- Elgar original reference
Edited by Francesco Forte, Ram Mudambi and Pietro Maria Navarra
Chapter 1: The neglected importance of Austrian thought in public economics
It is traditionally claimed that the State has three main categories of policies to implement: allocation, distribution and stabilization policies. In the present chapter we will be concerned only with stabilization policies or, more generally, with the role public policies may have in determining macroeconomic processes. In fact, the recent financial crisis ought to be considered as an opportunity to assess the relevance of different economic theories concerning economic policies. This is not a purely intellectual concern, but it ought to be considered as a practical problem of the utmost importance. In fact, any human action is the outcome of a process of thought which means that there is no action without theory. Therefore, the necessity of theorizing is not debatable, but the important problem is to select the most relevant theory. From this point of view it is striking that most commentators did not refer to the most relevant theory to explain the recent crisis or to decide the most efficient solutions. Two main errors have been made about the recent crisis (and, probably, about any other crisis). First the most widely accepted interpretation of the crisis consists in stressing that it was a consequence of the fundamentally unstable nature of the market mechanisms and, moreover, of the immoral behavior of bankers who were mostly concerned with the maximization of their profits so that they took too many risks.
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