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Source link: http://archive.mises.org/14887/conservatism-means-nothing-at-all/

Conservatism means nothing at all

December 4, 2010 by

I’m alerted by The New American that National Review ran a column favoring QE2 as conservative. The author is an economist whose training seems to have drifted outside the Keynesian bubble in which markets are never stable but instead need constant pushing and prodding by fiscal and monetary planners lest the economy tip over into depression due to irrational behavior by consumers and lenders. His argument is highly conventional and not at all surprising; what’s surprising is the venue. How is central planning “conservative?” Well, monetary intervention forestalls fiscal intervention and that’s good. Also, he argues, Milton Friedman favored monetary stimulation in tough times and so should we.

Murray Rothbard was the master at spotting how small deviations in free-market orthodoxy can lead to catastrophic results. The concession by Friedman that some stimulation might be necessary is a good example of this. He was a great opponent of inflation, except in some emergency situations. His lasting legacy is to be constantly cited in defense of every conceivable inflationary scheme, even something as obviously disastrous and unworkable as QE2. If conservatives can’t see the problem here, I don’t see how it can be said that American conservatism stands for anything at all – except perhaps building the state using different language than the left uses.

{ 26 comments }

Iain December 4, 2010 at 4:13 pm

This is somewhat related I think, why did Ron Paul vote for only extending the tax cuts to people making less than 200,000 a year.

Jack December 4, 2010 at 4:39 pm

Did you just ask why Ron Paul voted for a tax cut?

When tax rate cuts on high earners comes up for a vote, he’ll vote in favor of that too.

> why did Ron Paul vote for only extending the tax cuts to people making less than 200,000 a year.

Cause that’s the only bill that came up for a vote!

Dave Albin December 4, 2010 at 4:59 pm

He’s forced to work within the current system……I’m glad he is there!

Iain December 4, 2010 at 5:36 pm

No not why did he vote for a tax cut. I’m talking about the much discussed expiration of tax cuts. He voted for the so-called compromise and not across the board extension of all of the tax cuts.

Tim December 4, 2010 at 5:56 pm

Because across-the-board tax cuts weren’t put to a vote.

Voting is a rather cruddy means of gathering consensus and running a democracy. We only use it because no one’s come up with a better idea yet. Paul wants tax cuts for people making over 200,000 a year and for people making under 200,000 a year. When a bill offering the latter came up, he voted for it, because he likes tax cuts. The idea that he should vote against it in order to force a vote on all the tax cuts means you’re asking him to vote against tax cuts in order to cut taxes. That may be the strategic move, and Paul may be open to criticism for bad stratergery, but the framework of the House’s bill passage system is the real problem.

Greg Gallina December 4, 2010 at 8:20 pm

Actually, Murray Rothbard came up with a better idea than democracy in For A New Liberty. See chapters 10-13.

Ohhh Henry December 4, 2010 at 8:41 pm

Friedman … was a great opponent of inflation, except in some emergency situations.

LOL

Oh no, my bank is going have to declare bankruptcy, RIGHT BEFORE MY BONUS IS DUE. Print some money !!! QUICK !!!

J. Murray December 4, 2010 at 9:07 pm

That one cracked me up, too. In Friedman’s world, it’s not inflation unless it goes over his annual, fixed, 3% printing.

Lee Kelly December 4, 2010 at 10:48 pm

David Beckworth, the author of the article, has strong sympathies with Austrian economics. His explanation of the boom is textbook ABCT: artificially low interest rates created a unsustainable boom that came to an inevitable and abrupt bust. I believe Beckworth is also a staunch opponent of central banking, and recently wrote favourably about Selgin, White, an Lastrapes’s assessment of the Fed’s record.

The article pragmatically accepts the existence of central banking — since the Fed is not about to be abolished anytime soon — and addresses the follow up question: what policy should the Fed pursue? Beckworth considers his views to accord rather closely with those of Hayek, since Hayek can be read to advocate stabilisation of the “money stream” — Hayek’s term for total nominal income/spending. Beckworth believes that more quantitative easing is better monetary policy than none at all, though an explicit rule-based target for total nominal income would be preferable.

For what its worth, I almost completely agree with Beckworth’s article.

Richard December 5, 2010 at 6:32 pm

“David Beckworth, the author of the article, has strong sympathies with Austrian economics. His explanation of the boom is textbook ABCT: artificially low interest rates created a unsustainable boom that came to an inevitable and abrupt bust”

Apparently his remedy – keeping interest rates low and further misallocate capital – is not ‘text book’ ABCT.

Lee Kelly December 6, 2010 at 2:57 pm

Richard,

Beckworth has repeatedly said on his blog that he does not expect QE2 to keep interest rates low. Interest rates are low because there is an excess demand for money, and they will begin rising again if QE2 actually works. The marketplace will reallocated capital. In Beckworth’s view, the Fed’s failure to preserve aggregate nominal income is currently frustrating the economies’ return to a sustainable growth path.

Richard M December 6, 2010 at 9:02 pm

Lee,

Well, then I am not sure how sympathetic Beckworth is to Austrian Economics. I am not sure what an ‘excess demand’ for money means (outside of a ‘shortage’ money caused by exchange controls). According to the Austrians I am familiar with (Rothbard) the demand for money has nothing to do with determining interest rates. Interest rates are determined by the ratio of consumption to saving (investment). Regarding my comment on keeping interest rates low, perhaps I should have said keep interest rates lower than they otherwise would be. As far as I know the Fed has been saying this is a matter of policy – to keep interest rates low to encourage business expansion. If businesses do expand thanks to QEII, interest rates may very well rise, but I would not see that as proof that the market has re-allocated capital. More likely it will be mis-allocateing capital just as the ABCT claims; just as it did after the Fed pumped money into the economy after the dot com bust, Y2K and 9/11.

