Robert Higgs’s Recent Interview by Libertad Digital (here in English)
I was interviewed recently by Angel Martin for Libertad Digital, an interesting Spanish website. The interview was posted today. Topics discussed include the recent financial debacle, the current recession, the government’s recent policy actions, and several related, more general subjects, such as “regime uncertainty” and U.S. foreign policy. For those who might be interested in this interview but do not read Spanish, I am posting here the original questions and my original answers in English. I am grateful to Angel Martin for undertaking this project.
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Los acontecimientos actuales requieren de los analistas económicos, entre otras cosas, una teoría económica sólida, amplitud de miras y una buena dosis de humildad, para adentrarse en el frondoso bosque de los complejos fenómenos y datos económicos, y salir de él con una aceptable comprensión de lo que está pasando. Pero además, el conocimiento detallado de la historia económica puede ayudar notablemente a tener una mejor y más amplia perspectiva de los hechos recientes. No en vano, la crisis actual ha sido comparada con otros periodos anteriores, como la Gran Depresión de los años 30, o ha sido calificada en más de una ocasión como la crisis más grave desde la Segunda Guerra Mundial.
Todas estas cualidades son las que cumple a la perfección el economista e historiador norteamericano Robert Higgs, a quien entrevistamos en exclusiva. Él es investigador sénior en economía política del think-tank californiano The Independent Institute, y es autor de numerosas obras relacionadas con la historia económica norteamericana y la evolución y desarrollo moderno del gobierno estadounidense, de entre los que destacan Crisis and Leviathan (“Episodios críticos en el crecimiento del gobierno norteamericano”) y Depression, War, and Cold War (“Cuestionando los mitos sobre el conflicto y la prosperidad”).
PREGUNTAS
Orígenes de la crisis
P. Los analistas no se ponen de acuerdo sobre las causas de la crisis. Unos culpan a la política monetaria demasiado laxa de la Fed, otros a políticas gubernamentales de fomento de la propiedad inmobiliaria, al exceso de ahorro de países asiáticos o a la desregulación financiera, los complejos derivados… ¿Qué interpretación encuentra más sólida? ¿Por qué?
No consensus on the causes and origins of the crisis. Some blame the Fed’s expansionary monetary policy, government policies on fostering homeownership (Fannie, Freddie, CRA…), others the Asian savings glut, others financial deregulation and complex derivatives… Which position, if any, is the most solid? Why?
The crisis has multiple causes. In the United States, the most important were the Fed’s easy-money policy between 2001 and 2005, which fueled the housing boom; the pressures many different government officials and agencies brought to bear on banks and other lenders to lower their mortgage-lending standards so that they would lend more to home buyers who lacked the qualifications to receive loans under traditional underwriting standards; the rapid growth of the highly leveraged government-sponsored enterprises Fannie Mae and Freddie Mac as secondary mortgage purchasers and as issuers of securities to fund their own operations; the failure of the (officially privileged) ratings agencies to identify the actual risk associated with many of the financial derivatives based on the expected flow of future mortgage-loan repayments; and the failure of many financial institutions to recognize the actual risks of their investments and to avoid those risks or to hedge or insure against them properly. Of these causes, the first two—bad Fed policy and government’s various interventions in the housing-finance industry—were probably the most critical.
¿Rescates gubernamentales para salvar al capitalismo?
P. Se han justificado las masivas intervenciones públicas con el pretexto de salvar al capitalismo. El sistema financiero hubiera colapsado de no haber rescatado e intervenido el gobierno en numerosas entidades financieras, tal y como nos muestra la quiebra de Lehman Brothers; ello hubiera desencadenado un proceso de quiebras sistémicas, argumentan. ¿Hay algo de cierto en todo esto?
Massive public interventions have been justified on the grounds of saving capitalism. The financial system would have collapsed, many banking institutions would have gone bust, which would have brought about some disastrous consequences for the American people (as Lehman’s failure has shown). Is there some truth in all this?
