New & Noteworthy
Economics Professor’s Essay Wins Austrian Award
January 22, 2015
An essay by Economics professor Dr. David Hebert has won first prize in the 7th International Vernon Smith competition, sponsored by the European Center of Austrian Economics Foundation (ECAEF). The competition is open to economists under 30; the goal is to help promote Austrian economics. Hebert sought an opportunity to present his research to a broader academic community.
His essay presented an explanation of central banking in the real world. “Macroeconomic theory is very clear about the role of central banks,” he says; “they exist to help smooth business cycles, fight inflation, and decrease unemployment by either expanding the money supply or contracting it when necessary.” Many economists have wondered if they actually do this.
“My paper explains why they fail,” Hebert explains,“which comes down to two factors: First, F.A. Hayek [1974 Nobel Prize in Economics] describes the knowledge problem, whereby the sheer task of calculating the answer is not difficult, but actually impossible. The second factor, explained by James Buchanan [1986 Nobel Prize in Economics]: the incentive problem. Individual central bankers have a strong incentive to over-expand the money supply so that they can avoid a second Great Depression. The trouble with this, though, is that while it may seem like it helps in the short run, it actually leads to all sorts of problems in the long run–like the whole financial crisis of 2007-2010 that we’re still recovering from.”
In late February, Dr. Hebert will visit Vaduz, Liechtenstein, to present his work to not only to fellow scholars, but also to ranked officials like the Prince of Liechtenstein.
His essay, along with with those that took second and third places, hcan be downloaded from the ECAEF website.