking about you, but my guess would be that many bitcoiners go through a series of steps something like this:

1. discover bitcoin

2. like the idea that it has a fixed supply

3. decide that bitcoin is awesome, countercultural, and the answer to many real world problems

4. discover austrian economics because somebody on a forum mentions that austrians like fixed money supplies too

5. fail to read much more on austrian economics

6. decide that austrian economics are awesome, countercultural, and the answer to many real world problems.

You didn't learn about austrian economics in school? We didn't spend a ton of time on it, but econ was a required high school course for me.

Nope, i think i had to pick from several classes, econ being one.

I am an economist. You are exactly right. Austrian = pseudoscience. The local inhabitants have a high school level understanding of economics (if that) and are adamantly opposed to learning more. Ron Paul should be an embarrassment. When people promote Ron Paul, I can only think of my 1 year-old removing her diaper and playing with the contents.

Jesus Christ! They teach Austrian economics in school! Where? Who can I report these bastards too? Bet your school schedule looked like this....
9-10 Austrian Economics
10-11 Intelligent Design
11-12 Chastity-Based Education
12-1 Gun Safety
1-2 Civil War Revisionism
2-5 Opening Day of Hunting Season  -> kids have afternoons off to kill game

lol no.  It simply had text books that mention more than one theory.  The exact opposite of what you are saying.

We don't need science, we need sound money and free markets.

In my view, economics cannot be science anyway, unless you completely understand how humans work. You'd have to start there.

Regarding Keynes vs. Hayes or whatever: fuck that debate. Keynes may be right, I don't know, but his strategies are not implementable because they require responsibly acting leaders/central banks/policymakers, which we do not have at our disposal currently.

Humans fail consistently at regulating even very simple systems, such as a thermostat-controlled freezer. How can you expect a group of humans to succeed at regulating something as complex as the world economy?

You cannot, this is the mistake we made. We thought we could have our economies regulated.

I think we're better off concentrating our efforts on deregulation and coming up with good monies (let the free market use whatever it wishes to use), than arguing about right or wrong of some theories about the behaviour of apes. I'm pretty relaxed about these two things, because they will solve themselves in the end anyway. Solutions will just emerge, the question is how bad we want it to get before we let them.

I do think FunnyFoo is right about the problems bitcoin has (slow transactions, cumbersome to use, scalability issues), he's wrong however in saying that it's easy to come up with a better solution. I point to history (litecoin) to show that.

lol

In Australia you can get most things done with a  case of beer.

Is this classified as sound money ? lol

Your posts would be considered more seriously if you provided actual arguments rather than the childish behaviour you're exhibiting. I find it particularly problematic if you use an ad hominem while simultaneously claiming your opponent is unscientific.

Austrian economics is based primarily on deductive reasoning and logic. That puts it into the same category as mathematics. Similarly as mathematics, it is based on axioms. Strictly speaking, it's not science, but a tool that can be used in science.

Why don't you provide actual arguments? You've demonstrated in the past that you are capable of that. Why the change and why are you hiding behind a pseudonym? What are you afraid of?

Don't tell a german or belgian you think beer is fungible!

Austrian economics explicitly rejects the scientific method. It relies on deductive reasoning, but explicitly rejects mathematical deductive reasoning. If you want to call that science.... fine. You can have your faith-based anti-math whatyamacallit, and I'll take the scientific method.

PS Go back to your compound, you home-schooled, gun-wielding, bible-reading piece of shit.

So when did Keynes or Krugman use the scientific method and isolated a human society in a laboratory in order to produce predictable and repeatable results ?  :o

Can you provide an example of a specifically Austrian Economic axiom and how it can be used in science?

Maybe the video will help explain?

http://www.ted.com/talks/esther_duflo_social_experiments_to_fight_poverty.html

great post, especially the last paragraph. thanks, will use ;)

please explain.

Thank you for this well though-out post.

+1

The video describes the use of experiments in development economics. These are analogous to randomized trials in medicine.  They both aim to establish an empirical basis for solving problems, based on reproducible, randomized trials. Evidence-based approaches to economics are explicitly rejected by the Austrian school. Would you trust a doctor who rejected evidence-based medicine? If not, then why would you trust an Austrian economist?

