The Legatum Institute's Economics of Prosperity
programme was pleased to welcome Peter Boettke
for a breakfast to discuss the role of the Austria
n school of economics in the world post financial crisis.
Boettke is one of the most prominent Austrian school economists, a Professor of Economics at George Mason University (GMU), and the BB&T Professor for the Study of Capitalism, Vice President for Research, and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at GMU.
Boettke made a compelling case that the major issues were:
- The inter-generational fiscal gap: We have been living with the economics of illusion for 6 decades, and this has led to a substantial inter-generational gap which amounts to some $200 trillion gap between debt and what the government promised it would pay for. We are largely here because it has proved too easy to 'kick the can down the road'.
- Monetary policy: There is no exit strategy out of quantitative easing.
- Structural inequality: Boettke argued that much structural inequality has come about because of the crony capitalism that has been spawned by a regulatory system that is captured by the elites. Proof of this is that so much money is part of the lobbying process and at one point during the height of the fiscal crisis, 8 out of 10 of the richest counties in the US were in the DC area.
In order to address these issues, Boettke believed innovation and immigration would be key. Without them, the future will consist of slashing government programmes, or increasing tax to over 90%. However, innovation would be the 'magic bullet' to improve human capital.
The audience Q&A discussed:
- The role of the city as a unit of economic development, in particular in view of the wave of urbanisation around the world. Boettke pointed out that in history infrastructure does not cause development, economic development comes first then infrastructure.
- The “new normal”: Many economists are suggesting that we are in a new normal of stagnant economic growth. Boettke argued that far from this, new innovation could be launched by a reduction of economic distortions around the world.
- With regard to the collapse of the financial services sector, Boettke made the case that the financial markets suffered from regulatory capture. The focus of the response to the financial crisis was much too focused on solvency and not on liquidity which has led to a decline in innovation and a lack of a dynamic sector. Lessons could be drawn from Sweden’s financial crisis and its recovery.
The discussion was moderated by Shanker Singham, Director of Economic Policy and Prosperity Studies, Legatum Institute.
About the Speaker
Peter J. Boettke is University Professor of Economics and Philosophy at George Mason University and Director of the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center. He received his PhD in economics from George Mason University in 1989. Before joining the faculty at George Mason University in 1998, Boettke taught at New York University. Boettke was a National Fellow at the Hoover Institution for War, Revolution and Peace at Stanford University during the 1992-1993 academic years and the F. A. Hayek Fellow in 2004 and 2006 at the London School of Economics. The author of numerous books and articles, he has a particular interest in the ways that institutional arrangements shape entrepreneurial behavior in transitioning, weak, and failed states. His publications include Why Perestroika Failed: The Politics and Economics of Socialist Transformation, Calculation and Coordination: Essays on Socialism and Transitional Political Economy, Challenging Institutional Analysis and Development: The Bloomington School, Robust Political Economy for the 21st Century, and Living Economics: Yesterday, Today and Tomorrow.