From Thomas Mayer of Deutsche Bank: (bold emphasis mine)
Modern macro- and financial economics are based on the belief that economic agents always hold rational expectations and that markets are always efficient, in other words, that the earth is flat. We now find out that this is not true. There are elements of irrationality and inefficiencies in the behavior of people and markets. Therefore we need to dump the flat-earth theories promising that economic and financial outcomes can be planned with a high degree of certainty and need to look at other theories that accept the limits of our knowledge about the future. A revival of Austrian economics could be a good start for such a research programme.
Unfortunately, however, the battle cry of the public and politicians is for more regulation: regulate banks, regulate markets, regulate financial products! But those who push for blanket regulation suffer from the same control-illusion that got us into this crisis. In our view, instead of more regulation we need more intelligent regulation. At the heart of such regulation must stand the simple recognition that we can at best tentatively plan for the future and must feel our way forward in a process of trial and error.
In a world where we need to reckon with ―unknown unknowns‖ – in a world where Knightian uncertainty reigns – financial firms and investors need larger buffers to cope with the unforeseen, i.e. more equity and less leverage. In a world, where markets are not always liquid but can seize up in a collective fit of panic, financial firms and investors also need a greater reserve of liquidity.
Mr. Mayer can always visit the Ludwig von Mises Institute, so he can get ahead of the snowballing revival.
Nonetheless this is revolutionary, from the above, Austrian Economics appears headed mainstream.
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