Austrian economics rejects the notion that empirical data can confirm or refute economic theory, because economics is based on human action. Just like like empirical data cannot confirm or refute math. By the way I participated in math competitions back in high school and if I recall correctly twice I ranked 4th in the country.

I live in an apartment, attended public schools, don't have a gun and am an atheist.

Furthermore, thank you for providing evidence for my claim that you don't actually have an argument.

The main one is the axiom of human action, in that humans use means to achieve ends. As an example of use, it can be explain why barter occurs: if person A possesses a good X, person B possesses a good Y, A values the possession of Y more than X, and B values the possession of X more then Y, they perform an exchange (I'm ignoring transaction costs and the existence of other people and goods for simplicity).

If you insist on empirical approach and how economists should be making testable predictions, why did Austrians then predict the housing bubble, while Keynesians didn't? Doesn't that disprove Keynesianism?

Hint: it doesn't, it just shows how you contradict yourself.

To phrase it like this is to misunderstand Austrian economics. Would you trust a mathematician that rejects empirical approach, or one who claims that measurement can prove or disprove mathematic theories?

OK, I'm with you so far. Your example has formed an hypothesis from your axiom. Science makes use of these tools by making predictions. Now we need to make a prediction based on this hypothesis that "humans use means to achieve ends." If we go with your example:
"if person A possesses a good X, person B possesses a good Y, A values the possession of Y more than X, and B values the possession of X more then Y, they perform an exchange (I'm ignoring transaction costs and the existence of other people and goods for simplicity)."
Now design an experiment that can test this hypothesis. And you'll need to test its falsifiability.

I think I didn't explain myself well. The example I used is still an economic theory. It cannot be tested empirically. It is impossible to think of a situation which would either confirm or refute it, since we cannot measure how people value. The maximum we can do is that when we observe barter, we can say that it is consistent with the theory presented above. Which does not really mean much.

The theory explains that barter is the consequence of the fact that more than one person exists, more than one good exists, and people having opposing valuations (double coincidence of wants). However, even if we didn't observe any barter anywhere ever, it still would not refute the theory, as it could simply mean that one of the conditions (e.g. double coincidence of wants) isn't fulfilled.

Austrian economics attempts to explain human behaviour on the most abstract level possible. While this means that its empirical use is extremely limited compared to other approaches, it's not necessarily a disadvantage. As Nassim Taleb (not Austrian, but a fan) eloquently put it, it is better to be approximately correct than exactly wrong.

A theory requires empirical testing, otherwise it is a hypothesis. An axiom is a generally accepted definition, but in this case I and many others do not accept it. Therefore you are making logical fallacies starting with begging the question. You cannot call this science until it is testable and verifiable. It is pseudoscience until then.

A correctly formulated axiom, in my opinion, cannot be refuted or confirmed. In isolation. However, it can happen that someone claims multiple contradictory axioms valid simultaneously. In this case, this contradiction can be exposed and therefore that particular combination of axioms rejected as erroneous.

It is illogical to object to a single axiom in isolation. If anything, it exposes biases of the protester.

Kindly note that I did not call it science. Therefore, no fallacy.

Edit: in retrospect, perhaps I should have used the term "theorem" rather than "theory". That would be a more accurate terminology.

You're basically calling mathematics entirely a "hypothesis". That's nonsense. Logical deduction on top of axioms can produce valid scientific theories, and in some situations this method is much more reliable than trying to conduct repeatable experiments with all the variables properly isolated (the "empirical" way). Social sciences are an example: experiments can't be repeated at will, and it's impossible to even distinguish all variables, let aside isolate them.

Math is not science. Math is a descriptive language just like this language. There are no more perfectly straight lines real world than there are invisible pink unicorns. They only exist in the language of our imaginations. This is about philosophy. You can learn more about it by searching the term epistemology.

Mathematics is a science. It's not (only) a descriptive language. Math allows us to obtain true knowledge, not only talk about it. Ex: If two items of the same nature are put together with another two items of the same nature, you'll have four items of that nature (2+2=4). That's not a product of "imaginations", it's a true fact.

I threw you a bone. OK, so you claim math is a science. Fine. a^2 + b^2 = c^2 is a math theorem that is mathematically accurate to absolute precision. Now show me a perfect triangle anywhere in nature that can be measured and independently tested and verified to have perfectly straight lines and can be accurately measured at anytime to be be consistent of the theorem that a^2 + b^2 = c^2 exactly.

lol wtf. "Math is not science."  This is not the direction I thought that this debate would go... And I don't understand how it makes either side's point.

