Alright everybody, welcome back to the show.
It's Anti-War Radio, I'm Scott Horton, and I'm happy to welcome Robert Higgs back to the show.
He's the author of Depression War and Cold War, Crisis and Leviathan Against Leviathan, Resurgence of the Warfare State.
He is the editor of the journal from the Independent Institute, the Independent Review, and he really coined two very important pieces of political theory that I know of, probably more than that, but two major ones that you've heard of probably are the theory of regime uncertainty and the detrimental effect of various government interventions in the economy by scaring private interests into holding still, not knowing what's coming next, and then also of course the ratchet effect, which says that every time there's a crisis the government will take advantage of it and grow, and even if some of it's repealed and there's a so-called return to normalcy after the crisis subsides, the power of the state never goes back to where it was before.
So it's like turning a ratchet as the state gets bigger and bigger, crisis after crisis, and who knows?
Tell me some more political theory that you've invented, Bob.
Welcome to the show.
Well, actually, Scott, the favorite part of mine in my book Crisis and Leviathan is chapter three, which is about ideology, and I would say that that chapter, which I thought was the only thing really novel in the book when I wrote it, has made practically no impact whatsoever on anybody, so I would say I think I have some things to say there, but...
All right, well, all my books are still in boxes, so refresh my memory about your chapter three there.
Chapter three is really about how to use ideology as a concept in understanding social action and social life, and it develops an idea of how best to conceptualize ideology, what kind of a belief system it is, and then it talks about the role it plays, particularly in bringing about collective action, which in the minds of many economists following in the footsteps of Mancer Olson, especially, have believed that collective action is by and large an irrational act, that they can't understand why people would ever do anything when there's no individual payoff to be expected in the usual terms of payoff.
Everybody should be free-riding if we're dealing with a genuinely collective good.
So I developed the theory of ideology in that chapter as a way to show that this is a silly way to think about how people act, and to show that in fact, ideologically motivated action is anything but irrational, because people have an interest in other things besides how many movie tickets, cell phones, and apartment houses they consume.
They also have an interest in what I call their personal identity, and the maintenance of their personal identity may require them to act collectively along with other people of like minds, and they get a definite benefit from doing that.
There's nothing irrational about it whatsoever, and furthermore, you cannot be a closet actor in this sense.
Solidarity is one of the benefits of an ideology, and I also maintain that, unlike many people of conservative bent, I maintain that everybody who acts politically has some kind of ideology.
It's not that the commies have an ideology and I don't.
We all have some kind of ideology, otherwise we wouldn't even know how to think about politics and political action, much less do anything about those matters.
So that's what the chapter deals with, and it's more abstract than the rest of the book, and it didn't impress people deeply enough that they were able to connect it with the material that came afterward, but in my mind at least, there's a very close connection there.
Well, I dig it.
I mean, it sounds like what you're saying, we're often accused, libertarians, of putting a dollar sign on everything, thinking that everything is just a matter of prices or whatever, but really it's the other way around.
We figure all these things are about competing values, and a price is just, when you're talking about goods and services out in a public market or whatever, prices start applying.
But otherwise, you're still talking about whether you prefer to spend your Sunday laying in the sun, or piling up silver coins for later, or whatever it is.
It all just depends on what your time preference is, what your individual value judgments are, right?
That's right.
Ideologies very much have to do with people's values, and most of all, as I was saying, their values about the kind of people they take themselves to be, and a lot of economists dismiss that sort of thing as foggy, that's too vague to talk about, but I think that's a huge mistake to do that.
Well, their problem is you can't graph it, right?
It's hard to quantify.
They want things that you can go out and look up a numerical data series for, and there is no such data series for things like the value that people place on their sense of personal identity, or their solidarity with ideological comrades, but it certainly has been a factor in moving a great deal of action through the ages.
Well, now, I guess I want to get into the heart of this when we get back from the break.
We'll have a bit more time, but I wonder if you could tell us, was your book, Depression War and Cold War, or I guess the essay that preceded it, that it's a development of the previous essay, is that really the first scholarly work challenging the, I guess I would say, I don't know if anyone ever proved it, that the Second World War saved America from the Great Depression?
Well, that's a good question, Scott.
There were certainly people who had doubts, I think, all along about whether it was sensible to think of war as a good thing, even an economic good thing.
So I can't claim to have been the first person to have ever had that thought.
On the other hand, in economics, it's just amazing how many very good economists, even, subscribe to the idea that World War II got the economy out of the Depression.
There was a book published a few years ago in which someone had gone out and got ten or twelve famous economists, many of them Nobel Prize winners, who had been young men at the time the Depression was going on, and then during the war.
And they range all the way from Milton Friedman on one side, to sort of the Kenneth Arrow type semi-socialists on the other side.
And they all agreed that World War II got the economy out of the Depression.
No one even qualified the idea that that's what got the economy out of the Depression.
Well, I can tell you that this is what I learned in social studies.
There's more novelty there than I learned in junior high and high school, Bob.
So I think this is basically the public school version of history there.
We'll have to hold it there.
We'll talk more with Robert Higgs right after this break.
Independent.org.
All right, y'all.
Welcome back to the show.
It's Anti-War Radio.
I'm on the line with Robert Higgs from the Independent Institute, editor of the Independent Review, author of Crisis and Leviathan, Against Leviathan, Resurgence of the Warfare State, and Depression War and Cold War.
And now I hope the board's set up right and you can hear this short clip, Bob.
...priming, when you jumpstart it, you need something that gets this moving, which would be, you know, if we suddenly had a threat of war and had a military buildup, you'd be amazed at how fast this economy would recover.
The problem is we can't get ourselves together to do that without that kind of, you know, we can't get to do it for the right reasons instead of the wrong reasons.
