Thursday, April 10, 2014

A Student of Austrian School Economics Reports from His Masters Class

Douglas Delgado-Landaeta emails:

I would like to share with you my recent experience with my Master's classmates. The point I want to make is that one can be successful by sticking to the principles, as you pointed out in a post.

At first my classmates didn't veer from their mostly Keynesian and monetarist views, but after several arguments I made quoting Rothbard, De Soto, Mises, Böhm-Bawerk, Hoppe, Klein, among others, I have gotten several classmates agreeing with me and even my instructor supporting some of the Austrian positions. Below are some comments from them.

From a classmate after I argued against any government intervention and the myth of government being our saviors:
Your closing comments are quite thought provoking...Post the 2008 financial crisis and the unraveling of events in some EU countries have left a profound effect on financial markets.
From another classmate:
 Thanks for stopping by and introducing the Austrian business cycle theory to the discussion.

From my Instructor (A hardcore Keynesian-Monetarist) after I argued against fractional reserve banking:
First, Douglas is right because the monetary policy was indeed a cause of crisis. The mechanism happened as follows: (i) the government loosened monetary policy to support credit expansion and thus economic growth and employment; (ii) because of too much credit expansion (cheap money), investment decisions were made wrongly (such as subprime loans) or money was channeled into asset markets such as properties or stock markets; (iii) as worries about asset bubbles increased and signs of bad debts, banks stopped lending and tried to collect money back; (iv) but they failed; (v) the crisis started as people could not pay and they rushed to sell off their assets (stocks, properties) .etc This whole process implies that credit expansion or monetary policy was a key. 
From another classmate:
Despite the criticism from mainstream economists on the Austrian Business Cycle theory, I tend to agree with the overall general course of events it depicts.


  1. The professor's response to the argument against fractional reserve banking does not even address getting rid of fractional reserve banking. He's talking about keeping interest rates too low for too long, a position supported by Nouriel Roubini who is a Keynesian. Raising interest rates in 2003 is a long way from getting rid of fractional reserve banking (an extreme position that few support).

    Also, a low federal funds rate has zilch to do with giving a junk bond (bundled up sub prime loans) a AAA rating, AIG writing credit default swaps for junk bonds that received AAA ratings, using junk bonds with AAA rating as collateral, etc. All that is a consequence of banks being run for the benefit of senior management rather than customers and shareholders. Blaming the whole thing on the federal funds rate is laughable.

    Interested to know if the student bothered to explain to his class why "economic facts can't refute economic theory."

    1. Don't you have a water machine to go refill?

    2. Jerry, you need to understand the Origins of Necessity.

      Here, take a look at something that you can wrap your mind around:

      After you understand this, you will understand with no difficulty whatsoever that "economic facts can't refute economic theory".

      Why am I being so nice to you today? Because I like trolls.

      Maybe introducing you to epistemology and metaphysics might help wean you from the MMT / Keynesian teat.

    3. Ohh Jerry, You do not know how to read and definitely do not understand Austrian Economics and the dangers of fractional reserve banking. I bet you only read at whatever bs mainstream economists say.

      what has AAA Rating from AIG has to do with this post?

      Economics facts refute mainstream theory. Open you eyes, and do not be naive.

      Any serious person would not believe anything you say after claiming Paul Ryan is an Austrian.

    4. Re: Jerry Wolfgang,
      -- Also, a low federal funds rate has zilch to do with giving a junk bond (bundled up sub prime loans) a AAA rating, --

      Nobody said it had. You're simply throwing a red herring out there, which seems to be your recurring pastime.

  2. Wise men are the only thing standing between animal spirits and total catastrophe. Catastrophe!

    1. Wise men, plus one wiseacre.

  3. Someone please inform the troll JW that his animal spirits are flowing out of that so called analog water computer and making a mess on the floor