But I don't have to show you anything in nature for it to be true.... A triangle has such properties a priori. That's exactly why you should not always use empiricism as a way to acquire knowledge. "Measuring and testing independently at anytime" is the empiricist way of acquiring knowledge, which doesn't fit neither to Math, nor to any social science.

The Pythagoras equation holds true for any triangle, even if you're not capable of finding an object with triangular form in nature.

Are you trying to argue that the equation is not true because you've never seen a natural object of triangular shape?

It is related. Keynesians practice economic wrongly. They try to use the empirical method, which doesn't work for social sciences as you simply cannot repeat experiments at will, much less isolate all the variables.
The empirical method is the one used in Physics, Chemistry etc.
The aprioristic method is the one used in Economics, Mathematics...

Well then he probably claims social science isn't science either  ::)

cbeast. What about fractals? They are in nature and in math.  Do they disprove whatever it is you are trying to argue?

I type too slow. They prove that empirical measurements are important for discovering math models. Yes I believe that social science are just as empirical as chemistry.

Being important for discovering some math models doesn't mean that they are necessary for ALL math models.  I still don't see how the lack of a perfect triangle in the real world disproves Austrian economics.

Fractal models exist, yet you will never find a perfect Mandelbrot in Nature.

Economics in general is just too broad of a social science. Besides, science isn't in the business of disproving anything, just falsifying hypotheses.

And your point is...

Too broad for even a social science? lol. I was pretty sure that social sciences were broad anyways...

So what is economics if not math, science, or even a social science? And why does this disprove Austrians? Keynesians are the ones who try to use hard equations, are they not?

Show me any theory that can be measured and shown accurate to absolute precision.  Good luck.

My area of social science is psychology and I have had to dismiss 99% of what I had been taught in favor of new theories. That's what scientists do. Personally, I don't believe in any particular general theory for any social science, but that doesn't meant there are not important predictive models backed by empirical data. In other words, Austrians and Keynesians are both wrong. Social science must be ecclectic to be useful.

That's my point. That's why models are only predictive and may be dismissed anytime a better model is discovered. There is no absolute truth in science. Math uses "proofs" yet nothing can be proven in nature.

This whole thing started because I said that a A theory requires empirical testing, otherwise it is a hypothesis. I still stand by that. Newtonian theory may be dismissed someday because it does not hold up at quantum nor relativistic levels.

Well now I understand you a little more.  I thought you were arguing against Austrians and for Keynesians and so none of your arguments made any sense to me.

I don't think anyone here claimed that Austrian economists are absolutely right about everything.  Most here seem to believe that the Austrian models are simply more accurate than the Keynesian's.

But even after Newton's theory (which by your own admission HAS EMPIRICAL TESTING) is dismissed, it will still have been useful.  It still gave us lots of models of our universe even though they may be off by a small amount.

Technically you are correct, however you are still making the assumption that the purpose of economics is to explain empirical phenomena. Strictly speaking, Austrian economics isn't about empirical phenomena, similarly as math.

Hoppe and Mises argue that the axioms are selected as propositions which to deny would be absurd or contradictory. My own take is that the act of denial of the axiom would need to presuppose a different axiom, contradictory to the one you're trying to disprove.

An example is the human action axiom: people use means to achieve ends. In order to deny this, you need to present a counterargument. But presenting a counterargument is itself a mean (argumentation) to achieve a goal (resolution of a dispute). So you simultaneously need to assume people do, and do not, act, leading to a contradictory combination of axioms.

What you are describing can also define any organized religion. I will defer this type of orgumentation to theologians. Case in point:
axiom1: people use means to achieve ends
axiom2: there is no free will, all is predetermined
Neither are valid without empirical evidence.


I prefer the Null Hypothesis. Finding empirical evidence that contradicts a hypothesis does not posit an alternat hypothsis. It just means its time to do more science. Besides, there's cake.

Religion is based on the assumption that there is basically a second universe, and that there is some sort of relationship between it and our. Austrian economics doesn't do this.

Yet again you are mixing this with empirical phenomena. Axioms cannot be "valid" or "invalid". They can only be combined in ways that are, or aren't, contradictory.

Then this isn't economics in the Austrian sense.

