Keynes's theories form the basis of the well-known Keynesian school of economics. Keynesian ideas are still alive today and are greatly at odds with Austrian ideas. Whereas Austrian economists believe that government interventions cause these periods of economic boom and bust known as business cycles, Keynesian economists believe that recessions and depressions are unavoidable and that an activist central bank can mitigate fluctuations in the business cycle.
In his famous book, "The General Theory of Employment, Interest and Money , " Keynes writes, "a large proportion of our positive activities depend on spontaneous optimism rather than on a mathematical expectation, whether moral or hedonistic or economic The boom years before the Great Depression exemplify the animal spirits concept.
In the stock market boom that preceded the Depression, suddenly everyone was an investor. People thought the market would always go up and that there was no risk in investing. The herd mentality of ignorant investors contributed to the run-up in stock prices and to their subsequent collapse. There is some disagreement over the idea that we are currently experiencing a gold bubble. Investopedia analyst Arthur Pinkasovitch, for example, believes that a long-term change in fundamentals has been driving up gold prices slowly but steadily.
However, there is a compelling argument that the gold bubble is real and that the "everything is different now" philosophy won't be any more true with today's gold prices than it was with past Internet stock and housing prices. Historically, gold prices have largely been flat or grown incrementally. Uncertainty tends to make gold appear to be a safe, inflation -protected store of long-term value. Any number of factors, from easy money to irrational exuberance to speculation to policy-driven market distortions , may have a hand in the inflation and bursting of bubbles.
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