Roger Garrison Interview

Posted below is an interview with Roger Garrison, part of which appears in the documentary the Panic of 2008.

I am principally interested in his comments from 7.47, where talks about the Austrian business cycle theory (ABCT). All of the flaws of ABCT are in display.

Some points:

(1) Garrison blames the central bank for the crisis, and repeats the ABCT explanation. Garrison relies on the unique natural rate of interest concept, which simply does not exist.

(2) Garrison ignores the role of asset bubbles funded by excessive consumer debt.

(3) His “free market in loans” explanation of the interest rate is a flawed real theory of the interest rate. Its analysis is an invalid attempt to model a modern monetary economy as though it were a barter economy where loans are made in real goods.

(4) Roger Garrison reveals that he is a free banker. He attempts to blame the central banks for over-issue of money, and absolve fractional reserve banking of responsibility. This strikes me as highly problematic. If Garrison is a free banker and supports banks issuing fiduciary media (in a commodity money system), then surely (according to Garrison’s own logic as the leading proponent of ABCT), it will be recipe for an economy hit by perpetual Austrian trade cycles. The idea that competitive free banking will not over-issue notes strikes me as devoid of any empirical evidence: many countries had no central bank in the 19th century (Australia, the US etc.), yet these nations still had business/trade cycles. Unless Garrison wants to explain those cycles without ABCT, then what caused these business cycles?

(5) Garrison admits that QE1 and QE2 have not increased the broad money supply significantly. Yet he still conjures up scare-mongering images of hyperinflation by the excess reserves entering the economy. Garrison’s idea that we are in unchartered territory with QE is false. Japan already did QE from 2001 to 2006. Japan’s experience with QE shows us how nonsensical these ideas are, and confirms the endogenous theory of money. Deflation continued for years despite QE by the Bank of Japan. Lending is demand constrained, and central banks can drain excess reserves without difficulty. If one wants to stop cheap money from a zero interest rate policy (ZIRP) or QE from being used in commodity and asset speculation, one can impose financial regulation on the flow of credit.

(6) Garrison, like most Austrians, is clueless about the recession of 1920–1921. The interested reader can see my debunking of the Austrian nonsense about that recession here:

“The US Recession of 1920–1921: Some Austrian Myths,” October 23, 2010.

“There was no US Recovery in 1921 under Austrian Trade Cycle Theory!,” June 25, 2011.

(7) The claim that the New Deal made everything worse is false. America experienced a recovery from 1933–1936 under Roosevelt, with high real GDP growth and falling unemployment. When contractionary fiscal and monetary policy was implanted in 1936-1937 the economy collapsed into recession.

The recovery in 1937 onwards was accomplished by increased fiscal policy. While the cartelist and price-fixing elements of the National Industrial Recovery Act (NIRA) were hardly any great aid in recovery and may have harmed it, this was the view of Keynes himself.

(8) Garrison’s explanation of stagflation does not move beyond a simple critique of neoclassical synthesis Keynesianism. He displays no knowledge of Post Keynesianism, or the fact that stagflation can be easily explained by Keynes’s General Theory.

A Note on the Libertarian Asteroid Dilemma

This is a brief afterthought to a post I wrote some time ago:

“Would Anarcho-Capitalists Allow the Earth to be Destroyed?,” February 28, 2011.

I write it because the issue continues to pop up now and again. The fundamental point is that the Austrian Anarcho-capitalists supporting natural rights theory are the ones subject to this problem. The Austrian advocates of a limited state justified by utilitarianism would be capable in principle of evading it by endorsing some form of government intervention.

And, as I have pointed out before, it is useless for anarcho-capitalists to try and evade the question by claiming that the situation imagined is “unrealistic” or “unlikely.” Hypothetical scenarios that are possible are perfectly legitimate to test ethical theories and their implications.

And it now strikes me that even that alleged “unrealistic” nature of the scenario can be questioned. Asteroid strikes and other threats we might face from natural events in our local part of the galaxy are no joke:

“Every century or so, a 10-meter meteor slams into the Earth with the force of a small nuclear device. Tunguska was the site of the last, in 1908, and it was pure luck that that meteor landed in the uninhabited wilderness of Siberia. Every few thousand years, Earth can pass through unusually thick parts of the debris trail of comets, turning the familiar light show of a meteor shower into a deadly firestorm. Roughly every 100,000 years, a projectile hundreds of meters across unleashes power equal to the world’s nuclear arsenals. The result is devastation over an area the size of England, global tidal waves (if the impact is in the ocean), and enough dust flung into the atmosphere to dim the Sun and kill off vegetation. That could ruin your day.

Then there's the “Big One”. About every 100 million years, a rock the size of a small asteroid slams into the Earth, causing global earthquakes, kilometre-high tidal waves, and immediately killing all large land animals. Creatures in the sea soon follow, as trillions of tons of vaporised rock cause drastic cooling and the destruction of the food chain based on photosynthesis. There's good evidence that this happened 65 million years ago and our tiny mammal ancestors were the beneficiaries as the giant lizards were extinguished. .... When massive stars exhaust their nuclear fuel, the result is a titanic explosion called a supernova. The dying star brightens to rival an entire galaxy and emits high-energy particles that can destroy the ozone layer of a planet like Earth if it occurs within 30 light years. The demise of large North American mammals 41,000 years ago has been linked to a supernova, and several other mini-extinctions may be tied to the cataclysm of stellar death. A supernova is a small squib compared to a hypernova. In this dramatic and rare event, the violent collapse of a very massive star ejects jets of gas and high-energy particles at close to the speed of light, and for a few moments the star outshines the entire universe in gamma rays. If a hypernova went off within 1,000 light years, and Earth was within the narrow cone of high-energy radiation, we’d experience an immediate global conflagration. It’s brutal luck if a hypernova ever goes off with its beam aimed at us.”
Chris Impey, “The End of the World as we Know It,” Independent, 14 June 2010.

We live in a dangerous, dangerous universe indeed, and humanity in fact needs to devote itself to detecting and dealing with threats like this.

And one immediately wonders: has the private sector concerned itself with threats like this, and by pure private funding provided a solution or detection system? I see no evidence of it. By contrast, both the UK and US governments certainly have:

Centre to Monitor Asteroids Opens, Guardian, 18 April 2002.

Robert Matthews, “Britain Leads Defence Against Asteroid Impact,” Telegraph, 1 March 2001.

Furthermore, the technology required for actually doing something about any such threat now exists because it has been developed in the state sector, with decades of government funding to programs like NASA.

If such a threat occurred and the solution required not just national mobilisation of resources and labour, but international co-operation by governments as well, the pure natural rights libertarian would be forced to condemn such coercive measures as an immoral violation of private property rights.

The extinction of the human species in scenarios where government intervention would be required to save it follows logically from natural rights ethical precepts. That is a very high price to pay for a theory which also lacks any credible justification.

The two major Austrian defences of absolute rights to property are Rothbard’s natural rights theory (which I have criticised here) and Hoppe’s argumentation ethic. Neither overcomes the ought from is dilemma of Hume. In the case of Hoppe, one can note that, just because you require the use of certain body parts in debate, it simply does not follow from this that you have any absolute moral right to the use of your body or of any external property.