Proof in the video debate below on gold, which involves Peter Schiff and Rick Rule (pro-gold) versus Marshall Auerback and Cullen Roche (anti-gold).
But it is Peter Schiff’s comments here in the video clip below that represent a libertarian/Austrian economics myth that will not die.
Peter Schiff says this:
“Look at the period between the end of the Civil War and the beginning of the First World War. That economic growth rate is unmatched at any point in US economic history.”The Austrian school economist Jesús Huerta de Soto recently put his foot in his mouth and made a very similar but utterly wrong comment which I refute here.
What about Schiff’s comments? According to Schiff, the period between 1866 and 1914 had an “economic growth rate” that is “unmatched at any point in US economic history.”
Of course, by “economic growth rate” he could mean either of the following:
(1) real GDP growth rate, orSo what is the evidence?
(2) real per capita GDP growth rate.
The standard source for both modern real GDP and real per capita GDP growth rates in virtually every nation is Angus Maddison’s The World Economy: Historical Statistics (Paris, 2003).
I have crunched the numbers on both real US GDP and per capita GDP growth rates (here and here).
First, let us start with real US GDP. Because of an anomaly in Maddison’s data (as described here), it is best to give estimates from both Maddison’s and Balke and Gordon’s data. For real GDP averages below, I have also given an average calculated from Romer (1989) (the data can be seen here), even though Romer’s estimates are now generally regarded as inferior to those of Balke and Gordon.
Unfortunately, annual estimates of GDP from 1866 to 1868 are not available, but we do have annual estimates for 1870 to 1914. Since the US suffered a recession in 1914 after the First World War started, I will remove this year from my estimates to make things better for advocates of the gold standard.
If we select those periods of economic and historical significance in US history, including the 1870 to 1913 period, and rank them from the highest to the lowest in terms of growth, we get the following average annual GDP figures:
(1) World War II average annual growth rate: 12.491%As we can see, the 1870–1913 or 1871–1913 period was not “unmatched at any point in US economic history” in terms of economic growth. The largest GDP growth happened in America’s moderate command economy in World War II.
(2) Recovery from Depression: 1934–1940: 6.511%
(3) Roaring ’20s 1922–1929: 4.856%
(4) Average annual real GDP rate 1983–1989 (Reagan boom): 4.282%
(5) Average annual real GDP rate 1950–1973: 4.160%
(6) Average real GNP growth rate, 1870–1913 (Balke and Gordon): 4.06%
(7) Average real GNP growth rate, 1870–1913 (Romer): 4.05%
(8) Average annual real GDP rate 1871–1913 (Maddison): 4.034%
(9) Average annual real GDP rate 1948–1973: 4.000%
(10) Average annual real GDP rate 1873–1896 (Maddison): 3.666%
(11) Average annual real GNP growth rate, 1873–1896 (Balke and Gordon): 3.596%
(12) Average annual real GDP rate 1974–2001: 2.963%.
Even putting wars aside, it was the recovery from the Great Depression from 1934–1940 under Roosevelt that had the highest average GDP growth rate at 6.511%. Next comes the Roaring ’20s (if we calculate this as 1922–1929) then the Reagan boom (1983–1989), and then the Golden Age of Capitalism if we reckon this as the 1950–1973 period.
Only then does the 1870 to 1913 period occur in the ranking, and no matter what data you use.
Schiff’s comments are clearly falsified by our best data, at least with reference to real GDP.
But of course here an objection can be made: isn’t real per capita GDP a better way to measure real wealth in a nation, if we wish to gauge how wealth was increasing in relation to the population (that is, per capita or by head)?
Yes, though one should also look at distribution of wealth issues too. But I will put aside the inequality and distribution of wealth issues to make it easier for the libertarians.
Is the real per capita GDP data any better for the Austrians? No, it is worse.
The full data can be seen here.
Again, we can take those periods of economic and historical significance in US history, including the 1870 to 1913 period, and rank them from the highest to the lowest, and get the following average annual real per capita GDP figures:
(1) World War II average per capita growth rate: 11.204%Admittedly, one should discount the WWII period, since the output of this period included mostly war production, not consumer goods.
(2) Recovery from Depression, average real per capita GDP growth rate 1934–1940: 5.75%
(3) Average real per capita GDP growth rate, Roaring ’20s 1922–1929: 3.35%
(4) Average real per capita GDP rate 1983–1989 (Reagan boom): 3.338%
(5) Average real per capita GDP growth rate 1950–1973: 2.66%
(6) Average real per capita GDP growth rate 1948–1973: 2.30%
(7) Average real per capita GDP growth rate 1974–2001: 1.88%
(8) Average real per capita GDP growth rate 1871–1914: 1.63%
(9) Average real per capita GDP growth rate 1873 to 1896: 1.42%
But even with the war discounted, the highest period of real per capita GDP growth was still the recovery from depression from 1934–1940, with an average real per capita GDP growth rate of 5.75%.
