Liberty Defined: 50 Essential Issues That Affect Our Freedom (4 page)

He wrote at a time when the world fell in love with the idea of a planned economy and a planned society and lost its attachment to liberty as an ideal. From that point on through today, the Keynesian system has been in charge. But in our own times, the Austrian School has made a massive comeback in many different sectors, including academia, and this is in large part due to the work of private institutions such as the Ludwig von Mises Institute to show that the Austrian paradigm makes more sense of the way the world works than the bundle of fallacies that characterize the Keynesian system.

Ideas are very important to the shaping of society. In fact,
they are far more powerful than bombs or armies or guns. And this is because ideas are capable of spreading without limit. They are behind all the choices we make. They can transform the world in a way that governments and armies cannot. Fighting for liberty with ideas makes much more sense to me than fighting with guns or politics or political power. With ideas, we can make real change that lasts.

The Austrian School believes this too, because it places such a high value on the subjective element of economics and on the individual as the primary economic unit. We are not cogs in a macroeconomic machine; people will always resist being treated as such. Economics should be as humanitarian as ethics or aesthetics or any other field of study.

Mises, Ludwig von. [1949] 1998.
Human Action: The Scholars Edition
. Auburn, AL: Mises Institute.

Paul, Ron. [1982] 2004.
Mises and Austrian Economics: A Personal View
. Auburn, AL: Mises Institute.

Rothbard, Murray. 1995.
An Austrian Perspective on the History of Economic Thought
. Auburn, AL: Mises Institute.

P
eople often say that what this country needs is for people in Washington to stop fighting and just get the job done. To achieve that, we need more “bipartisanship.” I don’t agree. If two parties with two sets of bad ideas cooperate, the result is not good policy but policy that is extremely bad. What we really need are correct economic and political ideas, regardless of the party that pushes them.

For more than 100 years, the dominant views that have influenced our politicians have undermined the principles of personal liberty and private property. The tragedy is these bad policies have had strong bipartisan support. There has been no real opposition to the steady increase in the size and scope of government. Democrats are largely and openly for government expansion, and if we were to judge the Republicans by their actions and not their rhetoric, we would come to pretty much the same conclusion about them. When the ideas of both parties are bad, there is really only one hope: that they will continue fighting and not pass any new legislation. Gridlock can be the friend of liberty.

Some argue that what I say can’t be true because Republicans are fighting with Democrats all the time, and legislation still gets passed. True, but all the fighting, despite the rhetoric, is only over which faction will control the power to pass out the benefits. The scramble to serve various special interests is real. Yet when it comes to any significant differences on foreign policy, economic intervention, the Federal Reserve, a strong executive branch, or welfarism mixed with corporatism, both parties are very much alike.

The major arguments and “hotly contested” presidential races are mostly for public consumption, to convince the people they actually have a choice. Republicans have been great at expanding the welfare state and running up the deficit despite their campaign promises. Democrats remain champions of foreign adventurism despite their effort to portray themselves as the peace party.

We have had way too much bipartisanship that promotes an agenda that has ignored constitutional restraints and free market principles. Many Republicans will argue that they stood strong against Obama’s expansion of government-run medical care. It is true that they did, and that helped perpetuate the belief that the two parties are radically different. But we must remember that when Republicans were in charge just a few years ago, the government still expanded its role in medical care, and in very similar ways. The biggest difference is that the Republicans didn’t advertise it.

So-called moderate politicians who compromise and seek bipartisanship are the most dangerous among the entire crew in Washington. Compromise is too often synonymous with “selling out,” but it sounds a lot better. Honest politicians who
state that their goal is total socialized medicine (or education, etc.) are met with a greater resistance; while people who favor the same thing but sell it as moderate bipartisanism slip by unnoticed. They are the ones who destroy our liberties incrementally, in the name of compromise and civility.

Incrementalism can only be justified if we regain some of our liberties and if the size and scope of government shrinks. The medical care debate of 2010 concluded with the radicals being held in check by the moderates who got them to back off from a single-payer system—i.e., socialized medicine. Yet the result was that we again moved significantly closer to that position. President Obama and the Congress agreed on a tax bill in late 2010 that retained some existing tax laws plus expanded unemployment insurance so that people could continue to stay off the labor rolls—and this was sold as a bipartisan “tax cut”!

Moderates are somehow convinced that they are the saviors of the country, rescuing us all from the effects of philosophical differences. In fact, philosophical differences are healthy because they lead to the clarification of principles. Genuine progress is going to require more confrontation, partisanship, and serious and honest discussion of the truth about government, the economy, and every sector of American life. It also needs politicians who can hold strong to their beliefs and do not compromise their core values. How sad a state we are in when it seems like such a stretch to expect that from a politician! We need to bring back some understanding of the idea of liberty and what it means. Bipartisanship will not help that process along, mainly because there are so few things on which the two parties agree that would be good for the country.

