March 23, 2009
BOOK REVIEW: 'Meltdown' Author: It's Time to Scrap 'Mainstream' Economics That Won't Work in Favor of Austrian School, Free-Market Approaches
"Those who cannot remember the past are condemned to repeat it." -- George Santayana, 1905, "Life of Reason, Reason in Common Sense"
By David M. Kinchen
Huntingtonnews.net Book Critic
Santayana's aphorism could be applied to the myriad of TARPs, bailouts, stimuli and other programs
now being put into place by the federal government to solve the worst financial
meltdown since the Great Depression, in the view of Thomas E. Woods Jr., author of
"Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked,
and Government Bailouts Will Make Things Worse" (Regnery, 194 pages, plus three-page foreword
by Rep. Ron Paul, R-TX, $27.95).
Woods argues persuasively in this slim book that government intervention in the past -- including both Herbert Hoover's and Franklin D. Roosevelt's response to the 1929 stock market crash -- only prolonged the Depression. He points to the 1920-21 post World War I recession -- a "forgotten depression" that he says was worse than the current one -- which ended without the frantic moves by the Federal Reserve system that characterize the current recession.
He writes: "Not surprisingly, modern economists [translation: mainstream, Keynesian economists] who have studied the depression of 1920-21 have been unable to explain how the recovery could have been so swift and sweeping even though the federal government and the Federal Reserve refrained from employing any of the macroeconomic tools -- public works spending, government deficits, inflationary monetary policy -- that conventional wisdom recommends as the solutions to economic slowdowns."
A devotee of the Austrian School of economics and a senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, Woods, who has a Ph.D from Columbia University, says that if you believe in the free market, you cannot support the Fed, "one of the most intrusive interventions into the market." Before the Federal Reserve Act was passed during the Wilson Administration in 1913, free market economic approaches limited panics, depressions and recessions to relatively short durations, Woods argues -- and he supplies succinct descriptions of past meltdowns.
If you don't want to go all the way back to 1920-21, how about what the Japanese call the "lost decade," the period of the 1990s when the Japanese government used all of the approaches we're told are necessary in the U.S. to spend the way out of a similar meltdown, driven by many of the same elements, including a massive real estate bubble.
"Ask Japan how their trillions of yen economic stimulus packages worked for them," Woods says. "They still haven't recovered from their government's intervention 18 years later." Interventions in Japan included pouring more concrete to build unneeded roads than the U.S., in a country with a fraction of the land mass of the U.S. and less than half the population.
What the heck is the Austrian School of economics? Wikipedia says: "Austrian School economists advocate the enforcement of voluntary contractual agreements between economic agents, but otherwise the smallest imposition of coercive force (especially government-imposed) on commercial transactions.
"Although often controversial, the Austrian School was once influential dating back to the early 20th century...The Austrian School derives its name from its predominantly Austrian founders and early supporters, including Carl Menger, Eugen von Böhm-Bawerk and Ludwig von Mises. Prominent Austrian School economists of the 20th century include Joseph Schumpeter, Henry Hazlitt, Murray Rothbard and Nobel Laureate Friedrich Hayek... The Austrian School now lies outside the mainstream."
Lying outside the mainstream is no problem to Woods, author of "The Politically Incorrect Guide to American History" and a senior fellow at the Ludwig von Mises Institute in Auburn, AL.
By following the principles of "mainstream" economics -- he has particularly harsh words for New York Times columnist Paul Krugman, a mainstream economist at Princeton University -- the government and the media created the myth that people should not question the government's response -- whether it be the Bush Administration's rushed through bailouts of last summer and fall, or the current Obama Administration's trillion dollar measures -- but leave it up to experts, Woods says.
Perhaps the most radical proposal in "Meltdown" is Woods' suggestion that the Federal Reserve system should be scrapped, along with government involvement in mortgage institutions like Freddie Mac and Fannie Mae. He is supported in this by Ron Paul, who writes in the foreword: "The Federal Reserve and its manipulation of money and interest rates have failed."
