#malinvestment

[theaudientvoid]

One of the things that I think confuses a lot of people about "low interest rate environments" is the assumption that businesses will just borrow as much money as creditors will give them, at whatever interest rate, when, empiricaly, this isn't the case. During the low interest rate environment of the teens, real interest rates were negative, but yet investment was at a historic low. The Fed literally couldn't pay people to take out loans.

This is why the narrative, which a lot of people seem to have accepted without question, that the internet is now undergoing enshittification because tech companies took out loans during the zero interst rate period, which they now need to pay back. But, did they? And if so, that raises the even bigger question of why this orgy of irresponsible investment was apparently confinded to one particular industry, while the rest of the economy was in recession?

Like, the Austrian Theory of the Business Cycle is that low interest rates drive malinvestment during the boom period, and then is "corrected" during the subsequent bust. But this malinvestment supposedly happened during the bust, and is now being corrected during the boom? The whole story makes no sense.

[philosophicalconservatism]

"The consequences of inflation are malinvestment, waste, a wanton redistribution of wealth and income, the growth of speculation and gambling, immorality and corruption...bankruptcy, increased government controls, and eventual collapse."

Henry Hazlitt (1894-1993) economic journalist.

[alphaman99]

agree or disagree?

Andrew Avery

According to Morgan Stanley, 1/3 of student loan borrowers cannot repay and are in default.

Another 1/3 are going to have to default on credit card, auto, or mortgage payments to make good on their student loan payments.

This bubble bursting will topple lots of lenders.

And yet it has to happen to correct the malinvestment in the system.

Let the fire clear the forest so new growth can occur.

I feel badly for students who made bad financial decisions, but it’s a learning experience.

They cannot clear their student loans through bankruptcy, but they can clear all other credit.

At the expense of ruining their credit worthiness and being forced to live within their means for the next seven years.

And that’s a valuable lesson.

[moreconomics]

"The Austrian School of Economics: A Solution to the World's Problems?"

The Austrian School of economics is a heterodox economic theory that emphasizes the role of individual subjective value, entrepreneurship, and the importance of markets in the allocation of resources. It is distinguished from other economic schools by its emphasis on the dynamic and entrepreneurial nature of economic activity, and its view that the economy is constantly evolving and adapting to changing circumstances. The Austrian School is also characterized by its commitment to methodological individualism, which is the idea that social phenomena can only be understood by examining the actions and motivations of individual actors. This emphasis on the subjective experiences and preferences of individual actors is also reflected in the Austrian School's commitment to the subjective theory of value, which holds that the value of a good or service is subjective and determined by the individual valuations of those who exchange it.

One key aspect of the Austrian School is the concept of the business cycle, which refers to the regular fluctuations in economic activity that occur over time. According to the Austrian theory of the business cycle, these fluctuations are caused by the expansion and contraction of credit by banks. When banks expand credit, they make it easier for individuals and businesses to borrow money, which can lead to an increase in investment and economic activity. However, this expansion of credit can also lead to an unsustainable increase in the demand for goods and services, which can result in a misallocation of resources and the emergence of malinvestments. When the credit expansion eventually comes to an end, the demand for goods and services can suddenly drop, leading to a contraction in economic activity and a corresponding drop in the supply of money and credit. This process of credit expansion and contraction can lead to the regular fluctuations in economic activity that are characteristic of the business cycle.

One important concept in the Austrian School of economics is that of economic calculation, which refers to the process by which individuals and businesses make decisions about how to allocate their resources in the face of scarcity. According to the Austrian School, market processes are the most efficient means of economic calculation because they allow individuals to make decisions based on their own subjective preferences and valuations, and provide information about the relative scarcity of different goods and services through the system of prices. When prices are allowed to adjust freely in response to changes in supply and demand, they provide a clear and accurate signal about the relative scarcity of different goods and services. This allows individuals to make informed decisions about how to allocate their resources and optimize their utility.

