A Quick Thank You
by Alex Merced
I'd like to take a moment to thank all my favorite places to get liberty news and resources on the net and encourage you all to check them out.
Communities:
RonPaulForums.com - I spend so much time on this forum It has probably become my #1 way to be connection to the heart of the liberty movement. It's great to see how all of us since the days of the Ron Paul 2008 days have stuck at it and havn't given up the good fight.
CampaignForLiberty.com - The logical next step for the movement after the 2008 campaign had ended, this has served a sgreat source for information and local mobilization.
Youtube Channels:
ProteanView - an independant mind with insightful opinions, always nice to hear his take on the days events
LibertyInOurTime - A youtube playlist where someone is uploading every piece of audio and video from the mises institute, it's now very hard to do a political youtube search without stumbling upon the mises institute, great work.
SchiffReport - With the regular videos discussing the financial markets and the economy, this channel keeps me in tune with what going on the world and everytime I think I've learned what I could learn Peter Schiff always shows me I'm still only a student.
Other Websites:
Mises Institute - The Home of real economics and libertarian thinking on the internet, if you havn't become familiar with this site you have done yourself a great injustice.
Reason.Tv - Great videos about how to increases liberty and why government just well... doesn't work
So thank you all, hope you guys enjoy these sites.
Showing posts with label Mises U. Show all posts
Showing posts with label Mises U. Show all posts
Saturday, October 30, 2010
Thursday, August 12, 2010
Elaborating on the Austrian Time Preference Theory
Elaborating on the Austrian Time Preference Theory
by Alex Merced
I write this article after listening to Robert Murphys lecture Capital and Interest from Mises U 2010
While Listening to this having heard explanations of Time Preference theory plenty of times, I started having flash backs to an Austrian Scholars Conference lecture where Robert Murphey was actually giving a critic of the ATPT based on his dissertation, basically challenging the idea that a future good is always less valued than a present good. This made me start to think, I do understand ATPT, but I'm not sure if it fully explains why this preference exists fully other than a sort of hedonistic view of human nature to want to satisfy all it's wants now. Then again Patience is a virtue, and one can look at virtues as efforts to fight human nature.
First off let's recap the ATPT for those of you unfamilar...
Austrian Time Preference Theory
The Bottom Line: Present Goods are always more valuable then Future Goods
Example: Pre-Sale Tickets (future good) are cheaper than tickets at the door (present good)
This is an important theory for explaining the Austrians view on Capital and the Interest from Capital. For example I have a $100,000 and I have these two choices which would I make.
Buy $100,000 of Bonds and invest them in Bonds that yield 5%
or
Buy a $100,000 of fishing supplies expecting to catch enough fish to make $110,000 (10% yield)
So you see here the capital I have I'll put towards the fish equipment cause In the end I'll have a greater yield from my investments, this is how capital naturally gravitates towards it's most productive purpose. If my calculation was correct I can now buy another $100,000 of fishing equipment and next year catch enough fish to make $220,000. As you can see the more I go through this process the more capital I accumulate and the better my life gets even though no new science or technology has been developed, cause I've accumulated capital and can continue to re-invest that capital for interest.
This is what seperates developed countries from developing countries cause they may only be able to afford $20,000 of fishing equipment so a year later they'd only have $22,000 so it'll take some time and re-investment before the capital accumulation brings them to the developed level.
So where time preference theory comes into play is in the issue of why would someone pay me $110,000 for the fish if they can instead get the same fish by buying the Fishing Supplies for $100,000 and save themselves the $10,000. The reason is cause they have a time preference, they don't want to have to wait for a year of fishing to save $10,000 so they rather pay the extra $10,000 to have the fish now. So as we stated, the current good, these fish I've already fished is worth more than the future good, the fish they'd fish if they made the same capital investment.
Ok, so that should sum it up, so now for my addition...
Is it a "Time" Preference or a "Tangibility" Preference
I think the time preference exists not cause there is a time bias, but because there is a tangibility bias. A future good isn't as tangible as a current good so provokes less of a reaction. This Tangibility preference can not only be applied to intemporal scenarios but also other scenarios of differeing subjective values.
Example 1:
"The Stimulus Bill has saved the Jobs of Teachers and Public Sector Workers"
or
"If the Government had not gotten involved new jobs would've been created from capital reformation"
You ask the typical person which statement seems more plausible, they'd more than likely say the bizzarre keyensian statement I put up first. Why, it's more tangible to them cause they see the jobs that would've been lost, but they can't see the jobs that were prevented from being created. Now of course an Austrian is trained to understand opportunity cost so the increased tangibility from that understanding may have them choose the second statement.