Next comes the Roaring ’20s, the Reagan boom, the Golden Age of Capitalism (whether reckoned either as 1950–1973 or 1948–1973), and the neoliberal era (1974 to 2001).
The gold standard era from 1871 to 1914 comes second last in the list, and is followed by the 1873 to 1896 deflationary period, which was the worst of all periods.
Could the data be any clearer?
Remember the comment by Peter Schiff:
“Look at the period between the end of the Civil War and the beginning of the First World War. That economic growth rate is unmatched at any point in US economic history.”The data that we have show us clearly that this is false. It is a libertarian/Austrian myth.
What was that about if you repeat a lie enough times people will start to believe it?
BIBLIOGRAPHY
Balke, N. S., and R. J. Gordon, 1989. “The Estimation of Prewar Gross National Product: Methodology and New Evidence,” Journal of Political Economy 97.1: 38–92.
Maddison, Angus. 2003. The World Economy: Historical Statistics. OECD Publishing, Paris.
Surely Schiff would be aware that the deflationary period 1871-96 does not flatter the gold standard. Would the pre-WW1 period look better if you dated it from 1896-1914?
ReplyDeleteSlightly better:
DeleteAverage annual real GDP rate 1897–1913 (Maddison): 4.514%
Average annual real per capita GDP rate 1897–1913: 2.589%
----------------
But even for this last inflationary period of the Classical gold standard, in neither case are these figures "unmatched at any point in US economic history."
I imagine the evidence for their claims are probably not going to be seen in GDP, but in population growth, agricultural production increases, technological increases, increases in lifespan, decreases in infant mortality, general capital accumulation as Austrians would claim is the key factor in economic growth, and improved living conditions as is the goal in human action. Perhaps the data in this regard is still not there, but I think you should ask Huerta de Soto or Schiff what their criteria are rather than assume its real GDP. You should know by now Austrians have different ideas than most mainstream economists about measurement in general, let alone the popular metrics.
ReplyDeleteAlso, as you point out yourself, wartime GDP being so high and needing to be discounted because it isn't consumers goods being produced just highlights one of the exact reasons an Austrian would probably not be citing GDP as proof of their growth claims.
"Perhaps the data in this regard is still not there, but I think you should ask Huerta de Soto or Schiff what their criteria are rather than assume its real GDP.
DeleteRubbish. Austrians regularly use and cite GDP to bolster their claims. Rothbard uses real GDP in his books, e.g., in A History of Money and Banking in the United States where he falsely claims that the 1870s was a period of "outstanding real national product growth":
http://socialdemocracy21stcentury.blogspot.com/2012/09/rothbard-on-us-economy-in-1870s.html
If it is not real GDP or real per capita GDP that Huerta de Soto or Schiff are thinking of, then they and other Austrians have no business saying 1866-1913 was the one where "economic growth rate is unmatched at any point in US economic history."
"I imagine the evidence for their claims are probably not going to be seen in GDP"
DeleteThe psychology of this cult is truly amazing. They refuse to accept reality. When the false claims of their leaders are totally debunked, they 'imagine' the claims must still be true somehow. It doesn't matter if the claims are false, you just have to 'imagine' that they are true, because after gold is really amazing and fiat money is evil etc and gold is going to $10000 because of hyperinflation and don't take away my guns commie muslim Obama.
Population growth!?
Deletehttp://upload.wikimedia.org/wikipedia/commons/1/13/World_population_growth_rates_1800-2005.png
You'd find similar trends for your other idiosyncratic metrics.
US population:
Delete1870 - 38,558,371
1900 - 76,212,168
Population doubled.
http://geography.about.com/od/obtainpopulationdata/a/uspop.htm
DeleteInteresting. But population growth can't possibly be evidence that the 1866-1913 "economic growth rate is unmatched at any point in US economic history."
DeleteNumerous underdeveloped countries have huge population growth but low or stagnant economic growth.
I agree, I was just responding to Phil above.
DeleteNotice how scarce metal-based monetary systems seem to encourage colonial expansion.
ReplyDeleteGot to get that metal from somewhere. If there's some primitives you have to kill to get it then why not.
also note the libertarian gold bug bias of the boom bust program. The first gold coins are said to have been created by Lydian 'merchants' (read: emerged from 'the market) whereas in fact they were minted and issued by the king.
Delete"The first gold coins are said to have been created by Lydian 'merchants' (read: emerged from 'the market) whereas in fact they were minted and issued by the king."
