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Economics - '..acts of choice.' (‘..imagination of alternatives..’)

Posted by ProjectC 
Past & Present - '...The right to own property - freedom of thought and to human dignity.'

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'The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.'

— Ernest Hemingway, “Notes on the Next War: A Serious Topical Letter,” 1935 (Context)



'Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes … known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare.'

— James Madison, Political Observations, 1795 (Context)



'I, too, have a pet little evil, to which in more passionate moments I am apt to attribute all the others. This evil is the neglect of thinking. And when I say thinking I mean real thinking, independent thinking, hard thinking.'

- Learning How to Think



'I suggest that Dr. Bernanke scrap his previous research and have his staff begin anew.'

- Doug Noland, For the Twenty-First Century, June 15, 2007



'Anyhow, one may wonder why financial institutions have been so short term and were unable to forecast the future. One reason may be ignorance: most bankers do not know the Austrian theory of the business cycle.'

- Pascal Salin, Austrian Economics: The Ultimate Achievement of an Intellectual Journey, 2/13/2009



'In 1999, when I was in China, the then prime minister, Zhu Rongji, spoke at the Harvard Business School. During the question-and-answer period, a smart aleck asked, "Are you going to devalue the Chinese currency?" Since 1984, the Chinese currency, the renminbi, has been pegged to the U.S. dollar, and there had been a lot of speculation in the press that the Chinese would be making their currency convertible - the sine qua non for China to become a truly great economy.'

- Jim Rogers, The Rise of Red Capitalism, May 18, 2005



'The case against price controls is not merely an academic exercise, restricted to economics textbooks. There is a four-thousand-year historical record of economic catastrophe after catastrophe caused by price controls. This record is partly documented in an excellent book entitled Forty Centuries of Wage and Price Controls by Robert Schuettinger and Eamon Butler, first published in 1979.'

- Thomas DiLorenzo, Four Thousand Years of Price Control



'The death knell is now tolling for the mathematical and positivist pretenders to the mainstream of economics.'

- Joseph T. Salerno (Context)



'It is economic blasphemy even to suggest such a thing. There is cause for concern when virtually every economist in the world agrees on something. China faces an ever-growing number of risks that must be headed off to keep an economy growing at 11 percent from spiraling out of control.'

- William Pesek, Chinese Yuan Too Strong If You Look Under Hood, September 19, 2006



Praxeology - '...causal-realist economics.'

- Joseph T. Salerno (Context)



'I was a trader and risk manager for almost 20 years (before experiencing battle fatigue). There is no way my and my colleagues’ accumulated knowledge of market risks can be passed on to the next generation. Business schools block the transmission of our practical know-how and empirical tricks and the knowledge dies with us. We learn from crisis to crisis that MPT has the empirical and scientific validity of astrology (without the aesthetics), yet the lessons are ignored in what is taught to 150,000 business school students worldwide.

Academic economists are no more self-serving than other professions. You should blame those in the real world who give them the means to be taken seriously: those awarding that “Nobel” prize.

...

Every time I have questioned these methods I have been abruptly countered with: “they have the Nobel”, which I have found impossible to argue with. There are even practitioner associations such as the International Association of Financial Engineers partaking of the cover-up and promoting this pseudo-science among financial in­stitutions. The knowledge and risk awareness we are accumulating from the current subprime crisis and its aftermath will most certainly not make it to business schools. The previous dozen crises and experiences did not do so. It will be dying with us, unless we discredit that absurd Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel commonly called the “Nobel Prize”.'

- Nassim Nicholas Taleb, The pseudo-science hurting markets, October 23 2007



'Britain's economic resurgence over the last fifteen years has been driven by record levels of household debt and a public spending spree that cannot continue, according a German-led team of economists.'

