Questions for Free Market Moralists

All Souls College, University of Oxford, philosopher Amia Srinivasan, wrote in the New York Times Opinionator that defenders of the free market and classical liberalism must answer “yes” to four questions to remain consistent. She thinks her four questions rope and tie free marketeers like a calf in rodeo: if we answer ‘yes’ to all four we prove what disgusting immoral people we are, but if we answer no to any of them then we don’t support free markets. 

However, like most debates with socialists, Amia’s success in roping and tying us free marketeer calves depends upon us accepting her definitions of words and her economic assumptions, which she cleverly keeps hidden from the sleepy rodeo fan. So before I answer her four questions and still maintain that I support free markets, let me clear out some of the manure that people are stepping in. 

First, no one has to accept Rawls’ definition of justice. He spun it and wove it from his own imagination. It’s an interesting one, but that’s all. His entire argument hinges on readers accepting his definition. If we don’t, the rest of his argument collapses. So why did Rawls feel compelled to invent a new definition for justice? Because he didn’t like the results produced by the definition that dominated the West for 300 years. 

Great Expectations part II

The previous post introduced the concept of elasticity of expectations as developed by Ludwig M. Lachmann and applies it to the stock market. Lachmann added that the velocity of price change is important as well as the practical range and break outs from the range: 

“‘Explosive’ price change is seen to be the main cause of elastic expectations, both in the sense of violent change, and in that it destroys the existing basis of expectations, the sense of normality, which provided a criterion of distinction between the more probable, the less probable, and the highly improbable. It does so by demonstrating that the highly improbable, which had been excluded from our range, is possible after all. Now, as we saw, a price will pass the limits of the range with difficulty. As it approaches them it encounters increasing pressure from inelastic expectations resulting in sales at the upper and purchases at the lower limit. To overcome the pressure of these stabilizing market forces the price movement will most probably have to be carried by a strong ‘exogenous’ force, i.e. one originating outside the market, unknown to it and therefore not taken into account when expectations were formed.”[1]

Financial Bull Riding

Laissez Faire Books, the great publisher of books defending the free market, has agreed to publish my book Financial Bull Riding as an e-book this December. In short, the book uses the Austrian Business Cycle Theory to help investors time entries and exits in the market.

Mainstream conventional wisdom says to buy and hold and index of the market and just bite the bullet when the market collapses by 50% as it did in 2008. However, investors can grow their nest eggs much faster and with less risk if they do nothing but avoid such disasters.

The book examines the faulty economic theory behind conventional investment wisdom, especially the idea that business cycles are random events, explains the ABCT and offers some guidelines for investing. Here is the table of contents as of today:

Fed Fail!

With Ben Bernanke's departure, it’s time to grade his portfolio of work. Ben invented new methods to expand the money supply, including buying non-government issued debt. Mainstream economists credit him with having rescued the economy from the latest recession. The economy has recovered slowly in the past five years, but should we give all the glory to the Fed? These charts should answer those questions: 

Great Expectations – an Austrian economist lends support to technical analysis (part 1)

Does technical analysis of the stock and commodity markets have any validity, or is it the financial equivalent of reading tea leaves? Technical analysis encompasses a wide variety of methods, so a workable definition might be any method that uses historical prices and volume to predict future ones. Of course, the efficient market hypothesis denies that is possible. The alternative to technical analysis is fundamental analysis, which looks at earnings, dividends, management, sales growth, etc. to predict prices. 

 Technical analysts search charts for patterns such as head-and-shoulders, hammers, shooting stars, flags, pennants, double tops or bottoms, cups-and-handles, and many others. They employ multiple moving averages, relative strength indices, Bollinger Bands, Dow Theory and many other methods of analyzing price pattern and volume of trading. 

A few financial economists have tried to assess the validity of technical analysis methods with mixed results. Economists typically ridicule technical analysis, but a late great Austrian economist, Ludwig Lachmann, who championed the importance of the stock market more than any economist, provided support for technical analysis in his concept of the “elasticity of expectations.” He applied the concept to all kinds of prices, not just to the stock market, but it fits the stock market exceptionally well.