Krugman and Expectations

by Don Boudreaux on April 3, 2011

in Complexity & Emergence, Curious Task, Current Affairs, State of Macro, The Economy, The Future, Video

Here’s a short clip of Paul Krugman asserting that the only reason businesses today aren’t investing more than they are is because businesses have “tons and tons of excess capacity.”  (HT W.E. Heasley)

Krugman’s assertion is not implausible.  But nor is the assertion to which Krugman replies – and pooh-poohs – an implausible one.  The previous speaker, without mentioning the term, suggested that what Robert Higgs calls “regime uncertainty” is a chief reason why business investment today is so lame.  Krugman dismisses that possibility summarily and with disdain.


Why are expectations and uncertainties about future consumer demand so obviously relevant while expectations and uncertainties about future government policies so obviously irrelevant?  I know of no reason – not even one in Keynesian economics – for Krugman’s apparent conclusion along these lines.

More generally, why are “animal spirits” so cockeyed?  If animal spirits can cause sudden, economy-screeching-to-a-halt pessimism among investors – pessimism explainable by no phenomena more observable than animal spirits – why cannot the spirits of animals (1) be spooked by what these spirits, correctly or not, predict to be unpredictable or enterprise-quenching government policies; and (2) just as mysteriously as they become pessimistic about the future for no apparent reason, also become optimistic about the future in the absence of any observable reason for optimism?

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Daniel Kuehn April 3, 2011 at 6:04 pm

I highly doubt that he doesn’t think regime certainty is important.

What he seemed to say was that to the extent uncertainty does exist about regulation and trade (the two things she mentioned), it’s not a major source of uncertainty. When you ask firms they do not say it is a major source of uncertainty. With the biggest piece of uncertainty passed (health reform) especially, whatever uncertainty that did exist has gone down substantially.

It’s not a question of whether regime uncertainty matters – of course it does. Perhaps you can pull something out of the transcript that I missed, but I don’t think Krugman denied that. It’s a question of whether that is the relevant factor now.

Methinks1776 April 3, 2011 at 6:19 pm

I sometimes wonder if you have fairies whispering sweet nothings into your ears when you hear Krugman speak.

He brushed off what she said not with “this is not what we’re hearing from businesses” but with “this is just another attempt to blame Obama”.

Goldman, SIG and now Timber Hill have gotten out of the business of stock market making in recent months (the largest in a flood of thousands out of that business). Why? Regulatory uncertainty. States are cracking down on businesses – raising prices for licenses, registration and increasing regulatory scrutiny (reg fines for not initialing irrelevant crap properly are a rich source of revenue). And then there’s the massive tax uncertainty. It’s not as if a two year reprieve on tax rates as congress continues to spend with abandon is not factored into decisions by business.

Daniel Kuehn April 3, 2011 at 7:19 pm

You don’t think a great deal of the assessments of regime uncertainty are politically motivated?

That seems naive, and you’ve never struck me as especially naive.

Don Boudreaux April 3, 2011 at 7:25 pm

Do you genuinely believe that Krugman is not “politically motivated” at least as much (or as little) as are those of us who propose regime uncertainty as a plausible explanation for the lameness of private investment?

If you do excuse Krugman from this motivation, please explain why?

Daniel Kuehn April 3, 2011 at 10:07 pm

Of course Krugman is political. I don’t think the analysis he provides is especially political (he’s criticized the politicians he supports for not acting according to his analysis after all), but he makes no bones about the fact that he has a political stance and will say it.

Pingry April 4, 2011 at 1:02 am

Does “political motivation” really matter here?

A good argument is a good argument, and a bad one is a bad one. Krugman was right.

Sherwin Rosen talked about the competitive market for ideas in which bad economics tends to be weeded out from good economics.

Of course, he was talking about how good economics passes the market test, while pointing out that bad ideas (and he was specifically pointing to ABCT) fails the market test.

So who cares that Krugman is politically motivated. Who the hell isn’t?

So was Milton Friedman, and he won many battles by doing good economics.

We don’t use Friedman’s economics and statistics because he was a libertarian. We use them because he passed the market test.

Higgs’s stuff is just way too soft and ambiguous to even be considered for the market test.


vidyohs April 4, 2011 at 10:28 am

I listened to the clip several times to be sure I was hearing what PK said, and I watched his eyes, his demeanor. He so very much looked like a man who expected to be contradicted.

PK seems like a man that can only see the mountain range and will always overlook the individual hills. What does capacity mean to a Vietnamese Nail Salon, and as I said below if capacity is the ability to make or do things, then how or why would a Nail Salon owner invest in anything if there are no people putting their butts in the chairs?

PK seems to forget that America is only a small portion large manufacturing, and a large portion of business to whom capacity has no real meaning without sales; but, even so, why would a steel plant produce steel ingots without any expectation of ever selling them, they have the capacity but because of the uncertainty caused by the regime, making ingots and warehousing them might be an expensive industry breaking mistake.

The business of business in America is business, and business must have sales in order to justify production. PK does not seem to admit to that.

Only government seems to exist to employee people with no thought to actual production.

Methinks1776 April 3, 2011 at 7:59 pm

Daniel, I believe that answers to surveys are generally unreliable for a number of reasons.

However, I can also tell you that my firm sees demand that we would eagerly fill were it not for new regulatory rules and threat of new rules to come. Our firm has been returning capital to investors for that reason – and it’s not just my firm.

No firm will hoard cash and forgo profit opportunities just to piss off Obama. While I can see political motivation in answering survey questions in a certain way, there is absolutely no reason at all for firms to do so in discussions with me.

Also, I should mention that regime uncertainty started under the Bush administration.

Pingry April 4, 2011 at 1:21 am

Methinks1776 writes that “I believe that answers to surveys are generally unreliable for a number of reasons,” only to be followed by a nonrandom sample size of….?

Oh, right, a nonrandom sample size consisting of your firm plus some additional unspecified number of values labeled as “it’s not just my firm”

Yeah, no, I don’t think so hombre.


dan April 4, 2011 at 1:35 am

Not to mention, inflation eats away at ‘hoarded’ cash. Banks are and have been securing themselves with hard assets. Part of that is by necessity as the federal govt will no longer push for them to open up the spigots and loan with less than the required 20% holdings of hard assets for outstanding loans. And, the govt is looking to reinstate the 20% holdings.

Methinks1776 April 4, 2011 at 8:06 am

As opposed to what, Pingry? Your aggressive assertion that costs don’t matter? LOL!!!

Seth April 4, 2011 at 8:39 am

Pingry – One reason I don’t trust the answers to such surveys is the same reason I don’t trust the answers from market research. What people say they do and and what they really do are often different.

Sam Grove April 5, 2011 at 2:19 am

Not to mention that who does the survey and the actual question posed matter a lot.

Methinks1776 April 3, 2011 at 8:24 pm


I also, I do find it interesting that you think only people who answer the regime uncertainty question in the affirmative are politically motivated. People who claim that regime uncertainty is not a factor must be politically neutral. Why is that?

Daniel Kuehn April 3, 2011 at 10:08 pm

“I do find it interesting that you think only people who answer the regime uncertainty question in the affirmative are politically motivated.”

When did I say that?

Do you really wonder why I say you put words in my mouth, Methinks?

Methinks1776 April 3, 2011 at 10:27 pm

Well, Danny, as long as you chose to address the most important bit in my comment, eh?

Daniel Kuehn April 4, 2011 at 6:51 am

I would have thought it would be obvious that my complete rejection of the first sentence implies I’m not claiming the second sentence, so I can’t answer “why is that?”.

Methinks1776 April 4, 2011 at 8:10 am

Oh, well, forgive me. Here I thought you had a point. The “no” answer is just as politically motivated as the “yes” answer, so the surveys you allude to are as given to political skew as any other. And? What are we meant to glean from this little insight then?

Stephen A. Boyko April 4, 2011 at 10:55 am

@ Methinks1776

“Why? Regulatory uncertainty”

Because “failure is regulated to equal fraud!”

Unless and until randomness is segmented into predictable, risky, and uncertain underlying economic domains (see:, errors of conflation will continue to result in noncorrelative information that will thwart capital formation. Conflating “risk” with “uncertainty” produces the unintended consequences of contingent and unforeseeable liabilities for market practitioners where failure equates with fraud. This jeopardizes market effectiveness. Holding market participants who deal in uncertainty to the condition of determinism conveys regulatory rights without attendant regulatory responsibilities. Imposing one-size-fits-all commands undermines market resiliency and increases the probability of systemic failure. Such regulation imposes sanctions on unforeseeable events that stifle free market innovation and adaptability.

Methinks1776 April 4, 2011 at 11:52 am

still reading your book, Stephen.

Stephen A. Boyko April 4, 2011 at 2:52 pm

Compare the following is today’s WSJ article by L. GORDON CROVITZ entitled “Rumsfeld: Know the Unknowns”

If Mr. Rumsfeld’s document-enhanced digital autobiography becomes a model, we’ll have more transparency about how decisions get made. Technology can make policy making accessible and bring more awareness about known knowns, known unknowns and especially those unknown unknowns.
With Brenda Jubin’s book review of “We’re All Screwed (WAS)!”

WAS’ major thesis is that “segmenting governance into separate areas that apply to predictable, probabilistic, and uncertain regimes provides enhanced information correlation from which to issue best-practice commands.”

Central to WAS’ segmentation concept is the accepted distinction between risk and uncertainty. Risk is quantifiable and has foreseeable consequences; uncertainty is indeterminate and has unforeseeable consequences. Within the context of the argument, defines change as the movement in either direction between risk and uncertainty.

