The Austrian Way: Is this the best account of the financial mess we’re in?

Many of us here at Bogpaper towers and many of you good readers have arrived at a (hopefully considered) structurally bearish view of the financial system after years of thinking, reading and enquiry.

We know it’s all about money and banking and that today’s greatest ever experiment in fiat money, hyperactive central banking and state interventionism is an ultimately futile fight against economic gravity.

How we got to our current world views differs widely – some having a damascene conversion after reading a book like ‘End the Fed’ by Ron Paul, others having worked in the markets for years with unanswered questions before finally, by chance falling down the ‘rabbit hole of Austrian economics’ (thanks to Tim Price of MoneyWeek for that metaphor) and others having been badgered by that nutty friend for months until bit by bit we started to see their arguments trumped Keynesian apologists like the infuriating bearded wonder, Paul Krugman.

There are many roads to this way of thinking, which all add a little bit more colour, context and statistical information to our argument.

Notable explanations of the mess we’re in

When discussing how ‘I got here’ with other malcontents – whilst possibly engaging in a little bit too much back slapping and intellectual masturbation – we often mention the best blogs, books and thinkers that opened our eyes and minds to beartown, financial cynicism and even the Austrian Way.

Often books like the aforementioned End the Fed are cited, along with others like Michael Lewis’ ‘The Big Short’, Gillian Tett’s ‘Fool’s Gold’, Jim Rickards’ ‘Currency Wars’ and Detlev Schlicter’s ‘Paper Money Collapse’. Perhaps you’ve also enjoyed other seminal works by the likes of Nasim Taleb and Jim Rogers, whilst the more radical amongst us might have also got our mental rocks off on Ferdinand Lips’ ‘Gold Wars’ and ‘Gladio’ by Richard Cottrell.

IMHO these are all great reads and highly worth consuming on your way to a more considered financial mind, but if you have time do try others from Krugman, Greenspan, Eichengren and Bernanke – just to ensure you’ve read the other side’s ideas and considered their premises.

Nonetheless, and if you’re still with me, which writer provides the deepest, widest and most comprehensive account of the financial mess we’re in?

Which thinker shows best how we got here, where we’re likely headed and how to right the ship?

My candidate for best financial book for agitants

I’ve had the huge pleasure of reading a real big beast of a financial book on my summer holidays. It was fucking brilliant – even if helped by mountain views, Ionian sun and the odd glass of wine.

It covers 130 years of financial progress and regression in ripping accounts of gold standards, world wars, kings of political expediency (take a bow Richard Nixon), financialisation of the world and academia, bubble economics, Wall Street hegemony, debt super-cycles and the various ways in which our households, corporations and countries have been raped and pillaged during this time.

This is book is the most informed and well written of such accounts I’ve ever encountered – and surprisingly given that it’s written by an American – set off with a breathtakingly stunning command of the English language.

I cannot thank David Stockman enough for writing his latest book – ‘The Great Deformation’.

Mr Stockman has a rich and varied CV, with stints as a Congressman for Michigan in the 70s, budget director during the Reagan years, a banker at Salomon brothers in the 80s before helping to building the Blackstone Group over 20 years as one of their early partners.

The Great Deformation is a joy to read and has helped arm me with four or five new themes of argument with which to add my little contribution to undermining the toxic Keynesian stranglehold of academia, banking, economics and politics.

Catching gems from a mind upon high

What bits and bobs has Stockman helped me see more clearly then?

I don’t have time to explain all here, but amongst superb explanations of other phenomena, Stockman offers a compelling argument that the crisis beginning in 2007 could have been left to burn out in the ‘canyons of Wall Street’ with very little effect on the Main Street economy.

When arguing whether the mega-bailouts were needed with interventionists I’d always conceded that the pain of not bailing out would have indeed been awful. I’d not had the presence of mind or technical facts at hand to question this axiom. I’d always said, yes, yes, yes, but even so you cannot keep bailing out forever if this policy response is not something you can continue forever given things one day becoming too-big-to-bail and future currency collapses – at some point you have to draw the line.

