When a presidential candidate declares, as Ron Paul has, “We’re all Austrians now,”  it’s inevitable that his critics would try to discredit him—whether they understand what he’s talking about or not. That’s what Matthew Yglesias does in his Slate piece “What Is ‘Austrian Economics’?”

I recommend the piece because it’s highly informative—about what Austrian economics is not.

We’re off to a rocky start with this: “The Austrian school originally referred to a set of classical liberal thinkers with diverse interests who came out of the Austro-Hungarian Empire.”

The earliest Austrian economists did not make their mark by advocating free markets and other classical-liberal ideas. They did so by proffering a revolutionary positive (not normative) theoretical approach to understanding how markets work, focusing on value, price, and capital, theory. What Wikipedia says is consistent with my understanding of the matter: “When Carl Menger, Eugen von Böhm-Bawerk, and [Friedrich von] Wieser began their careers in science, they were not focused on economic policy issues, much less in the rejection of intervention promoted by classical liberalism. Their common vocation was to develop an economic theory on a firm basis.”

Economics vs. Politics

Yglesias thus conflates Austrian economic theory with libertarian political theory. In fairness, he is not alone in committing this error. Many libertarians do the same, which is unfortunate. Austrian economic theory describes how purposive action by fallible human beings unintentionally generates a grand, complex, and orderly market process. An additional ethical step is required to pronounce the market process good. Economic theory per se cannot recommend but only explain markets. This is what Ludwig von Mises meant when he insisted that Austrian economics is value-free. Anyone of any persuasion ought to be able to acknowledge that economic logic indicates that imposing a price ceiling on milk will, other things equal, create a shortage of milk. But that in itself is not an argument against the policy. Mises assumed the policymaker would have thought that result bad, but the economist qua economist cannot declare it such. As Israel Kirzner likes to say, the economist’s job in the policy realm is merely to point out that you cannot catch a northbound train from the southbound platform.

Yglesias writes: “Austrians reject the idea that there is anything at all the government can do to stabilize macroeconomic fluctuations.” It’s odd to say this without also pointing out that Austrians believe that government causes the instability of inflationary booms, recessions, and depressions. In light of that point, the suggestion that government is capable of stabilizing the economy may be seen in its proper light.

That said, Yglesias’s statement is not quite right. Some prominent Austrian macroeconomists think that in a second-best world, the central bank (which of course wouldn’t exist in a first-best world) should counteract a sudden and substantial monetary contraction. In other words, deflation is not necessarily a cure for inflation. Mises made the point metaphorically in 1938: “If a man has been hurt by being run over by an automobile, it is no remedy to let the car go back over him in the [opposite] direction.” (See Steven Horwitz’s “Deflation: The Good, the Bad, and the Ugly.” )

Distorts Markets

“In the view of the Austrians,” Yglesias goes on, “practically every economic policy pursued by the federal government and Federal Reserve is a mistake that distorts markets. Rather than curing recessions, claim Austrians, stimulative policies cause them by producing unsustainable bubbles.” Well, yeah, and it’s amply demonstrated by George Selgin, William D. Lastrapes, and Lawrence H. White in“Has the Fed Been a Failure?” (See my summary, “‘F’ as in Fed.” ) As they put it:

Drawing on a wide range of recent empirical research, we find the following: (1) The Fed’s full history (1914 to present) has been characterized by more rather than fewer symptoms of monetary and macroeconomic instability than the decades leading to the Fed’s establishment. (2) While the Fed’s performance has undoubtedly improved since World War II, even its postwar performance has not clearly surpassed that of its undoubtedly flawed predecessor, the National Banking system, before World War I. (3) Some proposed alternative arrangements might plausibly do better than the Fed as presently constituted. We conclude that the need for a systematic exploration of alternatives to the established monetary system is as pressing today as it was a century ago.

Yglesias understands that the Austrian theory of the business cycle has something to do with artificially low interest rates breeding malinvestment, but he thinks it can’t be right because “it’s hard to understand why business people would be so easily duped in this way. If Ron Paul and Ludwig von Mises know that cheap money can’t last forever, why don’t private investors? Why wouldn’t firms avoid making the supposedly dumb investments?”

Gerald P. O’Driscoll and Mario Rizzo addressed this long ago in The Economics of Time and Ignorance:

[T]here are profits to be made from exploiting temporary situations. . . . Though entrepreneurs understand [the macro-aspects of a cycle] they cannot predict the exact features of the next cyclical expansion and contraction. . . . They lack the ability to make micro-predictions, even though they can predict the general sequence of events that will occur. These entrepreneurs have no reason to foreswear the temporary profits to be garnered in an inflationary episode. . . . From an individual perspective, then, an entrepreneur fully informed of the Austrian theory of economic cycles will face essentially the same uncertain world he always faced. Not theoretical or abstract knowledge, but knowledge of the circumstances of time and place is the source of profits.

Spending Shifts

Puzzlingly, Yglesias also thinks he can refute the Austrian theory by noting that “[s]pending patterns shift all the time without sparking a recession.” To which, Peter Klein replies, “Of course, Yglesias’s breezy summary of the theory skips over the time structure of production, the difference between consumption and investment, the role of interest rates in securing intertemporal coordination, the problem of expectations, and the other basic elements of the theory, which ten minutes of Wikipedia browsing could have explained.”

