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Does this mean that Austrian Economics is not working in practice, and that Keynsian Economics might be needed?

"Keynsian Economics might be needed"

AEP has maintained all along that the market will out. Socialist (Kensyan?) economics have been the ruin everywhere.

However, in order to cushion the impending economic disaster from social disorder, governments should avoid austerity shock with prudent money printing policies.

AEP sees no alternative to the implosion of the European Monitary Union.

yitbos

The article talks about a “bad equilibrium,” similar to a Nash equilibrium, that locks everyone in place, unable to improve the situation. In an ideal “Austrian” world, prices of labor and assets would decline until the markets cleared. In a Euro world (and to a lesser extent in the U.S.), prices — especially labor rates and rules — are “sticky,” making it very difficult for the market to adapt.

Keynesian economics might achieve the same market clearing through inflation, making the real prices lower by making the same dollars worth less. A Keynesian approach can potentially loosen the Nash equilibrium, making it possible for the market to operate again.

‘Austrian economics’ has never been practiced.

Where exactly have the principles of Austrian Economics been put into practice in Europe? The central bank has interfered (Why should it even exist?). Governments have interfered (Rothbardians would argue against their existence.). What has been in place in Europe for decades is a Keynesian approach. It has been an abject failure.

Not really. Because of the Euro, the situation is profoundly different than what the Austrian and Keynesian schools of economics contemplated.

The central problem is that the Euro imposes a uniform monetary policy and facilitates the flight of liquidity from impaired economies that need monetary expansion in order to grow (Greece, Italy, Spain, and Portugal) to those stronger nations that prefer a tight control on the money supply and that control EU monetary policy (primarily Germany and France).

For Greece and her crippled sister nations in the South of the EU, more borrowing does nothing to remedy the lack of economic growth because the stimulus provided by new borrowing is rapidly dissipated as the new liquidity quickly flows across the border to better investments in safer havens in the North of the EU.

The best resolution would be to permit the impaired countries to again issue their own national currencies so that they can bolster their money supply. This, along with structural reforms to reduce the portfolio of bad loans and cuts in taxes, spending, and regulatory burdens would offer a way out of the current impasse.

Not really. Because of the Euro, the situation is profoundly different than what the Austrian and Keynesian schools of economics contemplated.

The central problem is that the Euro imposes a uniform monetary policy and facilitates the flight of liquidity from impaired economies that need monetary expansion in order to grow (Greece, Italy, Spain, and Portugal) to those stronger nations that prefer a tight control on the money supply and that control EU monetary policy (primarily Germany and France).

For Greece and her crippled sister nations in the South of the EU, more borrowing does nothing to remedy the lack of economic growth because the stimulus provided by new borrowing is rapidly dissipated as the new liquidity quickly flows across the border to better investments in safer havens in the North of the EU.

The best resolution would be to permit the impaired countries to again issue their own national currencies so that they can bolster their money supply. This, along with structural reforms to reduce the portfolio of bad loans and cuts in taxes, spending, and regulatory burdens would offer a way out of the current impasse.