Economics

Harold Meyerson, Criticizing What He Can't Understand

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Washington Post labor columnist Harold Meyerson, who is to economics what Roman Polanski is to the age of consent, nonetheless tries to condemn that which he does not begin to comprehend, let alone consider legitimate:

Old Weird Harold

The problem with contemporary economics, at least with the purer strain of free-market economics associated with the University of Chicago, is not simply that it failed to predict the near-collapse of the world financial system last year. The problem is that it believed such a collapse could not happen, that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything. Out of this belief arose the banks' practice of securitization, which put a value on all manner of mortgages and enabled buyers to purchase and swap them with the certainty that such transactions reflected an accurate judgment of the value of the propertiess and the risks associated with them.

Except, they didn't. So long as economists insisted that they did, however, there really was no need to study such things as bubbles, which only a handful of skeptics and hopelessly retro Keynesians even considered possible. Under mainstream economic theory, which held that everything was correctly priced, bubbles simply couldn't exist.

The one economist who has emerged from the current troubles with his reputation not only intact but enhanced is, of course, Keynes.

Where to begin? Start with Reason econ columnist and Contributing Editor Veronique de Rugy, writing over at The Corner:

[H]as Mr. Meyerson ever heard of the Austrian school of economics? Over the years, this school has produced many serious free-market economics who wrote extensively on the problem of using math to mimic the real world. […]

Mr. Meyerson should read the Austrian Economists blog. Great economists such as Pete Boettke, Frederic Sautet, and Steven Horwitz make the case for freedom daily, with no math. He should also read their books and articles; all published in respected academics journals, without much math at all.

And by the way, all of these economists have claimed for years that we were heading for disaster.

Yeah, I didn't realize Peter Schiff was a Keynesian….To read more living refutation of Meyerson's embarrassing inaccuracies, start with this June 2008 Reason panel of free-market economic doomsayers.

NEXT: Success No Matter What?

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  1. Seriously punchable face.

    1. The word you’re looking for is backpfeifengesicht

      1. Man, the Germans really do have some incredible one word phrases.

        1. Never underestimate the power of compound nouns.

  2. His skin is two sizes too big for his skull.

  3. It wasn’t just the Austrians who saw a looming disaster. Many non-Austrians also warned against abandoning the Taylor rule, which would have at least reined in the extraordinary credit expansion.

  4. Meyerson’s column was downright embarrassing, even from the perspective of a layman… as somebody pursuing a Ph.D. in economics myself, I couldn’t make it halfway through the column without laughing. Hysterically.

    I’m neither an Austrian or Keynesian (although I’d side with the Austrians more often than not), but it doesn’t take a whole lot to understand that government’s active market distortions have the possibility to cause cataclysmic ripple effects, intended or not. No math, no necessity to adopt Chicago School thinking… just a realization of basic political philosophy, applied to things economic.

  5. Hey webmaster! What the frak happened to our preview button?

    1. Without garbled sentences full of mispelled words H&R was losing its edgy craziness.

      And this reply feature jusyt adds to the zaniness.

    2. Your preview button will be restored shortly.

  6. Another retarded fetus.

  7. How can people that are this stupid and ill-informed get jobs at ostensively serious publications? I have nearly 20 year old degree in economics. I couldn’t do a regression analysis or solve a multivariable equation if my life depended on it.

    Yet, despite 20 years removed from the field, I could tell you that the Austrians and the Monetarists have been at each other’s throats for the last 15 years or more with the Austrians predicting that easy money from the fed was creating a bubble that was going to create a financial crisis.

    Honestly, what the hell is wrong with these people? How is it that complete ignoramuses like Meyerson get to have jobs pontificating and are considered part of the intelligencia?

  8. Myerson is the Ezra Klein of his generation.

  9. I have been consistently convinced that Harold Meyerson is one of the stupidest shills around. But perhaps he isn’t educated in economics. Libertarians need to be much, much louder in drawing clear distinctions between state corporatism and laissez-faire capitalism. Michael Moore is continuing to perpetuate the myth that the government protecting and saving corporations is just free market capitalism at work. Oh wait – except that in a laissez-faire system, there would BE NO CORPORATIONS.

    Adam Smith’s ideal would be a market of small enterprises and proprietorships/partnerships, each working responsibly to better their own lives and the lives of their workers. As the owners of the business would personally bear all of the risk and responsibility for the business’s actions, it would be irrational to defraud customers or damage the life and health of their workers or the life, health and property of others, lest they end up penniless and in jail for years. They would be forced buy indemnity insurance to protect their own property, something the government-created corporate shield does for next to nothing. Miniarchists should support taxing corporate value for this expensive government legal protection, as it is far more rational than taxing corporate income, capital gains or individual taxes.