Woods says: "If you believe in the free market, you cannot support the Fed, one of the most intrusive interventions into the market. If you believe in the free market, you cannot support central planning of money, the very lifeblood of the economy. If you believe in the free market, you cannot support government price-fixing, including the fixing of interest rates."
Speaking of money -- and it's particularly appropriate in light of all the gold and silver promotions seen on TV commercials these days -- Woods would like to see a return to gold and silver as a basis for money. No, he doesn't want a return to the gold standard that existed in the U.S. prior to 1933; instead he wants gold and silver to be one of the choices people in a free market economy can select. Already, he writes in his chapter on money several institutions marketing precious metals have issued debit cards -- what most people use nowadays anyway -- to access the gold or silver they own.
Woods quotes free-market economist Henry Hazlitt, who "in saner times wrote editorials on economic topics for the New York Times": "The tremendous merit of gold is, if we want to put it that way, a negative one: it is not a managed paper money that can ruin everyone who is legally forced to accept it or who puts his confidence in it. The technical criticisms of the gold standard becomeutterly trivial when considered with this single merit."
The ideas in "Meltdown" will sound extreme to anyone immersed in mainstream, Keynesian economics, but supporters of the Austrian School can justly say that if a system doesn't work, it's time to consider alternatives. After all, one definition of insanity is doing something that has failed in the past, expecting a different result this time.
"Meltdown" is a jargon free, mathematics formula free approach to a form of economics that makes sense to people, once they read about it and learn its principles. Woods provides a list of resources in his book, which includes notes and and index. As a supporter of libertarian economics -- and someone who would like to see Fannie, Freddie and the Fed disappear -- I recommend this book without reservation.
Publisher's website: www.regnery.com
Author's website: www.ThomasEWoods.com
Austrian School website: www.Mises.org
(this site contains a wealth of information and has links to many related sites; highly recommended).
Share This Story:
Make HNN Your Homepage (IE Users Only)
BOOK REVIEW: 'Meltdown' Author: It's Time to Scrap 'Mainstream' Economics That Won't Work in Favor of Austrian School, Free-Market Approaches
"Those who cannot remember the past are condemned to repeat it." -- George Santayana, 1905, "Life of Reason, Reason in Common Sense"
By David M. Kinchen
Huntingtonnews.net Book Critic
Santayana's aphorism could be applied to the myriad of TARPs, bailouts, stimuli and other programs
now being put into place by the federal government to solve the worst financial
meltdown since the Great Depression, in the view of Thomas E. Woods Jr., author of
"Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked,
and Government Bailouts Will Make Things Worse" (Regnery, 194 pages, plus three-page foreword
by Rep. Ron Paul, R-TX, $27.95).
Woods argues persuasively in this slim book that government intervention in the past -- including both Herbert Hoover's and Franklin D. Roosevelt's response to the 1929 stock market crash -- only prolonged the Depression. He points to the 1920-21 post World War I recession -- a "forgotten depression" that he says was worse than the current one -- which ended without the frantic moves by the Federal Reserve system that characterize the current recession.
He writes: "Not surprisingly, modern economists [translation: mainstream, Keynesian economists] who have studied the depression of 1920-21 have been unable to explain how the recovery could have been so swift and sweeping even though the federal government and the Federal Reserve refrained from employing any of the macroeconomic tools -- public works spending, government deficits, inflationary monetary policy -- that conventional wisdom recommends as the solutions to economic slowdowns."
A devotee of the Austrian School of economics and a senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, Woods, who has a Ph.D from Columbia University, says that if you believe in the free market, you cannot support the Fed, "one of the most intrusive interventions into the market." Before the Federal Reserve Act was passed during the Wilson Administration in 1913, free market economic approaches limited panics, depressions and recessions to relatively short durations, Woods argues -- and he supplies succinct descriptions of past meltdowns.
