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Saturday, November 10, 2007

How rich would Tyler Cowen be?

I found an old post by Tyler Cowen at top economics blog Marginal Revolution, written almost three years ago, that caught my eye. It's titled "If I believed in Austrian Business Cycle Theory". He lists:

1. I would think that Asian central banks, by buying U.S. dollars, have been driving a massive distortion of real exchange and interest rates.

2. I would think that the U.S. economy is overinvested in non-export durables, most of all residential housing.

3. I would think that we have piled on far too much debt, in both the private and public sectors.

4. I would think these trends cannot possibly continue. Asian central banks may come to their senses. Furthermore the U.S. would be like an addict who needs an ever-increasing dose of the monetary fix. This, of course, would eventually prove impossible.

5. I would think that the U.S. economy is due for a dollar plunge, and a massive sectoral shift toward exports. Furthermore I would think it will not handle such an unexpected shock very well.

6. I would buy puts on T-Bond futures and become rich.

7. I would think that Hayek's Monetary Nationalism and International Stability, now priced at $70 a copy, is the secret tract for our times.

Of course that is not me. But at least someone appears to believe in Austrian business cycle theory. By the way, here is one summary of the theory, although I do not agree with the characterization in all respects.
What I find astonishing about this list is how much of it has actually happened, as we head into 2008.

(1) is still somewhat debatable as far as empirical evidence goes.
(2) is consistent with the housing bubble and the continued decline in housing prices.
(3) is seems increasingly evident, though there may be room for debate on this.
(4) may be happening.
(5) dollar plunge is evident, how we are coping with it is less so, at least to me.
(6) an investment opportunity may have been missed.

I have never read that text by Hayek, nor have I yet read Tyler Cowen's book Risk and Business Cycles: New and Old Austrian Perspectives, though it looks worthwhile. I'm undecided as to whether Austrian Business Cycle Theory is entirely correct, but it's certainly interesting how prescient Tyler's Austrian alter-ego is. Any readers know how rich he would be?

3 comments:

  1. John,

    I want to forward this to people, but could you please link to Tyler's post??

    ReplyDelete
  2. Oops. I have inserted the link into the post now. It can be found here, too: http://www.marginalrevolution.com/marginalrevolution/2005/01/if_i_believed_i.html

    ReplyDelete
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