Quotation of the Day…

by Don Boudreaux on November 12, 2011

in Complexity & Emergence, Creative destruction, Curious Task, Seen and Unseen, State of Macro

… is from page 108 of the 1977 volume, edited by Walter Grinder, of Ludwig Lachmann’s papers, Capital, Expectations, and the Market Process; in particular, this quotation is from Lachmann’s 1951 review, in Economica, of Mises’s Human Action:

In the Austrian theory existing capital combinations can be reshuffled so as to release scarce resources. In fact, the constructive entrepreneurial task of the readjustment period consists largely in this, and not in indiscriminate investment. The core of the matter lies in this: the existence of unemployment and idle resources does not necessarily indicate “lack of effective demand”; it may indicate lack of complementary capital.

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{ 86 comments }

Greg Webb November 12, 2011 at 12:53 pm

An insightful analysis by Ludwig Lachmann!

Nikolai Luzhin, Eastern Promises November 13, 2011 at 10:59 am

1) It seems to me your argument is wrong on the facts. It is very easy to test the assertion by looking at the facts on the ground. No long term economic study is needed.

If we do that we see that most all of our economic problems can be traced to two industries: autos and housing. In 2007 and 2008 we didn’t lack complementary capital in either industry and we still don’t. Both markets died due to collapse of demand; falling consumer income, and lack of job security.

2) your “judgment could be clouded by your prejudices and preconceptions,” per Lewis on Kahneman here

http://www.vanityfair.com/business/features/2011/12/michael-lewis-201112

In sum, one should first look at the facts, asking: (1) where has demand collapsed; and (2) why?

De Long has commented that the current demand for housing can only be explained by lack of income and job security, that we are far below trend line in replacing housing stocks, especially given projections in the increase in our population.

ROUBINI just wrote in the WSJ

Despite debate over illegal immigration, the U.S. population will likely rise from 310 million to about 420 million by midcentury. Between 2000 and 2050, according to Mark Schill of Praxis Strategy Group, the U.S. workforce is expected to grow by 37%. China’s will shrink by 10%. Europe’s will contract by 21%.

Do the math and calculate how much our housing stock will have to grow in 40 years to house 420 million people. Physical demand is looking us in the face; obviously the issue is a lack of jobs and incomes, exactly like China.

When it come to the idea of capital being misallocated, we know that isn’t true because everyone needs a home.

Greg Webb November 13, 2011 at 11:26 am

No. That’s wrong. Both the automobile and housing industries have been heavily subsidized by government.

The automobile subsidies caused the major US manufacturers to become inefficient and ineffective in producing quality automobiles relative to their competition. GM, Ford, and Chrysler, and the unions that significantly influence their policies, are political cronies.

The solution is to break up this cronyism and let American automobile manufacturers realize that they have to compete by efficiently making quality automobiles again. Until that happens, the American automobile manufacturers will continue to lose market share and will be bailed out by US taxpayers on an increasingly frequent basis.

The real estate industry was subsidized by fiscal, monetary, regulatory, and tax policies, which lead to huge mal-investment in real estate. Now, the supply of homes greatly exceeds demand and prices have fallen dramatically. The government’s interference in the markets have simply delayed economic reality. The solution is to eliminate the subsidies, allow prices to fall to their equilibrium level and allow people to make their own choices.

Nikolai Luzhin, Eastern Promises November 14, 2011 at 8:16 pm

Greg

Last try:

Where is there any evidence of a lack of complementary capital in housing or autos?

Greg Webb November 14, 2011 at 8:43 pm

Nikki, the housing market was greatly overbuilt because of government incentives created artificial demand that lead to the boom. The bust is a natural result of all government-incentivized booms.

The automobile industry in the US is also subsidized by the US government making it inefficient and weaker than its competitors. Thus, it was hit hard when the real estate bust set in.

The bust naturally makes people feel less secure in their jobs and income level. That is why government should remove the incentives that created the boom.

