MAKING ECONOMIC SENSE Murray N. Rothbard Copyright © 1995 by the Ludwig von Mises Institute. Online publication prepared by William Harshbarger. Cover by Chad Parish. Table of Contents Preface Llewellyn H. Rockwell,Jr……………………………………….. 7 MAKING ECONOMIC SENSE Is It the “Economy, Stupid?…………………………………….. 9 Ten Great Economic Myths…………………………………….. 12 Discussing the “ Issues”………………………………………… 22 Creative Economic Semantics…………………………………... 26 Chaos Theory: Destroying Mathematical Economics From Within?………………………………………………………. 28 Statistics: Destroyed From Within?…………………………….. 30 The Consequences of Human Action: Intended or Unintended?……………………………………. 32 The Interest Rate Question……………………………………… 34 Are Savings Too Low?………………………………………….. 37 A Walk on the Supply Side……………………………………... 40 Keynesian Myths………………………………………………... 42 Keynesianism Redux……………………………………………. 45 THE SOCIALISM OF WELFARE Economic Incentives and Welfare………………………………. 50 Welfare as We Don’t Know It…………………………………... 52 The Infant Mortality “Crisis”…………………………………… 54 The Homeless and the Hungry………………………………….. 57 Rioting for Rage, Fun, and Profit……………………………….. 59 The Social Security Swindle……………………………………. 62 Roots of the Insurance Crisis……………………………………. 65 Government Medical “Insurance”………………………………. 67 The Neocon Welfare State……………………………………… 70 By Their Fruits………………………………………………….. 74 The Politics of Famine………………………………………….. 76 Government vs. Natural Resources……………………………... 78 Environmentalists Clobber Texas………………………………. 80 Government and Hurricane Hugo: A Deadly Combination……………………………………… 83 4 Murray N. Rothbard: Making Economic Sense The Water Is Not Running………………………………………. 86 POLITICS AS ECONOMIC VIOLENCE Rethinking the ‘80s……………………………………………... 90 Bush and Dukakis: Ideologically Inseparable…………………... 92 Perot, The Constitution, and Direct Democracy………………... 96 The Flag Flap……………………………………………………. 98 Clintonomics: The Prospect…………………………………….. 101 Clintonomics Revealed………………………………………….. 103 Price Controls are Back!………………………………………… 107 The Health Plan’s Devilish Principles…………………………... 110 Outlawing Jobs: The Minimum Wage, Once More…………….. 115 The Union Problem……………………………………………... 118 The Legacy of Cesar Chavez……………………………………. 121 Privatization……………………………………………………... 124 What To Do Until Privatization Comes………………………… 126 Population “Control”……………………………………………. 129 The Economics of Gun Control…………………………………. 132 Vouchers: What Went Wrong?………………………………….. 135 The Whiskey Rebellion: A Model for Our Time?………………. 138 Eisnerizing Manassas…………………………………………… 141 ENTERPRISE UNDER ATTACK Stocks, Bonds, and Rule by Fools………………………………. 146 The Salomon Brothers Scandal…………………………………. 149 Nine Myths About the Cras h……………………………………. 152 Michael R. Milken vs. The Power Elite………………………… 156 Panic on Wall Street…………………………………………….. 159 Government - Business “Partnerships”…………………………... 162 Airport Congestion: A Case of Market Failure?………………... 165 The Specter of Airline Re - Regulation…………………………... 168 Competition at Work: Xerox at 25……………………………… 171 The War on the Car……………………………………………... 173 FISCAL MYSTERIES REVEALED Are We Undertaxed?……………………………………………. 178 The Return o f the Tax Credit……………………………………. 180 Deductibility and Subsidy………………………………………. 183 That Gasoline Tax………………………………………………. 184 Contents 5 Babbitry and Taxes: A Profile in Courage?……………………... 188 Flat Tax or Flat Taxpayer?……………………………………… 190 Mrs. Thatcher’s Poll Tax………………………………………... 193 Exit the Iron Lady……………………………………………….. 195 The Budget Crisis……………………………………………….. 198 The Balanced- Budget Amendment Hoax……………………….. 201 ECONOMIC UPS AND DOWNS The National Bureau and Business Cycles……………………… 205 Inflationary Recession, Once More……………………………... 207 Deflation, Free or Compulsory………………………………….. 210 Bush and the Recession…………………………………………. 214 Lessons of the Recession………………………………………... 218 THE FIAT MONEY PLAGUE The World Currency Crisis……………………………………… 224 New International Monetary Scheme…………………………… 228 “Attacking” the Franc…………………………………………… 230 Back to Fixed Exchange Rates………………………………….. 234 The Cross of Fixed Exchange Rates…………………………….. 237 The Keynesian Dream…………………………………………... 241 Money Inflation and Price Inflation…………………………….. 243 Bank Crisis!……………………………………………………... 246 Anatomy of the Bank Run………………………………………. 250 Q & A on t he S & L Mess………………………………………. 252 Inflation Redux………………………………………………….. 257 Inflation and the Spin Doctors…………………………………... 259 Alan Greenspan: A Minority Report on the Fed Chairman……... 261 The Mysterious Fed……………………………………………... 263 First Step Back to Gold…………………………………………. 266 ECONOMICS BEYOND THE BORDERS “Free Trade” in Perspective……………………………………... 270 The Nafta Myth…………………………………………………. 273 Is There Life After Nafta?………………………………………. 277 “Fairness” a nd the Steel Steal…………………………………… 279 The Crusade Against South Africa……………………………… 283 Are Diamonds Really Forever?