What's wrong with Austrian Economics???

Quote from sjfan:

The problem with Austrian economics is that it's not falsifiable and thus fails the criterion of being "scientific". It has the same problem as Freudian psychology - attractively intuitive, somewhat descriptive, not at all testable
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The problem here is not something Karl Popper would let you slay easily, I would hope. Economics is a science of multi-level variables - supply, demand, in the simplest sense, but also political, sociological, and debt/monetary variables that operate through time.

So all of these variables also deal with the effect of technology - Schumpeter calls this creative destruction. It is critical in that new methods of production, and new goods and services are developed continuously which compete with assets already owned by economic producers. This also conflicts with debt cycles, and cycles of population which wax and wane over time.

These numerous manifestations combine and interact in innumerable ways. Some, such as Soros, describe this process by way of reflexivity. My point is that any economist worth his salt has a playbook only good for 50-100 years at best. Anything beyond this is purely prediction, and they know that. The Austrian Economists did see our credit crisis coming, and they have a playbook for it. It's no secret. And some of those Economists choose to be Economists rather than doctors, physicists etc, because they were attracted to it for reasons other than "competency" as you seem to suggest by a weak comparison to Freud and his "psychology"

My answer then, is there is nothing wrong with Austrian Economics... but rather, there is something right with it.
 
Did you know that one of the more prolific contributors to mises.org actually has a day job as a perfectly normal, mainstream bank economist with nary a hint of anything remotely Austrian about him? Sorta like Clark Kent and Superman, if you think about it. Imagine, he comes home, takes off his suit and specs, puts on his red tights and starts cranking out essays on the inevitable collapse of modern society.

Either his employer is amazingly tolerant or he really is able to hide his real identity behind horn-rimmed glasses with extra thick lenses.
 
Quote from Martinghoul:

Actually, if a stringent proscription against fractional-reserve banking is one of the axioms of Austrian economics, as you suggest it is, you don't really need to go any further. There, arguably, seems to be sufficient theoretical AND empirical evidence that modern capitalist societies (i.e. where banks are private, rather than state-owned) cannot function under full-reserve banking regimes.
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When it comes to practical policy measures, different folks will say different things. Some will say fractional-reserve banking is the problem while others would say that any intervention (like, to enforce full-reserve banking) would be immoral and that the real problem is the FDIC, etc.

I would be curious as to what evidence you have to back up this assertion, as I don't see any reason why full-reserve banking couldn't work. For sure, it would be a much different system than what we've got now. In effect, "retail banks" would just be money warehouses (charging a very small fee for the service, held down by competition). Demand deposits would cease to be a source of lending capital and "loan institutions" would need to be funded by some other means - bonds, share offerings, or private capital.

Note that fee-charging "money warehouses" already exist in the form of entities like Goldmoney, though of course these are almost laughably marginal compared to the mainstream banking system (and why not when it's backed by the government?).

It seems like the level of regulation needed to effect these changes would be far, far less complex than all the structures we've currently got in place to control the existing, highly-leveraged banking system.
 
I think the problem here is that a lot of people not just the folks bickering in this thread :P seem to think that it's the banking system that is the issue. I don't thinkit is the banking system.

So long as people remain ignorant of how the banking system operates. Continue to think that they can spend and give nothing back and governments co-operate with banks to commit fraud against us then it is all going to be exactly the same.

The ironic thing is if any of us were doing what the banks were doing we'd get arrested. We need to kick out the corruption in the government and we need to stop spending like maniacs and that way the banks won't have anyone to scam anymore.
 
Quote from Specterx:

When it comes to practical policy measures, different folks will say different things. Some will say fractional-reserve banking is the problem while others would say that any intervention (like, to enforce full-reserve banking) would be immoral and that the real problem is the FDIC, etc.

I would be curious as to what evidence you have to back up this assertion, as I don't see any reason why full-reserve banking couldn't work. For sure, it would be a much different system than what we've got now. In effect, "retail banks" would just be money warehouses (charging a very small fee for the service, held down by competition). Demand deposits would cease to be a source of lending capital and "loan institutions" would need to be funded by some other means - bonds, share offerings, or private capital.

Note that fee-charging "money warehouses" already exist in the form of entities like Goldmoney, though of course these are almost laughably marginal compared to the mainstream banking system (and why not when it's backed by the government?).

It seems like the level of regulation needed to effect these changes would be far, far less complex than all the structures we've currently got in place to control the existing, highly-leveraged banking system.
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First, can you enlighten me, as I am not an expert)? Is it in fact that case that full-reserve banking is a necessary and sufficient condition for an economy to qualify for the 'Austrian' seal of approval?

I will try to dig up the research on the full-reserve systems. As I remember it, most of the empirical (and some theoretical) evidence comes from implementations attempted under Sharia law.
 
Quote from Martinghoul:

First, can you enlighten me, as I am not an expert)? Is it in fact that case that full-reserve banking is a necessary and sufficient condition for an economy to qualify for the 'Austrian' seal of approval?

