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He's referencing the Austrian Business Cycle theory: http://en.wikipedia.org/wiki/Austrian_business_cycle_theory http://en.wikipedia.org/wiki/Austrian_business_
by astine 14y ago
He's referencing the Austrian Business Cycle theory: http://en.wikipedia.org/wiki/Austrian_business_cycle_theory http://en.wikipedia.org/wiki/Austrian_business_cycle_theory
The argument is that inflationary spending is what causes the boom bust cycle. Inflation creates an initial perspective of prosperity and causes an increase and shift in investment from capital goods to consumer goods. This leads to a self reinforcing bubble which eventually drains the economy and leads to a bust.
Trotsky is effectively saying that the bubble was due to interest rates and Dan Lyons is wrong to attribute it primarily to a character flaw of the persons involved. I don't wholly agree with that, but I think the ABCT does have merit.
- trotsky 14y agoNote that while it's understandable to think that this is an austrian theory given all of the argument on the internet about whether or not it's a good idea, the idea that easy credit drives business expansion is absolutely agreed upon by both schools and pretty much every working economist. You can think of it a bit like amphetamines. No doctor would disagree with the idea that amphetamines produce energy in the patient. The debate would only center around how productive or destructive that energy is.