Should Central Banks Lean Against the Wind?

by Andreas Hoffmann The pre-crisis Jackson Hole Consensus view on how to take asset market developments into account in monetary policy can be summarized as follows: Because it is hard to spot bubbles in asset markets with certainty ex-ante, central bankers should not lean against the wind when there seems to be a boom in … Continue reading Should Central Banks Lean Against the Wind?

Clarifications of the Austro-Wicksellian Business Cycle Theory

by Mario Rizzo There has been a lively debate on forecasts of high inflation made by those worried about the Fed’s recent policy of quantitative easing. For details I refer the reader to Daniel Kuehn's excellent blog. The question to which I address myself is solely “What do these predictions have to do with core Austrian … Continue reading Clarifications of the Austro-Wicksellian Business Cycle Theory

A “Kleinian” Version of Austrian Business Cycle Theory

by Gene Callahan The next phase in my (now our, as I've taken on a colleague) project of thinking through Dan Klein's Knowledge and Coordination is to see how his ideas might be used to help describe business cycle theories and demonstrate commonalities they share. Note: the point of the present exercise is simply to try to … Continue reading A “Kleinian” Version of Austrian Business Cycle Theory

Fads as Social Cycles

We don't follow fashion That would be a joke You know we're going to set them set them So everyone can take note take note -- Adam Ant and Marco Pirroni by Gene Callahan* In his book Knowledge and Coordination, Daniel Klein distinguishes between mutual coordination and concatenate coordination. Mutual coordination is coordination which people intend: you … Continue reading Fads as Social Cycles

Notes on a General Theory of the Social Cycle

by Gene Callahan Monday past at our colloquium Andreas Hoffman presented a fascinating paper attempting to depict Austrian Business Cycle Theory as a special case of a more general business cycle theory based upon Hayek's later work on spontaneous orders. Hoffman's general idea (I won't do it justice in this brief summary, so please have a … Continue reading Notes on a General Theory of the Social Cycle

O’Driscoll and Rizzo Got There First

by Gene Callahan I had believed that Tony Carilli and Greg Dempster ("Expectations in Austrian Business Cycle Theory: An Application of the Prisoner's Dilemma," The Review of Austrian Economics, 2001) made a major advance in Austrian Business Cycle Theory by hitting upon the correct solution to the challenge presented by, for instance, Gordon Tullock, who … Continue reading O’Driscoll and Rizzo Got There First

Yes, Paul: It is Hayek versus Keynes

by Mario Rizzo Although by the standards of contemporary economics, I am a historian of economic thought, I am not a historian of economic thought, properly considered. Thus my major interest in F.A. Hayek’s business cycle theory is not from the point of view of a historian. My interest is only incidentally in how Hayek’s contributions … Continue reading Yes, Paul: It is Hayek versus Keynes

Thomas Mayer: “I am an Austrian in Economics”

by Andreas Hoffmann In today's publication Thomas Mayer writes that he is "an Austrian in economics." Mayer is the chief economist of Deutsche Bank Group and head of Deutsche Bank Research. Mayer argues that Austrian theory fits recent events well.  He suggests that "Failure of the liquidationists to overcome the Great Depression of the early … Continue reading Thomas Mayer: “I am an Austrian in Economics”

Resource Allocation Distortions in the Great Recession: Empirical Evidence

by Mario Rizzo The recent annual report of the Bank for International Settlements (BIS) has focused attention on the sectoral imbalances in the previous boom that resulted in the Great Recession. This is a refreshing change from the excessively aggregative analyses of the Keynesian-stimulus crowd.   It is well known that John Maynard Keynes himself was … Continue reading Resource Allocation Distortions in the Great Recession: Empirical Evidence

The Role of the Perverse Elasticity of Credit Money

by Andreas Hoffmann I want to bring a recent comment by Sornette and von der Backe to the attention of the reader (in Nature 471, p. 166, May 2011). Sornette and von der Backe remind us to pay more attention to disequilibria caused by the fractional reserve banking system to explain the emergence of crises. … Continue reading The Role of the Perverse Elasticity of Credit Money

Hayekian Credit Booms

by Andreas Hoffmann Currently there is an interesting discussion in the blogosphere on how it is possible that in Hayek’s Prices and Production framework consumption and investment can increase at the same time. In my opinion they cannot, or only very slightly, but this is not a problem! Because, 1) the explanation is not one of the … Continue reading Hayekian Credit Booms

Heterogeneous Labor

by Jerry O’Driscoll   In the September 4th issue of the Wall Street Journal, Jon Hilsenrath chronicles the debate over the reasons for persistently high unemployment.  What is being described is the problem of heterogeneous labor. Labor, like capital goods, is specialized and specific to certain occupations. When those occupations disappear in recession, the next best alternative … Continue reading Heterogeneous Labor

