I answer this question with some trepidation, because the Austrian school bears roughly the same relation to economics as geocentrism does to astrophysics. It is a thoroughly debunked pseudoscience with absolutely no basis in empirical fact. Certain Austrian economists have contributed worthwhile ideas to modern economics (much as geocentrists did contribute to mathematics, geometry, and physics in their day), but continuing to believe in Austrian economics in today's era of experimental cognitive economics is irresponsible.
That said, it may still be worthwhile to try to understand what the Austrian school says, if only to understand where it went wrong. So, I've gone and cited the Austrian Economics Wiki about what they think causes business cycles and how one should respond to them, which is almost completely wrong and in many ways literally backward.
Austrians argue that the business cycle is caused by excessive intervention of the central bank in monetary policy, that during the "boom" where the economy is near full employment and growth is strong, the central bank is actually holding interest rates too low and creating credit that shouldn't exist, which (for reasons they never fully explain) supposedly leads otherwise rational entrepreneurs to make bad investments. But eventually all this credit becomes unsustainable, the floor falls out from under everyone, and the recession happens as all the bad investments are forced to liquidate.
What are we supposed to do in this situation, they say?
You can pretty much always guess what the Austrian answer is: Nothing. We are supposed to do nothing, never intervene in any way, and the free market will somehow magically sort itself out. Austrians have an essentially unlimited faith in the power of free markets to behave optimally regardless of the circumstances, and a similarly unlimited faith in the evil of government intervention. This is not at all what serious economists believe.
Mainstream Keynesian/neoclassical economics (the Neoclassical Synthesis) says that the proper response in a recession is to lower interest rates, and if they hit zero, then also engage in massive deficit spending to put money back into the economy. The cause of recessions is still debated by mainstream economists (and in fact different recessions may have different causes), but this basic response of lowering interest rates to fight the recession is the mainstream consensus.
Yet Austrians claim, based on no empirical evidence whatsoever, that this will somehow make the recession worse. They seem to view recessions as a morality play: You sowed the thunder of unsustainable credit, now reap the whirlwind of a recession. I've heard them call Keynesian monetary policy "hair of the dog" as if low interest rates were like alcohol addiction. (Ironically, what's the best way to fight addiction? Slow tapering of dosage over time. So even if we were addicted to low interest rates in some sense, it would still be better to gradually raise them over time rather than abolishing the central bank and seeing what happens. And let me emphasize that there's no evidence that low interest rates cause recessions in any case.)
Indeed, Austrian economists do not seem to understand that central bank policy is almost entirely reactive; the central bank doesn't just arbitrarily lower interest rates, they lower interest rates to reach inflation and unemployment targets. They respond to recessions. Saying that the central bank causes recessions is like saying that band-aids cause cuts and chemotherapy causes cancer.
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