February 10, 2014

The American Economy in Peril: Blame the Austrians!

By In Articles, Economics

The Washington Post published an opinion piece by EJ. Dionne Jr. who put his thesis as his title: “An economic school has led to gridlock in Washington.”  Now, quite immediately we get a sense of two things: 1) Whatever this economic school may be, it is clearly a free market school, lest the Washington Post would not have published it.  Don’t expect the Post to publish an article lambasting systemic Keynesianism or even Marxism.  Such are sacred intellectual cows and such are not to be slaughtered.  2) The second sense we get is that the author is writing under the false assumption that gridlock is necessarily bad.  When the empire cannot get what it immediately wants, our author presupposes, the world is off its axis.  Contra this statist mindset, perhaps we ought to point out that quite often gridlock prevents, albeit temporarily, the State from worsening the status of American lives.

Our author writes about a Ron Paulian analysis

that Americans were rejecting the economic ideas of John Maynard Keynes that encouraged government intervention and provided intellectual ballast for the New Deal. Instead, they were coming around to the principles of the anti-government economics of Austrians Friedrich A. Hayekand Ludwig von Mises.

This is Dionne’s understanding of Ron Paul’s statement: “We’re all Austrians now.”  Dionne thinks that Austrians are anti-government. The problem with this is that the Austrian conception of economic theory is value-free, that is, it is not pro or anti-government at all.  Rather, it is methodological individualism and based on the science of human action.  It describes, rather than prescribes, how human individuals act given that they exist in a world of scarce resources.  It describes what would happen in the event of government interference, but this does not actually make them anti-government.

It does indeed happen that many Austrians, seeing the negative effect of the government in the economy, discourage its presence as much as possible, but this conclusion is by virtue of their libertarianism, not their Austrian analysis.  To be anti-government cannot be a resulting conclusion of a value-free science.  As Austrian economist Walter Block has pointed out, it is possible that one subscribe to Austrian economics, and, because he dislikes prosperity or economic efficiency, decides to become a Nazi.

To prove my point that not all Austrians are anti-government, one only needs to look at Hayek, who supported all kinds of anti-libertarian government activity.

One might point out that I am being far too picky.  But if our author is going to blame the Austrian school for America’s woes, perhaps he should first understand what the Austrian School is.

Dionne writes:

Hayek and Mises perceived little difference between democratic governments that used their power to plan against recessions and dictatorships that did the same thing. In this view, the policies of Franklin Roosevelt led down what Hayek called the “Road to Serfdom” and were thus objectively comparable to those of Hitler or Stalin.

If by the first sentence he means that the Austrians pointed out that the form of government meant less than the effects of the policies, he is very right.  But he would be hard pressed to find disagreement.  Is the democratic government capable of producing prosperity by taking the same actions as the dictator?  Dionne, and others like him, are far too focused on the form of government and not enough on the economic consequences of intervention.  His second sentence is pure emotionalism.  What Hayek really said was that once we embark on the path of looking to the State as the answer to society’s problems (remember, Hayek blamed the Great Depression on the government supported central bank), we were on the same path as other totalitarian countries, who were ahead of us.  We ought to leave the path, instead of continue on the road.

Things get really interesting when Dionne begins to indicate that American “politics” are victim to the public’s turning opinion on economic matters.  He writes:

To a remarkable degree, our politics are haunted by the principles of Austrian economics and their sweeping hostility to any actions by government to keep downturns from becoming catastrophes or to promote greater economic fairness.

Actually, our politics are still stuck in Keynesian and economic interventionist land.  The Fed is still printing en mass, the government is passing gigantic spending bills with the support of both parties, and any suggestion of a rate of slowdown of proposed increases (that is, they oppose increasing the spending at a lesser rate than has been previously proposed), is met with a melodrama that would shock even the most theatric teenage girl.

It is true that the Austrians are characterized by a “sweeping hostility” to government intervention, but that is because it is precisely those actions that cause downturns, catastrophes, and economic inequality.  But more importantly, the Austrians actually have zero voice in Washington, so contrary to Dionne’s fright, his beloved politics are doing just fine for him and his buddies.  To the extent that politics are not being influenced by the Austrians, to that extent the American public is suffering.

