Tuesday, August 13, 2013

The Mess Rand Paul Has Created

My chief argument against Rand Paul's role in politics is that he is diluting and distorting the libertarian message. Rather than seeking alliances with others who may hold libertarian positions on specific issues, Rand tends to ditch the libertarian message to bring others under his tent.

On the anti-war issue, Rand's father worked with both Ralph Nader and Dennis Kucinich. Nader and Kucinich are far from libertarians, but Ron could work with them on the anti-war issue. Ron did not have to leave his principles in a ditch.

Rand on the other hand has created an alliance with Mitch McConnell, who Rand's former campaign manager Jesse Benton has admitted is someone you have to work with while holding your nose. McConnell is a crony establishment Republican and it is sad that Benton and Rand are tied to this guy on a general basis rather than any particular issue that McConnell might be good on, though those are few and far between.

What brings me, at this time, to emphasize this point, of Rand's consistent move to establishment positions, is another mess, in a slightly different form, that Rand has created as a result of his attempt to cozy up to the establishment. This time the mess surrounds Rand's comment on the naming of a new Federal Reserve chairman. During an interview with BusinessWeek. This exchange took place:

Who would your ideal Fed chairman be?
Hayek would be good, but he’s deceased.
Nondead Fed chairman.
Friedman would probably be pretty good, too, and he’s not an Austrian, but he would be better than what we have.
Friedman is, of course, also dead, but I am going to work on the assumption that Rand knew this and just couldn't think of a living person to name for the position. But what is interesting is the two people Rand did name.

 Hayek is the most accepted of the Austrian economists by the establishment. Is that why Rand named him? It appears so, especially given that Rand's next choice is another establishment favorite, Friedman, who, as Rand states, is not an Austrian economist.

But why did Rand name Friedman? He  skipped over two prominent Austrian economists, Ludwig von Mises and Murray Rothbard, to get to Friedman. Did Rand do this because Mises and Rothbard are not favorites of the establishment, because they were both men of principle who favored free markets and never supported crony capitalists or the Fed money printing that propped up the government and crony capitalists?

By jumping over Mises and Rothbard, Rand created quite a mess.  Matthew O'Brien explains:
[W]hat is clear is he [Rand] doesn't know anything about what Friedman actually thought about monetary policy. See, Paul is a case of the apple not even falling from the tree. Like his father, he's no fan of the Fed, and thinks quantitative easing has only created an "illusory" recovery. So when he says he thinks Friedman "would be better than what we have," he almost certainly means that Friedman wouldn't be buying bonds like Bernanke has. And that, of course, couldn't be more wrong.
We know exactly what Friedman thought about quantitative easing, because he told us. Here's what he said the Bank of Japan needed to do back in 2000 when it was stuck in its own liquidity trap:
Now, the Bank of Japan's argument is, "Oh well, we've got the interest rate down to zero; what more can we do?" It's very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high-powered money starts getting the economy in an expansion.
In other words, print money, and keep printing, until the economy recovers. 
Well, Friedman did say that in 2000, and that's how most think of Friedman. But in 2003, at the age of 91, in perhaps a senior moment of unguarded truth telling, there was the North Beach confession, where Friedman did say:
 The use of quantity of money as a target has not been a success. I'm not sure I would as of today push it as hard as I once did.
But by Rand going with Friedman, instead of Mises or Rothbard, the sharp have picked up on the confusion in Rand's decision to name Friedman. Rand has indeed muddied the libertarian perspective. Will Rand reverse his position of going with the establishment guy? Quite the opposite. He is out with an op-ed doubling down on Friedman. Rand writes in National Review:
[W]as Friedman an advocate for an aggressive Fed? I think it a mistake to label an economist famous for monetary restraint as an advocate for aggressive monetary policy. It is a stretch to try to make Friedman into some Krugman-like apologist for quantitative easing.
What Rand is doing here is again muddying the waters. Friedman may not have held the same position as Krugman, G. William Miller  or Janet Yellen  as to how much new money to print, but they were all money printers. It is only a matter of degree and style as to the printing, rather than a question about printing itself. Friedman was only different in that he wanted fixed rate money printing, most often calling for 3% annualized money growth. Rand acknowledges this in his op-ed:
Friedman advocated for a constant growth rate of a monetary aggregate.
Yet, this is so far from the position of Hayek, Mises or Rothbard that it is hard to believe that Rand would follow-up after Hayek with Friedman.

