No. The Austrian school doesn't engage in the hubris that a central government can solve the ills of the world. Take a look at the utter failure of every government which has tried. The Austrian school believes that you are better at making decisions for yourself than a government can make for you (unless you're impaired or too young, of course). The belief is that the government has very limited power to improve your life and virtually unlimited power to make things a lot worse. Thus, it proposes a laissez-faire approach rather than government planning (in contrast to Keynes). Had our government actually been more laissez-faire, we wouldn't have a centrally planned interest rate which was kept too low to hold off a mild recession in 2001 and for to long so as to encourage speculation in the housing market - indeed in credit generally. It wouldn't have created a Fannie and Freddie or the Community Redevelopment Act or anti-redlining laws which were designed to replace credit analysis. You can thank regulation, central planning and government guarantees (now more pronounced and explicit with the bailouts) for the current crisis. No lender would lend under these loose standards if he thought he could actually lose his money. And, before the government increased its intervention in the free market to effect political goals, nobody did.
Absolutely Angrycat. It is government meddling and failed social engineering that has caused this mess. It is sheer arrogance for any human to think he can control a global economy. -burn8
"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand. " "Only government can take perfectly good paper, cover it with perfectly good ink and make the combination worthless. " and finally............"The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government. " Milton Friedman
Keynes' theory amounts to: save for a rainy day. And then, when it rains, spend it. It's the saving part that trips up the politicians. Friedman's also makes sense: keep money supply growth steady, at a rate that allows for growth but doesn't reward cupidity or stupidity. Put the two together, and you'd actually do quite well. But the Fed will never follow Friedman, any more than pols will follow Keynes.
I don't fully agree with Austrian economics, but I'd say the last 10 years have pretty much vindicated its claims as to the dangers of fiat-money and its tendency to blow serial credit bubbles. What has the 1998-2008 period been except a continual series of misallocations of capital on gargantuan scale? Also don't forget that 1990-2000 Japan made even Keynesians give up on Keynesian economics. They did everything textbook out of the General Theory, and had an 18 year rolling depression to show for it (with another recession coming now - they got all the downside and none of the upside). Japan showed the real danger of "doing something" - massive distortion of the free market price mechanism, resulting in 2 decades of horrendous misallocation of resources. Meanwhile, the 1998 Asia crisis, and the 2001-02 Argentine/Brazil crisis, showed that a liquidationist policy doesn't have such bad long-term catastrophic effects that many feared. Brazil went more Austrian/classical (high interest rates, fiscal discipline during a crash), Argentina went Keynesian - Brazil recovered well, Argentina is an even worse mess 6 years later. Asia was forced by the IMF into austerity programs, and the 'depression' was over in 18 months.
Great post, 100% agree. Personally I think what is coming the next 10 years is a Japanese style rolling recession/depression but with a more inflationary ("stagflation") bias. I've said it months ago and I'll say it again, I see zero chance of severe deflation. The Fed will start buying mortgage securities (and sure enough -- just happened), and if bringing mortgages to near 0% long term rates isn't enough, outright equity purchases is next (that part is of course is in full force in the banking sector, but I'm referring to extending it to the rest of the S&P 500 stocks in general). The multi-trillion $ printing presses will create a severe inflationary reaction. For reasons I don't understand, inflation seems to lag rapid money supply growth by a couple years. The only theory I have on that is usually the central banks increase money supply rapidly during periods of even faster reductions in money velocity due to debt destruction. Thus you typically see this same pattern during crisis of slight to moderate short term deflation, carry trade implosion, junk bond / general risk yield spread increases, VIX increases, and then this becomes inflationary at a certain point. To break the cycle is rather easy though far from painless; pursue policies that increase long term sustainable productivity and increase the savings rate. Doing anything else does not deflect the recession, rather it forward-loads it making the next one more likely to be a depression. At a certain point there is no choice, and all the mistakes of the last few recessions (sometimes over decades) come back to haunt the economy, in many cases suddenly and combined together. Bad debt and monetary stimulation are at the center of the problem. The constant bubbles/panics we see are nothing unexpected, and the continual misallocation of resources harms standard of living growth.
How about the Flat Earth theory of geology? Austrian school is a fringe theory, it is not respected by serious economists, and is a honeypot that draws crackpots from all over.
Correction: Re: Keynsian economics is NOT dead The correct observation is: Re: Keynsian proven to be govt. sponsored FRAUD Stealing from the poor and giving to the wealthy by continually debasing the currency. Individuals who espouse Ayn Rands capitalist theories are basically well-meaning imbeciles. Individuals who espouse John Maynard Keynes economic theories are either intellectual frauds or dishonest imbeciles.
'There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. ' This is not true?