1975 Interview Hayek

[Aberhound]

http://www.scribd.com/doc/61138146/Rothbard-Reading-Hayek

 

Hayek was one of the few people to predict the Great Depression. He describes in this 1975 interview how he came to the Feb. 1929 prediction. I wonder if Prem has read these theories and used them to bet on deflation primarily in Europe. Europe is similar to 1929 as the Euro is like the gold standard. In 1975 Hayek said more stimulus and pump priming would only make the eventual depression worse. He didn't expect the boom to last another 30 years! The global warming scam, the phoney terrorist war, increased warfare, the end of the Peace of Westphalia, the loss of freedom,  and the deteriation of rule of law are consistent with the conduct of the government sector predicted in Road to Serfdom. This environment seems likely to result in a large contraction in the p/e ratios until there is a flood of monies from government bonds to the private sector and gold as a consequence of government debt defaults. The remedy is to reverse these ills but I don't see any progress.

[Baoxiaodao]

http://www.scribd.com/doc/61138146/Rothbard-Reading-Hayek

 

Hayek was one of the few people to predict the Great Depression. He describes in this 1975 interview how he came to the Feb. 1929 prediction. I wonder if Prem has read these theories and used them to bet on deflation primarily in Europe. Europe is similar to 1929 as the Euro is like the gold standard. In 1975 Hayek said more stimulus and pump priming would only make the eventual depression worse. He didn't expect the boom to last another 30 years! The global warming scam, the phoney terrorist war, increased warfare, the end of the Peace of Westphalia, the loss of freedom,  and the deteriation of rule of law are consistent with the conduct of the government sector predicted in Road to Serfdom. This environment seems likely to result in a large contraction in the p/e ratios until there is a flood of monies from government bonds to the private sector and gold as a consequence of government debt defaults. The remedy is to reverse these ills but I don't see any progress.

 

Excellent post. Thank you!

[SouthernYankee]

Prediction: Hayek won't get much of a response here.

[Parsad]

All that interview tells me, is that like every other economist, Hayek can be just as wrong.  The U.S. is better off today than they were in 1975, and they were better off in 1975 than they were in 1932.  Any boom is always followed by a bust, and depending on the size of the boom, the duration of the bust is directly a result of that.  Who knows how long this deleveraging process will take.  Monetary policy could help or it could exacerbate...no one knows until we view it all in hindsight. 

 

Everyone I've listened to in the last few years has been right about some things and wrong about others.  It truly is almost a toss-up on what happens because the macroeconomic environment is just so damn complex.  As always, the only thing an investor has control over is the price they pay for securities...buy cheap, sell dear...so simple, so foolproof...yet we never listen.  Instead we choose to listen to every other soothsayer...past, present and future!  Cheers!

[Myth465]

All that interview tells me, is that like every other economist, Hayek can be just as wrong.  The U.S. is better off today than they were in 1975, and they were better off in 1975 than they were in 1932.  Any boom is always followed by a bust, and depending on the size of the boom, the duration of the bust is directly a result of that.  Who knows how long this deleveraging process will take.  Monetary policy could help or it could exacerbate...no one knows until we view it all in hindsight. 

 

Everyone I've listened to in the last few years has been right about some things and wrong about others.  It truly is almost a toss-up on what happens because the macroeconomic environment is just so damn complex.  As always, the only thing an investor has control over is the price they pay for securities...buy cheap, sell dear...so simple, so foolproof...yet we never listen.  Instead we choose to listen to every other soothsayer...past, present and future!  Cheers!

 

Your responses are always so interesting and none partisan / ideological...

[Parsad]

Your responses are always so interesting and none partisan / ideological...

 

No Myth, most of my responses on most things are pretty partisan, but not on economics.  I've read so many things over the years and no one person has ever been right about everything.  The only thing I know for sure, call it a cult-following or whatever, is that Ben Graham's theories work.  It's the only thing in my life that has always worked.  And I can't go listening to "possibilities" when I know about something that will ALWAYS work if I remain disciplined and true to it.  Nothing in my entire life has made more sense and it's truly the gift that keeps on giving.  Changed my whole life!  Cheers! 

