the "austrians" v. the "keynesians"

["William B. Ryan" <william_b_ryan@xxxxxxxxx>]

-->Re: the following:  Right Gunnar! The way to go is for reduction of aggregate global demand and a world-wide depression!!   Right?  Paul<--

-->Comment:  Today's world economic situation is fraught
with danger - the onset of world-wide depression is one of
them.  But the problem did not arise overnight.  Instead,
it reflects aggregated-demand sustaining monetary inflation
of the post-Bretton Woods era which, by now, has lost its potency.  And, while unforeseen by the great majority of contemporary economists, this very danger was underscored by Hayek's title of his IEA 1972/1978 booklet - A Tiger by the
Tail - The Keynesian legacy of inflation.  A dose of
aggregate global demand stimulation may prolong the world economy's ride on the tiger's back, making a future
dismounting that more unpleasant.  In other words, world economic policy makers have painted themselves - and the
rest of us - into a corner over the past three decades.  Gunnar<--
-----------------------


The orthodox position is that the contraction is the
inevitable result of the expansion.  The boom is merely the
mirage masking the distortion caused by the expansion.  So
once the credit expansion ends, the economy is not really
crashing but is going through the necessary correction.  The
analogy is the hangover after the binge. The extreme example
of this orthodox position is the so-called "Austrian" theory
of the trade cycle expoused by the followers of Mises and
Hayek.  They of course do not admit that consumers are
"short-thrifted" in terms of income.

The modern position (some Keynesians) is that the boom is
real and should be sustained.  The crash results from credit contraction that is the inevitable result of debt that is
increasing assymetrically to the income that the credit
expansion (investment) generates.  Measures are suggested to
compensate for that assymetry--the consumer dividend, etc.,
so that debt service does not overrun income.

The problem is not so much the "hidden hand" but the "hidden
flaw" in the system of national accountancy.

Bill



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