People are loathe to change. In support of Higgs, consider the conflation of fear and uncertainty producing faulty non-correlative information that results in business inactivity. Policymakers posit that the current economic slow-down is attributable to the fear of a double-dip recession. But fear leads to fight or flight; whereas uncertainty leads to freezing, in the form of commercial immobility.

Don Boudreaux April 3, 2011 at 6:31 pm

Daniel: Did you listen to the same clip that I linked to here? I’m guessing not.

Daniel Kuehn April 3, 2011 at 7:20 pm

I did.

Don Boudreaux April 3, 2011 at 7:23 pm

And you think – having seen that same clip – that Krugman isn’t too quick to dismiss regime uncertainty as a potential explanation for the stagnation of private investment?

Daniel Kuehn April 3, 2011 at 10:09 pm

This is not the first time he’s been confronted with the idea, Don. He was quick to respond to an idea that’s been debunked countless times as a major factor in this particular depression.

Methinks1776 April 3, 2011 at 10:27 pm

I missed the debunking. Where’s the debunking?

Methinks1776 April 3, 2011 at 10:33 pm

You know what? Forget Krugnuts.

Does it make any sense at all to you Danny K that jacking up the cost of doing business and threatening to jack it up more in new and interestingly painful ways in the near future would have absolutely no effect on investment?

Hold demand constant and think about it.

Also, think about those surveys that claim that regime uncertainty is not a worry and wonder a bit how accurate they might be and why they might be inaccurate.

Daniel Kuehn April 4, 2011 at 6:52 am

Methinks – of course it would have an effect on investment – where are you getting that I have denied this???

Methinks1776 April 4, 2011 at 8:32 am

I really don’t understand how you can ask that question with a straight face. You really can’t understand at all, Danny?

Costs (including the cost of capital, incidentally – turns out risk is risky) have increased, regime uncertainty has increased. This is a fact – and I’ve given you concrete examples in other comments. Both of these factors negatively effect profits – also a fact. An expectation of lower profits does not encourage investment. Certainly, demand is down. However, even in spots where demand might be rebounding, so are additional costs imposed by the state and, given the political environment, they are expected to keep rising.

So, how can regime uncertainty – increased taxes and added pressure on the cost part of the income statement – be a “myth to blame this on Obama”? Krugman is essentially saying that nobody cares about rising costs, they only care about revenue. Does this seem correct to you?

sandre April 3, 2011 at 9:36 pm

He used the word “myth” to describe regime uncertainty. You must also be seeing dead people from time to time.

vikingvista April 4, 2011 at 2:51 pm
Methinks1776 April 4, 2011 at 4:24 pm

Viking….that’s fabulous.

tarran April 3, 2011 at 6:37 pm


I am a financial adviser who works with small business owners.

Every fuckjng one of them is scared to hire new employees due to the uncertainties regarding the new Health Insurance Corporatism bill passed last year.

Nobody knows what the rules are going to be, since much of the bill kicks the actual rulemaking into the hands of the executive branch administrators that the Obama administration is going to hire in the coming years.

The fact is that Krugman religion considers a left wing/progressive government to be nearly infallible. He will no more admit that regulatory uncertainty exists than a Roman Catholic will admit that Mary and Joseph had multiple children.

Daniel Kuehn April 3, 2011 at 7:22 pm

Anecdote is fine, but the data says that is not an especially large concern. I can’t reassess things just based on your word and personal experience, although I understand that’s going to influence how you see it.

It’s not that there isn’t uncertainty about health care or anything else. Sure there is. Uncertainty – including regime uncertainty – is a part of life. What is far less plausible is that it is driving the downturn in the way that some people claim it is. The evidence is stacked against that. I have no doubt many are worried and many have expressed that worry to you. I do doubt that is what is keeping us in a recession.

Methinks1776 April 3, 2011 at 8:29 pm

No, it’s not driving the downturn. It’s driving the reticence to invest. That’s very different;

I will give you this – I don’t really think it’s so much uncertainty that’s driving the reticence. I think a lot of it is the certainty. Obamacare is a tax on employing people, extended unemployment “benefits” is a tax on employing people, increased regulation, increased licenses, fees, state and local income taxes, etc. are all certainties. We are uncertain where it will stop, but the things that are already certain serve to discourage investment.

dan April 4, 2011 at 12:39 am

Obamacare is absolutely a disincentive to hiring. A second that motion.

Mesa Econoguy April 3, 2011 at 9:22 pm

An entire industry undergoing regime change (the plans for which remain hidden) and continued uncertainty is not “anecdotal” despite your need to handwave like Krugman, fishing for his own insipid explanation.

I am in the exact same situation, and in fact part of my role is to adjust to those new rules, yet to be written and revealed.

There’s nothing anecdotal about that.

WhiskeyJim April 5, 2011 at 5:13 am

“Anecdote is fine, but the data says that is not an especially large concern.”

What data is that? Every manager I know, adding up to 100s of billions of dollars, is sitting on the sidelines due to the uncertainty of what Washington will do. Do you realize how many people guffaw when Obama picks Jeffrey Immelt to advise him? We already laughed when the brain trust went gaga over Jack Walsh and the great GE. How did that turn out for ya?

Have you ever written and executed a business case in the face of uncertainty? How do you do it?

The more practical question is not who is right, but what the Keynesians and the Progressives will say when they are shown to be totally, absolutely wrong. The spin will be other worldly.

vidyohs April 3, 2011 at 9:17 pm

“With the biggest piece of uncertainty passed (health reform) especially, whatever uncertainty that did exist has gone down substantially.”

Yep it passed and now that uncertainty does not exist anymore; but, tell me youngling, just how knowing you’re getting royally screwed in all linear directions (up, down north, south, east and west) and in every dimension, increases your incentive to grow a business and pay taxes to the people who are screwing you? Especially when you realize that the screwing is just getting started?

kyle8 April 4, 2011 at 6:47 am

How does Krugman know what is the level of regime uncertainty that effects the market. Shall we judge his abilities by judging how correct he has been in the recent past?

In that case I would say that know one should take him seriously.

John V April 4, 2011 at 10:28 am

I dunno, DK.

I just watched the clip and I find your rendition of Krugman’s comments to be extremely charitable. He clearly denies the role uncertainty and puts it all on excess capacity. You seem to be taking great pains to have Krugman “meaning” everything you want him to and “NOT meaning” what you don’t want him to.

Either way, the issue that I take most from his assertion is the same problem I have with his general analytical framework. And this goes back to the Ptolemy analogy. “Excess capacity” is not a reason for lack of investment. Who has the excess capacity? Everyone who would otherwise be investing? No. Of course not.

This is where ideas….very Austrian ideas…of the importance of confluence of heterogeneity of capital, capital structure, the role prices, calculation, “recalculation”, entrepreneurial discovery etc. in understanding how the economy operates. “Excess capacity” is an aggregate. It doesn’t tell us enough of anything since the economy doesn’t have one product. You may scoff at that basic point but you simply can’t square aggregates with it. Moreover, and more importantly, excess capacity is a symptom of what is wrong. It’s not “THE” problem. When PK talks about excess capacity being a reason behind the lack of investment, to me, he’s misunderstanding what is happening and using false corollaries to show causation. Without getting too wordy, “Tons and tons of excess capacity” (wherever it may be) is a symptom of massive malinvestment. That needs to be worked out through the market process.

Zach Winston April 3, 2011 at 6:06 pm

I agree, Krugman’s story does not explain everything. The idea that we can toggle some top-down macro policy to boost demand is flawed. Infrastructure projects take multiple years to plan, gain permissions to administer and implement, so they clearly are not “shovel-ready” as Obama once said. While I cannot deny that stimulus has helped the economy somewhat I am highly skeptical that it was effective policy.

There is also another side of Keynsianism that is never addressed, running budget surpluses in the good times. Keynes advocated a cyclically balanced budget, but this has never been put into place as governments are unwilling to run surpluses, but instead increase government spending or cut taxes. When I hear emerging markets like India and Brazil complaining about US monetary policy causing inflation in their country I always wonder, “what about the large deficits your countries are running?”

kyle8 April 4, 2011 at 6:52 am

I can deny that “stimulus” has helped the economy. I can deny it in totality. All you have to do is compare the average time of recovery of all recessions we have data on. This one is not recovering because of massive government involvement. The same with the great depression, and the same with Japan’s lost decade.

It has the opposite effect as intended. This is not rocket science, all you have to do is look at the data. Recovery is swifter with the lowest level of government macro involvement.

Daniel Kuehn April 4, 2011 at 2:54 pm

You would benefit tremendously from googling “endogeneity”.

jcpederson April 4, 2011 at 4:56 pm

I saw the chart that described recovery from American recessions, and I did see how later recessions led to longer recovery times. Do you know of charts for other countries that might show a fair comparison?

If not, I would see a counter-interpretation in that the recessions happened partly because sectors of employment have been replaced by automation, and with each new generation, it takes longer and longer to retrain people for new sectors.

Methinks1776 April 3, 2011 at 6:06 pm

We at Methinks LLC have tons of excess capacity, but our animal spirits are being throttled by the regulatory and tax noose.

Also, I don’t know about all this excess capacity. Leverage was cut pretty severely when credit spreads exploded in 2008. Spreads have tightened since then – but, that could be because companies’ balance sheets are stronger post-deleveraging.

Of course, Krugman knows best.

vidyohs April 3, 2011 at 9:24 pm

Actually I have tons and tons of excess capability to videotape depositions this coming year………….but I am not buying more discs and tape until I know I am going to have some contracts (sales). In other words for those in Disingenuous Kuehn land, until I know there is a market for my excess capability, it will remain capability.

And, saying my not using that capability is what is causing my personal recession is ludicrous, even more insane is suggesting that I am contributing to a national recession.

