Bringing the Austrians Back to Austria

Remberto Latorre-Artus

Main Contributions

Subjective Theory of Value

The Marginal Revolution

Business Cycle Theory (Capital-Based Macroeconomic Theory)

The Economic Calculation Problem

The underlying causes behind:

The Great Recession

The European Sovereign-Debt Crisis

The Euro Crisis

Questions (Audience chooses):

Will the Fed lose monetary policy sink the US dollar?

Will the Euro survive Portugal, Italy, Greece and Spain sovereign-debt crises?

Should Germany Lead or Leave!?

What is the Austrian recipe?

If Mises and Hayek were alive today what would they recommend? (And where do they differ?)

What is the Austrian paradigm?

It places individuals at the center (purposeful actions of individuals)

Marginalism.

Incentives matter.

Solution based on Human Action (not Human Design) and thus,

AE is down to earth, easy to understand and based on common sense.

How to understand the global crises?

Macroeconomic Propositions have Microeconomic Foundations

Austrian Business Cycle Theory (Capital-Based Macroeconomic Theory)

Böhm-Bawerk built upon the TIME PREFERENCE ideas of Carl Menger there is always a difference in value between present goods and future goods of equal quality, quantity, and form. Moreover, the value of future goods diminishes as the length of time necessary for their completion increases.

Austrian Economics understand that “K” is never homogeneous.

Inter-temporal consumption.

How to understand the global crises?

*This is the key insight of the Austrians: you cannot pretend to massage Aggregates and expect a perfect “trickling down.” Instead, if you interfere, you will create market distortions.

What distortions? Mainly interfering with the market signals of the price system (Supply and Demand for Money).

Therefore, booms and bust cycles are NOT a normal feature of a market economy

Money Market

The market process plays itself out differently depending upon whether the increased supply of loanable funds derives from increased saving by individuals or from increased credit creation by the central bank.

And the Proof is in the Pudding:

And the World follows suit:

The most dangerous: Toxic Assets

Moving to the Crises

The Great Recession

The European Sovereign-Debt Crisis

The Euro Crisis

The Great Recession

The European Sovereign-Debt Crisis

Source: Jagadeesh Gokhale, Measuring the Unfunded Obligations of European Countries Policy Report No. 23 January 2009, National Center for Policy Analysis

THE TRUE DEBT OF EUROPE(Official + Pension + Health + Welfare; as % of GNP)

Greece 875%

France 549%

United Kingdom 442%

Germany 418%

Italy 364%

EU 25 434%

Youth Unemploymen

t in Europe

German Finance Minister Wolfgang Schäuble warned that failure to win the battle against youth unemployment could tear Europe apart, and dropping the continent's welfare model would spark a revolution. (Reuters, May 28, 2013)

The Euro Crisis

The Euro Crisis

Conclusions

Market intervention creates “white noise” distorts real signals (masking agent)

Market intervention creates Moral Hazzard “Too big to fail” Too big to Jail

Market intervention creates backward Social redistribution Privatize the profits and socialize the losses (the poor pays the rich)

Conclusions

The Keynesian “Trickling Down” solution doesn’t work in the long-run.

Injecting liquidity to help jump-start the economy offers the phony appearance of prosperity, which makes things all the worse (instead of a mild recession we get depressions).

The Austrian Recipe:

Stop the Madoff Scheme (QE) right now, before it’s too late!

Allowing an organic correction, i.e. allow markets to do the job and liquidate malinvestments.

Allow people to figure out where are the sectors of the economy starving for new resources.

It is people (risking their own capital, and using information closer to them and the signals of the price system) who can figure out better where, how and in which ways the new money should go. 

The Austrian Recipe:

There is no non-arbitrary way for a central planer to figure all this out on his own.

Trust in the power of Human Action vs Human Design.

The private sector has a lot to be blamed for, but they reacted to incentives emanating from the central authority and thus…

…Don’t blame the pig, blame the one scratching his back!!!

Panel Discussion

PPT and Literature

remberto.latorre@gmail.comTwitter: @libertywrapPolicymic: http://rem.policymic.com

Austrian Economics Center and Hayek Institutr.latorre@austriancenter.comhttp://www.austriancenter.comhttp://www.hayek-institut.at