- Ambrose Evans-Pritchard, German team damn UK economic 'miracle' as a sham, 24/10/2007



'THE medium-term outlook for the company is very positive,” declared Northern Rock's chief executive, Adam Applegarth, unveiling its first-half results in July. He spoke of a credit book that was “robust”. Who would have guessed that less than two months later Britain's fifth-largest mortgage lender would be fighting for its life, its branches besieged by customers demanding their savings back?'

- When it goes wrong..., Sep 20th 2007



'Ms. Schwartz says the Federal Reserve caused the credit crisis that has shaken financial institutions around the world.'

- Neil Reynolds, Greenspan critics: One voice stands out, April 11, 2008



'...the Federal Reserve System, in 1913 ... This virtual nationalization of the banking system ... The result was the cartelization of banking under federal control, with the government standing ready to bail out banks in trouble.'

- '...the relation between reality and ... assumptions.'



'Progressives in the early twentieth century, drawn from the growing ranks of managerial professionals, believed "good government" required technocratic experts who would be shielded from the unruly populace and especially from radical voices of organized labor, populism, socialism and other upstart movements. The pretensions of "scientific" decision-making by remote governing elites--both the mysterious wisdom of central bankers and the inventive wizardry of financial titans--failed spectacularly in our current catastrophe. The Fed was never independent in any real sense. Its power depended on taking care of its one true constituency in banking and finance.'

- William Greider, (The Fed) Dismantling the Temple



'...most academic disciplines and top-tier journals are controlled by some defining paradigm...'

- Ryan Grim, Priceless: How The Federal Reserve Bought The Economics Profession



'The Fed's relatively enhanced standing among the public has been aided 'by the fact that the Fed has always paid a great deal of attention to soothing the people in the media and buying up its most likely critics.' Recognizing that the Fed employs 'probably half of the monetary economists in the U.S. and has visiting appointments for two-thirds of the rest,' he [Friedman] saw few among the academic community who were prepared to criticize the Fed policy.'

- Robert Auerbach, When Five Hundred Economists Are Not Enough



'And what did Greenspan do? He lowered interest rates. Then the next bubble, the so-called New Economy, began to grow in Silicon Valley. It burst in the spring of 2000. What did Greenspan do? He lowered interest rates. This time the reduction was massive, with the benchmark rate dropping from 6 percent to 1 percent within three years. This, according to White, was the cardinal error. "After the 2001 crash, interest rates were lowered very aggressively and left too low for too long," he says.

...

...And wasn't it written, in both the Bible and the Koran, that it was important to provide for seven years of famine during seven good years?'

- 'White ... Perhaps his model has a flaw in that regard.'



' “In their desire for mathematical order and elegant models,” he wrote in his firm’s quarterly letter to clients earlier this year, “the economic establishment played down the role of bad behavior” — not to mention “flat-out bursts of irrationality.”

He continued: “The incredibly inaccurate efficient market theory was believed in totality by many of our financial leaders, and believed in part by almost all. It left our economic and government establishment sitting by confidently, even as a lethally dangerous combination of asset bubbles, lax controls, pernicious incentives and wickedly complicated instruments led to our current plight. ‘Surely, none of this could be happening in a rational, efficient world,’ they seemed to be thinking. And the absolutely worst part of this belief set was that it led to a chronic underestimation of the dangers of asset bubbles breaking.” '

- Poking Holes in a Theory on Markets, June 6, 2009



'However, this is not a dispute about heuristic questions, but a controversy concerning the foundations of economics. The mathematical method must be rejected not only on account of its barrenness. It is an entirely vicious method, starting from false assumptions and leading to fallacious inferences. Its syllogisms are not only sterile; they divert the mind from the study of the real problems and distort the relations between the various phenomena.'

- Ludwig von Mises, Mathematics Versus Economic Logic Humanity - Mathematics Versus Economic Logic (One, Two, Three)



'The use of the calculus, for example, that has been endemic in mathematical economics assumes infinitely small steps. Infinitely small steps may be fine in physics where particles travel along a certain path; but they are completely inappropriate in a science of human action, where individuals only consider matter precisely when it becomes large enough to be visible and important. Human action takes place in discrete steps, not in infinitely small ones.'

