I recently found a great series of youtube videos from George Mason University economist Tyler Cowen explaining different views on the business cycle. In four roughly 3 minute videos, he takes a look at the Keynesian, Real Business Cycle, Monetarist, and Austrian theories while commenting on their strengths and weaknesses.
While we've thoroughly explored the Keynesian and RBC perspective in class, I find the Monetarist and Austrian theories to be very interesting videos. Which view do you find most persuasive? Why?
I found that the Monetarist view was very interesting. He talked about the great depression, and how the Federal Reserve contracted the money supply. He said that if there was a way to stabilize the Money Supply or money growth, the economy could function at a better rate. But if we were to have the growth happen too fast that would cause extensive inflation, while a slow in the growth could cause an economic downturn. The strengths of this view is that it can predict cases, that a pull back in the money supply causes a recession. But the weaknesses is that it is hard to prevent such cases, in order to control the rate you need to know what measures of monetary growth to control, which is not easy. I wonder if money supply growth could help us in the future if we learn to stabilize it.
ReplyDeleteVery interesting and very informative. I think I'll withhold my opinion of which was most persuasive because this was my first exposure to both of these theories. I am thrilled to know there are other ideas out there of economies and business cycles because I think this gives economics (a social science at its core) more of a chance to work as a hard science. Have a bunch of different theories to test will hopefully move us all towards the 'correct' answer.
ReplyDeleteI like the Austrian view mostly because because it is very closely related to the Classical theory in that the government has limited influence in the market which allows "the invisible hand" to do its jobs without much interference. A relatively more free market can better handle shocks since government can step in when needed, hence minimal government is required to be a safe net of some kind when things go wrong. The monetarist view is interesting but it seems as if it can easily go wrong and hard to maintain.
ReplyDeleteI like how he pointed out the strengths and the weaknesses of each business cycles. A single theory cannot explain an economic disaster entirely. It can only explain parts of it and looking at it from different point of views will only help us to prepare for future mishaps.
ReplyDeleteI was unaware of Austrian theory. Based on the video I found it to be really interesting. According to theory, entrepreneurs should be smart while they make investments in critical situation but there is always tough market competition. I wonder what Austrian theorists has to say about market competition because it cannot be ignored.