Harold Meyerson writes in the Washington Post (free registration required) that “the problem with contemporary economics, at least with the purer strain of free-market economics associated with the University of Chicago, is not simply that it failed to predict the near-collapse of the world financial system last year. The problem is that it believed such a collapse could not happen, that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything.” Harold, I think I know an even purer strain, and one that did predict these problems, but I’ll leave you to your Orwellian exercise.
Then this: “…there really was no need to study such things as bubbles, which only a handful of skeptics and hopelessly retro Keynesians even considered possible. Under mainstream economic theory, which held that everything was correctly priced, bubbles simply couldn’t exist.” Which “handful of skeptics” would that be, Harry?
“The one economist who has emerged from the current troubles with his reputation not only intact but enhanced is, of course, Keynes.” Well, “of course”!
(Thanks to Timothy Geraghty.)
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In all fairness, this particular donkey doesn’t know jack about economics and might very well have no knowledge of the Austrian School – which after all doesn’t have as widespread an academic following as the Chicago School.
Why people don’t gravitate to the one group of economists who truly foresaw all this, the Austrians, in search of understanding, I can only conjecture. Doesn’t make sense to me either if the goal is truth and understanding. Maybe that’s not the goal.
Ignorance on the topic you write about is no excuse. If ‘this donkey’ doesn’t know economics then what business does he have writing about it?
I’d say that (insert every Austrian economists name here) came away with reputation enhanced, and the pains we are enduring thanks to Bush/Obamas policies is actually evidence against Keynes and the aggregate demand theory and paradox of thrift mindset.
Wow! This article is truly incredible. How someone can consider the Chicago school to be a “purer strain of free-market economics” is a mystery to me. Perhaps an even more astounding assertion is that Keynes’s reputation has been enhanced by the current recession, when it is Keynesian economics that led to the recession in the first place.
I didn’t know whether to laugh or cry when I read this dribble.
Hahaha! Incredible. Human stupidity is infinite.
There is no correcting people who lack even the curiosity to explore alternate schools of thought. The journalist in question probably has not one iota of economic education, and the explanation allegedly provided by psychology thus makes perfect sense to him. He fails to realize that bubbles cannot originate under sound money. The closest thing you’d get is a spectacular fad product, Beanie Babies, Tickle-Me Elmo, etc., that would rise in value in the short term and then crash back to earth. The longer term malinvestment in capital goods are so unlikely under an honest money system that we can more or less rule them out as impossible.
But for him to digest the truth in what I just wrote would be an earth-shattering disruption to his stale thinking and wrong-headedness. Matter of fact, it would require extensive psychological work to determine just how confused the poor man would find himself! Such is the nature of overturning unexamined mantras and false paradigms.
I’m curious to know what other strains of free market economics exist for Meyerson, besides the Chicago school.
The false dichotomy between monetarism and keynesianism is misdirection, just like the phony debate between democrats and republicans. It is meant to distract people from the important issues.
Bury it, and leave comment(for non WSJ customers)!
http://digg.com/business_finance/Economists_for_an_Imaginary_World
Wow. Either this article is a product of complete and utter ignorance, or this guy is living in a fantasy-land all his own. Keynes reputation is still intact? That is not fantasy-land, that could only be possible in an alternate reality.
Part 7844? My count is Part 7845!
I´ve spoken to people with Masters level education in Economics who had absolutely no idea what the phrase “Austrian School” meant. They were dimly aware of who F.A Hayek was(probably because of the Nobel), but their knowledge ended there. No idea that he was a part of a greater tradition.
If highly-educated economists think that the Chicago school is the end-all be-all of liberal free-market economics, then what hope is there for journalists?
The blackout of the Austrian school and it’s contributions to economic thought in academia is staggering.
The Wikipedia entry for “Free_Market” mentions the Austrian school 5 times, Rothbard specifically at least once, and the Mises Institute.
Ignorance, at this point, I think can be assumed to be DELIBERATE.
Since becoming an Austro-Libertarian in January 1973, I have NEVER come across a critic of Austrian Economics who had the slightest familiarity with any aspect of Austrian School thought. Zip, zero, nada.
It’s not just that they disagree. They know NOTHING about ANY of our ideas. Jaw-dropping incuriosity.
Always keep that in mind. They are hiding under their beds.
let me play the devil’s advocate here.since most austrians have been predicting this crisis since a long time. some one like ron paul -since 1971, there can be some credence to the ‘broken clock’ criticism.
since getting the timing of the prediction is near impossible, it is far more preferable to be someone like marc faber -he subscribes to austrian economics ,may sound like a permabear (poor characterization ,IMO) but is very good at watching shorter trends and in predicing dollar rallies (schiff was clearly wrong on that) etc.
now the true test of austrian economists is in the hyperinflation/dollar crisis.since one cant put a date on it or even predict if the hyperinflation will come after a series of credit crunches,i am afraid,the broken clock criticism will come back to haunt.
to be fair,even krugman saw the housing bubble (nay, he called for one to be created!).roubini did -he is mainstream,but he has been accused of asking people to be in foetal position,bracing for impact since a long long time. it is interesting to note that roubini’s prediction was not based on any mathematical model -thats what got the goat of guys like anirvan banerjee and they wouldnt take him seriously. for a mainstream guy to provide a non mathematical prognosis is to risk ridicule.so kudos to him.
taleb is interesting.he starts off by saying that the risks cant be known,so play it safe buying deep OTM puts.
Pravin:
http://mises.org/freemarket_detail.aspx?control=500
Note the publication date at the top, then read for yourself. I was pleasantly blown away by Thorton’s accuracy. Enjoy!
scott,
that is precisely my point. this was circa 2004.the bubble hadnt reached its peak. he was a bit early.he was proved 100% correct.but may have missed out the little short term trends in between where house prices still tripled in some areas.
with massive govt intervention happening,it is difficult to know when a given bubble is going to pop.(an increase in int rates is a good hint,but not sufficient).the dollar rally after the sept 2008 crash didnt figure in any austrian economists prediction (or did it?.please let me know).
Is this any suprise? It’s not really a matter of pretending Austrians don’t exist, for the most part they don’t exist.
Especially in regards to macro, where there’s only a handful of Austrians working, these sorts of statements shouldn’t be such a suprise.
Einar Friðgeirs: “I´ve spoken to people with Masters level education in Economics who had absolutely no idea what the phrase “Austrian School” meant.”
I was one of those. I earned a masters from a good state school and got nothing about Austrian econ. Mainstream econ doesn’t want any competition; it can’t handle it. However, I did have one professor who required Hazlitt’s Economics in One Lesson, which I loved. I just wish I had been more curious about Hazlitt at the time.
i wouldnt have ever learnt about it if it were not for the internet.
Ditto pravin. Thank the Mises Institute for the great work they do!
MSM journalists, like most other apologists for the state, could not care less about accuracy, and even lesser so on informing the public to make empowering decisions. Jayson Blair and Stephen Glass were probably scapegoats. It seems that few journalists actually care about educating themselves on the subjects they write about. Imagine them actually researching a subject exhaustively before writing on it with such arrogance. If only we could get more of these sycophants to assemble furniture and grow food, where we really need them, instead of spewing garbage that confuses innocent Joe-six-pack even more.
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