Austrian Economics in the News

The financial crisis of 2008 led to a lot of unfortunate Keynesian and corporatist policymaking, but also to a renewed interest in Austrian economics and particularly to the Austrian theory of the business cycle and the role of the Federal Reserve in creating bubbles and busts. Austrian ideas are most recently examined on BBC and in the Washington Post. Sales of F. A. Hayek's book The Road to Serfdom have soared in the past three years, actually hitting no. 1 on Amazon last summer. The New York Times complained that Tea Party activists had "reached back to dusty bookshelves for long-dormant ideas [in] once-obscure texts by dead writers" such as Hayek, even as its reporters continually urged policymakers to Read. More. Keynes. A rap video on the intellectual battle between Hayek and Keynes, created by economist Russell Roberts and filmmaker John Papola, has been viewed almost 2 million times. A YouTube cartoon video on "quantitative easing" has done even better, with more than 4 million views. And now Rep. Ron Paul's appointment as chairman of the House subcommittee on monetary policy has brought new attention to the Austrian critique of orthodox economics and economic policy. A long article on Paul's ideas and his plans for the committee by Annie Lowrey filled a full page of the Sunday Washington Post:
But Paul's adversary is not only the Federal Reserve. It is also mainstream monetary economics itself. As a devotee of the Austrian school, whose luminaries include Friedrich Hayek and Ludwig von Mises, Paul stands firmly outside policymaking and academic circles, a point he enthusiastically admits. (The Austrian economists also often quibble with other libertarians, such as those at Cato.) His beef is not with how central bankers do their jobs; it's with central banking itself. "The Fed, rightly so, criticizes Congress for spending too much - but they make the money available to us!" he said. "It buys debt, keeps interest rates low, and sticks it to the people who want to save and make money. It is so unfair. And I think it is the first time in the history of the Fed that people realize it is not their friend. It just gives us booms and busts."
The line about Cato is a little misleading. At our 28 annual monetary conferences and in our publications, we've presented the ideas of many Austrian economists, from our 1979 publication of two classic manuscripts by Hayek, A Tiger by the Tail: The Keynesian Legacy of Inflation and Unemployment and Monetary Policy: Government as Generator of the "Business Cycle" and our first monetary conference in 1982 featuring Fritz Machlup and Gottfried Haberler, to a 1999 issue of the Cato Journal featuring studies of Hayek and Ludwig von Mises, to a new Working Paper, "Has the Fed Been a Failure?" by George Selgin, William Lastrapes, and Lawrence H. White. And don't miss a recent BBC program, "Radical Economics: Yo Hayek!" Jamie Whyte spends 30 thoughtful minutes looking at Austrian views of boom and bust, with such guests as White, Papola, Steven Horwitz, Robert Higgs, and Robert Skidelsky. It took the biggest bubble and crash since 1929 to revive the interest in Austrian economics, but at least now more people are studying the real problems with central planning, government intervention, and money manipulation.

