In this podcast episode, host John Golden talks with Dr. Thorsten Polleit, an expert in economics. Dr. Polleit is a professor at the University of Bayreuth in Germany and the Ludwig von Mises Institute president. They discuss why the Austrian School of Economics still matters today. This article breaks down their key points in simple terms.
Why the Austrian School Still Matters
Key Economic Theories
The Austrian School of Economics began in the 19th century in Vienna. Some people think it’s outdated, but Dr. Polleit explains why its ideas are still useful today. He highlights these key theories:
- Subjective Value Theory: The value of a product depends on how much a person wants it.
- Opportunity Cost: Every choice means giving up something else.
- Business Cycle Theory: The economy goes through natural ups and downs.
- Monetary Theory: Money and credit greatly impact the economy.
These ideas help explain how modern financial markets and business cycles work.
Business Cycles: The Austrian Perspective
What Causes Economic Fluctuations?
Many people understand that economies go through booms and busts. But what causes them? Dr. Polleit says that central banks play a big role. They pump money into the system and lower interest rates. This creates a temporary boom but often leads to a crash later.
The Boom-and-Bust Cycle
The Austrian Business Cycle Theory explains this process:
- Low Interest Rates: Central banks make borrowing cheap.
- Overinvestment: Businesses take on risky projects.
- Boom Phase: Companies hire more people and expand.
- Bust Phase: Bad investments become clear, leading to layoffs and losses.
Dr. Polleit believes this theory helps us understand past and present economic crises.
The Problem of Malinvestment
What is Malinvestment?
John asks about malinvestment, a common issue during economic booms. Dr. Polleit explains that businesses make bad investment choices because interest rates are too low. This leads to waste and financial instability.
Example: Spain’s Housing Market Crash
Dr. Polleit uses Spain as an example. After the euro was introduced, cheap credit led to a real estate boom. Builders put up too many homes, but there weren’t enough buyers. Eventually, the market crashed, leaving empty buildings and financial struggles. This is a classic example of malinvestment.
How Entrepreneurs Can Succeed
Challenges from Central Banks
John asks how businesses can succeed when central banks distort the economy. Dr. Polleit says that entrepreneurs must stay flexible. They need to watch market trends and avoid taking on too much risk.
The Power of Free Markets
The Austrian School believes in free markets. Entrepreneurs thrive when they can respond to real consumer needs instead of government policies. Dr. Polleit says that despite central bank interference, innovation and creativity still drive economic growth.
The Limits of Mainstream Economic Models
The Problem with Predictions
Many mainstream economists rely on complex models. But Dr. Polleit argues that human behavior is unpredictable. Unlike physics, economics deals with emotions, choices, and changing conditions.
The Issue of Information Gaps
He also points out that not everyone has access to the same information. This makes economic models unreliable. The Austrian School, instead, focuses on real human actions and decisions.
Lessons from the Financial Crisis
The Role of Central Banks
The financial crisis of 2008 is a perfect example of what happens when too much credit floods the system. Banks made risky loans, people borrowed more than they could afford, and the economy collapsed. Dr. Polleit believes these crises will keep happening unless we change how money is controlled.
The Future of Entrepreneurship
A New Age of Innovation?
John wonders if technology will create a golden age for entrepreneurs. Dr. Polleit agrees that the internet and digital tools help businesses grow. But he warns that government policies can still make things difficult.
The Power of Ideas
Dr. Polleit believes that ideas shape the economy. Social media and digital platforms allow entrepreneurs to share knowledge and create new opportunities, even in tough economic conditions.
Optimism for the Future
Despite the challenges, Dr. Polleit is hopeful. He believes that if people understand economics better, they can make smarter choices. This knowledge can help individuals and businesses succeed, even when the economy is uncertain.
Conclusion
This episode explains why the Austrian School of Economics is still relevant today. It helps us understand:
- How money and credit shape the economy.
- Why business cycles happen.
- How bad investments lead to crashes.
- Why free markets encourage innovation.
For those who want to learn more, Dr. Polleit’s work offers deep insights into today’s economic challenges. The Austrian School reminds us that real economic success comes from individual effort, sound money, and smart decision-making.
Our Host
John is the Amazon bestselling author of Winning the Battle for Sales: Lessons on Closing Every Deal from the World’s Greatest Military Victories and Social Upheaval: How to Win at Social Selling. A globally acknowledged Sales & Marketing thought leader, speaker, and strategist, he has conducted over 1500 video interviews of thought leaders for Sales POP! online sales magazine & YouTube Channel and for audio podcast channels where Sales POP! is rated in the top 2% of most popular shows out of 3,320,580 podcasts globally, ranked by Listen Score. He is CSMO at Pipeliner CRM. In his spare time, John is an avid Martial Artist.
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