Home > Austrian School, Fiscal Armageddon, Mainstream failure > Myopic mainstream economists narrow their blinkers even further

Myopic mainstream economists narrow their blinkers even further

I’ve commented previously that mainstream economists wish Austrian economics was dead, wish Austrian analysts never existed, and wish Austrian predictions on the GFC would be wiped off the face of the earth forever.

Austrians show mainstream economists up for the egocentric little blind bureaucrats they really are – sycophants to the bankers and the Establishment.

No one likes to look in the mirror and see a shallow status-seeking shill staring back at them.  To know a small group of economists nailed the GFC and are laughing at Keynesian stupidity day after day (check out the US unemployment figures! Ha Ha Ha!) – this is, understandably both frightening and infuriating.

Still, it is amazing how much the useless academics (publishing useless articles in their obscure journals) obsess about the “influence” of the Austrian School.  If it’s so “out-dated” why criticise it at all? 

There is NOT ONE working Austrian Professor of economics at ANY prestigious university in either the UK or Australia.  Not one.  Clearly the academic culling has been as successful as… well… as any govt-backed genocidal operation has been (they’re generally pretty successful judging by history).

The last remnents, the last holdouts against Fabian socialism still annoy the academic Daleks.  They still scream “Exterminte! Exterminate! Exterminate!” to try to “cleanse” the academy of any ideological impurities.

So much for academic freedom in academia!  You would get more open-minded discussion in a Catholic convent compared to the average economics dept in Australia.

John Quiggin, Australia’s poor attempt to produce a Paul Krugman, reloads and shoots blanks at the Austrian target, yet again. 

Why he bothers when no one in Australia actually understands Austrianism is beyond me. 

It’s not taught in ANY university in Australia.  It’s not even mentioned in any curriculum.  I speculate that most economics students in Australia, if pressed, would think “Austrian School” is a school of anti-Semitic Fascist Nazi propaganda promoted during the Second World War, rather than a school of libertarian thought associated with liberal Jews such as Ludwig von Mises and Murray Rothbard.

This probably says something about both the quality of university education in Australia and the reflexive associations most Anglos still have to the terms “German” or “Austrian” philisophical thought.

Getting back to mainstream zealot JQ, he states the following:

But the Austrians balked at the interventionist implications of their own position, and failed to engage seriously with Keynesian ideas.

The result (like orthodox Marxism) is a research program that was active and progressive a century or so ago but has now become an ossified dogma. Like all such dogmatic orthodoxies, it provides believers with the illusion of a complete explanation but cease to respond in a progressive way to empirical violations of its predictions or to theoretical objections.

Whether he’s being deliberately misleading here or just stupid I don’t know.  Austrians scream for a return to the gold standard to stop the mad credit-fuelled misallocation of resources that inevitably leads to financial crises – they do not support “mopping up” the crises afterwards with even cheaper credit or more crazy stimulus spending by govt.  What’s inconsistent about that?  What’s dogmatic about that?  Where’s the Keynesian engagement with Austrians?

To quote WP’s summation of Murray Rothbard’s position on money production:

Rothbard believed the monopoly power of government over the issuance and distribution of money was inherently destructive and unethical. The belief derived from Ludwig von Mises and Friedrich Hayek’s Austrian theory of the business cycle, which holds that undue credit expansion inevitably leads to a gross misallocation of capital resources, triggering unsustainable credit bubbles and, eventually, economic depressions. He therefore strongly opposed central banking and fractional reserve banking under a fiat money system, labeling it as “legalized counterfeiting”[42] or a form of institutionalized embezzlement and therefore inherently fraudulent.[43][44]

He strongly advocated full reserve banking (“100 percent banking”)[45] and a voluntary, nongovernmental gold standard[21][46] or, as a second best solution, free banking (which he also called “free market money”).[47]

In relation to the current central bank-managed fractional reserve fiat currency system, he stated the following:[48]

“Given this dismal monetary and banking situation, given a 39:1 pyramiding of checkable deposits and currency on top of gold, given a Fed unchecked and out of control, given a world of fiat moneys, how can we possibly return to a sound noninflationary market money? The objectives, after the discussion in this work, should be clear: (a) to return to a gold standard, a commodity standard unhampered by government intervention; (b) to abolish the Federal Reserve System and return to a system of free and competitive banking; (c) to separate the government from money; and (d) either to enforce 100 percent reserve banking on the commercial banks, or at least to arrive at a system where any bank, at the slightest hint of nonpayment of its demand liabilities, is forced quickly into bankruptcy and liquidation. While the outlawing of fractional reserve as fraud would be preferable if it could be enforced, the problems of enforcement, especially where banks can continually innovate in forms of credit, make free banking an attractive alternative.”

