Carpe Diem

Putting America’s ridiculously large $17 trillion economy into perspective by comparing US state GDPs to entire countries

USMap2013

Following the BEA release yesterday of US state GDP data for 2013, I was able to update the map above, which appeared on CD in February using 2012 data.

The map above was created by matching economic output in US states in 2013 to foreign countries with comparable GDPs, using BEA data for GDP by US state and GDP by country from the International Monetary Fund, via Wikipedia here. For each US state (and the District of Columbia), I tried to find the country closest in economic size in 2013 (measured by GDP), and for each state there was a country with a pretty close match – those countries are displayed in the map above and in the table below. Obviously, in some cases the closest match was a country that produced slightly more, or slightly less, economic output in 2013 than a given US state.

It’s pretty amazing how ridiculously large the US economy is, and the map above helps put America’s GDP of $16.8 trillion in 2013 (and more than $17 trillion in Q4 2013 and Q1 in 2014) into perspective by comparing the GDP of US states to other country’s entire national GDP. For example:

1. America’s largest state economy is California, which produced $2.2 trillion of economic output in 2013, just slightly below Brazil’s GDP in the same year of $2.24 trillion. In 2013, California as a separate country would have been the 8th largest economy in the world, ahead of Russia ($2.1 trillion) and Italy ($2.07 trillion). And California’s population is only 38 million compared to Brazil’s population of almost 200 million, which means California produces the same economic output as Brazil with about 80% fewer people. That’s a testament to the superior, world-class productivity of the American worker.

2. America’s second largest state economy – Texas – produced $1.53 trillion of economic output in 2013, placing it just slightly ahead of the world’s 12th largest country by GDP – Australia – with $1.50 trillion of economic output.

3. Even with all of its oil wealth, Saudi Arabia’s GDP in 2013 at $711 billion was less than the state GDP of Illinois ($720 billion).

4. America’s third largest state – New York with a GDP in 2013 of $1.3 trillion – produced slightly less economic output than Spain’s GDP of $1.35 trillion, even though Spain’s population of 47 million people is more than twice the number of people living in New York (19.6 million). Another example of the world-class productivity of the American workforce.

5. Other comparisons: Florida produces about the same GDP as the Netherlands ($800 billion), Pennsylvania ($644 billion) produces almost as much as the entire country of Switzerland ($650 billion) and Ohio produces more than the entire country of Sweden.

MP: Overall, the US produced 22.7% of world GDP in 2013, with only about 4.4% of the world’s population. Three of America’s states (California, Texas and New York) – as separate countries – would rank in the world’s top 13 largest economies. And one of those states – California – produced more than $2 trillion in economic output in 2013 – and the other two (Texas and New York) produced more than $1.5 trillion and $1.3 trillion of GDP in 2013 respectively. The map and these statistics help remind us of the enormity of the economic powerhouse we live in. So let’s not lose sight of how ridiculously large and powerful the US economy is, and how much wealth and prosperity is being created all the time in the world’s largest economic engine.

US State GDP (millions), 2013 Country GDP (Millions), 2013
California $2,202,678 Brazil $2,242,000
Texas $1,532,623 Australia $1,505,277
New York $1,310,712 Spain $1,358,000
Florida $800,492 Netherlands $800,007
Illinois $720,692 Saudi Arabia $711,050
Pennsylvania $644,915 Switzerland $650,000
Ohio $565,272 Sweden $557,000
New Jersey $543,071 Poland $516,000
North Carolina $471,365 Norway $511,000
Georgia $454,532 Belgium $506,000
Virginia $452,585 Taiwan $489,000
Massachusetts $446,323 Argentina $488,000
Michigan $432,573 Austria $415,000
Washington $408,049 UAE $396,000
Maryland $342,382 South Africa $351,000
Indiana $317,102 Denmark $331,000
Minnesota $312,081 Malaysia $312,000
Colorado $294,443 Singapore $295,000
Tennessee $287,633 Nigeria $286,000
Wisconsin $282,486 Chile $276,000
Arizona $279,024 Hong Kong $273,000
Missouri $276,345 Phillipines $272,000
Louisiana $253,576 Finland $256,000
Connecticut $249,251 Greece $241,000
Oregon $219,590 Portugal $219,000
Alabama $193,566 Qatar $202,000
South Carolina $183,561 Czech Republic $198,000
Kentucky $183,373 Kuwait $185,000
Oklahoma $182,086 New Zealand $181,000
Iowa $165,767 Ukraine $176,000
Kansas $144,062 Vietnam $170,000
Utah $141,240 Bangladesh $141,000
Nevada $132,024 Hungary $133,000
Arkansas $124,218 Angola $122,000
District of Columbia $113,362 Hungary $124,600
Nebraska $109,614 Morocco $105,000
Mississippi $105,163 Slovakia $96,000
New Mexico $92,245 Ecuador $94,000
Hawaii $75,235 Azerbaijan $74,000
West Virginia $73,970 Belarus $71,000
New Hampshire $67,848 Libya $67,000
Delaware $62,703 Sri Lanka $66,000
Idaho $62,247 Dominican Republic $61,000
Alaska $59,355 Luxembourg $59,000
North Dakota $56,329 Uzbekistan $57,000
Maine $54,755 Guatemala $54,000
Rhode Island $53,184 Bulgaria $53,000
South Dakota $46,732 Slovenia $47,000
Wyoming $45,432 Kenya $45,000
Montana $44,040 Lebanon $44,000
Vermont $29,509 Bolivia $29,000

167 thoughts on “Putting America’s ridiculously large $17 trillion economy into perspective by comparing US state GDPs to entire countries

    • It’s almost as if the economy has turned out OK despite the fact its not run by libertarians and Austrian economists.

        • Libertarians and Austrian economists have always predicted economic doom if their policies weren’t followed.

          Failed predictions imply failed theories.

          • greg-

            that’s an overstatement and a blatant misrepresentation of views.

            they said “we could do a great deal better”. and they have been right.

            periods like the 80′s and 90′s where we veered closer to such ideas were periods of high growth and prosperity.

            periods where we have veered away from it (recently) have been periods of low growth and wage stagnation.

            the US WAS very libertarian for much of its existence (at least economically). that’s how we went from being poor colones to the richest nation on earth.

            as far as economic doom goes, well, CRA sure did a number on us and the impending federal debt bubble compounded by unplayable obligations around entitlements is going to be far, far worse.

            your answer is either very disingenuous or implies that you really have not been paying attention.

            if you want failed economic predictions and theories try:

            the fed can control the business cycle

            CRA and loan subsidies will help millions become middle class

            qe will not cause bubbles

            we can print our way our of recessions

            war is good for gdp (keynsian)

            the end of ww2 will trigger worldwide depression (keynes again)

            minimum wages help the economy

            etc etc.

            you have this backwards.

            the austrian track record is actually very good. it’s just that the top down crowd keeps grabbing control (by offering to give out goodies) and derailing them.

          • Morg,

            Let me add a couple more failed theories:

            *The welfare state will lead to vast improvements in the lives of the poor and society in general.

            *Welfare reform(1990′s) will devastate the poor and foment violent crime.

          • the austrian track record is actually very good. it’s just that the top down crowd keeps grabbing control (by offering to give out goodies) and derailing them.

            And then blaming us for their failures.

          • morganovich

            –”they said “we could do a great deal better”. and they have been right.”

            You guys haven’t just been claiming that policies have been suboptimal. Many here, including you, have regularly been predicting catastrophic decline. Don’t you frequently tell us how you are preparing to be able to leave the country in order to save yourself?

            Claiming that things would have been better in some counterfactual is the weakest kind of assertion because it can never be disproven. Everyone believes that things could have been even better if the policies they thought were best had been fully implemented.

            Failed predictions are the norm. Humans are terrible at predicting the future. Everybody is able to interpret the past in a way that supports their beliefs.

          • Greg, you don’t consider The Great Recession and The Great Depression to be “Catastrophic Decline?”

            How about an economy 73.7% below where it should be?

            No?

            How about an overtly corrupt government?

            Still no?

          • morganovich

            John Maynard Keynes did NOT expect or predict a depression after WWII. Even Hayek agreed that it was inflation that Keynes was worried about after WWII.

          • You are right, Greg. He didn;t think a recession was coming at the end of World War Two. But that was more because he had abandoned his own theories at that point (on his death bed, Keynes actually recanted his theories). The adherents to his theories predicted that the influx of soldiers from the war, coupled with the decrease in government spending and the return to austerity would kill the growth the country was experiencing. That never happened.

          • Jon

            Compared to libertarian fantasy, U.S. government is “overly corrupt.” Compare to the rest of human history it is a huge success story.

            And how exactly does a proper Hayekian determine to within a tenth of a percentage point “where it (the whole economy)should be”? The irony runs deep here.

            I don’t think the Great Recession has been catastrophic in anything like the way the Great Depression was. Of course the Great Depression preceded the interventionist policies you would like to blame it on. Call me old fashioned but I still think causes should precede their effects.

          • Of course the Great Depression preceded the interventionist policies you would like to blame it on

            Messrs Smoot and Hawley would like to have a word with you.

          • Paul

            Fair point about Smoot Hawley since libertarians and Austrians weren’t on board with that. Let’s remember though, Smoot and Hawley were Republicans, not New Dealers.

          • Compared to libertarian fantasy, U.S. government is “overly corrupt.” Compare to the rest of human history it is a huge success story.

            I am not comparing it to “the rest of human history.” I am comparing it to what it was before.

            And how exactly does a proper Hayekian determine to within a tenth of a percentage point “where it (the whole economy)should be”? The irony runs deep here.

            Only since you don’t understand what “opportunity cost” is. If you check out the paper I linked to, it explains the rationale.

            Also, it’s not that hard. Let’s say we have a company that plans to hire 600 people. The government passes a bill that raises costs and now the company will only hire 300 people. It is not hard to say that bill cost 300 jobs. The costs of regulations are known.

            I don’t think the Great Recession has been catastrophic in anything like the way the Great Depression was.

            You are right. Compared to the Great Depression, the Great Recession was minor. But when you look at the damage it had done, it was major.

            Of course the Great Depression preceded the interventionist policies you would like to blame it on.

            No. One of the Great Depression causes was land speculation, driven by government incentives (Go west, young man, and farm!). The interventionist policies enacted by Hoover and FDR prolonged the depression. But there was intervention going on long before Hoover came about.

            The CRA and government subsidizing real eastate was a major cause of the GReat Recession. The ACCRA prolonged the recession.

            Government subsidized land speculation in the 20′s was a major cause of the Great Depression. Hoover & FDR’s policies prolonged the depression.

          • greg-

            “Don’t you frequently tell us how you are preparing to be able to leave the country in order to save yourself?”

            and that is quite a separate issue, isn’t it?

            1. it’s a prediction about the next 15-20 years, so you cannot call it “failed” as it has not even been tested yet. so far, i think it looks to be dead on, and my predictions that this recovery would be very weak and that we would rapidly see new assets bubbles has already been proven correct. q2 will show a bounce from a very weak q1, but q3 will go right back to being punk.

