Anatomy of a 'Meltdown'
Anatomy of a 'Meltdown' -- Interview With Thomas Woods
By Bill Steigerwald
Thomas E. Woods Jr. is a successful historian who doesn’t hide his libertarian views about American history, politics and economics but instead emphasizes them. Among his nine books are “The Politically Incorrect Guide to American History,” a 2004 New York Times best-seller, and last year’s “33 Questions About American History You Aren’t Supposed to Ask.”
Woods is a senior fellow at the Ludwig von Mises Institute in Auburn, Ala., which describes itself as “the world center of the Austrian School of economics.”
Austrian economics is the polar opposite of the Keynesian or socialist economics practiced today by the United States and most of Europe. Austrians -- who advocate for and defend the free-market economy, private property and sound money -- believe it is government intervention in the economy that causes crises like the current one.
It is from an Austrian point of view that Woods has written his latest book, “Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse.” A New York Times best-seller earlier this year, its first chapter can be read at tomwoods.com). I talked to Woods by phone on April 24.
Q: Can you briefly describe what your book is about?
A: It’s the truth about the economic crisis that you don’t get from CNBC or the usual suspects. It defends the free market against the extremely unfortunate conventional wisdom that the meltdown we’ve observed represents the collapse of the free market. It is no such thing. This is to the contrary a government- and Federal Reserve-instigated crisis from beginning to end.
It is extremely important for people who believe in the free market and in a free society to know how to defend themselves, to know what the arguments are, in order that we might resist the expansion of government power that will take place using this crisis as a pretext.
Q: What part of the government would you indict as the major culprit?
A: More than anything else, it’s the Federal Reserve System … (which) for all intents and purposes, is a government-established central bank.
It is important to understand that at a time when we are being told that free-market economists must have egg on their face because their cherished system has collapsed, it was followers of Ludwig Von Mises, F.A Hayek – the great so-called Austrian economists of the 20th Century – who were mostly likely to have predicted this crisis. So if this was a failure of the free market, why have the free-market economists predicted it more than anyone else? Obviously there must not have been a free market.
Specifically, Hayek won the Noble prize in economics for showing that government-established central banks like the Federal Reserve are an intervention into the free market. They are destabilizing, not stabilizing. And by tampering with interest rates and the free market system they cause entrepreneurs and consumers alike to commit massive errors that eventually hit the economy in the form of a major bust.
So what has happened to us is not a failure of the free market but instead the inevitable working out of the consequences of intervention by government into the free market.
Q: What should the government do now to fix the problems government itself created?
A: If you were to make a list of all the things the government has been doing and then go down that list, you would actually find that they should be doing the exact opposite of every one of those things. I say that both with the help of the testimony of history, but also with sound economics. The bottom line is that instead of a stimulus package, so-called, which can’t possibly help, we should be cutting the budget. I know that is the opposite of what all the drones tell us. But the drones are wrong on this.
Q: As a historian, how do you explain that we – our leaders in government – have not learned from what Japan did and our government did in the Great Depression, which most economists agree only prolonged the depression?
A: Well, partly, and I know this runs counter to the model of government we are all taught in civics class, government officials are not motivated by truth alone. Sometimes they just want to do whatever will bail out their friends, or whatever will get them some votes in their own district and to heck with country at large. But they frankly don’t even care.
Frankly, for government, history is not a source of wisdom or insight. History is a propaganda device to be manipulated on behalf of government. Barack Obama actually has the audacity – pardon that word -- to cite the Japanese example as if it is evidence for his side – “Well, we can’t repeat what Japan did.” Yes. You’re right! But that’s why we shouldn’t do what we’ve been doing.
They want to increase their power during times like this. So therefore, they don’t want to hear what the Austrian economists have to say – that you shouldn’t do anything; that you should start cutting spending; that you decrease rather than increase your power. Nobody wants to hear that. They want the flattering portrayals of a Paul Krugman who tells them that they are the wise overlords who can steer our ship of state safely through the crisis. That’s what they want to hear and that’s what they are going to follow.
Q: Is there anything the Obama administration, Congress or the media has said or done that has given you hope that they will do something right?
A: I’m afraid not. I’m slightly encouraged that Republicans – after years of being on a drunken spending binge -- are suddenly getting religion, so to speak. But it’s too little too late. They have no credibility whatsoever on this issue.
At the same time, there is one thing that’s encouraging and that is that Ron Paul’s bill to audit the Fed, H.R. 1207, now has 88 cosponsors. That’s very important. Because here we have one man (the Fed chairman), who creates all this money he wants to out of thin air and not tell us where it is going. Who on Earth is going to defend that?