>However, the school of thought's aversion to econometrics makes their policy advice self-limiting compared to mainstream/mainline economic theory. This I agre

>However, the school of thought's aversion to econometrics makes their policy advice self-limiting compared to mainstream/mainline economic theory. This I agree with, I do think there is tremendous value in using statistics as a way of analysing trends and reinforcing theoretical arguments with empirical data. I'd disagree strongly on the point that Austrian theory is not ignored by mainstream economists though as it seems like many of the underlying assumptions that justifies the Federal Reserve are rather flimsy when examined critically from an a priori Austrian perspective. >As for your specific points, that the large central financial institutions are, according to Austrian theory, causing recessions, even Austrian RBC doesn't completely agree.[1] Economic busts will happen with or without central banks -- being able to bail out key financial platforms is a good thing if it prevents the unnecessary misery of millions or billions. As every economics student should learn in the second half of economics 101, the free market does not always perfectly allocate resources, either immediately or over time (see discussions on externalities). Thanks for pointing this out, maybe I wasn't too clear in my post. I elaborate a bit more on this in a comment below, but didn't touch on the neccessity of having an institution able to bail out financial platforms during economic downturns. I do think that this boils down to the question if we can ethically and legally justify fractional-reserve banking, as bailouts would not be necessary if banks were mandated to keep a 100% reserve on demand deposits. I'm personally a bit split on this issue and so are many other Austrians, with purists adhereing to the Rothbardian view that only full-reserve banking is ethically defensible while others prefer leaving it to the free market to decide. I believe that in the latter case private insurance companies would be more than suitable to provide services to bail out banks who overextend credit, and would also serve as a natural check on said overextension as an insurance company would not be willing to take the risk to insure an irresponsible bank with a tendency to not make careful judgements. If anything, having a central institution that will bail out banks regardless of what happens is far more dangerous as it introduces a significant moral hazard whereby banks can take significant amount of risk (within applicable regulations, Basel III made it a bit more difficult after 2008) and know that they will be bailed out regardless of what happens. I can't say that this leads to a more stable economy than it would were we to have a full-reserve banking regime, or even a free market where banks choose their own reserve ratios.