So, in a recent editorial, the FT’s Great Thinker, Martin Wolf, has been fretting that we are about to undergo a period of what he calls ‘financial repression’ as insolvent governments take ever more draconian measures in the vain attempt to forestall the inexorable workings of economic law.
Funny how this never seems to have occurred to him and his fellow nomenklatura when they were all deriding us Austrians in 2007/8 for arguing that the best means of resolving the banking crisis was simply to adhere to an austere policy minimalism which would offer only the most unavoidably last-ditch safeguards to the innocent bystanders, while otherwise insisting on the rigorous and universal application of accounting standards. Then, we said, we should insist upon an unflinching economic triage, pursued through the bankruptcy courts, for all those who could not pass the inspection. For our temerity, Mr. Wolf and his ilk flung the tired old ad hominem of ‘Liquidationists’ at us, while trotting out the Golden Calf of Keynes and invoking all the other Philosopher King rhetoric about how the beneficent state could effect a rescue from the ‘market’ failure (actually, an oft-repeated implosion of unbridled financial corporatism) which would otherwise engulf us all.
But, pass on a few years and now that the respectable establishment pairing of Reinhart and Rogoff have published a quasi-empirical compendium of the many historical precursors of which most modern, pseudo-scientist, New Keynesian, DSGE modellers are so lamentably ignorant, we find that Mr. Wolf is beginning to despair of Leviathan’s ability to compensate for the widespread malfeasance in which it was itself necessarily complicit all along.
So it is that we have passed from throwing a rather notional dollop of ‘taxpayers’ money’ at the banks – originally only theirs to the extent that the copious central bank creation of that money as the core of the crisis response was potentially diminishing the worth of the stock of it already in said taxpayers’ possession – to lifting money directly from their pockets, whether by taxing them more heavily or denying them their accustomed easy access to an over lavish public trough. In the meanwhile, however, the problems have only grown larger – the debt mountains higher, the political entanglements more Gordian, the perverse incentives more corrosive – than they were back when Lehman was thrown to the wolves by way of misdirection from the conjurer’s trick of using AIG as a conduit to make most of Dick Fuld’s more politically adept competitors whole again.
So now, with typical Collectivist inconsistency, the fear seems to be that the banks will have the constituents of their balance sheets dictated; that pension funds will be made first to serve the state, and only afterwards their subscribers; that ‘interest rate ceilings will be imposed’; and that the free movement of capital will be hemmed about.
Forgive the cynicism, but isn’t this shopping list exactly what, not too long ago, the interventionist pundits and ‘Kathedersozialisten’ were, to a man, proffering as the solution to, not the source of, all our woes?
Thus the decline of the market order (in truth a process which occurs when those quintessentially non-market giants, the state-cosseted, fractional reserve banks, are increasing their unbacked, forced-currency lending, not when they are restricting it) leads, with a grim inevitability, to the defeat of the Versorgungstaat which had presumed to supplant it. Nothing daunted, the governing elite predictably refuses to learn from this reversal or rein in its rapacious political ambitions, but crosses more fully over from the illusory compromise of the ‘Third Way’ into ever more totalitarian behaviour. Though the transition to the Zwangswirtschaft may initially take the form of relatively trivial irritants such as banning ‘naked’ short-selling, it is soon being reinforced with more sinister, Big Brother measures such as imposing restrictions on the amount of the state’s own legal tender deemed acceptable in ostensibly private transactions. From thence it is but a small step to imposing foreign exchange restrictions, capital exit levies, and enacting all manner of other revocations of basic human freedoms as Roepke long ago made plain.
Such a ‘Vampire Economy’ – regardless of the false distinction of whether the overseers consider themselves as belonging to the Right or the Left – always has for its motto: Gemeinnutz geht vor Eigennutz. By comparison, a liberal dose of ‘liquidationism’ might seem a relatively mild restorative, eh, Mr Wolf?
Nice analysis but could you provide some translations of the ‘deutsche’ phrases employed so that those more recent converts to the ‘Austrian School’ who are not as conversant with this version of theology, sorry, economics as we ought could more fully participate in the enlightenment…Please.
From Sean via Toby
Versorgungstaat is Provider State… and, PS, not ‘Welfare’, since it doesn’t ever manage to increase anyone’s welfare
Zwangswirtschaft is Command Economy..
Kathedersozialisten is Mises’ ‘Socialists of the Chair’ — i.e. leftwing intellectuals (strictly professors)
Geimennutz, etc, is the Nazi slogan, The needs of the Community (or Collective) take priority over those of the Individual
and, PS, Vampire Economy is a book by Gustav Stolper about life for an entrepreneur in the Third Reich
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