

A global fiasco brewing in Japan. (Will the US follow?) - cwan
http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100002951/a-global-fiasco-is-brewing-in-japan/

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1010011010
Perhaps governments will stop spending beyond their means and producing fake
money with their central banks. Perhaps.

It seems more likely they will blame "the market" and use trouble they created
as an excuse to extend their control over their economies.

~~~
philwelch
You know, gold is "fake money" too. Money of any kind only works because
everyone agrees to want it.

~~~
BearOfNH
One difference is that gold is in limited supply, and cannot be instantly
materialized by the State. Its scarcity, beauty and durability make it a
natural store of value when the printing presses are running overtime.

Of course the State knows this too. In April 1933, less than one month after
taking office, FDR signed an executive order confiscating all the private gold
in the country. I wouldn't be surprised to see that happen again some day.

~~~
philwelch
A mineral is only in limited supply when there _isn't_ a rush. (See: 19th
century American silver rush and bimetallism). Gold isn't _that_ scarce or
_that_ beautiful after all, it's mostly a convention.

The limited supply of gold can also be a hindrance, causing systemic deflation
as an economy grows.

~~~
mhartl
_The limited supply of gold can also be a hindrance, causing systemic
deflation as an economy grows._

Nope. The initial supply isn't what matters. With a fixed-supply currency
(well-approximated by gold), the demand for money increases as an economy
grows, so (for fixed supply) its price increases as well. Hence, no deflation.

Intuitively, the money supply must increase as an economy grows. Intuitively,
clocks tick just as fast at sea level as they do on top of Everest. Intuition
is often wrong.

Einstein can help you re-tune your clock-ticking intuition
(<http://en.wikipedia.org/wiki/Gravitational_time_dilation>). Rothbard can
help you with money (<http://mises.org/money.asp>).

~~~
philwelch
Rothbard isn't the end-all and be-all of monetary economists, and there is
historical precedent that contractions in the money supply have caused
deflation. Also, economies which have gone back _on_ the gold standard have
usually deflated as well.

~~~
mhartl
Rothbard has gaps, but he's light-years past most.

Never trust "historical evidence" when it comes to economics. There are no
controlled experiments, and the winners write the books. In this case, there
are four concepts masquerading as two. See
<http://news.ycombinator.com/item?id=1058639>.

~~~
philwelch
What "evidence" is there to trust, other than Rothbard's amateur
philosophizing?

~~~
mhartl
Evidence in economics is messy---and political. Trust logic instead. Of course
monetary contraction causes deflation; you don't need evidence to tell you
that when people have less money, _ceteris paribus_ prices will fall.

As far as the "gold standard" goes, beware: most so-called historical "gold
standards" are not gold-as-money, but rather some weird bastardized version,
such as "paper currency (partially) backed by gold". As I said: _messy_. This
conflation serves the interests of those who benefit from manipulating the
money supply. _Messy, and political._

I take it you mean Rothbard is "amateur" in the pejorative sense. Have you
_read_ Rothbard? He is many things; "amateur" is not one of them.

~~~
philwelch
"Evidence in economics is messy---and political. Trust logic instead."

The problem is, Rothbard's logic is also every bit as political as, say,
Marx's logic.

You're talking to someone who was a confirmed libertarian, Austrian
sympathizer, and Ayn Rand enthusiast from roughly the age of 16 to maybe 20 or
so. I know the arguments and I know inside and outside the kind of thinking
they come from, which is simply put, a tendentious effort to justify one
particular political ideology over another. That is the exact opposite of what
any science should aspire to, even economics. And that is the sin Rothbard is
guilty of, a sin he relentlessly accuses others of in order to distract from
his own guilt.

This is not to say he in specific, or the Austrians in general, were totally
bereft of good ideas--just that their ideas should not be taken as proven
unless tested. You're suggesting the scientific equivalent of "the code looks
reasonable so there's no need to test it".

~~~
mhartl
I certainly don't agree with everything Rothbard or other Austrians say, and
indeed I agree that their greatest errors are driven by ideology. (And despite
my general sympathy with Ayn Rand, this goes triple for her and her
followers.)