If you don't want to go all the way back to 1920-21, how about what the Japanese call the "lost decade," the period of the 1990s when the Japanese government used all of the approaches we're told are necessary in the U.S. to spend the way out of a similar meltdown, driven by many of the same elements, including a massive real estate bubble.
"Ask Japan how their trillions of yen economic stimulus packages worked for them," Woods says. "They still haven't recovered from their government's intervention 18 years later." Interventions in Japan included pouring more concrete to build unneeded roads than the U.S., in a country with a fraction of the land mass of the U.S. and less than half the population.
What the heck is the Austrian School of economics? Wikipedia says: "Austrian School economists advocate the enforcement of voluntary contractual agreements between economic agents, but otherwise the smallest imposition of coercive force (especially government-imposed) on commercial transactions.
"Although often controversial, the Austrian School was once influential dating back to the early 20th century...The Austrian School derives its name from its predominantly Austrian founders and early supporters, including Carl Menger, Eugen von Böhm-Bawerk and Ludwig von Mises. Prominent Austrian School economists of the 20th century include Joseph Schumpeter, Henry Hazlitt, Murray Rothbard and Nobel Laureate Friedrich Hayek... The Austrian School now lies outside the mainstream."
Lying outside the mainstream is no problem to Woods, author of "The Politically Incorrect Guide to American History" and a senior fellow at the Ludwig von Mises Institute in Auburn, AL.
By following the principles of "mainstream" economics -- he has particularly harsh words for New York Times columnist Paul Krugman, a mainstream economist at Princeton University -- the government and the media created the myth that people should not question the government's response -- whether it be the Bush Administration's rushed through bailouts of last summer and fall, or the current Obama Administration's trillion dollar measures -- but leave it up to experts, Woods says.
Perhaps the most radical proposal in "Meltdown" is Woods' suggestion that the Federal Reserve system should be scrapped, along with government involvement in mortgage institutions like Freddie Mac and Fannie Mae. He is supported in this by Ron Paul, who writes in the foreword: "The Federal Reserve and its manipulation of money and interest rates have failed."
Woods says: "If you believe in the free market, you cannot support the Fed, one of the most intrusive interventions into the market. If you believe in the free market, you cannot support central planning of money, the very lifeblood of the economy. If you believe in the free market, you cannot support government price-fixing, including the fixing of interest rates."
Speaking of money -- and it's particularly appropriate in light of all the gold and silver promotions seen on TV commercials these days -- Woods would like to see a return to gold and silver as a basis for money. No, he doesn't want a return to the gold standard that existed in the U.S. prior to 1933; instead he wants gold and silver to be one of the choices people in a free market economy can select. Already, he writes in his chapter on money several institutions marketing precious metals have issued debit cards -- what most people use nowadays anyway -- to access the gold or silver they own.
Woods quotes free-market economist Henry Hazlitt, who "in saner times wrote editorials on economic topics for the New York Times": "The tremendous merit of gold is, if we want to put it that way, a negative one: it is not a managed paper money that can ruin everyone who is legally forced to accept it or who puts his confidence in it. The technical criticisms of the gold standard becomeutterly trivial when considered with this single merit."
The ideas in "Meltdown" will sound extreme to anyone immersed in mainstream, Keynesian economics, but supporters of the Austrian School can justly say that if a system doesn't work, it's time to consider alternatives. After all, one definition of insanity is doing something that has failed in the past, expecting a different result this time.
"Meltdown" is a jargon free, mathematics formula free approach to a form of economics that makes sense to people, once they read about it and learn its principles. Woods provides a list of resources in his book, which includes notes and and index. As a supporter of libertarian economics -- and someone who would like to see Fannie, Freddie and the Fed disappear -- I recommend this book without reservation.
Publisher's website: www.regnery.com
Author's website: www.ThomasEWoods.com
Austrian School website: www.Mises.org
(this site contains a wealth of information and has links to many related sites; highly recommended).
Share This Story:
Make HNN Your Homepage (IE Users Only)
