Renowned local economist explains controversial Austrian theory

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POSTED: Thursday, October 24, 2013 - 5:00am

UPDATED: Tuesday, November 19, 2013 - 10:17am

A common belief is that conservatives caused the government shutdown, while liberals are the ones who want to legalize marijuana.

But both ideas come from the same school of thought, which is much older than the Democratic and Republican parties.

It is called Austrian Economics, and one of its leading proponents calls south Louisiana home.

Dr. Walter Block holds an endowed chair at Loyola University and is a faculty member of the Mises Institute. He has taught at several universities and written books about controversial economic topics.

He was one of many people angry about the recent partial shutdown of the federal government, but his reasons differed from most.

"If government is bad, then a shut-down government is good," he stated. "I wish they would've shut more of it down, they didn't shut enough of it down for long enough."

The Austrian School of economic thought was devised by a handful of economists in Austria in the 15th century; otherwise, it has nothing to do with the country. Free enterprise is the school's main tenet. Austrian theory says regulation is bad for the general welfare, as well as for economic growth and stability.

One thing Block mentioned he would do if tasked with improving the U.S. economy would be to eliminate the minimum wage, because it unnecessarily raises unemployment.

"We believe," he said, "that it really is a law that when you have a minimum wage, you'll create unemployment for people whose productivity is below that level stipulated by the minimum wage."

According to Austrian theory, the market alone should decide the value of products and services. If a company is not successful, it should go bankrupt. Another change Block suggested is to end subsidies for American farmers. If agriculture is not profitable for enough farms, some of them should go out of business, allowing supply to balance out demand and creating prices that are more sustainable.

Austrian economics holds that people should be allowed to make whatever choices they feel are best for them, so long as they do not hurt other people.

A website called The Silk Road was shut down recently by the FBI. It let users buy and sell drugs, guns, and other contraband.

"We shouldn't have any illegal drugs," Block argued, "because they should all be legal."

He said crime would drop the instant drugs were legalized.

"An awful lot of it is predicated on fighting over turf," he claimed, "and if two gangs disagree over something, they shoot it out and kill innocent people. Whereas if two tie manufacturers had a dispute, they'd go to court. They don't shoot it out!"

Austrian theory is not a mainstream section of economics. Americans tend to believe there is a need for regulation, especially in the financial sector. But Washington state and Colorado have already legalized marijuana for recreational use, and a recent poll suggested that a majority of Americans want marijuana to be decriminalized. Combined with legalized prostitution in Nevada, Block said Americans are pushing for greater personal freedoms.

Politically, Austrian economics lines up closely with libertarianism The most famous current practitioner of Austrian economics is former presidential candidate Ron Paul. He also wants to shrink the government, get rid of
the Federal Reserve, and let people make the decisions that are best for them.

If it is good enough for clothing companies, "why don't we apply it to everything?" Block asked.

The most common criticism of Austrian economics is that it relies solely on logic, and does not seek statistical validation for its claims. Some people also claim that allowing the economy to move unchecked allows for greater volatility and longer recessions.

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I don't really understand what is controversial here ?

"The most common criticism of Austrian economics is that it relies solely on logic, and does not seek statistical validation for its claims"

This is funny as this characteristic is the most redeeming quality of the Austrians. Mises showed conclusively that no economic theory that is not based on a priori logic is valid. Economics is not a mechanical science like physics, it is a social science that should analyze human behavior and decision making in a world of scarce resources.

ps. there is no place for statistical validation in economics. Relying on statistics in economics will produce erroneous results.

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