Comments (19)

• William Anderson

  I can think of a lot of times when "stabilization" policies were implemented, but I cannot think of one time when they actually stabilized anything. The first time I recall was just before I entered college in August 1971, when President Nixon announced "Phase 1" at the collapse of Bretton Woods. (The comedian David Frye later had Phase 4, a "Going out of business sale" for the U.S. Government. If only....)

  Published: October 3, 2008 8:50 PM

• Yancey Ward

  FDR really did stabilize things with the New Deal, the problem was that it was stabilized depression.

  Published: October 3, 2008 9:08 PM

• magnus

  It's rather like trying to stop a thunderstorm by stabilizing the weather vane.

  The real damage here is out there, in the real economy -- the vast malinvestment in housing, the stock market, and everything they affect in turn, which is just about everything.

  The problem here is that detecting and measuring that malinvestment is difficult. It's detected and measured by prices and interest rates. So, naturally, the criminals are manipulating those prices and interest rates to prevent people from being able to detect and measure the true scope of the crime.

  "Stabilization" is just another euphemism -- the simple truth is that it's just a cover-up. An way to hide the real effects of the crime.

  Published: October 3, 2008 9:16 PM

• Inquisitor

  I wonder what cute buzzword will crop up next!

  Published: October 3, 2008 9:19 PM

• MattYoung

  Not stabilization, but simply the government playing its role in a restructuring like any other firm, neither help nor hindrance; simply playing its part in the unfolding.

  
  

  Published: October 3, 2008 9:34 PM

• N. Joseph Potts

  It strikes me as impossible to prove empirically that ANY economic policy ever attained ANY of its goals. To say that, say, stabilization made things (the "whole economy") more stable, you must answer the question, "more stable than WHAT?"

  Well, of course, this means, "more stable than if the measure(s) hadn't been implemented." But we don't know, CAN'T know, and will NEVER know quite what would have happened if the measures hadn't been enacted - that's the path not taken. Mises declared that all stabilization measures (he said all ECONOMIC measures) must always have effects contrary to those advertised for it. But he arrived at this position by a priori reasoning, not by a study of empirics.

  And I found his expostulation not only convincing, but also convenient in that it enables me to reject out of hand any significance to be attributed to any apparent case where stabilization measures "worked."

  By the way, the same observations apply to measures intended to reduce concentrations of CFCs in the air stratosphere, and to trends in global temperature.

  Published: October 3, 2008 9:39 PM

• Sukrit Sabhlok

  But he arrived at this position by a priori reasoning, not by a study of empirics.

  Economics is not a science. It doesn't deserve to have a Nobel Prize.

  There is value in empirical research, but in economics, almost everything was discovered a long time ago by a priori theorists, not by mathematicians (e.g. Adam Smith). Economists in the 20th century have simply been confirming what was discovered a long time ago. There is nothing new under the sun, and empiricism cannot substitute for a theory.

  Published: October 4, 2008 4:43 AM

• Sukrit Sabhlok

  This is not to say that all Austrian economists shouldn't be fully proficient in the latest empirical methods as practiced by mainstream economists. It would be odd if Austrian economists are criticizing regression analysis and they themselves have no clue how to do it.

  Published: October 4, 2008 5:03 AM

• Anonymous Wanker

  Well, Augustus did stabilize the Roman Empire by his economic policies... I would be very interested in an Austrian analysis of that, by the way, does anyone happen to have any pointers?

  Published: October 4, 2008 7:06 AM

• J. Henderson

  Stabilization reportedly worked in Sweden during its banking crisis in the 1990s.

  Published: October 4, 2008 7:24 AM

• Lysander

  How does conventional thought stand on the New Deal? Some economists believe in the myth that it was WW2 that got us out of the Depression, don't they?

  Published: October 4, 2008 8:31 AM

• Sukrit

  After reading Will Anderson's article about "Mathematics and Economic Analysis", I had many questions.

  When do Austrian economists believe it's appropriate to use empirical methods? For what sort of work?

  Are all cost-benefit analyses pointless? Should financial projections into the future cease?

  And how are we to know that free trade (or any other policy) is good or bad, if not through empirical analysis? The vast majority of economists agree free trade is good - but they came to this conclusion through math, not through any belief in individual freedom. Given that everyone has an ideological point of view, should economics become more like philosophy, where analysis is completely divorced from real world conditions and fashionable heterodox ideas are the norm? .

  Also, isn't basic economics - e.g. law of demand -- derived from mathematical work?

