Resist the Noah Smith Brain Worm

The more confident the seller, the more confident you should be that it's B.S.

In a recent Bloomberg View piece, Noah Smith ridicules “Austrian economics” for a number of silly or wrong things certain professors and investors, but mostly young high school and college students, have said between 2007 and the present: (a) high inflation/hyperinflation, (b) a non-useful definition of inflation, (c) math is used to obfuscate,…, and so on. It’s basically a poor literature review of what hundreds of bloggers have already said.

Noah is technically not wrong on any of the individual points he makes. The problem is not with the evidence, but with the overall tone of the argument. He’s telling his audience to ignore “Austrian economics” on the basis of what a minority of actual Austrian economists believe in. Someone who really knew what he was talking about would take you through a deeper exploration of the literature and show you what academic Austrians really think. In fact, since Noah apparently couldn’t be bothered with doing actual research, I’ll give you some brief examples.

The Federal Reserve — Take three of the most well-known economists who oppose the Fed: George Selgin, Larry White, and Roger Garrison. Do you think their argument in favor of their position is that the Fed prints money to benefit big banks? It isn’t. Selgin and White developed a theory of free banking, and make a further theoretical argument that in a comparative analysis central banks do not pass the cost–benefit analysis. This line of reasoning isn’t obscure. There is a big literature on competitive currencies and competitive monetary institutions, much of which was written by clearly “mainstream” economists. Unfortunately, Noah doesn’t show you that side of the story.

Inflation — Yes, many Austrians, some professors, many rich old guys, and many more exuberant youths made predictions of hyperinflation or very high inflation. In 2009–10 I was eaten by the brain worm, I must confess, and I was one of those youths. But, fortunately, there were many level-headed Austrian economists, such as Steven Horwitz, who were making a different prediction: that the demand for money had significantly increased and that the best response is an increase in the supply of money. Another example is Selgin, who is well known as a proponent of the “productivity norm,” differentiating between “good” deflation (productivity increases) and “bad” deflation (rightward shifts of money demand).

By the way, do Austrians really use such an idiosyncratic definition of inflation? It’s true, some do. Most Austrians, nevertheless, might use a technical definition, such as: an excess supply of money. But, that’s basically the definition that most mainstream economists ascribe to the term. So, no, Noah is not characterizing the Austrian School well in this case (points 2–4), either.

Mathematical Mumbo-Jumbo — Again, Noah Smith is absolutely right. The real mumbo-jumbo is the nonsense argument that economists use math to support government policies, or to confuse readers, or to mesmerize their peers. Math was introduced into economics to help make a theory explicit. When an argument is advanced in pure prose, the written word can be vague. In a formula, though, all the factors you have in mind are explicit and it forces you to be more careful about where you take your reasoning. One, however, might make the argument that the use of math in econ can be suboptimal, especially if the models are intractable or, frankly, not very interesting. By the way, no serious Austrian economist argues that the use of math in mainstream econ has malicious motivations. Again, Noah is doing his readers a disservice.

Noah is a professor. He knows how to teach. It’s my view, at least, that the professor is supposed to open the student’s mind, so that the latter knows how to compare, analyze, and verify different arguments. That’s the exact opposite of what he does in his Bloomberg article. He prefers to hard sell his audience a very poorly researched article on Austrian economics that essentially tells them to ignore the Austrians. That is anti-science. Science progresses via a dialectic, where people weigh different theories against each other. The market for ideas is like governance, you want pluralism and competition. Excluding an entire group of economists from the debate hurts economic science, and I’m disappointed Noah took his trolling to such a low level. He’s better than that. Although, yes, that Noah’s argument is as shallow as it is turns a very bad article into one of the worst I’ve read in a long time.

11 thoughts on “Resist the Noah Smith Brain Worm

  1. Brian Albrecht

    Right on with this post. You might have saved me from having to write up a response.

