Saturday, January 13, 2007

Most politicians are economic illiterates, and so are most journalists. Those were a couple of observations William A. Middendorf III shared with me during a recent interview

Mr. Middendorf made his fortune as an investor before becoming treasurer of the 1964 Goldwater campaign. I was interviewing him about his new book, “A Glorious Disaster: Barry Goldwater’s Presidential Campaign and the Origins of the Conservative Movement.”

As much as Mr. Middendorf enjoyed discussing his account of the historic Goldwater campaign, I got the feeling he would much rather talk economics. Mr. Middendorf recalled that Republican Richard Nixon once said “we are all Keynesians now,” referring to economist John Maynard Keynes’ interventionist theories that inspired the meddlesome policies of American liberalism from the New Deal onward.

By the 1960s, the idea of a government-controlled economy was accepted even by many “conservative” Republicans. But not Barry Goldwater, not Ronald Reagan — and not Mr. Middendorf, who studied under Joseph Schumpeter and Ludwig von Mises, leading proponents of the Austrian School of economics.

It is possible to say no one really understood economics prior to the development of the Austrian School, which began with Carl Menger and Eugen von Boehm-Bawerk in the 19th century. Boehm-Bawerk’s student Mises, along with Mises’ student F.A. Hayek (author of “The Road to Serfdom” and winner of the 1974 Nobel Prize in economics), helped popularize the Austrian view in the English-speaking world after they fled Europe to escape the Nazi onslaught.

The essential insight of the Austrians is that economic knowledge is widely diffused — that is to say, you are the only one who really knows how much you can afford to pay for a house, a hamburger or a haircut — and therefore government officials can never have enough information to dictate prices and wages. This may seem simple and easy to understand, but its implications are profound, and the Austrian insight has been resisted by those who cling to concepts that obstruct clear economic thinking.

More than 80 years after Mises published “Socialism” — a pioneering work that presciently predicted the failure of socialist economics, a failure that eventually caused the collapse of the Soviet Union — it is disturbing to hear politicians talk of economic fantasies like “affordable housing” and “price gouging.” They might as well talk about unicorns or UFOs, except that belief in unicorns or UFOs has never led to punitive taxes, harmful regulation or wasteful subsidies.

Politicians who talk in terms of economic fantasy never deliver the promised utopia — and really, even most liberal politicians are now smart enough not to try to impose the utopian nonsense that clutters their public rhetoric. Liberal politicians use rhetoric about “fairness” to stir voters’ hopes for redistributionist schemes that the politicians know will never be enacted.

If House Speaker Nancy Pelosi doesn’t know anything about economics, there are Democrats who do. And those Democrats will help block the kind of atavistic anti-market measures implied by liberal rhetoric. Why? Because anti-market policies cause economic disaster, and if Democrats pursue such policies, Democratic political disaster will follow — and not the kind of “glorious disaster” Republicans experienced in 1964.

Mr. Middendorf understands these things. He understands why, for instance, the Clinton administration never delivered on the liberal pie-in-the-sky dreams inspired by Bill Clinton’s “it’s the economy, stupid” 1992 campaign.

Mr. Middendorf expressed surprise when I recognized the names Schumpeter and Mises. “You’re the first reporter I’ve ever talked to who knew anything about the Austrians,” he said. If true, that’s a sad commentary on the state of American journalism. While the names of Schumpeter, Mises and Hayek may not be well-known among journalists, however, the truths they taught about economics are more widely understood than ever before.

Thus, we are not all Keynesians anymore, even if we are not yet all Austrians. But we’re moving in the right direction, and this economic enlightenment has consequences not even Democrats can afford to ignore.

Robert Stacy McCain is an assistant national editor for The Washington Times. His e-mail address is

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