http://washington.bcentral.com/washington/stories/2001/10/22/focus1.html George Mason U. adopts a free-market philosophy to an unusual degree Eric Winig Staff Reporter While the U.S. economy continues to sink, the majority of economists are scratching their heads, unable to divine why low interest rates and fiscal stimulus are failing to revive consumer spending. Most, however, predict those old fixes will eventually work their magic again. But to a small school of economists, the U.S. downturn is no mystery. Indeed, they were expecting such an event long before George W. Bush and Al Gore tangled in Florida last year. Credit-induced booms inevitably turn to busts, they say. Because people cannot forever spend more than they earn, such a situation will always lead eventually to a period of contraction in which debts must be worked off and savings rebuilt. Those economists belong to a school of thought known as "Austrian economics," founded in Austria in the late 19th century and introduced to America in the early 1900s. Austrian economics is basically a a strong adherence to free-market economics without government intervention. As many Austrian economists see it, the boom years of the late 1990s were not a "new era," nor a new economy, but instead a period when cheap credit and abundant capital convinced individuals and corporations to borrow like mad. Much of this money, meanwhile, was used for what turned out to be poor investments. Although stock prices have since come down significantly, the debts amassed from all that borrowing remain, choking off any economic recovery before it can begin. As far as most Austrians are concerned, such imbalances must be corrected before the economy can begin to grow anew. It sounds like a simple concept, yet to most who practice economics for a living Austrian economists are a fringe group. In large part that is because the Austrian argument against any government intervention in the market makes most economists -- and their vaunted economic forecasts -- irrelevant. In fact, the only doctoral program in the country with a dedicated Austrian program is at George Mason University in Fairfax. Something of a mission The university's Program on Markets and Institutions -- part of the James M. Buchanan Center for Political Economy ([52]http://www.gmu.edu/jbc) -- is run by Karen Vaughn and Peter Boettke. And to those with Austrian leanings, GMU is akin to a port in a violent storm. "It's a place where you find people who think like you," says Veronique deRugy, a French native who crossed the pond to do post-doctoral work at GMU and now works for The Cato Institute ([53]http://www.cato.org), a D.C.-based public policy foundation with a libertarian philosophy. "I was one of the rare Austrian economists in France," she says, "so it seemed like a logical place to go." Most of the program's students are Americans -- unusual for a graduate school -- and were introduced to Austrian economics by a professor in college. While they don't expect to score a tenured position at Harvard, most students know exactly what they are getting into. "I don't expect to be teaching a class called `Austrian Economics,'" says Edward Stringham, who is finishing his doctorate at GMU. Stringham, like many students, hopes to go someplace where he can teach economics with a free-market bent, even if his class will be slightly different from the school's other offerings. In fact, there are many such professors out there, including a good number from GMU. And most view their task as something of a mission. "The task facing Austrians is to take our theories and get them out there," says Steven Horowitz, associate professor of economics at St. Lawrence University in New York and a former GMU student. "I can name a dozen schools that have tenured Austrian economists there. We're putting our roots down in academia." A credibility hurdle Although Austrian economics can be defined loosely as a free-market ideology, some stress this is not an entirely accurate characterization. Austrian economics provides "a deep appreciation of the markets" that is critical for one to arrive at any economic conclusions, whether free-market or otherwise, Boettke says. Scott Beaulier, a second-year doctoral student, says, "If you want to criticize the mainstream, you've got to know it inside and out." One of the main hurdles for all Austrian economists is to establish credibility in a world that views their beliefs as suspect, at best. In truth, many economists hold some Austrian-style views, yet the mere mention of the Austrian school causes their eyes to glaze over. "No one is out there saying `I am now an Austrian," says Vaughn, director of the Markets and Institutions program. "You say the Austrian school and people say `Oh, that.'" Vaughn, who has been at GMU for 23 years, says despite such attitudes the school has done well placing students in teaching positions. "There are some departments that won't touch us with a 10-foot pole," she acknowledges, "but we do well placing [students] at liberal arts colleges." However, the university has not done as well placing students as instructors in other doctoral programs, which limits the effectiveness of the program. While GMU attracts many students through Austrian professors in undergraduate programs, the lack of doctoral programs with Austrian offerings is a problem. "George Mason," Boettke says with a laugh, "is kind of a monopolist at the moment." On GMU's shoulders GMU came to have the only dedicated Austrian program in the nation partly by chance, as formerly strong programs at New York University and Auburn University have fallen by the wayside. The Auburn demise did not result from a disagreement over the Austrian approach but rather was one of the casualties when the entire doctoral program in economics was shut down because of funding problems. NYU, which was considered by many to have the strongest program and has the best academic reputation of the three universities, made more of a conscious decision to shy away from Austrian teachings. The school no longer offers an Austrian alternative in its doctorate program, although it does offer one in a master's degree. The NYU program also lost its leader when Israel Kirzner retired recently. Kirzner is widely considered the most influential Austrian economist alive, and his retirement was a huge blow to the NYU program. "It was a major hit to us as a school of thought," Boettke says. So that leaves GMU. And, to hear some tell it, Boettke himself. "Peter is an amazing guy," says Cato's deRugy. "You can talk with him about so many different things." In fact, many current and former students gush about Boettke as the driving force behind the program. "He's basically supporting the program here," says Beaulier. "It kind of rests on his shoulders." Such a reference conjures up visions of Atlas -- specifically the epic novel, "Atlas Shrugged," by philosopher Ayn Rand, who espoused individualism and laissez-faire capitalism. But the affable Boettke shows little sign of the strain. Instead, he continues to look for ways to place his students where they have the best chance to make an impact. Boettke acknowledges that many dismiss the Austrian school out of hand, so he advises students to "look out the window and see the puzzles in the world," then use Austrian economics to help frame their arguments. "We need to try to solve real problems that other people care about," he says. How the world works Meanwhile, although most Austrians are predicting bad times ahead for the world economy -- and have been for quite some time -- Boettke has a much more sanguine view. While he acknowledges recent events have tempered his optimistic outlook somewhat -- "the war economy is certainly not good for the economy" -- Boettke continues to believe the forces of capitalism and entrepreneurship will win out and raise living standards for all. He doesn't have sympathy for those who refuse to embrace capitalism and then blame America for their woes. "We have no responsibility whatsoever in the poverty of these countries," he says. "It is a result of the stupid policies of their governments, and we should not shy away from this fact." So, while the rest of the economics profession struggles to understand why the U.S. economy keeps getting worse, GMU's Austrian students quietly go on with their studies. And, they hope, prepare for the day when others will give them more than a passing glance. "If you want a hot-shot career at an Ivy League school, don't come here," Vaughn says. "But if you want to really understand how the world works, I can't think of a better place to go." -- Churchill, Winston Leonard Spencer --On the eve of Britain's entry into World War II: "If you will not fight for right when you can easily win without bloodshed; if you will not fight when your victory will be sure and not too costly; you may come to the moment when you will have to fight with all odds against you and only a precarious chance of survival. There may be even a worse fate. You may have to fight when there is no hope of victory, because it is better to perish than to live as slaves.