Capitalism has not existed in the United States since the early twentieth century, so whatever the government might have imagined itself to be saving, it certainly was not capitalism. In fact, the government’s various interventions have focused on saving the insurance giant AIG, Fannie Mae and Freddie Mac, big commercial banks and big investment banks, and the automobile manufacturers General Motors and Chrysler—all of which ought to have been liquidated—and on enriching members of the United Auto Workers Union, various government-employee unions, and other supplicants with political clout.
Systemic risk is greatly overblown, as a lobbying ploy; the entire system as such was never at substantial risk. If a market sector of the economy is to be preserved, it must be a system of private profit and private loss, not a system of private profit and public loss. The government’s interventions have created a large number of zombie firms, which are actually bankrupt but are kept in operation by infusions of government-supplied funds.
Deuda pública
P. Los niveles de deuda y déficit públicos parecen haber llegado a niveles insostenibles, gracias a los estímulos fiscales. Está la cuestión de Grecia. ¿Cómo cree que puede evolucionar esto? ¿Conseguirá la administración Obama reducir significativamente su déficit en el corto-medio plazo?
Public debt and deficits seem to have reached unsustainable levels, due to fiscal stimulus. There is Greek question. How do you think this situation might evolve? Will Obama reduce significantly the debt and deficit in the short-medium term?
The current debt and the projected deficits create a substantial risk of default on the U.S. government’s debt service. Even if the current crisis had not occurred, the government’s promises to provide benefits for retired people and for health care cannot be kept much longer. The government will probably deal with this unsustainable situation by taking a series of marginal, often hidden steps to raise taxes and to chip away the promised benefits. Another possibility is rapid inflation, which would reduce the real value of the government’s interest payments on its debt and amount to a form of indirect default. Outright default is the least likely outcome, but it is conceivable. After all, the U.S. Treasury defaulted before, when the government abandoned the gold standard in 1933 and the Treasury refused to keep its promises to repay bond purchasers in gold as promised.
Deflación
P. Los políticos, autoridades monetarias y buena parte de economistas temen la deflación como el peor mal posible, y actúan para evitarla casi a cualquier coste, apoyándose en lo que ocurrió en los 30 en EEUU y en la deflación japonesa para defender los estímulos monetarios. ¿Es la deflación tan peligrosa? ¿Se sostiene su evidencia empírica/histórica?
Politicians, monetary authorities and many economists are very fearful of deflation, claiming it is much worse than inflation, which has prompted them to act accordingly at almost any cost. They seem to base their opinions on what happened in the 1930s contraction (monetarist story), and in the Japanese deflation. Is deflation so dangerous? Is the empirical/historical evidence correct?
The modern fear of deflation is irrational. Gradual deflation that reflects ongoing improvements in productivity is for the most part a desirable condition. Between 1865 and 1897 gradual deflation reduced consumer prices by about 50 percent. During the same years, the United States experienced very rapid growth of real GDP per capita. Prices fell greatly between 1920 and 1922 and would have fallen further, had the Fed not acted (unwisely) to stabilize the commodity price level for the rest of the 1920s. However, rapid unexpected deflation caused by changes in the demand for or supply of money are not desirable and may cause substantial harm, as they did in the United States between 1929 and 1933. Nevertheless, constantly erring on the side of inflation, as the Fed has done since the 1930s, is bad policy because it results in secular loss of the dollar’s purchasing power. Since the Fed’s creation in 1913, the dollar has lost more than 95 percent of its purchasing power.
Gran Depresión
P. Hablando de la recuperación económica y las previsiones, usted elaboró el concepto de “incertidumbre de régimen” para explicar por qué la Gran Depresión se prolongó durante tantos años. ¿Podría explicar el concepto? ¿Puede estar pasando algo parecido actualmente con las políticas de Obama?
Talking about the economic recovery and future forecasts (which I know you are rightly very skeptical about)… you elaborated the concept ‘regime uncertainty’ to explain why the Great Depression lasted so long. Could you explain it? Could that be happening again with Obama?