If it true for me, then how can I assert that it is not true for others.

Methinks1776 April 3, 2011 at 9:38 pm

I don’t think Daniel is being disingenuous here. I think he’s naive. If I were asked, I could give a very good estimate of how much potential profit is lost to new regulation (really stupid regulation, at that), how much the loss of the product I provide has cost my customers and how many people I’ve replaced with technology.

However, I would never answer those questions in a survey. My anonymity cannot be guaranteed and people who have soon found regulators jammed so far up their behinds they wished they’d never opened their mouths. If you’re not a Too Big To Fail, shut up. If you are, there’s nothing to fear from regime uncertainty. You are part of the regime.

Daniel Kuehn April 3, 2011 at 6:12 pm

And you have to wonder – what is the evidence?

What Krugman mentions – the excess capacity – we have evidence for. Mountains of evidence.

If you thought regime uncertainty played a major role, fine. It’s entirely plausible. What’s the evidence? How would one get evidence? Well – is there any pending legislation that would make substantial difference? There’s budget stuff but I don’t think anyone expects and huge surprises on that except for whether or not we’ll have a symbolic, temporary shutdown. Anything on the regulatory front? On the health care front? Not that I know of.

The other way to figure out how substantial regime uncertainty is would be to just ask businesses what is burdening them or what they are concerned about. Their answer to that question has been widely reported on – it’s been concerns about demand that they’ve expressed, not about regulations or taxes.

So… what would you tell a fair, objective person who’s never even heard the name “Krugman” or “Boudreaux” to convince them that regime uncertainty is playing a major role right now, relative to excess capacity and demand? What evidence would you point to?

Zach Winston April 3, 2011 at 6:27 pm

I think his main point was that excess capacity does not explain everything. I understand that we are producing the same amount that we were a few years ago with several million less employees, but is it possible that many of these employees were surplus to the requirements of corporations?

For me the issue is the skills gap and also policies that force corporations to keep much of their $1 trillion + overseas. The skills gap is due to not just a poor education system in the US, but a policy of restricted skilled legal immigration. If you are doing fine in another country why go through the hassle to come to the US? The people we end up getting are often desperate. With the $1 trillion + in cash, due to loopholes in our ridiculous tax code corporations are incentivized to keep this cash overseas as repatriating it would result in them paying significant taxes on this capital, which does not make business sense. These issues are also related as corporations do not have the level of productivity in workers that they would need to hire new ones and thus unlock some of this cash.

dan April 3, 2011 at 6:56 pm

Kinda over my head, on this one.
And, I do not think that these posulating theories explain much. Kinda like using expensive, time consuming microscopes and computers to look at the cells and DNA structures of plants to determine what make them grow. Uh, water, sunlight, etc.,….
Not enough water, sunlight, etc.,…then they don’t grow well, if at all.
The 90′s till 2007 were working on the growth of loose money. Govt interventionism of housing allowed for loose credit and huge overvaluations in housing. Money was taken out in huge volumes. Consumption increased, exponentially. Our overall economy grew based on those preceding factors. When the playtime was over, we reverted to valuations and consumption based a little more on ‘reality’. I am sure we can all assume that means what market will bear with more strict credit.
Uncertainty exists. The current executive branch and half of Congress wants more harnesses on business and more means of collecting more fees. Higher energy costs, govt imposed, sit on the horizon along with many other govt imposed costs in the form of higher taxes, tariffs, and regulations.
Their excess capital does not sit in a piggy bank or under the mattress. They are being cautious. It is in the system. Just not in higher risks, and businesses are not expending capital and taking loans to expand when they are uncertain. I am still seeing much consolidation and little if any new enterprises spring up.
I wouldn’t take many risks at this time. Hire, only as needed. Spend on existing employees, do not further obligate oneself with more employees that might have to be let go later.
Fedex, is spending close to $3 billion in the coming year. $2.2 billion on replacement of airplanes with more fuel efficient and more room per plane. $700 million on existing employees. little to no expansion except in India, an expanding economy.
Too much uncertainty, and too much expressions of continuing costs on businesses.
Am I close???

Zach Winston April 3, 2011 at 8:51 pm

Yeah pretty close. I’d just say that companies are not just being cautious, they also have found a way to maximize their productive by using fewer employees. Also this cash is not filtering into the economy as the banking system is broken. Additionally, the cost of hiring American workers is too high due to the benefits and everything that it entails and foreigners of a similar or higher skill level would be willing to do the job for less. Immigration would solve this problem and would also create other jobs for Americans as the corporations would spend some of this cash sitting on their balance sheet that they are not spending currently.

Gil April 4, 2011 at 12:28 am

Of course, it would be said that if the minimum wage and unemployment benefits were abolished then there’d be no shortage of workers.

dan April 4, 2011 at 12:47 am

‘Also this cash is not filtering into the economy as the banking system is broken’ – explain

My perception to your comment is that Banks are shoring up their assets rather than make more loans, causing a bit of money tightening. But, wouldn’t that be expected, considering they did not have enough hard assets to meet a 20% holding on all outstanding debts over the last 2 decades when the Federal govt coerced them to make loans at less than 10% holdings? Then the fed is, in turn, putting out hundreds of billions, to offset the tightened monetary lending.

Zach Winston April 4, 2011 at 7:33 pm

Dan you have it right. Banks are not only scared about the future, but also have lots of troubled loans they can’t value. Thus they are trying to shore up their balance sheet. In addition, any loan they would make encounters serious duration risk (the risk of interest rates rising) making it hard for them to commit to making longer-term loans. Therefore, when companies put money into bank accounts, the banks are not lending it out and thus it does not filter back into the economy as you would normally expect.

Methinks1776 April 3, 2011 at 6:35 pm

I think it may be time for you to consider there is stuff you don’t “know of”.

Regime uncertainty:

Anecdotally, not a single business I talk to (and I talk to a lot of them) is not worried about regulation, taxes and coming new legislation. You’re mostly correct that Obamacare and Frank Dodd are not an uncertainty – but they are not the kind of certainty that encourages investment. Just the opposite. That which is certain is discouraging for investors. We are also certain regulation will continue to increase – we just don’t know by how much more. Cap and trade is still up in the air and who knows about tariffs. All of these things are a tax. Making these taxes certain doesn’t encourage investment – it encourages rent seeking. And that, by the way, is the new frontier for firms that never sought political clout before.

Yes, every business is worried about demand for its product. That’s a constant.

Don Boudreaux April 3, 2011 at 6:37 pm

You want evidence for the importance of regime uncertainty? It can be found here: Robert Higgs, Depression, War, and Cold War (New York: Oxford University Press, 2006).

tarran April 3, 2011 at 6:39 pm

Or one could actually talk to business owners about their finances.

After about 50 interviews, when 45 of them complain about their fear that the government is going to come up with new ways to screw them you might start to think that it’s having a substantial impact.

Methinks1776 April 3, 2011 at 6:43 pm

Don’t think Danny’s saying that it is not a problem – just not a factor today. We’re all just saying that to blame Saint Obama. It’s all aggregate demand. People can’t lever up their only asset to infinity any more to spend on frivolous crap. Big huge problem

Daniel Kuehn April 3, 2011 at 7:23 pm

2006 was two years before this depression, Don.

I believe regime uncertainty is real. I knew that long before I ever heard of Higgs.

What is the evidence it is the major factor driving this depression?

Don Boudreaux April 3, 2011 at 7:41 pm

Thanks for alerting me, Daniel, to the fact that 2006 is earlier than 2008.

Because much of the rhetoric (see Deirdre McCloskey’s new book, Bourgeois Dignity) and actions of the current regime in the White House is as radical as that of FDR during his first couple of terms – because we have someone in the Oval Office whose history and actions are sensibly interpreted as being hostile to free markets – because Herr Obama crammed a major health-care takeover by Uncle Sam through Congress – because Obama obviously has no principled commitment to free markets and to allowing the process of creative destruction to work unimpeded – because we have Dodd-Frank – because Obama is quite plausibly thought by many investors and business people to be ready to further centralize the U.S. economy even more – because these are precisely the sorts of things that F.D.R. and his band of brigands were doing in the 1930s, the parallel suggests itself naturally and, in my view, compellingly.

That a high r-squared empirical study has yet to be published in the A.E.R. or Q.J.E. in support of my and Higgs’s thesis is rather irrelevant. Using history as a guide is quite legitimate. That the parallels I (and Higgs, and others) point out aren’t proof positive of our hypothesis, I readily confess. But, I ask, what better evidence has Krugman that this current instance of lame private investment is in fact the result of “excess capacity” or “inadequate aggregate demand” rather than the result of regime uncertainty?

Seems to me that whatever evidence is in play for excess capacity or inadequate aggregate demand causing today’s lame investment is every bit as much an extension of – inferences from – the alleged consequences of past instances of excess capacity and inadequate aggregate demand as is the evidence that I believe is relevant regarding regime-uncertainty’s role in promoting today’s lame private investment.

Methinks1776 April 3, 2011 at 9:22 pm

I so miss the “like” button

Economiser April 3, 2011 at 10:28 pm

Me too.

dan April 4, 2011 at 1:05 am

‘Inadequate aggregate demand’, otherwise known, in the 1930′s, as ‘underconsumption theory’. Which, led US policy at the behest of FDR to a whole array of ideas, NRA, AAA, WPA, etc., which prolonged the Depression and furthered unemployment.

dan April 4, 2011 at 1:30 am

I agree on the Obama admin. eerily following the playbook of FDR.
I think that the ‘stimulus’ was out of the FDR playbook. Huge amounts of money, Obama and dems would take credit for, that is mostly spent (distributed) near large populations to gain influence and ensure more govt employment. Govt employees are unlikely to support those who taunt the ideas of cutting back on govt spending.