What is frustrating the the return to a stable growth path (along w/ gov’t regs and price controls), in my opinion, is the Fed’s policy to pump money into the banking system, which is keeping capital from being re-allocated

Lee Kelly December 4, 2010 at 11:02 pm

By the way, I do not believe David Beckworth considers himself a conservative. He is making a conservative case for QEII, because he believes that it may bring the recession to an end more quickly. Beckworth is concerned that fiscal policy will become more interventionist the longer the recession continues, like during the Great Depression. Since he believes the greater part of unemployment is not due to mis-allocation during the boom, but rather an excess demand for money, expansionary monetary policy is the least bad remedy. This seems to me a perfectly reasonable conservative case for QEII, given Beckworth’s assumptions.

The notion that American conservatism cannot stand for anything, because it is possible to make a conservative case for QEII is just preposterous.

Jeffrey Tucker December 5, 2010 at 6:40 pm

Lee, note that my post zeros in on the problem of departing even a bit from market theory; as Rothbard noted, even small deviations can eventually lead to ghastly policy implications. I cited this article as a case in point. Your posts reinforce the point.

Lee Kelly December 6, 2010 at 3:02 pm

Deviations from market theory? I though market theory was value-free. Beckworth isn’t departing from market theory, but using it to understand how the Fed deranges markets and how it might be reconstituted to derange them less in the future.

Richard M December 5, 2010 at 7:06 pm

“Since he believes the greater part of unemployment is not due to mis-allocation during the boom, but rather an excess demand for money, expansionary monetary policy is the least bad remedy. This seems to me a perfectly reasonable conservative case for QEII, given Beckworth’s assumptions.”

What if his assumption is wrong? How can he say that he agrees that the boom misallocated capital – that is devoted it to making stuff people really didn’t want – and then say that having the ‘wrong’ capital structure does not lead to unemployment – especially when the gov’t and central banks are doing everything they can to keep that capital structure intact? Banks are the ones demanding the money. They are stashing it in excess reserves. If they don’t they are toast. Until they are toast, the wrong capital structure will remain in place, and people will remain unemployed.

Lee Kelly December 6, 2010 at 3:05 pm

Richard,

If Beckworth’s assumptions are wrong then his conclusion may also be wrong. In any case, Beckworth has never argued that structural unemployment is not a real problem at present. Some of your other suppositions are either wrong or just confused, in my opinion.

Richard M December 6, 2010 at 9:06 pm

Lee,

Likewise.

Ohhh Henry December 5, 2010 at 12:59 am

How is central planning “conservative?”

Think of the original meaning of the word. Central planning is highly conservative, if it helps maintain the money and power of the old, existing elites.

“Liberalism” also still clings to a shred of its original meaning, if it stands for liberating the old elites from their money and power and putting it into the hands of new elites.

In any case, it is incorrect to say that neither of the political factions which (for branding reasons) cling to the labels “conservative” and “liberal” actually stand for anything – they stand for plunder and power. All of their rhetoric and (to use the term very loosely) logic will be aimed at this goal, even if it means that they will occasionally stray from their brand recognition.

Iain December 5, 2010 at 1:48 am

“Conservative” is a relative term dependent on context. In the American sense I don’t think conservative means what you say, you just provide a silly caricature.

Ohhh Henry December 5, 2010 at 8:07 pm

OK let’s get this straight … “conservative” has always always referred to the political faction which tries to conserve the status quo … “conservatives” are arguing in favor of a central bank … the central bank helps preserve the power and money of the current elites … but it’s “silly” to point out that those who advocate this policy are conservatives in both the literal and historical sense.

Is there any country on earth in which the simplest of definitions relating to politics have been so distorted and misunderstood? For example, besides conservatives not even knowing what a conservative is, you have socialists in both major political parties who would cut out their own tongue before they would confess to being socialists. Even more than the “conservative/liberal” ignorance, this denial of socialism is probably the single biggest absurdity of what passes for politics in America. Not that other countries have a better class of politicians or anything, but the level of American political discourse seems to be significantly more ignorant and opaque (and proud of it).

Walt D. December 5, 2010 at 2:32 am

It seems like that it is not only with respect to fiscal matters that some Conservatives are CONO’s -(Conservative in name only). Many so called Conservatives talk show hosts were even worse than the liberals when condemning Wikileaks for posting “secret information” (to which 600,000 people had access). These people are closet Stalinists. The Ayatollah Palin called Julian Assange a terrorist, but she did stop short of calling for a fatwah, unlike others. When all is said and down, Orwell was right – it is all about power.

CCG December 5, 2010 at 3:49 pm

Kudlow writes for NR. That tells me what I need to know.

Robert December 6, 2010 at 8:39 am

“Murray Rothbard was the master at spotting how small deviations in free-market orthodoxy can lead to catastrophic results.”

You don’t need to be masterful to “spot” inevitable disaster at the slightest deviation from your orthodoxy . . . that’s called “fanaticism” and it’s surprisingly common.

Richard M December 6, 2010 at 9:13 pm

You mean in Washington D.C.?

Julian Assange December 13, 2010 at 1:09 am

keep in touched

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