That being said, a substantial subset of economics is analogous not, as you
say, to a programmer saying

    
    
      the code looks reasonable, so there's no need to test it
    

but rather to a mathematician saying

    
    
      the proof is correct, so there's no need to test it
    

That is, what is the point of testing the Pythagorean Theorem? Perhaps we
should measure a bunch of triangles? Why would you do that, when you have a
proof? And yet, many people seem to believe that, e.g., raising the minimum
wage might not ( _ceteris paribus_ ) raise unemployment. They even sometimes
collect "evidence" that it doesn't! (See, e.g., the paper by Card & Krueger
showing a _rise_ in employment after a minimum-wage hike, which Bill Clinton
used as political cover to get Congress raise the minimum wage.)

Of course, you'd better be double-sure your proof is right, and I agree that
the Austrians sometimes fall down on this point (Rand, triply so). But their
_approach_ is right: economics, correctly done, is much closer to mathematics
than it is to physics.

N.B. I too am a reformed libertarian-Objectivist, and I too know the arguments
forward and backward; I could crush a traditional libertarian in a debate,
because I know the weaknesses all too well. But it seems that my ultimate
parting of ways with them has taken me in the opposite direction from yours.
You see, I'm even _more_ radical (or, rather, reactionary) than they are. :-)

~~~
philwelch
Mathematics doesn't deal with the real world, nor does it use induction (in
the normal sense of the term--mathematicans use the word "induction" to refer
to a type of recursive proof method, but inductive logic is the method of
reasoning general rules from particular pieces of evidence). Triangles are an
abstract concept that abide to rules that we make up, and if we make up a
different set of rules, triangles no longer obey them. That's why simply
measuring triangles doesn't work.

Economics does deal with the real world, and like any other science it's
subject to the demands of empiricism rather than merely the demands of logic.
You can use logical and mathematical reasoning to come to a lot of useful
conclusions in physics, for instance, but we're constantly substantiating
those by experiment as well, and occasionally we are wrong. (Use Newtonian
mechanics to calculate the orbit of Mercury and it won't match.) Do you really
think that human behavior is so much more simple than physics that we can
model it without evidence at all?

~~~
mhartl
Ah, so we don't really disagree at all---or, at least not much. It's my fault
for using a bad analogy, and you hit on a better one. You're right, the
axioms, whether in economics or physics, must come from the empirical world.
Given the axioms, you can then prove theorems, but of course the axioms might
need tweaking---which can dramatically change the theorems. What I see in
economics are cases where people implicitly accept particular axioms, and yet
reject many of the consequences (i.e., theorems). It's as if they agree that
Newton's law of gravitation is correct, but don't believe that two-body orbits
are closed.

Though complex in general, there are aspects of human behavior that are
consistent and quite simple, and serve as a solid foundation for a study of
human action. (You probably recognize this as the Austrian approach of
_praxeology_.) When I read the Austrian argument that any fixed amount of
money-stuff (e.g., gold) is sufficient for exchange, I understand the axioms,
follows the steps, and accept the conclusion. When I read the Keynesian
arguments for the benefits of monetary expansion and "fiscal stimulus", I see
---great clouds of fog. Their arguments are often too vague to untangle, but I
can see that their conclusions (a) appear to be based on the same axioms I
accept and (b) disagree with a theorem. Something doesn't add up.

In sum, the value of empiricism lies in finding the right axioms. If you
discover "empirical evidence" that a theorem is wrong, you must either propose
a change in the axioms or find a flaw in the proof. Contemporary economists
often appear to do neither.

(The Card & Krueger example is again instructive. If you raise the price of
labor, people buy less of it, so minimum wage hikes must increase
unemployment. And yet, from a contemporary NY Times article
(<http://bit.ly/5afSyk>), we find this:

    
    
        They [Card & Krueger] surveyed 400 fast food restaurants and found that
        those in New Jersey actually added 2.5 workers after the minimum wage went
        up. In Pennsylvania restaurants, meanwhile, payrolls shrank.
    
        Why should bosses hire more workers if it's more expensive to do so? The
        two economists speculate that any fast-food restaurant typically operates
        with a couple of vacancies it can't fill because it doesn't pay enough.
    
