Since we haven't had a good post on intra-Austrian issues in awhile, I thought I'd weigh in on the quickly escalating Battle of the Toms taking place out in the libertarian blogosphere.
Said battle began yesterday when Tom Palmer of Cato and Atlas posted a review of Johan Norberg's new book Financial Fiasco. In that review, Tom veered off the road a bit to take a shot at Tom Woods' book Meltdown. Palmer wrote:
It’s far better than the other works I’ve read, not only because Norberg is a smart guy, a meticulous researcher, and a good writer, but because it’s an exercise in economic analysis and financial journalism, with no religion thrown in. (As an example of the latter, the book Meltdown by Thomas Woods insists, contrary to the evidence, that the artificially induced boom resulted in a lengthening of the capital structure through overinvestment in too many “long-term projects.” [p. 68] In fact, what we saw was a bubble in housing, which is not a “long-term project” that will “bear fruit only in the distant future,” but a speculative investment in a durable consumer good, with an additional twist: the low refinancing rates and the inducements to refinance led many to treat their homes as ATM machines and withdraw cash to finance, not “long-term projects,” but consumption. But Mises and Hayek explained a previous boom-and-bust cycle in terms of a lengthening of the capital structure, so we must believe — we must, a priori! — that all boom-and-bust cycles must — they must! — follow the same process. That’s religion, not analysis.
Now for those who don't know the history, Palmer is a long-standing and severe critic of the Mises Institute, with whom Woods is associated.
Woods appeared to be replying in this post over at LewRockwell.com. Woods writes:
An observer unfamiliar with Austrian business-cycle theory might claim housing isn’t a “long-term project” and thus doesn’t fit into the Mises-Hayek story, but that would just underscore his lack of acquaintance with the Mengerian framework in which Mises and Hayek operated. Housing is a long-term consumer durable, interest rate sensitive, that is time-consuming to build and is very capital intensive.
Bob Murphy puts it this way: “E.g., seeing a laser light show in the planetarium versus watching a street musician are both non-durable consumer goods (services); the enjoyment they provide to consumers is fleeting. But obviously to produce the planetarium show takes a much longer investment of factors of production, etc.”
The fact that people took out home-equity loans to finance consumption also fits perfectly into the Mises-Hayek framework, certainly in the Garrisonian rendering of the theory that finds both investment and consumption expanding simultaneously and incompatibly during the boom.
Stephan Kinsella, also associated with the Mises Institute, jumped into the fray with this post earlier today [UPDATE: Stephan has since removed the post]. That post links a comment that Mario Rizzo made about Palmer being in error, but the link shows no such comment by Mario.
In addition, Palmer had emailed me last night asking for my opinion of his view of Woods. I responded by largely defending Woods more or less on the same grounds that Woods (and Murphy) do above: housing is interest-sensitive and takes time to build, plus the enhanced consumption we saw is consistent with Garrison's version of the theory. I said to Palmer that the traditional Austrian story has elements that are core and others that are historically contingent, including who gets the funds and in what industry. I said that the story Woods appears to be telling is an application of ABCT to the unique historical features of this boom. That's how Austrians have done business since Menger and Mises, not to mention O'Driscoll and Rizzo's "typical/unique" distinction.
I also looked at the page reference Palmer cites in Woods (p. 68). In that section of the book, Woods is simply retelling the generalized Austrian story. He is not explicitly applying it to the current recession on that page. He does so later in that chapter and in an earlier one, although in both cases very "lightly." His statements in the blog posts quoted above are actually in more analytical depth than anything I could find in a quick re-skim of the book. (Of course Woods is a historian by training - and Palmer's not an economist either, which makes this all the more amusing.)
Then to top it all off, one of Palmer's commenters shared an email that Palmer got wherein Woods wrote to Palmer's boss at Atlas complaining about Palmer's complaints about his book.
So, for the record, here's a few thoughts on this whole mess, since Palmer cares about my opinion and Woods is invoking my review in support of his view.
1. Woods is largely right on substance. The ABCT is certainly compatible with this boom/bust, as I've argued here. As Gene Callahan and I wrote, we need to use the language of ideal types to distinguish the typical and unique features of particular cycles. It seems like Palmer is just assuming that the version of ABCT that came handed down from Mises and Hayek is the last word. Roger Garrison's work suggests it's not (as perhaps does my own).
2. Palmer's reference to Woods' comments on p. 68 is somewhat misleading as it's taken a bit out of context. That said, Woods never says as clearly, that I can find, the relationship between ABCT and the boom as he does in the blog post noted above.
3. All that said, Palmer's comments on Woods' book, even if he sort of veered on to the sidewalk to take the time to address it in a review of another book, were totally fair game. His use of "religion" to describe Woods' Austrianism is tough language but not over the line, and certainly has to be read in light of Palmer's long-standing criticisms of the Mises Institute (criticisms which, in the interest of full disclosure, I am on record as largely seconding).
4. Woods' letter to Palmer's boss is over the line. If you can't take the critical heat, stay out of the intellectual kitchen. Palmer's comments were tough, but in bounds. Writing to someone's boss for something like that is just not how this game should be played.
5. Palmer's comments on Norberg's book are largely spot on. I read it on the plane this week and it's very good. It does indeed have more depth, detail, and sophistication on the financial markets than Woods' book does. But that's no surprise, given that Woods was writing for a more general audience than Norberg's targeted intellectuals and that Woods was hustling to get it out first. We just know more now than we did then. I think both books are well worth reading and complement each other in some interesting ways.
6. My review of Woods has served well for PR purposes for his book, and I appreciate his thanks in the blog post. But folks should know two things: a) the published version of the review does raise some criticisms and b) the original version that was too long to be published in The Freeman expanded on those and was somewhat more critical in tone than the final version. I really do think it's a book well worth reading and that it's largely right, so when I had to cut, I cut the critical bits.
7. Kinsella should fix his link. If he's going to write that Rizzo said something that critical of Palmer, he better have the evidence. I can't find it at that link.
Bottom line: read both Woods and Norberg. They are both very good books, though neither perfect. Together, they provide a really terrific look at the Great Recession.