In the film ``Star Trek II: The Wrath of Khan,'' the super-genius villain puts alien worms into people’s brains in order to subvert them to his demented cause. I think Khan could have been an Austrian economist. To those of you who have run afoul of the defenders of Austrianism on the Internet, the analogy will be clear. The Austrian worldview is like a brain worm that has infected large swathes of our financial industry, commentariat and general public. Even you, dear reader, may carry one or two of its wriggling larva inside your gray matter.
When the Austrian brain-worm invades, you start believing things like: 1) Federal Reserve money-printing is a government plot to boost big banks, 2) prices are rising much faster than anyone thinks, 3) real “inflation” means money-printing, not an increase in prices, 4) printing money can never boost the economy, 5) academic economics is a plot to use mathematical mumbo-jumbo to cover up government giveaways to big banks, etc., etc.
The Austrian catechisms range from almost plausible (taking toxic mortgage assets off of bank balance sheets must have been part of the reason the Fed did quantitative easing), to somewhere in the neighborhood of the 9/11 truthers and moon-landing hoaxers. Most of the elements of Austrianism are so directly contradicted by data that the belief system practically screens itself for people who are out of touch with reality.
The years 2011 and 2012 were to Austrians like sunrise is to a vampire. It was simply amazing to sit there and watch Austrians writhe and contort under the pure, burning light of extant reality. Massive torrents of Fed “money-printing” failed to budge prices; this fact directly cracked the central foundations of Austrian thought. The history-book moment came when David Henderson of the Naval Postgraduate School defeated Austrian champion Robert Murphy of the Ludwig von Mises Institute in a bet about inflation.
How did Austrians deal with this assault by the forces of extant reality? First they attempted to deny it. “Have you seen the price of X?” they would ask, implying that inflation was occurring much faster than the government statistics let on. They pointed to shadowstats.com, a website that claimed that a change in the way the government calculated inflation was covering up big spikes.
But reality was relentless. The nongovernment Billion Price Project put a dagger through the heart of inflation-conspiracy theorists. The government statistics were true -- prices really weren’t going up very much. And writer John Aziz found that shadowstats.com was actually a laughably simple hoax (no surprise there, unless you’re an Austrian).
The Austrians’ next defense was to redefine reality. Inflation doesn’t mean a rise in prices, they said -- it means an increase in the monetary base. QE wasn’t causing inflation, it was inflation itself. Duh! Now the Austrians were safe -- after all, you can define inflation as anything you want. It’s a free country, ain’t it? You can define inflation to be a rare poisonous South American tree frog if you want, and the only consequence will be that people think you’re off your rocker. And so when Austrians tried to redefine the word “inflation” to mean something other than “a rise in prices,” people duly recognized that Austrians were off their rockers.
The next blow against the brain worms came with the plunge in the price of gold, which by the end of last year had fallen more than 35 percent from its 2012 peak. Gold is central to the Austrian worldview. To them, the yellow metal represents freedom from government control -- which, since Austrianism mixes politics with economics as shamelessly as unscrupulous Chinese companies mix melamine with milk, meant that rises in gold prices represented the triumph of good over evil. The rise of gold from 2000 through 2011 told Austrians that the power of the vile government-bank alliance was finally breaking, and a new era of freedom was on the way. Unfortunately, gold returns actually had more to do with foreign central-bank purchases, falling real interest rates, speculative demand, and the bursting bubble that wreaked havoc on the wealth of anyone who had bought into the worldview of gold-flogging sites like Zero Hedge.
But brain worms have a way of just burrowing deeper to escape the light, and my Twitter feed is still occasionally hijacked by true believers screeching that inflation really is off the charts, that I’m a corrupt spokesman for big banks and government overlords.
The continued life of the Austrian brain worm is due to the appealing nature of the nonsense it injects into the surrounding neurons. Austrianism wraps itself in the rhetoric of personal freedom and conservative politics, laying the free-market rhetoric on thick. If you didn’t know that monetarists such as Milton Friedman -- who strongly supported printing money to fight depressions, and had harsh things to say about the Austrians -- were also strongly pro-free-market, you might buy into the Austrian line that gold is freedom and QE is slavery.
Austrianism also appeals to workers in the finance industry, especially young men with a strong sense of self-reliance. When asset returns are controlled by a bunch of academics at the Fed, and business has to be conducted under the auspices of the big bank oligopoly, a young trader tends to feel that he can’t make money for himself -- that he’s at the mercy of The Man. To top it off, taxes are taking a cut of his trading profits and a cut of his salary. That makes him psychologically vulnerable to the idea that a bank-Fed conspiracy is behind all the woes of the global economy.
Out in the wider world, the Austrian brain-worm’s darker whisperings are music to the ears of the paleo-libertarian Ron Paul movement. Austrianism’s antiSemitic overtones are conveniently papered over by the fact that two of its founding figures (von Mises and Murray Rothbard) were Jewish. But it’s no coincidence that Austrianism carries great appeal for the more unsavory corners of American politics.
So if you’re one of the people who has been fully or partially enslaved by this brain worm, I implore you: Resist. The human mind, when awakened, is a powerful thing -- under the focus of your will, even a brain-worm as strong as Austrianism will not survive. I don’t expect many of you to heed my call, but a couple of you will (you might want to start here). That’s how brain worms get defeated -- a few minds are liberated, and then a few more, and then a few more…
To contact the author of this article: Noah Smithnoahsmith.firstname.lastname@example.org.
To contact the editor responsible for this article: James Greiff at email@example.com.