The strife engendered by the efforts at halting or even rolling back the politicization of the country has led to a great profusion of partisan rants in Chronicle Review — more than usual at least. I mentioned two last week and now there is another, “Capitalism’s Dismal Future” by philosophy professor Paul Mattick.
It’s too long for a thorough evisceration here, but suffice it to say that he doesn’t know what he is talking about.
Mattick begins with a snide attack on those who dissented from the Financial Crisis Inquiry Commission’s report, lamely asserting that the dissent was “patently nonreality-based.” He offers no explanation for that statement, apparently believing that his readers will take it ex cathedra. Did he bother to read and attempt to understand the arguments made against the majority’s effort at whitewashing the political establishment from blame? As commissioner Peter Wallison argued in his dissent, the majority deliberately overlooked key elements of reality, such as the government’s dictates that undermined traditional mortgage-lending standards, the pressure on banks to make overly risky loans due to the Community Reinvestment Act, and the artificially low interest rates brought about by the Fed. I think Mattick owes Wallison and the other dissenters an apology unless he can explain exactly how their arguments were not “reality based.”
Mattick goes on to opine that capitalism suffers from recurring depressions and claims that the economics profession is unable to either “explain what is happening at present or to reach consensus on measures to be taken in response.” And here we see the hole in Mattick’s grasp of economics: he knows nothing about the Austrians. Ludwig von Mises first explained the boom-bust cycle in his 1912 book The Theory of Money and Credit. The cycle is not built into capitalism, but rather is brought about by government interferences with it, in particular manipulation of interest rates. Artificially low interest rates cause a misallocation of resources as labor and capital are drawn into industries that expand due to the temporary stimulus of cheap credit — a bubble. When the bubble bursts, as it eventually must, there will be a period of adjustment as resources are gradually redeployed where they can be profitably employed.
And what do we do about this? The Austrian prescription is to stop the artificial manipulation of money and credit. For a clear explanation of the current economic debacle, the Austrian theory in general, and its policy implications, I recommend to Professor Mattick (and anyone else who is dazed by our recent economic turmoil) Thomas Woods’s book Meltdown.