Austrian Economics Triumphs
2021-03-07 · Guest: Jeff Deist (President of the Mises Institute) · 52:26
Principles and applications of Austrian Economics
Bob Zadek and Jeff Deist, President of the Mises Institute, discuss the principles of Austrian Economics, contrasting its focus on human action and deductive reasoning with the mathematical modeling of mainstream economics. They explore how these principles apply to the 2008 housing crisis, COVID-19 stimulus packages, wealth creation, and non-interventionist foreign policy.
Topics: Austrian Economics, Mises Institute, Ludwig von Mises, Murray Rothbard, Central Banking, Wealth Creation, Foreign Policy, Non-interventionism, COVID-19 Stimulus
Speakers: Bob Zadek, Jeff Deist
Introduction to Austrian Economics [00:18]
Bob Zadek: Good morning, everyone. Welcome to the Bob Zadek Show, the longest-running live libertarian talk radio show in all of radio, and we are determined to remain that way. Thank you so much for listening this Sunday morning. We are this morning and always the show of ideas, never once the show of attitude.
I have a confession to make. I am a closet economist, if you will. I think if I hadn’t chosen the career path that I have, I probably would have enjoyed studying economics. But I was doomed in my first year at a somewhat mediocre university way back in the day. I took economics because I was in the business school and it was a required course. And the textbook was the standard textbook at the time, Paul Samuelson’s book. And it was big and fat and heavy and full of graphs. And oh man, was it boring. And I was turned off immediately, and that was it for me and economics.
It wasn’t until much later in life when I found my political home in libertarianism and became a serious student and discovered that economics and the study of economics was far more than the dreary, dreary, data-filled, mind-numbing textbook written by Paul Samuelson and to which others contributed. And I discovered Austrian Economics. And I said to myself when I first discovered it, “Why wasn’t I taught this? This would have destined me to spend a career in economics.” Not that I regret it necessarily; this is more a story about Austrian Economics than it is about the career choices that I have made.
And I determined a couple of weeks ago, a month ago, that others with whom I talk about current affairs have very little understanding, indeed some even have little knowledge of this entire important, welcoming study, school of thought called Austrian Economics. And of course, when one thinks of Austrian Economics, you are driven to the leading Austrian economists, those who founded the discipline, who wrote about the discipline, and whose name is a household word today of all of those who adhere or at least find lots of truth in that discipline. And one of the founders, one of the icons of this school of economics, is Ludwig von Mises. And there is today in Auburn, Alabama, the Ludwig von Mises Institute, more formally called the Ludwig von Mises Institute for Austrian Economics, shorthand the Mises Institute. And this is a perfect time and a perfect place with all that is going on in the world to invite the President of the Mises Institute, Jeff Deist, to join us for an hour of conversation so you can follow with Jeff how somebody with an Austrian Economics orientation would analyze what is going on in the world that is causing us somewhat difficulty and how an Austrian economist would approach the problem and, most importantly, how they would solve it, and how that solution compares with the solution being imposed upon us by our governments—state, local, and federal.
So with that introduction, I’m delighted, I’m delighted to welcome to the show this morning Jeff Deist, who is President of the Mises Institute. Jeff, thank you so much for joining us this morning.
Economics as a Social Science [04:51]
Jeff Deist: Well, thanks a million for having me. You know, you bring up that Samuelson textbook, and a lot of Americans of a certain age, let’s say people over about 40 or 50, may have experienced that same text in their undergraduate econ. That went through about 12 editions, by the way. It made Samuelson an enormously wealthy man. And some of your listeners may not know that he is the gentleman who suggested that by the late 1980s or so, the Soviet Union would be a more productive economy than the United States. So hopefully we’ve got a new generation of young people coming up who are not reading Samuelson because he was dead wrong on that call.
Bob Zadek: By the way, when he said that, it was I think you’re right, it was the late 1980s in a speech that he gave, but he did it with a straight face and he believed he was right, which is astonishing for a person with his alleged credentials. But we don’t want to waste our time talking about Paul Samuelson. We want to spend our time talking about Austrian Economics, Mises, Murray Rothbard, a name we will come to in a moment, and how their approach to world and national affairs is different than and indeed you and I would certainly say infinitely better than the approach taken by those who govern us today.
