Categorized | Austrian Economics

Keynesian vs Austrian Economics

Austrian Economics is the oldest continuous school of economic thought. Founded in 1870, its roots date back to the early 18th century. It is thus the oldest, smallest, and, thanks to the economic crisis of the past few years, the fastest-growing school of economic thought.

While Keynesian economists use a complicated series of methods (i.e. elaborate mathematical modeling and unrealistic models of human behavior) to predict the future of the economy, the Austrians use a much simpler approach: they use logic and reasoning to understand human economic behavior and processes.

Below is a short, informative video explaining the differences between Austrian and the modern mainstream, or Keynesian, economics.

The table below summarizes the main differences between the two schools of economic thought:

 

 

 

 

 

As mentioned in the video, Austrian economists correctly predicted every major economic crash. Ludwig von Mises predicted the Great Depression, Murray Rothbard predicted the stagflation of the 1970’s, and Peter Schiff (among many other Austrian economists) predicted the Great Recession of 2007/8.

Both mainstream and Austrian economic theories have diametrically opposed views and assumptions and, depending on which one you will adhere to, will ultimately affect your saving and investment decisions. If you want to make wise investment decisions, it is best to research Austrian Economics, because if you simply stick to mainstream media, you will not be exposed to the economic theories that may present a viable alternative to the mainstream ones. The mainstream economists who were interviewed as ‘experts’ on television and featured in all of the best magazines not only failed to predict the most recent crash, but they also encouraged the greater public to invest in great mal-investments. Ben Bernake, Greenspan, Krugman, Geithner, and Buffet all promote the current debt paradigm.

Post your thoughts below.

 


  • optimistic4thefuture

    Yeah, and many of those same Austrian economists predicted financial Armageddon half a dozen times in which nothing happened, or even the opposite happened. Also the statement that no “mainstream” economists predicted the housing bubble bursting is patently false. Austrian Economics might have still made sense 75 years ago, but today? Today companies are global and huge and many hold more power than entire nations. There are a litany of scenarios in which two or three companies go belly up, and literally destroy the US economy. It sounds nice to say “let everything correct itself”, but only if you are ignorant of the fact that if next Monday no one can withdraw cash from their bank, or buy gas, or pay their small company’s payroll, absolute anarchy would ensue. Literally millions and millions of Americans would lose their lives in a very short period of time and it is this absolute ignorance to the “reality of things” that makes strict Austrian theory laughable. Go ahead and consider that if the US econ collapsed, so would most economies on the planet. Now you’re talking about billions of lives lost and a decade lost to scratching things back, all for what? A clean moral hazardless correction? Give me a break.

    • CharlotteGreenbarg

      Which Austrian economists were wrong the half dozen times you mention? Which mainstream economists predicted the housing bubble? I’m asking because I’m curious, not to challenge you.

      • optimistic4thefuture

        Ever seen one of those ads? The ones that say something along the lines of “Top Billionaires share secret about impending financial collapse” or “This guy predicted the financial crisis in 08, he’s predicting something even bigger this time”?? There’s that kind of predatory stuff, then the most recent group of them came in 2009-2011, when Obama was up for re-election, unemployment was sky high, the national yearly deficit had ballooned, and Austrian economists said that we should cut govt spending, balance the deficit, but we didn’t, at least not all the way. We pumped money into the economy with the stimulus, which Austrian economists predicted would absolutely destroy us. It didn’t. Even if they argue that it would have been better had we not had the stimulus, if we had cut thousands of federal govt jobs and budget dollars; the fact remains that they claimed going the alternative route would result in economic doom. It didn’t. Most research shows that had we not cut the govt in the areas we did, had the govt not shut down from congressional bickering, and if we had actually gone through with the stimulus on infrastructure, we’d be in a much better economic place today. Not saying Austrian economics is all BS, it just doesn’t work as well as the alternative when it comes to today’s dollar driven, fed controlling, global economy. Where international debt is a very fickle thing, and America holds a dominant advantage with the dollar’s place at the center of world currency. Cheers!