Higgs, Robert. 1989.
Crisis and Leviathan: Critical Episodes in the Growth of American Government
. New York: Oxford University Press.

Rothbard, Murray. 2006.
For a New Liberty
. Auburn, AL: Mises Institute.

I
n the midst of the “great recession” that began in earnest in 2008, there was no end to the talk about stimulus, yet hardly any talk about what causes recessions in the first place. The answer involves looking not at the downturn itself but at the structure of the preceding boom. Here is where the economic balance is tipped and production gets distorted. Rather than look at the recession as the disaster, we are better off looking at it as a period of healing following a false sense of prosperity generated by the boom times.

So what causes these economic booms—periods in which productivity expands in some sectors far beyond what the economic fundamentals seem to justify? Here we can draw on the Austrian theory of the business cycle, which was first sketched by Ludwig von Mises in the early days of central banking. He wrote that the central bank posed a serious danger due to its ability to manipulate the interest rate. Because artificially low rates cause an expansion of the money supply, these invented rates are central to understanding what causes booms. Mises
wrote in 1923: “The first condition of any monetary reform is to halt the printing presses.”
¹

The interest rate is a signal that tells bankers and businesses about the best times to expand production. When interest rates fall below their market rate, a false signal is sent out that there are more saved funds available for lending, so naturally, everyone starts to do more business and expand production. They feel they are getting a good deal. The mere process of simple lending acts to create new forms of money in the economy and thus create an economic boom. This boom is usually worsened by government promising bailouts to banks, loan guarantors, and enterprises, thereby encouraging bad investment and business by removing the fear of failure.

The combination of these factors is precisely what led to the wild housing boom from the 1990s and forward that came crashing down in 2008. There was nothing particularly new in this except that this time it happened to affect housing. In previous times, it had affected the stock market, the dot-com market, the oil market, and other sectors, all the way back to when the Federal Reserve Bank was created in 1913. Of course there were business cycles before that time, but they were not as severe and not as widespread, precisely because banking was not as centrally controlled as it has since become. But even back then, people understood the dangers of credit creation by banks and the false signals that they send to producers.

The problems of the business cycle are then exacerbated by
the attempt to prevent the bust from leveling out as the market would dictate. In other words, when a bust is looming, a frantic scrambling and even more artificial attempts to inflate the economy occur, which only worsens the inevitable correction. This tendency to use macroeconomic measures began under Herbert Hoover in 1930, a pattern that was continued by FDR. Hoover and FDR actually pushed the same agenda of high spending, attempted monetary expansion, controls on business, and efforts to keep wages high. FDR managed to take us farther down the road to serfdom only because he had longer in office.

One might suppose that the incredible failures of those efforts to work as planned would have discredited countercyclical policy forever. One might suppose that the same failures of Japanese policies that led to a twenty-year recession in Japan would also discredit these efforts. But not so: Both the Bush and Obama administrations (just like Hoover and FDR) have attempted to stimulate the economy through artifice and ended up causing enormous damage to the economy and to economic liberty.

We are currently at a crossroads, deciding which political and economic path to take. It all boils down to two choices: either more government or less. The true believers, still in charge, remain fully committed to central economic planning; others argue that enough is enough, the evidence is clear, and it’s freedom we need, not more government interference.

The misguided remain adamant that to solve the problems of huge malinvestment and debt that have been caused by Federal Reserve–orchestrated low interest rates, the government’s obligation is to come up with more creative regulations.
They aim for even lower interest rates by creating trillions of dollars of new money, all while increasing spending and debt. Grade-school math can show you why this won’t work. I am dumbfounded to hear serious, highly educated political leaders enthusiastically endorse such a program with straight faces.

Over the decades, Keynesianism has generated a false confidence—a moral hazard of immense proportion, as former Fed chairman Paul Volcker has admitted. The Federal Reserve, the regulatory agencies, and Congress have systematically taught the American people to trust the government to be there when trouble strikes and that caution in investing, spending, and debt is harmful to the economy.

All the mistakes of the past decades are now clearly revealing themselves. And yet, since Washington has not changed its ways in the slightest, the needed corrections will be long in coming. If blame is to be placed for the mess we’re in, don’t just pick on George Bush and Barack Obama. Blame Lord Keynes and all his followers who rejected the Austrian theory of the business cycle. It is bad theory that is the root of the problem, the belief that the central banks can turn stones into bread.