Nikolai Luzhin, Eastern Promises November 14, 2011 at 9:55 pm

Greg

You are truly an idiot; thank you for proving my point.

Don asserts there is a lack of complementary capital in the auto and home building industry. You just asserted twice, this was not true, as evidenced by both industries being overbuilt.

IOW, you jack, you just agreed with me and pissed on Don.

Way too funny for words Hee! Hee! Hee!

Greg Webb November 14, 2011 at 10:05 pm

Little Nikki, you really need to work on your reading comprehension.

Greg Webb November 14, 2011 at 10:08 pm

Nikki, I am pleased that you now agree with Don, myself, and all libertarians that government incentives and subsidies caused the real estate boom and bust. I know that Barney Frank will be upset with his little Nikki, but what’s a quarrel or two between lovers. LOL!

Jon Murphy November 13, 2011 at 12:12 pm

The roots of the crisis can be traced back to 1992.

Invisible Backhand November 12, 2011 at 1:18 pm

“…it may indicate lack of complementary capital.”

Is there a better source on complementary capital than Rappaport? What makes complementary capital different from capital?

Jon Murphy November 12, 2011 at 4:08 pm

You could have a machine that makes horse & buggy carriages. But it won’t be put to much use, so it is what I all “misallocated” capital. Complimentary capital would be capital used to make things people demand.

Invisible Backhand November 12, 2011 at 4:52 pm

Your’re not ignoring me now?

Jon Murphy November 12, 2011 at 5:01 pm

You asked a good question. One that can be used to further the conversation as opposed to your usual obfuscation. I appreciate that. It deserved an answer.

rmv November 12, 2011 at 4:47 pm

Let’s say I own a widget-making factory.
To make widgets, I need capital.
In a world where capital can be complementary, I need an assembly line and robots. The robots attach widget parts to other widget parts that are moving down an assembly line.

Now, if capital is capital, K is K, it does not matter in what quantities I have assembly lines or robots nor how they work with each other. All I need is more K. More of what type of K? Doesn’t matter, it’s the same.

If K is K, there is no difference between the following, because each configuration of K equals 30:
I have 30 robots but no assembly lines
I have 30 assembly lines but no robots
I have 10 assembly lines and 20 robots

If there is such a thing as heterogeneity of capital, where differing types of capital are complementary, the first two are useless in making widgets.

Now, let’s say there is no longer as much demand for widgets, but there is a growing demand for cupcakes, and I want to now make cupcakes.
If K is K, my previous 30 units of capital will instantaneously be used to make cupcakes. No muss, no fuss. Why? Because, K is K.
Again, if K is K, it doesn’t matter what types of capital I have, because all goods can be made with the same capital:
30 robots but no assembly lines
30 assembly lines but no robots
10 assembly lines and 20 robots

If capital is heterogeneous, then the types of capital that I had used to make widgets may not be able to be used in making cupcakes. The assembly lines may be re-purposed relatively easily. The widget-part-attaching robots? Probably not. I will need different types of capital, such as ovens and frosting dispensers.

30 robots + 0 assembly lines = 30 units of K
30 assembly lines + 0 robots = 30 units of K
10 assembly lines + 20 robots = 30 units of K
10 assembly lines + 10 ovens + 10 dispensers = 30 units of K

In a world of capital heterogeneity, the first two are useless, the third is good for widgets, and the fourth is good for cupcakes, and moving from configuration to configuration is not instantaneous nor frictionless.If K is K, it does not matter.

The heterogeneous nature of capital is, to me, common sense. I don’t doubt that many, if not all, economists also understand this. However, many macroeconomists’ models do not take this into account. They treat K as K. Austrians do not agree with aggregating away from the heterogeneous view of capital as they see it as missing a major characteristic of capital.

