The Austrian School of economics refers to the school of thought promoted by Austrian economists such as Frederik von Hayek and Ludwig von Mises. Their theories include allowing complete freedom of markets and very strict ideas on the role of debt in the economy. Notably if a sector of the economy gets into too much debt then it must be allowed to swiftly go bankrupt if business conditions deteriorate.
Mauldin – Here I refer to the Austrian school of economic theory, based on the work of Ludwig von Mises and Friedrich Hayek, et al. There are those in the Austrian camp who argue the need to do away with the Fed, return to the gold standard, allow the banks that are now deemed too big to fail to go ahead and fail, along with any businesses that are also mismanaged (such as GM and Chrysler), and leave the high ground to new and more properly run enterprises.
In their model, government spending is slashed to the bone, as are (in most cases) taxes. The advantage is that, in theory, you get all your pain at once and then can begin to recover from what would be a very bad and deep recession. The bad news is that you risk getting 30% unemployment and another depression that could take a very long time to climb out of.
Now, let me say that I have GREATLY simplified their argument. If you want to learn more you can go to www.mises.org. It is an excellent web site for all things Austrian. While I am not Austrian, I have spent a lot of time reading the literature and have certain sympathies for this view.
That being said, this also has almost no chance of being implemented. In Congress, only my friend Ron Paul is its advocate. Most Austrian followers are Libertarian by nature, and that is just not a political reality for the coming decade
The only problem with this severe school of thought is that their way out of a debt trap (forcing large-scale bankruptcies) would have the side-effect of causing very high rates of unemployment (in excess of 20%), deflation and tip the economy into a severe resession or even a depression. We have been though the 1930s already and no politician is going to accept that outcome. Hence Governments look for an alternative way out of the debt trap which means lowering interest rates so that the indebted can service their loans more easily whilst waiting for the economy to grow sufficiently so as to reduce the overall debt-to-GDP ratio to a more acceptable level. This may well take many years but we have all read the history books and nobody wants to relive the experience of the 1930s.