Mises Daily Articles
An Austrian Economist Reports From a Mainstream Economics Conference
Early on in the most recent meeting of the National Association of Business Economists (NABE) in Chicago, Dan Ratner, one of President Obama's tech gurus for the 2012 election cycle and expert in the hip field of Big Data mining, stated to his audience that “there is no such thing as truth. There is only the most recent updated version of it.”
Little did I know this was to be a recurring theme at this conference.
Which is not to say that the conference was a wasted experience. Far from it. There were several excellent presentations and I enjoyed meeting some very smart people in economics, finance, and business, none of whom would attend NABE meetings if they didn’t provide value. But my take was that these individuals were in the minority as NABE’s overwhelming tone reinforced the central role of state policy intellectuals — connected somewhere between the revolving doors of the nation's leading universities, Federal Reserve district banks, crony corporations, and mostly DC-based lobbyists — to design top-down central planning schemes from Washington. Unstated but pregnant in perhaps every NABE session was the Keynesian dogmatic assumption that absent government supervision and force, markets fail miserably, but with benign and wise government intervention, markets will produce the prosperity required for the very survival of civilization.
Mr. Ratner’s statement about truth resonated when former Federal Reserve Chairman Ben Bernanke spoke via an interview format with the host of a business show on NPR, the government’s radio network. The exchange was not exactly what one witnessed when former Congressman Ron Paul used to grill Mr. Bernanke in those congressional hearings about real factors he and his compatriot Keynesian monetarists avoid by hiding them in the error terms of their mathematical models.
The interview began on a duplicitous note as Mr. Bernanke stated one of his first acts as Fed Chairman in 2006 was to inquire about Fed policies during a financial crisis, so concerned was he about the possibility of one emerging during his tenure. Two sensible follow-up questions to that self-serving and unproven statement — questions an interviewer less connected to state media would have asked — would be (1) if this was a concern, then why did you make statements regarding the stability of the housing market before the crash?, and, (2) who told you at the time Fed policy in a financial crisis would be to ensure men like Jamie Dimon see another payday?
But why ask at all when what matters is the most recent updated version of the truth?
After a humanizing exchange dealing with how the former Fed chairman shouldered the incredible weight of the global financial crisis during his time of public service — apparently, he blew off steam watching professional baseball players whose salaries he helped inflate — Bernanke stated current low global interest rates actually reflect what the Wicksellian natural rate would be in a free market, so there should be no worries about his low-interest policies or those of his successor. My jaw dropped. It was as if the New York City Housing Commissioner argued rent controls were not socially destructive because they were set at rents that would normally arise from supply and demand. I looked around my luncheon table to gauge the reaction of my co-conventioneers to find them whispering among themselves about who was this Knut Wicksell guy in the first place.
There was more in Mr. Bernanke’s apologia that rattled, but perhaps the most troubling aspect of it was the standing ovation he received. It reflects what should be a law of human nature, that those who live well on inflation will always honor the inflators. This surely applies to the average attendee of the NABE conference.
Other aspects of NABE 2014 were equally frustrating, if not also revealing. A pointless debate about fiscal policy between University of Chicago economists Austin Goolsbee (Democrat) and Randy Kroszner (Republican) occurred, with each often prefacing his response to the other with a version of, “I agree with that.” Not exactly a Firing Line experience from yesteryear, but it’s what one would expect between two interventionists more concerned with kinds, but not degrees, of the government's share of GDP. (Suggestion to future conference organizers: put David Stockman at a table with Dr. Kroszner.)
In other sessions, monetary discussions often focused on whether inflation should be 2 percent or 4, how bad, bad, falling prices would be, and why a muscular Fed can never be too aggressive in easing during downward shocks. Donald Kohn, the Fed’s second banana from 2006 to 2010, argued that when business cycles demand it, the Fed “cannot keep its powder dry,” and one could easily imagine him advising the Wizard of Oz to ramp up the fireworks when those Ozian animal spirits veered too close to the curtain. He was also lauded in his session, no doubt by representatives of firms who know all too well their revenues would plummet if they depended on real saving ironically kept low by Mr. Kohn himself.
