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Why Not Understanding ABCT Helps Socialism

November 1, 2006

In my view, the most important Austrian theory is Austrian business cycle theory (ABCT). Understanding that is of enormous importance in understanding financial market movements and swings in economic growth. But although ABCT (albeit in a perhaps modified form) have gained increasing support in leading institutions and publications such as the Bank of International Settlements and The Economist, most so-called free market advocates refuse to embrace it.

The people benefiting most from that are the socialists. Whether unfair or not, America have in Sweden and other European countries become a symbol of capitalism. Socialists use America as a horror example of how bad things will be without the welfare state (which it in this debate is assumed to lack), while libertarians use America as a role model for how great things will be without the welfare state.

Now that due to Greenspan's destructive monetary policies, America is heading towards a recession, socialists will use this as "proof" that the welfare state is needed. Had free market advocates embraced ABCT, they would have been able to counter the socialist argument, but now that they don't embrace ABCT, they will lose the debate. Today on LRC I write on how in a similar fashion, the case for tax cuts in America will seemingly get discredited, because supply-siders refuse to embrace ABCT.

Another example of this is how in Sweden, opponents of the extensive welfare state, are seemingly discredited by the current cyclical boom. Had they embraced ABCT, they would have been able to answer the socialists, but instead they let the socialists win the debates.

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