How far will Austrian economics go?
Austrian economics is still very much on the fringe in American academic circles. However, the recent financial crisis seems to have vastly increased the number of the theory's followers and also seems to have made the media pick up the narrative that Austrian economics is the chief, legitimate, and somewhat popular rival to Keynesian economics, whether this is true or not. Be it due to Ron Paul, Peter Schiff, or just people's own research, although there were followers of the theory in the '80s and '90s, it really seems like there are more and more bright people expressing disillusionment with the Fed and monetary policy in the last few years.
How far will this go? Is this just a result of Republicans looking for a way to find an alternative position to a Democratic administration's policies? Once the next Republican president is in office or once the economy gets better, will most of the recent converts to the "End the Fed" philosophy become apathetic again? Perhaps will the position become more marginalized once again? Or, do you see Austrian economics possibly continuing to pick up steam in the next couple of years regardless of what happens? How far do you see the adoption of Austrian economics progressing by academia and by the general public?
Edit: I understand that many politicians will always try to bring home the bacon and wouldn't advocate for the dismantling of the government apparatus, my question is more about how the general public and to a lesser extent, academia, will see Austrian economics and what impact it will have (i.e. more politicans like Rand Paul, etc.)
This is like asking how far will common sense go? Politicians and the average American do not have much of it.
Keynesianism is a politicians dream so I doubt that paradigm will be resisted. Even Chicago School's monetarism is absurd... for a few central bankers to be able to stimulate/halt the economy by manipulating interest rates.... economics results are non-linear and this is a dangerous game.
Still on the fringe?? It always has been and always will be. "Dismantle the central banking system and cut taxes to zero" doesn't have too many friends in Washington...
Maybe Romney will pull a big win out later this year, maybe not, but if you're a GOP fanboy you're probably going to have to wait until the next election cycle to see some action.
You don't have to agree with me, but these are the terms that the general political atmospher are currently framed in, I'm just calling it how I see it.
Completely agree with mb666. What incentive does a politician have to get rid of fiat money and turn to gold (or any finite resource)? We are putting too much faith in the fed to make the right read (despite Bernanke's astronomical IQ) and the right decision regardless of the political climate at that point in time. Austrian economics has already made a small impact. The fed is much more open with their logic and train of thought that has lead to their decision. It's ironic because Bernanke used to be a fed basher, now he's the fed.
I've been meaning to do the suggested reading in "End the Fed" so that I don't have such a rudimentary understanding, but I haven't found the time or mustered the energy. Anybody want to recommend one in particular (he suggested so many that I wanted to narrow it down).
The entire premise of a central bank is that there should, in theory, be a smoother economy with less booms and busts. I mean that is the main point about being able to manipulate rates, provide liquidity, etc.
How has that been working out I wonder? lol
I never said to end it completely, but we have a Fed and central bankers and yet we still have bank runs
http://en.wikipedia.org/wiki/Northern_Rock
Wamu basically had a run on it also.
So I reiterate, central banking was sold as a way to smooth things out and prevent runs/depressions/etc. How come we are still having them then?
I'm sorry, but when has there ever been a period with bank runs every other week? Or at random? And when have we ever lynched bankers? A bank run, despite the negative connotations in the public eye, is a good thing. It is a market-clearing mechanism. It puts checks on the system for abuse. If banks are doing unacceptably risky things, this should be stopped as early as possible- hence smaller and more banks runs. The source of bank runs, as you may know, lies in the fractional reserve nature of banking. If you want to discuss alternative banking system, I have given it a good amount of thought.
Is the trade-off for a Central Bank (a systematic devaluation of the fiat currency) worth it? The United States has experienced approximately a 98-99% devaluation over the last 99 years.
That's funny too. They were designed to make the economy less cyclical and yet the argument could be made that they cause the asset bubbles. What did they think would happen with free money and low rates?
You would be mistaken to think that Republicans adhere to the Austrian School of Economics. They are as much about political maneuvering as the Democrats. Economic outcomes and solutions can be a cold salve and the voter will rarely reward those willing to apply it- whether they have an (D) or (R) after their name.
