Monday, April 25, 2011

Jonathan Finegold Catalan on Idle Resources

I have just read this post on
Jonathan M. Finegold Catalan, “Government Spending Is Bad Economics,” Mises Daily, March 31, 2011.
One of Catalan’s arguments is that idle resources are not a problem and there is no need for government use of those resources in recessions:
“Idle resources are means of production that are seemingly being left unused — an obvious example is an unemployed laborer. If these means of production are ‘idle’, what harm is there in government employing these resources? …. The correct answer to this question is the one that explains why the supposed problem of ‘idle resources’ is actually not a problem at all, because resources are not purposelessly left idle .... That some goods may not be applied toward the attainment of a specific end does not mean that these resources are now idle and valueless. It simply suggests that these resources are better saved for the attainment of another end.”
There you have it. All those unemployed people are “better saved for the attainment of another end.” It doesn’t matter one iota that these people want to work, that people don’t want to lose their houses, live on the street or under bridges because of financial hardship, or that the social and economic losses under high involuntary unemployment make society poorer.

This type of Austrian analysis falls flat on its face.

And those of us who reject the fable of natural rights/natural law arguments for anarcho-capitalism have ethical arguments justifying government intervention on moral grounds alone. Catalan could say very little in reply, except get drawn into a debate on moral theory.

Catalan’s conclusion contains a completely unsupported assertion:
“Government, in fact, is a large disequilibrating force on the market. It forcibly redistributes economic goods, removing them from a process of economization and instead investing them toward the realization of less important, or less preferred, ends.”
How would he know that a democratically-elected government’s spending program does not reflect the important, preferred goals and wants of the community? If the majority of people have voted for such a program, then clearly these are ends that command wide support. If, say, a fiscal program is supported by 55% or 60% of the community, then it is a realization of the important and preferred goals of a majority of people.


  1. Well, what say you about the phenomenon of "demonstrated preference"?

    It is, as you may already know, a situation in which a person says one thing, but his or her actions reveal something else entirely, irrespective of how sincere and honest his or her view is.

    For example, Llewelyn Rockwell points out that ordinary people genuinely and honestly hate the existence of malls sprawling around their once simpler small towns. But they go and buy an entire car trunk's worth of items every time they go to malls anyway. Why aren't they simply boycotting these malls if they hate them so much?

    (I myself hate the malls coming around my simple home town of Gurgaon, and that is why I don't visit those vulgar materialistic places.)

    It is quite possible that people will vote to not allow malls to exist in their neighbourhoods. And yet, they still continue to shop for them or drive, grumbling, across long distances to buy low price items.

    People will just have very different social rationales and personal rationales. By their social rationale, they may hate degradation of society into commercialisation. By their personal rationale, they may still occasionally take advantage of the benefits of that commercialisation out of pragmatism or something.

    In the act of voting, they choose a social rationale that does not one bit reflect their own personal standards. Voting is very easy for people when it involves holding other people to standards different from their own.

    Isn't that why some elderly American voters detest "welfare queens" and vote for welfare for them to be cut, all the while demanding their Medicare social protections to be expanded?

    A businessman might look at an unemployment problem and feel that someone should hire people to put them to work. But why doesn't he take that initiative himself? Why does Warren Buffett ask the government to put in policies to bring employment but not hire a few more unemployed people at Berkshire Hathaway?

  2. these people want to work

    This is such a primitive simplification. If they wanted to work, they would work. Unemployment is always a choice. There is never shortage of work as such, there is only shortage of work at given price. People simply don't accept lower salary if they believe they can (should?) get a better job in the near future. That's why the job market needs temporarily higher unemployment so that lower salaries become attractive again. It's market price mechanism same as with with any other good. I can't see why people minds get obstructed once they start talking about jobs. Again, less "disgust, empathic concern, and neuroticism" and more "utilitarianism, need for cognition, and systemizing" please.

  3. "If they wanted to work, they would work. Unemployment is always a choice."

    Wrong. There are not working because there are insufficent jobs.

    Free market systems do not converge to full employment/high employment equilibrium.

  4. Free market systems do not converge to full employment/high employment equilibrium.

    Free market systems ALWAYs converge to full employment/high employment "equilibrium". Keynesians and statist wars, government spending and funny money dilution impair that process and make adjustments to it painful.

