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At least in the Keynsian variety.

The entire concept is built on infinite expansion which anyone with even half a brain should now know doesn't work as our Earth has "finite" resources (and our ability to find another Earth is not going to happen before we have exhausted this one's natural resources in trying to find it).

I actually think it is rather funny that we have people that are awarded Nobel prizes and given high status at universities (and in governments) when their pseudo-science is really no different to a cult or a religion.

(yes - I like to stir the pot sometimes - so come on you Keynsian fans and smite me)

because, they are rich (and usually, talk too and work none).

OP: What about you read https://en.wikipedia.org/wiki/Economics and rephrase your question?

How about you just post something other than a link (like say an argument or a point)?

(lame post gets a lame reply)

There's nothing weird in infinite expansion. The expansion is in utility provided. Making and storing a good movie, a game or a book doesn't consume much energy or resources, except that needed to sustain the human makers, which exist anyway.  
There indeed are theoretical thermodynamic limits to this (Bekenstein bound), but they are so high there's room for millions of years of growth.  

Utility gained per marginal energy unit is dropping for decades now. Eg. there are physical limits to how much food a human can consume.  

In the future per capita energy use will probably drastically decrease, at the same increasing the quality of life. Outside of obvious things, like increases in efficiency, consider improvements to humans themselves. For example, the eye - what would happen if everyone could get an artificial eyes with much, much higher light sensitivity? Energy expenditures for lighting would drop by orders of magnitude and never recover.  

Except - double the world's energy consumption every year for the next 50 years are we are all gone (perhaps not weird - but the end of our species).

ahahahahaha

this make me rolling on the floor laughing

 :D :D :D :D :D :D

but at the end... i think the same...

just that I could not have said it better

 ;) ;) ;) ;) ;)

I think it is because life is short and unless those resources are used up before they die, they do not care.

It's easy:
- Humans will always innovate, this will never stop. So there will always be increased efficiency allowing infinite expansion.
- Also as you noticed but didn't think through. Earth isn't the limit.
Just think about easy example: we may not find another earth, but maybe we soon put our waste on the moon and get raw materials from Mars or if the Earth gets to small we live in    space station like ISS.

How about an answer through a negative?

Q: Why it is so easy for everyone in academia to dismiss the so called "austrian economics"?

A: Because the Austrians propose that mathematical modeling and statistical methods do not apply in the real world economy.

It has been studied and it won't work. So think again.

You are therefore assuming I support "Austrian economists" (admittedly I think they are less deluded in comparison to the Keynsian ones).

But actually I support none of them at all - as economics is not a science.

maybe did you mean double world's energy consumption in the next 50 year!!!
...and not every years!!!

here some stats:

http://www.world-nuclear.org/info/Energy-and-Environment/Uranium,-Electricity-and-Climate-Change/

i think who the correct increase of the world's energy consumption it is doubled in 20/25 years...

you do not think so???

Very strange that you would quote something from a vested party (Nuclear energy).

Again - think harder please (don't post *ads* from funded agencies).

OK, my attempt at answer through a negative didn't work. So here's the more straightforward answer:

Because the scientific economists are willing and capable of building the statistical and mathematical models that in practice do work and have a decent predictive power about the future of the economy.

Well - that is interesting - so who are these scientific economists and why haven't we heard of them before (or is this a joke)?

I dont understand you. Even if you dont like the space thing.

Point 1 still stands and justifies "infinite expansion".
If you deny this, you are saying "we reach a level where humanity cant research, improve and innovate anymore". Which is non-sense.

We are currently at the point where finding new fossil fuel energy is so expensive that we won't be able to in fact use it in 50 years (there are plenty of publications to back this up).

To reach another planet is basically so ridiculously hard that we can only hope to perhaps go back to the Moon and maybe send a very few (less than 10) people to Mars in the next 50 years.

That actually won't save the other 8+ billion of us.

So what I really wonder is when the Keynsian trained people are finally going to admit that "infinite expansion" is not possible.

Every single computer programmer or mathematician knows this (it is so simple I could teach it to a child who understand math).

This is why economics is not "science" but instead is a "cult or religion" (i.e. basically just a bunch of crap).

... start drilling for oil there!  ;)

Well - I do hope that the US spends a few trillion dollars looking for oil on the Moon (as that would be money most otherwise likely to be spent on its military).

;)

You seam like to have already found your answer(s). This is my last try communicating with you (on this issue):

They NEVER will. It's part of the model, one general assumption of their whole "theoretical system".

(Last try, won't reply again:)
- Every single computer programmer or mathematician knows every complex software system and technologies can always be improved (through research and science).
- Every single computer programmer or mathematician knows these improvements and optimizations lead to increased (better) efficiency (e.g. in ressource usage).
- Now every single computer programmer or mathematician should be able to realize that this increased efficiency satisfies the assumption of infinite expansion, at least in this theoretical model.

Because as stated above, denying this would mean: we reach a situation, where the mankind isnt able do improvements and optimizations through brainwork (research and science) anymore.



Have a nice day CIYAM, you are a good poster overall.

Probably because you can't understand the underlying mathematics.

One would have to live under the stone to not hear about e.g. Black-Scholes option pricing model.

Clearly you have no clue about economics or Keynsianism. 

Nobody disputes that resources are finite.  Economics tries to explain why things happen in the economy.  Keynes big contribution is the idea of looking at aggregate forces thus the birth of macro

Okay - that at least makes some sense to me - thanks for the patience.

Well the building is actually cement but I guess that's pretty much the same as stone. :)

Existing power structure (goverment/institution) in place operates in a top down manner, of course they will favor and promote any scholars that view the same way.

"I know what I'm talking about despite experts devoting their lives to study subjects that I know nothing about, therefore I am smart and everyone else is dumb"  hmm, I wonder

Fair enough - but it is not that I can't be convinced that economic theory (in particular that of Keynes) is both rational and indeed useful so perhaps if my arrogant tone (which was actually meant to be more tongue in cheek) could be overlooked by someone who understands and would like to enlighten me then I am willing to be enlightened.

Everything has it's opposition...

Do you have specific questions?  Which of Keynes ideas you want to know about?

Yes - specifically I want to understand why "infinite expansion" is necessary to his economic theory (as it doesn't seem to make much sense to me).

One thing you can ask Krugman if you get a chance.  Since QE is suppose to be used for asset purchases (overvalued homes most likely schemes of bankers, real estate investors, and appraisers) or for buying treasuries.  If QE is suppose to help the economy and the poor, why doesn't the federal reserve just write the people a check?

I think Krugman and the Federal Reserve can easily be seen as frauds.

where did you read this? I never heard of it before.  Can you post a link so I can read?

What kind do expansion are you referring to?  Credit expansion or population growth?

They don't have authority to do that.  But Obama did try a small stimulus in the form of a tax rebate I think.

QE happened because they lowered interest to zero and nothing happened, no borrowing.  So they did QE to inject liquidity into banks reserves.  But the theory is flawed because it wasn't lack of liquidity it was lack of borrowers.  They have no tools to force people to borrow

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


Economic growth fundamentally.

I guess if their is a reason to study economics its so people will make logical judgments about what they buy
Assuming they are rational beings of course  ;)
If not then we can just throw out all human rationale into it and say we live in chaos.

As to why their popular, its because some areas of economics are valid so it can't be completely ignored such as in transportation economics with the hotelling model people do operate in a geographical range to get stuff (Like Pizza) even with internet technology.
http://www.tutor2u.net/blog/index.php/economics/comments/game-theory-the-hotelling-model-of-spatial-location

That said I have more irks with econ and super simple models than agreement myself, and the excuse that very complex models are impossible while  we can observe simple models that are probably true is a fundamental basis to making mistakes.

Usually people who get the Economics nobel prizes did very good research in their are of research but they can be very incoherent or keynesian in other areas.
The problem is the correct economic laws are not taught in school.

I read that link and I'm not sure what you asking about Keynes.  He views economics with aggregate demand as the driver.  Because of this, he prioritize employment.  Employment drives GDP rather than GDP driving employment.  His whole thing was that external shocks can send economies spiraling out of control and in those situation only the govt have the to do something. 

Economics has always been politics, not science. From science perspective, since the value is all subjective, there is no standard in anything

This is especially true regarding money and banking, a 10 year old can understand better than economy professors: He would just copy his own money instead of singing IRR, NPV, CPI, GDP, M3, etc... And you see, FED is doing exactly the same thing

"Economic history is a never-ending series of episodes based on falsehoods and lies, not truths.  It represents the path to big money.  The object is to recognize the trend whose premise is false, ride that trend and step off before it is discredited."  ~ George Soros

Just because you don't understand doesn't mean there is no validity to it.  A lot of macro is counterintuitive compared to micro.  Like Quantum Mechanics compared to Newtonian Physics

You mean they invest your interest payment?  The loan is an asset because its your liability

What if you borrowed $1M from Chase and bought a $1M worth of JPM stock?   ;D

Any experience working adult can tell the difference between the truth from bs from someone who spent their entire life in academy setting.

You are correct, the money is created at that point.  Its keystroked into the banks balance sheet as asset and your balance sheet as liability.  But when you deposit into Citi, its then recorded as liability on Citi's balance sheet and asset on your account.

No, forget about the investing part.  That's what is confusing you.

Think of money as a giant ledger (score keeping system).  When money moves from one entity to another it gets recorded as an asset on one balance sheet and a liability on another.  

What is money score keeping?  Its score keeping the actual production on the "real economy".  Because your example is all contained in finance its a bit confusing.

You borrow money from Chase to start a business.  At that moment the money is created (comes into existence).  10 years later your business is booming and you pay back the loan with interest.  At this moment the original money is taken out of existence.  But your productivity remains.  So the economy expanded compared to 10 years ago.

Now replace start a business with start an investment portfolio.  Its still the same structure

Why people study economics
This
If the GDP is Up, Why is America Down?
Why we need new measures of progress, why we do not have them, and how they would change the social and political landscape
It goes pretty in depth to your question of money etc.
http://www.theatlantic.com/past/politics/ecbig/gdp.htm

Simply put As the former World Bank economist Herman Daly puts it, the current national accounting system treats the earth as a business in liquidation.

Parenting becomes child care, visits on the porch become psychiatry and VCRs, the watchful eyes of neighbors become alarm systems and police officers, the kitchen table becomes McDonald's--up and down the line, the things people used to do for and with one another turn into things they have to buy.

Day care adds more than $4 billion to the GDP; VCRs and kindred entertainment gear add almost $60 billion. Politicians generally see this decay
through a well-worn ideological lens: conservatives root for the market, liberals for the government. But in fact these two "sectors" are, in this respect
at least, merely different sides of the same coin: both government and the private market grow by cannibalizing the family and community realms that
ultimately nurture and sustain us.

Your terminology is messed up so your questions don't make sense.

A loan is an asset because it needs to be repayed.  The bank doesn't use the loan to invest or buy stocks.  When they give out a loan the amount is recorded as an asset on their BALANCE SHEET.  The amount of cash on their balance sheet is something else

You may be interested in this thread about Keynsian economics - https://bitcointalk.org/index.php?topic=923471.0 (https://bitcointalk.org/index.php?topic=923471.0)

Everyone who fully understand modern economics will abandon it, they are all here  :D

That's implying that technology won't improve. You are ignoring renewable energy such as sun, wind, geothermal, etc. and nuclear energy (and nuclear fusion).

According to everything I've read all the renewable energy sources we have combined cannot solve the problem to supply the amount of energy needed, nuclear fission very unpopular (so not likely to get greatly expanded) and nuclear fusion has yet to produce more energy than has been spent on trying to achieve it (perhaps if we get *lucky* that might change).

Yeah, in practice. But Keynesian economics is a (strongly abstact) theoretical model.

That is the very crux of the point.

They have a good social position and jobs. Therefore no need to make good predictions and produce useful stuff.

Whilst I don't doubt that wind or solar energy could power the entire world the most fundamental problem is that in order to construct the infrastructure you mention is equivalent to all the energy we actually have available (meaning that we can't do it unless we decide to do nothing else).

This is the point where you actually need "science" not "economics".

Let's hope that does happen before we are all choking to death (my wife and I left Beijing for that reason - if you want to experience how bad the future might be I'd recommend visiting Beijing especially around this time of year).

For a healthy person a couple of weeks isn't likely to hurt you - but living there for years is something that I'd reckon that most western GPs would advise you against doing!

Methane/methanol is the biofuel that could but won't. Storage, transport and adaptation problems are trivial compared to hydrogen. However, although it can be made very cheaply, it can be undercut by fossil sources, so until they are out of the game, bio won't fly. Also, most of the tech required is public domain now not patentable. Also feedstock can be so ridiculously cheap, like brush cuttings, lawn trimmings, waste food, dead leaves, human waste, that no lobby of suppliers is going to push it along either. Anyway, that will be our fuel of last resort, it's just sitting there waiting for other energy sources to get rare or expensive enough.

You know it is funny - this topic has gone way off topic yet I (the creator of the topic) love where it has gone!

Thanks for the great posts guys (I had actually expected to just have it turn into a topic telling me what an arrogant ass I am - which may of course still be true).

:D

Exactly, it's all halo effect from high status due being rich. People pay more attention to rich people, it's scientifically proven.

Well, if you want to go back to discussing economics I have a thought experiment you may want to consider.

Suppose you were one of seventy people stranded on an isolated island out in the middle of the Pacific Ocean and had no means of leaving or communicating with the rest of the world.  You are all going to be stuck there for a few years.  What would be the most efficient and effective way to allocate the island's resources and ensure that goods and services are fairly exchanged between the island's seventy inhabitants?

Well as you started this new twist (and that's perfectly fine) can you give us your idea for how to do that (i.e. how are you going to make the choices)?

To start, I would propose dividing up the island into 70 equal "pie slices" and then designate each sector's owner in some random manner such as drawing numbers from a hat.

I also think that we should have a form of money/currency with a fixed supply.

