The Austrians were Right

House.gov ^ | 11/20/08 | Ron Paul

[ovrtaxt]

Madame Speaker, many Americans are hoping the new administration will solve the economic problems we face.  That’s not likely to happen, because the economic advisors to the new President have no more understanding of how to get us out of this mess than previous administrations and Congresses understood how the crisis was brought about in the first place. Except for a rare few, Members of Congress are unaware of Austrian Free Market economics.  For the last 80 years, the legislative, judiciary and executive branches of our government have been totally influenced by Keynesian economics.  If they had had any understanding of the Austrian economic explanation of the business cycle, they would have never permitted the dangerous bubbles that always lead to painful corrections. Today, a major economic crisis is unfolding.  New government programs are started daily, and future plans are being made for even more.  All are based on the belief that we’re in this mess because free-market capitalism and sound money failed.  The obsession is with more spending, bailouts of bad investments, more debt, and further dollar debasement.  Many are saying we need an international answer to our problems with the establishment of a world central bank and a single fiat reserve currency.  These suggestions are merely more of the same policies that created our mess and are doomed to fail. At least 90% of the cause for the financial crisis can be laid at the doorstep of the Federal Reserve.  It is the manipulation of credit, the money supply, and interest rates that caused the various bubbles to form.  Congress added fuel to the fire by various programs and institutions like the Community Reinvestment Act, Fannie Mae and Freddie Mac, FDIC, and HUD mandates, which were all backed up by aggressive court rulings. The Fed has now doled out close to $2 trillion in subsidized loans to troubled banks and other financial institutions.  The Federal Reserve and Treasury constantly brag about the need for “transparency” and “oversight,” but it’s all just talk — they want none of it.  They want secrecy while the privileged are rescued at the expense of the middle class. It is unimaginable that Congress could be so derelict in its duty.  It does nothing but condone the arrogance of the Fed in its refusal to tell us where the $2 trillion has gone.  All Members of Congress and all Americans should be outraged that conditions could deteriorate to this degree.  It’s no wonder that a large and growing number of Americans are now demanding an end to the Fed. The Federal Reserve created our problem, yet it manages to gain even more power in the socialization of the entire financial system.  The whole bailout process this past year was characterized by no oversight, no limits, no concerns, no understanding, and no common sense. Similar mistakes were made in the 1930s and ushered in the age of the New Deal, the Fair Deal, the Great Society and the supply-siders who convinced conservatives that deficits didn’t really matter after all, since they were anxious to finance a very expensive deficit-financed American empire. All the programs since the Depression were meant to prevent recessions and depressions.  Yet all that was done was to plant the seeds of the greatest financial bubble in all history.  Because of this lack of understanding, the stage is now set for massive nationalization of the financial system and quite likely the means of production. Although it is obvious that the Keynesians were all wrong and interventionism and central economic planning don’t work, whom are we listening to for advice on getting us out of this mess?  Unfortunately, it’s the Keynesians, the socialists, and big-government proponents. Who’s being ignored?  The Austrian free-market economists—the very ones who predicted not only the Great Depression, but the calamity we’re dealing with today.  If the crisis was predictable and is explainable, why did no one listen?  It’s because too many politicians believed that a free lunch was possible and a new economic paradigm had arrived. But we’ve heard that one before--like the philosopher’s stone that could turn lead into gold.  Prosperity without work is a dream of the ages. Over and above this are those who understand that political power is controlled by those who control the money supply.  Liberals and conservatives, Republicans and Democrats came to believe, as they were taught in our universities, that deficits don’t matter and that Federal Reserve accommodation by monetizing debt is legitimate and never harmful.  The truth is otherwise.  Central economic planning is always harmful.  Inflating the money supply and purposely devaluing the dollar is always painful and dangerous. The policies of big-government proponents are running out of steam.  Their policies have failed and will continue to fail.  Merely doing more of what caused the crisis can hardly provide a solution. The good news is that Austrian economists are gaining more acceptance every day and have a greater chance of influencing our future than they’ve had for a long time. The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation.  Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt.  But the piper will be paid, and that’s what this crisis is all about. There are limits.  A country cannot forever depend on a central bank to keep the economy afloat and the currency functionable through constant acceleration of money supply growth.  Eventually the laws of economics will overrule the politicians, the bureaucrats and the central bankers.  The system will fail to respond unless the excess debt and mal-investment is liquidated.  If it goes too far and the wild extravagance is not arrested, runaway inflation will result, and an entirely new currency will be required to restore growth and reasonable political stability. The choice we face is ominous:  We either accept world-wide authoritarian government holding together a flawed system, OR we restore the principles of the Constitution, limit government power, restore commodity money without a Federal Reserve system, reject world government, and promote the cause of peace by protecting liberty equally for all persons.  Freedom is the answer.

