/liberty/ - Liberty

>>78908

>What causes the business cycle?

Mass artificial credit expansion through the federal reserve

>Why do recessions often occur during periods of rapid growth?

Because the rapid growth is the result of federal reserve mucking about with interest rates and expanding credit, causing businesses to incorrectly predict future demand, and overinvest in capital goods for future production. The recession is a necessary correction for this period of artificial growth, which is a product of manufactured expectations.

>What begins a recession? What initiates a crisis?

See above.

>Can government intervene to end a crisis?

No, because they're the ones causing it.

>Will government intervention cause or prolong a crisis?

Yes.

For the future, QTDDTOT is over there >>74029 , and cool it on the reddit spacing.

>>78909

Exactly what this man said. Have it in the form of a video in case you're twelve and need videos to learn.

>>78909

>credit expansion

non native English speaker here, what does that mean? Is it interest rates or something else?

>>78925

Expansion of credit just means giving more people access to credit. By giving them higher credit scores or increasing their spending limits or whatever.

Business cycle bonus points

Credit is basically an IOU. It says I dont have the money now but when I do have it Ill give it to you. One thing about money is that unlike other commodities, an IOU is just as good as the actual money. That's what banknotes are, after all. So when more people have access to credit, that is, when credit is expanded, more people have the power to write bigger IOUs. Now since an IOU is just as good as actual money, for every one that is written, you've basically just created a piece of money. But it's money without backing since the whole point of credit is that you don't have any money. So expanding credit increases the amount of essentially fake money that can be flooded into the economy, and it makes it seem like the economy is doing well because there's all this money everywhere. That's the boom of the business cycle. But then when creditors come calling for their money and try to cash in all their IOUs, it turns out there's not any money to be found, so all that fake money that was flooding the economy evaporates and everything was a house of cards and the market crashes. That's the bust of the business cycle.

>>78925

It's related to interest rates. Credit expansion is the expanding the supply of loanable funds available to borrowers. In the context of the business cycle it's expanding the supply of loanable funds beyond what's actually available to the lender, and the sudden influx of currency leads to an economic boom as investors take out more loans. Interest rates play into this because interest rates are the "price" of a loan. When the Federal Reserve raises or lowers interest rates, it's controlling how many people are taking out loans. Another thing that interest rates display is time-preference, which is an individual's tendency to want things now as opposed to later. Low interest rates imply lower time preference (because in a free market, lowe interest rates would imply more people are saving instead of spending, i.e. more willing to spend their money later instead of now). The low time-preference signaled by low interest rates that investors should invest more into future production, taking out loans to buy factors of production, and increase future output. Eventually, a bunch of these new ventures start to default, because there never was a real decrease in time-preference, just the Federal reserve messing with the interest rates, so the growth that they were predicting never actually happened. These bad investments fail, and the economy goes through a traumatic but necessary slowdown as the market corrects itself from the machinations of the Fed.

>>78928

I feel I should add to this, because many people ask: what's to stop fractional-reserve banks from lowering interest rates on their lonesome, seeking a quick boost in profit from all the extra people taking out loans, at the expense of the greater economy? And the answer here lies in game theory, and the bank's competition. As soon as any one bank starts to practice this kind of malinvestment, entrepreneurs and financiers will notice the discrepancy and take advantage of the bank's poor policy, ultimately causing a run on the bank and driving it out of business.

>>78929

> entrepreneurs and financiers will notice the discrepancy and take advantage of the bank's poor policy, ultimately causing a run on the bank and driving it out of business.

Don't currency traders like Soros do this on a national level anyway?

>>78948

Could you clarify what you meant by that? Do you mean that Soros and co search for nations whose central banks are expanding the money supply, and take advantage of that to facilitate economic turmoil?

>>78950

Yes, when the government tries to rein in the excess money supply sooner or later and they use their accrued funds to manipulate the system for their own gain.

>>78951

That just makes the case against central banking even clearer, really. Even a theoretical central bank acting with the best of intentions fucks things up. But a central bank, like any government institution, is prone to corruption, as the pencil-pushing bureaucrats are bought by nefarious entities who are willing to cripple a country's financial markets for their own gain.

Sorry anons, have been without internet since I moved a few days ago.

>>78909

So this is pretty much the Austrian School theory, right? Where it becomes unclear to me is this: Would recessions and crises still occur even without a central bank? Would it be possible for a recession to occur even with private banking? Events like the 1907 Panic seem to indicate that a financial crisis doesn't necessarily have anything to do with central banks, right?