I think I would propose that we all pool all of our physical fiat coins together, distribute them as evenly as possible and then use that as the island's currency.  I think fiat would work in this situation because no one has access to a mint to inflate the money supply.

For the sake of argument, let's suppose the total value of the coins on the island is $210.00 which comes out to 300 cents per person.  I would propose we start using that as the island's money.

For defense...or to impose your will on the unwilling?  :)

So we do that - now where does the "economics" theory take place?

This would allow the inhabitants to exchange their goods and services with each other fairly.  Some would learn to fish, some would collect rain water, some would farm, some would build dwellings, others would collect firewood.  People on the island would be able to change their "professions" based on the supply of and the demand for the various products and services.

The biggest difference between Austrians and Keynesians is related to the supply of money.  I believe a fixed supply is the only fair way to allocate limited resources.  If the island's inhabitants were to designate a few individuals to be bankers to control the supply of money, then they would be able to create more money, allowing them to consume products and services that others produce and provide while contributing nothing of value to others on the island.

And what happens when people have kids and the population grows?

They would depend on their parents to provide for them until they became self sufficient.

They speaks about actual and past, we are speaking about FUTURE

NO what happens to the fixed money supply.  Because if its not redistributed then the families that have more kids gets diluted.  This creates disincentive to have kids, and therefore danger of endangerment.  If the money gets redistributed then people have incentive to have more kids to get more money but less per person.

Infinite expansion is ridiculous.  But unlimited economic growth is not impossible.  If you understand what economics really is about: satisfying needs and wants.  Economic growth is hence finding ways to improve the satisfaction of needs and wants.  A simple way of obtaining economic growth is for instance, to learn to live happily with less !  Not many economists will consider that "economic growth", but if you think about it, being happy with less is in fact economic growth: the scarcity has been reduced, which is the goal of economics: to make the best choices in the face of scarcity.  If you are perfectly happy with what you have and there's nothing else that could still please you, you've reached in fact an infinite economic growth: scarcity has then been reduced to zero.  Nirvana, or heaven, or whatever.

Just a way to look at things. 

Economic growth is not "more stuff" and certainly not "more of the same".  It is more satisfaction and less frustration.

Then the same amount of money will be able to buy more (deflation).

True, but this differs greatly from what the general public wants, which is more and more, or at least until you hit a certain threshold, with is on average set at about 80K a year. Apparently regarding some studies, people stop caring that much about making money at that point and are comfortable.

Those that are more prosperous (those producing goods/providing services that are low in supply and high in demand) and can afford them will most likely be the ones having kids.

Having more kids is no justification for stealing from someone else.

Indeed, the problem with money creation is the seigniorage.  It is btw what we are all after if we hold bitcoin :-)
Seigniorage is unfair because it is value obtained for nothing (no production, and no investment or risk-taking in any production, no saving).

If you increase the money supply, there is of course seigniorage, and that is paid for by those already holding the money, but who are not allowed to make more of it.  The creators of the money supply tax those that hold the money (and money is always held !).  

Keynes made the fundamental error in thinking that the price of MONEY is the interest rate.  In fact, interest rate is the price of *holding value*.   Keynes' basic idea was that one can get the interest rate lower by increasing the money supply.  
 If you increase the money supply, you create inflation.   It means that to hold the same amount of value, you will need to hold MORE money.  So if the demand for holding value is the same, increasing the money supply to alleviate this won't help, because the inflation will make this correspond to holding MORE money.

You can see this as follows:
Suppose the market wants to hold 1/3 of the money market cap of value Q, and that this leads to an interest rate of 15% say.
Now you want to relieve this.  You print twice as much money (inflation a factor of 2).  Point is, the market cap in VALUE is still Q, but it corresponds to twice as much money.  If the market still wants to hold 1/3 of the market cap Q, this will now correspond to twice the amount of money that was demanded before.  So you've printed twice as much, but the demand is twice as much.  Keynesian printing shouldn't affect interest rates.

In reality that doesn't happen.  Keynesian printing does lower interest rates.  In fact, what happens is that if you start printing, that those wanting to hold value ESCAPE into other assets than your inflating money.  So yes, the DEMAND for money will lower, the interest rates will lower.... and you are inflating the demand for *other* stores of value (houses, dot com stock....).  You won't see this.  You are blowing a bubble somewhere else without noticing.  This initial rising first has positive effects on many indicators.  People start thinking that the economy takes off.   And then the bubble bursts.  And Keynesians are going to print even more to try to erase the damage from the burst bubble.  To blow another one.  And so on.

In the mean time, a lot of seigniorage has been produced, and those that are profiting from it get richer and richer.

In my view, economics is about finding theories or rules about human monetary behaviour. Most of these theories do not work, do not approximate human behaviour, or only applies in specific conditions. But we do need them to give educated guesses in an economy for government budgeting and stimulating growth.

To make me their benevolent King and to have everybody worship me of course.  Utility maximized :-)

Trust me.  I know what you should do. 

 ;)

Human action :)

Fundamentally impossible to know, fundamentally impossible to predict, fundamentally impossible to model.  But we are going to "regulate" it.  Even if we know that we don't know.  What a joke, no ?

Is that you, Obama?  ;)

Then you have problems of monopoly

That leads to hoarding

Better take out the anarchists and libertarians first because they will be the ones coming after your head once you start initiating the use of force.

Also, I'm not sure it could really be considered fiat in this scenario.  No one would be forced to use it, those who didn't want to use it would be free to use some other form of money, or not use money at all.  The biggest drawback to fiat money is that normally a select few can create it while others have to work for it.  That ability doesn't exist in this scenario.

How does a fixed money supply result in monopolies?

The prosperous families accumulate more money leaving the rest with less.  Thats every capitalist system.  But its worse when no new money is introduced.  The kids born into the lower class families start from disadvantaged position

If someone wants to hoard their money, then that should be their prerogative.

Do you really think the hoarder will just let himself starve to death because he doesn't want to give 5 cents to one of the fisherman for a fish?

Deflation leads to hoarding just as much as inflation leads to overspending and getting broke.

If you have 2% inflation, you're not going to waste all your earnings to buy up the whole supermarket today, because tomorrow prices will be 0.01% higher, right ?

In the same way, if you have 2% deflation, you're not going to postpone all your consumption and lead a miserable life, simply because if you wait for tomorrow, things will be 0.01% cheaper.

The idea that if people start hoarding, the money velocity goes down, prices go even more down, and that makes more deflation, until almost all money is held, and none is used to consume, which makes prices go to 0, is the perfect dual of the hyperinflationary spiral where people want to spend all their money immediately and don't want to hold it, velocity of money goes up, prices go even more up, which makes even more inflation until no money is held at all which makes prices go to infinity.

The "deflationary spiral" is the deflation equivalent of hyperinflation.  That only happens when the run-away kicks in, at high levels of deflation or inflation.

With sound money, the intrinsic deflation is normally equal to economic growth.  If the economy grows 5%, then the same amount of money can buy 5% more, so prices have to plummet 5%.

Nobody is afraid of a hyperinflation spiral when the inflation is single digit.  Hell, in the 70ies we even had double digit inflation and there was no runaway.  So there won't be any deflationary spiral either with single-digit deflation.

However, the big, big difference between slight inflation and slight deflation is that a HUGE part of the banking sector becomes unnecessary.  Indeed, a large part of the banking sector has as a purpose to redistribute a small part of the seigniorage of the monetary inflation to the people saving (by giving them a ridiculous real interest rate over inflation) and keeping a lot of it for themselves.
People have to flee into a bank savings account to try to get back something of their savings which should in principle (by non-consumption) have to increase on average in value equal to economic growth.

With sound money, that happens automatically, by just keeping the money.  The non-consumption by keeping the money automatically liberates resources for capital investment.

So what banks do partially in an inflating environment, happens normally and automatically in a deflating environment.  THAT is the reason why the financial sector gets bleak when they see the monster of deflation coming their way: their lucrative seigniorage machine is then broke and they are not necessary anymore.

If lower class families wouldn't make kids, then the next generation would all be made of rich kids !
Social darwinism revisited.

If those poor people absolutely want to reproduce their Malthusian poverty, then it is on their consience that the poverty of their kids will fall.

That's simply brilliant  :D

Sound money !

Those who supply more demands should have more money.  Those with less money have to figure out what products and services those with more money want and then produce or provide them.

No shit, but that's not what I'm pointing out.  In a closed system all exchanges are zero sum.  So over time there will be only one winner.  Its like the game Monopoly. 

We've been talking about this problem for years though. Technology allows production to increase and usage to drop as products become more efficient. Additionally, population growth is finally slowing down.

If a real energy shortage occurs, people will just have to get over their objections to nuclear fission. And we're currently burning off natural gas instead of using it for electricity. We aren't anywhere close to using the earth's entire energy capacity.

A 2002 International Monetary Fund study looked at "consensus forecasts" (the forecasts of large groups of economists) that were made in advance of 60 different national recessions in the 1990s: in 97% of the cases the economists did not predict the contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated their severity.[167]

Why should they pay attention to them? There are mostly manipulators.

Exactly.

Economy is irrelevant if money supply can be manipulated. Money drives economy, not the other way around. Because people have an illusion that money's value is constant, it is this illusion give banks power to direct the economy as they wish

Imagine such a scenario: As soon as every merchant heard that FED is going to increase the money supply by 4 fold, they raise the price of everything by 4 times, then QE will not give economy any help at all, or even worse, destroy the USD

The fact that this scenario did not happen is just because people's illusion that fiat money have a constant value, nothing else

For normal commodity, more supply means lower value. But more money will not affect each dollar's value, since this can be observed by  each individual (especially poor people)

It is interesting to read the "Real bills doctrine" first invented by John Law, it indicated that the money's value is coming from trust, has nothing to do with supply and demand, you can supply as much money as you want if that trust is intact, and then more money means more wealth

Seemed germane to discussion...

http://asia.nikkei.com/Politics-Economy/Economy/Expected-ECB-move-could-create-asset-bubble-UBS-chairman-says

These are two misconceptions.

The first misconception is that an exchange (of anything else but a monetary item) is a zero-sum game.  It isn't.

If I have two apples, and you have two eggs, then my satisfaction is lower with my two apples, and your satisfaction is lower with your two eggs, than if we exchange an apple for an egg.  If we do that, we are motivated to do so because we have a higher degree of satisfaction after the exchange than before.  So *value* (= the amount of satisfaction, or the decrease in amount of frustration) for each of us increased when we traded.

Do not confuse "price" with "value".  Price is the exchange rate.  Value is satisfaction.  Price is the equilibrium where the amount of satisfaction increase for both partners is, in their eyes, equal, in the exchange.

We both had an increase in value, just by exchanging an apple for an egg.  We did this, exactly because of that reason.  So just this exchange already created value.

The second misconception is of course that there is production.  If there is production, there is of course value creation (unless the production is inefficient and generates losses: the stuff you make generates less satisfaction than the stuff you used to make it).  If production is exchanged for other production (the basic capitalistic tenet) there is evidently value increase.

The only place where exchange is a zero-sum game is in the exchange of speculative assets, because these items only carry the speculative value of a price, and have no intrinsic capacity to satisfy needs (have no value of usage or consumption).

The thing is that that illusion only lasts for a relatively small time lapse.  In the mean time, those profiting from the freshly printed money can reap in a lot of seigniorage, because they have more money and the prices didn't increase yet.  While those at the end of the line will suffer and pay all that seigniorage when prices inevitably will start to rise, because of offer and demand.

If a car costs $ 30 000.- and people now have so much cash that they can afford to buy so many cars that the salesman cannot even provide them as the production doesn't follow, he'll finish by rising the prices (and so will the competition).  So nobody is stronger than the market, and in the longer run, printing money will increase prices.  Unavoidably.  Unless that money flees into specific assets where a bubble is blown (that's in fact nothing else but inflation, but concentrated on a few assets instead of on the whole of economy).


For a while.  In the end, it also follows offer and demand.

Umm that's besides the point

Scroll and read what he wrote, then my response.  In the case the money doesn't get redistributed with new members entering the population.  E.g. If the fisherman made more money than everyone else, and then his kids created a fishing empire.  After many generations, they will monopolize the wealth of the island.  (If wealth is measured in money) If the island is a closed ecosystem and no trade comes from the outside eventually you will have class division and ruling clans. Aka monopoly

The exchange rate would be the relation between total amount of goods and services (GDP) divided by money supply.  You are correct that the inhabitants should see deflating prices over time.  But that is not good.  In fact it's terrible for the kids born into poor families as their wages will reflect deflationary prices and eventually you'd have extreme class stratification. 

It's zero sum if the point is to make money in a fixed money supply system. 

The fresh printed money are all backed by assets, they have valuables backing them, and the banks get those money will use them carefully to not trigger inflation, they inject them into something that is not in CPI

If you already have a house and a nice car, and suddenly your salary doubled, would you buy another car just for fun? Same, you won't eat double amount of food because your income doubled, many demand have little elasticity, once it is filled, the extra demand is very weak

Not directly.  What it does, is to inflate the price of the assets that are bought.  The assets bought by the FED or the ECB or another central bank against freshly printed money is nothing else but an extra demand for these assets which is not compensated by a lesser demand for other assets, as it is bought with money that didn't exist before, and hence is not re-allocated to something else.
Normally, a new demand for asset A implies a lesser demand for asset B, so that the overall price level can stay more or less constant if the offer is constant.  If new money can create a demand for asset A without lowering the already existing demand for asset B with existing money, then the price of asset A will rise.

In other words, a central bank buying up assets increases artificially the price of the assets it buys, and is in fact distributing seigniorage to those that were holding already those assets.  If a central bank buys up securities, then the price of those securities is inflated.  If a central bank buys up mortgages, then the price of those mortgages increases.  If a central bank would buy up land (John Law's initial proposal), then the price of land would inflate, and would render rich people who own land (and render poor people who need to buy or use land).  If a central bank would buy up a certain stock, then the price of that stock would be inflated, and owners of that stock would get the seigniorage.  

