Why Paul Krugman is wrong: Austrian Economics vs Keynesian Economics | Saifedean Ammous
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Saifedean Ammous is an Austrian economist and author of The Bitcoin Standard and The Fiat Standard.
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“Imagine how much harder physics would be if electrons had feelings!” ~ Richard Feynman
THANK YOU for this priceless wisdom.
Electrones are a part of what creates feelings.....and we have noe clue as to how. If we had, we could have created a robot able to laugh when told a new joke.
Yeah, that's why you need probability distribution to find their position, like a husband trying to know his wife's feelings
This quote deserves 10k likes
Lex responding with, "I don't know that anything that involves human nature deserves this level of certainty" is likely the most astute way to approach economic theories. I'm sure he would enjoy a conversation with Dan Ariely.
as a Venezuela who lives in Argentina. whenever someone says that things about the hijacking of the Economic studies by the propagandist i deeply feel it... in my heart, my stomach and my pocket
@C. V. EClass how do you know?
@C. V. EClassyes, exactly. how do you know?
Same from Zimbabwe.
Milei 2023
Oof doble wammi. Suerte ahi en argentina, tuve la suerte que mi padre se mudo de Buenos Aires a los eeuu
"There is no central planning without coercion." Best quote ever.
There is no cooperation without coercion. Grow up.
@@AndrewPasq What? Of course there is. I buy a pizza and eat, the shop sells a pizza and makes profit. What do you call that?
@@juliantheapostate8295 Commys can't understand free exchange 🤣 or people who willfully produce.
@@AndrewPasq LOL that is the dumbest thing I have heard/read in quite a while.
@@AndrewPasq Uncle Joe couldn't have said it better.
Lex Friedman is the most balanced interviewer in this genre. I can’t think of another who is more reserved with his own opinions, but still demands his guests “show their work.” It’s an impressive display of humility.
It reminds me a lot of John Stossel back in his heyday. He had that way of asking guests questions. I think Lex has definitely taken it a step up.
Except that he makes me soporific
yes, but he is sooo wrong too often like here.
It’s a shame he never really gets this guy to defend his position other than what boils down to something like “all government is bad because tax is theft”
@@simperingham the guy defended it quite well and illustrated how printing up money based on nothing and depending on inflation is the cause of the problems.
Charlie Munger once said “show me the incentive and I’ll show you the outcome.” Governments have every incentive to push Keynesian economics because it justifies their growth and desire for ever increasing control of the economy. All the money and research goes there accordingly.
They can mismanage all they want and then print money to patch up the mistakes they made and in order to enhance their re-election. That’s the incentive in a nutshell.
So what socialism?
Yh it’s the problem of self sustaining government agencies, rational agents will always find justification to continue their employment (since the skills aren’t very transferable), even if there is no demand for their role
Yet another clown that has zero idea about economics. Where do you people come from? You do know that Adam Smith has an entire chapter on the need to regulate business and that he uses the "invisible hand" phrase once in his 800 page Wealth of Nations and used it as something to be avoided, correct? Of course you don't. Bet you feel pretty stupid right about now...lol
@@alfredjovanovic2106 It is the problem of business needed to be bailed out by tax payer money, seeking rents from governments, and killng competitation. Bet you feel pretty stupid right about now...
My biggest problem with Keynesian economists is that they never advocate for their theories in good times. In good times interest rates are supposed to go up and the printing of money is supposed to stop. It never does.
Austrian economists seem to overlook the power fake money has had to create real goods - this means people everywhere have been able to acquire physical assets, which will persist regardless of inflation's effects. Prior to fake money, people had a lot less access to goods and services. It's no coincidence that post-Keynes there has been an economic explosion. I say this as someone who thinks the Fed is destroying the country...
The economists do advocate for it during good times. Politicians are unwilling to put the brakes on a good economy.
Yeah because people like their Social Security/Medicaid, and they also like their tax cuts
Von Mises Austrian Economics all the way.
"Inflation and Credit expansion, the preferred method of government open handedness, Do not add to the amount of resources available, they simply make some more prosperous, but only to the extent that they make others poorer" -Ludwig Von Mises "We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power" -Alan Greenspan
"We don't know what the hell we're doing on basically anything," as close to an absolute truth as you can get.
I think it's dumb to say that letting arbitrary entities literally counterfeit money is anything but a crime, still. Seems pretty easy and straightforward to me
We are basically a beautiful mess!
I went to Indiana University and both my macro and micro profs did a good job of presenting a couple different perspectives. They started with scarcity and didn't advocate for printing to solve problems and focused on human behavior.
My micro economics professor was good (never took macro). But I'll always remember a gov't professor, while talking about the effects of hurricane sandy, said something like "but rebuilding will stimulate the economy." I can't stand that way of thinking
Did you have Peter Olson?
@Dalton Finney I can't remember. Micro was a Russian gentleman and macro was a guy who had curly hair and his attire hadn't changed since the early 2000s 😀
@@crusherven This is an opportunity cost fallacy. One of the key arguments in favor of Austrian economics. Hazlit’s, economics in one lesson, has a chapter dedicated to this fallacy. It’s a silly argument, because we should all be plundering, rioting and warmongering if following that professor’s logic (also had some of those bozos myself)
All of my economics professors did a good job of staying objective and presenting multiple opinions. My micro professor taught us the diamond and water paradox too lol
The problem is modern economy has so much inertia and is so complex, you can get away with terrible policies and actually claim to be the saviour. The input and output are not connected directly. Output of the first order is also typically much different from that of the higher orders.
@@ericpeters0n can you be more precise with the question?
Very good observation, it is the same in big R&D companies e.g. pharma. Very few people are actually crucial but you have hundreds of department that exists mostly due to regulatory pressure and their contribution is extremely hard to calculate.
@@ericpeters0n "Trickle down economics" is a pejorative term used by dishonest people. It's not a real thing.
The problem with modern economies is that is has ZERO empirical support. It is just religion with numbers.
@@RaquelSantos-hj1mq it’s actually a very real thing lmao it’s just not the most voter friendly mode of raising the middle class
This is the first video I've seen of Lex and I have to say he, as opposed to most interviewers, actually has a lot of critical questions and digs deeper to try and catch him off balance, but in a relaxed and intrigued way.
The problem is he's an idiot who has no problems whatsoever with using the violent coercive power of the government to force individual choices. He's a sweetheart apart from that, I guess?
The amazing thing, his questions are right on, no matter the topic. You can "binge" him over a weekend and never hear the same topic twice.
@@friendlyone2706 yeah, obviously when he’s got someone in the computing field on his questions are precise and very good because that’s Lex’s own field of study. But even in this economics discussion, where Lex clearly is not totally familiar with the terms used, he still provides great questions. Unlike other podcasts where they might try and keep the conversation always flowing for easy listening, Lex isn’t afraid to ask people to repeat themselves, nor is he afraid to think for a while on a question. Combined with his genuine curiosity and intellect and he can have a decent discussion with anyone from any field.
If only he could actually pull guests.
Yes, he's doing a great job of being friendly yet as probing as deeply as possible and exploring posssible problems or contradictions in what the interviewee is saying. A rare skill indeed.
Krugman has been consistently wrong on so much, it’s actually quite impressive.
So you are saying that when the fed raised interest rates, the economy did not slow and inflation did not come down. You are drinking the Austrian cool aid.
@@rlkinnardif you notice a sign of good direction when they reveresed coyrse on their policies, imagine what would have happened if they would have left the interest rates to be dictated by the market and never have messeed with them in the first place. 🤔 I would encurage you to read Hazlitt's Economics in One Lesson to understand a bit the part of the economy we never see because it's not left alone to happen as it should.
@@mariusceterchi5269 The Fed produces the quantity of money in conjunction with the banks; the market produces the interest rates. Something has to produce the quantity of money. China is allowing excessive savings which produces the economy of thrift. Watch and see that Hazlitt is wrong as this can happen. Sometimes an economy can go off the rails for a long time, and Xi seems to have a Austrian bias.
@@mariusceterchi5269 Oh, by stimulating the economy the US economy produced 14 million jobs under biden. How many jobs would have been produced without stimulus? And how do you know that?
@@rlkinnardYeah you really suffer from a major lack of understanding in economics. The government cannot "create jobs". Any money spent on the government comes from the taxpayers pocket. Loans are just pushing the taxes to a later date. Printing more money results in inflation which is the worst taxation of them all. The government cannot "create" jobs. They can only move them from the profitable private sector to the unprofitable government sector. You have not stopped to think how many jobs would have been created had the average American not suffered the brutal and vicious effects of inflation. As the previous comments said, you need to read "Economics In One Lesson". If you have read it, read it again.
In Argentina we've been suffering the consequences of keynesian policies for years (one of the highest inflations in the world)
Socialism doesn't work. Keynes enables socialist policies.
I don't think asking for more than 50 billion dollars to the IMF is very keynesian thing to do when your country has a serious issue with foreing currency savings. Owing USD to the IMF is super inflationary, is not due to spending...
@@toletoles Inflation was well over 20% from 2010 until 2017, that is, before the loan and with proclaimed fans of Keynes as ministers.
@@toletoles Keynes is considered the intellectual founding father of the International Monetary Fund and the World Bank
@@KevHalen Considered by whom?
It may be missed by some that when he says “inflation” he’s generally speaking not referring to price, but to money supply.
The definition of inflation has changed 3x in our lifetime alone.
then he doesn't understand the definition of inflation
The many varying measures of inflation is the cause of so much confusion in economics. CPI, ppi, monetary inflation. I hope for a day when it has a uniform meaning.
