Many thanks to Prof. Steve Horwitz for this generous review of Meltdown that appeared in The Freeman, the publication of the Foundation for Economic Education. Gene Epstein of Barron’s has been insisting I put together a documentary based on the book. An English-language producer at Al Jazeera is already doing one that features Meltdown heavily.
What is most impressive about Meltdown, though, isn’t anything I’ve done — it’s what Mises and Hayek have done. Their business cycle theory explains so persuasively what’s happened to us: central-bank intervention discombobulated the capital structure and gave us an unsustainable boom. An observer unfamiliar with Austrian business-cycle theory might claim housing isn’t a “long-term project” and thus doesn’t fit into the Mises-Hayek story, but that would just underscore his lack of acquaintance with the Mengerian framework in which Mises and Hayek operated. Housing is a long-term consumer durable, interest rate sensitive, that is time-consuming to build and is very capital intensive.
Bob Murphy puts it this way: “E.g., seeing a laser light show in the planetarium versus watching a street musician are both non-durable consumer goods (services); the enjoyment they provide to consumers is fleeting. But obviously to produce the planetarium show takes a much longer investment of factors of production, etc.”
The fact that people took out home-equity loans to finance consumption also fits perfectly into the Mises-Hayek framework, certainly in the Garrisonian rendering of the theory that finds both investment and consumption expanding simultaneously and incompatibly during the boom.
When I spoke at the University of Connecticut School of Business last week alongside the president of one of the largest insurance companies in the world (he took the opposing view), I was stunned at the response — faculty and deans wanted more about Mises and Hayek. “You make an extremely persuasive case,” said a 20-year veteran of the school.
Who could have expected such developments?
5:36 pm on November 1, 2009