So Jeff, let’s just go back a step and a few minor but important building blocks. Austrian Economics. Tell us in sort of non-technical terms, because it’s easy to do because Austrian Economics is just that way. Tell us when one hears the phrase “Austrian Economics,” what’s the stream of consciousness that comes to mind? If you were sitting next to somebody on an airplane flight and that subject came up—not that it’s likely to, of course, but if it did—and you wanted to explain to this person you know very little about, because they expressed minor curiosity in Austrian Economics, how would you explain it to the stranger who you know little about and don’t know their background, but you sure want them to understand the subject matter?
Jeff Deist: Well, I think first I would simply say that “Austrian” is a term of convenience because some of the leading thinkers and leading lights of the Austrian movement happened to come out of Vienna in the late 1800s and early 1900s. So that’s really the term. But I would just say it is ordinary economics. It’s economics as we knew it and understood it properly, in my opinion, as a social science. And that when Keynes came along in the 1930s, following Marx, that you know, our perspective on what economics was started to change radically.
But really up until less than 100 years ago, we understood that economics was a social science. And so to me, when I hear you mention your undergraduate experience, I think it’s such a shame that so many young people come up not understanding that economics is really vital. It’s really part of everyday life. It’s part of understanding the human condition, human action, the human psyche. It’s not just about finances or how economies grow wealthy. It’s not just about material things. It’s about something much broader than that. It’s really about everything we do in the context of the world around us and scarcity and tradeoffs and all these things.
So I would start by saying that simply Austrian Economics is just called that because there were some Austrian thinkers. But more importantly, if we think about economics as a social science as opposed to a physical science like chemistry or physics, then it is certainly my firm belief that a social science has a different method. It has a different approach to helping us understand the world. And so in the physical sciences, we have what is loosely termed the scientific method where you observe some things in life—let’s say if you’re a botanist—and you say, “Well, this seems to happen occasionally, so I’ll develop a hypothesis and then I’ll go out and test that hypothesis over and over again and see if I might be onto something.” Right? So in theory, Bob, even the theory of relativity or gravity could be disproven. I don’t think they will be, but you know, in the physical sciences, the science is never settled in that sense.
The Failure of Mathematical Models [10:51]
Jeff Deist: But in the social sciences, when we’re talking about human beings and what they do—and that’s what economics is, it’s the stuff of life, it’s about human beings and the choices and tradeoffs we make—so it’s very strongly interrelated to psychology and sociology and anthropology and all kinds of other fields. We can’t just neatly divvy these up, okay? So when we look at human beings, we say human beings are not the same as an apple in physics. They’re not atoms or molecules. Human beings are volitional creatures. They have minds, they have emotions, they have desires, they have rational and sometimes irrational beliefs and attitudes and opinions. And so we can’t study them the same way we study the physical world.
And so we have to use a different method. And so we have to start with certain principles, certain axioms about human action, certain things we know are true simply axiomatically, and that from that we can sort of work backwards deductively and figure out what’s going on. And so this is not the way that the physical sciences work. But starting with Keynes in the 1930s and developing really strongly throughout the 20th century, we started to treat economics like physics and math. We started to say, “Well, we need to have all kinds of formulas and we need to have a lot of empirical testing and we need to build out these huge models in spreadsheets and we need to simply look back at economic data, what people have done in the past,” which is really just another word for history. When you look back at economic data and use that to model out and predict the future, and we’ve seen time and time again, Samuelson predicted dead wrong on the Soviet Union. Alan Greenspan and others predicted dead wrong with the housing crisis of 2008. I mean, these mathematical models, which are really the mainstay unfortunately of many economists today, they haven’t served us well. And so Austrian Economics is about getting back to basics and understanding human action deductively.
