This is the fourth in my “won’t you come home?” series. In it, I call upon once-upon-a-time sterling Austrian economists, and/or libertarian theorists, who no longer can be characterized in any such manner, to once again return to their Austro-libertarian roots. The first in this series was Bill Evers, who was at one time Murray Rothbard’s chief lieutenant when it came to matters of history, philosophy, world affairs. Second, Alan Greenspan was well-known as Ayn Rand’s sidekick regarding the gold standard. Third, Randy Barnett was Murray Rothbard’s collaborator insofar as legal theory was concerned.
And Jerry O’Driscoll, my present invitee? He, along with Roger Garrison and Joseph Salerno (who, happily, have not only continued to work in the Austrian tradition, but have made important contributions to it) was Murray’s chief follower regarding free enterprise in general, plus specifically in monetary theory, macro-economics and Austrian business cycle theory. Murray was a bit ticked off with Jerry when the latter took a job at the Federal Reserve. Murray reasoned that the Fed would not exist in the free society; therefore it was contrary to libertarianism to be employed at such as organization (or, with the I.R.S. or the anti-trust division of the so-called Justice Department, for the same reason.) On the other hand, in this view, since schools would indeed operate in a libertarian economy, it would be legitimate to work for a university, even a public one.
With this introduction, we are now ready to consider the falling away from the truth, libertarianism and free markets, on the part of Dr. Jerry O’Driscoll. On December 15, 2016, he published this article “At long last, the Fed faces reality” in the War Street Journal. Why would Murray Rothbard be bitterly disappointed, and why should all Austro-libertarians be disappointed in O’Driscoll? Let me count the ways.
1. He starts out on the wrong foot with these remarks: The Privatization of R... Check Amazon for Pricing.
“As was widely anticipated, Federal Reserve officials voted Wednesday to raise short-term interest rates by a quarter percentage point—only the second increase since the 2008 financial crash. The central bank appears to have finally confronted reality: that its unconventional monetary policy, particularly ultralow rates, simply has not delivered the goods.”
Here, O’Driscoll contents himself with registering the opinion that the Fed is headed in the right direction. As it happens, my own prudential judgement is in accord with his. To me, 3-5% sounds about right, and an addition of 25 basis points is a small step toward that goal. But I do not congratulate the Fed for this decision. Instead, I call for the elimination of this central planning institution.
Jerry quite properly dismissed “a greater reliance on ‘automatic fiscal stabilizers’ … such as extending unemployment benefits” as “conventionally Keynesian.” But then he turns around and accepts several other nostrums which are equally “conventionally Keynesian.” These include infrastructure, education, private investment and more effective regulation, which we now consider.
“Speaking two weeks earlier at the Council on Foreign Relations, Fed Vice Chairman Stanley Fischer touted the power of fiscal policy to enhance productivity and speed economic growth. He called for ‘improved public infrastructure, better education, more encouragement for private investment, and more effective (sic) regulation… Mr. Trump campaigned on $1 trillion in new infrastructure, though the details are not fully worked out. The left thinks green-energy projects—such as windmill farms—qualify as infrastructure. Living in the West, I’d prefer to build the proposed Interstate 11, a direct line from Phoenix, to Las Vegas and then to Reno and beyond.” Defending the Undefend... Best Price: $1.99 Buy New $10.80 (as of 07:55 EST - Details)
Say what? Government road building as a Rothbardian free enterprise project? This is a downright contradiction in terms. Poor Murray is spinning in his grave at the prospect of one of his best (informal) students calling for such statist initiatives. If I thought Jerry would read this book of mine, I’d send him a free copy: Block, Walter E. 2009. The Privatization of Roads and Highways: Human and Economic Factors; Auburn, AL: The Mises Institute;
4. Education. “Nominating Betsy DeVos to lead the Education Department shows Mr. Trump’s commitment to real education reform, including expanded school choice. Much of America’s economic malaise, including income inequality and slow growth, can be laid at the feet of deficient schools. Although some students receive a world-class education, many get mediocrity or worse.”
Miss DeVos is a leader in the charter school movement. But “real education reform” consists of privatizing all public schools, and leaving education solely to the market. For the libertarian, just as there should be a separation of Church and State, so should there be one between Education and State. The government should have no more to do with education than it now has with bubble gum; less, if anything, since it taxes that product.
“School choice,” moreover, is code for educational vouchers. Yes, Milton Friedman favors this public-private partnership, but that is just an element of economic fascism. For shame, Jerry. What about full privatization of education? Not only is Murray Rothbard disappointed, but so is Fr. James Sadowsky, S.J., another mentor of yours.