It takes a while before the people that got the seigniorage start spending it, this is why the modern FED techniques have the inflation effect of their printing policies only work out much later.  In the mean time, those obtaining the seigniorage are well-served and get rich on the back of those not holding the bought-up assets.

In fact, as most securities bought up by the FED are held by banks, it are the banks who profit most from the seigniorage and the inflation of the bought-up securities.  In as much as it are state bonds, the state can debase those bonds by just issuing more of them, and it is the state, and those on who the state will spend those revenues, who will get the seigniorage.  However, these are probably faster in spending their seigniorage into the market, and inflation will follow faster.  The more the FED buys up long-term assets, the later in time they place the corresponding inflation.  As I said, mostly banks profit from that.  Which is not a surprise given that the FED is a bank cartel :-)

So you are right that the FED has learned to inflate stuff that doesn't show directly in the CPI, and the CPI is manipulated in such a way to hide the FED's inflation.

When the FED was just buying state bonds, which was then copiously distributed by the state in public infrastructure, well fare and other stuff, gave rise to almost immediate consumption and hence CPI inflation. 
When the FED started buying other securities, it was rendering banks and investors/speculators rich and was blowing bubbles, but the inflation of the CPI seemed under control.


So if you already have a nice car and your salary is doubled, you don't spend it, you don't do anything with it.  People don't like their salary doubled when they have already a house and a nice car, right.

How can that happen ?  How could fishermen get rich on the back of poor people ?   How could others not decide to get into the lucrative business of fishing ?  That can only if there is an enforcement of a privilege to give the fishing industry to just a few.

In principle, everybody can start fishing.  If it is such a lucrative business that it makes people rich, then it will attract more fishermen, until fishing becomes an activity with a small margin.  First because there will be less fish to fish if everybody starts fishing, and second because the supply of fish will be more than the demand (you can eat 3 fish a day, but not 30 fish a day).

Only if a monopoly to fishing, or quota, or whatever, are granted, the fishing empire remains a closed business.

This has nothing to do with money.

If the fisherman family will hold all of the money, then they can only sell their fish for that money amongst themselves.  The others not having access to that money can then not buy any fish either.  They may then use other means of intermediate exchange amongst themselves, such as shells.  The fishermen sitting on their stash of money which can only buy fish, will then be nothing with their money.  If they want to obtain something else from the others (like coconuts) they better pay them, in their money in as much as others are interested in buying fish from them (the only thing they can obtain with that kind of money) or the fishermen will have to obtain shells, in which they are poor.

You have a mercantilistic idea that holding a stash of monetary asset means being rich.  It doesn't.  It does only in as much as that monetary asset can buy a lot of value.  In your example, the monetary asset will only be able to buy fish.  It will be worth whatever fish is worth.

Not quite.  First of all, the Fed is not a banking cartel.  Second, of course banks should make profit when they act as dealers.  Nothing onerous about this.  Third, the purpose for buying securities is to increase reserves of bank so the money gets injected into economy through lending.  (Although IMO, I think this mechanism is not effective).  How this occurs is the securities move off the banks balance onto the Feds balance sheet.  There's no other way for the Fed to get money into the private sector.  

The other way for money to get into private sector is deficit spending which is another topic.  That has to do with Congress not the Fed.  But the Fed can facilitate budget by monetizing the debt using FOMC.  However, St Louis Fed disagrees that this is their intention behind QE.  The Fed is targeting inflation and unemployment rates.  When they hit their targets they start selling the securities and interest rates go back up

You are asking why some business is in more demand than others? Or some why people have more skill than others?  It doesn't matter how it happens.  I'm making an example to demonstrate a simple economic principle.

I can't show an example from real life because I can't think of when a money supply was capped finitely.

But examples where an closed island economy tend towards class stratification is feudal Japan & England.  And lots of example of monopoly and inequality due to consolidation effects.

As the islands population increase more economic activity is required to sustain the inhabitants.  You get to a stage where there is exponential growth followed by specialization.  So money is required for trade.  Whoever has more money has more purchasing power.  How is this mercantilistic?  They are stuck on an island.  If anything I'm describing Capitalism. 

Also it's not my story.  Some other poster made up this story and said its better to cap the money supply.  I only introduced the idea of a growing population and argued how this leads to monopoly.  Because I think he erroreously only thinking of a static population

Basically I'm arguing for an inflating money supply to meet demands of growing economy.  Basically what we've witnessed in history.  If you wanna argue the opposite it's your burden to find examples

If a business is in more demand than another, that means it creates more value (satisfaction) than any other.  That those that produce more satisfaction, are entitled to obtain more satisfaction, is not unfair in my book.

However, if you produce 5 times more satisfaction than your neighbour, then you're entitled to 5 times more enjoyment too, but this will not lead you to dominate everybody in the long run.  That can only happen through violence, in other words, state intervention.

I tried to show you in your example were your reasoning went wrong.  If a family is made of very skilled fishermen, then they DESERVE to get more, because they bring more.  But their skills will never totally outpace the skills of others, who are free to develop them too.  In as much as only this family would KNOW how to fish, and if fish is what keeps the others from starving, they would be dominant, and *rightly so*. 

However, if others develop fisher skills, or people also eat coconuts, there is absolutely no reason how the fishermen family can "build up an empire and dominate everything".  Yes, they can build up wealth - the wealth the CREATED and hence deserved.  Nothing stops others from creating wealth too.  The fishermen wealth is not at the expense of other people's own wealth creation.  It is only in the case where the fishermen are the *only* ones creating wealth, that they dominate everything else... and rightly so.


That had nothing to do with money, but rather with violence and violent power.

Actually, because during a feudal system, lords were paid in land, and land was finite, you see that the monopoly of power by the king was actually totally undone, and distributed amongst many lords.  But again, feudalism is not an economic system, but a system of violence and war.

It is.  Many people think it is a state institution, but that is not true.  It is a private cartel with state privilege.  Granted, with some state control.


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


Absolutely.  However, the FED buying these assets makes their price increase, because of higher demand.  If a private bank can obtain a higher price for a security because of this, it is getting the seigniorage from that demand which corresponds to the printed amount of money that bought it, and hence increased its demand.


Deficit spending must be financed by state bonds, which are then bought by the FED.

It is more or less the same, except that those profiting from the seigniorage are different, and usually influence faster the CPI than the holders of inflated securities.

I'm not making a moral argument.  I'm making an economic one.  If it makes you happy I agree that skilled people deserve success.

Also my argument has to do with the capped money supply vs growing population.  Then story is for illustrative purposes.

Power and money are intimately connected but that's beside the point.  How did they become lords in the first place?  Not through innovation but from ancestors laying stake to a finite piece of land on an island.  This exactly what would happen if the money supply was capped and distributed to the first generation and not redistributed as population increased

I know, and I showed you where it failed.  A capped money supply doesn't instore any monopoly.  That is a mercantilistic vision.
The point being that there are two possible cases:

1) the fishermen family hoarded most if not all of the money.  This means that they do not spend it on things OTHERS produce (if they would money would get in other people's hands too).  If they do not spend it on things others produce, those others don't get their hands on the money, and they cannot buy fish with the money they don't have.  So the fishermen do not "get rich" on the back of others, who cannot buy their fish and from whom they do not buy anything (or the money gets distributed).  In that case, their money isn't worth anything or not much.
So in as much the fishermen family has most of the money, that money isn't WORTH much.  You can't buy much stuff with it.
And in as much as they buy stuff with it, the money gets redistributed.

2) in as much as the fishermen hold all of THEIR money, and that money doesn't circulate amongst others, and those others don't interact economically with the fishermen, another money may as well emerge, replacing the former money. Then, the fishermen are sitting on a stash of worthless assets.  Maybe shells will emerge as money.  Or coconuts.  Whatever the OTHERS exchange amongst themselves.

Money is only worth what other people want to do for it.  In a free society, there doesn't have to be one kind of money.  If many people don't find any usage for a certain money, they can just as well introduce another kind of money, pushing the former kind of money out of the money market.



By being more violent than others.  By winning battles, and killing their opponents.

The link between money and power is that those having violent power are interested in trading that power for goods and services, and those with money can buy violence with the corrupt violence monopolist.

The power that money can buy is the corruption of the state.

The Fed is neither pubic nor private.  It was law enacted by Congress.  The chairman is appointed by POTUS and confirmed by Senate.  It has a board of governors of member private banks and they own stock but its required for membership.  They can't sell the stock but they receive a 6% dividend.  All its profits goes to the Treasury.  Describing it as a banking cartel is incorrect.

I agree that if the Fed buys an asset the price increases.  Any large buys whether from a large funds or the Fed will make price increase.  But so what?  You are trying to make it sound like there is some conspiracy when the truth is much more simple.

You may not like it but as a system it's better than what we had before.  You have to go back in history to understand the development.

Btw, there are some private central banks like BoJ, whose shares is publicly traded

LOL now you are making my point for me.  Yes if consolidation/ monopoly happens the entire economy is at risk because of excessive inequality you have imbalance of consumers to goods produced so you have deflationary spiral.  This is pretty much a Keynesian point of view  ;D

My point is if you start 1000 people on an island and distribute a capped supply of money equally and you never redistribute the wealth either through taxation or some other mechanism.  Over time as population grows you get consolidation and monopoly some products (like protein) would be more valuable or some people are better entrepreneurs.  It is not possible to avoid unless you have a some type of system that keeps redistributing the wealth.  

Im not saying the peasants can't take armed revolution against the fisherman clan and instill a coconut currency.  What I'm saying is that if the money supply is capped it will always lead back to this problem.

I don't why you keep saying mercantilism.  My story has no state and no outside territories.  I'm describing lassiez faire capitalism

No lords didn't become lords because they were violent.  They had hereditary land and practiced usury.  They used the rents to hire private militaries. But the origin of the land probably did come from a warlord.  But in feudal period politics and business has as much to with power as violence.  Still applies today.  It's all interconnected.  You can't deny the relation of wealth and power.

Because those private banks have nothing to say in the FED policy or are not aware before any others what will be the next policy move ? 
Why would private banks be members if they:
1) have no influence on policy
2) have no knowledge before others of the policy
3) cannot keep the 6% dividend because they have to hand it over to the treasury ?

Why would they on earth be members if there's nothing in for them ?


No, it is not a conspiracy.  If by buying an asset, the price of that asset increases, then all holders of that asset profit from the increase, which is nothing else but the seigniorage.  Now who is holding the stuff the FED buys ?  So who is getting the seigniorage ?

The increase of the price of the bought assets IS price inflation, but it is concentrated on the bought assets initially.  It will diffuse through the economy at the pace that the owners of the assets who profited from the FED's printing (and hence price increase) convert their assets into other things.  If they don't, the asset in question will undergo a bubble.  That is what has happened now already a few times. 

You cannot get around the fact that printing money is causing seigniorage somewhere, and when that seigniorage is 'taken up' by those profiting from it by turning it into goods and services, it causes general price inflation.  But that takes time.

By the time that the CPI is affected, the policy that was at the origin of it is long forgotten.

No.  I started with your assumption that the fishermen would hold all the money, and showed that this led to absurdities, or to the fishermen losing the value of their money.  

But of course my point is that the fishermen will not have a huge stash of money, and that the money will be distributed according to production of wealth.

Of course the fishermen will have more wealth, simply because they produced more wealth, and that will probably lead them to keep a larger amount of value stored in money than others.   But there is no runaway in principle.  Why should there be any runaway ?

Anybody who produces value will get money.  Newcomers just as well as oldtimers.  


Monopoly can only happen if it is imposed by a violent agent such as a state, that has distributed privileges to some.

Better entrepreneurs will of course earn more, and maybe keep more value stored, but only to the amount that they are better.  If newcomers are better entrepreneurs than oldtimers, the newcomers will accumulate more wealth (in as much as they put aside part of their earnings) than the oldtimers.  I don't see what the money supply has to do with that.  

After all, if the oldtimers are producing less value, they will have to spend more money than they can earn, and will have to use their stash to keep a certain standard of living.  


There's nothing armed here.  You can have many currencies.  Its value depends on what you accept as currency against your production.   You don't have to impose anything with weapons.  If you say to the fisherman: I don't accept your money for my coconuts, you have to pay me in shells, then that's it :-)

You are still obsessed with a state-imposed "currency".  People decide by themselves what they want to accept as a currency in a free society.


Well, you are considering two groups: the "fishermen" and "the others".   As long as there isn't any violence, the division of economic agents in groups is similar to having different states.  Mercantilism is the stupid idea that accumulation of MONEY in a group is accumulating wealth in that group.  It isn't, simply because money is only wealth when you GET goods and services for them.
If you have produced a lot of goods and services, and you accumulated a lot of money, then it are *the others* that have had a good live and a lot of wealth.  And you are simply sitting on a stash of stuff that is going to be worth whatever the others are going to be willing to do for it, which may very well be nothing, if they use now another monetary asset !


I do not deny the relationship between wealth and power.  Wealth can buy violence, which is power.

Let us think for a moment about that.  How could the fisherman rake in 99% of the money ?

Imagine that everybody, except the fishermen, are putting all of their monetary possessions in circulation (otherwise it is already impossible to rake in 99% of the money).
Now, in order for the fishermen to obtain 1% of all the money, they have to produce *net* 1% of the entire economic value (net, that is, what they produce, minus what they consume).
In order to obtain the second 1% of all the money, due to deflation, they have to produce *net* 1/99 of the entire economic value.
In order to obtain the third 1% of all the money, they have to produce *net* 1/98 of the entire economic value.

And so on.

In order to obtain 99% of all the money, they have hence to produce net:
(1/100 + 1/99 + 1/98 + 1/97 ... + 1/2 + 1/1) of all the produced value of all the others.  This sum is even not right because between 2% of the money in circulation, and 1% of the money in circulation there will be deflation too.

