Mainstream economics isn’t always right

May 15, 2009
By

Thank you for your recent coverage of my campaign for Boston City Council, At-Large (May 1 JP Gazette, “JP candidates join busy city races”). While I appreciate the attention you paid to my knowledge of economic theory, I would like to take issue with the description of the Austrian school of economics as “pseudoscience.” I understand that you were simply reporting the criticisms of “mainstream” economists, but I feel that such a gross miscategorization should not be casually repeated, at least not without the inclusion of a counterargument.

The scientific method involves making observations about the world and postulating new theories based on those observations. A theory is evaluated by testing its predictive power. If a particular theory makes predictions that are then observed to be false, the theory is invalidated. One need only compare recent predictions made by adherents of “mainstream” economic thought to those of proponents of the Austrian school to see which branch of economics deserves the “pseudo” prefix.

On May 17, 2007, Ben Bernanke, chairman of the Federal Reserve and current captain of the Keynesian school, said in a speech at the Federal Reserve in Chicago, “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”
On June 28 of the same year, Peter Schiff, a notable Austrian, predicted in an article titled “Subprime Shoes Continue to Drop,” published online at Europac.net, that the average American would soon become aware of “the magnitude of the mortgage disaster and how it will impact the housing market in general, the economy, the stock market, the dollar, interest rates, inflation, and the price of gold.”

The “mainstream” economists (with their “scientific” theories) were telling the American people that our economy was in the best shape they had ever seen—only months before the stock market crashed. The Austrians were warning Americans years in advance that our growing and unsustainable debts would soon be our undoing. The price of gold has risen by over 200 dollars since 2007, and rampant inflation will soon be a reality. Whom do you trust: the “experts” who got us into this mess or the economists who saw it coming?

Sean Ryan
Jamaica Plain

The writer is a candidate for Boston City Council At-Large.

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