For example, if one good is experiencing a shortage and its price is higher than another good that is not experiencing a shortage, an individual may choose to purchase the good that is not experiencing a shortage even if they prefer the good that is in short supply. This is because the higher price of the good in short supply reflects its relative scarcity and the individual may be able to obtain more utility by purchasing a greater quantity of the good that is not experiencing a shortage. This process of resource allocation through market prices promotes the most efficient use of resources and contributes to economic growth and prosperity.

The Austrian School argues that subsidies and other forms of market intervention can distort prices and undermine the ability of the market to perform this crucial role in resource allocation. By distorting prices, subsidies can create artificial shortages or surpluses of goods and services, leading to misallocations of resources and inefficiencies in the economy. This can ultimately undermine the ability of the market to promote economic growth and prosperity.

Money is just another good among many in an economy, and like any other good, it is subject to the laws of supply and demand. When the supply of money is increased or decreased, this can have a significant impact on the relative prices of other goods and services in the economy, as well as on the level of economic activity. The Austrian School of economics argues that the state's control of money and its regulation of private alternatives can distort market processes and undermine economic prosperity. By monopolizing the supply of money or over-regulating private alternatives, the state can manipulate the money supply and interfere with the proper functioning of the market. This can lead to misallocations of resources, economic inefficiencies, and ultimately, a lower standard of living for individuals and businesses.

One way to promote economic stability and prosperity is through the denationalization of money, a concept posited by Friedrich Hayek and embraced by many Austrian economists. This idea refers to the proposal that money should be privately produced rather than issued by a central government or bank. The Austrian School argues that private money would be more stable and less subject to manipulation by governments and central banks, and would therefore be more effective at promoting economic stability and prosperity. One way in which private money could be implemented is through the concept of free banking, in which banks are free to issue their own private currencies while also subject to no special regulations beyond those applicable to most enterprises.

Free banking is a monetary system that has the potential to promote greater competition among banks, leading to better quality currencies and a more stable financial system. In a free banking system, banks have an incentive to issue currencies that are widely accepted and maintain their value, as this would increase the demand for their currency and their profits. To achieve this, banks must demonstrate the reliability and trustworthiness of their currency to the public. One way that banks can do this is through a practice called "note-dueling."

Note-dueling is a practice that occurs in a free banking system, in which banks attempt to gather up as much of their rivals' outstanding notes as possible in order to demonstrate the strength of their own currency. This process can be thought of as a form of market discipline, as it incentivizes banks to maintain reasonable reserve ratios in order to be able to honor their promise to redeem their notes for gold or other specie when requested. Competition among note issuers led each bank to try to demonstrate how solid and reliable it was relative to other banks, and this competition effectively regulated the specie reserves held in the banking system. If a bank has a large specie reserve relative to its outstanding note issue, it is better able to honor this promise and maintain the confidence of the public in its currency. On the other hand, if a bank has a small specie reserve relative to its outstanding note issue, it may be at risk of facing a liquidity problem if there is a high demand for note redemption. In this case, the bank may not have enough gold on hand to meet the demand, which could lead to a failure in the bank that did not have enough specie reserve relative to its outstanding note issue.

The Cantillon effect is a phenomenon in economics that refers to the way in which changes in the money supply can have unequal impacts on different parts of the economy. Named after the 18th-century economist Richard Cantillon, the effect suggests that the first recipients of new money tend to benefit the most, while those who receive the new money later on tend to be disadvantaged. This is because the first recipients of new money are able to use it to purchase goods and services before prices have had a chance to adjust to the increased demand, which can lead to higher prices for these goods and services. This can lead to a transfer of wealth from those who receive the new money later on to those who receive it earlier, contributing to economic inequality.

Many Austrian economists advocate for the denationalization of money and the implementation of free banking as a way to mitigate the potential for the Cantillon effect and promote economic stability and prosperity. In a system of free banking, banks are free to issue their own private currencies and compete with one another for customers. This competition can help to ensure that the supply of money and credit is more responsive to market forces and less subject to manipulation by governments and central banks. One aspect of this competition is the process of "note dueling," in which banks attempt to gather up as much of the outstanding note issue of their rivals as possible in order to demonstrate their own reliability and stability. By allowing the market to play a greater role in the supply and demand of money, the Austrian School argues that free banking can help to promote economic stability and reduce the potential for the Cantillon effect to contribute to economic inequality.