            2. i have not predicted “catastrophic decline”. i do see some nasty bubbles, policies that are going to impede growth, and a tendency to want to take big chunks of my money to pay for other people’s goodies.

            the us welfare state is unsustainable. the promises that have been made CANNOT be kept. obamacare will make that worse. somehting has to give.

            increased regulation and redistribution HAS hurt the economy. this recession was caused by a bubble bursting. that bubble was created by bad Keynesian and interventionist policy from the CRA, the GSE’s, and the fed. the recovery has been the weakest since ww2 for the same reasons: stimulus, cheap money, more regulation, and making it harder to hire. the fed has become a moral hazard machine. successful central banks (bundesbank etc ) have had single mandates for price stability. when you add growth and employment to the mix and politicize a CB that must be independent, then you get this mess: bubble after bubble, each bigger and more dangerous than the last, if you think the last bubble bursting was unpleasant, wait till you see what a government debt bubble bursting looks like. and what the us federal deficit looks like if interest rates go back to 4-5% (still historically low).

            all those things, i have and do say.

            claiming that things would not be different in a counter factual when there is clear evidence that a given problem was caused by specific actions and policies is actually the weakest form of argument.

            it’s actually straight up meaningless.

            claiming otherwise is akin to saying “maybe the car would have been wrecked anyway even if i had remembered to put oil in it and not put sugar in the gas tank”.

            i mean, welcome to the real world.

            all one can do in just about any case is look back and say “when we did this, that happened and when we did the other thing, something else happened”. one can look at the direct connections between actions and apply such past knowledge to make predictions. i can never, ever prove that this time if i had let go of the ball, it would not have fallen but just floated there. it’s impossible. but would you really bet against the ball falling?

            we do not get to run control arms in a real economy, so ALL discussions must be about history, past evidence, reasoned hypotheses on what the effects of actions are, analogy, and logic about roads taken and not taken.

            clearly, all such activity has limits, especially in a system as complex as an economy where individual variables cannot be isolated. this is actually a big part of the austrian school of thought. (you are starting to sound Austrian btw, or at least austrian curious)

            we cannot steer an economy from the top down and predictions are largely useless in a prescriptive macro sense.

            all we can do is free the economy to be efficient and adaptive from the bottom up. protect liberty, property rights, and enforce contracts and them get out of the way.

            when we do, the economy thrives. when you start to much that up, it’s sand it the gears. when you seize full on top down control, you get catastrophe.

            there is no evidence that government can plan an economy or make it work better with price controls or wealth redistribution and there are reams of evidence for how these policies impeded growth and wealth creation.

            the argument you are making argues against keynes etc and for a hands off austrian approach.

            also;

            the keynsians DID very much predict depression post ww2. perhaps i was not clear: i was speaking of the school, not man himself.

            direct quote from arch keynsian samuelson:

            “When this war comes to an end, more than one out of every two workers will depend directly or indirectly upon military orders. We shall have some 10 million service men to throw on the labor market. [DRH comment: he nailed that number.] We shall have to face a difficult reconversion period during which current goods cannot be produced and layoffs may be great. Nor will the technical necessity for reconversion necessarily generate much investment outlay in the critical period under discussion whatever its later potentialities. The final conclusion to be drawn from our experience at the end of the last war is inescapable–were the war to end suddenly within the next 6 months, were we again planning to wind up our war effort in the greatest haste, to demobilize our armed forces, to liquidate price controls, to shift from astronomical deficits to even the large deficits of the thirties–then there would be ushered in the greatest period of unemployment and industrial dislocation which any economy has ever faced. ”

            as keynes himself died in 1946, he personally was not really a big part of the post war debate. but his school of thought was the one that created the great depression and that got the post war period 180 degrees wrong.

            stimulus and governmental deficit spending does NOT make economies thrive.

            definitionaly, they help gdp, but gdp is not really that great a metric.

            it cannot tell digging a hole and filling it back in and paying for it with federal debt from using cash flow to build a factory.

            they have mistaken the map for the terrain.

          • “Fair point about Smoot Hawley since libertarians and Austrians weren’t on board with that. Let’s remember though, Smoot and Hawley were Republicans, not New Dealers.”

            that does not make their policies any better.

            i think we should try to avoid the zero sum partisan bickering about team donkey and team elephant (particularly as there are numerous libertarian criticisms of both and that neither is that great a reflection of the austrian school at the moment) and instead just look at the policies.

            smoot hawley was a disaster. so wre the new deal, the TVA, and the unprecedented intervention in the economy by the feds started by hoover and run amok with by fdr.

            both parties share blame.

            in fact, there is a very strong parallel with hoover/fdr and bush jr/omaba.

            in both cases you had a repub start the ball rolling, and a dem really move it down feild. in both cases you got rafts of interventionist policies, stimulus, bail outs, and questionable/insane monetary policy. in both cases, you got incredibly weak recoveries.

            history may not repeat, but there sure is some rhyming here…

            in the 30′s fascism was fashionable. it was seen as the scientific way forward for a new enlightened age.

            we are pushing a great many of the same ideas now, just wrapping them in new names and slapping on a fresh coat of paint.

            they are having the same bad effects. we are now rich enough that it has not created hooverviles and bread lines, but take a look at the food stamp numbers and the actual jobs figures. recover from deep recessions is usually sharp and fast, but this has been the weakest recovery since ww2 by a massive margin.

            the logic step then is to ask “what did we do differently?”.

            the answer is that we once more tried to run the 30′s keynes/samuelson playbook.

          • morganovich

            Surely our definition of Keynesianism should be broad enough to include what Keynes himself actually thought when he disagreed with Samuelson. How would you like it if we took an idea that was the opposite of what you believe and called it “morganovichism”? Would that work for you just because some of the advocates self-identified as “morganovichians”?

            Most economic predictions are always extrapolations of existing trends. The long existing trend at the time was depression. That is all you need to understand why many economists (but not Keynes) predicted more depression. Note the irony that I am agreeing with the Austrian position that a growth in GDP due to war should not count as real economic progress.

            Jon

            In order to put much stock in this tale of the Keynes deathbed conversion you have to give more weight to a single anecdote than a lifetime of writing and public speaking. And even if you do believe it you might want to consider how few people do their best work…while they are dying!

          • morganovich

            Yes, the trajectory of many social welfare programs is unsustainable. They will be changed with some combination of benefit cuts and tax increases. Unsustainable trends will not be sustained.

            As for the 15-20 year window when things get so bad that Austrian Economics and your personal predictions are vindicated, that is about where it always was.

            During the 1930′s libertarians were screaming that the New Deal would ultimately ruin the economy. They weren’t often very specific about time frames but I’m pretty sure that none of them meant it as a prediction that the economy would grow in an unimaginably (then) fast way for several generations before crashing between 15 and 20 years after 2014.

            Like a dog chasing its tail, that prediction is so often just out of reach.

          • greg-

            and surely when one refers to keynsianism, one can also reasonably include the views of it’s most prominent and influential adherents and proponents, particularly when they gel so thouroughly with the body of theory as written.

            your response is cute, but disingenuous. you are just playing word games and ducking the real issue which is that the predictions of keynsian theory were completely, utterly, 180 degrees wrong. not a little wrong. i predict this ball will fall up when i let go it it and them it falls down wrong.

            the mainstream keynsian belief was that the war ending would cause recession/depression, mass unemployment, and sharp economic contraction. do you dispute that and that that is what the theory predicted?

            keynes himself was the architect of the durable depression. recessions inevitably happen and are self correcting. the recession from 1929 went on so long because the polices of keynsian stimulus DO NOT WORK. they crowd out more private spending than they create, run up debts, and hinder proper adjustments in the economy. this has been shown empirically over and over.

            Keynes’s theory is VERY clear on these topics (and on the ill effects of and end to war spending).

            have you ever actually studied it? the comments you are making sound like they are based on talking points, not an actual understanding of the material.

            your characterization of both the theory and what happened are incorrect. the depression came to be BECAUSE of keynsian ideas (and smoot hawley). it would likely have just been a sharp recession otherwise. similar things had happened many times before and recovery was much, much faster.

            the variable that changed was an attempt to stimulate our way out with huge government spending and an adoption of fascist economic precepts and top down steerage attempts.

            note that we just tried the same things and got the same result: hindrance, not help. we are now wealthy and open enough as an economy that we have been better able to absorb the abuse, but abuse it has still been. it is not a coincidence that the weakest recovery from recession since ww2 coincided with the most aggressive program of stimulus. such stimulus CAUSES weak recoveries. how many times must you burn your fingers before you believe that boiling oil is hot?

            as such polices always do, they failed and caused a great deal of harm.

            also note:

            keynes was instrumental in that period in setting up the disastrous bretton woods system of fixed exchange rates.
            so we have that to thank him for as well.

          • “During the 1930′s libertarians were screaming that the New Deal would ultimately ruin the economy. They weren’t often very specific about time frames but I’m pretty sure that none of them meant it as a prediction that the economy would grow in an unimaginably (then) fast way for several generations before crashing between 15 and 20 years after 2014.”

            you have got to be kidding.

            it DID wreck the economy.

            the predictions came true in short order.

            the new deal was the reason the depression went on so long.

            then, we got a huge boom and tailwind from a far freeer 50′s and the epic demand from the rest of the world.

            the US had the only intact industrial economy.

            that led to a massive boom as the “stimulus” stopped and federal interference in business and trade receded.

            then, it came back. we got the 70′s where a bunch of clowns were gain trying to steer the economy, misuse the fed, and over regulate. stagnataion, inflation, monetary devastation.

            the 80′s saw a return to less regulation, welfare reform, and a general lightening of governmental interference and taxation.

            after the volcker recession (needed to break the back of inflation) we got a huge boom. the grand malaise turned into the go go 80′s.

            clinton came in and raised taxes and we got more stagnation. then, the gingrich congress cut cap gains and short circuited all manner of attempts at regulation and interference (recall hillarycare?) and lo and behold, we got another boom!

            then, when recession did come, we blew it.

            the fed tried to print our way out and the federal government doubled down on programs to encourage and mandate reckless lending and borrowing to “help people join the middle class”.

            this led to a bubble and bust and them WAY more stimulus and interference. and hey, look, we can barely grow in real terms (and current reporting vastly overstates gdp relative to pre 90′s periods as the inflation measures read far lower for any given set of real world conditions).

            so, we see, over and over: the periods where government interference rise, we get hamstrung.

            it’s been 15 years of no real gains in personal income.

            but when such policies are on the wane, we boom. 50′s, 80′s, 90′s.

            the libertarians/austrians have been proven right over and over.

            the keynsians are batting damn near 0.00.

          • “During the 1930′s libertarians were screaming that the New Deal would ultimately ruin the economy”

            oh, and one more:

            not only were they right in the near term, but they look on track to be right in the long run as well.

            perhaps you have noticed the utterly monstrous and completely unpayable unfunded liabilities that the ponzi schemes and health pyramid scams created under the new deal have racked up?

            the demographics are not bringing those chickens home to roost.

            the next 10-20 years will see devastating hikes in government spending that cannot possibly be sustained.

            either the programs need to get axed/massively reduced, or we’ll go bankrupt/hyperinflate.

            put a 6% blended rate on the us debt (historically low) and then use the CBO’s own projections for entitlement costs (which have been repeatedly low) and just the entitlements and interest will eat the entire federal budget in another 8 years or so and, in our lifetimes, it will try to eat an additional 13% or so of gdp.

            that, amigo, is how systems of government fall.

            it cannot possibly be paid.

            these programs have turned out exactly as predicted.

            you are like a guy in a car going 100 mph toward a cliff saying “see, those guys who said we’d fall off were nuts” and looking for ways to step on the gas instead of the brake.