Not all religions believe in a second universe. Many just believe things about this one that cannot be validated with evidence, only faith.

Whether invalid or contradictory, both yield a useless axiom.

All social sciences must use statistics to validate a hypothesis. If Austrian Economics does not use statistics, then economics in the Austrian sense does not use the generally accepted scientific method used by peer reviewed journals. Therefore I don't call it science.

I would not classify that as religion.

They yield a useless combination of axioms.

And I don't call it science either, similarly as I don't call math or logic science. We appear to agree then.

From http://en.wikipedia.org/wiki/Religion:

Where does that say you have to believe in alternate universes?  Clue: it doesn't.  Why do you define religion so narrowly?

This sounds like an interesting perspective. What do you mean by "cook-book substitute for thinking"?

I apologise, I did not want to divert the flow of the debate.

Spirituality and moral values are not empirical phenomena. Nor are they adequately (or even correctly) described as axiomatic systems. They require a different, non-empirical, type of phenomena, to be "real". An alternate universe is a simple description of this non-empirical reality.

The best explanation I know of is by Terry Pratchett in Hogfather:

You just blew my mind.

I am a fan of Hogfather, but I still don't agree with you.  Spirituality and moral values are absolutely empirical for me.

Again, from wikipedia:

I believe you should not steal because I have observed what happens to people who steal.  I'm not talking about laws and punishments, I'm talking about how it affects their psyche regardless of whether or not they get caught.

I believe that people are able to communicate nonverbally on a level that isn't explainable by simply observing them externally.  But if you are one of those people, your observation is that a message was communicated clearly.  In my experience, this only happens with people you are very close to, and verbal discussions afterwards can confirm the internal observation.  To me, it is precisely this type of connection that I call "spirituality".  Extended beyond individuals, this same type of connection exists with the universe itself.  When I come to a roadblock, by communicating my intentions to no person, but simply my surroundings the universe often clears a path for me.  Spirituality is about interconnectedness, and if you are blind to it, I will pray for you.  It exists in this universe, on this planet, in every breath and every thought.  There is no need to draw a line and separate the interconnected reality from your reality.  It is possible, but the line only keeps you from experiencing the fullness and richness of life.  Open your mind, and more importantly, your heart, and you will find truth.

The credit should go entirely to Terry Pratchett. I just copy and mix.

This is caused by cultural backgrounds. There are cultural groups who do not share the respect for private property, and I'm not even talking about sociopaths.

The reason why theft even exist is human action, which implies scarcity of resources. Only if a resource is scarce is it possible for the concept of theft to make sense. Scarce resources cannot be consumed by more than one user simultaneously, and this creates the possibility of conflict. In the libertarian approach, it is he first occupant whose claim is considered morally superiour to subsequent occupants (homesteading principle). However, purely theoretically, other systems of justice are thinkable.

This is actually quite funny, because even though I agreed with various proponents of alternative justice systems that the homesteading principle is not the only logically consistent one, none of these proponents were able to formulate them in a consistent way, throughout a course of several years. They usually very quickly ended up contradicting themselves. This leads me to conclusion that they do not really understand their own positions. There were only two exceptions, unfortunately I was unable to comprehend their arguments (which quite possibly was my own fault).

I do not call this spirituality. I call it subconsciousness.

I thank you for your kind words. However, they are unnecessary. I am not interested in believing. Indeed I try very hard not to believe in anything and be the ultimate sceptic. I am interested in logic and in finding ways of proving which claims contradict each other. I'm the type of guy who demands that others disprove his arguments and gets angry at those who avoid answering questions.

I'm all for logic as a tool, but if logic can explain the whole of the universe, then logic is greater than the universe.  I don't believe this is true, and if you do, it sounds like you believe in something beyond the universe.  Besides, ask a physicist.  They'll make it clear that the universe is probabilistic, not deterministic.  The field of probabilistic logic is very new, but very intriguing.

Also, since you are insistent that people answer questions posed to them, please answer this one for me:
What is the sound of one hand clapping?

notme, lonelyminer: I'm extremely interested on how your conversation will play out. Please continue the discussion in this very polite, sane and open manner. Keep at it guys, your solving a huge problem!

I readily admit that logic cannot explain everything. In many cases, I would even say that it is of little practical use:
http://imgs.xkcd.com/comics/honor_societies.png
Also, most people probably are not very excited about highly abstract arguments. Nevertheless, I think I already quoted Nassim Taleb "It's better to be approximately correct than entirely wrong". Also, my father was a physicist.

