Archive for Nicolas Cachanosky

You Can’t Run an Economy with Spreadsheets

6739Mises Daily Friday by Nicolás Cachanosky:

Some politicians still seem to be under the impression that an economy can be successfully planned with computers and technicians as long as the right data is entered into spreadsheets. Mises and Hayek proved this idea wrong many decades ago.

Being a State Means Never Having to Pay Your Debts

Flag_map_of_Argentina.svg_Nicolas Cachanosky follows up his Mises Daily article on the legal history of Argentina’s default with a look at the recent effort to blame the default on everyone but the Argentinian government:

Joseph Stiglitz and Martin Guzman have a recent piece at Project Syndicateabout the implications of Argentina’s default, or what they call “Griesafault.” In a nutshell, the piece blames U.S. Judge Griesa (Southern District of New York), rather than Argentine Republic (the debtor), for the default and argues that the court’s ruling “encourages usurious behavior, threatens the functioning of international financial markets, and defies the basic tenets of modern capitalism: insolvent debtors need a fresh start.”

Basically, the contract with the creditors is crystal clear. It does not allow for the Argentine state to weasel out of paying some creditors by striking new deals with some other creditors. It’s as simple as that. Now, I agree with Chris Westley that the Argentine government should just honestly announce that it has no plans to pay anyone back, and to make a clean default. That was a risk the creditors took. Indeed, while Stiglitz and Gusman claim that Griesa’s decision prevents a “fresh start” the only true “fresh start” here for the taxpayers of Argentina is a default.

Anything else is a twisting of a very simple legal contract to favor a relatively-powerful government over the interests of private investors. Argentina wants to get out of paying its debts either way, but if it honestly defaults, there will be a downside to its credit rating. On the other hand,  if it can game the legal system so that it can avoid making good on its debts while still not legally be in default, then that’s so much better. And, of course, that’s what Stiglitz et al want. Endless spending with no consequences, ever.

Understanding Argentina’s Coming Default

recession impact on young man and society in arentinaMises Daily Wednesday by Nicolás Cachanosky:

Argentina’s government is on the verge of default yet again. How could this happen three times in thirty years? Well, the Argentine government has a habit of spending without restraint and then trying to cheat its creditors. But this time, it’s run into a problem.

Mises and the Diminished A Priori

6711 (1)David Gordon writes in today’s Mises Daily:

In a recent post, “Machlup and Mises,” on the blog Coordination Problem, Peter Boettke has called attention to and summarized an important paper, “The Epistemological Implications of Machlup’s Interpretation of Mises’s Methodology” written by Gabriel Zanotti and Nicolás Cachanosky. According to these authors, Murray Rothbard advanced an influential interpretation of Mises’s methodology that led mainstream economists to view Mises as an extremist.

Rothbard, Zanotti and Cachanosky claim, maintained “that Mises would have said that economic science is completely a priori, without any room for auxiliary hypotheses that are not directly deducible from praxeology” (p. 2).[1] To understand this, we first need to consider what is meant by calling a propositiona priori . This is a proposition that can be known to be true just by thinking about it: you don’t need to examine the world to see whether it’s true. “2 + 2 = 4” is a priori true: once you understand what the proposition says, you can grasp that it’s true. You don’t need to keep counting objects to see whether the claimed equality holds true. By contrast, “Mises wroteHuman Action” is not a priori true: just thinking about the proposition will not tell you whether it is true.[2]

UPDATE: The response from Nicolas Cachanosky. 

New Paper: “Roundaboutness is Not a Mysterious Concept”

Roundaboutness is Not a Mysterious Concept: A Financial Application to Capital Theory
Nicolas Cachanosky, Metropolitan State University of Denver
Peter Lewin, University of Texas at Dallas – School of Management – Department of Finance & Managerial Economics
March 16, 2014

Abstract: We apply the EVA® terminology to the concepts of roundaboutness and average period of production in capital theory. By doing this we show that these terms have a clear and well understood financial interpretation. A financial application to capital theory helps to clarify obscure and controversial economic terms. We then extend our financial interpretation of roundaboutness and average period of production to the Austrian business cycle theory and show how this approach can be used to shed light on the subprime crisis.

