George Mason U. adopts a free-market philosophy to an unusual degree

Wed Oct 24 10:34:11 PDT 2001

http://washington.bcentral.com/washington/stories/2001/10/22/focus1.html

   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.