@@randoroo2540 Welcome to the messy world of data and measurement. No single measure will be perfect when you try and capture "the change in the general price level". But what IS clear is the definition or concept of inflation, that is general price changes.... NOT money supply as this guy claims. Money supply is well... money supply lol although that comes with it's own measurement issues.
@@drdoob246 you don’t understand inflation. Inflating the money supply inflates prices, there’s just a delay between inflation of the money supply and price inflation. Price inflation doesn’t happen without money inflation.
How amazing is this discussion!?! Having contrarian perspectives from people who are well versed in the dissenting opinion is probably the most valuable commodity that exists in the public square today. I sincerely hope that this type of dialogue continues and flourishes unencumbered. Lex, you are the best. I hope that I get to roll with you someday in Austin.
It's actually sad that being an Austrian economist (or as he said, economist) is the dissenting opinion these days. Unfortunately we are in the middle of experiencing what happens when you play Keynesian games and continue to kick the proverbial can down the road. Eventually the piper needs to be paid...
@@kutark That’s definitely an interesting perspective. But will the Fed ever run out of money to print? They’ll just continue to print. The most important leverage is the Greenback’s “privilege!” All’s at stake if a catastrophic foreign policy blunder destroys that privilege. I think the problem will come from outside rather than inside. Don’t you think?
But he isn't well-versed in the opposing theory, or at least he does not demonstrate that he is by way of steel-manning (or even dispassionately enunciating) the theory he opposes. Instead he begins from the tendentious premise that it is wrong and evilly-motivated.
@@AANasseh The end result of endless currency printing is closer than you think.
a bitcoin guy saying nobel prize economist is wrong and he is right. sounds legit./
My teacher: "What is Keynesian economics?" Me: "It is school of economic thought, that says what politicians want to hear." Teacher: "And what politicians want to hear?" Me: "That there is a free lunch."
You know what, I've finally figured out what Keynesian economics is and the valuable purpose that it serves for the proponents of it's theories. _"Keynesian economics"_ is just another useful term for what could more accurately be called *_"How to LIE with statistics"_* in order to justify some policy decision _ie(central planning)_ by government or central banksters. The rationale is always the same which is to highlight it's merits while dismissing, refuting, downplaying, or ignoring it's negative impacts or unintended consequences. It is the offspring which forms the basis for the school of thought which is *_The Ends Justify the Means_* . Sure I may have pumped an additional $3 trillion dollars of fiat currency into the economy and increased the national debt to gdp ratio to 123% but at least we're no longer in a recession _(Motivated Reasoning)_ as the unemployment rate has decreased, because people must now work two jobs. So what if inflation has increased by over 50% _(Cognitive Dissonance)_ and you've lost purchasing power from the dollars which you'd been saving, the alternative could have been worse ! _(Logical Fallacies Argument from Ignorance and Argument from Adverse Consequences)_
Keynesians say that you can buy a shortened recession with borrowing and spending on infrastructure ay a time when the costs of borrowing are very low. Or to quote Milton Friedman, in economics, there is no such thing as a free lunch.
Edmund Phelps actually proved that there can be a free lunch. (Cf.: Golden Rule of Accumulation) He got the "nobel price" for it.
Austrian economist says " money doesn't grow on trees". Keysian economist buys a money tree on Amazon and pretends its real
When you run out of factual arguments, you try mockery. Your post is an example of this. You do not address the fact I mentioned that the Austrian School is trapped in a static view and does not take dynamic developments into account. Quote: "How can the value of the goods produced be different from the value of the spending." That's a static view, and it shows what a big mistake the Austrian School makes: Not taking into account dynamic developments. If a factory had certain costs to produce a certain good, and now cannot sell it for a price that will at least cover the cost (for example because deflation took place) they will go out of business. Deflation means, that it's not just one good's price that decreased, so this company going out of business cannot be explained by them producing a product that is not desired or having a poor management, it's just that the price level of EVERYTHING has changed because money is what got more scarce. This kind of deflation is hell for investors. That's why in a cyclical crisis the following happens: The propensity to save / hoard increases. In a perfect world, this propensity to save is mirrored by increased investing (that's what saving means in real terms). However the increased propensity to save creates deflation (not in the "Austrian" definition but in the definition of real economists - so a lowering of prices for producible goods) because money is circulating more slowly. This kind of deflation however is a hell for people who have invested (and especially deflation expectations are hell for investors). That's why investments will crush. So the opposite of what should happen (higher savings being offset by higher investments) is happening, because of wrong incentives.
There were a few obvious things that should have been included in this discussion… 1) what is money? 2) Austrians believe that savings, production and supply create economic growth, whereas, Keynesian’s believe consumption and demand create growth 3) more in depth with how governments respond in crisis using different real world examples (08’ , ZIRP era, Covid, etc)
Watch the full podcast...
Glad to see people calling out central bank economic aggression.
@Brandon Lee lol. these people would go back to where the tribe chief decides who gets what from the loot.
🤡
@@Llkc60 I would take a tribe chief over a child loving politician lol
@@kingkoi6542 you might wanna do some reading on how tribals had taken wives and at what age. Anyway, I don't know who you refer to and I don't want a chief or a pedophile in power either
@@Llkc60 at least tribal chiefs gave a damn about their tribe...
Im not sure Ammous would agree with this, but my takeaway is that people make the mistake of believing that currency is wealth. It cannot and never will be.
Currency is wealth in the most general sense because it's issued by sovereign states with millions of productive people who can produce goods and services and will exchange them for said currency. The USD is the reserve currency of the world not because of 'petrodollar' or the United states navy or even the massive nuclear arsenal but because there is about 350 million AMericans with massive mineral wealthy continent to themselves which no one can invade. Why should the government limit itself to a ridiculous gold standard when everyone knows the true wealth of a state is it's human, natural and industrial resources? Austrians are brain dead fools with a medieval conception of wealth and don't understand the first thing about why we are wealthy now and would not be nearly so using something as medieval as a gold standard. Gold standards are for people who don't trust each other and can't work together apparently still looking for the nationalism we now almost all have and will die for. This guy is a dumb as the rest of them.
Im pretty dumb, and was never trained in economics, but realising that real wealth is what is being traded on each side of the monetary transaction is one of the few 'ah ha' moments i have had in understanding economics.
@@garethbarry3825 Currency is a promise and ultimately you got to be pretty paranoid fool to think all transactions can be settled be 'real wealth'. The entire point of fiat money is because we got a bit better at civilization and understood that the promise of the thing wasn't just as good as the real thing but better as more people could make more promises than any volume of gold would allow. All we really needed was better means to evaluate who we are interacting with and if you still don't know the banking license your local bank got gave them the right to create money for you ( not money they had from someone else) based on the fact that you signed that you would pay it back and their belief that you could. That is MUCH simpler than mining a scarce resources and explains not just a little of the boom times we have experienced the last century.
Would have liked to have heard his perspective on Breton Woods and regulation of monopolies.
Can't give you his exact reasoning, but the general austrian position is that Breton Woods was less bad than what we have now. but still a failed system. When it comes to monopolies, Austrians only recognize actual monopolies (a truly single entity control over a market) which only happens in stateful societies. The so called natural monopolies are usually just "dominant players". What we traditionally call monopolies are not really that bad as long as their competition is not prohibited by law. I'd recommend to check out the Austrian view on the history of Standard Oil. It's a really clear example of the reasoning.
Thomas Sowell when asked about getting rid of the Federal Reserve. He was asked what would he replace it with. “When you get rid of a cancer, what do you replace it with?” The perfect answer.
After all, Krugman predicted 9 of the last 5 recessions.
Austrians have predicted imminent hyper inflation for over 100 years .... annyyyyy day now.
@@sleazypolar You didn't get the joke. (Lol!). Read his submission again.
I predicted that comment, and the followed up comments.
@@sleazypolar our dollar has lost 99% of the purchase power it had 100 years ago. That's hyperinflation, just over a century. The economic example of a boiled frog.
@@cuatro336 So what?
Lex Fridman, please have on both a Keynesian and an Austrian economist at the same time on your show and have them debate. Preferably have Paul Krugman and Saifedean or some other Austrian economist
Krugman won't do it, Bob Murphy's been trying to debate Krugman for years... It would be a massacre.
LOFL, Krugman gets his ass handed to him every time.
Russ Roberts has or had a podcast that was very good. He also gets really heated whenever he talks about Krugman
@@crushervenEconTalk. Highly recommended.
Debates, particularly these on highly complex matters, tend to turn to an exchange of non-sequitur answers, flowery soundbites or scholarly nitpicking; that's not to say that we should not have debates, these can be useful as well, let's just make sure their scope is properly defined and the facilitator is well prepared and forceful enough to prevent participants to get away with nonsense (all without showing bias! i.e. a tough job). BTW, Lex Friedman does a fantastic job in the alternative format. He is a great Candide as he prompts his guest with _apparently_ naïve questions, fostering slow, calm responses and restating the guest's key point in a simple but explicit fashion. Lex' great abilities and preparedness in this format give no indication that he'd be successful as a debate moderator.
I was so lucky to have profs who were not Keynsians when I was reading for my degree in economics.
They are an endangered species now
The Austrian economic model lacks hard evidence. One of its main problems is that it ignores that market failures are a thing, in short it’s a utopian pipe-dream.
