Blogging from the Highlands of Scotland until I return to the Murcia region
of Spain in the Spring for several weeks

'From fanaticism to barbarism is only one step' - Diderot

Sunday, 28 August 2011

Austrian Economics: Why it matters

I believe that the best long-term remedy for the economic catastrophe that has been plaguing us these past four years is the adoption one simple strategy: the government should largely step back from trying to 'manage' the economy and allow market forces to play the primary role in its management, so that resources would be diverted, by these market forces, into the most productive outlets. That in a nutshell is what "Austrian Economics" is all about. Think about the real reasons the housing price boom which preceded the current prolonged recession occurred - I would say it was because interest rates were artificially maintained at too low a level by government intervention, so that it became too easy to borrow money, much of which was not employed in genuinely productive investments, but instead was used by many individuals as seed-money for investment property portfolios, which itself of course fuelled the building of property to meet the increased demand for property. Now the government tells us it must keep interest rates low so as not to cause a downturn and to stimulate spending, even if it requires the printing of more money without any backing. It is like pouring petrol on a blazing fire! The net result of this kind of madness is the inflation which we are now seeing beginning to gather pace, after having been told every month for the past four or so years that the rise in inflation was only 'temporary' and would soon be reversed - that reversal has of course not occurred yet. The "Keynesian" model that is being followed is not working, and never worked (nor could it ever work), but governments and central banks (in our case the Bank of England) are loath to accept this - because the conventional wisdom is that the "Keynesian" policy of interventionism is the correct path to follow, when empirical evidence points in a completely different direction.

This is just a small example of the fundamental differences in ideas which separate "Austrian Economics" from the "Keynesian" philosophy of economics which many western countries have followed far far too many decades. The video-clip below is well-worth watching in full - it is quite lengthy - as it discusses very clearly and I think pretty objectively the rationale which lies behind "Austrian Economic" theory:



- this is taken from the an article in the blog of the Ludwig von Mises Institute whose website is here.

If you are not familiar with "Austrian Economic" theory, then I urge you to become so - for then you will, I hope, begin to understand why the "Keynesian" economic theories which our and many other governments have been following for so many decades is so counter-productive in the longer-term and that there is another better way of conducting our economic affairs.

1 comment:

  1. Quite right - it should step back but it won't, because of plans such as the Stabilization Fund and so on - we're a source of money for grandiose schemes.

    ReplyDelete

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