Monday, December 1, 2008

Academia's War Against Free Market Money

Gary North wrote a beautiful essay on how mainstream economists marginalize followers of Austrian economics, the people who predicted the recession while the mainstream economsts were patting themselves on the back for all the wealth that was being created due to the increase in housng prices.

I love this little jab at Bernanke, Krugman, and the likes:

The real market test is not what a guild of self-accredited academic economists write in the tenured safety of their tax-funded ivory towers. It is not what a committee of equally subsidized peers determines is fit for publication in the guild's unread and unreadable academic journals. It is the market outside the insulated halls of ivy that determines what survives and what does not.

He then uses the debate between Peter Schiff and Arthur Laffer as an example of how the main stream economists who manage the economy just have no clue.

The debate goes on. This time, however, it is between two real-world economists. One has a Ph.D. from the University of Chicago. The other has no Ph.D. Neither is in academia. They both sell their services as forecasters. Schiff saw this bust coming and said so on national television in 2006. Laffer responded on-screen, dismissing this prediction as nonsense. The video is here.

Schiff said that America would enter a major recession in 2007 or 2008, and that it would be long and deep. Laffer was contemptuous of Schiff's forecast. "I don't know where he is getting this," he said.

He was getting it from Mises. He was getting it from Murray Rothbard. In short, he was getting it from Austrian School economics.

He concludes
The debate between Mises and Fisher, Mises and the Chicago School, and Schiff vs. mainstream economists in 2006 boil down to this: Can we trust the Federal Reserve System? The Austrian School's answer: no. Why not? Because the Federal Reserve System substitutes the judgment of monopolistic central planners for consumers and investors. It substitutes the decisions of people with job tenure and little accountability for the decisions of people who put their own wealth at risk. It substitutes the judgments of non-owners for owners. We find that academic economists, either tenured or seeking tenure, side with Fisher. The textbooks side with the academic economists.

You would be wise to side with Mises.

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