Agreed. Plus the gold standard wasn’t without problems both before and especially during and after the First World War. There were tons of depressions in the 19th century, gold standard notwithstanding. The Austrian school remembers a world that wasn’t and imagines a world that would never be. Austrian economists are the economics equivalent of climate change deniers. There are questions worth asking and orthodoxies worth challenging but they flirt with crank territory pretty quickly.
@@AspiringBlackMagei think the problem with the gold standart is that it is not that different. There is more money than gold and if everybody want to exhange it the system blow, so at some point credit was created.
Second half of the segment was great. Good job Lex on making Mr. Ammous present his case instead of just his conclusion.
Glad I read this. Went down to the comments 20 min in to see if everyone was going to discuss that this guy is all hyperbole, insults, and opinions. Now I'll wait until the end.
@@TheCrouchingZebra literally same lol
@@TheCrouchingZebra Was it worth watching till the end? I cut bait around half way through.
@@mmg486 no this guy is a bad interview. Can't articulate a single point despite having taught before
@@TheCrouchingZebra I mean the guy spends 20 minutes calling everybody that disagrees with him propagandists and frauds, and then fails to present the actual arguments Keynes made. And then Saifedean even fails to explain marginal utility and his own position. How can the last 20 minutes become better?
I already know Krugman is wrong. I just enjoy hearing people explain it.
Krugman contradicts his own textbook.
I agree but this guy sucked, just a bunch of conclusions and complaints
is milton friedman also wrong then too? lol...
@@gregoryclark2221 yes
So, inflation went up? Go check the WSJ and look it up; watch and learn.
This is so right, when I think about buying anything, I think about what I need and what i want, not about whether my money will devalue by tomorrow, so it makes sense to invest it in buying myself ice cream today. Keynesian economics only promote speculative spending if anything.
Keynesian economics promotes spending because it devalues everything you have while raising prices. Spending and consumption is not growth, it's a government spending spree at everyone's expense.
"I think about what I need and what i want, not about whether my money will devalue by tomorrow, so it makes sense to invest it in buying myself ice cream today." Well, you won't do as well as a Keynesian.
I can agree with the first part of the argument about economics is not science. By now I believe most people are aware of it. However, the second part of the argument that government is bad/violent and private power (corporations) is good is ludicrous and frankly extremely aggressive. I agree we need more options including government, corporations and other entities (non existent yet) to shape and compete in the market.
The thing is that the goivernment are given monopoly over certaint thing or in other words we don't get to choose. If you get rid of all the laws and take away the privileges of the gouvernment the gouvernment almost becomse a company minus the private part.
One of the best interviews Lex, could not turn it off.
Never thought I’d see an Austrian Economist be given such a big platform. Haven’t listened yet, but I’d like to thank you in advance, Lex. Maybe interview some Libertarians. Thomas Massie, Ron Paul, Etc
Austrian economics has added a lot of value to economic thinking, but calling it, the end all be all of economics, like this guest did; Is dangerously shortsighted and dogmatic. Thorstein Veblen was not an Austrian economist, but does that mean the concept of Veblen goods is not an economic fact of human society? Richard Thaler is not an Austrian economist should we toss out behavioral economics too? Economics is a really interesting subject, sad how it's dominated by all these dogmatist
God some bad news regarding Ron Paul......
@@colewarner4954 … okay. Fill me in
@@WanderingExistence In a world plagued by MMT nonsense, I'll take it.
@@WanderingExistence Thank you. Humans are not rational. Austrian economics overlook that.
No serious debate can begin with my school of thought is the definitive: the first lesson in Economics is the existence of trade-offs and value judgements, in their totality, a set of value-judgements on what are acceptable tradeoffs (inflation vs growth) make up a school of thought.
Around 8:00 some very great points on what money is/represents
Great exchange. Regarding Saifedean's assertion that you can't experiment with economics, aren't we able to observe the results of various policies around the world, specifically with regard to centralized versus market-based policies? USSR, Venezuela, Cuba, etc. etc. Would also be good to look at broken markets, for example US Health Care, to seek a clinical explanation of how we got to 2x expenditure for a generally inferior product. I'd like to know why a fairly unregulated/unsubsidized market like Lasic surgery ( a "luxury" delivers a great value, while other medical service defined as a human right (all other health care) is completely out of control.
Haiti is even poorer than Cuba, but no one blames Haiti's bad economy on communists.
I think his point is that these aren't proper scientific experiments because there are too many uncontrolled (and unaccountable) variables. It's another way of saying "economics isn't a hard science".
I interpreted him to mean exploring the counterfactuals is impossible as reality can only play out once.
You can observe but you cannot establish causation in the same manner you can for a controlled laboratory experiment.
@@Theviewerdude only partially true. A lab controlled experiment is only the best or highest form of data. It’s not always better, it can have a bad design etc.
It's surprising how a (former?) university professor has failed to maintain the discipline of using objective non-emotive speech to strong-man opposing arguments to the extent that this speaker has.
Very true.
Saifedean is extremely attached to his points of view. And, no matter how “true” they might be, if you’re attached to them, you’ll always be wrong.
It's hard not to get emotional about the largest fraud scheme in human history. Still, I agree
@@lucask3 Do you see what you just did?
Context of cultural differences is an important note here. It’s okay to comment on weight in the Philippines; in fact it’s not at all taboo. Fat shaming is common. Not saying it is right but making a point that perhaps trash talk is integral in the speakers culture.
The root cause is people not thinking even 1 step ahead, to how individuals might respond to a change (eg, in law, or pricing). Not thinking ahead is a way of implicitly treating a dynamic system (both society and individuals) as if they were static and unable to adapt.
Disagree. They (gov) do not care
As a Business School professor (but with a BA in economics!) - i found this conversation to be quite enjoyable. Thank you, Les!
The only example he gave against Keynesian economics was stagflation which makes no sense. Since economies moved to floating exchange rates in the 80s and 90s this is no longer a problem.
@@uppitymantis7578 What did floating exchange rates have to do with this example?
@@bensupit8991 Floating exchange rates were brought in to end the stagflation following the Nixon Shock. This ended the Bretton Woods system and advanced economies haven't seen stagflation since. Central banks now have the ability to target inflation, whereas previously this was impossible when mandated to control foreign exchange. This is called the 'trilemma of international finance'.
2 points which I thought was missed. 1. Keynesian economists claims to follow data. Yet they ignore Japan. Which practically disproves their entire thesis. All Keynesian economics did for Japan was to drag out their market correction, which is more than 20 years long now. 2. Austrian economists fail to recognize that Defence against foreign aggressive armies cannot possibly be left to market forces. Running a standing army (and foreign relations in general) is a scale that cannot be supplied by the market, because definitionally, once you run the army, you command forces of violence that the Austrian school rejects on a fundamental level. There is a need for government, just not the Keynesian kind.
if all countries are in the same free market economy then nobody would have a standing army?
Robert Murphy addressed the ability of a free market to supply militaristic defense, kzhead.info/sun/icuphMx-ooyjlZs/bejne.html
@@crappymeal The first to recognize that will win the world. So no, your utopian world will never happen in reality.
@@lesterchua2677 what utopian world? i don't understand or subscribe to either worldview
1: Agree. 2: Disagree. A society does not need a large standing army. Look at Ukraine and their fight against Russia, the vast majority of Ukraine's military power comes from civilian militias. Now think about how much more effective they would be if Ukraine were not the 2nd most corrupt country on earth. 3: To your point about government, I do agree that it is a necessity, but kept at a minimum level as envisioned in the American founding. That level of government didn't involve a standing army and its spending was just a few % of GDP.
Lex clips 48 minutes Wtf??
At ~37:00, Lex asks essentially 'is there any circumstance that government control is justified?'. Wouldn't the answer be 'Yes, to enforce contracts,' which is the judicial branch being available for those who may be a victim of fraud because the other party didn't uphold their end of the contract?
yes, I think his question originally was about control in the economy. I think Government protection from external force and of individual of rights is implied as necessary.
Great job, Lex, on pushing back. No need to insult Keynesians beyond explaining with simple facts & logic how & why market-driven economics is reality.
Debate is much more than sound reason. This is a group that needs to be shamed.
Lex shames Ammous at the very first minute. Because he's aware of how weak your ideas are guys. Seriously. "market-driven economics is reality" What kind of statement is that? The kind of statement that only a pseudo-academic douche would say.
Literally every economist analyzes marginal costs regardless of specialty. There is no disagreement on this.
Yes. Menger is everyone’s predecessor in economics. Except the Marxists.
He never argued that economists didn’t follow it. He said that it was the roots of Austrian economics.
@@olegigoverich7684 Even alien economists use Marginal costs in their analysis. It’s at the root of economics regardless of specialty. There is really no ideological issue here.
@@alQarafi I agree I’m just saying that he was explaining the roots of the Austrian school.
@@olegigoverich7684 Did Mises have marginal cost analysis in his work? If he explained some of the research done by various Austrian Economists that would be pretty interesting.
Lex really enjoyed this conversation and your question regarding asymmetric information. Full disclosure I don’t know much about Austrian economics, but I’d be interested to learn about how the free market solves for asymmetric information in the pharmaceutical industry. As someone who agree with you, that bad-faith actors could benefit from asymmetric information, how would you think the free market would resolve issues like the opioid crisis (as a large scale example) or a drug approval process that ensures safety. Seems like it’s ripe for corruption like the repealing of the Glass-Steagall Act
You're absolutely right, it IS ripe for corruption. Asking a profit driven system to solve cultural, social, or environmental problems is a fool's errand. When profit is the sole motivation, true remedies will not be found.
