Why the Meltdown Should Have Surprised No One

Peter Schiff at the Mises Institute's 2009 Austrian Scholars Conference.

lol rival you're really taking this to heart now ain't ya?

but who did it actually surprise?

i know little about economics but even i realised it was coming

Personally? not really NR I don't quite get you.

And sure, I think people "instinctively" could tell that all this debt accumulation was unsustainable, but do they actually understand the intricacies involved? Because it seems to me that most people just want to blame capitalism and argue for more government interventionism.

The very thing that caused it.

lol 'the very thing that caused it'

Well sure, how can anyone blame capitalism for this, when its anything but? Watch the video, the whole way through may I add. Peter Schiff explains it all quite sufficiently... better than I could in fact.

The Leviathan is to blame here, let there be no doubt about that. This crisis represents the failure of command control policy, the very thing socialists argue for to replace capitalism with.

Naive to say the least...

In a free market, interest rates would not fall simultaneously across the economy, unless their was an abundance of 'real savings' in the banking system.
And if they did, any investment made as a consequence could be sustained because that savings was based on real economic activity.

But when you have a command control entity like a central bank, taking control of the interest rate and fixing it below the natural market level (like Greenspan did in 2001) while increasing it's reserves for lending through the discount window, all you do is flood the market with cheap credit. Money that is not based on economic activity.

Just as Peter Schiff alluded towards, everyone talks about how Wall Street was drunk, but no ones asking whose selling the alcohol? Who created Fannie Mae and Freddie Mac? Take another look.

yeah sorry, i didnt watch the whole thing because it was taking forever to load

socialism and capitalism do not have to be mutually exclusive (hell, even libetarians believe in having /a/ government)

you say that people argue for government intervention but really i think you should look at the underlying statement... people are calling for thorough regulation

not absolute regulation, nor intervention, but rather that the markets and those who service the market are regulated in /some/ way
this doesnt even have to be government regulation, but unfortunately that lovely human trait 'greed' tends to get out of hand if there is no 'independent' regulation

i completely agree! brilliant analogy!

because nobody has to be buying that alcohol, nobody has to scull a bottle of vodka... but they do

so you need either a) somebody to educate before the fact or b) somebody to clean up afterwards

maybe all those people shouldnt have been playing drinking games huh?

This is true but it should be noted that not all libertarians believe in having a government. There are many different kinds of libertarian.




And this is a major misconception, the real cause of the problem comes from Government policy.



You are on the right track here... carry on



Watch the video, Peter Schiff talks about how greed has always been a problem, but when greed has no fear because of government policy, its a recipe for disaster.

But that's what they do, it's how markets operate. You can't expect them not to do it. Furthermore these types are not economists, some of them are so caught up in it, they can't see it's an artificial bubble funded by the Fed.

Fast forward to 0:29:28 in the video, it's explained.

Actually... 0:31:38

Perfect.

will reply to other points tomorrow but... having watched that part of the video...

still... nobody to get drunk, its as simple as that

just because credit is available does not mean that you /have/ to use that credit

people were not taught that before the credit was available in that way
its just like the legalisation of drugs argument.

first step: education
second step: regulation
...
nth step: total legalisation
(4[chan] step: profit)

you seem to infer that because fiscal policy is to blame (which it is) that the market is /not/ to blame (which is just the fall back neo-con stance for everything)

lulz rival

Not so much fiscal policy, more so monetary policy (i.e. low interest rate/increase in money supply) plus government created institutions like Fannie Mae and Freddie Mae (and their respective mortgage and lending policies), plus deposit insurance (which is backed by Government and means banks take larger risks with your money) but sure I get what you mean.

The thing is that competition is a normal part of the market. I think it's the part of 'Austrian Business Cycle Theory' you need to take into consideration:



Source: http://en.wikipedia.org/wiki/Austrian_Business_Cycle_Theory

Markets are naturally competitive. It is therefore inevitable that this outcome will occur. You say but then it's an education problem? sure, how many people take Austrian economists seriously enough to listen to them? It's hardly taken seriously in universities. It's fringe, heterodox economics that is only just catching on because of this crisis.



