Look how steep they raise interest raits at the fed even though the claim is that it is the lowering of interest rates that is a response to an emergency. It makes no since as a policy even from a Keynsian perspective. Austrianism just tells you how destructive it is in combination to lower interest rate, hold them there for a long time, then suddenly jerk interest rates up.
So here is Austrian Business Cycle theory.
Let's start by talking about a single firm. They are interested in producing media. They are in a niche market of making music videos and are a start up. There is a certain degree of market volume for music videos. We have a lovely demand curve and all. Now they think they can enter and capture some market. So how much money can go into the production of music videos for them. Well a single exchange of a copy of a music video pulls in a dollar and they have no variable cost to keep things simple. This copy of a music video is a first order good because it is something an end consumer consumes. So the amount they can spend on a single production of a music video is the net present value of the total market volume * the percent of market share they think they can capture with it, with the other inputs to the npv being the amount of time they think they will stay running (for that one music video), and their own personal discount rate/interest rate (look up npv). That npv goes into the various costs of production that are third order goods, camera rental, staff time, storage space on hard drives, editing, musician's fee. So the conversion of demand from first order good to second order good and on to third order good is interest rate sensitive.
That is that the proportionate share of total market demand for first order and second order and on is dependent on interest rates. Markets with low interest rates seek delayed production, and markets with high interest rates seek immediate production. When you factor variable cost into the equation it is possible for demand for some order of good to drop low enough that it no longer validates the variable cost, then so too do all higher order processes from it. These processes now have zero value. Also if variable costs are present and demand is reduced a small amount but not enough to completely remove profitability of a product, lets say half profitability, then the demand for the next order of good is reduced proportionately so it looses demand by half (not a small amount in this case, and so up the chain). The result is that when interest rates are raised entire processes of the market can by the resulting economic calculation have zero value. What happens to labor in those processes? That is that resources will move from processes of reduced value to higher value so labor and capital will move from higher order processes to lower order processes and this is an ugly transition in this case.
Mitigating factors: Interest rates are not strictly and suddenly enforced across the whole market. Very few processes are strictly a specific order of good. Most goods can be employed in places close to final consumer and far from final consumer.
The point is that goods generally have a place in the market and some processes are disvalued.
What happens when you lower interest rates? It increases the value of defered final production and speculative processes at nearly no expense to lower order processes on paper. These means jobs (in the short term) and slowly resources are drawn away from lower order processes to higher order ones. It's rather painless. But you find yourself having to go the other way and those jobs are lost.
Keeping natural interest rates maximizes first order production in the time preference window that consumers most want. Lowering interest rates results in production that is less connected with human needs and results in a higher cost of living when compared to standard of living. We all end up running on treadmills for 5/8ths of our work fuled by the food produced by 3/8ths of our work. We do more with less and eventually we get tired and worn out.
Raise interest rates to their natural levels but do it at a rate slow enough that we aren't just making a future excuse for another quantitative easy.
No. The federal reserve and interest rates did.
Austrian business cycle theory tells you why lowering interest rates and raising them are not symetric.
https://tradingeconomics.com/united-states/interest-rate
Look how steep they raise interest raits at the fed even though the claim is that it is the lowering of interest rates that is a response to an emergency. It makes no since as a policy even from a Keynsian perspective. Austrianism just tells you how destructive it is in combination to lower interest rate, hold them there for a long time, then suddenly jerk interest rates up.
So here is Austrian Business Cycle theory.
Let's start by talking about a single firm. They are interested in producing media. They are in a niche market of making music videos and are a start up. There is a certain degree of market volume for music videos. We have a lovely demand curve and all. Now they think they can enter and capture some market. So how much money can go into the production of music videos for them. Well a single exchange of a copy of a music video pulls in a dollar and they have no variable cost to keep things simple. This copy of a music video is a first order good because it is something an end consumer consumes. So the amount they can spend on a single production of a music video is the net present value of the total market volume * the percent of market share they think they can capture with it, with the other inputs to the npv being the amount of time they think they will stay running (for that one music video), and their own personal discount rate/interest rate (look up npv). That npv goes into the various costs of production that are third order goods, camera rental, staff time, storage space on hard drives, editing, musician's fee. So the conversion of demand from first order good to second order good and on to third order good is interest rate sensitive.
