Phew! That was close!
 

Bob,

Tell me if you think this is a good analogy for the ABCT. Maybe it's been used before.

To prevent forest fires, the forest service could set up sprinklers in the mountains to "fix" dry conditions. The causes vegitation to continue to grow, and grow more lush than naturally. More grass, more trees, more bushes. More squirrels, rabbits, and deer. Everything looks great and no forest fires.

However, the more they water the more unsustainable the growth of the forest. If/when they cut off the spigot a dry spell will come again. But now, things are far worse. There is twice the vegetation vying for the normal rainfall. The forest is set for an inferno, and the damage will be far worse than under the "laissez faire" situation.
 

Brian,

while all analogies are lousy, this is probably not a horrible one. Also note that without the brush fire, the soil will become poorer over time, and the sprinkling is likely to leach the nutrients even more.

However, the analogy has too many weak spots to be accurate, at least in my opinion. After all, the forest growth is real, and we may just be lucky and never have a thunderstorm to trigger a brush fire, and maybe the spigots are never turned off.

The key weakness of your analogy is is that the sprinkling could possibly continue indefinitely, since the excessive growth has no direct impact on the ability to sprinkle. You are adding a real resource to the system (water), while money printing just appears to do so.

Also, and that's the most important difference: trees don't act. Since ABCT is based on praxeology, any analogy involving non-acting beings.
 

is inherently invalid.

(forgot to finish the sentence)
 

Hi Bob

Help me out here. I am an avid reader of the "world's best blog" and withouth wishing to fan the flames of your already out of control ego, I would describe you as my 'favourite' economist (although the fact that I have one may well say more about me that it does you).

That notwithstanding I think that your analysis and commentary are always lucid, funny, and most of all impeccably logical. The problem is that my second favourite website is RichardDawkins.net - I don't think I need to expand on the problem, suffice to say that my www preferences (in spiritual terms at least) don't add up. Now don't get me wrong, I am here for the economics, and for all I care you could believe in Bertrand Russells 'flying spaghetti monster', but my curiosity has been sparked.

What little I have seen of pro-religious people debating Dawkins et al, has been sadly lacking and almost Krugmanesque in it's argumentation. I can only guess therefore that I may be missing something. So, just for me, and just this once, can you (or any readers) point me in the direction of a 'Bob approved' source of "Why People Believe 101".

Cheers
 

The Blackadder Says:

The Sushi Island model is highly enlightening. However, one of the most interesting things about the Sushi story is that it doesn't involve a central bank, fiat money, government action, or the equivalent. The malinvestment leading to the boom, bubble, and bust is the result entirely of voluntary action on the part of the Island's inhabitants.
 

Brian,

I think I agree with James' analysis. Your analogy is pretty good except that an interventionist could say, "Well human beings have to interfere with vegetation. People water their lawns, right? You don't have a problem with that, do you? So that's why we need a Fed and FDIC. You wouldn't live in a jungle, and Upton Sinclair showed us the dangers of a business jungle."

Paul: If you send me an email, I can send you my articles on Intelligent Design.
 

Bob,

I enjoyed the article, but might you be leaving Krugman too much room to wiggle? I believe his second question was referring to the idea that a drop in aggregate demand caused much of the unemployment. I don't think he'd disagree with the idea that sectoral shifts caused additional hardship, so even if you showed him a strong correlation between housing booms and joblessness I don't think it would make his point invalid.

Of course, the drop in aggregate demand is explainable via ABCT. Home owners were behaving (spending) as if they had more savings than they did, due to inflated housing prices. This naturally led to an unsustainable increase in aggregate consumer demand.

By the way, does anyone know where I can find a copy of this QJAE article? I tried purchasing it on SpringerLink without success (evidently they don't have a PDF copy of it). Its abstract is, I think, the best defense of ABCT I've read. It seems to be arguing that when economic expectations are viewed to be heterogeneous, artificially low interest rates adversely select lenders and borrowers who have incorrect expectations of the future. So the rational expectations criticism is turned on its head, and made to support ABCT.
 