But nevertheless, the sum is about 5.2.  It means that the fishermen, by themselves, have NET produced 5.2 times all of the economic value that all the others have ever produced and consumed.  So you might even think that to be honest they should have 520 % of all the money :-) but they only have 99% of the money.

Imagine this:

Joe, Bill, Jack, and Alice each have 25 Klonks (unit of money).

If Joe does something for Bill that Bill pays with all of its money, then Joe will now have 50 Klonks.  If Joe does something for Jack that Jacks pays with all of his money, then Joe will end up having 75 Klonks.  If Joe does something for Alice that she pays with all of her money, then Joe will end up 100% of all the money.

That's normal, because Joe has been doing EVERYTHING !  If you like the "debt" wording of money: Joe has now all the IOU because indeed, everybody owes him stuff, and he owes nobody anything.

Would you find it normal that after Joe has done everything, that people can still again ask Joe to do stuff ?  Isn't it normal that Joe can now profit from the others without any return ?  So it is normal that Joe has all the money in a sense.  The "economy is not broken". Joe has just been giving a lot !

So on the "morality side" there's no problem for Joe to hold all the money.
In the same way, there's no problem for the fishermen to hold 99% of all the money if they have done NET 5 times more than all the others together.


However, money is NOT an IOU.  Money is speculative.  So the fishermen have a big problem.  They have by themselves produced net 5 times more than the entire economy.  They have been giving to the others more than 5 times the entire economy.  They obtained against that 99% of the money stash (which, when spent again, will buy them of course 5 times the economy).

1% of that money is still circulating (or is hoarded by others, who knows !).

If the others put into circulation another monetary item, then our fishermen may just as well be sitting on a stash of assets which isn't buying anything anymore !

There is a lot of Gold buying because the Euro is going down and the US is having a fake recovery.

There is a difference between buying something on market and issuing money. When you buy assets on market, you raise the price of those assets immediately. When you issue money backed by your assets, the assets' market price is not affected directly

For example, I have one ounce of gold, I issue 1200 dollars backed by this ounce of gold based on its market value, anyone get my money can exchange them for gold from me any time. But this activity does not affect gold's price, since majority of those money will flow into the economy instead of buying gold, as long as people's trust of my money is intact

The same goes for any kind of collateral: Unless the new money want to exchange for the collateral itself, the price of the collateral will not be affected by added money supply

So even FED officially say that they are buying MBS, what actually happened is that they issue money backed by MBS's current market value or even with a discount, and commercial banks gave those MBS to FED in exchange for money. As long as FED do not sell them, and no one is buying those MBS, the housing price will not be affected, but the liquidity problem is solved

And when banks get new money, they will never buy those MBS from FED, they just send the money oversea to buy something else valuable, for example oil. And next time they will buy something else, and so on... So there will not be inflation no matter how much money is created, as long as those money are all backed by assets

This was the original idea of John Law, his money was backed by the value of his Mississippi Company (which owns large amount of land around the world). Unfortunately, those money were used to purchase the stock of Mississippi company and pumped that company's value into a bubble. Then he could issue more money to support the stock price because the company worth a lot more later, but when people discovered that his company's land did not worth that much, the trust of the value of the company's stock (land in fact) lost. So many of the money turned to him in exchange for gold coins, then the plan blew up

But in modern monetary system, there is no risk for such bank run, the loop has closed. When the asset that back the money's value is crashing, thus make the money lose their backing, the money can only be used to purchase anything on market, thus create an inflation



For normal people they will just save all the extra money if there is no more intereting thing worth spending. It does not hurt to have one billion dollar in savings, and a large reserve will definitely change many aspects of the life

It is interesting to read your discussions here, it seems you really have some own insights into the economics

I have several questions that have been bothering me for decades, maybe we can have a discussion here:

1. Who get the ownership of every newly created fiat money?

2. We all know that value is decided by supply and demand, but is money's value really decided by supply and demand?

Please share your thoughts :)

From my limited understanding that would be from banks (in the form of something like a housing loan) or the government state (they are in charge of the printing press so there is no real way to stop them from printing it for themselves if they want to apart from something like a revolution).


What you call money today could become far less useful as that in the future if its supply has become drastically restricted (this doesn't really apply the same to Bitcoin due to its divisibility). What would normally happen then is that people would turn to something else to take place of the less useful money.

If we were using gold and the vast majority of gold was taken out of supply (by hoarding or by it being dropped to the bottom of the ocean) then people would turn to something else (such as silver - but again this doesn't apply very well to Bitcoin so I wouldn't be expecting to get rich from holding Litecoin for a very long time).

The US Treasury sells bonds to the Fed (through commercial banks) that are paid for with newly created fiat. Commercial banks lend money into existence and the UST uses it to fund government programs.


Gold serves only as a store of value. The physical amount of gold does not matter; it is a finite resource.

Fictitious numbers as an example:

1 candy bar = $0.10 USD in 1900
1 candy bar = $1 USD in 2000

Value of $1 USD in 2000 is 1/10th of what it used to be in 1900.

1 bar of gold = $100 USD in 1900
1 bar of gold = $1000 USD in 2000

Value of 1 bar of gold in 2000 is 10 times what it was in 1900

By placing your 1900s dollars in gold, you mitigated the loss of purchasing power over 100 years had you only bought candy bars with your money. Effectively, you can now take your $1000 dollars in 2000 and purchase $1 candy bars at the same purchasing power Charlie Chaplin enjoyed.

A: Because Austrains are the only economic model that improves the lives of the poor, if they get off their backside, and limits the rich people ability to become rich by doing little.

Do you exist in the state of water?

No it won't. Even if you did collect data then use any statistical model, it is useless. The economy is based on subjective behaviour of the consumers and consumers are fickle, changing their mind, dithering whether to buy, die......so any data becomes out of date within 5 seconds or less.

There is another way of explaining the above when trying to increase employment figures in order to reduce 'unemployment.' Husband works in the private sector and earned £30,000 and paid a total of £18,000 in taxes. £15,000 of that is used to create a useless public sector job. Wife does that useless job under the banner of feminism and right to work. The wife is happy to be working and earning £15,000. This is what 99% of the idiots on earth sees. What I see is the wife is a moron for working in order to get back £15,000 out of £18,000 that was stolen from her husband. She would be better telling the government to stop stealing and use her time and energy running a small business, looking after her kiddies properly and the whole family would be better off. If she has the same skills as her husband, she can always share her husband's job.

With 70 people on an island............there is no need to build an economy. Just work together and make the the most intelligent and wise person the chief of the tribe.

I am not against keynesian on the fact that infinite growth is impossible.
Just on the fact that I don't want to let someone decide whether my money is worth something, nor being forced to consume and invest.
I don't believe "it is in your own good" bullshit, because it it not. People are better informed about how to spend money for solving their own problem than a central planner.

But I believe that growth is infinite. Maybe it will not grow as fast as the Keynesian system want, but I don't agree with the "there is limited resource so it will stop" argument.

Humanity always expanded, we have more and more goods, we can feed more and more people.
At no point of history we were so materially rich nor numerous, why would it stop now ?

People seems to forget that "Oil" did not existed before the human mind learned to harness its power, as much as uranium.
If we have no "Oil" left, then we will find other sources.
Human knowledge is the source of our abundance, natural resources are only a mean that will vary over time.

Any discovery permits humans to make more with less or with something else, and as long as we don't stop innovation it will continue on the same way. (throwing dollars to the problem don't make a mind more productive, getting rid of the chains is)

"What happen when there will be no oil left" ? well, oil will be very expensive, making the economy shift to alternative. (that already exist but are currently economically not profitable)
"What when there will not be enough space" ? well, except if you live in small country like japan, you know that it is not going to happen anytime soon. (and even japanese are very creative for stacking anything to gain more room)
"What happen when there will be not enough food" ? well, better techniques of breeding and agriculture will be created, or regulations that artificially stifles the production will be relaxed. (sterile seeds and quotas)

Human mind is the source of all this abundance, and as knowledge is exponential, this growth will continue, not as fast as keynesian would expect though, as we are starting to see.

Ha ha, we went through this argument (about not begin able to step into the same river twice) about 2000 years ago. I actually had to consult the Wikipedia, it was 2500 years ago. http://en.wikipedia.org/wiki/Heraclitus

Both philosophy and science made significant progress since then.

I'll now repeat what I've said before: an admiration for the founders and faculty of my Alma Mater who forced on us 2 semesters of general philosophy and 1 semester of philosophy of science. It seemed so useless then, when I was young. Now that I'm older I can just laugh out at the naives getting snared into the bazaar sophistry. This type of argumentation must have been ancient Greek bazaar equivalent of the three-card-monte of the modern swap-meet.

Next time I'm going to visit my Alma Mater I'll propose adding one more semester of "philosophizing for profit (with fun optional)". This should teach the future graduates how to profitably exploit the knowledge that e.g. quantum mechanics is both demonstrably false and fruitful area of scientific research. With Bitcoin as a bait it will be as easy as shooting fish in a barrel.

The resource has been occupied, that's the main problem now

Imagine on an island that have only 100 people, where all of them is extremely productive and occupied all of the island, what should their children do? They don't need to work, since their parents already can produce everything they need. They could only consume until there is nothing to consume, which might never happen due to their parents' improving productivity

Or another extreme, in a world that most of the worker has been replaced by robots, how could people get their income?

No need to imagine, I think we are not far from this.
their parent are not here forever. Also the resources needed of the old technology would finish to be depleted (=become too costly), making it a need for the children to find substitutes and innovate.
A robot can only do manual tasks, they are not the one that know how to pivot once market condition is changing (either on supply, like depletion, or demand part), and they don't know how to innovate, they can't maintain themselves.
The robot can't adapt. If the world would be fixed, demand and supply predictable then it would be possible to have a "robot only, no workers" economy.
But this can't happen when human are constantly changing the supply and demand by creating new technology, and depleting old resources, making old technology unprofitable.
And technology is only one unpredictable part of the equation that impact supply and demand. Geo-political condition is another, and I'm sure there are other variables.

You can think "when IA is developed enough, it will adapt and be self sustainable", but this happens only in sci fiction.

In summary, I don't believe in neither "we can't continue to grow because no resource is left", nor "nobody will have to work". The unpredictability of supply and demand, because of multiple variable, will always need humans to adapt.
I am not keynesian, but I won't deny them the "increasing growth" part.

It is this thinking that somehow we'll work out a way that has led to climate change and cities like Beijing now being literally dangerous places to live in if you happen to breath air (seriously check the air quality readings).

But sure - let's just keep on building more and more and consuming more and more because "we're confident it'll all work out without even needing anything more but a belief in just that" (despite the very vast majority of scientists telling us all the time it won't without now drastic action).

Been in Beijing, it is horrible. This is the only city I have seen like that (with maybe mexico ?). Tokyo for example is clean.
Taking this marginal case and extrapolating is not right. Also, I believe that city concentration will slow down due to most knowledge job that can be done at home. (country side will become repopulated, because if the polution of concentrated area is a problem the loss of health will make people move somewhere else)

Leveraging fears to get their own ways, so it would justify Big Brother taking control of our well being.
That aside, not all scientist agrees on this problem, only the mainstream one.

If I was a factory owner I would not acknowledge a bureaucrate restriction on the basis on "experts said you were harmful to society", especially when those experts are paid by the one in power. (But this is another debate, unrelated to keynesians)

How can you say "I actually think it is rather funny that we have people that are awarded Nobel prizes and given high status at universities (and in governments) when their pseudo-science is really no different to a cult or a religion." ?
While supporting nobel prize climate scientists that are of the same essence. (financed by those in power, and producing nothing that is proved to improve someone life)

I find that quite a stretch and think you should back that up with some very hard evidence as the *vast majority* of scientists in the world are in agreement that we have huge problems that we have created ourselves due to our lifestyle (no matter how some people want to spin things).

Also which Nobel prize laureates are you referring to specifically (and saying that I supported any of them is a bit odd as I didn't name any - did I)?

If you think Beijing is just one overly extreme example then try living in most other major cities in China also (whilst Shenzhen was a lot better it still ain't clean and where I live now isn't much better either).

They are switching on new coal fired power plants virtually every day of the year in China - how can things possibly not get worse in every city anywhere near them?

Also the city I was born and grew up in (Melbourne, Australia) has had to implement severe water restrictions for nearly 20 years now (even if they have managed air pollution much better than cities in China which is mostly because the coal fired power plants in Victoria are a long way away from the city and they have created very few new power plants in the last 30 years there).

The difference between religion and science can be illustrated with the blockchain.
The majority can tell me that 1239493875398798367e3ce64898e6d1d1b50997287f8da053eed7e0c2f523e1 is the block 340303, I can still prove it is wrong.

You can tell me that climate is going worse ? I can't proove nor disproove it, so it is religion.
I can still point out dissenters, but I will not able to proove them right. http://en.wikipedia.org/wiki/Global_warming_controversy (http://en.wikipedia.org/wiki/Global_warming_controversy)
And as soon as we start debating if X or Y is more legitimate, instead of pointing out the flaws in their messages, we are in religion, not science.

If there is controversy at all, it is that some people do not suffer from global warming but are still forced to pay for it.
If it was an uncontroversial problem, the private sector would finance it, not the taxpayer.

If some people (beijing) suffer about it, it does not justify a policy change with governmental intervention in my city several thousand miles farther.
These cities are polluted because of local reasons, not global one.

Saying : "growth will stop in the world because Beijing can't become more polluated than what it currently is" is wrong. We are not all producing coal, and we are not all living in such concentrated cities.
And, most country, except small country like japan that lack of space, have way more room to expand. (despite space restriction, Tokyo is not very polluted)

Global warning is a false problem that only justify big brother intervention.
So I don't consider global warning as valid reason to dismiss keynesian theory.

And even if there is global warning, a Keynesian will tell you that by printing money, we can finance alternative technology that have less impact on the planet.
(My response : there would be no need for financing by printing money, if it was a real problem in the first place)

And this is exactly why I felt that I needed to create this topic.

