Required Reading

Take 15 mintues or so, and really read and digest this article by Lew Rockwell. It's time well spent, especially for those who find reading Hayek a chore (although some of the concepts Rockwell touches on are more evident to those familiar with Mises' and Hayek's work, and given the opportunity and reading comprehension, I strongly suggest reading anything and everything by both.)

Some nuggets:

Let me begin, then, with some background on the Austrian business cycle theory. At the start of the Great Depression in Europe, the Austrian School, then still centered in Vienna, was well positioned to explain the cause and offer a way out. Mises's first statement of the core of the theory had been widely circulated in his 1912 book, The Theory of Money and Credit. It was still considered the definitive work. In this book, he explains how interest rates are not arbitrary constructs or prices of money dictated by central banks, but rather an integral part of the market economy that coordinates productivity, investment, and savings.

When these signals are manipulated by the central bank, they convey bad information to producers about the availability of resources. Producers invest for a longer time horizon than exists in the real economy and their clusters of errors create what appears to be a sharp rise in productivity and growth. But the boom turns to bust in the passage of time, as consumers run out of resources and projects are left unfinished. The low-interest rate policy had a good run of it, but eventually reality returns and the bad investments are washed out of the system.

And..

Now, in my ideal world, the US would take the path long recommended by the old liberal tradition. We would have free trade with the world, establish a gold standard that defined the dollar as gold and otherwise ending central banking, and bring about completely free domestic markets. This is the Austrian version of utopia, and it has two key advantages: it would bring about the most productive economy in the history of the world, and it would also serve as the best guard to freedom.

A few of the top 10 errors:

I here offer what I regard as Bush's top ten economic errors, which might be the very errors that will make the next depression far worse than it needs to be.

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Number Eight: The Social Security Reform Hoax. Genuine privatization would be a grand idea. But that is not what the Bush administration proposes. Not anywhere close. They are proposing to partially convert the existing tax and spend system into a forced savings program. This is not choice but rather a species of socialism. The forced investments would be fed to approved funds with approved companies and be guaranteed a rate of return.

So in the end, Bush-style privatization would partially socialize the most important sector of the American capital markets, and we aren't talking about small change. And how would this transition be funded? Bush has suggested that he would be willing to lift the FICA cap, which would mean the worst tax increase in US history. Debt, taxes, inflation—take your pick. The costs are in the trillions.

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Number Seven: Government Spending. You will notice that Bush has lately been talking like a budget cutter. He is going to rein in government spending, he says. Well, I suppose everyone has known about the great uncle who swears he is going to cut back on his drinking but somehow keeps ending up at the dry-out farm. He is the first president since John Quincy Adams not to veto a single bill during his first term in office. Total federal government spending is up by 30% in his first term, which is three times the rate of growth wrought by that bad old big spender Bill Clinton. Since 2001, the government has hired an additional 140,000 civilians for its ranks.

In an anomalous manner, government revenue has been falling for some six years. Now, the response in a household to this type of trend would be to cut back. But the government has the exact opposite response. It has become more profligate even as its revenue stream is not producing what it might have expected. But beware: the bills will be paid somehow someday. All we know for sure is who will be doing the paying.

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Number Three: Signing and Enforcing SOX. At the end of the dot com bust, some people in Washington developed the idea that corporate America is run by crooks who spend all their time cooking the books. Now: imagine politicians in Washington complaining about anything run by crooks who cook the books! In any case, their answer was a series of show trials for CEOs and CFOs that completely overlooked how the business cycle had changed accounting standards.

That was followed by the passage of the Sarbanes-Oxley Act, which gave the federal government complete supervisory authority over the accounting of every publicly listed company and enforced criminal penalties against CEOs and CFOs that sign off on audits that government disputes.

The costs have been unthinkably large: in the hundreds of billions. Accountants report spending nearly all their time complying with it, and some critiques have compared this bill with FDR's National Industrial Recovery Act, given how much it empowers government to manage affairs that were once left to the discretion of the private sector.

And don't you just love the theory behind these regulations, which supposes that large publicly listed companies have no strong incentive to keep good books. It only takes a moment's thought to realize that the investor class is the most sophisticated watcher of business, and business has every incentive to provide whatever information is needed or wanted by investors. It was the markets, not government, that discovered the anomalies at Enron and the high-profile cases. All government regulations end up doing is forcing companies to waste resources complying with edicts rather than serving stockholders and consumers.

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Number Two: Markets By Force. As a lover of free markets, I'm embarrassed that the Bush administration has said that part of its goal in invading Iraq and bringing total chaos and massive death to that country was to give them a capitalistic economy. In fact, the Bush administration still enforces price controls on gasoline in Iraq, still forbids free trade, still excludes free enterprise communication and airline companies from setting up shop, and still refuses to allow Iraqis control over their own oil. However, even had the US really brought about free enterprise in Iraq, militarism and war is not the right way to do it. The way to bring markets to the world is not by war and force, but by trade and example.

I suggest we take with a grain of salt all claims by the Bush administration that it is seeking to expand markets around the world. If it really sought to expand markets, the place to begin is right at home. Instead, we've seen the opposite. It is closing markets, harassing successful entrepreneurs, and hobbling enterprise through high regulations.

Finally, the best one:

The beauty and glory of economic science is that it consists in a series of laws and principles that do not change according to time and place. The prescription for prosperity and stability and human economic flourishing is always and everywhere the same: freedom of association, freedom of contract, freedom of enterprise, freedom to trade across borders without penalty, sound money that is redeemable in something besides paper, private property rights, wages and prices that adjust by market conditions, and a legal structure that shores up these institutions rather than undermines them.

Seriously, read it all.