And so when I say that, what do I mean by deductively or what do I mean by axiomatically? Here’s just an example. We say that, you know, human beings act because if they just stood there on a plot of earth, they would soon starve to death or overheat or freeze or die of thirst or whatever it might be. So humans go out and act, and we know that. That’s not, you know, that’s pretty obvious to people. But from that, we can derive things like, well, humans prefer things sooner rather than later. Okay, that seems pretty commonsensical. But do we have to go prove that? In other words, Bob, would you rather have your dream home in Coronado at age 40 or would you rather have it at age 90? Well, I think most people would say 40 because we understand that the human condition and human lifespans are finite and we prefer things now to tomorrow. And that’s why people will go out and get a loan and borrow money and pay interest to have that fancy new car today and make a, I don’t know, $800 payment or something every month instead of plunking out a check for $45,000 to buy it outright. So this is just an example where we can use deductive reasoning to understand why people prefer certain things.
And so economics, like other sciences, it’s not prescriptive, it’s not normative or ethical per se, it just observes things and hopefully helps us understand the world better. But it’s very important, I think, to understand economics as a social science. It’s about humans, it’s about these social animals. It is not the same as physics or chemistry or math. But yet it has developed what we call math envy, where economists mostly study at the PhD level anyway very high-level math, very high-level statistics, and they try to use this and go out and understand economics through math. And it hasn’t worked, I would argue. It hasn’t served us well.
The Big Short and Real-World Observation [14:01]
Bob Zadek: Jeff, I imagine myself right now, I’m sitting in a classroom and you are the instructor and you just said what you just said. And I am now imagine me, I’m raising my hand trying to get your attention and I’m saying, “Professor Deist, I recently saw a movie which I think explains what you just said perfectly, and am I right?” And the movie I thought of, Jeff, just as you were speaking, was a wonderful movie that I have rewatched more than once, The Big Short. Fabulous movie. And the reason I flashed to The Big Short as you explained the social science of Austrian Economics with the “science” science of Paul Samuelson and his graphs and charts, is that the protagonist in The Big Short didn’t rely upon—made obviously several billion—didn’t rely upon graphs or charts.
Remember the movie, most of the listeners have seen it. He went out into the field and interviewed the homeowners. He went out and looked at these tracts of empty houses where people owned three and four of them and they were buying it with zero down mortgages. And he made all the money, and all of those who were sitting with graphs and charts were left holding the bag. And that I think, if you had to resort to some audiovisual aid to assist in explaining the difference between Austrian Economics, which focuses on observable behavior, predictable behavior, irrefutable behavior for the most part, focuses on that, that business person, that investor carried the day as opposed to all of those economic more formula-driven economists who said, “It shouldn’t have happened according to our graphs,” and here we have the protagonist holding all the money because in fact it did happen. I think that, if I’m right, Jeff, if I’m right, I think that’s a very graphic—it almost could have been, instead of entitled The Big Short, it could have been entitled Austrian Economics Triumphs, because that I think was at least a subtext of the movie.
Central Banking and the Housing Crisis [16:34]
Jeff Deist: Well, it’s a great movie. I loved it. And really, The Big Short takes us I think to our second big difference between what Austrian Economics focuses on and what a lot of professors today focus on. And so we started with, you know, it has a different method, a different way of looking at the world from the social sciences, excuse me, from the physical sciences. So we start with Austrian Economics having a different method or approach to understanding the approach to the actual work of an economist.
But I would say that maybe the second biggest difference is how to think about money and how money comes into society and how central banks work. And I think that was a huge theme in The Big Short that was less explored. I mean, The Big Short, you know, we thought about greed, we thought about malinvestment, we thought about the errors that people in the housing markets made, we thought about the errors that commercial banks had made in lending, we thought about the errors that Wall Street had made in cutting up all these tranches and derivatives wrapped around mortgages which were soon to be subprime, you know, non-performing mortgages. So we think about all that, we think, “Oh my gosh, what a mess, what a racket, and so much greed.” But what that movie didn’t really delve into is, well, what’s underlying it all? Why did this mania happen? And I would argue that it happened not entirely, but in large part because of central banks.
Bob Zadek: Now, if you had to—and of course you’re right, and that was—I should mention by way of background in your earlier life, you were very active in Ron Paul’s presidential campaign in 2008, I guess it was. You were very active there before you went to the Mises Institute to lead it. And of course Ron Paul, his—that was an important theme of his campaign. And to some degree Rand Paul, his son now in the Senate, often will raise that same issue of the very existence of central banks as being hardly part of the solution but most assuredly part of the problems we have today.
