Austrian Business Cycle Theory in Light of the Financial Crisis: The Paradox of Prediction
38 Pages Posted: 2 Nov 2013
Date Written: October 31, 2013
This article argues that although economic science is not well equipped to make predictions, it is a myth to claim that “no one” saw the financial crisis coming – the economic events that we have experienced were possible to navigate.
Section 1 surveys those who saw it coming, demonstrating that the financial crisis was visible and predictable at the time of the peak. Section 2 surveys how the Austrian theory has been treated in the mainstream media, from the period of the “great moderation” through to Summer 2010. Section 3 outlines the “stylised facts” of an Austrian-style “crack up boom” and applies it to the experience of the financial crisis. We conclude with brief commentary on some contemporary debates.
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