- Murray N. Rothbard, A Note On Mathematical Economics



'What Is the Proper Way to Study Man?'

- Murray N. Rothbard (Context)



'Admittedly, I've expended a lot of ink -- or, rather, worn out a few keys on the computer keyboard -- railing against the incompetence and delusions of the mainstream forecasting crowd.'

- Michael J. Panzner, 'Difficult to Recall a Greater Example of Wishful Thinking Combined with Hubris'



'The evidence is very clear. Most of the economists that belong to the Austrian School saw the crisis coming and warned people about it in countless of interviews, papers, articles and commentaries. But they were laughed at and dismissed as fools who just didn't get IT. Now that they have been proven right the mainstream media ignores the fact that they actually saw it coming and understood the implications of central bank monopoly over money creation.'

- Vangel, '...the Austrian School saw the crisis coming and warned people'



'...All the soothing talk about the fundamentals of the economy being strong notwithstanding the debt bubble is insulting to the thinking mind.'

- Henry C K Liu, (context,) Aug 24, 2007



'The reigning Walrasian-Keynesian' - '...Country Mired in Debt.' & The Nine Trillion

- Murray N. Rothbard (Context)



'A minority of economists, in contrast, keeps just as stubbornly stressing that the economy's famous gross imbalances and structural distortions and the associated debt explosion are inexorably undermining economic growth. In this view, the ongoing housing downturn will finally abort U.S. growth and drive the economy into recession, with major adverse spillover effects on consumer borrowing and spending.'

- Dr. Kurt Richebächer, Monetary Anarchy, December 13, 2006



'WASHINGTON -- Inside the U S Federal Reserve headquarters, a small team is testing a forecasting program that does the work of hundreds of economists. Never before has the Fed been able to crunch in real time such a large mountain of data -- as many as 150 indicators -- to divine where the economy is headed.

Chairman Ben S. Bernanke is pushing the "factor model" program -- so named because it reduces everything from home sales to mining capacity into a few weighted averages for making predictions. The Fed could use the help: Its gross domestic product forecasts, which influence its interest rate decisions, have missed the mark by an average of 1 percentage point since 2000.'

- Bernanke pushes computer modeling, November 24, 2006



'Dr. Krugman, like so many economists of our time, is an inflationist. He, like so many before him, sees easy Credit and the government printing press as the solution to unemployment and other economic problems. And - in our age of electronic “money” and unbounded global finance - there are apparently no longer any bounds to U.S. fiscal and monetary stimulus.'

- Doug Noland, Clinging to Misguided Monetary Mentalities, October 16, 2009



'The economics profession, as a whole, has a blind spot for finance. Economists conduct their analyses without reference to the creation of credit and debt.'

- Ann Pettifor, Economists have a blind spot for finance, October 10, 2006



'It is the great merit of the proponents of Austrian theory to have uncovered and shown that the borrowing and spending excesses driving a boom may, with or without inflation, exert harmful economic and financial effects other than just a rising inflation rate - actually, more harmful effects.'

- Dr Kurt Richebächer, The Great Depression of today, Wed 01 Mar, 2006



'Contemporary macroeconomics has little room for money and finance to matter. General equilibrium theory, the intellectual pinnacle of the profession, has no room for money. Real business cycle theory has no room for finance – negative shocks to productivity, virtually from out of the blue, are the stated source of recessions. The Taylor rule, which ostensibly guides central bank policy rate setting, has an interest rate but no room for either money or finance, unless it is packed away in the error terms of the canonical equations. Recently, the Henry Kaufman Professor of Financial Institutions at Columbia University and his co-authors concluded the US housing bubble had little effect on consumer spending patterns. Huh?'

- Rob Parenteau, Reality Intrusion - 'Time to drop the delusions and move forward', July 7, 2009



'In the old days, central bankers were always mindful of the necessary balance between available domestic savings and credit expansion. For them an early indicator of a developing imbalance between the two aggregates was a deteriorating trade balance, responding typically long before prices.

