Wednesday, August 27, 2008
Tyler Cowen Accidentally Confirms Austrian Business Cycle Theory
This is almost too delicious to be true. Back in January 2005, Tyler Cowen (an econ prof at George Mason who runs the very popular blog MarginalRevolution) had a post titled, "If I believed in Austrian business cycle theory." It's hilarious because Cowen did (and does) not believe in ABCT, yet his "predictions" were uncanny--I encourage you to click the link and see for yourself, and remember what things felt like back in early 2005.
Anyway, Austrian enthusiasts have been calling him out on it lately, and Tyler is a good sport about it here. (I should mention that there is also a discussion of breast implants, if that encourages you to click the link.)
I really can't understand the reticence of some free market economists (not just Tyler Cowen, either) to blame the housing boom and bust on the Federal Reserve. This was an almost textbook illustration of ABCT. As I explain in this article:
The case against the Fed is straightforward: In an attempt to jumpstart the economy out of recession, Greenspan slashed the federal funds target from 6.5% in January 2001 down to a ridiculous 1% by June 2003. After holding rates at 1% for a year, the Fed then steadily ratcheted them back up to 5.25% by June 2006. The connection between these moves by the central bank, versus the pumping up and popping of the housing bubble, seemed to be more than just a coincidence. On the contrary, it looked like a classic example of the Misesian theory of the business cycle, in which artificially low interest rates lead to malinvestments, which then require a recession to correct.
Anyway, Austrian enthusiasts have been calling him out on it lately, and Tyler is a good sport about it here. (I should mention that there is also a discussion of breast implants, if that encourages you to click the link.)
I really can't understand the reticence of some free market economists (not just Tyler Cowen, either) to blame the housing boom and bust on the Federal Reserve. This was an almost textbook illustration of ABCT. As I explain in this article:
The case against the Fed is straightforward: In an attempt to jumpstart the economy out of recession, Greenspan slashed the federal funds target from 6.5% in January 2001 down to a ridiculous 1% by June 2003. After holding rates at 1% for a year, the Fed then steadily ratcheted them back up to 5.25% by June 2006. The connection between these moves by the central bank, versus the pumping up and popping of the housing bubble, seemed to be more than just a coincidence. On the contrary, it looked like a classic example of the Misesian theory of the business cycle, in which artificially low interest rates lead to malinvestments, which then require a recession to correct.
Comments:
Reluctance of some free market economists, Bob. Reluctance!
# posted by 
: August 27, 2008 at 9:05 AM
: August 27, 2008 at 9:05 AM 
Wow, a free market like imagine what language be in would! Fight would definitions words over of people!
My turn to nitpick: Why do people use "ratchet" to metaphorically refer to situations in which the definining characteristic of a ratchet -- that it makes changes only go one way -- are irrelevant or wrong?
My turn to nitpick: Why do people use "ratchet" to metaphorically refer to situations in which the definining characteristic of a ratchet -- that it makes changes only go one way -- are irrelevant or wrong?
Webster's isn't wrong. The job of the lexicographer is to record how language is used, not how it should be used.
That's why dictionaries tell us that "infer" can mean "imply" and that "decimate" can mean something other than reduce by 10%.
I suggest you look here instead of at the dictionary.
That's why dictionaries tell us that "infer" can mean "imply" and that "decimate" can mean something other than reduce by 10%.
I suggest you look here instead of at the dictionary.
# posted by : August 27, 2008 at 11:09 AM
: August 27, 2008 at 11:09 AM
What is it with you guys and infinitives? First Bob puts the word "reticence" before one, and now Silas is busy splitting them!
# posted by : August 27, 2008 at 12:37 PM
: August 27, 2008 at 12:37 PM
I still think I am fine, English Bob. First, Webster's does indeed have a long explanation of why people are reluctant (ha ha) to condone the interchangeability of infer/imply, whereas there is no such caution for their entry on reticence.
Second, "reluctant" really didn't capture what I was going for in my statement. I think Cowen doesn't want to jump on board with the nutjob Ron Paul people etc., because he is so sophisticated and they are hicks. It's not merely that he is reluctant, it is that it doesn't accord with his personality.
Since it bothered you, and the CJR says using it with an infinite "offends every time," I will keep this in mind for future use. But even after your arguments, I still think my usage was acceptable. At the very least, I didn't mistake reticence for reluctance (as some people confuse flout/flaunt), as you implied (ha ha).
Second, "reluctant" really didn't capture what I was going for in my statement. I think Cowen doesn't want to jump on board with the nutjob Ron Paul people etc., because he is so sophisticated and they are hicks. It's not merely that he is reluctant, it is that it doesn't accord with his personality.
Since it bothered you, and the CJR says using it with an infinite "offends every time," I will keep this in mind for future use. But even after your arguments, I still think my usage was acceptable. At the very least, I didn't mistake reticence for reluctance (as some people confuse flout/flaunt), as you implied (ha ha).
Why do people use "ratchet" to metaphorically refer to situations in which the definining characteristic of a ratchet -- that it makes changes only go one way -- are irrelevant or wrong?
I don't follow you. Do you like how Higgs uses the term, to mean that government power goes way up during a war, then comes down but never to the pre-war level?
That seems like a great metaphor to me.
A ratchet doesn't go one way. If you go up but don't reach the next tooth (or whatever), it comes back down.
I don't follow you. Do you like how Higgs uses the term, to mean that government power goes way up during a war, then comes down but never to the pre-war level?
That seems like a great metaphor to me.
A ratchet doesn't go one way. If you go up but don't reach the next tooth (or whatever), it comes back down.
No Bob, I wasn't referring to Higgs. That would in fact be a great use. Or, when I said that subtracting out quality improvements but not adding quality degradations when calculating inflation would add a ratchet effect. That's a great use too.
But for example, I saw an investment column where the writer told a couple to "ratchet up" the percentage of their portfolio in stocks. At best, the key aspect of a ratchet is irrelevant. But worse, he certainly *doesn't* actually want them to increase holdings analogously to a ratchet, which would imply not rebalancing when the value of the stock portion drifts up relative to the rest!
But for example, I saw an investment column where the writer told a couple to "ratchet up" the percentage of their portfolio in stocks. At best, the key aspect of a ratchet is irrelevant. But worse, he certainly *doesn't* actually want them to increase holdings analogously to a ratchet, which would imply not rebalancing when the value of the stock portion drifts up relative to the rest!
But for example, I saw an investment column where the writer told a couple to "ratchet up" the percentage of their portfolio in stocks. At best, the key aspect of a ratchet is irrelevant. But worse, he certainly *doesn't* actually want them to increase holdings analogously to a ratchet, which would imply not rebalancing when the value of the stock portion drifts up relative to the rest!
Heh OK, yeah I've seen people use it that way too, when they just mean "bump up." I agree with you that it's misleading; I guess they say it because it implies that there is a specified unit. Sorta like that chef who wants you to kick it up a notch (or whatever).
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Heh OK, yeah I've seen people use it that way too, when they just mean "bump up." I agree with you that it's misleading; I guess they say it because it implies that there is a specified unit. Sorta like that chef who wants you to kick it up a notch (or whatever).
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