Thursday, December 29, 2011

Salerno on the Great Recession of 2008

Joseph Salerno has brought forth his explanation of the economic mess of 2008 and in doing so, refines Austrian Business Cycle. His paper, "A Reformulation of Austrian Business Cycle Theory in Light of the Financial Crisis," refutes critics who claim that Austrian business cycle cannot explain the most recent recession.

Salerno concludes,
Once we understand the ABCT [Austrian Business Cycle Theory] as a theory of the destruction and renewal of both the capital structure and monetary calculation, we are in a position to fully account for the events of the past decade. Furthermore, given the unprecedented monetary interventions by the Fed and the enormous deficits run by the Obama administration, ABCT also explains the precarious nature of the current recovery and the growing probability of a double-dip recession.
I saw Salerno present this paper at the most recent Austrian Scholars Conference and recommend it highly.

HT: Tom Woods

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