austrians back to austria
DESCRIPTION
Austrian School of EconomicsTRANSCRIPT
Bringing the Austrians Back to Austria
Remberto Latorre-Artus
Main Contributions
Subjective Theory of Value
The Marginal Revolution
Business Cycle Theory (Capital-Based Macroeconomic Theory)
The Economic Calculation Problem
The underlying causes behind:
The Great Recession
The European Sovereign-Debt Crisis
The Euro Crisis
Questions (Audience chooses):
Will the Fed lose monetary policy sink the US dollar?
Will the Euro survive Portugal, Italy, Greece and Spain sovereign-debt crises?
Should Germany Lead or Leave!?
What is the Austrian recipe?
If Mises and Hayek were alive today what would they recommend? (And where do they differ?)
What is the Austrian paradigm?
It places individuals at the center (purposeful actions of individuals)
Marginalism.
Incentives matter.
Solution based on Human Action (not Human Design) and thus,
AE is down to earth, easy to understand and based on common sense.
How to understand the global crises?
Macroeconomic Propositions have Microeconomic Foundations
Austrian Business Cycle Theory (Capital-Based Macroeconomic Theory)
Böhm-Bawerk built upon the TIME PREFERENCE ideas of Carl Menger there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Moreover, the value of future goods diminishes as the length of time necessary for their completion increases.
Austrian Economics understand that “K” is never homogeneous.
Inter-temporal consumption.
How to understand the global crises?
*This is the key insight of the Austrians: you cannot pretend to massage Aggregates and expect a perfect “trickling down.” Instead, if you interfere, you will create market distortions.
What distortions? Mainly interfering with the market signals of the price system (Supply and Demand for Money).
Therefore, booms and bust cycles are NOT a normal feature of a market economy
Money Market
The market process plays itself out differently depending upon whether the increased supply of loanable funds derives from increased saving by individuals or from increased credit creation by the central bank.
And the Proof is in the Pudding:
And the World follows suit:
The most dangerous: Toxic Assets
Moving to the Crises
The Great Recession
The European Sovereign-Debt Crisis
The Euro Crisis
The Great Recession
The European Sovereign-Debt Crisis
Source: Jagadeesh Gokhale, Measuring the Unfunded Obligations of European Countries Policy Report No. 23 January 2009, National Center for Policy Analysis
THE TRUE DEBT OF EUROPE(Official + Pension + Health + Welfare; as % of GNP)
Greece 875%
France 549%
United Kingdom 442%
Germany 418%
Italy 364%
EU 25 434%
Youth Unemploymen
t in Europe
German Finance Minister Wolfgang Schäuble warned that failure to win the battle against youth unemployment could tear Europe apart, and dropping the continent's welfare model would spark a revolution. (Reuters, May 28, 2013)
The Euro Crisis
The Euro Crisis
Conclusions
Market intervention creates “white noise” distorts real signals (masking agent)
Market intervention creates Moral Hazzard “Too big to fail” Too big to Jail
Market intervention creates backward Social redistribution Privatize the profits and socialize the losses (the poor pays the rich)
Conclusions
The Keynesian “Trickling Down” solution doesn’t work in the long-run.
Injecting liquidity to help jump-start the economy offers the phony appearance of prosperity, which makes things all the worse (instead of a mild recession we get depressions).
The Austrian Recipe:
Stop the Madoff Scheme (QE) right now, before it’s too late!
Allowing an organic correction, i.e. allow markets to do the job and liquidate malinvestments.
Allow people to figure out where are the sectors of the economy starving for new resources.
It is people (risking their own capital, and using information closer to them and the signals of the price system) who can figure out better where, how and in which ways the new money should go.
The Austrian Recipe:
There is no non-arbitrary way for a central planer to figure all this out on his own.
Trust in the power of Human Action vs Human Design.
The private sector has a lot to be blamed for, but they reacted to incentives emanating from the central authority and thus…
…Don’t blame the pig, blame the one scratching his back!!!
Panel Discussion
PPT and Literature
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Austrian Economics Center and Hayek [email protected]://www.austriancenter.comhttp://www.hayek-institut.at