Ron Paul on Austrian Economics vs. Keynesian Economics

Show: Morning Joe
Channel: MSNBC
Date: 5/15/2009


Joe Scarborough: Congressman, it’s great to see you again.

Ron Paul: Thank you.

Joe Scarborough: Any response to Nancy Pelosi accusing the CIA of lying to her yesterday?

Joe Scarborough: Well, I think it’s great theater and all this excitement over the torture and the CIA, I think, is very beneficial because it distracts from the steamroller of big government going on in Congress, and hopefully it will be beneficial.

But it’s also beneficial in trying to find out what’s going on, but just think, we wouldn’t have this discussion if we had just followed the law. Our law prohibits torture, as well as international law.

But the fact that this discussion is here and “who said what” is good. I have no idea who is telling the truth, but I know it’s very good for the country to get to the bottom of it.

Mika Brzezinski: But unfortunately, sir, now the story is really about Nancy Pelosi and the Speaker of the House and what she knew when instead of quite frankly, perhaps the discussion and the exploration of what we need to be doing as a country, whether it be following the law pertaining to torture or changing the rules.

Ron Paul: Yes, I know there are some shortcomings, but overall, I think it’s a benefit because she might slow up on nationalizing healthcare and further nationalizing education. Maybe things will slow up because we are quickly socializing the country and spending ourselves into oblivion and bailing out all of Wall Street, so maybe that will be a distraction from that, but you’re right. Maybe this will not lead to getting to the bottom of it because the administration is not that all interested in prosecuting the people who broke the law.

Joe Scarborough: You know, Ron, I’m writing a book. I’ve written a book, talking about the future of the Conservative movement and I tried to go back to figure out when the big mess began that lead to this collapse and there were a few people, Peter Olsen at AEI, and even the New York Times article that was written in 1999 warning about Freddie and Fannie.

A lot of warnings out there, Alan Greenspan also issued warnings, but I was stunned by reading a statement you made in the banking committee —

Mika Brzezinski: Ah, yes.

Joe Scarborough: — on September 10th, 2003. In fact, I’ve reprinted the whole thing in my book. I want Americans who hear leaders saying everyday, “We could not have seen this coming. This was a shock. How did this happen?”

I want to read what you said five years before the collapse.

“The special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital that they could not attract under pure market conditions. Like all artificially created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing,”

Mika Brzezinski: Oh, my God.

Joe Scarborough: — and you go to say because so many people will invest in housing, “the damage will be catastrophic.” Congressman, how could it be that you knew this and told the banking committee in 2003 and nobody else did until after the collapse?

Ron Paul: Well, I would think that the easiest explanation is that Washington, DC is permeated by Keynesian economic thinking. Very few even know the name of Austrian Economics and understand the business cycle. I was concerned about the building of the bubble since 1971 when gold was delinked from the dollar. So since that time, the bubble has been gradually being inflated, but it got out of hand in the 1990s as well as after 2000, Bernanke taking interest rates down to one percent.

To me, the biggest surprise, although I was very concerned in 2003, I was concerned before that, I was surprised it lasted to 2007. That’s when the bubble really burst, but it was amazing how long it last, and to me, the more amazing thing right now is not only has the financial system collapsed, which is very, very bad and very dangerous, I believe that we’re moving towards now is the collapse of the dollar, and the collapse of the dollar because it’s the international reserve currency, I think is going to be much worse than we have already witnessed.

Joe Scarborough: Can you all believe this prediction in 2003?

Mika Brzezinski: Yes, that is, I mean, prophetic, absolutely prophetic.

Joe Scarborough: Talking to everybody in the banking committee and telling them, “Hey, we’re in trouble. Let’s not go this direction.”

Mika Brzezinski: Right.

Joe Scarborough: What are we going to do? And then, you know, Ron, somebody that probably didn’t vote for you, a Columbia economist, Jeffrey Sachs came on this show and said, “What we’re doing now with these economic policies is rebuilding another bubble and creating debt, more debt.”

Ron Paul: Well, they’re trying, but they’re going to have a difficult time re-inflating the bubble. To me what is disturbing is those individuals who did not predict what was to come are now predicting that the downturn has ended. “It’s over. At the end of the year, we’re going to have growth.”

They’re still listening to the Bernankes of the world, and yet they were completely wrong before. Greenspan was wrong, Bernanke was wrong, but all of a sudden, “Oh, I know. The end has come.”

We got in our trouble by spending too much, borrowing too much and inflating too much, and now, that’s all they’re doing and now they are predicted, and they’ve given credibility of knowing how to predict the end of this downturn. That’s to me astounding.

Joe Scarborough: Hey, Ron, not only that. The very people that sat in your committee when you told them what was going to happen remained silent and in fact, some accusing you and other Republicans that were critical of Fannie and Freddie of being racist, hating poor people. Those very people that missed all the warning signs were then put in charge of the trillion-dollar rescue.

Ron Paul: But Joe, you got to give them a little bit of credibility here on this argument because, you know, I was still on the fringe back in 2003. Nobody cared what I was saying. Now, at least, I have 100 or 200 people who care, so I’m getting a little bit more attention.


Ron Paul: And it isn’t so much me. I’m just reciting what I’ve learned by studying free market economics and we haven’t had free market economics. Now, they’re blaming capitalism for all these problems with not enough regulation. We’ve had crony capitalism. We’ve had inflationism, corporatism, big government. We’ve had no… we’ve not had true free market capitalism.

