Tuesday, September 23, 2008

Meltdown - Causes

Over the past several days I've read many theories on the causes of the current financial meltdown. Ranging from greed to too little regulation to too much regulation, everyone seems to have THE reason why we are in this mess.

This brings up something that I've learned over the years from the Austrian School of Economics and Ludwig von Mises in particular - and that is that history is complex. You can explain almost any theory by picking data points from history. To truly understand history, however, you must have a correct theory*. Now, I happen to agree with the Austrian view of economics, but that's not the point. The point is that anyone claiming to explain economic problems must have a logically consistent theory. Pointing to some past event and saying "Aha!" is not a valid argument. Why that past event had the consequences it did can only be explained by good theory.

I could be wrong, but I personally believe that the Austrian Theory of the Business Cycle best explains the situation we are in now. Most other arguments I am hearing tend to lack some underlying mechanism that fuels the boom which leads to the bust. The Austrian Theory gives us that fuel in the guise of monetary expansion. Unless something is done about that underlying mechanism, we will continue to suffer from economic crises.

Anyway, here are some good articles about the current mess that aren't necessarily Austrian:

* See Ludwig von Mises' Theory and History


Jason Rudolph said...

Ron Paul lays it down?


William P. Dupre said...

Regarding Ron Paul:

It's nice that someone in government speaks this way. Too bad he is completely ignored.