Herding Cats

The Daily Bell:

"Daily Bell: Second, what's different about the Austrian model?

Richard Maybury: The speech explains this. But very briefly, for one thing, the Austrian view is that the economy is not a machine, it's an ecology, made of biological organisms, meaning people. People have free wills, and they change their minds, all day every day. Trying to predict their behavior and steer it is like trying to herd cats.

Daily Bell: An interesting analogy.

Richard Maybury: Imagine putting fifty cats in your house and trying to herd them. What would your house look like afterwards."

This analogy is used all the time in computer game development as well.

My wife, who was a computer project manager, says it is trivial to herd cats. Just pop open a can of tuna and they all come running.

I think the Federal Reserve thinks that lowering interest rates is like opening a can of tuna fish and people will just fall in line. But sadly, as the Austrians suggest, herding people is actually more difficult than herding cats. The Federal Reserve can print the money but they can't predict what people (or institutions) will do with it. It's a classic example of central planning gone awry, and if this was happening in the former Soviet Union, we'd be laughing at what dumb-asses those guys are.

Too bad it's happening here so there is not too much laughing going on ... although there are some yucks at LOLFed.

This is true:

Daily Bell: If a depression is the correction period following an inflation, what's a recession?

Richard Maybury: A recession is an incomplete depression. The government stimulates, which means it creates more money out of thin air, and this injection of new money stops the shakeout of the malinvestment.

Daily Bell: So, a recession is actually worse than a depression, because we go through a surge of bankruptcies and unemployment, but in the end it accomplishes nothing, because government officials re-inflate before the corrections can go to completion.

Then the next crash is worse. And everyone will be surprised! Well, not everyone ...

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