Ron Paul and the Austrian Theory of the Business Cycle

[CentRLeft]

end the fed!

[bellcord]

The Austrian theory is pretty much the 'Old West idea of economics.."It's a free for all and the Devil take the hindmost"...No regulation, no enforcement, no nets for the loser's..If Grandma's choking on her own blood it's morally wrong to help her..She obviously made 'wrong choices' and needs to be punished..If your airliner crashes? Well, won't be flying them again..Your Bank failed with all your money? Tough, you made a bad choice in banks etc...A little hard to substain civilization though

[RKAddict101]

@bellcord No, if Grandma's choking on her own blood, a socialist medical system will not be able to support her. It's not about ethics, it's about facts. The more government gets involved in any part of the economy, the higher prices go up in that part of the economy. Capitalism will save grandma. You think government can legalize morality? It can't. Individuals who work at hospitals will save grandma because they want to, not because they have to.

[bellcord]

@RKAddict101 Thank you for reply RK.Allow my personal account to reply..I am typing this from the VA Hospital in OKC.where my right lung should be is a rapidly growing cancer which will kill me within a few weeks if not days.that's not the point,..You have been convinced that Government can do only harm despite the evidence of your education, our laws,health care ..our very civilization...is built on a system of Government to build a better society..

[RKAddict101]

@bellcord I disagree, the system has developed not because of the government system, but despite it. My belief is that without the government, the system would be even better off. I am sorry for your situation, but I dearly hope you manage to enjoy the remainder of your life.

[riverlioness]

@bellcord

The Austrian Business Cycle Theory regards the misallocation of resources. The ABCT forewarns grandma that she is going to choke on high interest mortgage payments, in advance. How is that punishment?

This is the reason history is an important understanding in the science of human action. Civilization existed before Fannie Mae.

[bellcord]

If you believe in the Austrian School of economics you are a fool...If you think Ron Paul is a great economic thinker you are a damn fool...The Austrian School is the 'Law of the Jungle" with pie charts..Mankind didn't spend 20,000 years and build great civilizations to fall for that horseshit..

[killlalaland]

@bellcord This is exactly the kind of talk that helps no one. I'm young (21), and I'm trying to understand economics. So far, the Austrian school has made the most sense to me. I'd love to be proven wrong. But instead of sending me to a book where i could learn why it doesn't work (which I will read if you tell me), you call me a fool just for starting to do some economic research. For someone who's seeking the truth, that hurts. It sounds too much like what I've heard religious people say.

[bellcord]

@killlalaland You are quite right of course killla..I was frustrated and it was late when I wrote those remarks..Every thing I wrote is quite accurate of course because the Austrian School is flawed in theory and practice.it basically says that Markets should be free of any government regulation because only the Market's can decide what's right...This thinking led to the global meltdown in 2008 as unregulated Wall Street securities were pumped into the system an nearly collapsed everything.

[dsvet]

@killlalaland If he won't recommend some books then I will. Meltdown by Tom Woods and Economics in One Lesson by Henry Hazlitt which you can Google and find for free in pdf format.

[ronpaulfan1]

i guarantee you the other candidates up on stage are clueless on the subjects and terrified of ron paul's responses to the debate topics

[JamesBlakeWilliams]

chelonia1663 you're going to have to do better than that my friend!

[chelonia1663]

Ron Paul has been hijacked by the mises institute/austrians which offers no more than a continuation of the same terminal process. INTEREST

[Goodash21]

great many of the recent problems. (again here I´m not convinced by the Austrians and Ron Paul. Just read Hyman Minsky and you´ll see what I mean)

[Goodash21]

All of this being said, I have a lot a respect for Ron Paul as a republican/conservative liberatarian. He is very eloquent and seems like a politician who has ideas that he genuinely beliefs in and wants to adher to.

He surely knows more on economics than many other people.

But, I think its still important for people for people to know why he, for example, puts so much emphapsis on the central banking system being outright destabilizing and why a free market banking system would solve a

[Goodash21]

I urge anyone reading this to try and dig down into Keynes General theory and also some Austrian literature from the time.

I know from personal experience that digging a little deeper into the literature grants me favours. And it helps me get a more firm hold of where someone like Ron Paul gets his views and ideology from.

