Mr Neutron
Well-Known Member
EDWARD FURST, Liberty Ink Journal
Why is economics referred to as the dismal science? Why are economists ridiculed for their ineptitude? It must be their apparent inability to forecast trends, or perhaps the total lack of rational policy they put forward. After all, it was mainstream economic experts (on both the Left and the Right) who designed policies which led us to the precipice of total economic collapse. Worse yet, their proposals to remedy the problems seem only to enflame the fundamental faults with our economy.
But it wouldnt be fair to label all economists as hacks given the ideological diversity they bring from myriad schools of economic thought. Within the realm of economics there is Monetarism (Chicago School Reaganomics/supply-side economics), Keynesianism, New Keynesianism, Neo-Keynesianism, Post-Keynesianism, State Socialism, Pure Marxism, and dozens more. All of these, however, have one thing in common: the belief in central economic planning by government apparatus.
The Austrian School of Economics is different. The Austrian School of economics (so called because its progenitors hailed from Austria) teaches that central planning is always destructive to wealth and that truly free markets are necessary for the efficient allocation of resources. The primary difference between the Austrian School and all others is the unique individualist approach to understanding the economy. Whereas mainstream economists attempt to understand the economy through mathematics, hypothetical models and empiricism, the Austrians approach economics with logic and truisms stemming from the concept of praxeology (i.e., the study of human action).
In essence, mainstream economic schools attempt to use methods conducive only to natural sciences to study economics, which is a social science. The Austrian School, on the other hand, recognizes that human society cannot be understood through formulas and equations. Civilization makes a poor Petri dish for controlled experiments and trying to understand a four-dimensional economy with a two-dimensional graph is a futile pursuit. The economy is an infinitely complex freeplay of uniquely acting individuals. As such, it cannot be comprehensively understood nor purposely manipulated by any one person or group of people, no matter how brilliant.
The late, great Murray N. Rothbard used a ham sandwich to exemplify this point. He explained the complex structure of production necessary for a consumer to attain that ham sandwich. The central planner might shrug this off as a simple matter of pigs and slaughterhouses, but the process involves so much more. The right amount of grain has to be supplied to the hog rancher so the livestock can be fed. Enough trucks need to be available for transport with the proper ratio of truck drivers to drive them. There are treatment chemicals, food warehouses and advertising agencies to coordinate buyers with sellers. Each step is necessary for our consumer to have his sandwich.
It seems impossibly complex, yet the entire process happens automatically in the market, with money prices as the common denominator. It is neither necessary nor possible for any one actor in this chain to understand the process as a whole for it to function. More importantly, no central planner could possibly match the organic efficiency of an unhampered capitalist market. F.A. Hayek put it most eloquently in his famous quote, The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
So why does any of this matter? It matters because the people in charge of our future, whether those in government or those intimate with government, imagine they can design more than ever before. In 2001, they imagined they could stimulate America out of the dot-com bust and subsequent recession. The actions the government took eventually inflated the housing bubble. Budget deficits went through the roof. The Federal Reserve brought interest rates down to artificial lows while banks were encouraged to make irresponsible loans. Government-sponsored enterprises (Fanny/Freddy) were given shots in the arm and people were encouraged to spend money that they did not have.
When the inevitable bust ensued, rather than allowing the economy to restructure through a necessary liquidation of mal-investments, the Government repeated the same mistakes that created the recession in the first place. Bad assets were propped up. Government debt broke all records and personal debt (at government behest) became completely unsustainable. Once again rates were lowered at the Fed. Put simply, the government created a new and even bigger bubble. The scheme is analogous to a rehabilitation doctor treating junkies by simply keeping them high to avoid the painful withdrawals. When it becomes apparent that this country is in its Greatest Depression, let us remember that its not in spite of the stimulus but because of it.
Perhaps the most convincing case for the Austrian School of Economics is the great volume of accurate forecasts and predictions coming from its economists. Although Austrian theory professes the irrelevance of predictive accuracy, Austrian Economists have historically out forecasted the economists of any other school. During the 20s, Ludwig von Mises accurately predicted the 1929 Crash while John Maynard Keynes lost his fortune in it. Investors and economists of the Austrian School including (but certainly not limited to) Jim Rogers, Mark Thornton and especially Peter Schiff predicted the 2008 crisis years before it happened. This is what U.S. Congressman and Austrian Economist Dr. Ron Paul said in September 2003:
The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.
Could the uncanny accuracy of such a quote have been luck? People the world over, from statesmen and academics to professionals and investors, think not. The once-heterodox field of Austrian Economics is quickly coming into prominence. This July, students from around the globe attended the Ludwig von Mises Institute (the worlds leading educational institution for Austrian Economics) to study under the worlds greatest economists. This is only the beginning. Minds are opening as reason invigorates the American Lexicon. On an otherwise grim frontier, Austrian Economics offers reprieve for this battle to be won. Until then, Laissez-Faire!
Edward Furst is a student, an active member of Young Americans for Liberty and recently worked on Peter Schiffs senate campaign in Connecticut. This summer, Edward attended Mises University in Auburn, Alabama, at the Ludwig von Mises Institute where he studied Economics and Praxeology.