Grrrr... don't compare me to neo-cons, those fassie rasclot chameleon motherfuckers need to die in a fire. Seriously they are not true Republicans or even Conservatives and their credibility = zero in this discussion. In fact that crowd are a big cause of this problem.

*freddie mac

And of course, you knowing 'full well' the truth, don't care to educate people, do you?

You're not a true philosopher in my opinion, if you were, the truth should be your compass, regardless of the outcome.

*waits*

I think people need to research and understand the intricacies surrounding "moral hazard".

the government client of the capitalist ruling class.



lulz again

It's definitely a special interests system and this is somewhere free market economists would agree with you about. Ron Paul has said this many times, but the solution resides in more regulation on government to stop it happening, it's why there is also a strong prevalence on limited government amongst the ideology.

Actually if you watch this video documentary put together by the Ludwig Von Mises Institute called: "Money, Banking and the Federal Reserve" you will see how the Federal Reserve was created in the first place by special interest groups.

http://mises.org:88/Fed

Also you have to laugh at Peter Schiff's enactment of Obama promising to pay back the Chinese their debt.



Entertaining guy, this is a great seminar to have captured and available on the net.

I'm just finding it very hard to listen to that man's voice

something about some americans

You are aware that the expansion of world trade between 1950 and 1970 - the greatest expansion of capitalism in history - took place within the context of a governed economy, not in a free trade regime?

yes but onehappy was there a correlation between the expansion and the diminution of governmental controls?

Actually it is disputed whether that was the greatest age of capitalism, but it was one of them and it was driven by US trans-national corporations acting within the context of government regulation of the economy.

Historically, capitalism has swung between periods of free market capitalism, and corporate-national capitalism:

Venice: corporate
Genoa: free market
United Provinces of Holland: corporate
UK: free market
USA: corporate

Schiff dude is on The Daily Show on C4 now.

Should be up on thedailyshow.com soon (if not already)

Free market capitalism cannot exist with a central bank, period. In a true free market, private banks would change their interest rates to reflect how much deposited savings they had in their vaults, available for lending. They would be forced to keep high reserve ratios due to fear of insolvency. There would be no central entity acting as a "lender of last resort" to protect private institutions risky investment decisions, or to fix a reserve requirement ratio (or none in the case of New Zealand) and lend funds to private banks through a discount window.

Consumers would choose what they want their money backed by, whether that be silver, gold, copper and so on. Currencies would be competitive. So since 1913 the world has been very much a managed economy, in fact even before then there was plenty of interference especially due to various wars.

But while there has been large expansionary periods in history where trade has flourished, despite such a manipulation, it hasn't all been from genuine wealth creation and exchange from market practices. Often it's been the result of engineered bubbles by central banks, with countries exporting their inflation to each other. It has also been due to large deficit spending during the cold war period, causing various economic crisis.

I mean, if you want me to acknowledge that this system can work with an entity using command control manipulation of the money supply and interest rates, then sure, I can acknowledge that. But it is an inherently inflationary system, promoting boom/bust cycles and excaberating an ever increasing gap between rich and poor.

Watch this from the Austrian School sometime Onehappy.

http://mises.org:88/Fed

This graph tells an interest story about US Dollar depreciation since the Feds very inception.



Source: U.S. Dept, of Labor, Bureau of Labor Statistics, CPI

I just went to the site and watched this. Thanks for listing it. He says he might be running for Senate.

Schiff r0rXoRs

here's the link

http://www.thedailyshow.com/video/index.jhtml?videoId=230058&title=Peter-Schiff

Here's Karl Polanyi, writing during WWII, on the perils of the free market:

"Such as instituion could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surrounds into wilderness. Inevitably society took measures to protect itself, but whatever measures it took impaired the self regulation of the market, disorganised industrial life, and thus endangered society in another way."

Likewise Schumpeter argued that capitalism undermines the social institutions that protect it. Even Adam Smith accepted that the free market had to be regulated for the good of society.

