Roubini: Lauds Austrian Economics; Hangs with Soros

Nouriel Roubini continues to be one of the most fascinating economists operating today. His new book is just out, Crisis Economics: A Crash Course in the Future of Finance. I haven't had a chance to read the book yet, but I did skim through it this afternoon at a Borders Books.

During my quick skim , I found that Roubini treats the Austrian School of economics with respect, something which is obviously not the norm among the Keynesian crowd. He correctly notes in the book that the anti-regulation conclusions of the Austrian school almost force an Austrian economist  to  be a libertarian. He also correctly understands that the Austrians are against, from a policy perspective point of view, central banks printing money in the first place and that Austrians are against printing money as a solution to the downturn.

Two areas I would disagree with Roubini on in his Austrian analysis  are his view of Joseph Schumpeter as the important figure in Austrian economics, and also Roubini's view that the fall off in aggregate demand during the crisis phase of the business cycle can not be solved by the Austrian prescription of allowing the malinvestments to liquidate.

Curiously, both these problems with Roubini's view  were actually key areas of specialty by two Austrian Economics professors who taught at one time at New York University, where Roubini currently teaches. Unfortunately for Roubini, he teaches in the Stern graduate business school , whereas Israel Kirzner and Fritz Machlup taught in another era and in the graduate School of Arts and Sciences.

Kirzner advanced the role of the entrepreneur, from an Austrian perspective, in a much more rigorous fashion than Schumpeter. And he highlighted much more important roles that the entrepreneur plays, than Schumpeter did with his "creative destruction" entrepreneur. Roubini needs to read Kirzner's Competition and Entrepreneurship, pronto.

Further, Roubini calls the debates between Schumpeter and Keynes as most important.  I certainly differ with this view. The debates between Austrian economist Fredrich Hayek and Keynes were much more important, as they directly concerned the nature and policies of the business cycle.

Roubini also argues that in the short term the Austrian solution of just allowing the economy to correct itself during a downturn in the business cycle can not work because of the fall in aggregate demand, what I would call the extreme desire to hold cash. Machlup answered Roubini's concerns regarding this very point in a May 1937 paper, Can We Control the Boom?

Aside from Roubini's concerns regarding short-term aggregate demand problems and Austrian solutions, he writes that in the medium-term and the long-term Austrian economics has "something to teach us."

I certainly can't argue with that assessment, although I think he may misunderstand a bit that Austrians aren't anti-debt, but rather any economic misdirection caused by central bank money printing,

Roubini also says that it is a shame that those who follow Keynes, and those who follow Schumpeter, don't  talk to each. This is true, but representing the Austrians, here he should have listed Mises, Hayek and Rothbard. All three have followers in the modern  dayAustrian camps, whereas there are none that I am aware of that would consider themselves as followers of Schumpeter.

The other part of Roubini's book that caught my eye was his hefty acknowledgements where at one point he thanks George Soros for allowing him to use Soros' summer house for writing part of the book.  Now, I know some will immediately jump at this and charge that Roubini is simply a Soros tool. I don't see it that way. Roubini as I have written before is the most  connected economist alive today. He's a skilled operator who knows how to work the global inner elite, Soros et al. Soros has his tools, but Roubini is his own man.