"The free market" doesn't exist. It is the economics version of the flat frictionless plane you use in physics to isolate and calculate forces individually, before you go on to learn dynamics.
Bad actors are found out rather quickly in free markets and punished accordingly. Great case study happening now: watch how quickly Liver King's positive profit trend quickly halts and he's suddenly underwater on all his business ventures
Odd thought about this: changing the laws around patents could really help. If you limit pharmaceutical patents to 3 or 4 years after FDA approval with no extension (rather than 7 years and a 7 year extension) could really help reduce the cost of pharmaceuticals. As to whether or not the FDA will do it’s due diligence in making sure the drug won’t kill people is a different problem though…
Things like Pharma, Petrochemicals and pollution is why I don't believe in anarchocapitalism despite favoring Austrian economists most of the time. Negative externalities are a thing. If you don't punish companies in certain sectors alleging "voluntary exchanges between suppliers and consumers" you end up with situations like those of oxycodone, thalidomide, forever chemicals of DuPont, etc. Intervention is needed for industries where suppliers have much knowledge about the risks their products have on consumers yet refuse to disclose or acknowledge them. Yeah over time markets can adapt on their own and expel bad products or actors, but you cannot rectify certain kinds of damage.
Very, very interesting series. Case well presented. More like this, please.
Austrian and Libertarian topics, so refreshing. I need to see the full episode
As a libertarian, with an economics degree, I appreciate this podcast immensely.
So, could anyone please tell me, what to do, when people produce more goods, but can't produce more gold - so can't print more money to mesure this new goods? Where we can get more money = more blood of economy?
@@user-kx5sn4ss5q As the number of goods produced increases due to technological improvements, that means that the per unit costs of those goods has decreased. This means that firms competing against each other have a lower price floor that they can go down to when competing against each other. This ultimately means that as the firms compete against each other for customers, they will lower their prices until a new lower price equilibrium is achieved. While this is deflation, which Keynesians abhor, this is in fact a completely natural occurrence. People still need to buy goods! And lower prices means that people’s wealth is constantly growing, meaning that their material quality of life is improving.
@@beybladeguru101 thank you for your try to answer my question, but you didn't understand it. I will try be more directly. Imagin, that you are big bisnesmen, who have created new popular product, and now have big piece of all exsisting pie of money.. Now look. At first - you are not intrested to return this money to risky new product dewelopments - becous chance that your new try will be sucsesfull - just 10%. (As we now, 90% of new bisinesses are not sucsesfull). And more - you money will be rese and you do not ned to do with them anything! And more- Thouse people, enterpreners, who would like to inwent and to produce new, much more efishient, bettet products - then that, your have qreated before and have money - that people just can't make price more than your product, becouse consumers jast don't have money, becouse they alredy in your pocets - so you - past just control feature - becouse even if you will not created anything usefull during your next years, YOU WILL BE CONTROL THE SAME AMOUNT OF ECONOMY - THRY YOUR CONCTANT PIECE OF EXISTING IN THE WORLD MONEY!! So, imagin that with some time, many outher inwentors created MUCH MORE REAL GOODS - but the price of all of this goods will be NOT equals their REALL MATTERS in relation to thet amount of goods, thet your created before! In this sustem, that one, who first will colect much piece of money, will be control thе same pice of world economy!! Forewer! Throught the money!! Is it Do you understand that? So we will have situation, when weals - and world resourses - will be in that hands, whoes parents give it to them, NOT IN HANDS OF ENTERPRENERS HANDS - like NOW !! And we will haw just new aristocracy!! With money =power, that passed down from generation to generation of the same families - like we have all previous history!! Sorry about my grammar, hope it is undersandible eneugh..
@@user-kx5sn4ss5q Вибачте, я не розмовляю українською добре - Поэтому я буду писать по-русски(и прости меня если ты не говоришь по-русски). Если у кого-то 90% всех денег которые существуют, тогда какое ему пользу иметь эти деньги, если деньги не будут циркулировать? Он будет обязан в какой-то момент потратить эти деньги потому что у всех людей есть надо требования и желания которые они хотят выполнить. Ну давай скажем что этот человек никогда не потратить свои деньги, а даже эти деньги уничтожить каким-то образом. Тогда в коротком периоде будет массовая Дефляция - в коротком периоде это будет очень плохо. Ну после какой-то времени оставшиеся 10% денег которые ещё существуют станут новым средам обмена, и цена упадёт в девять раз. Басовой экономике есть формула, и оно идёт так: Рост в ценах = Рост в количество денег + Рост в скорость обращения денег - Рост самой экономики По твоему примеру если рост в количества денег или рост в скорости обращения денег отрицательный, если всё остальное остается таким же, тогда рост в ценах тоже будет отрицательным. И прости если на моём комменте есть ошибки, я давно не пишу по-русски.
@@beybladeguru101 Оу, отлично, я понимаю по русски - но если при письме буду делать ошибки, снова прошу прощения. Смотрите, представим что мой прапрадед изобрел телеграф. И на этом заработал - продавая эту революционную (на свое время) технологию - допустим, 5% от всейдоступной денежной массы в мире. Например пусть все деньги мира это 1 трн $. 5% от 1трн$ это 50 млрд$. Тобишь в его руках оказалось 5% мировых денег = 5% мировых благ. Теперь смотрите. За 200 лет другие люди наизобретали НОВЫХ Благ, технологий, продуктов (самолеты, интернет, айфоны, гугл, нефтекомпанихи, химикогиганты, пластмасы, автомобилестроение, аграрные технологии - комбайны, спутники ) - ну вобщем Вы поняли - Все те БЛАГА И РЕАЛЬНЫЕ ЦЕННОСТИ, которые попросту Не существовало на тот момент, когда в руках моего прапрадеда оказались 5% от мировых денег. И теперь - через 200 лет - Реальный обьем Блага, которое создал мой дед - телеграфа - относительно ОБЩЕГО РЕАЛЬНОГО ОБЬЕМА реальных благ - не 5%, а каких то 0,000000000001%. НО!! Если общий обьем денежной масы НЕ ИЗМЕНИЛСЯ- каким был 200 лет назад, таков и сейчас - И если реально мой прапрадед и все его наследники до меня, покупая ВСЕ ЧТО НЕОБХОДИМО И ВООБЩЕ ВОЗМОЖНО КУПИТЬ ДЛЯ ЛИЧНОГО ПОЛЬЗОВАНИЯ (дом, яхта и пр.) потратили всего то 1 млрд с 50 млр, и мне досталось 49 млрд долларов, которые заработал еще мой прапрапрадед 200 лет назад - Получиться что в моих руках - по стоимости - окажеться почти те же 5% мировой экономики= управления обьемом мировых благ, тогда как РЕАЛЬНЫЙ ОБЬЕМ МИРОВОЙ ЭКОНОМИКИ увеличился - и технология телеграфа если измерить ее реальную ценность! НА ТЕКУЩИЙ МОМЕНТ - по сравнению с РЕАЛЬНОЙ ценность Всех остальных благ/технологий в мире НА СЕГОДНЯ - это каких то 0,00000000000001%!!!!! А не 5% как было при моем прапрапрадеде!! Но если я по прежнему владею 5% всех денег, то это значит что я владею 5% ВСЕЙ МИРОВЫХ БЛАГ!! - Тобишь, деньги, если их количество не увеличиваеться вместе с увеличением количества благ - перестают СПРАВЕДЛИВО отображать ВКЛАД моего деда относительно Наличествующего Обьем Благ На сегодня!! Ведь деньги - это еденица измерения!! И ЕСЛИ количество едениц измерения (обьем деннежной масы) в мире неизменен - а количество благ увеличилось, а у меня стабильное количество этих единиц (тот минимум который тратиться на ежедневные нужды так мал относительно моих миллиардов что его можна не брать во внимание) - то Выходит что деньги перестают ВЕРНО И СПРАВЕДЛИВО указывать на МОЙ РЕАЛЬНЫЙ ВКЛАД В ЕКОНОМИКУ. А ЭТО - НЕСПРАВЕДЛИВОСТЬ - вызывает Законное желание Перезапустить систему - Войны и революции - потому что нечестно если Реальная Ценность = оцениваимая НА ЭТОТ МОМЕНТ добровольным выбором людей не совпадает с Измеряемой деньгами = % от общей денежной массы. Условно говоря, на сегодня, если я выставлю свою технологию телеграфа на рынок, то она будет оценена людьми не в 5% от всей деннежной масы, а всего то в 0,0000000000000хххх0001%, но если судить по деньгам, то вклад моей технологии по прежнему 5%!! Тогда как Реальный вклад = ИЗМЕРЯЕМЫЙ ДОБРОВОЛЬНЫМ ВЫБОРОМ=РЫНКОМ НА СЕЙ!! СЕЙ МОМЕНТ - намного ниже чем то количество едениц измерения=денег, которым я владею ОТНОСИТЕЛЬНО ОБЩЕГО КОЛИЧЕСТВА ЕДЕНИЦ ИЗМЕРЕНИЯ В МИРЕ. - 5% по деньгам, а в Реальности - 0,0000000001%.. Видите, мой вопрос кроеться в том, КАК обеспечить, (если мы знаем что на нужды жизни - тобишь НЕПРЕМЕННО ВОЗРАЩАТЬ В ОБОРОТ - человек будет лишь 0,0001% от своего обьема денег) - как обеспечить что бы другие технологии - и их владельцы - получили ВЕРНЫЙ ПРОЦЕНТ КОНТРОЛЯ ЗЕМНЫХ РЕСУРСОВ = ЧЕМ И ВЫСТУПАЕТ ТОТ ПРОЦЕНТ ОБЩЕЙ МАСЫ ДЕНЕГ, КОТОРЫМ ТЫ ВЛАДЕЕШЬ?
