The Great Recession and its Aftermath from a Monetary Equilibrium Theory Perspective
George Mason University Mercatus Center Working Paper No. 10-63
29 Pages Posted: 5 Dec 2010
Date Written: October 1, 2010
Modern macroeconomists in the Austrian tradition can be divided into two groups: Rothbardians and monetary equilibrium (ME) theorists. It is from this latter perspective that we consider the events of the last few years. We argue that the primary source of business fluctuation is monetary disequilibrium. Additionally, we claim that unnecessary intervention in the banking sector distorted incentives, nearly resulting in the collapse of the financial system, and that policies enacted to remedy the recession and financial instability have likely made things worse. Finally, we offer our own prescription to reduce the likelihood that such a scenario occurs again by better ensuring monetary equilibrium and eliminating moral hazard.
Keywords: Austrian Economics, Bailout, Business Cycle, FDIC, Monetary Equilibrium Theory, Monetary Systems, Monetary Policy, Moral Hazard, Nominal Income Targeting, The Great Recession
JEL Classification: B53, E32, E42, E52, E58
Suggested Citation: Suggested Citation