DeleteYes! I was going to comment on that error too -- though perhaps it was an "honest" mistake, to be fair to them.
Notice how paper based fiat currencies encourage war and colonial expansion for more resources? We are now stuck in neverending war and what do we use as currency? Fiat paper...I rest my case.
Delete"Notice how paper based fiat currencies encourage war and colonial expansion for more resources"
DeleteNot true. When the Western nations adopted fiat currencies, they liquidated their colonial empires not long after that.
But we do have good evidence a gold and silver standards encourage war and colonial expansion for more gold and silver, e.g., the conquest of and enslavement of Latin America, all the colonial gold rushes of the 19th century, etc.
Mr/Mrs/Ms LK, what planet have you been living on the past few decades? Ever heard of the wars in Korea, Vietnam, Iraq, Afghanistan? There are many other wars not involving the US, occuring all over the globe, but no nation uses gold as money any longer. You should pull your head out of the sand.
DeleteDimitrios Freedom,
DeleteThe wars in Korea, Vietnam, Iraq, Afghanistan were not about "colonial expansion for more resources". You are clearly an idiot. Those wars, whether right or wrong, were waged because the US and its allies thought they were stopping communism, stopping terrorism, and in the case of Iraq misguided ideology.
The fact is that Europe conquered almost the whole world and colonised large parts of it while on silver or gold standards, from 1500 down to 1914.
Then after fiat currencies were adopted in the 1930s, European colonial empires collapsed or were given up. That is a plain fact.
But I suspect absolute halfwits like you cannot see plain truths and historical facts.
How were those wars funded? With paper fiat currency!! How was the American war of independence funded? With the Continental dollar that became worthless!....not worth a continental, the saying went. Whatever the reasons for those wars, they were funded using paper. The US printed dollars to fund ww1 which then led to the gold exchange standard. How clueless are you Keynesians?
DeleteYour original statement was:
Delete"Notice how paper based fiat currencies encourage war and colonial expansion for more resources?"
Now -- by blatantly changing the goal posts and not being able to refute the plain facts listed above -- you effectively admitted that original statement was wrong.
My original statement was intended as a sarcastic reply to the original post. I was poking a bit of fun. I didn't intend for it to be taken literally. You need to lighten up a bit and stop taking everything so seriously.
Delete"My original statement was intended as a sarcastic reply to the original post. I was poking a bit of fun. I didn't intend for it to be taken literally.
DeleteOh really? Then why did you attempt defend the statement in 2 comments above?
If you now shamelessly admit that you are a troll and idiot, and are just here to troll my blog, well, thanks for that.
This also suggests that nothing you say should be taken seriously, because when some statement of yours is refuted, you will claim that you were only ."poking a bit of fun" and "didn't intend for it to be taken literally". This is clearly the mark of a halfwit troll.
These "Austrians" still haven't addressed how the gold standard idea and cornucopianism make contradictory assumptions. If anything, the invention of fractional reserve banking, credit money and fiat money show the application of man's mind, "the ultimate resource," to the challenges of overcoming the Malthusian constraints of the gold supply.
ReplyDeleteI think you might be mistaking austro-gold buggism for a rational ideology.
DeleteHi LK,
ReplyDeleteSchiff seems to be blind to the data. Is he driven by a praxeological basis for economics which, perhaps, would lead him to reject any empirical evidence that does not support his aprior views on economics? Or does he redefine GDP to exclude Government Expenditure from the official estimates of GDP?
John Arthur
Its funny how schiff wasn't blind to the data back in 2005-06 when he wsrned of the financial crisis. Meanwhile, most Keynesian economists like Bernanke were saying that home prices can never go down. Who was right and who was wrong??
DeleteWrong again, Dimitrios Freedom:
Deletehttp://socialdemocracy21stcentury.blogspot.com/2011/12/austrians-predicted-housing-bubble-but.html
Not wrong at all. YouTube search : Peter Schiff was right 2006-07. You seem to have a problem with the truth.
DeleteAlready looked: he predicted a recession in 2007 or 2008 and called a housing bubble and its collapse. But that does not make his Austrian economics right. In fact, Post Keynesians were calling the bubble and debt crisis and predicting a bad recession from the housing bubble collapse too, as were Marxists:
Deletehttp://socialdemocracy21stcentury.blogspot.com/2011/12/austrians-predicted-housing-bubble-but.html
Schiff had no special predictive power.
Also, he has been wrong on many, many other predictions. He also said the recession would last for "years". He was wrong. It ended in 2009.
He was wrong about hyperinflation in 2009, 2010, 2011, 2012, 2013 and 2014.
He has also been wrong about the price of gold.
