The Road to Paralysis

Politics Haunted by Principles of Austrian Economics

One of my favorite moments during the 2012 Republican presidential contest came when Ron Paul, fresh from his strong showing in Iowa, triumphantly told his supporters: “We’re all Austrians now!”

I imagined many Americans scratching their heads and wondering: Why do we want to be Austrians? They live in a nice country with stunning mountains and all that, but aren’t we perfectly happy to be Americans?

Of course those in the know, particularly Paul’s enthusiasts, understood the libertarian presidential candidate’s reference: that Americans were rejecting the economic ideas of John Maynard Keynes that encouraged government intervention and provided intellectual ballast for the New Deal. Instead, they were coming around to the principles of the anti-government economics of Austrians Friedrich A. Hayek and Ludwig von Mises.

Hayek and Mises perceived little difference between democratic governments that used their power to plan against recessions and dictatorships that did the same thing. In this view, the policies of Franklin Roosevelt led down what Hayek called “The Road to Serfdom” and were thus objectively comparable to those of Hitler or Stalin.

At the time, Paul offered some context for his Austrian journey. He was quoting a supporter who had noted a line attributed to President Richard Nixon that “we’re all Keynesians now.” Paul observed that back then, even Republicans “accepted liberal economics.” Those days are gone.

Paul’s words are worth remembering not only because they are entertaining but also because he has a point. To a remarkable degree, our politics are haunted by the principles of Austrian economics and their sweeping hostility to any actions by government to keep downturns from becoming catastrophes or to promote greater economic fairness.

This is, indeed, an enormous change. When Nixon declared his allegiance to Keynesianism, he was reflecting an insight embraced across partisan lines. Government’s exertions, both during the New Deal and more completely during World War II, helped rescue the American economy from depression.

Postwar Keynesian approaches, including the Marshall Plan, let loose an economic juggernaut across the Western world. Secular and Christian parties of the moderate right and social democratic parties of the moderate left created free societies and regulated market economies that delivered the goods -- literally as well as figuratively -- to tens of millions. (The actual country of Austria, by the way, largely ignored the “Austrian” economists and followed a similar path.)

Those who follow Hayek and Mises would have us forget this history, or rewrite it beyond comprehension. They would also have us overlook that Hayek’s “own historical justification for apolitical market economics was entirely wrong,” as the late Tony Judt put it in Thinking the Twentieth Centuryhis extraordinary dialogue with his fellow historian Timothy Snyder, published in 2012, after Judt’s death.

Hayek believed, Judt said, that “if you begin with welfare policies of any sort -- directing individuals, taxing for social ends, engineering the outcomes of market relationships -- you will end up with Hitler.”

But to the contrary, postwar initiatives along Keynesian lines are precisely what prevented both the resurgence of fascism and the collapse of Western Europe into communist hands. For that matter, Keynesian steps also kept the whole world from going into a much deeper and more disastrous slide after the financial crisis of 2008.

Yet today’s conservatives are in thrall to Austrian thinking, and this explains a lot of what is going on in Washington. Broadly popular measures such as raising the minimum wage and extending unemployment insurance -- normal, bipartisan legislation during the Keynesian heyday -- are blocked on the assumption that people are better off if the government simply keeps its mitts off the market.

It is now difficult for Congress to pass even the kind of spending that all sides once saw as necessary public investment in transportation, research and education. It’s that “road to serfdom” again: Anything government does beyond enforcing contracts and stopping violence is denounced as the first step of a fox trot toward dictatorship.

So let’s give Ron Paul credit for unmasking the true source of gridlock in Washington: Too many conservatives are operating on the basis of theories that history and practice have discredited. And liberals have been more reluctant than they should be to call the ideological right on this, partly because they never fully got over the shell shock of the Reagan years and also because they have a strange aversion to arguing about theory. When it comes to government policy, the Austrian economists paved the road to paralysis. 

(c) 2014, Washington Post Writers Group

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So, all we have to do is bring back Keynes, or a stronger version of Keynes, and all will be well? Let's go back over Dionne's quick review of 20th century history. 

The 1933-35 Roosevelt programs were heavily influenced by Keynes, but as FDR sensed his second term prospects being challenged, especially from his own left, he moved to a distinctly anti-business, soak the rich campaign and policies. I don't know what Keynes thought about it, but some of FDR's early supporters noted the change and turned away. As to success of the economic policies, let's recall that by 1939 (after six years of New Deal and Second New Deal) the unemployment rate was still 17 percent, 13 percent fewer people were employed than in 1929 (even with WPA, PWA, and other jobs programs), and 21 percent fewer hours were worked. 

