Rothbard argued that the Austrian Theory of the Business cycle is superior to the Keynesian because only the Austrian theory can explain why it is that depressions hit the capital goods industries first and the hardest. To what degree is this true of the current recession?
I’d say Consumer Goods were most effected this recession. This is because of the massive expansion of consumer credit. In a true free market, Rothbard’s theory would prove correct.
In a true free market, Rothbard’s theory would be irrelevant. I don’t know the specific data, but ABCT does explain this, as evidenced by the Austrians being able to predict this. You probably want a short answer, but I strongly recommend Tom Woods’s Meltdown to explain the current crisis.
Not all consumer goods. Durable goods have been affected (real estate) while daily necessities have done well (Wal Mart).
The government also helps to redirect capital into certain sectors of our economy, this was certainly true for housing.
If we are to consider the current boom “housing”, then his theory still stands. Although houses are considered consumer durables, in today’s current economy they exhibit many “capital goods” esque qualities such as investments. Alot of people bought houses not only to enjoy, but also to flip and sell later as an investment because they were making more money.
It’s more than that though. When the government lowers interest rates it redirects capital into the industries temporally furtherst from consumption, the question is why did the boom hit the housing industry?
The simple answer is that durable consumer goods such as houses provide their service for some time, and are therefore equivelant to capital goods. When the government reduces interest rates people overextent themselves by extending their period of planning (either in terms of entrepreneurs buying early stage capital goods or consumers buying durables) longer than the underlying economic conditions (saving) will allow.
Walmart and McDonald’s, both of which provide consumer goods, have done relatively well compared to the Big Three, REITs, investment banks, and construction businesses, which are capital good industries.