Government Professor Attacks Austrian Economics

I get that Noah Smith's gig at Bloomberg View is to bring a light touch to economics and business.  And as an assistant professor of finance at a government university, it doesn't hurt your career to take a swing at Austrian economics, the brain-child of Austrians Carl Menger and Ludwig von Mises, and call its supporters 9/11 truthers with brain worms.

Back in the good old days, it was Immanuel Kant that decided that philosophy needed a critique.  That's why he called his great works The Critique of Pure Reason, The Critique of Practical Reason, etc.  Ever since, inquiring minds have buzzed around the flame of "critical theory."

Now the point of so-called Austrian economics is that it is a critique of modern government and its interventionist economy.  The point of so-called Keynesian economics is that it is an apology for interventionist economics.

You can see where professors at government universities would come down on that.

When the classic economists first developed economics as a system it was a critique of mercantilism, the theory that government needed to supervise the economy to encourage exports and the inflow of gold.  National wealth, it was thought, was founded on a big hoard of gold; imports were a drain on national strength.  Nonsense, said the Adam Smiths and David Ricardos.  What matters is to encourage the markets and trade.  Leave off promoting exports and penalizing imports: all you are doing is cutting off your nose to spite your face.

But the rise of government programs in the late 19th century created a problem.  The new government programs interfered with the normal operation of the economy.  In broad terms they represented government spending that had to be maintained through good times and bad.  In the Great Depression of 1929-33 this created a huge problem.  "Orthodox" economics said that you should let the markets find a new equilibrium.  But meanwhile people were suffering, and that included big special interests.  So the government raised taxes and spending to keep things going, only they didn't.

Keynesian economics was hailed as the answer to the problem of the Great Depression, because the raising of taxes and spending didn't get the US out of the Depression.  A new approach was needed to get the government out of the jam.  The solution was to increase the money supply and use it to pay for the increased spending.  If that meant a little inflation, so much the better because it would float investments that the market collapse had put underwater.

In the aftermath of the Great Recession of 2007-09 Keynesian economics has actually worked pretty well from the Democrats' point of view.  They have maintained benefits for their supporters and the economy has not crashed like it did in 1929-33.  But the downside is that growth has been pitiful.  Of course it has.  Huge amounts of money have gone to maintaining people in their current situation with welfare payments and bailouts of banks and auto companies; that means that people have not adjusted to the post-crash reality as fast as they could have.

Austrian economics says that all this is rubbish.  It says that the first problem is cheap money to get out of a recession: all that does is ignite a new unsustainable boom and an inevitable crash.  What is needed is to liquidate the malinvestments of the previous boom as quickly as possible so that growth may resume on the basis of a balanced credit system not a credit system artificially boosted by cheap money.  But the Keynesians say that liquidation is cruel and hurts the vulnerable.

Since Austrian economics is a critique of our current authoritarian welfare state and its interventionist economics it is not surprising that everyone from mild conservative-libertarians to wild-eyed radicals have piled on.  It is these wild-eyed radicals that Noah Smith is sneering at.

In my view some kind of Keynesian economics is inevitable so long as we maintain a big-government state.  The fact is that big government is stupid and unable to adjust to changing conditions.  So it needs the manipulations of the Keynesians to keep it going and to get out of jams.  The fact is that devaluation or inflation is the easiest way for government to get out of a jam without having to deal with riots in the streets.

But Keynesian economics is cruel and unjust and the Obama economy proves it.  Who is benefitting right now? Rich guys like me that are 100% invested in the bubble stock market and poor people chugging along on EBT and disability.  Oh and don't forget the federal government that is paying $225 billion a year in net interest instead of $1 trillion a year that it would have to pay if interest rates were allowed to rise to a normal level.  Who is being screwed? The average worker that is afraid to quit their job, the young people that can't find a job, and the mom-and-pop investor with money in the bank or the bond market that's earning zero interest.

Meanwhile, let's have a laugh at the crazies on the right.  Good call, Noah Smith.

Is Obama Channeling Kaiser Bill?

Remember dear old Kaiser Wilhelm II, Emperor of Germany?  He was notorious as a shallow man that mouthed off when he should have kept quiet.  And he was good at divisive politics, riling Germans up against each other, and Germany against the rest of Europe.

And it didn't end well for the Germans and for Germany.

