Saturday, January 24, 2009

We're All Economists Now

As most everyone not living in a cave (not that there's anything wrong that), the world has just escaped a financial crisis. The escape was expedited by "injecting capital" into thousands of banks. Or at least, capital has been promised to be injected into banks, come one, come all, it's all good.

Does this make sense?

Depends on who you ask.

Certainly, it makes sense to The Powers That Be (TPTB), and probably also to businesses depending on revolving credit to make payroll (wtf kind of business model is that?).

The current doublespeak is "Nationalize the banks to save the free market!" This is pretty much the same as "Destroy a village to save it."

In any case, these actions are classically Keynesian, you know, "in the long run we're all dead."

Two Schools of Economic Thought



Nearest I can figure, there are two main schools of economic theory: Keynesian, and the Austrian School.

Keynes



Keynesian ecomomics is always right, until it's very, very wrong. Then it's too late.

Nearest I can figure, Keynesian economics is best described as "inflate or die."

I used to do a lot of caving in Southern Indiana, back before the wetsuit days. We had a saying: "Move or die." This was because if you stopped moving, you would die of hypothermia. The saying was a joke. The hypothermia was real, and very dangerous.

I believe the analogy here is when an economy can no longer service the debt incurred by inflationary practices, it stops moving. Then dies.

* Keynes: In the long run, we're all dead.

TPTB are all Keynesian, without exception. Ron Paul doesn't count. Ron Paul has no clout. The reason for this is that whenever there is a problem, they can more or less print money and hope it goes away. Strangely enough, if they don't print too much, this works. I think it's because the economy under such "stimulation" (that just sounds obscene) grows faster than people accrue debt. Even though people accrue debt, their ability to pay grows relatively faster.

Where this gets in trouble is when people do things like borrow money to pay interest... this is when nations and empires get in trouble as well.

Austrian School



Austrian school economics is always wrong, until it's very, very right. Then it's too late.

* Austrian school is how most of were raised. As children, we assessed risk more or less along the line of "When I get caught, how much will it cost my allowance." In contrast, the Keynesian world might think: "If I get caught, how can I make someone else pay for it?"

* Austrian school: It always ends badly.

* Most "little people" i.e., middle class, ultimately become "Austrian School" with respect to their personal economy. Sooner or later, and almost certainly after the first bankrupcty. We don't really have the luxury of any other choice.

The really cool thing about running one's own economy in the Austrian mode is the large amount of personal freedom that results. That is, you end up without any debt.

* Good link for gold on Ron Paul forum: http://www.ronpaulforums.com/showthread.php?t=126556

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