          • Greg,

            Let’s remember though, Smoot and Hawley were Republicans, not New Dealers.

            Well, New Dealers didn’t exist at the time, but I don’t see what that has to do with anything. And you mentioned intervensionism, not political parties. Nixon created the EPA, implemented Affirmative Action, severed the last link to gold, instituted wage and price controls, and famously declared, “We’re all Keynesians now.” He, a Republican, rivals Obama for purely destructive policy.

          • Greg

            It’s almost as if the economy has turned out OK despite the fact its not run by libertarians and Austrian economists.

            It’s telling that you use the innocent sounding term “run by”. Libertarians and Austrians wouldn’t “run” the economy, but believe the economy can “run” itself without any interference from government meddlers. It’s called spontaneous order.

            Libertarians and Austrian economists have always predicted economic doom if their policies weren’t followed.

            Um…no. L & A economists have predicted disaster if leftist and Keynesian policies are followed, and they have been proven right. It is a testament to the power of capitalism and free enterprise that “the economy” (whatever that is) can produce positive results despite incessant interference from “those who know what’s best for all of us”.

            Failed predictions imply failed theories.

            Absolutely. That’s my point. How is “stimulus” working out for you? Is aggregate demand increasing as predicted? Why isn’t investment and growth off the charts with interest rates at near zero?

          • greg

            Fair point about Smoot Hawley since libertarians and Austrians weren’t on board with that. Let’s remember though, Smoot and Hawley were Republicans, not New Dealers.

            Whoooosh!! Those goal posts moved so fast I feel dizzy.

          • Greg

            Of course the Great Depression preceded the interventionist policies you would like to blame it on.

            No, a sharp economic downturn, similar to the one experienced in 1920-21, preceded the interventionist policies that made it last another 15 years instead of 18 months.

            Call me old fashioned but I still think causes should precede their effects.

            Don’t worry, they do.

          • @Paul
            > Nixon [...] famously declared, “We’re all Keynesians now.”

            That was Milton Friedman (in 1965). Nixon later made the similar declaration: “I am now a Keynesian in economics”.

            Friedman’s is certainly catchier — at least, when it’s quoted out of context.

        • morganovich

          For a quarter century after WWII we followed broadly Keynesian policies and got great results. We sharply reduced debt to GDP during times of economic growth and sharply increased deficits during recessions.

          Keynes never favored an unending increase in debt. We started down that road in the 70′s with bad results. It was later supply side economics that really blew the lid off the debt.

          The result of all this is that today Austrian economists are rarely seen in nature outside of Koch funded preserves.

          • greg-

            no, we did not.

            you are consistently misrepresenting the facts here. Keynes did not disagree with samuelson. his inflation concerns were based on the curtailment of the price controls that he and others of his school had advocated and gotten put into place.

            the years after ww2 saw an end to the destructive keynsian stimulus of the 30s’ and a return to growth, just the opposite of what his theory expected.

            keynes was not majorly back into vogue until the johnson to carter period of slow down and malaise.

            you are just making up facts now.

            keynes favored deficit spending to “prime the pump” and offset lower demand. no one ever advocates “running up infinite debt”, but it takes very little insight or empirical ability to see that that is precisely what happens under keysian policy and as a result of big, activist government. the inherent problem with counter cyclical keynsian thinking is that it presupposed a great deal of knowledge and discipline that does not exist.

            spend in a recession is easy to get politicians to do. to say, hey, the economy is now healthy or even running too hot, let’s cut spending? no way. never happens. not only can one not accurately predict the size and length of a boom and therefore the amount and timing of countercyclical cuts, but the will and discipline to do it is absent.

            giving keynsian theory to politicians is like giving an uzi to a 2 year old. you’re going to get bad results on a very predictable basis. then blaming the 2 year old and saying we just need smarter kids and next time we’ll get it right is absurd. politicians will be politicians. even if it did work (and it doesn’t) they could never be counted on to run more than half the playbook.

            he also favored encouraging people to spend when the economy slowed. these are precisely the things that prevent an economy from absorbing a shock and adjusting.

            supply side economic CANNOT cause a rise in debt. only government spending can, and that is NOT a part of the austrian/supply side policy prescription.

            it calls for less government spending.

            thank tip o’neil for heading that off.

            you are blaming the guy who wanted to hit the brakes because he could not keep someone else off the gas.

            you have this completely backwards.

            small government that does not try to steer the economy nor run a welfare state DOES work. we got huge growth AND surpluses. federal spending was 2% of gdp and we thrived and recovered from downturns. nothing was unsustainable.

            there is no way to get politicians to wield economic control properly even if one could know what they should do, which, of course, one can’t.

            top down does not work. but bottom up does both in theory and in practice.

            “The result of all this is that today Austrian economists are rarely seen in nature outside of Koch funded preserves.”

            and this is pure bunk, but, at least you have answered one of my questions.

            i had been trying to decide if you just flat out had no idea about economics but might want to learn and engage in useful discussion or if you were actually just a partisan, spewing talking points that you do not really understand and telling lies to cover obfuscate your lack of grasp of the material.

            i see now that you are the latter.

            that makes further discussion with you very limited in terms of its value.

          • morganovich,

            —” the recession from 1929 went on so long because the polices of keynsian stimulus DO NOT WORK.”

            Your chronology is hilarious. Keynes did not even publish The General Theory until 1936 and even then FDR was never sold on Keynesian economics. FDR’s economic policies were all over the place. The big increase in spending came because of WWII not because FDR was sold on Keynesianism.

          • hitssquad,

            Even the link you provided points out that policymakers at the time were not much influenced by this idea. That is why Keynes found it necessary to write The General Theory much later.

            You guys talk as if Keynes invented government debt. Governments have been taking on debt (and often too much of it) for as long as there have been governments.

            The later “starve the beast” philosophy had a lot more to do with the explosion of U.S. debt after 1980. Milton Friedman pushed that idea. By 1980 his ideas were far more influential than than Keynes in American politics. The idea was that if you cut taxes, even if that caused the debt to rise for a while, before too long government would have to shrink for lack of funds. The analogy was often made by Reagan to cutting off a teenager’s allowance.

            How’s that working for you? Dick Cheney was a poor economist but he was a very influential politician. In his immortal words, “Reagan proved deficits don’t matter.”

            You guys can continue to talk as if Keynes is the reason for government debt but the fact that you blame it all on Keynes is one of the main reasons Austrian economics has so little influence. It doesn’t take much education to realize that that much of what you guys say about Keynes is nonsense. We will be waiting a long time for morganovich to come up with a quote where Keynes predicts a depression after WWII.

          • morganovich

            –”i had been trying to decide if you just flat out had no idea about economics but might want to learn and engage in useful discussion or if you were actually just a partisan, spewing talking points that you do not really understand and telling lies to cover obfuscate your lack of grasp of the material.

            i see now that you are the latter.

            that makes further discussion with you very limited in terms of its value.”

            Imagine my chagrin at being deemed no longer worthy of your future teachings and nonpartisan wisdom.

            In light of your often cited high earning power the opportunity cost of spending so much time responding to my posts must be very high.

            Well, it’s been fun but I guess this means you won’t be responding to my comments much in the future.

            Just kidding. I know you can’t stop.

          • Greg,

            Even the link you provided points out that policymakers at the time were not much influenced by this idea.

            So your contention is FDR didn’t really create a bunch of make-work agencies like the WPA(commonly known as “We Piddle Around”) that did the equivalent of paying people to dig holes and fill them back up again? Keynesian economic policies couldn’t exist prior to Keynes giving them a name?
            Really?

            Governments have been taking on debt (and often too much of it) for as long as there have been governments.

            And Keynes gave governments a convenient legitimacy for running up debt. You can call any boondoggle “stimulus,” as Obama reminded us in 2009: “So then you get the argument, well, this is not a stimulus bill, this is a spending bill. What do you think a stimulus is? (Laughter and applause.) That’s the whole point. No, seriously. (Laughter.) That’s the point. (Applause.) “

            That is why Keynes found it necessary to write The General Theory much later.”

            “We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!”

            ~Secretary of the Treasury Henry Morgenthau, 1939

          • Paul

            —”So your contention is FDR didn’t really create a bunch of make-work agencies like the WPA(commonly known as “We Piddle Around”) that did the equivalent of paying people to dig holes and fill them back up again? Keynesian economic policies couldn’t exist prior to Keynes giving them a name?”

            No that is not my contention. That is your straw man. My contention is that FDR’s policy was not really theory driven at all. He just wanted to try a lot of different stuff and see what worked. He was elected on a cut the deficit platform. Does that sound Keynesian to you? His policies were all over the place and many of them were contradictory.

            Keynes influence peaked between 1950 and 1970. That was a time of very healthy economic growth. Starting in the 70′s Keynes lost a lot of influence to Milton Friedman and the “starve the beast” philosophy that justified deficits even in times of full employment as long as you cut taxes. That was used by Reagan and Bush (43) to explode military spending and the national debt along with it.

            The fact that FDR’s own Treasury Secretary hated Keynesianism undermines your claim that FDR was driven by Keynesian ideas. Keynes never thought FDR’s 1930′s level spending was enough to get us out of depression. So then the fact that it wasn’t enough to get us out of the Depression is not a refutation of that idea regardless of Morgenthau’s opinions.

          • Greg

            My contention is that FDR’s policy was not really theory driven at all. He just wanted to try a lot of different stuff and see what worked. He was elected on a cut the deficit platform. Does that sound Keynesian to you? His policies were all over the place and many of them were contradictory.

            You’re right. FDR had no effing idea what to do, and tried many nonsensicle policies, including public works programs, financed by debt, that failed to end the depression. In 1939 Morgenthau pointed out, correctly, that stimulus programs had all failed to have the desired effect. Keynesian policy had failed.

            Keynes did not even publish The General Theory until 1936

            Red Herring alert!! Keynes was an influential economist in the ’20s and ’30s, so the fact that he didn’t write “General Theory” until 1936 doesn’t mean his theories were unknown earlier, in fact they were well known in the ’20s, as Hitssquad pointed out, but in a boom time many thought was permanent, few policymakers were seriously considering remedies for a downturn.

            Even the link you provided points out that policymakers at the time were not much influenced by this idea.

            That’s correct. Keynes’s theories weren’t given much consideration during the ’20s for the reason I pointed out, and perhaps – from the same source – as Hyman Minsky later pointed out, his theoretical justification was “muddled”.

            “Keynes never thought FDR’s 1930′s level spending was enough to get us out of depression.”

            I will use your own words to respond to that:

            “Claiming that things would have been better in some counterfactual is the weakest kind of assertion because it can never be disproven. Everyone believes that things could have been even better if the policies they thought were best had been fully implemented.”

            …but the fact that you blame it all on Keynes is one of the main reasons Austrian economics has so little influence.

            Big time strawman! The Austrian position is that government spending during a recession, especially if it’s debt or inflation financed, does NOT provide correction but instead prolongs the recovery because “aggregate demand” doesn’t drive the economy. The reason Austrian economics is not more popular with government policymakers should be obvious.

            You guys talk as if Keynes invented government debt.

            Um…no. No we don’t. Is that another strawman I see?

            Compared to libertarian fantasy, U.S. government is “overly corrupt.” Compare to the rest of human history it is a huge success story.

            A corrupt government isn’t so bad as long as it isn’t as bad as some others we know about? Is that your position?

