PhD Economists Endorse Ron PaulA number of well-known economists – such as Nassim Taleb, Marc Faber, Thomas Woods and Paul Craig Roberts – support Ron Paul, believing that he would help the American economy more than any other presidential candidate.
I interviewed one well-known Ron Paul supporter – Dr. Walter E. Block – to find out.
Block is an Eminent Scholar Endowed Chair and Professor of Economics at Loyola University in New Orleans, received his PhD in economics from Columbia University, and is a senior fellow at the Ludwig von Mises Institute. He has written 8 books and more than 300 scholarly articles and reviews, and co-edited dozens of books on economics.
Block just published a book called Ron Paul for President in 2012: Yes to Ron Paul and Liberty.
We asked Professor Block 10 questions related to Ron Paul. [Our follow-up comments are in brackets.]
1. Ron Paul doesn’t support government bailouts for the big banks. But if the big banks fail, won’t it drive us into another depression?
[WEB] No. In the Austrian economic view, depressions are caused by big banks (the Fed) artificially lowering interest rates.
[Austrian economists believe that lowering interest rates too far gives a false signal to businesses to gear up production and invest more, which causes a "misallocation" of resources and unsustainable bubbles ... which always lead to crashes when the bubble bursts.
In addition, top economists have said that failing to let the big banks fail when they make bad bets which lead to insolvency is preventing economic recovery.]
2. Wasn’t the Great Depression a “liquidity crisis” which was made much worse by so many bank failures?
[WEB] Read Rothbard’s America’s Great Depression on this.
[This has never been a liquidity crisis; it has always been an insolvency crisis.]
3. Paul wants to end the Federal Reserve, or at least reduce its powers. But isn’t the Fed – as the “lender of last resort” – critical for keeping us out of a depression by providing stimulus to the economy when consumers and small businesses are tapped out?
[WEB] The fed as lender of last resort is a buttress of sorts, but only because we have fractional reserve banking.
If we have 100% demand deposit banking (see below) this function wouldn’t be needed
[We agree with professor Block. And it should be noted that we no longer even have fractional reserve banking ... we now have fictional reserve banking.]
4. Isn’t the best chance of prosperity for the most people available when the government somewhat plans the economy, and operates the “levers” of economic policy to push more money into the system when things are getting tight?
[WEB] No, that’s central Sovietized planning. Prosperity comes from laissez faire capitalism.
[While many may assume that laissez faire capitalism is a bad thing, and is the cause of our problems, the truth is that we don't currently have real capitalism at all. Instead, we have - depending on the label one uses - crony capitalism, fascism, communist style socialism, kleptocracy, oligarchy or banana republic style corruption. In fact, both liberals and conservatives despise crony capitalism.]
5. Isn’t the Fed – an independent governmental agency – vital for overseeing the big banks as a watchdog, and acting “independently” of the temptations of politicians to promote monetary policy which will help them get re-elected?
[WEB] “Independent govt agency” is a recipe for disaster. Suppose they make a mistake … there would be no market forces that can force them into bankruptcy?
[Indeed. Moreover, the Fed is neither independent, nor even a government agency.]
6. Paul is a “non-interventionist”, who wants to avoid wars that President Obama and Mitt Romney say we need to fight. But isn’t war a necessary form of “military Keynesianism” … i.e. a vital way to stimulate our economy and so keep us out of an even deeper recession? Wouldn’t cutting military spending destroy our economy?
[WEB] Read my new book on this:
Block, Walter E. 2012. Ron Paul for President in 2012: Yes to Ron Paul and Liberty. Ishi Press; http://www.amazon.com/dp/4871873234; http://www.barnesandnoble.com/w/ron-paul-for-president-in-2012-walter-block/1110505571?ean=9784871873239.
[Many top economists say that the claim that war is good for the economy is a myth made up out of whole cloth.]
7. “Austerians” – as Paul Krugman call them – want to reduce our national debt. But isn’t it true – as both liberal and conservative economists have said – that “debt doesn’t matter”? And don’t we have to spend a little more now to get our economy out of the ditch, and then we’ll be more frugal later … when things are stable?
[WEB] We monetize that debt, which creates inflation, lowers interest rates, created booms and then busts.
8. Isn’t the “business cycle” largely responsible for the bad economy? Aren’t “booms” and “busts” part of the nature of things, like seasons?
[WEB] No, they emanate from the Fed. In the fully free society, there would be no such thing as the business cycle. See Rothbard’s Depressions: Their Cause and Cure.
9. Radicals think that we should let our most important companies fail if they’ve made dumb bets, or even that we should put Wall Street executives in jail for “fraud”. But wouldn’t both things undermine people’s trust in our economy, and depress our economy even more?
[WEB] No business should be too big to fail. Trust in the economy is highly overvalued. I oppose putting executives in jail for losing money, unless they are guilty of actual fraud.
[Happy talk and band-aid fixes cannot fix the economy. Blind trust in the stability of banks which have made foolish gambles is not helpful. But restoring trust in the honesty of one another - by prosecuting financial fraud - is vital. Conservative free market advocates and liberals both agree on this basic point.]
10. The May jobs report is a disaster. Paul Krugman (who – like the chairmen of the Fed – advocate blowing bubble after bubble in order to minimize the damage from the bursting of previous bubbles) and other Keynesians blame a failure of the government to spend more, and to do more quantitative easing and other monetary stimulus of the economy.
Do you think that government spending and stimulus are the solution to unemployment? Do you think that the government should blow another bubble in order to increase unemployment?
[WEB] These bubbles only cause inflation. They do nothing to rectify our problems. the Fed should stop this. We ought to end the Fed, and adopt a 100% dollar back gold standard.
[Even the "Central Banks' Central Bank" - the Bank for International Settlements - slammed the Fed and other central banks for blowing bubbles and using other "gimmicks" which only make the economy worse.]