‪"The Cluster of Errors" - The Austrian Theory of Boom and Bust (Part III of III)‬

Are Austrians a broken clock that's right twice a day (when there's a bubble that busts)? Why do entrepreneurs continue to be fooled by manipulation of interest rates by the central bank? 

In this EconStories mini-documentary, part III in our first series on the Mises/Hayek theory of boom and bust, Lawrence H. White addresses the expectations and the cluster of entrepreneurial errors that reveal themselves during a bust.

Category:

Education

Tags:

• Fear the Boom and Bust
• F A Hayek
• Austrian Business Cycle Theory
• ABCT
• Austrian Economics
• Macroeconomics
• Expectations

[charonme]

Why are the entrepreneurs fooled? It's a prisoner's dilemma. If no businesses would respond to the fake interest rates, everybody would be better off. But if some of them give in, they would make a lot of money at the expense of the others while the boom lasts. So exactly according to the prisoner scenario, everybody does the wrong thing.

[NotRadicalLogical]

I'm no expert on this but it seems pretty obvious to me when you understand what interest rates represent, a low interest does not equal a bust when there is actual savings to back it up. If there's no money in the bank rates should be high, credit would be harder to get since there's less money, the interest rate would represent that- in the market that would happen naturally, in order for the fed to set rates it has to know how much money each bank has and act responsible.

[NotRadicalLogical]

@Darthwannabe I totally agree, i just said it to simply make the point. Even if the fed did know how much money each bank had (and the information was accurate) and they acted responsibly it still wouldn't work as well, but even a 1st graded could figure out that today there's no money in the bank and rates need to be higher (how higher? Only the market knows for sure but anything higher than right now (2012)).

[Darthwannabe]

@NotRadicalLogical but the fed doesn't act responsibly...

[ibringthereals]

@maridejun  I don't accept your conclusion because it's unsupported by a meaningful relationship with reality. You're not talking to children or naive students, Jackass.

[maridejun]

@ibringthereals you fail at bringing an argument to bear on a point. 

[CLeach13]

@ibringthereals I would love to start my own bussiness, problem is because of governemt regulation it is far to expensive for majority of americans to get off the ground with their bussinesses, one of the reasons why our jobs are being sent over seas as well. Most people i know who have started their own bussinesses had to go over seas to do so. The only states that dont have infastructure problems are those that handle them, themselves, without federal intervention.

[CLeach13]

@ibringthereals while keysians think if you spen more money less effectively then prosperity emerges. China is following the us down that road, just look at the real estate boom bust cycle china is going through, they have whole cities deserted because of over construction. Its sad when a rap video is more informative than a economics text book :(

[ibringthereals]

the circular reasoning is circular

[ibringthereals]

@aivanther -- inflation, in a world where the elephant is labor, in places like China, where they pay employees 106 dollars per month?

These Hayek groupies just don't account for all the facts or factors. It's a obstructed point of view they're sell, bad, corny rap or no rap.

[ibringthereals]

For all their talk about Start Ups, how many of these Hayek groupies have started a business, or even attempted to start one to know what these "Job Creators" actually know?

How many take free American infrastructure for granted, and all the things businesses use but would rather pay for, or build, produce or supply because the margins are too low to justify their effort?

The rap stuff is distracting.

And you used an interracial couple to show "make things worse"? deerpty deerps

[spark300c]

@sfjeff1089 reason being they have let people forget about the great depression before they try ticks again. the other bust were bad not as bad plus the generation that live through the great depression save a lot more which act buffer for shocks.