“I still maintain that economic calculation has absolutely nothing to do with ‘a price vector that will clear all markets’ and neither does the Hayek quote you constantly present. A 20 year unsustainable Keynesian boom would have had ‘market clearing prices’ for 20 years right up until the bottom drops out.”The “Hayek quote” referred to here is this passage from a talk by Hayek, but the stupidity, incoherence, and ignorance displayed by the author of this comment simply boggles the mind.
The vulgar Austrian who wrote these words repeatedly accuses non-Austrians of being unable to understand “basic Austrian concepts” and Austrian economic theories, but it is very clear that he himself has no proper understanding of those things.
A “market-clearing price,” in the conventional sense, is a price at which the quantity demanded of a good by buyers exactly equals the quantity supplied by sellers in a particular product market.
This is how Austrian economists define the term:
“A surplus (or a ‘glut’) occurs when producers are trying to sell more units of a good or service than consumers want to purchase (at a particular price). A shortage occurs when consumers want to buy more units than producers want to sell (at a particular price). In this context, the equilibrium price (or the market-clearing price) is the one at which the amount supplied exactly equals the amount demanded. If the market is in equilibrium, there is no surplus and no shortage.” (Murphy 2010: 156–157).If, as in the original comment above, “market-clearing prices” in this sense existed all throughout a boom (say, the 2000s US boom), then there could not have been any excess demand or excess supply of goods in markets, and even a kind of stationary supply and demand equilibrium in all markets (including the housing market) for years on end.
As anyone familiar with basic concepts in economics can see, this is an utterly stark, raving mad idea. Any person who thinks this is ignorant, not just of basic Austrian economic theory, but any kind of basic economic theory.
The 2000s boom was not a period of supply and demand equilibrium in all or most markets, and indeed an actual supply and demand equilibrium in any one market is no doubt a very rare and temporary occurrence, if it happens at all.
The depths of ignorance that one will meet when debating internet Austrians often renders actual debate with such people a complete waste of time. It is perhaps better to expose that ignorance as a testimony to why so much internet libertarianism and Austrianism deserves no response, because it does not even rise to the level of idiocy.
“Vulgar Austrians do not Understand Austrian Price Theory (Updated),” July 10, 2014.
“Hayek on Market-Clearing Prices and Wages in his 1975 Talk to the American Enterprise Institute,” February 7, 2014.
“Misesian Economic Calculation and Coordination in Market Economies: An Overview and Critique,” May 11, 2013.
“Vulgar Austrians, Economic Calculation and Capitalist Economies,” December 12, 2012.
“Mises on Mixed Economies and Socialism: He is Incoherent,” March 24, 2013.
“Mises and Rothbard on Communist Prices,” January 5, 2014.
“Reality versus Rothbard: Prices, Demand and Production in the Real World,” May 27, 2014.
Murphy, Robert P. 2010. Lessons for the Young Economist. Ludwig von Mises Institute, Auburn, Ala.
Lol! I didn't click through but I'll bet the offender in question is Sir Bob Roddis or Lunaticfringeland...ReplyDelete
haha... right first time, my friend!Delete
But seriously: imagine if you had a person on your blog sympathetic to Post Keynesianism and who claims to even be able to refute neoclassicals with Post Keynesianism.Delete
But when you look at the person's comments, you find that they are just utterly and stupidly ignorant of Post Keynesianism.
You wouldn't hesitate, I'll bet, to correct their errors and point out they don't know what they are talking about and that they are giving the Post Keynesian blogsphere a bad name.
Contrast this with Austrian blogs: they are often filled with loudmouth idiots who just have no idea what Austrian economics is even about.
At a certain Austrian blog I read fairly often, the comments section is overrun with utter crazy b*stards who make statements so ignorant that they clearly have no clue about Austrian economics -- let alone Keynesianism in any form.
I have never seen the owner of this blog correct them -- and he seems totally unconcerned that this is how people encounter Austrianism on the internet: loudmouth, crazy idiots who literally have no clue about the economic theory they say everyone else doesn't understand.
My first encounter with Roddis:Delete
"I must admit that I don't really get this guy's point (help me out here guys, is Roddis serious or just a ranter?)."