>>79142

Recessions of a sort could still occur. Depressions and crises will not. You would still have periods where the economy is growing a little faster or a little overall, but the difference wouldn't be nearly as dramatic as we see today. Because financiers, and humans in general, aren't omniscient beings that can instantly react to everything coming at them simultaneously. Occasionally, the information reflected in prices haven't quite caught up with a market change that happened on the other side of the world. Or a data-collection firm makes an error and misreports the data about the productivity of a certain sector of business. In these cases, financiers may respond to this bad information by over or under-investing in certain markets. This malinvestment will cause shutdowns when the market doesn't grow as much as it was predicted to grow. However, unlike the current business cycle, these occasional failures are not systematic–they could happen, and they probably will from time to time, but they're not an inevitable part of the system. Further, they're not nearly as dramatic in size and scope: the ups and downs would happen mostly locally, and even then only in certain sectors, not across the whole economy. And the percentage slowdown wouldn't be as high as the central-banking business cycle either. Also, natural disasters and other completely unexpected events would of course have effects on the economy.

You mentioned the 1907 crisis, and you are correct that it wasn't caused by the central bank specifically. However, it was caused by a banking cartel acting as a de facto central bank. Due to new regulations restricting the possibility of becoming a "national bank," just about all the gold reserves in the country were controlled by seven banks, who could use this influence to expand and contract their own money supply at will. You can find more details here at mises: https://mises.org/wire/298-cheers-bob-murphy

>>79196

thanks, will give it a look later

Something another anon wanted answered in the Shapiro thread:

>How does the failure of a firm initiate the crisis? How does the "chain" of recirculation of profit and production end? I don't see how this results in a cascade of failure for an entire economy.

Like I said before, the potential of a crisis occurs whenever this is a breakdown in the general circulation of commodities.

Example: For whatever reason, individual consumers stop buying widgets or buy them in much fewer numbers. The producer of those widgets, Firm B, is unable to realize a profit since it cannot achieve sales necessary. Firm A, which sells raw materials to Firm B, must reduce production since demand for its own goods have now dropped as a consequence. The working hours at both firms are now cut, reducing the income of workers. This results in lowered demand for products from Firm C.

Now, if resources are ample and opportunities are available, production of commodities will switch to profitable industries but there is no guarantee that such opportunities exist. If the economy as a whole has very little slack and individuals have little possibility to "tighten their belts" so to speak, then the failure of commodities to circulate will become severe. The switching of production takes time due to the lack of perfect knowledge. You can see this when a recession hits as unemployment rises rapidly and then falls at a much slower rate.

Another point. In the example above, if Firm A sells materials to Firm B which produces widgets - why wouldn't the value "lost" by Firm B in paying for materials simply be recirculated by Firm A in the short-term? That is, if Firm A sells to Firm B which fails to sell its product, Firm A has still received payment and has not yet lost anything, right? The problem is that Firm A might typically reinvest those payments in its own production. But knowing that demand will not justify further production, the firm will need to find another way of recirculating its capital which may take time and may not be as profitable as had been before.

>How does this factor [specialization] increase the probability of a crisis?

By making the production of one commodity dependent on the production of another commodity and creating chains of interconnected activity. Specialized production also requires special training and specialized methods which cannot simply be switched at a moment's notice.

>[How does the concentration of capital reduce demand for commodites?]

I'll address this later.

>[Buybacks]

>Given the above reasons that I mentioned, I don’t see how there is a conflict of interest between worker/management/owner when all parties benefit, as shown by the above mentioned results. Nor do I see how this creates a suboptimal distribution.

I'm not following you here. It seems like the situation you're mentioning is a specific one very different from what I was describing. How can we assume that buybacks will be paid for with unused equity? How can we assume that dividends even play a role in this company? How can equity be reinvested when the company is paying out money? Maybe I'm confused. Please explain.

My basic point still remains even if we skip the buyback issue: there are conflicts of interest between workers, managers, and owners due to differing incentives within the system.

>>79196

How do we stop banking and other corporate cartels though? Is corporate personhood law a perversion of the principles of local enterprise and responsibility directed at leadership rather than the resources of the organization? The modern corporation seems very much a manufactured creature of the state rather than an inevitability of capitalism.

How do we deal with a corrupt government that doesn't do anything in the people's interest to run the economy properly, what with in 1928 the Fed allowing all the small banks to crash and ultimately concentrating power in the hands of a few?

>>79472

>How do we stop banking and other corporate cartels though?

Prisoner's Dilemma demonstrates why cartels are fundamentally unstable entities, and can't exist without the government propping them up. The moment one member of the cartel realizes that he's being held back by giving allowances to the cartel's weakest member, the whole thing falls apart and reverts to normal competition.

