Comment by Multics | Hacker News Reader

Comment by Multics | Hacker News Reader

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It's an example. It's the cost of the success that's the issue.

Financial crisis == moral hazard. And, come on! There's an economic theory that predicted the crisis, and explains it. I.e. ABCT (Austrian business cycle theory). My point being, it's not as clear cut when there's 'crony capitalism' and other market distortions.

'Free', as in freedom!

Everyone knows the 'free market' is made up of individuals. Or groups of individuals, such as a firm, which is formed to reduce transaction costs -- as per Coase's description in his Nobel winning (1991) The Nature of the Firm (1937).

Money is a medium of exchange. We use it to trade. And by definition: when people trade freely, they are both better off (otherwise they wouldn't trade!).

Money also has the functions of 1) store of wealth 2) unit of account. But that's by the by.

Problems are always going to occur, but because humans are motivated to solve the problems, solutions are found. And a profound way to facilitate such solutions is a market-based economy.

> There's an economic theory that predicted the crisis, and explains it. I.e. ABCT

No. People who like the theory saw real world events that kind of sort of looks like ABCT could explain them, and then made a post facto observation.

Unless Mises et al. made some sort of prediction based upon at the time non-existent financial instruments, ABCT did not predict the 2008 sub-prime financial collapse. Period.

To the extent that ABCT predicted anything, it was a "something bad will happen; not sure when!" with the preconditions in play since about 1980. Color me unimpressed; I bet some random fortune teller got more accurate than that on accident.

Now, maybe some economic philosophers who likes the model applied it, which provided the basis their prediction of actual real world events. I don't know.

But then, proponents of regulation predicted the collapse as well. In fact, a lot of people accurately predicted the (actual) collapse, and to various degrees the cascade effects.

> it's not as clear cut when there's 'crony capitalism' and other market distortions.

"Oh yes, if only the world met all of our Axioms. Then everything would be grand!" said every failed political economic project ever.

> Problems are always going to occur, but because humans are motivated to solve the problems, solutions are found.

And as it turns out, lots of times those people are working in government funded research labs and universities, or applying research funded in those labs and universities.

You'll excuse us mere mortals for drawing such wildly wrong conclusions from something as banal as observation! You see, it's just that we've lost our list Axioms and now our only reference point is reality... perhaps you could lend us your map to drill on?

> No. People who like the theory saw real world events that kind of sort of looks like ABCT could explain them, and then made a post facto observation.

Like Mark Spitznagel, who took a billion dollar derivatives position on the 2008 stock market crash!

>Unless Mises et al. made some sort of prediction based upon at the time non-existent financial instruments, ABCT did not predict the 2008 sub-prime financial collapse. Period.

Here's an article from the Mises Institute on the subject. Period. http://mises.org/daily/4072

> "Oh yes, if only the world met all of our Axioms. Then everything would be grand!" said every failed political economic project ever.

Politicians must come up with excuses of some sort.

> And as it turns out, lots of times those people are working in government funded research labs and universities, or applying research funded in those labs and universities.

And those resources may be more effective in an alternate configuration.

> You see, it's just that we've lost our list Axioms and now our only reference point is reality... perhaps you could lend us your map to drill on?

My map (in reference to the Alfred Korzybski quote 'the map is not the territory') consists of any economic school, or any other information I happen across. Empirical is fine with me. But it depends on the circle I'm talking to. If one was to mention vanilla observation to a group interested in medicine, then there'd be a combination of recoil and disgust (in most cases), for example.

But in this case, Praxeology suits me fine!

Your original claim was sloppy and wrong.

The article to you link to is much more clear headed about the role of the model. It's a useful tool, not a glass ball.

There's a hell of a huge difference between a model predicting something, and people applying/adopting the model -- together with a LOT of other tools and insights -- to predict something.

It's as stark as the difference between executing a program and getting an exact output, and using a programming language, together with some bits of math, to write a program which computes a result for you.

Back to the point: since lots and lots others made similar predictions about the housing market (and beyond), I'm much more inclined to believe that it was a strong focus on data and observation -- not any particular model per say -- that allowed smart people to accurate predictions.

That wasn't my central claim. You picked up on a fairly irrelevant aside. My claim was: 'My point being, it's not as clear cut when there's 'crony capitalism' and other market distortions.'

I don't believe the Austrian school has any such formal models.

"when people trade freely, they are both better off (otherwise they wouldn't trade!)" isn't true. Instead, it's that both people think that they are better off when they make the trade. A subtle distinction but also the most important criticism of a purely free market.

Value is subjective. A.K.A, the subjective theory of value.

Without subjectivity, there's no marginal utility. And that takes us back to classical economics. I.e pre-marginal revolution.

I'm not talking about the subjectivity of value at all, though I can see how that might be unclear. I'm talking about the assumption of perfect information that is inherent in your statement.

In situations of asymmetrical information, there can be market solutions. Such as warranties.

The information, or the lack thereof is also reflected in the price.

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