Common sense in business cycle theorizing

Someone attempting to understand the Great Recession was asking Bob Subrick and me about Austrian business cycle theory. We both agreed that it is a part of the story, but only a part.

I woke up the next morning and went online to find Tyler Cowen saying the same thing. Is common sense gaining ground in discussing business cycles? Surely, The real world being complex and all, many different processes are occurring in the economy at the same time. Distorting interest rates is going to do something. One question is, how much impact does it have? Another question is what other factors are also at work?

3 comments:

  1. Over on the political forum that I belong to, I was told that booms and busts would be no more if the federal reserve were to be eliminated. Does that jive with ABCT?

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    1. "Does that jive with ABCT?"
      More or less, if the new monetary system is some kind of gold standard or similar. Rothbard, I think would have said you would also need to get rid of fractional reserve banking, and hell, probably credit cards and any other significant means of extending credit through "funny money, unbacked by gold".

      ABCT is complicated, and there seem to be a lot of subtle variations of it that are hard to understand. It doesn't help that its loudest proponents on the internet often contradict each other and themselves.

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  2. "...Tyler Cowen saying the same thing. Is common sense gaining ground in discussing business cycles?
    Maybe, but it seems to me that this has been Cowen's more or less consistent line since 2008, at least.

    http://marginalrevolution.com/?s=Austrian+business+cycle+theory

    "What happened is best thought of as a bubble where loose monetary policy was one of several triggers but the market response was more at fault than was government."

    "Krugman on Austrian business cycle theory....Basically he's right..."

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