        "If you raise the minimum a little," said Professor Card, "teens who are
        sitting [at] home go out looking for jobs." 
    

Apparently, these restaurant managers are too stupid to realize they're
allowed to pay _above_ the current minimum wage, thereby getting those lazy
teens off their couches to fill the vacancies without a minimum wage hike.
Truly, it boggles the mind.)

~~~
philwelch
"In sum, the value of empiricism lies in finding the right axioms. If you
discover "empirical evidence" that a theorem is wrong, you must either propose
a change in the axioms or find a flaw in the proof. Contemporary economists
often appear to do neither."

That's not how the real sciences work, though--physics doesn't operate through
axioms and theorems, it establishes a few _theories_ and as long as they hold
within experimental error, they don't complain too much. When they stop
holding, we either postulate extra "stuff" we don't directly observe (most of
the outlying planets as well as the Kuiper belt were discovered by measuring
their gravitational effects on planets we could directly observe) or use a
more refined theory on the edge cases (Mercury's orbit). But all the while
physics gathers more and more empirical data, and spends a lot of time trying
to make sense of it.

"When I read the Austrian argument that any fixed amount of money-stuff (e.g.,
gold) is sufficient for exchange, I understand the axioms, follows the steps,
and accept the conclusion. When I read the Keynesian arguments for the
benefits of monetary expansion and "fiscal stimulus", I see---great clouds of
fog."

The other problem I find is that most armchair Austrians take their entire
economic understanding from an 80 year old dispute and have no conception of
what's happened in the field ever since. Keynes is a dead old man and the
field of economics has moved on from his work.

Incidentally, even if you just take the approach of pure reason, it's still
pretty fucking easy to debunk the idea of the gold standard.

"Apparently, these restaurant managers are too stupid to realize they're
allowed to pay above the current minimum wage, thereby getting those lazy
teens off their couches to fill the vacancies without a minimum wage hike.
Truly, it boggles the mind.)"

And here you see one of the biggest problems with the field of economics in
general, a problem that's only been tackled in recent decades--modeling how
_actual human beings behave in the real world_ rather than supposing that each
economic actor is fully informed, perfectly rational, and perfectly self-
interested. How many 16 year old kids would know whether or not Burger King
paid above minimum wage? Of course Burger King only pays minimum wage. It's a
cultural expectation. The same thinking applies to the manager--is a fast food
manager really going to be fully informed, perfectly rational, and perfectly
self-interested? For the most part, his job consists of executing a manual
written at the corporate headquarters in a different state which dictates that
crew are paid local minimum wage, and quite frankly, the corporate overhead of
rewriting the corporate manual to allow wage adjustments to recruit people to
work at a fucking Jack in the Box isn't justified.

------
cstross
I notice the author has nothing to say about the over-valuation of the Yen,
which for the past year or two has been crippling Japan's balance of trade by
making exports _way_ too expensive on world markets.

~~~
sailormoon
I have been wondering for some time why on earth the JCB has been allowing the
yen to stay so high. It would seem a no-brainer to sell it down - they have
all sorts of incentives. The car companies in particular must be in a state of
permanent howling rage about it.

And yet they haven't done it. There must be an awfully good reason for that.

------
gommm
So as someone who has assets in Japan, what can I do to protect myself and
maybe profit from the looming financial crisis? (reading those kind of
articles makes me realize that I really need to read up on economy)

~~~
spamizbad
I'd take what the author says with a grain of salt; he has a history of making
stuff up from whole cloth.

~~~
alanthonyc
Can you provide some references please? I'm unfamiliar with his work.

~~~
dhoe
He blows stuff out of proportion, and writes trollish articles that are
popular on link hubs due to their provocativeness. I see a headline predicting
doom for any non-British country and a telegraph URL and I know it's him
again. His main function seems to be to reassure the Brits that it's much,
much worse everywhere else.

~~~
Keyframe
Not to mention Yen has been the strongest currency for recent period and Japan
is actually fighting deflation. If there is one currency I'd be worried about
- it's GBP and less so USD. UK still has not shown any positive fundamentals
out of the recession, while others have.