So that of course is quite an important issue. Many economists have written about the supply of money and the management of interest rates as opposed to letting interest rates find its equilibrium in the marketplace. For some reason, those who run monetary affairs are scared to death of letting interest rates find their true level the way stocks do. But that’s for another show, Jeff.
Analyzing the COVID Stimulus [20:55]
Bob Zadek: Now, in all that is going on in public affairs today in Washington, we have an active debate on the minimum wage, we have an active debate—not much of a debate because it’s kind of a done deal—on the 1.9 trillion with a T stimulus, absurd concept to stimulate an economy that’s about to become overheated without the stimulus, and now we are going to stimulus. Talk about injecting steroids into somebody with cancer. Oh my goodness, oh my goodness.
So of all the recent events that have been going on where you have been sitting in Auburn scratching your head and saying, “What’s going on?” what would you select if you had first-year students as an example to demonstrate how the approach of an Austrian economist, if they were consulted, would reach an entirely different action than the action our government is taking? Is there one example you—there are many of course—is there one example you would pick as a poster child or as a wonderful way to explain with a real-life example how an Austrian economist would have taken a different approach than the approach taken either by the Trump administration or what we know about the Biden administration?
Jeff Deist: Well, I guess as an easy example, I might look back at the big stimulus bill passed last March or April when coronavirus was just sort of unrolling. It was called the CARES Act, and it was passed by Congress. It was over $2.7 some trillion of spending. And that was purely on the fiscal side, meaning Congress and the Treasury spending that money, putting it out in the economy, as opposed to the monetary policy side. So it’s a little easier I think for students to grasp conceptually.
And so I would simply say to students, “Look, we had this coronavirus issue come along, and governments not only in the US but around the world mandated business and school shutdowns and told people to stay home and do this and that. And obviously that puts a huge brake on economic action. People aren’t out at work, they aren’t dining out, they aren’t flying, they aren’t doing all kinds of things. So we could I think everyone could very easily understand that that is a huge drag on economic activity, and we would say that that is deflationary in nature.”
And then I’d say, “Well, okay, so government wants to help people and it wants to do so by giving them money. And it did so badly, by the way. It was very—as a logistical matter, it really botched getting those checks out last year. I know a lot of people never got it, that sort of thing.” So the government wants to help people by giving them money, and it wants to help businesses by giving them loans for payroll and this sort of thing. So they’re going to spend $2.7 trillion or whatever the number was. But they’re not going to tax that from us. That would seem sort of circuitous and counterproductive, right? To simply take it from us out of the economy and give it right back. I think a lot of people would understand that. But you say, “Well, where are they going to get it?” Well, they’re not going to get it. They’re going to just produce it at the Treasury level. And for simplicity’s sake, we’d say they’re going to print the money. That’s not exactly what happens; it’s mostly digital.
And we’d say, “Okay, but here’s the problem, Bob and Jeff, is that all this new money, wherever it enters the economy—whether people actually get the checks or whether businesses get them or whether fat cat special interests get them, which was of course the majority of the other recipients of those funds, that’s just politics—well, none of that produces any new goods or services per se. We’re left with the same amount of goods and services in society that we had the day before Congress spent this money. But now we’ve got all this new money. Are we richer? Are we wealthier? Are we better off as a society? Well, of course we’re not. Nothing new was produced.”
Now, yes, some people are going to get more or less of that money and they’re going to benefit in sort of a political sense. If government wants to come along and give you a million dollars and not give it to anyone else, I guess you’re sure you’re better off. But is society better off? And the answer is no. And I think if students could be presented with things that way and conceptualize it and say, “You know, money per se doesn’t make a society or an economy richer. What makes it richer is more goods and services. And what produces more goods and services is us getting more productive and having better technology and being innovative and being better at producing what we produce, and also having a profit that allows us to save up some money and invest in better machinery, better equipment, more innovation.”
And sometimes, you know, that saved-up money, if you look at a company like Tesla with Elon Musk, a lot of investors have saved up money and put money into Tesla and they put more money and more money, and this goes on for quite a while, and Tesla’s only had a profit a few quarters of its existence, even though it’s been around for quite a while now. So sometimes this involves a long time and a lot of risk. But that’s—but you know, something might come out of Tesla. That’s different than simply producing money and giving it to everybody.
