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VOL. 127 | NO. 49 | Monday, March 12, 2012

Worldly View

Caldwell to discuss Austrian school of thought during speech to Economics Club of Memphis

By Andy Meek

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Ron Paul would feel right at home in the Economic Club of Memphis audience next week.

Duke University professor Bruce Caldwell will speak to the club Thursday, March 15, to make a presentation titled “Some (mostly) Austrian insights for these trying times.” That’s Austrian, as in the Austrian school of economic thought represented by a particular brand of deficit hawkishness, bailout-ballyhooing and bristling against big government that Paul the perennial Republican presidential candidate loudly champions.

Stick with us here. Because while on the one hand Austrian economics is the kind of thing that whips economists up into a fever pitch about things like currency debasement and whether the return to the gold standard is a pipe dream, this stuff really matters.

More than a candidate’s stance on contraception. More than a president’s agenda for the military and foreign policy. More than a governor’s focus on illegal immigration. And even more than a mayor’s focus on tax incentives to spur economic development.

Caldwell, the director of the Center for the History of Political Economy at Duke, is coming to Memphis to give a presentation at the heart of which is the notion about what should be the proper scope of government – any government, federal, state and local.

Different schools of economic thought are bubbling to the surface at present because of the fix the country finds itself in at the moment. Unemployment is generally regarded as too high. Housing, at least for the moment, is still in a rut.

On the local level, at a retreat several days ago for Memphis Mayor A C Wharton Jr. and Memphis City Council members to informally get their arms around the state of the city’s finances, there were a couple of surprises.

While the city still has a strong bond rating (AA), council members were also told the city’s shrinking population and property tax base is cause for concern. At one point, longtime city finance and housing development official Robert Lipscomb displayed a slide that depicted the greatest shipwreck in history – an image of the Titanic.


Austrian economists rail against Federal Reserve chairman Ben Bernanke’s move to keep interest rates near zero to keep money flowing.

He meant it to illustrate the dangers of financial and economic icebergs that have barely broken the water’s surface, the full dangers of which aren’t yet known.

Shelby County voters cast ballots March 6 in presidential primary races. President Barack Obama, of course, is unopposed on the Democrat side, while local Republicans have varying allegiances to this or that candidate that generally depend on who they think can best deliver on the economy and jobs.

Economists and economic historians like Caldwell figure now is as good a time as any to take a look back into history.

“People say, particularly when things go bad, ‘Well, I wonder if there are lessons from the past I can draw on,’” Caldwell said. “And there generally are lessons from the past.


A modern-day face of Austrian economics, Rep. Ron Paul favors eventually ending the Fed and dismantling much of what he believes are non-core government programs.

“These have been particularly intense times. People are worried about the economy. They go back and compare it to the Great Depression, and they realize economists like (John Maynard) Keynes and (F.A.) Hayek had disagreements that became public about the business cycle back then, and it’s always worth taking a look at what people as smart as Keynes and Hayek thought about things.”

For the past 20 years, Caldwell’s research has focused on the writings of Hayek, a Nobel Prize-winning economist and social theorist. Caldwell’s biography of Haeyk, “Hayek’s Challenge: An Intellectual Biography of F.A. Hayek,” was published in 2004.

He’s also held research fellowships at New York University, Cambridge University and the London School of Economics.

Art Carden, an assistant professor of economics at Rhodes College, said the phrase “Austrian economics” is not simple to define and refers to a broad philosophical outlook.

“Austrian economics refers to a branch of economic inquiry that studies processes behind how markets work and societies evolve,” Carden said. “Austrians look at what causes economic growth, and in recent years they’ve looked at how central banking might distort prices. One way is through money creation, which lowers interest rates, and those interest rates then send an incorrect signal about consumers.”

Hence, if you’ve been paying attention to any of the presidential debates, the constant barrage from Paul about the need to “end the Fed,” which is the phrase that’s become almost a mantra of his.

The country is in the midst of a spirited debate centered on economics, and especially what the role of the government should be in the economy, that’s become magnified by presidential politics.

Obama’s signature domestic legislation – his sweeping health care reform bill – is the subject of litigation that will be put before the U.S. Supreme Court later this month, when oral argument is scheduled to be held.

That legislation was controversial, will have a big impact on the economy – and was partly responsible for a kind of revival of interest in Austrian economics, according to Caldwell.

“A lot of times I get questions, like, what would Hayek say about this or that,” Caldwell said. “So what I did is I prepared a paper for The Heritage Foundation that had a funky title, like, 10 Mostly Austrian Insights for These Trying Times.

That is the basis for the Memphis talk, the idea being that Hayek said a number of things back in his day and how we might think about what he said in terms of helping us better understand what’s going on today.”

Hayek died in 1992. Caldwell said his ideas started to get a revival after the collapse of the Soviet Union – and that the next burst of interest came after the Obama health care bill.

“People started to say this is socialism, and Obama’s a socialist – which is not true,” Caldwell said. “But ‘Obamacare’ was viewed as socialized medicine, so people thought, who can we refer to that was a critic of socialism? And of course there was Hayek.

“The person who really kind of pushed this then was Glenn Beck. On his program he kept holding up Hayek’s book (The Road to Serfdom) saying you ought to buy and read it, and the next day it shot up to No. 1 on Amazon.com.”

There are aspects to what Hayek promoted that are controversial in some circles. One of those, according to what Caldwell wrote in his Heritage Foundation paper, is that Hayek believed a downturn in a business cycle is painful but necessary to restore balance to an economic system.

So if you start from the premise that a slump in a business cycle is necessary, what would you avoid doing? Artificially trying to bring that downturn to an end before it’s naturally returned to a state of equilibrium.

This is why some people are dismissive of this school of thought.

It suggests, for example, that a proper response to the collapse of Lehman Brothers and the worst of the 2008 recession would have been – to do nothing.

Carden said that’s looking through the binoculars from the wrong end.

“Austrians would say, how do we avoid crises in the first place, and then how do governments do the least damaging thing once they do get here,” he said. “Yank the Band-Aid off, and we’ll be better for it in the long run.”

Among other controversial aspects of Hayek’s philosophy and the Austrian school of thought, they have far less focus on the social safety net than politicians from both major U.S. parties do.

An Austrian economist would argue that if everyone is treated equally under the law, and given that everyone has different talents, attributes and skills, some people will naturally experience different realities than other people. And they would go on to say that correcting that by treating some people differently – providing government assistance to certain people – is unfair.

To bring this closer to home – Caldwell said Hayek and the Austrians would look at the system of tax freezes to spur economic development in Memphis and Shelby County and would say, simply, “Get rid of it.”

“All of these things are just golden-paved roads for crony capitalism to develop,” Caldwell said. “Where the government is just giving out these favors and they’re competing against each other for tax breaks for businesses. (Hayek) would want the government to get out of picking winners and trying to manipulate the economy. Just get out of people’s way. Just let it work.”

With all of the things such an economist is against, what would an Austrian be for?

“Hayek was definitely not for laissez-faire,” Caldwell said. “He definitely saw a role for government. I think the standard things he’d want to see are protection of life, liberty and property. Enforcement of contracts. Prosecution of fraud. Having a working democracy in conjunction with a free market system and trying to get a stable currency.

“And a stable currency is a very hard thing. Theoretically, a free banking system would have self-correcting mechanisms. But I myself have never figured out whether the kind of stuff some of the Austrians have looked at in terms of free banking are scalable to as complex a society as we live in now. Money’s always going to be a problem.”

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