Friday, October 02, 2009

Robert Wenzel's Irrational Attack Post

Robert Wenzel appears to be angry-at me. Why? Well, because of two posts where I argued that it is highly likely that the U.S. economy soon will or already has started to contract again. He seems very upset about these posts and even goes as far as implying in true "People's Front of Judea vs. Judean People's Front"-spirit that I am worse "than [the] worst economist[s alive like] Krugman and Mankiw" and being a "data dog pack" (Whatever that is supposed to mean].

The origin of this attack is very surprising and irrational since first of all I at least until now held Robert Wenzel in high regard [While not agreeing on every detail, but few if any do that with anyone] and since secondly this subject rarely causes people to get worked up. And third of all considering that Wenzel basically agrees with my conclusion in the posts, his attack post is even more irrational and odd.

So, what is his problem? Well, it appears that he thinks that by not stating my forecast of a double-dip in a sufficiently self-certain way and in the first of the two posts not mentioning money supply (I did do it in the second), I betrayed the Austrian business cycle theory.

In hindsight I clearly didn't formulate every sentence written in the best possible way, but that really goes for just about everyone who writes, including Robert Wenzel. Or does he sincerely believe that every post he has written could not have been written better by any hypothetical god-like entity equipped with omniscience and infallibility?

And what the reservations in the two quoted posts really meant to say is that there cannot be 100% certainty about any scenario, much less the exact timing and quantity of any scenario, and that too includes Robert Wenzel. That is in part due to the fact that every social (including economic) phenonenom is affected by several different causal factor and since many of these factors (and their effects on aggregate outcome) aren't known and in some cases counteract each other. And related to that fact, that while the Austrian business cyle theory does describe accurately real world causal factors, it is not the only factor involved. Meaning that money supply movements can't give you the exact date and magnitude of future aggregate economic events.

More specifically, there are loads of other factors except for money supply that affect short-term trends, including government fiscal policy, trade and tax policies, supply schocks, money demand and so on. While money supply is one of the most important, or even the most important factor, it is clearly not the only factor determing economic growth.

This is similar to how the fact that while a low calorie diet will clearly reduce weight, we can't expect (because of differences in for example genetics and the amount of exercise) a perfect empirical correlation between such a diet and weight.

Or is his problem that I referenced economic data without formal reference to theory? Well, setting aside the issue of whether that should always be necessary to repeat what you've already said in theoretical issues countless times, we can see that Robert Wenzel himself doesn't appear to think that it is really necessary, since he in his very next post that he published after attacking me for not mentioning Austrian Business Cycle Theory discussed economic data without any reference to theory:

"Nonfarm payroll employment continued to decline in September (-263,000), and the unemployment rate (9.8 percent) continued to trend up, the U.S. Bureau of Labor Statistics reported today. The largest job losses were in construction, manufacturing, retail trade, and, most interestingly, government.

The unemploymant level is at the worst in 26 years.

Since the start of the recession in December 2007, the number of unemployedpersons has increased by 7.6 million to 15.1 million, and the unemploymentrate has doubled to 9.8 percent.

The decline in government workers is a sign that falling tax revenues at the state and local levels are impacting those governments' abilities to maintain payrolls. Thus, government employment was down by 53,000 in September, with the largest decline occurring in the non-education component of local government(-24,000)."

Can you see any reference to Austrian business cycle theory there? I can't.


Blogger Robert Wenzel said...

Hi Stefan,

I probably did come off a little more harsh than I intended. It just drives me crazy with all the trend trackers and extrapolators out there, who operate without a business cycle theory.

I know you understand ABCT, and certainly meant your comments in the context of ABCT. They just came off in my reading as a little too mainstream. Then again, it may have had something to do with flying across the country last night on the red eye.

Anyway, peace. I really look forward to your writings.

11:51 PM  

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