Thursday, July 10, 2014

A Grudging Nod to Austrian School Business Cycle Theory

By Jeff Deist
The Economist is often wrong about economics and world affairs.  Worse still, it is almost uniformly tedious and overbearing in tone: its writers generally sound like exasperated parents having to explain for the hundredth timewhat everybody knows.
But here an Economist blogger gets one thing right, in a piece otherwise riddled with errors (everybody knows that Austrians are wrong about QE and hyperinflation, everybody knows that Austrians favor a dystopian, selfish world, etc).
The insight of Austrian economics that seemed pertinent to me is that credit cycles can be hugely destructive, as the credit often does not find its way into productive uses; just drive around Ireland and see the abandoned houses built a decade ago if you want an illustration. Before 2007, most economists seemed to think that credit didn’t matter, except when it caused inflation; that is clearly wrong.
Clearly the central bank apologists are getting nervous, and they should be.  Even the high priestess of the US Fed iswarning that “Monetary policy faces significant limitations as a tool to promote financial stability.”
SIR: Perhaps she can push harder on the string.
The above originally appeared at
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