The View From 1776
Saturday, November 07, 2009
In contrast to the failure of Keynesian economics to work as econometric models predict, the Austrian school of economics describes business cycles with great accuracy, successfully predicting impending recessions.
Both Ludwig von Mises and his colleague Friedrich von Hayek, the best known Austrian school economists, predicted and accurately described the mechanism of the crash of 1929 that triggered the Great Depression. Mises’s massive study titled Socialism, published in 1922, analyzed socialism and explained why socialism simply does not work, in effect predicting what actually occurred in the Soviet Union. Hayek’s The Road to Serfdom, written in England as World War II was ending, accurately predicted both the disastrous results of Labour Party socialism, and the curbing of personal liberties that socialism would entail.
Austrian school economics nonetheless has been relatively neglected, indeed reviled, in most American college economics departments. Keynesian economics is more appealing to academics, the overwhelming majority of whom are liberal-progressive-socialists.
Austrian economics places emphasis upon limiting government intervention in the free play of market forces and the result of those forces in free market prices. Of primary importance in the vast array of market prices are the wages of labor. If government intervention and socialist labor union monopolies prevent the decline of prices and wages in a recession, the period of readjustment and economic rejuvenation is prolonged.
Keynesian economics, in contrast, appeals to liberal-progressive-socialist economics professors, because it puts them into the powerful position of attempting to manage the entire economy with their computer-based econometric models. Keynesian economics also appeals directly to the doctrine of socialism, because it minimizes or ignores the creative and motive role of individuals. In the Keynesian paradigm, government is the source of prosperity and well being, government is the creator of economic activity and jobs. And massive deficit spending advocated by Keynesian economists is a powerful narcotic, both for academics and for politicians.