According to this Slate article, author Matthew Yglesias poses a question based on the “insights” of George Mason University former (obviously) Austrian economist Bryan Caplan:
“If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”
For the same reason that most private investors and businessmen believe that taxes are “the price we pay for civilization” (how the U.S. managed to grow exponentially for the first 135 years without personal income taxes is never a thought that occurs to most private investors and businessmen), that we need the Fed to control inflation and stabilize the economy, that war is good for an economy, that the New Deal ended the Depression, that minimum wage laws help the poor, that wage and price controls are good, that fractional reserve banking/fiat currency is more progressive than a 100% gold-backed currency: Because most private investors and businessmen who earned college degrees in business, which generally include courses in economics, got the Rockefeller/Rothschild school of “economics” version of economics rather than real economics. Having worked in the financial sector for almost twenty years, I can assure you that from my first-hand experience with financial people, most of them are clueless about real (i.e., “Austrian”) economics. All that most private investors and businessmen know is that when interest rates are [artificially] low, it means it’s time to get in on the cheap money before interest rates rise again.
Also, most investors, both public and private, don’t even know that the New York Stock Exchange is a scam—and you don’t have to know any Austrian economics or even be a conspiracy theorist to understand the basic logic as to why that is so.
UPDATE: And, as Don Cooper points out:
“Also, because if even one firm takes the easy credit then they have a competitive advantage; so the other firms have to take it too, even if they realize what they’re doing. Moral hazard at its finest.”
Mickey Propadovich points out:
“It’s also worth noting that thousands of economically illiterate private investors ruined themselves piling into the recently deceased housing market to develop millions of speculative housing units, many of which still remain unsold. Those private investors schooled in the Austrian business cycle theory understood that the housing market, fueled by cheap credit, was a bubble in search of a pin and acted accordingly.”
Building on Mickey’s comment, I’d like to know how many private investors and businessmen are currently protesting the continuing low interest rates that got us into this mess to begin with—and are prolonging the mess?10:19 am on January 8, 2012 Email David Kramer