Wednesday, September 24, 2008
"Free Market" Bush and Paulson Discredit Free Market
The leftists have not missed the irony in the latest power grabs by Paulson & Friends. This is why it's so annoying when mainstream Republicans run on a "small government" message and then do the opposite in office. From the article:
I have been resisting the easy urge to label George Bush as "the worst president in US history," as some of my exasperated colleagues have done. Partly I resisted because I knew that FDR expanded government more than Bush.
However, at least FDR had the decency not to label himself as a believer in laissez-faire.*
* I know that during his campaign against Hoover, FDR criticized Hoover's reckless deficit spending, while Hoover talked about his unprecedented interventions against the advice of the crusty economists. But I'm assuming FDR wasn't the economic "conservative" in his campaigns the way Bush allegedly was.
Of course, the ironies and the potential pitfalls of this administration enacting a socialist takeover can hardly be overstated. This is the political party that for decades has insisted on deregulation and free markets, has scolded Hugo Chavez for nationalizing the oil industry, and even now is attempting to tar and feather Barack Obama with the label of socialist. But if this bill is enacted at its advertised $700 billion price tag—and many people believe the price will ultimately prove higher—it means that the Bush administration has undertaken the single largest socialist investment in the history of mankind. The Bolshevik revolution of 1917 couldn't dream of an economy worth $700 billion; the figure dwarfs anything ever attempted by Fidel Castro or the Sandinistas.
Focusing on ironies and hypocrisy is fun, but Paulson's socialist prescription actually provides a rare opportunity to advance the state of American political and economic debate. During the Cold War, socialism became an especially unsavory idea because it was linked to the countries that pointed missiles at us. This was less the case in Europe, where democratic socialism grew to become the norm, with sometimes rocky but mostly successful results (you don't see the Spanish having to take over their banking sector, at least not yet). Paulson's relatively untainted socialism offers America a genuine Nixon-goes-to-China moment, a chance to have a more honest, less demonizing conversation about where, when, and how government intervention in the economy is effective and desirable.
I have been resisting the easy urge to label George Bush as "the worst president in US history," as some of my exasperated colleagues have done. Partly I resisted because I knew that FDR expanded government more than Bush.
However, at least FDR had the decency not to label himself as a believer in laissez-faire.*
* I know that during his campaign against Hoover, FDR criticized Hoover's reckless deficit spending, while Hoover talked about his unprecedented interventions against the advice of the crusty economists. But I'm assuming FDR wasn't the economic "conservative" in his campaigns the way Bush allegedly was.
Comments:
About this bailout. It seems to me that mainstream economists generally favour it, or something like it, whereas the Austrians do not.
Now obviously the whole economy will be riding on this plan, but something could be riding on this plan too. Perhaps not as important as the economy, but still important: Austrian Economics.
What if the plan actually succeeds? Would that be a major blow for the Austrians and their theories?
Now obviously the whole economy will be riding on this plan, but something could be riding on this plan too. Perhaps not as important as the economy, but still important: Austrian Economics.
What if the plan actually succeeds? Would that be a major blow for the Austrians and their theories?
# posted by 
: September 24, 2008 at 9:48 AM
: September 24, 2008 at 9:48 AM
Hey Bob, I agree with your masthead. Jesus was a day trader. Call me. We'll have a Bible study...and a few stiff drinks.
# posted by : September 24, 2008 at 11:32 AM
: September 24, 2008 at 11:32 AM 
Anon,
I think the housing bust and credit crunch have dealt serious blows to non-Austrian economics...
Like Nate says, we would need to spell out the criteria for success. E.g., if they pass the plan and then the world doesn't blow up, I'm sure its proponents will say, "See? We avoided meltdown, the plan worked."
But that of course assumes there would have been a meltdown in the absence of the plan, something we'll never know if it passes.
I think the housing bust and credit crunch have dealt serious blows to non-Austrian economics...
Like Nate says, we would need to spell out the criteria for success. E.g., if they pass the plan and then the world doesn't blow up, I'm sure its proponents will say, "See? We avoided meltdown, the plan worked."
But that of course assumes there would have been a meltdown in the absence of the plan, something we'll never know if it passes.
Austrian theory (as I understand it) argues that all govt interventions either make things worse or, at best, don't make things better. If so, then this plan will either fail, or not make things better.
I've no idea what to define as "success" though I do believe that the burden of doing so rests with the proponents of the plan.
With the huge amount of taxpayers' money involved, and the glib assertion that doing nothing rather than doing something would be worse, there is a moral obligation on their part to spell out clearly what the plan would achieve.
If they did that (and there is no guaratee they will) I think this could resemble a useful "experimental test."
Once the plan is finalised and approved (as surely it will be, another Austrian prediction??) then will you study the plan and publish your forecasts on its economic impact?
I've no idea what to define as "success" though I do believe that the burden of doing so rests with the proponents of the plan.
With the huge amount of taxpayers' money involved, and the glib assertion that doing nothing rather than doing something would be worse, there is a moral obligation on their part to spell out clearly what the plan would achieve.
If they did that (and there is no guaratee they will) I think this could resemble a useful "experimental test."
