Ridiculous attack on Austrian economics

…By the academic Noah Smith who – very obviously – has never read a chapter of Bohm-Bawerk, Mises, Hayek or Rothbard in his life.

Here’s Noah Smith trolling the Austrian economists on Bloomberg View.

Although I don’t believe Smith’s article is even worthy of a response as it’s so misguided on so many levels, Bob Murphy, Mish Shedlock, Gary North, and Peter Tenebrarum have all done a good job explaining exactly how far off base he is.

Professor Bob Murphy: “Noah Smith Boldly Goes Where Thousands of Austrian Critics Have Gone Before

Gary North: “Assistant Prof. Noah Smith’s Life on the Welfare Rolls. Will He Get Tenure?

Mish Shedlock: “Brain Worms – Bloomberg Writer Noah Smith Has Them

Peter Tenebrarum: “In Defense of Austrian Economics

Renowned Austrian Economist Peter G. Klein to Visit South Africa in November

I’m very pleased to announce that South Africans with an interest in free-markets, liberty, and in particular, Austrian economics, are in for a treat in November.

Peter G. Klein, Executive director and Carl Menger Research Fellow of the Mises Institute, and Associate Professor in the Division of Applied Social Sciences at the University of Missouri, will be visiting South Africa for a week in mid-November.

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The Austrian Economist’s Skepticism on Empirics That Validate ABCT

I agree completely with this comment of Russell’s about the empirical tests that have been done in the past to ‘test’ Austrian business cycle theory:

It is interesting that despite all the data shortcomings, the authors found some empirical validity to ABCT in the industrial production data and in the impact on prices using the fed funds rate.  It’s interesting but ultimately not that interesting, since, as you noted, their methodology is oversimplifying and could be misleading, particularly in respect of the monetary aggregates (base money, M1 and M2).  So from a theoretical Austrian perspective we must be as sceptical about findings in favour of ABCT as we are about mixed or contradictory findings.

When the data either validates or invalidates ABCT, I am equally skeptical as we are dealing with 1) highly complex phenomena, 2) available data mostly measures the wrong things rather badly, but at a much more fundamental level 3) historical economic data cannot and does not provide us with the facts in the same way that the natural sciences would present us with facts in an isolated lab experiment or test – so testing praxeology in this manner does not tell us anything at all about its validity.

The Empirical Method and Austrian Economics

I wrote a post on why the findings of empirical studies to ‘test’ the Austrian theory of the trade cycle isn’t much of a test at all, and should be taken with a fist of salt. It is called: “On The Empirical Relevance of Austrian Business Cycle Theory.”

Russell Lamberti added an update post, making some great additional points too: “RE: On The Empirical Relevance of Austrian Business Cycle Theory.”

Russell Lamberti on SA Jobs Data & Market

Russell Lamberti, head strategist of ETM Analytics, was interviewed by Kieno Kammies on CapeTalk 567 this morning to discuss the state of the SA labour market and to give his view on how SA’s unemployment crisis can be fixed. He was joined by Loane Sharp from Adcorp, who unfortunately only really advocated ways to grow more government jobs through the creation of a commission to study the problems of the labour market. The first stop to solving this crisis is to cut the size of government in half (at least), and lower taxes and regulations, not to create another commission of enquiry.

Wenzel On Bob Murphy’s Gloating, And My Two Cents

Just for the record, I agree almost completely with Bob Wenzel’s post, where he takes Bob Murphy to task for gloating to his ‘foes’ about the fact that US Treasury yields rose following Ben Bernanke’s statement that he might taper QE.

Bob Murphy is beating his chest because Paul Krugman and Scott Sumner have for a while been saying that the Fed does not impact long-term interest rates. Bob Murphy disagreed and said the Fed does impact long-term interest rates. After the Fed said it will stop buying Treasury bonds last week, the market has taken these long-term yields to the highest level they’ve been in a while, to which Murphy is saying to Krugman and Sumner, “see I told you so.”

Wenzel writes regarding the problem with what Murphy is doing:

As Mises, Hayek and Rothbard taught, the science of economics is a deductive science, not an empirical science. Let’s consider this possible scenario.What happens if Bernanke retracts his statement in the next few days, as he well might do through leaks to favored journalists, and interest rates continue to climb? This could happen.

Would it not be fair for Krugman and Summers to then argue that Murphy doesn’t know what the hell he is talking about, since he argued that Bernanke’s statement caused the run-up in interest rates but now that  Bernanke is hinting that there will not be any “tapering” soon and interest rates are still climbing that Murphy must have the causal factor wrong?

It is also important to note (as Wenzel kind of does) that US Treasury yields were already in a strong uptrend ahead of the Bernanke speech, suggesting something else was already driving the move (or leaked info from the Fed, but I don’t think so, seeing as the market started the move a month and a half before the statement).

Also, to add another scenario to Wenzel’s, I can foresee a situation where the Fed keeps its ‘taper’ talk going, i.e. continues to commit to scaling back QE, but that US Treasury yields start to decline despite that, as growth slows and the stock market corrects, triggering a rotation out of other assets (equities, commodities, junk bonds, EM assets, etc) into the perceived safety of US Treasuries. An economic crisis in Europe, Japan, or China could also trigger a decline of US Treasury yields, despite Bernanke maintaining the ‘taper’ stance. A combination of the two could possibly drive US Treasury yields back to levels where they were a year ago.

Then Sumner and Krugman could also say “see, the Austrians have the causal factor completely wrong!”

Readers who read this post on clb last week, and followed the link to the client report ETM published in March 2013, will note I clearly state I anticipate a rise of US long-term rates in coming months, but that I didn’t mention what the Fed would be doing in coming months as part of this analysis.

In my opinion, the fundamentals moving US Treasury markets today are due to Fed interventions and monetary distortions from months ago. The line of least resistance was already established, and because the market was already bearish, the bearish news out of the FOMC was exaggerated (and bullish news ignored).

Krugman Says Schiff Was Wrong, Judge for Yourself

Paul Krugman writes in NY Times yesterday:

Some readers may recall the “Peter Schiff was right” campaign of 2009, a sort of public-relations blitz claiming that Schiff, an Austrian-oriented commentator, had foreseen everything correctly. It wasn’t really true even then; still, Schiff became a fixture of right-wing TV shows, constantly warning about how expansionary monetary and fiscal policies were about to produce hyperinflation.

Schiff’s high and hyperinflation prediction will still prove correct, so Krugman will have to find another excuse to downplay that in the future when Schiff is making his next correct prediction five years in advance. But what’s interesting is how Krugman down plays the accuracy of Peter Schiff’s predictions of the bursting of the housing bubble.

Watch Schiff’s November 2006 predictions to the US Mortgage Banker’s Association below. You don’t get it more spot on than that.