Thursday, November 10, 2011

Gathering Clouds – Poverty, Banking, and Debt Limits « Real-World Economics Review Blog

Gathering Clouds – Poverty, Banking, and Debt Limits « Real-World Economics Review Blog

Peter Radford, over at the Real World Economics Review blog, encapsulates nicely my current criticism of Republicons:

"... we are fast approaching doomsday on the US budget negotiations. As you know there is a super secret and totally undemocratic committee studying ways to reduce the US federal budget. This committee consists of twelve members of Congress, six from each party. They have a target of $1.2 trillion in budget cuts to be spread over the next decade.  If they fail to come up with a program to reach that goal by November 23rd a series of automatic cuts come into play slashing away at the budget across the board.
The odds of an agreement coming from this group is close to zero. Although we hear constant rumblings of side deals and temporary fixes.
The problem – no prizes for guessing the answer on this – stems from Republican intransigence.
Oh what a shock.
The GOP has refused to countenance any tax increase as part of the deal. Not a single dollar of an increase. In their view the entire burden of reduction must come from spending. But not offense-defense spending. They are adamantly opposed to any cuts in our bloated offense defense budget. This presents them with a major quandary: the automatic cuts that will come into being if no agreement emerges from the secret committee includes a major cut in that hallowed offense defense budget. The idea of this draconian measure was to force the Republicans into being a tad more flexible over taxes.
So far it hasn’t worked.
Such is their attachment to low taxes for high income taxpayers that the GOP is actually contemplating allowing the automatic cuts to kick in. This is terrifying their own hawks. They imagine all sorts of terrible things happening if we cut so much as a dime from our offense defense budget. Imagine the fits that they are all throwing at the prospect of the 10% cut in offense defense spending in 2013 alone that the automatic cuts imply. Yes 10%. Followed by a further 10% over the next nine years. That’s a lot of plum jobs lost in a lot of Republican leaning Congressional districts.
Oh the dilemma.
In a sensible world – by which I mean one not infested with ideological sharks – the secret committee would be able to conjure up enough cuts mixed with tax increases to hit the target. We could allow the Bush tax increases to come into effect for the wealthiest taxpayers. We could impose a surcharge on higher incomes. There are all sorts of things we could do, most of which the voters tell pollsters they would accept, but which we cannot do because the Republicans have backed themselves, and thus all of us, into a corner.
So, at present anyway, this entire budget cutting effort, which was forced on us unnecessarily in the aftermath of the budget ceiling epic, looks as if it will fail.
America has rarely, if ever, sunk this low in its ability to mange itself."

Tuesday, November 8, 2011

Some Capital-Theoretic Fallacies of Austrian Economics:

Robert L. Vienneau
October 2007

This article demonstrates certain doctrines of the Austrian school of economics are untenable.

The focus is on certain aspects of capital theory undergirding Austrian Business Cycle theory.

Other criticisms of Austrian Business Cycle Theory from Cambridge-Italian economists are briefly surveyed.

This paper demonstrates an entrepreneur may simultaneously classify a capital good into several orders, as orders of goods are defined by Austrian economists. Hayekian triangles are defined. This paper demonstrates that the shape of a Hayekian triangle varies with the interest rate, even if real resources are not reallocated across stages of production. It is demonstrated, by means of an example, that no tendency need exist for entrepreneurs to respond to lower interest rates by reallocating resources from producing low order goods to producing higher order goods, or otherwise increasing the capital-intensity of the structure of production.

This paper poses a challenge to advocates of ABCT (Austrian Business Cycle Theory) – to either recant their advocacy or to retell their story with correct capital theory. In such theory, no presumption exists that entrepreneurs will systematically direct more resources to producing higher order goods and away from lower order goods when the interest rate is lower.
Whether the details of the ABCT can be reformulated to withstand capital-theoretic critiques remains to be demonstrated.

And a full library of criticism of the Austrian School of economic thought can be found at the Critiques of Libertariansim site.
The full article is here.

Some Capital-Theoretic Fallacies of Austrian Economics