:(

Finally - a voice of reason. :)

This is right, and they are (of course) correct in that.

Now, you can argue, they are visibly wrong in that, because there is a lot of economic modeling going on, and there is a lot of econometry, and although that doesn't always work out, it does give some right information.

The point is: this can work maybe in the short term.  Economic activity can probably be modeled in the short term, by some or other Kalman-type filter on past time series.  If you take as input sufficiently relevant time series of macro-economic parameters, you may be able to have some model that will extrapolate small perturbations in the near future.

However, such models will allways end up failing in the longer term, and the reason is exactly that given by the Austrians: "human action".

The problem with any economic model is that it is the result of many human decisions, and that those human decisions not only change according to the whims of people (that could potentially still be modeled), but also because these humans themselves LEARN and use the economic happenings and to modify their behavior to their perceived advantage.

For instance, the first time you print money, the economy will react in a specific way.  That will be to the advantage of some and to the disadvantage of others.  Next time, the economy will not react the same way anymore.  People will have learned from the first time.  People will anticipate you printing money, and will take *different actions*, and as such, the economic dynamics will have changed.

In other words, the economic dynamics is not time-invariant, because there is this learning function.  And the states also have learning functions.  if the first time they react to a crisis in a specific way, and that doesn't bring in the hoped-for results (on electoral or economic side), next time that state (which is part of the economic dynamics) will do something else.

So: same situation, different response.  By definition, that cannot be modeled.  Because a mathematical model gives you the same response to the same input.

Human action, which includes learning, makes that economy is *in principle* not following a mathematical model.  Because it is not time invariant.
And because people learn.

Who are "we" ?
If I don't consider it to be a problem should I be forced to pay for it ?
If you think I should, then printing money is a freaking great idea ! It is the best way to force society to pay for something, without any political consequences.
And it would help to finance alternatives energy sources, and scientist nobody wants to pay for now, a good thing !

Well... no. Such alternatives will be financed anyway when current resources will be depleted, and the global warming will be felt, without the need of the central banker.
If it becomes a real problem, given the alternative to build a solar panel at low cost and paying fuel that became very costly (either because of pressure done by the local population or because of depletion), I will build a solar panel, even if I don't care about global warming.

It is a bit like the people who thought that the Titanic could not be sunk - one section too much and look what happened (and how quickly).

This is exactly what is happening with the earth (but it is always the economists that say it is "unsinkable").

By the time you have built your solar panel - it will be too late (i.e. "wake up").

The gov will start taxing on your solar panel generated energy.

I do think this is the problem - those who support the non-scientific "pseudo-science" of economics would rather see us all asphyxiate in pollution than admit there is anything wrong with their theories.
 

And so I. Which is why I'd like they learn to judge with their own brain and eyes, and not believe what they are told blindlessly.

No doubt about that, but despite the tax, the fuel will become more costly than a solar panel.

So what is not mainstream is considered "pseudo-science", while the rest is science... The "hockey stick" is definitely a piece of science. (http://en.wikipedia.org/wiki/Hockey_stick_controversy (http://en.wikipedia.org/wiki/Hockey_stick_controversy))
Global warming is not science, nor economic.

When you have no way to proove or disprove, you are not dealing in science.

You know the response to your own question : why do you pay attention to people that study "global warming"?
I am an austrian not a keynesian, but would not consider any of them science. And can't point any incoherence in the keynesian model. I am only arguing the violation of property that it morally justifies.

Strawman arguments.  Economics isn't a pseudo science or a hard science - it's a social science.

Economics don't a have theory about pollution.  What an economist can do is do cost analysis of renovating or updating coal burning plants vs cost of healthcare or some other associated costs and present the study to policy makers.  Then policy makers decide about legislation.

Not only you are ignorant about economics,  it appears you are ignorant about politics as well

You can put ten economists in a room and they can come up with ten different answers, I won't really trust economists.

Austrians use a logical deduction called "praxeology" which is more suited to trolling or soapboxing

Keynesians tend to build models to explain collected empirical data, so it's more suited to academics

Accurate for what?  That's not even the appropriate question.  The question is:  given something complex like the economy how does one seek better understanding of it.

By collecting empirical data and trying create mathematical models to back test against the data?

Or by logical deduction aka praxing aka philosophizing?

You seem to be awfully sure of how ignorant I am - but that is okay as I know that your type just care about "winning arguments" rather than actually "doing anything useful to help the world".

So enjoy "winning your argument" and convincing everyone that they should just shut up and let the politicians and economists save us (because we all know what a great job they are doing).

:)

I say that because you make assumptions that are ignorant. 

1 you assume that economists are supposed to solve problems that are better solved by politicians or scientists or businessmen.

2 you assume that economists and politicians are not aware of these problems

3 you assume I'm trying to win arguments, when I am merely responding to your inquiries. 

Basically, all your saying is, "there are problems, therefore economists suck because those problems aren't being solved".  It tells me you haven't a clue what economics is about.  It's just your ignorance about the field. You did ask someone to Call you out, so I am.

I didn't say you were stupid or anything so don't get mad.  Just do some more research and enlighten yourself.  Or don't and stay ignorant.  I don't care either way

That is close to what the point of this (perhaps ultimately pointless) topic was.

What was perhaps implied rather than explicitly stated is that the "constant message" that is being broadcast by the general media (IMO) is that the world's most serious problems don't need fixing because the economic experts (which the politicians love to quote) have this all "under control" (or even worse that there simply is no problem).

So "why are we even asking the economists?" is in fact *exactly* what I was meaning (and by "we" I am really meaning those that are giving us the messages not literally "we" as I am pretty sure that most of us know that given any set of X economists you'll get X different predictions).

And @twiifm I am not mad at you (you'd have to do a lot better than say that I am ignorant).

Can you be more specific?  Which politician is consulted by which economist on which issue?

I don't follow air pollution issue but that sounds more the field of climate scientists

And on what kind of logical deduction is that theorem based ?

Just for your information (from wiki):


Now, give me a logical deduction, starting from the above given, that this "is more suited to trolling or soapboarding".
Use Keynesian logic if you want to :-)

Politicians are forever talking about statistics and the economy so virtually any interview with any politician where they mention anything about the economy should suffice as an example (and they often put forward economic "excuses" as to why climate change is something we can't afford to do anything about now).

But let's get to what riles me most - here is a well known publicly made statement from the current Australian PM (it was made before he was PM but he was leader of the opposition at that point in time).

"Climate change is crap." (Tony Abbot)

It is not surprising that even America (which has dragged its feet on doing anything much to address the issue of climate change) is now finding Australia's complete lack of political will and funding to be of concern (which has been recently been brought up).

It is an assumption that there can be a mathematical model underlying economics of course.  You have to be aware of that.
In fact, you find the same in theoretical physics.  There is an assumption that nature can be described by a mathematical model.  That assumption is not empty, and evident.  It is an axiom, that could very well be proven wrong.  However, in theoretical physics, down to a certain level at least, one finds empirically that mathematical modeling works very well.

Now, the Austrian school maintains that this axiom is not valid for economy in the long run.  Most other economists claim the opposite.  However, contrary to theoretical physicists, they have never come up with a WORKING mathematical model in the long run.  In the short run, they have.  In backfitting data, they have some success.  But in actually making predictions, economic modeling is - to say the least - much less successfull than physics in, say, predicting the next solar eclipse.

The answer is that the system is too complex.  Right.  The answer can also be that the Austrians are right of course.

There are other human endevours which are obviously not apt at being modeled mathematically.  For instance, the plot of the first movie that will come out in the theaters in 2028.  That plot is unpredictable by any means using mathematical models.

I'm not talking about determinism.  There's not even a stochastic model that could describe the ensemble of plots of the movie that will come out in the theaters in 2018.  The best one could do is to make a statistical description of past plots.  But nobody knows if that statistical description will be valid for movies in 2028.  

Nobody will find it ridiculous that there is no such mathematical model, and that it cannot be found.  In fact, rather the other way around: people proposing to model this will rather be considered crazy.

With economy, however, the axiom that economic activity in the long run is following a mathematical model is an axiom taken for granted.

The people know and feel what is happening in the economy but they have learned lies about the positive that come from governement intervention and the minimal wage.

So basically the Liberal party in Australia have often used the argument that "it will hurt our economy" to actually do anything to properly address climate change (and I am sure they are not the only political party in the world pushing that message).

The statistics that they quote are normally sourced from reports that are created by Treasury (when they are in power) or by economic forecasting organisations (when they are not in power - but without really anything much in the way of scientific input either way).

So - if the economists are never going to take climate change into account (as that should be up to climate change scientists) and the politicians just focus on using reports whose main input comes from the economists then I think you can begin to see why we might have a problem.

Oh - and I am not a Labor party supporter (for any Aussies wondering).

But climate change IS an economic problem.  It is not an ecological problem.  After all, climate has changed a lot in the past hundreds of millions of years.  The change brought by the (probable) meteor impact that killed the dinosaurs 65 million years ago was probably much more "devastating" than putting back in the atmosphere the CO2 that has been extracted from it and put into geological layers (also called fossil fuels).  It might be that our species, and a lot of mammals, will disappear.  But that's not an ecological problem, no more than the extinction of the dinosaurs.  Something else will come after that.  In the very very worst case.

The main problem with climate change is that it may affect production (of food, of drinking water, and of French wine) 50 - 100 years from now.  That's an economic problem - potentially.

So the main difficulty is to find out what cost that will be 50 or 100 years from now, and what costs we should make now to avoid or diminish those costs 50 or 100 years from now.

And we're back to the Austrians: it is simply impossible to model the economy 50 - 100 years from now, and hence it is totally impossible to estimate the economic costs by (difficult-to-calculate regionally) climate change 50 - 100 years from now.

We have a difficult (but possible) scientific problem (climate change) of which we have to calculate the impact on a totally impossible to do prediction of the economy.  Just as well say that it is total guesswork. 

Think of how people would have estimated the economic situation today, somewhere between the first and the second world war, and how accurate they would have been back then in estimating the cost of any climate change today, when in the thirties.

Simply ridiculous.

In the thirties, people could calculate where the moon was going to be today.  In the thirties, people could calculate the solar eclipses of this century.  But they could not, in any far cry, predict the general state of the economy, and its dependence on climate, back then.

And we can't for within 50 - 100 years either.

Sure - so let's say it is like we are driving a car down a winding mountain road and our brakes have failed (and that we have poor visibility so no way to know how far we have to get to the bottom of the mountain).

We have been told by the smart guy in the back seat that we can slow the car down by using the gears but then the guy next to him says - sure but if we do that we are likely to hurt the vehicle and for all we know we are already nearly at the bottom of the mountain anyway. So the driver says a prayer and just keeps going without trying to use the gears to slow the vehicle.

It seems to me that the second guy is a bit like the modern economist, the driver is the political leader and the vehicle is the economy.

Having someone to blame when we go off the side of a cliff really isn't much of a concern when you only have seconds to live and bear in mind even if we ruin the vehicle if we are still in good health then we can just get out an walk.

This is a nice start of an analogy, but there's a flaw in it: there's no cost in your story for using the gear braking.

Now let us change the story as follows: similar situation but:
they are actually trying to escape an avalanche, so that's why they are going fast.  They want to avoid being crushed by the avalanche.
The guy in the back says that given that the brakes don't work, we have to put small gear, so as to go slower, in case there is a sharp turn.  The guy next to him says that if we slow down, the avalanche will probably hit us, and that we don't know if a sharp turn is ahead.

So what do you do now ?

Smart guy in the back seat has been carefully watching out the back window every few seconds to gauge the speed at which the avalanche is advancing and calculates that we can certainly put the car into 3rd gear without risking it hitting us (he also knows that putting the car into 3rd gear at our current speed won't destroy the vehicle and that we can always put it into neutral in the unlikely event that we we do ruin the gear box as a last resort).

Now maybe 3rd gear won't save us from going off the edge but it is certainly better than not doing anything (the other guy in the back seat doesn't have any better suggestion than just keep going as he wasn't paying attention to the speed of the avalanche and actually has no idea at what speed the gears are safe to engage as he never learned much about cars).

This is exactly knowing the economic future :-)  Which is exactly what is contested.

The avalanche is the effect of the economy slowing down and hitting people also (like triggering wars, famine, and so on), the potential sharp turn is the effect of the climate change on the economy.

I think that just because scientists can't add unknown variables into their predictions (i.e. future technologies or some major earth changing event that simply couldn't have been predicted) doesn't mean we should sit and wait with our collective "fingers crossed".

There are very clear steps that we can take now which also can allow for changes down the track should new things give us a new direction.

The smart guy in the back seat is the "scientist" and in my opinion is he is the one you should be listening to (I'd be advising the other guy to shut up and put on his seat belt).

The economy slows down in the usa or europe but is growing in asia or africa. The US and Europe is having the burden of an overweight government.

QE is a new invention first attempted by BoJ back in 2001.  There's data we can look at.

Austrians usually argue for quantity theory of money.  Saying that if you increase supply then you get inflation.  This is wrong as we can see from data.

New Keynesians (who aren't considered to be descendant of Keynes original spirit) believe that injection of money supply would alleviate liquidity trap.  This is not exactly right either because they erroneously believe in exogenous money.

Most accurate would be Post Keynesians (more in spirit to Keynes), who thought QE wouldn't have significant impact on AD or inflation but it would be thethe right tool backstop a recessionary spiral into becoming a Depression.  Keynes, himself would have adopted more stimulus spending.  But we don't know if that works because it wasn't attempted.

Recently Japan did attempt QE plus stimulus plus structural reform.  It was working a little but when they raised the VAT, the AD took a nose dive and they went back in recession.


http://research.stlouisfed.org/publications/es/article/10024

I think Keynesian vs Austrian debate is only because of popularity of young libertarians found on the internet.  Nobody in economics takes Austrian economics seriously.  It's really on the fringe and usually coupled with some heavy political dogma.  It's  the new radical right.

