Friday, May 22, 2009

An Economic Miracle in the Desert

We have, on our hands, a mini-economic miracle in the desert of Iraq.

Bob Murphy has posted a column written by Edward M. Gonzalez who served active duty in the United States Marine Corps from January 2004 to August of 2008.

Gonzalez recounts his experiences in a village in the Al Anbar Province of Iraq, where he spent seven months as an advisor to the Iraqi Army.

Gonzalez likens the American military money spending in the village to Federal Reserve money printing in the U.S. When the money spending stopped, the village suffered what can only be described as a recession.

Gonzalez, who it appears understands more about the business cycle than most advisers currently around the president, used his sound understanding of economics to nurture the village back to a prosperous region where villagers even warn the Marines of planted IEDs.

The Gonzalez column is must reading.

As a footnote to the "Economic Miracle in the Desert", I hasten to point out that the only time miracle and economics has been used together is when free markets have been allowed to thrive in what were otherwise dire situations. There is, of course, the German Economic Miracle and, also, the Panamanian Economic Miracle (Davd Saied, who was instrumental in bringing about the Panamanian Economic Miracle, has promised to detail the history in a column here at EPJ).

FDR's New Deal slowed the economy for a decade and no one calls it a miracle, and no one is calling what is going on in the economy here now a miracle.

Only the freeing of markets seems to generate the sense of an economic miracle. Further, it is not just free market economics that seems to be near these miracles, but it appears to be the hard core, uncompromising, Austrian school strain of free market economics that provides the necessary theoretical backbone to get the job done.

Gonzalez is clearly influenced by the Austrian school, so is Saied, and Ludwig Erhard, who was instrumental in launching the great German economic miracle, was influenced by the economist Wilhelm Roepke, who was in turn influenced by the great Austrian economist Ludwig von Mises.


  1. Roepke was an Austrian economist in the sense of seeing the business cycle as at root a credit expansion / collapse cycle. He also favoured general free market policies and the gold standard, but it would be a mistake to see him as "as hardline as" Mises and Rothbard.

    Roepke, although a free marketeer at heart, was willing to support a range of interventionary policies including counter-cyclical fiscal policy that Rothbard and Mises would have rejected.

    Roepke also believed that besides the Austrian credit collapse generated recession, an economy's decline could snowball into what he called "a secondary depression". This is a kind of self reinforcing depression. He didn't think laisser faire solutions alone were sufficient to deal with the secondary recession. It was at this point he had some nice things to say about Keynes.

    I'm not sure but I think much of Keynes' original work may have had a focus on secondary depression too. I suspect it was Keynesians after Keynes, and not necessarily Keynes himself, who turned Keynesianism from a 'secondary depression stopgap' policy into a general program of state economic management. Anyhow I will leave all that to people more familiar with this chapter in the history of economics.

    My main point is that Roepke shows that there is more under the tent of "Austrian economics" than just Mises and Rothbard, however great those two exceptional thinkers were. I'd like to see more commentary from contemporary Austrians on Roepke's secondary depression theory.

  2. @Earth That Was

    I think part of what we are going through now is what Roepke is thinking of as the "secondary depression". This is very similar to Hayek's "secondary deflation". In both cases it is a very strong demand to hold cash because of the uncertainty in the economy. Both Mario Rizzo and Hans Hoppe have recently written around the topic.

    It should be noted that Roepke's interventionist thinking did not apply to the post World War ll German economic situation and Erhard freed the markets. He did not add interventionist measures.

  3. My comments above were based on my reading of Ropke's "Crises and Cycles" book which was written before WW2.

    Thanks for the pointers to Rizzo and Hoppe. I think Ropke mentions Hayek on secondary deflation too but, from what I recall, he was quite critical.

    (I noticed that I got the spelling of Ropke's name confused. "Crises and Cycles" lists him as Ropke. Wikipedia lists him as Ropke too)

  4. I came across this recent article on the life of Ropke that may be of interest. (See here)