And since when did “income inequality” become an “economic malaise?” This, it seems to me, is if anything even worse than Keynesianism. At least Lord Keynes was presumably trying to save capitalism. Of course, his method was to save it by destroying it, but that is another matter. Promoting income equality has no saving grace whatsoever, at least not for the libertarian. For shame, Jerry. Maybe you should reread this splendid essay: Rothbard, Murray N. 1971. “Freedom, Inequality, Primitivism and the Division of Labor.” Modern Age, Summer, pp.226‑245. Reprinted in Kenneth S. Templeton, Jr. (ed.), The Politicization of Society. Indianapolis: Liberty Press, 1979, pp. Defending the Undefend... Best Price: $250.00 (as of 07:45 EST - Details) 83‑126. Reprinted in The Logic of Action Two: Applications and Criticism from the Austrian School. Glos, UK: Edward Elgar Publishing Ltd., 1997, pp. 3-35. At one time, when you were a young lad, you could have recited it from memory. Where have you gone, Jerry?
5. Private investment and deregulation.
Waitasec. Prof. O’Driscoll quoted Fed Vice Chairman Stanley Fischer, positively, as calling for “more effective regulation” not “deregulation.” How did our long-ago free enterprise supporter deduce the latter from the former? Obviously, deregulation, not more effective regulation, is the only one compatible with laissez faire capitalism.
Our author continues: “Businesses need greater regulatory certainty, and reasonable statutory time limits should be placed on environmental reviews and permit applications. That, along with tax cuts, would do the trick for boosting investment.”
There are problems here too. No, businesses do not need greater regulatory certainty. They have plenty of that in Venezuela. What they need is no government regulation. The untrammeled market and private courts would provide all the “regulation” that is needed. Time limits on environmental applications? How about, instead, an end to the EPA and that alphabet soup of other governmental environmental regulations? Tax cuts are all well and good as a first start. But even Ayn Rand, a mere minarchist, called for the entire elimination of all compulsory taxes. Are we going to allow her to best us in this?
6. Central bank
“All that said, central bankers have a role to play as well. The Fed’s ultralow interest rates were intended to be stimulative, but they also squeezed lending margins, which further dampened banks’ willingness to loan money. There’s a strong case for a return to normal monetary policy. The prospects for economic growth are brighter than they have been in some time, and that is good. The inflation rate may tick upward, which is not good. Both factors argue for lifting short-term interest rates to at least equal the expected rate of inflation. Depending on one’s inflation forecast, that suggests moving toward a fed-funds rate in the range of 2% to 3%. The Fed need not act abruptly, but it also does not want to get further behind the curve. Next year there will be eight meetings of the Federal Open Market Committee. A quarter-point increase at every other meeting, at least, would be in order.”
No, no, no, a central bank is akin to the planning bureaus of the U.S.S.R. Scratch that “akin” business. Central banking is central planning for a crucially important aspect of the economy. Only an economist who has the heart of a central planner would call for a specific interest rate. O’Driscoll might as well have called for a particular price of gasoline or potatoes or CEO salaries. Wage – price controls, anyone? And in the name of free enterprise? My old friend Jerry advocates a “normal monetary policy.” If by this he means that pursued by the Fed for the last 100 years and more, this is hardly compatible with the free enterprise philosophy he studied and vociferously recommended when he was a young man.
Jerry O’Driscoll does not even end on a positive note regarding tariffs and international quotas. He does not urge a unilateral declaration of free trade with all nations, regardless of their own policies in this regard (even an economic interventionist such as Milton Friedman favored such a stance). Instead, he contents himself with supporting “David Malpass, a Trump adviser and regular contributor to these pages, (who) argues that trade deals like the North American Free Trade Agreement are rife with special benefits for big companies, but that they do not work for America’s small businesses. The argument is that Mr. Trump wants to renegotiate these deals to make them work better. I hope Mr. Malpass is correct, and that President-elect Trump can pull it off.” That is it? The pious hope that Mr. Trump can renegotiate several customs union trade deals? What happened to the clarion call for full free trade from the likes of Cobden, Bright, Hume, Henry Hazlitt, heroes of his early days in the Austro-libertarian movement?
7. Cato Institute
This is how the War Street Journal describes our author: “Mr. O’Driscoll, a senior fellow at the Cato Institute, was a vice president at the Federal Reserve Bank of Dallas.” In turn, the Cato Institute characterizes itself in this way: “The Cato Institute is a public policy research organization — a think tank — dedicated to the principles of individual liberty, limited government, free markets and peace.” It is difficult to see how the O’Driscoll essay under review can be reconciled with limited government, let alone anything like a full blown libertarianism.
8. Dear Jerry:
In the name of all that which is important, c’mon back. We miss you. I learned from you in our early days. You were once amongst the most gifted of the colleagues of our mentor, Murray Rothbard. The water is fine in what is now the growing Austro-libertarian movement. I don’t know what others may say, but as for me, I miss your enthusiasm, your take-no-prisoners approach to our philosophy, your outspokenness. C’mon back. Best regards, your friend, Walter. P.S.: Hey, I’m trying to save your soul, here. I hope and trust you will interpret my remarks in that way.