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.