Instead of wasting so much time saying 'obviously wrong', 'nonesensical', and using colorful language, the guest could have spent more time actually giving arguments. 'Obviously' is a word people tend to use when they don't have a good argument, and as far as I'm concerned, one learns in college not to use this word when trying to give reasons for/against something. Also, he says: "If the barber increased prices, then there is an opportunity for a new one". That assumes continuity...and in the same way, it seems like he can't even account for monopolies. A monopoly forming doesn't mean it's a good stable solution (or maybe he gives a bad argument where he assumes adjusting times are infinitely fast...).
You clearly didn't understand what he was saying when he was speaking about the barber. It's not really a monopoly if it's just that they're the only provider in that 10 mile radius. And the market may not necessarily need more providers. If that one provider does a shit job or tries to price gouge, it provides an opportunity for a new competitor to open up shop, or people will just drive to the next town over.
@@Theviewerdude I understood it: it's the same old argument with 'spherical cow' assumptions. And I was talking about monopolies more in general, like one private company that controls the whole market. 'It's not necessarily bad' lol. Well, it probably is. So what's the solution? He assumes continuity and fast adjusting times, which don't represent reality. Yeah, theoretical physicists do first-principles stuff, but models can be far from quantitative solutions. I've never heard a libertarian go beyond the first step of 'paying taxes is coercion'. One single principle is too simplistic and unlikely to give you a good model to organize society.
I agree with most subjects discussed. What i dont get it is how are public infraestructure going to work? One thing is free market policy for lucrative business. And security? Roads? And what if a nuclear plant isnt carefull and disposes its byproducts on the ocean?
Bingo! Actually, how is a minimally funcional transit system in any urban environment meant to work
I may be confused here, but at 23:00 he seems to argue that Keynesian economics doesn’t model stagflation…which it can. Again, maybe I’m misunderstanding but this seems incorrect.
He generally has no idea about what Keynes actually thought
You are perfectly correct. There is undoubtedly plenty to be criticised about Keynesian Economics, but this chap doesn’t understand it in the first place. Worth noting that he doesn’t actually have an Economics degree.
Keynesian’s are terrified of stagflation. They think intervention is needed before, during, and after stagflation. Austrians, on the other hand, see stagflation as a time of cleansing out the weaker and negligent actors in the economy. Keynesian economics does not allow for this cleansing. It simply puts a band aid on the wound and kicks the can down the road via inflationary policies
The market can't support multiple power plants in one area; when the private power plant fails, the market can't correct fast enough. It's in very few people's interest to hitch essential utilities up to the vagaries of capital markets.
Nonsense. There are tons of industries where if a major provider fails, it's not so fast that a competitor can fill the gap in supply to meet demand. Yet the world continues turning. Food distribution is one that's right in our faces...
@@Theviewerdude That's very industry-dependent. Contrast with the shortage in computer chips. The more technological capabilities and initial capital investment you need, the longer it will take for newcomer to set up shop. The market mechanism is much better with things that can be set up quickly and much worse if you need to plan 10 years in advance (say, building a nuclear power plant).
@@Theviewerdude there’s hundreds if not thousands of avenues of foods distribution. It’s not comparable.
@@Theviewerdude Yet another idiot posting nonsense. He is talking about utilities. As for food distrution, why do where has a supply chain crisis? Because of industries end up being controled by 3 or 4 companies. You are welcome for the free education...
this guy nails it perfectly. im Venezuelan and ive seen in person all the keynesian economical principals fail in action while ive seen all austrian school economists anticipate all the stuff that has been going on.
but Venezuela policy isn't based on keynesian principles?
@@adamsymthe5389 Keynes and Socialism are not disconnected. Both very much want high taxes, deficit spending, government spending is required to drop the unemployment rate. But if you put these on a spectrum, Keynes and Socialism are sharing some pieces of the venn diagram. I will assume that is what the original comment is meant to portray.
@@YourBestFriendforToday "Both very much want high taxes" Keyensians don't WANT higher taxes (esp. during economic downturns(!!)) but do sometimes call for higher taxes, espcially to slow inflation (Ammous's assertion that Keynsians basically WANT inflation is utterly stupid, btw) "deficit" Keyensians don't WANT deficit spending as some sort of philosophical goal, but they do believe that it's OK for a government to run a deficit, esp. to stimulate the economy during a downturn "government spending to drop the employement rate" Assuming you meant "raise the employment rate", well, yeah. That sounds right. The big thing though is that Keynesians call for government intervention in the economy while Socialists call for government control of the economy.
@@YourBestFriendforToday Important point though is that if he's talking about Chavez/Maduro era Venezuala then he NOT talking about an economy being run according 'keynesian economical principals' , and is mistaken if he thinks it is.
@@adamsymthe5389 We’ll have to disagree on the higher taxes part. While they might not ‘ want’ them, all that I’ve seen have 0 issues pushing for increases. Deficit spending, we should just call it how governments run in the western world. It’s part of the DNA now.
24:10 , I would ask, is it possible that using the level of aggregate spending in an economy as a lever to control unemployment and inflation can work, but govs/fed/bank have failed to properly utilize their rates? If the current US gov pulls off a soft landing, would that be reflective of Keynesian success? I guess even in that case they are still correcting their own mistake with previous over spending/printing...
Krugman is wrong almost every time he speaks.
Michel Knowles`s brother is a real phenomena.
Quote from the great Mark Twain: "It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so!"
Another one: "We have the best government money can buy" (;
There can be a demand-side crisis and there can be a supply-side crisis. In the 70ies, there was an oil crisis. Oil got much more scarce, this caused the prices of everything to increase, because you need energy for every good (even if it's only to transport it). So the cake got smaller, however trade unions wouldn't want to accept a smaller piece of the pie (in absolute terms, not in relative terms). So they went on strike and made the pie even smaller. Of course, it is wrong to print more money in such a situation, because you would end up with an accelerating inflation in this case. But the causes are quite different if you have a demand crisis instead of a supply crisis (like a lower supply of oil).
Thank you, many times over. This explanation of why the Austrian School is a good choice cleared my indecisive mind. I already had put my trust in Javierf Milei as President of Argentina. Now I am very glad I did. I just hope he can pull it off in that darling country of "mine".
Absolutely EXCELLENT episode!
I can understand why Lex would be a skeptic here, being he is data-driven and all and Austrians rely more on a priori than strict empiricism. However, Keynesians most definitely do not rely on data either. They use data only to support whatever preconceived conclusion they are looking for (which is backward from how the process is supposed to work) and in some cases, they literally make up empiricism to justify the outcome they are looking for. (see Picketty's NYT best seller; Capital in the 21st century) Say what you want about Austrians, but they've been proven correct (even most recently with COVID) every time and also haven't been selling snake oil for 100 years. Like the Keynesians, without a doubt, absolutely has/have.
Keynesians and Austrians rely on data. If you’re an economist in the 21st century, you work with data. Macroeconomics as we know it is primarily Keynesian in orientation, first of all. There are differences in models. That’s where the “a priori” slips in. But Keynes actually has verifiable macroeconomic behaviors. You can use data to extract several multipliers for various phenomena. By it you have to keep in mind that your model will never be exactly one to one with concrete real economic activity at the micro level. When you speak of prices, you speak in aggregates. Modern mainstream economics is more or less Keynesianism reluctant to shed the Austrian and Classical influences. They still want to believe in a loanable funds theory to the determination of interest rates. They don’t think the central bank has any effect on real economic activity…and yet are so concerned about prices, which by the way also don’t affect real economic activity, just the price level.
@@georgedelvalle4588 right, Keynes tries tries to use data to build models in order to be prescriptive regarding macroeconomic theory and yes. They do have a problem with viewing government and central banks as completely static within their models, which I'd argue doesn't do much to verify their macroeconomic predictions at all. Where Austrians simply attempt to describe economics from the idea of supply and demand with resources being scarce (I don't believe keynesian do this because they don't seem to think there aren't any real concequences of using m1 to stimulate demand or at least that problem can be solved later after after the economy is moving again). They understand the government/Fed to to be a bad actor as well as institutions and people to be important dynamic components of the economy just the same. So I guess they both do rely on data, but my point is that Austrians are much more likely to follow a priori methods given any data. Rather than where Keynesian will use it to make predictions and thus pronouncements on how to effectively command the economy.
Austrians don't rely on data; Keynesians do try to make predictions using data. They make fasifiable claims.
@@rlkinnard is there an echo in here?
Austrians are always correct as a broken clock tells time correctly twice a day. They kept predicting crisis and inflation coming for decades, of course one day it would happen. For ten years, since QE was launched, they have been predicting hyperinflation while it actually kept at record lows. It took a pandemic to change that, an event that shook the chains of supply in a global level. And we are still very far from hyperinflation.
Lex starts to actually answer his own questions. He says Econ can’t possibly validate so many different variables. That’s exactly why Keynes is wrong. Because Keynes needs a central planner and a central planner takes away the individuals freedom to make choices that are best for themselves.