          • Greg,

            No that is not my contention. That is your straw man.

            Uh, no. You said: Keynes did not even publish The General Theory until 1936 and even then FDR was never sold on Keynesian economics.

            Whether or not FDR polished the Keynesian turd is irrelevant to the fact that he implemented alot of Keynesian programs.

            He just wanted to try a lot of different stuff and see what worked.

            Except laissez faire. By definition, “trying a bunch of stuff” is the opposite of what a free marketeer would prescribe.

            So he left that tool in the toolbox in favor of alot of the same Keynesian gimmicks that have implemented the past 6 yrs.

            He was elected on a cut the deficit platform. Does that sound Keynesian to you?

            Um, are you aware he was elected four times? I seem to remember reading about a bunch of “trying stuff” all throughout those numerous re-elections.

            Keynes influence peaked between 1950 and 1970.

            Convenient that you bracket those yrs to include the 8 Eisenhower budget austerity yrs, but leave out the ’70′s, when the Keynesian chickens came home to roost. Nixon said, “We’re all Keynesians now” in 1971. I guess he didn’t get the memo.

            Oh, wait: ” Starting in the 70′s Keynes lost a lot of influence to Milton Friedman and the “starve the beast” philosophy that justified deficits even in times of full employment as long as you cut taxes.”

            So the 1970′s are now Milton Friedman’s fault. Which 1970′s tax cuts caused the sky high misery index of that period?

            The fact that FDR’s own Treasury Secretary hated Keynesianism undermines your claim that FDR was driven by Keynesian ideas.

            LOL! So the fact that Morgenthau was lamenting all the money pissed away for naught….that somehow undermines the notion that the New Deal dealt in alot of Keynesian ideas, regardless of the label they put on it. David Stockman was director of OMB under Reagan. Stockman fought the supply siders kicking and screaming. Does that mean Reagan was anti- tax cuts now?

            Keynes never thought FDR’s 1930′s level spending was enough to get us out of depression.

            Of course. And Krugman thinks Obama didn’t bury us in enough debt to “jump start” the economy either. Keynesian economics are unfalsifiable by that standard. When the program didn’t work as advertised, just claim it wasn’t really tried.

          • Paul’

            —”So the 1970′s are now Milton Friedman’s fault. Which 1970′s tax cuts caused the sky high misery index of that period?”

            That’s NOT even remotely what I said. I said that Keynes lost a lot of influence to Friedman in the 1970′s, not that we saw tax cuts in the 70′s or that the 70′s were Friedman’s fault. Try to keep up.

            The reason that Keynes lost influence to Friedman in the 70′s is that Friedman’s theories did a better job of explaining the 70′s. See the difference? By the way, Keynes never did endorse the kind of deficits at full employment that we saw in the late 60′s and early 70′s.

            One fact you will never see mentioned here is that Friedman endorsed two of Keynes foundational ideas even as he rejected a third.

            Friedman endorsed the idea that a macro analysis of economic data was necessary to proper public policy and that the government should use that macro analysis to mange aggregate demand. And Friedman convinced far more Americans of those two Keynesian ideas than Keynes ever did. This is a bit inconvenient for Austrians but a lot can be forgiven if you get the rhetoric about hating government right.

            To be sure Friedman wanted the government to use monetary policy not fiscal policy. That is an important difference but it is a difference on the choice of the tool that the government should use, not a rejection of the idea that the government should play a crucial role in managing the economy.

            Keynes was famously willing to change his mind in the face of new evidence. I believe that if he had lived he would have been much influenced by some of Milton’s ideas.

          • Greg

            Friedman endorsed the idea that a macro analysis of economic data was necessary to proper public policy and that the government should use that macro analysis to mange aggregate demand. And Friedman convinced far more Americans of those two Keynesian ideas than Keynes ever did. This is a bit inconvenient for Austrians but a lot can be forgiven if you get the rhetoric about hating government right.

            Why would Friedman be inconvenient for Austrians? Friedman wasn’t an Austrian, but a moneterist of the Chicago school. While he held many Austrian views on individual liberty, free markets, and a minimum of government interference in markets through regulation, (Free To Choose) he nevertheless considered government control of the money supply, interest rates and credit necessary. That’s not at all an Austrian principle.

            To be sure Friedman wanted the government to use monetary policy not fiscal policy. That is an important difference but it is a difference on the choice of the tool that the government should use, not a rejection of the idea that the government should play a crucial role in managing the economy.

            Both fiscal and monetary policy – one-size-fits-all blunt instruments used to repair clockwork – have the effect of distorting the natural order of supply and demand, and thereby creating perverse incentives and unintended consequences.

            The reason that Keynes lost influence to Friedman in the 70′s is that Friedman’s theories did a better job of explaining the 70′s.

            Ecomomic basics didn’t change in the ’70s, nor have they changed materially in recorded human history. That’s the Austrian message: an effort to explain human action. (perhaps a good book title) To believe otherwise is to believe that human nature has changed in some important way in the recent past, perhaps between the 1930s and 1970s.

            Austrians have predicted the Great depression, The Great Recession, the stagflation of the ’70s, in fact every bubble and resulting burst, and every other result of poorly conceived government intrusion into the economy. The Austrian message is that spontaneous order through free markets and voluntary transactions by individual actors produce better outcomes than top-down central planning by people that, no matter how smart or well intentioned they might be, can’t possibly plan the lives of hundreds of millions people.

            One fact you will never see mentioned here is that Friedman endorsed two of Keynes foundational ideas even as he rejected a third.

            That’s because it’s not controversial and isn’t contested.

          • Ron,

            —”Why would Friedman be inconvenient for Austrians?”

            Because he popularized two ideas that Austrians hate and would prefer to blame on Keynes.

            —”Ecomomic basics didn’t change in the ’70s, nor have they changed materially in recorded human history. ”

            Human nature doesn’t have to change in order for different theories to be more useful in different conditions. For example, Friedman’s theories were very useful for explaining the economics of the 1970s. They were a lot less useful for explaining the recent housing bubble. The later was funded mostly with credit created in the shadow banking system which Milton’s emphasis on M2 caused him to miss.

            —”Austrians have predicted the Great depression, The Great Recession, the stagflation of the ’70s, in fact every bubble and resulting burst, and every other result of poorly conceived government intrusion into the economy.”

            Sorry, it doesn’t count as a prediction if you don’t say when it’s going to happen. The Austrians never tell you when the economy will turn. They just come in afterwards and diagnose the cause as a government screw up just as surely as a chiropractor will find a subluxation.

          • juandos,

            Sorry to confuse you but I don’t fit that hackneyed stereotype at all. I owned and operated my own successful for profit capitalist private business for 35 years.

            It might be too much of a strain but you could try thinking of people as individuals instead of members of groups if you are up to it.

          • Greg

            Because he popularized two ideas that Austrians hate and would prefer to blame on Keynes.

            What? That doesn’t even make sense. Austrians don’t claim Friedman as one of their own, so nothing he did or didn’t do could be an embarrassment. The fact that Friedman can be faulted for endorsing wrongheaded and stupid ideas originally held by Keynes is not an embarrassment for Austrians, but should be for Friedman fanboys.

            Human nature doesn’t have to change in order for different theories to be more useful in different conditions. For example, Friedman’s theories were very useful for explaining the economics of the 1970s. They were a lot less useful for explaining the recent housing bubble.

            “Basic Economics hasn’t changed recently…”

            Oh, wait. I’ve already said that. You must have missed it the first time.

            Why would you need different theories to explain the ’70s and the recent housing bubble? Austrian theory easily explains both. By the way, Austrian theory doesn’t just explain things after they happen, which anyone (almost anyone) can do, but predicts events in the future.

            The later was funded mostly with credit created in the shadow banking system which Milton’s emphasis on M2 caused him to miss.

            It doesn’t matter who creates credit, it is the Fed control of interest rates that distorts the credit market, allowing incentives to separate from the real world, and creating bubbles. With the price mechanism not reflecting real world conditions, supply and demand cannot adjust toward a realistic equilibrium.

            Then when institutions are bailed out because they are “too big to fail”, sparing them the market consequences of incorrect risk assessment, we taxpayers lose again.

            Sorry, it doesn’t count as a prediction if you don’t say when it’s going to happen. The Austrians never tell you when the economy will turn.

            I’m not sure what fineness of granularity you expect, but despite their awesomeness, and our tendency to believe otherwise, Austrians are still only human beings and can’t actually see into the future. They understand the likely outcomes of human action, and predict that bad economic policy will result in bad outcomes.

            They have corrected predicted all the major events of the 20th and 21st centuries, based on their understanding of what happened the last time similar conditions existed.

            Expecting a prediction to include a date and time might be unreasonablet, and of course an economy doesn’t “turn” all at once from boom to bust, so a reasonable time frame might be, say, within a year or two. Based on that leeway, Austrians have been dead accurate.

            For example I could observe you eating ice cream and predict – correctly – that you will throw up if you continue at your present rate of piggery. if I told you it would happen within the next hour, it wouldn’t be reasonable to demand that I pick an exact minute.

            They just come in afterwards and diagnose the cause as a government screw up just as surely as a chiropractor will find a subluxation.

            Gee, everyone becomes an economic expert after the fact, but even with such keen hindsight, most people, especially Keynesians, get the causes wrong, because the don’t understand basic economics.

            The difference is that Austrians have been cautioning deaf people before the fact, and when they say “we told you so” after the fact they are resented.

          • Ron

            —”By the way, Austrian theory doesn’t just explain things after they happen, which anyone (almost anyone) can do, but predicts events in the future.”

            Yes, I particularly enjoyed your predictions of massive inflation which turned out to be right… if by “massive inflation” you meant “the lowest inflation of our lifetimes.”

            Of course you may mean just at some unspecified time in the future after being wrong for 6 years. I’m also pretty sure it is true we will see serious inflation at some point in the future if we wait long enough.

            Hey, I’m getting good at this. I feel another prediction coming. The feeling is strong… I predict that no matter what happens, the Austrians will find a way to say they predicted it.

          • I’m trying to remember. Did the Austrian fortune tellers predict that Obama’s policies would be correlated with a doubling of the stock market?

            Oh, no that wasn’t it. It was that if we wait long enough those policies will cause the stock market to go down. It’s amazing that you can predict the stock market will eventually go down in the future. How do you do that?

          • Greg

            You haven’t addressed most of my points, and have chosen instead to bring up something new, so I take it you are out of actual arguments.

          • Greg

            I’m trying to remember. Did the Austrian fortune tellers predict that Obama’s policies would be correlated with a doubling of the stock market?

            Yes they did, but you ridiculed them for predicting inflation. You can’t have it both ways. Do you think inflation is just your diluted dollars not buying as much at the grocery store? You really don’t understand what inflation is, do you.

          • Ron

            —”You haven’t addressed most of my points, and have chosen instead to bring up something new, so I take it you are out of actual arguments.”

            No, not something new. Something you raised. Consider this one of your “points:”

            —”By the way, Austrian theory doesn’t just explain things after they happen, which anyone (almost anyone) can do, but predicts events in the future.”

            I’m guess I missed those Austrian predictions that Obama’s policies would cause stock prices to soar while consumer inflation fell. Want to cite some of them? I thought Austrians thought the stock market was driven more by things like “uncertainty” which can later be read to justify any prediction you choose.

