Austrian Ecomonics and 07/21/11 Market Action

The ability to see and understand things from a fundamental level is essential to mastery of any subject. Fundamental understanding allows one to apply principles rooted in reality (natural law) to solve complex problems with a particular field of study whether it be physics, chemistry, mathematics, economics, or stock trading. It takes a really solid understanding and mastery of a subject to articulate the fundamentals clearly. I am still a student of Austrian Economics. So I will offer Richard Maybury's, a longtime author of Austrian Economics, overview of the fundamentals:

Richard Maybury:

Suppose a biologist said in public that he could make a mathematical model of the Bitterroot National Forest, including the behavior of all its animals, and using this model, he could make adjustments to the forest so that all the animals would live better and longer. What would happen to his career?

Hopefully, it would end. The 1.6 million acre forest is far too complex for any human to play God without wrecking it. But that’s the promise of socialism and Keynesianism. Both assume it is possible for the government to do central planning where bureaucrats consult their mathematical models and decide how high interest rates should be, how much money should exist, what the levels of joblessness and production should be, and how high prices should go. I call this the cult of the mastermind.

The “Austrian” economists point out that the economy is not a machine, it is an ecology composed of living organisms, people. The Austrian school is in the forefront of the effort to expose the madness of the government’s Keynesian and socialist policies. The early leading lights of Austrianism were from Austria. Best known are 1974 Nobel laureate Friedrich Hayek and his mentor Ludwig von Mises.

In economics, the Austrian paradigm is the philosophical descendant of Adam Smith and the other so-called classical liberals (meaning libertarians). In politics, Austrianism is the descendant of Patrick Henry, James Madison, Thomas Jefferson and the other American founders. 

Austrian economists see the economy…

…not as a machine but as millions of individual thinking, feeling humans, each with a free will and his or her own unique set of needs, wants and desires which change endlessly. The Austrian says the mastermind idea is crazy. It is not possible for a group of politicians and bureaucrats to know what is best for each individual, or to meddle in our lives without doing harm. Austrians echo Thoreau: “If I knew for a certainty that a man was coming to my house with the conscious design of doing me good, I should run for my life.” The other four macro paradigms — socialism, fascism, monetarism and Keynesianism — are “statist,” they assume an honorable and competent mastermind is possible. Austrianism is non-statist or anti-statist, and asks, where is the evidence for this assumption?

Read Hayek’s books The Constitution Of Liberty and The Road To Serfdom, and you will see the direct connection between the Austrian model and the two fundamental laws of civilization I often write about: do all you have agreed to do and, do not encroach on other persons or their property. To me…

Please see the rest of the article at the following link:

http://www.chaostan.com/austrian.html

Back to trading...

The SPY is holding up quite well after breaking the 133 level (See chart below). Perhaps it can work it way up to the 136 or 137 level. If the market continues to hold up tomorrow I may continue to try some small position size swing trades.