Inevitably, topics in Austrian economics are going to be coming up quite frequently on this blog, so it would serve us well to discuss areas where Austrian theory is sound and where it needs work.
From my own analysis (unpublished, I’m afraid, so if you want to read it you’ll have to ask) Austrian business cycle theory (ABCT) accurately approximates how Fed activity creates business cycles. However, we have to consider the fact that the Fed (like all central banks) were creates into order to set monetary policy which could correct for ‘market failures’ and business cycles. It would be circular reasoning to assume that cycles are only caused by central bank policy, because Central banks were created in order to prevent cycles.
Discounting the conspiracy theories that I, more or less, don’t believe, we can assume that politicians and economists saw at least some merit in the Bank’s ability to control cycles. The most that can be said is that policy makers are overenthusiastic in their trust of the Federal reserve because: a) they can’t see the long term affects of central bank policy b) somewhat more sinisterly, policy makers like the power rush they get from having control over the economy.
That being said… This being the Young Americans for Liberty, I challenge the next generation of perspective economists to take up the mantle for free market (and Austrian) economics in a new way.
The exponentially increasing capacity for computation and scientific understanding are challenging the logic of praxeological assumptions. While I dare not reject the wisdom and knowledge of our Austrian ‘forebears,’ the next generation who understand the power of the free markets should be embracing tools of the mainstream to answer some of economic’s toughest questions.
Here are some goals I believe that economists should be focused on: Understanding how manipulation of interest rates, and expansion of the money base, are interpreting by market players, investors in particular.
How do productivity changes (technological shocks, etc.) or expectations of productivity changes affect investment patterns, (perhaps leading to speculation, etc. ) Can Central bank counter cyclical policy account for these anticipations and successfully erase the associated business cycles?
Quantify how the expansion of money base during times of recession feeds into and worsens future business cycles.
Please add your own goals in the comments.
Unless free market economists can make a strong empirical case for the government to stop interfering with monetary policy, I don’t think we will ever be taken seriously by our peers. If economists don’t take up the free market mantle, how can we ever expect politicians to?
Perhaps I’m being overly pessimistic about the type of research that’s being done by the modern Austrian school or the number of people they’ve been able to convince of late. Anybody care to enlightenment my naivete?Published in