Such biases serve the purpose of setting the terms of acceptable debate. During the break, I asked some fellow attendees about whether the market can correct without falling prices, and if hindering this process with money created out of thin air just might explain why the present recovery hardly feels like one for much of the country. How they responded indicated the degree that they suffered from apoplithorismosphobia and whether they also feared sales at the grocery store or inexpensive electronics at Best Buy.
Not all was bleak. I developed new respect for the labor economist Erik Hurst after hearing him speak in the flesh. Dr. Hurst's data-rich presentation broke down what groups (men, women, college, or high school graduates) recovered in labor markets since 2008, emphasizing that while official unemployment has been falling, the employment rate is not rising. The result is a labor market reflecting practically zero employment growth for high school graduates compared to growth in recoveries in the past. My question for him would be whether capital accumulation is really falling in a secular sense or whether capital confiscation is the real problem, motivated by post-9/11 expansions of war and welfare, of drones and disability payments.
Ed Clark, the soon-to-retire president of Canada’s TD Bank, gave a superlative speech demonstrating he clearly understands how the structure of the US banking system foments moral hazards and other agency problems which the Canadian system, whatever its faults, has been able to avoid. Northern Trust Chief Economist Carl Tannenbaum noted how compliance costs imposed on big banks are so high as to reduce the benefits of bigness in the future, although I wonder whether the such costs reflect regulatory capture serving to protect a banking cartel from potential competitors. His presentation reminded me of his quasi-Austrian predecessor at Northern Trust (and recommended economics blogger), Paul Kasriel, one of the few bank analysts whose newsletters became must-reads in their day. Harvey Rosenbloom, the former director of research at the Federal Reserve Bank of Dallas — which some free-market economists call “the good one” — spoke on how bad incentives created by the Dodd-Frank legislation are unlikely to address its intended problems associated with the TBTF banks. Messrs. Tannenbaum, Kasriel, and Rosenbloom all have had professional connections to the Fed, proving not all Fed-tinged research is a vale of tears. NABE’s program directors should be complimented for allowing their input.
Overall, I found NABE a mixed bag because it was not at all as mixed as it needed to be. Its intellectual blinders not only prove the “fatal conceit” Friedrich Hayek wrote about in 1988 is alive and well in 2014, it also explains why so many in my profession were dumbstruck by the financial crisis of the last decade. Government funding of research and, especially, central bank funding of monetary science, create an intellectual cocoon that justifies the funders’ place and power in society while benefiting parties attach to them. Loosening its ties implies dispensing with what historian (and popular interviewer) Thomas E. Woods often calls the “three-by-five card” of acceptable opinion, and is required for the emergence of stable, healthy economies of the future.
Contra Mr. Ratner, there is such a thing as truth, and we can know it in both an a priori and apodictic sense. We hurt ourselves when we focus on invented versions of it that serve not only our fancies, but also tax- and inflation-supported financiers.
Lesson learned: Chicago is beautiful in the fall. I would have saved myself time and heartburn had I avoided the Westin Michigan Avenue and instead stationed myself on a stool at one of the sports bars near Wrigley — remnants of a less-planned era — ordered a cold Goose Island draft, and reread economist and philosopher Hans-Hermann Hoppe’s important essay, “Natural Elites, Intellectuals, and the State.” An excerpt:
There are almost no economists, philosophers, historians, or social theorists of rank employed privately by members of the natural elite. And those few of the old elite who remain and who might have purchased their services can no longer afford intellectuals financially. Instead, intellectuals are now typically public employees, even if they work for nominally private institutions or foundations. Almost completely protected from the vagaries of consumer demand (“tenured”), their number has dramatically increased and their compensation is on average far above their genuine market value. At the same time the quality of their intellectual output has constantly fallen.
What you will discover is mostly irrelevance and incomprehensibility. Worse, insofar as today's intellectual output is at all relevant and comprehensible, it is viciously statist. There are exceptions, but if practically all intellectuals are employed in the multiple branches of the State, then it should hardly come as a surprise that most of their ever-more voluminous output will, either by commission or omission, be statist propaganda.
NABE claims its mission is “to provide leadership in the use and understanding of economics,” but it does so by asking the wrong, narrow set of questions. Specifically, it should annunciate what it means by “economics.” Methinks it defines the term divorced from concepts such as economic freedom, private property, and peace.
Image source: iStockphoto.