Nonetheless it is probably true that we are seeing a swing now from controlled markets to free ones - ie the opposite situation of when America rose to power, when the swing moved the other way: against the British free trade regime. The emerging organisational forms now, flexible specialisation, contracting and all that, operate according to free market principles, and they exploit the weakness of controlled economies. But that doesnt really solve our problems. Historically the final outcome of free markets has been disaster for society.

I don't think true free market capitalism has really been given a true chance yet to flourish Onehappy. It's been short lived, before either special interest groups are trying to create institutions to allow their expansion and/or to limit competition and thus restricting the market. That's when you see all these corresponding layers of control set up around the market, the money supply taken over, interest rates manipulated et al.

Sometimes I think you are focusing on that Mercantilist era of thinking too much, which Adam Smith spent a considerable amount of time denouncing. People like myself want free markets, peace and trade, free from all this manipulation.

Contrary to popular sentiment, Capitalism can actually force different nations to trade instead of war with each other. But it just depends on the ruling class becoming fearful and abusing the system (through government) for their own selfish gain.

Something we all want to put a stop to re limited government. What's fascinating is the Neo-Cons in America actually have their roots in left wing politics. They are ex left wing liberals from the cold war era. I shit you not.

Regarding when Austrian school thinkers started to make these predictions about the current crisis, when was it?

I recall that news about sub-prime mortgages in the states going bad first began to filter through from mid-2007 (i think) - it was obvious then that something bad was on the way.

Likwise when he starts of here talking about the new economy bubble, many could have seen where that was going to end up.

free markets != capitalism

you can have free markets without capitalism, and capitalism without free markets.

yeah rival, you need to sort out your basics first

Basics? I don't think you know what you're talking about.

How? Examples please?

Do some research on this. Peter Schiff's first prediction was in 2002

Down With Primitivism: A Thorough Critique of Polanyi

http://mises.org/story/1607

Here is Peter Schiff's original 2002 prediction. Part 1 and Part 2 of interview

http://www.youtube.com/watch?v=8Cz-6tYHK8I&feature=PlayList&p=89496D143C329FAF&playnext=1&playnext_from=PL&index=5

Sure, in Noam Chomsky's fantasy world you can. But give me examples of free markets in history without using private property, market exchange methods like barter and money.

Oh that's right, Robert Owens new harmony had a free market without private property and money.

After two years of trying to make it work it repeatedly failed and they all gave up. People couldn't work out value, how many lettuce = washing your clothes for you? etc.

See Ludwig Von Mises 1920 paper called:

"Economic Calculation in the Socialist Commonwealth"

Which explains why socialism fails when you have no method to use as a price mechanism for calculation.

No, no.. All this shows is Polanyi is one of these typical leftists who want to smear capitalism using interpretive history.

I have not read his works, but I trust Austrian scholars and am familiar with people using prehistoric examples to try and point out why capitalism is in error.

His credibility is already in question.

Rival ... are you drunk?

that's actually besides the point rival....

read that critique rival, and then see how that gels with other views you have re: jared diamond and the like. Is there a contradiction?

*note this is a question, not an assertion....

No, just sick of these discussions and perhaps misinterpreting various aspects as a result. I can already see some of these authors are bias just from the statements you quote, but if you want to indulge me with a fair rebuttal, then do so.

When someone dissects my statements using logic I am always receptive to acknowledging the errors of my ways, in fact I see it as a learning experience.

Well i was ready to listen to them, and i still am, although i'm beginning to wonder.

You've posted one video of a guy that spends most of his lecture laughing at his own jokes, and now you have the audacity to post a 'critique' of Polanyi by someone who quite clearly doesn't understand anything about humanist thought and the major debates and general consensuses which have occupied it for the entire 20th Century.

It's related though Neil. I am very skeptical of there being a free market that functions without using private property and price mechanisms to help determine how to distribute scarce resources et al.

I need examples to show me how such a free market operates. If not, then a good description.

if all the shareholders of a company are also the workers in a company, and if all companies are organized like this, then you have can free markets and socialism...

Well, why do you create these discussion? Maybe some of us aren't so sure the world would benefit from a walk down the Austrian road.

Clearly we have quite different perspectives. However, there are some values we both hold and outcomes we would both like to see.