You want academic articles? Just ask me. I got it.

send me an e-mail: james.rothfeld@gmail.com and I'll send it to you asap.
 

Hi Bob,

What do you make of Guido Hulsmann's objection to the standard account of ABCT? Specifically, do you agree with him that expansions of the money supply need not necessarily lower the interest rate (as entrepreneurs can "bid up" the interest rate in anticipation of higher selling prices due to inflation)?

Further, absent bailouts, what prevents the market process from selecting for entrepreneurs skilled at reacting to Fed behavior?
 

Bob and James,

Thanks for the feedback. However, I think that I still like it for certain purposes. I wouldn't argue with it, but I think it gives the laymen the right frame of mind to comprehend the concept. It gives a sense of the silliness of planning nature.

I do like the building the house and running out of bricks analogy, but I think of that as a second order analogy for the initiated, but not the diligent.
 

re: forest as ABCT.

For lack of a thunderstorm:
static electricity & spontaneous combustion.

Real growth as opposed to natural growth:
i.e. a tree drops an acorn and the acorn waits to sprout with the next good rain or lays dormant without sufficiently natural H2O & some unsustainable acorn perish or lay ungerminated v.s. artificial growth i.e. acorns drop, acorns germinate that would not have otherwise, crowding each other out to stunt the growth of all acorns. Acorns that were intended as squirrel food grow and reduce the health and lower the numbers of squirrels. People are then inclined to put clauses in their bill of sale to entice the new owners to - feed the squirrels - who then eat holes in the house causing rot et al. The neighbors revolt at having the squirrels eating their house too (not to mention the occasional rabid squirrel)& spend money on traps and guns to control a squirrel population that never should have been. The sales of popcorn suffer as a result of fewer dollars available to spend after buying the anit-squirrel devices and the price of popcorn falls causing layoffs in the popcorn cultivators (not neccessarily the popcorn growers) The popcorn farmers fail to have sufficent funds for the high priced car wash & they opt to wash their cars in their driveways. The car wash suffers & lays off....

~2cents.
 

I missed some assumptions and worse. Im tired.

The car wash layoffs set off a call to stimulate & maintain car wash employment.

The first year of artificial growth causes problems for the squirrels & keeps their numbers low, fooling potential homebuyers into thinking the area is rabid squirrel free. After several years of artifical growth the squirrel population blooms. A suprise awaits the homeowner who bought in the early years.

My 2nd favorite story is of the semi-truck stuck under the hyway overpass (just by inches) causing a huge traffic backup. The experts cannot figure out how to move all the traffic to get the tow truck through & move the stuck semi-truck without hours of delay. A little girl perks her head out a window and says, "hey mister, why don't you just let the air out of the tires so the semi-truck can go under & to the other side of the overpass to the offramp."
 

Oh yeah, I forgot the most important part. There is an element of *subtle high class snobbery* involved with the attempts to control the blooming squirrel population and to control the flow of information & educate the population as to the true cause of the squirrel bloom. Measures are introduced to increase taxes to pay for gov’t relocation of damage causing squirrels and budgets are increased to pay for a creation of a permanent Office of Squirrel Control (OSC). Once the squirrels population is lowered through trapping, the predators who feasted on squirrels adapt to over turning trash cans for food. As a result the OSC is expanded to include other animals which require additional tools. The high class snobs attempt to derail and humiliate the average regular guy and the like who ask questions & seek the truth and say the problem is with the artificial watering of the forest, but few listen. Even if the damage is not as great as, say Stephen Roach might envision, the damage is still great & a malinvestment of resourses.

How’s that?
 

I'm not an atheist, I'm an agnostic. I'm open to arguments on both sides.
 