Invisible Backhand November 12, 2011 at 5:08 pm

Thanks for going to the effort of writing that post. I tend to think in terms of capital assets or PP&E or turnover ratios. I was trying to think of why that quote was applicable to today’s economy, but I think it’s just from a random quote generator (c’mon, interest rates are low, and capacity utilization has been at room temperature for years, corps are sitting on big piles of cash. Nobody is unemployed because they can’t build factories fast enough).

http://www.federalreserve.gov/releases/g17/current/

Jon Murphy November 12, 2011 at 5:15 pm

Capacity utilization does not necessarily indicate the supply of capital is increasing or decreasing. It just indicates the amount of machinery that is idle.

In other words, the fact that the capacity utilization fell during the recession does not mean the amount of capital fell. in fact, it could have increased. Likewise, the fact that capital utilization has remained more or less the same does not mean capital remains the same. It actually has increased (as evidences by Nondefence Capital Goods New Orders).

Jon Murphy November 12, 2011 at 5:19 pm

Additionally, Nondefense Capital Goods New Orders over the past twelve months totaled over $783 billion, just a hair below the pre-recession peak.

Josh S November 12, 2011 at 4:54 pm

Here’s a much simpler example:

Suppose you open up a shop in Chicago specializing in Green Bay Packers football apparel and souvenirs. You’re not going to make much money. Is the real problem that potential consumers don’t have enough “demand” and would if they just had more money? No. The problem is that what your potential customers really want is Bears stuff. The capital you’re using (floor space, cash registers, etc) doesn’t complement what the consumers are demanding.

Paul Brinkley November 13, 2011 at 11:53 am

Wow. This is actually pretty catchy.

EG November 12, 2011 at 1:34 pm

Why is this “Austrian” and not simply “economics”? This is pretty standard textbook economics.

Don Boudreaux November 12, 2011 at 1:43 pm

In 1951 it wasn’t close to being standard MACROeconomics. And judging from commentary by economists such as Paul Krugman, it doesn’t seem to be standard macroeconomics today – or even consensus economics today.

W.E. Heasley November 12, 2011 at 2:02 pm

On one hand we have Economist Krugman macroeconomics. On the other hand we have Mr. Krugman’s macroeconomics. Stated alternatively, we have the empirical then we have the notional.

Most economists understand the concept “scheme”. Sowell has explained economics is the original party of “no” as most proposition are notional schemes. Hence “no” to the schemes. Mr. Krugman merely exercises the notional scheme as it has historically sold very, very well to the economically uninformed.

EG November 12, 2011 at 3:13 pm

I don’t know what they were teaching in 1951, of course. And you’re right that listening to Krugman, today, you’d get the idea that we were still running on concepts from 1951.

But the above concept is taken for granted, I’d assume, today. Krugman after all, says things which are completely the opposite of his own research, nevermind economic concepts.

Josh S November 12, 2011 at 4:55 pm

Listening to Krugman, you’d think it was still 1938. Even 1951 is a little too unorthodox for him.

vikingvista November 12, 2011 at 4:58 pm

Listening to Krugman, you’d think he wasn’t an economist.

Sam Grove November 13, 2011 at 2:45 am

The other day I started reading some commentary in the paper. After a bit I thought, What Crap!. When I looked at the byline, it was Krugman.

W.E. Heasley November 12, 2011 at 1:50 pm

“…the existence of unemployment and idle resources does not necessarily indicate “lack of effective demand”; it may indicate lack of complementary capital.” – Ludwig Lachmann

Or what Lucas and Sargant referred to as serially uncorrelated errors.

Hence no perfection can occur. However imperfection is the “entry point” by the interventionist in the “all markets will clear” phenomena.

“Entry point” meaning the entry point for the market intervention argument. Paradoxically, intervention-distortion creates an environment that magnifies serially uncorrelated errors. That “imperfection” is the entry point and “perfection” is the argument…. when in fact perfection become additional imperfection.

vikingvista November 12, 2011 at 3:17 pm

Wha-wha-what? But I thought capital is capital is capital is capital. You know, simply “K”.

