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The Austrian answer to such a crisis has been tried early in the 20th century after the Great Depression. Spending was reduced but the government was still runn
by jcfrei 6y ago
The Austrian answer to such a crisis has been tried early in the 20th century after the Great Depression. Spending was reduced but the government was still running a balanced budget. "Outright leave-it-alone liquidationism was a common position, and was universally held by Austrian School economists." [1] Mainstream consensus is that if the Fed had expanded their balance sheet immediately and government had reduced taxes and increased spending the crisis would have been much less severe - but this only started when WWII broke out and the war had to be financed.
[1]: https://en.wikipedia.org/wiki/Great_Depression#cite_ref-Randall_E._Parker_2003,_p._9_47-0 https://en.wikipedia.org/wiki/Great_Depression#cite_ref-Rand...
- seibelj 6y agoThe depression and the “Austrian” response implemented are vastly oversimplifying it. For starters the widespread tariffs and outright ban and seizure of gold should tell you this is not what an Austrian would do.
- jcfrei 6y agoYou pointing out two policy measures which are not according to the Austrian school doesn't invalidate the argument that the response was Austrian rather than Keynesian. The seizure of Gold was to prevent a further contraction in credit because the dollar was still on a gold standard. I'm not defending gold confiscations (nor am I in favor of a gold standard) but without this measure the crisis would likely have been even worse. The tariffs were politically motivated (to strengthen American manufacturers - neither Keynesian nor Austrian) and intended to stoke inflation.
- sunshinerag 6y agoNot sure where Austrian is implied? Are you saying there is nothing to be paid by current and future generations for this.? The system will take care of itself somehow?
- jcfrei 6y agoDepends, if the central bank can keep to inflate its balance sheet and absorb most of the additional debt of corporations and the public without creating inflation then nobody will actually have to pay. If there is inflation then that means the purchasing power of savers (ppl with bonds as their main asset) will be reduced (ie. savers will pay).
- sunshinerag 6y ago>> Depends, if the central bank can keep to inflate its balance sheet and absorb most of the additional debt of corporations and the public without creating inflation then nobody will actually have to pay Just wondering how is it possible for them to do this without raising inflation. Simply allocating all the debt on their balance sheet means they have erased the debts of the corps/public by increasing the money circulation isn't it? Then inflation will happen?
- jcfrei 6y agoSo far it hasn't because the additional money has remained in financial markets and just lead to higher valuations (lower yields, higher share prices, startup valuations and housing prices). It hasn't really lead to increased spending via the wealth effect - which would be required for actual inflation.