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ABCT in a few minutes

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Peter Sidor posted on Sun, Sep 26 2010 10:54 AM

A friend of mine asked me about the following simple scenario - a guy on a party approaches you, and asks about that Austrian Business Cycle Theory he heard of somewhere. How do you explain its basics within a few minutes, to somebody who may not be steeped in economic theory and doesn't want too much involved talk.

Your ideas are welcome. :)

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A_PIIG replied on Mon, Nov 28 2011 6:45 PM

Thomas Woods does a cracking job explaining the theory in a short amount of time:

http://www.youtube.com/watch?v=wCmwRN5gjOo

 

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Yes, that link is quite great, though longer than 5 minutes (also, you need to be Tom Woods to pull it off with such ease and conviction).

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Right, so where was I?

Neodoxy:
Can you give me any evidence that he's not promoting discussion? I've seen some really good discussion on the basis of Austrian Economics itself since he's come here and he's always had a reasonable tone despite some people not being so open to him. So what has he done to in any way harm discussion or in what instances has he done anything to warrant that response? I sometimes pop jokes like that but it would seem that no one has a problem with that because I'm pro Austrian. Maybe you should consider "giving him quarter" when it should be nice to think that you were trying to be the bigger man and give him better treatment and at very least the benefit of the doubt! He told a joke.

He appears to have been openly hostile to people in other discussion threads. At one point, when accused of making an ad hominem argument in another thread, he countered that claim by stating that he was actually engaging in full-on slander. If you'd like, I can find the post in question. Furthermore, he seems to have initiated the hostility (or worse) - at least typically.

That, in a nutshell, is why I acted the way I did toward him in this thread. I won't apologize for it. I don't care about "being the bigger man" against such as him, because I don't think that'll resonate with them - and they're the ones (not any audience) that I'm trying to resonate with.

Neodoxy:
There was nothing apparently snarky about it. And the fct that it was a year old thread and no one was waiting on the answer seems to make it less of a crime.

Obviously I disagree that there was nothing apparently snarky about it. What now?

Neodoxy:
Then you could try being polite first rather than being rude when you 'express your disaproval.'

I have - with other people, and in other threads. Typically I think I am polite. But I'm not afraid to "stoop to someone's level" if that's what I think it'll take to get through to him.

The keyboard is mightier than the gun.

Non parit potestas ipsius auctoritatem.

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This is great - quick and understandable!

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There's a nice little video that does exactly the stated, in pictures:

The Business Cycle in 5 min

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I think they were too ambitious with the "5 minute" limit.  That moves way too fast.  (And technically, the "video" part was done in 4 minutes anyway.  All the rest was just supplemental text, which could easily be called "additional material".  The video even says "fin" at the 4 minute mark).  I'd pick slower music to slow it down a bit, and it would be pretty good.  The way it is now there's no possible way virtually anyone (let alone someone who's never heard of ABCT before) would be able to follow that without constantly stopping the video.

Also, I think the "eventually the government runs out of money" slide is a mistake.  Honest people will get confused ("but you just told me they could print it out of nowhere?"..."Why would they stop bringing in taxes?") and people looking to "debunk" any sort of pro-free market video would easily say "Runs out of money?  Taxes...hello.  The government never runs out of money.  What a bunch of bollocks."

 

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Yeah, it didn't even mention how interest rates are related to credit expansion and how these effect investment decisions and, at the cessation of credit expansion, liquidation of malinvestments.  Also, the video didn't emphasise that the boom is necessarily unsustainable since it must result in a) the end of credit expansion, resulting in a higher interest rate and liquidation of revealed malinvestments or b) hyperinflation and the crack-up boom.  The central bank doesn't 'run out of money', it either decides to cease credit expansion or its issues lose their purchasing power completely and a flight into real values follows.  The 'stimulus' part of the video wasn't really necessary or accurate.

I also just want to say that I really hate threads on this forum that are more than one page long but don't appear so from the forum index...

The Voluntaryist Reader: http://voluntaryistreader.wordpress.com/ Libertarian forums that actually work: http://voluntaryism.freeforums.org/index.php
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Aristippus:
I also just want to say that I really hate threads on this forum that are more than one page long but don't appear so from the forum index...

Have you figured out the pattern yet?

(It's "question" threads that do that.)

 

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I had also the same scenario when camping with my boyscout troop.

Basically what i said is:

When people save money, it is put into banks- the banks have money in them so they can loan it out to others easier, therefore lowering interest rates

When people spend money, they take it out of their bank and the  bank has less money, interest rates will be higher

The two things above happen in an economy that is not hindered by the federal reserve/

Now, you are a company, you make product x, you see that interest rates are low- people saving money, you take advantage of this situation and start using your resources on another factory or orhter means to expand your buisness.

You can do this easily since demand for your product isnt as high since everyone is saving, and your resources are well spent.

Now if the interest rate is high, people are spending on items. You use your resources to further mass prouce your items instead of investing in the long term as the above suggested.

Now, with the federal reserve, the currency is inflated, it goes to the banks, it artificially sets interest rates low (since banks have lots of money). Now, the people could be spending alot and the interest rates could be low. You as a company sees the low interest rates, and start spending your resources on another factory. You don't know that people are wanting to buy lots of products because of the artificial interest rates. All the snatching for resources (your investment in a  new factory etc. and the peoples demand for mass production of your products) reveals that there is too few.

Because of this mishap created by the central bank, your company fails to make ends meet, and needs to lay off workers, cut costs, etc, this is called the bust, in which the free market corrects itself.

To make a further analogy, you are a hosue builder, you know you have a x amount of bricks to build houses. In the free market withotu central bank, you know exactly when and how many houses to build according to the resources that you have. Under a economy with brick(money) manipulation, you are always unsure how many bricks you have, so there is a chance that you build an unfinished house (boom is building the house, bust is when you realize that you dont have bricks for the house)

So, thats basically what i said.

“Since people are concerned that ‘X’ will not be provided, ‘X’ will naturally be provided by those who are concerned by its absence."
"The sweetest of minds can harbor the harshest of men.”

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