He has also been consistently wrong that the US dollar will collapse.
I know this infuriates you. No doubt you are going into meltdown right now. Get used to facts and grow up.
Schiff has been wrong on the price of gold? How do you figure? Since Schiff started buying gold it has risen from about 250 to over 1200 per oz. During that time, Schiffs investment in gold has way outperformed the Dow and real estate. He has made a five bagger. Unfortunately, you are fixated on short term prices which is speculating not investing. Schiff was also right about how there was going to be more than just one QE because he understood that QE 1 would not work. He also stated that there wouldn't necessarily be hyperinflation, but high inflation in many of his videos.
DeleteYou claim that the Post Keynesians predicted the financial crisis, but what about the actual Keynesians? What did they predict? Didn't Bernanke state that home prices can never go down? How clueless was that currency printing clown?
Judging from the abusive and vile language in your posts, its you that is going into meltdown and who needs to grow up. I've actually studied Business at university and have run my own family business in the real world, where deflating prices stimulate sales and profits. You seem to be just an armchair critic.
"You claim that the Post Keynesians predicted the financial crisis, but what about the actual Keynesians? What did they predict?
DeleteIf you bothered to read the link I provide, you would already know.
But I see know that you are just a troll.
In a paper published by Prof. Lutz Hendricks of MIT dated December 29, 2014 the data he presents show that per capita GDP growth for the US since 1870 has been consistent at 2% per year except during the Great Depression. So, during the gold standard, growth was neither greater or less than in more recent times. The sky didn't fall in with the gold standard. There was no deflationary "death spiral" like the mainstream fearmongers tell us all.
ReplyDeleteGive me the precise details of the paper, because the standard source is Maddison (2003), and frankly I doubt this paper -- if it even exists -- says what you say it does.
DeleteMoreover, the evidence is overwhelming that the, say, the recovery from depression from 1934–1940 had a real average GDP rate far greater than the average for the gold standard.
President Roosevelt's Treasury Secretary Henry Morganthau jr stated, "We have tried spending money. We are spending more than we have ever spent before and IT DOES NOT WORK."
DeleteMorganthau was one of the key architects of Roosevelt's New Deal. So there you have it, the US didn't recover until ww2. Government spending was a complete failure during the depression.
Henry Morganthau had no idea what he was talking about.
Delete(1) unemployment fell very strongly under the New Deal until Roosevelt foolish stopped fiscal expansion and engaged in budget balancing and austerity in 1937-1938:
http://socialdemocracy21stcentury.blogspot.com/2013/07/us-unemployment-in-1930s.html
(2) Private investment too was rising and recovering until Roosevelt turned to budget balancing and austerity in 1937-1938:
http://socialdemocracy21stcentury.blogspot.com/2013/12/us-and-canadian-private-investment.html
(3) finally real GDP was rising so strongly that during the recovery from depression from 1934–1940 the average GDP growth rate of 6.511% was higher than any historical significant peacetime period in US history.
Its truly amazing how Keynesians are totally blind to the failures of paper based currencies. How did printing unlimited paper work out for the Weimar Republic? People's life savings were destroyed which directly led to the rise of Hitler. The former Yugoslavia printed and it led to bloody civil war; Zimbabwe printed and its still a basket case; Argentina printed and is still a basket case; the Soviet Union printed roubles, but that didn't help fill the store shelves with food and it eventually collapsed along with its worthless paper Rouble. You Keynesians need to wake up to yourselves. You all seem to irrationally believe that little rectangular pieces of paper with nice pictures on them are worth something. Its just paper, not real wealth.
ReplyDeleteThe world has been on fiat currencies since the 1930s and you can only point to a small number of hyperinflations by irresponsible governments. Everyone else -- the majority of nations in fact -- has not experienced hyperinflation.
DeleteTo anyone whose mind is not blinded by Austrian cultist idiocy, the historical facts show us that fiat currencies have been very successful.
It is also hilarious that you conflate the Soviet Union -- a communist command economy -- with Keynesianism, a system of macroeconomic management for capitalist. By then these important points of reality are not of concern to cult-like Austrians and libertarians.
"The world has been on fiat currencies since the 1930s and you can only point to a small number of hyperinflations"
DeleteThats not true , there are periods in American colonial history where our monetary system was a paper based one(http://www.jstor.org/stable/pdf/1009632.pdf?acceptTC=true), we were on a paper system during the US Civil war(https://en.wikipedia.org/wiki/Greenback_%281860s_money%29) , during periods throughout ancient roman history https://en.wikipedia.org/wiki/Roman_currency#Debasement
I've provided the details. Just google: Growth facts and his name. That's how I found it. Unlike many socialists, I don't lie. Didn't the industrial revolution happen with a gold standard? Didn't it happen without printing paper?
