It’s as easy as ABC

As I hinted at it in my recent post, Austrian Economics has been most recognized in two areas: the socialist calculation debate, and business cycle theory. A nice example of the latter can be found in a leader in last weeks’ Economist:

“No wonder that the Federal Reserve is starting, belatedly, to fret about house prices. By holding interest rates low for so long after equities crashed, the Fed hoped to inflate house prices. This prevented a deep recession, but it may have merely delayed the needed economic adjustment.”

One can push down on an airbed to suppress it, but you only create a bigger pocket of air elsewhere. 

Austrian Business Cycle theory is not a complete explanation of macro management. But when house prices begin to really fall, and people lose a lot of wealth, I am sure there’ll be much criticism of “capitalism” or “the market”.  Be very warned that the real reason behind the house price bubble is the engineering of those too stubborn and controlling to leave free the complex economic ecosystem. Prevention may be impossible, but delay is not a cure.

Comments

[Steve Miller]

I agree, though I'm not bold enough to say that housing prices will crash. A soft landing might be possible... though my Austrian gut tells me otherwise.