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Why The Austrian School Needed George W. Bush to Bailout Wall St.


No, it was not to save the global economy, nor was it that the leader of the free world was needed to save the free market.  Most average Americans can cite a common phrase or paragraph on who they blame for the current financial crisis, less are able to on why our American economy entered the recession in late 2007 and supposedly ended with a rise in GDP at the end of 2009.

By the GDP definition this recession ended with a rise in GDP within the last few months or so.  There is debate on the calculation of this rise and the government spending and intervention in the market to achieve it. The generally accepted GDP definition of a recession is two down quarters of GDP.  There are several economic indicators that determine the health of the economy, GDP is just one of these indicators.  The GDP approach attempts to simplify the complex identification process due to the manipulative and deceptive nature of government data and statistics.

Although some media and many economists have been quick to announce the recession has ended and the economy's renewed path towards expansion, albeit modestly, none have taken the position that our systems are in the clear.  Even the authority for dating U.S. recessions, the Business Cycle Dating Committee of the National Bureau of Economic Research, has not noted this recession as having ended on their website.  Either their web master has been out of town or they aren't convinced the U.S. is out of the woods.

During the fall of 2008 President George W. Bush was quoted time and again with statements such as "I abandoned my free market principles to save the free market system."  In a movie this catchy phrase may have been cool, but this is not a movie and the majority of working class Americans live in reality.  If they weren't before, this recession has definitely forced it. 

The rhetoric and unprecedented actions taken by the supposed "laissez-faire, free market, conservative" Republican President Bush were precisely the opportunity needed for the Austrian school to correct the record on Keynesian policies and its offshoots.  Keynesian apologists advocate extreme fiscal and monetary intervention to palliate and reverse the short-term effects of business cycles, recessions and depressions, but disregard the mid- and long term consequences of their aspirations. 

The continuation of Keynesian policies by the Obama Administration better serves the Austrian cause.  All the economic Keynesian fallacies that dominate each administration need to be recognized for what they are -- detrimental to our society and the cause of our current economic woes.  A "crisis" each presidential cycle is hardly indicative of a well functioning economic system no matter the number claiming pragmatism and empiricism.

Flashback: An opportunity to build perspective

Following the stock market crash of 1929 and the years leading up to the Great Depression, former Republican President Herbert Hoover was credited for "doing nothing" to address the sputtering economy.  Today, as some sort of learning lesson, interventionist apologists everywhere in the media and Washington argue or better yet "assert" President Hoover allowed the economy to freefall into oblivion.  Hoover's policies were hardly laissez-faire leading up to the stock market crash of 1929 and after, but that point has been well documented in numerous articles by Murray Rothbard.  Hoover's successor, President Franklin D. Roosevelt, is credited with rescuing the economy, placing it on government's shoulders while he expanded nearly every facet of government and the money supply with it. 

As President Obama has similarly declaimed during his own inaugural address and several instances thereafter, President Roosevelt during his own inaugural address on March 4, 1933 blamed the economic crisis on bankers, profits and the self-interest of capitalism:

"Primarily this is because rulers of the exchange of mankind's goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence....The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit."

During the 1930's President Roosevelt passed the Emergency Banking Act, National Industrial Recovery Act, Social Security Act, Glass-Steagall Act, Fair Labor Standards Act and the National Relations Act, among several others.   His administration created the Federal Emergency Relief Administration, National Recovery Administration, Civilian Conservation Corps, Agricultural Adjustment Administration, and Public Works Administration.  Let's not forget his creation of the Federal Deposit Insurance Corporation (FDIC) and Securities and Exchange Commission (SEC) which in the past two years have received significant recognition- all of it being bad.

