More beginner stuff

[Eli]

Right, so I think I have pretty decent knowledge about the Austrin theories out there, and i can pretty much explain all of it.

However, when it comes to refuting other ideas, I have trouble. I know what the Austrian theory about it, but I can’t really express why the other side is wrong; as in what their mistakes when making their theories are. So I looked around my storage and found my old schoolbook on politics and economics, and I’d really appreciate if you could help me refute the following parts (and I’d also like to know which schools of thought actually use these theories, if possible).

So the book starts off by saying explaining what the business cycle is, and then explains what booms and busts are, and why they happen.
Book is in my native language, so please excuse any poor translations.

The booms won’t continue forever because the the increasing demand during the boom will eventually lead to “bottlenecks” in the production. When all the means of production are being used, this eventually leads to lack of labour with certain education, lack of machinery, and lack of transportation. To get past these bottlenecks, the companies need to bid up the prices for labour and everything else. This makes the production more expensive, and after a while the prices are so high the demand will drop. The boom has reached its max, and turns towards a bust.

Another reason the boom turns into bust is bacause a country is affected by a bust of another country. Less demand for export from the country in a bust leads to more unemployment in the non-bust country.

So, could anyone help me refute this somehow? I have my ideas, but I’m quite unsure
I don’t, for instance, understand where the increased demand for the goods come from, but I guess they mean from unions and people demanding higher wages. But I’m guessing that doesn’t really explain anything, either. Can unions spiral economies into a boom/busy cycle (and I have read that daily articale thing, but I didn’t really understand much)?

Okay, so the next part of the book.

In a bust, the demand for goods and services is very low, and so the companies produce very little. No one is investing in new capital goods, since even the goods in the warehouses can’t be sold.

So why does a bust eventually turn into a boom? One explanation can be the dependence on other countries: if their demand for goods increase, the boom will start again. Or, the goods in the warehouses will eventually sel, at which point the companies will start producing again.

Can’t really put my finger on what’s wrong here either…

Next up, the book tries to explain inflation and why it happens.

That inflation occurs in a country can have different causes.

First off, there is demand inflation. In a boom, the demand is greater than the supply [it actually says this, I’m not sure what they mean; might be that the companies never “catch up” to the new demand]. This means thatboth the companies and the households are willing to pay higher prices to get goods and services delivered. Prices rise, and the result is demand inflation.

Here, I think I can see the problem. First of all, in order for the companies and households to pay higher prices for certain goods, they need to stop using that extra money on other goods. The only way they could spend more is by lending more.
But, I could use help here too.

Cost inflation. Inflation can also occur if the costs for producing a good or service increases. If the salaries in a company increase by 10%, and production only by 6%, the company need to raise prices by 4% in order to cover the extra expenses. If this were to happen at every company, the result would be inflation at 4%.

Okay, here, it seems the unions or workers demanding higher wages will cause inflation… Is this correct?
Also, wouldn’t the companies just cut prices, instead of highering wages? In this case, wages go up by 10%, prices by 6%… So the workers actually benefit.

Imported inflation. [blabla oil prices make the companies’ expenses greater]

Don’t quite understand this at all.. Seems like the demand inflation to me, but oh well…

As you can see, I’m in need of some clarification, and also some rebuttals/refutation.
Hopefully this will help not just me, but everyone running into these arguments from time to time.

Thanks so much for taking the time to read and respond to this!
(Getting replies somewhat in the near future would really help, aswell)

/ Eli

[Inquisitor]

Okay, something to keep in mind is that a lot of mainstream economists (mostly of the Keynesian type) define inflation as increases in prices (including wages; there are many problems with this view of inflation), rather than currency debasement (which in turn lead to said price increases.) Cost-push inflation, based on this, is pure nonsense. It merely means a good/service has become scarcer, thus more expensive; this is not inflation, though (if, conversely, people demand more than before, it again just means goods/services are relatively scarcer, and is thus not inflation.) Now, what this textbook fails to do is to explain why and where demand has increased. It seems to be treating increases in demand as random events that just happen.

[pairunoyd]

I don’t offer much, but one way to counter it is to re-write what you’re trying to counter. Make it easier for yourself to understand there assertions by adjusting their wording. This will require you to define the terms they’re employing.

Once it’s reworded, I would try to refute it based on a combination of commonsense and what you’ve learned from the Austrian School. Really make your brain do the work rather than prematurely researching an Austrian response. After you’ve written your counterargument, you can check yourself and compare it with the Austrian School. By making your own arguments first, it helps you to see how much your arguments deviate from the Austrian School and on what points you need further study. This assumes the Austrian School (or parts of it) as being THE standard.

[Yaros]

The theories you presented are keynsian style. Keynsian theory of business cycle is based on two strong assumptions.

1. Some prices don’t change (sic!)

2. There are free forces of production in the economy

If you accept these assumptions there is no possibility to refute keynsian theory because the theory is logically derived from the assumptions.

The first step of keynsian cycle is decreasing of consumer demand. Why is this happen ? Because people start to hoard money. There would be no problem if prices went down but … PRICES DON’T CHANGE ! When people spend less companies have to produce less and they discharge workers. Companies wouldn’t discharge people if they could decrease wages but… WAGES DON’T CHANGE ! They are freaky.. I mean sticky