Austrian Economists on the Crisis
I enjoyed this Blogging Heads video featuring Arnold Kling, and Russell Roberts discussing the roots of the economic crisis. Both came to the Austrian school from others, specifically Keynsianism, and Monetarism.
In this video they discuss a little bit of the history of these schools and their arrival at an Austrian perspective. I enjoyed their initial discussion of “perils of Econ 101” where they illustrate the danger in macroeconomics of rationalism (using the C + I + G formula). They do a nice job of illustrating how one must go back to reality to ground the theory (“curing cancer vs. filling holes”).
The discussion is technical rather then philosophical, but it is a well-reasoned discussion. They correctly identify government policy in the housing market as the root of the crisis, and they concretize how that happened. They question the use of stimulus and the model that Ben Bernanke is using to prescribe such actions.
Labels: stimulus
This clip has many worthwhile take-home points, but perhaps my favorite is Kling's summary of the various approaches to government's role in the economy. As he put it, the Chicago school (monetarists) say: "Markets work--use markets." Keynesians say: "Markets fail--use government." And economists from George Mason University (heavy Austrian influence) say "Markets fail--use markets." I think another formulation may be even more accurate: "Markets work (as a discovery process.) Government fails in the market (by disrupting market discovery.) Use markets."
None of the above formulations, however, address the other crucial aspect of markets vs. government. Markets are based on freedom and individual choice, and government is based on coercion. Not only does government intervention into the market disrupt proper market functioning, but the way that it does so is to violate its primary raison d'etre: the protection of individual rights.
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