Business Cycles

Thanks to past interventions, the economy is now rife with malinvestments and prices that don't reflect real demand. The solution is to allow deflation and other types of painful readjustment. Otherwise true growth will elude us.

Austrian economists do not have crystal balls, but Austrian business cycle theory provides a sure foundation for identifying looming economic crises and exacerbating factors, even if the precise timing of a downturn cannot be known.

Finn Kydland and Edward C. Prescott (KP), the 2004 Nobel laureates in economics think that technological shocks can explain 70 percent of economic fluctuations in postwar US data. Unfortunately their quantitative methods are simplistic and ignore the real problem: central banking.

Even if the central bank policymakers could implement policies without error, Milton Friedman’s and Robert Lucas’s monetary schemes could not secure stable economic growth.