ReplyDeleteI repeat: give me the precise bibliographical details of the paper. Or f*ck off and stop wasting my time, idiot.
DeleteJust go to www.lhendricks.org and click on the heading Econ 520. Then underneath the heading Economic Growth next to Jan 8 Growth Facts click on SL and you can download the paper. BTW, I'd appreciate it if you engaged in an inteligent rational debate, rather than hurl abuse and vile language. I'm not some teen fresh out of high school. I've studied these issues while at university and hold a degree in Business. You obviously have no idea about how to run a business and how the economy works in the real world. If you've ever studied a simple demand curve, you will learn that as prices fall, quantity demanded increases. This applies in the real world, since businesses have sales to stimulate demand for their products. A business doesn't sell more goods if it raises its prices.
ReplyDeleteYou also missed my point about the Soviet Union. The Soviets printed Roubles but it didn't grow their economy. Printing currency didn't put bread on the store shelves. Nations have to address structural problems, rather than print, inflate and hope for the best.
On p. 27 he say that the average annual GDP growth since 1870 is 1.79%.
DeleteThis refutes NONE of my arguments, because
Peter Schiff claimed that:
“Look at the period between the end of the Civil War and the beginning of the First World War. That economic growth rate is unmatched at any point in US economic history.”
This requires that we must compare the average annual GDP growth rate from c. 1870 (since that is when the best estimates begin) to 1913 with other historically significant periods since 1914 in which during those periods there was a consistent economy policy and monetary system.
When we look at those periods we find the following:
(1) World War II average annual growth rate: 12.491%
(2) Recovery from Depression: 1934–1940: 6.511%
(3) Roaring ’20s 1922–1929: 4.856%
(4) Average annual real GDP rate 1983–1989 (Reagan boom): 4.282%
(5) Average annual real GDP rate 1950–1973: 4.160%
(6) Average real GNP growth rate, 1870–1913 (Balke and Gordon): 4.06%
(7) Average real GNP growth rate, 1870–1913 (Romer): 4.05%
(8) Average annual real GDP rate 1871–1913 (Maddison): 4.034%
(9) Average annual real GDP rate 1948–1973: 4.000%
(10) Average annual real GDP rate 1873–1896 (Maddison): 3.666%
(11) Average annual real GNP growth rate, 1873–1896 (Balke and Gordon): 3.596%
(12) Average annual real GDP rate 1974–2001: 2.963%.
---------------
Schiff is wrong. The average for 1870-1913 was inferior to numerous other periods.
The US had superior average GDP growth rates to 1870-1913 in:
Recovery from Depression: 1934–1940: 6.511%
(3) Roaring ’20s 1922–1929: 4.856%
(4) Average annual real GDP rate 1983–1989 (Reagan boom): 4.282%
(5) Average annual real GDP rate 1950–1973: 4.160%
Much the same story is seen for real per capita GDP.
The average growth rate from 1870 to today CANNOT be used to test Schiff's claim.
In short, you are refuted.
"I've studied these issues while at university and hold a degree in Business. "
DeleteThen your education was badly wasted.
Here are some hard empirical truths you might like to learn and that you could easily have learned if you had looked at economists who study the real world:
(1) most prices in advanced capitalist economies are not determined by the standard dynamics of supply and demand curves.
Most prices are set by private businesses on total average unit cost plus a profit markup and are often highly inflexible with respect to demand:
http://socialdemocracy21stcentury.blogspot.com/p/there-is-mountain-of-empirical-evidence.html
(2) the natural rate of interest, which is the basis of Austrian business cycle theory, does not exist and
cannot even be defined in real world:
http://socialdemocracy21stcentury.blogspot.com/p/there-is-mountain-of-empirical-evidence.html
(3) Say's law is another myth:
http://socialdemocracy21stcentury.blogspot.com/p/says-law-history-and-critique-my-links.html
----------
Enjoy.
More clueless Keynesian nonsense...I've run a small business in the real world and know that product pricing is flexible, not fixed. The final price of my products were fixed according to demand, supply and the level of market competition. Often I had to set prices below cost in order to move the stock. In the real world, prices and the economy are dynamic, not static and I don't need an armchair critic like you who has never run a business to lecture me otherwise.
DeleteFurthermore, if you have ever been to a house or car auction, people bid to buy those item freely. The final price is determined by the highest bidder acording to supply and demand dynamics. The same applies to stock prices quoted on the NYSE, NASDAQ etc. People bid until the market clearing price is achieved. If you want, you can even contact the New York Stock Exchange and ask how stock prices are set. You have truly demonstrated to all how uninformed and imature you are. All you know is to spew nonsense and myths from your world of empirical theories. Thankfully, there are people like me in the real world that can easily debunk your empirical evidence. Take care...
