Lecture
Austrian Business Cycle Theory is an economic theory that describes how the business cycle works. According to the theory, the business cycle unfolds as follows: low interest rates encourage borrowing, which leads to increased capital spending financed by new bank loans. In this lecture, Saifedean explains what the Austrian Business cycle entails.
Topics covered include:
- Malinvestment
- Interest rates and economic calculation
- How the expansion of credit causes miscalculation
- The inevitability of a bust after an economic boom
Key points:
- Inflation expectations lead to less savings
- Illusory profits lead to increased consumption
- Collapse cannot be avoided; the boom should be avoided in the first place
- The essence of the credit-expansion boom is not overinvestment, but malinvestment
- Market interest rate is: Originary interest + entrepreneurial risk + price premium
- Austrian theory does not predict how long a boom will last, only that it will stop when credit expansion stops
Source: Saifedean Ammous This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 License.
Last modified: Monday, May 20, 2024, 1:22 PM