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Austrian Economics vs. Keynesian Economics in Axis and Allies



  • Thought some of you would enjoy this funny post.   You must understand Economic Theory to get the humor.   I am a defender of Austrian Economics.   My friend, who wrote the email to me, is a defender of Keynesian Economics.   I play the Axis and he plays the Allies.   Here’s his email to me…

    I have stumbled upon a great strategy for the USA that I think is a guaranteed winner.  The one problem is that the Rules do not explicitly cover the strategy, however the strategy is based in historical fact.

    It is such a powerful strategy, I have not figured out any method by which the Axis will be able to stop it. It may take several turns for the US to reap the fruits of this strategy, but the outcome is never in doubt.

    It is not a military strategy, it is more political. Or to be more precise, fiscal.  Throughout history, the US has always run deficits during times of war. WW2 was not an exception.

    Accordingly, at the beginning of USA1, instead of just collecting 42IPCs, the USA will now collect 84 IPCs, or any number it wishes, under this Keynesian model.  Those additional IPCs can be put to great use building battleships and AC at will.  Imagine the look on the face of the Axis player when the US builds a navy with 4 battleships, 3AC, 5 destroyers, 10 subs, and 20 transports, on EACH coast on move 1!  The war is not in doubt now.

    Now you may ask, well why can’t the Germans or Japanese adopt the same strategy? The answer is that they don’t have the political structure to do so.  The Germans and Japanese have alway been austere peoples.  Credit and commercialism is not in their blood.  Even though it may mean great military success, the Germans and Japanese will not adopt a reckless fiscal policy, simply because of their principals.  They would rather lose the war than be called Keynesian.

    I think this is the ultimate strategy.



  • Sure, but for every ipc the US(and UK, since it also had Keynesian policies) borrows, he has to pay you in real dollars



  • Correct me if I’m wrong, but Keynesian is the “mainstream” school while Austrian is a “fringe” or “alternative” school, right?



  • @Cromwell_Dude:

    Now, that’s funny!   I will email him your response.   We will be playing Spring 42 all next week.   What’s real money to a Keynesian?

    Well, if you use the wording “real money” you can get into a semantical argument.

    BTW, the US doesn’t just run defecits in war; I think it has done so ever since WW2(except the Clinton years). I may be wrong about that though; some other president may have had a surplus



  • Umm, how does pretending to be a Keynesian help you win, if you don’t play that way?

    Also, I’m not sure how inflation is a tax. Yes, people have less buying power, but that weath wasn’t transfered to the government, right?



  • Also, keep in mind that a Nobel prize doesn’t automatically validate a theory. One of the Austrians who won said that a Prize for Economics is misleading since it gives the winner a authority that wouldn’t exist in the other sciences, since the other scientists’ work are directed at fellow experts, while economists’ are directed at laymen



  • Calvin,

    Wealth manager here - Inflation is a “hidden” tax.

    Calvin has $100 of 2010 Dollars - he stores them under his bed/puts them in the bank/etc. In 2010, the inflation rate is 100%. Calvin spends no money whatsoever, yet he only has $50 2010 dollars in 2011, due to inflation.

    See the insidious nature of inflation?



  • I completely agree that you lose purchasing power. However, I’m saying it’s not a “tax” since the government doesn’t gain what you lose. A tax is not just a loss of money; it’s the loss of money to the government.

    BTW, why call it hidden if most people are aware of it?



  • Also, when inflation happens, your wages also increase(albeit more slowly).



  • Thanls for the help. I try to learn as much as I can about different topics so I can at least be knowledgable enough to know when someone is BSing me.

    As for the “warfare-welfare” state, I probably agree with you that many wars, which are funded by defecit spending, do not need to be started and that the budget for the military can be cut significantly without much harm. I also think that too much money should not be spent on welfare, but I do want everyone to have a minimum standard of living which, in the current world, welfare seems to give, looking at Western Europe.

    BTW, I’m not sure our discussion is off topic, since we are talking about what the title says. If we do get flagged, it would be for being too political.



  • @calvinhobbesliker:

    I completely agree that you lose purchasing power. However, I’m saying it’s not a “tax” since the government doesn’t gain what you lose. A tax is not just a loss of money; it’s the loss of money to the government.

    BTW, why call it hidden if most people are aware of it?

    How do you think the money inflates? By the government printing money. So the government gets money and the people lose money value (basically money) - a “hidden tax.”



