Austrian economics places great stress on free markets. It argues government efforts to control the economy cycle invariably make it worse.
The main criticisms of Austrian economics include:
- The belief in the efficiency of markets is countered by many examples of market failure. E.g. growth of subprime mortgages / securitisation leading up to credit crisis of 2008
- High tax and high spending regimes do not necessarily impinge on social freedoms. E.g. Many western European economies have high tax and high government spending. But, citizens get a comprehensive welfare state, education and health care. This compares favourably with US, where health care is expensive and piece meal.
- Controlling the money supply is much more difficult in practise than theory suggests.
- Gold Standard can create severe economic problems such as the deflation and high unemployment suffered by UK in the 1920s.
- Models are too subjective and vague.
- Keynesian critique that economies will recover without government intervention. Leaving it to market forces may take a very long time to move economy back to full capacity. Their policy prescriptions for the Great Depression are considered to be ‘nihilistic’ because they advocated no government intervention. They have also been criticised for shaping their political beliefs into economic policy.
- Paul Krugman criticises the model that consumption will rise in a recession. Actually, in a recession there is a powerful negative multiplier effect reducing output of all sectors.
- Milton Friedman argues an examination of US data suggests there theories of credit cycles are wrong.
- Often they exaggerate the differences with other economists.
Books on Austrian Economics