On the credibility of Austrian economics

[oddlots]

"Another Monday, another “deficit crisis” panic. If you haven’t got the feeling yet that you’re being played like a sucker over this alleged “deficit crisis,” then let me help you cross that cognitive bridge to dissonance. It comes in the figure of the recently-deceased William Niskanen, the embodiment of how Reaganomics and the Koch brothers’ libertarian movement were joined at the hip. Niskanen was an advisor to Ronald Reagan throughout the 1970s; a board director for the Koch-founded Reason Foundation; a member and chairman of Reagan’s Council on Economic Advisers from 1981-85; and he moved directly from Reagan’s side back to the Koch brothers’ side, as chairman of the libertarian Cato Institute from 1985 until 2008.

This is a brief story about how the 1% transformed this country into a failing oligarchy, and their useful tools, starting with A-list libertarian economist William Niskanen, Chicago School disciple of Milton Friedman, advocate of the rancid “public choice theory.”

Rest here:

http://www.nakedcapitalism.com/2011/...t-matter”.html

[don]

Re: On the credibility of Austrian economics

from the above piece . . .

[Starving Steve]

Re: On the credibility of Austrian economics

It was Ronald Reagan and ARTHUR LAFFER who told the public that deficits wouldn't matter, because deficits would allow the economy to grow, and a larger (and growing economy) would shrink the importance of those deficits in a relative sense. It was the relative size of deficits to the economy that mattered, not the nominal size of deficits. This economic insanity was known as supply-side economics, and its thesis was intoxicating; it took the country and the nation's universities by storm.

Ronald Reagan kept telling the public that we need "to turn the economic might of America loose by getting government off of our backs." So he proposed tax cuts to allow the economy to grow, whatever the nominal deficits might turn-out to be from those cuts.... And at first, it seemed to work. The economy did grow out of the 1979-1982 recession.

But the day of reckoning did come, and we are in that reckoning now. There is a natural limit to how big deficits can grow, and as the world's economies shrink, the nominal deficits of the U.S. and other nations GROW in relative importance. The reckoning is that supply-side economics works in reverse too: deficits can drown an economy.

If we are to blame anyone for this Great Recession, it is Ronald Reagan and Arthur Laffer. In the UK, it is Margaret Thatcher, who worshipped at the alter of supply-side economics ( Reaganomics ). Milton Friedman fanned the flames, and George Bush II exploded the spending to destroy any surplus in tax revenue to govn't spending he could find. Alan Greenspan at the Federal Reserve Bank in Washington blessed this, and forced interest rates to decline in order to further economic growth.... It was always economic growth that mattered.

And now we have Bernanke at the Fed with interest rates at 0.00%, and the American economy (and world economies) are not growing. The day of reckoning has begun.

[gwynedd1]

Re: On the credibility of Austrian economics

It was Ronald Reagan and ARTHUR LAFFER who told the public that deficits wouldn't matter, because deficits would allow the economy to grow, and a larger (and growing economy) would shrink the importance of those deficits in a relative sense. It was the relative size of deficits to the economy that mattered, not the nominal size of deficits. This economic insanity was known as supply-side economics, and its thesis was intoxicating; it took the country and the nation's universities by storm.

Ronald Reagan kept telling the public that we need "to turn the economic might of America loose by getting government off of our backs." So he proposed tax cuts to allow the economy to grow, whatever the nominal deficits might turn-out to be from those cuts.... And at first, it seemed to work. The economy did grow out of the 1979-1982 recession.

But the day of reckoning did come, and we are in that reckoning now. There is a natural limit to how big deficits can grow, and as the world's economies shrink, the nominal deficits of the U.S. and other nations GROW in relative importance. The reckoning is that supply-side economics works in reverse too: deficits can drown an economy.

If we are to blame anyone for this Great Recession, it is Ronald Reagan and Arthur Laffer. In the UK, it is Margaret Thatcher, who worshipped at the alter of supply-side economics ( Reaganomics ). Milton Friedman fanned the flames, and George Bush II exploded the spending to destroy any surplus in tax revenue to govn't spending he could find. Alan Greenspan at the Federal Reserve Bank in Washington blessed this, and forced interest rates to decline in order to further economic growth.... It was always economic growth that mattered.

