Ron Paul's narrative has lost sight of us all: GULF NEWS 1.12.12

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http://gulfnews.com/business/opinion...s-all-1.965149

Paul is the new darling of the libertarian Right in the Republican Party and is running to become president
Keerthik Sasidharan, Special to Gulf News
Published: 00:00 January 13, 2012


In her new book on Barack and Michelle Obama, Jodi Cantor writes that America is now "an enraged, moralistic, harsh [and] desperate country". And no one embodies this visceral angst more than Ron Paul.

Paul is the new darling of the libertarian Right in the Republican Party and is running to become president. He has many admirers, particularly among the disaffected and the Rightists, who have accreted at his doorsteps. He has repeatedly called himself a believer and representative of the "Austrian School of Economics" (ASE, hereafter). And thus covered himself in the shroud of respectable economic theories.

His cryptic pronouncements that "we are all Austrians, now", however, is a wolf-whistle to his followers of a particular world view. It is a world where regulation is zero, where the Federal Reserve system is dismantled, where the government is the violator of individual freedoms and where social safety nets are to be abandoned.

It is a radical, and naive, view of how an interconnected world, chock-a-block with negative and positive externalities, ought to operate. It views America as existing in isolation in the world, as a frontier country of the 1870s and not the attractive, but wounded, hegemon of this new millenium. Like all extremist ideas, Paul's movement has its lure, its internal logic and a willingness to appropriate history to its own benefit.

This willingness is best seen in his clever usurpation of the ASE, a sophisticated school of thought, with history dating back to the 1870s.

Central premise
Few today however really know what the ‘Austrians' believe in except that they stand for ‘non-interventionist markets'. While one of the great Austrian economists Ludwig von Mises was responsible for a frontal attack on socialism; his intellectual grandchildren continue to burnish their credentials as free marketers thanks, in parts, to his insights.

Von Mises argued that prices in the market capture all relevant signals of supply and demand; and since no system can compute in a centralised manner all prices of all goods, any political system that claims to do so must fail due to its inability to allocate resources efficiently. The main reason why Paul says "we are all Austrians" is because of how the ASE sees the business cycles and its relationship to credit expansion. As per the ASE: when ‘loose money' enters an economy, through a series of expectations dynamics, the interest rate declines. This distorts the decision-making of entrepreneurs who over-invest in industries under the belief that the relative value of today's consumer goods to future capital goods has declined.

Embedded failure

This causes a boom in some industries [think of real estate in 2004-07] and increasing misallocation of productive resources [Think of physicists who go onto Wall Street to model cash flow projections]. Production chains are reconfigured to cater to the demand increases due to the increasingly lopsided investment. Consumption rises till the credit flow continues as well. Soon there is a mania wherein consumers and producers believe that asset prices will continually increase. Till it doesn't.

Because continued credit expansion results in the debasement of the entire monetary system and market economics; and so the lego-like tower of expectations begins to unravel. So, inevitably, we end up with a recession or a depression.

But once we begin to look beyond Paul's expedient claims, reality is more complex. Many of today's ‘Austrians' believe in a non-interventionist market economy, but still acknowledge the importance of social security nets. Paul views any social safety net as anathema. Many of today's ‘Austrians' recognise the need to regulate the environment and the industries that pollute, given the presence of non-priceable externalities. Paul views any and all intervention as a fatal error.

Some reflection, and reading will reveal that Paul is just an isolationist, extremist and a gold bug who neither has patience for the nuances of modern financial architecture or Austrian economics, nor the sense of the human cost involved should the whole edifice collapse thanks to his advice such as "Kill the Fed". It is a shame his bankrupt ideas are taken so seriously.



The columnist works for a major European investment bank in New York City. All opinions are personal and don't reflect any institutional perspectives.

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Authors Twitter: @KS1729
Keerthik Sasidharan

[PierzStyx]

*sigh* Its so sad that we're the "radicals". Whoever would've thought that moral, political, and economic liberty would be "radical" in the United States of America? What a sad, and chilling, commentary on society, on humanity, that they find chains more comfortable.

[isee]

This poorly composed commentary was clearly made from the perspective of someone residing within the gates of status-quo matrix and shows a clear sense of threat and loss of control. More evidence Dr.Paul's movement is making major inroads into realms previously though impenetrable.