The Mises-Hayek theory of the business cycle — and of our recent housing bubble in particular — is gaining more and more adherents in the "real world." To give anecdotal evidence: Five years ago, when I'd write a Mises Daily article, the fan mail would pour in from college students. But now, I get questions from hedge-fund managers and others working in the financial sector. Austrian economics is no longer a hobby; this is serious stuff.

Because of the popularity of the Austrian message — where Exhibit A is the Ron Paul campaign — mainstream economists are taking the time to explain why (in their opinion of course) the Mises-Hayek theory is nonsense. In the past I've answered Tyler Cowen and Paul Krugman's objections, but today's focus will be the recent critique penned by Australian economist John Quiggin. Read more

David Frum on the Gold Standard

David Frum is on the warpath. In a National Review Online blog post, then an NPR commentary, and most recently in a National Post article, Frum has mercilessly ridiculed the gold standard. But as with most modern critiques of the "bad old days" of the laissez-faire 19th century, Frum's analysis is fraught with theoretical and historical problems.

Frum's main objection is that the gold standard is allegedly rigid, preventing the economy from smoothly adjusting to various shocks:

Since permanently abandoning gold convertibility in 1933, the US economy has experienced far less economic volatility. Recessions are fewer and shallower (if sometimes longer).

Of course, that's not the only way to balance accounts. There is another, the way Americans experienced in 1837, 1857, 1893, and 1930-33. In those years, the value of the dollar was fixed to gold. (One dollar = 1/20 of an ounce.) If something bad happened in the world or US economy, the dollar could not adjust. A recession was like a car accident without bumpers or crumple zones — the full pain was conveyed uncushioned to the riders in the cabin. Domestic asset values collapsed. Unemployment jumped overnight to 15% or 20%. Homes were lost, businesses disappeared.

There's a lot packed into this quote, making it hard to choose where to begin. Let's start with the claims about unemployment. First, Frum makes it appear as if 15% or even 20% unemployment was something typical under the gold standard. But no, the depression of 1893 had unemployment in the low-teens, and this downturn is generally ranked as the worst in US history except for the Great one in the 1930s. Read more

Over the weekend I attended my brother-in-law’s high school graduation. My wife and I were nervous when her brother excitedly told us that the commencement speaker was someone who had spoken to the class before, and was "a pilot who had been in Vietnam and told us he’d done the things that the US government had denied it was doing."

Apprehensive as I was, the speech didn’t turn out as my-country-right-or-wrong as I had feared. He mostly stuck to the clichéd yet important truisms that young people need to hear. (Of course they won’t believe you when you tell them, but after they make the mistakes of chasing popularity, adopting other people’s moral codes, etc. etc., maybe your words will help them understand exactly what went wrong. Then they can continue the cycle by warning the next crop of bored teenagers.) Read more

 This past Sunday was Earth Day. Founded in 1970, the annual event is now celebrated by some 500 million people in 175 countries. Although the friends of the planet might disagree on what they’re for – some care most about the quality of the air we breathe, some want to preserve endangered species, and some extremists wish human beings would leave the scene altogether – they all know what they’re against: capitalism.

Whether the alleged solutions are taxes on gasoline, fines for smokestack pollution, or stepped up enforcement of fishing quotas, the common thread is that free individuals cannot be entrusted to make wise decisions with their private property. Benevolent politicians (taking their cue from the environmentalist experts, of course) must use the power of the government to alter people’s behavior. Read more