…………………………………. 285 6 Murray N. Rothbard: Making Economic Sense Oil Prices Again…………………………………………………. 288 Why the Intervention in Arabia?………………………………... 291 A Trip to Poland………………………………………………… 295 Peru and the Free Market………………………………………... 297 A Gold Standard for Russia……………………………………... 299 Should We Bail Out Gorby?…………………………………….. 302 Welcoming the Vietnamese……………………………………... 305 THE END OF COLLECTIVISM The Collapse of Socialism………………………………………. 308 The Freedom Revolution………………………………………... 310 How to Desocialize?…………………………………………….. 313 A Radical Prescription for the Socialist Bloc…………………… 315 A Socialist Stock Market?………………………………………. 318 The Glorious Postwar World……………………………………. 321 The Revolution Comes Home…………………………………... 323 The Trouble with the Quick Fix………………………………… 327 OUR INTELLECTUAL DEBTS William Harold Hutt : 1899–1988……………………………….. 332 Friedrich August von Hayek: 1899–1922………………………. 335 V. Orval Watts: 1898–1993……………………………………... 338 Margit von Mises: 1890–1993…………………………………... 340 The Story of the Mises Institute………………………………… 342 POSTSCRIPT The November Revolution…And What to Do About It………... 349 List of Articles…………………………………………………... 376 Preface The academic contributions of Murray N. Rothbard (1926-1995) are legion, but he also had a passion for public persuasion. A free society can only be sustained if the general public is aware of the vital importance of the market and the terrible consequences of statism. That’s why Rothbard hoped to convince everyone about the virtues of the free economy. For Rothbard, educating the public was strategically necessary and morally obligatory. It was also lots of fun. From 1982 to 1995, The Free Market was home to Rothbard’s monthly explanation of economic events. He presented theory and policy in clear, sprightly prose while never sacrificing intellectual rigor. Keeping with Mencken’s rule, Rothbard’s clear writing was a product of his clear thought. Even when discussing subjects like interest rates and excise taxes—subjects economists typically take pains to make unbearably boring—Rothbard teaches and entertains at the same time. The Free Market essays are a crucial part of the legacy he has left us. As he skewers both parties in all branches of government, and all their connected interests, we see a principled Austrian School economist1 at work. No matter how specialized and distant from reality the economic profession becomes, Rothbard proves it is always possible to communicate truth more broadly. In this area, as in so much else, Rothbard shows us the way. Llewellyn H. Rockwell, Jr. Auburn, Alabama October 1995 1 The Austrian School, named for the country of its founding, views freely moving prices, unhampered markets, and private property as the keys to economic prosperity and social cooperation. (See "Why Austrian Economics Matters," [Auburn, Ala.: Ludwig von Mises Institute, 1994] and "The Austrian Study Guide" [Auburn, Ala.: Ludwig von Mises Institute, continually updated].) Making Economic Sense 1 Is It The “Economy, Stupid”? One of the persistent Clintonian themes of the 1992 campaign still endures: if “it’s the economy, stupid,” then why hasn’t President Clinton received the credit among the public for our glorious economic recovery? Hence the Clintonian conclusion that the resounding Democratic defeat in November, 1994, was due to their failure to “get the message out” to the public, the message being the good news of our current economic prosperity. Some of the brighter Clintonians realized that the President and his minions had been repeating this very message endlessly all over America; so they fell back on the implausible alternative explanation that the minds of the voting public had been temporarily addled by listening to Rush Limbaugh and his colleagues. So what went wrong with this popular line of reasoning? As usual, there are many layers of fallacy contained in this political analysis. In the first place, it’s crude economic determinism, what is often called “vulgar Marxism.” While the state of the economy is certainly important in shaping the public’s political attitudes, there are many non-economic reasons for public protest. The public is particularly exercised, for example, about crime, gun control, the flood of immigration, and the continuing wholesale assault by government and the dominant liberal culture upon religion and upon “bourgeois” as well as traditional ethical principles. Other non-economic reasons: a growing pervasive skepticism about politicians keeping their pledges to the voters, a skepticism born of hard- won experience rather than of some infection by a bacillus of “cynicism.” A fortiori removed from economics is an intense revulsion for the president, his wife, and their