This document summarizes key Austrian economic concepts and their application to recent global economic crises. It outlines the Austrian school's contributions to theories of subjective value, the marginal revolution, and business cycles. It then discusses how the Austrian business cycle theory and emphasis on microeconomic foundations can help explain the Great Recession, European sovereign debt crisis, and Euro crisis. The document argues that central bank interventions distort market signals and create moral hazard, while an Austrian approach would be to stop quantitative easing and allow markets to organically correct malinvestments through the price system.

1. Bringing the Austrians
Back to Austria
Remberto Latorre-Artus

2. Main Contributions
Subjective Theory of Value
The Marginal Revolution
Business Cycle Theory (Capital-Based
Macroeconomic Theory)
The Economic Calculation Problem

3. The underlying causes
behind:
The Great Recession
The European Sovereign-Debt Crisis
The Euro Crisis

4. Questions (Audience
chooses):
Will the Fed lose monetary policy sink the US
dollar?
Will the Euro survive Portugal, Italy, Greece and
Spain sovereign-debt crises?
Should Germany Lead or Leave!?
What is the Austrian recipe?
If Mises and Hayek were alive today what would
they recommend? (And where do they differ?)

5. What is the Austrian paradigm?
It places individuals at the center (purposeful
actions of individuals)
Marginalism.
Incentives matter.
Solution based on Human Action (not Human
Design) and thus,
AE is down to earth, easy to understand and
based on common sense.

6. How to understand the global
crises?
Macroeconomic Propositions have Microeconomic
Foundations
Austrian Business Cycle Theory (Capital-Based
Macroeconomic Theory)
Böhm-Bawerk built upon the TIME PREFERENCE ideas of
Carl Menger  there is always a difference in value
between present goods and future goods of equal quality,
quantity, and form. Moreover, the value of future goods
diminishes as the length of time necessary for their
completion increases.
Austrian Economics understand that “K” is never
homogeneous.
Inter-temporal consumption.

7. How to understand the global
crises?
*This is the key insight of the Austrians: you cannot
pretend to massage Aggregates and expect a perfect
“trickling down.” Instead, if you interfere, you will create
market distortions.
What distortions? Mainly interfering with the market
signals of the price system (Supply and Demand for
Money).
Therefore, booms and bust cycles are NOT a normal
feature of a market economy

8. Money Market
The market process plays itself out differently depending upon
whether the increased supply of loanable funds derives from
increased saving by individuals or from increased credit creation by
the central bank.

9. And the Proof is in the
Pudding:

10. And the World follows suit:

11. The most dangerous: Toxic
Assets

12. Moving to the Crises
The Great Recession
The European Sovereign-Debt Crisis
The Euro Crisis

13. The Great Recession

14. The European Sovereign-Debt
Crisis

15. THE TRUE DEBT OF EUROPE
(Official + Pension + Health + Welfare; as % of GNP)
Greece
875%
France
549%
United Kingdom
442%
Germany
418%
Italy
364%
EU 25
434%
Source: Jagadeesh Gokhale, Measuring the Unfunded Obligations of European Countries
Policy Report No. 23 January 2009, National Center for Policy Analysis

16. Youth
Unemployment
in Europe
German Finance Minister
Wolfgang Schäuble warned
that failure to win the battle
against youth
unemployment could tear
Europe apart, and dropping
the continent's welfare
model would spark a
revolution.
(Reuters, May 28, 2013)

17. The Euro Crisis

18. The Euro Crisis

19. Conclusions
Market intervention creates “white noise” 
distorts real signals (masking agent)
Market intervention creates Moral Hazzard 
“Too big to fail”  Too big to Jail
Market intervention creates backward Social
redistribution  Privatize the profits and socialize
the losses (the poor pays the rich)

20. Conclusions
The Keynesian “Trickling Down” solution doesn’t
work in the long-run.
Injecting liquidity to help jump-start the economy
offers the phony appearance of prosperity, which
makes things all the worse (instead of a mild
recession we get depressions).

21. The Austrian Recipe:
Stop the Madoff Scheme (QE) right now, before it’s
too late!
Allowing an organic correction, i.e. allow markets to
do the job and liquidate malinvestments.
Allow people to figure out where are the sectors of
the economy starving for new resources.
It is people (risking their own capital, and using
information closer to them and the signals of the price
system) who can figure out better where, how and in
which ways the new money should go.

22. The Austrian Recipe:
There is no non-arbitrary way for a central planer to figure
all this out on his own.
Trust in the power of Human Action vs Human Design.
The private sector has a lot to be blamed for, but they
reacted to incentives emanating from the central authority
and thus…
…Don’t blame the pig, blame the one scratching his
back!!!

23. Panel Discussion

24. PPT and Literature
remberto.latorre@gmail.com
Twitter: @libertywrap
Policymic: http://rem.policymic.com
Austrian Economics Center and Hayek Institut
r.latorre@austriancenter.com
http://www.austriancenter.com
http://www.hayek-institut.at