Tuesday, September 12, 2006

 

Austrians In Odd Places

According to Tyler Cowen, if he believed in the Austrian Business Cycle Theory, he would think that monetary intervention by Asian central banks has distorted relative prices in such a way that the United States has become over-invested in non-export durables. Furthermore, he would also believe that the inevitable consequence of this distorition will be a sectoral shift back toward exports (as relative prices return to their “natural” positions) that could possibly lead to a recession as the economy takes time to adjust.

Of course, Tyler Cowen doesn't believe this, but it certainly falls in line with the boom-bust cycle described by the ABCT. And if this is really what Austrians think, then New Keynesian economists like Brad Delong are playing on the same team. An odd partnership, isn't it?

This is an old topic on the blogosphere, but I thought it would be fun to discuss with an Austrian-sympathetic crowd. Are Brad DeLong and other economists that worry about asian central banks fueling national borrowing really unleashing their “inner-Hayeks”? Or has there been some confusion? Do Austrians really think something like this will happen? If so, how do their policy perscriptions differ from folks like Delong?

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