Beached economists

Paul Jacob

7/10/2011 12:00:14 AM - Paul Jacob
In a Wall Street Journal profile of Michele Bachmann, last month, the Minnesota congresswoman claimed to adore economist Ludwig von Mises. She said she liked nothing better than to take a Mises book with her to the beach. Ah, glorious summer reading!

As when former President George W. Bush claimed to be reading Albert Camus’s The Stranger, Bachmann’s confession was widely seen primarily as a political one. Could Camus upgrade Bush's intellectual standing? Can Mises do the same for Bachmann?

Mises, the great Austrian-American economist, author of The Theory of Money and Credit, Socialism, Bureaucracy and many other classics, was among the greatest of last century’s laissez-faire advocates. Bachmann’s prime competitor for Tea Party support, a fellow congressman also running for the Republican nomination, Rep. Ron Paul, is a well-known admirer of Mises, often mentioned in conjunction with his friends at the Ludwig von Mises Institute. Bachmann’s “confession” of Mises Enthusiasm was, honest or not, an obvious play for the heart of the growing limited-government vote.

Amusingly, Andrew Leonard, writing in Salon, claimed to have been haunted by Bachmann’s Mises reference, so much so that he read two chapters of Mises’ humungous Human Action. After slogging through the philosophical opening of the book, he pronounced something like a summary judgment on both Mises and Bachman: They were filled with certitude, faith.

Oh, and “Mises” rhymes with “Jesus.”

By coincidence — or perhaps more miraculously — an anti-Tea Party, pro-deficit/pro-debt interview with “economist” James Galbraith from last year hit my email box as I was reading Leonard’s bizarre put-down of both Bachmann and Mises. Asked about the danger of long-term deficits, Galbraith proclaimed “I think the danger is zero. It's not overstated. It's completely misstated.” Certitude! Faith!

Would that Mises were here to correct him.

But, in lieu of “Lu” — or necromancy (Mises died in 1973) — I’ll take a stab. Galbraith said the “only possible” danger such debt accumulation could pose is “increased interest rates.”

While it’s true that a rise in interest rates would be a disaster for the Treasury, a sort of financial Armageddon for the ever-growing debt, there remains the matter of increased payments due. The more debt you pile up, even at low interest rate, the more you must pay in interest, and the more you must pay on a regular basis simply to maintain your debt level.

As anyone strung out on too much consumer credit knows, debt maintenance can be a killer.

One doesn’t have to lug Human Action to the beach — it’s huge! (though there’s a nice pocket edition available, and two audiobook renditions) — to know the difference between interest rates and debt maintenance. To take apart Galbraith’s certainty-tainted, no-hedged argument about interest rates, it might help to be a Mises-level economist. But knowing that growing debt can be disastrous apart from the rate?

That’s something everybody who has ever overused a credit card knows.

But Galbraith has a point. Rising interest rates would be the worst. When they dipped a few years ago, annual interest payments actually went down. Whoo! Reprieve! But Galbraith rests most of his optimism on the bonds market being correct now, interest rates being so low and all. If it aren’t correct, it must be, he reasons, that “the market isn't rational. And if the market isn't rational, there's no point in designing policy to accommodate the markets because you can't accommodate an irrational entity.”

First off, no. Mightn’t it be that it takes markets time to figure out the instability of things? It may very well be that the market is trying to time insolvency — make money until then, bail just before.

Second, we can accommodate irrational, unpredictable events. That’s what insurance is about, that’s what hedging is supposed to do, and that’s why savings is wiser than debt. Period.

And it could be that we know that rising debt is a disaster, but we can’t know when disaster will strike. We can have knowledge of patterns, but not precise future events. That’s what’s left out of Galbraith’s weird little certitude-filled pro-borrowing rant.

And hey: That’s one of the lessons of Mises. Or was that from his student, F.A. Hayek?

I’m far from the beach, so I can’t know for sure.