Do you think it's a wake-up call right now?
So I guess, you know, that sounds sort of reasonable in a way, right?
A big stimulative war buildup would kind of put everybody to work and then they'd have more money.
He says there's not enough demand, Bob, and if people were making more money, then they could demand more things and that would spur more production and it would really be great.
But my only question is, since America spends as much as the rest of the world combined on militarism every year, how come we all aren't already rich?
Well, Scott, the logic of this kind of vulgar Keynesian claim is very thin.
Well, this guy, Paul Krugman, is one of the most celebrated people and certainly is the most famous, right, a person in your field.
They say that, yes, they say that.
And they say that because, in large part, not only is that what the very simplest Keynesian model would tell you to say, but they all are aware of the experience in the early 1940s.
I'm looking right now at a table of data on national income and product, and what I see there is that in 1940, national defense spending was a little over $2 billion, and total government spending for goods and services, that's federal, state, and local, was about $14 billion.
Alright?
So what happens then?
The war gets going, and from $2 billion of national defense spending, we rise to almost $90 billion by 1944.
Okay?
That's just an unbelievable increase in spending for war.
And total government spending went up to almost $97 billion.
So at that point, government spending was getting close to half of total national product.
Now, people all know about that, and they think, aha, and they remember that unemployment disappeared.
They do forget that over 10 million men were drafted, and that alone accounts for the disappearance of unemployment.
But nonetheless, they remember, aha, Keynes said we needed a big government spending surge, financed by deficits.
We got it.
Look what happened.
We eliminated unemployment.
We had what looks like a big increase in national product.
It looks as if it went up during that time between 1940 and 1945 by over 100 percent.
And this table I'm staring at, okay?
Now that's not corrected for price increases, but even if you make that correction, it looks as if it's gone up 60 or 70 percent.
And they thought, that is the thing that proves Keynes was right.
But what they didn't do was keep looking at the table, Scott.
If they had continued to look at the table, they would have found that national defense spending collapsed from that almost $90 billion in 1944.
It fell, especially in 1946 and 47, until it reached just a little over $11 billion.
Okay?
Did you hear that?
It went from almost $90 to $11 in just three years.
And every Keynesian model tells you if you had a big collapse of government spending like that, that was not offset by an increase in civilian government spending, and you didn't because total government spending went from $97 down to less than $30.
Okay?
So we had more than two-thirds of all government spending collapse from being a very high proportion of total national product.
What happened to national product?
It went up.
It went up.
That experience should have shown even the densest Keynesian that the model was no damn good.
And how all of these great economists failed to see this, I simply do not understand, Scott.
Their own model was discredited in the immediate aftermath of what they took to be its definitive vindication.
And yet, it's a conventional wisdom, always has been, and I don't know how much it's changing, but even anti-war people say, well, you know, but it's good for the economy.
Well, they're not thinking it through.
They're even saying to each other, in the unemployment model...
The money has to come from somewhere, Scott, and all government spending has to be financed either by taxing it away from people, by borrowing it from people, in either case, then the people lack the money that they would have spent, or it has to be financed by creating new money.
And if that happens, it doesn't mean that just printing dollars allows you to produce real wealth.
It means that you've effectively taxed people by silently reducing the purchasing power of all the dollars they hold.
So it's really either a matter of taxing people directly or indirectly, or borrowing from people.
And in either event, you've transferred from the public to the government purchasing power, and you're not getting something from nothing.
The whole magic of Keynesian economics would have us believe that you can create something out of nothing by the government spending money, and it is the most amazingly misguided kind of tissue of fallacies that ever came along in economics.
Well, you know, it's a funny thing, too, because World War II, I thought we had consensus, was the worst thing that ever happened.
Well, even if you ask Paul Krugman, he would tell you, well, yes, it was the worst thing that ever happened in human terms, but it was great in economic terms.
And they say that we're the ones who put a price on everybody and everything.
It's a human disaster that's economically desirable, which is a very strange kind of thing on the face of it.
Well, now, so I guess you can see that, okay, well, you could have advances in jet technology that lead to better distribution of private commercial exchanges later on, that kind of thing, but you'd say that just doesn't amount to anything compared to how much is wasted on the bombs and the killing?
Even those technological spillovers from what was done during the war to produce better weapons are not necessarily good ideas.
Benefits have to be more valuable than the costs that were incurred to create them.
And the mere fact that something good, technologically or in some other way, came out of the war economy in no way implies that that was a good thing.
It may mean that some good came out, but at what cost is the next question?
And when we ask that, we see that even things like the development of those advanced technologies was probably wasteful.
They were developed too soon.
If we'd left that to the market, they would have probably been developed eventually when it paid to develop them.
Right.
Well, and now, I guess we don't really have time for it, but do you think in general when I make my case that the business cycle is very often tied to an inflationary boom and bust because the politicians create the boom, the bubble, in order to pay for their war, that it's really been like that since World War I?
Well, every war is an inflationary episode.
There's no question about that, and these great wars especially.
Some of the smaller wars, particularly Korea, less so.
But any time you have a big war surge, you can expect to see inflationary financing, and that's going to have an effect on the course of economic activity over time.
Right.
All right.
Well, I'm sorry we're all out of time.
I know you've got to go, too.
I really appreciate your time on the show today, Bob.
It's been great.
Thank you very much, Scott.
Nice to talk to you.
All right, everybody.
That's the great Robert Higgs from the Independent Institute, editor of the Independent Review, author of a great list of books.
The one we're talking about there mostly is Depression War and Cold War, also Crisis and Leviathan Against Leviathan, Resurgence of the Warfare State, and many other great books and essays.
Again, check out independent.org, and we'll be right back.
