Austrian Business Cycle Theory Vs Keynesians

Subject: Austrian Business Cycle Theory Vs Keynesians Sat Jul 31, 2010 8:31 am

The current recession has brought back discussion on the merits of countercyclical fiscal and monetary policy. Broadly speaking, the economics profession is divided into two camps. One side is made up of "liquidationists" and "deficit hawks," supporting tight monetary policy and low — or no — government spending. The other group is composed of those fearing a fall in prices, who support easy credit and expansive fiscal policy to combat it. While most economists probably fall in between, this dichotomy represents the two poles. The extremes are occupied by the Austrian School on one end and Paul Krugman on (or close enough to) the other.

The growth of the Austrian School has forced economists like Paul Krugman — who, for the sake of simplicity, we will refer to as Keynesians[1] — to reconsider these opposing viewpoints. Krugman originally addressed Austrian business-cycle theory in 1998 and since then has continued to provide criticism.[2]

A recent contribution to the debate, "Antipathy to Low Rates," swipes at Friedrich Hayek's "liquidationism." The argument Krugman makes is that those who disapprove of countercyclical quantitative easing and fiscal policy inevitably support a long period of depression, and thus equally "persistent" high unemployment.

Krugman bases his antiliquidationism thesis on the following passage written by Hayek and quoted by Bradford DeLong in a as of yet unpublished history of economic thought in the 20th Century,[3]

More: http://www.marketoracle.co.uk/Article21501.html

Austrian Business Cycle Theory Vs Keynesians

Austrian Business Cycle Theory Vs Keynesians

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