Austrians as Chicken Little

Here’s a claim that the Austrian School (of thought) saw the global crisis coming.

And here’s a neat version of the Chicken Little story.

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5 thoughts on “Austrians as Chicken Little

  1. Dear Prof,

    Here’s a collection of interviews with Chief Keynesian Ben Bernanke from 2005-2007 just a few months before the housing bubble burst in the US:

    http://mises.org/story/3588

    It’s obvious from his statements that he didnt see the crap about to blow up before his face.

    In fact, if it werent for massive govt (Keynesian) bailouts, NONE of the surviving investment banks in the US like Citi, Goldman Sachs, etc would still be around. They would all have followed Lehman Bros. to the dust.

    Large US non-bank companies like AIG or GM would have been sold off at firesale prices to liquidate them.

    There is no Keynesian explanation for why this massive financial destruction took place. Only the Austrians knew why it happened.

    So yes, the Austrians were absolutely correct… the sky did fall.

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    1. There is much to be said for the Austrian School. But causality is a difficult concept, esp. for an old dog like me. One can say monetary policy also aided and abetted, and that is not necessarily Keynesian.

      But Chicken Little, was, of course, wrong.. Cheers.

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  2. Dear Prof,

    Well, my point is simple: You presented a “claim” that Austrians saw this financial crisis. You connected it with the silly Chicken Little story where some chickenhead thought a small acorn was in fact the sky falling.

    What’s happening in the US is no small acorn falling. They just wasted trillions to bail out their failed companies, and that hardly helped arrest the fall. Given a hundred lifetimes, you won’t be able to count one trillion.

    The sky has fallen… but if you don’t see it that way, then perhaps you should read Humpty Dumpty:

    Humpty Dumpty had a great fall…
    All the King’s horses
    And all the King’s economists
    Couldn’t put Humpty Dumpty
    Together again.

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    1. You saw my earlier post on Austrians vs. Keynesians. I don’t think I can add more on this than what I said there.

      The counterfactual is the enemy. Can one really be confident that if one did nothing that the US recession will recover on its own? At what speed? I understand that the US economy is already turning around some, so there is some validation of what Obama and some of Bush have done. Not much more to add, in terms of my knowledge.

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  3. In a recession, the only entity that should do nothing is the govt. Every private business and individual must be allowed to freely sort the issue themselves without govt interference.

    In 1920-21, the US faced a more serious economic crisis than during the first year of the Great Depression. Unemployment was at 21%. The govt under Warren Harding took a hands-off policy saying that this crisis was caused by loose monetary policies, and so the nation must face the consequences. That recession was so short-lived, it’s hardly mentioned in history books.

    Contrast that with Franklin D Roosevelt’s recession, where he used virtually every govt interference in the economy that he could employ. They mass slaughtered hogs and dumped them so that hog prices could be kept artificially high. Ditto wth other food stuffs. This at a time when Americans were experiencing acute food shortages. That’s only one reason why his recession went deeper and became the “Great Depression”.

    Japan suffered a two-decade stagnant economy after its housing bubble popped in the late 1980s. That’s in spite the fact that they did every Keynesian trick they could do to manipulate interest rates and keep their zombie banks and companies alive.

    And should I mention again the tragic Soviet and Chinese communist experience with unfettered govt interference in their economies?

    There’s ample history to show that centrally planning a nation’s economy never worked. But if history cannot add to your knowledge, well…

    As for govt stats showing a recovery: The housing property fall may have bottomed out, but the next crash is now in the commercial property sector. Housing is peanuts compared with this next big one. And if bad housing loans brought down the big US banks, wait till you see what bad commercial property loans can do.

    And the jobless numbers are not getting any better. Workers are not being laid off temporarily, like in a normal recession. Oh no, they’re being thrown out to the streets permanently. Their places of work are shutting down for good.

    What kind of recovery will you have when the estimated jobless rate is now 16%?

    The sky has fallen…

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