Jon Murphy November 12, 2011 at 4:04 pm

Not quite. You can have a machine that builds horse and carriages. It’s capital. But it won’t be put to much work.

vikingvista November 12, 2011 at 4:12 pm

Sorry. I thought my prose obviated the need for the /sarcasm tag.

Jon Murphy November 12, 2011 at 4:21 pm

Reading your writing again, I see that…

I am operating on 4 hours of sleep in the past 48 hours, so forgive me for missing that.

Friedrich Brieger November 12, 2011 at 7:39 pm

Of course, capital is homogen. That knows every economist. :)

Becky Hargrove November 12, 2011 at 4:17 pm

“existing capital combinations can be reshuffled so as to release scarce resources”
If ever there were a time to break up sticky markets this is it. We really need to break up the sticky market of what it supposedly means to own a dwelling. For the young? Yes. But especially the elderly who need privacy from others and simplicity in living arrangements. Set housing free and give it over completely to technology, which can fashion affordable modular pieces that even the disabled could put together with ease. Then afterwards, the pieces can be taken off the plumbing/electrical grid (that was rented) and sold. No more warring divorcing couples who can get no legal relief. They can share the proceeds of the components that are still good, and matters of “home” maintenance are resolved at the same time.

Randy November 12, 2011 at 6:48 pm

I like it.

Chucklehead November 12, 2011 at 5:28 pm

To me, this touches on the Keynesian fallacy of the need to increase aggregate demand. There may be a surplus of raw materials and production capacity not because demand is too low, but demand has moved. There is plenty of demand, just not at current prices. What is needed is investment to lower costs, either in product redesign, material changes, more efficient distribution, further automation, or all of the above. This requires capital, even though there is currently excess current capacity. The new price will create its own demand.
Under such circumstances, there may not be the necessary capital available, the company might not have it because sales are down, Banks may not be willing to lend, and uncertainty of a new design or process may put of investors.

Bastiat Smith November 12, 2011 at 6:11 pm

I understood something different out of this. Not that capital was miss-allocated, when it couldn’t sell, missing the compliment of demand. I understood the compliment to mean some other production input that is not present.

So my wedge capital MAY be idle, not because I don’t want its product, but because I don’t have the complimentary ax or mallet capital to make the wedge productive [enough] capital. When I have an ax and a wedge, the wedge is much more productive.

People don’t invest by chasing interest rates, real entrepreneurs (Capitalists) purchase things that increase productivity, including/combined with/ complimentary to existing capital.

Randy November 12, 2011 at 6:25 pm

But… mass psychological effects do matter. Especially when Keynesian politicians and their client economists and media outlets choose to scare the crap out of the public every time their aggregates move in the “wrong” direction.

Question: If a recession happened in the forest and there was no one around to measure it, would anyone care?

khodge November 12, 2011 at 6:38 pm

True but don’t politicians consider “wrong” direction to be when they are out of office?

Invisible Backhand November 12, 2011 at 7:27 pm

“There was a really serious threat to the ownership structure in Sweden during the 1970s, in effect, there was a proposal to buy out ownership entirely and turn it into a sort of worker-owned democracy. The political elites in Sweden were horrified by this and fought a tremendous battled against it. The way they fought was partly, again, through ideological mechanisms. The bankers controlled the Nobel Prize in economics, that went to Hayek, went to Friedman, that went to all the neoliberal figures to try to give legitimacy to all the neoliberal arguments.

http://mrzine.monthlyreview.org/2006/lilley190606.html

Randy November 12, 2011 at 7:56 pm

What exactly is a “proposal to buy out ownership”? Either they made an acceptable offer or they didn’t. I’m guessing that what you mean is that they tried to take over ownership using political methods – which of course would and should be resisted.

Invisible Backhand November 12, 2011 at 9:49 pm

What exactly is a “proposal to buy out ownership”

I discovered (yesterday) you cannot assimilate new ideas. Remember you said (yesterday):

So Carl doesn’t see any reason to draw lines between liberals… actually, neither do I. They’re all socialists to me.

You’re insincere.