So it’s really concerning that we’ve reached a point where we’ve just lost sight of common sense and we think that economics is just something that can be commanded by government, that government can just will prosperity or that central banks can will prosperity into existence through passing a big stimulus bill. And I think we most people now intuitively that that just isn’t true.
Wealth Creation vs. Redistribution [25:28]
Bob Zadek: What I thought of in preparing for the show, and I was hoping you would pick that as a starting point in explaining, what I thought of is in thinking about the stimulus package and my mind then went—I had a little thought experiment when I thought about a socialistic approach, basically wealth transfers. And I said to myself that all of the—I’ll say socialist, but I mean in a non-technical, non-economic definition sense—but basically redistribution of wealth is that most of the economic policy on the left, their approach is to redistribute wealth, to take it from A and give it to B. And that—but it doesn’t discuss the creation of the wealth. It’s like it starts with the assumption unlimited wealth is already here and our task in power is just to figure out who gets the goodies, but not who creates the goodies.
There’s almost no discussion when progressives discuss economic policy, there’s no discussion of wealth creation, only of distribution of wealth that it is assumed to having been already created as if by magic. And what you just said, Jeff, was exactly that. You said that the COVID, the CARES Act, and now the stimulus package, all it does is it moves existing wealth around so that there’s no anger and so people continue to vote the way the progressives want them to vote. All they do is redistribute existing wealth, not creating wealth.
And by creating wealth, Jeff, you mean, and I’ll ask you to expand upon it, not just making people richer. Creating new drugs, new devices, air conditioning, iPhones, electric-powered cars if you will, creating items of value that make everybody better off. That’s I think what you mean by creating wealth, not the narrow definition of having 401(k)s be larger, even though that’s a byproduct.
Jeff Deist: Well, absolutely. There’s an absolute mythology surrounding the wealthy in the West today, and the idea that they are sitting on piles of money and sort of hoarding it in unproductive ways is just simply factually false. But I think more importantly, we have to understand materialism is not simply having a fancy car. Materialism is something we take for granted. And I would love to drive this home with students and with young people is, you know, when you go outside, when you walk out your front door in the West, I mean, the energy that’s around you, the physical buildings, the abode where you live, the hot and cold running water, the variety of food available, the air conditioning you mentioned, the heat, the vehicles, the roads which generally are okay, the infrastructure—all this doesn’t just get up and materialize by itself. It takes the spontaneous effort of a lot of people acting cooperatively to produce all this.
And so it could go away. I mean, this is what we have to remind young people. What if this went away? There are lots of places in the world where you can go today and view what happens when you don’t have dynamic or innovative capitalism in place and the poverty that’s all around us, which is really the original and default state of mankind. So we can’t just sort of view the world as like, “Well, the Starbucks just sort of pop up by magic on every street corner, and all we have to do now is make sure that everyone gets two free Starbucks a day because that rich guy can afford 10 bucks worth of Starbucks a day and the homeless guy can’t.” There’s more to that. We have to focus first and foremost on productivity and how this material wealth arises. I would argue that it arises through capital accumulation and saving and investment.
So from my perspective, the egalitarian left, which is focused endlessly on inequality and redistribution, really misses the point. I mean, what we ought to be focused on is making as wealthy a society as possible so that even the people at the bottom, even let’s say the poorest 10%, are far better off. And that’s true. We’ve done that to an extent. That’s certainly the case in America today; the bottom 10% of Americans are far better off than a lot of people in the world.
The Standard of Living and Capital Accumulation [30:36]
Bob Zadek: And they’re better off because they have more material wealth, the quality of their life is infinitely better. Don Boudreaux, a wonderful economist at Mercatus Institute, has written often and with great authority and great passion explaining that the lowest 10 or 20% of Americans today, their quality of life in every measurable respect is better than the quality of life of Cornelius Vanderbilt or Andrew Carnegie. Pick whom you wish. Andrew Carnegie or Cornelius Vanderbilt never had anything like the material comfort that the lowest 20% of our society has today. And they just have it because that’s the byproduct of an active free market.
