The Sorry State of Economic Journalism
| Peter Klein |
Matthew Yglesias has found a killer argument against the Austrian theory of the business cycle:
[T]he Austrian story of investment booms and busts doesn’t actually explain recessions and unemployment. Spending patterns shift all the time without sparking a recession. People stop buying BlackBerrys and they buy iPhones instead. Or people stop buying boot-cut jeans and buy skinny jeans instead. Across sectors, maybe people go see fewer movies and with the money they save they eat out at nicer restaurants. A business that curtails its investment spending should have extra money to pay out as dividends. Or if they want to horde the cash, it sits in a bank for someone else to lend out.
I once heard a lecture by the sociologist Steven Goldberg about his work on male social dominance, expressed in his books The Inevitability of Patriarchy (1974) and Why Men Rule (1993). I remember him saying that whenever he presents his dominance thesis, someone invariably raises the objection, with a smug and self-satisfied expression, “What about Indira Gandhi?” or “What about Margaret Thatcher?” He went on (I’m paraphrasing): “Right. . . . Like I’m going to devote three years of my life to researching and writing a book called The Inevitability of Patriarchy, and someone’s going to say ‘What about Indira Gandhi,’ and I’m going to slap my forehead and say, ‘Oh, crap, why I didn’t think of that!'” Goldberg was a funny guy, with a great Brooklyn accent too. (His books point out that Gandhi-led India and Thatcher-led Britain were male-dominated societies, particularly in matters of state.)
This is the centennial year of Mises’s Theory of Money and Credit, published in German in 1912, the book that first presented the “Austrian” theory of business cycles. No doubt Yglesias is unaware that in the hundred years since, there have been dozens of books, hundreds of research papers, more than a few Ph.D. dissertations, and even one Nobel prize analyzing, developing, critiquing, and extending this theory. (Yglesias mistakenly attributes Hayek’s Nobel prize to his work on tacit knowledge, when in fact the prize was given for business-cycle theory.) And yet, these thousands of hours of scholarship can be blithely tossed aside because — wouldn’t you know it — people change their spending habits all the time, and it doesn’t cause a business cycle! Slap to the forehead. Why didn’t we think of that? Curse you, Matt Yglesias!
Of course, Yglesias’s breezy summary of the theory skips over the time structure of production, the difference between consumption and investment, the role of interest rates in securing intertemporal coordination, the problem of expectations, and the other basic elements of the theory, which ten minutes of Wikipedia browsing could have explained. Matt: next time, use the Google! Or ask someone who’s, you know, studied this, and you could have avoided whoppers like: “Many of the original Austrians found their business cycle ideas discredited by the Great Depression, in which the bust was clearly not self-correcting.”
Yglesias is representative of a new generation of blogger-journalists, such as Megan McArdle, Ezra Klein, and Felix Salmon, who express bold, confident opinions on all issues under the sun, without much substantive knowledge or understanding of any. These writers don’t do a lot of reporting, or investigating, but specialize in editorializing, even in what are ostensibly “news” items. Yglesias, in particular, excels in relationship reporting — which group is connected to which, who dislikes whom, what this person said about that person — but can’t take the time to learn the actual arguments under consideration.
As the wise man says, it ain’t what you don’t know that gets you into trouble, it’s what you know for sure that just ain’t so.