I live in the wonkiest city, with the wonkiest people, in the world. We’re so wonky that when a group of us took our sons camping and rafting last weekend, the evening conversation naturally turned to the Republican primary, then the Dodd/Frank financial regulations act and finally the economics of stimulus spending.
It had been a long day rafting, so most of the fathers drifted off to their bedrolls pretty quickly. That left me and one other dad talking. I’m an autodidactic Austrian economist with a strong libertarian bent. He was a Wharton MBA who seemed to buy into mainstream Keynesian/Samuelsonian views.
Obviously, he was pro-stimulus and I was con.
Everything you know is wrong!
I often talk about economics with people. Econ is my football (I’m a real hoot at parties).
When talking with laymen, it’s easy to describe the Austrian view. It’s common sense for many people. But talking with an MBA who knew and bought into the mainstream view, it was much harder. He knew the rational for every policy and had the equations and terminology to back up his points.
To counter his arguments, I had to dig into almost every term. How is GDP estimated and what does it really measure? Were people on public relief counted as employed or unemployed during the Great Depression? Why is a dollar spent by a private citizen different from a dollar spent by the government?
For example, we spent a long time talking about whether World War II spending was stimulative or destructive. He took the standard stimulative view of the neo-Keynesians. I took Robert Higgs’ counter-view. He had the official statistics on his side. GDP soared during the war. Unemployment fell to almost 0%. I had to explain why you can’t trust GDP figures from the war years and why the 10 million soldiers drafted out of the workforce didn’t really count as productively employed.
It took 3 or 4 minutes to counter a point he could make in 30 seconds.
Mainstream economics’ obsession with macro-aggregates conceals much of what is interesting and important in economics. To understand the Austrian view, you have to take apart all those aggregates and understand what is really being measured and what the numbers really tell you. Unfortunately, gainsaying everything in the mainstream view can easily make the Austrian look like a cranky pedant.
I made two mistakes during the discussion. The first was not being explicit about the difference between free markets and cronyism from the start. For an Austro-libertarian, that difference is as sharp as the difference between hot and cold or air and rock. But for some people, cronyism is a natural feature of exploitive free-markets.
It wasn’t until about 90 minutes into the discussion (yes, our campfire discussion of economic stimulus lasted over an hour and a half. I told you we are the wonkiest people on Earth) that I realized that we were talking past each other. By that point, we’d taken entrenched positions on the virtue of free markets and it was hard to get the conversation back on track. If I’d been clear about what I meant by free markets at the start, we could have avoided several fruitless dead-ends.
The second mistake was not bringing up the cost of stimulus spending. I was so busy trying to redefine GDP, demonstrate unintended consequences of previous interventions and defend the Austrian point of view, that I gave him a free ride on free stimulus spending.
This was a very bad tactical error. I always (this time not withstanding) bring up the cost of policies. You can make any policy look good, if you ignore the costs and downsides. Since most media discussions of stimulus spending assume the spending is costless, it’s very important to call out those hidden costs. If stimulus spending is just taking resources from one group of people and giving it to another, then it is like trying to raise the water level in a pool by pumping water out of one end and into the other.
That’s best case, too. In the real world, the pump leaks so all that pumping actually lowers the water level.
In previous discussions I’ve had some success getting people to understand the damage stimulus spending does to the economy by starting with the hidden costs of these policies. I wish I had tried that here
Did I win?
If by win we mean did I convert him to full blown Austrian views, I did not.
I don’t think it’s possible to convert someone to Austrian views in one conversation. In my experience, people either come to Economics with a predisposition to Austrian views or they start in the mainstream and slowly drift towards Austrian views.
In Economics, Saul on the road to Damascus moments are rare.
We did have a good conversation which never degenerated into an argument. There were several times when he stopped to think about things he’d always taken for granted or told me he’d never thought of some problem with the mainstream view before. For example, he was the one who brought up how the Soviets manipulated GDP figures to make their economy look stronger than it was.
The next morning, as we were breaking camp, he told me I was an interesting fellow. I think he meant interesting as in “thought provoking”. Not interesting as in “please stay away from me and my children”.
In the end, I got him thinking about some problems with the mainstream economic view and introduced some new ideas. That’s probably the best I could hope for out of one night around a campfire.