And that’s what is forgotten. And those on the left, they always, they are always totally silent on wealth creation. They spend all of their energy on wealth distribution, as if like manna from heaven, it just drops down as a gift of God. Hardly. And that’s what one learns when one studies Austrian Economics. One learns that, as Jeff said, and Jeff, you said it so perfectly, is that economic activity is—you cannot predict economic activity except acknowledging that human beings act in their self-interest, that they try to improve their lot, they are to some degree a bit generous, they respond collectively the way each one of us responds individually. And it is that human response that one uses to predict economic activity.
The Samuelsons of the world look backward. What they do is they forget, I think, Jeff—and I always enjoy being corrected by my guests because I learn something—but I think what those who treat economics not as a social science but as a, I don’t know the better phrase, “science” science, what they do is they look back and they forget that correlation is not causation. They see a couple of variables, they see they seem to act in concert, and they say, “Therefore, those variables can predict the future.” And that’s the fallacy they make. They ignore, as you said, that we’re all human beings. Is that a reasonably accurate or is that too simplistic?
The Failure of Mathematical Models [33:31]
Jeff Deist: I think that’s reasonably accurate. I think most economists today don’t really understand much about, for example, economic history. There’s a lot of brilliant young people who go through PhD economics programs or maybe they go to business schools at places like Wharton, and they come out with a lot of superb number-crunching skills, but what they don’t come out with is a sense of history. They don’t really understand what came before, they don’t understand some of the hyperinflationary events of the past, they don’t understand much of the workings of collectivist societies from history, they don’t understand much of money creation or monetary policy. And a lot of people who are under a certain age have really never seen a bear market.
So we have brilliant young people who lack historical knowledge. And I think that’s one of the big failings of the profession of economics is this unwillingness to teach the past because, you know, who has time for that when you’re trying to learn 800-level stats all day? So it’s a real problem. But more importantly, I think it’s a failure of imagination. I think we have gotten into a state in America where we simply have gotten maybe so fat and happy that we’ve forgotten what made this country wealthy to begin with. And of course, in 1900, we weren’t wealthier than European countries per capita. This is a pretty recent phenomenon.
The 20th century, despite a lot of depredations by government, despite what I would consider disastrous New Deal and Great Society entitlement programs, what I would consider some disastrous foreign policy, this country got really wealthy. And if we think that that is just baked into the cake and that will continue no matter what we do, that incentives don’t matter, that we can do anything at the monetary policy level or the fiscal level and we can’t screw that up, that America is just rich and it just will be, I think that’s very dangerous thinking.
Operation Warp Speed and Market Innovation [36:01]
Bob Zadek: I think Austrian economists and free market economists and professors will a few years from now find something in last year’s economic activity that proves so many of their points. We had the onset of COVID and the virus, and we’re in a pickle. Didn’t quite know what to do, didn’t know how to get out of it, experimenting with masks, social distancing—we were just as a world, as a planet, we didn’t have a game plan.
And what the Trump administration did, it seems to me, he basically went to the only part of the society that makes sense. He went to the private sector. He says, “Here’s an order. Here’s an order for $100 billion worth of stuff. Now go to it. Make a vaccine. Just do it.” And it’s an underreported story, but once the order was placed by the Trump administration—it placed an order, it seeded the activity, it gave the funds—off went private business, off went the private sector unfettered by government, except they had an order: “We want a vaccine, we want it to cure people, that’s our requirement. Here’s the money, do it.”
And people will be talking for decades, “Oh my goodness, it should have taken four years, it took nine months.” That was—it’s almost as if as a last resort, when all else fails and you’re up against it, what do you do? You turn to the free market because that will bail us out. And that happened in spades. And not nearly enough, I think, Jeff, has been written about how the free market, thank goodness, when left to its own devices and its own way of doing something, got us out of this pickle. And I think probably you probably already doing it, but those who teach and promote free market economics will use that as the poster child to show that you’re onto something.
Jeff Deist: Well, medical innovation is something that’s absolutely remarkable. Just think about in the lifetimes of people who are alive today. People who are elderly today in their 90s can remember just a hugely different world in terms of dentistry, for example, in terms of the medical treatments that were available. We didn’t have the MRIs, we didn’t have all the CAT scans, we didn’t have all the incredible surgical procedures. People just sort of had big scars and they opened them up and they went in there and things were very physical. Now we have all kinds of diagnostic tools.
