I was reading an article (Economics focus, p. 92) in the Sept. 27th - Oct. 3rd issue of the Economist, and it would seem to offer some (more) real world evidence of the veracity of the Austrian theory of the Business cycle.
The article sites two new studies by the National Bureau of Economic Research, working papers No's 14321 & 14026:
http://www.nber.org/papers/w14321.pdf
http://www.nber.org/papers/w14026
Unfortunately, even though I'm sure our tax dollars fund this organization, you have to pay $5 to download the .pdf
From the Economist:
"Taking the experience of 181 countries since 1980, the authors reckon that middle and low-income countries had a roughly 20% chance of suffering a banking crisis and a 30% chance of a currency crisis, external debt default, or inflation spike (to more than 20% a year) if they experienced what the authors call a "capital flow bonanza" in the three years beforehand. (They define such a bonanza as an unusual shift of the current account into the red, using that as a proxy for capital inflows since the capital and current accounts mirror each other."
So in my mind, a massive influx of foreign capital is very much like a forced influx of investment by a central bank via artificially low interest rates. In both cases, money that is not coming from the increased savings of the population is being made cheaply available to the system.
In both cases, the temporal preferences of the population are unchanged, therefore the bias will be towards consumer goods for the average man and towards capital goods for the entrepreneur, creating the out of whack Hakian triangle.
In both cases, since available money is not based on actual savings by the population, it is prone to dry up and disappear overnight, long before profits from capital expenses can be realized.
The main difference seems to be the rate at which these things occur in developing economies Vs developed. These tragic consequences ocurred in the developing countries studied within three years of a large capital influx (maybe the percentages would be higher if the paper's time period had been longer). In a much larger economy, there is so much more available money that it takes much longer to unravel. I would think investors are also much more willing to face risk in a developed economy, and much quicker to dump projects at the first sight of trouble in a developing economy.
What do you think?
It would be most welcome if there were statistical approaches on how to measure the temporal preferences of a country.
My intuition leads me to infer that over the last few years in Brazil the temporal preferences have shifted in favor of investment, so that in the current worsening of economic conditions still a number of investment projects would continue their due course.
Art transcends ideology.
http://mises.org/Community/blogs/ruben
I would think that the numbers from banks on their checking/savings accounts and maybe government bond sales (provided people have faith in the government) would tell a great part of the story, along with consumer credit applications.