Randy November 13, 2011 at 4:21 am

What about that is insincere? As I understand socialism, it is a belief that the desires of the individuals who actually make up society should be subordinated to the designs of those individuals who claim to speak for society. I do frequently see socialists try to run from the term. I suspect that this is because of the numerours disasters that have been caused by this belief throughout history, to which they would prefer to not be associated. But I’m not being insincere. Its just the truth.

Nor am I being insincere when I ask what you mean by a “proposal to buy out ownership”. It seems to me that the phrase only has meaning in a political context. If you know for a fact that a non-political offer was actually presented then it would interest me to see it.

khodge November 13, 2011 at 12:17 pm

“through ideological methods” sounds like they called socialism socialism.
Randy’s being consistent and you’re throwing around ideological fluff: “sort of worker-owned democracy,” “political elites,” “fought through…ideological mechanisms.”

Invisible Backhand November 12, 2011 at 9:18 pm

there was a proposal to buy out ownership entirely and turn it into a sort of worker-owned democracy.

That’s a very beautiful thought. They have that system in North Korea and Cuba, and the happy workers there all agree that it works really well.

Invisible Backhand November 12, 2011 at 9:51 pm

Yes, when you think hellhole, you think Sweden.

Methinks1776 November 12, 2011 at 10:12 pm

Yes. Cold and poorer than the U.S. with a homogeneous population incredibly hostile to outsiders and (of course) racist as hell. But, you wouldn’t know as you’ve never been allowed out of the basement, let alone out of the country.

Invisible Backhand November 12, 2011 at 10:32 pm

I admit that I think hellhole when I think Cuba and North Korea because Cuba and North Korea actually adopted the proposals to collectivize ownership (er, I mean “buy out ownership”. My bad.) and turn their respective countries into worker-owned democracies. I admit that when I think countries that have imposed worker-owned democracies, I think hellholes.

Conversely, I also admit that the reason I do not think hellhole when I think Sweden is that the Swedish hardcore left failed in its attempt to collectivize ownership (er, I mean “buy out ownership.” My bad.) and failed in its attempt to impose a worker-owned democracy.

I admit that part of the reason the hard left in Sweden failed to collectivize ownership (er, I mean “buy out ownership”) and impose a worker-owned democracy on the Swedes was thanks to the Swedish banks and their control of funds for the Nobel Prize. What better way of squashing a brewing leftist tyranny in Sweden than to publicly acknowledge the fine work of liberal economists such as Hayek and Friedman.

That’s all I have to admit. Thank you all for your kind understanding.

GAAPrulesIFRSdrools November 13, 2011 at 2:22 am

What’s so great about Sweden?

Methinks1776 November 12, 2011 at 10:04 pm

Actually, it was Yugoslavia which had worker owned companies. In the early 1950′s, Yugoslavia theoretically abandoned central planning and state ownership (fat chance) in favour of “worker owned” companies. Predictably, turned out to be another stupid idea. Collective decision making was by far not the only failure, but it turns out that the collectives aren’t all that effective or innovative.

Invisible Backhand November 12, 2011 at 10:21 pm

In the interests of full disclosure and academic openness, I would like to confess to everyone that the link I provided above to Monthly Review magazine is an explicitly Marxist publication, published by an explicitly Marxist foundation, which necessarily reflects the Marxist viewpoint of its original financial backer, F.O. Matthiessen, a socialist professor at Harvard. The magazine was launched by Marxist economist Paul Sweezy in 1949 (heir to a wealthy banking family), and Marxist historian Leo Huberman. (An interesting aside: when Huberman died, he was replaced by Harry Magdoff, a Marxist economist in the Department of Commerce during the FDR and Truman administrations. When the Soviet archives were opened, as well as when the notorious “Venona Transcripts” were declassified in 1995, Magdoff (who was continuing as one of the editors of Monthly Review) was identified as a spy for the former Soviet Union.

