Power & Market

Oliver E. Williamson, 2009 Nobel laureate and founder of "transaction cost economics," has died at age 87.

As I wrote in 2009,

Oliver Williamson's Nobel Prize, shared with Elinor Ostrom, is great news for Austrians. Williamson's pathbreaking analysis of how alternative organizational forms — markets, hierarchies, and hybrids, as he calls them — emerge, perform, and adapt has defined the modern field of organizational economics.

Williamson is no Austrian, but he is sympathetic to Austrian themes (particularly the Hayekian understanding of tacit knowledge and market competition). His concept of asset specificity enhances and extends the Austrian theory of capital and his theory of firm boundaries has almost single-handedly displaced the benchmark model of perfect competition from important parts of industrial organization and antitrust economics.

He is also a pragmatic, careful, and practical economist who is concerned, first and foremost, with real-world economic phenomena, choosing clarity and relevance over formal mathematical elegance. For these and many other reasons, his work deserves careful study by Austrians.

Read the full article here.

Donald Trump today announced that "we are not closing our country" if a second wave of COVID-19 hits the country later this year.

Given that Trump is not the one who decides whether or not state governments attempt to impose forced social-distancing measures, we can nonetheless interpret his statement as an announcement that he plans to use his position to oppose efforts to impose lockdowns in the in the future.

But this raises a larger question: how tolerant will the public be toward additional lockdowns in the future as the economy sinks and the effects of unemployment and economic deprivations sink in?

In some places, the answer might be "very tolerant." But in many states and areas, politicians may find that the answer is "no way in hell."

The First Lockdown Was a Sucker Punch

It's understandable why so many Americans were tolerant of the first wave of shutdowns. Fed a steady diet of panicky declarations of an impending viral apocalypse through social media and mainstream media, a majority of Americans—possibly a lopsided majority—became frightened. It is likely that even those who are disinclined to believe lurid media stories of death and destruction took a "wait and see" attitude. People simply didn't know what was going to happen.

Technocrats and politicians were quick to take advantage of this temporary paralysis. Lifelong power-obsessed government bureaucrats like Anthony Fauci and his state-level counterparts demanded that the government suspend the rule of law and impose emergency measures unparalleled in scope in American history. Businesses were forcibly closed. Governors, mayors, and police threatened arrest, imprisonment, fines, and revocation of business licenses for those who remained "disobedient."

Employment collapsed. Livelihoods were destroyed. Since hospitals and medical facilities were largely closed to all but suspected COVID-19 patients, many went without medical care and diagnoses for deadly conditions.

One might say that the enthusiasm and speed with which the government abolished human rights could be described as a "sucker punch." The voters and taxpayers didn't know what hit them.

And for a period of two to four weeks, there was barely any resistance at all. Many were still unsure if half their neighborhood would die of the new disease. Or maybe there really would be corpses piled up in the streets nationwide, since Americans were told that what had happened in Iran or Wuhan would soon happen in the US.

But then it didn't happen. This isn't to say that there wasn't an increase in total mortality. There was, and much of it—but certainly not all of it—was due to COVID-19.

But it soon became clear that human society was not going to descend into plague-induced wreckage. Outside of a few hard-hit cities, hospitals never got even close to the dystopian people-dying-in-the-halls scenario that people were assured would happen. Now, of course, as some states begin to scale back their lockdowns, there's still no sign of corpses piling up in the streets. Yes, death by disease continues, just as it does every day of every year. And there is more death now than there was last year. This includes the "lockdown" states, after all, since there is no evidence that lockdowns actually work.

But this is what always happens with pandemics. It happened in 1958. It happened in 1969. But back then, Americans didn't destroy wholesale the rule of law and human rights out of fear.

The "New Normal" May Just Be a World with Higher Mortality

But for many that fear may be wearing off. After all, people come to terms with risk fairly quickly. There was once a time, after all, that human beings found the speed of a locomotive or a motorcar terrifying. Yet, within a matter of years, many Americans were happy to ride trains and drive cars. And cars didn't even usually have seat belts until the 1960s!

The "new normal" became a world of widespread auto accidents, and auto deaths per million in the early days of automobiles were double what they are today.

And many Americans may soon decide that the "new normal" is a world with more risk of dying of COVID-19. But for many it's a risk that they have decided must be faced, especially when there are many other risks to balance against. After all, It is now becoming clear that efforts to "fight" COVID-19 through lockdowns will lead to more deaths from cancer, from suicide, and from drug overdoses. Just as many Americans decided to face the risk of a deadly car crash for the sake of avoiding the inconvenience of a horse and buggy, so many Americans will decide to "risk it" in a world with COVID-19.

Moreover, the longer lockdowns remain relaxed, the more routine it will become to have lunch with a friend at a restaurant, go to the dentist, or get a haircut. Once people do it a few times without becoming deathly ill, they'll want to keep doing it.

