Fridman, Ammous, Austrian Economics
Comments on a podcast
As I was walking today, I listened to the first half of Lex Fridman's four-hour podcast discussion with economist Saifedean Ammous. I listened at 1.5x, so I got through about exactly half of the episode in the five and a quarter miles I walked. As I was walking and listening, I recorded some reactions to what I was hearing. These responses are possibly more about what the discussion made ME think of, than they are accurate depictions of what the two speakers actually believe. But even if Ammous' descriptions are oversimplifications for the purpose of answering Lex's questions quickly in simple language, I think some of the points he made were relevant to understanding the ways that even Austrian Economics oversimplifies the world and sanitizes economic power.
Early in the discussion, Ammous suggests that Lebanon, Zimbabwe, and Venezuela have had historically shitty currencies because of some flaw in their stock and flow ratios. This seems to deliberately ignore colonialism in both its classical and more recent economic forms. Is Ammous saying that the reason the pound sterling or the US dollar were historically the world's de facto currencies was simply because these were the hardest currencies of their times? With the best stock to flow ratios? Imperial power had nothing to do with it? Is it just a coincidence that the current world currency just happens to belong to the nation with the world's biggest military budget? This inability of Austrian Economics to grapple with the realities of how economic, political, and military power reinforce each other seems to be a fairly big flaw.
Ammous then says the Keynesian "hucksterism" is about creating inflation to feed people's insatiable desire to consume and that everybody wants to buy a Ferrari. This strikes me as a very privileged, upper-middle-class bias. Most people in the world have much more modest economic wants, which often reflect actual NEEDS. Even in America, nearly two thirds of Americans live paycheck to paycheck. So it's not really about Ferraris. People are trying (sometimes rather desperately) to accumulate enough money each month to feed themselves and their families and pay their rent.
This just occurred to me while I was walking and listening: maybe the whole point of the Keynesian desire to add to the money supply has to do with the fact that as wealth is concentrated, money LEAVES circulation and becomes tied up in illiquid objects such as yachts and Ferraris and mansions and bearer bonds. This leaves LESS money available in the economy for wages and groceries and rent payments. Adding to the money supply might be the Keynesian way of allowing the economy to continue to chug along while the super-rich are sequestering a lot of the money. In a way this is a sort-of weaselly way of avoiding taxing the rich, but it probably does succeed in allowing wealth to continue concentrating without a revolution -- at least for the short term. In the long run, as Keynes said, we're all dead.
The second or third time Ammous returned to the Ferrari example, I decided it was worth noting that the point may not really be that a rich individual like himself has to choose between a Ferrari and other uses for his money. The real point may be that from society's perspective, the choice of some rich guys to buy Ferraris may have a direct impact on the ability of some poorer guys to feed their families -- especially in a world of "hard money" where the supply of dollars can't be arbitrarily increased without inflationary consequences.
Finally, I don't disagree with him that in theory, central planning is coercive. This is the classic go-to line of the Austrian: the "road to serfdom" argument that state power is ultimately a gun to your head and a free market is not. Governments use their power to compel some actions and prevent others. If a government outlawed smoking because it not only killed people but drove up the overall costs of health care, for example, Ammous would object. But that position sort-of assumes that people are not being coerced in any other way. Assumes that the "free market" cannot by definition be coercive, which I don't agree. Concentrated economic power can limit the choices of supposedly free agents in markets. Marketing, placement, monopoly power, and algorithms can all manipulate people's behavior, often without their knowledge. There are LOTS OF ways in which people's choices are constrained in "free markets"; while this may not be a "gun to the head", it isn't that different in practice.
The argument for some type of government intervention is to mitigate these coercions and lessen their negative effects. Actions that make perfect economic sense from the perspective of a profit-maximizing oligarch (for example, let's get Americans addicted to opiods) might be deemed sociopathic by a society and banned by its government by use of that gun to the head.
I do find it a bit obnoxious and reductive that Ammous insists that everything done at the point of a gun is morally unacceptable and that since government holds the monopoly on force it is the only source of problems. This seems so patently false in today's world of Amazon and Google, with their asymmetric access to information AND their overwhelming monopoly power. But even in the era of his heroes, the original Austrians like Böhm-Bawerk and von Mises, how true was this? By 1915, Thomas Lamont had fully formulated and begun implementing his plan to make New York banks led by Morgan the center of the world financial system. The House of Morgan certainly influenced US foreign and domestic policy, even though it was the government that held the gun to people's heads, drafted men, and imprisoned dissenters like Eugene V. Debs. And Lamont was central in the negotiations at Versailles that resulted in the huge German reparations that allowed Great Britain and France to repay their debt to J.P. Morgan and Co.
Later, Ammous argues that public utilities should not be publicly owned; that the market can and should decide whether there is one centralized power plant or many decentralized ones. He completely ignores the central role of government in that decision, via licensing and regulation. This seems like a critical misstatement of the situation. It's not a choice between privately-owned and publicly-owned utilities. It's a tricky, hidden protectionism that grants government monopolies to utilities (and to other things like cable and cell-phone carriers) wherever there's a perceived "natural monopoly". In other words, this isn't really a choice between free-market capitalism and socialism. It's a propagandistic use of free-market rhetoric to uphold something that when Italy and Germany did it in the 1930s, we used to call fascism.
I'm not sure that means Ammous supports fascism, although he later tries to make a case for Monarchy. But I do suspect it means that Austrian theory could be used as a cover for fascism.
Lex asks some really good questions about local optima and domains in which government action might make more sense than entirely unregulated markets. I think part of an answer to these questions is that when the market is "set free" do operate entirely on its own, a couple of things typically happen:
As I already mentioned, the market tends to be captured by powerful organizations that accumulate economic power. It does not make that much difference to the victims of these organizations that they are private rather than governmental.
Because there isn't the same type of public forum afforded by democratic governance or scrutiny of the decisions of private companies, a lot of them tend to be made in the shadows without people being able to help choose (or apply values other than economic costs and benefits to the decision). Lex is absolutely right that people being voted out of office for not representing the interests of their constituents is a legitimate mechanism to weigh in.
Of course, government is corruptible, as we have seen all too often recently. But I don't think the obvious conclusion is that government is NECESSARILY corrupt and business is incorruptible. He goes on, as I said, to try to make a case for monarchy. The first king, he says, is typically just and noble. Sometimes his children and grandchildren, growing up in luxury, fail to develop an adequate work ethic. But at least they have a longer time-horizon than an eight-year president. As a historian, I'd only add that very often the first "good" king in a dynasty gains his position in a war against an external enemy of the nation. How is this going to work in a globalized culture and economy? And Ammous' suggestion that wars rarely happened under the gold standard is absurd. Most of history's wars happened before fiat currency was invented, as such. In the Seven Years War (1756-63), Great Britain went massively in debt to win, and then taxed the colonies in ways that led to the American Revolution. So at the very least, his argument about hard and soft currencies needs to incorporate DEBT in a more sophisticated way. It might be interesting to compare Ammous' thoughts in The Bitcoin Standard and The Fiat Standard to Graeber's in Debt: The First 5000 Years.
To give him some credit, though, as I conclude: I really really like the idea that the process of civilization can be defined as a decrease of our "time preference", meaning an increasing valuation of the future and willingness to plan, save, work, and invest for a better tomorrow.
Lex’s podcast, “Saifedean Ammous: Bitcoin, Anarchy, and Austrian Economics” is at youtube.com/watch?v=gp4U5aH_T6A.