Economics Questions

Re: "Boom" in the "Boom/Bust" cycle

MatthewWilliam — Tue, 27 Jan 2009 15:56:56 GMT

nibbler491:
Now I have a few questions. First, why is there a "boom" at all? Shouldn't entreuprenuers simply malinvest, because they THINK the consumption has gone up, while the consumption level stays at the same level? If that's true, then it would really just be a Bust. No boom involved. But then, what causes the Booms like the dotcom boom, and the Housing boom?

Check out Roger Garrison's powerpoints on this. Note that those extra pieces of paper the central bank prints masquerade as real savings. Entrepreneurs misconstrue this as genuine demand and begin expanding. Then out comes the rug from underneath everyone's feet.

Re: "Boom" in the "Boom/Bust" cycle

hayekianxyz — Tue, 27 Jan 2009 14:22:03 GMT

nibbler491:
Now I have a few questions. First, why is there a "boom" at all? Shouldn't entreuprenuers simply malinvest, because they THINK the consumption has gone up, while the consumption level stays at the same level? If that's true, then it would really just be a Bust. No boom involved. But then, what causes the Booms like the dotcom boom, and the Housing boom?

I don't understand what you mean. Entrepreneurs don't think consumption has gone up, they think individuals are cutting down on present consumption for future consumption. The point is that as these entrepreneurs receive the new money and embark on these malinvestments they have to big against one another for the services of labourers, this means that wages rise and there is apparent "prosperity".

If, time preference really had decreased and all of these investments were embarked on, the economy would still appear to be prosporous, only, this time it really would.

nibbler491:
Second, Why is it not possible for entreuprenuers to look at the actions of the fed and discern that prices rice as a result of inflation, not of a change in time preference?

And how can they tell what the real interest rate is? Moreover if all of their competitors take out loans at a low interest they're going to be outcompeted, so they have to do it often, if only to be able to compete.

"Boom" in the "Boom/Bust" cycle

nibbler491 — Tue, 27 Jan 2009 14:14:35 GMT

Starting off, here's an article written by david_z on the business cycle(helped me greatly in learning exactly how the business cycle worked):

http://mises.org/Community/forums/t/5365.aspx

Now I have a few questions. First, why is there a "boom" at all? Shouldn't entreuprenuers simply malinvest, because they THINK the consumption has gone up, while the consumption level stays at the same level? If that's true, then it would really just be a Bust. No boom involved. But then, what causes the Booms like the dotcom boom, and the Housing boom?

Second, Why is it not possible for entreuprenuers to look at the actions of the fed and discern that prices rice as a result of inflation, not of a change in time preference?