Yeah, that is typical of him -- can't understand his own theory.Delete
Amazing LK! This guy Bob, haven´t he been around in your "Classroom", since you started this excellent blog?And he still haven´t get his Hayek right?Stunning! I mean it´s not THAT hard to grasp the "calculation problem" and price formation a´la Austrian school.I still wonder if he is for real.Delete
Austrianism on the net is kind of an open air asylum for (money) hoardersReplyDelete
How much do people like Tom Woods, Ron Paul, and Peter Schiff know about Austrian economics?ReplyDelete
Does austrianism tend to attract mentally ill people, or does it actually make people mentally ill?ReplyDelete
A profound philosophical question!Delete
Judging from LK, the latter.Delete
Please help me understand where you are coming from.
To say the market clearing price (MCP) exists does not exclude the likely possibility that the current prices are not at MCP. The difference between the MCP and the current prices causes a market force to act upon the current prices pushing them toward MCP. Only at the instantaneous moments where the current prices and MPC cross do are the forces of supply and demand balanced. Since both current prices and MCP are constantly dynamic, the times at which these cross is instantaneous, occurring for at a non extended time point.
Therefore, there is always a difference between MCP and current prices, and there is always a force acting upon current prices toward MCP. So when you say:
"If... “market-clearing prices” in this sense existed... then there could not have been any excess demand or excess supply of goods in markets"
I don't understand how MCP ever did not exist. Of course MCP always existed, and the difference between current prices and MCP is caused by excess demand or supply. Surpluses and shortages can only exist if MCP exists.
"Since both current prices and MCP are constantly dynamic, the times at which these cross is instantaneous, occurring for at a non extended time point."Delete
One wonders what this gibberish even means -- just as the rest of this comment.
Do you, as roddis, think that during a boom market clearing prices exist everywhere?
Do you not speak English? Was every word I wrote incomprehensible? Perhaps you can be more specific.Delete
Imagine a graph where the y-axis is the difference in the MCP and the current price and the x-axis is time. There is never a point where this settles at y=0, because the current price and MCP are always changing (dynamic). Of course, it crosses at instantaneous points on the x-axis.
"a boom market clearing prices exist everywhere"
This implies a location in space. I assume this is not what you mean, but I have no idea since you seem to enjoy being cryptic. A boom is caused by an excess of demand or a shortage of supply, also causing prices to be pushed further from MCP. This increases the difference between MCP and current prices ceteris paribus.
I am not going to give in to your antagonism, because I am genuinely wondering why I am incorrect according to you.
(1) "There is never a point where this settles at y=0, because the current price and MCP are always changing (dynamic)."Delete
No, this is just stupid. You are saying a market clearing price can ever be attained at any time ever. And yet some flexprice markets do clear for brief periods. This is enough to damn for rubbish here.
There is no theoretical or empirical reason to think that, if a demand curve for some product is well behaved, that the hypothetical market clearing price is literally constantly changing.
Sometimes there will be such a price and it will be stable for some period of time, however brief.
Think of markets for fresh seafood or vegetables where merchants/sellers may well need to clear their stock to prevent spoilage.
(2) I asked you a plain question: do you, as roddis, think that during a boom all or most prices are market clearing prices? (this was what I meant)
Anyone who understands economics can clearly answer this question with a decisive "no".
That you refuse to answer simply shows us that you here to be an idiot, halfwit troll.
If this is in fact what Roddis means, then I agree with you. You should calm down.Delete
(1) "You are saying a market clearing price can ever be attained at any time ever."
This is not what I am saying, LK. I indeed think that the graph I illustrated does cross y=0. I just assumed it never SETTLED at y=0 for any extended period of time.
Perhaps this assumption is incorrect. I admit and agree that I have no argument to say its IMPOSSIBLE for "such a price... [to be] stable for some period of time." Therefore, I have no reason to deny this possibility.
(2) How did I not answer this question?
"A boom is caused by an excess of demand or a shortage of supply, also causing prices to be pushed further from MCP. This increases the difference between MCP and current prices ceteris paribus."
Notice how I said the difference is increased. Therefore, are you going to revoke your name calling?
"You are saying a market clearing price can never be attained at any time ever. "
That is the plain import of your words above. If you are saying now you do not think this, it just reinforces how incoherent your comments are.
I may admit I could have been more clear, but I didn't say that. I said:Delete
"There is never a point where this settles at y=0."
I also said:
"Of course, it crosses at instantaneous points on the x-axis."
Whenever this graph crosses the x-axis, AKA y=0, the market clearing price is attained. So therefore, "the plain import of [my] words" is clear to me. I am sorry if its not clear to you.
I was assuming that it didn't SETTLE at y=0, or anywhere. Settlement implies more than just attainment I hope you can see. However, I admitted to you that I have no reason (on hand at least) to say its impossible, so I merely conceded your point. I have no problem doing this because I am not "vulgar."
