Link A Primer on Austrian Economics by Dr. John Parnell, PH.D I got a couple of emails last week asking about the Austrian School of Economics, so I thought I’d address them on the blog. Many of my comments are based on this line of thinking. I apologize in advance for oversimplifying some of their arguments in this post, but my aim is to cover the basics and connect the Austrian view to the broader conservative movement. Let’s start with a few key contributors. Carl Menger is recognized as the founder of the Austrian School, completing most of his significant work over a 100 years ago. Ludwig von Mises (1881-1973) followed, and the Mises Institute (www.mises.org) is named in his honor. Friedrich Hayek’s (1899-1992) seminal work—The Road to Serfdom—is considered by many to be the most significant contribution written for a broader audience. Thomas Woods is one of my favorite present day “Austrians.” His most recent book—Meltdown—is a must read for anyone who wants a detailed application of Austrian thinking to the current situation. Ron Paul is the best known political advocate of this school of thought. The Austrian School adopts a largely libertarian view of economics. Austrian business cycle theory explains how the booms and busts we experience can be traced to government intervention in the economy. The basic argument is that the economy can take care of itself and works best when left to work out its own problem. For example, when the Federal Reserve artificially lowers interest rates to banks to spur economic growth when times are slow, it encourages banks to make loans that would otherwise not have been made. The Fed’s intervention creates excessive economic activity for a while (a boom), but inevitably results in high default rates and misdirected investment (a bust) when the economic factors required to sustain this artificial level of activity are not available. Left leaning politicians typically respond to a bust by calling for more even government intervention to overcome “the failings of capitalism.” This props up the economy for another cycle, and the process continues. Austrian economists and conservatives are often on the same page when it comes to public policy, but the Austrians often push the conservative arguments one step further. For example, conservatives want reduced deficits and limits on the amount of currency that the government can print to hold down inflation. Austrian economists want to eliminate the Fed altogether and return to a commodity-backed (gold/silver) currency so that the government can’t print money and deficits become difficult to finance in the first place. Conservatives argue for genuine middle class tax cuts, while the Austrians argue for an overhaul of the system in favor of a flat or fair fax. Austrians argue that government policies like the Community Reinvestment Act fuel the fire of the boom-bust cycle, but that the system itself is the root cause and needs to be changed if we are going to have any lasting prosperity. In other words, Austrian economists don’t necessarily disagree with the conservative economic agenda as an alternative to the left, but their focus is on changing the structure of the system so that government influence is reduced and vote-buying is more difficult to accomplish. Austrian thinkers are often characterized as radicals or extremists because they directly challenge the socialism that massive government authority that has crept into our economic system over the years. I’m not an economist, but I have strong Austrian leanings. The more I ponder the current state of affairs, the more I convinced they are right. While the nature of politics requires compromises and “the system” can’t be changed overnight, we need a plan that implements fundamental change, not just a tax cut here and there. If that makes me an extremist, then so be it. By the way, if you agree but haven’t read Hayek or Woods, now is a good time to do so. You’ll discover the logic that underpins the ideas you may already support. You’ll also equip yourself to defeat socialist arguments at the water cooler.