Reading Austrian literature, I find there are a lot of reasons why the economy will face another crisis. Too much sovereign debt, a housing bubble that hasn't been corrected, a large number of unemployed workers, a stock market rise that is fueled by money printing, the college education bubble, a standard of living that is financed by debt, etc.
These arguments seem to imply that it is inevitable that there will be a global financial crisis (2008 but worse) followed by all sorts of unsavory events. Things like civil unrest, police state taking over, significant a lowering of the standard of living, double digit inflation, 10%+ drop in GDP, and a collapse in international trade.
Are there arguments that these events are not inevitable? Simple human nature seems to ensure we won't stop trading and producing altogether, so we won't just start killing each other Mad Max style. But what's preventing a significant global economic meltdown within say the next ten years or so?
GooPC:These arguments seem to imply that it is inevitable that there will be a global financial crisis (2008 but worse) followed by all sorts of unsavory events. Things like civil unrest, police state taking over, significant a lowering of the standard of living, double digit inflation, 10%+ drop in GDP, and a collapse in international trade.
While it may sound like those are the consequences, they are not actually the ones necessarily predicted by these Austrians...and certainly not publically perpetuated. Ironically they are the scenarios used to demagogue the issue, and either claim this is what the "doomsayers" are saying so as to strawman their argument, or they are perpetuated as the inevitable result if we do not follow whatever statist remedy the person talking is touting.
In fact I've heard no Austrian ever even come close to saying "Mad Max"...but I actually have heard those very words at least once or twice from statists.
It all depends on how you define ambiguous terms like "meltdown". Of course production and trading won't ever disappear, and again the only people who are claiming otherwise are the demagogues. But yes, as the Austrians say, it'll be bad...but what this means is severe slowdown in production, a lot of unemployment and rough times for a lot of people in terms of their standard of living. It'll be magnified by the fact that most people are quite used to an incredibly easy life, with a considerable amount of comfort without almost no effort by historical standards. That will certainly change. People will get a taste of what their ancesters had to get through so that we all might stand on their shoulders. But this by no means the end of the world...certainly not in the terms that a lot of people would like to paint it.
Yes, really bad things like riots and wars and destruction on a large scale are in the cards. With the complexity of the world today and the sophistication of the weapons, it's always in the cards. But human nature was always been virtually the same. People by and large do not want to be engaging in and dealing with conflict and violence all the time. Humans have quite a large tendency to move toward more cooperation and less disfunction...at least in the greater senses of that word.
The biggest factor in determining how quickly the really bad stuff is over and the real recovery underway is how much interferrence will take place from those in government (and for how long it will be perpetuated.) The sooner and the more freely people are allowed to interact in voluntary transactions of their choosing without incumberance from people with guns and badges, the quicker and less severe the bad stuff will be. And of course, the biggest factor in determining how fast that will be is in how accepting the public is of the ideas of the bureaucrats who would claim the way to improve the world is to have them plan it. In other words, the sooner people wake up to the truth, the better off everyone will be.
And that is why the value of something like the Mises Institute cannot be understated.
Thanks for the reply James. I guess I was speaking too broadly when I claimed Austrians hold these views. But certainly these views are held by a nontrivial portion of people within the Austro-Libertarian movement. Just look at all the survivalist blogs that Lew Rockwell links to.
it'll be bad...but what this means is severe slowdown in production, a lot of unemployment and rough times for a lot of people in terms of their standard of living.
Do you know of any Austrians who have made historical comparisons along these lines? Are you talking about 1930s USA, with 15%+ unemployment and widespread poverty?
I think 1910s-1930s Russia is the worst case scenario with civil war, totalitarian government, ethnic purges, and massive starvation and poverty. Is this type of scenario possible? If you read some blogs it seems so. All the illiterate masses in the cities start rioting when food runs out leading to a totalitarian take over. Or are those predictions wrong? Is it possible for the masses to "smarten up" a bit and support at least semi-laissez faire policies?
I honestly don't know of anyone outside of the FED who thinks that everythings going to be ok and that hard times aren't going to either persist or get hard. It's practically undeniable at this point. The Euro Crisis is what could push everything off the edge
"Are there arguments that these events are not inevitable?"
1. Congress/the president will fix the budget and the debt will start to decrease. American bonds will be upgraded again and then the debt will fall to normal levels
This has a tiny grain of truth in it. With the Iraq war ending and some 'automatic' cuts coming in we at least see the possibility for a drop in debt levels in the short term. However, with the failure of the super congress to cut 3.5% of total spending over the next ten years, then as a recent article I read stated: Nothing short of a full out bond crisis will cause congress to resolve the issues. No one's willing to compromise, the republicans aren't willing to cut enough or even talk about raising taxes, dems aren't willing to cut anywhere near enough and would like to tax the hell out of the rich. The argument stated above revolves in large part around the idea that democracy is a system capable of resolving difficult problems. The argument you'll see around here against it is the opposite argument, which I think can be shown to be praxeologically the case.
2. Austrian Business Cycle Theory is false. Therefore all that's necessary is further stimulus/low interest rates in order to cure the problem. This also means that most of the errors during the recession is now liquidated and all that's needed is an increase in aggregate demand to put the economy back on track.
Usually revolving around modern assumptions partially concerning 'empirical evidence'. That's the counter argument, see here to see our argument.
3. The Euro is going to recover
Similar to the arguments about congress. The idea is that in order to save their own skins people will finally make the cuts and go through the pain that they have to in order to get by. This is indeed a possible, but unlikely and it probably be too little too late. Creditors to Greece are already seeing half of what they paid in going away which is a default without the word default. This will shake confidence in the Euro forever and the fact that to produce enough to save the tidlewave of failing countries (Italy, Greece, Spain, Portugal, and possibly Ireland) will cause a major case of inflation and possibly a huge recession depending on how its handled.
These are all vaguely compelling arguments apart. Together it's quite a difficult pill to swallow.
Depends on the statistics you're using. If you go by the official statistics reported by the government, then you're talking around 9% unemployment. If you look at the statistics, like Government Shadow Stats, then we are already over 20% unemployment. At what point do people declare the situation to be "bad"?
Meltdown in terms of the US currency, the dollar, is pretty straight-forward provided the right conditions fall into place. The Fed is leveraged more than 50-to-1 at this point. Every bad decision they've made is backed with fiat money, so any 'fix' they claim is illusory. The US government is planning on producing more dollars, whether that be the bills you and I exchange or the notes the banks hold or one of the various other mechanisms the Fed uses. If and when people starting calling them on it, they'll quickly realize they've been had. The dollars, notes, and whatever mechanisms issued/used will end up being worthless. It's at that point when everyone recognizes the dollar has no value and discontinues its use as a reserve currency, that's when there's a dollar meltdown. But then people will move on to the next thing. Americans, however, will end up being the last to change over, and will therefore be the ones who are hurt the most. At least the everyday Americans and not the elites who get first crack at the newly printed money.