[prevalou]

I think Hayek was very acurate in his description of the economy and his predictions. The economy was in the doldrum until the second oil crisis with high inflation. Then the crisis triggered a strong reaction: Volcker anti-inflation stance and business friendly policies that set the stage for 20 good years. I don't see how he wad mistaken in his analysis in 1975 when he said only a recession of some length could change inflation policies. It's what happened in 1980/1981.

[Parsad]

I think Hayek was very acurate in his description of the economy and his predictions. The economy was in the doldrum until the second oil crisis with high inflation. Then the crisis triggered a strong reaction: Volcker anti-inflation stance and business friendly policies that set the stage for 20 good years. I don't see how he wad mistaken in his analysis in 1975 when he said only a recession of some length could change inflation policies. It's what happened in 1980/1981.

 

He also said that you could not have a good monetary system after leaving the gold standard, yet the United States continued to prosper for the next 70 years.  As I said, he's the same as any other economist...right on some things, wrong on others.  How do you know who is making the correct macro assessment, unless you are fortunate enough to view everything in hindsight.  My point was that Ben Graham's theories do not rely on macro analysis, and they work as long as you remain disciplined.  Cheers!

[prevalou]

I don't find in the interview where Hayek said you could not have a good monetary system after leaving the gold standard.

You could say also that for micro analysis, everything is right in hindsight too. Because Value investing worked since the 1930s doesn't mean it will work in the future. We live in an uncertain world.

 

[oddballstocks]

I would love to know what world buying a dollar for fifty cents wouldn't work in.  If you buy something of real ascertainable value at a discount and have the ability to resell it at full value you will do well no matter what market condition, this is what value investing is.

[prevalou]

in hindsight, you can say with 100% accuracy you bought a dollar for fifty cents (if your investment worked).

 

[ubuy2wron]

I don't find in the interview where Hayek said you could not have a good monetary system after leaving the gold standard.

You could say also that for micro analysis, everything is right in hindsight too. Because Value investing worked since the 1930s doesn't mean it will work in the future. We live in an uncertain world.

I do not need to understand the hows and whys of gravity to trust it effects. At its very root Ben Grahams methods are just a system to take advantage of human folly. Humans are hard wired to do stupid things.

[Parsad]

I don't find in the interview where Hayek said you could not have a good monetary system after leaving the gold standard.

You could say also that for micro analysis, everything is right in hindsight too. Because Value investing worked since the 1930s doesn't mean it will work in the future. We live in an uncertain world.

 

Unless I misread the article, he says that for pretty much a third of the interview...starting on the 2nd page, 3rd paragraph on the right hand column.  Cheers!

[prevalou]

Hayek said abandonment of the gold exchange standard was a factor In prolonging the 1930 depression and explained the stagflation of the 1970s. He didn't say you could not have a good system after leaving the gold standard but that monetary discipline was harder to implement and would probably require another recession, which happened In 1981. He liked the gold exchange  standard with its limitations but saw very little chance of it being reintroduced. If you read between lines, it seems Hayek would be appreciative of volcker's policy which paved the way for twenty years of growth.

[twacowfca]

Hayek said abandonment of the gold exchange standard was a factor In prolonging the 1930 depression and explained the stagflation of the 1970s. He didn't say you could not have a good system after leaving the gold standard but that monetary discipline was harder to implement and would probably require another recession, which happened In 1981. He liked the gold exchange  standard with its limitations but saw very little chance of it being reintroduced. If you read between lines, it seems Hayek would be appreciative of volcker's policy which paved the way for twenty years of growth.

 

In The Denationalization of Money, (1976) Hayek advocated free floating fiat or asset based currencies or other monetary systems, competing for soundness and other desirable characteristics, rather than a return to the gold standard.  :)

[oec2000]

All that interview tells me, is that like every other economist, Hayek can be just as wrong.  The U.S. is better off today than they were in 1975, and they were better off in 1975 than they were in 1932. 

 

It should be noted that the improvement in the economy over the past 30 years has occurred on the back of a huge explosion in debt and a sustained decline in interest rates. Yet the man in the street is not really in that good shape:

 

http://online.wsj.com/article/SB10001424053111904265504576568543968213896.html?mod=WSJ_hp_mostpop_read

 

Is the US like the subprime borrower who is feeling good while he is still enjoying the benefits of his teaser rate mortgage? It may not feel so good when time comes to start paying down the debt. I think the jury is still out.