>Is corporate personhood law a perversion of the principles of local enterprise and responsibility directed at leadership rather than the resources of the organization

Depends what you mean. The whole "corporations are people" meme in the US started when the Supreme Court ruled that corporations had free speech rights, not anything to do with business. In the free market, there would be some instances where the head of a corporation or institution would be legally judged, and other instances where it only makes sense to view the corporation itself as an entity. If the CEO commits fraud you would sue the CEO. But if your'e negotiating a long-term procurement contract with a corporation, you have to make that contract out with the corporation itself, because the terms of your contract are undoubtedly longer than the average tenure of a CEO.

>The modern corporation seems very much a manufactured creature of the state rather than an inevitability of capitalism.

Yes and no. In the sense that there would still be companies that have hundreds of smaller owners holding stock, as opposed to a few partners, corporations would still exist in the free market. However, corporations as they exist now are largely created by government fiat: Any company over a certain number of owners is legally required to list its stock on a publicly traded exchange, such as the NYSE. Any stock on a public exchange can be freely bought or sold by anyone: the freedom to choose who your buyers or sellers are isn't permitted on public exchanges, which artificially limits a company's ability to keep its stock out of nefarious hands, like the "pirate investors" that are around today, who buy up companies, ruin their reputation and long-term viability to squeeze every cent out of them in the short-run, and move on to another firm. There's a clusterfuck of other regulations and limits out there on corporations that prevent them from acting as true market agents.

>How do we deal with a corrupt government that doesn't do anything in the people's interest to run the economy properly, what with in 1928 the Fed allowing all the small banks to crash and ultimately concentrating power in the hands of a few?

The answer to that is to never give a government control over the money supply, and never listen to Keynesian goons that tell you they can "fix" recessions. Peg the currency to one or more real-valued resources such as gold, and let the market set interest rates to reflect real-world time preference. As an ancap I'll tell you to keep the government from influencing anything, not just the money supply, because they'll muck it up for the same reason the Fed can't into currency.

>>79471

>well thought-out, economically literate comment

>eager to learn

>made by a commie

Dont ever leave, please. We need more of you, answering thw 15millionth question about muh roads becomes exhausting after a while. I'm way too pissed to answer your questions but cheers to you either way

>>78908

state

>>79471

>Now, if resources are ample and opportunities are available, production of commodities will switch to profitable industries but there is no guarantee that such opportunities exist

Why wouldn’t they be reallocated to other industries? All else equal, consumers who reduce the purchases of widgets will increase the purchase of other goods.

>By making the production of one commodity dependent on the production of another commodity

Why must a commodity be dependent on one specific commodity? Every product that I know can be built with alternative resources.

>Specialized production also requires special training and specialized methods which cannot simply be switched at a moment's notice.

And how does this increase the probability of a crisis?

>>How can we assume that buybacks will be paid for with unused equity?

How else are they going to buy back stocks?

>How can we assume that dividends even play a role in this company?

We do not. That is just one of the reasons for buybacks, and does not apply to companies that do not issue dividends.

>How can equity be reinvested when the company is paying out money?

If the stocks are undervalued, they can be resold once the market corrects its value. Thus an increase in equity to be reinvested.

>there are conflicts of interest between workers, managers, and owners due to differing incentives within the system.

What are these conflicts of interest and how do they contribute to suboptimal distribution?

Going back to a previous point,

>How does the concentration of capital reduce demand for commodites?

I'll admit this is a personal theory I've kind of been working on. I'm not sure if anyone ever addressed it except indirectly under the misunderstood "tendency of the rate of profit to fall." My basic idea is that as an economy becomes more capital-heavy, more concentrated in its productive forces and ownership, the vast majority of people will have far less bargaining power since their ownership of real assets is reduced to personal belongings. The inability to fall back on such assets means that their employment by a large firm is now a matter of necessity rather than choice or even expediency. If a big chain operation buys out a mom and pop store the previous owners get paid. (And here we will be generous and assume that there is a buy out and not simply a long struggle in which the mom and pop store eventually fails and closes.) Even with that payout, would the small business owner use the money to start a new business? Maybe, but I doubt it, especially since they have probably been spending years working in one industry only to be out-competed by a larger concentration of capital. So what happens? The easiest option is to simply retire after the buyout and use that money for consumption.

The real problem that arises is, like I said above, the reduced bargaining power of the small businesses and those dependent upon wages for a living rather than property or assets. In the long term it seems very likely that the power held by large firms will drive down aggregate wages and reduce demand for consumer goods and other commodities. But I admit I haven't worked all of this out yet and it's kind of an ongoing theory I have

>>79654

>Why wouldn’t they be reallocated to other industries? All else equal, consumers who reduce the purchases of widgets will increase the purchase of other goods.

