My Comment Board Exchange With A Devoted Keynesian

A letter to the editor recently appeared in the Deseret News (Utah Newspaper) proposing an alternative to the presumptive Republican candidate, Romney. The comment board lit up and I engaged a well-known liberal in a back and forth that I thought was pretty representative of the Keynes vs. Hayek debate that has been going on the last few years.

Keynesian:

Interesting contrast between Ron Paul and Mitt Romney--Paul has the courage to say exactly what he really believes, while Romney--well, etch-a-sketch says it all. I admire Paul tremendously. The problem is that Paul's dead wrong on economics. Mr. King points out that Paul's views are shaped by those of von Mises and Hayek and Bastiat--true enough. But they're essentially wrong about everything. At the heart of libertarianism is the notion that the invisible hand of free markets will, if left alone, find a perfect equilibrium, with full employment and no inflation, all needs met and all citizens free and happy. It's as unrealistic as the Marxist notion that impersonal historical forces will, through a process of dialectical materialism, result in a dictatorship of the proleteriat, all needs met, all goods held in common. I think history shows how wrong both arguments are. People in power will, almost always, become corrupted by it, and money is power. There's little difference between Soviet style autocracy and corporate rapacity. Both institutionalize the abuse of power. That's why I prefer a government with built-in checks and balances.

Another Commenter:

@Keynesian
I don't think you can say the Austrian economists (people like Mises, Hayek) have been wrong about everything. Read what the Austrians were saying before the collapse of housing prices. They were telling everyone of the coming collapse and recession several years before the fact. I (and I think many Americans) agree with them for their criticisms of deficit financing and subsidies to corporations, whether they be oil or ethanol or solar or whatever. The dollar of today has lost about 95% of its value against the dollar of 1913, when the Federal Reserve was created. How can you say they have been wrong about the dangers of the central bank, and the devaluation of the currency? Austrians claim that when a currency is destroyed, wealth is transferred from the poor and middle class to the upper class. Can't we see this happening today?

Me:

Keynesian sure knows how to stuff a straw man.

"At the heart of libertarianism is the notion that the invisible hand of free markets will, if left alone, find a perfect equilibrium, with full employment and no inflation, all needs met and all citizens free and happy." -Actually the heart of libertarianism is the non-agression principle. Libertarianism is much more focused on this point because all else flows from this. The notion of the "invisible hand of free markets" is not a libertarian construct, never has been; in fact, a functioning market is very visible, even transparent, because it's not obfuscated by malinvestments, coercion, and, insitutionalized corruption. Furthermore, there is no Austrian economist that believes we can't have ups and downs in the business cycle, but inflation, by definition, only exists in fiat money systems, so yeah...they're spot on there. Lastly, happiness is never guaranteed, but all citizens can be free, and that condition alone gives the greatest number the best chance to pursue happiness.

Also, you were asking someone to name Austrian economists who accurately forecasted the economic collapse. Fortunately, Walter Block has already documented a list of 29 economists with citations.

Keynesian:

Potayto potahto. To deny the utopianist underpinnings of libertarianism is to deny the essential appeal of the philosophy. Yes, libertarians believe in business cycles, but the libertarian notion of a 'business cycle' includes downturns that look an awful lot like The Great Depression. The libertarian solution is to do nothing, because markets will self-correct, providing, given enough time, all sorts of pretty rainbows and frolicking bunnies. And while inflation is theoretically impossible, well, that's the beauty of libertarianism. Since it has never, by definition, been tried anywhere, you can theorize all sorts of wonderful outcomes.
As for the Walter Block article, I'm familiar with it, and it's really not impressive. A bunch of economists predicted that a housing bubble would burst. They also predicted, with impressive accuracy, an unbroken string of sunsets occurring in the west. The biggest laugh-line in the article, however, is Block's 'if only we had listened!' lament. What would it have mattered? The Austrian school solution, basically to any economic catastrophe, is inaction.

Me:

Inflation is not only "theoretically impossible" under a gold standard (or any other specie standard) it is just impossible...it's not a theory, it's logic; so there is no need to have a "utopian" libertarian experiment to arrive at that conclusion, just think it through.

The downturn of the The Great Depression had absolutely nothing to do with libertarianism; the vast majority of that period was overseen by Roosevelt and his Keynesian "solutions". It was a period mired in confiscatory economic policy, introduction of fiat money, expansion of government, and international conflict. If you look at the period prior to the G.D. there were plenty of shocks in the economy, but none as severe because government didn't attempt to interject itself at every step as the solution.

The Austrian solution is not inaction, unless you characterize market growth at the expense of government growth as such. Nevertheless, the typical Keynesian response to criticism when their central planning fails (as it has repeatedly) is "it would have been a lot worse".

"I guess we'll never know", right?