Thomas E. Woods, Jr., Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse (2009)
Foreword by Ron Paul
Regnery Publishing, Inc.
194 pages
ISBN 978-1-59698-587-2
$27.95
Buy it here for less.

The reader should infer from this book’s argument that the system of money and banking we now have—including the central bank—is a source of economic instability and miscalculation. We need to consider alternatives to it. Virtually all analysis of the economy today, on the other hand, takes for granted that regulatory tinkering is all that is needed to patch up an otherwise sound monetary system. To the contrary: the system itself is the problem, and the sooner we cast away the foolish web of superstitions that stand in the way of serious, productive discussion of the issue, the better off the American people will be.

So writes Thomas Woods, an Austrian School economist. His book Meltdown diagnoses the problems besetting the American economy and offers some cures—solutions that will call for a total revamping of the current system, entailing down-sizing the federal government both in size and influence over the economy. Such reforms, of course, will be met with massive resistance by the entrenched interests—political and financial—that benefit from business as usual. Woods seems hopeful that people will come to their senses eventually and see the errors of their ways. (Frankly, I am nowhere near as sanguine; just the other day I read how the Federal Reserve System is resisting any and all attempts at a genuine audit. Even with an act of Congress, we may never get a clear accounting of what has been going on in secret for nearly a century—too many influential persons in and out of government simply don’t relish the prospect of doing the perp walk.)

Woods’ book, however, is a jargon-free, clear exposition of the Austrian theory of money and the boom-and-bust cycle (a.k.a. the business cycle) and how economic crises can be ameliorated, or even avoided altogether. The majority of economists have this fatal attraction to Keynesianism, a worthless theory that insists that the way to get out of a hole is to dig deeper—i.e., spend your way to prosperity. Woods terms such thoughts as “supersititions.” People in government and special interest groups that suck its teat are in love with the Keynesian prescription because it enlarges their power and pocketbooks—at the expense of the American taxpayer, unfortunately. (At one point, Woods characterizes Keynes himself as “one of the great twentieth-century cranks.”)

Keynesians have been crowding the wheelhouse of the Ship of State for a long time now and have succeeded in running it aground more than once without learning a thing from the experience. The present administration is just as enamored of the theory as any of its predecessors and seems hell-bent on doing the Great Depression all over again. Obama hasn’t selected one economic advisor who favors sound money or spending restraint. It’s like letting the drunk who just caused a car wreck drive the ambulance to the hospital:

To add insult to injury, the very people who devised the policies that produced the mess are now posing as the wise public servants who will show us the way out. Following a familiar pattern, government failure has been blamed on anyone and everyone but the government itself. And of course, that same government failure is being used to justify further increases in government power.

Eventually, though, the chickens do come home to roost:

Our years of living beyond our means, of buying everything on credit and on money printed out of thin air, are over …. It’s time we recognized this like adults and adjusted our behavior accordingly. The more we intervene and the more we prop up economic zombies, the worse off we’ll be.

Chapters:

1. The Elephant in the Living Room
Almost nobody in Washington, and precious few elsewhere, has been willing to question the greatest single government intervention in the economy, and the institution whose fingerprints are all over our current mess: America’s central bank, the Federal Reserve System. The Fed is hardly ever mentioned in connection with the crisis, except perhaps as our savior …. [T]here has been no serious discussion of the Federal Reserve in public life for the nearly one hundred years since its creation. The Fed is a wonderful thing, and that’s that.

2. How Government Created the Housing Bubble
To understand the housing boom and bust, we need to understand why business cycles occur. While conventional wisdom tells us that these booms and busts just happen, that conclusion lets government and its central bank off the hook. Austrian economics … explains how business cycles occur—specifically, how government tinkering with the supply of money and credit starts the economy on an unsustainable boom that has to end in a bust.

3. The Great Wall Street Bailout
… not only did Bernanke and Paulson retain their positions as the stock market melted down in September [2008], but these men, who were proven so wrong in their assessment of the situation, also demanded unprecedented new powers to fix it …. Government intervention in banking does not mean a more sensible, more responsible approach to lending will replace the wild risks of recent years. Wild risks will still be taken, except with the beneficiaries being selected more deliberately from among the ranks of politicians’ friends and various favored constituencies.

4. How Government Causes the Boom-Bust Business Cycle
If politicians are thorough and honest in seeking out a culprit, they aren’t going to be pleased with what they find at the end of the trail of crumbs. It’s not “capitalism.” It’s not “greed.” It’s not “deregulation.” It’s an institution created by government itself …. The central bank [i.e., the Fed] is a government institution, established by government legislation, whose personnel are appointed by government and which enjoys government-granted monopoly privileges. It bears repeating: the central bank’s interventions into the economy give rise to the business cycle, and the central bank is not a free-market institution …. Today, so many of our financial analysts [e.g., Nobel laureate Krugman] have taken leave of their senses that we hear zero interest rates, the Keynesian dream, discussed as if it were a serious policy proposal. Such an uncomprehending suggestion would merely perpetuate and aggravate the resource misallocations of the boom and set the stage for a far worse crisis in the future.

5. Great Myths about the Great Depression
… myths about the 1920s, long since discarded by reputable historians, are making a predictable comeback at the hands of ambitious politicians who seek to malign the free market and grab additional powers for themselves—in order to save us, of course.

6. Money
You do not win friends in the political and media establishments by proposing a monetary system that cannot b
e exploited by governments to enrich their friends, enable their addiction to spending and looting, and fund their bailouts. But when you ask a question that sends respectable opinion into hysterics, that’s often a sign you’re on the right track.

7. What Now?
“Stimulus” packages … will only intensify the present crisis and hollow out the economy’s productive capacity still further. And on top of that, they seek to strengthen the economy by the obviously paradoxical means of building roads and bridges funded by more debt—like a homeowner who decides to solve his debt problem by borrowing money to remodel his house. It makes no sense, so it’s no surprise that our leaders favor it …. In short, supporters of the market economy need to decide once and for all whether they really believe their own arguments. People who argue for “fiscal responsibility” will never get anywhere, and cannot be taken serously, as long as they tolerate a system in which the government can create out of thin air all the money it wants. If the federal government is an addict, then the Federal Reserve System is its enabler.

Note: Thomas Woods’ home page is here, his presence at the Ludwig von Mises Institute is here, and the Institute itself is here.

Highly recommended.

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—Mike Gray