[Goodash21]

The only stabilising effect that Keynes saw that the classicals could rely upon, was the socalled Keynes effect in which falling money wages and prices could have an expansionary effect through the demand for real money. Keynes didn´t put a lot of weight to this effect since he argued that instead of relying on this effect, one could might as well just expand the money supply using monetary policy, leading to the same expansionary effect.

[Goodash21]

Instead, he point out that falling wages and prices would induce expectations of further reductions in the future, hence prolonging the recession, and lead to all kinds of depressing effect.

One effect was the socalled Mundell-Tobin effect spelled out by Robert Mundell and James Tobin in the 1960´s. Another was a debt deflation effect spelled out by Irving Fisher (a classical economist) in the 1920´s. A third was a redistribution effect spelled out by Kalecki in the 1930´s.

[Goodash21]

the hand of the workers. At best it is the firms that can control prices. So, according to Keynes, a logical slip had been introduced by the Austrians and classical.

But the revolutionary idea of Keynes came in chapter 19.

In this chapter he mentions that even though one could assume that a fall in nominal money wages would affect real wages in the same direction( something which Keynes definitely did not believe) this would not necessarily ensure the end of a depression

[Goodash21]

Keynes, on the other hand, had a different view on the business cycle theory of the time. He thought that lowering money wages would not necessarily bring about an end to a recession or depression. First of all, according to him and the Austrians, the real wage was the factor that would have to change to get the effect that the classicals predicted. Yet, there was no way, according to Keynes that workers in general could reduce their real wages since these depended on prices which were out of

[Goodash21]

In chapter 19 Keynes spells out very clearly the differing views.

He asks the question of whether falls on money wages would necessarily bring the economy out of a recession. The Austrian and classicals had the view that this would indeed happen. Pigou was the best example of this view that markets work efficiently. Lowering money wages would reduce firms´ costs and hence increase overall production and employment

[Goodash21]

Keynes wrote the General Theory as a response to the high unemployment rates during the 1930s that seemed indeed to be permanent in nature. He wanted the western countries governments to lend a helping hand to capitalism. He didn´t want to sacrifice capitalism under any circumstances.

Now, the difference between the Austrian and Keynesian views on the efficacy of government intervention in midst of crisis is spelled out in Keynes General Theory chapter 19.

[Goodash21]

The big elephant in the room is basically that the western world needs a discussion of whether the Keynesian or Austrian explanations of how to get out of recessions are more plausible than the other. This discussion was actually instigated in the 1930s in debates/quarrels between the "Cambridge circus" with Keynes, Kalecki, Kahn, Sraffa, Robinson on side and the classicals or Austrians like Hayek, Mises, Robbins on the other side.

[Goodash21]

The big elephant in the room is basically that the western world needs a discussion of whether the Keynesian or Austrian explanations of how to get out of recessions are more plausible than the other. This discussion was actually instigated in the 1930s in debates/quarrels between the "Cambridge circus" with Keynes, Kalecki, Kahn, Sraffa, Robinson on side and the classicals or Austrians like Hayek, Mises, Robbins on the other side.

[MrJason1234]

"You know I never use the word frustration, I tell people I just have real low expectations"

Awesome quote.

[lomocan]

@MrJason1234

""You know I never use the word frustration, I tell people I just have real low expectations"

Awesome quote."

You know, the guy has been speaking the same language for 30+ that Founding Fathers spoke about individual liberty, SMALL government & free market capitalism but all he's gotten is ridicule in return from the public, masses are idiots, he knows that & that's why has low expectations; people keep falling for the lure of socialism because they're simply stupid. Alas!

[b5thomas7]

RP owned in 2008 debatees

[lordhighexecutioner]

Austrian economics is pre-scientific. They don't believe in empiricism. Their thought is in the age of leeches and bloodletting, which is appropriate as this their economic prescriptions are very much the equivalent of that.

[AegeanKing]

People don't like Ron Paul because he injects too much logic in the conversation and confuses people with the facts.