“Using Matthiessen’s donation of $5,000 per year for three years, the magazine, Sweezy later wrote, conceived of its mission as seeing ‘the present as history’ through a lens of Marxist theory. Its objective was to promote international communism and to hasten the inevitable collapse of capitalism.

Sweezy and Huberman published generally sympathetic views of existing Marxist dictatorships. Any problems in these totalitarian states were described as having been caused by their capitalist enemies or by deviations from the principles of the Marxist founders.”

http://www.discoverthenetworks.org/groupProfile.asp?grpid=7105

Invisible Backhand November 13, 2011 at 9:57 am

It’s actually from A History of Neoliberalism published by those marxists at Oxford University Press, but whatever. You can go back to masturbating to Red Dawn now. Wolverines!

Greg Webb November 13, 2011 at 10:35 am

More evil Marxist ideology from Irritable Bowel, the stupid other personality of the true Invisible Backhand.

Invisible Backhand November 14, 2011 at 5:50 am

To explain more clearly to my many fans at Cafe Hayek:

A History of Neoliberalism is published by OUP, but notice, please, that I did not link to Amazon.com when quoting from the book, but instead to a notorious Marxist site, “Monthly Review,” where the author and the book are treated with great approval by the interviewer.

Interestingly, even some of the positive reviews of the book on Amazon.com mention that it is, er, a bit light on evidence.

Of course, that’s why I approve of the book and like to quote from it. Who needs evidence when I’ve got Marxist ideology to fall back on?

Invisible Backhand November 14, 2011 at 6:13 am

http://en.wikipedia.org/wiki/David_Harvey_(geographer)

Dear Cafe Hayek patrons,

Above is a wikipedia post on the author of that wonderful work about the History of Neoliberalism, David Harvey; one of the last of the self-admitted Marxists. He’s a specialist in something called “Marxist Geography.” Read the bio. You’ll like it — especially if you haven’t had a good laugh in a long time. Thank God he’s a professor at the City University of New York. They need more like him.

Yours, in the spirit of honest and full disclosure (as always),

Invisible Backhand

El Diablo November 12, 2011 at 10:27 pm

Thanks Invisible Backhand for outing the illegimate Marxist nonsense of you evil other personality, Irritable Bowel. I will see him in hell for his evil Marxist ideology.

Invisible Backhand November 12, 2011 at 10:38 pm

;)

El Dios November 13, 2011 at 10:00 am

You’re going to need my approval on that.

Greg Webb November 13, 2011 at 11:00 am

Now, Irritable Bowel, the evil Marxist other personality of the true Invisible Backhand, pretends not only at knowledge, but to be God as well. This is typical for those afflicted with Multiple Personality Disorder. it is also typical of Marxists who promise Heaven here on Earth, but deliver poverty, chaos, and mass murder. See the case files for Joseph Stalin, Vladimir Lenin, Mao Ze Dung, etc.

Needless to say, all those who pretend to be God get a one-way ticket to Hell. And, the place is just full of stupid Marxists.

El Dios November 13, 2011 at 11:49 am

How dare you presume to speak in MY name?

Deuteronomy 18:22

Yea, verily, greggeth hangeth outeth on CafeHayek, which is all atheists and Rand worshiperseth

Myass 12:34

Greg Webb November 13, 2011 at 12:20 pm

A new Marx brother – Odious.

muirgeo November 12, 2011 at 11:12 pm

“The core of the matter lies in this: the existence of unemployment and idle resources does not necessarily indicate “lack of effective demand”; it may indicate lack of complementary capital.”

So one might ask how does the current situation of record corporate profits and trillions of dollars of excess capital and massive unemployment square with these thoughts? I think the real world is saying…WRONG!

Randy November 13, 2011 at 4:36 am

I’m not seeing your point. How do the things you mention not square with it? The private sector isn’t seeing a lot of great investment opportunities right now; not much worth worth risking financial capital on, not much worth hiring people to do; so many of them are cutting back to core business and making profits. If your point is only that the politicians have things that they’d like to spend money on… well, that’s not exactly something new now is it.