Daniel Kuehn April 4, 2011 at 6:57 am

Certainly what we know scientifically about excess capacity is inferredfrom past instances, but we know the level of excess capacity now, Don. We do have theories based on past experience like all our theories. Nobody is disputing the value of historical evidence. But the task oughta be to use current evidence to assess the relevance of a particular theory to current conditions.

The data available on the quite legitimate Higgs theory on regime uncertainty and on more traditional Keynesian understandings of excess capacity and other issues suggest that this downturn has much less to do with regime uncertainty.

Why do you say “Herr” Obama, Don?

vikingvista April 4, 2011 at 2:53 pm

“Why do you say “Herr” Obama”

You prefer “Frau”?

jcpederson April 4, 2011 at 7:48 pm

I miss it more, and I have mountains of evidence.

Sam Grove April 5, 2011 at 2:28 am

Excess capacity is not a cause, it’s a symptom, a mere part of a sequence of reactions to a root cause.

I wish certain people would stop holding it up as a cause.

Jared Peccarelli April 4, 2011 at 10:55 pm

“Anything on the regulatory front?…Not that I know of.”

I would direct your attention to the EPA and the electric utility industry.

DG Lesvic April 3, 2011 at 7:35 pm


Economics is not a science of “evidence,” but of insight. It begins with introspection, the “observation” of our own human nature. Knowing ourselves, we know others, on the assumption that they are human like ourselves.

“It is impossible to provide conclusive evidence for the propositions that my logic is the logic of all other people and…that the categories of my action are the categories of all human action. However…these propositions work.” Mises

For, we can, in fact, coexist and not just collide with one another.

So we don’t need to conduct surveys and compile statistics to know that a rampaging government sends investors to cover. We already know this, by knowing ourselves, and by all our experience confirming the fact that others are human like ourselves.

Daniel Kuehn April 4, 2011 at 6:58 am

DG – you can’t even get Don to choke down your rendition of Mises. I can assure you you don’t have to keep wasting your breath with me.

pb April 3, 2011 at 8:04 pm

The ultimate regine uncertainty is an unstable currency. It is hard to start long term projects when you aren’t sure what the osts of inputs will be and what demand there will be for your outputs.

It used to be that if you were considering starting a restaurant you would consider the menu, the demographics of the area, and similar decisions. Now you would have to consider whether the standard of living of Americans will allow them to continue to eat out.

Sam Grove April 3, 2011 at 8:08 pm

Does regime uncertainty only apply to businesses?

If business has “tons of excess capacity” because of lowered demand, then could it be that consumers are affected by “regime uncertainty, and thus have reduced consumption in favor of saving?

Richard Stands April 3, 2011 at 9:22 pm

Excellent point.

At current levels of unemployment, I know of no one consuming much of anything beyond essentials until they’re more confident they’ll remain employed.

Garner resources and savings? Yes. Spend more than necessary? No.

Scott G April 4, 2011 at 11:35 pm

Good one Sam. We can each ask ourselves how regime uncertainty affects our thinking. I hesitate to buy a home partly because of regime uncertainty.

Pingry April 3, 2011 at 8:09 pm


So-called “regime uncertainty” is pretty lightweight stuff here given Higg’s lack of any real model.

And so what is the primary reason for which spending is weak? Weak sales, period. Anything remotely appearing to be “regime uncertainty” is at the bottom of the list of most executives.

So does “regime uncertainty” apply to firms in other countries as well? Or, are they also suffering from weak sales?

It’s all about insufficient aggregate demand.


Sam Grove April 3, 2011 at 8:17 pm

It’s all about insufficient aggregate demand.

But WHY is there insufficient aggregate demand?

Methinks1776 April 3, 2011 at 8:22 pm

Good. Demand was dependent on huge, unsafe amounts of leverage. But where firms have figured out there is demand, it’s riskier to fill.

Josh S April 3, 2011 at 8:29 pm

So does “regime uncertainty” apply to firms in other countries as well?

Of course. In countries where the government is hostile to business, you don’t see thriving businesses. And of course, it’s even worse in countries where the government is unstable, and law is unpredictable.

nailheadtom April 3, 2011 at 10:39 pm

Mexico, and Latin America in general, are good examples. Profits in those countries have been invested in the U.S. and Europe rather than used to expand their own businesses because of the uncertainty of the government and legal process.

dan April 4, 2011 at 1:11 am

You mean, like investors, who bring in cash when a business needs it with a contract that states the new investors get top billing in any bankruptcy proceedings, only to have the govt come in and coerce that contract into nullification, giving another group or investor first and biggest cut becuase they are the preferred group? ………ahem………GM………unions…ahem

Sam Grove April 3, 2011 at 8:17 pm

Perhaps regime uncertainty isn’t so uncertain.

vikingvista April 4, 2011 at 2:58 pm

True. Talking about “regime uncertainty” is a bit like talking about “lake wetness”. The real questions are “How big is the regime?” and “How big is the lake?” But the effects of dampness, like the effects of uncertainty, are certainly worth talking about.

Stewart April 3, 2011 at 8:24 pm

If by animal spirits you mean shocks to the economy, then guess what: Krugman is an RBC theorist! Shocks by nature are unexpected and in this case they are real. If animal spirits are not stochastic, then it would seem as if the Keynesian model falls apart.

DG Lesvic April 3, 2011 at 8:28 pm

Question for Daniel and Ping Pong:

Wouldn’t you try to stay out of the way of an oncoming avalanche, or rampaging government?

If so, why wouldn’t you expect others to do the same?

DG Lesvic April 3, 2011 at 8:45 pm

What all this really comes down to is the fundamental difference between socialism and economics.

“Ortega y Gasset wrote a famous essay on the expulsion of man from art…we might well add a study on the expulsion of man from economics.” Wilhelm Röpke

Socialism is the expulsion of human nature, greed, and its corollaries, incentive and the profit motive. Man is a cog in a macro-economic machine pumping out society’s needs at the push of a button. And when it grinds to a halt, it is the fault not of the machine but intransigent cogs, reverting to their greedy, capitalist ways.

The difference between socialism and the Middle Way is of degree, not kind. Both depend on disregard for incentive and the profit motive. Bring them back into your analysis and the Middle Way collapses right along with all-out socialism.

The actions of rampaging government undoubtedly impact the prospects for profit. And you cannot disregard those actions without disregarding the profit motive, human nature, and economics.

Krugman and company are not simply denying a theory of economics but economics itself.

kyle8 April 4, 2011 at 7:00 am

Ultimately they are denying human nature. No matter how many times you read B F Skinner, it appears that you cannot change human nature, and you had better not ignore it.

DG Lesvic April 3, 2011 at 9:10 pm

And that is the essence of socialism.

So, Danny boy, are you not a socialist?

steve April 3, 2011 at 9:16 pm

My corporation has been faced with yearly increases of between 6% and 26% for health care insurance over the last 10 years. That makes planning for health care costs uncertain. We manage to cope. While I am sure that there is uncertainty, there is always uncertainty. Life is hard as some people have been known to say. At any rate, we can measure excess capacity. Uncertainty is harder. It is hard to prove or disprove.


Methinks1776 April 3, 2011 at 9:49 pm

Yes, steve, life is hard :)

There is market uncertainty – a natural amount of uncertainty. Regime uncertainty is the unnatural, man-made uncertainty foisted upon us by the whims political clowns on top of the natural amount of uncertainty.

I do think the loss to it is measurable. I know how many opportunities I forgo because of it and how much those opportunities are worth. I’m sure you can come up with a reasonable estimate for your own business. Collecting the data seems harder.

DG Lesvic April 3, 2011 at 10:16 pm

There is no data in economics, real economics. It is not about data but logic, not the seen but unseen. It is about the Invisible, not visible hand, the invisible cause and effect relations of human action, and not the visible magnitudes of the causes and effects.


Economiser April 3, 2011 at 10:31 pm


Isn’t excess capacity what leads to new firms, new businesses, new growth?

Methinks1776 April 3, 2011 at 10:47 pm

Well, in this case, we’re talking about the very visible and smelly cold, dead claw of government and we’re trying to figure out just how much it has throttled. That’s okay with you, isn’t it?

DG Lesvic April 3, 2011 at 10:51 pm

Why wouldn’t it be?

DG Lesvic April 3, 2011 at 10:54 pm

No. I take that back.

We are not trying to figure out how much it has throttled, only if it has throttled or not. Economics is not about the extent but the direction of an action.

Methinks1776 April 3, 2011 at 10:54 pm

Just checking.

Methinks1776 April 3, 2011 at 10:57 pm

Okay. It has throttled. Many businesses can estimate for you how much – that adds colour.

steve April 3, 2011 at 9:33 pm

If Mandel is correct, we are not even close to pre-recession levels of production in most industries.


Richard Stands April 3, 2011 at 9:50 pm

“All this stuff about uncertainty is a myth made up to blame this on Obama…”

Sounds a lot less interested in investigating possible causes (which deviate from his narrative), and much more like semi-hysterical defense of his rent distributor and Central-Planner-In-Chief.

hayseed April 4, 2011 at 12:08 am

I may not have regime uncertainty and may give this answer to a survey. But if I believe most of my customers are uncertain about the regime, and are likely to throttle back their investments with me, I will throttle back my investment to coincide with their likely actions.

Pingry April 4, 2011 at 12:48 am

Also, let me just say Keynesians (although I dislike that term considering how there’s New Keynesianism these days), like Krugman, realize that aggregate demand is determined by many economic decisions (public and private).

It’s not that so-called “regime uncertainty” is not an issue (if we can all get around to agreeing what this bit of sociology actually is), but that it’s really not the main issue here.

