2012-02-27

Maybe I'm Imagining Things

Call me crazy, but it sure is looking like the Austrian School of economic theory has taken over mainstream economic discussion.

For one thing, the Austrian view of the latest "financial crisis" and ensuing recession(s?) has for all intents and purposes become the dominant explanation. Consider this Wikipedia article, for example. For all the talk of risk valuation and deleveraging, the story has become one of miscalculation and malinvestment fed by low Fed interest rates. That is ABCT in a nutshell.

Then, Steve Horwitz points out that Bank of Canada governor Mark Carney recently addressed Austrian theory directly in his recent talk at the US Monetary Policy Forum. This is obviously a far cry from just a couple of years ago, when everyone was insisting that Austrian School adherents were essentially a heterodox group of [insert dismissive epithet of choice here].

Naturally, the broader discussion of the "crisis in economics" - that is, not the financial crisis itself but of mainstream economics' ability to accurately interpret the events - has largely swung in favor of core Austrian School concepts of information, economic calculation, governments-as-calculation-impediments, and marginal subjective value.

To wit, take this statement by Chicago School economist Richard Posner, from his take on obstacles to continued Chinese economic growth:
But without an efficient retail sector, it is difficult to motivate workers in the long run; they may be paid well but be unable to use their money to buy the consumer goods and services that they want. This was a huge problem in the Soviet Union; it is a factor in the very high savings rates in Japan and Germany.
What else can you call this concept, if not Misesian? Mises often wrote about the fact that modern standard of life increases in the West were a direct result of consumer demand. In his view, conditions in the workplace improved because it is impossible to extract modern levels of productivity from workers that have been poorly treated. Similarly, what good is it to be a Chinese millionaire if all you can spend your money on is pirated brand-name clothing and fried seahorses? So Posner is absolutely correct: A major impediment to Chinese growth is the fact that this growth cannot and will not occur unless consumers can reap the benefits of their higher incomes.

Perhaps Posner is too old to have a major shift in economic perspectives. Or, perhaps he has always had a sharp mind for interpreting economic events, and the only one who hasn't been paying attention is yours truly. But it sure feels like Austrian-themed economic theory is everywhere around us these days.

I look forward to Horwitz's upcoming event at the University of Carleton. Don't miss it, and please say hello if you see me there.