Wikinvest Wire

A revival of Austrian Economics this decade?

Wednesday, January 06, 2010

There's a pretty good chance that, in the period ahead, Austrian Economics will have its best decade in a hundred years. Why? Because, absent a solid economic recovery, the problems with mainstream economic thinking will continue to lay themselves bare for all to see and the odds of a solid economic recovery that doesn't come with an even bigger asset bubble than the last one are looking pretty slim right about now.

In his weekly commentary, Congressman Ron Paul (R-Texas) again asks the simplest of questions such as, "How can more easy money fix the problems caused by easy money"?

Keynesianism Delivers a Decade of Zero
This past week we celebrated the end of what most people agree was a decade best forgotten. New York Times columnist and leading Keynesian economist Paul Krugman called it the Big Zero in a recent column.
It was encouraging that he admitted that blowing economic bubbles is a mistake, especially considering he himself advocated creating a housing bubble as a way to alleviate the hangover from the dotcom bust. But we can no longer afford to give prominent economists like Krugman a pass when they completely ignore the burden of taxation, monetary policy, and excessive regulation.

Afterall, Krugman is still scratching his head as to why “no” economists saw the housing bust coming. How in the world did they miss it? Actually many economists saw it coming a mile away, understood it perfectly, and explained it many times. Policy makers would have been wise to heed the warnings of the Austrian economists, and must start listening to their teachings if they want solid progress in the future. If not, the necessary correction is going to take a very long time.

The Austrian free-market economists use common sense principles. You cannot spend your way out of a recession...
While Austrian Economics is not the cure for all our economic ills (and the path to adopting such an approach in the U.S. would likely come with a degree of pain that would be far too much for any politician to bear), it does seem to make more sense than the present system with each incremental trillion dollars that is spent in trying to prop up the 20th century economy that seemed to work so well - right up until the beginning of the 21st century.

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Anonymous said...

Krugman (like Volcker) has cast himself as a contrarian and voice in the wilderness, which is completely false and is believed only by the gullible or those with short memories.

Austrian economic policy will not replace Keynesianism in the foreseeable future, not because of the intellectual bankruptcy of the latter but because of the lack of a political base for the former.

Anonymous said...

Yeah, the Austrians don't offer any action to alleviate unemployment. The 25% unemployment during the Great Depression was too much for the population to bear. They wanted help, and so rejected the Austrians because they offered none.

Printing isn't the answer. All that does is rob pensioners, and give the goodies to the unemployed. What is needed is some way to smoothly transition redundant workers over to producing innovative new products.

The old system never worked for retirees, who got systematically robbed under constant inflation.

Anonymous said...

We could all do with some hairshirts for a few years.

Anonymous said...


i think you mean to say austrian economics did not offer any quick fixes for unemployment instead of not offering any actions at all. suboptimal unemployment is caused by capital misallocation. the austrian solution is for governments to do nothing and allow prices to adjust. this will determine how much of what needs to be produced or not. the alternative is faith in master planners.

the 'problem' with the austrian solution is that it forces one to accept an ugly truth when most prefer to remain in denial.

Adam said...
This comment has been removed by the author.
Adam said...

Sorry man - But when Austrians get into power they become Greenspan.

Adam said...

Krugman also never advocated a housing bubble. He was smart enough to know it would work in inflating the GDP in 2001 but not a strategy to use the whole decade. He did caution against the bubble too in subsequent columns throughout the decade.

Adam said...

Steve Keen's recent analysis is much better than the knee jerk Austrian one anyway.

Anonymous said...

So, are you saying that the Mass Job Losses to China was an Austrian solution to what? Greenspan seems to have INFLATED the economy to HIDE these job losses.

Also, the CDO market, which Greenspan allowed to go UNRegulated, was Hugely INFLATIONARY. 40 Times Leverage is INFLATION.

I don't Trust a Word you "Austrians" say.

And finally, no one want's to be on Keynesian Economics forever. But, we do want to stop a Exponential Fall in Jobs, Foreclosures and Bankruptcy's. Now, I know you guys LIKE Bankruptcy's because you've already got your BETS in place, esp. GS. But, our economic policy should be about making America Stronger, not allowing you guys to destroy people to make a profit.

And, really finally, I'm laughing everytime I hear a "Republican" talk about "fiscal discipline". We've broken the code, that's just the BS you say when you want to get elected.

Anonymous said...

China's 50% savings rate gave them a competitive advantage in machine intensive manufacturing. A non saving nation cannot compete with China's ability to quickly construct updated factories. (China can produce as much steel as the US, Europe, and Japan combined.) The non saving nation is stuck with outdated factories, because it has no savings to update their dinosaur era facilities. That is where the jobs went.

The Greenspan solution was to encourage borrowing from overseas, and using the borrowed goods to pay each other for "services". This was nutty, as it led to unrepayable levels of debt, and an inevitable credit crises.

If international trade is to be continued, the US needs to specialize in sectors that it has a competitive advantage in. Also, to encourage a reasonable savings rate so that capital goods can be constructed. Greenspan encouraged borrowing to bid up McMansion prices, when what we needed updated high tech manufacturing facilities.

Jobs come from producing innovative new products, not from acres of empty McMansions. McMansions don't actually produce anything that can be traded for overseas oil, and other strategic overseas resources.

Anonymous said...

Some of this is getting pretty catty. Call it whatever you like, but I hope you are starting to get IT. I, for one, don't want to pay huge taxes and be chained to a currency when all I get in return is one puny vote on how to direct it. The public option should be I don't want any, just leave me alone. Why not let the whole system blow sky high to kingdom come and then figure out what needs to be put back together afterwards? I am confident things will be much better off for everyone, except the pigs, leeches and parasites that need to keep this stinking Frankenfascistein alive. As for Krugman, what can one say? He got the Nobel. Just like Gore did for jumpstarting the climate change hysteria based on falsified research. And just like Obama did for escalating the War of Terror. Is is so hard to see the Big Lie doublespeak staring straight at you?

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