Again, it’s all about insufficient aggregate demand.

Do firms think about future policies? Of course. Policy is (especially monetary policy) a game of expectations management in many ways. But they think far more about how their income statement has taken a hit. And when they sales increase, then they’ll start spending again.

I’m still hoping that Higgs will come up with something quantitative because if we aren’t all on the same page, then when challenged about instances of spending in the face of regime uncertainty (and I have plenty which I posted on this blog in the past), those who buy into his thesis can just dismiss our arguments as ignorance…..we just don’t get it…..our eyes have been blinded by the mainstream saltwater.


Methinks1776 April 4, 2011 at 12:56 am

What about increased and potential increases in the cost of doing business is “sociology” to you, Pingry?

Ever run a business? Ever put your own capital at risk? Do you have the very first clue what the hell you’re talking about?

Do you know what an income statement is? Hint: they don’t call it a “revenue statement” for a reason. When the state artificially increases the cost part of the income statement, that matters. It matters a lot. Businesses don’t just “think” about policy. They go ahead and try to figure out how it will impact their bottom line – those crazy bastards!

Sam Grove April 4, 2011 at 1:12 am

Why is aggregate demand insufficient?

It’s not a cause, it’s an intermediate manifestation.
One thing leads to another

dan April 4, 2011 at 1:20 am

Also, people are not done paying down debts. Extra income is being diverted to debt reduction, rather than spending on luxuries. Even for things considered necessities, inferior goods are in high demand.

kyle8 April 4, 2011 at 7:05 am

So you would rather be called a New Keynesian? That is like being proud to be called a neo-luddite.

Everything about Keynesianism is wrong from the top to the bottom, there is nothing to salvage.

DG Lesvic April 4, 2011 at 1:06 am


You wrote,

“Okay. It has throttled. Many businesses can estimate for you how much – that adds colour.”

But was Krugman challenging only your colour?

Wasn’t he denying the profit motive, human nature, and reason, science, and economics per se?

Wasn’t he telling us in the clearest terms that he was no mere “moderate” but a socialist and not even an economist but a nihilist?

You seem intent on glossing over that and letting him off the hook.

With enemies like that, he doesn’t friends.

Sam Grove April 4, 2011 at 1:09 am

The uncertainty curve (sorry, I made it a bit large):

DG Lesvic April 4, 2011 at 2:29 am

By the way, Prof. Horwitz, over at Coordination Problem, referred to a discussion at this site this morning about something or other called “recalculation” and especially mentioned Daniel Kuehn in connection with it.

Was it this discussion?

By the way, what has happened to Daniel? He seems to have disappeared.

Daniel, if we don’t hear from you shortly, I’m sending the St Bernanskes out after you.

robert_o April 4, 2011 at 2:32 am

Every businessman, no matter how profitable or unprofitable his enterprise might be, will always blame insufficient demand for his products as the source of his ills.

Spinner April 4, 2011 at 6:39 am

Does the animal spirits refer to the Bull & Bear market? That most citizens are enthralled by a black and white fallacy? When the Bear spirit rules as it now does, most people perceive the bad times as being worse than they are in reality. They also overly despair that the Bear will never leave and remember the former Bull good times as being better than they actually were.
Myself, I only fear the charging Rhino of oligopoly tyranny and embrace both the Bull and Bear times as a blessing of the industrial revolution.
To take but one instance of the Rhino, most of you are potential felons, in possession of “tainted” illegal plant products. Under the amended Lacey Act, at any time, the herds of charging Rhino Feds may burst into your homes and confiscate most of your flooring, cabinetry, and furniture. Under the recently amended Lacey act it is possible for innocent buyers to be subject to imprisonment, civil and criminal fines up to $200,000, and forfeiture of goods.
It is the Rhino spirit that consigns you to spending most of your activity in counter-economic pursuits. It’s more pleasurable to escape the endless charging while watching TV, movies, and the internet.
Of course Nanny Rhino’s may soon trample all of that as well, and then there may finally be another revolution and blood in the streets, and most of the progress since 1800 will be erased. Hopefully, that’s a slippery slope fallacy that won’t come true, and property rights will complete their waning phase and renew their waxing phase.

Ryan Vann April 4, 2011 at 6:49 am

Where do these excess capacity figures come from? I’ve seen productivity numbers, but that isn’t the same thing. Anyone care to help me out?

Ryan Vann April 4, 2011 at 1:38 pm

Bob Higgs can, apparently.

Damien April 4, 2011 at 7:16 am

Regime uncertainty is certainly a possibility and should not be dismissed out of hand. However, I’d argue that context plays an important role in assessing whether regime uncertainty might be an important factor or not. The same rhetoric, in two widely different contexts, will also have widely different effects.

Don mentionned the 1930s and FDR’s anti-market retoric, drawing a parallel with Obama. But does it really make sense to compare the two situations? True, Obama is not a great free-marketer. Neither was FDR. But the context is quite different. FDR was taking a anti-free-market stance at a time when the URSS was alive and used as an example of the superiority of socialism. Extensive central planning was still seen as a viable option. The main alternative to socialism was not classical liberalism but fascism and corporatism, with several countries (e.g. Germany, Italy) having already gone this way. It makes a lot of sense to say that if you were a businessman in the 1930s, you would have been quite worried that the US might do just the same, especially with a president who seemed to have very little regard for the rule of law.

But, quite frankly, I don’t see the same thing happening today? Who truly believes that Obama will turn the US into a socialist or fascist state? Has there been any *radical* change in policy lately? There was regulation 15 years ago. There is still regulation now, just more of it. There will in all likelihood be more regulation 15 years from now. But those are marginal, gradual changes, not the kind of wholesale change of regime that might have happened in the 1930s. The pendulum has swung a little more on the side of regulation and government than in the 1990s. But how do we know that there is significantly more uncertainty than there was before?

Fearsome Tycoon April 4, 2011 at 9:01 am

No one (sane) is worried that Obama might turn us into a socialist state whether of the fascist or communist type. What people are uncertain about is which industries, businesses, and professions Obama is going to destroy next. You don’t need to be worrying about an outright socialist government to be concerned that the government is about to say, shut down all drilling off the coast of your state in the name of saving the environment.

Mao_Dung April 4, 2011 at 7:33 am

When I think of “excess capacity,” I think of rich people having so much money that they want to buy useless paintings, and other bobbles and bangles while there is want and blight all around them that they are blind to. THIS obscenity is true excess capacity:

Fearsome Tycoon April 4, 2011 at 9:03 am

So you think that artists, bobble-makers, and banglesmiths shouldn’t have jobs.

Mao_Dung April 4, 2011 at 9:59 am

Feed the hungry and clean up the slum if you want to put people to work, troll. People who throw away 10 or 20 million to buy a painting to hang on the wall have too much money and are spending it egregiously. Elizabeth Taylor coveted expensive diamond jewelry. That’s sick too as well as are your lowbrow Charlie Sheen values that are destroying planet Earth. Next time you choke on someone’s cigarette smoke or breath some exhaust from an old jalopy, think of me, will ya.

Gil April 4, 2011 at 10:38 am

Oi! Charlie Sheen is a Randian Hero!

JohnK April 4, 2011 at 10:45 am

“Next time you choke on someone’s cigarette smoke or breath some exhaust from an old jalopy, think of me, will ya.”

Shame on you you cigarette smoking jalopy driver!

Fearsome Tycoon April 4, 2011 at 5:16 pm

So your theory is that artists, bobble-makers, and banglesmiths don’t get hungry.

Eduardo April 4, 2011 at 9:32 am

It is incredible to see that most of you think a plausible argument can be more realistic than one backed with data and information (namely institutional uncertainty vs excess capacity). It makes me sad to see this actual states of Economics, and people putting so much faith in abstract ideas. Everything seems to me as platonic construction. From my point of view, the institutional uncertainty is not a valid argument, because the problems you associate with the USA economy are actually happening at the wortd lscale. My country, Argentina, has suffered too much because of this kind of economics. Economics blinded by abstract consistency, whiule the reality is far more complex. My opinion is that Markets and the State are complementary, one making the other stronger. I’am tired of seeing this “States Vs Market” ideology (which is very neoliberal in its essence). Please learn more from history!

Methinks1776 April 4, 2011 at 9:48 am

Well, we have. Particularly from Argentina – where corruption, profligate government spending, extreme intervention and hyper inflation have really “complemented” the market in the same way that a beautiful necklace compliments a nice frock, only the necklace is an ever tightening noose. In fact, Argentina’s extremely interventionist policies have been so successful, that there were periods of time over the past decade when over half the Argentinians lived below the poverty line.

Eduardo April 4, 2011 at 10:10 am

I agree with you except this sentence:
“In fact, Argentina’s extremely interventionist policies have been so successful, that there were periods of time over the past decade when over half the Argentinians lived below the poverty line.”
Remember that this was just after the economic crisis, and was the result of the austerity measures imposed on the country (the opposite of fiscal stimulus). You coul argue that the crisis is linked with high gvt spending but it wasn’t! It is rather the result of the economic management in the Menem’s government (1989-1999) which main features are 98% privatization of public utilites, national currency linked with the dollar (by a currency board) and eventually overvalued exchange rate (then loose of cmptetitiveness, consumption boosted by debt, etc..) and also very low deficits (only a peak in 1994-1995 linked to Mexican crisis). So i understand your idea but, as i said, reality can’t be reduced to gvt spending or not…

Methinks1776 April 4, 2011 at 11:33 am


Does Argentinian economic history begin with Menem? Didn’t hyperinflation, high levels of unemployment and massive borrowing by the state precede Menem – to the point that Argentinians rejected their own currency?