          • Greg

            I’m guess I missed those Austrian predictions that Obama’s policies would cause stock prices to soar while consumer inflation fell. Want to cite some of them? I thought Austrians thought the stock market was driven more by things like “uncertainty” which can later be read to justify any prediction you choose.

            You’re so cute when you try to do sarcasm.

            You aren’t sure about what Austrians think? If you would like a reading assignment, just ask. But if you need help understanding the stock market, you’ll have to go elsewhere, as I’ve previously demonstrated to my own satisfaction, and at my own expense, that I don’t understand it very well.

            What I DO know about the stock market is that stock prices are estimates of future cash flow. That would be in terms of the value of future dollars, of course. Unless you believe investors currently see only blue skies in the future and tremendous economic growth in real terms, we can assume that they expect future dollars to have less value. That’s known as “inflation”, and shows up now as unrealistically high stock prices.

            What are the “experts” predicting for future growth? Pretty weak, eh? What does that leave?

            Would you like to know what day inflation will begin? gee, nobody seems to know, but are food prices up? Is energy up? Are imports more expensive? Are export businesses thriving? In a weak, slowly recovering economy, what indicators do you look at?

          • Ron

            And this is a great illustration of exactly what I am talking about. You find a way to convince yourself that the the inflation we have seen in the last 6 years is a vindication of your old Austrian “predictions.”

            Of course, if CPI inflation had been way up and the stock market had gone down, then the OPPOSITE of what actually happened would ALSO have vindicated your predictions. Too funny. I could never write as good a parody of Austrian dogmatism as you just have.

            As the physicists like to say, this kind of prediction is “not even wrong.”

      • Hi Greg,

        First, I’d like to say that “run by libertarians and austrians” is something of a misnomer. Libertarians and Austrians don’t believe the economy should be run by anyone, so no libertarian would ever run the economy.

        Second, the argument is that Keynsian and/or big government policies lead to slower growth and/or fail to achieve their intended goals. Slower growth is key, as it is the difference between a $15 trillion economy and a $50 trillion one.

        So yes, the economy has turned out ok, but “ok” isn’t good enough. I want an “awesome” economy. I want a world where the global poor, not just the rich poor, have a/c and xbox and cable and cellphones.

        But, if we take a look at the global view, you’ll see the growth is where free markets are still the dominant pov. Many 3rd World countries have the same policies as the 1st World, but their governments control the markets (there is little economic freedom), and they are significantly poorer.

        Even if we look just at the 1st world, we can see that Europe, who has relatively less favorable policies for free markets, is poorer than the US (in fact, the standard of living in Europe is about equal to that of the poorest US state, West Virginia).

        Further, your assertion of “failed predictions” is just flat out wrong. On minimum wage alone, Dr. Perry has outlined multiple times where our predictions have come true. The Obamacare debacle is unfolding exactly as we predicted. 2008 happened just as we predicted. The expansion of government and corruption within the government has happened, just as we predicted. Regulatory capture of the most heavily regulated industries (finance, education, medical) has happened, just as we predicted. The use of regulations by big business to protect their interests has happened, just as we predicted. The failure of the 2009 stimulus package to stimulate the economy happened, just as we predicted. I can go on and on, but I think that is good enough for today.

        • —”This country really is amazingly wealthy”

          —”So yes, the economy has turned out ok, but “ok” isn’t good enough. I want an “awesome” economy.”

          Thought I detected some awe there Jon.

          • There sure is.

            Which is why I want the whole world to embrace the free market principles that got us here.

            But I was quoting you.

      • It’s almost as if the economy has turned out OK despite the fact its not run by libertarians and Austrian economists.

        And just imagine how much better it could be were it not for the progressive policies that obliterated once great American cities like Detroit.

    • Interesting that our share of GDP is close to our share of energy consumed. It’s almost like there is a correlation.

      Amazing how that works. Those who advocate cutting energy use to save the planet must mean we should become as poor as possible.

  1. Looking at the impressive figure for Texas: 1.53 trillion compared to the Aussies at 1.5 trillion it does indeed give some perspective.
    Texas has about 40 million people in it and is only a fifth of the size of the largest Aussies state, Western Australia, itself with a population of just over 2 million.
    The whole of Australia has a population of just over 23 million, yet makes just about as much as Texas.
    Now that is impressive.
    If Australia had a 40-50 million population and had not the tyranny of vast distances that Texas does not have, as Texas is not that big really, we could be looking at a 3-5 trillion dollar economy – from a single, still fairly small country.
    Wait until the world hunger for Australia’s majority world share of best quality uranium, thorium, the biggest oil, gas and shale oil reserves on the planet and the most massive gold, diamond, rare earths and precious metals deposits not even touched yet.
    Methinks Tony Abbott is about to become a mortal enemy (he is a religious zealot, after all) of the USA and the free world, and we will have to step in an liberate his folk from their tyrannical leader and his awesome natural resources, which he could turn against us.
    While it failed in Iraq because they hated us in the first place, it just might succeed with the Aussies as we love them and they us.
    An Tony Abbott is on the nose there just now.

      • Texas has 26 million people vs Australia’s 23 million. Australia produces about 10% more per capita. Note that demographics could be in play – Texas might has a younger or more illegal population. Also exchange rates might be causing Australia to took inflated so they might be on par – or one counts economic activity differently. It could be working the other way well. Comparisons between countries (country and state) can only be generalizations.

    • +Steve
      > Wait until the world hunger for Australia’s majority world share of best quality uranium, thorium, the biggest oil, gas and shale oil reserves on the planet and the most massive gold, diamond, rare earths and precious metals deposits not even touched yet.

      That isn’t a sentence. Besides that, natural resources have never had anything to do with the wealth of nations.

      • >Besides that, natural resources have never had anything to do with the wealth of nations.

        Never? You haven’t heard of the Norwegian Paradox? There are parallels in Texas of natural resources leveraged by discreet innovation. The Barnett shale was the proving ground for horizontal drilling technology, for example.

        • Natural resources are quite important but cannot in an of themselves explain economic growth.

          After all, I believe it was Julian Simon who once said (paraphrasing) that oil was just black goop until someone figured out how to make it useful.

          • …And uranium was just yellow goop primitives smeared on their skin. Now it’s worth about 30x its weight in gold (at an energy price implied by $100/bbl oil), despite being 700x as common as gold.

          • Except it doesn’t have to be you who uses it. We paid ~$12/gallon for gas in Norway last summer. In Dr. Perry’s matchup of Va. and Norway, the latter does it with 5 million people vs 8 million, and each Virginian’s share of the national debt is roughly equal to each Norskie’s share of that country’s sovereign fund ($160k.) Ditto for Sweden vs Ohio (9M to 11.M) except to match US profligacy against $21k per capita share of debt for Swedes.

          • @Todd Mason
            > Va. and Norway, the latter does it with 5 million people vs 8 million

            Are the racial demographics the same? No. There is about the same number of Europeans in both jurisdictions. Norway is also more racially homogeneous, besides simply being more racially European.

          • And demographics plays what role in balancing budgets? (i.e. true conservatism.) Or the risk appetites of bankers? I hope you aren’t arguing that Vaians support a larger welfare burden than Norwegians.

          • @Todd Mason
            > demographics plays what role in balancing budgets?

            We were talking about _balancing budgets_? Oh, that’s right. We weren’t. Racial demographics plays this role in the wealth of nations.

            > I hope you aren’t arguing that Vaians support a larger welfare burden than Norwegians.

            All adult males in Norway are bribed to be unproductive?

          • Turd,

            And demographics plays what role in balancing budgets?

            Gotta be kidding. This from a guy who shares Krugman’s theory we need to spend our way out of the doldrums.

            As for your question, take your oh-so-fashionable politically correct blinders off and look around you.

          • The book hitsquad cites is dissed in his own link as having received “mixed reviews and was dismissed by most academics.” We will leave it at that.

            Norway’s total govt expenditure as a percentage of GDP: 46 percent. Comparable US figure 39 percent

            http://datamarket.com/data/set/1h79/general-government-total-expenditure-percent-of-gdp#!ds=1h79!1ewr=2s.1.1u.1n.29.2b&display=line

            Norway’s budget surplus in 2013 was 11 percent.
            OK, since natural resources actually do count, contrary to hitsquad’s assertions, let’s look at Sweden instead. It expects a budget deficit of 1.2 percent this year, 0.3 percent in 2015 and a surplus in 2016. Total govt expenditure in Sweden is 52 percent.

          • The 9 million Swedes deliver almost as much gdp as the 11.5 million Ohioans.
            My bad on Norway. Dr. Perry compares them to NC rather than VA, as in my misreading of his map. That’s 5 million Norskies to 9.7 million Tarheels.

          • California is a good example again. CA has similar natural resources oil wise about are loath to exploit it causing CA to go from second to fourth in oil production.

          • @Todd Mason
            >> Norway is also more racially homogeneous
            > Norway’s total govt expenditure as a percentage of GDP: 46 percent. Comparable US figure 39 percent

            Being more racially-homogeneous improves group empathy and thus reduces the personal-production-disincentive effect of public spending.

          • >Being more racially-homogeneous improves group empathy and thus reduces the personal-production-disincentive effect of public spending.

            Yes, northern Europeans act as if everyone is in it together. Maybe we can ship them some of our idealogues, eh? Got long johns hittsquad?

        • Todd

          It’s value added that determines the wealth of nations. Pulling black gunk out of the ground and converting it into a valuable resource for consumers is one way, combining various components from dozens of countries into an iPhone is another.

          A country with no natural resources could become wealthy by importing oil and converting it to gasoline as easily as another country could add value to oil produced locally.

          • Again, please google the Norwegian Paradox, which is yet another example of how economic rules are a poor substitute for reality.

          • @Todd Mason
            >>> Wait until the world hunger for Australia’s majority world share of best quality uranium, thorium, the biggest oil, gas and shale oil reserves on the planet and the most massive gold, diamond, rare earths and precious metals deposits not even touched yet.
            >> natural resources have never had anything to do with the wealth of nations.
            > Never? You haven’t heard of the Norwegian Paradox? There are parallels in Texas of natural resources leveraged by discreet innovation.
            > please google the Norwegian Paradox

            OK:

            when the rents of oil and gas sector are excluded, Norway’s productivity and income are among the highest in the world.”

            From that you concluded that Norway is wealthy because of accidents of natural-resource distribution?

          • ” However, at the same time Norwegian R&D investment has a relatively small share of the country’s GDP compared to other industrial economies.[3]“

          • Turd,

            Yes, northern Europeans act as if everyone is in it together. Maybe we can ship them some of our idealogues, eh? Got long johns hittsquad?

            Excellent non-sequitur reply to Hit’s point.

            Hey, speaking of ideologues, are you still claiming to be a libertarian?

          • Todd

            Again, please google the Norwegian Paradox, which is yet another example of how economic rules are a poor substitute for reality.

            Do you mean to say that R&D spending as a percentage of GDP isn’t a good measure of innovation? Yeah, we knew that. You can’t really direct innovation by paying people to think, it’s generally more spontaneous than that.

            What economic rules do you believe are falsified by the Norwegian Paradox?

            Keep in mind that most of Norway’s innovation is related to natural resource development, and few other major industries have emerged.

          • Todd

            Hitssquad has a link above to a Wikipedia article.

            hitssquad has a wiki link above to an article about Keynes. Is it somehow relevant to the Norway paradox or the fact that it is the value added to products or resources that allow people to create wealth?