Because the drop in demand might be due to a drop in disposable income and not a change in preference.

>Why must a commodity be dependent on one specific commodity? Every product that I know can be built with alternative resources.

That wasn't the point. It doesn't matter whether you can make houses out of wood or concrete, the fact that house building creates demand for the production of other commodities and a chain of production develops across businesses and industries is what matters.

>And how does this increase the probability of a crisis?

I'm not sure how to explain this more simply. The basic idea is that a process becomes more likely to suffer failures as it increases in complexity. Like I said, in a chain of market transactions involving specialized production, a sharp drop in demand (be it severe enough and long enough) will introduce a situation in which it will be more difficult to overcome due to the high costs of investing in specialized training and machinery.

>What are these conflicts of interest and how do they contribute to suboptimal distribution?

Can you not think of real life examples involving conflicts of interest? Is it so hard to see how the hourly wage earned by a typical worker introduces incentives different from those of a salaried manager or an owner? It's not uncommon to hear something like, "The boss keeps giving me this work because he knows I do a good job. I'm going to work more slowly so I don't get stuck with this again." In an ideal situation the workers would have an incentive to produce the most value and utilize their time the most efficiently. It doesn't happen, not even in capitalism, because the incentives aren't there.

Wage earners have an incentive to maximize their pay relative to time, whether or not value is actually being produced or work is being done. Managers (hopefully) have an incentive to ensure that work is in fact accomplished according to what's being ordered from above. The second part of that sentence is probably the most important since the job of a manger or mid-level bureaucrat depends largely upon his ability to curry favor with the higher ups and owners rather than on his own productivity. Owners simply want profit or the ability to profit from trading the assets. None of these groups are fully aligned in their interests.

From one perspective it could be said that the conflict between these groups for the final division of the "surplus value" creates transaction costs which otherwise might not be there. On a related tangent, I've personally seen many companies that were less competitive than they should have otherwise been simply because management and owners weren't affected (in a marginal sense) by inefficiencies and outdated practices. Lower management is typically too stressed to give a damn about fixing things and they probably couldn't even if they tried, since their #1 priority is usually to kiss ass and marginalize potential threats from below. But I won't go into anecdotes…

>>79475

It was put into place as part of several laws meant to regulate corporations and prevent them from being "greedy" and to "save capitalism from itself." The real proponents of this were the piratical investors mentioned earlier.

>>79841

>The inability to fall back on such assets means that their employment by a large firm is now a matter of necessity rather than choice or even expediency

Why seek employment of a larger firm? Firms are limited in size due to diseconomies of scale. 99.7% of US businesses employ less than 500 employees. Small firms, despite the tax advantages of larger firms, can still compete and start-ups continuously occur.

>The easiest option is to simply retire after the buyout and use that money for consumption

Capital would be a better option since they would need a passive income for retirement.

>reduced bargaining power of the small businesses and those dependent upon wages for a living rather than property or assets

How do they have less bargaining power considering diseconomics of scale for larger firms? How are people more reliant on wages, if 65% of households own residential property and 80% of corporate equity? If anything, business is more reliant on their employees and investors.

>In the long term it seems very likely that the power held by large firms will drive down aggregate wages and reduce demand for consumer goods and other commodities.

Yet we see a general increase in real wages/benefits over time. A reduction in consumption would increase savings and investment due to shifts in time preference.

>Because the drop in demand might be due to a drop in disposable income and not a change in preference.

How can there be a drop in income? These consumers of widgets are from other industries and firms exclusive from the ones mentioned in your example.

>The basic idea is that a process becomes more likely to suffer failures as it increases in complexity.

How does specialization increase complexity? If anything it appears more reliable, because production is decentralized and redundancies are created (alternative producers/goods).

>It's not uncommon to hear something like, "The boss keeps giving me this work because he knows I do a good job. I'm going to work more slowly so I don't get stuck with this again."

I do not see this happening for long without the worker seeking employment elsewhere with higher pay and their work put to more effective use.

>In an ideal situation the workers would have an incentive to produce the most value and utilize their time the most efficiently. It doesn't happen, not even in capitalism, because the incentives aren't there.

The incentives are there. We see this with quality improvement projects, where workers are part of the development team. I worked on a few Lean Six Sigma projects and I can tell you that the worker provides the best input and the best methodologies (they have to considering there is an incentivized pay system based on production and quality). Management bonuses are likewise linked to production.