[idontgiveashit0930]

If it werent for state interference, the global financial crisis wouldnt have happened. Its the fault of the state for promoting community reinvestment act, but the gov says they have not forced the businesses in the market and therefore its the fault of the market and capitalism. But the market is not about force, its about incentive structure carried out in a libertarian paternalist-way. To say market failed because the state hasnt "forced" them is a strawman and talk about irresponsibility.

[lomocan]

@idontgiveashit0930

"If it werent for state interference, the global financial crisis wouldnt have happened. Its the fault of the state for promoting community reinvestment act, but the gov says they have not forced the businesses in the market and therefore its the fault of the market and capitalism"

Yes, but most voters don't evern understand the abcd of economics so.... if they did then they'd be supporting free market capitalism (the REAL capitalism), personal liberty & SMALL government

[stater68]

and people think Mitt Romney knows economics

[AtheistAltar]

The public went deaf the minute Paul started talking about interest rates. They just want to hear how the government is going to fix everything, even in a Republican debate.

[lomocan]

@AtheistAltar

"The public went deaf the minute Paul started talking about interest rates. They just want to hear how the government is going to fix everything, even in a Republican debate"

Yup, people don't want to take responsibility, they want the government to take care of them from cradle to grave, they want to watch stupid TV shows & loiter about but not learn important things like economics, politics, etc so people get exactly what they deserve when they get screwed by politicians

[louiethegreater]

Dr Paul is correct about the Fed., but the Austrin School is stand up comedy. Without tariffs the U.S. is not going to recover from its present dilemma. We must have manufacturing, and I mean labor intrinsic manufacturing, we must have jobs, and the industries that require large amounts of labor, must be protected by a tariff.

[lomocan]

@louiethegreater

Protectionism never works, never will. The fundamental problem of those who don't understand free market capitalism and Austrian economics is they only see the short-term picture, not the long-term one & that's why socialism governments keep fooling them around. It's going to happen, US is going to take a dip, the more we prolong it, the worse it'll be & it's really bad then probably lead to WWIII since that's US's tried & tested formula to prosperity

[louiethegreater]

@lomocan The U.S. protected our domestic industries, and labor for 200 years. We didn't have these problems untill Washington became obsessed with neo-liberal policy. The globalization crowd has successfully deindustrialized the country, created 20% unemployment, opened our borders to invasion. Latin America is being emptied in the U.S. Not rich investers, but poor people on the dole. That tried and tested formula, is not, what is happening in America today. Young folks can't see the difference

[Nikrou]

Ive heard oxford professors saying that capital write off is the best way to go but it is too big an interference

[proaudiohd]

ron paul is awesome

[yo1dude1man]

Exactly! In Zietgeist 1, Part III, entitled Don't Mind the Men Behind the Curtain, Peter Joseph clearly states the Great Depression came about after the Federal Reserved CONTRACTED the money supply.

Great point(s) historyboy12!

[jebustheone]

Yeah because they had to to cause inflation.

Either way you get a crash.

Inflation erodes capital and makes cash flow forecasts impossible, basically paralyzing everybusiness in the country. Or you get a massive contraction of credit and everything resting on the new credit falls apart, sparking a crash.

Apple's and Oranges? They're both fruit. Rotten fruit.

[hoodoo961]

Right. Which is why stable prices are the goal.

[historyboy12]

Secondly, yes you are right; saving rates and interest rates must increase. But why isin't the Austrian school even mentioned in any top institution (well,in the UK)? Because their analysis is heavily flawed and not based on any real scientific research. They will always cite the expansion of credit and the need to purge the excess from the system argument, but no data. The Great Depression was caused by the Fed contracting the money suppy by a third, not the great expansion in the 1920s.

[LibertyAtYourService]

Come on sir. Someone once said (I can't remember who) "Keynes's theory gives economists seats at the tables of power. Austrian theory does not." Austrian theory is ignored because all you need is common sense to understand it and because it doesn't give PhD economists a place in federal government operations. The Austrian theory is right and you know it. I don't care what sort of data you're referring to. Austrians have predicted these recessions for years now.

[historyboy12]

Now tell me mr intellectual couch potato, look at Japan which has doubled its monetary base between 1998-2003 and it suffered, and still does, from disinflation and deflation. It has held its interest rates at 0-1% for nearly a decade now but asset inflation and price/service inflation is still falling.

The Austrian school is dead wrong in any advanced economies.

