| Abstract | The 2008 Financial Crisis came as a shock to many in the economics discipline, as well as to those in the general public. Despite being the deepest and longest economic slump since the Great Depression, most mainstream economists found themselves unable to offer a consistent explanation of its cause rather than "something bizarre happened". In contrast, some non-mainstream schools of thought have argued that they saw it coming and that they can offer insightful explanations of the Great Recession. Two of those were the Austrian and Post Keynesian. Given the significant disparities in the two schools fundamental economic principles, there arose a question among scholars and the general public as to whether these two schools of thought could truly predict a crisis accurately. This paper lays out the basic Austrian and Post- Keynesian explanations of the business cycle and then shows how they employed these to predict/explain the Financial Crisis. Then, an empirical test of the models laid out by each school of thought is run in an attempt to determine which theory appears to have the most support from the data. The preliminary results suggest that the Post Keynesians business cycle theory has a better explanatory power regarding the 2008 Financial Crisis. |