Certainly, there will be no shortage of lockdown advocates who will demand more government coercion, more shutdowns, and more state violence to enforce them, complete with arrests, fines, and more. Many—including people who have no problem with death in the form of abortion and euthanasia—will wrap themselves in the claim "all life is precious" and attempt to shout down and shame those who advocate for human rights and and end to government by decree.

But will that be enough? In some places it may not be enough to gain obedience to a second lockdown.

So the question comes down to this: will Americans fall for the sucker punch twice? Patrick Buchanan doesn't know, although he asks the question, and suggests:

If there is a sudden resurgence of the coronavirus, a second wave, and the media elite and blue state governors demand a new shutdown, a new closure of beaches, parks, shops, restaurants and churches, will the people of this republic comply with those demands or defy them?

Will the nation answer back to the elites: We did that. We sheltered in place. We wore the masks. We socially distanced. We stayed in our homes. We stayed home from work. We have done all we were told to do to contain the virus. But, now, with the shutdown having put 36 million Americans on unemployment and sunk our GDP to Depression-era levels, we're going back to work.

The political divide has already begun to appear.

Indeed, looking at the issue through "the political divide" may be the most instructive. Americans are choosing sides. And passions run high. Asking your neighbor or colleague about his views on COVID-19 is now about as likely to lead to an argument as asking your neighbor for his views on slavery in 1859.

Attempts at another round of lockdowns will only make things worse.

One of the most powerful men in the world, Chairman of the Federal Reserve Jerome Powell, appeared on 60 Minutes over the weekend. The interview did not mention Austrian economics, a return to the gold standard, or a new laissez-faire stance by the Fed. But there are some thought-provoking sound bites.

When asked if the Fed had simply flooded the system with money, Powell responded, “Yes. We did.” When asked where the money came from, he replied:

We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury bills or bonds for other government-guaranteed securities. And that actually increases the money supply.

Although true (and completely ludicrous) it’s nothing new, as central bankers seem to have no problem supporting inflationism. However, his follow-up sentence was patently false:

We also print actual currency and we distribute that through the Federal Reserve banks.

It is in fact the US Treasury that prints every Federal Reserve note and gives it to the Fed, which then distributes to banks. Why does the world even need the Federal Reserve? And why doesn’t the US Treasury cut out the middleman and print its own currency? The interview continued with the usual fawning over central bankers. Scott Pelley couldn’t help mention how:

Some of the best economic analysts in the world report to you.

One can only wonder how many Austrian economists work at the Fed and what types of analysis could be provided when analyzing trillions of dollars of “stimulus” required to fight a “liquidity crisis.”

Assurances to the market and hopes for future debtors to the Fed were also included:

I will say that we're not out of ammunition by a long shot. No, there's really no limit to what we can do with these lending programs.

Is this not the most alluring trait of money created out of thin air and backed by nothing? Having no limit on the amount which can be generated? Most of the Fed facilities haven’t even opened up yet, and Congress is already cooking up another trillion-dollar spending bill. We can only guess how much money will be “printed” by the time the crisis is over. If the Fed’s balance sheet doubled by this time next year, would anyone really be surprised?

Oddly enough, the chairman mentioned something that was entirely honest:

We don't have oversight over Congress. Quite the reverse, actually. We're a creature of Congress. And they have oversight over us.

Congress created the Fed. Contrary to what we’ve been told, the it cannot save the world by creating more money. It hasn’t worked before, and it won’t work now. In terms of oversight, if Congress wants more transparency, it can simply demand it, repealing any privacy that the Fed has. America survives not because of the Fed, but despite it. Just as an act of Congress created it, an act of Congress can end the Fed.

Murray Rothbard once stunned me by saying that he thought the greatest economist in history was Eugen von Böhm-Bawerk. The reason he gave, to the best of my recollection, was: “Böhm-Bawerk created a mighty system of economic theory and then successfully defended it against all comers.”  Noticing that I was startled, he asked who I thought was the greatest economist. I replied, “Ludwig von Mises,” Rothbard’s revered mentor, whom I thought would have been his choice. Rothbard acknowledged that an excellent case could also be made for Mises. 

It was only many years later that I came to understand why Rothbard gave Böhm-Bawerk an edge over Mises. Böhm-Bawerk’s magnum opus, The Positive Theory of Capital, published in 1889, almost immediately began to elicit comments and critiques from the greatest economists of his age throughout Europe and the United States. The stream of commentary on his work continued unabated for twenty-five years until his death in 1914. During this controversy, Böhm-Bawerk defended and further developed his theoretical system with acute insight and superb dialectical and expositional skills that far outclassed those of all but a few of his critics. In contrast, Mises was never able to engage the greatest economic minds of his age. His brilliant magnum opus, Human Action, published in 1949, barely caused a ripple of acknowledgement in the increasingly positivistic postwar economics profession, which was rushing headlong into macroeconomics, econometrics, and mathematical economics.

Whether or not one agrees with Rothbard about the ranking of Mises and his mentor, Böhm-Bawerk certainly merits a place in the pantheon of the greatest economic theorists.