Yglesias reveals his unfamiliarity with the Austrian literature when he writes, “Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting.” Considering that Herbert Hoover’s and Franklin Roosevelt’s New Dealimpeded the market’s correction process, one wonders how the 1930s could possibly have discredited the Austrian theory of the origin of recessions.

Finally, Yglesias contends that “the Austrian school . . . preaches despair and demands no action at all.”

Balderdash. Since it explains that busts are central-bank-caused and hence avoidable through market-based money and banking, its implicit message is one of hope and optimism. And as for demanding no action, on the contrary, it puts forth a long list of actions for those who want stable economic growth—all of them designed to dismantle the interventionist state.

Sheldon Richman is editor of The Freeman, where this article originally appeared.

Source: Reason.

NBC has reached an agreement to broadcast news content provided by a media organisation run by a team that has ploughed millions of dollars into campaigning for Barack Obama and donated large cash amounts to organisations such as the George Soros affiliated MoveOn.org and the now defunct ACORN.

The LA Times reports that NBC has opened up the newsrooms of all its affiliates across the country to ProPublica, which describes itself as an “independent, non-profit newsroom that produces investigative journalism in the public interest.”

NBC affiliated and Comcast owned radio stations will also broadcast ProPublica content under the agreement.

“The arrangement comes as Comcast moves to fulfill its commitment to federal regulators to strengthen local, public-interest programming in the wake of its purchase of NBCUniversal earlier this year.” the Times report states.

NBC stations will also produce their own stories based upon ProPublica’s output.

“We put the reporting at their fingertips and they can do terrific local stories with it,” said Richard Tofel, general manager for ProPublica.

The development represents yet another infiltration of corporate news media by special interests with their own political agenda.

ProPublica already delivers content to more than 50 different news organizations, including 60 Minutes, CNN, ABC World News, USA Today, the New York Times, Los Angeles Times, Washington Post, Huffington Post, Politico, Salon.com, Slate, MSN Money, MSNBC.com, Newsweek, Reader’s Digest, Business Week, This American Life, and NPR among many others.

The organisation operates with a bounty of $10 million per year from married billionaires Herbert and Marion Sandler, who are the former chief executives of the Golden West Financial Corporation, formerly one of the largest mortgage lenders in the US.

CONTINUED at Prison Planet.

*Taken from Reason. Written by Jacob Sullum.

Two months before Election Day, The New York Times reported that “Democratic officials” believed “corporate interests, newly emboldened by regulatory changes,” were trying to “buy the election.” But it turned out the election was not for sale—at least, not to the highest bidder.

According to data collected by the Center for Responsive Politics, Democrats and Republicans each shelled out $1.6 billion during the latest election cycle, including money spent by candidates, parties, party committees, and independent groups. In terms of spending, the two parties were evenly matched. But that is not how it looked on election night.

A closer look provides further evidence that Republicans did not win by outspending their opponents. They got substantially more votes in House races, where they spent less than Democrats yet picked up more than 60 seats (and control of the chamber), than they did in Senate races, where they spent more than Democrats and added half a dozen seats.

The squandered money included $46 million that Linda McMahon, the Republican Senate candidate in Connecticut, spent out of her personal funds, which amounted to nearly $100 for each vote she received. She lost by 12 points. Less dramatically, John Raese, the Republican running for a Senate seat in West Virginia, spent $4.6 million of his own money ($20 per vote) and lost by 10 points.

But the 2010 poster child for the lesson that money can’t buy you love was former eBay CEO Meg Whitman, who blew $140 million of her own money ($45 per vote) in her race for California governor against Democrat Jerry Brown, who won by 12 points. Also in California, a marijuana legalization initiative lost by eight points even though its supporters outspent its opponents by 10 to 1.

At the other end of the spending spectrum, reason Contributing Editor David Weigel, writing in Slate, identified five House races in which extremely thrifty Republicans beat well-funded incumbents after raising far less than the $1 million that is commonly accepted as the threshold for a serious congressional campaign. Four of those Republicans also benefited from significant independent spending, ranging from about $200,000 to almost $1 million.

The New York Times and The Wall Street Journal both found that independent spending helped Republicans mainly by eroding (but not erasing) the financial advantage enjoyed by incumbents—whose re-election rate, even in a year of supposedly sweeping change, was still about 85 percent. Yet the role played by “shadowy groups with harmless-sounding names,” as President Barack Obama describes organizations such as the U.S. Chamber of Commerce and Karl Rove’s American Crossroads, should not be exaggerated. Money from independent groups, including those favoring Democrats as well as Republicans, came to about $293 million, less than a tenth of the total.

The amount of independent spending was more than in any previous midterm year and nearly as much as in the last presidential election. But in a different political environment, the impact of this spending might not even have been noticed. In a different political environment, of course, the money probably would not have been raised to begin with.

That consideration also makes it hard to evaluate the impact of Citizens United v. FEC, the January 2010 decision in which the Supreme Court overturned restrictions on the political speech of unions and corporations. Some 2010 ads—for example, messages sponsored by unions or nonprofit interest groups that amounted to “express advocacy” or its “functional equivalent”—would have been illegal prior toCitizens United. But much of the money that paid for those messages might otherwise have gone to groups that were already allowed to run campaign ads.

Money clearly matters in politics, because speech cannot travel very far without it. But as big spenders such as McMahon and Whitman vividly demonstrate, the ability to reach a wide audience does not guarantee that you will persuade anyone.