[hoodoo961]

@historyboy12 You are obviously right about the Austrian School, and in a case such as Japan's, fiscal policy would be needed because the economy was obviously in a liquidity trap.

[lomocan]

@LibertyAtYourService

"Keynes's theory gives economists seats at the tables of power. Austrian theory does not."

Beautiful statement.

Austrian theory is ignored because all you need is common sense to understand it and because it doesn't give PhD economists a place in federal government operations. The Austrian theory is right and you know it. I don't care what sort of data you're referring to. Austrians have predicted these recessions for years now."

If only people had commonsense!

[historyboy12]

Austrian school spokesman Ron Paul: 'recession was predictable [in a capitalist system], but where don't know when it would exactly come'.

How people can take this line of economics serious is still beyond me.

[Crashtest517]

The Austrian school stands by reason, spending money to make money is nonsense, wealth comes from production, not from spending. Putting money in the hands of people who are incapable of saving is destructive, because they spend more than they produce. Economics is simple when you understand that you can't spend what you do not have, America's consumer mania can only lead to a depression, hence the austrian school could easily predict the coming recession.

[historyboy12]

Firstly, my critcism upon that statement which Paul (and Austrian economists) made is that it is psuedo-economics. Stating that recession (and its purpose) is inevitably coming is just stating the plain obvious in any capitalist system, and a view articulated by all schools of thought which favour a more limited role of government in the economy.

[historyboy12]

Finally, in todays crisis, their argument is the very same, although this factor is relatively important. But they neglect the effects of carry trading; role of the dollar as a internatioanl currency; the emerging economies; how that consumers acted irresponsibly; irving fisher's question of goods/services and asset/stock inflation for central banks; the political system which would have eroded central bank independence IF it popped the bubble earlier. But I do appreciate your response though

[historyboy12]

Austrian business cycle theory fails to explain the numerous depressions in the USA before the federal reserve (and outside the periods of the 2 other national banks in the usa). In fact, Austrian economics is not even real social science; it's pseudo-economics, dismissed by major intellectuals including Friedman.

Little wonders it will continue as a fringe school.

[Ukelelemasta]

the other occurences of monetary expansion were because of fractional reserve banking, that is why we still had depressions when there was no central bank.

[historyboy12]

That's true. However, it isin't soley the Austrian school who take this line of argument. Friedman criticized fractional reserve banking as well as numerous Chicago school economists.

[capitalist4life]

I wish Ron Paul was younger. He can't last in congress that much longer. There is no other Austrian economist in congress. Who is going to be that one dissenting vote on every unconstitutional bill?

[KenMacMillan]

Rand Paul

[hotpiebob]

and Peter Schiff.... We have back up lol.

[capitalist4life]

Adam Kokesh isn't bad either.

[ronhanish]

(1 Tim 6:9 KJV) "But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition."

(1 Tim 6:10 KJV) "For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows."

(1 Tim 6:11 KJV) "But thou, O man of God, flee these things; and follow after righteousness, godliness, faith, love, patience, meekness

[Desertionreality]

Then why haven't all the god fearing christians gotten together to create a country without money and an emphasis on lust and destruction. Oh wait, they did - it was the Protestant Settlers who landed on the US continent; murdered the Indians, enslaved the blacks, burned the witches, and created the biggest military power the world has ever known, while also a very corrupt money. Whenever I hear Christians talk about the end of times and the devil, I swear they are describing their own history.

[Ooftyman]

Give 'em hell, Ronnie!

[buster27]

I just read Meltdown

Thomas E. Woods Jr. and foreword by Ron Paul

Great Read...

It goes into saying The Austrian Theory is what every man in america should be aware of.

great post 5 stars.

[mc00k16]

2:00 watch guilliani and huckabee as what RP is saying goes completely over their heads

[AFRIKTODAY]

dummies! They only know 2 words: September 11!

[personalibera]

I love you Ron!

[joeflyer743]

Everyone is looking for the modern day Nostradamus... everyone is looking for the crystal ball... Ron Paul predicted what was to come. He showed everyone yet most looked away.

[mattc941]

He needs more and more publicity. Noone can disagree with him that are intellectually honest with themselves.