Farther down in the article, Dionne goes into salesman mode:

[P]ostwar initiatives along Keynesian lines are precisely what prevented both the resurgence of fascism and the collapse of Western Europe into communist hands. For that matter, Keynesian steps also kept the whole world from going into a much deeper and more disastrous slide after the financial crisis of 2008.

What is fascism?  Does Dionne even know?  Fascism is the economic model that is best understood as the uniting of big business with the State.  Those businesses who are friends with the central State are the recipients of special privileges, subsidies, grants, tax breaks, mandates, bailouts, the ability to work outside of law; while at the same time the competitors of those big businesses, that is, any business who is not friendly with the State, receives massive regulations, taxes, fines, fees, government scrutiny, and many are forcibly shut down.  This is fascism.  Now, what does Keynesianism chiefly rely on? It relies on a central bank that is given the reins of a banking cartel, the unique ability to print paper money, the control of interest rates across an entire economy, the ability to bailout its buddy banks which have made bad decisions, and is allowed to operate in secret.  What if you want to compete with this bank?  Just ask The Liberty Dollar.  All that to point out that it is surprising that Dionne would have the audacity to say that Keynesianism prevented fascism.

On the contrary! It created fascism in America!  The entire fascist and crony corporatist system in the United States would be impossible without Keynesianism!

As for Dionne’s second sentence above, it would have been more accurate if it stated that all the Keynesian steps accomplished was kicking the can down the road, prolonging the inevitable crash to a future date, and making the necessary bust out to be much, much worse.  When you don’t let the bust happen after an artificial economic boom, you face even worse conditions for the future.

Yet today’s conservatives are in thrall to Austrian thinking, and this explains a lot of what is going on in Washington.

Absurdly false.  “Today’s conservatives,” and by that he means those who have applied the title to themselves in Washington, are not Austrians at all.  They are Keynesians who love to spend, print money, bailout business, and centrally plan the economy.  Those who might be called conservatives who are also in thrall to Austrian thinking, include Ron Paul.  Perhaps one could argue that his son follows in his father’s footsteps on many issues, but I think it an exaggeration to say that he is “in thrall” to Austrian thinking.  And if Rand is not, nobody else on The Hill is either.

It is now difficult for Congress to pass even the kind of spending that all sides once saw as necessary public investment in transportation, research and education. It’s that “road to serfdom” again: Anything government does beyond enforcing contracts and stopping violence is denounced as the first step of a fox trot toward dictatorship.

Again with the exaggerated drama.  First of all, Congress is recently on a magnificent spending spree that Keynes himself would have been surprised with.  Secondly, it is completely illogical to say that a lack of spending increase of galactic proportions is equal to a minarchical government.  It actually sounds stupid and silly, embarrassing.  That is like me saying that, since Dionne does not like Ron Paul’s limited government stance, he loves Mussolini and Hitler.  He exaggerates for effect and he exaggerates irrationally and annoyingly.

However, it does put him in a position to always win the argument.  Because no matter how much the Government spends, no matter how much it grows, not matter how much money is printed and food stamps are handed out, it is never enough.  And since it is never enough, people like Dionne can sit back and say “I told you so, shoulda spent more, shouldn’t have listened to the Austrians.”  When in reality, the United States government does everything completely opposite the Austrian advice.

While Dionne wants to keep pressing home the flawed narrative that there is a wide difference between Conservatives who are Austrians and Liberals who are Keynesians, the reality is that they are all big-government, fascistic neo-Keynesians who thrive when the people assume a difference between the parties.  The State desperately needs outlets like the Washington Post to pretend like there is a ideological battle in DC.  It needs them desperately because Ron Paul was right that the people are waking up to the brewing authoritarianism.  Rather than the Austrian/Keynesian divide being within Washington, it is more accurate to think of it as being a growing divide between the citizens and the rulers.

No, the masses are not yet Austrians.  But the fact that articles like Dionne’s are pushed means that the pressure is on.  When the pressure is on, the lies and deceit multiply.

Written by C.Jay Engel

Editor and creator of The Reformed Libertarian. Living in Northern California with his wife, he writes on everything from politics to theology and from culture to economic theory. You can send an email to reformedlibertarian@gmail.com