In conclusion, the Austrian School of economics offers a unique perspective on economic theory and policy that emphasizes the role of individual subjective value, entrepreneurship, and the importance of markets in the allocation of resources. The theory of the business cycle explains how the expansion and contraction of credit by banks can lead to fluctuations in economic activity, and the concept of denationalization of money proposes that money should be privately produced rather than controlled by the state. The idea of free banking, in which banks are free to issue their own private currencies, is one way in which this concept could be implemented. The Austrian School argues that these ideas have the potential to promote economic stability and prosperity by allowing the supply of money and credit to be more responsive to market forces and less subject to manipulation by governments and central banks. By respecting the role of the individual and the market in the allocation of resources, the Austrian School offers a unique and valuable perspective on economic policy.

#ChatGPT #MorEconomics #Finitude Fighters #MoribundMurdoch #Moribund Institute #Austrian School of economics #Business cycle theory #Denationalization of money #Free banking #Note dueling #Methodological individualism #Subjective theory of value #Economic calculation #Market intervention #Cantillon effect #Economic inequality #Monetary policy #Resource allocation #Economic stability #Economic prosperity

[thatmcgwords]

The concept of Austrian investing starts with a paradox: you've got to love to lose money, and hate to make it.

Daoism emerged in ancient China during a time of heavy conflict. One of its central concepts is wei wuwei, which literally means “doing by not doing.” In warfare, that meant not attacking until you could secure a position of advantage, and turn the opponent's own force against him.

The tuishou exercise is a physical manifestation of the idea of waiting and exploiting your opponent's urgency. The real force in tuishou isn't in pushing; it's in yielding.

Instead of following a direct route towards immediate gain, Austrian investing takes the more roundabout path towards immediate loss. This pursuit of loss is similar to the yielding in tuishou: you pull back and experience short-term loss, so you can gain a more advantageous position in the future.

Like the Daoist concept of wei wuwei, the idea is to profit from other investor's impatience and intolerance of small losses, as well as their urgency to get immediate profits. Patience is key.

Eventually, however, his investment paid off tremendously. After the new assembly line process was finalized, Ford was able to produce a new car every twenty-four seconds. The Ford Motor Company could suddenly and efficiently produce cars for the masses, at unprecedented rates.

Nature is our greatest teacher. It’s also an important part of Daoism: a major Daoist theme is to observe and learn from nature, from things like the growth of conifers.

Conifers teach us that it’s much better to avoid direct competition for scarce resources. Instead, it’s better to pursue the Daoist route that will lead to greater gain in the future.

All in all, conifers are soft, fragile and highly flammable, but they can flourish and thrive by strategically pulling back, growing slowly and seeding at just the right moment.

Sunzi applies the Daoist indirect approach to military strategy. It’s one of the most important works on the topic, and has greatly influenced both Eastern and Western military thinking.

Because markets are driven by the actions of countless people, economics is largely the study of human interaction. However, there are no constants on human behavior like there are in the natural sciences, such as the charge on an electron. Human actions are highly subjective.

Because of human action, the market can only accurately be viewed as Dao. It’s constant and ongoing; its a series of causes and effects towards the various goals of people participating in it.

Naturally, it follows that the market can’t be considered empirical either. It’s impossible to observe the behavior of an individual market participant, isolated from the other participants. This means that we can never conduct proper experiments on any markets. Moreover, any attempts to predict market movements using empirical data will always be a bit nebulous.

The market is like a forest: it has natural regulators that keep it balanced. A forest is kept in balance by the constant battle for resources among the creatures that live there.

For example, when areas of the forest become too dominated by the overgrowth of angiosperm, they become prone to small wildfires. When fire breaks out the land is cleared, which allows the conifers to reseed.

Thus, the fire is not merely destructive. It’s a cleaning process, and it’s another mechanism for keeping the forest in balance.

Markets are like our financial forests. Malinvestments can thrive for a short time, but they’ll eventually end in bankruptcies. Small “fires” like this free up and redistribute resources by releasing capital to new areas.

