Top-Down Solutions to Top-Down Problems: Where Statists and Austrians Agree

Professor of Finance and Economics at Durham University in England Kevin Dowd gave a compelling address on the current monetary crisis at the 2018 Austrian Economics Research Conference (AERC) at the Mises Institute.

The presentation gives an excellent recapitulation of the current proposals to the global economic crisis of a “bubble in everything.” This includes on the interventionist side:

  1. More Quantitative Easing (QE) — more bond purchases by the central banks like the Bank of Japan, which is becoming the largest shareholder in that country.
  2. Zero-Interest Rate Policy (ZIRP) — drive interest-rates to zero in order to stimulate lending.
  3. Negative-Interest Rate Policy (NIRP) — drive interest rates negative, or put differently: levy taxes on lending. This leads to the next logical necessity — the elimination of cash — due to the quandary: who will lend, when lending is taxed?
  4. Helicopter Money — just debit account balances with increased balances. Dowd accidentally referred to this as the “Keynesian ‘final solution,’” which is ironic, since this was the practice of the Wiemar Republic — precursor to the National-Socialist (Nazi) regime in Germany.

Austrian (that is, Austrian Economic) style approaches are old hat. We’ve heard them for decades, and they were popularized by Congressman Ron Paul:

  1. Abandon the “Keynesian experiments”
  2. Roll back statist interventions
  3. End the Fed
  4. Return to the gold standard

Now, the question that might offend practically everyone with a dog in the fight: do you notice any similarities in the solutions from these two camps?

They’re all top-down.

In other words: all of the proposed solutions covered by Dowd are political. The Keynesian types suggest more statist interventions. The Austrians types suggest less (or none). I wonder which school of thought regarding state intervention will convince the state interventionists.

I don’t think it’s a stretch to claim that at least the last century of monetary and fiscal policy has been a slide towards total economic chaos punctuated ever-so-often by temporary glimpses of rationality. The general trend seems incontrovertibly to consist of ever greater financially irresponsibility. Are we to think that this trend will reverse?

I’ve wondered at the general absence of frustration in the futility of political solutions to political problems in the free-market academic world. It occurs to me that the eminently frustrated, who still bear some attachment to practical reality, have left academia. Don’t get me wrong, there are still plenty of marauding martyrs toiling ferociously in the stale halls of university departments. And this isn’t to say that their work isn’t meaningful, even vital. The point is just to state what seems to me to be the obvious, however unpleasant it may be: their solutions are about as practically implementable as the Libertarian Utopia of Statelessness.

I go back to why. Ending the Fed, implementing the gold standard, etc. are all political solutions. Why is it that so many anti-interventionists think “the solution” is to persuade the interventionists to stop intervening? This may be something akin to persuading gravity to let humans fly unaided by technology. It’s just not gravity’s nature to allow such a thing. On the face of it, yes, if problem X leads to unpleasant consequence Y, one might think to reverse problem X. But what happens when X, firmly established in social, cultural, political, and intellectual circles, has a financial interest in persisting in the proliferation of Y? Answer: nature follows its course. Things in motion tend to stay in motion.

The final frontier of agreement between the interventionists and (most) free-marketers is the nature of their top-down, political proposals. Hopefully, even here, division and disagreement will win out. Then, and only then, will individuals need not rely on hopeless benevolence in order to survive the Keynesian final solution.

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