Eduardo April 4, 2011 at 12:34 pm

I was refering to the period in which half the Argentinians lived below the poverty line (as you say). You are talking now about the 80′s, and that’s also a complicated period. Crises in all Latin America came with excessive indebtness, it’s true. But at that moment, (end of 70′s), it didn’t seem so high levels. The turning points were the decision by the Fed (Paul Volcker) to adopt restrictive monetary policy (and thus rising of interest and debt) and the second oil crisis. These two decision made the money go out of the countries. One key element is the dollar-denominated debt; because the debt was getting higher, the only way to pay was printing money and this causes very high inflation (but you can’t compare this -2digit inflation- with the actual inflation 20 – 22%) . But it’s true, Argentina has a dictature (1976-1983) that make it spend to much. (autocracy supported by the USA by the way, which helped to break freedom not only in Argentina but also Brasil, Chili, and many more). This do not mean the governement are very cool and that they always stabilizes the economy. I am well aware of the problem when the economies start printing money. But this is not the same as a mere and necessary fiscal policy.
See? The story here is also quite complicated

Eduardo April 4, 2011 at 12:36 pm

Sorry, my english is getting worse! End of the day, here :p

Methinks1776 April 4, 2011 at 1:49 pm

That’s okay, Eduardo. I speak fluent accent :)

Don Boudreaux April 4, 2011 at 9:54 am

So what evidence do you have that current levels of low investment are in fact caused chiefly by excess capacity rather than by regime uncertainty? Your answer cannot be “tons and tons of excess capacity exists, and this existence is correlated with low levels of private investment” – for to go from that fact to the conclusion that that excess capacity is the cause of suppressed levels of private investment requires that you rely upon (horrors!) the abstract idea that excess capacity suppresses private investment.

As I said in my original post, that idea isn’t implausible – but you’re kidding yourself if you think that it has some sort of objective epistemological existence that makes it the only plausible reason for today’s low level private investment.

The “abstract” idea of regime uncertainty is no more speculative or abstract than is the idea that excess capacity is the, or even a, cause of suppressed investment.

And by the way, you also cannot say (not that you would) that excess capacity is so obviously a cause of suppressed investment that it trumps, as an explanation, regime uncertainty. It’s not implausible that – in the absence of regime uncertainty – entrepreneurs would interpret existing excess capacity as evidence that consumers don’t wish to purchase as many of the outputs that full employment of that excess capacity would generate. These entrepreneurs, then, would recalculate (HT Arnold Kling) how to liquidate some of that excess capacity and turn it to more productive uses.

Yes, the above paragraph is an “abstract” idea – but no more so than is your idea and Krugman’s idea that excess capacity is the only ‘scientifically’ acceptable explanation for current low levels of private investment.

Mao_Dung April 4, 2011 at 10:13 am

It’s obvious to me that the low level of investment is due to fact that people have cut back on their spending due to the damaged state of the economy or their own person finances. Some are fearful of losing their homes like their neighbor did. California expects to lose billions in tourism dollars from Japanese who are staying home and worried as you’d expect. That is what uncertainty caused by blown out nuclear plants does to people. Global warming will create uncertainty on steroids. Please show me anywhere that you’ve written about the plight of people who lost their job and subsequently lost their home. You’re from the school of hard knocks and tough love. You need a class in Compassion 101. Economic theory not based on reality is a delusion of your own dogmatic mind.

Eduardo April 4, 2011 at 10:40 am

I like your comment!

Mao_Dung April 4, 2011 at 10:58 am

Bienvenido y gracias por contribuir a la discusion. Estoy impresionado con la calidad de su ingles y con el valor de sus ideas. Ojala siga dando ejemplos de la economia de Argentina. Necesitamos mas variedad de opiniones y experiencias aqui.

Slappy McPhee April 4, 2011 at 11:10 am

Would those same Japanese been better off today if there were no nuclear reactors ever built in Japan?

Mao_Dung April 4, 2011 at 11:31 am

Building nuclear reactors in a place prone to earthquakes, like Japan or California does seem like a mistake to me, offhand. What do you think? Would you like to live near one?

Ryan Vann April 4, 2011 at 1:42 pm

I’m not sure what alternative Japan would have aside from updating their older plants. You gotta power those neon signs somehow.

Fearsome Tycoon April 4, 2011 at 5:21 pm

Maybe if rich people would spend more money on art, bobbles, and bangles, it would help.

Eduardo April 4, 2011 at 10:19 am

I accept your scepticism; it is a quality to have that.
I remember an interesting report about deleveraging (debt) in the world economy. It is from McKinsey Global Institute.
“Debt and deleveraging: The global credit bubble and its economic consequences”
It is a quite old now (January 2010, so ui except some critics :p). But still, i am not especially convinced of the excess capacity argument
I am not saying “It is excess capacity” but i am saying : it cannot be linked to US institutional uncertainties, because it is a world-wide problem; and the US share in the world economy is not the same as it was 30 years ago.

Slappy McPhee April 4, 2011 at 11:24 am

I agree with your analysis on this point. Which is why I am confused by the tone of this particular thread. Some seem to be arguing cause/effect, others semantics and others yet the path way forward. It’s a good thing for me I don’t do this for a living.

Ryan Vann April 4, 2011 at 2:03 pm

Perhaps we can explore your line of reasoning a bit further, as it seems a bit off to me. Are you suggesting that US maladies can’t be particular to the US because other countries have experienced similarly slow recoveries?

Eduardo April 4, 2011 at 3:45 pm

The problem originated in the USA because of the “sophisticated” finance this country has been adopting (i suppose here that all of you agree with that but maybe you don’t). A lot of countries followed them in the path of what can be called financial liberalization. I will not argue now if it is good or wrong, but rather that this tendency to “follow the leader” (sometimes imposed by political pressure or force, sometimes by consensus) made a new interconnected financial system (decompartmentalized and deregulated in a broader sense). The situation is particular for each country (depend on the goods the economy produce, its labor marker, its geography etc…) so i don’t say all the countries have to follow the same path to recovery. Nonetheless, the similarities are quite obvious when you look at the symptoms; high private and public debt (public debt being the consequences of bailouts), although the emerging countries are in a different situation. The developed countries are now facing the same dilemma: conventional monetary policy does not work anymore (liquidity trap) and fiscal policies and regulation (or deregulation) are seen as the only tools available (although i think there is far more options that these ones).
So I would answer yes to your question:For example, in Ireland the State announced the austerity package very clearly tp please the markets; Nevertheless, the uncertainty remained quite strong, probably because investors do not believe in the economic recovery.

jjoxman April 4, 2011 at 10:01 am

“Please learn more from history!”

You first! Specifically by starting with your own.

Eduardo April 4, 2011 at 10:27 am

I know the history of my country. and answered the guy above that claim to know something. Actually, i hoped to have constructive dialogue in this blog but I find myself (as it is too often the case) arguing against stereotypes

Michael April 4, 2011 at 12:33 pm

It makes me sad to see this actual states of Economics, and people putting so much faith in abstract ideas.

Abstract ideas like aggregate demand? Careful, that blade cuts both ways.

Eduardo April 4, 2011 at 1:39 pm

Aggregate demand is a good idea, but it is a large concept that can be used in many ways. The problem is when you decide that there is only on way to interpret it, as done by the IS-LM model which is, by the way useful but in my sense completely obsolete right now (especially because its monetary assumptions are outdated)

Michael April 4, 2011 at 1:53 pm

Aggregate demand may or may not be a good idea–it’s entirely debatable.

The point is, aggregate demand, whatever evidence can be cited for or against it, is an abstract idea. That it is an abstract idea, in and of itself, is not sufficient to accept or reject it.

The same is true of regime uncertainty.

jjoxman April 4, 2011 at 9:58 am

Talking about “excess capacity” makes as much sense as talking about “aggregate demand” when monetary equilibrium is not the issue. Specifically, excess capacity to do what? Demand for what? These words make it sound like we’re producing schmoo, not a huge variety of consumer and capital goods. So if you have excess capacity at a lumber mill, but there’s too many houses still in the cluster f**k pipeline that the Feds have created (a source of continuing uncertainty for bank balance sheets), that doesn’t matter one bit. Yes, machines are idle – cause ain’t nobody want more houses. But, I’m a lumber mill and that’s all I’m set up to do. So I’ll work at a lower capacity while the housing market works itself out, maybe pick up some other jobs on the side.

#2 thing is: a permanent higher level not only of uncertainty – since how many people actually thing businesses and households know what the costs of Obamacare will actually be? not to mention Dodd-Frank and all the new czars? – but of expected costs of employment of people. A business doesn’t know how much the health care costs of employees will go up, but it is very reasonable to suspect they will go up but a substantial amount. Sufficiently high to reduce the value added of the marginal employee to negative. In other words, we should expect a higher overall unemployment level and lower capacity utilization for now, and lower employment and reduced total capacity in the future as businesses adjust to the new regime structure.

DG Lesvic April 4, 2011 at 11:54 am

A question for those who object to abstract reasoning in economics and insist on empirical observation?

How could you observe the Invisible Hand?

A question for those who insist that the bad effects of Obama’s policies will not be very great and that there will not be any great run for cover from them:

Is that a recommendation for them?

Economics cannot analyze the extent of the effects of a given policy, only the direction. It can say that the policy will make things better or worse, from the standpoint of those advocating it, but not how much better or worse. So, you may argue that the destructive effect of Obama’s policies will not be very great, and that the run to cover from them will not be very great. But that is not to deny that they are destructive and that there will be a run to cover from them. Is that a reason to support them?