Hayek, Mises and Rothbard had a much more sophisticated understanding of how money printing impacted the economy, how the business cycle worked and how price inflation developed that Friedman looked like a very confused little boy next to them. They were against all central bank money printing.

Thus, in yet another attempt to cozy up to the establishment, by naming the establishment favored Friedman, Rand has distributed nothing but confusion to those who are just now attempting to gain an understanding of libertarianism and Austrian economics.

What a mess.

Here's Rothbard with a much better assessment of Friedman than Rand:
An advisor of Richard Nixon and a friend and associate of most Administration economists, Friedman has, in fact, made his mark in current policy, and indeed reciprocates as a sort of leading unofficial apologist for Nixonite policy.

 In fact, in this as in other such cases, suspicion is precisely the right response for the libertarian, for Professor Friedman’s particular brand of “free-market economics” is hardly calculated to ruffle the feathers of the powers-that-be. Milton Friedman is the Establishment’s Court Libertarian, and it is high time that libertarians awaken to this fact of life.[...]

In short, while Milton Friedman has performed a service in bringing back to the notice of the economics profession the overriding influence of money and the money supply on business cycles, we must recognize that this “purely monetarist” approach is almost the exact reverse of the sound—as well as truly free-market—Austrian view.

For while the Austrians hold that [Ny Fed president] Strong’s monetary expansion made a later 1929 crash inevitable, Fisher-Friedman believe that all the Fed needed to do was to pump more money in to offset any recession. Believing that there is no causal influence running from boom to bust, believing in the simplistic “Dance of the Dollar” theory, the Chicagoites simply want government to manipulate that dance, specifically to increase the money supply to offset recession.

Some might object that Milton Friedman does not believe so much in a manipulative monetary and fiscal policy as in an “automatic” increase by the Federal Reserve at a rate of 3–4 percent per year. But this modification of the older Chicagoans is purely a technical one, stemming from Friedman’s realization that day-to-day, short-term manipulations by the Fed will suffer from inevitable time lags, and are therefore bound to aggravate rather than ameliorate the cycle.

Thus, Milton Friedman is, purely and simply, a statist-inflationist, albeit a more moderate inflationist than most of the Keynesians. But that is small consolation indeed, and hardly qualifies Friedman as a free-market economist in this vital area.


  1. I nominate Jesse Benton. He seems to be really good at destroying things like campaigns and organizations from the inside.

  2. We the voters get the congress we elect. All politicians should be vetted before voting for them. We need statesmen in congress, not politicians.

  3. I totally agree Bob. I see in a lot of 'libertarian' forums (/r/libertarian for example) where a lot of people who are trying to understand what libertarian-ism is about are having their views polluted by Rand. The fact that he is Ron Paul's son seems to further cloud things as it seems to be one of those 'apple doesn't fall far from the tree' mentalities where in reality he is nothing like his Dad. As you have pointed out (and I have too) he has publicly said on numerous occasions that he is not a libertarian. Yet the Rand Paul cult continues to profess that he is.

  4. I agree with Rand Paul. I'd prefer a dead Hayek and then a dead Friedman for Fed chair. I think BusinessWeek and Wenzel missed the joke from Rand Paul.

    As a side note, does anyone think that Peter G. Klein from LvMI is a statist because he mused that Raghu Rajan is an okay choice for India's central bank? http://bastiat.mises.org/2013/08/a-central-banker-with-austrian-instincts/

    Rand Paul is informed with Austrian school insights. Yes, he is not a 100% pure AnCap Rothbardian. So what? Neither was his Dad.

  5. Gee, he might have mentioned his Dad.

    1. That was the first thing I thought

  6. Robert - there are youtube clips of Milton Friedman saying the Fed does not work and should be ended, he is about 91, so its inline with the North Beach confession (or it may be in the same interview, i haven't seen it in a while)