          • Todd

            Somehow I doubt that you can’t use google.

            Oh, I use google frequently, and used it to find your link previously, but when you write -

            “Hitssquad has a link above to a Wikipedia article.”

            - I expect it to support your argument.

            I know it’s late to be asking this, but are those dollar figures you cited to compare Norway, Sweden, and US adjusted for PPP? If not, they don’t mean what you think they mean.

            Let me ask again: “What economic rules do you believe are falsified by the Norwegian Paradox?”

            To tell you the truth, Todd, it’s not clear what point you are making. Perhaps you could restate it.

          • Dr. Perry introduced the notion of gdp/capita in his original post. I assume his is not adjusted for purchasing power. Mine isn’t although with twice as many Tarheels as Norskies in the world it most assuredly means exactly what I think.

            Hitssquad linked Peter Bernstein (whom I admire) and his Birth of Plenty to establish that “natural resources have never had anything to do with the wealth of nations.”

            My take is that the resources curse is not a curse if it’s managed and leveraged.

            Then again, I don’t see economics as Gryffindor House vs Slytherin.
            The Paradox of Plenty has its own paradox of the Scandinavian variety.

  2. Maybe it’s even worse in other countries but what percentage of US GDP is composed of phony transactions like legal fees and the expense of complying with regulations? The complicated US tax code itself generates significant economic activity in payments for tax preparation. Bureaucrats at every level of government and well-entrenched in larger private businesses suck the vitality out of the economy yet their compensation and buying is all added into the bogus GDP figures.

    • Maybe it’s even worse in other countries but what percentage of US GDP is composed of phony transactions like legal fees and the expense of complying with regulations?

      None, directly. Transfer payments are not included in GDP

          • Paul

            As is typical, on the one hand, that evil 1% seeks to capture all income and wealth in California by destroying the middle class. One way to do that is to throw US citizens and union members out of work by importing dirt poor immigrants who will work for practically nothing. **

            Then on the other hand, we have those who understand that everyone is entitled to a “living wage” and the same amount of wealth, no matter who they are or how much they contribute to the well being of others, and insist that “wealth spread” be used to tear money from the greedy, grasping fingers of those 1% and redistributed to everyone else, including dirt poor immigrants. **

            It’s a never ending tug of war.

            ** this comment is satire.

          • Ron,

            Problem with your satire is the middle class IS being driven out of California. It, like much of Latin America, is becoming a society of peasants and plutocrats governed by lunatics and criminals.

  3. Top 10 States In GDP Growth 2013:

    North Dakota — 9.7 percent
    Wyoming — 7.6 percent
    West Virginia — 5.1 percent
    Oklahoma — 4.2 percent
    Idaho — 4.1 percent
    Colorado — 3.8 percent
    Utah — 3.8 percent
    Texas — 3.7 percent
    South Dakota — 3.1 percent
    Nebraska — 3.0 percent

    • How deeply into the Third World can we drill?

      Given our immigration policies – or, lack there of – I guess we’ll find out.

  4. A whole comment thread on what a statist empowering dolt Keynes was.

    It’s really hard to believe that he has any defenders at this point, but, then again, the left is still slobbering all over Marx.

  5. Time to wake the F–k up. The world is being run by a leftist, affirmative action moron, and it is going to cost many people their lives, now and well into the future.

    • The world is being run by a leftist, affirmative action moron, and it is going to cost many people their lives, now and well into the future“…

      Interestingly enough Tyler Cowens at the New York Times thinkthat just might be a possible solution to a slow growth economy: ‘Tyler Cowen who, writing in the New York Times, came up with yet another theory to explain the “continuing slowness of economic growth in high-income economies.” In his own words: “An additional explanation of slow growth is now receiving attention, however. It is the persistence and expectation of peace.”‘…

      Yeah! Let’s dust off the ole FDR playbook and try it again…

  6. Mark,

    The economies of Florida and the Netherlands are about equal in size. But there are less than 17m people living in the Netherlands and more than 19m people in Florida.

    That seems disappointing since Florida is a member of a fully integrated trade blok (the US) and is also very close to very succesfull economic geographic areas.

    • @Richard
      > But there are less than 17m people living in the Netherlands and more than 19m people in Florida.

      Florida is a retirement state. It’s also over 16% black and 20% Spanish-speaking. More:

      “11 million non-Hispanic whites accounted for about 57 percent of Florida’s overall 19.3 million population, as of July 2012.”

      In contrast, the Netherlands is 79% Dutch (& Frisian).

      • But now the argument collapses: The economy of the EU is also bigger than the US as a whole. Or take the economy of the rest of the world together: Bigger that the EU and the US combined.

        I don’t get the point of this chart anymore.

  7. Remarkable. It would be interesting to see a similar map showing the relative costs of American govt waste, such as the drug war.

  8. greg says: “I owned and operated my own successful for profit capitalist private business for 35 years.“…

    Hmmm, maybe the age of miracles isn’t over…

    FDR’s policies prolonged Depression by 7 years, UCLA economists calculate
    August 10, 2004

    Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

    After scrutinizing Roosevelt’s record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

    • There are a wide variety of reasons and theories on what caused the Great Depression. Once banks started to fail around 1930-1931 the country was thrown into a deflationary spiral — of three years with almost 10% deflation each year until 1934, almost 30% deflation.

      Among the debtors who were hurt by the deflation are your investors, the entrepreneurial class, who too often use extended credit for their investments. When this entrepreneurial class gets hit, investment ceases, and economic growth collapses, and the economy shrinks. During the Great Depression, the GDP shrank from around a little over $100 billion during the Roaring ‘20’s to a little over $55 billion during the depth of the Depression during the ‘30s. This calamity is what caused the Great Depression to last so long until a recovery could be generated, mainly from the outbreak of WWII which created a demand for goods.

      This, the deflationary spiral, is what Bernanke was trying to avoid when he flooded the financial sector with the Fed bailout.

      • @Vic Volpe
        > Once banks started to fail around 1930-1931 the country was thrown into a deflationary spiral — of three years with almost 10% deflation each year until 1934, almost 30% deflation.

        It’s either 22% (1930-1933) or 12% (1931-1934) deflation for that 3-year period. 1934 prices were actually 3.1% higher than those in 1933. There were only 2 years of near-10% deflation in the period you cited.

        Here are the CPI-U figures:

        1930 16,700
        1931 15,200
        1932 13,700
        1933 13,000
        1934 13,400

        • That’s using yearly averages. When change is occurring that quickly, it makes sense to look at the monthlies. It’s about 27% from Nov 1929 to Mar 1933.

          • @Zachriel
            > That’s using yearly averages. When change is occurring that quickly, it makes sense to look at the monthlies. It’s about 27% from Nov 1929 to Mar 1933.

            It makes sense to cherry-pick? OK: 20.6% deflation cherry-picking start-and-end months of June 1920 and August 1922. Explain why that didn’t result in an extended depression like that of the 1930′s.

          • hitsquad: It makes sense to cherry-pick?

            It’s not cherry-picking. When something is changing rapidly, then you may need a finer gradation to capture that trend. In this case, we took the peak and trough.

            hitsquad: Explain why that didn’t result in an extended depression like that of the 1930′s.

            Because the 1920s recession wasn’t due to a banking crisis, but economic readjustments due to the end of the Great War, a sharp reduction in government spending, and monetary policy engineered to control inflation. Deflation ended when the Fed ended it in 1921.

        • Rate of inflation — CPI from BLS data
          Baseline — current prices (in other words) as reported in that year, not some reconstructed baseline like 1960 or 2009.
          Fiscal Year
          1930 – -2.3
          1931 – -9.0
          1932 – -9.9
          1933 – -5.1
          1934 – +3.1

          • @Vic Volpe

            >>> Once banks started to fail around 1930-1931 the country was thrown into a deflationary spiral — of three years with almost 10% deflation each year until 1934, almost 30% deflation.
            > 1930 – -2.3
            1931 – -9.0
            1932 – -9.9
            1933 – -5.1
            1934 – +3.1

            Taking the middle three figures, that would be 25.9% deflation. That’s similar to the deflation experienced after WWI (20.6% from June 1920 to August 1922), which did indeed coincide with a depression, but not an extended depression like that of the 1930′s.

          • WWI depression was a serious depression. But it was a conversion from a wartime economy to a peacetime economy — thus GDP output was not as hard hit.

            The 1930s depression wrecked havac on a peacetime economy. The GDP decline lasted over an extended period and was much greater — this is even before the New Deal programs are implemented.

  9. Greg

    Do you have any kind of a counterargument to make, or is ridicule all you got? Can you address the issues?

    Inflation is an increase in the money supply above that demanded to facilitate exchanges of goods and services. It isn’t instantaneous, and can manifest in various ways, including bubbles. It’s simply a matter of supply and demand.

    There have been shitloads of money poured into the economy since 2008 in the form of TARP, multiple QEs, and interest rates held at 0 in the false belief that “aggregate demand” and consumption drive the economy. It hasn’t worked, and of course the lame excuse is always the same: “it wasn’t enough”.

    Until Keynesians figure out that production precedes consumption, they, and you, will always be confused about how an economy actually works.

    • Ron H: Inflation is an increase in the money supply above that demanded to facilitate exchanges of goods and services.

      That’s one definition, normally called monetary inflation, but most people mean price inflation. They are linked, but they are not the same thing, and can sometimes run counter to one another.

      Ron H: It isn’t instantaneous, and can manifest in various ways, including bubbles. It’s simply a matter of supply and demand.

      Sure, though in the present situation, there’s still significant money on the sidelines. That’s why Keynes called changes in monetary policy pushing on a string.

      Ron H: It hasn’t worked, and of course the lame excuse is always the same: “it wasn’t enough”.

      “It” isn’t working because “it” isn’t being utilized. Monetary policy has only a very weak effect on demand, and a weak economy is the expected result in the present circumstance.

      • Vic

        Maybe you underestimate just how serious the Financial Crisis of 2008 was — and still is.

        Everybody has all the same numbers. What’s the problem? Are you about to say that government planners who believe they can control and direct the economy underestimated it also, and are still underestimating 5 years later?

        • Ron,

          Funny you should mention “planners who believe they can control and direct the economy.” That sounds a lot like this:

          —”By the way, Austrian theory doesn’t just explain things after they happen, which anyone (almost anyone) can do, but predicts events in the future.”

          • Greg

            Funny you should mention “planners who believe they can control and direct the economy.”

            The difference, which even you should be able to discern, is that Austrians don’t recommend doing ANYTHING to control the economy, but instead allowing market forces to work.

            When one understands that production, not consumption, drives economic growth, that goods and services are paid for with goods and services, that market interest rates work to keep consumption, savings, and investment aligned, that money only serves to represent actual goods and services, and therefore that increasing the money supply without a corresponding increase in the production of actual goods and services is inflationary, and that individuals can make better decisions for themselves than government policy makers can make for them – then one can more easily predict the effect of changes in conditions – especially those imposed from above by central planners.

            That’s the advantage Austrians have. Not prescience, but an actual understanding of human actions. a study we know as “economics”.

          • Most times it is demand (a need in a society) that drives economic growth and innovation. That is the course of the advancement of the human animal over thousands of years.

          • Vic

            Most times it is demand (a need in a society) that drives economic growth and innovation. That is the course of the advancement of the human animal over thousands of years.

