Last month the FT’s
Martin Wolf asked a simple question,
“Does Austrian economics understand financial crises better than other schools of thought?” After admitting that neo-classical models did
“a poor job in predicting the crisis and in suggesting what should be done in response” , he points out that the following Austrian arguments have held up well:
“inflation-targeting is inherently destabilising; that fractional reserve banking creates unmanageable credit booms; and that the resulting global ‘malinvestment’ explains the subsequent financial crash.”
Shadow Monetary Policy Committee