Don't worry, i'm working on it. But i'll warn you now, you probably won't like it! Remember too, we are holding a conversation using different 'languages' to some extent, so it's not going to be easy.

Yet you can't offer a rebuttal to anything the guy said. All you can do is mock is smug attitude. Where is the in depth critique of why he is wrong? The depression of 1921 is a part of history everyone should read about. It lasted 18 months using the exact opposite policies adopted during the Great Depression and this one.

And honestly what relevance does humanist thought have if it leads to the same nefarious conclusions that capitalism is in error, when in actuality it's the natural outcome of market exchange development? Like I said I am very skeptical.

Also, like i've said in the past. In the future, scarcity will be overcome by technology.

I have raised this many times on here. I call them equity syndicates. It's still capitalism though dude. There must be property rights and market exchange for it to function.

Property right, not necessarily.

Market exchange, sure... but markets != capitalism.

This will cause prices to fall, as it already does and I look forward to see how this will change society.

But why don't you develop it? You are dedicated to neuroscience and yet so passionate about replacing capitalism with something more fitting with your value system.

You are smart enough, I have never questioned that. Where is your paper?

and without profit/interest etc--- in other words without extracted from owning capital--- you don't have capitalism....

I prefer to stick with what i'm good at :>

In the theoretical model I proposed for equity syndicates, there are still problems with satisfying the wants and needs of others. Regardless of how the profits are distributed within the syndicate, other corporations initially and other equity syndicates will still need to respect the property and ownership that comes from their labour being applied to resources.

Resources will still still need to be purchased for the various goods or services they offer. I fail to see how property rights will no longer exist. In my proposal (which actually shares similarities to Israeli kubitz) these entities operate within the market just like corporations.

When the revolution comes Rival you will be first against the wall!

In all serious though what Neil has posted is true. The problem with capitalists is they can't imagine life without the concept of capital.

I am against removing interest on credit too. There needs to be some incentive to pay it back, if its lent out especially, it's also a scarce resource remember.

If you make credit abundant it only creates inflation.

And of course interest rates have a crucial role in the economy. They coordinate economic activity over time. When people save more money, they will spend more money later. When people save more money interest rates drop, and it promotes investing, so the production capacity will increase to handle the future rise in demand.

Call capital a different name all you like, the fact remains it will still result from economic activity and still require a name. This isn't some kind of neuro-linguistic trap in imagination.

Honestly, i started listening to him becasue i wanted to learn what his perspective is. It was just really frustrating that he didn't seem to actually have a lot to say, so i gave up. Maybe i missed something.
We have a lot of issues on the table in several threads, so some things are going appear to slide. Doesnt mean i dont think about them.
As for a critique of his view, i dont have one. Remember our perspectives are very different. Mine encompasses the history of capitalism from about 1250 to now, and its a really big picture meaning it can be hard for me to give good responses to detailed and specific events.

I even proposed an alternative model many years ago on biggie describing something very similar Resist. But it does seem Neil has developed it further or has something different in mind. But there are fundamentals even he can't escape that must be debated before it can be taken seriously.

Also there won't be a revolution. Equity syndicates were proposed by myself to replace the corporate model and co-exist in the same market. But I theorized they would eventually phase out corporations because they would only choose to trade with other syndicates due to the workers value systems.

Thus the revolution will have no wall or bloodshed, it will eat capitalism from the inside out.

Just take your time, I will stop being so critical.

However just one aspect, when you go back that far into history it's more about feudalism developing into mercantilism, and then this further evolving into what we have come to call capitalism.

Some of the events back then will be historically noteworthy but not necessarily telling in judging how the system today operates and what it depends upon to function.

to be fair rival,

in the end capitalism will disappear, and we will have socialism. That is one of the things that I agree with the Austrians on

Which Austrian are you speaking about specifically in regards to this. Some of them are very dogmatic, others are very intelligent and light hearted about such a possibility.

I am aware of Joseph Schumpeter's comments but not of any of the core group: Rothbard, Mises, Hayek et al.

ahhh the good old stakeholder economy

I knew you'd come around eventually neil

The problem with socialists is they can't imagine life with the concept of capital and private property.