Posted on February 14, 2011  Posted to Cato@Liberty

Google under Siege in the Corporate State

"Google is under siege in Washington like never before," Politico reports.
In an interview with POLITICO, a Google spokesman argued that a cabal of antitrust lawyers, lobbyists and public relations firms is conspiring against the Internet search giant. The mastermind? Google says it’s Microsoft. Maybe it’s irony, or maybe it’s payback. In the 1990s, Microsoft was the tech industry wunderkind that got too big for its britches — and Google CEO Eric Schmidt, then an executive at Sun Microsystems and later Novell, helped knock the software titan down a peg by providing evidence in the government’s antitrust case against it. . . . But there are also increasing calls from some Silicon Valley competitors and Washington-based public interest groups for the Justice Department to launch a sweeping antitrust probe of Google. The European Union and the state of Texas have reviews under way. Google says its rivals are fueling the attacks.
You could have read it here first. In the November-December 2010 issue (pdf) of Cato Policy Report, Adam Thierer wrote, "The high-tech policy scene within the Beltway has become a cesspool of backstabbing politics, hypocritical policy positions, shameful PR tactics, and bloated lobbying budgets." The telcos, the broadcasters, the wireless industry, the entertainment industry -- they all want the federal government to crush their competitors. And, he said, "Everybody — and I do mean everybody — wants Google dead, right now. Google currently serves as the Great Satan in this drama — taking over the role Microsoft filled a decade ago — as just about everyone views it with a combination of envy and enmity." But then:
Of course, in a sense, Google had it coming. The company has been the biggest cheerleader in the push to impose "Net neutrality" regulation on the Internet's physical infrastructure providers, which would let the FCC toss property rights out the window and regulate broadband networks to their heart's content. Meanwhile, along with Skype and others, Google wants the FCC to impose "openness" mandates on wireless networks that would allow the agency to dictate terms of service. It's no surprise, then, that the cable, telco, and wireless crowd are firing back and now hinting we need "search neutrality" to constrain the search giant's growing market power. File it under "mutually assured destruction" for the Information Age. Google had it coming in another sense, having joined the decade-long effort by myriad Silicon Valley actors to hobble Microsoft through incessant antitrust harassment.Google has hammered Microsoft in countless legal and political proceedings here and abroad.
Thierer also noted that you could have predicted all this by reading Cato publications a decade earlier, such as Cypress semiconductor CEO T. J. Rodgers's 2000 manifesto, "Why Silicon Valley Should Not Normalize Relations with Washington, D.C." (pdf). Or indeed Milton Friedman's 1999 speech on "The Business Community's Suicidal Impulse": "You will rue the day when you called in the government. From now on the computer industry, which has been very fortunate in that it has been relatively free of government intrusion, will experience a continuous increase in government regulation." You (could have) read it here first.

Posted on February 9, 2011  Posted to Cato@Liberty

Occupational Licensing: It Isn’t Just for Doctors and Lawyers Any More

"Cat groomers, tattoo artists, tree trimmers and about a dozen other specialists across the country . . .  are clamoring for more rules governing small businesses," reports the Wall Street Journal in a front-page story today. "They're asking to become state-licensed professionals, which would mean anyone wanting to be, say, a music therapist or a locksmith, would have to pay fees, apply for a license and in some cases, take classes and pass exams." And despite all the talk about deregulation and encouraging entrepreneurship, "The most recent study, from 2008, found 23% of U.S. workers were required to obtain state licenses, up from just 5% in 1950," according to Morris Kleiner of the University of Minnesota. The Cato Institute has been taking on this issue for decades. In 1986 Stanley Gross of Indiana State University reviewed the economic literature on the impact of licensing on cost and quality. Kleiner wrote in Regulation in 2006:
Occupational regulation has grown because it serves the interests of those in the occupation as well as government. Members of an occupation benefit if they can increase the perception of quality and thus the demand for their services, while restricting supply simultaneously. Government officials benefit from the electoral and monetary support of the regulated as well as the support of the general public, whose members think that regulation results in quality improvement, especially when it comes to reducing substandard services.
Adjunct scholar Shirley Svorny noted that even in the medical field, "licensure not only fails to protect consumers from incompetent physicians, but, by raising barriers to entry, makes health care more expensive and less accessible." David Skarbek studied the temporary relaxation of licensing requirements in Florida after Hurricanes Katrina and Frances and concluded that Florida should lift the rules permanently. In his book The Right to Earn a Living: Economic Freedom and the Law, Timothy Sandefur devotes a chapter to "protectionist" legislation such as occupational licensing.

Posted on February 7, 2011  Posted to Cato@Liberty

Social Conservatives Offer Irrelevant Solutions

In today's Los Angeles Times I write that social conservatives are pointing to real problems, but the only policy solutions they discuss are completely irrelevant to what they call "the high cost of  a dysfunctional society":
. . . Reducing the incidence of unwed motherhood, divorce, fatherlessness, welfare and crime would be a good thing. So why the focus on issues that would do nothing to solve the "breakdown of the basic family structure" and the resulting "high cost of a dysfunctional society"? Well, solving the problems of divorce and unwed motherhood is hard. And lots of Republican and conservative voters have been divorced. A constitutional amendment to ban divorce wouldn't go over very well, even with the social conservatives. Far better to pick on a small group, a group not perceived to be part of the Republican constituency, and blame it for social breakdown and its associated costs. That's why social conservatives point to a real problem and then offer phony solutions. But you won't find your keys on the thoroughfare if you dropped them in the alley, and you won't reduce the costs of social breakdown by keeping gays unmarried and preventing them from adopting orphans.

