Which School do you adhere to ? This is a complex debate and perhaps for policy makers it would be best to maintain some sense of flexibility.

However.

According to Austrian Theory of the Business cycle , central banks such as the federal reserve creates mal-investment when they push down interest rates.

Thus in the short term, investment and spending go up, and a boom is experienced. However in the long term, the investments made during the boom are revealed as unsustainable/undesired by the market, and you face a bust (30's, 2000's). This is the biggest reason Austrians, like Ron Paul for example, are against the Fed.

Assuming this theory is true (All indicators seem to concede that it is the most valid long term model.

Some economists argue that the American economy is in recovery, but the Austrians say it's not.

They cite the fact that the economy is only being kept afloat right now thanks to the FED. The Fed is basically not allowing our economy to stomach the mal-ivestments made during the 1990's boom and therefore preventing the free market from re consolidating itself.

Asturians don't see the "bust" or recession as being a entirely negative experience, the Austrians see the bust period as the cure to this fed-created boom. A recession is when mal-investments are purged, and the market economy (all on its own, without government interference), can regroup and recreate itself along more stable lines.

What's seems to be going on right now, is that the Fed (and federal government) are not allowing the economy to restructure itself. Keeping the boom period alive is only leading to more long term mal-investment and digging a deeper ditch for the economy to climb out of.

Thus when interest rates actually do rise, the impact of the recession will be magnified and compounded.

The problem with the Austrian school is that: "In the long run, we're all dead" - Keynes

Swanhends wrote:The problem with the Austrian school is that: "In the long run, we're all dead" - Keynes

Then


Now

Ah yes, setting the nation's economy back by 3 or 4 decades is clearly a better solution

"Does it contain any abstract reasoning concerning quantity or number? No. Does it contain any experimental reasoning concerning matter of fact and existence? No. Commit it then to the flames, for it can contain nothing but sophistry and illusion."
- Hume