FEE has an interview with economist Pascal Salin:
It is absolutely striking to realize that what happened at the beginning of the 21st century matches exactly what the ABCT describes. Moreover, no other theory matches the course of events during this period. As a result, there is no real business cycle theory in Keynesian economics except for the arbitrary hypothesis that, for an unknown reason (the investors’ animal spirits), investments decrease all of a sudden. The equilibrating force between investments and savings is driven by the rate of interest, as rightly mentioned by the classical theory. But in order to arbitrarily eliminate this market process, Keynes uses ad hoc hypotheses that are completely unrealistic, such as inelasticity of investment toward the rate of interest and the liquidity trap. It would result in excess savings, therefore generating an insufficient consumption level in order to maintain aggregate demand. From this comes the Keynesian prescription consisting in pushing up aggregate demand via deficit spending, consumption, or exports. But this was not the situation during the last years, which did not prevent governments from adopting Keynesian measures — obviously completely unsuitable — in order to try and exit the crisis, bearing in mind that it is all too easy for governments to increase public spending!
The Austrian theory explains that the fall of the interest rate due to expansionist monetary policy encourages investors to make investments whose yields would be too low or whose risks would be too high to start under normal conditions. Those investments do not reflect the breakdown desired by individuals between savings and consumption, which introduces considerable distortions in the economy. This explains why people were overinvested in real estate with regard to what was sustainable in the long term. When the distortions became too great, the crisis broke out.
There's more:
The other approaches are global approaches, which focus on aggregates such as national income, total investment, the money supply, and the general price level. The great uniqueness of the Austrian theory is that it focuses on production, consumption, and price structures. As a result, it does not give any particular attention to the general price level, but focuses on the distortions in the price and interest rate structure and therefore on the distortions in the corresponding production structures caused by the instability in monetary policy. This theory is therefore much more realistic. It makes it possible to understand the evolution of the crisis as well as the reason why it is absolutely vain to believe that pushing up aggregate demand is enough to exit the crisis, whereas the real problem is to go back to production structures and price structures that correspond to the needs and wants of individuals. In addition, it is utterly wrong to believe that aggregate demand can be stimulated by increasing public spending, for instance, because such a policy only consists in shifting resources from private demand for consumption or investment to the public sector, which obviously does not use them as efficiently as the initial owners of the resources that have been transferred.
We suggest you read the entire interview. It's well worth your time.
