Monday, August 19, 2013

Now it’s the “Austerians”

Isn’t this getting a bit ridiculous?  First it was the “Austro-nihilists,” then it was “Austro-outrageous,” both from Ambrose.  Now, Jeremy Warner has written a column, also at the Telegraph, entitled “Have the austerians won the day, or will the pragmatists prevail?”

Are they mocking us, or is all the attention a sign of respect?

In Warner’s commentary there is so much garbage, junk, distortion, muddled thinking, and efforts of defining the acceptable boundaries of the dialogue…I don’t know where to start, and I won’t know where to stop…but here goes.

He starts right away in the first sentence:

“Ideology is never a good basis for public policy…”

To the extent that there must be this thing called “public policy,” isn’t ideology critical?  Just today, at LRC, is a commentary by Glenn Jacobs exactly on this point, entitled “Compromising Our Liberty.”  Understanding how politicians will act based on a clearly defined ideology is critical if government by law is to be achieved, as opposed to government by man.

We can argue about what’s appropriate, but when economies become destabilised, state intervention is not just warranted, it’s absolutely necessary.

Where is the wonder about the source of the destabilization?  Is it an act of God?  Is it likely or plausible that all bankers and all businessmen suddenly make the same mistakes at the same time?  Why is there never a serious conversation about eliminating the source of this mass insanity?

And why is state intervention necessary?  In our most recent episode, after six years of non-recovery – induced by state-intervention in response to state-caused destabilization – is it not, by now, safe to assume that recovery would have been achieved much sooner had the state done nothing – or, if intervention is desired, by lowering spending and taxes?

Unfortunately, this remains an issue with which many on the Right still have something of a problem, as the debate now raging in the US about who should replace Ben Bernanke as chairman of the Federal Reserve demonstrates.

What “raging” debate about Bernanke’s replacement?  The choice is inflation option A vs. inflation option B.  There is no “right” vs. “left” debate regarding Bernanke’s replacement.  Anyone who understands free markets knows the debate is nothing but show.

Almost nobody on the political “right” views the issue of Fed Chairman as some sort of a “problem.” The political “right,” like the political “left,” is satisfied as long as there is the chair.  The real issue is not the person occupying the seat; the issue is that there is even a chair.  The chair represents central planning, and central planning of the single-most important commodity in a division-of-labor economy: money, and with it the associated credit.

Almost no one on the “right” questions the chair – they all support central planning.  Only one individual in our times has consistently advocated for the state to get out of the market – before, during, and after the state-caused destabilization.

In a recent interview, Rand Paul…

No, you have the wrong Paul.  Here we go: label Rand Paul a libertarian (a label he does not choose for himself, or at least not consistently) and smear the brand.

Rand Paul initially identifies a couple of dead economists for the position of Federal Reserve Chairman:

A dead chairman, Mr [Rand] Paul said, would actually be something of an advance, “because then you probably really wouldn’t have much of a functioning Federal Reserve”.

Warner takes exception to this line of thinking:

This had the merit of being quite funny, but actually the senator from Kentucky was making what to him was a serious point. Like his father Ron, Mr Paul is a committed libertarian who believes that all state intervention is bunkum.

So many problems in a few short words: equating the son with the father (when their positions on many issues are far apart); stating that Rand is a “committed libertarian” (when even Rand often runs from the label); “all state intervention is bunkum” to Rand (despite the fact that he has advocated for state intervention in many situations)….

Agree or disagree with Rand, but these statements do not square with the facts.  Not merely lies, but as Yul Brynner said as “the King,” false lies.  There is absolutely zero accuracy to any of these statements.

It is only possible to speculate on what would have happened if there had been no state or central bank intervention after the most recent financial crash…

So, let’s speculate.  It is likely there would have been a short, sharp crash, with asset values significantly reduced; this would have been followed by bankruptcies, with assets transferred to those who demonstrated better business judgment; finally, a rapid recovery, as the dead-wood would quickly have been removed and productive assets immediately put to use.

Long-term depression is not a natural state for all participants in a market economy.  It can only come about if there is “state or central bank intervention,” a position for which Warner and others consistently advocate.

 …but examples from the past are not encouraging. A serious banking crisis, allowed to run its course, nearly always leads to mass liquidation and economic depression. This is essentially what happened in the US during the Thirties…

Why doesn’t anyone ever mention the 1920 depression in the US?  It so easily counters every fallacy contained in this statement.  Meanwhile, this is not what happened in the Thirties: the Thirties was a decade of unprecedented state intervention – leading to a 15 year depression and contributing to global war.  Yet this is the “success” every interventionist touts.

He then goes after austerity:

In truth, the austerity rhetoric was always much stronger than the plan itself.

True enough.  There was no austerity – government spending has increased everywhere and in every year since 2007 (certainly there may be an example otherwise, but not one of any import to my knowledge).  Austerity, as it has been practiced in the west, means: spend everything necessary to save the banks and bring pain to the general population (to the extent any pain at all has been brought).

One of the big problems with today’s economic debate is that, much like religion, it has become dominated by quite marginal theological differences.