It is, as a matter of fact, the central axiom of the Austrian school of economics that the movements in the price level can be a misleading guide to monetary policy. What crucially matters is the inflation of credit, exerting a much deeper and fundamental influence on the whole economy through distortions and dislocations in its whole demand and output structure.

From a policy perspective, to stress the key point, the decisive evil thing is the credit expansion that exceeds available domestic savings. That is the regular, cardinal culprit behind all dangerous economic and financial imbalances, and also behind all inflations. What the Greenspan Federal Reserve refuses to accept is that their beloved wealth-creation reflects incredibly dangerous inflation in the asset markets.

Putting it differently, in a balanced economy, credit expansion is fully matched by available domestic savings. This used to belong to the elementary knowledge of economists. Mr. Greenspan shocked us with his public remark that an asset bubble can only be recognized after it has burst. Outrageous credit inflation was the infallible and most spectacular hallmark of America's equity bubble in the late 1990s. But instead of feeding into the price indexes of goods and services, which continued to fall, it fed into soaring imports and soaring stock prices.

- Kurt Richebächer, How To Identify A Bubble, 9 Jan 2004



'...What has truly happened in the United States and the other English-speaking countries is that private households, in response to inflating house prices, have slashed their savings even faster than businesses slashed their capital investments. As a result, minimal investment exceeds nonexistent domestic saving. This explains their stronger economic growth.

To illustrate this with a comparison: In France, the personal saving rate is hovering lately at around 11.4% of disposable income, literally the same level as in 2000. This stability in savings has prevailed despite sharp rises in house prices because everybody in France regards this as inflation, not as saving. Living systematically beyond one's means is not a way of life in France and many other countries.'

- Dr. Kurt Richebächer, A Credit Machine Running Amok, August 03, 2006



'Yet there is still a third, unconventional instrument of which central bankers have made very different or no use of at all. It has sometimes been called a central bank's open-mouth policy. Mr. Greenspan is definitely the world's one central banker who has practiced this extraordinary tool with unusual abundance and aggressiveness. He, apparently, regards it as perfectly legitimate for a central banker to bend expectations in the economy and the markets in a direction he wants.'

- Kurt Richebächer, An Open Mouth, 01 Aug 2003



'Editor's note: Former Fed Chairman Paul Volcker once said: "Sometimes I think that the job of central bankers is to prove Kurt Richebächer wrong." '

- Corrupted thinking in a money culture, 01/27/04



'It was an amazing speech for a Nobel Prize winner to give, an implicit condemnation of a century of intellectual and social trends, and a real tribute to Mises, who had stuck by his principles and never given in to the academic trends of his time.

...

We are living now through another period of economic planning and we are seeing economists split on both sides. The overwhelming majority is saying what the regime wants them to say. To depart too much from the prevailing ideology of power is more of a risk than most want to take. A small minority, the same group that warned of the bubble, is again warning that the stimulus is a fake. And they are going against the grain in saying so.'

- Llewellyn H. Rockwell Jr., The Pretence of Knowledge - Economics and Moral Courage, October 23, 2009



'In my view, whatever predictive ability markets once had has been steadily eroded by years of monetary recklessness, a cultural shift away from long-term investing towards short-term trading and speculation, and the shrinking share of market participants -- read professionals -- who actually understand the fundamentals that matter.

So, to those economists who keep insisting that the large and growing obligations our government is committing us to in the name of saving or increasing jobs -- a theory that hasn't quite panned out yet, as it happens -- don't matter because markets are signalling otherwise, I say one thing.

Bunk.'

- Michael Panzner, Economists: Wrong Again, November 21, 2009



'Given the almost monolithic failure on the part of economists to predict our present economic malaise, more than a few commentators have taken to asking why we rely on economists at all. Recent statements by economists Gregory Mankiw and Kenneth Rogoff lend credence to the discontent among the lay commentariat.