JQ can’t have it both ways.  He can’t say the Austrians are “dogmatists” screaming mindlessly for a return to the gold standard and also that we “want” to scream for paper monetary stimulus at the end of the credit cycle, but for ideological reasons can’t bring ourselves to do so (rubbish).

If pushed, I’d prefer the term gold standard “dogmatist” to “sell out” any day of the week.

He goes on to add, bizarrely, that “the [Austrian] label has been increasingly associated with gold bugs, critics of fractional reserve banking, neo-Confederates and general fringeness.”  In other words, maddies and psychos.

Support for the gold standard is not mindless dogma (unlike Keynesianism which is).  To quote again from the WP article on the Austrian School’s view of inflation:

The Austrian School has consistently argued that a “traditionalist” approach to inflation yields the most accurate understanding of the causes (and the cure) for inflation. Austrian economists maintain that inflation is by definition always and everywhere simply an increase in the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level for assets (such as housing) and other goods and services in demand, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer goods and services.

Given that all major economies currently have a central bank supporting the private banking system, almost all new money is supplied into the economy by way of bank-created credit (or debt). Austrian economists believe that this bank-created credit growth (which forms the bulk of the money supply) sets off and creates volatile business cycles (see Austrian Business Cycle Theory) and maintain that this “wave-like” or “boomerang” effect on economic activity is one of the most damaging effects of monetary inflation.

According to the Austrian Business Cycle Theory, it is the central bank‘s policy of ineffectually attempting to control the complex multi-faceted ever-evolving market economy that creates volatile credit cycles or business cycles, and, as a necessary by-product, inflation (especially in asset markets). By the central bank artificially “stimulating” the economy with artificially low interest rates (thereby permitting excessive increases in the money supply), the government-sponsored central bank itself allows debasement of the means of exchange (inflation), often focused in asset or capital markets, resulting in “false signals” going out to the market place, in turn resulting in clusters of malinvestments, and the artificial lowering of the returns on savings, which eventually causes the malinvestments to be liquidated as they inevitably show their underlying unprofitability and unsustainability.[38]

Austrian School economists therefore regard the state-sponsored central bank as the main cause of inflation, because it is the institution charged with the creation of new currency units, referred to as bank credit. When newly created bank credit is injected into the fractional-reserve banking system, the credit expands, thus enhancing the inflationary effect.[39]

The Austrian School also views the “contemporary” definition of inflation as inherently misleading in that it draws attention only to the effect of inflation (rising prices) and does not address the “true” phenomenon of inflation which they believe is the debasement of the means of exchange. They argue that this semantic difference is important in defining inflation and finding a cure for inflation. Austrian School economists maintain the most effective cure is the strict maintenance of a stable money supply.[40] Ludwig von Mises, the seminal scholar of the Austrian School, asserts that:

“Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation. . . . As you cannot talk about something that has no name, you cannot fight it. Those who pretend to fight inflation are in fact only fighting what is the inevitable consequence of inflation, rising prices. Their ventures are doomed to failure because they do not attack the root of the evil. They try to keep prices low while firmly committed to a policy of increasing the quantity of money that must necessarily make them soar. As long as this terminological confusion is not entirely wiped out, there cannot be any question of stopping inflation.”[41]

Following their definition, Austrian economists measure the inflation by calculating the growth of what they call ‘the true money supply’, i.e. how many new units of money that are available for immediate use in exchange, that have been created over time.[42][43][44]