Example 2
"Spend 10% of Income on Your Loved Ones"
or
"Have 10% of your income taxed which hypotheically benefit your loved once objectively just as much"
Which one you'd think a person would subjectvely value more, the first statement cause the results of this same expenditure is tangible, this would probably be true if the tax money got spent in the same way at the same time cause of it's tangibility. Although a left wing Keynesian might actually value the second statement cause they've been trained to value the benefit to society of impersonal expeditures like in the second statement so them it'd be more tangible.
So in conclusion, I feel time preference is a preference that exists but because of the tangibility of intemporal value. I would expect that a Austrian who is trained to think intertemporally would prefer future goods on occasion, cause it's more tangible. For example we prefer the future value of recession that the current good of stimulus spending. While it's a bit more complicated than simply jobs now versus jobs later a lot of Austrian theory actually emphasizes long term benefits over short term.
If you agree, we can still call this the ATPT, it'd just now stand for the Austrian Tangibility Preference Theory
by Alex Merced
I write this article after listening to Robert Murphys lecture Capital and Interest from Mises U 2010
While Listening to this having heard explanations of Time Preference theory plenty of times, I started having flash backs to an Austrian Scholars Conference lecture where Robert Murphey was actually giving a critic of the ATPT based on his dissertation, basically challenging the idea that a future good is always less valued than a present good. This made me start to think, I do understand ATPT, but I'm not sure if it fully explains why this preference exists fully other than a sort of hedonistic view of human nature to want to satisfy all it's wants now. Then again Patience is a virtue, and one can look at virtues as efforts to fight human nature.
First off let's recap the ATPT for those of you unfamilar...
Austrian Time Preference Theory
The Bottom Line: Present Goods are always more valuable then Future Goods
Example: Pre-Sale Tickets (future good) are cheaper than tickets at the door (present good)
This is an important theory for explaining the Austrians view on Capital and the Interest from Capital. For example I have a $100,000 and I have these two choices which would I make.
Buy $100,000 of Bonds and invest them in Bonds that yield 5%
or
Buy a $100,000 of fishing supplies expecting to catch enough fish to make $110,000 (10% yield)
So you see here the capital I have I'll put towards the fish equipment cause In the end I'll have a greater yield from my investments, this is how capital naturally gravitates towards it's most productive purpose. If my calculation was correct I can now buy another $100,000 of fishing equipment and next year catch enough fish to make $220,000. As you can see the more I go through this process the more capital I accumulate and the better my life gets even though no new science or technology has been developed, cause I've accumulated capital and can continue to re-invest that capital for interest.
This is what seperates developed countries from developing countries cause they may only be able to afford $20,000 of fishing equipment so a year later they'd only have $22,000 so it'll take some time and re-investment before the capital accumulation brings them to the developed level.
So where time preference theory comes into play is in the issue of why would someone pay me $110,000 for the fish if they can instead get the same fish by buying the Fishing Supplies for $100,000 and save themselves the $10,000. The reason is cause they have a time preference, they don't want to have to wait for a year of fishing to save $10,000 so they rather pay the extra $10,000 to have the fish now. So as we stated, the current good, these fish I've already fished is worth more than the future good, the fish they'd fish if they made the same capital investment.
Ok, so that should sum it up, so now for my addition...
Is it a "Time" Preference or a "Tangibility" Preference
I think the time preference exists not cause there is a time bias, but because there is a tangibility bias. A future good isn't as tangible as a current good so provokes less of a reaction. This Tangibility preference can not only be applied to intemporal scenarios but also other scenarios of differeing subjective values.
Example 1:
"The Stimulus Bill has saved the Jobs of Teachers and Public Sector Workers"
or
"If the Government had not gotten involved new jobs would've been created from capital reformation"
You ask the typical person which statement seems more plausible, they'd more than likely say the bizzarre keyensian statement I put up first. Why, it's more tangible to them cause they see the jobs that would've been lost, but they can't see the jobs that were prevented from being created. Now of course an Austrian is trained to understand opportunity cost so the increased tangibility from that understanding may have them choose the second statement.
Example 2
"Spend 10% of Income on Your Loved Ones"
or
"Have 10% of your income taxed which hypotheically benefit your loved once objectively just as much"
Which one you'd think a person would subjectvely value more, the first statement cause the results of this same expenditure is tangible, this would probably be true if the tax money got spent in the same way at the same time cause of it's tangibility. Although a left wing Keynesian might actually value the second statement cause they've been trained to value the benefit to society of impersonal expeditures like in the second statement so them it'd be more tangible.