Jon Murphy November 13, 2011 at 8:15 am

1) We don’t have trillions of dollars of excess capital (see Capacity Utilization Rate)

2) Corporate profits aren’t at record levels for all corporations, but they are holding on to their cash more, which is to be expected in the current economic environment.

3) The private sector is hiring. In the last 2 months, the private sector has added nearly 2 million jobs. So far this year, the private sector has added about 1.5 million jobs.

muirgeo November 13, 2011 at 10:17 am

Jon,

There is a corporate savings glut. Likewise capacity utilization is well below the long term averages. Corporate profits ARE at record levels and private sector hiring is well below replacement levels and public hiring has remained negative.
So what’s the problem?

Jon Murphy November 13, 2011 at 10:24 am

Given the fact that there is massive uncertainty in the economy right now, and many companies got burned during the recession for not having enough cash on hand ,and the Frank-Dodd Act requires a level of cash on-hand, it is not surprising that companies are holding onto cash (btw, they are not hoarding it. Most of it is staying internal [r&d, personal development, and all that]).

Yes, capacity utilization is below the long term average (but not by much. About 2 percentage points, give or take). However, that is not indicative of excess capital. it is indicative of idle capital. Different things.

As for hiring, yes it remains below replacement levels. However, the private sector is adding jobs at a faster rate than the previous two recoveries. The difference is it’s a much deeper hole. And since we want the private sector to drive our economic growth, why does it matter that government hiring is down?

Jon Murphy November 13, 2011 at 10:29 am

Capacity utilization is 3 percentage points below the long term average.

Randy November 13, 2011 at 10:35 am

What’s the problem? Too much politics.
Political manipulation of the money supply.
Political spending.
Political regulation.
All of which are adding significantly to the risk taken on by those who invest and/or hire.

Randy November 13, 2011 at 10:53 am

P.S. Knowing that you are a member of the poltical class and that you are therefore looking for reasons to do more manipulation, more spending, and more regulation, I’ll tell you what I tell my boss when he asks me that type of questions. You have my answer. If you’re not interested in my answer then you’re on your own.

GAAPrulesIFRSdrools November 13, 2011 at 11:34 am

There is a corporate savings glut.

There is no “corporate savings glut”. Nobody firm, except those conceived in the distorted thoughtscapes of the the left gleefully sit on inordinately large cash balances.

Cash is retained when it cannot be effectively used in operations with a potential reward that justifies the risk and opportunity costs.

If there’s a “cash glut” its because there’s an opportunity deficit. It has a lot to do with Dr. Obama and his economic Radithor.

Greg Webb November 13, 2011 at 11:43 am

“If there’s a “cash glut” its because there’s an opportunity deficit. It has a lot to do with Dr. Obama and his economic Radithor.”

A correct diagnosis!

Nikolai Luzhin, Eastern Promises November 14, 2011 at 8:15 pm

around here correlation is causation, except when the facts are against the dealer

great post

Stone Glasgow November 13, 2011 at 12:21 am

Unemployment and idle resources would exist in a world where replicators instantly made anything our minds could imagine, and machines performed all tasks autonomously.

Why are we so afraid of these things? Maybe people choose to take time off and put the tractor in the barn for awhile, and that’s ok!

Andrew_M_Garland November 13, 2011 at 2:53 pm

02/07/11 – Stefan Karlsson
Education Level, Degrees, and Unemployment [edited]
=== ===
Unemployment for High school drop outs 13.9%, HS diploma 9.5%, Some college 7.8%, BS degree or higher 4.3%.

The employment rate suggests that there is much “hidden unemployment” for people with little education.
High school drop outs 39.2%, HS diploma 54.6%, Some college 64.1%, BS degree or higher 73.6%.
=== ===

I infer that “loss of demand” is not a big factor in current unemployment. People with greater education have been able to find work that is in demand, while the less educated have been more affected.

I don’t think that it is education itself which makes people more productive, but education is acquired by more productive people.