[ovrtaxt]

"The basic problem is that proponents of big government require a central bank in order to surreptitiously pay bills without direct taxation. Printing needed money delays the payment. Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that's what this crisis is all about."

[dfwgator]

Depends on which “Austrian” you’re referring, there was one Austrian, I think his name was “Shickelgruber” who very wrong.

[padre35]

Ron Paul is correct, of course no one will listen to the man.

I disagreed with Paul’s views on the Iraq War, but I liked his other positions, he is right far more often then he is wrong, we the people ignore him to our peril.

[mnehring]

He may want to clarify that he is referring to the “Austrian School of Economics”. The way he put it, it seems to imply it is Austria’s form of economics, it isn’t..I’m not sure of any first world country that follows the Austrian School. Also, he always fails to point out that the Austrian School theory does not eliminate recessions, inflation, deflation, etc. At that, the Mises/Hayek Business Model Theory specifically states there will be inflation, deflation, recessions depressions that happen, and must happen, as market regulators.

[EagleUSA]

“Raising taxes would reveal the true cost of big government, and the people would revolt. But the piper will be paid, and that’s what this crisis is all about.”
::::::::::::
So the Marxists make their move — as Obama’s little squirrel said, “We must take advantage of this crisis...”

[garbanzo]

Prosperity without work is a dream of the ages.

What could have been...but the my way or the highway folks would have none of it.

[Pharmboy]

As the Germans like to say, the two greatest achievements of the Austrians in the 20th Century were convincing the world that Hitler was a German and Beethoven was an Austrian.

[garbanzo]

I disagreed with Paul’s views on the Iraq War

You know what the irony is, that we're going to pull of Iraq anyway within a couple of years but that's all anyone could see during the primary season.

[Travis McGee]

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

-~~Ludwig Von Mises

[hamburglar]

Ron Paul is such a loon that even when he speaks the truth nobody listens.(IMHO)

[Longtom]

I like Winston Churchills observations on the Germans:”The Hun is either at your throat or at your feet’’.

[mnehring]

Ron Paul is correct, of course no one will listen to the man.

The problem is, what do you listen to.. he has every level of warning, from this which is pretty sound, although he is missing a few pieces of information from the Austrian school that are important.. or his warnings about 'pinkback' currency, currency with tracking chips, the trilateral commission control, the buildberger's running banks, amero currency, etc, etc.. reminds me of that freeper that was around a few years ago, willie something... he made hundreds of different predictions of economic catastrophe. When you shoot a shotgun at a dartboard, eventually one of the pellets will hit the bulls eye.

[Mr. Jeeves]

It’s like an adult talking to room full of pre-schoolers - most of Congress doesn’t even possess the intellectual tools to understand what Ron Paul is saying.

[Travis McGee]

Obviously, in this context (macroeconomics), “Austrians” refers the Austrian school of economics.

Only a total boob would be confused by this, so it’s not worth bringing up that fellow with the small mustache.

[ari-freedom]

he’s obviously not the greatest spokesman for his cause

[milwguy]

If you want a primer on Austrian Economics,,,,here is a link...http://www.mises.org/etexts/austrian.asp

Ludwig Von Mises and Frederick Hayek were probably the two most prominent 20th century economists who espoused the Austrain school thought.

Ron Paul sometimes channels Von Mises when he talks about paper money. One of my favorite Mises quotes is ‘Gov’t is the only entity that can take a valuable commodity like paper and render it worthless merely by apply ink’

Hillsdale college in Michigan houses all of Mises original works and my son is studying economics there. His professors have some interesting thoughts on what our gov’t is doing currently.

[mnehring]

It wasn't as much that he was against it, it was why he was against it.. it is the opposition to the principle of American exceptionalism. He took the stance that the US is the cause of the world's problems. That is a principle difference, far more than just a difference on the issue.

[econjack]

It is unimaginable that Congress could be so derelict in its duty.

Congress is not being derelict...they know exactly what they are doing...they are buying votes, pure and simple. They know, as shown by Obama's victory, that if you make enough promises, there are enough stupid people to buy into it and put you in office. Once in, you must promise even more.

The Fed does have a meaningful role to play and it's not by accident that the greatest free market economist in the world (Milton Friedman) was a monetarist. However, the Fed has lost its focus and has assumed that monetary policy is a one-size-fits-all solution to all problems. Not true. Coherent monetary and fiscal policy are necessary. Obama understands neither.

[Moonman62]

Ron Paul is correct, of course no one will listen to the man.

He's a crackpot. Free markets and Austrian economics aren't sufficiently defined or tested in the real world.

[mnehring]

The problem with the Mises Institute, is it was started by Lew Rockwell as a shadow way to promote his conspiracy theories.. Not by economists as a way to promote sound economic principles.

http://mises.org/about.aspx

Rockwell and his former Bircher ilk have hijacked the Austrian school discussion for their own purposes.