    Ever hear of WWI? That sure wasn't the "free market".

  5. "There is never shortage of work as such, there is only shortage of work at given price."

    Alternatively there is a shortage of those willing to pay this prevailing price.

  6. The problem is a lack of money. In a monetary economy, people need money to perform transactions. If there is not enough money at the prevailing level and structure of prices, then people will be left wanting to trade but unable to. That is when resources become idle. Moreover, this is not "saving" because it does not deploy those resources to produce future goods. Idle resources depreciate and so it is actually closer to dissaving -- not to mention the political turmoil of having high unemployment.

  7. "simple home town of gurgaon"? gurgaon has and will always be filthy urban sprawl

  8. "Free market systems ALWAYs converge to full employment/high employment 'equilibrium'"

    Oh dear me. You complain repeatedly that Keynesians don't understand Austrian economics, but now you seem unaware that full employment/high employment 'equilibrium' is a neoclassical, not an Austrian, concept.

    Austrian economics does NOT use the concept of full employment 'equilibrium'.

    Instead, some Austrians invoke the concept of pattern/plan co-ordination (e.g., Hayek, Rizzi and O'Driscoll), while others would agree with me (e.g., Lachmann and other radical subjectivists) that there is no tendency to pattern/plan co-ordination or full employment 'equilibrium' in a free market economy.

    Because of uncertainty, subjective expectations, money as a store of value, financial asset markets, debt deflation etc, Say's law does not work:

    Try reading the classic essay by Lachmann too:

    Lachmann, L. M. 1976. “From Mises to Shackle: An Essay on Austrian Economics and the Kaleidic Society,” Journal of Economic Literature 14.1: 54-62.

  9. Joanna, you and Bob Roddis have made a serious mistake by lecturing people in a dozen other blogs that they don't understand Austrian economics.

    This tactic has constantly kept backfiring, and it is a really bad idea to do it in a blog in which the blogger has cited and quoted far more books of Austrian economists than many free market blogs do.

  10. The "democratic" argument to judge the allocation of resources is one of the worst I have ever read. It can be uses to decide how much to spend on not marketable services, like police, fireguard, etc. and it can be used surely in allocating resources taking form Peter and giving to Paul paying Simon to enact it. But it is never a measure for tradable goods or services. It is never a measure of efficieny in the economic sense of terme. No doubt the South of Italy or the East of Germany gave a constant and big "consesus" to make money flow from the richer North (Italy) / West (Germany). No doubt the reasult has been mainly a huge waste of resouces and the development of parasitc economies well connect with politicians and bureaucrats unable to create an endogenous development.
    A good or a service is never at margin, infra or sub marginal just because a temporary majority express a vote about it or gave power to a man that in a long list of promises included it among many other. Stating so, you seem to be completely unaware of public choice economics.

  11. Prateek Sanjay,

    Thanks, it's nice to see some balance!
    As I have pointed out numerous times, Keynesians can learn from engaging with Austrian economics, and admitting the Austrians get some things right. Credit where credit is due.

    Those Austrians who emphasise that money is not neutral, that uncertainty is a fundamental concept, and that business expectations are subjective are correct.

  12. Surely you can find some topics in commons with Austrians. This is valid also for many heterodox approaches. But many times your use of Austrian economists is captious, i.e. you use Hayek vs Mises, Lachmann vs Rothbard, and so on depending on the argument. Well, you may be (in part) justified in order to answer to "consumers of Austrian economics" which quote Human Action or Man Economy & State as if the were the Holy Bible. But you won't go too far in such way.
    Broadly, you can distinguish between:
    1. "Rothbardians" and follower of praxeological method in general;
    2. Kirzer with its Entrpreneurial Discovery Approch (EDA), that is less far from the Neoclassical EEA.
    3. The "Hermeneuticians", followers of the Hermeneutic Turn of Don Lavoie and Lachmann (now you can find many of them around the GMU) - the big part of them prefer to stand with Hayek and its evolutionary approach because Lachmann and its subjectivism is sometimes is close to epistemological nihilism.
    Anyhow I think that many "so called" Austrians are unaware of these differences. Obviously that the "labels" that I attached to each subgroup are merely indicative.

  13. "Unemployment is always a choice."

    Written by someone never unemployed.