    However, this is a problem that Austrians will face for a long time. A disproportionate amount of commentators online are, like us both a few years ago, exuberant youths. Austrian economics’s greatest assets are also its greatest weaknesses in the public (non-academic) discussion.

    It is great to see young people excited about economics like some young “Austrians” are. Austrian economics gets young people excited about the discipline. It’s an intuitive framework for learning economics when you haven’t been drawn through a year of econ 101. That’s how I got into this whole ordeal. Now I’m doing a PhD in econ and I’m thankful for Austrian economics for starting it. It’s just more fun than textbook econ starting out.

    However, this appeal to newbies also gives them (myself included) a little too much confidence in their views right away. Your image is exactly right for this topic. Austrian economists will have to fight this battle between bringing more people into the tradition (which is good) and diluting the truly knowledgable Austrians, like those you cite. How this struggle unfolds will direct the future of popular Austrian economics. Academic Austrian economics has a separate, but related, battle to fight.

    1. Jonathan Finegold Post author

      There is really only one stance on ordinal/cardinal utility: ordinality. Neoclassical theory of price/choice is built on the assumption of ordinality.

      (Had to edit the comment. Totally confused ordinal/cardinal;hey, it’s 4th of July.)

      1. Free Radical

        Just to follow up on John’s question (which was my question of course): We agree that utility should be purely ordinal but what I am trying to figure out is whether or not you endorse the “mainstream” intermediate micro model of utility maximization which many of the exuberant but (I would say) misguided “internet Austrians” that you discuss above frequently pooh-pooh.

        By the way, this post strikes me as a very reasonable Austrian perspective. Noah does have a point though, I this type of pop-Austrian thought is getting a bit out of control. You guys seem to mainly disagree about what “Austrian” means but somehow I think we need to reign in some of the confusion that is coursing through libertarian circles. (Obviously, Noah is on the other side of things so his intentions are probably much different from my own.)

        1. Jonathan Finegold Post author

          I completely agree with you and I do find that approach useful. The problem is that most “internet Austrians” haven’t taken an advanced econ class in their life and they’re not exposed to how those models are used (and what they’re useful for). So, they don’t benefit from multiple viewpoints; they’re just fed that one very narrow interpretation by someone who usually doesn’t really know what he or she is talking about.

          Some Austrians, and I mean actual academics, try to sell the idea that mainstream micro is fundamentally different and that the modern optimizing micro approach encapsulates this difference. These are usually the same economists who make really basic mistakes when they try to describe mainstream micro (e.g. “mainstream economists believe in cardinality of value”). And it’s unfortunate that young people are believing them, because these youngsters are being misled. For what it’s worth, I’ve seen less of this more recently, but it might also be because I don’t read as many things published by the Mises Institute anymore.

          You don’t just see it with micro. For example, Hülsmann’s ridiculous summation of Ronald Coase’s article on the firm. Another example is the almost standard line about how difficult The General Theory is to read, or how Keynes just catered to the government. So, to be perfectly fair, if you would put all of this bad scholarship together it’s probably 100x worse than Noah’s post, which at least gets it mostly right about the narrow group of Austrians he really has in mind.

          I don’t disagree with Noah about what Austrianism is. I just think that his article did a disservice to his readers, because most of them probably don’t know there’s a better face to the Austrian School and it sucks that they won’t be exposed to it — in fact, they might now prefer not learn anything about it at all, because of Noah’s piece. But, he said he’s going to write another article on the “GMU Austrians,” although I’m sure there’ll be a good amount of disagreeing going on there too.

          1. Free Radical

            I think you and I are on the same page. That’s kind of reassuring, thanks. I will be interested to see Noah’s take on the GMU guys. I don’t know if I can handle an Austrian critique of Coase (one of my favorites) but I will probably have to bite the bullet and go through it.

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    1. Jonathan Finegold Post author

      I think I’m using it right.

      The dialectical method is discourse between two or more people holding different points of view about a subject, who wish to establish the truth of the matter guided by reasoned arguments.

      — Wikipedia


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