These are the wisest and truest words written in this piece.  Setting aside the Austrians – a fringe if there ever was one – there is virtually no difference amongst the rest: Keynesians, monetarists, supply-siders, whatever.  All advocate state intervention in the economy, separated only by “marginal theological differences.”

Economics pretends to be evidence-based science, but in reality it is just a set of different beliefs, which divide its high priests and their followers into warring sects.

The Austrians do not “pretend” this – at least not in the way the term “evidence-based science” is typically used.  Austrians avoid the concept of econometrics.  Without quantifying and measuring macro-economic activity (a game for fools in any case), there is no “evidence-based science.”  And Austrians don’t live and die by such numbers.

Both Left and Right have their economic champions; for the Right, it tends to be Hayek, and for the Left, Keynes.

Wrong: for the right it tends to be Freidman and Keynes, for the left it tends to be Keynes and Friedman.  To the extent Hayek is mentioned it is usually to a) label him an Austrian / libertarian, b) once so labeled, to demonstrate, using Hayek’s own words, that even Austrians / libertarians advocate for state-intervention in many situations, and c) to take the conversation away from Mises.

Hayek, like Rand Paul, is used to muddle the Austrian / libertarian message.

In fact, neither of these gurus has the whole answer. Hayek and other members of the Austrian school are useful in understanding how distortions to the free market bring crises about, but they are of little help once you’re in one. By the same token, Keynes offers no convincing counter to the way his remedies tend to embed much higher and ultimately unsustainable levels of state spending in the system.

Regarding Austrians, wrong again.  Austrians have a solution for getting out of an economic crisis: let the market clear.  Clean, simple, and the quickest way to achieving long-term, stable recovery.  Regarding Keynesians, his point is almost universally correct: since Keynesian economics is nothing more than justification of state expansion and intervention in the economy, should it come as a surprise that it always results in state expansion and intervention in the economy?

The dead economist who seems to me to square this particular circle is the aforementioned, but surprisingly invisible, Milton Friedman. Friedman was that strange contradiction – a free-market economist who nevertheless thought that economies sometimes need to be stabilised through monetary intervention.

This is why the left and the right can embrace Friedman.  He offers intervention in many forms – monetary policy, income taxation, education, and more. Like Hayek, a muddled thinker on free markets giving ammunition to those who would attack free markets.

There is good news, not just in this article but in the entire conversation regarding state involvement in markets: the Austrian school is now regularly mentioned – albeit often in a manner such as in this article.  However, the views of Austrian economics have entered the larger conversation.  While authors such as Warner work, it seems deliberately, to misrepresent Austrian positions and / or use positions held by muddled free-market thinkers, at least Austrian and libertarian principles are now introduced.

These mainstream authors use Rand Paul, Friedrich Hayek, and Milton Friedman, each of whom provide bullets for the enemies of freedom to shoot us with.  We don’t need such help: principled Austrians and libertarians offer enough fodder on their own for the mainstream to write attacks for a long time to come.

However, that they have to mention Austrians at all is a good step, and a necessary one.  The next step will come: when the mainstream has to deal directly with the more principled Austrians and libertarians.  This has begun in the case of Ron Paul.

If an Austrian economist is to be presented as an example of the case, it will eventually be Ludwig von Mises instead of Hayek.  And ultimately, Murray Rothbard will have to be confronted.  They will have to deal with these two stalwarts because the state – as it has grown to exist today – cannot be defended as the state promises all break.

That day is coming.


  1. Excellent work again, bm. Your analysis is great, and in a stretch where I've been too busy to write much or read much, I knew it would still be worth my limited time to make a pit stop over here. No regrets on that decision.

    1. Marc, thank you.

      Between some outside projects and also being overwhelmed to capture my thoughts about two books I have completed reading, I am having a tough time trying to post even irregularly these days.

      Hopefully soon I will get through the completion of the posts re the two aforementioned books.

    2. It's a difficult balance. There are times I am able to write daily and read everything I want. Then times like now where I can barely do either.

      Thankful for the forums we have created. I might be criminally insane if I just kept this all to myself.

  2. "Murray Rothbard will have to be confronted" I love this quote.

    1. When I began writing the post, I didn't really know that it would lead to this end. I almost forgot about that line, until Robert Wenzel published this post at EPJ and used that line as the title!

      I think it must eventually come to this, for the reasons mentioned.

  3. Our achieved level of dystopia is for me a continuously perceived backdrop while reading this. However, I couldn't help laughing out loud several times. Thank you Jonathan.

    I have given up on fixing my computer, and will soon have to take it offline and buy another. taxes

  4. "While authors such as Warner work, it seems deliberately, to misrepresent Austrian positions . . ."

    It does seem deliberate. They know better. I see the misrepresentation as part of a conspiracy to keep sound economic views on the fringe.

    1. Yes, it seems to me the slightest bit of actual curiosity would expose such writers to significantly non-mainstream views.

      This leaves the feeling that either a) they have zero critical thinking skills, or b) it is deliberate.

      I haven't read enough of Warner to form an educated guess. As to Ambrose, I strongly lean toward "b." He is way too insightful to not know better.