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The Austrian Factor
By Abdul Turay
Published Postimees 4 April 2012

Patriotic Estonians wants two things out of foreigners. They want their country to be noticed, and they want it to be liked.

And there exists a small group who are growing in influence in America on talk radio, satellite television and the internet, who do both.

They are knowledgeable and successful, one of them is a candidate for president of the United States of America. They are known as the Austrian school economists or Austrians for short.

There is just one problem. The world's leading intellectuals from all spectrum thinks the Austrians are crazy people, Nutters.

It is a bit disheartening to say the least. What this means is when ever you read something positive in a foreign publications about Estonia, you have to take it with a pinch of salt. What you are reading, as many people think, might just be the ravings of mad person.
So let's examine the Austrian school, find out why they like Estonia so much, whether they are really mad and why they matter.



The Austrian school is so called because the founders of the movement were mostly Austrian, notably Ludwig Von Mises and F.W. Hayek. The Austrians reject a scientific or mathematical approach to economics in favour of rationalism. Their only tools are logic.
.

The difference between Austrian school and mainstream economics is like the difference between creationism and Darwin's theory of natural selection. This analogy isn't perfect, but it is apt because the Austrian theorist hark back to a time before the scientific method was used. They think that human action is too complex for mathematical modelling. The Austrian school is the new version of a very old type of thinking, it is rationalism and it is pre-Kant.

Austrian theories are not taught in Universities and the leading proponents of the movement have trouble getting work. Von Mises spent his professional career as an outcast.

Austrians see themselves as engaging in a century long struggle against socialism and social liberalism.

Austrians believe human misery is the result of too much government; inflation, unemployment, wars, discrimination, all are the fault of government. Austrian Schools believe in gold, they don't believe in central banks, or in fractional reserve banking.

A key part of Austrian thinking is the Austrian school business cycle. Recessions are caused by central banks setting rates too low. This leads to an expansion of credit and mal-investments. Eventually a credit crunch will come when people realise that whatever they are investing in, be it shares in America in the 1920s, or property in Estonia in the 21st Century, isn't worth the money they put in. Investment collapses, businesses go bust and you have a recession.

Austrians argue that recessions are good, recessions are the cure. The recession is the process by which the economy adjusts to the wasteful spending that went on before. A period were people start to save and when the survivors make shrewd investment that will bring real profits.

That's enough theory, the Austrians want to drag Estonia -and the rest of the World- kicking and screaming back into 19th Century.

Forget about welfare benefits or any kind. If there were a famine, the most extreme Austrians wouldn't want the government to feed people, that would upset the iron discipline of the free market, this actually happened in Ireland and India in the 19th Century.

See why some people think they are crazy?

Estonia has it's own Austrian group. They are all really nice people with sincere beliefs even if they are selling something many readers may find sinister. They organise lectures and meet weekly to discuss their ideas.

None of them are professional, they do economics as a hobby. They are group of people campaigning for capitalism by handing out free stuff.

"(We should) abolish the minimum wage. Politically it is not feasible yet, but that is one thing that would help a little bit," the leader of the group, Paul Vaher said.

Liisa Kabonen, the baby in the group has been an Austrian, for about a year. She is a young woman wants to get rid of all state pensions.

"First we can make it smaller,"she said.

"We should get rid of it eventually but you can't do it overnight."

"If people know in the long run where things are going they can start building up their own support system and connect with the family more.
"Rely on family, there are many ways you can do it," she said.

One is forced to wonder whether her grandmother agrees with her beliefs.

Austrians like Estonia because it's a society where the government already doesn't take care of people. Austrians like Estonia because it is a society where people value hard work and fend for themselves. Austrians like Estonia because it a country of low pensions, low minimum wages, lower unemployment benefits and low pay for teachers and public sector workers.
Austrians like Estonian because, unlike Western market liberal economics, when the recession came the government shrank the state and cut salaries. And the people took the pain.

"The government's reaction was quite Austrian, the most Austrian in the World," Vaher said.

But as his fellow traveller Robert Müürsepp adds.

"We don't think (Estonia) is Austrian enough.”

But here is the thing, the Austrians might be crazy, but they might also be right.

Leading Austrians correctly predicted the recession of 2008 something most mainstream economist missed. Estonia's economic story over the last four years is what Austrians predict should happen if government adopt Austrian methods, a short violent recession followed by a vibrant recovery.

Von Hayek got a Noble Prize for economics in 1974 for his work on the business cycle. But he also used the scientific method and for this reason some devotees think he is not a true Austrian. Still his political manifesto “the Road to Serfdom” is almost required reading for members of both the IRL And the Reform party.

Despite Von Hayek, the Austrians are still a fringe movement. Fringe movements can become big in times of crisis. That it what happened all over Europe in the 1930s. In America, the right wing libertarians love it. The U.S constitution is based on 18th Century rationalism. That is where U.S. presidential candidate Congressman Ron Paul is comes in, he is an Austrian. This is why he is both loved, feared and ignored.

Austrians are everywhere. The ever growing tea party movement which is slowly taking over the Republican Party is largely Austrian.

Most people assume that the occupy movement is left wing, it is not, in America, it is at least half Austrian. This is not a contradiction. The Austrians, the economic far right, and the economic far left agree that what is wrong with the world is monopolistic corporations exploiting people. And they agree the more power you give to the government the more power you give to the corporations, because the corporations can, one way or another, control the government.

Where they disagree is what to do about it. The Austrians say, shrink the government!!! The rest of the occupy movement say.....well actually they don't say anything. They don't have any answers yet. They just know they are angry about...... something.

Yet ultimately it is not the theory nor even the the economic practice that is scaring people, is their foreign policy. If the Austrians take over the World, everything changes. Austrians in America are against their country's vast military, they are against aggressive destructive war. Ron Paul see America's military as a device by which the corporations use the government to get money out of the people.

If Ron Paul or someone like him, a true Austrian, were ever to become president, it's all over. The United States ceases to be a superpower and becomes isolationist, just like it was in the 19th Century. That's why Ron Paul is loved and feared and ignored. And that's why people think these modern Estophiles are crazy.

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