And now we have Bernanke at the Fed with interest rates at 0.00%, and the American economy (and world economies) are not growing. The day of reckoning has begun.

It exposes the sham economics of monitorism in our monetary system . Money is just money to them. Is it central bank created from deficits?

Deficit spending on wars?
Deficit spending on infrastructure?

No difference to them.

Is it commercial credit? Once again, what is being monetized, rent seeking asset bubbles or expanding the industrial base?

We have war deficits and a housing asset bubble. We broke stuff on the public dime, and increased access charges with commercial credit; we had just the right amount of money to do it.

All the same to them.

Now we want "good monetarist policy" to control inflation. How about creating money to expand the industrial base and run public deficits to create the infrastructure to support it? You won't get inflation Mr monetarist.

[DSpencer]

Re: On the credibility of Austrian economics

I find both the title of this thread and the content of the article mentioned to be questionable at best.

I don't see how bashing Ronald Reagan on the large deficits run during his administration has any real impact "on the credibility of Austrian economics".

The issue with Hayek that the author links from one of his other articles is not quite the unimaginable hypocrisy and "grand swindle" the author makes it out to be. Basically, it's discovered that Charles Koch wrote a letter to Hayek explaining that since he paid into SS for 10 years, he is eligible for benefits if he returns to the US. The authors had not even been able to verify that Hayek ever received SS payments or used Medicare at the time of publishing the article and haven't updated it since either.

Even assuming he did, I find it comical to make this out to be the scandal the author believes it to be. So if someone is philosophically opposed to something the government does with tax money, they should be forced to pay the tax but never receive the benefit? Or should they end up in jail for refusing to pay the taxes in the first place?

But what should I expect from an author that refers to Hayek and his associates as "he and his little circle of free-market Nazis".

What a complete joke.

[gwynedd1]

Re: On the credibility of Austrian economics

I agree, its not Austrian econ. This is especially true since Austrian free markets mean a revamped and market based monetary system. Its more of a monetarist theory thinking the Fed is the key player. The only thing about Austrian economics I don't like are its gold standard and legal tender variants(which violates the principle). A legal tender establishing a "hard money" isn't the free market. Free banking is when I perk up and take interest.

[ProdigyofZen]

Re: On the credibility of Austrian economics

What is this? Sorry but Reagan Economics is NOT Austrian economics.

When will people learn?

There are 4 schools that are thrown around, 1 being Keynesian, 2 being Austrian, 3 being Chicago School, 4 being MMT or Modern Monetary Theory.

Most economists belong to the Keynesian or Chicago school. Chicago school is Milton Friedman and while his influence is Hayek the school is not the same as Austrian.

Now I trust everyone will go read each school.

I am not sure what school nakedcapitalism is coming from but I do know that PragCap and the guy who runs it Cullen Roche are MMT guys. MMT guys are the ones who say deficits dont matter and that the Fed does not print money.

Paul Krugman is from the Keynesian school.

So which one of these guys represents Austrian? Not one of them.

But I do know someone who has his economic roots in Austrian economics and has built on those theories and he is the writer of this website.

Why are you guys here if you are here to bash Austrian economics when EJ has his roots in Austrian economics? Now EJ has built on his roots and framed modern economics around the Austrian school or at least that is what I gleam from his writings. He takes many schools of economic thought into his analysis but his roots are Austrian I presume.

Please take your liberal left-wing analysis and prism of view out of the articles you present.

[ProdigyofZen]

Re: On the credibility of Austrian economics

It doesnt seem like you have a clue about what is going on.

Those were not Libertarians, everyone in government on both the right and the left advocate government expansion and deficit spending. That is what the Fed Reserve is all about. It was created, then taxes were created to legitamize the currency and power of the Fed. Then gold was systematically taken away from the system so that BOTH parties could deficit spend into oblivion on the back of the Fed Reserve to in RICH everyone politically connected to big business and big government.