A Proposal of Monetary Reform for Argentina: Flexible Dollarization and Free Banking

A new journal article from Adrian Ravier and Nicolas Cachanosky:

“A Proposal of Monetary Reform for Argentina: Flexible Dollarization and Free Banking”


Argentina’s economy and monetary institutions are, once again, experiencing a serious crisis. In this document, we propose a monetary reform for Argentina that consists of flexible dollarization plus a free banking regime. By flexible dollarization, we mean that the peso should be replaced with the U.S. dollar as a first step, but the market should have the freedom to interact with any selected currency. Therefore, the country does not become attached the U.S. dollar; on the contrary, it becomes a free currency country. By free banking, we mean giving financial institutions permission to issue their own banknotes convertible into U.S. dollars or any other currency or commodity of their choice.
It should be noted that the problems of the Argentine economy go beyond those of monetary policy. This proposal should not be understood as a sufficient reform to fix the Argentinean economy but as a necessary one. This proposal should also not be understood as a monetary panacea but as a monetary framework that is still superior to one provided by the Argentine central bank BCRA and Argentine policy makers to their country

Pope Francis, Income Inequality, Poverty, and Capitalism

Guest Post:  Pope Francis, Income Equality, Poverty, and Capitalism  

By Nicolás Cachanosky

The criticisms of free markets in Pope Francis’s Apostolic Exhortation Evangelii Gaudium (“The Joy of the Gospel”) have generated strong reactions around the world. One example is a recent post by Gregory Mankiw on his blog with brief but interesting reflections. Special attention was paid to the passage where the document criticizes the “trickle-down theories, which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing about greater justice and inclusiveness in the world. This opinion, which has never been confirmed by the facts, expresses a crude and naïve trust in the goodness of those wielding economic power and in the sacralized workings of the prevailing economic system.” (p. 46).

First we must recognize that there may be possible semantic nuances that can lead to inaccurate interpretations because Evangelii Gaudiium is not an economic document and, certainly, the “prevailing economic system” is not exactly a blueprint for free market economies. However, the criticism of free markets is clear and presents a difficult challenge to suggest that the document does not refer, indeed, to free markets after arguing for “semantic nuances.” Secondly, I agree with Mankiw that “trickle-down” is not a technical term, much less a theory, and is a derogatory word used by the left and other groups critical of free markets. By using this phrase, the Pope inserts a negative bias against the free market; a neutral term would been a better choice of words. The terminological slip on economic issues in the document (an example of many) suggests the need for caution regarding the strong claims that the document puts forward on economic issues. Categorical statements in a document of this importance should be better supported and articulated. Imagine an economic document critical of the Church with a clear superficial use of the language of the discipline being criticized accompanied by adjectives such as “crude and naive.” Using imprecise definitions can make us see non-existent problems. Third, the effect produced by the Evangelii Gaudium on public opinion invites us to review some general indicators of social and economic welfare in countries that are more and less inclined to free markets. Is it true that the free market leaves the homeless and marginalized the less wealthy? How much truth and how much myth is in the so-widespread criticism of “evil capitalism”? What Pope Francis expresses is ultimately a reflection of a widespread belief across a number of sectors in most countries around the world.

It is easy to get an overview of the economic and social situation of more and less free market countries if we group them into four categories according to their economic freedom. This allows a gradient of results and to observe differences between more and less free countries. It is important to note that the data of all countries must be observed, and not chosen, for example, from only a few (more details here). This would allow both an advocate and a critic of free market to choose a couple of countries at their convenience. Is the entire sample, not ad hoc selection, what should be used as reference. Let us consider, then, some economic and social data from countries around the world according to their economic freedom.

The following graphs show the GDP per capita (PPP) [i.e. adjusted for cost of living] and the average 10-year growth rate for four groups of countries according to their economic freedom. As the graphs show, on average, the freest countries are not only richer, but also grow faster in the long run.



Read More→