It's a bit rich to cast aspersions on the Austrians. They were the ones who foresaw the problems. All the Keynesians and Neo-Monetarists wouldn't accept that there were problems and had the childish temerity to openly scoff the Austrians.
Putting that aside for the moment, Austrian economics is not about mass destruction of the economy, it is about allowing destructive bubbles to deflate and free market based correction of idiotic malinvestment.
The tech bust was a classic example of how it should happen. There was no mass destruction of properly productive elements in the economy.
Unfortunately, this time the underlying bubble happens to involve everyone's most important asset... their house. The malinvestment is not so much the item, rather, the price of the asset and the relative capital resources allocated to it. It's a credit/price bubble that has filtered out into everything else.
It should be allowed to pop.
However there are reasons why governments are so interested in propping this one up and it's to do with demographics unfunded welfare/pension obligations in the near future.
Overinflated assets was the gu'mints (collectively) method of trying to deal with the demographics bomb that is due to start its chain reaction very soon.
The UK Labour government even made the asinine prediction that they'd abolished boom and bust. Such stupidity should be a capital offence.
Shame the Keynesian muppets didn't realise what the Austrians have known for since the economic Garden of Eden. That is, you cannot suspend the business cycle forever and you f~~~ with it at your peril.
Knobby, the "stimulus" (i.e. rob from future generations to prop up failing banks and asset speculators) may work for now. But it is to early to tell the ultimate outcome. A bottle of tequila will cure the DTs... temporarily. Ultimately an addiction, whether to alcohol or credit, has to be cured by some serious therapy.
The Austrians always say doom is coming. If there predictions varied a bit I might have more respect. Follow this blog for others that have made the prediction.
http://www.debtdeflation.com/blogs/
Keynesians also agree with free market theory especially creative destruction. The difference is that Austrians believe that if no one touched anything, economies would enter an amazing nirvana of steady state of growth and everything is self correcting. Sort of a heaven on earth. This is despite history showing that it's rubbish.
Of course we need creative destruction, we just don't need a 15 year depression.
Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and therefore advocates active policy responses by the public sector, including monetary policy actions by the central bank and fiscal policy actions by the government to stabilize output over the business cycle.
In Keynes's theory, some micro-level actions of individuals and firms can lead to aggregate macroeconomic outcomes in which the economy operates below its potential output and growth. Austrian's believe in Say's Law, that supply creates its own demand, so that a "general glut" would therefore be impossible. Keynes contended that aggregate demand for goods might be insufficient during economic downturns, leading to unnecessarily high unemployment and losses of potential output. Keynes argued that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation.
Keynesians are more realistic.
Because prices are sticky in the New Keynesian model, an increase in the money supply (or equivalently, a decrease in the interest rate) does increase output and lower unemployment in the short run.
Keynesian economists advocate using monetary policy for stabilization.
When the economy is hit by some unexpected external shock, it may be a good idea to offset the macroeconomic effects of the shock with monetary policy. This is especially true if the unexpected shock is one (like a fall in consumer confidence) which tends to lower both output and inflation; in that case, expanding the money supply (lowering interest rates) helps by increasing output while stabilizing inflation and inflationary expectations.
Keynsians also believe you should adjust the nominal interest rate in response to changes in inflation and output.
In my words Keynsians treat an economy is more like a transistor. Without positive and negative fedbacks it will not operate in the "zone" and you will get distortian or even worse runaway.
House prices should be allowed to drop but massive wealth destruction that causes house prices to drop 95%, unemployment at 30% and govenrments to topple with fascists and communists taking control with misery all around has been tried already. The imprtant thing is that governments do not continue the stimulus too long and pay back the debt asap. This may involve raising taxes to the wealthy in the short term. That is the reason Keynsians are hated by people such as Murdoch.