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Greg Ip's Voodoo Economic Journalism

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.


  1. Hi Steve, can you discuss a little more about the intra-Austrian debates about other causes of business cycles, besides state machinations in the monetary system? I've heard both Larry White and George Selgin mention that ABCT is not the only mechanism causing bubbles to form. Do you agree? What are some other causes?

  2. But you concede that "Hayek argued that you can get the [business] cycle without activism by the central bank." Yes, Hayek did argue thus, and he's the only Austrian to win the Noble Prize, which alone means little except to readers in the general public, so it doesn't seem unreasonable for Ip to characterize Austrian cycle theory as he did.

    Richard M. Salsman
    InterMaret Forecasting, Inc.

  3. There's NO Austrian who believes that ALL recessions are caused by REAL factors. Ip's sentence suggests that's the case: ALL Austrians believe ALL recessions are caused by real factors. That's clearly wrong.

    That some Austrians believe that some recessions might be caused by real factors doesn't change the fact that his sentence, as written, as a description of what Austrians think is both wrong and a misrepresentation of the "dominant" position among Austrians.

  4. Do you think there is a little confusion with Schumpeter? He fits in better with the "natural" suff.

    I think it is fair that the thrust of Mises and Hayek is that once a recession has started, there is little useful for government to do. Of course, Hayek later insisted that keeping GDP (or the flow of money expenditures on output) from falling would be a good idea. That is a monetary policy approach.

    On the other hand, it is unfair not to add the part about avoiding the booms in the first place and lets not repeat this along with the more fatalistic notion that it is too late now, we just must suffer through liquidation of malinvestments.

    Of course, I am not so worried about unsustainable booms and don't agree that recessions have much to do with liquidating malinvestments, but I agree that there is some other "theory" that is being criticized than Mises or Hayek or those working in that tradition.

  5. I agree with you, Steve, that journalists ought to look into what modern Austrians have to say about the cycle and such. But let's face it: there's a risk that by talking to the wrong sort of Austrians (you know who I mean), they'll end concluding that Austrians have only gotten nuttier since the 30s!

  6. The msm not only lie (and it is a "lie" not a mistake – because they write the same thing, over and over, even after being corrected) – the lie is the exact opposite of the truth.

    In the msm account Austrian School people hold that busts just happen (are accidents of nature, random events – like qm in physics or chaos theory in mathematics) and the "mainstream" (read Keynesian) economists have a rational, scientific, explination for busts. Whereas ever since such works as Ludwig Von Mises "Theory of Money and Credit" in 1912 (indeed, some would argue, since the work of David Hume in the 1700's) it is the "Austrian" School who has had the explination for busts – the cause of the bust, being the credit money boom that occurs before it.

    It is this that Paul Krugman snears at as a "moral theory of booms and busts" – moral because it warns against "prosperity" without effort (without work), and "investment" without real savings. The whole something-for-nothing philosophy of the credit/money "boom".

    There is no space here to go into debates about "malivestment" (and other such), one simply needs to ask the question "what is the alternative theory?"

    And, when one strips out all the mathematics and high sounding talk, the real reply is "nothing much" – indeed little more than blaming things on the "animal spirits" of Keynes.

    This is why the msm account is not just a lie, but is also the opposite of the truth.

    It is the Austrian School who has a theory of why busts occur – and it is the "mainstreamers" who (really) do not.

    "But the question is, how do we avoid busts…."

    There is one way (and only one way), prevent the credit money "booms" that cause them.

    If people want to invest in things they must either save for these things themselves (i.e. self denial – do without so they have the resourses to invest) or convince other people to do so. Convince other people to do without new houses (or whatever) so they may have money (real savings) to lend out for investment.

    "But demand is the key thing".

    Cart before horse – Say's law rules.

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