I think it's simpler than "the government creates inflation due to a lack of fiscal discipline". The government creates inflation because the fractional reserve banking system requires increasing debt.
Keynesian economics may be the devil and Austrian may be economic messiah, but this guest didn't convince me of it. For all his talk of propaganda and hucksters he sounded an awful lot like a huckster chucking propaganda. "Let me tell you why the other side is bad, dumb, idiots and hucksters and how my side is the only smart, reasonable choice and will save everything" is textbook propaganda tone. Lex danced around this but I wish he would've just called him on it. His ideas may be good but he spent most of his time just slinging insults at people which is pretty much the antithesis of a reasonable argument. It's basically dog whistling to a base that already agrees with you and does nothing to convince others.
Listen again. Keynesian's claimed for decades stagflation was impossible and could never happen yet it did. This is a CENTRAL PREMISE TO THE ENTIRE THEORY.
Well, stagflation in the seventies was easy to understand: The problem was simply the rising oil prices, that made everything more expensive AND caused unemployment, therefore inflation and rising unemployment at the same time. This just shows the problems will all these theoretical approaches to economy: The don't take the real world in account. At least from my point of view Keynes and The New Deal, that was the debut of carrying out these economic ideas in real life, acknowledged that the world is not perfect, and wanted to use economy to improve things. Even if the measures taken sometimes didn't work so well, I don't think you can blame Keynes for every bad thing that has happened since. With the financial deregulations and Reganomics and Thatcher from the '80s and onwards the favorite economists of the establishment was in fact Friedman and Hayek, the latter was, you've guessed it, from the Austrian School. And we still suffer the consequences. I have this feeling with the Austrian Economics, that if you say to them: "The world is not perfect, what will you do?", they will answer: "The world should be perfect." So there's absolutely nothing you can use Austrian Economics for in this imperfect world, where power, both economic, political and military distorts the market. Perhaps their preferred measures against inflation could be useful, but I'm not sure if this requires Austrian School measures or just common sense. Federico Hernando Cardoso managed to stop inflation in Brazil in the 90es, and I don't believe he saw he's actions as particularly coming from the Austrian School. It seems Milei is doing more or less the same in Argentina right now: Not the shock therapy he claims himself, but a good chunk of down writing the currency, followed by slow adjustment to narrow the gap between the official peso value and the market price. It worked for FDC and his Plano Real, but he was lucky the markets didn't speculate too much against the Real. Brazil did still have a big industry and was by far Latin America's biggest economy, so maybe Brazil was considered "too big to fail", by the finance markets. We will have to see, if Milei can carry this through. It could be very tough, because Argentina is somewhat a dwarf, when it comes to industrial power.
PERFECT! Like I said, I respect Austrian Economics ideas, but Austrian Economics bros are incredibly uninformed, biased and arrogante. The same they critizice, but in reverse
@@thomaspetersen-kp2ffyou should read more Austrian economics because they address what you brought up and your assumptions may be wrong.
@@thomaspetersen-kp2ffThere's a lot of misconceptions in what you wrote. We live in a Keynesian world today. Reagan and Thatcher had little affect in changing the river's course. Austrian economics is very much in line with common sense and the world as it would be generally free of widescale distortions caused by governments. We lived in such a world, broadly speaking, up until WW1 and the creation of the Federal Reserve System. Also, Javier Milei is very much in line with Austrian Economics.
at 27, the best definition of what is Economics i have heard.
Agreed!
Your first time hearing about economics at 27?
I still remember when Krugman said the internet was a fad that would fade away
Maybe, but he's been right about nearly everything else. (And that statement is taken out of context.)
He is one of the top five academic idiots on the planet.
This is so true and eye opening! When I went to college back in the mid 1980's, I took my obligatory courses in microeconomics and macroeconomics. Back in those days, I knew absolutely nothing about economic theory of any kind. I was (along with my younger brother) the first in my immediate and extended family to go to college/university. Everything that I was taught in these courses was pure Keynesianism. I just accepted it because I didn't know any better. I figured that my professors were the experts, so I just accepted what they said as dogma and truth. I asked my parents what this was and they couldn't tell me. They didn't know who John Maynard Keynes was. Around this time (1988), some guys in my dorm were watching Ronald Reagan's State of the Union address. At one point, Reagan was speaking out about the fallacies of Keynesian economics. Some of my dorm mates who were economics and business majors were going off on how their favorite economics professors were going to be upset with what Reagan was saying. I still didn't quite understand what the big deal about what Keynesianism was. Keynes was mentioned by some of my professors. Keynes and his ideas were just accepted as "The Gospel" that every professor believed. I would later start reading some Liberterian political articles and books. This is where I first encountered Austrian School Economics. This is where I first learned about the true nature of the Federal Reserve Bank and how inflationary it is. Plus, I learned about the gold standard. As a young undergraduate back in the 80's, I just assumed that these things were common place. When I studied these things on my own, I came to the conclusion that most college and university students are being sold a bill of goods when just being taught economics from the Keynesian perspective. This video is worth watching.
For anyone genuinly interested in truly understanding what caused the Great Depression, I feel obligated to fact-check Saifedean' claims around 16:00. Britian left the gold standard during WW1 but reinstated it in 1925. Britian then left the gold standard in 1931 after Keynes argued for a fiat currency in front of the Macmillan committee (a group of economists from academia, the Bank of England, and the treasury who tried to combat the Great Depression). To say that Britian "lied to its population for 20 years" about being on the gold standard completely contradicts the historical record. Most modern economists agree that British authorities exacerbated the depression by trying to reinstating the gold standard at the pre-war sterling-dollar parity of $4.86 to the pound. From this point of view it seems like a large part of the British unemployment problem of the 1920s was policy-induced, i.e., partially caused by the gold standard, not inflation (like I assume he would argue).
Good post. Saifedean's got some good perspectives, but only up to a point. He's a little too sure of himself for my tastes.
There is quite a lot of wholes in his argument. 1. Keynsian theories are more complex. F.e. You can have budget deficit in case of emergency but you need to cover it later on when the times are good. Lot of people like to ommit second part in their arguments. 2. FED cannot just print money as they please. Every single "printed" dollar ends up on their balance sheet. Currently 9Trylion USD printed. They plan to burn those at a rate 95 Billion a month. Printing money is not a one way ticket. Smart monetary policy with fiat is as good as gold or better as it has more flexibility. 3. Inflation argument is (for 2 % inflation goal) that good decay over time, and services cannot get stored, therefore money earned (thier value) for producing a car, or cutting hair should not last forever. Argument by Elon BTW from Lex conversation
He didn't mention Britain specifically, he said "govts", so you're "fact" checking something that wasn't a fact because it wasn't said, therefore why should we read anything else you wrote if you don't even know what "fact" means?
@@HidingFromFate Yes, the Keynsians and govts are totally humble in how they present their arguments lol
@@HidingFromFate Saifedean is wrong about free-market manipulation too, yes you can voluntarily indulge or not indulge in something like coca-cola but how about a road? And how about water supply?
wow your questions for saifedean were on point af i would have asked the same ones! perfect 👌
to his credit he answers them. Keynes was a joke.
@@infopocalypse5006 *is Keynesian economics is very much the current model in use. Its not neve close, we are a society running on the Keynsian model.
@@fortusvictus8297 I know it is. It's great for politicians to bypass democracy and for the elite to widen the gap between them and the poor. Not a good model for the rest of us though.
The other common complaint against completely free-markets is that so-called 'negative externalities' such as environmental impact is not adequately priced into the supply.
Oh good, the guy who wrote "The Bitcoin Standard" dismissing people who don't share his views.
On Humility: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design. To the naive mind that can conceive of order only as the product of deliberate arrangement, it may seem absurd that in complex conditions order, and adaptation to the unknown, can be achieved more effectively by decentralizing decisions and that a division of authority will actually extend the possibility of overall order. Yet that decentralization actually leads to more information being taken into account.” - F.A. Hayek (Austrian Economist), The Fatal Conceit: The Errors of Socialism (and Keynesianism too!).
That is a bunch of nonsense. Just words with ZERO empirical evidence. decentralization does not lead to more infromaiton being taen into account. First, when something is decentralized it makes it harder and takes longer to get information. Second, how do you know the informations is any good if it comes from different sources and those source contridict themselves. Third, what makes you think you even get the information in the first place? People what what they want to share in a decentralized system. Why don't you try reading basic organizational theory instead the writings of so nut job. Bet you feel pretty silly right about now...
@@RK-um9tu what you are saying is nonsense having a more decentralized economy is more efficient if one fails the effects are not wide spread you statist are the ones who put us in this mess
"where is the data Bro?" Love this discussion, thanks guys!
I think alot of people forget that economics are a soft science, not a hard one
Which is the point Austrians make
I agree that we as humans dont need an incentive to consume, but I think it is a misrepresentation of the original argument. We dont need a reason to consume, but if there is deflation, it incentivises us to NOT consume. The default state is wanting to consume, and the reaction to an incentive is not consuming. However, in Keynesian politics we want to make sure that there is no such states that incentivises us to NOT consume.
To me, by far the most intuitive and logical theory of the business cycle is the Austrian theory. If you're going to learn just one piece of Austrian economics, learn its business cycle theory.
How does it compare to Ray Dalio's business cycle theory?
@@losboston Get to the library and STUDY STUDY STUDY
The Austrian Economist discovered/identified the Business Cycle. It’s another example that vindicates the truth of The Austrian School.