Now we have an American head of state, President Barack Obama, that seems to incarnate the worst features of Kaiser Bill.  He's shallow, and he's careless with the partisan rhetoric.  And he's too lazy to bring different interests together to solve problems.  Did he really believe his words in 2004 when he electrified his fellow Democrats?

There is not a liberal America and a conservative America. There is a United States of America. There is not a black America and a white America, a Latino America, an Asian America — there’s the United States of America.

Roger L. Simon brings all this up on the Fourth of July to ask a question:

How do we become — on this Fourth of July — the United States of America again? 

Yes indeed.  What must we do to become again that last best hope of mankind on earth?

Simon has a simple message.  Let's get over ourselves.  We conservatives may have the better ideas, but we certainly aren't perfect.  So let's get out this Fourth of July and talk to our liberal and independent friends.  Let's not say I told you so.  Let's commiserate with them.

Don’t point to the polls and brag “I told you so!”  Commiserate with them instead.  You and they are Americans, after all, as Barack Obama once said and then forgot or ignored, and it is our great country that has come to this pass.  And, as we all know, as America goes, so goes the world.

Things are too serious for gloating and end-zone dances.  We are all Americans, and it's up to us to fix things.  If we won't do it, who will?

The good thing about the current crisis is that after the Bush years, when liberals persuaded themselves that Bush was uniquely stupid (for following policies, mostly, that the Clinton administration set up in the 1990s), the liberal answer in Obama has been an unqualified disaster.

Back in 2009 liberals thought that all they had to do was turn the Keynesian levers and all would be well.  They didn't even have to ease up on the entitlements and wait for the economy to recover.  Full speed ahead on the liberal agenda!

Instead they have been totally bushwhacked.  Nothing has worked the way they thought it should, the way they knew it would because they are, after all, the smart people, the evolved people.

So now liberals are going to be a lot more humble than they used to be.

Maybe now we can get together and do some stuff to fix the economy and the corrupted government.

But maybe not, because of the damage that the second coming of Kaiser Bill has wreaked upon the body politic with his divisive presidency.

There's a reason why presidents try to unify the country and don't normally rag on the opposition too much.  They know, or somebody tells them, that if they don't reach out to the opposition, the opposition won't be there to lend a hand when a president needs support from everyone.

So the first thing to do is to heal the partisan wounds that President Obama has so cruelly opened up in America's body politic.

Then we Americans can get to work.

Visting Philly's National Constitution Center

I  was naturally hesitant to visit the National Constitution Center July 2 on Philadelphia's Independence Mall, just down the street from the Liberty Bell.  Because you know what liberals can do to the constitution if you give them half a chance.

Of course, the Center isn't really all about the US Constitution.  It's really a potted liberal history of the US story so far.  But suitably toned down to avoid frightening the horses in the street.

The main exhibit is big on "rights" and "the vote" and I suppose it would have to be.  After all, the average person doesn't really think about limited government and the separation of powers.  They think about whether they can get a fair shake.

So, once the exhibit has dealt with the actual early US history (with slavery) and the revolutionary era (ending with a constitution and three-fifths of a person) it's on to the standard liberal story of America minus the worst excesses of racist-sexist-homophobe hate speech that we have come to know and love.  Ronald Reagan gets a fair shake and the exhibit ends with 2009 and America's First Black President.

That last item is a big deal.  On the day I visited the admission was free (courtesy of WaWa convenience stores) and the Center was thronged with African Americans.  They really liked checking to make sure that Barack Obama was featured in a major display.

There's also a temporary display on slavery at Thomas Jefferson's Monticello, open through October 14, which is interesting on a couple of fronts.  It shows charts of the slaves and their children down a couple of generations.  It's remarkable to see how many children the slaves had and how many children and children's children lived to a ripe old age.  The exhibit also features the annual meeting of slave descendants at Monticello, and the struggles the have faced with the help of determination and strong families.  The exhibit was thronged with enthusiastic African Americans.

Naturally my favorite display was a humorous video "Ask Ben Stein" with our hero sitting at breakfast opening his mail and dead-panning answers to questions about the constitution. But don't spell "Bismarck" wrong or you'll get a severe gaze from the pedantic Mr. Stein.

We conservatives can't expect too much from a national constitution museum; liberals are bound to have the better of the argument.  But the exhibit does do a good job of making everyone feel we are part of the United States.  Americans have come from all across the world to participate in this impossible project of getting all the tribes and clans to live together in comity in a continental-sized nation state, and despite the best efforts of politicians and activists to divide us in the long periods between their occasional efforts to unite us, it's amazing that we are still here.