Once the plan is finalised and approved (as surely it will be, another Austrian prediction??) then will you study the plan and publish your forecasts on its economic impact?
# posted by : September 24, 2008 at 5:07 PM
: September 24, 2008 at 5:07 PM
@Anonymous:
Austrian economics != libertarian political philosophy
Austrian economics != libertarian political philosophy
# posted by : September 25, 2008 at 9:58 AM
: September 25, 2008 at 9:58 AM
I never knew that Austrian economics claimed to be able to predict human action. There are no "experimental tests" of Austrian economics. Perhaps you should spend a day measuring right triangles to make sure the Pythagorean theorem still holds.
# posted by : September 25, 2008 at 11:44 AM
: September 25, 2008 at 11:44 AM
If it is true that Austrians don't make predictions about human nature, then presumably they would neither approve or disapprove of the $700bn bailout because they don't know what impact it will have.
Yet I see that many Austrians disapprove of it, that must be because they think it will result in bad outcomes. I'm simply asking: what are those bad outcomes?
Further, if the plan is approved and those bad outcomes don't happen, won't that demonstrate that the Austrians were wrong?
Yet I see that many Austrians disapprove of it, that must be because they think it will result in bad outcomes. I'm simply asking: what are those bad outcomes?
Further, if the plan is approved and those bad outcomes don't happen, won't that demonstrate that the Austrians were wrong?
# posted by : September 25, 2008 at 5:02 PM
: September 25, 2008 at 5:02 PM
Anon from Oz:
The textbook answer is that Austrian economics does not make empirical predictions, but rather counterfactual ones. E.g. I can say with certainty (according to a Misesian) that this bailout will make people poorer than they otherwise would have been.
But there is no way to test that claim. Even if GDP grows like gangbusters, the Misesian could say that growth would have been even higher in a freer market. (After all, government and the economy grew during the 20th century, so a naive test would say big government spurs growth.)
But anyway I am working on some falsifiable predictions due to the bailout etc. (I don't know when I'll have the time to actually write them up and post them; it depends how formal I want to make it.)
Yet even here, it would just show that one Austrian was misled by his tools into making bad predictions. It wouldn't refute Austrian economics per se.
The textbook answer is that Austrian economics does not make empirical predictions, but rather counterfactual ones. E.g. I can say with certainty (according to a Misesian) that this bailout will make people poorer than they otherwise would have been.
But there is no way to test that claim. Even if GDP grows like gangbusters, the Misesian could say that growth would have been even higher in a freer market. (After all, government and the economy grew during the 20th century, so a naive test would say big government spurs growth.)
But anyway I am working on some falsifiable predictions due to the bailout etc. (I don't know when I'll have the time to actually write them up and post them; it depends how formal I want to make it.)
Yet even here, it would just show that one Austrian was misled by his tools into making bad predictions. It wouldn't refute Austrian economics per se.
I've only recently begun reading Austrian economics articles (mises.org & Lew Rockwell, etc.) and find them intuitively compelling.
But at the same time, I find it odd that Austrians are reluctant to make specific forecasts. As a sceptic, I believe the best way to filter through the myriad of claims that bombards us is to put them to a test, and that means examining their predictive power.
So I don't really understand why Austrians shun empiricism.
Anyway, I look forward to reading your falsifiable forecasts.
But at the same time, I find it odd that Austrians are reluctant to make specific forecasts. As a sceptic, I believe the best way to filter through the myriad of claims that bombards us is to put them to a test, and that means examining their predictive power.
So I don't really understand why Austrians shun empiricism.
Anyway, I look forward to reading your falsifiable forecasts.
# posted by : September 26, 2008 at 2:13 AM
: September 26, 2008 at 2:13 AM
But at the same time, I find it odd that Austrians are reluctant to make specific forecasts. As a sceptic, I believe the best way to filter through the myriad of claims that bombards us is to put them to a test, and that means examining their predictive power.
So I don't really understand why Austrians shun empiricism.
This is admittedly a tricky area. But it's not that the Austrians are afraid to stick their necks out, but rather that they think economics is a logical, deductive enterprise, analogous to geometry rather than physics.
You wouldn't get exasperated with a mathematician who didn't make falsifiable predictions about arithmetic.
At the same time, Austrians do think that they can anticipate the effects of certain government actions better than other people, because the Austrians have their deductive toolbox at their disposal. (Just as knowledge of mathematics helps you make predictions.)
Here (1 and 2) are two articles I wrote on this a priori stuff; it might help.
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So I don't really understand why Austrians shun empiricism.
This is admittedly a tricky area. But it's not that the Austrians are afraid to stick their necks out, but rather that they think economics is a logical, deductive enterprise, analogous to geometry rather than physics.
You wouldn't get exasperated with a mathematician who didn't make falsifiable predictions about arithmetic.
At the same time, Austrians do think that they can anticipate the effects of certain government actions better than other people, because the Austrians have their deductive toolbox at their disposal. (Just as knowledge of mathematics helps you make predictions.)
Here (1 and 2) are two articles I wrote on this a priori stuff; it might help.
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