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Math without Theory is useless: Sandeep Jaitly

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June 27, 2011 – Comments (5)

Max Keiser asks Sandeep Jaitly about the Austrian School of Economics.  Very nice clip.  Max is trying, but he gets it wrong.  Economics has nothing to do with psychology.  There is a very definite line.  The Austrians are not trying to reinvent Freud.  

As Sandeep points out, all value extends from the human mind and no other school actually believes this.  As such, their econometric models are completely meaningless.  They are missing the initial input of their equations, which is unknown since that initial input is the subjective value that individuals assign to economic goods.  This is why the mainstream always fails.  

We have our Bernanke apologists on this site.  They bicker and whine about us.  They praise Bernanke for doing something to save us, though they have no idea what would have happened without Bernanke (making their defense of him meaningless.)  What these apologists will not admit, however, is that all value extends from the human mind.  Once they admit that, then they also must admit that Bernanke would have to know what is in every individual's mind in order to make the correct policy choices.  Good luck with that, gentlemen.

David in Qatar

5 Comments – Post Your Own

#1) On June 27, 2011 at 9:10 PM, ChrisGraley (29.69) wrote:

That's funny, because I think he did a pretty good job of trying to put it in layman's terms given that it isn't his field.

Of course Jaitly redefined his assessment to something that was more correct, but as journalists go, give me a Max Keiser in this interview over a Bill O'Rielly or a Keith Olberman.

There really is no math equation for anyone's BS detector and everybody is shoveling. 

The only thing left out of this discussion was the extreme amount of marketing that goes on trying to get people to turn off their BS detector.

It's actually pretty effective and the only reason that flawed economics has lasted so long.

If I had to give Max a grade though, I'd give him a "B". 

 

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#2) On June 27, 2011 at 10:41 PM, blesto (31.02) wrote:

You warped my mind on that one.

Value.

If it only extends from the mind, then to make money work everyone - I mean unanimously everyone - needs to agree on one standard value of something, to base everything else on. Is that flawed? Anyway, I can see this thinking leading to a one world currency.

Bernanke.

If he wasn't there, someone else in line would be. They're all from the same mold, and they would do similar if not the same things Bernake has done and will do.

 

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#3) On June 27, 2011 at 11:30 PM, whereaminow (< 20) wrote:

blesto,

I like good, honest questions.  This was one of those:

If it only extends from the mind, then to make money work everyone - I mean unanimously everyone - needs to agree on one standard value of something, to base everything else on. Is that flawed?

I don't think you are flawed.  Not by much.  The market doesn't have to settle on one money, but it probably will.

Eventually, historically, the market - the sum of all economic actors - settles on one or two good monies to use as currency.   Gold, generally, became king everywhere the market was allowed to work. (There are very good reasons for this, even though it is taught that gold is a bad money but government economists.  Of course, there are very good reasons why government economists would want you to believe that gold is a bad money.)

And of course, if the market were allowed to work, who gets to mint the gold would eventually be chosen by market actors.  I'm guessing they wouldn't choose to hand a monopoly to a cabal of bankers or the government.  At least, that would be highly unlikely given the history of markets :)

Think of it this way.  The market has settled on shoes (and sandals) as the primary way to cover your feet.  Who gets to make the shoes and what they look like is also decided by the market, but many different companies compete for the privilege of serving you.  

Anyway, I can see this thinking leading to a one world currency.

Again, you are right on.  It did lead to a one world currency: the gold standard.  Since government bills or bank bills were merely claims on gold that every country used, the gold standard helped the explosion of global commerce by giving everyone a stable money to use.  No government intervention was needed.  Bills were redeemable for a weight of gold.  In fact, government intervention was only needed to kill the gold standard.  Which they did, eventually.  Every immigration officer, customs agent, etc is in place because of the need to control borders and people in order to kill the gold standard.  

** There was some involvement of silver in the market selection of money, as well as some government interventions that gave silver more priority in some parts of the world.  There was also the unfortunate intervention called bimetallism that caused problems in the West. These topics are way beyond this simple post.

Bernanke.

If he wasn't there, someone else in line would be. They're all from the same mold, and they would do similar if not the same things Bernake has done and will do.

That is also correct.  Bernanke is the best witch doctor of all of them (or very nearly the best) so it silly to say that a better man could do a better job.  I wrote a blog about this a while back called "The Best Man for the Job."  It's the idea that one man can even know what we value (and money has a value) that is silly.  That's why he will always be wrong.  And he always has been.  He's a blind man, in this sense.  So cheering for his "solutions" is silly as well.  They aren't solutions in any meaningful way.  They are guesses. 

David in Qatar

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#4) On June 28, 2011 at 10:37 PM, rfaramir (29.33) wrote:

"If it only extends from the mind, then to make money work everyone - I mean unanimously everyone - needs to agree on one standard value of something, to base everything else on."

No. You only need to agree with the person with whom you make an exchange. If you value what he has more than what you have, and he values them oppositely (preferring what you have to what he has), then you trade and are both better off. A meeting of two minds, no further unanimity is necessary.

The video almost went wrong when Sandeep said "consciousness", but Max took that (rightly) to mean "within the consciousness of the person" not (wrongly) a global, nebulous group consciousness.

As trade happens, the actors begin to see what other actors are willing to accept in trade when what is offered is not exactly what they want. The double-coincidence of wants is the rare event when A grows oranges and wants beef, while B grows beef and wants oranges, and they meet and trade. Actors are willing to take things in trade that they do not want if they know that other actors will want them later. But it gets tiresome to become a hawker of other people's goods, so the actors trade their less tradable intermediate goods for more tradable (vendable) intermediate goods. As they find ever more tradable goods, they tend to settle on a single good (or two) that most everyone agrees that most everyone will take in exchange. Thus money arises on the free market, and it is usually gold, sometimes silver.

There is no coercion involved. Only voluntary trades. But still we end up with a single unit of account that we all can use which facilitates trade and economic calculation.

We don't *need* one standard of value. It just helps. We certainly don't need a standard imposed. We can figure out what we want to use for ourselves.

Positive law is not necessary. Legal tender laws in particular are enacted to facilitate government appropriation of purchasing power. You *must* use dollars because of US legal tender laws, which is awfully convenient for the printer of those dollars, the US government (broadly defined to include its creature the Fed).

Fewer laws, more liberty, more wealth. End the Fed!

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#5) On July 02, 2011 at 12:39 AM, skypilot2005 (< 20) wrote:

David,

Check this link out:

Great Recession Cooks Friedman and Keynes

http://finance.yahoo.com/banking-budgeting/article/113063/recession-bernanke-friedman-keynes-marketwatch?mod=bb-budgeting

Sky Pilot

 

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