When you walk around the National Constitution Center and look at all the folks that have come to visit, you have to think that there is still a chance that America is the last best hope of mankind on earth.  You are tempted to believe, like America's foremost optimist:

And she's still a beacon, still a magnet for all who must have freedom, for all the pilgrims from all the lost places who are hurtling through the darkness, toward home.

Yes. Ronald Reagan gets his slot at the National Constitution Center.  Right next to Barack Obama. 

Hobby Lobby and the Liberal Project

Just in case you are worried that the Supreme Court's Burwell vs. Hobby Lobby Stores, Inc. decision is the end of the world as we know it, I have good news.  It isn't the end of the world.  The Supreme Court has said that the government can't force a closely-held corporation to offer to its employees health insurance that includes abortifacients.  That's all.

Hey, no problem.  The answer is to pay for abortifacients directly through government grants and spending.  Or, according to Ben Domenech, by making regular birth control pills "over the counter" drugs instead of prescription drugs as at present.

My local GOP guys understand that, storm-in-a-teacup as the Hobby Lobby decision may be, the Dems intend to use it for another Big Push in their War on Women offensive.  So they've sent me an email excoriating the cheap rhetoric of the lefties:

This dishonest and inaccurate rhetoric shows that the Democrats are always playing politics - in no way does the Supreme Court decision deny women access to birth control.  Rather, the Court has ruled that the government cannot force business owners to violate their religious beliefs.

So the political argument will be "access to birth control" vs. "violate... religious beliefs."

I suppose that the bottom line is that when the Dems are in the White House we are going to get liberals legislating liberal morality on the rest of us.  To me as a libertarian conservative it amounts to dressing up the free-stuff politics of the robber gang in the modest garments of fairness and rights.

And when the GOP is in the White House you'll get attempts to legislate the religion of the folks I call the People of the Responsible Self.

Why do politicians keep legislating morality? Because even though government is force, politicians still like to feel they are doing God's work.  Or history's work.

And that gets us back to the bigger issue.  Every ruling class is in the business of tossing out free stuff to its supporters; that's how it stays in business.  And since giving out free stuff usually starts out as robbery, it has to dress up its robbery in the decent drapery of religion.

If conservatives don't like that then we have to develop a civil religion that makes a scandal out of most of the free stuff that government gives out.  For instance we could start by pointing out how the low-interest Keynesian policy at the Fed is basically screwing the American middle class.  We could then say that free education is screwing the poor, because the schools for the poor are lousy.  Then we could go onto health care and point out that the scandal of the VA and Medicaid are not due to nasty bureaucrats but baked into the design of any centralized administrative program.

But people still like that free stuff.  So there will always be liberals and their government programs.

What Went Wrong: Let's Make It Harder to Hike Spending

To fix what went wrong we are going to have to change the culture from freeloading and buying votes to a culture of individual responsibility, as the previous installment argued. (Beginning of series here.)

But what about the medium term?  The answer comes from the problem described by John C. Goodman in his description of the Obamacare auction process:  Writes James V. DeLong:

Health expert John Goodman called Obamacare “a Rube Goldberg nightmare,” written “to appease every single Democratic constituency and every major special interest group.”  The process was like “going around a table asking each group what is the one thing they must have in order to support the legislation — the insurance companies, the drug companies, the hospitals, the labor unions, AMA, AARP, etc., [with] no one making sure that all the separate demands fit together in a sensible way.” 

Sound familiar to you?  It does to me.  James Buchanan and Gordon Tullock worked out the science of this half a century ago in The Calculus of Consent.  Talk about settled science!  In any voting system, they found, the proponents of a measure to spend public funds usually discover that they don't have enough votes for passage.  The reason is quite simple: apart from the proponents the rest of the voting population don't see any benefit for them in the proposal.  So the proponents of the measure have to buy the votes they need for passage from some of the voters that don't see any benefit for themselves.

Right at the end of The Calculus of Consent, after considering every voting system under the sun, Buchanan and Tullock finally present the voting system of unanimous consent, the startling idea that if government is going to do anything it ought to be forced to get the support of everyone that will be affected by the measure. Unanimous consent is great, according to Buchanan and Tullock, because it forces the proponents to pay for the costs that the opponents would be forced to submit to as the price of passing the proposal.  Can you spell J-U-S-T-I-C-E?

