Hayek won the Nobel Prize! I would hope he would provide some good insights. Do you honestly believe all the modern Keynesian economics? How is that working out for us? Double digit unemployment, bubble economies, speculative gambling and Wall Street ripping us off, nearly a thirteen trillion dollar national debt and a severely weakened dollar.
Plus, Mises correctly predicted the Great Depression in the mid twenties when no one else did. By the same token, Peter Schiff and Ron Paul, modern day proponents of Austrian Economics, correctly predicted this crises when very few others did.
This is what Ron Paul wrote:
*As Paul saw the situation some five years ago, the government backing isolated GSE management from market discipline. If Fannie and Freddie were not underwritten by the federal government, he told the committee, investors would demand the institutions held to higher management and accounting practices.
“Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market,” Paul predicted. “This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
“Despite the long-term damage to the economy inflicted by the government’s interference in the housing market, the government’s policy of diverting capital to other uses creates a short-term boom in housing,” Paul went on. “Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing."*
Spot on. Also, as much as FinnAgain hates it when I post youtube videos, please watch this video of Peter Schiff getting laughed at for being right in 2005-2007:
Mainstream economic thought has failed us.
A central tenet which allows Austrian economists to predict the cycles of booms and busts is the Austrian Theory of the Business Cycle. From Wikipedia:
**The Austrian business cycle theory (“ABCT”) attempts to explain business cycles through a set of ideas held by the heterodox Austrian School of economics. The theory views business cycles (or, as some Austrians prefer, “credit cycles”) as the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings.[1]
Austrians believe that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment.[2] According to the theory, the business cycle unfolds in the following way: Low interest rates tend to stimulate borrowing from the banking system. This expansion of credit causes an expansion of the supply of money, through the money creation process in a fractional reserve banking system. It is asserted that this leads to an unsustainable credit-sourced boom during which the artificially stimulated borrowing seeks out diminishing investment opportunities. Though disputed, proponents hold that a credit-sourced boom results in widespread malinvestments. In the theory, a correction or “credit crunch” – commonly called a “recession” or “bust” – occurs when exponential credit creation cannot be sustained. Then the money supply suddenly and sharply contracts when markets finally “clear”, causing resources to be reallocated back towards more efficient uses.
Given these perceived damaging and disruptive effects caused by what Austrian scholars believe to be volatile and unsustainable growth in credit-sourced money, many proponents (such as Murray Rothbard) advocate either heavy regulation of the banking system (strictly enforcing a policy of full reserves on the banks) or, more often, free banking.[3] The main proponents of the Austrian business cycle theory historically were Ludwig von Mises and Friedrich Hayek. Hayek won a Nobel Prize in economics in 1974 (shared with Gunnar Myrdal) in part for his work on this theory.[4][5]**
Its pretty clear to me that when a central bank artificially lowers interest rates, encourages malinvestment and misallocation of credit, it distorts the free market and results in an unsustainable boom period. Inevitably this results in a bust causing much pain and hardship.
Furthermore, it fools people into thinking they have savings when in fact they have none. The signals of the free market are important because supply and demand and free people engaging in mutually beneficial economic activity drive growth though savings and production. That is, producing things that there is a demand for and investing in said productive capacity through savings and reserves as opposed to fiat money printed from a government printing press.
The worst thing that Keynesian economics produces over time is expansion of governmental power and exploding deficits given the opportunity to simply monetize debt. And the dollar perpetually loses value because there is no oversight of the Federal Reserve and no restraint on the printing press.
Not sure what qualifies the only economic philosophy that got it right “bad economics” in your eyes but perhaps you can elaborate.