So we have to define it. Somebody asked me what individual is the cause of this problem? I would put them all in the shoulders of Keynes.

Mika Brzezinski: Yeah.

Ron Paul: You know, it’s a long time since he’s been around, but Keynesianism exists. Remember what Nixon told us, “We’re all Keynesians now.”

That was when the last link of the dollar to gold was removed and since that time, we’ve had nothing more than these bubbles and big government but it is coming to an end. We can’t afford this foreign policy or these bailouts.

Joe Scarborough: Exactly.

Mika Brzezinski: Carlos.

Joe Scarborough: We are out of money. We have got to show restraint and Holman was restrained overseas. Carlos.

Carlos:Congressman, to that point about restraint at home and restraint overseas, how would you cut, not just the deficit, but the debt if you have the presidency?

Ron Paul: Well, I would start overseas because politically it’s more palatable. Sometimes a conservative will come up and they’ll have an amendment and cut five percent out of child healthcare. You know, I don’t believe in the government being involved in medical care, but that’s not where I would cut.

I would cut overseas spending. To operate our empire costs us a trillion dollars, so I’d bring our troops home. You know, we had this supplemental bill yesterday. The president asked for $84,000. What did the…

Joe Scarborough: $84 billion.

Ron Paul: $84 billion. What did the Democrats do? They raised it by 14 percent, another $12 billion. The Republicans have one chance to cut and they had one amendment and they asked to increase it by $3 billion. Where is the credibility?

Carlos: Congressman Paul. Congressman Paul. What else would you cut because as you just said that wouldn’t be enough. If you were just to cut defense spending, you still wouldn’t get there.

Joe Scarborough: Right.

Ron Paul: How about getting rid of the Department of Education and Department of Agriculture. Just go down the list. Get rid of it. Cut it, cut the budget in half.

Joe Scarborough: All right.

Ron Paul: Everything that is not constitutional, that’s a good place to start.

Joe Scarborough: All right, Congressman, thanks you so much for being with us.

Ron Paul: Thank you.

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  • Voluntaryist

    For the statists of all parties, or for those who want none:
    Eliminating parties wont stop cozy deals or infighting. People under any circumstance will make friends and enemies, its true of your office and its true of your leaders. The problem isnt that they represent a party, the problem is that they represent a whole not an individual. Abolishing non-voluntary or coercive systems of governance is the only way to break the chains statism has left on our society. The market and the third sector will do fine without institutionalized bullies telling us where to go.

  • Pingback: The Austrian school and the gold standard | The Middle Game()

  • ernesto

    Yeah,Dr Ron Paul is correct.and you junkies out there who dont like the idea of small government then dont be surprise of mr Obama and all the Statist out there.


  • Thomas Jefferson

    A Common Scent
    (A Historical Novel about Thomas Jefferson
    showing who fought for liberty and who fought
    for selfish reasons in the American Revolution)
    Steffan Stanford

  • james ruhnke

    This is just another approach aimed at a spoke in a wheel. Why not aim at the hub? Our problems, all of them, are caused by having two political parties that have a conflict of interest. They vote for what is best for the party instead of what is best for America. Vested interests and lobbyists control our political parties thru donations, kickbacks and outright bribery. Remove the organized political groupings and restore individuality to our representatives and they will return to representing us instead of themselves.

    • John

      I’ve ben preaching that for years. Get rid of the political parties, the base of our problems.

  • The problem is governments all around the world have taken on way to much responisiblity for the people, which over time has ran up a pretty lofty bill (1 billion here 1 billion there, adds up). Over time people have elected to stop thinking and ask there government officials to lend a hand in runing there lives, eventally those same non thinkers got elected and started to ask lobby groups to lend a hand with the thinking. The rest is history. The people first needs to elect thinkers then start, then get the government to cutting spending / responisiblities. If you we let the current governments do the cutting it likely will not work out to well.

  • Dfens

    “[W]e wouldn’t have this discussion if we had just followed the law. Our law prohibits torture, as well as international law.”

    Wow, who knew Ron Paul was such a supporter of international law? Of course, he lies about our laws prohibiting torture. There are no laws of this sort regarding treatment of foreign national prisoners. I see real commitment to principal here. GET US OUT OF THE UN. GET US OUT OF THE WTO. GET US OUT OF NAFTA. But let other nations tell us what it is ok for us to do in a war.

    He sounds just like a politician on what he’d “cut” too. We closed bases all over the US and that didn’t reduce defense spending by one thin dime. Now he tells us that if we close our overseas bases we will suddenly see a windfall decrease in our defense spending? That’s a bunch of crap!

    Look at where the money’s going and cut it there if you want to cut defense. All the money is going to government contractors. It took 25 years to develop the F-22 when it only took 12 to develop the equally stealthy and much larger B-2 and it only took 5 years to develop the F-14, F-15, F-16, and F-18 that are still the backbone of our fleet. Gee, could there be a problem there? We used to have a 700 ship Navy, now we can’t keep 300 ships afloat. Could there be a problem there?

    How about we stop paying contractors profit on development? We started doing this under Clinton and Gingrich in ’92 and development times (oh surprise) have been dragging out ever since. Coincidence?

    • John

      I fairly sure Paul agrees with you on that as he always no industrial-military complexes.

  • That web site for those of you also on this board is

  • Ron Paul,

    Thank you for the opportunity to read your book. I am inviting you to read the libretto to Liberty, which is the story of the Statue, you may read it on my web site.