New Keynesian like Krugman represent the liberal left.  Most mainstream economists are probably neoclassical liberals.

On the great lines, the two starting points of Austrian and Keynesian is nicely summarized by the people that are talking about it in the thread.


This is austrian perspective, in short, no exchange of free will can be considered as fraud because the evaluation is made by the individual at the time of the exchange.
If I accept you give me one pencil against my ounce of gold, the exchange is fair because I valued your pencil more than the gold, and you otherwise.
In this philosophy, every exchange produces wealth. This is called "the subjective theory of value".

It explain nicely why it is rational to pay any price to buy water in the desert when you are thrusty.

Then another one disagrees :
This person thinks that an exchange only transfers wealth but do not create it. If you believe that, then your conclusion will reach Keynes's one.
The question is how do you define the value ? This kind of reasoning means it is okay for a third party, to evaluate in the behalf of the two persons.
It also make it okay for this third party to "regulate" what the value is in order to "protect the weak". In their mind they are only controlling wealth transfer with an egalitarian perspective, and think the "wealth creation" is always the work of the industry.

If you believe in the austrian perspective, you will think that any third party attempting to regulate the value of something by force (tariff, taxes, quota, subsidies) is "wealth destruction".
But in the mind of the Keynesian, they are just ensuring an exchange is "right", according to the maximization of a number of macro economic metrics.

I believe in Austrian economic, because I believe that the best people that know what the exchange is worth are the two parties themselves. Not a third one located several miles away without any stake in the game.
And even if I did not believed it, there is lots to say about tricks and manipulation of the macro economic metrics done to push some policies over others.

So yes, Keynesian acts rightly about the metrics and what they believe to be right. But when they don't reach the target, they just change the metrics.

Austrian don't have any stats or fancy charts, nor mathematical theorem. Because they don't pretend to know what metric to maximize for having a good society.
What they believe is that exchange  of free will is a creation of wealth. And anything that attempt to control that is wealth destruction. It is as simple as that.

If you understand what I just said, you understand why Austrian are against fiat money. Because fiat money is a way, for a third party, to control what an exchange is worth.
This is not the metalic part that they like, just that precious metals don't not allow a third party to manipulate an exchange as easily as a fiat money. (and thus, in their perspective, there is less room for wealth destruction)

Despite the wild different conclusion between those two economics, it lies down to one question : Do you think value is created when two persons exchanges something by their free will ? or do you think an exchange is just a transfer of wealth ?

This is the only question that will push you to be keynesian or austrian. Mises and Keynes just push their response further, and both are coherent by their premises.

The 3 major Austrian economists are Hayek, Mises and Rothbard.  Rothbard is the basis for anarcho capitalist you encounter a lot on reddit and bitcointalk

In fact, the Austrian school is so close to neoclassical, that it is difficult to see the difference.  There are theorems linking both.  Both have a differently formulated axiomatic system, and I personally prefer the way the Austrians formulate it.  But it is almost but just another view on neoclassical economics.

http://econfaculty.gmu.edu/bcaplan/whyaust.htm

There is for instance a whole bunch on whether utility is cardinal (neoclassical) or ordinal (Austrian), through the notion of subjective preference.  In fact, both are mathematically equivalent.

It is a bit like the Bohm versus the Bohr interpretation of quantum mechanics.

Why you omitted time-variant models from the consideration?

By whose definition?

Scientific literature is full of hidden-state/unobservable-state and reflective models, "observers" as an algorithmic way of estimating the not-directly-observable state, etc.

I don't know if you are trying to omit most of 20-th century research as a dialectic technique or are you simply unfamiliar with the required math and therefore consider it all false/impossible?
 
Sounds more like a religious credo than a science. And that is the problem with most Austrian economic literature: they very much resemble theological tracts.

Edit: But in comparison to other religions the Austrian economics is a sort of religion without ethics, (programmatically so, because of the free-choice axiom). This is the reason why many (if not most) consider them morally bankrupt from the start.

Spoken like true wife-less, child-less & land-less libertarian. In the real society your personal choices affect the life of your current family, your future family and your neighbors life and land values. Therefore the society has a stake in influencing your decisions.

The general problem with Homo Sapiens is that it is most fertile when young and stupid (or at least when not that smart). Even the ultra-assholey people who would have no problem with killing dumb libertarians (or letting libertarians kill themselves as a result of their stupidity and short-term thinking) will have problem killing children of the libertarians. So the society has a stake in forcing libertarians to send children to school instead of sending them to steal or to beg.

Libertarians are like Roma/Gypsy people in the sense that they can exist as a semi-stable community only at the periphery of the regular society. And the regular society has a stake in periodically culling the worst excesses in those roaming bands.

Anyway, read the "Ethics of Liberty" and please point me to the libertarian way of preventing infanticide or other within-the-family crime.

Can you distinguish http://en.wikipedia.org/wiki/Economics from http://en.wikipedia.org/wiki/Political_economy ?

Are you really taking your knowledge of economy, statistics and other sciences from the TV and political speeches?

Are you pretending to be member of the uneducated underclass as a way of jump-starting the discussion?

Or do you really behave like the uneducated masses in your real life? I'm really confused. Are you a self-taught programmer or did you study computer science in some formal educational institution?

Because by definition, time-variant models are not time invariant, and cannot be found out before the time in question has passed !

Do not confuse time-variant models with time-invariant models which contain pre-known time-varying functions, but which are time-invariant models with a time-variant - but KNOWN - input.

For instance, Newton's equation m x d^2/dt^2 r = F is a time-invariant model.
You can put a time-varying force function in there.  But the model is still time-invariant, although the solution set will not be time invariant of course.  

A time-variant model would be something where today, the model is m x d^2/dt^2 r = F, and tomorrow, it will be, say,
m x d^3/dt^3 r = F^2, and the day after, it will still be something different.

If we were going to write that the derivative order is variable (here, going from second order to third order), then the model:

m x d^n(t) / dt^n(t) {r} = F^(n(t) - 1)

would in itself be a time-invariant model with a time-variant input, here n(t).

Unless we can model human action completely, including *understanding of economics* and *learning of the past*, there is no hope to put it into any time-invariant model, and of course, we don't know any time-varying function that could replace it.

So it is impossible to have a time-invariant model (unless we can model human learning and human inventivity).  It is impossible to have useful time-varying functions which would contain part of the future, because we don't know them.
So in the end we can only have true time-varying models.  Which is what econometrists do, but from the moment they have fitted a past model, it only works for the past (and maybe approximately for the very near future as a kind of short-term extrapolation).

Of course you can *write down* time invariant models.  But they will then contain unknown time-dependent functions, which are the "fitting parameters" which change over time, because they change with human learning and human understanding of economics.


By the definition of a model !  A model is a mathematical transformation of the input to the output.  Same input -> same output.
That output can be a stochastic description.  But if the input is the same, the output should be the same.
If we take into account that the *time* is different, then the output should be the same if the model is time invariant and there are no explicit time-dependent functions.


It is not the fact that it is not observable that is the problem.  It is the fact that its dynamics CHANGES over time.
People will react in a totally different way AFTER having seen the 2008 crash, than before.  People will have different economic opinions after learning about the 1929 crisis than before.  Human action (including state action) was totally different before 1929 than after 1929.  I'm not talking about the crash itself.   I'm talking about the learnings from that crash.  Human action and its dynamics has been altered by that learning.  State reactions have been altered by that learning.  Economic textbooks have been altered.  So people act differently now, than they did before.
And that is only one aspect.

The other aspect is the unpredictability of innovation.  By definition, innovation is unknown before it takes place.

Nobody could foresee the internet in 1930.  The economic effects of the internet were hence unpredictable.  I remember a prediction that the UK would have enough with 4 computers in the sixties :-)

So how can one make economic predictions based upon internet technology when you cannot even predict the technology ?

That's like asking why there is still hurricanes even though we are advancing in modelling meteorology.

The models are tools for understanding.  The policies are tools to counteract.

I'm just going to guess that you are completely unfamiliar with modeling of chaotic systems.

Here's the simplest to understand example that I know:

http://en.wikipedia.org/wiki/Logistic_map
http://en.wikipedia.org/wiki/Bifurcation_diagram

"These algorithms" give ranges of answers, not single answers. It is up to economic decision maker to choose which portion of the range they are aiming at and which portion they want to avoid.

No, the comparison doesn't work.  There are perfectly good models for meteorology, but they are chaotic, and so we know that they diverge.  They still allow statistical predictions in fact, and running families of meteorological models for 100 years is exactly what climate modeling does.

What I'm pointing out is something else, and in fact you illustrate it:


But the counteraction is EXACTLY PART of the dynamics too !  Policies are a part of "human action".  Policy goals too.  How do you predict and model that ?

Give a climatologist the following task:

- calculate the number of hurricanes in the years 2070 - 2080.
- calculate me the yearly average temperature in North America in 2070-2080.
- calculate me the amount of snowfall in the northern hemisphere in 2070 - 2080.

He will be able to do so, given enough computing power.  His result will be statistical, but with good enough meteorological models, he will in principle be able to calculate you the statistical distribution of hurricanes in 2070 - 2080.  Similar for the other questions.  *in principle* he knows how to do so. Maybe the computing power is not sufficient, maybe the models are slightly off, maybe the parameters in the model are not known accurately enough etc... .but *in principle* he knows how to do so.  In fact, the only external input he needs is the economic one, of land usage, CO2 emissions, and so on !

Now, give an economist the following task:

- calculate the average evolution of unemployment in the northern hemisphere in 2070 - 2080.
- calculate the energy market in 2070 - 2080: what's the price of a KWhr ?
- calculate the average state deficit in 2070 - 2080.

Do you even know in principle with what model to estimate that ?

OK, this is bullshit. You must have slept through some lecture at your school. This is true only if your state vector is zero.

http://en.wikipedia.org/wiki/State-space_representation
http://en.wikipedia.org/wiki/Control_theory

It is hard to argue with the rest of your http://en.wikipedia.org/wiki/Cosmik_Debris if we aren't using the usual mathematical terminology anymore.

Edit: Actually I take back "hard to argue". I should've written "not worth to argue". I re-read you previous reply where you mentioned http://en.wikipedia.org/wiki/Kalman_filter . In any sensible control theory curriculum they discuss things like http://en.wikipedia.org/wiki/Luenberger_observer way earlier, when still explaining LTI (linear, time-invariant) systems.

So the conclusion is that you either:

A) come here to intentionally confuse (a.k.a. troll),
B) studied control theory from the special curriculum for Austrians where they only consider memory-less systems (a.k.a. undereducated or retard).

In any way, not worth further discussion.

This is a red herring response.  I didn't claim economics have the forecasting accuracy of meteorology to a specific date.  I don't know anything about meteorolgy to be qualified to make statements about meteorology.  

But if you want to know unemployment figure forecasting you pull past data all variables such as from income, tax rates, interest rates, consumer spending, etc..  Then you model this as a matter of relation.  After you have your model you can run simulations.  E.G what happens to unemployment when there is shock that causes interest to fall or rise.

I don't understand why you think you need to know the reason why interest rise or fall.  If sudden policy raises the rate then you can do simulation in your model.  

I kinda like playing bullshit bingo. So lets count who has a computer now:

1) Amazon has EC2 computer
2) Microsoft has Azure computer
3) Google has a BigTable computer
4) Apple too has some computer
5) Rackspace has some generic "cloud" computer

Everyone else has either a tablet or a smartphone.

So the prediction is true, the world has about 5 computers and lots of dumb terminals. Win for economic modeling from the sixties!

Did I talked about libertarianism in this thread ?
What I said is that from Austrian perspective, two persons making a deal knows better than the bureaucrat if it is worth it. If you don't believe you reach Keynes conclusions, and if you believe it, you will reach Mises' one.
I am talking about business concerning two people which don't plane to steal another.

We are talking about economics in this thread, not libertarians.
Libertarian extends this principle beyond business, and this is not the right thread if you want to discuss about it.
But yes, Rothbard have responses about how to deal with crimes in libertarian society. Just it is not the right thread to talk about it.

So stop trolling and comes up with some interesting arguments if you think I mis defined Keynesians or Austrian philosophy. But from what I see in your response, I'd say that I defined very well.

No Nicholas, you didn't talk explicitly about libertarians.

You've just spoken about personal economic decisions like them, especially the ones who are wife-less, child-less & land-less. You are so precariously naive that I don't consider you (plural you, the people in the peculiar social situation like you personally) a worthwhile discussion partner about long-term economic decision making. Because I've seen too many single male programmers/computer technicians with the similar mindset. Either time&life will cure them out of their egotism/egocentrism or they die completely alone and their cadaver is picked up by the municipal services and absolutely nobody shows interest where and when will be the funeral. The employer is finally alerted to their death when those services are trying to collect on the death benefit of the health&life insurance.

I don't remember the exact "death alone" statistics from my employer's human resources department, but the programming department was on top, then technical support, then big gap and then inside sales.

Anyway, since Rothbard was now mentioned twice I'm going to quote a fragment from Chapter 13 "Punishment & Proportionality" from his "Ethics of Liberty".


This may read like ad hominem towards Nicholas, but it really isn't against him, but the class of people he represents in his thinking and writing.

I'm not talking about the instantaneous inputs, but about the input time series.

Now, of course, if you consider that the state vector does contain the knowledge from economic happenings from 100 years ago for instance, and that this matters now then you ARE modeling human nature, that is, you *are* modeling the fact that humans learn from the past.  But this is what I claim, is essentially impossible.

What you are saying is that, say, in 1935, of course, the effects of the 1929 crisis of course have an influence on economic data, and that just "putting in the actions of 1935 is silly if you do not take into account the inherited state due to the crisis of 1929".
But that's trivially right of course,  that's not what I'm saying.