You see, Dimitrios Freedom, this is your problem: you cannot understand what is said to you, and all you can do is completely lie or misrepresent it.
DeleteI did not say all prices are eternally fixed or always fixed. Also, perhaps my comments are about newly produced goods markets, not second hand markets or second hand asset markets like stocks and shares. If you had bothered to read the link I provided you would have seen this, but clearly you did not.
I said:
"Most prices are set by private businesses on total average unit cost plus a profit markup and are often highly inflexible with respect to demand:"
Note how I said "most prices" and "often" highly inflexible with respect to demand. That of course does not rule out that *some* prices are truly flexprice, such as in auctions or auction-like markets. They are minority of prices, however.
And we can see this here:
http://socialdemocracy21stcentury.blogspot.com/2014/07/blinder-et-al-on-us-price-stickiness.html
Also, it does not rule out **sometimes** some mark-up prices can be responsive to demand, such as during clearance sales. But the extent and economic significance of these things are grossly overrated. And if you bothered to look through this link you would have seen the overwhelming evidence for this truth:
http://socialdemocracy21stcentury.blogspot.com/p/there-is-mountain-of-empirical-evidence.html
But of course you are too stupid, too ignorant and too much of a cultist to be worried about the something like empirical evidence.
I read the post on price stickiness...what a joke! It simply describes the mechanism that managers use to price their products. Its simply an accounting method of pricing. But the actual reason a certain good is at a particular price point is because of demand and supply. When managers get their markup wrong, the result is gluts or shortages. The prices of many goods are "sticky" because they are close to equilibrium. If prices were inflexible, why would a manager have a sale and reduce his gross margin? Also, its completely irrelevant whether a good is new or used; the same principle applies to new goods. The reason prices don't change that much is because managers are good at judging the market. That's what they are paid to do. You show a very limited knowledge in economics, even though you acknowledge that some prices are set by supply and demand. One question: why do house prices continue to rise over the long term, including newly built ones?
Delete" If prices were inflexible, why would a manager have a sale and reduce his gross margin?"
DeleteYet again you are too stupid and too incompetent to have understood the post or even the points at issue.
I did not say all prices are inflexible: I said many newly produced goods prices are "often highly inflexible with respect to demand."
That is correct. The empirical evidence is overwhelming.
E.g., Hall, Walsh, and Yates (2000) report the results of a survey of 654 UK businesses, which is a large sample that gives us good evidence for the reality of price determination in the UK.
The business were asked: what most often causes prices falls? Only 22% said a fall in demand is the major cause of price reductions (Hall, Walsh, and Yates 2000: 441). Most businesses actually shun price reductions of goods even in recessions. This is confirmed by the fact that actual price deflation is so rare a phenomenon in the modern world, even in recessions.
Also, the businesses were asked: what do you do when there is a boom in demand which cannot be met from stocks or inventories?
Most UK firms said they simply increase overtime of workers (as reported by 62% of firms), hire more workers (12%), or increase capacity (8%) to produce more output, rather than increase the price of their product.
Only 12% said they would increase the price of their product (Hall, S., Walsh, M. and A. Yates. 2000. “Are UK Companies’
Prices Sticky?,” Oxford Economic Papers 52.3: 425–446, at p. 442).
As we see, the real world has a very high degree of price rigidity and demand is a grossly overrated cause of price movements.
This utterly refutes the idea that modern markets clear by any strong wage and price flexibility. Outside of special circumstances or some narrow industries, most private businesses shun any serious degree of price flexibility for their newly produced products because they regard it as the cause of instability and price wars.
As for house prices, most houses are bought and sold on secondary asset markets. The prices of houses in these markets of course become detached from costs of production, and there is a heavy speculative element in the determination of housing prices. Most housing bubbles are caused by property speculation arising from poorly regulated banks and financial markets.
You have refuted nothing. You simply cite one study and think you know what you're talking about. The example, like most of the socialist nonsense you state is narrow focused and conveniently ignores the big picture. While its true that businesses can hire more workers or increase the amount of overtime, that well eventually runs dry. Almost all resources including labor are scarce. Eventually, businesses find it harder and harder to find workers, so they either have to offer higher wages or train new ones which increases their costs and those higher costs are passed onto the consumers, since the business will try to maintain its margins in an environment of booming demand. For example, during the recent mining boom in Australia, many mining companies were experiencing difficulties in finding and keeping workers, and bidding wars broke out in the industry for those workers. The same happened in the accounting sector.