            That is mostly true. It is a perceived need, and the responses by innovators and entrepreneurs acting in their own interest to improve the well being of others that drives growth and creates wealth.

            If I see that many people are overrun with mice, and I imagine a mousetrap that I can produce and offer on the market, I may become wealthy for my ability to make peoples lives better. Notice that the production came before the consumption. No one demanded mousetraps before they were invented.

          • Production comes before consumption; AND, need (in most cases, not all cases) comes before production.

          • Vic

            Production comes before consumption;

            Yes! Thank you. Now if you can just convince your Keynesian buddies on this thread.

          • Production comes before consumption;

            Yes.

            AND, need (in most cases, not all cases) comes before production.

            In all cases. Need (want) is a universal human condition. We have unlimited wants, and we always want more than we have. We act to move from uncomfortable to comfortable, from unsatisfied to satisfied, from cold to warm, from hungry to full.

            It is the basis of all human action. It is necessary that we produce something before it can be used to affect our level of satisfaction.

          • Nope!

            There was no need for the hulu hoop. [if you are old enough to remember the craze]

            You forgot all about marketing.

          • Nope!

            There was no need for the hulu hoop. [if you are old enough to remember the craze]

            There certainly was a need (want) for the hula hoop, or people wouldn’t have bought them. The fact that they were sold at all is a great indication of how very wealthy Americans were and are.

            Perhaps Vic Volpe had no need for a hula hoop, but all value is subjective. Other people obviously had different needs than you, including many who needed hula hoops.

            You forgot all about marketing.

            Nope, marketing makes us aware of needs we didn’t even realize we had.

            BTW, I use “need” and “want” interchangeably, as they are the same thing, except for intensity, and we can’t possibly decide for someone else whether they need or want something.

          • Vic

            By the way, the hula hoop is a perfect example of production before consumption. No one demanded a hula hoop before they were invented, so “aggregate demand” for hula hoops couldn’t have possibly driven economic growth. Only when a clever entrepreneur guessed correctly that people would want them, invested in development and offered them on the market, did demand for them appear.

          • Rational behavior (and analysis) does not account for impulse buying.

            Not sure your point. Every transaction isn’t a major undertaking with cost/benefit analysis. I see it, I want it, I buy it. I don’t even know what the opportunity cost is, because it’s trivial.

          • Ron H: No one demanded a hula hoop before they were invented, so “aggregate demand” for hula hoops couldn’t have possibly driven economic growth.

            Hula hoops are ancient and long predate the marketing craze of the 1950s.

    • Ron

      We were discussing your claim that Austrian economists have the ability to predict future economic events. More specifically, we were discussing your claim that the rise in the stock market in the last few years has vindicated the Austrian predictions that massive inflation would result from the Fed’s activities since the Great Recession. I really don’t think that claim deserves anything more than ridicule in light of the fact that what we have seen during that period is the lowest inflation of our lifetimes.

      I don’t believe that any school of economics has the ability to predict the future in a reliable way. Every school of economics does have the ability to interpret the past in a way that is consistent with its own theories. Congratulations on your ability to do that also.

      It is not that easy to define exactly what should count as money but a great deal of money was created by credit that built up in the shadow banking system during the housing bubble. A lot of that was destroyed in a very short time. A lot of additional money has simply been parked on the sidelines. That is why the inflation that you expected would already have happened has not happened as the Fed simply replaced most of that money so that the overall money supply changed less than you think. It is indeed a matter of supply and demand. We may or may not have more inflation in the future depending on how the Fed reacts when money starts coming off the sidelines and private credit creation heats up again.

      • Greg

        We were discussing your claim that Austrian economists have the ability to predict future economic events. More specifically, we were discussing your claim that the rise in the stock market in the last few years has vindicated the Austrian predictions that massive inflation would result from the Fed’s activities since the Great Recession.

        I explained to you where some of that stimulus has gone. You may believe it or disbelieve it.

        Forget about predictions, the Austrian claim is that if you increase the supply of money, the price of each unit of money will fall, just as it does with an increased supply of any other commodity. Seems like a no-brainer. As you pointed out, a great deal of surplus money is on the sidelines in the form of cash reserves, and as bank reserves. When that money begins to circulate as business and investment optimism rises, the only Fed action possible is to raise interest rates, which will put the brakes on any continued recovery and drive interest payments on government debt through the roof. There is no good direction for monetary policy at this time.

        Calculate for yourself, using different interest rates, the amount of interest that must be paid each year on a national debt of $17 trillion. At what interest rate is the entire amount of current annual revenue spent on interest?

        What claim, that the stock market is overvalued?

        I don’t believe that any school of economics has the ability to predict the future in a reliable way.

        You are not paying attention.

        It is not that easy to define exactly what should count as money but a great deal of money was created by credit that built up in the shadow banking system during the housing bubble.

        A great deal of money was created by Fed monetary policy that kept interest rates lower than market rates. Do you understand the role of interest rates as a signaling mechanism to savers and borrowers?

        What should count as money depends on what point you wish to make, but the fed has pretty good guidelines for various forms of liquidity.

        A lot of that was destroyed in a very short time.

        You mean a great deal of asset value was destroyed. You are confusing money with asset value just as you have confused money creation with increased production. A typically Keynesian confusion. illiquid assets aren’t considered money.

        So no, a great deal of money wasn’t destroyed. Money is only a medium of exchange that facilitates exchanges of value.

        A lot of additional money has simply been parked on the sidelines. That is why the inflation that you expected would already have happened has not happened as the Fed simply replaced most of that money so that the overall money supply changed less than you think.

        The Fed increased the money supply based on the false belief that it would increase aggregate demand and drive economic growth. We can see that it hasn’t worked that way, just as it hasn’t worked in the past.

  10. Ron,

    —” illiquid assets aren’t considered money.”

    Yes, but highly liquid assets are. Mortgage backed securities went from very highly liquid to frozen in a short time and the repo market collapsed. This had the effect of shrinking the money supply. The Fed’s actions mostly just replaced money lost to that process and a drop in velocity so that the effective money supply increased a lot less than you think. This may or may not result in future inflation depending on how the Fed reacts when private credit creation heats up again.

    Money is not “only” a medium of exchange. The Austrian School’s ideas about monetary policy are the main reason they are not taken more seriously by other economists. Do you think the Fed’s allowing the money supply to shrink by a third had anything to do with the Great Depression?

    • Greg

      Yes, but highly liquid assets are. Mortgage backed securities went from very highly liquid to frozen in a short time and the repo market collapsed. This had the effect of shrinking the money supply.

      OK, if you insist on calling MBSs money, then yes, the holders of those securities lost a lot of “money” in the form of liquid assets. That is private money, lost by private owners, that only existed because of Fed monetary policy. Now the discussion must turn to risk management, responses to perverse incentives, and the concept of “too big to fail”.

      How much responsibility do taxpayers have to insure private parties against loss? Austrians would say “none”.

      The Fed’s actions mostly just replaced money lost to that process and a drop in velocity so that the effective money supply increased a lot less than you think.

      But that’s the problem. That mis-allocation of resources needed to be corrected through those losses. Replacing losses in the manner you describe is exactly the wrong response.

      If I decide to go to Las Vegas to gamble, knowing you will replace any losses, how are my incentives affected?

      his may or may not result in future inflation depending on how the Fed reacts when private credit creation heats up again.

      It will almost certainly be too late and either too much or too little, as is usual with one-size-fits-all remedies.

      Money is not “only” a medium of exchange.

      Your right. It is also a measure of value, and allows comparison of two dissimilar goods or services. It makes calculating opportunity costs much easier.

      The Austrian School’s ideas about monetary policy are the main reason they are not taken more seriously by other economists.

      But you haven’t explained what is wrong with them. Is being popular or widely agreed enough to determine correctness? You can do better than that.

      Do you think the Fed’s allowing the money supply to shrink by a third had anything to do with the Great Depression?

      It certainly didn’t cause the GD, but it was Fed and government policies that delayed recovery, for 11 years. The GD would have been over in 1933 if needed corrections had been allowed to take place.

      Think about it. If the money supply shrinks by 1/3 the value of each dollar is worth 50% more. That means prices fall. If you are interested in more consumption, then falling prices are a an incentive to buy more. Government policy during the GD was to keep prices high. Was that helpful? do you think? I believe you know the correct answer.

      • Ron H: Think about it. If the money supply shrinks by 1/3 the value of each dollar is worth 50% more. That means prices fall. If you are interested in more consumption, then falling prices are a an incentive to buy more.

        And it a perfectly frictionless system, it might work like that, but there are long term effects involved when there is an economic shock. Falling prices mean producers can’t make their payments, so factories and farms go idle. Once idled, it can take years before they become productive again. Meanwhile, the unemployed can’t buy because they don’t have any money.

        • Z: “And it a perfectly frictionless system, it might work like that, but there are long term effects involved when there is an economic shock. Falling prices mean producers can’t make their payments, so factories and farms go idle. Once idled, it can take years before they become productive again. Meanwhile, the unemployed can’t buy because they don’t have any money.

          So everyone perishes. The end.

          Oh wait! Could a dwindling supply of something cause prices to rise, signaling producers to provide more?

          You talk about “economic shocks” as if they were unpredictable and unexplainable acts of nature.

          Do factories and farms always go idle or are they sometimes acquired by those who can make better use of the assets?

        • Vic

          Very incomplete for an explanation.

          What is?

          As in any deflationary spiral — Where is the bottom?

          The bottom is when enough people have found what they consider a bargain price, and decide not to wait for cheaper prices, and of course that happens right away for essentials like food, clothing, shelter, etc., where people want to eat today rather than waiting for a lower price tomorrow.

          There is nothing wrong with prices decreasing over time. For some items such as computers and electronics price decreases are pretty much constant, and nobody cries about a deflationary spiral.

          This was the case under Hoover, letting the market reach its own level.

          Hoover didn’t “let the market reach its own level”, he was a big time interventionist. FDR continued hoovers policies, put some on steroids, and added some more of his own.

          But the real point is that the market must “reach it’s own level”, so to speak, by reallocating assets after a period mis-allocation and mis-investment caused almost always by the blunt instrument of Fed monetary policy, as in the dotcom bubble, the housing bubble, and now the government debt bubble.

          Another point that is missed is the wipe out of investors; and, one other point, the return on an investment has to overcome the deflation plus any payment of interest on a loan.

          Investment involves risk. Do you seriously believe it is the job of government and taxpayers to bail out investors who lose? Investors must wear big boy pants if they are going to play with the big boys, otherwise they should stay away.

          Not understanding the most serious depression we ever had, regardless of viewpoint, contributed to the lengthy recovery that was needed/and WWII. [Again, just look at the mess we are in 5+ years after 2008.]

          You can blame your government and your Fed for the Great depression and for the current Great recession.

      • During Hoover’s time, when the banks failed and assets were liquidated at much reduced prices, the money supply shrank — and the Fed tight money didn’t help that although the Fed was trying to take the speculative nature out of the economy — and when the money supply shrank, demand went with it.

        People didn’t have the money to buy because they were not working. Manufacturing plants closed — not just seasonal slow-downs, but closed — look at the Ford Motor Plant in Detroit. NO WORK, NO MONEY. Similar for farmers.

        There are any number of videos on You Tube recounting the Great Depression with first and second-hand (the children recalling their parents experience as factory workers, farmers, and bankers) experience.

