AMERICA, WE CANNOT AFFORD TO BE THIS WRONG AGAIN!
- Posted by ron golden SE Admin GA on January 2, 2011 at 10:00am
- by Evan Mazur
Saturday, January 1, 2011
"Then everything changed. The housing bubble burst, banks stopped lending, and the Federal Reserve became an object of contempt. It was the world Ron Paul had prophesied, and he had a seductive story to tell about why it had happened—the Austrian [free market economics] story... It does not seem at all far-fetched to think that Paul could have a much greater impact on the race than last time. The Republican primaries are sure to be about economic and size-of-government issues."
-Joshua Green, "The Tea Party’s Brain", Atlantic Magazine Nov. 2010
The Long Road to Prominence
Two time presidential candidate Dr. Ron Paul, the libertarian Republican with a 22 year career in the U.S. Congress in Texas's 14th district, has been fighting against big government his entire career. Known for his advocacy of keeping the government out of citizens' personal and economic lives, he was influenced by the Austrian free market economist Ludwig von Mises who stated that no matter how well intentioned, any attempts by the government to steer the economy would result in malinvestment that would lead to the boom-bust cycle where the pain of the recession would feel far worse than the temporary high experienced during rising economic activity. Mises is known for predicting the Great Depression and he turned down a job offer from Austria's central bank in 1929 knowing that a crash was coming which eventually ended in a hyperinflationary collapse. Similarly, when Richard Nixon took the United States off the gold standard in 1971 and enacted wage and price controls, Ron Paul knew the government's attempt to steer the economy would eventually steer it directly into an iceberg. Not one to go down with the ship, Nixon's interventions gave Ron Paul the impetus to enter politics and he won his first election in 1976 and became a member of the U.S. House of Representatives.
Dr. Paul went against the grain from the very beginning. Representing the party that supposedly advocated free-market economics, Republican Richard Nixon was attributed with the phrase "We are all Keynesians now", referring to British economist John-Maynard Keynes who inspired Franklin Roosevelt's New Deal economic policy during the Great Depression. Ron Paul stresses that the economy was not repaired by New Deal intervention but by the expansion of capitalism through production of consumer goods that was made possible when U.S. soldiers returned home after World War II. Whatever the case, government had made the decision that even after WWII it should be in charge of steering the economy and repairing it, as if it were something mechanical like a watch, when things went wrong. NPR's report concluded that:
"One way the economy is not like a watch is that you can repair a watch without politicians. Politicians took the Keynesian message that government spending can be good and ran with it. They paid for the war on poverty and the war in Vietnam. They sent a man to the moon. All the while, they piled up the federal budget deficit, convinced that Keynes gave them a free pass.
Prescribing Keynesianism to some politicians is like prescribing crack to a coke addict. In the 1970s, the patient hit rock bottom. The U.S. had high unemployment, and the Keynesian solution stopped working. The national government spent and spent, but unemployment only got worse. Then came inflation, something Keynesians had no answer for."
Such was the climate that Ron Paul encountered when he first entered into political office. Though Keynesianism had supposedly become passé due to the failures of the 1970s, Paul maintains that Keynesian economics never died and that government still tried to control the economy through the manipulation of interest rates through the Federal Reserve. The Fed's ability to control interest rates along with its ability to create money out of thin air to rescue banks that made bad investments, combined with Government Sponsored Enterprises (GSEs) such as Fannie Mae and Freddie Mac that had the ability to buy up, and therefore guarantee, private banks' mortgages, created what Paul had predicted to be a perfect storm leading to malinvestment in the housing sector. In a speech to the House floor on October 27, 2005, Paul spoke of the GSE Crisis