A Shallow Review of “Meltdown” by Herbert Gintis
On 7/19/2010 Barry Ritholtz, published a scathing review of Tom Woods recent book, Meltdown, by Prof. Prof. Herbert Gintis which briefly details why Austrians predicted the crash and also why the believe they know why it occurred.
Gintis showed utter lack of understanding of Austrian economics and history in general however I don’t really care to waste my time tearing his argument apart. I am sure some of my pales over at the Von Mises Institute will do that for us much better than I can. When they do I will post the link on our blog.
I would like to share his prognosis as to how we can fix economics, which he provides at that the end of the review:
“I think it likely that macroeconomics will not become scientifically presentable until we realize that a market economy is a complex dynamic nonlinear system, and we start to use the techniques of complexity analysis to model it. I present my arguments in Herbert Gintis, “The Dynamics of General Equilibrium”, Economic Journal 117 (2007):1289-1309.”
I get it, the evidence is not presentable because economists do not understand that they need to create dynamic models that are more complex… Whew, now that we know that, we can have all of our economist stop building those “linear” models and get to work creating dynamic super models that will keep the economy in less volatile state. Geez, how come all of you economists didn’t realize the economy dynamic and complex?
Barry claims that Fannie and Freddie were not the cause of the housing crisis because prices rose globally but Barry, didn’t all the countries that had housing booms have similar versions of Fannie and Freddie in some form (tax break’s, FHA loans etc.)? I am not saying that Fannie and Freddie caused the crisis solely but they encouraged malinvestment along with artificially low interest rates.
Gintis claims that there is little evidence out there that the Austrian theory works however I do not concur on that point. There is a ton of evidence out there about GNP growth (or the equivalent there of) under the gold standard going back hundreds of years. See Murray Rothbard’s, “A History of Money and Banking in the US, Part one, pg 159, The Gold Standard Era With the National Banking System. Despite what the history books say, it was one of the most prosperous times for this country. Low unemployment, falling prices, rising real national product (3.7% per annum), and skyrocketing productivity.
Mr. Hickey, please chime in. I think, at least you must have cracked open Economics in One Lesson or The Theory of Money and Credit, or one of my personal favorites, the introduction the American’s Great Depression (written by Joe Salerno).
Follow Teacherman