by Wladimir Kraus
Abstract: Essentially, there are two competing views of how to overcome an economy-wide recession/depression. The Austrian view understands the free-play of competition as the most potent means to overcome the short-run mismatch between an excessive boom-level of nominal wages/prices and depressed crisis-level volume of aggregate spending. In the Keynesian view, the disastrous mismatch between desired saving and planned investment inherent in capitalist economies requires the government to step in and take up the burden of spending to infuse the lacking demand for products and labor.
The thought experiment presented in the paper is designed to provide the reader with a direct comparison of major analytical claims of the two competing approaches to assess the ability of each of the two to affect, positively or negatively, employment, capital accumulation, and the general standard of living/real wages.
7 Responses
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Sir,
The title of your work provoked my interest. I wondered “Is it possible to have an Austrian stimulus package?”
I wonder if any group of Austrian economists would agree to the necessity of a stimulus package.Conceding even this point, Austrian economists, much like the Keynesians, would have no mechanism to disperse the funds into the economy; furthermore, they cannot guarantee high monetary velocity, rapid capital goods consumption, or to prevent wealth disparity. Finally, I agree with your assertion that “CSRA funds must be saved and productively expended.” However, you fail to predict whether the CSRA recipient ‘will save and productively expend’ the funds. This is simply beyond the capacity of any economist, no matter how well-meaning or planned.
I liken this paper to fictional works that compare alternate realities. While thought-provoking, this paper has more substance on the Keynesian side,while offering substantially less vis-a-vis compare and contrast (as was its stated objective?).
If you would like to add caveats, feel free to contact me.
Kind regards,
J Braddoc
Thanks for your reply!
I think I’ve insisted more than once that the idea of an Austrian stimulus, as an actual policy option, is a fictional idea. From the abstract, at least:
“The thought experiment presented in the paper is designed to provide the reader with a direct comparison of major analytical claims of the two competing approaches to assess the ability of each of the two to affect, positively or negatively, employment, capital accumulation, and the general standard of living/real wages.”
“Comparison of analytical claims” is the key issue here.
Yet, if not a “stimulus package”, assuming price and wage rigidities that we undoubtedly have to acknowledge, what is the best way out? I think that Prof. Reisman’s proposal to return to a gold standard (fn. 2) appears to me as the best option available under the present reality.
Still, if we had a choice the “structural of production theory” would offer a better “stimulus package” than the one inspired by Keynesian economics. Specifically, I’m sure we would be able to avoid financing many of the more wealth-destroying projects but which according to the Keynesian view are unobjectionable.
Please let me know if it doesn’t make sense to you and you have further questions.
Not all investment spending is “stimulating”. If it is a malinvestment, then it would be just as bad as consumption (worse, since no one even got to remove uneasiness by consuming). But how would the director(s) of the “stimulus” package be able to distinguish between a good investment and malinvestment? How will they tell whether they are helping to correct malinvestment or merely propping up a line of production that exists only because of prior malinvestment, and thus should be liquidated? How will the director know what the structure of production *should be*–how it should be altered? The only reliable signal is profit and loss. But then in an unhampered market, entrepreneurs will work it out without any “stimulus package”. If there is any distortion of those signals, keeping entrepreneurs from functioning well, then even more so will the director of the “package” be unable to make such measurements and thus be prone to malinvestment. For example, the director is not really motivated by profit or loss (i.e., is not investing his own money).
Furthermore, if this director were able to measure the difference between good investment and malinvestment (and what the structure of production should be, including how factors of production should be allocated among all lines of production), then why not place all investment decisions in the economy in his hands? Why not a *total* “stimulus package”? (I.e., socialism.) I think you are ignoring the Austrian arguments against central planning–that there is no way for the director to do what you are asking him to do.
You ask “what is the best way out?” But it is not clear to me what you think the problem is. What price and wage rigidities are creating an insurmountable obstacle to necessary falls in price and adjustment of the structure of production?
Any concession to idiocy and crookedness only stalls the goal of real justice for good human beings. This is nothing but a repeat of the motherly, let’s save something, mistake that the first libertarians [classical liberals) made.
Ayn Rand has it right, go on strike.
Real world reality lovers will never be popular among the weeds and the more the flowers reach toward the weeds the more they will be strangled.
I enjoyed the comparisons, though to me an Austrian stimulus package sounds like something that happens when you have an overenthusiastic masseuse!
Or is it the Swedes that are famous for massage? Darn my American penchant for confusing social idioms!
In all seriousness though, an Austrian economic stimulus package (as suggested by some of the above commentary) sounds about as twisted as Ingsoc’s “Freedom is Slavery” line.
I think you should explore Carl Menger’s theory on currency, who should control it, or be sharesholders in it, etc., and I think the fundamental issues here are currency, the people should be the shareholders not Citigroup, JP Morgan Chase, Goldman Sachs and Rothschild International.
I can think of the 10, 30 and 40 to 1 multiplications that banks have, on a 100 dollar in deposit, for example, they can loan out $4000. This is the issue in a nutshell. The arguments is how do the people become the currency as shareholders, business-owners, investors, workers and on wages.