Intervention weakens both the forest’s and the market’s balancing forces. Forest fires can become deadly when smaller blazes are suppressed by any kind of human forest management. When smaller fires are suppressed, trees have no opportunity to replace each other, and the forest becomes feeble and prone to even more destructive fires.

A similar phenomenon occurs in markets, when central banks make artificial changes by printing more money to counteract small crashes (or “fires”). The central bank can print money, but it can’t print its underlying value such as real estate or gold. Printing more money than there is value inevitably distorts the market’s “natural” state and makes it prone to malinvestment.

As our brains mature, we develop the ability to wait for longer periods of time, but it’s still our natural tendency to focus on the immediate. This is part of our evolution: our ancestors needed to focus on any immediate threats in order to survive.

This tendency is exacerbated by our culture, which teaches us that the moment is all that matters. We focus on what we can see and experience in the short-run.

Signs of this are all around us. Savings rates are very low, and we pillage the finite natural resources of our earth for our immediate use.

Austrian investing is difficult to follow because it requires us to overcome this human tendency. Although it’s counterintuitive, there are many ways to implement it.

You have to be patient and seek out highly productive capital to benefit from Austrian investing.

The first step in Austrian investing is to stay out of the market when distortion is high.

Distortion occurs when central banks print too much money, and thus create artificially low interest rates. This only leads investors into malinvestment, which in turn can lead to stock market crashes.

A distorted market is prone to crashes, just like an overgrown forest is prone to fires. So stay out of it, to avoid the crash that will inevitably result. Keep your capital in reserve on the sidelines, and wait until the distortion passes for you to invest.

The next step in Austrian investing is to seek out highly productive capital. Remember that the most productive capital is the most roundabout capital.

For example, you can find technological ways of producing more output with different inputs. Remember this means that you’ll have to wait longer and reinvest in research and development. If you spend time to improve the right technologies, you can see great gain, as Crusoe learned on his island.

The first criterion for investing in a company is that it should show a high ratio of reinvested profits that can eventually make it more efficient. As we saw earlier, the Ford Motor Company exhibited this reinvestment criteria in its early stages; Ford invested the profits from his first cars into the assembly line development.

Second, look for firms with a low market value, those which other investors don’t appreciate because they grow too slowly. These firms are likely to come through with great advantages at the end of an indirect route.

Austrian investing is an approach that focuses on long-term profits rather than immediate gains. The conceptual ideas of this investment approach trace back to ancient Chinese Daoist concepts. They were fully developed in the Austrian School of Economics and can also be found in nature. You can apply Austrian investing techniques by following a roundabout route of accepting small, initial losses to build a position of advantage for greater gains in the future.

Stay out of a distorted market.

Before entering the market, consider if distortion is high. Are central banks creating artificially high or low interest rates? If so, keep waiting to invest. Don’t be too hasty; distorted markets are prone to crashes, meaning investors are likely to lose money. If you have the patience to wait out the distortion, you’ll benefit a great deal later.

#blinkist

[liberty1776]

Neoliberalism vs. Austrian Ecomomics

Mirowsky´s analysis is interesting even though it comes from a far left and egalitarian perspective. The main problem of Mirowski is his confusion when it comes to the Austrian school and libertarianism. Mirowski regards most neoclassical economists as neoliberals (with some exceptions on the left such as Stiglitz or Krugman). Implicitly he also incorporates the Austrian school in the neoliberal camp. He even writes on “Hayekian neoliberals.” Yet, Austrians are neither neoclassical nor can many been considered to be neoliberal.The Austrian view on capital is fundamentally opposed to the neoclassical one. Austrian business cycle theory explains the Great Depression by the extraordinary credit expansion of the 1920s. Reinflating the money supply, in the Austrian view, disturbs the necessary readjustment as it stabilizes artificially old malinvestments and stimulates additional ones. Austrians explain the severity of the Great Depression by the size of the credit expansion in the 1920s and the concomitant malinvestments as well as the government interventions introduced in the 1930s such as the Smoot-Hawley Tariff Act or the New Deal in general. Mirowski is correct, when he points to the central bank correctly as a neoliberal institution. Yet, he also claims that the Tea Party in the US is basically a neoliberal group. There have been tensions from almost the very beginning between Austrians and the neoliberals within the Mont Pelerin Society. Sometimes Mirowski falls into a crude anti-capitalist propaganda. Moreover, Mirowski forgets that it is free markets and private property that allows for the development of a personality. Private property is akin to an extension of the body and materializes the personality. The conceptual distortions committed by Mirowski are almost comical. Liberty is absence of infringements on private property rights. Democratic participation, i.e. voting on the use of property rights of others, is opposed to liberty. The market is no entity that somehow rules the people. Human beings voluntarily interacting and exchanging determine the market´s outcome. Entrepreneurs do not impose anything on consumers. They are trying to anticipate the needs future consumers. In a sense, they represent the wishes of future consumers.