        • Fox Fetterworth

          Typical nonsense from a useful idiot.

          Thanks to Obozo America is $19 trillion in debt, which it will NEVER be able to repay, and 93 million people are not working.

          THAT’S Keynesian idiocy and a socialist/communist community organizer con artist at work.

          I’d suggest you wise up, but fools like you never do.

          • optimistic4thefuture

            lol Fox you just have no clue what you’re talking about my friend. 19 Trillion in debt you say? Well it’s actually about 700 billion short of 19 trillion as I write this.. but hey I’ll allow for some exaggeration. As far as economics… Keynesian Economics isn’t even close to Communist Economics… and socialist? Nope, not even close to that either.. Learn your stuff man, google the actual definition of Socialism, I’d wager you have no idea whatsoever what it is. Anyhow, I’m good, I make quite a bit of money, pay quite a bit of taxes, and live my life constantly verifying the things I believe as true and I change what I think when the facts tell me so. You on the other hand haven’t spent one iota of time to give a fair look at the other side of any argument. You still believe what you believed 10-20 years ago, and for the same stupid reasons that are as false now as they were then. I feel bad for you Fox..and I used to buy the same BS you’ve bought.. but then I became an adult who looks for the truth himself instead of having someone else’s version of the truth spoon fed to them.. best of luck, you’re going to need it.

          • Fox Fetterworth

            Let me correct your major nonsense there, dumbo: I never said Keynesian economics was “communist economics.” I said that scumbag in the White House is a communist. He’s NOT a socialist; he’s a communist born and raised in a family of communists and mentored at a very early age by Frank Marshall Davis, a CARD-CARRYING communist.

          • JoeD

            Oh Jesus Christ, a “genius” whose going to argue the fucking dictionary of socialism without realizing that, like democracy, the fucking common usage has changed.. Go home.

            ” and live my life constantly verifying the things I believe as true and I change what I think when the facts tell me so.” HAHAHAHAHAHAHAHAH!!!!!! Sure you do.

            You didn’t become and adult, you simply parrot what you hear on the nightly news. The only difference between you and a two year old is that a two year old can’t type yet.

          • Christoph Bell

            To be clear, the debt was caused by an unneeded war and an unregulated mortgage market.

            THAT’S the free market for you and a capitalist/hoarder agenda at work!

          • Fox Fetterworth

            Only half of the debt was caused by Bush’s war.

            And the HIGHLY REGULATED mortgage market went to hell when useful idiot Chris Dodd, faggy Barney Frank and horndog President Bill “Bubba” Clinton — aided and abetted by commie community organizer thugs at ACORN (Google it.) — forced banks to abandon tried and true lending standards so that a bunch of deadbeats could borrow money to buy homes they could never afford if they lived three lifetimes.

            Is it any wonder that I’m virtually certain you voted for Ocommie not only once but twice?

          • JoeD

            HAHAHAHAHA!!! Unregulated mortgage market!!! That’s good stuff. And an unneeded war – I certainly hope you mean the one that Obama continued… and the few he created. No, your bogeyman capitalists were not the cause, Christoph. I know you can’t possibly think outside of mainstream media and the explanatory panacea of “greed” that you are bombarded with on a daily bases, but please give it a try. But alas, trying to convince you otherwise I know will be fruitless. Why would you bother looking for anything else when you have the perfect answer wrapped in in a little package and supported by so many “experts.” Yes, “greed,” like God, is a such an easy way to leave any intellectual work at the door and just march on as if you have a clue. Greed answers all economic problems, just like God answers all scientific ones. So stick with that, Christoph, you’ll certainly be safe in conversations on college campuses with that empty drivel.

            To break it down for you, Christoph, your “clear” explanation for one of the worse recessions in American history (the two worst happening under Keynesian policies, by the way) is “greed.” Did I get that right, Christoph? Did you take an economics course to formulate that answer? Because that’s all you’re saying – aside from the “unneeded war.” As if we’ve had needed wars since 1945.

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