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Greg Ip's Voodoo Economic Journalism

Posted By Steve Horwitz On August 20, 2011 @ 11:24 am In Financial Markets,The Fed & Central Banks | 6 Comments

In a piece titled "The Republicans' New Voodoo Economics?" Greg Ip writing in The Washington Post tries to connect up the current GOP with a whole variety of what he sees as wrong-headed ideas, including those of the Austrians.  What's most frustrating about the piece is his description of the Austrian view of recessions:  "Austrians considered recessions a natural feature of capitalist economies, and efforts to suppress them via monetary or fiscal policy were apt to distort investment, worsen booms and busts, or lead to inflation."

It's certainly true that Austrians believe that using monetary and fiscal policy will make matters worse, but Ip makes it seem as though recessions just appear from nowhere (a "natural feature of capitalist economies"), when the strongly dominant view among Austrians is that recessions are caused by government monetary policy via the central bank. This misrepresentation makes it look like Austrians are pure fatalists about recessions and their human toll, when in fact a great deal of ink has been spilled as to how better monetary institutions can prevent recessions in the first place, and obviate the exacerbation of those problems that comes from government monetary policy.  Ip's version of Austrian macro nicely fits into the now common narrative (see Lord Skidelsky's comments in the LSE debate and subsequently – see also George Selgin's brand new response) that Austrians simply don't care about trying to prevent recessions and minimize their human toll.  It also likely plays to the pre-conceptions the Post's readers have about critics of activist policy.

And yes, I'm well aware that Hayek argued that you can get the cycle without activism by the central bank, hence my language of "strongly dominant."  But in the larger rhetorical context, that's some intellectual hair-splitting when the vast majority of Austrian arguments about the source of recessions (rightly or wrongly) have focused on the expansionary policies of central banks.  Greg Ip is utterly unaware of these intra-school debates and his version of the theory is the result either of not bothering to engage with the actual work of the Austrians or intentionally fudging the theory to make it fit the narrative that drives the story.  Whichever it is, it's voodoo journalism.

Putting aside that it might be self-serving, the thing that really bothers me about so many media treatments of the Austrians, is that they focus almost solely on work written 75 years ago, making it seem like there's no modern work in the tradition and that Austrian arguments haven't been advanced and refined in light of subsequent criticisms and other schools of thought.  If journalists are going to discuss or interview living Keynesians and their work, then is it really that hard to Google "Austrian economics" and find some actual, living Austrians who have written on monetary and macro as part of your attempt to understand the role that these ideas might be playing in current policy debates? No one says journalists have to pay attention to Austrian ideas, but if they are going to do so, shouldn't they feel an obligation to talk to actual people who are working on the ideas? Not doing so seems to me to be another example of voodoo journalism.

Cross-posed from Coordination Problem.

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