It does assume that asset bubbles are made up of bad investments which are costly to undo. While this insight may have been originally Austrian, I didn’t think it was at all contentious. The dot-com bubble is a clearer example, as the housing bubble was both an asset bubble and banking failure (and many of the dot-com investments were just off-the-wall crazy).
As Vernon Smith showed, asset bubbles happen even with derivatives who’s value is objective (and without central banks). Its hard for me to see the bust as the problem in those cases.
Would a Keynesian say that any economic downturn can be averted in the face of any and all bad investments?
Would a Keynesian say that any economic downturn can be averted in the face of any and all bad investments?
Doubtful. (I should make clear that I’m not a professional economist, and I couldn’t talk math with a Keynesian without doing serious reading first.) To go off the same graph, it does identify the tech bubble in ~2000 as being above the projected line.
My impression of the difference is that in the terms of a crude analogy, the Austrian prefers to rip the band-aid off, and the Keynesian prefers to slowly peel it back.
It does assume that asset bubbles are made up of bad investments which are costly to undo. While this insight may have been originally Austrian, I didn’t think it was at all contentious. The dot-com bubble is a clearer example, as the housing bubble was both an asset bubble and banking failure (and many of the dot-com investments were just off-the-wall crazy).
As Vernon Smith showed, asset bubbles happen even with derivatives who’s value is objective (and without central banks). Its hard for me to see the bust as the problem in those cases.
Would a Keynesian say that any economic downturn can be averted in the face of any and all bad investments?
Doubtful. (I should make clear that I’m not a professional economist, and I couldn’t talk math with a Keynesian without doing serious reading first.) To go off the same graph, it does identify the tech bubble in ~2000 as being above the projected line.
My impression of the difference is that in the terms of a crude analogy, the Austrian prefers to rip the band-aid off, and the Keynesian prefers to slowly peel it back.