Central Economic Planning at its Worst

http://paul.house.gov/index.php?
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worst&catid=62:texas-straight-talk&Itemid=69

Central Economic Planning at its Worst        

Last week, the Financial Crisis Inquiry Commission (FCIC) presented its 
results to the Financial Services Committee. As with most other politically-
appointed commissions, the results of the FCIC's investigation were easy to 
predict.  Established by the same congress that gave us national healthcare 
and with a majority of its members appointed by those who seek to solve 
every problem with more government intervention, it was no surprise that the 
commission's findings would favor increased government intervention in the 
economy. Minority members were not substantively involved in the 
commission's operations, and the commission attempted to exclude their 
dissenting views by granting them very limited space to do so.
 
 However, even the minority members of the commission failed to consider the 
most important cause of the financial crisis, namely the Federal Reserve’s 
loose monetary policy.  Almost a century ago, in 1912, Ludwig von Mises 
published his great work The Theory of Money and Credit.  This was the first 
systematic description of Austrian Business Cycle Theory (ABCT), which 
explains the origins of the business cycle in monetary expansion. This 
theory explains why so many businessmen make so many of the same errors at 
the same time.  Yet not a single member of the commission undertook an 
analysis of the financial crisis from an Austrian economic viewpoint. 

Instead, blame was placed on failures in financial regulation and corporate 
governance, excessive borrowing and risky investments, and expansion of 
subprime lending, among other factors.  But none of these explanations can 
answer why this crisis occurred.  Why was there excessive borrowing?  Why 
was there an explosion of subprime lending?  Why were there failures in 
corporate governance?  Why did virtually no one except Austrian economists 
see this coming?

Without the Federal Reserve's massive expansion of credit throughout the 
1990s and early 2000s, there could have been no excessive borrowing or 
explosion of subprime lending.  Through easy credit, the Fed initiated the 
economic boom that created the dot-com bubble.  When that bubble burst the 
Fed pumped additional liquidity into the system, which led to a new boom 
that created the housing bubble.  And now the Fed's additional trillions of 
dollars in monetary pumping is creating yet another bubble.  This is the 
exact opposite of stability in the marketplace and has nothing to do with 
free markets.  It is central economic planning at its worst.

It is imperative that the historic record accurately reflect what actually 
happened.  In the popular press we see columnists attempting to blame the 
financial crisis on the “small-government,” “free-market” policies of 
President Bush.  Hundreds of billions of dollars in stimulus payments, a 
$700 billion bailout program, and trillions of dollars of Federal Reserve 
credit facilities hardly represent small-government and free-market 
principles in action!  On the contrary, these government interventions by 
both major parties demonstrate quite clearly our nation’s acceptance of 
crony capitalism.

Schoolchildren today are taught the myth that Herbert Hoover was a small-
government President who did nothing to stop the Depression, while the truth 
is exactly the opposite. Fed Chairman Bernanke failed to understand the true 
cause of the Great Depression, so his policy prescriptions to combat the 
current crisis are understandably flawed.  Unless we confront and correct 
false economic rhetoric, truly understand the causes of the economic crisis, 
and do away with our loose monetary policy, we will find ourselves in ever 
more vicious business cycles.

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