And so there’s been an absolute revolution in medicine. And again, this is something where we tend to think it’s just baked in, it’s in the air around us. We tend to not be thankful for all these things that happen to us. So that if you’re in a car accident today and you end up in the ER in a hospital, the tools available to that doctor are radically different than those available during your grandfather’s time. And so I think the important question that we have to get up and ask ourselves every day is why is this? What caused this? How can we encourage and incentivize this? And how can we avoid falling into a state where we’re going backwards in medicine? And I would argue that in a lot of systems with single-payer healthcare with national health services, the innovation is just not there.
Non-Interventionism and Trade [40:19]
Bob Zadek: And innovation is exactly the right word. No one ever even uses the word “innovation” in the public sector. It’s not the product they sell. They don’t sell innovation; they sell the opposite because it is all command and control from the top down.
Now, Jeff, in the founding principles of Austrian Economics and the free market in general and the principles that govern your institute promotes, you also in your writings and in the blogs that you publish and indeed in the books that you publish, you take a strong position on foreign policy. Now I paused a second when I said that, because one would ask that what does foreign policy have to do with Austrian Economics? And if you analyze it strictly, well, I guess not much. But it’s part of a more important principle of freedom and natural rights.
So tell us, if you will, as we introduce our audience to the work of the Mises Institute, the Mises Institute often takes a very strong and clear position on foreign policy. So let’s start with a summary. What would be a fair summary of, if you will, the position, the big picture? What’s the founding principle that governs the Mises Institute’s approach to foreign policy?
Jeff Deist: Well, I would say that we are against interventionism in foreign affairs as much as we are against interventionism in the domestic economy. And for many of the same reasons, because there are unintended consequences and blowback frequently. If you go back interestingly to the founding era of this country, there wasn’t this huge distinction at the congressional level between foreign and domestic policy. There wasn’t this huge idea that like, well, presidents are sort of in charge of foreign affairs and maybe the State Department and the diplomats, but then Congress deals with all the domestic stuff. That mentality really is quite recent; that’s sort of a 20th-century mentality.
So this bright line distinction between foreign and economic policy I think is misguided. First and foremost, let’s remember that every dollar we spend affects things. Every dollar that is taken in taxes and applied to foreign policy, of course, is a dollar that’s not spent in our domestic economy or in some more productive use. So we can’t make these nice distinctions.
But more importantly, I think the hubris, the idea that governments can remake other countries, that we can decide better than them, for example, who ought to be their political leaders or we can decide better for them what kind of political system they ought to have, and not only can we decide it, but we can, at least in some cases, invade them and impose it, is very dangerous thinking. Now, we all understand the natural right of self-defense as individuals, and I think it’s possible to extrapolate that to groups or nations or countries and say, “Well, of course, if some foreign power was actively threatening us or attacking us, we have the moral right to respond or to prevent it.” That’s a separate question.
But when it comes to foreign policy in a more utopian sense, that we need to go turn Afghanistan into something it’s never been in its many thousands of years history, that we need to take three separate ethnic groups in Iraq which Saddam Hussein had barely sort of cobbled together to peace and we need to blow that up and start over with our own new coalition government—you know, these sort of things, and we do so with not only American taxpayer dollars but with literally the lives and limbs and psychological well-being sometimes of our young people who are in the armed forces. That strikes me not only as crazy and wrong, but it strikes me as having a real strong parallel with economics itself because we’re not thinking in terms of what causes wealth and what makes for a productive world; we’re thinking destructively. And so I very strongly believe that interventionism is the wrong approach in foreign affairs just as it is in the domestic economy.
Bob Zadek: And you said a really important concept there, and I want to just make sure it is not lost on the audience. The temptation might have been to discuss and to identify your approach as being isolationist. “Isolationist” is kind of a negative word, but you never used it. You used “intervention,” and that choice of words by you is very, very important. And I want to just point it out for emphasis to our audience.
