Tuesday, August 6, 2013

Reply to Juan Ramón Rallo, Part 5

Juan Ramón Rallo’s new response:
“Siguiendo con las réplicas a Lord Keynes: reconversiones de capital y comercio exterior (parte 5),” 5 August, 2013.
Rallo contends that his point, from the beginning of this debate, was that the “Wicksellian natural rate of interest is anti-Austrian, unnecessary and misleading” (“el tipo de interés natural wickselliano es anti-austriaco, innecesario y falaz”).

“1.3. As I also said from the beginning, the traditional versions of the Austrian theory fail by seeking to incorporate the Wicksellian natural rate. But they are easily amended by replacing that concept with a much more realistic maturity mismatch [sc. process] and the consequent flattening of the yield curve.

“1.3. Como también dije desde el comienzo, las versiones tradicionales de la teoría austriaca fallan al pretender incorporar el tipo natural wickselliano. Pero son fácilmente enmendables sustituyendo ese proceso por el mucho más realista descalce de plazos y el consecuente aplanamiento de la curva de rendimientos.”
The first sentence is exactly what I have been saying all along: all versions of the ABCT that are based on the unique Wicksellian natural rate are flawed and unsound.

Is one wants to reformulate ABCT with the mechanism of “maturity mismatch” and the “flattening of the yield curve,” where are the Austrian books or published papers that have done this?

Point (3.1) argues that American savings during WWII allowed it an easy post-war conversion:
“[sc. for] a society that massively increases its savings, it is very easy to revive growth in the short term and in the medium term to reconvert its production structure (hence Austrians insist so much on the need to save).”

“una sociedad que incremente su ahorro masivamente, lo tiene muy fácil para reactivar a corto plazo su crecimiento y reconvertir a medio plazo su estructura productiva (por eso los austriacos insistimos tanto en la necesidad de ahorrar).”
But, despite Rallo’s denial to the contrary (“Nótese, además, que no me estoy refiriendo a ahorro monetario, sino a ahorro real”), the saving in WWII was monetary: in the form of increased bank balances and financial assets.

Real “savings” – the resources not consumed – were being used up in war production. When the war ended, there was personal and corporate monetary dissaving, and an investment boom.

I cannot see how my point about how the adjustment was remarkably smooth has been refuted.

On (3.2), I have already admitted that US real GDP fell in the years after 1945: but that was the decline caused by the end of war production. At the same time, a private investment boom occurred and unemployment did not rise catastrophically.

The Austrian theory says that as unsustainable capital projects fail and are liquidated, unemployment should rise and a protracted bust should occur. That is exactly what did not happen from 1946–1948.

1 comment:

  1. I consider Juan Ramon Rallo one of the best (if not the best) Austrian economist right now. But his interpretation of Austrian economics is quite an heterodox one, and one can tell this quite easily just from a reading of his explanations of the ABCT. Even more strangely, he holds a partially-exogenous/partially-exogenous theory of money, since he is for both the gold standard and the real bills doctrine.