After the war, yes, the tax code encouraged U.S. firms to invest in Europe and the Marshall Plan was tremendously successful rebuilding those countries. GDP advanced, but not without strikes and recurrent recessions--four by 1961 when Kennedy was inaugurated. Consumption was stimulated by highway and housing programs, and returning vets bought appliances, cars, etc. By 1961 Kennedy was pointing out that our high taxes were stifling investment and risk-taking and distorting use of resources. The prosperity of some was achieved by limiting the distribution of jobs, income and goods as prejudice barred blacks from many trades and professions, even from many civil service jobs until well into the 60's.Women's career choices were also severely limited, to keep them out of "mens" work.  Investment by U.S. firms in the U.S. was so stifled that in the '50s Warren Buffett was able to buy manufacturing companies for less than the value of their liquid assets, and by 1980 America's industrial heartland was referred to as the Rust Belt and inflation had ravaged incomes all through the 1970s. 

So, if this was the success of Keynesian economics, let's not go there again. The majority of Americans voted for Reagan not because they suddenly became "conservative" or "hard-hearted" or "anti-government" or followers of Austrian economics. They voted for Reagan because the unemployment rate among black men in Detriot in 1980 was 50 percent, inflation had sapped their purchasing power for more than a decade, and Carter had nothing to propose but yet higher taxes. 

Once inflation was brought under control in a deep recession, the economy grew impressively for nineteen years with only one minor recession. The poverty rate in 2000 was 11 percent--the lowest in a century--and the unemployment rate was low. "Austrian" or not, it worked. 

Rather than trying to align with economic theories written many years ago, why not use the process that Guglielmo Marconi recommended: "It's no use interrogating the universe with a formula. You've got to observe it, take what it gives you and then reflect upon it with the aid of reason and experience...and then think my way to the truth of things."

The gridlock has far more rooys tahn the Austrian.

The book "American Nations: The Eleven Rival Regional Cultures" describes four cultures that have always existed in opposition to "fdereal interference" joined by certain sectiors of the corporate world, icnluding Silicon Valley.

One culture, the Deep South, gave us slavery, the Civil War, segregated and unequal schools, and Jim Crow. The federal government will never be forgiven by the Deep South for ending slavery and/or Jim Crow, for interfering with the sacred" right of local elites to rule as they please The Dixefrats, held in check by the Democrats as long as Washington allowed for segretaed schools and Jim Crow,  bolted the Democrats and took over the Republican party. They know they cannot win consistently against the federal government so they instead choose to paralyze it. Anti-black sentiment has joined many Catholics to the culture of the Deep South. Children oor granchildren of people who benfitted from FDR's policy now enthusiastically suoort teh Reopublican efforts to reapeal all the FDR reforms. In their mind they are amnong those who "made it on our own."

Another culture, Appalachia, despises federal efforts to curb pollution. They see anti-pollution efforst as a stupid policy that will deny them jobs. The Deep South also opposes anti-pollution efforts because they interfere with profits and the "sacred" right of woners to exploit their property (including workers) as they please.

Another culture, The Far West, really believes that they are rugged individualsits despite their dependence on the federal government. The woman congree rep from Washington who the Republican "response" exemplifies this. She has worked for the federal governmenta ll her life and she wants to end food stamps so people can rely on themselves. Many of the very poor in her district will continue to vote for her.

The Tidewater culture continues to promote a laissez--faire veiw of government, the one popylar with teh First Families of Virginia and those who let the Irish starve in the mid-1800's. Communwealth College is an example of Catholics buying into this. Paul ryan, after taking Ayn Rand into his heart as the basis for political and economic truth, champions this return to the Pre-Teddy Roosevelt era.

What holds the Republican partty together - both the coporate end and the angry populist end - is opposition to taxes, espcially federal taxes. The national debt (different from the national defict which has shrunk considerably under Onbama), inn their view, can never be gradually siolved with raised taxers, higher taxes, let's say, that prevailed under Ronald Reagan. Yet corporations and the populists ,in practice, want federal handouts. Paul Ryan is an example of this.

Except for the corporate end, most elements in the Republcian party will continue to vote for candidates who are determined to paralyze the federal govenment in favor of funding it only for war and corporate subsidies.

Ron Paul is just a blip on thsi anti-federal tide and stands out for his opposotion to foreign military adventures and their expense. His base is Appachia andf Tidewater and Midlands more than the militaristic Deep South

 

And yes, Reagan kept federal taxes much higher than they are now, raising them a number of times.

You leave out NAFTA, a Republican idea enthsuastically endorsed by Bill Clinton, and the subsequent ability of employers to export jobs, lower domestic wages, break unions and leave many permananetly unemployed.

Macroeconomics points out that economies thrive when much of a nation's wealth goes to Labor (wage earners, pensioners, and the unemployed) rather than Capital. Henry Ford understood this. Since Reagan, and the infuemce of NAFTA and technology, less and less weath is going to Labor and more and more to Capital. Not healthy for an economy.

I don't know much about Austrian economics, and I don't really support them. But I was really disappointed in this article. I don't think you really gave the Austrians a fair or detailed reading at all. And you offered very little evidence that their theories have wide-ranging influence in Washington.

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About the Author

E. J. Dionne Jr. is a syndicated columnist, professor of government at Georgetown University, and a senior fellow at the Brookings Institution. His most recent book is Our Divided Political Heart: The Battle for the American Idea in an Age of Discontent (Bloomsbury Press).