I provide what is probably a very boring answer, in that it's a combination of two contradictory assumptions. Or I can provide an arrogant one, "I don't care". They are both logically correct, but probably not what you want to hear. It's not the type of answer you are looking for. You are looking for meaning. Logic cannot provide that. Meaning needs to be made up. That is, I think, what Pratchett was trying to say.

Actually, I'm not looking for meaning.  I'm looking for how you choose to answer such a question.  Well done, until you assumed my motive.

And I do believe meaning is subjective.  However, just because it is limited to an individual, or other subset of the population, does not mean that it is imaginary.  It does mean that it isn't provable universally.

There are, of course, some pseudo-scientific aspects in austrian economics. There is, first, the rejection of cardinal utility (http://ilja-schmelzer.de/papers/utility.pdf (http://ilja-schmelzer.de/papers/utility.pdf)).  Then there is the whole issue of methodology, which is worth to be criticized from a Popperian point of view (http://ilja-schmelzer.de/papers/againstCertainty.pdf). A third point is the use of the frequentist interpretation of probability instead of the Bayesian one (http://ilja-schmelzer.de/papers/frequentism.pdf).

But, sorry, in comparison Keynesian macroeconomics is much more pseudoscience. It is simply the broken window fallacy transformed into a theory.

The rejection of cardinal utility follows from the subjectivist methodology. I'm a fan of Popperian falsificationism and I actually sometimes use it, to great annoyance of some pseudo-Austrians who see their positions as quasi-religion. There's no need to dismiss Popper if you're an Austrian. Regarding frequentist vs. bayesian, I would need to read upon that.

Keynesianism is analogous to, in the words of Oliver Kalkofe (http://www.granatenmaessigrecherchiert.de/mattscheiben,clipid,91.html):

Why do Austrians mull over 70 year-old debates instead of engaging with contemporary economics?

I think you are referring to the hypothesis that increasing the gov't budget deficit increases short-term GDP growth. This is a difficult and unresolved empirical question. Here is a review which describes the modern scientific literature on the subject.

http://relooney.info/0_New_11268.pdf

Regardless of your interpretation of the evidence (it's mixed), the term pseudoscience does not apply.

Pseudoscience rejects or accepts hypotheses irregardless of empirical evidence. The psuedoscientific approach is only advocated by Austrians.
 

It doesn't. In fact, the argument of the paper is that if you use the same methodological principles which allow to justify ordinal utility, and add probability theory to the game, you can justify cardinal utility by the same standards.

So there remain two possibilities: Or ordinal utility doesn't follow, or cardinal utility follows, once we have a world full of probabilities.

Its clearly not that easy to distinguish pseudoscience.

The very point (a Popperian one) is that there is no theory-independent observation. You start with theories, and, then, use empirical evidence interpreted in the light of these theories, to test them, as well as to measure open parameters and so on. So, once the theories are pseudoscience, the empirical results will be pseudoscience too.

For example, there is the question how much of the price increases is caused by speculation. (The question already strongly suggests nonsense science.)  So one creates a simple model of what should be the true, fair price.  And, in this model, the difference between the fair price and the market price is caused by speculation.
Of course, using now such "empirical evidence", you can prove whatever you like about how harmful is speculation, and that it does not play the positive role suggested by Austrians.


This paper illustrates the point about the empirical data being interpretations in the light of particular models.

The comparison of the different models already strongly suggests their pseudoscientific character.  One "result" is that purchases financed by distortionary taxation lead to completely different results than spendings financed by deficit spending: "Results change considerably, though, when spending is financed with distortionary taxes."

But deficit spending is simply another method of taxation.  Those who receive the newly printed money have not obtained new values, but obtained part of the values owned by all actual owners of money. Of course, this form of taxation is different in form, and accompanied by a lot of side effects (on taxation, on long-term contracts in terms of money, on legal restrictions imposed by minimal wages and so on). 

But, sorry, I don't believe that these models take such complex side effect into account. And for rational, well-informed people and freedom of contract economics there would be no difference at all between printing money and some distortionary taxation. So if the models make a difference, they are BS.

And it is, by the way, exactly the type of BS predictable for victims of the broken window fallacy:

I need to read upon this. Sadly, I don't have the time at the moment but I'm sending the paper to my kindle.

