The rise of the so-called "tea party" movement has given a big boost to Libertarian economics, also known as "the Austrian School," a branch of thought that, although it calls itself economics, is better termed a Utopian philosophy. Ever since Paul Samuelson (and even Milton Friedman), academic economics have tried to define a more scientific framework for economics. In general this has meant applying statistical modeling, and formal definitions to various actors in the economy, including both public and private institutions as well as individuals and groups, that can then be applied to surveys and other data. You cannot ever make economics non-political since class and other interests of course also economic interests. But Samuelson hoped to move the economic debate from the realm of mostly ideology, to the realm of mostly evidence driven analysis.
"The Austrian School" is the opposite of a data or evidence driven framework. Texas Congressman Ron Paul is undoubtedly the most influential American advocate. Instead of paying any attention to data, it accepts as given from God (or nature) the transcendental "organizing" power of the market price mechanism. Its name derives from the identity of its founders and early supporters, Ludwig von Mises, and Nobel laureate Friedrich Hayek, both Austrians. the Ludwig von Mises Institute and Virginia based George Mason University are the principle US ideological centers of this trend.
Its principles are as follows:
1. The business cycle is a completely virtuous cycle. Slumps are the price we pay for booms. Recessions are the just punishment for the excesses of previous expansions. The fact that the rich reap the rewards regardless, and the poor are the ones punished regardless, is of no importance to the Austrian school. Every graph of the financial crises showing crashes and bubbles is just God's continuing morality play. Government intervention in this "virtuous" cycle prevents God and/or nature from rendering justice with the "tough love" everyone needs – and thus is evil. The Austrians are always in a state of continual frustration because no nation in the world seems to be willing to wait out financial crises and depressions trusting in the "magic of the market" to fix everything – that mirable dictu, keeps crashing and suffering from persistent instability. Instead of waiting for God's judgement, people – to the amazement of the "Austrians" – still resist walking calmly to the grave from starvation or homelessness!! They say: "if this is virtue, then the Devil has ascended Heaven." Nonetheless, the "virtuous business cycle of capitalism" has a certain seductive power. Not because it offers any solutions, but because it explicitly offers nothing: Welcome to God's Plan.
2. The Austrian School rejects a scientific foundation to economics. The failure of any political regime to endorse the virtuous business cycle theory of the Libertarians gives rise to all sorts of political backwardness and numbness to reality in its supporters – listening to them frequently arouses a generous desire to help them with a wake-up "dope slap," after such tortured jewels as: "the people are too stupid to understand," or "the people are entitled to nothing," and other too-vulgar-or-racist-to-repeat sentiments. So few believe them, in fact, that they have become hostile to any group or government or institutional level of analysis at all. Instead they advocate strict adherence to "methodological individualism" – analyzing human action exclusively from the perspective of individual agents. Austrian economists also argue that mathematical models and statistics are an unreliable means of analyzing and testing economic theory, and advocate deriving economic theory logically from "basic principles" – read "divinely inspired principles" – of human action. They have even given their methodology a name, "praxeology." Additionally, renouncing science altogether, the Austrians reject experimental and empirical research altogether. They reject testability and falsification en toto. The great virtue (not!) of a theory that rejects testing and falsification is, of course, that it cannot be disproved!
3. The role of the state in Austrian and now Libertarian theory is more confused than its transparently false propositions on the business cycle. The first Austrian, von Hayek, was actually a social democrat and strongly supported standard social democratic policy on the key role of the state in providing services that were market failures. He differed only on whether the post office should be public or private. But latter day Austrians at the Von Mises Institute take this notion for a ride off the sanity cliff, calling for the end of public schools, roads, post offices, Internet, media of any kind, health care, retirement, fire stations, etc, etc, etc.
4. Like many cultish theories, libertarian economics rise in popularity reflects public dissatisfaction with the performance of large institutions in many areas of economic and public life. They often correctly identify corporate corruption as a source of the decay of these institutions, but rather than reform the corruption, they become captured by an attractive, but ultimately doomed, ideology that – due to its futility as a guide to leadership – strengthens the very corruption they decry.
Here is a "parable of the ship" from Mike Huben – a nearly perfect allegory of Libertarian and Austrian School Economics, that should serve you well in any debates:
The owner of a ship noticed that his ship was filling with water. Being an educated man (if not nautically trained) he knew there were many possible causes for water in a ship: leaks in the hull, the bilge pump being broken, waves washing over, condensation, and even the crew urinating in the hold. He heard the bilge pump running, he saw water from waves pouring in the open hatches, but worst of all he smelled urine in the hold! Being sensible, he ordered the crew to shut the hatches and then gave them a lengthy, stern harangue on hygienic use of the head. While he was lecturing the crew, his ship sank due to a combination of causes: large, unobserved leaks in the hull, a bilge pump that was running but not pumping correctly, and condensation that had shorted out warning circuitry.
I leave that for peeps like you.
