Now we see the unsustainability of the current entitlements built on the New Deal “principle.” And then we see a government creating a large new one in the midst of the crisis. We are told that Obamacare will save money. Like all of the other entitlements?New Zealand is lucky that in face of the financial crisis it didn't go as far down the government intervention path as many countries like the US, but that is not to say we haven't gone too far. One thing that is a problem in New Zealand, and has been for a long time, is the nature of arbitrary policy interventions, remember Muldoon's mini-budgets or the much more recent Christchurch Reconstruction Act? As Robert Higgs has pointed out private investment will not take place in an environment where investors are unsure of whether or not they will receive a return on their investments. Such government interventions such as those above make investors unsure.
We also see the folly of many of the New Deal institutions like Fannie Mae and later Freddie Mac. We see their role in the housing bubble.
Now we see the folly of a monetary and fiscal policies based on temporary expedients. Economic agents cannot rationally plan when the role of the state is so uncertain and so liable to come up with arbitrary policy interventions, as in the recent bailouts. In many ways, the government told us that the ordinary laws of economics and classical wisdom about sound policy have been temporarily – but indefinitely – suspended.
With regard to the response of Austrian economists to the current problems Rizzo writes,
Yet there is a critical deficiency. We continue to lack empirical work, on a large enough scale, to convince other economists that we have something relevant to say. The macro-economic framework has created a demand and supply for certain kinds of aggregated data at the expense of data that might be more useful to Austrians. (But I am reminded that George Stigler used to say, “It is no excuse to say the data are not available – you just must be clever.”)A call for empirical work and work with non-Austrians will not go down well with some in the Austrian group, but I think it is a good call on Rizzos part. There are many economists out there who may not be Austrian, for any number of reasons, but still share many of the concerns about economic policy that the Austrians have. Building bridges between such groups can only help the Austrian get their message across.
This is where, perhaps, those non-Austrians with a similar mindset may be very important. We need good empirical researchers. I am, quite frankly, not interested in reviewing all of the qualms about certain kinds of econometric work. No single econometric result is definitive but little by little a case for taking a theory seriously can be built.
Rizzo ends by saying
With a little bit of luck, lots of hard work, and a smart sense of making intellectual alliances, we can do better than Ludwig von Mises and Friedrich Hayek did during the Great Depression and its aftermath. We have their legacy as well as the new legions to make the case.