Considering that a Central Bank is antithetical to the first principles of capitalism (the price mechanism), imagine a mainstream Republican calling for the end of the Federal Reserve. That is considered fringe, period.
unfortunately, AE is dead. Liberalized governments and economics have killed the free markets. no hope for a sound world economy
Fiat money and Keynesian is fine if you use it to expand the money supply in down times and shrink it in good times. Unfortunately we expand it in good times and go ape shit expanding it in bad times. The USD is backed by the full faith of the US government. Well guess what, not many people have much faith in it anymore.
The Fed keeps rates too low for too long and creates the housing crisis which results in a global recession. Now the Fed is printing money and keeping rates artificially low. Luckily China is sopping up all those extra dollars and not injecting them back into the system. That will only last for so long. What kind of collapse are we going to have from this round of Fed action.
It doesn't matter. Politicians like a fiat currency and the public is too dumb to understand it. Unfortunately for the voting sheep they will suffer the wrath, which is pretty much punishment for their ignorance. Austrian Economics is dead because intelligence is dead. Much like how we sell Freedom for a ham sandwich.
I don' know why Libertarians and AE's even care. If people want to fuck themselves, let them.
[quote=TNA]Fiat money and Keynesian is fine if you use it to expand the money supply in down times and shrink it in good times. Unfortunately we expand it in good times and go ape shit expanding it in bad times. The USD is backed by the full faith of the US government. Well guess what, not many people have much faith in it anymore.
Again, well said. If the government wouldn't distort Keynesian economics in the monetary arena, the results would be much better. Fiscal policy yields the same result. The government can not let tax cuts expire in a period of growth without calls to burn the white house, and meaningfully cutting spending is laughable.
The Fed keeps rates too low for too long and creates the housing crisis which results in a global recession. Now the Fed is printing money and keeping rates artificially low. Luckily China is sopping up all those extra dollars and not injecting them back into the system. That will only last for so long. What kind of collapse are we going to have from this round of Fed action.
I often wonder if China's call for a more consumer based economy is simply talk or reality, and how quickly that sopping up of extra dollars will stop.
Sorry, I meant to two of those paragraphs above from TNA^^^^^^
The problem with economic theories, as with any social science, is that they cannot be, in Popper's terms, falsified. Hence they are unscientific.
Every economic theory can be shown to have times in which it has worked, and other times where it has not. The measurement as well as ultimate conclusion of its success or failure is also subjective. Additionally so many variables exist that it is difficult to attribute causality to one of them.
Exactly right. Social "sciences" is a misnomer as none of them can stand up to the rigor of the scientific method. If I drop a ball from 100m in a vacuum, physics can tell you, with an astonishing accuracy, how long it will take to hit the ground and how fast it will be moving when it hits the ground. Economics does not work that way. What you do with $100 I give you today provides little predictive power of what would happen if I give you another $100 three days from now. Austrian Economics is unique among the economic schools in that it rejects the methodological positivism that Keynesians extol. Austrian economists use praxeology and formulate theories in general starting from first principles, not using misleading equations that cannot hope to capture all of the relevant variables.
The other thing is this: economics doesn't purport to be completely scientific. There's a certain amount of 'common sense' and understanding of human nature that is necessary to run a society. Attempting to reduce such decision making to a discrete mathematical formula, or pretending it can be done at all, is a very myopic and autistic view of reality that becomes unviable within the constraints placed upon itself. Math is a very good language or mental map....but the map is not the territory, and there are many times where reality, especially social reality, does not conform to the arrogantly posited view of a scientist.
If you doubt this, then ask yourself how we missed the fact that 99% of the universe is dark matter until so recently. Newton -> Einstien -> whoever is next, each generation of scientists have progressed by SEARCHING for answers, not so much by claiming to already HAVE all the answers. The 'social reality' governing a set of decision making is every bit as important as the hard data used to measure the gains/losses.
This is, of course, my own opinion.
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