As Bloomberg reported on May 19th, Rogoff and Mankiw think heightened inflation is the cure for our sagging economy. In Rogoff’s case, he’s advocating “6 percent inflation for at least a couple of years”, while Mankiw says the Federal Reserve should pledge to create “significant” inflation. As the article noted, inflation “would make it easier for debt-strapped consumers and governments to meet their obligations”, plus it might encourage “Americans to spend now rather than later when prices go up.”

At first glance it’s easy to pick out the many problems with their analysis. While it’s certainly true that inflation drives cash-holding individuals to consume in the near-term, what neither economist has accounted for is that governments can at best reschedule consumption. If a weak dollar moves heavy consumption into the present, the economy will suffer from a dearth of consumption later on as debts come due.'

- Mankiw & Rogoff: Why We Don't Need Economists - By John Tamny, June 02, 2009



'P.S. We keep asking the question of the American economists: Are they providing deliberate misinformation or simply performing slipshod work? In our view, as usual, the latter rings true.

The whole economic discussion today is fixated on the next economic data with one single question in mind: is it better than expected? Careful, more detailed analysis with a longer-term perspective is completely missing. Obviously, most economists and journalists read no more than the brief summaries provided by agencies, like Bloomberg and Reuters, that only rehash the summaries preceding the official releases.'

- Kurt Richebächer, Ponzi Economy, September 15, 2003



'However, the main event on the horizon is the “bailout bubble” and the general world debt bubble, which will plunge the world into a Great Depression the likes of which have never before been seen.'

- Andrew Gavin Marshall, Entering the Greatest Depression in History, August 8, 2009



'No treatment of economic problems proper can avoid starting from acts of choice.'

'For a long time men failed to realize that the transition from the classical theory of value to the subjective theory of value was much more than the substitution of a more satisfactory theory of market exchange for a less satisfactory one. The general theory of choice and preference goes far beyond the horizon which encompassed the scope of economic problems as circumscribed by the economists from Cantillon, Hume, and Adam Smith down to John Stuart Mill. It is much more than merely a theory of the “economic side” of human endeavors and of man’s striving for commodities and an improvement in his material well-being. It is the science of every kind of human action. Choosing determines all human decisions. In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference. The modern theory of value widens the scientific horizon and enlarges the field of economic studies. Out of the political economy of the classical school emerges the general theory of human action, praxeology. The economic or catallactic problems are embedded in a more general science, and can no longer be severed from this connection. No treatment of economic problems proper can avoid starting from acts of choice; economics becomes a part, although the hitherto best elaborated part, of a more universal science, praxeology.'

— Ludwig von Mises, Human Action, page 3



'The treatment accorded to the problem of causality in the last decades has been, due to a confusion brought about by some eminent physicists, rather unsatisfactory. We may hope that this unpleasant chapter in the history of philosophy will be a warning to future philosophers.'

— Ludwig von Mises, Human Action, page 22



'...a quantitative relationship.' ... 'this type of relationship has a fundamentally different nature than do the relationships implied by human action.'

- '...cause and effect...'_'...faith-and-hope-based-investing' - Depression



'...fundamental issues in General Relativity...'

- Stephen J. Crothers (Context)



'Economics opened to human science a domain previously inaccessible and never thought of.'

- Llewellyn H. Rockwell Jr., Economics - "Economics is the youngest of all sciences..."



'The spontaneous creativeness of a Shakespeare, verbing it with nouns and adjectives, so to speak, sublimely indifferent to rules, untroubled by any considerations in language save those springing from a sure instinct, had given place to hesitation and uncertainty, so that a man like Dryden confessed that at times he had to translate an idea into Latin in order to decide on the correct way to express it in English.'

- The Appeal to Authority, 1650-1800 (The Impact of the Seventeenth Century.)


Creative Create - ‘..imagination of alternatives..’