So in conclusion, I feel time preference is a preference that exists but because of the tangibility of intemporal value. I would expect that a Austrian who is trained to think intertemporally would prefer future goods on occasion, cause it's more tangible. For example we prefer the future value of recession that the current good of stimulus spending. While it's a bit more complicated than simply jobs now versus jobs later a lot of Austrian theory actually emphasizes long term benefits over short term.
If you agree, we can still call this the ATPT, it'd just now stand for the Austrian Tangibility Preference Theory
Friday, August 6, 2010
A Respone to Peter Kleins Lecture on Entrepeneurship
A Respone to Peter Kleins Lecture on Entrepeneurship
by Alex Merced
This is a Response to Peter Kleins Lecture on Entrepeneurship
In this lecture Peter Klein does a great job discussing different aspects of defining the entrepeneur, so to sum up two of the main definitions discussed.
Mises - The Entrepeneur is those who employ certain means for uncertain rewards, and an Entrepeneur Promoter is someone who is eager to change the structure of production by employing those certain means, (something to this effect, listen to the lecture for a better explanation from Klein)
Schumpeter - The Entrepeneur is someone Who introduces something new to the economy and destroys the current equlibrium leading to a new one. (For example, If you introduce DVD's, the need to produce VHS's will change, so now the economy must adjust.)
Both Views on Entrepneurship get at the same point, that the entrepeneurs action will change the structure of production, though mises view is more equilibrating (the entrepeneur is aiming to satisfy exisiting demands with good and services) while Schumpeter is disequilibrating (the entrepeneur destroys current demands and creates new one). Both are valid and seemingly accurate views depending on how you define many of the term associated, although understanding multiple frameworks sure helps to notice trends that may not be as visible in another framework.
I don't know where I originally got the definition that I've always used in my thought process and in my book, "Economics and Liberty: a Pocketguide for Beginners", but I'd like to spend sometime refining it and creating another framework that may be useful in assessing different situations.
Capital - The means of pruduction, a party can have title to the ownership, control, and liability of capital, and can give title of each to another party.
The Enterprise - An entity which has control and title to the liability over a pool of capital from entrepeneurs and investors.
Entrepeneur - The person who assumes the liability of the enterprise and makes decisions on how the capital is put to use for production. The Entrepeneur may give titles over their capital to the enterprise for which he assumes liability.
Investor - A Person who gives title to control and liability of their capital to an enterpise yet keeps title over ownership, giving them claim to interest/profit from that investment.
In this framework, what truly seperates the entrepeneur from an investor is liability and control for production decision. This framework I like cause it treats liability as property like anything else, and like a car you must find somone else to take title to it. In this framework it's easy to see how a C Corporation is illegtimate since instead of transferring title of the liability, liability has non title owner but the legal structure of the C Corporation.
I still got to to refine a this all little bit more, but thoughts and critics are welcome.
by Alex Merced
This is a Response to Peter Kleins Lecture on Entrepeneurship
In this lecture Peter Klein does a great job discussing different aspects of defining the entrepeneur, so to sum up two of the main definitions discussed.
Mises - The Entrepeneur is those who employ certain means for uncertain rewards, and an Entrepeneur Promoter is someone who is eager to change the structure of production by employing those certain means, (something to this effect, listen to the lecture for a better explanation from Klein)
Schumpeter - The Entrepeneur is someone Who introduces something new to the economy and destroys the current equlibrium leading to a new one. (For example, If you introduce DVD's, the need to produce VHS's will change, so now the economy must adjust.)
Both Views on Entrepneurship get at the same point, that the entrepeneurs action will change the structure of production, though mises view is more equilibrating (the entrepeneur is aiming to satisfy exisiting demands with good and services) while Schumpeter is disequilibrating (the entrepeneur destroys current demands and creates new one). Both are valid and seemingly accurate views depending on how you define many of the term associated, although understanding multiple frameworks sure helps to notice trends that may not be as visible in another framework.
I don't know where I originally got the definition that I've always used in my thought process and in my book, "Economics and Liberty: a Pocketguide for Beginners", but I'd like to spend sometime refining it and creating another framework that may be useful in assessing different situations.
Capital - The means of pruduction, a party can have title to the ownership, control, and liability of capital, and can give title of each to another party.
The Enterprise - An entity which has control and title to the liability over a pool of capital from entrepeneurs and investors.
Entrepeneur - The person who assumes the liability of the enterprise and makes decisions on how the capital is put to use for production. The Entrepeneur may give titles over their capital to the enterprise for which he assumes liability.
