Mainstream Economist Freaks Out
What does it suggest when Noah Smith, writing in Bloomberg, calls his critics “9/11 truthers …enslaved by… brain worms?”
It suggests that he is very worried. He not only thinks the barbarians are at the gate. He thinks that his cozy citadel might actually fall.
And what does it tell us when he accuses his target, Austrian economics, of having “anti-Semitic overtones?”–and then documents this outlandish charge by linking to someone’s video on U-tube? Smith may not be just worried. He may be terrified if he has to resort to such nonsense.
Behind all this is a fierce contest of ideas which the economics and other establishments want to go away, and go away now! Fortunately we are not a totalitarian society, and a free society has a market in ideas as well as in products. Many people have a vested interest in defending old ideas. In the case of economists, their very livelihood may depend on it. So change comes slowly, and is always hard fought.
When new people challenge the old orthodox ideas, the establishment first ridicules them. What a joke! If the new ideas gain some traction, the establishment resorts to a stony silence. Shh! Don’t say a word about it; we don’t want anyone else to hear about it! If the silent treatment doesn’t work, the establishment comes out swinging, attacking the new ideas with a blood lust. War to the death! If finally, in a fourth stage, the new ideas win out and become the new orthodoxy, the old opponents just shrug and say “ Oh, I knew that all along.”
Looking at it this way, Noah Smith’s savage attack on Austrian economics is a good sign. Much of the establishment media is still giving Austrian economics the silent treatment. An article like this in the establishment bastion Bloomberg News suggests that we may be entering stage three, where the final battle will be fought.
We could leave it there, and dismiss Smith’s overblown rhetoric as simply a sign of panic, but it is also worth noting that Smith doesn’t really offer an argument. Apart from the name calling, his main technique is to set up straw men and then knock them down. So, for example, he says that Austrian economists are discredited because all the new money created by the Fed and other central banks hasn’t yet led to runaway consumer price inflation.
This just shows that Smith hasn’t actually read the Austrians. If he bothered to do so, he would read that both the timing and the direction of new money flowing out into the economy are unpredictable. If it flows into consumer goods, it won’t flow into all of them evenly or at the same time. It may also flow more into assets ( stocks, homes etc.) rather than into consumer goods, so that the inflation shows up in asset bubbles. This happened in the 1920’s and again in recent decades, and it leads to a bubble/ bust cycle that by now is all too drearily familiar.
Smith says in this context that “Austrians writhe and contort under the pure, burning light of extant reality.” But it was Austrian economists who warned that the Fed and other central banks were leading us into a horrendous cycle of bubble/bust. And, importantly, they are still warning us that these cycles are not yet played out.
Just recently Janet Yellen, the current Fed chair, once again denied that her policies had anything to do with creating the housing bubble or crash. This would seem to be a prime example of what Smith tries to tar the Austrians with: being completely “out of touch with reality.” It is, however, convenient for Yellen, since it means that she can persist with the same mistakes, without having to worry that she might be creating yet another, even bigger bubble and bust.
Smith’s ignorance of Austrianism or blithe disregard for what it says is illustrated by another post from February of this year, written in his characteristically insouciant style. At that time, he said: “It seems to me that the Austrian School’s demise came not because its ideas were rejected and marginalized, but because most of them were co-opted by mainstream macroeconomics.”
So which is it? Are Austrian ideas “brain worms” or are they part of mainstream economics now?
One can only wish that Austrian ideas had been “co-opted” by mainstream economics, but this too is a fantasy. Austrianism is still an insurrection. It remains a mortal threat to the conventional economics that has caused so much needless unemployment and suffering around the world. And, so long as it does, Smith and other defenders of the old order will lash out at it.