I'm saying that the crisis of 1929 prompted Keynesianism, and that that has had an influence on state policies, and hence on economic dynamics even in the 1970-ies and even today.

A good "time invariant" model of the economy would have had in its dynamics, the human action which was Keynesianism as an invention after the 1929 crisis.  That is, the model, built in 1918, say, would have not only to foresee the crisis in 1929, but also the fact that due to that crisis, some economists would have invented Keynesianism, and that that would then influence state behavior (which is a special kind of human action, namely human action of people with state privileges) and that that would have made the states react (their dynamics) differently than before 1929.

I'm claiming that that is essentially impossible.  It would mean that the same model that would have foreseen the invention of Keynesianism after the crisis of 1929 (even before Keynes wrote his stuff) and would have foreseen the reactions of states on the 2008 crisis, all this back in 1918.

Because if you want to make long-term predictions in economy, those are the essential dynamics (state behavior included) you have to be able to model.  And those *change* irrevocably after certain happenings, in ways that are essentially impossible to foresee, because they imply advancement of our economic understanding.

That's what I'm saying.  One is capable to make "models" that are nothing else but grey box extrapolation from the relatively recent past to the very recent future, all else equal.

The point is that "policy" is just a human action of an economic agent, like any other, and that a genuine model can PREDICT that instead of having it as an input.  The decision to raise or lower rates is a human action in the same way (but by state-related agents) as business people take decisions, and as inventors do inventions.  Human action.
Especially in a global economy, where the policy response of one country (to a specific economic situation) will influence the economy in another country.  It is hence part of the dynamics, and I tell you that that is essentially impossible to model because it is based upon human action.

Of course as a physicist (I'm one) you can say that the human brain is a physical system which we can model.  But my point is that you'd have to go down that kind of road for economy (with human action) to become modelable.  And for all practical purposes, we can't.  

If I would have as an input all individual decisions of all individual economic agents in an economy, I could also "forecast" what's going to happen.  But forecasting means to be able to calculate it !

 ;D

People studying economics at the university study keynesian economics so they are not learning real economics.

BTW, as far as I know, QE is nothing else but a variant on what John Law already invented in the beginning of the 18th century, no ?

You are stereotyping and just wrong about that. Not giving something worthwhile to the discussion.
But yes, I am not one of those that think my child should not pay for my retirement, and that parent's duty is to make his child stands by his own feets. It is not egocentrical, it is what independence means and the only way to live as a free individual.
Again, this has nothing to do with austrian economics.

For the keynesian, you can always try to model something and prove that from stats, your model maximize some metrics.
But if we don't agree with the metric you are maximizing, then the reasoning that led you to the conclusion no matter how coherent and mathematical it is, won't make it legitimate.

The problem with that is that "society" is not a conscious being that can take decisions.  It are only individuals that take decisions.  Those individuals just take decisions in their *own* interest, whether they are vested with powers to decide "in the name of the general well-being" or not.  In other words, from the moment that an individual decides "in the name of society", he's *actually* not deciding in the name of society (whatever that might mean), but in his own name, and then just has to lie and manipulate enough to make people believe that he did that "for the general good".
When a politician takes a decision, he does this for his own advantage (electoral, financial,...).  He will make it sound as if it is "according to his views for the general good", but that is never the case.  When a central banker takes a decision, he does that in his own advantage (political nomination, having his favourite politicians win elections, having friends and family members make money from the pre-knowledge, ....) and not for some or other macro-economic reason, although he will pretend to do so.

In other words, giving other individuals *power* to decide "in the name of society" is always going to lead to total corruption, because everybody always takes all of his decisions in the name of his personal advantage. Having other individuals decide over aspects of *your* life from the viewpoint of *their* personal advantage is not something that I would think is positive for anyone, except for the powerful deciders.
The difference between libertarians and collectivists is that libertarians are honest about that, that's all.

The discussion is not whether "a state that would try to achieve the general good" is a good idea, the discussion is whether such a state (made up of individuals) could even exist.  In my opinion, it can't, because individuals always decide first in their own advantage.

Bahaha omg yes, this is awesome.

QE is a variation of what all governements have done with their fiat currency : create too much of it until it loses all its value.

To finish your quote: "create too much of it until it loses all its value and then dump all remaining valueless fiat into a new system that your people (mainstream) is so desperately trying to adopt for its own reasons (get rich)."

Ride the horse until it dies; then just get a new horse.

The people (us) need to take back BTC and develop it for OUR benefit. Not the benefit of those who rule us. This is the greatest problem with Bitcoin today. Too many are indoctrinated (with classical economic ideologies) about what BTC is. We need to stop drawing parallels and making comparisons with historical economic thinking.

It has nothing to do with barbarism.  In fact, it is what Adam Smith already discovered: a bunch of individuals (each taking care of his own interest) can work together through that link of mutual self-interest to build up quite something.  Nothing barbarism.

The illusion resides in thinking that giving people power over others will make them reduce their desire for self-interest.  You simply have to have a system that is well-adapted to individuals (that is, independent conscious entities that have their own interests).  That excludes the idea that giving power to some people will make those people decide in the interest of others.

Now, I agree with you that there are people that do (seem to) show interest in other people's advantages over their own.  However, these are not the people that climb up to positions where they get the power to decide over other people's matters.  Because those positions are so much looked-for by people who want the power (for themselves) that people having genuine interest in other people's advantages never get there. 

On the other hand, that doesn't mean that someone in power will NEVER take a decision that is in fact "in other people's interest".  After all, sometimes the situation can be such that serving best his own interest colludes (more or less by coincidence, or for reasons of communication, or whatever) with other people's interest.  But it is by far not the rule.

In fact, the idea, by itself, that thinking that people are too egoistic and selfish to be able to live freely together, and then find as a solution to give power to SOME of these people to decide over others, is totally ridiculous if you think about it.

In order to protect rabbits from snakes, the idea would be to give power over rabbits by a snake ?

Is he a central banker?  As far as I know the BoJ was the first central bank to enact such policies

No they don't.  The mainstream economics is neoclassical or neoclassical synthesis.  Have you ever taken any University level econ classes? 

Too many Gordon Geckos in this thread  ;D

That is a good point. In fact Real Bills Doctrine explains much better why FED had printed 6x more money and there is still no big change in dollars value: These dollars are all backed by assets of similar value, thus people's trust in dollar's value has not changed

You two might have missed my questions before, I write them here again:

1. Who get the ownership of every newly created fiat money?

2. Is money's value decided by supply and demand?

Please share your thoughts

Sure. One of my duties is being a liaison with employees (programming & technical support) who have freedom to work out of home, if they so desire and if we have a slow season. So I'm wrong both ways:

1) I'm too nosy when I'm explicitly admonishing them to abstain from using unregulated substances (that they have bought in a person-to-person transactions that the government should have no business regulating) in their own free time. I'm also too nosy when I admonish those peeps to be less egocentric and have a real support network of family and friends (not net-friends).

2) I'm not nosy enough when they die alone and stink up the neighborhood as a result of inhaling those substances (or playing with the guns they purchased with their own money). I'm not nosy enough even if I recognized that they have no real social contact besides coworkers and should have been visiting them at home.

Of the two accusations above I choose being accused of (1), because it gives me some opportunity to warn people in advance, not just react quicker to a problematic situation.

 Interesting Correlation: Want to guess who the BTC miners of the future are going to be based on 1-5 above?

You want to think you are different and unique. But no, you are just a basket case of young high-earning programmer who just moved out of the parents home. Your basket stands right next to the basket with very young very-high-earning models who just moved out of their parents home.
Hell is paved with good intentions. Your sincere promise of taking care of your future children is worthless to the society. Beggars (both old folks and children) are considered eyesore by the society and the current solution is to forcibly tax everyone so they can be rounded out of the streets when old/infirm or forcibly schooled/housed when their freedom-loving parents won't care for them.

If you actually had a backing to your promise, like a ownership of land or other means of production, you wouldn't be spouting out the transparently naive individualism. Your parents would have successfully enculturated you into some respect to the neighbors, business partners and you would've clearly shown better understanding of why&how the society creates and maintains its rules.
The hard-core Austrian economics are inseparably mixed with the hard-core libertarianism: by the personalities of the leading thinkers and proponents, by their avoidance of mathematics, statistics and other tools of science. Also there's simply lot of correlation/overlap in the social groups where they gain their supporters. You can't escape that.

If they were really honest they wouldn't be mooching off of the collectivists. They would move to a free place and use their own rules-free Internet, drink their own unregulated water and send their children to their own schools free from oppression.

The honest truth is all the libertarian attempts at independent social organization invariably fail either:

1) because they are compulsive tightwads, skinflints, scrooges and grinches who rather die than contribute to a common good. Those are either eaten by the wild animals or easily subjugated by the organized crime gangs.

2) fall prey to the internal criminal abuse from the members who simply pretended to subscribe to their ideals but in reality ripped the rest off in a confidence game.

The only way the libertarians survive is similar to Roma/Gypsy people: a periphery of the stabler societies with more reliable means of production.

Entrepreneur, having my own business, I earn money by delivering value. I assume you work in the public sector since you seem to have too much time in your hands.
I live in France, there is some migration from the east of poor people we call "The roms", they mostly live by stealing and they begging.
But you know the person they will never steal and will treat with uttermost respect and loyalty ? The one that give them a job. (but yes, it is illegal to do so)
You want to give pride to the beggar ? don't give him your money, give him a purpose.
I have no problem with my neighbours and business partners and never had. I don't force them to follow my rules, not feeling obliged to follow theirs. We work by mutual consent, nor by duty and obligations.
Apathy and libertarian are two different concepts.
What I own is by my own work as will attests my business partners, not because of "society" (which equals to ownership thanks to subsidies and favors).
Not to say I would not profit from subsidies and favors from our government when I can... but would not feel any gratitude for it, since the one that create value is me, my employees and partners, not their money.
I am thankful to my business partners though.

Austrian don't have the hubris to think they know the metrics they need to maximize to create a better society. You can use all the math you want, if the metrics you are maximizing are broken, manipulated, or plain irrelevant, it means nothing.

Austrian and libertarian are different, I won't repeat what I said earlier to point you the difference.

One reminder :

Austrian think that if I exchange on my free will your Pen against my Gold, then we are both richer.

A Keynesian, would just point out that Gold is worth less on the market than the Pen and thus I am loosing.
Since they don't want people to loose, they will either manipulate the price of the Pen and the price of Gold to make it "equitable".
Or they will just outlaw such exchange.

Replace "pen" with "water", knowing that I am dying in the desert, you would likely point out : "you were right about exchanging your gold !"...
Well, the Keynesian will never admit such a thing, because it does not show up in macro data, and will tax or outlaw the immoral seller of water "For public good" and consequently, provoke shortage and death of travellers.
And then happily point out : look in the stats ! less people are loosing money on water. True but is it relevant now that the travelers are dead ?

And this is a simple example, without pointing out that "data acquisition" can be manipulated, "metrics" (GDP, Inflation on "basket of product") can also be.
By carefully selecting the determinants of your index, you can justify anything.
Examples among others : http://www.forbes.com/sites/timworstall/2014/05/31/adding-5-billion-to-uk-gdp-for-prostitution/ (http://www.forbes.com/sites/timworstall/2014/05/31/adding-5-billion-to-uk-gdp-for-prostitution/) and http://www.globalresearch.ca/the-corrupt-practices-of-financial-manipulation-the-meaning-of-the-greek-economic-crisis/18467 (http://www.globalresearch.ca/the-corrupt-practices-of-financial-manipulation-the-meaning-of-the-greek-economic-crisis/18467)

Also, I am not even talking about the government official that have invested into "water" because he knew that his policy will provoke a shortage and rise its price.
Replace "gold" with "fiat", and then we can even talk about the central banker telling his friend what the rate or WATER/FIAT will be tomorrow. See http://www.zerohedge.com/news/2015-01-23/how-swiss-national-bank-almost-crushed-george-soros (http://www.zerohedge.com/news/2015-01-23/how-swiss-national-bank-almost-crushed-george-soros) and http://www.zerohedge.com/news/2015-01-23/our-money-guy (http://www.zerohedge.com/news/2015-01-23/our-money-guy)

But these guys are working for the public good, and are backed by math... right ? http://www.amazon.com/How-Lie-Statistics-Darrell-Huff/dp/0393310728 (http://www.amazon.com/How-Lie-Statistics-Darrell-Huff/dp/0393310728)

There's no inflation is because what people call "money printing" is a swap of assets between the Fed's balance sheet and the banks balance sheet.  That money is reserves not cash.  It doesn't enter the economy until the bank lends it out

1.  Whoever borrows that money gets (temporary) ownership until they pay it back.  Its logged as a liability on your balance sheet, but an asset on your deposit account.  After you deposit the money you can spend it as if it was yours.  But you still owe the lender.

2.  Exchange rate between currency pairs like USD/JPY are determined by supply & demand.  But the price is correlated with fundamentals (GDP, Interest rates, etc..)

Thanks, but that is after the money creation. What I want to understand is the ownership change during the money creation by FED

I don't think commercial banks create money, they only register a loan in their database, similar to some exchanges do with your bitcoins on their platform, no real money/bitcoin is involved, only numbers in their database, and bank's ability to generate check book numbers are limited by the reserve requirement. They can not loan out money that they don't have (even they have the asset), but they can loan out the same money again and again to generate large balance numbers in their database


I have not thought about forex, I just mean the value of the money domestically

To be more precise, there are two different theories: One is Real Bills Doctrine, which states the money's value depends on the value of the asset that back them, so more money = more wealth (since every dollar is backed by assets of corresponding value). And the quantity theory of money: MV=PQ, where money's value is subject to change depends on the money supply, flow speed, and productivity of the country

I thought that's what I was explaining.  Only commercial banks have a deposit account at the Fed.  No individuals so if you borrow money from JP Morgan and deposit into your Citi account.  The Fed just change their ledger to reflect this.  So the only way for the money to get into the economy is for banks to lend it out.