[ERICOPOLY]

I think the jury is still out.

 

The statute of limitations for dire macro forecasts has to be on horizons of less than 30 years.  I think he was just wrong.  And the current problems were not foreseen by Hayek, so I'm not giving him any credit for whatever malaise we currently have or how bad it will get.

 

[oec2000]

I think the jury is still out.

 

The statute of limitations for dire macro forecasts has to be on horizons of less than 30 years.  I think he was just wrong.  And the current problems were not foreseen by Hayek, so I'm not giving him any credit for whatever malaise we currently have or how bad it will get.

 

Wasn't there a fairly severe recession around 1980?

 

Anyway, my "jury" comments were not in support of Hayek (don't really understand or subscribe to any particular school of economics) but about the quality of the growth over the past 30 years. I don't have the numbers to hand but I remember comparing the growth of debt over that period to the growth of GDP was was surprised by how high the ratio was. Made me wonder what the growth rates would have been without the debt explosion.

[alwaysinvert]

I think Hayek was very acurate in his description of the economy and his predictions. The economy was in the doldrum until the second oil crisis with high inflation. Then the crisis triggered a strong reaction: Volcker anti-inflation stance and business friendly policies that set the stage for 20 good years. I don't see how he wad mistaken in his analysis in 1975 when he said only a recession of some length could change inflation policies. It's what happened in 1980/1981.

 

He also said that you could not have a good monetary system after leaving the gold standard, yet the United States continued to prosper for the next 70 years.  As I said, he's the same as any other economist...right on some things, wrong on others. 

That is a question of contrafactual nature. The fact that we are better off 70 years later actually doesn't speak anything to the relative soundness of our monetary system since then (relative to gold, silver, competing fiat currencies in a free banking system or whatever) both because there are so many other factors weighing in on whether that's true or not and because there haven't been any large scale alternative monetary systems operating in similar environments to compare to.

[rkbabang]

there haven't been any large scale alternative monetary systems operating in similar environments to compare to.

 

Like everything political, the scientific method is never employed.  There are no control groups, ever. Someone has an idea, it is lobbied for and implemented on everyone.  And that is that, only times 1000, because 1000's of other things are implemented as well each and every year.  And nothing is ever fully done away with or repealed just more distortions piled on to "fix" the problems with the previous distortions.  And every decision is done blindly, by committee, and usually for political reasons.  You couldn't possibly design a less scientific process.

 

--Eric

 

[Aberhound]

Hayek's predictions are best when they predict human nature. In Road to Serfdom Hayek predicts that in response to the crisis, the state will respond with promises to fix the crisis with a firm hand to solve the unemployment crisis etc.. Then liberties start to dissappear, the rich find their assets confiscated through arbitrary action of the State and the Unions discover that it is now illegal to collectively bargain.

 

Compare that prediction to the situation which will result if we follow the program Soros proposes in his new essay. He wants all European banks under European, not country control. Does "European" control mean control by the same few families who caused this mess? Was the decision in Basel II to allow banks to lever up government debts 70 fold intentional as a way to get power from the nation states and centralize it? He wants a European treasury with powers of taxation. Why would we want another level of bureaucrats and taxation, who will only use the money to bail out the banks and the same families who own them and perhaps set up a military industrial complex more like the US? The expanded power of the US Treasury and the creation of the secretive and unaudited Exchange Stabilization Fund run by the US Treasury in the Great Depression looks to be the turning point which changed the US from peaceful isolationists into what we see today. This looks to be a similar turning point. The result will be moral hazard in regards to bailing out banks, the end of socialism in Europe and the beginning of a US style m-i complex. The other solution, of course, is the capitalist solution called the bankrupcty court, rule of law and the free market. It works if you let it. That was the solution that should have been taken in 2008 when a political decision was made not to let banks go bankrupt using the proven and effective capitalist system of creative destruction.

 

If Hayek's solution of limited state power is adopted it will soon be time to buy stocks as capitalism will thrive. If Soros' solution is adopted it is time to buy gold as capitalism is facing a crisis. I note that Soros bought gold and sold equities.

 

http://www.nybooks.com/articles/archives/2011/oct/13/does-euro-have-future/