#Philip Mirowski #Neoliberalism #Austrian Economics #Capitalism

[megaalexmark]

Empty Malls and Shopping Centers: How Government Fuels Malinvestments

https://www.investmentwatchblog.com/empty-malls-and-shopping-centers-how-government-fuels-malinvestments/?utm_source=dlvr.it&utm_medium=tumblr

[crazily-lost]

Austrian Economists Can Explain the Coming Recession

The economy is stuck with malinvestment and will need to reconfigure in a painful manner. from Wealth Management https://ift.tt/FY0i7Pt

[ahmed25646]

Public malinvestment is endemic, socialist Romania excelled at it

Public malinvestment is endemic, socialist Romania excelled at it

Posted on October 10, 2022 – HAS + By Mihai Macovei. The current intellectual framework sees public spending as the solution to any economic and social problem. Whether it’s helicoptering money to households and businesses during the pandemic, subsidizing electric cars, or wiping out student debt, government generosity must, by definition, drive growth. and well-being. Public spending is even…

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[buddylistsocial]

The European Central Bank Mistake: More Debt Is Not the Answer

The European Central Bank Mistake: More Debt Is Not the Answer

Commentary

In an opinion article published in the Frankfurter Allgemeine Zeitung, Isabel Schnabel, member of the executive board of the European Central Bank (ECB), states that governments taking more debt now should not be a concern, and that it would strengthen the central bank independence in the future.

She claims that “the decisive fiscal policy intervention in the coronavirus (COVID-19)…

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#debt #ECB #economic recovery #European Union #eurozone #malinvestment #Opinion #Viewpoints

[dwagom]

Oops. Don't you hate it when the system works so well and then it suddenly implodes due to its self-reinforcing, self-destructive structural incoherence? A system dependent on debt for "growth" is self-liquidating, meaning that the debt eats the system alive by siphoning off income while malinvestment, waste and speculative gambling destroys the "capital" funded by the debt.

[abr]

The entire European Recovery Fund is clearly aimed at promoting white elephants disguised as green projects, but what is more concerning is that the Eurozone green deal includes more taxes and measures to prevent demand growth than productivity-enhancing plans. (...) The problem of these massive stimulus is that they benefit the wrong parts of the economy.  (...) While the eurozone is raising “environmental” taxes to citizens and promoting subsidized spending in “the new green deal”, the biggest beneficiaries of the ECB corporate bond purchase programme are large automotive companies, oil and gas multinationals and big multi-utilities. (...) Most of these companies have established and mature businesses in sectors where overcapacity and margin challenges existed way before the previous and current crisis, so they will not increase hiring or capital spending due to the monetary stimulus. Meanwhile, thousands of start-ups and small businesses with no access to credit because they have no hard assets are collapsing every month. The monster credit support (...) is a massive incentive to overspend and malinvest.  (...) The ECB and Eurozone stimulus plans end up as massive subsidies to low productivity with collateral damages to high productivity sectors in the shape of higher taxes.

https://www.zerohedge.com/bailout/massive-stimulus-does-not-prevent-eurozone-slowdown

E’ il socialismo euroinomane, bellezza. Obiettivo: tutti assistiti, tutti a produrre niente che per quello ci sta la CIna (mica vorrete far sentire in colpa i poveri statali, no?). 