      • Ron

        The biggest problem with the Austrian School’s understanding of monetary policy is that they fail to understand the destructiveness of a deflationary spiral. During the Great Depression a lot of people whose worst “misallocation” was saving regularly and putting their money in the bank lost all their savings due to bank runs. Deflation crushed debtors and penalized risk taking.

        Have you read Milton Friedman’s work showing how close the relationship was between shrinkage and growth of the money supply and shrinkage and growth of economic activity was during the Great Depression? Are you aware how closely correlated coming off the gold standard and expanding the money supply was to recovery in all the countries that suffered from the Great Depression? I agree that FDR’s attempts to raise individual prices by restricting supply were counterproductive but I find Friedman’s work to be very convincing.

        Certainly it is true in a historical sense that the foundational economic problem is production, not consumption. But once you have a complex modern economy up and running it might come off the rails due to supply or demand disruptions. Thinking that problems can only come from the supply side or the demand side is silly.

        • Greg

          The biggest problem with the Austrian School’s understanding of monetary policy is that they fail to understand the destructiveness of a deflationary spiral.

          That’s because an endless deflationary spiral is a myth. There are natural limits to deflation that are explained well in the linked article. Please set aside your biases long enough to read the whole thing.

          In a nutshell, people won’t defer spending for necessities like food, shelter, clothing, medical care, etc. They won’t just sit on their couches waiting for the Grim Reaper or lower prices.

          Question: A great example of fairly consistent and predictable price deflation exists in the electronics and computer markets. If you need a new computer, even knowing that next year you can probably get twice the machine at a lower price than today, will you wait?

          During the Great Depression a lot of people whose worst “misallocation” was saving regularly and putting their money in the bank lost all their savings due to bank runs. Deflation crushed debtors and penalized risk taking.

          Bank runs are a feature of fractional banking. Banks that manage risk prudently will remain in business, those that don’t, won’t. Banks can reduce the risk of runs by risk sharing through insurance, and interbank borrowing agreements. FDIC is one way this is currently accomplished, although there is no reason an insurer must be a government agency with taxpayers as the final backstop.

          Have you read Milton Friedman’s work showing how close the relationship was between shrinkage and growth of the money supply and shrinkage and growth of economic activity was during the Great Depression?

          I have read a great deal by Friedman, and I believe he was one of the greatest purveyors of economic wisdom of the last century, but he is an enigma. Most of his views are absolutely Austrian, except that he believed government should control the currency and money supply. It is a glaring contradiction.

          You are aware, of course, that Friedman blamed botched Fed policies for the length and depth of the GD.

          Are you aware how closely correlated coming off the gold standard and expanding the money supply was to recovery in all the countries that suffered from the Great Depression?

          I’m aware that eliminating the gold standard gave government complete control of the currency and money supply. I’m also aware that FDR perpetrated one of the biggest thefts in recent history when he seized all privately owned gold at $22.67/oz and then mandated a price of $35/oz. for foreign exchange.

          Certainly it is true in a historical sense that the foundational economic problem is production, not consumption.

          Thank you. that’s close enough, I guess.

          But once you have a complex modern economy up and running it might come off the rails due to supply or demand disruptions. Thinking that problems can only come from the supply side or the demand side is silly.

          No one has said that, so put down that straw. Obviously supply and demand are connected by the price signal. The market will provide corrective steering when allowed to do so. It is only through ill advised government and Fed policy that actual derailment occurs, and it is through the prevention of natural market corrections that derailments last so long.

          By the way, supply and/or demand disruptions are not unexplained acts of God or nature, but instead have understandable causes, even if those causes aren’t anticipated or immediately known. Allowing the price signal to operate freely will almost always result in the quickest adjustments to new circumstances.

          • Ron H: That’s because an endless deflationary spiral is a myth.

            The essay sounds like the questions in Econ 101, only he doesn’t know the answers. For instance, wage deflation occurs largely due to unemployment, not due to employers lowering wages directly. Sellers don’t always immediately lower prices because they fear going broke if they do. They’re hoping prices will rebound. The real market is sticky, and doesn’t always work like a well-oiled machine. It reaches a certain point, and the parts start to get stuck or simply break.

            Ron H: although there is no reason an insurer must be a government agency with taxpayers as the final backstop.

            Except that in the Great Depression banks failed with no final backstop, and it was a disaster. People who had done everything right, worked hard, saved money in the bank, were ruined. Guess what. That’s a huge disincentive to do everything right, work hard, and save money in the bank.

          • You fail to understand the difference between deflation and a deflationary spiral (longlasting) or as the other commenter said the effects of a shock.

            Just look at the results from the Financial Crisis — we have had a deflationary spiral in home values — and, unlike the Depression of the ’30s, low interest rates and still few “normal” buyers. Over 50% of the home transactions in 2010-2011 have been investors and bank repos.

          • Ron

            Not talking about an “endless” deflationary spiral, just one that lasts a lot longer than it needs to. “Endless” is your straw man.

            In a big enough panic, even a well managed bank can fall to a bank run.

            Yes Friedman blamed the Fed for the Great Depression. He blamed them for not being active enough in stopping the deflation. He blamed them for coming too close to what you think they should have done. And this was his best work, the work that he is most famous for.

            Your theory is one big tautology. No matter how badly it works you simply define that as the best that could have been done and claim that you predicted it all afterwards.

          • Greg

            Not talking about an “endless” deflationary spiral, just one that lasts a lot longer than it needs to. “Endless” is your straw man.

            You can do better than that. Your only problem is with the word “endless”? Give me a break. What about the “deflationary spiral”? You must be out of arguments on that topic, so you choose to pick on words I use instead. That’s lame.

            In a big enough panic, even a well managed bank can fall to a bank run.

            Yes, that is a feature of fractional banking, and it was Friedman’s complaint. that the fed, bank of last resort, designed to provide liquidity to prevent a bank from closing in the event of a bank run, and it didn’t even perform that simple function, but instead allows 1/3 of all banks to fail, and the money supply to shrink by 1/3.

            Yes Friedman blamed the Fed for the Great Depression. He blamed them for not being active enough in stopping the deflation.

            Friedman at least placed responsibility for the GD where it belonged, on government and not private businesses, but to his discredit he would have advocated statist measures in the form of suspension of payments (a form of theft), moneterizing of government debt, and printing money.

            He blamed them for coming too close to what you think they should have done.

            You are either mis-characterizing Friedman or Austrian analyses of the GD.

            Your theory is one big tautology. No matter how badly it works you simply define that as the best that could have been done and claim that you predicted it all afterwards.

            Tautology? It appears you have no idea what you’re talking about, and sadly, you seem to have no interest in learning anything about the subject. You continue to seriously mis-characterize Austrian economic views and positions based on your ignorance of what they actually are. Too bad.

          • You fail to understand the difference between deflation and a deflationary spiral (longlasting) or as the other commenter said the effects of a shock.

            Deflation is a decrease in the money supply that may result in lower prices. What you call a deflationary spiral has definite and easy to reach limits.

            i>Just look at the results from the Financial Crisis — we have had a deflationary spiral in home values —

            you are misusing the term. Are you sure you know what it means? Lower housing prices aren’t an indication of some sort of spiral.

            Housing prices have returned to a level more in line with their realistic market value. That was inevitable, as prices had been artificially boosted by excess money supply, easy credit, and perverse incentives created by government policy.

            and, unlike the Depression of the ’30s, low interest rates and still few “normal” buyers. Over 50% of the home transactions in 2010-2011 have been investors and bank repos.

            What exactly is a “normal buyer”? What difference does it make? A buyer is a buyer is a buyer. You should concern yourself with the price of the sale, not who buys it.

        • Z: “The essay sounds like the questions in Econ 101, only he doesn’t know the answers.

          Heh. Yes, it does read like an econ 101 text. I think the author intended it for an audience of Keynesians and others who have a relatively poor understanding of actual economics.

          For instance, wage deflation occurs largely due to unemployment, not due to employers lowering wages directly. Sellers don’t always immediately lower prices because they fear going broke if they do.

          Of course. There is a lot more to it than the high level overview provided by Blumen. We can cite something more substantial if you’re interested, but the basic conclusions remain the same.

          And of course wages can decrease quite easily if unemployment results in new applicants who are willing to work for less, and a union could demand a new contract negotiation with lower wages and fewer benefits in order to keep as many people employed as possible. It’s not as sticky as you might think.

          In fact there are some who believe there is no such thing as involuntary unemployment.

          The real market is sticky, and doesn’t always work like a well-oiled machine. It reaches a certain point, and the parts start to get stuck or simply break.

          There is a an obvious lower limit to a deflationary spiral. That’s the takeaway from the essay we cited.

          Except that in the Great Depression banks failed with no final backstop, and it was a disaster. People who had done everything right, worked hard, saved money in the bank, were ruined. Guess what. That’s a huge disincentive to do everything right, work hard, and save money in the bank.

          Exactly. Just like now, when savings is discouraged by Fed monetary policy, and people who have saved all their lives can’t earn a decent return.

          It’s almost always the little people who are hurt by cruel and inept government meddling in the economy.

          Our point about deposit insurance, in case you missed it, is that deposit insurance can a great bragging right, and should increase customer confidence, but could just as easily be provided by private insurers. There’s no reason to put taxpayers on the hook.

          • Ron H: Yes, it does read like an econ 101 text. I think the author intended it for an audience of Keynesians and others who have a relatively poor understanding of actual economics.

            No, because he acts as if he doesn’t know what constitutes Keynesianism. For instance, his ignorance of wages during deflation.

            Zachriel: For instance, wage deflation occurs largely due to unemployment, not due to employers lowering wages directly. Sellers don’t always immediately lower prices because they fear going broke if they do.

            Ron H: Of course.

            Of course. Which is why Robert Blumen failed his Econ 101 class. He claims wage deflation is unaccounted for in standard economic theory. It’s actually one of the most important issues. Wages are sticky.

            Ron H: There is a an obvious lower limit to a deflationary spiral.

            There is obviously a lower limit, but not an obvious lower limit.

            Ron H: Our point about deposit insurance, in case you missed it, is that deposit insurance can a great bragging right, and should increase customer confidence, but could just as easily be provided by private insurers.

            Lovely idea. Where were they when the banks crashed in 1930s?

  11. By the way:

    Anybody notice in the paper this week, on the California-Texas exit/influx that there is a possibility that California may get one gain from Texas,

    none other than Gov. Perry when his term runs out.

  12. Ron

    —”I have read a great deal by Friedman, and I believe he was one of the greatest purveyors of economic wisdom of the last century, but he is an enigma. Most of his views are absolutely Austrian, except that he believed government should control the currency and money supply. It is a glaring contradiction.”

    It is hilarious that you think this is some big mystery. The Austrian approach to economics is deductive and prescientific. You start with your intuitions and deduce your conclusions with little interest in data or evidence. You are interested in little more than in the logic you can use to work from your initial assumptions. Then you project onto others the idea that anyone who disagrees with you has no interest in learning.

    Friedman was very interested in where the data led. His Monetary History of the United States was filled with relevant data and evidence to support his conclusions. Data and evidence you have thus far been uninterested in discussing except to robotically keep asserting that if it conflicts your economic axioms it must be wrong.

    The inductive approach does not lead to certain knowledge. All knowledge is provisional. But it does lead to steady progress and greater accuracy over time. This is precisely why the economy has grown spectacularly over the period in which the Austrian School has gone from being a major player to being insignificant in influence.

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