    1. Oh wait – except that in a laissez-faire system, there would BE NO CORPORATIONS.

      I’m regrettably ignorant about economics, but I’ve heard plenty of people say the exact opposite. Can you explain how under a completely laissez-faire system there wouldn’t be any corporations?

      1. Of course there could be corporations in a perfect laissez-faire system. Its not as if a group of shareholders/risk-takers/investors/owners would need the shield provided by the state-they could just organize their company and proclaim that the individual owners will not be personally liable for the sins of the entity. They would require all who do business with the corporation to accept the fact that one would not have recourse against the owners.

        1. You would also need to get the legal system to go along, or else the first person injured by your product could wipe out the business and all its owners.

        2. Libertymike,
          They can “proclaim” the individual owners are not personally liable for sins of the entity, but that does not make it so without legal acceptance of this claim.

          In a laissez-faire free market, there would still be courts enforcing contracts and punishing fraud and damage to peoples’ property and health. A group could theoretically form a “corporation” by purchasing indemnity insurance and making consumers sign contracts where they agree not to hold the owners liable for the use or misuse of their products. But at the core, this is just a fancified proprietorship or partnership and would not have a legal protection of a corporate shield.

          The owners would need to purchase indemnity insurance to protect their personal property from lawsuits, unlike the corporations of today, who have this privilege granted to them by law for the cost of incorporation. Under the modern market, corporate actors have to do something extremely illegal to have the shield pierced and individuals in the corporation held personally responsible for their misdeeds.

          Adam Smith saw corporations as inefficient government perversions of a free market, detaching personal responsibility from business actions. In a truly free market, a business would take on all the risk and responsibility and receive all of the profits.

          While a fake “corporation” could theoretically become very large under a laissez-faire system by protective contracts, it would still be difficult to maintain such a mega-corporation without a strong system of self-policing, as any actor could theoretically put the whole company at risk by engaging in fraudulent or illegal actions. This is why I believe in a free market, monopolization could not exist naturally and generally businesses will remain small and responsible, maximizing competition and minimizing malfeasance (the “nation of shopkeepers” concept).

          I have no pretense we could ever reach such an ideal society without starting entirely from scratch. However, I do believe that a corporate value tax (for the legal “protection” of corporate actors and owners) would push the market towards a more natural state instead of penalizing companies for being productive (profitable) via the corporate income tax. I’m actually all for discouragement of incorporation and encouragement of proprietorship (where the owners are legally responsible for their own actions).

  10. Maybe his sister Bess ghost-wrote this column for him; that would explain a lot.

  11. Where did Meyerson get the delusion that we had anything remotely like a free market? We may be closer than most other nations but that is like saying someone on the the observation deck of the Empire State Building is closer to the Moon than those standing on the sidewalk in Manhattan.

    But Meyerson isn’t even being creative here. He is merely in lockstep with the liberal meme that current economic woes are proof of the failure of capitalism, when in reality they prove how dire a problem government meddling is to the economic health of a nation.

  12. Well, what Meyerson really doesn’t understand is the Keynesianism is actually all about math; that’s part of what made it so popular, it was so damn easy to model. This is sort of basic knowledge about the field that I know and I am not even an economist.

  13. He must have missed Crash Proof.

  14. Where to begin?

    Good question. An even better one: Do I read Reason out of sadism or masochism? Seriously, every article is either head-exploding or a pile-on.

  15. Another complaint about comments. If someoneone comments on a comment (ex. Timon19 at 1:41) that comment does not appear at the bottom of the comment list. So I have to re-scan the whole comment section, not just jump to the bottom to see newer posts.

  16. someoneone

    Please bring back the preview button.

  17. My goodness. I’m not quite sure how Mr. Meyerson could’ve made any less sense. Honestly. I guess he could’ve started inventing words and writing an article in a new, unheard language, but that would just look silly, not downright stupid. Hmmmm.

  18. What’s funny is that my “progressive” sibling had sent me that article in an email this morning, lauding it as brilliant. After listing all the reasons it was ignorant foolishness, I came to Hit & Run & found this.

  19. Washington Post labor columnist Harold Meyerson, who is to economics what Roman Polanski is to the age of consent

    Goddamnit, Matt. 24 karat gold.

    1. Fool’s gold. Here we are criticizing Myerson for having no clue as to what is the free market and Matt employs a term that is the product of nanny state. There is no universal, historical, natural understanding that there is such a thing as an “age of consent.”

  20. I think the key error is “The problem is that it believed such a collapse could not happen, that all risk could be quantified by mathematical models and that these quantifications could help us correctly price just about everything.”

