How did the crisis happen and what can we do to prevent another?
Excerpts from: Economics and Moral Courage from Mises Daily by Llewellyn H. Rockwell Jr. parenthesis mine.
Among the mainstream, . . . no one saw it coming. That is because they have never learned the lesson that Bastiat sought to teach, namely that we need to look beneath the surface, to the unseen dimensions of human action, in order to see the full economic reality. It is not enough just to stand back and look at points on a chart going up and down, smiling when things go up and frowning when things go down. That is the nihilism of an economic statistician who employs no theory, no notion of cause and effect, no understanding of the dynamics of human history.
So long as things were going up, everyone thought the economic system was healthy. It was the same in the late '20s. In fact, it has been the same throughout human history. It is no different today. The stock market is going up, so surely that is a sign of economic health. But people ought to reflect on the fact that the highest performing stock market in the world in 2007 belonged to Zimbabwe, which is now home to a spectacular economic collapse.
Because of this tendency to look at the surface rather than the underlying reality, the business-cycle theory has been a source of much confusion throughout economic history. To understand the theory requires looking beyond the data and into the core of the structure of production and its overall health. It requires abstract thinking about the relationship between capital and interest rates, money and investment, real and fake saving, and the economic impact of the central bank and the illusions it weaves. You can't get that information by watching numbers blow by at the bottom of your TV screen. . .
The Austrians in the late 1920s and early 1930s found themselves having to explain this again and again, but it was the onset of the age of positivism — the method that posits that only what you see on the surface really matters — so they had a very difficult time making points that were more sophisticated. They were like scientists trying to address a convention of witch doctors. . .
(As Mises, Fertig, Hazlitt, and Hayek represented by the choices they made in life) This puts the Austrians in an interesting position within the intellectual culture of any time and place. They must go against the grain. They must say the things that others do not want to hear. They must be willing to be unpopular, socially and politically. . .
Later in life, when speaking before a group of economics students, Hayek bared his soul about this problem of the moral choices economists must make. He said that it is very dangerous for an economist to seek fame and fortune and to work closely with political establishments, simply because, in his experience, the most important trait of a good economist is the courage to say the unpopular thing. If you value your position and privileges more than truth, you will say what people want to hear rather than what needs to be said. . .
Mises (as well) was as undaunted then as he had been throughout his life, and as he remained until his death. He had made a moral choice not to give in to the prevailing winds. . .
In different ways, in different sectors, and in different countries, it seemed like Mises and Hazlitt were living parallel lives. At each crossroad in life, they had both chosen the path of principle. They chose freedom even when it was at the expense of their own bank accounts and even though their choice brought professional decline and risked failure in the eyes of their colleagues. . .
It is interesting to read Hayek's acceptance speech, . . . It is a tribute to a profession to which he wanted closer ties. But it was not a loving presentation of the glories of academia. In fact, it was the opposite. He said that the most dangerous person on earth is an arrogant intellectual who lacks the humility necessary to see that society needs no masters and cannot be planned from the top down. An intellectual lacking humility can become a tyrant — and an accomplice in the destruction of civilization itself. . .
And what did these men earn for all their commitments? They earned for their ideas a certain kind of immortality. . .
We are living now through another period of economic planning and we are seeing economists split on both sides. The overwhelming majority is saying what the regime wants them to say. To depart too much from the prevailing ideology of power is more of a risk than most want to take. A small minority, the same group that warned of the bubble, is again warning that the stimulus is a fake. And they are going against the grain in saying so.
I'm with Hayek on this point. To be an economist with integrity means having to say things that people don't want to hear and especially to say things that the regime does not want to hear. It takes more than technical knowledge to be a good economist. It takes moral courage, and that is in even shorter supply than economic logic.
Just as Mises needed Fertig and Hazlitt, economists with moral courage need supporters and institutions to back them up and give them voice. We must all bear this burden. As Mises said, the only way to fight bad ideas is with good ones. And in the end, no one is safe if civilization is sweeping to destruction.