The difference is Jeff is proposing really the opposite of isolation. That is, he promotes and the Institute certainly promotes active economic engagement between American companies and American individuals and foreign trading partners. So isolation means we don’t talk to them, we don’t trade with them, we don’t have any contact with them, we build a theoretical wall up to the skies around our country. Hardly. We trade with everybody who will trade with us. That’s the opposite of isolationism. But intervention, which Jeff did use—and I’m so delighted that he did—means we don’t intervene in somebody else’s affairs. They come to us as they are, and if we can engage in a mutually beneficial exchange, we will trade with them.
And I think, Jeff, I may have read it in something that Mises published, but if not, I’ll just mention it anyway: the Austrian economic analysis of foreign affairs is that countries do not harm their customers or their suppliers all that much. If you are trading with somebody and buying their stuff or selling them stuff they want, they are less likely to harm you. That’s true in the marketplace and it’s true in foreign affairs. And that actually, interestingly enough, it ties in directly the Austrian economic free market mutually beneficial exchange approach to world affairs. It ties it in with foreign policy exactly. Or is that kind of a stretch?
Jeff Deist: No, I don’t think it’s a stretch at all. And the notion America is going to be isolated is just absurd. We have free trade with the whole world. You can go anywhere on earth and people know what Coca-Cola is, people know what Levi jeans are, people know what an Apple iPhone is. We’re not isolated in any way. What isolates us is a belligerent foreign policy. That’s what makes, you know, people even in Canada critical of the United States. The emphasis should be on trade. There’s no better form of foreign policy than trade because, you know, people want our Coca-Cola all over the world and we sell it to them, and that’s a bridge towards peace and harmony because people don’t go to war with their customers and people don’t go to war with their suppliers as a general rule. That’s not always true, but that’s a general rule. And I think that really ought to be our number one source of diplomacy is just the American marketplace.
Resources for Learning Economics [50:19]
Bob Zadek: You mentioned a word a second ago, Jeff, another concept that you mentioned that I perked up when you said it, is the phrase that you as I recall that you said a few seconds ago was “increase that trade and free markets increase wealth.” And those who are more progressive in their thinking might cringe a bit. They take the word “wealth” and in their imagination, it becomes a McMansion, a bigger house, an ostentatious car, big cigars if people still smoke cigars, who knows. But they have this negative vision of the word “wealth.”
Wealth means having drugs to make you better if you’re ill. Wealth means living in a way that you’re comfortable. You’re not too cold, you’re not too hot, you have food that is healthy and inexpensive and good for you. You have the goods and services that you need at a price generally you can afford and they always get better. So when we talk about increasing wealth, while people are free to do with their money as they wish, the concept itself, the economic concept, is not anything like ostentation or self-indulgence. It is simply wealth describes making the world a better place.
Now, Jeff, the Mises Institute does so much good work. Tell our friends out there how they can follow your institute and what are some of the wonderful products that are available to those people with a mouse click to the Mises Institute.
Jeff Deist: Well, I would I guess first and foremost suggest people just go to Mises.org, M-I-S-E-S dot org. And we have a lifetime’s worth of reading there in form of free books, free ebooks, free downloads. If you go to our website and type in Economics in One Lesson, you can sign up to get for free a box of books of Henry Hazlitt’s great primer of economics called Economics in One Lesson, which I still think is perhaps the single best introductory book ever written. Very short, very easy read, very discrete little chapters. So if somebody’s thinking, “I don’t know a lot about economics but I’d like to at least begin to develop or shore up my knowledge,” and they’re looking for something that’s not going to overwhelm them or bore them or something, I would suggest that.
And really, if you have an interest, just follow us on Twitter or find us on Facebook and consume as much or as little as you want. If you just want to occasionally click an article, that’s fine. And if you find that the economics you learned wasn’t right or you need to unlearn it and you want to go a little deeper, we have books and videos and articles that would last a lifetime, as I mentioned. So we really encourage people to visit and we appreciate their interest.
Bob Zadek: And all of it is readable, my friends. So you will enjoy every moment you spend learning from Jeff and the folks who write for the Institute. Jeff, thank you so much for sharing your knowledge and your insight, helping us understand a little better what’s going on in the world, and continue the good work at Mises.
Jeff Deist: Well, thanks, Bob. This was a blast.
Bob Zadek: Thanks a lot, Jeff. Have a good day and have a good day to my friends out there. Enjoy the rest of the weekend.