So here's the medium-term strategy for conservatives and Republicans.  If Congress wants to pass a measure to increase force – from tax increases to entitlement increases – then it should need a supermajority in both houses to pass legislation.  If Congress wants to reduce force, with tax cuts or deregulation, why then the maximum needed should be a bare majority.  Wait: here's a better idea.  A measure to reduce taxes or government compulsion should only require a simple majority vote of either house of Congress, subject only to the combined veto of the president and a supermajority of the other house.

Hey liberals!  If you are looking for an example of true right-wing extremism to sink your teeth into, you just read it.

We conservative responsible individualists are simple folk.  All we want is to stop the cruel and unjust externalities of free-stuff politics, and the way to do that is by changing the rules of the game to make it more difficult to buy votes and play redistribution.

We know that the world has plenty of genuine victims, and we feel genuine compassion about real suffering.  But if you professional victims want some cool benefit, then you and your patrons ought to have to pay for it.  Remember this: there is nothing in the world stopping sensitive and compassionate people from freely spending their own money to relieve the pain of genuine victims.

There are two ways of making your way in the world.  One way is the way of the predator that takes what he wants by force.  The other way is the human way of barter and exchange, of figuring out how to make some product or service that other people want and exchange it for something you want, with each human figuring out how to serve other people is a node in the buzzing network of the collective mind.

All we conservatives are saying is that if we want to fix what has gone wrong in America, the answer can be found by accentuating the positive of the collective mind, and eliminating the negative of force and its collective mindlessness.

And don't mess with Mr. In Between!

What Went Wrong: Getting to a Solution

For those of us that believe in individual responsibility and the free collective mind, we've got to get out of the freeloader culture and its collective mindlessness.  That's what we argued in the previous part of this series. (Beginning of series here.)

It is the great question that confronts our society in the second decade of the 21st century.  Shall we go further and further on the current path towards a society of complete administrative supervision, what I call collective mindlessness?  Or shall we change course and reduce the weight of government and reanimate our collective mind.

You've got to accentuate the positive. Eliminate the negative. And latch on to the affirmative. Don't mess with Mister In-Between. Rare words, brave world!  But what do we actually do?  The answer is obvious: we eliminate the negative boat anchor of politically mandated freeloading and its collective mindlessness.  We accentuate the positive flourishing of the collective mind.

But how?  How can we deal with the vice that has utterly metastasized itself throughout modern politics, the cancer of votes for free stuff?

In a recent piece for The American James V. DeLong confirms this analysis by describing the current political regime in the United States.  Each party must appeal to the “values and concerns” or “V&C” of a broad swath of voters but must also get money and influence from elites and special interests.

The system gives a big edge to the Democrats, who have no particular principles except for more government and more money to deserving groups. These principles are congruent with the interests of the dependent classes, the bureaucracies that serve them, the public and private elites who operate the system, an academia dependent on federal money, and many corporate looters.

DeLong goes on the show the problem that Republicans and conservatives have dealing with this system.

The Republicans have a harder time with the imperative to appeal to both the broad base of V&C voters and special interests. On taxes, the Republicans have made the link between benefits for targeted groups and pro bono publico, arguing that reductions for the rich and upper middle class prove the party’s dedication to the interests of working people, and it is not surprising that tax-cut rhetoric has a long chapter in the Republican catechism.

For conservatives, the definition of V&C has evolved. Rather than the usual jobs, education, and so on, their V&C concerns go deeper and now include dedication to free markets, light regulation, individual autonomy, respect for conscience, refusal to privilege victimhood, and the rule of law. These do not translate well into visible benefits for individuals, firms, or industries, and thus do not keep the vital dollars flowing into the coffers of the party, the independent groups, and the K Street lobbying firms where old donkeys and elephants go to get rich.

In other words, the Democratic voters and interests are united in getting (voters) and furnishing (interests) more stuff for “deserving groups.”  Republican voters are merely interested in values and concerns around the question of individual responsibility and rights and therefore aren't offering “more stuff” for anyone, not for voters, not for special interests.  Obviously the Republican voters can't get what they want unless their values and concerns become more universal, or unless the administrative state fails to deliver on its free stuff for the dependent classes and the middle-man elites.

