because I think Schiff is full of it. As the saying goes "He's so full of it, his eyes are turning brown!" Sorry, but I think the "issue" you and Schiff raise is a complete non-problem.

Update: my statement is probably a bit harsh. I did state that Schiff had a few good descriptions and he did apparently notice the housing bubble before it burst, but the idea that people spend a nontrivial amount of money on things they want but don't "need" is to place an awful lot of weight upon a very highly subjective term. I just think if someone mentions the "Austrian school of thought" ten years from now, I'll just say "Oh, those guys."

Well, Rich, thanks for at least reading what I posted and considering it.

On the internet bubble,
1) That is just the name or label we give the period. It is not a description of what happened. It wasn't purely a speculative bubble of internet stocks. It was a general bubble in stocks, with price/earnings ratios rising to over a broad range of stocks. Nor was it just internet stock prices that crashed during the downturn of the internet bubble. Austrian theory is compatible with a more general rise, and would predict that activities with long term profitability (effected by interest rates most) would tend to have risen highest in price.

2) Likewise Austrians don't need a separate theory for each bubble, nor for the whole host of other effects one sees during these bubbles. Things like the increase in leverage, whether it be a lowering of reserves in fractional reserve accounts, or an increase in the use of stock margin accounts. Austrian theory explains at the same time the low savings rate and high borrowing. It also explains the trade deficit and other symptoms.

2) Just because people think a particular investment is promising doesn't mean that they should act with stupidity. Why is their stupidity clustered? If you go back in history and look at prior such bubbles what do they have in common? Well they all occur after some kind of monetary inflation. Tulip mania, the Mississippi bubble, the South Sea bubble, the Roaring Twenties, the various US experienced bubbles.

There a short 66 page book on the fiat monetary inflation generated around the time of the french revolution. The book is titled "Fiat Monetary Inflation in France" and you will be astonished at the parallels to today. Likewise at the book contains quotes by contemporaries who knew, as I know now, that such monetary schemes have historically failed. They warned and warned and no one listened. Just as Austrians have warned and warned.

3) You claim now that the internet bubble was obvious but during the bubble very few economists were admitting that. In fact, phrases like "new economy" were bandy about. Also claims that they finally had inflation licked and that obviously Greenspan was a monetary genius. The Austrians were the only economic school to consistently claim that it was merely a bubble. During the housing bubble the same thing was happening. Austrians said that lowering interest rates in response to the stock market collapse could only cause reflation of yet another bubble. They called a bubble in housing way before other economists.

BTW there is a bubble in government bonds forming right now. When we run out of assets to inflate with this cheap money the fed will have run out of parlor tricks to play on people. The mechanisms that enable the fraud perpetrated by monetary inflation will have run out, and we will have price inflation. In this case massive price inflation.

I've been pointing this out for a long time. I don't have any idea when the mania will collapse, but it will. It's as easy as predicting that a Ponzi scheme will collapse, but not when.

Monetary inflation via fractional reserve, or via now fiat is not going to produce wealth. That's because it doesn't actually result in true savings, and in fact tricks us into consuming our capital. It also causes us to misallocate resources.

All these effects are explainable by Austrian theory in a mechanistic way. Once you understand the economic principles involved the means by which all these effects are tied becomes obvious how and why all these mysterious effect happen the way they do.

Austrians can do so without invoking any paradoxes like the belief that savings is bad, or that printing paper notes (essentially counterfeiting) is the way to save an economy. Keynesians.

Other economic theories, like Keynesianism, must resort to crazy explainations like "animal spirits", "the Paradox of Thrift", and "throwing money out of helicopters".

Why do commodity prices rise higher and drop faster during the business cycle than consumer prices? Austrians can explain that in terms of interest rates. Why is there a cluster of business errors, and how are our investment errors coordinated to happen all at once? Austrians have an explanation tied to the effects of monetary inflation. Why have prior booms corrected so quickly when government has not interfered? So on and so forth.

In fact, it was Austrian theory that predicted the possibility of stagflation. The other economic theories do not allow for this possibility. To the theories of people like Krugman printing the money is the solution to the problem and should always lead to lower unemployment, and an boom. Austrians understand that this is not the case. That's because the problem isn't caused by a lack of money.

Keynesian theory has and always will be (it is based on the same ideas as that swindler of the poor John Law, and his Mississippi bubble) a theory to justify the plunder of the common man for the banker, and the politician. All in the name of saving the poor.

If you do follow up you have my email, and can drop me a line if you need help understanding any of the theory. I think that it is much better if you read books than that I write them again.

A very important concept to the theory and how the business cycle occurs is the structure of production. A structure that cannot occur in a babysitting economy. Which is why if left alone you do not get cycles in a script economy. A full market economy with fractional reserve banking will always experience cycles.