I’m writing a final paper for my economics class on the current recession. My basic goal is to give my Keynesian professor a thoughtful introduction to Austrian theory, which he is mostly unfamiliar with.
My main problem is that the essay prompt requires us to consider both the Internet tech bubble crash and the recession of 1990-91, and discuss how they relate to the current crisis. While I am fairly comfortable explaining the high-tech bubble of the late 90s, I know next to nothing about the Savings and Loan crisis and the 1990 recession.
I’d really appreciate if someone could give a quick overview of what happened, or even better point me to some good sources.
Of course, any other general advice or suggestions would be appreciated.
Go to: Mises Home Page —> Literature ----> in the Literature search box, type “1990 recession”. You will find three links to PDF files that provide the Austrian view of the 1990 recession. (Sorry, I don’t know how to copy the links here, otherwise I would have).
Never underestimate the power of google. I typed in “1990 Recession Austrian” and got this article from the RAE: “The Recession of 1990: An Austrian Explaination”.
However, if I were you, I would make sure to clear the Austrian essay approach with your professor. In most cases, professors rightfully see the class as their opportunity to teach you and not the other way around. So they will sometimes assign these papers more to see that you understand the material presented in class than to actually find out what you think about the recession of 1990.
This is not a bad thing. If you are going to criticize Keynesian economics, it would be useful to actually understand the underlying theories. However, If your professor does indeed want to see you explain the 1990 and 2000 recessions using Keynesian economics, I would feel free to include passages on Austrian criticisms of those explanations.
Similarly, if your professor says that its fine to use the Austrian approach, I would also be sure to add sections on mainstream criticisms of Austrian Business Cycle Theory (Tullock had an article in I the QJAE or the RAE on what he didn’t like about the ABCT, there is of course Bryan Caplan’s essay http://economics.gmu.edu/bcaplan/whyaust.htm, and if you have a lot of time Tyler Cowen’s Risk and Business Cycles is a good read) and why you think they don’t apply.
This will make your paper stronger, earning you a better grade and more esteem from your teacher.
A word of advice: Your professor will NOT be open to new ideas. The most sound advice would be to provide your Keynesian professor with what he is asking for, whatever that may be. YOU are not going to convince HIM! Your “thoughtful introduction” will not be taken that way. Yet, HE will grade YOU! And HE will think YOU are an extremist. I suggest you immediately abandon your “thoughtful introduction” idea. You would be picking the wrong battle at the wrong time in your student career. Instead, I suggest learning what the Keynesians believe are the causes of these “crises”. Don’t waste your energy refuting them right now. Get an “A” on your paper. Then, on your own, in good time, learn the true explanation, the Austrian explanation. It is a building process, step by step.
As to the 1990 recession: It was credit related, primarily involving a bubble in commercial real estate values. 2001-2002 was an equity bubble. The current recession (depression) is a credit bubble that affected residential real estate.
Keynesians will describe each recession as “unique”. This, to me, explains why your professor wants you to compare and contrast these recessions. Keynesians view the free market as unstable, chaotic, full of greed. They point to “lack of regulation”. They say with each “crisis”, a new set of regulations will be needed to prevent future crises. Then, when the next crisis hits, government can move in to “stabilize” the situation by printing money and through deficit spending. (Deficit spending is now referred to as “stimulus”.) Keynesians see the recession as a “lack of demand”. In their framework, government steps into the “void”, “creating demand” that otherwise would not have been there. They then say the recession “would have been much worse if we did not intervene”. If the intervention does not turn out as planned, they simply say “we’ll learn from our mistakes and do better next time”. I think that is the outline of mainstream economics.
In contrast, the Austrian view begins with the way an economy actually works. It builds on a foundation of rational ideas. I think I’ve gone on too long, so I’ll end now. Final word: Be careful and don’t try to convince anyone at this point. Don’t try to be a hero!
