As one of the few Austrian economists in the UK, I’ve become somewhat frustrated by the lack of attention to knowledge processes when talking about the UK experience of the financial crisis. This isn’t to say that perverse incentives weren’t important, but that in many cases they provide an alternative hypothesis to knowledge problems. And it’s a distinctly Austrian approach to illuminate the latter. See this working paper for more; comments and feedback most welcome.
This paper seeks to provide a distinctly Austrian interpretation of the financial crisis and subsequent recession that affected the UK economy in 2007-2010. In doing so it challenges the conventional wisdom that focuses on poorly aligned incentives, providing a theoretical and empirical claim for the primacy of ignorance explanations. Particular emphasis is given to the role of regime uncertainty and so-called “big players”, as well as how faulty behavioural foundations and “price naivety” misunderstand economic calculation and recalculation. Far from being an example of “market failure”, the financial crisis has revealed that almost a century on from the socialist calculation debate many economists still fail to understand the basic principles of a market economy.
Read the article here: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1861540