You can see what is going on here.  Right now, in the United States divided about 50-50 between the two parties, we have a stalemate between the two parties.  The Democratic voter V&C plus the bureaucracy-elite-academia-crony looters are about equal to a Republican voter V&C that's warring with its own RINO elite.

The solution is obvious.  Republicans and conservatives must reduce the legitimacy of the free-stuff-for-victims V&C and the hall pass that the  bureaucracy-elite-academia-crony looters get from supporting the agenda of free stuff for victims.  Short term, Republicans can win by picking up some independent voters that are just annoyed by the failures of the Democratic ruling class and think it is Time for a Change.  But long term we are talking about religion and faith.  We must reduce the faith that people have in the ruling elite, and the tribal instinct that the village big man, aka the ruling class, can deliver the free stuff people have come to expect not just as a mess of pottage but as a birthright.

Short term, we can bid for the independents; long-term, we must change the culture from freeloading to responsibility.  But what about the medium term? What can we do to limit the damage from the springtime for freeloaders that has resulted from the politics of the authoritarian welfare state?

That's what we'll look at in the next installment of this series.

What Went Wrong: Collective Mind or Collective Mindlessness?

We've been looking at what went wrong, pre and post Obama, at the tactical and strategic political level.  (Beginning of series here.) Now let's look at the decisive point: do we believe in collective mind or collective mindlessness?

The decisive character of humans when compared against the rest of Nature is that we can understand and practice barter and exchange.  We have the instinct to exchange something we value for something we value more.  From this simple idea comes the whole impossibly complex market economy and global exchange system.  Ships are sailing the seas, trains are rumbling over the fruited plan, people are working away, and nobody is in charge.  The whole thing works because people are willing to exchange.  They are willing to exchange a particular good for money, their time for money, and their money for food and shelter and products and services.  There is a name for this amazing phenomenon: the collective mind.

But government is different.  Government is mechanics.  Government is a Newtonian opposition of forces not an exchange of voluntary services.  Government is the seizing of wealth and income as the price of defending people against enemies.  Government says you must pay payroll taxes if you want to work at a job; government says you must not get on an airplane without submitting to government's security theater.  You could say that there is a word for this phenomenon: collectivism, but really it is collective mindlessness, the thuggery of the clunking fist.

You can see now where we have been going wrong, and where the Obama administration has been going wrong in spades.  We have been steadily increasing the amount of government in America and reducing the amount of free cooperative exchange.  We have been increasing the amount of collective mindlessness at the cost of shrinking the collective mind.  And for what?  To make the ruling class feel good about itself.

So we must change, and we must start to change today.  But there is a problem.  Nobody wants to give up a dime of their free stuff.  Grandmothers say things like: “'they' better not cut my Medicare.”  Seniors say: “I paid for my Social Security with my taxes.”  And so politicians dare not touch the sacred “entitlements,” the third rail of American politics.  Probably we cannot reform entitlements short of total government meltdown.  We should not be hard on our fellow citizens for their dog-in-the-manger attitude; our problem is not just a question of selfish freeloaders wanting to keep their free stuff.  The modern welfare state panders to the eternal yearning in every human heart to escape the contingency of human life, to obtain if not eternal life, at least a job for life, or a pension for life, or health-care for life.  But, of course, the person that wants politicians to give him a pension for life is not looking at the fact that he is exchanging his birthright for a mess of pottage.  He does not understand that he is putting his hands within the hands of his liege lord and surrendering his freedom and his dignity as a free person for three squares a day, as the English peasant could do a millennium ago.

The freeloader forgets that when he places his hands within the hands of his liege lord, whether warrior noble or The One who will bring Hope and Change, he is transferring the ownership of risk in his life, for good or ill, from himself to his lord.  And that risk has a price, not just in money but in human freedom and dignity.

Not everyone wants a life of subservience and serfdom.  Some people say: I don't want that deal.  I don't want to live in subordination to a lordly liberal ruling class, and I wouldn't want it even if liberals were really as sensitive and compassionate as they imagine themselves to be.  I want freedom and the responsibility that goes with it.  I want the monkey on my back, not on the government's back.  I want the right to choose how to make my own contribution to society and take the consequences rather than dutifully follow the dictates of my bureaucratic supervisor or my precinct captain who, I've noticed, isn't very sharp at anything except currying favor with his political bosses and playing favorites with his subordinates.

But is there any way that the responsible individuals can influence our politics, or are they doomed, doomed to be overrun by freeloaders and corporate looters?  See the next installment in this series.