Posted on February 7, 2011  Posted to Cato@Liberty

On Not Leaving Iraq

The U.S. ambassador to Iraq expects to have 17,000 people on his staff after the United States "withdraws" from Iraq at the end of the year, he told the Senate this week. This is astounding. A typical American embassy in a small country might have 100 employees, in a big country such as Great Britain or Russia maybe a few hundred. A staff of 17,000 (including contractors) is not an embassy, it's an occupation force. Or at least a viceroy's staff. Here's the Washington Post report:
The top U.S. diplomat in Iraq on Tuesday defended the size and cost of the State Department's operations in that country, telling lawmakers that a significant diplomatic footprint will be necessary after the withdrawal of U.S. troops at the end of this year. James F. Jeffrey, the U.S. ambassador in Iraq, told the Senate Foreign Relations Committee that his staff of 8,000 will grow in the coming year to about 17,000 people, the vast majority of whom will be contractors. And while the State Department is spending about $2 billion annually on Iraq operations now, it plans to spend an additional $1 billion on the construction of facilities in each of the next several years....
We're spending $2 billion a year now on State Department operations in Iraq alone, and we intend to spend $1 billion a year on construction for some years to come. That's some withdrawal! I know that when Sen. Barack Obama asked to be entrusted with the presidency by repeatedly saying, "I will bring this war to an end in 2009. It is time to bring our troops home," he only said "troops." But I can't believe that the voters who heard him anticipated leaving thousands of Americans and spending billions of dollars in Iraq for many years. If members of Congress are looking for ways to cut a trillion-dollar deficit, they might look at our construction and employment and nation-building plans in Iraq.

Posted on February 4, 2011  Posted to Cato@Liberty

Reagan’s Libertarian Spirit

At the Britannica Blog I take a look back at Ronald Reagan on the occasion of his impending 100th birthday (February 6):
Libertarians have mixed feelings toward Ronald Reagan. When we’re feeling positive, we remember that he used to say, “Libertarianism is the heart and soul of conservatism.” Other times, we call to mind his military interventionism, his encouragement of the then-new religious right (“I know you can’t endorse me, but I endorse you.”), and his failure to really reduce the size of government. But the more experience we have with later presidents, the better Reagan looks in retrospect.... And in those moments we’re tempted to paraphrase the theme song of All in the Family and say, “Mister, we could use a man like Ronald Reagan again.”
Bonus: The entry contains links to Encyclopedia Britannica entries on such topics as libertarianism and individualism, normally available only to subscribers. More Britannica reflections on Reagan here. Some other Cato thoughts on Reagan here.

Posted on February 4, 2011  Posted to Cato@Liberty

Chutzpah in the Bailout Nation

Bloomberg reporter Andrew Frye plays it deadpan here.  I don't think I need to comment, either, except to note that the taxpayers' commitment to AIG peaked at $182 billion:
American International Group Inc.’s mortgage insurer does more business in Republican-leaning states as it signs up more reliable customers than those in “more liberal” areas, Chief Executive Officer Robert Benmosche said. “All of the states where we’re a leader, where we’re the No. 1 insurer, are red states, all of the states where we’re at the bottom are blue states,” Benmosche, 66, said yesterday at a conference in Washington. “Part of what we found out is that our model is about culture and it’s about the attitude in the public. And what we find is where there’s more of a tendency for people to be more liberal, more that the government is responsible for what happens to me.” Benmosche oversees an insurer propped up by more than $40 billion in government capital while competing mortgage guarantors operate without U.S. Treasury Department assistance.
More on chutzpah in the Bailout Nation here and here.

Posted on February 3, 2011  Posted to Cato@Liberty

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