Eduardo April 4, 2011 at 1:28 pm

How could you observe the Invisible Hand?
The invisible hand come along with many assumptions. The classical didn’t made them explicit, but the neoclassical supposedly established them (full information, atomicity of the particpants, etc..)
So i would say you have to analyze market by market (as the serious forecaster do).
But in my opinion, what leads a good invisible hand are the institutions and the legal framework (so it is no invisible –> I am sorry for this statement, you will hate me :) ). Which means that there is a plenty of possibilites about how the markets could work. It does not mean monopolly of state, it means that the rules of the game are established by a way or by another. For example, the instutional framework for investors has changed a lot (the financial product used, the way the banking system is regulated; etc..). Each component of this framework change the reality and then we need new models to show new tendencies. (Another example: you decide that you implement wages indexation -like Belgium- then, AS A CONSEQUENCE, the theory of inflationary inertia can be invented).
All this suggest we economist should be more pragmatic, and take the case-to case methodology (as all the other social science do). General theories are not useless, but they should be used only as an abstraction exercise, and never to justify political agenda.

DG Lesvic April 4, 2011 at 12:30 pm

The most significant fact in these kinds of discussions is that those advocating the socialist policy don’t really believe in it themselves.

If they did, why must they have a monopoly for it, why must they suppress its competition? Those of us advocating the capitalist policy don’t demand a monopoly for it. We can’t. The free market implies the freedom to opt out of it, to join a commune. And, in fact, that freedom used to be exercised, with all the “utopian socialist communities” in the midst of overall capitalist societies in the Nineteenth Century. They disappeared not because the police shut them down but because nobody wanted to live in them.

The socialists today, having failed to lead by example, would lead by force. They don’t just ask others to join them in a socialist society but insist on a monopoly for it. That is their tacit admission that it could not compete in a free marketplace of actual performance. And it is a little hard to believe in an idea when its advocates themselves don’t really believe in it.

JohnK April 4, 2011 at 1:18 pm

“That is their tacit admission that it could not compete in a free marketplace of actual performance.”

They don’t care about performance. In the mind of a socialist it is better for everyone to have an equal standard of living than to have wealth disparity, even if those on the bottom of the unequal distribution of wealth have a better lifestyle than those where the wealth is distributed evenly.

You are applying logic to something that is based upon emotion.

“And it is a little hard to believe in an idea when its advocates themselves don’t really believe in it.”

Sure they believe in it. You’re just misunderstood about what “it” is.
“It” is the idea that life can be made fair (through the proper application of violence and intimidation in need be), and we are the ones who don’t really believe in it.

Eduardo April 4, 2011 at 1:42 pm

Ayn Rand?

JohnK April 4, 2011 at 1:56 pm

Just me and my own observations.

vikingvista April 4, 2011 at 2:02 pm

“In the mind of a socialist it is better for everyone to have an equal standard of living than to have wealth disparity”

To put it another way: in the mind of a socialist it is better for people to suffer unequal amounts of state oppression than to have wealth disparity.

One notion of equality necessarily comes at the expense of another.

JohnK April 4, 2011 at 2:33 pm

“in the mind of a socialist it is better for people to suffer unequal amounts of state oppression than to have wealth disparity.”

They consider wealth disparity to be oppression and state sanctioned violence to be the cure. Remember that a socialist sees no distinction between society and the state. So state oppression is an oxymoron to the socialist. The state cannot oppress, for we are the state. The state is “us”. The rich are “them”.
And it’s always “us” against “them”. That’s why when one disagrees with a socialist they are often accused of siding with the rich.

brotio April 5, 2011 at 12:18 am


nailheadtom April 4, 2011 at 1:22 pm

Amen, brother.

Eduardo April 4, 2011 at 1:46 pm

@ Mao_Dung
Gracias por los complimentos. Pero soy yo el que esta impresionado pour tu nivel de castellano!! De donde sos? Japón?
Un gusto hablar contigo

DG Lesvic April 4, 2011 at 2:57 pm


You’re right. Absolutely right. You have hit the nail right on the head.

To the Left, the most important thing, whatever its cost in any other terms, is the equalization of incomes. Their whole policy comes down to one thing, taking from the rich to give to the poor, not necessarily to make the poor richer, but more equal. And that is why the ultimate argument against it is that, in accordance with the First Law of Economics, that, for every action against the market, there is an opposite and more than equal reaction, their policy, to reduce inequality, cannot reduce but only increase it.

Taking from the rich to give to the poor cannot reduce but only increase inequality.

That is the idea that I have been trying to promote here, and with little success.

Glad to have you on its side.

Tell it to Methinks and VikingVista.

JohnK April 4, 2011 at 3:06 pm

“Glad to have you on its side.”

Uhhh, no?

I see how taking from the rich to give to the poor has the effect of decreasing overall wealth and making society as a whole poorer, but I don’t see how it increases inequality.

vikingvista April 4, 2011 at 3:31 pm

It’s easiest to see it on a supply-demand plot, then reason backwards from that. It comes from the fact that a tax (such as a tax on labor supply) reduces quantity traded, resulting in a higher pretax price (income) point on the demand curve.

A tax on any trade, regardless of which party it is directly levied against, is, in a competitive market, a tax paid by both parties due to the decreased quantity.

Labor remains a competitive market (particularly at high income levels), so purchasers of labor must increase the wages they pay to cover their part of the worker’s income tax. Progressive taxes mean that higher wage workers see their pretax incomes rise more than lower wage workers.

Effects on after tax wages is more complicated. But if the demand curve for labor is steep, and you are not one of those high wage workers who loses employment, your after tax income may be little affected, while your pretax income soars.

Since your after tax income doesn’t increase, You may not be able to afford any more. But it is your pretax income that the redistributionists care about, so you find yourself classified into an elite tiny top X% of income households.

You may be a down to earth kind of fella who doesn’t care about elite status. But the fact that you have now become the most hated by the same moronic and malicious socialist turds who inadvertently gave you that elite status, is rich indeed.

DG Lesvic April 4, 2011 at 7:39 pm


You wrote, about my theory:

“It’s easiest to see it on a supply-demand plot.”

No, it isn’t easy. It’s impossible, at least for me, and I ought to be able to understand the theory, if it’s described properly, for I originated the goddamned thing. But even I can’t head or tails of your econobabble, a perfect example of what’s wrong with economics today, and how not to write it. You should have been a professor, with apologies to Russ and Don, the noble exceptions to the rule, professors who actually know how to write.

vikingvista April 4, 2011 at 7:57 pm

“No, it isn’t easy. It’s impossible, at least for me, and I ought to be able to understand the theory, if it’s described properly, for I originated the goddamned thing”

You simultaneously think far too much and far too little of yourself.

DG Lesvic April 4, 2011 at 7:34 pm


Here is, I hope, a link to The Forbidden Theory of Redistribution. Forbidden Theory of Redistribution-New

If it fails to do what it’s supposed to do, take you directly to that chapter, it will at least take you to the beginning of the book, entitled Dumb Jews. Scroll down a bit, click on Book Two, then look for The Forbidden Theory in the Contents, and click on that.

As a matter of fact, you’re on the side of the theory whether you’ve agreed with it or not. For at least you’ve agreed, in principle, or implicitly, that it ought to be considered, and, if found correct, as nearly as we could tell, it ought to be put to use.

vikingvista April 4, 2011 at 3:10 pm

“Taking from the rich to give to the poor cannot reduce but only increase inequality.

That is the idea that I have been trying to promote here, and with little success.

Tell it to Methinks and VikingVista.”

In spite of your perseverations to the contrary, I have never disagreed with the basic supply/demand conclusion that progressive income taxation can be expected to increase pretax income inequality.

DG Lesvic April 4, 2011 at 7:44 pm

Why is it a “basic supply/demand conclusion?”

Why not just a conclusion?

What do you need all the fancy verbiage for?

Anyways, now that I know you agree with it I’m beginning to have doubts about it.

Oh, that’s too nasty. But you know me. I just couldn’t resist it.

vikingvista April 4, 2011 at 8:15 pm

“Why is it a “basic supply/demand conclusion?””

Because nearly any college freshman can figure it out in his first semester of Econ 101.

DG Lesvic April 4, 2011 at 9:39 pm

What are you talking about?

Why should anyone have to “figure out” what you’re saying?

Why must you make it a mystery?

vikingvista April 4, 2011 at 10:56 pm

“Why must you make it a mystery?”

A six paragraph post is hardly making it a mystery. Supply demand analysis makes thinking about complex interactions a lot simpler. Something mainstream economics has known about since perhaps a little before you were born. It isn’t my fault that you refuse to learn what even college freshman must learn. Cripes, DG. High school kids draw supply demand curves, and you call me professorial for doing so. Not too impressive.

DG Lesvic April 4, 2011 at 9:50 pm

Viking (ha)

You wrote,

“You simultaneously think far too much and far too little of yourself.”

By the first, that I think too much of myself, you meant that I didn’t really originate that theory. You’re probably right about that. And I think we can and ought to assume that you are. The theory is so simple and obvious. How could anyone else not of thought of it. The fact that I don’t know of anyone else who had done so doesn’t mean that no one else had. It’s probably like the Marginal Theory, simultaneously discovered by three different people who didn’t know anything about one another. I’m fortunate to have come along during the Age of the Internet. But before that there was no way for anything original to come into an economics dominated by an obscurantist academic elite. As I wrote a long time ago, “One shudders at the thought of all the innovations and improvements doomed by Scholarship and Higher Authority to oblivion, the dead letter file, and unmarked graves.”

So, sure, I’ll bet there were plenty of others who came to that same simple obvious conclusion and long before I did, and whom we’ll never hear of.

As for the second, that I think too little of myself, you mean that I could really understand your unintelligible gibberish if I just tried.

No I couldn’t.

