Der Apriorist - Abstracts 06. Oct. 2010

Why don't entrepreneurs outsmart the business cycle?

by Brain J. Stanley

Tags: business cycle theory
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Stanley, Brain J.. Why don't entrepreneurs outsmart the business cycle?. Mises Inst. Mises Daily August 28, 2007.

Quotes: Despite what critics of the Austrian Business Cycle Theory say, entrepreneurs can't easily avoid the effects of Fed intervention. It isn't possible to determine what the natural rate should be. Small businesses particularly can't be expected to recognize and react to Fed intervention, and there is no evidence that even large, sophisticated businesses can perform any relevant and meaningfully accurate calculations and forecasts.

Even if it were possible to make these calculations, many struggling entrepreneurs, having little to lose, would participate in the boom, putting competitive pressure on entrepreneurs who would prefer to avoid the boom. Under any reasonable scenario, Fed intervention increases the risk level by making decisions more difficult and forcing entrepreneurs to focus on unknowable, policy-related issues instead of operational and customer preference matters.

Ultimately, the criticism of the ABCT goes to a fundamental disagreement between the Austrian School and other schools of economics: the effectiveness, or lack thereof, of economic models, especially mathematical models.[10] Those who encourage entrepreneurs to analyze the Fed's actions and adjust their actions accordingly are, in effect, saying that the entrepreneurs should utilize modern economic models to understand and predict economic activity. But, again, there is no evidence that such effective models exist.

In fact, if economic models were truly effective enough to allow entrepreneurs to determine precisely the effects of Fed actions, these super-accurate models would prevent the Fed from making mistakes in the first place and there would be no negative effects to avoid.

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