DeleteWhen a new business opened near mine, I was forced to decrease the prices of particular products that the new business begun to sell due to the increased supply. My markup was reduced so I could hold onto my customers. But of course a socialist who has never owned or run a business like yourself would have no idea on such matters. First, run your own business and then try to lecture me with your narrowly focused and skewed empirical bs. Its truly amusing that someone like you who has never managed a private business attempts to lecture me on business. Kind of like the flight attendant telling the pilot how to fly the plane!....hahaha.
Why do most goods and services like food, energy, healthcare, higher education and gold, silver, copper all cost more now than say 50 years ago? Provide data to support your assertions.
"You simply cite one study and think you know what you're talking about.
DeleteIf you had bothered to read the link I provided originally, you would see I cite dozens of studies from 21 nations to prove all my points. The evidence is overwhelming.
"When a new business opened near mine, I was forced to decrease the prices of particular products that the new business begun to sell due to the increased supply. My markup was reduced so I could hold onto my customers."
That behaviour is FULLY known to me and is completely consistent with mark-up pricing theory.
It refutes NOTHING I said. None of your points refute ANYTHING I said.
So we see you either did not even read the link or did not read it properly. Either way you are quite clearly an idiot and a troll, and this discussion is closed.
In your post above you cite one study by Hall, Walsh and Yates (2000) where they describe the accounting mechanism that managers use in pricing goods but they totally ignore supply, demand and equilibrium. Its irrelevant whether a good is new or used. Most prices are determined in this way, but a socialist/marxist like yourself who has never owned or managed a private business attempts to lecture me on business. In case you're not aware, prices are constantly changing, they are NOT static . You're an armchair critic who lives in the world of theory.
DeleteYou conveniently ignored my question about rising prices. So, why do most goods and services cost more now than a few decades ago? Enlighten me.
(1) "In your post above you cite one study by Hall, Walsh and Yates (2000) where they describe the accounting mechanism that managers use in pricing goods but they totally ignore supply, demand and equilibrium."
DeleteA statement which proves that you have never read that study.
(2) "Most prices are determined in this way, but a socialist/marxist like yourself"
We see once again your ignorance and idiocy. Keynesianism -- which I advocate -- rejects Marxism/Communism and command economies.
Keynesian economics presupposes an economy where the vast majority of all capital goods are owned privately and where the vast majority of all investment decisions are private.
(3) "You conveniently ignored my question about rising prices. So, why do most goods and services cost more now than a few decades ago?"
Our modern economies have a strong tendency to inflation because businesses largely shun price reductions as part of their mark-up/cost-based pricing behaviour, and so they often fall to reduce their prices when costs fall so that they can enjoy a larger profit margin. In contrast, when total average unit costs rise, businesses are much more likely to increase prices, as explained here:
http://socialdemocracy21stcentury.blogspot.com/2013/11/downwards-rigidity-of-prices-and-mark.html
I don't know how to post links but you can google search: Dailytelegraph brickies demand.
DeleteThis article in the March 3 edition of the Daily Telegraph newspaper reports that the cost of bricklaying has been driven up by.....surprise surprise. ....a huge demand for bricks for NEW houses and a lack of supply of qualified tradesmen to lay them. That's right, supply and demand dynamics at work down under. Note, this is for new homes being built, NOT existing homes being auctioned.
Once again your socialist theory propaganda debunked in the real world of supply, demand and equilibrium.
Since I never said that no prices ever respond ever to demand you refute absolutely nothing.
DeleteTime and again, you show yourself to be an utter idiot who refuses to properly understand what is said to you.
I said: I many newly produced goods with costed-based mark-up prices are often highly inflexible with respect to demand, especially negative demand shocks. The evidence for this is overwhelming. Citing a minority of instances where prices are highly responsive to demand does not refute what I said.
Citing **some** prices that are mild or moderately responsive to demand does not refute what I said either.
In short, you will never refute anything above unless you seriously engage with what is said to you rather than setting up straw man arguments
Finally, I'll give you just one example from the dozens of surveys. Keeney, Lawless and Murphy (2010) provide empirical evidence on the price setting behaviour of one thousand Irish firms.
The firms were asked to assess how likely it was that they would adjust prices downwards in response to a negative demand shock.
A solid majority of firms said that negative demand shocks were of little or no relevance to pricing decisions, and the percentages of those who said demand was of " little or no relevance to pricing decisions" can be seen here:
(1) Manufacturing | 69.1%
(2) Construction | 77.6%
(3) Distribution | 58.6%
(4) Other Services | 69.1%
(5) Total | 66.5%
(Keeney, Lawless and Murphy 2010: 6).
