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.

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.

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 :-)

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.

Right.

Same fool.  Indeed, is better.

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 !

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.

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.

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.

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.

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.

Most of the value held by rich people is not in the form of money, but in the form of assets (mainly capital, that is production, assets, such as companies).

The distribution of wealth has not much to do with the monetary policy.  In fact, only relatively poor people have a large part of their holdings in money.  Everything which devaluates money is in fact punishing more the lower economic classes which have less means to protect their stores of value.

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 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.

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.

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).

That's simply brilliant 

Sound money !

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.

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.

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 ?