You clearly have no ideal about economics. Austrian ecnomics has ZERO empirical support and is just about a made up nonsense that is just an excuse to make the rich richer.
@@losboston It has been around a lot longer than Ray Dalio.
OMG... Lex and Michael Malice are neighbors in Austin? Fantastic! Can you imagine this scenario... Lex walks over to Michael's house at 2am and asks: "Could I borrow a cup of diamonds?" Michael replies: "Diamonds? Wouldn't you prefer a nice cup of water?" VIVA MISES!
Been seeing alot of economist of Lex Podcast in the past year and would love to have Peter Schiff on, Peter's way of analogies and explaining the problems with government spending and the flaws of the FED is something that's very relative today
I graduated from my master in Economics as a neokeynesian, until I saw the light.
I loved this conversation
The thing Austrian economics people fail to address is that there were periods when both things were tried in parallel and countries doing Keynesian economics usually outperformed countries doing Austrian Economics. One example was 2008 crisis in EU and famous "PIGS" countries which were hit pretty bad by austerity policies forced on them by Germany through common currency and common central bank. Countries with separate fiat currencies which did Keynesian things (like Poland for example) fared much better. This being economy there's a lot of confounding factors, but they really should address this pattern. It's why Keynesian thinking is the default not some conspiracy.
Yup
I'm disappointed in Lex not knowing enough about economics to carry on a sensible conversation. Stagflation came because of the oil embargo. In the 80s Reagan (the Fed) raised interest rates and broke inflation. Regan bought into supply side, cut taxes too much and ran huge deficits. A more sensible policy would've been to keep taxes high enough or spending low enough to balance the budget. Lex seems unaware of tax and spending policies, the role of deficits (when they're good or bad), and so he's ill equipped to converse with his arrogant mud slinging libertarian guest
That is a good point, but in those exemple they were prevented from devaluing by the foreign owner of the dept witch has to be diffenrent from devaluing a depth you owe to yourself, like everyone else.
46:54 “If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reasons also reject every kind of government action.” - Ludwig von Mises
I prefer markets over other ways of allocating resources. I trust markets over the government. The market for economists places keynesian economists at top rated universities like Harvard, Princeton, Berkeley, etc but austrian economists at much lower rated universities. Also the ideas of keynesian economists are regularly published in the top journals, AEA, PJE, QJE, etc. yet austrians don’t publish in these journals. Do austrians trust these markets or do they think markets are biased? and if so, what is their prescription for biased markets?
paying my tribute to fashion I thought at first that segregation, poverty, lack of education were to be blamed. But moving up the social ladder I found that the same ratio was prevalent among the white-collar employees and among the students. More impressive still were the results among the professors. Whether I considered a large university or a small college, a famous institution or an obscure one, I found that the same fraction σ of the professors are stupid. So bewildered was I by the results, that I made a special point to extend my research to a specially selected group, to a real élite, the Nobel laureates. The result confirmed Nature’s supreme powers: σ fraction of the Nobel laureates are stupid.
You seem to have decent intelligence, in some aspects of intelligence, but youth seems to make you think it's more important than it is. Most Nobel laureates have an IQ below 130; not surprising.
Especially once they step outside of their speciality. This is not call them morons, but the majority of their knowledge and thinking lanes are devoted to that speciality and just don't have the tools beyond that.
🤡
Ppl are shitting on this guy in the comments because he's given into frustration and just started insulting keynesian economists. I believe in austrian economics too and I guess it's kind of hard to explain and idk if I can do better but for anyone still on the fence/confused why austrians think inflation is bad read on (sorry in advance for the wall of text and it sounding condicending): Only goods and services are valuable. Money is only valuable because it can buy goods and services, otherwise it's JUST PAPER. Printing more money so governments can buy goods/services without increasing taxes causes the new money to eventually distribute through the economy and now more money is being used to trade real goods and services, so the price of everything rises (aka inflation). Inflation makes our currency a less effective way to save up and build wealth. Since many ppl save in our currency anyway, inflation causes larger wealth inequality which is why austrian economist view it as immoral.
Borrowing is usually cheaper than saving. Austrians never talk about deflation which is way more harmful than inflation (moderate). If the price of things are slowly going up you're less likely to wait to buy them, this brings about more spending and a growing economy (hence the Federal Reserve goal of a 2% inflation rate). On the other hand if the price of things are going down your less likely to buy it, while waiting for it to get cheaper. This on a macro level can bring an economy to a halt (Great Depression). Saving money is foolish on a macro level for an economy. If I get a job but need a car to get there, borrowing to get the car now is a smart move. However saving to get a car is foolish, since I can't get to work and therefore save nothing cause I lose my job. Borrowing is the engine for an economy, saving is it's death.
@@maphezdlin - But there's been deflation in the cost of a lot of products. Both in dollars and the amount of time needed to work to buy them. In 1983 I bought a microwave oven for about $1,600 in today's dollars. Today I can buy one as good or better for about $200. We're lucky that technology and innovation have been able to progress faster than the government and the Fed inflated the currency. Not the same thing as monetary deflation. But with an inflating currency, we would really be hurting without that progress.
@@CharlesWT-TX I agree, only central bank printers benefit from inflation. Deflation is better for the vast majority of society, buying power increases but that's somehow bad? Lol, sure. Inflation benefits paper holders because it's paid back with cheaper dollars. We must pay it back with productivity, they just print it. If course they want it to continue.
If money is intrinsically worthless (I agree), then why would you want to make it deflationary and cause people to hoard it? Wouldn't it be better for the economy if people stored their wealth in capital instead of in money? If I put money in a bank, that money can be used to build houses. If I store money in a BTC wallet....nothing. It doesn't generate any economic production. Isn't that like putting the cart before the horse? Money (gold, BTC, etc.) is a means to an end, not an end in itself. I would also dispute (HEAVILY) that inflation always causes wealth inequality. Inflation benefits debtors, and hurts people who hoard money. In many cases, this can be redistributive. For example: If inflation goes up, people who took mortgages on their homes will see their wealth increase relative to their lenders' wealth. Small homeowners get richer, Wall Street and banks get poorer. Yes, inflation is bad for people who have large amounts of cash. But, if you have large amounts of cash, then you are not poor, you are rich.
@@violent_bebop9687 Deflation is bad. It is equivalent to rent-seeking. It rewards economically non-productive agents, and punishes everybody else. If you think that deflation is good, then I recommend you consider the example of the San Francisco real estate market. There, you have a growing economy chasing a finite amount of real estate. And, what happened? Poverty and homelessness skyrocketed, while those who were rich, or who had bought into the market early, benefitted at everybody else's expense. If I happen to have a lot of money, and then deflation sets in, I might decide that "heck, I don't need to work anymore, because I can live off my cash savings indefinitely". So, I've just removed myself from the economy. I spend money, but I do not produce. Deflation reduces employment and reduces productivity. How does that help the overall economy?
According to Keynesian Economics, government is supposed to run surpluses in good times. Government never seems to do that. Money is trust made tangible. You take money in return for your efforts, trusting that you can trade it in the future for something you need or want. Inflation betrays that trust by eroding the value of the money you already have.
Ends justifying the means vs Survival of the fittest.... Ultimately we are chasing either equality of outcome or equality of opportunity
Really enjoyed this podcast. High quality discussion. I can't say that I necessarily agree however. You have laid out the case to be weary of central government planning, but what of the power of corporations. How can you fully give the reigns of power over to those who are not elected nor have a duty to the populace? Are we not currently awash in examples of how companies eliminate their competitors, squash innovation, and become monopolistic? It's not a free market. It's a market dominated by a few players that have a stranglehold over the entire supply chain. These multinational conglomerates may be efficient in production of goods that are desired by the consumer and grant returns to investors, but treat employees poorly without repercussions, eliminate any skilled labor positions of less powerful firms, replace those jobs only with unskilled positions, prevent any inventions that would open the company up to future losses, and deprive the public of those inventions. Without any centralized protections won't companies simply take full advantage of their power, abuse their employees, and deprive the market of better future solutions?
No, because eventually, a competitor with a better technology, better customer service (and the small size/bureaucracy that allows rapid adaptation to consumer wishes), will move faster and with better service to undermine the "rent seeking" monopolists and replace them. Corrupt monopolies only manage to cement a hold on a market if laws/regulations are passed to protect them artificially. It is politicians with guns and jails who can ensure corrupt corporations are given lucrative contracts and "protected" markets through lobbying and bribery of the politicians.
@@stopper90004 Thank you for your thoughtful reply. I see that gov corruption via lobbiests as a significant problem in the current climate. I feel like this has been discussed at length, however. Attempting to pry powers from the ruling class is hard bargain. I'm more interested in the thought experiment where independent corporations exercise their power with huge war chests which they can use to squash or acquire any nascent competition.... which is an epidemic today. Coercive force is not the only force levied when the authorities turn a blind eye to antitrust legislation. We don't just need an entity to be "not corrupt" we also need it to protect the populace from the dangers of a nationstate ruled by oligarchy.
What's your point? We're talking about the government not being allowed to literally counterfeit money - not whether or not the govt should exist. This is about inflation, not the existence of govt.
Multinational conglomerates and monopolies are created, protected, and maintained by governments in the first place. Ex: Coca Cola is the only company allowed by the DEA to import coca leaves. That’s a legal advantage they have over competitors.
An almost hour long clip only lex can do that
One of your very best guests.