I'm not advocating a position NR. I'm just trying to explain rival's error

yeah, i'm talking about schumpeter. He's the only one I read, because he's without a doubt the best read economist ever, and I think it is valuable for anybody, regardless of their position, you read a few of his books

Well maybe its time I started reading more Schumpeter. I've never really seen anyone endorse him before, in fact Schunmpeter along with Eugen von Böhm-Bawerk have always seemed the more vague out of the core.

I hardly made an error? When I use the term "free market" I use it in a very relative context, and people should really know that by now from all these debates over the years. Also your example which attempts to demonstrate that a free market can exist independent of capitalism seems incomplete and problematic at best.

It doesn't explain how resources are attained to begin with, which will be needed in order to create the goods and services through the activity within the organization. No form of credit is elaborated on or whether there exist price mechanisms for attaining scarce resources. Prices are fundamental in any economy unless their is no scarcity. Technology is sited as reducing scarcity but energy is neither created or destroyed and so all technology can do is attempt to get a maximum amount of benefit out of preexisting resources and potentially recycle any waste product.

It doesn't address competition between other syndicates and how property is to be respected and ensured between them. Essentially your example deals with a very basic microcosm. It implies that the workers are also stock holders of the company (which is already possible under our present system) and are also the very consumers of the goods they turn out. Essentially it implies self sufficiency and that all potential satisfaction among the participants is attainable from within the organization.

It's unrealistic and hardly proves: markets != capitalism

I mean could any of the goods and services created be considered as 'capital' and traded with other entities for exchange of other potentially different goods and services? Surly they don't all have the same types of goods and services, and what happens if one develops an innovation? How is this fundamentally different to capitalism besides there being more equitable profit distribution within the organization?

Like I said, when I offered 'equity syndicates' as a potential alternative to the corporate model, I still acknowledged there would be competition between rival syndicates (politics that result as a consequence) and even a natural rate of frictional unemployment. Unless of course people are forced to be part of a syndicate, in which case it's not really a free market at all.

Needs more work....

it's an analytic claim not on empirical one. Free Markets != Capitalism arises out of thinking about the meanings of those terms. It's not about trying to find particular examples to evaluate the truth of the claim.

Yes well I did accept that a description over historical examples would suffice, but I never claimed it could not be scrutinized. You can’t just throw it out there and expect it to stand alone and not be the subject of debate, this is how progress is made and I say this with the best of intention not attempting to spark any kind of personal acrimony.

Now don't get me wrong, I expect those who consider themselves ‘socialists’ to continue to make their throw away cliché comments regarding a distaste towards capitalism, but what I find particularly frustrating is when it is claimed that I don’t have the basics right, which I find somewhat ironic considering I have spent a considerable amount of time attempting to understand them.

I think that people get far too caught up in their resentment towards private property and money and the various inequalities that result as a consequence, without realizing that these aspects are fundamental and even efficient when it comes to people coming together and attempting to exchange various goods and services.

This is not to say I don’t identify that inequalities result and that it can be a source of conflict, rather I come from the angle, where I understand the price system and the market economy are best considered as a “catallaxy”. Catallactics focuses analytical attention on the exchange relationships that emerge, the bargaining that characterizes the exchange process, and the institutions through which exchange takes place.

Money is just one example of such institutions and emerges because people lack perfect knowledge and try to cope with this uncertainty through making the process of exchange more efficient. The price system economizes on the information that people need to process in making their decisions too, they serve as signals and indicate value and scarcity. As for private property, how could there be exchange if we all had to run around and check with everyone else before a resource could be processed and crafted into an item of utility?

Such universal acceptance as a requirement is inefficient and is also a source of conflict, one that is better managed through the institution of private property and so places any resulting inequality into perspective. I mean how can socialists be taken seriously when many of them refuse to analyze the basics and see the inherent pragmatism of ownership, capital creation, exchange and accumulation?

far better to concentrate resource ownership in the hands of a few people and let them make all the decisions on how they are to be used.