This interpretation of inflation implies that inflation is always a distinct action taken by the central government or its central bank, which permits or allows an increase in the money supply.[45] In addition to state-induced monetary expansion, the Austrian School also maintains that the effects of increasing the money supply are magnified by credit expansion, as a result of the fractional-reserve banking system employed in most economic and financial systems in the world.[46]

Austrian School economists claim that the state uses inflation as one of the three means by which it can fund its activities, the other two being taxing and borrowing.[47] Therefore, they often seek to identify the reasons for why the state needs to create new money and what the new money is used for. Various forms of military spending are often cited as reasons for resorting to inflation and borrowing, as this can be a short term way of acquiring marketable resources and is often favored by desperate, indebted governments.[48] In other cases, the central bank may try avoid or defer the widespread bankruptcies and insolvencies which cause economic recessions or depressions by artificially trying to “stimulate” the economy through “encouraging” money supply growth and further borrowing via artificially low interest rates.[49]

Accordingly, many Austrian School economists support the abolition of the central banks and the fractional-reserve banking system, and advocate instead a return to money based on the gold standard, or less frequently, free banking.[50][51] Money could only be created by finding and putting into circulation more gold under a gold standard.

At the beginning of his career Alan Greenspan, former chairman of the Federal Reserve, was also a strong advocate of the Gold Standard as a protector of economic liberty:

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves. This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.” [52]

Advocates argued that the Gold Standard would constrain unsustainable and volatile fractional-reserve banking practices, ensuring that money supply growth (“inflation“) would never spiral out of control.[53][54] Ludwig von Mises asserted that civil liberties would be better protected:

“It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings.”[55]

Notice how nuanced, how detailed, how sensible the arguments are for a return to gold.  Austrians sensibly look at history, see the madness of government, the repeated financial crises caused by over-issuance of paper money and conclude that a gold standard (a monetary system that has applied for 99% of human history) is a better alternative than the certainty of destruction caused by govt manipulation of property rights.

Is it “gold buggerism” to point this out?  Is it madness to point out the embezzlement inherent in fractional reserve banking?

Apparently, according to JQ. 

JQ is one weird dude.  He recognises the success of many Austrians predicting the GFC (and perhaps deeply resents it).  He recognises that nearly all mainstream economists failed dismally in predicting anything during this period (including the GFC).

What he doesn’t point out is that (probably) around 70% of practising academic economists in Australia would label themselves as Keynesians, neo-Keynesians or post-Keynesians (or some other variant of quasi-Socialist-Fascist thought), that the other 30% would probably label themselves as mainstream neo-classical economists and that NOT ONE OF THEM would label themselves as “Austrian” and NOT ONE OF THEM would have a clue what Austrianism is all about.

Which is why Australia as a nation is doomed to financial catastophe after financial catastrophe, why JQ’s home state of Queensland is a basket case (despite JQ’s sage socialist advice) and why virtually every state in Australia is headed for a fiscal and/or environmental Armageddon.

And why JQ is not counted amongst the 12 economists in the world who accurately predicted the GFC, but why I did predict the GFC (ha ha ha!) – despite having the burden of a full time non-academic job, despite being ridiculed and rejected for my “gold bug” beliefs in Oz, and despite there being no work for any Austrian economist in the whole of Australia.

JQ, with all his time and academic resources, is essentially a useless redundant fool amongst many useless redundant fools in academia sucking off the teat of the govt’s payroll, whilst screaming at the alleged venalities and corruptions of the private sector – whilst failing in his own job to warn of the precise nature of the GFC and STILL failing to provide accurate predictions regarding GDP, unemployment, stockmarket trends or any other vital piece of economic data needed by the govt and businesses.  Talk about useless!  Talk about redundant!

Notice how he hasn’t made ONE PREDICTION about 2010 on his own website, but instead issues a steady stream of arrogant “advice” about this policy prescription (ETS please) or that govt policy (no Qld asset sales!).  Perhaps making economic predictions is beneath him, but base advocacy of socialism isn’t.  Or perhaps he’s too gutless to make them, exposing himself to the reality that his Keynesian theories are useless outside the Dalek-infested world of tenured academia.

For an economist to be afraid (or be incapable) of making real world economic predictions – now that’s true economic Karma!

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