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.

[A_perfect_lady]

I agree. I don’t like his foreign policy, but I’d put him in charge of domestic policy in a heartbeat.

[padre35]

No Sir, we at best got a “push” out of the UN Russia and China and France abstained, what if they had voted “no”?

By putting our Constitutional Powers up for UN review, we weaken the role of the Constitution in American solutions.

If it were in our interests to invade Iraq (and I firmly believe it was militarily, not so much politically) then the UN has no role, not even to rubber stamp such a decision.

[mnehring]

By putting our Constitutional Powers up for UN review, we weaken the role of the Constitution in American solutions.

You have it backward, as I stated, they are a tool.. We put UN resolutions and treaties up to Constitutional review, thus, why we take action even though the UN expressed disagreement. You said "what if Russia or China voted no".. that is a 'what if', so we really don't know 'what if' but by the fact that we used prior resolutions as part of the justification, I would bet it would not matter if they voted no on one because they voted yes on others... also, because UN resolutions where only part of the justification, offenses against laws of nations, but we also had non-UN arguments as well.

http://www.whitehouse.gov/news/releases/2002/10/20021002-2.html

.. it is too bad that Paul doesn't consider that a real declaration of war, even though it has a 'war powers' statute that was approved by Congress. He is the Fred Phelps of the Constitution...

[ksm1]

I’m more of a Friedmanist myself, but the Austrian school was spot on about this current mess: too much credit can cause big, big problems. We had an unhealthy excess of liquidity in the system from 2002 to 2006, and look at where that got us.

The problem is, Americans that actually know about economics are all working in the private sector, making money.

[all the best]

Government interference in the free interactions of people(the market) are always an attempt to cheat reality. Insane and childish. It’s a game of let’s pretend. Let’s pretend that everyone has earned and can afford a house. Let’s pretend that everyone is equally credit worthy. Let’s take money from some people and give it to others so we all can pretend that they are prosperous.
You can fool reality only for so long. Then it all comes crashing down. The bailout is one more attempt to pretend. CRASH!

People were made to be free. Freedom will not create a perfect world. Just the best possible world. Freedom is the solution to the human condition. Politicians tell you that if you give them power(that is, give up your power/freedom) they will fix all life’s problems for you. Which makes them either fools or power hungry liars.

[all the best]

You say that free markets aren’t sufficiently defined or tested in the real world. HUH! Free markets are a PERFECT representation of the real world. As a matter of fact markets are reality. Your statement is as lunatic as anything any Democrat has ever said. “Free markets” aren’t defined? What is it about “free” that you don’t get? No wander this country is in such trouble. Insanity.

[TAP ONLINE]

Free market to an Austrian is an oxymoron. Markets are free. A “regulated market” is never a Market.

When regulated, government must interfere more and more to keep the “regulated market “ going. More intervention followed by more intervention breeds an eventual breakdown.

Keynes thesis of: In the Long Run we will be dead is “coming home to roost”

We are at the end of the long run and now are paying the piper. Failures of regulated markets are the proof of Austrian Economics.

Austrian theory was not a Utopian system (like socialism) where the economy rolls along unblemished by recession.
The least understood and most important reason we need a Market Economy (Austrian) is dealing with failure.
The economy needs to rid itself of failed parts just as the body needs to rid itself of wastes.

Socialism or intervention by any other name cannot part with its failures. Politics is as important if not more important than profit.

True Capitalism’s crowning but unheralded achievement is knowing when to say stop. We are losing money; we must revamp, sell out or close. From these ashes other industries learn from the mistakes of those preceding it. Socialism subsidizes and tries to continue on with the existing system.

Our present economy is not a Market. Intervention is everywhere. The Regulators can no longer cope. Their answer: a new form of regulation.

To quote Richard Nixon,” We are all Keynesians now”
God help us all

Taponline

[LiberConservative]

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

It's his tone. I can't get past his whining. If his ideas are so great he should be able to deliver them with a little more testosterone.

[mnehring]

Its that he is all theory with no ability or leadership to practically implement solutions. As Phil Gramm said last year, he (Paul) can’t get any bills out of committee because they are so poorly written or lack any details as to how to implement his ideas, just a bunch of theory.

[Moonman62]

So to an Austrian, a free market is the same as an anarchist market, no rules whatsoever?

[Moonman62]

Go ahead and define a free market smart guy. Would it be regulated?

[DryFly]

Jeez, even Adam Smith advocated regulation of markets.

[airborne]

For discussion purposes only - Keeping in mind that I’m no expert, let me ask you this -

Do you think it will be “pretty close” to a free market (at least for a while) after the economy collapses and we’re in another depression for years?

Trading and bartering makes a comeback!

[E. Cartman]

FTA: "It is unimaginable (emphasis mine) that Congress could be so derelict in its duty."

Obviously, the author has been living isolated in a cave on Mars for the last several decades.

[Extremely Extreme Extremist]

BUT THIS CAN'T BE! PAUL'S A KOOK!

[TAP ONLINE]

( Please be advised it has been a long time since I read Rothbard)
Though I am not a libertarian; Rothbard, a Austrian Economist who was very very libertarian espoused something like the following. The rules of the market are self enforced. If you lie cheat or steal no one will do business with you unless you put your product or money upfront. No good reputation -no business.

Libertarianism aside, rules of the game for the market are not complex or need to be socialistic. Enforce legal contracts : Penalize those who lie, cheat or steal and no one is to be externally harmed by their enforcement.

Respect the contract no matter what the size or power of the participants. Have a judicial system that enforces contracts and rights in the contract and not one that creates them.

The more intervention you allow, the more you need. The result is a Fettered “Market” no longer free no longer a market. Interference breeds interference.

Hayek is best on this, see a chapter in his Road To Serfdom, titled Why the Worst get On Top. The failure of intervention can also be explained by another book by Hayek, The Constitution Of Liberty. Here and in other books he argues that all knowledge like that exists in the Market can not be known and controlled by the few.

Interventionists argue that with computers and more perfect knowledge, intervention and control will work and work well.

Arrogance is bred by this belief.

Look at the crisis’ that exist today in the financial sector.

They thought they had obviated risk and overcome the laws of the “Market” with derivates and other “financial instruments”.

They not the “Market” failed.

We were at the end of History, we had the cure for recessions and that dreaded Depression. We put a man on the moon. Solving the Market was easy. Pass a few laws, add more when needed.

Eliminate risk by spreading it so far that none knew the risk of the paper they held and when all else fails change the rules and or bail them out.

Socialism will not allow failure to proceed.

It does not accept it for ideological or just political reasons.

Thus Marx is made to look right.

capitalism (yes a small c) has an inherent flaw. It will fail. Only socialism (interventionism) will work. A New World Order will result. And we all will be free of the fetters of the market.

Only later will we note how we are poorer for it.

Taponline

[padre35]

They are the tool...wow..

So our Commander in Chief, the leader of our military sends a agent to the UN for permission...and that is your view?

Reality is bitch, ignore it at your peril Sir, we went to the UN because we had to, not to make them our agents.

They had the power to vote “yea” or “nay”, our CINC should never put US Sovereignty to be subverted.

You dream Sir.

[padre35]

None will listen.

[B-Chan]

They were right about a lot of things...

[Vaduz]

It is unimaginable that Congress could be so derelict in its duty.Like we didn’t know that