Investor - A Person who gives title to control and liability of their capital to an enterpise yet keeps title over ownership, giving them claim to interest/profit from that investment.
In this framework, what truly seperates the entrepeneur from an investor is liability and control for production decision. This framework I like cause it treats liability as property like anything else, and like a car you must find somone else to take title to it. In this framework it's easy to see how a C Corporation is illegtimate since instead of transferring title of the liability, liability has non title owner but the legal structure of the C Corporation.
I still got to to refine a this all little bit more, but thoughts and critics are welcome.
Monday, August 2, 2010
Addendum to Robert Murphy's Lecture by Alex Merced
Addendum to Robert Murphy's Lecture
by Alex Merced
This is just some comments to add my two cents to Robert Murphys Responses to Critics of Austrian Economics.
Critic: How come unemployment wasn't the worst in the states that had the worst housing busts if it's a mal-investment problem?
RPM: The data actually is more in line with the Austrian Theory if you widen the time frame for calculation from the peak of bubble.
My Response: Just cause unemployment doesn't follow the size of the local busts means nothing, the mal-investment is only the seed who's roots implant itself all over the economy in different ways. Since wages increases due to the bubble, industries grow in areas not related to the bubble industries cause all industries suffer a mini bubble from the consumption boom from the high wages that originate in the bubble industry and spread elsewhere (how I'll explain in my response to the next critic). Another factor for differing state data is state and local legislation and culture which might magnify or dampen the effect of the bust.
by Alex Merced
This is just some comments to add my two cents to Robert Murphys Responses to Critics of Austrian Economics.
Critic: How come unemployment wasn't the worst in the states that had the worst housing busts if it's a mal-investment problem?
RPM: The data actually is more in line with the Austrian Theory if you widen the time frame for calculation from the peak of bubble.
My Response: Just cause unemployment doesn't follow the size of the local busts means nothing, the mal-investment is only the seed who's roots implant itself all over the economy in different ways. Since wages increases due to the bubble, industries grow in areas not related to the bubble industries cause all industries suffer a mini bubble from the consumption boom from the high wages that originate in the bubble industry and spread elsewhere (how I'll explain in my response to the next critic). Another factor for differing state data is state and local legislation and culture which might magnify or dampen the effect of the bust.
Critic: If Mal-Investment is the problem during the bust why do consumption and investment move together during the bust and boom, why isn't their unemployment during the boom?
RPM: Murphy does a great refute explaining how people who take on these new higher wage jobs in the bubble sector don't realize it's bubble sector so they consume with the assumption that they'll make those wages forever. He also makes an amazing point that you don't have unemployment during a boom cause no one is losing their jobs but instead leaving their jobs for "seemingly" better ones, while during the bust people are losing their jobs and try to find another at a similar level so it takes time before they adjust their expectations. (I elaborated a little on RPMs response, listen to the lecture itself, it's really good)
My Response: The Only thing I would add it that when people leave their jobs for higher wage jobs in the bubble sector, to attract replacement labor all other sectors will raise their wages making it seem like the economy as a whole is doing well. Although, these wage rises are not cause of productivity gains, but because labor supply issues so this puts more pressure on the price inflation seen on the bubble as businesses charge more for their goods and services to pay these higher wages. So this wage competition aspect of the bubble is what helps systematize the bubble and dig it's root into the rest of the economy, cause now all jobs are paying unsustainable wages to compete with the bubble sectors wages.
Critic: Can the ABCT occur absent of central bank, and during a 100 percent Gold Reserve system?
RPM: Murphy Wrote an article which I read, which he brings back up here during the lecture. Basically he doesn't come down on either side of the question but instead makes Rothbardian arguments for both sides. Read the article to see both his arguments.
My Response: What I want to say that the Austrian business cycle as it's commonly thought about can't happen in a 100% reserve gold standard system cause of one crucial element... expectations. One thing that drives bust from low rates is the expectation of those rates persisting or the money supply continuing to increase. In Murphys example, someone comes upon a huge cache of gold, but this is a one time injection of money and yes there will be price adjustments to all goods from the increased money supply, but I doubt mal-investment will occur because the expectation that he'd continually find huge deposits regularly isn't a logical expectation. Under our current system, it's very logical to conclude the fed will continue to prime the pump, so these expectations drive the bubble behavior. In the end, with 100% reserve banking there is no way to expect a predictable trend of money supply growth to allow the bubble expectations/speculations to be held long enough for a large systematic collapse.
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