Why is economics referred to as the dismal science? Why are economists ridiculed for their ineptitude? It must be their apparent inability to forecast trends, or perhaps the total lack of rational policy they put forward. After all, it was mainstream economic experts (on both the Left and the Right) who designed policies which led us to the precipice of total economic collapse. Worse yet, their proposals to remedy the problems seem only to enflame the fundamental faults with our economy.
But it wouldnt be fair to label all economists as hacks given the ideological diversity they bring from myriad schools of economic thought. Within the realm of economics there is Monetarism (Chicago School Reaganomics/supply-side economics), Keynesianism, New Keynesianism, Neo-Keynesianism, Post-Keynesianism, State Socialism, Pure Marxism, and dozens more. All of these, however, have one thing in common: the belief in central economic planning by government apparatus.
The Austrian School of Economics is different. The Austrian School of economics (so called because its progenitors hailed from Austria) teaches that central planning is always destructive to wealth and that truly free markets are necessary for the efficient allocation of resources. The primary difference between the Austrian School and all others is the unique individualist approach to understanding the economy. Whereas mainstream economists attempt to understand the economy through mathematics, hypothetical models and empiricism, the Austrians approach economics with logic and truisms stemming from the concept of praxeology (i.e., the study of human action).
In essence, mainstream economic schools attempt to use methods conducive only to natural sciences to study economics, which is a social science. The Austrian School, on the other hand, recognizes that human society cannot be understood through formulas and equations. Civilization makes a poor Petri dish for controlled experiments and trying to understand a four-dimensional economy with a two-dimensional graph is a futile pursuit. The economy is an infinitely complex freeplay of uniquely acting individuals. As such, it cannot be comprehensively understood nor purposely manipulated by any one person or group of people, no matter how brilliant.
The late, great Murray N. Rothbard used a ham sandwich to exemplify this point. He explained the complex structure of production necessary for a consumer to attain that ham sandwich. The central planner might shrug this off as a simple matter of pigs and slaughterhouses, but the process involves so much more. The right amount of grain has to be supplied to the hog rancher so the livestock can be fed. Enough trucks need to be available for transport with the proper ratio of truck drivers to drive them. There are treatment chemicals, food warehouses and advertising agencies to coordinate buyers with sellers. Each step is necessary for our consumer to have his sandwich.
It seems impossibly complex, yet the entire process happens automatically in the market, with money prices as the common denominator. It is neither necessary nor possible for any one actor in this chain to understand the process as a whole for it to function. More importantly, no central planner could possibly match the organic efficiency of an unhampered capitalist market. F.A. Hayek put it most eloquently in his famous quote, The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
So why does any of this matter? It matters because the people in charge of our future, whether those in government or those intimate with government, imagine they can design more than ever before. In 2001, they imagined they could stimulate America out of the dot-com bust and subsequent recession. The actions the government took eventually inflated the housing bubble. Budget deficits went through the roof. The Federal Reserve brought interest rates down to artificial lows while banks were encouraged to make irresponsible loans. Government-sponsored enterprises (Fanny/Freddy) were given shots in the arm and people were encouraged to spend money that they did not have.
When the inevitable bust ensued, rather than allowing the economy to restructure through a necessary liquidation of mal-investments, the Government repeated the same mistakes that created the recession in the first place. Bad assets were propped up. Government debt broke all records and personal debt (at government behest) became completely unsustainable. Once again rates were lowered at the Fed. Put simply, the government created a new and even bigger bubble. The scheme is analogous to a rehabilitation doctor treating junkies by simply keeping them high to avoid the painful withdrawals. When it becomes apparent that this country is in its Greatest Depression, let us remember that its not in spite of the stimulus but because of it.
Perhaps the most convincing case for the Austrian School of Economics is the great volume of accurate forecasts and predictions coming from its economists. Although Austrian theory professes the irrelevance of predictive accuracy, Austrian Economists have historically out forecasted the economists of any other school. During the 20s, Ludwig von Mises accurately predicted the 1929 Crash while John Maynard Keynes lost his fortune in it. Investors and economists of the Austrian School including (but certainly not limited to) Jim Rogers, Mark Thornton and especially Peter Schiff predicted the 2008 crisis years before it happened. This is what U.S. Congressman and Austrian Economist Dr. Ron Paul said in September 2003:
The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.
Could the uncanny accuracy of such a quote have been luck? People the world over, from statesmen and academics to professionals and investors, think not. The once-heterodox field of Austrian Economics is quickly coming into prominence. This July, students from around the globe attended the Ludwig von Mises Institute (the worlds leading educational institution for Austrian Economics) to study under the worlds greatest economists. This is only the beginning. Minds are opening as reason invigorates the American Lexicon. On an otherwise grim frontier, Austrian Economics offers reprieve for this battle to be won. Until then, Laissez-Faire!
Edward Furst is a student, an active member of Young Americans for Liberty and recently worked on Peter Schiffs senate campaign in Connecticut. This summer, Edward attended Mises University in Auburn, Alabama, at the Ludwig von Mises Institute where he studied Economics and Praxeology.
