Monday, January 11, 2010

Keynesian Economics vs. Austrian Economics - The Austrians Get the Last Laugh

The "noughties decade": The Austrians warned us; the Keynesians just laughed

Here's an enlightening video, featuring bits and pieces from the raging debate which occurred between proponents of the Austrian School of Economics and those of the Keynesian School during the last five or so years of the "noughties decade," a decade which ended with the U.S. economy mired in the worst economic condition since the Great Depression.

The long and short of it: The Austrians warned us; the Keynesians just laughed. Of course we know now know from the evidence who really got the "last laugh."

Sodden thought: The Keynesians are still in full charge of the still-floundering U.S. economy, by the way, as they wastefully continue to pump hundreds of billions of taxpayer dollars into a futile effort to resist the natural economic forces which would otherwise force our economy much more efficiently into better economic equilibrium.

Yessiree, gentle readers, "Ich bin ein Österreicher," economics-wise, at least (with apologies to the late JFK).

And what about you?

Who will be the first to comment?


midwinter said...

I have a difficult time listening to Austrians or Chicago boys without mentally replacing "free market" with "unicorn."

Ogdenite said...

I think you may be talking over most heads.

Keynesianism is taken as gospel. Most business schools teach that when private sector demand falls, the public sector must take up the slack. It is not offered as theory, but fact, like evolution is, by these morons.

Very few understand the need for the purgative power of recessions.

Andrew Mellon understood economics, having proven himself. JM Keynes was an acedemic.

Mellon offered hard medicine. Keynes offered a supposed easy way.

We chose Keynes. As a result, we live off ever larger economic bubbles. The day of reconing is postponed, but grows ever larger.

googleboy said...

"When economic times are good, people pay very little attention to the work of economists. Only when an economy experiences a downturn do people come to economists asking how this latest disaster happened and how do we get out of it. Unfortunately, the economist tends to speak in a cryptic language using references to things like the NAIRU, the short and long-run Phillips curves, and detrended variables found in stochastic processes.
While the Austrian Business Cycle theory (ABCT) doesn't contain as much jargon as alternative theories of the business cycle, the ABCT is a complex theory that sometimes seems just as confusing and impenetrable to the average reader. In order to overcome this obstacle, perhaps an explanation and an analogy may help:

The Economy Pulls an All-Nighter

googleboy said...

Mountainous loads of debt and malinvestment are now overwhelming us. Much of this burden must be liquidated before genuine demand and growth can be restored. Extensive reform is required if we are to minimize the hardship. Economist Ludwig von Mises warned us decades ago, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

This is Bernanke’s worst nightmare—that Mises ends up just as right in his analysis of expansionary credit policy by a government’s central bank as he was in his analysis of the inevitable collapse of socialism as an economic system.

The sun is now setting on the Keynes-Soros-Bernanke model, though it has a way to go yet. Major paradigms of history change laboriously over long stretches of time, and this one will be no different. People like Soros and the statist entourage around him still maintain much power over our lives. But it is a fading power, and the coming years will hopefully pound the final nails into their ideological coffin.

The Case for Recession - Federal meddling is no way to right a struggling market

RudiZink said...

Thanks for the links, googleboy. Here's an excerpt from something from U.S. Rep. Ron Paul, which is VERY interesting, too:

"Last week it was revealed that when Treasury Secretary Tim Geithner was Chairman of the New York Federal Reserve, he urged AIG officials not to disclose to the Securities Exchange Commission relevant details of agreements with banks to bail out Goldman Sachs. Apparently he felt at the time that regulators and the public would be angry that taxpayer money was used to fully compensate bankers who made some horrifically bad investment decisions. These banks should have suffered the consequences of the huge risks they were taking. After all, they kept plenty of rewards when times were good. Instead, the Fed found a way to socialize these major losses so these banks could survive and continue making more bad decisions, at the expense of the American people and the value of the dollar.

Read on...

Why the FED Likes Independence

Deidre said...

"midwinter" sounds like a banker. Are you a banker, midwinter? Do you have any misgivings or attacks of conscience about the damage that bankers and their greedy friends have wreaked upon the entire world economy, through their unprecedented recklessness?

I suppose not. I'll bet get you got your fat year-end bonus around the end of the year.

You demean sensible people, who balance their checbooks with ever more difficulty, and who still don't subscribe to the concept of having greedy corporate welfare recipient bankers running our country.

midwinter said...

@deidre: "'midwinter' sounds like a banker. Are you a banker, midwinter?"

No, I am not a banker, nor am I in any way associated with the financial sector.

I guess that makes the rest of your comment irrelevant, although I was pulling for a provision in the bailout to allow, each night, a different retiree with no savings left to wake up a member of the AIG Financial Products Division in the middle of the night and punch him dead in the face.

Shut Down The Federal Reserve said...

With depression at the doorstep, it is time to fire the Federal Reserve. Western economies are on the brink of total collapse; only prompt, decisive and radical measures can prevent complete world economic ruin. Ironically, Russia and China are in a much better position to weather this up-coming storm than western countries.

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