I’ve written several times about Hoover and Roosevelt causing/deepening/lengthening the Great Depression with their tax-and-spend, interventionist policies (see here, here, here, here, here, here, and here). But I’ve only once waded into the deeper economic issues. But a new column by Robert Higgs (h/t, Don Boudreaux) has motivated me to give some well-deserved attention to Austrian economic theory.
As you can see in the excerpt below, Higgs succinctly explains that understanding the works of scholars such as Hayek and Mises is necessary if we want people to truly understand why Keynesianism doesn’t work. Higgs also cites two excellent articles (here and here) by my former grad school colleague, Steve Horwitz, for those who want a head start on grasping these issues.
Misunderstanding the Great Depression has caused much mischief in modern macroeconomics and, more important, in government fiscal and monetary policies based on or influenced by this faulty understanding. If we are ever to arrive at a sound understanding of the Depression, we will have to persuade the economics profession to take Austrian economics seriously, as most economists did before the publication of Keynes’s magnum opus in 1936. Keynesianism in particular has proven itself to be a fundamentally flawed mode of analysis, yet one that has survived, evolved, and—like the zombies in the film “Night of the Living Dead”—keeps coming back, no matter how many times anti-Keynesians credit themselves with having dealt it a fatal blow. Monetarist, New Classical, and other recent critiques have themselves been inadequate or indefensible in various ways, as well.
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@LuvBrazil your utter ignorance of the ATBC is on display in this one statement: “1926 – 1933 was a period of high growth and decreasing prices, this shows the “tight money”. ”
But this one’s a doosey too: “keynesian recommendations were less damaging than austrian”. Less damaging to whom? Politicians, bankers, corporatists?
Misunderstanding of the Great Depression by Hayek -and probably others- is what allowed keynesianism to give such a beating to classical economics because asking for tighter money was actually pouring gasoline into the fire and keynesian recommendations were less damaging than austrian.
The “loose money” that austrians allege simply did not exist, clearly in the post 1925 period money was much tighter than before -and after Great Depression money became even looser- 1926 – 1933 was a period of high growth and decreasing prices, this shows the “tight money”. Hong Kong had a very long period with negative interest rates (interest rates being lower than the increase in some index price) and there was no disaster until dollar increased its price. There was no great depression in Hong Kong.
After reading this stock markets analysis http://seekingalpha.com/article/126347-s-p-500-p-e-ratio-at-troughs-a-detailed-analysis-of-the-past-80-years I even doubt if there was a bubble in 1929. I think thight money causes bubbles by appreciating the currency making the country with appreciating currency very attractive for investment. I think that is what happened in 1995-2000 in the USA
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