Guest Blogger: Bernie Sanders on Austrian Business Cycle Theory

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I really appreciate Tucker giving me the opportunity to give my thoughts on a topic that I recently discovered: Austrian business cycle theory.

When it comes to macroeconomics and business cycles, I find mainstream discussion lacking.  I, of course, largely concur with my friends on the political left when it comes to what the government should do about recessions.  As the United States experienced following the great depression, the only way to fix a recession is to invest in working people by asking the rich, who prevent recovery by hoarding their income, to pay a little more.

However, when it comes to what causes recessions, I find their hand-waving about “animal spirits” and “aggregate demand”.  I’ve long pined for a theory of the business cycle that knows where the real blame for recessions lies: coperate greed, and these theories of aggregate demand shortfall seem to imply that the problem is that firms aren’t being greedy enough.  Thanks to some very generous constituants, I’ve finally found a theory that confirms what I’ve long known to be true: the Austrian theory.

The pitch goes like this: it all starts when the federal reserve lowers interest rates, hoping to lower unemployment.  However, greedy investors see an opportunity for easy profit where there really isn’t one: snatch up this easy money and start investing in lavish projects.  If big business was really as future-minded as Republicans would have you believe, they would know that the real resources for these projects don’t really exist.  As you and I know though, the gambler mentality of the billionaire class wins out, and the recklessness begins.  After all, they have savings they can fall back on if their projects go belly-up, while their workers aren’t so lucky.

Some proponents of ABCT like to place the blame on the central bank, but if anything they are an accessory to the greed and recklessness of the oligarchs who put a small chance of short-run profits over the well-being of their employees, their company, and the entire economy as a whole.  Higher taxes on the wealthy and more oversight of investment could help prevent these downturns from happening by limiting the potential returns from what Austrians call “malinvestment”.

Now, I certainly don’t know as much about ABCT as most of you; I even think that Tucker might understand it better than me.  However, the fact that so many people can hear the ABCT story and not see it as a cautionary tale against corporate greed strikes me as a missing mood.

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