One interesting objection raised by Bryan Caplan and numerous other economists to the Austrian Business Cycle Theory (ABC) is that business men should be able to anticipate future changes in the interest rate. I quote at length one argument given from http://econlog.econlib.org/archives/2008/01/whats_wrong_wit_6.html
"What I deny is that the artificially stimulated investments have any tendency to become malinvestments. Supposedly, since the central bank’s inflation cannot continue indefinitely, it is eventually necessary to let interest rates rise back to the natural rate, which then reveals the underlying unprofitability of the artificially stimulated investments. The objection is simple: Given that interest rates are artificially and unsustainably low, why would any businessman make his profitability calculations based on the assumption that the low interest rates will prevail indefinitely? No, what would happen is that entrepreneurs would realize that interest rates are only temporarily low, and take this into account.
Why does Rothbard think businessmen are so incompetent at forecasting government policy? He credits them with entrepreneurial foresight about all market-generated conditions, but curiously finds them unable to forecast government policy, or even to avoid falling prey to simple accounting illusions generated by inflation and deflation… Particularly in interventionist economies, it would seem that natural selection would weed out businesspeople with such a gigantic blind spot."
How is this response to be countered? I have heard it a lot and it would be useful to know…