I will try to dig up the research on the full-reserve systems. As I remember it, most of the empirical (and some theoretical) evidence comes from implementations attempted under Sharia law.
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The thing is that "Austrian economics," like most "schools," isn't a laundry list of ironclad practical principles maintained by some central authority, but more of a perspective or a viewpoint, consisting of work done by numerous scholars over many years, that can be used to guide thought and understand problems.

My main takeaway from Austrian economics is that credit expansion and money-creation causes all manner of economic problems and distortions, including dramatic boom-bust cycles and gradual redistribution of wealth from the low/middle classes to the upper class. Fractional-reserve banking is the principal source of this credit expansion in our economy, and by backstopping this system, the government has only ensured that the problems will grow and grow until Something Bad happens - either a spectacular crash far worse than '08, or a very long period of stagnation, or some combination of these.

Intuitively it makes sense that any leveraged system (such as the banking system) is inherently unstable, and risk controls can only partly mitigate this. As traders we know (or at least I think) that risk of ruin increases at a much-faster-than-linear rate as you boost leverage, and just from a credit-risk perspective the "normal" 10x leverage of banks is very far from safe under any circumstances - let alone when your source of funding is a demand account that can theoretically be pulled at any time. So, the Austrian view of things seems to have some basis in observable reality.

As for "Austrian" alternatives to this system, some people (including von Mises afaik) advocate so-called "Free Banking," i.e. a banking system with no rules or regulations other than contract law. Others think it wouldn't work in practice and so say full-reserve banking is the way to go. Personally I think "free banking" either wouldn't work at all or would be clearly worse than what we've got now, leaving full-reserve as the alternative.

But like I said, if you can find some historical examples of a full-reserve system that failed, or a theoretical argument for believing that it would do so, I would certainly be interested.
 
The field of Economics is merely a rationalization for legitimizing theft. (i.e. government "re-allocation" of society's wealth and losses)

Where the various schools differ is who/which class gets a nice chunk of an organized society's surplus and who/which class gets stuck with the bill.

Some economic theories accomplish their goals rather quickly. The quicker the accomplishment, the quicker the collapse.
 
Austrian Economics looks very good in theory, however it is probably too late to implement this system into the current economic structure.

Using Peter Schiff's analogy of the drug addict; If there was a hardcore meth addict (started at age 29) that has been on meth, coke and heroin for the last 34 - 35 years. All of a sudden you take all the drugs away from him; he'll die. The reason the body can't handle the detox, even though the body knows it is good for the long term.

Same thing applies to us economically, after breaking away from the gold standard 34- 35 years ago and create all this credit/inflation (digitally and physically). We can't just turn around and say "Okay, from today on $40 U.S Dollar = 1 Troy Ounce of Gold"
 
Quote from Misthos:

The field of Economics is merely a rationalization for legitimizing theft. (i.e. government "re-allocation" of society's wealth and losses)

Where the various schools differ is who/which class gets a nice chunk of an organized society's surplus and who/which class gets stuck with the bill.

Some economic theories accomplish their goals rather quickly. The quicker the accomplishment, the quicker the collapse.
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That's right.

All economic schools are a political construct, an extension of Governing philosophy imposed on the market.

Government can only 'set the table' for the economy. Either unleashing or restricting the latent potential in any free market.

Monetarists are Academic Elitists, Central Planners by nature. They believe the masses are 'too stupid' to freely transact if left alone. Wise and learned men (them) must intervene to 'save us from ourselves'. What these book-smart idiots don't get: the only readily available instrument to impose their will is controlled by Private Capital. Not academics. Academics are trotted out as window dressing for the public while interest rate policy is set by Fed Member Banks. That's called Marketing Magic.

Austrians believe in sound money, minimal tax, full-reserve banking and no Central Bank. There is nothing inherently dangerous about this.

Private capital allocated privately is the definition of the free market. Risk is inherently priced-in the cost of capital (interest). Instead, we've got private banks handing out ~free capital at the expense of savers, who get robbed. While the later translates to cheap and abundant capital with quickly evolving technology, Central Banks refuse to police themselves and the attendant Bubbles and mass confiscations of middle class wealth become the norm.

The real problem is the nature of money. What do we use as money? How do we regulate its issuance?

This is one of the biggest problems humanity has ever faced. And still faces.

Each monetary system avails itself to exploitation, some moderate, some rampant. Austrians promote hard money. Silver and gold. The problem? Goldsmiths lent more then deposits in their vaults.

Monetarists promote Central Banks and fractional reserve lending. The problem? Todays Bankers explode credit and smash economies. It's the same game, played over thousands of years.

The answer? Full-reserve banking enforced by law, audited by Government and third-parties.

Of course, that won't happen until there's a populist revolution in this Country for honest money.

Bureaucrats, Politicians and the FIRE economy profit enormously from counterfeiting and would never give it up. Ever. Winners write the history books. And in this case, the Economics books.
 
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