“Regime uncertainty” is the name I give to widespread fears that the nature of the economic order will be changed. This has to do mainly with fear that private property rights will be altered for the worse by higher taxes, more costly regulation, more hostile treatment by government functionaries of all kinds, and perhaps outright confiscation of private property. When investors feel regime uncertainty, they are reluctant to make long-term investments because they fear that they will be unable to receive the income those investments will generate and may even lose the capital itself. Between 1935 and 1940, many U.S. investors feared that the market-oriented U.S. economy was going to be transformed into fascism, socialism, or some other system dominated by the government. During the past two or three years, similar fears have arisen because of the many large-scale government interventions (or likely future interventions) into the financial markets, the health-care system, the regulation of carbon emissions, and the automobile industry, besides the imposition of higher taxes and more onerous regulations in general. However, because the U.S. economy is already subject to pervasive government intervention of many kinds, the present situation is not fully comparable to the situation in the late 1930s.
Reforma sanitaria
P. Entre estas políticas, Obama ha dado gran importancia a su reforma sanitaria. ¿Cuáles pueden ser las consecuencias de esta medida? ¿Ha tomado Obama una vía adecuada para incrementar la cobertura médica a los más necesitados y mejorar la eficiencia del sistema?
Amongst these policies, Obama has attached much importance to his healthcare reform. What can be the consequences of such a reform? Has Obama taken the good path to address the problems of the current American healthcare system (allegedly, high costs, low medical coverage for the poor…)
The health-care law just enacted will prove disastrous, both for the operation of the health-care industries and for the government’s finances. It will also lead to a great loss of freedom for the American people, tens of millions of whom will be forced to purchase health-care “insurance” that they do not want to purchase, or to pay large fines. Insurance companies will benefit in the short term by gaining millions of unwilling customers, but in the long run, the entire health-care insurance industry is likely to be taken over by the government because the “mixed” (fascist) arrangement will not work well and will lead to tremendous public dissatisfaction – which, strange to say, will be blamed on” the market system,” an institutional arrangement that has not existed in this area for decades because of pervasive interventions by state and federal governments.
Guerra contra el terrorismo
P. Usted también ha estudiado con detalle la cuestión de la guerra, tanto históricamente como en los episodios actuales, y es muy crítico con la política exterior norteamericana actual. ¿En qué se basa? ¿Había alternativa tras los ataques del 11S? ¿Es una estrategia de salida sensata salir inmediatamente de Iraq, como defiende Ron Paul, o ello generaría un ambiente de guerra total entre los iraquíes?
You have also worked on war issues, both in the past and recent events. You are very critical of the American foreign policy. What are your opinions on this based on? Was there an alternative to the 9/11 attacks? Is a sensible exit strategy for Iraq to leave it immediately, as for example Ron Paul defends, or would that create a horrible scenario of conflict for Iraqis at home?
Aggressive U.S. foreign policies have always been damaging to the interests of most Americans, but important political elites and crony capitalists have benefited from U.S. military engagements abroad and have promoted them as essential for U.S. national security. Since World War II, the U.S. government has maintained a vast, worldwide military presence, which it uses to intimidate various groups and governments and to create favorable conditions for the operation of foreign investors with close ties to the U.S. government, especially in the financial and petroleum industries. These foreign engagements create enemies, who occasionally strike back at the United States by terrorist acts, such as the attacks of 9/11. Those attacks ought to have been treated as criminal acts, not as excuses for a “war on terrorism” (a senseless concept in any event, because terrorism is a kind of action, not an enemy who can be killed). Police (of various countries) and private bounty hunters authorized by the government should have sought to capture the perpetrators and bring them to justice. Instead, the Bush administration used the 9/11 attacks as a pretext for attacking Afghanistan and Iraq, the latter of which had nothing to do with the attacks. These wars, which continue to drag on and on, have been disastrous for the people of Afghanistan and Iraq and a terrible burden, both economic and moral, for the American people. The sooner the U.S. government withdraws its military forces from Afghanistan and Iraq, the better the situation will be for almost everyone.