[DigitalShaolin]

It is astounding that much more people haven't at this stage totally converted over to the Austrian School when it has proven it's worth.

[Ooftyman]

Confession from a former neo-con monetarist: I'm one of the converts!

We need to return to our country's roots of economic liberty! Austrian economics is the only way I know of to do so.

[xberttooxx13]

does that mean austria has a good economie?

[AmericanValues321]

Have to admit..I am also a convert..LET THE BELLS OF LIBERTY BE SILENT NO MORE

[Hapafull]

@Ooftyman

Austrian economics is not a form of economy, it is a science of economy. The economic system that Austrian economics supports is laissez-faire economics. This is the system we need to return to, and we need Austrian economics to enlighten the population as to why.

[ewrh78]

interestingly Austria has never sticked to the "Austrian School of economics" - in fact Austria is more a social economy than most others.

Why? Because it has too much restrictions in their assumptions and therefore wont work without government to solve the problems.

[Moragauth]

Yes, what an interesting... fact.

[Transitiving]

"too much restrictions in their assumptions" what does that mean?

[ewrh78]

well there are many assumptions the economic theories are based upon. such as information efficiency, equilibrium in negotiations of labor contracts, rationality of decisions, externalities and many more.

as nearly none of the assumptions are met in reality the market is doomed to fail if the society (gov) doesn't provide a set of rules to cope with them.

unfortunately it seemed that these restrictions have been ignored in the past decade(s)

[spacab]

They call it the Austrian School because it was first introduced by a few Austrian intellectuals. It's not like their state ever sponsored it.

[ewrh78]

to name the most influential guy: Friedrich August von Hayek

FYI: I don't want to argue that he was wrong (in some details perhaps, but still briliant) though maybe dangerously misunderstood by both liberals and conservatives.

ever thought about that?

And Ron Paul certainly understood him far better than all other politician (or most of businessmen) will ever be able to understand.

And as Mr. Paul understands he is considered "Not Friendly towards the Corporate Power Grab" = no chance08

[Mickmars90]

I always thought the main man behind the excellent Austrian School was the great Ludwig Von Mises, although the Austrian School was first formulated by the Austrian Carl Menger. Friedrich Hayek was Mises' most prominent and perhaps gifted student. The Austrian Business Cycle Theory deserves serious discussion because it has been proven right. The Fed caused this crisis. Murray Rothbard, Fritz Hayek and Von Mises are the best exponents of Austrian economics.

[AFRIKTODAY]

I disagree, Ludwig Von mises was the intellectual father of Hayek as far back as Austria!

[bronxer78]

Well, the prophet is never heeded in his own house. That is why the USD$ is about to belly up and we'll have nationwide a situation like New Orleans after Katrina; panick, lawlessness... but then again, that's half the point of illuminati Keynesians.

[harryogre]

I honestly don't understand what keeps Dr. Paul and other Austrian economists and libertarians that have so long predicted our current financial situation, from dancing in circles around the capitol building singing, "We told you so, we told you so..."

The CATO Institute has been warning of this exact situation as has The Mises Institute and a dozen other organizations.

Thanks for posting, amagilly, and hats off to Aristotle for noticing the ticker. That had me LMAO!

5 Stars!

[Aristotle100]

I love how the ticker during the Glen Beck interview says "Government says Fannie and Freddy are in no danger of failing." lol wow there it is folks. all pink and naked for you all to see. The government lied to us, then and they are lying about the bailout now. How quickly we forget.

[amagilly]

haha, good catch there.

[cnow123]

@amagilly Not trying to nit-pick, but the ticker actually said "Ben Bernake to congress the Fannie and Freddy are in no danger of failing"

[cnow123]

@amagilly Not trying to nit-pick, but the ticker actually said "Ben Bernake to congress the Fannie and Freddy are in no danger of failing"

[durhamdf]

@Aristotle100 yeah and why freddie mac was failing it donated tons of money to republican campaigns. Pretty shady stuff, look it up

[GeorgeGreekTrucker]

More like $1000 Billion not just £300b

[TACYELLA11]

Great video Thanks Turk for send

[Aristotle100]

Awesome vid! Thanks for sending it to me!

[amagilly]

cool, glad you liked