The problem with Keynesian Economics is that it does not F-ing work as a model to predict or influence actual economies. “Stimulus” for consumer spending is fundamentally flawed and only results in more poor economic decisions / bad investments. Real monetary policy must stabilize the Unit of Measure of Economic Value = The Dollar to keep commodity prices stable since they are not swinging in price rapidly via supply/demand. Gold is way to sensitive and intertwined and scarce to be used as the basis for valuing The Dollar anymore, and attempting that would destroy the market for Gold. There would be chaos and failures in Engineering if the Meter or Second fluctuated in value, and the Dollar is no different. The chaos in our global economy (Boom/Bust) will stabilize if the Fed stabilizes The Dollar against an Index of Commodities.
Having a monolopoly on the money supply and trying to control the economic decisions of millions, or billions of people is just morally wrong. End central banking.
This is what happened in Rome, they started to debase their currency.
"Inflation and Credit expansion, the preferred method of government open handedness, Do not add to the amount of resources available, they simply make some more prosperous, but only to the extent that they make others poorer" -Ludwig Von Mises "We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power" -Alan Greenspan
The real money are controlled by the government which is controlled by the people and used in real economy. In Crypto the money are controlled by the wales that are not regulated and can do whatever and used in speculation to get more REAL MONEY. I don't see at all how this supposed to be better.
Speaking of certainty, the Keynesians are certain enough about their ideas to impose them by force. The Austrian economists have no need to force anything, other than forcing people to stop forcing people. The real damage of certainty comes from imposing your certainty on others. If an arrangement is ACTUALLY mutually beneficial, no force is required.
Funny enough that didn't happened in Chile with Pinochet being supported by Hayek, imposing his ideas via dictatorship.
Saifedean always tells people to really study Bitcoin before every buying, so you understand exactly what you're buying into. I've never heard a keynesian tell anyone to study the USD, because they know that fundamentally, the best they can do is tell a foreigner "Hey, at least it doesn't lose value as fast as your currency!" Whereas Americans mostly get pissed off when they learn about the USD's monetary policy, with the exception of over educated college students.
@@user-tu2dr3ny6x that’s why I’m not invested in crypto. I know exactly how big of a knowledge gap it is for me. I’m not a gambler.
Friedrich Hayek strongly advocated for government military interventions to impose "free market" systems in places like Chile. If you read his correspondence with Margaret Thatcher, he advocates for her to do something similar in the UK, which she rejects as being against the spirit of liberal democracy.
Excellent point on certainty
You should Get a post Keynesian like Randall Wray, dean baker or Steve keen to debate an Austrian economist on your show
As a mainstream economist, I would not expose myself to such radioactive material.
Any model you create uses past data entries. If you create a model and try to use it to calculate things that are outside of the range of your data set, you are extrapolating not interpolating. The model cannot be relied upon because it is outside the models range. Past data contains no future data. Forecasting with models is very difficult because of this
But not impossible, and that is why Newton is Newton
That’s like saying it’s impossible to forecast, which isn’t true. There are certain things that are impossible to forecast such as how the economy responded to the pandemic, but we can forecast normal business and economic cycles.
@@neofusionstylx i know that it is hard to believe but most economists have forecast that inflation is coming down with the fed raising interest rates. Only Austrians doubt it. Let's get some popcorn and watch.
@@rlkinnard I studied economics at the University of Chicago, so I lean more fiscally conservative , but these Austrian economists seem like economic 101 students. As in, a lot of what they say makes sense, and alot is accurate, but A huge difference between Chicago and Austrian schools is Chicago uses empirical data and math. Austrians have these set of “logical” arguments that seem to make sense on paper, but they don’t back their assumptions with empirical data. So at the end of the day, we don’t know if their foundations are correct or not, and this guy being anti-data kinda shows what’s wrong with the Austrian school. How do you know your assumptions are correct if you don’t rigorously test it? We’ve seen that a lot of Austrian economics was just wrong the past 15 years. The fed has been doing QE for the past 15 years and inflation has been kept under control until 2021. So something gave, and it’s not just the printer, but a combination of supply shocks coupled with increased consumption demand.
@@neofusionstylx Austrians claim that you cannot predict, and yet, I am sure that price inflation was going to start going down 6 months ago when I first posted here, and it will continue going down as the Fed is continuing to tighten the money supply. I am sure that both fresh water and salt water economists would agree with that.
Very spot on about the university education on economics.
From someone who has a master's in Economics. This is false. You start off your journey with Austrian and free market economics. That's the basis every theory tries to prove or disprove. In fact most of the top schools Harvard, Princeton etc teach mostly Austrian economics.
@@segwaysegments I'll concur with you (BA in Econ). I don't know what universities this bozo has attended or taught at, but his characterization of the teaching is laughably wrong. Yes, if you take only 200-level courses, you get fed the basics. But that's not the end of the story. It's like saying public schools feed kids a wrong version of history because the 2nd graders act out the first Thanksgiving.
@@segwaysegments well said… 💯
Basic microeconomic courses are very pro market and neoclassical based. Most intermediate and advanced level courses are more "moderate" but still neoclassical based. The macroeconomics courses content depends on where you study.
@@phillipemery572 PhD from Columbia University, where he also taught.
Man such a challenging topic to chew on. 45:42 Lex Fridman "How do we prevent the worst of human nature from coming out, in a free market?" 45:49 Saifedean Ammous "By not giving the worst of human nature, a monopoly on violence in the institute of Government"
Its strange that the guest says he himself used to be a keynesian, yet now his is an avowed mortal enemy of them. It would be interesting to hear from him what he thinks of his former self, does he think he was all these terrible things he accuses the keynesians now of? Good that Lex constantly pointed out the dangers of being excessively certain of oneself, though the guest did not seem to understand this
This dude is playing a character, just the same as Krugman. I've never understood the need of so many economists in public to "pick a team."
@@phillipemery572 For you and your family, FREEDOM or SLAVERY. Pick a team...
@@phillipemery572 He's clearly not. You can't read people at all.
@@phillipemery572 the funny thing is that he is being hyper idiological, while projecting that onto krugman
@@mrborn2drink the difference is one set of theories is artificial, the other is not. This is the same reason why the more you think about current leftist politics, the more it crumbles. It's fake. It treats human beings as simple nodes in a group. Just like current economics it treats individuals as abstract concepts and that doesn't work and never will. So there is a side back to the right when allowed to think and speak freely. It is for these reasons that the left is so intent on not just silencing dissenters, but demonizing them. They are the ideology... im not exactly sure how letting people live their lives based on a real economic system is even an ideology at all.
note: When he says, "You can't experiment on an economy", he means "You can't run a controlled experiment on an economy." Not controlled. Not scientific.
In correct. Controlled experiment is just the highest order of scientific evidence. A lack of controlled experiments does not mean something is not scientific, it means the ability to draw scientific conclusions is limited or reduced. Controlled experiments can be poorly designed or run incorrectly and thus be of lower value then other forms of evidence. Natural experiments are still experiments and valid scientific evidence but of usually of lower quality then controlled experiments.
Except you can… just look up “randomized controlled economics experiment”
You actually can, thats what abhijit and Duflo's recent nobel prize research was about. Introducing randomized control trials in economics.
The Keynesian school has flaws, and he did a good job saying THAT it’s bad, and that Krugman is bad, but can someone point out where Ammous says WHY they’re bad, and without relying on circular reasoning? It seems like the rejection of aggregate/data/empiricism is incredibly postmodernist, making it impossible to analyze anything- I’m just not sure how you can prove that Austrian school is better or that the Keynesian school is worse if you reject any basis to measure the accuracy of those systems. Maybe I zoned out during this, but if anyone can at least be point to information that supports the claims I’d be appreciative.
I was frustrated by the same thing. I kept hearing the absolutes and declarations of certainty, but then that was it. Maybe he's right, but there was no defense of it.
It is not a rejection of data/empiricism. It is a rejection of pseudoscience, such as a great deal of economics, aping the methods of hard sciences and pretending they have similar predictive power (and hence valid applications) when they do not. They simply are not studying things/systems of similar complexity, and that is without even starting on the ethical issues of actually setting up proper experiments.
The Mises Institute has a youtube channel called misesmedia. There are lots of really good lectures that deal with this topic. The Mises Boot Camp explains all of the fundamentals of this school of thought. Here's a link to the playlist kzhead.info/sun/jMuGlM6esWSHiKc/bejne.html
You can check the results in the long term.
He speaks as to why it is almost impossible to analyze economics like it is in other fields. We can’t actually run experiments to determine total effectiveness. We can simply make observations and make determinations from there. Ammous states multiple times that Keynesian economists are inflation propagandists. Austrian economics is superior in this regard as the value of money has a higher likelihood of retaining value as inflation should be minimized. The minimization of inflation leads to an added savings over time for every individual essentially. That’s one way I see the Austrian model as being more beneficial.
Would like to have a second interview aimed at dealing with current issues. Solutions to minimize (if needed) the correction in housing prices and it's impact on the entire financial system. Restructuring the tax system to correct the concentration of wealth in the 1%. - not because I begrudge their wealth but virtually none of the economic growth over the last last 3 decades has reached street level. Couple this with wall street buying residential properties and actively working against individuals trying to buy a home has pushed housing prices out of sight. I also question a gold standard and would think that securing the purchasing power of a currency against a periodically adjusted basket of industrial materials. I.e. the 10, 30 or 50 most economically important materials.
Apparently, this debate is about if the government should bail out bad economies by making lowering interest rates lower. But interest rates are set by the Federal Reserve, not by the government. Why should this be the case at all?