    This displays a grotesque ignorance of what free-market economists actually think. First of all, free market economists do NOT claim that financial collapses can’t happen. They claim that they cen’t be predicted in advance – big difference. Secondly, if it were possible to accurately quantify all risk with mathematical models then government planners could do it. This does not even make sense as something a free market economist would say.

  21. It seems like every day Reason picks out one Washington Post or one New York Times column to ridicule.

    Way too easy, dudes.

  22. Perhaps this moron could explain how E-Z credit (provided by the quasi-state Fed), the expansion of the money supply (provided by the Treasury), the moral hazard (provided by the state’s “too-big-to-fail” implied guarantee), and the market distortions (provided by you-know-who), are all features of the free market, and/or had nothing, nothing at all to do with the creation or collapse of bubbles.

  23. WTF??? 0?

    I have been consistently convinced that Harold Meyerson is one of the stupidest shills around.

    Never attribute to incompetence to what can easily be explained by malice.

    “I can’t believe I’m living in a town called Malice!”

    1. I’m trying to be nice by not assuming malice is the intent of someone I don’t know in person. 😉 He SHOULD know better, but…

  24. I’m trying to be nice by not assuming malice is the intent of someone I don’t know in person.

    It’s the Age of Obama. Leave it on as a default setting. You’ll usually be right.

  25. Yo, Meyerson: Finance is not co-extensive with economics.

  26. Don’t lay the blame on mathematical finance models! They obey the garbage in, garbage out principle. If you create perverse incentives in the marketplace, market actors will do perverse things.

    As for the Austrians — they’ve been predicting total global economic meltdown every year for 40 years; and the two or three times there’s actually been a recession they wear their arms out patting themselves on the back.

  27. Out of this belief arose the banks’ practice of securitization, which put a value on all manner of mortgages and enabled buyers to purchase and swap them with the certainty that such transactions reflected an accurate judgment of the value of the properties and the risks associated with them.

    WTF?

  28. Maybe this had something to do with the crash:

    http://www.banking.senate.gov/…..rb-cra.htm

    Section 713 of the Gramm-Leach-Bliley Act (P.L. 106-102) requires the Federal Reserve Board to conduct a comprehensive study of the Community Reinvestment Act of 1977 focusing on 1) default rates; 2) delinquency rates; and 3) the profitability of CRA-related loans. That report was released by the Federal Reserve on July 17, 2000. Despite the acknowledged limitations of the report and its methodology (discussed below), several results are clear.
    Summary of the Report

    * By every measure, CRA loans are not as profitable as non-CRA loans.

    * No institution reported that CRA lending was more profitable than non-CRA lending for home mortgage, refinance, home improvement, or small business loans.

    * For home purchase and refinance lending, three times as many institutions reported their CRA-related loans not profitable as compared to non-CRA-related loans.

    * One out of three large institutions report that CRA lending in the home mortgage and refinance markets is not profitable.

    * Three times the value of CRA home improvement loans are not profitable as compared to non-CRA loans.

    * Delinquency rates for CRA loans in the home purchase and refinance market are twice that for non-CRA loans.

    * Among all institutions, about 40 percent of CRA special lending programs are not profitable. For large institutions, 58 percent report that their CRA special lending programs are not profitable. This is inconsistent with the safety and soundness requirements of CRA. …

  29. From the large PDF of the report above:

    http://www.federalreserve.gov/…..ratext.pdf

    “Patterns of relative performance also vary by asset-size category, with larger institutions
    more likely to report that CRA-related home purchase and refinance loans do not perform as well
    as other loans. For example, nearly 90 percent of large banking institutions report higher 30-89
    day delinquency rates for CRA-related home purchase and refinance lending than for overall home
    purchase and refinance lending. By comparison, 41 percent of smaller banking institutions in the
    sample report this kind of relative experience. Similarly, half of the large institutions report that
    credit losses are higher for CRA-related home purchase and refinance lending, while only 22
    percent of smaller institutions in the sample report a similar experience.”

  30. Didn’t Rand cover this. Something to the effect that as progressive policies fail, the older, for lack of a better term, “non-policies” will be blamed. We live in a mixed economy, and this idiot compares it to a free market?

    1. Sorry, I hate punctuation errors. Didn’t Rand cover this?

  31. As for the Austrians — they’ve been predicting total global economic meltdown every year for 40 years; and the two or three times there’s actually been a recession they wear their arms out patting themselves on the back.

    Tulpa,

    just eat your crow, already, and shut up. With Chicago down for the count and the only school standing to fight the good fight for free markets being the Austrians, you have nothing better going on than to spread lies about them.

    And, try using a fork, that is disgusting.

  32. Harold Meyerson, who is to economics what Roman Polanski is to the age of consent

    Nice one, Welch

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