Monday, January 2, 2017

Austrian-Lites

Austrian-lites: Students of Austrian School Business Cycle Theory who have adopted the odd view that the Federal Reserve can not create the boom phase of the business cycle. They hold that the economy is somehow always in a downward spiral and that the Federal Reserve can "run out of bullets" so that the downward spiral can not be reversed.

This view is held by the lites even though Austrian business cycle theory itself is a theory which describes the boom and bust phase of the business cycle.

Note well: That a central bank, such as the Federal Reserve, can create a boom and bust cycle, does not preclude other types of government interventions in the economy that can harm the economy, such as minimum wage laws and price controls.

Further, that a central bank can create a boom-bust cycle does not mean that the boom phase is not a distortion of the economy. It is just that the boom phase tends to result in a distortion phase where unemployment is low, and stock market and real estate prices are high.

The positive objectives, of course, could be reached without Fed manipulations, if the free market was allowed to reassert itself.

A further danger of central bank money manipulations is that on occasion money printing becomes so aggressive that hyperinflation strikes. This is the ultimate crack-up phase where the central bank must either stop money printing and cause the bust phase of the business cycle or money printing becomes so expansionary that it makes the currency virtually worthless.

 -RW