Havent you been reading what EJ writes? Or has your prism of left-wing liberalism so blinded you that you, like most liberals, cannot take your own side in an argument?

Hayek even wrote a paper called "why i am not a conservative" You would do well to read what Hayek wrote as well as the father of modern Austrian economics Carl Menger.

Hayek was a classical liberal who on many fundamental issues is diametrically opposed to both conservatives and modern liberals on most subjects.

If you are agaisnt gold then you are agaisnt liberty and the common man that you supposedly represent as a "left wing liberal". Read Alan Greenspan's paper Gold and Economic Freedom before he became a corrupt Fed Chairman.
http://www.constitution.org/mon/greenspan_gold.htm

The funny thing is these people are tricking you into thinking that Austrian economics and Libertarianism is what has caused all these problems. Just because someone says they are a libertarian who is in office or an advisor to the president doesnt mean it is true. Just look at their record and policies!!!!

Both parties deficit spent into oblivion and both parties are Keynesians and don't let anyone tell you differently. That goes for the Fed as well, the Fed is the physical incarnation of radical Keynesian economics.

[Starving Steve]

Re: On the credibility of Austrian economics

I posted above in reply to Reaganomics and Arthur Laffer's supply-side economics. I think it is very important to understand how we ( the world ) got into this mess. My hope is that people might reflect upon the question: How did we get into this Great Recession, and how do we dig-out?

I think it is very important to understand the architects of this mess: ARTHUR LAFFER and his deficits don't matter because they are relative to the size of an economy; RONALD REAGAN and his, "We need to get government off of our backs." Milton Friedman and his "When we get govn't out of markets, people will be free to choose, and markets will function properly for everyone." George Bush II and his arrogance and confidence that he and his Republicans knew best. We can still see this arrogance in the personage of Newt Grinwitch (sp?); it's the arrogance and confidence that stands out. Newt was part of the Bush II administration, literally the economic policy spokesman for Bush II. Another big player ( big architect of this mess ) was Margaret Thatcher who would sing together ( literally sing in public gatherings ) with Ronald Reagan. She was his clone in the United Kingdom. And finally, we have Alan Greenspan who came into the Federal Reserve Bank as Reagan's appointment to replace Paul Volcker. Greenspan talked a pro-gold hard money line, but his actions at the Fed were pro-growth, pro-cheap money, pro-spending, pro-deficit, and pro-Fed intervention to remedy and micro-manage even the slightest hint of a possible down-turn in the economy. Probably, Greenspan acted at the Fed under direction of Ronald Reagan, Bush II, Newt G, and Arthur Laffer....... And slowly, step-by-step, covertly, interest rates were driven downward. Finally, we have Ben Bernanke, Greenspan's clone, who took interest rates right down to 0.00% and is keeping them there for "an extended period of time".

As I say, to understand the bust, it is important--- critically important--- to understand the boom: Who were the players in government and what did they do to let the boom get so bloated (inflated), then burst and land us into this economic mess?

If you insist upon determining who was an Austrian School economist, the closest one would be Paul Volcker at the Fed who pushed interest rates to 20% or more in order to strangle inflation and everyone speculating against the dollar. Under Volcker, gold cratered, as did other inflation hedges. But the critical point: the establishment in America ( the banks, insurance companies, big real estate, finance companies, Wall Street, and Congress) got rid of Paul Volcker at the Fed, and quite fast. He lasted about two or three years, and he was toast. President Carter put in Volcker at the Fed, and Ronald Reagan removed him. Reagan and Greenspan talked hard money and pro-gold, but they replaced Paul Volcker at the Fed. ( Historical facts of that era tell the story better than I can. )

[ProdigyofZen]

Re: On the credibility of Austrian economics

Clearly false. You are trying to paint a picture that only Republicans are at fault for this mess. Yet you miss all the problems created by Democrats in office. You miss all the problems created by a democratically controlled Congress from the Great Depression all the way to 1994.

You have an agenda and it is clearly apparent in your writing. The Deficits dont matter meme was parroted on both sides, dont you read Paul Krugman? He was railing agaisnt deficits under Bush but now under Obama the only thing he wants is more and more deficit and more and more spending! Larger QEs etc.