>the job of a manger or mid-level bureaucrat depends largely upon his ability to curry favor with the higher ups and owners rather than on his own productivity.

Why would a firm hire a sycophant when they can leave the position vacant or low-wage?

> Owners simply want profit or the ability to profit from trading the assets.

And you cannot profit unless you have a productive workforce and management.

>None of these groups are fully aligned in their interests.

See my examples above.

>>80265

[concentration of capital etc]

>Why seek employment of a larger firm?

Because the smaller ones have been either absorbed or out-competed, or because the cost of entry into a market is too prohibitive.

>Firms are limited in size due to diseconomies of scale. 99.7% of US businesses employ less than 500 employees.

This statistic is misleading. There are many businesses in the U.S. that don't even have employees, which skews the numbers. In addition, companies often have an incentive to shift towards using independent contractors making themselves appear smaller than they actually are even though their core operations depend directly on utilizing labor that is technically not "employed" by the firm.

>Capital would be a better option since they would need a passive income for retirement.

"Capital" i.e. reinvesting the money…? Why would anyone take the risk of doing that especially if you're a small business owner near retirement age who has probably been working in the same industry for years with (likely) little expertise to invest in something new?

>How do they have less bargaining power considering diseconomics of scale for larger firms?

Maybe because the owner of capital can choose or not choose to employ his capital without starving while wage earners and the self-employed must work to eat? It's like playing poker when you know you've always got a weaker hand. You can try bluffing, but eventually you have to fold.

>How are people more reliant on wages, if 65% of households own residential property and 80% of corporate equity? If anything, business is more reliant on their employees and investors.

I'd need to see a source on those statistics. Taking numbers out of context means nothing. Young people, even those with "good" professions, have increasingly moved back in with their parents due to the inability to own or even rent property.

>Yet we see a general increase in real wages/benefits over time.

In what market? Over what time span? What you're saying hasn't been true in the U.S. for decades.

>A reduction in consumption would increase savings and investment due to shifts in time preference.

No. You're making the assumption that decreased consumption is a result of change in spending habits or increased savings, which is not necessarily the case nor is it the driving factor in the U.S. today.

>How can there be a drop in income? These consumers of widgets are from other industries and firms exclusive from the ones mentioned in your example.

Could be lack of job opportunities, rising cost of entry into the labor market, or debt. Or all three, which is what's probably hitting the Millenial generation so hard. Hover your cursor over this link to see relevant charts:

>>>/1917/68

If you want to get a clearer picture of how entrepreneurial a modern economy like the U.S. is you should probably look at things like actual business creation, self-employment, etc. I can find the following relevant statistics:

1. The number of startups is lower today than before the 2008 recession.

2. The number of jobs created by startups is far lower today than it was in the 1990s.

3. According to the SBA, US small businesses employed 48% of the workforce. Those with more than 500 employees account for 52%. The discrepancy between your 99.7% number and this one is probably due to the fact that your number probably includes firms which do not employ any workers at all.

https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm

http://sbecouncil.org/2017/05/03/small-business-week-2017-the-state-of-entrepreneurship-and-small-business/

https://www.sba.gov/sites/default/files/advocacy/United_States.pdf

[specialization & crises]

>How does specialization increase complexity?

Like I said above,

"By making the production of one commodity dependent on the production of another commodity and creating chains of interconnected activity. Specialized production also requires special training and specialized methods which cannot simply be switched at a moment's notice."

>If anything it appears more reliable, because production is decentralized and redundancies are created (alternative producers/goods).

No. You must be confused about what "specialization" and "division of labor" actually mean considering that the exact opposite happens. The specialized production of commodities in fact centralizes them into the hands of fewer producers than before. Specialization reduces or even eliminates redundancies in production.

[conflicts of interest]

>I do not see this happening for long without the worker seeking employment elsewhere with higher pay and their work put to more effective use.

If the worker can successfully avoid being overburdened why would he seek other employment? More likely the worker would be fired by management, but usually some kind of balance works itself out. In any case, I've seen high turnover at many workplaces.

>The incentives are there. We see this with quality improvement projects, where workers are part of the development team. I worked on a few Lean Six Sigma projects and I can tell you that the worker provides the best input and the best methodologies (they have to considering there is an incentivized pay system based on production and quality).

You're talking something that most workers have never been a part of. I agree that systems like that are the most productive, but it doesn't happen most places.

>Why would a firm hire a sycophant when they can leave the position vacant or low-wage?

Because leaving a position vacant probably isn't an option?

>And you cannot profit unless you have a productive workforce and management.

This is a meaningless statement. A profitable firm is by definition productive.

>See my examples above.

Your examples don't even apply in most real-world situations.