It's a common misunderstanding that money is not created from commercial banks.  They create it in the form of credit.  It's called endogenous money.  Most of the mainstream economists get this wrong

Here's a paper the Bank of England put out on this issue

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

The quantity theory of money relies on an exogenous view of money, which we know is not true by the paper from BoE.  So I don't subscribe to this view

The RBD seems more reflective the realities of banking to me.  My criticism of RBD is that it doesn't emcompass current technological state of finance and financial instruments like derivatives and securitiaztion of debt.  And it doesn't address the rise of shadow banks.  So RBD in itself is not a safeguard for something like 08 GFC because a lot of assets maybe speculative in nature.

Where's that ?  Do you know any place on earth where collectivists haven't tried (and succeeded) in taking the power - by their sheer number, or by using force ?

But you're wrong about liberatarians having to live according to their own rules.  I for one, am a libertarian living on purpose off state funds.  Because as a libertarian, my aim is not to improve the world, or impose my vision, but to get the best out of it for myself (which is the definition of a libertarian), with the minimum to contribute to others.  And living on state funds allows me to do exactly that: obtain and not give.

It is because I think most people are like me, that only a libertarian-based system is not going to sink by the egoism which is in my view the characteristic of a conscious individual.  All other systems are going to sink through collectivist corruption.  But of course, I'm the first, in the frame of a collectivist system, to take all advantages that go with that corruption.

As I said, I'm simply more honest about that than others who have their mouth full of "the common good".  I think most if not all people ACT like I do, but many of them delude others (and maybe even themselves) about their caring for the common good - which they don't.


Libertarians usually don't attempt at anything socially.  By definition.  Because they don't want to get involved in other people's business.  They are a-political.  They don't 'want' a specific society (if they do, they would stop being libertarians by definition).
They just propose it intellectually, but they can thrive in just about any society.  Some societies don't allow them to EXPRESS what they think, but they think nevertheless like everybody else: own advantage !
If I would be living in a communist system, I would probably be a member of the communist party.  If I were living in a nazi system, I'd be behaving as a good nazi.  Simply because that's where my advantage is.  But I would openly say that that is totally corrupt (at least, if that wouldn't be in my disadvantage).  That's what I'm saying too.  I don't believe anybody who claims to do anything for the common good.  For me, that is impossible.  I do believe people claiming to do things for the common good, in order to obtain personal advantage by saying so.


Yes.  The libertarian thesis is that everybody is like that, but some don't say so.  That's the difference.


Like everybody else, but they just say so.

The difference between a libertarian and a non-libertarian is simply, that a libertarian:

1) dares to say that he's an egoist just like anyone else
2) dares to say that everybody who's claiming to act for the common good is a lier
3) realises intellectually that any form of power given to individuals "for the common good" will lead to total corruption.
4) realises intellectually that the only "fair" form to have egoistic power-greedy individuals live together, is in a totally free society with the minimum of power given to individuals over others.
5) knows that that will never be the case, given the power-greedyness of individuals faking to care for the common good.

For the rest, like everybody else, the libertarian is an egoist, that lies if he says that he's working for the common good, and will try the maximum, like everybody else, to obtain power "for the common good" to be maximally corrupt.

Can not trust a source that comes from the bank itself, because this involves the ownership of trillions of money, they will try to hide it as much as possible and give others as much misleading info as possible

There are 2 facts that do not support the theory that commercial banks can create money:

1. Federal reserve act of 1913. It gave FED exclusive rights in creating USD. If commercial banks are doing that, they are braking the law

2. There were many bank failure in financial crisis: If commercial banks could create money by just issuing a loan, then they would just simply loan to each other and create trillions and trillions of dollar and they will never need FED. The fact that they went bankrupt is because they don't have money and they can not create it by themselves, they must turn to FED to borrow money

However, since majority of the financial activities are settlements between different bank's database with very little movement of real money. From bank's point of view those virtual money are more important for daily operation. Real money (e.g. reserve) only become a problem when there is a liquidity crisis. Just like an exchange only have problem when customer withdraw their bitcoin. And today's banks limit the withdraw strictly to prevent a bank run

Endogenous money is a heterodox view so it's a 180 that BoE would put out his view.  They have no ulterior motive to put out this paper.

Banks create credit money.  They are not minting money, like the Treasury.  Can you say where Federal reserve act says this?  Whe people say "printing money", what they mean is the Fed is increasing reserves.

The money is comes into existence when someone borrows it.  If there are no borrowers no money is created. 

Banks didn't become bankrupt.  They were at risk of insolvency.  Investors were pulling money out and the banks froze lending to each other because they didn't trust one another.  It was a liquidity crisis not a bank run

Two quotes I have fallen in love with :)

If you create more money, the real value of the existing money should go down. There is the question of who will enjoy this new money. In the case of QE it seems to be the governement, stocks holders, banks and maybe some people who have debt so a minority of the population.

Its a powerful quote from a powerful man :)

1) Fed. Reserve creates and credits its accounts with "new money"
2) Fed. buys US Treasury bonds with this new money
3) This injects new money into the system (interest rates are effected here)
4) Commercial banks lend the new money into existence based on their view of the economy at that moment
4.5) The US Government also brings new money into existence through government-sponsored programs

There will always be borrowers, whether then are individual people or other banks or other businesses.

Prior to the Fed. Reserve Act, banks and lenders were not required to be part of a centralized network or keep a set amount of non-interest bearing reserves around. The high interest rates and huge economic inflation caused the bank run. America was in dire straits before the 1930s. Lots of wars, Great Depression, famines, economic uncertainty, etc. No individual could get a loan for anything because banks refused to lend, so the people tried to get their money out. It most likely was a combo of the banks didn't have the money, people made a huge run on the bank en masse and banks refused to lend.

Prior to the FRA or the creation of the Fed, banks were not dependent on a centralized system. Without the Fed America would not be where it is today (both good and bad). Before, banks didn't create new money, it was made up of people who actually leant money they physically owned.  With the Fed, new money can be created out of thin air and used to allow the country to profit in an unlimited manner.

Now banks are required to purchase non-transferrable stock in their reserve bank forcing banks to abide by a centralized money making unit (the Fed). This ensures the system will only break if all the pieces crumble. Makes it very difficult if everyone (all banks and lenders) must abide by rules that keep them vested in the money maker (the Fed). This centralized system made banks of yesteryear less powerful (controlling the economy totally), more corruptible and more controllable.

I think you mean most of America. The poor enjoy QE as well as banks. By the poor, I mean people obsessed with buying shit they don't need with money they don't have.

Banks enjoy it because they can now lend money at better rates to people who don't need that money in the first place. Lower interest rates allow the poor to stay poor (by buying extra shit) and the rich to get richer (taking enormous loans at low rates to facilitate greater business opportunities cheap credit allows). It hurts everyone depending on the way you look at it.

Not quite. 

1.  The money the Fed creates are reserves.  It still need to be lent into economy.
2.  True sometimes.  But could be other types of assets.  And should be noted they buy from primary dealers.
3.  True sometimes but its not their primary mechanism for affecting interest.
4.  True
5.  This is called deficit spending

The number of borrowers depend on different variables.  There was much less borrowers after 08

Prior to FRA the major banks did use a clearinghouse that had lender of last resort function similar to the Fed.  But it was private not open to every bank

Maybe you should read Keynes' "Theory of money".  It is very well explained in the first few chapters, how Deposits are money.  It is what Keynes calls "Bank Money" (in contrast to State money).  He shows that in the 20ies already essentially all money is Bank Money.

In fact, the instability you point to is discussed, and it is why there is the minimum fractional reserve imposed. 

However, that minimum fractional reserve only limits the amount of money on the upper side.  It doesn't on the lower side.  What we are starting to observe now is exactly that: the impossibility to force the creation of bank money, no matter how much state money one issues.

 ;D

In fact, the QE programme will not cause direct inflation because:

- the interest rates are already near zero.  What you say about making lending easier is when the FED could still lower interest rates, but that's already near zero, so that trick doesn't work anymore.  That's why they resorted to QE in the first place:  QE is something you do when the "normal" Keynesian lever arm of interest rates is already near zero.  Also called a liquidity trap.  Usually, lowering interest rates makes people lend more (and spend more according to Keynes).  But when the rates are near-zero, that lever is pushed to its maximum.

QE is buying up stuff from financial markets against freshy issued base money.

The only thing it does in the first place, is to pump up the prices of the things that are bought by the fed (by increasing the demand for it, whatever type of securities it are).  If you hold these things, you get the seigniorage of that printing.  Usually banks and rich people. 

However, the last few years, QE has been going together with a requirement for higher fractional reserves (Baal III act).  Higher fractional reserves lowers the amount of Bank money.  As such, most of this QE money will never really "hit the market" but remain as reserves at the FED.  As such, what the FED *actually* does is to accept certain securities from banks as "bank reserves" and converts them into dollars kept at the FED.  So what happens NET is that certain securities have been taken out by the FED, increasing their market price and making rich the people who owned them before the QE (because their market price increased).

The printing of base money has largely been offset by the increasing requirement for fractional reserves.

I wouldn't even been surprised if this was not a way for the FED to have certain banks with bad paper to let them get rid of that paper by selling it to the FED, but I have to say that I don't know this.

Good point. In fact there are many types of "money" and most of them are not real, but now most of the people have no idea what is real money, and they usually talk about some money that is not real

Just like a user's bitcoin in an exchange, he would also call them bitcoin and he can exchange them with others on exchange, so for him and for exchange, those numbers in his account indeed represent bitcoin. And the exchange can even do some statistics about their bitcoin transaction volume in their database and make a M1 supply analysis of bitcoin ecosystem. However, they are just numbers in exchange's database, they are not on blockchain. The exchange might have already lost those bitcoins long time ago before the client experience a withdraw problem, since the coins in their hot wallet might be able to deal with any kind of withdraw for years unless a crisis hit (MTGOX)

The bank settlement network can be regarded as a giant exchange that almost everything is exchanged on this platform. People trade against each other with their money and cause the numbers in their account increase or decrease. Exactly the same way bitcoin traders doing in an exchange. So anything happened on this giant exchange has nothing to do with real money

To see the real money, people must get out of this giant exchange, as long as they stay in this exchange and keep trading, they will always be playing with numbers, not real money. And those numbers can not exist without real money

When MTGOX lost all of the customer coins in cold storage, all the accounts were wiped out, although the numbers in those accounts are still intact, the value behind them is gone. This is similar to many bank failure that when their last piece of real money has been exhausted, all the other numbers in their database are useless


In my opinion, real money only comes from FED (and notes and coins made by treasury). But the ownership of those real money is little bit confusing: In a traditoinal RBD model, if I have some valuable asset, I can issue money of same value, backed by this asset. But the ownership is: I have ownership of the money and I also have the ownership of the asset

Then I start to spend money, giving up the ownership of those money and get some valuable things in return. Notice that I still have the ownership of my asset, as long as no one come back to me to redeem the money

Government have the ownership of some asset, then they issue some money based on this asset. From a similar reasoning, the asset ownership and money ownership will all belong to government, as long as no one come to government to redeem the money. However, the reality is: Newly issued money belongs to government, but their asset now belongs to FED, which is not owned by government

I have never been able to understand how this kind of ownership shift can happen without any resistance from mainstream economists, have they been playing on exchanges for too long and forget about the real world totally  ::)

Of course, if everyone from birth to death are playing on this exchange forever, then the numbers on exchanges will be more important than reality, but that is a kind of abstraction I still can not command now, maybe just like Keynes said, we are all dead long term wise

The American Economy is based on debt and the federal budget and the commercial balance are in deficit every year which will end in tears.

For most people, it's a hobby; I can think of nothing more useless to understand than economics, it's on the same level as the Myers-Briggs Personality Indicator in its potential for being any kind of good force in the world.  At best it can shape one's world view, and at worst it can shape one's world view--I'm sure you know what I'm referring to.  I've had friends who decided to major in economics in college; they all seem to regret it, esp. when I ask them why they learned it.  The answer is always, "I thought it was interesting."  Tsk, tsk; an investment like college necessitates a return, i.e. to pursue a field which is profitable, but apparently colleges will just teach you anything your heart desires.

Still, it's fun to think about and argue--we all have our pet interests.  But I'm just as baffled as you are as to why anyone disinterested in economics would listen to an economist, like he's a real Nostradamus or something.  Esp. the Keynesian school, it's horrendously abstract and disconnected from reality, takes a special sort of person; only thing that keeps it going is "only leftists have empathy and leftists like Keynes" a la Krugman; without such persuasive tactics there'd be nothing going for it.

The thing is, that as long as enough people consider "not real" money as real, it is in fact real !
Because that's the essence of money: people think it is money !
Something is money if people think it is money. 

We're back to my next (or better: same) fool theory :-)

Keynes theories are taken as actual theories because they are taught in schools when history proved him wrong.

I see Keynesian economics in the same light as the psychology establishment sees Freudian Psychology today. Its an outdated way of thinking about how things are. Maybe Freud was right back in the 1880, but he's not right anymore. Keyes may have been right in the 1920s, but he isn't right anymore. Infinite expansion may have seemed like the inevitable outcome of mankind back in 1929, but it doesn't any more. Everyone is saying the world's population is on track to stop expanding in the next 100 years. Current generation are more about saving the environment and reducing man's footprint rather than "owning it all". Even after hyperbitcoinization, whatever economical model people adopt (Satoshian economics?) will  eventually be replaced with something else within 100 years or so. One constant truth about mankind is that each generation thinks differently than the generations before them. Ok now i'm just blabbin', peace out.

And people make Keynes say things he didn't say. For example, he never say increasing taxes where a good idea if a state was in debt

Instead of paying attention to economics, people should start paying attention to those who define what economics is and study them. This is where you will learn what "real" economics is and how it's implemented.

Satoshian economics?  Bwahaha.  You know Satohsi is just influence by Rothbard, who nobody in economic takes seriously