See:
Keeney, Mary, Lawless, Martina, and Alan Murphy. 2010. “How Do Firms Set Prices? Survey Evidence from Ireland,” Central Bank of Ireland, Research Technical Papers, no 7/RT/10.
http://ideas.repec.org/p/cbi/wpaper/7-rt-10.html
Under figure 3.5 Hendricks states that per capita GDP growth for the US since 1870 has been consistently 2%. While Schiff is wrong on this point, it also refutes your argument. Also, during the Great Depression, while unemployment fluctuated, it never fell below 15% (source: Wikipedia). Indeed, it began to rise again during the late 1930s up to the second world war.
ReplyDelete"Under figure 3.5 Hendricks states that per capita GDP growth for the US since 1870 has been consistently 2%. While Schiff is wrong on this point, it also refutes your argument."
DeleteUm, no, Schiff never claimed that "per capita GDP growth for the US since 1870 has been consistently 2%". He said:
“Look at the period between the end of the Civil War and the beginning of the First World War. That economic growth rate is unmatched at any point in US economic history.”
He is wrong. The average real GDP and real per capita GDP growth for the Keynesian period from 1950–1973 was higher. So were many other post -1913 periods.
NOTHING you say or cite refutes this.
"Also, during the Great Depression, while unemployment fluctuated, it never fell below 15% (source: Wikipedia). Indeed, it began to rise again during the late 1930s up to the second world war.
DeleteUnemployment fell sharply from 1934 to early 1936 when Roosevelt stimulated the economy, as we can see either in the BLS stats or the adjusted figures of Darby to rightly include those people employed in full time work by the US government in this period. In fact by 1937, under Darby's figures, unemployment was under 10%:
http://socialdemocracy21stcentury.blogspot.com/2013/07/us-unemployment-in-1930s.html
"Indeed, it began to rise again during the late 1930s up to the second world war. "
Unemployment rose from 1937-1938 when Roosevelt engaged in budget balancing and austerity, and shows that such libertarian polices will increase unemployment. Also, when Roosevelt turned to Keynesian stimulus again in 1938 unemployment fell, as we can see clearly in the data:
http://socialdemocracy21stcentury.blogspot.com/2013/07/us-unemployment-in-1930s.html
But again, you are clearly too much of a f**king idiot to be concerned with historical facts.
At no time during the depression did unemployment fall below 15%. The main architect of the New Deal, Henry Morganthau jr said that Keynesian spending didn't work. He also said, "I say after eight years of this administration, we have just as much unemployment as when we started and an enormous debt to boot." You need to start dealing with the facts.
DeleteEven if we assume that the so-called stimulus spending did have an effect, you ignore the fact that the funds borrowed for govt spending would have to be paid back in the future. And that would have do be done either by raising taxes or cutting spending in the future. What would such measures do to growth? Aren't your Keynesian gimmicks simply transfering growth from one period to another? And if a nation just goes on and continues to borrow more doesn't it eventually become insolvent and defults on its debts?
BTW, I would appreciate it if you stopped the vile language and abuse. Aren't you an inteligent leftist? Can't you engage in a sophisticated debate?
(1) At no time during the depression did unemployment fall below 15%.
DeleteYes, it did. Even under the official BLS figures it fell to 14.3% in 1937 from 24.9% in 1933. The data is right here:
http://socialdemocracy21stcentury.blogspot.com/2013/07/us-unemployment-in-1930s.html
That is a very strong fall in unemployment.
You now have been exposed telling a falsehood. The real question: will acknowledge your error? I doubt it.
(2) Henry Morganthau was wrong. What you cite is his opinion. I have given the *facts** about how unemployment fell, real investment rose and how real GDP rose. These are signs of success and growth, not failure.
And you still cannot address the point that when Roosevelt engaged in austerity, unemployment rose and GDP fell.
(3) "And that would have do be done either by raising taxes or cutting spending in the future."
False. You do not necessarily need to raise taxes, nor cut spending. As real GDP grows, current tax income can be sufficient to pay back debt. Government can roll over debt. Eventually GDP grows and grows and the debt to GDP ratio falls to a low level, making the burden of debt insignificant.
Even when taxes are increased, this not necessarily a problem. If taxes are raising during a very strong boom, this may cut growth, but that is precisely what is required to control excessive demand in such periods. There isn't any problem here.
(4) "And if a nation just goes on and continues to borrow more doesn't it eventually become insolvent and defults on its debts?"
Keynesians do not say the governments should borrow without limit. Again, you know virtually nothing about Keynesianism.
A simple question for all you Keynesian ideologues: should the farmer consume all of his crop, or should he save some seeds for the future?
ReplyDeleteYes, Keynesian do not deny the importance of real saving and investment.
DeleteThe fact that you even ask such a question only shows that you know jack about actual Keynesian economics.