Clearly, you didn't read the article carefully, since it discusses models incorporating fully optimizing forward-looking agents (i.e. agents who anticipate that deficit spending implies an increased future tax burden and therefore increase their current savings accordingly)

As for your example, if you find a way of defining "harmful", "speculation", and "fair price" so that they are objectively measurable, then these terms can be part of a scientific theory. As these words are commonly used, they are not objectively measurable and thus are not going to yield falsifiable predictions. As always, the psuedoscience/science distinction boils down to whether a theory generates predictions that can be falsified through empirical tests/

Question: Is the broken window "fallacy" falsifiable?

If not, then it is pseudoscience. If it is falsifiable, then it is science. It is that simple.

Has any Austrian economist tried to refute the broken window fallacy using empirical data...

It is not a hypothesis.  It is an economic argument http://en.wikipedia.org/wiki/Parable_of_the_broken_window (http://en.wikipedia.org/wiki/Parable_of_the_broken_window)


Its not that simple. I would agree that the Austrians, in methodological considerations, overemphasize the case against quantitative measurements in economics. But in fact they also make falsifiable predictions - for example they predict the economic failure of socialism.

By the way I'm not an Austrian, similar to http://econfaculty.gmu.edu/bcaplan/whyaust.htm except that I have a higher opinion about the Austrian theory of the business cycle than Caplan.

The scientific method is just an algorithm for learning about the world around you. People may use statistics as a substitute for thinking about their results, or argument from authority/consensus as a substitute for drawing conclusions. I like this figure:

http://www.sciencebuddies.org/science-fair-projects/overview_scientific_method2.gif


The whole point of science is that logic can only get you to "construct hypothesis". However, if practical experiments are not possible (system too complex, etc), that may be all you can do for now.

I believe different approaches are possible. The Anarchism in Spain (http://en.wikipedia.org/wiki/Anarchism_in_Spain), which one could also call non-authoritarian, non-centralized socialism, did not fail because of economic reasons, but because they lost the civil war against the fascists and Franco. I also believe a resource based economy is possible (Zeitgeist/Venus Project), because of course computers can measure demand and produce accordingly, I just don't like the centralism they imply.

I don't disagree that they make falsifiable predictions (but doesn't almost all pseudo-science). However, the issue is with the pseudo-scientific reliance on confirmation rather than refutation. If we are right, then it confirms our predictions. If we are wrong, well our theory does not admit empiricism.

The person you link to (as primarily representing your views) actually seems pretty sensible and therefore I feel like I am not being fair to you. Sorry about that, I will save my abusive language for people more deserving.

The problem of the Austrians is that they don't understand Popper, classify him as a positivist.

The problem of Hoppe in this case is bad education (Habermas).  Almost all opponents of Popper (Feyerabend, Kuhn, Habermas) seem to share the same error - a simple replacement of verification by falsification, but everything else remains as in positivism.  The number of people who understand that falsification is also only hypothetical, and not certain, or that it is not a particular statement, but a whole theory, even combinations of different theories, which have to give falsifiable predictions, seems minimal.

If one reads Mises, there are a few reasonable points about the difference between natural sciences and economics. In fact, we know from ourself how human society works - there are individuals with particular interests, and they try to realize them. Such things we don't know about atoms or quarks. So there is indeed a difference. And, of course, also the other one that our theories, if known, are able to change the game itself.  That's also impossible for quarks. 

But from a fundamental point of view it doesn't change much. So I agree with Popper that there is a unique scientific method, even if there are large gradual differences.

Given that the Austrians have not understood Popper, so that they are arguing, in fact, against variants of classical positivism, they are in some sense right: Theories cannot be derived from experience. One needs something a priori.  Now they make the Kantian error - a priori, means, not based on experience, means, it needs an independent justification, some sort of laws of thinking. 

Nice, but does not give much in comparison. If the Popperian is right, fine. If falsified, the falsification is also only hypothetical, not final.  He has now different possibilities - to modify the theory somehow. Or the assumptions about the initial data.  Or other assumptions and simplifications. Or to question the data. Given the complexity of human societies, one can always find ways to modify the theory so that it fits the data.

Don't worry, as an anarchist I'm used to harsh language in online discussions.  I guess I'm not fair to Keynesians too.