You attack vulgar Austrians, but when I concede a point, you attack me. My purpose was only to learn your point of view. I don't really see any disagreement I have with anything you have said. I can only guess that you have been nitpicking at me because you are venting.
If y = 0 at some point, then it must do so for some length of actual real time.Delete
But you say:
"Since both current prices and MCP are constantly dynamic, the times at which these cross is instantaneous, occurring for at a non extended time point."
The notion of a "non extended time point" is bizarre, incoherent and stupid -- all real time events perceptible to humans must be extended in time.
And as I said, there is reason to think that some markets -- even if local ones -- might very well attain equilibrium for some short but extended period of time.
LK, points are by definition non extended. If a the line of the graph crosses the line making y=0, this occurs at a single point according to Euclid. I was not attempting to transpose this in the context of the physical world. I guess the lowest amount of extension possible is a Plank length? I am not entirely sure. I don't even understand what you are trying to argue.Delete
A point is when two lines on the graph cross. All lines are made up of an infinite amount of points. These are common notions I think would waste much time "proving" them.
So when you say "If y = 0 at some point" and "it must do so for some length." These, I hope you can see, are contradictions because a point by definition lacks any length.
Do points exist? I don't know. My purpose was to express a common notion, not to debate philosophy. I guess this makes me "bizarre, incoherent and stupid?"
"all real time events perceptible to humans must be extended in time."
I was not talking about an event. Indeed all events occur in time, why would I ever deny this? I was talking about change. Change is mathematically expressed as a derivative involving the concept of an infinitesimally small point.
All in all I was talking about a mathematical concept, which you hold does not necessarily apply to the real world. Is this what you want to talk about?
Also, I conceded the point, yet you still feel impelled to argue with a person has conceded your point. I don't see the point in talking about points.
"I was not attempting to transpose this in the context of the physical world. ...All in all I was talking about a mathematical concept, which you hold does not necessarily apply to the real world."Delete
This says it all.
My original points about market clearing are concerned **with the real world** -- even roddis' idiot comments also refer to the real world.
If we are not talking of the real world, then we are not having a serious argument about real world economics.
This debate is over.
This debate was a nice way to see who is really vulgar, after all.Delete
Excellent points, hanktheblog.
Since the coward blocked him, here's his reply to the intellectual worm, LK:Delete
Does that mean you are blocking me? I would like to get a few things straight since you apparently never give me any benefit of doubt. You are making this up I never said.
When a person uses math, do you automatically come to the conclusion they cannot be talking about the real world?
Mathematics can express concepts which are abstractions of real things having physical existence.
I was saying the mathematics BY ITSELF does not apply to the real world, because mathematics by itself does not express anything unless we attribute the qualities to physical objects.
By “instantaneous” I can mean “approximately instantaneous” if this suits you, or perhaps “a very very short amount of time” if this suit you.
When I said “non extended time point” I was strictly referring to the graph. Anything in reality is probabilistic according to the philosophy you subscribe too, so literally everything must contain the implied caveat of approximate probability.
When Austrians "accuse(s) non-Austrians of being unable to understand “basic Austrian concepts" ", they mean that their interlocutor does not share the fundamental, sub-rational emotional pull towards a morality of harsh but fair justice which underpins Austrian Economics, a moral system (like all economic systems) masquerading as a description of reality.ReplyDelete
No, they just mean their interlocutor (e.g. LK) is an idiot who doesn't grasp the basic points at hand.Delete
LK, you lying little insect, I never implied that ALL PRICES during a boom are market clearing prices. This analysis would apply to asset bubbles where everything thrown on the market is snatched up at higher and higher prices funded by funny money loans.ReplyDelete
Do the world a favor and go swat yourself.
"I never implied that ALL PRICES during a boom are market clearing prices."Delete
"A 20 year unsustainable Keynesian boom would have had ‘market clearing prices’ for 20 years right up until the bottom drops out.”
What I said is exactly what you imply here.
And now you're telling us that housing prices were market-clearing prices during the boom? Is that correct?
There really cannot be an unsustainable "boom" in a line of investment without "market clearing prices".ReplyDelete
Bob you top even yourself with that last quote. Hayek and Von Mises both said that the boom and eventual bust are not market phenomenon when market clearing (at market clearing prices) occurs, but with 'Bob'o nomics' watch out if you see a market clearing you might be watching a market boom and a market about to bust. Bob'o nomics its certainly not Austrianism.Delete
"There really cannot be an unsustainable "boom" in a line of investment without "market clearing prices". "Delete