Tuesday, November 12, 2013

Keynesian Gets Ron Paul & The Austrian School Completely Wrong

By, Chris Rossini

Fed apologist Matthew O'Brien writes:
Republicans are stuck in 1980, but that's not far back enough for Ron Paul. He wants to drag them all the way back to 1932. And when it comes to the Fed, at least, he's already succeeded.
What a mess...from start to finish.

OK...for all the new kids in the class, Ron Paul is no longer in Congress. Since leaving, he has yet to describe himself as a Republican, nor does he want "to drag them" anywhere.

Republicans wanted nothing to do with Ron Paul. Anyone remember the debates? The national conventions? The censorship and the laughter?

Republicans are twisting on their own rope. As much as it would be nice to say it's because of Ron Paul, we really can't. Between the endless wars and spending extravaganzas, Republicans dug their own grave.

Not sure why O'Brien grabbed the year 1932 either. Ron Paul wants to end the Fed and income tax, but those chains were created in 1913. Ron also states that the government should follow the law, known as the Constitution from 1787. Ron never wasted time talking about 1932 (the year before the New Deal) because what else would you expect from a government that can counterfeit money and claim ownership of everyone's income? The New Deal was an inevitable symptom to a disease that started in 1913. Doctor Paul is rightly concerned with focusing on the disease itself.

Finally, how has Ron Paul succeeded with the Fed. It still exists, so he didn't end the Fed. They still create money out of thin air to the tune of $1 Trillion per year. Ron Paul didn't make a dent in that area either. However, he did something much more effective. Ron Paul alerted the masses, all over the world, about the Fed. No longer can they hide in the dark.

O'Brien continues on his anti-Paul rant:
Paul thinks that central banking inevitably creates booms and busts, because it's just central planning for interest rates. And that any kind of money-printing inevitably turns into inflation. Now, so-called Austrian economics did do a good job "predicting" the housing boom and bust. But that's because it always predicts booms and busts. Nonetheless, that's been enough for it to spread from Ron Paul to Republicans more broadly—and that despite its terrible track record the past few years.
Again, lots of errors.

The phenomenon known as the business cycle began at the same time that central banks arrived on the scene. Just a coincidence? Hardly.

The money-pumping Fed is digging the grave for the U.S. economy.

Keynesians hang their hat on one thing: Whether or not price inflation has kicked in yet. If it hasn't, then that's their justification for continuing their fiat money rampage.

It won't be the first time that the consequences catch them by surprise. As Murray Rothbard wrote about the 1920's:
“The fact that general prices were more or less stable during the 1920’s told most economists that there was no inflationary threat, and therefore the events of the great depression caught them completely unaware.”

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  1. Rothbard showed that the "inflation" went into areas other than the CPI prior to 1929 and that's exactly what has happened here since 2009 as I and others thought it would. My goodness, that is the CENTRAL Austrian explanation of the Great Depression, so it must always be shoved down the memory hole.

    In a strange twist, Rohan Grey, the Columbia law student who organized all of the MMT seminars that included the Murphy/Mosler debate, recommended to me that I study the materials from last years' seminar #5. Those materials include papers from a lefty professor named Farley Grubb which demonstrate that the 1787 Constitution prohibited the issuance of paper money by both the Feds and the states.




    1. You should start your own blog. Not joking!

    2. I have a blog where I write ever so often.


    3. Bob R,

      You should ask Bob W for a job. Your posts are very good.

  2. There is not enough focus on Fractional Reserve Banking as the cause of booms and busts. The central bank yes, but also Fractional Reserve Banking. Unsustainable credit expansion is a big part of it. Ron Paul had that housing bubble pegged though in 2002, which was as early as anyone. He warned stupid Congress about it, but Barney Frank was too busy collecting checks from Fannie and Freddie to reign them in.

    1. Ron Paul was commenting on the housing bubble as early as 2000, actually:


  3. As the past decade demonstrated, the New Keynesian model, with its desperate idea of sticky prices and sticky wages, is as wholly useless at succesfully explaining and predicting the business cycle as its predecssor was at predicting stagflation. Keynesians maintain position and prestige soley because their model is useful to statists and their cronies, not because of any intrinsic merits of their long discredited theory.

    The Austrian theory, on the other hand, more than adequately describes the sad history of booms and busts which have plagued the era of central banking. And when the next bust comes--which surely as night follows day it will--Austrians will yet again provide compelling, irrefutable analyses of its origin. In fact, the groundwork for this has already been laid.

    An overlooked point from Andrew Huszar's op ed today is his admission that the Fed's actions under Bernanke are an EXPERIMENT, which validates Bob's longstanding observation that the head Fed is a mad scientist who cannot foresee all the consequences of his tinkering. The pages of this blog offer suggestions as to why the drastic increase in the money supply has yet to translate into price inflation, and what will happen once those excess reserves are let loose on the open market.

    These pages have also been accurately assessing the actions of the Chinese central bank and their implications for the Chinese economy. Where is the New Keyensian whose model has offered similar insight? It certainly hasn't come from Matthew O'Brien.

  4. The keyensians were shocked and exposed as clueless when the housing bubble burst, so they hate the YouTube videos with Ron Paul calling it in 2001 and 2003 bc it isn't possible to dismiss Austrians and Ron Paul as being cranks or wrong. It literally drives them crazy!

    1. Yet there are still people who do dismiss what the Austrians and Ron Paul were saying. Their cowardice won't let them admit they were full of shit!

  5. Small correction to an otherwise great post. Rothbard showed that the boom-bust cycle happened before the creation of central banking due to the expansion of credit by banks. Central banking just allowed the banks to inflate in coordination reducing the risk of runs and bank failures for a while until the inevitable bust came. So while the business cycle was much less severe before central banking some savvy pro-fed/central bank person could point out that there was still a business cycle so it's important to make sure we don't claim that central banking is the sole cause of the business cycle. Although the boom-bust cycle has been much more severe and noticeable in the time since central banking started particularly as you correctly point out after 1913 with the creation of the fed.

  6. The MSM/TPTB and .gov are scared of Austrian Econ, because it destroys their power base.

    The desire to rule over other men is powerful, and the lure of that power corrupts many people, and most politicians. Many of them "understand" Austrian Econ, but reject it because it doesn't fit with their POV as leaders and technocrats making life better.

    However, each day more people seem alternatives to the false "Left/Right" paradigm, and seek a system that stops the wars overseas

  7. Damn ipad

    ...dismiss him as a kook, those people are still thinking about the things he said. They question the invasions, the central banks, the dying economy in the face of an all-time high in the S&P...and then decide to read a little more about this strange little man who has inspired such a passionate following, selling out venues t colleges that usually struggle to fill 1/4 of the seats for Stone(d) Philips and Baba Wawa.

    Ron Paul is an unlikely rock star, but his influence is growing as his message gets spread far and wide!

  8. "Now, so-called Austrian economics did do a good job "predicting" the housing boom and bust. But that's because it always predicts booms and busts."

    That last sentence is an example of lazy research, which usually means none was done.