[reading-writing-revolution]

“Americans would need to understand that the reason their society failed is because it underinvested in everything that really matters, while overinvesting and malinvesting in things that didn’t. Growing cries of ‘defund the police!’ point to just such an epiphany happening. What did American put it’s money and resources in? Not any of the following: healthcare, retirement, education, pensions, childcare, elderly care, and so forth. As a result, Americans now live without those things. Meanwhile, police forces have become paramilitaries, and the military has built the perfect laser-guided drone-operated killing machine.”

by https://link.medium.com/TJdW9tht86

[lol-jackles]

Are you eating your words about coronavirus and the U.S being “mostly fine” now that we have the most cases in the world and the unemployment applications are reaching the sky while the economy is about to tank harder than the great depression?

No, because I am and will be right, the U.S will “be mostly fine”.   We have the most confirmed cases because we are testing a lot more (we’re a big country!) and surpassed South Korea’s aggressive testing campaign: 220,000 tests in 8 days compared to SK’s tests in the same number over 8 weeks.  Those that tested positive in the U.S, many are are completely asymptomatic.  For both South Korea and U.S, the morality rate is less than 1.5%.   Once a broad cross-section of the U.S population has been tested, it’s likely the morality rate from coronavirus will end up somewhere between 0.5% and 1%.

Remember when the West Nile virus was thought to have a mortality rate of 10%?  That’s because at first the scientists only knew of about a few dozen cases. But wider testing eventually found hundreds of thousands of people who’d been infected but never got sick enough to notice. Today, more than 3 million Americans have been infected with West Niles virus and studies show that fewer than 1% become seriously ill.  China was caught by surprise by the outbreak was only testing the the sickest people, which probably contributed to early evidence that the fatality rate in Wuhan was 4%. As testing expanded, the fatality rate revised to 1.4%.  (link)

Our economy will recover, the Strategic Oil Reserve has been replenished, the value of the Dollar is stronger than ever, and the stock market is recovering ahead of schedule.  I’m less certain how the economy of the rest of the world will look like, but I never pretended on my blog to speculate on non-American economy.  The business herd is being thinned, no doubt, but a good many will be saved due to the business loan in the stimlus package that can even be converted into a grant (free money) if they don’t lay off employees.  That’s probably why my sister is still “working” when there isn’t any work to be done.

As for the Great Depression, you do know that the Federal Reseve was partially to mostly responsible for it, right?  The Federal Reserve created an   unsustainable boom in the 1920s by lowering interest rates.  Federal Reserve then inflated the money supply and the inflationary booms induce widespread bad investment decisions made under the influence of easy money and credit. The malinvestments inevitably lead to wasted capital and economic losses. An economic recession is actually necessary to correct all of the previous malinvestment. The Great Depression ended when goverment cut spending by 75% along with a slight tax reduction.

Now thanks to the pandemic the Federal Reserve is pushed into buying assets in order to stabilize markets, which they’re not allowed to without the help of the Treasury.  The Federal Reserve is taking up debt, but it’s a debt to the Treasury which means that, piece by piece, the Federal Reserve can be “bought up” by the Treasury the more debt it takes on.   You know what that means, right?  The Federal Reserve is now a government organization it can be regulated and investigated and hell, even ended.  Now that would be a dream come true for many, including Trump.

So all you people getting $1,200 checks are actually doing your part in Trump’s goal to weaken or even destroy the Federal Reserve.  To those of you that think the stimulus package is socialism, it’s not because it was the central banking that is the probem.   The days of illegal debts that the Federal Reserve artically created by printing money and then lending that money at interest to the US government will probaby disappear because the Federal Reserve is now nationalized.   Meaning that the government, not a private banks like the Federal Reserve, now controls the printing press and the value of the currency.   Government currency is fine, as long as it is backed by a reliable standard like the gold standard and that will make money hella stable with no danger of hyper inflation and hyper rising prices.  

Yup, we will be mostly fine :-)

#coronavirus

[sataniccapitalist]

[megaalexmark]

We Blew It: Malinvestment and the Plundering of Productive Assets

https://www.investmentwatchblog.com/we-blew-it-malinvestment-and-the-plundering-of-productive-assets/?utm_source=dlvr.it&utm_medium=tumblr