Steve Bannon Abandons Fiscal Responsibility for Pork; Austrian Economics Says Why He and Trump Are Wrong
A couple of days ago I read with interest this 2014 talk by Steve Bannon, Trump’s right-hand man. And I found myself agreeing with much of what he had to say — in particular this:
Now, with that, we are strong capitalists. And we believe in the benefits of capitalism. And, particularly, the harder-nosed the capitalism, the better. However, like I said, there’s two strands of capitalism that we’re quite concerned about.
One is crony capitalism, or what we call state-controlled capitalism, and that’s the big thing the tea party is fighting in the United States, and really the tea party’s biggest fight is not with the left, because we’re not there yet. The biggest fight the tea party has today is just like UKIP. UKIP’s biggest fight is with the Conservative Party.
The tea party in the United States’ biggest fight is with the the Republican establishment, which is really a collection of crony capitalists that feel that they have a different set of rules of how they’re going to comport themselves and how they’re going to run things. And, quite frankly, it’s the reason that the United States’ financial situation is so dire, particularly our balance sheet. We have virtually a hundred trillion dollars of unfunded liabilities. That is all because you’ve had this kind of crony capitalism in Washington, DC. The rise of Breitbart is directly tied to being the voice of that center-right opposition. And, quite frankly, we’re winning many, many victories.
That was then. This is now. In an interview with the Hollywood Reporter published Friday, it became clear that, to his shame, Bannon had changed his tune utterly when it comes to fiscal responsibility:
“Like [Andrew] Jackson’s populism, we’re going to build an entirely new political movement,” he says. “It’s everything related to jobs. The conservatives are going to go crazy. I’m the guy pushing a trillion-dollar infrastructure plan. With negative interest rates throughout the world, it’s the greatest opportunity to rebuild everything. Ship yards, iron works, get them all jacked up. We’re just going to throw it up against the wall and see if it sticks. It will be as exciting as the 1930s, greater than the Reagan revolution — conservatives, plus populists, in an economic nationalist movement.”
Susan Wright mentioned this interview in this post, and quoted the language above. She focused on Bannon’s bizarre statement that the 1930s were “exciting” — a mockable statement that she criticized admirably. I have a different focus here. I think this passage is worth quoting again in light of Bannon’s previous acknowledgement of the state of our balance sheet.
I could simply note the blatant contradictions here — and the casual discarding of any semblance of fiscal responsibility. I could do that, dust off my hands, and walk away . . . patting myself on the back for a post well done.
Yes, I could do that. But I won’t stop there. You’re going to get more. In fact, you’re going to get:
A RANT ON AUSTRIAN ECONOMICS AND THE BOOM-BUST CYCLE: Bannon’s more recent statements show a staggering and disappointing ignorance of the theory of the boom-bust cycle, as explained by Austrian economists Friedrich Hayek and Ludwig von Mises.
The Austrian theory of the business cycle was explained by Hayek (whom you may know as the author of The Road to Serfdom), and his teacher Mises (perhaps the pre-eminent scholar in the field of Austrian economics, or as I call it, “economics”). I have discussed the concept at greater length here, but here’s the “too long; didn’t read” version:
Interest rates, which are prices for credit, should not be set by central planners — much like prices of goods should not be set by central planners.
Here is the slightly more detailed explanation — though not as detailed as my previous post:
Businessmen look to the price of credit (i.e. interest rates) as a signal that tells them when it’s best to engage in long-term capital expansion. When the natural rate of interest is low, businesses naturally decide that’s a good time to take scarce resources and allocate them to long-term projects. During such periods, consumers are saving — which releases real resources for the long-term capital expansion that businesses desire.
All this works in beautiful harmony in an economy where interest rates emerge on the market.
Similarly, when the natural rate of interest is high, businessmen forego capital expansion and serve more immediate consumer needs. This matches consumer behavior, because consumers are saving less and spending more.
Again, the beauty of the market in action.
But when central banks manipulate interest rates (as the Federal Reserve does through its open market operations and other policies), this affects the price of credit — and thus distorts the price signal as it applies to credit. Business decide that’s a good time to build up capital, based on the low rate of interest — but it may be a bad time to do that. Due to central bank manipulation of the price of credit, businesses think consumers are saving, freeing up real resources for their large capital expansion. But in reality, consumers are doing nothing of the sort. Consequently, there is a shortage of real resources to devote to the capital expansion. Businesses scramble to compete for the shrinking pool of resources, bidding up prices and causing a “boom.”
And then, as capital expansion proves to be more expensive than anticipated, businesses run into problems. Many fail. Recession or even depression hits, and we get: the “bust.”
This entire boom-bust cycle is driven by the false signals of low interest rates, which mislead businesses into engaging in long-term investments when they are least appropriate.
And the problem is worst in government, which doesn’t respond to market forces anyway. Government taxes citizens — by which I mean to say it seizes money from citizens at gunpoint — and then it spends the money it grabbed. There’s no market involved in any of that. It’s economic “expansion” by fiat. (Sound familiar?)
So when someone like Bannon says “hey, with these low interest rates, it’s a great time to expand!” . . . well, that just shows a blatant ignorance of the work of Hayek and Mises. It’s a policy that is designed to exacerbate the boom, which will inevitably lead to the bust.
And when they want to take your money through taxation (or the money of your children through borrowing), and spend it on projects that the market cannot justify . . . that’s even worse.
And when they have made comments in the past about “the United States’ financial situation” being “so dire” — referencing in particular our almost “hundred trillion dollars of unfunded liabilities” . . . well. They can claim ignorance of business cycle theory — but they can’t rely on a claim ignorance of the fiscal problem we face.
Not their own ignorance, that is. But maybe they’re relying on the ignorance of the population at large.
You can do better. It’s time to learn about real economics, and resist this awful change that is coming. Stand up for the free market. As the car heads towards the cliff, help me grab that wheel and steer it before it’s too late.
I’ll have more to say about how to educate yourself in coming days, at the Constitutional Vanguard.
We have nothing less at stake than our financial future . . . and, more importantly, that of our children.