Donald Boudreaux‘s latest book review for Barron’s offers some support for a liberal critique of economists, though he also emphasizes the critique’s shortcomings.
Century Foundation fellow Jeff Madrick, whose previous books include The Case for Big Government, takes aim in this new book at what he believes to be bad economic ideas that mainly involve support of sound money and free markets. If economists were more interdisciplinary, he states, more familiar with messy real-world realities, and less ideologically blinded by theories spun by free-market advocates, they would not produce or promulgate ideas that are as bizarre as they are destructive.
As a professional economist myself, I might be expected to disagree completely with the author’s accusations, especially since Madrick is a lion of the progressive left, while I’m quite squarely in the camp of libertarian free-marketers. Yet, in fact, I find merit in some of his analysis. As the author’s subtitle makes clear, he takes issue with “mainstream” economics. He does not seem to realize that many free-market economists (associated with what is known as the Austrian school), dissent in important respects from the mainstream.
I join that dissent. Accordingly, I think Madrick is right to object to the mainstream myth that markets work in some ideal way, with a prudence and foresight that we dissenters agree is clearly beyond the powers of frail human actors. Where Madrick goes wrong is to believe that this frailty can be cured through the solutions of Keynesians and others for a more interventionist government. On the contrary, the same psychological quirks and limited knowledge that sometimes cause markets to perform less than ideally frequently cause government to perform miserably. …
… Madrick rightly objects to such theorizing. But he wrongly presumes that Keynesianism is the only, or at least the best, alternative. As mentioned, another alternative to the mainstream is Austrian economics, which views the market as a highly imperfect process in constant flux. Never free of human error and faulty information, it’s constantly roiled and invigorated by the influence of “creative destruction,” whereby new products and processes replace old ones. Thus, for example, along with Madrick, Austrians reject the notion that asset prices always accurately reflect publicly available information.
Unlike Madrick, however, Austrians also understand that this imperfect competitive market process still outperforms all other methods of directing economic activity. The author naively thinks that to locate a market imperfection is to identify a sure opportunity for successful government intervention.