I propose that there is increasing business regulation, employment costs (healthcare), a higher minimum wage, and uncertainties about future profits. Businesses are reluctant to hire people of lesser productivity. Businesses continue to employ people who are comfortably productive and likely to be profitable even with higher future costs.

Put simply, bad regulation and government interference hits hardest on the poor and less productive. businesses are willing to hire and train the less productive, but only if there is a reasonable and predictable payoff for that extra work.

Economic Harmonies November 13, 2011 at 3:34 pm

. . . it may indicate lack of complementary capital.

A conclusion that was very neatly restated by Steve Horwitz in his jigsaw-puzzle analogy that he posted several months ago, as well as Robert Murphy’s gnome-attack scenario that he both posted on Mises.org and cited during his online debate with Karl Smith. See following link:

http://mises.org/daily/5626/The-Gnome-Thought-Experiment

Nikolai Luzhin, Eastern Promises November 14, 2011 at 9:59 pm

where is there a lack of complementary capital in autos, home building, or any other American industry?

just give us three or four examples.

if the idea is so sound, any honest observer ought to be able to spot such a phenomenon of nature. It is not like we are looking for radio signals from space, the gravitron, the Loch Ness monster, or Big Foot.

Ubiquitous November 14, 2011 at 11:55 pm

where is there a lack of complementary capital in autos, home building, or any other American industry?

No sweat, dipschultz:

Every industry in the country that overexpanded during the boom and crashed during the bust (which would include housing, but wouldn’t be limited to it) is an example of malinvestment, or misallocation of capital. Misallocation of capital because of the Fed’s easy money policy and artificially low interest rate is what Murphy means by a Gnome attack. The misallocation causes the lack of complementary capital.

I know you become extremely fatigued moving your lips and humming softly to yourself when you read, so you might do better trying to learn something about the Austrian concept of malinvestment from this lecture by Joesph Salerno:

http://mises.org/media/5411/The-Financial-Crisis-and-the-Death-of-Macroeconomics

Greg Webb November 15, 2011 at 12:10 am

Well written, U!

Methinks1776 November 15, 2011 at 12:13 am

LOL!! I love.

Ubiquitous November 15, 2011 at 12:00 am

And here’s another article by Robert Murphy on Austrian capital theory that should be very clear, even for a cretin like you with low-grade narcolepsy:

http://mises.org/daily/3155
“The Importance of Capital Theory” (“The Sushi Economy”)

It’s a bit more sophisticated than your moronic island example of robotic ciphers who desired nothing except coconuts.

Greg Webb November 15, 2011 at 12:26 am

Really well written. Though it may take a while for Nikki to understand. He needs to work on his reading comprehension skills.

Nikolai Luzhin, Eastern Promises November 14, 2011 at 10:00 pm

shouldn’t we license thought experiments to only people who can think?

Ubiquitous November 14, 2011 at 11:39 pm

shouldn’t we license thought experiments to only people who can think?

Alas, such state-mandated licensing would exclude a mental midget like you who fantasizes about islands inhabited by natives who can’t think of anything to produce or consume other than coconuts. Aside from not existing literally, it bears zero resemblance to anything or any human behavior in the real world. I thought you bragged a while back that you had “mastered” economics. I haven’t seen that you’re a master of anything except (on rare occasions) the pointless, the trite, or the obvious.

Methinks1776 November 15, 2011 at 12:17 am

And the word salad.

Ubiquitous November 15, 2011 at 3:06 am

You’re right. The word salad.

Roughage for the mind. Intellectual fiber.

Yum.

vikingvista November 15, 2011 at 12:28 am

You really want to give that up?

Ubiquitous November 15, 2011 at 3:17 am

Good point. I guess I hadn’t really considered the opportunity cost aspect of the whole thing. Think of all the lower-order preferences I’m foregoing to spend time with the pointless, the trite, and the obvious: more sleep, more fresh air, more sex.

Thanks a lot for reminding me.

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