DG Lesvic April 4, 2011 at 10:17 pm


I graduated from UCLA with a bachelor’s degree in Poly Sci, and it took me five years of working my tail off to complete the four-year course, and by the skin of my teeth, with barely the requisite C average.

So you’re not looking at any great brain here. That what I’m saying is new to economics is not so much a testament to me as a reflection on the state of economics. Innovation, challenge, and chain is not going to come from the academic world, but only from outside it. There was plenty of it in the earlier formative years of economics, for it was still an amateur science, as accessible to laymen and hence to innovators as to professors, the natural foes of innovation. The last great innovator, Mises, straddled the two eras of economics, the amateur and the professional, as a product of the days before the profession completely squelched innovation, but still ultimately its victim, always an outsider to the profession. Had economics remained an amateur science, and on the course its great amateur founders and creators charted for it, my new idea would almost certainly have been old hat a long time ago. I have no doubt that countless others before me came to the same conclusion, but were certainly not professors, and so had no access to the annals of the science. It is the Internet today that has opened things up at long last to what should have been a commonplace of economics a long time ago.

vikingvista April 4, 2011 at 11:07 pm

I wonder if Mises thought supply and demand schedules were a waste of time. Or maybe he though they were only the proper domain for professional economists. Yeah, I’m sure he thought it was much easier to think about price determination using plain English (or German).

DG Lesvic April 5, 2011 at 12:03 am

I can’t answer your question because even after wearing out two copies of Human Action I don’t know what a supply and demand schedule is.

And I’ll bet you can’t tell me.

vikingvista April 5, 2011 at 1:25 am

“I don’t know what a supply and demand schedule is.”

You are not helping yourself with statements like this. Even you got C’s in poly sci, you are more than capable of understanding it. And you certainly should understand it before you complain about it. You can find it explained in any beginning econ book, or just do a Google search. But if all you read are Austrians, just read Chapter 2 Section 5 of Rothbard’s magnum opus.

“And I’ll bet you can’t tell me.”

You are right. I can’t. So let me ask my 16 year old nephew. Here’s what he says. “The demand schedule is a tabulation of prices and the quantities that would be demanded at those prices. The supply schedule is a tabulation of prices and the quantities that would be supplied at those prices.”

I know. The kid must be a frickin’ genius.

DG Lesvic April 5, 2011 at 2:42 am


You wrote,

““The demand schedule is a tabulation of prices and the quantities that would be demanded at those prices. The supply schedule is a tabulation of prices and the quantities that would be supplied at those prices.”

Such schedules are irrelevant to economics, for, as Mises explained, there are no constant relations between magnitudes in economics.

In his words,

“If a statistician determines that a rise of 10 per cent in the supply of potatoes in Atlantis at a definite time was followed by a fall of 8 per cent in the price, he does not establish anything about what happened or may happen with a change in the supply of potatoes in another country or at another time. He has not ‘measured’ the ‘elasticity of demand’ of potatoes. He has established a unique and individual historical fact.”

Does that make Mises a goddamned idiot too?

vikingvista April 5, 2011 at 1:14 pm

“Does that make Mises a goddamned idiot too?”

It means you still don’t know what the hell you are talking about. Mises was writing primarily about the heterogeneity of markets, and secondarily about the futility of quantifying them. He wasn’t denying that supply and demand preferences determine prices–a foundation of **all** modern economics, including anything anyone of the Austrian school (or any other contemporary school accept the Lesvic school) has ever believed. This is basic deductive economics.

Stop writing for just one day. Take the time to learn your ABCs. Use the Rothbard reference I gave you if you don’t trust the same presentation in EVERY other beginning economics text.

You take what is perhaps the one part of economics for which there is no controversy, and which is accessible to everyone, and you continue to write like you’ve never even heard of it–without even attempting to learn it.

Really, this is just pathetic. Painful. Stop already.

DG Lesvic April 5, 2011 at 1:58 pm


Here again you’re just throwing words around.

“Mises was writing primarily about the heterogeneity of market.”

He was just saying that there were no constant relations between magnitudes. Period.

And you’re setting up a straw man Lesvic, and knocking him down with glee. And even here you couldn’t resist the excess verbiage.

“He wasn’t denying that supply and demand preferences determine prices.”

You couldn’t just say supply and demand. It had to be supply and demand preferences.

Sorry to put a damper on your glee, but the real Lesvic never said what you accused your straw man Lesvic of saying.

Let’s see you knock the real one down.

DG Lesvic April 5, 2011 at 2:01 pm


You won’t cite my own words but simply those you choose to put in my mouth.

DG Lesvic April 5, 2011 at 2:02 pm

Aint’ we got fun.

vikingvista April 5, 2011 at 2:16 pm

“He was just saying that there were no constant relations between magnitudes. Period.”

Supply/demand analysis like the one I gave, like the ones Rothbard and undoubted Mises taught to their students, have NO FRICKING THING TO DO WITH CONSTANT RELATIONS BETWEEN MAGNITUDES. This is YOUR straw man.

Stop screaming to the world that you are a moron, and instead learn something about that which you are criticizing.

Jesus, you are frustrating. How can anyone be so dense and unconcerned with their own reputation. I’m not going to teach you an Econ 101 class in the comments section of Cafe Hayek. If you won’t even try to learn it from the Austrians, as I suggested, then that is your problem. I’m through with this madness.

DG Lesvic April 5, 2011 at 12:06 am

Oh, that’s what it is, a curve.

I’ll have something to say about that in just a moment.

Hold on to your hat.

DG Lesvic April 5, 2011 at 12:12 am

OK, here’s what I think of your curves.

In pictures or in words, a curve by itself has no meaning in economics. It must still be explained in other terms. With the other terms, why do you need the curve? If demand goes down as price goes up, why not just say so, why that “the demand curve slopes downward?” Why translate from straightforward language into a circular maze, and meaning into non-meaning?

Confusion is complicated, economics simple. To understand it, we just need teachers who make sense, not throwing curves, but giving it to us straight

What is the real purpose of high falutin’ convolutin’ and circumlocution?

“Don’t bother with the rest of this. It’s just meant to confound people.”

an economist, about her own work, as related to me by her mother, my cousin

From The Austrian School of Geometry at

vikingvista April 5, 2011 at 1:28 am

“In pictures or in words, a curve by itself has no meaning in economics.”

DG. I truly hate to say this. But you are a goddamn idiot. If at your age and your interest in economics, you haven’t the foggiest notion of supply and demand, then you simply must be written off as hopeless.

DG Lesvic April 5, 2011 at 2:55 am

See my coment just above, at 2:42 am

DG Lesvic April 5, 2011 at 12:32 am


May I remind you that we were talking about my theory, certainly something I ought to know backwards and forwards. But by the time you got through explaining it, with your “schedules” and all the other stuff supposed to clarify it, I couldn’t recognize my own theory. And that was my fault.

Mama mia!

DG Lesvic April 5, 2011 at 10:18 am


I’m still waiting for you to say that Mises was a goddamned idiot too.

DG Lesvic April 5, 2011 at 2:49 pm

Viking (Blow Top) Vista

You wrote, nay, screamed:

“Supply/demand analysis like the one I gave, like the ones Rothbard and undoubted Mises taught to their students, have NO FRICKING THING TO DO WITH CONSTANT RELATIONS BETWEEN MAGNITUDES. This is YOUR straw man.”

Here, again, was your statement.

“The demand schedule is a tabulation of prices and the quantities that would be demanded at those prices. The supply schedule is a tabulation of prices and the quantities that would be supplied at those prices.”

You were implying either one of two things. The “schedule” you referred to was that of a particular time and place only, hence, but a datum of history, and irrelevant to economics, or, if relevant to it, was the “schedule” for all times and places, of constant relations between magnitudes, which, as Mises clearly stated, don’t exist in economics.

vikingvista April 5, 2011 at 5:54 pm

“You were implying either one of two things. The “schedule” you referred to was that of a particular time and place only, hence, but a datum of history, and irrelevant to economics, or, if relevant to it, was the “schedule” for all times and places, of constant relations between magnitudes, which, as Mises clearly stated, don’t exist in economics.”

People do possess relative values for things. Prices do exist. Things are trades in finite quantities. These are undeniable facts. You take those facts, understand how they relate, and remove all the particulars. It is called “abstraction”. Abstraction is something you have never been, and never will, be able to understand, because you are a freaking mental cripple. This is understood by everyone calling themselves “an economist”, including every single Austrian economist who has ever or will ever exist. This is fundamental to Austrian economics, and if you deny it, you are denying Austrian economics (not to mention all economics and just about everything else that studies relationships between quantities). It is not “constant relations between magnitudes”, it is relative relationships between abstract quantities. You cannot do economics, of any kind, without it.

If you don’t believe me, and you don’t trust mainstream economists, read the section from Rothbard’s comprehensive text. Like every single other economist in the world, he understood it.

I will simply never be able to take you seriously again.

DG Lesvic April 5, 2011 at 6:52 pm

I predicted that you would not cite my own words but those you chose to put in my mouth.

Was I right or was I right?

DG Lesvic April 5, 2011 at 2:53 pm

By the way, Blow Top, your new name is Vesuvious Vista.

vikingvista April 5, 2011 at 5:57 pm

Absolutely. Some arguments are so mind-numbingly stupid, in the context of someone claiming to have written an economics book, that I cannot bring myself to believe they are expressed honestly. That suspicion is confirmed when you admit that you don’t even understand, or care to look into, that which you deny. You don’t even make an effort.

And one thing is damned sure. You will never begin to understand Mises.

DG Lesvic April 5, 2011 at 6:54 pm

Cpongratulations. Your superior logic has won again.

This is getting monotonous!

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