The Austrian
theory of the business cycle breaks the production process down into four steps.
The theory of a business cycle says that as an economy heats up:
But
that theory of a business cycle does not always happen as advertised.
Not exact matches
According to Austrian school
business cycle theory these declines in markets are the inevitable consequences
of an expanding money supply, sold as the answer to fighting a recession.
Readers may recall that we have talked about the
theory espoused by our previous guest speaker Ben Hunt with respect to price inflation in a period
of monetary tightening in a series
of recent posts entitled «
Business Cycles and Inflation» (see Part 1 and Part 2 for the details).
In other words, traditional portfolio
theory does not account for the dynamism
of the
business cycle which results in portfolios that do not properly account for changing risks during the course
of the
cycle.
One
of the major
theories of Austrian economics is its
business cycle theory.
I don't quibble with the
theory, but, in practice, the strategy seems to find stocks at the peak
of the
business cycle (see my summary
of Mauboussin in ROIC and reversion to the mean: Part 1, 2 and 3).
With, in
theory, supply no longer controlling the
business cycle, Keynes advocated stimulation
of demand via government spending and / or tax cuts as a cure for economic depressions caused by what turned out to be a collapse in demand.