But a few people can never make all the decisions on how a resource is to be used? As Mises and Hayek pointed out, every individual in an economy possesses knowledge (about production techniques, availability of some sources of supply, etc.) only some of which is known by others. This knowledge is dispersed throughout the economy and is constantly changing. In a centrally planned economy the information available to the planners is a tiny fraction of the amount in various people's heads. Therefore, much information in a centrally planned economy is never acted on. The socialist manager who knows of a cheap source of supply can't necessarily use it because he must get permission to do so, and even if he gets permission, it is likely to be too late to use it.

But in a free market, private ownership of the means of production allows people to use their information; they don't need permission. Private ownership also allows people to bid for resources, which in turn generates market prices for these resources. People can then use these prices to decide, as producers or consumers, what goods to buy or sell, and how to use them. A market price summarizes the diverse knowledge of millions of individual human beings as they act in the market. The very act of buying a good at a particular price signals the producer to continue producing and selling this good. The producer does not have to know why consumers buy the goods they do, only that they do. And profits are also knowledge signals in the market that direct resources into one industry and out of another.

^--- I was describing capitalism as it exists in the world today.

I thought you might be, the problem with this is, when a resource is concentrated in the hands of a few under private ownership, the owners still don't make all the decisions on how the resource is to be used. Rather the buyers do...

that's not entirely true. The entire field of marketing / advertising is about getting the resource owners to control the buyers.


But really this discussion is entirely pointless and it's just gonna go down the same road it's gone before.
You'll throw up strawmen, false dichotomies and argument from ignorance and make this purely about a particular conception of economics.

When I believe it's a moral argument. Our perspectives are too different, so it's like we're speaking different languages, and we'll never understand each other.

I think you are overreacting....

If the owners try to dictate how a resource is to be used to the buyers, they will inevitability loose customers and profits and other entrepreneurs will find other ways to offer a different resource that can be used in a similar way to that which people are demanding.

Entire control over a resource in capitalism is fairly rare.

Besides this is a subject of monopoly which is already a subject of much debate in economics, it’s a potential problem, and may even demand anti-trust laws.

does != = ?

it's not just about monopolies either. it's about class.

Stop baiting me dude, you know very well what you are doing, you're changing your arguement to play into my distate of class. I support capitalism but believe strongly in philanthropy and giving back to the community. I try to support it whereever I can and am more involved than you realize. The monoplies you describe are very rare in the market and the dynamic is different in capitalist ownership to what it is in a socialist command control environment. There is a distinction and you need to acknowledge that. As for class it's something I obviously detest and I acknowledge it comes from people developing a sense of overimportance due to the privilage and status that is derived from financial advantage by the accumulated of wealth.

But inequalites are a natural outcome of market activity, you know that. If we reset everything and gave each person $1000 and left the market alone for four years. You can count on it that there would be an accumulation of wealth towards a small percentage of people. This is something that while a problem, can be dealt with in various different ways, and I hope to make some contributions towards welfare economics in my course on this subject. Not to mention I have already offered a solution for you socialists on here: Equity Syndicates.

I would even be willing to co-author a paper with you that draws up the framework for them, while I am at varsity. It's only fair given the idea comes directly from our arguements together over the years on here. I credit you as being responsible for a certain amount of my knowledge actually. But with Equity Syndicates there is the potential for different models to be developed, i.e. the Neil Armstrong template as opposed to the Rival template.

And while it doesn't address all the problems it's a start and thats better than nothing and certainly more pragmatic than hating all the time rather than participating and teaching by practice. I too want a strong and compassionate society just as much as you do. People probably look at my arguements on here and immediately paint me as greedy or in support of exploitation. It's so far from the truth and it's a cop out to try and move this discussion into a debate about class.

Don't forget, unlike you I grew up in relative poverty, being moved from state house to state house with my mum and failing through my school years due to fights and various socio-economic disadvantages. In theory I should envy you, but here's the thing dude, I don't. Everything I own, I worked for and I don't blame society for my misfortunes, if I really want to, I can get out of poverty and make it in this world and I am.

Capitalism allows me to do this, I have that choice!