Thanks to Jerry T. Dowell for this article and the comment on the right-hand side (scroll down) of Sonam Agrawal. My take is the same as Agrawal’s.
The article begins well, with a quote from Trichet, who was president of the European Central Bank. He says in his own words (as I’ve been emphasizing lately) that the monetary authorities literally do not know what they are doing:
“…as a policymaker during the crisis, I found the available [economic and financial] models of limited help. In fact, I would go further: in the face of the crisis, we felt abandoned by conventional tools.”
They do not know what they should be doing.
And the article is correct too in saying that the economists who dominate the “profession” are in denial about their lack of knowledge. But then the author of the article goes off the rails (and into his own denial) looking for alternatives or new sources of knowledge while banishing Austrian economics.
This leads Agrawal to comment:
“Half way through the article, I lost patience. It pains to know that people such as the author are themselves in denial while they continue to blame others. The Austrian school of economics perfectly explains the phenomenon, but people are hell bent on propagating the Keynesian belief system, which they least understand. People like Ron Paul and Peter Schiff have repeatedly predicted it and stand vindicated, yet most economists continue to be in denial. New thinking should always continue, but why do you ignore the wisdom of the past. This is intellectual dishonesty and utter nonsense. “
What I think is that Austrian economics provides a sound and sturdy framework to analyze financial crises. I don’t think its soundness stands or falls with an ability to predict, because prediction is always subject to future actions and to uncertain times of realization; but I do think that the Austrian framework is the right way to go to understand and to to gain more understanding. It’s the right starting point to deepen our knowledge with further research in order better to understand booms and busts, bubbles, and the influences of both central banks and governments on business cycles. We do not know everything yet, but by now we should know that the Keynesian approaches are all deeply, deeply flawed, inconsistent with the realities of human action, and bound to make matters worse when applied.
I believe that macroeconomics as we know it should be dumped altogether into the dustbin of history. If we need to analyze aggregate phenomena, we still can do it if done properly. What we actually need is a far greater emphasis on microeconomic factors, heavily influenced by government regulations, that impact industries and whole sectors, where these sectors become so important as to be near-macro in nature. I’m thinking, for example, of the defense sector, the automobile sector and transportation more generally, and certainly the health, housing, communications, banking, and education sectors. I’m thinking about the unionized public sector. If we set about doing the right things governmentally by each of these sectors, we’d start to have an effect on the macro-economy.
The boom-bust cycle that is driven by a faulty monetary system and mistaken government policies (such as on the mortgage market) is not America’s only problem. I’m saying that government policies, sector by sector, have also seriously distorted the economy and created a secular set of problems that especially surface when the economy goes into recession.
9:08 am on September 5, 2012
