Game of Theories: The Austrians

Austrian business cycle theorists argue that the central bank could be distorting market signals for entrepreneurs. How does this contribute to booms and busts?

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[ChrisYourDad]

The Austrians explain the last two "criticisms" quite well. Malinvestments needs labor to be produced in first place. If these malinvestments collaps, companies go bankrupts (unemployment) or they have to reduce their costs to be able to survive (unemployment). Also consumption does rise in data because they measure actual inflated prices, not real consumption.

[BobWidlefish]

5:40 the answer is the capital structure. It takes time to fix the interlocking capital structure after massive malinvestment. In modern times it takes so darn long because the government keeps making it worse thinking they’re helping.

[karolgajko]

I felt physical pain when you have tried to map on Keynesian graph Austrian theory.

[BobWidlefish]

6:00 this is framed in an aggregate almost Keynesian way. You’ve got to disaggregate into different stages of production to see ABCT.

[cafeta]

In my opinion this is the best approach to a healthy economy.

[vibhuvikramaditya]

The only reason empirical data shows investments and consumptions moving together is because we look at it through the lens of final market value and gdp, like when a coffee costs 10 dollars, it needed a lot more spending starting from planting coffee beans to the final stage in coffee bags, this is captured in GDE, which is thrice the value of GDP, the structure of production by mark skousen is a great book that deals with these complexities

[ewinslow]

5:10 If the government interferes with the price of a good, we don't expect entrepreneurs to be able to divine the "natural" price and ignore the government's distorted signals, do we? So why should we expect them to be able to do this when government distorts the price of money itself (i.e. interest rates)?

[adrianomattia]

6:30 Strawman. That is what would happen under normal conditions, in other words if investment increase then less resources are avaible to produce consumers' goods(so there's the trade-off represented by the PPF).
When there's the artificial credit expension the economy is fooled to believe that there are more resources avaible than there actually are. This boosts both consumption and investment at the same time(the economy wants to push itself out of the PPF). Of course this is impossible with our current level of resources so investment and consumption fight for the same resources and this conflict eventually causes the bust.
*EXAMPLE*
With current level of x resouces and y technological development we can produce 500 units of capital goods and 100 units of consumers' goods, and if we want to produce more of one we have to reduce the production of the other( *assuming full employement* ).
With artificial low interest rates, the economy is fooled to believe that we can produce more of borh at the same time without the trade-off(ex: 600 units of capital goods and 200 units of consumers's goods).
This is impossible so eventually it will collapse.

I hope this clears up a lot of misconceptions with ABCT

[acyoutuber]

This is a good video. Austrian economics is just an over-simplication. Blaming interest rates as sole reason for 2008 housing crisis. excessive options and derivatives market, laws allowing financial firms to transfer savings to investment funds to gamble, unethical credit rating system. that is not accounted by original austrian economics.

[david_the_maverick]

You guys are fantastic! Keep up the good work. You have too few subscribers for the quality of videos you produce.

[BobWidlefish]

Part of this was very good. Though I think it would be a lot better if you had an Austrian economist review it because I’m quite sure you’re not understanding their position. Cheers!

[DrexisEbon]

Austrians are correct because they correctly identify economics as a social science reliant upon synthetic a priori knowledge. You can't extrapolate economic theory into real world praxis because "ceteris paribus" (all else being the same) never applies to human action. To understand Austrain economics, you have to have a thorough understanding of Praxeology. This is why most economists don't folow the Aistrian school.

1. It would put economists out of a job. The logically necessary conclusions of the Austrian school based on praxeological principles conclude that the essential role of an economist is NOT related to governmnet - by whom nearly all economists are presently employed as professors, advisors, or even just pawns to manipulate the citizens into believing that government is necessary to solve certain problems = to convinve that their unjust use of force if in fact a necessary evil. Austrian economics disproves this so there is an incentive to discard the findings even though they produce aomw of the most accurate predictions without the need for mathematical modeling (something which every other school of economics fails to do). In fact, it is a logically necessary conclusion of Austrian economics that economista must fear it as they do, further strengthening the case for it given its current status as an outlier philosophy of economy.

2. Praxeology is actually pretty easy to understand. Comparatively (much like the pre-vulgate Bible) other schools of economics are sacred and protected "magic" that the layman "couldn't hope to understand, so they need an interpreter and an intermediary between them and truth." The economic theory that most supports the elite wins in the game of power. If you have interest in Praxeology (human action laws) and power laws (political science) I'd highly suggest Ludwig Von Mises, Robert Greene, and Nicholo Machiavelli.

To understand reality, you must understand its constituants and their actions, motivations, mental maneuvers, ideologies... to know man you must know power and discomfort. You have to understand man's drives. All nonaustrian schools of economics ignore the moving factors behind all actors in the markets they claum to study but the actors ARE the market in that without them, no market exists. For there to be trade, certain value judgments must exist which differ from persn to person and every other school pf economics just completely ignores the prime movers in all transactions: striving and discomfort, subjective valuations of worthwhile pursuits.

We reduce the utility of economics by boiling things down to mathematical models. Humans exist in a constant state of flux (due to their sentience) and thus no two transactions are ever exactly the same. Pluribus cetivus is bullshit. Nothing else is ever exactly the same
There are too many variables to construct a resolute mathematical model that can be studied emperically.

...no one knows how to make a pencil.

[salt]

I got to say this is the only economic theory that makes sense and is predictive. I’ve made quite a bit investing with the Austrian theories in mind.

[zackcash]

Good video, but the problems with are easily solved:
1. Well, it may be true that individual psychological factors may play a role in chosing an investment, it would be foolish for anyone to invest in anything they think will yield less than their bank interest. And most entrepreneurs have to ask themselves how much they really think they could make before going in.
2. For this theory doesn't matter if they raise in tandem so long as one moves more than the other.

[geertensing]

really great video, I am really enjoying this series, thanks a lot for the quality content!

[BobWidlefish]

4:19 this isn’t such a great analogy. A Hayekian triangle or some other representation of the capital structure is needed.

[aneyeforcapitalism]

There is one incredible flaw in this video which leads to other flaw. Two important aspects of ABCT that are not even mentioned are marginal utility and time preference. All three of these concepts manifested together sufficiently answer any criticisms of ABCT.

[raulmaximo]

Its because we the entrepeneurs like to play the game like everyone else (FOMO), and also we like to think we are smarter than everyone else, therefore we think: "i will take the money out the door before SHTF, cause im smart money".

[Reckless]

Why isn't the Austrian solution: de-nationalize the money supply and allow for competitive free banking not included in their solutions?

[z.t.]

Your explanation does not take into account lag effects of monetary policy. Lower interest rates, all things being equal, should spur increased business activities, which only LATER translates into increased employment and possibly wage growth, which together should lead to increased household spending and saving.