Hat tip Rolfe Winkler.

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Steve Horwitz had an interesting read last week on Friedrich von Hayek, the Nobel Prize winning Austrian School economist. Von Hayek is best known for his 1944 Libertarian call to arms “Road to Serfdom” and is generally considered one of the fathers of the free market ideology.
In Horwitz’s piece, he points out that Hayek was [...]

As a follow-up to my post on debt and it’s exclusion as a subject of merit amongst several schools of economic thought, I wanted to bring a New York Times article from 1988 to your attention. This article by Peter Kilborn, a Washington, D.C. based and long-time former correspondent for the New York Times, is [...]

Sarah Palin the populist has become Sarah Palin the free trader. In a wide-ranging and well-received speech in Hong Kong, Palin supported a more Libertarian free-market approach, slamming the recent imposition of tariffs on Chinese tires by the Obama Administration.
Palin spoke at a closed-door investor forum organized by CLSA in which no media representatives were [...]

Ron Paul was on CNN this morning talking about unemployment, the credit crisis, the Federal Reserve and a lot more.

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The following is an excerpt from Murray Rothbard’s excellent book, “A History of Money and Banking in the United States.”  The passage outlines how the gold standard prevented governments from using inflation as a device to manipulate their currencies, something of great concern to China now in 2009.  However, Word War [...]

Peter Schiff is that market wizard people were laughing at just a year ago because of his extreme views. Well, things have turned out much as he has indicated they would. So, now he has a captive audience. And what is he saying? Government is a burden that we need less of. The way forward is not government stimulus but less government, less consumption and higher savings.

Well Peter, I have news for you: that game plan of yours is a recipe for deflation, depression, civil unrest and financial Armageddon. You see, Schiff is an ideologue from the small government, free markets crowd. While I agree with his broader themes about less consumption and more savings, I do not see eye-to-eye with his ideology. What America needs now is a practical solution to a real problem, not ideology from the small government crowd.

I was chatting with Marshall Auerback about some of my recent posts on Keynesianism and Austrian Economics — Marshall is a Keynesian — and he convinced me that my posts were somewhat misleading and that I had only presented half of the argument for stimulus. This led me to thinking about the role of government, stimulus and recession which I felt compelled to present here.

Recently I wrote a post which claimed that Keynesian stimulus is what we need in the global economy right now. These ideas are considered heresy in Austrian School circles because trying to stimulate the economy out of recession only puts off the day of reckoning and often worsens that day of reckoning. This is exactly what we saw when Alan Greenspan lowered interest rates to 1% after the last recession.

So what exactly does Ludwig von Mises, the most revered Austrian School economist, say about this?

My Austrian School background has been useful as a lens through which to view the credit bubble and crash. Central to this view is the precept that easy money is the problem and not the solution. However, as the crash has unfolded, I find myself parting ways with the Austrians. I have always felt the Austrians are more useful for their economic framework. But they leave me underwhelmed when it comes to solutions for when problems occur. Their “Let them eat cake” approach comes dangerously close to Andrew Mellon’s draconian Depression era prescription and is more likely to end in a deflationary spiral and a worsening of the problem.

And so it is today. If we are to find our way out of this crisis — the worst in three quarters of a century — it will not be the ideas of Ludwig von Mises or Murray Rothbard which will guide us. It is more the work of John Maynard Keynes and his followers that is likely to offer useful prescriptions. As much as I would like to look to the Austrian School in this crisis, I cannot. These are the confessions of a former Austrian Economist.