Roosevelt's toughest opposition was the Supreme Court, which overturned some of his New Deal programs.  They were declared unconstitutional and in violation of the separation of powers between the legislative and executive branch.  In response, Roosevelt proposed a law to appoint five new justices in an effort to pack the court in his favor; it was defeated.  His own Vice-President John Garner, a conservative Democrat, former speaker of the house and staunch defender of the sovereignty of the three branches of government inevitably opposed Roosevelt's drastic power grabs and interventionist policies.  Vice-President Garner was the legislative brain of the FDR Administration.  Their relations soured after 1937 and the last New Deal program was passed soon after in 1938.

Most of the New Deal programs were smoke and mirror gimmicks, meant to mislead citizens into believing the banking system was fundamentally sound and not based on a fractional reserve system insolvent by nature.  Others were that price fixing, such as through the destruction of crops and cattle while citizens were starving on the streets or had empty dinner tables at home, was for the greater good of the majority of suffering Americans than the minute number of those whom actually benefited. 

During Roosevelt's term the economy's growth increased dramatically by GDP calculations.  The government spending variable in the GPD equation increased due to unprecedented spending on welfare programs and the warfare of World War II.  Despite this "growth" unemployment remained high fluctuating between percentages ranging from the high teens to low twenties with 5 million Americans jobless heading into WWII.  The only sustainable drop in unemployment was experienced after American industry focused a now impossible percentage of the nation's resources gearing for warfare as well as the decline of the labor force through conscription of 11 million Americans for World War II.  Millions were sent to fight and die in the trenches of some far away country- an unsustainable approach though we still seem to be trying to this day. 

Somehow the Roosevelt Administration's New Deal was declared successful after a decade of poverty and years of world warfare.  The Obama administration and its Keynesian economists rely on this flawed belief that government spending creates jobs, though history has proven otherwise.

The Hoover argument cannot be said of the Bush Administration, which from October 2007 to January 2009 intervened in the market in unprecedented fashion at least 28 times.  The Obama Administration continues the job.  The Bush Administration interventions in chronological order ranged from mortgage assistance modifications, term auction facilities, primary dealer credit facilities, term securities lending facilities, the Housing and Economic Recovery Act, nationalization of FNM and FRM, the AIG bailout, the SFP (supplementary financing program) for the Federal Reserve- an auction of U.S. treasury bills to provide the private bank with cash for its balance sheet, a short selling ban, the asset-backed commercial paper money market fund liquidity facility, commercial paper funding facilities, TARP (trouble assets relief program) known as the $700 billion bailout of Wall St., a "temporary" liquidity guarantee program, money market investor funding facilities, the second Citigroup bailout, term asset-backed securities loan facilities, the first auto bailout, the second Bank of America bailout, the second Chrysler bailout and lastly further extensions of six of the "facilities" listed above on 8 separate occasions. 

To put these interventions in perspective, the TARP alone authorized the U.S. Treasury to purchase or insure tens of trillions of dollars of "troubled assets" all guaranteed by the fruits of American labor.  This is not an exaggeration.  It is crystal clear, that big government interventionists were busy patching holes of the system they took decades not deregulating or regulating but IRREGULATING.

It is overlooked the interventionist actions taken by President Hoover before and after the stock market crash of 1929 leading into the Great Depression.  Confusion persists on what the argument is- talking heads and politicos continue that his supposed inaction and free market policies failed to rescue the falling economy while Austrians argue that it was precisely Hoover's failure to adhere to the free market principle of nonintervention that led the economy to fall in the first place. 

Alas we are living in the present and presently the Austrian school would be better served bringing awareness to the corporatism and market interventionism inherent in the policies pursued for the past decades and their detriment to our society than to dwell on the past.  The common discussions of the Great Depression are not its causes, but what government policy actions addressed the effects.  If history repeats, the failure to accurately address the causes will continue and so will the shortsighted, irregulating patchwork addressing the effects.

History is in the making and we will witness its outcome.  We can thank George W. Bush the same argument of laissez-faire policy floundering to support a failing system in the early 1930's cannot be used this time around.


Posted May 14 2010, 01:03 AM by Brandon Barrios