Austrian business-cycle theory correctly describes asset bubble dynamics but offers no policy

Evidence

On the asset (theory) side, we find the action of central banks in producing asset bubbles with prolonged policies of too-cheap money and the epistemic hubris of managing the Great Moderation blowing up in the faces of the same central bankers who declared that they had tamed the cycle, which is not an unreasonable description of the 2000s. The broad sweep of an asset bubble’s inflation and deflation is well described by the basic Austrian model. The notion that debt is not simply redistributionary (my income is your debt) because leverage matters and that the payoff to debt financing is asymmetric, especially on the downside, is also a telling and important contribution. The problems start when we move to the liabilities (policy) side. — Mark Blyth, Austerity, 398

Categorization

• XREF: The ‘leverage makes debt asymmetric, not merely redistributionary’ point connects directly to financialization critiques and to the debt asymmetry literature the reader tracks. — connects to: Austrian theory holds that government intervention, not markets, causes boom-bust cycles — Mark Blyth, Austerity: The History of a Dangerous…, 316; Austrian economics frames recessions as necessary austerity after an interventionist party — Mark Blyth, Austerity: The History of a Dangerous…, 316; Austrian economics interprets corporate cash hoarding in recessions as rational fear of state expropriation — Mark Blyth, Austerity: The History of a Dangerous…, 395 (+3 more)

Broader Connections

• Austrian business cycle theory blamed politics and left crisis victims unsupported #expands (0.85) — Dieter Plehwe, Quinn Slobodian & Philip Mirowski (eds.), Nine Lives of Neoliberalism, 395
• Monetarism mainstreamed Austrian and ordoliberal economic ideas #expands (0.72) — Mark Blyth, Austerity, 412