Austrian Economics Rising: Austrian Economists Predicted the Great Depression and America's Present Troubles, but Are Only Now Gaining Recognition
Eddlem, Thomas R., The New American
"Peter, you have been mocked on all of these financial shows going back to 2005. Going back to 2005! Not only did yon predict problems, you actually explained what was going to happen. Why didn't anybody listen? You were Cassandra!"
--MSNBC commentator Joe Scarborough to "Austrian school" economics adherent Peter Schiff on Morning Joe, March 25, 2009 Scarborough's reference to Cassandra--the character from Greek mythology given the gift of prophecy and the curse that nobody would believe her predictions--was particularly apropos to the Austrian school of economic theory until the latest economic crash. The name of this free-market economic school acknowledges the fact that many of the school's "founding fathers" were Austrian nationals and disciples of the Austrian economist Karl Menger. Of course, the "Austrian school" is not a school in the traditional sense of the word denoting a physical structure; the term defines those who believe in pure free-market economics and laissez-faire principles. The Austrian school has a long history of amazingly accurate economic predictions while at the same time being completely ignored by the political establishment and virtually ignored by the mainstream media.
But that lack of credibility to the public faded entirely once the Austrian school's predictions again came true. One of the few exceptions to the media blackout against the Austrian school before 2008 was Euro Pacific Capital President Peter Schiff, now a candidate for the U.S. Senate in Connecticut, who had given a number of television interviews in advance of the current recession. Schiff repeatedly pointed out with astonishing accuracy what would happen and--more amazingly--why it would happen. Among the more famous of these interviews was an August 28, 2006 CNBC-TV debate with Reagan-era "supply-side school" economist Arthur Laffer. Laffer, a famed economic advisor to President Reagan, is perhaps the most prominent of the supply-side theoreticians and best known for the "Laffer curve" that explains how government can extract the most taxes from taxpayers without choking economic activity. After hearing Schiff predict a severe recession in 2007 or 2008, Laffer replied:
What he's saying is that savings is way down in the United States, but wealth has risen dramatically. The United States economy has never been in better shape. There is no income tax increase coming in the next couple of years. Monetary policy is spectacular. We have freer trade than ever before. ... I think Peter is just totally off base, and I just don't know where he's getting his stuff.
Schiff replied: "When you see the stock market come down and the real estate bubble burst, all that phony wealth is going to evaporate and all that is going to be left is the debt we accumulated to foreigners."
Laffer next bet Schiff a penny in the same interview that Schiff was wrong. Laffer claimed he hadn't paid Schiff the penny on HBO's October 24, 2008 Real Time With Bill Maker show.
Schiff was not the only Austrian to accurately predict the current recession. Congressman Ron Paul made virtually identical predictions. Interviewed on February 23, 2010--shortly after Paul won the Conservative Political Action Conference (CPAC) presidential straw poll on who conservatives would like to run for the next presidential election--on MSNBC's Morning Joe, Scarborough noted:
Here's what Ron Paul predicted in 2003 about ... the bubble that was growing through Fannie and Freddie and the banks: [Video clip] "Ironically, by transferring risk of a widespread credit default, the government increases the likelihood of a painful crash in the housing market. Like all artificially created bubbles, the boom in housing prices cannot last forever. When house prices fall, homeowners will experience difficulty, their equity will be wiped out. …