There might even be a large well-intended group who, correctly, yet partially see the problems from the squirrel chewed holes as a result of too many red squirrels. The group may be demanding expanded restrictions & regulations on the feeding of squirrels, & the trapping of (even to limit the number of squirrel gun permits as only trained OSC squirrel removal teams are seen as effective, because if the group does not see it happen, it never did) while at the same time calling for less restriction on artificial watering of the forest to encourage the squirrels to return to their natural habitat & provide the food that the rampaging predators seek when over turning the trash cans of the neighborhoods, in total disregard for the obvious preference the squirrels have for the piles of food laid out by well intentioned homeowners and the predators new found taste found in cans. All the while ignoring the old regulations of allowing for the unlimited use & possession of squirrel guns.

All this is done in an attempt to just get things back to the way they used to be with the unintended consequence of compounding the number of squirrels and their predators. The large group of people might even incorrectly assume that because they have never seen a grey squirrel in the area, the grey squirrels have no impact on the quantity of squirrel chewed holes. The clamor might be to protect the grey squirrel from the OSC & the homeowners who wish to control the number of squirrels overall by creating restrictions excluding the grey squirrel from the attempts of the homeowners to be free from the damaging effects of all squirrels.

A person who points out that grey squirrels chew holes just as red squirrels do and that what is needed is not more regulations but fewer, that person might be incorrectly derided as simply unknowing & against all regulations & laws in general, even against the overall happiness of the neighborhoods, when in fact just the opposite is true.

As the regulations expand the result is both squirrel & predator populations explode, happiness drops, home values drop, people no longer see the neighborhoods as attractive and rent or move, further lowering the value of the homes. The lower population of new home owners limits further economic growth and with the increase in squirrel chewed homes & predator attacks, people begin to move out of the area putting downward pressure on wages as there are fewer people with fewer dollars to spend on services & products unrelated to squirrel control.

With increased watering of forests, the official watering positions expand & official forest water’ers make plans to buy houses in nearby squirrel chewed hole free houses - taking income away from the one neighborhood(s) and diverting it into other neighborhoods enriching those who have no squirrel control policy, SCO or official forest water’ers. Investing in car washes in the cities where official forest water’ers live might even be seen as worthwhile, yet it is totally sustained by anti-red squirrel & pro-grey squirrel rhetoric dependent on keeping a lid on the free flow of information & correct policy.

Sorry if this was insufferable, I’m done.
 

Paul,

Basically thinking Christians believe in God because certain features of the universe are consistent with theism, but not naturalism.

Three of the main arguments given here are: the big bang, the fine-tuning, the origin of life.

They believe in Christianity because of the historical evidence from the resurrection.

The best way to assess the strengths and weaknesses of their arguments is by watching debates by researchers on these questions.

Stop by my blog and send me an e-mail. I don't bite. Also, I post on the richarddawkins.net forum occasionally, and I thought it was OK.
 

Wintery Knight - every feature of the Universe is compatible with theism, provided you design your theism to be compatible with the Universe.

Thy are also fully compatible with methodological naturalism, unless you believe that because methodological naturalism cannot yet explain something, it cannot ever explain it in the future.

If you point to evidence in the universe as a rationale for your theism, than you are in fact engaging in methodological naturalism, since you are implying that if there were no evidence for your deity than you would not believe it.

I can tell you that every atheist scientist would agree to the proposition that if evidence for a deity would be found, they would change their stance to theism.

Theism, if based on evidence, is fully compatible with naturalism.

To deny this is akin to logically proving that there is no logic.

Tertullian provided the only unrefutable argument for theism. Everybody else is engaging in a logically incoherent exercise.
 

Sukrit - you cannot logically be agnostic about your position on theism: either you currently believe in theism or you do not. Not being a theist makes you an atheist.

There are two atheist positions, one of them scientific, the other not:

I do not believe there is a deity.

vs.

I believe there is no deity.


The latter is, of course, logically untenable, unless expressed as a matter of methodology.
 

If a theory is not reproduceable in other areas, it is not correct... or something like that.

The forest as ABCT works, as in many areas.

The question is not, is the forest example a good analogy for the ABCT, but rather can the ABCT explain the forest analogy. This supports the ABCT as a correct theory.