BoatShoes;904744 wrote:Yeah just like when Herbert Hoover tried cutting spending and prices dropped 10% 3 years in a row and all that happened was a massive deflationary spiral, 25% unemployment and a plutocratic transfer of wealth for debtors to creditors. The only time deflationary growth occurs is in emerging economies at the expense of developed economies as happened in the U.S. during the Second Industrial Revolution which of course is giving the rooster credit for the dawn.
Hoover didn't cut spending, it increased every year of his presidency. The Fed slashed interest rates until late 1931 when they had to raise them to stop the outpouring of gold redemptions overseas, but it's not like from 1929-1931 the lower rates helped anything anyway. What Hoover did do was institute wage controls putting millions out of work, and slap high tariffs on imports and heavily subsidize farmers and industries keeping prices high so that most people couldn't afford them. Put them out of work and make sure they starve. A great plan for recovery. Hoover had his own New Deal with public works and everything before FDR. It failed just as badly.
BoatShoes;904744 wrote:
None of that matters though because what the Austrian Business Cycle is really about is turning recessions into morality tales of hubris and downfall; that there is no readily knowable fix printed in books we can find in our neighborhood library but that we must repent for our being seduced by the sweet nectar of the Federal Reserve's low interest rates at the alter of a shiny worthless metal. (Nevermind at the same time offering unending praise for the entrepreneur despite suggesting they are so easily and routinely fooled by the men behind the curtain of the Federal Open Market Committee).
Artficially low interest rates keep producers in the dark about the real state of the market, but it also allows others to gamble and drive up speculative bubbles. They weren't victims, they did what people do and took advantage. That doesn't make it sustainable. And if gold is a "shiny worthless metal", why are European central banks buying it for the first time in 25 years? They aren't happy with the trillion of U.S. dollars we made available to them last week?
BoatShoes;904744 wrote:
It has no explanation why the malinvestment in certain investment sectors (railroads in the 1890's, dot-coms in 1990's and now housing) contract the economy as whole unlike the Chicago School or Keynesian theories. Furthermore, nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present who are just collateral damage in the tragedy being weaved by Central Bankers; beyond some vague appeal to the moralization of interest rates. It will never go away because there will always be people who are emotionally committed to the idea that the People as whole through their institutions in government cannot do something positive to stem off contractions in the business cycle. And that's just it; people who adhere to the Austrian Business Cycle Theories just weave them into their comprehensive anti-government worldview that they already have...it doesn't matter if it's no good because it fits the narrative. That's why you never hear any of them ponder about why entrepreneurs are so easily fooled into bad investments after they boldly assert the virtue of entrepreneurs.
Low interest rates aren't the only thing that causes malinvestment. Everywhere the government spends that the market wouldn't is malinvestment. Government guarantees and implied bailouts cause malinvestment. Also, interest rates are the demand for money, so the only way to keep interest rates low is to increase the supply of money, decreasing the demand. This inflation isn't limited to the areas of malinvestment. That money works its way through the economy. That all needs to be corrected. That is why the whole economy is affected by these busts. And when prices fall, wages have to fall as well, and when you have minimum wage laws and other wage controls, you have higher unemployment.
Attacking it as a moral issue is just a lack of understanding of the Austrian theory. The government may be trying to help. They just can't. Calling entrepreneurs idiots for not being able to guess what real interest rates should be yet extolling centrally planned government economies that have failed throughout history doesn't make sense to me. If people want to prevent the bust they have to prevent the boom. It's just too tempting. People like easy money. If you can make money working Wall Street borrowing from the Fed at 1% and buy some mortgages with that money and package them up and sell them, then why work? The problem is that if you aren't going to produce anything then you have to import it, but to import you have to have something to export. We have been exporting dollars, but even Europe doesn't want any more dollars.
BoatShoes;904744 wrote:
But oh no! Don't keep rates low! It's like drinking a beer on Sunday morning instead of just accepting the hangover! Our awesome entrepreneurs will still be awesome I say despite inevitably being sucked into the next bad gamble because of Helicopter Ben! The unemployed must suffer and get de facto interest raises on their debt burdens or default as the must pay back the very banks who swindeled them with easy money with more expensive dollars! They must pay for being enticed by the easy money after all!
The debt burden is part of the problem. Why work if you can borrow the money against your appreciating home and buy what you want? You are acting like this would be a boon for the banks. If prices fall and wages fall (or they don't and people are unemployed), people aren't going to pay these loans back. They will go bankrupt and move on with their lives. The banks will be insolvent yet again and will either fail or bankrupt this country getting bailed out again.
When you understand why you have the recession then you understand the response the government should have. If the government caused it then why would more government solve it? Throughout history the recessions following inflationary booms had been quickly resolved without help from the government, but now they last several years or more with it. Worthless paper fiat currency was on the ash heap of history because it has failed every time it was tried. I guess we should embrace that, though, over the only currency to last thousands of years.
