On The Business Cycle And The Failure Of The Welfare State (Austrian Explanation)

By addressing the consequences of the ongoing crisis as well as the stimulus packages implemented by governments it appears that time is near to start reexamining the whole approach to the economic system. The concept of the welfare state has been profoundly shaken. Fundamental thesis outlaid by the classical economics and the Austrian school are still very much relevant, as the need to face structural misbalances closely related to high public expenditures grows. The issues some EU member states have with the state of their public finances cannot emphasise that challenge enough. Though certain state functions keep their legitimacy it takes a refreshed definition of state. At the same time, there is a need to revisit economics and the relations between micro and macro aspect as well as to reexamine aggregates such as GDP. It is clear one cannot ignore the need of humans to live in community, but also the fact our decisions are motivated by various reasons and therefore could not be predetermined. Knowledge plays role of energy that moves market forces keeping entrepreneurs awake. Extinguishing that energy is a safe way to suffocate market forces. On the other hand, it is in the human nature to give strong legitimacy to the institutions of egalitarianism which causes the need to unify different scientific research in order to identify the long term trends. By reaffirming the Austrian business cycle theory and the need to revisit the boundaries of the state's interference into the economy it seems that economics need new energy of thought to invent a new general economics theory. This paper practices the hypothesis that consistent economic policy cannot but encompass rational nutshell of every economic theory in its mission to address the micro and macro characteristics of a concrete economy.