The Importance of Austrian Economics and F. A. Hayek for Understanding the Current Economic Crisis and for the Future of Freedom

HayekHere is how George Leef introduced the following Interview of Richard M. Ebeling by the Austrian Economics Center (AEC):

In this longish but eminently worthwhile post, Professor Richard Ebeling discusses his discovery of the Austrian school and why its insights are crucial to understanding our current economic malaise.

Lots of important stuff, but especially his explanation that our current economic “crisis” has nothing to do with capitalism or the free market, and everything to do with government interference with them. That’s the lesson that statists are desperate to avoid having Americans learn because it changes the entire debate from “What new programs and policies must the government adopt? to “What government programs and polices should be repealed?”

Here are two excerpts from the interview…#1:

AEC: Why do you think Hayek is so important? What would you say is Hayek’s principal contribution to the world?

Ebeling: In my opinion, Hayek’s explanation and defense of the competitive market economy and the free society in general is, possibly, the most insightful and profound argument for liberty penned in the 20th century. His analysis of man’s inescapable ignorance of much of the knowledge that others possess—but upon which use we are all dependent in the extended system of division of labor—represents one of the subtlest understandings of why government central planning and heavy-handed intervention and regulation are inherently inferior to a functioning competitive market order.

The “moral” lesson, of course, is that each of us, in accepting our own limited and imperfect knowledge, should practice a high degree of humility in what we can claim to know and do in terms of trying to direct or command the otherwise “spontaneous” evolution and development of society and its institutions. This is the overarching message that runs through Hayek’s writings over the decades. As he often put it, we need to use our reason to appreciate the limits of what our reason can realistically do in attempting to “plan” the social order and its daily operation. It is the reason why he, truly, was one of the most worthy to be awarded a Nobel Prize in economics, in terms of a lasting contribution to human knowledge about man and society.

Here’s #2:

AEC: What do you think are the root causes of the current crisis?

Ebeling: This “crisis” of government paternalism was accelerated by monetary and related interventionist policies in the United States and Europe that produced another “boom-bust” cycle in the first decade of the 21st century. It has had all of the hallmarks of the type of business cycle that the Austrians—and especially, Hayek—had explained decades earlier. Financial markets were awash with loanable funds made possible due to aggressive monetary expansion by central banks; interest rates were artificially pushed far below any market-based level; business investment borrowing, home borrowing, and consumer credit borrowing were far in excess of actual savings rates able to sustain them.

The capital, resources, and labor of society were misallocated and misdirected into various directions throughout these economies, all of which was going to necessitate a significant “adjustment” period when the “bubbles” of the boom finally burst. But rather than allowing the required adjustments and reallocations of capital and labor, and accepting that government welfare and related spending had to be permanently reduced or eliminated, governments have resisted these needed changes.

In many countries, the presumed “austerity” policies have really involved little or no reduction in the levels of government spending and redistribution, but noticeable increases in taxes. “Austerity” means squeezing the private sector to maintain a blotted government sector. The implicit psychology of many in Europe and the United States is that if the current crisis can “somehow” be gotten over, then the trend line of intrusive and growing government spending of past decades can be returned to in the future.

Read the entire interview…