That is that the proportionate **share** of total market demand for first order and second order and on is dependent on interest rates. Markets with low interest rates seek delayed production, and markets with high interest rates seek immediate production. When you factor variable cost into the equation it is possible for demand for some order of good to drop low enough that it no longer validates the variable cost, then so too do all higher order processes from it. These processes now have zero value. Also if variable costs are present and demand is reduced a small amount but not enough to completely remove profitability of a product, lets say half profitability, then the demand for the next order of good is reduced proportionately so it looses demand by half (not a small amount in this case, and so up the chain). The result is that when interest rates are raised entire processes of the market can by the resulting economic calculation have zero value. What happens to labor in those processes? That is that resources will move from processes of reduced value to higher value so labor and capital will move from higher order processes to lower order processes and this is an ugly transition in this case.
Mitigating factors: Interest rates are not strictly and suddenly enforced across the whole market. Very few processes are strictly a specific order of good. Most goods can be employed in places close to final consumer and far from final consumer.
The point is that goods generally have a place in the market and some processes are disvalued.
What happens when you lower interest rates? It increases the value of defered final production and speculative processes at nearly no expense to lower order processes on paper. These means jobs (in the short term) and slowly resources are drawn away from lower order processes to higher order ones. It's rather painless. But you find yourself having to go the other way and those jobs are lost.
Keeping natural interest rates maximizes first order production in the time preference window that consumers most want. Lowering interest rates results in production that is less connected with human needs and results in a higher cost of living when compared to standard of living. We all end up running on treadmills for 5/8ths of our work fuled by the food produced by 3/8ths of our work. We do more with less and eventually we get tired and worn out.
Raise interest rates to their natural levels but do it at a rate slow enough that we aren't just making a future excuse for another quantitative easy.
No. The federal reserve and interest rates did.
Austrian business cycle theory tells you why lowering interest rates and raising them are not symetric.
https://tradingeconomics.com/united-states/interest-rate
Look how steep they raise interest raits at the fed even though the claim is that it is the lowering of interest rates that is a response to an emergency. It makes no since as a policy even from a Keynsian perspective. Austrianism just tells you how destructive it is in combination to lower interest rate, hold them there for a long time, then suddenly jerk interest rates up.
So here is Austrian Business Cycle theory.
Let's start by talking about a single firm. They are interested in producing media. They are in a niche market of making music videos and are a start up. There is a certain degree of market volume for music videos. We have a lovely demand curve and all. Now they think they can enter and capture some market. So how much money can go into the production of music videos for them. Well a single exchange of a copy of a music video pulls in a dollar and they have no variable cost to keep things simple. This copy of a music video is a first order good because it is something an end consumer consumes. So the amount they can spend on a single production of a music video is the net present value of the total market volume * the percent of market share they think they can capture with it, with the other inputs to the npv being the amount of time they think they will stay running (for that one music video), and their own personal discount rate/interest rate (look up npv). That npv goes into the various costs of production that are third order goods, camera rental, staff time, storage space on hard drives, editing, musician's fee. So the conversion of demand from first order good to second order good and on to third order good is interest rate sensitive.
That is that the proportionate share of total market demand for first order and second order and on is dependent on interest rates. Markets with low interest rates seek delayed production, and markets with high interest rates seek immediate production. When you factor variable cost into the equation it is possible for demand for some order of good to drop low enough that it no longer validates the variable cost, then so too do all higher order processes from it. These processes now have zero value. Also if variable costs are present and demand is reduced a small amount but not enough to completely remove profitability of a product, lets say half profitability, then the demand for the next order of good is reduced proportionately so it looses demand by half (not a small amount in this case, and so up the chain). The result is that when interest rates are raised entire processes of the market can by the resulting economic calculation have zero value. What happens to labor in those processes? That is that resources will move from processes of reduced value to higher value so labor and capital will move from higher order processes to lower order processes and this is an ugly transition in this case.
Mitigating factors: Interest rates are not strictly and suddenly enforced across the whole market. Very few processes are strictly a specific order of good. Most goods can be employed in places close to final consumer and far from final consumer.
The point is that goods generally have a place in the market and some processes are disvalued.
What happens when you lower interest rates? It increases the value of defered final production and speculative processes at nearly no expense to lower order processes on paper. These means jobs (in the short term) and slowly resources are drawn away from lower order processes to higher order ones. It's rather painless. But you find yourself having to go the other way and those jobs are lost.
Keeping natural interest rates maximizes first order production in the time preference window that consumers most want. Lowering interest rates results in production that is less connected with human needs and results in a higher cost of living when compared to standard of living. We all end up running on treadmills for 5/8ths of our work fuled by the food produced by 3/8ths of our work. We do more with less and eventually we get tired and worn out.
Raise interest rates to their natural levels but do it at a rate slow enough that we aren't just making a future excuse for another quantitative easy.