In today’s publication Thomas Mayer writes that he is “an Austrian in economics.” Mayer is the chief economist of Deutsche Bank Group and head of Deutsche Bank Research. Mayer argues that Austrian theory fits recent events well. He suggests that
— In a world where people have imperfect foresight and do not always behave rationally, and markets are not always efficient, we need to accept that economic policy cannot fine-tune the cycle.
— For us economists, the lesson from recent events should be to rely less on the development of theories by ―deduction (like in natural sciences) and to apply more ―induction (like in social and historical sciences). Failure to study history makes us repeat the mistakes of the past.
A revival of Austrian economics could be a good start for such a research programme.
Unfortunately, however, the battle cry of the public and politicians is for more regulation: regulate banks, regulate markets, regulate financial products! But those who push for blanket regulation suffer from the same control-illusion that got us into this crisis.