Tyler Cowen’s “Risk and Business Cycles”

by Mario Rizzo I am happy to report that Tyler Cowen's book, Risk and Business Cycles: New and Old Austrian Perspectives  is now available, as of July 15th, in a reasonably-priced paperback edition from Routledge. (I am sure that Amazon will be making it available soon.) This is not an orthodox Austrian approach. In fact, Cowen criticizes that version. However, … Continue reading Tyler Cowen’s “Risk and Business Cycles”

Understanding Efficient Markets

By Chidem Kurdas Headline topics like derivatives are part of the larger issue of how markets function.  About this big question there’s been profound confusion in the past two years.  Peter Boettke's article in the Winter 2010 issue of the Independent Review clarifies the muddle. A particular mathematical interpretation of what an efficient market is … Continue reading Understanding Efficient Markets

Bleg: What are the Predictions of Austrian Cycle Theory?

by Mario Rizzo If you were going to try to adduce evidence with regard to the Mises-Hayek-Garrison "Austrian Business Cycle Theory" what would you expect to see in the expansion, upper turning point and perhaps in the recession itself? Specifically, what would you expect to see in this most recent episode, the so-called Great Recession? … Continue reading Bleg: What are the Predictions of Austrian Cycle Theory?

Hayek after 35 Years

by Jerry O’Driscoll   Today I reread F. A. Hayek’s Nobel Lecture, “The Pretence of Knowledge.”  Hayek was awarded the Nobel Memorial Prize in 1974 and delivered his lecture on December 11, 1974. I was amazed at how modern it was, and appropriate once again for the times.   The 1970s were terrible times: stop-go demand management … Continue reading Hayek after 35 Years

Austro-Wicksellian Theory of the Business Cycle: An Informed View

by Mario Rizzo There has been recent discussion in the blogosphere of the so-called Austrian Business Cycle Theory (ABCT). (We must not forget to give the Swedish economist Knut Wicksell credit as well.) Some of it is interesting (mostly because of the comments) but much of it is ill-informed since the bloggers don't like to read … Continue reading Austro-Wicksellian Theory of the Business Cycle: An Informed View

Bleeding the Economy

by Roger Koppl At the Cobden Centre's website (and here), Steve Baker discusses recent Fed signals in the context of Big Players theory.  The more active the Fed (or other central bank), the greater the fraction of entrepreneurial attention devoted to Fed watching rather than productive activity.  As Baker says, “traders must pay attention to the … Continue reading Bleeding the Economy

Falling Wage Rates

by Jerry O’Driscoll   In today’s Wall Street Journal, there is an article titled “Returning Workers Face Steep Pay Cuts.”  The article cites research by Kenneth Couch of the University of Connecticut that returning workers are taking on average a 40% pay cut from their old jobs.  This is first and foremost a personal tragedy for … Continue reading Falling Wage Rates

Mises Featured in the Journal

by Jerry O’Driscoll   In today’s Wall Street Journal, hedge-fund founder Mark Spitznagel celebrates Ludwig von Mises as “The Man Who Predicted the Depression.”  Spitznagel opens by observing that “Ludwig von Mises was snubbed by economists world-wide as he warned of a credit crisis in the 1920s.  We ignore the great Austrian at our peril today.”   … Continue reading Mises Featured in the Journal

Understanding The “Sectoral Problem” In Business Cycles: A Note

by Mario Rizzo   There has been some important discussion emanating from Paul Krugman’s unoriginal question implicitly about the Austrian Business Cycle Theory (as well as other sectoral theories of employment shifts both during and outside of business cycles). (See Econbrowser, Marginal Revolution, Econlog, Angry Bear, for examples.)    His question, as Tyler Cowen states it: “…[W]hy, … Continue reading Understanding The “Sectoral Problem” In Business Cycles: A Note

The Great Moderation In Macroeconomics

by Mario Rizzo   I have now read both Paul Krugman’s New York Times essay on the state of macroeconomics and John Cochrane’s reply. They are each, in very different ways, quite disappointing. The level of argument is poor, the prejudices are simplistic, and the tones are annoying.   Beginning with tones: Krugman is too dismissive of … Continue reading The Great Moderation In Macroeconomics

Not Prediction But Explanation

by Mario Rizzo Her Majesty Queen Elisabeth II asked why economists did not predict the current economic troubles. The British academic community (and some in the American) is using this opportunity to discuss views on the nature and limits of contemporary macroeconomics. This is very useful.   Peter Boettke over at The Austrian Economics summarizes and … Continue reading Not Prediction But Explanation