  • @Wilson2:

    @calvinhobbesliker:

    I completely agree that you lose purchasing power. However, I’m saying it’s not a “tax” since the government doesn’t gain what you lose. A tax is not just a loss of money; it’s the loss of money to the government.

    BTW, why call it hidden if most people are aware of it?

    How do you think the money inflates? By the government printing money. So the government gets money and the people lose money value (basically money) - a “hidden tax.”

    I see. I have a question about that though:isn’t inflation proportional to the amount of money in circulation? I.E if the gov’t doubled the nominal value in circulation, the value of the dollar would halve. Doesn’t this mean the government has the same purchasing power as before?



  • Yes - but you are forgetting dollar-denominated debt.

    Most debt (including US Gov’t debt) is held in dollars. By doubling the nominal value, you are in effect halving your debt.



  • The debt isn’t inflation adjusted 😮 😮 😮
    Wow.



  • Hence the phrase, “inflate your way out of debt”

    It is not a pretty sight in the short run (Weimar Republic, Argentina).



  • How do other countries not see this, since the exchange rate is inflation-adjusted?



  • The underlying assumption has been (falsely, in my view) that US Gov’t obligations are “risk-free” for much of the 20th and 21st centuries.

    Heavy inflation is a curse and a blessing. If done properly, it allows payment of foreign debt and cheapens your cost of doing business (labor, etc) relative to other countries, allowing for more export which in turn eventually stabilizes inflation. The curse is that individual people see their bargaining (purchasing) power drop dramatically.



  • Yes, inflation by the Fed is a good tool, IF the government uses it correctly. I presume that you and other Austrians don’t really trust the gov’t to be able to do a good job at that, correct?



  • The problem is not economics, it’s politics. Today we have:

    • Two party system (both in USA and in Europe). That means that alternate ideas that could aid to solve problems cannot reach the government. As the two mayor parties seem the same in economics (again, both in USA and Europe), the truth is that people cannot choose the economic politic
    • Non proportional elections (both in USA and Europe). Is insane that a guy can be elected president with less popular votes than another guy in a presidential system (USA) and is insane that a party can have more representatives that another that got more popular votes (Europe)
    • Discipline of vote (rigid only to Europe) and closed lists (both I think). Representatives are chosen by the party, not by the people, and so they do things that serve to the party and not to the people

    That we need is more democracy, not less as we saw in Greece and Spain (stingy ZP, you traitor). Also, we need control financial power somehow (now it has free reign worldwide). I know the Austrian school a bit and I think they are totally wrong, but we need able politicians first or any solution we try is damned to fail utterly. Current situation only serves to give more power to the powerful (financial power, that has governments as puppets) and less to the common people

    A politics thread (economics = politics ) … interesting indeed but will be closed soon or later



  • I think reps are only chosen by the party in parliamentary systems. In the US, everyone votes for a Rep, a Senator, and the President



  • However, I agree with the rest of what you said. I’d like to add that rich people/corporations are able to bribe polititions, and thus we have a plutocracy instead of a democracy



  • @calvinhobbesliker:

    I think reps are only chosen by the party in parliamentary systems

    That’s true (agreed as well about the bribing and the plutocracy)



  • I think the only way of changing the things is voting any party that is not one of the mayors and better voting one that wants change the electoral system to a more democratic one. That would mean voting any party different to Dems and Reps in USA, any different to PSOE and PP in Spain, any different to laborists and conservatives in UK, etc. That’s the only non-futile vote, and we saw a bit of that in UK (there, a third party won enough representatives to force the conservatives a minor change in the electoral system. Its a small step, but we need start walking as soon as we can)



  • @Funcioneta:

    I think the only way of changing the things is voting any party that is not one of the mayors and better voting one that wants change the electoral system to a more democratic one. That would mean voting any party different to Dems and Reps in USA, any different to PSOE and PP in Spain, any different to laborists and conservatives in UK, etc. That’s the only non-futile vote, and we saw a bit of that in UK (there, a third party won enough representatives to force the conservatives a minor change in the electoral system. Its a small step, but we need start walking as soon as we can)

    What’s PSOE and PP stand for(and English translations, please)

    Yeah, the Lib Dems were key in the UK. However, what’s to prevent a 3rd party from taking bribes?



  • Thaught you guys might like this

    http://www.youtube.com/watch?v=d0nERTFo-Sk


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