This is how I view you. You will argue until the day you die that everything that has happened is due to republicans in office and their policies. You will also defend democrats until the day you die even if they do the exact same things as the republicans.

You seem to be in the same vain as Krugman and most politicians. You are playing to the crowd and nothign more. Stop trying to frame the debate around "only republicans did this" to win the argument.

Your bias is seething.

[Starving Steve]

Re: On the credibility of Austrian economics

No-one hates the EPA and the Energy Department in Washington more than I do. I blame the Demos, even the Demos now, for still supporting the EPA and the Energy Department.... If I were in govn't, these two agencies of govn't would be abolished, immediately.... So, I try to be fair. I call things the way I see them and try not to be blind.

What stands out about the Republicans is their arrogance and confidence that they are right. Just look at Newt Grinwitch (sp?) or Bill O'Reilly at FOX News as examples of such. George Bush II was/is another example. Ronald Reagan was another example.

Yes, both parties stink in America. No argument from me there. But I blame the Republicans, especially the religious-right and the gun-toting right in the South for putting Reagan, Bush II, Newt, Greenspan, and Bernanke into power. And the Republicans refuse to let anything in Washington change. NOT ANYTHING! They want the system to continue in total grid-lock, maybe so that incumbents can continue to steal from the country in back-room deals in Washington forever. It's a disgrace, and it is very obvious to the entire world what is happening in Washington.... And then, the Republicans have the balls to tell the public, especially school kids, that the Constitution works and is a masterpiece for governance, a legacy from the 18th Century that they should be proud of.... I mean, this crap is spoon-fed to kids daily in American public schools.

So the bottom-line is the Constitution creates immediate gridlock in the federal govn't, and the gridlock allows for two-year terms of corruption and theft in the House and six-year terms of such in the Senate. Sad to say that the American people, more often than not, are completely divorced ( isolated ) from the corrupt happenings in Washington, and the American people have given-up on the Congress and the entire system of governance in Washington.

[jiimbergin]

Re: On the credibility of Austrian economics

Clearly false. You are trying to paint a picture that only Republicans are at fault for this mess. Yet you miss all the problems created by Democrats in office. You miss all the problems created by a democratically controlled Congress from the Great Depression all the way to 1994.

You have an agenda and it is clearly apparent in your writing. The Deficits dont matter meme was parroted on both sides, dont you read Paul Krugman? He was railing agaisnt deficits under Bush but now under Obama the only thing he wants is more and more deficit and more and more spending! Larger QEs etc.

This is how I view you. You will argue until the day you die that everything that has happened is due to republicans in office and their policies. You will also defend democrats until the day you die even if they do the exact same things as the republicans.

You seem to be in the same vain as Krugman and most politicians. You are playing to the crowd and nothign more. Stop trying to frame the debate around "only republicans did this" to win the argument.

Your bias is seething.

actually Steve does not seem to like anything except nuclear energy. He especially dislikes, Christians and Southerners and environmentalists.

[oddlots]

Re: On the credibility of Austrian economics

Sloppy post done late at night after having read too much frustrating and enraging stuff. My bad.

As I've said before it was originally Austrian influenced readings that brought me to itulip. To my mind they were useful in the diagnosis phase, specifically regarding credit / debt bubbles. But apart from saying what not to do I've never found they have much useful to say once their original warnings are ignored.

As far as I can recollect EJ has said that Austrian economics has value, but mostly as a stage you pass through.... I wouldn't describe his economics as Austrian particularly.

[Starving Steve]

Re: On the credibility of Austrian economics

actually Steve does not seem to like anything except nuclear energy. He especially dislikes, Christians and Southerners and environmentalists.

The boo-ing of the First Lady of America for her presence at the NASCAR races in Florida, just yesterday or Sunday, turns my stomach. Every American should be ashamed.

[jiimbergin]

Re: On the credibility of Austrian economics

The boo-ing of the First Lady of America for her presence at the NASCAR races in Florida, just yesterday or Sunday, turns my stomach. Every American should be ashamed.

i agree