Now I’d draw the attention of such interveners to Stockman’s analysis and the numbers he shows moving in the money markets and their real implications. I’ll no longer say that we should have let the market achieve its long overdue repricing of assets, but will instead that we really could have let this happen.

I think this helps anti-interventionists move from apparently shrill voices on the sidelines with some sound if slightly impractical points, to increasingly plausible interlocutors with genuine alternatives and thus an ability to win out in more of this war of ideas.

The biggest felon in the line-up of financial crims

Stockman’s other great insights for me are all interesting and I’m very pleased to now understand these things better, but they are generally examples of uncovering the rancid activity in smaller folds generated by the greatest distortion of all – ‘a rogue central bank that has abandoned very vestige of sound money’. He’s obviously talking about the Federal Reserve.

After his positioning of the Fed as the chief distorting influencer after which others follow, Stockman also presents a wide-ranging pantheon of rent-seekers and crony capitalists which are all enabled by the creature from Jekyll Island.

Within these discussions you’ll enjoy his commentary and cutting remarks on the likes of Mitt Romney (‘the Jim Carey of bubble finance’), John Mack, Dick Fuld and Hank Paulson, also supplemented by consideration of all the presidents since the early 20th century. I hadn’t realised how sound General Ike was as a president rightly prioritising balancing the national books, or how the Reagan administration didn’t actually shrink the state and free capitalism, but enabled the great growth of the cancerous military-industrial complex which decades later enabled the imperialist war-mongering of George Bush Junior and his bretheren which required even more debt financing.

I cannot recommend Mr Stockman’s book highly enough. My enjoyment of it might have been helped by quite a few years of niche reading, but I hope it’s not only accessible to wannabe financial nerds.

Credit to that man and his book!

I think Bogpaper readers will get a huge amount out of it and you can find it here. If you read it I hope you find it adds as much value to your thinking as it did to mine.

  • Maneno

    Are you replacing climate alarmism with financial alarmism ? Same sort of ‘disaster-porn’ is going on here I think

    • theaustrianway

      Well, thank you Maneno!

  • Michael

    That is a mountain of book but a very, very good read. The best book you can give a newcomer is Henry Hazlitt’s “Economics in one lesson”. 20-odd bite-size chapters debunking the myths the Keynesians put forward. Easily digestible even for the non-finance minded.

    The corruption of Economics starts in Econ 101 with a humble little formula that every student learns which is nothing but validating of the Keynesian theory that an economy is but the sum of aggregate demand:
    Y=C+I+G+(X-M)

    The other big lie taught in entry level economics are the supply/demand curves which are presented always without the assumption of inflation. Thus most people assume that price rises are a function of increasing demand without understanding the influence of the money supply. Many can’t make the leap that house/petrol/food etc. price rises are predominantly inflation driven rather than demand driven.

    Lo & behold what is the most common entry level economics text book? “Macroeconomics” by Andrew Abel and Ben S. Bernanke.……

    • theaustrianway

      Thanks for reading and commenting, Michael,

      I didn’t know that the Bernank and his pal were extracting a little rent from our education system too and sowing their intellectual ideas into our young peoples’ minds from such an early stage. It’s a smart move by them and another example of why we’re getting such an arse kicking in the war of ideas.

      It will be a happy day, and an example of a changed and improved world, when such the likes of Hazlitt are the authors behind such early stage books! Not a bad indicator to look at in terms of which ideas are winning out.

  • http://gravatar.com/filthylucre500steps Ben

    On the subject of blogs to read, I would recommend acting-man.com (named after the first chapter of Mises “Human Action”). The author Pater Tenebrarum does a great job of putting to the sword the current day economic grand illusions in both a humorous and insightful manner, always importantly referencing sound economic thinking back to Austrian Economics. Definitely worth a look.