  Published: October 4, 2008 11:48 AM

• David

  As J. Henderson noted above, the case of Sweden's banking crisis in early 1990s has recently become a commonly cited instance of a successful bank stabilization by government.

  From what I gather, people see their rescue model as preferable to the US Treasury's bailout bill because it stressed government/taxpayer ownership stake in banks as a condition of rescue/bailout.

  http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html?em

  There was an IMF study of banking crises that's been circulating lately, don't know if it's been mentioned here yet:

  http://www.nakedcapitalism.com/2008/09/new-imf-study-of-banking-crises.html

  I have no special insight here, so I'll just stand back and pay attention to the comments.

  By the way, here is a link to the "con" side of the argument over this recent bailout. Kevin Depew at Minyanville on why it won't work:

  http://www.bearmountainbull.com/home/its-that-simple-100408/

  Published: October 4, 2008 3:17 PM

• David

  By the way, I should note that I am not well versed in the various Austrian economists' takes on stabilization measures in general, but I do agree with the simple logic expressed in N. Joseph Potts' post explaining why we can never be sure that these policies worked as well as advertised.

  There are always unseen, or little observed/discussed, effects of any such acts (at least according to my reasoning and understanding of these events).

  Published: October 4, 2008 3:24 PM

• Erik Andersson

  What really fixed the swedish crisis was that goverment the let currency float. Before that the politicians had this crazy idea that we should keep a fixed a exchange rate to the ECU(a predecessor to the euro) at any cost.

  They drew the interest rate up to 500% defending a wrongly priced swedish krona. The unemployment rate exploded and a lot businesses went broke.

  Published: October 4, 2008 7:16 PM

• Timothy

  The Sweden banking crisis in the 1990s, was a success because they bought the banks out at a low made them make a profit then sold them. USA is buying at a high price, selling at a low price, taking the bad future loans though Fannie/Fredie and adding pork to the tag as well.

  The Sweden banking crisis proved only that though capitalism even a bureaucracy can work part of the time.

  I cant yet tell about the consequences of it as I haven't had alot of study time with the baby crying... I don't think she likes the future this country is giving her.

  Published: October 5, 2008 6:09 AM

• anon

  re: the Swedish experience - I know that Austrians usually don't favour any form of government intervention, but would nationalization of banks be an 'o.k.' option to prevent massive bank failures - and so long as there is an undertaking to re-privatize them at some point in the future?

  What were the pro and cons of the Swedish nationalization?

  > Well, Augustus did stabilize the Roman Empire by
  > his economic policies... I would be very interested
  > in an Austrian analysis of that

  Which policies of Augustus are you referring to? I'd be interested in an Austrian take on that, too.

  
  

  Published: October 5, 2008 6:35 AM

• Michael Smith

  Interesting, isn't it, that in "Atlas Shrugged" the last, desperate regulatory measure taken by the government was aimed at achieving..... stabilization.

  Published: October 5, 2008 7:55 AM

• Inquisitor

  "Economics is not a science. It doesn't deserve to have a Nobel Prize."

  Non sequitur/question-begging. You're defining science so as to exclude anything that doesn't fit the hypothetico-deductive methodology.

  Strictly speaking, Austrian economics is empirical, in that its axioms are valid in the real world and derived from experience - and this is consistent with what empirical meant, at least prior to the empiricists-positivist loons. They're simply not in need of constant "testing". Kantians like Mises refer to this as the synthetic a priori, Aristotelians (though they use the term too) as necessary truths. I urge readers to read Geoffrey Alan Plauche's paper on Aristotle and praxeology, as well as Barry Smith's and Long's papers on the topic, because much misunderstanding stems from the idiotic analytic-synthetic dichotomy.

  "Are all cost-benefit analyses pointless? Should financial projections into the future cease? "

  No?

  "And how are we to know that free trade (or any other policy) is good or bad, if not through empirical analysis? The vast majority of economists agree free trade is good - but they came to this conclusion through math, not through any belief in individual freedom. Given that everyone has an ideological point of view, should economics become more like philosophy, where analysis is completely divorced from real world conditions and fashionable heterodox ideas are the norm?"

  Math is not the same thing as empirics. It is a formal language. The conclusions reached by mainstream economists are every bit as formalist as the Austrian ones, at least on this. And no, that is absolutely the last place economics needs to go. If anything, philosophy needs to become more like praxeology.

  "Also, isn't basic economics - e.g. law of demand -- derived from mathematical work?"

  No?
  

  Published: October 5, 2008 8:17 AM